"naked sales" are excluded from the law of contracts
Contacts law (according the Uniform Commercial Code) "does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction"
UCC cover goods that are things which are movable at the time of identification to the contract for sale
If there is a mix, some courts have held things partially under the UCC and partially under common law -- but this risks implying divisibility
There is a general trend to view transactions heavily weighted towards goods under the UCC
if contract accomplished, then entitled to warranties and protections in following contracts.
Warranties speak to merchantability, including implied warranties
Formation of Contracts – if there is doubt, it is bilateral
Existence of Bilateral contracts require mutuality and consideration
Existence of contract (or how to get into contract land)
Void contracts
Illegal subject matter -- violates public policy
Type of illegal contracts
Aletory (gambling)
Based on events that have no connection to the parties
Argument is that there needs to an economic connection, or it needs to serve an economic purpose
Something is not fortuitous if both sides believes that the result is not fortuitous.
Usury
Unfair restraint of trade
3rd-party tort indemnification
unlicensed parties
if the lack of license is due to a technical mistake, a court make grant recovery
crimes
indirection connection to the crimes does not make the contract illegal
if one party is unaware of the illegality, the innocent party can recover on the contract, if they can show that they were "ready, willing and able" to fulfil the contract.
If one party knows that the other is entering the contract for illegal purposes, he is not barred from recovering for breach, unless the intended purpose involves serious moral turpitude or he takes action to further the illegal purpose of the other.
If there is ambiguity, the legal meaning will be preferred when a court interprets the contract
A contract can be reformed to make it legal
Sham contracts purely accounting purposes are not real
Contracts implied in fact are real (including §2-207 knock out rule contracts)
Little difference between a contract implied in fact, and an express contract
In one implied in fact is any agreement that people entered into without using words1)a)i)(1)(e)(ii)3 below
Ian McNeil speak of "relational contracts" which people enter into every day whose terms are too numerous to codify
Express contracts -- requiring offer and acceptance
Making offer (offers are based on objective standard) -- must create immediate power of acceptance (offers effective on receipt)
Theories of communication vis-à-vis offers
Old theory: meeting of the wills
New theory: All one can do is look at what a person does or says
risk of operational loss due to problems in transmission are usually upon the party that chose the means of transmission
the common carrier or means of transmission can be sued
General information about pricing does not constitute an offer which binds the offeror Except for biding offers to specific people (Uniform Commercial Code’s Firm merchants offer) (must include PARTIES, SUBJECT MATTER, Time of Performance, Price)
Manifestation of intention is intended to be an offer – it cannot be construed as a contract, unless the terms are reasonably certain.
Terms of an offer are reasonably certain, if they provide a basis for a breach – and an appropriate remedy
Common law: Fact that one or more terms of a bargain are left open may show that the manifestation of intention is not intended to be understood as an offer or an as acceptance.
Offers must be "present manifestations of intent to contract with recipient"
Jokes do not count
time non-option offers open
Mailbox rule of offers of Adams v. Lindsell
Offers
effective on receipt (European approach: communications are effective upon receipt, and every offer is an option)
except in the absence of any contrary intention of the parties
Under normal circumstances, an offer is good from when it would be received – even if due to a defect in transmission
Revocations of revocable offers
Majority: effective on receipt
Minority: effective on dispatch
Note: mailbox rule does not apply to option contracts
offers expire if rejected
anything after, is a counteroffer -- except under the UCC
acceptances with immaterial differences in terms do not constitute counteroffers
alterations are material if consent cannot be presumed
written offers expire
when they are closed by virtue of what is stated
offer expires in a reasonable time (depending on the good)
UCC: Firm merchants (in the subject matter) offer where they put the offer in writing and has a time in it of irrevocability. Needs offer (writing), words of firmness, and a signature – MAKE IT BINDING LIKE AN OPTION FOR UP TO 3 MONTHS -- only the offeror need be a merchant
by law
Incapacity of the offeror (death, insanity, etc.)
note: if it is in doubt, it is bilateral – and contracts survive death (though offers do not)
destruction of the subject matter
product become illegal
oral offers: offers are open only during conversation
in most cases -- an offer made in the course of a conversation is lapses when the conversation is terminated
offer would remain open if there were an indication that such were intended by the offeror
by act of parties
revocation: absent an option agreement, offeror is "master of an agreement’ and can revoke an offer
Indirect revocation doctrine : Offer must have taken a direct act inconsistent with the proposed conduct, Offeree must have heard about the revocation from a reliable source, If offer made to public must revoke by same or similar means
Option offers
Options are distinct contracts
Note: options only have to be in writing
Option is irrevocable if according to the Restatements on Options (§87):
In writing and signed by Offeree,
Recites a purported consideration for the making of the offer
Proposes an exchange on fair terms in a reasonable amount of time
or is irrevocable by statutes
Mailbox rule does not apply to acceptances on explicit option contracts
Promissory estoppel and Reliance on offers : Once someone starts to perform, they are relying on the promise – and option contract is created
Old view is that the offer’s could not give notice of beginning of performance and wouldn’t bind
Original trend was that Promissory estoppel could not apply to offers
Majority view: if it were reasonably foreseeable to the offerer that the Offeree would change position in detrimental reliance upon the offer, there is sufficient ground to rend the offer irrevocable
Restatement view: expectation interests should not be fulfilled – but ‘to the extent necessary to prevent injustice" should be the damages
Promises to pay unenforceable debts can be enforceable without promissory estoppel or consideration
Promissory estoppel vis-à-vis offers: An option contract exists if the offer expects people to perform, and they do, and it is substantial. Hence, Promissory estoppel. An offer which the offerer should reasonable expect to induce action or forbearance of a substantial character on the part of the Offeree before acceptance, and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice
Red Owl View:
If a party begins negotiations, Promissory estoppel will provide for damages if they are in bad faith.
Some offers that one relies upon become binding both implied in law, and by promissory estoppel ways
Note: this will protect the winning sub from being bid-shopped as the contractor is bound.
Court can imply terms of offer (implied terms) into the contract
E.g. – if ambiguous can say that a length of time starts at receipt ((in equity)
Acceptance (note: acceptances are on the subjective standard) -- effective on dispatch
Acceptances must be of the offer -- not mirror image offers
Acceptance of offers under common law
An offer says (or implies) how one can accept it
If no specific means is requested than the Offeree can use a means that is reasonable under all circumstances
Words ‘"should be accepted" leave the door open to acceptance by other means (such as performance)
Common law only: Fact that one or more terms of a offer are left open may show that the manifestation of intention is not intended to be understood as an offer or an as acceptance.
Mailbox rule of acceptance of Adams v. Lindsell
Acceptances are effective on dispatch
note: exercise of options are effective upon receipt
letter must be property address and by appropriate conveyance
even if an acceptance is mis-addressed, it will nonetheless be treated as effective on dispatch if it arrived within the time a properly addressed letter would have arrived
if the acceptance is sent by an improper method, but gets there on time, it is still good
if the letter is lost, the acceptance is still effective
an countering acceptance is effective it arrives first
the offeror loses power to revoke after a property dispatched acceptance
If there is an acceptance, the acceptance is effective unless a rejection gets there first and offeror detrimentally relies on the rejection
European approach: communications are effective upon receipt, and every offer is an option
Rejection -- effective on receipt
effective on receipt
common law: a countering rejection is effective it arrives first
if there is a later acceptance, it is effective if it arrives first
rejection becomes more effective due to promissory estoppel
restatements: rejection or counteroffer by mail does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter of acceptance started after the sending of an otherwise effective rejection is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer
European approach: communications are effective upon receipt, and every offer is an option
Deviant acceptances
counteroffers are never acceptances (and hence, no contract) under the common law
"mere inquiries" are not counteroffers under common law
some courts (and the Uniform Commercial Code) find that additions of other terms constitute acceptances plus inquiries
under common law, demanding an acknowledgement constituted a counteroffer
Common law: Fact that one or more terms of a bargain are left open may show that the manifestation of intention is not intended to be understood as an offer or an as acceptance.
Background to acceptance by performance (note, in some cases where the offers says "should" performance may be an alternative means of assent.)
since the Offeree can stop performance at any time, he is not entitled to any protection
when performance begins a bilateral contract is formed
when tender begins a option contract is formed
tender is defined as a manifest present ability to perform
Common law
Common law "last shot rule of common-law:" last document on the table before performance is the document which constitutes the contract
Some courts are looking to restatements which seem to apply a Uniform Commercial Code-style view of deviant acceptances (minority)
Uniform Commercial Code §2-207
Telephone conversations: When one has phone conversation, and reaches a bargain, it acts as a sort of "mandatory acceptance offer" that must be papered (email, fax, etc.) (to satisfy the Statute of Frauds) – the confirm acts as an acceptance, which is governed under Uniform Commercial Code §2-207 (if there are deviant or additional terms)
If there is no delivery, it is a counteroffer
Acceptances that are definite and seasonable but slightly deviant, and are not limited by "limits to the terms of the offer" and notification of objection
has not been given a in a reasonable time become part of the contract --
If one party is a non-merchant
, and there are immaterial deviations, than the offerora's terms apply
If both parties are merchants
, and there are immaterial deviations than the offeree's terms apply
If there are material deviations, If the parties performed, Terms of implied contract are based on knock-out rule
Some courts say that gap-fillers should fill in the knocked-out terms
Some courts say that no terms should be in the knocked out terms
Ways that an acceptance becomes voidable (must be plead)
duty-to-read: makes the offeror assume that the signatory has accepted it.
exceptions to duty to read Adhesion Contract and unconscionable contracts are voidable or terms will make it voidable if it violates public policy (clause is void as a matter of law) if:
on the theory that there was not "true assent to a particular term"
In contracts of adhesion, the Consumer agrees to all reasonable terms and can avoid unreasonable terms
Exclusion of warranties: Reasonable person terms: bizarre or oppressive it "eviscerates the non-standard terms explicitly agreed to, or eliminates the dominant purpose of the transaction"
Disclaiming a warranty places the risk of mistake either between the parties, or on the other party
Note: under some logic, warranties are implied by the price -- as a certain price implies a certain subject matter. Can claim that by a given price there is an implied warranty.
