CONTRACT LAW – PINTO – OUTLINE – SPRING 2011

Mutual Assent- pp. 22-51

** notes 2 and 3 at pg 37

Restatement § 17Restatement § 21’Restatement § 22Restatement § 24Restatement § 26Restatement § 33Restatement § 36Restatement § 50(1)Restatement § 60

Restatement §§ 25,Restatement § 26, Restatement § 36,Restatement § 38,Restatement § 39Restatement § 40Restatement § 43Restatement § 58Restatement § 59Restatement § 63Restatement § 69

Unilateral Contract- pp. 51-63Restatement §Restatement § 32Restatement § 45

Cook v. Coldwell Banker/Fraink Laben Realty Co.a. Procedural Posture: Defendant real estate brokerage appeals from a judgmen

entered on jury verdict that awarded Coldwell bankers former salespersonb. Holding: Affirm judgment for Cook the plaintiff for damages of $18,404.31 for

uncompensated bonus wages earned.c. Plaintiff Mary Ellen Cook, a licensed real estate agent, worked pursuant to a

verbal agreement as an independent contractor for Coldwell- sold real estate for the, earned commission on the sales.

-Coldwell Banker makes an offer to their agents/brokers/people like Cook independent contractors: a bonus/incentive program that increases with the more you make in commission; $15k earns $500 bonus, 22%, 30% if $25k or above

-the terms of the bonus program were that the bonuses were payable at the end of the year**, starting Jan 1 of that 1991 ending Dec. 31. – Laiben was the partner and kept track of the bonuses in a separate book.-Sales meeting in September Laiben changed the policy and made bonuses payable in March of the following year, AND indicated that the individual must be “present” with the company in order to be compensated.-January of the following yr. Cook accepted a job w/ competing agency Remax, and Laiben informed Cook she would not be receiving her bonus; even stays on a few months to sell off a few more pieces of propertyCook breach of contract claim: $18,404.31 damages (what her bonus would have been if she were to be paid out for her year)- lower court enters judgmentDefendant Laiban’s claims:

1. no consideration to support the offer of a bonus2. Cook did not make any acceptance of the offer to give a bonus

(view the evidence in the light most favorable to the plaintiff Cook)- not warranted of a directed verdict Plaintiff Cook presented evidence of a:

A. unilateral contract--contract in which performnce is based on the will or pleasure of one of the parties:1. the promisor doesn’t receive a promise or consideration for his promise2. no consideration for want of mutuality (not a mutual obgligation)3. contract is enforceable to the extent performed4. offer for a unilateral contract is accepted when the requested

performance is rendered

B. From Precedent: A promise to pay a bonus in return for an at-will employee continued employment is an offer for a unilateral contract which becomes enforceable when accepted by the employee’s performance.

B. Reasoninga. Sufficient evidence that the bonus offer induced plaintiff to remain

with defendant through the end of 1991 and to earn a high level of commissions for the court to submit the it to the jury.

b. Generally, an offeror may withdraw an offer at any time prior to acceptance unless the offer is supported by consideration. HOWEVER, an offeror may not revoke an offer where the offeree has made substantial performance Williston on Contracts.

c. Defendant offered to pay the bonuses so long as she stayed, and she fulfilled her specific performance of working until the end of the year, and still was not given her bonus pay.

Notes and Questions.d. Restatement §45- rephrases unilateral contracts as “option”

contracts- attempt to rid the contract law of the usage of unilateral and bilateral contracts

e. Llewellyn’s view= modernist- towards the Restatement’s view- pure unilateral contracts where offeror seeks only performance and not a

promise are so few and far between in comparison to commercial contracts that shouldn’t be viewed as a major part of contracting world

i. Some “true” unilateral contracts do exist: Offers of commissions to real estate brokers, offers of rewards, etc.

f. Would the Cook transaction be a “true” unilateral contract in Llewellyn view?

i. Llewellyn made an exception for some true unilateral contracts, the pure example of when one person offers you to do something, and you’ll get it once you do it, is reserved for both rewards and for real estate brokerage situations. This would likely be a combination of the both, an incentive contract, for the sale of real estate properties increasing with the individual’s increasing commission earnings.

a. The offer: money for certain brackets of earned commissionb. Acceptance: upon completing the act = the management informs all that the

commission earnings based bonus are paid out at the end of the year, and they must be on hand to keep them

2. Note: Williston and Corbin- Cook would have had to have had rendered substantial performance

ii. Does §45 of Rest. Impose a substantial performance requirement?

1. No- it only requires that the act be susbantially inituated or begun, “begins the invited performance or tenders a beginning of it” – the word tenders probably applies to money, so once he begins, which leaves room for varying possible interpretations both between different people/judges and between particular cases themselves.

iii. Courts are now using unilateral contract analysis (although it has beenput out by the Restatement (2nd) not to avoid liability but to enforce it, bu imposing liability on an offeror in cases where no promissory acceptance was incited or required. – “New style” unilateral contracts do not involve performance by the offeree entirely- buut where theyre not necessarly committed to full performance in the terms of the contractual agreement.

Pepsi commercials in the Course Documents in the order they appear and look for the differences in points for the jet. We will discuss them in classhttp://www.youtube.com/watch?v=q8SrTyc8i1c http://www.snopes.com/business/market/mars.asp 

UCC Mutual Assent pp. 63-70 Restatement § 22 (2)UCC § 2-102 UCC § 2-105(1)

UCC § 2-204  UCC § 2-207(3)

d. Harlow and Jones v. Advance steel Co. 424 F. Supp. 770 (1976) i. Seller: Harlow- selling 1000 tons of imported European Steel

1. Claim- their sales confirmation form that they initially mailed, which was received but never signed and return, constituted an offer, which the defendant accepted by mailing back an alternative but almost identical purchase order ten days later.

ii. Buyer: Advance Steel Co.- denies liability, claiming that the shipment of steel was late and was therefore properly rejected under the contract

1. Several telephone conversations were had in June 1974 between Robert Stewart, the president of Advance, and William VanAs, and independent steel broker authorized to solicits orderson behalf of Harlow.

2. VanAs tells Steward of 500 metric tons of west German Steel for shipment during September-October**

3. Stewart advises that he is interested in purchasing 1000 tons of the Steel- the terms of the transaction are drawn up on a worksheet and were relayed to Greve, the President of Harlow.

4. Greve mailed Stewart a sales form invoice with the specified dates and amount of steel being shipped- Stewarts received the invoice but did not return a signed copy

5. Stewart prepared a worksheet as their purchase order and sent it back to Greve, with same specifications and quantities, shipping dates, etc., was also never signed and returned.

6. Steel is shipped in three separate vessels. The first two arrive in October, the last on arrived in November 27th (shipping said supposed to be September-October; but it is widely known in shipping industry to expect such items to be delivered in November

iii. Court’s Holding:1. Court that both Harlow and advance have misread the evidence. The court

found that an oral contract for the purchase of steel was formed before either party began sending or receiving written contract forms.

2. The agreement was made in the several telephone conversations between Stewart and VanAs ding week of July 2nd

a. Oral contracts are often made this way and later confirmed in writing- oral contracts are a mutual assent of two individuals for some sort of mutual promise/exchange

b. UCC §2-204: A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract

3. The parties conduct demonstrates a mutual understanding that a sale had been arranged for a future date, and that the exchange in “offers” that both parties considered were not actually offers, but instead simply confirmations of the negotiations and agreement that had previously taken place

4. Does not matter that shipping and delivery terms were not ironed out according to the UCC §2-204(3) and UCC §2-207(3) - even though one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

5. Court holds: Advance breached the contract by refusing the accept the last shipment- because the mutual assent was there that one would pay and the other would take the goods- and simply because they weren’t delivered precisely on time, only entitled to relief if there was some sort of “material delay”- Court finds that there was no such material delay here because of evidence that November delivery is common in international steel trade.

Note:1. UCC only applies to goods, NOT to services- so the contract between Harlow

and VanAs would be governed by different regulations.2. Under the principals of offer and acceptance- was there a contract in Harlow

case?a. Most likely I would say so- I agree with the opinion that the contract is

formed when they both mutually assented to certain thing over the phone/made the agreement then. However, in that sense the delivery may be late and the contract void- if the initial oral contract which stipulated that 1000 tons of steel would be delivered from September-October -because the UCC rules wouldn’t apply. A solicitation was made by VanAs for the availability of the Steel, an offer was made to purchase 1000 tons of that steel by Advance, and specifications were drawn up and agreed upon. Then, the orders were all placed, both parties sent confirmation letters which varied slightly, but only with specification to delivery date- all of which were left unsigned. What was agreed upon was the initial worksheet in the telephone conversations- but there was.

b. Principals of contract formation:i. Doesn’t have to be written- oral contracts are binding

ii. Can recind offer during considerationc. Certain details can be left out of a contract and agreed upon later/not at all.d. Early common law: clear rules; modern common law: more characterized

by standards than clear rules, responsive to issues of social justice and economic power (good faith and unconscionability)

Lonergan- solicitation not an offer- needs to be clear- letters in exchange leave it hanging on a limb, need to know ASAP, etc. Looking for some further assent; Here- no further assent is needed because they discussed and agreed previously and began the process of fulfilling the mutual requirements of the contract.

Consideration- pp. 71-107Restatement § 2 Restatement § 17Restatement § 71Restatement § 79Restatement § 81http://www.carrollcitizens.com/ASH.html ** Consideration Hypos in Course Documents

Consideration 1. Bilateral contracts- both parties make promises2. Unilateral Contracts- only one of the parties will be a promisor, and the other

party only becomes a promisee/accepts the offer once performance is met3. An additional requirement is needed beyond a promise in the formation of a

contract--> needs to be presence of “consideration”4. Consideration is known by most to be the sine qua non (refers to an

indispensable and essential action, condition, etc.)- of contract law--> BUT IT IS NOT/NEVER WAS THE ONLY baqsis on which liability for breach of a promise may rest

Defining Consideration-Both the Restatement (2nd) of Contracts and the UCC include considerationUCC Chapter 4- Formation of contractsSection 71 – Requirement of Exchange; types of Exchange

1. To constitute consideration, a performance or a return promise must be bargained for.

2. A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promise in exchange for that promise.

3. The performance may consist ofa. An act other than a promiseb. A forbearancec. The creation, modification, or destruction of a legal relation

4. The performance or return promise may be given to the promisor or to some other person. It may be given by the promise or by some other person.

Section 74- Forbearance/Settlement of Claims and ConsiderationSection 77 – Illusory and Alternative Promises

- A promise or apparent promise is not consideration if by its terms the promisor/purported promisor reserves a choice of alternative performances unless

a) Each of the alternative performances would have been consideration if alone it would have been bargained for

b) One of the alt promises would have been consideration and there is or appears to the parties to be a substantial possibility that before the

promisor exercises his choice, events may eliminate the alternatives which would not have been consideration.

Section 79 – Adequacy of Consideration- If the requirement of consideration is met, there is no additional requirement

of:a) A gain, advantage, or benefit to the promisor or a loss, disadvantage,

or detrmiment to the promise; orb) Equivalence in the values exchanged; orc) “mutuality of obligation”

Note: (this rule of the Restatement contradicts the reasoning for the holding in Hamer- decision from 1891)Section 81

1. The fact that what is bargained for does not itself induce the making of a promise does not prevent it from being consideration for the promise

2. The fact that a promise does not itself induce a performance or return promise from being consideration for the promise.

[ Note- Section 87- Option Contract = Contract without Consideration]- The Restatement in Section 71 adopts the bargain theory of consideration,

and in Section 79 rejects an additional requirement of benefit or detriment.

Hamer v. Sidway 124 NY 538 (1891)Facts

- Willaim E. Story Sr was the uncle of William Story 2nd- at the celebration of the Golden wedding anniversary of Samuel Story and wife- he promised his nephew that if he would refrain from drinking, using tobacco, swearing, and playing cards or billiards for money until he became 21 years of age, he would pay him the sum of $5000. (Offer).

- The nephew agreed (assented) and specifically performed to the full extent of the promise

- He wrote his uncle when he turned 21 that he had performed his part of the agreement and was thereby entitled to the $5000.00.

- W.E. Story Sr. replied in a letter stating that he wanted to hold onto the money in a separate bank account, because he is young only 21 and it’s a lot of money, so he wants to keep it safe

- The nephew consented that the money should remain with the uncle- The uncle died on the 29th day of January without paying over any of the

money to the nephew.Issue: Is this a contract?: Is the uncle indebted to the nephew for the amount of $5000.00 that was promised to him- or was it merely a promise that served more along the lines of a present/gift, to be received upon a certain date?

- Defendants argument- no consideration in the agreement, so there is no contract --> “ the promise to refrain from liquor and tobacco was not harmed by benefitted, tha it was best for him to do so independently of his uncle’s

promise, and it follows then that unless the promisor was benefited, the contract was without consideration.

Courts Holding: creating a rule that defines what Consideration is “the court will not ask whether the thing which forms the consideration does in fact benefit the promissee or a third party, or is of any substantial value to anyone. It is enough that something is promised, done, forborbe, or suffered by the party towhom the promise is made as consideration for the promise made to him.”

1. Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first

2. Application to present case: It is sufficient that the nephew restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle’s agreement (abstaining from drinking and smoking with a legal right to do so), and now having fully performed the conditions imposed, is of no moment whether such performance actually proved a benefit to the promisor.

3. The abandonment of the use of alcohol may have saved him money or imporved his health, but the surrender of that right caused the promise, and having a right to contract with reference to the subject matter, the abandonment of the use was of sufficient consideration to uphold the promise

Pennsy Supply, Inc. v. American Ash Recycling Corp 895 A.2d 595 (PA 2006)Facts:

1. The case arose out of a construction project for Northern York HS in PA2. The School district entered into a construction contract with general

contractor LOBAR3. LOBAR hires subcontractor Pennsey- both are required to meet certain

paving requirements, but permitted the use of alternative materials, namely Treated Trash Aggergate (AggRite)

4. Pennsy contacted American Ash- who had put out a solicitation (notice to bidders) for free AggRite on a first come, first serve basis, informed AA that it would require 11,000 tons of Aggrite.

5. Pennsy picked up the AggRite and used it for the paving project in December 2001.

6. By Feb. 2002 the District notified Lobar (general contractor) that there was extensive cracking- Pennsy is notified to remedy the defective work, and they do so at no cost to the school.

7. Scope of the remedial work included removing and appropriate disposal of the AggRite, which is classified as a hazardous waste material by the EPA

8. Pennsy alleges thaqt the remedial work cost over $250,000.00 to performed and an addition $130,000.00+ to have the aggRite removed = Damages?

Procedure

1. Pennsy files a 5 count complaint against American Ash for: 1. Breach of contract; 2+3. Breach of implied AND express warranty of merchantability, breach of warranty of fitness for a particular purpose, promisorry estoppel.

2. America Ash files demurrers (motion to dismiss) and trial court sustained the MTS and dismisses the complaint- Trial court holds that any breach of contract claim is dismissed because there was not adequate consideration to render the contract enforceable.

3. ISSUE ON APPEAL: Whether Pennsy’s relief of American Ash’s legal obligation to dispose of a material classified as a hazardous waste, sich that AA avoided the costs of disposal thereof at a hazardous waste site, is sufficient consideration to ground the contract and warranty claims

Holding- the court reverses the trial courts dismissal on the first count and reverse and remand for further proceedings

1. RULE: Court Addresses Count I- the breach of contract claim-a contract must be established by pleading:

a. Existence of a contractb. Breach of duty imposed in the contractc. Resultant damages

2. It is axiomatic (essential) that consideration is an essential element of an enforceable contract--> mutual understanding, exchange consideration, and delineate the terms with proper clarity

3. It is not enough that the promise has suffered a legal detriment at the request of the promisor- the detriment incurred must be the “quid pro quo,” or the “price” of the promise, and the inducement for which it is made

a. Williston ex.: If a benevolent man says to a tramp, if you go around the corner to the clothing shop there, you may purchase the overcoat on my credit,’ no reasonable person would understand that the short walk was requested as the consideration for the promise, but that in the event of the tramp going to the shop the promisor would give him a gift.

4. An AID, though not a conclusive test , in determining which construction of the priomise is more reasonable is an inquiry into whether the occurrence of the condition would benefit the promisor--? If so, it is a fair inference that the occurrence was requested as consideration--> but if theres no benefit to the promisor but merely enables the promise to receive a gidt, then it is not consideration.

5. American Ash’s promise to supply Aggrite free of charrge induced Pennsy to assume the detriment of collecting and taking title to the material, and critically, that it was this very detriment, whether assumed by Pennsy or some other successful bidder to the paving subcontract, which induced AA to make the promise to provide free AggRite for the prohect.

a. This is the reciprocality of the offer/acceptance that establishes consideration and thus makes it a contract.

6. But is Consideration lacking because Pennsy did not allege that American Ash’s avoidance of disposal costs was any part of the bargaining process between the parties?

a. The bargain theory of consideration does not actually require that the parties bargain over the terms of the agreement.

b. According to Holmes, for consideration to exist: the promise and the consideration must bbe in the relation of reciprocal inducement, each for the other

c. Here: the defendants AA benefit because they don’t have to pay for disposal costs; and Pennsy obviously benefits in getting the materials for free; but the product is hazardous and has to be removed to the detriment of Pennsy.

d. There is a breach of contract, , because consideration is prevalent and therefore there is a contract —Pennsy planned on using the AggRite in paving work, which did not involve any disposal expenses- the only reason they incurred these costs was that the AggRite was defective, reuiring rmoval and disposal

Notes1. Citing prior case law- the court holds that consideration requires a benefit to

the promisor or detriment to the promise that is bargained for2. the court holds that, under Holmes test of “reciprocal conventional

inducement” --> Under this test- American Ash affirmatively sought companies to take AggRite so that American Ash could avoid the disposal costs of the material , and Pennsy’s assumption off this disposal oobligation induced American Ash to deliver Aggrite to it- thus each partiesy’s promise and resulting performance induced the corresponding promise and performance by the other party- even though there was no actual bargaining between the parties.

3. Different than the Pennsy suppl, benefit detriment test for consideration: Without Bargain theory of consideration: negotiation resulting in the voluntary assumption of an obligation by one party upon condition of an act or forbearance by the other.

4. From P. 85- Newman & Snells Bank

Applying the Consideration Doctrine

Dougherty v. Salt 227 NY 200 (1919 )- Charles N. Dougherty, an Infant, by Susan M. Teves, His Guardian ad Litem, Respondent, v. Emma L. Salt, as Executrix of Hellena M. Dougherty, Deceased Aunt, AppellantFacts

1. Doughtery is now an 8 year old boy who received from his aunt, the defendant’s administratrix, a promissory note for $3000.00 payable at her death or before

2. The promissory note was blank when filled out, but filled in and signed- the aunt handed it to her nephew with the words “you have always done for me, and I have signed this note for you. Now, do not lose it, Some day it will be valuable.”

3. Trial Court: Dismissed the complaint (set aside the jury verdict for the nephew)- and held that there was not sufficient evidence of consideration for there to be a binding contract

4. Appellate Division , by a divided court, reversed the judgment of dismissal and reinstated the verdict- stating that there was ground for sufficient consideration.

5. Holding: New York Court of Appeals: this is a matter of law not for a jury to decide--> the case is based on testimony of individuals speaking on behalf of those that were there (The aunt’s representative, visiting her nephew @ time, who was an infant).

a. Note = voluntary promise executor gift = Unenforceable: the child isn’t a creditor or dealt as one, the aunt wasn’t paying a debt, but conferring a bounty.

b. The promise was neither offered nor accepted with any other purpose --> The Promise of $$ was not in exchange for the Child’s promise “nothing is consideration that is not regarded as such by both parties” (no sense of reciprocal promise and/or mutual assent).

6. Notes:a. Dougherty compared with Hamer – (both involve promise between

younger and older relative) - the promise in Dougherty was made in a more formal manner than the one made in Hamer, but Hammer was enforced while Doughterty was denied- Why?

i. Hammer - There was an actual offer and acceptance (presumably)

ii. Specified amount and a time frame (similar)iii. There was a reciprocal promise made by the boy in Hamer,

that he specifically perform the act of abstaining from drinking and smoking for a specificied period of time, and he accepted to do so, and then specifically perfomed the terms of that promise.

1. Doughtery- there is no performance2. Dougherty- no consideration- no performance or return

promise bargained for--> only the prospect of receiving the money at a certain time = a gift.

p.90 – contracts in practice- ways/mechanisms attorneys can use to confer the obgligation/create a contractual obligation – like in the Dougherty case:

1. Promissory note2. Promise under seal3. Executed Gift4. Testamentary Gift5. Gift in Trust (trust fund)

Bestakis v. Demotsis 226 S.W.2d 673 (1949)Facts/Procedure Below:

1. Plaintiff George Bestakis is a lender of money to defendanrt Eugenia Demotsis sued to recover $2000.00 plus 8% interest as part of a written letter, oral conversation and mutual assento an agreement

2. The contract was originally written in Greek: written by Defendant in form of letter that she received today $2000.00 of US currency and that she promised in return to pay the money by the end of the wartime and agreed to the 8% interest added together with the principal.

3. The trial court ruled for the lender Bestakis for $750.00 principal plus interest toalling $1163.83

4. Defendant Eugenia claims: the only received the sum of 500,000 Drachmae which is allegedly only valued at $25.00 US currency- so the claim is incorrect for $1975.00, and she has to return $25.00 the amount of money that was given to her. Defendant asserts that she was never given the $2000.00 US currency that she stipulated that she had “hereby accepted in full”- and in exchange for her promise promise to return in a timely manner and to pay an 8%interest on the total sum of $2000.00 while the principal remained unpaid.

5. Defendant also claims that she was taken advantage of in her distressed financial state and that he( Bestakis) exacted her the $2000.00 in exchange for $25.00 initially for signing the promise/creating the contract.

Court’s Reasoning/ Holding1. The trial court below exacted that the 500,000 drachmaes were of value of

$750.00 US currency – in addition to the other consideration which plaintiff gave the defendant for the instrument if he believed plaintiff’s testimony-

2. This amounts to consideration.3. Essentially the contract stated that, upon the plaintiffs agreeing to sign

saying he would repay the $2000.00, he would get 500,000 drachmaes (plaintiff claims that this is only worth $25.00) initially and would, in return for the money, be repayed the total sum of $2000.00 US currency.

4. The promise to lend him the total sum of $2000.00 US currency was NOT stipulated in the contract- only the promise that he would repay Bestakis the amount of $2000.00 US currency that she had “hereby accepted in full.”

5. The adequacy of the consideration in the contract is NOT examined or “weighed” by the court the “fairness” of the consideration is not assessed, only examine the bargain/exchange element of the transaction to see if there is mutual assent and consideration (promise in return for the other’s promise)

6. Court Conclusion : evidenced by the instrument she sued on the court should have rendered judgment in favor of the plaintiff against the defendant for the entire principal plus interest reform the judgment for that amount and affirm.

Policy/Implications: the Restametent §79 does not require any mirror rule or any “equivalence in the values exchanged” – although gross inadequacy may be considered (in cases where the transaction is unconscionable)

1. Is the defendant (and arguably both party) equally responsible for the transactiosn they enter into, and the contracts they stipulate and enter into?

2. Obligation for fairness/morality in creating agreements and contractual obgligations

3. Proportion of bargaining power4. Change in the laws concern for fairness – fairness vs. commercial speculation

and freedom to contract based on their appraisal of the maket the whole point of pricate contracting and the ability to do so in a free marker it so move away from courts and their equalizing tendencies and be able to enter into potentially beneficial bargains/exchanges that would necessarily benefit one party over the other.

Illusory promise – a promise that makes performance entirely optional with the promisor

1. A prediction of future willingness is not an expression of present willingness and is not a promise

2. Where the proisor has no limitations on his future choises3. Where the promisor has no expectation of future performance if it is left to

the will/pleasure to perform @ a later date4. = NOT BOUND = no promise/for/promise notion that underlies

consideration5. free to terminate at will = no commitment by the other party to perform

upon the returned promise = inadequate consideration6. NOTE: UNILATERAL CONTRACTS = NOT an illusory promise because one

side is only seeking performance and NOT a return promise- so consideration is NOT an issue because acceptance is conferred after performance is complete, so the actual performance would seve as sufficient consideration

7. Consideration may also be found within the secondary commitments/obligations made by parties in their contractual agreements (like implied obligations to conform with building codes/registrations/regulations/inspections.

8. Mutuality of Obligation = Overstatement- restatement says that as long as consideration is present it is enough to contract precedent- Where a dealership is not bound to orrdser any goods from a distributor, the distributor is not bound to perform- because in this sense its more of a unilateral contract if the dealer is only seeking the performance of the distributory to deliver the cars, the distributor did not make a promise for delivery but seeking payment upon delivery/performance, and the dealership did not seek/have a promise of delivery from the distributor.

Plowman v. Indian Refining Co. 20 F. Supp. 1 (1937 ) Facts/Procedure Below

1. 13 individuals plus 5 administrators for deceased person brought suit against Indian Refining Co., an oil company that entered into an agreement/alleged contract with the plaintiff employees/admins for deceased.

2. The oil company sought a way to increase profit margin and decrease overhear/cut costs, and had to essentially lay off employees.

3. Issue: the alleged contract is based on a theory of plaintiffs that the VP and general manager of the refinery called the employees into his office (with the exception of 2) and made with each a contract to pay the, for the rest of their lives, half the amount of their current salary

a. Plaintiffs claim that consideration exists and arose out of the relationship existing between them and the Refinery for their years of dedicated service, and the Refinery’s desire to provide for the future welfare of their dedicated employees.

4. In return the plainitiffs were to cease working entirely and were to report/contact the office and come in to get their payment checks.

5. The Refinery Agents (the VP and GM) were authorized to enter into this agreement. However, the board of trustees of the company did not authorize, consent, or know of these contractual agreements, and more specifically that they were to be instated for the duration of the promisee’s lives. There were no minutes showing any corporate action with regard to the arrangement and that there was nothing in the records of the corporation, in bylaws, or anything aratifying the payments of giving anybody authority to make the same. (So according to the company bylaws, the Agents who made the agreements that were allegedly binding for life, were not authorized to do so).

6. The contract itself, based on the verbal agreement in the offices and the formal letter that followed and affirmed the agreement, did NOT stipulate in any way that the semi-monthly checks would be paid for the duration of the employees lives.

7. Plaintiffis testify that they were told orally that the payments would be given for the duration of their lives, and since the agreement/contract was conferred upon the offer and acceptance and consideration during the oral negotation and acceptance.

8. Defendants deny promising any of them that the payments would persist so long as they lived, and sent a letter following up that confirmed the arrangement, and the letters “were in compliance with what he had said.”

9. ISSUE IN THIS CONTRACTUAL EXCHANGE = Issue of fact: whether the plaintiffs told each of them that the payments would continue until their death --> Court says it is really a matter of law: is there a contract? See below:

Court’s Holding/Reasoning1. Under the bylaws, corporation transactions as recorded in the minutes, there

was no authorization or ratifaction of any such contract knowledge that the men were on the payroll and paying them as such does not prove any

knowledge of the contract entered into, and therefore does not create any estoppel of the Refinery to deny authority.

2. NOT Effective Ratifiaction0 would require knowledge of all the material facts the board of directors- who could not have known merely from the payroll records that the employees were no longer working or were receiving lifetime pensions.

3. Consideration:a. NOT: Past or Executed Consideration- self-contradictory term:

something given in exchancge for a promise or in a reliance upon the promise cannot be something which has been delivered before the promise is executed and therefore made without reference to it.

i. Something already done cannot constitute consideration for a later promise

ii. Not can any moral obligation arising out of past faithful service constitute consideration unless the moral dudte was also a legal one

b. Appreciation of past services or pleasure afforded the employer thereby is not sufficient consideration – love and respect are not adequate motive to constitute consideration.

c. The act was simply a condition imposed upon them in obtaining gratuituous pensions- not Consideration: if the defendants afreed to make the payments for life, then fatal to plaintiffs cases is the lack of consideration- we have merely a gratuitous arragement without consideration

i. Plaintiffs travel to the defendant’ s office, to pick up their checks, did not constitute consideration analogous to the hypothetical of the tramp having to go to pick up his free coat- there is no promise exchanged by the promisee.

d. Policy: to impose this expense upon the industry, to the creation of whose product he has contributed, is not unfair or unreasonable, for eventually, obviously, under wise budgeting and cost accounting systems, this element of cost is passed on to the consumer of the product the public bears the burden

e. Therefore: it is not a factual question of whether they have to pay until death: but really a legal question: were they valid contracts: Court says NO: only a gratituitous arrangement without consideration = NO contract.

Notes1. Plowman vs. Pennsy Supply - In Pennsy supply, the company that offered

the AggRite for free was in a sense giving a “gift,” but it still constituted a business transaction because it was still a bargain/exchange for goods and there service of prodiing good products- there was consideration because both provided a promise in exchange for the other one’s promise – promise to provide the goods for free in exchange for the promise to take them and it was NOT part of the promise to incur the costs of disposal when the goods are determined to be faulty-.

2. Moral Consideration in contractual obligations- Utilitarian/moral implications in individual/personal contracts and transactions-> expectations in others, trust, and respect

3. Should moral obligation be enforced in every contract? – depends on your view economically and socially- weighing the value of their past commitment with the value of their future prmised pension

4. Would it have been different if the VP and GM had been given the authority expressly to enter into those contracts- most likely, because then it would have been in the minutes and the authority to enter into lifelong contracts with outgoing employees would have been binding, and the verbal agreement to do so, so long as the disputed fact of if such a lifelong payout was in fact agreed upon, would confer that obligation upon the Refinery to fulfill. But the facts of whether such a lifelong timeframe for the contract was in fact agreed upon would still be in question- so although the VP and GM having authority to enter into such contracts would indeed legitimize them, it would still have to be proven that they in fact offered to do so.

a. Under UCC- (even though this isn’t goods its employment)- the specific terms don’t have to be offered and accepted upon explicitly, so long as it would be agrred upon generally that such an offer was tendered and accepted, the timefram wouldn’t have to be included in the contract to be valid so long as it was reasonable foreseeable.

5. The Power of Agents to Bind their Principalsa. Actuall Authorityb. Express Authorityc. Authority for resultant/incidental actions in achieving the principals

objectivesd. Apparent Authority

6. Estoppela. Under Agency law, a principal may be estopped to deny that its agents

actions were unauthorized, where the principal by words or actions caused the other to rely to his detriment on the agents authority to act

b. Apparent authority, is based on the principals manifestation- while an estoppel could result from other acts or even inaction by the principal that place the agent in a position to lead the third party to believe that the agent has authority to act for the principal.

c. Knowledge of the transaction/contractual obligation entered into + inaction to change/stop (+authority to do so) = ESTOPPED to deny the agent acted with authority.

Limiting the Power to Revoke- The Effect of Pre-Acceptance Reliance- pp. 108-137Restatement § 32

Restatement § 45Restatement § 87Restatement § 90

Restatement § 90, 87

Problem 2-1

Limiting the Power to Revoke by Statutepp. 138-140UCC §§1-103; 2-102 2-205How does the UCC change the common law?Could §2-205 have been applicable to Baird or Drennan?

Problem 2-2 [Not assigned the issue if Gale was a Canadian which is covered by the CISG]

1. Traditional mode of mutual assent: offer and acceptance; offer revocable until accepted “free revocability”

a. Option Contracts- mode of making an offer irrevocable by contract- a binding offer (during the period of the option).

i. Ex: landowner makes a promise to sell in exchange for some consideration, usually money (but can be performance); If the offeree accepts the offer, decides to exercise the option, he’s accepting the offeree’s first promise to sell the land.

ii. Useful in commercial relations- permitting one who is consideration a contractual transaction to delay committing herself to the contemplated exchange without fearing that such delay will cost her the ability to enter into that contract, should she eventually decide to accept it.

iii. Classical contact law: NO protection for OFFEREE who relied on an offer not yet accepted (this is like the Berryman case- where the landowner makes an offer to keep the option open for sale of property for 120 days, without consideration

iv. Spawns a key issue: What effect should an offerees pre-acceptance conduct (consideration) have on the offeror’s power to withdraw his offer at will?

1. Restatement §

James Baird Co. v. Gimbel Bros., Inc. 64 F.2d 344 (1933)

1. The Department of Highways in PA asked for bids for the construction of a public building.

2. Employee for Gimbel sent employees to the office of a contractor in PA who had possession of the specifications et al, - computed the amount of linoleum that would be required for the job, and estimated the TOTAL YARDAGE by about half the proper amount = MISTAKE.

3. Gimbel bros then, using the specifications that they came up with with the PA contractor, sent an offer to supply all of the linoleum for the job to 20-30 other contractors that would likely bid on the job.

4. The offers stated “If successful in being awarded this conract, it will be absolutely guarunteed… and… we are offering these prices for reasonable, prompt acceptance after the general contract has been awarded.

5. James Baird, the plaintiff contractor from Washington got the contract to build the numicipal building project.

6. That same day, Gimbel realized their mistake in their miscalculation and estimates, and telegraphed ALL of the contractors to whom they had sent the offer withdrawing the initial ofer and substituting with a new one double the amount of the old.

7. Plaintiff Baird received this news the same day, but AFTER he had put in a bid for the contract on a lump sum based on the prices quoted by Gimbel initially.

8. Baird gets the bid on December 30th- Gimbel wrote a letter of confirmation of withdrawal that was received Dec. 31. Baird accepts the offer January 2nd.

9. Defendant Gimbel persists that they revoked the initial offer.10. Plaintiff Baird sues Gimbel Bros., Inc., for breach of contract

Courts Reasoning

1. Generally: since the offer was withdrawn before it was accepted, the acceptance was too late (Rest. § 35)

2. Plaintiff’s claim: it was a reasonable implication from the defendants offer that it should be irrevocable in case the plaintiff acted upon it (by using the prices quoted by Gimbel in making the offer- putting it at a position that it could not withdraw without suffering great loss)

3. The plaintiff could have revoked his bid after receiving the revocation- but time had passed to submit another without incurring penalty (because it hard relied on the plaintiffs offer in making/assuring their contract)

4. Inevitable implication: when the contractors acted upon it, they accepted the offer and promised to pay for the linoleum, in case their bid was accepted.

5. However, it seems entirely clear that the contractors did not suppose that they accepted the offer merely by putting in their bids.

a. If the successful one had repudiated the contract with the PA pub. Authorities after it had been awarded to him, certainly the defendant could not have sued him for a breach, nor would there be any remedy for the linoleum company against the contractor = NO Contract

b. The phrase “if successful in being awarded this contract; offering these prices for prompt acceptance” – imply that they are looking for something more, something further that assents or moves from the

option to acceptance no where does it imply that use of the prices would imply acceptance of the offer.

