Contracts 1

Front 1

What Must you have to enforce K

Back 1

Consideration:In order to have a legally enforceable promise, there must be adequate consideration

Hint 1

Legaly enforceable

Front 2

What is the definition of Consideration

Back 2

A benefit received by the promisor or a detriment incurred by the promisee.

More practically speaking, the promisee’s detriment MUST have been bargained or by the promisor

Note: benefit to the promisor DOES NOT REQUIRE economic benefit. Peace of mind or personal satisfaction is sufficient.

Hint 2

Example: A promises to give B 5000 if B stops drinking, smoking, gambling and cursing. If B does so, can he enforce A’s promise? Yes because the consideration which makes the contract valid (and enforceable) is B's refraining from drinking, smoking, gambling, and cursing at A’s request. It is bargained for by A. Hamer

Front 3

Restatement second §69

Acceptance by silence or exercise of Dominion:

Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following 3 cases ONLY


The most common usages of Silence

Back 3

(a) Where an offeree TAKES THE BENEFIT of offered services with REASONABLE opportunity to reject them and reason to know that they were offered with the expectation of compensation.

(b) Where the offeror has stated or given the offeree reason to understand that assent may be MANIFESTED BY SILENCE OR INACTION, and the offeree in remaining silent and inactive intends to accept the offer.

(c) Where because of PREVIOUS DEALINGS or otherwise, it is reasonable that the offeree SHOULD NOTIFY the offeror if he does not intend to accept

2. Most common usage of silence exists between companies who do business together and the NATURE OF THE TRANSACTION is one where both parties understand that the K is assented to and silence is only broken if there is a problem.

Front 4

Lapse of an Offer

What happens if an offer is not accepted?

Generally how do offers lapse?

What if the offer has an expressed expiration date?

What is the Default Rule?

What is a reasonable time?

Back 4

If not accepted, an offer may lapse, or expire.

Generally an offer will lapse of its own force.

If the offer STATES AN EXPIRATION DATE and is not accepted prior to the expiration date, the offer has lapsed.

Default rule if lapse not specifically indicated is a REASONABLE TIME.

What is a reasonable time?
Depends on the subject matter. If price fluctuations are rapid, then the reasonable time is quick. If the price is static, the lapse time will obviously be longer.

Front 5

Revocation of an offer

When can the offeror revoke an offer?

What if the Oferee pays for an option?

Example Dickinson v. Dodd

Back 5

An offeror is free to revoke an offer any time BEFORE to acceptance.

However, consideration paid by the offeree to keep the offer open will create a contract to keep the offer open and thus be enforceable.

EXAMPLE: A tells B that his offer to sell his land will be open until 9am Sunday morning. A sells his land to someone other than B prior to Sunday. B sues for damages. HELD: Promise to B by A is unsupported by consideration, therefore A is able to revoke his offer at any time. Dickinson V Dodd

Front 6

Restatement second § 43

Indirect communication of revocation

Does the oferee have to know about the offeror's actions?

Back 6

An offeree’s power of acceptance is terminated when the offeror takes DEFINITE ACTION inconsistent with an intention to enter into the proposed contract.

and the offeree acquires reliable information to that effect.

NOTE: When B realized that A had sold the property to another, the offer was effectively revoked.

Front 7

Firm Offers and UCC 2-205

Does it have to be signed?
What do the terms have to do?
Is it revocable?
Does the time have to be stated?
How long do you have to be irrevocable?
Who supplies the form and what must be done seperately?

Back 7

The UCC has a different approach to offers which are given SPECEFIC TIME FRAMES wanting consideration.

2-205 Firm Offers

An offer by a merchant to buy or sell goods in a signed writing

which by its terms gives ASSURANCE that it will be held open

is NOT revocable for lack of consideration DURING the time stated

or if NO time is stated, than for a reasonable time,

but in NO event may such period of irrevocability EXCEED 3 MONTHS;

but any such term of assurance on a form SUPPLIED BY THE OFFEREE must be signed SEPERATELY by the offeror.

Hint 7

Merchant

Front 8

Firm offers w/o consideration

EXAMPLE: A wants to buy B’s home. B makes an offer, stating that B will sell A his home if A arrives at bank X with 88k (purchase price) on a given day. A attempts to give B 1000 to hold the offer, which B rejects. B informs A that B is not going to sell his home. A pursues financing and arrives at the bank on the given day. B does not sell him the home. A sues for performance.

Back 8

Without consideration there are NO FIRM OFFERS AT COMMON LAW.

EXAMPLE: A wants to buy B’s home. B makes an offer, stating that B will sell A his home if A arrives at bank X with 88k (purchase price) on a given day. A attempts to give B 1000 to hold the offer, which B rejects. B informs A that B is not going to sell his home. A pursues financing and arrives at the bank on the given day. B does not sell him the home. A sues for performance. HELD: The offer requested performance. The acquisition of financing is merely incidental. The requested manner of acceptance was arriving at the bank. It was not done, hence no acceptance. Ragosta v Wilder

NOTE: Although there was NO K from which to seek recovery, Reliance damages MAY BE appropriate in some situations.

Front 9

Option Contracts seeking performance

Restatement Second 45

When is an option contract created?

How is an option contract created?

Back 9

If an option contract is created which seeks performance, it may be enforceable once performance has begun



Restatement second §45
Option Contract Created by part performance or tender
(1) Where an offer invites an offeree to accept by rendering a performance and DOES NOT invite a promissory acceptance, an option contract is created when thee offeree TENDERED OR BEGINS the invited performance or Tenders a beginning of it.

(2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of thee invited performance in accordance with the terms of the offer.

Front 10

Death/incapacity of an Offeror

When does death not matter?

Back 10

The death of an offeror effectively revokes a contract.

Incapacity by the offeror has the same effect.

However, death of an offeror does not revoke an option contract under R§45

Front 11

Rejection of an Offer

Back 11

Rejection of an offer terminates the power of acceptance so that the offeree CAN NOT thereafter accept the offer

UNDER COMMON LAW, ANY TYPE of response to the offer other than an acceptance as dictated by the offer WAS A REJECTION. This is the MIRROR IMAGE THEORY.

The Restatement has CHANGED much of this, and the UCC drastically changed this FOR MERCHANTS.

Under a VALID OPTION K, rejection DOES NOT terminate the right to accept at a later date.

Front 12

Restatement second § 37

Termination of power of acceptance under an option contract.

Back 12

Notwithstanding, §§38-49 the power of acceptance under an option contract is NOT TERMINATED by
REJECTION
COUNTER OFFER,
REVOCATION,
death or incapacity of the offeror,

UNLESS the requirements are met for the discharge of a contractual duty.

Front 13

The mailbox Rule:

Contracts by correspondence

Back 13

Acceptance

§ 63 Acceptance of an offer via mail IS EFFECTIVE upon dispatch, when the acceptance is effectively out of the offeree’s control

Revocation of an offer

§ 42 Revocation of an offer is EFFECTIVE UPON RECIEPT of the revocation by the offeree.

The offer IS NOT revoked until the offeree is aware (constructively) that the offer has been revoked.

Rejection or Counter Offer

§ 40 Rejection or counter offer DOES NOT TERMINATE the power of acceptance

UNTIL received by the offeror

Front 14

The Battle of the Forms and the UCC

WHAT IS THE TYPICAL TRANSACTION TYPE?

Back 14

A. Typical transaction between merchants consists of

1. Buyer sends PO—Offer
Contains buyer’s fine print attempting to govern K

2. Seller sends acknowledgement or written confirmation
Contains seller’s fine print attempting to govern K

3. Seller ships

4. Buyer pays.

Front 15

The Battle of the Forms and the UCC
Fine print between buyer and seller rarely match. Disputes arise, WHO’s fine print governs the K

Back 15

Old Method—Last Shot Rule—
In the above scenario
Buyer’s PO and fine print=Offer

Seller’s fine print=Counter offer

Buyer’s acceptance of goods=Acceptance of seller fine print,Sellers fine print would govern

Front 16

The Battle of the Forms and the UCC

UCC 2-207 changes the way fine print is handled in contracts.

