CONTRACTS

OFFER + ACCEPTACE + CONSIDERATION = CONTRACT

CONTRACT = LEGALLY ENFORCEABLE PROMISE
Chapter 1. Bases for Enforcing Promises
1)
Section 2. Remedying Breach
i)
United States Naval Institute v. Charter Communications, Inc. (Hardback/Paperback Hunt For the Red October Publication Dispute)
(1)
Damages for breach of contract meant to put in position he/she would have occupied had there been no breach (compensatory). Not meant to punish (punitive).
(2)
Fact-finder within his prerogative to lay certain factual uncertainty at door of breaching party (how many hardbacks would have sold in September?) Is this actually a punitive policy?
(a)
Appellate/Hi court defer fact questions to findings of trial court.
(i)
Unless blatantly wrong.
ii)
The Economics of Remedies: An Introductory Note
(1)
The no-punitives policy for contract breach is meant to promote dealmaking/the economy. If courts can leave promisees in the same position they wouldve occupied anyway, and allow s to leverage new
opportunities, everybody wins. (Efficient breach hypothesis)
iii)
Punitive Damages
(1)
Args FOR punitives in K-breach cases?
(a)
Honor promises
(b)
Deter promise breakers
(c)
Conserve judicial resources
(2)
Args AGAINST punitives in K-breach cases?
(a)
Efficient breach let markets operate if we can compensate s
(b)
Tradition/Stare Decisis
(3)
^^^ THIS BRAND OF ANALYSIS IS IMPORTANT TO CASTO
(4)
Notice: attorneys fees are not generally recoverable for K-breach. Doesnt this leave s short of the position they wouldve otherwise occupied?
iv)
White v. Benkowski (Neighbor W leases water well from neighbor B, B shuts off)
(1)
Appellate/Hi Courts defer to fact-findings of trial court.
(a)
ITC, compensatory damages for inconveniencing plaintiff
(2)
Punitive damages are not available to s for K-breach, even if breach is malicious.
v)
Alternatives to punitive/compensatory
(1)
Injunctive relief
(2)
ADR
vi)
Remedies In Practice
(1)
Imbalance between todays merchants and customers from legal resources POV
(2)
Solution(s)?
(a)
ADR
(b)
Increase statutory damage limits
(c)
Class action
(d)
Federal prosecution
(3)
In calculating compensatory damages, court largely ignore the costs of obtaining those damages
(a)
Partially explains why so many cases settle. Other reasons?
(i)
Avoid publicity
(ii)
Less time, money
(iii)
Lawsuits arent fun, and we like parties compromising
2)
Section 3. Consideration as a Basis for Enforcement
a)
R.S. 17, 71, and 79
b)
Fundamentals of Consideration
(1)
Performances or promises involved in a bargained-for exchange
(2)
British Historical Context
(a)
Three actions used to enforce contracts
(i)
Covenant, used to enforce contracts under seal
(ii)
Debt, used to secure contracts wherein money is owed
(iii)
Assumpsit, used to enforce contracts wherein promisor had undertaken the promise in misfeasance
(3)
Typical Categories of Agreements. Though Contracts Principals apply to a wide range of transactions, there are certain broad categories, including:
(a)
Family Contracts
(b)
Real estate transactions
(c)
Contracts for sales of dogs
(d)
Construction contracts
(e)
Employment agreements
(4)
Family Contracts
(i)
Historically, courts have usually shied from enforcing family contracts, but that has changed in recent years (prenup, divorce settlements, mid-marriage agreements, etc.)
(b)
Hamer v. Sidway (Uncle 2 Nephew: Ill give you $5k if you stop drinking, smoking, playing billiards for money until youre 21. Nephew does.)
(i)
Good, bargained-for consideration may be found in one party refraining from doing something he/she has every right to do.
(ii)
Ambiguity: what does the term billiards mean? Fork in the facts.
(iii)
Courts generally dont inquire as to adequacy of the consideration.
(5)
Settlement Agreements
(a)
Dyer v. National By-Products, Inc. (Workers foot chopped off, collected on workers comp: I wont sue if you give me lifetime work.) invalid, already collected on workers comp
(i)
Forbearance of litigating a claim that turns out to be invalid constitutes good consideration if the forbearance was made in good faith.
(ii)
While the law formerly required the reasonableness of the forbearing partys contention, the policy requiring mere good faith satisfies the laws more general policy that favors settlement
of disputes
c)
The Requirement of Exchange: Action in the Past
(1)
Feinberg v. Pfeiffer Co. ( resolved to give pension in recognition of her 37 yrs of service. You cant bargain for what you already have.)
(a)
Past performance not given in expectation of a promise consideration. No mutuality of obligation.
(b)
If s attorney had inserted In consideration of would that have changed things?
(i)
No, because the courts will not enforce a sham. Theyll look at whats really going on. already had s 37 years of service.
(c)
Alternative methods of arranging bosss wish?
(i)
Does plan to continue working anyway? Stipulate 2 more years for pension
d)
The Requirement of Bargain
(1)
Notice: not all bargained-for exchanges are enforceable (e.g. Ill refrain from shooting you if you give me $10k.)
(2)
Kirksey v. Kirksey (Bro in law: if you will come see me (70 miles away) you can have a place to live here on my farm)
(a)
Distinction between conditional gift and bargained-for exchange
(b)
If you walk around the corner to the hat store, Ill buy you a hat VS. If you buy me a shirt, then Ill buy you a hat.
(c)
Argument might be made that he was bargaining for her to move to his place (sex, caretaker, etc.). But in light of other facts, probably not.
(3)
Feinberg v. Pfeiffer past performance cant be bargained for
e)
Promises as Consideration
(1)
What Constitutes a Promise?
(2)
Illusory Promises: Neither of the promises may be illusory. There must be some imposition of obligation on both parties that limits infinite discretion. Strong, Mattei, and Structural Polymer, and
Wood all bear this out. (Caveat: Promissory Estoppel)
(3)
Strong v. Sheffield (Wife/ co-signs deadbeat husbands debt to /uncle)
(a)
Forbearance of debt collection for an unspecified period of time is an illusory promise and insufficient consideration
(b)
a purported promise is illusory and not consideration if by its terms the performance of the promise is entirely optional with the promisor.
(c)
basically says, I will forbear until I want to stop forbearing.
(d)
The consideration is tested by the agreement, not by what was actually done under it (its irrelevant that he actually forbore for 2 years)
(e)
Hypo: what if had said: forbear until I have a legit business reason for collecting the debt? That wouldve been fine, because he wouldve been constrained by an obligation of good faith
(4)
Contracts for the Sale of Real Estate
(a)
Mattei v. Hopper ( reneges on contract to sell land for shopping mall. Says satisfaction clause gives infinite discretion, not good consideration)
(i)
Satisfaction clauses dont invalidate contracts because they impose either an obligation to good faith in cases of fancy, taste, etc. (as ITC), or the standard of the reasonable man in cases
of judging business sense, commercial value, etc. These two tests place limits an a promisors discretion, destroy any illusoriness of a promise, by creating a
(ii)
Mutuality of Obligation
1.
Required for good contract
2.
Both [parties] must have assumed some legal obligations
3.
If one of the promises leaves a party free to perform or not at his/her pleasure, the promise is illusory, no consideration
a.
Question: how is this different from a unilateral contract? Arent those enforceable?
b.
My A: in the unilateral contract, there is only one promise. Not two. This rule assumes a bi-lateral contract, which involves 2 exchanged promises.
(iii)
Any limitation or restriction of conduct will sufficiently destroy illusoriness of a promise
(5)
Contracts for the Sale of Goods
(a)
Structural Polymer Group, Ltd. v. Zoltek Corp. (Carbon fiber supply agreement)
(i)
The supply agreements silence on how much carbon fiber SP must buy does not make the agreement illusory. The agreement is supported by SPs obligation of good faith that they
entered the contract to make some money. Codified at UCC 2-306(1), and carbon fiber is a good. UCC 2-105.
(ii)
Rights of first refusal do not make promises illusory, bc promisor is first obliged to bring outside offers to the promisee
(b)
Woods v. Lucy, Lady Duff-Gordon (fashionista/businessman dispute)
(i)
had an implied promise/obligation of reasonable efforts, given circumstances attending the contract, even though the promise was not stated explicitly. This makes the promise not
illusory. Codified at UCC 2-306(2). Note: but thisdoesnt deal in goods.
(6)
Termination clauses do not impose illusoriness if they create any obligation (even notice to other party).
3)
Reliance as a basis of enforcement (as distinct from consideration)
a)
Promissory Estoppel90 of Restatement (2nd) of Contracts
i)
Elements
(1)
A Promise
(2)
Which the promisor should reasonably expect to induce action or forbearance
(3)
which does induce such action or forbearance
(4)
can justice be avoided only by enforcement?
ii)
Ricketts v. Scothorn (Grandfather/Granddaughter $5k promissory note)
iii)
Feinberg v. Pfeiffer (part 2) Company cant renege gratuitous pension, because the lady relied
iv)
Wright v. Newman (For all intents and purposes, man acted like boys father for years, couldnt escape child support just because he wasnt the biological father)
(1)
Estoppel from implied promises
v)
4 elements A promise made without consideration may still be enforced if all four of the following are applicable:
(1)
a promise was made
(2)
that the promisor shouldve reasonably expected to induce action or forbearance by the promisee

