Professional Documents
Culture Documents
Types of Contracts
1. Unilateral
-promise given in exchange for performance
-offeree could walk away from the promise
2. Bilateral (mutuality of obligation)
-promise given for a promise (exchange of promises)
-a reciprocal relationship develops
-consideration needed on both sides
-K enforceable at the point where they exchange promises
White v. Benkowski (consideration case)
F-W's speak to B's about supplying water
-W's argue that they bought house in consideration for B's promise to supply water.
I- Whether an enforceable agreement w/consideration exists
H-P able to receive nominal damages, not compensatory damages
Punitive damages are generally NOT allowed for breach of K actions
Sullivan v. O'Connor (use of compensatory "expectancy" damages)
F-Surgeon performs plastic surgery and creates a worse nose for P.
I-What is the measure of damages to be applied where liability is found?
H- P allowed to recover out-of-pocket expenses; pain and suffering as applicable
-expectancy damages gave her $ for difference b/t beautiful nose and worsened nose.
-reliance damages would have given her $ for difference b/t original nose and worsened nose
-Liability in contract
Theories of Obligation:
1. Consideration (Bargained for exchange)
-Predominant theory
Bargained for exchange (B/E) theory
-promisee's detriment suffered in exchange for promisor's benefit
-need to show that there was a legal detriment to the promisee and benefit to the promisor
and each party induced the other
*Offer and acceptance reflects B/E
Bargain-agreement, manifestation of mutual assent
Legal Detriment
-a forbearance, which does not have to be greater than the benefit
-any relinquishment, yielding of a legal right
-an immediate act, future act, complete or partial abandonment, etc.
4. Moral Obligation
-could involve a gratuitous promise
*promise follows the performance not before
Need to ask:
1. Nature of the Benefit
How substantial was the benefit? (not solely monetary)
-Direction of the benefit
-Dimension
-Gratuitous
-Relationship
R-Foreign substances which make the food unwholesome are likely to constitute a
breach. However, foreign substances which are occasionally found within a particular
cuisine do NOT constitute a breach, as the consumer should anticipate the potential
presence of such substances.
3. Implied warranty of fitness for a particular purpose
-buyer must have particular purpose for wanting goods and
-seller must have known about specific purpose.
-buyer relied on seller's statements and
-seller has to be aware that buyer was buying in reliance.
Remedies at Law
-standard relief for breach of contract is monetary damages
Contract Formula: D = MVP - KP + ID + CD
(Cover Price)
1. Expectancy (Predominant remedial theory)---(Forward-looking)
-putting P in the (expected) position he would have been in had the contract been performed
-should not exceed what was expected, which would be punitive damages.
{Formula = K price- cost of completion}
-permits non-breaching party to profit
-allows for the greatest recovery
-not useful in a losing contract
-generally includes loss profits and loss wages
Limits
a. forseeability
b. avoidability
c. mitigation
2. Reliance (backward-looking)
-a component of expectancy damages ("cost of work already performed")
-compensating injured P back to the original position.
-usually used when expectancy damages won't adequately compensate P.
Generally more preferable than restitution b/c:
1. raises the question of measuring benefit
2. reaches more broadly
3. in losing K, breaching party can recover the losses
*if there is a losing K, must argue any enrichment.
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Two types:
a. Essential (P likely to be capped by K)
-refers to performance obligation
-involves preparation expenses for performance
-could include forgone opportunities
b. Incidental
-costs that arise as a result of the breach
-relates to efforts to mitigate damages
-D has burden to prove the loss
Nurse v. Barnes
F: D promised P use of the mill for six months and breaches the agreement by making the
mill unavailable.
3. Restitution
-value rendered to D from P's performance
-it is not limited by K's price
-if performance has no value, there can be no restitution damages
-if P has fully performed, then courts generally do not allow recovery under restitution
Two main variables:
1. Was there an enforceable agreement w/ consideration?
-If so, was there a losing contract?
