WEEK 1
Professor Thomas Kent
Twen pages, post assignments.
Every Mon. 10 Questions on prof. Twen page, due on Tuesday
On Fri or by Friday, will have PowerPoint slides posted, talking points, cover cases.
Last term Why go to law school? 1) Learn skills that can’t learn by opening a book. Speak well, write well. 2) How to find answers. Search out answers first, and use professor and TA as a safety net.
Schedule week 6 9-10 PM
Weeks 3-4 from 9-10 PM Hosting TA
Week 5 review by prof. PM
Week 7 go over answers of mid term
Weeks 8-12 Laura
One get out of jail card
Leave LS with a lot more questions than answers
Arguing in the alternative-“It depends” Answers give rise to questions.
Assignments on TWEN page, link “TA assignments on TWEN page
Previous exams by professor Kent
Contracts I
Court Structure
Supreme Court
State Supreme Court Federal Courts of Appeals (this changes from time to time) MI is 6th circuit
State Ct of Appeals Federal District Courts
State Trial Courts
State Law….Representatives becomes law
Another way is thru Common Law. Sometimes we need courts to develop means.
Contracts law is developed thru Common Law, what the courts have told us instead of legislature. Thru courts decisions over time.
Federal: US Supreme CT
Each state has some variation of this system.
Common law comes thru intermediate courts
Types of Legal Authorities
*Primary Authority *Secondary Authority
(the “law”) (not the “law”) writings
Constitutions restatements
Statutes (legislators) treatises
Case law (precedent) periodicals
Court rules encyclopedias
Administrative rules ALR annotations
Attorneys better understand primary, look to secondary. Look things up
Specific performance
Main Contracts Authorities
Precedent – LAW Case law (by courts)
Statutes – LAW U.C.C.
The Uniform Commercial Code –Not a primary authority. Drafted by a group of scholars.
(began to be enacted, state by state, in 1953)
(Definition of goods on p. xxxi of text)
Restatements- Not the law, but highly persuasive
Restatement I (1932) and Restatement II (1979) –Help us to understand common law but not law.
Treatises (scholarly works written by - Not the Law, but persuasive
Murray on contracts
Calimari and Perillo on contracts
Farnsworth
Mutual Assent
Lucy v. Zehmner
Stepp v. Freeman
Offer O
Acceptance A
Consideration C
Contract K
Offeror O/R or Or
Offeree O/E or Oee
Plaintiff P Π
Defendant D Δ
Types of Contracts
1. Formal
Contracts under seal
The recognizance
The negotiable instrument
2. Informal (have the elements been met?)
Unilateral (promise for an act) cut grass-I promise to pay if you promise to cut my lawn.
Bilateral (promise for a promise) cut grass.
Mutual Assent (on the same page)
O + A (thru words or conduct)
Meeting of the minds of all or both parties to a contract
Each agrees to all the terms and conditions, with the same sense and same meaning as the others.
Lucy v. Zehmer
Problem #1 Page 1
a) Not a commitment to contract he is considering selling the car.
b) Yes meeting of the minds.
c) No mere inquiry it’s a question
d) No failure of commitment to contract, simply a question.
An offer is a “yes-able” proposition.
Def.: Deposition, during discovery, court reporter called in transcript generated.
Interrogatories
Specific performance-ct ordered remedy equitable remedy-ct ordering
Zehmer did not have mutual assent according to him.
Page 7, see *: Doesn’t have to be specific, but we do have to look at the words and acts.
Reasonable person – that average person in the community, an objective test.
If Lucy knew that he was joking, then mutual assent disintegrates.-The importance of mutual assent to a contractual agreement-WORDS AND ACTS OF THE PARTIES.
Can’t be a contract between two people if there are no legal consequences – must be an “enforceable contract.”
My giving something of value for your giving something in value
Stepp v. Freeman
Most important: How this contract came into being. No written agreement. Oral agreement? Implied in fact contract.
What are:
Express contracts?
In the form of oral or written offer and acceptance.
Implied-in-fact contracts?
Surrounding circumstances, conduct and actions.
Implied-in-law contracts?
Legal fiction created by the court to affect an equitable result.
How do 1&2 differ from 3?
Exchange of promises not enforceable.
Cutting grass ex leave message on ans. Mach.
Problem #4 page 15
Is there a contract that exists? The language inserted, unlikely. No legal consequence, not enforceable.
4 Things that must be communicated:
Offer*
Acceptance*
Communicated to offeror
Revocation*
Taking back the offer as long as he, offeree, hasn’t accepted-must be communicated
Rejection
Can say no thank you-has to be communicated
*Exception in limited circumstances
What is an Offer? Page 24
A yes-able proposition-not a good idea, or question
Communicated to Oee (but not necessarily by Or)
Offeror must have a commitment to K
O must be definite in its terms
Problem # 5 page 24
Professionals who guarantee results may institute a contract possibly setting up an express contract.
May give rise to an express contract
Problem #6 page 24
Must be DEFINITE in its terms. Argument can be made-Only have tires for certain brand.
Blackletter law- Advertisements are preliminary negotiations or solicitations to enter into a contractual discussion but are not offers.
WEEK 2
Week 2 K1, May 9, 2006
Problem 2
OFFER
Who wins here? John has a stronger argument. What the other side (Feeble) knows or should know. People in the bar are laughing. The offeror should know.
John was kidding, Francis doesn’t see it that way at all.
John has a stronger argument. Reasonable Person Test. Laughing.
Francis: Low I.Q in favor of him. If John knows or should know or has reason to know that he/she may take him seriously, then there is a stronger argument that John is assenting to the agreement that he made because he knows or should know that Francis has a low IQ. John’s case is a little stronger.
This case goes to show how important facts are and how they come into play
IRAC method-how you take that rule and flush out the facts and then analyze it and come to a conclusion about who’s going to win and who’s going to lose and sometimes it isn’t all that clear.
Problem 3
Wargrave not to pay. There was a lack of the requisite intent to enter into a contractual relationship. One of the essential qualities of a contract is that its breach has legal consequences. Do Owen and Wargrave really intend for there to be legal consequences for his not showing up? Probably not. It lacks requisite intent to from a contractual relationship. Social contracts-do not involve requisite intent in forming a contractual relationship.
Week 2
Lefkowitz v. Greater Minn.
Two advertisements.
April 6 Advertisement: What did the court say about? What should an offer have? Definiteness. Did not constitute an offer
April 13 Advertisement: The scarves were an offer because it clearly described what you would be getting.
Issue the courts set out…page 26
Advertisements can become offers if the imaginary line is crossed. If it is so explicit, so definite that there could be mutual assent in the terms and the offeree can know exactly what’s being offered.
An offeror cannot modify once it’s been accepted.
Problem 7
No explicit promise to cover all the material. Had there been an explicit promise that all material would be covered; there would be a stronger argument. No reasonable person would believe that their enrollment would carry legal consequences.
Problem 8
She would write, “This is not an offer.” She could also soften it up a little bit but don’t cross that line.
Continental Labs v. Scott Paper
Binding oral contract: Options
1. Parties can enter into a contract without having any writings at all.
2. Can also enter into an oral agreement with the intention of memorializing that agreement later in writing. A valid binding oral contract. They can have that same valid binding oral contract even if they have the intent to reduce it to writing later. Their intent to memorialize it later doesn’t mean that the binding oral contract doesn’t exist. It still does.
3. Parties may not intend to be bound at all absent a final writing. I don’t intend to be bound by anything, till we put pen to paper. In that case there is no valid contract, otherwise, no mutual assent.
Bottom of Page 30, The court is setting out three rules:
1. Under Iowa law, a binding oral contract may exist even though the parties intend to memorialize their agreement in writing.
2. On the other hand, the parties can make the execution of a written document a precedent to the birth of a binding contract.
3. If either party intends not to be bound in the absence of a fully executed document, no amount of negotiation or oral agreement as to specific terms will result in the formation of a binding contract.
Did these parties intend to be bound absent a final writing?
In ascertaining whether the parties intended to be bound prior to execution of a written document, the court should consider the following factors:
1. Whether the contract is of a class usually found to be in writing;
2. Whether it is of a type needing a formal writing for its full expression;
3. Whether it has few or many details;
4. Whether the amount is large or small;
5. Whether the contract is common or unusual;
6. Whether all details have been agreed upon or some remain unresolved; and
7. Whether the negotiations show a writing was discussed or contemplated.
Summary Judgment, not enough evidence uncovered.
In negotiations, language used, important to know when a contract is being formed.
Problem 9
They left and they took their own contracts with them. That’s the key fact in this case. What they were doing by taking their signed agreements is by their conduct they were expressing their intention not to be bound until there was a final signing. They didn’t leave them with the attorney or exchange them.
Left with their contracts, an indication that they didn’t want to be bound. Intention not to be bound. Could have expressed
ACCEPTANCE
Problem 10
Acceptance cements the deal. Had a signed purchase agreement, can’t come back later and say it was worthless. Cannot change the contract after acceptance. The close of O & A freezes the agreement’s terms unless there is a mutual modification later.
ProCD v. Zeidenberg
A license is a form of a contract. If you buy this, you can only use it for these particular purposes. Ex.: can’t resell it, can’t redistribute, only one PC, etc. By purchasing it, there is mutual assent to be bound by the terms of the license. Problem with the case: Terms of the license were inside the box.
Issue: whether or not D could be bound by the license because of no mutual assent (license inside the box, not on the outside). Lower Ct, for D, court of appeals, Z can be bound even though inside. The question is can the terms of a shrink wrap license bind the user even if the user doesn’t know all the terms until he’s already exchanged.
Had to open eventually. Had to see the license or had to see at some point to use the software. Had opportunity to return. D could have taken it back.
Point of case: some courts hold, that you can agree to the terms of the contract even though you never see those terms until after you’ve purchased the item. The theory behind that is by using the goods, you’ve accepted the terms. There is controversy about this subject. Your state might have something entirely different.
Sometimes you might be bound by a term that you never see at the time you purchase the material. Acceptance really isn’t occurring until the product it put into use. I think that is the catch, so to speak.
Acceptance:
1. Is the Acceptance responsive to the Offer? Is what the offeree is accepting is what the offeror is offering? Does it meet the conditions of the offer?
2. Absolute and unequivocal. “I accept”, not I’ll get back to you tomorrow.
3. Must be Communicated to the offeror. A meeting of the minds.
These are not elements but qualities to look for.
So how does an offeree accept? See PowerPoint chart
RII section 50 (pg. 40-41)
See Book
Reasonable person:
1) Acceptance of an offer is a manifestation of assent [objective standard] to the terms thereof made by the offeree in a manner invited or required by the offer.
2) Acceptance by performance [uni-k] requires that at least part of what the offer requests be performed or tendered and includes acceptance by performance which operates as a return promise.
Bridge hypo*
If I say to you, I’ll give you one thousand dollars to walk across the Mackinac Bridge. I’m not asking for a return promise. Not seeking a bilateral contract, I’m asking you do to something. I have an offer seeking a unilateral contract. At what point, if you want to accept this by performance, which is how I’m asking you to accept it, when do we have a contract? When I start walking.
New shoes hypo. Preparation to perform does not constitute a performance.
3) Acceptance by promise [bi-k] requires that the offeree complete every act essential to the making of the promise.
If you promise, and I promise. I promise to pay you if you promise to walk across bridge and you start walking. Your acceptance has to meet the terms of my offer.
Seeking an offer or seeking a promise
Beard Implement v. Krusa
Who is the seller? P. D is buyer. Who is making the offer? Krusa. What did the PO require? Seller drafted PO and gave it to buyer. P never signed PO.
Fujimoto v. Rio Grande Pickle
How could the offer be accepted? Did the employees accept the written agreement? Performance of an overt act. Acceptance was non verbal. Pg. 51 evidence of conversations manifesting assent, P’s discussed contracts with co-president. No mode of acceptance specified.
What to take from this case:
Where the mode of acceptance is not specified, the offeree can still manifest assent to accept if the method of acceptance is reasonable. Could be non verbal, through conduct. As long as there is some manifestation of assent, that meets the terms of the offer. Be careful when applying that standard. Be sure the offer isn’t requiring some mode of acceptance.
Problem 11
Grocery stores. Buyer makes acceptance at checkout. Seller accepts when takes money. Exploding Coke Bottle Exception. Case cited-The display is the offer, when you pick it up, you accept. CHECK YOUR JURISDICTION.
What I want you to know is: Offer is made at the checkout, acceptance is when payment is taken. FOR AN EXAM, EXPLAIN THE POSSIBLE OUTCOME!
Problem 12
a) Yes because he didn’t state “only” and telephoning is reasonable under 206 (a)
b) Not reasonable under the circumstances to respond regular mail if sent express mail-sense of urgency by offeror.
c) Since the offer specified acceptance by some form of communication, shipment alone is not ok.
d) Non conforming goods as an accommodation if he seasonably notifies the buyer that that is what he is doing, not as an acceptance but acts as a counter offer. Marshall is in a position of offeree to accept or reject. Seller would try and not be in breach or agreement.
WEEK 3
Week 3 Lecture May 16, 2006
Midterm-20 multiple choice questions 1 hr. long worth 10% of grade. 2 books for study Finz, Q&A by Lexis
Last week we left of on whether silence can be acceptance of an offer. Continuing ideas on mutual assent. Meeting of the minds exactly to the terms by the offeror.
SILENCE AS ACCEPTANCE
In some ways flies in the face of what we’ve already learned. Acceptance must be communicated.
Problem 13
Three concepts to learn before answering this question in regards to silence as acceptance:
1. Course of Dealing. UCC section 1-205.
How the parties have behaved under previous contracts with one another.
2. Course of Performance. UCC 2-208
How they have dealt with another in a given contractual relationship-not in many different ones over a period of time. There’s just one contract and parties have behaved a certain way carrying out their respective obligations to one another.
3. Usage of Trade. UCC section 1-205
How the trade or industry deals among itself. There might be a way computer software vendors and buyers typically deal with one another.
Beer Supplier hypo*
Let’s suppose there’s a contract between a beer supplier and a grocery store. The contract itself is silent about the date of delivery. The contract doesn’t say anything about that. Suppose that the contract was to last one full year with weekly beer deliveries. For the first 40 weeks of the year, the beer supplier or vendor delivered on Fridays, just in time for weekend parties. Then one week the vendor delivered the beer on a Sunday. The question becomes, can the grocery store sue the beer vendor for breach of contract?
What are we looking for? Course of Performance or Course of Dealing? Course of Performance. Why is that? The one particular contract of beer delivery over one year. Within that contract, how have the parties behaved?
Back to problem 13
What we had was Mikado and Ruddigore doing business on a formal basis. They eventually stopped doing business on a formal basis. They had a five year period of extensive dealings followed by a slack period of one year where they had no dealings at all. Mikado sends a shipment and a bill for $8000. If Ruddigore rejects immediately, must it pay?
What 2-208 is telling us is if Ruddigore accepts this and they use the term acquiesces, without objections, then he could be bound to accept it. Ultimately what is going to be the trigger here is whether or not Ruddigore’s objection is reasonable or timely. Reasonable is a word that is often used in the UCC. This is ultimately a fact question for a jury to decide. This is one of those questions where there is likely no concrete right or wrong answer but it’s really going to depend on whether the objection made by Ruddigore is reasonable, timely and communicated back in a manner that was reasonable under the circumstances. We’re told here that there was a one year passage of time since the prior dealings and I think that’s the one aspect of this problem that creates some gray area. It might be hard for Mikado to argue that this is how we’ve done things in the past when there’s this break in the chain. The problem also poses a question as to how long Ruddigore has to object. The UCC doesn’t give us a time limit (One day, one week, one year) it all depends on what’s reasonable in the industry, what’s reasonable about how these parties have dealt with one another in the past. Again, these reasonableness questions really boil down to what 8 people sitting in a jury box believe is reasonable. You might have 8 might people believe one day is a reasonable time for objection, others might think three days, a week, etc.
Let’s say that Ruddigore turns around and resells the shipment from Mikado. Do you think he is obligated then? Yes, he engages in an act that is inconsistent with his non-acceptance
Bottom of page 53, Restatement:
Silence as an acceptance is very, very rare. Not prevalent in courts. Exceptions:
1. When offeree takes the benefit of the offered services; with
2. Reasonable opportunity to reject; and
3. Knowledge of expectation of compensation.
How do we reconcile that this idea of silence can be a valid form of acceptance with the notion that acceptance or assent needs to be communicated back to the offeror? What is a person doing when they accept a benefit with a reasonable opportunity to reject it understanding that compensation is expected? They are sending or conveying a message. We talked about a communication as being more direct last week but simply because there is an acceptance by silence doesn’t necessarily mean that there’s not a message being communicated back to the offeror thru the conduct and actions of the offeree. He might not be saying anything. He might not be saying, “I accept”, but what he’s doing is sending a message thru his actions and conduct by accepting the benefit by knowing that compensation is expected and not rejecting it. So we have an abstract communication not necessarily with words but there is a message being conveyed back to the offeror that is enough in some cases for mutual assent to be established.
