Contract Proper 1) Mutual Assent (requires offer and acceptance) a) Objective Theory of Contract i) Reasonable Person determines intent

objective standard, not subjective intent (Meeting of Minds), when agreed in writing to clearly expressed unambiguous intent to the contrary (MA). Parol cant affect MA. Contract rejects parties intent contract an obligation based on words the law understands exception is mutual mistake. ii) Personal intent only important so far as volition is considered intent to do act of writing. Absent duress/fraud, signature binding if capable of understanding terms b) Offer and Acceptance i) Bilateral Contract (definition) (1) 24: Offer is manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. Elements of an Offer: 1) Essential Terms (whats bought/sold, price, quantity, date of payment/delivery) 2) Indicates the willingness to enter into a bargain, merely by the other person accepting the bargain intent of finality, binding effect 2nd to last step before being bound 24 3) Identification of specific individual/group (to know whose bound). Ad is not an offer partly b/c missing Essential Terms. (2) Ad is the mere request for an offer, not an offer usually dont meet standards b/c unmanageable if too many people reply (a) Exception: Ad is an offer if Bait & Switch tactics (if ad contains misleading terms). Binding contract understood holistically, emphasizing each conflicting provision Must take words in context. Binding offer may be implied simply b/c misleading advertising intentionally leads reader to conclude such (Corbin 64) (i) Offer exists if there is language of commitment or an invitation to take action without further communication (26) (3) Counter-Offer rejection of original offer, forms new offer; if sign C/O and send, not exercising Power of Acceptance b/c its Qualified acceptance rejects offer as it ends Power of Acceptance (39) (a) Offer and acceptance: Offerors offer creates Power of Acceptance in offeree which deadline controls (35); offerees rejection of offer terminates Power of Acceptance (36); Acceptance must be unequivocal and unqualified to form contract (57, 58) (i) Offeror is master of offer b/c can 1) revoke before acceptance and 2) dictate whats required for acceptance (b) Direct Revocation (42): D tells P Im revoking (i) Indirect Revocation (43): D acts inconsistent w/ offer and P learns of it. ii) Unilateral Contract (definition) (1) Classical: offer revocable until offerees full performance of act materializes (2) 45 when offeree tenders or begins requested performance under Unilateral Contract, offeror bound so long as offeree completes offer according to terms. Same rule as in Option Contract but not itself an Option Contract b/c offeror hasnt expressly promised to hold offer open for period of time. (a) Substantial performance 45.1 Cant revoke after part performance creates Option Contract where offer must remain open for reasonable time to allow for completion. 2) Consideration (Given in exchange for or in reliance upon a promise; each promise is consideration) Something (such as an act, a forbearance, or a return promise) bargained for and received by a

promisor from a promisee; that which motivates a person to do something, esp. to engage in a legal act. Consideration, or a substitute such as promissory estoppel, is necessary for an agreement to be enforceable. a) Benefit/Detriment test: Promisor enjoys benefit in relation to promise OR promisee suffers detriment in relation to promise. Calculation by one/both parties a good ingredient to see if consideration exists. i) Benefit/Detriment tests purpose is to ID calculation so seriousness met personal choice is an objective basis for the court to decide; waiving any legal right at request of another party is consideration for promise (suffers a detriment). (1) 60: If promisor made promise, and it induced a detriment the detriment must be seen as the price of the promise. If promisor made a promise without requiring the promisee to suffer a detriment to get gift/benefit, the detriment is incidental/conditional to promisees receipt of the benefit. Promisor not seeking a detriment in exchange for a promise. b) Bargain Theory: 71(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. Treats the issue of incidental detriment, not treated by the benefit-detriment test. If I am promised a trip, and there is no consideration other than the detriment of getting my passport, that does not count as adequate consideration. Getting my passport was not bargained for as part of the deal, and rather, is an incidental detriment. i) Gift vs. promise (1) Consideration vs. condition: If a condition set by the promisor would benefit the promisor, then it probably constitutes adequate consideration. If a condition doesnt benefit the promisor, but simply enables the promisee to receive a gift, then the event on which the promise is conditioned, though brought about by the promisee in reliance on the promise, is not consideration. (2) Consideration insures a promise gets enforced b/c a contract is not accidental/gratuitous occurrence. Rather, it is uttered intentionally through deliberation, manifested by reciprocal bargaining or negotiation. (3) A Gift promise is unenforceable even if promisor writes that consideration has been given. c) Inadequate consideration doesnt void a contract. Court will investigate sufficiency of consideration, not inadequacy. (79 no requirement of equivalence in the values exchanged) i) Duress: 1) threat, 2) that is improper, 3) leaves victim with no reasonable alternative, 4) induces assent. d) Consideration requires inducement of current performance past performance cannot be used as consideration e) An Offer for an exchange is not a promise until consideration has been given; 35: Usually offer can be withdrawn before acceptance. Promissory Estoppel doesnt render offer irrevocable even if there is detrimental reliance i) Exception: 90: If the promisor makes a promise he reasonably expects will cause the promisee to act in reliance, to his detriment, and it causes action or forbearance, you may be bound to that promise if necessary to avoid injustice. 45, b/c ref. 90, an Option Contract is created if there is reliance on an offer and work has begun; lack of consideration doesnt mean promise unenforceable (1) 87.2 (An offer is binding if there has been nominal consideration or simply to avoid injustice. used for offers only e.g. contracting) preparing to perform vs. 45 (Option Contract due to part performance or tender) beginning performance (2) 87.2 Promissory Estoppel criteria is applied to offers, not promises creates binding Option Contract only for contractors

ii) As policy, Drennan rules that for Promissory Estoppel, offer = promise. Baird said Promissory Estoppel cant apply in offer. (1) Unilateral Contract: consideration through reliance exists when act begins (2) Bilateral Contract: a promise for a promise (no effort even if you do research before making a return promise, you do it at your own risk), so no consideration through reliance/Promissory Estoppel (Bairds view). (a) Drennan says that in Unilateral Contracts, 45 creates an Option Contract if there is reliance on the offer and work has begun. In a bilateral contract, sometimes reliance on an offer exists offeror wants that reliance to do business. Contractor relying on sub-contractor to make bid is necessary ingredient to how contractor works (w/out reliance, cant do job). (b) While Promissory Estoppel is based on a promise, here theres an offer. So Promissory Estoppel, as matter of policy, addresses the gap in Bilateral Contracts when dealing with contractors. Promissory estoppel must only be used if there is no consideration. Drennan effectively overruled James Baird Co. v. Gimbel Bros. Inc. and is the seminal case for the modern approach to applying promissory estoppel in the context of subcontractor bidding disputes based on mistake.

Promissory Estoppel For Promissory Estoppel to be used as a theory of liability, as an alternative to contract proper, there needs to be: 1) 90 Promise Reasonably Inducing Action or Forbearance 1) clear and definite promise by the promisor 2) Promisor reasonably expected promisee to rely on the promise, 3) Promisee reasonably relied on promise, 4) Refusal to enforce promise must result in injustice. The remedy granted for breach may be limited as justice requires. (2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. PE: consideration substitute renders certain promises otherwise lacking consideration to be binding. Promisees reliance sufficient for enforcement. f) Proxy for Consideration: Option Contract must have consideration to be binding; otherwise offer revocable up to acceptance. i) If the option is conditioned on performance, such acts can become consideration but promisor must benefit from, or impose, such acts. Otherwise, the Promisor couldnt reasonably expect irrelevant acts be used in reliance on promise ii) Promissory Estoppels real source, while it can come from weaknesses in contract-proper (Mutual Assent, Bilateral Contract), is weaknesses in consideration (1) Consideration distinguishes binding from non-binding promises use Benefit/Detriment, Bargain Theory. Bargain Theory solves incidental reliance problem (no Liability under K-proper just b/c promisee of a trip got his passport). BUT there is a gap in the Bargain Theory b/c people still rely on the promise, even when there is no consideration (Dougherty v. Salt if nephew didnt work (gave something up) b/c of grandmothers promise, he relied) g) Assurances in Negotiations: As a Question of Law, a clear and definite promise is unnecessary in the context of negotiation. An assurance is considered a promise when injustice must be avoided (if promisee is seeking a remedy to get back to point where contract never made) i) The standard for a promise depends on what remedy is being sought. Clear and definite promise is necessary when seeking all damages (expectation) . If only reliance damages are being sought, the promise standards are relaxed (e.g. Assurance = Promise).

h) Family Promises: A gratuitous promise is unenforceable, b/c there is no consideration, where party reasonably relied on promise and suffered loss and inconvenience. (Note: Modern day courts could decide cases like Kirksey under promissory estoppel and find that the promise induced reliance and should be enforceable. i) Counter: Relocation of a party in reliance on a promise is sufficient consideration to make promise enforceable. ii) Child support: If promise of parental support made and detrimentally relied upon, it is enforceable under Promissory Estoppel. Reliance only needs to be reasonable P doesnt need to exhaust all means of obtaining benefit the promise intended to provide before that promise becomes enforceable (PE) i) Pension: Promissory Estoppel enforces pensions, especially when Plaintiff is fired, and has not accepted a pension i) Promissory Estoppel is a consideration substitute, not consideration; It is entertained only absent consideration; Promissory Estoppel is generally applicable only when no valid consideration; but also used to remove contracts from Statute of Frauds even where other valid consideration exits Structure of analysis Contract proper Mutual assent Consideration o Promissory Estoppel Proxy for consideration Reliance on offer 87(e) Pops conessome courts will recognize promissory estoppel where assurance is made in the context of negotiation. Promise Promisor could reasonably expect action or forbearance The promise must actually induce such action or forbearance Justice cries out Restitution o Non-Promissory o Promissory Material Benefit Rule (86)

Restitution Unlike Promissory Estoppel, Restitution is not predicated on accountability for promise. Rather, its usefulness is greatest when no promise has been made. Its purpose is the restoration of an unfair gain. Focus is on cases in which one party has obtained a benefit at the expense of another under circumstances that make it unfair for the recipient to retain the benefit without paying for it. 1) 1 Person unjustly enriched at expense of another must make restitution a) Person who received benefits w/ knowledge that he reasonably expects to pay for them must pay for them b) Note: Not L b/c signed contract or promise exists; cant say no benefit if fail at saving life still reasonable value in service

2) 116 Preservation of Life and Health a) a) A person who has supplied things or services to another, although acting without the other's knowledge or consent, is entitled to restitution therefor from the other IF i) he acted un-officiously and with intent to charge, AND ii) the things or services were necessary to prevent harm or suffering, AND iii) the person supplying them had no reason to know that the other would not consent if mentally competent, AND iv) it was impossible for the other to give consent or the consent would have been immaterial (extreme youth or mental impairment) b) b) mentally ill/unconscious person (dont need consent) need to compensate c) Non-Promisory Restitution: Defendants liability arises under quasi-K (implied in law) e.g. Dr. renders valuable services w/out request, but accept benefits not enough for Mutual Assent i) Implied in fact (K-P) (contract proper) e.g. going to Dr., must pay even if not stated b/c of conduct and requested service non-promissory restitution: based on the idea that under certain circumstances, its unfair for one person to be benefited at the expense of another. (unjust enrichment) This is called an implied-in-law contract or a quasi-contract. Elements of a Quasi-Contract: not an actual contract, but is a legal substitute for a contract formed to impose equity between two parties. 1. Plaintiff furnished / rendered valuable goods / services to Defendant with a reasonable expectation of being compensated; 2. Defendant knowingly accepted the benefits of the goods / services; and 3. Defendant would be unfairly benefited by the services / receiving the goods if no compensation were paid to the Plaintiff This is in contrast to an implied-in-fact contract, where conduct implies promise to pay for something. Elements of Non-Promissory Restitution: 1) Party conferred benefit to other person (beneficiary) 2) Party not acting officiously e.g. benefit rendered with reasonable expectation for payment NOTE: benefit cannot be thrust upon someone unless in dire medical situation or of unsound mind as a life-saving measure 3) Promisory Restitution: 86 Promise for Benefit Received a) (1) A Promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice i) (2) Promise is not binding under subsection (1) if (1) (a) promisee conferred the benefit as a gift or for other reasons the promisor hasnt been unjustly enriched or; (skip to (b)) (a) Gift: 1) When person gets nothing back for what they give (would support D) OR 2) When intention exists to give away something w/out getting something in return (would support P). Would attack (1) by saying too broad many situations that arent considered gifts would become gifts (e.g. doctor helping out sick person). Would undermine Material Benefit rule. Would support (2) by saying it demonstrates deliberate decision to give something for free which is important for Restitution and purpose of MB rule. Show why interpretation best serves underlying rule

