I/Contracts II - Schooner... · Web viewUnder the UCC (Modified First Shot Rule): For everyone....

Spring 2012 Professor S. Schooner

Contracts II – OutlinePages 1 – 6: Fall SemesterPages 7 – 17: Spring Semester

I. Is there a contract?A. Was there an offer?

1. Was this an offer to enter into a bilateral contract?2. Was this an offer to enter into a unilateral contract?3. Cases and Restatements

i. Longergan : form letter; invitation for an offerii. Izadi : ads can sometimes be offers; bait and switch ads are offersiii. RSC § 24 : Offer definediv. RSC § 26 : Preliminary Negotiationsv. UCC § 2-204: A contract for sale of goods may be made in any manner

sufficient to show agreement, including conduct by both parties that recognizes the existence of such a contract. (Harlow Jones and Princess Cruises)

B. Was there an option contract?1. Was there consideration for the option contract?

i. UCC § 2-205 – The Firm Offera. An offer by a merchant to buy or sell goods in a signed writing that,

by its terms, gives assurance that it will be held open is not revocable (even if there is no consideration) for the time stated in writing (not to exceed three months). If no time is stated, then it is irrevocable for a reasonable time not to exceed three months.

b. Any such terms on a form supplied by the offeree must be separately signed by the offeror.

c. If there is consideration, the offer stays open for the time stated.d. There is no reliance requirement.

ii. Cases and Restatementsa. See consideration cases belowb. Berryman : an option contract with purported consideration but with no

actual consideration given is just an offer than can be revoked; issue about who wrote the option

c. RSC § 25 : Option contractsC. Was there a counter offer?

1. Are there new or additional terms (Battle of the Forms)?i. Under common law, this is a counter offer (RSC § 59)

a. Mirror image rule: only the terms that match between the two competing forms are in the contract.

b. Last Shot Rule: the last set of forms governs the contractii. Under the UCC (Modified First Shot Rule):

a. For everyone(1) Conditional assent to the new or additional terms makes it a

counteroffer

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(2) If the contract is not conditional on assent to the new or additional terms, the new terms are proposals to the contract and do not become part of the contract unless expressly agreed upon by the other party.

b. Between two merchants(1) Additional terms are part of the contract unless:

(I) The offer expressly limits acceptance to the terms of the offer(II) The terms materially alter the contract(III) Notification of object to them has already been given or is

given within a reasonable time after notice of them is received.c. If the forms are contradictory, but the parties’ conduct indicates that

there is a contract, there is a contract.(1) Contradictory terms are eliminated from the contract (knock out

rule)(2) The UCC fills the gaps

d. Cases(1) Princess Cruises : the UCC does not apply even though goods were

involved because it was primarily a contract for services.(2) Brown Machine : the conditional acceptance must be explicit.

2. Cases and Restatementsi. Normile : option contract from original offer isn’t included in counter offerii. RSC § 39 : Counteroffersiii. RSC § 59 : an acceptance that is conditional on assent to other conditions

is not an acceptance, but a counteroffer.D. Was the offer revoked?

1. Cases and Restatementsi. RSC § 43 : the offer is revoked as soon as the offeree has reliable

information that the offeror no longer wants to enter into a contractE. Was there an acceptance?

1. How can an offer be accepted in a bilateral contract?i. Action: a promiseii. Inaction: RSC § 69iii. Ray v. Eurice Bros .: signing; classical rule

2. How can an offer be accepted in a unilateral contract?i. Classical rule: complete performanceii. Modern Rules

a. Substantial performanceb. Partial performancec. Beginning performance

3. Cases and Restatementsa. Petterson : unilateral; classical rule of complete performanceb. Cook : unilateral; new rule of RSC § 45; substantial performancec. RSC § 32 : if it’s not clear if the offeror wants the offeree to accept via

promise or performance, the offeree can decide which applies

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d. RSC § 45 : in unilateral contracts, an option contract is created when the offeree tenders or begins the invited performance and the offeror cannot revoke the offer.

e. RSC § 60 : You have to accept in the manner stipulated in the offer unless it is just a suggestion.

f. RSC § 63 : Acceptance is effective once it leaves the offeree’s hands. (Does not apply to option contracts)

g. RSC § 69 : Acceptance by silence is OK in certain circumstances.F. Was there consideration?

