BAR Exam - Contracts Outline Cheat Sheet
BAR Exam - Contracts Outline Cheat Sheet
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Date Created: 03/06/14
The Bargaining Process a Assent i No mutual assent if the parties attach materially different meanings to their manifestations and 20 1 Neither knows or has reason to know the other s meaning or 2 Each knows or has reason to know the other s meaning a If one party knows then the unknowing party s terms apply 3 Ra les v Wichelhaus wrong ship Peerless a No enforceable contract bc no agreement on the same thing consensus as idem ii Lucy v Zehmer D sells farm when drunk the outward expression not unexpressed intention is what counts iii Objective test party has assented if a reasonable other party would interpret his actions as intending to enter the contract b Offer the manifestation of a willingness to enter into a bargain 24 i Rewards the acceptor must know the reward has been offered and acts in performance of it ii Advertisements usually not offers but invitations I Arbitrary conditions cannot be imposed after acceptance where an ad is clear and entails no negotiation the performance is the acceptance a Lefkowitz v Great Minneapolis Surp only sell to women iii Signals of intent preliminary negotiations or invitations to deal or bid 1 26 Not offers if offeree has reason to know that offeror does not intend to conclude bargain until further manifestation of assent 2 I can t sell unless I get 16 is not an offer Owen v T unison iv Price quotes are not offers 1 Unless for immediate acceptance a F airmount Glass Works FGW gives quote for imm acc b Also CrundenMartin didn t ask for quote but at what price FGW would sell 2 Or unless it is limited in pricequantity specific as to recipients or leaves no room for negotiation a ie if one party invited an offer and other party responded with a quote F airmount then the quote becomes the offer v Bids are offers 1 Unless contractor made clerical mistake a Elsinore Union v Kastor 2 Requirements for rescission a Mistake is material to contract b Enforcement would be unconscionable c Other party can be placed in status quo d Prompt notice and offer to restore must be given vi Terminationrevocation of the offer 1 Offers can be revoked at any time prior to acceptance if the promise to hold open is not based on consideration a Dickinson v Dodds D promises to sell to P by Friday then sells to another on Thursday i No consideration to hold offer open merely an offer not a contract b Offeror can revoke offer by taking action inconsistent with the contract 43 2 Offeree s power of acceptance terminated by 36 a Rejection or counteroffer b Lapse of reasonable time c Revocation by offeror 42 i Classical offer revocable until acceptance 1 Dickinson v Dodds d Death or incapacity 48 e Offeree does not perform a condition of acceptance 3 Option contracts limit the power of the offeror to revoke i Down payments do not make option contracts they are promises to purchase the entire good b True options 87l offer invites the offeree to accept by rendering performance giving consideration i Signed and in writing ii Recites purported consideration iii Proposes exchange on fair terms win reasonable time c Firm Offers 2205 merchants bound by promises to keep offer open even in the absence of consideration i Must be signed writing between merchants ii Must be limited to a reasonable amount of time no more than 3 months d Offer for bilateral contract that induces reasonable reliance i 872 offer which could reasonably be expected to reduce reliance and actually does can be considered an Option Contract to prevent injustice 1 NOT enforcing promise through promissory estoppel just keeping offer open ii Relying party can recover reliance damages iii Drennan v Star Paving C0 D subcontractor gives P contractor low bid P awarded bid D backs out 1 Verdict for P reasonable reliance iv Cyberchron v Calldata P continued to build hardware in reliance on D s promise that purchase order terms weight would be resolved later 1 Reliance on offer can create option contract 2 Promissory estoppel instead of consideration although no mutual assent 3 Precontractual liability no K existed e Offer for unilateral contract with partial performance 45 i K relations begins when performance begins 1 Ragosta v Wilder P tries to buy shop from D who revokes offer while P is acquiring financing approval similar to Evertite a Held for D equitable estoppel is only available when P performs part of the contract giving the D the money not acquiring financing ii 22062 offeree must give notice that performance has been made unless offeror has reason to know C Acceptance a voluntary act of the offeree whereby he exercises the power conferred upon him in the offer i Manner of acceptance 1 2206 by any manner reasonable a Shipment of nonconforming goods not an acceptance if seller notifies buyer that it is only an accommodation i Corinthian v Lederle D ships 50 vials at low price with notice that the rest can be shipped at higher price accommodation