Contracts Kang

8/13/2019 Contracts Kang

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1) INTRODUCTION / Indefinite Promises

2) Consideration

3) Unconscionability

4) Substantial Performance / Risk Allocation / Intro to remedies

5) ENFORCING PROMISES / Consideration Revisited

6) Adequacy of Consideration / Promissory Estoppel7) Employment Contracts

8) CONTRACT FORMATION / Offer

9) Acceptance

10) Acceptance

11) Revocation / Offer-Counteroffer

12) Offer-Counteroffer

13) Computer Licensing

14) CONTRACTUAL RELATIONSHIPS / Preliminary Negotiations, Agreements

15) Outputs, Requirements, Exclusive Dealings

16) Exclusive Dealings / Reducing Conflicts of Interest

17) Modification of existing agreements18) REGULATING THE BARGAINING PROCESS / Duress

19) Fraud: Misrepresentation

20) Fraud: Nondisclosure / Statute of Frauds

21)CONTRACT INTERPRETATION / Parol Evidence: Common Law

22) Parol Evidence: Common Law

23) Parol Evidence: UCC, Merger Clauses

24) Interpretation: Common Law and UCC

25) Interpretation: Common Law and UCC

26) PERFORMANCE AND BREACH / Conditions: Divisibility

27) Conditions: Divisibility

28) Modification, Waiver, Estoppel of Conditions / Perfect Tender and Cure29) Mistake

30) Mistake

31) Impossibility / Impracticability

32) Frustration of Purpose

33) REMEDIES / Calculating Expectations Damages / Intro to Damages

34) Specific Performance

35) Reliance and Restitution

36) Certainty

37) Mitigation of Damages



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FOUR BASIC QUESTIONS:

• Has a valid contract been formed?o Doctrine of Considerationo Offer

o Acceptanceo Duress, Fraud, Misrepresentationo Statute of Frauds

• What are the duties and obligations of the parties?o Interpretive principleso Parol Evidenceo Conditionso Warranties

• Have the duties and obligations been discharged / performed?o Substantial Performanceo Perfect Tender Rule

o Excuseo Mistake

• What are the consequences when one/both parties don’t perform?o Measures of Damageso Specific Performanceso Limitations on Damages



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INDEFINITE PROMISESRestatement 2d § 1,2,4

BAILEY v. WEST (Horse left at plaintiffs facility)

There was no “intent to promise” between the parties so as to establish a K“implied in fact”, and that there was no quasi-contract because plaintiff was aware of a

controversy of ownership and volunteered to board the horse despite this risk ” Implied In Fact” requires 1) Mutual Agreement , 2) intent to promise, 3) not made in words, 4)Supported by the facts. Quasi-contract (AKA: Implied in Law) requires: 1) Benefit conferred upon defendant by plaintiff, 2) appreciation by defendant of such benefit, 3) acceptance of benefit by defendant such that non-payment for the benefit would beinequitable to plaintiff. Note 6, p11) Quasi contract is usually recoverable if the recipient of the benefit conferredhad the “last clear chance” to remedy the situation by preventing the mistake or errorthat led to the conferral of the benefit. Restatement 2d § 4

A promise may be stated in words either oral or written, or may be inferred wholly or

partly from conduct. Restatement 2d § 5. Terms Of Promise, Agreement, Or Contract(1) A term of a promise or agreement is that portion of the intention or assent manifestedwhich relates to a particular matter.(2) A term of a contract is that portion of the legal relations resulting from the promise orset of promises which relates to a particular matter, whether or not the parties manifest anintention to create those relations.“So a person cannot set up that he was merely jesting when his conduct and words wouldwarrant a reasonable person in believing that he intended a real agreement.”OR: You have to act like you’re joking to actually be joking.Restatement 2d § 20, 18, 16, 5

LUCY v ZEHMER (Restaurant Check Farm Sale)Whether the offer was serious by both parties, or was serious by the buyer but

secretly in jest by the seller, the evidenced actions of the seller manifested his intentionand thus created a binding contract. All that is necessary in this case is that a party acts as though they assent to the contract...that the other party would have reason to know that you are serious even if you’re not.“Immediate Withdrawal” is a bogus argument because a promise is relied upon at themoment it is made, because it is legally inefficient to allow it to be a question since the promise will be enforced, and because it interferes with the right of another to pursueactions based on the promise.RESTATEMENT 2d § 33

VARNEY v DITMARS (Drafting Bonus)The contract in question is uncertain because the use of the words “fair” and

“reasonable” have meanings indiscernible in terms of the intent, manifested or thought,by the promissor. The agreement of the parties bust be certain and explicit and theirintention must be ascertained to a reasonable degree of certainty. No Quantum Meruit because court could not adequately define the sum to be paid.



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A party who has performed under an agreement that is unenforceable for indefinitenessmay recover in quantum meruit – an equitable remedy to provide restitution to a personwho has rendered services in a quasi-contractual relationship.UCC 2-102, 2-105, 2-204, 2-305, 2-308, 2-309, 2-310

D.R. Curtis, Company v. Mathews (Grain Sale)

The UCC clearly states that the contract is valid, even lacking specific terms for price, as long as the parties intend to form a binding contract. They did so intend. Thecontract is thus not overly ambiguous or indefinite simply because the parties failed toreach an agreement on the price.The difference between the common law refusal to enforce agreements to agree and thosein sale of goods is that there is likely no external reference point for disputed values incommon law cases. As such, without this point of reference, the court is put in a positionto create an arbitrary value. In sale of goods, there is always a market value for the item,and if not one can easily be determined through appraisal or auction.UCC 2-105: Information is not a good. Securities are not a good. Movable parts of a building are goods... fixtures, a shed, bathtub, sink...

PREDOMINANT PURPOSE TEST: UCC WILL apply to delivery of goods, but not to the delivery of a service. Whichever purpose is PREDOMINANT will decideapplication of the UCC.GRAVAMEN OF THE ACTION TEST: UCC will apply if lawsuit was broughtrelative to the goods of a business, but not relative to the business itself.

$1000 chair, $300 for wood,

$700 for craftsmanship

$1000 chair, $700 wood,

$300 craftsmanship

Suing about defective wood PP = No

Gravamen = Yes

PP = Yes

Gravamen = Yes

Suing about defective

craftsmanship

PP = No

Gravamen = No

PP = Yes

Gravamen = No

CONSIDERATIONCONSIDERATION: Anything given or forborne by one party in exchange for the promise or undertaking of another.Restatement 2d §71, 81

Hamer v. Sidway (Don’t Smoke or Drink)

The promisee gave up a legal right to enjoy tobacco, liquor, etc. on the basis ofthe promise and as such the promise maintains the requisite hardship to grant

consideration by the promisor who was benefited in a legal sense by the nephews actions.The Benefit-Detriment Rule: consideration where there is a benefit to the promisor or adetriment to the promisee Motive and Consideration: as long as there is evidence of consideration, additionalmotives for a promise will not bar it from being enforceable Restatement 2d § 81(1) The fact that what is bargained for does not of itself induce the making of a promisedoes not prevent it from being consideration for the promise.



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(2) The fact that a promise does not of itself induce a performance or return promise doesnot prevent the performance or return promise from being consideration for the promise.St. Peter v. Pioneer Theatre (Waited outside for drawing)

In a unilateral contract, action or forbearance of an action is sufficient toconstitute consideration by the promisee

Unilateral contract: One in which the promisor receives no promise in return, but insteadis made contingent on their promise by the action or forbearance of action by the other party. (Contract formed AFTER the act or forbearance is performed) Bilateral Contract: Mutual promises between parties. (Contract formed at exchange of promises)Promise does not induce detriment No Bargain

A promises B $5k. (Promise) B buys $5k television. (detriment) No bargain.Dumb reliance.Detriment does not induce promise No bargain

A gives B his old PC.(Detriment) B Promises to give A $50.(Promise) No bargain.

RECIPROCAL INDUCEMENT IS NECESSARY FOR BARGAINReciprocal Inducement: A promises to pay B $10 in exchange for B’s promise to give Aa book.Summary of the Bargain Theory

A contract is a legally enforceable promise (§ 1) A promise is legally enforceable only when there is consideration (§ 17)Consideration may be a return promise or a performance (§ 71) A promise or performance is consideration when it is “bargained for.” (§ 71(1)) A promise or performance is bargained for “if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.” (§ 71(2))

UNCONSCIONABILITYRestatement 2d § 208; UCC § 2-302Williams v. Walker-Thomas Furniture Co. I (Payments affect total balance)

There is nothing in the law to support invalidation of the contract simply becausethe appellant didn’t read it.Williams v. Walker-Thomas Furniture Co. II

If a contract be unreasonable and unconscionable, but not void for fraud, a courtof law will give to the party who sues for its breach damages, not according to its letter,but only such as he is equitably entitled to.“In determining reasonableness or fairness, the primary concern must be with the termsof the contract considered in light of the circumstances existing when the contract wasmade.”

“Unconscionability has generally been held to include an absence of meaningful choiceon the part of one of the parties together with contract terms that are unreasonably favorable to the other party.”Substantive Unconscionability:

• Refers to the terms of the agreement itself, i.e., n “unreasonable price” or contractterm which deprives a party of the “essence of his bargain”.

Procedural Unconscionability:



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• Describes a defective bargaining process, e.g., an “unreasonable” failure of one party to inform the other party about important aspects of the exchange.

SUBSTANTIAL PERFORMANCE Restatement 2d § 237, 241; UCC §2-601 Jacob & Youngs v. Kent (Reading Pipe)

The difference due to the mistake was nominal and thus the contract was performed substantially according to it’s purpose. If any restitution need be paid to theowner it is merely the difference in value of the brands of pipe (nominal as well) becausethe cost of replacement is grossly out of proportion with the good to be attained.The substantial performance doctrine permits a party to withhold his own

performance only when the defect MATERIALLY IMPAIRS the essence of what

was contacted for.

RISK ALLOCATION AND EXCUSERestatement 2d § 205, 224, 261, 263

Stees v. Leonard (Sinking Building)

No exception was made allowing them to opt out in inclement conditions thatwould hinder the process. The contract is clear and enforceable.“Performers Risk Rule”: Performer has the knowledge and skill and is liable for their promises, regardless of factors that they didn’t consider.Impossibility Doctrine holds that an agreement does not bind the parties if the parties’contract was explicitly or implicitly CONDITIONED on (performance by the promisorremaining possible) during that period.The Spearin Doctrine: If the contractor is bound to build according to plans andspecifications prepared by the owner, the contractor will not be responsible for theconsequences of the defects in the plans and specifications...In general, contract law assigns to the promisor the costs of foreseeable risks of

performance, even when the risk comes about and the conditions of the circumstances aresignificantly changed, inducing hardship or expense on the promisor.Taylor v. Caldwell (Burned Down Theater)

In contracts in which the performance depends on the existence of a given person orthing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance. Impossibility doctrine. Was there an unexpected contingency contrary to a basic assumption of both parties? Did the contingency make performance impossible or, under the modern and UCC view,impracticable?Upon which party should the risk of the unexpected contingency be placed?