Back 16

1. UCC 2-207 (1)
Definite and seasonable acceptance, written or verbal, sent within a reasonable time operates as acceptance even though its states terms additional to or different unless acceptance is expressly made conditional upon assent to additional or different terms.

a. Subsection (1) contains two parts.

1 Definite and seasonable acceptance, written or verbal, sent within a reasonable time operates as acceptance even though its states terms additional to or different…

Definite acceptance, (as proscribed by K or UCC) forms K inspite of different terms

… unless acceptance is expressly made conditional upon assent to additional or different terms

Changes imply fine print which has not been assented to. Seller indicating to buyer that it will not accept offer unless assent to terms.

§Merely writing phrase is not enough

§Seller must demand assent to compliance prior to acceptance

Front 17

The Battle of the Forms and the UCC

2-207 (2)

Back 17

Additional terms are construed as proposals for addition to the K. between merchants such terms become part of the K unless:

a. offer expressly limits acceptance to the terms of the offer.

b. they materially alter the k; or

c. notification of objection to them has already been given or is given within a reasonable time after notice is received

Front 18

When does Subsection 2 of the UCC2-207 not determine if the additional terms become part of hte K?

Back 18

If there is a K per subsection 1, then sub (2) determines if the additional terms become part of the K. Terms will become part of K unless they violate a,b,c

a. The offer dictates that acceptance is only based upon what is in the offer
.
b. Material alteration—something that would surprise the buyer/seller
color, price, quantity, Nature of K law (damages)

c. Notification that terms are not acceptable by either party

If there is no K per subsection (1), sub (2) does not apply. Basically, if Acceptance only will take place if the seller assents.

Front 19

UCC 2-2207 Subsection (3)

Back 19

. Subsection (3)

Conduct by both parties which recognized the existence of a contract is sufficient to establish a K for sale although the writings of the parties do not otherwise establish a K. in such case the terms of the particular contract consist off those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of the UCC

K is based on what the parties agree on and the rest is filled in by provision in the UCC

Front 20

Variations on Different and additional terms in UCC 2-2207.

Back 20

Variations on Different and additional terms.

Subsection (1) refers to “additional or different terms” and (2) only refers to additional terms. How does (2) work if the terms are different terms

A. Leading Majority rule-- Knock out rule—terms knock each other out and UCC gap fillers fill holes in K

B. Leading minority rule—Offeror’s terms control. this forces offeree to study offer prior to acceptance—seems unfair to offeree.

C. California rule—Treat different terms as additional terms as defined in (1) and continue to subsection (2)

The CA rule appears best, but to remain consistent with other states, the majority rule is usually the followed principal

EXAMPLE: A buys carpet from B. A’s form has arbitration clause in it which is different from B’s form. Court decision: REMAND to determine if there was any discussion regarding the acceptability of arbitration clause, if not, it may materially alter the K (surprise no relief in court) and not be part of K. Dorton V Carpet buyers.
EXAMPLE.:

Front 21

Pre-Contractual Liability

Back 21

Normally, prior to acceptance of a contract, both parties area free to walk away from the offer without incurring any liability to the other party. There are some exceptions.

Front 22

Conventional Controls: Unfairness and evaluation of Consideration

Back 22

1 Generally, when a promise has sufficient consideration, a court will not delve into the consideration, believing that each individual has the ability to decide and reach a bargain that will benefit themselves. However sometimes courts will examine consideration and the bargaining process over which consideration was reached.

1. Two types of relief

a. Actions “at law”—results in monetary damages
b. Actions “in equity”—specific performance, on injunctive relief.
Actions in equity are often subject to court scrutiny with regards to adequacy of consideration.

EXAMPLE: A K’s with B to buy parts. A will sell the parts to a company which will manufacture goods for the Gov’t. A’s profit will be huge. B refuses to sell the parts to A on public policy grounds which should invalidate the K. HELD: Breach by B. Courts do not generally enquire into consideration Bush V

Black industries

Front 23

NOTE: To Conventional Controls: Unfairness and evaluation of Consideration

Back 23

NOTE: One of the courts deciding factors in the above case is the function of the court. If the court had rescinded the K, the court would have been acting as an agent of price control, which is not a function of the court.

Front 24

Conventional Controls:
Unfairness and evaluation of Consideration

What do Courts evaluate?

Back 24

Courts have also engaged in evaluation of consideration when the parties entering into a K are disproportionate in their business abilities, the experience of one allowing the manipulation of the other.

EXAMPLE: A bought a camping site near B’s home, which he wanted to preserve the natural aesthetics of the surrounding. B offered to help A with the down payment (interest free loan) and business abilities, if A promised not to build any building closer to his house than already existed, or remove any trees for 25 years. A’s campground failed and A attempted to clear some trees to make a trailer park. B sues for injunctive relief. HELD: Injunction removed Mckinnon v. Benedict

NOTE: In McKinnon, B still could seek monetary damages, proving that the breach by A lowered the property value of his property.

Front 25

Conventional Controls: Over reaching—Pre-Existing duty

Back 25

A.Generally, a pre-existing legal duty to do something can not be consideration for a promise. Because the promisor is not bargaining for anything, there is nothing which can fulfill his detriment and be sufficient to bind him to a contract.

EX: A group of men agreed to fish on B’s boat. They were to receive $50 plus a bonus for each fish they caught. During the fishing trip, the men informed B’s agent that they would not fulfill their obligation unless they received 100. B’s agent made a new contract with them. Upon return B only paid them $50. Men sued. HELD: Legal obligation for first K was not consideration for 2nd K. Alaska Fishermen

NOTE: Courts have held this type of situation differently, as will be seen below

Front 26

Conventional Controls: Over reaching—Pre-Existing duty

Examples

Back 26

EXAMPLE: A hired B to work as a fashion designer for $90 per week. After signing a year contract, B is offered $115 per week from another designer. B approaches A about situation. A and B agree to destroy the first K and write a second K paying B $100 per week. B is fired two months later. B sues for damages. HELD: Second K is valid, and the damages are based on B’s breach of the second K Schwartzreich.

NOTE: In Schwartzreich, the first K was rescinded, both parties agreed to destroy it and enter into a second K, there fore, because the K was rescinded, B was under no pre-existing duty to work for A, which was the Consideration for both K’s.

Front 27

Conventional Controls: Over reaching—Pre-Existing duty

Notes

Back 27

NOTE: This appears to be typical of late 19th and early 20th century K law. A court could interpret contract both ways, one as invalid for want of consideration, the other a valid K, which was rescinded, and a second K, which is enforceable entered into by both parties. A deciding factor was the “bad faith” of the party wanting to modify the K. If the party acted in “bad faith” (extortion as in Alaska packers) courts generally held that they had a pre-existing duty. If there was no “bad faith” and the second K appeared to be a “renegotiation” (Schwartzreich) then the court usually held in that fashion. This changed later in the 20th century and by way of the UCC.

NOTE: In the early 20th century were reluctant to base decision on actions of either the P or the D. Courts found alternate ways to enforce or void K

Front 28

B.Restatement 2nd codified the common law surrounding modified promises to an existing promise

Back 28

§ 89 Modification of Executory Contract

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

1. if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; OR
2.to the extent provided by statute; Or
3.to the extent that justice requires enforcement in view of material change of position in reliance on the promise


EXAMPLE: A K’d with B to excavate a basement. There was an oral promise between the parties that removal of rock would result in a greater cost to A. Rock was discovered in the excavation site and B charged a the price as agreed upon during the oral modification. HELD Oral promise was a modification to the existing K which both parties agreed to and thus became part of the promise. Carrig and son

NOTE: The modification became part of the K for two reasons. (1) A could have said no and demanded B to fulfill at written K. OR (2) B could have hired another contractor. B did not act in “bad faith” as in Alaska fisherman, there was merely a change in circumstances that is addressed in R2d §89 (a).

