Table of ContentsI. Introduction.....................................................................................................................5

a. Purposes..................................................................................................................................5

b. Sources....................................................................................................................................5

c. Types.......................................................................................................................................6

d. Perspective..............................................................................................................................6

e. Arguments...............................................................................................................................7

f. Results.....................................................................................................................................7

II. Enforcing Promises..........................................................................................................7

a. What is a Promise?..................................................................................................................8i. Bailey v. West (1969) [horse delivery case].............................................................................................8ii. Lucy v. Zehmer (1954) [drunk napkin contract].......................................................................................9v. Leonard v. Pepsi......................................................................................................................................10

b. Indefinite Promises and Open Terms......................................................................................11i. Trimmer v. Van Bomel (1980) [sumptuous living].................................................................................11iii. Wagner Excello Foods, Inc. v. Fearn Int’l, Inc. (1992) [juice concentrate].............................................11iv. Incomplete contracts and default rules..................................................................................................12

c. Which Promises Will Be Enforced?.........................................................................................12ii. Hamer v. Sidway (1891) [uncle pays nephew not to drink/smoke]......................................................13iii. The court won’t enforce contracts to give gifts no consideration......................................................13v. St. Peter v. Pioneer Theatre Corp. (1940) [theater raffle]......................................................................13vii. Material Benefit Rule..............................................................................................................................14

d. Limitations on Enforcement: Unconscionability......................................................................14vii. Williams v. Walker-Thomas Furniture Co. I & II (1964).....................................................................15ix. Henningsen v. Bloomfield Motors, Inc. (1960) [car accident/warranty]...............................................15

III. Performance of the Obligation...................................................................................15

a. Introduction to the Idiosyncratic Bargainer............................................................................15ii. Jacob & Youngs, Inc. v. Kent (1921) [specific pipe case]........................................................................15

b. Allocating Risks......................................................................................................................16i. Stees v. Leonard (1874) [quicksand construction].................................................................................16

c. Excuse for Nonperformance...................................................................................................17e. Paradine v. Jane (1647)...........................................................................................................................18

IV. Remedies for Non-Performance.................................................................................19

b. The Compensation Puzzle......................................................................................................19i. Freund v. Washington Square Press, Inc. (1974) [manuscript case]......................................................19

c. Damages................................................................................................................................19

d. Efficient Breach......................................................................................................................20

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e. Specific Performance.............................................................................................................21iii. Van Wagner Adver. Corp. v. S&M Enters. (1986) [Midtown tunnel advertisement lease]...................21

f. Limitations on Compensation.................................................................................................21i. Hadley v. Baxendale (1854) [shaft shipment]........................................................................................21

V. The Consideration Doctrine............................................................................................22

a. Bargain Versus Gift................................................................................................................22i. Kirksey v. Kirksey (1845) [widow relocates]..........................................................................................22ii. In re Green (1940) [paying off mistress].................................................................................................23

b. Adequacy of Consideration....................................................................................................24iv. Batsakis v. Demotsis (1949)...................................................................................................................24v. Wolford v. Powers (1882) [couple takes care of dying guy]..................................................................25

VI. Promissory Estoppel...................................................................................................25

f. Charitable Subscriptions: Consideration or Reliance?.............................................................26i. Congregation Kadimah Toras-Moshe v. Deleo (1989) [promise for synogue library]...........................26

g. Promises Made in Intrafamilial Contexts................................................................................26i. Haase v. Cardoza (1958) [withholds money of deceased].....................................................................26ii. Ricketts v. Scothorn (1898) [grandfather tells granddaughter quit]......................................................27

h. Promises Made in Employment Contexts...............................................................................27i. Feinberg v. Pfeiffer Co. (1959) [woman retires pension].......................................................................27ii. Hayes v. Plantations Steel Co. (1982) [man retires – take care]............................................................28

VII. The Material Benefit Rule..........................................................................................28b. Mills v. Wyman (1825) [shipwrecked]...................................................................................................28c. Webb v. McGowin (1935) [saves person life]........................................................................................28e. Jordan v. Duff & Phelps [man cashes in stock weeks before merger]...................................................29

VIII. Offer..........................................................................................................................29b. Courteen Seed Co. v. Abraham (1929) [accepts offer, but already sold]...............................................29c. Fairmount Glass Works v. Crunden-Martin Woodenware Co. (1899) [accepts offer, but already sol]. 29

IX. Acceptance................................................................................................................30

a. Basis Offer and Acceptance Principles....................................................................................30

b. Methods................................................................................................................................30iii. Ever-Tite Roofing Corp. v. Green (1955) [roofing – no notice]...............................................................30iv. Ciaramella v. Reader’s Digest Ass’n (1997) [we have a deal decides not to settle].........................31

c. Silence or Dominion as Acceptance........................................................................................32

d. The Mailbox Rule...................................................................................................................32

X. Revocation.....................................................................................................................32

a. Irrevocable Offers..................................................................................................................32i. Pavel Enterprises, Inc. v. A.S. Johnson Co., Inc. (1955) [government bid].............................................32

XI. Counteroffer..............................................................................................................33a. Ionics, Inc. v. Elmwood Sensors (1997)...................................................................................................33

b. Restatement §§ 59, 51, UCC § 2-207.......................................................................................33i. UCC 2-207: mirror image/ last shot rules................................................................................................33

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c. Sanfelippo Cabs v. City of Milwaukee (2016) [cab medallion limit lifted].............................................34

XII. Contracts and the Internet.........................................................................................34a. Step-Saver Data Systems, Inc. v. Wyse Technology (1991) [shrinkwrap case]......................................34b. Hill v. Gateway 2000 (1997) [agreement in box]...................................................................................35

XIII. Statute of Frauds.......................................................................................................35d. McIntosh v. Murphy (1970) [moves to HI for job].................................................................................37e. Monetti, S.p.A. v. Anchor Hocking Corp. (1991) [deterioration of relations]........................................37

XIV. Relational Contracts...................................................................................................37

b. Preliminary Negotiations.......................................................................................................39i. Coley v. Lang (1976) [bidding rights]......................................................................................................39ii. Hoffman v. Red Owl Stores, Inc. (1965) [franchise case].......................................................................39

c. Binding Preliminary Agreements............................................................................................39i. Brown v. Cara (2005) [Jay St. development]..........................................................................................39

d. Output and Requirements Contracts......................................................................................40iii. Eastern Air Lines, Inc. v. Gulf Oil Corp. (1975) [oil index gets fucked]...................................................40iv. Empire Gas Corp. v. American Bakeries Co. (1988) [propane conversion]............................................40

e. Exclusive Dealings Contracts..................................................................................................41i. Wood v. Lucy, Lady Duff-Gordon (1917) [fashion icon case].................................................................41iii. Bloor v. Falstaff Brewing Corp. [sells beer, don’t sell enough]..............................................................42

f. Modification to Existing Agreements......................................................................................43i. Alaska Packers Ass’n v. Domenico () [fisherman demand more money]..............................................43

XV. Mistake and Excuse....................................................................................................43e. Sherwood v. Walker (1887) [cow]..........................................................................................................44f. Anderson Bros. Corp. v. O’Meara (1962) [dredge].................................................................................44g. Aluminum Co. of America v. Essex Group, Inc. (1980) [oil index]..........................................................44

h. Doctrine of excuse.................................................................................................................44

XVI. Immortality (Surrogacy Contracts).............................................................................45d. In re Baby M (1988) [traditional surrogacy]...........................................................................................45e. P.M. & C.M. v. T.B. & C.B. (2018) [gestational surrogacy].....................................................................46

XVII. Fraud.........................................................................................................................46

d. Willful and Negligent Misrepresentation................................................................................47i. Spiess v. Brandt (1950) [resort case]......................................................................................................47ii. Danaan Realty Corp. v. Harris (1959).....................................................................................................47

e. Duty to Read..........................................................................................................................47i. Merit Music Services, Inc. v. Sonneborn [juke box case].......................................................................47

f. Concealment and Disclosure..................................................................................................47iii. Obde v. Schlemeyer (1960) [termite case].............................................................................................47iv. Reed v. King (1983) [murder house]......................................................................................................48v. Laidlaw v. Organ (1817) [tobacco case].................................................................................................48

i. Good faith – arm’s length.......................................................................................................50

XVIII. Capacity to Contract...............................................................................................50

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a. Infancy...................................................................................................................................50iii. Kiefer v. Fred Howe Motors, Inc. [married minor buys car]...................................................................51

b. Mental Illness........................................................................................................................51ii. Faber v. Sweet Style Mfg. Corp [manic depressive episode].................................................................51

XIX. Frustration of Purpose................................................................................................51b. Krell v. Henry [King procession case].....................................................................................................51c. Lloyd v. Murphy [government suspends car sales]................................................................................51

XX. Identifying and Interpreting the Terms of an Agreement............................................51

i. Parol evidence rule................................................................................................................52

b. Interpretation in the UCC.......................................................................................................52i. Columbia Nitrogren Corp. v. Royster Co. (1971) [orders less]...............................................................52ii. Southern Concrete Services, Inc. v. Mableton Contractors, Inc. (1975) [orders less]............................52

XXI. Debt Contracts...........................................................................................................53

a. Boilerplate.............................................................................................................................53

b. General K structure................................................................................................................53

c. Basic Economic Principles.......................................................................................................54d. Sharon Steel v. Chase Manhattan Bank (1982) [sells to risky company]...............................................55e. Windstream v. Aurelius (2019) [leaseback]...........................................................................................56f. Katz v. Oak Industries (1986) [instant vote]...........................................................................................58g. Met Life Insurance Company v. RJR Nabisco (1989) [risky debt]...........................................................59

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I. Introduction a. Purposes

i. The study of the legal enforcement of promisesii. Two Inquiries

1. Explain the patterns of promissory enforcement that we observe in contract law

2. Justify the exercise of state coercion through the application of contract law

iii. Functions1. Sorting problem – which promises do we enforce?2. Gap-filling function

a. Default rules: asking what term the parties would have bargained for had they foreseen the need for a term and bargained over its content

i. Ex ante: if the default rule matches the rule that the broadest number of future bargainers would agree to, those parties can leave the gap and save the costs of dickering over the term

3. Determine the meaning of promises4. Define the outer boundaries of acceptable bargaining behavior

and outcomes a. Deny enforcement of agreements that fall outside those

boundsiv. Agreement, exchange of promises, whatever the parties agree on,

negotiate their own terms that the state is willing to enforcev. Economic value of efficiency on being able to rely on contracts

vi. Heart of contacts – promised to do something in the future – state to hold us to these promises

vii. The ability to have long-term exchanges1. Ability to commit – major engine of economic growth

viii. We want a trust economy1. People keep their promises so they keep making contracts

ix. Ensuring justice/fairness1. Within the realm of contract law – not general fairness2. Contract law has limitations

x. Contract law does not investigate – the purpose is to give people what they want/intend

b. Sourcesi. Private law

1. State has power of force, coercion, enforce laws (monopoly over this)

2. But via private law, private individuals have ability to harness these powers – to enforce terms of their own agreement

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3. Private part – you get to decide law and state will help you enforce

4. But what level of force state is willing to use varies by jurisdiction5. Not good for a world of unfair, unbalanced, not properly policed

contracts6. What should be or are the limits? What kind of promises do we

want to enforce?a. Marriage is (the most serious) promise, but the court

doesn’t enforce itb. Does the state only care about economic benefit?c. Is there a societal or economic benefit to marriage?d. The state does enforce circumstances during divorce

proceedings e. Divorce is a relatively recent development, but state still

regulates it heavilyi. Before you couldn’t get out of the promiseii. What’s too important or not important enough?

