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f t 7 { H ^ v v v v A XI D[ XI p p p p p p Enforceability Outline
Philosophical Underpinnings
Four views of contracts:
Moral obligations
instrumental view aka social good view
rights to freedom of contract
compensation of detrimental reliance some idea of fairness
US Naval Institute v. Charter Communications Inc. 1991 (2-5)
D had licensing agreement with P to sell The Hunt for Red October in paperback starting in October. They jumped the gun and started selling in September. The dispute is over the damages.
Expectation damages: the amount of money P would have made had the contract been performed the lost profits on the hardcover sales.
Reliance damages: makes the promisee as well off as if the contract was never signed. Arguably the same they would have signed with another company that wouldnt have jumped the gun and sold the softcover book early.
Restitution damages: clawing back the profits D made from the sales of the softcover book.
Contract damages are compensatory, not punitive
Tie, with respect to calculating damages, goes to the plaintiff. Restatement 352 comment a.
Sullivan v. OConnor 1973 (8-14)
Doctor (D) guarantees patient that nose-job will be successful. It isnt and shes ugly.
This case illustrates the difference in how to calculate expectation and reliance damages
Expectation damages:
the difference between the promised and actual outcome.
promised nose post-op nose
no doctors fee for original surgery
actual pain & suffering expected pain and suffering
Reliance damages:
doctors fees
original nose post-op nose
pain and suffering for all operations
There is an enforcement issue: public policy considerations mean we dont want to let doctors make these types of promises, but we also dont want to provide incentives for patients to claim that these promises were made.
Enforceability
17. Requirement of a Bargain
Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.
Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts or under the rules stated in 82-94.
Hamer v. Sidway 1891 (27-31)
Uncle promises Nephew $5K if he refrains from debauchery until he is 21 (unilateral contract offer). Nephew refrains, and the estate wont pay.
The rule of enforceability in this case is the benefit/detriment rule
benefit to the promisor, or
detriment to the promisee
In this case, the detriment to the nephew was his abstaining from his favorite type of conduct.
he restrained his lawful freedom upon the faith of his uncles agreement
The offer of the uncle could have been accepted by either a return promise, or just by action.
If the nephew had started performing, and then the uncle had taken back the offer he would have had a cause of action. See 45(1). Option Contract Created by Part Performance or Tender.
Philosophically, the benefit/detriment rule does not make a lot of sense anything that someone does could be looked at as a benefit. And unilateral contract offers never impose a detriment as in this case.
Problem with the Benefit/Detriment Rule
If A and B make an executory agreement, and one person breaks it, this could be enforceable under the benefit/detriment rule through circular reasoning the agreement is enforceable, so the other side has given up her legal right, so she has suffered a detriment.
Kirksey v. Kirksey 1845 (50-51)
Brother in-law promises P to give her a spot on his land. She gives up her land and moves, and then he kicks her out.
Under the pure benefit/detriment rule this contract was enforceable.
Brothers promise was a mere gratuity the brother in law did not promise what he promised because of what his sister-in-law gave up.
Rule: benefit/detriment plus a bargain is required.
Bargain there must be at least one return sought-for thing that induced the promise.
A bargain cannot be a sham bargain.
Key Restatement sections 71, 79, 81
What is a bargain?
71. Requirement of Exchange; Types of Exchange
To constitute consideration, a performance or a return promise must be bargained for.
A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
The performance may consist of
an act other than a promise, or
a forbearance, or
the creation, modification, or destruction of a legal relation.
The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
if it is sought means that it just has to be one of the reasons. It doesnt have to be the only reason.
81. Consideration as Motive for Inducing Cause
The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise.
The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for that promise.
Notes:
It just needs to be one of the reasons, not the only reason and not enough of a reason by itself.
The reason doesnt have to be enough all by itself.
SHAPE \* MERGEFORMAT
What is the difference between the language in 71 and 81?
79. Adequacy of Consideration; Mutuality of Obligation
If the requirement of consideration is met, there is no additional requirement of
a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
equivalence in the values exchanged; or
mutuality of obligation.
In other words,
79: if there is a bargain, then there is no additional requirement of:
benefit/detriment
equality in exchange
no mutuality of obligation unilateral contracts can be binding
King County v. Taxpayers of King Count 2000 (p. 33)
There is no equivalence requirement in 79 a small amount of money in exchange for giving a stadium is enough.
Fisher v. Union Trust Co.
A father gives property to a daughter, and she gives him a dollar. She will get the property once she dies. There are many cases where you want to have contractual obligations rather than being able to break it at any moment.
Feinberg v. Pfeiffer Co. 1959 (39-43)
Ds company decides to give P a retirement payment of $200/month for services rendered. P could take the benefit whenever she wanted. P continued to work, D stopped paying, P sues.
This was a promise based on past performance. 71 of the restatement says it was sought past performance is not enough.
Central Adjustment Bureau, Inc. v. Ingram 1984 (53-61)
After working for P for 1 week, D was asked to sign a non-competition covenant. D signed it, then started his own business.
A promise of continued at-will employment is not enough, it requires performance.
The offer looks something like this:
Or, from the employees perspective, If you keep me employed for a reasonable amount of time, I promise not to compete.
If you promise not to compete, and I continue to employ you for a reasonable amount of time, that promise will be binding.
by signing this agreement not to compete, if you keep employing me for a reasonable amount of time, then that agreement will be binding.
This is a unilateral offer from the employee to the employer.
There is no mutuality of obligation here it is a unilateral contract. This is fine under 79.
Mutual seeking
the employee was seeking continued employment
the employer was seeking the promise not to compete
Public policy: if these are not enforceable, then the company cant form contracts with their employees.
The court talks about the promotions that D got, but this is irrelevant because they were not on the table when D signed the covenant.
Illusory Promises
77. Illusory and Alternative Promises
A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless
each of the alternative performances would have been consideration if it alone had been bargained for; or
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 the alternatives which would not have been consideration.
Illusory promise 77 a promise in which the promisor does not bind himself to do anything and hence it furnishes no basis for a contract because of lack of consideration; a promise so indefinite that it cannot be enforced or which, by virtues of provisions or conditions contained in the promise itself, is one whose fulfillment is optional or entirely discretionary on the part of the promisor.
Strong v. Sheffield 1895 (69-71)
In return for D getting his wife to cosign a debt, P agreed to forbear collection of that debt. The promise to forbear had words like: I will hold it until such time as I want my money. P did forbear on the debt for 2 years.
The court says that if an offer is accepted by a return promise, then that precludes looking into the actual performance.
In this case the promise is illusory, there was no obligation on the part of P to forbear.
Mutual seeking D had to be seeking an illusory promise here in order for this to be a bargain. This is not likely.
If this was a unilateral contract it would read something like If you forbear collection of the debt for 2 years, I will have my wife cosign.
77 Illusory and Alternative Promises governs this case.
Mattei v. Hopper 1958 (72-75)
P wants to buy Ds lot. The contract they sign has a condition that the sale is subject to Ps obtaining leases satisfactory to the purchaser.
The issue is whether a satisfaction clause (a clause that leaves part of the contract dependent on one parties satisfaction) makes the promise illusory
Rule: all terms should be interpreted as requiring good faith.
The court says that there are two types of satisfaction clauses:
objectively determinable ones by market standards
subjective ones there are two types of these
ones that can be determined if they are being followed in good faith
ones that leave the contract up to the whim of one party.
Only number 2 above is unenforceable the court is concerned with determining if there is a breach
In this case, if P hadnt tried to get any leases, then he would have breached.
Holding: contract is enforceable, judgment for P.
Wood v. Lucy, Lady Duff-Gordon 1917 (83-84)
P has a contract with D to be the exclusive marketer and seller of her brand name. P promised a share of the profits to D, as well as to keep the books and apply for patents. D went ahead and sold goods through another distributor.
There is an implicit promise to use reasonable efforts to sell Ds goods in Ps promise to D to share the profits. This promise is implied in fact.
This reasoning makes sense, because D is looking for P to use reasonable efforts when she signed the contract.
Rule: if a contract looks unenforceable on its face, there may be an implicit promise to act a certain way. This implicit promise may be enforceable.
Promissory Estoppel
90. Promise Reasonable Inducing Action or Forbearance
A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of the promise. The remedy granted for breach may be limited as justice requires.
A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.
In point form:
a promise
a promise such that the promisor would reasonable expect the promisee to rely on
actual reliance
enforce a promise so long as it would unjust not to enforce it
remedy may be limited
The justice requirement comes into play in some situations:
If you promise to insure my furniture and I rely on it, I may be able to recover. But if you promise to play my lottery ticket numbers for me, and I rely on it I may not be able to recover. Justice does not require that the latter gets paid.
Expectation damages are usually used for reliance cases weird.
Ricketts v. Scothorn 1898 (86-88)
D promised P $2,000 so that she could quit work. Ds estate wont pay it out, saying that it lacked consideration. P later quit her job on reliance of the note.
The promise to give money was an attempt to induce P to quit, but the gift was not conditional on P quitting.
D induced P to action that was a reasonable and probably consequence of his gift.
Justice requires compensation.
Feinberg v. Pfeiffer Co. 1959 (39-43)
Ds company decides to give P a retirement payment of $200/month for services rendered. P could take the benefit whenever she wanted. P continued to work, D stopped paying, P sues.