INTRO TO REMEDIES: Expectations DamagesRestatement 2d § 344, 347, 348, 349, 371, 373Restatement (2d) § 344: Purposes Of Remedies

Judicial remedies under the rules stated in this Restatement serve to protect one or

more of the following interests of a promisee:

(a) his "expectation interest," which is his interest in having the benefit of his

bargain by being put in as good a position as he would have been in had the contract

been performed,



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(b) his "reliance interest," which is his interest in being reimbursed for loss

caused by reliance on the contract by being put in as good a position as he would

have been in had the contract not been made, or

(c) his "restitution interest," which is his interest in having restored to him

any benefit that he has conferred on the other party.

Expectations: “the benefit of the bargain”To put the promisee in the position in which he/she would have been had the promise been performedReliance: the detriment to the promisee

To put the promisee back in the position in which he/she would have been had the promise not been madeRestitution: the benefit to the promisor

To put the promisor back in the position in which he/she would have been had the promise not been made

EXAMPLE>>>Expectation: $70k because of the expected profit of $10k overcosts. Reliance: $60k because of the costs so far. Restitution: $40k because of the benefit

conferred upon the landowner.Hawkins v. McGee (Hairy Hand)

The damages should be decided according to the difference between the resultand that promised by contract through the doctors statements. The extent of the plaintiffs suffering does not measure into the contract created for thehand, as this is something that the patient consented to as a part of the process ofdelivering the intended result.Freund v. Washington Square Press (Book Deal)

The plaintiffs restitution interest was protected when his manuscript was returnedto him. Plaintiff alleged no reliance losses. Expectation interests remained, which werelimited to the advance and the royalties from publication. The advance was fulfilled.

ENFORCING PROMISES:THREE DOCTRINES DISTINGUISH BETWEEN ENFORCEABLE AND NONENFORCEABLE PROMISES:

1) The Consideration Doctrine (Res. 2d. §71)2) Promissory Estoppel (§90)3) Promissory Estoppel (§ 86)

§71 basically says that “Bargained For” promises are supported by consideration where“gift promises” are not.

CONSIDERATION REVISITEDRestatement 2d § 71, 81

Kirksey v. Kirksey (Widow moved to dead husbands bro’s land)

The promise was not binding, but merely the offer of a gift. The loss andinconvenience of moving her family was merely a condition necessitated by the offer ofan immobile gift.

A helpful test is to consider whether the construction of the promise is that of agift or of consideration is to ask whether the promisor benefits from the condition of the



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promise. If the promisee has incurred detriment on the faith of the promise, they arelikely to be considered having provided consideration.IN RE GREENE (Mistress Promises)

The promise to pay a woman on account of cohabitation which has ceased is void for want of consideration. This is because the consideration (sex) has passed. The

consideration of a dollar is nominal and “cannot be seriously” considered to support a promise for $375k. The phrase “other good and valuable” consideration is too vaguewhere the facts show nothing like that was given at the time of contract. A gift is not

made a contract by adding consideration.The “Benefit Doctrine” states that the consideration for a promise must be bargained foras part of the agreement.The MODERN RULE: Nominal or “Sham” consideration is worthless.The TRADITIONAL rule: ANY bargained for consideration, even a peppercorn, is validand binding.

ADEQUACY OF CONSIDERATIONRestatement 2d § 79,208

Batsakis v. Demotsis (Wartime loan, $25 for $2000) Mere inadequacy of consideration will not void a contract.Wolford v. Powers (Naming Child trade for education)

When a party gets all the consideration he bargained for, it cannot be said thatthis is inadequate or nonexistent, in this case having the child named after you. Anyconsideration made must be deemed to be adequate, otherwise the judgment of the courtwould substitute the intentions of the contractors, thus making a new contract.Adequacy Doctrine: That something as small as a peppercorn is consideration as

long as the parties bargain so. They are better judges of the evaluation of the

exchange in their circumstances than others.

Nominality Doctrine: Disparity in value sometimes indicates that the consideration

was not in fact bargained for, but merely a formality or pretense.Courts will not void a contract because of an imbalance of exchange... but “Gross

inadequacy” can be evidence of fraud, duress, or some other basis for voiding a

contract (R.2d § 79, Cmts c,e)

The difference between adequacy of consideration and unconscionability is thatunconscionability allows the court to look beyond the valid consideration in cases ofextreme disparity.

PROMISSORY ESTOPPELElements of Promissory Estoppel

PromiseForeseeabilityReasonable RelianceInjustice

Restatement 2d § 90 Promise reasonably inducing action or forbearance

(1) A promise which the promisor should reasonably expect to induce action orforbearance on the part of the promisee or a third person and which does induce suchaction or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.



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Consideration is no longer the sole tenet under which a promise is enforced.

“Reliance Principle”: Promises may be enforced if the promisee has incurred costs

or conferred benefits, on the reasonable expectation that the promise would be

fulfilled.

• Ostensibly eliminates the need to identify a bargained for exchange.

• Promissory Estoppel“It would cut up the consideration doctrine by the roots if a promisee could make a

gratuitous promise binding by subsequently acting on it.”

>Yet, many business transactions such as stock trading would not be possiblewithout the reliance on verbal agreement or hasty memos.

>In fact, the detrimental reliance of the changing of one’s habits in reliance on a promise may not be seen by the court but still act as a reliance injury. Courts rarelyacknowledge this uncompensated reliance when they refuse to enforce gratuitous promises. Instead the absence of bargained for consideration presumes non-enforcement.Henderson:

Those who press the §90 claim based on reliance must make the court balance the

reliance principle in promissory estoppel with the consideration doctrine which is basedon reciprocity. Claiming that the reliance is proof of a bargain impairs the reliance principle in cases where that alone is the basis for relief (because it is making aconsideration argument). Thus, the risk that the reliance is not sufficient to apply §90 orthe reliance is merely the condition of a gratuitous promise is increased.Haase v. Cardoza (Death bed will of former deceased)

To be enforceable, there must be some accompanying factor of the past (“pastconsideration”), or some subsequent change of position in reliance on the promise.There was no prior business history, debt, or promise in regards to the sums, nor wasthere evidence that the parties changed their position in reliance that would warrantestoppel as a substitute for consideration. The promises stand utterly alone and are un-

actionable.Ricketts v. Scothorn (Quit work in reliance on promise)

The appellant made the promise in expectation that the respondent would or atleast could rely on the promised bounty, which she did. Having intentionally influencedthe plaintiff to do so, it would be inequitable to fail to enforce the promise that was madeon the grounds that it lacked consideration.The context of the promise can determine the degree to which the court will infer anatmosphere of a bargain, and thus enforceability under the reliance doctrine. In Haase, thecontext was not concurrent with a bargain, but in Ricketts, there was a more formal andclear atmosphere of negotiation.“The promisor is affected only by reliance which he des or should foresee, and

enforcement must be necessary to avoid injustice.”Donative promises are generally not enforced because while reliance may partially showthat a promise was made, it does not provide secure evidence that the type of reliance wasconsistent with a binding promise.Intrafamilial promises are the paradigm non-bargain context.BARGAIN THEORY INFO: CONTRACTS WINTER 7 PPTX

EMPLOYMENT CONTRACTSFeinberg v. Pfeiffer Co. (Retirement $$ at employees leisure)



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Her forbearance of the right to continue working was adequate consideration. The combination of the reliance aspect and the consideration of forbearing her right tocontinued employment precludes the notion that the promise was a gift. Hayes v. Plantations Steel Co. (Company to“take care of” worker)

Plaintiff made the choice to retire independently of any offer made by the

defendant. The work that he did after the promise but before he quit was notconsideration because it was not bargained for prior to his decision. He did not evidenceany reliance because he consistently returned to the company to ask about the probabilityof repeated checks, which were clearly “Tokens of appreciation.”If reliance is the basis for recovery, it does not measure the recovery. Recovery is

based on specific performance or expectation damages.

MATERIAL BENEFIT RULE:

• An exception to the consideration doctrine.

• Courts have limited the enforcement of promises based on past benefits tothose in which the benefit was conferred with expectation of payment.

o For instance: A promise to renew a debt that was discharged by law

due to bankruptcy, fraud, etc.o ALSO: In the sale of creative ideas and informational services, if the

value of A’s idea is desirable but of an unknown value to B and Aconfers to B in expectation of payment for the reasonable value of theidea, A cannot collect under consideration but CAN under MaterialBenefit. Yay!

o Thus the material benefit rule can use the promised amount as the bargained for amount because it was determined by the beneficiarywhen they decided to turn the good deed into consideration for a promise.

Consideration doctrine requires something to be done to validate a promise, material

benefit rule requires that as long as the consideration is not itself a donative promise, theresulting promise can come after the consideration. Promissory Estoppel requiresenforcement of promises that create reliance by the promisee, material benefit requiresthe enforcement of promises made in exchange for prior reliance activity, or activity thatshould be compensated due to unjust prior enrichment.

CONTRACT FORMATIONOFFERRestatement 2d § 2,17,20,22,24,25,26,30

Restatement 2d § 24: Offer Defined

An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and willconclude it.

Restatement 2d § 26: Preliminary Negotiations

A manifestation of willingness to enter into a bargain is not an offer if the personto whom it is addressed knows or has reason to know that the person making it does notintend to conclude a bargain until he has made a further manifestation of assent.Promise vs. Offer



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“A promise is a manifestation of intention to act or refrain from acting in a specifiedway, so made as to justify a promisee in understanding that a commitment has beenmade. ” (Restatement 2d § 2)“An offer is the manifestation of willingness to enter into a bargain, so made as to justifyanother person in understanding that his assent to that bargain is invited and will

conclude it.” (Restatement 2d § 24)TESTS of MUTUAL ASSENT:

§17: Formation of a contract requires a bargain with a MANIFESTATION OF MUTUAL ASSENT to the exchange and consideration, which ordinarily takes the formof an offer and an acceptance (§22), even if those elements or the time of their formationcan’t be identified.The OBJECTIVE TEST, the modern standard, relies on the outward manifestation ofintent, imposing obligation based on what the parties reasonably believed was said anddone rather than what was “intended”.Language indicates offer... price, quantity, delivery date, payment terms, all are importantindicators. Many of those factors can be present, such as in assistance to contractor in

making bids, without a valid offer being made: this is CONTEXTUAL ANALYSIS andnecessary for determining offer.Dyno Const. Co. v. McWane, Inc. (Quotes, “please call”)

To constitute an offer, a price quote must be made under circumstancesevidencing the express or implied intent of the offeror that its acceptance shall constitutea binding contract.The word “estimate” and the message “please call” indicated only preliminary quotes from defendant, and plaintiff’s signing of the latter documents indicated consent that previous negotiations were not binding.Lefkowitz v. Great Minneapolis Surplus Store, Inc. (Furs for $1)

The test of advertisements as offers is: “whether the facts show that some performance was promised in positive terms in return for something requested.”

