Contracts II - Kordana - Spring 2004_3

8/20/2019 Contracts II - Kordana - Spring 2004_3

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CONTRACTS II OUTLINE

I). Regulating the Bargaining Process. – Promises are legally enforceable if they aremade by informed adults – however, promises are unenforceable if they are insufficientlyinformed.

a). Some promises will meet these standards, and will beunconscionable. b). Some promises will not be enforced, unless they are in writing.

). !uress.I). Section "ne of the Restatement.

a). #o have a social practice of contracting, there has to be a third party, namely the courts, to enforce the contract.

i). $ou are see%ing, somewhat, to be paternalistic, or,ii). $ou are see%ing to do something along the lines ofshoring up the welfare state and public policy.

b). !uress draws the line between enforceable and unenforceablecontracts.

i). Section &'( of the Restatement – ompulsion.a). *+ither your brains or your signature on thiscontract-

ii). Section &' of the Restatement – a threat.iii). Section &'& – a threat that leaves the party noreasonable alternative.

a). onnection is made between the threat and thema%ing of the promise, and third, no reasonable

alternative. b). /as to be independent of the elements.c). Subsection 0 – improper only if there isunderlying terms that are unfair.

i). #his needs to be an e1ternal standard.ii). !oes not re2uire that you benefit fromit.

iv). Section &'3 – !efines when a threat is improper.

II). 4olf v. 5arlton orporation – case of the couple that had maritalstrife, had already put down money on the contract, and came to regret it – threatenedretaliation against the builders. !iscussion surrounds a couple of factors6

a). 4hat was going on here, really7 4asn8t the 5arlton orp.ta%ing advantage of the protections of the court by coming intocourt here, and protecting from *undesirables- coming into theneighborhood7

i). re they acting opportunistically7

b). 9udge tal%s about a state of mind test, and what the threat

Section &'(Restatement – Ifconduct that appearsto be a manifestation

of assent by a partywho does not intend toengage in that conductis not effective as amanifestation ofassent.

Section &'3 –Restatement – "utlines

when a threat isimproper. Section &' – defines a threat.


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induces, but says that the threat must be wrongful as well.c). #he court is certain to distinguish the facts of duressfrom an instance of hard bargaining.

i). #he threat may not be illegal, but is still wrong.ii). #he threat must be done for a solely outrageous

or immoral purpose.a). Since the whole idea was to hurt 5arlton8s business, this was outrageous. – Section &'3 :&):d). – sole purpose is to in;ure the other party.

III). +manuels oral orp. – case of the subcontracting parties ?? >oral got a another contract, and ustin wanted part of the subcontract. >oralsaid, *if you want part of this, you have to give us the lowest 2ualified bid on the secondsubcontract – ustin got huffy, and threatened a price increase on the first contract. >oral


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went ahead and played along, and then sought the damages in the difference between thecontract prices.

a). Parties are allowed to go forth and cover in cases such as thisand see% damages later.

i). Recovered the increased price in the first contract, and

everything beyond a fair and reasonable price on thesecond contract :less of course, the amount owed on thatcontract).ii). #he duress was proven since the defendant proved thatit could not get the goods anywhere else.

b). 4hat about the court8s decision here7i). threat is improper if it is a breach – but is a threatalways a breach7ii). But sometimes an attempt to breach is simply a cry forhelp.iii). @nder what conditions should this be a breach7

a). 4hen the threat would be in bad faith undercommon law – i.e. las%a Pac%ers. b). 4hen, as in this case, it is not an efficient breach, and is merely an attempt to reallocatewealth.c). /ere, if they had let ustin breach, >oral8sreputation would have been damaged beyond repair.

c). #he parties may modify, as long as the modification is in goodfaith.

i). #his is covered by @ 0?0A.d). In this case, ustin is as%ing for more than to which it isentitled.

i). dditionally, the reputational losses ;ustify %eepingustin in line.

e). #he @ is silent on duress, so we use the common law.=). hirelstein – *Pree1isting !uty Rule- ?? rule at common law –

performance of an act whiche the promise is already bound by contract to perform is not*valid consideration- for the change that the promisor has apparently agreed to. #heenforcement of the subse2uent promise would accordingly be barred on the ground that afresh consideration for that promise was lac%ing.

a). riticism ?? have to have a sense as to why the modificationwas proposed and agreed to – might frustrate the parties8 realinterests by ma%ing it difficult for the parties to agree in the future.

i). So, the answer is to ma%e it binding if the modificationis fair and e2uitable in light of the circumstances notanticipated by the parties at the time that the contract wasmade.

b). >oo% to the motives of the party ma%ing the demand, and tothe free will of the party being demanded of.c). 5ar%et changes < allow for contract modifications if the

@ 0?0A –5odifications to bedone in good faith."utlines modification,rescission and waiver.


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mar%et shifts would provide a loss for one of the two parties.

=I). Post v. 9ones – deals with salvage law – ocean is starting to freeCeup, when a whaling ship is stranded in the ocean, and three other shipscome up. #he goods are divided and auctioned among the other three

ships. a). #he monopoly by the ships loc%s the stranded ship into priceterms, etc. that it might not want to accept. b). #his is a bilateral monopoly.c). #he duress doctrine provides an incentive to not ta%e advantageof a superior bargaining power.

i). 5ight announce e1 ante that if you are going to abuseyour position, you will lose.ii). !uress cases involve a manipulation of bargaining power.

B). Draudulent 5isrepresentations. – Restatement Second &?3.I). Section &3( – ontract can be voided.a). $ou made a fraudulent misrepresentation and you intended to. b). $ou can ma%e a material misrepresentation, and it isli%ely to ma%e a person give their assent. :Section &30 sub 0).

II). laim of misrepresentation can be used either as a defense againstenforcement in a suit brought by the misrepresenting party, or as agrounds for rescission or damages by the misrepresented?to party suingas plaintiff.

a). +lements of proof re2uired.i). "ther party8s state of mind – not necessary to provethat the misrepresentation was intentionally madeE anegligent, or even innocent misrepresentation is generallysufficient to avoid the contract if it goes to a material fact.Restatement &3(.

b). 9ustifiable Reliance – the party showing misrepresentationmust show that he ;ustifiably relied on the misstatement. So, can8t ;ust show that they *in fact- relied, but also that his reliance was ;ustifiable.

i). Fullible people are sometimes protected – usually,though, only if the other party was being outright deceitful.

c). 5ust be misrepresentation of a fact, rather than an opinion.i). =ery thin line.ii). If one holds themselves out as an e1pert, this can become tric%y.

d). Statement of law. – cannot be held as misrepresentation, sinceeveryone should %now the law.

i). #his rule is brea%ing down.e). oncealment and nondisclosure. – harder to ma%e a claim.

