outline - contracts i %28anderson%29

8/3/2019 Outline - Contracts I %28Anderson%29

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OFFER AND ACCEPTANCE

Mutual Assent

Viewed objectively not subjectively -- Oliver Wendell Holmes shifted contract theory to anobjective basis...up until Mid 19th century we used to use a subjective view of mutual assent

Objective Theory of Contracts:A partys intent is deemed to be what a reasonable person inthe position of the other party would think that the first partys objective manifestation of intentmeant.

EXAMPLE In deciding whether 'A' intended to make an offer to 'B', the issue iswhether 'As conduct reasonably indicated to one in 'Bs position that 'A' was making anoffer.

Case Lucy v. Zehmer Pg. 7

o If a persons words and acts, judged by a reasonable standard, manifest an

intention to agree, it is immaterial what may be the real yet unexpressed state ofmind

o The material assent of parties is not requisite for the formation of a contract

o Undisclosed intention is immaterial unless it is known by the other party

Effect of Misunderstanding

There is no manifestation of mutual assent to an exchange if the parties attach materially

different meanings to their manifestations and (a) neither party knows or has reason toknow the meaning attached by the other; or(b) each party knows or each party has reasonto know the meaning attached by the other.

The manifestations of the parties are operativein accordance with the meaning attachedto them by one of the parties if (a) that party does not know of any different meaningattached by the other, and the other knows the meaning attached by the first party, or (b)that party has no reason to know of any different meaning attached by the other, and theother has reason to know the meaning attached by the first party.

Implied Contract: A contract exists as a matter of unspoken understanding ~ To establish acontract implied-in-fact a plaintiff must demonstrate that the circumstances surrounding theparties transaction make it reasonably certain that an agreement was intended.

EXAMPLE Dry Cleaners

Case Stepp v. Freeman Pg. 9o The distinction between an express contract and an implied in fact contract is

simply one that relates to whether assent is expressed in words (written or oral) an express contract or, as in the case of implied in fact contract, through aninterpretation of surrounding circumstances including declarations of the partiesand their conduct.

The Offer

An offer is an expression by one party of assent to certain definite terms, provided that theother party involved in the bargaining transaction will likewise express assent to the sameterms.

Case Leeds v. First Allied Connecticut Corp Pg. 16

o

Court took an objective view: Would a reasonable man, based upon the objectivemanifestation of assent and all of the surrounding circumstances, conclude thatthe parties intended to be bound by contract?

o Until it is reasonable to conclude, in light of all of the surrounding circumstances,

that all of the points that the parties themselves regard as essential have beenexpressly or implicitly resolved, the parties have not finished their negotiations andhave not formed a contract.

Case Lefkowitz v. Greater Minneapolis Surplus Store, Inc. Pg. 25*****OFFERS CREATE POWERS OF ACCEPTANCE*****

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**Generally advertisements are not considered offers; they are treated as requests foroffers

**This is a rare case b/c an advertisement was considered to be an offer**o The test of whether a binding obligation may originate in advertisements addressed

to the general public is whether the facts show that some performance waspromised in positive terms in return for something requested.

o It has been emphasized that where the offer is clear, definite, explicit and leaves

nothing open for negotiation, it constitutes an offer - - acceptance of which willcomplete the contract.

o While an advertiser has the right at any time before acceptance to modify his offer,

he does not have the right, after acceptance, to impose new or arbitrary conditionsnot contained in the published offer.

o The UCC has dealt a blow to the present courts insistence that nothing be left

open for negotiation UCC 2-204(3)

Written Contract to Follow

We are trying to figure out the intentofboth parties -- we therefore look at the facts andcircumstances and see what should be reasonably concluded.Question: If you agree to bargain and you decide later that night that you dont want to

anymore are you legally liable? Can you be sued? YES YES

Answer: An agreement to negotiate in good faith is a binding and enforceable agreementb/c negotiating contracts can be really expensive Time is Money

Case Continental Laboratories v. Scott Paper Co. Pg. 29o If either party intends not to be bound in the absence of a fully executed document,

no amount of negotiation or oral agreement as to specific terms will result in theformation of a binding contract.

o The court must determine the intentof the parties objectively from their words and

actions viewed within the context of the situation and surrounding circumstances.

EXAMPLE Problem 9 Pg.33* P agrees to sell building to D. They have each signed a contract but have notexchanged the documents. Later that night D decided that he doesnt want to go

through with the contract. Is he liable? No -- Look at intent -- D did not intend

to be bound until he exchanged the documents? Acceptance

Effect of Acceptance

Case ProCD, Inc v. Zeidenberg Pg. 34 (EXAM)

FACTS P sold software that contained a license for using its product. D ignoredthe verbiage of the license and used the product in a way that contradicted thelicensing agreement.

o A contract for the sale of goods may be made in any manner sufficient to

show agreement, including conduct by both parties, which recognizesthe existence of such a contract.

o A vendor as master of the offer, may invite acceptance by conduct, and

may propose limitations on the kind of conduct that constitutesacceptance.

o A buyer may accept by performing the acts the vendor proposes to treat

as acceptance.o A buyer accepts goods when, after an opportunity to inspect, he fails to

make an effective rejection.According to Anderson

o Rolling contracts were formed and made legal. Rolling contracts

continue to build or layer as the deal progresses. Consumers order andpay for goods before having an opportunity to read most of the terms,which are contained on or in the goods packaging.

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o It used to be that you couldnt add terms after a contract was complete --

things change!Rolling contracts are okay as long as the rules are fairand reasonable and the customer knew or should have known that thisrolling contract existed and that he didnt have to accept the terms.

o Judge Easterbrook says thatRule 2-207does not apply if there is just

one form; Anderson says that this is crap -- he holds that the rule doesntsay that.

o In this case there are really only two valid contracts (1) Between

Manufacturer and Retailer, and (2) Between Retailer and Customer

The Manufacturer and the Buyer really have noprivity of contract,but starting in the mid 1970s courts slowly began holding that theBuyer can sue the Manufacturer underbreak/pass-throughwarranties -- but this also means that the manufacturers can pass-through restrictionsAnderson quoted they stopped passingthrough puppies (warranties) and started passing through snakes

(rolling contracts)

o See Pg. 75 in the Hillman book

Consider a leading case Hill v. Gateway (here we want Gateway tolose b/c their terms were unconscionable yet Easterbrook said

that they were okay. The court found that Gateways shipment of the computer with the

terms, including the 30-day right of return, constituted an offer.The Hills accepted the offer, according to the court, by keeping thecomputer for more than 30 days.

Best way to handleRolling Contracts is to focus less on offerand acceptance, which do not tend to produce very definitiveresults on when a contract is formed, and more on the fairness ofthe terms that come in the box.

o On an exam, when asked about this question you should say

What the ruling was or held

What Rule UCC 2-207 says

That a court now has to get around common law (Easterbrook) andUCC 2-207

Why we think ProCD should win Manifesting Assent ~ would a reasonable person believe the offeree intends to

accept the offerors terms and form a contract, notwhether the offeree actually

intended to do so. This is an objective approach

Case Beard Implement Co. v. Krusa Pg. 41o Where an order form, containing the buyers offer, requires the

acceptance of the seller, no contract will exist until the seller hasmanifested acceptance of the offer.

o D made an offer in writing and then wanted to renege afterwardsthe

court determined that P had not accepted his offer before D backed out. Case Fujimoto v. Rio Grande Pickle Co. Pg. 48

o If an offeror specifies no mode of acceptance, the law requires no more

than the mode adopted shall be in accord with the usage and custom ofmen in similar cases.

o Expressing assent is inconsequential so long as it effectively makes

known to the offeror that his offer has been accepted.