not acceptance 2 Mirror image rule 58 acceptance must mirror terms of offer a Int l Filter v Conroe Gin D s acceptance subject to P s approval so D s acceptance was offer P s endorsement was acceptance 3 An acceptance conditional on the offeror s assent to additional or different terms is not an acceptance but a counteroffer 5 9 4 Prescribed manner or place must be complied with 60 5 Acceptance by performance must be at least partly performed 502 a Performance generally begins when goods leave the warehouse preparing is not the same as actually acting 6 Acceptance by promise must complete every essential act 503 ii Notification of acceptance 1 Bilateral contracts reasonable diligence must be made to communicate acceptance within a reasonable time 56 2 Unilateral contracts no notification necessary unless offeror has no means of learning of performance 54 a Ever Tite v Green K binding upon commencement of work similar to Ragosta i Reasonable time must be allowed 2 weeks not enough commencement begins when materials are purchased not when workers arrive at house 3 Acceptance by silence is valid only when 69 a Offeree takes benefit and knows or should know compensation is expected b Offer invites acceptance by silence and offeree intends to accept by silence c Bc of previous dealings it is reasonable that offeree should notify offeror if he does not accept d White v Corlies amp T ift D writes you can begin at once i No K acceptance must be manifested ii Performance not valid acceptance bc there was no meeting of the minds 4 Mailbox rule an offer is revoked when the other party receives the revocation an offer is accepted when the acceptance is mailed 42 d Rejection Battle of the Forms i 2207 is an exception to the common law mirror image rule ii If the acceptance states different or additional terms 1 Is acceptance conditioned on offeror s assent to the changes a b If no then K i Step Saver v Wyse D s boxtop license included additional terms but doesn t require P s assent ruling for P terms not part of K 1 Both merchants sent to jury to determine if warranty disclaimer materially altered If yes then it s a counteroffer i If offeror assents then K ii If his conduct suggests assent then K use agreed terms gap fillers l Itoh v Jordan D s acceptance conditional on P accepting arbitration term counteroffer K created by conduct of both parties arbitration clause not part of K 2 What become the terms of the contract a g If both parties are not merchants additional terms are not in K but merely proposals for addition to K i Terms that appear in the records of both parties or terms on which they agree become part of the K If both parties are merchants additional terms become part of K UNLESS i the offer expressly limits acceptance to the terms of the offer ii they materially alter it iii notification of objection to them is given within reasonable time Knockout rule majority approach con icting terms taken out replaced by gapfillers i Northrop v Litronic D s offer is 90day Warranty P returns invoice with unlimited warranty 1 Con icting terms dropped and replaced with gapfiller reasonable time used Firstshot rule Offeror s terms become the contract Lastshot rule common law mostly rejected final set of express terms become contract CA rule treat different terms as additional terms if they materially alter then they are just proposals if not they become part of contract similar to firstshot rule New 2207 terms of any K are Agreed terms gapfillers 3 Shrin wrap cases a ProCD v Zeidenburg D violated shrinkwrap terms Notice of terms on the outside W actual terms on the inside is a valid contract so long as D can return the item i 2207 not applied notice on outside terms on inside right to return if unacceptable ii Acceptance valid after D failed to return b Brower v Gateway 2000 note in box says disputes settled by arbitration customer accepts by keeping product for 30 days i 2207 not applied customer s decision to retain for 30 days made arbitration clause enforceable ii Also clause was not a material alteration e Definiteness terms must be definite reasonably certain enough to enable the court to enforce a remedy 33 22043 i Toys Inc v F M Burlington price term prevailing rate within the mall 1 Original lease had definitive method of determining price term ii Oglebay Norton v Armco longterm contract for iron leads to dispute over calculation of shipping rate 1 Contract exists bc parties intended to be bound assent 2 Specific PQ not necessary merely a definitive means of calculating them even if mechanism fails II Bases of enforcement a Consideration a promise or performanceforebearance that is bargained for done or given as inducement for a promise or performance 7l i Forbearance 1 Homer v Sidway uncle promises nephew to stop boozing a Consideration exists bc P forbore b Irrelevant whether nephew bene ted performance is all that matters 2 F iege v Boehm D promised P that he would pay child expenses if P doesn t institute bastardy proceedings a Consideration exists bc P forbore