Day v. Caton
Is there an express contractual relationship between these two parties? Here, there doesn’t seem to be one. We can rule that out. What other ways might a valid contract exist between the two parties? Is there possibly an implied-in-fact contract? (The existence of a valid contract not based upon an express agreement between the parties but based upon conduct and circumstances). Day v. Caton is an implied-in-fact contract.
What the builder of the wall is seeking from the neighbor is payment of half the wall. Some contribution because of the benefit that he’s receiving of this wall. The fact that D had knowledge that the wall was going up, does that infer a promise on his part to pay a portion of it? No. That one factor alone wouldn’t imply a promise for a promise.
What if he knew about it and he used it? Would that be enough to infer a promise on his part? No, not even that would be enough in this situation.
What we are looking for is some definitive conduct on the part of the neighbor to show mutual assent to be bound by contract. What the contract alleged here is dividing the price of the wall 50/50. The court is looking for characteristics about the behavior or conduct that would demonstrate assent and those two things alone wouldn’t be enough in the court’s opinion. So, the question the court was facing was how did this party manifest his assent to you to be bound contractually to pay of half of it?
Looking at the middle of page 55 the court goes over what it believes are the facts that demonstrate that assent to be bound:
*If a party, however, voluntarily accepts and avails himself of valuable services rendered for his benefit, when he has the option whether to accept or reject them, even if there is no distinct proof that they were rendered by his authority or request, a promise to pay for them may be inferred. His knowledge that they were valuable, and his exercise of the option to avail himself of them, justify this inference…
Restatement 69
If an offer is unsolicited the offeree has no obligation to notify or not notify the offeror. The exception is Restatement 69.
Problem 14
Sent a 12 month subscription, threw all the magazines away, sent bill, magazine threatens to sue. Could one argue that he received a benefit? At common law and Day v. Caton we know that he would be in trouble as illogical as that sounds. Positive Law-used to protect us.
The Postal Reorganization Act of 1970, Mailing unordered merchandise.
Problem 15
Negative Option Plan. Book of the month club, CD, etc. Existing contract, not considered unsolicited/unordered.
KNOWLEDGE OF THE OFFER
Is it possible for offeree to accept an offer when he doesn’t know the offer exists? Problem 16.
Problem 16
$10,000 reward. Looking at the reward as an offer. Rule: Must be known by the offeree. Vance cannot collect because he didn’t know about the offer. He has to find the criminal with knowledge that there’s a reward in order to get reward (acceptance).
If the reward is being offered by the government, offer does not have to be known prior to carrying out the request.
*All offers must be communicated? False.
MOTIVE
Problem 17
Norman Bates knew that mother killed woman and confessed on deathbed. He recovers and wants reward. He wasn’t really trying to accept an offer as much as he was trying to clear his conscience. Motive doesn’t matter unless the acceptance was coerced or given involuntarily. Cannot give an acceptance involuntarily.
MODE OF ACCEPTANCE
Davis v. Jacoby
Does Frank’s response constitute an effective acceptance prior to Ruppert committing suicide? Can you accept an offer that’s been revoked by death? No, death revokes the offer. If this was construed as a unilateral offer, inviting performance to accept it, did the offer commence? Did they start caring for her? No. If this was an offer for a unilateral contract, performance hadn’t begun prior to death. If they attempted to accept the offer in that way, they might be out of luck.
Obligations for wills are called negative residue.
Why wouldn’t have Ruppert made a unilateral contract so he could at least get some performance before he was contractually bound? Why would someone want a return promise as opposed to return performance? In this case, piece of mind. Some people feel more comfortable knowing that the other person is contractually bound and that’s why they ask for a return promise. They just don’t leave the option out there for someone to start performing two weeks from now. They need some certainty and piece of mind that a contractual relationship exists.
April 12 letter is an offer for a bilateral contract. Frank writes accepting proposition.
Part Performance vs. Merely preparing to perform. I gave the example of walking across the Mackinac bridge. An offer for a unilateral contract. I’m not asking that you’ll promise me to do it; I’m asking to do it. In this situation, if Frank and Carol had began packing their bags to travel to take care of Blanche, if it were an offer for a unilateral contract would they have been construed to have begun performance? Probably not. Why not? What they wanted from Frank and Carol was to come and take care of Blanche and so they hadn’t really started doing that yet. In an offer for a unilateral contract, mere preparation to perform does not create a contract, does not bind the offeror. If you start walking across the bridge, that’s when I am bound and I cannot revoke my offer. Here it’s irrelevant because this is a bilateral promise.
Where ambiguity exists we tend to favor the existence an offer for a bilateral contract.
1:34
TERMINATION OF THE POWER OF ACCEPTANCE
The offer can be revoked by the offeror prior to the time of acceptance.
The Terminators:
1) Revocation. The offer can be revoked by the offeror prior to the time of acceptance.
2) Lapse of Time. If a time is stated (must be accepted by such and such day) and the time passes. If no time is stated, must be reasonable.
3) Rejection or Counteroffer. I’ll fix your car for $500 and you say $400- that’s a counteroffer. The counteroffer affects ability to accept. It terminates the original offer.
4) Death or Incapacity. Death revokes an offer but does not revoke the contract. If death occurs before acceptance, contract terminated. Davis v. Jacoby-his death did not terminate the contract, contract created prior to his death.
5) Non-occurrence of a condition. If my offer goes thru on the house I’m trying to buy, I promise to pay you $500 to paint the house, so if I don’t get the house then the offer to paint it is revoked.
REVOCATION
Two kinds:
Direct Revocation: When the offeror himself directly communicates the revocation to the offeree.
Indirect Revocation: When the revocation comes to the offeree from a third party.
Two Qualities:
1) The offeree has to learn that the offeror has done some act that is inconsistent with the offer.
2) A third party that has communicated this must be reliable
For exam purposes: Assume that a third party is reliable
Problem 19
Equivocal language may be enough to revoke an offer. Clements has notice of notification for intention to revoke. Ultimately this will be a fact question for the jury. This offer most likely was revoked. Restatement: Equivocal language may be enough to revoke. Direct revocation.
Dickenson v. Dodds
One of the parties is acting inconsistently with the offer made to the buyer. It needs to be communicated to the buyer of the inconsistent act. Mere negotiations with others. On June 11, did we have a contract at that point? He decided in his mind but it wasn’t communicated. Hears from a third party that the seller is engaging in some act inconsistent with the offer. We have valid indirect revocation. What does that do to the buyers ability to accept the offer? It terminates it. Mere negotiations with another party are not going to be enough to revoke the offer.
When an Acceptance becomes effective:
Restatement II view:
1) Received (comes in the possession of the Offeror)
2) Received by a person authorized to receive the Acceptance. Agents
3) Deposited in a place where the Offeror has authorized for communications even though it is not read. Offeror says leave in mailbox, place of business, etc. A person’s place of business is an authorized place of communication. Therefore if something is received at my law office, it has been effectively communicated even if I never opened it. This goes for faxes also.
UCC 1-201 (26)
A person “receives” a notice or notification when:
(a) It comes to his attention; or
(b) It is his duty delivered at the place of business through which the contract was made or at any other place held out by him as the place for receipt of such communications
UCC is more liberal when it comes to an acceptance.
FOR THE EXAM: First thing you do is identify if the problem is governed by UCC or Common Law (restatement or cases).
The UCC will govern this transaction. This problem is dealing with the sale of shoes. Shoes are goods which are moveable at the time of the identification of the contract.
UCC: Goods are things which are moveable at the time of identification of the contract.
Or
This problem is dealing with services. Services are not goods and therefore the common law would apply.
Uncommon situation: If you continue to take notes, I’ll give you an F on the exam as an offer. That’s an offer for unilateral contract. You want to do it but you don’t want it construed as an acceptance. There may be situations where someone wants to do an act but doesn’t want it to be construed as an acceptance of an offer. In that situation if you don’t want to accept but you still want to perform, you have to state within a reasonable time that, I’m going to do the act but I don’t intend it to be an acceptance. Restatement II, section 53 (2)
Problem 18 revisited
The pigs are bound. If you want to bind wolf, you might you have to argue? That he partly performed. Wolf is never bound as this a unilateral contract.
2:34
Petterson v. Pattberg
Tender: Willingness to pay and the ability to do it.
P wants to sell property free and clear. Third mortgage held by Pattberg. P had agreement to pay mortgage at reduced price. How did he try and accept the offer? Petterson goes to Pattberg’s house and has conversation thru door. He tells him directly, I sold the property. That’s a direct revocation. What did Petterson do? He exhibited the cash. Did he do this before he learned the property had been sold? No. The court held that the revocation occurred prior to the time that Petterson demonstrated his willingness and ability to pay which would have constituted tender. It would’ve been a valid acceptance if he had shown the money before Pattberg told him it was sold.
Notes after case:
Under common law- To tender cash, it has to be official currency-no checks or even certified checks.
Under UCC- Tender includes checks as well as cash.
Tender-an unconditional offer to perform coupled with the demonstrated ability to carry out the offer of performance and to produce the subject matter of the tender.
End.
TA
Review the first couple of weeks
Big picture of Contracts I
5 topics:
1) Offer
2) Acceptance
3) Consideration
4) Damages
5) Statute of Frauds
Midterm will be Offer and Acceptance.
O + A + C = K
Don’t worry about consideration yet…
Goods are items that are moveable at the time of identification to the contract. Tangible items - material things, not land or services. Corn is a good but the land is not. Anything that are not goods are under common law.
FORMAL VS. INFORMAL CONTRACTS
Three kinds of Formal Contracts:
Under Seal- Under wax and that’s what made it a contract
Recognizance Contracts- Court ordered contract
Negotiable Instrument-Checks
Informal:
Made by the parties behavior, acts, words and intentions
O + A = C
Two kinds of Informal Contracts:
1. Bilateral- A promise for a promise
2. Unilateral- A promise for an act
MUTUAL ASSENT
You have to have mutual assent when an offer and acceptance are made. A meeting of the minds. It’s making sure that the parties are talking about the same things with the same sense and meaning. The two Peerless ships example.
Mutual assent has to be over something that matters and not a little detail. Example: How many bristles are in your paintbrush when you paint my house.
Lucy v. Zehmer
Outward expression is what will be judged. Objective reasonable person standard. Would somebody know that you are joking when making an offer? Would someone be too drunk to make an offer? Your secret intentions do not matter, it’s your outward expression that’s going to be judged by the court to decide if you did make an offer that someone could reasonably perceive to be an offer or that you’re attempting to form a contract.
DIFFERENT WAYS TO MAKE A CONTRACT
Three different ways:
1. Express- Oral or written
2. Implied in fact- Formed by the circumstances and conduct of the parties and not by their expressed words. Silence as acceptance can be implied in fact because sometimes by not saying anything you’re really saying that you are accepting something.
3. Implied in law- created by the court for equity, legal fiction.
INTENT
When in doubt, look at what the parties meant.
Four things in a contract that usually must be communicated:
1. Offer
2. Acceptance
3. Rejection
4. Revocation
The first three have exceptions. When does an offer not have to be communicated for somebody to accept it? A government award-not a private reward
OFFER
An Offer is a yes-able proposition. It’s something someone can say “yes” to and it will make a contract. An offer is a manifestation of willingness to enter into a bargain so made as to justify another person in understanding that assent to that bargain is invited and communicated.
Three factors to an offer. Not elements but qualities:
Communicated to the offeree
Definite in the terms of the offer
Committed Can’t be wishy-washy
Professional statements: Can arise to the level of an offer. If a professional guarantees that they’re going to 100% win the case or make you 100% better or something like that.
Advertisements: Usually not offers. They usually are invitations to enter in to negotiations but they also can arise to the level of an offer if they are so definite that there could be mutual assent as to their terms. They leave nothing open for negotiations. Rare because most of them have disclaimers.
Social contracts: Promise to go to poker party. Usually not enforceable by law because unless the parties intended the plan to be enforceable. You don’t intend that your promise will have a legal consequence.
Grocery stores: Typically offer is made by the customer at the register and that offer is accepted by the cashier when you tender the money. The exception is that when somebody gets hurt, we reverse the rule for some odd reason, putting it on the shelf was an offer. Public policy decision, no logic, equitable result.
Time of contracting: Continental v. Scott Paper. You can have a binding oral contract even if you intend to memorialize in writing later. Exception: You intend not to be bound until there is a written contract.
ACCEPTANCE
Acceptance seals the deal. It’s a manifestation of assent to the proposed terms. I hear your terms, I like them, I accept them.
Three factors for Acceptance:
Communicated to the offeror-By conduct or by silence in some cases.
Absolute and unequivocal- For sure, not wishy-washy.
Responsive to the offer- Have to accept the terms of the offer, can’t change half of the terms.
Acceptance by performance: For a unilateral contract which is where acceptance occurs when the performance begins not for mere preparation.
Acceptance by promise: For a bilateral contract which means that when you have a bilateral offer, promise for promise, as soon as those promises are exchanged you have your contract. Anything after that is going to be breach. We want people to rely on that and not wait for performance.
The offeror gets to decide whether promise or performance would constitute acceptance. The offeror decides whether it’s unilateral or bilateral.
Different methods:
What if it says “please write” or “only write?” It breaks down into three things:
Where the method of acceptance is required. That’s where the offer says you must reply in writing or you can only reply in writing. Then for there to be a valid acceptance, the offeree has to reply in writing.
Where the method is suggested or invited. Please write to me or you may write to me. Then the offeree can definitely accept in that manner but they don’t have to. They can accept in any reasonable means and usually it’s the way the offer was conveyed or anything faster is going to be reasonable. So if the offeror wrote, “Please write to me”, then offeree could call and that would be reasonable and a valid acceptance. If there’s no method of acceptance at all and the contract is silent about that, then anything reasonable will be acceptance. (Pickle case).
Course of dealing- Look at previous contracts that two parties have had together. The stuff they’ve done before.
Course of performance- How they’re dealing with now. Beer vendor example
Usage of trade- Looking at other people’s contracts. How other people in this industry do things
Silence as acceptance- It can happen if the offeree knows of the services and has an opportunity to reject, but takes the benefit and knows that the other party is expects compensation (Day v. Caton).
Knowledge of the offer: If it’s a government award, don’t even need to know about it to get award. Private rewards, must know about offer to receive offer. Motive for taking the reward doesn’t matter as long as it wasn’t coerced.
Doubtful offers: If can’t tell from the language if the offeror wanted a promise or an act.
Restatements are not law, they are a secondary authority. The courts can and do use them. For contracts we have Restatement I and II. For doubtful offers the Restatements differ. Restatement I says that where you have a doubtful offer the court should presume a bilateral contract (Jacoby case). Restatement II says the offeree can choose to perform or to act. The courts can pick either one but may choose to use Restatement II because it is more modern.
May have to explain the differences and/or how the situation would be resolved under both of them.
Partial performance: Mackinac bridge example. Offeror bound as soon as I start walking. If it’s a doubtful offer, as soon as the offeree starts to perform, both are bound. Mere preparation doesn’t bind anybody-driving to the bridge-doesn’t bind anybody.
Memorize the definition of Tender-it’s used in Torts I and II.
Tender: An unconditional offer to perform coupled with the demonstrative ability to carry out the offer of performance and to produce the subject matter of the tender. Showing the money, showing with the cash, showing up to perform.
Unconditional offer to perform: Example, I’m not going to show you the money unless you do something else for me.
TERMINATORS
Two kinds of revocation:
Direct: The person comes up to you and says I take back my offer. I don’t think this is going to work out can also be direct revocation.
Indirect: The offeror acts in a way inconsistent with their offer. It can be conveyed/communicated to the offeree usually by a third party only if not accepted.
WEEK 4
Week 4 Lecture Contracts I
Problem 20
Ignore Wormser.
Marchiondo v. Scheck
Offeree is the agent. Action taken by, deprives offeror Seller
We hold that part performance by the offeree of an offer of a unilateral contract results in a contract with a condition. The condition is full performance by the offeree.
Once the step is taken on the bridge, a contract is formed. But it’s a conditional contract. The offeror doesn’t have to pay the offeree till the bride is crossed.
Page 80. Note on revocation and option contracts:
OPTION AND OPTION CONTRACT
Whatever the word may mean elsewhere, in the law of contracts an option contract means that the offeree has given the offeror an extra payment (or some other form of value) in return for a promise to keep the offer open and irrevocable for a period of time.
So if I make you and offer and I tell you, you have until this Saturday to accept my offer, that’s an OPTION, not an option contract. If I’m giving you until Saturday to accept my offer, that’s an option. I can still revoke at any time prior to your acceptance and the offer is off the table.
So if I say, I’ll sell you my car for $500 and I’ll give you until Saturday to accept. You do have until Saturday to accept. But I have the power to revoke my offer and terminate your power of acceptance before that time.