Front 29

EXAMPLES OF K MODIFICATIONS UNDER R§89

Back 29

EXAMPLES OF K MODIFICATIONS UNDER R§89

1. A contracts with B to supply a laundry chute for a building B has contrac ted to build for $150k. Later A discovers that he made an error as to the type off f material to be used and should have bid $1200. A offers to supply the chute for $1000, eliminating overhead and profit. After ascertaining that other suppliers would charge more, B agrees, the new agreement is binding.

Front 30

C.In the sale of goods, the UCC also codified methods of modifying a promise

UCC 2-209 Modification, Rescission and Waiver

Back 30

C.In the sale of goods, the UCC also codified methods of modifying a promise

UCC 2-209 Modification, Rescission and Waiver

An agreement modifying a contract within this article needs no consideration to be binding.

a.a signed agreement which excludes modification or rescission except by a signed writing cannot e otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.

b.The requirements of the statute of frauds section of this article (2-201) must be satisfied if the contract as modified is within its provision

c.Although an attempt at modification of rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.

d.A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver

Front 31

Duress

Back 31

Duress

A.Placing a party in a position where the party has no choices. Choices are no longer made of voluntary assent.

B.Duress as required to invalidate a contract requires a defendant to act in Bad faith. Merely the result of the actions being detrimental to the plaintiff does not result in Duress. The plaintiff may be in a place were he has few choices, but the duress was not the cause of the defendant’s action if the defendant was acting in good faith.

C. Duress is what the promisee exerts over the promisor, not what the promisor receives as a result of the promisor’s actions

EXAMPLE: A has a K with the gov’t. A subcontracts part of his job to B. Prior to the completion of B’s original K, A is awarded an additional K. B informs A that if it does not receive the second K, B will cease performance off the first K, B further raises the price of K1. A seeks to see if another company can perform K1 if B drops out. A can find no one and subsequently consents to B’s demand. Austin Industries v Loral.

NOTE: Austin Industries actions are in Bad Faith.

Front 32

Pressure in Bargaining—Disparity in Bargaining Ability and Economic Duress

Back 32

Pressure in Bargaining—Disparity in Bargaining Ability and Economic Duress


A.Voluntary exchange implies meaningful assent by both parties. If there meaningful assent, then there is no voluntary exchange and a K may be invalid.

B.Lack of meaningful assent can be defined by two approaches. Bargaining Disparity and Information Disparity.


C.Placing a party in a position where the party has no choices. Choices are no longer made of voluntary assent.

1.Bargaining Disparity—one party has the upper hand in bargaining and can force the other party into a position it would not otherwise have entered into.

2.Information Disparity—one party has knowledge that might influence the other party if information was disclosed.

Front 33

IV.Pressure in Bargaining—Undue influence

Back 33

IV. Pressure in Bargaining—Undue influence

A.Typically, there is some relationship between parties. One party can control the actions of another. Typically seen in wills.

B.Typical elements related to Undue Influence.

1.Discussion of transaction at unusual or inappropriate time

2.Consummation of transaction in an unusual place.

3.Insistent demand that business be finished at once.

4.Extreme emphasis on consequences of delay

5.Multiple persuaders on dominant side versus single individual on servient side.

6.Statements that there is no time to seek legal or financial help or assistance

Front 34

Pressure in Bargaining—Undue influence

Back 34

EXAMPLES: A, a teacher is arrested for homosexual activities. School board members, as they are required, inform A that he will either have to resign or face the consequences of his arrest and its circumstances in school board meeting. A resigns to avoid public disclosure of his sexuality. The Homosexuality case is dismissed, A seeks to rescind his contract. HELD Case was remanded to discover if undue influence or duress exists in A’s decision. Odoriizzii v Schoolboard

NOTE: Cochhran says that UE is possible, but not duress because the school board members were not in “Bad Faith’’ they were performing their duties.

Front 35

C.Undue influence does not always have duress which is inflicted by bad faith of the Promisee.

Back 35

C. Undue influence does not always have duress which is inflicted by bad faith of the Promisee.

EXAMPLE: P has enrolled in a dance school (B). B keeps informing P of her improvements and the necessity of classes to continue improving, when in fact P is not very good. P eventually buys 32k worth of dance lessons. HELD: ability of school to subvertly sell to P is undue influence. Vokes v Arthur Murry

Front 36

D. Subjective elements of Undue Influence

Back 36

D. Subjective elements of Undue Influence

1. Excessive pressure to persuade one vulnerable to such pressure
2. Such pressure applied by a dominant over a servient object

Front 37

E. Abilities of Parties—Strength and Weaknesses

Back 37

E. Abilities of Parties—Strength and Weaknesses

Undue influence can be a person of subnormal capacities subjected to an ordinary force,
OR

A person of ordinary capacities subjected to extraordinary force

Front 38

D.Undue influence cannot be used as a pretext to avoid bad bargains or escape from bargains which refuse to come up to expectations.

Back 38

D. Undue influence cannot be used as a pretext to avoid bad bargains or escape from bargains which refuse to come up to expectations.

Front 39

V.Pressure in Bargaining— Concealment and Misrepresentation

Back 39

V. Pressure in Bargaining— Concealment and Misrepresentation

A. Seller may have no obligation to disclose information which would harm or damage his ability to market what is being sold

B. Misrepresentation would occur if Seller told a contrary fact to the buyer. However, if Seller makes no statement to the fact he has not misrepresented anything

C. Thhe idenntitiy or character off the p;roperty or service being sole id oovertly being misrepresented by the other contracting party then the other party’s assent iiis less thann meanniingfufl and the agreement will be thought of as voidable.

EXAMPLE: P buys a termite infested house from defendant who knew of infestation, but never disclosed infestation to P. P sues for repair costs to home. HELD: Seller is not obligated to disclose all known faults with property being sold. Swinton v Bank

NOTE: Likewise, a buyer is not required to tell a seller the value of something that the seller has under priced, and is worth more than the seller is asking.

EXAMPLE: D owns a home in a residential zoned area of city X. D converts the home into a multi-family dwelling against city ordinances and without any building permits. D advertises the home as a multi family dwelling, with knowledge that it is incapable of being used as such. P purchases the home with the expectations of using it as a multi dwelling income property. City officials prevent use of this type and P brings suit to rescind the k. HELD: Advertisement constitutes misrepresentation. Kannavos v Annino.

Front 40

VI.Adhesion Contracts and Unconscionablity

Back 40

VI. Adhesion Contracts and Unconscionablity

A. There are several ways which standard form contracts can provide an imposition, these often appear in combination. (1) The standardized K may be used by an ienterprise with such diisproportiionately strong economic power that it can dictate its terms to the weaker party. (2) There may be no opportunity to bargain over terms at all; thhe standardized K is often a take it or leave it proposition in which the only alaternaties are adherence or out right rejection. (3) Standardized K are often used by a party whho has had thheh advantage off time and expert advice in preparing it while the other party may have no real opportunity to scrutinize and often no real means to understand.

Front 41

VI.Adhesion Contracts and Unconscionablity

Back 41

B.In business K’s, the K is generally enforced unless:

1.it would be against te settled public policy of the state to do so
2.OR
1.there is something thhe social relationship of thhhe parties militating against uupholding the agreementn.

C.In business transactions, partiies usually have more negotiating opportunity. Leasee can waive liability for lower rent and insure himself.

D.Parties will reach the mose efficient and economic outcome and the law chould not prohibit this.

