11/15/11 6:06 PM

CONSIDERATION – when is there a promise

Bargain Theory of Consideration (two way commercial exchange)

I. When Is a Promise Legally Enforceable?

A. Consideration doctrine provides the law’s basic answer to this question.

Exceptions aside, a promise is legally enforceable only when there is consideration

for it (See Restatement S.17(1) - (2)). Consideration is necessary, but not sufficient

for a contract. No consideration = No contract

II. Consideration Requires A Two-Way Exchange

A. There is consideration for a promise only when the promisee (= the one to whom the promise is

made) gives something back to the promisor in return for the promise.

1. There are two ways to “give something back,” (i.e. two kinds of consideration)

a. Give a promise

b. Do something (give a performance)

B. Party’s intent for a legally enforceable K does not matter.

C. A gift is not consideration – no exchange.

Ex: Dougherty v. Salt – gift to nephew is a one-way exchange

D. Adequacy of K is typically not considered b/c of freedom to contract

III. RULE A “Bargained For” Promise Or Performance

A. A promise or performance is consideration when it is "bargained for" (Restatement §71(1)).

B. A promise or performance is “bargained for” if: (a) the promisor gives his or her promise in order to

get that promise or performance in return, and (b) the promisee gives the promise or performance in

exchange for the promisor’s promise (§71(2)).

1. When is the “In order to” requirement fulfilled?

a. Must be reliably verified. (or readily verifiable)

Ex: Schnell’s exchange to show gratefulness? Love not reliably verified.

b. Nominal Consideration is not consideration

1. Exchange is a sham – does not count. Pretending to do an exchange to fulfill

requirement.

2. Ex: Schnell v. Nell: $600 for a penny? No reasonable person would.

3. Note: cancellation clauses may appear to be nominal, but when there is advance

notice typically courts hold that there is consideration. Ex: Linder

a. It is an escape clause; parties still commit to coordinate but allow for escape for

unforeseen/unlikely events.

2. Illusory Promises

a. A promise which does not really obligate the promisor to do anything. NOT consideration

b. Ex: “I’ll marry you if I want to”

c. Note: Option contracts are not considered illusory

IV. Personal and Private Versus Commercial Exchange

A. Courts may not enforce a promise even if it meets the conditions above for being “bargained for.”

1. The paradigm case of an enforceable “bargained for” promise is a

commercial transaction.

2. If a “bargained for” promise occurs in a context that is personal and

private (a domestic context, for example) courts may not enforce it.

a. Promises to family members can sometimes be enforceable. Ex: $ to pay for kid to

come to funeral. She gets assurance in exchange for $.

B. Policy Rationale

1. Zone of Privacy

V. Implied Promises

A. Where a party’s explicit promises are illusory, the court may imply a promise to serve as

consideration.

1. Example: Lucy, Lady Duff Gordon v. Wood.

a. Lucy promises Wood that Wood will be the exclusive marketer of her designer

clothes. Wood promises to be the marketer. But: he does not promise to make

any effort to do so. Wood could satisfy his promise without doing anything.

Wood’s explicit promise is illusory.

b. Lucy did not give her promise in order to get from Wood a promise he could

fulfill by doing nothing; therefore, Wood’s explicit promise cannot be

consideration for Lucy’s promise.

c. The court implies a promise that Wood will make a reasonable effort to

market the goods.

i. The court implies the promise because it thinks both parties

understood that Wood would make a reasonable effort to maker the

goods; they just did not make this understanding explicit.

B. Implied Promises and UCC §2-306.

1. §2-306 implies a promise to serve as consideration in three situations: outputs

contracts, requirements contracts, and exclusive dealing contracts.

a. Outputs Contract

An outputs contract is a contract in which the buyer agrees to purchase

all that a seller produces. §2-306 implies a promise by the seller to

conduct business in good faith and in accord with commercial standards

of fair dealing so that the output will be reasonably foreseeable. The

implied promise serves as consideration for the buyer’s promise to buy

all that the seller produces.

b. Requirement Contract

A requirements contract is a contract in which the seller agrees to sell to

the buyer all that the buyer requires of a given product. §2-306 implies

a promise by the buyer to conduct business in good faith and in accord

with to commercial standards of fair dealing so that his requirements

will be reasonably foreseeable. Implied promise serves as consideration.

c. Exclusive Dealing Contract

1. A seller promises a buyer that the buyer will be the exclusive dealer

for the seller’s goods. The seller will not contract with anyone else to

deal in the seller’s goods.

2. A buyer promises a seller that the buyer will be the exclusive dealer

for the seller’s goods. The buyer will not contract with any other seller

to deal in that seller’s goods.

3. In (1), §2-306 implies a promise by the buyer to use best efforts to

promote the sale of the goods. In (2), §2-306 implies a promise by the

seller to use best efforts to supply the goods. The implied promise

serves as consideration for the seller’s promise in (1) and for the buyer’s

promise in (2).

2. By implying these promises, §2-306 eliminates any illusory promise problems about

consideration.

VI. The Pre-Existing Duty Rule

A. The rule: A promise or a performance provided by a promisee in exchange for a promise is not

consideration for that latter promise if: (a) the promisee is already legally obligated to do what the

promisee promised; or, (b) the promisee is already legally obligated to provide the performance.

1. Ex: Grey V. Martino paying police officer to find the thief. Good to have the

rule to prevent bribery.

2. Impt: WHO is the pre-existing duty TO?

B. Judicial Hostility Toward The Rule

1. Courts and legislatures have created exceptions to the rule. But the rule has not been

completely eliminated.

a. Contract Modification is one of the main exception when parties sometimes want to alter their

contractual agreements. However, The pre-existing duty rule rendered some modifications

unenforceable.

1. Where in the modification, party X’s promised something new, but party Y did not. Party Y’s

unchanged promise could not be consideration for X’s new promise b/c of rule

2. The historical solution: rescission.

a. The parties would mutually rescind the old contract (thereby eliminating its obligations) and execute a

new contract. Problematic: sometimes voluntary and for good reasons; other times extorted. Ct would

only enforce the voluntary rescission and when it was modified in a reasonable way.

1. Ex: DeCiccio V. Schewizer where father pays $ to daughter when she gets married. Ct. upheld because

she could still call off the wedding.

b. UCC §2-209 eliminates the pre-existing duty rule in the modification of contracts for the sale of goods.

1. A modification is enforceable if it is voluntary (not extorted) and sought in good faith for a legitimate

commercial reason.

c. The Common Law parallels UCC §2-209.

1. The modification is enforceable if it is fair and equitable and made in light of circumstances the

parties did not anticipate at the time of contracting. In addition, according the Restatement §89, the

contract must not have been fully performed by either side.