1. Under the Bargained-for Exchange Test?2. Under the Benefit/Detriment Test?

i. Benefit to the promisorii. Detriment to the promisee

3. Cases and Restatementsi. Hamer : giving up a legal right is consideration; it doesn’t matter if the

uncle didn’t intend to be seriousii. Pennsy : consideration doesn’t have to be expressly bargained for; it just

has to be a benefit to the promisoriii. Dougherty : purported consideration is invalid if no consideration was

actually received; this is the majority rule, though the RSC represents the minority rule

iv. Betsakis : Inadequacy or unfairness of consideration will not void a contract; codified in RSC § 79

v. Plowman : Past consideration is no consideration; the payments were a conditional gift; agency issue (did the person who made the deal have the authority to do so?)

vi. RSC § 71 : Requirements of exchangevii. RSC § 79 : Adequacy of consideration

G. Did they agree to agree?1. Cases and Restatements

i. Walker : anything that is left to be resolved must have a definite formula for determining the amount (i.e. rent); courts are unwilling to imply terms to a contract; if the thing left to be agreed upon is vital to the contract, the contract is unenforceable. This case represents the minority rule.

ii. Quake Construction : a letter of intent can be considered a contract and a jury should decide the issue; a letter of intent can also be considered a contract to enter into good faith negotiations. A letter of intent is only binding if the parties intend it to be binding.

iii. RSC § 33 : The terms of a contract must be reasonable certainiv. UCC § 2-204 : Contract for sale; formation, conduct, time, open terms.v. RSC § 27 : Existence of Contract Where Written Memorial is

Contemplatedvi. UCC § 2-305 – Open Price Term

a. You can agree to agree on the price.b. Reasonable price at the time of delivery.

H. Electronic contracts

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1. Shrink wrap : when you receive an item in the mail and the terms and conditions of the contract come in the box with the item. The offer is the mailing of the product, and the acceptance is when the consumer keeps the product.

2. Click wrap : when you have to click “I agree” to be able to use a website, buy an item, etc.; Courts have said that these are enforceable in court.

3. Browse wrap : when the terms and conditions are on the website, but you have to click on the specific link to see them. Not enforceable if the consumer has no reason to see them (apple bite hypothetical). Courts have said these are enforceable in court if the criteria are met:i. Adequate noticeii. Opportunity for reviewiii. Notice that the action manifests assent iv. User takes action

4. Casesi. Brower : UCC § 2-207 does not apply because there is no Battle of the

Forms; a contract was formed (shrink wrap) when the consumer failed to return the product within the time specified in the terms and conditions

ii. Register.com : if you download something with terms and conditions multiple times (this was browser wrap), you can be bound by those terms and conditions. Had Verio only downloaded once and only used that information, they might have a defense saying that they didn’t know about the terms because the terms were received after they downloaded the information. (Apple example)

iii. Netscape : Browse wrap terms are not enforceable without the “I agree” button.

I. Is the contract covered by the statute of frauds?1. Covered by the statute of frauds

i. RSC § 110a. Agreement to be performed after the death of the bargainerb. Suretyship – Answer for the duty of another (indemnification)c. Bargains in consideration of marriaged. Bargains to be performed more than one year from the making of the

contracte. Bargains for the sale of land (long leases as well)

ii. State statute specifying that a certain contract must be in writing.iii. Contracts for sale of goods worth $500 or more (UCC § 2-201)

a. In a contract for the sale of goods for $500 or more, there must be writing

b. Very flexible writing requirementc. Only the quantity of goods in necessary.d. Exceptions

(1) A contract that has been fully or partially performed will be enforced to the extent of the performance:(I) If you received the goods, you have to pay for them.

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(II) If the goods are specially made and cannot be sold to another buyer, you have to pay for them.

(2) If the party you are trying to sue admits in court that a contract was made, you don’t need the writing.

(3) If you have been paid for the goods, you have to deliver them.2. Requirements of Written Memorandum:

i. Identify the subject matterii. Indicate that an agreement has been madeiii. State essential terms (not all are always required):

a. Priceb. Quantityc. Delivery Date

iv. Does not have to be words on papera. Printb. Typewriterc. An intentional reduction to tangible form (video/audio)

v. A series of writings may suffice.vi. Does not have to be contemporaneous wit the actual execution of the

contractvii. If both parties testify that the writing existed, it doesn’t need to be present

in physical formviii. The writing must be signed or authenticated by the party that you are

trying to enforce against (the breaching party)3. If there is not sufficient writing, is there an exception to the state’s statute of

frauds?i. Statutory exceptions (i.e. in UCC § 2-201 above)ii. Case-based exceptions

4. Cases and Restatementsi. RSC § 110 : Classes of contracts coveredii. RSC § 130 : Contract not to be performed within a year

II. Is there promissory estoppel?A. Note: if there was an offer instead of a promise, RSC § 87 applies, and the

plaintiff can get expectation damages instead of just reliance damages.B. Elements

1. Was there a promise?2. Could the promisor reasonably expect the promisee to rely on that promise?3. Did the promisee actually rely on that promise?4. Will an injustice result if the court does not enforce the promise?