That’s not true with an option contract.
With an option contract, I say to you, I’ll sell you my car for $500. I’ll give you till Saturday to accept if you pay me $25. What your payment of $25 does is make my offer irrevocable until Saturday. So with an option contract the offer is irrevocable for the time stated.
With an option contract, the money, that $25 you are paying me to keep the offer open, doesn’t have to be handed over. You only have to make the promise to pay the money. So essentially what the option is, is a bilateral contract. If you agree to pay me $25, I’ll agree to keep the option open until Saturday. Even though the money hasn’t changed hands, we have an option contract and that offer is irrevocable for the time stated.
OPTION V. OPTION CONTRACT
Important to remember: The consideration only has to be recited ($5 from slide) and agreed to, doesn’t have to be paid for the option K to exist.
Firm (Merchant) offer 2-205
The UCC has a form of Option K. A Firm Offer is a type of Option K.
From above:
1. Goods per the UCC
2. A merchant is 2-104 a person who deals with goods of that kind or holds him or herself out as having knowledge about the goods involved.
3. Signed writing
4. Gives assurances
5. 3 months
The biggest distinction between what we just learned (option contracts under the common law) and 2-205 is the UCC doesn’t require payment of consideration to keep the offer irrevocable.
In order to keep an offer open past three months, pay a received consideration in order to do it.
A merchant says, “I’ll sell you this car for $400, you have 9 months to accept. Do we have a firm offer? It’s not in writing so no, we do not have firm offer which means the offer is revocable.
Same situation but the merchant writes, I’ll sell you this car for $400, you have 9 months to accept. Do we have a firm offer under 2-205? Yes, for 3 months. Remains open for 9 months but becomes revocable after 3 months. You still have the 9 but the offeror can pull it off the table. So what the consideration does is make the offer irrevocable. After that 3 months, all that’s really left is an option. The 9 months is still out there but there’s nothing protecting that offer.
Know: 1-201 (39) and 1-201 (46) definition of written
(39) “Signed” includes any symbol executed or adopted by a party with present intention to authenticate a writing.
(46) “Written or “writing” includes printing, typewriting or any other intentional reduction to tangible form, DVD, audiotape, etc.
The UCC favors contractual relationships. You don’t need consideration for an option contract.
Problem 21, page 80
(a) Paul prevails
(b) The offer stays open because Paul is a merchant.
(c) No
(d) The option will stay open for 6, revocable after 3. The offeror has the option to revoke offer.
Problem 22
No signing, not a firm offer under UCC.
Hypo*: If I say, I’ll sell you my car for $400, you have till Saturday to accept my offer. Today is Tuesday. You pay me $10 to keep it open until Saturday. We have an option K. You come to me on Thursday, and say, I don’t think I’m going to do it, I still have to keep that offer open until Saturday.
LAPSE OF TIME, page 82
Restatement (Second) of Contracts, Section 41. Lapse of Time (common law)
1. An oferee’s power of acceptance is terminated at the time specified in the offer; or if no time is specified, at the end of a reasonable time.
2. What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made.
3. Unless otherwise indicated by the language or the circumstances, and subject to the rule stated in Section 49, an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received.
Hypo* During a conversation, there’s an offer made, a reasonable time to accept is up until the end of the conversation.
For every rule, there’s an exception. Some things can be said in the conversation that could mean the offer is extended.
Loring v. City of Boston
Public/Government rewards do not have to be communicated in order to be valid.
Where is the offer, what does the offer say? After that, look to see if there’s an acceptance of the offer or a purported acceptance and then check to see if the offer still exists. Can it still be accepted, has it been revoked, has there been a lapse of time that would revoke the offer?
Bottom of page 84 the court says:
There being no limit in terms, then by a general rule of law it must be limited to a reasonable time, that is, the service must be done within a reasonable time after the offer is made.
Normally this would be a question of fact for time. But in this case, the court said the passage is so long, that it really was a question of law. Wasn’t even submitted to a jury or fact finder.
Problem 24
(a) Reasonable amount of time for knowledge of revocation to be communicated to the public. Here 5 minutes wouldn’t be a reasonable amount of time for knowledge of that revocation to be communicated to the public.
(b) Substantially similar publicity rule. You must use the same or substantially similar method of revocation as you used to advertise the offer. If you advertised in a daily paper for a week, and you wanted to revoke in a weekly paper, you must publish 7 times or 7 weeks in a weekly paper.
(c) Keep up revocation for 1 year
(d) Advertise and advise of the revocation as much as possible. Put in a timed reward, etc.
Problem 25
Oral offer lapses at the end of the conversation.
Recap:
Four communications and exceptions:
DEATH
Death of the offeror revokes the offer even without notice or communication to the offeree. Death terminates the offer.
Two exceptions to the exception:
If there’s an option contract in existence, death won’t revoke the offer. The offeree will still have up until the time stated to accept even if the offeror dies.
If the offer is accepted before death, the death is not going to revoke the contract.
Death will revoke an offer but once acceptance has been made, it’s no longer just an offer. Acceptance is going to create the contract. Death doesn’t to invalidate or revoke a contract.
Funeral hypo* $500 if you come to my funeral. Unilateral K. Death revoked the offer.
Funeral hypo2* I’ll give you $500 if you promise to come to my funeral and you say, I promise, and then I die. Does my estate owe you $500? Yes, the offer was accepted prior to death.
Same rules apply for firm merchant offers under the UCC
Can death terminate an offer? Yes, but not a contract or option contract.
Exception:
If there’s an option K in existence, Death won’t revoke the offer. Offer will have time stated to accept even if Or dies.
If the offer is accepted before death, doesn’t revoke K.
Funeral hypo 1: If you come to my funeral, I’ll pay you $500
Funeral hypo 2: if you promise to come, then I’ll have to pay.
Problem 26
A continuing offer: The common law terminates a continuing offer. Death of the offeror will terminate a continuing offer even though no notice of death came to the attention of the offeree. The case at the end of this problem questions that rule.
REJECTION
Rejection occurs when the offeree turns down the offer. It can also be manifested with a counter offer. Counter offer also serves as a rejection to an offer.
Turn down the offer
By making a counter offer that changes the terms
Problem 27
No, rejection terminates the offer. Yes, we have an option K. Yes. Offeree takes under advisement without rejecting offer, does not act as a counter offer. I’m thinking about it, would you consider this…Asking to consider something else doesn’t cross the line of a rejection-Conditional Proposal.
MAIL BOX RULE
Mail Box Rule: So long as mail is an acceptable means of communication an offer is deemed to be accepted when it is posted (deposited in the mail). MBR only applies to acceptance.
If the offer is sent by mail, then mail is an acceptable means of communication for acceptance.
If the offer is by phone or made orally, mail is not an acceptable means of communication.
If the offer says mail the acceptance, the offeree can use mail or anything faster. But if the offer says exclusively or only by US Mail, then you have to accept by mail, not FedEx even if it’s faster.
Three things to remember about the MBR:
1. The mail is an acceptable means of communication
2. MBR only applies to acceptance, not revocation, not rejection, not offer, etc
3. Acceptance is effective when posted.
Morrison v. Thoelke
The MBR in full force.
Was there any harm to the P? Acceptance is effective upon posting. Why do we have the MBR? We want to be able to know when the K was formed, what they’re rights are to set the time for K formation.
Blue handout, How to count days, 4 hypos…
MBR Hypos
Problem 28 *one of the better problems in the book
1) Yes, when the acceptance was mailed there was a K even though Mildred never received it. The letter must be properly addressed for there to be an acceptance.
2) No.
3) Yes. The O was effective when she received it. It was capable of being accepted at that point.
End
TA
Options and Option K
An option sets the time limits of when it will lapse. It is revocable, you can change your mind if you are the offeror.
Option K sets the time to lapse and is irrevocable because some consideration is either paid or recited.
One type of an option K is a firm merchant offer which is under the UCC 2-205 so it only deals with goods. Goods being items that are movable at the time of identification to the contracts.
Firm Merchant Offers have 5 elements:
1. Offer to buy and sell goods;
2. By a merchant (a person who deals in goods of the kind or otherwise by occupation has knowledge and skill peculiar to the practices or goods involved in the transaction-an expert)
3. In a signed writing. Writing can be an “x”, letterhead pretty much any mark intending to be bound. It can be an audio recording, email, etc.
4. The Writing must give assurances. It sets the time for how long the offer is going to last. It makes them kind of promise about how long the offer is going to go on.
5. Irrevocable for the time stated or for a reasonable time but not beyond 3 months. So as we learned, if they say it’s a firm merchant offer for 9 months, it’s only irrevocable for 3 months. It’s still open after that but it can be revoked unless you pay consideration and make it an options K.
TERMINATORS
Lapse of time if the offer is good for seven days and seven days passes…
Reasonable lapse of time
Offer made during an oral conversation is as good for as long as the offer lasts unless otherwise stated
Substantially publicized rule.
Revocation is effective when rec’d
Death doesn’t need to be communicated
Rejection always has to be communicated.
REJECTION
Rejection terminates the power of acceptance. Except when the offer is kept open by an options K or firm offer. The exception to that exception is when the offeror relies on the rejection. Another exception to the rejection rule is where the Offeror has manifested a contrary intention. A revival can be a new offer. Offeror says I really want to sell it to you. Another exception is where the offeree says he’s going to take it under advisement. Offeror says, I’ll sell you my car and offeree says, let me think about that, but while I’m thinking about it, why don’t you think about this idea…how about $400? Not rejecting the offer, just taking it under advisement so it won’t be construed as a counteroffer.
MBR
So long as mail is an acceptable means of communication, and offer is deemed to be accepted when it is posted in the mail. It only applies to acceptances, it has to be US Mail not FedEx, UPS or email. Effective even if mail gets lost. Does not apply if acceptance is due at a certain time. If offeror says, Acceptance has to be in my hand by Saturday, the MBR doesn’t apply. Does not apply to options K, or firm offers-they have due dates. Letter must be properly addressed. If mailed acceptance, then mailed rejection, and the offeror gets the rejection first, technically the acceptance is effective because you posted it. But, if the Offeror relied on the rejection, then we’re not going to hold the K enforceable automatically. Rejection also includes counter offers.
If the rejection is sent first and then the acceptance, the MBR doesn’t even apply because the rejection was sent first. And then it’s just a race to the offeror, whichever is rec’d first and there is no case law where they got there the same time.
WEEK 5
Week 5 Contracts I, May 30, 2006
MIRROR IMAGE RULE (Counteroffer)
At common law, an acceptance had to mirror the offer. I offer to sell you my Honda and you say, no but I’ll buy your Chevy-your acceptance isn’t mirroring my offer. You can’t accept to buy my Honda by accepting some other nonexistent offer to buy my Chevy. You have to accept what the other person is offering.
At common law, this still is a problem. To have a valid contract, the acceptance has to mirror the offer.
But when we’re talking about the UCC, 2-207 in particular, there’s some flexibility. What 2-207 does is eliminate the common law.
Livingstone v. Evans
“Terms” means with financing doesn’t have to be a cash deal. The offeror stated that he could not reduce the price. A counteroffer would typically terminate the offeree’s power of acceptance but here, in this situation, the offeror said, cannot reduce price which the court viewed it as an indication that the offer was still on the table and therefore the power of acceptance was still alive. At that point the offeree says, I accept. But the offeror in this case didn’t want that offer to be revived. What should he have said in response to the counter offer? Deals off, no thanks, etc. What he did was take those words over the line which was a demonstration that the offer was still on the table.
Under common law, acceptance must look exactly like the offer and must not try to change it in any way. When I say common law, we are not dealing in goods under the UCC. This was a land transaction. If the acceptance tries to add new terms not already explicit or implied in the offer, the acceptance is not valid but instead acts as a counteroffer.
The counteroffer will always terminate the power of acceptance under the common law. Here we’re seeing a twist where there was a revival of the initial offer.
Problem 29
Always ask yourself first, which governs this transaction, UCC or Common Law?
I accept but I plan to videotape acts as a counter offer. That’s adding terms that are inconsistent with the initial offer, no contract. The second question-Why wouldn’t he be able to object later? No, manifested his acceptance thru his conduct. Is requesting that he be sober a counteroffer? No, it’s implied in the offer itself that we’ll be sober. If it’s known that he performs drunk, different situation.
Green sheet handout:
A dickered term means: Something negotiated, something very significant or elemental to the contract like the style of the shoe, price of the paint, quantity they need, etc.
When you see offer, counteroffer, a situation dealing with services or land-something that is non-goods, you’re going to apply the mirror image rule.
*2-207 ONLY APPLIES TO ACCEPTANCE
Battle of the Forms. Only need one form for 2-207 to apply. You can have an oral offer and a return document (merchant confirmation memo). You don’t have to have a written offer and a written return document. This comes up a great deal in merchant transactions. What happens a lot of the time is you have someone pick up the phone; it could be a wholesaler or a retailer. For instance a sporting goods store says to a shoe distributor, I need you to send me 30 pairs of Air Jordan’s to be delivered the 20th of next month. And what often happens after that is the shoe company will send back a merchant confirmation letter-here is the confirmation of what you ordered. 2-207 is meant to deal with those situations. What if that return document, has additional or different terms on it? It might have arbitration provisions, it might have a bunch of other things on there that the initial offer didn’t have. The UCC and its drafters have taken the position that they shouldn’t invalidate all these contracts. We should try and honor the intentions by including the additional terms.
It doesn’t just apply to merchants. Don’t have to be a merchant for UCC to apply. If a merchant is involved it might have a different consequence. But that doesn’t mean that we only apply the UCC when merchants are involved.
Subsection 1 is the railroad switch
Never fall into 2 and 3
Section 2-207 provides:
1. A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. This is the proviso.
2. The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
3. Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings if the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
Does the return document (RD) have proviso language?
Proviso language: Expressly conditional on assent to. Those are the magic words. This acceptance is expressly conditional on your assent to these additional or different terms. If it says, this acceptance is good provided that, subject to, conditional on-that’s not proviso language. So you want to answer this question no. If you see something that doesn’t specifically say, “this acceptance is expressly conditional on assent to”, then it’s not a proviso.
If subsection 1 kicks us into subsection 2, there’s been an acceptance and if you recall that can happen if the RD has not changed dickered terms and there is no proviso, that is an acceptance. And that acceptance is 2-207(2). This is where we are going to ask some questions about whether merchants are involved. This is where it tends to confuse some people.
Was there an exchange between two merchants? It doesn’t have to be documents. If we do have merchants involved, the additional or different terms will automatically become part of the contract unless:
Three situations:
1. The additional or different term “materially alters”; or
2. There is an objection within a reasonable time; or
3. The offer is limited to its terms.
It has to be 2 merchants. If there are not 2 or more, you still have an acceptance. The additional terms act merely as proposals unless the offeror expressly agrees to include them in the contract.
Subsection 3 is a counter offer
2-207 just mentions additional terms. For this class, I want you to assume that this paragraph applies equally to different and additional terms.
The courts are also split on what Material Alteration means as well. Rules that we will use in this class:
Assume that adding or changing anything-a warranty clause or an arbitration clause, is going to materially alter the contract. For example: If that return document says in it, I agree to send you the 200 pairs of Air Jordan’s by the day you need them, in addition, if there are any disputes that arise out of this agreement, we will agree to binding arbitration and neither party could proceed to a court of law for breach of contract. Some indication on the return document that the supplier is attempting to bind the buyer through arbitration. For the purposes of this class, we are going to say that materially alters the offer. Warranty disclaimers are going to have the same effect.
If the offeror objects to the oferee’s return document, within a reasonable time then the additional or different terms are not going to be part of the contract.
Kicked down to subsection 3 if there was proviso language that wasn’t assented to by the offeror. So now that we’re in subsection 3 we ask, does the conduct of the parties indicate that there’s a contract? Because we have an offer and an acceptance that is changing dickered terms so we don’t really have an acceptance or contract status. Look to the conduct of the parties.
If there are additional terms, the only ones in the K are the ones agreed upon.
The UCC gives us some other tools to use in the event there are things not specified.
6:57 PM
These are called Gap fillers, sections are on handout.
Problem 30, page 101
UCC. Did the return document change a dickered term? No, it did not. Was there a proviso in the RD? No, there was nothing in the RD that said this acceptance is expressly conditional. Subsection 2, acceptance. We know we have a contract. Is this transaction between two merchants? Yes. Will the warranty disclaimer, because we have two merchants involved, automatically become part of the K? Would it normally become part of the contract? Yes. What do we know about a warranty disclaimer that’s going to make it not part of this K? The warranty disclaimer in the RD acted as a material alteration so it’s not going to be part of the agreement. The answer is no, the warranty disclaimer will not be affected.
Commerce & Industry v. Bayer
Both parties did not agree to the binding arbitration based on conduct. Arbitration wasn’t a provision expressly agreed to by both parties, there isn’t going to be an arbitration clause.