This is straightforward application of 90.
The elements required for promissory estoppel:
a promise
promisor could reasonably expect to induce action
action is induced (actual reliance)
injustice would occur if the promise was not enforced
remedy may be limited.
In this case:
there was clearly a promise
the promisor encouraged the action
the action happened
it would be unfair to disqualify her from getting paid.
hypo: if she quit right away, and the money was cut off right away so she found another job, there is a big difference in her damage award:
expectation damages the NPV of the retirement payments
reliance damages - $0.
Cohen v. Cowles Media Company 1992 (95-96)
Reporters promised P that his identity would remain confidential if he dished the dirt on a gubernatorial candidate. They revealed his identity, he sued under promissory estoppel.
Court discusses the injustice of not enforcing the promise.
Sociological investigation of the injustice: past editors and other journalists were outraged at the disclosure of his identity.
This case shows the flexibility of the promissory estoppel doctrine.
D & G Stout, Inc. v. Bacardi Imports, Inc. 1991 (97-103)
P was going to sell out his liquor distribution business, distributing Ds liquor in part. D assured P that they would still use them as a distributor, and they relied on that when they decided not to sell. Hours after they refused to sell, D reneged on their earlier statement. P had to sell at $500K less as a result because of their decreased bargaining power.
This is a case about the application of 90.
Was there a promise?
They stated that they had no intention of taking their business elsewhere, statements of intention are not promises.
The statement we will continue to use you as our distributor is the promise, but it is illusory. It doesnt commit them to anything, unless you impute a reasonable time requirement.
The main question is could P have reasonably relied on Ds promise?
If the promise is illusory, can you rely on an illusory promise? This is problematic.
If the promise is not illusory, then this analysis is largely moot.
Murphy thinks that the promise is illusory.
Why cant we use the Wood v. Lucy case to read in an implicit reasonable time period here? Or read into an implicit agreement to provide warning
The court says that a proxy for figuring out if promissory estoppel applies is to find if there were reliance damages, but no expectation damages.
The key part here is that the loss was a result of a loss in bargaining power, not future earnings. If it just had been future earnings, then there would not have been a recovery.
It seems like the court is more worried about over-reliance in the formation stage of contracts than in the cases above? Especially through the language the courts use. Is that true?
Restitution
What you need to establish a cause of action in restitution
benefit
not officiously conveyed the benefit cannot be imposed upon someone.
not gratuitous - whether you expected to be paid, you wouldnt have done it usually but for payment.
the benefit has to be measurable. There are two ways to measure this: costs avoided or benefit conveyed (see restatement 371).
No requirement of a promise for restitution
Restitution is sometimes called quasi-contract because elements 2,3,4 are more easily met when there was some sort of contract (even an unenforceable one).
Cotnam v. Wisdom 1907 (103-106)
Physician (P) provided medical services to an unconscious dude.
This is the easiest case of restitution:
there was a benefit a chance that D would get better
not officiously conveyed P could not have asked D if he wanted the services. It was reasonable for P to believe that D wanted his services.
doctors do not provide these services for free
easy to measure doctors have fee schedules
Callano v. Oakwood Park Homes Corp. 1966 (108-110)
P entered contract to plant shrubbery with original buyer of home from D. Original buyer died, didnt pay for the shrubbery, and D resold the home. P wants to get paid for the benefit conveyed.
The court uses the following test:
D was enriched
retention of the benefit w/o payment would be unjust.
P must have expected D to pay in the first place.
Here P did not expect D to pay, he expected the original buyer to pay.
Paschalls, Inc. v. Dozier 1996 (p. 110 note 2)
P built an addition to Ds house, at the request of Ds daughter. P could not get payment from Ds daughter because she was bankrupt.
Court found for P
It is reasonable if P has exhausted his remedies against the person with whom he has contracted, and still has not received the reasonable value of his services.
Paschalls is the rule most courts use. Pashchall follows more closely the cause of action for restitution.
Hypo: A mows Bs lawn while B is away. After B gets back, A asks B for money and B agrees. Will B be held to his promise? Probably not, as the lawn mowing was officiously conveyed.
Officious Conveyance
Cotnam patient was unconscious and situation was dire.
Callano & Paschalls service was done at the request of previous owner.
Pyeatte support was requested and given a quid pro quo.
Pyeatte v. Pyeatte 1982 (p. 112)
Married couple agrees that the husband will go to school and wife will support him, and then she will get a chance to go to school. Husband reneges.
No contract, because the terms were too indefinite.
But there was an agreement, and the restitution factors above can be easily satisfied.
The facts demonstrate an agreement between the spouses and an extraordinary or unilateral effort by one spouse which inures solely to the benefit of the other by the time of dissolution, the remedy for restitution is appropriate.
If one person is put out for the benefit of another, then restitution is a good remedy.
Past Performance Meets Restitution
Mills v. Wyman 1825 (p. 44) [Sept. 22]
P took care of Ds sick son during a sea voyage. After Ds son got better, D promised to pay P for the expenses he incurred.
Rule: no consideration for past performance, and no exception for moral obligations
There is a moral obligation to perform every promise, so creating a different rule would make every promise enforceable and thus eliminate the consideration doctrine.
Webb v. McGowin 1935 (45-48) [Sept. 22]
Mill employee, P, was working on the top floor dropping pine blocks to the ground below. He was letting one go when he noticed Ds decedent underneath. P jumped with the block to divert it from hitting D. P succeeded and ended up severely crippling himself. Ds decedent promised to pay P $15 biweekly for the saving of his life. Ds estate stopped payment and P sued.
Decedent got a material benefit from P, and was thus morally bound to pay P.
When the promisee cares for, improves and preserves the property of the promisor, though done without his request, it is sufficient consideration for the promisors subsequent agreement to pay for the service, because of the material benefit received.
If some received a benefit from someone else and they promise to pay for it, they are bound.
Judgment for P.
Reading of the case:
If you read this case broadly then you are in the realm of enforcing moral obligations, which is not good.
If you read it narrowly, you are saying that some moral obligations are more worthy of enforcement than others, so it is arbitrary.
How do we make sense of this?
As a restitution action as per 86 of the restatement.
But not a pure restitution claim, because there still needs to be promise.
the promise is not being enforced, it is what is used to measure the benefit conveyed
As a formal requirement
the past benefit conveyed provides evidence for the bargain
the promise is not being enforced, but is used to measure the benefit conveyed
There are other exceptions to rule requiring consideration:
promise to pay past debt ( 82, 83 of the restatement)
86. Promise for Benefit Received
A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.
A promise is not binding under Subsection (1)
if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or
to the extent that its value is disproportionate to the benefit.
Formalism
A strict form is comprised of the following three functions:
cautionary function
evidentiary function - you are more likely to see fraudulent arguments that a gratuitous promise was made. it is also harder to prove that there was a gratuitous promise made.
channeling function wouldnt it be nice if we knew how to live in the law, if we werent wondering if it was enforceable or not enforceable, legal certainty. Seals allow us to channel our actions through the law with confidence. Form offers a legal framework in which a party can fit his actions
An evidentiary rule of thumb is comprised of just the first two: cautionary and evidentiary
Substantive rules a view that bargains matter intrinsically
it makes sense to read 71 as a substantive rule because it doesnt allow sham bargains.
exchanges of value are more important to be enforced than gratuities.
evidentiary rules of thumb
Strict form illustrated by a seal
Analysis with respect to a formal requirement (like a seal):
cautionary function seals provide an extra hurdle to make your promise binding
evidentiary function seals obviously provide evidence of a promise
channeling function . Seals allow us to channel our actions through the law with confidence. Form offers a legal framework in which a party can fit his actions
note: A formal requirement requires a lot of knowledge of the law & access to lawyers. This can have detrimental effects on law business people.
Analysis with respect to enforcing gratuitous promises without a seal:
cautionary function no caution provided for making people think before they promise something they regret.
evidentiary function evidentiary problems because no ability to point of a benefit to the other person and no writing
channeling function . all promises are binding, so this is perhaps met.
Analysis of Reliance ( 90)
the elements of 90 are for the sake of evidence only the reliance gives us more evidence that a promise was made
this provides support for the idea that expectation damages should be given instead of reliance damages
Pillans and Rose v. Van Mierop and Hopkins (Handout) [Sept. 24]
bargains just satisfy formal requirements:
cautionary function bargains make people more cautious because they are giving up something in return
evidentiary function if you can show something was given in return then it is easier to show that someone made a promise
between business people, there is no need for consideration if there is a written document. A written document in commercial contexts provides the same functions as a bargain.
cautionary function between merchants this is OK because merchants are cautious and writing it down makes people think about what they are doing
evidentiary function duh.
channeling function none if you change the rules. If you promise not to change the rules again, then there is a channeling function.
Formation
Assent - Objective or Subjective Inquiry
Lucy v. Zehmer provides a background for the formation inquiry by showing that the court is pragmatic, and objective standards are the ones we use. The court is interested in the subjective states, but uses the objective manifestations as signals.
In almost all of these cases the court talks about the intent of the parties. Keep this in mind when evaluating the claims.
