Contracts Outline Mutual Assent Objective Theory of Contacts - would a reasonable person think the parties words and

actions show an intent to be bound by the contract Ray v. Eurice Bros - D actions showed an intent to be bound. What they thought was irrelevant Offer - manifestation of willingness to be bound so as inviting other party to accept offer and be bound Bilateral Contracts - contract for exchange of goods, ie: sale of property, car, etc Offer and Acceptance with Bilateral Contracts Lonergan v. Scolnick - letters back and forth were negotiations and final letter was an invitation to make an offer. There was no offer Izadi v. Machado (Gus) Ford Inc. - the ad constituted an offer when viewed by an reasonable person Revocation of offer Normile v. Miller - D revoked offer and notified P of revocation prior to Ps acceptance, hence there was no contract as offer was never accepted before revocation Unilateral Contracts - offerer offers goods (ie: money) in exchange for certain performance by offeree Offer and Acceptance in Unilateral Contracts Petterson v. Pattberg - D offered P reduced mortgage if D paid in full by certain date - D told P he sold mortgage as P approached to pay in full and complete acceptance - C said D revoked offer to P before P had accepted because he informed P of revocation seconds before D paid, and had sold the mortgage hence showing his intent not to be bound Cook v. Coldwell Banker - when P had produced substantial performance prior to Ds attempt to change offer, original offer became irrevocable - if offer had not become irrevocable after substantial performace, then it would allow unjust enrichment in favor D Other methods of reaching mutual assent Harlow & Jones Inc. v. Advance Steel Co. - common practice in the industry was to make deals over the phone - the offer and acceptance occurred during phone conversation - documents sent back and forth were merely confirmation of the deal, not offers, and the contract became a contract during the phone conversation Battle of the Forms Mirror Image Rule

- if acceptance is not mirror image of off, it is a counteroffer Last Shot Rule - last form which constitutes an offer defines contract terms UCC 2-207 eliminates common law approach of Mirror Image and Last Shot rules Princess Cruises v. General Electric Co. - PC sent price quote on its form to GE - GE replied with different price quote on its own form - PC sent GE purchase order based on GEs quote, so GE form was contract Brown Machine Inc v. Hercules Inc - Brown sent price quote with expiration date - Hercules replied after expiration date and stating deposit was unacceptable. Sent PO on Hercules form to Brown with its own terms - Brown replied with order acknowledgement. Herculess form wins Consideration - along with mutual assent, something must be exchanged. A gift is not a contract - Peppercorn theory - consideration must exist in fact, cannot be manifested by parties, something must be exchanged even if it is just a peppercorn Dougherty v. Salt - Aunt didnt receive anything from kid in exchange for promise to give money - since kid gave nothing to aunt, deal lacked consideration and was therefore a gift - a gift is not an enforceable contract Batsakis v. Demotsis - inadequacy of consideration does not void contract - just because contract was $2000 repayment for $25 loan doesnt matter, still consideration and therefore still contract Plowman v. Indian Refining Co. - past consideration is no consideration - giving something in exchange for past performance does not constitute consideration - also agent offering pension promise lacked authority to do so on behalf of Co. Promissory Estoppel - promissory estoppel can only be used if it would be unjust to not enforce an agreement - promissory estoppel is used in place of consideration where there is no consideration, but in which there was mutual assent James Baird Co. v. Gimbel Bros Inc. - D made honest mistake in measurements included in offer and notified P immediately when D learned of mistake - C ruled that D made an offer, not a promise, and P could have easily communicated to D that they were relying on said offer and could have accepted offer on condition of getting their bid. - Ds bid to P was also very small part of Ps entire bid on their contract