No gap filler clauses for arbitration under the UCC.
Problem 31
The documents here don’t really matter. This deal was done on the telephone and not from a battle of documents. They reached a deal when they hung up.
Problem 32
No indication of dickered terms. Is there proviso language? Yes. Is there assent from the offeror to the proviso language? No, that takes us down to 2-207(3)
Does the parties conduct indicate their intentions to contract? In this situation it takes us to Counteroffer and no there is no K. We are going to conclude there is no contract.
If the parties did intend to K, what would happen to the disclaimer? It wouldn’t be part of the K because it wasn’t agreed to.
Problem 33
Know and apply the Minority Rule/View. It permits the terms and offer to control. No dickered terms being affected. Under 2-207(1), there is no proviso language so we have an acceptance. The question becomes, is this a transaction between merchants? Yes. The arbitration provision will make it a new contract. The minority view permits the terms of the offer to control.
Klocek v. Gateway
Who are the Of and Oee? Gateway is the offeree. Was there a proviso? No. Dickered term? Where does that put us in 2-207? Subsection 2. The buyers never expressly agree to Gateway’s language. So yes contract but no to the additions. This case criticized the ProCD case.
Omit problem 34
V. INDEFINITENESS
Two of the most important terms in any offer especially under the UCC are price and quantity. You either need a price to be stated specifically or you need a way to determine it. Sometimes contracts don’t quote a price but they “tie” it to some index, equation, formula, etc. that at least gives the parties a way to determine what that price is. Quantity always needs to be stated. The reason why these things are so important is in the event of breach, the courts have to be able to fashion a remedy and without knowing quantity, prices it’s difficult to fashion remedies for breach. Under the common law you can’t have mutual assent between two parties unless the agreement of the parties is sufficiently certain.
But the UCC on the other hand, allows parties to proceed with a contract even though one or more terms are left for a later determination or are otherwise not stated in the party’s agreement.
These are the UCC gap fillers:
No gap filler for quantity. So if quantity is left out of a K and there’s no way to determine quantity, then a K is going to fail for indefiniteness. 2-204(3)
Walker v. Keith
Common Law principals. The court dealt with how certain the contract has to be. The court said that “We realize that litigation is oft times inevitable and courts should not shrink from the solution of difficult problems. On the other hand, courts should not expend their powers to establish contract rights which the parties, with an opportunity to do so, have failed to define. So, the court is not going to involve itself in deciding what these parties intended. You had the opportunity to do it and you didn’t do it, no K.
Transactions in the sale of goods are treated a lot different. The UCC is more liberal in its approach and more sympathetic to quantity being left out.
Rego v. Decker
Action for specific performance, he has to follow thru with it and sell Decker the property. Which means the buyers, whom Rego sold to, are SOL. Becker wanted Rego to follow thru. This court used the UCC for guidance. Liberal, more in line with what we might see in the UCC
Problem 35
Determine a price with gap filler-the court will impose a reasonable price- 2-305
Problem 36
We have a quantity but we don’t know how many she wants of each. 2-311 allows her to perform in a reasonable manner. Likely not going to fail due to indefiniteness. She could give him the option of how he wants them divided up.
End
REVIEW FOR MIDTERM
In this class we are only dealing with informal contracts. Informal contracts are formed when the elements have been met.
Four basic communications:
1. Offers have to be communicated to be effective.
Exception: public rewards.
2. Acceptance has to be communicated to be effective.
Exception: mailbox rule-acceptance becomes effective when posted
3. Revocation is effective when communicated.
Exception: death will terminate an offer but will not terminate a K
4. Rejection must be communicated to be effective.
Express Contracts are contracts born by express agreement between the parties. They are verbal which means oral or written.
Implied in Fact Contracts are not oral or written. They are contracts that exist by virtue of the conduct of the parties. Did the conduct manifest mutual assent or intention to be bound?
Implied in Law Contract really is not a contract at all. It’s a legal fiction created by the court for equity.
Special Rules with respect to offers:
Statements made by professionals are typically not offers unless they cross the line and guarantee a particular result.
Solicitations and Ads are generally not offers. They are invitations to enter into negotiations. However, ads can become offers if they limit the number of people who can accept, and they are definite.
Rewards are offers. Private rewards must be communicated to the offeree before acceptance and Public rewards do not have to be communicated.
ACCEPTANCE
Once there is an acceptance, the deal is cemented. We have mutual assent and a meeting of the minds. A common law acceptance that mirrors the offer or an acceptance under the UCC, we have a deal.
Once an offer has been accepted, the Offeror can’t change the terms, nor can the offeree change the terms.
Acceptance can be made by an act or a promise but the offeror is the master so whatever invited means for acceptance have to be followed by the offeree. Whatever means are, the offeree has to follow
When an offeree wants to manifest his acceptance he can do this either orally or in writing so long as it is an invited form of acceptance. Acceptance becomes effective when rec’d by the offeror. That means receiving in his hands or at a place of business-even if it is unopened. A fax rec’d at a place of business that was never seen still acts as an acceptance the moment it comes across the fax machine.
Silence, although rare can constitute an acceptance to an offer (pickle case). Day v. Caton- if the offeree takes the benefit, knows that payment is expected, knows the services have been performed and had an opportunity to object-that silence can constitute an acceptance. Silence can also be an acceptance if the offeror says silence can constitute acceptance and the offeree intends to accept by silence
If there’s a course of dealing between parties that would indicate that silence is a valid means of acceptance. And that can also constitute silence by acceptance.
Familiarize yourself with Day v. Caton
Method/Mode of acceptance:
1. Act
2. Promise
Was the offeror seeking a return promise or return performance? This gets us into unilateral (return performance) or a bilateral (return promise).
To accept an offer by conduct or by tender. Tender means the offer is performed coupled with the demonstrated ability to carry it out (show me the money case). If there had been a window that might have been a different outcome. Tender can also be an effective way to accept.
TERMINATION OF THE POWER OF ACCEPTANCE
Revocation
Revocation (by the offeror) can revoke directly by telling the offeree that the offer no longer exists or indirectly. If the offeree learns that the offer has been revoked by a reliable third party that would constitute an indirect revocation. What also might constitute an indirect revocation is the offeror doing some act that is inconsistent with the offer, i.e. selling the subject matter of the proposed contract.
Unilateral K v. Bilateral K
An offer for a unilateral can’t be revoked once part performance has begun (Mackinac bridge example). The offeree can stop at anytime without legal consequences. If someone says, I promise to pay you $500 if you promise to walk across the bridge, that offer is seeking a return promise. Once that return promise is made, both parties are bound to perform. Both parties can be held liable for breach.
In a doubtful offer situation part performance will bind the offeree. He starts walking across the bridge attempting to accept by an act, the offeree will be bound.
Mere preparation to perform is not performance.
Option v. Option K
An option is simply a promise to keep an offer open for a certain period of time. That period of time could close at any time prior to acceptance. An option K occurs when money is paid to keep the option open for a specific period of time. The money doesn’t have to be turned over, only a promise to pay. When the money is paid, it is irrevocable for the time stated. If there’s a rejection by the offeree and the offeror relies on the rejection even under an option K situation the offer can no longer be accepted.
Firm “Merchant” Offer
A firm merchant offer is the UCC’s version of an option contract. It has different characteristics to it.
1. It doesn’t have to be money recited.
2. Simply an offer to buy or sell goods
3. Signed writing that makes it irrevocable
4. Revocable after 3 months
Lapse of Time
An offer will lapse if there is a time stated and that time passes or it will lapse after a reasonable time. If it’s an oral conversation, the oral offer lapses when the conversation ends unless there was something said that would indicate an intention to keep it open longer than that. What a reasonable time is under the common law is first a question of law for the court and then if it’s not quite obvious, then it becomes a question of fact for the jury. In the fire case, P tried to claim a reward years later. That became an unreasonable amount of time.
Death
Death terminates the offer unless there’s an option K or the offer was accepted before death in that case you have a K and death will not terminate a K
Rejection (by the offeree)
The Mailbox Rule
You have to point to some fact that mail is an acceptable means of communication. If the mail is OK, so is anything faster than mail. Acceptance is effective when posted. Everything else is effective when it’s received . MBR only applies to acceptance-not revocation or rejection. Does not apply when we have option contracts or merchant offers under the UCC. In those situations the acceptance must be received in order to be effective.
How to count days
Dependent on the MBR. Know whether the offeror wants acceptance in hand.
Counteroffer
A counteroffer is usually a rejection of the offer. A counteroffer will not be a rejection if the offeror revived the original offer (Livingstone case).
Battle of the Forms
Know the sheet. Isn’t exactly the language in 2-207
Know definitions of signed, merchant and writing
Know race to the offer
Know how to count days.
Know whether the offeror wants acceptance in hand.
Know Battle of the Forms
WEEK 6
CONSIDERATION
A contract is a promise that’s legally enforceable. What makes it a legally enforceable promise is consideration. Consideration is something bargained for that has value. Something for something-Quid pro quo. I’ll do this for you if you do this for me. The “glue” that binds has to have legal value.
1. Consideration
2. Promissory Estoppel
3. Moral Obligation
Any one of these three things can be the glue that holds the offer and acceptance together and also creates a contract.
We have an offer and an acceptance and then we have something explicitly bargained for. It could be a benefit to the promisor, or a detriment to the promisee. So it’s not always something that you’re getting or something tangible. Sometimes the thing of value is a promise not to do something. A promise to forebear from doing something which also has value. Sometimes we look at that forbearance as a detriment to the promisee. If someone says, I offer to give you my car and you say, I accept. But we don’t have a bargained for exchange. All we have is a gift. If I say I offer to sell you my car for $5000 and you say I accept, well yes, we do have consideration there. We have bargained for an exchange, we have a benefit to the promisor and a detriment (paying the money) to the promisee. We have a quid pro quo, something for something.
Not everything has legal value. There are things in our lives that we think have value, i.e. love and affection that the law does not recognize as having some type of legal value necessary to act as consideration in a contract. So what you want to ask yourself when you see a problem is decide whether or not there was consideration to support the contract. You want to ask yourself two things:
1. Was the act or promise bargained for? Bargain doesn’t mean haggled over, it simply means there was an exchange.
2. Does the act or promise have value?
See Restatement II section 71
Hamer v. Sidway
Uncle promises to give nephew $5K to live a clean life. Was there consideration to support the agreement? Or was the uncle merely giving his nephew a gift on his 21st birthday? What the nephew did in this case was give up something he had the legal right to engage in. What the court said (bottom of page 134)
“A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.' Courts will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party, or is of any substantial value to anyone. It is enough that something is promised, done, forborne or suffered by the party to whom the promise is made as consideration for the promise made to him.” (Anson's Prin. of Con. 63.)
Consideration means not so much that one party is profiting as that the other abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for the promise of the first.'
It is sufficient that he restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle's agreement, and now having fully performed the conditions imposed, it is of no moment whether such performance actually proved a benefit to the promisor, and the court will not inquire into it, but were it a proper subject of inquiry, we see nothing in this record that would permit a determination that the uncle was not benefited in a legal sense. Few cases have been found which may be said to be precisely in point, but such as have been support the position we have taken.
Where we see this the most are settlement and release agreements. If someone has a right to bring an action or a right to sue, sometimes they will give up that right in exchange for something of value or money.
What we’re looking at more closely is the act for forbearance on the person making the promise. Somebody that is giving up something that they otherwise have a legal right to do in an exchange of something for value. That’s a situation that is sufficient legally speaking that acts as consideration for a contract.
Problem 38
Just because the benefit went to a third party doesn’t mean that there’s insufficient consideration to support the obligation to Clark and the bank. In this case, loaning the money is a detriment to the bank.
Adequacy v. Sufficiency (The terms come from the Restatement I)
Adequate consideration refers to the quantity of the amounts exchanged. If I agree to sell you my mountain bike for $5. Everyone looking at that transaction is going to say that’s a terrible deal. Adequacy of consideration looks to how fair is this deal? Does it seem like a good bargain for both sides? The courts don’t care about that. If people want to enter into dumb deals, they can do it. Rarely will courts question the adequacy of consideration.
Sufficiency of consideration: Is there the value there that’s necessary for the law to enforce a promise.
The court will stick its nose in fungible or like goods. I’ll give you 500 ears of corn if you give me 300 ears of corn and you say I accept, all that’s really happening in that transaction is that I’m giving you 200 ears of corn-it’s a gift of 200 ears of corn. So when a court sees a contract where the subject matter is an exchange of fungible goods, the courts will look closely to make sure there was adequate consideration.
Problem 39 (a)
Rules:
(a) Love and Affection do not have legal value.
(b) Magic/Fortunetelling has no legal value.
(c) Law does not recognize the legal value for doing the obvious.
(d) Idea was unsolicited and used two years later. Hard to say it was bargained for but the tobacco company lost. Whether the idea had value is also a difficult question. Was there a benefit to the cigarette company? Hard to say but they used something similar but not exactly the same.
(e) Descartes did not have to teach him the table it’s a detriment to Descartes. Teaching multiplication has value. Selling multiplication tables, no value. When we have things like math that are true and fundamental, can’t use these things to act as consideration
Batsakis v. Demotsis
Not fungible, there are differences. The higher court found for P
Schnell v. Nell
Deceased wife promised to pay $200 to P. Payment of one cent, the courts looked at it as an exchange of fungible goods (money for money). The consideration of one cent will not support the promise of Schnell. Giving someone a gift, the deal fell thru.
Problem 40
(a) Just a gift
(b) Historical value.
(c) Not fungible in context of the transaction.
(d) No. The court will not look into the adequacy of consideration.
(e) Still looks like a gift
(f) Yes
Not being bargained for. Not legitimate
Avoid disguised gratuitous promises
Forbearance as Consideration:
Forbearance of something you had a legal right to do is enough for consideration. What happens if you forbear from suing someone and then later learn that the claim that you gave up was invalid?
Feige v. Boehm
Problem 41
Why might she want a promise instead of an act? Had to wonder for an entire year.
Problem 42
Juliet will prevail. Juliet forbore her legal right not to talk to Romeo before he died.
Problem 43
The signing of the quit-claim deed by the tribe was a detriment
WEEK 7
III. THE ILLUSORY PROMISE
Definitions:
Illusory Promise: A promise whose fulfillment is optional or entirely discretionary on the part of the promisor.
If I say to you, I’ll give you $100 to go to Chicago and you say, I might-there’s no consideration there because you haven’t promised anything. You left your performance by saying, you might. Your performance is entirely discretionary, optional. You could go, could not go, so you haven’t promised anything.
What we want to look for is whether or not the promisor has in someway restricted himself. Have they restricted their liberty, their action in some way?
Corbin on Contracts section 156 (page 161)
Wood v. Lucy, Lady Duff-Gordon
What is the promise that Wood is trying to enforce? He had an exclusive dealing contract, he was the one given the rights to use her name. What was her response to his desire to have this promise enforced? How did she defend in this case? That he didn’t commit himself to do anything and she also argued that this wasn’t a contract at all because there is no obligation on the part of Wood. She attacked at the roots, that there is no contract at all and that it’s simply an illusory promise. Everything that he’s agreed to is optional or at his discretion. What did he court say about that? Wood did do something to limit his future liberty. There was a promise there. We won’t really see the promise because it’s implied. It’s an implied promise for Wood to use reasonable efforts to carry out his obligations. If someone promises to use reasonable efforts then making a promise somewhat limits that.
Famous quote: page 151 (highlighted in blue)
What we have here is a contract being bound based upon a commitment that was implied by the language and behavior of the parties. This case and the principals taken from this case have been codified into the UCC. Section 2-306(2): The obligation to use best efforts to supply the goods and the buyer to use best efforts to promote their sale.
Sylvan Crest Sand & Gravel Co. v. US
This is called a requirements contract. Let’s walk thru this like we would on an exam for consideration. Do we have bargain for exchanged between the parties? Yes, rocks, money going back and forth-we have a bargain, a price set. Is there something of value being exchanged? The rocks being exchanged for a price. Mutuality of obligation. Are both sides restricted or obligated in some way? Both parties are bound or neither party is bound. If one side can cancel at any time, are they really bound? That was really the issue in this case. The trial court in this case said no. The court of appeals looked at it and thought differently. When there is a cancellation provision, the law requires that cancellation always be given within a reasonable time. That’s the obligation at stake with the agreement. Notice of cancellation has to be given within a reasonable time. And because it has to be given within a reasonable time, it restricts one party’s future course of action. If they want to cancel, they can do it but the notice has to be within a reasonable time. When we’re looking at whether or not the cancellation provision causes promises in the contract to be illusory the court of appeals in this case said no, it was not an illusory promise.
Couple of quotes per Kent:
Page 154 & 155
In construing the document the presumption should be indulged that both parties were acting in good faith.
