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The judge did agree that a contract had been formed, but only to negotiate in GOOD FAITH
Subcontractor made oral contract with Contractor saying he’ll keep the prices of cement the same throughout, but later tried to raise the prices.
Even though most price quotes aren't offers, just negotiations, but this is one. Blake won bid, course of dealings, MD began performance, Intent, therefore terms of K couldn't be breached.
Farley v. Champs Fine Foods, Inc.
(Revocation of an Offer Before Acceptance)
A proposal may be revoked at any time before its acceptance is communicated to the proposer, but not afterwards. Even though a definite time in which acceptance may be made is named in a proposal, the proposer may revoke his proposal within that period unless it was given for consideration.
If there is a conflict of jurisdiction between two parties discussing a contract, then the jurisdiction will be assumed to be that of the accepting party. i.e. If the offer is spoken in PA, and accepted in NY, NY law would apply.
More or less the same as Mailbox rule. Telegram acceptance is effective when the acceptance is deposited with the telegraph company.
Contract was formed when seller, prior to receiving the buyer's revocation, had accepted the offer by depositing the telegram of acceptance
D's bought land from their parents, offer an option for a second cousin to buy it for $28K, which was extended several times. Husband of D dies during this extension.
The general rule is that the death of an offeror revokes his offer or causes his offer to lapse. After death, the formation of that apparent state of mind of the parties which is embodied in an expression of mutual consent is rendered impossible.
Pavel Enterprises, Inc. v. A.S. Johnson Co., Inc.
(Reliance of C on SubC)
D was supposed to be subcontractor for P, but discovered that its quote was too low after P won the general contract. P disengaged their services and sued them for the difference.
Held: (1) traditional bilateral contract had not been formed at time subcontractor withdrew bid, and (2) insufficient evidence to establish general contractor's detrimental reliance on bid.
Performance guarantees reward. Contract is not formed until performance is completed.]
Both parties come to agreement on a good or service to be performed wherein each has specific rights or duties.
You offer me $100 to walk across the bridge, and I agree to do so. We both have corresponding duties and rights.
Performance of participants in a drug trial DOES CONSTITUTE consideration in an agreement where drug manufacturer offered a free year's supply of a drug in exchange for participants' submitting to experiments as part of the trial.
If someone knows of an outstanding offer, they may accept the offer by rendering performance even if the performance is done for other reasons.
Arduini v. Board of Education
(Employment Contracts + Manner of Acceptance)
*Acceptance by silence - general rule
*Rule: no contract was created by landowner's silence in response to farmer's offer to farm the property because none of the exceptions are applicable; landowner didn't express to enter into new deal; in previous dealings, parties only reached contract when expressly agreed.
Peterson v. Thompson
(Tractor Case: Reasonable Notice of Acceptance)
Where the beginning of a requested performance is a reasonable mode of acceptance, an offeror who is not notified of acceptance within a reasonable time may treat the offer as lapsed before acceptance.
What is a reasonable time for taking any action depends on the nature purpose and circumstances of such action.
Often include clauses to disclaim UCC implied clauses and limit UCC remedies.
Dorton made offers, sometimes by phone and sometimes by mail. Upon receiving the offers, Collins (seller) would send an acknowledgment form as a purported acceptance. These forms contained an arbitration term.
The term does not become part of the contract unless the party claiming inclusion establishes that to the other party:
Armbruster, Inc. v. Barron
(Leading Object Exception)
Cain v. Cross
(SoF for Land Purchases)
SoF is applicable for land purchases; they must be in writing.
Azevedo v. Minister
(Memorandum of Sale Under UCC)
Lewis v. Hughes
(Enforceable Contracts outside of UCC after Admission of Contract's Existence)
Under UCC 2-201(3), a contract which does not meet the reqs. Of 2-201(1) but which is valid in other respects is enforceable if the party against whom enforcement is sought admits in his pleading testimony or otherwise that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted.
