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Course: Contracts Outline Fall 2003
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Year: 2003
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Contracts Outline

 

 

  1. "Naked sales" are excluded from the law of contracts

    1. Contacts law (according the Uniform Commercial Code) "does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction"

      1. UCC cover goods that are things which are movable at the time of identification to the contract for sale

      2. If there is a mix, some courts have held things partially under the UCC and partially under common law -- but this risks implying divisibility

        1. There is a general trend to view transactions heavily weighted towards goods under the UCC

    2. if contract accomplished, then entitled to warranties and protections in following contracts.

      1. Warranties speak to merchantability, including implied warranties

  2. Formation of Contracts – if there is doubt, it is bilateral

    1. Existence of Bilateral contracts require mutuality and consideration

      1. Existence of contract (or how to get into contract land)

        1. Void contracts

          1. Illegal subject matter -- violates public policy

            1. Type of illegal contracts

              1. Aletory (gambling)

                1. Based on events that have no connection to the parties

                2. Argument is that there needs to an economic connection, or it needs to serve an economic purpose

                3. Something is not fortuitous if both sides believes that the result is not fortuitous.

              2. Usury

              3. Unfair restraint of trade

              4. 3rd-party tort indemnification

              5. unlicensed parties

                1. if the lack of license is due to a technical mistake, a court make grant recovery

              6. crimes

                1. indirection connection to the crimes does not make the contract illegal

            2. if one party is unaware of the illegality, the innocent party can recover on the contract, if they can show that they were "ready, willing and able" to fulfil the contract.

            3. If one party knows that the other is entering the contract for illegal purposes, he is not barred from recovering for breach, unless the intended purpose involves serious moral turpitude or he takes action to further the illegal purpose of the other.

            4. If there is ambiguity, the legal meaning will be preferred when a court interprets the contract

              1. A contract can be reformed to make it legal

          2. Sham contracts purely accounting purposes are not real

        2. Contracts implied in fact are real (including §2-207 knock out rule contracts)

          1. Little difference between a contract implied in fact, and an express contract

            1. In one implied in fact is any agreement that people entered into without using words1)a)i)(1)(e)(ii)3 below

          2. Ian McNeil speak of "relational contracts" which people enter into every day whose terms are too numerous to codify

        3. Express contracts -- requiring offer and acceptance

          1. Making offer (offers are based on objective standard) -- must create immediate power of acceptance (offers effective on receipt)

            1. Theories of communication vis-à-vis offers

              1. Old theory: meeting of the wills

              2. New theory: All one can do is look at what a person does or says

                1. risk of operational loss due to problems in transmission are usually upon the party that chose the means of transmission

                2. the common carrier or means of transmission can be sued

            2. General information about pricing does not constitute an offer which binds the offeror Except for biding offers to specific people (Uniform Commercial Code’s Firm merchants offer) (must include PARTIES, SUBJECT MATTER, Time of Performance, Price)

              1. Manifestation of intention is intended to be an offer – it cannot be construed as a contract, unless the terms are reasonably certain.

                1. Terms of an offer are reasonably certain, if they provide a basis for a breach – and an appropriate remedy

              2. Common law: Fact that one or more terms of a bargain are left open may show that the manifestation of intention is not intended to be understood as an offer or an as acceptance.

              3. Offers must be "present manifestations of intent to contract with recipient"

                1. Jokes do not count

            3. time non-option offers open

              1. Mailbox rule of offers of Adams v. Lindsell

                1. Offers

                2. effective on receipt (European approach: communications are effective upon receipt, and every offer is an option)

                3. except in the absence of any contrary intention of the parties

                4. Under normal circumstances, an offer is good from when it would be received – even if due to a defect in transmission

                5. Revocations of revocable offers

                6. Majority: effective on receipt

                7. Minority: effective on dispatch

                8. Note: mailbox rule does not apply to option contracts

              2. offers expire if rejected

                1. anything after, is a counteroffer -- except under the UCC

                2. acceptances with immaterial differences in terms do not constitute counteroffers

                3. alterations are material if consent cannot be presumed

              3. written offers expire

                1. when they are closed by virtue of what is stated

                2. offer expires in a reasonable time (depending on the good)

                1. UCC: Firm merchants (in the subject matter) offer where they put the offer in writing and has a time in it of irrevocability. Needs offer (writing), words of firmness, and a signature – MAKE IT BINDING LIKE AN OPTION FOR UP TO 3 MONTHS -- only the offeror need be a merchant

                2. by law

                3. Incapacity of the offeror (death, insanity, etc.)

                4. note: if it is in doubt, it is bilateral – and contracts survive death (though offers do not)

                5. destruction of the subject matter

                6. product become illegal

              4. oral offers: offers are open only during conversation

                1. in most cases -- an offer made in the course of a conversation is lapses when the conversation is terminated

                2. offer would remain open if there were an indication that such were intended by the offeror

                3. by act of parties

                1. revocation: absent an option agreement, offeror is "master of an agreement’ and can revoke an offer

                2. Indirect revocation doctrine : Offer must have taken a direct act inconsistent with the proposed conduct, Offeree must have heard about the revocation from a reliable source, If offer made to public must revoke by same or similar means

            4. Option offers

              1. Options are distinct contracts

                1. Note: options only have to be in writing

                2. Option is irrevocable if according to the Restatements on Options (§87):

                1. In writing and signed by Offeree,

                2. Recites a purported consideration for the making of the offer

                3. Proposes an exchange on fair terms in a reasonable amount of time

                4. or is irrevocable by statutes

              2. Mailbox rule does not apply to acceptances on explicit option contracts

            5. Promissory estoppel and Reliance on offers : Once someone starts to perform, they are relying on the promise – and option contract is created

              1. Old view is that the offer’s could not give notice of beginning of performance and wouldn’t bind

                1. Original trend was that Promissory estoppel could not apply to offers

              2. Majority view: if it were reasonably foreseeable to the offerer that the Offeree would change position in detrimental reliance upon the offer, there is sufficient ground to rend the offer irrevocable

                1. Restatement view: expectation interests should not be fulfilled – but ‘to the extent necessary to prevent injustice" should be the damages

                2. Promises to pay unenforceable debts can be enforceable without promissory estoppel or consideration

                3. Promissory estoppel vis-à-vis offers: An option contract exists if the offer expects people to perform, and they do, and it is substantial. Hence, Promissory estoppel. An offer which the offerer should reasonable expect to induce action or forbearance of a substantial character on the part of the Offeree before acceptance, and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice

                4. Red Owl View: If a party begins negotiations, Promissory estoppel will provide for damages if they are in bad faith.

              3. Some offers that one relies upon become binding both implied in law, and by promissory estoppel ways

                1. Note: this will protect the winning sub from being bid-shopped as the contractor is bound.

              4. Court can imply terms of offer (implied terms) into the contract

                1. E.g. – if ambiguous can say that a length of time starts at receipt ((in equity)

          2. Acceptance (note: acceptances are on the subjective standard) -- effective on dispatch

            1. Acceptances must be of the offer -- not mirror image offers

            2. Acceptance of offers under common law

              1. An offer says (or implies) how one can accept it

              2. If no specific means is requested than the Offeree can use a means that is reasonable under all circumstances

                1. Words ‘"should be accepted" leave the door open to acceptance by other means (such as performance)

              3. Common law only: Fact that one or more terms of a offer are left open may show that the manifestation of intention is not intended to be understood as an offer or an as acceptance.

              4. Mailbox rule of acceptance of Adams v. Lindsell

                1. Acceptances are effective on dispatch

                2. note: exercise of options are effective upon receipt

                3. letter must be property address and by appropriate conveyance

                4. even if an acceptance is mis-addressed, it will nonetheless be treated as effective on dispatch if it arrived within the time a properly addressed letter would have arrived

                5. if the acceptance is sent by an improper method, but gets there on time, it is still good

                6. if the letter is lost, the acceptance is still effective

                7. an countering acceptance is effective it arrives first

                8. the offeror loses power to revoke after a property dispatched acceptance

                9. If there is an acceptance, the acceptance is effective unless a rejection gets there first and offeror detrimentally relies on the rejection

                10. European approach: communications are effective upon receipt, and every offer is an option

          3. Rejection -- effective on receipt

            1. effective on receipt

            2. common law: a countering rejection is effective it arrives first

              1. if there is a later acceptance, it is effective if it arrives first

            3. rejection becomes more effective due to promissory estoppel

            4. restatements: rejection or counteroffer by mail does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter of acceptance started after the sending of an otherwise effective rejection is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer

 

              1. European approach: communications are effective upon receipt, and every offer is an option

          1. Deviant acceptances

            1. counteroffers are never acceptances (and hence, no contract) under the common law

              1. "mere inquiries" are not counteroffers under common law

              2. some courts (and the Uniform Commercial Code) find that additions of other terms constitute acceptances plus inquiries

              3. under common law, demanding an acknowledgement constituted a counteroffer

              4. Common law: Fact that one or more terms of a bargain are left open may show that the manifestation of intention is not intended to be understood as an offer or an as acceptance.

            2. Background to acceptance by performance (note, in some cases where the offers says "should" performance may be an alternative means of assent.)

              1. since the Offeree can stop performance at any time, he is not entitled to any protection

              2. when performance begins a bilateral contract is formed

              3. when tender begins a option contract is formed

                1. tender is defined as a manifest present ability to perform

            3. Common law

              1. Common law "last shot rule of common-law:" last document on the table before performance is the document which constitutes the contract

              2. Some courts are looking to restatements which seem to apply a Uniform Commercial Code-style view of deviant acceptances (minority)

            4. Uniform Commercial Code §2-207

              1. Telephone conversations: When one has phone conversation, and reaches a bargain, it acts as a sort of "mandatory acceptance offer" that must be papered (email, fax, etc.) (to satisfy the Statute of Frauds) – the confirm acts as an acceptance, which is governed under Uniform Commercial Code §2-207 (if there are deviant or additional terms)

              2. If there is no delivery, it is a counteroffer

              3. Acceptances that are definite and seasonable but slightly deviant, and are not limited by "limits to the terms of the offer" and notification of objection has not been given a in a reasonable time become part of the contract --

                1. If one party is a non-merchant, and there are immaterial deviations, than the offerora's terms apply

                2. If both parties are merchants, and there are immaterial deviations than the offeree's terms apply

              4. If there are material deviations, If the parties performed, Terms of implied contract are based on knock-out rule

                1. Some courts say that gap-fillers should fill in the knocked-out terms

                2. Some courts say that no terms should be in the knocked out terms

          2. Ways that an acceptance becomes voidable (must be plead)

            1. duty-to-read: makes the offeror assume that the signatory has accepted it.