Restatement &?3.

&3& –whennondisclosure ise2uivalent to anassertion.

&30 – when amisrepresentation is

fraudulent or material.

&3( – 4hen a5isrepresentation5a%es ontract=oidable.

&3' – 4hen a5isrepresentation is anInducing ause.

&3G – Reliance onssertions of "pinion.

&3 – 4hen Reliance onn ssertion of "pinionis not ;ustified.


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f). oncealment is brea%ing down – some e1ceptions.i). /alf truths – if partial truth is revealed, this may be a misrepresentation. – &.ii). Positive concealment – cannot ta%e positive steps toconceal the truth. – &3A.

iii). Dailure to correct a past statement. – &3&.iv). Diduciary relations. – HAH.v). Dailure to correct a mista%e.

a). If one party %nows that the other is ma%ing amista%e as to a basic assumption, the failureto correct this will be a failure to act in good faithor in accordance with the rules of fair dealings. &3&.

vi). +asier standard for rescission – even if damages aren8tawarded, the court may allow the parties to rescind.

III). 4hen is there a duty to disclose7a). "bde v. Shlemeyer – case of the apartment building, infested

with termites, and now want to collect damages on what theythought that the building was worth, as opposed to what it isactually worth.

i). It is the cheapest path for the defendant to ;ust disclosein this case.ii). /owever, the problem with this is that it gives the buying party the incentive not to engage in inspections toe1am its property. Should we really reward this7iii). Sort it out – the owner would


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of the house.iii). #he fact that this has affected the reputation of thehouse is a material fact does not necessarily mean that ithas to be disclosed to the new buyers.iv). /owever, this has to be con;oined by the fact that this

is not something that could easily be ascertained by the buyer.v). ourt is trying to have it both ways.

a). #his is a material fact that affects the priceof the house. b). nd this cannot be ascertained by the buyer.

i). #here is a tension here, bJc if it issomething that everyone %nows about andaffects the priceJvalue of the house, couldn8tthe buyer have easily gotten access to theinformation7

ii). 4ouldn8t this have turned up in areasonable in2uiry7

I=). hirelstein – Parties should be reasonably clear on what they aregetting and what they are giving up. /owever, should misrepresentationcount as concealment7

a). annot ma%e bald misrepresentations about the goods, but*bare nondisclosure- is a different matter and creates no liability. b). #his would ma%e every seller liable for every non?apparentdefect in a good.

i). /owever, even if the law did re2uire full disclosure,could the seller ever truly be fully cogniCant of all of thefactors that go into the property7

c). ontrast this view with Section &3& of the Restatement,which does frame nondisclosure as misrepresentation, especiallywhen it goes to a basic assumption at hand.d). dditionally, this cuts both ways, which benefits the buyer insome instances.

i). Dor e1ample, lets say that the buyer %new that there wasan oil well under a piece of property – would it benecessary for the buyer to disclose this7

=). >K< Frove v. hapman – case of the guy who sold his property,which eventually became !isney 4orld.

a). 4hy is the court getting involved here7 Isn8t the analysismisguided7

i). #he result has happened, so why bring in the courts7 b). #here is a tension here between fairness and efficiency.

i). Dairness – you have to loo% out for the little guy.ii). +fficiency – assets need to be available in an


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efficient manner, and the efficiency needs to be greater.c). In this case, though, the court loo%s at two things.

i). hapman %new a lot about real estate, and therefore,had access to this information.ii). #he fact that !isney 4orld coming in was public

information. So, hapman loses.=I). ronman8s analysis – Big 5ulti?oo% at it this way – the field will be mined, ta1ed,and this will fund the social welfare system. So, isn8t agreater good getting funded this way7 "h yeah.v). nother e1ample is casually ac2uired v. deliberatelyac2uired dichotomy – if you have deliberately ac2uiredinformation, you can trade it without disclosing it. If youhave casually ac2uired information, you can8t trade itwithout disclosing it.

a). If you are watchingJe1aminingJresearching acompany, you do not have to disclose informationyou ac2uire in this process. b). If you are bribing the night ;anitor, you have todisclose this information.

b). 5andatory !isclosure – is this silly7i). !ownside6 Buries you in too much information.ii). !ownside6 mandatory disclosure can get to besomewhat irrelevant.

a). Phenomenon %nown as *unraveling.-i). $ou can e1pect mar%ets to unravelin certain ways.

b). People with better than average information willdisclose it voluntarily.

i). +ventually, it brea%s down to the pointwhere everyone e1cept for the person withthe worst possible mar%et alternative willdisclose any relevant information.

iii). "f course, this is not always ade2uately reflected inthe law, since you would always have to disclose this sortof information.

c). #o what e1tent, though, are these cases an affront to autonomy


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?? the costs of the party to society.i). /ow do the courts figure out what should beautonomous7

a). #he voluntary party would have concededcontract, and intended to be bound.

b). #he agreements need to be legitimate and ;ustified.i). +1amine these points, though, at the points of understanding the world andreasons of utility, by wor%ing through both concerns.

ii). +conomic theory would emphasiCe that the law wouldneed to ma%e sure that it was efficient and focus on theterm of efficiency.

