Contracts Outline, Fall 2002, Professor Whitford

I. General Principles A. Try to figure out what the answer should be, given principles of Contract (K) law, then go to the

UCC/rules to justify principles. B. K law is supposed to uphold and protect the expectations of the parties. Therefore, the

fundamental principle of K damages is to put the non-breaching party (NBP) into as good a position as he would have been had there been performance. But if we can’t do that, then we at least want to protect reliance on promises, another fundamental principle.

II. Does the UCC Apply to this Transaction?A. The UCC applies to K for the sale of Goods

1. §2-105—“goods” means all things, including specifically manufactured goods, that are movable at the time of identification to the K.

a. Identificationi. UCC policy is to resolve doubts in favor of identification.

ii. An identified good is an insurable good. 2. §2-105(2) Future Goods—if not existing or identified already3. Commercial units—single whole for the sale and division 4. §2-107(1) Goods to be severed from realty—removal of the thing attached to real property

making it personal propertya. e.g. minerals, crops, structure, or its materialsb. Statute of Frauds (S/F) does not apply to severing buyers—even though the buyer

must conform to it affecting the transfer of interest in land. B. The UCC does not apply to

1. service contracts2. immovable goods—articles that can’t be transported away, fixtures attached to the land3. The UCC applies to leases but not article 2, article 2A.

C. With mixed goods-services transactions, have to figure out what the primary goal is. There is no section of the code that tells you what approach to use when—the trend leans toward not applying article 2, especially in Ks. Nevertheless, there are several tests that can be used to figure it out. 1. Which factor, the goods or the services contributed the most to the price?2. Bonebrake v. Cox test (was a construction K)

a. Is the predominant purpose the rendition of the service, with the good incidentally involved—e.g., an artist painting a special painting of your mom for you.

b. Is the predominant purpose a transaction of sale with labor incidentally involved—e.g. installation of a water heater in the bathroom.

3. §2-105: Final product test—end product approach—what is produced?4. Multiple K approach—take K parties think is 1 and split it into 2

a. Franchises—usually the sale of both goods and services; not unusual for courts to take the multiple K approach, but don’t always do it.

D. Except if explicitly displaced, common law supplements the code. §1-103,E. Note: International —United Nations Convention on Ks for International Sales of Goods (CISG)

—many of the rules of the convention are the same as US common law or UCC.

Formation Issues: Is there something for the court to enforce?

III. Was there offer and acceptance?A. The role of K law is to distinguish the culminating moment of agreement from all the bargaining

activity that has gone before, and to protect the agreement thus arrived from effort by either party to start the bargaining process up again.

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1. 2 kinds of Ka. Express K—behavior indicating consent to the K is oral or writtenb. Implied K—behavior other than verbal that manifests consent to pay, do something...

B. Requires a manifestation of mutual assent.1. A meeting of the minds—we hope that parties contemplated the same things.2. In the end, it is the surrounding circumstances that really matter.3. Objective Standard—would a reasonable listener believe there was a promise?

C. Duration of offers—if time is not specified, offer expires after a reasonable time.1. Offerer can revoke the offer before acceptance unless it is an option (a promise to hold an

offer open for a fixed amount of time).a. Common law required consideration for options b. UCC may not require consideration, §2-205: firm offers by merchants

2. Acceptance must mirror offer w/r/t common law; w/r/t UCC can be differentIV. Was there legally sufficient consideration?A. Was there a bargain or exchange?

1. For a promise to be enforceable—something of value must be bargained for or exchanged. There are 2 kinds of Ks—the requirement of consideration can be met by promising to do something or by doing something depending on the context.

a. unilateral K—requires an act for a promiseb. bilateral K—requires a promise for a promise

2. A performance or return promise must be bargained for to be enforceable. The thing bargained for is consideration.

a. It is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. Rest 2nd §71 and Holmes’ view (old Rest §75)

3. May consist either in some right, interest, profit or benefit accruing to one party OR some forbearance, detriment, loss or responsibility given suffered or undertaken by the other.

4. Refraining from activities in which you have a legal right to do, e.g, is consideration. a. See Hamer v. Sidway—Uncle promised nephew that if he would refrain from

drinking, smoking, swearing and gambling until he became 21 and nephew agreed. Nephew completed his part and the uncle put the money away for him, but died before giving it to nephew. Enforceable.

5. Courts will only check the existence of consideration, not the adequacy. a. But you can’t fake it too much—Peppercorn theory of consideration--$2,000 for a

peppercorn is just too much for the courts. 6. If consideration is found, don’t have to look for reliance.

B. Or is it a situation where there the courts will not usually find consideration?1. A promise to give a gift isn’t enforceable, even if there is condition to receiving the gift.

a. If it’s purely benevolent and doesn’t ask for anythingb. if the condition is merely incidental/what’s required to receive the gift. c. Williston’s Tramp Hypothetical: benevolent gentleman says to a tramp, “I’ll buy you

a coat if you walk down the street to the store to get it.” No consideration b/c man doesn’t care that tramp walked down the street. That’s what the tramp had to do to accept the gift, but he didn’t give the gentleman anything. It isn’t whether there is an inconvenience, it’s whether that inconvenience is what was sought.

i. So if the coat is intended as a gift, no enforceable K.ii. If man is a politician and wants the papers to see the tramp getting the coat so

they’ll write about how wonderful he is, then it is enforceable. d. See Kirksay v. Kirksay—brother in law said after husband died, if you take up the

kids and move, I will provide you with a place to live. A few years later, he kicked her out. The court held that the promise was a gratuity.

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e. Use the motive test—link between performance or return promise and the reason for the giving of the promise.

i. Note: it’s only the apparent motive that’s linked to K, not the real motive. 2. Performance of a legal duty owed to the promisee is NOT sufficient consideration.

a. But a similar performance will be if it differs from what was required by duty and is more than a peppercorn.

3. Illusory promises—“I’ll do it if I want to”—are not generally consideration.a. They are binding if they limit my freedom—e.g., I have jars, I will deliver them to

you is okay but NOT I think I know where some jars are, I might bring them. 4. Promises in recognition of past services—based on express promise

a. Generally, no such thing as “past consideration”—A barrel falls off a shelf and is about to knock B out cold but A quickly catches it. B promises to pay A $1,000 but then changes his mind. The promise is unenforceable.

b. Unless the promise is to pay a discharged debt anyway or a promise to perform a voidable obligation (no longer obligated to perform but says will do it anyway.)

C. Can the K be enforced without consideration? Short answer=yes, courts recognize that consideration operates too narrowly to promote fair outcomes in some cases. 1. Promisory Estoppel—Reliance as a substitute for consideration; the law in every state.

a. A promise that can be expected to induce reliance of a substantial nature and does so, is enforceable only if injustice can be avoided by enforcing it. Rest §90 (most of the time courts don’t read restatements as statutes but they have here.)

b. See: Rickets v. Scothurn—Grandfather wrote his granddaughter a note to pay her $2000 per year, expressing the hope that she would quit work; he died and P sued to enforce the promise. The court held that although there was no consideration because it was a gift, having intentionally induced P to alter her position for the worse on the faith of the note being paid when due, it would be grossly inequitable to permit the maker or the exectutor to resist payment on the ground that there was no consideration for the promise; foreseeable reliance.

2. Moral Consideration—an emerging modern rule. If a person has no legal obligation to another initially but a moral one that he could have ignored but instead chose to affirm by promising the other person something, then the courts may enforce the promise even though no “real” consideration if the promise is based on a benefit that a promisee gave the promisor gave rise to a moral obligation.

a. E.g., if A saves B’s life but is injured during the process, B’s moral obligation by itself entitles A to nothing whatsoever until a promise has been made. But if A promises to pay B money anyway he has waived his right to claim the defense of past consideration. The moral obligation is the consideration for the subsequent promise; the issue becomes whether B received a personal benefit for which A could demand compensation.

b. Old person says, “I am so indebted to you for all you’ve done and I’m going to leave you money in your will,” but then doesn’t. Dies with no money in the will and the services have been rendered gratuitously.

c. Rest (2nd) §86 tries to accommodate it—a promise in recognition of benefits previously received may be binding to the extent that it will prevent injustice—as long as it was not conferred as a gift, or the promisor has not bee n unjustly enriched, or the value is not disproportionate to the benefit.

i. But may be inconsistent with WI moral consideration cases b/c have remained mainly restitution claims and if §86 were really applied then the promise would be binding and not limited.

1. See: Estate of Gerke—old person promised to leave everything to P upon death as a compensation for taking care of her. Court enforced

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the promise because it was based on moral consideration. But instead of giving her the full amount of the promise, it limited recovery to the reasonable value of the services P furnished in return for which the promise was made.

3. There was an implied contract & a claim in quantum meruita. Arrangements to provide for the old is another example of the tension between legal

formality and protecting reliance on promises. Older people and person caring for them might imagine the situation as one held together with love, rather than work now pay later. For many people death is taboo. If deceased didn’t leave enough in the will, or didn’t make a valid will, P must find a legal theory to justify any recovery. K and restitution are the most likely avenues open. Don’t say “unfair”, claim a debt.

b. The argument is either that the old person (or whoever)’s behavior implied the promise or promisee has a claim in quantum meruit b/c never rendered the services gratuitously, they expected to be compensated even though difficult to prove.

c. Courts have long said there is a presumption that services given by family in family are gratuitous. This leads the court to draw some extremely fine lines.

i. Estate of Voss—the old man accepted a benefit fully aware that it was not being offered as a gift. (He advertised for services in a newspaper.) The court awarded P the going price of her service, less the value of her board and room. They did not award the subjective value of the services to the old man.

ii. Estate of Grossman—daughter took off work to care for her mother for 6 wks, after that visited her father and cooked for him. Claim allowed against the estate for part of the value of the services to mother but none for father—no parent would expect to pay child for services done in daughterly duty.

iii. In re Goldricks Will—services P performed were various things that a friendly neighbor might do and presumed to be a gift. No recovery.

iv. Estate of Tully—woman gave P a check, said she was giving it to her rather than putting it in the will. When she died there was not enough to cover the check in the bank, but she left an estate. Court held that it was invalid b/c it failed to follow the laws of wills. Check and note were not a promise to pay in exchange for services, it was an intent to show appreciation for kindness.

d. Watch out for meretricious sexual services problems (sex for money). In Estate of Stefees a woman went to live with a man and did all the cooking and cleaning and took care of him. She also became his mistress. The court denied recovery b/c it felt that the sexual relationship was part of the claim for services.

e. But courts are doing what the law says it shouldn’t in these cases—looking at a will and deciding whether it’s just and then looking at the facts. Can’t do that, the principle in wills is that decedent can do whatever it wants.

D. Can agreements made during K negotiations be enforced? Sometimes, sort of. Especially when the parties are dealing with eachother over a long period of time w/o actual K, see franchising. 1. The bargaining of those in long term deals takes place over a long period of time. Parties

agree on certain terms and put them to bed, knock of parts of deal; as time goes on people get more confident that there is going to be a K. There’s loads of reliance—including turning down/not pursuing other opportunities. Sometimes the deal falls through and the law needs to decide what its role is. Plus there are concerns with dismal swamps.

2. Hoffman v. Red Owl—P entered into negotiations to become a franchisee for grocery store franchise. He basically closed his existing business as the start of the busy season and started a new trial business to prove he could do it at the urging of franchisor, all the while negotiating and being assured that the deal would go through. Then deal broke down.

3. Problem: the promises and agreement couldn’t possibly be a K until the parties sit down and agree to the essential terms.

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4. Answer? Promisory Estoppel. See Hoffman formally adopted §90 as the law of WI.5. This may be moving toward a body of law that creates an in between remedy when the deal

falls through so that there is still liability for reliance expenses. It’s too soon to say what the rest of the US is going to do, but a lot of courts have picked up on Hoffman.

a. Strict view—carefully distinguishes promises which are future oriented from statements of belief that are present.

b. Flexible view—allows reliance recovery in a wider variety of settings. A promise need not be explicitly expressed but may be inferred from statements of future conduct or factual representations about a present state of affairs. Question is whether the promisor should have reasonably expected that promisee would infer a promise.