2. Whether P was the non-breaching party in the agreement
U.S. for Susi Contracting v. Zara Contracting (restitutionary measure)
F-subcontractor not allowed to finish job b/c unexpected problems due to soil
R-D received benefit from P's performance; recovery for expenditures made in performance
-Non-breaching party (P) conferred a benefit but LOSING K.
Hadley v. Baxendale
F-A mill operator, forced to shut down after a shaft broke, hired a common-carrier to deliver
the broken shaft to an engineer for repairs. The carrier negligently delayed delivery, forcing
the mill to shut down longer than expected.
R-The amount of damages that is awarded for a breach is limited to those which were fairly
and reasonably contemplated by the parties at the time of contracting. Special circumstances
MUST be communicated by P to D beforehand.
Avoidability
1. Failure to stop acting
-non-breaching party and effecting failure to mitigate damages
2. Failure to act in mitigation
-non-breaching party should be treated as if he has acted
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Equitable Remedies
-Two main forms of equitable relief are injunctions and specific performance
Specific Performance
-is usually granted where a contract involves a unique good, such as land.
-courts generally do NOT want this in personal service K's (i.e. building K's) b/c do not want
to deal with any extensive supervisory role.
-i.e. where a promisor has promised to convey a piece of land and w/out justification refuses
to make the conveyence and court will order the conveyence.
Need to consider:
a) the difficulty of proving monetary damages,
b) the availability of satisfactory substitute goods, and
c) the likelihood P will be able to collect a monetary judgment from D.
Injunctions
A court may prohibit the breaching party from rendering the contracted-for performance to
anyone but the nonbreaching part.
Need to consider:
a) a noncompetition clause is in the contract
b) the contract if for unique services
c) the employee's livelihood is not threatened
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Special damages
Special (or Consequential) Damages:
-don't normally flow from a breach
-D must show forseeability
-D must be put on notice
-P has burden of proof (P must show that D should have known)
*buyer (gets goods) has consequential damages, but seller (gets money) does NOT
Liquidating Damage Clause (for public policy reasons)
Elements:
1. Need a reasonable effort made by the parties to estimate damages at the time of contract
NOT at time of breach.
2. Damages had to be difficult if not impossible to predict
When made by one party:
-really intended as a penalty
-effort to limit liability and deter breach
Grouse v. Group Health Plan (at will employment)
F-P resigned from his job b/c he received an employment offer from D's. The offer was later
revoked.
R-Under the doctrine of PE, a promise that the promisor should reasonably expect to induce
action or forbearance on the part of the promisee, and which does induce such action, is
binding if non-enforcement would result in injustice.
ALTERNATE DISPUTE RESOLUTION
-started out as a set of binding processes
Negotiation
-binding arbitration (by judges)
-not an example of ADR
Styles of negotiation
1. Aggressive
-seeks interests primarily for one's client
2. Cooperative/conciliatory
-seeks best interests for both parties
Three top skills for lawyers:
-fact finding
-ability to find relevant issues and apply
-communicating (oral and written)
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Requirements contract
-buyer agrees with seller that buyer will buy all of his requirements for his goods from the seller
at an agreed upon price.
Output contract
-seller agrees to sell all of his output of a particular product to buyer.
-imposes exclusivity on the seller
*Output and requirement contracts are VALID despite an absence of definite terms, so long as
both parties act in good faith.
"MEETING OF THE MINDS"
-when both parties intend to contract and their actions reflect this intention
-both parties have subjective intent and objective behavior
----Mutual Assent is needed to enforce a contract
Embry v. Hargardine McKittrick Dry Goods Co.
F-P (a fired employee) claimed that D had promised to renew his K and D denied ever having
made such a promise.
R-One's state of mind is immaterial if that party outwardly manifests assent to the K.
-there was no meeting of the minds (and no mutual assent) since they had different versions of
the same story.
Lucy v. Zehmer
F-D signed an memo agreeing to sell his family farm to P and D claimed that it was a joke (and
used incapacity defense from being drunk at the time).
R-The intention of a party to a K is judged by his words and acts (objective std), but by his
unexpressed state of mind (subjective std).