2. Ex: Expansion City and the garbage. Modification is unenforceable because they already took into

account the risk of expanding and are trying to prevent their losses from their own poor estimates. It is

not fair and equitable to enforce.

3. Modification and Debt Forgiveness

a. Under common law, typically the creditor has fully performed and the modification provision would

not apply. Under the UCC, as long as it is in good faith and legitimate commercial reason it can apply,

but some courts to not do so. States adopt their own approaches

b. When the two parties disagree on the amount in good faith (ea. Have honest believe he is

right) and come to a compromise, the promises are consideration for ea. Other because neither will

pursue a valid legal claim against the other.

c. If one is wrong, typically giving up a invalid claim is not consideration unless giving up a valid claim can

be consideration when the party giving up the claim has an honest, good-faith belief that the claim is

valid.

VII. Giving Up a Legal Claim as Consideration

A. Can be consideration when ea. Party believes in good-faith he has an honest claim and gives

that up.

1. Even if the party is wrong on his claim, can be consideration if it is in good-faith.

2. Courts want parties to compromise and solve their own disputes

VIII. Exceptions to the Bargain Theory

A. Quit Claim Deeds

1. A quitclaim deed is a release of any legal claim one may have to a piece of property.

2. Will be enforce even if the person releasing the legal claim knows its invalid

a. Why? Policy reason to know who has clear title to the property

B. Modification of a K

1. Pre-existing duty rule does not apply.

C. Options Contracts

1. Yes, consideration. Different from illusory promise.

Benefit/Detriment Theory – no longer the law!

I. The theory: there consideration for a promise if the promisee incurred a legal detriment, or the

promisor received a legal benefit in exchange for the promise.

A. A promisee incurs a legal detriment whenever the promisee agrees not to do something he or she has

a legal right to do. The promisor receives a legal benefit that the promisor receive, in exchange for his or

her promise, a promise or performance which the promisee is not legally bound to provide

B. Ex: Hammer V. Sidway where uncle pays nephew not to do drink, smoke, etc till 21 even though he

could legally do so.

C. Using this theory, there would be consideration when we would say no on policy grounds.

1. Too easy to make something a legal detriment – Doughterty – Charlie could exercise his legal right to

accept Aunt Tillie’s money and would have a legal detriment and thus consideration.

Moral Obligation

I. Courts sometimes hold that there is consideration for a promise made in the acknowledgement of a

moral obligation arising from an act prior to the promise.

A. There is no clear pattern, or general rule, as to when a court will find consideration in this way.

B. Webb V. McGowan where employee Webb was injured saving employer’s life from the falling block.

1. Court held that Webb’s past act of saving his life was consideration

2. Also enforced through promissory estoppel

Promissory Estoppel

I. RULE: A promise is enforceable to the extent necessary if: (1) the promisor expected, or should have

reasonably expected, his or her promise to induce action or forbearance on the part of the promisee or

third person; and (2). the promise did induce such action or forbearance; and (3) enforceable to the

extent necessary to avoid injustice

A. How do you determine what is necessary to avoid Injustice?

1. Consider: the reasonableness of the promisee’s reliance on the promise and the burden on the

promisee for not enforcing the promise.

II. Why? A promise may be enforceable even if there is no consideration b/c there was nothing

“bargained for”

III. Ex: Scrooge’s promise to help Sally recover after Sally saved Scrooge’s daughter’s life. Sally relied on

the promise.

INTERPRETATION

Objective Intent Test

RULE: If a reasonable person in the circumstances would interpret the words as a promise, they count as

a promise (to do or not to do that thing).

Disregard’s party’s intent.

Policy matters

Don’t want to condone deceit.

Avoid careless/negligent language

Ex: Embry V. Hargardine-McKittirck

How a reasonable person would have interpreted the manager’s word on employment.

Hypothetical Intent Test

RULE: How a reasonable person would interpret these words taking into account the main goal of the

promise and the unforeseen events that have arisen since the promise was made.

Used when the objective intent test and mutual understanding do not suffice. Typically, there are

unforeseen events that the parties did not consider

Ex: Spaulding V. Morse.

Reasonable person taking into account main goal of supporting their son while at school and home and

paying for him when he was drafted.

Mutual Understanding/ Party Intent Matters/Trade Usage ( Sec 201)

Meaning

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.

Many courts use this vs. objective intent test if there is a mutual understanding.

?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 of the agreement

was made

Interpret against the party who knows of the misunderstanding between the two different terms.

Except in two points above, neither party is bound by the meaning attached by the other, even though

the result may be a failure of mutual assent.

Trade Usage

When two merchants are in the same industry, they should know the trade usage term (mutual

understanding in the trade)

Ex: Berwick V. Salem Press

Burden of Drafting - Used when the term is not w/ a special trade meaning and when it is not clear to a

reasonable person

Where a document is ambiguous, construe the ambiguity against the person who drafted the document

Interpret the ambiguity against the party best informed about the subject matter of the contract

Ex: Chicken ?

REMEDIES

On the Contract Remedies:

Expectation Measure

I. The Fundamental Goal in Awarding Damages

A. An award of damages is an award of money.

B. The fundamental goal is to award enough money to put the promisee in as good a position as he or

she would have been in had the promissor kept the promise.

II. The Basic Expectation Measure

A. There are three steps in applying the expectation measure:

1. Determine the position the promisee would have been in if the promise had been kept.

2. Determine the position of the promisee as a result of the breach.

3. Award the difference in value (measured in money) between the promise-kept position and the-

result-of-the-breach position.

III. Proper Mitigation under the Expectation Measure

A. The duty to mitigate: in calculating expectation damages, a court always treats the non-breaching

promisee as a proper mitigator--whether or not the promisee really did properly mitigate damages.

Damages awarded = Losses minus mitigation expenses

(1) When we calculate damages this way, we divide them between the breaching promisor and the non-

breaching promisee:

(a) The breaching promisor bears those damages not avoidable by proper mitigation.

(b) The non-breaching promisee bears any damages that it fails to avoid and that it would have been

proper mitigation to avoid.

(2) This why courts talk about the duty to mitigate damages. There is no duty to mitigate in the sense

that a non-breaching promisee commits a legal wrong if he or she does not do so. The point is simply

that the promisee bears the avoidable damages.

B. Proper mitigation consists in taking all reasonable steps after a breach by the other party to minimize

the losses caused by the breach.

C. Luten Bridge. Should have stopped building after the city said “no.” Do not get expenses after city

gave them notice – did not mitigate.