            2. exceptions to duty to read Adhesion Contract and unconscionable contracts are voidable or terms will make it voidable if it violates public policy (clause is void as a matter of law) if:

              1. on the theory that there was not "true assent to a particular term"

              2. In contracts of adhesion, the Consumer agrees to all reasonable terms and can avoid unreasonable terms

                1. Exclusion of warranties: Reasonable person terms: bizarre or oppressive it "eviscerates the non-standard terms explicitly agreed to, or eliminates the dominant purpose of the transaction"

                2. Disclaiming a warranty places the risk of mistake either between the parties, or on the other party

                3. Note: under some logic, warranties are implied by the price -- as a certain price implies a certain subject matter. Can claim that by a given price there is an implied warranty.

                4. Policy issues about the courts redefining what a given product is

                5. Exculpatory contracts cannot exclude tort liability for everything—must be very specific in nature, and not completely exculpate for all negligence

                6. Some courts have held exculpatory contracts (placing "risk of negligence" on another party to be valid, if there is no policy reason why it should not be -- and it isn't a contract adhesion

                7. inconspicuous risk shifters will generally not be honored by the court.

                8. Disclaimers of warranties do not have to be in writing, but if they are, they must be conspicuous

                9. Disclaiming warranties under the UCC must be conspicuous and in writing.

                10. Contracts to indemnify can be valid if they are not of adhesion and they are bargained for

                11. If there was "extra coverage for extra price" clause courts give greater weight to enforcing it, and Some courts refuse to enforce on the grounds that it is not reasonable

                12. Economic losses that arise out of commercial transaction, except those involving personal injury or damage to there property are not recoverable, under the tort theories of negligence or strict product liability.

                13. Statutory limits in NY where liability cannot be limited: Elevator negligence and Refrigerator maintenance

                14. Courts do not like awarding tort damages, because of the conflict with warranties. But they will award tort damages under products liability doctrines. To allow tort liability would emasculate the warranty provisions parts of the Uniform Commercial Code. Limiting the application of strict products liability to consumers action or actions involving personal injury will allow the Uniform Commercial Code to satisfy the needs of the commercial sector and still protect the legitimate expectations of consumers.

                15. Plain language requirement: some jurisdictions deem an unintelligible contract unenforceable, some rescind it, plus give nominal punitive damages

                16. if the writer of the contract knows that that person would not have normally have assented to a term, than such term is unenforceable

              3. form contracts: if an industry standard develops, whereby products are known by certain warranties and declaimers, it is assumed that the signer does know of these declaimers

                1. Where party to an agreement signs or otherwise manifests assent to a writing, and has reason to believe that like writing are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing

                2. Restatements presume, that wherever reasonable, parties are treated alike if they are similarly situated, without regard to their knowledge or understanding of the standard terms of the writing

                3. Form contracts might just be the creation of new products, which include or omit warranties

              4. no "opportunity to read": in order to have a duty to read, must be aware that a contractual event is taking place

                1. If someone signs something that they are not aware is a contract, they may not be responsible for it (see contracts of adhesion)

                2. A factor to be considered in taking into account the "reasonable man approach to an contract of adhesion" is whether the party actually had an opportunity to read the contract

                3. Alternative position is that there is no duty to tell people that contractual stuff is happening

                4. Renewals become a complication as a reasonable person might expect the terms to stay the same

            3. Absent meaningful assent, there are alternative forms of legal relationships that can happen by means of implied contracts: e.g.

              1. Bailments: The transfer of possession of something (by the bailor) to another person (called the bailee) for some temporary purpos

              2. Trusts: Property given by a person called the donor or settlor, to a trustee, for the benefit of another person (the beneficiary or donee). The trustee manages and administers the property, actual ownership is shared between the trustee and the beneficiary and all the profits go to the beneficiary.

          3. Even with a meaningful assent, the offer and acceptance can be voidable due to unconscionability can also be handled at law, equity, but not with a jury, but there must be other elements than just superior bargaining power

            1. Substantive Unconscionability (oppression) is defined as an agreement that no sane person would enter and no honest person would propose

              1. Roman law had a doctrine of leseo enormous, American law does not -- Uniform Commercial Code §2-302 (Unconscionability) should always be read with §1-203 (good faith)

              2. UCC (has entered the general law of contracts): the court, as a matter of law can find the contract or any clause of the contract to have been unconscionable at the time it was made, the court may refuse to enforce the contract, or it may enforce the remainder of the contract, without the unconscionable clause, or it may so limit the application of any unconscionable clause to avoid an unconscionable result

              3. Uniform consumer sales practices act sort of combines the features of the UCC:

                1. consumer ignorance,

                2. high price

                3. consumer couldn’t get a benefit

                4. no reasonable probability of payment of the obligation

                5. transaction he induced the consumer to enter was excessively one-sided

                6. made a misleading statement of opinion on which the consumer relied

              4. Parities should be able to present the court with evidence as to its commercial setting as to why it was okay

              5. Termination "for any reason" might not mean unconscionability (seems procedural, but could evaluate the value of this option) -- but it could render the contract illusory if both sides can terminate for any reason

              6. Nominal liquidated damages clauses

                1. (Courts differ: Some would view a nominal Liquidated Damages Clause as a "reasonable estimate of damages and might enforce the Liquidated Damages Clause as a reasonable estimate of damages to the promisee ,

              7. Option contracts

                1. Unconscionability is judged only in terms of the underlyer of an option contract when it was entered

            2. Procedural Unconscionability (surprise) is defined as (e.g. parties do not speak English)

              1. Contract can be violable when "due to a prodigious amount o bargaining power on behalf of the strong party, which is used to the stronger party's advantage and is unknown to the lesser party, the contract provision, or the contact as a whole, if the provision is not separate should not be enforceable on the grounds that the provision is contract to public policy. The party seeking to enforce such a contract has the burden of showing that the provision were explained to the other party and came to his knowledge and there was a real and voluntary meeting of the minds not merely an objective meeting.

 

              1. When victim is under domination of other party

              2. Fiduciary responsibility: when the victim is justified in assuming that the other party will not jeopardize the victim's welfare

              3. Improper persuasion used: When one party seriously impaired the free exercise of judgment by the victim

                1. Examples of common features are unfair exchange, Unavailability of independent advice given to the victim before assenting to contract, Lack of time for reflection by the victim before assenting to the agreement, High degree of susceptibility to suggestion

                2. Might be unconscionable, if one party is aware that the other didn't understand it -- even if explained. It must be show that "the provisions were explained to the other party and came to a real and voluntary meeting of the minds and not just an objective meeting

                3. Remedy is restitution

              4. Note: Procedural Unconscionability does not require that the contract be unfair to the weaker party

            1. Fraud (duress) in the acceptance or modification or consideration

              1. Fraud and misrepresentation: Can avoid contract because the deal was obtained through fraud in the inducement – one wants to unwind the contract. (see remedies)

                1. Times when witholding information constitutes fraud rendering the contract voidable

                2. in general, it is caveat emptor

                3. some statutes relate to disclosure

                4. warranties of merchantability are implied -- for instance by price, or by appearance -- and that a given price assumes that the offeree will know something about it

                5. positive action to conceal constitutes fraud and makes a contract voidable

                6. a supervening action made something true -- if one knows the other is relying on it -- of course, under the UCC warranties cover this issue

                7. surretyship and insurance have broad duties of disclosure

                8. fiduciary relationships have broad duties of disclosure

                9. If there is a fiduciary relationship between the parties, courts are more likely to avoid a qualitative mistake in judgment

                10. as such a transaction must be fair (and fiduciaries have a relationship to act as if they were the person they are representing)

                11. there is probably an objective test as to whether one exercised a fiduciary duty -- did he act as another reasonable person did, evaluating the purchase as if it was his own

              2. Duress -a contract is voidable on grounds of duress is forced to agree to it by means of a wrongful threat (in extreme cases of needful goods)

                1. Example of needful goods often included things such as violence to there person, withholding utilities

                2. Duress exists only when one deprives another of free will -- one can sue in equity for specific performance

                3. Withholding goods that belong to someone could be considered a crime, If the goods already belong to that party

                4. If the wrongful threat precluded the exercise of free will

                5. In common law was that the will could be overborne only by the threat of physical force

                1. The only force that qualifies to get you out of the contract is the threat of physical force

                2. And ideally the commission of a crime

                3. The threat of physical force, is the crime of "ressault" (?)

                4. later this expands to being threaten with a tort --

                5. torts can include interference with other business relationships (ie money due from other parties)

                6. defamation is not criminally unlawful, but it is civilly unlawful

                7. threatens with a breach -- usually doesn't count as duress

                8. since most goods can be obtained elsewhere -- goods that are not are "needful goods:"

                9. obsolete doctrine of "duress of goods" -- have you are stuff, but I won’t give it back

                10. Courts said that duress of goods might qualify for duress -- in the case of needful goods

                11. The existence of economic duress or business compulsion is demonstrated by proof that immediate possession of needful goods is threatened

                12. Note: that outside Delaware and states with quick procedures for settling procedures, goods quickly become needful

            2. Mistake can warrant voiding or modifying contracts

              1. Miscommunication: we look at what a reasonable person would have understood and that the other party would have understood him to being doing, we look at the state of mind of the victim because of they delivered (the "shoes analysis" – as in what would the czar of the universe think.)

                1. Court will let someone testify about their subjective state of mind, so long as we make clear to the jury that we do not care about it -- such testimony may explain certain behavior, which caused the other party to think that there was a contract (if the Plaintiff was being reasonable in assuming what he assumed)

                2. risk of operational loss due to problems in transmission are usually upon the party that chose the means of transmission

                1. the common carrier or means of transmission can be sued

              2. Mutual Mistake: in the case of mutual mistake, there is no meeting of the minds, and no contract -- remedy is rescission (can be dealt with as an implied warranty)

                1. Misunderstanding Doctrine If one party known that there are different understandings of material terms, but doesn’t say so – a contract formed on the basis of what the "uninformed party" thought the contract was about -- restitution can be remedy for this -- One can argue that the mistake was in the subject matter being sold

                2. Some suggest that it is better for a court to allocate the risk of loss to the party that can take it best -- the offeree can more cheaply rectify the error, for instance in a bidding situation

                3. Misunderstanding as to subject matter: if the parties misunderstood what type of product was for sale, it is a mutual mistake -- if they thought they were getting something different it is a mutual mistake -- not just misunderstanding the value - risk of loss due to mistake can be contractually assumed by a party, especially when most contracts are made with some uncertainty

                4. Remedy for mutual mistake

                1. the parties do not have to go through with the contract at all -- and hence no contract.

              3. Unilateral mistake

                1. A party is not privileged to "snap-up" an offer which he knows to be the product of a mistake. Note: typos of quantity, under the UCC are enforceable (as opposed to the real amount).