6. Plaintiff Baird argues: even though no bilateral contract was made- the defendant should be held under the doctrine of “promissory estoppel”

a. Where persons subscribe to a venture, usually charitable, and are held to their promises after it has been completed Generalized no in Restatement §90.

b. Application: offers are ordinarily made in exchange for a consideration, either a counter promise or some other act which the promisor wishes to secure ( = bargain)

c. An offer for exchange is not meant to become a promise until a consideration has been received, either as a counter-promise or whatever else may be stipulated

d. Gimbel offered to deliver the linoleium in exchange for acceptance, not for its bif – that offer could only become a promise to delivery when the equivalent was received: when Baird promised to take and pay for it NOT promissory estoppel

7. NOT an option contract HERE: where Baird would not be bound to accept the offer it its bid were accepted, if he found another offer elsewhere Gimbel did not mean to subject itself to that one sided obligation- If it were the case that Baird was not bound to its promise to use Gimbel linoleum if it got the bid for the contract but decided to use another lineoleum merchant- the word option isn’t used

a. Court essentially leaves this issue of promisorry estoppel for another day- just states that its clear that Gimbel didn’t intent to make an option contract- they wanted to secure their bid if the PA bid got secured (business)

8. Notes:a. Justice Hand acknowledges that the plaintiff Baird would have a claim

if was the case that the he would be bound to the defendant in using the defendants bid but REJECTS it in Baird because it “seems entirely clear that the contracts did not suppose that they accepted the defendants offer mere by putting in their bids” – Courts agree generally- reasoning: Basically because you can put in a bid at any price you damn well please, you would just be foolish to put it in at a price that the subcontractor couldn’t do it for- so using the subcontractors price quote as your bid doesn’t bind the subcontractor to that bid without formal acceptance of the offer

b. Thus, the “reliance” that plaintiff Baird claimed was not entirely a reliance without a legal remedy

c. Is Judge Hand’s rejection of an option contract in Baird persuasive? No, but the facts do demonstrate Hand’s point the contract doesn’t stipulate that the offer will be open for them for any particular time frame, they also offered that price to 20 or 30 other people

9.

Drennan v. Star Paving Co. 51 Cal. 2d 409 (1958)

1. Action is an appeal brought by Star Paving from a judgment for plaintiff in an action to recover damages caused by Star Paving’s refusal to perform certain paving work according to the bid it submitted to Drennan.

2. On Jul 28, 1955, Drennan, a licensed general contractor, preparing to bid on the Monte Vista school job.

3. Customary to get last minute bids from Sub-Contractors to perform parts of the project- for fear that their offers will get undercut or manipulated if divulged with too much time before the bid is due.

4. The bid had to include the names of the subcontractors who were to perform on hald of one percent or more of the construction, as well as a bidder’s bond (deposit = consideration) of $317,385.00 as a guaruntee that he would enter the contract if awarded the work.

a. So, not only is the contractor bound if his bid is accepted- but if he revokes his offer after the bid is accepted, he incurs a BIG loss in the deposit and other damages.

5. Mrs. Johnson- plaintiff’s secretary (not authorized agent) recorded the estimator for the defendant’s bid of $7,131.60 (Drenna listened in on the other line)- Star Paving bid was the lowest for the paving.

6. Plaintiff Drennan computed his pown bid and listed Star Paving as the contractor for the paving portion of the project.

7. The next day, Drennan stops @ Star Paving’s office- and immediately they say they made a mistake in the price they had given as the quote and that it would actually cost $15,000.00 Drennan tells them he expects them to carry through with the cost of the original bid, because he had used (RELIED) on it in compiling his bid, and the job was being awarded to them, and he has to do the job according to his bid- and would expect them to do the same.

8. Defendant had to find another paving company to replace Star, for a cost of $10,948.60, and had to replace them in their initial bid with the Monte Vista School Job.

9. The trial court found that Star had made a definite offer to do the paving according to the plans and specs, for $7, 131.60 AND THAT PLAINTIFF RELIED ON STAR’S BID IN COMPUTING HIS OWN BID FOR THE SCHOOL JOB, AND NAMING DEFENDANT THEREIN AS THE SUBCONTRACTOR FOR THE PAVING WORK judgment for Drennan for damages in the amount of

$3,817.00- the diffence in the initial offer by Star and the cost for them to pay the new subcontractors to pave.

Justice Traynor Opinion

1. Defendant claims: no enforceable contract between parties because Star made a revocable offer and revoked it before Drennan communicated his acceptance to them.

a. There is no evidence that Star offered to make its bid irrevocable in exchange for plaintiffs use of its numbers in calculating its bid for the project

b. Nor is there reason to believe that Drennan’s use of Star’s numbers in the bid would constitute an acceptance of the offer, binding Drennan (so long as he won the bid) to award the subcontract to the defendant.

c. In sum, there is neither an option supported by consideration nor a bilateral contract binding both parties

2. Plaintiff claims: that he relied to his detriment on Star’s offer and that defendant must answer in damages for its refusal to perform

3. ISSUE AT BAR: did Drennan’s reliance on the offer that Star had made for the paving project make defendants offer irrevocable?

a. §90 Restatement- A promise which the promisor should reasonable expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does not induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

b. Star’s offer constituted a promise to perform on such conditions as were stated expressly- Defendant had a reason to expect that f its bid proved the lowest I would be used by the plaintiff.

c. The offer was silent on revocation- Star did not state anywhere that they could revoke at any time.

i. In a unilateral contract- §45 Restatement- if an offer for a unilateral contract is made, and part of the consideration requested in the offer is given or tendered by the offeree in response thereto, the offeror is bound by a contract, the duty of immediate performance of which is conditional on the full consideration being given to rendered with the times stated in the offer (or reasonable period of time).

ii. Necessary implication- subsidiary promise= if part of the requested performance is given, the offeror will not revoke his offer, and that if tender is made it will be accepted.

d. The very purpose of section 90 is to make a promise binding even though there was no consideration in the sense of something that is bargained for and given in exchange Reasonable Reliance serves to hold the offeror in lieu of the consideration ordinarily required to make the offer binding.

i. SD supreme court “ in executing the agreement which was not supported by consideration, still made a promise which they would have reasonable expected would induce the plaintiff to submit a bid based thereon, that such a promise did induce this action, and that injustice can be avoided only by enforcement of the promise”

ii. The Real problem for Star is that, when Star submitted its bid to the contractor for paving, Drennan relied on that bid, and in turn used that number in formulating its bid- and when its bid/offer was accepted, they were bound to the terms of that contract, which included doing the project for the price of their offer

iii. When plaintiff used the defendants offer in computing his own bid, he bound himself to perform in reliance on defendant’s terms; AND Defendant was bound to realize the substantial possibility that its bid would be the lowest, and that I would be included by plaintiff in his bid.

iv. Defendant had reason not only to expect Drennan to rely on its bid, but want him to, because they wanted to win the contract = Star’s interest/stake in plaintiff’s reliance on its bid.

a. This interest, in addition that plaintiff was bound by its own bid, it is in the interest of FAIRNESS for plaintiff to have an opportunity to accept defendant’s bid after the general contract has been awarded to him

e. Defendant’s Claim: its bid was a result of a mistake and it was therefore entitled to revoke it

i. This is only the case when the plaintiff has reason to believe that the defendant had made a mistake- because if he had reason to believe it was in error, he could not justifiably rely on it (remember that reliance is used, as in Rest. §90 when there is offer and acceptance without consideration)

Introduction to Promissory Estoppel

1. While Drennan involves an offer to enter into a bilateral contract, Justice Taylor concludes that protection against revocation of an offer should also apply in that situation when the offeree has reasonably relied resulting in foreseeable prejudice

a. Relying on §90- Promissory Estoppel2. Drennan vs. Baird – The Drennan Rule

a. In Baird, Judge hand points out that promissory estoppel deals with reliance on promises- and that an offer is not meant as a promise until some sort of consideration is received; does not promote justice to seek to aid those who do not protect themselves

b. The Drennan option counters those arguments basically saying that you can have contract without consideration- so long as the offeree relies on the promise to some detriment that can only be remedied by enforcing the contract

i. The reliance by the offeree binds the promisor to the contract because in relying on the promise they become bound to performance of that promise in their bid (satisfies the benefit/detriment test; bargain for exchange test?- there is offer, acceptance?--> acceptance of the offer is implied in their reliance on the offer and then becoming bound in subsequent contract after wining the bid,

c. Promissory Estoppel: Contract Law and Business Practice – p. 119- POLICY- move from classic contract theory to modernism and realism- law is made by judges- and that contract law should reflect the way business transactions actually happen- and not adhere to the black letter of relatively arbitrary contract law- criticism, etc.

3. Notes p. 118

Berryman v. Kmoch 221Kan. 304 (1977)

1. Berryman is a landowner that gives an option contract to Kmoch.

2. Kmoch is a real estate broker who wanted the option to purchase the land so that he could in turn find a purchaser for the land- wanted the exclusive right to option the contract if he could fid a buyer

3. Sam Goerts is a Nebraska agricultal consultant,, who learned that Berryman was interested in selling the land and spoken with him about obtaining the option fo Kmoch.

4. Kmoch prepared the option contract dated June 19, 1973- and the “granting clause” of the option contract read “For $10 and other valuable consideration I hereby grant unto you or your assigns an option for 12 days after the date top purchase the following described real estate…”

5. The option contract was signed by Berryman, but the $10 that served as the primary mode of consideration (not “other valuable consideration”) was NOT paid.

6. Nothinf definite had been worked out between then, and Berryman called Kmoch in July 1973 to be released from the option agreement

7. Berryman in turn sold the land to another person.

8. In August, Kmoch attempted to exercise the option on his contract, but was informed by the Bank that the land had been sold --> after an unsuccessful conversation w/ Berryman, Kmoch attempted to exercise the option.

9. Berryman responded by bringing the present action to have the option declared null and void.

10. Kmoch claim: although the $10 consideration had benebr been paid- the provision allowed for “other valuable consideration”- his time spend and expenses incurred in an effort to interest others in joining him in acquiring the land – serves as the other valuable consideration

a. Court: an option contract to purchase land to be binding bmust be supported by consideration,t he same as any other contract

11. Kmoch Claim: the option contract should be enforced by way of promissory estoppel- “the promise must be made under circumstances where the promisor intended and reasonably expected that the promise would be relied upon by the promise and further that the promise acted reasonably in relying upon the promise --> PROMISSORYU ESTOPPEL MUST SHOW:

a. The promise was made under such circumstances that the promisor reasonable expected the promise to act in reliance on the promise

b. The promisee acted as could reasonably be expected in relying on the promise

c. A refusal by the court to enforce the promise must be virtually sanctioning the perpetration of the fraud or must result in another injustice

12. Court: The Requirements of Promissory estoppel are not met here: This was an option contract promising to sel the land to the appellant, it was NOT a contract listing the real estate with Kmoch for sale to others

a. Kmoch was familiar with real estate contracts and drwew up the present option--> he knew that no consideration was paid for the same and that it had the effect of a continuing offer subject to withdrawal any time before acceptance (element of personal responsibility in contracting)

b. Time effort, and expense incurrend in an attempt to interest other incestors in the land- not relating to acts which could be reasdonably be expected as a result of extending the option promise to sell the land to him (not a listing with a broker, it was an option contract to sell the land to him- her doesn’t rely on anything). --> time and money spent by a party in trying to sell property for which he holds an option cannot be construed as a consideration to the party for whom he has secured the option- it is a necessary part of securing the self/preparing for the sale during the option period.

i. Talbott- reliance on stock option promise causes plaintiff to obtain calculable drilling contracts, pay off a mortgage and put a

company in financial straits--> stock price offer increased from 99/share to 250/share- court finds the offer was duly accepted b/c the purchase price was tendered before revocation

ii. Steel-

c. An option contract can be made binding and irrevocable by subsequent action in reliance upon it even though its not requested or gien in exchange for the option contract- but it is rare that the option holder will have

d. The offeree acquired reliable information of the fact that the l interest in the land had been sold to another- the offeree has NO reason to then rely on the option = REVOKED OFFER

e. Restatement 42 – offerees power of acceptance is terminated when the offeror takes a definite action inconsistent with an intention to enter into the proposed contract

Restatement’s Suggested Rule for Reliance on an offer

- Restatement Section 87(2)- Drennan Rule- but applicable to any case where there has been substantial and reasonably foreseeable reliance on an offer before its acceptance – but the showing of reliance must be that of “detrimental reliance

- Cricicism of the Drennan decision- Kniffin- insufficiently recognizes the distinction between a promise and the mere conditional promise reflected in an offer-> Berryman may serve to demonstrate some ogf the objections raised to the extension of promissory Estoppel to the other cases of pre-acceptance reliance

Nominal Consideration

- If the $10 payment in Berryman as consideration had been paid- would the outcome be different? --> Generally: cases appear to hold that even a very small amount of money can serve as sufficient consideration for an “option contract”

Restatement’s suggested rule of form for options

- If such a small amount money is valid consideration in an option contract- could it also be enforced if the payment wasn’t actually made?

- Restatement Section 87: an offer made in a signed writing is binding as an option contract if it proposes an exchange on fair terms within a reasonable time and recited a purported consideration for its making --> the signed

writing has significance as a formality: based on form rather than the implication of a promise = Minority View (Berryman v. Kmoch is the majority view of option contract- still need some consideration).

Services as consideration

-efforts to secure a loan for purchase as valid consideration?- held not to be bargained-for consideration, but MAY constitute reliance sufficient to justify relief based on promissory estoppel.

Mailbox Rule and Options

- Should an option contract be an exception to the deposited acceptance rule- so tat acceptance must be received by the offeror before expiration of the option period specified? Restatement Second takes this view--> ut court has rejected this b/c mailbox rule is so widely known that parties to an option contract should presumed to have contract with reference to that rule unless they have expressly provided otherwise

Effectiveness of Revocation

- In Berryman, the seller apparently did not make an unequivocal revocation of his offer, but the buyer’s power of acceptance was held to have terminated when he learned that the seller had sold the land to someone else-->

- Indirect communication of revocation (like the you snooze you lose” in Normile v. Miller) has been supported- so although the restatement says you need to communicate it clearly, Section 43 DOES account for indirect revocation.

Pops Cones, Inc. v. Resorts International Hotel, Inc. 307 NJ Super 461 (1998)

1. Pops Cones is an authorized franchise of TCBY Yogurt – operate a TCBY store in Margate NJ- president is Brenda Taube

2. Resorts is a Casino Hotel in Atlantic City- CEO is Merv Griffin (one of his many business/real estate ventures)—Marlon Phoenix is the Exec Director of Business development- Paul Ryan is the VP for Hotel Operations at Resorts- Belisle is the Chief Operating Officer of Resorts

3. From June 1991 to September 1994 Pops operated a TCBY in Margate NJ

4. Taube has a number of discussions with Phoenix (Resorts)- about the possible relocation of the POPs store- specifically to the boardwar property in NJ where the Players Club Location had been- prime real estate.

5. Concerns about the financial viability by Pops is met with Anxious Resorts who want them in the space (want to have it rented ASAP)- and Resorts offers to let Pops have a TCBY ice cream cart on their Resorts property free of charge to “test out the business flow” and assuage Pops financial concerns.

6. Pops opened the cart pursuant to the offer- TCBY gave Pops the OK for the franchise change after Taube requests.

7. Based on Pops marketing assessment- Taube drafted a written proposal dated August 18 1994 addressing the leasing of the Players Club location – formal offer: offered Resorts 7% of net monthly sales (gross less sales tax) for the duration of the Player’s Club Lease… and if this offer is acceptable, Pops would need a 6 year lease, and a renewable option for another 6 years.

8. Mid September 1994 Taube speaks with Phoenix and wants to know Resorts position on their offer- Pops has an option to renew the lease for its Margate location and needed to give notice to its landlord if its staying or going by October 1 1994.

9. After another conversation, Pheonix states hat Resorts is about “95% there” on their offer and getting Besisle’s signature on the offer, for acceptance- because he has ultimate responsibility for signing off on the contract- Authorized Agent

10. Taube told Phoenix she needed to tell her landlord whether she was renewing or not- and Phoenix told them that the deals good to go, and they should pack up the store and plan on moving

11. Relying to Phoenix’s assurances- Taube notified their landlord they weren’t renewing- moved all the stuff out and into storage, and commenced plans sending new store design and retaining an attorney to represent Pops with the terms of the lease with Resorts

12. On November 1, 1994 General counsil for Resorts forwarded Pops attorney a written offer- their counteroffer- for the lease of ONLY 3 YEARS- which included “7% of gross revenies; OR $50k year one, $60k year 2, $70k year 3, with an 3 year renewal option after the initial term --> AND included a boiler plate slease afreement- not intended to be binding upon resorts- intended to set for the basic terms and conditions upon which Resorts would be willing to negotiate a lease and s subject to those negotiations and the execution of a definitive agreement

13. Early December 1994 Taube and atty met with Murtha, General Counsel of Resorts, and Paul Ryan--> inform Taube that they have to reschedule the meeting to finalize the terms of the leasue intil agter the new year because of another announcement of business venture that Resorts is in- but assorted Taybe that Resorts wanted TCBY on the boardwalk for the following season.

14. January 1995- after several faield attempts to contact Resorts, Taube’s attorney received a letter stating that they revoke the contract offered December 1.

15. As soon as they heard of the revocation of the offer, Pops undertook efforts to reponed the franchise at a different location.

16. Pops filed a complaint against Resorts seeking damages- because Pops reasonably relied to its detriment on the prokises and assurances of Resorts that it would be permissed to relocate its operation to Resort’s Players Club location.

17. Trial court granted Resort’s motion for summary judgment

Holding

1. Promissory Estoppel= claimw ill be justified if it satisfies the burden of demonstrating the existence of a disopute of material fact with regard to:

a. Clear and definite promise by the promisor

b. The promise must be made with the expectation that the promise will rely thereon

c. The promise must in fact reasonably rely on the promise

d. Detriment of a definite and substantial nature must be incurred on reliance on the promise

e. *** Policy justification for Promissory Estoppel: avoiding the substantial hardship/injustice that would result if such a promise were not enforced

2. Although the court has in the past ruled that an implied promise to lend an unspecificed amount of money does not constitute a clear and definite promise (Malaker)--> recent decisions have tended to relax such strict adherence to the Malaker formula-->

3. Restatement Section 90”Proomise Reasonably Inducing Action or Forbearance

a. A promise which the promisor should reasonably expect to induce action or forbearance on the part of the prmosee or a third person and which does not induce such action or forbearance is binding if injuscitce can be avoided only by enforcement of the promise

b. Bakery example- A owns a bakery, B offers to establish him in a grocery store for $18k and advises him to move to another town and buy a small grocery gain experience- sells at a capital loss twice, and when he returns with the money for the grocery, the price gets jacket

up--> he incurred such a loss that the assurances from B to A are promises upon which B reasonably should have expected A to rely, and A is entitled to has actual losses on the sales of bakery and grocery and moving costs etc.

4. ** Strict adherence to proof of a clear and definite promise- NOW being eroded by the Restatement Section 90 and a more equitable analysis designed to avoid injustice.

a. Pops relied on the words of Phoenix and others that they were 95% there just waiting a signature = reasonable reliance on the promise of Resorts

b. Pops incurred a loss by vacating their present store, not able to renew their old lease, and had to take a loss to rent different space because their old one was not available (although the reasonableness of that reliance is a question for the jury)

c. Phoenix as promisor- could/should reasonable have expected to induce action or forbearance by Pops in its precise instruction not to renew the lease and pack up their current location

i. “Character of reliance protected” – the promisor is affected only be reliance which he does or should forsee, and enforcement must be necessary to avoid injustice- satisfaction of the latter (avoid injustice) may depend on the reasonableness of the promises reliance- on the substantial character in relation to the remedy sought

ii. APPLICATION: Pops isn’t seeking enforcement of the contract or any speculative losses that it could have made- just wants damages it incurred including the loss of the Margate leasehold by reasonably relying on Resorts Promise

1. It is asking of an equitable claim raises a dispute of fact- the reasonableness of their reliance- which is a jury question- so summary judgment should NOT habe been granted

Notes p. 135

1. Rewuirement of a Promise- In Pops, the court dispensed with the requirement indicated in some earlier cases that promissory estoppel must be based on a clear and definite promise--> sections 90 and 87 of the Restatement are in accord that a promise or offer will be sufficient without any heightened requirements of proof (some courts still adhere to the heighten requirements of a clear and definite promise

2. The Hoffman Case- Hoffman v. Red Owl 133 NW 2d 267 – assurances made during negotiations that a contract will be forthcoming amount to a promise sufficient to provoke promissory estoppel—WHEN THE PRMISSEE HAS RELIED TO ITS DETRIMENT BY GIVING UP ANOTHER BUSINESS LOCATION AND BY INCURRING OUT-OF-POCKET EXPENSES IN PREPARATION for the new location --> same thing in Drennan and constructing bidding where a GC can recover via promissory estoppel against a subcontractor who attempts to revoke its bid

3. Nature of the parties- sophistication of one party over the other- genuine unfairness

4. Plaintiffs damages- Pops cones sought to recover reliance damages- the loss of income from the Margate location that it gave up in reliance on receiving a lease from the Resorts location, in addition to out of pocket expenses in preparing forh the resorts lease --> NOT expectation damages- what it would have expected to receive from Resorts location during the life of the lease

5. Scholarly Commentary -

Problem 2-1

1, Church in City of Cantonville needs to expand its facilities.

Next to Church is the library, which also is in desparate need of a larger structure

- Offer for Sale- by the city that owns the library- option (agreement to sell the property to the church) until June 1, 2007- final sale to take place when the fundraised moneys reached $1million AND that amount was deposited with the city.

- Is there consideration? Does the Church have to promise something in return for keeping the offer open? Yes- the consideration is their fundraising the money for the library in exchange for the offer of sale to remain open to the Church and theirs, so long as the funds were raised and deposited by the specified date

- It is likely that there is valid consideration because there was an exchange of promises made

- Its an option contract offer- so there could be a contract there without adequate consideration--> and by a theory of promissory estoppel, the city could be contractual bound- so long as there was (from Pops):

a) Clear and definite promise by the promisor - YES

b) The promise must be made with the expectation that the promise will rely thereon -YES

c) The promise must in fact reasonably rely on the promise

d) Detriment of a definite and substantial nature must be incurred on reliance on the promise – QUESTIONABLE

- In reality, I think it depends on how much fundraising was actually done, the specific performance would thereby indicate the level of detriment that the Church actually faced- if they had raised most of the funds, then it seems likely. But if they had only just begun and it was shot down- then the Church didn’t really suffer a detriment- no evidence that they took steps to place them in a financial burden/compromise for loss- like seen in the other cases.

UCC §1-103 – Definitions and index of definitions;

UCC §2-202- Terms to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented --> 1. By course of dealing or usage of trade or by course of performance; 2. by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

1. This section rejects:

a. Any assumption that b/c writing has been worked out that is final on some matters, that its includes all matters

b. NOT for construction

c.

UCC §2-205 – Firm offers – An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is NOT revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such a period of irrevocability exceed 3 months- by any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

How does the UCC change Common Law?

Could UCC §2-205 have been applicable in Baird? Drennan?

p. 138 – Irrevocabiluity by stature: The “Firm Offer”

Problem 2-2 p. 141

Does Gale have any rights against Branch?

CONSIDERATION HYPOS

1.    I PROMISE YOU $100 IF YOU WILL DELIVER MY GIFT OF CHOCOLATE TO MY FRIEND SUSAN.  YOU ACCEPT.  CONSIDERATION?

2.    ANTHONY AND I AGREE TO SUPPLY HIM WITH ALL THE CHOCOLATE HIS SHOP NEEDS. CONSIDERATION?

3.    a. BECAUSE YOU ARE MY GOOD FRIEND I PROMISE YOU 10 POUNDS OF CHOCOLATE.  YOU ACCEPT

b. BECAUSE YOU ARE MY GOOD FRIEND I WANT YOUR CONTINUED ADVICE I PROMISE YOU 10 POUNDS OF CHOCOLATE.  YOU ACCEPT

c. BECAUSE YOU ARE MY GOOD FRIEND I GIVE YOU 10 POUNDS OF CHOCOLATE.  YOU SAY “THANKS. YOU ARE TOO FAT SO IT WAS GOOD IDEA” I AM UNHAPPY AND SAY “GIVE IT BACK.”

4.    a. I CALL YOU AND SAY I AM AT THE MALL AND NEED A RIDE CAN YOU COME GET ME? YOU SAY “SURE”.  I THEN SAY “I WILL GIVE YOU 10 POUNDS OF CHOCOLATE.

b. I CALL YOU AND SAY I AM AT THE MALL AND NEED A RIDE CAN YOU COME GET ME AND I WILL GIVE YOU 10 POUNDS OF CHOCOLATE? YOU SAY “SURE BUT UNNECESSARY. YOU ARE MY FRIEND”.

c.  I CALL YOU AND SAY I AM AT THE MALL AND NEED A RIDE CAN YOU COME GET ME AND I WILL GIVE YOU 10 POUNDS OF CHOCOLATE? YOU SAY “I WAS ON MY WAY ANYWAY”.

5. a. GRANDMOTHER HAS A HOUSE AND NEEDS TO MOVE TO NURSING HOME. SHE PROMISED TO GIVE IT TO HER FAVORITE GRANDDAUGHTER.b. HOW ABOUT SELL IT TO HER FOR HER IPOD?c. HOW ABOUT SELL IT TO HER FOR $100,000 but worth $250,000?

6.     WHAT IF GRANDMOTHER PROMISES HER GRANDDAUGHTER $5000 BECAUSE SHE LIKES HER. GRANDDAUGHTER GETS A CALL ABOUT A JOB SHE HAS WANTED BUT SAYS “I DO NOT NEED IT NOW BECAUSE WITH $5000 I CAN CONCENTRATE ON MY PAINTING.” GRANDMOTHER DOES NOT PAY AND GRANDDAUGHTER CANNOT GET THE JOB NOW.

7.     IF GRANDMOTHER ASKS GRANDDAUGHTER TO COME TAKE CARE OF HER. SHE COMES AND DOES TAKE CARE OF HER. AFTER A YEAR GRANDMOTHER PROMISES TO GIVE HER $50,000.

1/31

Qualified Acceptance- Battle of the Forms- pp. 143-167

UCC § 2-207 see 2-207 chart in course documents

UCC § 2-207

Revised UCC §§ 2-206 (c) and 2-207 in Rules book

Restatement § 59

Princess Cruises, Inc. v. General Electric Co. 143 F. 3d 828 (4 th Cir. 1998) - Primarily, the court deals with the issue of which law toi follow, the UCC or

the common law. The situation is difficult because the contract covers both services and goods (parts that need to be replaced, etc.). The court determines that the contract is primarily for services rendered, so the common law conception of bargain/exchange and mutual assent govern,

- With that decision, the court holds that GE’s final reply to Princess’s Purchase order,entitled “Final Price Quotation” serves as GE’s counteroffer- in which they dictated the terms that GE would only be liable up to the amount of the contract price, which was $231,925.00.

- The court held that use of the UCC is not a mandatory source of admiralty law (shipping laws)- has to be a contract primarily for the exchange of goods.

PROCEDURAL POSTURE: The United States District Court for the Eastern District of Virginia denied appellant company's renewed motion for judgment as a matter of law requesting it to vacate a jury's award of incidental and consequential damages to appellee shipowner for breach of contract. The company appealed.

OVERVIEW: A company and shipowner entered into a maritime contract for the inspection and repair services of the shipowner's cruise ship. A jury found the company liable for breach of contract and awarded the shipowner damages. The court held that when the predominant purpose of a contract was the rendering of services, the Uniform Commercial Code was inapplicable, and courts had to draw on

common law doctrines when interpreting the contract. As a matter of law, services rather than goods predominated the parties' contract. The company's final price quotation was a counteroffer rejecting the shipowner's purchase order, and the terms and conditions of the price quotation controlled liability and damages in the transaction. The jury could only award damages consistent with the terms and conditions of the company's price quotation and could not award incidental or consequential damages.

OUTCOME: The order denying a company's motion for judgment as a matter of law was reversed, and the case was remanded for entry of judgment against the company in the amount of $ 231,925.00, interest to accumulate from the date of the original judgmentHEADNOTES

1. ISSUE OF SCOPE: Whether the Uniform Commercial Code (U.C.C.) applies turns on a question as to whether a contract involves principally a sale of goods, on the one hand, or a provision of services, on the other. Thus, before applying the U.C.C., courts generally examine the transaction to determine whether the sale of goods predominates

2. United States Court of Appeals for the Fourth Circuit deems the following factors significant in determining the nature of a contract: (1) the language of the contract, (2) the nature of the business of the supplier, and (3) the intrinsic worth of the materials

3. Under the common law, a reply to an offer which purports to accept it but is conditional on the offeror's assent to terms additional to or different from those offered is not an acceptance but is a counteroffer. Virginia follows the same rule.

4. ACCEPTANCE OF COUNTER OFFER BY PERFORMANCE - At common law, an offeror who proceeds under a contract after receiving the counteroffer can accept the terms of the counteroffer by performance.

a. The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act. The mental assent of contracting parties is not requisite for the formation of a contract. In evaluating a party's intent the trial court must examine one's outward expression rather than his secret, unexpressed intention.

5. NOTESa. In princess, the court applues the classical mirror-image rule in a

contemporary setting--> citing TRestatement Second Section 59 --> Comment (a) of Section 59 – Qualified acceptance- a qualified or conditional acceptance proposes an exchange different fromt hat proposed byy the original offeror. Such a proposal is a counter-offeror and ordinarily terminates the power of acceptance of the original offer- BUT a definite and seasonable expression of acceptance is operative despite the additional or different terms, if acceptance is not made to depend ion assent of these additional terms- then they’re

viewed as proposals for modification of the contract and may be accepted implicitly/silently

b. The Last Shot Rule – a party impliedly assented to and thereby accepted a counter-offer by doncuct indicating lack of objection to it

i. If no quality term is contained in the form, the byer is entitled to goods of fair average quality or merchantable goods = implied warranty of merchantability

ii. Seller argument: since his acknowledgement form did not exactly match the terms of the buys offer, the form was not an acceptance of the offer, but it was a counter-offer which created a new power of acceptance in the original offeror (one who initially) proposed to buy. --> when the goods are received by the purchaser, the cournter-offer is accepted--> the contract or deal therefore was made on the terms set forth in the seller’s form- so the seller has the “last shot” since his form created the last power of acceptance which the buyer exercised presumably by accepting and receiving the goods on the terms set forth in the seller’s form

Brown Machine, Inc. v. Hercules, Inc. 770 S.W.2d 416 (Miss Court of Appeals 1989)

1. Herclues asks Brown for price quote for T-100 trim press used to make Cool Whip bowlsBrown machine sends price quote to Hercules.

2. Mr. Fasset is Brown’s machine shop manager3. Tim Wilson is Hercules purchasing agent4. Mr. Ryan is a representative of Brown Machine5. On nov 7th, Brown Machinse submitted its original proposal with 16

numbered paragraphs describing the machine to be solda. Brown writes in the 8th paragraph that “the purchaser Hercules agrees

to pay in behalf or brown all sums which Brown becomes legally obligated to pay because of bodily uinjuryor property damage cause by or resulting from the use or misue of the item of sale…”

6. Hercules purchasing agent reviewed the proposal submitted by Brown and responded that Hercules had prepared its purchase order in response to Brown, objected to the down payment of twenty percent, but ultimatelty gave verbal aghreement go ahead with the purshace and be invoiced for the cost.

7. On January 19 Brown received Hercules written purshade order for a trimpress “in accordance with the Brown machine quote” for all specifications except one clause should read “reverse trim” instead of standard regular forward trim.

a. Brown also included on thie blue box of the purchase order, expressly rejecting any and all additional or different terms proposed by the seller unless expressly agreed to in writing

b. “no oral agreement or other understanding shall uib any way modify this order”… Acceptance will be ifL: 1. accepting the order, 2. delivering material, or 3. performing services.

8. Brown received two copies of the purchase order, one as an “acknowledgement” meant to be returned to Hercules.

a. Brown did not return the acknowledgement, but insteadi. Sent Brown an invoice for the 20% owed - $4,882.00

ii. sent Hercules an order acknowledgement , stating new clause: that they must be advised within 7 days of the terms enclosed are not in accordance with their specification, otherwise they will send the trim press --> included the original terms and conditions of sale of Brown’s original price quote/proposal

9. Hercules responded in a letter on February 9 (not within 7 days) acking the correct the intial clause in 6.1 “reverse trim” etc. – the chance was confirmed by Brown and the modifications were to be made, according to consent by Brown (Mr. Fassett)

10. Hercules never paid the 20% deposit--> Brown sent Hercules an invoice dated April 14 requesting final payment of the total purchase price.

11. Brown eventually shipped the trim press to Hercules and Hercules paid the agreed upon price

Holding:1. The general rule is that price quotation is not an offer, but rather an

invidtation to enter into negotiations, or a metre suggestion to induce offers by others --> price quotes can amount to an offer, but it must REASONABLY APPEAR frotm he price quote that assent to the quote is all that is needed to ripen the offer into a contract.

a. Application: Hercules could not have reasonably believed that Brown’s quotation was intended to be an offer- the cover letter stated that they would be in contact to “discuss the quote”

b. Paragraph Three” No order, sale, agreement for sale, accepted propsa, offer to seel and/or contract of sale shall be binding upon BROWN and accepted by BROWN on BROWN standard “Order Acknowledgement form”

c. Thus Brown’s “offer” was in fact a price quotation- and their acceptance was laid when they sent theuir “oder Ackinowledgment form” in response to Hercule’s response to Brown’s price quote, the January 19th purchase order --> this constituted the first offer --> Brown’s acceptance came in the Feb 5th letter “Order Acknowledgment”

d. So the terms an conditions set in Hercules written purchase order constituted the terms and conditions of the contract; and according to clause 16, acceptaqnce awas made upon accepting the order.

e. Thus, according the UCC 2-207, any additional terms that Brown included in ther acceptance, also known as their Order Acknowledgement” were only suggestions because THEY MATERIALLY ALTERED THE TERMS OF THE CONTRACT.

PROCEDURAL POSTURE: Appellant purchaser sought review of a judgment of the Circuit Court of St. Louis County (Missouri), which awarded appellee seller damages in an action for indemnification.

OVERVIEW: Appellant purchaser Hercules bought a trim press from appellee seller Brown Machine. One of appellant's employees was injured while using the press and brought a lawsuit against appellee. Appellee settled with the employee and sought indemnification from appellant. The trial court entered judgment for appellee and appellant sought review. Holding:

1. On appeal, the court reversed. The court found that there was no indemnification agreement between the parties.

2. The court rejected appellee's argument that a price quote, which contained an indemnification clause, sent by appellee to appellant was effective. The court found that the quote constituted an offer that was not timely accepted. The court held that appellant's purchase order, which did not contain an indemnity clause, constituted the offer.

3. The court construed appellee's order acknowledgement, which contained an indemnity clause, as an acceptance that contained additional terms under Mo. Rev. Stat. § 400.2-207 because the acceptance was not expressly conditioned on the acceptance of those terms. The court held that those terms did not become part of the contract because the terms materially altered the agreement and were not expressly accepted by appellant.

OUTCOME: The court reversed a judgment that awarded damages to appellee seller against appellant purchaser in an action for indemnification. The court held that appellee's order acknowledgement constituted an acceptance of appellant's offer to purchase machinery and that an indemnification clause contained in the order acknowledgement was an additional term that had not been expressly accepted by appellant.