Raffles v. Wichelhaus
F-D contracted to buy cotton that was on a ship named "Peerless." Unknown to both parties
there were two ships named "Peerless."
R-When parties to a contract are unaware that they have different understandings of a material
ambiguity, the agreement is unenforceable b/c there was no "meeting of the minds" or mutual
mistake.
-Ambiguity would not have mattered if parties had the same subjective intent (based on their
actions).
-If one party knows that the ambiguity exists, then the K will be formed based on the
knowledge of "unknowing" party.
OFFER
Def-a manifestation of willingness to enter into a bargain which invites another person's assent to
the bargain. Generally revocable before its accepted
Offeror-person who makes the promise ("master of the offer")
Offeree-person to whom the promise is made
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Seller-invites offers
Buyer-makes offers
(Courteen Seed-Held not an offer but an invitation b/c was asking for a price)
Three main traits:
1. Commitment or promise by the offeror to enter into a contract
2. Certain and specific terms
3. Communication to the Offeree, who needs to be specific (when there are multiple offerees,
they must be put on notice)
Need to ask:
1. Is there an offer?
2. Who is the offer to?
3. If it's an offer, is it irrevocable?
4. "
", what was it bargaining for?
5. "
", was it revoked before the acceptance?
6. Was it reasonable for the dealer/rep. to believe that he was a member of the offeree class?
(Duty to mitigate on rep.)
Decision to wait = rejection
*if an offer is not found, consider if a promise can be determined based on whether P was within
the class of offerees.
"For immediate acceptance"
-not an offer but an invitation to make offers
Price Quotations:
A price quotation is NOT an offer to sell unless:
a) The quoter specifies the quantity he is willing to sell, not merely the per-unit cost, and
b) The quote is made to a specific person, not the general public
Auctions:
An auctioneer solicits bids; he does not make offers
*Advertisements are not offers, and would NOT be binding contracts
Lefkowitz v. Great Minneapolis Surplus Store, Inc.
F- D's advertised in a newspaper that it would sell one lapin stole for $1 on "first come, first
served" basis. It refused to sell to P, who arrived first, claiming that the sale was for women.
R-A newspaper advertisement that is clear, definite, explicit, and leaves nothing open for
negotiation is considered to be an offer. While the offer may be modified, new and arbitrary
conditions not in print may NOT be imposed after the acceptance. (UCC 2-204-recognizes offers
even when some issues are left out for future negotiations).
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ACCEPTANCE
Def-a manifestation of assent to the terms of an offer in the manner required by the offer
-determined after there is an offer
-Issued by someone who is within the intended group of offerees
-Specific and clear and reflects a commitment
-MUST be a mirror reflection of an offer (any change in terms would be a COUNTER-OFFER)
-under certain circumstances, silence can be interpreted as an acceptance
-when both parties support analytical (linguistic and transactional) terms in a contract
Ardente v. Horan (Conditional acceptance)
F-D's accepted P's bid for their home. In signing the K, P added a condition that some of the
furniture be left in the home.
R-A contract is NOT formed by a conditional acceptance unless the original offeror assents to
the additional conditions.
-Generally, adding conditions to an acceptance creates a counter-offer
Allied Steel
R-Beginning performance with the knowledge, consent, and agreement of the offeror is a valid
means of accepting an offer. "Acceptance should be executed on acknowledgement copy" is
merely a suggestion.
Mailbox rule (majority rule):
-does NOT apply to offers, but to acceptances
-an acceptance takes effect when it's mailed
-if there is a delay, then the burden is on the offeror
*offeror can negate the mailbox rule by explicitly requesting another form of acceptance from
the offeree.
Adams-suggests that it's better to be the offeree
Minority rule:
Some courts rule that if an offeror actually receives the rejection first, no contract can be created.
"Overtaking of communications" problem:
-when there is subsequent phone call or email that revokes the offer)
General Rule:
OFFER is effective when received
ACCEPTANCE is effective when sent
Caldwell v. Cline
R-Since an offer becomes effective when received, the acceptance period also begins when the
offer is received, NOT when it is sent.