vi)
vii)
viii)

(3)
which does in fact induce action or forbearance
(4)
Injustice may be avoided only by enforcement
Any analysis must walk through all four of these elements!
Think of the promisee as having changed position. They relied on the promise
Might this doctrine have served as a basis to enforce in Kirksey?

Chapter 2: Creating Contractual Obligations

Include in the Offer:
1)

2)

3)

4)

5)

The Nature of Assent

a)
Lucy v. Zehmer accidentally sold the Ferguson farm as a joke over drinks
i)
Objective school of assent (dominates todays law)
(1)
IF PARTYS OUTWARD ACTIONS/WORDS MAY BE REASONABLY JUDGED TO MANIFEST AN INTENTION TO ASSENT TO A CONTRACT, IT IS IMMATERIAL WHAT MAY BE THE REAL BUT UNEXPRESSED STATE
OF HIS MIND.
(2)
Even if judge had somehow known to be truly joking, his words/actions manifested the intent to form a K. This knowledge wouldve been irrelevant
ii)
Requirement of a satisfactory title constitute illusory promise? No, this is a standard term with an agreed upon meaning
nd
The Offer (Restatement, 2 , 24)
a)
An offer isan act whereby one person confers upon another the power to create contractual relations between themIt must be an act that leads the offeree reasonably to believe that a power to create a contract is
conferred upon him Corbin
b)
Owen v. Tunison : will you sell your lot/block for $6k? : impossible short of $16k. : done. : wait no I didnt say I wanted to sell it. Held: No K, bc no offer.
i)
An offer confers power to the offeree to create a contractual obligation
ii)
Functional analysis look at the function of the correspondence to analyze a K
(1)
s reply of accepted to the quote is an offer. The quote isnt an offer, but to offer the price in exchange for the property is an offer bc it conferred power. Look at whats really going on; labels dont
matter. The word accepted could constitute an offer in certain contexts.
iii)
Inquiries and price quotes, though important, do not (by themselves) bind anyone.
c)
Harvey v. Facey Quote for lowest agreeable price is not an offer to sell Bumper Hall Pen in Jamaica
i)
The simple quotation of a lowest price doesnt functionally confer power
d)
Fairmount Glass Works v. Crunden-Martin Woodenware Co. offer for immediate acceptance given for mason jars
i)
For immediate acceptance can be understood in no other way but being an offer
ii)
Ads are generally not offers (bad precedent). Exception: Lefkowitz
iii)
Offeror is the master of the offer. Offeree may only accept the proffered offer, as is, or of course counteroffer
e)
Lefkowitz v. Great Minneapolis Surplus Store - $139.50 lapin stole advertised for $1, Bob.
i)
Ad left nothing open for negotiation: stipulated offerees, length of offer, (first come, first served) and price. Held: offer.
ii)
Q: Why was granted $138.50? A: compensatory damages only. Hed have spent $1.
The Acceptance
a)
An acceptance is a voluntary act of the offeree whereby he exercises the power conferred upon him by the offer, and thereby createsa contract Corbin
b)
Restatement (2nd) 50
c)
Unless otherwise specified, acceptance occurs by either:
i)
Return promise, or
ii)
Initiation of performance
d)
International Filter Co. v. Conroe Gin, Ice & Light Co. Seller (IFC) quotes ice filter, K binding upon acceptance and subsequent approval by seller. Buyer (CGIL) tries to renege after they (the buyer) signed the K
(offered).
i)
Functional analysis: which communication has the effect of conferring the power? This is the offer. (ITC, buyers signature of the K) Doesnt matter what label is on it (ITC, accepted)
ii)
Ks condition of seller approval prior to K formation gives seller the power of acceptance (smart I.F. Co. lawyers).
iii)
Notification of acceptance isnt required if K indicates its not
e)
White v. Corlies & Tift Office owners and woodwork contractor
i)
2 ways to accept:
(1)
make a return promise
(2)
begin performance
ii)
To establish acceptance based on partial performance, a performance must be tied to the action requested under the K. An unexpressed mental state is insufficient (objective school)
iii)
If the purchased wood had been of a very rare nature (and not an everyday variety), that fact mightve easily connected the woodworkers performance with the K in question. As it was though, hed purchased pine.
He couldve simply been buying this common wood for any old project. He was, after all, a carpenter.
(1)
Hypo: If s had been Hobbits and the wood was cut to Hobbit specs, that clearly wouldve connected s performance with the K at hand.
f)
Ever-Tite Roofing Corp. v. Green - s offered roofing work by signing s K. K said not binding until approved by an officer or work is initiated.
i)
Held: Binding K. Notice of revocation was not given prior to initiating performance (aka acceptance, according to the terms of the K)
g)
Notification of Acceptance in Unilateral Contracts
h)
Allied Steel and Conveyors, Inc. v. Ford Motor Co
i)
Initiation of performance of a requested promise constitutes acceptance. Also, if a method of acceptance is merely suggested by an agreement (rather than required), alternative methods of acceptance are not
precluded.
ii)
However, bc offeror is master of the offer, if K requires a certain form of acceptance, no other form will work.
i)
Shipment of Goods as Acceptance
i)
Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories 1000 vials of DTP ordered at lower price, 50 vials shipped at lower price as accommodation.
(1)
Shipment of non-conforming goods (goods not consistent with contemplated K) constitutes acceptance unless the shipment is clearly made as an accommodation to buyer. Shipment was an