Policy issues about the courts redefining what a given product is
Exculpatory contracts cannot exclude tort liability for everything—must be very specific in nature, and not completely exculpate for all negligence
Some courts have held exculpatory contracts (placing "risk of negligence" on another party to be valid, if there is no policy reason why it should not be -- and it isn't a contract adhesion
inconspicuous risk shifters will generally not be honored by the court.
Disclaimers of warranties do not have to be in writing, but if they are, they must be conspicuous
Disclaiming warranties under the UCC must be conspicuous and in writing.
Contracts to indemnify can be valid if they are not of adhesion and they are bargained for
If there was "extra coverage for extra price" clause courts give greater weight to enforcing it, and Some courts refuse to enforce on the grounds that it is not reasonable
Economic losses that arise out of commercial transaction, except those involving personal injury or damage to there property are not recoverable, under the tort theories of negligence or strict product liability.
Statutory limits in NY where liability cannot be limited: Elevator negligence and Refrigerator maintenance
Courts do not like awarding tort damages, because of the conflict with warranties. But they will award tort damages under products liability doctrines. To allow tort liability would emasculate the warranty provisions parts of the Uniform Commercial Code. Limiting the application of strict products liability to consumers action or actions involving personal injury will allow the Uniform Commercial Code to satisfy the needs of the commercial sector and still protect the legitimate expectations of consumers.
Plain language requirement: some jurisdictions deem an unintelligible contract unenforceable, some rescind it, plus give nominal punitive damages
if the writer of the contract knows that that person would not have normally have assented to a term, than such term is unenforceable
form contracts: if an industry standard develops, whereby products are known by certain warranties and declaimers, it is assumed that the signer does know of these declaimers
Where party to an agreement signs or otherwise manifests assent to a writing, and has reason to believe that like writing are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing
Restatements presume, that wherever reasonable, parties are treated alike if they are similarly situated, without regard to their knowledge or understanding of the standard terms of the writing
Form contracts might just be the creation of new products, which include or omit warranties
no "opportunity to read": in order to have a duty to read, must be aware that a contractual event is taking place
If someone signs something that they are not aware is a contract, they may not be responsible for it (see contracts of adhesion)
A factor to be considered in taking into account the "reasonable man approach to an contract of adhesion" is whether the party actually had an opportunity to read the contract
Alternative position is that there is no duty to tell people that contractual stuff is happening
Renewals become a complication as a reasonable person might expect the terms to stay the same
Absent meaningful assent, there are alternative forms of legal relationships that can happen by means of implied contracts: e.g.
Bailments: The transfer of possession of something (by the bailor) to another person (called the bailee) for some temporary purpos
Trusts: Property given by a person called the donor or settlor, to a trustee, for the benefit of another person (the beneficiary or donee). The trustee manages and administers the property, actual ownership is shared between the trustee and the beneficiary and all the profits go to the beneficiary.
Even with a meaningful assent, the offer and acceptance can be voidable due to unconscionability can also be handled at law, equity, but not with a jury, but there must be other elements than just superior bargaining power
Substantive Unconscionability (oppression) is defined as an agreement that no sane person would enter and no honest person would propose
Roman law had a doctrine of leseo enormous, American law does not -- Uniform Commercial Code §2-302 (Unconscionability) should always be read with §1-203 (good faith)
UCC (has entered the general law of contracts): the court, as a matter of law can find 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, or it may enforce the remainder of the contract, without the unconscionable clause, or it may so limit the application of any unconscionable clause to avoid an unconscionable result
Uniform consumer sales practices act
sort of combines the features of the UCC:
consumer ignorance,
high price
consumer couldn’t get a benefit
no reasonable probability of payment of the obligation
transaction he induced the consumer to enter was excessively one-sided
made a misleading statement of opinion on which the consumer relied
Parities should be able to present the court with evidence as to its commercial setting as to why it was okay
Termination "for any reason" might not mean unconscionability (seems procedural, but could evaluate the value of this option) -- but it could render the contract illusory if both sides can terminate for any reason
Nominal liquidated damages clauses
(Courts differ: Some would view a nominal Liquidated Damages Clause as a "reasonable estimate of damages and might enforce the Liquidated Damages Clause as a reasonable estimate of damages to the promisee ,
Option contracts
Unconscionability is judged only in terms of the underlyer of an option contract when it was entered
Procedural Unconscionability (surprise) is defined as (e.g. parties do not speak English)
Contract can be violable when "due to a prodigious amount o bargaining power on behalf of the strong party, which is used to the stronger party's advantage and is unknown to the lesser party, the contract provision, or the contact as a whole, if the provision is not separate should not be enforceable on the grounds that the provision is contract to public policy. The party seeking to enforce such a contract has the burden of showing that the provision were explained to the other party and came to his knowledge and there was a real and voluntary meeting of the minds not merely an objective meeting.
When victim is under domination of other party
Fiduciary responsibility: when the victim is justified in assuming that the other party will not jeopardize the victim's welfare
Improper persuasion used: When one party seriously impaired the free exercise of judgment by the victim
Examples of common features are unfair exchange, Unavailability of independent advice given to the victim before assenting to contract, Lack of time for reflection by the victim before assenting to the agreement, High degree of susceptibility to suggestion
Might be unconscionable, if one party is aware that the other didn't understand it -- even if explained. It must be show that "the provisions were explained to the other party and came to a real and voluntary meeting of the minds and not just an objective meeting
Remedy is restitution
Note: Procedural Unconscionability does not require that the contract be unfair to the weaker party
Fraud (duress) in the acceptance or modification or consideration
Fraud and misrepresentation: Can avoid contract because the deal was obtained through fraud in the inducement – one wants to unwind the contract. (see remedies)
Times when witholding information constitutes fraud rendering the contract voidable
in general, it is caveat emptor
some statutes relate to disclosure
warranties of merchantability are implied -- for instance by price, or by appearance -- and that a given price assumes that the offeree will know something about it
positive action to conceal constitutes fraud and makes a contract voidable
a supervening action made something true -- if one knows the other is relying on it -- of course, under the UCC warranties cover this issue
surretyship and insurance have broad duties of disclosure
fiduciary relationships have broad duties of disclosure
If there is a fiduciary relationship between the parties, courts are more likely to avoid a qualitative mistake in judgment
as such a transaction must be fair (and fiduciaries have a relationship to act as if they were the person they are representing)
there is probably an objective test as to whether one exercised a fiduciary duty -- did he act as another reasonable person did, evaluating the purchase as if it was his own
Duress -a contract is voidable on grounds of duress is forced to agree to it by means of a wrongful threat (in extreme cases of needful goods)
Example of needful goods often included things such as violence to there person, withholding utilities
Duress exists only when one deprives another of free will -- one can sue in equity for specific performance
Withholding goods that belong to someone could be considered a crime, If the goods already belong to that party
If the wrongful threat precluded the exercise of free will
In common law was that the will could be overborne only by the threat of physical force
The only force that qualifies to get you out of the contract is the threat of physical force
And ideally the commission of a crime
The threat of physical force, is the crime of "ressault" (?)
later this expands to being threaten with a tort --
torts can include interference with other business relationships (ie money due from other parties)
defamation is not criminally unlawful, but it is civilly unlawful
threatens with a breach -- usually doesn't count as duress
since most goods can be obtained elsewhere -- goods that are not are "needful goods:"
obsolete doctrine of "duress of goods" -- have you are stuff, but I won’t give it back
Courts said that duress of goods might qualify for duress -- in the case of needful goods
The existence of economic duress or business compulsion is demonstrated by proof that immediate possession of needful goods is threatened
Note: that outside Delaware and states with quick procedures for settling procedures, goods quickly become needful
Mistake can warrant voiding or modifying contracts
Miscommunication: we look at what a reasonable person would have understood and that the other party would have understood him to being doing, we look at the state of mind of the victim because of they delivered (the "shoes analysis"– as in what would the czar of the universe think.)
Court will let someone testify about their subjective state of mind, so long as we make clear to the jury that we do not care about it -- such testimony may explain certain behavior, which caused the other party to think that there was a contract (if the Plaintiff was being reasonable in assuming what he assumed)
risk of operational loss due to problems in transmission are usually upon the party that chose the means of transmission
the common carrier or means of transmission can be sued
Mutual Mistake: in the case of mutual mistake, there is no meeting of the minds, and no contract -- remedy is rescission (can be dealt with as an implied warranty)
Misunderstanding Doctrine If one party known that there are different understandings of material terms, but doesn’t say so – a contract formed on the basis of what the "uninformed party" thought the contract was about -- restitution can be remedy for this -- One can argue that the mistake was in the subject matter being sold
Some suggest that it is better for a court to allocate the risk of loss to the party that can take it best -- the offeree can more cheaply rectify the error, for instance in a bidding situation
Misunderstanding as to subject matter: if the parties misunderstood what type of product was for sale, it is a mutual mistake -- if they thought they were getting something different it is a mutual mistake -- not just misunderstanding the value - risk of loss due to mistake can be contractually assumed by a party, especially when most contracts are made with some uncertainty
Remedy for mutual mistake
the parties do not have to go through with the contract at all -- and hence no contract.
Unilateral mistake
A party is not privileged to "snap-up" an offer which he knows to be the product of a mistake. Note: typos of quantity, under the UCC are enforceable (as opposed to the real amount).