(2) (b) to the extent that its value is disproportionate to the benefit ii) 86(2) Promise not-binding if gift, gift is intention to give away (1) Emergency situation not gift b/c no time to think of intention (2) Material Benefit rule: Where promisee cares for, improves, and preserves property of promisor, though w/out his request, sufficient consideration exists for promisors agreement to pay for service b/c of material benefit received subsequent promise = previous request : Rstmt: 86 a promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. (a) Moral consideration creates an enforceable promise, if promisor has received a Material Benefit (valid consideration for promise). Life has monetary value (doctors, insurance, torts), so saving it creates consideration (b) Under non-Promisory Restitution, there is no recovery when the defendant should not reasonably expect to pay. Despite this lack of Liability under non-Promissory Restitution, a subsequent promise made by the benefitee of the service provided becomes binding under Promissory Restitution because of the Material Benefit rule b) Moral Obligation: sufficient consideration for promise, but need preexisting obligation which positive law voided (e.g. SoL barring debt collection) to revive effective promise. i) Moral obligation forms consideration for express promise if: 1) debts SoL bars, 2) debts kids incur, 3) debts bankruptcy previously discharged (1) If Debtor doesnt pay b/c SoL expires, then promises, binding b/c at one time were seeking action (MA & consideration) promise renews what was sought. Original obligation had consideration.

Statute of Frauds Whats attached to a contract is agreement, not necessarily writing. If thats the case, we ask a different kind of question: Should there be the requirement of a writing in order to enforce an agreement? Should the law require a writing as a prerequisite to the enforcement of an agreement? The statute of frauds is a formal requirement. Why impose legal formalities? Evidentiary function gives evidence of the contracts existence. Cautionary functionrather than making it so that there is an enforceable agreement whenever words are exchanged, it gives people the chance to really think things over by drafting a document.

Channeling functionwhats being channeled is a partys behavior. So, if people want to get to the point of an enforceable contract they have to channel ideas in a certain way. Thats useful because a court can use the channel to understand a background to a contract.

Problem: there are a lot of oral contracts that people rely on, and that they think should be binding. You dont want to impose the writing requirement in every situation because there is a risk attached to it. So, what the law does is carve out situations where writing is necessary. Question: what kind of writing is necessary for the enforceability of the contract? Questions to ask: Is the agreement covered by the statute of frauds? Has the statute of frauds been satisfied? o What kind of writing is necessary to satisfy it? See 131 enforceability if it is evidenced by any writing that reasonably ids the subject matter of the contract, states with reasonable certainty the essential terms, has to be signed by the party against whom enforcement is sought. ANALYSIS STRUCTURE Is this contract covered? o One-year provision (If the contract can be performed within a year, then it is not subject to the statute of frauds it has to not be completable within a year to be covered) o Contract for the sale of an interest in land o UCC sale of goods with contract price of more than 500$ o A contract upon consideration of marriage If covered by the statute, has the statute of frauds been satisfied? o Writing(s) o sufficient to indicate that a contract has been made.

o With essential terms (quantity) o And a signature by the party against whom enforcement is sought. Notwithstanding the statute of frauds, can you use promissory estoppel to establish liability? o You can apply a ramped-up version of promissory estoppel. A promise has to be shown by clear and convincing evidence Promisor has to reasonable expect action or forbearance Promise actually induces an action or forbearance Justice cries out

Note: In the context of litigation, the statute of frauds is a defense which, if available, may be raised against a party who has claimed breach of contract. The defense is available to the breaching party when the transaction in question falls within one of the categories governed by the Statute of Frauds, and the required writing is absent or deficient.

In the absence of a writing requirement, there needs to be reliance as evidencing the making and terms of the contract. If the contract is within the statute of frauds, but the statute is not satisfied, the party seeking to enforce the contract will have to use another theory of enforcement such as promissory estoppel or restitution in order to protect its interests. This is the final step in the statute of frauds analysis. 1) 130; 131 Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of party charged, which: a) (a) reasonably identifies the subject matter of the contract, b) (b) is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and c) (c) states with reasonable certainty the Essential Terms of the unperformed promises are in the contract 2) Oral testimony can satisfy the Statute of Frauds, when it establishes a relation b/w signed/unsigned documents a) Statute of Frauds is usually a defense against contract enforceability. More than one document may be linked expressly or by subject matter/occasion to satisfy SoF; assess if K exists, look at the terms, elements of the writing b) There is no requirement that the parties put their actual agreement in writing. Rather, all that is necessary is that the writing be a memorandum thereof, which can be prepared before, during or after contract formation. Under the common law, the following memoranda have been held to satisfy the writing requirement i) A letter from one of the parties to a third party describing the agreement ii) The written offer, acceptance of which formed the contract; and iii) A letter from one of the parties to the other party repudiating, and so admitting, the agreement. (1) Only the following is required in the writing: (a) Identity of the parties to the transaction (b) Nature and subject matter of the contract (c) Essential terms of the unperformed promises in the agreement. (d) Signature Enforcement where the statute of frauds is not satisfied

If the contract is within the statute of frauds, but the statute is not satisfied because the breaching party never signed a written document, the aggrieved party may nevertheless be able to secure some protection for his interests via an action for restitution or promissory estoppel USING Promissory Estoppel: 3) 139. Enforcement By Virtue Of Action In Reliance a) (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires. i) (2) In determining whether injustice can be avoided only by enforcement of the promise: (1) (a) the availability and adequacy of other remedies, particularly cancellation and restitution; (2) (b) the definite and substantial character of the action or forbearance in relation to the remedy sought; (3) (c) the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence; (4) (d) the reasonableness of the action or forbearance; (5) (e) the extent to which the action or forbearance was foreseeable by the promisor. b) An Oral employment contract be removed from Statute of Frauds limitations via Promissory Estoppel i) The Statute of Frauds prevents fraud by requiring contracts to be in writing, so as to not allow parties to escape obligations. ii) Promissory Estoppel can be used as a basis for the Statute of Frauds instead of Contract proper. The element of Risk is overridden by heightened criteria for promissory estoppel, such as clear and convincing evidence of a promise(1st PE criteria promise). Court then says 3 other PE criteria met, focuses on 4) injustice. Parol Evidence Rule

Parol Evidence rule: assume theres a contract, what evidence is admissible, and what evidence has to be excluded? (rule of evidence)
1) 201 a) 1) If both parties consent to meaning, then Reasonable Person understanding becomes irrelevant b) 2) if different meanings, that partys meaning wins if other party knew or should know i) (b) Often ask if 1 party knew/should know meaning other understood if so, party having knowledge bound (Innocent Party Meaning) c) 3) if 2 diff meanings and neither had reason to know others meaning, no contract (no MOM) 2) Parol: doesnt define what evidence admissible excludes evidence otherwise admissible to prove fact at issue which supplements/contradicts writing

STRUCTURE OF ANALYSIS

Does the situation involve the kind of evidence potentially subject to the parol evidence rule? If you have a writing that is integrated, it might be completely or partially integrated. Prior to that writing, there have been oral, written communications. The parol evidence rule is defending the authority of the final writing, and therefore disregards evidence of prior oral and written things. The exception to evidence which is not subject to the parol evidence rule is contemporaneous writing and all subsequent negotiations. o Do we have the kind of writing that implicates the parol evidence rule? The writing needs to be at least partially integrated. If evidence is admissible, it doesnt mean it will be believed by the fact-finder. Courts take 2 different types of approaches in making the determination of whether the writing is integrated 4-corners approach: look only at the writing itself, deciding whether it is partially or completely integrated. Contextual approach (Corbin): In determining that, we look at the writing, but we are not restricted to the writing. We look at many factors to decide whether the writing was intended to be final. It permits oral testimony. Figure out what the implications are. If we conclude that its complete integration, can any prior oral or written evidence be introduced? NO. If we conclude its a partial integration? If there is something supplementing the writing, providing an additional term, then thats admissible. Whats not admissible is anything prior that contradicts the writing. There are a few situations where evidence is admissible notwithstanding this analysis: If evidence doesnt contradict but explains the writing. does the court impose conditions on this rule? (Taylor v. State Farm) Under what circumstances can you admit evidence to explain a writing? o If the writing is ambiguous on its face. o If there is latent ambiguity (this is the approach the court takes in Taylor). o To determine whether there is a latent ambiguity, the court has to hear everything that happened, so the court has to operationalize that rule without contradicting the parol evidence rule. o Judges undergo this process in closed chambers to consider admitting evidence: Is this a writing that is susceptible to competing interpretations? Does the evidence support one of the competing interpretations? If it does, the court looks at the evidence and decides whether it contradicts the writing. Lets assume you cannot admit the evidence to explain the writing. There is still one more exception. o You can admit evidence to establish an invalidating cause such as fraud, duress, undue influence, mistake... What if mutual assent was not voluntarily given? o If someone is tricked into a writing, there is no point to attributing a quality of integration to it.

Fraud: as a general rule, someone can admit evidence in order to establish fraud (even prior evidence to the writing) but not all courts would admit that writing. See Sherrod v. Morrison-Knudsen. Can the court admit evidence of fraud? o Not in a situation where it would contradict an express term of the writing.

This is an issue, because as long as you put a merger clause, you immunize yourself against all the fraud youve made in the past. However, courts will usually uphold the writing anyways.

So, generally speaking, when you have evidence of fraud, it will be admissible notwithstanding the parol evidence rule. However, the problem arises if the evidence contradicts something explicitly stated in the writing
Consistent additional terms to a partial integration may be established by evidence of: a) Fraud i)

Merger Clause: clause itself shows that the writing is completely integrated so no contradictory evidence is admissible, even if fraud Two types of Fraud: (1) Fraud in Execution: someone tries to fool another about contents of whats signed (2) Fraud in Inducement: broader, any statement to trick person into writing b) Trade usage Commercial agreement which is broader than a written agreement. It derives its meaning from language and parties' actions i) Parol Evidence Rule accepts such evidence of a trade usage because it reflects the original agreements intent to include everyday practice ii) Specific v. General trade usage rules: General trade usage rules apply to business localities or to types of vocations, as opposed to specific trade usage.. Locality trumps if conflicts w/ vocation standard. Locality arises if reasonable to know standard (1) General trade usage: reasonable standard for fair dealing, its observance is part of the UCC good faith requirement c) Course of performance conduct which informs a court about the terms of the original agreement i) Course of Performance evidence cannot act as a Waiver to the agreement in the final writing doesnt establish agreements terms ii) Course of Performance evidence can supplement, even add terms, to the written agreement, if performance consistent w/ express terms of written agreement iii) Course of dealing: Reflects intentions during prior negotiations Course of Performance informs about the Course of dealing. Some courts may choose to look at these. But, must be careful.