E.In certain industries, exculpatory clauses are not enforceable. This is prevalent in regulated industries such as Hotel, RR. The dominant nature of the business and the fact that companies have a “monopoly” on the industry and customers have no room to negotiate—Against Public policy.

F.Most states by statute, limit effects of exculpatory clauses with regards to tenants felieiving leassor off liability. Texas—must waive with consideration and writing.

EXAMPLE. A, a tenant of B, slips on B’s uunmaintained property. Part of A’s lease is an exculpatory clause which relieves B of any liability that might occur on B’s premises. HELD: Clause enforceable, not unconsciionnable and not against public policy. O’Callaghhan

Front 42

VI.Adhesion Contracts and Unconscionablity

Back 42

G.Liabiility in Bailments with claim checks

These are generally held to be used for identification of bailed belongings. Court held that Defendant can limit liability for damage, the bailee must demonstrate that it has given adequate notice of K for bailment.

H. Clauses between experience business individuals.

If an individual is in a particular business which uses Adhesion K. Claiming lack of knowledge or understanding of K or clause is worthless. Business interests, dictate that the individuall would know of the K and its worth.

I.steps to determine if adhesion K is enforceable.

Front 43

I.steps to determine if adhesion K is enforceable.

Back 43

I.steps to determine if adhesion K is enforceable.

1. K or provision wichh does not fall within the reasonable expectations of thhe weaker or “adhering” party will not be enforced against him

2. A contract or provision, even if consistent with the reasonable expectations of the the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or unconsicionable.

EXAMPLE: A, a music promoter, K’s with B. A receives 15% of revenue, B 85%. One show looses 45K, A attempts to make up lost revenue by combining profits with other shows. B objects. Clause in K between (provided by B’s industry, a standard form) A and B dictates that diispuutes will be settled via arbitration. A claims clause is invalid. HELD: Nature of A’s experience and working with exact same form proves A knew (above elementns 1, and 2 arbitrationn not oppressive or unconscionable) Grahm v Scissor taiil

Front 44

J.Non negotiable K’s and warranty disclaimer

Back 44

J. Non negotiable K’s and warranty disclaimer

Exclusion or Modification of Warranties UCC 2-316

Exclusions or modifications of Implied warranties (for either merchantability or fitness) must be made by a writing and conspicuous. If not in writing and conspicuous :

1. unless circumstances dictate otherwise, all implied warranties are excluded with language such as “as is” or “with all faults.” Or other language which is common to call the buyer’s attention to the exclusion of warranties and makes pplain that there is no implied warranty.

2. If buyer examines, or if buyer refuses to examine goods, there is no implied warranty with regard to defects he should have discovered

3. an implied warranty can also be excluded or modified by course of performance or usage trades.

Front 45

K. Layperson’s understanding of clauses in K are fundamental. So is the right to recovery. Ability to recover is a fundamental, part of K.

Back 45

K. Layperson’s understanding of clauses in K are fundamental. So is the right to recovery. Ability to recover is a fundamental, part of K.

Ability of a layperson to understand a exculpatory clause can cause the clause to be rendered invalid, if the clause is created by companies who have a near monopoly and is construed in a way as to not fully inform purchaser of intentions of K.

EXAMPLE: A purchased an automobile from B (big 3). Warranty on sale indicates that B is liable for breach of warranty for parts and labor for 90 days or 4000 miles. A is injured in auto and sues B for personal injuries. B claims warranty disclaims personal injury claims. HELD: Draftsmanship hides what is being disclaimied. Layperson may only belieive the warranty is talking about CAR not anything else. Hennignson V bloomfiield

Front 46

Contracts of Adhesion

Back 46

L. Federal Legislation: Magnasson-Moss warranty act—Manufacturer does not have to create a warranty. If manufacturer does create warranty, it must be written in a manner which is uunderstandable and must fully disclose nature of warranty.


M. Forum selection clauses and Adhesionn and Validity

Courts generally do not like forum selection clauses.

Carnival Cruise lines and Selectionn Clause.

Supreme court hheld that it was enforceable because:

Carnival’s ability to limit forum allowed lower fares, because money in suits was not spend determining where a suit might be brought. This savings amounted to negations by the consenting parties.

N. Generally, adhesion K’s are not applicable in commercial settiinngs because much more is able to be bargained for. Decreased rent for waiver of liability. When adhesion K’s are used in commercial settings, they are generally upheld because the parties are able to expect and understand the nature off such clauses, where layperson will not uunderstand the nature of the clause.

Front 47

Generally, Unscionabiility has two elements

Back 47

Generally, Unscionabiility has two elements

1. (process)—An absence of meaniinngful choices by one party. (This cann only be determined by circumstances. Manner in which K was entered is relevant. (do parties have opportunity to understand K and is the clause hidden in fine print).

2. conscionability hinges on lack of (1) understanding of a K or a clause in a K (2) Lack of bargaining power by the entering party. (3) lack of choice for fungible alternatives. These equate to lack of Assent

Front 48

Unconscionability

Back 48

A. Contracts for goods governed by UCC 2-301

B. courts now are not limited to equitable relief. State legislative adoption of UCC give court power to modify K or clause of K.

C. To modify or rescind, court must as a Matter of Law that a clause or K itself is unconscionable. Courts have discretionary powers to limit a K, modify or not enforce a clause

D. Unscionsionability is defined by two elements. The process of the K and the result of the K. These operate jointly on a sliding scale. The more thhe process is unfair, the less the result needs to be fair and vice versa.

E. Process alone may be enough in certain situations to create unconsionability. Example: Duress under entry of K (Austin Industtries, Mckinnon;

F. If process is fair, can result be enough to be Unscionable? Probably not that is a big leap and may include poor business decisions.

EXAMPLES Williams v Walker furniitutre—apportioned payment method to maintain balance until evertything is payed off. Process unfair, but result worse.

G. Price unscionability. Companiies that charge exorbitantly high interest rates, to pass credit to poor individuals and charge exorbantly high prices may be unscionable.

H.Commercial Unconscionability—Less occurrence because companies have much better bargaining power.

Front 49

Statute of Frauds

Back 49

Statute of Frauds

Arose from 1677’s “the Act for Prevention of Frauds and Perjuries” Certain Contracts had to be in writing to be enforceable.

Writing had to be signed by the party K is being enforced against. If not in writing, the contract is uunenfforceable.

SoF elements which are generally accepted

1. Contracts for the sale of real property, must be in writing

2. agreement not to be performed within one year

Front 50

Statute of Frauds

Examples

Back 50

EXAMPLE: Carl a first year law student, entered into an oral agreement with Victor, uunder which Carl was to be a mreident manager of an apartmentn development owned by Victor, “Until Carl completed law school or was obliged to discontinue his studies.” Ffive weeks after carl undertook his duties, hhhe was fired. Does SoF make contract enforceable? NO because carl could not be obliged to return ( flunk out) and therefore complete the K within one year.

EXAMPLE: Hamer, suppose there was no writing. The uncle was not looking for a return promise, therefore the agreement was not formed until nephew turned 21. Everythhing happened at once when he turned 21, completed in one year, no SoF violation.

EXAMPLE: A has an oral agreement to work for five years, but B, his employer, fires him three weeks later. There is no way A not complete his K within one year, so the SoF does not render the K unenforceable.

EXAMPLE: A has an oral agreement to work for B for life. A fires B next week. A could die within one year, and thus complete the K within one year—K is unenforceable.

Front 51

UCC 2-201 Sale of goods more than 500

Back 51

3. UCC 2-201 Sale of goods more than 500

(1) (Generally) K for sale of goods is not enforceable by action or defense, without some writing signed by the party against whom enforcement is sought. Writing is not insufficient becauuuse it omits or incorrectly states a aterm. But not enforceable if signed writing does not list goods in question
(2) Between Merchants—if within a reasonable time a writing in confirmation of te contract and suuffieicnt against the sender is received and the party reciieving it has reason to kknow it is contents, it satisfies theh requirements of subsection (1) against such party unless written notice objection to its content is given nwiithhin ten days after it is recieived.

