Contracts Outline

Contracts OutlineI. Promisory LiabilityA. Consideration R.2d 82-941. To have a contract, must have mutual assent and consideration R.2d 17 Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.

2. Whats required to show consideration? R.2d 71a) Bargained for

b) Reciprocal inducement

c) Performance

(1) An act other than a promise

(2) A forebearance

(3) The creation, modification, or destruction of a legal obligation

3. Reciprocal Inducement

a) Partial inducement is enough!b) No gratuitous promises constitute consideration(1) Good feeling aint good enough.(2) Kirksey v. Kirksey plaintiff was the widow of defendants brother defendant wrote a letter offering her a place to stay on his land. After she went there, he kicked her off. Held to be no reciprocal inducement. (Could have one on reliance?)(3) Langer v. Superior Steel plaintiff had retired from the steel company and get a letter promising him $100 a month for the rest of his life as long as he did not work for any other company. He took the money and did not work they discontinued the payments after 4 years. Court held it to be a contract, because the not working was consideration; there was reciprocal inducement.(4) Promises can move between gift and exchange up to the point of performance. Example: Guy who gave niece a rare book as a gift, then she gave him an antique penny. When he wrote a letter acknowledging the book in exchange for the penny he turned the gifts into an exchange. Then, when he did not give the book, he had breached.

c) Forbearance does count as consideration

(1) Fiege v. Boehm the man believing himself to be the father of a womans bastard child paid child support in return for her forbearance to sue him in court. When he found out he was not the father, he stopped paying. Court held that, if she believed in good faith that he was the father, and he believed that he was the father, then the contract was valid with forbearance as the consideration.

(2) R.2d 74(1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless: a)the claim or defense is in fact doubtful because of uncertainty as to the facts of the law, or b)the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.4. Adequacy of Consideration

a) Traditional and the 1st Restatement went under benefit-detriment theory there must be some gain to the promisor and some detriment to the promisee in order to constitute consideration.b) Not relevant in modern times: R.2d. 79 If the requirement of consideration is met, there is no additional requirement of a)gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or b)equivalence in the values exchanged, or c)mutuality of obligation.c) Modern common law feels that private parties should be trusted to enter bargains that are mutually beneficial, even if weird to the outside observer.d) Unconscionable bargains are an exception

(1) Jones v. Star Credit outrageously overpriced refrigerator was sold to a family on Welfare by a door-to-door salesman, who then sued them when they could not pay for all of it.

(2) R.2d 79 Comment e gross inadequacy such as shocks the conscience or is said to be the badge of fraud may be unenforceable.(3) The FTC has a section for unconscionability

(4) UCC 2-302 the court may strike any part of a contract that it finds unconscionable, or if the whole contract is permeated with it, strike the whole thing. Evidence will be heard from both sides as to the commercial circumstances. Comment discusses public policy and unequal bargaining power.5. Pre-Existing Duty Rule

a) The performance or promise to perform a pre-existing duty is NOT consideration.

(1) Alaska Packers men waited until they got all the way to Alaska, where there were not other workers, before demanding more money. Company would not pay it when they got back.b) Classical theory had to be new consideration R.2d 73(1) Tenants cant renegotiate a lease by threatening not to pay.

(2) They could negotiate by negotiating forbearance for going into bankruptcyc) Modern theory the new consideration can be nominal

(1) Tenant could negotiate paying at a different day of the month or different location.d) Modern: Modifications to the contract are usually ok to constitute new consideration 89, (1) When the circumstances were not foreseen at the time of the contracting

(2) When the two parties agree (3) To the extend that justice requires policy considerations are important.(4) Example: Angel v. Murray garbage collector who has to collect for whole city, over 10 years city grew unexpectedly quickly and he asked for more money.

e) UCC 2-209 is even more liberal whenever parties agree to modify, but tey really adopt the need for good faith.