Notes: The battle of the forms under Revised Article 2 of the UCC

1. Revised Article two makes significant changes in former 2-207 and deals with two distince issues:

a. Contract formation: Has a contract been formed when the parties exchange coduments or use confirmations that have different/additional terms?

i. The issue of contract formation WAS in 2-207(1), but the revised moves it into 2-206(3), which reads: “a Definite and seasonable expression of acceptance in a record operates as an acceptance even if it contains terms additional to or different from the offer” (also rejects the mirror image rule, like former 2-207(1)

ii. Comments 2 and 3 of 2-206 deal with the difficult issue of “expressly conditional acceptances”

1. Comment 3 – the offeree’s response to the offer must be a “definite acceptance”2. If the offeree clearly states that it is only willing to do business if the offeror

assents to the offeree’s terms, that is NOT a definite acceptance (like the final clause of 2-207(1))

3. If the offeror states that they’re only willing to enter into an agreement on its terms, a purported acceptance with additional or different terms is not a definite acceptance within the UCC.

4. It is NOT important (Section 2-204) for the exchange of documents to yield a contract if the parties perform: “A contract for sale of goods may be made in any manner sufficient to show agreement, incuding offer and acceptance, conduct by both parties which recognizes the existence of a contract (i.e. performance)… etc.

b. What are the terms of the contract, if a contract has been formed?i. Revised UCC 2-207 deals with the terms of the contract once it

has been formed either under 2-204 (formation in general) or 2-206 (offer and acceptance in formation of a contract)

ii. IF a contract is formed either by: 1. Conduct of both parties that recognizes the existence of a contract although their records to not establish one; 2. Offer and acceptance; or 3. Formed in any manner confirmed by a record that contains terms additional to or different from those in the contract being confirmed--> THE TERMS OF THE CONTRACT ARE:

a. Terms that appear in the record of both partiesb. Terms, whether in the record or not, to which

both parties agreec. Terms supplied or incorporated under any

provision of this act.iii. Revised 2-207 is in reality an expanded and restated version of

the present 2-207(3).iv. The intent of the New 2-207 is to avoid favoring either the first

or the last shot in determining the terms of the contract, as stated in new comment 2:

1. The same test is applied to the terms in each form regardless of whether first or last.

2. When one party insists in their record that their form/terms are condition to contract formation- IF:

a. The party doesn’t subsequently perform; or b. The party otherwise acknowledge existence of

the contract, orc. If the other party does not agree to those terms;

then3. Such a record’s existence in its own terms will keep the contract from being

formed under 2-204 or 2-206.2. Summary of the effects of the 2003 modifications of UCC 2-206 and 2-207

a. If EITHER the offeror or the offeree wishes to refuse to enter into a contract except for ITS terms, it may do so by: clear language in the document saying so AND a refusal to perform or other acknowledgment of the contractual relationship

b. If a party insists that it wont proceed unless on its own terms, BUT THEN PERFORMS EVEN THOUGH THE OTHER PARTY HAS ISSUED A DOCUMENT WITH ADDITIONAL OR DIFFERENT TERMS, a contract will be formed under 2-204(1) and the terms of the contract will be determined by 2-207.

- Look again at the facts of Harlow case p. 64 and assume a contract was formed by the forms then what terms will govern?

- What if the GE case (p 144) was covered by he UUC- how would it change the result?

REVIEW FACTS OF: Harlow and Jones v. Advance steel Co. 424 F. Supp. 770

i. Seller: Harlow- selling 1000 tons of imported European Steel6. Claim- their sales confirmation form that they initially mailed, which was

received but never signed and return, constituted an offer, which the defendant accepted by mailing back an alternative but almost identical purchase order ten days later.

ii. Buyer: Advance Steel Co.- denies liability, claiming that the shipment of steel was late and was therefore properly rejected under the contract

7. Several telephone conversations were had in June 1974 between Robert Stewart, the president of Advance, and William VanAs, and independent steel broker authorized to solicits orderson behalf of Harlow.

8. VanAs tells Steward of 500 metric tons of west German Steel for shipment during September-October**

9. Stewart advises that he is interested in purchasing 1000 tons of the Steel- the terms of the transaction are drawn up on a worksheet and were relayed to Greve, the President of Harlow.

10. Greve mailed Stewart a sales form invoice with the specified dates and amount of steel being shipped- Stewarts received the invoice but did not return a signed copy

11. Stewart prepared a worksheet as their purchase order and sent it back to Greve, with same specifications and quantities, shipping dates, etc., was also never signed and returned.

12. Steel is shipped in three separate vessels. The first two arrive in October, the last on arrived in November 27th (shipping said supposed to be September-October; but it is widely known in shipping industry to expect such items to be delivered in November

Assume a contract was formed by the forms--> what terms govern?

What if Princess Cruises was governed by the UCC?

Problem 2-4

Postponed Bargaining- pp.167-190

*** Have to take notes on 2/7/11 reading- compare with notes written in spiral from class to make briefs/outline of the class--> re: Postponed/incomplete bargaining***

UCC § 2-305UCC § 2-204(3)

Restatement § 27Restatement § 33

Problem 2-5

Contract Drafting pp. 285-293 of Rules Book

Two types of contracting situations1. Where you represent one party and the other party is either represented by another attorney, or pro se- and in that case, ethical obgligation incurs to disclose the NON-atty-client relationship with the opposing party.

2. Where the contract is written for in house purposes, where the lawyer is called upon to act as an intermediary between two or more persons, all of whom will be clients.

Contract Drafting Problem Questions to Consider1. How does the lawyer take the client's ideas and draft them in the contract? Why did the lawyer draft it the way she did?

2. Did the lawyer miss anything? Any other issues that should be considered or covered? How do you decide if that is the case? If something should be added how would you draft the clause?

3. In drafting should the lawyer create a one sided contract for her client?

4. If you represented the independent contractor what modifications, changes or additions would you request?

3/14

Electronic Contracting - pp. 193-2121. Shrinkwrap terms - purchaser orders a product (via phone, internet or in

person) – when it is received, it is wrapped in plastic, often with a warning on the outside of the package- informs the purchaser that the procudt contains the seller’s contract terms and that use of the product constitutes the purchaser’s agreement with those terms. Can open and review the terms, and return if not satisfied with the product or seller’s terms (w/in reasonable period of time) --> NO requirement to agree, implicit assent if no objections w/in reasonable period of time.

2. Clickwrap terms - before purchasing the product, the buyer must scroll throught hr sellers terms of sale and click on an “I agree” button- can involve either software or tangible products

3. Browsewrap terms - terms of use are are normally accessible from the provider’s home pafe by clicking a button, but the user is not required or even encouraged to scroll through the terms of use and is not required to click any agreement- purported agreement to the prover’s terms comes simply from the user’s actions in browsing the site (like a warning adult content type thing)… “by browsing this site, you acknolwdge that yuou have read, understood, and agree to terms and conditions…” – link to terms and conditions is usually available, but not required to be signed, agreed, or even viewed to be accepted.

Brower v. Gateway 2000 676 N.Y.S.2d 569 (NY App. Ct. 1992)

Appellant purchasers challenged the order of the Supreme Court, New York County (New York), which granted respondent seller's motion to dismiss the

purchasers' complaint on the ground that there was a valid agreement to arbitrate between the parties.

OVERVIEW: The purchasers alleged deceptive sales practices against the seller of computers and software products. The seller's procedure was to ship standard terms and conditions of the parties' agreement that included an arbitration clause to the purchaser.

- The arbitration clause was not invalid under U.C.C. § 2-207 because the clause was not a material alteration of an oral agreement, but rather one provision of the sole contract that existed between the parties. The contract was therefore outside the scope of § 2-207.

- The court held that an enforceable contract was formed only with the consumer's decision to retain the merchandise beyond the 30-day period specified in the agreement. Thus, the agreement as a whole, including the arbitration clause, was enforceable once the 30 day period had lapsed, b/c it qualified as an agreement/acceptance.

- The court modified the order that required arbitration before the International Chamber of Commerce because it found the cost excessive and that it deterred individual consumers from invoking the arbitration process.

OUTCOME: The court granted the seller's motion to dismiss the purchasers' complaint based on the parties' valid arbitration agreement. The court modified the order that required arbitration before the International Chamber of Commerce as excessive.

Register.com, Inc. v. Verio, Inc. 356 F.3d 393 (2 nd Cir. 2004 )

David Bender on the Enforceability of Modifications to Browse-wrap LicensesAccording to recent cases, users are not obligated to check for changes to the terms of use each time they go online. If users are not given reasonable notice of changes, they are not bound by those changes. This Commentary, written by David Bender, author of Computer Law, discusses these cases and the resulting rule.PROCEDURAL POSTURE: Defendant VERIO was engaged in the business of selling a variety of web site design, development, and operation services. VERIO appealed from an order of the United States District Court for the Southern District of New York granting the motion of plaintiff REGISTER, a registrar of Internet domain names, for a preliminary injunction.

1. The district court's order enjoined defendant from: a. using plaintiff's trademarksb. representing or otherwise suggesting to third parties that

defendant's services had the sponsorship, endorsement, or approval of plaintiff;

c. accessing plaintiff's computers by use of automated software programs performing multiple successive queries; and

d. using data obtained from plaintiff's database of contact information of registrants of Internet domain names to solicit the registrants for the sale of web site development services by electronic mail, telephone calls, or direct mail.

2. On appeal, the court found that it had no reason to assume that plaintiff's conduct should be considered unethical, especially where the district court made no such finding.

a. The district court acted within its discretion in concluding that plaintiff showed a likelihood of success on the merits of its contract claim

b. The district court had not abused its discretion in finding that, unless specific relief were granted, defendant's actions would cause plaintiff irreparable harm through loss of reputation, good will, and business opportunities.

OUTCOME: The ruling of the district court was affirmed.The court in register holds that Verio had assented and was contractually obound by the terms of use of Register’s website because VERIO had used the site many times and was well aware of Register’s restrictions --> court uses the analogy of biting into an apple @ an apple stand- the first time you may have carte blanche because you didn’t know the terms, but after a certain point of experience one ought to know the terms and conditions associated

Mutual Assent in browsewrap transactions- court rejects the argument that clicking “I agree” is essential to contract formation on the internet--> True? Consider 4 requirements:

1. Adequate notice of the existence of proposed terms2. User has meaningful opportunity to review the terms3. User is provided with adequate notice that taking a specified action

manifests those terms4. Use takes the action specified in the latter notice

Mutual Assent in clickwrap transactions – court Register is dealing with browsewrap terms, but if clickwrap terms were in place (clicking I agree)the user would be contractually bound

UCC § 2-204UCC § 2-302

Restatement § 69

http://www.mevis-research.de/~meyer/MISC/di/a.htm

NY Times article on ICANN

LIABILITY IN THE ABSENCE OF BARGAINED FOR EXCHANGE: PROMISSORY ESTOPPEL AND RESTITUTION

Promissory Estoppel

Family -p.215-228 Restatement § 90 [Compare First Restatement § 90 at casebook p.113]

First Restatement Section 90 – Corbin (traditional, rigid definitions of contract law) – courts often used reliance as a basis of contractual obligation – “Proomise reasonably Inducing Definite Substantial Action” – a promise which the promisor should reasonable expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by law enforcement

- No limitations on the subject matter of the promise OR the types of pesons that may benefit from its application

Promises within the family

- Family members can and sometimes do enter into formal contracts with eachother --> but most promises in the family context are likely to be actuated by feelings of affection and altruism rather than by expectation of a quid pro quo in return

- Obligations are for the most part based on the relationship of the parties – ex: parental duty of support- rather than a contract

- Promissory estoppel in THIS context provides an additional tool for courts to reach what they consider to be equitable decisions.

Kirksey v. Kirksey, 8 Ala. 131 (1845)

1. A brother-in-law, wrote to the widow of his brother, living sixty miles distant, that if she would come and see him, he would let her have a place to raise her family. Shortly after, she moved to the residence of her brother-in-law, who for two years furnished her with a comfortable residence, and then required her to give it up: Held, that the promise was a mere gratuity, and that an action would not lie for a violation of it.

2. OPINION: ORMOND, J.--The inclination of my mind, is, that the loss and inconvenience, which the plaintiff sustained in breaking up, and moving to

the defendant's, a distance of sixty miles, is a sufficient consideration to support the promise, to furnish her with a house, and land to cultivate, until she could raise her family. My brothers, however think, that the promise on the part of the defendant, was a mere gratuity, and that an action will not lie for its breach. The judgment of the Court below must therefore be reversed, pursuant to the agreement of the parties

Greiner v. Greiner, 131 Kan. 760     (1930) -

PROCEDURAL POSTURE: Appellant mother sought review of the decision of the Mitchell County District Court (Kansas), which granted judgment in favor of appellee son in the mother's action to recover possession of land and the son's counterclaim to have the mother convey land to him.

OVERVIEW: The mother filed an action against the son to recover possession of an eighty-acre tract of land. The son filed a counterclaim against the mother that contended that the mother had promised to convey the land to him in order to rectify the fact that the son had been disinherited by his father's will. The trial court granted judgment in favor of the son and ordered the mother to convey the property to the son. On appeal, the court affirmed the trial court's decision on the basis of promissory estoppel. The court held that the mother had made a promise to the son that she would convey him a home and the land if the son moved to the land. The mother's offer was definite by segregating the land for the son, preparing the home on the land for the son, and giving the son possession of the land. Although the son paid nothing for the land, he gave up his homestead in another county, moved and established himself and his family on the tract, made some lasting and valuable improvements upon it, and made other expenditures, relying on his mother's promise; and he lived on the land for nearly a year before he was served with notice to quit.

OUTCOME: The court affirmed the trial court's grant of judgment in favor of the son.

Notes

1. Evolution of promissory estoppel – distinction that Rest. section 90 makes – promissory estoppel vs. equitable estoppel (where one party has made a misstatement of fact, rather than a promise)

2. When is reliance detrimental --> “protecting detrimental reliance” – worse off as a result of reliance upon the promise than otherwise would have been

3. Does moral obligation factor into section 90? --> in one sense yes, because it protects those from reliying to their detriment on the promises of another – but in the same sense it also harkens to the UCC standard which states that there need not be acceptance to form a contract- or even bargained for

exchange if both parties agree that a contract was formed prior = relatively amoral standard as well.

Wright v. Newman, 266 Ga. 519     (1996 ) – child support case (implied promise as parent to provide reasonable care for minor)

PROCEDURAL POSTURE: Appellant ex-husband sought review of an order from Whitfield Superior Court (Georgia), which ordered him to pay child support for appellee ex-wife's son, who was not his natural child.

OVERVIEW: The ex-husband argued that the trial court erred in its legal conclusion that the facts authorized the imposition of an obligation to provide support for his ex-wife's son. On appeal, the court held that although the ex-husband was neither the natural or adoptive father of his ex-wife's son, he was still liable for child support under the contractual doctrine of promissory estoppel. The court found that the ex-husband promised his ex-wife and her son that he would assume all of the obligations and responsibilities of fatherhood by allowing himself to be listed as the child's father on his birth certificate and giving the child his last name. The court also found that the ex-wife and her son relied upon the ex-husband's promise to their detriment by refraining from identifying and seeking support from the child's natural father. The court concluded that if the ex-husband were allowed to evade the consequences of his promise, an injustice to his ex-wife and her son would result.

OUTCOME: The court affirmed the lower court's order requiring the ex-husband to pay child support for his ex-wife's son.

Notes

1. Implications of Wright- larger social issues of out-of-wedlock children – principles of contract law can determine support obligations even when family law does not provide for such an obligation

Charity - pp. 234-236Allegheny case in course documents

Commercial - pp. 237-253

Katz v. Danny Dare, Inc., 610 S.W.2d 121   (1980)

PROCEDURAL POSTURE: Plaintiff former employee appealed a decision of the Circuit Court of Jackson County (Missouri) that found that defendant employer was not legally obligated to render him pension payments. The former employee asserted that he was entitled to pension payments under the doctrine of promissory

estoppel- At that time Katz's earnings were about $23,000 per year.

OVERVIEW: A former employee was injured on the job while he was still working for his former employer. (A man walked in, picked up the bag of money and left. When Katz followed him and attempted to retrieve the money, Katz was struck in the head.) The former employer's board of directors approved a resolution in which they promised to pay the former employee a pension.

1. The trial court found that the former employee was entitled to the pensiona. The court found the pension from Dare did not require Katz to do

anything and he was in fact free to work for another company. The court found Katz did not give up anything to which he was legally entitled when he elected to retire. The court found that since Katz had the choice of accepting retirement and a pension or being fired, that it could not be said that he suffered any detriment or significant change of position when he elected to retire

2. The appellate court reversed that decision, but the court found for the former employee.

3. Under the doctrine of promissory estoppel, a promise could be enforced if the promissee had detrimentally relied upon the promise such that enforcement of the promise was necessary to avoid injustice.

4. The court found that the former employee had retired in reliance on the promise and noted that the former employer could have terminated him but chose not to.

a. In the Fall of 1975, Katz began working for another company on 3 to 4 half-days per week. At the end of that year Shopmaker asked Katz if he could do part-time work for Dare and Katz told him he could work one-half day on Wednesdays. For the next two and one-half years Katz continued to work for Dare one-half day per week.

b. In July, 1978, Dare sent a semi-monthly check for $250 instead of $500. Katz sent the check back and stated he was entitled to the full $500. Thereafter Dare stopped sending any checks

c. The fact remains that Katz was not fired, but instead did voluntarily retire, but only after the board of directors had adopted the resolution promising to pay Katz a pension of $13,000 per year for life. Thus, the same facts are present in this case as were present in Feinberg

d. There are three elements to be satisfied to invoke the doctrine of promissory estoppel:

i. a promise; ii. a detrimental reliance on such promise;

iii. that injustice can be avoided only by enforcement of the promise

e. It is conceded Dare intended that Katz rely on its promise of a pension and Dare does not contend Katz did not in fact rely on such promise.

f. Thus, the element that injustice can be avoided only by enforcement of the promise is present, because Katz cannot now engage in a full-time

job to return to the earnings which he gave up in reliance on the pension

5. Further, the former employee was not required to invoke consideration in order to enjoy the benefits of the promissory estoppel doctrine.

6. The facts in this case are strikingly similar to Trexler. Shopmaker undoubtedly wanted to reduce his overhead by reducing the amount being paid to Katz and it is true that Katz could have been summarily discharged. However, it is also true that Shopmaker refused to fire Katz, but instead patiently negotiated for about 13 months to work out a pension which Katz did agree to accept and voluntarily retired. Trexler's Estate, 27 Pa.Dist. & Co. Rep. 4 (1936)

OUTCOME: The court reversed the appellate court's decision and found that the former employee was entitled to pension payments

Notes p. 243

Shoemaker v. Commonwealth Bank, 700 A.2d 1003     (1997)

PROCEDURAL POSTURE: Appellant mortgagor sought review of an order of the Court of Common Pleas, Lycoming County, Civil Division (Pennsylvania), which granted a motion for summary judgment filed by appellee mortgagee in appellant's action alleging fraud, promissory estoppel, and breach of contract against appellee in connection with appellee's alleged failure to obtain insurance coverage for appellant's home that was destroyed by fire.

OVERVIEW: Appellant mortgagor brought an action against appellee mortgagee alleging fraud, promissory estoppel, and breach of contract in connection with appellee's alleged failure to obtain insurance coverage for appellant's home, which was destroyed by fire.

1. The trial court granted summary judgment in appellee's favor, and appellant sought review.

2. The court reversed and remanded the part of the trial court's order that granted summary judgment against appellant's promissory estoppel claim.

3. The court held that appellee's obligation to maintain insurance on the property did not preclude that claim.

4. The court also found that there were material issues of fact that precluded summary judgment, including:

a. whether appellee made a promise that should have reasonably been expected to induce reliance by appellant

b. whether it was reasonable for appellant to rely upon appellee's promise.

c. Mrs. Shoemaker argues that Commonwealth made a misrepresentation to her when its representative, in a telephone conversation, stated that Commonwealth would purchase insurance coverage and add the cost of the premium to the cost of her and her husband's loan. Mrs. Shoemaker directs our attention to her deposition testimony

d. They further allege that they relied on this promise by not purchasing the insurance on their own and that injustice can be avoided only by enforcing Commonwealth's promise

e. Illustration 13 to comment e of section 90 of the Restatement (Second) of Contracts provides:i. A, a bank, lends money to B on the security of a mortgage on B's new

home. The mortgage requires B to insure the property. At the closing of the transaction A promises to arrange for the required insurance, and in reliance on the promise B fails to insure. Six months later the property, still uninsured, is destroyed by fire. The promise is binding

ii. Shoemakers claim that Commonwealth's promise to obtain insurance was, essentially, conditioned upon the Shoemakers course of conduct, i.e., that Commonwealth would obtain insurance   if they did not, we conclude that this evidence, if believed, would be sufficient to allow a jury to find that Commonwealth made a promise upon which it reasonably should  have expected the Shoemakers to rely

iii. instructed Commonwealth's representative to acquire insurance on her behalf. We conclude that this evidence, if believed, would be sufficient to allow a jury to find that the Shoemakers relied upon Commonwealth's promise to obtain insurance.

iv. received no communication from Commonwealth regarding their insurance after her conversation with a Commonwealth representative in early 1994. Commonwealth, on the other hand, asserts that it sent the Shoemakers letters informing them that their house would be uninsured after December 1, 1994. We conclude that this evidence is sufficient to create a genuine issue of material fact regarding the reasonableness of the Shoemakers' reliance

5. The court affirmed the grant of summary judgment against appellant's fraud claim because the alleged promise to obtain insurance in the future was not actionable in fraud.

a. Shoemakers base their fraud claim on Commonwealth's alleged promise that it would obtain an insurance policy for their home if they failed to do so. Commonwealth was, therefore, promising to take future action. Thus, Commonwealth's promise cannot form the basis of a cause of action in fraud

6. The court affirmed the grant of summary judgment against appellant's breach of contract claim because appellant waived this claim on appeal.

OUTCOME: The court reversed and remanded the part of the trial court's

order that granted summary judgment for appellee mortgagee against appellant mortgagor's promissory estoppel claim, holding that there were genuine issues of material fact regarding whether appellee promised to obtain the insurance and appellant's reliance on that promise. The court affirmed the grant of summary judgment against appellant's fraud and breach of contract claims.

Cited Predecent Cases:

A. Graddon v. Knight, 138 Cal. App. 2d 577, 292 P.2d 632 (Cal.App. 1956) , a California appellate court considered whether homeowners, who were obligated under a deed of trust to procure and maintain fire insurance on their home, could establish a cause of action based upon an oral promise by a bank to obtain the [**11]  insurance on the homeowners' behalf. The court first considered whether the bank's promise to obtain fire insurance was inconsistent with the term of the deed of trust that required the homeowners to procure and maintain fire insurance. 292 P.2d at 635. The court concluded that the bank's promise was not inconsistent with the homeowners' obligation under the deed of trust because the deed required only that the homeowners procure and maintain insurance; the deed did not bar them from making a separate agreement under which another party would procure the insurance on their behalf. 292 P.2d at 635-36. The court then held that the evidence presented by the plaintiffs was sufficient to establish a cause of action in promissory estoppel because the plaintiffs relied to their detriment on the bank's promise to obtain insurance

Notes p. 249

p. 250-253- Comment: the Status and Future of Promissory Estoppel

Restitution pp. 253-286 http://www.kenjiyoshino.com/articles/for_gays_read_fine_print_ny_times.pdf

Resitution – “gains based recovery” (VS- “compensation” = loss based recovery)

This type of damages restores the benefit conferred to the non-breaching party (the plaintiff). Simply, the plaintiff will get the value of whatever was conferred to the defendant when there was a contract. There are two general limits to recovery, which is that a complete breach of contract is needed, and the damages will be capped at the contract price if the restitution damages exceed

Credit Bureau Enters. v. Pelo, 608 N.W.2d 20(2000)

OVERVIEW: Appellant, detained against his will at a hospital's psychiatric unit, eventually, under duress, read and signed the hospital release form, stating he understood his liability for charges not covered by insurance. He later refused to pay the bill or authorize his health insurance carrier to do so. The hospital assigned its claim against appellant to appellee credit bureau for collection, who then sued appellant, seeking judgment on the bill. The court found appellant had benefitted by the hospitalization and therefore appellee was entitled to the value of the services rendered and entered judgment in favor of appellee. Appellant's application for discretionary review was granted and the judgment affirmed. The district court had therefore properly determined that appellant was legally obligated to pay for those services based on an implied in law contract theory.

Issue: Who pays for mental health medical services provided to a patient who is involuntarily committed to a private hospital

1. Restitution and unjust enrichment are modern designations for the older doctrine of quasi contracts or contracts implied in law (constructive contracts)

OUTCOME: Judgment affirmed; the court concluded appellant benefitted by his hospitalization and was therefore liable for medical services rendered to him

Commerce P'ship 8098 Ltd. P'ship v. Equity Contr. Co., 695 So. 2d 383     (1997)

PROCEDURAL POSTURE: Defendants, a corporation and the general partner, appealed the judgment from the Circuit Court for the Seventeenth Judicial Circuit, Broward County (Florida), which ruled for plaintiff company in its suit against defendants for quantum meruit for the surfacing of an office building.

Commerce was the owner of an office building. Commerce contracted with a general contractor, World Properties, Inc., to perform improvements on its property. Equity was the stucco and surfacing subcontractor for the job, having contracted with the general contractor to perform the work. Because it inspected the job on a weekly basis,  [**2]  Commerce was aware of Equity's work. Equity completely performed its subcontract and the reasonable value of its work was $ 17,100. Commerce failed to pay the general contractor the full amounts due for the job. The general contractor did not pay Equity. Commerce was unjustly enriched because it had accepted Equity's services without paying any entity for them

OVERVIEW: Plaintiff company sued defendants, a corporation and its general partner, for quantum meruit for the surfacing of an office building. After the trial court ruled for plaintiff, defendants appealed. On appeal, the court held plaintiff did not prove at trial that defendant corporation had not made payment to any party for the benefits conferred on the property by plaintiff. This was not an affirmative defense, but an essential element of a quasi contract claim by a subcontractor

against an owner. The court reversed the ruling for plaintiff and remanded because what defendant paid on the project was not fully litigated, so whether its enrichment was unjust was an open question. The court noted that, contrary to the trial court's evidentiary ruling, defendant corporation's attempt to prove that it had paid money directly to subcontractors for work on the building was relevant to issues in the case and that what it expended on the project was central to the cause of action.

1. A contract implied in fact is one form of an enforceable contract; it is based on a tacit promise, one that is inferred in whole or in part from the parties' conduct, not solely from their words. Where an agreement is arrived at by words, oral or written, the contract is said to be express. A contract implied in fact is not put into promissory words with sufficient clarity, so a fact finder must examine and interpret the parties' conduct to give definition to their unspoken agreement. It is to this process of defining an enforceable agreement that Florida courts have referred when they have indicated that contracts implied in fact rest upon the assent of the parties

2. Contracts are implied in fact are where a person performs services at another's request, or where services are rendered by one person for another without his expressed request, but with his knowledge, and under circumstances fairly raising the presumption that the parties understood and intended that compensation was to be paid. In these circumstances, the law implies the promise to pay a reasonable amount for the services

3. A contract implied in law, or quasi contract, is not based upon the finding, by a process of implication from the facts, of an agreement between the parties. A contract implied in law is a legal fiction, an obligation created by the law without regard to the parties' expression of assent by their words or conduct. The fiction was adopted to provide a remedy where one party was unjustly enriched, where that party received a benefit under circumstances that made it unjust to retain it without giving compensation

a. The elements of a cause of action for a quasi contract are that: (1) the plaintiff has conferred a benefit on the defendant; (2) the defendant has knowledge of the benefit; (3) the defendant has accepted or retained the benefit conferred and (4) the circumstances are such that it would be inequitable for the defendant to retain the benefit without paying fair value for it.

4. Where there is no enforceable express or implied in fact contract but where the defendant has received something of value, or has otherwise benefitted from the service supplied, recovery under a quasi contractual theory may be appropriate

5. An unjust enrichment cannot exist where payment has been made for the benefit conferred

OUTCOME: The court reversed ruling for plaintiff and remanded because what defendant corporation paid on the project was not fully litigated, so whether its enrichment was unjust was an open question.

Watts v. Watts, 137 Wis. 2d 506     (1987)

PROCEDURAL POSTURE: Plaintiff female cohabitant sought review of a judgment entered by the Circuit Court of Dane County, Wisconsin, that dismissed her action against defendant male cohabitant for failure to state a claim. The female asserted various theories to support her alleged entitlement to an accounting and a share of the male's accumulated personal and business assets.

OVERVIEW: The parties' 12-year nonmarital cohabitation relationship produced 2 children. The court held that the female stated a claim upon which relief could be granted that could rest on a contract, unjust enrichment, or partition theory. Neither the Wisconsin Family Code nor public policy precluded the female from asserting an express or implied contractual right to share property accumulated through the parties' joint efforts. The female could raise an unjust enrichment claim in view of the male's alleged unreasonable retention of the parties' jointly acquired property. Facts about the parties' business partnership, joint property purchases, and the female's uncompensated home and business contributions stated a partition claim, which was a proper cause of action in marital cohabitation cases. The female did not state a claim for property division under § 767.255 because the parties and their children were not a "family" within the meaning of the statute, which was not intended to extend to unmarried cohabitants. The doctrine of "marriage by estoppel" did not apply because the parties' conduct could not place them within the ambit of § 767.255, which was not intended for their benefit.

1. Nonmarital cohabitation does not render every agreement between the cohabiting parties illegal and does not automatically preclude one of the parties from seeking judicial relief, such as statutory or common law partition, damages for breach of express or implied contract, constructive trust and quantum merit, where the party alleges, and later proves, facts supporting the legal theory. The issue for the court in each case is whether the complaining party has set forth any legally cognizable claim.

2. A motion to dismiss a complaint for failure to state a claim tests the legal sufficiency of the complaint. All facts pleaded and all reasonable inferences therefrom are admitted as true, but only for the purpose of testing the legal sufficiency of the claim, not for trial.

3. A complaint should not be dismissed for failure to state a claim unless it appears certain that no relief can be granted under any set of facts that a plaintiff can prove in support of his or her allegations. The pleadings are to be liberally construed to do substantial justice to the parties.

4. Whether a complaint states a claim upon which relief may be granted is a question of law and an appellate court need not defer to the circuit court's determination.

5. Some of the property division criteria listed under Wis. Stat. § 767.255 (1986) are: the length of the marriage; the property brought to the marriage by each party; the contribution of each party to the marriage, giving appropriate economic value to each party's contribution in homemaking and child care services; and any written agreement made by the parties before or during the marriage concerning any arrangement for property distribution.

6. A contract is not enforced if it violates public policy. A declaration that the contract is against public policy should be made only after a careful balancing, in the light of all the circumstances, of the interest in enforcing a particular promise against the policy against enforcement. Courts should be reluctant to frustrate a party's reasonable expectations without a corresponding benefit to be gained in deterring "misconduct" or avoiding inappropriate use of the judicial system

7. The abolition of common law marriages does not invalidate a private cohabitation contract. Cohabitation agreements differ in effect from common law marriage. There is a significant difference between the consequences of achieving common law marriage status and of having an enforceable cohabitation agreement.

8. Courts refuse to enforce contracts for which the sole consideration is sexual relations, sometimes referred to as "meretricious" relationships. Courts distinguish between contracts that are explicitly and inseparably founded on sexual services and those that are not. A bargain between two people is not illegal merely because there is an illicit relationship between the two so long as the bargain is independent of the illicit relationship and the illicit relationship does not constitute any part of the consideration bargained for and is not a condition of the bargain.

9. Money, property, or services, including housekeeping or childrearing, may constitute adequate consideration independent of the unmarried cohabiting parties' sexual relationship to support an agreement to share or transfer property.

10. A nonmarital cohabitation relationship and joint acts of a financial nature can give rise to an inference that the parties intended to share equally. The joint ownership of property and the filing of joint income tax returns strongly implies that the parties intended their relationship to be in the nature of a joint enterprise, financially as well as personally.

11. Public policy does not necessarily preclude an unmarried cohabitant from asserting a contract claim against the other party to the cohabitation so long as the claim exists independently of the sexual relationship and is supported by separate consideration.

12. A claim of unjust enrichment does not arise out of an agreement entered into by unmarried cohabiting parties. An action for recovery based upon unjust enrichment is grounded on the moral principle that one who has received a

benefit has a duty to make restitution where retaining such a benefit would be unjust.

13. A constructive trust is an equitable device created by law to prevent unjust enrichment. To state a claim on the theory of constructive trust the complaint must state facts sufficient to show: (1) unjust enrichment; and (2) abuse of a confidential relationship or some other form of unconscionable conduct. The latter element can be inferred from allegations in the complaint which show a family relationship, a close personal relationship, or the parties' mutual trust

OUTCOME: The judgment that dismissed the female's action against the male for an accounting and a share of the personal and business assets accumulated during the parties' unmarried cohabitation relationship was reversed. The female stated a claim for which relief could be granted and her claim could rest on contract, unjust enrichment, or partition grounds

Promissory Restitution - pp. 286-300

Restatement §86

Problem 3-2 which we ill go over in Class 17

Promissory Restitution – recipient of services does make an express promise to pay for them, but only after the benefits are received --> exceptions to the past consideration doctrine (where past actions do not suffice for adequate consideration)

Mills v. Wyman 20 Mass. 207 (1825)

Levi Wyman, at the time when the services were rendered, was about 25 years of age, and had long ceased to be a member of his father's family. He was on his return from a voyage at sea, and being suddenly taken sick at Hartford, and being poor and in distress, was relieved by the plaintiff in the manner and to the extent above stated. On the 24th of February, after all the expenses had been incurred, the defendant wrote a letter to the plaintiff, promising to pay him such expenses. There was no consideration for this promise, except what grew out of the relation which subsisted between Levi Wyman and the defendant, and Howe J., before whom the cause was tried in the Court of Common Pleas, thinking this not sufficient to support the action, directed a nonsuit. To this direction the plaintiff filed exceptions.

The supreme court affirmed because there was no consideration for defendant's promise to pay plaintiff's expenses. The kindness and services provided for defendant's son were not bestowed at defendant's request, and defendant was not legally obligated to support his son in any way. Thus, because defendant's son was an adult who was responsible for his own debts, any debt he incurred created no obligation upon defendant. Without consideration, defendant's promise founded upon such a debt had no legally binding force.

OUTCOME: The court affirmed the judgment because defendant's promise to pay expenses incurred for the care of his adult son was not supported by consideration because the services provided for defendant's son were not bestowed at defendant's request and defendant was not legally obligated to support his son in any way.

Notes p. 290:

- The court in Mills clearly holds that the law will not necessarily enforce every promise, regardless of the morality of failing to honor a promise seriously made --> “there aere great interests of society which justify withholding the coercive arm of the law from these duties of imperfect obligation. – What Interests? Should we follow morality instead?

- Debts barred by time: Promises to pay debts barred by the statute of limitations are enforceable because the debt is a preexisting legal obligation

- Debts discharged in bankruptcy: Promises to pay debts previously discharged in bankruptcy

- Statutory restrictions on promises to receive debts: At common law a promse to pay a debt barred by the statute limitations or disharcged in bankruptcy was binding even though made orally--> many states require it to be in writing

- Obligations of Minors: Contracts made by a minor prior to the time a minor reaches the legal age of majority are Unenforceable unless they are for “necessaries” – ie goods and services needed by the minor--> AFTER reaching the legal age, the minor becomes legally liable on any contracts made durin g minority that the minor elects to affirm.

a) Rest 85- reflects the rule that a minors promise when he reaches the age of majority to pervform a contract made during minority is legally binding.

Webb v. McGowin 27 Ala App. 82 (1935)- Certiorari denied by Supreme Court in Webb v. McGowin, 232 Ala. 374, 168 So. 199.