accommodation because the seller (Lederle) was not obligated to ship the 1000 vials at the lower price, because there had been no acceptance.
(2)
Non-conforming goods. UCC 2-106(2). UCC 2-206(b)
(a)
Effectively binds a seller of wormy apples.
j)
Silence Not Ordinarily Acceptance
i)
Although the general rule is that silence does not ordinarily constitute acceptance, if circumstances are such that silence might reasonably lead another party to believe acceptance has occurred, a court may hold that
acceptance has indeed occurred. Objective School.
k)
The Significance of Contract Formation
i)
Besides the creation of contractual obligations, whether or not a K has formed has important implications for anti-discriminatory laws, and consumer protection laws (implied warranty of merchantability?).
l)
An offer seeking performance (as opposed to a promise)
i)
Restatement (2nd) 45 initiation of performance constitutes acceptance
Termination of the Power of Acceptance
a)
4 ways to terminate the power of acceptance
i)
Lapse of the offer
(1)
In absence of an expiration term, the offer is good for a reasonable period of time. This period depends upon the circumstances. Rapid price fluctuation will tend to shorten this period. Ordinarily, face
to face offers are generally good until the conversation is over.
ii)
Revocation of the offer
(1)
Offers are freely revocable. Revocation occurs if an offerrors non-consent is made apparent to the offeree
(a)
Hoover Motor Express Co. v. Clements Paper Co.
(i)
Once an offer is made, it can always be revoked. To revoke, the offeror doesnt need to use magic words. All he/she has to do is say something like, we arent certain anymore.
(b)
Dickinson v. Dodds
(i)
The offeror is free to revoke his offer at any time prior to the offerees acceptance. This is true even if the offeror states a period of time for which the offer is good (unless this option
period is supported by consideration).
(2)
Limiting the Power of Revocation: Options Contracts
(a)
How to create an option contract:
(i)
Promise to hold offer open which is supported by consideration
1.
Dickinson v. Dodds (1876)
(ii)
firm offer under UCC Article 2 (Note: Casto specifically said he doesnt give a damn about this rule.)
1.
Until Dickinson, firm offers werent enforced unless supported by consideration. Now, under UCC 2-205, they may indeed be enforced in the absence of consideration, under
certain circumstances.
(iii)
offer to enter unilateral K which generates beginning of sough-after performance by offeree
1.
Brooklyn Bridge Hypo: RS 45 supports view that acceptance is constituted by beginning of performance, if promissory acceptance is unavailable. Contra, cf. Wormser (originally,
later flip-flopped)
(iv)
Reliance by the offeree
(3)
Revocability and Reliance
(a)
Drennan v. Star Paving Co.
(i)
, a cement subcontractor, submitted an erroneous bid for a construction K to , a GC. Court held bid enforceable because had relied upon s bid and had no reason to suspect it
was erroneous.
iii)
Death or incapacity of the offeror
(1)
Not as important, given that most offers are made by deathless entities (corporations, LLCs, etc.)
(2)
Death, even though unknown, revokes an offer and agency
iv)
Offerees rejection
(1)
If an offeree rejects an offer, he may not later accept the same offer, unless renewed by offeror. Offeror, upon rejection, therefore, may either renew, counter-offer, or accept any counter-offer.
(2)
Is the acceptance better characterized as a counter-offer?
b)
The Mailbox Rule (R.S. 63)
i)
Dispatch of the acceptance, not its receipt, is the moment of acceptance and, therefore, the moment at which the K is made after which the offerors power to revoke is terminated, the offerees power to reject is
ended, and risks of transmission are on offeror.
ii)
United States Life Insurance Co. v. Wilson
(1)
Mailbox rule in the 21st century
iii)
However, revocations are generally effective upon receipt.
Acceptance Varying Offer: Contract Formation and Contract Terms
a)
The Common Law Approach and the Mirror Image Rule
i)
Mirror Image Rule: any acceptance must be of the offer exactly as made by the offeror. Anything else constitutes a rejection and a counter-offer
ii)
Mitigation of Mirror Image rule
(1)
Apparently new terms brought up by offeree are merely implied terms of the original offer. Remember the qualification in Fairmount Glass, jars and caps to be strictly first-quality goods. This is not a
counter offer, it involved implied terms of the original offer
(2)
Suggestive language by offeree, or language that doesnt specifically foreclose the possibility of the exact offer as made. Inquiries and requests for better offers do not destroy power of acceptance
iii)
Last Shot Rule when disputes arise as to whos terms govern the purported contract, whoever sent the last message before performance usually prevails.
iv)
UCC 2-207 (battle of the forms statute) seriously pumps the brakes on the mirror image rule.
b)
The Battle of the Forms
i)
Typically, orders by purchasers (offers) and acknowledgments of orders by sellers (acceptances or possibly a counter-offer) are done in an exchange of standard forms that the parties have neither the time nor the
inclination to read. Often these terms conflict in minor ways. Does this create a K, despite their failure to mirror each other? The UCC stepped in to deal with this problem, which can be prickly if a party tries
to back out before performance.
ii)
UCC 2-207: Transcending the Mirror Image Rule

