Contracts Outline 01/20/2010

1. Kronman, Socratic Method

2. Ayers & Speidel, Studies in Contract Law

DEFENSES
3. Statute of Frauds
 Radke:
 McIntosh:
4. Fraud, Misrepresentation, Non-disclosure
 Halpert:
 Swinton
 Weintraub
5. Defense of Duress and Undue Influence
 Austin Instrument
 Odorizzi
6. Defense of Illegality/Public Policy
 Hanks
 Valley Medical Associates
7. Defense of Unconscionability
 Williams
 Discover Bank
 INTERPRETATION
8. What Did the Parties Agree To? (Beyond the Written Word)
 Threadgill
9. What Did the Parties Agree To? (What Does the Written
Word Mean)
 Frigaliment
10. Is the Written Word Ambiguous?
 Random House
 Trident Center
11. Rules, Maxims, Extrinsic Evidence to Construe Contract
Language
 Patterson except and problems
12. The Parol Evidence Rule
 Nelson v. Elway
 Rogers
13. Contracts of Adhesion
 Meyer
 Lauvetz

EXCUSE
14. Unforeseen Occurrences (old umbrella of “Impossibility”)
 Taylor
 Opera Co. of Boston
 Krell
 Mel Frank: “Event frustrates purpose… unless the language or
circumstances indicate the contrary…”

BREACH
15. Breach: Material Breach, Substantial Performance
 Gibson
 Jacob
 O.W. Grun

REMEDIES
16. Intro to Remedies, Money Damages
 Hawkins
17. Continuing Expectation Damages
 Panorama
 Groves
 Peeveyhouse
18. Limitations on Money Damages—Foreseeability
 Hadley
 Manoucherhri
19. Limitations on Money Damages—Certainty
 ESPN
20. Limitations on Money Damages—Mitigation
 Parker
21. Other Remedies—Specific Performance
 Walgreen Co.
Defenses 01/20/2010
 3. Statute of Frauds

 Radke
o P sued D for specific performance for the sale of land,
claiming that under the circumstances, a letter written
by D to P offering the land was a memorandum
sufficient to satisfy the Statute of Frauds.
o When analyzing a state’s Statute of Frauds, three primary
issues will arise. First, you must ask whether the writing falls
within the state’s statute. Second, you must examine the
specific conditions under which the statute is satisfied. Third,
you must examine the legal ramifications if the statute is not
satisfied.

 McIntosh
o Murphy offered Mc job in Hawaii. Mc fired after 2.5 months.
Murphy said there’s a one year contract and wants to be paid
or the lost payment.
o No writing in this case.
o Ct/jury felt sorry for Π; no problem…statute of frauds is full of
holes.
 Rest. (2nd) Cont. § 139. Enforcement by Virtue of
Action in Reliance
 Rest. (2nd) Cont. § 130. Contract Not to be Performed
Within a Year

4. Fraud, Misrepresentation, Non-disclosure

When one party intentionally, negligently, or innocently misrepresents the
facts, the other may enter into an agreement in reliance on this
misrepresentation. A person’s false representations of important facts may
result in liability for breach of warranty, or, in limited circumstances, may
permit one of the parties to avoid the contract due to mistake, or
misrepresentation. This might also be permitted when the other party has
not made an affirmative misrepresentation of fact, but has failed to disclose
critical factual details relevant to the decision to enter into the agreement in
the first place.

Misrepresentation is an assertion that is not in accord with the facts. If an

assertion is made with the knowledge that it is not in accord with the facts it
is fraudulent. R2K § 162

Not every fraudulent or material misrepresentation justifies

rescission of a contract. For the misrepresentation to make the
contract voidable, it must have been reasonably relied on by the
party seeking to escape the contract. Thus, there must be actual
reliance on the misrepresentation and that reliance must have been
reasonable under the circumstances.

 Halpert
o D refused to go through with an agreement for the
purchase of P’s termite-infested house.
o Rescission is available for an innocent misrepresentation of
material fact. The buyers claim was permitted to go forward,
without the necessity of proving that the seller knew, or even
should have known that the house had been infested.

 Swinton
o D knowingly sold a termite-infested house to P but did
not tell P of its condition
o Where both parties to a K of sale are dealing at arm’s length,
mere nondisclosure of latent defects in the goods will not
render one party liable to the other party.
  Weintraub
o Krob was going to buy a house from Weintraub. House ended
up being infested by roaches. Suit it to force buying of house
and a countersuit to get deposit back. Conflicting information
exists as to whether seller knew of roaches

5. Defense of Duress and Undue Influence

 Austin Instrument
o P threatened to withhold delivery of precision parts
unless D would raise the contract price.
o A contract modification is voidable on ground of duress when
the party claiming duress establishes that its agreement to
the modification was obtained by means of a wrongful threat
from the other party which precluded the first party’s exercise
of free will.
 Economic duress requires that there be no reasonable
alternative.