7. Courts figure out if a promise was made, and then if it should be enforced

ii. Common law – applies to all contracts except sales of goods1. Sale of goods codified in UCC

iii. Debate about whether contract law is based on subjective intent (what they actually meant) or objective intent (what a reasonable person would have meant/understood)

1. Meeting of the minds is a subjective standardc. Types

i. Express: parties expressly agree regarding a transactionii. Implied in fact: conduct of the parties implies an agreement from which

an obligation in contract exists1. A contract where it is clear that both parties consented to

perform albeit without saying anythingiii. Implied in law or quasi contract: obligation imposed by law for the

purpose of bringing about justice and equity without reference to the intent or the agreement of the parties

1. No explicit contract2. Obligation arises from benefit conferred upon by

iv. Unilateral is the exchange of a promise for an actionv. Bilateral is the exchange of a promise for another promise

vi. Courts divide promises:1. Final commercial promises2. Preliminary commercial promises3. Intra-family gift promises4. Charitable gift promises

d. Perspective

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i. Ex post (after the event that leads to a dispute has occurred) 1. Considers how existing burdens or losses should be allocated2. Focuses on the two parties and events that gave rise to their

disputeii. Ex ante (before any disagreement has materialized)

1. Concerns the kind of behavior thought to be desirable for the law to encourage or deter

2. Contract law largely follows ex ante perspective3. Enabling people to efficiently structure their transactions4. Focuses on people in general and how they will act in the future

e. Argumentsi. Promises

1. Letting the other person down; tantamount to interfering with or subverting endeavors he has a right to pursue

ii. Economic efficiency (ex ante)1. The purpose of enforcing contracts should be to promote

economic efficiency by cementing an exchange in which resources are more productively used after the exchange than before

iii. Reliance1. If you adjust your life, and I keep my promise, then your reliance

will have been beneficial. 2. If I do not keep my promise, then your reliance will have been

detrimental to you3. Encouraging parties to rely on promises is socially beneficial when

those promises are kept because it permits parties to plan for uncertain future events sooner rather than later

4. Such reliance is detrimental when a promise is subsequently broken because the broken promise will frustrate the plans of the promisee

iv. Moral promise principle1. To enforce the moral duties of promisors and protect the moral

rights of promisesv. Autonomy theories (ex post)

1. The legal enforcement of contract promotes individual freedom by giving people the power to bind themselves with others

f. Resultsi. Courts seem to impose liability on the party with the comparative

advantage in reducing the likelihood that such a misunderstanding would result

ii. Compensatory damagesiii. Compel the promisor to complyiv. Contract law does not allow for punitive damages unless the breach of

contract is also a tort for which punitive damages are recoverableII. Enforcing Promises

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a. What is a Promise?i. Bailey v. West (1969) [horse delivery case]

1. Factsa. West purchased a horse in NY, horse was shipped to him

in MA – when it showed up , he observed it was lame b. West (defendant) attempts to return it to seller (Dr.

Strauss) c. Strauss refuses it and defendant’s driver (Kelly) takes it to

plaintiff’s farm in Rhode Islandd. Presumably plaintiff in business of horse boardinge. Bailey waits a little bit, then tries to get paid from

defendant, but doesn’t know who owns the horse (between Strauss and West)

f. He sends a billg. West says not my horse, Strauss presumably ignores

request2. Trial Court: judge finds for plaintiff

a. What are the crucial facts for trial judge?b. Sees clear ownership of the horse either there was a

sign or they asked about pricingsc. Both sides appeal ( on ruling and on amount of

damage)3. RI Supreme Court

a. Ruled before between Strauss and West, ruled for Straussb. Implication that West was the owner

4. Industry norms – transportation occurs and there are expectations (relatively small and expensive

a. You want people to take your horse and take care of it until you can be contacted

b. Norm not to leave expensive horses to fend for themselves on the street

c. When there’s a sign for cost of staying and you ask to stay explicit contact

5. Kelly is an agent of West? a. Extension of the principleb. If he was the agent, easy case

i. Respondeat superior c. Is he an independent contractor?d. He is a trainer, which is definitely an employee

i. West would be responsible for payment6. Implied contract needs mutual agreement/consent

a. But West doesn’t consent and Bailey doesn’t know who he’s contracting with

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7. Court posits that there’s no agreement, but Gulati says you could have written opinion as if there was an explicit agreement

a. Uncertainty of ownershipb. Bailey should not have assumed someone would payc. If no uncertainty about ownership different outcome of

the case?8. Horse was at Bailey’s farm for about four years, Kelly had dropped

it offa. Is West liable 30 years later b. What is the expiration date?c. What’s reasonable?d. Look to custom of the industry or history between partiese. Content of reasonableness: what would these people likely

have wanted?9. What sort of incentives is this setting up for when a horse is

brought to the stable?a. Not going to start boarding horsesb. Would only board horses with certain ownershipc. Get a contact for billing d. Uniform livestock bill of lading

10. Discussiona. Think: how to set up the rules to work for/incentivize

those who would infer the contract?b. Not even sure that there was an implied promise

incentivizing people to be clearc. Bailey get’s screwed – takes care of horse and no one pays

the bill d. Ex ante/ex post

i. Court decision is hard to justify ex post but easier from an ex ante perspective

11. The contract is implicitii. Lucy v. Zehmer (1954) [drunk napkin contract]

1. Factsa. Zehmer’s farm: huge timber farm in VA, lots of offers to

buy it & Lucy really wants to buyb. Everybody’s drunk – right before Christmas c. Lucy offers $50K, Zehmer thinks it’s a joke, has been very

forward about not wanting to sell the farm d. They start talking back and forth and write an agreement

out on a guest check: “We hereby agree to sell to W.O. Lucy the Ferguson Farm complete for $50,000, title satisfactory to buyer”

i. What if it only say “I agree – farm – 50,000”?e. Zehmer discloses that he was joking the next day

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i. What if he ripped the agreement up immediate?ii. If everyone knows that it happened there’s still

a contract2. What matters is the appearance of the circumstances/what Lucy

would have reasonably understooda. Court doesn’t care what as in Zehmer’s head?

3. Should selling property be this easy?a. More? A ceremony? (i.e. closing dinner, marriage)

4. No “instant retraction rule” 5. Courts bind individuals to their outward, objective manifestations

without regard to the potentially conflicting subjective intent of the individual

iii. The parties do not need to agree on every last detail, it is sufficient that they agree on the major elements of the contract

iv. Airline hypo1. Airline accidentally sells extremely cheap airline2. They try to revoke the ticket next day – valid K?3. Was it reasonable for Gulati to think this was a reasonable

promise?4. § 2 comment b: manifestation of intention”5. Reasonable under what standpoint?

a. Airline? Experienced customer? Average customer?6. Airlines often honor these mistakes, some don’7. Want to incentivize airlines to not fuck up their prices

v. Leonard v. Pepsi1. Pepsi commercial/catalog

a. Points for items; 7M points = Harrier Jet (not in the catalog but on the commercial)

b. Can get points by drinking Pepsi or you can buy them at 10 cents/point

c. writes check to get Harrier Jet, Pepsi obviously refusesd. Not a mistake on Pepsi’s part, intentional promotione. Not a reasonable depiction: kid showing up to school via

jet, landing in school yardf. Big difference between sunglasses and jetg. Catalog is where price point is coming fromh. What does Leonard want?

i. Not the Harrier Jet, he wants negotiations2. Advertisement was an offer (option contract)3. Price is very important for assessing reasonableness in general

life, but for contract law, price is irrelevanta. Fact that you’re willing to sell for a ridiculous price is not

materialb. It can come in through the back door (was this a joke)

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c. Price is evidence, but don’t base a legal argument on thisd. From an economic standpoint, price is everything

4. Pepsi’s responsea. Didn’t take add off the air, just increased the price

5. Puerto Rico – massive debt crisisa. PR government filed in court that large percent of debt

(~$30B) is voidb. Borrowed money in violation of constitutional debt ceiling

b. Indefinite Promises and Open Termsi. Trimmer v. Van Bomel (1980) [sumptuous living]

1. Factsa. is a travel tour guide, is a very rich womanb. entices with money to leave his job for ever present

companionshipc. After five years of living together, they break upd. He sues for $1.5 million citing she had promised to give

him “sumptuous living” for the rest of his life”2. Court says that sumptuous living is not an enforceable contract

terma. Difficult to interpretb. Courts don’t think it’s valuable to enforce this kind of

promisec. There was an exchange, but the court chooses not to

enforce 3. Court has a moral policy behind this (subtext)

a. Don’t want to reinforce something reminiscent of prostitution

4. It’s not clear that they actually meant to have a contracta. No details of payment, not amount, time, mechanics for

payment, qualifications, etc. specifiedb. Too vague on too many terms

ii. Where the agreement is indefinite as to material terms it is unenforceable unless the parties intend some external reference point to fill the gaps

iii. Wagner Excello Foods, Inc. v. Fearn Int’l, Inc. (1992) [juice concentrate]1. Contract for the sale of fruit juice concentrate 2. Producers of concentrate vs. sellers of concentrate 3. Five-year contract, producers spent lots of money and hired

employees to accommodate this business4. Requirements contract

a. Set up arrangement to review prices periodically and chance to renegotiate

b. There was a provision that they could back out if they couldn’t come to an agreement on the price

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i. Suggests they don’t want courts dictating a price 5. Seller doesn’t buy nearly enough of the producer’s concentrate

a. Continued to buy someb. They did agree to a price, but seller just didn’t buy enough

(buying from someone else)c. But producer is getting screwed and court recognizes this

and gives them recoveryd. Producer has exclusive agreement to seller(?)

6. Producer sues sellera. Seller says here’s no contract because there’s no price

7. Distinguished from Trimmer because other terms are more explicit

a. It’s not up for debate whether the parties intended to contract

b. We know they had an agreement (the court finds a contract)

8. UCC says you can have a contract for the sale of goods without price if you intend to have the contract without price

a. Created a mechanism by which they wanted price to be decided

iv. Incomplete contracts and default rules1. Contracts can be too vague for a court to enforce2. A lot of contract disputes are about missing/incomplete terms3. Asking court to complete the contract4. Default rules

a. Theory that all contracts are incomplete i. Can’t conceptualize all contingenciesii. Or too expensive to negotiate on the contingencies

b. Mechanisms to fill those gapsc. State provides you with these rules if you didn’t negotiate

specific terms 5. Hypothetical bargain

a. When there’s incompleteness/vagueness/ambiguityb. Look to what the parties would have bargained for ex antec. Risk allocation who bears the risk

c. Which Promises Will Be Enforced?i. The general rule

1. Contracts that lack consideration are not enforced, while those that are supported by consideration are enforced

2. Existence of consideration in a contract means that an exchange has taken place between parties

3. Exceptions:a. A promise to pay a debt that has been discharged in

bankruptcy

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b. A debt for which the statute of limitations has runc. Debt incurred during infancy

ii. Hamer v. Sidway (1891) [uncle pays nephew not to drink/smoke]1. Uncle promised nephew $5K if he made it to 21 without drinking,

use tobacco, swearing, and gambling (good behavior) 2. Nephew meets this and tells uncle, uncle writes a letter to say

he’ll hold it with interest until he’s ready3. Uncle dies before nephew gets the money and nephew tries to

get it from the estate 4. Contract? Yes!

a. The exchange is between money and refrain from behavior

b. Court says it doesn’t matter if the conditions benefit the person giving up their right

5. Consideration of detriment a. Can be pretty minimalb. U.S. notion moving away from formalityc. Consideration of money makes It commercial

iii. The court won’t enforce contracts to give gifts no consideration1. College sports boosters as charitable gifts 2. In commercial transactions we don’t want people to renege

because it undermines people’s economically beneficial reliance.a. But reliance can then ear up all of contract law.

3. So you need both sections 90 and 71, gotta read them in conjunction.

4. And then there’s git promises, which we don’t seem to want to enforce.

a. In familiar contexts there are ways outside the law to enforce gifts: guilt, affection, etc. so we don’t need to use the (expensive) power of the state. (not to mention that we don’t like the state interfering in our families.) Scott & Krause: maybe we have enough mechanisms in these situations.