[2] Omitted Terms Where a contract is sufficiently defined but omits an essential term, the court may supply a term which is reasonable under the circumstances. [Restatement 204]

3) Implied Terms

a) Implied-in-fact term: The logic of the agreement means a term exists, reflect parties intent (1) Lady Duff-Gordon: If someone is given exclusive rights to sell/market a product, then an express promise to use best efforts to perform that task is unnecessary if the writing isinstinct with an obligation. b) Implied-in-law term: may not reflect parties intent, but are imposed b/c of justice i) Even if express terms are observed, a contract can be violated if disregard is shown for implied covenant of good faith and fair dealing You cannot prevent someone from receiving the fruits of a contract Restatement 205: Duty of Good Faith and Fair Dealing (used in Locke) c) Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement

Avoiding Enforcement DEFENSES OUTLINE: o Is there a defense that P is a minor? (R 14) o Is there a defense for mental incapacity? (R 15) Cognitive Test Volitional Test o Is there a defense of misrepresentation here? (R 162) Material or Fraudulent Justifiable Reliance o Is there a defense for duress? (R 174, 175, 176) Improper threat Inducement No reasonable alternative o Is there a defense of unconscionability? (UCC 2-302) Procedural unconscionability Substantive unconscionability o Is there a defense for undue influence? (R 177) Excessive Pressure Odorizzis 7 factors Undue Susceptibility or Confidential Relationship o Was there a defense of nondisclosure here? (R 161) o Is there a defense of public policy? (R 178, 188)

Rescission 1) General idea: to get P and D back to same position before contract was made. 2) Minority Doctrine: Minors can rescind/void K before majority or reasonably after majority i) Burden shifting, deterrence: if burden on buyer, seller less responsibility to ensure not selling to minor. Protects minors from crafty adults b) Use Rule: Not full refund for rescission: seller gets setoff (reasonable compensation) for use/benefit of, depreciation, or willful/Negligent damage to good sold while in minors possession absent any overreaching, fraud, unfair advantage.

i)

If good totally consumed/destroyed, setoff could be partly/completely voiding merchants Liability ii) Protects minor against injustice and fair to bona fide merchant. If allow minors too much leniency, breeds corruption iii) Minors still liable for reasonable value of necessaries c) No rescission if: d) Necessities Exception i) A minors contracts for necessities, such as food, clothing, and shelter are NOT voidable b/c we want adults to make these types of contracts w/ minors (1) Minor only liable for reasonable value of necessities though e) Resuscitation at Age 18 i) Minors presumptively affirm contracts when they reach the age of 18 unless they expressly disaffirm them ii) Sometimes misrepresentation of (age) party suffers tort, can sue minor iii) Emancipated Minor married young, Kobe Bryant 3) Mental Incapacitation a) 15. Mental Illness or Defect i) (1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect (1) (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or (2) (b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition. ii) (2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires GENERAL RULE: The unadjudicated mental incompetence of one of the parties is NOT a sufficient reason to set aside an executive contract if the parties cannot be restored to their original positions, if the contract was made in good faith for a fair consideration, and without knowledge of incompetence 4) Duress o 3 Duress Requirements: (1) An improper threat Crime or tort Breach of good faith (used in Totem) (2) An inducement (3) No reasonable alternative o Restatement 174: When Duress by Physical Compulsion Prevents Formation of a Contract
If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is NOT effective as a manifestation of assent 175. When Duress by Threat Makes a

Contract Voidable

i) (1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim. (a) 1) Threat, 2) Improper, 3) No reasonable alternative, 4) threat induced assent, 5) Selmer: Extent threatening party responsible for constraining econ. circumstances that lead to induced assent ii) (2) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction b) 176. When a Threat Is Improper i) (1) A threat is improper if (1) (a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property, (2) (b) what is threatened is a criminal prosecution, (3) (c) what is threatened is the use of civil process and the threat is made in bad faith, or (4) (d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient. ii) (2) A threat is improper if the resulting exchange is not on fair terms, and (1) (a) the threatened act would harm the recipient and would not significantly benefit the party making the threat, (2) (b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or (3) (c) What is threatened is otherwise a use of power for illegitimate ends. 5) Undue Influence 6) Undue Influence Rules a) 2 Undue Influence Requirements i) (1) Excessive Pressure (1) (a) Discussion of the transaction at an unusual or inappropriate time (2) (b) Consummation of the transaction in an usual place (3) (c) Insistent demand that the business be finished at once (4) (d) Extreme emphasis on untoward consequences of delay (5) (e) Use of multiple persuaders by the dominant side against a single servient part (6) (f) Absence of 3rd party advisers to the servient party (7) (g) Statements that there is no time to consult financial advisers or attorneys ii) (2) Undue Susceptibility (lack of full vigor / extreme youth, age or sickness) (1) OR iii) (2) A Confidential Relationship 7) Restatement 177: When Undue Influence Makes a Contract Voidable (Used in Odiorizzi) a) (1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion OR who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare
b) (2) If a partys manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim c) (3) If a partys manifestation of assent is induced by one who is NOT a party to the transaction, the contract is voidable by the victim UNLESS the other party to the

transaction in good faith and without reason to know of the undue influence wither gives value or relies materially on the transaction

Equitable doctrine b/w family members, confidential/fiduciary relationship (lawyer/client or trustee/beneficiary) now extended 1) Dominant pressurizes subservient, 2) Dominants pressure induces subservients pressure, independent judgment compromised, 3) Over-persuasion i) Over-persuasion (1) Location: 1) discussion of transaction at unusual time, 2) consummation of transaction unusual place (2) Hurry: 3) demand for immediate completion, 4) extreme stress on consequences of delay (3) Isolation: 5) multiple persuaders, 6) P not having advocate, 7) stating no time to consult adviser/attorney 8) Misrepresentation Misrepresentation Requirements o A Material or Fraudulent Misrepresentation Material Representation that is pivotal / makes up the partys mind Ex: A intentional and knowingly induces B to buy a cave by saying there were 100 running elk in the cave, and A thinks there is 100 elk in the cave, but there are really only 90 Fraudulent Representation that is consciously false and intended to mislead Ex: A intentionally and knowingly induces B to buy a cave by telling him that there were 100 running elk in the cave, even though there are only 90 o Justifiable Reliance Not just at the margins a) 159 Misrepresentation Defined: assertion that is not in accord with the facts. b) 162: When a Misrepresentation is Fraudulent or Material i) (1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker (a) (a) knows or believes that the assertion is not in accord with the facts, or (b) (b) does not have the confidence that he states or implies in the truth of the assertion, or (c) (c) knows that he does not have the basis that he states or implies for the assertion ii) (2) A Misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so. c) 164: When a Misrepresentation Makes a Contract Voidable i) (1) If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient. ii) (2) If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the transaction upon whom the recipient is justified in relying, the contract is voidable by the recipient, unless the other party to the transaction in good faith and without reason to know of the misrepresentation either gives value or relies materially on the transaction. d) 167: When Misrepresentation Induces Assent

i) Statement substantially contributes to assent e) 168, 169: Justifiable Reliance i) Can be reasonable reliance based on relationship of trust ii) Can be reasonable reliance based on belief of (D)'s special skill/knowledge iii) P particularly susceptible to type of misrepresentation involved f) Synthesis (1) Misrepresentation (159) assertion (161) (2) Fraudulent or material (162) (3) Fraudulent Misrepresentation Induces assent (167) (4) Misrepresentation under which recipient justified in relying (168, 169) 7. Unconscionability Unconscionability Outline o Is the contract, or a term, unconscionable? (See Williams, R 208 / UCC 2-302) Most courts require BOTH: Procedural Unconsiconability A effect in bargaining process / lack of meaningful choice or unfair surprise (UCC) Substantive Unconscionability Terms that are unfair or oppressive Recurring example Arbitrary provisions In order to find unconscionability, a court must find BOTH: o Procedural Unconscionability Either a lack of choice by one party or some defect in the bargaining process / the way the contract was negotiated or devised, such as quasi-fraud or quasi-duress o Substantive Unconscionability Relates to the fairness of the terms of the resulting bargain

You need both procedural and substantive unconscionability for rescission.

procedural: absence of meaningful choice o look to differences in bargaining power (factors:) education financial ability social status sophistication o Look to reasonable opportunity to understand terms o Did one party have an advisor? o Fine print/complicated terms o Take it or leave it (time constraint) o No time to decide o Quasi-fraud o Quasi-duress o Quasi-undue influence You have to take all these factors together to make a strong case for procedural unconscionability. However, even if you have a strong case, you have to move on to substantive unconscionability, because procedural unconscionability without substantive unconscionability is insufficient. stronger cases for procedural unconscionability are between savvy business people against consumers. A weaker case is between two businesspeople. Relevant case: Williams v. Walker (Furniture co that leases property to consumers. Rent to own situation. consumer cannot pay off items unless all the items purchased are paid for in full.) Substantive Unconscionability: terms are unfair o Gut check o Compare these terms to comparable situations in the industryrefer to standard business moraes and practice.

Terms)

Williams v. Walker-Thomas Furniture(Unconscionable=Lack of Mean. Choice / Unreason Fav. Facts: D, a retail furniture store, sold furniture to P under a printed form contract containing an add-on clause, the effect of which was to keep balance due on EVERY item purchased until balance due on ALL items, whenever purchased, was liquidated / P purchased a stereo while had balance of $164 still owed on prior purchases / P defaulted on payment and D sought to replevy all goods previously sold to D Issue: Are the bargaining process and resulting terms of the contract so unfair that enforcement should be withheld? Holding: The defense of unconscionability to action on a contract is judicially recognizable when the contracting party lacks meaningful choice in the bargaining process, resulting in unreasonable favorable terms in the contract o Procedural Unconscionability D knows P has meager income / sale took place at her home / terms were hidden in a printed form contract o Substantive Unconscionability D can take everything away for one default

8. Public Policy

idea that the contents of the contract are so outrageous that they should be void. If a contract actually violates a law, it is void More commonly, the contract doesnt violate the law, but violates the underlying purposes of a statute. So, if the contract is in tension with the underlying purposes of a particular law. Offends our fundamental values. Often, you have a combination of the last two points. Relevant case: R.R. v. M.H. and Another surrogate baby

MISTAKE o Was there a mutual mistake? (R 152) Requirements: (1) Both parties must be mistaken (2) Mistake must be about a basic assumption and have a material effect on exchange of performances (3) Party seeking to void contract must not bear the risk When does one wary bear the risk? (R 154) (1) When the risk is allocated to him by agreement (Lenawee County) (2) Hes consciously ignorant (3) Risk is allocated by the court (b/c hes best positioned to avoid mistake or insure against it) Was there at least unilateral mistake? (R 153) Same basic requires, but only ONE party must be mistaken, AND that party must show: (1) That enforcement would be unconscionable or (2) That the other party knew of the mistake or caused the mistake NOTE: Mistake often raises issue of disclosure

Important Terms o Basic assumption Something that would unsettle the agreement completely if untrue / fundamental in character o Materially affecting the agreed performance One party is much worse off and one party is much better off Mutual Mistake (R 152) o (1) BOTH parties are mistaken o (2) Under R 152, the mutual mistake has to relate to a basic assumption of the contract AND it must have a material effect on the performances 152(1) Where a mistake of BOTH parties at the time a contract was made as to a BASIC ASSUMPTION on which the contract was made has a MATERIAL EFFECT on the agreed exchange of performances, the contract is voidable by the adversely affected

party unless he bears the risk of the mistake under the rule stated in Restatement 154 (3) Under R 154, the party seeking to avoid the obligation can NOT be a party who has assumed the risk, such as (1) Where the risk is allocated by the agreement itself (2) When a person is aware that he has limited knowledge and acts regardless (3) The risk gets allocated by the court by deciding who was in the best position to avoid a mistake or ensure against it

Unilateral Mistake (R 153) o (1) ONE party is mistaken o (2) Under R 153, the unilateral mistake is about something that is a basic assumption of the contract AND must have a material effect on the performances R 153 (1) Where a mistake of ONE party at the time a contract was made as to a BASIC ASSUMPTION on which he made the contract has a MATERIAL EFFECT on the agreed exchange of performance that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in Section 154 o (3) Under R 153(1)(a) & (b), a party who wants to show a unilateral mistake has to show: The result was unconscionable OR (a) the effect of the mistake is such that enforcement of the contract would be unconscionable (b) That the other party had reason to know of the mistake or his fault caused the mistake o (4) Under R 154, the party seeking to avoid the obligation can NOT be the party bearing the risk, such as (1) Where the risk is allocated by the agreement itself (2) When a person is aware that they have limited knowledge and act regardless (3) The risk gets allocated by the court by deciding who was in the best position to avoid a mistake or ensure against it The DISTINCTION Between Unilateral and Mutual Mistakes o Under unilateral mistake, a party seeking to avoid the obligation must show that enforcement would be UNCONSCIONABLE or that the other party KNEW OF or CAUSED the mistake

MUTUAL MISTAKE Lenawee case: property with sceptic tank problems, which both purchaser and seller thought was income-producing, but was not.