UCC 2-206 - - Offer and Acceptance in Formation of Contract

o Unless otherwise unambiguously indicated by the language or

circumstances

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An offer to make a contract shall be construed as invitingacceptance in any manner and by any medium reasonable in thecircumstances

An order or other offer to buy goods for prompt or currentshipment shall be construed as inviting acceptance either by aprompt promise to ship or by the prompt current shipment ofconforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute acceptance if the sellerseasonably notifies the buyer that the shipment is offered only asan accommodation to the buyer

o Where the beginning of a requested performance is a reasonable mode of

acceptance an offeror who is not notified of acceptance within areasonable time many treat the offer as having lapsed before acceptance.

EXAMPLE Problem 12 Pg. 52 (2-206 of the UCC)o Guys get a purchase order in the mail that reads I want 400 West Coast

Cigars at $600 a box, shipment to be made FOB truck your plant by acertain date. If acceptable please write immediately. The offeror senthis letter via overnight mail

There is a contract even if the guy were to telephone, fax, email

any court would say he was not insisting that he actually write There would notbe a contract if the guy responded to the offer via

regular mail. Timeliness is the keywe expect from hiscommunication that he wants a quick response (he sent his offerovernight)

Sending conforming goods instead of a written acceptance is okayas long as the goods would get there just as quick as a returnresponse

If you ship non-conforming goods you could be in breach of the

contract YES UCC 69 -- Silence as Acceptance

Silence is notacceptance

o Can you be bound if you want to be bound YES

Offer says that doing nothing in response to this offer accepts thisoffer you can do nothing and accept or you can do nothing anddeny the offer in this situation the choice belongs to the offeree

Where an offeree fails to reply to an offer, his silence and inaction operate asan acceptance only whereo Because ofprevious dealings or otherwise, it is reasonable that the

offeree should notify the offeror if he does not intend to accept

Case Day v. Caton Pg. 54

FACTS P built a wall on Ds property D contends that he never explicitlyagreed to this wall and that even though he benefits from it being built, he does not

owe P anythingo If a P undertook and completed an act with the expectation that the D

would pay him for it, and the D had reason to know that the P was soacting with that expectation, and allowed him to act without objection,then a jury might infer a promise on the part of the D to pay the P.

o If a party voluntarily accepts and avails himself of valuable services

rendered for his benefit, when he has the option whether to accept orreject them, even if there is no distinct proof that they were rendered byhis authority or request, a promise to pay for them may be inferred.

The Postal Reorganization Act of 1970 Pg. 57

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Knowledge of Offer

Does the rule that the offeree must know of the offer to accept it follow as a

matter of logic? NO most jurisdictions will hold that if the reward offer ismade by a governmental entity, the usual rules of contract law do not apply,and any citizen who performs the requested service is entitled to the reward,even if the claimant had no idea that the reward was being offered.o If it is not a governmental entity and if the person did not know about

the offer the offeror does not have to pay

There are a small minority of courts that hold alloffers for rewardshave to pay

Motive

Motive is irrelevant It doesnt matter why you accept unless

o Under duress - EXAMPLEMotive was to save your life you will

not be bound to a contract Mode of Acceptance

Bilateral ~ exchange of a promise for a promise in return (Promise --Promise)

o 75 Exchange of Promise for Promise

Except as stated in 76 and 77, a promise which is bargained for

is consideration if, but only if, the promised performance would beconsideration

EXAMPLE I promise to buy your car, and you promise to sell it

Unilateral ~ exchange of a promise for an act (Promise -- Act)

EXAMPLE I promise to give you $40, if you wash my car*Not really a unilateral offer according to Anderson (He says that Hillman would

agree) Anderson contends that most offers that look like unilateral contracts arereally bilateral

EXAMPLEWe really want a promise that you are going to wash mycar, not the act itself we want people to say okay, andthen start washing.

Case Davis v. Jacoby Pg. 59

FACTS A man is in poor health and wants relatives to come help him with hisbusiness and to take care of his wife. They exchange letters back and forthin theseletters he suggests that these relatives will inherit everything when his wife and himdie. The relatives agree in a letter to come and help out, but the mans will did notmention them. He ends up committing suicide and the issue here is if a bilateralorunilateralcontract existed. If bilateral (promise for promise) then they have acontract when the relatives agreed to help outif unilateral (promise for act) thenwhen the man committed suicide, the relatives are no longer able to perform theservices and accept the contract

o It is not always easy to determine whether an offeror requests an act or a

promise to do the act. As a bilateral contract immediately and fully

protects both parties, the interpretation is favored that a bilateral contractis proposed.

Goods on store shelves are not offers they are invitations no contract existsuntil you pay

Restatement (Second) Contracts 62 Effective Performance by Offeree

where offerorInvites either Performance or Acceptanceo Where an offeror invites an offeree to choose between acceptance by

promise and acceptance by performance, the tender or beginning of theinvited performance or a tender of a beginning of it is an acceptance byperformance

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o Such an acceptance operates as a promise to render complete

performance

Problem 18 Pg. 66 Three pigs hired Wolf Construction to build a new roof.

Pigs agreed to pay $4,000 upon completion of the roof.Wolf quit the job when it was halfway done, leaving thepigs with a mess and a second contractor charged $5,000 forfinishing the job. Can Wolf defend itself by claiming that it

never made acceptance? NO Section 62 of theRestatement prohibits this.

Restatement (Second) Contracts 45 Option Contract Created by Part

Performance or Tender

o Where an offer invites an offeree to accept by rendering a performance

and does not invite a promissory acceptance, an option contract iscreated when the offeree tenders or begins the invited performance ortender the beginning of it

o The offerors duty of performance under any option contract so created

is conditional on completion or tender of the invited performance inaccordance with the terms of the offer

* Where part performance or tender by the offeree creates an optioncontract, the offeree is not bound to complete the performance. Theofferor alone is bound, but his duty of performance is conditional oncompletion of the offerees performance

Example:o Guy sees a man walking down the street. He says that when you deliver

this package in 30 minutes I will give you fifty dollars, and he insists onacceptance by performance. Deliverer takes the package and beginsperformance, but along the way he sees a sign that reads Free Beer.He goes in and gets drunk. Guy finds deliverer in bar and is mad. Can

the drunk/deliverer walk with impunity? YES (1) Offeree has anoption to complete the contract, he does not have to complete (2)

Offeror made his bed, he should have gotten a promise**This situation could have been different if the offeree got to choose do orpromise, then we would have a contract. See 62

Termination of Power of Acceptance Killing an offer (once dead it stays dead)

Revocation ~ occurs when a reasonable person (objective) would believe the offerorhas withdrawn the offer. A revocation becomes effective when the offeree receivesthe information that the offer is no longer open.

EXCEPTION Offers for unilateral contractsEXAMPLEReward offered for capturing a criminal or finding a lost pet

Revocations are effective in such reward-offer cases when the offeror gives therevocation the same notoriety as the offer.

A revocation can also consist of information the offeree receives that makes it clearto a reasonable person that the offeror cannot intend for the offer to remain open.

EXAMPLE P finds out that you have sold an item (you offered to him) to someoneelse. Such information constitutes an effective revocation of your offer to sell your itemto P.

Case Dickinson v. Dodds Pg. 67

FACTS D wrote an offer to sell his land to P. The writing stated that the offerwould remain open until Friday. P accepted the offer Thursday by giving it toDs mother-in-lawshe forgot to give it to D. D sold the land Thursday nightand P wants specific performance.

