Term
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Definition
1) Consideration: A common-law requirement that denotes the receipt by the promisor of “something of value” from the promisee
a) Nominal Consideration: As long as anything is paid in exchange for a promise, the consideration is considered adequate—it is the existence of a bargain that matters, not whether the bargain is equal or unequal from the standpoint of an objective observer
i) BUT, some courts view nominal consideration as an agreement to agree
b) Peppercorn Theory of Consideration: As long as one party promises to give another party something and the other party promises to give something in return and it’s bargained for, there doesn’t have to be equivalence in value
i) Ex: A could give B a peppercorn in exchange for a puppy
ii) However, there are exceptions to this |
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Term
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Definition
| Some courts find that valid consideration may consist of either a benefit to one party, or a detriment to the other party |
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Term
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Definition
| There has to be an unfortunate price to pay for each of the parties a) This is the dominant modern view |
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Term
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Definition
1) Donative promises would appear to fall entirely outside the “bargained-for” theory that underlies the formation of a binding contract and therefore are generally not enforceable
a) Ex: A parent promises to give a child a new car when the child graduates from college
i) The parent is obviously free to change her mind
2) Rule: Promises to make a gift in the future are not enforceable |
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Term
| Exceptions to Promises not being Enforceable |
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Definition
a) When the promisor demands specific conduct from the promisee as a condition of the gift, there is valid consideration
i) Ex: Hamer v. Sidway: An uncle promised to pay his nephew $500 if he refrained from drinking or smoking until he was 21
(1) The court held for the nephew because the uncle had induced him to forbear from doing things he had a legal right to do
(2) Rule: Forbearance constitutes valid consideration
b) When the promisee incurs irreversible obligations of her own by relying on the promise
i) Ex: Ricketts v. Scothorn: A grandfather promised to give his granddaughter $2,000 with the hope that it would allow her to quit her miserable job; when he died, his estate refused to honor the promise
(1) The court held for the granddaughter even though there was no consideration on the basis of Promissory Estoppel |
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Term
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Definition
A promise which is expected by the promisor to induce the promiseee to take some action, and which does induce such action, is binding and enforceable if necessary to avoid injustice a) Thus, reliance by the promisee may be sufficient to enforce a contract, even though the transaction doesn’t involve a bargain and even though the promisor receives no consideration
b) Promissory Estoppel requires all of: (1) a promise; (2) foreseeable reliance; (3) actual reliance; and (4) injustice absent enforcement
Promissory Estoppel is most often applied to enforce promises to make gift |
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Term
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Definition
| In Hamer and Ricketts, the courts’ decisions may have been influenced by the fact that each of the promisors had died and went to his grave wanting and intending that his gift to the plaintiff be completed, and therefore the courts felt they were effectuating the decedent’s true testamentary purpose by enforcing the promise |
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Term
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Definition
1) Courts may not want to enforce intrafamilial promises for lack of consideration and because they fear coercion
2) Kordana says that we don’t need to worry much about this because in family situations there are non-legal sanctions that will induce the performance of promises
a) Promotes beneficial reliance: We encourage the family member to make the promise because it is unenforceable so he doesn’t have to make any conditions |
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Term
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Definition
1) In general, a person who performs unrequested services for another does not thereby acquire a right to compensation or restitution, even though the performance entailed a cost to the former and a benefit to the latter
a) Ex: If you do somebody a favor, you cannot convert your generosity into an enforceable contract claim—Services that were intended to be voluntary and gratuitous remain so as a legal matter
b) Known as an Officious Intermeddler |
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Term
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Definition
(1) Ex: A doctor who gives emergency treatment to an accident victim can recover the fair value of his professional services
(2) However, Volunteers are NOT entitled to restitution
(a) Ex: Bailey v. West: P took care of D’s horse for 4 years but D had not asked for the care and had told P that the horse didn’t belong to him; P was not entitled to restitution because he was a volunteer
(3) Unjust enrichment in the case of Mistake does not entitle one to restitution
(a) Ex: A painter accidentally paints my house when he was supposed to paint my neighbor’s—I am not obligated to pay him |