V. Standard Form K Formation Issues?A. It’s very easy for drafter of the SFK to get his K to be the terms that parties have agreed to, even

though no one really thinks that the terms of K are the ones that would be in the parties’ minds. 1. By signing the K you represent that you’ve read it, or represent your willingness to be bound

by the terms, no matter what it says.2. If you accept the K printed on the back of your ticket/K document, you’re bound just as if

you sign it. By getting on the boat, bus, etc., you’re bound. 3. Limited remedy clauses are enforceable.

B. Did the SFK follow the formality? It’s just a formality but the drafter has to go through it if he wants his SFK to be enforceable. 1. Did the drafter get it signed?

a. See McCutcheon v. McBrayne—ship forgot to give him his risk note, boat went down. The risk note would have exempted the boat from liability for the loss of what was on it, but since he didn’t sign it he could recover.

b. Course of dealing arguments—if parties enter into several transactions together and they always have the same terms, unless the parties say something it’s reasonable to assume they’re willing to be bound the next time—didn’t fly.

2. Does it look like a K? Some notice to the other party is required. 3. Courts can require some terms to be bold—there is usually an argument to be made that if it

is impossible to see the term, even if you did look it over, not necessarily binding. 4. If limiting or disclaiming warranties did the drafter use the magic words? (See Warranties)5. If the drafter is trying to K away liability in the event of negligence—did K alert the other

party effectively to what he was signing away?a. In WI Yauger v. Skiing enterprises parents sued ski slope when their daughter died by

hitting an unpadded chair lift pole. P had signed SFK with exculpatory clause. b. Court held that the waiver was unenforceable. To be enforceable:

i. Can’t be ambiguous in any wayii. Has to highlight the nature and importance of what he is KTing away.

c. It is unclear whether this case is limited to personal injury or if it could apply to property injury, the question is up in the air.

6. If rolling K—see below—did the drafter remember to put the terms in the box?C. Available Arguments for SFK?

1. The market will take care of itself—no control 2. Cheaper, no one wants to pay prices that would be required if they had to negotiate a K with

each individual person.3. Easier—no one wants to miss the boat writing a K. (or reading a SFK for that matter.)

VI. Are we dealing with a modification—has it become a term of the K—or are we dealing with an original term?

A. General Rules of Modification 1. You generally need consideration to modify K

a. But under §2-209 you only need good faith to modify K.

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2. Modification is allowed if it is based on unanticipated circumstances and is fair and equitable in view of the circumstances.

3. Modification is allowed to the extent that provided by statute.4. Modification is allowed as justice so requires due to reliance.5. §2-207 & §2-209—after the K is formed, additional terms don’t become part of the K until

the party agrees. Keeping the product can’t be viewed as acceptance b/c although the offerer can specify the method of acceptance, it has to be something that’s unambiguous. There has to be some overt action; express agreement.

B. Or does Judge Easterbrook’s Rolling K theory apply?—Offer and acceptance is even easier to satisfy with ProCD v. Zeidenberg and Hill v. Gateway1. With pay now terms later kinds of deals—buying a computer online/over the phone and

getting the terms in the box, insurance policies, airline tickets, etc.—buying the product and finding the terms inside the box or mailed to your house after you “close the deal”, the issue is not modification but formation.

a. I.e. the K is not formed until the terms come. §2-204 allows an offerer to specify the method of acceptance; keeping the goods for a certain amount of time w/o returning them, complaining, can be proper acceptance.

2. The rule seems to be that if K is deemed formed at the timer of purchase, the terms are modifications which must be agreed to by the purchaser. If it is receiving the goods and not returning them, not complaining, then the terms are part of the K.

a. Maybe it depends on if the terms are enclosed. There may be cases where someone screws up and forgets to put the agreement in the box. In that case the K would have been deemed form when you buy the package w/o terms. But how did it change when the terms are enclosed—Says Whitford.

C. Whitford: “How is this all going to come out?  1. Obviously the credit card companies are relying on it.  Will they succeed?  It would be an

extension of ProCD and Hill, but maybe that will happen.  Or the change could happen legislatively.  If the big guys are going to win this issue, it would be more honest just to change the rules governing acceptance of modifications.”

2. ProCD and Hill v. Gateway set off a debate dealing with the formation of SFK.a. Controversial opinionsb. Followed and not followed in different jurisdictions—for in 7th circuit you might be

able to argue that its federal court that doesn’t apply to WI law, even though these were WI and IL cases—it’s too early to see if these will generally be accepted.

i. One court has already refused to follow these cases on facts indistinguishable from Hill v. Gateway.

c. Generally these are viewed as activist decisions changing the law.d. It will be interesting to see how “rolling K’ is applied to different factual

scenarios/areas of SFK.3. Proposed Revisions of Article II—none of which were accepted

a. Spin off software problems & have them drafted separately. That committee was dominated by friends of software industry and had provisions that buyers opposed.

b. In a pay now terms later transaction, the terms would simply be proposed modifications not likely to be terms of the K unless at the cash register there was disclosure that they would be coming. And the buyer would have a chance to return the product and get a full refunds and refund of shipping costs.

VII. Does the SFK give any rights?—Warranties.A. Are there any warranties (absent disclaimers)?

1. Express warranties §2-313

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a. Seller makes an express warranty that the goods will conform to any affirmation of fact, promise, or description of them that he gave to the buyer, which relates to the goods, and becomes part of the basis for the bargain between the seller and the buyer.

b. It doesn’t matter whether seller intended to make a warranty or if he said the words “warrant” or “guarantee,” to the buyer; assumption is that the bargain was made with the affirmations, etc. in mind.

c. However, not everything the seller says or does creates an express warranty. An affirmation of the value of the goods, a statement purporting to be merely the seller’s opinion or commendation does not create a warranty.

2. Implied Warrantiesa. Merchantability §2-314

i. if seller is a merchant then there is an implied warranty that goods will be merchantable, that is, that goods will pass without objection in the trade under the K description, fit for the ordinary purposes of which such goods are used, adequately packaged, etc.

b. Fitness for a particular purpose §2-315i. if at the time of making K, the seller has reason to know a particular purpose

that the buyer has in buying the goods and that the buyer is relying on the seller’s skill or judgment to select or make goods suitable for that purpose there is an implied warranty that the goods will be fit for that purpose

ii. that is, if the buyer is relying on the seller’s skill and judgment to make him goods or help him select goods for a specific purpose—e.g., wants shoes for climbing instead of the ordinary use of walking—and the seller has reason to know why the buyer is buying the product or that the buyer is relying on him to help him choose something appropriate, then there is an implied warranty that the goods the buyer ultimately purchases will conform to the purpose in the buyer’s mind.

c. If there is an inconsistency between warranties, questions of fact about which warranty the parties intended to apply must be resolved in favor of the warranty of fitness for a particular purposes—except where buyer has taken upon himself the responsibility of furnishing the technical specifications.

3. Conflict of warranties?a. If there is a conflict of warranties, exact or technical specifications take precedence

over an inconsistent sample or model of general language or description. §2-317(a)b. However, the intentions of the parties, determines what warranty is dominant

B. Did the seller disclaim the warranties successfully?1. Express Warranties—can’t be disclaimed; that’s why §2-313 is great.

a. The rationale is that: “express warranties rest on dickered aspects of the individual bargain and go so clearly to the essence of the bargain that words of disclaimer in a form are repugnant to basic dickered terms.” (comment 1, §2-313).

b. BUT—the parol evidence rule throws a huge kink in this issue. The parties can put all the terms of the contract into a written document intended to be a final expression of their agreement and in that agreement the seller can say “there are no express warranties” and “this document is intended to be the final expression of the agreement.” (the merger clause is the easiest way but as long as it invokes contradiction it’s there). §2-202.

i. Under the rule, evidence of any documents, negotiations, oral agreements, affirmations, statements, promises—anything—made by the seller to the buyer that would normally be considered an express warranty, is irrelevant (not admissible) and cannot be considered part of the deal.

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1. It’s NOT THAT A WARRANTY WAS DISCLAIMED, it’s that the parol evidence means that you can’t consider all that other information in FINDING an express warranty.

ii. The parol evidence rule only works with prior agreements and contemporaneous oral agreements. This doesn’t work if the seller puts an express warranty into the contract because you’ve found the warranty.

c. Evidence of course of dealing and other terms can supplement the written expression of the agreement—as long as it’s consistent.

d. If you don’t get the consumer to sign the K, again, all bets are off. See Wilson v. Marquette Consumer Electronics—where there was no evidence that the manual was intended to be the final expression of parties’ intentions so warranties were available.

e. What can the buyer do against parol evidence if the seller says final and complete but did make those statements—Fraud (which is difficult, but possible under the code)

2. Implied Warrantiesa. A clause excluding or modifying the implied warranty of merchantability must

i. mention merchantabilityii. be conspicuous

1. and that means that it has to be in contrasting type2. and somewhere that the buyer could see it. See Hunt v. Perkins

Machinery Co. Inc. where the implied warranty wasn’t disclaimed because the seller put it on the back of the form.”

b. Implied warranties can also be excluded if:i. seller says that the buyer takes the goods “as is,” or “with all faults” or other

language which makes it clear that the warranties are excludedii. if the buyer has examined or refused to examine the goods there is no

warranty w/r/t defects an examination would have revealed iii. But what’s the point? All seller has to do is use the magic words and font.

C. Has the seller effectively limited remedies for warranties existing and not successfully disclaimed?

1. Why would the seller want to have a limitation and not a disclaimer?a. Because of the market pressure to have express warranties, sellers don’t usually want

to hide behind a disclaimer. But they want to limit the remedies, particularly consequential damages. The standard limitation of remedy clause says that they’ll grant you a warranty for a certain amount of time but the remedy is limited to repair or replacement at the seller’s option and “in no event will the seller be liable for consequential damages.”

2. The seller can limit or alter damages to return of the goods and repayment of the price, or repair and repair and replacement of nonconforming goods or parts. §2-719(1)(a)

a. The presumption is that the seller’s enumerated remedies go along with the other remedies in the code. The parties can make the limited remedy the sole remedy but they have to explicitly and clearly express that the remedy described in the terms is exclusive.

b. However, there is a basic presumption that minimum adequate remedies should be available. Therefore the remedies have to be effectively limited.

3. Did the limited remedy fail of its essential purpose? The seller can’t put in a remedy that fails of its essential purpose. This involves some sort of assessment of what the buyer’s purpose was in buying, having the goods. There is nothing more that the seller can do to make sure the decision of whether to give the remedy is exclusively his. §2-719(2)

a. That means, in other words, that if the buyer buys a car to get around in and after a week the engine won’t start, the seller can’t refuse to repair the engine because then

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the limited remedy he provided fails of its essential purpose. At that point the regular UCC damages become available to the seller.

b. In contrast to 2-316 disclaimer rules this depends on the judge’s discretion. Usual problems with mushy law.

i. E.g., There is a question about whether taking a long time to get to repairs “fails of its essential purpose.”

4. Did the seller limit consequential damages? The seller can also exclude or limit consequential damages unless it is unconscionable to do so. If it’s unconscionable its void.

a. For example, excluding damages for personal injury is prima facie unconscionable. Although this might not matter as much because with torts product liability you probably couldn’t exclude it anyway.

i. On the other hand, limitation of consequential damages where the damage is to property, where it’s just financial loss, is prima facie conscionable. It seems to be a different meaning of unconscionabilty than in §2-302.

b. There is a split of authority in case law as to whether the seller can recover consequential damages when the limited remedy fails of its essential purpose.

i. Some courts say that remedy may be had according to the act so that the buyer can revoke acceptance of the goods, cancel and get restitution/ return of the purchase price and recover consequential damages. Wisconsin has ruled that way in Holiday Rambler.

ii. Other courts say the remedies are severable: the buyer can revoke the acceptance and cancel and get restitution of the purchase price but cannot recover consequential damages unless that limitation is also invalid because it is unconscionable.

c. There is no requirement in the code that these limitations be conspicuousi. But if the Magunson Moss Act Applies in particular state—sale of new

consumer products for over 15 dollars, the product must be clearly labeled to what kind of warranty.