The offer by the defendant was explicit, clear, definite, and left nothing open fornegotiation. The plaintiff, by arriving and offering the purchase price, was entitled to performance.Typically, the quote is an invitation for an offer, and the purchase order is the offer.Frequently, the seller accepts the offer presented by a purchase order by writtenacknowledgement including shipping date. The seller, however can reject the terms of the purchase order (as offer) and propose alternatives.Self Service stores create an offer on the part of the store to enter a contract for the sale ofgoods... all the goods and their prices are the offer, the purchase is the acceptance.

ACCEPTANCE

ACCEPTANCE:manifestation of assent to the terms thereof made by the offeree in a manner invited

or required by the offer

Restatement 2d § 25, 30, 32, 35, 36, 38, 40-43, 50, 54, 56

The restatement makes clear that the offeree has the power to avoid consent to the termsof a contract by avoiding the manifestations of intent defined by the offeror.Restatement 2d § 30: Form Of Acceptance Invited



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(1) An offer may invite or require acceptance to be made by an affirmative answerin words, or by performing or refraining from performing a specified act, or mayempower the offeree to make a selection of terms in his acceptance.

(2) Unless otherwise indicated by the language or the circumstances, an offerinvites acceptance in any manner and by any medium reasonable in the circumstances.

Restatement 2d § 50: Acceptance Of Offer Defined; Acceptance By Performance;Acceptance By Promise

(1) Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer.

(2) Acceptance by performance requires that at least part of what the offerrequests be performed or tendered and includes acceptance by a performance whichoperates as a return promise.

(3) Acceptance by a promise requires that the offeree complete every act essentialto the making of the promise.Ever-Tite Roofing Corp. v. Green (Late Roofers discover replacements)

The restatement requires that if no time frame is set forth, then a reasonable

amount of time is necessary for cancellation, as defined by the circumstances which theofferee knows or has reason to know

This was a bilateral contract wherein the parties exchanged promises (work for payment)... where the promise by the contractor could be made linguistically of bycommencing. IF the acceptance had been conditioned on COMPLETION of the task, thenit would have been a unilateral contract. Plaintiff began the work by loading the trucksand heading to the defendant’s work site. Actual commencement or performance of thework began before any notice of dissent by defendants was given plaintiff. The proposition and it’s acceptance thus became a completed contract, which the defendantsbreached. Defendants are required to pay the expected profits from the job and allexpenses incurred by plaintiff prior to receiving notice.Ciaramella v. Readers Digest Ass’n, Inc. (Settlement 2

nd opinion)

If the parties set forth that the agreement will not be binding until set forth inwriting and signed, then they will not be bound until then, regardless of an otherwisebinding oral agreement.

Four factors to determine the intent of parties to be bound by settlement in

lieu of an agreement:

1) whether there has been an express reservation of a right not to be bound

in the absence of a signed writing (which there was) 2) whether there has been partial performance of the contract,(Which there

was not) 3) whether all of the terms in the contract have been agreed upon, (nope) 4) whether the agreement in issue is the type of contract usually committed to

writing. (yes.)Brooklyn Bridge:

OLD RULE: No unilateral contract until you have finished walking across.

MODERN RULE is that once you start walking across the bridge, the promisor

cannot revoke but you can opt out.

Restatement 2d § 36

Historically:



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Unilateral contracts sucked because the offer can be revoked until performance iscompleted... disadvantaging the performer.Modern:Once the performance has begun, the offeror cannot withdraw until the performance iscomplete... Thus by such terms the offeror intended to be bound only when the act was

complete but implies that he let it be done, keeping his offer open until the offeree isfinished.If the offeror mails an offer, reconsiders, and then mails a revocation AFTER the offereehas accepted, then the offeror is stuck with the initial offer. Bummer. Shoulda got e-mail.(Mailbox Rule)SILENCE OR DOMINION AS ACCEPTANCE:

CD clubs.... silence as acceptance unless otherwise made by notice to offeror.If previous business practices are consistent with silence as notice.Where the offeree takes the benefit knowing that compensation is expected.Where the offeror states that silence or inaction is accepted as acceptance, and the offereeintends to accept.

REVOCATIONRestatement 2d § 25,36,38,40-43,45,46,87

Irrevocable Offers:

You can pay (like a down payment, but actually a fee) for another party to make theiroffer irrevocable: For instance if I offer to sell you an antique for $1000 and you need toauthenticate it and I say I’ll keep the offer open for a week, there is no consideration formy promise to do so until you pay me to make the offer irrevocable.Pavel Enterprises, Inc. v. A.S. Johnson Company Inc. (Sub Bid)

PEI did not rely on the bid, and the bid was an offer subject to the condition of PEI being awarded the contract.

PEI did not rely on the bid because to prove that the reliance was substantial, the

general contractor would have to prove that the sub expected the general to rely on theoffer. Because the sub did not believe that to be true (J.J. Kerlin was the apparent lowbidder), his reasonable expectation of reliance had dissipated. If the offer was subject to the condition of PEI being awarded the contract, then the subclearly withdrew before the final award.Sub bids are conditional. The offer is to perform the work if the sub is PAID. Until thegeneral accepts the offer, there is no unconditional offer on which to rely. Thus, in orderto find that the offer is irrevocable, a second promise “I will not revoke this bid if you useit” must be implied.

OFFER and COUNTER-OFFERRestatement 2d § 39,59,61,211; UCC § 1-201,1-205,1-303,2-102,2-104,2-105,2-204,2-

205,2-206,2-207,2-208

Dataserv Equipment Inc. v. Technology Finance Leasing Corp.

Once an offer is rejected, it cannot be subsequently accepted without ratification by theofferor. By refusing to accept according to the terms of the (Oct 1) proposal, Datarejected Techs counteroffer and thus no contract was formed. Moreover, Data’s offer to substitute other 3rd party installers, rejected by Tech, operated as a counteroffer by Data, and as termination of it’s power to accept Tech’s counteroffer.



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An alternative rule that treats a counteroffer as a continuance of the bargain processwould allow an offeree to wait around for a price drop. A rule that did so in the case ofconstant values would allow contracts to remain open so that counterofferors can tie upadditional inventory. ...MIRROR IMAGE RULE:

Parties exchange offers and counteroffers until the offers exchanged match,mirroring each other. Any changes are counteroffers. Unless specific terms were agreedon to hold the offer open, these rules governed. Option contracts are an example of howthis was achieved, allowing the parties to negotiate specifics without fear of terminatingthe whole offer.Courts still hold that COUNTEROFFER REJECTS THE INITIAL OFFER. LAST SHOT DOCTRINE:

When performance of some part of a contract was made prior to a mirroredfinality of negotiation, both parties were bound to the last counteroffer available. The lastshot fired between parties dictates the terms, with acceptance made by the silence of thefinal offeree.

UCC 2-207)

1) If you accept, but also add additional terms, then it is valid acceptance,UNLESS the additional terms are required for acceptance, in which case it is a counter-offer. (Offerree choice... otherwise counteroffer.)

2) The additional terms are proposals for addition to the contract, and become partof the contract unless

a) the offer expressly limits acceptance to the original offer, or b) the additional terms materially alter the offer (examples where itdoesn’t materially alter: cash or check, shipping date, packaging, etc...MINOR things.)c) notification of objection to the additional terms has already beengiven or is given within reasonable time after notice of them isreceived.

3) Conduct by both parties which recognizes a contract establishes a contract forsale, even if writings between parties do not establish one, defined by the terms on whichwritings agree.

Section 3 indefiniteness acts to apply indefiniteness doctrine... no knockout if K istotally knocked out of workability... indefiniteness asks whether enough is left to validateany contract...Ionics Inc. v. Elmwood Sensors, Inc.

Where the terms in two forms are contradictory, each party is assumed to objectto the other party’s conflicting clause. As a result, mere acceptance of the goods of thebuyer is insufficient to infer consent to the sellers terms under the language of subsection1, nor do such terms become part of the contract under section2 because notification ofobjection has been given by the conflicting forms.

ACKNOWLEDGEMENT WAS ACCEPTANCE OF IONICS OFFER,CONDITIONAL ON ELMWOOD’S TERMS... WHICH UNDER 2-207 IS ACOUNTER OFFER.Counter offer = conditional acceptance = counter offer



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The conduct of the parties demonstrates the existence of a contract, as required by section 3, which states that: Conduct by both parties which recognizes a contractestablishes a contract for sale, even if writings between parties do not establish one,defined by the terms on which writings agree.

Rather than assuming that a failure to object to the offeree’s conflicting terms

indicated offeror’s assent to those terms, we shall make the more reasonable inferencethat each party continues to object to the other’s contradictory terms.Note 5, p.257) “Different or Additional” terms 2-207 (1). “Different” terms are notaddressed... so one of 3 results:

• 1) Different = Additional

• 2) Different = Not in the contract

• 3) KNOCK OUT RULE :Conflicting terms cancel, leaving a blank subject toUCC gap-filling.

Approach 3, the “knock out rule” is criticized for ignoring judicial interpretation of intentthat would allow courts to choose one form or the other.

COMPUTER LICENSINGUCC § 2-204,2-207Restatement § 211: Standardized Agreements

(1) Except as stated in Subsection (3), where a party to an agreement signs orotherwise manifests assent to a writing and has reason to believe that like writings areregularly used to embody terms of agreements of the same type, he adopts the writing asan integrated agreement with respect to the terms included in the writing.

(2) Such a writing is interpreted wherever reasonable as treating alike all thosesimilarly situated, without regard to their knowledge or understanding of the standardterms of the writing.

(3) Where the other party has reason to believe that the party manifesting suchassent would not do so if he knew that the writing contained a particular term, the term is

not part of the agreement.Step-Saver Data Systems, Inc. v. Wyse Technology Inc.

The terms of the license were not sufficiently important to TSL, that it wouldabandon the contract in absence of their acceptance. Parties both agreed that the box-toplicense did not represent the parties agreement with respect to their right to transfercopies of the software to third parties. Thus, there is no basis that Step-Saver could inferthat certain terms (the transferability portions of the box-top agreement) were notcrucial, while other terms (the warranty disclaimers) were crucial. Since TSL didn’tclearly express that it would cancel the transaction in absence of the License agreement,it was not a conditional acceptance under 2-207(1). Also, since the terms materially alterthe agreement between the parties, they are not merely proposed amendments under 2-

207(2)(b).Amended UCC § 2-207: Terms Of Contract; Effect Of Confirmation

Subject to Section 2-202, if(i) conduct by both parties recognizes the existence of a contract although their recordsdo not otherwise establish a contract,(ii) a contract is formed by an offer and acceptance, or



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(iii) a contract formed in any manner is confirmed by a record that contains termsadditional to or different from those in the contract being confirmed, the terms of thecontract are:

(a) terms that appear in the records of both parties;(b) terms, whether in a record or not, to which both parties agree; and

(c) terms supplied or incorporated under any provision of this Act.Hill v. Gateway 2000, Inc. (Box-Top Contract/Ordered PC)

In absence of another contract or form of agreement, the box-top contract isbinding. A vendor, as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance. A buyer mayaccept by performing the acts the vendor proposes to treat as acceptance.