6. Mutuality of Obligation

a) A promise does not have consideration is there is no mutuality of obligation b) Stops the illusory promise of if I feel like it

(1) Rehm-Zeiher v. Walker a contract between producer and distributor forced the producer to supply the distributor with all the whiskey it needed at a fixed price, but the distributor didnt have to buy any if it didnt want to.

c) Mutual Obligation is valid consideration in exclusive obligations

(1) McMichael v. Price fixed price for sand that would be exclusively sold to the distributor. The distributor promised to buy all his sand from the defendant, and the defendant promised to sell to the distributor everything the distributor asked for. When the defendant did not come through with enough sand, the distributor sued.

(2) UCC 2-306 Output Requirements and Exclusive Dealings: good faith and not unreasonably disproportionate, then theyre ok. Comment really harps on the importance of good faith, reasonable effort, and due diligence.(3) Lucy v. Lady Duff-Gordon she signed an exclusive agreement with an agent to sell and advertise her clothes for a percentage of the sales. She claimed he was not doing his job, and sold some on the side. He sued, and won; court held that it was in his interest to do a good job, and that he was. B. Promise plus Detrimental Reliance Estoppel

1. Middle ground between contract & tort2. What are the elements of estoppel?

a) The party to be estopped must be appraised of the factsb) The promisor must intend that his conduct be relied upon

c) The estopped must be ignorant of the true facts

d) The estopped must rely

e) To his detriment.

3. R.2d 90(1): A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for the breach may be limited as justice requires.4. The reliance needs to be reasonable

5. Examples:a) Feinberg v. Pfeiffer Co. woman was awarded a gift by the company upon retirement. However, she relied upon it for over 8 years. Then they cut the gift, calling it a gratuity at this point she was too old to work. Court held it to be a contract based on detrimental reliance.

b) Kirksey v. Kirksey - the court did not address estoppel, but the widow probably would have gotten relief under it. She definitely relied on his promise, he knew she would be giving up her land and intended that she do so, and she relied upon him to her detriment.6. Charitable donations

a) Can always get damages, even without showing reliance. They rely on all donations they get as a principle of their work.

b) R.2d 90(2): A charitable subscription or a marriage settlement is binding under Sub.1 without proof that the promise induced action or forbearance.c) Allegheny College Cardozo employs estoppel for charity without actually saying that he does finds consideration in the terms of the agreement where it really was a stretch.C. Promise plus Antecedent Benefit Moral Obligation1. When you analyze this kind of question, analyze under traditional, 86, and quasi.2. Traditional theory does not allow it to be a contractual obligation maybe he should pay for it, but no legal obligation.

a) Mills v. Wyman woman took care of a sick man, when he died, his father promised to pay her for the care, but then did not. There was no legal obligation.

b) Harrington v. Taylor friend of a woman caught the axe as the woman was trying to kill her husband. Husband promised to pay friend for the hand, but didnt. Again, no legal obligation.3. Quasi-contract

a) A confers benefit on B with the expectation of payment

b) A gives B the right to turn down acceptance of the benefit, unless there is a good reason why he didnt.

c) Bailey v. West plaintiff, a horse caretaker, sued West, a horse owner, over the care of a horse. The horse had been delivered to the plaintiff by Wests employee, there was evidence that he sent letters to more than one person to find out who owned the horse, and that West explicitly sent back the bill, saying the horse was not his. Court would not allow recovery under quasi-contract.4. An oral promise to pay an antecedent debt or quasi-contractual debt is consideration. R.2d 82a) S.o.l. Is a matter of public policy we want people to know at what point they can have peace and no longer fear suit. If someone chooses to waive that right and promise to pay, more power to em.b) Traditional was one of pre-existing duty rule need new considerationc) Manwill v. Oyler denied consideration on an oral promise to pay debt after the statute of limitations on the debt had passed, because there wasnt evidence that there was ever a contract in the first place. 82 only works if the s.o.l is the only thing barring enforcement.5. R.2d 86: Promise for Benefit Received: A promise of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.

a) Webb v. McGowin guy who fell out of window with a block and severely injured himself in order to avoid killing his boss. Boss promised to pay man, and did, until his death, when the payments stopped. The court made mentions about the value of life but they were really applying 86 yet this case is weak. Try not to use it.