 The first thing you have to find is that there exists the right kind of mistake. The next thing you need is to find that this is a situation where that kind of mistake could be grounds for rescission. were looking for a situation where one or both parties have a belief thats not in accordance with the facts of the world at the time of contract. This by itself isnt enough. Look at traditional, and modern approaches.

Traditional test: If the substance of the whole consideration is affected, it can be rescinded. Because that would mean that the mutual assent wasnt really assent, since it goes to a mistake over the very thing they were bargaining over. (See the cow casebarren v. fertile Sherwood v. walker).

Modern Test: (applied by Lenawee) Restatement 151 and following. Start with the definitional provision: 1. Mistake (151) of both parties at the time the contract is made as to a basic assumption on which the contract was made a material effect on the agreed exchanges. if you have these, then the contract is voidable UNLESS the party seeking rescission bears the risk of the mistake. 2. Now, you look at 154: Were wondering whether the party seeking rescission bears the risk of mistake. look for an as-is clause. UNILATERAL MISTAKE relevant case: Wil-Freds (Wil-Freds mistake was reliance on Ciaglos bid. Ciaglos mistake has to do with a wrong assessment of its costs.) In the case, Relief on grouds of unilateral mistake required that the mistake be palpable: so obvious that the other party in the circumstances either knew or should have known that mistake had been made. More modern tests, more stringent (ex Illinois): Mistake relates to the material aspect of the contract Mistake occurred notwithstanding exercise of reasonable care by the party seeking rescission. Of such great consequence that enforcement is unconscionable The other party can be placed in status quo Restatement: 153 of the restatement permits avoidance of a contract for mistake of one party if either a) the mistake be such that the enforcement of the contract would be unconscionable or b) that the other party have reason to know of or be responsible for causing the mistake. unconscionable seems to mean merely severe enough to cause substantial loss.

CHANGED CIRCUMSTANCES: IMPOSSIBILITY, IMPRACTICABILITY AND FRUSTRATION Justifications: Impracticability & Frustration Outline o Was performance impracticable? (R 261 / Transatlantic / Karl Wendt) (1) If there has been an unexpected and important event (basic assumption) (2) That the event is not the partys fault (3) That the risk of the event has not been allocated to her by the contract or by the circumstances and (4) That the event makes performance substantially more difficult or expensive (impracticable) o Has the contract been frustrated? (R 265 / Karl Wendt / Mel Frank) (1) If there has been an unexpected and important event (basic assumption) (2) That the event is not the partys fault (3) That the risk of the event has not been allocated to her by the contract or by the circumstances and (4) The event has almost completely destroyed the value of performance That is, that the principal purpose is substantially frustrated Impossibility (VERY hard to establish this defense) o Must show: (1) Supervening legislation prohibiting the activity in the contract R 264: If the performance of a duty is made impracticable by having to comply with a domestic or foreign governmental regulation or order, that regulation or order is an event the non-occurrence of which was a basic assumption on which the contract was made (2) Supervening death or disability of a person necessary for performance BUT, if someone else could easily step in, then impossibility would not be a good defense R 262: If the existence of a particular person is necessary for the performance of a duty, his death or such incapacity as makes performance impracticable is an event the nonoccurrence of which was a basic assumption on which the contract was made (3) The destruction, deterioration or failure to come into existence of a thing necessary for performance

Ex: A music hall burns down o Therefore, a contract for performance at that music hall is impossible because the venue no longer exists R 263: If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made

Impracticability o Applies to a situation in which performance is NOT impossible, but it no longer makes sense to enforce performance Like a qualified impossibility defense The impracticability defense has to relate to a basic assumption of the contract o Party asserting impracticability defense needs to show: An unexpected or important event The event is NOT his fault The risk was NOT allocated to him The event makes performance substantially more expensive or difficult o R 261: Where, after a contract is made, a partys performance is made impracticable without his fault by the occurrence of an event, the nonoccurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary Frustration of Purpose o Applies to a situation in which circumstances arise that destroy the value of the other persons performance Ex: Renting a room to overlook a coronation ceremony Defendant was able to get out of the contract when the ceremony was cancelled because the purpose of the contract had been frustrated / had no reason to be there anymore o Party asserting frustration of purpose defense needs to show: An unexpected or important event The event is NOT his fault The risk has NOT been allocated to him The event has to almost completely devalue or destroy the performance o R 265: Where, after a contract is made, a partys principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render a performance are discharged, unless the language or the circumstances indicate the contrary

Contract liability is STRICT liability o The obligor is therefore liable in damages for the breach of a contract, even if he or she is without fault and even if circumstances have made the contract more burdensome or less desirable than anticipated A court may grant relief where extraordinary circumstances may make performance so vitally different from what was reasonably to be expected as to alter the essential nature of the performance Impossibility, Impracticability and Frustration Diagram o (1) Is there an unexpected event? (basic assumption) NO claim goes away YES (2) Was it the fault of one of the parties? YES claim goes away NO (3) Is the risk allocated to the party complaining? o YES claim goes away o NO (4)(a) Substantially more expensive? NO claim goes away YES Impossibility / Impracticability o NOI (4)(b) Substantially destroy performance? YES Frustration of purpose

Impossibility One of the first cases that recognized impossibility as a changing circumstance excusing the contract is Tayler v. Caldwell. Owner of a music hall rents out the hall, but before the performance, it burns down. The owner was excused from performance of the contract. Doctrine of impossibility excuses both parties from their obligations under a contract if the performance has been rendered impossible by events occurring after the contract was formed. Rule: - Performance has to objectively be impossible, and objective impossibility occurs when the performance under the contract becomes literally impossible because of circumstances beyond the control of the parties. - The occurrence of the contingency cannot be known to the parties at the time of contracting. i. Supervening contingency: performance was possible at the time of contracting, but afterward a contingency occurs and renders performance impossible; or ii. Existing contingency: contingency existed at time of contracting but was unknown to both parties Exceptions: When parties have allocated the risk of contingency; If performance only temporarily impossible. Frustration of purpose Next step: recognition that in some situations, even if the performance is possible, doing so has no point anymore. Krell case: D agrees to let the defendant use a room overlooking the coronation of King Edward. But the coronation was cancelled, so whats the point. So, the principal purpose of the contract was to view the coronation, and both parties recognized that. When that was no longer a possibility, performance was excused. Modern test: partys obligations are discharged when 3 conditions are met: (a) Partys principal purpose in entering the contract is frustrated (frustration of incidental or non-material purposes do not qualify) (b) There is a substantial frustration (partial is insufficient) (c) Non-occurrence of the event precipitating the frustration was a basic assumption of the contract. Note: where the parties contractually allocate the risk of the non-occurrence of the event, doctrine of frustration of purpose is unavailable Impracticability When circumstances change so that its much more difficult, much more burdensome. Much narrower set of circumstances applicable here. The following elements are required to show Impracticability: - The impracticability of the performance was caused by some unforeseen contingency. - The risk was neither assumed nor allocated by the parties - And the increase in the cost of performance would be far beyond what either party anticipated. (Increased cost alone is insufficient)

Relevant Case: Karl Wendt v. Intl. Harvester (farming equipment market unexpectedly tanked) Important: What was at the root of the sale, was an unanticipated market shift.
The stability of the market was a basic assumption. Someone has to make the argument, not only of nonprofitability, but also that there is another factor, beyond the partys control. That there was the occurrence of an event, the non-occurrence of which was a basic assumption on which that contract was made.

MODIFICATION Modification Outline o If under common law, is there an exceptional reason permitting modification? Under R 89, requires consideration to be binding UNLESS (1) It is fair and equitable in light of unexpected events or (2) It is relied upon o If under the UCC, is there an exceptional reason against modification? No consideration required, but needs good faith Must be sought for a valid commercial reason and not by means of threatened breach Duress is a defense under both UCC and common law, but party claiming duress MUST have protested o Is there a NOM? Modification of a valid contract is very burdensome. Common law rule: Preexisting Duty Rule (Alaska Packers v. Domenico: Original agreement: fishermen get 50$ +2 cents for every red salmon they catch. The fishermen refuse to work, since they want an increase of 100$. This is approved, but the person approving was not authorized to give them that increase. After the fishing season, they were paid only the original 50$.) A promise to increase compensation under an existing contract would be an unenforceable modification to an existing contract because there is no consideration offered for the modification. A promisor cannot provide consideration where that consideration is a duty the promisor is already obligated to perform. This is known as preexisting duty. Cannot be deemed consideration because there is already an obligation to perform. Exceptions to the Rule - Mutual modification: a promise to increase compensation under an existing contract is enforceable as a mutual modification of the contract if: - both parties agree to a performance that is different from the one required by the original contract; and - the difference in performance is not a mere pretense of a newly formed bargain. - Unforeseen Circumstances: Where promise of increased compensation is given in exchange for a performance, and that performance is rendered substantially more burdensome than reasonably anticipated by the parties when they entered the contract, then the preexisting duty rule does not apply. Modification under the UCC Modifications must meet good faith test, and failure to do so renders them unenforceable. This test applies even to contracts that have consideration.

A bargained-for modification is unenforceable under the UCC if the appearance of the mutual bargain is merely a pretext to hide a bad faith change of terms. Duress and Mid-Term Modification A party who agrees to a contractual modification in commercially extortionate circumstances may also be able to raise the defense of duress. So, 3 conceptualizations: 1st conceptualization - Even when parties agree to a modification, the court views the modification as a mini-contract, and applies the same themes as contract proper. 2nd conceptualization - when the contract is in flux, and there is a modification at some point. The way courts decide to regulate that modification is through such concepts as good faith 3rd conceptualization: concept of good faith - in the sale of items, no consideration for modification is necessary, as long as it was made in good faith. CONDITIONS
0) Express Conditions

The use of express conditions are ways of managing the risk of nonperformance. It prevents a person who is worried about a duty becoming due and not being able to perform that duty, to allocate/manage risk. a) 224. Condition Defined: A condition is an event, not certain to occur, which must occur, unless its
nonoccurrence is excused, before performance under the contract becomes due. i) Pure condition (e.g. promise to purchase if find financing havent promised to get financing) vs. Promissory condition (e.g. promise to buy and promise to get written confirmation). If promissory condition fails, absolves other party from performance of subsequent duty and failing party has also breached (1) Substantial Performance (Materiality of non-occurrence) doesnt excuse Express Condition nonperformance. Strict performance is required for an express condition conflicts w/ strict performance protecting party whose taken precaution of making its duty expressly conditional. Considering materiality voids parties clear intent. b) 235(2). Effect of Nonperformance as Breach When performance of duty under a contract is due, any nonperformance is a breach. c) 225. Effects of the Non-Occurrence of a Condition (1) Performance of a duty subject to a condition cannot become due unless the condition occurs or its non-occurrence is excused. (2) (2) Unless it has been excused, the non-occurrence of a condition discharges the duty when the condition can no longer occur. (3) Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur ii) Excused Nonperformance (1) Prevention: (ex: giving wrong address to send confirmation) has to do with a situation where

the party who has the obligation that is conditioned, that party takes certain actions that makes it difficult for the other party to satisfy the conditions. (2) Waiver: only for non-material part of deal. (3) Estoppel: Compared to waiver, you dont have to show that its a nonmaterial part of the deal. But, you have to show reliance. (4) Forfeiture: only time Substantial Performance excuses Express Condition nonperformance
(a) Denial of compensation resulting when obligee loses right to agreed exchange after substantially relying, as by preparation/performance on expectation of that exchange (b) 229. Excuse of a Condition to Avoid Forfeiture