=). Illegality !iscussion.

a). 4atts v. 5alatesta – 4eird b). os ngeles hargers Dootball lub,Inc. – case of the football player who illegally signed with oneteam, and then went ahead and signed with a different team.

i). #he court says to the original team, *


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under theories of e2uity, implied contract, and fraud.i). #he court says that they do not agree, and that it istheir goal to support public policy, wherein here thisincludes the goal of marriage.ii). dditionally, ;ust li%e In Re Freene, se1 cannot

function as consideration.iii). !octrinally, loo% to Section G& – the bargained fore1change.

a). /owever, isn8t it insulting to insinuate thatse1 was the only thing that was e1changed in thefifteen year cohabitation7 b). #his case really is an e1ample of a case of thecourts lagging behind the times.

iv). #he court in this case says that it is getting its ideasabout public policy from the legislature.

a). /ad the legislature so desired to recogniCe

these %ind of arrangements, they would have draftedlanguage effectuating as such.v). So, if the legislature, had it been confronted withlanguage such as this, would have re;ected it, should thecourts really engage in the role of gap filling in the public policy arena7 Is this the role of the courts7

e). Section &'G of the Restatement – Regarding Public Policy.i). Fives lots of fle1ibility to ;udges regarding public policy.

a). #he policy of deterring contracts of this sort inthe future. b). #he other concern is %eeping the courtsrespectable – maintaining the purity of the fountainsof ;ustice.

B). Statute of Drauds.

I). !iscussion of the concepts.a). Parties are indicating, prior to putting these types of contractsinto writing, that they do not yet want to be bound.

i). Since they don8t want to be bound, the courts will waituntil they have put everything in writing to bind them totheir agreements.

b). S"N.in the beginningN.i). Parties as% if they are going to negotiate.

a). If they say no, then the buyerJsellernet gain is Cero. b). If they say yes, and then the buyer pulls out,they have *buyer e1its,- and there would by a loss

Statute of Drauds.Dive 5ain #ypes.a). Suretyshipagreement. b). 5arriage

provision.c). >and ontract.d). "ne?year provision.e). Sale of goods:must e1ceed LAA).

@nenforceable,unless in writing.


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borne by the buyer, who would then get damages.c). If they say yes, and continue, the seller has theopportunity e1it, then the seller is going to sue, andget damages at the level of *H.-

c). 4or% inversely to get to this.

i). In the beginning the parties are unsure if they can trusteach other, and the fact that either party can e1it atany

time, and be opportunistic, therefore, the parties opt to notcontract at all, leading to net gains of Cero.

d). /owever, if you put into place the statute of frauds, wherenothing is final until the *closing ceremony,- then at each stop,you have net gains of Cero leading to greater contracting comfort.

II). #he "ne $ear Provision of the Statute of Drauds.

). If a promise contained in a contract is incapable of being fully performed within one year after the ma%ing of the contract, thecontract must be in writing. Restatement &HA :&).

&). #he time runs from the ma%ing of the contract.

B). Performance must be impossible within the one year period.&). So, under absolutely


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contract tal%ed about H? years.i). #he dissent contorts itself in the favor of the plaintiff, saying that it was a series of oneyear contracts. – is this valid7 !o youwant to contort li%e this7

III). ontract for the Sale of Foods.). @ 0?0A& provides that a contract for the sale of goods for the priceof LAA or more is not enforceable by way of action or defense, unlessthere is some writing sufficient to indicate that a contract for sale has beenmade.

&). "ne sale versus several – several lots of goods, each lessthan LAA, but together e1ceeding LAA – depends if the parties meant to have a single contract.0). ontracts combining goods and services.H). +1ception to the statute of frauds6

i).


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0). /owever, you will find lots of cases where an e1ception e1ists.a). 4on8t implement the rule regime if the rule undermines,rather than advances, the initial reason for which it was laid out.

b). 4hat began, then, as a clear rule, evolves into muddiedstandards.c). Fo too far, you can realiCe these inconsistencies, whereinits so muddy, that the amount of litigation s%yroc%ets, and thereis no predictability.

i). ourts then start to bounce in the opposite direction,fighting for predictability and clarity, as well as theease of ad;udication.

d). If the statute of frauds approach is ;ustified, perhaps the evilin the system is the e1 poste e1ception.

i). But, then, what about e2uity7ii). #he ma;ority and dissent in the statute of frauds casesare engaged in a debate about whether to be rules orstandards guy.

e). /ow does the statute of frauds gel with economic theory andautonomy theory7

i). Statute of frauds appears to be in conflictJcounterto these theories.ii). Shouldn8t the parties ;ust be the ones to decide howvaluable something is7iii). /owever, in order to have ;ustice, we have courts.

a). to %eep courts accessible to everyone, wesubsidiCe the legal system. b). Parties might draft their contracts in a waythat e1ploits this subsidiCation.c). Parties have the incentive to not internaliCe thecosts of the legal system, and have no real incentiveto invest in contract design measures that wouldreduce the cost of ad;udication.

i). So, they spend less time and moneydoing so.

d). #hus, the standard economic rationale comes inand says, *>oo%, the courts re2uire that you ta%e oncertain costsJdo certain steps to %eep the legalsystem cheap, and that you don8t e1ploit this socialsubsidy.-

i). nd this re2uires that the parties meetthe standards in the statute of frauds.ii). Reduces the amount of the costs thatindividuals spend in contracting out the

Restatement &(G –

"ral Rescission –the rescission doesnot have to satisfythe statute of frauds.


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designs of their own systems.iii). State demand that contracts be handledefficiently.

f). 5onetti v. nchor /oc%ing orp. – nchor as the soledistributor of goods made by 5onetti.

i). #wo documents e1ist that the agent of the defendantsigned, but which were signed prior to breach.ii). #he other was an internal memo prepared by theemployee of the defendant, and was seen as a summaryagreement.

a). @nder the common law, the partial performanceremoves this case from the statute of frauds, byvirtue of the fact that trade secretsJmaterial aretransferred to nchor.

b). @nder the @, the second writing, the

summary agreement, satisfies the statute of frauds,since the @ does not re2uire the inclusion of allterms. #he *has been- language means that thewriting has to be contemporaneous with theagreement :cannot foreshadow the agreement).

). #he Parol +vidence Rule. – Foverns the effect of a written agreement on any priororal or written agreements between parties. #he rule provides that a writing intended bythe parties to be a full and final e1pression of their agreement may not be supplemental or contradicted by any oral or written agreements made prior to the writing. s such, it doesnot bar the admission of evidence of oral agreements after the writing, and, similarly doesnot bar admission of evidence about the meaning the parties intended to give to particular contract terms.

