K Final Outline [Cheng] (Waleed Amer)

8/2/2019 K Final Outline [Cheng] (Waleed Amer)

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Concept of a Contract & Its Underlying Policies

What is a contract? A contract is an agreement that the law will enforce.

1:A contract is a promise for the breach of which the law gives a remedy, orthe performance law recognizes as a duty.

2:A promise is a manifestation of intent to act or forebear, made sopromisee understands a commitment has been made.

Elements:1. Offer: Manifestation of willingness to enter into a bargain, which justifies

another person in understanding that his assent can conclude the bargain. Inother words, an offer is something that creates a power of acceptance.

2. Acceptance: A manifestation of assent to the terms thereof made by theofferee in a manner invited or required by the offer.

3. Consideration: Something of legal value which is bargained for exchangeand is either a detriment to the promisor or a benefit to the promisee

Unilateral v. Bilateral Contracts: An offer may propose either a bilateral or a unilateralcontract.

1. Unilateral Contract: One that involves an exchange of the offerors promisefor the offerees act. That is, in a unilateral contract the offeree does notmake a promise, but instead simply acts.

2. Bilateral Contract: A contract in which both sides make promises (Aproposing to exchange his promise for Bs promise).

Perspectives of Law:1. A lawyer2. A judge3. A policy-maker4. A legislator

Main Policy Considerations:1. Stability of Relations2. Freedom to Contract3. Equity and Fairness (Social and Economic)

I. CONTRACT THEORYCONTRACT:

Rule: To be deemed a contract, a set of promises must consist of an offer,acceptance and consideration

Authority:


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Bailey v. West: (THE HORSE CASE)o Rule: A person may not be held liable for the value of services he

never requested or wanted.o Facts/Holding: Implied-in-fact contract is formed by manifestation

of assent, other than language. Intention can be proved by words

and/or conduct. No implied in fact contract b/c no agreement since hedidnt know whom he was making a contract with; no intent from ;no previous dealings. No quasi contract. Quasi contract is not acontract. Created by courts to avoid unjust enrichment (to do justice),although the parties did not intend to be bound. Permits to recoverthe benefit of the received. It requires:

A benefit conferred upon the by. ( did not want horse) Appreciation by of such benefit, and ( did not know) Retention by of such benefit without payment of value

thereof ( suffered detriment, but received no benefit) Generally, there is no legal duty to pay compensation for

performance rendered without request thereof. ( did notrequest, volunteered)

Bolin Farms v.Am. Cotton Shippers Assn: (COTTON CONTRACT)o Rule: A promise is a manifestation of intention. When contracting

parties intend to be bound, the validity and enforceability of thecontract will be upheld regardless of unforeseen events (parties werewell informed of the risks when entering into the contract).

o Facts/Holding: Court held that the contracts were enforceable anddenied rescission. Contracts for cotton were disrupted by pricefluctuation, but the court held that whatever caused the pricefluctuation after the contracts were executed was not relevant to the

validity of the contracts. The court rejected the doctrine ofimpracticability.

II. CONTRACT FORMATION

OFFER:

Rule:A clear and definite manifestation of the willingness to enter into a bargain

Objective Standard: Would a reasonable person see this as an offer Offer must create an immediate power of acceptance for the offeree

Authority:

24: Offer Definedo An offer is the manifestation of willingness to enter into a bargain, so

made as to justify another person in understanding that his assent tothat bargain is invited and will conclude it.

Lonergan v. Scolnick: (LAND SALE BY MAIL)o Rule: No offer if offeree knows or has reason to know that offer

doesnt intend to conclude bargain until offeror makes further


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manifestation of assent. Generally ads are not offers, you would havethe burden to prove they are. Terms must be reasonably certain, if not NO OFFER.

o Facts/Holding: The letter didnt constitute an offer no contract Lefkowitz v. Great Minneapolis Surplus Store: (FUR COAT)

o

Rule: Where the offer is clear, definite, and explicit, and leavesnothing open for negotiation, it constitutes an offer, acceptance ofwhich will complete the contract.

o Facts/Holding: The ad constituted an offer, and s showing upconstituted acceptance contract

Leonard v. Pepsicola, Inc.: (IDIOT, HARRIER JET)o Rule: It is possible to make an offer by an ad directed to the general

public, but there must be some language of commitment or someinvitation to take action without further communication.

o Facts/Holding: No reasonable person would have concluded that Pepsiwas giving away a Harrier Jet

Rule:Offers made can be revoked at some point before acceptance, therebydestroying the power of acceptanceAuthority:

24: Offer Definedo Comments Section: In the normal case of an offer of an exchange

of promises, or in the case of an offer of a promise for an act, theoffer itself is a promise, revocable until accepted.

*Unilateral Contract: The offeree accepts the offer by acting (i.e.by selling a house)

Acceptance by performanceIRREVOCABLE OFFERS:

Rule: Once an offer is made, the offeree has the power to accept according to theterms of the offer, and the offeror cant revoke the offer, except under terms of

revocation (option contracta contract to contract)

An offer becomes irrevocable:o After the offeree accepts the offero For option contracts (contract to keep offer open) the offer being

kept open is irrevocable for the time statedo For unilateral contracts once the offeree begins to perform

(because this deems acceptance)Authority:

25: Option Contractso An option contract is a promise that meets the requirements for the

formation of a contract and limits the promisors power to revoke anoffer.

36: Methods of Termination of the Power of Acceptanceo (1) An offerees power of acceptance may be terminated by


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(a) Rejection or counter-offer by the offeree, or (b) Revocation by the offeror, or (c) Lapse of Time, or (d) Death or incapacity of the offeror or offeree.

o (2) In addition, an offerees power of acceptance is terminated by thenon-occurrence of any condition of acceptance under the terms of theoffer.

Humble Oil v. Westside Investment Corp.: (OPTION K SAVES OFFER)o Rule: Where there is an irrevocable offer, a counter-offer does not

reject the original offero Facts/Holding: The option contract is not itself, the offer, it is simply a

contract to ensure that the offer for the sale of real estate (in this case)remained openthe counter-offer made didnt terminate the originaloffer because that was irrevocable due to the option contract

James Baird Co. v. Gimbel Brothers, Inc.: (NO K, NO PE, SORRYBAIRD!)

oRule: Offers made can be revoked at some point before acceptance

o Facts/Holding: No contract existed in this case because the offer wasnot irrevocable and the supplier revoked before acceptance

Offer was not irrevocable because there was no option contractnor was there a unilateral offer (acceptance by performance)

Drennan v. Star Paving Co.: (BIDS, REASONABLE RELIANCE, PE)o Rule: A bid is a revocable offer until accepted, and the reliance of the

bid by the offeree is not considered acceptance of the bido Facts/Holding: In this case, there was no actual contract because

revoked its offer (the bid), but the court awarded judgment to usingpromissory estoppel (detrimental reliance on the bid by )

ACCEPTANCE:

Rule:Manifestation of assent to the offer

Common Law: Must mirror the offer (Mirror Image Rule) One can accept an offer in the way in which the offer says one can accept

o If not explained in offer, one can accept by any reasonable meansACCEPTANCE BY PROMISE OR PERFORMANCE:

Authority:

30: Form of Acceptance Invitedo (1) An offer may invite or require acceptance to be made by an

affirmative answer in words, or by performing or refraining fromperforming specified act, or may empower the offeree to make aselection of terms in his acceptance.

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


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38: Rejectiono (1) An offerees power of acceptance is terminated by his rejection of

the offer, unless the offeror has manifested a contrary intention.o (2) A manifestation of intention not to accept an offer is a rejection

unless the offeree manifests an intention to take it under further

advisement. 41: Lapse of Time

o (1) An offerees power of acceptance is terminated at the timespecified in the offer, or, if no time is specified, at the end of areasonable time.

o (2) What is a reasonable time is a question of fact, depending on all thecircumstances existing when the offer and attempted acceptance aremade.

o (3) Unless otherwise indicated by the language or the circumstances,and subject to the rule stated in 49, an offer sent by mail is reasonablyaccepted if an acceptance is mailed at any time before midnight on the

day on which the offer is received. La Salle National Bank v. Vega: (OFFEROR IS MASTER OF OFFER)

o Rule: An offeror has complete control over an offer and may conditionacceptance to the terms of the offer. Where an offer requires a writtenacceptance, no other mode may be used.

o Facts/Holding: The offer here specified the terms of acceptance. NOSIGNATURE NO ACCEPTANCE.