5. While gratuitous transfers are treated the same as transfers that are part of an exchange, gratuitous promises are given less protection than promises that are part of an exchange

iv. Kidney swap example – how do we argue it’s legal?1. Statute makes it illegal to exchange consideration for bodily

organs2. People frame It from a love and gift giving perspective when

argued in front of HHS3. In the end, HHS allows it, using St. Peter case (although they

threatened to prosecute for it)v. St. Peter v. Pioneer Theatre Corp. (1940) [theater raffle]

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vi. Promissory Estoppel1. Certain promises are enforced without consideration when

followed by actions or forbearance by the promise in reliance on the promise

vii. Material Benefit Rule1. Certain promises are enforced even without consideration if made

in recognition of a prior material benefit conferred by the promise or the promisor

viii. Types of Unenforceable contracts1. Children under age (age is a clear rule)2. Mentally incapacitated3. Unconscionability4. Duress5. Fraud6. Illegality

d. Limitations on Enforcement: Unconscionabilityi. Reliability permits promises to adjust their future actions in light of the

promise in ways that better promote their long-term interestsii. Long tradition of the doctrine (common law)

iii. Almost always focus on nonprice terms iv. UCC § 2-302v. Procedural

1. The practices which impermissibly reduce an individual’s ability to make rational choices concerning the bargain

a. During the making of a contractb. The bargaining process

2. “an absence of meaningful choice”3. Ability to understand4. “surprise”5. Unequal bargaining power

a. Adhesion contractsb. Sophistication/education of the parties

6. Hidden/buried/maze of fine print7. Courts like this more, easier to prove than substantive 8. Courts often require sellers to draw buyer’s attention to obscure

terms in contractsvi. Substantive

1. The terms, effect, provisions of the agreement itself2. E.g. an unreasonable price or contract term which deprives a

party of the “essence of his bargain”3. Harsh/oppressive terms4. One-sided5. Targeting vulnerable groups6. No meaningful remedy

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7. “shocks the conscience”vii. Williams v. Walker-Thomas Furniture Co. I & II (1964)

1. Factsa. Poor woman lives on government stipend, has a ton of

childrenb. Buys many (14?) items of furniture from appelleec. Buys all items on credit/installment pland. Security arrangement

i. She didn’t fully own any single item until she had paid in full for all items

ii. Amounts owed were spread across all itemsiii. If she misses a payment, they could repossess all

items she owed money on (which was everything)e. Provisions: “the amount of each periodical installment

payment to be made by purchaser to the company…”i. Pretty standard provision

f. She misses a payment and Walker-Thomas repossesses everything

2. What’s her defense?a. Says there’s no contract- doesn’t really work, contract is

thereb. Public policy – this is evil/bad should not be enforced

3. Duty to reada. Court says they’re sympathetic, but there’s no fraud here

4. Appellate court says trial court did have power to declare the contract unconscionable and sends it back down

viii. Hypo: African country borrows money from Goldman Sachs1. Provision allows Goldman to take assets if country defaults on any

debt2. This is standard3. No unconscionability argument for public policy reasons 4. Gulati: Williams doesn’t give us a legal apparatus to apply

elsewhereix. Henningsen v. Bloomfield Motors, Inc. (1960) [car accident/warranty]

1. Court: it’s a boilerplate contract, small print, all terrible. Contract is not valid. (modern contract law is not like that.)

III. Performance of the Obligationa. Introduction to the Idiosyncratic Bargainer

i. The idiosyncratic party bears the costs of such a system since he must take special care to signal adequately his beliefs to others

ii. Jacob & Youngs, Inc. v. Kent (1921) [specific pipe case]1. NY court of appeals – Cardozo

a. Perfect tender v. substantial performance b. This is a small thing – things/mistakes happen

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2. J&Y () built house for Kent ()3. did not use brand of pipe specified by /contract

a. had been living in the house for about a year before they found

b. Architects certify houses to make sure the house is built per certification

i. Certification is required by contractii. Architect refuses to certify

4. refused to pay remaining money (~$3K) on house5. Provision (p. 73)

a. In accordance with the drawings and specifications, in every respect

b. If violated, owner can decide what to do c. Standard form provision d. Reading brand was arbitrary e. Industry practice to get whatever’s available/maybe a bit

cheaper (as long as quality isn’t sacrificed)iii. Restatement §§ 237, 241; UCC § 2-601iv. Standards of Performance

1. Perfect tender rule (sales of goods)a. Buyer of goods can reject the goods (and not pay) for any

defect, however minor2. Substantial performance doctrine (service & construction

contracts)a. Permits a party to withhold his own performance only

when the defect materially impairs the essence of what was contracted for

v. Gulati’s Stub Hub question1. Tickets to cricket game in London2. Comes a day before/of event to his NC house

b. Allocating Risksi. Stees v. Leonard (1874) [quicksand construction]

1. s (builders) entered a contract with s (owners) “to build, erect and complete” a building on ’s lot

2. “on that certain piece of land in said complaint describe…”3. “entered upon the performance of said contract, and proceeded

with the erection of said building”4. The spot ends up being specified by s

a. K doesn’t say owner bears risks for bad spot choice 5. s put up three stories of building and it falls down

a. Land is quicksandb. So, they give up

6. s s for not building 7. What’s the cost of doing the impossible?

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8. Cost of doing due diligence to check land beforehand is low9. Isn’t there an assumption that the performance promised is under

reasonable circumstancesii. Clauses that allocate risks often serve as incentives designed to motivate

or constrain certain types of behavioriii. Cardozo believed that it is just and proper to assign the risk to the party

that “reasonable” bargainers facing a similar situation would “probably” have chose

iv. Asymmetric information leads parties to specify a contract that falls short of the theoretical ideal

v. An ex post solution of equitable adjustment is only rarely adopted by common law courts

c. Excuse for Nonperformancei. In general, contract law treats the claim of changed conditions the same

as the claim of unanticipated costs: the foreseeable risks associated with performance are assigned by default to the promisor and thus nonperformance will not be excused. But there are exceptions:

ii. Taylor v. Caldwelliii. Restatement §§ 261, 263iv. Both UCC and Restatement excuse performance when the occurrence of

an un-bargained for event makes performance impracticable – that is, performance would require extreme and unreasonable difficult and expense to one of the parties

v. Frustration: if a change in circumstances makes one party’s performance virtually worthless to the other, then the aggrieved party no longer has to perform

d. Gulati’s hyposi. Cross default provision

1. If you default on someone else, I can take my stuff backii. Barclay’s/Argentine beef company

1. Argentine-UK War2. Company’s assets are frozen and can’t pay $60 balance to

Barclays3. So they technically default4. Cross-default provision allows other American banks to demand

money back 5. $60 is not material6. Why is the provision there?

a. Purpose is to warn other creditors that a company is headed for trouble

b. Not designed to punish actors like Argentine beef company

c. Think back to Cardozo: the Reading pipe mistake was immaterial

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7. Here, the other side is taking advantage of technicalityiii. Restatement § 237 and 241iv. Brexit

1. UK owes EU money (fines, etc.) breach of K2. Parliament is threatening not to pay3. They have cross-default provisions in their contracts with others

a. Billions of dollarsv. Jaguar contracts with American companies to sell cars for a certain price

1. Brexit tanks the value of the pound2. Now, the price/value of the car is lower

vi. Russia & Ukraine 1. Russia sends in soldiers and took over Ukraine/Krimana?)2. 99% of population supposedly voted to join Russia3. BTB4. Ukraine fighting a war (with Russia – Russia argues that it’s

Freedom Fighters)e. Paradine v. Jane (1647)

i. Renter rents homeii. Soldiers requisition the house

iii. Owner tries to collect money from renter for the time he wasn’t thereiv. Court says, you have to payv. Contingencies not reasonably envisioned

vi. Basic assumption of the contract1. That the exchange rate would stay the same?2. Exchange rates change every day3. They are probably expecting some fluctuations, but within a

reasonable rangef. Case law comes down

i. Impracticability will be given for extreme cases1. (impossibility)Where it is impossible to comply with a condition,

the party is excused from compliance2. Sellers can sometimes escape their obligation to perform when

the cost of performance rises too high, and buyers can sometimes escape their obligation to pay when their valuation sinks too low

3. Seller generally invokes impracticability because performance becomes too costly for her;

4. Buyer generally invokes frustration because performance loses its value to him

5. The event that renders performance impracticable is unforeseeable; it’s occurrence was a basic assumption of the contract

ii. Really hard to do IV. Remedies for Non-Performance

a. Introduction

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b. The Compensation Puzzlei. Freund v. Washington Square Press, Inc. (1974) [manuscript case]

1. writes manuscript for 2. promises to publish, merges with other company, does not

publish manuscript 3. No dispute that breached – dispute is over damages4. There was a provision that allowed defendant not to publish it,

but they didn’t exercise ita. If they had exercised that option, there would be no

damages5. What happened here?

a. manuscript probably fell through the racks after the merger

i. Also new company doesn’t publish hardcover books

b. wants damages for loss of royalties, loss of good will, loss of prestige/hindrance to career, wants to pay for someone else to publish it in hardcover

6. What’s the goal of damages?a. To put party to the place where they would be if the

contract was performed (expectation damages)7. Royalties as speculative

a. There was data to suggest how many copies it would sellb. But not certain what would happen c. Gulati says its less speculative than a lot of other cases

(like Trimmer) 8. There’s a contract and a breach of that contract

a. But it’s not a significant breachb. didn’t bargain for what he’s asking for

ii. Kleiniii. Restatement §§ 344, 347, 349, 359, 360, 371

c. Damagesi. Not always intuitive/not very clearii. If people always had to perform:

1. Too much diligence would be required to make a contract 2. And then people wouldn’t make contacts

iii. Types of remedies1. Expectation damages

a. Usual remedy for contract lawb. Hard to figure outc. Ex post valued. Produce the efficient outcome because they force seller to

bear exactly the cost that she imposes on buyer by breaching

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2. Specific performance/perfect tendera. Do the task/see the contract through

3. Restitution damages a. Give me my money backb. Contract is void because of duress, incompetence,

mistake, impossibility, violation of the consideration doctrine or the statute of frauds or some other reason

c. Courts do not award restitution damages when performance is completed because then the contract controls

4. Reliance damages a. Money spent in reliance on Kb. Ex antec. Amount of money that is necessary to put the promise

back in the position he was in at the moment the contract was signed

5. Nominal damages 6. Consequential?7. Speculative

a. Promisor cannot recover damages for losses that are “speculative” that is difficult to prove

b. The more idiosyncratic the firm’s performance, the less likely it is that the court will award dmages for lost profits

iv. How do you decide which type?1. Internalize cost?2. Benefit of bargain 3. Hypothetical bargain? (risk allocation)

v. Why does our system favor monetary judgement/damages?1. Specifically, expectancy damages2. Courts have come to an understanding that this is what people

wantvi. Theories

1. Parties intent (hypothetical bargain) a. Lack of damages provision = gap in contractb. Damages, people rarely contract for itc. Damages is gap filling by court

2. Efficient breacha. Posner

vii. How do we incentivize the right behavior? (what we want them to do?)1. Many K specify damages

d. Efficient Breachi. Perform and lose or breach and payii. Efficiency > morality in keeping promises

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iii. Limiting the amount of damages to the “value” of the promise motivates the promisor to breach in circumstances where he can both pay off the promise in damages and still do better economically by reallocating his resources elsewhere

iv. Parties can bargain in advance for the most appropriate breach of contract damages rule and put it in their contract

v. It may be in the interest of both parties at the time of contracting to let each one “pay off” the other and then take the entire gain from any opportunity that he or she has discovered dafter contracting.

1. This will encourage the search for new opportunities which is in the interest of both parties (so long as compensatory damages are paid)

vi. Courts do not pay much attention to the willfulness of the breach – or the fault or lack of fault of the breacher

e. Specific Performance i. An extraordinary remedy, not generally available to the promise

1. Real estate transactions2. Unique consumer goods

ii. Availability of renegotiation further limits whatever advantage that expectation have over specific performance

iii. Van Wagner Adver. Corp. v. S&M Enters. (1986) [Midtown tunnel advertisement lease]

1. signed a lease for a spot on an exterior building facing the Midtown tunnel (prime spot)

2. The building was sold to and they decide to cancel the lease 3. breaches and wants specific performance

a. The billboard space is irreplaceable/unique 4. Court denies specific performance

a. Many RE locations are uniqueb. This is a lease not a sale

5. Court says money damages can put a number of the value of that sport

a. They know what would have gotten fr it (they had contacted to sell it)

b. There is a market valueiv. Globe Refining Co. v. Landa Cotton Oil Co. (1903) (p. 94)

1. Rule: A party can only be held to be responsible for such consequences as may be reasonably supposed to be in the contemplation of the parties at the time of making the contract.

f. Limitations on Compensationi. Hadley v. Baxendale (1854) [shaft shipment]

1. Mill shift breaks, s need new shaft to run mill2. s ask s to shop broken one so they can get a new one ASAP

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3. s say they can ship it immediately, but they fuck up and there’s a delay

4. s sue for damages/lost profits for extra days they were out of business (could not run mill without shaft)

5. They were informed it was importanta. Judge rejects this evidenceb. Is disclosure enough?

6. They didn’t specify damages term, so the court has to gap-fill 7. doesn’t know how value shaft is (according to judge’s outline of

facts)a. Here, you will get damages from lost profits due to mill

shut down if you told them it was possible8. Rule: a party is not entitled to recover all consequential damages

that flow from a breach of contract, but onlyt hsoe that are reasonable foreseeable

ii. Default rules1. In the event parties didn’t specify what they want majoritarian

default (what the majority would want)2. Not empirical – judges make it up 3. Alternative – information forcing rule (aka penalty default)

a. Default rules can be used to incentivize good (or efficient, value-enhancing) behavior

4. Courts are interested in coming up with the most efficient bargaining process

a. Not give what the average person wants5. Too many resources/too difficult to figure out what everyone

wanted default rulesiii. Restatement § 351; UCC § 2-715iv. Xytec Corporation Case (11th Cir.)