                2. If one of the parties is completely incompetent vis-à-vis the subject matter, some courts have ruled that ignorance of market practice is a defense

                3. typos of quantity, under the Uniform Commercial Code are enforceable (as opposed to the real amount)

                4. Mistakes must be handled a reasonable time after discovery

                5. Mistaken party must show either that enforcement would be unconscionable or the non-mistaken party had either reason to know of the mistake or caused the mistake

                6. Remedies for unilateral mistake

                1. Equity will not be used if one party entered to contract under a material mistake, and the enforcement would be harsh

                2. Reformation won't be granted if a contract, based on a mistake is entered into, and performed

                3. Right to correct mistakes dependent on the other party not relying upon it

        1. Contracts implied in law and Constructive Conditions are not real, they are just device for doing justice 7)e)iii)(11) below

          1. Contract terms implied in law

            1. Judges can imply terms and conditions in a contract that are not stated

            2. Generally, conditions implied in law only have to be substantially performed

            3. Under the Uniform Commercial Code terms are implied

              1. Uniform Commercial Code §2-309 and 2-306 function as gap-fillers for ambiguous terms (reasonable time, and time of delivery). -- Note: gap fillers used only when physically necessary

                1. Common law is more skeptical: Terms of a contract are reasonably certain, if they provide a basis for a breach – and an appropriate remedy

                2. If delivery point is not specified, assumed to be sellers.

            4. These are quasi-contracts such as "give me my money back"

              1. This is another name for what we have been calling restitution

              2. when one person has gotten a benefit (we do not care from where) that in all justice should have been given to another – a quasi-contract will give it to the right person

                1. this is broader than restitution – restitution is usually for restitution from a specific someone

                2. example: quantum meruit or quantum walabat for services that were done and agreed to without constructing a contract or deciding on a price

            5. items implied at law into a contract can be discharged by frustration

      1. Mutuality: A bilateral contract is enforceable or binding, if at any point in time during its tenure, it is binding. Is defined as "something that distinguishes one in terms of rights or duties, from the rest of the universe."

        1. Statute of Frauds requirements for enforceability (unless acted upon)

          1. Marriage, deal cannot possibly be performed within a year, Land, Executor's Promises, and Goods at or over $500 or contracts for SuretyShip

            1. A lease that can be performed within a year does not have to be in writing

            2. It is for intangibles over $5000

          2. Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the statute of frauds unless written notice of objection to its contents is given within 10 days after it is received.

          3. Note: receipt and acceptance (with no writing) constitute taking the contract outside of the statute of frauds.

            1. If there is full performance, the statute is waived, or if the seller pays all or part of the purchase price and performs some act explainable only by the contract's existence

              1. Hence, specially manufactured goods take the transaction outside the statute of frauds (if they begin to produce)

            2. This is a way out of promissory estoppel

          4. The statute of frauds can be satisfied by writing that were never effective, or intended to be as an "integration of the agreement" -- i.e. signed memorandum, a will, a written and signed offer.

            1. The memorandum need only be signed by the party to be charged -- and can be supplied at any time prior to the action brought upon the contract (in some states prior to the trial.)

            2. Statute of Frauds is based on a memorandum by the party to be charged -- Parole evidence rule doesn’t require this

 

          1. Statute of frauds must be plead as a defense, if not it is waived.

            1. If one part of the agreement is covered under the statute of frauds, and is rendered unenforceable, in most states the entire agreement is rendered unenforceable

            2. Some courts have held that non-compliance with the statute of frauds renders a contract VOID

            3. Exceptions to the statue of frauds (where things are binding), but not in writing

              1. Under the UCC §2-201, part performance takes the issue away from the statute of frauds

              2. Delivery

              3. Admission of the contract

        1. There must be a state of the world, in which the parties are bound. A requirement simply giving "notice" to cancel (without a number of days notice) does not bind someone

          1. Something is enforceable if there is less than 100% of the time when either side can cancel

          2. Something is enforceable if there is some potential state of the world in which the parties would be bound (even if one party control this state)

          3. Equity might be the only way out: If one cancels in a contract that can be canceled at all times, they might have to resort to quantum meruit or quantum walabat

            1. In some cases the relationship between the two may preclude quantum meruit as both parties received the benefit from the work, and the person doing the work would have done it anyway

        2. A contract is not binding, if it a condition precedent to the contract does not place any obligation on either of the parties e.g. no mutuality of sale of store depends on seller renegotiating lease

          1. Pre-existing legal duties are generally not enforceable

          2. Agreements to agree are not enforceable

            1. Uniform Commercial Code: More things left open, the less the parties wanted be bound

              1. Common law: Terms of a contract are reasonably certain, if they provide a basis for a breach – and an appropriate remedy

            2. Letters of intent

              1. An agreement that is "subject to" a later agreement, is evidence of an intent not to be bound

                1. Exception: "lets put in writing" constitutes a contract TO make a writing. Hence, when parties to an oral contract contemplate a subsequent reducing of it to a writing as a matter of convenience, and prudence and not as a condition precedent, it is binding on them though their intent to formally express the agreement in writing was never carried out."

              2. Red Owl View: If a party begins negotiations, Promissory estoppel will provide for damages if they are in bad faith.

          3. Things that look illusory, but are not

            1. Input Contracts or Output contracts are not illusory -- and must be upheld, as all other contracts (even if they become losing contracts)

              1. But amounts demanded have to have in parity with either estimates or prior demands

            2. best efforts clause are not illusory

              1. "best efforts to find a mortgage" is not illusory (exception)

                1. If one of these pre-contract deals falls through, there needs to be a release saying that the first contract is at an end

                2. Uniform Commercial Code implies good faith

                1. Note: arbitrary cancellation that are according to the contract are not illusory

            3. A contract is still binding, if the condition subsequent or precedent is more or less discretionary – e.g. "contract for satisfaction" are binding.

              1. Satisfaction is balanced by requirement that the test be "reasonable" -- otherwise there is a bad faith clause

              2. "Reasonable person standard" is used for commerical goods, and good faith is assumed when aethetics are involved

            4. Parties may enter into a contract, which leave a term to be decided later (as good faith is implied).

              1. I.e. Uniform Commercial Code if the price was to be determined by agreement, the count could still fill in the reasonable price

                1. Good faith implies faithfulness to a common goal. Bad faith involves people violating common standards of decency

                2. Types of bad faith recognized: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of power to specify terms, and interference with or failure to cooperate with the other party's performance

      1. Consideration required, although it doesn’t need to be the sole inducement but it must play some role or other. If there is not consideration of some sort, the contract become illusory.

        1. Theories of consideration

          1. Benefit/Determent theory -- Contract is supported by consideration if

            1. Promisee either acts or promises to act in exchange for the promisor’s promise

            2. The promisee’s act or promised act is either a legal determent to the promisee or a legal benefit to the promisor

              1. "Consideration has to alter the rights and obligations and the wealth of the person giving it"

                1. must be bargained for -- so something that someone would have done anyway, usually would not be considered consideration

              2. note: A promise to make a gift (or a payment) for an unspecified amount, renders promise illusory.

          2. Bargain theory (restatements)

            1. Performance, or return promise must be bargained for

              1. Consideration of sham or petty amounts suspect

              2. A promise of money for money that is clearly unconscionable as it was clearly a nominal amount . Note: nominally and Unconscionability is judged at time of enforcement

                1. note: the 1st Restatement, seem much more palatable towards nominal consideration. 2nd hates it.

                2. In practice, nominal consideration doesn’t have to be exchanged

            2. Expenses incurred in accepting a gift do not constitute consideration

            3. It must be sought by the promisor in exchange for his or her promise and

            4. It also must be given by the promisee in exchange for that promise

            5. A promise to make a gift (or a payment) for an unspecified amount, renders promise illusory.

          3. The benefit/detriment theory and the Bargain theory might conflict if there was determinants to one side, to the benefit of another side, based on something that was not given in exchange for performance

            1. Some courts have held that both are true in that there needs to be a benefit and detriment that was bargained for rather than simply given "in exchange" as per the earlier Benefit/Determinant theory

        2. Necessary characteristics of consideration

          1. Consideration of sham nominal amounts are suspect

            1. A promise of money for money that is clearly unconscionable as it was clearly a nominal amount . Note: nominally and Unconscionability is judged at time of enforcement

              1. note: the 1st Restatement, seem much more palatable towards nominal consideration. 2nd hates it.

            2. Courts generally won’t judge the adequacy of consideration, but they will judge the whether it is indeed nominal or unconscionable of consideration

              1. Speculation and investment do not constitute nominal contracts!

              2. Gross overcharging will not be unconscionable unless some other factor of fraud are present

              3. Exception: In equity: courts require that specific performance for real estate have fair consideration (and will judge fairness of consideration)

          2. Consideration can, obviously be the forbearance of a right (something that sets one apart from everyone else in the world)--- Forbearance (not to sue) based on a claim that later turns out to be invalid is considered valid consideration if

            1. Claim or defense is in doubtful because of uncertainties as to the facts of law

            2. The forbearing or surrounding party believes that the claim or defense may be fairly determined to be invalid

            3. Note: consideration that later that is illegal in the first place does not constitute valid consideration

            4. The fact that a rule of law renders a promise voidable or unenforceable does not prevent it from being consideration.

          3. Consideration can be a third party determining when the contract is fulfilled -- check this!

          4. Consideration must be exchanged after the contract is formed – promises grounded in the past are not supported by consideration.

            1. The problem with past consideration is that it breaches the problem of simultaneity

              1. When all or part of the performances to be exchanged under an exchange of promses, they are due simultaneously, unless otherwise noted

              2. When all or part of the performances are to be exchanged under an exchage of promises are due simultaneously, it is a condition of each party's duties to render such performance tht the other party either render or, with manifested present abuility to do so, offer performance of his part of the simultaneous exchange.