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o If the offer has been made for the sell of property, and before that offer

is accepted, the person who has made the offer enters into a bindingagreement to sell the property to someone else, and the person to whomthe first offer was made receive notice in some way that the property hasbeen sold to another person, can he after that make a binding contract by

the acceptance of the offer? NO although it is said that the offer is tobe left open until Friday Morning, it is not binding. The promise wasnotsupported by consideration (nothing was given for the price of yourpromise) therefore, it is considered a gift promise (not binding).

If an offeree learns that an offeror has conducted himself in a way

that alludes the offer is no longer good the offer is revokedo I hereby agree to sell is nothing but an offerand at any moment

before complete acceptance by D, P is free to do what he wants

An offernotsupported by consideration can be revokedat anytime

o To constitute a contract, it must appear that the two minds were at one,

at the same moment of time, that is, that there was an offer continuing upto the time of acceptance. If there was not such a continuing offer, thenthe acceptance comes to nothing.

Option Contractso If you agree to leave your offer open for 10 days and the other party

pays you for it then you have a bargained-for exchange called anoption contract.

o A fair price for an option contract is difficult to ascertain and the courts

are supposed to leave the adequacy of consideration to the partiesanyway.

o The Restatement of Contracts substantiates the position that option

contracts do not require real consideration. Offers that are in writing andsigned by the offeror are enforceable as option contracts if they proposea fair exchange within a reasonable time and recite a purportedconsideration

A purported consideration is fake consideration, such as twenty-five cents, which the offeror really did not bargain for.

o The Restatement also provides that option contracts are enforceable if

made irrevocable by statute

2-205 of the UCC enforces promises to leave offers open whenmade by a merchant, in writing, and signed by the offeror. Fakeconsideration is notneeded. This section limits the amount of timean offer can be left open -- Time stated or three months (whicheveris less)

Beginning Performance of Unilateral Contracts (EXAM)

o How should contract law treat a revocation of an offer after an offeree

has begun, but not finished, performance of a unilateral contract?EXAMPLE An employer creates a benefits package in the form ofan offer for a unilateral contract: If you work for us for twenty years, youwill earn a pension.

-- The modern view protects the offeree who is trying to perform. Althoughfiction, think of beginning to perform as paying someone consideration to keepthe offer open.o Case Petterson v. Pattberg Pg.71

FACTS P tried to begin performance of a unilateral contract, but D had soldthe property. P went to Ds house and said, it is I and I have come to pay themortgage

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Court held that an offer to enter into a unilateral contract may bewithdrawn at any time prior to performance of the act request to bedone

Dissenting opinion held that D should not have been able to revokehis offer after P had offered to make the payment.

Anderson says that is a crappy case -- it held that performance hadto be complete before there was acceptance

How do you tender through a closed door? Anderson says the he has begun the act of tender

Good Rule of Thumb: When would a third party sitting on the

fence think a legal tender has begum?

Merely preparing to perform isNOTperformance, you have tobegin performing

An offer of $100 to walk across a bridge buying walkingshoes is notbeginning the performance

Offers for Bilateral Contracts

o See Drennan v. Star Paving case on Page 57 in the Hillman Text.

Reasonable reliance on an offer for a bilateral contract isenforceable as a contract.

The court invoked Section 90 (2nd Restatement of Contracts) whichenforces promises when the promisor should reasonably expect thepromisee to rely on the promise

Why should an offeror of a bilateral contract reasonably expect anofferee to rely on the offer before acceptance?

Court held that contractors customarily relied onsubcontractors bids before accepting them, just aDrennaman had done. (Special Case)

Lapse of Time

An offer remains open for a reasonable amount of time. This meansdetermining how long a reasonable person would believe an offer will stay

open (depends on the circumstances). Restatement (Second) Contracts 41 Lapse of Time

o An offerees power of acceptance is terminated at the time specified in

the offer, or, if no time is specified, at the end of a reasonable timeo What is a reasonable time is a question of fact, depending on all the

circumstances existing when the offer and attempted acceptance aremade

o Unless otherwise indicated by the language or the circumstances, and

subject to the rule stated in 49, an offer sent by mail is seasonablyaccepted if an acceptance is mailed any time before midnight on the dayon which the offer is received.

Case Loring v. City of Boston Pg. 82

o When an offer is made which contains no textual time limit, the limit ofthe offers duration will be that which is considered reasonable.

What is reasonable depends on the circumstance of the case

Case Phillips v. Moor Pg. 86

FACTS D offered to pay $9.50 for hey and the P agreed. Prior to D picking up thehey, it was destroyed by fire.

o Anderson says that this is silence as acceptance case

There is a definite acceptance even though there is an add on

Anderson poses the question of is D tardy in his reply?

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If acceptance if iffy, a counter offer exists. D remains silentso this becomes acceptance you are now bound by yoursilence

If the party to whom an offer is made, makes known hisacceptance of it to the party making it, within any periodwhich he could fairly have supposed to be reasonable, good-faith requires the maker, if he intends to react on account ofthe delay, to make known that intention promptly. If he

does not he must be regarded as waiving any objection tothe acceptance as being too late.

Termination by Death or Incapacity of the Offeror or Offeree

An offerees power of acceptance is terminated when the offeree or offeror diesor is deprived of legal capacity to enter into the proposed contracto The offerees estate and offerors estate cannotact for deceased party

EXCEPTION Problem 26Pg. 89When there is a continuing offer, such as an offer to act as a guarantor ofcredit for a 3rd party, some courts hold that the estate may be liable unlessit notifies the creditor of the guarantors death

Termination by Rejection

A rejection terminates the offer. The offeree cannot reject an offer and thencome back later and accept the offer

The legal ramification of a counter-offer is a rejection of the first offer.

38 Rejection --Restatement (Second) of Contracts

o An offerees power of acceptance is terminated by his rejection of the

offer, unless the offerer has manifested a contrary intentiono A manifestation of intention not to accept an offer is a rejection unless

the offeree manifests an intention to take it under further advisement. The Mailbox Rule (EXAM)

Communication via the Mail or Telegram (the old stuff)

o After some debate in the courts, contract law has settled on the

acceptance is-good-when-posted rule or the deposited acceptance

ruleEXAMPLES

If A posts acceptance before she receivesrevocation of the offer A CONTRACTIS FORMED

If A posts acceptance and the postalservice loses the letter A CONTRACTIS FORMED

If A posts acceptance then retrieves theletter from the post office ACONTRACT IS FORMED

o Why this way?

Offerors can protect themselves form the uncertainty concerningwhen a contract has been made and offerees cannot. If an offerorfails to avail itself of protection by prescribing a time ofacceptance in the offer, then the law should favor the offeree.

The offeror, by choosing to use the mail, has made the post officeher agent. As soon as an offeree posts an acceptance,constructively it is in the hands of the offeror

o Offeror can protect himself by stipulating he has to receive in order for

there to be an acceptanceo Case Morrison v. Thoelke Pg. 90

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FACTS A sends a contract to B for the purchase of property. Before thecontract arrives, but after it is posted, A changes his mind and wants toterminate the acceptance

A contract is complete and binding upon posting of the letter ofacceptance

o The acceptance should be effective when sent (same rules as above).

ON THE EXAM ANDERSON IS GOING TO ASK ABOUT THE RULE IN

ADAMS V. LINDSELLo RULE STATES THAT: A CONTRACT IS COMPLETE UPON

DEPOSIT OF THE ACCEPTANCE IN THE MAIL, REFERRED TOAS DEPOSITED ACCEPTANCE RULE

Problem 28 Pg. 97 (EXAM)

o Mode of acceptance does nothave to be a mirror image it just has to

be a reasonable mode of acceptance

o On Question 4 the offeror is in the drivers seat He can enforce the

contract if he did not make another contract, or he can make anothercontract even though a valid contract exists (estoppel)

Termination by Counteroffer and The Battle of the Forms (EXAM)

Common Law

o Except with respect to option contracts, the offerees power ofacceptance generally terminates when, rather than accepting, the offereemakes a counteroffer.