C. Cases and Restatement1. Baird : you cannot use promissory estoppel in subcontractor cases.2. Drennan : you can use promissory estoppel in subcontractor cases; this is

followed more often than Baird.3. Berryman : Reasonable reliance issue; time spent finding investors was not

consideration because that wasn’t something the buyer was expected to do.

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4. Pop’s Cones : perfect example of promissory estoppel (injustice and reliance). There was a clear promise requirement (higher than the RSC). There was also an invitation to rely.

5. Greiner : Moving your home based on a promise is sufficient consideration. There was an invitation to rely. The woman lost her home.

6. King : charitable subscription; didn’t follow RSC § 90(2). Most courts follow King in that they ignore RSC § 90(2). Focuses on reliance and if it was detrimental.

7. Katz : If you are induced to retire based on the promise of a pension and then the pension stops, you can recover based on promissory estoppel. The reliance was detrimental because, even though the employer could have fired Katz, they did not.

8. Shoemaker : a family who is required to carry insurance on the property can recover under the doctrine of promissory estoppel if the bank promised to obtain insurance and if the family relied on that promise by not buying insurance. The bank gave an implied promise (“might”). The family was left homeless, still paying off the mortgage.

9. Wright : A man made an implied promise to act as the boys father when he signed the birth certificate.

10. RSC § 90 : Promissory estoppelIII. Promissory Restitution

A. Test:1. Was there a promise?2. Was the promise made in recognition of a benefit previously received?

i. Material Benefit Rule: a moral obligation is sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit.

ii. Previous duty (expired debt, debt of a child, etc.)3. Would there be an injustice if the promise were not enforced?4. Exceptions

i. Gift/no unjust enrichmentii. Value of the benefit is disproportionate to the value of the promise

5. Casesi. Mills : moral obligation alone is insufficient consideration to make a

promise enforceable in this case because the father did not have a preexisting duty to pay the debt of his son, as his son was an adult.

ii. Webb : Material benefit rule: a moral obligation is sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit. Webb was acting within the scope of his employment.

iii. Harrington : A friend stops a wife with an axe from murdering her husband. The husband promises to pay for her medical costs. The husband fails to pay. His promise is not enforceable because the friend was a Good Samaritan with no intent to charge.

iv. Buffaloe : a personal check that was signed by the non-breaching party is not sufficient writing for the statute of frauds. Had the breaching party signed or endorsed the check, that would have been sufficient. It didn’t

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matter in this case because there was a Partial Performance Exception that was satisfied by the acceptance of the check.

IV. Is there any ambiguity in the contract?A. Are we trying to interpret the contract?

1. Methods of interpretationi. Subjective (Classical) : if the parties attributed materially different

meanings to contractual language, no contract was formed because there was no meeting of the minds.

ii. Objective : Words and conduct should be interpreted in accordance with the standard of a reasonable person familiar with the circumstances, rather than in accordance with the subject intention of either of the parties. The problem with the objective approach is that the court may give meaning to a word that neither of the parties intended or wanted.

iii. Modified Objective : This approach considers both the subjective and objective intent of each party:a. If both of the parties agree on the meaning of the language, the

language has the parties’ meaning.b. If both parties disagree, but one party knows or has reason to know

what the other party is thinking, the other party’s meaning prevails. Joyner(1) “Know” trumps “reason to know.”

c. If both parties disagree and neither party knows or has reason to know the other party’s perceived meaning, there is no contract

d. A party who seeks to interpret a contract’s ordinary terms in a narrower sense than is used in everyday trade has the burden of proof to establish that meaning. Frigaliment

2. Does the doctrine of reasonable expectations apply?i. The objectively reasonable expectations of people entering into an

adhesion contract regarding the non-negotiated terms will be honored. C & J Fertilizer

ii. Drafting party has reason to know that the other party wouldn’t agree to:a. Bizarre or oppressive terms.b. A standard term that negates a negotiated non-standard term.c. A standard term that goes against the purpose of the transaction.