If one of the parties is completely incompetent vis-à-vis the subject matter, some courts have ruled that ignorance of market practice is a defense
typos of quantity, under the Uniform Commercial Code are enforceable (as opposed to the real amount)
Mistakes must be handled a reasonable time after discovery
Mistaken party must show either that enforcement would be unconscionable or the non-mistaken party had either reason to know of the mistake or caused the mistake
Remedies for unilateral mistake
Equity will not be used if one party entered to contract under a material mistake, and the enforcement would be harsh
Reformation won't be granted if a contract, based on a mistake is entered into, and performed
Right to correct mistakes dependent on the other party not relying upon it
Contracts implied in law and Constructive Conditions are not real, they are just device for doing justice 7)e)iii)(11) below
Contract terms implied in law
Judges can imply terms and conditions in a contract that are not stated
Generally, conditions implied in law only have to be substantially performed
Under the Uniform Commercial Code terms are implied
Uniform Commercial Code §2-309 and 2-306 function as gap-fillers for ambiguous terms (reasonable time, and time of delivery). -- Note: gap fillers used only when physically necessary
Common law is more skeptical: Terms of a contract are reasonably certain, if they provide a basis for a breach – and an appropriate remedy
If delivery point is not specified, assumed to be sellers.
These are quasi-contracts such as "give me my money back"
This is another name for what we have been calling restitution
when one person has gotten a benefit (we do not care from where) that in all justice should have been given to another – a quasi-contract will give it to the right person
this is broader than restitution – restitution is usually for restitution from a specific someone
example: quantum meruit or quantum walabat for services that were done and agreed to without constructing a contract or deciding on a price
items implied at law into a contract can be discharged by frustration
Mutuality: A bilateral contract is enforceable or binding, if at any point in time during its tenure, it is binding
. Is defined as "something that distinguishes one in terms of rights or duties, from the rest of the universe."
Statute of Frauds requirements for enforceability (unless acted upon)
Marriage, deal cannot possibly be performed within a year, Land, Executor's Promises, and Goods at or over $500 or contracts for SuretyShip
A lease that can be performed within a year does not have to be in writing
It is for intangibles over $5000
Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the statute of frauds unless written notice of objection to its contents is given within 10 days after it is received.
Note: receipt and acceptance (with no writing) constitute taking the contract outside of the statute of frauds.
If there is full performance, the statute is waived, or if the seller pays all or part of the purchase price and performs some act explainable only by the contract's existence
Hence, specially manufactured goods take the transaction outside the statute of frauds (if they begin to produce)
This is a way out of promissory estoppel
The statute of frauds can be satisfied by writing that were never effective, or intended to be as an "integration of the agreement" -- i.e. signed memorandum, a will, a written and signed offer.
The memorandum need only be signed by the party to be charged -- and can be supplied at any time prior to the action brought upon the contract (in some states prior to the trial.)
Statute of Frauds is based on a memorandum by the party to be charged -- Parole evidence rule doesn’t require this
Statute of frauds must be plead as a defense, if not it is waived.
If one part of the agreement is covered under the statute of frauds, and is rendered unenforceable, in most states the entire agreement is rendered unenforceable
Some courts have held that non-compliance with the statute of frauds renders a contract VOID
Exceptions to the statue of frauds (where things are binding), but not in writing
Under the UCC §2-201, part performance takes the issue away from the statute of frauds
Delivery
Admission of the contract
There must be a state of the world, in which the parties are bound. A requirement simply giving "notice" to cancel (without a number of days notice) does not bind someone
Something is enforceable if there is less than 100% of the time when either side can cancel
Something is enforceable if there is some potential state of the world in which the parties would be bound (even if one party control this state)
Equity might be the only way out: If one cancels in a contract that can be canceled at all times, they might have to resort to quantum meruit or quantum walabat
In some cases the relationship between the two may preclude quantum meruit as both parties received the benefit from the work, and the person doing the work would have done it anyway
A contract is not binding, if it a condition precedent to the contract does not place any obligation on either of the parties e.g. no mutuality of sale of store depends on seller renegotiating lease
Pre-existing legal duties are generally not enforceable
Agreements to agree are not enforceable
Uniform Commercial Code: More things left open, the less the parties wanted be bound
Common law: Terms of a contract are reasonably certain, if they provide a basis for a breach – and an appropriate remedy
Letters of intent
An agreement that is "subject to" a later agreement, is evidence of an intent not to be bound
Exception: "lets put in writing" constitutes a contract TO make a writing. Hence, when parties to an oral contract contemplate a subsequent reducing of it to a writing as a matter of convenience, and prudence and not as a condition precedent, it is binding on them though their intent to formally express the agreement in writing was never carried out."
Red Owl View:
If a party begins negotiations, Promissory estoppel will provide for damages if they are in bad faith.
Things that look illusory, but are not
Input Contracts or Output contracts are not illusory -- and must be upheld, as all other contracts (even if they become losing contracts)
But amounts demanded have to have in parity with either estimates or prior demands
best efforts clause are not illusory
"best efforts to find a mortgage" is not illusory (exception)
If one of these pre-contract deals falls through, there needs to be a release saying that the first contract is at an end
Uniform Commercial Code implies good faith
Note: arbitrary cancellation that are according to the contract are not illusory
A contract is still binding, if the condition subsequent or precedent is more or less discretionary – e.g. "contract for satisfaction" are binding.
Satisfaction is balanced by requirement that the test be "reasonable" -- otherwise there is a bad faith clause
"Reasonable person standard" is used for commerical goods, and good faith is assumed when aethetics are involved
Parties may enter into a contract, which leave a term to be decided later (as good faith is implied).
I.e. Uniform Commercial Code if the price was to be determined by agreement, the count could still fill in the reasonable price
Good faith implies faithfulness to a common goal. Bad faith involves people violating common standards of decency
Types of bad faith recognized: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of power to specify terms, and interference with or failure to cooperate with the other party's performance
Consideration required, although it doesn’t need to be the sole inducement but it must play some role or other. If there is not consideration of some sort, the contract become illusory.
Theories of consideration
Benefit/Determent theory -- Contract is supported by consideration if
Promisee either acts or promises to act in exchange for the promisor’s promise
The promisee’s act or promised act is either a legal determent to the promisee or a legal benefit to the promisor
"Consideration has to alter the rights and obligations and the wealth of the person giving it"
must be bargained for -- so something that someone would have done anyway, usually would not be considered consideration
note: A promise to make a gift (or a payment) for an unspecified amount, renders promise illusory.
Bargain theory (restatements)
Performance, or return promise must be bargained for
Consideration of sham or petty amounts suspect
A promise of money for money that is clearly unconscionable as it was clearly a nominal amount . Note: nominally and Unconscionability is judged at time of enforcement
note: the 1st Restatement, seem much more palatable towards nominal consideration. 2nd hates it.
In practice, nominal consideration doesn’t have to be exchanged
Expenses incurred in accepting a gift do not constitute consideration
It must be sought by the promisor in exchange for his or her promise and
It also must be given by the promisee in exchange for that promise
A promise to make a gift (or a payment) for an unspecified amount, renders promise illusory.
The benefit/detriment theory and the Bargain theory might conflict if there was determinants to one side, to the benefit of another side, based on something that was not given in exchange for performance
Some courts have held that both are true in that there needs to be a benefit and detriment that was bargained for rather than simply given "in exchange" as per the earlier Benefit/Determinant theory
Necessary characteristics of consideration
Consideration of sham nominal amounts are suspect
A promise of money for money that is clearly unconscionable as it was clearly a nominal amount . Note: nominally and Unconscionability is judged at time of enforcement
note: the 1st Restatement, seem much more palatable towards nominal consideration. 2nd hates it.
Courts generally won’t judge the adequacy of consideration, but they will judge the whether it is indeed nominal or unconscionable of consideration
Speculation and investment do not constitute nominal contracts!
Gross overcharging will not be unconscionable unless some other factor of fraud are present
Exception: In equity: courts require that specific performance for real estate have fair consideration (and will judge fairness of consideration)
Claim or defense is in doubtful because of uncertainties as to the facts of law
The forbearing or surrounding party believes that the claim or defense may be fairly determined to be invalid
Note: consideration that later that is illegal in the first place does not constitute valid consideration
The fact that a rule of law renders a promise voidable or unenforceable does not prevent it from being consideration.
Consideration can be a third party determining when the contract is fulfilled -- check this!
Consideration must be exchanged after the contract is formed – promises grounded in the past are not supported by consideration.
The problem with past consideration is that it breaches the problem of simultaneity
When all or part of the performances to be exchanged under an exchange of promses, they are due simultaneously, unless otherwise noted
When all or part of the performances are to be exchanged under an exchage of promises are due simultaneously, it is a condition of each party's duties to render such performance tht the other party either render or, with manifested present abuility to do so, offer performance of his part of the simultaneous exchange.
Rare Exception: accounted to some courts, some contracts grounded on "perfect moral obligation" are binding
Actions against the estate of a promisor (of a gift) can be biding if all of these criteria are satisfied
Promisor received a material benefit during his lifetime which motivated the subsequent promise
Promisor thereafter commenced performance according to the terms of his promise
Promisor died without ever evidencing an intention to repudiate the promise
There were no superior moral claimants to the benefits of his estate
Restatement view
Old view
Restatement doesn’t distinguish between benefits requested by the promisor and those that aren’t
Nothing is binding if it is a gift
Nothing is enforceable if its value is disproportionate to its benefit (sic)
Receipt of an unrequested material benefit, followed by the receiver’s promise to pay for the benefit, is enforceable without consider, but only to the extent necessary to the prevent injustice
Modern Restatement’s view is that some gratuitous promises are enforceable if: §90 (note, only two states have adopted §90.2)
The promissor made a promise which, although gratuitous was the time of promise that might foreseeable induce the promisee to rely or to take some action based thereon
There promisee did, in fact rely thereon, and his reliance was reasonable under the circumstances
As a result of such reliance the promisee has suffered a substantial economic determinant
Injustice can be avoided only by enforcing the promise
Summary
There is no longer a requirement that the action or forbearance by the promisee be of a "definite and substantial character"
Faced with a patter of detrimental reliance a court is free to limit the remedy "as justice requires."