(i) To the extent that the non-occurrence of a condition would cause disproportionate
forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange 1. DISPROPORTIONATE: Extent of the obligees forfeiture vs. importance to obligor of risk from which he sought to be protected and degree that protection is lost if nonoccurrence of the condition is excused to the extent required to prevent forfeiture

d) 226. How an Event May Be Made a Condition Note: A promise by itself is not an express condition. A condition has to lead to some obligation.
i) Either by the agreement of the parties or by a term supplied by the court (1) Express Condition: agreed to and imposed by parties has to be literally and completely performed. Express Conditions validity is based on parties manifested intent; so same sanctity as promise itself. (2) Constructive Condition of Exchange (implied in law) (a) Ps performance is implied condition of Ds performance (b) Courts impose constructive conditions when they conclude that the condition should exist as a matter of policy, or that if the parties had addressed the issue, they reasonably would have intended it to be part of the contract. (c) To satisfy Constructive Condition, Substantial Performance is required. Unlike Express Conditions, where literal compliance required. 237. EFFECT ON OTHER PARTYS DUTIES OF A FAILURE TO RENDER PERFORMANCE: Except as stated in 240, it is a condition of each partys remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time. SO, the question is whether or not there has been a material failure

e) What constitutes substantial performance? Is there substantial performance here? (see 237)

Restatement 241: specifies what constitutes material. Gives significant factors: (i) 241: What is Material Failure: In determining whether nonperformance is material: a. extent injured party will be deprived of the benefit which he reasonably
expected;

b. extent injured party can be adequately compensated for the part of that benefit of
which he will be deprived c. extent party failing to perform or to offer to perform will suffer forfeiture d. likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances e. extent behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing (ii) Cardozo Test: weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence willful transgression voids Substantial Performance What Cardozo does is make the willfulness a

prevention to substantial performance. So, if willfulness not to fully comply, there cannot be substantial performance (bad faith = voids substantial performance).
(b) If there is Substantial Performance of constructive condition, then other partys performance is still due (c) Its still a breach however (Substantial Performance not perfect performance) occurred b/c constructive condition a promissory condition, so D has action for damages. (d) How do you measure damages? Expectation: Cost to complete, Difference in Value

Total Breach v. Partial Breach: In a total breach situation, it discharges the aggrieved party of any obligation.

However, if its a partial breach, the deal cannot be treated as over. Instead they can suspend performance and wait a reasonable time. Partial breaches can become total breach. f) 242 Totality in determining time after which partys uncured Material Failure to render or offer
performance discharges other partys remaining duties to perform under 237 & 238, in addition to 241, (1) Extent reasonably appears to the injured party that delay may prevent or hinder him in making reasonable substitute arrangements; (2) Extent agreement provides for performance without delay, but Material Failure to perform or to offer to perform on a stated day does not of itself discharge the other partys remaining duties unless the circumstances, including the language of the agreement, indicate that performance or an offer to perform by that day is important.

ANSWER STRUCTURE
1. Defining the issue: question of does the breach by one party justify nonperformance by the other? 2. It is possible that you could have an express condition that expresses this particular question. If you have such an express condition: a. What does it take to fulfill an express condition? Literal compliance is necessary. Substantial performance is insufficient for an express condition. b. Even if you dont have literal compliance, has the non-occurrence of the express condition been excused? i. Forfeiture (229) ii. Waiver iii. Estoppel iv. Prevention 3. What makes a condition express? It describes an event which must occur before the event becomes due. It not only has to be written out, but it also needs to be a condition. It needs to lead to something else happening. 4. 2 (b). If we do not have an express condition that addresses the issue? a. What has happened historically is that courts have answered the question by way of a metaphor of a condition. b. What happens is that the court imposes the appropriate constructive condition of exchange. Its about the basic structure of the exchange. i. What does it take to satisfy this constructive condition? 1. As a matter of law, the answer is substantial performance, or, in the language of the restatement, no uncured material failure. 2. Once you recognize the rule, you apply: under the facts, was there substantial performance (no uncured material failure)? See Cardozo test or restatement (start with 241, and make reference to all the elements) The difference is that the presence or absence of good faith is just one element among others for the restatement, as opposed to the Cardozo test, in which the willful transgressor gets nothing. c. If there was substantial performance, what does that mean? Go to the original issue of does breach by one party justify nonperformance by the other. What substantial performance means is that the constructive condition was satisfied. If the constructive condition is satisfied, that means the other, nonbreaching party, is not released from its obligations. 3. By definition, substantial performance means there has still been a breach of a promise, even though the

constructive condition has been met. What that breach means is that the aggrieved party has an action for damages. 4. How do you measure the damages here? Expectation damages: Theory is that when someone breaches a contract, the aggrieved party has a right to be put in the position where they would have been, had there not been a breach. o You give the aggrieved party to get done what wasnt done (thats called cost to complete). o However, sometimes the court uses an alternative way of measuring expectation damages: difference in value. If the cost of getting it done is unreasonable, damages in the difference in the value of what was bargained for versus the value of what was received is awarded to the damaged party. The rule in deciding between both theories is whether the costs would be too high, and whether there has been bad faith. Reliance Restitution

DAMAGES
EXPECTATION DAMAGES

1) Loss in Value + Other Loss Cost Avoided Loss Avoided a) Loss in Value: Value to injured party of failed performance vs. value of what actually was received. b) Other Losses: Losses breach caused, beyond loss in value; limitations such as unforeseeability. i) Incidental damages: additional costs and expenses incurred by the victim of a breach in attempting to deal with it and in taking action to seek a substitute transaction or to curtail losses. ii) Consequential damages: Losses suffered by the victim of a breach going beyond the mere loss in value of the promised performance (direct damages), and resulting from the impact of the breach on other transactions or endeavors dependent on the contract. c) Cost Avoided: Savings injured party gets by not incurring further expenditures of performance by terminating K. How much would it have cost vs. how much it did cost d) Loss Avoided: Value of the resources injured party salvages and reallocates by terminating K resources otherwise would have been devoted to performance of K. What did I do after breach that reduced loss? 2) Parties expectations are what dictate damages full compensation for loss of bargain, losses flowing from
breach proven to a reasonable certainty and within parties contemplation when K made. Its not about the objective value P received but what was bargained for. 3) Limitations (to other loss) By Hadley v. Baxendale a) 351. UNFORESEEABILITY AND RELATED LIMITATIONS ON DAMAGES (1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made. (2) Loss may be foreseeable as a probable result of a breach because it follows from the breach (a) ordinary course of events, or (b) Result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know. (3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in avoiding disproportionate compensation. Most important thing is that the loss has to be in contemplation of both parties. ii) 351 Foreseeability: 1) w/in contemplation at time of contracting, not when breach occurs, 2) TYPE, not MANNER, of loss must be foreseeable, 3) focus on foreseeability of breaching party more than

both parties, 4) loss is probable result of breach, not just necessary/inevitable but also doesnt extend to remote losses b) 348. Alternatives to Loss in Value of Performance (1) If a breach delays the use of property and the loss in value to the injured party is not proven with reasonable certainty, he may recover damages based on the rental value of the property or on interest on the value of the property. (2) If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on (a) the diminution in the market price of the property caused by the breach, or (b) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him. (3) If a breach is of a promise conditioned on a fortuitous event and it is uncertain whether the event would have occurred had there been no breach, the injured party may recover damages based on the value of the conditional right at the time of breach

Hadley v. Baxendale Rule the court comes up with: 1st ruleDirect, natural, immediate damages 2nd ruleOther loss: recoverable only if it was under contemplation of both parties at the time the contract was made.

There is an obligation to reasonably mitigate costs. (Luten Bridge case) Also, there is an obligation to reasonably avoid losses. (Handicapped Childrens educ. Board) However, qualificationexpectation damages only recoverable as far as they were foreseen by both parties (Hadley Rule) Florafax (reasonable certainty) Certain types of damages may not be recoverable Damages for Emotional Distress (Erlich v. Menezes) Generally, courts will not allow punitive damages for breach of contract

RELIANCE DAMAGES
Reliance Damages ( R 349) o An alternative to expectation damages If anticipated profits / expectation damages are too speculative to be determined w/ reasonable certainty, moneys spent in part performance or in preparation for performing the contract are recoverable BUT, no inclusion of lost profits here! o BUT, reliance damages can be limited if it can be shown that full performance would have resulted in a loss It is the responsibility of the BREACHING party to show that performance of the contract would have resulted in a net loss o Restatement 349: Damages Based on Reliance Interest

As an alternative to the measure of damages stated in 347, the injured party has a right to damages based on his RELIANCE interest, including expenditures made in preparation for performance or in performance, LESS any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed

Wartzman v. Hightower Productions (Reliance Damages as Fallback when Expect. Damag. Uncertain) o Facts: P, a corporate promotional venture in which an entertainer would live in a mobile perch to establish the world record for flagpole sitting, hired D, a law firm, to incorporate it so they could sell stock to raise money for venture / later, D told P that it was structured incorrectly and needed to hire a securities attorney for $15,000, but refused to pay for it / Ps stockholders decided to discontinue project b/c of added costs / P sued D for failure to create a corporation authorized to issue stock o Issue: Where a breach has prevented an anticipated gain and proof of loss is difficult to ascertain, can a party recover damages based on his reliance on the contract? o Holding: Where a breach has prevented an anticipated gain and proof of loss is difficult to ascertain, a party can recover damages based upon his reliance interest on the contract, less any loss that can be proven that the injured party would have suffered if the contract were performed D couldnt meet the burden of showing that performance of the contract would have resulted in a net loss b/c the project could only have worked if stock had been sold to raise money P was not required to mitigate by hiring securities attorney b/c a duty to mitigate only requires reasonable efforts, and requiring someone to spend a lot of money when they have none creates undue risk and burden Minority Rule Equal Opportunity Doctrine of mitigation does not apply when both parties could have mitigated Walser v. Toyota Motor Sales, U.S.A. Inc (Reliance Damages under a Promissory Estoppel Claim). o Facts: P was negotiating w/ D for a Lexus dealership and was told that a letter of intent had been formally approved by Lexis management / in reliance on that statement, Ps father agreed to purchase property for the proposed Lexus dealership / when informed that Lexus would NOT be issuing the letter of intent to him, P sued D for breach of contract under promissory estoppel, but the court limited Ps recover to out-of-pocket expenses / P appealed o Issue: What is the right measure of damages in promissory estoppel cases?

(1) Approach #1: Always allow the party to recover EXPECTATION damages An agreement is an agreement! If reliance is a substitute for consideration, then the parties should have the benefit of the bargain (2) Approach #2: Always limit the party to RELIANCE damages Promissory is a separate basis for recovery than contract theory / should be limited Expectation damages might undercompensate b/c lost opportunity hard to show (3) Approach #3: Its in the discretion of the COURT to decide whether to award reliance damages or expectation damages or a mix of each in promissory estoppel cases Under R 90, this approach is BEST / court uses this approach Holding: In determining damages on a promissory estoppel claim for breach, whether to charge full contract damages, or something less, is a matter of discretion delegated to district courts Under the Restatements, P gets to decide whether to seek reliance or expectation damages, thereafter the COURT is given discretion of which is the appropriate measurement of damages Here, the district court did NOT abuse its discretion in limiting the award of damages to out-of-pocket expenses b/c negotiations were still in preliminary stages / P relied on promise for short period of time / promise on which they relied was not a guarantee

Restitution

Unjust enrichment at the expense of another.