CONTRACTUAL

RELATIONSHIPS

PRELIMINARY NEGOTIATIONS/AGREEMENTSRestatement 2d § 26,27,33,90,205; UCC § 2-103(b)

• Promises made during negotiation are generally held to be unenforceable.• UNLESS the parties indicate that they intend to be bound.General rule: Promises made in preliminary negotiations generally are not enforceable(Coley). Each party bears the risk of its own precontractual relianceMere “agreement” to enter into (non-binding) negotiations v. Agreement to commit to adealColey v. Lang (Letter Agreement to Buy Stock)

The “Letter Agreement” is not one upon which specific performance can bebased. It as merely an agreement to enter into an agreement upon terms to be decided

later. That the negotiations proved unfruitful does not warrant equitable estoppel, andthe actions of Lang were not “substantial” reliance as noted in the restatement.Hoffman v. Red Owl Stores, Inc. (Moved/Sold business for Red Owl)

Red Owl should reasonably expect that their promises would and did induce substantial action by Hoffman. Restatement §90 makes clear that the promisor whoinduces reasonably foreseeable substantial action by the promisee in reliance on the promise, for which injustice cannot be avoided without enforcement of the promise, isliable for reliance by the promisee. The court decided that injustice would result if Hoffman was not granted some relief because of the failure of defendants to keep their promises which induced plaintiffs to act to their detriment. INDEFINITE AGREEMENTS:

One of the core principles of contract law is that promises must be explicitenough that the intentions of the parties are ascertained with reasonable certainty.

The UCC goes beyond the common law in allowing an expansive role of the

courts in filling open terms in otherwise incomplete agreements.

BINDING PRELIMINARY AGREEMENTS: Recently, a new framework for addressing “Agreements to Agree” has emerged in

the courts, relaxing the sharp rule of common law, under which such agreements wereeither fully enforceable or not at all.



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Brown v. Cara (Preliminary Const. Agreement)

In some circumstances, preliminary agreements can create binding obligations.Type I preliminary agreements reflect a meeting of the minds on all the issues perceivedto require negotiation. The four factor test for this type is

1) Whether there is an expressed reservation of a right not to be bound in the

absence of a writing,2) Whether there has been partial performance of the contract,3) whether all of the terms of the contract have been agreed upon, and4) whether the agreement is the type usually committed to writing. This agreement

was NOT a type I.Type II preliminary agreements are binding only to a certain degree, reflectingagreement on certain major terms, but leaving others for later negotiation. A type IIagreement does not commit the parties to the ultimate contractual goal, but merelyrequires that they negotiate open issues in good faith in order to reach the objectivewithin the agreed framework. Five considerations:

1) Whether the intent to be bound is revealed by the language of the agreement

2) the context of the negotiations3) the existence of open terms4) partial performance5) the necessity of putting the agreement in final form, as indicated by the

customary form of such transactions.The MOU was a type II agreement and therefore the parties are required to negotiate.

OUTPUTS, REQUIREMENTS, EXCLUSIVE

DEALINGSUCC § 1-201,1-205, Revised §1-303,2-208,2-306

EASTERN AIRLINES v. GULF OIL CORP. (Oil Requirements)

Issue: Whether the requirements contract was binding, and if so, whether Easternbreached by “fuel freighting”.

A contract for requirements or output is not too indefinite because it means simply the good faith output or requirements of the party. [UCC §2-306(1)] The essentialtest is whether the party is acting in good faith. Due to the past reliance on the contractwithout trouble, a pattern is established by which the contract is found to be binding andin good faith. Eastern is not in breach because the fluctuations in the fuel market show aneed for fuel freighting that is an established industry practice commonly occurringbetween the parties. As such, engaging in the practice cannot violate “good faith” asdescribed by UCC §2-201(19) and §2-103(1)(b).Empire Gas Corp. v. American Bakeries Co. (Gas Conversion)

The requirement contract does not allow the buyer to reduce it’s purchase to zerowithout good faith reason to do so. UCC §2-306 Comment 2: “good faith variations are permitted even when the variation may be such as to result in discontinuance.”Sometimes this good faith reason could be that there is no need for the service due to achange in industry practices or that another factor makes the contract unnecessary. It isnot a good faith reason to abandon the requirements contract in absence of evidence that



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the decision to do so was reasonable, and not simply a choice to “opt out”. To do sowould be unreasonably disproportionate.

UCC § 2-306: Output, Requirements And Exclusive Dealings

(1) A term which measures the quantity by the output of the seller or the

requirements of the buyer means such actual output or requirements as may occur

in good faith, except that no quantity unreasonably disproportionate to any statedestimate or in the absence of a stated estimate to any normal or otherwise

comparable prior output or requirements may be tendered or demanded.

(2) A lawful agreement by either the seller or the buyer for exclusive dealing

in the kind of goods concerned imposes unless otherwise agreed an obligation by the

seller to use best efforts to supply the goods and by the buyer to use best efforts to

promote their sale.

I agree that the “reasonably disproportionate” test is only an elaboration on theobligation of good faith, because by it’s nature it is a flexible recognition of changing business practices. If it were separate from good faith, then unfair competitive practicescould be gained by bad faith, yet justified changes to the amounts requested. (Such as

demanding more than max capacity to void a contract)EXCLUSIVE DEALINGS CONTRACTSUCC §2-306, Restatement 2d § 205

Wood v. Lucy, Lady Duff-Gordon (Fashion Exclusive License) Wood entered into a contract with Defendant that he was to have exclusive right

to use ∆’s name in endorsement of fashionable items for sale, that they would split the profits equally, that he would procure any rights necessary to protect the value of the goods sold, and that he would create an accounting of the earnings on a monthly basisThe contract is adequate to create a binding agreement implied upon the fact that if hedoes no work, he gets nothing. The contract therefore indicates enforceable duties of the plaintiff.

Bloor v. Falstaff Brewing Corp. (Sell my beer so I stay paid)The clause required Falstaff to maintain a HIGH volume of sales. Though not

necessary to do this at the cost of the entire business, no evidence was given to show thatthis was impossible even given the restructuring of the business. Some drop in volumewould likely have been forgiven, but the level created by the Falstaff policies was not.While Falstaff did breach the contract clause requiring volume, the nature of his doing sowas not incongruous with the decline in the market. As such, the clause requiring large payments for breach is unwarranted.

REDUCING CONFLICTS OF INTERESTRestatement 2d § 188,205; UCC (Revised) § 1-304

Wagenseller v. Scottsdale Memorial Hospital (Moon River)

The court held that an employee may be fired for good cause or for no cause, butnot for "bad" cause. The court concluded that termination of employment for refusal to participate in public exposure of one's buttocks was a termination contrary to public policy.

Although an employment contract for an indefinite term is presumed to beterminable at will, that presumption, like any other presumption, is rebuttable bycontrary evidence.



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The right of discharge without cause is an implied contractual term which is saidto exist in an at-will relationship when there are no factual indications to the contrary.The intent to create a different relationship, as well as the parameters of thatrelationship, are to be discerned from the totality of the parties' statements and actionsregarding the employment relationship.

The duty not to act in bad faith or deal unfairly thus becomes a part of the contract, and,as with any other element of the contract, the remedy for its breach generally is on thecontract itself.Consumers Intl. Inc., v. Sysco Corp.

In the absence of a contrary contract provision or statutory regulation, a franchisor's enforcement of a "no-cause" termination clause need not be for "goodcause." Bad faith cannot be evidenced in a distribution agreement simply from a "nocause" termination in accordance with the explicit terms of the contract.Mostly, handbooks aren’t enforceable contracts. Sometimes they are, if accompanied bysigned statements agreeing to them as contracts.Gagliardi Bros. Inc. v. Caputo (Non-Competitive Meat)

4 requirements for a valid covenant not to compete:Must be related/ancillary to the contract of employmentMust be supported by adequate considerationMust be reasonably limited in time and geographic territoryMust be necessary for the protection of the employer

MODIFICATION OF EXISTING AGREEMENTSRestatement 2d § 205,;UCC § 2-208,2-209

Alaska Packers’ Association. v. Domenico (Arctic Mutiny)

A contract signed (under duress) for the exact same performance alreadycontracted for, is invalid for lack of consideration.

The sailors were already obligated to perform under the previous contract, and

the new contract was for the exact same service. The consideration owed under a previous contract can’t be used again simply because it was unilaterally revoked fromthe first.If the parties truly would have walked away from the contract, then it is likely the

modification is enforceable.

If the parties would not walk away, then it seems that one is simply extorting the

other...

Two ways to avoid the pre-existing duty rule:

• For the promisor to do or promise to do something in addition.

• Rescind the first contract before entering into a revised contract.

Courts are more willing to enforce modifications where the conditions show

substantially increased burden than anticipated.“No Modification” Clauses. Commonly unenforceable. “If a man makes a

contract, he can un-make it and the clause can be unmade, too.”

Termination agreements after a contract is formed are new contracts.

REGULATING THE BARGAINING

PROCESS



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DURESSRESTATEMENT 2D §174,175,176

Duress

Elements of the defense of duress

“Improper” threat

The threat itself need not be “illegal”2d § 176 (1)(a)-(c): Legally impermissible acts or abuse of process

2d § 176 (1)(d): “hold ups,” threats under a contract

Inducement of the promise by the threat

Causation : 2d § 175

No reasonable alternative/ reasonable inducement : 2d § 175

The rules policing the bargain are MANDATORY; they cannot be altered by contraryagreement. (Unlike those previous)Wolf v. Marlton Corp.

(Changed mind after down payment, made threats to recover)

Though certain threats of entirely legal activities are allowable to strike a hard-bargain,

threats that use legal means to effectuate wrongful damage to another are not allowable(such as a transaction based on fear of those damages)The case is remanded to the district court for proceedings on the following issues:

• If the threats were made and

• If the defendant believed they would be carried out and

• If defendants will was thereby overborne (Causation)

• THEN defendant was justified in treating the contract as breached and is entitled toresulting damages to be determined by the court.

Austin Instrument, Inc. v. Loral Group (Navy bid, refusal blackmail)

A contract is voidable on the grounds of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat

precluding the exercise of it’s free will. Economic duress is demonstrated by proof thatimmediate possession of needful goods is threatened. This is a UCC contract because itis for sale of goods.. In this case, the above is meant to construe that one party to a contract has threatened tobreach the agreement by withholding goods unless the party agrees to some furtherdemand, couldn’t find another source, and breach of contract doesn’t apply.