Lucy v. Zehmer (p. 120, 1954)
Lucy wrote a contract telling Zehmer that he would sell his farm. Zehmer accepted and signed the contract. Later when Zehmer tried to follow through, Lucy said that it was a joke and he didnt intend to sell the farm.
The court only looks at the outward manifestations of intent. They are interested, ultimately, in the subjective intent but this is problematic from an evidentiary perspective.
We make the offeror responsible for what he says because he is the least cost provider of the intent he has.
The court is still interested in subjective states, however:
If the speaker said the wrong thing, and he could prove that the receiver knew that there was a mistake, then it makes sense to void the contract.
If the horse is worth $1000 and the paper says $100. All the negotiations have been in the range of $2000 and $1500. The offeree cant take advantage of the fact that they left a zero off.
The restatement I 71 says: If it is unambiguous what the other person said, then it is irrelevant what the actual intentions of the party were. In other words, you will only look at subjective states when it is ambiguous what the person meant.
If it is unambiguous what they said ( K.
Holding: a person cannot say that he was joking when his conduct and words would warrant a reasonable person in believing that he intended a real agreement.
Leonard v. Pepsico (1999, 124)
Kid tried to buy a Harrier jet from television add with Pepsi Points. Pepsi wouldnt let him.
Holding: For Pepsico when it is clear that one party is joking then there is no manifestation of an intent to enter legal relations.
A reasonable person would not think that Pepsico was serious.
Intent to Enter Legal Relations
Two rules the court can use for judging intent:
1. The parties must have intended to enter legal relations (England)
2. The parties have to explicitly not intend to be legally bound in the contract (USA)
Three possible evidentiary presumptions:
the parties intend to enter legal relations
the parties neither intended to or not to enter legal relations
the parties intend not to enter legal relations.
Balfour v. Balfour, Rose AND Frank Co. v. J.R. Crompton, Ltd. (handout)
Husband and wife make a contract that he will pay her some money. He breaches they go to court. (Balfour v. Balfour)
Two companies have a distribution agreement that contains a clause saying something to the effect of we do no intend for this to be legally enforceable. One party terminated the agreement and the other sued under the agreement. (Rose and Frank)
This case is all about the intent to be legally bound. In order for there to be a contract, the parties must have either intended to be legally bound (England), or explicitly state that they do not intend to be legally bound (US).
There is an evidentiary presumption operating concurrently: in the US the presumption is different in different situations. In family contexts, the US rule is the parties neither intended nor not intended to enter legal relations. So family contracts are enforceable in the courts.
Offers
24. Offer Defined
An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
26. Preliminary Negotiations
A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.
In order to decide if something is an offer, Corbin (p.130 hes a legal analyst) says that it must:
be an expression of will or intention
lead the offeree to reasonable believe that he has a power to create a contract by accepting
not jokes, or invitations to negotiate
in construing a contract, the aim of the court is to arrive at the intention of the parties. (Fairmount glass, p.136)
There is a conflict between mere preliminary proposals and actual offers. The court needs to ensure that they are not too willing to see an offer everywhere because it will make negotiation much more difficult.
Promise vs. Mere Statement of Intention
A promise is more than a mere statement of intention, to make a promise is to make a commitment.
Must look at the offer from the point of view of the other party.
Distinguishing an Offer from a Preliminary Proposal
the words used in the communication manifest intent
I cannot sell land unless I was to receive $16K no manifestation of intent to sell (Owen v. Tunison)
Will you sell your land? Telegraph lowest price., reply $900 not allowed to imply intent to sell, there must be an explicit manifestation of intent (Harvey v. Facey)
if contract type words are used (offer quote proposal) then that helps
omits significant terms has anything been left open for negotiations?
the more terms missing the less likely it is an offer
You must be able to say, yes to the offer.
query: I need 10 car loads of glass, reply: quote price, terms of acceptance, shipping details can look at all communications to determine if all specifics are there. (Fairmount Glass)
If it is covered by the UCC, then can gap fillers supply the needed terms? 2-204
The terms must allow one to
determine if there is a breach
measure the damages from a breach
not specifically directed to a particular person
the more people it is directed to, the more likely it is an advertisement and thereby not an offer
If an advertisement is directed at a particular person, it may be an offer (Offer of 1 specific fur to first customer is an offer Lefkovitz)
relationship of the parties
any previous dealings between them
Fairmount Glass can use all the communications between the parties.
common practices or trade usages
Contracts: Examples and Explanations>
Owen v. Tunison (p. 130, 1932)
D owns a block of land, P wants to buy it. P writes to D, will you sell your block for $6K. D replies, I cannot sell this unless I was to receive $16K cash. P takes this as an offer and tries to accept.
The legal issue is whether the communication I cannot sell this land unless I was to receive $16K is an offer.
not an offer:
the language used is general
he has not manifested an intention to sell, just set a condition for sale.
other side would argue that it is an offer because The true meaning of the correspondence must be determined by reading it as a whole. (Fairmount, p.136)
but the court doesnt look at it this way, there needs to be explicit reference to selling.
Harvey v. Facey (p.133, 1893)
P wants to buy Ds land. Will you sell us your land? Telegraph lowest price. and D responds, $900. P accepts, but D claims he made no offer.
D responded to the second question only, this is also an invitation to start negotiations.
P argues that the giving of the price should be read as an implicit response to the first question.
The contract must appear by the telegrams.
Consider that there is more than one buyer, not just one buyer and one seller. Does this make a difference?
Fairmount Glass Works v. Crunden-Marten Woodenware Co. (p.135, 1899)
CM asks for the prices for 10 car loads of glass wares. Fairmount responds with the price, and specific terms for acceptance, as well as shipping details. CM responds, send us 10 car loads this is the acceptance. Fairmount says I cant send it, I am out of stock.
In general, a quotation of a price is not an offer. It is an invitation to make an offer.
indefiniteness issues:
The true meaning of the correspondence must be determined by reading it as a whole. (p.136) the offer would be too indefinite if the original communication specifying the number of car loads. With the two telegrams (the query and the response) you could say yes and it would be sufficiently clear.
There is nothing less to be bargained over.
The assortment is not specified, but that is ok. It can be left to the buyers discretion. This is a default rule in contracts now if no assortment is specified, it is the buyers discretion. This makes sense.
what if the quantity wasnt specified but only a range of quantities (say 10 20 car loads)? Probably a contract although you cannot just say yes, it should be the buyers discretion like the assortment.
Advertisements
Advertisements are not usually offers. Instead they are invitations to make offers. One justification is that they are too indefinite to be seen as offers.
Lefkowitz v. Great Minneapolis Surplus Store (p.138, 1957)
Store advertises 1 Black Lapin Stole for $1, first come first served, Saturday 9am. Man comes in to buy it and store refuses to sell it to him, wanting to sell it to a woman instead.
Usually advertisements are not offers, but you have to answer two questions to check if they are:
Did the party intend it to be an offer?
Is it sufficiently definite to be an offer?
in this case the advertisement was very definite. Named a time, it was specifically directed at the first person to come in, it named a specific item (black).
The advertisement left nothing open for negotiation
The court must try to judge the intent of the parties making the communications. If the store intended to make an offer, they did make an offer.
Definiteness
Indefiniteness can serve as a proxy for intent not to be bound. See 33 of Restatement Second.
33. Certainty
Even though the manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or an acceptance.
UCC written in 1951 and first enacted in Pennsylvania in 1953.
UCC only deals with goods.
When interpreting the UCC there are two things that you must remember:
it must make sense as a whole not redundant, not contradictory, not arbitrary (like should be treated like like.
it must achieve its goals simple, modern, clear, uniform the law.
UCC 2-204(3) is a radical change.
2-204. Formation in General
A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. [gap fillers]
Gap Fillers
Under UCC 2-204 the court will supply terms that are left out, if they find that a contract exists. These terms are called gap fillers.
2-305. Open Price Terms
if price not specified, parties fail to agree, or price was supposed to be set by referencing a third party and was not then the price is a reasonable one at the time of delivery.
2-314. Implied Warranty; Merchantability; Usage of Trade.
general warranty of not being crappy
2-315. Implied Warranty; Fitness for Particular Purpose.
warranty of fitness for the purpose the buyer had in mind if the seller knew what purpose the buyer had in mind
2-316. Exclusion or Modification of Warranties.
sellers can disclaim warranties
General Issues
Q1 do the writings lead to a contract? 2-204(1), 2-207.
You can have an acceptance that contains varying terms, but not an acceptance if the variation is too great. Or if acceptance is expressly conditional to the varying terms, then it also isnt a contract.
Q2 - If the writings do make a contract, then we look at 2-207(2) to figure out the terms. If the writings do not establish a contract, then we look at 2-207(3) to get the terms.
Toys, Inc. v. F.M Burlington Company (254-256, 1990)
Toys was leasing space in the mall from D. The lease provided that the fixed minimum rental shall be renegotiated to the then prevailing rate within the mall. They couldnt agree, and D rented to someone else.
not goods, so the UCC does not apply
the test is were there all material terms to be a contract, or the terms can be figured out objectively looking at to give it binding effect if possible
the court thinks that they can.
Oglebay Norton Co. v. Armco, Inc. (p. 257, 1990)
In 1957 parties entered into a shipping service contract. They had a contract that specified how they would calculate the shipping price, and if those mechanisms broke down the parties shall mutually agree upon a rate for such transportation, taking into consideration the contract rate being charged for similar transportation. After many years, negotiations broke down and they couldnt agree on a price. Shipping co. sued Armco, steel co.