1. Georgia2. Xytec buys/sell human eggs/semen

a. Tailors human characteristics 3. Promised certain characteristics of donor, but actual donor had

mental health issues, convicted felon, didn’t finish college4. Family sues for fraud 5. Georgia statute says no claim for wrongful birth – but this is fraud6. Georgia encourages/enables this market7. Values on human life?

a. There are prices for the sperm 8. They got no damages – per curiam opinion (unpublished)

V. The Consideration Doctrinea. Bargain Versus Gift

i. Kirksey v. Kirksey (1845) [widow relocates]1. offers to move in with him after ’s brother dies (’s husband)

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2. Gift or contract?3. She leaves her home to join him and then he later kicks her out4. Did give consideration?5. Overview of facts

a. Widow, in-law offered landb. 60 miles (far away and dangerous trip) c. Gets 2 years of a nice housed. Then not a nice housee. Then asked to leave and never return

6. Consideration is fuzzya. Finding it or not depends on how you tell the story

ii. In re Green (1940) [paying off mistress]1. Adulterer gave/negotiates mistress monthly payments, life

insurance, accommodation, etc.2. Consideration

a. Romanceb. $1c. “good and valuable consideration”

3. Adulterer goes bankrupta. Creditors chase after money

4. Argument that mistress & bankrupt did not have a real contracta. Does she have a valid IOU claim against his estate?b. She gave him $1c. She gives up all legal claims against him d. They executed a written agreement with a seale. They made it very formal

5. Why did the court say no consideration?a. Did adulterer no really want a contract? – trick her to

make her go awayb. Consideration as evidence of intent to make a contractc. He wants her to think he made a contract but he doesn’t

wantd. But Lucy v. Zehmer… not looking at a party’s secret intent e. There is a story he was trying to cheat her, he had lawyers,

she didn’ti. But this shouldn’t have stopped her claim

f. He had so many debts, he owed a lot of moneyi. People who lent him lots of money come first, she

gets bootedg. Moral judgment about adultery

6. Case doesn’t talk about reliance, but mistress could have made a reliance argument

a. She would have had a decent reliance claim (in general)b. This judge probably wouldn’t have budged for this

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iii. Restatement §§ 71, 73, 74, 79, 811. 74: as long as you think you have a valid claim, giving up that

claim could be valid considerationb. Adequacy of Consideration

i. Does not matter as long as you acted with purpose to make a contract1. If someone investigates your intent, you should be suspicious

ii. Is friendship enough consideration?1. Too vague2. Who is the state to say I can’t pay for friendship3. Comparison for old/sick people

iii. Vague terms such as “good will” 1. We buy and sell these things all the time 2. Contract law does not say things have to be measurable or

quantifiableiv. Batsakis v. Demotsis (1949)

1. Probably jurisdiction clause for TX (contract probably executed in Greece)

2. Batsakis offers Demostsis $25 now in exchange for $2K plus 8% interest later

3. Can you do that?a. I.e. contract for $1 in exchange for $10 tomorrowb. Inequality of bargaining powerc. Here, drachmas in exchange for USD

4. Court enforced contracta. got what she contracted forb. She needed the money really badly, she could have been

willing to pay a way higher return 5. Dollar for dollar at the same time same rate this is oaky6. But in context (supply, etc.) then there’s a case for

unconscionabilitya. People are dying of starvation, etc.b. She had no meaningful choice – no bargaining power on

her endi. The choice was accept this contract or die

c. She needed that money – would have accepted money for any exchange rate

d. Also harsh terms - $25 vs. $2K is ridiculous 7. What are the public policy concerns?

a. What does this court want to encourage/discourage?b. We want people to rescue themselves through

contracts/transactionsc. We want people to do these exchanges in the future, so

they have to see them as fair and reasonabled. Is this the kind of coercion the court is worried about?

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v. Wolford v. Powers (1882) [couple takes care of dying guy]1. Rich dude befriends , names his son after him in exchange for

rich due financially supporting the child2. and wife take care of old/rich dude during illnesses3. Rich dude gives them a note for $10K and dies4. brought suit against rich dude’s estate () to enforce the note5. Is ’s friendship and naming his child after the rich dude worth

$10K? a. Valid exchange?b. Was it actually an exchange – or was it a gift?c. Name for generous financial support/education is not the

same exchange as the $10K noteVI. Promissory Estoppel

a. Rarely applied – often a last resort. If a promise is unenforceable on the contract theory because consideration is lacking because the promise is insufficiently definite because a writing is absent, or because of similar problem, the promise may argue that she nonetheless has a claim in promissory estoppel.

b. The promise must prove, among other things, that he reasonably relied on the promise

c. It’s sort of a last resort, for when you can’t find proper consideration but still feel like justice requires you to uphold the contract. Section 90 is easier because you can pretty much always find reliance.

d. It encourages the objective of contract law—to ensure that people don’t make promises that they don’t intent to keep. reliance is all about giving the promisee the certainty they need to adjust their behavior according to the promise made.

e. Hypo: plane ticket pricesi. RDU Tulsa = $200, but with a layover in Chicago.ii. RDU Chicago = $700

iii. You take the Tulsa flight and stop at Chicago and get off. Then you get a letter in the mail saying that they realised you didn’t board the last leg of your scheduled flight, so you owe them $500. Either pay or they’ll seek legal action. (there’s a case in the news about this.)

iv. Defend your breach of contract:1. The airline did not rely on your being in that seat on the

connecting flight. (counter: but they could have sold that seat to someone else…). And the $500 to the airline is not actually a lot—plus that’s not even the price of the ticket! market price does NOT equal value. They’re probably making a ton on it anyway. But the price of a seat on the flight to Chicago can’t be more than $200, because the Tulsa flight goes through there and it can’t be more money for less product.

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2. Honestly, you bought a product from them for the price they asked for; just because you used the part of that product that you wanted does not mean you defrauded them.

v. Depends on the terms you signed: did you sign to go to Tulsa? Or to get a seat on the flight and pay for it?

1. The contract actually has pre-specified damages, wherein the airline reserves the right to charge you the difference if you don’t make the second leg of the trip. You’d still have to find breach to implement this damages provision, but it may imply the existence of a provision—that says you can’t do what you just did.

a. But if you’d miss your flight they wouldn’t refund you, right? (who carries the risk?)

b. Courts will often ask ‘what did the parties mean in the context,’ and the damages provision will indicate that this action was certainly not intended for.

vi. On the ‘you didn’t defraud them’ part, courts may not want to allow this because the aggregate result would be higher cost for everyone.

f. Charitable Subscriptions: Consideration or Reliance?i. Congregation Kadimah Toras-Moshe v. Deleo (1989) [promise for

synogue library]1. Oral promise by decedent for $25,000, the synagogue planned to

use it to convert a storage room into a library and name it after decedent.

2. Court: no consideration; and hope or expectation—even well-founded—is not sufficient to find reliance. (section 90: reliance should reasonable induce action.)

3. In the first edition of the restatement it was all about the nature of the promise; in the second it’s what the other person could reasonably have understood.

a. We look at what you did to determine what you believed; and that leads to looking to damages (what you’d have to be compensated for, because you spent the expense in reliance). In this case, there just wasn’t anything—they just drew up some plans, they never initiated any action or any expense in expectation of the donation.

g. Promises Made in Intrafamilial Contextsi. Haase v. Cardoza (1958) [withholds money of deceased]

1. When husband died he promised $2,500 to his sister in his will, but his estate didn’t have enough; the wife becomes sick and later tells the sister that her husband actually wanted to give her $10,000 but didn’t have enough for it; so she asks for forgiveness for not telling her and starts paying her $50 a month in return for the forgiveness. Eventually the sister also asks for a note to

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indicate the remaining balance—an IOU—and the wife stops paying.

a. We can wonder for hours why the sister asked for the note. Most likely she just didn’t want to end up shorthanded again.

2. Court: no reliance, and no consideration. a. And an informal promise is never enforceable if it stands

alone, if the promise is all you have to show for it. b. “To be enforceable, there must be some accompanying

factor of the past (generally called "past consideration"), or there must be some subsequent changes of position in reliance on the promise. Without any such accompanying factor, an informal promise to make a gift is not binding.”

ii. Ricketts v. Scothorn (1898) [grandfather tells granddaughter quit]1. is Katie Scothorn (bookkeeper and granddaughter)2. Grandfather gave her a note

a. None of his other grandchildren work and she shouldn’t have to either

b. “I promise to pay Katie $12K to be 6% per annum”3. Grandpa runs out of money and dies

a. She goes back to workb. sues the estate

4. Good consideration argument?a. She quits her job

i. He essentially told her she could/should quit (not explicitly/precisely that)

b. Court says no consideration5. Cardozo has found bargains in a lot less than this

a. Court doesn’t go down this path6. Court – matter of reliance

a. Promise not a bargainb. Equitable estoppel

7. Expectation damages would be the fulfillment of the note8. Reliance damages – as if the contract had never happened 9. There is no traditional contract, Court trying to rescue

iii. Restatement § 90(1) and (2)1. Reasonably expected reliance

h. Promises Made in Employment Contextsi. Feinberg v. Pfeiffer Co. (1959) [woman retires pension]

1. Woman works from entry level to high position (over 37 years)2. Employer tells her she will get a pension when she retires3. She works for another 1 & ½ years then retires

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4. She gets pension for ~7 years then they have financial problems and the control of the company changes decide not to pay her as much

a. They send her ½ the amountb. She refuses and sues

5. Consideration?a. She retired

6. Court says reliance – promise she could reasonably relied on ii. Hayes v. Plantations Steel Co. (1982) [man retires – take care]

1. worked at company and decided to retire, employer told him they would “take care” of him

a. Stays on an extra weekb. Is this extra week consideration?

i. We don’t look at amount of consideration c. Promise comes after decision to/statement indicating

retirement2. He gets four years of payments

a. Keeps visiting to inquire about paymentsiii. Restatement (First) 90

VII. The Material Benefit Rulea. Overview

i. When do we worry about this?1. Promise after/for benefit received2. There has to be a promise after you receive the benefit

ii. What are the damages?1. Expectation damages with lost profits, etc.?2. Once §86 applies contract

a. Treat it like any valid contract3. Construct a hypothetical bargain?

a. Not always a close case where this is possible b. Not clear

b. Mills v. Wyman (1825) [shipwrecked]i. Mills finds Levi Wyman after he was shipwrecked and takes care of himii. Writes to Levi’s father

iii. Father writes back and agrees to pay Mills’ expensesiv. Levi dies and Mills requests money from father, father refused to payv. We think there was a material benefit – increased chance of life or life for

a couple days longer … why doesn’t Mills get anything?vi. Direct benefit?