and both parties acted in good faith and believed the K was valid b 74 forbearing party believes the claim is valid ii Promises in recognition of past benefits 1 Classical rule not binding a F einberg v Pfez er Co D promises P retirement pension for life i Past services are not valid consideration nor is subsequent work could have left at any time ii However P s retirement in reliance on the pension is sufficient consideration see Reliance b Mills v Wyman P cares for D s son D promises to pay i No consideration for past bene t nothing bargained for promise was merely gratuitous 2 86 promise made in recognition of past benefits is binding to the extent necessary to prevent injustice Realist exception i Only if promisor unjustly enriched or benefit not conferred as a gift ii To the extent value of promise is in proportion to benefit 1 Consider was there an imposition of benefit that the promisor valued b Webb v McGowan P injured saving D i Benefit to the promisor health or injury to the promisee crippled for life is sufficient legal consideration ii Also promise performed for several years before D s death iii The requirement of bargain the consideration induces the making of the promise AND the promise induces the furnishing of the consideration 1 7l benefit or detriment not required by R2d but either are good evidence that promise was bargained for 2 Kirksey v Kirksey D Writes to P If you come down and see me I will let you have a place to raise your family a No contract promise was a mere condition for making a gift like the tramp going to Tiffany s b Nothing bargained for 3 Central Adjustment Bureau v Ingram D s sign noncompetition contracts after already starting work for P a Noncompetition covenant signed shortly after commencement of employment is still the subject of free bargaining and therefore valid b Actual employment plus promotions are D s consideration iv Employee handbooks l Bankey v Storer Broadcasting Co handbook changed from discharge for cause to at will of employer a Handbook is merely statement of company policy not contractually binding b Employer can make unilateral changes w reasonable notice c Enforceable bc employer derives benefit environment conducive to collective productivity 2 Pine River v Mettille a Employee handbook is an offer of a unilateral contract promise made in exchange for performance b The employee s continued performance of duties despite the freedom to quit at any time constitutes consideration i In exchange company promises to follow policies c Modifications must follow rules of K good faith consider v Promises as consideration 1 What constitutes a promise a Illusory promise 77 promise is not consideration if the promisor reserves a choice of alternative performances i Strong v She iela P agrees to forbear collection until I want my money 1 Illusory P could have requested at any time alternative performance was way out 2 A promise will not support consideration if it doesn t really bind the promisor ii Mattel v Hopper P agrees to purchase land on condition that he obtains satisfactory leases 1 Two categories of satisfaction clauses a Satisfaction of commercial quality or value i Reasonable man standard b Satisfaction involving taste or judgment i Judged by good faith 2 Unrestricted discretion makes a promise illusory a But contract was not illusory under reasonable man standard b Implied good faith term met b 79 If consideration is met nothing else is required i No benefit to promisor mutuality of oblig etc c Outputmequirement contracts 2306 Outputs or requirements must be made in good faith and not disproportionate to any stated estimate i Requires best efforts by seller to supply the goods and buyer to promote their sale ii Eastern Airlines v Gulf Oil Corp P sues for breach when D attempts to raise prices on a requirements contract 1 Requirements contract is valid so long as purchaser acts in good faith iii Wood v Lucy Lady Du quot Gordon D gives P exclusive rights to her endorsements then goes and used her endorsements elsewhere 1 implied promise existed to give D half of the profits 2 Best efforts to promote is sufficient consideration vi Nominal consideration the peppercorn 1 1 given in consideration of 5000 not consideration but a disguised gift a 1 does not induce the exchange 2 But option contracts are NOT revocable for lack of consideration Reliance 90 a promise which the promisor should reasonably expect to induce reliance and which does induce such reliance will be treated as binding to the extent necessary to prevent injustice i Even in the absence of consideration or mutual assent Kirksey Drerman ii Promissory estoppel prevents person from showing the truth contrary to a representation of fact after another has relied on the representation 1 Elements of promissory estoppel Promise Reasonably expected to induce reliance Does actually induce reliance Injustice can be avoided only by enforcement Ricketts v Scothorn D gives P promissory note so that she wouldn t have to work anymore quits her job in reliance i