            2. Rare Exception: accounted to some courts, some contracts grounded on "perfect moral obligation" are binding

              1. Actions against the estate of a promisor (of a gift) can be biding if all of these criteria are satisfied

                1. Promisor received a material benefit during his lifetime which motivated the subsequent promise

                2. Promisor thereafter commenced performance according to the terms of his promise

                3. Promisor died without ever evidencing an intention to repudiate the promise

                4. There were no superior moral claimants to the benefits of his estate

              2. Restatement view

                1. Old view

                2. Restatement doesn’t distinguish between benefits requested by the promisor and those that aren’t

                3. Nothing is binding if it is a gift

                4. Nothing is enforceable if its value is disproportionate to its benefit (sic)

                5. Receipt of an unrequested material benefit, followed by the receiver’s promise to pay for the benefit, is enforceable without consider, but only to the extent necessary to the prevent injustice

                6. Modern Restatement’s view is that some gratuitous promises are enforceable if: §90 (note, only two states have adopted §90.2)

                7. The promissor made a promise which, although gratuitous was the time of promise that might foreseeable induce the promisee to rely or to take some action based thereon

                8. There promisee did, in fact rely thereon, and his reliance was reasonable under the circumstances

                9. As a result of such reliance the promisee has suffered a substantial economic determinant

                10. Injustice can be avoided only by enforcing the promise

              3. Summary

                1. There is no longer a requirement that the action or forbearance by the promisee be of a "definite and substantial character"

                2. Faced with a patter of detrimental reliance a court is free to limit the remedy "as justice requires."

            3. Permanent Employment contracts must have separate consideration from employee to employer -- otherwise they are employment at will

 

              1. Employees at will’s acceptance of procedures in the handbook can be indicated by continuing to work

                1. This fudges the line between bilateral executory and unilateral

                2. Exception: employee handbooks (no matter what disclaimers) can be grounds for Promissory estoppel if people rely on them and do not do things

                3. Employment-at-will contracts can generally be terminated without cause because there is no consideration:

                1. exception employees-at-will cannot be terminated for doing things they were legally required to do (or whistle-blowers)

                2. especially if they are being asked to commit illegal activities

                3. Exception: a loony court in Illinois held that someone with an employment at will contract could be terminated for filing an insurance claim because the relationship between the insurance company at the employer is "one of private and individual grievance rather than one affecting our society"

          1. Equity: Meritorious Consideration -- Equity courts are more fussy about consideration – being skeptical of things that look like gifts

            1. Seal has no bearing in equity

            2. Exception is a trust

            3. Another exception is where donor attempts to give gift, but due to impossibility fails, and he dies in ignorance of this)

        1. Seal can be substituted for consideration

          1. Contracts made under seal are enforceable

            1. It is evidence that there is an agreement, and that they took the agreement seriously

            2. It performs a cautionary and channeling function

          2. Some version of the seal means that ½ of all states have abolished the seal and replaced it with General Obligation law

            1. In the General Obligation law, there is a statue which says that promisees in writing are enforceable – all one has to do is put it in writing – a promise to make a gift is enforceable, if the promisor puts it in writing

          3. charitable subscriptions to eleemosynary institution can often be taken as having consideration because "perpetuating the name of the founder may be sufficient consideration" also known as "the consideration of others’

            1. charitable pledges can be assigned to others

            2. consideration can be framed "in exchange for your good work" and since one continues doing "good work"

              1. dissent is that charitable institutions do not change their position as a result of pledges

          4. seal is not enforceable in equity

      1. as an alternative to consideration (not a replacement) Promissory Estoppel not a contract theory (stops a party from denying reasonable obligations foreseeable resulting from reliance on his or her promise, and stops a party from being able to deny liability on the technical ground that there was no bargained for exchanged, resulted upon the acceptance of an offer.)

        1. Some courts treat Promissory estoppel as a tort

        2. In Promissory estoppel , the court has discretion as to which type of damages to give -- to avoid injustice

          1. Reliance

          2. Expectancy

        3. A relied upon donative promise can be enforced in certain categories, even though reliance was not necessarily the stated basis for enforcement of the promise

          1. Usually protects the reliance interests

          2. Reliance must be reasonable

        4. Criteria for promissory estoppel (2nd restatement)

          1. In making the promise, the promisor should reasonably expect to induce action or forbearance on the part of the promisee

            1. E.g.: promise in employee handbooks

          2. The promise does in fact induce foreseeable action of forbearance by the promisee

          3. Injustice can be avoided only by enforcement of the promise

        5. Examples where promissory estoppel could be later employed -- if injustice could later be employed by enforcement of the promise

          1. Promise to make a gift

          2. Red Owl View: If a party begins negotiations, Promissory estoppel will provide for damages if they are in bad faith.

          3. E.g. promise to make loan to support contract

          4. Charitable subscriptions

            1. Must be in writing

            2. Note: charitable subscriptions to eleemosynary institution can often be taken as having consideration because "perpetuating the name of the founder may be sufficient consideration" also known as "the consideration of others’

          5. Gratuitous bailments and agencies

            1. Promises to act in the name of another to procure or maintain something

          6. Offers by subcontractors, where a contractor factors the offer into an estimate for his own master-bid

          7. Promises to pay unenforceable debts can be enforceable without promissory estoppel or consideration

          8. Promise of a job

            1. If an employer promises an "at will’ job to an employee, and cancels it before one shows up – e.g. if one quits another job

            2. Promissory estoppel is, in general, will not overwhelm a Statute of Frauds defense to enforceability – too easy for an employee to claim that.

              1. Statute of Frauds speaks to the employer’s behavior, not the employee’s reliance, and part performance (on the part of the employee) does not make the doctrine of Promissory estoppel overrule the Statute of Frauds

            3. Promissory estoppel is not valid if for non-specific detriments paid to others that the employer isn’t aware of in accepting job (basic cost of acceptance)

          9. Sub-agreements to a master agreement, where one party (rightfully) offers a party a product, with acceptance based on silent acceptance, and doesn’t delivery

          10. Negotiations in bad faith (bate and switch)

    1. Unilateral contracts

      1. Valid consideration must be sought by the promissor and undertaken by the promisee in exchange for the promise made in the offer

        1. Some courts have held when deal with public corporations, the offeree need not know of the offer

      2. Becomes executed when Offeree KNOWS of offer, and acts properly on it.

        1. An option contract is created when Offeree begins performance of the offer

      3. Types of activities involved

        1. Creation, modification, or destruction of a legal relationship

        2. Forbearance (see 2)a)iii)(2)(b) above on page *)

      4. Offerer believes that the promise will induce the act – difficult to get people to agree

    2. Gifts

      1. An incomplete gift is not a contract

        1. One can make a gift, and the other side is a transfer

        2. At that point, we are back in replevin or restitution

          1. Replevin is a remedy at law -- for goods that should be returned to the correct owner

        3. Until you actually transfer the gift it isn’t a gift

      2. Exception: under promissory estoppel a written promise of a gift to a charity is enforceable

      3. In contrast to civil law where courts will enforce promises to give gifts

  1. Contractual duties

    1. Constructive Conditions (implied in law): Conditions implied at law into a contract can be discharged by frustration

      1. Exclusivity

      2. Good faith

      3. Trade usage can imply that something is a concurrent, independent, etc.

        1. Courts assume that if two promises are due simultaneously, then it is a condition of each parties duties that the other offer or perform theirs (aka: condition dependant)

      4. courts decline to recognize common-law marriage as a basis for implied in law contract

      5. New rule CONTRACTS ARE DIVISIABLE seems to be that at the seller's option, unless otherwise stated, he can demand the price, if apportionable

        1. A contract is divisible if the court can regard the agreed pairs of performances as agreed equivalents, and can apportion the performances

        2. Creation of agreed equivalents A material breach will excuse the other party from subsequent installments. If apportionment into pairs of performances is possible, than the contract can be treated like a series of pairs of contracts hence, can’t breach under one contract to excuse performance under another

    2. Promises or Covenants (under restatement presume a covenant)

      1. Mansfields covenant categories

        1. Mutual and independent -- two unilateral contracts

          1. Either party may recover damages from the other for the injury he may have receive d by a breach of the covenants in his favor, and where it is no excuse for the defendant to allege a breach of the covenants of the part of the plaintiff

        2. Conditions dependant

          1. There are covenants which are conditions and dependant, in which the performance of one depends on the prior performance of another, and, therefore, till their prior condition is performed, the other party is not liable to an action on his covenant.

          2. Once one obligation occurs, than the counterparty's obligation starts

          3. Determining the divisibility of a contract -- look to party's intentions

            1. Old rule (uniform sales act) Completion of a long-term performance is implied to be a condition precedent to a duty to render a single-act performance this is what is known as an ENTIRE CONTRACT

            2. New rule CONTRACTS ARE DIVISIABLE seems to be that at the seller's option, unless otherwise stated, he can demand the price, if apportionable

        3. Mutual concurrent -- to be performed at the same time

          1. If one party was ready and offer to perform, and the other neglected, he may maintain an action for the default of the other

            1. General rule is that in order to entitle a part to recover damages for the breach of an mutually concurrent condition he must show performance or tender of performance for his part. They must show in some way that the other party is in default in order to maintain the action, or that performance of tender has been waived. (waiver)

            2. Showing that a party thought the counterparty would breach is not enough

          2. Modern rules

            1. If one party has disabled himself, or it is impractical for him to perform, the counterparty (victim) doesn't need to present or make tender

              1. To recover damages the victim must show that he was ready, willing and able to perform

            2. General rule: The breacher must demand pay performance from the other party

          3. Must show that performance is possible before bringing suit

            1. Anticipatory repudiation is an definite and unequivocal manifestation of an intention on the part of the repudiator that he will not render the promised performance when the time fixed for it in the contract arrives.

              1. If performance is possible and there is still repudiation, then the victim has the option of election or action -- he can restort to any remedy for breach in 2-703 or 2-711

              2. Anticipatory repudiation can be retracted, up until the actions based on the breach, or notice that the repudiation is final have begun

                1. Impossibility: courts are split as to whether impossibility will revoke anticipatory repudiation

 

          1. Curable problems with the product (title) do not place the vendor in default -- this goes to damages

            1. This would allow vendees to take advantage of small defects in title

            2. Courts may not enforce a contract in equity, if there is a defect in the title if the aggrieved party knew of the defect (or possible defect) in the title (on the grounds of assumption of risk.)

            3. Reasonable time is given to cure defect (if offered)-- and the defect must be specified

              1. Seems to be an exception for a dangerously defective car where restitution is given

          2. In practice Liquidated Damages Clauses deal with the problems of people not delivering

    1. Express (true) condition (implied in fact) -- not necessarily spelled out in so many words but is "gathered from the terms of the contract" -- and a covenant, by nature of implied good faith can become a condition

      1. Condition precedent -- can reach into equity, and the court may imply that a condition is a condition precedent -- courts fear forfeiture unless expressed on contract or within the obligee’s control

        1. Burden of proof on Plaintiff

        2. Definition: a condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due

          1. Holmes – one can manipulate things by saying that the conditions are precedent or subsequent to something else

          2. A promise to pay a 3rd party "when" moneys are received becomes an implied condition precedent -- the event that makes the obligation to pay has not ripened into an obligation

            1. Such a condition would be valid, if the debt had been acknowledged and the only question on the pass-through related to ‘when’ the moneys were received

            2. The existence of the condition is no material part of the exchange for the promissor’s performance and the discharge of the promisor would operate as forfeiture.

            3. (when, after, etc.) are the same as "if"

        3. Implications that courts may make

          1. Courts may imply that a condition is a condition precedent

          2. Imply a duty at law to make a condition precedent happen (unless disclaimed)

            1. There is a debate in law as to how far an obligor has to go to see that the condition happens

            2. There could be grounds for estoppel, if the court finds that something was represented incorrectly as a given, yet was really a Condition precedent

          3. Court may imply a duty to see that certain things are going to happen

        4. Plaintiff have to prove condition precedent was fulfilled

          1. A condition precedent can be based on an agreement to pay if the counterparty gets paid – especially if it can be implied or is expressed that the money comes from a particular cashflow.

        5. There can be an equitable nature of conditions, one is deprived of all benefits by failing to fulfill part of the conditions

        6. Fulfillment of conditions

          1. if an obligation by a promissor depends on a condition within the control of the promissor, than the promissor can’t hinder or stop the maturing of the condition

          2. The promissor has to exercise some sort of care to make the condition happen (good faith)

          3. Since the courts fear forfeiture, substantial performance of a condition does not necessarily relive the counterparty of obligations. In some jurisdictions, especially in insurance, the burden to show the harm that was done by the partial performance is on the victim, in others it is on the breacher.