Hendricks v. Behee: (ACCEPTANCE MUST BE COMMUNICATED)o Rule: Until acceptance is communicated to offeror, offeror has power

to revoke offer.o Facts/Holding: If offer is withdrawn before purported acceptance, then

there is no K. As a general rule, the offeror has to be notified ofacceptance for it to act as acceptance.

Ever-Tite Roofing Corp. v. Green: (START OF PERFORMANCE =ACCEPTANCE)

o Rule: If terms of offer state that commencement of performanceconstitutes acceptance, then as soon as performance begins, the offerhas been accepted

o Facts/Holding: Letting the contractor know when he showed up wasnot an adequate notice of withdrawal. The offeror has the burden ofmaking the terms of acceptance clear. Offer was still on the table;contractors loading of the trucks was acceptance.

Carlill v. Carbolic Smoke Ball Co.: (BUYING BALL = ACCEPTANCE)o Rule: If the person making the offer, expressly or implicitly indicates

in his offer that it will be sufficient to act on the proposal withoutcommunicating acceptance of it to himself, performance of thecondition is a sufficient acceptance without notification.

o Facts/Holding: The offer didnt explicitly state terms for acceptance sothe court decided that using the ball as directed (which didnt work,


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contracted the flu) constituted acceptance of the offer stated in the ad valid contract

ACCEPTANCE BY CONDUCT OR SILENCE & TIME FORACCEPTANCE:

Authority:

69:Silence of Inactiono Can operate as acceptance only if:

(1) Offeree takes the benefit when he had a chance to reject it,and knew offeror expected compensation, or

(2) Offeror has stated or given offeree a reason to believe thatsilence can act as acceptance, or

(3) Because of previous dealings, it is reasonable for offeree tonotify offeror if he intends not to accept.

Russell v. Texas Co.: (ACCEPTANCE BY SILENCE)o Rule: Where the offeree exercises dominion over things that are

offered to him, such exercise of dominion in the absence of othercircumstances showing a contrary intention is an acceptance. Ifcircumstances indicate that the exercise of dominion is tortious, thenthe offeror may at his option treat it as an acceptance, even though theofferee manifests an intention not to accept.

o Facts/Holding: Texas continued to use land after Russell presented anoffer stating that if they continued to use it, they would be acceptinghis offer. The court deemed that this silence (doing what Texas hadalways been doing) constituted acceptance and created a K.

Ammons v. Wilson & Co.: (ACCEPTANCE BY CONDUCT)o Rule: Silence can constitute acceptance when past dealings provide a

basis to understand that to amount to acceptance.o Facts/Holding:Wholesale grocer and meatpacker always did business.

Orders were subject to acceptance.

Adams v. Lindsell: (MAILBOX RULE)o Rule: Acceptance is effective the day you dispatch the acceptance in

the mail, not when it reaches the offeror and even if it NEVER reachesthe offeror

o Facts/Holding: s mailed acceptance to offer to sell fleeces. received it later than they expected, but it didnt matter. Acceptancewas valid as soon as it was mailed.

COUNTEROFFERS AND BATTLE OF FORMS:

Rule: Under Common Law, the offerees response operates as an acceptance only ifit is the precise mirror image of the offer (Mirror Image Rule).


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If the response conflicts at all with the terms of the offer, or adds newterms, the purported acceptance is in fact a rejection and counter offer,not an acceptance.

Authority:

2-207: Additional Terms in Acceptance or Confirmationo (1) A definite and seasonable expression of acceptance or a writtenconfirmation that is sent within a reasonable time operates as anacceptance even though it states terms additional to or different fromthose offered or agreed upon, unless acceptance is expressly madeconditional on assent to the additional or different terms.

o (2) The additional terms are to be construed as proposals for additionto the contract. Between merchants such terms become part of thecontract UNLESS:

(a) The offer expressly limits acceptance to the terms of theoffer;

(b) They materially alter it; or

(c) Notification of objection to them has already been given

within a reasonable time after notice of them is receivedo (3)Conduct by both parties that recognizes the existence of a contract

is sufficient to establish a contract for sale although the writings of theparties do not otherwise establish a contract. In such case the terms ofthe particular contract consist of those terms on which the writings ofthe parties agree, together with any supplementary terms incorporatedunder any other provisions of this Act.

Minneapolis & St. Louis Ry. Co. v. Columbus Rolling-Mill Co.: (MIRRORIMAGE RULE)

oRule: When acceptance includes terms not in the original offer, it isconsidered a counter-offer that destroys the original offer and makesacceptance of that original offer impossible (Common Law)

o Facts/Holding: The first acceptance added a term not included in theoriginal offer, therefore deeming it a counter-offer, rejecting theoriginal offer and closing negotiations between the parties Noacceptance of original offer, no K.

DTE Energy v. Briggs Electric: (ACCEPTANCE WITH OLD TERMS)o Rule: An acceptance with additional terms is a valid acceptance but

the terms those of the original offer (2-207(1))o Facts/Holding: had accepted offer with an additional terma forum

selection clause, but the court deemed this to not be part of the contractbecause the terms are the terms of the original offer (which didntinclude the selection clause)

Textile Unlimited, Inc. v. BMH & Co.: (ARBITRATION NOT INCLUDED)o Rule: Acceptance with new terms requires the original offeror to give

specific and unequivocal assent to the supplemental terms...(contractdepends on whether acceptance was conditional on original offerorsassent)(2-207(1))


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o Facts/Holding: accepted with an additional arbitration clause andconditioned the acceptance on s assent to the new terms nevergave specific and unequivocal assent to the supplemental terms so thearbitration clause never became a term.

BUT their conduct established contract anyway (2-207(3)) Hill v. Gateway: (GATEWAY = OFFEROR)o Rule: The seller, as the party in control of the offer, may invite

conduct and impose limitations on the kind of conduct that constitutesacceptance. (Common Law)

o Facts/Holding: Gateway was the seller, therefore in control of theofferthe arbitration clause was included in its offer, and the Hillshad the chance to decline the offer after inspecting the product byreturning it within 30 daysthey kept it past that time, and thereforeaccepted the offer from Gateway.

Klocek v. Gateway: (KLOCEK = OFFEROR)o Rule: Acceptance with new terms requires the original offeror to give

specific and unequivocal assent to the supplemental terms...(contractdepends on whether acceptance was conditional on original offerorsassent)(2-207(1))

o Facts/Holding: The court disagreed withHilland deemed Klocek theofferor and Gateway the offeree in this caseGateway accepted withadditional terms (arbitration clause) and Klocek didnt give specificand unequivocal assent to the new terms, therefore they do not becomepart of the contract

Gateway didnt make theiracceptance with the additional termconditional upon the offerors (Kloceks) assentand Kloceknever gave specific and unequivocal assentcontract with

original terms *These 2 Gatewaycases are similar situationsin one court Gateway was

the offeror and in the other it was the offereethe rules applied differentlyto the facts deemed 2 opposite outcomes

CONSIDERATION:

Rule:Something of legal value which is bargained for exchange and is either adetriment to the promisor or a benefit to the promisee

Elements of Consideration:o Bargain for exchange (give me this and Ill give you that)o Legal valueo Detriment to promisor or benefit to promisee

Each party has to give the other considerationeach party is both apromisor and a promisee and each one will suffer a detriment and receivea benefit

o 2 promisors, 2 promisees 2 sets of considerationbargained for Nominal Consideration: given in name onlyNOT consideration

Authority:


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Kirskey v. Kirskey: (A GIFT AINT CONSIDERATION BITCH)o Rule: There is no contract where there is no bargained-for

considerationo Facts/Holding: invited to move into house on farmafter she did

he required them to leavedidnt bargain to get some act or promise

from he suffered detriment/she received benefit, she suffered nodetriment/he received no benefittherefore there was noconsideration and no contract

o Policy: Promissory Estoppel could have been used here had it been inexistence.

Hamer v. Sidway: (NOT GETTING HAMERED)o Rule: The forbearance of something that one has a legal right to do, is

sufficient consideration to uphold a promiseo Facts/Holding: Uncle promised nephew $5K if he stopped drinking

and smoking until he was 21the court deemed the forbearance ofthese rights sufficient consideration.