Drennan v. Star Paving Co. - P relied on Ds bid, D expected P to rely on their bid - therefore promissory estoppel applies - D made a subsidiary promise promise implied in the circumstances to hold the offer open despite there being no explicit offer - subsidiary promise + reliance = promissory estoppels Berryman v. Kmoch - offer to sell property was indirectly revoked when D sold property to someone else and P found out via 3rd party - P never gave D the $10 negotiated deposit, therefore there was no consideration Pops Cones Inc. v. Resorts International - a promise is a communication in which one would reasonably expect the promissee to rely upon it and perform action upon it - D told P not to renew current lease and to pack up store in preparation to move into Ds location. - P reasonably relied on Ds promises - promissory estoppel enforced. Agreement to Agree Protection of Unbargained-for Reliance Promises within family Charitable Subscriptions Promises in Commercial Context Katz v. Danny Dare, Inc. - D tried to get P to accept pension and retire for over a year, P finally did - D argued that P would have been fired if he didnt retire and therefore did not give up anything to which he was legally entitled - C ruled that D would not have fired P and therefore P gave up his legally entitled job/salary by retiring in exchange for the promise of pension and promissory estoppel applied and D could not discontinue pension Emergency Services provided - to prevent unjust enrichment services provided in an emergency situation must be paid for even though there is no bargained contract if a reasonable person would have paid for said services if it wasnt an emergency and they had the chance to bargain - ie: if there is a car accident and a doctor provides medical attention, doctor will get paidbut if a layman provides medical services, they will not get paid because a reasonable person would not pay a layman for expert medical services Promissory Restitution - exception to past consideration rule

no

- if D received material benefit from P and D made promise to pay for said benefit after it was received, promise is enforceable. Webb v McGowin - moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was original duty or liability resting on the promisor - P saved Ds life and D agreed to give P $15/week for the rest of Ps life and did so until D died. Ds estate refused to continue paying. - C ruled in favor of promissory restitution and estate had to continue paying

The Statute of Frauds - certain types of contracts must be in writing and signed in order to avoid fraud or perjury - sales for goods for $500 or more (UCC) - real estate - surety (contract to answer for debt or duty of another party) - marriage consideration - contracts which cannot be completed within 1 year of its making - doesnt matter how long it takes, but it must be at least possible to complete the contract within 1 year - must determine if the contract falls within the statute of frauds - if so then are the requirements of the statute satisfied - stuff not written in the contract are not enforceable terms of the contract (ie: cant say that additional terms were verbally agreed to but not written down even though said terms explicitely apply to details of agreement and would normally have been included) SOF Requirements - be in written form - identify the subject matter of the contact so it is reasonably understood (e.g. the purchase of "bowling balls") - provide the essential terms of the agreement (with sales of goods it is the quantity and price of the goods) - have the signature of both parties or, per the UCC for sales of goods, the signature of "the party to be charged" (the party contesting the validity of a contract.) - combining multiple documents to satisfy SOF - 1 writing expressly incorporates the details of the agreement - both documents refer to the same subject matter + testimony/evidence that both parties assented to the unsigned document Crabtree v. Elizabeth Arden Sales Corp. - contract itself did not indicate that more than 1 yr of employment was guaranteed - timecards signed and reference sheet of promised pay raises signed by parties provided evidence that contract could not be fulfilled within 1 year and SOF applied Promissory Estoppel to overcome the Statue of Frauds

- Restatement Second 139 - when conflicting case law between SOF and PE, PE prevails - promise is only enforceable where injustice can be avoided only by enforcing the promise Alaska Democratic Party v. Rice - promissory estoppel took precedence of SOF - Rice relied upon promise of ADP chair - chair expected Rice to rely on promise and move to Alaska and quit her current job - Rice was awarded promised salary Principles of Interpretation The Parol Evidence Rule - bars parol evidence (extrinsic evidence, oral or written) when it would upset the written terms of the contract - Complete Integration - if contract includes all terms of the transaction - all evidence is excluded - Partially Integrated - if contract leaves out some terms of the transaction but includes the majority of the terms - evidence that does not contradict what is written in contract, but merely adds to them, is not excluded - Merger Clause - statement in contract stating that it contains all terms of deal - Exception - evidence is allowed if it does not contradict terms in the contract but merely helps to understand/interpret what is written in the contract - try to claim this of evidence that you want to try to get in Gap Filling in Contracts - Implied in Fact - determining what the parties meant when they made the agreement - if there is an exclusivity deal, person with exclusivity must make reasonable effort - Implied in Law - court fills in gaps with the law, ie: good faith Third Party Rights - 3rd party cannot sue for consequential damages Avoiding Enforcement Minority and Mental Incapacity Duress and Undue Influence