            1. Some courts (including New York), say that doctrine of substantial performance ordinarily is not applicable to excuse the nonoccurrence of an express condition at least where plaintiff has conferred no benefit upon defendant -- so in construction, the spurned construction company may be bore apt to get the condition excused, because the victim gets benefit, but in delivery og goods ther is the possibility of reselling

            2. If the parties agree that "time is of the essence," a party may be in breach by not delivering on time.

            3. Substantial performance is judged by the good faith test -- even in the case of corruption (can take into account a balance of equities). A willful transgressor might be able to get Quantum Meruit

          4. Cy pres -- in trusts

            1. If there is a direction in a trust, and the direction is impossible, the trustee supposed to get as close as possible to the settlor’s intentions

            2. If a party comes close to performing it, it may be acepted

          5. Conditions may be excused, if the person goes insane, and in some cases judges will modify them

          6. Showing impracticability under the UCC, the burdon of proof is on the seller

      2. Condition Concurrent

        1. When all or part of the performances are to be exchanged under an exchage of promises are due simultaneously, it is a condition of each party's duties to render such performance tht the other party either render or, with manifested present abuility to do so, offer performance of his part of the simultaneous exchange.

        2. We assume that if the parties are silent, the promices are mutaul

          1. This policy replaces the covenants of years back

        3. Conceivably they could sue each other

      3. Condition subsequent: Burden of proof on defendant

        1. a duty is discharged if a condition subsequent is met

        2. Defendant having to prove a condition subsequent -- ie showing that something is discharged

        3. E.g. if something says that a duty is "void" it can be taken as a discharge

        4. If fulfillment of a condition subsequent becomes impossible, the court may interpret it to change (e.g. a statute of limitations can be implied to vary based on surrounding circumstances) however, courts seem unwilling to replace excused conditions subsequent with reasonable time requirements

          1. If the impossibility of a condition subsequent was caused by an act of government (or other externalities), restitution of "equitable value" should be awarded (the premiums paid, minus any value that the insurance would have had.) (other view is to take a different value of the profit measured by the insurance company)

        5. If there is a "failure of the contract" (ie both sides do not deliver) they may still be subject to the 'home-brew statutes" of limitations in condition subsequent

  1. Parole evidence rule: if the parties intend that the writing embody their entire agreement then the parties may not bring in evidence outside their writing for determining what the terms of their agreement

    1. Exceptions to the Parole evidence rule -- things that can always be admitted

      1. Note: the parole evidence rule only applies to agreements between two or more parties -- not trusts or alternative forms of contracts

        1. Trusts: "every instrument in writing is to be interpreted, with a view to the material circumstances of the parties at the time of the execution, in the light of the pertinent facts, within their knowledge and in such manner as to give effect to the main end designed to be accomplished" (note: this involves a trust).

          1. Evidence is admissible to show a conditional delivery (or a delivery, which was, in fact, a bailment -- unless the terms of the integrated agreement contradict the terms of a bailment or conditional delivery,

      2. Evidence that a condition precedent to a contract is admissible. E.g. if a party agrees to attempt (in good faith) to find a contract to settle a debt, the agreement to settle the debt (even if Integrated) will be looked upon as being depending on the first contract.

      3. Evidence is admissible to show whether an agreement is illegal, fraudulent, lacking consideration other invalidating cause

        1. Consideration in option contracts Except in option contracts – court will not break the Parole evidence rule to show that consideration mentioned in an option contract was never received. Parole evidence rule and consideration

      4. Evidence about mistake is admissible

        1. If there is a merger clause, this might negate mistake

      5. Evidence is admissible to show grounds for granting or denying rescission, reformation, specific performance or other remedy (rescission is equitable remedy)

        1. Evidence is admissible that the facts establishing the contract is voidable in the first place (fraud)

        2. Evidence is admissible to contradict the preliminary language

        3. A majority of courts have found that waiver of a term at time of contract will break parole evidence rule

    2. Four basic rules of Parole evidence: Procedure of Parole evidence rule

      1. Rule number 1: Parole evidence rule is always judged as a matter of law

        1. Question of evidence that is admissible is for a judge to decide, and is freely reviewable on appeal

          1. (credibility of extrinsic evidence is for the trier of fact)

        2. States of integration

          1. Integration

            1. Finding integration

              1. Parties intend the agreement to be the complete statement of their total agreement

              2. An "integration clause" or merger clasue is only persuasive evidence of an intention to integrate

                1. Presence of a Merger clause will ordinarily resolve the issue of total integration

                2. Where the instrument is obviously incomplete on its face, and where the merger clause was included in the instrument as a result of fraud or mistake or for any reason that is sufficient to set aside a contract -- this will abrogate the merger clause itself (rather than the contract as a whole)

                3. Some courts have said that the merger clause must be agreed upon – differentiating between a "dickered" merger clause and a boilerplate

                4. Despite the existence of a merger clause parole evidence is admissible to show that the agreement is void or voidable or to show specific performance or other remedy

              3. If an agreement omits a consistent addition term which is agreed to for separate consideration, it is not completely integrated

              4. There is no need for signatures -- the statute of frauds can be satisfied by writing that were never effected or intend to be enforced

                1. A non-binding integrated agreement can discharge a term in an earlier agreement – that would have been part of the integrated agreement if it had not been integrated.

                2. E.g. of Restatement §213.3: A sells a house to B with a binding, written agreement specify the price, buy-back term, date of payment and property. A and B later agree to an oral, integrated, agreement for same (with consideration) that does not specifics a buy-back term, integrated written agreement, which specifics same (except for buy-back term). Hence, the buy-back term in the first agreement may be discharged as 1) the 2nd agreement, though non-binding is integrated and 2) the buy-term would have naturally been part of any agreement for sale of house (integrated or not.)

 

              1. D’ounch D’Heume v. US: "if it is not in the bank file, it doesn’t exist" – later codified

            1. Effect of integration

              1. Under the Uniform Commercial Code meanings of terms can be admitted even into totally integrated agreements

                1. Under UCC Court must admit (in this order (express terms, course of performance, course of dealing, and usage of trade.)

                2. Under Uniform Commercial Code meanings of terms can be admitted even into totally integrated agreements

                3. Written agreements "are to be read on the assumption that the course of prior dealings between the parties and the uses of trade, unless carefully negated were taken for granted when the document was phrased

                4. There is a question as to whether a single episode of performance is indicative of a course of performance, or whether he just waived his rights once (determined on a case-by-case basis)

                5. Behavior according to Previous contracts and usage of trade can be admitted

                6. Parole evidence rule doesn’t bar reformation of deeds (or some contracts)

              2. An integrated agreement discharges prior agreements to the extent that it is inconsistent with them -- note: agreement must be binding and valid (not voidable)

              3. A binding completely integrated agreement discharges prior agreements prior agreements to the extent that they are within their scope.

              4. In a completely integrated agreement, the Parole evidence rule will bar extrinsic evidence for the purpose of showing additional promises or agreements of the parties, even if that evidence would enable the court to avoiding having to supply a term.

                1. If the parties left a term out of their writing, knowing that a gap-filled would imply a term in it – parole evidence should not be admitted

                2. A binding integrated agreement discharges prior agreements prior agreements to the extent that it is inconsistent with them. note: agreement must be binding and valid (not voidable)

          1. Partial integration -- A least one term that is intended by the parties to be the final expression of agreement as to that term (parties agree to be bound)

            1. Finding partial integration

              1. Common law and Uniform Commercial Code tests for contradictoryness

                1. "Might naturally test" of restatements If a court determines that an agreement is partially integrated, evidence can be interdicted of "side agreements" that are contestant with the rest of the agreement as they "might naturally have been omitted from the writing."

                2. If it is something that probably would have been put into the writings, it probably can’t be introduced

                3. "To be inconsistent with the meaning of the partial integration, doctrine, the oral term must contradict an express provision in the writing"

              2. "Would Certainly test" of the Uniform Commercial Code: whether the proffered term is the type that would certainly have been included in the final agreement of the parties, had it, in fact, been agreed to." -- hence, if something would certainly have been included, it would be contradictory.

                1. Scholars say that there should be limits because errors might happen – and parole evidence might be needed to clean up after them – opponents say that Uniform Commercial Code could fill the gaps and that if the term were important enough, they would have included it.

            2. Effects of partial integration

              1. Evidence can be admitted for additional terms

              2. Could find hypothetical bargains -- somewhat different than gap-fillers

      1. Second rule -- outside evidence admitted only for language in the contract agreement on its face is ambiguous

        1. Consequence of this rule is that sometimes people may put language in contracts which is deliberately obscured to preserve competitive advantage against their competitors

      2. Third rule -- Courts will entertain outside evidence if a term of the agreement is ambiguous on its face

        1. Three positions to telling whether something is ambiguous

          1. Ambiguity on its face

            1. One is not allowed to introduce extrinsic evidence in order to establish that the term is ambiguous – in order to establish a latent ambiguity

            2. If it is difficult to determine whether a particular act by a part in the deals in the contract is a waiver or sheds light on the meaning of a term, the courts will assume that it is a waiver

          2. Some judge are willing to look at circumstances to tell whether the words is ambiguous

            1. This might be called the reasonably susceptible test

              1. I.e.: brought in parole evidence to show that United Kingdom was meant to include Ireland

            2. Theories

              1. Wiliston's view

                1. Judge should stay within "four corners" of agreement – and writing is the be all and end all

                2. If the writing expressly delares that it contrains the entire agreement of the parties in what is usually called a merger clause (adopted by Uniform Commercial Code)

                3. A merger clause does not prevent enforcement of a separate agreement supported by a separate consideration

              2. Modern Williston followers (Andews )

                1. Judge should attempt judge the whether the agreement is complete completeness of the agreement based not only on writings, on the surrounding circumstances

                2. Unless the judge found that the agreement incomplete, additional testimony wouldn’t be admitted

                3. Writing is the focus of attention, and the judge, by assuming the function of a reasonable person determine whether the writing did supersede all previous undertakings

            3. Additional terms can be proved if the writing is obviously incomplete

              1. Where the writing appears to be a complete instrument expressing the rights and obligations of the parties, it is deemed a total integration unless the alleged additional terms were such as might naturally be made as a separate agreement by parties situations were parties to the written agreement, in which it is a partial integration

          3. A reasonable person, knowing what these parties discussed would say that "100 could reasonably mean 1000" – Trainor would disagree, because he would assume that there was no possibility of seeing the difference

            1. Judge Browker -- "a contract is to be read in the circumstances of its execution"

              1. Trainor would let in evidence for purposes of interpreting a term in the writing, so long as the term in the writing is reasonably susceptible of being interpreted in light of the extrinsic evidence.