Langer v. Superior Steel Corp.: (HERES $100,DONTWORK US)o Rule: Tests of good consideration ask whether the promisee, at theinsistence of the promisor, has done, forborne, or undertaken to doanything real; whether he has suffered any detriment; or whether inreturn for the promise he has done something he was not bound to door has promised to perform some act or has abstained from doingsomething.

o Facts/Holding: Steel Corp promised Langer $100 a month for the restof his life if he wasnt employed in any competitiveoccupationbecause the promisee (Langer) refrained from his legalright to seek other employment (which was beneficial to Steel) he

suffered a detriment and the court deemed sufficient consideration tosupport a contract (not just a gift)

Jara v. Suprema Meats: (CANT TALK DOWN TO A COP JARA)o Rule: There is no contract where there is no bargained-for

considerationo Facts/Holding: Phone conversation where son stated that going

forward all 3 officers would agree on compensation increases was notconsidered sufficient consideration for a contract because it wasntbargained for (it was simply gratuitous)

Thomas v. Thomas: (TOM, YOUR WIFE AINT WORTH $1)o Rule: The courts may not inquire into the amount or adequacy of

consideration, but only its sufficiency (consideration does not need tobe adequate)o Facts/Holding: Husband desired to leave wife the houseshe paid the

executors 1 pound a year in exchange for the house, so the courtdeemed there to be sufficient consideration to form a contract.

o *This is thecommon lawrule 71 states that nominalconsideration is not bargained-for consideration and is therefore


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insufficient to sustain a contract (i.e.71 were applied to this case,the 1 pound a year would be insufficient consideration)

Browning v. Johnson: (TEDDY BROWNING PAID IKE LOVE JOHNSONTO NOT TAKE PHOTOS)

o Rule: The relative values of a promise, and consideration for it, do notaffect the sufficiency of consideration.

o Facts/Holding: Browning offered Johnson $40K to cancel a contract ofsalethe court deemed that Johnsons forbearance of accepting thesale contract was sufficient consideration because he gave up hiscontractual rights.

Apfel v. Prudential-Bache Securities, Inc.: (STILL CONSIDERATION IFAP FAILS)

o Rule: Contracting parties are free to make their bargain even if theconsideration exchanged is of dubious value or grossly unequal

o Facts/Holding: sold idea of computerizing the selling of municipalbonds to and tried to patent them until he noticed that the rest of

the industry was using them toocourt deemed that believed theideas had value, therefore they were considered to have legal value andconstituted sufficient consideration

Jones v. Star Credit Corp.: (KEEPIN UP WITH THE JONES)o Rule: 2-302: Unconscionability

(1) If the court as a matter of law finds the contract or anyclause of the contract to have been unconscionable at the timeit was made the court may refuse to enforce the contract, or itmay enforce the remainder of the contract without theunconscionable clause, or it may so limit the application of anyunconscionable clause as to avoid any unconscionable result.

oFacts/Holding: The Jones, who were on welfare, were sold a $300freezer for $1200 (with interest)the court deemed the price value inthe contract to be unconscionable and alleviated the Jones of the restof their payment.

o Policy: The dilemma is preserving the integrity of contracts on the onehand and concern for the uneducated and illiterate on the other. The2-302 confronts this dilemma based on a principle ofprevention ofoppression and unfair surprise. Some determining factors are valuedisparity, inequality of bargaining power and knowledge by the sellerof the buyers limited financial resources. These factors dictate thedetermination ofunconscionability in the present case.

In re Green: (AL GREEN HAD AFFECTION, BUT THAT AINT LEGALVALUE)

o Rule: Consideration which has no legal value will not serve asconsideration when nothing good or valuable was actually given

o Facts/Holding: Man had an affair with woman and promised her thathe would give her money for all different things (house, apartment,etc.) in exchange for $1, past cohabitation, and other good and pastconsiderationthe court deemed none of these to be sufficient


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consideration$1 is nominal (no proof it was given), affection has nolegal value and past performance is never consideration

Fiege v. Boehm: (YOU ARE NOT THE FATHER DANCE)o Rule: Forbearance to an invalid claim is not sufficient consideration

unless the claim was made in good faith

o

Facts/Holding: Fiege promised to pay child support as long as Boehmdidnt bring charges of bastardy against himblood test proved hewasnt father and he stopped payingcourt deemed that because shedidnt know the claim was invalid at the time, her forbearance to makethe claim was sufficient consideration for his promise to pay

o Policy: The rationale for this decision, where nothing of value is reallygiven up as consideration for the Fieges promise, is public policy. Thepolicy is to encourage settlement of lawsuits on an amicable basis;this promotes agreement between the parties and saves the public thetime and expense of lawsuits.

PREEXISTING DUTY RULE:

Rule: The performance or the promise to perform a preexisting duty does notconstitute consideration

Where you have an existing contract, any modification not supported bynew consideration is not enforceable, so the original contract stands

Policy:Courts have succeeded at getting around this rule by interpreting facts tofind that there was new considerationAuthority:

Levine v. Blumenthal: (o Rule: Subsequent agreements, to impose the obligation of a contract,

must rest upon new and independent considerationo Facts/Holding: Levine leased store property to Blumenthal for 2

yrsrent went up after first year and they then agreed that he couldpay the same rate as first year until business improvedcourt deemedthat an agreement to alter the terms of a preexisting agreement withoutany additional consideration is not a contracteconomic difficultiesare not consideration to support a new promise

Alaska Packers Association v. Domenico: Example of Hold-Up Gamemodification is procured by duress or coercion

o Rule: Subsequent agreements, to impose the obligation of a contract,must rest upon new and independent consideration

o Facts/Holding: Parties entered contract to go to Alaska for fishingseasonwhen they got there the workers refused to work unless theywere paid morethe court deemed that the consent by the supervisorto the demands of the workers was without consideration because itwas based solely upon the workers agreement to render the exactservices they were already under contract to render (workers hadpreexisting duty to perform the same tasks) no new contract

Angel v. Murray:


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o Rule: 89:Modification of Contract A promise modifying a duty under a contract not fully

performed on either side is binding if the modification is fairand equitable in view of the circumstances not anticipated bythe parties within the contract

If the parties voluntarily agree to the modification, it mustsatisfy 3 elements:

1. The promise modifying the original contract wasmade before the contract was fully performed on eitherside,

2. The underlying circumstances which prompted themodification were unanticipated by the parties, and

3. The modification is fair and equitable This rule states that something more is promised if these 3

elements are met, therefore showing sufficient consideration,and an enforceable contract

oFacts/Holding: The court rejected the preexisting duty rule andadopted 89(D)insteadin doing this, they deemed the first promiseto have been for the amount of trash based on an increase of 20-25new dwellingswhen the amount unexpectedly increased to 400, andboth parties agreed to the price modification, there was sufficientconsideration for the new contract

MUTUALITY OF OBLIGATION:

Rule: When a party promises to do something and in actuality is not reallypromising to do something, then there is no consideration and no contract

(consideration from both sides)Authority:

Rehm-Zeiher Co. v. F.G. Walker Co.:o Rule: If an actual promise to do something does not exist, then there is

no considerationo Facts/Holding: Rehm entered contract with Walker to buy Whiskey

with a stipulation noting that if for any unforeseen reason Rehmcouldnt use the full amount, then Walker would release them from thecontractthe court deemed that the contract was lacking mutualityand was not enforceable because there was no actual promise to buythe goods (the buyer could release at any time for any unforeseen

reasonthe amount was completely up to Rehms discretion) McMichael v. Price:

o Rule: If the obligation to buy is contingent upon the ability to sell, andthere is no ability to sell, then there is no promise (no consideration) no contract

o Facts/Holding: Here, the court read into the contract to buy/sell sand to entering the sand business (who promised to buy all the sand that hewould need from ), finding an implied stipulation that the buyer was


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required to make the effort to sell, therefore making it an actualpromise and an enforceable contract (even though wouldnt have tobuy if he decided not to continue with his business)

o *This case undermines the fact that you need consideration for acontract and basically made up their own consideration from the

facts Wood v. Lucy, Lady Duff-Gordon:

o Rule: If an implied promise to do something is found to exist,consideration will be found

o Facts/Holding: Lady entered an exclusive contract with Wood toendorse clothing for her, from which she would receive half of theprofits from his effortsthe contract didnt state that he would usereasonable efforts (he hasnt promised anything) but the court foundthat the promise to use these efforts was implied in the contract andtherefore it had legal value contract

o *This case undermines the fact that you need consideration for acontract and basically made up their own consideration from thefacts

Omni Group Inc. v. Seattle First National Bank:o Rule: A satisfactory condition precedent (promise to do something is

first dependent on satisfaction) is not illusory and constitutes validconsideration

o Facts/Holding: Omni contracted to purchase property from Clarks if hewas first satisfied by a feasibility reportif he wasnt the contract wasnull and voidthe court deemed that there was consideration based onthe implication that the condition was governed by a duty of good faith

o *This case undermines the fact that you need consideration for acontract and basically made up their own consideration from thefacts