Restitution Damages o If the non-reaching party has conferred a benefit on the breaching party, then the non-breaching party can seek restitution damages, even if those damages would exceed expectation damages According to R 371, reliance damages can be measured by: (1) Market Value (majority view / used in US Coastal) o The standard of measuring the reasonable value of services rendered is the amount for which such services could have been purchased from one in the plaintiffs position at the time and place the services were rendered (2) The extent to which the other party has been benefited o Ex: Increase in value of other partys property (3) The contract price o Use the contract price as a way to get at the value of the partys services

Often leads to a smaller amount / pro-rata contract price reduces damages rewards Limitations on Restitution Damages R 373(2)s FULL PERFORMANCE R 373(2) The injured party has NO right to restitution if he has performed ALL of his duties under the contract and NO performance by the other party remains due other than payment of a definite sum of money for that performance If the only thing remaining under the contract was the paying of this money , the injured party has NO right to restitution damages / only expectation damages Rationale In this situation, we CAN protect the expectation interest and eliminate the courts having to figure out these nasty restitution damages The election to seek restitution can ONLY be made when there is a total breach or a repudiation of the contract by the other party No recourse to restitution damages when there is a PARTIAL breach by the other party Restitution damages can be recovered where a contract is unenforceable or voidable based on a contract defense (i.e. statute of frauds, impracticability, etc.) (but NOT intentional nonperformance or intentional variance) R 375: Restitution When Contract is Within Statute of Frauds A party who would otherwise have a claim in restitution under a contract is not barred from restitution for the reason that the contract is unenforceable by him because of the Statute of Frauds unless the Statute provides otherwise or its purpose would be frustrated by allowing restitution R 376: Restitution When Contract is Voidable A party who has avoided a contract on the ground of lack of capacity, mistake, misrepresentation, duress, undue influence, or abuse of a fiduciary relation is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance R 377: Restitution in Case of Impracticability, Frustration, Non-Occurrence of Condition or Disclaimer by Beneficiary A party whose duty of performance does not arise or is discharged as a result of impracticability of performance, frustration of purpose, non-occurrence of a condition or disclaimer by a beneficiary is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance o

U.S. ex rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc. (Market Value Restit. Damage / R 371) The problem is that this was actually a losing contract for Coastal. They would have lost money had the contract been fully performed. So, expectation damages do not make sense for them.
o

o o

Facts: D was acting as general contractor in constructing a naval base and subcontracted certain work to P / P stopped performance 28% through because of a material breach by D / another subcontractor was hired to finish the job / P brought an action to recover for value of work rendered, i.e. labor and equipment furnished Issue: When a subcontractor justifiably ceases work b/c of the general contractors breach, ,can he recover for the value of labor and equipment already supplied? Holding: A subcontractor who justifiably ceases work under a contract can recover the value of labor and equipment already furnished pursuant to the contract irrespective of whether he would have been entitled to recover in a suit on the contract The non-breaching party can in fact recover the reasonable value of its services, even if the value of those services exceed what expectation damages would have rewarded if full performance had been rendered Here, the court followed the MAJORITY rule (i.e. market value) as the measure of restitution damages under R 371

Restatement 374: Restitution in Favor of Party in Breach (Used in Lancelloti) o (1) If a party justifiably refuses to perform on the ground that his remaining duties of performance have been discharged by the other partys breach, the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach Lancellotti v. Thomas (Breaching Party Can Recover in Restitution Damages / R 374(1)) o Facts: P contracted to buy Ds business, paying $25,000 / problems arose regarding construction and P became disinterested in operated the business, eventually abandoning the business / P sued for a return of the $25,000 / D argued that breaching P was NOT entitled to restitution o Issue: May a party breaching a contract be entitled to restitution to prevent forfeiture? o Holding: Under R 374, the party in breach IS entitled to get back get back benefits it has conferred through party performance / may be entitled to restitution to prevent forfeiture The purpose of contract law is NOT to punish and this rule prevents a windfall by the non-breaching party

BUT, should also worry about the nonbreaching party having difficulty evidencing damages he suffered

Can a breaching party get restitutionary damages? The traditional approach: nothing for the breaching party 1st restatement: Allows breaching party restitution as long as the breach was not willful 2nd restatement: Breaching party still has an action for unjust enrichment, and recovery is possible. Does not care whether or not breach was willful.
Move toward discarding the distinction between willful, and not willful breaches, and allowing the breaching party to recover restitutionary damages

Specific Performance
Lets say the remedy is inadequate. Courts will generally still not order performance. There are still concerns: Principled concern: we shouldnt force people to do something they dont want to do (especially in service contracts where the services are unique) Practical concerns: o Drafting an order specific enough that the parties know exactly what to do o Difficulty of supervising Equitable concerns: o Doctrine of clean hands: the person seeking equity cannot be a wrongdoer in any sense. o Concern about third parties: we dont want to hurt a stranger to the transaction
Specific Performance o Specific performance, an equitable remedy, will NOT be ordered unless expectation damages are unavailable or clearly inadequate (R 359(1)) Specific performance or an injunction will NOT be ordered if damages would be adequate to protect the expectation interest of the injured party o To get specific performance, a P must show: (1) Damages are going to be INADEQUATE because it is difficult to evidence them w/ reasonable certainty OR the subject of the contract is UNIQUE and P can NOT get an adequate substitute R 359: Effect of Adequacy of Damages o (2) The adequacy of the damage remedy for failure to render one part of the performance due does not preclude specific performance or injunction as to the contract as a whole

(3) Specific performance of an injunction will not be refused merely because there is a remedy for breach other than damages, but such a remedy may be considered in exercising discretion under rule stated in 357 R 360: Factors Affecting Adequacy of Damages o In determining whether the remedy in damages would be adequate, the following circumstances are significant: (a) the difficulty of proving damages with reasonable certainty, (b) the difficulty of procuring a suitable substitute performance by means of money awarded as damages, and If subject of the contract is unique (i.e. contracts involving specific land), then it is a prime candidate for specific performance b/c hard to imagine a substitute performance is available (c) the likelihood that an award of damages could not be collected (2) The terms are CERTAIN, even more certain than they have to be in a general contract R 362: Effect of Uncertainty of Terms o Specific performance or an injunction will NOT be granted unless the terms of the contract are sufficiently certain to provide a basis for an appropriate order (3) It will NOT be too hard to supervise the execution of specific performance R 366: Effect of Difficulty in Enforcement or Supervision o A promise will NOT be specifically enforced if the character and magnitude of the performance would impose on the court burdens in enforcement or supervision that are disproportionate to the advantages to be gained from enforcement and to the harm to be suffered from its denial (4) Specific performance will NOT be issued if to painful, inequitable, or causes too much hardship to D or the interest of third parties R 364: Effect of Unfairness o (1) Specific performance or an injunction will be refused if such relief would be unfair because (a) the contract was induced by mistake or by unfair practices (b) the relief would cause unreasonable hardship or loss to the party in breach or to third persons or o

(c) the exchange is grossly inadequate or the terms of the contract are otherwise unfair o (2) Specific performance or an injunction will be granted in spite of a term of the agreement if denial of such relief would be unfair because it would cause unreasonable hardship or loss to the party seeking relief or to third persons Specific performance after the breach of an employment contract is VERY difficult to get If the employees performance is NOT unique (i.e. a professor), it seems that specific performance is going to be denied because the employer can recover money damages and just can go out and get a new employee R 367: Contracts for Personal Service or Supervision o (1) A promise to render personal service will not be specifically enforced If the employees performance IS unique (i.e. portrait painter), there are other problems to deal with, including: Employee might be difficult to supervise We dont want to force people to do things against their will Employer MIGHT obtain a negative injunction that limits the breaching partys options This was the focus of the Wolf case BUT, R 367(2) says if the result is to compel performance and limits the persons ability to find gainful employment to the same effect, the courts will NOT issue / enforce a negative injunction o R 367(2) A promise to render personal service exclusively for one employer will NOT be enforced by an injunction against serving another if its probable result will be to compel a performance involving personal relations the enforced continuance of which is undesirable or will be to leave the employee without other reasonable means of making a living This would causes someone to do directly what the law says we cant do indirectly

City Stores Co. v. Ammerman (Specific performance granted under R 359, 360, 363, & 364) o Facts: D, promoter of a proposed suburban shopping center, secured from P, a department store, a letter expressing its preference for the project over Ds competitor / in return, D agreed to accept P as a tenant on the rental and terms equal to that of the other stores in the center / later, D refused to accept Ps offer when Sears offered it better terms / P sued for specific performance o Issue: May an option contract involving further negotiations on details and construction of a building be specifically enforced?

Holding: An option involving further negotiations on details and construction of a building MAY be specifically enforced where damages would be inadequate or impracticable, and the importance of specific performance to the P outweighs the difficulties of supervision Since (1) money damages would NOT compensate P for its loss of the right to participate in the shopping center, which is unique special interest in land w/out substitute, (2) the terms of the contract were definite (since based off other stores terms), (3) there will be no undue hardship on D by granting specific performance besides making less money, and (4) the difficulties of supervision are minimal because the court can look to other leases the promoters have made for guidance, the option will be specifically enforced

American Broadcasting Co. v. Wolf (R 367 Negative injunctions available, but biased in employm.) o Facts: D, a popular NY sportscaster, entered into an employment contract w/ P whereby he agreed to enter into good faith negotiations during 90 days preceding contracts terminating regarding an extension period / he further agreed that for the first of that period he would NOT negotiate w/ any other company / if negotiations did not prove fruitful, D was required to submit any offer accepted during 90 day period subsequent to contracts termination to P, allowing them to match that offer (right of first refusal) Approximately 150 prior to contracts termination, D entered into negotiations w/ competitor CBS, tentatively agreeing to their offer of employment, BUT saying it had to be kept upon until day following first refusal period / when P became aware of agreement, sued, seeking an injunction against D form beginning employment w/ CBS o Issue: Will an employment contract be specifically enforced, after its termination, through injunction? o Holding: Negative enforcement of an employment contract may ONLY be granted, once the contract has terminated, to prevent injury from unfair competition or to enforce an EXPRESS and valid anti-competitive covenant During the contract term, there is an implied covenant not to compete, BUT after the contract terminates, the employee has to EXPRESSLY agree not to compete OR engage in badfaith conduct, such as disclosing trade secrets, in order to enjoin the employee from competing Although D breached the good-faith standard to negotiate in good faith when he negotiated w/ CBS prior to the effective period, and a negative injunction saying you can NOT work for the competitor is allowed, D did NOT expressly agree not to compete after contract termination, not did he engage in bad-faith behavior such as theft of trade secrets or customer lists

Agreed Remedies: Liquidated Damages and Penalty Causes

Test: 1. Did the parties intend to provide for damages or penalties? 2. Is the injury caused by the breach difficult to estimate at time of contract? 3. Are the stipulated damages a reasonable forecast of the actual harm caused by the breach?
Liquidated Damages o The parties are providing in the agreement what damages would be in the event of a breach Seems appealing, but historically, there is somewhat of a resistance to liquidated damages Modern courts also resist liquidated damages provisions o Under R 356(1), damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the ANTICIPATED or ACTUAL loss caused by the breach and the difficulties of proof of loss Also under R 356(1), a term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty BUT, it doesnt address a liquidated damages clause that is too small may just be tough luck o Basic Inquiry: Does this operate as a penalty? Other Factors a Court Looks To: (1) Uncertainty and difficulty in anticipating damages o Liquidated damages provision must be reasonable in light of ACTUAL or ANTICIPATED loss (2) The parties intent o Did the parties intend the liquidated damages provision as a penalty or as a damages clause? (3) The amount of reasonableness as a forecast of future harm flowing from the breach o Is the amount fixed a reasonable forecast of just compensation for the harm that is caused by the breach? Wassermans Inc. v. Township of Middletown (Liquidated Dam. -> Reasonable Forecast? / R 356) o Facts: P and D entered into a commercial lease for a tract of municipallyowned property / agreement contained clause that if D cancelled lease, it would pay P a prorate reimbursement for any improvement costs and damages of 25% of Ps average gross receipts for 1

o o

year / when D canceled lease over 25 yrs later, D forced new owners to vacate premises and P sued for breach under the terms of the lease, including the liquidated damages clause Issue: Is a provision in a termination clause providing for damages based on the lessees gross receipts an enforceable liquidated damages provision or an unenforceable penalty clause? Holding: Provisions for liquidated damages are enforceable only if the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach The Court also instructed the trial court to consider the reasonable of the damages clause in light of its opinion, including: The reasonableness of the use of gross receipts as the measure of damages no matter when the cancellation occurs The significance of the award of damages based on only one years average gross receipts, rather than some other basis The lessees duty to mitigate damages The reasoning of the parties The fair market value and availability of replacement space