1. Son died, didn’t get aw benefitvii. Early on, Wyman reneges on the promise

1. Bigger bill than expected2. More vague of a situation than Wyman realizes

c. Webb v. McGowin (1935) [saves person life]

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i. Construction site – falling piece of debris ii. Webb blocked debris/protects McGowin and sustains serious injurious –

debilitated for liveiii. McGowin agrees to pay him for life, McGowin pays for years, but diesiv. Estate refused to pay Webbv. Did Webb save McGowin as a reflex?

vi. More injustice here?1. McGowin paid for years, estate is going back on both of their

intentions2. McGowin wanted to pay Webb3. Restatement §86(1)

d. You don’t get to pay for past benefits – they have to offeri. Expectation of payment is necessary

e. Jordan v. Duff & Phelps [man cashes in stock weeks before merger]VIII. Offer

a. Overviewi. At what point can we say there has been an exchange of promises?ii. Worry: if finding a contact when the parties have no fully decided on this

contract1. Worry about hampering initial negotiations 2. Err on side of seeing it as a negotiation instead of a comment

iii. Want to: encourage clarity1. Don’t want to scare people from initial negotiations2. If the enforce negotiation as contract worse consequences

than holding a contract as a negotiation (just put people back at starting point)

iv. People are contracting with many others at a time these negotiations affect others

1. Fact-paced contracting b. Courteen Seed Co. v. Abraham (1929) [accepts offer, but already sold]

i. Courteen Seed is a wholesale seed seller and buyer in this interactionii. Abraham is a warehouse/grain dealer and seller in this interaction

iii. Seller officers a price (“asking for” x), buyer wants a better price, seller goes down, buyer tries to accept

iv. Buyer demands delivery, seller says it was sold to someone elsev. Difference between “I’m asking for “ and “I’m offering this for”

1. Court focuses on the wordsvi. Accepted that giving a price is an entry point for negotiation

1. Court: no offer c. Fairmount Glass Works v. Crunden-Martin Woodenware Co. (1899) [accepts

offer, but already sol]i. Fairmount is the seller; C-M is buyerii. Initial request from buyer for cheapest price, seller quotes buyer “for

immediate acceptance and shipment…”

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iii. Next day, buyer accepts, but seller has sold it to someone else iv. Court focuses on “immediate acceptance” languagev. Court: yes offer

vi. Quantify wasn’t specified?1. Industry practice gives car load a more specific volume than what

would be known by general publicvii. Ordinarily, price is not enough, but “acceptance” language and industry

knowledge make it a contract1. Parties had a full understanding

d. Random steps I wrote in my notesi. Presume negotiationsii. Easy to make it clear

iii. Information1. More informed contract efficiency gains

e. Not a lot of loss from delay to get it rightf. Restatement §§ 22, 24, 26

IX. Acceptancea. Basis Offer and Acceptance Principles

i. Rules of Bargaining Process1. Operate as default2. Among more applicable default rules – people usually don’t

contract around this ii. Magic Words

1. Offer, acceptance, signingiii. Manifestation of intent

1. Other persons perception of your intent2. Not what your actual (secret) intent is

iv. Merger clause1. K is limited to what’s in agreement2. Early agreements made during negotiations are not binding unless

they make it into the contractb. Methods

i. Restatement § 32 – the offeree can accept an ambiguous offer in any reasonable way

ii. When the offer is ambiguous, the offeree gets to choose how to accept it (p. 60)

iii. Ever-Tite Roofing Corp. v. Green (1955) [roofing – no notice]1. Green wants his home re-roofed2. Green makes offer, ET drafts the offer3. You may accept by either authorized signature or by beginning

the work (commencement of performance)4. Unauthorized agent of ET signs it5. They need to do a (standardized?) credit check – some small time

passes

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6. ET get struck and workers together arrives at house (without notice)

7. Someone else has started the job8. Trial court finds for Green, Appellate court finds for ET9. Court says ET has a reasonable amount of time to perform10. Green gives no notice in the time that passes that they were

hiring someone else11. When does performance begin?

a. When they start loading the truck?12. Think about: what outcome/rules do the parties really want

a. Think about future situations/casesb. What rules are you setting up for all future cases

iv. Ciaramella v. Reader’s Digest Ass’n (1997) [we have a deal decides not to settle]

1. Ciaramella ( and employee) sues (Reader’s Digest) under ADA and ERISA for discrimination

2. Go into settlement agreement negotiationsa. Get drafts going between partiesb. Make a ton of progressc. ’s lawyers says “we have a deal”, but wants to pull out

of negotiationsd. Draft settlement agreement has provision that says

agreement isn’t effective until it’s signed by , , and lawyers

3. Court sets up four-part test to determine if parties intended to be bound by a settlement agreement (in absence of an executed document)

a. Whether there has been an express reservation of the right not to be bound in the absence of a signed written contract

b. Whether there has been partial performance of the contract

c. Whether all of the terms of the alleged contract have been agreed upon

d. Whether the agreement at issue is the type of contract that is usually committed to writing

4. Gulati says A is the most importanta. Others are just for if you don’t have #1

v. James Baird v. Gimbel Bros. (Learned Hand)1. Court ruled that subcontractor could revoke his bid at any point

prior to formal acceptance of the offer, even though the general contractor may have relied on the bid in computing his overall bid for the project

2. Did not allocate risk default rule

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3. No promise to be bounda. Made offer and didn’t include term it was open for

4. The rule assigns to the general contractor the risk of a mistake by the subcontractor in calculating his bid

vi. Drennan v. Star Paving Co. (Traynor)1. General contractors uses the subcontractor’s bid2. Subcontractor is bound because of reliance3. This rule assigns burden of precautions entirely on the

subcontractor 4. Exchange of promises between the parties bound by it5. What is general contractor doing for subcontractor?

a. They don’ have to use sub’s bidb. They get possibility of work/that general contractor

accepts their bid 6. Traynor’s view gets adopted by vast majority of jurisdictions and

Restatement §877. Restatement § 87(2)

a. Using reliance as a form of considerationb. General contractor has option to screw over subcontractor

(Traynor)c. Subcontractor has option to screw over general contractor

(Hand)d. Neither doctrine incorporates industry practice

c. Silence or Dominion as Acceptancei. Silence cannot be acceptance unless the circumstances of the parties’

relationship suggest that they understand silence in that wayii. Restatement §§ 30, 35, 36, 42

d. The Mailbox Rulei. Offer is accepted as soon as it’s sentii. Restatement §§ 50, 54, 56

X. Revocationa. Irrevocable Offers

i. Pavel Enterprises, Inc. v. A.S. Johnson Co., Inc. (1955) [government bid]1. NIH soliciting general contracting bids for a project2. PEI submits GC bid and solicits SC bids

a. Johnson submits SC bid for HVAC b. PEI becomes lowers (acceptable) bidder (the were

originally the second-lowest) c. Johnson is lowest SC bid by $132K

3. Johnson saw that PEI wasn’t lowest bidder, so they did not correct an error in their bid

a. Lowest bidder drops, making PEI lowest bid and government awards PEI the contract

4. Not clear if the jurisdiction follows Hand or Traynor rule

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5. Johnson reneged before PEI ells them they’re bound6. Under Hand rule Johnson not liable/bound7. Under Traynor Johnson is bound8. Court says option dissipated

a. The Traynor/Hand applications are getting mucked up something else is going on here

b. Court seems to be saying: yes GC relied on SC, but they can negate that reliance by shopping around

i. GC was trying to pressure SC into offering lessii. This is the deviation from Traynor

ii. Restatement §§ 25, 36, 38, 45, 87; UCC § 2-205XI. Counteroffer

a. Ionics, Inc. v. Elmwood Sensors (1997)i. Ionics buys thermostats from Elmwood on 3 occasions and always sends

purchase order form with conditions, including remedies (they want expectation damages). Elmwood responds with acknowledgment and rejection of damages. “battle of the forms.”

1. This court says yes, there’s a last gasp of last shot doctrine after the comma in 2-207, but the really important part is actually the part rejecting it.

b. Restatement §§ 59, 51, UCC § 2-207i. UCC 2-207: mirror image/ last shot rules

1. Two common law doctrines (made by states, vague and amorphous, which is why the restatement is so important)

2. Mirror image rule: a reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different than those offered. Goes back and forth until what is offered is the mirror image of what’s accepted.

a. A statement, even an agreeable, affirmative statement, cannot count as an acceptance if it introduces new or different terms form those that are contained in the offer

b. The form sent last prevails3. Last shot—a modification: when there hasn’t been mirror image

but the parties just start to perform, what counts as the contract is what was last sent, and the parties are bound by that last offer (or counteroffer).

4. The assumptions underlying this:a. That people don’t read contracts, even when the contract

for valuable things.5. The UCC rule is a definite and seasonable expression of

acceptance or a written confirmation sent within a reasonable time operates as an acceptance even if it states different/ additional terms. It’s the most radical shift in contract law ever—it assumes that people don’t read, there’s no point incentivizing

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them to read again because they didn’t read in the first place. (a party can limit the offer the to what it offered with a specific provision, or can object to the new terms by expressly objecting to them.)

6. But there’s additional complications: the second part (after the comma) is where the last shot doctrine/common law fight back: first part doesn’t apply if a specific provision is used that refers to conditional contract on additional terms, expressly bringing back the last shot doctrine. (at least as explicit as the UCC makes it.)

a. And the second part: once an acceptance is found, we need to decide which provisions actually constitute the contract. Additional terms offered by offeree/ unless the terms are material (like something that creates a hardship or warranty)

b. But it only applies to merchants, and to find the definition of that, you need to go to UCC 2-104(1): person who deals with goods / is an expert on goods dealt for.

7. (Think about what you’re trying to do and what language will best serve that.)

ii. The way things work depends on the overall and specific purpose. Here, we’re looking at efficiency—giving the parties the contract which they clearly wanted, because they’ve already started performing. So we try to give them what will least hurt them. (if the provisions written by each party are really irreconcilable, they’ll get the default rules.)

c. Sanfelippo Cabs v. City of Milwaukee (2016) [cab medallion limit lifted]i. Did the cab companies have a k with the city?

1. The city surely made some promises, but did it amount to a K?ii. UCC § 2-207

1. Inconsistent terms are knocked out and replaced by the default rule in the code

iii. Lack of bargaining power1. Disqualifying to Ks?

iv. No pretense of negotiation in the modern world – can we even apply K law? (buying and selling online, etc.)

v. Thinking about Ks as products or parts of a product (product feature)XII. Contracts and the Internet

a. Step-Saver Data Systems, Inc. v. Wyse Technology (1991) [shrinkwrap case]i. TSL – suite of software ii. Step-Saver is selling capacity to have multiple terminals

iii. Wyse – terminals iv. Problems with the software

1. Hire companies to help solve problem and they can’t v. Customers are suing Step Saver for expectations damages

vi. Terms over the package (shrinkwrap)

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1. Provision that if they don’t agree to box-top, they should send it back

vii. Step Saver’s counter argument1. There was a phone call

a. Price, quantity, shipmentb. Not damages

2. K formed on the phonea. Offer and acceptance on the phone

viii. Holding1. TSL’s contract provisions don’t apply2. TSL didn’t show the K would be unagreeable to them unless Step-

Saver accepted for new terms b. Hill v. Gateway 2000 (1997) [agreement in box]

i. Hills buy computer – computer was allegedly defective ii. Gateway includes a list of terms said to govern unless the customer

returns the computer within 30 daysiii. Terms included arbitration clauseiv. K formed when Hills paid for computer in storev. How does Judge Easterbrook get Step-Saver?

1. What’s realistic for modern transactions 2. Doesn’t think § 2-207 applies here

a. No battle of the formsb. Only one K form

vi. Expectation that there would be additional termsvii. Most buyers don’t want to read the terms beforehand

viii. There are ways to figure out the terms beforehand if you careix. Precursor of Baird’s chapter

c. The system would not work if we had a complete K by just price and quantityi. Can’t rely on default rulesii. Get out of UCC by saying it’s service

d. This is not about the law of contract, it’s about what’s convenient for modern world

i. Federal judge Easterbrook doesn’t really have business to change K (state) law

e. Easterbrook wins out (over Wisdom) at the end of the dayi. 20 years later – modern lawii. Was very outrageous at the time

1. No respect for traditional contract law iii. Sometimes evolution of judge-made law is accelerated

f. UCC §§ 2-204, 2-207XIII. Statute of Frauds

a. The most important contracts that must be in writing are contracts transferring interest in real property, service contracts that cannot be performed within one year, and sales of goods worth more than $500.