*Illusory Promise: one without considerationPROMISSORY ESTOPPEL:

Rule:90: Promissory Estoppel

In order for this to be used, there must be no contract nor must therehave been intent to form a contract

(1) A promise is enforceable to the extent necessary to prevent injustice if:o A promiseo A reasonable foreseeability of reliance on that promiseo The suffering of a detriment due to this relianceo An injustice to can only be avoided by enforcing the promise

(2) Charitable subscription or a marriage settlement is binding withoutproof that the promise induced action or forbearance

Authority:

Ricketts v. Scothorn:


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o Rule: Promissory Estoppel Elements (promise & reasonableforeseeability of reliance)

o Facts/Holding: Grandfather promises to pay granddaughter $2K if shequits her jobshe quits and he dies before she is given themoneythere was no contract, nor the intent to form onehe made

her a promise and it was reasonably foreseeable that she would rely onitshe did rely on it to her detriment by quitting her joband therewas an injustice to overcome (she had no job and no $)court deemedpromissory estoppel and awarded her the money

Allegheny College v. Natl Chautauqua County Bank of Jamestown:o Rule: A charitable subscription is binding without proof that a promise

induced a detrimento Facts/Holding: Promise to give a charity. There was consideration

(college had to name a building in her honor), and college had a dutybecause already partially paid. Dont actually need promissoryestoppel here.

Congregation Kadimah Toras-Moshe v. DeLeo:o Rule: A hope or expectation, even if well founded, is not equivalent toreliance or a legal detriment

o Facts/Holding: Man was ill and orally promised congregation leader$25K (never in writing)he then died before giving the $...courtfound no consideration, no contract, and promissory estoppel couldntapply because there is no detrimental reliance from an expectation

Blinn v. Beatrice Community Hospital & Health Center, Inc.:o Rule: Promissory Estoppel Elements (relied on promise to detriment)o Facts/Holding: Blinn got another job offer for better position and more

$...he told his current job and they told him that he would be allowed

to stay until his retirement (for at least another 5 yrs)he then refusedthe other job offerhe was then fired before 5 yrscourt found novalid contract breach but applied promissory estoppel because therewas a promise, it was reasonably foreseeable that he would rely onithe did rely on it to his detriment by not taking the other jobandthe injustice to overcome is no job or $...

Cohen v. Cowles Media Co.:o Rule: The purpose of promissory estoppel is not to give justice but to

overcome injusticeo Facts/Holding: Cohen gave information to newspapers in exchange for

the reporters promises to keep his name confidentialthey didnt and

he was fired from his jobcourt held that there was no contractbutallowed for promissory estoppel because there was a promiseit wasreasonably foreseeable that he would rely on that promisehe did relyon that promise to his own detriment by getting firedand theinjustice to overcome was that he no longer had a salary

All-Tech Telecom, Inc. v. Amway Corp:


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o Rule: Where there is already an express contract governing therelationship out of which the promise emerged, promissory estoppelcant apply

o Facts/Holding: Amway promised to research a program beforeoffering it to its distributorsAll-Tech brought promissory estoppel

claim alleging they didntcourt ruled that where an express contractalready exists, promissory estoppel cant applyone cant have asecond bite at the apple in the event breach of contract cant be provedfirst

o *Judge Posner relates everything to economic lossif it can bequantified, he brings it to contract law

STATUTE OF FRAUDS (Writing Requirements):

Rule:In most instances, oral contracts are valid. However, by statute, a few types ofcontracts are required to be in writing, or at least evidenced by a signed, written

memorandum of the essential terms. Purpose: To prevent fraud as to the actual terms of the contract and to

provide better evidence of the contract terms in the event of dispute

*Statute of Frauds says nothing about whether a contract is void or notvoidjust enforceability

Statute of Frauds covers M.Y.L.E.G.S.o Marriage: Promise in consideration of marriage (something more);

something to do in addition to promise to marry.o Year: Service contract that CANNOT be performed within 1 year.o Land: Real estate transfer (lease/mortgage).o Executor: Executor paying expenses out of his own pocket.o Goods: Sale of goods for $500 or more.o Surety: Guarantors

Authority:

2-201: Formal Requirements: Statute of Fraudso (1)*Applies to everyone: A contract for the sale of goods for the price

of$500 or more (changed to $5,000, but no state has adopted this$5,000 threshold) is not enforceable by way of action or defense unlessit is in writing. There must be some type of evidence that there was acontract made between the parties and signed by the party againstwhich enforcement is sought or by the partys authorized agent. Allyou need on the paper is the signature and quantity. The contract

will only be enforceable up to the quantity specified in writing.o (2)*Special situation applies only to merchants: Between merchants

(merchant is one who deals in goods or has skill particular to the goodsinvolved) if within a reasonable time after contract has been formed, itis put in writing to confirm the contract, then that writing will satisfysubsection (1) against the recipient, unless a written objection is madewithin 10 days after the writing confirmation is received. In other


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words...the one signed paper will be enforceable to both parties incontract, not just the one who signed it.

o (3) *Applies to everyone: A contract that does not satisfy therequirements of subsection (1) but which is valid in other respects isenforceable:

(a) If the goods are to be specially manufactured for the buyerand not suitable for sale to others (customary) in the ordinarycourse of business and the seller, before notice of repudiation isreceived and under circumstances that reasonably indicate thatthe goods are for the buyer, has made either a substantialbeginning of their manufacture or commitments for theirprocurement; or

(b) If the party against which enforcement is sought admits thata contract for sale was made, but the contract is not enforceableunder this paragraph beyond the quantity of goods admitted; or

(c) With respect to goods for which payment has been madeand accepted or which have been received and accepted.

Professional Bull Riders, Inc. v. AutoZone, Inc.:o Rule: If a K can be performed within one year, the statute of frauds is

typically not applicable and the K doesnt need to be written.o Facts/Holding: AutoZone sponsored PBRs events and entered

contract for 2 years with stipulation that they could withdraw after 1yearAutoZone never signed itcourt found that the contract wasenforceable because the statute of frauds was inapplicable due to thefact that it could be performed within a year (if AutoZonewithdrew)no writing requirements necessary

Sullivan v. Porter:o

Rule: If you have partial performance, it acts as sufficient evidence ofa K and satisfies the writing requirement that was triggered.o Facts/Holding: Porter offered to sell Sullivan his farm and gave price

specificsSullivan verbally accepted and began making changes tothe propertyhe also gave Porter a $3K down paymentPorter cameback and raised all the pricescourt found that the contract fell withinthe statute of frauds and although there was nothing to satisfy thewriting requirements, it satisfied anyway due to the exception ofpartial performance

Crabtree v. Elizabeth Arden Sales Corp.:o Rule: The writing requirement can be satisfied even if the

memorandum consists of multiple documents (doesnt need to be inone) As long as all documents refer to the same transaction

o Facts/Holding: EA offered Crabtree employment for 2 years atspecified salaryshe wrote up the memo and Crabtree signed ithereceived first increase but not secondcourt deemed that statute offrauds applied because it couldnt be performed within a year(NY)the writing requirement was satisfied from 2 separate pieces;


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one showing the agreement with all contract elements and nosignature, the other with all elements except duration and asignaturetogether there was a signature and all contract elements enforceable contract

III. NON-PERFORMANCE

INDEFINITE TERMS:

Rule:No meeting of the minds no contractAuthority:

Raffles v. Wichelhaus (Peerless):o Rule: Where terms in a proposed contract are ambiguous, preventing a

meeting of the minds on material terms, there is no contracto Facts/Holding: Wichelhaus agreed to buy cotton from Raffles to be

delivered on a ship called Peerlessthere were two different ships

with that same nameone delivered in Oct, the other inDecWichelhaus wanted Oct and Raffles tried to sell fromDecembercourt deemed no contract because there was no meetingof the minds regarding a material aspect of the contract (the ship)

o Policy: Due to the risk of unreimbursed reliance by one of the parties,the courts prefer to avoid applying the Peerless rule if there is anyreasonable means to enforce the contract.