No consideration P not required to do anything merely a promise of a gift ii However D intentionally in uenced P to act quit her job I Knew that her quitting was a reasonable consequence f F einberg v Pfei er P s retirement was in reliance on D s promise g DampG Stout v Bacardi D supplier backs out on promise to supply P distributor with liquor P relies on promise loses in 3rd party negs 5 PP iii Precontractual liability reliance on an offer rather than promise I Drermcm v Star Paving Co D subcontractor gives P contractor low bid P awarded bid and D backs out D liable a Reasonable reliance w no consideration or assent 2 In cases of failed negotiations a Cyberchron v Calldata P continued to build hardware in reliance on D s promise that purchase order terms weight would be resolved later i No K existed but reliance on offer created option contract ii Promissory estoppel instead of consideration or assent b Ho mcm v Red Owl Stores P invests based on D s promises negotiations fall through i Promise that induces action need not be so comprehensive as to be an offer c Restitution benefits voluntarily conferred i Court can imply a quasicontract in order to prevent unjust enrichment ii Requirements 1 P conferred benefit on D which D retained 2 Benefit was not a gift 3 P was not acting offrciously iii Comam v Wisdom P gives medical assistance to D after car accident 1 Must show that P gave benefit and that benefit wasn t imposed D would have wanted it if he could bargain iv Callcmo v Oakwood Park Homes Corp 3 P plants shrubbery for Pendergast who dies and D property owner resells 1 Can t substitute one debtor for another P never expected to be paid by D v Pyeatte v Pyeatte Couple agrees to put each other through grad school 1 Compensation was expected otherwise D unjustly enriched 2 Generally an assumption of gratuitousness among family though III Defenses to a contract a Illegality i Surrogacy contracts 1 Baby M no K but determine the best interests of the child 2 Calvert no K but determine the intent of the parties 3 Public policy considerations protection of the child exploitation of the surrogate feminist arguments commodification of the child family law concernsadoption comparison pro family arguments class considerations freedom of K ii Covenants not to compete unenforceable if unreasonably broad l Hopper v All Pet covenant not to compete for three years unreasonable within five miles reasonable a Rule of reason restraint is reasonable only if it i Is no greater than required to protect employer 1 Stealing relationships trade secrets ii Does not impose undue hardship on employee iii Is not injurious to the public 2 CAB covenants signed after hiring a Bluepencil rule no longer applies b Restrictions here unreasonably broad i 2 year limitation no contact with any customer nationwide scope all too broad ii But court still allows K to be modi ed iii Prenuptial agreements only enforced if procedurally fair 1 Not unconscionable 2 Fair and reasonable disclosure or signer voluntarily waived right to disclosure In CA attorney must be present 4 Simeone v Simeone either terms must be reasonable for both spouses OR K must have been entered into with full financial disclosure in this case K was voluntary 5 Bonds burden of proving K was involuntary is on the party seeking to avoid the agreement in this case K was voluntary a Legal representation only one of several factors to consider b No coercion proximity to wedding not coercive bc wedding was small informal anyways c Sun was aware of prenup at least a week before signing 6 Senate bill 2001 if one party did not have independent counsel it s up to the other to show why the prenup was not unconscionable Duress impermissible pressure exerted by one party over another during the initial bargaining period 175176 i K voidable if a party s manifestation of assent is induced by an improper threat that leaves the victim no reasonable alternative 175 l A threat is improper if l76 a It is a crime or tort b It is a threat of criminal prosecution c It is a threat of civil prosecution based on bad faith d The threat harms the recipient but does not benefit threatening party e The effectiveness of the threat is compounded by prior unfair dealing f The threat is a use of power for illegitimate ends ii Preexisting duty rule a modification of a preexisting duty must be fair and equitable in view of circumstances not anticipated by the parties when the contract was made 89 a Was a party coerced into the new contract b Was the new contract fair and equitable 2 Alaska Packers v Domenico sailors demand double pay a Second K was without consideration bc it was an agreement to render the exact same services and employer never voluntarily waived original contract 3 Watkins amp Son v Carrig solid rock encountered after formation of contract for excavation of cellar a Special price was fair in light of the circumstances b Good faith iii Economic duress a l threat to breach by nondelivery where 2 the non breaching party could not have obtained the goods