Remember in the analysis that indefiniteness can serve as a proxy for intent to be bound. See 33 of Restatement Second.
D says we never manifested an intent to be bound if there was a breakdown in the pricing mechanism.
the court determined that the parties intended to be bound if the pricing mechanism failed there was big capital investment used specifically for Armcos purposes
This helps show that Armco and Oglebay intended, when they signed the contract, that they expected to be bound until 2010.
Indefiniteness:
the court can set the price based on its own analysis.
Specific performance to negotiate the price term is apt since there is no way to calculate damages
Acceptance
69. Acceptance by Silence or Exercise of Dominion
Silence cannot be used as acceptance unless:
the offeree takes the benefit with reasonable opportunity to reject it
offeree has said that silence is enough
previous dealings imply that silence is enough
Unilateral Mistake
Elsinore Union Elementary School District v. Kastorff - (p. 143, 1960)
D, a contractor, submitted a bid in which he mistakenly forgot to include a $9,500 charge. He had the lowest bid and P voted to accept his option contract on Aug. 12th, the same day he submitted it. On August 13th he notified the school board of the mistake, and on August 14th he wrote them a letter about it. On August 28th the school board notified him that they had awarded him the contract.
The offer is actually an option because it is a bid for a government contract.
The question is when did the school board accept the offer: August 12th or August 28th?
If they accepted on August 28th, then it wasnt a proper acceptance because they knew of the mistake. If they accepted on August 12th, then it is a contract.
The court rules that they accepted when they gave notice of the acceptance on the 28th. Thus they knew of the mistake and it is not a contract.
Rule: promissory acceptance requires notification
If the bid was so low that it was clearly mistaken, the contract could not be accepted ever.
Rule: cannot accept a mistaken offer doesnt favor either side: if the specification didnt specify an obligation for plumbing, bidder would not be off the hook for the plumbing.
Mode of Acceptance
International Filter Co. v. Conroe Gin, Ice & Light Co. (p. 151, 1925)
D Conroe Ice & Gin
P International Filter Co.
Key actions:
We (P) propose X, and if you accept it is subject to our executives approval Feb 10th.
D accepts Feb. 10th [since this is still subject to approval, it is an offer]
Ps executives approve in private Feb. 13th
P sends acknowledgment (but does not explicitly acknowledge executive approval) Feb. 14th
D countermands Feb. 28th
1 above is an invitation to make an offer because it still requires another step the executives approval. 2 is the offer. 3 is the acceptance.
Ds key argument is that the notice of executive approval was required and not given.
Rule: in general notification of acceptance is required, but that requirement can be dispensed with.
In this case the negotiations specified that a contract would be formed when the executives OKd it. This dispensed with the notice requirement.
Also, if notice was required, 4) above provides that notice Whatever would convey by word or fair implication is sufficient for notice unless otherwise specified.
Notice is generally required for acceptance 56 (if you are accepting via promise you must give notice), 69 of the restatement except in certain circumstances. This is one of them.
In this case 69(2) governs.
A usual course of dealings is another way that silence can be acceptance (Hobbs v. Massasoit Whip Co. p. 171 where a usual course of dealing led the dude who sent the seal skins to think that the other party had accepted them 69(c))
White v. Corlies & Tift (p. 156, 1871)
P White builder
D Corlies & Tift - office
D gave estimate for office construction work to P.
P left estimate with D
D replied Upon agreement to finish the fitting up of office you can begin at once.
P begins performance by buying materials, does not notify D.
D countermands.
The upon agreement means that D is asking for notice.
The problem is not that P started work, it is just that he started work in a way that didnt let D know.
Rule: if a contract calls for a return promise, then notice of acceptance is required.
Rule: performance can be an implicit promissory acceptance.
Restatement 56 rules this case.
Ever-Tite Roofing Corporation v. Green (p. 158, 1955)
P Ever-Tite builder
D Green home owner
Green makes offer that calls for either return promise or performance agreement will be binding upon written acceptance or performance has begun
Two weeks later, P shows up at the house to perform, but there are other roofers already there.
Rule: 54 of the Restatement says if acceptance by performance is requested, then there is no requirement of notice. 62 says if acceptance by either is requested, then there is no requirement of notice.
Rule: if the type of acceptance is not specified, then either is allowed.
This is not a unilateral contract once P started performance they were bound to do the work.
Acceptance began when Ever-Tite loaded the trucks up to go to Greens house.
Carbolic Smoke Ball
Advertisement for acceptance by performance only (buying and using for two weeks)
Notification is not required (they only want to hear from people who actually have a claim)
No acceptance until finished trial (if offer revoked prior to acceptance, person might be able to collect under PE)
Revocation
As long as an offer has not been accepted, it can be revoked. Revocation occurs with a counter-offer. Option contracts cannot be revoked.
Dickinson v. Dodds (p. 176, 1876)
D Dodds seller
P Dickinson buyer
D offered to sell his land with a P.S. that said This offer to be left over until Friday, 9AM. P was informed indirectly that P had sold the land to someone else. P tried to accept the offer anyway, and sued D when he didnt get the land.
Firm offer an offer with a promise not to revoke for a certain time
Option Contract an enforceable firm offer. The promise not to revoke is enforceable.
Indirectly finding out that the offer has been revoked is good enough.
The question is whether this was a firm offer or an option contract.
Since there was no consideration for the option, it is just a firm offer.
Rule: to determine if something is an option, you must use all the enforceability doctrine to determine: consideration, promissory estoppel.
43 is the holding of this case.
43 indirect communication of revocation is sufficient
Battle of the Forms
Mirror-Image Rule
In the common law, if the acceptance did not perfectly mirror the offer, then there was no acceptance just a counteroffer ( 59 codifies the mirror image rule). If the goods were accepted anyway, the contract had the terms of the acceptance. This was called the last shot rule.
UCC 2-207. Additional Terms in Acceptance or Confirmation
A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
the offer expressly limits acceptance to the terms of the offer;
they materially alter it; or
notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case terms of the particular contract consist of those terms on which the writings of the parties agree, together with an supplementary terms incorporated under any other provisions of the Act.
subsection 1 tells you if you have a contract by the writings. An acceptance is not a reply to halve the price. It is just a counter-offer. There has to be enough common ground between the reply and the offer to see the reply as an acceptance of the offer.
subsection 2 tells you what the terms are if subsection 1 tells you that you have a contract on the writings. Specifically it tells you what terms the offeree will be able to put in, and what are mere proposals.
subsection 3. if the writings dont give you a contract but conduct has established a contract then this tells you the terms of a contract.
Dorton v. Collins & Aikman Corp. (p. 197, 1972) [Oct. 8, 13]
Plaintiff - Dorton (carpet mart) buyer
Defendant Collins & Aikman sellers
Parties had long-standing relationship 55 transactions over 3 years.
P puts in an order
D sends acknowledgment that includes arbitration clause specifying that it will be binding unless P rejects it:
This shall become a contract when (b) buyer has received and retained this order for ten days without objection or (c) buyer has accepted the goods.
Carpet is shipped and P accepts without objecting to any of the terms.
(2) above is an acceptance under 2-207(1).
If the acknowledgment came back with radically different terms, then it would not be an acceptance, and if the goods are accepted then 2-207(3) will come into play with the gap fillers.
(2) above is invalid as a contract because silence is not enough for acceptance
2-207(1) says there is a contract unless acceptance is made expressly made conditional on assent to the additional or different terms. Here, the language was not explicit enough to amount to expressly conditional. This cannot be implied, it must be explicit.
The party must be unwilling to proceed without assent (like withholding goods).
2-207(2) if the arbitration clause materially alters the contract then it is a proposal. If not, then the arbitration clause is in.
We have to ask ourselves 2 questions with respect to a contract:
do the writings lead to a contract?
UCC 2-204(1), 2-207(1)
what are the terms?
Nothrop Corp. v. Litronic Industries (1994, 212-214)
An offer was made by D to sell electronic components to P. The offer contained a 90-day warranty. Northrop accepted on terms providing an unlimited duration warranty. After 90 days P wanted to return the components.
The issue here is that UCC 2-207(2) says the following The additional terms are to be construed as proposals without mentioning what to do with different terms.
There are three options the courts can choose from to solve this:
conflicting terms are replaced by gap fillers (majority)
original terms are kept (minority)
treat different as additional, so if the new conflicting term is materially different it is treated as a proposal. (California)
Holding: the majority opinion is adopted by the court here.
ProCD, Inc. v. Zeidenberg (1996, 217-221)
P is selling a database on CD-ROM. They price discriminate between business and personal users via a shrinkwrap contract in the software box.
This decision creates a novel way to look at contracts that departs from the other cases we look at in class. Easterbrook (the judge) takes a very pragmatic approach to offer and acceptance, and looks mostly at what the effects of the rule are, ignoring classic offer and acceptance.
D argues that the software on the shelf was the offer, and he accepted by buying it. Therefore 2-207 should apply.
Easterbrook ignores who is the offeror and who is the offeree. He says it doesnt matter.
It is generally accepted that software comes with extra terms consumers have notice
Consumers can return the software if they dont like the terms.