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Term
| Essential Elements of a Quasi Contract |
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Definition
| a benefit conferred upon D by P; (2) appreciation by D of such benefit; and (3) acceptance and retention by D of such benefit under such circumstances that it would be inequitable to retain the benefit without payment of the value thereof |
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Term
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Definition
| , if the beneficiary of the voluntary service subsequently promises to compensate the volunteer for the value of the benefit received, the volunteer may be entitled to the compensation in some instances |
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Term
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Definition
1) Most ordinary employment is “at-will,” meaning that the employee can be fired at any time or can quit at any time
2) If the employee is required to sign a noncompetition agreement at the time he is initially hired, no question arises—It is a bilateral agreement
a) But, if he is asked to sign it during his employment, the situation is different:
i) Ex: Lake Land v. Columber:
(1) The court held that the noncompetition agreement was adequately supported by consideration and therefore enforceable: P and D exchanged promises—D to continue P’s employment, P not to compete—This created a bilateral contract within the meaning of § 71
(a) Essentially, P forbore from exercising its right to fire D at that moment
(2) The dissent argued that there was no bilateral agreement because D was still free to fire him the following day and had therefore promised him nothing
(3) If Columber had been in the middle of a 5 year contract when he was presented with the noncompetition contract (i.e. not an at-will employee), there would have been no valid consideration
3) Permanent employment is terminable at the will of either party without liability to the other
a) Fisher v. Jackson: D told P to give up his job as a baker and work for D as a reporter (for less money) under an oral contract for life or until he was physically unable to work; P complied and was later fired
i) The court held for D on the grounds that giving up a job is not adequate consideration, but a condition necessary to accept the offer |
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Term
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Definition
1) Option contracts make an offer binding for a period of time during which the offeree can decide whether to accept the offer (most often used for real estate contracts)
2) A promise that is in form an option requires consideration in order to be binding
a) Relatively small sums have been held to constitute consideration even for large potential deals
b) Ex: Eastern Michigan Univ. v. Burgess: D signed a document which purported to grant P a 60-day option to purchase D’s home, with $1 due for consideration; P never paid the stated $1 or any other consideration and D later rejected P’s intention to exercise the option
i) The court found that a dollar is valid consideration for options for the purchase of land; however, no consideration was present because the dollar was never paid
3) Option contracts are typically supported by consideration because the offeror is taking away its right to sell to someone else; however, when they are given for free, they lack consideration
4) Most courts have held that an option contract is not automatically terminated by rejection or by a counteroffer, unless the offeror then justifiably relies
a) Thus, until the term of the option expires, the offeree retains the right to accept it even after having first rejected it |
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Term
| Offer and Acceptance General |
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Definition
1) An enforceable obligation attaches only if there has been an “offer” and an “acceptance”
2) It is a common law rule that an offeror may revoke his offer at any time prior to its acceptance by the offeree
a) The offeror is also free to terminate the offeree’s power to accept if the offeree takes action that can be interpreted as a rejection of the original offer, such as by making a counter-offer |
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Term
| Objective Theory of Contract |
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Definition
| If an objective third-party thinks you are serious about a contract, then the contract is valid, even if you weren’t serious |
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Term
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Definition
1) The surrounding circumstances matter a lot
a) Ex: If the two parties had been bargaining for the past six months, steadily trading proposals and counter-proposals in an effort to find a mutually acceptable price, then “I would not take less than…” or “I would not pay more than…” might be taken as an offer
i) On the other hand, if there had been no prior bargaining, a different inference would be plausible
2) Generally, courts are likely to conclude that a communication which advises interested parties that something is for sale at a price not below $X merely establishes the basis of an auction, but does not constitute an “offer”
3) As a general rule, it is the order itself that constitutes the “offer” and the purchaser who plays the role of offeror |
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Term
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Definition
a) Rule: Public advertisements are not to be regarded as offers in a legal sense—They are regarded as nothing more than invitations to deal