Surely it would have not been understood as thus (Quoting the US): “We accept your offer and bind you to your promise to deliver, but we do not promise either to take the rock or pay the price.” [Kent: The courts said surely the parties didn’t understand that to be the case.] The reservation of a power to effect cancellation at any time meant something different from this.
The court goes on to talk about the requirement of the reasonableness of the cancellation notice.
The reasons that the promises were not illusory in this case:
1. Good Faith requirement imposed by the court. You must act in good faith-you’re no longer free to do whatever you want. You’re bound by good faith. Good faith is a limitation on your actions.
2. If you chose not to buy it, you must give reasonable notice. The US can or either buy the rock or not buy the rock-true. You must give notice which is also a limitation on your action.
Page 156:
A promise is not made illusory by the fact that the promisor has an option between two alternatives, if each alternative would be sufficient consideration if it alone were bargained for. ALI Contracts section 79. As we have construed the agreement to the United States promised by implication to take and pay for the trap rock or give notice of cancellation within a reasonable time. The alternative of giving notice was not difficult of performance, but it was a sufficient consideration to support the contract
What you are seeing from these cases so far is that courts are going to look at contracts a certain way and often will read into them certain implications. We saw good faith here and best efforts in the Lady Duff case. The court is trying to save the contract.
There may be jurisdictions that have common law that says that any contract entered into there’s an implied covenant of good faith and fair dealings. Whether that exists will be different from jurisdiction from jurisdiction. Some courts go as far as to say that any contract you enter into has some obligation of good faith and fair dealing
Most of the time when we see it, illusory promises, we know what they are, we know what to look for, we know what questions to ask-whether or not a party has restricted his or her future course of action. But a lot of times it’s not going to be so apparent in the exchange of promises whether it’s illusory or not because the courts have that capability of reading these obligations as well.
Problem 44
Mary hasn’t committed herself to anything, No K. Mary is not restricting her future course of action in any way. Her decision about what to do is entirely optional and discretional.
Requirements or Output K’s v. Continuing Offers
They are very similar but there’s an important difference
REQUIREMENTS K
Requirements K: One party will say, I’ll supply you with all the footballs that you require throughout the course of this season. You might have Rawlings saying to the NFL, let’s enter into a Requirements K. If that K is to run one year, A of that offer would form a binding obligation for the entire year. Sometimes it’s not always clear that what we’re looking at is a requirement for an output K so there are some keywords that you want to look for to tip you off it’s a Requirements or an Output K.
If it’s a Requirements K, you want to look for words like require, need, use-I’ll provide you with all the footballs you can use. All the footballs you need. These are definitive words that tell us there’s a Requirements K. They become words of obligation.
The reason why we’re talking about this subject now during illusory promises is because a Requirements K might seem like on its face, contrary to what we are talking about in terms of one party’s future action being restricted. These are not illusory promises. Maybe the NFL doesn’t need any footballs throughout the course of the year and never makes an order. That doesn’t make the K void because it’s illusory. When you have a requirement for an Output K and the words of obligation are used and it’s entered into in good faith, it’s not illusory. It’s possible that an order is never made but the parties have still restricted their course of action. The NFL has said, we’ll pay you for the footballs that you provide us and Rawlings has said, everything you need, we’re there for you and we’ll make it and we’ll provide it. So both parties are in someway restricted their course of action. Rawlings isn’t free to say, should there be an order, nope, we’re not going to give them to you. By the same token the NFL is not free to say when they get them, we’re not going to pay for them.
OUTPUTS K
An Outputs K is a little different from a Requirements K. It’s called the flipside of a Requirements K.
This is a situation where you have one party agreeing to purchase everything the other can produce over a period of time. I agree to buy all the product you can produce over the course of the next year. Produce is a word of obligation for an Outputs K.
Let’s compare that with a Continuing Offer
Continuing O might look like a Requirements or an Output K but we don’t have words of obligation. We have ambiguous words. We will provide all the footballs you want, we’ll provide you with all the footballs you desire, that you might require. These are ambiguous terms, not construed as commitments and they’re subjective in a lot of ways i.e. the number you want or desire. We term that a continuing offer. So if Rawlings says to the NFL, we can supply you with all the footballs you need for the following year, no one acceptance is going to bind either party for the entire year’s duration. Rather you have a series of acceptances forming a series of contracts. So if the NFL said, send me 100 footballs, there is no obligation on the part of Rawlings to provide them all that they might need for the course of one year. Continuing Offer’s are revocable.
It’s possible that Rawlings could say, the offer’s off the table. A continuing offer can be made to be irrevocable. In the absence of something that makes this Continuing offer irrevocable, the offeror could at anytime during that year cut it off. And that’s what makes it different from a Requirements or Output K binds either parties for a year and a Continuing Offer which uses these ambiguous words doesn’t bind either party for the yearlong duration and could result in successive offers and successive acceptances within that one year period-multiple K’s
McMichael v. Price
We have a seller promising to sell/furnish all the sand the buyer could use. We have a buyer agreeing to buy from the seller all the sand that it could use. We have a bargained for exchange. Value-this is where the illusory question comes in. What did the courts say about whether or not either of the promises was illusory?
Did the buyer have the right to purchase the sand elsewhere? Did the buyer have to buy any sand? What was the buyer’s obligation that rendered this not an illusory promise on the buyer’s part? How was the buyer’s future course of action restricted? If the buyer wanted sand he had to get it from the seller and that’s a restriction on his future course of action. Likewise, the seller was obligated in a sense that it had to provide all the sand that the buyer could use. There were obligations on both sides. There respective behaviors weren’t optional or discretionary; they each had some bounds and limits on how they could perform under this agreement.
Page 160:
By the terms of the contract the price to be paid for sand was definitely fixed. Plaintiff was bound by a solemn covenant of the contract to purchase all the sand he was able to sell from defendant and for a breach of such covenant could have been made to respond in damages. The argument of defendant that the plaintiff could escape liability under the contract by going out of the sand business is without force in view of our determination, in line with the authorities hereinabove cited, that it was the intent of the parties to enter into a contract which would be mutually binding.
The argument made that, we could just avoid all of all contractual obligations by just going out of business and not buying the sand at all-the court didn’t buy that because it was contrary to what they intended in the first place.
Problem 45
a) Yes. Here we have words of obligation (produce).
b) Yes, need is a word of obligation. Valid Requirements contract
c) Yes, it would be a K if she placed an order. It may not be a Requirements or an Outputs K, we have a Continuing offer once the order was placed that acts as an acceptance. The only difference is that offer is one that could be revoked.
Problem 46
a) Yes, even prior to his purchase. He has a valid K with Josephine. Just because he has alternatives under his agreement with Josephine doesn’t mean that a valid K doesn’t exist. His future course of action is certainly restricted-he can buy the yacht or he can not buy the yacht. But if he buys the yacht, he can only charter it to her. He’s limited his actions to charter the yacht.
b) No. He’s not limiting his future course of action. Nominal (name only) consideration. It would matter if we were in law school.
Donald never did anything. The other side may say he’s giving up.. Given to a fact finder.
Could be on final?! Illusory and Alternate Promises. Restatement (second) of Contracts Section 77 page 162
Separated by “or”
If one of them doesn’t have value (love and affection), then you’re giving someone a choice-you could either one for $500, they could pick the one that has no value. So, when the alternate of performances are separated with an “or”, they both must have legal value. In that situation you have an illusory promise
Separated by “and”
Only one or the other has to have value. You might love me, but you have to paint my house to get the $500.
IV. PAST CONSIDERATION
Can’t be bargained for cause it already happened. Because it can’t be bargained for, can’t restrict future course of action if it’s already happened. We saw a little bit of this in the Schnell v. Nell case where the husband after the wife past made these promises to pay money to the heirs and the court looked at it said that things that happened in the past can’t be used to support the K
Hayes v. Plantations Steel Co.
We have a company making a promise to provide a pension. What’s Hayes’s return promise to the company to support that this K exists? He claimed that working 25 years was sufficient consideration to make the company’s promise to pay him a pension enforceable. What did the court say about that? He already decided to retire. That fact, before the promise of a pension was made makes all the difference in the world. If they had come to him and said, we agree to pay you a pension if you agree to retire and he accepted, then it’s an entirely different case. It’s not hard to build consideration into an agreement between two parties. The court looked at this simply as a gift and not an enforceable K.
Promissory Estoppel: A promise that is enforceable if the promisor should reasonably expect that it will induce action or forbearance on the part of the promisee, and does in fact cause such action or forbearance, and is the only means of avoiding injustice.
V. THE PREEXISTING DUTY RULE
If a party is already under an obligation or a preexisting duty, to do something, then it cannot be consideration before a new promise to do the very same thing.
Harris v. Watson
Stilk v. Myrick
The conclusion in both cases was that the seamen were under a preexisting duty to do those things anyway, regardless of the promises. The Harris court really didn’t decide the case based upon a preexisting duty analysis but rather on public policy grounds. Is it really right for seamen in a time of danger to extort more money out of their employers?
The Stilk court came to the same conclusion but it was more on legal grounds rather than public policy. They looked at it as preexisting. There was no consideration for the ulterior pay promise to the mariners to remain on the ship.
If they were at liberty to quit, it would have had a different outcome but they weren’t liberty to quit, they had to continue on with their obligation.
Lingenfelder v. Wainwright Brewery Co.
Wainright contracted with Lingenfelder to build building number 1. Wainright wanted to use a different architect for building number 2. Lingenfelder refused to build building number 1. He has a preexisting duty to build the first building. Wainright promised to pay him more money for the first building but he already had a contract to build the first building.
Page 180:
Nothing we have said is intended as denying parties the right to modify their contracts, or make new contracts, upon new or different considerations, and binding themselves thereby. What we hold is that, when a party merely does what he has already obligated himself to do, he cannot demand an additional compensation therefore, and although by taking advantage of the necessities of his adversary he obtains a promise for more, the law will regard it as nudum pactum (bare agreement-not “clothed” with consideration), and will not lend its process to aid in the wrong.
The court recognizes that people can revise their agreements if there is new or different consideration. Here there wasn’t new or different consideration on the part of Lingenfelder.
Promissory estoppel - If someone makes a promise and the other relied to their detriment, it may become an enforceable.
Consideration: Value given by one party in exchange for performance, or a promise to perform, by another party.
Professional athletes renegotiate their contracts all the time. How do parties effectively renegotiate a contract so that the promises are binding on both sides? They way to do it simultaneously rescind the old one and enter into a new one (see slide).
Problem 51
Police cannot collect the reward but also it’s a matter of policy. Don’t want police chasing down certain criminals just for the money.
Problem 52
Yes, it’s a rescission of the first agreement.
Problem 53
Restatement section 89, even though the contractor bears the risk of soil problems absent some gross negligence on the builder’s part, the court may be willing to uphold the modification. The biggest thing to look for here is unanticipated circumstances and whether one of the parties appears to be acting in bad faith. Some courts do not adopt this restatement.
UCC 2-209(1): Modification does not require new consideration.
Problem 54
This is a transaction in the sale of goods so we’re looking at the UCC. At first glance you might say they agreed to pay more, no new consideration is required. Also under 2-209, there can’t be coerced modifications. The reason in that case the Army took the goods “under protest” is under the UCC, you’re not waiving your rights to remedies that exist.
Problem 55
Yes, a party may use the same performance as consideration to support two separate contracts.
B. Past Due Monetary Debts/Accord and Satisfaction
Accord: An agreement whereby one party agrees to give and the other party agrees to accept something other than that originally agreed to. An agreement to modify the contract.
Satisfaction: The carrying out of that agreement.
Example: Credit card statement says one thing, I say I don’t owe that much but agree on something else.
If I make a payment on a non-disputed debt it is called Payment on Account. I don’t have to pay anything until the debt is legally resolved on a disputed debt. Payment on a disputed debt will discharge the original debt because I had no duty to pay it until legally resolved.
There is no preexisting duty rule with a disputed debt. A simple way of looking at it is a compromised settlement. Someone can fake a disputed debt just to get it knocked down; a dispute has to be genuine. Inability to pay is not a genuine dispute whether it’s owed.
Problem 56
Is it disputed or not disputed? No, this is a payment on account because it’s not disputed. Suit will succeed.
Problem 57
a) Yes. If she truly believed she didn’t owe the money as it would be a disputed debt.
b) No, must be a good faith dispute.
Problem 58
She’s agreeing to give up a legal right to file for BK and there’s new consideration.
WEEK 8
Wrap up Accord and Satisfaction:
Accord: An agreement whereby one party is agreeing to give and one party is agreeing to accept something other than what was agreed upon.
Satisfaction: Carrying out of Accord.
Because of the preexisting duty rule, there must be consideration to have an affective Accord and Satisfaction. The reason is parties are doing something other than what was originally agreed upon.
Recap:
Where there is a bona fide dispute over the amount owed, the accord and satisfaction resolves the entire debt. If one party says you owe me $1000 and the other party says, no I only owe you $500 and there is a bona fide good faith dispute, and they agree to $750, it resolves the debt. If the debt is not in dispute and one party owes $1000 and they know they owe $1000, and they send along $750 and they say this is to resolve my debt with you, the payment of $750 will not resolve the outstanding debt. We call that a payment on account.
Clark v. Elza
Executory Accord
Executory means yet to be carried out. So it’s an Accord that’s yet to be carried out. In the context of Accord and Satisfaction, it’s an Accord that hasn’t been satisfied yet.
P’s in a personal injury action who initially agreed to settle claims with D for $9500. Had an accord/agreement with the other side. If you pay us $9500, we’ll dismiss our lawsuit and release you of all liability. At that point we have an Executory accord-the money hasn’t been paid yet, hasn’t been satisfied.
As soon as they made this accord, the P’s saw their doctor and decided that it wasn’t enough money, the P backs out of the deal. The issue this court was faced with was whether or not that agreement they entered into was an executory accord or whether it was a substitute contract. P’s in this situation wanted their cause of action back. The D’s wanted to have the accord enforced.
D’s position was they agreed to $9500, they breached/backed out, we should be able to sue and enforce that accord.
P’s position was No-until satisfaction occurred (accepted the money), there was no deal.
Who prevailed? The D prevailed. The original right to sue was rescinded.
In most states, settlements between parties have to specifically be in writing or put on the record in court in order to be binding. Either side can back out until it’s put in writing and signed by the parties or alternatively go into court and place a settlement on the record. We don’t see the problem that’s encountered in this case very often.
Kent: Look at Restatement 417 page 186. Breaks down rights if one breaches.
Or as an alternative, if the D breaches then the P can chose to have the $9500 or retain the right to sue. In the event that it’s the P that breaches the accord (as in this case), the D has the right to sue for damages for breach of the accord/settlement agreement and the D can sue to specifically enforce the accord if practicable
Settlements between parties have to be in writing
Problem 59
Blue handout.
Use of a check. The UCC has several different articles in it. Article 2 is the one we’ve been dealing with almost exclusively. Article 2 deals with goods. Article 3 deals with negotiable instruments.
(a) Cashing the check will discharge the debt. (It’s an accord and satisfaction)
(b) Holding the check might be construed as silence as acceptance. Best course of action is to immediately send the check back.
(c) Turns into a non-disputed debt. The $750 becomes payment on account and she is still obligated to pay the remaining $250.
3-311
Problem 60
(a) under paragraph [3-311 (b)], No it’s a disputed debt and they cashed the check
(b) They have 90 days
(c) 3-311 (c)(1) Could designate to creditors where to send disputed debts but have to give prior notice.
(d) There is no provision in the UCC 3-311(d), creditors cannot take advantage. If they know it’s disputed, they can’t scratch out payment in full or write “under protest.”
True consideration: Benefit to the promisor, a detriment to the promisee. Bargained for and legal value. Super glue, the thing that really holds offer and acceptance together.
Promissory Estoppel: Elmer’s glue. It’s an alternative to true consideration. It’s an alternative that makes a promise legally enforceable. It’s not in the nature of legal value that’s bargained for. It’s something different than that.
Allegheny College v. National Chautauqua County Bank
Casenote: Promissory Estoppel: Historical Development. Introduced by Cardozo as an alternative when true consideration is missing or absent. The acceptance of a charitable subscription by the trustees of the charity implies a promise on their part to execute the work contemplated and to carry out the purposes for which the subscription was made. Was this case decided on promissory estoppel? No. In terms of bargained for value or true consideration. Two considerations: 1. Endowment in her name; and 2. Payment involved interlocking promises. The memorial was going to be in her name and that’s the value. There was another element of true consideration that the court recognized here. The stipulation of the endowment was based upon an Interlocking Promise: I agree to give $5K if this other person or this other charity gives $5K. Where we have interlocking promises, that is traditional consideration. Page 190-in consideration of others prescribing. J. Cardozo on Promissory Estoppel: page 191 FOR EXAM: If you see a problem that is screaming out to you-promissory estoppel, don’t just jump to it, you need to analyze it first to see whether true consideration even exists because when you have a K supported by true consideration-something bargained for of legal value, you don’t need to use an alternate theory like promissory estoppel to create a legally enforceable promise. If you have true consideration, you’re done.