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b. Common Lawi. A large set of Ks cannot be brought unless they are in writing and are

signedii. ~1677 origins, K relating to:

1. Estates2. Debts3. Marriage4. Property5. Any agreement that can’t be done within a year

iii. What’s this about?1. The stuff that was important to feudal elites2. About protecting against fraud

iv. Why do we have this?1. Makes resolution of disputes easier2. Don’t have to argue about whether there was a K3. To protect against fraud, this provides an evidentiary basis4. To make sure people know what they’re getting into - make

parties think about things more5. Reduce burden on the state/court system/taxes that are

implicated by litigationv. English system eventually repeals statute of frauds

1. Most states have a version of the Statute of Fraud2. Find “common law” in the statute, not the case law (Not typical)

vi. Type of fraud found was different than the type of fraud they were worried about

1. People using Ks as enforceable only as long as they wanted the terms/relationships

2. It was taken very seriously3. People abused it

vii. Wants to minimize contractsc. Restatement § 131 General Requisites of a Memorandum

i. Look at the statuteii. (a) subject matter identified

iii. (b) sufficient to indicate that a K with respect thereto has been made between the parties or offered by the signer to the other party

iv. (c) states with reasonably certainty the essential terms of the unperformed promises in the K

1. What’s essential?a. Material termsb. Price and quantity, date of performancec. Important terms, depend on type of contract

2. “Essential terms” is not defineda. Not crystal clear b. Probably don’t need all the terms

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d. McIntosh v. Murphy (1970) [moves to HI for job]e. Monetti, S.p.A. v. Anchor Hocking Corp. (1991) [deterioration of relations]f. Restatement § 131; UCC § 2-201

i. § 139 “Enforcement by Virtue of Action in Reliance”1. A promise which the promisor should reasonably expect to induce

action or forbearance on the part of the promiser or a third person and which does include the action or forbearance is enforceable notwithstanding the statute of frauds if injustice can be avoided only by enforcement of the promise

ii. § 2-201 “Formal Requirements; Statute of Frauds”1. Sale of goods above a certain amount ($500)

a. Not a particularly large amount2. You need:

a. Some writing sufficient enough to show a K has been madeb. Has to be signed (by party against whom enforcement is

sought)3. The UCC wants you to have a contract

a. Requirements are lawb. Broadening effect

4. Comments say that oral evidence can be used in addition to writing

a. But at some point, allowing oral evidence undermines the very purpose of the statute of frauds

5. Wants to broaden contracts iii. Matter of Partial Performance (UCC comment 2)

1. Substitute for the required memorandum can validate the K only for the goods which have been accepted on for which payment has been made and accepted

2. Performance is one of the best pieces of evidence of a contract 3. If you allowed partial performance to be complete substitute

swallow up all of Kg. Substantial Performance

i. The party protected by a condition cannot reject the performance of a promisor who substantially (but not perfectly) complies with the condition – Reading pipe case (Kent)

h. For sale of good, the perfect tender rule applies: buyers can reject goods that do not perfectly conform with specifications

XIV. Relational Contractsa. Overview

i. Different from a spot contract, which is a one-time K/exchangeii. Difficulty of identifying important information

1. Hidden information problem2. As you find out more information about company (due diligence)

iii. Think in terms of fating – vetting to make sure he’s not a murderer

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iv. At what point do you get to walk from the relationship?v. Things change – value of parties can change

1. Get information about yourself and the other side2. You get the better offers?

vi. You can destroy the relationship by looking around for people to replace them

1. Try to make them break up with you2. They can’t sue you if they break it off 3. Amount of effort could go down4. Come up with an exit clause? Pre-nup

a. Can’t decide this perfectly especially when you don’t have a lot of information about the other side

b. In general, there’s a lack of (detailed) exit clausesvii. Problems

1. Incompletenessa. Complex Ks are always going to be incomplete

i. No way to account for all possible contingencies b. Default rules

i. Put in place by courtii. Set of provisions that apply when you don’t have

an explicit provision in your Kiii. Also want to give parties what they intended or

would have wanted (but could not articulate)2. Hidden information 3. Complexity

viii. It’s hard to predict everything that’s going to happen – and hard to write it down

1. Need to allocate risksix. Bubble of reasonable behavior/specifics

1. What should we specify ex post?a. Contracting for ex post protection of the court from some

sort of egregious behavior on the part of the other party 2. Need context and prior dealings between parties or custom in the

industry – to give it some meaning a. Most useful in the absence of evidence to the contrary,

people in the trade use terms in the same way. 3. You have contours, and most of the time, parties can agree on a

price within the contoursa. But in rare circumstances, the court needs to come in b. Rare circumstances = egregious behavior c. What are the indications of a bubble contract?

x. What happens when someone goes outside the bounds of proper dealing? (outside the bubble)

1. Good faith

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2. Best efforts3. Due diligence4. Fiduciary duties5. *reasonableness*

b. Preliminary Negotiationsi. Coley v. Lang (1976) [bidding rights]

1. Lang Coley2. Stock purchase agreement (Lang sells to Coley)3. Lang’s company can bid on government Ks/there are some

regulatory advantages4. Coley wants to buy shares (not company, but right to be called the

company)a. Just want the name and regulatory advantages that come

with it5. Tentative agreement

a. Will enter into a K later, but not now6. Parties decide they don’t want to sign a final K7. Court says it’s relatively simple preliminary is not binding

ii. Hoffman v. Red Owl Stores, Inc. (1965) [franchise case]1. Hoffman has a bakery/future grocery store profession and wants

to move up in the world – wants to buy a franchise (Red Owl)2. Red Owl reps. tell him he needs money, to sell building to get

money, and grocery store experiences (training)a. Want to evaluate him as he’s running smaller operations b. Going on for a few years

3. Red Owl rep. (Lukowitz) changes amount multiple times\Hoffman has done a lot of work times comes he needs a loan from his father-in-law

a. Does the father-in-law have to be party to agreement? Or does he have to give the money as a gift?

b. Don’t want additional strings attached to moneyc. Don’t want a loand. RO wants to structure it so that if something goes wrong,

their investment is still protected4. Red Owl makes unreasonable, last minute requests; RO says no

deal – we’re moving on5. Hoffman sues for investment he’s put into preparing for the

franchise (for years)they do not have a signed K

a. This is all stuff in preparation for a Kiii. Restatement §§ 2, 33, 90; UCC § 2-103(1)(b)

c. Binding Preliminary Agreementsi. Brown v. Cara (2005) [Jay St. development]

1. Judge Leval (Tribune) devises

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a. Type I and Type II – preliminary agreements b. Factors given to determine if preliminary agreement is

binding under each type c. Multifactor test can lead you in the wrong direction

2. Coley & Hoffman are distinguisheda. Hoffman – lots of reliance, Coley – no relianceb. Hoffman – big corporation vs. little guyc. Hoffman articulation has not been followed

i. Coley v. Lang rule prevails with Judge Leval distinction

d. Output and Requirements Contractsi. Requirement contract – a seller promises to provide all the goods a buyer

orders (what the buyer requires)ii. Output contract – a buyer promises to buy all of the goods the sellers

produces (seller’s output)iii. Eastern Air Lines, Inc. v. Gulf Oil Corp. (1975) [oil index gets fucked]

1. needs oil, contracts with enter into requirements K2. What do we set as the price?

a. They don’t want to hedge against deviations agree to an index set by 3rd party to guide their price (West Texas Sour)

3. Price controls set 2 pricesa. Old price (government set)b. New price (additional oil above your previous production)

4. Encourage more production of oil (U.S. suffering from oil embargo)

5. Index starts working differentlya. Report government price instead of market priceb. Eastern has to pay low pricec. Gulf doesn’t want to sell at artificially low price

6. Impracticability 7. What if West Texas picked an international spot price?

a. Eastern would be complaining about the K b. Would require them to buy at a much higher price

8. What’s the bad faith?a. Eastern buying more oil than they needed/used to (10%

more)b. Systematically taking 10% more

9. Court says this is in the nature of dealinga. They’ve had/allowed fluctuations in the pastb. Court doesn’t do a good job at this doesn’t answer our

good faith question c. It’s the degree of fluctuation that matters

iv. Empire Gas Corp. v. American Bakeries Co. (1988) [propane conversion]

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1. Posner opinion2. had trucks they wanted to cover to propane3. Made K with to install/buy converter units 4. For approximately three thousand [conversion] units, more or less

depending upon requirements of buyer” 5. doesn’t buy anything (reads it as an option)6. 1st analysis question: is this a requirements K?7. Empire wanted a type requirements k, but they negotiated this K

instead8. “requirements” is a term of art signals requirements K9. Are the negotiations relevant?

a. Many jurisdictions split on thisb. Vague language look at intrinsic evidence like

negotiationsc. Posner bypasses this 0just says it’s a requirements K

10. UCC § 1-201a. (19) “good faith” means honesty in fact in the conduct or

transaction b. Was this dishonesty

11. UCC § 2-306a. Is this bad faith?b. “except that no quantity unreasonably disproportionate to

any state estimate…” v. How do we distinguish between an options and a requirements K?

1. Options – “I get to buy however much I need”2. Requirements (bubble) – “I’ll buy this amount – or a little less or

more”a. Don’t necessarily need an estimate

vi. Why have a requirements contract and not just buy spot?1. More efficient to have to an on-going agreement – eliminate

transaction costs2. Assurance about quality/what kind of product you’re going to get

e. Exclusive Dealings Contractsi. Wood v. Lucy, Lady Duff-Gordon (1917) [fashion icon case]

1. Best efforts (implicit)2. Cardozo3. is a fashion designer/icon/influencer4. contracted for exclusive right to put s endorsements on

products 5. But gives her products to other people to sell, sues for break

of K6. says no K, didn’t agree to do anything/not sure he would7. If you have an option, you didn’t pay anything for no K 8. Cardozo says best efforts is what had to do

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a. There is a K – there had to have been an implicit best efforts provision

ii. What is best efforts?1. Difference between opportunistic (bad) behavior and failure to comply

with what you promised to do in your K2. Best efforts = treating the other party as if they were you

iii. Bloor v. Falstaff Brewing Corp. [sells beer, don’t sell enough]iv. London restaurant hypo

1. Kenji & Partners contract with Alison & Emily (funders) to start a beer hall with some food

2. Kenji’s responsibilities a. Minimum # of hours (6/day) for the first two months, after

that 3/hours a dayb. Supervision of hiringc. Deciding the menu

3. Two-year contracta. Agreement that parties will negotiate in good faith at end

of Kb. Good efforts to ensure success of joint operationc. Profit-sharing: Kenji gets 20% of net profit and 0% of the

losses 4. What happens:

a. 1 year in restaurant is losing $20K/weeki. Losses from food operation, not beer

b. Kenji is spending 14-16 hours a day at the restaurant i. Supervises all the purchase of produce

1. Imports sausage from Italy 2. Throwing out produce daily

ii. Goes through 50% staff per month c. Restaurant is always packed, great reviews d. Kenji gets a lot of offers to work at other restaurants, but

will work for another year (pursuant to K)e. Alison & Emily urge him to work less

i. Kenji wants to keep going – protect his reputation5. Can they argue Kenji is in breach and force him out?

a. His hiring and purchasing practices sucki. Too expensive & wasteful

b. Is there a way out?i. Good efforts clauseii. Did he breach/exceed K?

c. Is it a loser case?d. Mistake? About what success is

i. Kenji has success, but the restaurant doesn’t

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e. K was structured so Kenji didn’t lose = incentives it gives him?

f. Turns on notions of best effortsi. Is this a winner or loser?ii. Give honest legal advice based on answer #1

g. Kenji acting selfishlyi. Taking advantage of the fact he doesn’t lose

anything ii. I can enhance my reputation, doesn’t matter if they

lose moneyiii. K sets up this incentive in profit-sharing iv. They contracted for how to get out

h. They were contracting for his superstar statusi. But he didn’t have other ventures

i. UCC is not relevant here (this is services)f. Modification to Existing Agreements

i. Alaska Packers Ass’n v. Domenico () [fisherman demand more money]1. Sailors enter into a K with salmon fisher/catchers2. 2 contracts?3. Along the way, sailors decide K is not working for them4. Nets are rotten 5. They want to get paid more money6. Court said nets were not crappy

a. Gulati isn’t convinced by their rationale 7. Restatement § 898. Cousin of mistake9. Harsh to not let parties reform K?

XV. Mistake and Excusea. In the mutual mistake case, both parties are uninformed about the relevant fact

– that some unknown characteristic of the product renders it more or less valuable than the parties believe

i. Restatement § 152b. Reserved for extreme cases c. Baseball hypo

i. Giants (SF) AAA player (Takihiro Notumori)ii. Red Sox want to trade for Takihiro ($5M) + 2 recent college grads

iii. Red Sox game against Yankeesiv. Giants have 2 Takihiros (other isn’t as good)v. Red So realize they got the wrong “Takihiro:

d. Common threat where excuse is found:i. Expectation damages are not likely to be highii. Refusing to allow excuse will do little to make the otherwise breaching

party take precautionsiii. The contracting opposite has a substantial ability to mitigate

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e. Sherwood v. Walker (1887) [cow]f. Anderson Bros. Corp. v. O’Meara (1962) [dredge]g. Aluminum Co. of America v. Essex Group, Inc. (1980) [oil index]

i. Unusual set of circumstances ii. Facts

1. ALCOA and Essex contracted – Essex gave material to ALCOA to convert it into aluminum

2. They get a very famous economist to create a price mechanism/index

a. Index had a price ceilingb. Indices are risk adjustorsc. Trying to measure marker variation, but limit

conflict/litigation d. Indices don’t measure exactly what you want

i. Generally works but sometimes goes out of whack 3. Oil prices effect electricity costs4. They negotiated for a ceiling, but not a floor

a. Price goes below their theoretical floorb. ALCOA loses massively c. Essex is gaining massively – buy more aluminum from

ALCOA at cheap price, also buying extra and outselling ALCOA in the market

5. They both knew exactly what they were agreeing toa. Parties are hyper-sophisticated b. Are these the types of people who need to be rescued?