I). Restatement 0A?0&' – #he Parole +vidence Rule.a). #hree !ifferent inds of 4ritings6 unintegrated, partially integratedEand fully integrated :per se mergerE non per se merger).

i). @nintegrated writing – any written or not written evidence interms of what writings are admissible to the courts.ii). Partially integrated writing – non?written evidence of termscan come in. If the document is not intended by the parties toinclude all details of the agreement, then it is a *partial-integration.iii). #otal integration – If the document is intended to be the finalagreement of the parties, to include all terms of the agreement, it iscalled a total integration. Dinal statement of the terms of thewriting. #he default rule would apply.

a). ases into two categories.i). Per se – Dor some reason, the court hasdecided that it is fully integrated – for instance,

arol +vidence Rule.+ffect of doption of a4riting.A – Integrated

greements.&A – ompletely andartially Integrated

greements.&& – StandardiCed

greements.&0 – Interpretation of anntegrated greement.&H – +ffect of Integrated

greement on Priorgreements :Parol+vidence Rule).&( – +vidence of Prior or

ontemporaneousgreements and


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there is a merger clause, which ta%es a stance on theintegratedness of the writings.ii). #erm?specific – #his is not an instance in whichthe court decides the integratedness of the contract.Instead, the court loo%s at the issue with regards to a

specific term that the parties are trying to bring in tothe contract. Dor instance, they would loo% to see if the term is one that would naturally be omitted inthe drafting of a contract.

a). #he natural omission test is never fullydecided.

b). #he parol evidence rule provides that evidence of prioragreementN

i). 5ay never be admitted to contradict an integratedwriting.ii). nd may furthermore not even supplement an

integration that is intended to be complete.iii). 4$S bemodified after its e1ecution by an oral agreement.

c). P+R does not apply to contracts where a second full contracte1ists.d). +vidence to clarify any ambiguous terms can be introducedinto evidence, even if the contract is fully integrated.

i). #here is no evident stopping point as to what isclarification of the term or what is an actual term.

II). 5itchell v. >ath – case of the guy who bought the property, and the partiesagreed to have the ice house removed prior to the ta%ing of the land. /owever, when theother party moved on to the land, the ice house was still there.

a). ! says that the evidence of the agreement re6 the ice house should notcome in, due to P+R.

i). #he court agrees – says that the oral argument should not becollateral to the written agreement.ii). #he court states that since this is not something that the partieswould have naturally e1cluded from their writings, thus, it does notcome in. Based on what the parties put in to the final draft, youcan infer that they did not wish to have the ice house removed.

a). #his would ;ust be seen as a promise in the course ofnegotiating.

iii). #he dissent says that this is something that is strange enoughto not be a part of the writing, and that since it falls outside thescope of the land agreement, and is evidence that should beallowed under P+R.

a). So, what would be omitted7i). #he mundane details, since it can be assumed

0& – ontradiction of Integrated #erms.0&3 – onsistentdditional #erms.

0&' – Integratedgreement Sub;ect to"ral Re2uirement of aondition.

&). !id the partiesintend the documentto be the final

e1pression of theiragreement7

0). Partial v. #otal Integration– :a) Partial – document is notintended to contain all detailsof final agreementE :b) #otal – is intended to include alldetails of a reement.

#he Parol +vidence Rule.Partial Integration6 If it isa partial integration, noevidence of prior orcontemporaneousagreements or

negotiations may beadmitted that wouldcontradict a term of thewriting.

#otal Integration6 4hen adocument is a totalintegration, no evidence of prior or contemporaneousagreements ornegotiations :oral or

written) may be admittedto addJcontradict writing.


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that the parties might have decided to cut down onthe contract drafting costs, and ;ust said, */ey,everybody %nows that these things come with itN-ii). "r, would it be the really wac%y stuff74ould you say, *5y idiosyncratic desires do

not to be encompassed within the four corners ofthis document.- #he dissent says that the strangerit is, the more li%ely that you are to s%ip e1pendingcosts in including it in the drafting of the contract.

b). 4$S insist that it is related to the writing.v). +vidence of the oral agreement will not be admissible, if itconflicts with the terms of the writing. #his applies, though, onlyif the writing is partially integrated.vi). #he


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a). #he contract seems odd, since they were so specific about theterms of the contract that they would not include this.

i). #he other side of this is that, since it is family, it wouldnaturally be e1cluded.

b). #he terms do end up included in the contract, but the dissent offers

its own views.i). statutory law says that written agreements have to include,as an option, all parts of the agreement.ii). n option is only assignable if the parties agree, in writing,that it is assignable.

c). hirelstein8s view – #he court here is re;ecting the view that even afully integrated contract is complete on its face.

i). #hus, evidence of a collateral oral agreement should bee1cluded only when it is li%ely that the fact finder will be misled.ii). Proof of the oral agreement should only be accepted when itis necessary to not frustrate the parties8 real intent in contracting.

a). So, if this agreement could have been entered intoseparately from the written agreement, proof of this should be admitted. b). In this case, the form that was used was a standardiCedform, which did not allow for reassignability options oradditional terms, so it was less li%ely that the documentwould include all that the parties intended.

i). /owever, this decision seems to ma%e the P+Rcircular in its outcome.ii). But this conflicts with the fact that the outcomehere is more desirable.

c). #he true intent of the parties is the ultimate touchstone.i). #he verification by spo%en word is troublesomeand costly, but the automatic e1clusion underminesthe true aims of the parties.

I=). #he @8s Parol +vidence Rule6 #he ertain Inclusion #est for Integrationand the onsistency #est for dmitting +1trinsic +vidence.

a). Section 0?0A0 of the @. – more liberal view than the *


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ii). #he parties did not intend for the court enforcement of thenon?written terms.iii). #he contract here is partially integrated.

a). #his leads the court to e1amine whetherthe evidence conflicts with the term.

b). #he court integrates a principal, saying thatin order to be inconsistent, the term or conditionmust conflict with the writing, and a lesser termwould be provable.

iv). #he ertain Inclusion test here ma%es a term specificmerger irrelevant, and everything will end up partially integrated.

a). In order to e1clude evidence on a certain term, thenthe parties must show that it was impossible for themto have failed to have put a certain term into the contract,and, thus, it should be in there.

i). Isn8t this really la1, though7

c). Snyder v. /erbert Freenbaum K ssocs. – #he more standardinterpretation.i). 4hile a course of dealing could serve as an interpretivedevice to give meaning to the words and terms of a contract,the documents that the P sought to introduce comprised anagreement that added to the terms of the contract, and thus,fell under 0?0A0.

ii). #he court held that these were terms that the parties*certainly- would have included in the final agreement.

iii). #herefore, the written contract was the final agreement,and was a complete and e1clusive statement of the contract terms.