D. Nominal Consideration

1. R.2d 71 Comment: A mere pretense of a bargain does not suffice, as where the is a false recital of consideration or where the purported consideration is merely nominal

II. Offer & Acceptance; Mutual AssentA. Mutual Assent

1. To have a contract, must have mutual assent and consideration R.2d 17 Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.2. Negotiation leads to mutual benefit; at some point, there has been enough negotiation that it can be called a contract. Where is this point?

3. Ordinarily takes the form of an offer and an acceptance - 224. Ascertainment of Assent The Objective Test 19a) To determine assent, you have to go with what was actually said or indicated externally(1) Twenty bishops could not prove inner intent

(2) Intent does not invite a tour through Walterss cranium, with Walters as the guide.

(3) Exception for adhesion contractsb) Embry v. Hagardine (1907) contractor doesnt have a contract for next year; enters bosss office and says he wont continue work unless he gets confirmation of a contract for next year. The boss said, Go ahead, youre all right. which employee took to mean confirmation. Employer later said no. Under the objective test, it was a contract.

c) Stops the false defense of internal intent

d) The other party cannot rely on internal intent, but only external. Most parties prefer the objective test ex ante, because it makes contracting reliable.e) How do you know external intent?

(1) Reasonable Person Standard Lucy v. Zehmer (1954) Two farmers got drunk, got in discussion over selling Zehmers property. Discussed price & terms for about 40 minutes, after which both Zehmer & wife signed. After taking the paper, Lucy offered a $5 binding payment, at which point Zehmer said no, and said it wasnt a contract (waitress concurred this.) Lucy then acted in reliance by going and getting an attorney and finding the financing. Zehmer said it had all been a joke, and that he had not assented. Court found that a reasonable person would believe, through the negotiation, the words spoken, Zehmers actions and Lucys subsequent actions, that there was mutual assent. The $5 binding fee might be Zehmers best defense that neither believed the assent mutual, but court decides this was nominal only.

(2) Quantity spoken/quality of speech

(3) Relation/relevance to the subject

(4) Manner of speech

f) Traditional method was subjective, that if A offered to B and gave him until later to decide, Bs acceptance during that period would not be valid if A could show that she did not intend at that time. However, did have to have some evidence of inner intent.

B. Offer

1. An offer is an act by which a person confers on another the ability to form a contract between then by saying I accept.

a) 24 an offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.b) An invitation to bargain is not an offer 26c) Need a specific price, will not take less than usually doesnt cut it. Not usually price quotes.d) Need words that indicate that the ability to create a contract has been extended.

e) Keep in mind context of conversation is it actually a counteroffer? Are there phrases like for immediate acceptance? f) When in doubt, courts usually hold there is no offer

g) The offeror is the master of the offer!

h) UCC on offer: 2-204, 2-206 any manner of offer & acceptance reasonable, quote for prompt shipment is considered an offer

2. Offeror can destroy an offer at any time up until acceptance, with the exception of option contracts.3. Advertising

a) Most advertisements are not considered offers

b) Exception- Lefkowitz v. Great Minneapolis Surplus Store (1957) man saw three advertisements for womens coats that said only that he had to be the first one at the store. When he got there, they would not sell to him, saying that he was not female. Court held that the third advertisement, which gave a price and clear, definite actions that customer had to do to indicate acceptance, was an offer.c) Public policy comes into play here courts do not want to allow advertisements that appear close to bad faith.d) Bottom line make sure you are vague when you advertise!C. Acceptance

1. The acceptance method may be stipulated by the offeror, and that method must be satisfied to constitute acceptance. R.2d 30, 50, UCC 2-206a) Default in modern bilateral is either promise or commencement of performance.b) LaSalle National Bank v. Vega (1988) a bank offered to sell a house, conditional upon signing by both the buyer and the bank. The bank did not sign, which was stipulated in the contract as their method of acceptance of Vegas offer to buy.