3. Do any maxims of interpretation apply? (Note: these are not binding law)i. The meaning of a word in a series is affected by others in the same series

or context.ii. A general term joined with a specific term will be deemed to include only

things that are like the specific one.iii. If one or more specific items are listed, without any more general or

inclusive terms, other items although similar in kind are excluded.iv. An interpretation that makes a contract valid is preferred to one that makes

a contract invalid.v. If a written contract contains a word or phrase which is capable of two

reasonable meanings, one of which favors one party and the other of

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which favors the other, that interpretation will be preferred which is less favorable to the one by whom the contract is drafted.

vi. Interpret the contract as a whole.vii. Always look to the purpose and intent of the parties.viii. When two provisions of a contract are inconsistent, and one is general

enough to include the other, the specific provision is seen as an exception to the general one.

ix. Handwritten or typed provisions control printed provisions.x. If a public interest is affected by a contract, that interpretation is preferred

which favors the public interest.4. Parol evidence is always admissible for interpretation. Frigaliment

B. Are we trying to supplement the contract?1. The parol evidence rule may apply if the agreement is fully integrated:

i. Four Corners Approach : You may only look at the contract itself to determine if it is integrated. A merger clause would show complete integration. Thompson

ii. Contextual Approach : You must look at not just the contract but also at the context and surrounding circumstances (i.e. parol evidence). A merger clause is not necessarily representative of an integrated contract. Taylor

iii. Ranking of Terms (Nanakuli)a. Express termsb. Course of performancec. Course of dealingd. Usage of trade

iv. Trade usage and course of performance will be implied into contracts if there is evidence that it is not inconsistent with the terms of the contract, and they are so prevalent that the parties would have intended to incorporate them. Nanakuli

C. Are we trying to contradict the contract?1. No parol evidence will be allowed.

D. The parol evidence rule does not apply to…1. Evidence offered to explain the meaning of an agreement (interpretation).2. Agreements made after the execution of the writing.3. Evidence to show that effectiveness of the agreement was subject to an oral

condition precedent (i.e. I will only need your catering services if the Giants win the Super Bowl).

4. Evidence offered to show that the agreement is invalid for any reason. (But see Sherrod)

5. Evidence offered to establish a right to an equitable remedy (i.e. reformation of the contract to include the absent term).

6. Evidence introduced to establish a collateral agreement between the parties. (Thompson)

E. Cases and Restatements1. Joyner : Lease-development deal; ambiguity as to what “developed” meant;

modified objective approach to interpretation.

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2. Frigaliment : chicken case; parol evidence admitted to interpret term; party who wants the term used in a narrower sense than everyday use has the burden of proof.

3. C & J Fertilizer : burglary case; reasonable expectations doctrine4. Thompson : Four corners approach; there is nothing to imply that the contract

is not integrated, and a warranty was not included; parol evidence was inadmissible.

5. Taylor : insurance case in which the insurance company settled outside of policy limits; insured sues for breach of good faith; insurance says insured signed release that barred claim; court says admits parol evidence to interpret release and finds that release was narrow and didn’t include bad faith claim.

6. Sherrod : Construction case in which general gave subcontract incorrect information and refused to pay the subcontractor for work completed unless they signed the current contract; oral agreement to pay more; parol evidence inadmissible even for fraud.

7. Nanakuli : Price protection case; parol evidence admissible to see if contract was meant to contain price protection term. Express terms always control.

8. RSC § 213-14 : When is parol evidence admissible?9. RSC § 215 : No parol evidence to contradict express terms10. RSC § 216 : Supplementing the agreement11. RSC § 217 : Performance subject to occurrence of a stated condition12. RSC § 220-21 : What term governs?13. RSC § 222 : Usage of trade14. RSC § 223 : Course of dealing15. RSC § 206 : Interpretation against the draftsman16. RSC § 209-10 : Integration of agreements17. RSC § 211 : Adhesion contracts; doctrine of reasonable expectations; duty to

read18. RSC § 202 : Modified objective approach

V. Are there any implied terms or warranties in the contract?A. Although courts don’t like to imply terms, terms may be implied into a contract to

promote public policy and business efficacy. WoodB. Implied obligation of good faith

1. Rule: There is an implied covenant of good faith in every contract. However, it can be expressly avoided if there is an express term in the contract that says so.