elsewhere 1 Austin v Lora D has no choice or alternative but to agree to P s price increase U C Undue in uence an unfair persuasion of a party who is under the domination of another party or who is justified in assuming that the dominating party will not act in a manner inconsistent with his welfare 177 i Elements of undue in uence from 0dorz39zzz39 1 discussion of the transaction at an unusual or inappropriate time consummation of the transaction in an unusual place insistent demand that the business be finished at once extreme emphasis on untoward consequences of delay the use of multiple persuaders by the dominant side against a single servient party 6 absence of thirdparty advisors to the servient party 7 statement that there is no time to consult financial advisers or attorneys ii Odorizzi v Bloom eld School District gay schoolteacher resigns under threat of dismissal and publication of charges 1 Several elements of overpersuasion school officials acted like they were trying to help and that he should rely on their advice without consulting an attorney 2 Emphasis on the relative status of parties Concealment and Misrepresentation i Concealment nondisclosure nondisclosure of a fact is equivalent to an assertion that the fact does not exist when 161 a Disclosure will prevent a previous assertion from being a misrepresentation or from being fraudulent b Disclosure would correct a mistake of the other party c The other party is entitled to know the fact bc of a relationship of trust and confidence between them 2 A deep secret buyer would not think to ask about is concealment shallow secret buyer should know to ask is not a Swinton v Whitinville D not liable for concealment for not telling P buyer about termites bare nondisclosure i No duty to disclose latent hidden defects ii Classical rule caveat emptor let the buyer beware ii Misrepresentation an assertion that is not in accord with the facts 159 1 A contract is void when a statement 1 induces assent 2 a party justz ably relies on it and 3 it is fraudulent or material 2 A misrepresentation is fraudulent if the maker l62 a Knows or believes it is not in accord with the facts i Has scienter knowledge of wrongdoing b Does not have the con dence that he states or implies i Vokes v Arthur Murray dancing queen c Knows that he does not have the basis that he statesimplies 3 A misrepresentation is material if it would likely induce a reasonable person to manifest his assent can be wout scienter a Karmavos v Armirzo D falsely and knowingly advertises building as multifamily house i If a party speaks about certain information he must speak honestly I Cannot be intentionally deceptive ii When you advertise land for a particular purpose you imply a warranty by description 1 2314 and 2315 prohibit false advertising V3939gtP 10 f iii Defenses to misrepresentation 1 When written contract differs from oral buyer has a duty to read 2 Distinction between fact and opinion misrep must be of fact Uneonseionability 2302 or 208 if the court finds an unconscionable term it may void the K or void the part related to the unconscionable term i 2302 Court may I refuse to enforce the K 2 enforce the remainder of K or 3 limit application of unconscionable clause ii 208 take out terms party would not have assented to if it had known about them extreme 1 Williams v Walker Thomas D sells P furniture that is easy to default on a If buyer s financial situation was known to seller it must be taken into account when determining unconscionability 2 Jones v Star Credit priceextra taxes are unconscionable 3 Armendariz v Foundation Health unconscionability of onesided arbitration clause only employee required to arbitrate a Arbitration agreement imposed in adhesive context lacks basic fairness and mutuality if it requires only one party to arbitrate i No modicum of bilaterality iii Procedural V Substantive unconscionability 1 Procedural whether one party lacked any meaningful choice a Consider setting party s experience or education ne print disparity in bargaining power 2 Substantive whether substance of K itself is unconscionable iv Adhesion contracts no bargaining take it or leave it standard form contract 1 Classical tough luck strict construction 2 Realist unconscionability absence of meaningful choice public policy taken into account goodfaith modi cations allowed misrepresentation can be material not just fraudulent a Reasonable expectations doctrine Llewellyn a term that a reasonable consumer would not agree to is not part of K 3 0 Callaghan v Waller amp Beckwith tenant falls on D s property but there was exculpatory clause in the lease a Matter of private concern D did not have monopoly b Realist would argue reasonable expectations doctrine 4 Henningsen v Bloom eld Motors cannot contract out of implied warranty of merchantability 5 Carnival Cruise Lines v Shute forum selection clause on ticket a No evidence of fraud P had notice b Fundamentally fair and no bad faith CC s principal place of business is in Florida 6 Brower v Gateway 2000 note in