2. If an offer has been accepted by someone else, that is assumed to be a withdrawl of the offer.

3. Notificationa) The offer for a return promise is not accepted until the offeror is notified within a reasonable time 56(1) Hendricks v. Behee (1990) Buyer Behee offered sent an offer to the real estate agent through the mail, who sent it to the sellers, Smith, who accepted by signing. During the post, Behee withdrew his offer and told this to the real estate agent. Behee received his deposit back, because the court determined there was no acceptance(2) Reasonable Time(a) Ever-Tite Roofing Co.v. Green (1955) A family made an offer to have a roofer fix the roof, accepted either by signing, or by commencing performance. The roofer did a credit check on the family promptly, then loaded trucks and went to house, where there was another company already working. The family said there had been no acceptance because they had not started work. Court disagreed;

(b) the performance had commenced when they loaded the truck,

(c) while this was a bilateral promise, the roofers were still within a reasonable time for accepting given the need for a credit check. The offer could not have been considered lapsedb) The offer for performance is accepted upon commencement of performance, and there need not be notification unless the offeror will have no other way of knowing about the performance. 54c) Mailbox rule acceptance happens when it leaves the hands of the offeree. 63(1) Revocation happens when it reaches the hands of the offeree.

(2) Mailbox rule can be reversed by the offeror it is the default.

4. In a unilateral contract, if the person learns about the offer after commencing perforamance, she may still accept (partially induced to finish dont want her to start over again). If she has finished performance before learning of it, she may not (no inducement). Glover

D. Counteroffer

1. Extending a counter-offer negates the original offer.

2. Once a counter-offer has been extended, then the original offer cannot be accepted, even if the counter-offer is the rejected.

3. Mirror-Image Doctrine the acceptance must accept exactly what the offer offered.

a) An acceptor can add suggestions or inquiries to the acceptance, but the acceptance cannot be condition on these additions, or it becomes a counteroffer. 59, 61

b) The UCC allows minor changes to the acceptance to still be an acceptance, as long as the offeror doesnt object to them. 2-207. In this coming spring, there will be a knockout rule, whereby the additions can be knocked out of the acceptance upon objection, but the acceptance still stand.

c) Minneapolis & St. Louis Railways vs. Columbus Rolling-Mill Co. (1886) Columbus sent out an offer to sell a certain quantity at a certain price. MN responded for the same price but a different quantity and requested a contract to sign. Columbus sent no contract and rejected the offer. MN then tried to order the original offer, and Columbus rejected again. Under the mirror-image doctrine, MN could not accept, but had counter-offered and been rejected.

4. An offer cannot be accepted after the power to accept has been terminated. 35

a) Option contracts cannot be terminated. The premium is paid for the right to accept anytime within a certain period.

b) Reliable information that the offer has been accepted by someone else is a withdrawl of the offer.

c) Death is a revocation of offers. Generally, no notification required. 48

III. Contract Interpretation

A. When you will use this.

1. There already is a contract! Formation is not in dispute.

2. Is the language ambiguous?

3. If so, what evidence is relevant to interpreting the ambiguous language?

B. Step 1: Tests to determine ambiguity present

1. Patently ambiguous terms have no test they go straight to the jury.

a) Examples: Green, tons when an international contract.

b) Chicken in Frigaliment was patently ambiguous2. Plain meaning doctrinea) Only look at the plain meaning of the words

b) Objective test - Dont take any context into accountc) Discretionary on the part of the judge does she think the term ambiguous?

3. Context meaning a) If plain meaning test shows ambiguity

b) The suggested alternate meaning has to be reasonably susceptible to interpretationc) Subjective test - Take into account all the context of the contracts formation

d) Dominant theory in common law now

(1) R.2d 212 Read the comment.e) PG&E - all contracts should be interpreted contextually words are never clear. Trident (a subsequent case) pointed out that this makes litigation expensive and makes it impossible for two companies to clearly state their meaning, even if they want to ensure no ambiguity.

4. Neither of these tests have to determine what the term means just that it can have more than one meaning. Then it goes to the jury.