D. Proper Mitigation: Reasonableness

1. To properly mitigate damages is to take all reasonable steps to curtail the losses caused by the

breach.

2. There is no definition of what counts as reasonable.

a. To assess reasonableness, courts compare how much a mitigation step would cost to how much the

step would save.

E. Uncertainty

1. After a breach, it may not be clear how the non-breacher may best cut losses.

2. In making judgments about what will likely cut losses, the courts give the benefit of the doubt to the

non-breaching mitigator.

a. Want to encourage mitigation and have the non-breaching party “gamble”

F. Successful Mitigation And Unsuccessful Mitigation

1. If the non-breaching party takes a mitigation step that succeeds in cutting the losses, the court takes

that reduction into account in calculating expectation damages—even if the step was not reasonable,

and hence even if a proper mitigator would not have been required to take the step.

a. The step could be unreasonable but still succeed in saving money.

1. For example, the non-breacher spends $100 trying to resell some leftover supplies. It was

unreasonable to spend the money because it was very likely no one would buy the supplies and the

expense would be wasted. But the non-breacher was very lucky, and someone bought them.

2. If the non-breaching party takes a reasonable mitigation step, but that step does not succeed in

reducing losses, the non-breaching party nonetheless recovers the mitigation expenses in the

expectation damage award.

G. Mitigation In The Employment Context

1. The rule: in an employment contract, it is proper mitigation for the wrongfully terminated employee

to take another job only if the other job is “comparable or substantially similar”; the wrongfully

terminated employee is not obliged – for mitigation purposes - to take a job that is “different or

inferior.”

Ex: Parker V. 20th Century fox

2. Courts will be deferential to employee’s decision

IV. The Foreseeability Limitation

A. RULE: You can only recover damages that were reasonably foreseeable at the time of contracting as

the probable result of a breach.

1. Sometimes referred to as the Hadley rule, or the rule of Hadley v. Baxendale.

B. Damages may be reasonably foreseeable in two ways:

1. Because damages of the sort in question typically follow from the breach in the ordinary course of

things

a. Damages foreseeable in this way are sometimes called general damages.

2. Because they result from special circumstances (which would not obtain in the ordinary course of

things), and the breaching party had reason to know of the special circumstances

a. Damages foreseeable in this way are sometimes called special damages.

C. . Applying The Forseeability Limitation

1. Calculate the result-of-the-breach / proper mitigation position, and

2. Ask, with regard to each element of damage listed there, whether it was reasonably foreseeable at

the time of contracting as a probable result of the breach.

D. . Determining Reasonable Foreseeability

1. Damages arising in the ordinary course of things (general damages)

a. The determination is based not just on empirical assumptions but also on normative and/or economic

principles and assumptions.

2. Damages resulting from special circumstances, about which the breaching party had reason to know.

a. The determination is based not just on empirical assumptions but also on normative and/or economic

principles and assumptions.

E. Informing About Special Circumstances

1. Most jurisdictions: informing a contracting party of the possibility of special damages is sufficient to

make them reasonably foreseeable at the time of contracting as a probable result of a breach.

a. There are exceptions.

1. The Restatement recognizes policy driven denials of reasonable foreseeability in §351(3).

i. Courts may hold that losses are not reasonably foreseeable if “justice so requires to avoid

disproportionate compensation.”

2. A minority of jurisdictions: the contracting party be informed of the possible damages and also the

party expressly or impliedly agreed to bear the risk of those damages.

a. This is called the tacit agreement test.

V. Proof requirement

A. RULE A plaintiff must prove the amount of damages with reasonable certainty.

1. A plaintiff can only recover those damages that he or she can prove occurred.

2. A reliable basis for estimating losses is required.

a. 100% certainty is not required.

3. The trier of fact determines whether damages have been proven with reasonable certainty in light of

the relevant evidence.

B. Track Record

Provide a history of performance to provide a reliable basis for predicting benefits that would have

occurred but for the breach.

C. New businesses

1. The “old” new business rule

a. As a matter of law, you could not prove lost profits from a new business with reasonable certainty.

b. The rationale was that the lack of a history of business success made proving lost profits too

uncertain.

c. This is no longer the law.

2. The “new” new business rule

a. A plaintiff may produce evidence of the performance of other similarly situated businesses to prove

losses from a breach.

b. The rationale is that the performance of other businesses can provide a reliable basis for estimating

losses.

D. Loss of goodwill

1. A breach may cause a business to lose the goodwill of its customers.

2. Some jurisdictions allow a plaintiff to offer the trier of fact evidence of losses resulting from loss of

good will.

3. Other jurisdictions hold, as a matter of law, that such damages cannot proven with reasonably

certainty.

E. Emotional distress damages

1. A plaintiff may in the appropriate case to present evidence of emotional distress to the trier of fact.

2. Ex: Failure to deliver a casket

- In Sum, if the contract is enforceable, then one gets full expectation damages except for:

Unforeseeable Damages (Hadley Rule)

Unprovable Damages (Reasonable Certainty Rule)

Unmitigate (Duty to Mitigate Rule)

Unrequested (Procedural Requirement)

Reliance

I. The Reliance Measure of Damages

A. The reliance measure of damages awards expenses incurred in reliance on the contract.

1. The reliance measure of damages is a useful alternative to the expectation measures--when the

plaintiff cannot prove his or her expectations damages with reasonable certainty.

B. To recover the reliance expenses, the plaintiff has to prove them with reasonable certainty.

C. A court will limit the award of reliance expenses to those expenses that were reasonably foreseeable

by the party in breach at the time of contracting.

1. Lost profits are not an expense that can be recovered under reliance damages.

2. Cannot recover under Reliance and Expectation damages. Avoid overcompensation.

II. Pre-Contractual Expenses

Some jurisdictions will count pre-contractual expenses as reliance expenses.

1. Expenses that are incurred in pursuit of a project of which they would have been in.

III. Losing Contracts

A. To avoid overcompensation, the court allows the defendant to deduct from the reliance measure

award any net loss the defendant can show the plaintiff would have sustained if the contract had been

performed.

1. L. Albert & Son v. Armstrong Rubber

Cost of Completion

I. Cost Of Completion

A. Definitions

1. Cost of completion: the cost of properly completing the work.

2. Diminution in value: the difference in value between the work as completed and the work as

promised.

3. Wilful breach: a breach that significantly violates standards of fair dealing and good faith.

B. The rule (may be thought of as one rule or three).

1. Cost of completion: the injured party is entitled to the cost of completion unless that amount is

grossly disproportionate to the value produced by completing the work.

a. Most likely successful when: Value when completed > cost of completion

2. Diminution in value: When the cost of completion is grossly disproportionate to the value

produced by completing the work, the injured party is entitled to the diminution in value, unless

(some jurisdictions only) the breach was willful, in which case:

a. Diminution in value = difference in the value of the work had it been done as promised and the value

of the work as it was done.