The Mirror Image Rule insisted on by common law states that theacceptance must lookexactly like the offer and must not try to change it in anyway. If the acceptance tried to add new terms not already implied in the offer,it was no acceptance at all, but instead a counteroffer

EXAMPLE I accept but would like my payment to be due 30 days after delivery Courts would generally find that this was an unequivocal acceptance of the offer witha request for the addition of another term

o Two reasons why common law mirror image rule was bad:

Declining Market Welcher(pro buyer) When the market was declining the goods would come in

and the buyer could freely reject the goods b/c there was notan agreed upon contract

The Last Shot Rule (pro seller) Whoever sent the last form (typically the seller) would have

their contract honored b/c his was the last counteroffer andthe buyer acceptance b/c he accepted the goods

Case Livingstone v. Evans Pg. 98

o A counter offer is a rejection of the offer

o After the counteroffer was made, the D sent a letter stating cannot

reduce price. The courts held that is was a reaffirmation of the original

offer and demonstrates an intent to be bound by it. It basicallyreestablished the original offer.

The Original Battle of Forms - UCC 2-207 (EXAM)

o A definite and seasonable expression of acceptance or a written

confirmation which is sent within a reasonable time operates as anacceptance even though it states terms additional to or different fromthose offered or agreed upon, unless acceptance is expressly madeconditional on assent to the additional or different terms.

o The additional terms are to be construed as proposals for addition to the

contract. Between merchants such terms become part of the contractunless:

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The offer expressly limits acceptance to the terms of the offer

The materially alter it (question of fact) It is material if there is undo surprise or harm

Notification of objection to them has already been given or isgiven within a reasonable time after notice of them is received

o Conduct by both parties which recognizes the existence of a contract is

sufficient to establish a contract for sale although the writings of the

parties do not otherwise establish a contract. In such a case the terms ofthe particular contract consist of those terms on which the writings of theparties agree, together with supplementary terms incorporated under anyother provisions of this act.

**Andersons Opinion **

UCC 2-207 gets the job done as best as legislation can do

There are three routes to follow (see separate 2-207 w/p)Anderson Information

(1) We will rarely seeRoute A(a) Lawyers are never going to draft an acknowledgement that

doesnt expressly condition the assent(2) We will rarely seeRoute B

(a) The buyer would have to read the terms and conditions(b) Would have to accept sellers terms and conditions

i. This could happen if the buyer really wants it andseller has the clout and really means it (Microsoft,Dupont)

(3) Most of the cases areRoute Ccases(4) Amendments to 2-207 have not been adopted anywhere

Textbook Information

(1) Original version of 2-207 got rid of the common law mirror image rule. It simplystated that the acceptance does not need to match the offer exactly, it may containnew or different terms. These terms become part of the contract unless theoriginal offeror objects to them or they would materially alter the original offer

(in which case the new terms are stricken, and the contract is formed according tothe terms of the offer)

(2) Since seller typically sends out the second form, and since the rules of 2-207 tend tocreate a contract based on the first form, sellers had to have a way of protectingthemselves from unwanted liability

The way to do this is to make sure that the sellersacknowledgement for is notan acceptance, but instead is clearly acounteroffer

If the buyer does not respond to this counteroffer, subsection(3) of the old 2-207 creates a new contract with terms thatare common to both parties forms.

Case Commerce & industry Ins. Co v. Bayer Corp Pg. 102

FACTS P purchased nylon from D. On the reverse side of Pspurchase orders was an arbitration provision. D remitted to P its ownstandard invoice, which did not state a preference for arbitration orlitigation, but did include a conditional acceptance provision. A firestarted b/c of the nylon and now D wants to force P to use theirarbitration provision

P did not express assent to the additional terms, but merelyremitted payment and accepted the goods, this contract wasformed by the parties conduct (as opposed to writings).

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Where a contract is formed by the parties conduct, the termsof the contract are determined exclusively by subsection (3)2-207 of the UCC

Under subsection (3) only terms that are common to bothparties forms become terms of the resulting contract.

Amended 2-207

o Takes contract formation out of 2-207 and puts it in 2-206

o Took out the proviso clause

o 2-207 now only deals with terms

o 98.6% of the cases will come out like they did under the original 2-207

Route C cases will still come out as Route C cases

Indefiniteness

As a general rule, no mutual assent exists and thus no contract is formed unless theagreement of the parties is sufficiently certain

Even if the parties intended their preliminary draft to have legal effect, the draft maynot be enforceable if the draft omits too many important terms

2-204(3) states that Event though one or more terms are left open a contract forsale does not fail for indefiniteness if the parties have intendedto make a contractand there is a reasonably certain basis for giving an appropriate remedy

Courts in such situations decline to enforce the contract on the grounds ofuncertaintyo Even if the parties intended to contract, a court may reason that it would

not know what to enforce

EXAMPLE A renewal clause in a lease states that, Tennant mayrenew for an additional period of five years at annual rentals to be agreedupon. Court would hold that there is no basis for establishing arenewal rate

Courts should make every effort to fill gaps and enforce agreements when theparties intended to contract

EXAMPLE In the example listed above If the parties were seriousabout granting the tenant an option to renew, the court should enforce the

obligation The court could find that the parties impliedly agreed to areasonable renewal rate, base on the market value of the leasehold

o Article 2 of the UCC relaxes the uncertainty test (see above 2-204(3))

Pre world War II, courts required a great deal of specificity Courts have come to believe that people lack specific foresight Case Walker v. Keith Pg. 119

An agreement to agree is not enforceableo The courts should not interfere

The rule for indefiniteness is indefinite

Courts will bend over backwards to enforce renewals or options to buy Case Rego v. Decker Pg. 126

See summary

2-305: Open Price Term

o (1) The parties if they so intend can conclude a contract for sale even

though the price is not settled. In such a case the price is a reasonableprice at the time for delivery if

(a) Nothing is said as to price, or

(b) The price is left to be agreed by the parties and they fail toagree, or

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(c) The price is to be fixed in terms of some agreed market or otherstandard as set or recorded by a third person or agency and it is notso set or recorded

o (2) A price to be fixed by the seller or by the buyer means a price for

him to fix in good faitho (3) When a price left to be fixed otherwise than by agreement of the

parties fails to be fixed through fault of one party the other may at hisoption treat the contract as cancelled or himself fix a reasonable price

o (4) Where, however, the parties intend not to be bound unless the price

be fixed or agreed there is no contract

CONSIDERATION

The Basic Concept

Age old definition: Anything of benefit to promisor or detriment to the promisee To be enforceable, the promise must be accompanied by some other factor

Restatement (Second) of Contracts 71 ~ Consideration

o To constitute consideration, a performance or return promise must be

bargained for

o A performance or return promise is bargained for if it is sought by the

promisor in exchange for his promise and is given by the promise in

exchange for that promiseo The performance my consist of

An act, other than a promise, or

A forbearance, or

The creation, modification, or destruction of a legal relationo The performance or return promise may be given to the promisor or to

some other person. It may be given by the promise or by some otherperson

Oliver Wendell Holmes came up with bargained for exchange The law will notenforce a gift

There can be gifts with considerations attached

Once the gift is executed, you cannot get the gift back contract law will notundo a deal for invalid consideration A promisors gratitude for the promisees past good conduct or services does not

constitute consideration b/c the promisor is not extracting and the promise is notsupplying anything as the price of the promisors promise.