i) This is true even if the advertisement is specific as to price, quantity, time-limit and other details—Shoppers are presumed to understand that advertised goods may or may not be available by the time they get ready to buy
b) An advertisement is an offer if it is definite: Lefkowitz
c) An advertisement is not an offer because it is not definite: Ford Motor v. Russell |
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Term
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Definition
a) Until the offeree accepts—whether by making a return promise or by commencing performance—the offeror is free to revoke
b) A promise to hold an offer open is not binding and can always be withdrawn on notice to the offeree
c) Offers must be presumed to be revocable unless a fee or premium is paid to the offeror; adding a deadline for acceptance means that the offer expires automatically on the date named
d) Williston’s Treatise: If the offeror can say “I revoke” before the offeree accepts, however brief the interval of time, there is no escape from the conclusion that the offer is terminated
i) Williston’s Tramp: It’s not an unfortunate price to pay to walk up the steps to get the jacket, it’s a condition to get it
e) Where marketable investment property is concerned (securities, real estate) no prospective buyer or investor has a right to assume that he is the sole offeree or indeed that he is an offeree at all in legal contemplation
i) Thus, an expression of willingness to sell such property, even for a stated price, is more likely to be a solicitation or an invitation to bid than a legal offer whose acceptance prior to revocation binds the seller
(1) Therefore, the seller’s “assent,” rather than the buyer’s “tender,” would be the final and indispensable step in a concluded bargain
f) Restatement §87: The law accepts the recital of Nominal Consideration as adequate to bind the offeror
g) *UCC 2-205 provides that in the case of an offer of goods by a “merchant,” a firm offer can be made by means of a signed writing, no consideration being required, if the offer is limited to a reasonable time not exceeding 3 months |
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Term
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Definition
An offer, revocation, or rejection is effective upon receipt a) Restatement §63: An acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the offeror
i) But, counter-offers are good when received (but negates an acceptance by mail if the counteroffer is sent first)
b) Rationale for the difference: If we said acceptances bind only when they are received, it would give the accepting party an unfair advantage of purposefully sending an acceptance by a slow means in order to prolong their options
c) Problems created by the mailbox rule:
i) The Overtaking Rejection: Acceptance is effective immediately on B accepting it (Doesn’t follow the mailbox rule); there IS a contract
ii) The Overtaking Acceptance: B sends a rejection to A, but then changes his mind and decides to accept; effectively there has been no rejection until it physically reaches A, so if the acceptance is made before the rejection arrives, there is a contract
(1) Restatement §40: If a rejection arrives first, the seller is allowed to just walk away when the acceptance reaches him (we would consider this acceptance a count-offer) (This is the Restatement’s way of working around the unfairness created by the mailbox rule)
iii) The Overtaking Revocation: If B mails an acceptance after a revocation, but before revocation has gotten to him, there IS an contract |
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Term
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Definition
1) Once accepted, the offer becomes a contract—Both parties are bound and neither can renege without liability to the other
2) Rule: An offeror is free to revoke his offer and terminate the offeree’s power to accept, provided only that he acts before the offeree has recorded his acceptance
a) If the offeree acts first, and if his action qualifies as an acceptance under relevant legal standards, the deal is done
3) An acceptance is normally stated in appropriate language, whether written or oral—However, sometimes the accepting offeree might skip the formality of a verbal expression and proceed directly to perform the act that the offer calls for
a) This happens most often when the offer is a routine or recurring event
b) *UCC 2-206: Where sales of goods are concerned, an offer (usually a purchase order) can be accepted by any reasonable “medium,” including commencement of performance
c) Restatement §§32 and 62: Announce a similar principle to UCC 2-206 and establish that acceptance by performance is a two-way street: Performance by the offeree is regarded as equivalent to an expressly stated promise—Having shipped the goods or otherwise commenced performance, the offeree is legally bound to the terms of the offer and is no more free than the offeror to treat his contractual obligations as terminable short of completion
4) Rule: An offer that doesn’t specify a time-limit remains open for a reasonable time (unless revoked)
5) In general, unilateral offers are revocable by the offeror at any time prior to completion of performance
a) Ex: A offers $5 to B to find his missing cat; if B searches for several hours, A can still revoke at any time before the cat is found
b) However, Restatement §45 treats the commencement of performance in response to a unilateral offer as conferring an “option contract” on the offeree: A right to complete the performance that has been commenced if he chooses to do so
i) Here, the offer is irrevocable if the offeree begins the search
(1) However, §45 does not bind the offeree to complete the performance
(2) Ex: In Hamer, the uncle could not have revoked the offer after Willie had forbore from drinking and smoking for several years but before he had turned 21