3. Wilful breach: If the breach was willful, the injured party is entitled to the cost of completion.

II. Market value versus non-market value

Market value is (very roughly) what people in general are willing to pay for something.

B. Non-market value has many sources—a non-exhaustive list (cost of completion still must not be

grossly disproportionate):

1. Aesthetic value

2. Cultural value

3. Historical value

4. Personal (sentimental) value

III. Measuring the value produced

A. It may be measured by market or non-market value.

IV. Wilful breach

A. Wilful breach significantly violates standards of fair dealing and good faith.

1. In general, the breaching party attempts to gain the benefits of the bargain while avoiding costs the

party voluntarily undertook in entering the bargain.

V. Recovery For Willful Breach

A. In some jurisdictions, if the breach was willful, the injured party is entitled to the cost of completion.

(Even if it is grossly disproportionate)

B. Why? Deserving “punishment”; breaching party deliberately tries to get the benefits without the

agrred-upon costs and risks.

Liquidated Damages

I. What Is A Liquidated Damage Clause?

A. A liquidated damage clause is a provision in a contract that specifies what the damages shall be in

the event of a breach.

1. Such a provision is said to “liquidate” damages.

2. Benefits: avoid proof problems, increase certainty, reduce transaction costs

B. Should be a reasonable estimate of the damages in order to be enforceable. ‘

1. Be reasonable to the expenses saved as a result of the breach and also mitigation.

C. Courts typically defer to clause when both parties have roughly the same expertise and

bargaining power and there was a process of negotiation.

II. Enforceability: The Majority Rule

A. A liquidated damage clause is enforceable provided: (1) it was difficult to ascertain expectation

damages at the time of contracting, and (2) the amount of damages specified in the clause was, at the

time of contracting, a reasonable estimate of the damages.

1. The modern trend is not to insist that (1) be fulfilled. The tendency is not to treat difficulty in

assessing expectation damages as a separate requirement in its own right. Instead, courts tend to see

difficulty as evidence to (2): the greater the difficulty in assessing expectation damages, the more likely

the court is to see the estimate in the clause as reasonable.

B. If the clause is not enforceable, the injured party may still seek contract damages via the expectation

measure or any other applicable contract measure of damages.

III. Liquidated Damages: The Minority Rule

A liquidated damage clause is enforceable provided that:

(1). It was difficult to ascertain expectation damages at the time of contracting; and,

(2) The amount of damages specified in the clause is reasonable in relation to the actual damages.

IV. Uniform Commercial Code §2-718(1)

A. A liquidated damage clause is enforceable provided that

1. The amount of damages specified in the clause is a reasonable estimate of the damages (an estimate

made at the time of contracting);

2. Even if the amount is not a reasonable estimate of the damages, the clause is still enforceable if the

amount is reasonable in relation to the actual damages.

B. Commercial Vs. Consumer Contracts

1. Commercial contracts do not require that damages be difficult to estimate in determining the

reasonableness of the estimate.

2. Consumer contracts do require that damages be difficult to estimate in determining the

reasonableness of the estimate.

C. Gives the parties more certainty that the clause will be enforced.

Specific Performance

I. Specific Performance

A. When the court grants specific performance, it orders the party in breach to perform his or her

obligations under the contract.

B. Specific performance is an equitable remedy.

1. It is an order to act in a certain way, not an award of monetary damages.

C. Courts grant specific performance at their discretion.

II. Monetary Damages Must Not Be Adequate.

A. Specific performance is not available when money damages are adequate to put the injured party in

as good a position as he or she would have been had the contract been performed as promised.

B. Ways in which monetary damages may be inadequate.

1. Difficult to prove monetary damages.

2. Buyer’s purchase of land. (ea. piece is unique)

3. Uniqueness under UCC §2-716

a. A unique good need not be one of a kind.

i. Uniqueness is determined by the total situation that characterizes the contract.

4. “Other proper circumstances” under UCC §2-716.

a. A contractual arrangement may be unique.

III. Personal Service Contracts

A. Specific performance is not generally available in personal service contracts.

1. Reasons:

a. Involuntary servitude concerns.

b. Monitoring difficulties.

IV. Excessive Cost

A. Excessive cost of performance is a reason not to grant specific performance.

B. Excessive cost to the court is a reason not to grant specific performance.

V. Violation of Public Policy

A. A court will not order specific performance if doing so would violate public policy.

UCC 2-207???

Off the Contract Remedies

Restitution

I. Restitution

A. Restitution is an alternative to the expectation measure of damages.

B. To recover in restitution (1) The plaintiff must have conferred a benefit on the defendant, and (2) it

must be unjust to let the defendant retain that benefit.

1. When (1) and (2) hold, the plaintiff is awarded the reasonable value of the benefit conferred. Ex:

Osteen v. Johnson where singe hired Johnson to promote 2 records & only promoted one.

C. Restitution is available as a remedy for breach of contract only where the defendant materially

breached the contract.

D. Restitution is commonly called a remedy for breach of contract.

1. This is not completely accurate.

a. Restitution is a cause of action.

1. Restitution’s status as a cause of action explains the requirement of a material breach before

restitution is available.

E. Values of measuring reasonable value

1. Market Value

2. Value to Individual

3. Actual Cost of Providing Good or Service

4. Average Cost to Reasonable Seller

II. Consequences of a material breach

A. The injured party’s contractual obligations due after the material breach are excused.

1. The contract is voidable by the injured party. The injured party may

a. Treat the contract as void (unenforceable) and seek restitution.

b. Treat the contract as enforceable and seek breach of contract damages.

i. When the injured party treats the contract as enforceable, that party is said to treat the breach as a

partial breach.

B. The materially breaching party cannot recover expectation damages, reliance damages, liquidated

damages, cost of completion, or be granted specific performance. Non breacher has a choice.

C. A Limitation

1. Even in the context of a material breach, restitution is not available to the injured party (the non-

material breacher) where:

(1) the injured party has fully performed all of his or her obligations under the contract, and

(2) the performance of the other party consists solely of paying an amount of money due under the

contract.

I. Criteria for Material Breach

A. There Are Five Criteria For Finding A Material Breach:

1. The extent to which the failure to perform deprives the injured party of the benefit he or she

reasonably expected to obtain under the contract;

a. Greater the deprivation, more likely that the court will find a material breach

2. The extent to which the injured party can be adequately compensated for the deprivation of the

benefit;

a. If parties could recover under expectation, counts as against finding a material breach

3. *The extent to which the party failing to perform will suffer a forfeiture;

4. *The likelihood that the party failing to perform will cure the failure;

5. The extent to which party failing to perform acted in accord with standards of good faith and fair

dealing.