6. Court conceptualizes a different kind of mutual mistake herea. Did neither party expect this result b. But… predicting something would work, isn’t exactly a

mistake7. Restatement § 1528. This case dramatically expands the notion of mistake – expands

the realm of mistake a. Empire Gas is much harsher

9. Joint mistake about how the mechanism would worka. Similar to Empire Gasb. Before ALCOA, this would have been an easy case c. Cases are opposite – Gulati doesn’t think they’re

distinguishableh. Doctrine of excuse

i. Very tough to win – need really good factsii. Excuse from contract you made

iii. Invalidating Ks imposes costs (creates uncertainty)

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i. Implied warranty: when a seller of goods does not provide otherwise (through a warranty disclaimer), the seller is deemed to promise that the goods will be free of defects (merchantable) and fit for buyers purpose (fitness)

XVI. Immortality (Surrogacy Contracts)a. Factors

i. Externalitiesii. Welfare enhancement

iii. Supply chainiv. Normsv. Morality

vi. Choicevii. Morality & norms change radically over times

1. As this changes, our legal restrictions changeb. Landscape of Surrogacy Law in the U.S.

i. Traditional surrogacy1. Surrogate supplies the egg (and womb)2. Baby M

ii. Gestational surrogacy 1. Surrogate does not supply egg – only womb2. Iowa case3. Law more favorable because of lack of biological connection

iii. ~10 states are going no(?)iv. 5 states hold surrogacy Ks unenforceable or illegal (including NY)v. Other states on continuum of regulation

1. Courts regulations vi. Some states enforce gestational, but not traditional

c. Women and contractual autonomy over their bodies/wombs i. Or can she not make it?ii. Argument before birth, woman can’t know the bond with her baby

iii. Some regulations require women/surrogates to have been mothers before

d. In re Baby M (1988) [traditional surrogacy]i. Sterns looking for specific performanceii. Trial court says enforceable, but won’t do special performance without

looking at the best interests of the child; think Sterns are more fit1. Money2. Education3. Disliked gender balance4. Questionable decisions (crazy)

iii. Supreme Court says contract not enforceable, but still looks at best interest of the child

1. Thinks trial court was too hard on Mrs. Whitehead2. How could she be expected to part with the baby?

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iv. Mr. Stern desire to continue bloodline > Mrs. Whitehead’s desire to keep busy

v. Constitutional right to surrogacy?vi. Women could buy sperm pregnancy; should men also be able to buy

access to reproduction vii. Court finds k violates laws

1. Not selling babies2. Adoption laws3. Issue of termination of parental rights

viii. Commercialization of babies pathway to selling children 1. More and more could become normalized 2. Society has a right to withhold some things/some types of things

from the marketa. i.e. prostitution b. surrogacy isn’t like grocery shopping

ix. Bartlett: illegality case – related to laws based on moral values1. But not directly about morality

x. Gulati: this is more about morality xi. This case is in rudimentary stage in surrogacy law

1. Norms have changed2. Surrogacy is a thriving business now3. Courts and legislatures are becoming more realistic this

process isn’t what’s going onxii. The less biology the less applicable

xiii. Legal restriction1. i.e. anonymous egg and sperm 2. this is still gestational surrogacy

xiv. Human obsession with biological progeny1. underlying emphasis on who biological parents are and what their

interests arexv. Worry about exploiting women who don’t have many options

xvi. A lot of surrogacy legislation/regulations are targeted at intermediaries1. Screening – are you doing this for altruism or for the money

xvii. Unregulated international market is huge1. Outsourcing of market to countries with less regulation (i.e.

Mumbai)xviii. Religious concerns?

xix. Ex post analysis1. Court looks at after the fact 2. K law is supposed to look at ex ante – what the parties wanted

xx. Mrs. Stern wasn’t party to Baby M K – tip-toeing around 1. They could guess that Mr. Stern’s biology would trump

e. P.M. & C.M. v. T.B. & C.B. (2018) [gestational surrogacy]XVII. Fraud

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a. Fraud is a tort claim, but can be used to avoid a contract contract is voidable (option)

b. Expressing an opinin normally cannot be fraudulentc. You can be guilty of fraud:

i. Affirmatively misrepresent (lie)ii. Misrepresent through omission, action suggesting something else

d. Willful and Negligent Misrepresentationi. Spiess v. Brandt (1950) [resort case]

1. Continuing for duty to disclosea. Relationship between partiesb. Lured into it?

2. Maybe there was a false assertion about past profits?a. Assertions about future are hard to sue on – they’re

predictions ii. Danaan Realty Corp. v. Harris (1959)

1. Market value was $100K, negotiate to $95K2. Disclosure wasn’t going to change the deal that much3. But are you entitled to disclosure and to change your mind?

e. Duty to Readi. Merit Music Services, Inc. v. Sonneborn [juke box case]

1. Can I fraudulently persuade you to sign a waiver for misrepresentation?

2. If you put material in your disclosures, how much of an obligation does other party have to read?

f. Concealment and Disclosurei. The rule is roughly that sellers must disclose facts that they know or

should reasonably know about the thing they are selling that buyers cannot discover by reasonable inspection

ii. Constructive fraud – when two parties have a confidential or fiduciary relationship and the party in the superior position enters into a transaction with the other party that does not serve that other party’s interest

iii. Obde v. Schlemeyer (1960) [termite case]1. s bought house from and there’s a termite infestation2. s knew of problem took some steps to eradicate infestation but

needed to do more to guarantee that it was now termite-free3. s did not disclose termite infestation 4. But steps taken by were enough that s could not detect

infestation with reasonable inspection5. Not a special relationship

a. You have to pay for warranties 6. Core question in this case?

a. Why does court rule against seller?b. Which created the duty to disclose?

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i. Did seller have obligation to disclose there were termites in the past?

ii. Or was there a huge violation of good faith? (this one!)

7. Court rules against the sellera. Cleaned up the evidence of termites (too well?) = violation

of good faith?b. s had no way to find out about termites (with reasonable

inspection)c. Concealment/bad faith – did s make it difficult to

discover termites8. Materiality – how important the information is

a. Don’t conflate materiality with duty to disclose b. Keep legal elements separate

9. Duty to disclose? a. Termites are big! They could make the house collapse

iv. Reed v. King (1983) [murder house]1. Woman and four children murdered in home2. s sell house to without telling them about murders3. s ask neighbors not to disclose what happened4. Court says – yes! You have to disclose this 5. Because of concealment or just because this is a really important

thing6. Fact changes the value of the home7. paid $76K, but it was only $65K8. Court focuses on the “murder of innocents is highly unusual in its

potential for so disturbing buyers”9. What about ability to resell?

v. Laidlaw v. Organ (1817) [tobacco case]1. Tobacco seller (Organ buys from Girault – Laidlaw is the agent)2. War of 18123. War ends (Treat of Ghent)4. This is going to affect price of tobacco (will be able to sell higher –

international market)5. Organ knows that Treaty has been signed Girault asks if there has

been “any news”a. Organ doesn’t answer

vi. § 160 – Concealment/Omissionvii. § 161 – When Omission = Misrepresentation (omissions that are

actionable)1. Prior false assertion (obligation to correct false thing from the

best)a. [when you know disclosure would correct a prior false

statement]

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2. Fair dealing requires reasonable disclosure of basic assumptiona. [when you know non-disclosure would lead to a mistake –

as to a basic assumption of the K – by counter parti. Non-disclosure would be violation of good

faith/fair dealing]3. Counterparty has misunderstanding

a. If you know disclosure of fact would correct the mistake b. [know the disclosure is needed to correct a mistake about

the contents of a writing (other party’s misrepresentation]4. Some relationship – there’s trust and confidence between them

a. [special relationships produce obligations to speak – relationship of trust and confidence – i.e. doctor/patient]

viii. § 162 – When a Misrepresentation is Fraudulent or Material1. Intend assertion to induce assent and you know it is false2. Material = something that (is likely to) induce assent

ix. § 168 – Opinions g. Law of disclosure – duty/impose burden to investigate?

i. Due diligenceh. Examples

i. Roman Senateii. Duke Admitted Students Weekend

iii. Ship with food/famine/food merchant1. How did he get there first?

a. Invested more – better ship?b. Lighter material?c. Better captain or route?

iv. Oral surgery & waiver1. “you might not want to read this, it’ll make you nervous”2. Special relationship (patient-doctor)

a. Trust and confidenceb. Maximum disclosure

3. No relationship = minimum disclosure4. What do you need to disclosure?

a. Informed consent5. Just an obligation to not affirmatively lie or push someone away

from learning the truth 6. Nurse obviating the duty to read?

v. Knicks & Mavericks trade1. Good player accused of rape 2. Woman & he lawyers blackmail player 3. Player refused to pay, woman files charges4. Knicks are asked if there are any outstanding issues

a. Knicks tell Mavericks no problem 5. Violation of obligation to disclose?

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a. Mavericks agreed to trade based on assumption there was no issue

b. Probably not a special relationshipi. But course of dealings, repeated dealings (gets us

somewhere)ii. Special relationship is something different

c. FBI told them not to disclosei. You don’t get a pass to lie from the FBIii. Should Knicks have waited until investigation was

over to start trade negotiations?6. Case is easier/clearer on misrepresentation – NOT duty to disclose7. Is it material?

a. Would it affect them doing the deal or not?8. Mavericks had just had a sexual harassment scandal – it would

really matter to them9. Rape allegations don’t typically alter a player’s worth

i. Good faith – arm’s lengthi. Allowed to make a profitii. Different than fiduciary duties

iii. Different than doing things to mislead1. Pushing them away from due diligence

iv. The concept of good faith overlaps with other rules and does no independent analytic work

v. If parties could anticipate that one or both could take advantage of the inattention of the other, where one could instead simply remind the other part of the relevant contract language, they would want to bar this conduct

vi. The bottom line is that attempts to take advantage of the other party’s failure to reread the contract – and no doubt many similar “sharp” practices – may be regarded as contract breaches

vii. One cannot turn a blind eye after one comes to the point where one has seen enough to arouse suspicion

viii. Objective benchmark of good faith turns on reasonable standards of the relevant trade.

XVIII. Capacity to Contracta. Infancy

i. Bright Line Rule1. Most states it’s 18? 21?

ii. Exceptions1. Necessity2. Ratification

a. When minors enter majority and continues to engage/perform contract

b. i.e. making continued payments

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3. Emancipation a. Marriage?

iii. Kiefer v. Fred Howe Motors, Inc. [married minor buys car]b. Mental Illness

i. A cognitive standard – ever-moving standard 1. Usually pretty harsh

a. High bar on mental capacity 2. Courts drawing from criminal law3. Courts

a. Do something they don’t normally do: look to whether the K was fair

b. Relative fault, price, etc. becomes relevantii. Faber v. Sweet Style Mfg. Corp [manic depressive episode]

c. An incompetent person can avoid a contract if – roughly speaking – the counterparty had reason to know the first party’s incompetence, the terms were unfair, and the counterparty can be compensated for his reliance

XIX. Frustration of Purposea. U.S. in crisis: Great Depression (U.S. v. Perry)

i. Gold standard – money backed by goldii. People started contracting for gold instead of currency

iii. Liberty Bond – patriotic – bought for lower interestiv. Government passes a law preventing getting gold (can’t sell gold except

to government)1. Can’t redeem for gold – shortage of gold2. People get screwed by government3. Had explicit clause they could do it4. Laws:

a. No individual can pay you in goldb. The government won’t pay you in gold

v. Government gets sued – what sort of defenses do they have?vi. Purpose: to get money, but also to hedge against risks vii. That risk happens and government trying not to honor money they

specifically contacted forviii. ALCOA type mutual mistake?