                1. Difference between interpreting and defining

                2. There can be industry definitions

            2. "every instrument in writing is to be interpreted, with a view to the material circumstances of the parties at the time of the execution, in the light of the pertinent facts, within their knowledge and in such manner as to give effect to the main end designed to be accomplished" (note: this involves a trust)

            3. Majority view (Corbin/Judge Lehman’s)today is that parties can ask a judge to admit all relevant evidence to show the circumstances surrounding the making of the written in order to show that writing is not completely integrated

              1. Jury has larger roll because more evidence will be admitted (as the writing is held to be less "special")

              2. An overruled case where evidence of an oral condition precedent to a stock option, would allow evidence to be admitted as ‘non-contradictory."

      3. Fourth Rule (rule number1)

  1. Excuse of contractual rights and duties (did the parties consent to a contract based on the future state of affairs) -- implied at law conditions are discharged by impossibility

    1. Complete Performance discharges duties -- except for good faith substantial performance

      1. UCC has a perfect tender rule whereby if a good isn't accepted in a reasonable time it is considered perfect

        1. For a rejection to be valid, it only needs to be procedurally (not substantively) correct

          1. Must be given in reasonable amount of time -- time spent communicating about defects is included in "reasonable"

      2. Common law and construction contracts have a substantial performance doctrine

        1. Unless substantial performance is completed (ie Plaintiffs stop defendants from performing, there can be no recovery on a contract -- otherwise stuck with Quantum Meruit (varies by state)

      3. Good faith is always implied

    2. Performance, and impossibility of doing that these are only defenses to breaches

      1. Destruction of subject matter -- If the subject matter is destroyed, the contract is voided

        1. Old rule: parties implied a term into the contract whereby destruction would excuse both parties

        2. New rule: excuse of duties is implied by law into the contract

          1. Death (in personal service contracts) is an excuse of the contract. Hence, assistants are out of contract (they can recover in quasi-contract)

        3. Not in occupancy in a (or construction contracts -- which, until possession transfer is attempt do not constitute substantial performance)

          1. Construction: Since a construction contract is usually in installment contracts, the risk of loss is on the contractor until completion. (ie, under most circumstances, under a contract contact, the finished job is a condition precedant to pay anything)

            1. In remodeling, recovery in quasi-contract is possible if some benefit at any time was done -- as remodeling is treated like something closer to a service per se.

            2. Some courts have allowed the contract to recover in quantum walabat for goods that were about to be installed, but were destroyed

              1. This method criticized, as it may encourage arson

            3. A party in an installment construction contract whose contractor is not performing in a workmen like manner, can with hold progress payments or suspend performance

              1. The sub would can elect to treat the breach as a partial breach

        4. If they are in occupancy (this constitutes substantial performance)

          1. Lease: Lessor takes risk of loss (has to pay rent for time the place is not there)

          2. License: Lessee takes risk of loss

    3. Impossibility (death, destruction, deterioration, illegality, war or illegality, or the failure to come into existence) not anticipated of the subject matter test is objective

      1. Non-occurrence of the vent causing the impossibility was a mutually shared basic assumption

        1. The contract must be rendered impractical because of this unallocated contingency

      2. Neither party caused the event to happen

      3. Immaterial Conditions can be excused in the event of impracticability of impossibility

 

        1. Prime examples are administrative technicalities

      1. No one implicitly or explicitly assumed this risk

      2. Impossibility only applies if the specific subject matter mentioned in the contract becomes impossible

        1. There could be implied (Parole evidence) terms which specifiy which goods are the ones that might become impossible to deliver

      3. Note: if part of a delivery is destroyed, and the cost can be apportioned, the seller won't be penalized

        1. If buyer doesn't want this fractional part, he can reject this partial shipment

      4. Note on installment contracts: if the overall value of the entire contract doesn't change, the buyer has the right only to reject the given shipments

      5. Under bankruptcy, debts must be discharged. Attempts to make them right should be in writing.

        1. Promises to pay unenforceable debts can be enforceable without promissory estoppel or consideration

    1. Frustration -- principle purpose for having entered the contract is gone

      1. Definition: when an event, the non-occurrence of which was a basic assumption on which the contract was made.

      2. The value to one party of the other's promised performance is substantially eliminated

      3. The party asserting the defense did not assume the risk or cause it

        1. Subcontractors can be excused if a government entity makes performance impossible

      4. Frustration of purpose -- must be totally outside the contemplation of the parties at the consummation of the contract

      5. Restitution can be given

    2. Partial performance

      1. Legal duty rule: the payment of a part was not regarded in law as a satisfaction of the whole, unless it was in virtue of an agreement supported by consideration

        1. Legal Duty rule -- only applies to liquidated claims where there is no dispute over them

          1. Unliquidated claims: accord and satisfaction of a single claim is not avoided merely because the amount paid and accepted is only that which the debtor concedes to be due or that his view of the controversy is adopted in, making the settlement -- there is still a duty to settle the claim

        2. estoppel: Just paying less doesn’t discharge obligation – unless, an agreement to pay less was made and relied upon

        3. performance can be gotten around by recession of the contract and replacement with another contract

          1. rescission

            1. rescission and consummation of a new contract can be con be done simultaneously or immediately afterwards

          2. rescission (must be made with full knowledge)

            1. If both the parties agree to rescind the contract, they are getting back their freedom. (no new consideration necessary)

      2. Unanticipated events that might make a promise to do something else binding

        1. If the modification of the contract is fair and equitable in view of circumstances not anticipated by the parties when the contract was made

        2. To the extent provided by the statute

        3. To the extent that justice requires enforcement in view of material change of position in reliance on the promise

    3. Waiver

      1. At common law, had to be supported by consideration

      2. Under Uniform Commercial Code, no consideration necessary

        1. Llewelyn was only concerned that it was done in good faith, and in writing.

      3. Times of waiver

        1. Waiver at time of contract

          1. This brings in Parole evidence rule

          2. A majority of courts have found that waiver of a term at time of contract will break parole evidence rule

        2. Waiver before failure of condition

          1. Waiver of a material part of the exchange is ineffective -- only an immaterial part of the exchange can be waived

          2. Parts of a contract, once waived can be reinstated

            1. Waiver after the failure of a condition (election) Majority view is that a waiver can't be withdrawn

              1. Minority view is that it can be withdrawn unless relied upon

              2. There could be Promissory estoppel based on a waiver

              3. The sub would can elect to treat the breach as a partial breach

            2. Note: waiver, once given, can be withdrawn so long as it doesn't operate unfairly

            3. Condition must be waived solely for the benefit of the party waiving it

              1. Although it is hard to tell, if the waiver is for the benefit of both parties, than it can't be unilaterally waived by either party

          3. Waiver after failure of condition (election)

            1. Creates a course of dealings -- can be shown by promise or conduct

            2. Majority view an election, once made can't be withdrawn

            3. Right to sue

              1. The person who waives does not lose his right to sue for breach and damages if he is forced to by the nature of the material (e.g. he needed the house, and he moved in despite it having defects)

              2. If the someone manifests an intent to pay despite a breach, he might only be able to sue for the partial breach -- under the UCC, acceptance with a partial breach limits one to damages for the partial breach

                1. Under the UCC the one must give noticed of a partial breach or be barred from remedy

                2. Damages can be renunciation under the UCC if the renunciation is signed and delivered by the aggrieved party

              3. The would can elect to treat the breach as a partial breach

      4. Estoppel

        1. A waiver which is relied upon

          1. Express waivers

            1. Often an assurance of performance will negate a waiver

            2. Failure to give an assurance can be treated as a repudiation,

          2. Implied waivers

            1. Might establish a course of dealings

            2. Perhaps knowledge that one will breach on condition

      5. Modification under common law requires consideration, under UCC it doesn't

        1. Courts are generally uncomfortable with it -- and want to make sure that the modification is fair, equitable, and because it is made of circumstances unanticipated at either time, or has induced reliance by a party to the agreement

        2. See section on duress above

      6. Difference between waiver and estoppel

        1. Waiver is the knowing and intentional relinquishment of a right

        2. Estoppel requires detriment – not relinquishing, but behaving in a certain way which estopps one from asserting the right

    4. Accord and Satisfaction (note: accord is the agreement)

      1. Hybrid of a substituted performance agreement and a substituted contract

      2. definition: an accord is a transaction in which a party owed a duty under a contract agrees to enter into what would otherwise by a substituted contract, except that the duty due under the original contract is discharged only when the duties promised under the accord are actually performed

        1. on breach of the accord the obligee has the option of either suing to enforce the original duty, or suing for the breach of the promises made in the accord -- maybe more on accord

      3. If you cash a check that says "payment in full" is cashed, it is accord and satisfaction

        1. If you cross out the words payment in full under the condition, but cash it, you are still accepting it -- though there must be a dispute about they payment first (un-liquidated claim -- a bone fide dispute over the amount due) -- the law favors compromise to end litigation

      4. When the owed party offers an accord, it is governed as an offer

      5. Breach of accord

        1. According to some courts the accord is assumed to replace the original debt

        2. Restatements say that it was only an offer -- to grant the debtor a limited window of opportunity

    5. Implied Additional contracts

      1. Court can take an apparent modification to be an additional contract -- when the original contract was based on information supplied by the first party, and the second party relied on it.

      2. Party might be reserving the right to sue

  1. Privity of contract -- One (or close relatives) would have to be the party to the contract in order to make a claim for a breach

    1. Judging the rights of the 3rd-party by the Intent of promisee

      1. If the contract was made mostly for the intent of the 3rd party, the 3rd-party will be protected

        1. Promissory estoppel exists here – this can be treated as a relied upon donative promise

      2. Presence of express rights of the 3rd party

      3. Expressly naming the 3rd party

      4. The closer the social relationship the more likely the intent to benefit a 3rd-party will be found

    2. Under modern law the additional parties must either be creditors or incidental beneficiaries (presumption is that third party beneficiaries are not included)

      1. Incidental beneficiaries (unprotected) -- if performance is to run directly to the promisee, the 3rd p[arty is ordinarily an unprotected incidental beneficiary -- unless the contract is made primarily for the benefit of the 3rd party, the 3rd party is an incidental beneficiary.