Facts: Essentially, two individuals were working on flooring with big cement blocks, and Webb had a big block ,that had he done normally with it, would have crushed McGowin- so he instead fell with the block and ended up crippled for life:

"On the 3d day of August, 1925, appellant while in the employ of the W. T. Smith Lumber Company, a corporation, and acting within the scope of his employment, was engaged in clearing the upper floor of mill No. 2 of the company. While so engaged he was in the act of dropping a pine block from the upper floor of the mill to the ground below; this being the usual and ordinary way of clearing the floor, and it being the duty of the plaintiff in the course of his employment to so drop it. The block weighed about 75 pounds.

"As appellant was in the act of dropping the block to the ground below, he was on the edge of the upper floor of the mill. As he started to turn the [***6]  block loose so that it would drop to the ground, he saw J. Greeley McGowin, testator of the defendants, on the ground below and directly under where the block would have fallen had appellant turned it loose. Had he turned it loose it would have struck McGowin with such force as to have caused him serious bodily harm or death. Appellant could have remained safely on the upper floor of the mill by turning the block loose and allowing it to drop, but had he done this the block would have fallen on McGowin and caused him serious injuries or death. The only safe and reasonable way to prevent this was for appellant to hold to the block and divert its direction in falling from the place where McGowin was standing and the only safe way to divert it so as to prevent its coming into contact with McGowin was for  [**197]  appellant to fall with it to the ground below. Appellant did this, and by holding to the block and falling with it to the ground below, he diverted the course of its fall in such way that McGowin was not injured. In thus preventing the injuries to McGowin appellant himself received serious bodily injuries, resulting in his right leg being broken, the heel of his right foot [***7]  torn off and his right arm broken. He was badly crippled for life and rendered unable to do physical or mental labor.”

The complaint as amended averred in substance: (1) That on [***8]  August 3, 1925, appellant saved J. Greeley McGowin, appellee's testator, from death or grievous bodily harm; (2) that in doing so appellant sustained bodily injury crippling him for life; (3) that in consideration of the services rendered and the injuries received by appellant, McGowin agreed to care for him the remainder of appellant's life, the amount to be paid being $ 15 every two weeks; (4) that McGowin complied with this agreement until he died on January 1, 1934, and the payments were kept up to January 27, 1934, after which they were discontinued.

The action was for the unpaid installments accruing after January 27, 1934, to the time of the suit.

Citing Precedent: In Boothe v. Fitzpatrick, 36 Vt. 681, the court held that a promise by defendant to pay for the past keeping of a bull which had escaped from defendant's premises and been cared for by plaintiff was valid, although there was no previous request, because the subsequent promise obviated that objection; it being equivalent to a previous request

In the business of life insurance, the value of a man's life is measured in dollars and cents according to his expectancy, the soundness of his body, and his ability to pay

premiums. The same is true as to health and accident insurance.

It follows that if, as alleged in the complaint, appellant saved J. Greeley McGowin from death or grievous bodily harm, and McGowin subsequently agreed to pay him for the service rendered, it became a valid and enforceable contract

The case at bar is clearly distinguishable from that class of cases where the consideration is a mere moral obligation or conscientious duty unconnected with receipt by promisor of benefits of a material or pecuniary nature. Park Falls State Bank v. Fordyce, supra. Here the promisor received a material benefit constituting a valid consideration for his promise.

** Some authorities hold that, HN4 for a moral obligation to support a subsequent promise to pay, there must have existed a prior legal or equitable obligation, which for some reason had become [***13]  unenforceable, but for which the promisor was still morally bound. This rule, however, is subject to qualification in those cases where the promisor, having received a material benefit from the promisee, is morally bound to compensate him for the services rendered and in consideration of this obligation promises to pay. In such cases the subsequent promise to pay is an affirmance or ratification of the services rendered carrying with it the presumption that a previous request for the service was made.**

COURT USES A BENEFIT-DETRIMENT TEST: the complaint show that in saving McGowin from death or grievous bodily harm, appellant was crippled for life. This was part of the consideration of the contract declared on. McGowin was benefited. Appellant [***14]  was injured. HN5 Benefit to the promisor or injury to the promisee is a sufficient legal consideration for the promisor's agreement to pay

Notes p. 295:

- Promissory Restitution Principle:- Restatement (2nd) version of the Principle: - Legislation:- Scholarly Commentary- Recovery in the absence of a promise

Statute of Frauds pp. 303-314 Restatement §110Restatement §130Restatement §131Restatement §132Restatement §133Restatement §134The Statute of Frauds p. 303

1. Overview2. Classes of Contracts Covered3. General Principle: Scope and Application

Restatement Section 110- Statute of Frauds (p. 188)

a. Contract of an executor or administrator to answer a duty for decendent

b. Suretyship provisionc. Marriage provisiond. Land contract provisione. One-year performance provision

Problem 3-2

Problem Facts Etc.

Pilot Buck Rogers employed by Alliance Aviation made a test flight of the prototype of an Alliance bomber; fire broke out in the cockpit.

Company policy is that pilots are supposed to use their “best efforts to avoid the risk of harm to civilians” – aka doesn’t want to eject, leave the plane unmanned, and have it crash into the ground and people below.

Rogers instead of ejecting, made an emergency crash landing at the base.

-Rogers suffered serious injuries, partial paralysis, and the end of his test pilot career; Hospitalized for several months.

President of alliance visits him in the hospital and says that the company planned to provide for him financially

Letter expressing his gratitude for perofessionalism, dedication, and serive to company; enclosed $7500.00 check and statement: “Your’ll receive checks in this amount every month so long as the company’s financial condition continues to be solid.”

Rogers got the checks for several months afterward, visited the place, and even met with pilots, offered advice, etc. = good continued relationship.

Buck was presented with and pursued/wrote and produced a best selling expose of the military aircraft industry- has only a few unfavorable notes about Alligiance, but

the books will put more government limitations, restrictions, and hurt their business/industry overall.

Tom Agnew president of Allegiance feels betrayed by Rogers and wants to know if he can legally terminate Roger’s pension.

Answer

1. The ultimate question is whether Rogers could bring a claim of promissory estoppel if the pension was terminated. Prior, we must first decide if the exchange between Agent and Rogers was a promise, a gift, or instead constituted a contract. IT does not appear that there was any contract made, either implied or therwise. Nothing in the employment agreement states anything about incurring the costs of personal damages etc for actions taken to preserve the lives of the public or the aircraft itself. Instead, the pension was conferred especially for the injured pilot Rogers, for his pas performance of professionalism in not ejecting from the plan and running both the aircraft and endangering human lives below, and injuring himself in the process. In Webb, the court said that when Webb was injured and unable to work any further, in order to save the block from hitting McGowin, that McGowin materially benefited when his life was saved, and that such a material benefit would serve as valid consideration. There, the court essentially read into some kind of contract, where the promise to pay in the future was an affirmance of a ratification of the services rendered, carrying with it the presumption that a previous request for the service of saving his life was made. But that is NOT NECESSARILY the case here, because the pilot did not directly save the lives of the president of the company. The question thus becomes whether Agnew and Allegiance materially benefited from his driving the aircraft back to the base, injuring himself permanently in the process, and are therefore obligated to carry out the pension.

2. Another issue that supports the claim that the terms of pension seem more like a promise to pay, or a gift to help take care of him for the injuries he sustained, are that it is seemingly revocable at anytime the company is not “in a solid financial position.” This is relative and arbitrary, and evokes the notion that the promise to continue to provide for the gift is dependent upon an assessment (not defined by whom in the terms of the contract) of the solidarity of Allegiance’s financial situation. Like in the classic Mills v. Wyman, even a father is not obligated to pay for the present and future medical expenses of his own son that he is not legally obligated to provide for. Any payment made towards his health or safety do not consitute any consideration.

3. So there is no bargain for exchange here because consideration cannot be made of a past performance, and it was only a promise to pay going forward for his dedicated past performances with the company. Thus the question

turns on a claim of promissory estoppel: including four factors for a potential promissory estoppel claim:

a. (1) a Promise: there was a promise to pay $7500 monthly for as long as the company was financially sound

b. (2)Forseeability- If it was foreseeable for Agnew to think that Buck would rely on his promise: It seems that because he was a test pilot, blue collar worker of a decent age, and injured while doing work for the company and going above and beyond, to the point of sacrificing his shown health and livelihood for the sake of the company’s equipment and social policies; he most likely could not have paid for his extensive hospital stay as a result of the accident without the assistance of the company. Nor could he have any real source of income going forward, because he was partially paralyzed and could not longer practice his profession. It is reasonable to say that Agnew would believe that Rogers would rely

c. (3) a Detrimental reliance to be found by Rogers, in his reliance on the monthly $7500.00 payments to cover living and medical expenses, as a result of his performance. In this case, our facts become analogous to Katz. V. Danny Dare, that places promissory estoppel in the commercial context. There promissory estoppel was invoked as a substitute for a bargain and exchange and consideration. When the worker in Katz was injured, he was essentially persuaded by his company to retire at a loss of his then current salary. However, he was able to subsidize his lost wages with other employment opportunities and even moonlighting some shifts at his former employer. He had been receiving checks over the course of several years- and it seems as though he was relying on them- however he had just written a book that gained nationwide recognitition (“best-selling”), and surely gained some money from its proceeds AKA providing an alternative source of income.

d. (4)Injustice- Would it be an injustice to Buck to not continue his pension? Would he have relief by some other means? There is some evidence, having visited the company after the incident and even meeting with pilots/offer advice etc; that his working life was not entirely finished, he did not die and was not completely paralyzed- although he could not work at all as a pilot anymore.

Thus it seems like a claim for promissory estoppel may have some traction given our facts. There were no clauses in the initial promise, written in a letter and signed by Agnew, that Rogers need do anything in exchange for this promise, thus no consideration seems present. However it seems that any claims to the detrimental reliance pillar of promissory estoppel could be argued away and dismiss the promissory estoppel claim. Buck had other sources of income, and one was at the expense of the industry providing his pension- so would it really be reliance to his detriment? There is a different between relying on the promised payments, and expecting them to come. I think the claim would likely have much stronger footing if

in fact Buck was not capable of working in any capacity, had no alternative sources of income, no ability to pay his hospital bills or ongoing expenses without Alliance’s promised pension. It seems that writing an expose on the very industry providing your pension would not be indicate of a personal detrimental reliance.

On an equally important platform, the expose on military aircraft written by Rogers, a nationwide best seller, will have a significant impact on Alliance’s business, and could easily be grounds to render the company as economically unstable. If an appeal to economic stability is well-founded and found true, the promise to pay becomes nullified given its plain-faced terms that the payoff will continue only so long as the company is economically sound An action like an expose on their industry would well justify an appeal to economic instability, and thereby justify revoking Roger’s monthly pension.

Crabtree v. Elizabeth Arden Sales Corp 305 NY 48 (1953)

Cause of Action: September of 1947, Nate Crabtree entered into preliminary negotiations with Elizabeth Arden Sales Corporation, manufacturers and sellers of cosmetics, looking toward his employment as sales manager. Interviewed on September 26th, by Robert P. Johns, executive vice-president and general manager of the corporation, who had apprised him of the possible opening, Crabtree requested a three-year contract at  [*52]  $25,000 a year. Explaining that he would be giving up a secure well-paying job to take a position in an entirely new field of endeavor - which he believed would take him some years to master - he insisted upon an agreement for a definite term. And he repeated his desire for a contract for three years to Miss Elizabeth Arden, the corporation's president. When Miss Arden finally indicated that she was prepared to offer a two-year contract,  [***9]  based on an annual salary of $20,000 for the first six months, $25,000 for the second six months and $30,000 for the second year, plus expenses of $5,000 a year for each of those years, Crabtree replied that that offer was "interesting". Miss Arden thereupon had her personal secretary make this memorandum on a telephone order blank that happened to be at hand:

"EMPLOYMENT AGREEMENT WITH NATE CRABTREE Date Sept 26-1947 At 681 - 5th Ave 6: PM Begin 20000. 6 months 25000. 6 months 30000. 5000. - per year Expense money [2 years to make good] Arrangement with Mr Crabtree By Miss Arden Present Miss Arden , Mr John, Mr Crabtree , Miss OLeary"

A few days later, Crabtree 'phoned Mr. Johns and telegraphed Miss Arden; he accepted the "invitation to join the Arden organization", and Miss Arden wired back her "welcome". When he reported for work, a "pay-roll change" card was made up and initialed by Mr. Johns, and then forwarded to the payroll department. Reciting that it was prepared on September 30, 1947, and was to be effective as of October

22d, it  [*53]  specified the names of the parties, Crabtree's "Job Classification" and, in addition, contained [***10]  the notation that "This employee is to be paid as follows:

"First six months of employment $20,000. per annum Next six months of employment 25,000. per annum After one year of employment 30,000. per annum Approved by RPJ [initialed]"

After six months of employment, Crabtree received the scheduled increase from $20,000 to $25,000, but the further specified increase at the end of the year was not paid. Both Mr. Johns and the comptroller of the corporation, Mr. Carstens, told Crabtree that they would attempt to straighten out the matter with Miss Arden, and, with that in mind, the comptroller prepared another "pay-roll change" card, to which his signature is appended, noting that there was to be a "Salary increase" from $25,000 to $30,000 a year, "per contractual arrangements with Miss Arden". The latter, however, refused to approve the increase and,  [**553]  after further fruitless discussion, plaintiff left defendant's employ and commenced this action for breach of contract.

At the ensuing trial, defendant denied the existence of any agreement to employ plaintiff for two years, and further contended that, even if one had been made, the statute of frauds barred its [***11]  enforcement.Contracts - Statute of Frauds - two-year employment contract - (1) Statute of Frauds requires that "some note or memorandum" of contract be "subscribed by the party to be charged"; statute satisfied in this case by unsigned memorandum of hiring prepared by defendant's president, payroll card initialed by defendant's general manager, pay raise card signed by defendant's comptroller, all referring to same transaction, and by oral testimony showing interconnection and defendant's assent to unsigned paper - (2) separate papers, all clearly referring to same subject, may be read together, if one establishing contractual relationship bears signature of party to be charged; oral testimony is [***2]  then admissible to show papers' connection and that defendant assented to unsigned paper - (3) immaterial that payroll cards were made up after contract was made where they were signed t0 authenticate information therein, which evidences contract - (4) memorandum that plaintiff was to have raise at end of year and "2 years to make good", even if ambiguous, was shown by parol evidence, to satisfaction of trial court, to mean two-year contract - (5) defendant having breached contract by failing to raise plaintiff's salary, judgment for damages should be affirmed.

1. The Statute of Frauds (Personal Property Law, § 31) which states that an agreement not to be performed within one year is void unless "some note or memorandum thereof be in writing, and subscribed by the party to be charged", was satisfied in this case by (a) an unsigned memorandum which defendant corporation's president had her personal secretary write, as follows: "Employment Agreement with Nate Crabtree Date Sept 26-1947 Begin 20000. 6 months 25000. 6

months 30000. 5000.-per year Expense money [2 years to make good] Arrangement with Mr Crabtree By Miss Arden Present Miss Arden Mr. John Mr. Crabtree Miss OLeary",  [***3]  and (b) a payroll card effective as of October 22, 1947, initialed by defendant's executive vice-president, and reading that plaintiff was to be sales manager "to be paid as follows: First six months of employment $20,000. per annum Next six months of employment 25,000. per annum After one year of employment 30,000. per annum", and (c) a payroll change card for plaintiff, effective October 23, 1948, reading "Salary increase per contractual arrangements with Miss Arden * * * $30,000 per annum", to which is appended the signature of defendant's comptroller, and (d) oral testimony showing the connection among such papers - all of which on their face refer to the same transaction - and showing the assent of defendant corporation to the contents of the unsigned memorandum.

2. The memorandum required by the statute may be pieced together out of separate writings, some signed and some unsigned, provided they all clearly refer to the same transaction. Oral testimony as to the circumstances surrounding the making of the memorandum is then admissible to show the connection between the documents and to establish the acquiescence of the party to be charged to the contents of the unsigned [***4]  one. Under this rule, none of the terms of the contract are supplied by parol. All of them must be set out in the various writings, and at least the one establishing a contractual relationship must bear the signature of the party to be charged, while the unsigned documents must on their face refer to the same transaction as that set forth in the signed one. If the oral testimony does not convincingly connect the papers, or does not show assent to the unsigned papers, it is within the province of the judge to conclude, as a matter of law, that the statute has not been satisfied. In this case, however, it is hardly likely that defendant's unsigned office memorandum was fraudulently manufactured.

3. It is of no consequence that the payroll cards were not prepared or signed with the intention of evidencing the contract, or that they came into existence subsequent to its execution. It is enough, to meet the demands of the Statute of Frauds, that the documents were signed with intent to authenticate the information contained therein, and that such information does evidence the terms of the contract.

4. The phrase, "2 years to make good", when viewed with the rest of that memorandum,  [***5]  signified a two-year term, not a mere employment at will. But if the phrase was ambiguous, parol evidence was admissible to explain its meaning. The parol evidence of the negotiations in which plaintiff had insisted on security of employment warranted the trier of the facts in finding that the purpose of the phrase was to make at least a two-year contract.

5. Defendant having breached the contract by failing to raise plaintiff's salary at the end of the first year, a judgment for plaintiff for the damages which followed should be affirmed

Notes

1. The one year clause:2. Lifetime Contracts3. Requirements for Linking Documents4. Alternate analysis of Crabtree5. The Requirement of a Signed Writing

Statute of Frauds- UCC - PP. 335-336; 341-344. vUCC § 2-201 and COMPARE it to the Statute of Frauds used in contracts not involving sale of goods UCC §2-201 vs. Common Law Statute of Frauds

(1) Except otherwise provided- the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought (or by authorized agent)

a. Cooment: all that is requitred of the writing is that it afford a basis for believing that the offered oral evidence rests on a real transaction- only quantity must be included; price, time, delivery, general quality, or other particulars need not be included

(2) Between Merchants: if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies subsection (1) – unless within 10 days of receipt a written notice of rejection is given.

(3) If it doesn’t satisfy subsection (1), it is still enforceable in other respects if:a. Goods are specially manufactured for the buyer and are not suitable

to sale to others in ordinary business- before repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer- has made a substantial beginning of their manufacture or commitments for their procurement

b. If the party against whom enforcement is sought, admits in pleading testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted;

c. With respect to goods for which payment has been made and accepted or which have been received and accepted.

Comment:

- Partial performance as a substitute for the required memorandum can validate the contract only for the goods which have been accepted or for which payment has been made/accepted.

- Recepit and acceptance either of goods or payment constitutes an unambiguous overt admission by both parties that a contract actually exists

- For MERCHANTS: failure to answer a written confirmation within ten days of recept is tantamount to a writing under (2) and is sufficient against BOTH

parties under (1) – the party who fails to answer can therefore no longer asser the Statute of Fraunds defense

Electronic Signatures §101(a)(b) and 106(5)in Rules book. p 272 & 279 Restatement §139

Statute of Fraud and Promissory Estoppel Pp. 323-332 Restatement §139

Alaska Democratic Party v. Rice 934 P.2d 1313

Issue: Whether the doctrine of promissory estoppel can be invoked to enforce an oral contract that falls within the Statute of Frauds – first impression upon this court.

1. Rice says that Greg Wakefield as chair elect of the Alaska Democratic Party, promised her a 2 year position as Exec. Director of the party.

a. Rice worked from 87-91 with the party in one capacity or another.b. She was fired and left for Maryland Dem. Partyc. While in Maryland Wakefield sought her out, declared his pending

political victory, and wanted her to be his exec. Director.d. Wakefield elected to chair of the party.e. He at one point subsequently “confirmed his decision to hire her as

executive director” on the following specific terms” $36k/year for @ least 2 years +2yrs conditioned upon his reelection + $4k fringe benefits (various non-wage compensations provided to employees in addition to their normal wages or salaries.\

f. Rice took a job with Landau in Maryland after the offer from Wakefield was confirmed. Their prior conversations should be considered preliminary negotiations of an offer for a contract, and not a verbal agreement that would thereby constitute an offer and acceptance and a subsequent confirmatory statement (NO TERMS!). His statement that confirmed his decision was reaffirming the offer based on their preliminary discussion.

g. The executive committee of the party in a closed door session in February 1993, after Rise had quit in Maryland and moved to Alaska the previous November

2. Job failed to materialze so she sued on the alleged oral contract.3. After a jury trial, Rice was awarded damages- the Alaska Party/Wakefield

appeal; Court AFFIRMS.- The lower court ultimately concluded that as between the statute of frauds

and promissory estoppel, the latter would prevail, based on Restatement §139(a)- “a promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does not induce the action or forbearance is enforceable

notwithstanding the Statute of Frauds if injustice be avoided only by enforcement of the promise.

a) Strict conformance to the statute of frauds will be overridden upon an affirmative showing of establishing the promise’s extistence by clear and convincing evidence

b) Restatement exception is invoked- whether injustice can be avoided only by enforcement of the promise- the jury found the prerequisites were found and that it was reasonable that justice could be found only if the promise was enforced.

c) The court found that she relied on the statements that Wakefield had told her that he had express authority to fire and hire her position and that he could not be debunked by the executive committee- who in turn debunked his decision and did not hire her.

d) Wakefield could have reasonably expected to induce Rice’s action by their promise- she resigned the other position in Maryland she had taken and moved to Alaska for the job- and such actions were reasonable under the circumstances

e) Examination of whether injustice could only be avoided by enforcement of the promise- Restatement §139:

Adequacy of other remedies, particularly cancellation and resitution

Definite and substantial character of the action in relation to the remedy sought

The extend the making and terms are otherwise established by clear and convincing evidence

Reasonable of the action The extent to which the action or forbearance was foreseeable

by the promisor.

f) Court holds: The statute of frauds represents a traditional contract principal that is largely formalistic and does not generally concern substantive rights section 139(2)(c) ensures that promissory estoppel will not render the statute of frauds superfluous in the employment context (because words alone wouldn’t be enough to establish clear and convincing evidence. = §139 is the law of this jurisdiction. In this case the terms were written down and both negotiated and confirmed by the individual claiming sole and complete power to employ and terminate her position = reasonable reliance to her detriment.

g) The lower court was correct to include the phrase “definite and substantial character” of the action in reliance taken- this is supported in Restatement §139 as well.

h) Agency - Argument that Wakefield as chair-elect had neither explicit or implied authority to contract on behalf of the party Wakefield’s implied authority- lower court reads it reasonable to assume that Wakefield had the implied authority chairs implied general

authority to make hiring decisions regarding executive personnel. Court affirms on the ground that the evidence adduced in the lower court yielded the general impression that Wakefield had the general authority- and the question of whether he had the specific authority to hire for a certain number of years was not raised at trial or on motion for directed verdict, and was accordingly waived.

i) Misrepresentation- The Party contends that Wakefield was a volunteer not speaking in his business or professional capacity- and therefore his representation could not provide a basis for recovery Court: it is NOT the case that the information he gave Rice was “information purely given gratuitously” – Wakefield had a significant stake in Rice’s acceptance of the alleged offer- he wanted her to be his director – it was reasonable to say that he represented the Party and had authority to make the decision he did- and even if he actually didn’t have the authority, the prerequisites a for claiming a negligent misrepresentation as defined in promissory estoppel claim §139- were met in this case.

j) Damages not excessive in light of the evidence- $28K is less than her $36k salary plus $4200 benefits package- it is reasonable A specific section of 139 makes the promise enforceable despite the statute of frauds- damages were correctly calculated. Not excessive on the misrepresentation ground either because the damages were what she spent on moving expenses- because he did end up misrepresenting

Notes

1. Reliance on the promise of a writing- 1st restatement vs. 2nd Restatement §139

2. Enforcement of the oral contract does not necessarily follow even if accepting §139- courts are supposed to consider other remedies like resititution, that may be available. (ex.- partial performance pursuant to a contract is unenforceable of statute of frauds- but provide restitution for the value of the work emplored instead)

3. Tort Claim-

Interpretation pp. 349-82Restatement §201Restatement §202Restatement §203Restatement § 204 Interpretation terms at p358-359

http://www.youtube.com/watch?v=h8prY-yHYoE

Make sure you get all of the key points- re-read cases if it is not clear in class/points are not clear from class notes (you didn’t read initially)

Joyner v. Adams, 87 N.C. App. 570   (1987)

PROCEDURAL POSTURE: Plaintiff lessee and defendant lessor appealed a conclusion of the Wake County Superior Court (North Carolina) that there was no binding agreement on rent escalation where no meeting of the minds was established.

OVERVIEW: Lessor and lessee entered into a rental agreement. After the superior court concluded that there was no meeting of the minds on the rent escalation provision and thus no binding agreement, both parties appealed. In affirming in part, the court concluded that where the superior court found divergent meanings between the parties, it did not err in concluding that there was no meeting of the minds on the question of what conditions would trigger the retroactive rent escalation. In reversing and remanding in part, however, the court concluded that the superior court erred in awarding judgment for lessee based on the rule that ambiguous contract terms were to be construed against the party drafting the contract where the contract was negotiated between experienced parties who occupied essentially equal positions of power. Lessee would be entitled to a favorable construction if lessor knew that lessee attached a certain meaning to the disputed language and lessee did not know of the meaning attached by lessor. On remand, the superior court was to determine whether lessor knew of the meaning lessee attached to the terms and whether lessee knew of the meaning attached by lessor.

OUTCOME: The superior court judgment was affirmed in part and reversed in part, and the matter was remanded for further factual findings regarding each party's knowledge of the meaning attached to certain terms by the other party.

1. It is axiomatic that where parties have attributed different meanings to a term within a contract, there is no meeting of the minds on that provision, and a court will not enforce either party's meaning.

2. It is well-established that where one party knows or has reason to know what the other party means by certain language and the other party does not know or have reason to know of the meaning attached to the disputed language by the first party, the court will enforce the contract in accordance with the innocent party's meaning.

3. A determination of whether either or both parties knew or had reason to know of a different meaning attributed by the other is essential in almost every case where the court finds a lack of mutual assent.

4. The rule that ambiguity in contract terms must be construed most strongly against the party that drafted the contract rests on a public

policy theory that the party who chose the words is more likely to have provided more carefully for the protection of his own interests, is more likely to have had reason to know of uncertainties, and may have even left the meaning deliberately obscure. Consequently, the rule is usually applied in cases involving an adhesion contract or where one party is in a stronger bargaining position, although it is not necessarily limited to those situations.

5. Before the rule of construction that ambiguities are construed against the drafter should be applied, the record should affirmatively show that the form of expression in words was actually chosen by one party rather than by the other – to show evidence that the lessor, the drafter of the contract, had knowledge that the lessee had attached a different meaning.

6. NOTES:1. Whose Meeting Prevails?

2. Subsequent proceedings- on remand, the trial court found that the defendant neither knew nor had reason to know the plaintiffs reading, and affirmed for the defendant:

a. Plaintiff lessor’s testiomony reveals two meanings: “completed building” condition avoiding recomputation vs. “completed building and tenant occupation of the building”

b. Lack of communication during negotiation insufficient to give defendant reason to know plaintiffs meaning

c. Lack of evidence defendant assented to contract in reliance completed building meaning

d. Defendants extensive outside knowledge imparted different meanings of terms than plaintiffs intentions.

3. Construction against drafter –

4. P. 358- Contract Drafting Terms

Frigaliment Importing Co. v. B. N. S. Int'l Sales Corp., 190 F. Supp . 116   (1960) - Issue: Whose meaning prevails- Ambiguity and ‘plain meaning’

PROCEDURAL POSTURE: Plaintiff, a foreign corporation, brought an action for breach of the warranty, alleging that goods sold should correspond to the description in two contracts with defendant, a state sales corporation.

OVERVIEW: Defendant state sales corporation had two contracts with plaintiff foreign corporation for the sale of "chicken". After plaintiff received one shipment of stewing chicken and another was stopped, plaintiff brought a breach of warranty action, alleging that the goods sold should have corresponded to the description

because the chicken was not suitable for broiling and frying. In dismissing plaintiff's complaint, district court held that plaintiff's reliance on the fact that the contract forms contained words with a blank not filled to negate agency was wholly unpersuasive where the clause's purpose was to permit filling in an intermediary's name to whom commission would be payable. Defendant's subjective intent that it could comply with the contracts by delivering stewing chicken coincided with objective meaning of "chicken," which had at least some usage in the trade; and plaintiff did not sustain its burden that "chicken" was used in the narrower rather than in the broader sense.

OUTCOME: Plaintiff foreign corporation's complaint was dismissed where plaintiff did not sustain its burden of persuasion that the contract with defendant state sales corporation used the word "chicken" in the narrower sense and defendant's subjective intent coincided with an objective meaning of "chicken."

1. When one of the parties is not a member of the trade or other circle, his acceptance of the standard must be made to appear by proving either that he had actual knowledge of the usage or that the usage is so generally known in the community that his actual individual knowledge of it may be inferred

a. Here there was no proof of actual knowledge of the alleged usage; indeed, it is quite plain that defendant's belief was to the contrary

2. In order to meet the alternative requirement, the law of New York demands a showing that the usage is of so long continuance, so well established, so notorious, so universal and so reasonable in itself, as that the presumption is violent that the parties contracted with reference to it, and made it a part of their agreement.

3. Statutory Interpretationa. Since the word 'chicken' standing alone is ambiguous, I turn first to

see whether the contract itself offers any aid to its interpretationb. After testing the market for price, Bauer accepted, and Stovicek sent a

confirmation that evening. Plaintiff stresses that, although these and subsequent cables between plaintiff and defendant, which laid the basis for the additional quantities under the first and for all of the second contract, were predominantly in German, they used the English word 'chicken'; it claims this was done because it understood 'chicken' meant young chicken whereas the German word, 'Huhn,' included both 'Brathuhn' (broilers) and 'Suppenhuhn' (stewing chicken), and that defendant, whose officers were thoroughly conversant with German, should have realized this.

c. Plaintiff's [**7]  next contention is that there was a definite trade usage that 'chicken' meant 'young chicken.'

d. Evidence offered suggest othersie—ex: Defendant's witness Weininger, who operates a chicken eviscerating plant in New Jersey, testified 'Chicken is everything except [**10]  a goose, a duck, and a turkey.

e. Defendant makes a further argument based on the impossibility of its obtaining broilers and fryers at the 33 cents price offered by plaintiff for the 2 1/2-3 lbs. birds --> no profit would be had (normally .35)

C & J Fertilizer, Inc. v. Allied Mut. Ins. Co., 227 N.W.2d 169   (1975)

PROCEDURAL POSTURE: Plaintiff appealed an order of the Henry District Court (Iowa), which held that plaintiff had failed to establish burglary within the definitions of an insurance policy.

Issue: Trial court made certain findings of fact in support of its conclusion reached. Plaintiff operated a fertilizer plant in Olds, Iowa. At time of loss, plaintiff was insured under policies issued by defendant and titled "BROAD FORM STOREKEEPERS POLICY" and "MERCANTILE BURGLARY AND ROBBERY POLICY." Each policy defined "burglary" as meaning,  

"* * * the felonious abstraction of insured property (1) from within the premises by a person making felonious entry therein by actual force and violence, of which force and violence there are visible marks made by tools, explosives, electricity or chemicals upon, or physical damage to, the exterior of the premises at the place of such entry * * *."

Chemicals had been stored in an interior room of the warehouse. The door to this room, which had been locked, was physically damaged and carried visible marks made by tools. Chemicals had been taken at a net loss to plaintiff in the sum of $9,582. Office and shop equipment valued at $400.30 was also taken from the building.

Trial court held the policy definition of "burglary" was unambiguous, there was nothing in the record "upon which to base a finding that the door to plaintiff's place of business was entered feloniously, by actual force and violence," and, applying the policy language, found for defendant

OVERVIEW: Plaintiff operated a fertilizer plant that he insured against burglary under the policies issued by defendant. When the plant was broken into defendant refused to pay for the loss and plaintiff brought an action to recover for the loss. Defendant argued that the break in did not comport with the definition of "burglary" in the policy, which envisaged a violent breaking that left a visible mark or physical damage to the door. The lower court found on behalf of defendant. On appeal, plaintiff claimed relief under the doctrine of reasonable expectations, implied warranty, and unconscionability. The court reversed the lower court's decision, holding that interpretation was a matter to be determined by the court and that the meaning of the word in the policy differed widely from its legal or normal meaning. The court held that plaintiff was entitled to a judgment in his favor because the

provision of the policy was unconscionable and departed from the reasonable expectation of an ordinary person.

OUTCOME: The court reversed the lower court's order that was rendered in favor of defendant because the provision of the policy did not comport with the reasonable expectation of a reasonable person, was unconscionable, and was a breach of an implied warranty.

1. The question of interpretation or the meaning to be given contractual words, is one to be determined by the court unless the interpretation depends on extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence- Construction of a contract is always a matter of law for the court.

2. Insurance contracts continue to be contracts of adhesion, under which the insured is left little choice beyond electing among standardized provisions offered to him, even when the standard forms are prescribed by public officials rather than insurers.

3. The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations

4. Although customers typically adhere to standardized agreements and are bound by them without even appearing to know the standard terms in detail, they are not bound to unknown terms which are beyond the range of reasonable expectation.

a. A debtor who delivers a check to his creditor with the amount blank does not authorize the insertion of an infinite figure. Similarly, a party who adheres to the other party's standard terms does not assent to a term if the other party has reason to believe that the adhering party would not have accepted the agreement if he had known that the agreement contained the particular term.

b. Such a belief or assumption may be shown by the prior negotiations or inferred from the circumstances.

c. Reason to believe may be inferred from the fact that the term is bizarre or oppressive, from the fact that it eviscerates the non-standard terms explicitly agreed to, or from the fact that it eliminates the dominant purpose of the transaction.

d. The inference is reinforced if the adhering party never had an opportunity to read the term, or if it is illegible or otherwise hidden from view.

e. This rule is closely related to the policy against unconscionable terms and the rule of interpretation against the draftsman.

5. Statement in written sales contract that it contains the entire agreement does not exclude implied warranty.

6. Although implied warranties of fitness for intended purpose have traditionally been attached only to sales of tangible products, there is no

reason why they should not be attached to sales of promises as well. Whether a product is tangible or intangible, its creator ordinarily has reason to know of the purposes for which the buyer intends to use it, and buyers ordinarily rely on the creator's skill or judgment in furnishing it.

7. Standardized contracts such as insurance policies, drafted by powerful commercial units and put before individuals on the "accept this or get nothing" basis, are carefully scrutinized by the courts for the purpose of avoiding enforcement of "unconscionable" clauses.

3/14

Parole Evidence Rule

Classic view- p. 382-388

Modern view- p. 388-432

Compare the approach of the classical view (Wilistonian); Restatement (Corbin) and UCC to the issues of parole evidence- such as deciding the integration of the contract; effect of a merger clause.; what is a collateral agreement; treatment of additional terms (consistent and contradictory)?

UCC §1-102 (1)(2); UCC §1-205UCC §2-202UCC §2-208UCC §2-103

Restatement §§ 209 through 217

Restatement (Second) §209-218

UCC §2-202

- “When the parties to a contract have mutually agreed to incorporate/integrate a final version of their entire agreement in a writing, neither party ill be permitted to contradict or supplement that written agreement with “extrinsic” evidence (written or oral) of proper agreements or negotiations between them

- When the writing is intended to be final only with respect to a part of their agreement, the wrting may not be contradicted, but it may be supplemented by such extrinsic evidence.

