Professional Documents
Culture Documents
WERTHEIMER
What is a contract?
- Contract = Agreement with consideration.
- A promise for the breach of which the law provides a remedy.
- If there is no remedy, then there was likely NO contract to begin with
- Courts are looking for evidence that gives them comfort level to say yes/no contract.
Sources of Contract Law:
1. The Contract
2. Common Law
3. The Restatement
4. Statutes
5. Treatises
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ASSENT
How courts decide if an agreement was made/reached.
Embry v. Hargadine, McKittrick Dry Goods
Actual intention of parties is immaterial if a contract/agreement was reached and
understood.
Lucy v. Zehmer Drunk land sale.
Outward manifestation of intent is all that is evaluated when determining if
agreement was made.
Formation of agreement is determined by objective reasonable standard, not
subjective intent.
Morrow v. Morrow
Exception to general rule In family situations, intention of parties to actually form a
contract is important in proving a contract was created.
Cargill v. Mowery
Mutual mistake can be the basis for believing an agreement is made, if it is
reasonable to do so.
UCC 2-204(3)
- Even though one or more terms are 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.
Mutual Understanding of a Term
- If the term is material to agreement, a mutual understanding can void it. [Raffles v. Wichelhaus
(Peerless Case p. 459)]
- When a party knows the other misunderstands a term, but does not correct/clarify, they are bound
by the terms understood by the other. [Dickey v. Hurd, p. 462]
OFFER
What is an offer?
- Expression by one party of assent to certain definite terms, provided that the other party involved
in the bargaining transaction will likewise express assent to the same terms.
Lefkowitz v. Great Minneaplis Surplus Store
An advertisement can be unilateral offer susceptible to binding acceptance, when it is
clear, definite, explicit, and leaves nothing to negotiation.
o More people the ad reaches, the less definite it becomes.
Ford Motor Credit v. Russell
The test of whether a binding obligation may originate in advertisements addressed to
the general public is whether the facts show that some performance was promised in
positive terms in return for something requested.
Courteen Seed Co. v. Abraham
The more recipients of a price quote, the less likely it is that it was an actual offer.
Price quotes alone DO NOT constitute an offer.
Southworth v. Oliver
Test for Offer Would a reasonable person have believed there was an offer
susceptible to acceptance given the context surrounding the incident?
Duration of Offers
- If no specification by offeror, acceptance must happen within a reasonable amount of time.
Akers v. J.B. Sedbury Resignation of offer case.
A reasonable time limit to an offer if a question of fact to be determined by observing
the context of the offer.
ACCEPTANCE
Offer is not binding on offeror until it is accepted by offeree.
Subjective intent to accept does not matter.
It must be shown that a reasonable person would have recognized the offerees outward
manifestations to constitute an acceptance.
Must except on the exact terms of the offer Otherwise it must then be counteroffer and accepted
by initial offeror.
Ardente v Horan
Acceptance with conditions or limitations is not valid acceptance It is a counteroffer.
Acceptance with inquiries completely separate from whether acceptance will occur is
still valid acceptance.
Eliason v. Henshaw
When explicit terms set forth in an offer are not met, an acceptance is not valid.
Bargaining at a Distance
- Mailbox Rule
Offer is effective when it is received.
Acceptance is in effect when it is mailed absent explicit provisions in the offer that
require actual receipt.
Adams v. Lindell
makes offer with time limit for acceptance.
mails acceptance but it gets misdelivered (because of ), reaches after the time
limit on acceptance.
Court held that acceptance is legally effective when it is mailed, not received, unless
otherwise stipulated by offeror in the offer.
Worms v. Burgess
Restatement rules that exercising an option contract does not apply the mailbox rule
actual notification or receipt of acceptance is required.
Agreement to Agree
- When parties sign letters or memos of intent before formalizing contract.
Arnold Palmer Golf v. Fuqua
An agreement to agree binds the parties to original agreement if the outward intent of
the parties is to be bound.
o Look at context of deal to figure out objective intent.
o Were the principal terms clear? The clearer they are, the more likely the
parties intended to be bound.
Restatement (2nd) of Contracts 27
- A binding contract may be made before a contemplated written memorial is finalized if
manifestation of assent on principal terms.
Empro v. Ball-Co
In a contract or agreement to agree, if one party expressly manifests an intent not to
be bound the other party cannot be bound by the agreement either.