      2. Intended beneficiaries (newer view)

        1. Creditors – intended to discharge a duty he owed to the third party

          1. Does not actually need to be such a debt, but the donee must belive that there is such a debt

        2. The user might need to be an intended 3rd-party beneficiary (donee beneficiary) -- if it runs directly to a third party, he is ordinarily an intended beneficiary

          1. Modern test is that the beneficiary must have understood at the time that they were the beneficiaries

          2. If the parties to the contract intend someone as a beneficiary, they have a right to sue under the contract

          3. Common law stated that donees needed to be family members

        3. Third parties are never subject to tort liability limitations in contracts

        4. Alternative categories of third-party beneficiaries

          1. Trust: funds deposited for a specific purpose, that the trustee had the duty to pay someone else

          2. Agent: someone whose job it is to do something specific with the money (for consideration) in the name of someone)

          3. Novation or substituted contract: if both parties agree to new terms of the contract, it is a substituted contract, if the new contract involves new parties it is a novation

            1. upon the formation of a substituted contract or novation, the original debt is immediately discharged

          4. an offer of a novation

  2. Interests to be protected in breaches. Non-breaching party usually has a choice of remedies

    1. Time when a breach occurs

      1. At time of repudiation, a party can cover (and before the cover, the repudiation can be revoked)

        1. Exception: if one party prepays in an "installment contract" where there is payment in return for a later performance(s), the courts do not permit the victim to sue until after the performance is due (if the first amount was prepaid) -- note: the Plaintiff must have completely performed, and he must be entitled a fixed payment of money (or goods) in time or in installments

 

          1. Note: in this exception, the Plaintiff's duties can be interpreted broadly -- ie: not abandoning the property

        1. The initial installments may be independent, but the final installment by be dependant on the handing over of or other event.

        2. A party in an installment construction contract whose contractor is not performing in a workmen like manner, can withold progress payments or suspend performance

      1. A party (under the UCC and Restatements) can demand assurances that a contract will not be breached

        1. Should have reasonable grounds to demand that a contract might be breached

        2. Once given assurances should rely on them

      2. A repudiation can be revoked until cover starts, or suits start, or notice that the repudiation is final

        1. Under Uniform Commercial Code a party can use its commercial judgment about performance, under Common law it must stop performance

      3. A breach under the Uniform Commercial Code grants specific rights to the victim

        1. Withold delivery

        2. Stop delivery by carrier

        3. Finish unfinished goods

        4. Resell the goods and recover damages

        5. Recover damages for non-acceptance

        6. Recover price of goods

        7. Or cancel the contract

          1. Cancellation is just like recession -- but it is automatic

    1. CONTRACT THEORY OF THE EXPECTANCY INTEREST– placing the breached party where they would have been had the contract been performed -- Courts normally want to give expectancy damages

      1. Definition: Placing the breached party in the position they would have been had the contract been fulfilled

      2. Formulas

        1. Damages = (Contract Price - Market price at the time of the breach)

          1. Market price impounds what the future value of something is

          2. General Formula for expectation damages = Lost Value (LV) + Incidental Loss (I) + Consequential Loss (C) - Cost Avoided (CA) - Loss Avoided (LA)

            1. Consequential damages are only available when the breaching party knew or should have know about the circumstances surrounding the loss

        2. Buyer's Recovery (Uniform Commercial Code) = [(Cost of substitute good from another seller) (Contract price of good from the breaching seller)] + Incidental damages + Consequential Damages] -- from

        3. Seller's recovery(Uniform Commercial Code) = [(Contract price from the breaching buyer) - Price to be realized upon reasonable sale of goods to another + Incidental Damages)]

        4. Buyer's cover damages (Uniform Commercial Code)= [(Cost of cover) - (Contract Price)] + Incidental damages + Consequential Damages - Costs Avoided as a Consequence of the Breach.

          1. Under the UCC there is a duty of the breached party to cover, however, a failure to cover must be proven by the defendant (breacher)

          2. Note: if there is an inability to cover, than specific performance can be enforced in equity.

            1. Goods are unique if they are heilooms, or priceless works of art. Or a stereo system assempled over past 15 years

            2. Goods will be unique an enforced in equity if the defendant has a monopoly over them, or if is a market shortage

        5. Seller's cover damages = [(contract price-resale price) - (resale price for goods] + incidental damages

        6. Lost volume sellers can simply seek lost profit with a large supply of goods.

        7. Two-sale rule: When a merchant resells a good that the original contract was breached (made two sales, had the breacher not repudiated his contract) then the breacher is entitled to restitution, and the victim is entitled to expectancy

          1. Victim's damages (standard) = incidental damages + (contract price - market price)

            1. (if this is inadaquate than it is Victim's damages (standard) = (lost profit) + incidental damages (seems to be same)

          2. Breacher's restitution = (Restitution of deposit paid to Victim - Victim's lost profits) - incidental damages

      3. Limitations on expectancy damages

        1. Reasonable (foreseeability) under UCC §2-712

          1. Cover need to be fair

            1. Once there is a breach, it can be revoked, until the cover has begun

          2. Under normal circumstances there is a duty to mitigate (of non-repudiating party) – Uniform Commercial Code §2-610a

            1. If there is a breach, damages are limited to cost to cover, plus addition expenses (and, subtracted from this amount is any amount saved) See the Two-Sale rule see Error! Reference source not found.

            2. Seller’s right to recover for buyer’s refusal to purchase under contract for sale of goods

        2. Substantial economic waste/efficient breach

          1. Where remedying the defect would require the destruction of what has already been done

          2. Courts won't award specific performance, if it would cost more than the benefit

          3. Where the only breach is late performance, the owner can recover damages for loss of use of the property.

          4. efficient breach : "So long as a breaching party is willing to pay for any damages (according to market value) caused by the breach, he or she should breach, if the end result, after the breacher pays contract damages, is that the breacher will be economically better off."

            1. Exception: "ugly fountain" , pure speculation

              1. Where the breach is willful, the breaching party may not sue on the contract for damages to limit, nor invoke the benefit of the doctrine of substantial performance

                1. 2nd Restatement of contracts looks not to "willful" but to "good faith and fair dealing"

        3. Industry-specific limitations

          1. Where a building contractor breaches after substantial performance, the courts ordinary apply the cost of completion valuation, except where it would lead to substantial economic waste

            1. Other building limitations (all must have mitigation deducted)

              1. Before construction

                1. Full profits under contract

                2. For buyer: full performance

              2. During construction

                1. Contract price less cost to compete less amount paid by owner

                2. For buyer: cost of complete

                3. In quasi-contract: e.g. contract price-cost to complete and money already paid

              3. After construction

                1. Full contract price plus interest

                2. For buyer: lost income

            2. Where the only breach is late performance, the owner can recover damages for loss of use of the property.

            3. Building contractors are generally not subject to a duty to mitigate damages resulting from an owner's breach (but they are required to limit the losses by stopping working)

          2. In medical cases, it is rare to award Plaintiffs damages based on what they WOULD HAVE made had the operations gone as promised

            1. Especially if vague

      4. Liquidated damages clauses also known as stipulated damages are to mimic expectancy damages -- No "neo-punative" penalties --

        1. Liquidated Damages Clauses limit damage claims, but the injured party can request other types of relief (rescission and restitution, specific performance, and restitution)

        2. Liquidated Damages Clause’s only technically cover willful breaches

        3. Common law vs. Uniform Commercial Code’s definitions of validity

          1. Valid under the Uniform Commercial Code’s if

            1. reasonable in light of anticipated (at time contract was signed) or actual loss

            2. Actual damages must be difficult to prove

            3. Note: it isn’t any more valid if the Liquidated Damages Clause is stated in terms of a percentage

          2. Common law test: the amount of a liquidated damages had to be a reasonable estimate of the anticipated harm anyway

        4. Court will generally enforce arbitration clauses

        5. An enforceable Liquidated Damages Clause does the following

          1. Puts value on damages that are hard to determine (qualitative judgments)

          2. States reasonable value of anticipated losses (which must be approximately correct in view of eventual breach)

        6. Loss of bargain (ability to cover) is to be respected in an Liquidated Damages Clause unless it is impossible to determine

          1. There is no restriction about the parties agreeing to low damages

          2. Output Contracts to "buy all requirements" or ‘buy all product" can be enforced in equity, provided that they do not violate any of the other conditions

        7. In order to enforce a liquidated damages clause – aggrieved party must prove that

          1. The amount is similar to expectancy damages:

          2. Or that the amount is reasonable in light of the actual harm suffered by the injured party and that there will be some reason to believe that there will be some difficult in proving the actual loss with precision

        8. Note: differential pricing is a way to get around penalties for late completion in a contract

        9. Liquidated Damages Clause is Invalid

          1. Invalid if penalty (must be reasonable estimate of Damages at signing)

          2. Courts will not enforce agreements for specific performance as part of an Liquidated Damages Clause (offensive to sovereign)

          3. Liquidated Damages Clause’s should not be to penalize the other for failure or refusing to perform

    2. Reliance interest -- not a contract theory -- aka collateral estoppel

      1. The promisee did something to their determent in reliance on the promise, and the court, orders the breacher to compensate them based on what the breachee did on reliance on the promise.

        1. Reliance damages is defined as the economic value of a party’s reliance interest is typically the dollar amount of whatever out of pocket costs (including labor) were incurred by the non-breaching party up to the time of the breach in reliance on the breaching party’s performance.

        2. Even the contract is unenforceable, can get reliance damages.

          1. Statute of frauds, unforceable by other ways, etc.

      2. Reliance damages will be reward where

        1. Reliance damages are an alternative to expectancy damages when determining the expectancy interest fails

      3. Limitations on reliance damages

        1. Must have reasonable certainty (2d restatement)

        2. Losing contracts: If the breaching party can prove that it was a losing contract in the first place, the loss must be subtracted

          1. Courts want to avoid making the breacher the insurer of the breechee's venture (Armstrong Rubber haircut)

        3. Any salvageable materials from the first contract must be subtracted

        4. Any damages claimed must not have been avoidable by the non-breaching party without undue burden, risk, or humiliation

      4. Industry-specific limitations

        1. Reliance damages for botched operations can provide a middle-ground

          1. Only for additional pain and suffering other than normal

        2. Common carriers: Can get reliance damages based on common carriers breaching because common carriers must take whatever is given to them – and based on this assumption parties spend money

 

    1. Restitution Interest -- not a contract theory in equity-- not available to willful breachers

      1. Restitution Interest is defined as the value of the enrichment received by the benefited party, and not on the value of the aggrieved party’s promises

      2. Value of the benefits conferred on the benefited party must be properly valued under the appropriate theory. Note: when a non-breaching party is seeking restitution, the theory that awards the more generous awards will be used (and if it is the breach, the least generous)

          1. Cost avoided theory: How much it would have cost the benefited party to hire someone else to prove benefits

          2. Net benefit theory: Difference in the fair market value of his or her property, or his or her worth, before and after the actions of the aggrieved party

      3. Restitution must be mutual (both sides must pay each other for the work not done, or damage done)

      4. Types of restitution – can based used for illusory promices

        1. Quantum meruit is defined as value of labor done minus defendant’s damages for the breach

          1. Quantum meruit can be defined to mean a quasi-contract

            1. "the whole point of Quantum Meruit recovery is to compensate Plaintiffs who have provided a benefit to defendants but who do not have a contract"

          2. Quantum walabat is defined as value of goods done minus defendant’s damages for the breach

      5. Restitution can be given for undue influence

    2. Specific Performances -- in equity. Usually less than expectancy

      1. In general, jurisdictions with lax substantial completion doctrines don't get specific performance

      2. Equity will be used if: -- note: if there is no equitable relief, the Plaintiff can still sue on the contract

        1. Summary: equity can be used if

          1. Definite and enforceable contract -- equity requite that a contract be more definite than it would be at law for enforcement

            1. Some theorists have said that before a contract is denied equitable enforcement on grounds of indefiniteness, all gap fillers and parole evidence should be used to make it definite

            2. Recently courts have granted equity to some contracts with indefinite terms

          2. An unenforceable contract for real property that doesn't satisfy the statute of frauds

          3. Promissory estoppel

        2. If there is difficulty proving damages with reasonable certainty

        3. Difficulty of procuring a suitable substitute performance upon an awarded of monetary damages

        4. Equity will allow specific performance of a parole promise to make a gift of land, and the promisee has received possession of the land, and has made significant improvements thereon --note: this is a way of getting around the statute of frauds – modern cases would probably use Promissory estoppel estoppel to enforce such agreements.