6) Restatement §42: An offeree’s power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract |
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Term
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Definition
1) Rule: If an offeree purports to accept an offer but in doing so adds various conditions and qualifications of his own, the acceptance is NOT binding on the offeror
a) Ex: Davis v. Satrom: D’s acceptance of an offer included a clause saying that the acceptance was conditioned on his attorney’s recommendation; thus, the offer added a condition and was therefore not binding
b) Restatement §59: A statement of acceptance is effective only if it is a mirror image of the offer and expresses unconditional assent to all of the terms and conditions imposed by the offeror; a purported acceptance which alters those terms or adds qualifications does not bind the offeror, even if the changes or additions are minor
2) There is no deal, and nothing to which the offeror is bound, until all of the dependent conditions on which the offeror insists have been accepted by the offeree
3) If an offeree responds to an offer by making a counteroffer (i.e. proposes terms other than those contained in the original offer), the common law treats that response as the legal equivalent of an outright rejection
a) Thus, a subsequent effort by the offeree to accept the original offer is ineffective; the offeror can simply disregard the counter-offer and go on to make a deal with someone else on whatever terms he likes
b) Restatement §39 adopts this rule
i) However, a counteroffer shall not be treated as a rejection if the offeree “manifests a contrary intent”—for example, if the offeree’s aim was merely to inquire about the possibility of different terms
The UCC and CISG are more liberal with regard to the mirror image r |
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Term
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Definition
1) If writing exists, look at 2-207(1)
a) If you are in a situation before the comma (no conditional assent) with additional terms, go to 2-207(2)
i) Additional terms get in under 2-207(2) as long as they do not materially alter the contract
b) If you are in a situation before the comma with different terms, go to 2-207(2)
i) 2-207(2) doesn’t explicitly provide for different terms
(1) Options: (1) Knockout rule; (2) Treat them as purely additional; (3) Ignore them completely
c) If you are in a situation after the comma (there IS conditional assent), there is NO contract
i) NOTE: The conditional assent must be clear and unequivocal (Gardner Zemke)
ii) Treat it as a counter-offer in common law
2) If there is no writing, then look at the conduct and consider it under 2-207(3)
a) Use the terms that agree plus any default UCC rules
3) Divisibility Test: If the contract can be divided into goods and services, the UCC applies to the products and the common law to the services
4) Predominant Feature Test: If the contract can’t be divided, the predominant feature determines the law that applies |
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Term
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Definition
1) If writing exists, look at 2-207(1)
a) If you are in a situation before the comma (no conditional assent) with additional terms, go to 2-207(2)
i) Additional terms get in under 2-207(2) as long as they do not materially alter the contract
b) If you are in a situation before the comma with different terms, go to 2-207(2)
i) 2-207(2) doesn’t explicitly provide for different terms
(1) Options: (1) Knockout rule; (2) Treat them as purely additional; (3) Ignore them completely
c) If you are in a situation after the comma (there IS conditional assent), there is NO contract
i) NOTE: The conditional assent must be clear and unequivocal (Gardner Zemke)
ii) Treat it as a counter-offer in common law
2) If there is no writing, then look at the conduct and consider it under 2-207(3)
a) Use the terms that agree plus any default UCC rules
3) Divisibility Test: If the contract can be divided into goods and services, the UCC applies to the products and the common law to the services
4) Predominant Feature Test: If the contract can’t be divided, the predominant feature determines the law that applies |
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Term
| Insufficient Definiteness |
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Definition
1) When there are gaps in a contract, two approaches can be taken:
a) (1) Don’t enforce the contract
i) Ex: Sun Printing v. Remington Paper: P and D contracted to buy/sell 1000 tons of paper per month for 16 months; they decided on a price for the first 3 months and agreed that they would later set a price for the remaining 13 months; when it came time to decide on the price for the other months, D backed out of the contract, saying that they were not obligated to deliver the paper for the last 13 months
(1) The court held for D, saying that because the two parties had left the gap unfilled with respect to the final 13 months of the contract, it was nothing more than an “agreement to agree”
ii) Policy reasons for not filling in the gaps:
(1) Court regulation approach: The judge may think the parties should make a good faith effort to limit the number of gaps
(2) Actual intent approach: Sometimes there are so many gaps that it looks like the contract wasn’t intended to be binding, it was more of an agreement to agree
(a) Supported by Restatement §33(3)
b) (2) Fill in the gaps with either (1) mandatory rules; or (2) default rules
i) Mandatory rules: There is a statute that overrules the terms of the contract
ii) Default rules: Ex: Put the burden on the least cost avoider