Summary. If A sends written confirmation to B and the writing is sufficient against A, it will bind B and be enforceable uunlless B objects within 10 days of receipt

Rationale: Merchannts are in the business of shipping and receiving goods and better keep on their toes.


(3) K’s which fail (1) but which is valid in all other aspects is valid if

(a) goods are to be specially manuuffactuured for the buyer and are not suuiitable for sale to toehrs in the ordinary course of te seller’ss business, and the seller has made either a substantial beginning of their manuufactuurue or commiitmentns for their procurement.

(b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in couuurt that a contract for sale was made, but the K is not enforceable under this provision beyond the quantituy of goods admitted

(c) with respect to goods ffor which payment has been made andn accepted or which hhave been received and accepted.

Front 52

Written Requirements for SoF

Back 52

Written Requirements for SoF

Any writing can satisfy the writing requirement

Cancelled check—note on the memo line of check

Oral testimony will be accepted to prove the writing existed

Front 53

Per UCC

Back 53

Per UCC
Writing does not have to contain the material of K. Writing must afford a basis for believing that thhe offered oral evidence rests on a real transaction

Only term which must appear iis thhe quantity term which need nnot be accurately stated, but recovery is limited to the amount stated. Price, time and place of fpayment or delivery, quality of goods may all be ommited.

Memo’s are sufficient. Must evidence a contract for the sale of goods (2) must be signed, initialed, any authenticating which identifies charged party, Must specify a quantity

Reciept and acceptance either of goods or of the price constitutes an uunambiguous overt admissioin by both parties that a K exists.

In most states, E-signaatuure is sufficient

Courts generally try to avoid applying SoF and will defeat it when every possible

Front 54

Consequences of SoF

Back 54

Consequences of SoF

Basically an affirmitave defense for Defendants to deny the existence of K

If K is dismissed by SoF, recovery uunder §139 (very similar to §90) may lie

Front 55

WHat do we require for enforceability because we don’t want to enforce gratuitous promises?

Back 55

We require consideration for enforceability because we don’t want to enforce gratuitous promises

Example: If A tells B that if jumps in a lake during December, he will pay B $50. If B jumps in lake, is it an enforceable promise?

Analysis: Yes, Because we have a detriment to B (embarrassment, physical effects of cold water) and a benefit to A (B making fool of self, pleasure of control of A)—each of which was bargained for.

Note: Secret of consideration, according to Holmes, is the reciprocal conventional inducement, each for the other, between the consideration and the promise.
The promises causes the effect and the effect is the result of the promise.

Front 56

3.Excepted classes where law generally refuses to recognize consideration (but where promissory estoppel might apply)

Back 56

3.Excepted classes where law generally refuses to recognize consideration (but where promissory estoppel might apply)

a.Promises close family members (promissory estoppel could apply here if there is a detrimental reliance that the promisor could reasonably foresee)


b.Social Engagements

c.Jokes

d.Gifts (although promissory estoppel could apply here if there is a detrimental reliance that the promisor could reasonably foresee)

Example: A rich guy tells tramp. “If you’ll step around the corner, I’ll pay my tailor to make you a suit.” There is no consideration because the tramp’s stepping around the corner is not a detriment to her, it is merely an action to facilitate the gift. The promise is considered a gift because nothing was bargained for—Williston’s tramp

4.Seals

Front 57

4.Seals
@ common law
and
Today

Back 57

a.Common Law: Under common law, seals—were sufficient to make a promise.

b.Today: Attaching a seal to a contract today, however, does not make it any more or less enforceable than if it did not have the seal in most states.

Front 58

5.2 types of Contractual relationships.

Back 58

5. Contractual relationships.

a.Bilateral: This is a promise made in exchange for a promise

NOTE: in a bilateral contract, the detriment must induce the promise and the promise must induce the detriment, thus each parties' promise is consideration for the other party’s promise.

b.Unilateral: This is a promise made in exchange for an action. It is contingent upon an action.

Front 59

B.Determining consideration:

In determining consideration, courts must determine motive of promisor as best they can under the circumstances

Consideration
Detriment to promisee
Benefit to the promisor
A return promise can be bargained for

Back 59

B. Determining consideration: In determining consideration, courts must determine motive of promisor as best they can under the circumstances.

1. Consideration is best met by the modality of Bargain. A bargain consists of two things which must be present.

a. Detriment to promisee. This does not have to be an economic detriment. Promisee can forbear, perform an act, but it must be what the promisor bargained for.

b. Benefit to the promisor Promisor’s benefit does not have to be economic either. It can be state of mind, a reassurance, a forbearance, an exertion of power, entertainment.

b. A return promise can be bargained for.

Example: A promises to mow your grass on Saturday, if you promise to pay him on Friday.

Front 60

C.Items bargained for must purport to be for each other

Back 60

C. Items bargained for must purport to be for each other

a. This is best shown by examining employee-employer relationships with regards to non compete covenants and employee handbooks.

Example: A works for B. As part of job requirement, A must sign a non-compete agreement. A is not told of the agreement and is told about and signs it several weeks after beginning employment. A quits later and begins to work for another similar company. B sues a for breach.

Analysis: At the time of hire, or prior to, the covenant and job are inducements for each other, no covenant, no job. But after several weeks, what is the consideration for signing K. Initially there is non, but performance by B (continued employment) becomes consideration making the K enforceable. This grows from an invalid Bilateral to a valid unilateral K.

Front 61

1.Acts incidental to a true gift promise are insufficient consideration:

Back 61

1.Acts incidental to a true gift promise are insufficient consideration: The promisee will often take some sort of action in order to obtain the benefits of a gift promise. If such action is deemed only incidental to the true gratuitous nature of the promise, the taking of such actions is insufficient to act as consideration

Example: Brother-in-law writes to recently widowed sister-in-law, “if you come down and see me, I will let you have a place to stay.” Sister-in-law moved to Alabama with her family, but brother-in-law would not provide her with a lace to stay. Can court hold that this promise is enforceable?
Analysis: No. Court found that the brother-in-law’s offer was a gift, and that sister-in-law’s move was merely an action to facilitate the making of a gift, rather than a detriment that was bargained for. Kirksey

NOTE: Had the brother-in-law written, “I am lonely, please…” then this would likely constitute consideration. Her detriment would have been to his benefit. Reciprocal conventional inducement.

Front 62

2. Unsolicited action is insufficient consideration:

Back 62

2. Unsolicited action is insufficient consideration: Action taken without regard to the promise is not sufficient to serve as consideration. When a fortuitous act accomplishes the acts called for by an offer, but person performing act is unaware of offer while he is performing the act

Example: Sheriff offers a reward for capture of A. B captures A but did not know of the offer. B’s actions are not part of the Bargain offered by sheriff. B did not return A because of knowledge of sheriff’s offer, thus B’s actions cannot serve as consideration under the bargain theory

NOTE: As long as B knows of sheriff’s offer, any other ulterior motives B may have do not remove consideration. Knowledge of the offer and actions required by the offer equal consideration

Front 63

D. Adequacy of consideration:

Back 63

D. Adequacy of consideration: Where there was a bargain, the court does not inquire into the adequacy (fairness) of consideration, assuming the parties voluntarily entered the agreement both with about the same knowledge and expertise. Fraud, contracts by a minor, or insolvency, or duress may invalidate.

Front 64

E.Enforcing invalid claims: Courts will enforce invalid claims which may be a return promise.