          1. The statute of frauds only speaks of a contract, and so modern courts sometimes allow Promissory estoppel to defeat a Statute of Frauds Defense, most do not.

        5. Note: if there is an inability to cover, than specific performance can be enforced in equity.

          1. Goods are unique if they are heirlooms, or priceless works of art. Or a stereo system assembled over past 15 years

          2. Goods will be unique an enforced in equity if the defendant has a monopoly over them, or if is a market shortage

            1. Effect of specific performance on third person will be considered. I.e.: if there are two persons needing the goods (but a finite amount of goods), the court may decide to award specific performance of half of the goods (and compensatory damages for the rest of the value).

        6. Under Equitable estoppel also known as estoppel in pais prevents a person, in equity from hiding behind the statute of frauds

          1. Equitable estoppel arises out a person’s statement of fact, rather than a deed or record -- prevents a person, in equity from hiding behind the statute of frauds

          2. A person who is guilty of misrepresentation of existing facts, including concealment, upon which the other party justifiably relies to his injury cannot can not deny his utterances or acts to the determent of the other party

            1. Concealment can be handled as fraud (tort and criminal remedies)

        7. To enforce arbitration awards -- even if the court would not have awarded such performance

      3. When Equity will not be used

        1. If one party had a contractual right -- be failed exercise it, than equity will not specifically enforce the other parity's duty

        2. Equity (rescission) will not be used if the breach is not material -- will leave parties to their damages

        3. If one party entered to contract under a material mistake, and the enforcement would be harsh

          1. If there was a mistake that one party made when entering into the contract, but it was not technically due to misrepresentation

        4. Unclean hands: if the Plaintiff has been guilty of misrepresentation or non-disclosure, illegality, (defrauding creditors)

          1. If there was trickery used which took advantage of one of the parties gross disparities in knowledge

        5. In general, equity will not enforce promises to make gifts (or similar) if they are without consideration, with nominal consideration, or in writing

          1. Where a contract, such as an option contract is supported by nominal consideration, a seal, or a writing, and looks to a further performace which constitutes a fair exchange a condition to the defendant's duty, equity will enforce it.

        6. In general (at the moment) to enforce specific performance in employment contracts

        7. Courts won't award specific performance for unilateral mistakes

        8. Courts will judge inadequacy of performance

        9. Specific performance won't be used if it adversely affects the public

        10. Specific performance (in equity) will not be awarded (even in psuedo-land deals) if the damages can be based on the unwind amount (substantial information) of a 2nd contract. I.e.: Courts do not like awarding equitable performance.

          1. Courts may not enforce a contract in equity, if there is a defect in the title if the aggrieved party knew of the defect (or possible defect) in the title (on the grounds of assumption of risk.) -- goes unilateral mistake that one side knew of

          2. If there is sufficient information, could be technically construed as specific performance because damages were stated as "court awarded Plaintiff damages for loss of sub-lease income, through the date of the trial, and, should the Defendant exclude Plaintiff from the lease, damages would be assessed at the total expected value of the rest of the lease at breach.

            1. Kronman says something in unique (is it land?) when something has uncertain damages – Arthur Jacobson rebuts by saying "doesn’t unique deal with subjective value."

          3. Terms of the contract must be certain enough to provide a basis for appropriate court order

          4. There is a fine line between a contract that is so indefinite that it can't be enforced, and one that is define enough to be enforced, but too indefinite to support an award of equitable relief

          5. Enforcing specific performance Shouldn't be too burdensome on the court

            1. Nature and magnitude of the performance promised in the contract would impose a supervisory burden on the court that is disproportion to the advantages to be gained from specific enforcement and to the harm to be suffered from its denial

            2. Courts won’t enforce contracts for personal services, but they can order the hiring of additional commodifiable labor

              1. Whether the contract calls for personal services

                1. There are contracts that can be done by others

              2. Whether such an order would be unjust as causing unreasonable hardship or loss to the breaching party

              3. Whether there is sufficient security to believe the non beaching party will perform their side of the contact

              4. Courts won't grant equity if it violates public policy

              5. If specific enforcement would be an unfair business practice

                1. If the breaching party's assent to the contract was induct by unfair practices

              6. Whether it would cause unreasonable hardship to the breaching party

              7. Whether the court is satisfied that specific enforcement of the contract would not result in the non-performance of a substantial part of the agreed exchange -- so the court, in order to strike balance, may condition performance by one party in equity upon performance by the other

          6. Balance of equities and clean up principle necessary for enforcement at equity

        11. Types of Equitable remedies

          1. Specific Performance: Court orders a party to perform the very duty that he or she promised to perform

            1. Not appropriate for person service contracs –

            2. Unless there is a specific non-compete covenant, the courts will not enforce estopp someone from working, if it involves a comodifiable service -- standing alone such agreement violates the restatements and public policy, but "ancillary restraints" connected with legitimate transactions are often respected by the courts

            3. Courts can force non-compete covenants -- will do in a limited venue

              1. Note: Courts will enforce specific performance against banks for breaching on loan promises

          2. Warranty deeds -- mutuality of remedy

            1. Courts can issue a warranty deed, whereby in the case of a failed land dead, the title is transferred with a lein on in

          3. Injunction

            1. Court order a party to refrain from doing something that would interfere with his or her ability to carry out the performance promised under the contract

            2. Unless there is a specific non-compete covenant, the courts will not estopp someone from working, if it involves a commodifable service -- equity will refuse to issue such a injunction if it is too harsh on the defendant, or failure to issue the injunction will not cause irreparable harm to the plaintiff

              1. standing alone such agreement violates the restatements and public policy, but "ancillary restraints" connected with legitimate transactions are often respected by the courts

              2. if the employee learns no secrets and has no contact with customers, a court will not enforce a non-compete covenant at equity. -- if they have, the court might enforce it

              3. courts can now blue-pencil covenants -- now, the courts will issue an injunction that IS reasonable (rather than severing part of the covenant)

          4. Unilateral restriction

            1. Court order the contract terminated and the parties to return all benefits receive d under the contract up until that point

 

            1. Contract declared null and void

            2. Because of misrepresentation or mistake

          1. Reformation aka Quasi-Contract

            1. Reformation won't be granted if a contract, based on a mistake is entered into, and performed

            2. Split on contract damages for real property

              1. Some jurisdictions: difference between market price and contract price

              2. Other jurisdictions:

                1. Breach in bad faith difference between market price and contract price

                2. Breach in good faith reliance damages

                3. Reliance damages is defined as the economic value of a party’s reliance interest is typically the dollar amount of whatever out of pocket costs (including labor) were incurred by the non-breaching party up to the time of the breach in reliance on the breaching party’s performance

              3. Court orders a contract rewritten to reflect the parties true intention

                1. Ie: typos

                2. Unilateral mistake

              4. Example: How do deal with bad non-compete ageements -- three ways

                1. Characterize such as unconscionable and hence unenforceable

                2. May go overboard

                3. Blue pencil – renders specific parts unenforceable (only for non-compete agreements)

                4. MOST COMMON – can be reasonably altered to render it enforceable, then the court shall do so unless it determined that the covenant was not drafted in good faith.

            3. Can issue negative injunctions performing services, good faith agreements, and option contracts

              1. Example: Employment options function as insurance policies were to accept with CBS (by means of an option) (which hasn’t been exercised yet) does not place him in breach (even if they have a duty to negotiate with another party first) – it simply functions as an insurance policy.

      1. Arguments for and against specific performance

        1. Arguments In favor of specific performance

          1. Expectancy undercompensates the victim

          2. Do not get attorney’s fees

          3. Do not get subjective value

          4. Courts do not want to get in the business of specific performance

          5. What about efficient breach?

            1. The realistic fear is that because the world is based on transaction costs, there will be hold-outs and the world will be based on too much compensation from promisors

              1. Parties will not necessarily bargain their way out of things

              2. If one party can not perform, and compensate the other for his losses than he should

        2. If favor of expectancy damages

          1. Undercompensating victims is okay

          2. Expectancy encourages efficient breach

          3. There is no jury trial in equity

      2. Rescission

        1. Equitable

        2. Action must be brought immediately after knowledge (if they do not it is the laches doctrine)

    1. Consequential damages and special circumstances §2-710

    2. Compensatory Damages

      1. Tort damages can be awarded for conversion or negligent misrepresentation

        1. Deceit (a tort that looks like a contract)

          1. Damages (out of product losses) as a result of the misrepresentation (how you were hurt) – this give you the chance to put the money back in your pocket

          2. Deceit can be limited to out of pocket expenses (including Quantum Meruit) (other states give loss of bargain)

            1. What deceit charged do, is give one what they would have gotten had there been no lie

          3. In deceit one is limited to out of pocket expenses – (would have gotten the market value of someone in that job) Normally, deceit is the difference between the value of the thing bought sold or exchanged and its purchase price or the value of the thing exchanged for it

        2. Economic losses that arise out of commercial transaction, except those involving personal injury or damage to there property are not recoverable, under the tort theories of negligence or strict product liability.

        3. Courts do not like awarding tort damages, because of the conflict with warranties. But they will award tort damages under products liability doctrines. To allow tort liability would emasculate the warranty provisions parts of the Uniform Commercial Code. Limiting the application of strict products liability to consumers action or actions involving personal injury will allow the Uniform Commercial Code to satisfy the needs of the commercial sector and still protect the legitimate expectations of consumers.

    3. Punitive Damages (Generally not recoverable under beach of contract) -- Intentional fraud would get punitive damages

      1. This is an off-contract remedy to disaffirm the contract (if you have conferred valued on the other side) -- Parole evidence rule doesn’t apply

      2. To show fraud one would have to show that they are entitled to rely on the reliance on the promises

      3. Punitive damages can be awarded for intentionally harmful or malicious action

      4. Mental anguish can be gotten if

        1. Contract is non-commercial

        2. Financial loss not significant

        3. Parties could contemplate the mental aspect of the contract at the time of contract formation

    4. Replevin

      1. Remedy at law -- where one party is wrongfully holding the other's property

    5. Nominal Damages

      1. Where the was a clear breach of contract, but no proof of actual damages

      2. Can be used for losing contracts as well

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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