C. Step 2: Once you have ambiguity, what next?

1. Did one person know the other persons meaning?

a) R.2d 201(2) If the parties attached different meanings, then if one party knew the other persons meaning, and the other person only knew their own meaning, you go with that meaning.2. Hierarchy of evidence

a) Express contract terms

b) Negotiation of the contract

c) Course of Peformance when the contract is halfway finished, look at what has happened so far. d) Course of Dealings when there have been several sequential dealings between the parties, look at past ones to determine a pattern.

e) Trade Usage

f) Dictionary

3. Equipoise whats the default?

a) The person bringing the suit bears the burden of proofb) The party who wrote the agreement will bear the loss

c) Or just judge it a failure of mutual assent R.2d 201(3) Peerless (contract specified the ship on which the cotton would arrive, but there were two ships of the same name. The contract was held unenforceable by failure of mutual assent.)D. Integration and the Parol Evidence Rule1. When is the PER raised?

a) You must have something in writing!b) You must have something else be it oral or written

c) There must be an already enforceable agreement

d) It is not applicable:

(1) To interpreting a writing

(2) To prove the non-existence or invalidity of an agreement2. Parol evidence rule tells you how much extrinsic evidence you may use given the level of integration.a) PER R.2d 213 (1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them (2) A bind completely integrated agreement discharges prior agreements to the extent that they are within its scope (3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated.

3. Is it an integrated writing? a) If totally integrated, also known as COMPLETE:(1) It is the last expression of ALL terms of the agreement

(2) It cannot be contradicted or supplemented by prior or contemporaneous written or oral agreements.

(3) Merger clause is strongly persuasive.b) If partially integrated, or FINAL:

(1) It has adopted SOME of the terms of the agreement

(2) It cannot be contradicted, but can be supplemented by prior or contemporaneous written or oral agreements.c) If not integrated then you can use prior agreements.

4. How do tell the level of integration?a) Look for a merger clause strong persuasive evidence of total integration.b) 4 corners rule

(1) You look at the writing. And thats it.(2) Totally form approach, no substance(3) If the documents seems to cover it, it does cover it.(4) If there is an averment of fraud, then you can use parol evidence.(5) Gianni guy who couldnt sell tobacco, and thought he had orally contracted to be the exclusive dealer of soda. Written agreement didnt say that judge looked only at written agreement.c) The objective test (1) The issue in dispute is not ordinarily in the writing(a) If so, then we conclude that it wasnt part of the agreement.(b) How detailed was the contract? Did they cover related topics? Was it super detailed?(c) Mitchell v. Lath icehouse to be removed from the property. The contract was super-detailed about everything else. They held that this extra part would not be enforced.d) The subjective test R.2d 216(1) What would these parties reasonably have made in a separate agreement?

(2) Subjective in the sense that we look at the parties individual circumstances, but still objective in the sense that their other agreements must have been reasonably made.(3) Masterson v. Sine bankruptcy trustee is trying to take property from the bankrupt mans sister she claims there was a separate contract to keep the property in the family.

e) UCC approach 2-202 Assumes contract is complete - all evidence is admissible to prove total integration goods only!5. Once you know integration, what extrinsic evidence should you exclude?

a) If not integrated, then use everything

b) If partially integrated:(1) Hunt Standard

(a) It must negate the written terms in order to be inconsistent

(2) Snyder Standard

(a) There must be disharmony between the written terms & other evidence(b) Excludes more than Hunt(c) Based on a standard of reasonableness reasonable disharmony.c) If totally integrated, then nothing comes in, regardless of strengthIV. Conditions of Exchange

A. What are conditions & warranties?

1. The failure of one of these allows one party not to fulfill the obligation

2. The function of a condition is to allocate the risk of the event at issue.

3. R.2d 224 Condition Defined: A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.4. There are conditions precedent & conditions subsequent

a) Most conditions are precedent.

b) R.2d refers only to precedent conditions.

c) Conditions subsequent are things in which the contract will not be enforced if something doesnt happen within a specified time most common example is insurance. They are always conditions of notice.d) Distinction is for one of burdens of proof plaintiff has the burden to show that a condition precedent was met; defendant has the burden to show that a condition subsequent was not met, as they are an affirmative defense.B. Express Conditions

1. What are they?

a) Mandatory conditions in order for one party to give the return promise

b) They must be agreed upon between the parties

c) If the condition isnt met, the contract dissolves

d) Defense to express conditions are they were not express and substantial performance should be permitted.

e) The penalty of an express condition is harsh.2. What you should think about when entering one:

a) What must one receive in order to have the exchange?

b) What events could occur to impair that exchange?3. Conditions are different from promises

a) The promisor does not have the right to sue the promisee for failing to meet the condition. The contract is simply void.

b) Neither party is obligated to hold up their end.

c) To make a condition into a promise, remove the IF.