2) UCC 2-204(3): Even if one or more terms is left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy |
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Term
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Definition
1) Article 2 can fill gaps for most basic things EXCEPT quantity: Quantity must always be agreed on by the parties
2) Price: “Reasonable price at the time of delivery” (2-305)
3) Place of delivery: If not specified, it will be the seller’s place of business, or if there is none, the seller’s home (2-308)
4) Time for shipment/delivery: If not specified, it is due in a reasonable time (2-309)
5) Time for payment: Due at the time and place at which the buyer is to receive the goods (2-310)
6) Assortment: For contracts that are for assorted goods but do not specify the quantities of the exact types of goods, it is the buyer’s option to choose the assortment (2-311) |
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Term
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Definition
| 1) Performance of an act which the promisee is already bound by contract to perform is not “valid consideration” for the change that the promisor has apparently agreed to—the enforcement of the promisor’s subsequent promise would accordingly be barred on the ground that a fresh consideration for that promise was lacking |
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Term
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Definition
1) If the identity or the character of the property or service being bought or sold is overtly misrepresented by one of the contracting parties, then the other party’s assent is obviously not meaningful and any agreement that results will be regarded as voidable
a) This is true even if there is no specific intent to defraud |
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Term
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Definition
1) Courts traditionally declined to grant specific performance if they regarded an agreement as grossly unfair, particularly because of inequality of exchange
2) Unconscionability includes two salient features:
a) (1) An absence of meaningful choice on the buyer’s part (in effect)
i) Meaningful choice might be negated by the “manner” in which the contract was entered into: Did each party, considering his education or lack of it, have a reasonable opportunity to understand the terms of the contract, or were the important terms hidden in fine print and minimized by deceptive sales practices?
b) (2) The presence of contract terms “unreasonably favorable” to the seller
c) Ex: Williams v. Walker-Thomas Furniture: D’s standardized forms included a “dragnet” clause in which if any item was not paid for, all items bought from the store by D could be repossessed because the debt she owed was spread out among all of the items she had purchased
i) The court held that unconscionability was available
3) UCC 2-302: A contract entered into by competent adults is binding without regard to anyone’s opinion of its fairness; but where the circumstances indicate that one party did not, or could not, fully comprehend the meaning of the contract, then the court is free to use its own judgment to determine whether the contract terms are fair
4) The challenged contract terms must be considered and appraised as of the time the contract was entered into by the parties: The question isn’t whether the unhappy party now feels oppressed by the outcome of the contract, but whether it was unconscionable at the time he entered the contract
5) The prevailing view today is that BOTH procedural unconscionability and substantive unconscionability must be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability
a) Procedural Unconscionability: The manner in which the contract was negotiated (bargaining naughtiness) (ex: lack of education)
b) Substantive Unconscionability: Whether the obligations assumed were unreasonably favorable to one of the parties (ex: unfair terms)
6) *Courts have generally been reluctant to accept pleas of unconscionability as between two merchants; there is a presumption of conscionability when the contract is between businessmen in a commercial setting |
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Term
| General Statute of Frauds |
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Definition
1) As a safeguard against spurious claims, the Statute of Frauds, applicable with minor variations in every state, forbids the enforcement of certain classes of contracts—among others, sales of land, suretyships, and service contracts not to be performed within one year—unless evidenced by a “written memorandum” (i.e. these types of contracts CAN’T be oral)
a) UCC 2-201 contains a similar restriction applicable to sales of “goods” for a price of $500 or more ($500 in the revised version, but this has not been adopted)
b) Neither the Statute nor the UCC means that oral agreements within the affected classes cannot be made and performed—they are not in any sense illegal—but only that enforcement may be unavailable if one party or the other refuses to fulfill his obligations |
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Term
| Agreements that Must be in Writing to be Enforceable under SOF |
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Definition
1) The statute requires that certain contracts must be in writing to be enforceable
a) These include:
i) Contracts to answer to a creditor for the debt of another
ii) Contracts made in consideration of marriage
iii) Contracts for the sale of land or affecting any interest in land (except short term lease)
iv) Contracts not to be performed within one year from their making |
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Term
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Definition