A lot is riding on the promisors motive for making the promise

A reasonable person (objective view) must believe that your motive for makingthe promise was to obtain a return promiseo A promisors actual motive is irrelevant

A reasonable person must also believe that the promise actually induces thepromisee to deliver that consideration

EXAMPLEUncle wants nephew to quit smoking, so he offers $2000 dollarsif the nephew will quit. Nephew already quit three weeks before the offer wasmade No Contract, the promise did not induce consideration

Promisors motive for obtaining something in return for the promise (asdetermined objectively) does nothave to be theprimary or even asubstantialreason for making the promise, it just has to be one of the reasons

Case Hammer v. Sideway Pg. 139- continuum

See Summary

Anderson thinks that this was a gift with a condition attached, but should beenforced

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o no contract, no bargaining even though there was detriment to the uncle,

no considerationo Good judges will push the envelope of the law as far as it will go in

order to come to a fair and just verdicto if the deal is a sham or unfair, court has discretion to reach a fair verditct

o Abandonment of the use of drugs and alcohol until he was 21 is

sufficient consideration

Court held that nephews forbearance constituted consideration regardless ofwhether it benefited the uncle

Sufficiency

Sufficiency ~ The offered consideration must be something that has value in the eyeof the law

Traditionally, the common law rule was that the courts would inquire into thesufficiency of the consideration, but not the adequacy

Problem 39(b)

Conjuring is good consideration, but the court said that is was not; gooddecision bad law

Adequacy of Consideration

Courts are not supposed to weigh the adequacy of consideration, but

As a general matter, many courts feel uncomfortable enforcing imbalancedexchanges, especially when the imbalance is severe

Doctrines such as unconscionability, duress, and misrepresentation, authorizecourts to strike contracts made unfairly and often at least part of the evidenceof unfairness derives from the inadequacy of considerationo Contract law thus includes both an admonishment to courts to keep out

of the parties private exchange and an invitation to courts to policeagreements for unfairness

Failure of Consideration: The consideration fails to do what it is supposed to do(e.g. bought a refrigerator but it doesnt get cold; paying someone to mow your yardbut they do a poor job)

There is no such thing as inadequate consideration (Nothing wrong w/ $5 today for

$10 later, but if it is $5 now for $10 now then it is a gift motive is the key) there isa problem w/ nominal consideration

Nominal consideration is bad consideration it is a sham consideration (e.g.$1 for a $10,000 car the court does not believe that $1 was the right amountto pay for that car gift??)

Problem 40(F) Exception to the rule of nominal consideration

Option Contracts can be of a nominal amount

Surety Contracts can be of a nominal amount

Why Exception?o It is hard to put a value on an option, so courts do not assess the

adequacy

Do you have to actually pay the nominal amount?o Majority says yes you have to give the $1

o Minority and Restatement say no the $1 means nothing a recitalof

good and valid nominal consideration is okay Problem 39

(D) Court held that there was a property right, Anderson disagrees and saysthat some courts would disagree too

(C) Court rejected, no property right Case Batsakis v. Demotsis Pg. 138

See Summary Case Schnell v. Nell Pg. 140

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See Summary

Forbearance as Consideration

One partys promise not to assert a claim in which he/she reasonably believes ingood faith to be valid, but which in fact is invalid, serves as consideration for a returnpromise by another party.

Basic public policy underlines this decision

o The law seeks to encourage out-of-court settlements, which are not

coerced. Such settlements

Tend to promote good-will

Are much less expensive for the parties to pursue than a full-blowncourt battle

Help relieve unnecessary congestion on court dockets Restatement (Second) of Contracts 74 Settlement of Claims

Forbearance to assert or the surrender of a claim or defense which proves to beinvalid is not consideration unlesso The claim or defense is in fact doubtful b/c of uncertainty as to the facts

or the law, oro The forbearing or surrendering party believes that the claim or defense

may be fairly determined to be valid

The execution of a written instrument surrendering a claim or defense by onewho is under no duty to execute it is consideration if the execution of thewritten instrument is bargained for even though he is not asserting the claim ordefense and believes that no valid claim or defense exists (Anderson says badprovision?? Maybe b/c written)

A settlement based on forbearance to assert a claim known to be invalidis likely tobe coercive and in bad-faith, and courts will not enforce it

Case Fiege v. Boehm Pg. 144

See summary Problem 41

Huffing and walking away is not a binding acceptance (i.e. Bad consideration -he is not forbearing)

You have to be bound to your forbearance to actually forbear Problem 42

The court said that she had a legal right to speak with her husband, but whenshe didnt she forbeared there was valid consideration

Problem 43

She got what she bargained for absolutely nothing

Consideration can be nothing, if it is bargained for Anderson Example

Anderson has a paper bag, and you really want it. The bag has nothing in it,but you think that he has his lunch in it, and Anderson tells the truth and saysthat there is nothing in the bag he says that he will sell you whats in the bag

(nothing) for $10. Good consideration??o Majority would enforce you got what you bargained for Nothing!!

The Illusory Promise (AKA Mutuality of Obligation)

Unless both parties are bound, no parties are bound Illusory promises are contracts that are unenforceable for lack of mutuality of

obligation

The agreement lacks an obligation on your part b/c you havent promised to doanything.

You have reserved the right not to do something

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Sometimes language appears to be an illusory promise, but the circumstancesdemonstrate that the promisor really did intend to commit itself

Case Wood v. Lucy, Lady Duff-Gordon Pg. 151

o See Summary

o A promise may be lacking, and yet the whole writing may be instinct

with an obligation, imperfectly expressed. If so, then there is a contract

o A promise may be implied from the writing even though it is imperfectly

expressed

Employment Law ~ The Woods Rule

If an employment contract does not specify its length then they are consideredat will

Reasonable Time does not apply to employment contracts Restatement (Second) of Contracts 77 ~ Illusory and Alternative Promises

A promise or apparent promise is not consideration if by its terms the promisoror purported promisor reserves a choice of alternative performances unlesso Each of the alternative performances would have been consideration if it

alone had been bargained for,oro One of the alternative performances would have been consideration and

there is or appears to the parties to be a substantial possibility that

before the promisor exercises his choice events may eliminate thealternative which would not have been consideration

Many courts interpret satisfaction clauses to require good faith on the part of thepromisor

The good faith obligation means that your decision about whether you aresatisfied with the picture must be reasonable or honest

Case Sylvan Crest Sand & Gravel Co. v. United States Pg. 153

See Summary

UCC 2-309(3): Termination of a contract by one party except on thehappening of an agreed event requires that reasonable notification be receivedby the other party and an agreement dispensing with notification is invalid if itsoperation would be unconscionable.

You have bound yourself to say cancel Stretches the limit of mutuality

A promise to buy of another person or company all of some commodity or servicethat the promisor may thereafter need or require in his business is notan illusorypromise; and such a promise is a sufficient consideration for a return promise

Forever the law was that exclusive contracts lacked mutuality of obligation Anderson says that the law embarrassed itself

Contract Law should be written so that it enforces the type of deals peoplewant to do (Business People)

Along came the UCC 49 out of 50 states have adopted 2-306 OutputRequirements Subject to Good Faith Standard

A minority of jurisdictions already held that this was okay

Good faith is fact specific very real obligation with very real teeth includes selling at a loss

UCC 2-306 Output Requirements and Exclusive Dealings

A term which measures the qty by the output of the seller or the requirementsof the buyer means such actual output or requirements as may occur in goodfaith, except that no qty unreasonably disproportionate to any stated estimate orin the absence of a stated estimate to any normal or otherwise comparable prioroutput or requirements may be tendered or demanded

A lawful agreement by either the seller or the buyer for exclusive dealing in thekind of goods concerned imposes unless otherwise agreed in obligation by the

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seller to use best efforts to supply the goods and by the buyer to use best effortsto promote their sale

Footnotes:

A contract for output or requirements is not too indefinite since it is held tomean the actual good faith output or requirements of the particular party.