(1) I promise to buy your house IF the roof is in good repair.

(2) I promise to buy your house with a roof in good repair.4. Limiting the harm of a failed condition

a) There is a strong public policy argument against conditions they often create unequal bargaining power. Prefers risk premium for risk allocation.

b) When there is non-occurrence in an express condition, there is forfeiture regardless of harm.c) For that reason, they are only enforced if the language is clear that the person forfeiting assumed the risk.

d) Promise is the default in the Restatement: See R.2d 227 and read the comments, which talk about the public policy of limiting forfeiture.

5. Excusing conditions

a) Six mitigating doctrines

(1) Contract Modification to remove the condition 89(2) Waiver (estoppel and election) R.2d84(a) A voluntary relinquishment of a known right destroys the condition

(b) Must be intentional & knowing

(c) Has to be waived before condition, and can be reinstated

(d) Cant reinstate if there has been reliance on the waiver - Estoppel(e) Waivers can be explicit and implicit

(f) Waivers are often used when it is not possible to put the modification in writing.(g) Election is when the party that would have benefitted from the condition decides to continue the contract even though the condition has not been met(h) The burden of proving the existence of the waiver and the reliance upon it is on the plainitff.

(i) Example: Clark v. West published will give some money for printed pages, will give more money if the writer does not drink. However, publisher made statements that writer would get his money, even though the publisher knew at that time that the writer was drinking. Held to be a possibility of implicit waiver matter for the jury.(3) Impracticability

(4) Discharge by the court

(5) Prevention

(a) party who made the condition prevented the other party from fulfilling it(b) Substantial hindrance or failure to cooperate will constitute prevention, provided the conduct is wrongful(6) Disproportionate Forfeiture (unconscionability)

C. Constructive Conditions of Exchange

1. What are they?a) They dont really exist! They are constructions of the court in place of explicit conditions. 226b) You can only have them in bilateral contracts. c) They are not the same as express conditions, because both parties can sue.

d) They often occur when each party considers their performance conditional upon the other persons performance. They must happen together.

(1) In order to get them to occur, the court picks one and makes it a condition of the other. This is sometimes arbitrary, but they give their reasons Kingston (man sells gives apprentice his silk firm but wants financial security, wont give firm w/o security, court determined security would have to go first)(2) Then, if As performance is a condition of Bs performance, and B doesnt perform, then A doesnt have to perform and can sue B. So its not an express condition.(3) Or if B performs but breaches the contract immaterially, A must then perform, and can only sue for the set-off costs of that immaterial breach.

2. Modern default is that the contracts are dependent, and we need a CCE.

a) R.2d 234 when they are simultaneous promises, they should go simultaneously, unless one will take a lot of time, and then it should be done earlier.b) UCC 2-507 and 2-511 for goods, the simultaneous exchange of goods and payment in a sale.c) Traditionally, contractual obligations were treated as independent unless contracted otherwise. 3. Sequential conditions

a) Like getting a haircut.b) R.2d 234 what they mean by one persons part taking a lot of time.c) Want to give incentive to perform fully.d) Sequential bilateral conditions LOOK like unilateral conditions. But theyre not. Its all in the offer it is an exchange of promises when you come in, sit down, start talking with the hairdresser.

4. Substantial performance fulfills a CCE.a) What determines substantial performance?(1) First, figure out the CCE what did the person essentially promise to do?(2) The scope of the project did the person meet the essential purpose of the contract?(3) Difference in value between the work performed and the contract promised

(4) Whether taste is involved (important with homes) (OW Grun and the differently colored roofing tiles)b) Intuitively, you want substantial performance, because forcing full performance would often lead to unjust forfeiturec) The failure should be in good faith dont want fraud.

d) Jacobs & Young v. Kent the owner of a house found out after having moved in that the pipes were not the specified brand wanted them replaced. Cardozo held that substantial performance was enough, and that it would be unjust to take the whole house apart when it was not material.

e) It is customary to make the breaching party compensate for the loss in value when substantial performance is deemed satisfactory (Plante v. Jacobs the misplaced wall)

f) If there is no substantial performance:

(1) The breaching party must compensate monetarily for the breach

(2) The suffering party does not have to use the money to replace the work!

g) UCC 2-601 buyer has right to reject goods that do not perfectly conform to the contract.