B. No one criterion is decisive. They are considerations to be weighed together as a whole.

C. Substantial Performance = No Material Breach

1. UCC 2-601

2. UCC -508

3. UCC 20612

4. Kreyer v. Driscoll

a. Amount of work left unfinished says did not substantially perform.

5. O.W. Grun Roofing

b. Factors for substantial performance: extent of nonperformance, ration of the money value of

tendered performance and promised performaned, and the purpose which the promise was intended

for

Recission

I. Rescission

A. Rescission is available after a material breach.

B. When a court grants rescission, it

1. Rescinds (cancels) the contract, and

2. Orders the parties to return the items, if any, exchanged under the contract.

C. Rescission is only available where it is possible for the parties to return the items, if any, exchanged

under the contract.

Equitable Apportionment

I. On such terms as justice is required, the court can split the losses

UCC Damages

A. . Damages Under the Uniform Commercial Code. When considering a remedy under the UCC, ask:

“Who breached? The buyer, or the seller?”

B. Buyer’s Rights After A Non-Conforming Delivery

1. §2-601: When the seller breaches by delivering goods that are not as warranted in the contract (non-

conforming), the buyer may:

a. Accept the whole delivery.

1. Buyer recovers under §2-714.

a. §2-607(3)(a) the buyer must give the seller notice within a reasonable time that the goods are not as

warranted.

b. Reject the whole delivery;

1. Under §2-602, the buyer must reject the goods in a reasonable amount of time, and must

“seasonably” notify the seller of the rejection.

a. “Seasonable” means “in the time specified in the contract, or, if the contract does not specify a time,

then in a reasonable time.”

2. The buyer may or may not cover.

a. To cover is to make a reasonable purchase of substitute goods.

i. A purchase is reasonable if (1) the buyer reasonably expected to cut losses by making the purchase;

and, (2) the buyer did not delay too long after the rejection of the goods before making the purchase.

ii. Substitute goods need not be identical to those in the contract, but they must be commercially

reasonable substitutes.

3. If the buyer covers, the buyer recovers under §2-712.

4. If the buyer does not cover, the buyer recovers under §2-713.

c. Accept in part and reject in part.

1. The buyer recovers under §2-714 in regard to the accepted goods.

2. The buyer recovers under §2-712 or §2-713 for the rejected goods depending on whether the buyer

covered.

C. Buyer’s Recovery Of Payments To The Buyer

1. The buyer recovers the payments under §2-711.

2. The buyer may recover as much of the contract price as has been paid.

D. Seller’s Failure To Deliver

1. The options are §2-712 or §2-713 depending on whether the buyer covered or not.

E. Buyer’s remedies: incidental and consequential damages, expenses saved

1. Basic awards in §2-712, §2-713, §2-714

a. §2-712: Cover price (CP) minus contract price (KP)

b. §2-713: Market price (MP) minus contract price (KP)

c. §2-714: Value as warranted (AW) minus value as delivered (AD)

2. These sections also award incidental (ID) and consequential damages (CD) and subtract expenses

saved (ES) as a result of the breach.

3. Incidental damages

a. §2-715(1) defines incidental damages as reasonable expenses incurred after a breach in regard to

inspecting the goods, transporting them, and caring for them while the goods are in the buyer’s custody;

reasonable expenses incurred when covering, and “any other reasonable expense incident to the delay

or other breach.”

4. Consequential damages

a. §2-715(2) defines consequential damages as losses by the buyer

(1) of which the seller had reason to know at the time of contracting, and (2) “which could not

reasonably be prevented by cover or otherwise.”

1. §2-715(2) also classifies as consequential damages injuries to people property proximately caused by

the breach.

5. Expenses Saved

a. As the result of a breach, the buyer may avoid costs it would have incurred under the contract.

1. Example: costs of delivery (if borne by the buyer).

6. Buyer’s remedies: full formulas

a.. §2-712: (CP - KP) + (ID + CD) - ES

b. §2-713: (MP – KP) + (ID + CD) - ES

c. §2-714: (AW - AD) + (ID + CD) - ES

F. Seller’s Remedies for Buyer breach: buyers may breach by

1. Acceptance without payment.

a. §2-709, a seller can recover the unpaid contract price if the buyer accepted the goods, but breached

by not paying all or some of the contact price.

1. §2-709 does not provide for the recovery of incidental or consequential damages.

2. Wrongful rejection of the goods.

a. Reasonable resell not possible

1. §2-709: a seller can recover the unpaid contract price if (a) the buyer accepted the goods, but

breached by not paying all or some of the contact price, or (b) the buyer breached by rejecting the

goods, and the seller is unable to reasonably resell the goods.

2. §2-708: the seller may also recover under §2-708.

b. Reasonable resale possible

1. Goods reasonably resold.

a. The seller recovers under §2-706.

2. Goods not resold, or not reasonably resold.

a. The seller recovers under §2-708(1) unless that is inadequate to put the seller in as good a position as

the seller would have been had the buyer performed as promised.

b. If §2-708(1) is inadequate, the seller recovers under §2-708(2).

3. Otherwise failing to fulfill some contractual obligation.

G. Seller’s Remedies When the §2-708(1) award is inadequate

1. Under §2-708(2), if §2-708(1) is inadequate to put the seller in as good a position as performance

would have done, then the seller is entitled to a monetary award sufficient to ensure that seller recovers

the lost net profit the seller would have made from full performance.

2. Two cases:

a. Lost volume sellers

1. Hallmark: a practically unlimited supply of the good.

b. Halting production

1. Hallmark: producing the goods increases losses.

In Sum, if the K is not enforceable, the losses stay where they fall except for:

Suits in restitution

Implied promise to pay

Equitable Performance

OFFER AND ACCEPTANCE

I. Offer defined

A. An offer is

(1) A manifestation of willingness to enter into a bargain,

(2) So made as to justify the offeree in understanding that his or her assent will conclude the bargain.

B. An offer transfers to the offeree the power to create a bargain by the offeree’s assent to the offer.

C. An offer lapses after a reasonable amount of time where reasonable is determined by all of the

circumstances. Ex: Some say if offer is made face to face that it ends at the end of the conversation.

II. Acceptance defined

An acceptance is

(1) A manifestation of a willingness to enter into the bargain proposed by the offer.