Terms in an integrated writing (dealing withgoods) may be explained/supplemented (but not contradicted) by, course of dealing, course of performance, usage of trade
No mailbox rule-i.e. It is when the acceptance reaches the offeror, not when mailed
Firm Offers- irrevocable if states a duration
Last shot principals apply
No SoF or PER
UCC applies to sales of goods.
Appearance Test for PER
(Generally considered inconclusive)
Williston Test/ Natural Omission Test
(Comparison of Oral and Written Terms)
Wigmore “aid" test for PER
(Exclusion of a term as indicative)
Whether the particular element is dealt with at all in the writing.
Did the parties intend their agreement to be 'final and complete'?
Often requires an Integration test to determine intent of the parties.
Appearance Test (Integration Tests for PER)
If the extrinsic agreement is one made for a separate consideration, evidence of that agreement is admissible
Certain Inclusion Test
(Integration Test for PER)
Smith v. Rosenthal Toyota, Inc.
(PER for Evidence of Fraud)
Mellon Bank v. Aetna Business Credit Corp.
(Usage of Trade under PER)
Provides a general rule that a contract does not fail for indefiniteness because one or more terms are left open if there is a manifested intention to make a contract and there is a reasonably certain basis for the court to afford a remedy.
Allows for parties to make a contract even though the price term is missing, where there is no specification in the agreement as to whether the goods should be delivered in a single shipment or in installments
UCC Section 2-307
(Default Rule for # of Shipments of Goods)
Addresses gap in 305 by stating that a single delivery is required unless circumstances indicate to the contrary
Fills the gap when the parties have not specified a time for delivery; it must be within a reasonable time
Provides the presumption that payment is due at the time and place that the buyer is to receive the goods. Often a contract will allow a certain time for payment, but this would be the default otherwise.
Agreement not to open competing business
Must be reasonable time frame (2-3 years)
Must be reasonable geographic area (20 mile radius)
Must be ancillary (secondary) to valid contract, direct restraints are never allowed.
RULE– Terms are too restrictive, agreement is illegal
A condition may be excused if not material
Court seeks to avoid destroying contract
All must be given in Good Faith
Industry standard: Market standard of satisfaction
Used for Most Goods
Subjective standard: Aesthetic or personal taste
Often used in unique or artistic goods
Reasonable person standard: Has Good faith requirement
Reliance damages are meant to restore the innocent party. The court calculates these damages by determining what amount of money it would take to re-establish the innocent party's economic position. Reliance damages are the type of damages awarded in promissory estoppel claims, although they can also be awarded in traditional contract breaches. Reliance involves a loss to the innocent party that doesn't benefit the other party.
Restitution damages are also used when the use of expectation damages isn't practical. They are money damages that are awarded to an innocent party to compensate for the benefit that party gave. The innocent party will be awarded the value of the benefit he or she conferred to the other party during the time that the innocent party reasonably believed there was a valid contract.Restitution will always involve a loss to the innocent party that benefits the other party
Parties agree in advance that certain damages will be available if contract is breached
To be lawful
-Actual damages must be difficult or impractical to determine when K was formed, and
- Rarely use Flat Rates, usually go on a sliding basis
-Liquidated amount must be reasonable in the circumstances, they cannot exceed the actual loss
Warranty extends to any natural person in the house of the buyer
Warranty extends to any natural person
Warranty extends to any person
Cannot prevent assignment of accounts receivable or rights to damages
Cannot assign if
Materially changes obligor’s duty
Impair chance of obtaining return performance
Reduces contract’s value
a. The rights of the TPB stem from the k between the promisor and the promisee.
b. promisor may assert against the beneficiary any defense that they would have had against the promisee. You can say any reason such as duress, did not substantially perform…etc
c. PLUS can defend based on any breach or issue that came up before obligor learned of the assignment
-General Rule: No Affirmative Duty to Disclose
*Fiduciary Relationship (i.e. lawyer) – Duty to disclose all material facts
*Active Concealment of Material Fact
*Incomplete Statement, or Intentional Ambiguity
*New Information Contradicting Prior Statements
*Where Court Creates a “Duty to Disclose”
Foreseeability is broader, since it captures things that are a possible result of the breach, as opposed to probable result
Basic remedy is specific performance, not damages
Certain Inclusion Test:
Unless the court can say that the subject matter of the prior agreement would certainly have been included in the final contract, it is admissible. Very easy to admit (favors the party that wants to include the testimony).