Adams v. Lindsell
R-An acceptance sent by mail becomes effective as of the moment it leaves the offeree's control
i.e. when it is mailed.
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DURATION OF OFFERS:
METHODS OF TERMINATING OFFERS:
1. Rejection or counter-offer
2. Lapse of Time (Akers-acceptance made after meeting was held void)
3. Revocation by the offeror (Dickinson-created a situation of irrevocability)
4. Death or incapacity of either parties (Davis v. Jacoby-death revoked the offer)
5. Non-occurrence of any condition of acceptance
Drennan v. Star Paving Co.
F: Drennan, a contractor, used a bid from Star Paving, a sub-contractor, to calculate the costs of a
larger bid submitted to a third party. After D was awarded the job, S informed it that its "subbid" was erroneously low and refused to work at that price. Although D had not formally
accepted the offer, it had relied on the price, as is customary in the construction industry. D sued
to recover the difference b/t S's original price and the amt. paid to another subcontractor to do the
work.
I: May a party be required to perform by the terms of an offer that was never actually accepted?
R: If an offeror should reasonably expect that his offer will induce reliance by the offeree to take
an action or forbearance of a substantial and definite character, the offer is enforceable even if
the reliance occurs prior to a formal acceptance of the offer.
AGREEMENTS TO AGREE
-when parties have preliminary negotiations in writing
-NOT a real agreement that is enforceable
-need to look at objective manifestations of intent of the parties based on behavior
Arcadian
R-A preliminary agreement is binding if the language of the agreement manifests an intent to be
bound. Other indications of intent are:
-the context of negotiations
-the existence of open terms
-partial performance
-the necessity of putting the agreement in final form.
Need to ask:
1. Whether the preliminary negotiations of an agreement are binding
2. Whether the parties intended to be bound
3. Is the issue a matter of law vs. fact to be bound immediately?
4. How much weight should be given to the preliminary instrument?
5. "
" in light of the surrouding
circumstances?
6. Prior history of dealings between the parties?
7. Are there any relevant presumptions that might be attached?
(Presumptions-freedom from K or binding to K)
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Martin
F-5 year lease that had a provision which did not set out specific cost of rental amount
R-agreement to agree about future rental price as NOT an enforceable agreement
-ex. of freedom of K.
C/L Approach:
1. "Mirror Image" Rule
-offeror as the master of the offer, who sets out the terms
-offeree must accept the same terms.
-any acceptance that alters terms, is a counter-offer
i.e. a) offer
b) c-offer
c)c-offer
d) goods shipped & buyer accepts and pays
2. "Last shot" Rule
-last communication prior to the shipment of the goods becomes enforceable
"BATTLE OF THE FORMS"
-form pad (or mass-produced) transactions that are not face to face
-includes small and large transactions, which do not include an offer and acceptance
-focuses on purchase orders, invoices, etc.
UCC 2-207-Additional Terms in Acceptance or Confirmation (p. 513)
-statute as binding
-construe language by giving the plain meaning of the statute
-look at the legislative history, regulations, other similar statutes, judicial interpretations, etc. to
help find other meanings.
-aimed at offeree b/c of the focus on acceptance
(i..e. if an offer is silent on arbitration, and offeree adds the term, it would be an additional term)
(1)-assumes that an offer is outstanding
"seasonable"-taken within reasonable time
"definite"-conveys commitment
-not focusing on the "mirror-image" since additional (or different) terms from those offers
could be included.
Need to ask:
1. Is there a K formed between the parties based on an exchange of writings?
2. K terms?
(2)
1. Is there a K formed?
2. If yes, what are the additional terms?
(3)
1. Is there a K formed based on the conduct of the parties?
2. K terms?
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General Rule:
-UNLESS both parties are merchants, additional terms will be viewed as proposals to K and do
NOT become part of the K.
-if BOTH parties are merchants, additional terms could become part of the K.
Relaxing Mirror-Image Rule:
1. Horditory approach:
-different terms are only meant to be suggestive or as proposals to the offer.