Misrepresentation Bargaining Defects - fraud, misleading, misrepresentation, etc - 2 options to choose from - Rescind contract and sue for tort - Punitive Damages - Violation of social norms - return of out of pocket money OR - affirm contract and sue for contract damages - NO punitive damages - Expectation Damages - end up in position if contract had been fulfilled Non-disclosure - party new the material fact and had a duty to disclose Duty to Disclose - fact is material to transaction - fact is not readily observable to other party - Restatement 161: non-disclosure equivalent to misrepresentation where nondisclosure concerns basic assumption and demonstrates lack of good faith. Unconscionability - Contract of adhesion? - one party has all the power - 1. Standardized - 2. Drafted by party with superior bargaining power - 3. Cant negotiate - 4. Relegates to lessor - Procedural unconscionability - unfair surprise - Substantive unconscionability Contract Defenses Capacity Minority/Mental Illness Coercion Duress/Undue Influence Deception Misrepresentation/Non-disclosure Substantive Unconscionability/Public Policy - all we care about the substance of the provision at issue - restrictive covenants can not be more broad than is necessary to protect the interests of the employer - Restraint of trade is unenforceable unless it is ancillary to another agreement (employment contract, sale, etc) and it meets the section 188 anaylsis of covenants listed above

Justification for Nonperformance Mistake - misconception at time of contract formation

Mutual Mistake
a.

Sherwood v. Walker (1887): sale of cow that was supposed to be sterile but turned out to be fertile and thus rose 10 times in value. Court rendered sales contract void on theory of mutual mistake as to the product in question barren vs. fallow cow. Lanawee County Board of Health v. Messerly (): P bought land from D, but it was soon shut down as unfit for human habitation as a result of septic tank disaster. Septic tank had been improperly installed by preceding owners (before D). P tried to void contract for mutual mistake. Court looked at the two innocent parties to determine who contracted to take on the risk. Here, the "as is" clause of the contract suggested that the purchasers were assuming the risk inherent in collateral mistakes. Restatement 152: contract based on mutual mistake is voidable unless the adversely affected party bears the risk of mistake under a reasonable view of the circumstances.
i.

b.

c.

E.g.: seller is a professional dealer and buyer is a novice. May also apply when a dealer sells to a dealer as in Beachcomber Coins (1979): dealer sold fake coin to another dealer. Contract was voided on finding that was fake despite both being experienced in the area.

the coin

Unilateral Mistake - materially related to contract - occurred notwithstanding the exercise of reasonable care - consequences are so grave that enforcement would be unconscionable - and the other party can be places in statu quo Changed Circumstances: Impossibility, Impracticability and Frustration 2. Impossibility
a.

Taylor v. Caldwell (1863): performer rented Surrey Gardens for four days, spent money on advertising, only to find the gardens have

burned down. Court held that the contract could not be fulfilled due to impossibility and thus no liability was tied to defendant.
b.

Young v. City of Chicopee (1904): P was hired to build bridge for city. Purchased hardware and left at site of bridge at Ds insistence to hasten work. Soon after work started bridge burned down and destroyed Ps supplies. Court held that the contract was discharged as no bridge remained and thus performance was impossible. No liability to D. Karl Wendt v. International Harvester (): P entered contract with D to become a distributor of his products. D negotiated to sell out to a competitor, who did not take on all of the distributors. D claimed it was impossible for them to honor the agreement with P because the recession was putting them out of business. Court held that the mere lack of profit is not enough to satisfy a defense of impossibility. The unforeseen circumstance did not frustrate the primary purpose of the contract.

c.

3.

Impracticability/Frustration of Purpose:
a.

Krell v. Henry (1904): rental of room for coronation parade that was delayed. Court held that contract was void as the purpose of the rental was to watch the parade. As the parade would not occur, the contract essentially was void. Supported by Restatement 265, as the doctrine of supervening frustration. Transatlantic Financing Corporation v. United States (1977): blockage of Suez canal due to war in Egypt caused a 3000 mile delay in transit for ship of P carrying grain to Iran on contract for US. P claimed impossibility by virtue of closing of the canal and wanted payment for the additional time and miles required.
i.

b.

c.

Court stated that impossibility required:

Unexpected occurrence

(b)

Failure to have allocated risk of occurrence by agreement or custom Commercial impracticability with respect to performance of Ps obligations.

(c)

ii.

Here, the court held that there was no failure to allocate risk and that the transit, while less profitable, was still profitable to the shipper. Thus no impossibility and no damages.

4.