Framework of analysis (end points) no K proper, No P.E., no Restitution Express condition that isnt satisfied and whose nonoccurrence is not excused. So, question first to ask is, is the non-occurrence of a condition excused or not? (waiver, forfeiture etc) There is a contract, but it is voidable. The question here is that of a defense to a contract. What goes along with this is that once you void a contract, you have to make sure what kind of restitution is applied. (some restitutions have use rules for example). Note: there is no breach here. Its just that the contract is voided. You have a contract that has been breached: then youre in the area of damages, (norm is expectation damageshowever, in some situations, reliance damages are more appropriate). Also, in some cases, the aggrieved party could be allowed an action for restitution off the contract. (ex: where a losing contract was breached). The BREACHING party could also get restitutionary damages. You have a P.E case: The measure of damages will often depend on the kind of case for P.E. thats being offered. Historically traditional version: gift promiseyou have detrimental reliance on a gift promise (expectation damages) Assurances (like pops cones): promises madethere has been reliance (reliance damages) NOTE: you dont necessarily have a single end point.

Review Session
Office hours: Dec 13 @ 1:00 Dec 15 @ 1:00 3.5 hour exam Stick to provisions of the restatement that weve talked about. Dont use stuff we havent covered. Btwn 3 and 6 questions Grounds of liability K proper Mutual Assent Offer: has to be specific, directed to identifiable group, other party has reason to know that if they assent, there will be a bargain (Lonergan) Offer is revocable any time prior to acceptance. (Normille v. Miller) Offeror can specify how the offeree would go about accepting the offer: Return Promise (Bilateral Contract) Performance (Unilateral Contract) Think about distinction between both. Its about what is the mode of acceptance specified by the offer. Unilateral Contract: defining the performance requested (P v. P). Sometimes, performance is done over a period of time. Classical contract doctrine says there can be revocation at any time before completion. However, modern contract doctrine sees some unfairness (Cook v. Coldwell), and limits the offerors right to revoke the offer, giving the offeree enough time to complete the act of acceptance. Acceptance: Consideration Benefit-Detriment test: P-or has to enjoy a benefit in relation to a promise, or the promisee has to suffer a detriment in relation to the promise. (examine whether each element is satisfied) (Hamer v. Sidway) Bargain theory: P-or has to be seeking some performance or return-promise in exchange for a promise, and vice versa. (Pennsy supply) Some courts apply one or the other, or both. Ray v. Eurice: how does a court go by determining mutual assent. Builders for the house and disagreement. Objective theory of contracts used. You focus on the manifestations of intent, not the state of mind. Because the parties went through the process of contracting, it was found there was a contract.

Lonergan v. Scolnick: Act fast cause we expect to have a buyer in a weekcourt holds this is not an offer. No requisite intent that you would need for an offer. Offeror was not ready to be bound. Izadi v. Machado: Car dealership ad, which suggested a 3000-dollar credit. But if you read fine print, it was specific to certain cars. Q should have been: does this ad constitute an offer? Generally, ads dont constitute an offer. They are an invitation to make an offer. BUT, here, there was some bait and switch. What they really were deciding, if there is an offer, what are its terms? So, separate questions: is there an offer? If yes, what are its terms? Normille v. Miller: Contract is changed, sent back. In the meanwhile, property is sold before buyer has chance to accept. Classical contract doctrine says, that if an offeree changes the terms of the offer, it constitutes the rejection of the original offer, and the making of a counter-offer. Peterson v. Pattberg: Defining the performance requested. Mortgagee offers to give mortgageor a discount if pays in full by certain date. Mortgagor goes to doorstep, offers money. Did the offeree do the act that was requested? Even though he was at the doorstep, he did not tender, so he did not do the act of getting the money into the hands of the offeror. Cook v. Coldwell Banker: Change in terms of a bonus agreement. To be eligible, agent had to show up at the banquet. Can the offeror reject an offer, and then substitute it for a new one? Classical contract doctrine says yes, because she had not fully completed acceptance. However, the court applies section 45, that if you have a unilateral contract, and the offeree starts out on performance, doing so binds the offeror to a promise to hold the offer open for a reasonable time so that the offeree can complete the performance. Hamer v. Sidway: Uncle offers money to nephew, in exchange for nephew giving up stuff till 21. Benefit-Detriment test. Nephew argues he suffered a detriment in order to get the money. Estate argues that it wasnt a detriment to give up drinking and smoking. So, question is, what constitutes a detriment? For the estate, it is the general outcome that has to be looked at. The court rejects that argument. You have to focus on the fact that the promisee gave something up. Pennsy Supply v. American Ash: Agg-rite for free given by American Ash. It was defective. A.A. says Pennsy cant sue, because there was no contractit was a gift. It tested whether under the bargain theory, there was consideration. The court ruled that there was cause of action, because A.A. was seeking the performance of taking the agg-rite away in exchange for the promise. Even though the explicit terms of the deal didnt deal with that, but the court looked at the implied terms of the deal that would make it logical to take away the agg-rite. Dougherty v. Salt: (gift-promise situation) Aunt promises to give 3000 to her nephew upon death. She wrote a note. But the mere recital of consideration is not sufficient. Past consideration doesnt count, and there was nothing for nephew to do in the future. Batsakis v. Demotsis: Inflated price for Drachma. The court rejects the idea that you gauge consideration based on its adequacy. You look simply at whether there was or was not consideration.

Plowman v. Indian refining: Laid off workers offered half their pensions. All they have to do is pick up checks. Then they said they cant afford the half pension. So, gift, but person that receives gift has to do something to get it. However, company is not bargaining to watch workers show up. The company didnt get anything out of the fact that the workers showed upsaved the postage. Think about distinction between B-D test and bargain theory. P. Estoppel Bilateral contract: someone makes an offer, and the offeree has to promise. They dont yet promise, but do something in reliance on the offer. In general, a bilateral contract situation doesnt make the offeree vulnerable. However, there are some situations where we want to give some relief to the offeree. Promise P-or reasonably expects action or forebearance There is action or forebearance Justice cries out Historically original version: gift-promise (kirksey v. Kirksey, Greiner v. Greiner) Baird: Owner-developer, contractor, developer/subcontractor. Subcontractor, after giving bid, realizes he made a mistake. Tries to revoke the offer to the contractor. General classical contract rule would allow him to revoke. But the contractor is now in an awkward situation, because the subcontractor wanted the contractor to rely. So, should we give contractor some relief? P. Estoppel can be used. Reliance on an offer, court treats the offer as a promise. Outcome: holds subcontractor to a promise to hold the offer open. Performs a function parallel to 45. 87(2) generalizes this principle to apply to many similar compelling circumstances. Berryman v. Kmoch: Someone offers to sell land, promise to hold offer open for certain period of time. As consideration, the offeree was to pay 10 dollars, but that was never paid. Kmoch has to rely on the promise to hold the offer open. But you need separate consideration for the option. P. Estoppel: research was done, investors were sought. Most courts would reject this argument. Pops Cones: resort negotiates with yoghurt place. When people negociate, they dont necessarily think they will be bound. However, people do rely on promises or assurances. This court was willing to use assurances that werent really formal promises as basis for consideration. They lessen the standard for whether there was a promise. Kirksey v. Kirksey: Court didnt find consideration, not willing to apply p.estoppel. Greiner v. Greiner: Court finds there was consideration where the son travels and gives up stuff. Wright v. Newman: Child support. Court sets out elements of p. estoppel, says that the conduct was the equivalent to a promise. However, promise is not merely a promise to put name on birth certificate, and take care of child till majority. Each element of p.estoppel is searched/analyzed.

Katz v. Danny Dare: Robbery of the company, employee gets hit in the head. Persident wants him to resign, in exchange for a pension. Then, the president doesnt want to pay the pension. Consideration? PerhapsP.Estoppel? D. Dare says theres no case for p. estoppel because Katz didnt lose anything he was owed. So, what kind of action or forebearance is proper? Court says that as long as there is reliance on a promise, that is enough for P.E. RELIANCE on the promise is the focus of P.E. Restitution Non-promissory Restitution, Original version: (Pelo) Situation where someone is unjustly enriched at the expense of another. Benefit Enrichment Unjust At the expense of another Pelo: Receives services at the hospital, refuses to pay. Pelo received benefits, its unjust that he not pay. Pelo argues he wasnt enriched. Promissory Restitution: Material benefit Rule (86). In a situation where one party has benefited at the expense of another, after the person receives the benefit, they subsequently promise to compensate the other person for that benefit they received. Does that mean the promise should be enforceable? (Mills v. Wyman) Material benefit rule: Webb v. McGowin Mills v. Wyman: Mills helps out defendants son. Father subsequently promises to compensate, but then goes back on it. Subsequent promise doesnt matter because no consideration. Webb v. McGowin: Employee diverts a block from hitting a person beneath. Employee is injured. Person promises to compensate the good Samaritan by paying a pension. Is that promise enforceable? Material benefit rule (promissory restitution). What emerges is this separate theory of liability, that in a situation where someone receives a material benefit and promises to compensate for the benefit received, that promise can be enforceable. 86: States the general rule. Then says: no compensation if the material benefit is rendered as a gift. That would negate the subsequent promise. Statute of Frauds Is a writing required to enforce a contract? Not necessarily. Certain categories of contract where the absence of a writing may provide a party with an affirmative defense against the enforcement of a contract. Statute of frauds is a threshold requirement that renders a contract unenforceable in the absence of a writing Is the contract covered? Cannot be performed within less than a year Contracts involving the conveyance of land Has the statute been satisfied?