FOR EXAM: If you see a promissory estoppel problem, you need to analyze it under both the First and Second Restatement. There are differences on how they would treat the facts and you have to point out the differences. The thing that both the first and second restatement has as an element of promissory estoppel is a promise. A promise by one party. A promise in which the promisor should reasonably expect to induce action or forbearance and this is called detrimental reliance. The person making the promise should reasonably expect that it’s going to cause another person to do something-to act in a certain way or forbear from doing something. Promise to sell Corvette example: Promise to sell you mine even though there’s a cheaper one, come back tomorrow. Promise could be enforced because you detrimentally relied on my promise. Under the first Restatement, the action or forbearance had to be of a definite and substantial character. The second Restatement does not have that requirement. It Includes a third party – a promise made, which the promisor should expect to induce action or forbearance on the part of the promisee OR a third party. When we have those three things, the promise is binding if injustice can be avoided only be enforcement of the promise. Page 196: Restatements of K’s (First and Second) Second Restatement of K’s (2) Charities. Makes people make good on their pledges. Don’t have to detrimentally rely. Good for public policy. Not in First Restatement-would require some proof of detrimental reliance. Another difference between First and Second Restatements – Last sentence of Restatement Second Part 1: The remedy granted for breach may be limited as justice required. And that’s NOT a sentence that’s contained in the first Restatement. Problem 61
Is this a legally enforceable promise? The action or forbearance that can be expected from the promisor must be reasonably expected. Can it reasonably be expected that Earnest is going to go do this? I don’t think so. Problem 63
True consideration, don’t overlook it on an exam. This is an offer for a unilateral K! Don’t be fooled! It’s not something that he was otherwise, with some degree of certainty, going to do. The editor of law review is intended to suggest that this is an offer to study hard, acceptance of performance. Recap of Charitable Subscription Rules:
After finding O + A, look at true consideration – looking for the benefits and detriments – looking for bargained for value – interlocking promises. If you can’t find true consideration, look to promissory estoppel – a promise in which the organization detrimentally relies. Under the First Restatement (need to analyze both), you still need detrimental reliance – a reasonably foreseeable detrimental reliance on the part of the organization for the promise to be enforceable. Under the Second Restatement you’re going to have promissory estoppel without detrimental reliance on the part of the organization. KNOW BOTH RESTATEMENTS FOR EXAM!! Universal Computer Systems v. Medical Services Association of Pennsylvania)
Casenote: Promissory Estoppel: Basic Applications. A promisee who reasonably relies upon the apparent authority of the employee of another, to his detriment, may recover for breach of contract based upon promissory estoppel. Agency principals. Gebert, was working for Blue Cross/Blue Shield at the time he made the promise. Vicarious liability kicks in which means the company answers for the actions and behavior of those people carrying out its business. That’s why the company is being sued. Did they reasonably rely on him? Yes, we have the elements of promissory estoppel. What did we give up because we relied on this promise? Buy yacht and life preservers example: I spend money on life preservers relying on the promise. How do we figure damages? The court awarded lost profits as if they had a K.
No K between subcontractor and general contractor. We don’t know if the general has the K yet. Sub K really have it rough. Gen K has promissory estoppel whereas the subs do not
8:09 pm James Baird Co. v. Gimbel Bros Sub underestimated bid and wanted to withdraw bid. The General K had already relied on bid. The question was whether or not the sub was bound under principals of promissory estoppel to live up to bid price Casenote: Promissory Estoppel: Basic Applications. The doctrine of promissory estoppel shall not be applied in cases where there is an offer for exchange as the offer is not intended to become a promise until a consideration is received. Holding: Old view Branco Enterprises, Inc. v. Delta Roofing, Inc. Casenote: Promissory Estoppel: Basic Applications. A contract may be effected between a general contractor and a subcontractor based on the general contractor's reliance on the subcontractor's bid for a component of the project being bid upon. Holding: New view Subcontractors are held legally for their bids. Hoffman v. Red Owl Stores
Casenote: Promissory Estoppel: The Limits of the Doctrine. Under the doctrine of promissory estoppel, as stated in Section 90 of Restatement 1, Contracts, "a promise which the promisor should reasonably expect to induce action or forbearance (Detrimental Reliance) of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can he avoided only by enforcement of the promise." Many courts reject this case. Was there a K between the parties? This is not a breach of K action. Actually, it was pled as a promissory estoppel. Is there anything about the transaction that doesn’t really sit well? What may have been going on here is some sympathy towards Hoffman. In the absence of a K, there had to be some other remedy. The reason why people have a problem with this case is because the nature of the promises was made during the course of contract negotiations. Some might argue that these weren’t in the nature of promises but they were part of a bargain that was ongoing. What about his wife? There was some detrimental reliance on part of the wife. A promise does not have to be as definite as an offer has to be. The court made that analogy. The second restatement allows either the promisee or the third party to rely. She was also awarded damages. Page 218. Problem 64 Promises made during the course of negotiations. Need to make early disclosures to the effect that no statements made during these negotiations should be construed as promises that which one party or other should rely. Remember that the promises don’t have to be as definite as offers, no writing required. TA Battle of the Forms:
Dickered term: something that is negotiated between the parties. Price and quantity are always dickered. Rule: If it’s not price or quantity, then there has to be evidence of negotiations between the parties. If a dickered term is changed, go to paragraph 3. It also contains proviso language – It has to say, “expressly conditional on assent to.” If it says “subject to”, that’s not enough to be proviso language. That’s an easy thing to test on. If you see proviso language, you’re going to paragraph 3, if not then paragraph 2 Under paragraph 2, what are the things that are considered materially altered? Arbitration and Warranty. If you see those, it’s materially altered. INDEFINITENESS Under common law, a K will fail for indefiniteness if parties have not agreed to material terms. You can’t have mutual assent if the terms aren’t sufficiently certain. The two most important terms we learned were price and quantity. Use gap fillers for UCC transactions. No gap filler for quantity. CONSIDERATION The bargained for part of the agreement. The quid pro quo. If the K is all about exchanging things, the consideration is what you are exchanging. When you have a contracts problem look at: 1. What is the promise to be enforced?2. What is the act or promise sought in return? 3. Was that act or promise bargained for?4. Does that act or promise have legal value? Broken down into elements (but they overlap): 1. Benefit to the promisor and a detriment to the promisee (each party is a promisor and a promisee because there is an exchange). 2. Bargained for – your exchange, dickering, making the deal. 3. Has to have legal value. Sufficiency, etc. Things that don’t have legal value: (a) Love and affection(b) Conjuring and magic(c) Doing the obvious
Will forbearing to do something that is lawfully allowed constitute consideration? Yes, that is valid consideration. If it is illegal then that is not valid consideration. You can’t promise to not murder someone and that be valid. The courts will not enforce that. The benefit can go to third party.
Adequacy and Sufficiency:
Adequacy is quantity and Sufficiency is quality. The court will look at adequacy in two cases:
1. Fungible for like fungible. Special use or need will take it out of fungible for like fungible category.
2. When specific performance is requested. When the court enforces the K. The most common remedy when you have a breach of K over land.
Terminology for when contracts fail for consideration:
Want of consideration: There was no consideration to begin with.
Adequacy of consideration: There is consideration but it’s not enough. $1 for a piece of land or not fungible for like fungible.
Failure of consideration: Recite consideration, say you’re going to pay it but you never come thru and pay it.
Promising not to sue is valid consideration. If you thought you had a lawsuit but it turns out you didn’t, it’s still valid consideration IF the claim was reasonable.
Week 7
ILLUSORY PROMISE
Illusory Promise: A promise who’s fulfillment is entirely discretionary or optional on the part of the connoisseur. That means it’s not really a promise – I promise to wash your car if I feel like it. I might do it, etc.
Per Corbin: The way we find an illusory promise is to look at whether or not the promise states a limitation on the promisor’s future liberty of action. Are you being limited in any way if you say, I’ll wash your car if I feel like it?
REQUIREMENTS K OR OUTPUTS K
Words of obligation: I promise to purchase from you all the widgets that I will require this year. Why isn’t that illusory? It’s a good faith promise and it does under Corbin’s test limit my future liberty.
Output: Very similar, I promise to purchase all the widgets you produce this year.
Continuing offer: Words like want, wish, might require, etc. Continuing offers are revocable. If you say, I want 10 widgets, I’m bound for the 10 widgets.
ALTERNATE PROMISES
A promise is illusory if there’s a choice of alternatives except in some circumstances. If the two choices are separated by “or” and each choice has value, then it’s not illusory. If the choices are separated by “and”, one of them has to have value.
Why is past consideration not consideration at all? It’s not bargained for.
Hypo*: In consideration for working here, I’ll give you $5000. Working wasn’t done in exchange for what’s being promised now (Hayes v. Plantations Steel Co.).
How does the preexisting duty rule relate to consideration? Can’t get more out of a duty you are already obligated to do.
Two ways to get around the preexisting duty rule:
1. Both parties agree to give additional or different consideration.
2. Mutually rescind the old K and enter into a new one.
ACCORD AND SATISFACTION
The accord is just the agreement. One party says they are going to give and the other says they’ll accept something other than what they agree to (modifying a K). Satisfaction is carrying out the agreement, acting out the promise.
Preexisting duty rule-already have an obligation to pay debt.
With disputed debts, you have the right to take creditor or court. You forebear going to court and that’s why it’s valid consideration to have an accord and satisfaction.
Must send disputed debts to appointed address. Have 90 days to return check unless you knew it said payment in full. If you cash check but write: “under protest” it has no effect, it’ a red herring.
INTERLOCKING PROMISE
Interlocking promise: You give some something in consideration of other people also giving. Matching gifts or contributions. That is true consideration.
PROMISSORY ESTOPPEL
Four elements:
1. Promise
2. Promisor should reasonably expect to induce action or forbearance (detrimental reliance on the part of the promisee).
3. It must actually induce the detrimental reliance.
4. Binding for. Injustice can only be avoided by enforcing the promise. Here the court is saying it’s not fair
The differences between the first and second restatement:
First restatement: The action of forbearance must be of a definite and substantial character. Also doesn’t have a provision for charities so it would require reliance by a charitable organization.
Second restatement allows the detrimental reliance to be on the part of a third party (wife in Red Owl case). It also says that charitable subscriptions don’t require detrimental reliance. There’s a remedy granted for such a breach may be limited as justice requires. That means that sometimes while we’re trying to have this equitable outcome, we could end up being unjust to the person who made the promise in the first place so the court is always trying to balance interests.
Need to know the differences COLD.
CONSTRUCTION
The majority rule is that subcontractors are held under promissory estoppel to the promises they make to their general contractors.
Promissory estoppel is not its own cause of action; you just use it in a breach of contract action. A minority of states say it is its own cause of action.
A standard for a promise is lower because of promissory estoppel.
Essay writing: Kent: Doesn’t care about IRAC. Cares about understanding the material, first and foremost and understand and answer the question. A cogent, organized answer that addresses the questions that are being asked in the essay.
Moral Obligation is what we’ll be learning today.
From last week: True Consideration is the best possible bond that you can have between the offer and acceptance. When you don’t have that, you can look to Elmer’s glue – promissory estoppel – has there been some sort of detrimental reliance on a promise that’s been made.
Weakest form of “consideration” that will make an enforceable promise and that’s a Moral Obligation.
After that we will study damages. Damages are what one party is entitled to after there’s been a breach.
Hand out is a study aid. Read it before next class. It’s a glossary as well.
Three types of Damages:
1. Expectation Damages
2. Reliance Damages
3. Restitution Damages
Mills v. Wyman page 168
In foro concientiae: Before the tribunal of conscience; conscientiously. This term is applied in opposition, to the obligations which the law enforces.
A promise may be enforceable based on a moral obligation. This court says that there are certain promises that are going to be legally enforceable in the absence of true consideration.
Three situations detailed in Mills:
1. SOL: 6 years for breach of K in MI. It revives the obligation if the statute runs.
2. Infancy: (Not the age of majority) if enters into a K and later makes a promise to follow through on the promise that was made in the original K, there is no consideration needed there. The courts will say that out of moral obligation, that promise is enforceable. If a person contracts at age 16, it’s an invalid K but when they are 18 and revive that promise then it may be enforceable without any new or additional consideration out of moral obligation
3. Most debts in BK are discharged. If a person who declares BK promises to pay after the debt has been discharged, that also might be enforceable out of moral obligation.
Problem 47
SOL begins the date of breach.
(a) If the SOL has run, then no obligation to pay.
(b) If promise was revived after the SOL ran there would be no new or additional consideration that would have to be paid by Defoe.
(c) Pay to the extent of the revival of his promise ($1000.00) but no more than that.
(d) He revives the entire debt. He needs to use the words in (c) to limit the debt.
Problem 48
Would owe the total amount of $200.00. Had already agreed to the amount. This is also an implied-in-fact or quasi contract. There is no K, the consideration was promised after the work was done. The parties had prior dealings with each other. The courts can exercise their equitable powers to prevent unfairness from occurring – unjust enrichment.
Webb v. McGowin
CONCISE RULE OF LAW: A moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit.
The court adds a new twist to the rule in Mills and adds a fourth category or a fourth situation where moral obligation may be sufficient consideration to make a promise enforceable – Material Benefit Rule. Workers Compensation didn’t exist at this time.
Here we didn’t have true consideration because there wasn’t any bargaining taking place prior to him riding this log down. Nor was there any reliance on the promise that was made for payment because what he did was occurred prior to a promise being made. We don’t have true consideration here, we don’t have detrimental reliance or promissory estoppel. The court said here that this is a case of Moral Obligation. An employee might expect, under these circumstances, to be compensated. The material benefit rule is where a promise can be legally enforceable out of moral obligation.
1. The material benefit in Webb was the saving of his life so the promisor received a material benefit.
2. Could be a grey area in this case
3. 0
4. Would have to be reasonable such that Webb would be expect to be compensated for the loss that he suffered.
K scholars have criticized this case and that it stretches the doctrine of moral obligation too far. Tough cases make tough law. There could have been sympathy for Webb to expand the scope of moral obligation. The court felt obligated to create a new rule. This does push the envelope in terms of making a promise legally enforceable.
The last element is the most important. Is it reasonable for the person to expect to be compensated under the circumstances?
Problem 49
One aspect to take from this problem: Promises between family members are presumed to be gratuitous. The reason is that it’s difficult for one to say that a family member reasonably expects to be compensated for caring for another family member.
CHAPTER 3 REMEDIES
I. DAMAGES
At the end of a cause of action there is a prayer for relief.
In torts, return a person to pre-injury. K law is different. Most of the time it is designed to put the non-breaching party in a position they would have been in had the K been carried out/performed. It’s forward looking in contracts.
Can also be looked at as three different types of damages:
Expectation interest, reliance interest and restitution interest.
Expectation interest is the main interest that a non-breacher is going to pursue in a breach of K action. There are going to be times that it’s not always in the non-breacher’s best interest to go for expectation damages. It may be better to see the other damages.
The non-breacher can choose whichever remedy benefits them the most.
If I go for expectation I get this, if I go for reliance…
Purchase house hypo*: Buy a house under priced to resell. FMV is $150K and selling for $100K, and I enter into a K with the seller and they breach it, my expectation damages in that situation is going to be the FMV value vs. what I would have paid for it ($50K).
The key to understanding what the goals of each of them are:
Had the D performed, what position would the P be in? What could he have expected if this K had been carried out. Using house hypo, I would be $50K better off than before and that would be my expectation. Sometimes that is referred to as suing on the K. The goal of expectation damages is to look to see where the P would have been had the K been carried out.
If someone is suing on the K (expectation damages) they get three things:
1. Expectation interest Most of the time called lost profits and;
2. some Reliance Interest;
3. some Restitution if any.
RELIANCE
They way we are typically going to see reliance damages are in the form of out-of-pocket expenses. What did this person pay in reliance on this promise that was made? Using house example, let’s say I go out and buy shingles. That’s an expense that I am incurring in reliance on the promise that was made. And that might be something that I’m entitled to if I go for expectation damages.
RESTITUTION
Let’s say I gave the seller $5K as a down payment. If they back out, they are not allowed to keep down payment – they would be unjustly enriched. I am entitled to that benefit back and that’s called a restitution interest.
These things all mean something different and they have to be treated differently
Reliance Interest is looking backwards – just before the K was entered into. What position was the P in at that point? Restore the P to the position he was in before the K was made.
If someone sues for reliance damages, when seeking Reliance Interest, they do not get lost profits. What you do get is all of your reliance and all restitution. Why would someone give up lost profits? Too hard to prove or could be no lost profits.
If you are suing for expectation interest, you get your expectation or what we’ll call lost profits, some reliance and some restitution.