 Odorizzi
o P was arrested on homosexual charges. Immediately
after his release D convinced him to resign.
o When a party’s will has been overborne, so that in effect his
actions are not his own, a charge of undue influence may be
sustained.

6. Defense of Illegality/Public Policy

The public policy in favor of freedom of contract is sometimes overshadowed

by competing policies dealing with the subject matter of the contract.
Agreements to commit a crime are illegal, as are agreements to commit a
tort. Even where the contract itself is not illegal, if the contract was entered
into in order to circumvent a legal proscription, the contract is void.
 Non-Compete Covenants—Look for reasonableness (most are
enforceable)
 K in restraint of trade—price fixing agreements.
  Liability waivers

 Hanks
o Pl signed a contract with Def relieving Def of all liability
including the liability for Def’s own negligence. Def operated
a snowtubing site for the purpose of family fun.
o K not enforceable because it violated public policy.

 Valley Medical Associates

o Doctor signed non-compete covenant.
o Public interest outweighs VMA, the people need doctors.

7. Defense of Unconscionability

The doctrine of unconscionability makes contracts unenforceable due

to a combination of procedual and substantive factors that lead courts to
question the integrity of the K formation process as well as the fairness of
the terms of the K in siutations where neither alone is sufficient to make the
K unenforceable due to fraud, duress, or undue influence on the one hand or
illegality on the other.

 Williams
o D made a series of purchases, on credit, from P, but
defaulted on her payments.
o Where, in light of the general commercial background of a
particular case, it appears that gross inequality of bargaining
power between the parties has led to the formation of a
contract on terms to which one party has had no meaningful
choice, a court should refuse to enforce such a contract on
the ground that it is unconscionable.

 Discover Bank
o Pl was attempting a class action law suit against Def(Discover
Bank). A contract had said that class action suits were
prohibited by both sides and that arbitration was required.
o Contract was found to be unconscionable because it’s purpose
was to bar lawsuits.
 01/20/2010
INTERPRETATION

Standards used in interpreting parties intent:

 Plain Meaning
o Interprets words according to their common meaning, or
sometimes based on the meaning attributed to them in a
dictionary. Courts taking this approach rely on testimony or
other evidence about the parties intended meaning, only if
the “plain” or common meaning cannot be ascertained.
 Advocated by the Judge in Trident Center.
 Contextual Interpretation
o Determines the meaning of a term in light of the context all of
the surrounding circumstances. If the purpose of a term is
discernable and was contemplated by both parties, it will have
a strong influence on the court’s interpretation of the
contract. Language in a contract reciting its intended purpose
will be influential, but not controlling.
o The history of the negotiation and formation of the contract is
likely to have a significant effect on the court’s interpretation
of an ambiguous term, as will the business context in which
the contract was made. The parol evidence rule prohibits
evidence of earlier or contemporaneous agreements which
would contradict the terms of the writing, but sometimes
permits evidence of supplemental terms, which are not
contradicted by the writing, to be considered. Evidence can
usually introduced to resolve an ambiguity in the written
version of the contract, where it is susceptible to alternative
interpretations.
 Maxims of Interpretation and Construction
o Construe Language Consistently Where Possible
o Contra Proferentum—Ambiguity Resolved Against the Drafter
o Expressio Unius Est Exclusio Alterius—The Expression of One
Excludes Others
o Ejusdem generis: Of the Same Kind or Class
o Specific terms Govern General Terms
o Negotiated Terms Govern Boilerplate Terms
 8. What Did the Parties Agree To? (Beyond the Written Word)
 Threadgill
9. What Did the Parties Agree To? (What Does the Written
Word Mean)
 Where the parties use the same word but attribute different meanings
to it, there is a misunderstanding. When they arise, efforts are made to
construe the contract with reference to an external source, such as usage of
trade, course of dealing, or course of performance, to determine whether
one of the parties knew or should have known the intent of the other.

 Frigaliment
o P ordered a large quantity of “chicken” from D,
intending to buy young chicken suitable for broiling and
frying, but B.N.S. believed, in considering the weights
ordered at the prices fixed by the parties, that the
order could be filled with older chicken suitable for
stewing only and termed “fowl” by P.
o The party who seeks to interpret the terms of the contract in
a sense narrower than their everyday use bears the burden of
persuasion to show, and if that party fails to support its
burden, it faces dismissal of its complaint.

10. Is the Written Word Ambiguous?

 Random House

 Trident Center
o The district court dismissed P’s declaratory relief
action, ruling that the contract was clear and did not
allow for prepayment of a loan, which P sought to
establish by parol evidence.
o Parol evidence is admissible to raise an ambiguity in a
contract even where the writing itself contains no ambiguity.