=). #he 5erger lause.a). @4?F5 /uman Resource enter v. S> Recreation orporation KS> /otel orporation – Boiler plate contract, which included a mergerclause, and said that this was the final agreement of the parties. #hecompany got bought out, and the new labor crew was not unioniCed,which the plaintiff claimed that the parties had sought.

i). #he court says no, sorry, the merger clause controls here.a). #he contract is fully integrated, and stands. b). #he middle ground holds no water either, the argumentthat since this was a boilerplate contract, that the mergerclause should not apply – ignores how we really contractin the world.

ii). #he merger clause bloc%s off the


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a). "b;ectivist approach and conte1tualist approach.i). If the term is ambiguous, there is no difference between theseapproaches.

a). +ven ob;ectivist guy has to allow someconte1tual evidence in to the contract reading.

ii). #ension arises between these two approaches when6a). #he term has an unambiguous, plain meaning. b). "r when conte1tual evidence e1ists that the partiesattached a different meaning to the term.

iii). "b;ective – minimiCes costs by lowering probability ofmisinterpretation – preserves plain meaning and allows parties inneed of definition to turn to the dictionary.iv). onte1tualist – 5inimiCes costs of contracting parties, sincethey don8t have to find dictionary terms for their dealingsJtoe1press their contracting goals.

a). 4hich of these two yields the lowest cost is

unresolved. b). In Re Soper8s +state – the case of the man with the two wives, andwhether or not *wife- means *wife.-

i). #he court rules in favor of the second wife, since this is whothe man clearly had in mind.

a). 4hat is the defense of ob;ectivism7 re they trying to preserve the stability of the contract7

i). "b;ectivists are more e1 ante about things.ii). #he state has an interest in preserving the termsand usages of the +nglish language that are beingused to build contracts.

b). onte1tualists are saying, *>et8s loo% at the intent of the parties at the time of contracting.- +mbrace the e1 posteview.

i). #he ma;ority is saying, *>et8s not beembarrassing about how we read contacts.-

c). Pacific Fas K +lectric o. v. F.4. #homas !ryage K Rigging o. –case of the guy in;ured on the rig, and the defendant says that the termsapply only to third parties.

i). #he court re;ects the plain language doctrine.ii). #he court implements a *reasonably susceptible- standard.iii). 9udge argues that integration has no implication for interpretation.

a). >oo% to whether a term is reasonably susceptibleto a given meaning.

d). #rident enter v. onnecticut Feneral >ife Insurance ompany –case regarding the repayment of a loan.

i). #he ;udge criticiCes the decision in PFK+, saying that we


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need plain language, and slams conte1tualism.a). But why not ;ust say that the clause was reasonablysusceptible to interpretation and ta%e it from there7

ii). #he ;udge is deeply committed to the e1 poste perspective.iii). #he ;udge here, according to the Big , is trying to save

the parol evidence rule, by saying, *>oo%, the parol evidence ruleis there to insulate the terms of the contract at the time ofcontracting – stop dancing around this-

a). #he ;udge8s argument is that conte1tualismallows the terms and conditions to shift all the time. b). #he new te1tualist approach is an effort to stay with plain language law.

i). /owever, though, this does not allow fore1trinsic evidence, even when the term isambiguous. – doesn8t this undermine whathappens in contracting7

e). Drigaliment Importing o. v. B.


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a). #his is a mista%e about a material fact.i). #he fact is material since it is central to both

parties8 acceptance of the contract.ii). #he mista%e in this case went to the verynature of what was being bargained for.

iii). 5utual mista%e can turn on arbitraryclassifications as to what the parties bargained for.a). oo%, the parties developed thisrule, and they spent a lot of money to do so. learly, theycouldn8t want this rule to failN-

a). !o we fetishiCe the contractual means7i). #he Big 8s approach.

b). "r, do we loo% to the intent of the parties at thetime of contracting7

ii). #he problem in this case is that the parties spent a lotof time and money setting a standard, which malfunctioned.

a). #he parties could have set a price term in adifferent way, but chose instead to set a verycomple1 term.

i). #his is a *ourts, get out- term.ii). Respect the rule as the parties draftedit – ma%e the party that has to pay, pay.

iii). #wo points are in agreement between the Big and

5utual 5ista%e64here both partieshave acted on thesame mista%en beliefEthe party see%ingrescission must showthree things6

a). basic assumption –that the mista%econcerns a basicassumption on whichcontract was made. b).5aterial affect – thatthe mista%e had amaterial affect on thedeal. c). allocation ofris%6 that the ris% ofthis type of mista%e

was not allocated tothe party that is tryingto rescind.

@nilateral mista%e64here only one

party has acted onthe mista%en beliefEit is harder to getrescission than in amutual mista%esituation.dditionalre2uirement6 Inaddition to the threeabove re2uirements,the mista%en party

must show either &).enforcement of thecontract would beunconscionable, or0). the other partyhad reason to %nowof the mista%e oractually caused it.


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the court6 the parties %new of and e1pended money toreduce the ris%.

a). #hird point, though6 #he parties didn8t allocatethe residual ris% – don8t agree. b). #he parties had a price ceiling, so how is it

that it can be argued that they didn8tappreciate theris%7

d). tlas orporation v. @nited States – case of the @.S.gov8t changing regulations, and, thus, increasing the costof mining under the gov8t contract. tlas says that this wasa mutual mista%e.

i). #he court concludes that the parties did not have a termin the contract to govern situations such as this, and that itwas not a mutual mista%e.ii). #he court says that there can be a mista%e of fact if the

outcome is un%nowable, but if they %now of the fact, theycannot ma%e a mista%e about it.iii). tlas is trying to get access to a mutually sharedob;ective, which was derailed due to an unanticipatedevent.

a). But isn8t this foolish, to distinguish betweenthe %nown and the un%nown7

III). Impossibility !octrine. – If a condition becomes impossible, it is no longerenforceable.).