Consumers have a chance to find out the terms before they buy it.
In the Gateway case there wasnt a notice on the box that there were terms inside it is irrelevant.
UCC Proposed 2-206 & 2-207
2-206. Offer and Acceptance in Formation of Contract.
Unless otherwise unambiguously indicated by the language or circumstances:
an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances;
If the beginning of a requested performance is a reasonable mode of acceptance, an offeror that is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.
A definite and seasonable expression of acceptance in a record operates as an acceptance even if it contains terms additional to or different from the offer.
2-207. Terms of Contract; Effect of Confirmation.
Subject to Section 2-202, if (i) conduct by both parties recognizes the existence of a contract although their records do not otherwise establish a contract, (ii) a contract is formed by an offer and acceptance, or (iii) a contract formed in any manner is confirmed by a record that contains terms additional to or different from those in the contract being confirmed, the terms of the contract are:
terms that appear in the records of both parties;
terms, whether in a record or not, to which both parties agree; and
terms supplied or incorporated under an provision of this Act.
Notes:
agreeing terms are in
other terms are gap filled
Offers, Firm Offers and Options
Ragosta v. Wilder (1991, 181-184)
D makes firm offer to P saying you can buy my property if you come to the bank with some cash and the property hasnt been sold yet. P takes out a loan for the money, D tells them he wont sell anymore, P goes to the bank to perform.
There was no consideration for the firm offer, so it is not enforceable as an option.
Ps getting the loan was not performance on the contract, because that is not what D specified as performance in his offer. Ps actions were preparation for performance.
Equitable estoppel requires 4 elements:
estopped party must know the facts
estopped party must intend that his conduct will be acted upon
party asserting estoppel must be ignorant of the true facts
party asserting estoppel must rely on the conduct of the party to be estopped.
Here, no facts were known to one but unknown to the other P could not have thought that D would definitely convey the property to them.
Holding: the question is whether P relied on the firm offer, and that reliance justifies damages. Jury must decide.
James Baird Co. v. Gimbel Bros. (1933, handout)
SC, D, provided GC, P, with a price for linoleum. After GC had submitted the bid but before it had been accepted, SC rescinded the offer saying they had made a mistake. The original offer said If successful in being awarded this contract, it will be absolutely guaranteed and we are offering these prices for a reasonable prompt acceptance after the general contract has been awarded.
P argues that D expected P to use its bid and if it was wrong P would be put out. Therefore the offer should be irrevocable.
this is promissory estoppel argument
Hand argues:
There was no explicit firm offer if SC wanted one, they could have put it in there.
Promissory estoppel cannot be used in the absence of a promise, and no promise can be implied here. This goes back to the point above. If there is no firm offer, then there can be no promissory estoppel.
it is illogical to assume that using the SC bid in the offer is equivalent to acceptance. The language is against it, and it wouldnt make sense pragmatically.
Drennan v. Star Paving Co. (1958, 225-230)
SC (D) submitted bid for paving to GC (P). GC used SCs bid, got the contract, went to SC to tell him that he was awarded the contract, but SC immediately told him that their bid was a mistake and took it back before GC could accept.
D argues it is just an offer, while P says that P relied on the offer, so promissory estoppel should hold.
reasonable to imply a firm offer an offer not to revoke.
given that a firm offer is implied, it is very reasonable to expect someone in this situation to rely on it.
if a mistake was made and D told P before submission, then it would not be reasonable for P to rely. So no promissory estoppel in this case.
implied subsidiary promise not to revoke the offer!! (implied in fact): Parties understood that the offer came with a promise that it wouldnt be revoked
This cannot be revoked because of a mistake in the bid number.
GC cannot reopen negotiations with the SC after he is awarded the bid and still accept the offer.
87 of the restatement is a formulation of this rule see subsection (2).
Holding: judgment for GC.
Restatement
87. Option Contract
An offer is binding as an option contract if it
is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or
is made irrevocable by statute
An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.
UCC 2-205. Firm Offers.
An offer by a merchant to buy or sell goods in a signed writing which by its terms give assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if not time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.
Note this UCC section is for merchants.
Promises Under Negotiations
Hoffman v. Red Owl Stores (1965, 235-238) [Oct. 15]
D promised that P could start a franchise with only $18K. D then advised P to take a number of actions: sell his bakery, buy and sell a small grocery store as an experiment, and move to a new town. In negotiations for the franchise, D said that he would actually need $26K. P wanted to bring in his father in law as a partner, but P would not allow it and negotiations broke down.
Question of law is raised: must a promise enforced under promissory estoppel be detailed enough to be determined an offer?
No. Under promissory estoppel in this case the court is not enforcing the breach of contract, but the breach of good faith.
This case is mostly about how to calculate damages. Damages are calculated differently than in a breach of contract action.
The trial court awarded the following:
$16,735 for sale of small grocery store experiment (lost profits)
$2K for the bakery sale loss
$1K for the option on the Chilton lot
$140 for moving to Neenah
$125 for the house in Chilton
Promise that $18K was enough
no consideration for that promise
much reliance on it
Promisor broke promise by insisting that $18K was not enough.
the breach here was that $18K was not enough.
We dont calculate damages on the breach of contract, we calculate damages on the breach of the promise to bargain in good faith.
Damages are calculated as the difference between the position P is in now (world 1) and the position he would have been in had D negotiated in good faith.
The court is using expectation damages, but is using the outlays in cash as the measure because otherwise it would have been impossible to measure.
This calculation is a proxy for the amount of money he would have expected had D negotiated in good faith his cash outlay will be equal to his income.
So the $16,735 for the store was too much. He would have not had those profits regardless because they were an experiment. We dont calculate the lost profits, just the loss in position from world-1 to world-2.
Cyberchron Corp. v. Calldata Systems Development, Inc. (1995, 239-243) [Oct. 15]
P was to produce a rugged computer work station for D. P and D were involved in extensive negotiations. Although they didnt have a formal agreement, in mid-July D encouraged P to continue developing the product and D directed P to proceed with production. Negotiations eventually broke down because they could not agree on the weight of the system, and P was out a bunch of money it used in developing the system.
The court found that promissory estoppel made Ds promise to negotiate in good faith enforceable
The damages are calculated as the amount that P spent on developing the hardware measured from the time of the promise (mid-July).
It is best to look at these as not reliance damages (though that is what they ostensibly are), but as a proxy for measuring expectation damages.
Channel Home Centers v. Grossman (1986, 244-250)
D purchased mall and was leasing out space. D entered negotiations with P, a home improvement store, to lease space in the mall. D wanted P to sign a letter of intent he could show investors and in that letter P specified that they would negotiate in good faith and D would remove the space from the market. D and P both did things that indicated they intended to go ahead with the lease: D inquired about signage space, inquired about zoning, P made plans for store opening. After a delay in finalizing the lease agreement, another home improvement store offers to lease the space for more money. D sends P a letter that negotiations are off.
P argues that they had an agreement to negotiate in good faith that was bargained for
the bargain was Ds seeking of a letter of intent he could show investors.
both parties signed it
both acted as if it was binding by making preparations
the letter of intent and their actions show that both parties intended to be bound
furthermore, D sought the letter to show investors and P sought the removal of the property from the market.
so this was bargained for
Court finds that the letter of intent is binding, and is not too indefinite.
contracts to negotiate are not unenforceable for indefiniteness.
a good faith requirement is implied.
If parties agree to all the terms but choose to memorialize it later and one party breaches, then it is as if they breached the contract.
If they dont agree to all the terms and simply agree to negotiate, one party can still break off negotiations in good faith.
Determining Terms of the Agreement Outline
Parol Evidence Rule
Restatement: 209, 210, 213, UCC 2-202
PER is only about prior statements to the writing. Not about writings or statements after the contract.
Corbin:
when 2 parties have made an agreement and expressed it in a writing
to which the have both assented as the complete and accurate integration of that agreement
evidence parole or otherwise of antecedent understandings and negotiations will not be admitted for the purposes of varying the terms of the writing
210. Completely and Partially Integrated Agreements
A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement.
A partially integrated agreement is an integrated agreement other than a completely integrated agreement.
Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parole evidence rule.
213. Effect of Integrated Agreement on Prior Agreements (Parole Evidence Rule)
A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.
A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.
An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated.
2-202. Final Written Expression: Parol or Extrinsic Evidence.
Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented.
by course of performance, course of dealing, or usage of trade (Section 1-303); and
by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.
this UCC provision mirrors the common law
The way to think about the parol evidence rule in modern times is that it prior agreements are barred if parties expressly state in the writing that that is the final agreement. Otherwise, with sufficient evidence those prior agreements or terms are not barred.
Gianni v. R. Russell & Co. (1924, 556-559)
P tenant retailer who sold tobacco and soft drinks in Ds building. P & D negotiated further lease but with stipulation of no tobacco sales and higher price. P claims agreement was for P to have exclusive soft drink sales, but it isnt in the agreement. P claims D assured him twice about the clause: two weeks prior to the signing and at the signing. D, of course, leased another part of his building to a soft drink manufacturer.
P claims that the agreement for exclusive rights was a collateral one (independent of the original contract)
Court doesnt agree:
General rule:
writing is the best and only evidence of the agreement
unless there was fraud, the prior negotiations merge into the contract.