If you are suing for your reliance interest, you get no expectation or lost profits, but what you do get is all your reliance and all your restitution.
So the $5K earnest money I gave for the house, when the seller breaches, that money comes back to me. It comes back to me under the theory of restitution. If someone sues for restitution interest, no lost profits or expectation, no reliance and they get all their restitution.
Page 10 of Contract Remedies may be helpful.-
Note on Restitution: Restitution are the benefits conferred on the breaching party, the non breacher gets those back. The P or non-breacher is not going to be entitled to get back the benefit that she conferred if the K is fully performed but the performance is defective. Using the house example, if they follow thru and sell me the house, but there is something defective about the house, I don’t get my restitution back. The theory is that it is money you would have paid anyway if the K had been carried out. There’s no unjust enrichment.
From page 10, the Losses Avoided column, those are things that are going to be subtracted.
Ex.: $5K on shingles for the house. But if I can resell shingles, for $3K, if they have salvage value, then that amount would go into losses avoided. If there’s money that I could get back by selling them I shouldn’t be able to hold accountable the breacher for everything.
EXPECTATION
Page 21 of handout, Hypo A:
Had the K been carried out, the buyer’s expectation would’ve been that he owned a building worth $120K, which he would have bought for $100K – he would have been $20K better off. We can call that his expectation damages. This is primary lost profit (first box page 10).
The buyer paid a down payment to the seller for $10K so the buyer is also is entitled to that back. So, we have the $20K so far in the primary lost profits and the $10K in restitution.
RELIANCE
There are certain expenses that are not going to be recoverable under the theory of expectation damages. Not all expenses incurred are going to be recoverable.
Non-Recoverable reliance:
1. Costs that are not required by the terms of the K but are assumed by both parties as necessary expenses.
2. Are associated with and related to the K for Lot A. We’re looking at the expenses the buyer and seller would normally expect to be associated with the K but are not specifically or actually spelled out in the K.
The option K was not required to buy Lot A. It was not normally associated or related to the K of Lot A. But it was something that the buyer independently undertook with the knowledge by the seller that this was happening. This is called secondary reliance. It was based upon a second K and not the primary K.
We have $20K in lost expectancy, $10K in restitution, and we have some recoverable reliance which is the $1K paid for the option K. The $500 and the $250 are not things that are going to be recoverable expenses for a person seeking expectation damages.
Nothing for the category for losses avoided so what we do then is simply add up the boxes. The P would be entitled to $31K.
Hypo B page 22
Let’s look at primary expectation of the seller. The seller is the P. What is the P’s primary expectancy or lost profit?
$24K contract price less his cost of $20K - $4K profit.
How about restitution? Has there been any benefit conferred by the non-breacher? There has been a benefit of $15K which is his partially performed construction. We treat that as a benefit on the breacher - $15K in control of breacher.
Let’s look at primary, secondary reliance and losses avoided:
S has $3K in materials that he has purchased but hasn’t used yet. Those materials salvaged are worth $2K.
$3K goes in the primary reliance box.
$2K goes in the losses avoided box.
Why are they primary reliance expenses? We know that some reliance is not going to be recoverable under an expectation and we know that some reliance is recoverable. Why is the $3K a recoverable form of reliance damages under an expectations theory? It was required by the K. The material had to be bought.
Do we need to factor that our breacher did pay something on account? ($5K as a down payment) Losses avoided.
Hawkins v. McGee
Rule: The purpose of awarding damages for breach of contract is to put the P in as good a position as he would have been in had the D kept his contract.
The doctor promises a perfect hand and he gets a burnt hairy hand. What kind of damages is he entitled to? Here the doctor is making a promise and that promise is a 100% perfect hand or a hand like it was before it was burned. His expectation based upon the promise made is the difference between a perfect hand and what he received.
This is illustration of Expectation damages but it’s also to show you that we don’t always have these concrete numbers that we’ve been working with in the hypos. Expectation interest isn’t always in the form of lost profits. An expectation interest can be comparing two different set of events, two different points in time and in this case the difference between a perfect hand and a burnt hairy hand and what he should be compensated for – that was what his expectation was. Cannot admit into evidence other jury verdicts of burnt hair hands. When it comes to these subjective types of damages, Kent doesn’t ask the jury for a dollar amount. I’ve told juries that the reason that they’re there is because it’s their judgment to make these decisions. If they come back with $1 or $500,000, we’ll accept that as a decision. I do that for strategic reasons, I think it builds trust. There are certain times that an attorney can lose trust with the jury when overreaching occurs.
What do we put in box 1, lost expectancy: We don’t have profits here but we are told that expert testimony will show $30K in damages (the difference between a Clinton face and a face with long floppy ears).
Non-recoverable restitution: a benefit conferred by the non-breacher on the breacher. The benefit conferred in this case by the entertainer on the breacher (doctor). We have a surgeon’s fee of $10K. With expectation we are looking to put the P in the position he would’ve been in if the K had been performed. If the K had been performed, would the P have to pay the surgeon’s fee anyway? Yes. We are going to have a form of restitution because this K was performed but poorly. We are going to have non-recoverable restitution because the K was performed.
We are looking at pain and suffering in this case as a form of expense. It’s not out of pocket but he paid for it in the form of pain and suffering. It’s a form of reliance damages. The pain and suffering from the first surgery is not recoverable reliance because the K was carried out and is something he would have had to pay anyway. The pain and suffering was a consequence of the first surgery. Under an expectation theory it’s not going to be recoverable because it is assumed that we he would have suffered that same pain and suffering had the surgery been carried out properly. Because we are dealing with expectation interest, the P wants to put himself in the position that he would be in had the K been performed, he’s not going to be compensated for pain and suffering from the first surgery because that is a form of reliance damages that he would’ve incurred anyway.
Recoverable reliance is going to be pain and suffering from the second operation. It was not associated with or related to the first surgery. The parties didn’t assume that there would be a second surgery as a necessary consequence to the first. There wasn’t any expectation that there was going to be two surgeries and $40K in pain and suffering.
Non-recoverable Reliance:
$5K hospital charges. Not recoverable reliance. He’s seeking to put himself in a position if the K had been carried out and the cost of $5K he would have incurred anyway. It’s not restitution because it was a benefit paid to the hospital and not the breacher.
Restitution not recoverable because surgery was performed. The only reliance damages that are recoverable for pain and suffering are from the second surgery. The reason that the $60K, $5K and $10K are non recoverable in this case is because the entertainer seeking the expectation interest put himself in a position as if the K had been carried out. If that’s the case then all of those expenses and the surgeon fee would have been incurred anyway.
TA
Essay is only 1/3 of the exam.
20 T & F
40 Multiple Choice
I Raise the issue
R Provide the relative principle of law related to that idea
A Determine by applying the facts to the law why that principle of law may or may not apply in the context of the question (major part of the essay)
C Whether the principle of law does or does not apply in the context of the question
Outline essay answer before you write it. Write as if the reader has no knowledge of the law.
At the end of each sentence, add the word “because.” Clearly there was an offer – because it was communicated, definite and committed. It was committed because _____.
Start exam by saying whether the UCC or common law applies.
The UCC applies because it deals with the sale of goods. Goods are tangible items that are movable at the time of identification to the K. Here the potential sale involves poster boards which are tangible items – poster boards are real, touchable things. Identifiable – the boards are presently in existence. And movable – the boards are not attached to the ground. Thus, the UCC will apply to this case.
Prof. Martin Scott (Cox?) teaches similarly to Kent.
Pull facts from the fact pattern and use them in your analysis.
Practice definitions.
Page 233 Peevyhouse v. Garland Coal Mining
The landowners (Peeveyhouse) entered into a strip mining agreement (5 year lease) with Garland Coal Mining. Part of that K required some reclamation efforts on that part of Garland. Garland agreed to put the land back in the condition it was prior to mining. They refused to do it and a breach occurred.
The amount to restore the land was around $25K -$29K. How did Garland evaluate the loss? The diminution in value of the land – around $300. The court agreed with Garland. Out of this case arises the economic waste doctrine. In situations where awarding lost expectancy to a P would result in economic waste courts are going to evaluate damages in a different way. It’s worth noting that several justices in this court were indicted for taking bribes.
To use the diminution in value rule for determining damages, we must ask two questions:
1. Will the lost expectancy result in unreasonable economic waste? The court believed that it would have in this case.
2. Was the breach merely incidental to the main purpose of the K? Which also the court believed that it was in this case.
Three ways to calculate lost expectancy:
Hypo A from last week demonstrated one way to calculate lost profits (lost expectancy) and that was fair market value minus K price.
Hypo B showed another way to calculate lost profits. The K price minus the cost to complete the project.
Hypo C showed us that lost expectancy could also be calculated by the value of what was promised minus the value of what he got (Clinton face example).
Peeveyhouse shows us two more ways:
You can’t take anyone of these measures and apply it to any given case. These are all unique to the hypos.
Page 247 problem 66
19,000 minus 7,000
You don’t get the expenses back because you would have paid it anyway.
It’s as if the K had never been made. Restore the person.
Hypo A – change #6 to $120K – the same as the K price. In that situation, there aren’t going to be any lost profits. But there are some costs now that weren’t recoverable in expectation.
We treat the costs as secondary. You get back all reliance and all restitution.
Change #2 to $24K to build. No lost profits.
$15K is a benefit that’s being conferred on the breaching party because the building is being constructed on the breaching party’s land which they have control of. We treat that as restitution.
This is where someone’s reliance damages might exceed their expectancy. Change to no lost expectancy of $30K.
Under a reliance theory, the surgeon fee and pain and suffering from the first surgery are recoverable.
Sullivan v. O’Connor
Why didn’t she go for lost expectancy? Because of evidentiary problems – not able to show the difference in value between what was had and what was expected. The court on page 251 talks about reliance.
Anglia Television, Ltd. v. Reed
What damages is Anglia entitled to? They wanted their expenses after the K was signed but also wanted the expenses before he signed. The ruling is not the majority rule in the US. This court allowed Anglia to get both. What makes the difference here is that whether Reed signing the K could have reasonably contemplated that they would have incurred those costs prior to signing the agreement. Page 254 – they can claim also the expenditures before the K.
In most American jurisdictions you are entitled to your reliance expenses that were incurred after formation of the K but not before. This case demonstrates the differences.
Hypo D1 page 24
The $1000 to the architect was not required under the K. It is associated with the K and necessary for its completion. We treat the 1000 as secondary reliance.
The $20,000 is restitution interest (a value sitting on breacher’s property)
$10,000 – losses avoided. This was a payment made by the breaching party.
$43,000 minus $15,000 = $28,000
Entitled to loss of profits ($15,000), added to that primary reliance expenses ($8,000) and restitution ($20,000)
Restitution interest is really only concerned with recovering benefits conferred on the breaching party.
Salvage value is not going to be a loss avoided. The $20,000 benefit, the breacher should get that back but the non-breacher has had a benefit with the payment on account of $10,000 so that needs to offset the benefit he conferred on the owner of the property. So for restitution damages only we have damages in the amount of $10,000 to the non-breacher. A rare case when restitution is pursued. Restitution is only concerned with value of the benefits conferred by each side. The goal is different in that respect.
7:07 PM
CERTAINTY
Easy points for you on the exam. You simply have to mention them and explain what they mean.
1. Certainty
2. Foreseeability
3. Mitigation
The court is also going to require a person to prove their damages with certainty. Not absolute universal certainty but certainty. Proof beyond speculation.
1. Must prove that damages occurred; and
2. Must prove the dollar amount of the damage.
As an attorney it is your job to get that evidence in. Clinton dog face example – need to use an expert.
Freund v. Washington Square Press
A professor wants to publish a book. WSP gives the professor a $2000 advance and he the professor give WSP the rights to publish the book subject to royalties paid to professor. The royalties are not profits that are generated from the K between the press and the professor. The royalties are generated by contracts between the press and third parties from the sale of books. These would be viewed as secondary lost profits. The professor argued that he was entitled to two types of compensation for the press’s breach of them backing out of the deal:
1. Lost royalties
2. Damages to his notoriety and prestige
The court held that the professor was not able to prove with the required degree of certainty those damages. His attorney should have shown lost royalties by previous royalties and royalties generated by comparable books. The court said that the professor’s expectancy interest was expectancy in the advance which he was paid so he didn’t have a claim for that. His other expectancy was the royalties he stood to gain. While theoretically compensable it was speculative. That was the attorney’s fault.
Problem 68
Suzie is not going to be able to prove within a required degree of certainty that she would have been entitled to this money. Would have to prove that she would have won.
Humetrix v. Gemplus
Smartcard technology. Gemplus was going to help Humetrix manufacture a smartcard that contained medical data on it. Gemplus breached the agreement. Humetrix was seeking future lost profits and that requires a stringent standard of proof. How does a jury ascertain what the damages are (client who lost his job example – could get more money down the road from a better job). Principals to take from the case:
1. Future lost profits are recoverable. Although an estimate, are recoverable if supported by substantial evidence.
2. Proving lost profits can be done with expert testimony. Experts could testify as to pilot projects, completed projects, success in foreign markets, market forecasts, etc.
3. A new business doesn’t have a track record buy yes, can recover. We want to avoid wild speculation. Lost profits must be proven with certainty. Did the damage occur and what is the extent of the damage?
4. This is called remittitur. If the jury verdict shocks the conscience of the reasonable person, the court has the ability to scale back the award. Deference to the verdict.
FORESEEABILITY
You don’t want to hold a party responsible for damages that they couldn’t have imagined from their breach of K
Hadley v. Baxendale
The carrier told the mill that he would have it in a day. He didn’t come thru and the mill sued the carrier for loss of sales to third parties. Was it foreseeable to the carrier? Did the breacher understand the consequences at the time the K was formed?
The court said that it wasn’t foreseeable to the carrier that the mill would be shut down.
Rule: Did the breacher understand the consequences of breaching the K at the time the K was formed?
If your answer to that is yes, then you’ve met your foreseeability requirement. If no, then have not met foreseeability requirement.
TA
1. Name and discuss 4 ways to make a promise enforceable by virtue of a moral obligation.
1. Sufficient consideration
2. Subsequent promise to pay
3. A debt that is barred by SOL, BK, Infancy
4. Material benefit
Material Benefit Rule: Applies when 1) the promisor receives a material (significant) benefit. 2) The benefit is received under circumstances that raise a moral obligation. 3) There is a subsequent promise to pay and 4) the nature of the circumstances makes it reasonable that the promise expected compensation.
DAMAGES
Know the goals of the interests.
Goals:
Expectation – If the breacher had not breached (going into the future).
Reliance – The position he was in before the promise was made (going back in time).
Restitution – We just want to get our money back. Prevents one party from gaining at the expense of another.
Primary Damages – damages that arise from the breach of this K.
Secondary Damages – because of the breach but not directly out of the breach
Incidental Damages – damages that are incurred while the person is trying to prevent the breach or lessen its negative effect. Ice cream example: Pay to keep it frozen. It arises out of the K but it’s not the direct breach.
Consequential Damages – arise out of the breach but are not a direct result. Pain and suffering from a second (botched) surgery.
Damages from expectation interest:
Primary lost profits
Secondary lost profits
Primary (essential) reliance Expenses required by the K. That means they are in (written) the K. Out of pocket expenses
Secondary reliance is when you have something that’s not required by the K but is expected by the K. i.e. Mortgage fees – you were going to pay them anyway. EXCEPTION: Option K from example. Both parties knew about it therefore recoverable.
Expectation Interest – can get recoverable restitution (restitution as a result of partial performance). Subtract any salvage value and payment on account.
Cost of Performance – It’s where we ask, how much will it cost the non-breacher to be put in a position he or she would have been in had the K been performed as promised?
In Peeveyhouse we learned if the cost of performance would result in unreasonable economic waste and the breach is insignificant, you only award the diminution of value.
Hypo: You hire a contractor to build your house. You specify you want a certain brand of pipe used. The contractor uses a different brand. Will not be able to get all of your money back.
Reliance damages – no lost profits at all. Getting all reliance interests and restitution. We worry less about primary and secondary expenses. Mortgage fees are recoverable. If you can’t prove lost profits, reliance could be higher.
Reed case:
Out of pocket expenses that occurred before the K are not recoverable in the US.
The difference between primary and secondary lost profits:
Primary lost profits: profits lost on this K
Secondary lost profits: profits lost on third parties
Construction for hotel example: entered into a K for a conference so now losing out on business – that would be secondary lost profits.
CERTAINTY
Have to prove that the injury occurred as a result of the breach and have to find a dollar amount.
Foreseeability
Secondary damages have to be foreseeable.
Problem 69 page 271
Is either of the defenses valid?
(a) If the courier makes that defense, is it going to be a valid defense? No express or tacit agreement is needed.
(b) The courier’s argument is that we couldn’t have known or have foreseen, therefore not responsible for damages. The consequences of the breach have to
be foreseeable, not the breach itself.