Nor does such a contract lack mutuality of obligation since the party whowill determine the qty is required to conduct his business in good faith andaccording to commercial standards of fair dealing in the trade so that hisoutput or requirements will approximate a reasonably foreseeable figure.

Subsection (2) makes explicit the commercial rule embodied in the Actunder which the parties to such contracts are held to have implicitly , evenwhen not expressly, bound themselves to use reasonable diligence as wellas good faith in their performance of the contract

Case McMichael v. Price Pg. 156

See Summary

Past Consideration

82 Restatement (Second) of Contracts Promise to Pay Indebtedness

Declares directly that

o A promise made in recognition of a benefit previously received by the

promisor from the promisee is binding to the extent necessary topreventinjustice.

Promises are not binding under the Restatement approach if thepromisee intended to make a gift of the benefit or

The promisor has notbeen unjustly enrichedo In addition, if the value of the promise is disproportionate to the benefit

the promise is only enforceable up to the value of the benefit You cannot bargain for something if it has already been given

Includes Pre-existing duty you cannot give something that you already have aduty to give

Exceptions to Past Consideration

Statute of Limitationso Even though it has run and there is no obligation a new promise to pay

or a promise not to raise the statute of limitations is good consideration,even though past

Most states require this in writing

Bankruptcyo Doesnt happen much today

Infancyo Anybody below the age of 18 cant bind themselves to anything

o If infant makes a new promise or implicitly keeps paying on a debt made

in infancy, then contract is enforceable Hayes v. Plantations Steel Company Pg. 162

See Summary Mills v. Wyman Pg. 168

A promise without any consideration cannot be enforced

Decided not to enforce a moral obligation

o Moral obligation is a sufficient consideration for an express promise is

to be limited in its application to cases where at some time or other agood or valuable consideration has existed

Restatement (Second) of Contracts 86 Promise for Benefit Received

Referred to as Promissory Restitution

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(1) A promise made in recognition of a benefit previously received bythe promisor from the promisee is binding to the extent necessaryto prevent injustice

(2) A promise is not binding under Subsection (1)a) If the promisee conferred the benefit as a gift or for other

reasons the promisor has not been unjustly enriched, orb) To the extent that its value is disproportionate to the

benefit

EXAMPLEA guy promises a million dollars to someone afterthat person saved his life

Anderson holds: Unjust enrichment = reciprocity, notbenevolence** 86 normally appears in emergency situations**

Webb v. McGowin Pg. 172

See Summary

Application of 86 Hayes, Mills, and McGowin would all have the same outcome as the original

outcome if 86 were used an all cases. Problem 49

He does not have to pay this was a gift Not a 86 case

Pre-Existing Duty Rule

You cannot give something (as consideration) that you already have a duty to give This is bad consideration

A promise, to be enforceable, must involve consideration flowing from thepromise to the promisor

When a promisee only agrees to do that which he is obligated to do, he has infact given nothing to the promisor

Two types of pre-existing duty cases

(1) Modification of an existing contract (Easy)

o Asking for extra and doing nothing more

o Law of contracts for the longest time said so sorry no consideration

under new terms

Rolling contracts be damned cant add w/out approval We were throwing out too many good cases to get rid of the bad

ones under the old lawo Exception : If a pittance is thrown in (washing sidewalk) in addition to

mowing lawnThis will be good considerationo Case Lingenfelder v. Wainwright Brewery Co, Pg. 179

See Summary

A promise made to induce compliance with a valid contact is notenforceable

o Case Stilk v. Myrick Pg 178

See Summary

Employees cannot enforce agreements to pay additional wages forperforming additional duties during an emergency situation

Modifications of employment contracts which are occasioned byemergency or duress unenforceable

o Paradigms

Things happen/good faith

Extortiono 89 Modification of Executory Contract = New Law

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A promise modifying a duty under a contract not fully performedon either side is binding

If the modification is fair and equitable in view ofcircumstances not anticipated by the parties when thecontract was made or

To the extent provided by statute, or

To the extent that justice requires enforcement in view ofmaterial change of position in reliance of the promise

Anderson holds: This rule looks to the future anticipate changes incircumstances Strict reading = may limit changes that were anticipated(price of gas going up) UCC 2-209 is a more liberal rule On an EXAM youwould hold that technically you have to have a change in circumstances (youwould argue that a preexisting condition) to bad so sad, but courts would stillenforce Modification does not require circumstanceso If all you do is what you originally agreed to do, you have suffered no

detriment

High Trees case enforced modification even though he did no morethan he was supposed to do

o Problem 55

Not enforceable = old cases and not good New = 3rd party agreement is binding 73(d)

(2) Dischargeof a debt obligation (Indebtedness) (Harder)o Accord: is a contract (settlement contract) has to have all elements of

a valid contracto Consideration problem in accord: A owes B $50. B says give me $40

instead A gives $40 and B then sues for the other $10 B will wineverywhere b/c there is no consideration

Anderson says that this is a stupid rule credit card companies dothis all the time we should encourage settlement

If you pay a lesser amount early or if you pay it off in a differentplace then the deal has been changed up in some way and there isnow good consideration

o Problem 58

Giving up the right to declare bankruptcy is detrimentalandtherefore valid consideration

o Case Foakes v. Beer (Andersons head)

Law everywhere is that payment of a lesser sum will neverdischarge a debt obligation unless something else is given (horse,hawk, robe)

o Case Clark v. Elza Pg. 183

See Summary

Executory contract = unperformed contract Executor Accords do not discharge claims until they are

performedo Accords are weird there are two categories

(1) Regular

(2) Substituted Contracts

Intent determined whether accord is Route (1) or (2)o 417 An Accord; Its Effect When Performed and When Broken

(a) Such a contract does not discharge the duty, but suspends theright to enforce it as long as there has been neither a breach of the

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contract nor a justification for the creditor in changing his positionb/c of its prospective nonperformance

(b) If such a contract is performed, the previously existing duty isdischarged

(c) If the debtor breaks such a contract the creditor has alternativerights He can enforce either the original duty or the subsequentcontract

(d) If the creditor breaks such a contract, the debtors original dutyis not discharged. The debtor acquires a right of action fordamages for the breach and if specific enforcement of thatcontract is practicable he acquires an alternative right to thespecific enforcement thereof If the contract is enforcedspecifically, his original duty is discharged

One who has a legal duty to perform an obligation cannot recover additional fundsfor performing on a day on which his employment contract does not require him towork

EXAMPLEPublic health inspector cannot require a restaurant owner to pay him for aninspection made outside his normal working hours

EXCEPTION An employer asks an employee to work an extra day for an additional$50. This would probably be enforceable unless the employee already owed hisemployer the duty to work as many hours as were necessary to complete a given task A reneged settlement is a possibility in any lawsuit. Jurisdictions vary greatly as to

how to deal w/ such a situation. Some permit a judge to enforce the settlement;others require a separate action for specific performance this makes enforcing asettlement a cumbersome process

Problem 59

This is full and complete satisfactiono There is no consideration w/ a bad-faith dispute there must be good-

faith involved Problem 60

Businesses have a way of protecting themselves UCC 3-311(b)

Promissory Estoppel On an exam, never discuss Estoppel until you have explained why a contract does not

exist 90 Promise Reasonably Inducing Action or Forbearance

(1) A promise which the promisor should reasonably expect to induce action orforbearance on the part of the promisee or a 3rd person and which does inducesuch action or forbearance is binding if injustice can be avoided only byenforcement of the promise. The remedy granted for breach may be limited asjustice requires.