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force ma;eure clause is meant to cover, and, thus, e1cludesthis.

a). Dor impossibility to succeed, it must be anob;ective impossibility. b). If it can ob;ectively be done, it is not enough to

say that sub;ectively, it can8t be done.

+). anadian Industrial lcohol ompany v. !unbar 5olasses o. –case of the guy who was the middleman, and the providing companycouldn8t provide enough to %eep up.

i). But this is why you hire middlemen – middlemen say, *I willabsorb this cost if there is a problem.-

D). ordana Impossibility !octrine.i). !ivide contracts in the world into two %inds.

a). @ni2ue goodsJservices by a particular individual –

i.e. a sculpture or a painting. b). ontracts in thic% mar%ets, where things are easilyreplacedJbought out.

ii). 4hen faced with the first prong, the court should as% if the parties have allocated the ris%s.

a). If the parties have allocated the ris%s, and the uni2uegood cannot be provided, then B""5 %noc% it out. b). But loo% at what the contract was about – if it is theSueC anal case, the good is not the SueC anal – it is theshipping.c). "r in the /owell case, where the contract wasconditioned on the potatoes growing in a particular plot.d). >oo% at the basic assumption language of 03& –wherein basic assumption means implied condition.

i). In SeitC what matters is not the seller8s perspective, but the buyer8s perspective.ii). SeitC is thus a contract for a fungible good.

e). #he molasses case – the way the Big reads it is thatthe implied condition was not about wanting the molassesfrom this particular refinery, but was instead about the production of molasses, and thus, this occurred in a thic%mar%et.

iv). #he courts say that if it is about a uni2ue good, then #aylorv. aldwell %ic%s inE if it is not for a uni2ue good, then it issomething that the court will be slow to embrace.v). #he Big says, *Fet rid of impossibility, and handle all of thisin damages-

a). >oo% at a case li%e arroll, and say that it is a mista%ecase, and thus, since the parties did not handle this indrafting the terms of the contract, thus, it is their problem.

#he /adley Rule is Restatement H& – @nforeseeability and Related>imitations on !amages – !amages are not available for losses that the breaching party did not reasonably foresee at the time of contracting. #his

relates to @ 0?'&, and is %nown as *the /adley Rule.-


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vi). >oo% at the impossibility doctrine as an information forcingrule.

a). If you contract for a uni2ue good, you are signaling thatyou want this more than a mar%et substitute.

i). So, how about a penalty default rule7

ii). Parties who want uni2ue goods would haveto signal what their damages will be.iii). Put in a li2uidated damages clause.iv). #his builds into the Dreund problem, wherein if you have not specified your damages, you get Cero.

a). nd thus, impossibility is ;ust Dreund.v). nd, in thic% mar%ets, you go bac% to /adleyv. Ba1endale, and you say, in a thic% mar%et, we bar recovery – you say, *oo% at @ 0?3&.

a). So, the shipping company had to ta%e the moree1pensive route. b). #he court says that the closing of the SueC analwas foreseeable, and that the shipping company shouldhave ta%en steps to cover, and insure.c). #here has to be more than a derivation of costs, dueto an alternative.d). dditionally, a theory of recovery is inconsistent withthe theory of impracticability – the resolution is voidance.

i). ordana says that perhaps this is a little too cute.ii). 0?3& allows for the e1tension fromimpossibility to impracticability ?? there ;ust has to be an unforeseen conse2uence.iii). ould the parties foresee the contingency thatoccurred7

a). If so, you have to assume those ris%s.d). 5utual mista%e is a fact that was in e1istence at thetime of contracting, while impracticability is something thatarises post contracting.

Impossibility – if a performance has beenmade literallyimpossible by theoccurrence ofune1pected events,then the contract may be discharged. #hisincludes6 destruction,death or incapacitatingillness of the party, orsupervening illegality.Remedies6 Fiverestitution damages:recover the value of

the benefit conferred)or reliance:e1penditures the plaintiff made in partly performing or preparing to perform.)

:same damages applyto frustration andimpracticability.)


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e). hirelstein – the court loo%s at three elements.i). an une1pected occurrence.ii). a failure to have allocated the ris% of thatoccurrence by agreement or custom.iii). commercial impracticability with

regards to the performance of the P8s obligations.iv). #he courts rarely allow this doctrine, orfrustration into the courts.

a). "dds that the buyer or the seller will be the advantaged party is e2ual, and theselling price is the midpoint between thetwo – so, why shouldn8t parties ma%e thisa part of their terms7

f). hirelstein – you have to decide which of the two parties was intended to bear the ris% that performancewould in fact be rendered impossible by the particular

event. i). #his will not be in the contract, so try andforesee by loo%ing at how the ris% would have been allocated e1 ante – how would they have borne out the ris% had they foreseen this7ii). It appears also, as though the courts are leavingthe losses where they fall.

I). Impossibility of Performance – +mmanuel8s.i). !estruction or other unavailability of the sub;ect matter of thecontract.ii). Dailure of the greed @pon 5eans of Performance.iii). !eath or incapacity of a party.iv). Supervening Illegality.v). Restatement 03& – 4here, after a contract is made, a party8s performance is made impracticable without his fault by occurrenceof an event, the occurrence of which was a basic assumption onwhich the contract was made, his duty to render that performanceis discharged, unless the language or circumstances indicate thecontrary.vi). If property which the performing party e1pected to use isdestroyed, that party is discharged only if the destroyed propertywas specifically referred to in the contract, or at least understood by both parties to be the property that would be used.

a). It is not enough that the party who see%s discharge byimpossibility intended to use the destroyed property.

I=). Drustration.). rell v. /enry – case of the guy who rented the flat in order to watchthe %ing8s coronation.

i). Restatement 03 – destroys one8s purpose for entering into the

Impracticability – If performance by a party has been made highly

impractical by theoccurrence of une1pectedevents, then the contractmay be discharged.