1. Full warranty—seller cannot disclaim implied warranty; can limit remedies and can exclude consequential damages.

2. Limited warranty—can limit duration of implied warranties to whatever duration of express warranty is, but must exist for some amount of time.

3. No warranty—can disclaim everything as the code allows.4. Limiting remedies must be conspicuous.5. Allows buyer to get attorneys’ fees.

5. Do Lemon Laws Apply?—provide that after some number of attempts to get a particular problem fixed, manufacturer must either provide another product or return the purchase price.

a. Buyer must establish that it was the same problem. VIII. Does the Statute of Frauds throw a wrench into the whole thing?A. Does S/F apply—is the K one of a certain type that must be in writing or else not enforceable?

1. Executor administrator provision2. Suretyship Provision3. Marriage K4. One year provision—applies only to K which party can’t possibly perform w/in one year.5. K for the sale of goods for $500 or more. §2-201(1).

a. An oral K w/in statute is not enforceable unless it falls w/in the exceptions.b. Writing must be sufficient to indicate that K for sale has been made and must be

signed by D.

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i. Unless the parties are merchants—then one can send the other a written confirmation w/in a reasonable time. If he fails to object in writing returned w/in 10 days, satisfies UCC S/F problem.

6. K for the sale of land. B. Is the K that must be in writing actually in writing? When is a K “in writing?”

1. Obviously a formal K is okay.2. Generally, K only needs to be signed by one party—the party sought to be charged.3. Doesn’t have to contain all the terms.

a. But should contain enough to identify what the K is about.b. Probably should contain the price.

4. Can be a letter or a memo saying, “on such date I made K,” describing the terma. Rest (2nd) §131—should state w/ reasonable certainty the essential terms of

unperformed promises in the K. 5. How much detail is probably a matter where you have to check the case law. Varies from

jurisdiction to jurisdiction with no real rule of thumb.C. Do the policies behind the S/F justify having it?

1. Enacted to deal with fraud—goes back to England 1500s.2. S/F serves the evidentiary and cautionary function of Fuller’s formality concerns very well.

(Not so good with channeling.)D. Can we get out of S/F by employing one of the exceptions?

1. Policy Justificationsa. Oral Ks still get made even when the statute applies. Especially between family

members. Writing is not internalized. People rely on the oral promises.b. The requirements of part performance—specifically the requirement that the person

behave as if there was a promise—help to avoid the fraud problem. c. S/F is not popular—most of the world doesn’t have it, academics don’t like it, more

fraud is committed in the name of S/F than was prevented, courts have invented the messy and awful doctrine of part performance.

2. Part Performance Exception provides that a K that would otherwise be unenforceable b/c did not comply with S/F requirements is enforced b/c of reliance that induces performance (often that makes a person behave as if it will be enforced.)

a. The nature of reliance should corroborate the claim that there was a promise. i. See: Estate of Powell—Wilcox, super-farmer, worked on his uncles’ farm b/c

uncle promised to transfer it to him in his will. He and wife managed it as they would a farm of their own. Farm wasn’t transferred in the will but they won it anyway because their substantial performance amounted to a good deal of reliance that showed he believed and behaved as if there was a promise. Plus P was in exclusive possession and control of the land.

ii. Contrast—Rodman v. Rodman: father promised son that if he came back to take care of him on the farm the son would have it. But when father died w/o a will and son had been working on the farm 22 years, part performance didn’t apply. Son’s reliance was consistent with a tenant farmer. It’s not clear that he stayed b/c he relied, maybe stayed b/c it was a job.

b. WI statute allows part performance for transfers of land §706.04i. An oral promise will be enforced if unjust enrichment by the promisor will

result OR promisee changes his position to his detriment in good faith reliance upon the promise.

1. and has substantial possession or use of the land2. OR detriment was incurred with the promisor’s knowledge and

consent

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ii. But in Estate of Lade the court ignored the statute and looked at Powell and Rodman—personal services in reliance on an oral agreement are not enough, standing alone to constitute partial performance in land transfer.

3. Promissory Estoppela. Technically Rest (2nd) §139 is the part performance statute. But it moves in the

direction of promissory estoppel and is very similar—almost a version of §90. i. A promise that prompts reliance is enforceable, not withstanding S/F if

injustice can only be avoided by the enforcement of K.ii. Injustice means:

1. there is no other available remedy at law2. the reliance was definite and substantial3. acted as if there was a promise4. reasonableness of action5. extent to which action was foreseeable by promisor

b. Reliance by one party may estop the other from asserting the S/F even if that reliance does not consist of partial performance of the K to prevent injustice.

4. Even if the party can’t get the K enforced, if she has conferred a benefit to the other pursuant to the oral K she can recover in restitution for the value of that benefit. Not nuanced, just a general rule. See Rest 2nd §373

5. He can also get Specific Performance notwithstanding S/F if the only way to avoid injustice.E. Is the exception limited—and therefore inapplicable?

1. Minority Rule—no real part performance doctrine.a. Example of the hard line: Boone v. Cole—P travels a long way in reliance on oral

land K. D breaches. Court rules there was no part performance b/c P did not posses or improve the land.

2. Mere Performance of services is not enough—Rodman v. Rodman.

Are there reasons for the court to refuse to enforce the Contract?

IX. K is between married people.A. The rule: courts will not enforce Ks between husbands and wives.

1. Because the parties did not intend that they be legal Ksa. Balfour v. Balfour—husband went back to Ceylon and wife stayed in England. He

had promised her a certain amount per month but did not send it. Court said that the 2 never imagined that the law would get involved.

b. Similar to the reasons why courts are reluctant to enforce social promises.—Horsley v. Chesslut—broken date case. A reasonable person wouldn’t have intended that social promises be legally enforceable.

2. Because of a lack of considerationa. Each side must get something, there must be an exchange. b. Love and affection is not a serious consideration and wife is not promising to do

anything that she already wasn’t under a duty to perform.--Miller v. Miller3. Because most of Chafee’s arguments for non-intervention apply.

a. Living Tree: marriage is too important to be mucked around in. The relationship is bigger than the K and should be protected from litigation, litigation is counterproductive to the higher good.

b. Dismal Swamp and Hot Potatoi. E.g., if Mrs. Miller can sue for breach you have to allow Mr. Miller to say

that she breached first, which means she didn’t do certain things (like love him, or clean) which gets invasive and makes a bad situation worse.

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4. Note: some feminists have advocated that married people should put their agreements in writing for a variety of reasons—even if the courts won’t enforce them as Ks.

a. Household dutiesb. Bank accountsc. Choice of domicile—favors one career over the other.

B. But is there an exception to the rule?1. Prenuptial K2. Ks between husbands and wives who have separate careers and end up with a business deal.

C. What about “husband” and “wife” who are not married? (Courts swim in the dismal swamp.)1. Different kinds of situations

a. Putative spouses—someone who believes in good faith that he or she is married, but is not married. E.g., the person who married the couple wasn’t authorized to conduct marriages even though he said he was. Or one party is already married and not properly divorced but the new spouse doesn’t know.

b. Living together as husband and wife even though not married.i. Common law marriage—where couples held themselves out as married in

public they would be married—was abolished. But people still think it should be around, or is around.

c. Gay Couples—K becomes a substitute for marriage when the laws of marriage are for married couples w/r/t property rights.

2. Marvin v. Marvin Rule—if couple agrees to divide property, divide property.a. Courts should enforce express Ks between non-marital partners just as they would

enforce them between two regular people making a deal.i. Unless K explicitly founded on consideration of meretricious sexual services

b. Implied Ks will be enforced —If there is no express K, courts should inquire into the conduct of the parties to determine whether it demonstrates an implied K, agreement of partnership, joint venture, or some other tacit understanding between the parties.

c. Courts may employ quantum meruit or equitable remedies (trusts) when warranted by the facts of the case.

3. Minority rule—defense of traditional marriage. See Hewitt v. Hewitta. Implied K claims btwn cohabiting couples are unenforceable b/c they contravene

public policy; a strong interest in the institution of marriage sanctioned by the state. X. The K is illegal. A. No enforcement of illegal K (leave parties where they are); not even restitution interest protected.

1. Definition—K of which the making is illegal or performance would constitute a crime. 2. Everett v. Williams—Highwayman’s case, eng. 1725 embodies the traditional rule.

a. Complaint described using euphemisms, the robbery partnership 2 men had. One sued the other for his half of the proceeds. There was offer and acceptance, consideration, no S/F issue, breach of promise.

b. But no enforcement—and the 2 men were hanged!3. Why refuse to enforce illegal Ks? Neither criminal law nor refusal to enforce deters.

a. Symbolic statement—courts don’t want to appear to condone illegal behavior.b. Cost to taxpayersc. Courts enforcing the rights of people who don’t have any.d. Whitford doesn’t fully buy these arguments.

B. Is this a situation where the courts fish around the K in accordance with balancing public values so they can justify enforcing the K?1. Loophole cases—courts may find that the illegality was incidental to the K and that K was

valid on its face; even when it knows that there is an illegal element to it. Courts balance public values; it has long been a feature of illegal K law to sever the illegal part out.

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a. E.g., Carroll v. Beardon—case comes up on a mortgage foreclosure action. P wanted the title to the house back b/c D hadn’t paid all the payments. The court says that it was a K to sell a house, so perfectly legal; even though it knew very well that it was a K to sell an existing prostitution business.

2. Malum prohibitum vs. Malum in se—e.g., thievery is naturally bad, even if there were no laws we would think so. Some things are only bad b/c the law has chosen to make them bad. Courts may find loopholes more in Malum prohibitum.

3. What’s the purpose of the law? See: Gates vs. Rivers Constructio.—D hired P, an illegal alien from Canada, and said he would pay P after got permission to work in US. D fired P right before he got permission & refused to pay wages as promised. Court held that b/c D would be unjustly enriched & b/c not enforcing the K would only encourage illegal behavior—hiring of illegal aliens to avoid wages—P could receive quantum meruit restitution.

C. Is there an exception to the illegality rule that will justify enforcing the K?1. Note: We’re not talking about enforcing the K as is, with expectation—most of the

exceptions can be characterized as protecting restitution (but that’s not certain.)2. Not in pari delicto rule?—When the parties are in pari delito (equal guilt) the court won’t

generally intervene. BUT when NOT in pari delicto the courts will often make some adjustment. E.g., Karpinski v. Collins.

a. Facts: P was a dairyman who sold milk at grade B prices and wanted to break into grade A business b/c he couldn’t support himself on grade B. D was a president of a creamery and offered him a grade A K for the sale of his milk if P would pay him a rebate/kick-back. So P ended up somewhere in between and D, who was required to pay grade A price by statutory scheme, was not paying grade A price for milk that was being used for grade A purposes. When P stopped being able to make payments, D terminated K and P sued to recover the rebate back.

b. The court allowed recovery (basically restitution, although really the statutory value of the milk) b/c the parties were not equally culpable.

i. Weren’t in equal bargaining power1. Element of coercion

ii. Necessity of K on the part of Piii. Deterrence—the legislation was designed to promote fair trade.iv. Policy—statute was supposed to ensure that farmers got grade A prices and

put most of the burden on the people paying for the milk to follow the law.c. This exception will probably more often apply with Malum prohibitum. But all hope

for certainty in the law disappears once you go in through this door.3. Repudiation?—P may recover money paid to carry out an illegal or immoral design if the

arrangement was repudiated with reasonable promptness. P must back out before the other party acts to put into effect any part of design.—Gresensberg v. Evening Post Association.

4. Is the court authorized to “go and do justice?”—New Zealand Statute. Is not equally at fault very different from this? When the court has to get in and muck around in the dismal swamp to figure out who is at fault. Courts can’t do it very well, but there’s something attractive about having them try. Raises a capability problem, however.