• Three essential elements in evaluating a duress claim: o 1) An “improper threat” made to the promisor

o 2) inducement of the promise by that threat, and

o 3) reasonable inducement

Thus, even if a promisor was induced to make a promise by an improper threat, the

defense of duress will not lie unless the threat eliminated any reasonable alternatives tomaking the promise.

Plea bargains aren’t under duress unless an unfair manipulation of sentence in order to obtain the guilty verdict has been made... hard to prove.

Settlements can sometimes be under duress, such as a deeply indebted partyaccepting a crappy settlement to avoid defaulting on those debts (which could have direconsequences for a business or marriage, etc.)



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FRAUD: MISREPRESENTATIONRestatement 2d § 162,164,167-69

A misrepresentation provides a basis for avoiding the contract when:

a party’s manifestation of assent is induced bya fraudulent; or a material; Misrepresentation;

which the party actually believes and relies upon.

Thus, an intentional misrepresentation need not be material, whereas an

unintentional misrepresentation must be material.

Promisors have the responsibility to inform themselves of their promises, therefore a promisor’s ignorance does not excuse their obligation to perform.“Caveat Emptor”

The law prohibits only intentional misrepresentations or concealment on which

promisors reasonably rely. Harmless lying and lying that should not have been

taken at face value do not excuse contractual liability.

Spiess v. Brandt (Resort operating at profit) The defendants regularly indicated that plaintiffs could make “good money”which in no terms could be congruent with a business operating at substantial loss evenin the most prosperous years for the type of business The fact that defendants refused to allow plaintiffs to see the “books” after theserepresentations were made indicates intent to conceal the truth. §164: When the misrepresentation makes shit voidable. §169: Reliance on opinion.Danann Realty Corp. v. Harris

The contract provisions clearly stated a disclaimer of representation clause (MergerClause), absolving any party of any prior representations made regarding the propertyexcept those in the contract. Disclaimer of representation precludes fraudulent oralrepresentations prior to contract? YES

Where a person has read and understood the merger clause, he is bound by it.

Note 3, 424) In the fraud setting, contracts and torts overlap... Under the restatement ofContracts, the misrepresentation may be either fraudulent OR material. In the restatementof Torts, the misrepresentation must be BOTH fraudulent and material.Note 4) Tort law allows punitive damages, while Contract actions do not. Thus tortsare justified in their stricter requirements and shorter statutes of limitation.

• The prospect of punitive damages would definitely prevent some “efficient breaches”from taking place, because many contracts in which a breach can be reasonablycalculated and planned for would become unknowable, thus the pre-contracting process would be longer and more complex, casting more in time money and effort,and making negotiations more difficult. Large damage awards will always lead tostrategic behavior, as we’ve discussed in CivPro. The holding decreases thelikelihood of strategic behavior by allowing parties to be able to predict theconsequences of breach and agree on those terms mutually without fear of anotherwise strategy-laden court process ruining the balance.



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Once the wronged party is on notice of fraud, they must decide whether to ratify or

rescind the contract. The right of recission is forfeited by acts constituting

affirmation of the contract.

FRAUD: NONDISCLOSURE/CONCEALMENTRestatement 2d § 160,161

§ 160 When Action Is Equivalent To An Assertion (Concealment)Action intended or known to be likely to prevent another from learning a fact is

equivalent to an assertion that the fact does not exist.§ 161 When Non-Disclosure Is Equivalent To An AssertionObde v. Schlemeyer (Secret Termites)

If either party to a contract of sale conceals or suppresses a material fact whichhe is in good faith bound to disclose then his silence is fraudulent.Reed v. King (Murder House)

The court reversed because the fact of the murders may have had a quantifiableeffect on the market value of the real estate, which plaintiff was entitled to prove. A sellerof real property has a duty to disclose: where the seller knows of facts materially

affecting the value or desirability of the property that are known or accessible only tohim.Mandatory Disclosure:

There are instances where Congress or an agency decides that disclosure should be mandatory by necessity. Used cars... stock reports.

On the plus side, this allows parties to become aware uniformly of importantmaterial factors to the transaction.

On the minus side, it also allows the relevant information to be lost in informationoverload.

STATUTE OF FRAUDS Restatement 2d § 110,130,131,136,139; UCC 2-201

The required writing need not contain all of the material terms of the contract and

such material terms stated need not be precise.

If the “price” consists of goods rather than money then the quantity of goods must

be stated.

Receipt or acceptance of goods or of the price constitutes an unambiguous overt

admission by both parties that a contract exists.

Part performance by the buyer requires the delivery of something by him that is

accepted by the seller as such performance.

Failure to satisfy the requirements does not void the entire contract, but merely

prevents it from being judicially enforced in favor of any party to the contract.

The predominant purpose test applies the UCC to transactions if their predominant purpose is to sell goods, but reverts to common law if the predominant purpose is to sell services. Monetti, S.P.A. v. Anchor Hocking Corp. (Summary Agreement Binding?)

The “summary Agreement” document combined with partial performance metboth the Illinois statute of frauds and that of the UCC § 2-201. The court found that the second memorandum was a writing sufficient to evidence the existence of the contract, satisfying the statute of frauds in (UCC) 2-201, even if the partial-performance doctrine



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was not available to plaintiff under the UCC for sales of goods. The contract in questionneed not be in writing, as long as there is writing to EVIDENCE a contract....Unilateral performance is pretty solid evidence that there really is a contract. Almost thewhole purpose of contracts is to protect the party who performs first from being takenadvantage of by the other party, so if a party performs first there is some basis for

inferring that he had a contract. Restatement 2d §110 /§130: Must be POSSIBLE to be performed within a year! Otherwise statute of frauds

applies. If an OFFER stands for a long time, it’s fine because performance of each

acceptance can be completed within a year. If it takes 3 years but was expected to take 3 months then that’s okay, too. . “Not to be Performed Within a Year”

“Not to be Performed” = “Cannot Possibly be Performed”

E.g. A promises to pay B $1,000,000 upon C’s death – not within statute because deathcan occur at any time

E.g. a promise by A to work for B for the rest of A’s life – not within statute

Discharge and/or excuse does not constitute performanceA to work for B for 5 years “but agreement will terminate if A dies” – within statuteA to work for B for 5 years “but either A or B can terminate at any time with 30

days notice” – not within statuteA to work for B for 5 years and “A may quit at any time” – within statuteRestatement 2d § 131: General Requisites Of A Memorandum

Restatement 2d § 136: Time Of Memorandum

CONTRACT

INTERPRETATIONParol Evidence: Common LawRestatement 2d § 209,210,212-216

What is Parol Evidence?

• Prior (oral or written) agreements between the parties.

• Contemporaneous (oral or written) agreements between the parties.

• Also: Course of Performance, course of dealing, and usage of trade. (UCC)IDENTIFYING TERMS OF AN AGREEMENT (INTEGRATION) Did the parties commit any or all of their terms to a final writing?

• None? Then the agreement is not integrated and the parol evidence rule does notapply. Parties are free to introduce any kind of evidence to prove their claim in

regards to terms.• Some? The parol evidence rule applies and some ordinarily admissible evidence will

be excluded in proving whether the agreement contains a particular term.

• Some? “Partially Integrated” agreement. Parties are allowed to introduce evidence ofadditional terms of the agreement provided those terms do not contradict the finalwriting.

• ALL? “Fully Integrated” agreement. Parties not allowed evidence of ANY additionalterms, even if they are consistent with the writing.



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It is generally agreed that the parol evidence rule is limited to prior or contemporaneousoral agreements, and thus does not apply to an agreement made subsequent to thewriting. Hence, it does not bar evidence of illegality, fraud, etc., that prove a breakdownin the bargaining process.Level of integration is determined by parties intent.

• A writing constitutes the final expression of some or all of the parties termsonly if the parties so intended at the time of the writing.• How is this INTENT determined?

o Traditional “Four Corners” analysis: If the document appears on it’sface to be the complete and exclusive statement of all the terms, it is presumed to be fully integrated.

o Alternatively:o To be complete and exclusive the court uses “natural omission”doctrine: Even if the writing appears to be the final statement of allthe terms of the agreement, evidence of additional terms is admissibleif the court finds that the parties “would have naturally omitted those

terms” in the final writing. (This is common law, the UCC uses the“certainly” test as in Hunt...)• Thus: To determine whether a final writing is also an exclusive statement of

all the terms of an agreement the court must look beyond the writing itself toother evidence of additional terms to determine if the parties would havenaturally omitted them.The extrinsic evidence addressing the integration question ALONE, does notaddress whether or not a promise was made...so parol evidence relative tointegration does not affect the fundamental question of promise

For contracts governing the sale of goods, UCC §2-202 supplants the parol evidence

rule.

• §2-202 provides that, if there is a written agreement, evidence of missing terms arenot admissible “if the additional terms are such that, if agreed upon, they wouldcertainly have been included in the document in the view of the court.

• The principal difference between the “certain inclusion” test and the “naturalomission” test is that under the UCC the parties “certainly” rather than “naturally”would have included the terms in the writing in order to hold that the writing wasintegrated. Thus raising the hurdle...

Can the parties opt out of the burden of proving an intent to integrate by expresslyagreeing in the contract itself that the writing was integrated?

• Such merger clauses are likely to be upheld, but are subject to the courtsinterpretation as to whether they were understood.

INTERPRETING THE TERMS OF AN AGREEMENT: “Plain Meaning” = “Objective Meaning”

• Courts must use the plain meaning even if it appears that another meaning was

intended.

• Ambiguous or Vague meanings require the court to examine the context first for plain meaning, then consider extrinsic evidence to interpret the meaning.

• The Restatement 2d rejects the “Plain Meaning” rule in favor of a more subjective,interpretive standard, but the application of this approach is varied.



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o The UCC clearly rejects the “Plain Meaning” rule substituting a robustscheme of interpretation relying on the relevant layers of commercialcontext in which the agreement was made. Because all meaning iscontextual... all interpretation must address context.