Permanent Employment contracts must have separate consideration from employee to employer -- otherwise they are employment at will
Employees at will’s acceptance of procedures in the handbook can be indicated by continuing to work
This fudges the line between bilateral executory and unilateral
Exception: employee handbooks (no matter what disclaimers) can be grounds for Promissory estoppel if people rely on them and do not do things
Employment-at-will contracts can generally be terminated without cause because there is no consideration:
exception employees-at-will cannot be terminated for doing things they were legally required to do (or whistle-blowers)
especially if they are being asked to commit illegal activities
Exception: a loony court in Illinois held that someone with an employment at will contract could be terminated for filing an insurance claim because the relationship between the insurance company at the employer is "one of private and individual grievance rather than one affecting our society"
Equity: Meritorious Consideration -- Equity courts are more fussy about consideration – being skeptical of things that look like gifts
Seal has no bearing in equity
Exception is a trust
Another exception is where donor attempts to give gift, but due to impossibility fails, and he dies in ignorance of this)
Seal can be substituted for consideration
Contracts made under seal are enforceable
It is evidence that there is an agreement, and that they took the agreement seriously
It performs a cautionary and channeling function
Some version of the seal means that ½ of all states have abolished the seal and replaced it with General Obligation law
In the General Obligation law, there is a statue which says that promisees in writing are enforceable – all one has to do is put it in writing – a promise to make a gift is enforceable, if the promisor puts it in writing
charitable subscriptions to eleemosynary institution can often be taken as having consideration because "perpetuating the name of the founder may be sufficient consideration" also known as "the consideration of others’
charitable pledges can be assigned to others
consideration can be framed "in exchange for your good work" and since one continues doing "good work"
dissent is that charitable institutions do not change their position as a result of pledges
In Promissory estoppel , the court has discretion as to which type of damages to give -- to avoid injustice
Reliance
Expectancy
A relied upon donative promise can be enforced in certain categories, even though reliance was not necessarily the stated basis for enforcement of the promise
Usually protects the reliance interests
Reliance must be reasonable
Criteria for promissory estoppel (2nd restatement)
In making the promise, the promisor should reasonably expect to induce action or forbearance on the part of the promisee
E.g.: promise in employee handbooks
The promise does in fact induce foreseeable action of forbearance by the promisee
Injustice can be avoided only by enforcement of the promise
Examples where promissory estoppel could be later employed -- if injustice could later be employed by enforcement of the promise
Promise to make a gift
Red Owl View:
If a party begins negotiations, Promissory estoppel will provide for damages if they are in bad faith.
E.g. promise to make loan to support contract
Charitable subscriptions
Must be in writing
Note: charitable subscriptions to eleemosynary institution can often be taken as having consideration because "perpetuating the name of the founder may be sufficient consideration" also known as "the consideration of others’
Gratuitous bailments and agencies
Promises to act in the name of another to procure or maintain something
Offers by subcontractors, where a contractor factors the offer into an estimate for his own master-bid
Promises to pay unenforceable debts can be enforceable without promissory estoppel or consideration
Promise of a job
If an employer promises an "at will’ job to an employee, and cancels it before one shows up – e.g. if one quits another job
Promissory estoppel is, in general, will not overwhelm a Statute of Frauds defense to enforceability – too easy for an employee to claim that.
Statute of Frauds speaks to the employer’s behavior, not the employee’s reliance, and part performance (on the part of the employee) does not make the doctrine of Promissory estoppel overrule the Statute of Frauds
Promissory estoppel is not valid if for non-specific detriments paid to others that the employer isn’t aware of in accepting job (basic cost of acceptance)
Sub-agreements to a master agreement, where one party (rightfully) offers a party a product, with acceptance based on silent acceptance, and doesn’t delivery
Negotiations in bad faith (bate and switch)
Unilateral contracts
Valid consideration must be sought by the promissor and undertaken by the promisee in exchange for the promise made in the offer
Some courts have held when deal with public corporations, the offeree need not know of the offer
Becomes executed when Offeree KNOWS of offer, and acts properly on it.
An option contract is created when Offeree begins performance of the offer
Types of activities involved
Creation, modification, or destruction of a legal relationship
Exception: under promissory estoppel a written promise of a gift to a charity is enforceable
In contrast to civil law where courts will enforce promises to give gifts
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Contractual duties
Constructive Conditions (implied in law): Conditions implied at law into a contract can be discharged by frustration
Exclusivity
Good faith
Trade usage can imply that something is a concurrent, independent, etc.
Courts assume that if two promises are due simultaneously, then it is a condition of each parties duties that the other offer or perform theirs (aka: condition dependant)
courts decline to recognize common-law marriage as a basis for implied in law contract
New rule CONTRACTS ARE DIVISIABLE seems to be that at the seller's option, unless otherwise stated, he can demand the price, if apportionable
A contract is divisible if the court can regard the agreed pairs of performances as agreed equivalents, and can apportion the performances
Creation of agreed equivalents
A material breach will excuse the other party from subsequent installments. If apportionment into pairs of performances is possible, than the contract can be treated like a series of pairs of contracts hence, can’t breach under one contract to excuse performance under another
Promises or Covenants (under restatement presume a covenant)
Mansfields covenant categories
Mutual and independent -- two unilateral contracts
Either party may recover damages from the other for the injury he may have receive d by a breach of the covenants in his favor, and where it is no excuse for the defendant to allege a breach of the covenants of the part of the plaintiff
Conditions dependant
There are covenants which are conditions and dependant, in which the performance of one depends on the prior performance of another, and, therefore, till their prior condition is performed, the other party is not liable to an action on his covenant.
Once one obligation occurs, than the counterparty's obligation starts
Determining the divisibility of a contract -- look to party's intentions
Old rule (uniform sales act) Completion of a long-term performance is implied to be a condition precedent to a duty to render a single-act performance this is what is known as an ENTIRE CONTRACT
New rule CONTRACTS ARE DIVISIABLE seems to be that at the seller's option, unless otherwise stated, he can demand the price, if apportionable
Mutual concurrent -- to be performed at the same time
If one party was ready and offer to perform, and the other neglected, he may maintain an action for the default of the other
General rule is that in order to entitle a part to recover damages for the breach of an mutually concurrent condition he must show performance or tender of performance for his part. They must show in some way that the other party is in default in order to maintain the action, or that performance of tender has been waived. (waiver)
Showing that a party thought the counterparty would breach is not enough
Modern rules
If one party has disabled himself, or it is impractical for him to perform, the counterparty (victim) doesn't need to present or make tender
To recover damages the victim must show that he was ready, willing and able to perform
General rule: The breacher must demand pay performance from the other party
Must show that performance is possible before bringing suit
Anticipatory repudiation is an definite and unequivocal manifestation of an intention on the part of the repudiator that he will not render the promised performance when the time fixed for it in the contract arrives.
If performance is possible and there is still repudiation, then the victim has the option of election or action -- he can restort to any remedy for breach in 2-703 or 2-711
Anticipatory repudiation can be retracted, up until the actions based on the breach, or notice that the repudiation is final have begun
Impossibility: courts are split as to whether impossibility will revoke anticipatory repudiation
Curable problems with the product (title) do not place the vendor in default -- this goes to damages
This would allow vendees to take advantage of small defects in title
Courts may not enforce a contract in equity, if there is a defect in the title if the aggrieved party knew of the defect (or possible defect) in the title (on the grounds of assumption of risk.)
Reasonable time is given to cure defect (if offered)-- and the defect must be specified
Seems to be an exception for a dangerously defective car where restitution is given
In practice Liquidated Damages Clauses deal with the problems of people not delivering
Express (true) condition (implied in fact) -- not necessarily spelled out in so many words but is "gathered from the terms of the contract" -- and a covenant, by nature of implied good faith can become a condition
Condition precedent -- can reach into equity, and the court may imply that a condition is a condition precedent -- courts fear forfeiture unless expressed on contract or within the obligee’s control
Burden of proof on Plaintiff
Definition: a condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due
Holmes – one can manipulate things by saying that the conditions are precedent or subsequent to something else
A promise to pay a 3rd party "when" moneys are received becomes an implied condition precedent -- the event that makes the obligation to pay has not ripened into an obligation
Such a condition would be valid, if the debt had been acknowledged and the only question on the pass-through related to ‘when’ the moneys were received
The existence of the condition is no material part of the exchange for the promissor’s performance and the discharge of the promisor would operate as forfeiture.
(when, after, etc.) are the same as "if"
Implications that courts may make
Courts may imply that a condition is a condition precedent
Imply a duty at law to make a condition precedent happen (unless disclaimed)
There is a debate in law as to how far an obligor has to go to see that the condition happens
There could be grounds for estoppel, if the court finds that something was represented incorrectly as a given, yet was really a Condition precedent
Court may imply a duty to see that certain things are going to happen
Plaintiff have to prove condition precedent was fulfilled
A condition precedent can be based on an agreement to pay if the counterparty gets paid – especially if it can be implied or is expressed that the money comes from a particular cashflow.
There can be an equitable nature of conditions, one is deprived of all benefits by failing to fulfill part of the conditions
Fulfillment of conditions
if an obligation by a promissor depends on a condition within the control of the promissor, than the promissor can’t hinder or stop the maturing of the condition
The promissor has to exercise some sort of care to make the condition happen (good faith)
Since the courts fear forfeiture, substantial performance of a condition does not necessarily relive the counterparty of obligations. In some jurisdictions, especially in insurance, the burden to show the harm that was done by the partial performance is on the victim, in others it is on the breacher.