Konic v. Spokane:o Rule: Each partys understanding, although different, must be equally

reasonable (if one partys understanding is less reasonable than theothers due to its own fault, then the Peerless rule wont apply)

o Facts/Holding: Spokane bought a surge protector and thought it was$56.20 when Konic was actually selling it for $5620court held thatthe contract was invalid due to the ambiguity in priceeach partygave an equally reasonable, yet different meaning to the material termof price

Lefkowitz v. Great Minneapolis Surplus:o Rule: Where there is no ambiguity and the offer is clear and definite, a

contract existso Facts/Holding: Store advertised sales on coats on a first-come, first-

serve basis and Lefkowitz was there first but store wouldnt sell,claiming it was for womencourt deemed a contract existed due to

the clear and definite offer that was made, which left nothing open fornegotiationthere was no ambiguity

Griffith v. Clear Lakes:o Rule: Where terms in a proposed contract are ambiguous, preventing a

meeting of the minds on material terms, there is no contract Objective test to review a contract/ambiguitywhat a

reasonable person would do/perceive


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o Facts/Holding: Clear Lakes sold Griffith small fish which they thengrew to market size and sold them back to Clear Lakesafter a fewyears the market shifted so Clear Lakes began not taking deliveries ontime and the Griffiths suffered from overcrowdingcourt deemed noambiguity existed regarding the material term market size at the time

the contract was agreed

valid contract 168th and Dodge v. Rave Reviews:

o Rule: Where terms in a proposed contract are ambiguous, preventing ameeting of the minds on material terms, there is no contract

o Facts/Holding: 168th and Rave sighed a Letter of Intent to lease land toRave to build a movie theatre and then Raves board disapproved theplan and they never went through with it168th sued for breach andthe court deemed there was no contract because the terms wereambiguous so there was no meeting of the minds

MISTAKE:

Rule:Contracts with mistakes remain enforced, unless and until, a party succeeds atgetting a court order to rescind a contractwhich then unwinds the contract as if itnever existed

Void: a contract which is void never existed (neither party has a duty toperform)

Voidable: a contract which is voidable exists until you bring an action tomake it void, and if that happens and it is deemed void, it is void from thebeginning (if you dont bring the action, the contract still exists)

o Contracts with mistakes are VOIDABLEAuthority:

Boise Junior College District v. Mattefs Construction:o Rule: One who makes a mistake is entitled to rescission of a contract if

he can establish these conditions: (1) The mistake is material (2) Enforcement would be unconscionable (3) The mistake didnt result from a violation of a positive

legal duty or culpable negligence (4) The party to whom the bid is submitted will not be

prejudiced except by the loss of bargain (5) Prompt notice of the error is given

o Facts/Holding: Mattefs submitted a bid to Boise and had left out theglass portion (which was 14% of the total bid)so they revoked theirbid and refused to pay the bid bond (payment that was required ifrevoked bid)court deemed that the unilateral mistake that was madeprovided a basis to rescind the contract because it conformed to theabove stated rules

Beachcomber Coins, Inc. v. Boskett:


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o Rule: 152: Where both parties make a material mistake, the contractmay be rescinded if neither party knew or should have known of themistake

o Facts/Holding: bought coin for $500 from Boskettboth partiesthough the coin was minted in Denver in 1916 found out coin was

counterfeit and wanted out of contractcourt found mutual mistake both parties thought the coin was antique but really worth only$.10enforcement would be unconscionable and no risk wasassignedcontract was rescinded

Sherwood v. Walker:o Rule: 152: Where both parties make a material mistake, the contract

may be rescinded if neither party knew or should have known of themistake

o Facts/Holding: bought cow from both thought cow wasbarrencow wasnt barren and refused to sellcourt deemedmutual mistake because the fertility of the cow was deemed to be

material (a difference in legal value)enforcement would have beenunconscionable and neither party bore the riskthe contract wasrescinded

o Policy: Viewpoint on valuethe value approach taken by the courthere was regarding what the actual value was of what was beingcontractedthey could have taken the subject-matter approachhowever and deemed the sale of a cow to be solely about a cow,regardless of its true value

Lenawee County Board of Health v. Messerly:o Rule: If the party seeking to be excused assumed the risk of a mistake

in the contract, then the contract cant be rescindedo

Facts/Holding: bought land from with an apartment building torent outneither party knew that the land was uninhabitable and wanted out of contractcourt deemed mutual material mistake butdidnt rescind because assumed the risk by signing the contract withan as is clause didnt meet all elements for rescissioncontractremains

IMPRACTICABILITY:

Rule:After contracting, something happens or is discovered to make it impracticalto carry out the contract

In such a situation the court must ask who should bear the consequencesof it becoming impractical to carry out? Three circumstances that need to be met:

o Unanticipated occurrenceo Overly burdensomeo No one at fault

Impracticability is an equitable defense and if proven, deems a contractvoid


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Authority:

US v. Wegematic Corp:o Rule: This doctrine requires the asking of 3 questions:

Was there an unanticipated occurrence? Does this unanticipated occurrence make performance overly

burdensome? Was anyone at fault? (Important because if looking for a

remedy in equity one cant be at fault)o Facts/Holding: submitted proposal to federal reserve for new

computerfederal reserve accepted proposal and set delivery datebegan pushing back date and eventually delayed indefinitely due tounanticipated difficulties in developing the softwarecourt deemedthat there was an unanticipated occurrence that made performanceburdensome, but this was s fault for portraying aspirations ratherthan truthsthey should have foreseen this event could have occurred contract valid

oPolicy: By denying this excuse, it limits overpromising. Acceptance of s argument would mean that though a

purchaser makes his choice because of the attractiveness of amanufacturers representation and will be bound by it, themanufacturer is free to express what are only aspirations andgamble on mere probabilities without any risk of liability.

Taylor v. Caldwell:o Rule: A contract is voided if a reasonably unforeseeable event occurs

that renders performance impracticable (and no one was at fault)o Facts/Holding: entered contract with to rent concert hall for 4

daysthe hall was then destroyed by fire at no fault of either

partycourt deemed that was excused from performance becausethere was an unanticipated occurrence that made performance overlyburdensome and it was neither partys fault contract voided (*thiscase can be better used for frustration as performance becameimpossible)

Canadian Industrial Alcohol Co. v. Dunbar Molasses Co.:o Rule: A contract is voided if a reasonably unforeseeable event occurs

that renders performance impracticable (and no one was at fault)o Facts/Holding: Canadian and Dunbar entered contract for molasses

which stated that Dunbar would purchase from specific sugarrefineryDunbar couldnt send full amount because its sugar refinery

wasnt producing enoughCanadian sued for breach and courtdeemed that although it was overly burdensome, it was notunanticipated that the refinerys production could vary and it wasDunbars fault they didnt attempt to secure contract with refinery contract valid and Dunbar breached

Dills v. Town of Enfield:o Rule: A contract is voided if a reasonably unforeseeable event occurs

that renders performance impracticable (and no one was at fault)


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o Facts/Holding: Parties entered into contract for sale of land to bedeveloped after 2 conditions in contract were metsubmission andapproval of construction plans and submission of evidence of financialcapacitycontract also stated developer could withdraw and reclaimdeposit after submitting construction plans and agency could terminate

if developer failed to submit the plans, retaining the depositDillsfailed to submit plans due to $ it would cost to create them and retained $100K depositDills sued for deposit $...court deemed thatthis was not unanticipated, as there was the assumption of risk clausein the contractthe event was clearly foreseeable because it wasexplicitly stated in the contract that he would lose his deposit if hedidnt submit contract valid and Dills breached

FRUSTRATION:

Rule:If unforeseen events render performance of contract impossible, then contract

is voidAuthority:

Paradine v. Jane:o Rule: This case is pre-frustrationif one assumes the risk of his own

inability to perform, he will not be discharged of that duty no matterwhat

o Facts/Holding: Paradine rented house to Jane who rented out house,made money and paid ParadinePrince came and kicked out so hestopped paying rent because he couldnt make the $ anymorecourtdeemed that if a duty is created through law, and a party is unable toperform without fault of his own, he will be excused from that

dutyhowever, if a person creates a duty for himself- he must makegood on that duty no matter what.