2. How is good faith defined?i. Honesty in fact; subjective; UCC 1-201(19)ii. Observance of reasonable commercial standards; objective; UCC 2-103

3. How can you show breach of good faith?i. Attempts to recapture forgone opportunities.ii. Taking unfair advantage of another party.iii. Trying to achieve the objective of preventing the other party from

receiving its reasonably expected fruits under the contract.iv. Improper motive, even if the party’s actions might appear to be objectively

reasonable. Seidenberg

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4. The court will not read the term of good faith into a contract if it contradicts with the express terms of the contract

5. Is there a satisfaction clause in the agreement?i. Subjective standard : The person who has the final say can reject the final

product if the rejection is honest. This standard is often applied where personal aesthetics are at issue (i.e. a painting). There is still a requirement that the rejection be honest. Lockea. Does a person have absolute power under a satisfaction clause?b. Does a person have discretionary power under a satisfaction clause?

ii. Objective standard : The person who has the final say can only reject the final product if the rejection is honest and reasonable. This standard is often applied where utility is concerned (i.e. a warehouse). Morin

6. Cases and Restatementsi. Wood : Agent case; promise to use reasonable efforts is implied to make

contract enforceable and promote business efficacy.ii. Leibel : a dealer-distributor contract is for a sale of goods, so UCC applies;

requirement of reasonable notice of termination is required in distributorship contracts.

iii. Seidenberg : owners who sold firm in hopes of bigger profits; it is bad faith to enter into a contract with no intention of performing; parol evidence rule doesn’t apply to covenant of good faith because it is an implied, not an express term; both sophisticated parties

iv. Morin : warehouse with shiny siding; rejection under satisfaction clause must be honest and reasonable.

v. Locke : movie deal; rejection under discretionary satisfaction clause must be honest because the implied covenant of good faith applies.

vi. RSC § 205 : Duty of good faith in every contractvii. RSC § 228 : Satisfaction clauses (favoring the objective approach but not

ignoring the subjective approach)viii. UCC 2-309 : Reasonable time to terminate contracts

C. Is there a warranty?1. Express Warranty

i. There is no requirement that the seller intend to create an express warranty.

ii. An express warranty can take the form of:a. A fact or promise that becomes part of the basis of the bargain,b. A description of the goods, orc. A sample or a model

iii. Sales puffery is not an express warranty because it is not objective nor is it capable of being proven.

2. Implied Warranty of Merchantabilityi. Only applies to merchants.ii. In order for something to be merchantable it must:

a. Pass without objection in the trade,b. Be of fair, average quality.c. Be fit for the ordinary purpose for which it is used.

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3. Implied Warranty of Fitness for a Particular Purposei. The buyer must have relied on the seller’s judgment.ii. The goods must be unfit for the buyer’s particular purpose.iii. Seller must know of the particular purpose.

4. Other Warrantiesi. Housing Merchant Warranty (Caceci): applies to a housing merchant

(seller/developer)ii. Implied Warranty of Habitability: focuses on the end result, that the house

will have no major defects that make it uninhabitable (i.e. patio probably doesn’t fall into this category).

iii. Implied Warranty of Skilled Construction: may include defects that don’t necessarily make a house uninhabitable (i.e. a patio).a. Disclaiming is difficult – it must be conspicuous, specific, and the

result of a mutual agreement.iv. Some courts have refused to apply housing warranties to non-merchants

who sell homes.5. Disclaiming Warranties

i. To disclaim an express warranty, the disclaimer must be consistent with the terms of the contract that create the express warranty. This disclaimer is subject to the parol evidence rule.

ii. To disclaim the implied warranty of merchantability, the language must mention “merchantability” and the writing must be conspicuous.

iii. To disclaim the implied warranty of fitness for a particular purpose, the writing must be conspicuous, but it doesn’t have to be as specific as the disclaimer of the implied warranty of merchantability.

6. Cases and Restatementsi. Bayliner Marine : boat case; man buys boat that is very different from the

sample; says seller breach warranties (implied and express); sales puffery is not a warranty and the item was merchantable; the seller didn’t know of the buyer’s particular purpose.

ii. Caceci : bad home foundation case; there is an implied warranty of skilled construction in every building contract; actual knowledge of defect isn’t necessary.

iii. UCC 2-313 : Express warrantiesiv. UCC 2-314 : Implied warranty of merchantabilityv. UCC 2-315 : Implied warranty of fitness for a particular purposevi. UCC 2-316 : Relevant phrasing of warranties; disclaiming warranties

VI. Can one party avoid enforcement?A. Is the contract void or voidable for any reason?

1. Is the breaching party a minor?i. Rule: A contract with a minor is voidable by the minor.ii. Rules for Damages

a. Traditional: The minor has no obligation to compensate the other contracting party absent a showing of misrepresentation or willful destruction.