11. Rules, Maxims, Extrinsic Evidence to Construe Contract

Language
 Patterson except and problems

12. The Parol Evidence Rule
 The parol evidence rule is meant to preserve the integrity of written
contracts. When the parties to a contract have expressed their agreement in
writing and they intend for that writing to be a complete and final version of
their agreement, the rule prohibits the introduction of evidence of prior
understandings or negotiations between them to vary or contradict the
written version of the contract. The rule prevents either party from
introducing evidence of terms, alleged to have been agreed upon, but
nevertheless not included in the final written version of the contract.
 The rule thus promotes commercial certainty, permits parties to
finalize their agreements, and to perform their obligations confident
of their ability to determine whether their actions are consistent
with the terms of the agreement they made.

The first and most critical question in any analysis of the parol
evidence rule is whether a writing is a fully integrated, partially integrated,
or completely unintegrated. If it is fully integrated then the writing will be
the sole evidence of the terms of the contract. If it is partially integrated the
writing may be supplemented but not contradicted by evidence of prior
understanding. If it was completely unintegrated, and not even final with
respect to the terms it contained, then the parol evidence rule presents no
bar to the jury’s consideration of other evidence of the terms of the
agreement.
 Most contemporary courts are willing to examine any extrinsic
evidence, including testimony about the disputed term itself, to
determine whether the writing was intended as a exhaustive
expression of the parties agreement. Under Corbin’s view, if the
parties meant to include the term as part of their agreement, but
failed to include it in the writing, the writing was not intended as a
final and complete expression of the agreement and evidence of the
term should be admitted.
 The threshold determination of whether a written contract is fully
integrated, partially integrated, or completely unintegrated, is one
for the court not the jury to resolve. It is a question of law.

 Nelson
 o Prospective buyers of a car dealership discussed, but
did not execute a written contract memorializing, a
reduced sale price in exchange for a $50 fee on each
car sold by the dealership over a seven-year period.
o A plain and unambiguous merger clause bars extrinsic
evidence where sophisticated parties, with the assistance of
counsel, have extensively negotiated a detailed written
contract.

 Rogers

13. Contracts of Adhesion

 Meyer
 Lauvetz
 01/20/2010

EXCUSE
14. Unforeseen Occurrences (old umbrella of “Impossibility”)

Impossibility
 Taylor
o After the owners of the Music Hall agreed to lease the
hall to lessees for a series of concerts, but before the
date of the first concert, the hall burned down.
o In a contract where performance depends on the ongoing
existence of a specific person or chattel, there is an implied
condition that the destruction of the subject matter rendering
performance impossible may excuse the parties from
executing their contractual obligations thereunder.

Impracticability
 Opera Co. of Boston
o Power outage occurs the night of an outdoor opera. Building
is still there but no lights and traffic probably isn’t moving.
o Excuse by failure of presupposed conditions.
o

Frustration of Purpose
 Krell
o D failed to pay the balance of money owed to P
pursuant to an agreement to rent his flat in order to
view the coronation of Edward VII, due to the
cancellation of the ceremony.
o Where the performance of their contract becomes impossible
due to a change in circumstances, thereby altering the basis
of the agreement, the parties may be excused from
performance of their contractual obligations.
o
o Mel Frank: “Event frustrates purpose… unless the language or
circumstances indicate the contrary…”
 01/20/2010
BREACH

 When there is a duty of immediate performance of a promise,

failure to perform in full is a breach.
 In addition to promises, contracts often contain conditions. A
condition can be defined as an event, the occurrence or non-
occurrence of which gives rise to or extinguishes a duty.

If a breach is “material” the injured party is permitted, just as with any

breach, to recover damages for harm caused by the breach. If the breach is
total, the injured party may recover damages for the entire remaining
performance due by the breaching party. If the breach is merely partial
damages are permitted only for the harms caused by the specified breach.

 Total Material Breach

o A material breach which cannot be cured.
 A breach cannot be cured if it is the type of breach
which cannot be cured or if a reasonable time for cure
has expired.
 Rights
 To recover damages for total breach, and
 Cancel the entire contract
 Partial Material Breach
o If the material breach is one that lends itself to being cured it
is merely a partial material breach and the injured party is
permitted to
 Suspend performance of its duties under the contract,
 Wait for a reasonable time for the breaching party to
cure the breach, and as always,
 Recover damages for any harm caused by the partial
breach.
 Non-Material Breach
o A breach may be non-material. If so, “substantial
performance” has occurred and the inured party may not
cancel the contract or even suspend its own performance, but
is simply entitled to damages for any harm it suffers as a
result of the partial non-material breach.
 In determining whether a failure to render or to offer
performance is material, the following circumstances are significant:
 The extent to which the injured party will be deprived of the benefit
he reasonably expected
 The extent to which the injured party can be adequately
compensated for the part of that benefit of which he will be
deprived.
 The extent to which the party failing to perform or to offer to
perform will suffer forfeiture
 The likelihood that the party failing to perform or to offer to
perform will cure his failure, taking account of all the circumstances
including any reasonable assurances
 The extent to which the behavior of the party failing to perform or
to offer to perform comports with standards of good faith and fiar
dealing.