Some courts (including New York), say that doctrine of substantial performance ordinarily is not applicable to excuse the nonoccurrence of an express condition at least where plaintiff has conferred no benefit upon defendant -- so in construction, the spurned construction company may be bore apt to get the condition excused, because the victim gets benefit, but in delivery og goods ther is the possibility of reselling
If the parties agree that "time is of the essence," a party may be in breach by not delivering on time.
Substantial performance is judged by the good faith test -- even in the case of corruption (can take into account a balance of equities). A willful transgressor might be able to get Quantum Meruit
Cy pres -- in trusts
If there is a direction in a trust, and the direction is impossible, the trustee supposed to get as close as possible to the settlor’s intentions
If a party comes close to performing it, it may be acepted
Conditions may be excused, if the person goes insane, and in some cases judges will modify them
Showing impracticability under the UCC, the burdon of proof is on the seller
Condition Concurrent
When all or part of the performances are to be exchanged under an exchage of promises are due simultaneously, it is a condition of each party's duties to render such performance tht the other party either render or, with manifested present abuility to do so, offer performance of his part of the simultaneous exchange.
We assume that if the parties are silent, the promices are mutaul
This policy replaces the covenants of years back
Conceivably they could sue each other
Condition subsequent: Burden of proof on defendant
a duty is discharged if a condition subsequent is met
Defendant having to prove a condition subsequent -- ie showing that something is discharged
E.g. if something says that a duty is "void" it can be taken as a discharge
If fulfillment of a condition subsequent becomes impossible, the court may interpret it to change (e.g. a statute of limitations can be implied to vary based on surrounding circumstances) however, courts seem unwilling to replace excused conditions subsequent with reasonable time requirements
If the impossibility of a condition subsequent was caused by an act of government (or other externalities), restitution of "equitable value" should be awarded (the premiums paid, minus any value that the insurance would have had.) (other view is to take a different value of the profit measured by the insurance company)
If there is a "failure of the contract" (ie both sides do not deliver) they may still be subject to the 'home-brew statutes" of limitations in condition subsequent
Parole evidence rule: if the parties intend that the writing embody their entire agreement then the parties may not bring in evidence outside their writing for determining what the terms of their agreement
Exceptions to the Parole evidence rule -- things that can always be admitted
Note: the parole evidence rule only applies to agreements between two or more parties -- not trusts or alternative forms of contracts
Trusts: "every instrument in writing is to be interpreted, with a view to the material circumstances of the parties at the time of the execution, in the light of the pertinent facts, within their knowledge and in such manner as to give effect to the main end designed to be accomplished" (note: this involves a trust).
Evidence is admissible to show a conditional delivery (or a delivery, which was, in fact, a bailment -- unless the terms of the integrated agreement contradict the terms of a bailment or conditional delivery,
Evidence that a condition precedent to a contract is admissible. E.g. if a party agrees to attempt (in good faith) to find a contract to settle a debt, the agreement to settle the debt (even if Integrated) will be looked upon as being depending on the first contract.
Evidence is admissible to show whether an agreement is illegal, fraudulent, lacking consideration other invalidating cause
Consideration in option contracts Except in option contracts – court will not break the Parole evidence rule to show that consideration mentioned in an option contract was never received. Parole evidence rule and consideration
Evidence about mistake is admissible
If there is a merger clause, this might negate mistake
Evidence is admissible to show grounds for granting or denying rescission, reformation, specific performance or other remedy (rescission is equitable remedy)
Evidence is admissible that the facts establishing the contract is voidable in the first place (fraud)
Evidence is admissible to contradict the preliminary language
A majority of courts have found that waiver of a term at time of contract will break parole evidence rule
Four basic rules of Parole evidence: Procedure of Parole evidence rule
Rule number 1: Parole evidence rule is always judged as a matter of law
Question of evidence that is admissible is for a judge to decide, and is freely reviewable on appeal
(credibility of extrinsic evidence is for the trier of fact)
States of integration
Integration
Finding integration
Parties intend the agreement to be the complete statement of their total agreement
An "integration clause" or merger clasue is only persuasive evidence of an intention to integrate
Presence of a Merger clause will ordinarily resolve the issue of total integration
Where the instrument is obviously incomplete on its face, and where the merger clause was included in the instrument as a result of fraud or mistake or for any reason that is sufficient to set aside a contract -- this will abrogate the merger clause itself (rather than the contract as a whole)
Some courts have said that the merger clause must be agreed upon – differentiating between a "dickered" merger clause and a boilerplate
Despite the existence of a merger clause parole evidence is admissible to show that the agreement is void or voidable or to show specific performance or other remedy
If an agreement omits a consistent addition term which is agreed to for separate consideration, it is not completely integrated
There is no need for signatures -- the statute of frauds can be satisfied by writing that were never effected or intend to be enforced
A non-binding integrated agreement can discharge a term in an earlier agreement – that would have been part of the integrated agreement if it had not been integrated.
E.g. of Restatement §213.3: A sells a house to B with a binding, written agreement specify the price, buy-back term, date of payment and property. A and B later agree to an oral, integrated, agreement for same (with consideration) that does not specifics a buy-back term, integrated written agreement, which specifics same (except for buy-back term). Hence, the buy-back term in the first agreement may be discharged as 1) the 2nd agreement, though non-binding is integrated and 2) the buy-term would have naturally been part of any agreement for sale of house (integrated or not.)
D’ounch D’Heume v. US: "if it is not in the bank file, it doesn’t exist" – later codified
Effect of integration
Under the Uniform Commercial Code meanings of terms can be admitted even into totally integrated agreements
Under UCC Court must admit (in this order (express terms, course of performance, course of dealing, and usage of trade.)
Under Uniform Commercial Code meanings of terms can be admitted even into totally integrated agreements
Written agreements "are to be read on the assumption that the course of prior dealings between the parties and the uses of trade, unless carefully negated were taken for granted when the document was phrased
There is a question as to whether a single episode of performance is indicative of a course of performance, or whether he just waived his rights once (determined on a case-by-case basis)
Behavior according to Previous contracts and usage of trade can be admitted
Parole evidence rule doesn’t bar reformation of deeds (or some contracts)
An integrated agreement discharges prior agreements to the extent that it is inconsistent with them -- note: agreement must be binding and valid (not voidable)
A binding completely integrated agreement discharges prior agreements prior agreements to the extent that they are within their scope.
In a completely integrated agreement, the Parole evidence rule will bar extrinsic evidence for the purpose of showing additional promises or agreements of the parties, even if that evidence would enable the court to avoiding having to supply a term.
If the parties left a term out of their writing, knowing that a gap-filled would imply a term in it – parole evidence should not be admitted
A binding integrated agreement discharges prior agreements prior agreements to the extent that it is inconsistent with them. note: agreement must be binding and valid (not voidable)
Partial integration -- A least one term that is intended by the parties to be the final expression of agreement as to that term (parties agree to be bound)
Finding partial integration
Common law and Uniform Commercial Code tests for contradictoryness
"Might naturally test" of restatements If a court determines that an agreement is partially integrated, evidence can be interdicted of "side agreements" that are contestant with the rest of the agreement as they "might naturally have been omitted from the writing."
If it is something that probably would have been put into the writings, it probably can’t be introduced
"To be inconsistent with the meaning of the partial integration, doctrine, the oral term must contradict an express provision in the writing"
"Would Certainly test" of the Uniform Commercial Code: whether the proffered term is the type that would certainly have been included in the final agreement of the parties, had it, in fact, been agreed to." -- hence, if something would certainly have been included, it would be contradictory.
Scholars say that there should be limits because errors might happen – and parole evidence might be needed to clean up after them – opponents say that Uniform Commercial Code could fill the gaps and that if the term were important enough, they would have included it.
Effects of partial integration
Evidence can be admitted for additional terms
Could find hypothetical bargains -- somewhat different than gap-fillers
Second rule -- outside evidence admitted only for language in the contract agreement on its face is ambiguous
Consequence of this rule is that sometimes people may put language in contracts which is deliberately obscured to preserve competitive advantage against their competitors
Third rule -- Courts will entertain outside evidence if a term of the agreement is ambiguous on its face
Three positions to telling whether something is ambiguous
Ambiguity on its face
One is not allowed to introduce extrinsic evidence in order to establish that the term is ambiguous – in order to establish a latent ambiguity
If it is difficult to determine whether a particular act by a part in the deals in the contract is a waiver or sheds light on the meaning of a term, the courts will assume that it is a waiver
Some judge are willing to look at circumstances to tell whether the words is ambiguous
This might be called the reasonably susceptible test
I.e.: brought in parole evidence to show that United Kingdom was meant to include Ireland
Theories
Wiliston's view
Judge should stay within "four corners" of agreement – and writing is the be all and end all
If the writing expressly delares that it contrains the entire agreement of the parties in what is usually called a merger clause (adopted by Uniform Commercial Code)
A merger clause does not prevent enforcement of a separate agreement supported by a separate consideration
Modern Williston followers (Andews )
Judge should attempt judge the whether the agreement is complete completeness of the agreement based not only on writings, on the surrounding circumstances
Unless the judge found that the agreement incomplete, additional testimony wouldn’t be admitted
Writing is the focus of attention, and the judge, by assuming the function of a reasonable person determine whether the writing did supersede all previous undertakings
Additional terms can be proved if the writing is obviously incomplete
Where the writing appears to be a complete instrument expressing the rights and obligations of the parties, it is deemed a total integration unless the alleged additional terms were such as might naturally be made as a separate agreement by parties situations were parties to the written agreement, in which it is a partial integration
A reasonable person, knowing what these parties discussed would say that "100 could reasonably mean 1000" – Trainor would disagree, because he would assume that there was no possibility of seeing the difference
Judge Browker -- "a contract is to be read in the circumstances of its execution"
Trainor would let in evidence for purposes of interpreting a term in the writing, so long as the term in the writing is reasonably susceptible of being interpreted in light of the extrinsic evidence.