box says disputes settled by arbitration customer accepts by keeping product for 30 days a Not an adhesion K no equal bargaining power but consumer can reject and purchase from competitor b But it is substantively unconscionable 2302 excessive cost of arbitration is strong deterrence to consumer Incapacity i Minors l4 contract is voidable at option of minor ii Mental incognancy 15 Did party lack mental capacity to know what they were doing when they made transaction 1 Cognitive test lacked capacity to understand the K 11 2 Volitional test unable to act in a reasonable manner despite their awareness but only Voidable if the other party had reason to know g Statute of Frauds 2201 i Some contracts must be in writing 1 2 3 4 5 A contract to guarantee someone s debt Sales of land A K to be performed more than 1 year from making K Sales of goods greater than 500 Wills ii Loopholes I V3939gtP Any piece of paper will do a written confirmation following an oral agreement is ok Some courts say Video or audiotape counts Multiple detached documents are fine Lost destroyed or stolen documents are fine Oral K enforceable if both parties admit to it 220l3b Restitutionpromissory estoppel are both used to enforce promises unenforceable under traditional bargain theory because of SOF h Mistake a belief that is not in accord with the facts l5 l i K is Voidable when a mistake by both parties as to a basic assumption has a material effect on the agreed exchange of performances l52 l 2 3 4 Was there a mistake of fact Was this fact a basic assumption of the K a Rermer v Kehl purchased land not sufficient for jojoba i l52 K Voidable bc adequate water was a basic assumption ii Buyer did not bear the risk bc only seller knew about water Did the mistake have a material effect Did the adversely affected party bear the risk a A party bears the risk ofa mistake when l54 i The risk is allocated to him by agreement or ii He is aware that he has limited knowledge but treats his limited knowledge as sufficient conscious ignorance or iii The risk is allocated to him by the court bc it is reasonable under the circumstances to do so 1 Stees v Leonard D failed to erect building on lot bc of quicksand a D knew of the risk beforehand so he bore the risk b If no i If both parties made mistake K Voidable or reformable by adversely affected party ii If only one party made mistake l53 1 Would enforcement be unconscionable 2 Did other party have reason to know of the mistake or cause the mistake 3 If yes to either K Voidable 12 i ImpossibilityImpracticability 261 2615 party s performance is made impracticable without his fault by the occurrence of an event the nonoccurrence of which was a basic assumption on which the contract was made i Seller s excuse ii Not within the risk bore by either party 1 Who bore the risk Consider whether foreseeable or foreseen iii Taylor v Caldwell music hall burns down before P uses it 1 K null when performance is impossible and D was without fault iv Transatlantic closing of Suez canal forces P around Cape of Good Hope 1 Steps to determining impossibilityimpracticability a Contingency occurs not including market changes b Risk was not allocated by agreement c Performance rendered commercially impracticable 2 3 not met in this case added expense was not huge nor should it have been unforeseeable 3 2614 2615 commercial impracticabilityforeseeability a Commercially reasonable substitute must be used 614 V Eastern Air Lines v Gulf Oil Gulf claims rise in oil prices makes K commercial impracticability 1 Must show more than unprofitability hardship is the test a And the hardship must be unforeseen vi Force majeure clause term intended to excuse a party from performing if an unpreventable event occurs 2615 j Frustration of Purpose 265 i Buyer s excuse performance still possible only now it has no value ii Who bore the risk iii Krell v Henry D rented at for cancelled coronation processions 1 Coronation was the foundation of the K 2 Total practical purpose of the transaction was destroyed iv Chase v Paonessaz D notifies P it no longer needs concrete barriers P seeks to recover anticipated profit 1 P bore the risk it knew of UnitPrice Philosophy IV Interpreting the contract a Express terms i Frigaliment v BNS what is chicken 1 Consider dictionary and dept of agriculture definitions plus trade usage and market realities pricing rates ii No mutual assent if parties attach different meanings 20 iii If parties attach difference meanings K interpreted in accordance with the meaning attached by 2201 1 the party that did not know or had no reason to know of any different meaning attached by the other and the other knew or had reason to know of the meaning attached by the first party iv The principle purpose of parties given the greatest weight 2202 1 General prevailing meaning of the language 2 Technical terms given their technical meaning within that field v Express terms gt course of performance gt course of dealing gt usage of trade 2203 1 Specific and exact terms given greater weight than