-terms could still be viewed as an acceptance
2. Additional terms as implicit in the offer
Gap-Filler Provisions (Defenses to the enforcement of a K)
1. Quantity
2. Description of the Goods
3. Parties involved
4. Price
5. Delivery date, time and place
6. Payment
7. Warranty
POLICING AGREEMENTS & PROMISES
-assumes that a bargain has been found b/t the parties
-focuses on misbehavior in a contract which imbalances the relationship
Assent-Oriented
vs.
-bargaining misbehavior
-assent as artificial
1. DURESS
-party can't be formed to give assent
-objective test to subjective test
-behaved with "ordinary" firmness
Dunham-obj. std as not applicable
Content-oriented
-focus on substantive terms
2. UNDUE INFLUENCE
-target as susceptible and excessive pressure put on them
-usually based o n some special relationship
3. UNCONSCIONABILITY
Doctrine used to avoid oppression and unfair surprise, but NOT to disturb the allocation of
risk in contract formation.
-when the content of the bargain as unreasonable & public policy can be enforced
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Types:
a) Procedural
-unfairness in the bargaining process
-courts usually require it before refusing to enforce a K.
b) Substantive
-unfairness in the bargaining outcome
-is criticized for interfering with the private right to K at arm's length.
4. MISREPRESENTATION
-opinion will not trigger an express warranty
1. What is an opinion vs. fact? (if it is a misrepresentation, the K can be rescinded)
2. Was it a fradulent or unwilling misrepresentation?
-burden on the buyer to disprove the claim
-need to understand the degree of reliance or representation
i.e. But for that misrepresentation, P would not had entered into the K.
Application of Public Policy:
-claim often rooted in tort
-defense in a contract (McCutchteon-P's fall down stairs in D's building)
-consistent to exculpate oneself from some negligence, although not for gross negligence.
Karpinski v. Ingrasci
F-An oral surgeon hired another oral surgeon and made him agree not to practice dentistry or
oral surgery in five counties if he quit P's employment. D quit and opened his own business.
R-An agreement of a professional not to compete w/his employer is enforceable even if it is for
an unlimited period of time if the geographical area is limited and reasonable. However, a
prohibition of a type of work which is not competition can be struck from the covenant.
-Courts will NOT enforce an "overbroad clause."
5. MUTUAL MISTAKE
A. The mistake under which both parties are acting must have a material effect on the
agreed exchange based on:
1. Proof that one would not have entered the contract but for the mistake is not
sufficient.
2. It must be unfair to require the performance
3. Availability of other remedies may lead a court to decide that the mistake's effect is
not material.
B. The mistake must involve a basic assumption
C. The adversely affected party must not "bear the risk of the mistake."
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MISC. TERMS
Misfeasance
-performing mistakenly
vs.
Non-feasance
-not performing at all
Statute of Frauds
-contracts that must be in writing in order to be enforceable.
-need to prove the existence of an agreement (P has the burden of proof)
Illusory promise
-promise in form, but not in substance.
-there is a pre-existing duty on the performance being forbeared
Option promise
-promise of irrevocability
-offer is irrevocable once performance begins
Option contract (Restatement Sec. 87 (1))
An offer is binding if:
a) is in writing, signed and recited consideration
b) is made irrevocable by statute
Worms v. Burgess-example of an option K, and offer was effective upon receipt
UCC 2-205-Firm Offers
A signed writing by a merchant to buy or sell goods that has firm terms and assures that the offer
will be held open is enforceable even without consideration
-when an offer that is signed and written is irrevocable
Standard Form Contracts (Adhesion contracts)
Advantages:
1. Save time and reduce uncertainty
2. Allow parties to control risks
-"take it or leave it"
-one party as an individual consumer
-form developed by one party
"Meeting of the Minds"
-when both parties intend to contract and their actions reflect this intention
-both parties have subjective intent and objective behavior
----Mutual Assent is needed to enforce a contract
3/4 Rule (both parties have subj. intent and obj. behavior)
-based on subjective intention and objective behavior
-P has burden to prove that 3/4 existed
-D has burden to prove objective behavior would have not shown seriousness
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