(1)

iii)
iv)

v)

vi)
vii)

viii)

Subsection (1) provides how to form a contract when terms of an acceptance are at variance with terms of an offer. Unless the acceptance requires express assent to the additional terms, a K will be
created by this paragraph. Unless clauses dont have to have the word unless. It suffices if they say something to the effect of, we have the right to terminate in the event of X, and that
the acceptance is silent w/respect to this term. See last sentence of Flat-Tops acceptance in the Flat-Top winery hypo.
(2)
Turning from a paragraph (1) K, you look at paragraph (2) to determine the exact terms of the K. The additional terms are treated as proposals to the K, and if the parties are both merchants, the
proposals become parts of the contract unless
(a)
the offer expressly limits acceptance to the terms of the offer (rarely seen)
(b)
they materially alter it; or (this is usually the issue, and its a factual one)
(i)
If an additional term is a surprise or hardship (note 4, or Bayway), it materially alters
(ii)
Hardship - requires some doctrine of impossibility. Mere losses dont count. Realize the tax is a small portion of the total value of the entire transaction
(iii)
Surprise - would a reasonable merchant have assented to the new term?
(c)
notification of objection to them has already been given or is given within a reasonable time after notice of them is received. (rarely seen)
(3)
Section 3 offers a way (sufficient conduct) to create a K when one is not created by paragraph (1). When additional terms to an acceptance require specific assent that are NOT assented to, but the parties act
like they have an agreement, not realizing that they really dont, K is formed under (3). In this event, terms are eliminated to the extent they are in conflict (the knock-out rule), and the UCC gapfillers (2-3xx) are incorporated by the court. Remember: if a K was formed by (1), dont even look at (3). The analysis stops there and you can move to (2) to flesh out the terms.
Stems from rational businessmen making rational decisions to not read the fine print. All they care about it buying and selling goods. On the same logic, I have never read the terms and conditions when
updating iTunes.
Formulated to solve 2 problems:
(1)
Welshing Buyers - theyve signed the contract but now they want out, and theyre claiming the mirror image rule.
(2)
Last Shot Rule - whose terms govern? What will the terms of our K be? Under the last shot rule, whoever last changed the terms prior to performance will control. UCC 2-207 changes this, provides a
better way to flesh out terms of offers and acceptances that disagree.
Dorton v. Collins & Aikman Corp.
(1)
(carpet distributor) sued (carpet manufacturer) for selling sub-standard carpet. moved to stay litigation pending arbitration, because s acknowledgment added an arbitration clause to the agreement.
Issue: if there is a K, what are the terms? Do they include an arbitration clause?
(2)
Paragraph (1) creates the K, because the acknowledgement/acceptance didnt expressly require offeror/buyers (Dorton) assent though the argument could be made that express consent was required
of the buyer.
(3)
Paragraph (2) in turn will flesh out the terms. (a) and (c) dont apply, but did the arbitration clause materially alter the terms of the offer? Remand to determine this factual question.
If a K is formed under (1), look to (2) to flesh out terms. If not formed under (1), look to (3) to form the K, and the 2nd sentence of (3) to flesh out terms.
C. Itoh & Co. v. Jordon Intl Co.
(1)
K formation under UCC 2-207(3)
(2)
Acceptance was made expressly conditional on buyers assent to addl terms, therefore (3) controlled.
(3)
Because conduct of parties recognized the existence of a K (buyer paid for goods that were shipped), terms were fleshed out by knocking out conflicting terms and replacing with UCC gap fillers
2-3xx.
Determining K terms under Article 2
(1)
Bayway Ref. Co. v. Oxygenated Marketing & Trading A.G. - Petroleum Products Tax Clause dispute: UCC 2-207(2)(b) - material alteration of original offer terms must constitute surprise or hardship.
(a)
Hardship - requires some doctrine of impossibility. Mere losses dont count. Realize the tax is a small portion of the total value of the entire transaction
(b)
Surprise - would a reasonable merchant have assented to the new term?
(2)
Northrop Corp. v. Litronic Industries - When an acceptance containing different ( cf. additional) terms is not made expressly conditional on assent to the additional terms, the K will consist of those terms on
which parties agree, supplemented by UCC gap fillers.
(a)
How to treat differing terms under UCC 2-207(2)?
(i)
Knock-out rule? - Objective neutrality, avoid litigation (equating differing with additional creates factual issues under 2-207(2)(b) that require judicial resources), eliminate element of
surprise
(ii)
Material alteration? - encourages lawyerly rigor, maintains offerors mastery of the offer