CONSIDERATION
Consideration Legal detriment suffered by promisee in exchange for promisors promise.
Exchange of Value = Consideration!
Primary validation for obligations of contracts.
Legal Detriment
- Where promisee gives something of value in the exchange for a promise (action).
- When a promisee chooses to give up a legal right in exchange for a promise (forbearance).
Hamer v. Sidway
promised to give $5,000 if he did not smoke, drink, or gamble until he was 21.
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Other Requirements
Good Faith in Performance and Enforcement
- Every contract or duty within the UCC imposed an obligation of good faith in its performance
and enforcement.
De Los Santos v. Great Western Sugar Co.
Beets case. knew of other contracts and that contract with was not for set amount
of beets to be transported.
Good faith reading of contract required.
Wood v. Lucy, Lady Duff-Gordon
Exclusive agent endorsement case.
A good-faith effort must be put forth by both parties and is implied in the contract,
regardless of the technical language.
Mutuality of Obligation
- The principle that each party must contribute their own value/legal detriment in an exchange for
consideration.
Weiner v. McGraw-Hill
Mutuality of contract does not mean two halves of the same thing.
It means that both parties must contribute something.
Pre-Existing Duty Doctrine
- If duty already exists and a further promise is made without any further exchange, the individual
dos not have to pay extra because there is no consideration.
- Example
If B wants more money for a project from A and A agrees to give more, that agreement is
not enforceable because there was no consideration. (A is not getting more for price
increase.)
a. If the promisee conferred the benefit as a gift or for other reasons the promisor has not
been unjustly enriched for,
b. To the extent that the value is disproportionate to the benefit.
Restatement (2nd) of Contracts 82
- If a legal technicality bars enforcement of a debt for benefit received (Statute of Limitations,
Bankruptcy, etc) but the debtee promises to pay anyway, implicitly or explicitly, that promise is
enforceable, regardless of technicality.
Webb v. McGown
Saves life, agrees to pay savior for life.
Subsequent promise to compensate for material benefit conferred can be treated as a
prior request and be enforceable.
A promise to pay shows the promisor acknowledged that it was not a gift.
Harrington v. Taylor
A voluntary and humanitarian act is not recoverable.
Edison v. Poppe
Subsequent promise to pay after a benefit is received is binding, even if receiving the
benefit was not requested.
*** Purpose of consideration and reliance is to make courts comfortable that a contract was
actually made.
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PROMISSORY ESTOPPEL
Used to find recovery for a party in the absence of other modes of finding obligation such as
consideration.
Implied-in-Fact Contract
All elements of a contract are present except the actual written or oral statement
of terms.
Implied-in-Law Contract
Not a contract but a way to recover remedy based on a promise.
Ricketts v. Scothorn
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UNJUST ENRICHMENT
1. A benefit was conferred upon at the expense of .
2. In an unjust situation.
Not always a way of forming a contract, but a way of PROVIDING RELIEF.
Quasi Contract
- A way of making a party pay for something they received unjustly (Restitution).
Watts v. Watts
Unmarried couple separating.
Unjust enrichment is not a contract, it is a way of recovering for those who conferred
a benefit towards another in an unjust situation.
Determining an Unjust Situation
- To determine if situation was unjust:
a. Did the person conferring the benefit expect to be paid when they conferred the benefit?
i. If not explicit, was it reasonable for conferrer to expect compensation?
b. Did the person receiving the benefit expect to pay the conferrer for the benefit?
i. If not explicit, was the benefit received of a type the recipient should have
reasonably expected?
Sparks v. Gustafson
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Gay v. Mooney
Familial relationship suggests no unjust enrichment.
Evidence of a contract can be used to negate a familial relationship that would
preclude unjust enrichment.
Kearns v. Andre
Finds unjust enrichment even though did not technically receive benefit, merely by
saying he would have received benefit if not for his breach.
Gift Principle and Choice Principle
- Gifts are not eligible for restitution by an unjust enrichment theory.
- Conferring benefit without giving recipient a choice to reject it is also not enforceable by unjust
enrichment.
STATUTE OF FRAUDS
Certain types of contractual agreements must be in writing!
What typically fits under statute of frauds:
Contract to pay anothers debt.
Contract relating to real property.
Any contract that is to last more than a year.
Purpose
- To assure courts that a contract actually existed.
Issues Faced Under the Statute of Frauds
- Does it apply?