(2) A charitable subscription or a marriage settlement is binding undersubsection (1) without proof that the promise induced action or forbearance

PE is a substitute for Consideration

75 and 90 cannot be put together (know sections by heart)o 75 is matter and 90 is anti-matter (cannot be put together)

General approach: Promises which foreseeably induce reliance on the part of thepromisee will often be enforceable without consideration, under the doctrine ofpromissory estoppel

EXAMPLE A promises to pay for Bs college education if B will attend schoolfull time. A intends this to be a gift. B gives up a good job and enrolls in college,incurring a liability of $5,000 for the first year. A then refuses to pay the bill.Under the doctrine of P.E., B would be able to recover at least the value of the lost

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job and first-year tuition from A, even though As promise was a promise to makea gift and was thus not supported by consideration.

Actual reliance: The promisee must actually rely on the promise. (Example:On the facts of the above example, B must show that without As promise, Bwould not have quit his job and attended college.)

Foreseeable reliance: The promisees reliance must also have beenreasonablyforeseeable to the promisor.

Elements necessary for PE according to Hillman

Promise

Promisors reasonable expectations

o Promisor must reasonably expect to induce action or forbearance

Inducement of action or forbearance

o The promise must actually induce action or forbearance The

promisee must act b/c of the promise

Injusticeo Courts have lots of discretion

Possible Applications:

Promise to make a gift: The P.E. doctrine is most often applied to enforcepromises to make gifts, where the promisee relies on the gift to his detriment.

o Intra-family promises: The doctrine may be applied where the promiseis made by one member of a family to another. (Example: Motherpromises to pay for Sons college education, and Son quits his job.Probably the court will award just the damages Son suffers from losingthe job, not the full cost of a college education.)

Charitable subscriptions: A written promise to make a charitablecontribution will generally be binding without consideration, under the P.E.doctrine. Here, the doctrine is watered down: usually the charity does not needto show detrimental reliance. (But oral promises to make charitablecontributions usually will not be enforceable unless the charity relies on thepromise to its detriment.)

Gratuitous bailments and agencies: If a person promises to take care of

anothers property (a "gratuitous bailment") or promises to carry out an act asanother persons agent(gratuitous agency), the promisor may be held liableunder P.E. if he does not perform at all. (However, courts are hesitant to applyP.E. to promises toprocure insurance for another.)

PE Not suing for breach, instead you are bringing a cause of action Court has very broad base for remedies on PE

Estoppel

Equitable: Stops someone from bringing a point There has to be amisrepresentation of existing fact

o EXAMPLE Guy takes out a loan and a friend puts up a silo of wheat

as collateral Silo of wheat does not exist (imaginary) Bank foreclosesand wants Silo of wheat Friend says that there is no wheat Judgesays that you are estopped from saying that Man had to pay fair marketvalue of a Silo of wheat

Promissory: Different animal -- Dont need misrepresentation of fact

Shut-Up: ??? Case Allegheny College v. Natl County Bank Pg. 189

See Summary

Judge held that when the college accepted the money it assumed the duty toperpetuate the name of the founder of the memorial

o That was sufficient in itself to give validity to the subscription within the

rules that define consideration for a promise of that order

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Dissent argued that it was termed a gift by Johnston Why do we strainourselves to make it, not a gift, but a trade

Motive is the key did she want to perpetuate her name, or did she want togive a gift and suggest that her name be used? Differing opinions exist

Problem 61 Pg. 197

Can get (all, some, or nothing) money with the last sentence of Section 90 Problem 63 Pg. 197 (GOOD EXAM QUESTION)

If contract is lost expectation then the amount is $5,000.00 If contract is reliance interest then the amount is $3,000.00

Williston and 90 was to regard expected interest (see below)

This is a gift w/ a condition attached (more so than Hammer v. Sidway)o Argument 1: Gift w/ condition go suck eggs

o Argument 2: Gift w/ condition PE may give you something

PE is good until you get to the remedyo What are the damages? How do we put a monetary value on this?

Second sentence of 90 allows court to decide damages

o Does the benefit outweigh the detriment?

Some jurisdictions would yes to PE but maybe the benefit receivedis greater than the detriment (go suck eggs)

o This is a fact issue the more conditions there are, the more this thing

looks like a contract Case Universal Computer Sys. V. Medical Serv. Pg. 198

See Summary

Anderson thinks a lot of courts would go the other way Case James Baird Co. v. Gimbel Bros. Pg. 204

See Summary

Know that the bid was a big mistake so big that it should have put the offereeon notice

Similar to Drenon v. Star Paving Co.

Section 20 of Restatement (Second) Contracts

o There is no manifestation of mutual assent to an exchange if the partiesattach materially different meanings to their manifestations(listedabove)

Parties and sub contractors dont intend to have a deal until the final deal isdoneo Contractor may not know subcontractors work

Learned Hand sad that PE did not apply to this case An offer looks toacceptance, not reliance

Trainer disagreed w. Learned Hando He thinks the subcontractor is praying for reliance so PE should be

used contractor used the bid to his detriment

Courts follow Trainer decision Case Branco Enterprises v. Delta Roofing Pg. 207

See Summary

Case Hoffman v. Red Owl Stores Pg. 212

See Summary

No duty to negotiate in good-faith

All of those thises required consideration

There was no contract, but there was PE Ways to get Around Consideration (EXAM)

Promissory Estoppel

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Promissory Restitution

REMEDIES/DAMAGES

344 Purposes of Remedies

Judicial remedies under the rules stated in the restatement serve to protect one ormore of the following interest of a promisee

(a) Expectation interest: interest in having the benefit of his bargain by beingput in as good a position as he would have been in had the contract been

performed (b) Reliance interest: his interest in being reimbursed for loss caused byreliance on the contract by being put in as good a position as he would havebeen had the contract not been made

(c) Restitution interest: his interest in having restored to him any benefit that hehas conferred on the other party

Expectation interest is always greater than the reliance interest unless you made abad deal

Expectation often includes the reliance interest

When you base your recovery on the reliance interest you can never recovermore than the expectation interest

Reliance and restitution are very rare cases in contract law

reliance interest expectation interest Restitution is based on that D has been unjustly enriched, and enrichment must be

returned to P Specific performance is not a preferred remedy and is to be used sparingly The court will not knowingly put P in a better position than he originally was before

the contract

Contract law does not punish it only rectifies Contract law is purelycompensatory -- only concerned with economics

Must prove damages with a requisite degree of certainty

Expectancy Damages

Injured party gets the monetary equivalent of what they expected under the contract

Never gets any more than expectancy never punitive damages b/c contract

laws goal is to compensate injured party, not punish breaching party Why should injured parties in breach of contract situations receive expectancy

damages?