But
The writing must be the entire agreement for parole evidence to be excluded.
To find if it is complete within itself:
look at the writing itself to see if it is the entire agreement and if it looks complete it is presumed to be a complete and final integration.
And, parol evidence must fall within the agreement would it naturally be in the written contract?
same subject matter
so interrelated that they have the same timing
Case at hand:
agreements of this type are assumed to be a complete and final integration.
Very natural for the exclusive right thing to be in the contract part of consideration for the agreement
Same subject matter the lease of the building.
Parole evidence is barred
Exceptions to the rule: fraud, accident, mistake.
Masterson v. Sine (1968, 560-564)
P sold land deed to family member with the option to repurchase at selling price plus depreciation of any improvements made. P goes bankrupt and trustee wants to enforce option. D claims that they had orally agreed that the option was non-transferable because they wanted to keep the land in the family.
No problem under the parol evidence rule to determine what the terms of the deal meant (in this case depreciation).
Court says that the trial court erred in excluding this parol evidence about the non-transferable nature of the option.
Rule:
if integration, then no parol evidence allowed
if partial integration, then parol evidence allowed to prove parts of agreement not reduced to writing. But no parol evidence for those parts that have been agreed on.
Parties intention is key in determining if there was an integration (parties intended an exclusive embodiment of their agreement)
look to instrument, is it expressly stated?
look at collateral agreements to determine if they were intended to be in there
look at the circumstances at the time of the writing.
Policies behind parol evidence rule:
written evidence better than human memory
this policy can be met by excluding parol evidence that contradicts the writing
discourage fraud
Given these policies, parol evidence must be judged on the quality of the evidence.
Case at hand:
deed doesnt explicitly say it is an integration
formal of the structure of the deed doesnt easily allow collateral agreements to be included
the option can be read as congruent with the desire to keep it in the family it can act like a veto against other purchasers
parties had no warning that the written agreement would be the only one
in this case the collateral agreement might naturally be in the writing, but it wouldnt certainly be in the writing.
presumption is that option is assignable, but that does not preclude parole evidence (not a contradiction that there be an agreement that it is non-transferable, just a supplement)
Rule in favor of D, parol evidence allowed.
Dissent says:
it is extremely well established that options are assignable, so no mention of it contradicts the writing
not difficult to add the words not assignable to the term in the deed.
allowing people to contradict terms of a contract by oral testimony is inviting fraud.
Bollinger v. Central Pennsylvania Quarry Stripping Co. (1967, 567-569)
Homeowners, P, agree to let D use their land to dispose of waste in a waste sandwich with their topsoil. D does this for a while, but then stops because the waste sandwich requirement isnt in their written agreement. P says it was omitted by mistake and they didnt read the agreement because they assumed it was in there.
Superintendent acknowledged the existence of the oral agreement to make a waste sandwich
Court says:
one party denying the mistake does not bar it from being ruled a mutual mistake.
written agreements are binding unless mistakes are found.
Ps have a heavy burden of proving the mistake and that is met by:
the initial performance of D in making the waste sandwich.
If D had not initially made the waste sandwich, the oral evidence would have been barred by the parole evidence rule because you would have expected the term to be in there.
In this case, they have some very powerful supporting evidence.
W.W.W. Associates, Inc. v. Giancontieri (1990, 586-590)
P, buyer, and D, seller, have agreement for land purchase. D has litigation currently going on, and they write into the contract a termination term that states that if the litigation isnt over by a certain date, then either party can terminate the deal. There is also a merger clause (claiming it is a complete and final integration).
The question of the case is whether the term of the agreement should be interpreted with respect to extrinsic evidence.
The principle is: clear writings should be interpreted according to their terms.
P claims that the termination term was meant to give only him, the buyer, the option to terminate.
there is evidence that P was concerned about the difficulty this litigation would have on their ability to develop the land.
P claims it was agreed that the termination clause would be included for their benefit.
D asserts that you have to look at the contract according to its terms.
Appellate court gave weight to extrinsic evidence and found in favor of P.
Court rules:
extrinsic evidence should not be considered before first looking at the contract itself.
When parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms. (589).
Policy reasons
promotes stability (foreseeability, guidance in actions) which is very important to commerce.
Gives proper weight and incentives to draft the original contract properly. (allowing external evidence denigrates the original contract).
Ambiguity is a question of law.
External evidence cannot be used to create ambiguity in a clear writing.
In this case:
Contract is clear in the writings.
It is not illogical for the termination clause to allow both parties to terminate.
Both parties are sophisticated business people.
Other clauses gave P alone the power to terminate, the omission with respect to the termination clause is telling.
Bad Faith:
P claims he heard from a broker that D wasnt defending the lawsuit so that they could drag it out and then terminate the deal because the land value had increased.
Court says that you need more evidence of bad faith than that.
Merger clause not used in the ruling above.
Merger clauses are good for barring collateral agreements, but not for barring mistakes.
Policy considerations with a strict parol evidence rule:
more formal means that people have to know the law, and it favors those who do.
convenience to just abide by the writings
provides proper incentives to have your writing be clear
Rules
If the contract is intended to be a final expression:
cannot allow parole evidence that would naturally be in the contract (Gianni)
same subject matter
same timing
If the contract is not intended to be a final expression:
Parole Evidence Rule Top-Down Outline
There are three types of external evidence that we have to classify:
prior related agreements
prior unrelated agreements
clarifications of vague or ambiguous terms
The Parole Evidence Rule only aims to exclude the prior related agreements.
Is it an integration?
It is assumed to be (Gianni)
Does it say it is expressly? (Masterson)
Do the circumstances of the writing indicate it is? (Masterson)
where the standard
home transfer form didnt make it easy to add terms
Are the parties sophisticated to know it is (Masterson, Giancontieri)
Yes - Full Integration
Was it a mistake that caused it to be omitted?
Yes is there evidence of the mistake (part-performance, etc.)?
No EXCLUDED (Giancontieri)
Yes INCLUDED (Bollinger)
No Should it have been included?
is it the same subject matter? (Gianni)
was it natural that it would be included? (Gianni)
Yes EXCLUDED
No INCLUDED (it is another agreement altogether)
No Partial Integration
Is the collateral agreement contradictory?
Yes EXCLUDED
No Would it certainly have been included (Masterson)?
Yes EXCLUDED
No - INCLUDED
Misunderstanding and Interpretation of Contractual Text
The law gives a lot of weight to objective statements rather than subjective understandings because it is the most efficient way to get at peoples true intentions:
difficult to prove subjective states
costly to litigate subjective states
more convenient to negotiate over objective meanings rather than subjective understandings
20. Effect of Misunderstanding
There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and
neither party knows or has reason to know the meaning attached by the other; or
each party knows or each party has reason to know the meaning attached by the other.
The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if
that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or
that party has no reason to know of any different meaning attached by the other; and the other has reason to know the meaning attached by the first party.
20(2)(b) is an attempt at putting the onus on the listening party to correct any mistakes made. If the listening party has reason to know of a mistake, then he is in the best position to know of it. Where one party has greater reason to know and the best position to clarify the mistake, that party will be stuck with the other partys meaning. If the listening party had no reason to know what the other party meant, then the speaker is in the best position to correct the mistake.
See also 201 of the restatement for essentially the same treatment.
201. Whose Meaning Prevails
Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning.
Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made
that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or
that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.
Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.
Notes:
Subsection (3) supports the trade usage rule where there is a different dictionary definition of a term.
Horse-Cow Hypos
A owns:
CowA - $100
CowB - $100
Horse - $5,000
hypo 1:
A says: Horse for $100, but means CowA
B says: OK (knowing that Horse is worth way more)
Contract? Yes, for CowA 20(2)(b)
hypo 2:
A says: CowA for $100, but means CowB
B says: OK (thinking that A means what he says)
Contract? Yes, for CowA 20(2)(b)
vague: a word is vague when its applicability in marginal situations is uncertain e.g. green.
ambiguous: a word is ambiguous when it has two entirely different connotations.
Rule of interpretation: if people have different subjective interpretations, an objective meaning shall rule.
Raffles v. Wichelhaus (1864, 582-583) [Oct. 27]
Seller (P) is suing buyer (D) for nonpayment. They agreed to ship goods on the Peerless sailing out of Bombay. There were two Peerlesss and they each thought they meant a different Peerless (and it mattered because the cotton market was volatile).
First step in a misunderstanding case: show that it mattered:
under 20, court must show that the time the ship arrived mattered materially at the time of the signing
There is no single, unambiguous meaning of the word Peerless. There is no way for either party to know what the other is thinking.
Court finds no contract [judgment for D]
If each party knew that the other party meant the wrong peerless and hoped things would work out, there would be no contract 20(1)(b).
this case is about the fact that courts care about what people subjectively meant, not just what they objectively said. It all goes back to the theory of how objective statements are used as the default unless exceptional evidence shows that to be wrong.
Oswald v. Allen (1969, 584-585) [Oct. 27]
Coin collector, P, views Ds two coin collections, one called the Swiss Collection. He wrote to her to confirm my purchase of all your Swiss coins (gold, silver and copper) at the price of $50K. P thought he was buying all Swiss coins, while D thought he was buying the Swiss Collection. D backed out and P sued for specific performance.