Krell v. Henry:o Rule: If the object and purpose of the contract is frustrated, rendering

performance impossible, the contract is voido Facts/Holding: Krell rented windows to Henry to view the Kings

coronation ceremonyHenry partially paid but then the King got sickand there was no coronationKrell sued Henry for remainingmoneycourt deemed the contract to be void because the object andpurpose was frustrated (the coronation)and the terms upon whichthe agreement was made, no longer existed

Taylor v. Caldwellworks here as wellUNCONSCIONABILITY AND DURESS:

DURESS:

Rule:A wrongful threat and deprivation of ones free will (life, economic, etc.) inorder to consent to an agreement, renders the contract voidable


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Authority:

Rubenstein v. Rubenstein:o Rule: State of mind at the time a contract is signed is a crucial

determining factor for duresso Facts/Holding: Husband was coerced into conveying land to wife with

threats of arsenic poisoningshe then sold it for much less thanmarket valuehe sued for duresstrial court refused to allowhusband to testify as to his state of mind at the time the contract wassignedthe appellate court remanded for a new trial because his stateof mind is a crucial factor in determining duressthere was no actualdecision as to duress in this case.

o Policy: Free autonomy is a policy consideration here becausesubjective intent matters, but not when objective assessment can bemade to determine if duress exists here.

Austin Instrument, Inc. v. Loral Corp.:o Rule: A contract is voidable on the ground of duress when it is

established that the party making the claim was forced to agree to it bymeans of a wrongful threat precluding the exercise of his free will o Facts/Holding: Loral had contract with navy for radarsalso had

contract with Austin for parts for radarsfirst contract wentsmoothlyLoral got 2nd contract from navy and needed morepartsAustin refused to accept unless Loral agreed to higher pricesfor this contract and for the parts already shipped from the lastonefirst Loral said no and looked for other optionscouldnt findand went with Austins new termsthen sued to recover priceincreasescourt deemed a classic case of economic duress contractvoidable

oEconomic duress - proof that immediate possession of needful goodsis threatenedmust also appear that the threatened party could notobtain the goods from another source of supply (this goes into freewill) and that the ordinary remedy of an action of breach of contractwould not be adequate

o Dissent: Authority to recognize economic duress should not beallocated to Appellate Court when dealing with issues of fact.

Machinery Hauling, Inc. v. Steel of West Virginia:o Rule: A threat which is not wrongful, will not constitute a valid

element for duresso Facts/Holding: Contract to sell steel for delivery to 3rdparty3rd party

didnt accept any delivery and threatened that if they didnt paythe $31k for the shipments they wouldnt do business with them goingforwardthere was no existing contract going forward so the courtfound no duressthe threat to not do future business is a threat, but itis not wrongful because one has a legal right to choose who they wantto do future business with contract valid and breached

UNCONSCIONABILITY IN COMMERCIAL TRANSACTIONS:


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Rule:If a contract is manifestly unfair or oppressive, it is deemed unconscionable

Elements of Unconscionability:o 1. Procedural: Asks if there was reasonable notification, an

opportunity to negotiate the terms, an unfair surprisedeals with

events leading up to the contracto 2. Substantive: Asks if the contract was grossly unfair or

oppressivedeals with the terms of the contract

*Both substantive and procedural unconscionability need to be present forunconscionability

Authority:

2-302: Unconscionable Contract or Clauseo (1) If the court as a matter of law finds the contract or any clause of the

contract to have been unconscionable at the time it was made the courtmay:

Refuse to enforce the contract Enforce the remainder of the contract without theunconscionable clause; or Limit the application of the unconscionable clause so as to

avoid any unconscionable resulto (2) When it is claimed or appears to the court that the contract or any

clause thereof may be unconscionable the parties shall be afforded areasonable opportunity to present evidence as to its commercialsetting, purpose and effect to aid the court in making the determination

208:Same terms as abovecan be used persuasively for contract not for thesale of goods

Zapatha v. Dairy Mart, Inc.:o Rule: A termination without cause provision is not deemedunconscionable no unfair surpriseo Facts/Holding: Zapathas bought Dairy Mart franchisethe agreement

contained an early termination clause that was allowed without causeby either partywhen Dairy asked Zapatha to sign a new agreementand they refused, Dairy terminated the current agreement with anoption to negotiate the new one and Zapatha brought suitcourtdeemed that there was no unconscionability because there shouldnthave been any unfair surprise

Coursey v. Caterpillar, Inc.:o Rule: Breakdown of elements of unconscionabilityprocedural and

substantiveo Facts/Holding: Parties entered contract which had a term excluding the

s liability for consequential damages brought suit claiming thatterm was unconscionablecourt deemed that the contract was valid,as couldnt produce evidence that the term was procedurally orsubstantively unconscionable


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UNCONSCIONABILITY IN CONSUMER TRANSACTIONS &CONTRACTS OF ADHESION:

Rule:If a contract is manifestly unfair or oppressive, it is deemed unconscionable

Elements of Unconscionability:o 1. Procedural:Asks if there was reasonable notification, an

opportunity to negotiate the terms, an unfair surprisedeals withevents leading up to the contract

o 2. Substantive: Asks if the contract was grossly unfair oroppressivedeals with the terms of the contract

*Both substantive and procedural unconscionability need to be present forunconscionability

Authority:

2-302: Unconscionable Contract or Clauseo (1) If the court as a matter of law finds the contract or any clause of the

contract to have been unconscionable at the time it was made the court

may: Refuse to enforce the contract Enforce the remainder of the contract without the

unconscionable clause; or Limit the application of the unconscionable clause so as to

avoid any unconscionable resulto (2) When it is claimed or appears to the court that the contract or any

clause thereof may be unconscionable the parties shall be afforded areasonable opportunity to present evidence as to its commercialsetting, purpose and effect to aid the court in making the determination

208:Same terms as abovecan be used persuasively for contract not for thesale of goods

THIS IS ALL SAME AS ABOVE RULE FOR COMMERCIALTRANSACTIONS

Contract of Adhesion: A take it or leave it contractno negotiation Williams v. Walker-Thomas Furniture (Dist. Of Col. Court of Appeals):

o Rule: If a contract is manifestly unfair or oppressive, it isunconscionable

o Facts/Holding: Woman on welfare rented-to-own several householditemscontract ended up always having a balance and not giving herownership until all of the balances were paidshe defaulted on astereo and the store attempted to get back all itemsshe claimed lack

of meeting of the minds and that the contracts were against publicpolicycourt deemed that they werent unconscionable because herresponsibility to know the terms (she didnt read the contracts) andthat there was not yet a policy for the court to deem the contract wasagainst, so they noted that Congress should consider correctivelegislation (this was before the doctrine of unconscionability existed).

Williams v. Walker-Thomas Furniture (US Court of Appeals, Dist. Of Co.Circuit):


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o Rule: 2-302:Remedies a court can provide if a contract or clause of acontract is unconscionable

o Facts/Holding: Case came back to federal court after Congress enactedthe UCC. Court deemed the absence of meaningful choice lead to aninequality of bargaining power (proceduralneeds both of

these)and terms in the contract were unreasonably favorable(substantive)so extreme as to appear unconscionable according tothe mores and business practices of the time and place Courtdeemed unconscionability was a question in this case, and remanded totrial court to determine.

Jones v. Star Credit Corp:o Rule: 2-302:Remedies a court can provide if a contract or clause of a

contract is unconscionableo Facts/Holding: Jones were sold a $300 freezer for $1200court

deemed the contract unconscionable due to the gross excess in price ofthe true price of the freezersubstantive was provedprocedural was

questionable, but the court enforced the part of the contract that wasalready performed and required that didnt have to pay any of whatwas left.

Ferguson v. Countrywide Credit Industries, Inc.:o Rule: There must be both procedural and substantive unconscionability

to remedy under the doctrine of unconscionability (2-302/208)o Facts/Holding: Ferguson filed complaint for harassment against her

employerCountrywide filed petition to enforce the signed arbitrationagreementcourt deemed that the agreement was unenforceablebecause it was unconscionable both procedurally (employer had choiceof arbitration or litigation and employee bound to only arbitration) and

substantively (employee would have had to pay more than if they wentto court).