It is the best method for encouraging people to make and rely on theircontracts, which benefits them and society

A damage measure any lower would undermine peoples confidence in theircontracts a damage any higher would discourage people from makingcontracts b/c they would be wary of the extent of their liability for breach

Economics offers another rational Theory of efficient breach expectancydamages correctly encourage a party to breach when the breach is efficient, inthat the breach makes some parties better off without making anyone worse off-- other hand, expectancy damages dissuade a party from breaching when abreach would cause more loss than gain

Measuring Expectation Damages

Some courts measure lost expectancy based on the injured partiessubjectiveperspective

Value of performance to the injured individual Come courts measure lost expectancy base don the injured parties objective

perspective

Value of performance to some hypothetical reasonable person

EXAMPLE Sell land to developer Developer promises to build a wall that willdivide property Wall will decrease market value of land $1,000 but you want it b/c

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you dont want to see development Developer breaks promise to build and it willcost you $3,000 to get someone else to build you are better financially b/c he broke

promise, but you want the wall Issue is controversial, some courts would award$3,000 some would not

Probable intentions are a key point in deciding how to measure loss expectancydamages

Two Types of Expectancy Damages

General

o Arise naturally from a breach meaning that every injured party under

the circumstances suffers these damageso Do not scare commercial debtors

Special

o Arise b/c of an injured partys particular circumstances (extra expense

cased by the breach)o Two types:

Incidental

Caused by the breach

Consequential

Best definition is loss of use

Biggest reason for non-recovery is mitigation Really scare commercial debtors open ended liability Most contracts today have disclaimers for consequential

damages courts will enforce

Question 2 Pg. 232

Reliance Money or Expectation Money?

Reliance is 5

Expectation is 7

Under 90 you are going to get reliance damages only, unless you have a reallyconvincing argument (see above)

Case Hawkins v. McGee Pg. 229

See Summary

Case Peevyhouse v. Garland Coal and Mining Pg. 233

See Summary We dont know all of the relevant facts If you measure damages by the cost of repair it makes no sense to compensate if

they are not going to repair Escrow accounts are now required for Peevyhouse situations Remedy is to compensate not to punish If completion covenant is part of the deal the original deal was 120,000, but Ps

wanted completion covenant D said ok and them gave them 90,000 (Completioncovenant is worth 30,000) If D breaches, then D has been unjustly enriched Pshould win this type of case 100% of the time

Case Sea Colony East v. Carl M. Freeman Pg. 240

See Summary Useful Life Theory

There is nothing titled the useful life theory It is called the enhancementtheoryo Argument: If D repairs building, the life of the building will be

extended and P will now be in a better placeo Courts agree with this theory, but there has to be credible evidence to

support the theory

Problem 66 Pg. 247

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12K maybe depending on the mitigation factor of 2 Connecticut Rule

Loss + Other Loss Expenses Saved Mitigation Massachusetts Rule

Contract Price Expenses Saved Mitigation factor Both rules will arrive at the same number

Reliance Damages

Incurred b/c we relied on the contract If neither party can prove w/ sufficient precision the amount of the profits or losses to

be obtained the courts give the benefit of the doubt to the injured party Providingrelief based upon expectancy is too speculative

Fixed Overhead

General cost of running your business can be recovered provided that theinjure party can prove it could have recouped its overhead expenses on otherprojects

Can D be responsible for reliance expenses incurred before then contract was enteredinto?

Courts are split

Anderson like foreseeability

Three categories of Reliance Damages Promissory Estoppel

Weird Promises (Sullivan v. OConnor)

o Not many cases

Cannot Prove Damages with Reasonable Certainty (Anglia)o Lots of cases

Case Sullivan v. OConnor Pg. 247

See Summary Court was wary of granting expectancy damages precisely because of the relative

weakness of the contract theory of recovery

Case Anglia Television v. Reed Pg. 253

See Summary

Asking for reliance damages does not have expectancy damages Can always choose reliance unless it puts you into a better position if the contract

had been performed

Why would we do this?o P is a really nice guy

o P is dumber than hell

o P made a bad deal

P is turning adversity into advantage

This is a case where the reliance interest would recover more thanthe expected interest

Problem 67 Pg. 256

Can recover damages based on reliance interest or expectancy interest but not both Limits on Recovery

Certainty:

The P is generally denied any relief that is too speculative Requested reliefcan be too speculative because there is too much uncertainty as to eithero (1) The fact that the breach caused the type of injury that P alleges

Must be by a preponderance of the evidence (>50%)o (2) The extent to which the P suffered from the breach (dollar amount of

damage caused)

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Amount of loss is determined by less a preponderance of theevidence (only has to be a rational way to come up with a figure)

o (3) both the causation and amount

Case Freund v. Washington Square Press Pg. 257

o See Summary

Case Humatrix v. Gemplus Pg. 261

o See Summary

Foreseeability: We were never supposed to understand foreseeability

Case Hadley v. Baxendale Pg. 268

o See Summary

o Established basic structure for contract damages

o Special damages were the profits while the mil was down

UCC equivalent 2-715 buyers 2-710 sellers

Problem 69 Pg. 271

o See 351 of the Restatement\

Judges often misuse foreseeability as a fairness principle they want toachieve a fair result

Avoidability:

Obligation to mitigate damages most important limitation to the contractprinciple

Case Rockingham County v. Luton Bridge Pg. 281

o See Summary

Case Parker v. 20th Century Pg. 286

o See Summary

o If an offer of employment is of a different or inferior kind, it does not

matter whether the employee acts reasonably or unreasonably inrejecting the offer

The person with the duty to mitigate need not expose themselves toundue risk, humiliation, or expense

Mitigation based on reasonableness can increase damages if you incur costsmitigating

Even if you didnt have to mitigate (take unreasonable job) but you do themoney you earned counts against your mitigated damages

When to Mitigate Damages

Problem 73 Pg. 286

Here we are dealing with goods (Luten Bridge = not goods)o Goods are a different situation

We might be able to resell the goods

Question when contract is breached: Should I stop creating goods now andmitigate damages, or should I complete the goods, sell them, and now mitigatedamages?o Need to know: If I complete the goods, how much can I resell them

for

Sell for 1,000 cost 2,500 to complete = do not finisho If you anticipate to sell goods for more than the const to complete

(including lost opportunity cost on selling for scrap) = you shouldcomplete them

It will cost 2,620 to complete the goods: 2,500 + 120

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Problem 74 Pg. 293

Goods are different than jobs, probably do not have to go back

Punitive Damages for Breach of Contract

No punitive damages contracts does not want to punish People can recover damages for breach of contract they can also recover punitive

damages for the tortious conduct displayed in breaching the contract

Really two separate things (punitive comes form the tort side) Mental suffering cannot be recovered in breach of contract unless it is that kind of

case

Ex: Leaky caskets

Liquidated Damages

Courts will enforce liquidated damages -- as long as they are compensatory and notpenalties

Courts will not enforce agreed penalties

Liquidated Damages have to be:

Reasonable in amount

Arise because of uncertainty incalculable damageso It makes good sense to let the possible damaged parties set damages

when the court would have a hard time doing it

Pevvyhouse is a good example Goods almost always have readily calculable value

Provisions for liquidated damages are usually held to be no good when goodsare involved easy for the courts to determine fair compensation

Land is inherently unique

Provisions for liquidated damages are usually upheld when dealing with thesale of land

THE RUB:

Reasonable forecast of what kind of damages?o Approximate Damages, or

o Actual Damages

Majority Rule Actual damages are irrelevant as long as parties met theforecast courts dont care about actual Approximate is fine as long as theyare reasonable

Minority Rule TX Anderson Actual damages are important, andeverything above actual damages is a penaltyo If the person is awarded approximate and the estimation is higher than

the actual damages then the P will be unjustly enriched when D breaches

Majority does not care about that fact majority will never saythis, but they think penalties are ok Two sophisticated peoplecontracting

They use this back door to enable parties to contract forpenalties

Problem 77 Pg. 301 Courts will throw out b/c there is one set amount for all types of cases

Problem 75 Pg. 301

Courts will throw out b/c the more you perform, the more you stand to lose Problem 78 Pg. 301

Courts will probably throw out gets all the money and does not have todeduct expenses saved

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Hillman

15-27 31-37 37-86 133-158 165-179 184-187

Sale of goods UCC dominates

outline - contracts i %28anderson%29

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