If people misunderstand any of the terms and there is no way for either party to know that the other party meant something else, then no contract.
In this case there is no way to disambiguate the terms.
Frigaliment Importing Co. v. B.N.S. International Sales Corp. (1960, 574-579)
P (Swiss) bought lots of chicken in two contracts from D (NY). P wanted the young broiling/frying chicken, but instead it got stewing chicken.
The contract was for:
2.5-3lb chickens $33/lb
1.5-2lb chickens $36.50/lb
This is a case about an ambiguous term: chicken.
Burden of proof: P has burden of proving the meaning of chicken.
There are two meanings of chicken, a broad meaning and a narrow meaning.
If there is a broad meaning and a narrow meaning, the person wanting the narrow meaning has the burden of proof.
If there is an objective meaning, then the person wanting to prove the subjective meaning has the burden of proof.
P (buyer) says chicken means broiler, D (seller) says chicken means broilers and stewers.
Why no UCC there isnt a provision that deals with ambiguities and so we fall back to the common law.
To determine the meaning of chicken, Judge Friendly does the following:
dictionary definition is wide
looks to the contract itself:
D says by specifying US Fresh Frozen Chicken, Grade A, Government inspected it incorporated by reference the Department of Agricultures definition of chicken.
looks to the surrounding communications:
some dispute about what chicken meant
looks to trade usage
D is new to trade so P must show that D had actual knowledge of the trade term, or it was so pervasive, reasonable, universal that D could not help but know.
P has witness say what chicken means but that witness does not use chicken in that way in his own business.
some industry people support this.
D has some contradictory industry people say that chickens are what D says they are any kind of chicken.
inconclusive
You can use the common usage over the objective usage in some instances. (Hurst)
price of the chicken in question
they could not have made a profit selling at the price specified for the quality of chicken P claims was contracted for. This is the strongest evidence.
look at P and Ds behavior not helpful
P has burden and hasnt met it. So the tie goes to D.
Hurst v. W.J. Lake & Co. (1932, 601-602) [Nov. 27]
P agreed to sell D horse scraps. Buyer would pay more for scraps containing >50% protein. P shipped scraps with 49.6% protein and trade usage counted anything above 49.5% protein to be >50% protein. D paid only the lower price.
Court says that the trade usage is different than the dictionary usage.
But common meaning rules.
Judgment for P.
Mistake Top-Down Outline
There are two types of terms that need to be dealt with:
vague difficult to determine the terms meaning at the margins (e.g. green)
ambiguous the term has two conflicting meanings
Ambiguous Terms
Can the term be disambiguated by evidence?
No NO CONTRACT (see 20)
Yes What does the term mean?
see Frigaliment for a discussion.
Statute of Frauds Outline
(October 20, 2004 Class Notes)
UCC 2-201. Formal Requirements; Statute of Frauds.
Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for the sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.
Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received.
A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable
if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the sellers business and the seller, before notice of repudiation is received and under circumstances which reasonable indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or
both parties admit that a contract was formed.
the goods are received and accepted partial acceptance.
Restatement 110 sets out the various types of agreements that are covered under the statute of frauds:
110. Classes of Contracts Covered
M marriage contracts made in consideration of marriage.
Someone must promise marriage in exchange for the good.
Y year contracts that cannot be performed within the space of one year.
L land contracts conveying an interest in land.
not limited to sales, leases are included too
E executor contracts where an executor purposefully takes on the liability for the debts of the estate
G goods contracts for the sale of goods $500.
S suretyship contracts where one person agrees to become a surety or guarantor one person liable for the debts of another person.
If a creditor releases a debtor from an obligation in exchange for another person taking on that debt, then that is a novation, not a suretyship
novations dont fall within the statute of frauds (p.268)
Langman v. Alumni Association of the University of Virginia (1994, 272-274)
P gave D a video game arcade with some debt attached. It was given with the stipulation that D would assume payment of the debt on the arcade. The debt payments began to overrun the income from the arcade and P had to pay. P is suing as per the agreement.
P argues that it didnt sign that agreement so the statute of frauds applies
Court says it isnt a surety:
not a promise to the creditor [bank probably in this case] to pay the debt of another
promise to the grantee to assume the debt
A surety is only when:
no direct benefit
liable only when one party defaults
Restatement
131. General Requisites of a Memorandum
Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which
reasonably identifies the subject matter of the contract,
is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and
states with reasonable certainty the essential terms of the unperformed promises in the contract.
Notes on 131 and UCC 2-201
the party to be charged is the party that has an obligation to satisfy something
if A signed a contract and B didnt, only B can sue A because A is the party to be charged.
the written memorandum does not have to be signed by both parties
the written memorandum does not have to be contemporaneous with the agreement
131 an offer is enough
UCC doesnt require the essential terms
in UCC 2-201 an offer is not sufficient
subsection 2-201(2) allows an agreement between merchants even if one party didnt sign.
Johnson Farms v. McEnroe (1997, 285-289)
P and D entered oral agreement for sale of land for $9K/acre. D wanted to avoid capital gains tax, so the agreement was complicated by D wanting to swap land for land. They swapped half of the land (for which P overpaid some), and then P had an option to find more land within a year suitable for swapping. The year was running out and P secured an oral agreement to extend the option. P platted the remaining land in anticipation of the deal. The relationship soured, however, and the market value of the remaining land increased. D terminated the option. P is seeking specific performance, or restitution for overpayment as a second best alternative.
Court says that partial performance can remove a transaction from the requirements of the Statute of Frauds.
There are 2 accepted methods of partial performance for land:
taking possession
making improvements
Also, if the contract price has been paid then that will constitute full performance and the statute of frauds will not apply.
The question that must be answered is whether part performance is consistent only with the existence of the alleged oral contract.
under the above we can analyze which of Ps actions count as part performance:
the swap of half the land? No, because it could be full performance of another agreement
the overpayment? no, because you have to prove the contract price
the platting of the land? yes, it provides evidence of the existence of the alleged oral contract.
they platted the land that had not yet been conveyed to them.
Monarco v. Lo Greco (1950, 291-293)
Grandson (P) of Natale was awarded property in will and wants to break it up and sell it. Son of Natale, D, says that the land was promised to him in an oral agreement. D worked on the land for 20 years in return for the promise of the land in the will. However, parents changed mind and left land to P.
The question is whether the statute of frauds applies here in the face of the reliance and unjust enrichment
D gave up other opportunities in reliance on promise.
Land benefited from Ds 20 years of work unjust enrichment
P says that law of estoppel that negates the statute of frauds only applies when the promise is that no writing is required, or that the writing will be done later.
Court says, the promise that was relied on wasnt the promise of a writing, but the underlying promise to perform on the contract.
If there was both reliance and unjust enrichment, then the statute of frauds can be ignored.
139 Enforcement by Virtue of Action in Reliance says there is no need to show unjust enrichment, reliance by itself is enough.
The following restatement section sets a rule that the statute of frauds is irrelevant if you can show reliance. The requirement is more stringent than 90.
139. Enforcement by Virtue of Action in Reliance
A promise which the promisor should reasonable expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.
In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:
the availability and adequacy of other remedies, particularly cancellation and restitution;
the definite and substantial character of the action or forbearance in relation to the remedy sought;
the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence;
the reasonableness of the action or forbearance;
the extent to which the action or forbearance was foreseeable by the promisor.
Rule Summary
There doesnt need to be a full contract written, just a written memorandum
if the type of contract falls under the statute and there is no writing, and an exception doesnt apply the contract is unenforceable.
Three questions you have to ask:
Does the contract fall within the Statute of Frauds?
Categories are strict and narrowly defined
Surety means surety (Langman v. Alumni Association of West Viginia)
One year means one year.
If it does, does the writing satisfy the requirements?
131 of the restatement:
the party to be charged is the party that has an obligation to satisfy something
if A signed a contract and B didnt, only B can sue A because A is the party to be charged.
the written memorandum does not have to be signed by both parties
the written memorandum does not have to be contemporaneous with the agreement
an offer is enough
UCC 2-201
no requirement of the essential terms
an offer is not sufficient
subsection 2-201(2) allows an agreement between merchants even if one party didnt sign.
Good must be worth more than $500.
Only enforceable to the quantity of goods mentioned in the writing.
Only applies to merchants.
Partial performance renders it moot.
If the statute applies and is not complied with, is there an exception?
Why these exceptions? They provide evidence that there was the contract the party is asserting there was.
Part performance must be something that cannot be viewed as full performance of another contract (Johnson Farms)
Where the platting (improvement of the land was valid, but neither the swap nor the overpayment were).
Reliance will also negate the statute of frauds:
one party was enriched and another party made worse off in reliance of a promise. unjust enrichment + reliance = no statute of frauds bar (Monarco v. Lo Greco).
Restatement 139 sets out the rules, saying reliance is enough no requirement of unjust enrichment.
If the contract is deemed void, then one party may be able to claim restitution to get back his benefit conferred.
Statute of frauds applies to modified contracts (look at them as new contracts, I guess).
Remedies Outline
Specific Performance
UCC 2-716 when a buyer should get specific performance is when a proper measurement of expectation damages is not possible.
UCC 2-716. Buyers Right to Specific Performance or Replevin.
Specific performance may be decreed where the goods are unique or in other proper circumstances.