CHAPTER FOUR: POLICING THE BARGAINING PROCESS

3 concerns when policing abuse: 1) parties status 2) pressure (duress) and 3) substance of the K
1)
Capacity
a)
Minority
i)
Douglass v. Pflueger Hawaii, Inc. - Lacking capacity is a disability in American life. The infancy doctrine allows minors to disaffirm contracts upon reaching the age of majority. This protects them from their own
immaturity and inexperience, and the machinations of wily adults who would take advantage of them. Exception: Ks for necessaries.
(1)
Against: permit wily children to take advantage of unwitting adults
b)
Mental Infirmity
i)
Two ways to determine mental incapacity. Fail either cognitive test or volitional test. 15(1). - Ortelere v. Teachers Retirement Bd. (TC erred in not considering both tests). Note: some jurisdictions dont consider both tests.
(1)
Cognitive Test - 15(1)(b) - unable to understand in a reasonable manner the nature and consequences of the transaction
(a)
Legal args
(i)
Stare Decisis. 1923 SCOTUS case.
(ii)
Its easier to avoid a K under volitional test, and generally we like certainty
(2)
Volitional Test - unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition
(a)
Legal args
(i)
Reflects our modern understanding of psychiatry
(ii)
Protects those who pass cognitive test from being unfairly held
(iii)
Cognitive test involves subjectivity. This doesnt square with the objective school.
(iv)
More consistent w/human nature. Some people who may not be certifiably insane may nevertheless be unable to act reasonably.
(v)
Certainty. Opposition shouldve had notice.
ii)
Determine which test, then make factual arguments. Does the enforcee pass the cognitive test? Volitional Test?
(1)
Cundick v. Broadbent - : Neither s family/friends said anything about him being crazy! Hes a perfectly competent sheep rancher whos been managing his own affairs for years! : But the enforcee
accepted half market value
(2)
Valid legal guardianships prevent K-formation under the Restatement (13) and Alaska law in 2007. Kenai Chrysler Center, Inc. v. Denison.
2)
Overreaching
a)
Duress - impermissible pressure exerted by one party during bargaining
i)
Limitations
(1)
Duress is unavailable to those who yield too easily to pressure
(2)
Substance of the threat - was the threat a permissible one? E.g. threat of suit (although this too has limitations)?
ii)
The pre-existing duty rule
(1)
Alaska Packers Assn v. Domenico - Promising to do something youre already obligated to do doesnt create a valid K.
(2)
Mutual modification avoids the rule: Waiver and replacement of the old terms are inherent to mutual modification. Watkins & Son v. Carrig
b)
Fraud - What are the obligations to make accurate representations?
c)
Mistake
CHAPTER FIVE: DETERMINING THE PARTIES OBLIGATIONS UNDER THE CONTRACT

1)

The Parol Evidence Rule. 213.

a)
If agreement is fully integrated, no appeal allowed beyond 4 corners of document as to parties obligations.- Gianni v. R. Russell & Co. - Former tobacconist who wants exclusive soda sales in the building.
i)
Exception: Fraud, mistake, or accident.
ii)
Factual issue: fully or partially integrated document?
(1)
Does it appear to be a complete K? AND
(2)
Is there a merger and integration clause?
(3)
If yes to both, this is strong evidence of full integration.
iii)
Integration 209-10
(1)
Fully integrated document: negative inferencethe terms herein are the only terms of the agreement. Nothing else gets in. The agreement is the complete expression of the parties accord, such that all
prior agreements are superseded.
(2)
Partially integrated forces admissibility of extrinsic evidence on this disputed issue. But you may not bring in evidence to contradict the written terms. You may only supplement them.
(3)
In the absence of fraud, mistake, or duress, appeal may not be made beyond the 4 corners of the document
iv)
In class hypo: If I agreed to buy a suit from Hong Kong for $300, but the contract didnt specify American or Hong Kong dollars, I could introduce evidence supporting the proposition that we (the parties)
intended Hong Kong dollars, because this is clarification of an ambiguity. I am not contradicting the K.
b)
Mutual Mistake - When, by mutual mistake, a written contract omits a provision that the parties understood to be included as part of the agreement, extrinsic evidence is admissible and court ordered amendment will be
proper. Bollinger v. Central Pennsylvania Quarry Stripping and Construction Co. (Topsoil/highway construction garbage sandwich)
i)
factual args: complied w/our mutual understanding until equipment became unavailable, plus had layered all our neighbors topsoil
ii)
Equity would fail if reformation wasnt allowed to reflect mutual understanding. Law is a means to an end.
2)
The Use of Extrinsic Evidence of the Parties Intent
a)
Traynors 2 steps: Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. - Turbine damages (third parties and ? Or third parties alone?)
i)
Is the agreement ambiguous? Extrinsic evidence may be appealed to to establish ambiguity (cf. Trident Center). But no contradiction allowed
ii)
If yes, what did the parties mean? Does s argued interpretation have merit?
b)
When a K term is ambiguous, extrinsic evidence may be appealed to. However, any interpretation shall neither change other terms of the K. Delta Dynamics, Inc. v. Arioto (trigger lock dispute - termination and damages, or
termination only??) Question: is Traynor looking to extrinsic evidence to establish ambiguity here? Or did he first determine ambiguity, and only then look to the extrinsic evidence? I think the former. This would be consistent w/Pacific Gas.
c)
Note: Delta Dynamics and Pacific Gas represent shift away from Parol Evidence Rule.
3)
The use of extrinsic evidence from commercial context
4)
Objective interpretation and its limits
a)
If buyer reasonably believes shes offering X, but seller reasonably believes hes buying Y, there can be no K.
b)
When any of the terms used to express an agreement is ambivalent, and the parties understand it in different ways, there cannot be a contract unless one of them should have been aware of the others understanding.
Oswald v. Allen.
CHAPTER 7. REMEDIES FOR BREACH
1)