Difference between interpreting and defining
There can be industry definitions
"every instrument in writing is to be interpreted, with a view to the material circumstances of the parties at the time of the execution, in the light of the pertinent facts, within their knowledge and in such manner as to give effect to the main end designed to be accomplished" (note: this involves a trust)
Majority view (Corbin/Judge Lehman’s)today is that parties can ask a judge to admit all relevant evidence to show the circumstances surrounding the making of the written in order to show that writing is not completely integrated
Jury has larger roll because more evidence will be admitted (as the writing is held to be less "special")
An overruled case where evidence of an oral condition precedent to a stock option, would allow evidence to be admitted as ‘non-contradictory."
Fourth Rule (rule number1)
Excuse of contractual rights and duties (did the parties consent to a contract based on the future state of affairs) -- implied at law conditions are discharged by impossibility
Complete Performance discharges duties -- except for good faith substantial performance
UCC has a perfect tender rule whereby if a good isn't accepted in a reasonable time it is considered perfect
For a rejection to be valid, it only needs to be procedurally (not substantively) correct
Must be given in reasonable amount of time -- time spent communicating about defects is included in "reasonable"
Common law and construction contracts have a substantial performance doctrine
Unless substantial performance is completed (ie Plaintiffs stop defendants from performing, there can be no recovery on a contract -- otherwise stuck with Quantum Meruit (varies by state)
Good faith is always implied
Performance, and impossibility of doing that these are only defenses to breaches
Destruction of subject matter -- If the subject matter is destroyed, the contract is voided
Old rule: parties implied a term into the contract whereby destruction would excuse both parties
New rule: excuse of duties is implied by law into the contract
Death (in personal service contracts) is an excuse of the contract. Hence, assistants are out of contract (they can recover in quasi-contract)
Not in occupancy in a (or construction contracts -- which, until possession transfer is attempt do not constitute substantial performance)
Construction: Since a construction contract is usually in installment contracts, the risk of loss is on the contractor until completion. (ie, under most circumstances, under a contract contact, the finished job is a condition precedant to pay anything)
In remodeling, recovery in quasi-contract is possible if some benefit at any time was done -- as remodeling is treated like something closer to a service per se.
Some courts have allowed the contract to recover in quantum walabat for goods that were about to be installed, but were destroyed
This method criticized, as it may encourage arson
A party in an installment construction contract whose contractor is not performing in a workmen like manner, can with hold progress payments or suspend performance
The sub would can elect to treat the breach as a partial breach
If they are in occupancy (this constitutes substantial performance)
Lease: Lessor takes risk of loss (has to pay rent for time the place is not there)
License: Lessee takes risk of loss
Impossibility (death, destruction, deterioration, illegality, war or illegality, or the failure to come into existence) not anticipated of the subject matter test is objective
Non-occurrence of the vent causing the impossibility was a mutually shared basic assumption
The contract must be rendered impractical because of this unallocated contingency
Neither party caused the event to happen
Immaterial Conditions can be excused in the event of impracticability of impossibility
Prime examples are administrative technicalities
No one implicitly or explicitly assumed this risk
Impossibility only applies if the specific subject matter mentioned in the contract becomes impossible
There could be implied (Parole evidence) terms which specifiy which goods are the ones that might become impossible to deliver
Note: if part of a delivery is destroyed, and the cost can be apportioned, the seller won't be penalized
If buyer doesn't want this fractional part, he can reject this partial shipment
Note on installment contracts: if the overall value of the entire contract doesn't change, the buyer has the right only to reject the given shipments
Under bankruptcy, debts must be discharged. Attempts to make them right should be in writing.
Promises to pay unenforceable debts can be enforceable without promissory estoppel or consideration
Frustration -- principle purpose for having entered the contract is gone
Definition: when an event, the non-occurrence of which was a basic assumption on which the contract was made.
The value to one party of the other's promised performance is substantially eliminated
The party asserting the defense did not assume the risk or cause it
Subcontractors can be excused if a government entity makes performance impossible
Frustration of purpose -- must be totally outside the contemplation of the parties at the consummation of the contract
Restitution can be given
Partial performance
Legal duty rule: the payment of a part was not regarded in law as a satisfaction of the whole, unless it was in virtue of an agreement supported by consideration
Legal Duty rule -- only applies to liquidated claims where there is no dispute over them
Unliquidated claims: accord and satisfaction of a single claim is not avoided merely because the amount paid and accepted is only that which the debtor concedes to be due or that his view of the controversy is adopted in, making the settlement -- there is still a duty to settle the claim
estoppel: Just paying less doesn’t discharge obligation – unless, an agreement to pay less was made and relied upon
performance can be gotten around by recession of the contract and replacement with another contract
rescission
rescission and consummation of a new contract can be con be done simultaneously or immediately afterwards
rescission (must be made with full knowledge)
If both the parties agree to rescind the contract, they are getting back their freedom. (no new consideration necessary)
Unanticipated events that might make a promise to do something else binding
If the modification of the contract is fair and equitable in view of circumstances not anticipated by the parties when the contract was made
To the extent provided by the statute
To the extent that justice requires enforcement in view of material change of position in reliance on the promise
Waiver
At common law, had to be supported by consideration
Under Uniform Commercial Code, no consideration necessary
Llewelyn was only concerned that it was done in good faith, and in writing.
Times of waiver
Waiver at time of contract
This brings in Parole evidence rule
A majority of courts have found that waiver of a term at time of contract will break parole evidence rule
Waiver before failure of condition
Waiver of a material part of the exchange is ineffective -- only an immaterial part of the exchange can be waived
Parts of a contract, once waived can be reinstated
Waiver after the failure of a condition (election) Majority view is that a waiver can't be withdrawn
Minority view is that it can be withdrawn unless relied upon
There could be Promissory estoppel based on a waiver
The sub would can elect to treat the breach as a partial breach
Note: waiver, once given, can be withdrawn so long as it doesn't operate unfairly
Condition must be waived solely for the benefit of the party waiving it
Although it is hard to tell, if the waiver is for the benefit of both parties, than it can't be unilaterally waived by either party
Waiver after failure of condition (election)
Creates a course of dealings -- can be shown by promise or conduct
Majority view an election, once made can't be withdrawn
Right to sue
The person who waives does not lose his right to sue for breach and damages if he is forced to by the nature of the material (e.g. he needed the house, and he moved in despite it having defects)
If the someone manifests an intent to pay despite a breach, he might only be able to sue for the partial breach -- under the UCC, acceptance with a partial breach limits one to damages for the partial breach
Under the UCC the one must give noticed of a partial breach or be barred from remedy
Damages can be renunciation under the UCC if the renunciation is signed and delivered by the aggrieved party
The would can elect to treat the breach as a partial breach
Estoppel
A waiver which is relied upon
Express waivers
Often an assurance of performance will negate a waiver
Failure to give an assurance can be treated as a repudiation,
Implied waivers
Might establish a course of dealings
Perhaps knowledge that one will breach on condition
Modification under common law requires consideration, under UCC it doesn't
Courts are generally uncomfortable with it -- and want to make sure that the modification is fair, equitable, and because it is made of circumstances unanticipated at either time, or has induced reliance by a party to the agreement
See section on duress above
Difference between waiver and estoppel
Waiver is the knowing and intentional relinquishment of a right
Estoppel requires detriment – not relinquishing, but behaving in a certain way which estopps one from asserting the right
Accord and Satisfaction (note: accord is the agreement)
Hybrid of a substituted performance agreement and a substituted contract
definition: an accord is a transaction in which a party owed a duty under a contract agrees to enter into what would otherwise by a substituted contract, except that the duty due under the original contract is discharged only when the duties promised under the accord are actually performed
on breach of the accord the obligee has the option of either suing to enforce the original duty, or suing for the breach of the promises made in the accord -- maybe more on accord
If you cash a check that says "payment in full" is cashed, it is accord and satisfaction
If you cross out the words payment in full under the condition, but cash it, you are still accepting it -- though there must be a dispute about they payment first (un-liquidated claim -- a bone fide dispute over the amount due) -- the law favors compromise to end litigation
When the owed party offers an accord, it is governed as an offer
Breach of accord
According to some courts the accord is assumed to replace the original debt
Restatements say that it was only an offer -- to grant the debtor a limited window of opportunity
Implied Additional contracts
Court can take an apparent modification to be an additional contract -- when the original contract was based on information supplied by the first party, and the second party relied on it.
Party might be reserving the right to sue
Privity of contract -- One (or close relatives) would have to be the party to the contract in order to make a claim for a breach
Judging the rights of the 3rd-party by the Intent of promisee
If the contract was made mostly for the intent of the 3rd party, the 3rd-party will be protected
Promissory estoppel exists here – this can be treated as a relied upon donative promise
Presence of express rights of the 3rd party
Expressly naming the 3rd party
The closer the social relationship the more likely the intent to benefit a 3rd-party will be found
Under modern law the additional parties must either be creditors or incidental beneficiaries (presumption is that third party beneficiaries are not included)
Incidental beneficiaries (unprotected) -- if performance is to run directly to the promisee, the 3rd p[arty is ordinarily an unprotected incidental beneficiary -- unless the contract is made primarily for the benefit of the 3rd party, the 3rd party is an incidental beneficiary.