Doctrine of Substantial Performance: A party may not evade its

contractual duties by asserting the failure of a constructive condition based
on a trivial deviation from the other party’s contractual obligations.
 It applies only when the breach involved is not serious.
 An uncured material breach of a promise continues to operate as a
failure of a constructive condition to the other party’s duty to
perform.
 A person who has only substantially performed a promise has by
definition, not fully performed and is thus liable for damages caused
as a result of it’s breach.

15. Breach: Material Breach, Substantial Performance

 Gibson
o
 Jacob & Youngs
o P was hired to build a $77,000 country home for D.
When the dwelling was completed, it was discovered
that through an oversight, pipe not of Reading
manufacture (though of comparable quality and price),
which had been specified in the contract, was used. D
refused to make final payment of $3,483 upon learning
of this.
o An omission, both trivial and innocent, will sometimes be
atoned for by allowance of the resulting damage and will not
always be the breach of a condition to be followed by
forfeiture. For damages in contraction contracts, the owner is
entitled merely to the difference between the value of the
structure if built to specifications and the value it has as
constructed.
 Trivial—in relationship to the total contract.

 O.W. Grun
o P hired D to install a roof of a uniform color, and the
roof installed was not of a uniform color.
o Deficient performance will not be considered substantial
performance if the deficiency is so pervasive as to frustrate
the purpose of the contract in any real or substantial sense.
 01/20/2010
REMEDIES
16. Intro to Remedies, Money Damages

 Hawkins
o A young boy went to a surgeon to repair his scarred
hand, and came away with a hand that was even more
damaged.
o The true measure of P’s damage is the difference between the
value to him of a perfect hand, and the value of his hand in
its current condition, including any incidental consequences
fairly within the contemplation of the parties when they made
their contract.

17. Continuing Expectation Damages

 Panorama

 Groves
o When D surrendered the gravel pit it leased from P, it
was found to have deliberately breached the contract
by removing the best and riches gravel without having
restored the land to its existing grade.
o Value of the land as distinguished form the value of the
intended product of the contract, which ordinarily will be
equivalent to its reasonable cost, is no proper part of any
measure of damages for willful breach of a building contract.

 Peeveyhouse
o P leased their farm to Garland Coal & Mining Co. for
strip mining, but Garland Coal failed to perform the
specified remedial work at the end of the lease term.
o Where the economic benefit to a nonbreaching party by full
performance of a contract would be grossly disproportionate
to the cost of performance, the damages which the party may
recover are limited to the diminution in value resulting to its
property because of the nonperformance.
  Each award depends on the circumstances of the
individual case.

18. Limitations on Money Damages—Foreseeability

 Hadley
o P, a mill operator in Gloucester, arranged to have D’s
company, a carrier, hip his broken mill shaft ot the
engineer in Greenwich for a copy to be made. P
suffered a $300 loss when D unreasonably delayed
shipping the mill shaft, causing the mill to be shut
down longer than anticipated.
o The injured party may recover those damages as may be
considered arising naturally from the breach itself, and,
second, may recover those damages as may reasonably be
supposed to have been in contemplation of the parties, at the
time they made the contract, as the probable result of a
breach of it.
o Analysis: Only those damages as may fairly and reasonably
be considered arising from the breach itself may be awarded.
Second, those damages which may reasonably be supposed
to have been in contemplation of the parties at the time they
made the contract as the probable result of a breach of it may
be awarded.

 Manoucherhri
19. Limitations on Money Damages—Certainty

 ESPN
20. Limitations on Money Damages—Mitigation

 Parker
o P sued D for damages resulting form D’s breach of an
employment contract with her.
 o Projected earnings from other employment opportunities only
offset damages if the employment is substantially similar to
that of which the employee has been deprived.

21. Other Remedies—Specific Performance

 Walgreen Co.
o P filed suit to enforce a clause contained in its lease
agreement that provided that no space in the mall
would be rented to a competing pharmacy.
o Where costs of injunctive relief are less than the costs of a
damages remedy, even when the damages remedy is not
shown to be inadequate
o Analysis: Certain categories of contracts will regularly win
equitable remedies. When subject matter is unique, such as
with real estate, specific performance will usually be granted.
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