Back 64

E. Enforcing invalid claims: Courts will enforce invalid claims which may be a return promise.

1. The claim must be made in “good faith” party stating claim must have reasonable belief that claim is valid

2. Claim must have some possibility of truthful foundation

Example: A has impregnated B. A promises to pay for medical expenses if B promises not to pursue bastardy proceedings against A. A discovers that B’s child is not his (Her claim was invalid). Is A’s promise enforceable.

Analysis: Promise is enforceable for two reasons. (1) At time of promise, A and B reasonable believed that B was father, thus making a “good faith” belief that the bastardy proceeding was valid. (2) Relationship between A&B suggest possible foundation of truth with respect to A being father of B’s child.

Front 65

I. Reliance on a Promise as basis for Enforcement

A.Promissory Estoppel:

Back 65

I. Reliance on a Promise as basis for Enforcement

A. Promissory Estoppel: The essence of promissory estoppel is the idea that the maker of a promise may be bound by that promise, even though it is not supported by consideration, if the promisee relies on that promise to his detriment, and the promisor should have reasonably foreseen this reliance. This is different from the consideration doctrine, which is designed to enforce promises which are “bargained for.” It is a mistake to argue for promissory estoppel when there is consideration present.

Front 66

Promissory Estoppel:

Examples and circumstances where Promissory Estopple has been used to enforce promise.

Back 66

1. Promissory estoppel is often applied to enforce promises to make gifts that induce detrimental reliance, even between family members.

Example: P’s grandfather promised her $2000 so she would “not have to work anymore.” Immediately, P quit her job. He died one year later, and P brought suit against D’s estate for the money. D’s estate argued that the $2000 offer was a “gift for nothing in return.” The court held that P justifiably and foreseeably relied on her grandfather’s promise of payment, by giving up her job. This reliance made the note enforceable, and operated to “estop” the executor from denying that the note was given for valid consideration. Rickets.

2. Promissory estoppel has also been applied to situations where there have been promises by employers to pay pensions and other fringe benefits.

Example: D promises P a pension when she retires. She retires shortly after this promise is made, apparently at least in part in reliance upon it. She does not seek other employment, and through age eventually becomes unemployable. The court held that the promise to pay the pension is binding under promissory estoppel since the employee has reasonably and detrimentally relied upon it. Her reliance came in choosing to retire, and growing old and unemployable. After growing old and unemployable it may have become impossible to find other employment. Feinberg

Example: P announces his retirement from company B. Prior to his retirement, in a conversation with B’s officers, B told him that he would receive $5000 per year. B discontinued payments some year later. Is this promise enforceable under Promissory Estoppel?

Analysis: Not enforceable because A was planning to retire, thus choosing to be unemployable. A did not retire in reliance on the promise, thus it was a gift. Hayes v Plantation steel.

Front 67

B. The restatement 90 has been instrumental in shaping the doctrine of Promissory estoppel

Back 67

B. The restatement 90 has been instrumental in shaping the doctrine of Promissory estoppel

A promise which the promisor could reasonably expect to induce action of forbearance on the part of the promisee or a third person and which does induce such action of forbearance is binding if injustice can be avoided only by enforcement of the promise. the remedy may be limited as justice so requires. Restatement second §90

NOTE: R90 in second restatement, unlike in the first restatement, does not require that the action or forbearance on the part of the promisee be of a definite and substantial character. Rather, there must be a reasonable amount of detrimental reliance.

Recovery, “…as justice so requires.”

EXAMPLE: In rickets v scothorn, under old restatement, she would be entitled to 2000, under the second, court would award what she lost, earnings over a year and a half period. $10 per week X 65 weeks = $650

Front 68

What are Reliance Damages?

Back 68

C. Because promissory estoppel is based on the idea of reliance, the most common reassure of damages in promissory estoppel is reliance damages—putting P in the position he would have been before the promise had been made. But restitution and expectation damages can also be appropriate in certain situations (i.e., P could argue for expectations damages—profits or other financial gain he would have earned since he relied on D’s promise)

Front 69

Do charitable Organizations have to show detrimental reliance?

Back 69

D. Charitable organizations do not have to show detrimental reliance in order to collect on a promise. A charity can collect without consideration or reliance.

Front 70

E.Reliance on
What are illusory promises.

Back 70

E.Reliance on illusory promises.

Promises in which the promisor is not obligated to do anything specifically, or has an unconditional opt out clause are held to be illusory promises, a promise which does not truly exist and therefore cannot be acceptable consideration.

Example: D agreed to endorse her husband’s promissory note held by P. D told P that he would not sell the note, but would, “…hold it until I want my money.” P gave no specific amount of time he would hold note.

Analysis: Because P gave no definite time limit to hold note, he could ask for it anytime, including the instant D endorsed her husband’s note. Promise to forebear held to lack consideration because of illusory promise. Strong v Sheffield

NOTE: Had P given specific time requirements, this would have constituted a forbearance and would have been sufficient consideration.

Example: P and D enter into an agreement to purchase D’s real estate to build shopping mall. P pays $1000 per deposit receipt with remainder due in 120 days. Clause in deposit receipt stipulates that closing was “…subject to obtaining leases satisfactory to purchaser.” D sells the land to another in basis of argument that K with P lacked consideration because of the option clause in deposit receipt. Mattei v. Hopper.

Analysis: K has sufficient consideration because of limitations on opt out clause. Option out based on criteria, not on subjection of P. Criteria are based on “good faith” effort to locate tenants (performance of property, not dissatisfaction with K)

Front 71

F.Requirements contracts and illusory promises.

Back 71

F. Requirements contracts and illusory promises.

1. Requirements and output contracts. Under a requirements and output K, the seller agrees to sell and the buyer agrees to buy all of the goods of a particular kind that the buyer may require in its business. It assures the buyer a source of goods. Under an output contract the seller agrees to sell and the buyer agrees to buy all of the goods of a particular kind that the seller may produce in its business. It assures the seller a source of sales of goods. A high degree of specificity is not required. A buyer’s agreement to buy goods at a certain price is sufficient, since it is implied he will only buy those requirements, if he buys them at all, from that seller.

A. K is likely to be enforced if it can be found that the buyer has implicitly promised to use his best efforts to sell the goods (or that the seller in an output K has implicitly promised to attempt to maintain his production at a reasonable level). The bargain should not be one-sided.

B. UCC: under 2-306 , the UCC validates requirements and output K’s. the court decides whether:

i. the quantity by the output of the seller or requirement of the buyer occur in good faith AND
ii. the quantity is not unreasonably disproportionate

Example: P has been engaged in buying jet fuel from D for long time. P and D have contract where D provides fuel to P’s need. D attempts to breach on grounds that K neither stipulates how much P should buy or D should provide and is therefore illusory.

Analysis: Assumption of “good faith” intentions on behalf of buyer to buy all he needs and seller to provide all buyer needs is sufficient under UCC 2-306 to provide sufficient consideration to K. Eastern Air v Gulf

Example: D, a fashion designer, gives exclusive rights to P to market her clothes. D puts her endorsements on the designs of third persons, so P sues for breach. D claims that K fails for lack of consideration, on the grounds that P did not bind himself to do anything, since he was not obligated under k to sell anything at all. Held: P can be impliedly found to pave promised to use “reasonable efforts” to marked D’s designs. This implied promise of good faith is used as sufficient detriment to P to constitute consideration for D’s counter promise that she would not place her endorsement on anyone else’s designs. Wood v Lady Duff

Front 72

Past Consideration and Moral Obligation

Back 72

Past Consideration and Moral Obligation

A. A moral obligation is not consideration for a promise. A subsequent promise to pay for unrequested services is not enforceable, even if the recipient has incurred a substantial benefit from those services.

Example: P took care of D’s son without being requested to do so and for so doing was promised compensation for expenses arising out of the rendered care by D. D later refused to compensate P. Held: the existing moral obligation is not a sufficient basis for the enforcement of an express promise to render the performance that the obligation requires. Mills v Wymann

Rationale: (1) the promise was made without real thought as to the consequences (2) no bargained for exchange (3) no reliance on the part of promisee

Front 73

Past Consideration and Moral Obligation

Exceptions to moral obligation rule.