B. A rejection terminates the offer.

III. The definiteness and completeness requirement

A. An offer must be “definite” and “complete.”

B. Think of the definiteness and completeness requirement as part of the requirement (in the definition

of an offer) that an offer manifest a willingness to enter a bargain.

C. The manifestation must be sufficiently definite and complete that a court can figure out what an

adequate remedy would be if the bargain is breached.

IV. The Mailbox Rule – who are you trying to protect: Offeror or offeree?

A . An offer is accepted at the time the acceptance is dispatched.

1. The rule is often stated this way: Acceptance is “effective” (= the offer is accepted) on dispatch. The

time of dispatch is the time the acceptance leaves the offeree’s control and enters the communication

system.

a. Example: where the acceptance sent by traditional paper mail, the time of “dispatch” is the time the

acceptance is place in the mail—in the “mailbox”.

B. Method and timing of acceptance

1. The offeree must use a reasonable form of response.

a. Otherwise, the attempt to accept the offer will be ineffective.

2.. An offer may stipulate that acceptance shall be effective on receipt.

a. The offer may do so explicitly or implicitly.

b. If offer mentions a method of acceptance, that method if the one to be used.

3. Option contracts

a. Option contracts are contracts to hold an offer open--e. g., "Here is my offer; it is open until Friday".

b. The Second Restatement (and the majority of jurisdictions) hold that in option contracts acceptance is

effective on receipt.

V. Mailbox Revoking offers

A. An offer may be revoked any time prior to (but not after) acceptance.

1. Once the offeree revoke the offer, accepting "the offer" cannot create a bargain There is nothing--

no offer--to accept

B. Revocation is effective on receipt, at the time the offeree receives the revocation.

C. Degree of publication of revocation must be the same degree of publication for the offer.

VI. Who are you Trying to Protect?

Offeror (by not finding a K)

1. The offer was not really an offer

2. The offer had already expired because (1) lapse of reasonable time (2) by previous rejection or (3)

revocation prior to acceptance

3. The offer was never accepted because the “acceptance” was (1) by the wrong method (2) was

untimely under the mailbox rule or (3) was not really acceptance

4. The contract was void for some other reason – mistake, impracticable, etc.

Offeree (by finding a K)

1. The offer was already accepted by (1) agreement or (2) beginning performance

2. The offer can still be accepted because it is irrevocable either (1) explicitly or implicitly (2) by virtue of

beginning performance or 3) by virtue of reliance

VII. Promissory Estoppel and Silence as Acceptance

A. A promise is binding which the promissor…. (an offer which the offeror) Irrevocability of Offers. (Sec

87)

1. Should reasonable expect to induce reliance of a definite and substantial character; (2) which does

induce such reliance (3) which it would be unjust not to enforce.

B. Silence is not acceptance because acceptance is an affirmative act.

1. Except when the silence is meaningful

2. Ex: Day v. Caton

a. Promise to pay was inferred when the person is silent in knowing that the actions benefit him and the

other party expects payment (neighbor building the wall).

VIII. The Mirror Image rule

The rule is that an acceptance of an offer must not contain any terms not in the offer; otherwise, there

is no acceptance. Acceptance must exactly match!

1. Common Law Rule

B. Application of the mirror image rule

1. A communication that an offeree intends as an acceptance sometimes contains terms not in the

offer.

a. Courts will sometimes hold that there was no acceptance.

b. Courts will sometimes divide the communication into two parts: one that exactly matches the offer,

and one that does not, and they will regard the exactly matching part as the acceptance.

a. Courts will do so when they are convinced the parties really did reach a bargain defined by the terms

of the offer.

IX. UCC 2-207

A. The UCC does not follow the mirror image rule

1. Businesses typically use pre-printed forms for both offer and acceptance.

2. The form used to accept rarely exactly matches the terms of the form used to make the offer.

3. Applying the mirror-image rule in this context would make little sense.

B. Under §2-207(1) an expression of acceptance that contains terms that are not in the offer may still be

effective as an acceptance.

1. Must be “definite and seasonable”

2. Acceptance cannot be conditional by offeree on offeror’s assent to additional terms.

3. Sent in reasonable time

C. The terms of a contract formed under §2-207(1) are determined by §2-207(2).

1. There are different rules for consumers and merchants.

2. Between merchants, additional terms are part of the K unless

a. Express limitation in the offer

b. Material Alteration

c. Timely objection by Offeror

3. When both are not merchants, the additional terms are proposals for addition to K.

D. Where the writings of the parties are not sufficient to form a contract under §2-207(1) there may still

be a contract under §2-207(3).

1. Conduct establishes a K.

2. Terms on which the writings agree (in both the offer and acceptance and what can be implied by law.

X. End User License Agreements

A. Must make it clear that they are entering into a contractual relationship.

1. Specht v. Netscape: need to have a mandatory link with Read Me that is visible.

B. ProCD V. Zeidenberg

1. Could Argue: What contract? Display of an item on a retail shelf is not an offer. Offer comes from

purchaser and acceptance is retailer accepting payment. Warner 2 contracts. One with the retailer

and Z, the other with ProCD and Z.

Written Contracts

I. Statute of Frauds

A. Requires the certain contracts be in writing

1. M: Consideration for which is Marriage (prenup)

2. Y: Contracts not performable within one Year

3. L: Contracts that transfer an interest in Land

4. E: Contracts which an executor personally guarantees the debts of an Estate

5. G: Contracts for the sale of Goods over $500

6. S: Surety, contracts in which one party promises to pay the debt of another

B. Reasons

1. Cautionary Function

a. Making parties write down their agreement makes the parties take the agreement more seriously and

makes the approach on the whole matter less hastily. It makes the parties more carefully about the

contract. Duty to Read!

2. Evidentiary Function

a. Supposed to prevent fraud because without a written contract someone could come into court and lie

about a contract.

b. Still problematic when one parties promises X knowing it has to be in writing and the other party does

not know that.

C. What constitutes writing?

1. Very liberal interpretation

2. Any writing will satisfy – doesn’t have to be the actual K. Any writing that is sufficient to show a K was

made will do. Must have a signature (could be a letterhead)

II. Parol Evidence

A. The rule applies only when there are two contracts. You need:

1. A written contract, and

2. A prior oral or written agreement, or an oral agreement made at the same time as the written

contract.

a. Use “side agreement” to mean a prior oral or written agreement, or an oral agreement made at the

same time as the written contract.

B. The Rule:

A side agreement that does not contradict the written agreement is enforceable unless:

(1) The written agreement is a complete integration; and

(2) The side agreement is in its scope.