Mitchill v. Lath (Icehouse Outlier)

The contract was specific enough in it’s provisions, and closely related enough tothe claim of an additional term, that the court found no compelling reason to hearevidence on the possibility of an additional contract. The presence of a written agreementclearly invoked the parol evidence rule striking the outside oral agreement. Moreover,the court held that although the oral agreement was collateral in nature, it could havebeen readily inserted into the more dominating written form. The term would havenaturally been admitted in the document. That it wasn’t is evidence the agreement was fully integrated and thus the additional term regarding the icehouse is to be excluded. Accordingly, defendant was not required remove the icehouse.Masterson v. Sine (Wanted reverter, didn’t use correct language)

There is nothing in the record to indicate that the parties to this family

transaction, through experience in land transactions or otherwise, had any warning ofthe disadvantages of failing to put the whol e agreement in the deed. This case is one,therefore, in which it can be said that a collateral agreement such as that alleged "mightnaturally be made as a separate agreement." A fortiori, the case is not one in which the parties "would certainly" have included the collateral agreement in the deed.The Parol Evidence Rule in the Restatement (Second)

Is written agreement intended by the parties to be the “final expression” of theiragreement? [an “integrated agreement”] § 209If so, extrinsic evidence of inconsistent prior agreements (both written and oral) may not be introduced. § 213(1)If not, extrinsic evidence of inconsistent prior agreements (both written and oral) may beadmissible.Is written agreement intended by the parties to be the “final expression” of theiragreement AND a “complete and exclusive statement of the terms of the agreement”? [a“completely integrated” agreement] §210(1)If so, extrinsic evidence may not be used to prove additional terms (even if they areconsistent the writing).If not, extrinsic evidence may be used to prove additional terms that are consistent withthe writing. §216(1)Whether an agreement is integrated or completely integrated depends on the intent of the parties.Williston (no extrinsic evidence unless a term is vague or ambiguous) vs.Corbin/Wigmore/Restatement 2d §214 (extrinsic evidence may be used to determinewhether the parties intended their agreement to be integrated) Integrated? > “Omission (natural or certain)”? > Intent? > Objectivity?

PAROL EVIDENCE: UCC; MERGER CLAUSESUCC § 2-202

Revised UCC § 2-202

UCC § 2-202, comment 3

If the additional terms are those that, if agreed upon, would certainly have been



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included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact. This section is not intended to suggestwhat should be the evidentiary strength of a merger clause as evidence of the mutualintent that the record be final and complete. That determination depends upon the particular circumstances of each case.

Hunt Foods & Industries v. DolinerOral evidence inadmissible only if it contradicts the writing, otherwise okay. It is not sufficient that the existence of the condition is improbable. It must be impossible.

Using the UCC rule of “Certain omission”, the court found that the condition must beimpossible to have excluded from the contract in order for evidence as to the term to beexcluded from consideration by the court. The conversations in this case, some of whichare not disputed, and the expectation of all the parties for further negotiations, suggestthat the alleged oral condition precedent cannot be precluded as a matter of law or as factually impossible.

• The parol evidence rule is limited to prior contemporaneous oral agreements, anddoes not apply to subsequent agreements to the writing.

• Thus it cannot bar evidence of a subsequent agreement.

• The rule does not bar evidence if illegality, fraud, duress, mistake, or anything otherthan an additional term or terms.

• Finally, it does not bar admission of evidence to prove that the performance of acontract was subject to an oral condition precedent. A condition may be shown, evenif it contradicts the writing, under the theory that the writing is not an integratedagreement or that it is only partially integrated until the condition occurs.

UAW-GM H.R. v. KSL Recreation (Resort Rental/Union Only)

The merger clause is read to equal an Integration Clause”, thus creating a fullyintegrated writing where the parol evidence rule does not allow additional evidence. Thecourt correctly recognized that the existence of an integration clause bars any

reinterpretation of the context of the agreement, because by it’s very inclusion the partiesare stating that there is no term or issue not addressed in the writing.Danann Realty Corp. v. Harris

Where a person has read and understood the disclaimer of representation clause(merger clause), he is bound by it.

INTERPRETATION: Common Law & UCCRestatement 2d § 201-204,206,212; UCC § 2-202

Plain meaning versus Contextualism

Terms CAN have a meaning that varies based on literal definition or context.Objectivism and Contextualism in Common Law Interpretation

Plain meaning can be ambiguous, such as in the case where cotton was to be

shipped on the S.S. “Peerless”, when in fact there were two such ships and the parties hadeach intended the opposite. (No meeting of the minds / no contract)Revised UCC § 2-202, cmnts 2 & 5

Because a record is final for the included terms (an integration), this does notmean that the parties intended that the record contain all the terms of their agreement (atotal integration). If a record is final but not complete and exclusive, it cannot becontradicted by evidence of prior agreements reflected in a record or prior orcontemporaneous oral agreements, but it can be supplemented by other evidence, drawn



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from any source, of consistent additional terms. Even if the record is final, complete

and exclusive, it can be supplemented by evidence of noncontradictory terms drawn

from an applicable course of performance, course of dealing, or usage of trade

unless those sources are carefully negated by a term in the record. If the record isfinal, complete and exclusive it cannot be supplemented by evidence of terms drawn from

other sources, even terms that are consistent with the record.Issues of interpretation are generally left to the courts. In interpreting terms in a

record, subsection (2) permits either party to introduce evidence drawn from a

course of performance, a course of dealing, or a usage of trade without any

preliminary determination by the court that the term at issue is ambiguous. Thisarticle takes no position on whether a preliminary determination of ambiguity is acondition to the admissibility of evidence drawn from any other source or on whether acontract clause can exclude an otherwise applicable implied-in-fact source.In Re Sopers Estate (Two Sopers, One Dead, Who Benefits?)

Parol evidence is necessary to indicate the intent of the parties to the contractwhen the plain meaning of a crucial term is ambiguous. ( Which “WIFE”? )

P.G. & E. v. G.W. Thomas Drayage and Rigging Co. (Turbine Repair)The fact that the terms of an instrument appear clear to a judge does not precludethe possibility that the parties chose the language of the instrument to express differentterms. (Like “damage” to plaintiff of to 3

rd parties.)

Although extrinsic evidence is not admissible to add to, detract from, or vary theterms of a written contract, these terms must first be determined before it can be decidedwhether or not extrinsic evidence is being offered for a prohibited purpose If the court decides that the language is susceptible to either of the contended meanings,then the court can consider the extrinsic evidence thereof.

The court is not saying that they are always going to determine the meaning of theterms of a contract, thus altering them through definition, the court is saying that it willuse extrinsic evidence to consider the susceptibility of the terms to interpretation, andapply a court interpretation IF ascertainable.Trident Center v. Connecticut General Life Insurance (Interest Rate Change)

Parol Evidence Must be considered in case even with two sophisticated partiesoperating with clear terminology. Under traditional contract principles, extrinsicevidence is inadmissible to interpret, vary or add to the terms of an unambiguousintegrated written instrument. However, California does not follow the traditional rule.The previous decision made it necessary to interpret terms in virtually any situation...

Hard or Soft PER are decided according to the complexity of the contract andthe sophistication of the parties.

• Unsophisticated parties or complex contracts get SOFT PER because they are lesslikely to include all terms.

• Sophisticated or Simple agreements get HARD PER because they are more likely tohave included all terms.

PERFORMANCE AND

BREACH



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IMPLIED & EXPRESSED CONDITIONS:

DIVISIBILITYRestatement 2d § 205,224,227,234; UCC § 2-103(1)(b),2-307,2-311,2-612

DEFINING THE TERMS OF PERFORMANCE

Performance of every contract will have both a procedural and substantive aspect.Procedural Default Rules define the sequence of performances: when, where, and to whatextent each party must perform, and MOST IMPORTANTLY the relationship betweenthe parties performance/reciprocity.Substantive Default Rules then provide the quality standards against which performanceis assessed.

• The default rules in this chapter specify the obligations of the parties regarding performance.

CONDITIONS a) Allocating Risks of Performance

In general, the risks associated with the performance of an executory promise are

allocated to the promisor – whose performance is thereby affected.“Performers Risk” principle is a central default rule of Contract Law.

• Based on the notion that the performer has more control over performance and anynecessary precautions.

• “Performers Risk Rule”: Performer has the knowledge and skill and is liable fortheir promises, regardless of factors that they didn’t consider. Stees v. Leonard

b) Implied or Constructive Conditions of Exchange

Obligation to perform is not absolute. Constructive conditions must be met.

• One straightforward condition implied is that the return performance will beforthcoming, as in “payment on delivery” or payment as a “condition precedent” tothe duty to perform.

Nature of a ConditionA promise may be conditional or absolute.A condition is an event, other than the lapse of time, that, unless the condition is excused,(1) must occur before a duty to perform becomes due (condition precedent); or (2) thatdischarges a duty of performance that has already arisen (condition subsequent).In general, liability for breach of contract attaches to breaches of promises, not for

failures of conditions.

Implied or Constructive Conditions

A promise to perform is implicitly conditioned on the receipt of a return performance.But who goes first?

Default Rule of Concurrent Conditions

In the absence of indications to the contrary, the default rule is that promises are to be performed at the same time, under mutual concurrent conditions.What happens when concurrent or simultaneous performance is not possible? This

occurs when the performance of one or more parties extends over time 2options:

Default rule of “work before pay”Divisibility doctrine

Bell v. Elder (Water to Undeveloped Land)



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In determining the order of performance of exchanged promises, the court looks first to the contract itself, and, if no order of performance is therein specified, the courtapplies the common law of constructive contractual conditions. In a case where there isno express indication of the intended order for performance, the law implies a covenantand condition that the related obligations be performed concurrently.

In other words, the party who desires to use legal process to exercise his legalremedies under such a contract must make a tender of his own agreed performance inorder to put the other party in default.The “Work Before Pay” rule: Stewart v. Newbury

• The desire of a performer to receive payment periodically as the performance progresses is only legally mandated if this method of payment is part of the contract.Otherwise, no payment is due until substantial performance has been completed. InStewart , the contractor demanded payment as per custom. There were no such termsin the contract, so there was no obligation to pay prior to performance.

• A party financing the other before performance is not the default rule for good

reason, but we pay tuition prior to education and employers finance their

employees between checks. We also pay prior to receiving goods. Payment is thecondition precedent in some contracts but not others.

Note 3) In Ethyl Corp v. United Steelworkers, The employees requirement to work acertain number of hours prior to receiving paid vacation was subject to an impliedcondition that the company not prevent them from completing their requirements. Thus,the workers received their vacations.John v. United Advertising, Inc. (Some signs installed)

Whether a contract is entire or severable is a matter which cannot be determinedwith mathematical precision, as it has been said that there is no set formula whichfurnishes a foolproof method for determining in a given case just which contracts areseverable and which are entire. The primary objective is to ascertain the intent of the

contracting parties, as such intent is manifested by not only the several terms and provisions of the contract itself, but also as such are viewed in the light of all thesurrounding circumstances, including the conduct of the parties before any dispute hasarisen. And the singleness or apportionability of the consideration is said to be animportant factor to be considered.Express Conditions:

• a) Promises and conditions

• In drafting a contract that varies from the default rules, is it better to make strict“rules” or variable “standards”?

o Rules decrease misunderstandingo Standards benefit the discretion of the court, which has the advantage

of Hindsight. Howard v. Federal Crop Insurance Co.

(Plaintiffs destroyed crops on which they had a claim prior to an inspection

contractually required to validate the claim)

The provisions of a contract were not construed as conditions precedent in theabsence of language plainly requiring such construction. Merely plowing under thetobacco stalks did not of itself operate to forfeit coverage under the policy.