XI. K is against public policyA. General rule is embodied in Rest (2nd) §178-199—a promise is unenforceable if the interest in its

enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms. 1. Restitution is usually unavailable unless denial would cause disproportionate forfeiture (loss

of the right to some benefit, privilege or property because of breach of K).2. Some areas that are subject to supervision.

a. K in restraint of trade.b. K that impairs family relations

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c. K to commit a tort d. K to violate a fiduciary duty.e. K to intervene with the performance of the K of another.f. Terms exempting from liability for harm caused intentionally, recklessly, or

negligently (see “waiver”.)g. Terms exempting a party from the legal consequences of misrepresentation.

B. Is it a covenant by an employee to the employer not to compete? 1. This is the classic application of the public policy doctrine, courts usually carefully police

these agreements on the ground that they are in restraint of trade.2. Restrictive covenants are enforceable if they are reasonable. Reasonableness is determined by

two requirements; if the agreement fails either it is VOID as against public policy. a. Necessary—employer must have a legitimate interest to protect.

i. E.g., protection of good will.ii. Protection of trade secrets

iii. Protection of special talentb. Reasonable in 3 dimensions

i. Timeii. Scope

iii. Geographic areac. Policy—employee’s interest is in not flipping burgers, public has in interest in

competition. But at the same time, the employer has a legitimate interest in not losing all its customers.

3. Does free divisibility apply or will entire K be thrown out? a. New rule in WI, formed in Fullerton Lumber v. Torborg—D signed a 10 year “no

compete” clause which he breached by opening up own business in same town, same field, upon quitting. D sued for an injunction. Court imposed an injunction on D running from the date of judgment for 3 years.

b. Applies where there is a good faith effort on the part of the employer to draft a reasonable agreement, but he made a mistake.

c. Otherwise, the legislature has overturned it for the “no divisibility rule,” limited to employer/employee covenants)—if the employer has drafted the K to intimidate the employee then there is no divisibility. If part of the clause is unreasonable, throw the whole thing out.

d. Vendor/vendee covenants—restrictive covenants are common here b/c someone is buying an ongoing business and the seller gets to charge a higher price b/c passing on the good-will and customers. “Reasonable” here is more generous.

i. The old rule in WI before Fullerton lumber and the legislature’s involvement was that if a term was unreasonable, apply the “blue pencil test” –the restrictive covenant was divisible if you could cross out words and leave a coherent, grammatically correct sentence that was reasonable. If that didn’t work the entire agreement was unenforceable.

ii. If Fullerton Lumber is interpreted as overruling the blue pencil test, then free divisibility applies. Otherwise, blue pencil test applies.

4. All states have rules that allow courts to refuse to enforce restrictive covenants, most states use reasonableness rule, but CA doesn’t enforce any, regardless if they are reasonable or not.

5. Law profession doesn’t allow them—considered to violate the code of professional ethics b/c it is argued that enforcement might prevent a client from choosing the lawyer of his choice.

6. Also note: “Bad-boy” provisions—employee will sacrifice some sort of deferred compensation if he competes.

XII. One party did not have the capacity to contract. A. General rules.

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1. Was the party unable to understand the nature and consequences of the transaction?2. OR was the party unable to act in a reasonable manner in relation to the transaction?3. Did the other party know of the lack of capacity? K is only voidable if so.4. Policy—A system championing free choice must face those people who can’t chose in own

best interests. 5. Note necessaries exception.

B. Mental Incapacity—A party whose mental abilities are deemed to be impaired, although it appears that they have consented to the K, has not consented to the K.

C. Intoxication/Drugs—courts will police the person who takes advantage of an intoxicated person.1. But voluntary intoxication, not accompanied by any other disability, is thought to have been

less excusable than mental illness. XIII. Was the K made with a minor? InfancyA. Bright line rule—Ks with people under the age of the majority (usually 18) are not enforceable.

1. Even if the other party had no reason to know that the other party was a minor, or the minor misrepresented his age.

2. At best, courts give only partial protection of the non-minor’s interests.a. May courts don’t allow nay protection. See: Halbman v.Lemke—minor was entitled

to return of the money he had paid adult of a car after he wrecked the engine. In addition, he only needed to return as much as possible. He didn’t have to pay restitution for the use of the car or its depreciation in value.

b. Some states require restoration of any consideration received by the minor as a condition to allowing him to disaffirm the K. But that’s minority rule.

B. Does either of the exceptions to the infancy rule apply?1. If transaction is completed, then can’t be rescinded. I.e., cash sales to minors can’t be undone.

a. E.g., if the minor in Halbman had made all payments, he could not have repudiated. 2. A minor is liable in restitution for the fair market value of necessaries.

a. Food, clothing, shelter, and medical care., etc.b. (also applies to other capacity issues.)

XIV. Creative MisinterpretationA. Find a loophole; in purporting to ascertain what the drafter meant, courts can redraft the terms of

the K—can find way to redraft the terms of the SFK 1. Portia—you can have a pound of flesh but you can’t spill any blood. 2. Llewllyn hated it. That’s why he came up with unconscionability.

XV. Was the K formed under Duress?—about the furthest thing from a bright line ruleA. General Framework for thinking about duress.

1. The purpose of duress is to prevent a stronger party from offering an unreasonable choice of alternatives to a weaker party in a bargaining situation.

a. It’s helpful to see the doctrine as trying to establish a boundary between proper and improper advantage taking. Duress is an overcoming of free will but to say what that means deals w/ inequality of bargaining power & acting responsibly with that power.

2. Obviously if I put a gun to your head to get you to enter a K, that’s duress. Promises extorted by violence or a threat of violence will not be enforced.

a. But the problem is figuring out when a person’s will is overcome in the same way, through more subtle means.

b. The question is whether the behavior of the party making the threat can be seen as an opportunistic hold up or just opportunistic.

c. Duress is knowingly restricting choice by inappropriate means/wrongfully. 3. Res. §175—A K is voidable if a party’s manifestation of assent is induced by an improper

threat by the other party that leaves the victim no reasonable alternative. a. What does no reasonable alternative mean? It’s a fuzzy line.

4. When is a threat improper?§176

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a. What is threatened:i. is a crime or a tort, or threat itself would be if resulted in obtaining property.

ii. would result in criminal prosecutioniii. is to sue, made in bad faithiv. OR is a breach of duty of good faith and fair dealing under the K.

b. If the resulting exchange is not on fair terms ANDi. the threatened act would harm the recipient of the threat & would not

significantly benefit the party making it. ii. effectiveness of the3 threat is significantly increased by prior unfair dealing

by the party making the threat. iii. OR what is threatened is the use of power for illegitimate ends.

5. The classic doctrine said that to threaten something that you have a legal right to do does not constitute duress. The modern view is that sometimes it will. It takes all sorts of circumstances in to consideration as per Restatement.

a. See: Mitchell v. C.C. Sanitation—P was injured in an accident w/ an employee of D. P’s employer asked him to sign release, reimbursed him $62 for one medical bill. P sued D for negligence, D produced releases. P said he signed waivers under duress—employer & D were acting in collusion & threatened to fire him if he didn’t sign.

i. When there is such an inequality in the terms w/r/t sacrifice of benefits & rights, inadequacy of consideration, advantage taken of the weaker party, court couldn’t say as a matter of law that there was no duress just b/c one had a legal right to fire an employee at-will. But the real issue wasn’t the legality, it was the fairness. If D had given him $3,000 to go away or be fired, probably the court wouldn’t have found duress.

B. What is the rule in WI? It’s kind of hard to tell. 3 possible arguments: 1. Wurtz v. Fleischman WI supreme court—dicta(?)

a. A threat to do something that you have no legal right to do is duress. i. That can include breaching a K.

b. Implicitly then, the threat to do something that you have a legal right to do is not duress. Merely driving a hard bargain or taking advantage of another’s financial difficulty is not duress.

c. The party alleging economic duress must showi. He has been the victim of a wrongful act or threat

ii. Threat was one that deprived him of his unfettered will.iii. As a direct result, threatened party was compelled to make a disproportionate

exchange or give something up for nothing. iv. He had no adequate legal remedy. ‘

2. Wurtz v. Fleischman Ct Appeals decision—not much precedential value, liked by academics; classifies duress as a tort (but doesn’t say if tort damages are available, probably just analogy)

a. When one party wrongfully threatens another with severe economic loss if he does not enter into a proposed K and the threatened party acquiesces solely b/c of the wrongful threat the injury to the threatened party can be dealt with under duress.

b. Similar to the restatement. Courts should consider:i. the relative bargaining powers of the parties,

ii. the adequacy of alternative legal remedies, iii. gravity of the threatened evil, iv. and the fairness of the bargain.

3. Selmer v. Blakeslee—7th circuit, supposedly (but not really) interpreting WI lawa. Construction K where D defaulted in payments but P kept it going on oral promise of

higher payment. D refused to honor the agreement but offered a middle range price. P

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accepted it b/c he was in dire financial straits, then sued later saying the settlement should be void on grounds of duress.

b. A threat to breach K is not automatically duress, threat to breach can be used as leverage. Mere financial difficulty is not duress.

i. But if threat to breach amounts to use of superior bargaining power in a commercially unreasonable manner (Alaska Packers) it may be

ii. But if P’s financial distress is caused by D’s conduct it may be.iii. But if the agreement is unreasonable on its face, it may be.

c. It’s really about Posner making a policy choice. i. Courts should decide whether the inducement is the kind that we want to

discourage and therefore call a threat.ii. It may disrupt settlement negotiations—don’t want to find duress here b/c

courts will be able to find duress in any case. Also, don’t want to make it so people who desperately want to settle can’t b/c others would be afraid they wouldn’t be able to enter into a binding settlement b/c would claim duress.

XVI. Undue Influence?A. Does it apply?

1. Only applies where K is between people in a fiduciary relationship—a relationship in which one person is entrusted with the duty to act for the benefit of someone else.

2. e.g., attorney/client, child/parent, employee/employer, husband/wife, etc.3. Usually not siblings.

B. Doctrine that licenses a court to look at the circumstances of a deal and evaluate the kinds of pressures that were brought to bear on the weaker party and the fairness of the terms.

1. Similar to duress but here the person uses his relationship with another person and his dominant position to influence the other, but does not involve a threat.

2. Also seems like unconscionabity between people in a relationship. XVII. Misrepresentation and FraudA. Did D intentionally lie to P and induce P’s reliance? To prove fraud have to prove this.

1. Some states recognize right to recision & restitution even w/ misrepresentation was innocent.B. Is there a duty of disclosure? Sometimes nondisclosure is treated as equivalent of misrep.

1. Sellers have a duty to inform the buyer about hidden defects that would affect use, that they knew about, regardless of the buyer’s failure to ask about them.

a. See: Opie v. Schlemeyer—where the seller of a house didn’t tell buyers about terminates and the buyers discovered after they moved in that the seller had discovered, but ignored the problem.

b. Though some people argue that the buyer should just protect himself anyway, so should ask or inspect the property.

2. Buyer’s don’t have a duty to disclose extra knowledge.a. See: Texas Gulf Sulfer—information that the law allows to remain secret is usually

information that could be obtained with roughly equally efforts by both parties.b. Information is a commodity—incentive and efficiency arguments.

3. Though some courts are holding both buyers and sellers to a duty of disclosure, minority.4. Most people think that intentional representation is obvious and can defend it on efficiency

grounds. But as the law has moved toward an obligation to disclose things, it’s expanding. Though the distinction between buyers and sellers probably holds.

C. In some circumstances the seller will be liable for failure to honestly state an opinion. The distinction between statements of fact and statements of opinion has been relaxed.

1. Volkes v. Arthur Murray—court could have probably used undue influence, twisted duress, but they chose fraud. And so telling a P that she was a wonderful dancer was misrepresentation. But Whitford doesn’t think the court would have seen it as misrepresentation if the studio had only taken $1,000 not $30,000.

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XVIII. Lack of Good FaithA. Once a K is made, there is a duty of honest and good faith.

1. During the bargaining period, the parties are on their guard, but during performance they are relaxed and generally trust the other party to perform and play nice.