general vi Course of performance course of dealing and trade usage always relevant and admissible to interpret express terms 1205 2208 13 1 Can only supplement express terms if consistent Nanakuli vii Ambiguous express terms that parties interpret in different ways 1 If the interpretation of the express terms is material to the transaction then no contract a Ra les v Wichelhaus wrong ship Peerless i No enforceable contract bc no agreement on the same thing consensus as idem b Oswald v Allen language barrier and mistaken coin sale i No contract bc both parties have reasonable understandings of different meanings b Implied Terms i Implied warranty is always available but if seller made representations may be able to sue under express warranty ii Implied duty of good faith attaches after K formation 205 1203 1 Dalton v Educ Testing Serv ETS cancels P s SAT score a K required D to consider P s evidence 2 Bak A Lum v Alcoa D terminated exclusivity of agreement w P by appointing other distributors a D breached implied covenant of good faith and fair dealing no reasonable warning given for termination 3 Examples of bad faith Dalton Austin DampG Werner iii Established industry standard or trade usage can be implied 1 Eastern Air Lines v Gulf Oil fuel freighting a 2208 the parties themselves know what was meant by K 2 Nanakuli v Shell implied term of price protection even though K gave D the right to set price a Price protection implied bc of industry standard of fair dealing and past performance between the parties b Trade usage supplements express terms unless there is a complete and total negation iv Implied obligation must be expressly inserted l Dickey v Philadelphia Minit Man P leases land to D for washing cars and no other purpose rent based on profits a Implied obligation to continue to do business to the fullest extent possible duty of best efforts 2306 output K v Termination of atwill contracts 1 Sheets v Teddy s Frosted Foods P fired for expressing concern about health violations a Exception to atwill employment contracts i Public policy quality control 2 But this does not apply to attorneys a Balla v Gambro P counsel fired for threatening to report D to FDA i Public policy adequately protected by Rules of Professional Conduct vi 1205 2208 course of dealing trade usage relevant and admissible vii 2305 open price term gap filler viii 2308 place of delivery gap filler ix 2309 time of delivery gap filler x 2314315 implied warranty that goods shall be merchantable 14 V Parol Evidence Rule where an agreement is in writing reliance on extrinsic evidence ie negotiations is not allowed 2l3 214 i Is the final expression integrated ie intended by the parties to be a final expression of one or more terms of the agreement 209 l Merger clause may be upheld unless boilerplate or no oral modifications clause 2209 2 Extrinsic evidence admissible to establish extent of integration 2l4 ii Complete integration K is final expression of all terms 2l0 1 Indicated by merger clause 2 All extrinsic evidence barred a But evidence of course of dealing or trade usage to interpret always allowed to supplement if consistent w express terms ie not carefully negated by K Nanakuli 3 Gianni v Russell oral agreement disallowed sale of tobacco in exchange for exclusive right to sell soft drinks although it s not included in written agreement a If written K embraces field of alleged oral K then evidence of oral K barred by PER b It would have been natural to include tobacco clause since it wasn t included parties must have not meant it to be part of final contract iii Partial integration K is final expression of only the terms it contains 2l0 1 Extrinsic evidence may supplement and interpret but not contradict 2 Masterson v Sine oral evidence that P wanted to keep ranch win the Masterson family a Oral evidence allowed parties did not intend for the written agreement to be the exclusive agreement iv Exceptions to PER fraud mistake duress ambiguity 1 Bollinger v Central Penn Quarry P alleges topsoil clause left out by mutual mistake a Oral agreements allowed in cases of mutual mistake 2 PGampE v G W Thomas Drayage modern rule a PER does not apply where an express terms is ambiguous b Ambiguity of the word indemnify 3 WWWAssoc v Gianconteri language of K parties intentions are clearly manifested in K no ambiguity about reciprocal cancellation clause so no extrinsic evidence allowed classical view Breach Anticipatory repudiation an announcement of an intention not to perform that occurs before the repudiator s performance is due i Repudiatee has a duty to mitigate damages 1 May suspend performance sue immediately or sue at time of expected performance ii Breach of promise to employ can give rise to cause of action 1 Hochster v De La Tour D backs out on promise to employ P iii Repudiatee must be ready and willing to perform 1 Kanavos v Hancock Bank D sold stock to 3rd party wout giving P a chance to meet the offer a P s financial ability is material but it is P s burden to prove iv Justified if repudiator