Most commonly used test under the UCC.
UCC version of PER
UCC 2-202: partial integration is referred to as “final expression”. If found, you can hear evidence of consistent, additional terms. The final expression cannot be contradicted by evidence of any prior agreement but may be explained or supplemented by: (a) (b). Total integration is referred to as “complete and exclusive statement” (b). If found, you cannot hear evidence of consistent additional terms (same as restatement) Difference between UCC and Restatement is in 2-202(a) – regardless of integration, the court can always hear testimony regarding “course of performance, course of dealing, or usage of trade (Section 1-303).”
Ralph’s Distributing Co. v. AMF, Inc.
(Usage of Trade and Course of Performance Evidence under UCC PER)
Ralph’s want to introduce information about usage of trade and course of performance. Court stated that even if the contract is total integration, the usage of trade and course of performance must be heard.
Columbia Nitrogen Corp. v. Royster Co.
(course of dealing and usage of trade under UCC PER)
Columbia wants to introduce course of dealing and usage of trade to justify lowering their amount to buy. Previous dealings show that, when the roles were reversed, Royster frequently lowered their amount and price that they wanted to buy.
To fix this, the parties should have put a clause in the contract to exclude course of dealing and usage of trade from being looked at.
Smith v. Rosenthal Toyota, Inc.
(Condition Precedent, Fraud and the Parol Evidence Rule, differences between common law and UCC)
No Oral Modification (NOM) Clauses
An NOM clause does not apply if an oral dealing happens that causes one party to rely on another (this is considered a waiver). The party who gave the waiver is allowed to retract the waiver if the other party does not rely on the waiver, however. A waiver is another way of saying “I agree to the oral agreement we have made changing the terms of the contract.”
Modification of agreements – UCC version (2-209)
An agreement modifying a contract needs no consideration to be binding (this is different from the common law).
Zemco Manufacturing, Inc. v. Navistar International Transportation Corp
(Modification of Contracts with SoF)
Most courts (including this one) say that any modification of an agreement under the statute of frauds must be in writing, also. A minority of courts say you must look at what term is changed and, if you look at the original agreement, does this term fall under the statute? See 2-201(1) – the written agreement must only state the quantity of goods. Thus, in the minority’s rule, only a change in quantity must be in writing.
Anderson Brother’s Corp. v. O’Meara
(Unilateral Mistake, Conscious Ignorance)
Buyer bought the product for a different purpose than designed (the seller was not aware that they wanted to buy the product for this purpose). This is a unilateral mistake as the seller did not know the purpose for which the buyer was going to use the product. Only the buyer made a mistake.
Court said that the buyer proceeded with conscious ignorance. Thus, he bore the risk of the mistake. Thus, the contract is enforceable.
Speckel v. Perkins (Mistake in Offer)
There was a mistake in the offer in this case. With a mistake in offers, there is never formation of an agreement. The offer and acceptance never matched up. The plaintiffs lawyer knew that the defendant made a mistake in putting the offer of $50k instead of $15k.
Lanci v. Metropolitan Insurance, Co.
(Unilateral Mistake – Release)
deals with mistake in insurance policy settlement.There was a unilateral mistake because the party was under a false assumption as to what the limits of the insurance policy were (the other party knew the correct limit). The party wanted to void the settlement made due to the mistake. The contract is voidable because the insurance company had reason to know of the mistake.
LaFleur v. C.C. Pierce Co.
(Mistake Releases – “Unknown Injury”)
The court does not go through the typical “mistake” analysis (even though you could look at this as a mutual mistake). Instead, the court interprets the language of the “release.” Court said that the release protected against “known injuries” but not “unknown injuries”. If the release had different language, they could avoid the mutual mistake.