(1) Must do so in a timely fashion 2-602

(2) Must do so in a good-faith manner 2-603, 604

(3) Must specify the defects 2-605(4) If buyer accepts or fails to reject, 2-606, 607

(a) He must pay for the goods

(b) But he can sue for breach if the goods were imperfect and he was forced to use them by time crunch

(5) The seller must be given the time to cure if that time still remains 2-508

5. Divisibility of Contracts

a) Its not easy to prove.

b) Have to establish separate consideration

(1) Helps if there are two different payment schemes like fixed for the first and per-hour for the second

(2) Lowy v. United Pacific contracting for development work that had two separate jobs. They completed 98% of the first job, and then halted over a dispute the plaintiff immediately hired someone else for the second half of the work, and then sued the contractor for breach. Court held that breach on the second part did not negate damages on the first part.c) R.2d 240d) If the persons services are unique and cant be replaced, then not divisible

V. DamagesA. Compensatory Damages

1. Why do we have compensatory damages?a) To compensate for the harm

b) NOT for deterrence or punishment.2. Types of remedies R.2d 344 and commenta) Monetary

(1) Expectation Damages

(a) Amount that will place the injured party in the place they would have been but for the breach.

(b) Plaintiff is ex post whole.

(c) Usually the largest amount given

(d) Strategically, you go for this.

(e) More difficult to prove difficult to measure.(i) Used more w/projects & corporations than w/individuals, because of problems estimating.(ii) Diminution in value v. cost of performance

(iii) Cost of performance is the general rule.

(iv) If the difference between the cost of performance and the diminution in value is huge, then the court will award diminution. Jacobs & Young v. Kent is perfect example. (Peevyhouse shows problems - the coal company didnt clean up the mess of the strip mining, which would have cost $25K, when the expert said the diminution in the property value was $300)(f) R.2d 347(g) Supposed to subjective to the suffering partys individual case, yet all lost profits must pass the test of forseeability by the breaching party. R.2d 351(h) NOT based on partys hopes; based on actual market value.(i) Suffering party has the duty to mitigate see below.(2) Reliance damages

(a) Amount that will place the injured party in the place they were before the made the contract.

(b) Plaintiff is ex ante whole.

(c) Ordinarily smaller than expectation.- does not include injured partys profit.(d) Used when the injured party incurred suffering and expenses during the breach that they would not have suffered but-for the breach.

(e) R.2d 349(f) Not the same as estoppel this is reliance on an existing contract.(3) Restitution damages also called quantum meruit(a) Amount that was paid by the injured party to the breaching party.

(b) To prevent unjust enrichment on party of breaching party defendant is ex ante whole.(c) Usually the smallest amount of damages has neither lost profit nor expenses incurred that did not benefit the breaching party.

(d) R.2d 373(e) Often used when it is suspected that the defendant had the incentive to breach.

b) Equitable injunctions or specific performance.

(1) Used when monetary relief wont make the person whole

(2) Atypical remedy

(3) R.2d 345 specific performance is done only by court order, and only if monetary damages would be insufficient. 359. Court order will be drawn as best to effectuate the purposes for which the contract was made and on such terms as justice requires. 358 (not in book)(4) Court must be involved in executing the damages

(5) Preliminary injunction when permanent harm will come during the course of the trial, there is a stay on the behavior like when a bulldozer is about to go through your house.

(6) Cant force a person to perform a contract through specific performance its indentured servitude.(7) Examples:(a) NIPSCO v. Carbon County could not be equitable remedy for a broken long-term coal supply agreement. It was economically inefficient to continue to produce the coal, and the monetary remedy would suffice. Coal workers, though hurt, were not parties to the contract.