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b. Use Rule: The minor must pay for the use or depreciation of the item (Subtract the amount the item is worth after the minor is done with it from the amount it was worth when the minor bought it)

c. Benefit Rule: The minor has to pay for any benefit received (For example, see how much it would have cost Dodson to rent a similar truck for that period of time).

iii. Exceptions to minority doctrine:a. A minor is always liable for the reasonable value of necessaries (things

required to survive).b. A minor is not liable if a contract is unfair or if the adult takes

advantage of the minor.c. A minor who misrepresents his age may still disaffirm but may be

found liable for a tort action of fraud.iv. Ignorance of age is no defense. There are low transaction costs for finding

a minor’s age.v. Cases and Restatements

a. Dodson : a minor buys a truck, neglects to repair it when instructed to do so, then when the engine dies, leaves the truck in his yard where it gets hit; minor wants to get out of contract with no obligations; court allows rescission but follows benefit rule.

b. RSC § 14 : Minority doctrine2. Is the breaching party mentally incapacitated?

i. Rule: A mentally incapacitated victim may void a contract as long as it is not unfair to the other party.

ii. Tests for mental incapacity:a. Cognitive test: a person lacks capacity to enter into a contract if the

person is unable to understand the nature of the transaction or its consequences.

b. Volitional test: a person lacks capacity to enter into a contract if the person is unable to act in a reasonable manner in the transaction and the other party has reason to know of the condition.

iii. There is a presumption of competency. However, if a person’s property is under conservatorship, the person is incompetent.

iv. Compensationv. Cases and Restatements:

a. Hauer : a contracting party exposes itself to a voidable contract where it is put on notice or given a reason to suspect the other party’s incompetence, such as would indicate to a reasonably prudent person that inquiry should be made of the party’s mental condition.

b. RSC § 15 : Mental incapacity3. Was the non-breaching party under duress at the time of agreement?

i. Physical duressa. Rule: A contract made under physical duress is void.

ii. Economic duress

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a. Rule: A contract under economic duress (or an improper threat) is voidable, and may be ratified by the victim either explicitly or implicitly.

b. Elements:(1) A wrongful or improper threat (RSC § 176)(2) A lack of a reasonable alternative (RSC § 175 comment b)(3) Actual inducement of the contract by the threat (RSC § 175

comment c)(I) Subjective standard: most common; victim was actually

induced by threat.(II) Objective standard: a person of ordinary firmness and courage

would have been induced by the threat.(4) Cause of hardship:

(I) Other party must have caused the hardship of the victim.(II) It is enough that the other party knows of and takes advantage

of the hardship.iii. Cases and Restatements

a. Totem Marine : Alyeska threatened to withhold acknowledged payment to Totem Marine until the latter went bankrupt.

b. RSC § 174 : Physical duressc. RSC § 175 : Economic duress (or duress with improper threat)d. RSC § 176 : When a threat is improper

4. Was the non-breaching party under undue influence at the time of agreement?i. Rule: A contract made under undue influence is voidable by the victim.ii. Elements:

a. Excessive pressure by the dominant party,b. Weakness of mind by the subservient party.c. Substitution of the dominant party’s will for the subservient party’s

will.d. Either by:

(1) Sheer dominance of will, or(2) Virtue of the relation between the parties such that the subservient

party is justified in assuming that the dominant party will not act in a manner inconsistent with the subservient party’s welfare.(I) Parent/child(II) Teacher/student (depends on age and level of power)(III) Doctor/patient(IV) Attorney/client

iii. Odorizzi Factors:a. Unusual or inappropriate timeb. Unusual placec. Insistence on finishing at onced. Extreme emphasis on untoward consequences of delaye. Multiple dominant parties against one subservient partyf. Absence of third-party advisors to subservient party

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g. Dominant party tells subservient party that there is no time to consult any advisors

iv. Cases and Restatementsa. Odorizzi : there are seven factors to consider for undue influence; man

was under undue influence when he tendered his resignation because they came to his house in the middle of the night after he had been released from jail (no sleep for 48 hours); they said he had no time to consult an attorney; threatened to publicize arrest

b. RSC § 177 : Undue influence5. Did the non-breaching party misrepresent the agreement?

i. Rule: A contract is voidable if the manifestation of assent is induced by a fraudulent or material misrepresentation.

ii. Elements:a. Misrepresentation must be either:

(1) Fraudulent, or(I) The maker intends his assertion to induce a party to manifest

his assent, and(II) The maker:

(a) Knows or believes that the assertion is not in accord with the facts, or

(b) Does not have the confidence that he states or implies in the truth of the assertion, or

(c) Knows that he does not have the basis that he states or implies for the assertion.