1. Did neither party contemplate the Great Depression?ix. Court: 2 different cases

1. In private parties – no claim 2. Government contract with people – you can’t just pass a law so

you don’t have to paya. Government loses, but damages are $0b. Not even the monetary value of bonds

b. Krell v. Henry [King procession case]c. Lloyd v. Murphy [government suspends car sales]

XX. Identifying and Interpreting the Terms of an Agreement

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a. Introductioni. Parol evidence rule

1. When a contractual writing is incomplete, the court may admit extrinsic (“parole”) evidence to fill in the gaps; when the writing is complete, the court may not admit extrinsic evidence

2. Parties cannot offer extrinsic evidence about the meaning of the contract if the writing is clear, even if the extrinsic evidence says something different. But if the writing is unclear, then extrinsic evidence is admissible

3. The more sophistication the parties are and the less sophisticated judges are, the better the case for the four corners rule

ii. old common law doctrine1. if K is clear, never look beyond that2. provides predictability to parties3. saves judicial resources4. take plain meaning of K terms

iii. UCC § 2-2021. Final Written Expression: Parol or Extrinsic Evidence2. A. course of dealing or usage of trade or course of performance

a. Use it for evidence (can use it, but don’t have to)b. Explain or supplement the K but can’t contradict it

iv. Restatement has a different approach, but both want more contextb. Interpretation in the UCC

i. Columbia Nitrogren Corp. v. Royster Co. (1971) [orders less]1. K requires minimum quantity amounts and price term (function of

market prices)a. Price escalator

2. Price ends up being way above market, Columbia ends up ordering a lot less

3. K is clear on minimum quantity – 31 K tons4. Columbia gives evidence that it’s practice in industry to have finite

K terms that are actually negotiable later5. Evidence of ongoing partnership prior to this

a. And their own course of dealing (in addition to industry practice)

6. Think about mistake index stops workinga. Is it better to analyze as mistake or interpretation?

ii. Southern Concrete Services, Inc. v. Mableton Contractors, Inc. (1975) [orders less]

1. 70,000 yards (approx.) of concrete 2. K has merger clause3. only buys 12K yards4. Circuit court opinions say you can ignore requirements 5. Trial court here tries to distinguish from Royster

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6. Explicit rejection of other courtsXXI. Debt Contracts

a. Boilerplatei. Financial Ks- asymmetrical

1. Lender prepares the agreementii. Loan agreement

1. (1/2) upward slopea. Designed to ensure lender

i. Every predicate is present until critical momentii. money lent

2. (2/2) downward slopea. Lender do everything he can’t to make sure he recoups

moneyb. General K structure

i. Formal Opening (“witnesseth that”)1. Archaic

ii. Recitals (“whereas”)1. Not operative (In NY at least)2. Court will not look to this3. Set our your understanding of the deal in plain language4. Cannot hurt you, can really help to make sure your K reflects

intent of business people/deal5. Courts may rely on it (even though it’s not operative)

iii. Definitions 1. Capitalized terms2. Saves time/energy/space3. Consistency4. Risks

a. Don’t have to give a defined term its common sensical meaning

i. Can make it anything you wantb. One of the only places you can deviate from standard formc. Don’t forget to use the defined term (or delete it)

iv. Whatever the deal is 1. Relatively short

v. Conditions precedent (CPs)1. Lender wants to be absolutely sure that before they lend the

money that every predicate is true vi. Reps and warranties

1. Difference goes to remedy in event of a breach2. Representation claim in tort (maybe no K)3. Warranty claim in contract4. Bankruptcy – waterfall of creditors

a. Tax man is always at the tope

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b. Want to make sure you’ll get your money if they go bankrupt

5. Rep that all taxes are paid6. Taxman senior creditors7. Secured claims

vii. $ PEAK $ LENDING $ viii. Covenants

1. Virtually are mirror images of reps and warranties 2. Only verb tense changes (future lens)3. Under will, try to influence borrower’s business behavior4. Negative pledge – pledge not to do something

ix. Events of default 1. Demand repayment of the loan early2. Trip wires

x. Boilerplate1. Governing law2. Venue3. Waiver of sovereign immunity4. Agent of process5. The road for legal remedy

c. Basic Economic Principles i. Corporation

1. Organized as a person under state law2. Can enter into Ks, enforce them or breach them

ii. Relevant Parties1. Investors2. Shareholders (owners)

a. Vote for BODb. Is it governed to maximize profits for shareholders?

3. Debtholders4. IRS, EPA, government regulatory authorities 5. BOD hires management to run the company

iii. Vast majority of capital is raised through debt1. Bonds:

a. Secured debtb. Collateralized debtc. Prioritized debtd. Unsecured debte. Guaranteed debt

2. All provide different rights – different types of contracts a. Tend to be standard form Ks (boilerplate Ks)b. Indenture – primary financial terms in a debt transaction

iv. Basic conflicts1. Debtholders lend money and expect to get interest

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2. Economic conflict that arises:a. Limited amount of money b. You have to pay out debtholder before shareholdersc. Board of directors has to allocate the money

i. Pay debtholders as little as possibled. Debt claims are fixed, equity gets everything remaining

3. Two sets of people who want the moneya. Debtholders don’t run the company, but get paid first

(debt claims are fixed)b. Shareholders run the company, but get paid last

4. How do debtholders stop this from happening?a. Put in right K provisionsb. Sue to enforce Ks

i. Sue the corporation (because they have the assets)5. Claim:

a. Using control of the company to extract money due to debtholder

b. Contract: between equity and debtc. Equityholders take money debtholders should have

v. Liquidation = stop funcitond. Sharon Steel v. Chase Manhattan Bank (1982) [sells to risky company]

i. Structure

ii. If it liquidates within one year big payoff for shareholdersiii. Assets need to be dealt with before liquidation

1. Selling off pieces of the companyiv. Lend to someone at low rate (trust) – they decide to liquidate

1. Option 1: pay the money back2. Option 2: whoever we sell assets to takes over the debt (K

provision) a. Can transfer debt to a more risky company

v. Breach of covenants remedies for default 1. Accelerate payment plan (acceleration)

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UV Compay

Federal (60% of revenue)

Oil and gas (2%)

Mueller Bras (38%)

Subsidiaries

2. Some contracts specify that there is a penalty for paying them back early (redemption premium)

vi. Selling company (and debt) to Sharon Steel1. Selling money and Mueller Brass – Federal and oil and Gas)2. Sharon Steel notoriously poorly run company

vii. Successor-obligor provision1. No conditions on riskiness of corporation you sell to

a. Just have to be a U.S. corporation in good standing (with no default)

b. Sharon Steel satisfies provision 2. Have to sell “all or substantially all” of the assets to that company 3. Who is the provision designed to help?

a. Helps company 4. Doesn’t prohibit this sale on literal language

a. Provision is meant to benefit companyb. Huge discretion on who to sell to

viii. UV wins at trial court appeal to 2nd Circuit1. Says K is meant to benefit both parties2. K goes to the jury 3. Judge doesn’t like juries – not very knowledgeable about debt and

corporate lawix. Judge

1. Provision is boilerplate – not result of negotiation – intent of parties not a factor

2. Jury can’t decide it’s meaning -millions of other have this or a similar provision

3. Needs to be decided as a matter of lawa. Decision by judge not jury

4. Judge says provision language is not cleara. What is all or substantially all?b. Makes up his own shit – says it protects both parties

x. Debtors winxi. How much money do they win?

1. They want money back and the redemption premium2. K didn’t have a premium upon acceleration3. K does say when they pay back by choice premium

a. Wants court to say that evil = choice, therefore premium xii. Changes all of corporate contract law (of debt) in this decision

e. Windstream v. Aurelius (2019) [leaseback]i. Sale and Leaseback Provisions

1. Tax benefits2. Hide the economic standing/health from market 3. Uses affiliates to get around anti-leaseback provision

ii. Why did Aurelius want Windstream to be in default?

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1. Instead of letting company continue make money2. Aurelius didn’t want to make money from Windstream (type of

debt)a. Net short

3. Betting Windstream will fall make money off debtiii. Aurelius is the debt default activist

1. Distinct from traditional debt investorsa. Traditional investors make decisions based primarily on

their credit analysis of the underlying companyb. They don’t want the company to go into default

iv. Activism strategies1. Debt default greenmail

a. Give us money, we’ll go away and not engage in litigationb. Hinges on identifying a vulnerable targetc. Default claim can be pretty weak

2. Premium huntinga. Demand more than the face value of their debtb. Heightening the risk to the underlying company

3. Net-short debt activism a. Aggressive strategyb. Windstream!

4. Default archeologya. Default activists can assert breaches based on transactions

that are multiple years oldb. Debt document almost never include… c. Only need to own a certain portion of debt to give default

notice d. Extremely hard to settle

v. Then – lease agreement vi. Unit, subsidiaries – lease to Windstream Holdings to lease to operating

subsidiaries vii. Why is there a sale leaseback covenant?

1. 2015 transaction a. Business declines

2. 2017 Aurelius buys into debt 3. Serve notice of default – points back to sale & leaseback

viii. Court rules they are in violation of the leaseback provision1. Victory for Aurelius, aware of $310 M2. Windstream couldn’t pay bankruptcy

ix. What could Windstream have done?1. 2015 transaction was good for company/shareholders2. Could have gotten consent, but they decided to take a risk3. Windstream sues for declaration that they didn’t violate the

indenture

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4. Try to dilute Aurelius’ vote – more people into their series 5. Windstream’s lawyer fucked up

a. Said no premium f. Katz v. Oak Industries (1986) [instant vote]

i. Oak is struggling financially, has a shit ton of debt, on the verge of bankruptcy, lots of restrictive covenants

1. Restricting what company could do, borrowing, etc.2. Makes it hard to sell the company

a. Have to be careful not to get into defaultb. Subject to promises that original borrowers made

ii. Allied to buy company but doesn’t want to adhere to promises1. Go to debtholders: I will save you, but you have to waive your

promisesiii. Holdout for the highest price?

1. Even the smallest bond holder can stop the whole deal2. Allied doesn’t want to pay off the debtholders

iv. K provisions 1. Something like 60 cents on the dollar 2. All bondholders have to agree to pay less than they owe3. True for all payment terms

a. You have to get them to agree to accept lessb. Need unanimity

4. For all other things, need a supermajority5. They have about 80% - who would do this?

v. Exchange debt for new debt that’s worthless1. Vote in old debt as you take on new debt, Allied no promises2. Can change non-payment terms3. Instantaneous voting mechanism 4. Doesn’t really give debtholders a choice = have to agree5. Voting to screw someone in an instrument they don’t hold6. No provision restricting this

vi. Good faith and fair dealingvii. Court rules:

1. No violation2. K explicitly allows this3. Good faith and fair dealing doesn’t come in because this is what

you negotiated for4. Against the activists – this transaction is good for everyone

viii. Claim of duress?1. If you did not exchange your bond, you’ll have no protections

a. Become helpless ix. Explicit K provision in indenture that prohibited voting its own bonds

1. Issuer cannot vote in a reduction of payment x. Arguments won the day here – won’t always

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1. Holdout putting himself in a state of duressa. There are reasonable alternatives

2. Parties would have wanted an out for a holdout like this (at time of contract)

xi. Good claim of duress1. “do things or bad things will happen to you”2. Duress understood most concretely, is the situation in which one

person obtains a temporary monopoly that it tries to use to obtain a benefit to which it is not entitled.

g. Met Life Insurance Company v. RJR Nabisco (1989) [risky debt]i. Nabisco was incredibly profitable for a long time (cigarettes, Oreos) lots

of cash into company1. Debt was tiny, equity giant2. Lending to them was low risk

ii. Flashback to Sharon Steel & successor-obligoriii. 1980s – activist investors emerged

1. Buy company, cut useless BOD and some employees2. People found out tobacco was addictive – stock prices drop

iv. KKR1. Plan to borrow – to be activist investor2. Borrow a lot and buy Nabisco equity

a. Load up the company with debtb. On the brink of bankruptcy (theory that it won’t actually

go bankrupt)3. Value of the debt goes way down

v. People who lent money when it was really safe are going to be really pissed

1. Insurance companies (Met Life) can only buy safe debtvi. High-yield marketvii. Boilerplate covenants

1. Looking for a:a. Maximum debt clauseb. Approval of new debtc. Debt equity clausesd. Change-in-control

2. None of these in the indentureviii. Only claim left: implied covenant of good faith

1. Figure out what good faith isa. Look at negotiations, other provisionsb. Court only cares about contract, not negotiations leading

up to itix. Simple analysis:

1. You didn’t contract for this, Court not going to create protections they didn’t contract for

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2. They’re sophisticated parties x. The contract literally allows them to do this but does good faith

prevent this?xi. Result:

1. KKR ran company well, did not go bankrupt2. More efficient economic structure 3. Debt got paid 4. But insurance company had to sell because they can’t legally hold

risky debt

Restatement Provision Topic§ 22 Notice of Assent; Offer & Acceptance § 24 Offer Defined§ 26 Preliminary Negotiations§ 33 Certainty§ 41 Lapse of Time § 54(2)§ 71 Requirements of Consideration§ 74 Settlement of Claims § 86 Promise for Benefit Received§ 261 Discharge By Supervening Impracticability

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