- If it does, is there a writing?
- If no writing, is there an exception?
Sterling v. Taylor
Extrinsic evidence (information gathered from other sources besides the primary
writing) can be used to clear up ambiguities.
Extrinsic evidence cannot be used to dispute the K. If the terms in memo are not
ambiguous, no extrinsic evidence is necessary.
McIntosh v. Murphy
Moving to HI for new job.
Reliance actions can be used as evidence to prove a contract was made, in spite of the
lack of a written agreement that violates the statute of frauds.
Jury can make factual determination of what the terms and damages should be once a
contract is established by reliance.
UCC Statute of Frauds
- Contracts worth more than $500 need to be in writing unless
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Product made for the party is specifically manufactured for that party and not suitable for
sale to others.
Party being charged admitted to the contracts existence.
Part of the agreement was performed.
Between two merchants, if an agreement was sent to the party being charged, a signature from
that party is not necessary if the party confirmed receiving agreement and did not object to the
terms within 10 days.
Partial Performance
- Partial performance can serve as evidence of contract and preclude the need for statute of frauds.
- Usually not in employment or property cases!
Subsequent Agreements
Collateral Agreements
Evidence of collateral agreement will be allowed if it is alleging a type of agreement that
would not naturally be part of a written agreement. [Mitchell v. Lath]
Allegations of Motive to Mislead 3rd Party
Even if a written contract appears integrated and unambiguous, if a party alleges that
written terms were meant to deceive a third party and not actually manifested intent of
the parties, court may hear parol evidence to prove the alterior motive on a clear and
convincing evidence standard. [Hield v. Thyberg]
REMEDIES
Restitution = Compensating for benefit received.
Reliance = Compensating for detriment suffered by parties acting in reliance. (Can encompass
restitution).
Expectancy = Compensate for where the non-breaching party would have been had K been fully
performed. (Includes profit, restitution, and reliance)
Cooper v. Clute
and had a contract where sold cotton for 10 cents per pound.
breached. Market price for cotton at time was identical to contract price.
Without evidence of incidental damages, cannot cover for breach because he did
not suffer any damage from price as it was the same.
o No Damage = No Remedy!
General Damages = Direct damages that occur as a result of the breach.
Consequential Damages = Damages that are idiosyncratic to the terms/situation in a particular contract.
Expectancy Damages
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What did the non-breaching party lose? What would it take to put them where they would have
been had the contract been fulfilled?
When a party obligated under K to perform acts as part of consideration and breaches by
failing to complete.
Groves v. John Wunder Co.
Non-breaching party is entitled to cost of completion not the diminution of value
resulting from breach by incomplete performance.
Radford v. DeFroberville
Actual value to from s contract performance is immaterial. If wanted
something to be performed in a contract and agrees, is obligated to perform.
Peevyhouse v. Garland
Cost of completion not awarded when it is grossly disproportionate to value of
completion. [EXCEPTION]
Loss of Bargain
When a party has to find replacement contract because of breach
Nonbreaching party is entitled to the difference between the cost of replacement
contract and cost of breached contract if it causes a detriment.
Morello v. J.H. Hogan
can recover expectation damages in the form of the extra amount it cost to get the
same work done under the breached contract with .
Breaching party only gets restitution for partial completion on a contract after the
non-breaching party is fully compensated for where she would have been if the
contract was performed.
Thorne v. White
To get expectancy damages based on loss of bargain, non-breaching party must show
that the replacement contract was substantively the same as the initial one.
Replacement contract must be reasonably obtained.
Handicapped Childrens Education Board v. Lukaszewski
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If the non-breaching party has no other reasonable option than to acquire a more
expensive alternative to fulfill the breaching partys performance, breaching party is
liable for expectancy damages arising from the loss of bargain.
Lost Profit
In a pure executory situation (no action actually taken by non-breaching party).
Expectancy Damages = Profits.
Freund v. Washington Square Press
In order to receive expectancy damages, must show with a degree of certainty,
exactly what he sought to gain had the contract been fulfilled.
If it is impossible to know with certainty what the profits would have been then no
expectancy damages.
Warner v. McLay
Expectancy damages for purely executory contract can include damages for loss of
profit if the non-breaching party can show evidence that she sought to gain a profit
and how much.
Employment Cases
Breaching employer still owes the full payment of the rest of the contract as expectancy
damages minus mitigation.