MISREPRESENTATION & DUTY TO DISCLOSE:

Rule:A failure to disclose facts once they are known to a party, allows the courts torescind the contract (equitable)Authority:

Laidlaw v. Organ:o Rule: When both parties to a contract have equal access to certain

information, there is no duty to disclose that information to the other

partyo Facts/Holding: When on phone creating contract, Laidlaw asked

Organ if there was any news which would enhance the value of thearticle about to be purchasedOrgan remained silent and Laidlawtook that as a no and entered the contractcourt deemed that thebuyer wasnt bound to disclose, as it wasnt practical because allparties will never have exact quality of informationIt would be


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difficult to circumscribe the contrary doctrine within proper limits,where the means of intelligence are equally accessible to both parties.

o Policy of the court: What they did was not morally or normativelyright, but it was still legal because of practicality (its not practical toshare information)The law is not meant to be the enforcer of all

moralitythere was no affirmative act to cheatcaveat emptor letthe buyer bewareliberty, not equitypurpose of contracts are for allpeople to be able to enter into contracts freely, not that all contracts befair

o Policy of Laidlaws lawyer/Policy now:Law = ethicsequality andgood faithpractical for parties to share information

Vokes v. Arthur Murray:o Rule: Superior knowledge may be regarded as a statement of fact

although it would be considered as opinion if the parties were dealingon equal terms contract rescinded when there is a misrepresentationas to fact

oFacts/Holding: 51 year old woman spent $32,000 on dancelessonsclaimed that dance company misrepresented that she wasimproving (so she would continue to sign contracts), when in realityshe was very bad contract rescinded

Hill v. Jones:o Rule: 161:Vendor has an affirmative duty to disclose material facts

where: 1. Disclosure is necessary to prevent a previous assertion from

being a misrepresentation or from being fraudulent or material; 2. Disclosure would correct a mistake of the other party; 3. Disclosure would correct a mistake of the other party as to

the content or effect of a writing, evidencing or underlying anagreement in whole or in part; 4. The other person is entitled o know the fact because of a

relationship of trust and confidence between them.o Facts/Holding: s entered into contract for sale of house for

$75Kthere was a clause requiring a termite inspection reportsasked if certain things in house were caused by previous termiteinfestationssellers said the inspection report passed and they boughtthe housebuyers later found out there was previous termiteinfestation and treatment and brought suit claimingmisrepresentationscourt decided seller must advise buyer of material

facts within his knowledge pertaining to the value of the property.o Policy: Law of contracts supports the finality of transactions except

with misrepresentations, mistakes, etc. (instances where they are ableto, and do, rescind)

INFANCY & MENTAL INCOMPETENCE:


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Rule:Only the minor has the right to disaffirm (voidable) a contract, unless otherparty can prove contract was signed for purpose of necessity/ Only the mentally illhas the right to disaffirm (voidable) a contractAuthority:

14: Infantso

Unless a statute provides otherwise, a natural person has the capacityto incur only voidable contractual duties until the beginning of the daybefore the persons eighteenth birthday

15: Mental Illness or Defecto (1) A person incurs only voidable contractual duties by entering into a

transaction if by reason of mental illness or defect (a) He is unable to understand in a reasonable manner the

nature and consequences of the transaction, or (b) He is unable to act in a reasonable manner in relation to the

transaction and the other party ahs reason to know of hiscondition

Bowling v. Sperry:o Rule: Contracts of minors are voidable and may be disaffirmed at anytime during the minors minority

o Facts/Holding: Contract between minor, who was with his aunt, andcar salesmanthe bearings burned a few days laterminordisaffirmed the contract and car dealer refused to give moneycourtdeemed contract to be voidable due to infancy because it was madebetween the minor and the dealer, not his aunt

o Exception: If can prove that the item in contract was necessary forthe minor, then the minor loses his right to disaffirmnecessarygoods include: food, clothing, lodging, medical care and education

(especially important if minor is emancipated) Heights Realty, Ltd. V. Phillips:

o Rule: Test of Mental Incompetence: Whether a person is capable ofunderstanding in a reasonable manner, the nature and effect of the actin which the person engaged

o Facts/Holding: 84 year old woman signed an exclusive listingagreement to sell house at certain price with down paymentlaterchanged her mind about down payment and signed addendumshe nolonger wanted to sell house so she wanted out of the contract claimingincompetencycourt concluded that there was sufficient evidence toconclude that the presumption of competency was overcomethe

party claiming incompetence has the burden of proving it (unless ahistory of incompetence is shown, then the burden shifts to the otherparty to prove no incompetence at the time of the contract contractrescinded

CitiFinancial, Inc. v. Brown:o Rule: Proof of mental incompetence deems a contract voidableo Facts/Holding: Brown and mom applied for loan to consolidate

debtJohn is mentally retarded and has intelligence levels of 3-year


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oldhe was made to sign on line for arbitration agreementBrownbrought separate claim in civil court and Citi brought claim to forcearbitration because he signed the agreementcourt deemed that hismental capacity was incompetent and therefore the contract is voidable(no arbitration agreement).

Ervin v. Hosanna Ministry, Inc.:o Rule: Test of Mental Incompetence: Whether a person is capable ofunderstanding in a reasonable manner, the nature and effect of the actin which the person engaged (this includes being drunk).

o Facts/Holding: admitted to care and custody of rehabshe is suingfor negligent actionrehab center says she signed general releasewaiving her right to sue for negligenceshe claims she doesntremember signing the release due to incapacitationcourt deems thatthere is an issue of material fact as to whether or not she signed thereleaseif she was incapacitated, the contract would be voidable.

o Policy: This wouldnt preclude people from admitting themselves torehab centers, but it may force the centers to require guardians to signwith the personit may also cause them to increase prices.

DAMAGES:

COMPENSATORY DAMAGES:

Rule:What happens if you have a contract, cant get out of it and dont perform?

The courts attempt to put parties back into position as if the breach hadnot occurred/the contract had been performed

o To do this, 3 questions are asked: 1. What would the financial position of the parties be if the

contract had been performed? 2. What is the financial position now that the contract has been

breached? 3. Then give the injured party what he needs to put him back in

the place where he would have been if the contract wasperformed

The person requesting the damages has the burden of proving theydeserve them

Authority:

John Hancock Mutual Life Ins. Co. v. Cohen:o Rule: In unilateral contracts to pay a specific amount of money at a

specific time, the doctrine of anticipatory breach grants the recovery ofall payments due, but future payments should not be made until theyare due (This rule does not apply to annuities, disability policies thatpay installments for an indefinite period of time, or agreements to paymoney in the future if an event occurs).

o Facts/Holding: Cohen was a beneficiary of a life insurance policyunder which she was to receive from Hancock monthly payments for


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20 years and a final lump sum. Hancock made payments for 15 yearsand then gave the lump sum payment. Hancock alleges that the policywas issued for 20 years by mistake, and that both parties intended 15-year protection. Cohen sues. Court held that that Cohen shouldrecover all payments due, but future payments should not be made

until they are due.

American Mechanical Corp. v. Union Machine Co.:o Rule: The goal of damages is to put the injured party back to the

position they would be in had the breach never occurred (if thecontract was performed)

Damages have to be reasonably foreseeable The injured party has to take reasonable efforts to mitigate their

loss Burden of proof for lack of mitigation lies on the party

who breached 3 step analysis can come out of this case as well:

In order to achieve the first goal of putting the injuredparty back to the position they would have been if thebreach never occurred, the 3-step analysis to be used is:

1. What would the financial position of theparties be if the contract had been performed?

2. What is the financial position now that thecontract has been breached?

3. Then give the injured party what he needs toput him back in the place where he would havebeen if the contract was performed

o Facts/Holding: American contracted to sell real estate and machineryto Union for $135KUnion gave a $5K deposit then repudiatedthebank sold Americans machinery for $35Kand bought the real estatethrough foreclosure at $55KAmerican wanted $45K from Union forbreachcourt deemed that the party should be placed in as good of aposition as he would have been had the breach never occurred (allother rules from above can be cited via this case as well)

Lowy v. United Pacific Insurance Co.:o Rule: If one has performed fully or substantially, he can

claim damages for breach of a divisible contractif he

hasnt, damages cant be claimed

Divisible contracts are divisible if expressly madeso by stipulating compensation for each separateinstallment as performedif so, the promisor may

recover a pro rata portion of the contract price(akathe substantial performance doctrineapplies to portions of divisible contracts)


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o Facts/Holding: contracted to prepare construction forstreets in subdivision owned by Lowy performed98% then after dispute about additional work terms andprice, he stopped workinghe had only received part of

the moneyhe sued for damages and the court deemedthat because a substantial part of the work had beenperformed, he was able to claim damages (they deemedthat this rule applies to divisible contracts as well)

New Era Homes Corp v. Forster:o Rule: If contract can be broken up into separate distinct phases

(divisible), then substantial performance will allow one to claimdamages. Generally, partial payment provisions in a construction Kdont make the contract divisible.

o Facts/Holding: New Era entered contract to make alterations toForsters housethe contract specified specific payments at certain

points throughout the duration of the contractafter the completion ofthe 3rdact, Forster refused to payNew Era brought suit for $1500(agreed to reduction of claim)courts deemed that the total price ofthis contract as a whole was the single consideration for the projectand therefore could not be deemed a divisible contract, in which casesubstantial performance will not allow one to get damages

o Policy: Protection of home owners; courts want to encourage homebuilding and completion of home buildingthis is most conducivewith one contractor; if the project is viewed as a whole K, thencontractors dont really have an incentive to not finish the job.