(b) Walgreen v. Sara Creek Property Walgreen could get injunction to stop Sara Creek from letting Discount Drug become the anchor store, as it was in breach of their lease. A helpful factor here was the cheapness of the courts review, and the fact that other anchor stores were available.3. Plaintiff has the burden of proof in a damage assessment

4. UCC and damages for goods 2-711 717

a) Can cover and then sue for market difference 2-712

b) Can sue for specific performance 716 & comment(1) Laclede v. Amoco gas suppliers who cut off the gas to mobile homes. As a matter of public policy, the homes need the gas and cant get it elsewhere.

(2) A good being unique can be a good which cannot be covered.

c) Can do nothing and sue for contract price 713

d) Can always sue for incidental and consequential damages, too 715B. Punitive Damages

1. Generally not permitted in contract

2. Exceptions for fraud & misrepresentation public policy; presence of a tort, violation of a fiduciary duty3. Purpose is deterrence & punishment4. Boise v. Clark car dealership that turned back the odometer on a used car to sell as new.

5. Punitive damage amount must be proportionate to compensatory.

6. R.2d 355C. Nominal Damages(1) A trifling sum

(2) Indicated that there was liability, but no damage

(3) Also called declaratory judgment

(4) Why would plaintiff seek this?

(a) They just wanted to win.

(b) They failed to prove damage.D. Limitations on Damages

1. There are limitations on expectation damages

a) Avoidability/Mitigation

(1) If one party knows that the other party intends to breach, they must stop work. They cant sue for damages for anything they did past the point of notification. (Rockingham County v. Luten Bridge contractors building a bridge continued long after they had received notice that the contract would be breached) R.2d 350(1)(2) The injured party does retain the right to sue for the breach itself.

(3) UCC 2-704(2): A seller can either cease manufacture or continue, whichever will cause the least damage. Remember, a good is a moveable thing.(4) There is no DUTY to mitigate, but avoidable loss is not recoverable, so youd better do it.

(5) The effort must be reasonable, and no more R.2d 350(6) Why do we have it?

(a) Deter unreasonable behavior

(b) Deter excess waste

(c) Provide a more equitable & sensible outcomes

(7) With employer/employee contracts, the contract must be substantially similar in order to be used to mitigate damage of breach (Parker v. 20th C. Fox)

(a) Burden of proof of substantiability is on the employer.

(b) Employee must prove that reasonable effort to find other employment was made.b) Foreseeability consequential damages(1) Hadley v. Baxendale - Extent and scope of damages should be either: consistent with the usual course of things, or what may reasonably have been supposed to be in the minds of both parties at the time of contract, as a probable course of the breach.(2) Unforeseeable is NOT recoverable.

(3) R.2d 351

(4) UCC 2-715(5) Recovery for emotional damages

(a) Not usually recoverable in contract cases

(b) Main exception is for the care of the dead that is a foreseeable result at the time of contracting. (Allen v. Jones)

(c) R.2d 353: Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emitonal disturbance was a particularly likely result.

c) Certainty

(1) Plaintiff must prove the fact of financial loss, and the amount.

(2) Damages are recoverable only when their amount is reasonably certain.(3) More than a preponderance of the evidence

(4) Courts consistently demand a high standard of proof when it comes to lost profits.

(a) Can be hard to prove especially in entertainment

(b) Fluctuating markets can cause skepticism around estimate

(c) New businessesd) Liquidation Damages as an Alternative

(1) Allow the parties to allocate the risk from breach right up front at time of contracting

(2) Two main criteria for when liquidated damages clauses will be accepted:(a) When the estimate of the probable loss is reasonable

(b) When the estimate of the actual loss would be difficult to estimate

(3) If these two criteria are not met, then we will void the clause very different from other parts of contract law

(a) Tension between goals of fairness & goals of respecting freedom to contract

(b) Worry about unequal bargaining power in these situations

(4) Not fatal to recovery if there were no actual damages

(5) UCC & Restatement make it easier can have it be a reasonable estimate in light of what the actual damages were foreseen to be, OR what they actually were.

(a) UCC 2-718(1): Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss(b) R.2d 356 reads almost identically to the above in UCC.