(2) Material(I) It would be likely to induce a reasonable person to manifest his

assent, or(II) The maker knows that it would be likely to induce the recipient

to do so.b. Misrepresentation must induce (substantially contribute to) the

manifestation of assent. (But-for test)c. Party is justified in relying on misrepresentation.d. If the fraudulent or material misrepresentation was made by a third-

party to the transaction on which the party is justified in relying, the contract is voidable unless:(1) The third-party (in good faith and without reason to know of the

misrepresentation) either gives value or relies materially on the transaction.

iii. Was this a representation or an opinion?a. An opinion expresses only a belief, without certainty, as to the

existence of a fact or expresses only a judgment as to quality, value, authenticity, or similar matters.

b. An opinion becomes an assertion (that the facts known to the expressing party are not incompatible with his opinion, or that the expressing party knows sufficient facts to justify forming an opinion) if:

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(1) It is reasonable to rely on the opinion, and(2) The opinion is about facts not disclosed and not otherwise known

to the recipient, c. A person is justified in relying on an opinion if:

(1) The person asserting the opinion and the recipient are in a confidential relationship, or

(2) The recipient believes that the person asserting the opinion, as compared to himself, has a special skill or judgment with respect to the matter, or

(3) The recipient is, for some special reason, particularly susceptible to this type of misrepresentation.

iv. Types of Damage Rules:a. Benefit of the bargain rule: the difference between the misrepresented

value of the bargain and the true value of the bargain.b. Out of pocket rule: the difference between what was paid for the goods

and what the goods were actually worth.v. Cases and Restatements

a. Syester : A release agreement that is procured from fraudulent misrepresentation or overreaching will not be enforced; Mrs. Syester was induced into purchasing dance lessons and signing a release by being told she could become a professional dancer.

b. RSC § 162 : When a Misrepresentation Is Fraudulent or Materialc. RSC § 164 : When a Misrepresentation Makes a Contract Voidabled. RSC § 167 : When a Misrepresentation Is an Inducing Causee. RSC § 168 : Reliance on Assertions of Opinionf. RSC § 169 : When Reliance on an Assertion of Opinion Is Not justified

6. Did the non-breaching party fail to disclose something it had a duty to disclose?i. When is an omission regarding a known fact the equivalent of an

assertion?a. Where the non-disclosing party knows that disclosure of the fact is

necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material, or

b. Where the non-disclosing party knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing, or

c. Where the non-disclosing party knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.

d. Where the other person is entitled to know the fact because of a relation of trust and confidence between them.

ii. Continue with misrepresentation analysis.iii. What are the elements of fraud?

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a. Material misrepresentation of past or existing fact by the party charged,

b. Is false,c. The party or knew or should have know it was false,d. The harmed party relied on the misrepresentation,e. The reliance on the misrepresentation proximately caused the

complaining party’s injuryiv. Is there a disclaimer or merger clause?v. Fairness Factorsvi. Cases and Restatements

a. Hill : Where sellers to a home are aware of facts materially affecting the value of the property, the sellers are under a duty to disclose such facts.

b. Park 100 : The personal guaranty is not enforceable because Defendant’s signature on the guaranty was induced by fraud. While the general rule is that a person is bound by his signature, where the signature is procured by fraud, the defrauded party will not be bound.

c. RSC § 161 : When Non-Disclosure Is Equivalent to an Assertion7. Is the agreement unconscionable?

i. Elementsii. Cases and Restatements

B. Is there a reason to justify nonperformance?1. Was there a mistake?

i. Unilateral?ii. Bilateral?iii. Cases and Restatements

2. Have the circumstances changed?i. Impossibilityii. Impracticabilityiii. Frustration of Purposeiv. Cases and Restatements

3. Is one party trying to modify the contract?4. Cases and Restatements

VII. Is the person who is suing a third-party to the contract?A. What type of beneficiary are they?

1. Intended:2. Incidental:

B. What intent is necessary?1. Strict approach (Restatement): Both the promisor and the promisee must

intend to give the third party rights under the contract2. Flexible approach (Vogan): only the promisee must intend to benefit the third

party.3. Modified approach (Grigerik): The promisor must know or at least have

reason to know of the promisee’s intent to benefit the third party, even if the promisor has no particular desire to confer a benefit on or create an obligation to the third person.