Intended beneficiaries (newer view)
Creditors – intended to discharge a duty he owed to the third party
Does not actually need to be such a debt, but the donee must belive that there is such a debt
The user might need to be an intended 3rd-party beneficiary (donee beneficiary) -- if it runs directly to a third party, he is ordinarily an intended beneficiary
Modern test is that the beneficiary must have understood at the time that they were the beneficiaries
If the parties to the contract intend someone as a beneficiary, they have a right to sue under the contract
Common law stated that donees needed to be family members
Third parties are never subject to tort liability limitations in contracts
Alternative categories of third-party beneficiaries
Trust: funds deposited for a specific purpose, that the trustee had the duty to pay someone else
Agent: someone whose job it is to do something specific with the money (for consideration) in the name of someone)
Novation or substituted contract: if both parties agree to new terms of the contract, it is a substituted contract, if the new contract involves new parties it is a novation
upon the formation of a substituted contract or novation, the original debt is immediately discharged
an offer of a novation
Interests to be protected in breaches. Non-breaching party usually has a choice of remedies
Time when a breach occurs
At time of repudiation, a party can cover (and before the cover, the repudiation can be revoked)
Exception: if one party prepays in an "installment contract" where there is payment in return for a later performance(s), the courts do not permit the victim to sue until after the performance is due (if the first amount was prepaid) -- note: the Plaintiff must have completely performed, and he must be entitled a fixed payment of money (or goods) in time or in installments
Note: in this exception, the Plaintiff's duties can be interpreted broadly -- ie: not abandoning the property
The initial installments may be independent, but the final installment by be dependant on the handing over of or other event.
A party in an installment construction contract whose contractor is not performing in a workmen like manner, can withold progress payments or suspend performance
A party (under the UCC and Restatements) can demand assurances that a contract will not be breached
Should have reasonable grounds to demand that a contract might be breached
Once given assurances should rely on them
A repudiation can be revoked until cover starts, or suits start, or notice that the repudiation is final
Under Uniform Commercial Code a party can use its commercial judgment about performance, under Common law it must stop performance
A breach under the Uniform Commercial Code grants specific rights to the victim
Withold delivery
Stop delivery by carrier
Finish unfinished goods
Resell the goods and recover damages
Recover damages for non-acceptance
Recover price of goods
Or cancel the contract
Cancellation is just like recession -- but it is automatic
CONTRACT THEORY OF THE EXPECTANCY INTEREST
– placing the breached party where they would have been had the contract been performed -- Courts normally want to give expectancy damages
Definition: Placing the breached party in the position they would have been had the contract been fulfilled
Formulas
Damages = (Contract Price - Market price at the time of the breach)
Market price impounds what the future value of something is
General Formula for expectation damages = Lost Value (LV) + Incidental Loss (I) + Consequential Loss (C) - Cost Avoided (CA) - Loss Avoided (LA)
Consequential damages are only available when the breaching party knew or should have know about the circumstances surrounding the loss
Buyer's Recovery (Uniform Commercial Code) = [(Cost of substitute good from another seller) (Contract price of good from the breaching seller)] + Incidental damages + Consequential Damages] -- from
Seller's recovery(Uniform Commercial Code) = [(Contract price from the breaching buyer) - Price to be realized upon reasonable sale of goods to another + Incidental Damages)]
Buyer's cover damages (Uniform Commercial Code)= [(Cost of cover) - (Contract Price)] + Incidental damages + Consequential Damages - Costs Avoided as a Consequence of the Breach.
Under the UCC there is a duty of the breached party to cover, however, a failure to cover must be proven by the defendant (breacher)
Note: if there is an inability to cover, than specific performance can be enforced in equity.
Goods are unique if they are heilooms, or priceless works of art. Or a stereo system assempled over past 15 years
Goods will be unique an enforced in equity if the defendant has a monopoly over them, or if is a market shortage
Lost volume sellers can simply seek lost profit with a large supply of goods.
Two-sale rule: When a merchant resells a good that the original contract was breached (made two sales, had the breacher not repudiated his contract) then the breacher is entitled to restitution, and the victim is entitled to expectancy
(if this is inadaquate than it is Victim's damages (standard) = (lost profit) + incidental damages (seems to be same)
Breacher's restitution = (Restitution of deposit paid to Victim - Victim's lost profits) - incidental damages
Limitations on expectancy damages
Reasonable (foreseeability) under UCC §2-712
Cover need to be fair
Once there is a breach, it can be revoked, until the cover has begun
Under normal circumstances there is a duty to mitigate (of non-repudiating party) – Uniform Commercial Code §2-610a
If there is a breach, damages are limited to cost to cover, plus addition expenses (and, subtracted from this amount is any amount saved) See the Two-Sale rule see Error! Reference source not found.
Seller’s right to recover for buyer’s refusal to purchase under contract for sale of goods
Substantial economic waste/efficient breach
Where remedying the defect would require the destruction of what has already been done
Courts won't award specific performance, if it would cost more than the benefit
Where the only breach is late performance, the owner can recover damages for loss of use of the property.
efficient breach : "So long as a breaching party is willing to pay for any damages (according to market value) caused by the breach, he or she should breach, if the end result, after the breacher pays contract damages, is that the breacher will be economically better off."
Exception: "ugly fountain" , pure speculation
Where the breach is willful, the breaching party may not sue on the contract for damages to limit, nor invoke the benefit of the doctrine of substantial performance
2nd Restatement of contracts looks not to "willful" but to "good faith and fair dealing"
Industry-specific limitations
Where a building contractor breaches after substantial performance, the courts ordinary apply the cost of completion valuation, except where it would lead to substantial economic waste
Other building limitations (all must have mitigation deducted)
Before construction
Full profits under contract
For buyer: full performance
During construction
Contract price less cost to compete less amount paid by owner
For buyer: cost of complete
In quasi-contract: e.g. contract price-cost to complete and money already paid
After construction
Full contract price plus interest
For buyer: lost income
Where the only breach is late performance, the owner can recover damages for loss of use of the property.
Building contractors are generally not subject to a duty to mitigate damages resulting from an owner's breach (but they are required to limit the losses by stopping working)
In medical cases, it is rare to award Plaintiffs damages based on what they WOULD HAVE made had the operations gone as promised
Especially if vague
Liquidated damages clauses also known as stipulated damages are to mimic expectancy damages -- No "neo-punative" penalties --
Liquidated Damages Clauses limit damage claims, but the injured party can request other types of relief (rescission and restitution, specific performance, and restitution)
Liquidated Damages Clause’s only technically cover willful breaches
Common law vs. Uniform Commercial Code’s definitions of validity
Valid under the Uniform Commercial Code’s if
reasonable in light of anticipated (at time contract was signed) or actual loss
Actual damages must be difficult to prove
Note: it isn’t any more valid if the Liquidated Damages Clause is stated in terms of a percentage
Common law test: the amount of a liquidated damages had to be a reasonable estimate of the anticipated harm anyway
Court will generally enforce arbitration clauses
An enforceable Liquidated Damages Clause does the following
Puts value on damages that are hard to determine (qualitative judgments)
States reasonable value of anticipated losses (which must be approximately correct in view of eventual breach)
Loss of bargain (ability to cover) is to be respected in an Liquidated Damages Clause unless it is impossible to determine
There is no restriction about the parties agreeing to low damages
Output Contracts to "buy all requirements" or ‘buy all product" can be enforced in equity, provided that they do not violate any of the other conditions
In order to enforce a liquidated damages clause – aggrieved party must prove that
The amount is similar to expectancy damages:
Or that the amount is reasonable in light of the actual harm suffered by the injured party and that there will be some reason to believe that there will be some difficult in proving the actual loss with precision
Note: differential pricing is a way to get around penalties for late completion in a contract
Liquidated Damages Clause is Invalid
Invalid if penalty (must be reasonable estimate of Damages at signing)
Courts will not enforce agreements for specific performance as part of an Liquidated Damages Clause (offensive to sovereign)
Liquidated Damages Clause’s should not be to penalize the other for failure or refusing to perform
Reliance interest -- not a contract theory -- aka collateral estoppel
The promisee did something to their determent in reliance on the promise, and the court, orders the breacher to compensate them based on what the breachee did on reliance on the promise.
Reliance damages is defined as the economic value of a party’s reliance interest is typically the dollar amount of whatever out of pocket costs (including labor) were incurred by the non-breaching party up to the time of the breach in reliance on the breaching party’s performance.
Even the contract is unenforceable, can get reliance damages.
Statute of frauds, unforceable by other ways, etc.
Reliance damages will be reward where
Reliance damages are an alternative to expectancy damages when determining the expectancy interest fails
Limitations on reliance damages
Must have reasonable certainty (2d restatement)
Losing contracts: If the breaching party can prove that it was a losing contract in the first place, the loss must be subtracted
Courts want to avoid making the breacher the insurer of the breechee's venture (Armstrong Rubber haircut)
Any salvageable materials from the first contract must be subtracted
Any damages claimed must not have been avoidable by the non-breaching party without undue burden, risk, or humiliation
Industry-specific limitations
Reliance damages for botched operations can provide a middle-ground
Only for additional pain and suffering other than normal
Common carriers: Can get reliance damages based on common carriers breaching because common carriers must take whatever is given to them – and based on this assumption parties spend money
Restitution Interest is defined as the value of the enrichment received by the benefited party, and not on the value of the aggrieved party’s promises
Value of the benefits conferred on the benefited party must be properly valued under the appropriate theory. Note: when a non-breaching party is seeking restitution, the theory that awards the more generous awards will be used (and if it is the breach, the least generous)
Cost avoided theory: How much it would have cost the benefited party to hire someone else to prove benefits
Net benefit theory: Difference in the fair market value of his or her property, or his or her worth, before and after the actions of the aggrieved party
Restitution must be mutual (both sides must pay each other for the work not done, or damage done)
Types of restitution – can based used for illusory promices
Quantum meruit can be defined to mean a quasi-contract
"the whole point of Quantum Meruit recovery is to compensate Plaintiffs who have provided a benefit to defendants but who do not have a contract"
Quantum walabat is defined as value of goods done minus defendant’s damages for the breach
Restitution can be given for undue influence
Specific Performances -- in equity. Usually less than expectancy
In general, jurisdictions with lax substantial completion doctrines don't get specific performance
Equity will be used if: -- note: if there is no equitable relief, the Plaintiff can still sue on the contract
Summary: equity can be used if
Definite and enforceable contract -- equity requite that a contract be more definite than it would be at law for enforcement
Some theorists have said that before a contract is denied equitable enforcement on grounds of indefiniteness, all gap fillers and parole evidence should be used to make it definite
Recently courts have granted equity to some contracts with indefinite terms
An unenforceable contract for real property that doesn't satisfy the statute of frauds
Promissory estoppel
If there is difficulty proving damages with reasonable certainty
Difficulty of procuring a suitable substitute performance upon an awarded of monetary damages
Equity will allow specific performance of a parole promise to make a gift of land, and the promisee has received possession of the land, and has made significant improvements thereon --note: this is a way of getting around the statute of frauds – modern cases would probably use Promissory estoppel estoppel to enforce such agreements.