2. Good faith doesn’t mean candor.a. Failure to point out particular part of K to the other doesn’t amount to bad faith. b. But it is bad faith to intend to trick them.

i. See Market Street Associates v. Fey—where P’s failure to “remind” D of a paragraph in the K that would allow him to purchase property back cheaply could have been a breach of good faith if did not disclose in order to trick D. (Though Whitford thinks Posner coming close to general duty to disclose.)

B. WI courts have used good faith, seemingly out of the sky, even when the issue was whether K had been formed.—Henning v. Ahearn—there is not a rule of law that a party must have read each and every word of successive drafts of a complex document when they have been dealing with each other over a period of time.

XIX. Reasonable Expectations Doctrine—will court write a fair K in substitution of the SFK?A. The reasonable expectations and intents of the parties should control

1. Ambiguous and conflicting provisions are construed against the drafter.2. RED is the upside down form of the Parol Evidence Rule—you can’t use SFK to trump the

reasonable expectations that come out of ordinary conversations.3. See: C&J Fertilizer v. Allied Mutual Insurance—P tried to get insurance coverage of a

burglary, only to find that the policy had a very narrow definition of burglary that didn’t apply to him. Court held that RED applied b/c the most P could have anticipated given his conversations with the agent was a policy requirement for evidence showing not inside job.

B. But will it be applied?1. Considered quite radical; applied mainly in insurance cases. Very rarely to other SFKs.2. AZ is the exception that broadens RED to all form Ks.3. Policy Argument (see Llewylln)—when you sign a K w/o reading it, you give a blanket

agreement, but you’re not agreeing to a K which contradicts what you’ve a greed to orally. That’s not the social meaning of SFK. It’s outside the zone of assent.

XX. Is the K unconscionable?A. §2-302(1) If the court, as a matter of law, finds the K or any clause of K to have been

unconscionable at the time it was made, so as to avoid an unconscionable result:1. it may refuse to enforce it2. or it may enforce the remainder of K w/o unconscionable clause3. or it may limit the application of any unconscionable clause4. §2-302(2) the parties shall be afforded reasonable opportunity to present evidence as to

commercial setting, purpose, and effect to aid the court in making determination. 5. Note: Common law has basically adopted §2-302 through case law.

B. Does it have both procedural unconscionability and substantive unconscionability? Usually requires both. See Williams v. Walker Thomas—leading case that came out right after §2-302.

1. Procedural—absence of meaningful choicea. Poverty itself may be absence of meaningful choice—Jones v. Star Credit.

i. Fair to say at least that poverty can get you to the point where courts can review the K for fairness?

b. The buried find print term in the SFK that is substantively unfair may be enough.i. Though you have courts that go against this—see Brower v. Gateway

2. Substantive—terms that are unreasonably favorable to the other party.a. Price so high above the retail value that it shocks the court—e.g., Jones: selling a

$300 freezer for $1,439.69 including finance charges was just too high.i. But there is no consensus on what is too high.

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ii. Remco—108% markup in price did not shock the conscience. 3. Note: KS court in Remco v. Houston says that unconscionabilty requires EITHER procedural

or susbstantive but most courts say both. (Though in the actual case, court said neither was satisfied b/c P has read the agreement and followed through on a similar transaction and the price was not too high.)

C. Consumer or employee arbitration agreements—issues. 1. Background—Americans are giving up their right to sue without knowing it. And the

Supreme Court, interpreting FAA, has held continuously that government policy favors arbitration over litigation as long as the process is fair.

a. Prof Schwartz—corporate Ds often have an advantage in arbitration over the individual P. E.g., no right to discovery, initial high filing fees and hourly rates, repeat player advantages.

2. The basic purposes of consumer and employer arbitration agreements is to limit the remedies of the consumer without actually making it obvious that they are limiting it.

a. Functions of arbitration from the point of view of a merchanti. Avoid class actions

ii. Avoid small claims courts—with consumer as P, okay if he is Pb. Functions of arbitration for employers

i. Avoid class actionsii. Avoid statutory penalties

iii. Classic limitations of expectation damages clauses3. A court has found consumer arbitration clauses unconscionable.—Brower v. Gateway—P had

purchased Gateway with arbitration agreement that required him to arbitrate with the ICC. ICC’s terms were almost impossible to find but made people pay $4,000 up front, with only half back if he won, and had to arbitrate in Paris. The court found the arbitration agreement unenforceable b/c of unconscionablity due to the unduly burdensome procedure and cost for the individual consumer under the ICC. But didn’t throw it out. Modified it to the AAA.

a. Although court said there was no absence of meaningful choice, Whitford thinks most courts would have thought so since there was know way to know that you had to go to Paris. However, court found the substantive unconscionabilty so shocking that they modified the K anyway.

b. Actually, AA has better terms. They realized that companies were using the arbitrators for the wrong reasons (see above) and said that consumer had the right opt out and go to small claims court.

i. So then Gateway switched to NAF. Which is at least better than ICC. 4. Employees at will sign SFK arbitration agreements. But CA is finding a lot wrong.

a. Ramierz v. Circuit City—appellate court finds that employee who signed one before he could even apply for the job was constrained by his circumstances (procedural). But the substantive issue was more important—found clause unenforceable b/c it was unilateral: required employee to submit disputes to arbitration but not the employer.

b. Armendariz v. Foundation Health—Supreme Court of CA made state law that arbitration agreements that are unilateral are unconscionable. It also held that an arbitration agreement could be invalidated if it in effect constituted a restriction or limitation of statutory remedies.

D. Background: Retailing and the Poor1. Federal Trade Commission Economic Report on Installment Credit & Retail Sales Practices

a. Incredibly high finance chargesb. Door to door home demonstration sales approach is an opportunity for high pressure

salesc. The marketing technique included actions against default as a normal matter of

business rather than a last resort.

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2. Rent to Own Transactions a. High pressure salesb. Rent to own transactions in WI—rent a center kept changing its policies just slightly

but still ran afoul. Finally attorney general went after them. Just settled and Rent a center will no longer be doing rent to own in WI.

3. Counterargument—do we want to drive these businesses out of the neighborhoods?a. Tension between individual autonomy of these people to buy high priced

merchandise but on credit in their neighborhoodsb. And paternalism that says you can’t treat people like that. c. But many people say that selective paternalism can be a good.

4. Cross collateral clauses are now often disfavoredE. Purposes—innovation in the UCC?

1. What did Llewllyn intend?—to unleash the courts to do directly what they had been doing indirectly through creative misinterpretation. “Covert tools are never reliable tools.”

2. 2 problems that he sought to address.a. Burying unfavorable terms in SFKb. Advantage Taking

3. Is it going to become a vehicle, beyond giving a few litigants a remedy, to actually change things for the great mass of people?

a. Not according to Leff—not going to have much effect b/c the remedies are so week.i. Answer was that we need bright line rules and bright line legislation. This

would induce voluntary compliance. If you tell people they’re doing something unlawful, they hesitate.

ii. In fact, legislatures have done some things—some states banned cross collateral clauses, referral sales schemes; but there is a problem with access.

b. Duncan Kennedy’s view—judge’s should do this. Maybe slowly having an effect. They have moral authority. If judge says something’s unconscionable, it’s going to enter the political debate, even if it doesn’t deter behavior.

4. Why hasn’t it worked? It could have worked.a. Whitford: §2-302 assumes a homogeneity of values among judges and that just isn’t

there. A lot of judges are too respecting of individual autonomy. Not going to drag us out of the dismal swamp of injustice.

Continuing Relations, Other Issues

XXI. Business RelationsA. Impact on Business of K—Macauley’s article on why business can and does ignore K

1. it is in the interest of everyone to perform the agreement, word gets around2. using legal sanctions for breach of K to settle dispute is costly, usually it ends the business

relationship between the parties. Lawsuits and lawyers cost money. XXII. Employment Contracts A. Most of the rules w/r/t exceptions are CA cases. WI has been slower to modify the at-will rule. B. Termination of franchisees connection

1. Typically a franchisor may terminate a franchisee at will.a. There are a lot of social pressures against speaking up to negotiate something

different at the time. i. Not quite the emotional moment

ii. Suggests distrust too.2. Although there are statutes that say that the franchise can’t be terminated except:

a. Cause—franchise must have pre-announced standardsb. Death

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3. There are all kinds of reasons why the parties have incentives not to put everything they really want into K document—it may be appropriate for the law to regulate or put into the document the things that are needed.

4. A career job is a lot like a franchise except on a smaller scale—looking towards a life time experience, employer drafting Standard Form K, employee is going to feel reluctant to ask or stipulate about the termination terms.

C. But the American Rule is Presumption of At-Will Employment1. General rule, default—employer can dismiss employee for any reason without cause.2. A lot of career jobs have job protections that are not applicable here and have as terms that

employees may be dismissed only for cause.a. Union—but cause in US is understood to include redundancyb. Public employees/civil servants—generally protected under civil laws.

3. Permanent employment is assumed to mean at-will, termination without cause.a. Forrer v. Sears Roebuck Co.—P gave up his farm & went to work for D full time b/c

was promised permanent employment. A few months later he was terminated. He asked court to use promissory estoppel. Court said that even though he satisfied the conditions he did not have a claim b/c promise was kept there was nothing to enforce—i.e., since permanent employment is “at-will” no breach in firing w/o cause.

b. Obvious exception to the reasonable listener idea—P assumed indefinite employment if he did his job well. But that’s not what permanent employment means.

D. Justifications for the at-will rule1. Employment is a private relationship subject to its own internal sanction system plus the

discipline of the market—a “living tree” better left unguarded.2. Efficiency—forces workers to work to the maximum of their potential.3. Flexibility—provides both employers and employees ability to adjust their business to

changes in business (market freedom for both.)4. Prevents flood of litigation.

E. Exception to At-will—anti discrimination rules1. Leaves White Males as the most vulnerable to at-will and there’s where a lot of the exception

litigation to the rule comes in. F. Exception to At-will—independent consideration doctrine.

1. If the employee gives the employer something of direct benefit to the employer that is more than the employee’s services

2. And the employer promises the employee permanent employment3. Then the term permanent employment will be presumed to be termination with cause.

G. Exception to At-will—fixed term K1. Employer and employee can Kt out of the at-will presumption. Employment can’t be

terminated except for cause until the term expires.2. See McIntosh v. Murphy—illustrates the importance of the fixed term K as an exception to at-

will rule. P was able to persuade the court that he had a K, persuade the court to find an exception to S/F, and then get K enforced for dismissal only w/cause.

a. P moved to HI to work for D under an oral fixed term K. The S/F applied b/c it’s a K that’s performable w/in a year & it was an oral fixed term K. But court said that there was substantial and foreseeable reliance so injustice could only be avoided by enforcement of K.

H. Exception—Dismissal that violates a strongly held public policy1. Tamney v. Atlantic Richfield Co., CA—P refused to participate in an illegal transaction. The

court extended recovery for wrongful discharge to TORT as well as K damages when an employee at will is discharged in violation of a public policy or statutory objective.

a. Tort law is more willing to address “soft” damages that usually flow from dismissal. b. Affirmed in Foley v. Interactive Data, CA but has to be something that’s PUBLIC.

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i. P alleged that he was dismissed b/c he had told a higher up that his immediate supervisor was being investigated by the FBI for embezzling from a previous employer. The court held that it was not a public policy when it only served the private interest of the employer.

2. Also see Pierce v.Ortho Pharmaceutical—an employee has a cause of action when it points to a clear mandate of public policy such as legislation, administrative rules, regulations or decisions, and in some cases professional ethics. Unless there is a CLEAR MANDATE can be terminated w/o cause.

3. Gant v. Century Insurance Co. CA—P’s coworker had a sexual harassment case that turned on whether the officials who dismissed her knew she was complaining about being harassed. She had complained to P and he had complained to them on her behalf. P alleged that he was pressured by company lawyer to change his story and was later dismissed when he wouldn’t. The court held that this was a strongly held public policy b/c there was a statutory concern with sexual harassment.

a. Note: WI has a very narrow public policy rule. In a case that was very similar to Gant the court denied recovery. P has burden of proof and must identify a specific declaration of public policy. Narrow application is in the interest of everyone. Damages are limited by foreseeability and mitigation.