Writing/writings sufficient to indicate a contract or an offer has been made. Writing has to contain essential terms Writing has to be signed by the party against whom enforcement is sought. Crabtree v. El. Arden: Crabtree is offered a job. Claims that its a 2-year contract. In less than 2 years, El. Arden refuses to give him a pay increase. Assuming there is a 2-year contract, we first have to see if it satisfies the statute. If it is 2-year K, it is covered. Problem is that the 2-year period term is on a memo pad not signed by El. Arden. You can combine writings as long as on their face, they refer to the same transaction. Alaska Dem. Party v. Rice: Lets say you have an oral agreement, can you use Promissory Estoppel to circumvent the statute of frauds? Political worker is offered a job, moves to Alaska to take it, but then the party denies the agreement. You can use P.E., but using a ramped-up version of the statute of frauds. You have to make sure there was a real promise etc The way you analyze whether justice cries out is very thorough: you try to see whether or not the reliance is such that it corroborates the existence and the terms of a contract. So, youre trying to make the reliance the element the statute of frauds serves. 139(2) lists the elements to consider in terms of whether justice cries out: Availability and adequacy of other remedies Definite and substantial character of the action or forbearance in relation to the remedy sought Extent to which action or forbearance corroborates evidence of the making and terms of the promise Reasonableness of the action or forbearance Extent to which action or forbearance was foreseeable by the promisor Joyner v. Adams: Terms of an agreement, and interpretation of ambiguous terms. K to develop some property. Rent escalation clause so that if the builder did not finish on time, he was retroactively responsible for rent. Question was what was the meaning of that clause? Interpretation of contract language: One consideration the court looks at is an inter-subjective element: what did one party understand or have reason to know or understand that the other party had a different interpretation of the term in question. Inter-subjective element. Parol Evidence Rule Rule that governs the admissibility of evidence and works to protect the integrity of an integrated writing. It does that by exclusing extrinsic evidence from getting to the fact finder.
1. Is this the kind of evidence subject to the Parol Evidence Rule?

a. Prior oral or written agreements, understandings, negociations. b. Contemporaneous oral agreements and understandings. c. Subsequent things are not governed by the Parol Evidence Rule. 2. Is this the kind of writing that is subject to the Parol Evidence Rule? a. Has to be integrated writing i. Complete ii. Partial

4-corners test: to determine whether or not a writing is integrated, and if so, what kind it is, all you do is look at the writing itself on its face (Thompson v. Libby) Contextual approach (Corbin): look at the writing but also consider testimony as to the context, perhaps allow the parties to talk about it. Merger clause. If 4-corners approach, merger clause is dispositive. But, if contextual approach, still a question. Assume you have integration: cash it in Complete integration doesnt allow anything in. If partial integration: Is this evidence admissible as a consistent additional term? (to supplement the writing) If evidence is still not admissible, consider: Evidence can, under certain circumstances, be admitted to explain a writing. Not to be confused with admitting evidence as a consistent additional term. Under what circumstances can you admit evidence to explain a writing? Courts require some ambiguity. Some courts require ambiguity on its face before admitting evidence to explain a writing. Other courts: as long as there is a latent ambiguity (not on the face of the writing, but when digging a bit deeper) (Taylor v. State Farm: court takes latent ambiguity approach). Assume the evidence cannot be admitted to explain the writing. Another possibility is that you can admit evidence to establish an invalidating cause (ex: Fraud, mistake, undue influence, duress) Qualification: (Sherrodd) When you talk about fraud in the inducement, some courts are not so open to admitting evidence of fraud in the inducement if that evidence contradicts some clause of the writing. Remaining question has to do with other types of evidence, like contextual evidence such as: Trade Usage Course of Dealing: what were the prior transactions between the 2 parties Course of performance: Look to conduct of the parties in the agreement itself. Nanakuli: explains the nature of this kind of evidence. Is that kind of evidence subject to the parol evidence rule? Nanakuli takes a liberal approach, suggesting that trade usage, for example, might not even be subject to the parol evidence rule, because it reflects implicit understandings. The Nanakuli court specifically required a clause negating the trade usage, otherwise, it applies.

Implied terms Implied in fact: Wood v. Lucy Wood seeks to enforce Lucys exclusivity agreement. Then Lucy starts to sell stuff at a profit. Wood sues Lucy and she says there was no consideration for that promise. The court finds that there was an implied term of the contract where Wood would use his best efforts to sell Lucys products. It was this promise that was consideration for Lucy to give him exclusive rights. Implied in Law: Locke v. Warner Bros. Locke had a pay or play agreement. But WB had decided not to give her anything from the start. Locke says WB violated the spirit of the contract: violation of the duty of good faith. Good faith obligation imposed by the court.

Defenses Followed by rescission, and some kind of restitution. Minority Dodson v. Shrader: purchase of a car. He wrecked the car, wants to rescind the contract, and just give back the car. As a general rule, thats ok. In the minority context, as long as the minor gives back what they have left, they can get rescission of the contrat. Here, the Dodson court recognizes an exception . Use rule allows the merchant an offset of any liability recognizing any depreciation or other loss. Mental Incapacity 15 2 tests Cognitive test Volitional test General Rule: you cant get rescission if you cant return what you got. If bad faith, however, there might be an exception Hauer v. Union State Bank: Court thought it was clear that customer was mentally incapable of understanding the contract. Real issue arose because she had borrowed 30 grand, and she was trying to rescind the contract but was unable to return the 30 grand. The court did allow rescission, because they found that the bank acted in bad faith (which was sufficient exception). Duress Key here is finding a threat. 1. Threat 2. Is the threat improper? (176) 3. Did the party seeking rescission have any reasonable alternative? 4. Was it the threat that induced the assent?

5. Some jurisdictions apply the Selmer factor: Important to take into consideration to what extent was the threatening party responsible for the other partys dire financial situation. Totem v. Alyeska: First-time transport of pipes by a company. Alyeska breaches the contract and makes it difficult for totem to do what they promised to do. Eventually, Alyeska terminated the contract, and then Totem filed for damages, but then they settled it. Problem was that Totem was desperate for funds. Subsequently, Totem seeks to rescind the settlement agreement. They argue that the grounds for rescission is economic Duress. Threat? Improper? . Undue Influence Not about a threat, but about overpersuasion, where someone exerts their will through persuasion. 2-step analysis: 1. Is this the right kind of relationship between the parties? Dominance versus subservience. Usually, it is based on a relationship, like an employment relationship. 2.Has there been Overpersuasion? see factors Unusual time or place Person is pressed for time Person is isolated No access to a lawyer, advice, multiple persuaders. Odirizzi: Teacher who was coerced into signing a resignation. Misrepresentation Syester: dancing widow who got a bunch of dancing lessons and was told she could become a professional dancer. She sues the dancing school, and there was a release. The question was about whether the release could be rescinded using a theory of pure misrepresentation. In considering that, we went through all the restatement provisions: 164(1) Foundational provision of when misrepresentation makes a contract voidable. 162: Distinction between fraudulent and material misrepresentation. Difficulty in Syester was finding a contradictory assertion of fact that wasnt merely an opinion. But if it was an opinion, 168, 169 deal with the problems of relying on an opinion. Hill v. Jones: Failure to disclose as a grounds for misrepresentation. Circumstances where failure to say something is like saying something inconsistent with the facts. Had to do with purchase and sale of real property. The buyer perhaps had noticed evidence of termite damage, but the seller didnt say anything. There was a State rule that says that a seller has a duty to disclose material facts which affect the value of the property when known to the seller and not readily observable to the buyer. There is a restatements version of that. (see 164)

Park 100: distinction between 2 types of fraud: Fraud by inducement (when someone gets someone to assent based on a false statement), and fraud in the execution (tricking someone to get their assent/into signing a writing by misrepresenting the content of what theyre agreeing to) In Park 100, the Kardiczes were told they were signing a lease, but they were actually signing a guarantee. Unconscionability 2-part analysis: - Procedural unconscionability: has to do with the process by which the agreement was reached.Was there meaningful choice? (many factors like bargaining differences, small print) - Substantive unconscionability: Has to do with the cause itself. Start with a gut check How does the clause compare in terms of the industry? (does everyone do this?) Is there a function of the clause in question? Will this function survive scrutiny? Ex: You cant use a clause as a threat. Williams v. Walker: Consumers and furniture companylease-to-own situation. We saw how this is looked at as a secure transaction. Consumers were making payments without actually being able to pay off anything as they were buying more stuff. So they were never able to pay off anything until they paid off everything. Was that clause unconscionable? Apply 2-part analysis. Public Policy courts look at other statutes/laws that dont exactly govern the situation, and see if there is tension between them and the situation. Also, fundamental values are looked at. R.R. v. M.H.: Contract for a surrogate mother.

MISTAKE Idea here is that the parties were mistaken at the time of contract as to some fact in the world. A mistake as to the contents of the contract doesnt count. Start with Restatement 152 or 153, and then complete the analysis with 154. Lenawee: Mutual mistake. Purchase and sale of an apartment building, but neither party knew about the sewage problem. They thought it would be income-producing, but it was worthless.

Court starts with a traditional test: Sherwood v. Walker: fertile cow. Once you have some kind of mistake, in determining whether or not thats a basis for rescission, you decide whether or not the mistake is related to something at the essence of the consideration, or merely related to the value of the thing. So, for Lenawee, one way to characterize it is that one of the things at the essence of consideration is that the property be income-producing, and it wasnt. Tricky thing with that test is you can characterize the facts differently. Court applies the restatements version of mistake: 152-154. the basic idea is that rather than worry about essence of consideration, value, etc, You need a mistake That relates to a basic assumption on which the contract is made Has a material effect on the agreed exchange. Exception: if the adversely affected party bears the risk of mistake (see 154) A party can bear the risk of mistake by agreement. They can bear the risk of mistake when aware at the time of contract that he has limited knowledge with respect to the facts to which the mistake relates, but treats his limited knowledge as sufficient. Will-Freds: Unilateral mistake. Just one party is mistaken. Subcontractor put in a deflated bid because their subcontractor was misled by the general contractors specs. So, the subcontractor was relying on poor info. What the subcontractor was arguing is that it was relying on a bad bid, from a company it had done much successful business with before, and they want to rescind. Impracticability Karl Wendt v. Intl. Harvester. : Intl. H. sells their business, and leaves this franchisee hanging. Franchisee sues Intl. Harvester, and Intl. Harvester claims impracticability. Arg: contract became impracticable because the market had totally changed. No rescission allowed. Critical question has to do with risk allocation. Did the parties allocate the risk of something like this happening as part of the contract? In order to find rescission based on impracticability, you have to find its the kind of thing that is extreme, that the parties didnt bargain over, an event the non-occurrence of which was a basic assumption of the contract.

MODIFICATION Under what circumstances is the modification of a contract enforceable? Alaska Packers: Some courts look at the modification as a mini-contract, and will impose upon that situation all the requirements of a contract. That includes the question of whether or not

theres consideration. So they look to see whether theres separate consideration for the modification. Courts look to see whether theres separate consideration for that modification. Courts also look at whether other defenses apply to the modification, like duress. This is if it was breached. We are worried about good faith (89(a) and (c)) a.allows the modification if its fair and equitable in view of circumstances not anticipated by the parties when the contract was made. c.allows modification to the extent that justice requires it in view of material change of position in reliance on the promise. Applies a kind of promissory estoppel idea based on reliance. Alaska Packers: there was no separate consideration, because the workers were transported, and then said they wouldnt work. Claimed their nets were defective. Court didnt believe them, but once the company agreed to pay them more for their services, there was no separate consideration for that promise.

EXPRESS CONDITIONS Go back to the definition. Event not certain to occur, which must occur before a duty becomes due. If the event doesnt happen upon which the duty is conditioned, then the duty doesnt arise. These are the implications of a pure condition. However, in some situations, conditions are laid out that also involve a promise, to make the event occur. Oppenheimer: express condition is that they deliver the written notification of the landlords consent to improvements to the sublessee as a condition. If this is a promissory condition that was not satisfied, not only will the duty to sublet not arise, but there is also a breach. J.N.A Oppenheimer and J.N.A v. CBC: focused on a bunch of situations where the nonoccurrence of a condition is actually excused. In Oppenheimer, the condition had to be literally complied with. However, even though they cant satisfy the condition by substantial performance, non-occurrence of conditions can be excused. Forfeiture Waiver Estoppel Prevention

Now, dont think about conditions. In a situation where someone breaches a contract, does that breach justify nonperformance of that condition by a party. Assume that theres nothing in the contract that addresses this issue. In Jacob and Youngs, the plaintiff complained that he got the wrong pipe, and therefore, refused to pay the last installment. The court imposes a constructive condition of exchange. Constructive conditions of exchange (Jacob and Youngs) Substantial performance is sufficient to satisfy a constructive condition of exchange. In determining whether or not there was substantial performance you need to look at 241. Material failure 241: lists factors. - the extent to which the injured party will be deprived of the benefit which he reasonably expected - the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived - the extent to which the party failing to perform or to offer to perform will suffer forfeiture - the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances. - Extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing. Cardozo test: mirrors 241 test, but the willfulness of the breacher is dispositive. Partial v. total breach 242 (Sackett v. Spindler)