2)

3)

4)

Specific Relief
a)
Equitable relief in the form of specific performance is proper when money damages are insufficient to put in the place he wouldve otherwise occupied had no breach occurred. When a -seller requires the unique
items contracted for and breaches, specific performance is proper. Campbell Soup Co. v. Wentz, (Soup carrot case) Morris v. Sparrow, (Keno the horse) PepsiCo Inc. v. Klein (replacement jet)
b)
Discrete (McKinnon v. Benedict) (Dont cut the trees on the Lake Mamie property) two step analysis:
(1)
Did act unlawfully?
(a)
Enforceable K?
(b)
Promise breached?
ii)
Which remedy is appropriate? Requires intimate knowledge of the facts
(1)
Legal?
(a)
Cover remedy available? UCC 2-712.
(2)
Equitable? UCC 2-716.
(a)
Unique goods, e.g. realty, Elvis Presleys blue suede shoes
(b)
Unobtainable except at considerable trouble, loss, or expense, and not estimable in advance. Laclede Gas Co. v. Amoco Oil Co
iii)
The test is discrete. In McKinnon, the court decided there was a breach, and then noted the lopsided-ness of the consideration before denying specific performance. This is not an inquiry into adequacy of
consideration for purposes of evaluating whether a K was in place or had been breached. There was a K in place, and it was breached.
Legal Remedies
a)
Buyers Cover: Laredo Hides v. H. & H. Meat Products When a seller breaches a contract for the sale of goods, a buyer may be entitled to damages calculated as the cost of procuring substitute goods that were due
under the K. UCC 2-712.
i)
Requirements of buyer:
(1)
Good faith
(2)
No unreasonable delay
ii)
Includes incidentals and consequentials (2-715), less expenses saved
iii)
Immaterial if hindsight shows that cover method was not the cheapest or most effective (Note 2)
b)
Lost Volume Sellers
i)
R.E. Davis Chemical Corp. v. Diasonics, Inc. - Buyer repudiated, argued damages should be calculated under 2-706, seller argued for 2-708 because seller was more aptly characterized as a lost volume seller: the
difference in market and K price was zero, but seller did lose out on the one extra sale or profit. Lost profits is an acceptable way to calculate damages only when the lost-volume seller care show that it had the
capacity to make the extra sale, and that the extra sale would have been profitable.
(1)
Exception: if the seller has 10 units available and a waitlist of 90 people, the lost-profits formulation is improper.
Limitations on Damages
a)
Mitigtion
i)
Rule: if you have a contract or employment and the employer breaches, you have an obligation to go out and seek other equivalent employment before you collect damages under the breached contract.
Possible factual issues: are the two jobs equivalent? Point out differences to show that they were different in kind. (Parker v. 20th Century-Fox Film Corp.)
b)
Foreseeability
i)
Damages must be foreseeable in some way to the . Liability is limited to the risks knew or shouldve known about. (Hadley v. Baxendale - Transporter couldnt have known that delay in transporting the crankshaft
was causing damages).
c)
Buyers Remedies
i)
2-712: Damges = Cover + Consequentials + Incidentals (2-715)
(1)
Incidentals: Expenses tied to the goods in question. 2-715(1)
(2)
Consequentials: Expenses flowing from sellers breach, must be reasonably foreseeable. 2-715(2).
(3)
Cover: acquisition of substitute goods. Requires good faith, reasonable timing.
(4)
See Delchi Carrier Spa v. Rotorex, Inc.. Legal damages require that the breaching party foresaw or reasonably shouldve foreseen the damages. Potential factual issue.
Liquidated Damages and Penalties
a)
Liquidated Damages: two elements of enforceability. Dave Gustafson & Co. v. State.
i)
Difficult to otherwise calculate?
ii)
Proportional to the reasonable amount of damages probably suffered? Generally, bigger contracts justify bigger LDs. Reasonable proportionality assessed either at K formation, or at time of breach
iii)
These are both in keeping w/compensatory aim of K-law. LDs are not to be punitive.