Void for Public Policy:

Valley Medical Specialists v. Farber (1999): D, a doctor, used to work for VMS. D is a specialist whose treatments patients need to receive once every six months. D signed an employment agreement with a restrictive covenant that limited where he could practice should he leave. He left, and P sought to enforce agreement. Court held that the restrictive covenant is void on public policy despite the fact that P has a legitimate interest in guarding its customer base, as there existed a special relationship between doctors and patients and due to the extremely broad nature, length and scope of the covenant. Borelli v. Brusseau (1993): Husband had stroke and agreed to leave wife certain property if she would care for him at home. She did her part, but he left everything to daughter. Court held that the contract was unenforceable for lack of consideration (she had fiduciary duty to him anyway) and because it violated public policy (such agreements are antithetical to marriage as legislature has defined it). Baby M (): Parties contracted for a surrogate mother to carry to term a baby for another couple. Court looked past the form of the contract and held that it was void as being too close to violating state adoption law.

b.

c.

Modification of existing contract

Requires new consideration

(b)

Performance of duties already contracted for cannot be a Restatement 89: modification may he enforceable if it UCC 2-209: Modification enforceable if made in good faith Change in market conditions resulting in loss P then can choose b/w claiming damages or Austin Instrument Co. v. Loral Corp. (1971): demand by

new consideration. See Alaska Packers (1902) & Restatement 73.

is fair and equitable in view of circumstances not known by parties at signing.

and for legitimate commercial reasons.

may he good faith reason, despite this being an actionable breach.

renegotiating for performance.

P to increase price paid for components by D and to extend contract was considered duress and unenforceable, dispute dissent arguing that it was a legitimate adjustment to a changed commercial situation.
(f)

Kelsey-Hayes Co. v. Galatco Redlaw Castings Corp.

(1990): D was in a three year agreement with P to supply castings that P used to make brakes for major auto companies. Threatened to quit delivery if D did not increase price. Court held a contract is voidable if assent is induced by a threat that leaves no economically viable alternative. Threat does not have to be illegal; just wrongful. Express Condition - Condition will relieve me of my obligation - but if the requirements of the condition are within my control, then we will consider it a promise instead of a condition - in general a condition is not within the control of either party Constructive condition of exchange - if one party doesnt perform, the other party need not perform - the missing fulfillment is innocent and trivial, then youre only entitled to the resulting damage, not complete forfeiture - if the Ds breached part is minor, you dont get to completely breach your side of the contract in response because youre only entitled to the damages caused by their breach - the breach would not be considered a condition of the contract but rather a breach of a promise

- some promises are so completely independent of the other promises in the contract that they are not a condition of the contract - 3 types of promises - Independent promises - Dependent promises - promises that can be either dependent or independent depending on the circumstances - when departure from promise is insignificant = independent - if 1 ft our of 30 ft of pipe is different - when departure from promise is significant = dependent - if all pipe is different from promised Efficient Breach - costs less to breach than fulfill contract Expectation Damages - use cost to complete if: - substantial performance has been made in good faith - AND cost to complete would result in economic waste - economic waste: job cant be performed at this point Handicapped Childrens Education Board v. Lukaszewski - D signed employment contract with P - D found better job and left for better job (with doctors note that it was a bad environment for her) - defense would be impracticability - change of circumstances rendered performance more burdensome - P hires replacement for higher salary and sued for difference in salaries - Ct. ruled in favor of P Other Loss consequential damages - losses arising naturally from the breach OR - under reasonable contemplation of parties - if special circumstances were communicated Non-recoverable damages - attorneys fees (American Rule) - fee shifting statues some statutes allow prevailing party to get fees - ie: employees rights - can also agree within the contract for attorneys fees - loss in value ie: attorney must sue client for non-payment - emotional distress - punitive damages - exception is bad faith of insurance claim - ie: insurance company refuses to pay claim in bad faith