Non-breaching employee must reasonably search for a comparable job, but will get
expectancy damages between the two positions/if they are unequal.
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Non-breaching party can only receive damages suffered after a reasonable attempt to
mitigate damages is shown, and if the mitigation does not fully compensate where nonbreaching party would have been had contract been completed.
Clark v. Marsiglia
Painting cleaner case.
Non-breaching party has a duty to mitigate damages and not increase damages as a
result of breach.
Schiavi Model Homes v. Gironda
Man was supposed to buy mobile home, decided he wasnt going to, father said he
would take responsibility for the payments but co. decided to sell to someone else.
Failure to mitigate damages arising from breach is a defense for the breaching party.
Failure to mitigate is determined by whether the non-breaching party acted in a
reasonable manner to mitigate after the breach.
*** Some courts have been reluctant to hold a non-breaching party to fulfill their duty to mitigate
by accepting a second offer from the breaching party.
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Mental Distress
Chrum v. Charles Heating and Cooling
General rule is that in a commercial contract, damages for mental distress are not
recoverable.
Exception When the breach of contract leads to person/human related damages
where mental distress is highly foreseeable or inevitable.
Mental distress from pure loss of property is not recoverable in a breach
of contract.
*** Punitive damages are not recoverable in breach of contract unless breach arose from a tort
action.
Other Limitations to Expectancy Damages
- Medical Context Uncertainties in medical context make it unreasonable to do so.
- Loss of Reputation Hard to tell where your reputation would have been had contract been
fulfilled. Impossible to calculate worth.
- Loss of Expectancy to Attorneys Attorneys only get compensated for service rendered until
client terminates contract/employment.
Interest on pre-judgment award.
Reliance Damages
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Losing Contract
- Non-breaching party cannot recover the full amount of reliance damages for a losing contract.
- Non-breaching party can recover reliance damages minus whatever they would have lost from the
contract had it been completed. [L. Albert v. Armstrong]
*** Award for damages cannot place party in a better position than they would have been had the
contract been fulfilled.
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Osteen v. Johnson
can get restitution relief for the amount paid minus the reasonable value of
what did fulfill in the agreement.
Where the plaintiff conferred a benefit but the contract is invalid or unenforcible
- Restitution relief can be form of relief in a valid contract with consideration or
- Restitution can be a form of relief in an agreement that cannot be enforced as a contract, but
benefit was conferred on to the non-breaching party, if there is any money left over after taking
care of the non-breaching partys interests.
Where the plaintiff has materially broken the contract after conferring a benefit
- Breaching party cannot recover on a contract theory but can recover for any unjust enrichment of
benefit conferred on to the non-breaching party, if there is any money left over after taking care of
the non-breaching partys interest.
*** Whether or not PE can be used to form a contract is usually determined by how clear the terms
of the proposed agreement was that was relied upon (i.e. was everything there besides signature?)
Specific Performance
-
Liquidated damages clause means that these clauses are recoverable (when you call something
liquidated damages, you are concluding that it is recoverable).
Other clauses that outline specific damages are not liquidated damages if they seek to punish not
fairly compensate for breach of contract.
H.J. McGrath v. Wisner
Specified damages Clauses can only be considered liquidated damages and
recoverable when:
The amount is reasonable to compensate for the breach.
It is otherwise difficult to determine what actual damages are.
UCC 2-718(a)
- Damages for breach by either party may be liquidated in the agreement if the amount is
reasonable in light of the anticipated or actual harm caused by the breach, the difficulties of proof
of loss, and the inconveience or nonfeasibility of otherwise obstaining an adequate remedy.
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POLICING DOCTRINES
How courts will invalidate a contract.
Two Types
Procedural Formation process.
Substantive Unfair treatment/content of the contract.
Unconscionability
Would a reasonable person have agreed to this? So outrageous that the
court will not enforce it.
Examine the context of the situation, including who the parties are.
The more substantive issues that the court finds, the more likely they are to find
procedural flaws in the contract.
Duress
- When a party is forced to accept the terms of a contract, in certain situations that party will not be
liable for fulfilling the terms.
Standard Box v. Mutual Biscuit
Duress can only be alleged when it is caused by the party to whom a duty is
owed.
The person forcing you to agree must be the same individual causing the duress.
Misrepresentation
- Misrepresentation of fact.