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There is a general legal policy opposed to forfeitures. Insurance policies aregenerally construed most strongly against the insurer. When it is doubtful whether wordscreate a promise or a condition precedent, they will be construed as creating a promise."Warranty" and "condition precedent" are often used interchangeably to create acondition of the insured's promise, and manifestly the terms "condition precedent'' and

"warranty" were intended to have the same meaning and effect.Pay-if-paid clauses are generally held to be promises unless language explicitly providesa condition precedent (such as the language x will pay y ONLY IF z pays x...)

Modification, Waiver, Election, Estoppel: Conditions Restatement 2d § 230; UCC 2-209

Clark v. West (No Drinking = More $$) The court held that plaintiff's complaint contained sufficient allegations that, if

proven, would establish that defendant expressly waived the sobriety condition precedentby, with full knowledge of plaintiff's non-observance of the alcohol abstinence stipulation, not only accepting plaintiff's completed manuscript without objection butrepeatedly assuring plaintiff that he would receive the higher royalty rate.

A condition precedent can be waived and if so waived expressly, a defendant isclearly not in a position to insist upon the forfeiture which his waiver was intended toannihilate.

It is well established that if the words and acts of a party reasonably justify theconclusion that with full knowledge of all the facts it intended to abandon or not to insistupon the particular defense afterwards relied upon, a verdict or finding to that effectestablishes a waiver, which, if it once exists, can never be revoked. No consideration isrequired for waiver, nor any prejudice or injury to the other party.Preexisting duty rule problem would result from waiver of consideration. Generally, performing a legal duty which is already owed does not constitute consideration, unlessthat duty is doubtful or honestly disputed.

Promises are “modified” and conditions are “waived”...>>>>>UCC 2-209!!!<<<<<<<

Wisconsin Knife v. Nat’l Metal Crafters

“where modification could only be effectuated in writing the jury instruction thatmodification could occur otherwise was erroneous. On remand, the trial court was freeto consider the alleged waiver of delivery and damages.”UCC § 2-209 provides that an attempt at modification which does not satisfy acontractual requirement that modifications be in writing (AN ORALMODIFICATION)nevertheless can operate as a waiver.

An attempted modification is effective as a waiver only if there is reliance.

Reliance, if reasonably induced and reasonable in extent, is a common substitute for

consideration in making a promise legally enforceable.If the damage of which the promisee complains would not have been avoided

by the promisor's not breaking his promise, the breach cannot give rise to damages.

PERFECT TENDER AND CURERestatement 2d § 241: UCC § 2-106,2-508,2-601,2-602,2-607,2-601,2-611

UCC 2-601



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If the goods or tender fail to conform to the contract in any respect, the buyer has theabsolute right to reject them.This precise rule might be overinclusive, inviting strategic behavior by the buyer/promisee.The UCC ameliorates this concern by providing the seller with a right to “cure” his

defective performance in certain circumstances.T.W. Oil, Inc. v. Consolidated Edison Co. (Substitute Oil) A fair interpretation of § 2-508(2) required the buyer to accept the substitute

shipment of conforming oil. Once the oil supplier gave seasonable notice, it was permitted to cure the defect within a reasonable time beyond the time the contract was tobe performed, as it had acted in good faith and with a reasonable expectation that theoriginal oil shipment was acceptable to the buyer. Section 2-508(2) was not limited tocases in which the seller knowingly made a nonconforming tender it believed the buyerwould accept.

If seasonable notice be given, a seller who, acting in good faith and withoutknowledge of any defect, tenders nonconforming goods to a buyer who properly rejects

them may offer to cure the defect within a reasonable period beyond the time when thecontract is to be performed so long as the seller has acted in good faith and with areasonable expectation that the original goods would be acceptable to the buyer.Under the UCC, a "reasonable time" depends on the "nature, purpose and

circumstances" of any action which is to be taken

Ramirez v. Autosport (Van with Minor Defects)

Plaintiffs had properly rejected tender of the van within a reasonable time.The court noted that once plaintiff rejected the van, the burden shifted to defendant to prove that the defects had been cured. The court found that because defendant had notdone so within a reasonable time, plaintiffs were entitled to rescind or cancel thecontract.

MISTAKE Rstatement 2d §152-154

Mistake is said to excuse performance when an “endogenous” risk materializes – that is,when one or both parties are mistaken about a material fact that exists at the time of theiragreement.Excuse discharges performance when an “exogenous” risk materializes – that is, when anunanticipated future event not contemplated by the agreement renders performanceimpossible.These are rules for allocating risks not expressly allocated by the parties. “Properly understood, when a party successfully invokes the law of Mistake or

Excuse, that party demonstrates that his performance duty was subject to a

condition that was not satisfied.” The law of mistake should only excuse a party’s performance if most people similarlysituated would so condition their duty to perform.The law of excuse provides a default rule for interpreting the parties allocation of risk ofsubsequent events that adversely affect one of the parties.To avoid a contract on the basis of mistake, the mistake must relate to a basic assumption

as to a vital existing fact.Risks as to changing facts are addressed by the doctrines of impossibility,



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impracticability and frustration of purpose.Where the parties are merely uncertain or even consciously ignorant, the doctrine of

mistake is inapplicable.Mutual Mistake:

Where both parties are mistaken about a basic assumption on which they based their

bargain, and the risk has not otherwise been allocated by the parties, throughdefault rules, or by the court.Unilateral Mistake:

Where one party is mistaken, the contract may be avoided where the other party isknows or had reason to know of the mistake. This is equivalent to non-disclosure.

In some cases, the contract may also be avoided where the unilateral mistake wouldmake enforcement of the contract unconscionable, but in general, there are incases where (i) the mistake is computational or clerical in nature (a scrivener’serror); and (ii) there has been little or no reliance by the non-mistaken party.

Defenses:

Potential defenses to a claim of mistake include: (i) detrimental reliance by the other party; (ii) affirmance of the transaction after the discovery of the mistake; (iii) failure toavoid the contract with reasonable promptness.Sherwood v. Walker (Replevin for a Cow)

Here, both parties believed the cow to be barren when they discussed the price, but it was later learned by defendant that the cow was pregnant, and therefore,worth a lot more. This fact was a material issue and went to the substance of thecontract. Where there was mutual mistake as to the substance of the contract, defendanthad a right to rescind.The buyer was indifferent to the unknown fact. He would have been pleased to keep theunexpected windfall. But he under stood that the bargain rested on a presumed state

of facts. Anderson Brothers Corp. v. O’Meara (Wrong Dredge Type)

The court determined that appellee's mistake in believing that the dredge wascapable, without modification, of performing sweep dredging was not a mistake sharedby appellant seller, who had designed and built the dredge for use in trenchingoperations and knew its capabilities. The court held that when unilateral mistake wasasserted as a ground for relief, the care which the mistaken complainant exercised or failed to exercise was a factor for consideration. Further, although a court of equitywould grant relief from mistake, it would not assist a party whose condition wasattributable to its lack of due diligence.This is consistent with the general rule of equity that when a person does not avail

himself of an opportunity to gain knowledge of the facts, he will not be relieved of

the consequences of acting upon supposition.

The starting point in the analysis of a mistake claim is whether the mistake is

“mutual” or “unilateral”. §§ 153 and 154 spell out the liabilities of the parties.

A party bears the risk of a unilateral mistake when he commits the error. Thatliability shifts when the other party knew or should have known that the error was beingmade.



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Comment H: The rule applies only when both parties are mistaken as to thesame basic assumption. Their mistakes need not be, and often aren’t, identical. If,however, the parties are mistaken as to different assumptions, rule § 153 applies. The burden of proving that a mutual mistake should be grounds for voiding a

contract rests with the party who wants the contract voided.

Traditionally, a party with superior information has no duty to disclose their superiorinformation. On the other hand, the approach to unilateral mistake allows contracts to be voided where one party knew that the other party was operating under a mistaken belief....

• So! A unilateral mistake as to value, whether or not known to the other party will not, by traditional standards, constitute grounds for recission.

Aluminum Co. of America v. Essex Group, inc. (Price Index Standard)

The court held that the WPI-IC index upon which the parties based their 21 year contract was mistakenly relied upon as a reliable indicator of pricing terms thatwould exists to enable the mutual benefits of the contract. The mistake as to the use ofthis indicator was a basic assumption upon which both parties relied, and both parties

understood that the contract rested on this assumed state of facts. • Atlas v. U.S. “If the existence of a fact is not known to the parties, they cannot have a

belief as to that fact, much less a mistaken one”

IMPOSSIBILITY / IMPRACTICABILITYGeneral rule is that of Stees v. Leonard: pacta sund servanda (roughly, “contracts must be served”).Impossibility is an exception to this “performer’s risk” rule.Impossibility doctrine holds that an agreement does not bind the parties if the parties’contract was explicitly or implicitly conditioned on performance by the promisorremaining possible during that period.Impossibility tends to arises in cases involving unique goods, or the specialized service of

a particular individual.Impossibility does not arise from a “mistake” per se, but extends the principle

underlying the doctrine of mutual mistake to facts and circumstances not in

existence at the time of formation. Since those facts were not in existence at the

time, the parties could not have been mutually mistaken about them.

• Was there an unexpected contingency contrary to a basic assumption of both parties?

• Did the contingency make performance impossible or, under the modern andUCC view, impracticable?

• Upon which party should the risk of the unexpected contingency be placed?Transatlantic Financing Corp. v. United States (Suez Canal)

The court found that it was not impossible or impracticable to sail around Africa to deliver the goods, since it only ate the profits of the trip.First, a contingency (something unexpected) must have occurred. Second, the risk of theunexpected occurrence must not have been allocated either by agreement or by custom.Finally, occurrence of the contingency must have rendered performance commerciallyimpracticable. Unless the court finds these three requirements satisfied, the plea ofimpossibility must fail.



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UCC § 2-614 Excuses delay due to events such as the closing of the Suez, but not permitthe shipper to recover the added costs. Eastern Airlines v. Gulf Oil Corp (Oil Crisis not Impracticable)

The fact that performance has become economically burdensome or unattractiveis not sufficient for performance to be excused. The courts will not allow a party to a

contract to escape a bad bargain merely because it is burdensome. The buyer has a rightto rely on the party to the contract to supply him with goods regardless of what happensto the market price. The party undertaking the burden of establishing "commercial impracticability" by reasonof allegedly increased raw material costs undertakes the obligation of showing the extentto which he has suffered, or will suffer, losses in performing his contract. Aluminum Co. of America v. Essex Group, Inc. ($$ Index=Huge Losses)

Where, after a contract is made, a party's performance is made impracticablewithout his fault by the occurrence of an event the non-occurrence of which was a basicassumption on which the contract was made, his duty to render that performance isdischarged, unless the language or the circumstances indicate the contrary.

FRUSTRATION OF PURPOSERestatement 2d § 265

Changed circumstances can also disappoint the contractual expectations of the partywhose only obligation under the contract is to pay for the performance in question.The objective of one party is the basis on which both parties enter into the contract.

Where this principal objective becomes “frustrated” (i.e. is rendered “valueless” tothe party), that party’s obligations under the contract may be discharged.