AM/PM v. Atlantic Richfield
Losing customers because they were selling bad gas. What types of damages were the franchisees seeking in this case? The court was not accurate about how the characterize the lost profits damages. The primary K is between ARCO and AM/PM
They were complaining about mostly was their lost sales to third parties (sundries) or secondary lost profits. Those would be considered other K’s
Goodwill damages are recoverable if they could be proven with some degree of certainty
Bottom of page 279 for definition of goodwill damages.
One other aspect and this really ties into foreseeability it would be up to the franchisees to prove damages
Problem 70
Sometimes. Emotional distress claims most of the time are not recoverable in breach of K cases. But in a rare circumstance where particular emotional distress is foreseeable.
Covered by R2
Problem 71
It not always going to be clear but in the case cited he was allowed to recover. Look for:
1. Foreseeability of severe emotional distress; and
2. Physical consequences of the breach
MITIGATION (AVAILABILITY)
Mitigation: The non-breaching party is responsible for doing something to avoid or lessen his or her loss.
This is a rule that is drawn out of public policy. We don’t want people sitting on their hands doing nothing. If there are things they can do to cause their damages to be less, then they should do those things. If I agree to sell you 50 iPod’s for $200 each and I’m going to make $1000 off of that deal, and you back out, I can’t just put the iPod’s in my trunk and sue you for $1K. That’s not what society wants me to do.
What we want people to do is make a reasonable effort to sell those to someone else. If I can sell them to someone else even for less money, it’s a reasonable effort to lessen damages.
Rockingham County v. Luten Bridge Co.
The city admitted to breach of K. The issue was the amount of damages that the contractor was going to be entitled to.
We look at restitution. The benefit conferred from one party to the other. Even after the construction company was told to stop, they continued to benefit the city. Essentially they were forcing damages. When they were told to stop they were obligated under the avoidability doctrine they should have stopped to lessen the amount of damage.
So what they would be entitled to is lost profits and the benefit it part performance that was conferred upon the city up until the stop work order but no beyond that time because they had an obligation to mitigate.
So the contractor here was making up his own mind, taking damages into his own hands. If you do it, we’ll hold you responsible for it.
Problem 72
No, they’re not going to be able to recover under the Economic Waste doctrine. A mitigation or avoidability perspective. It is reasonable for Peeveyhouse to spend $29K on the property to in order to enhance its value to $300.00?
Problem 73
This is a good under the UCC. Section 2-704 regarding unfinished goods.
UCC – we’re not going to tell you what to do. The manufacture needs to figure out which is better – finish the balloon and sell it or just sell it for scrap.
Parker v. Twentieth Century-Fox Film Corp.
Terms to be familiar with:
Affidavit: Testify by a written statement. Not admissible at trial but are required for motions.
Summary Judgment: One party argues that case should not go to a jury because no reasonable person would disagree a particular fact.
Judicial Notice: Judicial notice is the process whereby the trier of fact accepts certain facts as true without the necessity of formal proof. Some matters need not be proved because they are common knowledge. If the facts are common knowledge, the trial court can take notice of those facts and instruct the jurors in the case to consider them to be established in the case. No further proof is needed. There is a split regarding whether judicial notice constitutes evidence. Some courts allow the noticed fact to be disputed and refused by the jury. Most courts hold that once a fact is judicially noticed, contrary evidence is precluded.
The court said that as a matter of law.
Problem 74
She has to return to an offensive and degrading environment. We can’t expect people to do that. Similar to sexual harassment cases.
4. LIQUIDATED DAMAGES (DAMAGES BY AGREEMENT)
Stating ahead of time what the damages are in case of breach. They cannot be designed to punish the breacher. We need to be cautious to make sure they are not imposing a penalty on one side. If it smacks as a penalty, the court will not enforce it.
Lake River Corp. v. Carborundum
Bag Ferro Carbo. Must show a reasonable amount of what damages would be. Lake River is getting a windfall from this liquidated damages clause.
With respect to #2, look to see whether or not the damages are allowed to vary according to the time and the severity of the breach. Was the breach significant? If you have both, then you have the makings of a valid liquidated damages clause.
Problem 75
The damages aren’t allowed to be varying. This sounds like a punishment.
Problem 76
Most courts permit this in construction K’s only. Penalty clauses are acceptable in the contract context only.
Problem 77
There’s no provision to vary for the severity of breach. Acceleration Clause: Walk out on lease, get charged for one year. They are unenforceable.
The reason the timing is important, there will be a windfall for the apartment owner if he rents it out.
Problem 78
Trying to accelerate a service that they will never provide. A spa membership is such that someone else will fill that spot. No room for the damages. The purpose of a remedy in K law is to put the non-breacher (expectation damages) in a position he was in had the K been carried out, never is the purpose to provide a windfall for the non-breacher.
5. PUNITIVE DAMAGES
Punitives generally not permitted in breach of K actions. But there are some situations where they are:
An independent tort that goes along with the breach. Example: Landlord breaks in and batters you. That would be a breach of your lease agreement but it’s also accompanied by an independent tort.
Someone breaches a K where they have a fiduciary obligation. They are involved in a contractual relationship that arises out of a relationship of confidence of trust such as a guardian over a child or a trustee over a sum of money.
Hibschman Pontiac v. Batchelor
The court on page 313 – “Punitive damages may be awarded in addition to compensatory damages whenever the elements of fraud, malice, gross negligence or oppression mingle in the controversy.”
Not only was the dealership breaching their warranty agreement with the owner but they were doing it with malice. They weren’t being honest.
Deterrence for others.
Page 315: Wealth of the defendant is appropriate for the jury. The only way to punish someone is to know if it’s going to hurt or not.
Page 315: First blush rule: Damages are not going to be excessive unless at first blush they appear to be outrageous and excessive or it’s apparent that some improper element was taken into account by the jury in determining the amount.
TA
FORESEEABILITY
What people knew at the time of signing the K
You don’t have to foresee that the plane was going to crash to get damages.
EMOTIONAL DISTRESS
It has to be foreseeable. Was it foreseeable at the time of contracting?
MITIGATION
Mitigation: The non-breacher has a duty not to increase their damages if it’s avoidable. They should avoid or lessen their costs. Public policy.
Address mitigation in your essay! If there’s not a problem with it, address why.
Liquidated damages are damages by agreement. It has to be reasonable (objective standard).
Assignment:
Patrick could seek expectation damages. The goal of expectation damages is to put the non-breaching party in the position he would have been in if the D had performed the K as promised. Under the expectation interest, the P can recover all of his expectancy damages, some reliance damages, and some restitution.
First we need to look at expectation damages. His expectation will be the difference between what was promised and what was given. This is because the doctor guaranteed him a 100% perfect nose so if D had not breached the K, Patrick would have a perfect nose and the nose Patrick received was $25K. This is recoverable because in expectation interest we are trying to put the P in the position he would have been in had the K been performed as promised. If the doctor had performed as promised, Patrick would have the perfect nose so he can recover the difference in value.
Next, we can look at the reliance damages. Reliance damages are out-of-pocket expenses. There are two kinds of reliance damages: primary and secondary. Primary reliance damages are expenses that arise directly out of the breach. None of the expenditures here are primary reliance damages. However, we do have some secondary reliance damages – consequential damages. Consequential damages flow from the breach but they are not directly caused by the breach.
RECOVERABLE:
*Second surgery ($10K) – consequence of the breach. It wasn’t necessary to obtain the expectancy. If the doctor had performed as promised P would not have had the second surgery and would not have incurred this fee. Since we are putting the P in the position he would have been had the promise been performed he can recover that $10K
Second P&S
NOT RECOVERABLE:
*First surgeon fee & hospital fee – he would have paid it anyway. These fees were necessary to obtain the expectancy which was a perfect nose. Even if the Doctor had performed as promised P still would have had to pay these fees. Since we’re putting P in the position he would have been in had the dr. performed the K P can’t recover these.
First P&S
Restitution? In expectancy P can recover some restitution,
The facts do not give any indication that any losses were avoided.
Damages under UCC
Cover slide:
UCC 2-715
If a buyer has a K with a seller, prior to the time of delivery, cover. Go out and find a replacement – a good faith substitute.
If it’s the seller breaching, the seller can resell the goods.
If the buyer fails to cover, if the seller fails to resell there are certain things the law will not allow them to recover…
Failure to mitigate can result in the non-breaching party to…
UCC 2-712
Not just between merchants. Transactions in the sale of goods.
S breaches slide:
If you do cover you are permitted to recover …damages
2-713
If the buyer chooses not to seek cover damages, he can calculate the formula minus K price.
What the UCC does is give the non-breacher the option
The market price may be difficult to prove. If the buyer chooses this…
The UCC is trying to encourage buyers and sellers to use the market to mitigate
Strong public policy. They want the buyer to go out and buy those computers.
Problem 79
Slide:
Problem 80
Some other interesting questions: hasn’t made any effort to cover. Should Roget…You can’t use market price as a calculation for damages if ….
Two caveats
1. Time and place for delivery
2.
B breaches, S is supposed to resell slide
2-706 also gives the seller some options. If the seller can resell, the damage calculation is the…
If he can go out and sell for the same amount, his damages are going to be 0. Under 2-708 the seller has the option
2-706
Has to make the resell in good faith and in a commercially reasonable manner
The UCC doesn’t want sellers dumping goods and holding the buyers responsible for the balance.
Paragraph 2:
Public or private sale
Paragraph 3:
If a private resell, seller must give notice to buyer.
Paragraph 4
If public sale:
A only identified goods could be sold
B must be made
C within the view
D the seller may buy the goods at a public resale
Problem 81
RESTITUTION
Express K can be verbal (spoken and written word)
Formed thru the conduct (implied in fact)
Implied in law (legal fiction because they are designed by the court to prevent one party to be unjustly enriched Stepp v. Freeman)
The goal of the restitution interest is to prevent the one party from gaining at the expense of the other party – preventing unjust enrichment
Can occur outside the contractual relationship. May be an awardable interest. Implied in law K’s, express K’s,
Maglica v. Maglica
Slide:
Quasi-K
What we’re focusing on is Quantum Meruit – as much as he deserves. What the jury did in the lower court was the resulting benefit. The higher court said that’s not the way to measure it.
Rule by Kent: The reasonable value of the beneficial services that were rendered, not the resulting benefit.
Feingold v. Pucello
Feingold want’s Quantum Meruit. Fiengold’s person never signed this person up and trap him. Pucello told him to keep his work product so no benefit. May have had to admit liability but the new attorney…
No express K – verbally or thru the conduct. No implied in law K either.
Doctrine of unclean hands
Restitution for breach of K
May be the best to pursue for P for a loosing K. If a non-breacher would have lost money on the deal, the restitution interest may be the best to pursue.
United States v. Algernon Blair, Inc.
General contractor breached. The benefit conferred for what was done ($37K). It was determined that if the Sub had carried out this K to the end, it would have cost them more than $37K to complete the job.
Losses avoided
Coastal could go for reliance but the law is not going to allow you to benefit…
The best interest was simply restitution.
Losing K slide
Dismiss expectation. Compare reliance and restitution interest
To recover it they have to deduct
Problem 84
Reliance 20K
Restitution 50K without the offset
Problem 85
Slide
The breach stops the losses.
Restitution interest $50K
Problem 86
A unique situation where she may be right. Joe is getting a defective car but there is no convenient UCC remedy.
Hypo A2 slide
Hypo A3 slide
Hypo B2 slide
Hypo B3 slide
Britton v. Turner
9.5 months into his job, breaches and wants $85. Can’t recover beyond the K price.
WILLFUL BREACH
Slide:
If someone knowingly and intentionally breaching
Farnsworth: restitution for this breaching P should not be available if he is doing it for his own convenience or financial gain.
Problem 87
Majority Rule: No restitution
Minority Rule: He gets restitution but capped at his K price.
EQUITABLE REMEDIES
English courts were divided into courts of law and courts of equity.
Mandums: An order to force someone to do something.
Injunction: An order someone not to do something
Both are forms of equitable remedies
Specific Performance: An order to perform a K where damages would not be an adequate remedy.
Centex Homes Corp. v. Boag
Specific performance slide:
If one party is entitled to specific performance it doesn’t mean
What is required is mutuality of obligation. Do they each have the benefit? Do they each have a mutual obligation?
The policy behind that is we don’t want to force people to
Never going to have SP where there is no remedy at law
If a buyer is trying to enforce…
Laclede v. Amoco
Propane is considered a good.
Is SP appropriate for goods?
SP – Goods slide
WEEK 13
Lumley v. Wagner
Courts are not going to award specific performance in services contracts. It smacks of slavery but thru an injunction they can prevent her from singing anywhere else.
STATUTE OF FRAUDS
Statute of Frauds doesn’t require contracts to be in writing. It requires them to be evidenced by a writing.
Signed by a party to be charged. If one party is trying to avoid the existence of a K, then that’s the party that has to have the signed writing.
K’S THAT FALL WITHIN THE STATUTE OF FRAUDS
M. Marriage. I agree to take care of your kids if you marry me.
Y. Year or more. Cannot by their terms be performed within 1 year. If I hire you for two years, has to be in writing
L. Land
E. Executor. Executor that handles the affairs of the estate of decedent.
G. Goods. UCC requires a writing for goods $500 or more.
S. Surety. A surety promises to pay the debt of another. (See below)
This transaction would not be governed by the Statute of Frauds because the Surety (Farmer #1) is benefiting. It would not require a writing. The farmer’s oral promise to pay back the creditor would be enforceable.
The decedent dies with a $5000 debt owed to a creditor. If the executor agrees to pay that $5000 out of his own pocket, the S/F requires it in writing. If the executor agrees to pay it out of the estate, there is no S/F issue there. It does not have to be evidenced by writing.
Problem 90 page 375
Not a true suretyship relationship. Patrick never owed a debt to the proprietor. Mame is the original debtor. Need to have a principal debt already owed.
Problem 91
No. The suretyship K has to be between the surety and the creditor.
Problem 92
S/F doesn’t cover promises to marry, only promises made in contemplation of marriage.
Problem 93 page 376
Corn is a growing crop and is considered a good and not considered land.
Problem 94 Page 380
(a) By its terms it can be performed within 1 year, an oral K is ok.
(b) Jurisdictional. The start date throws it off.
(c) S/F would apply. It doesn’t make any difference if he was in bad health.
(d) The oral K is contemplating death as a terminating event. No writing is required.
(e) At will employment. Does not have to be in writing.
Page 2 of handout
Problem 96
Letterhead qualifies as “signed” because it is evidence of a present intention to authenticate the writing.
Problem 100
Subsection 3 of 2-201. A down payment on a single item is sufficient to show that quantity of one full item so that he would get the entire car.
The courts allow under the UCC to write a check to satisfy the writing requirement. The check can also satisfy the writing requirement if Mary’s used cars is the party charged if they endorse it.
Page 380
Problem 95
Common Law:
Page 390 problem 97
The writing doesn’t have to be the K itself. The Statute of Frauds requires that the K be evidenced by a writing. This K is governed by the common law. It was signed by the parties to be charged.
Problem 98
The case would be dismissed. The removal of the ice house would be an essential term of the K. It’s absent from the writing.
Page 2 of handout 2-201(2)
Defending the case based upon a technicality. Affirmative defense. If the S/F is not in complaint, must plead or it’s waived.
Problem 103
Oakapple is waiting for more than 10 days – can’t defend on S/F. The UCC has a requirement of good faith.
Problem 104
(a) An exception to the S/F. Courts do no allow to use as a defense where an attorney knows better.
(b) Making a misrepresentation to Baskerville causing him not to do something.
(c) Same thing. Equitable estoppel is going to apply.
FINAL EXAM REVIEW slide
True/False:
1. Revocation terminates the power of acceptance.
False. Death will terminate an offer but not a K. Option K’s as well.
2. Public rewards must be communicated before acceptance.
False. Public yes, Private no.
3. Revocation of an offer may only be accomplished by the Offeror directly or by a reliable third party.
False. An act inconsistent with the offer also.
4. Death terminates an offer.
False. Unless there was an option K or was accepted previously.
5. For a promise to be legally enforceable it must be supported by consideration.
False. Promissory Estoppel is a substitute for consideration.
6. I promise to supply you all the playing cards you might need – is an illusory promise.
False. “might” need. The word need would make it a K.
7. Satisfaction is an agreement whereby one party agrees to give and one party agrees to accept something other than that originally agreed to.
False. That is the definition of Accord.
8. A party who could prove the existence of a valid K and promissory estoppel are entitled to double damages.
False. Already have consideration. Double dipping.
9. A P seeking her expectancy damages may get all lost profit, all out of pocket expenses and all restitution.
False. Don’t get all out of pocket expenses.
10. As a general matter a losing K should not seek expectancy damages.
True. If they are losing money, they don’t want the K carried out.
11. Specific performance is an equitable remedy sought only in K’s involving the sale real property.
False.