First Baptist Church of Moultrie v. Barber Contracting Co
(Unilateral Mistake – Clerical Error)
Estate of Nelson v. Rice
(Mutual Mistake of Value)
Mellon Bank v. Aetna Business Credit Corp.
(Standards of Interpretation)
Unless the term is vague, the court will usually not allow extrinsic evidence. In many cases, the courts will not be able to tell if a term is vague until they hear the extrinsic evidence. The judge will usually hear the evidence and, if both interpretations of the term are plausible, the judge will allow the jury to hear both interpretations.The PER is inapplicable to questions of interpretation. Thus, all prior oral dealings are allowed to be heard by the court.
Magliozzi v. P&T Container Service Co., Inc.
(Duty to Read)
As the indemnity clause was on the back of the ticket, a reasonable person would have no reason to know to look on the back for a clause. As far as Crusader knew, there was nothing on the back. There must be some notification that there is something to read (not just a receipt of pick-up).
Max True Plastering Co. v. United States Fidelity and Guaranty Co
(Standardized Contracts – The “Reasonable Expectations” Solution)
If the insurer creates a reasonable expectation of coverage in the insured which is not supported by policy language, the expectation will prevail over the language of the policy.
Requirements – (1) adhesion contract, (2) ambiguity in the contract OR complexity language that a reasonable person would not understand. If these conditions are satisfied, you may use the reasonable expectation policy, regardless of the contract language.
Germantown Mfg. Co. v. Rawlinson
(From Fraud to Unconscionability)
Duty to Disclose
Restatement 161 – A person’s non-disclosure of a fact to him is equivalent to an assertion that the fact does not exist in the following cases only: (a) where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material. See (b)-(e) for other situations when non-disclosure is equivalent to an assertion.
Williams v. Walker- Thomas Furniture Co.
(The Unconscionability Analysis)
UCC and Restatement do not define Uncon., nor do statutes. It is up to the courts and is a matter of LAW.The contract was commercially unreasonable and, thus, the party had little bargaining value or real choice. Thus, he most likely did not consent to the terms. When it is claimed that a clause may be unconscionable, the parties will be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination. To prove Uncon. you need both procedural and substantive Uncon.
U.S. Nursing Corp. v. Saint Joseph Medical Center
(Public Policy in Legislation – Regulatory vs. Nonregulatory)
Fine Foods, Inc. v. Dahlin
(Ancillary Restraints of Trade)
Restatement 188 – A convenant is unreasonable if - (1)(b): the promisee’s (Fine Foods) need is outweighed by the hardship to the promisor and the likely injury to the public. Court ruled that the promisee’s need is not outweighed by the hardship to the promisor or injury to the public. Thus, this was an ancillary Restraint of Trade
Blue Pencil Rule
historically, courts would, instead of voiding the entire contract, void only the part of the agreement that it finds to be unreasonable.
Promise vs. Condition
As opposed to a condition, a promise is something that, if not done, is a breach of the agreement. The seller can sue for not performing the promise.
If something is deemed to be BOTH a promise and a condition, it is called a promissory condition. The seller can sue the buyer for breach AND he does not have to perform if the condition is not met (he gets the “best of both worlds”).
Howard v. Federal Crop Insurance Corp.
(Interpretation – Promise or Condition)
If the provision was a promise, the insurance company will still have to pay but they may be able to hold the other party liable for damages from plowing the crop.
Restatement 227(1) – in case of ambiguity, the preferred interpretation is one that will reduce the obligee’s risk of forfeiture
Condition of Personal Satisfaction
An agreement where a subjective standard is used to judge satisfaction. This is usually done for a product that is one of aesthetics. It must be a good faith honest subjective standard, however.
This is as opposed to an objective view, which are usually done for a commercial product.
Elec-trol, Inc. v. C.J. Kern Contractors, Inc
(Condition of Personal Satisfaction)
In disputes between the owner and the general or the general and the sub, when an architect is brought in to judge the work done, the architect uses the good faith subjective standard in deciding.
Restatement 228 – the objective standard is preferred but you can contract otherwise.