The statute of frauds only speaks of a contract, and so modern courts sometimes allow Promissory estoppel to defeat a Statute of Frauds Defense, most do not.
Note: if there is an inability to cover, than specific performance can be enforced in equity.
Goods are unique if they are heirlooms, or priceless works of art. Or a stereo system assembled over past 15 years
Goods will be unique an enforced in equity if the defendant has a monopoly over them, or if is a market shortage
Effect of specific performance on third person will be considered. I.e.: if there are two persons needing the goods (but a finite amount of goods), the court may decide to award specific performance of half of the goods (and compensatory damages for the rest of the value).
Under Equitable estoppel also known as estoppel in pais prevents a person, in equity from hiding behind the statute of frauds
Equitable estoppel arises out a person’s statement of fact, rather than a deed or record -- prevents a person, in equity from hiding behind the statute of frauds
A person who is guilty of misrepresentation of existing facts, including concealment, upon which the other party justifiably relies to his injury cannot can not deny his utterances or acts to the determent of the other party
Concealment can be handled as fraud (tort and criminal remedies)
To enforce arbitration awards -- even if the court would not have awarded such performance
When Equity will not be used
If one party had a contractual right -- be failed exercise it, than equity will not specifically enforce the other parity's duty
Equity (rescission) will not be used if the breach is not material -- will leave parties to their damages
If one party entered to contract under a material mistake, and the enforcement would be harsh
If there was a mistake that one party made when entering into the contract, but it was not technically due to misrepresentation
Unclean hands: if the Plaintiff has been guilty of misrepresentation or non-disclosure, illegality, (defrauding creditors)
If there was trickery used which took advantage of one of the parties gross disparities in knowledge
In general, equity will not enforce promises to make gifts (or similar) if they are without consideration, with nominal consideration, or in writing
Where a contract, such as an option contract is supported by nominal consideration, a seal, or a writing, and looks to a further performace which constitutes a fair exchange a condition to the defendant's duty, equity will enforce it.
In general (at the moment) to enforce specific performance in employment contracts
Courts won't award specific performance for unilateral mistakes
Courts will judge inadequacy of performance
Specific performance won't be used if it adversely affects the public
Specific performance (in equity) will not be awarded (even in psuedo-land deals) if the damages can be based on the unwind amount (substantial information) of a 2nd contract. I.e.: Courts do not like awarding equitable performance.
Courts may not enforce a contract in equity, if there is a defect in the title if the aggrieved party knew of the defect (or possible defect) in the title (on the grounds of assumption of risk.) -- goes unilateral mistake that one side knew of
If there is sufficient information, could be technically construed as specific performance because damages were stated as "court awarded Plaintiff damages for loss of sub-lease income, through the date of the trial, and, should the Defendant exclude Plaintiff from the lease, damages would be assessed at the total expected value of the rest of the lease at breach.
Kronman says something in unique (is it land?) when something has uncertain damages – Arthur Jacobson rebuts by saying "doesn’t unique deal with subjective value."
Terms of the contract must be certain enough to provide a basis for appropriate court order
There is a fine line between a contract that is so indefinite that it can't be enforced, and one that is define enough to be enforced, but too indefinite to support an award of equitable relief
Enforcing specific performance Shouldn't be too burdensome on the court
Nature and magnitude of the performance promised in the contract would impose a supervisory burden on the court that is disproportion to the advantages to be gained from specific enforcement and to the harm to be suffered from its denial
Courts won’t enforce contracts for personal services, but they can order the hiring of additional commodifiable labor
Whether the contract calls for personal services
There are contracts that can be done by others
Whether such an order would be unjust as causing unreasonable hardship or loss to the breaching party
Whether there is sufficient security to believe the non beaching party will perform their side of the contact
Courts won't grant equity if it violates public policy
If specific enforcement would be an unfair business practice
If the breaching party's assent to the contract was induct by unfair practices
Whether it would cause unreasonable hardship to the breaching party
Whether the court is satisfied that specific enforcement of the contract would not result in the non-performance of a substantial part of the agreed exchange -- so the court, in order to strike balance, may condition performance by one party in equity upon performance by the other
Balance of equities and clean up principle necessary for enforcement at equity
Specific Performance: Court orders a party to perform the very duty that he or she promised to perform
Not appropriate for person service contracs –
Unless there is a specific non-compete covenant, the courts will not enforce estopp someone from working, if it involves a comodifiable service -- standing alone such agreement violates the restatements and public policy, but "ancillary restraints" connected with legitimate transactions are often respected by the courts
Courts can force non-compete covenants -- will do in a limited venue
Note: Courts will enforce specific performance against banks for breaching on loan promises
Warranty deeds -- mutuality of remedy
Courts can issue a warranty deed, whereby in the case of a failed land dead, the title is transferred with a lein on in
Injunction
Court order a party to refrain from doing something that would interfere with his or her ability to carry out the performance promised under the contract
Unless there is a specific non-compete covenant, the courts will not estopp someone from working, if it involves a commodifable service -- equity will refuse to issue such a injunction if it is too harsh on the defendant, or failure to issue the injunction will not cause irreparable harm to the plaintiff
standing alone such agreement violates the restatements and public policy, but "ancillary restraints" connected with legitimate transactions are often respected by the courts
if the employee learns no secrets and has no contact with customers, a court will not enforce a non-compete covenant at equity. -- if they have, the court might enforce it
courts can now blue-pencil covenants -- now, the courts will issue an injunction that IS reasonable (rather than severing part of the covenant)
Unilateral restriction
Court order the contract terminated and the parties to return all benefits receive d under the contract up until that point
Contract declared null and void
Because of misrepresentation or mistake
Reformation aka Quasi-Contract
Reformation won't be granted if a contract, based on a mistake is entered into, and performed
Split on contract damages for real property
Some jurisdictions: difference between market price and contract price
Other jurisdictions:
Breach in bad faith difference between market price and contract price
Breach in good faith reliance damages
Reliance damages is defined as the economic value of a party’s reliance interest is typically the dollar amount of whatever out of pocket costs (including labor) were incurred by the non-breaching party up to the time of the breach in reliance on the breaching party’s performance
Example: How do deal with bad non-compete ageements -- three ways
Characterize such as unconscionable and hence unenforceable
May go overboard
Blue pencil – renders specific parts unenforceable (only for non-compete agreements)
MOST COMMON – can be reasonably altered to render it enforceable, then the court shall do so unless it determined that the covenant was not drafted in good faith.
Can issue negative injunctions performing services, good faith agreements, and option contracts
Example: Employment options function as insurance policies were to accept with CBS (by means of an option) (which hasn’t been exercised yet) does not place him in breach (even if they have a duty to negotiate with another party first) – it simply functions as an insurance policy.
Arguments for and against specific performance
Arguments In favor of specific performance
Expectancy undercompensates the victim
Do not get attorney’s fees
Do not get subjective value
Courts do not want to get in the business of specific performance
What about efficient breach?
The realistic fear is that because the world is based on transaction costs, there will be hold-outs and the world will be based on too much compensation from promisors
Parties will not necessarily bargain their way out of things
If one party can not perform, and compensate the other for his losses than he should
If favor of expectancy damages
Undercompensating victims is okay
Expectancy encourages efficient breach
There is no jury trial in equity
Rescission
Equitable
Action must be brought immediately after knowledge (if they do not it is the laches doctrine)
Consequential damages and special circumstances §2-710
Compensatory Damages
Tort damages can be awarded for conversion or negligent misrepresentation
Deceit (a tort that looks like a contract)
Damages (out of product losses) as a result of the misrepresentation (how you were hurt) – this give you the chance to put the money back in your pocket
Deceit can be limited to out of pocket expenses (including Quantum Meruit) (other states give loss of bargain)
What deceit charged do, is give one what they would have gotten had there been no lie
In deceit one is limited to out of pocket expenses – (would have gotten the market value of someone in that job) Normally, deceit is the difference between the value of the thing bought sold or exchanged and its purchase price or the value of the thing exchanged for it
Economic losses that arise out of commercial transaction, except those involving personal injury or damage to there property are not recoverable, under the tort theories of negligence or strict product liability.
Courts do not like awarding tort damages, because of the conflict with warranties. But they will award tort damages under products liability doctrines. To allow tort liability would emasculate the warranty provisions parts of the Uniform Commercial Code. Limiting the application of strict products liability to consumers action or actions involving personal injury will allow the Uniform Commercial Code to satisfy the needs of the commercial sector and still protect the legitimate expectations of consumers.
Punitive Damages (Generally not recoverable under beach of contract) -- Intentional fraud would get punitive damages
This is an off-contract remedy to disaffirm the contract (if you have conferred valued on the other side) -- Parole evidence rule doesn’t apply
To show fraud one would have to show that they are entitled to rely on the reliance on the promises
Punitive damages can be awarded for intentionally harmful or malicious action
Mental anguish can be gotten if
Contract is non-commercial
Financial loss not significant
Parties could contemplate the mental aspect of the contract at the time of contract formation
Replevin
Remedy at law -- where one party is wrongfully holding the other's property
Nominal Damages
Where the was a clear breach of contract, but no proof of actual damages