CHAPTER 8. PERFORMANCE AND BREACH

1)

Conditions are different from promises. Failure to abide by a condition excuses the adverse party from performance. Failure to uphold a promise entitles the adverse party to damages.
a)
Express condition: If buyer is late making payment, seller is not obligated to sell any widgets.
i)
Draconian effect: failure to satisfy entails adverse partys excuse from performance. Luttinger v. Rosen.
ii)
Its a matter of contractual language. If the language is ambiguous, intent may be inferred from the context. Peacock Construction Co., where agreement involved a common transaction (contractor/subcontractor) and
intent could be inferred from such similarly situated parties (nonpayment from owner was not a condition of payment; payment was a promise).
iii)
Conditions may be waived: if a party routinely disregards the absence of conditional satisfaction, the condition may be waived. McKenna v. Vernon.
b)
Promise: Buyer agrees to remit payment by the first of the month.
i)
Breach entails damages only (put promisee in original position)
ii)
Preferred interpretation, where ambiguous. 227(1).
c)
Interpretation
i)
Condition vs. Duty = matter of law. Peacock Construction Co. v. Modern Air Conditioning.
ii)
Whether something is a condition or a promise is a matter of reading the contract. If the words seem to be Ill make you a painting that youll like, this is a promise. On the other hand, Ill make a painting, and
if you dont like it, you dont have to pay for it, creates a condition, namely the patrons satisfaction. Gibson v. Cranage.
d)
Constructive Conditions
i)
Implied after the contract is disputed
ii)
Involves fairness considerations: Whether performance of some term is a constructive condition of another partys promise depends on the timing of the promises, the context, and the nature of the agreement.
Jacob & Youngs v. Kent. Consider the purpose to be served, the desire to be gratified, the excuse of deviation from the letter, the cruelty of enforced adherence, etc.
iii)
Kingston v. Preston involved the apprentices failure to come up with security for a 250 per month payment to his master for the masters silk business. Though not expressly stated, the security was a constructive
condition of owners conveyance
iv)
B doesnt get the benefit of a constructive condition if A either substantially performed, or if As breach was not material. Walker & Co. v. Harrison
e)
Repudiation
i)
Substantial performance? No repudiation allowed.
ii)
Material breach? Restatement 241. Repudiation is allowed. Walker & Co. v. Harrison. Tomato splatter and spiderwebs on a rented neon sign that came with a maintenance agreement.
iii)
Laredo Hides lesson:
(1)
If one party breaches and its a minor breach, the other party still has to perform.
(2)
If one party breaches and its a major breach, the other party is excused from performance.

Miscellaneous Topics/Points
1)
Develop the habit of justifying your answers. Dont leave bare conclusions flapping in the wind.
2)
Fact Issues vs. Law Issues radically different
a)
Fact found out by considering evidence
i)
Did the run the red light? At what time did the robbery occur? What amount of compensatory damages will be assessed?
b)
Law found out in the law library
i)
Should the jury be instructed in this manner? Is this evidence admissible? Are these damages compensatory or punitive?
c)
Develop the habit of distinguishing/analogizing cases based on factual and legal issues
3)
When drafting a contract (or an exam answer), TRACK THE LANGUAGE OF THE APPLICABLE STATUTE. Be like the Jordon attorney in the Itoh case, not the Dorton attorney in the Dorton case. (language did/didnt make
acceptance expressly conditional on buyers assent, tracking UCC 2-207(1).
Exam Tips
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If an issue on an exam is consideration, you better not talk about offers, acceptance, or anything other than consideration.
Dont overspend valuable word space on fact recitation
Casto will want you to move quickly into analysis
o
Argue both sides, Casto doesnt care so much about whether you said yes or no, as he does about the quality of argument
Even if the answer seems relatively cut and dried (e.g. should punitives be imposed for breach of contractclearly no), a better answer might give reasons (policy, bad precedent, etc.) for punitive damages
Learn to break down a rule into elements, and analyze each element of a rule. Give rigorous attention to as many issues as you can find.
Dont alternate yes and no arguments, one section: yes they should, next section: no they shouldnt
Casto really values teaching the distinction between legal and factual issues

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Organize your thinking/writing in a systematic way. On an exam, if the issue is promissory estoppel, address whether all four elements of PE are present, even if you think the real question is whether or not the
promisor might reasonably have expected inducement
Always answer: does the UCC apply? Cite! (e.g. yes, blow-pops are goods UCC 2-105
Dont make up your own hypo on the final. Stick with Castos.
Where applicable, hijack (quote) the UCC, and cite. Use the applicable exact language of the statute when drafting documents
Dont gloss over issues that seem obvious (are punitives available to breach claims? Does the objective or the subjective school apply in determining whether or not assent has occurred?). Glossing over seemingly
obvious issues is an awesome way to lose points.
See tutoring powerpoint from week 5 for more Casto exam tips
A simple yes or no answer is laughably insufficent. But so is something like, Yes, a contract was formed because UCC 2-207(3) says the conduct of the parties recognized the existence of a contract. You must
apply the law to the facts of the case. ITC, argue why the specific conduct did/didnt recognize the existence of a K. Also to remember to deal with the forks in the law before you move to the forks in the facts.
Systematically work through statutes one point at a time.
If you conclude that legal test A will control, make your factual arguments, but dont end there. Youd be missing major points to not make factual arguments under legal test B.
SEE CLASS NOTES FROM 10/13-10/15. CASTO REVIEWED THE MIDTERM THOSE DAYS.
Exam Outline

1)

Answer the call

2)

State whether the UCC applies

3)

Legal Issue
a)
Arguments that X will give.
i)
If you can give three quality arguments this puts you in a good place.
b)
Arguments that Y will give.
i)
If you can give three quality arguments this puts you in a good place.
c)
Who prevails, and briefly why.

4)

Factual Issue
a)
Arguments that X will give.
i)
If you can give three quality arguments this puts you in a good place.
b)
Arguments that Y will give.
i)
If you can give three quality arguments this puts you in a good place.
c)
Who prevails, and briefly why.