Back 73

B. Exceptions to moral obligation rule. Some promises are held to be binding even though there is no consideration

1. Debts barred by statute of limitations
a. A new promise to pay a debt, where SoL has run, starts the statutory period running again
b. Debts of infants
c. Debts of insolvents

Front 74

Moral obligation is consideration for a promise:

Is a subsequent promise to pay for unrequested services enforceable,

What if the recipient has incurred a substantial benefit from those services.

Back 74

C. Moral obligation is consideration for a promise: a subsequent promise to pay for unrequested services is unenforceable, if the recipient has incurred a substantial benefit from those services.

Example: A saves B’s life in an emergency. B promises A $15 every two weeks for the rest of A’s life, but stops paying after eight years when B dies. A brings suit. Held: B’s promise is enforceable, even without consideration, because B incurred substantial benefit from A’s act, even though B did not request the act. Webb v McGowin.

Front 75

Attempts to prevent unjust enrichment

Back 75

A. Previous recovery has been based on either Consideration, where a bargain exists and a party breach the K from the bargain, or Reliance, where a promise lacking consideration is enforced because of a detrimental reliance on behalf of the promisee.

Front 76

Attempts to prevent unjust enrichment

What is Restitution

What is its basis

Back 76

B. Restitution recovery is recovery without any K, or agreement between the parties. Its basis is to prevent unjust enrichment of one party at the expense of another.

1. Law creates a promise based on circumstances and individuals involved. These are called quasi-Contracts or Contracts-implied in law. The most common example is where P supplies emergency services to D without first forming a contract to do so

Example: A is thrown from a car in an automobile accident. B, a physician renders emergency aid to A, who ultimately dies. B sues C, the executor of A’s estate for restitution. Cotnam v Wisdom

Analysis: B recovers under a quasi-K with A. The fact that A never entered into a K with B is irrelevant. The nature of B’s skill allows him to recover the worth of his services.

2. It appears that the law allows quasi-K’s to be enforceable when the promisor would have reasonably have wanted what the promisee provided
a.Emergency medical expenses
b.Emergency care of property that has direct pecuniary connections with the promisee.

3.Quasi-K’s do not allow a promisee to change promisors. Enforceable quasi-K’s mandate a direct connection with the promisor. Quasi-K’s are only enforceable between parties who would normally have agreed to or made the K.

Example: A has a K with B to install shrubs at a house he does not yet own, that is buying built by C. (A is in the process of buying the house from C, but has not closed as the house is under construction). B installs the shrubs. A dies prior to the completion of the house and before B can be paid. The executor of A’s house and C agree to cancel the K to buy the house. C sells the house with the shrubs to a different family. B sues C for restitution and enrichment gained by C on it selling of the house. Held: No cause of action. Callano v. Oakwood

Analysis: Because A K’d with B, and C had no idea of K, C is not liable for the cost of the shrubbery. Direct interaction between parties is necessary for recovery.

Front 77

A.Expectation damages

1.Purpose:

2. Theory behind expectation damages.

Back 77

A. Expectation damages

1. Purpose: the purpose of expectation damages is to put the plaintiff in as good of a position as he would have been had the K been fulfilled at the least cost to the defendant.

NOTE Generally, P’s will first want expectation damages. (unless profits are too speculative or restitution would give them more damages before the breach

2. Theory behind expectation damages. Balance of two goals

a. Incentive to perform: these damages discourage breach by making breaching party pay anyway.

b. Economic effeciency: Encourages breaches in certain situations—(efficient breaches)

Example: A leases land to B for whatever reason. B’s use of land will yield $1000. A realizes that he can use land and yield $2000. A breach of K results in B enjoining A to specific performance of K. Negotiations between A and B will result in a “sell out” of B for part of the excess profit that exists in the difference between the yields of the two. If A accepts $1500, he is better off and B’s yield is $1500, thus the breach was efficient use of economic assets.

c. Expectation damages (as are all K remedies) are meant to compensate one party, rather than punish the other

Front 78

B. Limitations on Expectation Damages

Back 78

B. Limitations on Expectation Damages

1. Reasonable certainty: P may only recover for losses which he establishes with reasonable certainty. P must now show only that he would profit, but he must show amount of profit

2. Plaintiff has an obligation to not increase damages incurred by Plaintiff

Front 79

C. Reliance Damages

1. Purpose:

Back 79

C. Reliance Damages

1. Purpose: The purpose of reliance damages is to undo harm which one’s reliance on the defendant’s promise has caused him. Put another way, the object is to put P in as good a position as he was before the K was made.

NOTE: These damages usually equal the amount that P has spent in performing or preparing to perform. It can also be a loss caused by breach of D

Example: A’s business is dependant on remaining the supplier of B’s goods. Business slows and A contemplates selling his business or reducing the type of business he conducts. A is offered a sales price of X amount. Before rejecting the offer, A consults with B who promises not to pull its products from A. A knows without B it cannot stay in business. After the offer rejection, B pulls its products from A. A is now forced to sell, but at an amount lower than the previous offer (X-550k). A sues be for the difference in sales price. Held: Promissory estoppel applies and B liable for damages.

NOTE: The damages are based on what A lost when it chose to stay in business with the belief that B would remain on board. When B left, A’s business fell apart and A lost his bargaining advantage.

Front 80

D. Restitution Damages
1. Definition:
2. Restitution in Quasi-K
a. No contract attempted:
cases usually require a special skill.

Back 80

D. Restitution Damages

1. Definition: Restitution requires the breaching party to return benefits conferred by an innocent party. Restitution’s goal is to prevent unjust enrichment

2. Restitution in Quasi-K

a. No contract attempted: the courts sometimes award P a recovery where no K was even attempted. The most common example is where P supplies emergences to D. without first forming a contract to do so.

b. These cases usually require a special skill. Doctors performing emergency services on the side of the road is a good example. If a lay person gives an injured person a ride to a hospital they can not recover (However, if the expenses to the Promisee are great or the benefit to the Promisor are great recovery may be an option)

Front 81

The Offer

Back 81

The Offer

A. Offeror sticking neck out—giving the offeree the power to bind the offeror to his k.

No specific language required, merely the language which can clearly gives the offeree the right to bind the offer with the K.

Front 82

B. Advertisements as Offers
1Generally,
2 Exceptions:

Back 82

B. Advertisements as Offers

1Generally,advertisements are not offers, they do not confer the power of contract to the offeree. Advertisements are generally invitations to shop.
2.Exceptions:

3.Offers which are specific in who the offer is directed towards (who may accept) and what is being offered. Offers which seek performance are very indicative of this

a. Advertisement displaying one black stole to the first person who arrived at store to purchase. Plaintiff arrived and was denied the sale. Plaintiff sued for damages. HELD: Advertisement was an offer because it was specific, sought performance and only one person could accept the offer. Lefkowitz

b. Sheriff Ledbetter again. Reward for returning fugitive X. P captures X and returns X to Ledbetter. Advertisement sought performance from only one person.

4 For advertisements to be considered an offer they generally must:

a. Only be able to be accepted by one individual

b. Be specific on what is available. In the sample cases, there was only one possibility, one stole, one fugitive

c. Be seeking performance rather than a promise.

Front 83

Mistakes and contract bids

Back 83

Mistakes and contract bids

1. The nature of accepting contracting bids places general contractors in a situation where they must rely on the decisions of sub contractors on a high pressure decision making situation. Occasionally General Contractors will make mistakes and miscalculate their own bids, which are generally unrevokeable after they have been opened.