1) The Restatement and UCC both declare that a contract must be in writing if it is not to be performed within one year from its making
a) In order for a contract to fall within the Statute, it has to explicitly say that the contract will be performed in more than one year |
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Term
| Multiple Writings to Comply with Statute |
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Definition
1) A writing must be sufficient to indicate that a contract for sale has been made between parties
2) The writing must be signed by the party against whom enforcement is sought
3) The writing must specify a quantity
4) The writing must “state with reasonable certainty the essential terms of the unperformed promises in the contract” (Restatement §131) |
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Term
| Exceptions to Written Requirement |
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Definition
1) If a party admits that an oral contract for sale was made by way of his pleadings, testimony, or otherwise in court, then he can no longer assert a Statute of Frauds defense and a contract is enforceable despite the absence of a record
2) If both parties are “merchants,” one party may send written confirmation of an oral contract to the other which, if received within a “reasonable time,” provides that the receiving party has 10 days to object in writing; should the receiving party subsequently fail to object as required, he too can no longer assert a Statute of Frauds defense (UCC 2-201(2)) |
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Term
| Promissory Estoppel and SOF |
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Definition
1) Restatement §139 provides that the Statute of Frauds is a higher authority than Promissory Estoppel
a) Courts are generally reluctant to add ways to circumvent the Statute of Frauds |
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Term
| Parol Evidence Rule Definition |
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Definition
1) When applicable, the Parol Evidence Rule renders unenforceable oral agreements entered into prior to the adoption of a written contract
a) It declares that when the terms of a contract have been embodied in a writing (a fully integrated agreement) to which both parties have assented as the final expression of their agreement, parol evidence of contemporaneous or prior oral agreement is not admissible for the purpose of varying or contradicting the written agreement
2) Restatement 213: A written agreement that is found to be “completely integrated”—that represents a full and final embodiment of the parties’ understanding—effectively discharges any prior agreement that falls within its scope
a) The consequence in evidentiary terms is that proof of the alleged prior agreement is inadmissible and cannot be placed before the trier of fact
3) The parol evidence rule assumes that the formal writing reflects the parties’ minds at a point of maximum resolution and, hence, that duties and restrictions that do not appear in the written document, even though apparently accepted at an earlier stage, were not intended by the parties to survive
4) *Note: The Parol Evidence Rule does not keep out terms that are added after the agreement is written |
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Term
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Definition
1) A completely integrated agreement is adopted by the parties as a complete and exclusive statement of the terms of the agreement
2) A partially integrated agreement is an integrated agreement other than a completely integrated agreement
3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of question of interpretation or to application of the parol evidence rule
a) Different approaches
i) Look within the 4 corners of the document: Would a reasonable person have put the terms of the alleged oral agreement in the document?
ii) Look into the actual intentions of the parties in answering if it is a partial or total integration |
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Term
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Definition
| Testimony about an additional term will be heard if it’s the sort of term that would have naturally been omitted from the document |
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Term
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Definition
1) Written contracts frequently contain an explicit merger or integration clause stating, for example, that “this contract embodies the entire understanding between the parties, and there are no verbal agreements or representatives in connection therewith”
a) Despite such language, courts following the Masterson concept have been willing to admit evidence of a prior oral condition on the ground that the “true intent” of the parties is always the ultimate touchstone |
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Term
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Definition
1) The UCC and the Restatement make it clear that the parol evidence rule should not be applied so as to exclude evidence of “usage of trade” or prior “course of dealing,” either or both of which may be drawn upon to “explain or supplement” the written contract
2) It is agreed that trade usage should be considered in determining what variations in specifications is considered acceptable |
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Term
| Parol Evidence Rule Analysis |
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Definition
1) Is there an integrated agreement?
a) If No, then the jury can hear the evidence
b) If Yes, then: Does the term directly contradict the written agreement?
i) If Yes, then the jury can NOT hear the evidence
ii) If No, then: Would the oral term naturally be omitted from the written agreement?