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contract, even though performance itself is not impossible.a). *4here, after a contract is made, a party8s principal purpose is substantially frustrated without his fault by theoccurrence of an event, the non?occurrence of which wasa basic assumption on which the contract was made, his

remaining duties to render performance are discharged,unless the language or circumstances indicate to thecontrary.-

ii). +mmanuel8s – performance itself is not impossible, but thereason for entering into the contract is no longer present.iii). In this case, the canceling of the coronation was a contingencythat could not have been foreseen, and since neither partycontemplated the nonoccurrence, there does not need to be a payout. #he circumstances ma%ing the contract valuable are nolonger satisfied.iii). >oo% at the fact that the ing will march in the future – the

lessor still has the opportunity to ma%e his money. /e canmitigate.iv). $ou can8t really set up a default rule in a frustration case, because if the parties truly could not foresee the events, thenwhat point is there in providing for incentiviCing7

B). >loyd v. 5urphy – !efendant leased property from the P to sell newcars and gasoline. Fov8t regulations stopped the sale of new cars. #he Poffered the ! the right to sublease or pay less, and the ! ;ust decided to breach.

i). #his ris% must have been contemplated, so the court loo%s tothe contract and figures out who the ris% was allocated to.ii). #he value of the lease was not destroyed, as demonstrated by how 2uic%ly the P was able to sublease.iii). Drustration does not re2uire impossibility – it ;ust means thatthe purpose for which one contracted has been stymied.iv). #his case is different, since the lessee intended to sell newcars, and the lessor was ;ust intending to lease commercial property.

=). Breach – nticipatory Repudiation. – #his triggers the anti?breaching party8sduties to mitigate, thus putting a stop to where damages start, and allows forcover. #his also cuts down on the incentive to act opportunistically.

i). compromise between the duty of mitigation that is triggeredonly at the time that performance is due, and the necessity of that performance.

). /ochster v. !e >a #our – case of the agreement between the partiesto have one serve as a tour guide for the other, and the ! breached. #he Pwas able to cover by getting a ;ob as a tour guide with someone else, butthe new ;ob didn8t start until the (th of 9uly.

i). #his allows that you can breach prematurely, and that you can

Drustration – 4henune1pected eventscompletely or almost

completely destroy a party8s purpose inentering into a contract,the parties may bee1cused from performing.


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try and cover your damages beforehand – the ! had argued thatsince the suit came prior to the performance of the contract, thatthe contract was not yet breached.ii). So, you can sue before the repudiator8s time for performancehas arrived.

a). Prompt disposition – the courts have an interest indisposing of the matter promptly, while *memories arefresh, and witnesses are available.- b).


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for it, his reputation alone gives rise to a claim fordamages for total breach.ii). #he effect of events other than a statement asconstituting a repudiation under Restatement 0Aor the basis for repudiation under Restatement 0&

is nullified if, to the %nowledge of the in;ured party,those events have ceased to e1ist before hematerially changes his position in reliance on therepudiation or indicates to the other party that heconsiders the repudiation to be final.

=I). Remedies.). Remedies are default rules that the parties can opt out of at the time of contracting.

i). #hin% at the time of contracting – what would you want thedamages to be7

ii). an be either nominal damages or punitive damages.iii). /ow do you measure the loss e1pectancy on a contract7

B). merican Standard, Inc. v. Schectman – ! agreed to remove all of thefoundations on real estate to a depth of one foot on the specified grid –cost of moving the foundations turned out to be much higher thane1pected.

i). #he court said that the cost of damages should be e2ual to thecost of completion.ii). 9acobs?$oung v. ent type case – :pipes case).

). Peevyhouse v. Farland oal K 5ining ompany – agreement to stripmine a farm, and decline to degrade the farm as stated in the contract –strip miners have breached.

i). s a result, the owners of the land got the contract price, andtheir land in a worse off condition.

a). ssume two states of the world 6i). In the contract, the ! promised to provide a graded value land :!8s theory of the case)ii). P8s theory of the case6 Promisor promised to pay the contract price, and return the land regraded.P views this as more of a uni2ue ob;ect – *I wantmy family farm-

ii). #he Big li%es the Peevyhouse rule more than the mericanStandard ruleE it seems more plausible that the Peevyhouses get thedamages than the commercial firm gets it.

!). Sedma% v. harlie8s hevrolet, Inc. – Specific Performance case –@nder @ 0?'&3 – specific performance when goods are uni2ue and inother proper circumstances – want this specific car, though.

i). Perhaps the breach is a cry for help.

Reliance damages –

put them in as good ofa position as they wereat the time ofcontracting. an onlybe had if the plaintiffproves them with areasonable certainty.Restitution – preventthe un;ust enrichmentof parties, and returnthe value that has been

rendered by theplaintiff. @sed whenthe contract isdischarged for somereason – i.e.impossibility.+1pectancy – theplaintiff is awardedout of poc%ete1penses, plus whatthey would have

incurred had thecontract been fulfilled.

>oo% at RestatementH for outlines ofdamages.


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+). Sullivan v. "8onnor – plastic surgeon and the singer, plus botched plastic surgery.

i). +1pectancy – pain and suffering for the Hd operation.ii). Reliance – any loss in earning power, her at the pre?contract positionE fee she paid the doctor.

a). ourt goes with reliance, since it is the easiest toforecast.

+1 nte. #eleological6 has a telos :Q purpose, end) ∴ has a certain social value, li%e

efficiency, utility, distributive ;ustice, etc. #hese e1ogenous values impose a duty toenforce the and also guide the court when it is gap?filling or interpreting unclear terms.:economics) – #he law will create the framewor% – the systems of ;ustice are there toread the contract and understand what it means :ob;ective)

+1 post6 utonomy6 ssumption of natural freedom. By ma%ing promises, peoplevoluntarily obligate themselves. BJc we voluntarily consent to be bound, the gov8t is

;ustified in enforcing the promise, bJc %eeping promise is a right action. Since law is based on enforcement of s, that8s what the courts should do. ourts are not entitled to promote their own idea of ;ustice or further social aims, li%e economJefficiency. – I cando whatever I want, and the court will serve my intentions – the court will let me bringin shit to e1plain ambiguous terms. :conte1tual)

@ 0?'&0 – Buyer may cover by ma%ing a purchase of substitute goods, and send tht bill to the seller for the difference.