I. Implied in Fact Obligation Employment K1. Foley court also decided that P’s allegations of fact were sufficient to establish a cause of

action here. Certain documents are implied in fact K b/c they are handed down to the employee who continues working and relies on the fact that they lay out what the employer is going to do. These documents become part of the employment K.

a. An allegation of breach of written manual that outlined termination procedure/guidelines was sufficient.

2. If the employer tells you over and over that they are not K, maybe not.3. Length of employment of employee was a relevant consideration.4. WI does recognize that employee handbook can be part of K.

J. Implied in Law Obligation of Good Faith and Fair Dealing1. Foley—no Tort remedies, but did suggest that CA law allows K remedies for implied in law

obligation of good faith and fair dealing.2. What this means hasn’t been fully developed yet.3. Length of employment again is a relevant consideration.4. Not following procedures (not laid out in handbook, industrial due process)—e.g., instant

dismissal for theft, but warning for other things. 5. Substantive—you can’t be dismissed for being late one time.6. WI—not going to see a big revolution in the law here.7. Fortune v. National Cash Register might be a good example of an implied in law case, b/c it

might be handy for the courts to have a vacuous doctrine around for things like this. a. P salesman made biggest sale and had been with company awhile. Bosses engineered

it so that they got the bonus instead of P. It was just a little too much for the courts and for reasons they couldn’t’ explain they just said, “you can’t do it.” The remedy was to give him his bonus.

K. Other considerations 1. Effect of courts’ decision eroding at will doctrine on personnel policies

a. Now that handbooks seem to be K terms, it is common for offices to have lawyers look over the content and put phrases in that are like disclaimers, “this is not a K,” “this is subject to change,” etc.

2. The job as a property right—European approach.—the high court of the EU has ruled that the claim to redundancy payments survives even an employer’s bankruptcy and extends to the other assets of the owners of the employing firm.

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3. Critiques from the pro-labor side.a. Public policy exception as it now exists chiefly benefits privileged employees who

already enjoy protection from arbitrary abusive treatment. b. Also reaffirms the legitimacy of the employer’s otherwise unquestioned authority to

fire employees at will. c. Makes employee think he has job security and keeps him from organizing a union,

but in reality he doesn’t have security. And no union. 4. Farber and Matheson proposal for enforcement of promises between employer and employee:

a. A promise should be enforceable when made in furtherance of an economic activity. This would enforce promises which employers made to employees.

b. Trust is essential to our basic economic institutions and therefore is a public good.c. In the long run, enforcement benefits promisors as a group by fostering reliance from

which they seek to benefit.d. Encourages employers to reveal uncertainties about the future to employees.

What remedies are available?

XXIII. General Overview of RemediesA. Terms

1. Incidental damages—actual expenditures made necessary by the breach.2. Expenses saved in consequence of breach—expenses saved b/c breach occurred3. Direct costs/variable costs—vary per transaction, not overhead4. Fixed costs, overhead costs.

B. Goals of K remedies.1. To encourage the aggrieved party/non-breaching party (NBP) to enter a substitute K and then

award damages to make up any loss remaining—compensating him.2. Expectation principle is a major principle—goal is to put NBP in as good a position as he or

she would have been if there had been no breach.3. To not discourage people from relying on Ks.

a. E.g., it is economically desirable for people to spend money before performance4. Reasonable conduct in commerce.5. To take costs into account.

C. UCC §1-106—The remedies provided in Article 2 are to be liberally construed so that the NBP may be put in as good a position as if other party had fully performed. But neither consequential or special or penal damages are allowed except if provided in the code or other law.

D. Putting a dollar value on difficult normative choices1. Peevyhouse v. Garland Coal—P owned a farm and D wanted to strip mind the land and divert

the creek. K called for D to restore the land at the end of the lease. D didn’t restore the land. Expert testimony said it would cost $29,000 to restore, but would only increase the value of the land by $300. Court wanted to give expectation but had to choose between the value of the land or restoration/repair of the land (equivalent in money or specific performance.)

a. Held main object rule: where the main object of the K is repair, remedy is the cost to do it. When incidental to the K, other remedy (what court says is expectation.)

b. The court felt that it was economically wasteful to award money to restore the land. c. Also, damages should be proportional and reasonable. d. The dissent argued that the value of benefits received under the K by the party who

breaches the K should also be considered. Peevyhouse had made a choice and negotiated the deal and had probably sacrificed things we don’t know about.

e. Also—sometimes you want to measure the subjective value. Peevyhouse loved his land. The monetary value didn’t matter to him as much as looking at it.

2. Hawkins and McGee and Sullivan O’Conner

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a. Hawkins—the measure of damages was the difference between the perfect hand and the mangled hand. Expectation.

b. Sullivan—court struggles with expectation (too high) and restitution (too low) and settles on reliance. P recovers for the damage to her nose, doctor’s fees, pain and suffering, from 3rd operation (beyond what would have occurred w/ successful surgery.) Expectation would have been the value of a Hedy Lamar nose.

c. In both cases, reliance may have been appropriate. E. P often has a choice between expectation, reliance, and restitution. (Though sometimes not)

1. More often than not, expectation is going to be the best. The problem arises when expectations are low—P has a losing K—restitution and reliance come into play.

2. Most breaches occur when breaching party (BP), not NBP, has a losing K that limits the cases where theoretical issues of restitution arise.

3. Also issues when expectation damages are difficult to calculate. 4. Chart of specific course points and their remedies

Legal Issue Remedy Available CaveatDischarge in violation of public policy

Tort remedies such as damages for emotional distress and loss of reputation.

K damages such as back pay.

Hard to get in here.

Discharge—implied in law and in fact obligations

unless you fit into the public policy exception, K remedies of lost wages and back pay.

Front pay may be available.

Front pay: difficult to calculate, for how long, employee at will.

No tort damages. Duress typically, restitution of a benefit that incurred the

party under duress conferred on the other (obviously unjust enrichment) in performing the voided K

Fraud and Misrepresentation

sometimes punitive damages

K made w/ minors sometimes can get restitution of consideration received by minor

probably no protection

Lost volume seller proft + incidentals + costs – resale profits. Includes reasonable overhead

But has to return part of buyer’s deposit.

Marvin usually expectation—party expected assets to be divided, divide the assets.

Sometimes restitution in quantum meruit.

Moral Consideration

Rest §86 says it’s binding implying that the expectation would be protected. . But WI cases limit recovery to the reasonable value of services—sounds like restitution.

Not in pari delicto basically restitution Part Performance reliance

expectation: specific performance (transfer of land) no SP performance of service

K.Promissory Estoppel is used

Majority of courts award expectation interest. P’s argument is: Williston—either the promise is binding or it’s not. If the promise is binding it has to be enforced as it was made. Not an entitlement.

But D always has an argument that reliance should be awarded b/c §90 says, “the remedy shall be limited as justice requires.”

Restitution can be given if something of value was conferred.

We still want to hold onto consideration doctrine—you can always get expectation then. Strengthens claim. Just b/c we have promissory estoppel doesn’t mean we’re going to throw it out.

Statute of Frauds If S/F cannot be broken through—can always still get restitution

Can get SP even if S/F applies if SP is the only way to prevent injustice.

K is unenforceable so no reliance or expectation unless you fall into the exceptions.

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Taking care of the old—promises in recognition of past services.

Usually restitution, but courts go back and forth on what kind of quantum meruit to give. Sometimes give the going value of the person’s services, sometimes give reasonable value to that person.

no restitution claim for giving a gift

Unconscionability Depends on the case. If the arbitration clause is deemed unenforceable—

then statutory remedies are available, the P can sue, etc.

If D is claiming unconscionability, some courts will end his responsibility. Others will say that just because the K was unconscionable, the store should still be able to recover their costs and a modest profit since Ps kept the item.—Frostifresh v. Reysno

Punitive damages not available. May be right—we aren’t clear yet what it means and PD are big sanctions. But still, would have a better effect on changing business practices.

Might be better to try to prove fraud --Devlin v. Kearny Meas where they were able to get their money back and PD amounting to 4 months profit of dealership.

Warranties if no agreement for remedy in addition or as a limit to the code, code remedies apply §2-719

if the limited remedy fails of its essential purpose then Buyer’s heaven is open.

Consequential damages—if remedy fails of essential purpose there is a split on whether that includes consequential damages

XXIV. Expectation Damages?—principle: put the aggrieved parties where they expected to be as a result of performance.

A. Has the duty to mitigate been fulfilled?—NBP party has a duty to mitigate damages. You can’t recover for damages which could have been avoided through reasonable diligence and without incurring undue risk or expense.

1. Buyer must attempt to mitigate by covering or otherwise. §2-715(2)2. Seller must make reasonable efforts to resell before he is entitled to sue for the price. §2-7093. An employee must find other work.

a. Actual mitigation cases—if the employee did go out and find another job, what he earned will actually be subtracted and it doesn’t matter whether the job was comparable to the old job or not.

b. When should money that the employee could have made but didn’t be subtracted?i. Conflicts in values.

1. subjective test—comparable according to employee’s values?2. objective test—cmprble accord2 to employees in same line of work?

ii. True Mitigation Cases—Parker v. 20th Century Fox1. employment has to be similar and not inferior2. court held subjective test: employee doesn’t have to mitigate by

accepting other available employment from employer who breached the K, when the available employment involves a deprivation or infringement of the rights or status held in the original K.

iii. Reasonable efforts cases—an employee has an obligation to make reasonable efforts to find another job.

1. if didn’t and there is a reasonable belief that he could have found a comparable job, then you subtract the money he could have made.

2. principle is built into unemployment compensation. c. Policy Considerations

i. It’s assumed that social status concerns part of making job different/ inferior. ii. If you were going to take the expectation principle seriously and you were a

libertarian you would support the subjective test.iii. If you are on the side of efficiency and avoiding economic waste then you

would like the objective test. 4. Policy Justifications

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a. NBP has a duty to avoid unnecessary waste.b. We don’t want to overcompensate NBP.

B. Damages are based on the K price and give the injured party the benefit of the bargain.1. The non-breaching seller is entitled to K-market price, K-resale price difference plus

incidental damages minus expenses saved in consequence of the breach. 2. The non-breaching buyer may cover or get K-mkt price difference, maybe SP. 3. See Buyer and Seller’s remedies under the UCC4. General principles of expectation and UCC govern non-UCC transactions.

C. Is Specific Performance Available?—instead of money BP is forced to follow through w/ K.1. When will courts award SP?

a. Almost always w/ K to convey land.b. UCC §2-716(1)—SP may be decreed where goods are unique or in other proper

circumstances (when court wishes to do so.)i. Unique goods are a rare painting, etc.

ii. Comments suggest possible examples of other proper circumstances. 1. requirements Ks—buyer Kts to buy all requirements from seller2. output Ks—buyer agrees to sell everything seller produces3. Inability to cover

c. A party can get SP not withstanding S/F if SP is the only way to prevent injustice. d. The trend is toward more availability for the buyer, code pushes that way.

2. Policy arguments for giving SP—should be readily available b/c it will generate either performance or negotiations where D seeks to bribe to get out of court order. Still have to estimate P’s losses but P will have the upper hand in negotiation.

3. Courts arguments against specific performancea. A remedy at law is not inadequate merely b/c difficulties w/r/t precise calculation of

expectation damages.b. Difficult to enforce—especially Ks that require continuing performance.

i. See Copylease v. Memorex—according to CA common law, the fact that damages were difficult to calculate does not make a case for SP (though in other states it might) but courts says that it may be necessary to reconcile this with the UCC.