** The parole evidence rule does not define what evidence is affirmatively admissible, bit only operates to exclude evidence that would otherwise be admissible as rationally probative of some fact at issue.

- IF the parole evidence rule DOES APPLY at all in a given situation- it has the effect of preventing one party from introducing into court extrinsic/collateral evidence of matters not contained n the written agreement between the parties (thus extrinsic), where that evidence is offered to supplement or contradict the written agreement

- IF the parole evidence rule DOES NOT APPLY – either because the parties haven’t executed any such agreement or because the offered evidence comes within some exception to that rule – then admission of the evidence will turn on the body of fed. rules of evidence.

Thompson v. Libby 34 Minn. 374 (1885)PROCEDURAL POSTURE: Plaintiff vendor appealed from an order of the District Court for Dakota County (Minnesota), which refused a new trial in his action against defendant purchaser for the purchase money, after admitting evidence of a breach of a verbal warranty alleged to have been made at the time of the sale over the vendor's objection.

OVERVIEW: The vendor brought an action to recover the purchase money from the purchaser. The purchaser pleaded that the vendor had breached a warranty of the quality of the logs, and the trial court admitted oral testimony to prove the verbal warranty over the vendor's objection that such testimony was incompetent to prove a verbal warranty, because the contract of sale was in writing. Upon the vendor's appeal, the court reversed the trial court's order, holding that it erred in admitting parol evidence of a warranty. Parol contemporaneous evidence was inadmissible to contradict or vary the terms of a valid written instrument. Because the parties deliberately put their engagements into writing in such terms as to create a legal obligation, without any uncertainty as to the object or extent of such engagement, it was conclusively presumed that the whole engagement of the parties, and the manner and extent of the undertaking, was reduced to writing. There was nothing on its face to indicate that the contract was a mere informal and incomplete memorandum. Furthermore, no new term, forming a mere incident to or part of the contract of sale, could be added by parol evidence.

OUTCOME: The court reversed the trial court's order, which refused the vendor a new trial in his action against the purchaser to recover the purchase money.

1. Parol contemporaneous evidence is inadmissible to contradict or vary the terms of a valid written instrument. Where the parties have deliberately put

their engagements into writing in such terms as to import a legal obligation, without any uncertainty as to the object or extent of such engagement, it is conclusively presumed that the whole engagement of the parties, and the manner and extent of their undertaking, was reduced to writing. Of course, the rule presupposes that the parties intended to have the terms of their complete agreement embraced in the writing, and hence it does not apply where the writing is incomplete on its face and does not purport to contain the whole agreement, as in the case of mere bills of parcels, and the like

2. Where a whole contract be not reduced to writing, parol evidence may be admitted to prove the part omitted. But to allow a party to lay the foundation for such parol evidence by oral testimony that only part of the agreement was reduced to writing, and then prove by parol the part omitted, would be to work in a circle, and to permit the very evil which the rule was designed to prevent. The only criterion of the completeness of the written contract as a full expression of the agreement of the parties is the writing itself. If it imports on its face to be a complete expression of the whole agreement, that is, contains such language as imports a complete legal obligation, it is to be presumed that the parties have introduced into it every material item and term; and parol evidence cannot be admitted to add another term to the agreement, although the writing contains nothing on the particular one to which the parol evidence is directed. The rule forbids to add by parol where the writing is silent, as well as to vary where it speaks, and the law controlling the operation of a written contract becomes a part of it, and cannot be varied by parol any more than what is written

3. Parol evidence of extrinsic facts and circumstances would, if necessary, be admissible, as it always is, to apply the contract to its subject-matter, or in order to a more perfect understanding of its language. But in that case such evidence is used, not to contradict or vary the written instrument, but to aid, uphold, and enforce it as it stands.

4. Parol evidence of covenants for repairs, improvements, payment of taxes, etceteras, would not be admissible to add to the terms of a written lease. So, in a sense, a warranty is collateral to a contract of sale, for the title would pass without a warranty. It is also collateral in the sense that its breach is no ground for a rescission of the contract by a vendor, but that he must resort to his action on the warranty for damages. But, when made, a warranty is a part of the contract of sale. The common sense of men would say, and correctly so, that when, on a sale of personal property, a warranty is given, it is one of the terms of the sale, and not a separate and independent contract. To justify the admission of a parol promise by one of the parties to a written contract, on the ground that it is collateral, the promise must relate to a subject distinct from that to which the writing relates

5. Contract in Writing--Parol Evidence to add New Terms.--The only criterion of the completeness of a written contract as a full expression of the agreement of the parties is the writing itself. If it imports on its face to be a complete expression of the whole agreement,--that is, contains such language as imports a complete legal obligation,--it is conclusively presumed that the

parties have introduced into it every material term, and parol evidence cannot be admitted to add another term, although the writing is silent as to the particular one to which the parol evidence is directed.

Contract in Writing--Parol Evidence of Collateral Matter.--Where the parties have reduced a contract to writing, in order to warrant the introduction of parol evidence of a matter as collateral, it must relate to a subject distinct from that to which the writing relates.

Contract in Writing--Sale--Parol Evidence of Warranty.--In case of a sale of personal property, a warranty of its quality is not a separate and independent collateral contract, but one of the items or terms of the contract of sale; following Jones v. Alley , 17 Minn. 269 , (292.)

Contract in Writing--Application of the Rule.--In this case the parties, having fully agreed on the terms of sale of the property, executed the following written agreement: "Agreement. Hastings, Minn., June 1, 1883. I have this day sold to R. C. Libby all my logs marked 'H. C. A.' cut in the winters of 1882 and 1883, for $ 10 a thousand feet, boom scale at Minneapolis. Payment cash, as fast as scale-bills are produced. [Signed] J. H. Thompson. R. C. Libby." Held, that oral testimony to prove a parol warranty of the quality of the logs was inadmissible

Classical View of parole evidence:

1. Integration- combining terms through a process of premliminary negotiations and then a writing containing the final terms.

- Complete integration- refer to a writing that is intended to be a dinal and exclusive expression of the agreement of the parties

- Partial integration- a writing that is intended to be final but not complete because it deals with some but not all aspects of the transaction between the parties

- The correct application if parole evidence rule requires the court to first determine 1. Whether the writing in question is intended to be a final expression of the parties agreement, and if so 2. Whether it is a complete or partial statement of the contract terms.

Determining Integration:

- Willistonian view: Four Corners approach--> must determine according to the 4 corners of the writing without resort to extrinsic evidence:

o Merger clause- a merger clause states that the writing is intended to be final and complete; all prior understandings are deemed to have been ‘merged’ into or superseded by the final writing

- Corbin View/Restatement Second View: ACTUAL INTENT OF THE PARTIES- court should consider evidence of all of the facts and circumstances surrounding the execution of the contract, as well as the writing, in uncovering the intent of the parties.

Scope of Parole Evidence Rule- Where Parole evidence rule does NOT apply:

1. Does not apply to evidence offered to explain the meaning of the agreementa. If found to be a partial integration- the writing may not be

contradicted by extrinsic evidence--> but MAY be supplemented by additional consistent terms

b. If complete integration- the writing may not be contradicted or supplemented

c. But extrinsic evidence can always be used to EXPLAIN a written agreement.

2. Does not apply to agreements, whether oral or written, made after the execution of the writing.

a. Evidence of subsequent oral modification of plaintiff’s written employment contract not barred by parol evidence rule- b/c not fully integrated so as to exclude proof of asserted oral agreement.

3. Does not apply to evidence offered to show that effectiveness of the agreement was subject to an oral condition precedent

a. Like in cases where the terms of an agreement are contingent upon approval of a pending loan…

b. Ex- if the bank had denied Libby a loan the parole evidence rule would not bar evidence of Libby’s oral statement- even though the writing was absolute on its face, because the evidence would establish an oral condition to the effectiveness of the agreement

4. Does not apply to evidence offered to show that the agreement is invalid for any reason like frauds, duress, undue influence, incapacity, mistake, or illegality (restatement Second Section 214(2))

a. Such invalidating factors result in wha t apparently a contract being in legal contemplation not a contract at all, and thus not entitled to the benefit of the parole evidence rule to begin with

b. Difficulties: in fraud claims- because in that case, the oral evidence would be directly contradicting the terms that say no other oral agreements etc. are binding.

c. Breach of contract claim vs. fraud via purposeful misrepresentation = differences in claims justify inclusion of oral evidence

5. Does not apply to evidence that is offered to establish a right to an ‘equitable’ remedy, such as reformation of the contract

a. Have to show clear and convincing evidence that equitable remedies are justified because the parties really did intend their written agreement to contain the term in question.

6. Does not apply to evidence introduced to establish collateral agreement between the parties (Restatement Second Section 216(2))

a. An agreement will not be regarded as fully integrated if the parties have made a consistent additional agreement which is either agreed to for separate consideration or is “such a term as in the circumstances might naturally be omitted from the writing”

Taylor v. State Farm Mutual Auto Insurance 175 Ariz. 148 (1993)

PROCEDURAL POSTURE: Plaintiff insured sued defendant insurer on a bad faith claim. The court of appeals reversed a jury verdict in favor of the insured, and the insured appealed.

OVERVIEW: The insured sought damages against the insurer for bad faith damages, asserting that the insurer improperly failed to settle a claim within policy limits, resulting in a large excess verdict against the insured. (The Rings eventually settled with State Farm. Taylor, however, sued State Farm for bad faith seeking damages for the excess Rivers judgment, claiming, among other things, that State Farm improperly failed to settle the Rivers matter within policy limits.)

1. The insurer moved for summary judgment, asserting that the insured had released the bad faith and all other claims through a document which provided for the release of "all contractual claims" against the insurer as part of a settlement involving uninsured motorist coverage

a. 1981: signed a release drafted by attorney Randall in exchange for State Farm's payment of $ 15,000 in uninsured motorist benefits

b. Because Wistrom was uninsured, Randall believed that Taylor might be entitled to recover for his injuries under the uninsured motorist provisions of Taylor's policy. State Farm   , however, disputes Taylor's entitlement to these benefits. In any event, Randall prepared a release as part of the transaction. It is this release that is at issue. The extent of State Farm   's participation in its drafting is disputed.

2. The insured also moved for partial summary judgment for a finding that the release did not preclude his bad faith claim. The trial judge denied both motions, finding that the release was ambiguous and that therefore parol evidence was admissible at trial to aid in interpreting the release. The jury awarded the insured compensatory damages, and the court granted attorney

fees. The court of appeals found no ambiguity and reversed the judgment for the insured. On appeal, the court held that the bad faith claim was tortious in nature, that the release was reasonably susceptible to the insured's interpretation, and the trial judge did not err in admitting parol evidence to the jury.OUTCOME: The trial court properly considered and then admitted extrinsic evidence to interpret the release and determine whether it included Taylor's bad faith claim. That question, in this case, was appropriately left to the trier of fact. There remain other issues not resolved by the court of appeals. We are aware of the frustration that additional delay imposes on all involved, especially in a case as old as this. Nevertheless, because the other issues were initially and fully presented to the court of appeals, prudence dictates that the court of appeals complete its review of this case as expeditiously as possible. The decision of the court of appeals pertaining to the release is vacated and the matter is remanded to the court of appeals for resolution of the remaining issues

HEADNOTES1. When two parties have made a contract and have expressed it in a writing to

which they have both assented as the complete and accurate integration of that contract, evidence, whether parol or otherwise, of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing. Antecedent understandings and negotiations may be admissible for purposes other than varying or contradicting a final agreement. Interpretation is one such purpose.

2. Interpretation is the process by which the court determines the meaning of words in a contract. A court will attempt to enforce a contract according to the parties' intent.

3. When interpreting a contract, it is fundamental that a court attempt to ascertain and give effect to the intention of the parties at the time the contract was made if at all possible

4. *** The better rule is that the judge first considers the offered evidence and, if he or she finds that the contract language is "reasonably susceptible" to the interpretation asserted by its proponent, the evidence is admissible to determine the meaning intended by the parties***

a. The judge first considers the offered evidence and, if he or she finds that the contract language is reasonably susceptible to the interpretation asserted by its proponent, the evidence is admissible to determine the meaning intended by the parties.

b. A contract should be read in light of the parties' intentions as reflected by their language and in view of all the circumstances.

c. Broad language releasing "all" claims "whether in contract, tort or otherwise" necessarily includes a bad faith claim.

d. Whether contract language is reasonably susceptible to more than one interpretation so that extrinsic evidence is admissible is a question of law for the court.

5. Was  the release so clear that the trial judge erred in admitting extrinsic evidence to interpret it?

a. The proper inquiry is not whether the claim was contractual in nature or whether the judge believed it was contractual but, instead, what the parties intended to release when they used language conspicuously less inclusive than the release of "all claims."

b. Of course, the true doctrinal nature of the claim, if it could be determined, would be relevant evidence in the search for the parties' contracting intent. If bad faith was ordinarily and universally thought of as a "contract" claim, it would be very difficult for Taylor to argue that the specific language in the agreement, releasing all "contractual" matters, was reasonably susceptible to his interpretation

c. Bad faith has its genesis in contract. However, the precise legal character of a bad faith claim may depend on the context of the discussion.

d. Despite the contractual origin of an insurance bad faith claim, the seminal Arizona decision on the subject, less than six months old at the time State Farm and Taylor made the agreement, declared that such conduct is a tort

e. Because the legal character of bad faith was and is not universally established, the release reasonably could be interpreted as Taylor asserts. The trial court, therefore, did not err in concluding that the text of the release did not necessarily cover claims for bad faith

6. Was the release language reasonably susceptible to differing interpretations, including that the bad faith claim was not released despite the contractual quality of such a claim?

a. Although occurring later, the Rings garnished State Farm seeking to satisfy their entire judgment, including the excess above the policy limits, based on State Farm's liability to Taylor for alleged bad faith.

b. There was some evidence that Hofmann (although ruled as hearsay), on behalf of State Farm, directed that "general release language" be used in the agreement without expressly mentioning "bad faith." 6 The document's cryptic language supports this – for purposes here, hearsay evidence satisfies the inquiry because not assessing the truth of the hearsay evidence, just whether it existed.

c. Was there extrinsic evidence to support the conclusion that the release language was reasonably susceptible to Taylor's interpretation? The potential size of Taylor's bad faith claim was obvious. We recognize that, with few exceptions, parties are free to structure a deal in any way they wish. Nevertheless, it is arguably reasonable to conclude that Taylor and his counsel would seek something more than just the payment of a potentially bona fide $15,000 UM claim to release a bad faith claim possibly worth millions of dollars

d. Perhaps most telling, is the fact that the parties used limiting language in the release. It is reasonable to believe that if the parties had agreed

to release the bad faith claim, they would not have drawn the release so narrowly -- confining it to "contractual" and "subsequent" matters, with no mention of tort claims or bad faith.

e. The release language is broad enough to release something more than just the contractual UM claim

f. All of the evidence, however, does not render the release language impervious to Taylor's interpretation. Instead, it demonstrates that there were three reasonable, but conflicting, interpretations of the language used in the agreement: (1) the parties agreed to release the bad faith claim; (2) the parties agreed to exclude the bad faith claim; and (3) the parties did not reach any agreement regarding release of the bad faith claim (in which case, of course, the claim would not be released). In light of this, the trial judge correctly concluded that the release could not as a matter of law be interpreted to include or exclude Taylor's bad faith claim

7. Was the parol evidence for the jury?a. Because interpretation was needed and because the extrinsic

evidence established controversy over what occurred and what inferences to draw from the events, the matter was properly submitted to the jury

8. Distinction: a. Classical View = Restrictive View – 4 corners view: Under the

restrictive "plain meaning" view of the parol evidence rule, evidence of prior negotiations may be used for interpretation only upon a finding that some language in the contract is unclear, ambiguous, or vague. E. Allan Farns-worth, Farnsworth on Contracts § 7.12, at 270 (1990) ("Farnsworth"). Under this approach, "if a writing, or the term in question, appears to be plain and unambiguous on its face, its meaning must be determined from the four corners of the instrument without resort to extrinsic evidence of any nature."

i. A contract may be susceptible to multiple interpretations and therefore truly ambiguous yet, given the context in which it was negotiated, not susceptible to a clearly contradicting and wholly unpersuasive interpretation asserted by the proponent of extrinsic evidence.

ii. seems clear that a court should exclude that evidence as violating the parol evidence rule despite the presence of some contract ambiguity.

iii. ** the ambiguity determination distracts the court from its primary objective -- to enforce the contract as intended by the parties.**

b. Modern = Corbin View : there is no need to make a preliminary finding of ambiguity before the judge considers extrinsic evidence. Restatement § 212 comment(b)

i. Court considers all of the proffered evidence to determine its relevance to the parties' intent and then applies the parol

evidence rule to exclude from the fact finder's consideration only the evidence that contradicts or varies the meaning of the agreement.

ii. The court cannot apply the parol evidence rule without first understanding the meaning the parties intended to give the agreement. Id. To understand the agreement, the judge cannot be restricted to the four corners of the document. Again, even under the Corbin view, the court can admit evidence for interpretation but must stop short of contradiction.

9. Concurrence- Potential Issue = Inconsistency: The canon of interpretation which we propound today is amorphous. The problem with an amorphous rule is that in the end, only this court can make a final determination in construing any contract. Our interpretation will be based upon which parol evidence impresses us the most. That ultimately means that this court must decide every contract dispute subject to this analysis. As the history of this case shows, the trial court may go one way and the court of appeals another and this court yet another

Taylor case vs. Thompson Case

Plain Meaning, Ambiguity, and the Parole Evidence Rule

CISG

SHERRODD, INC., Plaintiff and Appellant, v. MORRISON-KNUDSEN COMPANY, Schlekeway Construction Inc., COP Construction, Inc., and Safeco Insurance Company of America, Defendants and Respondents249 Mont. 282 (1991).

Parties:

1. Sherrodd, Inc. (Sherrodd), is a family-owned Montana construction corporation. Sherrodd subcontracted with COP Construction (COP) to do certain excavation involved in the construction of fifty family housing units in Forsyth, Montana, for the Army Corps of Engineers.

2. COP itself was a subcontractor to the general contractors Morrison-Knudsen Company, Inc. (Morrison-Knudsen), and Schlekeway Construction, Inc. (Schlekeway).

3. Safeco  [**1136]  Insurance Company of America (Safeco) provided COP's payment bond on the job

Issue: Sherrodd contends that while its officer William Sherrodd was examining the building site in preparation for submitting a bid on this project, a representative of Morrison-Knudsen told him that there were 25,000 cubic yards of excavation to be performed on the job. It claims that its bid of $ 97,500 on the subcontract was made in reliance on that representation, based on $ 3.90 per cubic yard for 25,000 cubic yards. Morrison-Knudsen denies that its representative made any such statement to

William Sherrodd--> Sherrodd's bid, and, in turn, COP's bid including Sherrodd's bid, were submitted and accepted. Sherrodd began work before a written contract was signed. While performing the earthwork, Sherrodd discovered that the quantity of work far exceeded 25,000 cubic yards.

PROCEDURAL POSTURE: Plaintiff subcontractor Sherrod appealed from the District Court for the Thirteenth Judicial District, Yellowstone County (Montana), which granted summary judgment to defendants, general contractors and insurance company. The subcontractor's evidence of alleged oral misrepresentations by the general contractors was found to be inadmissible under the parole evidence rule.

1. Rule 56(c), M.R.Civ.P. The District Court held that, under the  [*285]  parol evidence [***5]  rule, Sherrodd could not introduce evidence of the alleged oral misrepresentations by either the Morrison-Knudsen representative or the COP officer. Therefore, it concluded that even taking the evidence in the light most favorable to Sherrodd, summary judgment for defendants was proper.

2. Section 28-2-904, MCA , provides that: "The execution of a contract in writing, whether the law requires it to be written or not, supersedes all the oral negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument."

OVERVIEW: The subcontractor Sherrod entered into a construction contract with the general contractors, and the insurance company provided payment bond on the job. The subcontractor asserted that the excavation to be performed on the job greatly exacted that which was stated in the contract. The subcontractor filed an action to set aside the price provisions in the contract and to recover quantum meruit plus tort damages. The lower court granted summary judgment to the general subcontractors and the insurance company, and the subcontractor appealed. On appeal, the court affirmed and held that, under the parol evidence rule, the subcontractor could not introduce evidence of the alleged oral misrepresentations of the general contractors. The court stated that under Mont. Code. Ann. § 28-2-904, the execution of a contract in writing superceded all the oral negotiations or stipulations concerning its matter that preceded or accompanied the execution of the instrument. The court held that the subcontractor made no allegation of any subsequent contract in writing for promises of additional payments, and that the compensation for the subcontractor was exclusively governed by the written contract.

1. "Standard Subcontract Provisions," the contract entered between Sherrodd and COP also provided a clause that: as to the . . . character, quantity and kind of materials to be encountered . . . no verbal agreement with any agent either before or after the execution of this Subcontract shall affect or modify any of the terms or obligations herein contained and this contract shall be conclusively considered as containing and expressing all of the terms and conditions agreed upon by the parties hereto.

2. Because the written agreement supersedes all previous oral  [*286]  agreements, the rule prohibits admission of any evidence of the representation by the Morrison-Knudsen representative.

3. Because of the inadmissibility of Sherrodd's evidence as to alleged misrepresentations, the claim of breach of the covenant of good faith and fair dealing also fails. There is no allegation of any violation of the express terms of the written [***8]  contract, as would be required in this arms-length contract under our opinion in Story v. City of Bozeman (1990), 242 Mont. 436, 791 P.2d 767.

4. Policy Argument: The parol evidence rule is the public policy of Montana and it is clearly established by statute and the decisions of this Court. If this public policy and rule is not upheld, contracting parties that include lawful provisions in written contracts would be under a cloud of uncertainty as to whether or not their written contracts may be relied upon. The public policy and law does not permit such uncertainty to occur.

OUTCOME: The court affirmed the lower court's grant of summary judgment for defendants.

5. Dissent- J. TRIEWEILER: If the facts are as alleged by the plaintiff (and for purposes of this proceeding we must assume that they are), then the result of this case is that no party can be held accountable for its fraudulent conduct so long as it is in a sufficiently superior bargaining position to compel its victim to sign a document relieving it of liability

a. The plaintiff was informed by Lou Castino, the construction manager for Schlekeway and Associates, that the project he was being asked to bid on involved moving 25,000 cubic yards of dirt. It was based on that information that he submitted his bid. It was based on his bid that he was given an oral request to proceed with the work.

b. After commencing work on the project, plaintiff realized that the amount of earth that had to be moved greatly exceeded 25,000 cubic yards, and was actually more than twice that amount.  [***10]  He had conversations with representatives of both COP Construction and Schlekeway and Associates, during which it was agreed that the amount of work to be performed would be recalculated, and during which the defendants agreed to compensate plaintiff on the basis of the actual amount of work done, rather than the price which was originally agreed upon.

c. By May 22, 1985, plaintiff had already been working on the project and had incurred substantial expenses and obligations to his own employees. He had not been paid for his work, and was still operating without a written agreement.

d. On that date that he was requested by COP Construction's superintendent to sign the written contract which the defendants now assert as a bar to his cause of action. He was advised that if he did not sign the agreement he would not receive the progress payment in the

amount of $ 70,372.80 which was due. Without the progress payment he would not have been able to pay his current expenses and payroll.

e. Because of the defendants' failure to pay the plaintiff the additional $ 100,000 to $ 120,000 which they owed him, plaintiff's business lost its ability to borrow money, lost its bonding, and was unable to complete additional contracts because of a lack of operating capital. Plaintiff was unable to bid on contracts that required bonding, and completely lost its ability to carry on business as it had in the past. As a direct result of the defendants' failure to pay the amounts due, plaintiff was unable to continue in business as a construction company, which it had done for the previous 30 years.

f. The majority has chosen to rely on this Court's 58-year-old decision in Continental Oil v. Bell , 94 Mont. 123, 133, 21 P.2d 65, 68 (1933) . In that case, this Court held that parol evidence of fraud was not admissible when the oral promise directly contradicts a provision of the written contract.

g. Would not follow this Court's previous decision in Continental Oil for two reasons:

i. That decision made no specific reference to the statute which is controlling, and yet adds qualifications to the statute which were not included by the legislature. The  [***14]  legislature provided that parol evidence could be offered to establish that a contract was induced by fraud. It made no exception where evidence of the fraudulent oral agreement contradicted a term in the written agreement.

ii. To follow the decision in Continental Oil creates a terrible injustice, rewards fraudulent parties who are in a superior bargaining position, and totally defeats the purpose for which the fraud exception was provided to the parol evidence rule

h. General contractors who induce subcontractors to enter into a written agreement by fraudulent representations should find no security in the piece of paper which resulted from their culpable conduct

Nanakuli Paving and Rock Co. v. Shell Oil Co. 664 F.2d 772

- Nanakuli case: exemplar of Modern Parole Evidence Theory- UCC theory vs. Common law theory- largely trades on the concept defining contracts generally under the UCC – that a contract may be formed by words/the parties intent, that may not be written in the express terms of a contract (trade usage)

PROCEDURAL POSTURE: Appellant paving company, in its action for breach of contract, sought review of an order of the United States District Court for the District of Hawaii that entered judgment notwithstanding the verdict in appellee oil company's favor.

OVERVIEW: Appellant Nanakuli brought suit claiming a breach of a contract to sell asphalt by the Appellee Shell. The jury returned a verdict in favor of the appellant Nanakuli awarding damages. The trial court set aside the verdict of the jury.

- On review, the court determined that the Uniform Commercial Code in Hawaii required the court to look at external circumstances in order to determine the intent of the parties to a contract.

- The court also held that the unique circumstances of the market on Oahu and in Hawaii in general created a general trade usage of price protection in the sale of asphalt.

- The court found the trial court did not err in allowing evidence of trade usage to be admitted into the record, and found sufficient evidence supported the jury's verdict in favor of the appellant. The judgment of the trial court was reversed and the jury verdict was reinstated.

OUTCOME: Judgment notwithstanding the verdict was reversed and jury verdict reinstated because the verdict in favor of the appellant was supported by sufficient evidence of trade usage of price protection.

Personal Note: You have good notes in the text p 418-432 but did not put them in outline form.

Implied terms and Good faith- p.437- 462UCC §§1-102(3) 1-203, 2-103(b), 1-201(19), 2-306 (2), 2-309 Restatement § 205

3/16- Supplementing the Agreement: Implied terms, the Obligation of Good Faith, and Warranties -->

** You read and took notes in the book- need to turn into outline form **

Good faithPp. 462-491UCC §§ 2-306Restatement § 228Requirements Contracts

Outputs contracts

Morin Building Products Co. v. Baystone Construction 717 F.2d 413 (7 th cir. 1983)

PROCEDURAL POSTURE: Defendant contractor sought review of a decision of the United States District Court for the Southern District of Indiana, which granted a judgment in favor of plaintiff subcontractor in a breach of contract action.

OVERVIEW: A motor company hired defendant contractor to build an addition to its plant. Defendant hired plaintiff subcontractor to erect the aluminum walls for the project. The construction contract provided that all work would be done subject to the final approval of the motor company's authorized agent, and that his decision in matters relating to artistic effect would be final. Plaintiff put up the walls. Because the walls did not have a uniform finish the motor company rejected the work. Defendant refused to pay plaintiff for the work. Plaintiff brought an action for breach of contract against defendant. The district court ordered that plaintiff should be paid for its work. On appeal, defendant alleged that the district court erred when it gave a jury instruction that defined the standard for acceptance of the work by defendant under the reasonable person standard. The court affirmed. The court ruled that the proper standard for approval of the work was the reasonable person standard and that the parties did not intend to subject approval of plaintiff's work to the aesthetic whim of the motor company.

OUTCOME: The court affirmed the decision which granted a judgment in favor of plaintiff subcontractor in a breach of contract action because defendant contractor and plaintiff did not intend to subject approval of plaintiff's work to the aesthetic whim of the motor company. The court ruled that the proper standard for approval of plaintiff's work was the reasonable person standard.

Notes:

- Interpretation of conditions of satisfactory performanceo Section 228- subjective standard should only be used where the

agreement leaves no doubt that it is only honest dissatisfaction that is meant and no more

- Does J. Posner in Morin adequately justify the courts choice of an objective standard?

Locke v. Warner Bros. Inc. 57 Cal. App. 4 th 354 (1997)

PROCEDURAL POSTURE: Appellant director sought review of a decision of the Superior Court of Los Angeles County (California) that granted summary judgment in favor of respondent entertainment studio. Appellant brought the action for tortious wrongful discharge in violation of the public policy against sex discrimination, breach of contract, and fraud.

OVERVIEW: Appellant director brought action against respondent entertainment studio for tortious wrongful discharge in violation of the public policy against sex discrimination, breach of contract, and fraud. Summary judgment was granted in favor of respondent, and appellant sought review. In reversing the decision, the court held that a triable issue existed as to whether respondent breached its

contract with appellant by failing to evaluate appellant's proposals on their merits. If respondent acted in bad faith by categorically rejecting appellant's work and refusing to work with her, irrespective of the merits of her proposals, such conduct was not beyond the reach of the law. The implied covenant of good faith and fair dealing obligated respondent to exercise its discretion honestly and in good faith. Testimony indicated that respondent expressed an absolute unwillingness to work with appellant, it could have reasonably been inferred that respondent never intended to give appellant's proposals a good faith evaluation. Respondent's payment of the guaranteed compensation under the agreement did not establish that respondent fulfilled its contractual obligation.

OUTCOME: The court reversed the decision that granted summary judgment in favor of respondent entertainment studio, holding triable issues of fact were present with respect to appellant director's claims of breach of contract and fraud. The court ruled that the evidence presented inferred respondent breached the agreement by refusing to consider appellant's proposals in good faith, and the issue of fraudulent intent was one for the trier of fact.

Donahue v. Federal Express Corp. 753 A.2d 238 (2000)

PROCEDURAL POSTURE: Appellant challenged an order which entered judgment in the Court of Common Pleas of Allegheny County, Civil Division (Pennsylvania) granting appellee's preliminary objections in the nature of a demurrer and entering judgment in appellees' favor in wrongful termination case.

OVERVIEW: Appellant employee called defendant employer's attention to various improprieties. Thereafter defendant supervisor, appellant's immediate supervisor, accused appellant of gross misconduct. Appellant after failing to have his termination overturned by defendant employer's Guaranteed Fair Treatment Procedure (GFTP), sued. Defendants' preliminary objections in the nature of a demurrer were granted. The court held that: (1) appellant could not as a matter of law maintain an action for breach of the implied duty of good faith and fair dealing, where the underlying claim was for termination of an at-will employment relationship; (2) the GFTP was not expressly incorporated into appellant's employment contract, and therefore imposed no separate contractual duties on defendant employer; (3) appellant failed to identify any relevant statutes or legal precedents indicating that reporting unscrupulous practices violated public policy; and (4) appellant's general allegation of superior work performance was insufficient to establish additional consideration to overcome the at-will employment presumption.

OUTCOME: Order affirmed; appellant could not sue for breach of the implied duty of good faith and fair dealing, where the underlying claim was for termination of an at-will employment relationship; defendant employer's grievance procedure imposed no separate contractual duties on it; superior work performance could not overcome at-will employment presumption

Problem 6-1

Introduction to WarrantyPp. 497-500

Caveat Emptor- traditional notion of contracting/business- “Buyer Beware”

- In the last quarter of the 19th century- changing markets etc graqdually reversed the rule of caveat emptor by imposing obligations on the seller as to the quality of goods sold --> “implied warranties”

o Express Warranties- written or oral express warranty given by a seller or manufactuer of a consumer profuct, concerning the quality or nature of the goods

o Implied Warranty of Merchantability – merchant impliedly warrants to the buy that the goods are of good quality and are git for the ordinaty purposes for which they are used

o Implied Warranty of Fitness for a particular purpose - created only when the buyer relies on the sellers skill or judgment to select suitable goods, and seller has reason to know of this reliance; goods don’t have to be defective, just not fit for the buyer’s particular purpose.

o Implied warranty in NON-UCC transactions Implied warrant of habitability – landlord/tenant transactions

meant to aid the inherent unequal bargaining power

Avoiding Enforcement: Incapacity, Bargaining Misconduct, Unconscionability, and Public Policy

Concern is NOT with the form itself (like in statute of Frauds_

HERE: Concern is on 1. Competency of parties; 2. Bargaining process by which agreement is made; 3. Substance of any resulting agreement

Minority and Mental Incapacity

-Minors: don’t have the judgment to protect themselves in the marketplace

The removal on the former practices of race and gender-based restrictions on the ability to contract reflected a new societal consensus that such laws were designed to oppress, rather than protect, the affected groups.

Problem 6-1 p. 491 – Insurance agent has his own business, persuaded by Fran of neighboring big accountant firm to come work for him; asks company to match his $5k/month profits --> “come with us and you should do even better than that.” Ed is on “probation status” as employee for 3 months, terms in contract “is the entire employment agreement from the parties”- his profits increase, making $5k+ $3k commission, and he is given a manager award for his performance --> gives criticism to company practices and involved in inter-office relationship, asked to stop --> then transferred to small suburban branch making $3k/month. Does he have a claim for relief? What issues would arise?

1. Course of typical business- only 2 managers in last 10 yrs have been demoted/fired, and only b/c they inflated their figures.

2. What Issues Would Arise?

Minority and Mental Incapacity- pp.517-537Restatement §14, 15,16

Problem 7-1

Restatement 14- not “void”, but voidable at the election of the minor

Restatement 15

Restatement 16

Dodson v. Shrader 824 S.W.2d 545 (1992)

Issue: whether the minor is entitled to a full refund of the money he paid for truck, or whether seller is entitles to a setoff for the decrease in value of the pickup truck when it was in possession of the minor

1. 16 year old Dodson purchased truck from Shrader’s Auto Sales, and paid $4900.00.

2. No inquiry by Shraders and no misrepresentation about his minority status.3. 9 months after purchase the ruck has mechanical problems (burnt valve)-

but continued to drive it.4. One month later the trucks engine blew up and truck was inoperable.5. Dodson filed action to decind the contract and recover the amt. paid for the

truck.

6. The Shraders refused to accept the tender or the truck or to five Dodson the refund he requested.

7. Lower court dismissed the claim.8. Dodson filed an appeal de novo in circuit court.9. Before the circuit court could hear the case, truck was struck in fton lef

fender by hit and run driver- at the time of the trial the truck only worth $500.00

10. Trial judge found in favor of Dodson, and ordered Shrader to pay $4900 purchase price; Shraders appealed.

Court:

1. Traditionally: Goes through the history of child/infant/minority cases --> underlying rule of infancy doctrine = to protect minrs from their lack of judgment and from quandering their wealth through improvident contracts with crafty adults who would take advantage of them in the marketplace.