(1) If Yes, then the jury can hear the evidence
(2) If No, then the jury can NOT hear the evidence |
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Term
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Definition
| 1) A promise, express or implied, to use “reasonable efforts” or “best efforts” to merchandise products or pursue some other business objective creates an obligation that is substantially and legally enforceable against the promisor |
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Term
| Condition for Non-performance |
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Definition
| 1) A non-performing promisor can justify his nonperformance if his obligations are conditioned upon the occurrence of an event or a contingency and the event or contingency has simply failed to occur |
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Term
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Definition
| Substantial performance (it has to be “good enough”) is generally used for complex contracts (ex: construction), while perfect tender (it has to be exactly as it was asked) is generally used for simple, uniform contracts or contracts for aesthetic things |
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Term
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Definition
a) UCC 2-601 adopts the perfect tender rule for the sale of goods, allowing a right of rejection
i) It provides that a buyer may reject the goods supplied by his seller “if the goods or the tender of delivery fail in any respect to conform to the contract”
ii) Under this code, a rejecting buyer must “seasonably” notify the seller of his intention |
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Term
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Definition
1) Under well settled common law, a contract cannot be enforced if the “whole substance” and “very nature” of the merchandise sold is different from that which the parties bargained for, if the mistaken identification was mutual, and if the dollar consequences to the disadvantaged party are significant
a) Ex: Two parties agree to buy/sell a barren cow for $80; the cow turns out to not be barren and is worth $1000; the seller has a right to refuse delivery
b) Reflected in Restatement §152
2) The notion is that there can be no contract unless the minds of both parties coincide on a single subject-matter; a fundamental mistake may therefore result in a voidable contract even though the mistake is unilateral, provided that the mistaken party does not bear the risk of the mistake under the circumstances
a) Ex: A clerical error would be the typical instance of voidability
3) It is a rule that we cannot allow contract rules to reduce or eliminate the rewards claimed by those who invest in information gathering |
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Definition
1) The rare case where the buyer might have a good excuse based on some unforeseen change in circumstances
2) Changes in market conditions cannot allow for nullification of a contract |
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Definition
| Clauses that protect parties against some types of unpredictable and catastrophic events (“acts of God”) that may very adversely affect them a) The role of the force majeure clause is to act against the common law’s uncertainty as to what is and what isn’t excused in a contract |
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Definition
1) The object of expectation damages is to put the injured party in as good a position as he would have been in had the contract been performed in accordance with its terms
a) This means that the injured party is entitled to a damage recovery equal to (1) the value he has lost by reason of the other party’s default, plus (2) the expenditures he has made (if any) in carrying out his own obligations under the contract (and minus the costs avoided by not performing his own part of the contract)
b) Given the expectation damages rule, Buyer’s act in breaching the contract gains him nothing
2) The UCC applies essentially the same damage rule to the purchase and sale of goods:
a) Ordinarily, if a seller fails to deliver goods when due, the buyer may “cover” under UCC 2-711(1) by purchasing equivalent goods in the market and under 2-712 have damages equal to the difference between the cost of cover and the contract price
i) If the contract price is $1 per unit and following seller’s failure to deliver, the buyer covers at a cost of $1.25, the seller is liable to the buyer in the amount of 25 cents times the number of units promised under the contract
b) 2-712: Buyer may “cover” in the case of a breach by making a purchase of substitute goods and have damages from Seller equal to the difference between the “cost of cover” and the contract price
i) When a buyer attempts to cover for a breach under 2-712, he does so “in good faith and without any unreasonable delay;” it is immaterial that hindsight may later prove that the method of cover used was not the cheapest or most effective
ii) A seller’s remedies in the event of breach by a buyer are largely parallel
iii) 2-706: If Buyer breaches by repudiating the contract, Seller may resell those goods to other buyers “in a commercially reasonable manner” and claim damages equal to the difference between the contract price and the resale price
(1) In general, the effect of the Code is to put the injured seller in as good a position as he would have been in if the buyer had accepted the goods and paid the price called for by the contract
3) The injured party should not recover more from the breach than he would have gained had the contract been fully performed |
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Term
| Efficient Breach and Economic Waste |
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Definition
a) If the seller finds a better buyer, he should breach and present the original buyer with damages
b) *One of the standard rules about contract damages is that they are not to be measured by the gain that the breacher enjoyed; otherwise, the law would exclude efficient breach
c) Ex: Peevyhouse v. Garland Coal Mining: P entered a contract with D to allow D to strip mine coal on P’s land for a period of years if they returned the land to the way it was at the end of the lease; D refused to fill in the holes they had left saying it would cost them $29k, while only adding $300 in value; P sued for $25k
i) The court held that the diminution in value caused by the breach was the proper measure because “construction and completion in accordance with the contract would involve unreasonable economic waste” (Restatement §346); therefore, P was awarded $300