In other words, where the non-occurrence of the frustrated event is a basicassumption on which the contract was made, such that the principal purpose ofthe contract is frustrated, performance is excused on the basis of a constructivecondition.

Distinction from impossibility and impracticabilityIn frustration cases, performance is still practicable, and there might be no

impediment to performance at all, but the “value” of that performance has

been negated by some supervening event.

Performance has been made pointless, rather than impossible.

Requires a showing that there was a clear, mutually understood, predominant purpose ofthe agreement and that the unanticipated event so utterly undermines that purposefrom being achieved that the non-occurrence of that event must have been a basicassumption of the agreement.

In Krell , the joint purpose was “the letting of a room for the purposes of viewing thecoronation.” But in Lloyd , there is no joint purpose: the lessee’s purpose was to sell new

cars, but the lessor’s purpose was to lease commercial property.• It is not enough that the transaction has become less profitable, or even that the

promisor sustains a loss. The frustration must be so severe that it is not fairly to

be regarded as within the risks that he assumed under the contract.

The COMMON OBJECT of both parties has to be frustrated, not merely the

advantage that one party might have achieved from the contract.



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REMEDIESCALCULATING EXPECTATIONS DAMAGESRestatement 2d § 344,347,348,349,371,373

Expectation Damages as a Substitute for Performance• If promises are to be sufficiently reliable, remedies for breach of contract must

substitute for the performance that was originally promised under the contract. Reliance Damages Are measured by the actual amount of detrimental reliance suffered by the disappointed promisee. She is made whole by a payment equaling her true loss, themonetary equivalent of her disappointment.Expectancy damages represent the amount the promisee expected to see as a result offull performance, the difference between promisee’s current position and the position shewould have been in had the contract been fully performed.Although both are alternative measures of the “value” of performance, expectancy

is the standard default measure.

Judicial remedies under the rules stated in this Restatement serve to protect one ormore of the following interests of a promisee:

(a) his "expectation interest," which is his interest in having the benefit of his

bargain by being put in as good a position as he would have been in had the contract

been performed,

(b) his "reliance interest," which is his interest in being reimbursed for loss

caused by reliance on the contract by being put in as good a position as he would

have been in had the contract not been made, or

(c) his "restitution interest," which is his interest in having restored to him

any benefit that he has conferred on the other party.

Expectations: “the benefit of the bargain”

To put the promisee in the position in which he/she would have been had the promise been performedReliance: the detriment to the promisee

To put the promisee back in the position in which he/she would have been had the promise not been madeRestitution: the benefit to the promisor

To put the promisor back in the position in which he/she would have been had the promise not been made

EXAMPLE>>>Expectation: $70k because of the expected profit of $10k overcosts. Reliance: $60k because of the costs so far. Restitution: $40k because of the benefitconferred upon the landowner.American Standard, Inc. v. Schectman (Leftover Concrete)

The cost of completion, not the difference in value, was the proper measure ofdamages. The property owner's proof showed a substantial deviation from the required grade lines and the existence above grade of structures, and supported the finding,implicit in the jury's verdict, that the contractor failed to perform as agreed.

“That the fulfillment of defendant’s promise would add little or nothing to the sale

value of the property does not excuse the default”



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“That the burdens of performance were heavier than anticipated and the cost of

completion disproportionate to the end to be obtained does not, without more, alter

the rule that the measure of plaintiff’s damages is the cost of completion.”

Peevyhouse v. Garland Coal & Mining Company (Mine Holes)

Where the economic benefit which would result to lessor by full performance of

the work is grossly disproportionate to the cost of performance, the damages whichlessor may recover are limited to the diminution in value resulting to the premisesbecause of the non-performance.”BOTH DECISIONS ARE WRONG...(AND DULY CRITICIZED)

In private land contracts, the damages should be the cost of performance, and in

corporate or company land deals for sale, the diminution in value should be

adequate.

SPECIFIC PERFORMANCERestatement 2d § 357,359,360; UCC 2-709,2-716

Specific Performance is given when Damages are inadequate...The adequacy of damages for one part of the contract does not preclude specific

performance or injunction of the contract as a whole...Basic Modern Test for Specific Performance

Specific Performance is an available remedy, but only in cases where the withheld performance is unique, hard to replace, or (for some other reason) one’s remedyat law is inadequate.Goods: Non-uniqueness presumed, but heirlooms, works of art, and other one-

of-a-kind objects may be unique, as well as patents, copyrights, closely-heldstocks, etc.

Land: Uniqueness is presumedPersonal Services: Strong presumption against

Limitations on Specific Performance

Value: nominal consideration, and contracts under seal insufficient.Indefiniteness: the performance required must be specified with greater precision

than under law.Insecurity: may require security/collateral to account for any undue risk.Difficulties of enforcement/ institutional concerns: there may be difficulties of

supervision by the courtUnfairness: unconscionability, unclean hands, balancing of hardships.Sedmak v. Charlie’s Chevrolet, Inc. (Unique Corvette)

As long as the parties agreed to a method by which the price was to bedetermined and as long as the price could be ascertained at the time of performance, the price requirement for a valid and enforceable contract was satisfied. The court held that

because there was no dispute as to quantity, part payment for a single indivisiblecommercial unit removed the oral contract from the Statute of Frauds. The court held further that plaintiffs had no adequate remedy at law (Due to the rarity of the vehicle andthe unlikeliness that another with the same options could be procured) and, thus, wereentitled to specific performance.Under the Uniform Commercial Code, the court may decree specific performance as a buyer's remedy for breach of contract to sell goods where the goods are unique or in other proper circumstances.



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Klein v. Pepsico (Not Unique Jet) Virginia's adoption of the Uniform Commercial Code does not abrogate the

maxim that specific performance is inappropriate where damages are recoverable andadequate.The market was not thin because he clearly could have provided cover, in fact made bids

on such cover, thus showing that the market sustained his ability to cover and receivemoney damages from pepsico in the form of the difference between cost of cover and price paid by Klein’s buyer. Thus, money is appropriate.The difficult issue (since “unique” goods are defined very narrowly) is how to

determine when the market is so thin as to require specific performance. Market

“thinness” is largely defined by a parties ability to obtain cover.

Courts are reluctant to enforce contracts for specific performance of service contracts.Those in breach are less likely to adequately perform. Plus, it smacks of involuntaryservitude... (Prince’s contract with Sony) Occasionally, courts will enforce the specific performance of a service contract, if thecontract is not personal in nature (such as one for mechanical service at a chain of repair

shops).RELIANCE AND RESTITUTIONRESTATEMENT 2D § 349,370,371,372,373,374

IF THE PLAINTIFF HAS IN RELIANCE ON THE PROMISE OF THE

DEFENDANT CHANGED HIS POSITION, RELIANCE DAMAGES PUT HIM IN

THE POSITION HE WOULD HAVE OCCUPIED WERE THE PROMISE

NEVER MADE.

(Whereas Expectation damages put him in the position he would have been in were the promise fully performed)Sullivan v. O’Connor (Fucked Up Face)

Plaintiff could bring a breach of contract action against defendant because he

made promises of a specific outcome, and that pain and suffering beyond thatcontemplated were compensable.

Suffering or distress resulting from the breach going beyond that which wasenvisaged by the treatment as agreed is compensable on the same ground as theworsening of the patient's conditions because of the breach.

The tendency of the formulation is to put the plaintiff back in the position heoccupied just before the parties entered upon the agreement, to compensate for thedetriments suffered in reliance upon the agreement.Kizas v. Webster (Cancelled Advancement Preference)

Each plaintiff had some chance of becoming such an agent and some chance ofremaining in that position. For that chance plaintiffs incurred losses, and these losses are

legally compensable where, as here, plaintiffs have been deprived of that opportunity bydefendants.

Here, therefore, where there is no showing or attempt to show that plaintiffswould have in fact suffered a loss had the contract been fully performed, plaintiffs areentitled to recover at least the loss they suffered in reliance on the clerk-to-agent program. The Court thus concludes that plaintiffs are entitled to recover their reliancelosses and reliance expenditures.



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Restitution: When a benefit has been conferred to one party requiring

compensation under contract.

• Either by the breaching party or the other party... as long as there’s a benefit

conferred, the conferrer can often receive damages.

• Recovery limited by the lowest of cost of service/benefit conferred/contract price.

2d § 3742d § 371

United States v. Zara Contracting Co. (Clay in the Runway)

Conditions during runway construction were way worse than anticipated. Plaintiff Company completed obligation at a loss.

It is to be noted that, when it is the defendant who is in default, and

plaintiffs' performance is part of the very performance for which the defendant has bargained, it is to be valued, not by the extent to which the defendant's total wealth has

been increased thereby, but by the amount for which such services and materials as

constituted the part performance could have been purchased from one in the plaintiff's position at the time they were rendered.

The measure of recovery by way of restitution, though often confused with recovery on the contract, should not be measured or limited thereby; but the contract may beimportant evidence of the value of the performance to the defendant, as may also the

cost of the labor and materials.

Britton v. Turner (Labor is pay-as-you-go)

In a labor contract, the worker in breach is rightly compensated viarestitution for the value of the benefit construed on the employer.

CERTAINTYRestatement 2d § 350,351,352

Drews Company, Inc. v. Ledwith Wolfe Associates, Inc. (Const.Delayed Opening)

The court held (1) the contractor could be held liable for the damages

resulting from its performance delays regardless of whether the contract specified acompletion date or stated that "time was of the essence," (2) the "new business rule" didnot automatically bar the owner from recovering lost profits damages, and (3) the trialcourt erred in submitting the issue of lost profits damages to the jury because the owner

failed to establish his lost profits with reasonable certainty. Hadley v. Baxendale (Shaft as model for replacement delayed)

The special circumstances surrounding the shaft were not communicated to the shipper, thus they are not liable for any losses due to the delay.

1) It is not always wise to make the defaulting promisor pay for all of the

damage due to his breach 2) The proper test for determining whether the particular items of damage

should be compensable is to inquire whether they should have been foreseen at the time of the contract.

USE VALUE OF GOODS: Goods with an obvious use value are sometimes held to

be compensable in cases of delay because of the foreseeability that a delay would

cause rental or interest costs.

Emotional Distress can Also be compensable if foreseeable... such as in house

purchase or funeral arrangements.



DUTY TO MITIGATE

Rockingham County v. Luten Bridge Co. (“Keep building for no reason!”)

When the county gave notice to the builder that it would not proceed with the project, plaintiff should have stopped building. After plaintiff had received notice of thebreach, it should have done nothing to increase the damages.

Parker v. 20th Century Fox (Steel Magnolias isn’t TerminatorII)The court found that Shirley Maclaine didn’t have a duty to mitigate damages by

accepting a role in an entirely different movie because the employment offered as anacceptable mitigation was different and inferior. If it’s different and inferior, then you

don’t have to accept it to mitigate damages from a breach.

Documents

Contracts Kang