The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just.
The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances
Comments
seeks to further a more liberal attitude towards specific performance.
The test of uniqueness under this section must be made in terms of the total situation which characterizes the contract
other proper circumstances: inability to cover is strong evidence of other proper circumstances
360. Factors Affecting Adequacy of Damages
In determining whether the remedy in damages would be adequate, the following circumstances are significant:
the difficulty of proving damages with reasonable certainty,
the difficulty of procuring a suitable substitute performance by means of money awarded as damages, and
the likelihood that an award of damages could not be collected.
Comments
Difficulty in obtaining a substitute: if the person could not obtain a substitute with the money recovered for the breach, then specific performance is usually appropriate.
replevin: An action for the recovery of a possession that has been wrongfully taken.
Lumley v. Wagner (1852, 453) [Oct. 29]
D, opera singer, had exclusive contract with D to sing for his opera house. She wanted to break the contract and sing for another dude. P sought injunction.
P won, but could not compel D to sing for her.
Rule: public policy of not forcing people to engage in contracts where relationships have probably soured.
Klein v. PepsiCo, Inc. (1988, 453-457) [Oct. 29]
Two issues of formation:
Contract subject to inspection satisfactory to purchaser illusory but was satisfied
The inspection happened and buyer didnt like some things but Pepsi agreed to fix them. That was enough for satisfaction.
Not a full agreement until the whole thing was memorialized
Negotiations specified that there would be no contract until a written agreement was executed & there was no such written agreement.
Court found there was a K because parties acted as if there was one:
down pmt
D saying that the current writing memorializing the agreement was fine
inspection as per agreement
verbal evidence from Ds employees that they believed there was an agreement.
And, plan to memorialize was not necessarily a condition of the contract.
Is specific performance appropriate?
Uniqueness
The plane is not unique
evidence of other similar planes on the market
although search costs may be high, remedy will cover those.
the price of that type of plane was increasing, but that is not enough to warrant specific performance.
Laclede Gas Co. v. Amoco Oil Co. (1975, 459-464) [Oct. 29]
P, distributor (to housing developments), made long-term contract with D, supplier of propane gas. D would maintain gas capacity and P would pay a fixed price per gallon. There was a term that specified P could cancel contract with 30 days notice. D breaks off the agreement saying there is no contract.
Was there a contract given the termination clause?
not an illusory promise because of the power to terminate was only on one side. no requirement of mutuality in every term.
Is specific performance appropriate?
No mutuality of remedy in the contract
not a requirement
Supervision problems
court: this is up to the courts discretion and will not stop court if it is right for public policy
Public policy:
home owners need propane
Contract is indefinite and uncertain
K will not go on forever, since the last subdivision will be built in 10-15 years.
adequate expectation damages
there is propane on the market BUT -
cannot find a replacement contract for enough propane
no market for the long-term supply of propane in the current volatile market.
Therefore, no way to calculate the damages.
A remedy at law adequate to defeat the grant of specific performance must be as certain, prompt, complete, and efficient to attain the ends of justice as a decree of specific performance.(p.462)
Northwestern Delaware Industrial Development Corp. v. E.W. Bliss Co. (1968, 464-465) [Oct. 29]
P wanted D to do construction work faster to complete on the agreed upon time by putting 300 more men on a job. Sued for specific performance.
Court can order specific performance on a construction contract.
No specific performance because:
imprecise contract provision relied upon
impossible to supervise keeping a certain number of men on the job
if P suffers damage as a result of Ds breach, he can sue after the damage is incurred.
In this case, damages will be measurable if P just waits a bit.
Efficient Breach
Efficient breach is when the good goes to the person with the highest valuation for that good. Expectation damages satisfies this. So does specific performance but the distribution of the surplus is different.
Walgreen Co. v. Sara Creek Property (1992, 465-467) [Nov. 3]
D promised P via a lease exclusive pharmacy rights in its mall. D breached and P sued for specific performance.
Posner uses a law & econ perspective to determine if specific breach is appropriate
Two advantages to specific performance:
assigning property right to current holder allows parties to negotiate to efficient solution
there is the complication of bilateral monopoly
court doesnt have to guess at partys personal valuations.
court should also take into consideration supervision costs.
As well as the problem of measuring damages.
Lost profits by breach of contract are hard to determine, so specific performance is granted.
Measuring Reliance
Sullivan v. OConnor 1973 (8-14)
Doctor (D) guarantees patient that nose-job will be successful. It isnt and shes ugly.
This case illustrates the difference in how to calculate expectation and reliance damages
Expectation damages:
the difference between the promised and actual outcome.
promised nose post-op nose
no doctors fee for original surgery
actual pain & suffering expected pain and suffering
Reliance damages:
doctors fees
original nose post-op nose
pain and suffering for all operations
There is an enforcement issue: public policy considerations mean we dont want to let doctors make these types of promises, but we also dont want to incent patients to claim that these promises were made.
Measuring Expectation
UCC 1-305 the theory behind damages.
1-305. Remedies to Be Liberally Administered
The remedies provided by the UCC must be liberally administered to the end that the aggrieved party maybe put in as good a position as if the other party had fully performed but neither consequential or special damages nor penal damages may be had except as specifically provided in the UCC or by other rule of law.
Any right or obligation declared by the UCC is enforceable by action unless the provision declaring it specifies a different and limited effect.
Vitex Manufacturing Corp. v. Caribtex Corp. (1967, 472-475) [Nov. 3]
Manufacturer, P, contracted with D to manufacture wool product. D breaches. At trial, P won lost profits and D appeals because the trial court didnt deduct overhead expenses.
Ps factory was shut down before the contract, but P started it up to fulfill its contract with D.
damages = revenue from the contract variable costs from the contract
Since overhead expenses are not affected by the performance of the particular contract, there should be no need to deduct them in computing lost profits.
Overhead is fixed and independent of performance of contract, so should be excluded.
This is consistent with UCC 2-708 which allows for recovery of overhead.
Rule: fixed costs are not included when measuring damages.
UCC rules of thumb to get at expectation damages: [Nov. 3]
buyer: K & cover (2-712), K & market (2-713), incidental and consequential (2-715)
seller: K & resale (2-706), K & market (2-708), incidental damages
2-706. Sellers Resale Including Contract for Resale
Under the conditions stated in Section 2-703 on sellers remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article (Section 2-710), but less expenses saved in consequence of the buyers breach.
2-708. Sellers Damages for Non-acceptance or Repudiation
Subject to subsection (2) and to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article ( 2-710), but less expenses saved in consequence of the buyers breach.
If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article ( 2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.
Good faith requirement: both 2-712 and 2-706 require good faith and commercially reasonable manner.
Duty to mitigate damages: buyer cannot get incidental and consequential damages under 2-712 (K & cover) because you didnt mitigate your damages.
incidental damages: expenses that you have on resale that you wouldnt have on the contract
consequential damages: costs downstream from the breach (like the cost of a delay)
No consequential damages for sellers because the UCC assumes that it almost never happens
Laredo Hides Co., Inc. v. H & H Meat Products Co., Inc. (1974, 476-478) [Nov. 3]
P, middleman buyer, contracts with D to purchase hides at a fixed price contract. Price of hides increases and D breaches. In order to cover, P buys hides on the open market and incurs some additional expense doing so.
P made a reasonable effort to affect cover
no need for P to establish market price, since he complied with 2-712 (made reasonable purchase)
Burden of proof on seller, D, to show that cover was not properly obtained.
P acted promptly, there was evidence that the cost of purchasing substitute hides was not unreasonable.
Held: P can recover the difference in price as well as his incidental damages.
R.E. Davis Chemical Corp. v. Diasonics, Inc. (1987, 480-485) [Nov.3, 5]
P, buyer, agreed to buy a medical diagnostics machine made by D. P breached its agreement to buy the machine, and D sold the machine for the same price. P is suing for recovery of its $300K deposit. D wants to recover the lost profits it would have made on the sale.
UCC 2-718(2) and (3) cover the return of a damage deposit (when the seller doesnt give up the goods because the buyer breached).
D can keep $500 plus any damage it incurred from the breach.
At trial, P got $300K + interest - $500
D sold for the same price.
D says the above damages are incorrect because he is a lost volume seller.
The question is what was the damage incurred by D in the breach?
2-706 difference between resale price and K price
2-708(2) lost profit plus incidental damages
How to decide which one is appropriate?
UCC 1-106 says we administer damages liberally to compensate breached against party
There is no textual help among the other provisions
Majority of courts find that a reseller can choose to use 2-708 instead of 2-706.
The problem is that 2-708 isnt generally used for when someone resold, but the court says it is appropriate because it wants to adequately compensate the breached against party.
If we use 2-708, then is (2) appropriate?
(1) says to subtract market price from tender price, and use that only if it is inadequate to put the seller in as good a position as performance would have done.
D says 2-708(1) not good enough for a lost volume seller.
Lost volume seller definition
has the capacity to sell to everyone; or
has the capacity to sell one extra good represented by the resale after breach.
In my words: supply greater than demand.
Burden of proof on seller to show:
had the capacity to produce the breached unit,
at a profit
Money Damages in Losing Contracts
L. Albert & Son v. Armstrong Rubber Co. (1949, 487) [Nov. 5]