Bell v. Elder
(Timing of Performance/Implied Condition)
R.G. Pope Construction Co. v. Guard Rail of Roanoke, Inc
While, most times, a party cannot just walk away, the court said that there was a condition in the contract between Pope and Guard Rail.As the condition (“constructive condition of cooperation”) said that Pope must provide the opportunity for Guard Rail to perform, and this condition did not happen (Pope delayed the construction), Guard Rail did not have to perform.
Thunderstick Lodge, Inc. v. Reuer
(Divisible (Severable) vs. Entire Contracts)
total and material breach – if the breach by the promisor is total and material, the promisee can withhold performance, terminate the contract, and sue for damages.
material breach – the promisee can suspend performance, require the promisor to cure the breach, and sue for damages.
immaterial Breach – the promisee can sue for damages (but they cannot withhold performance)
Walker & Co. v. Harrison
(Materiality of Breach)
The court disagreed that this was not a total nor was it a material breach. The court said the lessee could have fixed the damages himself, the sign was still working. Thus, the lessee was still getting the benefits from the sign.
While the lessee may be able to sue for damages, as it is an immaterial breach, they cannot withhold performance (i.e. stop payment).
Associated Builders, Inc. v. Coggins
(Materiality of Breach)
(Substantial Performance, Excuse of a condition and Material Breach)
Excuse of a condition to avoid forfeiture – If the non-occurrence of a condition would cause disproportionate forfeiture, a court my excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange.
Restatement 241 –a willful breach is not automatically a material breach. It is only one factor (241(e)) used to judge if it is material.
Ramirez v. Autosport
(UCC treatment of breach, The “Perfect Tender” Rule – Rejection- Revocation of Acceptance)
UCC is very broad in its definition of breach . UCC 2-601 (perfect tender rule): if the goods or the tender of delivery fail IN ANY RESPECT to conform to the contract, the buyer may (1) reject the whole; or (2) accept the whole; or (3) accept any commercial unit or units and reject the rest. Buyer can hold the seller to a “perfect tender”
Rohde v. Massachusetts Mutual Life Insurance, Co
(Excused Conditions – Prevention, Hindrance, and Waiver)
A court can read the contract and excuse the non-occurrence of the condition. The parties still have a claim for breach of a contract but they cannot say that the breach is a condition for not performing. Restatement 229 – if the non-occurrence of a condition would cause a DISPROPORTIONATE FORFEITURE, the court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange. This is a very high threshold to meet.
Restatement 261 - A party’s performance is made impracticable (easier than impossible) when, without his fault, the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made. You can void impracticability by allocating the risk to one party in a contract.
Missouri Public Service Co. v. Peabody Coal Co.
(Long Term Contracts - Impracticability)
The plaintiff’s claim for impracticability was simply a change in the market, not a supervening event. Thus, as there was no supervening event and the fact that they were simply losing money (not considered impracticable), this does not make it an impracticability.
UCC 2-615 – Excuse by Failure of Presupposed Conditions – your performance cannot be unduly burdensome if an unexpected condition occurs – similar to Restatement. Misjudging market value fluctuations of a product is not considered a sufficient impracticability. Market price change is not normally considered a supervening event. However, if a war causes the change, that may be judged an impracticability
Transatlantic Financing Corp. v. United States
Krell v. Henry
(Frustration of Purpose)
Restatement 265 – Discharge by Supervening Frustration – a party’s principals purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.
Deli v. University of Minnesota
(The Emotional Distress Limitation)
Except in very specific situations (under contract), it is rare to recover damages for emotional distress. Restatement 353 – loss due to emotional disturbance – 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 emotional disturbance was a particular likely result.
Soules v. Independent School District No. 518
(The Mitigation Limitation - Avoidable Consequences)
Restatement 350 - 1. Except as stated in subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden, or humiliation. 2. The injured party is not precluded from recovery by the rule stated in subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.If you don’t take precautions to mitigate losses, your damages may be reduced
Lind Building Corp. v. Pacific Bellevue Developments
Telespectrum Worldwide, Inc. v. Grace Marie Enterprises
(Defaulting Plaintiff Recovery)
Restatement 374 – restitution in favor of party in breach - party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance IN EXCESS of the loss that he has caused by his own breach.