2. Some situations allow for a bid to be rescinded after it has been open, or even accepted.

EXAMPLE: D submitted a bid to P, however, D had a miscalculation on his tally computation sheet. D was the lowest bid and awarded the contract. The next day, D discovered that his bid was in error and was 8k lower than it should. D informed P that his bid was in error to the acceptance board, prior to official acceptance. D requested that his bid be rescinded. P declined to rescind the bid and sued D for difference after hiring another contractor. HELD: D’s mistake was in good faith, and was legitimate. P could have been in status quo after rescinding the bid. Elsinore v. Kastorff

Front 84

How To successfully rescind a mistaken bid

Back 84

3. To successfully rescind a mistaken bid, the CA court in Kastorff decided that: GENERAL RULE if the offeree knows or has reason to know of the offeror’s material mistake at the time of acceptance, the offeror is not bound

a. The notice of the error and request for recession was made prior to formal acceptance by P

b. The error was not a neglect of duty, was made in good faith. To hold D to K would be unconscionable.

c. Because of the timeliness of D’s informing P, P could be restored to the status quo. (by awarding the K to the next lowest bidder, which it did.

4. However, mistakes in calculating profits and usages, for example miscalculating the amount of material a job would require would not allow the contractor to rescind his bid, these are neglects of duty, not a result of the pressure the GC is in to submit bids, which are done at last minute.

5. Bids which are unreasonable to the awarding entity.Bids which are unreasonably low, and would appear to have a mistake in them

Front 85

The Acceptance

What is it ?
When is acceptence take effect?
How is an acceptance made?
When is the acceptance of an option contract operative?

Back 85

The Acceptance

A. Acceptance is a voluntary act where the offeree has the power to exercise the power of contract that is conferred by the offeror

B. When acceptance takes effect

R2d§63 Time when acceptance takes effect

Unless the offer otherwise provides,

(a) an acceptance made in a manner and by a medium invited by an offer iis operative and completes the manifestation of mutual assent as soonn as put out of the offeree’s possession, without regard to whether it ever reaches the offeror.

(b) but acceptance under an option contract is not operative until received by the offer.

Front 86

The Acceptance

Who can accept the offer

What are the 3 responses a oferee can
make to an offer

Back 86

C. The offer can only be accepted by the person to whom it was made. If an offer by O is not accepted by the person to whom it was directed, no one else can accept the offer.

D. An offeree has three responses to an offer

(1) Accept the offer as it is

(2) Reject the offer

(3) Make a counter offer which effectively rejects the previous offer and confers on the original offeror the power of acceptance of the offeree’s counter-offer.

Front 87

The Acceptance

Does the offer dictate acceptance

International Filter V. Conroe

When an offer dictates the manner of acceptence can the acceptance vary from that

White v. Corlies and Tift
Evertite v Green

Back 87

D. The offer also can dictate the manner of acceptance, but does not have to.

EXAMPLE: A sends B a price list and an order form. This is not an offer, because A has not conferred K power, and A is not “sticking his neck out.” B returns A’s form ordering X widgets. A’s form indicates that acceptance (of B’s offer) is executive acceptance from managers. Managers accept B’s offer. B denies contract indicating that they were never notified of acceptance. HELD: B’s offer was accepted. The manner of acceptance was A’s form which B returned, which did not indicate notification of offeror of acceptance.. (The offer was accepted according to the seller’s terms and form) The offer by B did not indicate a specifically different type of acceptance. International Filter v Conroe

E. When an offer dictates the manner of acceptance, it can not be accepted in a manner inconsistent with the manner indicated by offer.

EXAMPLE: A sends B a letter stating, “If you agree to finish in two weeks, you can have the job. B begins work but A refuses to pay after A hires another contractor. HELD: A indicated a specific type of acceptance (agree to finish in two weeks, seeking a return promise, not performance). The purchasing of materials by B is not beginning performance. The K indicated a specific type acceptance.
White v. Corlies and Tift

EXAMPLE: A provides B an offer to roof their home, using B’s form. The nature of the offeror states that Acceptance of offer will take place via written information or beginning of contract. B arrives at A’s home to begin job to find that another roofing company has just begun. B sues A for the amount of the K. HELD: Offer was accepted. Loading of the truck and driving to the site constituted acceptance (beginning of the contract) Performance was done prior to a rejection by B.
Evertite v Green

Front 88

F. Acceptance and Restatement(second) §30

Form of Acceptance invited

Back 88

F. Acceptance and Restatement (second) §30

Form of Acceptance invited

(1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of his acceptance

(2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances.

Front 89

G. Notice requirements in Contracts

1. Unilateral K’s.
2. Restatement second § 32
3.Carbolic Smoke Ball
4. Bi-lateral K’s
A. Restatement second §56

Back 89

G. Notice requirements in Contracts

1. Unilateral K’s.

If an offer is likely to induce performance, and does not specify a manner of acceptance, beginning performance can constitute acceptance. Unilateral K’s

1. Restatement second § 32
In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance as the offeree chooses.

EXAMPLE: Carbolic smoke ball company ran an add that stated they would pay anyone 100 who (1) purchased a carbolic smoke ball (2) used it in the manner described (3) got sick inspite of its use. P responded to the add and got sick and requested money. Carbolic responded stating that there was never any acceptance of the offer so no K was created. HELD: When an offer reasonably requests performance and is likely to induce performance, notification is not required, unless so specified. Carbolic Smoke ball

2. Bi-lateral K’s

A. Restatement second §56

except as stated in §69 (acceptance by silence) or where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably.

Front 90

H. Various terms of Acceptance

Back 90

H. Various terms of Acceptance

1. When an offer is ambiguous in regards to the manner of acceptance any manner of acceptance which signifies acceptance is sufficient.

2. Restatement second and Acceptance

a. § 60 Acceptance off offer which states place, time or manner of acceptance.
If an offer prescribes thhe place, time or manner of acceptance its terms in this respect must be complied with in order to create a K. If an offer merely suggests a permitted place, time or manner of acceptance, another method of acceptance is not precluded.

b. § 62 Effect of performance by offeree where offer invites either performance or promise.

(1) Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning if fit is an acceptance by performance.

(2) such an acceptance operates as a promise to render complete performance

Front 91

I Shipment of Goods as Acceptance.
a. UCC 2-206
2. Does The UCC only governs contract to buy/sell goods.
Corinthian v. Lederle

Back 91

I Shipment of Goods as Acceptance.

1. K’s involving goods are governed by the UCC. Shipment of goods can constitutes acceptance unless otherwise indicated by the offer

a. UCC 2-206

(1) Unless otherwise unambiguously indicated by the language or circumstances.
(a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances.

(b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non conforming goods, but such a shipment of non conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment ibis offered only as an accommodation to the buyer.

2. The UCC only governs contract to buy/sell goods.

EXAMPLE: A buys goods from B. B has indicated a price increase. A tries to buy as much stock as possible prior to the price increase. B has always charged A and does so in the current K at the price at shipment. B ships part of A’s order at the pre increase price, indicating to A that the remainder will be at the new increased price. A sues B, claiming that the shipment was acceptance of A’s offer and therefore the price cannot be increased. HELD: Shipment was not acceptance, merely an accommodation of A. UCC 2-206 1-b governs. Corinthian v Lederle

Front 92

Example: A promises to give B 5000 if B stops drinking, smoking, gambling and cursing. If B does so, can he enforce A’s promise?

Back 92

Yes because the consideration which makes the contract valid (and enforceable) is B's refraining from drinking, smoking, gambling, and cursing at A’s request. It is bargained for by A. Hamer

Front 93

EXAMPLE: A tells B that his offer to sell his land will be open until 9am Sunday morning. A sells his land to someone other than B prior to Sunday. B sues for damages.

Back 93

HELD: Promise to B by A is unsupported by consideration, therefore A is able to revoke his offer at any time. Dickinson V Dodd