d) *Rule: The cost of performance is the proper measure of damages if it is possible and does not involve unreasonable economic waste, but the diminution in value caused by the breach is the proper measure if construction and completion in accordance with the contract would involve unreasonable economic waste |
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Definition
a) An injured promisee cannot recover damages for losses that, without reasonable effort, he could have avoided after the promisor’s breach became known; in effect, the injured party is under a legal obligation to take reasonable steps to avoid waste and minimize the cost of breach
b) Duty to Mitigate: The injured party is expected to minimize his lost-profit claim by making reasonable efforts to substitute other arrangements (ex: another job, another seller or buyer) for those provided in the contract
i) In effect, he cannot recover the value of lost benefits to the extent that there are opportunities to mitigate the loss by doing similar things with his time and resources |
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Definition
1) The aim of reliance damages is the return to P of his expenses in performing the contract
2) Restatement §349: The injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed
3) The customary damage claim for breach of contract seeks compensation both for the injured party’s expenditures in reliance and for his lost profit
a) Expenditures in reliance would include outlays made in actual performance of the contract itself and also amounts spent on items that are incidental or collateral to the contract
4) Expectation damages give the profit that would have been expected under the contract, while reliance damages seek to put P back to where he would have been had the contract not been signed |
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Definition
1) The goal of restitution damages is to restore to the injured party the benefit that was conferred by the injured party on the other
2) While restitution is a claim that is based on a concept of unjust enrichment rather than contractual obligation, it does serve on occasion as an appropriate remedy in the contract setting
3) Under UCC 2-714(2), the measure of such damages is the difference between the value of the goods if they had been as warranted and the value of the goods as actually delivered
4) Restatement §374(1) provides that the breaching party is entitled to restitution for “any benefit that he has conferred” on the injured party through part performance “in excess of the loss that he has caused by his own breach”
5) Restatement §371: If any sum of money is awarded to protect a party’s restitution interest, it may as justice requires be measured by either (a) the reasonable value of the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant’s position, or (b) the extent to which the other party’s property has been increased in value or his other interests advanced
a) Courts have generally held that the choice of measures will be more generous to the party who is not in breach
b) Ex: A contracts to repair B’s roof for $3,000; A does part of the work at a cost of $2,000, increasing the market price of B’s house by $1,200; the market price to have a similar carpenter do the work done by A is $1,800; A’s restitution interest is equal to the benefit conferred on B; that benefit may be measured either by the addition to B’s wealth from A’s services in terms of the $1,200 increase in market price of B’s house or the reasonable value to B of A’s services in terms of the $1,800 that it would have cost B to engage a similar carpenter to do the same work; if the work was not completed because of a breach by A then $1200 is appropriate; if the work was not completed because of a breach by B then $1800 is appropriate |
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Definition
1) Both at common law and under the UCC, the remedy that is normally and generally available to a disappointed promisee is money damages, with specific performance being granted only if the contract involves “unique” property—typically, real estate
a) Ex: Walgreen Co v. Sara Creek Property: P operated a pharmacy in a mall, carrying a lease that contained a clause in which the landlord D promised not to lease space in the mall to anyone else who wanted to operate a pharmacy or a store containing a pharmacy; D decided to breach and lease another pharmacy (Phar-Mor) in one of its empty spaces
i) Holding that damages would not adequately compensate P for its exclusivity right, the trial court enjoined the Phar-Mor deal until expiration of the Walgreen lease
(1) Granting an injunction essentially leaves the working-out of the parties’ conflict to the parties themselves—Once enjoined, D would presumably commence to bargain with P for the release of the contract prohibition
(a) Ultimately, the parties would agree upon a price at which the “purchase” of the injunction by D and its “sale” by p would leave both parties better off (Coase Theorem)
(b) Coasean Bribes assume that legal rights are marketable
ii) Walgreen offers a very plausible occasion for equitable relief: Calculating P’s anticipated loss of profits over a 10 year period was obviously a matter of considerable uncertainty
2) In general, specific performance (in the form of an order to do something or of an injunction against doing something) will only be ordered if monetary damages are inadequate to right the wrong |
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Term
| Third Party Beneficiaries |
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Definition
1) Courts, with support from the Restatements, have exhibited a general willingness to recognize the contract rights of third party beneficiaries
a) Ex: A, for a consideration, promises B to pay money or transfer property to C, then, in the name of procedural economy and convenience of remedy, C should be able to sue for damages if A fails to perform
i) Clearly, C has furnished no consideration to A (but he has to B), and C is not a party to the contract between A and B; but these shortcomings appear to be largely formal; thus, A’s obligation to perform is the same whether it is B or C who receives the benefit, and A’s exposure to liability for non-performance is the same whether it is B or C who asserts a claim against him |
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Term
| What is allowed in under Parol Evidence rule based on level of integration? |
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Definition
Fully integrated: Nothing
Partially Integrated: Supplemental Terms
Unintegrated: Everything |
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