R+5+!I+S6

&) +1pectation – !amages are the usual measure of damages for the breach of acontractE the court tries to put the plaintiff in the position he would have been inhad the contract actually been performed.

a.) Dormula6 P8s e1pectation damages are e2ual to the value of !8s promised performance :contract price), minus whatever benefits P has received fromnot having to complete his own performance.

b.) #he plaintiff may only recover for losses which he establishes with areasonably certainty.

0) Reliance – !amages needed to put the plaintiff in the position that he would have been in had the contract never been in had the contract never been made.#herefore, these damages usually e2ual the amount that the plaintiff spent in performing or preparing to perform. #hey are used either where there is acontract, but e1pectation damages cannot be accurately calculated, or where thereis no contract, but some relief is ;ustifiable.


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a.) #he e1pectation damages cannot be tospeculative.

b.) Recovery is limited to profits – most courts do not let reliance damagese1ceed e1pectancy damages. – subtract the amount of loss.

c.) #he contract price is the limit. Reliance damages are the cost to the plaintiff, not the value to the defendant.

H) Restitution – #he plaintiff8s restitution interest is defined as the value to thedefendant of the plaintiff8s performance. Restitution8s goal is to prevent un;ustenrichment.

a.) #he main uses of the restitution measure are as follows6

i. non?breaching plaintiff who has partly performed before theother party breached may bring suit on the contract, and not be

limited by the contract price :as she would be for the e1pectationand reliance measures)E andN

ii. breaching plaintiff who has not substantially performed may bring a 2uasi?contract suit and recover the value that she hasconferred upon the defendant.

() Substantial Performance – 4hen one party substantially performs, the other is notrelieved of hisJher duties. If the latter refuses to perform, the substantially performing party has an action for breach of contract.

a.) +1pectation damages – a party who substantially performs may sue forordinary :e1pectation) damages for breach of contract, if the other partyfails to perform.

b.) !ivisible contracts – if the contract is divisible into separate agreements, a party who has substantially performed one of the parts may recover on thecontract for that part. #hat is true, even though he has breached on theother parts of the contract.

) voidable !amages – !uty to 5itigate – 4here the plaintiff might have avoideda particular item of damage by reasonable effort, he may not recover for that item

if he fails to ma%e such an effort.

a.) Reasonableness – the duty to mitigate rule only re2uires a reasonableeffort to be made by the plaintiff.

b.) Sales contract – @ 0?'& – only the buyer has a duty to mitigate.


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3) 5itigated !amages – li2uidated damages clause is a provision, placed in thecontract itself, specifying the conse2uences of a breach.

a.) ourts will enforce li2uidated damages provisions, but only if the court issatisfied that the provision is not a *penalty- #hat is, the court wants to be

satisfied that the clause really is an attempt to estimate actual damages,rather than to penaliCe the party for breaching by awarding *damages- thatare far in e1cess of the ones actually suffered. #herefore, in order to beenforceable, the li2uidated damages clause must always meet one, andsometimes two, re2uirements6

i. Reasonable forecast – #he amount fi1ed must be reasonablerelative to the anticipated or actual loss for breachE and

ii. !ifficult calculation – in some courts, the harm caused by the breach must be uncertain or very difficult to calculate accurately,

even after the fact.

b.) Reasonableness of amount – all courts refuse to enforce contracts that donot provide for a reasonable amount.

i. ourts disagree about the time as of which the amount must appear to be reasonable. 5ost courts today will enforce the clause ifeither6

&. #he clause is a reasonable forecast :viewed as of the timeof contracting)

0. #he clause is reasonable in light of the actual damageswhich have occurred.

c.) #he @ basically follows the common law on when a li2uidateddamages clause should be awarded. #he @ follows the modern view, by which the party see%ing enforcement of the clause will succeed if thesum is reasonably viewed either as of the time the contract is made orviewed in light of the actual breach and actual damages. See @ 0?'&G.

+1pectation !amages6 Peeveyhouse discussion. ost of completion v. !ecrease in value – #he general principle in awarding e1pectation damages is that the plaintiff should be put in the same position he would have been in had the contract been performed. #hisformula leads to difficulty, however, in those situations where the difference between theeconomic value of a complete performance under the contract and the value of thedefendant8s defective performance is less than the cost of remedying defendant8sdefective performance. In such a case, should the plaintiff be awarded the net economic


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loss he has sustained by virtue of the defendant8s breach :the lesser sum) or the cost ofremedying defendant8s defective performance :the greater sum)7

Plaintiffs own a farm containing coal deposits. #hey lease the premises to !efendant fora five year term, for the purpose of allowing !efendant to strip mine on the property.

Because of the unsightliness of a strip?mining operation, P insists that the lease contain aclause re2uiring ! to perform various wor% to restore the beauty of the property at theend of the term. Ps are unwilling to sign the lease without these terms, and they areincluded. +vidence shows that it would cost ! about L0 to perform the wor%, becauseof the great 2uantities of dirt which would have to be moved. /owever, the value of thefarm is only about LHAA less than it would have been had !s performed this wor%. Infact, the total value of the farm is less than L. In the P8s suit for damages for breach,should they be awarded the LHAA or the L07

/eld6 "nly the diminution in value, LHAA, should be awarded. #he court advanced tworeasons6 &). #he provision of the contract re2uiring the remedial wor% was only

incidental to the main purpose of the contractE 0). #he economic benefit which the Pswould receive from full performance of the wor% was grossly disproportionate to the costof performing the wor%. #hus, *economic waste- would be involved.

>i2uidated !amages !iscussion6 >a%e River orp. v. arborundum o. – ! signs acontract with P, under which P will bag certain 2uantities of a commodity owned by !.#he three year contract sets a fi1ed price for each ton bagged, with a minimum of 00,AAtons to be bagged each year. li2uidated damages clause provides that if ! re2uests lessthan the 00,AA minimum to be bagged, ! will nonetheless pay the per?ton bagging price for each ton by which !8s order is less than the minimum, even though P has not been re2uired to do any wor%.

/eld6 #he clause is an unenforceable penalty. "ne of the problems with the clause isthat P gets paid the same amount :its pro;ected gross revenues) regardless of whether ithad to do the wor%, and thus regardless of whether it incurred operating costs in performing the wor%. #herefore, the li2uidation formula is *invariant to the gravity of the breach- ma%ing it an unreasonable estimate of losses.

Contracts II - Kordana - Spring 2004_3

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