A side agreement is enforceable unless:

(1) it contradicts the written agreement; or,

(2) the written agreement is a complete integration and the side agreement is in the scope of the

complete integration.

C. Complete Integration

1. A complete integration is a written agreement the parties intend as the complete and exclusive

statement of their obligations. If it side agreement is in the scope, it is unenforceable.

2. “Completely Integrated Agreement” - A completely integrated agreement is a written agreement that

is intended as the complete and exclusive statement of the terms of the agreement.

a. Usually there will be a clause in K saying it is a complete integration. Not decisive, but strong because

of the duty to read.

b. The UCC does not use the expression “complete integration,” but it uses the concept when it refers to

a “written agreement intended as the complete and exclusive statement of the terms of the

agreement.” It is much more convenient to use the phrase “complete integration,” and we will do so.

3. Entire Agreement Clauses states that the written agreement that contains it is the complete and

exclusive statement of the parties’ obligations.

a. The cause is evidence that the written agreement is a complete integration.

1. An a written agreement is a complete integration if the parties intend it to be the complete and

exclusive statement of the terms of their agreement, of their obligations to each other.

2. The entire agreement clause is evidence of the relevant intent.

a. Jurisdictions differ in the strength they give to this evidence.

b. The cause is evidence that the written agreement is a complete integration even if the parties do not

read the agreement.

1. The duty to read: if a party has an adequate opportunity to read and understand the agreement,

then knowledge of the content of the agreement is imputed to the party even if he or she did not read

the agreement.

c. Policy Considerations on Entire Agreement Clauses

1. The more evidential weight you give to the entire agreement clause, the easier you make it to hold

that a written agreement is a complete integration.

a. This approach helps ensure that written contracts are a reliable basis for business planning and

dispute resolution.

2. The less evidential weight you give to the entire agreement clause, the harder you make it to hold

that a written agreement is a complete integration.

b. This approach helps ensure that courts enforce the agreements the parties actually intend to be

enforceable.

d. What if the side agreement contradicts the written agreement?

1. Where a side agreement appears to contradict a written agreement, a court will not find a

contradiction for purposes of the parol evidence rule if there is an adequate explanation of why there is

really no contradiction.

a. The easier it is to explain away a contradiction, the easier it is to enforce a side agreement; hence,

the less weight we give to written contracts as a basis for business planning and dispute resolution, and

the easier we make to enforce agreements the parties genuinely intended to be enforceable.

b. The harder it is to explain away a contradiction, the harder it is to enforce a side agreement; hence,

the more weight we give to written contracts as a basis for business planning and dispute resolution,

and the harder we make to enforce agreements the parties genuinely intended to be enforceable.

D. Scope

1. Policy Overview – How to reconcile the tension between the following?

a. Desire to Support Business Planning and Dispute Resolution

1. One goal of the Parol Evidence rule is to ensure that written contracts are, in certain situations, the

primary basis for business planning and dispute resolution.

The more we hold that a written agreement renders relevant side agreements unenforceable, the more

we make the written agreement the primary basis for business planning and dispute resolution.

b. Desire to Enforce Agreements To Which The Parties Intended to be Bound

1. Alternatively, the more we hold that side agreements are enforceable, the more the side agreements

take their place alongside the written agreement as a basis for business planning and dispute resolution;

this complicates the task—both for contractual parties and for courts—of figuring out what the

obligations are.

2. Tests for scope for whether a side agreement is in the scope of a complete integration.

a. *** The normal inclusion test. ***

1. If the parties would normally have written the side agreement into the complete integration, then

the side agreement is presumptive in the scope of the complete integration.

a. The presumption is rebuttable.

1. Adequately explain why they didn’t write it.

b. The “same subject” test.

1. A side agreement is in the scope of a complete integration when (and only when) the two

agreements deal with the same subject.

c. The “same consideration” test.

1. A side agreement is in the scope of a complete integration when (and only when) the two

agreements have the same consideration.

d. The intent test.

1. A side agreement is in the scope of a complete integration when (and only when) the parties

intended to cancel the side agreement when executing the complete integration.

E. Course of dealing

1. A course of dealing is a pattern of previous conduct between the parties to a transaction that

establishes a common basis for interpreting their words and actions. UCC §1-205.

2. Under UCC §2-202, unless the written agreement carefully negates a course of dealing, it becomes an

element of the meaning of the contract.

F. Trade usage

1. Trade usage is a sufficiently regular practice in a place or business that parties are justified in

expecting that it will be followed in their transaction. UCC §1-205.

2. Under UCC §2-202, unless written agreement carefully negates the trade usage, relevant terms are

interpreted in accord with the trade usage.

G. Course of performance

1. UCC §2-208 explains course of performance: “Where the contract for sale involves repeated

occasions for performance by either party with knowledge of the nature of the performance and

opportunity for objection to it by the other, any course of performance accepted or acquiesced in

without objection shall be relevant to determine the meaning of the agreement.”

2. Under UCC §2-202, a course of performance is the best indication of what the parties mean.

H. Prior Or Contemporaneous Agreements And Negotiations In The Common Law

1. Prior or contemporaneous agreements and negotiations are admissible as evidence of the meaning

of terms in a written agreement (a.k.a. interpretation) – relevant to show how reasonable people would

interpret the promise.

2. Two views

a. Non-contradiction required: You may introduce evidence of prior or contemporaneous agreements

and negotiations unless they contradict the written agreement. [liberal – does not require ambiguity]

1. Policy: Uphold to parties’ intent

b. Ambiguity required: You may not introduce evidence of prior or contemporaneous agreements and

negotiations to interpret the written agreement unless the written agreement is ambiguous and the side

agreement is relevant to resolving the ambiguity. [conservative approach]

1. Non-contradiction still required.

a. If the written agreement contains an ambiguity to which the evidence of prior or contemporaneous

agreements and negotiations is relevant, then there is no contradiction between the written agreement

and the prior or contemporaneous agreements and negotiations.

2. Policy: Favor written agreements for business planning and dispute resolution

c. Jurisdictions differ in whether they follow (1) or (2).

I. Misrepresentation And The Parol Evidence Rule

1. Misrepresentation is a tort cause of action and the parol evidence rule is simply irrelevant to

introducing evidence to show fraud.

2. An entire agreement clause may say that a party is not relying on any representations oral or written

in entering the contract.

a. An element of the misrepresentation cause of action is that the plaintiff relied on the

misrepresentation.

b. Some jurisdictions construe the entire agreement clause as evidence in a misrepresentation cause of

action that the plaintiff did not rely on the misrepresentation; other jurisdictions do not.