UCC

o
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Most states slightly tweak then adopt

Article 2
Deals with goods
o
Not services, not ideas, not land, etc.

2-3xx are all gap fillers for contracts

o
if parties dont include certain components of a K, court will fill in with UCC

2-306
o
(1): obligations of good faith are involved with supply contracts

(2): exclusivity implies duty to use best efforts

Hijack anything you can straight from the words of the UCC. Use the statute as your guide in drafting applicable Ks. Dont wonder how Charles Dickens wouldve said it. If youre writing to a buyer that a
shipment is an accommodation, use 2-206 to draft the letter.

Legal Issues
I.
Cognitive Test vs. Volitional Test (Mental Incapacity)
A.
See hypo, week 9 (email from Kevin Smith
B.
Cognitive Test
1.
More certainty
2.
Stare decisis
3.
Based on traditional understanding of human behavior, reduces need for experts and protracted litigation
C.
Volitional
1.
fairness
2.
Modern understanding
3.
more consistent rulings
II.
Subjective Test vs. Objective Test (Assent Formation)
A.
Subjective
1.
Enforce K according to the intent of the parties, obligations spring from intent, not the written word (see Traynors opinion in Pacific Gas)
B.
Objective Test
1.
The unknowable state of a partys mind.
2.
K certainty
III.
The Parol Evidence Rule
A.
For 1.
later agreement discharges prior agreements
2.
Control jury sympathy and impose dispassionate assessment
B.
Against
1.

C.
Factual Dispute
1.
PE rule only applies to partially integrated agreements. Is the agreement fully integrated? (Appear complete? Contain merger and integration clause?)
IV.
Traynor vs. Trident (Extrinsic evidence allowed to establish ambiguity? Traynor. Extrinsic evidence only allowed after judge determines K is ambiguous? Trident wants to rule this way, but doesnt end up doing so bc
bound by Calif. Supreme Court. Hippies)
A.
Traynor (CA rule)
1.
Apparent unambiguity to a judge might be ambiguous in the parties minds.
2.
Dont presuppose linguistic judicial perfection. This could impart meaning unintended by either party.
B.
Trident (NY rule)
1.
Many aspects of law presuppose and even require constant referents.
2.
Under the hippie California rule, parties are incentivized to contend for interpretations that may not reflect their original understanding, when such a re-interpretation so suits them.
3.
Time passes, people forget. The writing is still the best evidence of what the parties intended at the time.
4.
Less litigation
5.
More certainty
6.
The California rule creates ambiguity where there mightve been none originally.
7.
The NY rule is the majority rule (weak argument).
V.
Differing (cf. additional) Terms under 2-207(2) : judicial knockout doctrine but dont refer to 2-207(3) versus Apply (2) anyway
A.
Judicial knock out doctrine - Majority rule, because
1.
Apply the neutrality of the UCC
a)
Contra: UCC generally favors buyers.
2.
Applying (2) creates a factual issue which requires more judicial resources (did the term materially alter the K?)
3.
Its the majority rule, and we like uniformity
4.
Eliminate the element of surprise that (2) might involve
5.
The statute doesnt say different. Only additional.
B.
Apply (2) anyway
1.
Offeror is master of the offer.
2.
Comment 3
a)
Contra: but comments arent binding
VI.
Remedial Arguments
A.
Legal
1.
Money damages are sufficient!
2.
Injunction would be difficult to enforce, impractical (Northern Delaware v. E.W. Bliss)
3.
When dealing w/output or requirements Ks, argue that comments 1 and 2 to 2-716 are not the law
4.
Cover remedy available? UCC 2-712
5.
Specific performance would be harsh, oppressive. McKinnon v. Benedict.
B.
Equitable
1.
The goods are unique!
2.
Money damages would be difficult to calculate
3.
Inability to cover
VII.
Legal Damages
A.
Legal Arguments Incomplete performance: how to measure damages?
1.
Difference in fair market value!
a)
The promisee just wants to turn around and sell it, and cost of completion (to the extent it outweighs FMV difference) puts promisee in a better position he wouldve occupied had the K been
completed.
b)
Cost of replacement is substantially more. Jacob & Youngs v. Kent.
c)
Difference in value would be nominal to nothing
2.
Cost of completion (Note: this is the general rule)
a)
Aesthetics
b)
Hope for increased market value in the future
c)
The law generally gives the landowner the right to do what she wants with her property, whether it increases the value or not! If I pay somebody to build me a worthless structure, I should get my
worthless structure!
d)
Promisee paid for the performance, not necessarily for the additional market value.
e)
Value rule might allow a windfall to the promisor!

VIII.

When sellers repudiate and the buyer has a resale contract, how are damages calculated? Buyers remedy: 2-713.
iv)
Compensatory?
(1)
Plain language of 1-305 (codification of compensatories). If we can leave the promisor better off and the promisee no worse off, all the better!
(2)
Fact utilitarianism (if buyer had a resale K, as in Tongish v. Thompson): whats fair under these specific circumstances?
(3)
Mkt minus K would give a windfall if the buyer had a resale K (e.g. Tongish)
v)
Market minus contract price? (2-713)
(1)
Plain language of 2-713
(2)
Dont reward breach; this makes for an inefficient, non-stable market.
(3)
By limiting damages to s losses, youre ignoring the risk allocation measured by the K price! We need to value the calculations of the parties.
(4)
Majority rule
(5)
2-713 is the mirror of 2-708
(6)
Rule utilitarianism: greatest good for the greatest number
(7)
Honor the risk calculations of the parties
(8)
Increase predictability of damages

NY parol evidence rule: Is the term ambiguous on its face? Yes? Extrinsic evidence can come in
to clarify.
The word because is ambiguous. Notice:
Grandpa is still in bed this morning because he is sick. Causation
I think grandpa is sick, because he is still in bed. Evidence