Reliance measure of damages - when you cant, with reasonable certainty, prove your expectation (of profit) then fall back to reliance damages as measure of award in case Wartzman v. Hightower Productions, Ltd. - P spent like $155k prepping shit in reliance - P sued for reliance - P didnt sue for expected income because nothing to compare the proposed stunt to and therefore had no idea how much money to expect to make - anytime the expectation of profit can be proved, then expectation is measure of damages - otherwise assume it is a break-even contract and return expenses (reliance expenditures) Wasler v. Toyota Motor Sales, U.S.A., Inc. - P gets promise of letter of intent from Toyota for new Lexus dealership - D eventually, after months, decided not to give dealership to P - P spends over $600k to buy land and such - P sues for expected profit - used promissory estoppel, fraud, breach - fraud and breach thrown out since no contract - Ct. tells jury all they can give is reliance damages - upheld Restitutionary measure of damages - why seek restitution instead of expectation? - because it was a losing contract - theory is preventing unjust enrichment to other party United States ex rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc. - P wants full value of everything given to D, despite having had contract for less money - D had breached contract before P breached - theory is that P sues to rescind the contract as remedy, then get restitution - P had 2 options based Ds misrepresentation leading them into contract - can affirm contract and sue on contract - or can rescind contract and sue on tort - Ds original breach of contract was the misrepresentation Lancellotti v. Thomas - breaching party had already conferred more value upon the breached than the breached lost - hence the non-breaching party was in a better position than before breach - they got a deposit - if deposit exceeds expectation, the difference should be returned - P breached, but had given D $25k deposit

- D only lost $20k in the breach - hence D was up by $5k after breach - P gets the $5k back Specific Performance - Practical Limitations - problem of coercing performance requires cooperation - difficulty of drafting a decree and monitoring and enforcing it - Historical Limitations - law must be inadequate (eg: land is unique) - monetary damages are inadequate - discretionary nature of equity - modern trend is to relax the requirements Liquidated Damages (a rule): Reasonable estimate per actual or anticipated Sample Problem 1 - scope of question is formation - did she make an offer? Were they able to accept because offer was irrevocable - is the offer sufficiently definite? Yes - yes there is an offer - dont spend much time questioning if there is an offer - do they have the power of acceptance under an irrevocable offer? - 3 irrevocablility rules - classical common law? - promise of irrevocable is not enforceable unless it is an option contract, which requires consideration and there is no consideration - nothing exchanged for her promise of irrevocabtility - 87.1 ? - modern approach to say that if you say there is consideration, then that is enough to make it irrevocable - 87.2 ? - Drennan v star paving, reliance on offer making it irrevocable? - did they rely on her? - not likely in this case - courts have only applied in subcontractor cases - did she revoke under 36? - requires clear communication that she no longer wishes to be bound - the seller said she couldnt revoke because it was irrevocable, we dont know how buyer reacted except to maybe sorta back down, so we dont know if she completely revoked - immediately call and officially revoke - quick, 3 sentences

- spend time on irrevocability, offer and revoking should take 10 seconds - possibly remedies to seller if they prevail? - specific performance? Usually in real estate because it is unique, but condos are hardly unique - expectation measure? - K Fair Market Value (or resale value) - they suffer damages only if they got you to agree to pay more than FMV or resale value for condo Sample Problem 2 - seller knew, but didnt disclose so is there non-disclosure - duty to disclose - Restatement 161.b - failure to disclose amounts to bad faith - hardest one to establish - basic assumption is obvious by name Steak and Ail - buyer asked sellers advice on getting the liquor license transferred - seller advised him on what to do - mistake? - I didnt know that I couldnt get a liquor license at the time I entered the contract - is the risk of the mistake allocated to the buyer? Probably not - did the buyer act on the basis of limited knowledge? - this probably wouldnt work well, but examine it anyway - was liquor license a requirement of the contract? - nope - sellers remedies if seller is victorious? - the later letter about wanting to buy land is irrelevant because it was after the formation of the contract - value of business is declining (can probably get the declining value) - actually tried to mitigate damages by trying to sell - deduct any income the seller is making during this time - assuming he is earning a profit LV $310,000 - $60,000 deposit OL Incidental/Consequentuel (no to manager salary) Cost Avoided no because running restaurant still Loss Avoided Profits + resale value of property - no including managers salary because generating profits and it was the equivalent of hiring a waitress Sample Problem 3 - does she have rights under the contract? - right at the edge of the 90 days, but should the days she was in a coma not count toward the 90 days

- she was not in the facility for all of the 90 days because she was in hospital - she would have elected before 90 days if she had ability to do so - did she satisfy condition of being in adequate health? - probably doesnt work because this is to protect the home, not buyer - does she have rights under contract defenses? - non-disclosure - 161.b medical professional examined her for home - assuming doctor discovered this, he (and home) had duty to disclose - mistake - she could get examination herself - she has the risk of mistake on her - non-disclosure is the better argument