4. Limitations on Specific Performancea. An employer can’t compel an employee to carry out a K.

i. But—Negative Injunctions—can’t compel employee to come back to work but can get injunction to prevent employee from taking a job w/ competitor; encourages employee to come back to work b/c options are limited.

b. No specific performance of personal service contracts i. In S/F cases where part performance occurs, courts can rarely order SP for

personal services because it would require P to take care of someone/serve someone against that person’s will. Transfer of land, yes, but if the land transfer is based on the fact that the person will care for the other until death, then there is a problem.

ii. If person is dead & SP an issue, it’s usually ok b/c doesn’t cause a continuing conflict between them. But rare, suing for damages would be easier.

iii. Fitzpatrick v. Michael—P worked under oral K for D and was fired. Court did not give SP even though she had substantially relied and performed K. (In MD, to claim part performance, have to claim in equity, so SP and not damages became the issue)

iv. But note Doctrine of Implied Trust. In Brackenbury v. Hodgkin—D ended up spending rest of her life living with daughter & son inlaw who threw meatballs at her; it was very contentious. There was part performance,

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written promise, & reliance. Court got around SP problem by taking it out of K law and interpreting the letter as creating a trust and so D was not acting in the best interests of her own beneficiary.

v. A trust is a legal person that owns property. Trustee makes decisions about it. Can be transferred by gift. Often used if want to give it away, but not really.

D. Main Policy Justification for protecting expectation—Protect reliance on the K—either the K will be performed or we’ll give you the equivalent in damages.

1. E.g. McClaine might have relied on the promise to get money by spending it2. Missed opportunity rationale3. Want to encourage reliance so people will enter into Ks4. Economic efficiency.

E. Limitations on Expectation Principle1. Did the damages arise naturally and were they under the contemplation of both parties at the

time the K was made? Only foreseeable damages flowing from the breach are recoverable.—Hadley v. Baxendale

a. This requires one party to tell the other party of any special circumstances that make the consequences of the breach extraordinary.

b. Effects of the Hadley Rule i. It’s with us and it’s always going to be with us though it’s lenient rule these

days and doesn’t very often bar damages b/c of trend toward a less rigorous, more pro P application of foreseeable where damages are deemed so.

1. Heron 2—it was enough that the ship owner had reason to know that the reason to ship sugar was to resell it, owner would know therefore the risk of the loss from delay so P could recover under Hadley.

c. Also illustrates that agreed remedy clauses that intentionally set damages below expectation are generally enforceable—reason for special notification implies this.

d. Tacit agreement rule—seller would not be held liable for consequential damages to the buyer unless the seller agreed to be held liable for them. Seller’s usually don’t agree to be liable.

i. UCC—official comment to §2-715 says tacit agreement test for recovery for consequential damages is rejected.

e. Hadley was a rule that encouraged new enterprise at that time in history. As the economy becomes more diverse and complex, the rule has become less viable.

f. Yale Law Journal Report on the outcomes of Hadleyi. Seller’s claim for profits on sale to a buyer—if could have performed he

would have delivered goods at cost less than K price, difference in profit is what he would have made on the sale—very favorable. Presume certainty.

ii. Buyer’s claims against the seller for collateral profits.1. Middleman—supplier’s breach has prevented him realizing a profit

on reselling goods to customers—generally favorable, loose rule2. Manufacturer’s claims for collateral profits—process goods which he

would then sell at a profit—very unfavorable. Hadley rule strict. g. Buyer’s remedies under the UCC §2-712, §2-713, §2-714 pursuant to §2-715(2) can

recover consequential damages but loss has to have been reasonably prevented.h. There is no provision giving seller’s a right to consequential damages in the UCC,

even if they had, under Hadley sellers would seldom recover any provision that incorporated ideas—seller’s do many things w/ money; foreseeability is difficult.

2. Do the damages overcompensate? Overcompensation Principlea. We don’t want to put the NBP in a position that exceeds expectation. b. Penalty Rule—agreed remedy clauses that set damages too high should not be

enforced. (provision that specifies what damages will be if K is breached.)

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i. If clause sets damages substantially above expectation damages, courts will thorw it out on policy justifications. See Lake River v. Carborundum.

ii. UCC §2-718—liquidated damages clauses are allowed but they must be reasonable in the light of the anticipated or actual harm caused by the breach, difficulties of proof of loss, and the inconvenience or nonfeasability of otherwise obtaining an adequate remedy.

iii. Rest §356(1)—damages for either party may be liquidated in the K1. but only in the amount that is reasonable in light of anticipated harm2. the trend is to change it to “reasonable in light of actual harm”

iv. Real life—agreed remedy clause that sets damages too low fine by the courts. v. Policy justifications

1. liquidated damages clauses penalize some breaches more heavily than others at different points in time regardless of relative cost

2. discourages efficient breaches. It can be socially desirable to breach, where there is net societal economic gain, and penalty clauses discourage breach. We don’t want to discourage breach when it is better than performance.

a. E.g. value enhancement—how much the fero carbo would be increased by being bagged. So if penalty clause is enforced, Carbo is going to bag the fero rather than pay it, inefficient.

b. Whtiford—BP gains more than NBP loses is sufficient to count as EB.

c. Rationale behind other rules covered: mitigation, hand limitation, substantial performance limitation on restitution, new business rule sort of.

d. Exception—termination agreements are still honored by companies even though legally unenforceable often under penalty rule.

e. Exception—often restitution overcompensates. f. Critique of overcompensation principle

i. Freedom of Kii. If court holds parties to the terms of the K, BP would have to perform or

offer the other party something higher than expectation but less than the penalty to tear up the K. Solves the problem and avoids the inefficient performance.

iii. Predictability is a desirable social goal.3. Are the damages reasonably certain of computation and not speculative?4. New Business Rule—prospective lost profits are not recoverable by a new business

a. Rationale—loss of profits from a business not in operation are speculative and incapable of being ascertained with enough certainty.

b. See: Evergreen Amusement Corp v. Milstead—an assumption that a new business will not be well known enough to attract the same number of patrons that it would after normal business operation. Can’t compare it to other similar established businesses in the area to calculate.

c. Whenever the buyer is suing for lost profits as a form of consequential damages there are almost always guesses. Rule allows you to bias your answer to be sure you don’t err on the side of higher.

d. Relaxation of New Business Rule i. §2-715 Official Comment 4: there is a rejection of requiring mathematical

precision in proof of loss, should be determined in a manner reasonable under the circumstances, even though the buyer has the burden of proving consequential damages.

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e. Lakota Girl Scout Council—single venture excused them from rule b/c causal relationship btwn breach and the lost profits was foreseeable. Lost profits could be submitted. But IA did have the rule.

f. Cheung HI—lost profits for the full ten years. HI doesn’t have NBR. Trend in law.i. “would be grossly unfair to deny P a meaningful recovery for lack of a

sufficient track record when P had been prevented from establishing it due to D’s actions”

g. Whether you enforce NBR depends on how you balance principles—do you want to protect the expectation interest or the efficient breach?

h. Proving lost profits—expert witnesses.i. Even if NBR inapplicable, P must still offer good proof of lost profits. When

experts testify on both sides, often does little to eliminate the uncertainty. XXV. Reliance PrincipleA. Rather than trying to approximate the situation had there been no breach, a court could seek

instead to compensate for losses caused by reliance on the K—put back in the position before the K was made.

1. A remedy protecting expectation often compensates for some kind of reliance loss.a. Fuller and Perdue—law ought to protect reliance but should do so openly, very

influential article. 2. Security Stove and Manufacturing Co. v. American Railways Express Co.—the injured party

may recover expenses incurred in relying upon K although some expenses would have been incurred had K not been breached. (case the discovery of Fuller and Perdue)

3. Reliance Damages look backwards while expectation damages look forward but if the deal would have been a losing one then better position than if no breach.

B. The Hand Limitation—solution to losing K problem. 1. NBP may elect reliance damages but BP has an opportunity to show that there would have

been losses even if there had been a breach.2. L. Albert and Son v. Armstrong Rubber—case where hand outlined rule.

a. How would it be decided under the UCC?i. Code doesn’t have any specific provisions for reliance recovery or hand

limitation—fits in for the buyer under the garbage can section of consequential damages §2-715(2)

ii. But would probably still come out the same way today, b/c courts like hand limitation and would find a way to fit it in. Maybe “consequential damages” resulting from the breach (that’s why it’s the theory not the rule that would drive the result.

iii. There’s nothing in the code about allowing the seller to avoid those damages by showing that there would have been losses even if there had been no breach—noted anomaly.

b. Also note: b/c breach was considered a big breach and b/c buyer chose to return all the refiners, the case proceeded as if the refiners had never been delivered.

3. Appears in Rest §349—party can recover expenditures made in preparation for performance LESS any loss breaching party can prove with REASONBLE CERTAINTY injured party would have suffered if the K had been performed.

C. Reliance is definitely a good option b/c if suing for lost profits, the buyer has the burden of proving them but if suing for reliance, seller has the burden of proving that buyer would have had no profits.

1. There is still a duty to mitigate.2. General rule—alternative to expectation and NBP can choose.

D. Policy Justifications

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1. As long as it’s subject to the hand limitation, there is nothing different about reliance values form other values.

2. It’s a substitute for proving lost profits that can’t be proven. 3. Absent reliance a lot of P’s could recover nothing.

XXVI. Restitution Principle—restoration of a benefit conferredA. Quantim meruit or quasi K—action for the fair value of services.

1. Applied commonly in situations where the seller is suing for restitution of services rendered to the buyer.

a. When the seller breaches and the buyer wants restitution, the damages are generally recovery of the downpayment—pay in dollars. But when the buyer breaches the seller has provided something like services and often it’s not possible to return it in kind. Seeking restitution for something that can’t be given back to him.

2. The law treats people as if they had made a Ka. E.g., I work for you for six months but you don’t pay me and then you fire me. I can

sue for the value of my services.b. But even if I do have a K, law treats it as if we ripped it up, never had a K, can sue

for value in the same way—doesn’t matter if that value is more than the K price. (or less—see some of the caring for the old cases.)

3. Limitation—Did the aggrieved party perform fully? If so, no quantum meruit, he is limited to expectation damages. The best place to be is in substantial partial completion.

a. E.g. Oliver v. Campbell—crux of the debate was whether full or partial completion. B. How to calculate?

1. Rest 2nd §371(a)When benefits conferred are services or a mixture of goods and services the measure of damages is the value of services rendered by what it would cost to hire someone else to perform those services. (quantum meruit.)

a. Courts will usually award it if that’s what P wants.2. Alternative--(b) Provides for restitution to the extent to which the other’s property has been

advanced in value or his interests advanced—unjust enrichment—higher courts are reluctant to impose it. P can’t chose b when it’s higher than a.

3. Preparations to perform—majority rule is just count the value of the work actually transferred. But there is some authority to include preparations to perform in quantum meruit recovery, if what it would cost to get it from someone else is roughly equivalent to what it cost this builder to do the work.

4. Restituion will only work to avoid the burdens of a losing bargain if there is something the court is willing to call a benefit.

a. Exception for the officius intermeddler—then even if there is a benefit, no recovery, b/c person never asked for it and never accepted it.

b. There is substantial authority however, that one who retains and uses the unrequested benefit may forfeit the defense.

C. Restitution for the P in default. 1. Even the breaching party has some rights based on the overcompensation principle.

a. If the amount paid by BP exceeds the injury suffered by NBP, the equitable thing to do would be to compensate NBP for his loss w/o punishing BP. BP should be restored to the amount he has paid, less the amount required to make NBP whole.—DeLeon v. Aldrete.

b. §2-718(2) buyer in default can get back deposit in a sale of goods transaction.i. Subject to (2)(b)—seller is allowed to pocket $500 of deposit or 20% of K

price whatever is smaller (political compromise), vestige of forfeiture rule. 2. But forfeiture rule: the defaulting purchaser cannot recover any money paid by him under the

K to the vender, even though as a result of the purchaser’s breach the vendor abandoned all the idea of future performance, forfeits the claim in restitution.

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a. On the way out very rapidly b/c overcompensates seller well beyond expectation interest and deters the efficient brach.

b. WI follows the rule, though, in land K cases (not K for land)—if the seller is the financer of the purchase (like a mortgage) and the buyer substantially breaches, seller can go back in and take possession of the land and buyer has no claims on any of the payments principal or interest.