2. Modern Trend: balancing the rights if minors against those of innocent merchants --> 2 monority- rules have emerged:

a. Benefit Rule- upon recission, recovery of full purchase price is subject to a decution for the minors use of the merchandize – bound where he failed to restore what he has received to the extent of the benefit actually derived by him from what he has received from another party to the transaction.

b. Use Rule- recovery of the full purchase price is subject to a deduction of the minor’s “use” of the consideration he or she has received under the contract, or for a depreciation/deterioration of the consideration in their possession

3. Court: Rule to Follow – where the minor has not been overreached in any way, and there has been no undue influence, and the contract is fair/reasonable, the minor has actually paid money on the purchase price, and taken and used the article purchased, that he ought NOT to be permitted to recover the amount actually paid, without allowing the vendor of the goods reasonable compensation for the use of, depreciation, and willful OR negligent damage to the article purchased while in his hands

a. Any fraud = unfair = rule does not applyb. Overreaching/fair value = issues of FACT.c. Meant to adapt to the modern conditions under which minors can do

a great deal of business themselvesd. Burdensome for everyone concerned if merchants cannot deal with

minorities of age in a hair and reasonable waye. Doesn’t teach kids anything about the realities of contracting if they

get a full refund after using it for X amt of time, simply because theyre not of legal age.

f. Remand the case for the trier of fact to determine:i. Counterclaim for tortuous damage

ii. Gross negligence vs. intentional conduct that engine blew up

iii. Amount of damage by hit and run driver

- Minor liable for necessaries and tortuous conduct- under the traditional rule, minor is iable for reasonable value of necessaries (food, clothes, shelter, medical expenses, etc) and tortuous conduct (misrepresentation of age or willful distruction of goods)

- Ratification after Reacing majority- Statutory Limits- Avoidance of employment contract provisions- Pre- and Postinjury release agreements- Effect of Marriage

Hauer v. Union State Bank of Wautoma 192 Wis. 2d 576 (1995)

PROCEDURAL POSTURE: Defendant bank appealed a judgment of the Circuit Court for Winnebago County (Wisconsin), which voided a loan made to plaintiff borrower, required the bank to return the borrower's collateral, and dismissed the bank's counterclaim to recover proceeds from the loan on the borrower's claims that her mental incapacity voided the loan agreement. The borrower cross-appealed the denial of attorney's fees and punitive damages.

OVERVIEW: The borrower had been formerly adjudicated incompetent. Her guardian was discharged pursuant to a physician's recommendation. A third party induced the borrower to get a loan for him and use her mutual fund as collateral. The third party promised the borrower he would pay the interest and the loan. The borrower and the third party met with a bank employee who explained the terms. When the loan went into default, the borrower filed a claim, alleging the bank knew or should have known of her mental incapacity. The circuit court found for the borrower. On appeal, the court held that the borrower's complaint properly stated a cause of action. The court concluded there was evidence in the record, which supported the jury's findings that the borrower was incompetent at the time of the loan, and the jury must have reached that conclusion to reach a verdict for the borrower. The court held that the return of the collateral and holding the borrower not liable for the money was the proper remedy because the bank did not demonstrate good faith in the transaction, but rejected the circuit court's application of the infancy doctrine to reach the same result.

OUTCOME: The court affirmed the circuit court's orders, which voided the loan to the debtor and ordered the bank to return the borrower's collateral. The court affirmed the dismissal of the bank's claim for proceeds. The court affirmed the denial of attorney's fees to the borrower

1. An incompetent person's transactions are voidable; the incompetent has the power to avoid the contract entirely. Wisconsin has long recognized a cause

of action to rescind a contract or conveyance based upon the lack of mental competency at the time of the transaction.

2. Burden of Proof on appellate review: In reviewing a jury's verdict, the appellate court will sustain the verdict if there is any credible evidence to support it. The weight and credibility of the evidence are left to the province of the jury. When the evidence permits more than one inference, this court must accept the inference that favors the jury's verdict.

a. The law presumes that every adult person is fully competent until satisfactory proof to the contrary is presented. The burden of proof is on the person seeking to void the act. The test for determining competency is whether the person involved had sufficient mental ability to know what he or she was doing and the nature and consequences of the transaction. Almost any conduct may be relevant, as may lay opinions, expert opinions and prior and subsequent adjudications of incompetency

3. A minor who disaffirms a contract may recover the purchase price without liability for use, depreciation or other diminution in value. As a general rule, a minor who disaffirms a contract is expected to return as much of the consideration as remains in the minor's possession. However, the minor's right to disaffirm is permitted even where the minor cannot return the property.

4. An infant is often mentally competent in fact to understand the force of his bargain, but it is the policy of the law to protect the minor. By contrast, the adult mental incompetent may be subject to varying degrees of infirmity or mental illness, not all equally incapacitating. This difference in part accounts for the majority of jurisdictions holding that absent fraud or knowledge of the incapacity by the other contracting party, the contractual act of an incompetent is voidable by the incompetent only if avoidance accords with equitable principles. Accordingly, the infancy doctrine does not apply to cases of mental incompetence.

5. Wis. Stat. Ann. § 401.203 does not support an independent cause of action for failure to act in good faith under a contract. Section 401.203 does not support an independent cause of action for failure to perform or enforce in good faith. Rather, § 401.203 means that a failure to perform or enforce, in good faith, a specific duty or obligation under the contract, constitutes a breach of that contract or makes unavailable, under the particular circumstances, a remedial right or power. This distinction makes it clear that the doctrine of good faith merely directs a court towards interpreting contracts within the commercial context in which they are created, performed, and enforced, and does not create a separate duty of fairness and reasonableness which can be independently breached.

6. If the contract is made on fair terms and the other party has no reason to know of the incompetency, the contract ceases to be voidable where performance in whole or in part changes the situation such that the parties cannot be restored to their previous positions. On the other hand, if the other party knew of the incompetency or took unfair advantage of the incompetent,

consideration dissipated without benefit to the incompetent need not be restored.

7. A contracting party exposes itself to a voidable contract where it is put on notice or given a reason to suspect the other party's incompetence such as would indicate to a reasonably prudent person that inquiry should be made of the party's mental condition

Problem 7-1- you represent owners of a Used Car Sales – 12 months ago a customer Bob purchased a car- and at the time Bob was only 17; Bob put 1988 on the form when he bought the car, but he was born in 1989- Bob is demanding the $6000.00 back for cost of carl and says now the car is inoperable and wants it towed away from his house. What factual questions/legal issues must be pursued to advise clients/car sales owners?

- Notes p 534- misrepresentation of age MIGHT preclude assertion of minority defense Del Bosco v. US Ski 839 F. Supp. 1470 (1993)

Duress and Undue Influence- p. 537-556Restatement §174Restatement §175Restatement §176Restatement §177

"Purchased" Art article in Course Documents

Totem Marine Tug and Barge v. Alyeska Pipeline Service Co. 584 P.2d 15 (1978)

PROCEDURAL POSTURE: The Superior Court (Alaska) granted summary judgment in favor of defendant contractor in an action brought by plaintiff transporter. The transporter appealed the judgment.

OVERVIEW: The contractor hired the transporter to move construction materials by sea. Numerous problems impeded performance of the contract, and the contractor terminated the contract. The parties settled for a portion of the invoice. The transporter argued that the settlement should be avoided on the grounds of economic duress. The court held that the trial court erred in denying the transporter's motion to formally publish a witness' deposition after summary judgment was entered because the parties had referred to the deposition in their

memoranda and arguments. The court further held that summary judgment was not properly granted because the transporter made a sufficient factual showing to withstand the motion for summary judgment as to each of the elements of economic duress by showing that it was the victim of a wrongful threat, and the threat deprived it of its unfettered will.

OUTCOME: The summary judgment was reversed and remanded

- The court below granted summary judgment in favor of the defendant Alyeska Pipeline, and Totem Marine Appealed.

- Totem’s claim stems from the sequence of events in which: they were contracted to tow a bunch of pipeline supplies from Houston, TX to southern Alaska, told that it would only be 2100 tons with more pickups along the way- instead was 7-6k tons to be initially loaded in Texas- required Totem to hire an extra tug to pull the barge. Totem stopped in Long Beach, CA instead of San Pedro, CA where they intended to change crews- there Alyeska off loaded the barge without a marine survey with voided Totem’s insurance- and THEN terminated the contract without giving reason

- Totem attempted to collect on what they were owed for work they did- unsuccessful, attorney brought in and negotiates a $97.5k settlement and release of all future and present claims- when they were owed $260-$300k.

- Totem complaint and amended complaint seeking to rescind the settlement and release on the ground economic duress and to recover the balance allegedly due on the contract.

- Duress Definitions:o Restatement : any wrongful threat of one person by words or other

conduct that induces another to enter into a transaction under the influence of such fear as precludes him from exercising free will and judgment, if the threat was intended or would have reasonably expected to operate as an inducement.

o Williston : 1. Showing that they were victim of a wrongful or unlawful act or threat; and 2. The act or threat must be one which deprives the victim of his unfettered will.

o Courts : 1. One party involuntarily accepted the terms of another; 2. Circumstances permitted no other alternative (issue of FACT); 3. Such circumstances were the result of coercive acts of another party (MUST show acts that produced the first two factors, NOT simply reluctance to accept and financial embarrassment)

- Duress - does NOT exist simply because victim of wrongful act--> have to show there was no choice but to agree to the other party’s terms or face serious financial hardship.

o Issue of time and adequacy of legal remedies where on party refuses to pay

- Holding: RVERSE summary judgment and remand for future proceedings- b/c totem has made a sufficient factual showing that if proved, Totems

allegations would support a finding that it executed a release of its contract claims agains Alyeksa under duress:

o Alyeska ellegedly withheld payment of an acknowledged debto Alyeska allegedly knew Totem had no choice but to accept the

inadequate settlement sum b/c faced w/ bankruptcy and debtso Doesn’t have to be proved wrongful conduct to be duress claim, the

events leading to the termination would be probative as to whether Alyeksa exerted any wrongful pressure on Totem.

Notes:

1. Void vs. voidable- Duress has its origins in physical compulsion- assent as a result of a threat to life or limb --> DISTINCTION:

a. Restatement (2nd) 174: a contract is void if made under coercion involving a physical threat

b. A contract is voidable if made under Duress = economic coercion2. Wrongful/improper Threat:

a. Restatement (2nd) 175 – Three elements required for Duress:i. Wrongful/improper threat

ii. A lack of reasonable alternativeiii. Actual inducement of the contract by the threat

b. The Totem case uses “wrongful” to describe and actual threat, Restatement uses “improper”

c. When is the threat improper? --> Restatement (2nd) 176: threats to commit a crime, tort, of criminal prosecution

i. Threats to litigate or not to perform the contract are not per se wrongful- but may be improper if the circumstances show that the threat was made in bad faith.

Dorizzi v. Bloomfield School District 246 Cal. App. 2d 123 (1966)

PROCEDURAL POSTURE: Plaintiff teacher appealed the judgment of the Superior Court of Los Angeles County (California), which dismissed the teacher's complaint that sought declaratory relief and rescission of an employment resignation allegedly submitted under undue influence.

OVERVIEW: The teacher contended that his resignation was invalid because obtained through duress, fraud, mistake, and undue influence and was given at a time when he lacked capacity to make a valid contract. The court held that duress or menace was not pled because any damage to the teacher's reputation through the initiation of suspension and dismissal proceedings was incidental. The court also held that fraud was not pled because the teacher's complaint failed to assert the elements of knowledge of falsity, intent to induce reliance, and justifiable reliance. Furthermore, the court held that mistake was not plead because the complaint failed to disclose any facts that suggested consent was obtained through a mistake of fact or law. Finally, the court held that the pleading did set out a claim that the teacher's

consent to the transaction had been obtained through the use of undue influence. According to the court, it was possible that the teacher's exhaustion and emotional turmoil wholly incapacitated him from exercising his judgment and that he was overly persuaded into signing his resignation document.

OUTCOME: The court reversed the judgment of the trial court

CASE ANALYSIS

Although not stated, a finding of undue influence usually required the existence of confidential relationship between the parties. The classic cases involved a relation of trust or confidence in which the weaker party was justified in assuming that the stronger party would act in a manner consistent with the weaker's welfare. However, in a significant California case, Odorizzi v. Bloomfield Sch. Dist ., undue influence was found where no confidential relationship existed. - The transaction in question was the resignation of plaintiff teacher who had been arrested on charges, later dismissed, of homosexual activity. After 40 hours without sleep and soon after his release on bail, officials of defendant school district visited him and persuaded him that it was in his best interests to resign. - The Court of Appeal of California, Second Appellate District, Division Two, noted the possibility that exhaustion and emotional turmoil could wholly incapacitate a person from exercising his judgment and held that the pleadings sufficed to show the required relation of a dominant subject to a servient object. In its opinion, the appellate court also laid down seven criteria for distinguishing between legitimate persuasion and “excessive pressure.” These included (1) discussion of the transaction at an unusual or inappropriate time, (2) consummation of the transaction in an unusual place, (3) insistent demand that the business be finished at once, (4) extreme emphasis on untoward consequences of delay, (5) the use of multiple persuaders by the dominant side against a single servient party, (6) absence of third-party advisers to the servient party, (7) statements that there is no time to consult financial advisers or attorneys. The appellate court explained that if a number of these elements were simultaneously present, the persuasion could be characterized as excessive and, therefore, undue.

Notes:

A. Defining Undue Influence- the court identifies the essence of undue influence as: involving the use of excessive pressure by a dominant party in overcoming the will of a vulnerable person.

B. Restatement (2nd) 177 Undue Influence: unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that the person will not act in a manner inconsistent with his welfare.

C. Factors Indicating Undue Influence- Seven Characteristics1. Discussion of the transaction at an unusual or inappropriate time2. Consummation of the transaction at an unusual place

3. Insistent demand that the business be finished at once4. Extreme emphasis on untoward consequences of delay5. The use of multiple persuaders by the dominant side against a single

servient party6. Absence of 3rd party advisors to the servient party7. Statements that there is no time to consult financial

advisors/attorneys

Restatement §174

Restatement §175

Restatement §176

Restatement §177

Misrepresentation- p. 556-584Misrepresentation and Non Disclosure (p. 556-584)(Look at Restatement in this order : Restatement §§ 164, 159 , 162 , 163; 168, 169 161)Restatement §161- Restatement §162- Restatement §163- Restatement §164- Restatement §168- Restatement §169-

1. Traditionally in the history of common law, English courts did not recognize fraud as a defense- recognized t as a separate claim by allowing recovery under a separate tort action of deceit

2. Courts of Equity would allow for “recission”- judicial return of the parties to the status quo that existed before the contract was formed.

3. Court of Law: In order to obtain a recission, the party has to show that she had made a tender of any money or property received before instituting the action- while in Court of Equity the tender was unnecessary for recission.

4. Modern law: A victim of misrepresentation may have a choice between 2 avenues of redress:

a. A tort action for damagesb. Right or avoid the enforceability of the contract by way of recission.c. ** the choice of avenue depends on the desires of the party (want

monetary relief to fix the problem rather than reversing enforceability of a contract that was based on misrepresentation), as well as the availability of the possible relief requested

Syester v. Banta 257 Iowa 613 (1965) - court affirms a lower court award in favor fo the plaintiff for damages of $14,300.00 and punitive damages of $40,000.00- because evidence submitted presented questions of fact that the court found the lower court had been correctly instructed on, and the evidence presented issues of fact that the jury was correctly allowed to fact-find.

CASE SUMMARY

PROCEDURAL POSTURE: Defendant dance studio owners appealed a judgment of the Polk District Court (Iowa), which entered a final judgment after a jury verdict for plaintiff widow in her action seeking actual and exemplary damages for allegedly false and fraudulent representations in the sale of dancing instruction to the widow.

OVERVIEW: The elderly widow first went to the dance studio as a gift from a friend. On her second visit, she was sold a small course of lessons. Thereafter, the studio sold the widow more than 4,000 hours of instruction, including 3 lifetime memberships, and told her falsely that she could be a professional dancer. Upon the widow's filing of a lawsuit, the owners persuaded her to settle for a relatively insignificant amount and drop the action. A second release for more money was obtained, but nothing was paid on that release. The widow filed a second action for fraud and misrepresentation in the several sales to her and in obtaining the dismissal of the previous lawsuit and the releases. The jury returned a verdict for the widow. On appeal, the court held that the evidence was adequate to find there was a concerted effort constituting fraudulent overreaching. The question of exemplary damages was properly submitted to the jury, and the evidence of shocking greed and avariciousness supported the award of such damages.

OUTCOME: The court affirmed the judgment of the trial court awarding actual and exemplary damages to the widow against the dance studio owners.

Notes:

1. Fraudulent or material misrepresentation- Restatement §164(1)- a contract is voidable id a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying…

2. Contract or tort claim- Should Syester have also attempted to recind these contracts rather than attempting to recover damages in tort or fraud?

a. It would depend on what she wanted- the problem is that she had already paid based on the misrepresentations- and if all she wanted was her money back, then she could have sought to recind the claims. However, in the initial contracts it may have been found (as an issue of fact) that there wasn’t sufficient evidence of misrepresentation because a sales strategy is party of the business etc. – but she would still have a claim for recission if she wanted it- but recission isn’t necessarily going to get her any justice or what she wants- if she

already paid the money- recinding would make more sense if there was a promise to pay in the future.

3. Misrepresentation based on false opinion or prediction- Restatement §168- defines opinion as the expression of belief, without certainty, as to the existence of fact (typically deals with quality or value of property)

4. Reasonable reliance- Were all of the other elements for misrepresentation present? i.e. Was her reliance reasonable? If not- how could she prevail? Perhaps because of the clear cases of fraud-0 like selling Gold Star classes without the ability to teach them…

5. Ethical Limits on attorney’s direct contact with opposing party- In an effort to get her to sign the releases- they persuaded Syester to discharge her attorney, while at the time were themselves represented by counsel – “it is improper for a lawyer to communicate about the subject of the representation with a person the lawyer knows the be represented by another lawyer in the matter, unless consent to do so, or court order”

Hill v. Jones 151 Ariz. 81 (1986)-

Issue: Must the seller of a residence disclose to the buyer facts pertaining to past termite infestation?

- The buyers Hill filed suit to rescind an agreement to purchase a resident-- Allege:

o that Jones made misrepresentations concerning termite damageo That Jones failed to disclose to them the existence of the damage and

history of termite infestation in the residence.- The lower court dismissed the misrepresentation claim based on an

“integration clause” in the parties’ agreement

Facts:

1. Buyers visit the house several times.2. Sellers were to placei n excerow $ to pay for termite inspection3. Buyers notice “ripple” in wood floor leading to sunken living room- ask about

termite damage- Sellers say its water damage.4. Inspection report shows no termite damage.5. Buyers move in and soon notice over $5000 of termite damage.6. Sellers received two prior termite guarantees when they purchased the

house from prior owner Truly Nolen7. Sllers were aware of existence of termites8. Inspector investigates 2 times and found termite damage and evidence of

past treatment.9. Buyers asked NO other questions except if the ripple in the floor was caused

by termite damage – “Not ‘trying’ to find problems with the house b/c she really wanted it”

Court:

1. Contract Integration Clause- “that the purchaser has investigated said premises… seller is hereby released from all responsibility re: valuation thereof, and no party shall be bound by any understanding, agreement, promise, representation, or stipulation expressed or implied, not specified herein”

a. Parol evidence is always admissible to show fraud, and this is true even though it has the effect of varying the terms of a writing between parties

b. Here the claimed misrepresentation occurred after the parties executed te contract – Buyers fraud theory is based on the premise that theyw ere not bound under the contract until a satisfactory termite inspection report was submitted -> assuming that the integration clause would extend to statements made after the contract was executed the clause could not shielf sellers from liability should buyers be able to prove fraud

2. Duty To Disclose- Restatement §161- A vendor has an affirmative duty to disclose material facts where:

a. Disclosure is necessary to prevent previous assertion from being a misrepresentation or from being fraudulent or material

b. Would correct a mistake of the other party as to a basic assumption on which that party is making the contract, and if non-disclosure amounts to a failure to act in ggood faith and in accordance with reasonable standards of fair dealing

c. Would correct a mistake of the other party as to the contents of effect of a writing, evidencing or embodying an agreement in whole or in part;

d. The other person is entitled to know the facts because of a relationship of trust and confidence between them

- So the Issue here is: Whether under these facts, the buyers should have been permitted to present to the jury their claim that the sellers were under a duty to disclose their (the seller’s) knowledge of termite infestation in the residence:

o Must a seller of a residential property advise the buyer of material facts within his knowledge pertaining to the value of the property?

Under certain limited circumstances it is unjust to strictly enforce the policy favoring finality of transactions

Conveying a false impression by the disclose of somef acts and the concealment of others

Judicial policy of honesty and fair dealing in business relationships

Duty to Disclose: the rule requiring disclosure is inboked in the case of material facts --> Thus…

o May termite damage and the existence of past infestation constitute such material facts?

Lynn v. Taylor- court held termite report that showed evidence of infestation, not given to buyer, to be material because he claimed he would not have purchased if he had known

Material: if it is one to which a reasonable person would attach importance in determining his choice of action in the transaction in question

Court: Termite damage evidence may or may not be material- but its an issue of fact for the jury to have rightly decided.

Notes

1. Historical Perspective: Laidlaw v. Organ 15 US 178 (1817)2. Modern Perspective of Non-Disclosure3. Economic Analysis of Non-disclosure4. Real estate disclose and common law actions5. Innocent or negligent nondisclosure6. Tort liability for nondisclosure7. Effect of disclaimer or merger clause8. Effect of Fiduciary Duty9. Lawyer’s Professional Ethics

Park 100 Investors, Inc. v. Kartes 650 N.E.2d 347 (1995 ) - court affirms a lower court decision finding that commercial tenants are not liable for unpaid rent under a personal guaranty of lease

Issue: Whether the trial court erred in finding that Park 100 used fraudulent means to procure the signatures of the Karteses on the guaranty of the lease at issue.

- Here Fraud is statutory based on Indiana Law:o A material misrepresentation of past or existing fact by the party to be

charged witho Was falseo Was made with knowledge or in reckless ignorance of the falsityo Was relied upon by the complaining party; ando Proximately cause the complaining party injury

PROCEDURAL POSTURE: Appellant industrial complex sought review of the judgment from the Marion Superior Court, Civil Division (Indiana), which found that appellee part owners were not liable for unpaid rent under a personal guaranty of lease. The industrial complex contended that the trial court erred in finding that the industrial complex used fraudulent means to procure the signatures of the part owners on the guaranty of lease.

OVERVIEW: The industrial complex appealed the judgment that found that the part owners were not liable for unpaid rent under a personal guaranty of lease because the industrial complex obtained the signatures of the part owners on the personal guaranty of lease through fraudulent means. The industrial complex contended that one's reliance upon a material misrepresentation had to be justified and, in an arm's-length relationship involving knowledgeable business people such as the part owners, such reliance was misplaced. The court affirmed, holding that the evidence supported the trial court's conclusion that the industrial complex obtained the signatures of the part owners on the personal guaranty of lease through fraudulent means, and the findings supported the judgment. Additionally, the court reasoned that a guaranty of lease was never discussed during the lease negotiations, and the lease agreement made no reference to a guaranty. The court also found that the document that the industrial complex's representative presented to the part owners was entitled "Lease Agreement" and the representative never told the part owners that they were signing a personal guaranty of lease.

OUTCOME: The judgment that found that the industrial complex obtained the signatures of the part owners on the personal guaranty of lease through fraudulent means was affirmed

Notes

1. Fraud in the Execution of the contract- Distinction: a. In both Syester and Hill, the party alleging fraud presumably

understood the terms, but were fraudulently induced into entering into the agreements by misrepresentations/false statements (Syester) or material nondisclosures (Hill)

b. In Park 100, the tenants alleged they were mislef regarding the content of the actual document that they executed or signed

c. Restatement §166: If a party’s manifestation of assent is induced by the other party’s fraudulent misrepresentation as to the contents or effect of a writing evidencing or embodying in whole or in part an agreement, the court at the request of the recipient may reform the writing to express the terms of the agreement as asserted… (a) if the recipient was justified in relying on the misrepresentation

2. Hypothetical Variations of Park 100a. When artes phoned Kaplan, he was ina phone booth in the corner of

the lobby, where the convo was not overheard by Scannel?b. Scannel instead said it was 15 pages of “lease papers” – not 2 pagesc. No rush for Kartese when the met Scannel?d. Common business practice of shareholder agreements that were

merely a formality?

http://www.youtube.com/watch?v=OMOBdQykKQY 

Unconscionability- pp. 584-610; 622-32UCC §2-302Restatement § 208LA Times article in Course Documents

Contract Law and Unconscionability

- Concept: “Grossly Unfair Bargains”- Has roots in Roman law – where land agreements could be recinded if the

bargain was 2-1 unfair; “Abuse of Rights” civil law concept in Louisiana protects..

- Change in economy- equity courts would enforce specific perfomance or alter the particular unfair terms within the contract, or other equitable relief if the price was inadequate or wouldn’t if the one seeking relief had unclean hands

- Large commercial enterprises increasingly began using a standard form contracts to conduct business transactions – “Boilerplate Provisions”- extremely favorable to the drafint party- often in “take it or leave it” type terms BRINGS THE CONCEPT OF MUTUAL ASSENT INTO QUESTION

- Unconscionability- is a tool that emerged designed for dealing with contracting trends and general unfairness that may and does result as a result of these intentionally/unintionally unfair contracts

o Civil law = governs uneven exchangeso Common law = doctrine of unconscionabilityo ALI UNIDROIT = merger of both

Williams v. Walker- Thomas Furniture Co. 350 F.2d 445 (1965)

1. Furtniture company oerates a retialf urniture store in DC- each appellant in these cases (Williams) purchased a number of household items from Walker-Thomas, to be made in installment payments.

2. Terms of each purchase set out in a contract which set forth value and monthly payment.

3. Contract provided that the title of each item sold would remain in the name of the furniture company until the total of all monthly payments made equaled the value of the stated items- then the buyers take control of title.

4. Contract included an additional term: “all payments now and hereafter made by purchaser shall be credited prop rata on all outstanding leases, bulls and

accounts due to the Company by the purchaser at the time each such payment is made.”

5. Effect of this provision: keeps a balance due on every item purchased until the balance due on all items, whenever purchased, is liquidated = DEBT incurred = RIGHT BY SELLER to repossess all items previously purchased upon ANY default.

6. Issue: The appellants have already made sometimes significant payments towards their purchases, and even paid off their past purchases, but the scheme places a debt of the balance due on all things purchased, AND the title remains in the sellers possession… SO the seller can simply repossess upon default (so long as the payments haven’t equaled the value of the item sold).

7. Lower Court: recognizes this kind of agreement is wrong because it is unequal0 but doesn’t want to say so and delineate a standard for future contract cases of this nature- because of businesses practes and contracting generally (don’t want to be activist in writing people’s contacts) – so say legislature is best suited to deal with it.

8. This Court: wants to asddress the issue head on and declare: YES, you can refuse too enforce unconscionable contracts because theyre wrong

a. Procedural Unconscionabilityi. Inequality of bargaining power

1. Whether a meaningful choice to accept/refuse the contract is present2. Inappropriate/poor manner in which the contract was also entered into – party

with no real knowledge of the terms- harldy even an objective manifestation of intent to assent

b. Substantive Unconscionability – terms of the contract: in light of the general commercial background and the commercial needs of the particular trade or case

i. Terms which are reasonably favorable to the other partyii. Corbin- whether the terms are so extreme as to appear

unconscionable in relation to business practicec. UNCONSCIONABILITY: Defect in the Bargaining Process OR Unfairness

of the Terms of the Resulting Bargaind. Dissent: Coner: Policy- Careful of the slippery slope of public oversight

of private contracting and the historical latitude for parties in private contracting

i. Criticism: were the terms in Williams actually that unconscionable- isn’t it just their business practice to protect losses and incur revenue gains while they have many debtors in installment plans?

Notes:

1. Some statutory based regulations like Uniform Consumer Credit Code have adopted a multifactor balancing approach: if lender believes likely default, disparity in prive, disparity in bargaining power, mental impairment, etc

2. Factual context of Williams – does Williams being poor and “taken advantage of” have anything to do with the cases outcome? (they paid for 4-5 yrs before defaulting)

3. Williams was considering the conscionability of an add-on clause- a part of the contract consumers are unlikely to read or understand

a. Excessive Price is largely unconscionableb. Rent-to-own: mixed opinions- because technically the title stays in the

owners hands until its paid off- right to revoke at any time4. Ahen v. Knecht 563 N.E.2d 787 (1990) – Note case – Air condition breaks in

heatwave says $150 for repair, charges 750+ b/c know will pay it- still doesn’t work- Court upholds recinding + restitution damages. Even where there is no actual fraud, courts will relieve against hard and unconscionable contracts that have been procured by taking advantage of the condition, circumstances, or necessity of other parties

5. Criticisms to the procedural/substantive distinction in Unconscionability: Some instead prefer traditional doctrines like fraud, undue influence, and duress whenever possible because they are more specific than the doctrine of Unconscionability

Consumer Protection Legislation

1. Legislatures rather than courts have said to be the appropriate institutions for determing the need for and scope of any regulation of coercion in the bargaining process or unfairness of the terms of a bargain

2. Consumer Protection Statutesa. Disclosure Legislation - theory that increased information gives

consumers an opportunity to avoid entering into unfair contractsi. Truth in Lending Act (1968) – requires uniform method of

disclosure the rate of interes on consumer loands along with various other terms like scope of any security interest creditor has on property, etc.

ii. Federal Trade Commission Improvement Act (1975) – increased disclosure of warranty terms

b. Substantive Regulation – particular contract provisions thought to be unfair are declared unlawful

i. Truth in Lending Act (1968) – consumers granted right to recind within 3 business days any loan contract that involves a mortgage on the consumers principal residence

ii. FTC Improvement Actc. Statutes Improving Enforcement - legal changes to protect consumers

are only meaningful if enforcedi. FTC Improvement Act- granted it authority to promulgate rules

dening unfair and deceptive practices

Higgins v. Superior Court of Los Angeles County 140 Cal. App. 4 th 1238 (2006)

- Extreme Makeover Home Edition Case- Higgins family parents deceased- oldest son is left as the guardian for the family- the Higgins kids are pursued by Lock and Key Productions- the Disney /Abc International T.V. Inc. production company for Extreme Makeover Home edition-

- After moving in with the Leomiti family, who take the kids (5) in to live with them --> Charles was advised by the church and Extreme makeover go through their Church (needy poor families are the targets of this show)

- Lock and Key producer shoose their family- Fed Ex an “agreement and Release”fir the children to sign

- 24 pages and 72 individual paragraphs – the top reads” READ CAREFULLY.. etc” and includes valid warnings to adequate review before signing.

- Miscellaneous section includes 12 numbered paragraphs- ISSUE: Clause # 69 Arbitration provision: “any and all disputes or

controversies arising under this Agreement or any of its terms… shall be resolved by binding arbidration in accordance with the following procedure… by AAA, final and binding, not subject to appeal or challenge; AND Producer Lock and Key has the right to injuctive.equitable relief as provided by California law”

o Terms themselves- children obviously don’t know what they are

Complaint: with respect to the TV production company defendants (also sues Leomiti family: they kicked them out of the house after the house was built, their mortage was paid off etc- seems like they used the kids- and sued them for intential/negligent misrepresentation, breach of contract, etc. ) Complaint against TV: Breached promises, exploitation, portraying them in a negative light (replayed episodes after they no longer were living in that house)

1. Arbitration agreements are an ok standard to review for unconsciounability- ewual footing with other contracts.

2. Is it a Contract (agreement/release) of Adhesion: Is it a standardized contract that is imposed and drafted by the party of superior bargaining strengths and relegates to the other arty “only the opportunity to adhere to the contract or reject it” - ?

3. If it’s a contract of Adhesion --> Are factors present which, under established legal rules, operate to render it unenforceable?

4. Unconscionable- Rule of Law from Case:a. Procedural- MAKING: oppression or surprise due to unewual

bargaining powerb. Substantive- EFFECT: overly harsh and one sided resultsc. Must BOTH be present, but no indication of what degree

d. ARBITRATION: can be unconscionable and unenforceable- if it acts as a subterfuge for a challenge that the entire agreement (in which the arbitration clause is only a party) is unconscionable

5. Holding/Reasoning:a. Argument: They entire agreement wasn’t unconscionable

i. Court: Plaintiffs kids are only challenging the Unconscionability of the arbitration clause here

ii. Children didn’t get a real chance to read the provisions- and even if they did, it could still be that the terms are unconscionable- even if on their face they are not (presumably b/c they’re children)

b. The adhesive nature of the parties agreementi. It is a contract of adhesion- standardized boilerplate contract

ii. No identifying information like names on their contracts- just signing a boilerplate form

iii. No question of unequal bargaining poweriv. Was a take it or leave it contract- no negotiation or attempt to

do soc. Procedural Unconscionability

i. No discussion of the provision @ allii. Provision is hidden in the paragraphs of the miscellaneous

section of the contractiii. Mrs. Leomiti instructed petitioners to simply “flip through the

pages and sign it” – had it for 5-10 mins. each before kids signed it.

d. Substantive Unconscionabilityi. TERMS ARE ONE SIDED/NOT BILATERAL- “I agree…”

Production party not bound to the terms- leave themselves an out to pursue litigation themselves

ii. MORE IMPRORTANT: they can COMPELL the petitioners to arbitration while not being bound to arbitration themselves- and without fear that seeking arbitration would preclude them from seeing injunctive or equitable relief in a court of record

Notes

1. Enforceability of arbitration agreements

2. Adhesion contracts and procedural Unconscionability

3. Substantive Unconscionability

4. Mandatory arbitration in consumer contracts

* Adler case (not assigned) – comparing: courts strong inclination to enforce arbitration clause because it is judicially efficient and cost effective versus litigation

1. Policy orientation: Reconciling Higgins and Adler a. Arbitration is preferable unless it is burdensome or forced upon a party

without choice or by manipulative means/unfair terms

2. Procedural and Substantive Unconscionability a. Restatement- adequacy of consideration does not itself invalidate a

bargain, but gross disparity in the values exchanged may be an important factor in a determination that a contract is unconscionable

3. Severance of substantively unconscionable terms a. The Adler court found that a number of provisions were substantively

unconsciounable, but chose to sever those terms and enforce the remainder of the arbitration agreement

b. Emphasis on arbitration as a preferable and cost effective solution to conflict resultion- judicial efficiency.

4. Prohibitions by arbitration agreements on class actions a. Courts have been divided on whether bans on class actions in

arbitration agreements should be enforced

5. Confidentiality clauses during arbitration – Zuver v. Airtouch 103 P,3d 753(1997) – Confidentiality agreement in an employment arbitration agreement was substantively unconscionable- “hampering an employees ability to prove a pattern of discrimination or take take advantage of findings in past arbitrations.”

ARBITRATION: COMMERCIAL, EMPLOYMENT, AND CONSUMER

1. Commercial Arbitration a. Commercial Dispute Resolution Procedures- published by the

American Arbitration Association (AAA)i. Party seeking arbitration must file a demand and pay filing fee

to AAAii. Arbitration can be imposed by court- can also be motion to be

stayed for good reason (pending litigation/suit)iii. Then Selection of Arbitrator – usually not lawyers, but work in

the relevant industry.iv. Hearing date is fixed- usually no pretrial discovery- but

required to exchange exhibits used in hearings 5 days before.v. Evidence considered has to be material/relevant- even if it

doesn’t comply with the rules of evidence

2. Employment Arbitration

a. Unions Started the trend – now commonplace in employment contracts

b. Employees will find it difficult to avoid enforcement of an agreement to arbitrate

c. Derivative of the commercial arbitration modeld. Due Process Protocol—promote fairness in workplace arbitratione. Two Types- Employment Arbitration Rules

i. Employer-promulgated plans1. Cost-affordable b/c compelled to arbitration and

shouldn’t be forced to bear burden of costs to do soii. Individually negotiated employment agreements

3. Consumer Arbitration a. Dramatic increase in use – preserves the right to go to local small

claims courts instead of arbitration if the claims meets the courts jurisdictional requirements

b. Similar to commercial modelc. No hearing unless $10k @ stake or greaterd. Built in cost restrictions to pay for arbitrator fees, etc.