3. International Milling v. Hachmesiter

Performance and Excuse

I. Excuse – how to get out of contract obligations

A. Material Breach

1. Extent to which the failure to perform deprives the injured party of the benefit he or she reasonably

expected to obtain under the contract

2. The extent to which the injured party can be adequately compensated for the deprivation of the

benefit.

3. The extent to which the party failing to perform will suffer a forfeiture

4. The likelihood that the party failing to perform will cure (heal) the failure

5. The extent to which party failing to perform acted in accord with stds of good faith and fair dealing

B. Breach under the Common Law

1. Curing the breach negates the excuse of the injured party’s obligations in a material breach.

2. Can be done by rendering the required performance within an appropriate time. The more urgent the

need to the injured party = less time the latter has to cure the breach.

C. Breach under the UCC

1. 2-601 Does not require a material breach.

a. Any deviation from the contract, even if minor, is a breach that allows the buyer to accept, reject, or

accept and reject in part. [Perfect Tender Rule allows rejection when not as specified]

2. 2-508(1) [Delivery of Non-Conforming Goods] maximizes likelihood that parties keep Ks

a. Seller has the right to cure when the non-conforming goods are rejected and this happens before the

specified delivery date in the K then if the seller seasonably notifies the buyer of the seller’s intent to

cure, the seller has until the delivery date to provide conforming goods.

3. 2-509(2) allows cure after delivery date if

a. The Seller thinks that the non-conforming goods would be acceptable (by past dealings, etc), then if

the seller seasonably notifies the buyer, the seller may, in reasonable time provide conforming goods.

4. Could recover consequential damages if loss was foreseeable at time of K.

D. Installment Contracts

1. Buyer has no right to reject if the non-conformity on the installment does not impair the value of the

K. If it does, then buyer can reject.

2. Buyer has no right to reject if the non-conformity does not substantially impair the value of the

installment, even if not the K as a whole. If yes, then see if possible to cure the non-conformity. If can

cure, the seller needs to give adequate assurance of the cure. If doesn’t or if there is no cure, then the

buyer can reject.

3. 2-612

II. Anticipatory Repudiation

A. Where the anticipatory repudiator announces repudiates the anticipatory repudiation (calls it off), the

K is enforceable and there is no breach as long as the other party has not relied on the anticipatory

repudiation.

B. Definite and unequivocal announced breach = Breach and the injured party can begin to mitigate and

may sue at the time of the announcement.

Splitting the Losses

I. Impracticability

A. Rule: To be excused on the basis of impracticability a party must show that an event, unexpected at

the time of contracting (1) made performance commercially impracticable; and (2) that the party

ought not to bear the loss caused by the occurrence of the event.

1. Who should bear the cost?

a. Best Cost Avoider [take precaution to prevent the loss]

b. Best insurer [Most reasonably and cheaply insure against it]

c. Normative Considerations [fairness and justice considerations]

2. Must show that the event was unexpected and not the fault of either party.

B. UCC 2-615 Impracticability Provision – same as common law

C. Finding impracticability means there are no on the K remedies – use restitution.

II. Frustration

A. Rule: (1) Made performance lose its essential point; and (2) that the party out not to bear the loss

cause by the occurrence of the unexpected event.

B. Finding frustration means there are no on the K remedies – use restitution.

III. Mistake

A. Rule A party seeking excuse on the basis of mistake must show: (1) that the parties entered the

contract under a mistaken factual assumption, and assumption basic to contract, and (2) that the

party seeking excuse ought not to bear the loss resulting from the mistake.

1. Does NOT have an unexpected circumstance.

2. Risk of loss must not be assigned implicitly or explicitly by K nor was it customary to assign the loss.

3. Hypo: Safe case sold at auction with lots of $$$ inside.

B. Mutual Mistake – mistaken belief by both parties.

1. Different from frustration/impracticability because the mistake is before the K was signed, but

neither party knew of it.

C. Unilateral Mistake - one party relies on testimony of the other. More difficult to excuse. Typically will

excuse when there are not huge expenses incurred.

1. Mistaken Bid Cases (similar to Elsinore School Dist.)

a. Contractor notices mistaken immediately, the board just accepts it.

1. Mistake imposes no losses and the board is no worse off. Merely have to accept the next lowest bit.

Get better working relationship and don’t want contractor to cut corners to make up for his loss of $.

b. Contractor discover mistakes after a couple of days, but did not start work.

1. Usually won’t enforce and will rescind with contractor paying for the board’s extra costs. Do not want

to put them in a bad working situation.

c. Contractor finds mistake much later after work has been done.

1. No excuse. Work would go to waste.

D. Transcription Error

1. The agreement was written down wrong. Fairness to bring what was actually agrred to under contract

and not the mistaken one.

2. Reformation (cause of action, remedy)

a. Rewrite contract to be an agreement for X, when X was what originally agreed to and somehow the

written contract says Y.

E. Error because of a Joke

1. Would a reasonable person in the circumstances think it was a joke? If yes, then no contract. If no,

then a promise was made and there is potentially a K.

2. Promise was made unless it was obvious it was a joke.

3. Objective Intent Application.

F. Ambiguities

1. When there is an ambiguity, and either party does not know if it, would a reasonable person have

interpreted it in a certain way?

2. Another application of the objective intent application

3. Ex: Raffles where there were two ships both called Peerless, did not agree on which one and there

was no meeting of the minds. Some negligence would not refuse reformation.

4. Whose meaning prevails?

III. Apportioning the losses.

Other Doctrines

I. Duress

A. An improper (illegal) sufficiently serious threat that compels agreement.

B. Threat – physical or economic duress.

II. Undue Influence

A. Pressure that overcomes the will without convincing one’s judgment

B. Can rescind a contract (voidable) because of a defect in the formation process.

III. Unconscionability

A. Lack of meaningful choice and substantive unfairness.

B. Broader lack of meaningful choice requirement.

C. Procedural Unconscionability

1. Defect in the contract formation process means lack of meaningful choice.

2. Avoid unfair surprise.

3. Possibly a K of adhesion (no negotiation K; only yes or no)

D. Substantive Unconscionability

1. K as a whole or a clause is substantively unfair.

IV. Reasonable Expectation

A. 1) Authoritative Representations by an agent of the company 2) Difficult to read contract 3)

Rational to rely on agent’s representations.

B. Authoritative Representations exclude inconsistent terms in written document.

1. No parol evidence because there is only one contract.

C. Johnson v. Fidelity Investors where said that insurance would cover death in plane crash orally and

the written agreement says “no” – they would recover because of the oral agreement.

V. Capacity to Contract

A. Children (under 18) and Mentally Insane person cannot contract.

B. Everyone else can – even if you are intoxicated.