D. Does the substantial breach rule apply? Limits the availability of restitution to situations where the breach is substantial. (Big breach, not little breach)

1. Rationale—sometimes restitution recovery causes too much loss from breach and seems like a penalty. Common law responded by creating the rule that the breach has to be big to rescind and get restitution.

2. But UCC doesn’t have the rule—buyer may cancel and get restitution if he can get into Buyer’s heaven—there are circumstances where restitution is a much better remedy than expectation §2-711(1)

a. 3 conditions before buyer can get into heaven. i. Seller fails to deliver

ii. Buyer rightfully rejects §2-601—can reject goods that fail in “any respect” to conform to the K.

iii. Buyer justifiably revokes acceptance, §2-608 and has the same rights as if he had rejected them in the first palce.

1. Can do if the defect substantially impairs the value to him.a. Courts accept the idea that the UCC precludes revocation for

trivial matters easily corrected but what’s trivial?b. Colonial Dodge v. Miller—court interpreted §2-608 as

subjective—if the non-conformity substantially impairs its value TO HIM, if he has accepted he can justifiably revoke acceptance even if reasonable person would differ and say not a big breach.

2. Must occur within a reasonable timeb. Gate is acceptance of the goods—shows if they go the §2-601 route or §2-608 route.

i. §2-606 provides for what constitutes acceptance of the goods1. after reasonable opportunity to inspect, signifies ot the seller that

goods are conforming or will take w/ non-conformity2. fails to make an effective rejection3. then buyer can get into §2-711, §2-715

c. Why? Interests that fought Llewyln who wanted to put in substantial breach barrier were very powerful. Large buyer interest in NY city.

i. But he got in seller’s right to cure--§2-508. Allows seller a 2nd chance to perform and get an extension of time to perform.

E. Does the substantial performance rule apply? Limitation. When there is substantial performance on the party of the other party, the only remedy is expectation or reliance, not restitution.

1. E.g. Plante v. Jacobs—architect built a house and then the buyers claimed substantial defects. Court held that he was entitled to some compensation for the work he had done based on his substantial performance. Jacobs couldn’t walk away from the deal but they could recover appropriate damages for defects.

F. Policy Justification—BP shouldn’t be unjustly enriched and benefit from his own breach. Deviates from the rationale that overall economic wealth is society’s primary goal and looks for something ethical or moral, community justice.

G. Special Rules that make restitution great remedy1. No hand limitation—most important distinction between reliance and restitution.

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a. Oliver v. Campbell—if he had been eligible for restitution, he would have been in a MUCH better position b/c he had negotiated a losing K.

b. If it were we wouldn’t need it b/c reliance damages w/o hand limitation always equal or exceed restitution damages.

2. It’s the rule even though it puts NBP in a better position and violates overcompensation.3. UCC does not have substantial breach rule4. Party can always get restitution for a benfit conferred on an oral K not enforceable b/c of S/F. 5. Maybe bad—will deter efficient breach often, when it’s clearly better than expectation.

a. If we know what losses would incur and burden of proof doesn’t matter reliance will never exceed expectation b/c of hand limitation.

b. Where P is the seller already taking a loss we end up penalizing him. XXVII.Buyer’s Remedies under the UCCA. When the seller:

1. Fails to make delivery 2. Repudiates

B. Or the buyer (see restitution section for more detail)1. rightfully rejects2. does not accept3. or justifiably revokes acceptance

C. §2-711: The Buyer, in addition to so much of the price paid (downpayment), can:1. cover and recover damages; §2-712

a. [K- Cover Price] + [I + Consequential damages]- Costs savedb. by making in good faith and w/o unreasonable delay to purchase goods in substitute

from for those due from the seller. c. Failure of the buyer to cover does not deprive him of any other remedy.

2. recover damages for non-delivery §2-713a. [K-Mkt] + [I +Cons] – Costs Savedb. measure is the time and place for tender at the time the buyer learns of the breachc. the buyer is always free to choose between this and cover.

3. recover for breach of accepted goods/non-conforming goods, §2-714a. dif between conforming and non-conforming value.

4. get specific performance, §2-716 a. if goods are unique or in other proper circumstances and no legal remedy is available

5. recover incidental damages §2-715(1)6. recover consequential damages §2-715(2)—losses reasonably foreseen by the seller

a. at the time of K seller knew or had reason to know of consequential harm b. and could not be reasonably prevented by cover or otherwise.c. Injury must flow from the breach

7. get restitutionD. If the buyer breaches

1. he can still recover his deposit subject to the seller’s claim, §2-718(2)(3)E. Chart of Buyer’s Options –next page.

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XXVIII. Seller’s Remedies under the UCC.—basically expectation A. If the buyer:

1. wrongfully rejects or revokes goods2. does not make a payment3. repudiates a part or a whole

B. The seller is entitled to (§2-703):1. withhold delivery2. stop delivery as in §2-7053. resell and recover damages §2-706

a. [K price – resale price] + Incidental Damages – Costs Saved b. Must give reasonable notification of intention to resell if at private sale, §2-706(3)

i. Legislative intent—they though tit was practical to let the buyer know so the buyer could police the resale price b/c buyer’s damages are going to be set by it. Many people think should be taken out b/c ends up being trap for unwary.

c. May be made at public sale but must be commercially reasonable. i. Must be made at the usual place or market for public sale

ii. Except in cases of perishable goods that will decline in value, seller must give buyer reasonable notice of time and place of resale.

d. §2-704 allows seller to finish the product if resale is possible or to prevent unfinished product from deteriorating or depreciating in value.

4. recover damages for non-acceptance §2-708(1)a. [K – market price] + I –Cs (chooses not to resell)

5. or in a proper case sue for the price §2-709a. K + I

6. cancel

Tender of non-conforming goods

Acceptance§ 2-606

Buyer Chooses to Keep Goods

No Right to Revoke § 2-608

Revocation of Acceptance § 2-608

Right to Cure Exercised [no breach] § 2-508

Seller has no Right to Cure § 2-508

Seller does not exercise Right to Cure

Buyer’s Remedy§§ 2-711 2-715

Buyer’s Remedy§§ 2-714 2-715

Buyer’s Remedy§§ 2-711 2-715

Rejection §§ 2-601, 2-602, 2-513

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7. get incidental damages, §2-710 a. e.g., charges in stopping delivery, transport, care of goods.

C. The lost volume seller gets lost profits—§2-708(2)1. If K-MKt/ K-R is inadequate to put the seller in as good a position as performance would

have done, then the measure of damages is the profit, including reasonable overhead, that the seller would have made from full performance, plus incidental damages.

2. Neri v. Retail Marine—understood as establishing the conclusive interpretation that under §2-708(2) the lost volume seller can get lost profits.

a. Damages= proft + incidentals + costs – resale profits. b. What drives this result is the expectation principle b/c courts ignored the 2nd

(mistake) part of the statue and used lost profits to put him in as good a position as he would have been with performance. Otherwise zero.

i. Leading case all over country—everyone estatic “went down like honey” 3. Who is a lost volume seller?

a. Capacity test—if the seller has the capacity to make an extra sale, then he is a lost volume seller, even if he didn’t. If seller could possibly be a lost volume seller courts will assume that he is. I.e., we assume that he would have made 2 sales w/ full performance and should be entitled to recover the profit on one sale.

i. Mount Pleasant Stable Company v. Louis Steinberg—most extreme example. They weren’t going to make another sale. But K did not preclude P from carrying on as many other Ks as it wanted.

b. A seller having an unlimited supply of standard priced goods. 4. What do we mean by profit?

a. Profit + fixed costs= K – direct costsb. When we calculate profit we mean gross profit: K- variable costs.

5. Law in Action—2 students surveyed 16 car dealers in WA—all the dealers thought that the idea of recovering lost profits was ludicrous from a practical business model standpoint.

D. If the buyer rightfully rejects goods 1. The seller has the right to cure, no breach §2-5082. When does the seller not have the right to cure?

a. If the time for performance has not yet expired.b. Must notify the buyer seasonably of his intention to make conforming delivery.

Policy ConsiderationsXXIX. Major Policy Arguments A. What factors should legal agency—court, administrative office—consider in deciding how to

respond to a request to intervene in a relationship? Chaffee’s policy approaches to intervention.1. Dismal Swamp—an attempt to deal with K would require getting into complex relationships,

whether implied promises were made or carried out, where courts just aren’t very good at figuring out the facts. I.e., the agency/court might be getting in over its head with the relationship’s unique history.

2. Hot Potato—if you allow a lawsuit, it’s going to make the situation worse. Most of the parties think that outside intervention is undesirable and would be uncalled for interference in their affairs, the agency’s attempt to intervene may simply cause resentment & resistance.

3. Living Tree—autonomy of relationship itself may be independently valuable to society.4. And favoring intervention, strangle-hold—sometimes a relationship is so important to the

parties that changing/leaving it would have unusually serious consequences for their lives. B. It is sometimes better to make the victim of a potential breach protect himself than it is to make

the breacher pay. The Hadley rule and foreeseeability principle induces the party with knowledge of the risks to either take the appropriate precautions himself or, if he believes that the other party might be a more efficient loss avoider, disclose the risk to that party.

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1. otherwise the carrier, etc., is going to have to raise prices on all users of the service—users with a special concern should insure them, not everyone.

2. To do otherwise would hobble efficient breach—eb is almost always a willful breach, not inadvertent, for someone to breach needs to know what it’s going to cost the P.

a. This would be better if the rule were notice before breach, not notice before K. 3. Disproportionality—wrong to charge someone for breach an amount that far exceeds the K

price. Rest §351(3)—Court may limit damages for foreseeable loss. C. Freedom of Contract and Freedom From Contract

1. Diehard libertarian would agree that nobody should be bound to K unless he has agreed to it. 2. Ideally, K coordinates choice so that both parties are better off. Perhaps paradoxically, values

of free choice and free K demand some social control over the process.3. Very frequently, courts are appealing to FOK to really give into social control, to regulate

because the terms of the K are considered unfair. 4. With misrepresentation, undue influence, duress, good faith, etc., it’s hard to see where the

law is going to go, which doctrinal path it’s going to go down.5. Analysts today see doctrines as being concerned with the regulation of superior bargaining

position. Superior physical or economic power—duress line. Superior info—fraud line. D. Formality Functions of Contracts

1. Fuller’s Argument—one may clearly intend to transfer property and the other may expect to get it but if they have not met a formal requirement the transfer fails. So there are functions and benefits of form.

a. Cautionary function—if people must go through a formal ceremony to create legal relationships, it may warn them they are doing something serious & important.

b. Evidentiary function—some forms give us evidence that a transaction took place while others tell us what the terms of the transaction are.

c. Chanelling function—if you want to be sure that you have a legally enforceable K, it is useful to find a blueprint telling you how to build one.

2. Difficulty—in order to work, law has to take 0 tolerance policy & courts find it hard to take 0 tolerance approach to say, S/F, b/c in fact people make oral promises & rely on them—& protection of reliance on promises is fundamental K policy we all have sympathy with.

E. Arguments about judicial activism 1. Cardozo view (represented in §90)—flexible, expansive theory of K. Courts should make K

wherever possible rather than the other way around. 2. Hypothetical red blooded American legislature choosing btwn 2 different sides of a

controversy is going to bury the bill in committee. 3. Debate—Is it appropriate or cowardly for the court to say, “it’s the legislature’s job”?4. Leff—half-assed activism discourages legislature from getting involved & making real laws.

XXX. Alternatives to Litigation in Family MattersA. Advantage of a Mediator

1. can recognize if problems are something more than they seem and can be more assertive to find out what else might be the “real issue”

2. better at swimming in the dismal swamp3. better range of remedies available—e.g., can negotiate a trade off 4. it’s easier for people to accept the result if one side doesn’t “win” 100%

B. Counter-Critique1. mediation and alternative dispute settlement tends to favor the powerful over the weak—the

mediator can get an agreement by leaning on the first party that shows any weakness and can meet with the parties separately to try to learn what those points are.

2. Kathyrn Powers argues that the law should at least allow the case to go to court b/c the private sphere is very gendered and there are these power relationships.

       

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