- Reliance on misrepresentation.
- Materiality of fact.
Porreco v. Porreco
wants to rescind a prenupt that she signed because her wedding ring ended up
being fake.
Court rules for .
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It was unreasonable for not to get her ring appraised before the prenupt
because the ring was an asset for her.
Court focuses on the reasonableness of her reliance.
*** Smell Test If it smells bad it likely is bad. ***
Public Policy
- Contracts that violate public policy are not enforceable!
- Exculpatory Clauses
Contract clauses seeking to limit liability.
Exculpatory clauses that try to exempt parties from any liability arises from negligence
will be void as a matter of public policy.
- Non-Compete Covenants
Contract clauses where the former employer or partner is bound to certain restrictions.
Unconscionability
- General idea that contract is unenforceable because it is shockingly unfair.
- Substantive
Terms of K shock the conscience of the court.
- Procedural
Bargaining process was oppressive, unequal , or shocking.
If elements of both are found, the court is more likely to void.
- Doctrine can incorporate elements of fraud, misrepresentation, inequality of exchange, and
duress.
- Inequality of the Exchange
Failure of consideration.
Does it shock conscience of a reasonable person?
GROUNDS FOR LEGITIMATE RESCISSION
Mutual Mistake
- Both parties make same mistake of fact prior to contract formation (not opinions, judgments,
predictions).
- Fact was material Relates to basic assumption of the parties.
- Risk was not allocated to party seeking rescission.
Sherwood v. Walker
Pregnant cow case.
Court rules that seller can keep cow.
Mutual mistake is found when the mistake of fact is material as to change the
essence of consideration.
Wood v. Boynton
Diamond sold as pebble case.
Unless buyer knew of the actual value, has duty to know what he was selling.
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What was given was what was bargained for Fact that it ended up being
something else after the sale does not rescind because should have
checked/done reasonable research.
Unilateral Mistake
- General rule is that unilateral mistake will not be grounds to rescind a K absent a showing of
fraud. [Triple A Contractors v. Rural Water]
- Court may rescind based on unilateral mistake. [Donovan v. RRL Corp.]
Clerical error or good faith error resulting from minor negligence.
Mistake regards a basic assumption made for the contract.
Party that made the mistake did not bear the risk.
Enforcing the contract would be unconscionable.
Impossibility and Impracticability
- Impossibility -- Voids contract obligations if the event responsible for impossibility is not caused
by a party. [Taylor v. Caldwell]
Unless party bore the risk.
Unless party could have done something to prevent impossibility.
- Impracticability Not impossible but close!
Marcovich Land v. J.J. Newberry
was tenant store burns down and landlord refuses to rebuild. Likely no
insurance/inadequate insurance to pay for rebuild.
Question of who gets stuck/who pays?
Court tries to decide at what level would they let someone out of k? Bad business
deal IS NOT enough!
Test = Whether there is extreme difficulty, expense, injury, or loss that goes well
beyond the range of what might be expected.
Mineral Park Land Co. v. Howard
Gravel hauling K For all the gravel that they need. Contract becomes too
expensive because the gravel is too hard to remove.
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Must be more than bad deal!! There was k, amount was specified must look
to intent of the parties/scope of the duties contemplated.
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leased premises for the sole purpose of selling new cars WWII starts and is
unable to maintain a viable business, wants out of K.
Frustration is not impossibility. Performance is still possible, but in this case, it
should be evident that value of performance to party seeking rescission has been
destroyed by something unforeseeable.
Question to be Answered = Whether to place the burden on or .
Must prove extreme hardship:
Risk was not foreseeable.
Value of performance was totally or nearly totally destroyed.
Acts of the govt/war cannot invoke the doctrine of frustration.
Downing v. Stiles
buys share of restaurant business on promissory note and relies on funds from
bar next door to pay for this Bar burns down, refuses to pay.
Not enough that transaction is less profitable for party or that he will sustain a
loss Must be SO severe that it is not fairly to be regarded as within the risks
that he assumed under the K.
In this case, bar closed but the restaurant continued doing business for 6-7
months, so was not severe enough.
Smith v. Roberts
Entered into lease with intent to make an opening to expand into the new area.
Fire destroys the original store.
Application of Commercial Frustration
Frustrating event was not reasonably foreseeable.
The value of counterperformance by the lessee had been totally or nearly
totally destroyed by frustrating cause.
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