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C. Did the promisee discharge or modify the duty to the beneficiary?D. Is this an assignment or a delegation?

1. Assignment: the person who has a right assigns the right to a third party.i. Once you assign (transfer) the right, you no longer have control over it

(i.e. you assign a portion of a settlement to a creditor; you cannot get that money).

ii. The assignor must have the intent to relinquish control.2. Delegation: a person who has a duty to perform under a contract delegates the

duty to another but retains liability.i. Duties for contracts for person services cannot be delegated:

a. What is the nature of the work?b. Why did the contracting party choose to work with the other party?

(1) Taste?(2) Skill?

ii. Duties for contracts for the sale of goods can be delegated.E. Cases and Restatements

VIII. What are the consequences for nonperformance?A. Express conditions

1. Traditional approach: you have to perform all express conditions in the contract; express conditions should not be ambiguous.

2. Modern approach:i. If the breach of the express condition is a total breach, the other party can

sue and withhold performance.ii. If the breach of the express condition is a material breach, the other party

can sue and suspend performance.iii. If the breach of the express condition is a partial breach, the other party

can sue but cannot suspend performanceiv. Factors to consider:

a. Magnitude of the breachb. Effect on the other partyc. Likelihood that the breach will be cured

3. Express condition: a term written into the contract that states that one or both of the parties’ duty to perform depends on some other event or occurrence. The contract is still enforceable; performance is just not due until the occurrence of the condition.i. Can be termed as both a promise and an express conditionii. The condition may or may not be in any party’s controliii. Nonoccurrence of the condition may excuse performance.iv. Language that creates an express condition:

a. If; unless and untilb. Failure of condition will cause agreement to be “of no further force or

effect”c. “Neither party shall have any rights against nor obligation to the other”

4. Constructive conditions: a condition implemented by the court as a way to further the underlying intentions of the parties.

5. Condition versus Promise

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i. Conditions require strict performance; promises are subject to substantial performance.

ii. When ambiguous, it is presumed to be a promise6. Obligor: the one who is obligated to performance.7. Nonperformance can be excused when:

i. The obligee wrongfully prevents the condition from occurring.ii. The occurrence is within the obligor’s control, and the obligor does

nothing to cause the condition to occur (Lady Duff Gordon).8. Cases and Restatements

i. RSC § 235ii. RSC § 227iii. RSC § 225iv. RSC § 245v. Oppenheimer : absent a risk of forfeiture, substantial performance does not

excuse the nonperformance of an express conditionvi. JNA Realty : a party can be excused for nonoccurrence of express

condition when the following three are present: actual forfeiture, honest/good faith mistake, and no prejudice to other party.

B. Material BreachC. Anticipatory repudiation and adequate assurances of performance

IX. How much in damages can the non-breaching party get?A. Damages are almost always monetary.

1. Restitution damages : non-contract, unjust enrichment; puts the unjustly enriched party back in the position it was before the unjust enrichment

2. Reliance damages : in contract and in non-contract; promissory estoppel cases; puts the non-breaching party back in the position he would have been in had the promise never been made

3. Expectation damages : common contract remedy; puts the non-breaching party in the position he would have been in had the contract been fully performed; almost always the best remedy

4. Is this a highly unique scenario that justifies specific performance?B. How do we compute expectation damages?

1. What did the non-breaching party lose, or not get (loss in value)?2. (+) Were there any other incidental or consequential losses to the non-

breaching party (i.e. interest)?i. You almost always get incidental damages.ii. You almost never get consequential damages.

3. (-) Were any costs avoided?i. If the seller didn’t sell the car, the buyer didn’t have to pay. That is a cost

avoided.C. What are the other ways to compute damages?

1. In real estate?2. In construction?3. In employment contracts?4. Economic Waste

D. What are the limitations on expectation damages?

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1. Foreseeability2. Certainty3. Causation4. Duty to Mitigate Damages

E. Cases and Restatements1. RSC § 3442. RSC § 3473. RSC § 3484. RSC § 3515. RSC § 3526. UCC § 2-7157. Roesch v. Bray8. Handicapped Children’s Education Board v. Lukaszewski9. American Standard v. Schectman10. Peevyhouse v. Garland Coal & Mining Co.11. Hadley v. Baxendale12. Florafax International v. GTW Market Resources13. Rockingham County v. Luten Bridge Co.14. Havill v. Woodstock Soapstone Co.15.

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