Locks v. Wade:o Rule: If supply is greater than demand will get damages (2 cups tosell to 1 buyer)If supply is less than demand probably wont get

damages (2 buyers with 1 cup)o Facts/Holding: Wade leased juke box from Locks on a 2-year basis,

but prior to installation he repudiatedLocks was able to rent thesame box to someone else but because he had more supply thandemand, the court awarded him the full cost of the lease (minus costsand depreciation)

Jacobs & Youngs v. Kent:o Rule: Gives the 2 different approaches to finding damages:

Diminution in value: the amount that the item decreased inmarket value (i.e.if for whatever reason in the facts the valueof the house went from $100K to $90Kthen the diminutionin value is $10K)

Cost to Remedy breach: the amount that it would cost toremedy the breach (i.e.if the house was built wrong and itwould cost $20K to fix itthis is the cost to remedy thebreach).


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o Facts/Holding: Here, Jacob built Kent a house using the wrongpipesthe architect refused to give Jacob the final paymentthebreach was not willful and the pipes used did not at all change thevalue of the homethe court used the diminution in value approach tofind that damages could be awarded (in terms of, using this approach

deemed no damages because there was no decrease in the value of thehouse).

Rivers v. Deane:o Rule: In situations where the breach results in a tangible, noticeable

difference, the proper measure of damages is the market value of thecost to repair the faulty construction

o Facts/Holding: Deane contracted with Rivers to build an addition toDeanes home. The addition was so bad that the third floor wasunusable. Deane sued. Court awarded damages for diminution invalue of his home, but he didnt want this. He wanted the work to beredone.

oPolicy: Sense of injustice here. Different fromJacobsyou cant seethe pipes but not being able to use an entire floor is serious.

Peevyhouse v. Garland:o Rule: Main purpose and incidental effect are distinguishable. When

the breach is merely incidental to the main purpose in view, and whenthe cost of completing the remedial work is grossly disproportionate tothe value that would have been gained by the full performance thereof,the proper remedy is the diminution in value.

o Facts/Holding: Peevyhouse owned a farm containing coal deposits andleased it to Garland for a period of five years for coal mining purposes.Garland specifically agreed to perform certain restorative and remedial

work at the end of the lease period. Except this remedial work, allcovenants and agreements in the contract were fully carried out byboth parties. The cost of completion of the remedial work wasestimated to be $29,000, while the diminution in value was $300. Thelower court left the amount of remedy for jury determination and thejury returned a verdict for $5,000, a value between the cost ofcompletion and the diminution in value. Supreme Court of Oklahomareversed and awarded Peevyhouse $300, the diminution in value.

Am. Std., Inc. v. Schectman:o Rule: In construction contracts, injured party may recover damages

which are the direct, natural and immediate consequence of the breach,

and which can reasonably be said to have been in the contemplation ofthe parties at the time of contracting. The work left undone is notincidental to the whole contract and the work completed did not reachthe level of substantial performance. Therefore, the proper damagemeasure is the cost of completion.

o Facts/Holding:American Standard conveyed a pig iron manufacturingplant to Schectman for a payment of $275,000 and his promise toremove the equipment, demolish the structure and grade the property


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as specified. Schectman failed to perform as agreed. The cost ofperformance was estimated to be $90,000 while the diminution invalue was only $3,000. Issue is whether the difference in value ofsproperty with and without the promised performance should be themeasure of the damage. In this case, the agreement to grade the

property is part of the consideration of the contract, and that thedamages of nonperformance would be the cost of completion canreasonably be said to have been in the contemplation of the parties.The work left undone is not incidental to the whole contract and thework completed did not reach the level of substantial performance.Therefore, the proper damage measure is the cost of completion.

CONSEQUENTIAL DAMAGES:

Rule:Damages should include all losses that flowed from the breach

Indirect damages Lost profit must be:

o Reasonably foreseeable ando The injured party must have taken reasonable measures to mitigate the

lossAuthority:

351:o Consequential damages are not recoverable unless they were

foreseeable by the breachor at the time of contract, and foreseeable canbe through circumstances or specifically informed. (At the point intime when contracting. However, also when the parties knew about theconsequences at the time of the breach).

Hadley v. Baxendale (England):o Rule: This is the token case for consequential damages and the

limitations imposed by reasonable foreseeabilitylost business isconsequential and indirect

Consequential damages are recoverable as a matter of law Must be reasonably foreseeable by both parties

o Facts/Holding: Hadley contracted with Baxendale to deliver brokenshaft to manufacturer within a reasonable timewithout this shaft,Hadley had to stop operation of its mill, but never notified Baxendaleof thatBax didnt deliver within a reasonable timeHadley suedBax to recover lost profits and wages paid while the mill was

idlecourt deemed that the consequential damages must bereasonably foreseeable by both parties or they cant be recoveredinthis case, they werent reasonably foreseeable by Bax (could havebeen if Hadley notified them of exact situation).

Spang Industries, Inc. v. Aetna Casualty & Surety Co.:o Rule: This is the US application ofHadleyreasonable foreseeability

by both parties required to recover consequential damages


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o Facts/Holding: Here, parties entered into new contract for the supplyof steel to build a bridgestipulating that delivery was to be mutuallyagreed upon laterthey then decided on JuneSpang was delayeduntil Oct for delivering and was forced to pay extra money to thenpour concrete in a daysued for the damages caused by the delay

court deemed that when the parties decided on the date forperformance, it was then reasonably foreseeable to both parties thatfailure to perform was a possibilitytherefore consequential damageswere awarded

EQUITABLE REMEDIES:

Rule:Specific performance is granted where monetary damages will not beadequate to remedy the breach (equitable and granted by discretion of the court)

Courts have taken different approaches and established different criteriafor when specific performance should be grantedno universal rule for

this.Authority:

Laclede Gas Co. v. Amoco Oil Co:o Rule: Although could (and did) get propane from other sources,

only could provide a stable, long-term supply. Specific performancegranted in cases that involve a unique product/service.

o Facts/Holding: K in which agrees to provide with propane gas forvarious subdivisions. had option to cancel, but only could if thosesubdivisions are hooked up to natural gas. Amoco performs for awhile, but then refuses to continue supplying Laclede. Issue iswhether the court should order specific performance by Amoco.

Northern Ind. Pub. Serv. Co. v. Carbon County. Coal Co.:o Rule: Specific performance is not available if damages are an adequate

remedy, and it is unlikely the order would ever be implemented.o Facts/Holding: NIPSCO, who had agreed to buy 1.5 million tons of

coal every year for 20 years from Carbon County, sought to beexcused from the contract when the price of electricity felldramatically.

Walgreen Co. v. Sara Creek Prop. Co.:o Rule: Compensatory damages is the standard remedy, anything else

including this, is an exception, and extremely rare. When choosingbetween an injunction and money damages, Posner says you must do a

cost-benefit analysis. Posner finds that the costs of damages exceedthe costs of an injunction, and the benefits of an injunction exceed thebenefits of damages, hence he upholds district courts granting of theinjunction.

Benefits: Shifts burden for calculating cost of breach from court

to parties Hence, more accurate determination of costs and prices


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Costs: Continuing court supervision Cost to 3rd parties (other company, customers) Bilateral monopoly during negotiationone seller and

one buyer (Walgreen Co. owns the injunction, Sara

Creek will try to buy it). Each side will want tocapture the difference between them (Sara offering$2m, Walgreen wants $3m, Walgreen wants to makesure final price is > $2.5m, Sara wants to keep it under$2.5m). Leads to extensive and expensive negotiations,but neither party can exit because then they will be leftwith nothing - Prisoners Dilemma.

o Facts/Holding: and enter into a lease agreement whereby promises not to lease any property to a competitor of . s biggesttenant moves out, seeks to replace with one of s competitors. seeks permanent injunctionagainst to prevent from leasing to the

other company. Normal remedy is compensatory damages, but is therean adequate remedy at law? Am. Broas Cos. v. Wolf:

o Rule: Negative enforcement of an employment contract may only begranted, once the contract has terminated, to prevent injury from unfaircompetition or to enforce an express and valid anticompetitivecovenant.

o Facts/Holding: Wolf () breached a good-faith negotiation clause withABC () and contracted to work for its competitor. ABC wantsinjunction relief. Theyre asking for an order of specific performanceasking Wolf to negotiate with them.

K Final Outline [Cheng] (Waleed Amer)

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