 Mistake pp. 663- 684Restatement §§ 152, 153, 154, 157 Mistake article in Course DocumentsJustification for Non-Performance:

MISTAKE

* Excuses from performance arising NOT from overreaching or deception by either party, but from changes in circumstance that have either occurred or come to light since the original agreement was made

Underlying Question: If for one of the parties a circumstance was not expressly provided for in the contract has adversely affected either performance itself or the value thereof, should that party be permitted as a result to escape the obligation of performance the contract would otherwise impose?

Mistake- may refer to a decision that in hindsight turns out bad, OR a decision that although not clearly disasterous has turned out to be a decision that was not the best choice that could have been made

- Sometimes have to deal with a party’s mistaken belief that they were using language with the same intention as the other when really they attached different meanings

Issue: Void contacts that turn out to be bad for one party? Should the law permit one party to escape from the obligations of performance simply because it turned out bad?

-Ordinarily NOT: parties make contracts with the aim of binding despite the myriad of possible changes of circumstance that may occur before performance (That’s why they do it in the first place!)

- Courts: will often choose the intended meaning of one of the parties and apply it

- Courts: SOMETIMES will find a particular type of mistake has been made, which lifts the case above the ordinary (extraordinary relief)

Restatement §152

Restatement §153

Restatement §154

Restatement §157

Lenawee County Board of Health v. Messerly 417 Mich. 17 (1982)

PROCEDURAL POSTURE: The Court of Appeals (Michigan) entered judgment in favor of plaintiff buyers in their action initiated against defendant sellers that sought to rescind the parties' land sale contract.

OVERVIEW:

1. A landowner constructed an apartment building on his property and installed a septic system without a permit and in violation of the health code.

2. The landowner conveyed title to the property to the sellers. 3. Pursuant to a land sale contract, the buyers purchased the property from the

sellers. 4. The county health board then obtained a permanent injunction prohibiting

human habitation of the property due to the defective sewage system. 5. The buyers initiated an action against the sellers to rescind the land sale

contract on the basis of mutual mistake and failure of consideration.

6. The appellate court entered judgment in favor of the buyers. 7. On appeal, the court found that the buyers were not entitled to rescission.

a. Both the buyers and the sellers believed that the property was suitable for human habitation when they entered into the land sale contract.

b. Both parties were blameless because neither the sellers nor the buyers knew of the defective septic system.

c. The court was faced with two equally innocent parties and concluded that the risk should be allocated to the buyers.

d. The parties' land sale contract also contained an "as is" provision allocating the risk to the buyers.

OUTCOME: The court reversed the decision because the buyers were not entitled to rescind the parties' land sale contract

- A contractual mistake is “a belief that is not in accord with the facts.” (1st Restatement)

- Contract contains “as is” clause- o Must relate to a fact in existence at the time the contract is executedo Court of Appeals: the parties were mistaken as to the income

producing capacity of the ropertyo Appellants (Messerlys): there was no mistake because the defect in

sewage system didn’t happen until after contact was executedo Appellees (Pickles’): They’re confusing the date of inception of the

defect and the date upon which the defect was discoveredo *** By DEFINITION: a mistake cannot be found until after the contract

had been entered into- if the parties were aware before, there would be be no misapprehension about signing the contract

o Court: the septic tank was defective PRIOR to the execution of the contract- the Messerly’s grantor installed a non-conforming septic tank without a permit- division of the parcel and sale of the one acre of property made remedying the septic situation impossible.

Doesn’t like the distinctions of: contractual mistakes to value vs. mistakes touching consideration = confusing

RULE: case by case analysis whereby rescission is indicated when the mistaken belief relates to a basic assumption of the parties upon which the contract is made, and MATERIALLY AFFECTS the agreed performances of the parties

- “A contract may be rescinded because of a mutual misapprehension of the parties, but this remedy is granted only in the sound discretion of the court.”

Notes:

1. Factual context 2. Lack of consistency in mutual mistake cases - Gartner v. Eikill 319 N.W.2d 397

(1982) – purchaser sought rescission on grounds of mutual mistake b/c of

special unknown zoning restrictions that neither party was aware of--> court allowed rescission based on mutual mistake of fact

a. Reconciled with Messerly?3. Limiting earlier court decisions – court limits the earlier decisions in A&M

case and Barren Cow case to their facts, destroying their value as precedent--> is the process outlined in Messerly better?

4. Effect of “as is” clause – most courts will deny a claim for relief on mutual mistake and other grounds when the contract contained an “as is” or similar clause

5. Conscious Ignorance - another form of assumption of risk is based on a party’s conscious ignorance of the facts before entering into an agreement --> Restatement §154(b)- being consciously ignorant of the specs, etc (buyer beware)

6. Mistake in Written Expression - reformation of the contract to express the parties mutual intent is the usual remedy

7. Equitable Relief - ordinarily rescission, along with any restitution that may appear appropriate; often use creative ingenuity for relief to fashion a remedy to fit the nature of the mistake

8. Personal Injury Settlement Cases - common mistake of taking a settlement and then wanting to rescind because your injury was actually worse than you thought -->Tension: social policies of finality of litigation AND fair compensation for injury

Wil-Fred’s, Inc. v. Metropolitan Sanitary District 57 Ill. App. 3d 16 (1978)

PROCEDURAL POSTURE: Defendant sanitary district challenged the judgment of the Circuit Court of Cook County (Illinois), which granted plaintiff contractor's complaint for recission of a contract between the parties and ordered the sanitary district to return a $ 100,000 deposit given by the contractor.

OVERVIEW:

1. After the contractor submitted a bid for work, along with the required $ 100,000 deposit, to the sanitary district, it discovered that its excavating subcontractor had given an erroneous quote for its part of the job, which was $ 150,000 too low.

2. In challenging the judgment of recission of the contract, the sanitary district claimed the contractor failed to show clear and positive evidence that the subcontractor's mistake was a material one.

a. The sanitary district also claimed that the mistake was mathematical in nature and was not a proper basis for recission.

3. The court found that materiality was shown, primarily because the subcontractor's error represented 17 percent of the bid amount.

4. The court also found that the other elements necessary for recission were present:

a. Given the substantial loss which would have been incurred by the contractor, enforcement of the contract would be unconscionable;

b. Because the project had not begun, the status quo could easily be restored; and

c. The contractor had used due care in submitting its bid.d. The court noted that the nature of the mistake should be determined

by the facts surrounding it, not a label, such as "mathematical."

OUTCOME: The court affirmed the judgment, which rescinded the contract between the sanitary district and the contractor, and ordered the sanitary district to return to the contractor a $ 100,000 deposit that it made thereunder

Notes:

1. Palpable Nature or Unconscionable Effect of Mistake a. Earliey cases granting relief on the grounds of unilateral mistake:

mistake must be palpable, so obvious that the other party knewo r should have known a mistake had been made --> Truly universal mistake (also Rest. §161- duty of disclosure)

b. Restatement Second §153- avoidance of a contract permitted by “mistake of one party” requires either

i. Mistake be such that enforcement of contract would be unconscionable

ii. The other party either had reason to know of, or was responsible for causing the mistake’

iii. Unconscionable HERE = merely enough to cause substantial loss

2. Mistake of Fact v. Mistake of Judgment - rescission in cases of clerical errors and other mistakes of fact, but NOT for mistakes in judgment --> Policy: buyer beware

3. Effect of Negligence - Must a unilateral mistake be non-negligent in order to form basis for relief?

a. Most Courts say YESb. But there is a clear tendency to RELAX this requirement when the

proof of mistae is strong and the effect of enforcement will be devastating or severely injurious to the mistaken party

4. Effect of Reliance by Non-Mistaken Party - Think about Baird and Drennan (unilateral mistake is contained in an offer submitted by a subcontractor or supplier, and mistaken party is not excused/enforcing subcontractor bids after attempted rescission) – Should they have been able to recover on a theory of unilateral mistake? --> Parties return to Status Quo:

5. Unilateral mistake as to content of writing - cana unilateral mistake provide an avenue of mistake for the party who failed to read (or to understand) what he or she signed?

6. Effect of unilateral mistake in an advertisement - Courts usually view ads as negotiations or invitations to negotiate, rather than offers --> ex. Donovan: ad published sale of car accidentally $12k less than intended price- buyer attempts to purchase--> court held that in THIS case = offer b/c of Cali consumer protection statute that requires a dealer be available for sale any car which advertised at a specific price and on specific terms – plaintiff had no notice of the mistake and tendered advertised amt. before published time limit expired --> but DEALER STILL could rescind the contract (acceptance of offer) based on unilateral mistake

I will discuss the exam in the last class and with time go over at least one sample exam question in the Course Documents.On Monday we will go over Problem 8-1 which is the last problem we will do. Since the problems are like exam questions, you may want to try to write out an answer and compare it to how we go over it in class.- A student asked if the problem is only to be answered with regard to the UCC and the answer is NO. The common law is required.

Changed Circumstances - p.684- 713Restatement §§ 261Restatement §262,Restatement §263Restatement §264Restatement §265

Problem 8-1

UCC § 2-615

http://www.youtube.com/watch?v=sXsb2BV69gQ&feature=user[Krell case p686]

- Usually involve changed circumstances that occur between the making of the contract and the time set for performance the earliest to evolve was the notion of “impossibility of performance.”

- Non performance is actionable on a theory of strict liability- don’t have to be culpable, but can have simply failed to perform the terms of the contract

- Historically- Courts adopted doctrine of Strict Contractual Liability- Exception- 1st exception Taylor v. Caldwell (2863)- contracted to have musical

performances at a theatre but the theatre burns down prior to performance- court relieves of contractual liability

- TRANSLATION TO MODERN COMMON CONTRACT LAW CHANGED CIRCUMSTANCE (performance/specific goods): When a person or thing necessary for performance of the agreement dies or is incapacitated, is

destroyed or damaged, the duty of performance is according excused (Rest. §262/3

- UCCC §2-613- “casualty to goods identified when the contract is made which the contract requires for its performance

- Also common- prohibition of performance by governmental action1. Excuse for Impossibility- requires a showing of literal impossibility- the

thing promised simply could not have been performed at all = objective impossibility – “no one could do it” (vs. subjective impossibility- “I couldn’t do it”)

a. Krell v. Henry (1903)- defendant who contracted to rent a room overlooking King’s parade route was not obligated to pay when the King was ill and the parade didn’t happen.

b. The exchange lost all value to the defendant because of a supervening change in extrinsic circumstance.

2. Frustration - from First Restatement §288- frustration of object or defect- sparse application, jhas been advanced but seldom applied

3. Impracticability - from Cali Supreme court (common law)- Mineral Park Land Co. V Howrd (1916)- Requirements contract, but got gravel from another source because of the extreme unexprected, nonnegotiable, diff. means of extraction etc. cost for company to have gotten that portion of gravel from them as well

Impossibility:

Restatement §262

Restatement §263

Restatement §264

Impracticability:

Restatement §261

Restatement §266

Frustration:

Restatement §265

UCC §2-615

Karl Wendt Farm Equipment Co. v. International Harvester Co 931 F.2d 1112 (6 th Cir. 1991)

1. IH decides to get out of the farm equipment business because the market is bad,

2. Fall 1974- IH and Wendt enter into a dealer Sales and Service Agreement- established Wendt as the dealer of IH goods in the area of Marlette, Michigan.

3. Required method for sale, provisions for the purchase and servicing of goods, as well as certain dealer operating requirements.

4. Specific provisions for the termination of the contract upon the occurrence of certain specified conditions.

5. Because the market was so back and IH incurred substantial losses, they sold its farm equipment division to Case/Tenneco: 246,700,000.00 in cash and $161.3 million in preferred stock in Teneco.

6. IH incurred paper loss of $479 million but would be offet by tax credit.7. Case/Tenneco did no acquire IH existing franchise network, but instead

received access to its dealers, many of whom would receive a Case franchise- but there were 400 areas where Case and IH dealerships were both located.

8. In the conflict areas Case offered only one franchise contract- 2/3rds of the franchise contracts for Case went to IH dealers.

9. In Marlette Michigan = conflict area, and Wendt was not offered a Case franchise.

10. Wendt filed action alleging breach of IH dealer agreement – all claims were thrown out except breach of contract claim.

11. IH filed a counterclaim against went for arising debts from farm equipment and parts advanced to Wendt on credit

12. Trial Court: allowed IH defense of impracticability of performance – jury returned a verdict of NO cause of action on the contract (impracticability defense prevailed); court denied Wendt’s motion for JNOV/new trial based on invalidity of the impracticability defense.a. This makes up the basis of Wendt’s appeal.

i. Claim : The defense of impracticability due to extreme changes in market conditions Is NOT a cognizable defense under Michigan state law

ii. Claim : insufficient evidence to withstand Wendt’s motion for directed verdict of impracticability

iii. Court : 1. Looks to prior Michigan case law (Bissel): which looks to the First

Restatement, now Restatement 2nd §261: Where after a contract is made a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption upon which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary Bissel: “impracticability because of extreme and unreasonable difficulty, expense, injury, and loss involved.”

2. Issue: Is Impracticability appropriate in cases involving a dramatic downturn in the market for farm equipment? Commentary of Restatement 2nd §261: Impracticability means more than Impracticality- a mere change in the degree or difficulty or expense due to increased wages, prices = NOT impracticability because fixed prices were intended to cover this potential problem.

3. What WILL work (Restatement 2nd §261-Comment D): “a severe shortage of raw materials or supplies to due to war, local crop failure, unforeseen shutdown, etc. which causes a marked increase in cost or prevents performance altogether”

4. “Non occurrence must be an event that was a basic assumption ON WHICH both parties made the contract.” = FUNDAMENTAL.

5. Application: Impracticability is NOT APPROPRIATE HERE:a. Because the market got bad and they incurred losses, and then decided

to get out of the business, does NOT excuses IH from its unilateral termination of its dealership agreements due to impracticability.

b. Neither market shifts nor the financial inability of one of the parties changes the basic assumptions o the contract such that it may be excused under impracticability

c. IH may not have been entirely responsible of rhte market, but they WERE responsible for how they remedied: by selling of their farm equipment assets- an alternative could have been to terminate its Dealership agreements by the termination provisions of the contract and share the proceeds of the sale of assets to case/Tenneco with its dealers = ALTERNATIVES THAT PRECLUDE UNILATERAL TERMINATION LIKE THEY DID.

13. Trial Court: ALSO ordered a directed verdict for WENDT as to IH defenses of: a. Frustration of purposeb. Implied covenant limiting the duration of the contract c. Defense relating to whether section 2 of the agreement permitted IH to

cease production of all its product lines.**The directed verdict for Wendt on the viability of these two defenses is the basis of IH’s cross appeal. **

d. Trial court relied on Restatement 2nd §265- “Where, after a contract is made, a party’s principal purpose is substantially fursterated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharges, unless the language or circumstances indicate the contrary.

e. Trial court relied on South Dakota precedent Groseth: Frustration of purpose requires 3 factors:

i. Must be the “principal purpose” of the party making the contract – NOT enough that the contracting party had in mind a specific object without which he would not have made the contract- has to be SO COMPLETELY THE BASIS OF THE CONTRACT that without the it wouldn’t make sense for both parties

ii. Must be substantial- so severe that it is not fairly to be regarded as within the risks that he assumed under the contract – NOT enough that it has become economically burdensome

iii. Must have been a basic assumption of the contract

f. Issue: Was the principal purpose of the agreement to establish a dealership and terms of interaction, OR “mutual profitability” (asserted by IH) trial court ruled that the economic downturn and non-profitability didn’t frusterate the primary purpose of the agreement IH IS CHALLENGING THE TRIAL COURT RULING THAT MUTUAL PROFITABILITY WAS NOT THE PRIMARY PURPOSE

g. Court Application: FRUSTERATION- Affirm district Court interpretation: “mutual profitability” would then be implied as the primary purpose of every contract- when it didn’t go right would be frustrated…

i. Frustration of Purpose: is essentially an implied term which is meant to apprortion risk as the parties would have the necessity occurred to them

ii. In this case: the frustrating event was IH’s decision to sell its farm equipment assets and go out of that line of business- even tho it may have been economically required for them, it CANOT assert that is obligations are discharged in light of that decision.

h. Court Application: Section 2 of the Dealer Agreement (“Leave when necessary”- ?)

i. Becomes sort of an interpretation issue: whether or not “reserving the right to make additions and eliminations from list, including but not limited to reductions… discontinued lines…”

ii. IH says this means they can withdraw completely rom the market as they see necessary Lower court followed Groseth court decision which interpreted the same clause to mean that they could elminate or change certain products or product lines, but not to eliminate its farm products altogether

i. Court Application: Implied term that the Agreement was of Limited Duration:

i. IH asserts the lower court errerd in refusing to find “impled in every contract is the ability for the manufacturer to go out of business”

ii. While either party anticipated market shifts, neither party anticipated that IH would go out of business completely implying a term that would terminate the franchise agreement unilaterally without following termination conditions of the agreement and without incurring a beach PLACES ALL THE RISK ON THE DEALER.

iii. IH should properly seek to terminate the agreement under the terms of the agreement, if it wants out.

j. Court: Reverse and remand on the error of allowing the defence of impracticability of performance to go to the justy: ONLY on the issue of DAMAGES Whether alternatives were available or not, IT is for the jury, not the court, that is empowered to determine whether IH proved impracticability of performance as that defense was defined by the trial court

k. DISSENT: - suggests that it should be submitted to the jusry for a finding of fact; alternative ways to terminate are not for the court to

assign/prescribe after the jury has already found on the facts; and the subjective actual losses and the possible devastating nature of that particular loss must be analyzed- the question is whether “reasonable people could differ” that those facts amounted to “an event the non occurrence of which….”

Notes:

1. Farnsworth: Views impracticability and frustration as relatively identical- both have to show:

a. Substantial reduction of the value of the contractb. Because the occurrence of an event, the nonoccurrence of which was

the basic assumption of the contractc. Without the party’s faultd. The party seeking relief not bearing the risk of that occurrence of the

event either in language of the contract or the surrounding circumstances

2. Increase cost as a basis for relief- most courts refuse to grant relief (unless TREMENDOUS COST INCURRED, i.e. “unquantifiable amount of incurred costs”)

3. Natural Disaster or War as a basis for relief- Have been invoked, but even here courts are generally unwilling to grant relief

4. Impracticability based on terrorism- Invoked on temporarily when it creates a grave circumstance that prevents performance after a certain date BUT CONSDER: should fears of travel because of terrorism be cause to excuse contract performance?

5. Death or incapacity of particular person necessary for performance- more likelihood for excuse

6. Role of Forseeability- Some court have tended to require a showing that the event complained of was at leas unforeseen- perhaps even unforeseeable; but not always required, because not always possible.

7. Economic Analysis- When the conract specifically allocates the risk to a party, that party is the superior risk bearer. In the absence of any, the risk should be assigned to the party who is in the best position to prevent the event from occurring,/minimize consequences at the lowest cost (usually insurance)

8. Decision by judge or Jury- Restatement: Mistakt, Impracticability, or frustration should be decided by the court as a matter of law, rather than being submitted to the jury for a finding of fact

Mel Frank Tool & Supply, Inc. v. Di-Chem Co. 580 N.W.2d 802 (1998)

1. Factsa. Di-Chem Co. is a chemical distributor

i. There was no face to face negotiations between mel frank and dicehm b/c mel frank used a real estate agent

ii. On the day of signing, dens frank walked with Di-Chem and he was made aware they were selling chemicals

iii. Lease was 3 yr lease June 1 94 – May 31 1997l “Storage and Distribution” only.

iv. So chemicals Di-Chem distributes are hazardous, but this is not disclosed to Frank.

v. Lease provision: “comply with all city ordinances”2. July 21 1995- Informed by city authorities that it could no longer used its

leased premises to store its hazardous chemicals b/c of recently enacted ordinance; also other deficiencies lice incomplete sprinkler, mechanical exhaust spill/drainage control

3. Di-Chem sent a letter on Aug. 2 to Mel Frank informing of city action and copy of the July 25 letter; AND their intent to relocate as soon as possible to avoid civil or criminal matters with the city feel “compelled to move their operation beyond the city limits” – intended to pay for August rent and be out by Sept. 1.

4. Explored the possibility of fixing the violations and staying, but the city’s ordinance allegedly made them storing all the materials there impossible, thereby making the space useless as a warehouse.

5. Di-Chem vacated the premises and the landlord Mel Frank Tool sued for breach of lease and damages to the premises.

B. Procedure

1. Mel Frank sued for breach of contract and damages to the property2. Di-Chem asserted defenses of:

a. Mutual mistakeb. Illegal Contractc. Failure to Mitigate Damagesd. Fraud in the inducemente. Impossibility

3. The Trial Court found for Mel Frank: he head no reason to believe or know that the chemicals classified as hazardous would be stored in the warehouse, only chemicals generally.

a. Di-Chem OR Me Frank didn’t make any representations that they were usuing the space to store hazardous materials, of for any other specific purpose so rule in favor of Mel Frank because Di-Chem broke the lease and left early.

4. HIGHER Court’s Reasoning: Following the Restatement Second introduction Ch. 11: Even though the obligor has not restricted his or her obligation by agreement, a court may still grant relief- in an extraordinary circumstance that may make performance so vitally different than what was expected

a. The Rationale behind the doctrines of impracticability and frustrations is whether the nonoccurrence of the circumstance was a basic assumption on which the contract was made.

b. The facts here fall within Restatement 2nd § 235- “Wherein a contract is made, a party’s principal purpose is substantially frustrated… unless the language or the circumstances indicate the contrarty”

i. Principal purposeii. Substantial

iii. Basic assumption on which the contract was madec. Iowa Case law Conklin- in accord w/ Restatement- THERE the court

ruled in favor of the landlord in the amount of the unpaid rent; ordinance for storage of rags.

d. Look to Am. Jur. Landlord and Tenants- Generally, a lease will not be invalidated or affect the rights and liabilities of the lessee if a statute or ordinance forbits using the space for a certain type of behavior/activity but still allows the occupant to use the space for other general legal purposes.

e. COURTS RULE:i. Purpose is Substantially Frustrated IF: a statute or ordinance

prohibits the tenant from legally using the premises for its originally intented purpose.

ii. NOT RELIEVED FRO OBLIGATION TO PAY IF: there is a serviceable use still available consistent with the use provision of the lease

5. APPLICATION-a. Di-Chem asserting a defense of frustration and purposeb. Di-Chem produced no evidence that all of its inventory of chemicals

consisted of hazardous materialsc. Testimony from representatives only had to remove what chemicals

they found objectionable = not all of them.d. Di-Chem had the burden of persuasion to show that they were

substantially frustrated by the cities actions = need to show the proper percentage of is inventory, substantial lost profits, or deprived them of beneficial enjoyment of property for other uses.

e. LEASE LANGUAGE: Clause 13B- Di-Chem relies on language that gets them out of liability to pay- “prevents conducting of a normal business operation…” “Should zoning make it impossible for the landlord to obtain permits to rebuild or repair the course of business- shall be treated as total destruction of business use” – written notice within 20 days of the destruction and vacateur.

i. One cannot interpret the clause to cover the situation where governmental regulation prohibits the use of the promises for one of the several purposes specified in the lease- it simply makes it less valuable to the lessee.

ii. OUTCOME: The court affirmed the trial court's judgment in favor of Mel- Frank.

Notes

1. Governmental regulation as a basis for excuse- although Wendt did no succeed, courts have been much more willing to grant relief when the event on which the claim of impracticability/frustration rests is some form of supervening governmental action rather than in cases of war, natural disaster, or market change

a. UCC §2-615- makes a specific mention of “compliance in good faith with any applicable foreign or domestic governmental regulation or order”

b. Restatement 2nd §264- recognizes compliance with foreign or domestic governmental order as a basis for excuse under Impracticability

c. BUT courts still impose stringent limitations --> must be SUBSTANTIALLY UNDERMINED- that the performance is rendered virtually worthless

2. Relief under the UCC- UCC §2-615- broad enough to encompass impracticability as well as frustration: Expressly addresses the excuse of performance by the seller on the ground of impracticability but does not mention relief to the buyer

3. Force Majeure Clauses- typically provide for excuse where performance is prevented or delayed by circumstances “beyond the control” of the party seeking the excuse

a. Governmental regulation, natural events (weather/’acts of God’), strikes, labor disputes.

b. The law does not generally favor exculpatory clauses: are subject to be tested against

i. Contra Proferentem (ambiguous term will be construed against the party that imposed its inclusion in the contract – or, more accurately, against the interests of the party who imposed it

ii. good faith; AND Unconscionability4. Nature of Relief

a. MISTAKE: Normal remedy is rescission of the contract and restitution of any benefits conferred

b. Impossibility/Impracticability/Frustration: similarly been viewed as grounds on which a still-executory duty of performance might be excused, but NO as a basis of reformation of contract.

c. Should the court have the power to readjust and make the contract palatable?

i. Alcoa- court did readjust a long term contract to account for price increases not adequately reflected in the existing price-increase formula initially negotiated by the parties

Problem 8-1- You are atty consulted by Barlow, proprietor of florist shop in your city:

My Notes: I think the problem that Barlow ultimately has is that the land that’s being torn down isn’t the flower shop- the flower shop ran its operations under the impression that the hospital would still be open, yes, and that the hospital was an extremely significant portion of their business- so- steps of analysis:

1. He’s not going to make a claim for impossibility- because its not that it will be impossible for him to pay back the money, because his building is not being torn down

2. So his claim will either be for impracticability or Frustration of Purpose3. Restatement §4. Restatement §5. Summarize that both of them are ultimately the same for the purposes of

showing that you need:a. Principal purposeb. Substantialc. Basic assumption on which the contract was made

6. Application/Assess/Conclude: Its not a city ordinance which forbids flower shops from opening, in which case, although case law has disallowed it, the court may have been more inclined to grant relief. According to case law (see previous), he would have to make a showing of a certain percentage found by a jury to be extreme enough- The evidence of the name may attribute to it being a basic assumption on which the contract was made- but he can still be a floral shop, and I think he’d ultimately have a hard time if he sought a defense of impracticability or Frustration

Modification - p. 713-740Restatement §§ 73, 89; UCC § 2-209 2-201 2-306

4/6/2011 – NEED TO TAKE NOTES ON THIS SECTION (MISSED CLASS)

Modification – considers doctrines of consideration, duress, good faith, Unconscionability, statute of frauds – and if they may be brought to bear in deciding the relative rights and duties of the parties when the existing contract is modified.

Alaska Packers’ Association v. Domenico 117 f. 99 (9 th cir. 1902 )

Notes:

1. Pre-Existing Duty Rule

2. Policing coercive Behavior3. Historical Context of Alaska Packers4. Modification of Employment Contracts5. Other Exceptions to the Pre-Existing Duty Rule

a. Restatement §89

Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp. 749 F. Supp. 794 (1990)

Notes:

1. Modification without considerationunder UCC Article 22. Good faith as a limitation on modification under Article 23. Economic Duress as a limitation on modification under Article 24. Protest of bad faith modification

Brookside Farms v. Mama Rizzo’s Inc. 873 F. Supp 1029 (1995)

Notes:

1. Modifications and the Statute of Frauds2. No-Oral-Modification Clause3. Reliance and Oral Modifications4. Modification through Settlement

Problem 8-3

Third Parties- p. 741-754; notes pp. 760-762Restatement §§ 302Restatement §309Restatement §311

The Rights and Duties of Third Parties P 741-754, Notes p. 160-762

- The rights and duties of another, 3rd, party, who is not a party to the contract, though still may be bound by or enforceable against as a result of the formation of a contract.

- Third Parties as Contract Beneficiaries

o Contracts can affect third parties- and in that sense may affect a third parties “right” to freely do as it wishes to the extent not forbidden by law

o A contract between A and B cannot adversely affect a LEGAL RIGHT of a third party- any invasion of an individuals rights/freedoms would be actionable wrong

o Parties CAN CREATE a contract right in some third person (often the case where A owes B, and C owes B, so C owes A

o Lawrence v. Fox (1859) – Lawrence loaned $ to Holly, Holly loaned same $ to Fox --> Although Lawrence is not a party to the transaction between Holly and Fox- he was not in privity with fox- but the cause of action would lie – Court equates it to being a trustee of a property under a trust created by another with instructions to sell the trust property and convey proceeds to plaintiff --> Plaintiff then = BENEFICIARY of trust and would have right to enforce obligation against the promisor

o Known as “THIRD PARTY BENEFICIARY” of the defendants promise- where plaintiff is the creditor of the promisee = Creditor Beneficiary

o Typically limited to this type of 3rd party involvement --> COURT HAVE extended recovery to hases where promisee had apparently sought to confer the promise on a child, parent, or some member of the promisee’s family --> Seaver v. Ransom (1918)- dying wife wants to correct her will to add niece, but she may die before executing new will- so husband promises to provide for niece in his will, but he doesn’t, and niece sues husband’s estate to enforce promise husband made to dying wife --> Court extended Lawrence to allow Seaver because of the close relationship between promisor and promisee.

o THUS – the principal that a third party may have standing to recover on a contract is now universally accepted by American Courts

Fundamental Distinction: INTENDED beneficiaries vs. Incidental beneficiaries

Restatement §302

Restatement §309

Restatement § 311

Vogan v. Hayes Appraisal Associates, Inc. 588 N.W.2d 420 (1999)

PROCEDURAL POSTURE: Appellee homeowners sought review of a decision of the Iowa Court of Appeals that reversed a judgment in their favor, based on a third-party beneficiary theory, against appellant, an appraisal company hired by bank to monitor progress of new home construction.

OVERVIEW: Appellant was hired by a bank to monitor the progress of new home construction for appellees, who had obtained a construction loan from the bank. The contractor defaulted after all of the original construction loan proceeds and a portion of a second mortgage loan had been paid out by the bank. Appellees recovered judgment against appellant on a third-party beneficiary theory based on its alleged failure to properly monitor the progress of construction, which allowed funds to be improperly released to the defaulting contractor. The court of appeals reversed the judgment because erroneous progress reports were not the cause of any loss to appellees. The court vacated the decision of the court of appeals and affirmed the judgment of the district court because appellees qualified as third-party beneficiaries of the agreement between the bank and appellant. The court found that although the initial construction loan might have been disbursed prior to the faulty completion estimate, the erroneous reporting of the project's completion caused the bank to disburse other funds of appellees that would have been retained had the report been accurate.

OUTCOME: The decision of the court of appeals was vacated, and the court affirmed the judgment of the district court in favor of appellee homeowners because damages for sums advanced to the contractor by the bank, based on an inaccurate progress report from appellant, were not beyond appellant's contemplation at the time its contract with the bank was made.

1. Standard of Review: In assessing a motion for judgment notwithstanding the verdict, the court's only inquiry is whether there is sufficient evidence to justify submitting the case to the jury. If there is substantial evidence to support a plaintiff's claims, a motion for judgment notwithstanding the verdict should be denied

2. Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either:

a. the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or

b. the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

c. An incidental beneficiary is a beneficiary who is not an intended beneficiary.

3. The primary question in a third-party beneficiary case is whether the contract manifests an intent to benefit a third party. However, this intent need not be to benefit a third party directly

4. Damages/Relief: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated

Notes

1. Whose intent determines standing?

2. Evidence of intent

3. Incidental beneficiaries

4. Liability of attys for negligent will drafting

5. Defenses available to promisor

6. Vesting of rights of 3rd party beniciaries

7. Causation and Forseeability

Assignments- p. 762-765 Restatement §317 – assignmnent of contract right

Restatement §318 – assignment of contract duty

Express Conditions- p. 783-804Restatement §§224Restatement §225Restatement §226,Restatement §227 Restatement §228

- Restatement §229,Whether by the express terms of the contract/parties agreenebt, performance by one party is a presently due obligation

o Sometimes states explicitly what duty is owedo Sometimes stated explicitly NOT owed UNLESS some event occurs.

(like real estate agreements = no sale unless obtain financing from lender)

o Obligor = the parties whose performance is so conditioned (the one whose obligation is at issue)

o Obligee = the one whom the performance obligation is owed (and presumably attempting to enforce it)

Restatement §224

Restatement §225

Restatement §226

Restatement §227

Restatement §228

Restatement §229

Oppenheimer & co. v. Oppenheim, Appel, Dixon & Co. 86 NY 2d 685 (1995 )

PROCEDURAL POSTURE: Defendant obligor challenged the order of the Appellate Division of the Supreme Court (New York), which held that plaintiff obligee had substantially performed the terms of a sublease agreement. The obligor moved for judgment notwithstanding the verdict.

OVERVIEW:

1. In 1986, plaintiff Oppenheimer & Co. moved to the World Financial Center in Manhattan, a building constructed by Olympia & York Company (O & Y). At the time of its move, plaintiff had three years remaining on its existing lease for the 33rd floor of the building known as One New York Plaza.

2. As an incentive to induce plaintiff's move, O & Y agreed to make the rental payments due under plaintiff's rental agreement in the event plaintiff was unable to sublease its prior space in One New York Plaza.

3. Terms of Agreement: Proposed sublease would be executed only upon the satisfaction of certain conditions. Pursuant to paragraph 1 (a) of the agreement, plaintiff was required to obtain "the Prime Landlord's written notice of confirmation, substantially to the effect that [defendant] is a subtenant of the Premises reasonably acceptable to Prime Landlord." If such written notice of confirmation were not obtained "on or before December 30, 1986, then this letter agreement and the Sublease … shall be deemed null and void and of no further force and effect and neither party shall have any rights against nor obligations to the other."

4. The obligee provided timely oral notice, but not the written notice that was required by the terms of the lease agreement- Rather, plaintiff's attorney telephoned defendant's attorney on February 25 and informed defendant that the prime landlord's consent had been secured.

5. When the obligor failed to perform according to the lease terms, the obligee filed a complaint Plaintiff commenced this action for breach of contract, asserting that defendant waived and/or was estopped by virtue of its conduct 1 from insisting on physical delivery of the prime landlord's written consent by the February 25 deadline. Plaintiff further alleged in its complaint that it had substantially performed the conditions set forth in the letter agreement.

6. The trial court held in favor of the obligee. a. The jury found that defendant had properly complied with the terms

of the letter agreement, and answered in the negative the questions whether defendant failed to perform its obligations under the letter agreement concerning submission of plans for tenant work, whether defendant by its conduct waived the February 25 deadline for delivery by plaintiff of the landlord's written consent to tenant work, and whether defendant by its conduct was equitably estopped from requiring plaintiff's strict adherence to the February 25 deadline. Nonetheless, the jury answered in the affirmative the question, "Did plaintiff substantially perform the conditions set forth in the Letter Agreement?," and awarded plaintiff damages of $ 1.2 million

7. The court reversed the judgment, granted summary judgment in favor of the obligor, and dismissed the complaint.

a. The court found that substantial performance had no application to the dispute.

b. The parties' letter of agreement unambiguously established an express condition precedent rather than a promise.

c. The sophisticated parties dealt at arm's length and there was no reason to relieve the consequences of their bargain.

d. The court further held that the issue of whether there had been substantial performance was not for the jury but the judges of the law.