Walgreen Company v. Sara Creek Property Company
(Limitations on Granting Equitable Remedies)
Court decided that damages could not be calculated with any degree of certainty and an injunction would not be that expensive to enforce. The court also says that, if the parties really want to avoid an injunction, they will sit down and come up with a settlement by themselves.
CISG view on scope of consequential damages
CISG 74 – uses the term “possible” consequence of the breach of the contract. This is easier to find than the restatement which uses “probable” – Restatement 351.
CISG view on Specific performance
CISG 46 – A buyer may require performance by the seller.
CISG 62 – a Seller may require the buyer to pay the price, take delivery or perform his other obligations
CISG 28 – a court does not have to offer specific performance unless it would do so under its own law. It can give damages.
Hickman v. Safeco Insurance Company
(Test of “intention to benefit” – The Restatements)
Is the homeowner an intended beneficiary? Yes, under 302(1)(b), when you look at the policy. If the policy was for only the mortgage amount, the money would only have been intended for the lender and the contract would not have been intended for the homeowner. However, the policy gave the homeowner certain rights in the policy that showed the policy was intended to benefit the homeowner
Olson v. Etheridge (Vesting of Third Party Rights)
Promisee’s Right to Enforce the Promise
(Drewen v. Bank of Manhattan Co.)
Even though the children could not challenge it, the wife wanted to challenge the will and say that the initial will should still be binding. The wife’s estate sued the husband’s estate. There are really no damages that the wife can get as she was not going to get money in the original will anyway. The wife would be entitled to get specific performance (i.e. enforce the initial agreement).
Erickson v. Grande Ronde Lumber Co.
(The Cumulative Nature of the Beneficiary’s Right)
Erickson can sue both parties (Grande Ronde under the initial agreement and Stoddard as a 3rd party beneficiary) but can only collect enough to make him whole.
If Erickson sued Grande Ronde first, Grande Ronde then should sue Erickson in order to get money to pay Erickson. Erickson does not have to sue both parties if he doesn’t want to.
The Nature of an Assignment
Assignments do not directly involve the law of contracts. The transfer of the right is not a contract because there is no promise. It would be a contract if the assignor “promised” to transfer the right to the assignee. The actual transfer is not a contract and does not involve the law of contracts.
In general, assignments may be freely given. A person may assign a right or delegate a duty unless under certain circumstances.
Gratuitous assignments are revocable and non-gratuitous assignments are irrevocable.
Unless the assignment is made for consideration or in total or partial satisfaction of a pre-existing debt, it is a gratuitous assignment.
Evening News Association v. Peterson
(The Nature of Assignable Rights and Delegable Duties)
Restatement 317 – Assignment of Right –(2) a contractual right can be assigned unless: (a) the assignment would materially change the duty of the obligor, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to himThe assignment here did not fall into any of the exceptions in 317.
Crane Ice Cream Co. v. Terminal Freezing & Heating Co
(The Nature of Assignable Rights and Delegable Duties)
Court said that the contract couldn’t be assigned because the contract was personal (i.e. Terminal only wanted to deal with Frederick). Today, the analysis would not be that it is a personal contract but would be judged by Restatement 317(a) – the substitution of a right of the assignee for the right of the assignor would materially change the duty of the obligor (i.e. more ice would be needed).
Rosenberg v. Son, Inc.
(Effects of Delegation)
Rosenberg wanted to sue Son and Pratt because Merit has no money. The court said that Rosenberg consenting to the assignment is not the same as agreeing to release liability from Pratt.
If Rosenberg collects from Pratt, Pratt now has a cause of action against Son because he agreed to pay the debt.
Speelman v. Pascal
Restatement 321 – Assignment of Future Rights – an assignment of a right expected to arise out of an existing employment or other continuing business relationship is effective in the same way as an assignment of an existing right.
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