OUTCOME: The court reversed the judgment and dismissed the complaint.

1. A condition precedent is an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises. Most conditions precedent describe acts or events which must occur before a party is obliged to perform a promise made pursuant to an existing contract, a situation to be distinguished conceptually from a condition precedent to the formation or existence of the contract itself. In the latter situation, no contract arises "unless and until the condition occurs.

2. Conditions of a contract can be express or implied. Express conditions are those agreed to and imposed by the parties themselves.

a. Express conditions are those agreed to and imposed by the parties themselves.

b. Implied or constructive conditions are those imposed by law to do justice

c. Express conditions must be literally performed, whereas constructive conditions, which ordinarily arise from language of promise, are subject to the precept that substantial compliance is sufficient.

3. In determining whether a particular agreement makes an event a condition courts will interpret doubtful language as embodying a promise or constructive condition rather than an express condition.

a. This interpretive preference is especially strong when a finding of express condition would increase the risk of forfeiture by the obligee.

b. Interpretation as a means of reducing the risk of forfeiture cannot be employed if the occurrence of the event as a condition is expressed in unmistakable language. Nonetheless, the nonoccurrence of the condition may yet be excused by waiver, breach, or forfeiture To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange

Contracts -- Breach or Performance of Contract -- Substantial Performance -- Express Condition Precedent to Formation of Contract

1. The doctrine of substantial performance does not apply to the provision of the parties' letter agreement which set forth as a condition precedent to the formation and existence of a sublease between them that there would be no sublease between the parties "unless and until" plaintiff delivered to defendant the prime landlord's written consent to certain "tenant work" on or before a specified deadline, failing which the sublease was to be deemed "null and void", where plaintiff provided only oral notice on the specified date. Conditions can be express or implied. Express

conditions must be literally performed, whereas constructive conditions are subject to the precept that substantial compliance is sufficient. In determining whether a particular agreement makes an event a condition courts will interpret doubtful language as embodying a promise or constructive condition rather than an express condition. This interpretive preference is especially strong when a finding of express condition would increase the risk of forfeiture by the obligee. However, interpretation as a means of reducing the risk of forfeiture cannot be employed if the occurrence of the event as a condition is expressed in unmistakable language. Here, the critical language of the letter agreement unambiguously establishes an express condition precedent rather than a promise, as the parties employed the unmistakable language of condition ("if", "unless and until"). There is no doubt of the parties' intent and no occasion for interpreting the terms of the letter agreement other than as written. Substantial performance in this context is not sufficient, and if relief is to be had under the contract, it must be through excuse of the nonoccurrence of the condition to avoid forfeiture; here, plaintiff has not suffered a forfeiture or conferred a benefit upon defendant.

Contracts -- Breach or Performance of Contract -- Substantial Performance -- Question of Law

2. A determination whether there has been substantial performance is not for the jury, but rather is to be answered, if the inferences are certain, by the Judges of the law.

Notes:

1. Language sufficient to create an express condition2. Distinction: express condition and promises3. Interpreting the contract language4. Distinction: express and constructive conditions5. Which party’s duty is conditional?6. Effect of nonoccurrence of condition7. Scholarly commentary8. Waiver of estoppel of condition9. Prevention of condition10. Avoidance of forfeiture

J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc. 42 NY 2d 392 (1977)

Facts: J. N. A. Realty Corp., the owner of a building in Howard Beach, commenced this proceeding to recover possession of the premises claiming that the lease has expired. The lease grants the tenant, Cross Bay Chelsea, Inc., an option to renew and although the notice was sent, through negligence or inadvertence, it was not sent within the time prescribed in the lease. The landlord seeks to enforce the letter of the agreement. The tenant asks for equity to relieve it from a forfeiture

PROCEDURAL POSTURE: Appellant tenant sought review of an order of the Appellate Division of the Supreme Court in the Second Judicial Department (New York), which reversed a judgment of the trial court for appellant in respondent landlord's proceeding to recover a building leased by appellant due to the lease expiring. Appellant failed to respond to an option to renew the lease, and appellant alleged that it was entitled to equity to relieve it from a forfeiture.

ISSUE: Two primary questions are raised on the appeal. 1. Will  the tenant suffer a forfeiture if the landlord is permitted to enforce the letter of the agreement. 2. If there will be a forfeiture, may a court of equity grant the tenant relief when the forfeiture would result from the tenant's own neglect or inadvertence

OVERVIEW:

1. Appellant tenant leased a building from respondent landlord. 2. The lease agreement contained an option to renew the lease: 12-page rider,

granted the tenants an option to renew for a 10-year term provided "that Tenant shall notify the landlord in writing by registered or certified mail six (6) months prior to the last day of the term of the lease that tenant desires such renewal."

3. The tenants opened a restaurant on the premises. In February, 1964 they formed the Foro Romano Corp. (Foro) and assigned the lease to the corporation

4. Subsequently, respondent sent a letter to appellant informing it that the option had expired and that appellant was to vacate the premises.

5. Appellant then sent notice of intention to renew the option, which was refused by respondent.

6. Respondent commenced suit to recover the premises7. Appellant replied that it was entitled to equity to relieve it from a forfeiture. 8. The trial court found for appellant, and the lower appellate court reversed. 9. HOLDING: The court remanded for a new trial:

a. An equitable interest was recognized and protected against forfeiture if the landlord was not harmed by the delay in the giving of the notice and the tenant would have sustained substantial loss.

b. A tenant was entitled to the benefit of equity where default in notice did not prejudice the landlord.

c. Thus, the case was remanded for a determination of whether respondent was prejudiced by appellant's failure to give notice.

OUTCOME: The court reversed the lower appellate court's reversal of the trial court's judgment for appellant tenant in respondent landlord's suit to recover possession of a building leased by appellant and remanded for a new trial so that the trial court could determine if respondent was prejudiced by the default. Equity should have relieved against default if it was due to inattention and if relief could have been granted without damage to the landlord.

1. A notice exercising an option is ineffective if it is not given within the time specified. At law, time is always of the essence of the contract

2. An option itself does not create any interest in the property, and no rights accrue until the condition precedent has been met by giving notice within the time specified = equity will NOT intervene because the loss of the option does not ordinarily result in the forfeiture of any vested rights.

3. There is a wide distinction between:a. Condition precedent: where no title has vested and none is to vest

until the condition is performed = Equity can give NO relief - failure to perform is an inevitable bar - No right can ever vest

b. Condition subsequent: operating by way of a defeasance. In the former case equity can give no relief - Equity will interpose and relieve against the forfeiture

4. Although the tenant has no legal interest in the renewal period until the required notice is given, yet an equitable interest is recognized and protected against forfeiture in some cases where the tenant has in good faith made improvements of a substantial character, intending to renew the lease, if the landlord is not harmed by the delay in the giving of the notice and the lessee would sustain substantial loss in case the lease were not renewed.

5. A tenant is entitled to the benefit of the rule or practice in equity which relieves against forfeitures of valuable lease terms when default in notice has not prejudiced the landlord, and has resulted from an honest mistake, or similar excusable fault. This rule has been expanded to preserve the tenant's interest in a long-standing location for a retail business because this is an important part of the good will of that enterprise, and thus the tenant stands to lose a substantial and valuable asset

6. A tenant or mortgagor should not be denied equitable relief from the consequences of his own neglect or inadvertence if a forfeiture would result. The rule applies even though the tenant or mortgagor, by his inadvertence, has neglected to perform an affirmative duty and thus breached a covenant in the agreement

7. Even though there may be no penalty or forfeiture in a strict or proper sense, equity should relieve against it if default has been due to mere venial inattention and if relief can be granted without damage to the lender. The gravity of the fault must be compared with the gravity of the hardship

Landlord and tenant -- option to renew lease.

The tenant assignee of a 10-year lease with an option to renew for an additional 24 years may be entitled to equitable relief from the forfeiture which would otherwise result from its failure through either neglect or inadvertance to give six months' written notice of its intent to renew as required by the lease. The tenant had taken the assignment after four years of the initial term had expired, upon requiring its assignor to secure a renewal term of 24 years, and the tenant paid $ 40,000 for fixtures and $ 115,000 for the leasehold interest. The landlord regularly notified the tenant of the due date of various lease obligations but failed to inform it of the

expiration date of the option to renew until it had lapsed, and there is testimony that the tenant spent $ 15,000 on improvements, at least a part of which was expended after the option expired. Although equity will not usually intervene in the event of a default on an option, because no vested rights can be forfeited absent compliance with the condition precedent of notification, a forfeiture may occur in the event of neglect to exercise an option to renew an existing lease if the tenant has made valuable improvements. While equitable relief has been granted only for excusable fault and not for neglect in such a case, the principle is well established that equity may relieve a tenant or mortgagor from the consequences of neglect to perform an affirmative duty if a forfeiture would result and the neglect is not gross or willful or prejudicial to the landlord. The tenant herein has made a considerable investment in improvements which would be forfeited and its fault in failing to give timely notice was mere venial inattention. Under the circumstances, there should be equitable relief if the landlord is not prejudiced, and there should be a new trial at which it may be determined whether the landlord made other commitments for the premises.

Notes:

1. Meaning of forfeiture2. Excuse of condition to avoid forfeiture3. Conditions of timely notice in options to purchase real estate4. JNA- Legal Theory- 5. Counseling clients facing JNA-type issues

Material Breach- p. 806-824Restatement §§ 226Restatement §234Restatement §235Restatement § 237Restatement §241Restatement §242Restatement §243(1)(4),

http://www.firehydrant.org/pictures/reading-foundry.html 

- One some point in the life of a contract- one party may completely fail to render a performance then due and owing under the contract – R she may render that performance but in an incomplete, defective, or untimely manner

- ISSUE: when does one failure to perform justify the other party in refusing to render a performance of his own

Jacob & Youngs, Inc. v. Kent 230 NY 239 (1921)

1. Jacob and Youngs is a contractor who built a country residence for defendant Kent

2. The cost of the house was $77,000.00.3. Work on construction ceased June 1914 and defendant lived in premises

until March 19154. Specifications for the plumbing work = “all wrought-iron pipe must be well

galvanized, lap welded pipe of the grade known as ‘standard pipe’ of Reading manufacture”

5. Defendant Kent learned in March 1915 that some of the pipe was the product of other factories.

6. Jacob and Youngs were directed by architect to do work over again/correct it.

7. To fix, not only did they replace the other pipe and encase where the pipe was exposed- but meant demolition of a great amount of the constructed house.

8. Jacobs and Young did not fix the work, but left it untouched- and asked for a certificate that the final payment was due

9. Refusal for Kent to grant certificate prompted this action

Court Reasoning/Holding

1. The omission of the prescribed brand of pipe was neither fraudulent nor willful – it was the result of the oversight and inattention of the plaintiff’s subcontractor.

2. An omission- both trivial and innocent- will sometimes be atoned for be allowance of the resulting damage- and will not always be the breach of a condition to be followed by a forfeiture.

a. Independent Promise – can never be by fair construction conditions of one another

b. Dependent Promise – so plainly dependent they will always be conditions

c. Determined by justice and presumable intention = either independent or dependent promises

3. Necessarily a subjective inquiry – Substitution of equivalents may not have the same significane in fiels of art on the one side and in those of mere utility on the other --> Nowhere will change be tolerate, however, if it is so dominant or persuasive as in any real or substantial measure to frusterate the purpose of the contract

a. Purposeful, willful intent that is malicious to breackt he contract will have no refuge

b. The transgressor whose default is unintentional and trivial may hope for mercy if he will offer atonement for his wrong.

4. APPLICATION: the measure of the allowance is Not the cost of replacement, which would be great, but the difference in value- which would be nominal or nothing,

a. The trial court has excluded evidence that the defect was unsubstantial and in view of that ruling there was no occasion for the plaintiff to go farther with an offer of proof.

b. It is true that in most cases the cost of replacement is the measure (unless the cost of completion is gross and unfairly out of proportion to the good being attained)

c. BUT: there may be omissions of that which could not afterwards be supplied exactly as called for by the contract without taking down the building to its foundations --> AND at the same time the omission may not affect the value of the building for useor otherwise, except so slightly as to the hardly appreciable

d. Invoke the doctrine of substantial performance = with compensation for defects of trivial or inappreciable performance

5. DISSENT: Trial court was right in directing a verdict for the defendant -->a. Only 2/5 of the pipe used were the Reading kind stipulatedb. Plaintiff knew where the pipe was obtained- not completely off the

hook/cant rely entirely on subcontractorc. NOT SUBSTANTIAL PERFORMANCE (less than half completed

properly)

Notes:

1. Commercial Context – wrought iron is 30% more expensive but it would achieve substantial savings b/c of durability and low maintenance --> genuine wrought pipe was used, just not of the Reading kind (which is why the higher court ruled it immaterial) --> Seems like Kent was displeased with the delay and was seeking a way to get after J&Y.

2. The Doctrine of Constructive Conditions *(plus additional comment)- Cardozo uses the notion of dependent promises- treated like conditions --> used to answer: “When will one party’s duty of performance be dependent on/ conditioned on some performance by the other party

a. Constructive Conditions – in cases where it seems to the court that one party’s failure to perform (or tender performance) should constitute a sufficient justification for the other party’s withholding of its performance in return

b. Judicially created devices used to determine the consequences of the breach when the parties have failed to spell it out in their agreement

c. Restatement §226 – Abandons the former distinctions and defines conditions as :

i. Express Conditions- condition within terms of contractii. Implied in Fact Conditions – inferred from conduct of parties

iii. Constructive Conditions – created by court of reasons of justiced. Restatement §234 - Conventional rules on order of performance

i. Performances that can be rendered at the same time are due simultaneously

ii. If performances cannot be rendered at the same time, the performance requiring the longer period of time must be rendered before the performance requiring the short period of time will be do.

e. UCC - provisions are rules of construction only and are not applicable if the parties agreement provides otherwise

f. Stark v. Parker (1824 )- Plaintiff not entitled to recover any part of wages for the year and also denied any recovery in restitution for the value of services performed (quit employment just shy of 1 year mark).

3. Possible application of rules Governing Express Conditions- Nolan v. Whitney (1882)- architect could not properly refute to issue a certificate if the contractor had substantially performed

a. OTHER COURTS = MAJORITY VIEW = If the contractors right to receive payment is expressly conditioned on the issuance of the architects certificate, the condition will be strictly enforced and the contractor denied recovery unless the contractor can show fraud or bad faith by the architect.

4. The Principal of Substantial Performance- Restatement § 237- Each party’s duty of performance is implicitly conditioned on there being no uncured material failure or performance by the other party

5. Standard for Substantial Performancea. California – where the variance from the specs of the contract does

not impair the building or structure as a whole, or where the defects can be remedied without great expenditure/material damagte to other parts of structure; but NOT running throughout the entire work.

b. Wisconsin - failing to do under $5k of work on a $50k contract = NOT substantial performance = ONLY when details are inconsiderable and not the fault of the contractor.

6. Measure of Damages- often turns on the degree and quality of the performance rendered

a. Cost of completion or repair7. Effect of Willful Breach

a. Revised Restatement §241(2)= Corbin View = A willful breach does not automatically bar recovery, but the motive of a breaching party is a factor to be considered in determining whether performance was substantial.

8. Other Grounds for Recovery: Restitution and Divisibilitya. Restatement §240 - Divisibility- if the contract is divisible, the court

may allow for recovery for the portions that have been completed = 2 REQUIREMENTS:

i. Possible to apportion the performances of the parties into corresponding pairs of part performances

ii. Must be proper to treat these pairs of part performances as ‘agreed equivalents’

Sackett v. Spindler 248 Cal. App. 2d 220 (1967)

1. Plaintiff Sackett attempted to buy stock from the S&S Newspaper corporation (published the Santa Clara Journal) owned by CEO, manager, publisher, etc. Spindler.

2. On July6 1961 Spindler entered into written agreement with Sackett for 6316 shares of stock in S&S Newspapers = total number of shares outstanding --> Payable as follows:

a. $6k by July 10; $20k by July 14; $59k by august 15 = $85k total cost.b. 6% interest on any unpaid balancec. Delivery of full amount of stock to Sackett free of encumbrances when

he made his final payment under contract3. Sackett paid initial ^k installment on time4. Sackett paied $19,800.00 on July 215. August 10 – Sackett writes and delivers check for remaining balance $59.2k

but the check bounces because of insufficient.6. Meanwhile Spindler acquired the stock owned by the minority shareholders,

endorsed the stock certificates, and gave all but 454 shares to Sackett’s attorneys to hold in escrow

7. Check does not clear by Sept 1 so Spindler reclaimed the stock certificates held by Sackett’s attornyey.

8. September 12 Sacket sends telegram saying they’ve procured the funds and are ready, willing, and eager to transfer them.

9. The attorneys coordinate and discuss- Spindler says that they will only go through with the deal if remaining balance plus interest is paid by September 22

a. Spindler in Desperate need of working Capitalb. Forced to obtain $4k loanc. Spindler himself sold off half his stockd. Forced to convert paper for Daily to Weeklye. Then re-acquired the stock he sold previously and re-soled it at a

profit of $20,680.0010. Sackett did not communicate or pay by September 22 – but Spindler

extended time to Sept. 29th.11. Sakcett still doesn’t pay- but indicate AGAIN that their money is available and

theyre ready to go.12. In response to this delegram- Spindler wrote a letter to Sacketts attorney

stating that there would be NO SALE AND PURCHASE OF STOCK.13. Spindler even considered to work something out afterward- but ended up

feeling as though Sackett NEVER INTENDED TO FOLLOW THROUGH WITH THE CONTRACT

Courts Reasoning

1. Since the trial court found that it was NOT IMPOSSIBLe to Sackett to perform subject to the contract = Breach (unjustified or unexcused failure to perform all or any part of what is promised in a contract

2. Sakett Claims Spindler Repudiated the Contract:a. The notification that there would be no sale or purchase = Spindler

considered his own duty of performance under the contract discharged as a result of Sackett’s breach of the contract and that Spindler was thereby terminating the contract and substituting his legal remedies for his contractual rights

b. THIS Repudiation = Ok ONLY IF Sacketts breach could be classified as a total, rather than partial breach of the contract.

c. TOTAL vs. PARTIAL BREACH = Depends on its materiality = CONSIDER:

i. Extent to which injured party will obtain the substantial benefit anticipated

ii. Extent to which injured party may be adequately compensated in damages for lack of complete performance

iii. The itent to which the party failing to perform has already partly performed or made preparations for performance

iv. Greater/less hardship on the party failing to perform in terminating the contract

v. The willful, negligent, or innocent behavior of party failing to perform

vi. The greater/less uncertainty that the party failing to perform will perform the remainder of the contract.

d. Spindler was justified in terminating the contract on October 5 because it was extremely uncertain to Spindler whether Sackett intended to complete the contract.

i. Number of Spindler requests for unpaid balance = Sackett’s failure to perform could not be innocent- gross negligence or willful conduct to NOT perform.

ii. Evidence was such as to warrant the inference that he did not intend to perform – unlikely he would tender balance if faced with ultimatums (like he was), or on his own accord.

iii. Spindler was not required to endure the uncertainty or to await the conscience of Sackett in paying

e. EVEN if Spindler was NOT justified in treating Sackett’s breach as a total breach

i. Sacketts contention that their duty to perform was discharged by Spindlers repudiation of the contract is UNTENABLE

1. Spindlers repudiationwas AT BEST ANTICIPATORY2. Its effect waqs nullified by Sacketts disregard of it and

his trating of th contract as still in full force- evidenced by the continued attempts to arrance an alternative method for financing

3. AND Spindler was still looking for ways to make it happen if Sackett ever paid like they said they would

Notes

1. Total and Partial Breach- Restatement §242 – Once it was determined that there was a breach: Is it total or partial?

a. Total Breach: sufficiently serious to justify discharging the non-breaching party from her obligations to perform the contract

i. Effect of Breach on performance obligations -: Relieves/discharges the nonbreaching party from his dutes under the contract = justified in refusing to perform his obligations and can enter into alternative contracts

ii. Measurement of Damages : Entitled to Recover not only actual damages accrued but also any future damages that will reasonably flow from the breach

b. Partial Breachi. Effect of Breach on performance obligations : Does NOT

discharge the nonbreaching party, who must continue to perform his obligations under the contract

ii. Measurement of Damages : Right to damages only for the actual harm that has resulted to date, nt for future harm

2. Material and Total Breacha. Material Breach: Restatement §237: in effect = the nonoccurance of a

constructive condition to the other party’s duty to render any performance not yet due

i. Performance is suspended until the breach occursii. Materiality of the breach determined by way of §241

b. Total Breach: Restament §236: in effect = discharging the other party’s remaining duties of performance and permitting that party to proceed immediately to pursue a claim for damages from total breach

3. Other tests for Materiality

4. When Does a Material Breach Become Total? a. Restatement §242 = Factors to Consider if Material OR Total Breach

i. Materiality depending on factors of §241ii. The extent to which further delay appears likely to prevent or

hinder the making of substitute arrangements by the nonbreaching party

iii. Degree of importance that the terms of the afreement attach to performance without delay

iv. ALSO: the reasonableness of the injured party’s conduct oin communicating hid grievances and in seeking satisfaction

5. Risks Facing the Non-Breaching Party-Suppose Spinlder had been found to have hjumped the gun in treating Sacketts breach as total: What effect would that have on Spindlers rights an obligations?

6. Effect of the “time of essence” Clause – From Restatement §242a. Stock phrases like “time is of the essence” will not necessarily mean

that any delay in performance must be deemed material- must be considered along with other circumstances

b. BUT parties may make a performance by a stated date a condition of their agereement- in which case delay beyond that conditioned date would result in discharge

Anticipatory Repudiationpp. 824-841Restatement §§ 250 Restatement §251 Restatement §253Restatement §256 UCC § 2-609; 2-610

4/20/2011

*** DAMAGES ***

- the majority of contract cases- specific performance is NOT the issue: most parties are seeking money damages --> Prime Importance: the way in which damages are to be computed

- Damages: Williston = Has come to be known as the modern approach to contract remedies:

1. Restitution Interest- court may force the defendant to disgorge the value he received from the plaintiff --> the prevention of unjust enrichment: prevention of gain by the fdefaulting promisor at the expense of the promisee

2. Reliance Interest- the plaintiff has in reliance on the promise of the defendant changed his position- court may award damages to the plaintiff for the purpose of undoing the harm which is reliance on the defendant’s promise has caused him.

3. Expectation interest- value of the expectancy which the promise created: object is to put the plaintiff in as good a position as hew ould have obeen had the defendant performed his promise

- Reliance and restitution typically awarded by the court--> Expectation Damages- construed so as to give the plaintiff the benefit of the bagain that would have been realized had the agreement been fully performed

Expectation damages p. 845-861

Computing the Value of Plaintiff’s Expectation

Restatement §347- The General Measure of Damages

1. Loss in Value - the difference between the value to the injured party of the performance that should have been received, and the value to that party of what, if anything, was received (OR value to the buyer of the goods received vs. goods actually delivered)

2. Other Loss - the breach may cause the injured party loss other than loss in value

a. Incidental Damages - additional costs incurred after the breach in a reasonable attempt to avoid loss (even if the attempt is unsuccessful) – like paying a fee to a broker to obtain a substitute for non-performance.

b. Consequential Damages - injury to person or property caused by the breach- like defective services that cause damage to property.

3. Cost Avoided - breach may have a beneficial effect on the injured party by saving it the further expenditure that would otherwise have been incurred.

4. Loss Avoided - breach may have a beneficial effect of allowing the injured party to avoid some loss by salvaging and reallocating some of all of the resources that otherwise it would have had to devote to performance of the contract

** THE GENERAL MEASURE OF DAMAGES FOR TOTAL BREACH = Loss in Value + Other Loss – Cost Avoided – Loss Avoided

p. 850- Case Examples # 1-3

1. Owner hires builder for $200,000.00 total. Estimated total cost $180,000.00. Owner breaches when work is partly done. Owner paid $70k until breach. Builder spent $95k for labor and materials (some incorporated into partial building. Builder resells $10k of purchased materials.

2. Employer hires employee 2 yr contract for $50k/year, end-month installments. 6 months into contract employee is wrongfull discharged. Employee unable to find job for 3 months, pays agency $1000. 3 months later employee finds new, comparable job for $45k/year.

3. Same as case 1, but compute builder’s expectation damages using the nect formula of expected net profit on the entire contract plus unreimbursed expenses at the time of the breach.

Roesch v. Bray 46 Ohio App. 3d 49 (1988)

- Roesch is seller/appellant of house, Bray is the buyer/appellee- Entered into written contract to purchase house on Lincoln

Avenue- 5 days after Brays inform Roesch they cannot perform on the

contract (no money to buy)- Prior to breach, Roesch entered into a contract to purchase

another home in Huron- Appellee Harry Bray is father of Roesch and encouraged appellants to purchase other real estate so they could move in- so they did, and then they backed out of the sale

- Contract terms: $65k total, $45k due at closing aand $20k paid upon sale of appellees home, with no interest on that amount.

- Due to breach Roesch borrowed $65k from 3rd party at 16% interest for his purchase of his NEW home.

- Ultimately resold the Lincoln Ave house for $63,500.00.- Trial court granted Roesch motion for summary judgment due to

breach of contract – issue of DAMAGEs tried before a REFEREE- Trial judge adopted referee’s report which was about $9k and

included costs for utilities, insurance, real state taxes, maintenance, advertising, and interest on the $45k that was payable to appellants from appaellees at the proposed closing date.

- Appellants argue: trial court erred- failed to award damages for difference in contract price agreed between contract price agreed upon and the ultimate resale price – the net proceeds in the sale only amounted to $52,149.00

o Appellees: only entitled to the difference in sale price and contract price plus interest = $1500.00

- COURT REASONING:o Assess the market value of the house at the time of the

breach: no evidence points to this – but the ultimate price it sold for was very close to the initial contract sale price- so can assume that the market price was fair at $65k.

o APPELANTS ARE ENTITLED TO THE BENEFIT OF THE BARGAIN

Resale price is $63,500.00, not $52k+ --> the formulation of the initial sale price wasn’t in “net sale”

terms (like the proposed $52k number was) = $1500.00 + 10% interest.

o Additional Costs: Although the appellees might have been able to forsee that certain expenses would be incurred in maintaining the property until future resale, the duration and extent of those expenses could only be speculated upon = Slippery Slope: a breach party could be subjected to liability for similar expenses (maintenance and utility expenses for upkeep until resale) for months or even years on end- the seller may not take immediate action to resale and the former buyer would still be on the hook for those costs.

Notes:

1. Measure of damages for breach of real estate contract a. Damages for the loss of bargain orginarily calculated as the

difference between the contract price and the market value of the property at the time of the breach

b. When the SELLER breaches- the disappointed buyer must show that at the time of the breach the property had a market value MORE than the contract price.

c. Consequential/Incidential Damages:i. Damages must be reasonnaly forseeable

ii. Prohibition of speculative damages (must be proven with reasonable certainty)

iii. Duty to mitigate damages: damages may not be recovered to the extent that they could have been avoided or minimized by reasonable efforts)

2. Proof of market value - Appraisers = experts3. English and American rules when Seller breaches

a. English- where the seller is in breach, restricted plaintiff purchaser to restitution of any payments made, unless breach is in bad faith

b. American- generally award expectation damagtes for any unexcused failure to convey, regardless of good/bad faith --> traditional rule of contract law that unless the cause of non performance falls within an accepted category of excuse (ie. Duress etc.) an expectation-based remedy is normally available

4. UCC damage rules - “the difference between the market price at the time and place for tender and the unpaid contract price, in addition to any incidential damages, less any expenses saved in consequences of the buyer’s breach

5. Prejudgment and postjudgment interest

Handicapped Children’s Education Board v. Lukaszewaki 112 Wis. 2d 197 (1983)

- Teacher hired for spring semester at Lightfoot School- Offered to be re-hired for following school year at annual salary of

$10760.00 for one school year.- Lukas accepted- August 1978 before school year starts- Lukas offered different yet

equal job at Wee Care Day Care- much closer to her home (Handicapped Childrens is 45 mins away from Lukas home)

- Wee Care offer is annual $13k salary.- Lukas decides to accept, and notifies Morelle @ Lightfoot school

that she intended to resign from her position --> Lightfoot told her to submit a letter to the board, Lukas does.

- Board refuses to releas Lukas from her contract.- Board attorney sends letter august 28 directing Lucas back to

work.- She reluctantly complied with Lightfoot contract- September 8 Lukas has meeting with Morelle and she becomes

stressed and ill.- Dr. visit: hypertension problem because of stress from her work –

Dr. opined that it would be dangerous for her to drive the 45 miles to Lightfoot.

- Lukas tendered Dr. Note with letter of resignation on Sept 13.- Shortly after Lukas reapplied and got job at Wee Care- Board Claim: suffered damage in amount of additional

compensation for Lukas’ replacement- Trial Court: held in favor of Hanicapped School, damages award

for $1026.64 plus $222.50 for costs.- Appellate court affirmed the breach, but reversed the damages

judgment: although the Board payed more for her replacement, it obtained a proportionately MORE valuable teacher.

- COURT REASONING:

o Breach ? Trial court made a factual finding that Lukas actually

did NOT resign for health purposes = breach.o Recoverable Damages ?

Rule: the nonbreaching party is entitled to full compensation for the loss of her bargain = losses necessarily flowing from the breach which are proven with a reasonable certainty and within the contemplation of the parties awhent he contract was made

Damages for breach of Employment Contract = cost of obtaining an equivalent to that promised but not performed, plus any forseeable consequential damages.

The additional cost $1026 necessarily flowed from the breach and was within the contemplation of the parties when the contract was made

The court of appeals and Lukas IMPROPERTLY focus on the objective calue of the services the Board received rather than that for which it pbargained (expectations)--> the Board EXPECTED to receive the services of a speech therapists with Lukas’ education and exsprience at the salary agreed upon… NOT expected a more experienced/educated one that had to be paid more

THUS, the Board lost the benefit of its bargain.o Dissent: the resignation was justified because of medical

condition

Notes:

1. Courts almost NEVER order specific performance in employment

2. Illness as a defense to breach of an employment contract? a. Death or incapacity = valid excusesb. Impracticality b/c undue risk of injuryc. Self induced = NOT valid medical excuse?

RESTRICTIONS ON THE RECOVERY OF EXPECTATION DAMAGES: FORSEEABILITY, CERTAINTY, AND CAUSATION - p. 868-874

Hadley v. Baxendale 156 Eng. Rep 145 (1854)

- Plaintiff Hadley are millers doing workat Gloucester- their mill was stopped by a breakage in crank shaft

- Sent a servant to Greenwhich to defendants, dba Pickford- to have the old shaft carried to Greenwich.

- Imperative the shaft be brough immediately because the shaft was stopped- TOLD THE CLERK AT PICKFORD THAT THE MILL WAS STOPPED AND THAT THE JOB NEEDED TO BE DONE ASAP --> ? (still not enough for court)

- Pickford told Hadley that if dopped off by noon it would be delivered the following day.

- Hadley drops off the shaft and paid 2 pounds 4 shillings (about $100 today)

- Delivery to Greenwich was delayed by some neglect- did NOT receive the NEW shaft until SEVERAL days after

- Hadley loses profits because mill is closed, mill work is delayed, etc.

- Defendants Argue: Damages are too remote and not liable- COURT REASONING

o Proper Rule: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive should be such as fairly and reasonable be considered either:

General Damages: arising naturally; OR Consequential Damages: such as reasonably be

supposed to have been in contemplation of the parties when the contract was formed

o IF the special circumstances under which the defendant was actually made were communicated by Hadley to Oickford- then it would be reasonably contemplated --> If NOT, then on speculated.

o APPLICATION: True that they sent it back for a new one, and that was

the only cause of stoppage of the mill, and that the loss of profits did arise from the delay in delivery

BUT IN THE GREAT MULTITUDE OF CASES of millers sending off broken shafts etc under normal circumstances such consequences would not have in all probability have occurred

The special circumstances were not communicated by the plaintiffs to the defendants

Thus, loss of profits here cannot be reasonable considered a fairly and reasonably contemplated notion byy both parties

o New trial Ordered: the judge ought to have told the jury that the facts should NOT take the loss of profits into consideration when estimating damages.

Hadley Notes:

1. What did the Clerk know?a. It is likely the case that if it had been reasonable plain that

Hadley had established the special circumstances to Baxendale, that they case would have been decided the other way around

2. General and consequential damagesa. General Damages – plaintiff need not make any special

showing to recover general land (i.e. the benefit bargained for)

i. Lost Profits on the CONTRACT THAT WAS BREACHED = General Damage

b. Consequential Damages – loss/costs incurred as an indirect result of the breach (not within the initial contract)

i. Lost Profitsii. Injury to person or property caused by goods that fail

to comply with contractual warranties

3. Forseeability – Restatement §351 – states the rule Haldy expounded:

a. Recoverability of consequential damages depends on whether such damages were in the contemplation of the parties at the time they made the contract

b. The TYPE of loss must be foreseeable, NOT the manner in which it occurs

c. Forseeability = focused on the BREACHING party.4. The Hadley Rule = FORSEEABILITY by BREACHING PARTY of

consequential damages (loss of profit on additional contracts)5. The Hadley Rule under CISG - Damages = sum of: loss including

loss of profit, may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract

6. The Tacit Agreement Test – 1900’s: injured party would be required to show special circumstances were told, AND the other party “assumed consciously” the liability

a. Criticism: damages should be viewed as a question of contract interpretation- and if its silent, court should adopt a default rule of damages that the parties would most likely have agreed upon had they considered the issue of damages

Restatement § 344

Florafax International, Inc. v. GTE Market Resources, Inc. 933 P.2d 282 (1977)

Notes:

1. Applying Hadley to Florafax2. Cntractual limitations on consequential damages3. Limitation of consequential damages to prevent injustice4. Speculative Damages5. Proof of lost profits6. The “new business” rule and Lost Profits7. Consequential Damages in other cases

Restatement §347

RESTRICTIONS ON THE RECOVERY OF EXPECTATION DAMAGES: MITIGATION OF DAMAGES- P 874 – 886

Restatement § 350

Restatement § 351

Restatement § 352

p. 886-890; 904-910

p. UCC §2-708

UCC § 2-708

Non recoverable Damages- p. 920-935Restatement § 353

Suppose I sign a contract to deliver 100,000 custom-ground widgets at $.10 apiece to A for use in her factory. After I deliver 10,000, B comes and says he desperately needs 25,000 custom-ground widgets at once since otherwise he will be forced to close his factory at great cost and thus offers $.15 apiece. I sell him the widgets and as a result cannot timely deliver to A resulting in a $1,000 loss in her profits. Assuming that I made a $1250 profit from my sale to B, I am better off even after reimbursing A for her loss and B is better off. What do you think about this breach?[Optional reading on this issue 951-958]

Reliance Damages- p. 965-983

Restatement § 349

Look at Case 3 on p. 850 and compare reliance damages to expectation damages in that example

Restitutionary Damages- p. 983-988Restatement § 370Restatement §371Restatement §373Restatement §374Restatement §375Restatement §376Restatement §377

Specific Performance- p. 1008-1021Restatement §359Restatement § 360Restatement §366

Agreed Remedies- p.1031-1032; 1039-1040 (notes 1 and 2)Restatement § 356

Review first of two exam questions in Course Documents (if time both will be reviewed)