fears that other party will breach at a later date 1 2609 Reasonable ground for uncertainty of performance 15 a May demand in writing assurance of due performance b May suspend performance until assurance is received 2 Maddox v Coalfield Services D stops work on mine when P fails to sign K a D s stoppage was excused in order to avoid finding itself in debt with no remedy against P V 2610 options for the recipient of an anticipatory repudiation b Substantial performance i Trivial and innocent omissions not fraudulent or willful are allowed so long as they don t frustrate the purpose of the K 1 Jacob amp Y oungs v Kent P uses wrong brand of plumbing pipe a D did not make clear that the brand of pipe was important 2 Plante v Jacobs P built house w defects including wrong wall a Not every detail must be correct for substantial performance b Diminished value rule damages are difference between value of the house as it stands and value if it had been constructed correctly ii Doctrine of divisibility 2612 where performance involves several distinct items court can treat K as divisible into parts separate K s l Gill v Johrzstown Lumber Co logs lost in ood a Logs that arrived could be severed from the rest of the K b D must perform on severed portion of K c Suspending performance or terminating the contract i When is suspension or termination appropriate 1 Has there been an uncured breach by the other party with respect to a performance due under an exchange of promises 2 Is it a material breach 24l a Ie is it serious enough to justify selfhelp in the form of suspension and termination i If no you must continue performance partial breach and sue later for damages ii If yes you may stop performance and consider the breach a total breach b Factors to consider i Extent to which the injured party will obtain the substantial benefit reasonably anticipated ii Extent to which the injured party may be adequately compensated for lack of complete performance iii Extent to which the party failing to perform has already partly performed iv The greater or less hardship on the party failing to perform in terminating the K likelihood of cure v The willful negligent or innocent behavior of the party failing to perform vi The greater or less uncertainty that the party failing to perform will perform the remainder of the K 3 Walker amp Co v Harrison P rents sign to D but doesn t clean it a Delay in cleaning was irritating but not a material breach d Partial breach i Neither party relieved of performance but wronged party may sue for damages resulting from partial breach 16 ii Doctrine of divisibility e Rule of Perfect Tender 2601 if goods or tender of delivery fail in any respect buyer may either accept whole reject whole or accept somereject some i 2508 gives seller power to cure defective tender ii 2608 allows buyer to revoke an acceptance only if the nonconformity substantially impairs the value to him iii If goods or tender of delivery fail in an installment 2612 1 Buyer can reject the installment 2 Only a breach of K if the defect impairs the value of the whole K 3 Buyer reinstates K if he accepts nonconforming installment Wo seasonable notification of cancellation or if he demands future performance VI Remedies a Equitable relief i Speci c performance court order requiring breaching party to perform the terms of the contract 1 359 only if damages not adequate to protect the expectation interest of injured party a 360 Factors affecting adequacy of damages i Difficulty of proving damages ii Difficulty of procuring substitute performance by means of money iii Likelihood that damages could not be collected 2 27161 when goods are unique and irreplaceable 3 Laclede Gas Co v Amoco Oil Co D supplier backed out of contract to sell propane to P distributor a Laclede entitled to specific performance because contract was for longterm propane supply i Terms of the contract longterm supply of propane were unique and irreplaceable ii Also public interest is at stake so specific performance may be more appropriate 4 Klein v Pepsi C0 D backs out of contract to sell jet to P a Specific performance not appropriate remedy i Jet is not unique many others on the market ii Damages are recoverable and adequate ii Injunction 1 Walgreen Co v Sara Creek Properly C0 465 a D breaches by installing a rival pharmacy in mall b Economic reasoning favors injunction i Pros I Burden of determining costs shifts from court to parties 2 These costs more accurately determined by market than gov t ii Cons 1 Continued court supervision Costs imposed on third parties Negotiations may break down Bilateral monopoly 39gt 17 b Expectation damages put the nonbreaching party in as good a position as he would have been had the contract been performed i ii iii iv Loss in value Other loss cost avoided loss avoided l or Reliance costs lost profits other loss loss avoided Buyer s remedies cover 1 If buyer covers he MAY cover under 271 1 defined 2712 a Replacement price other loss K price cost avoided 2 If buyer chooses not to cover 2713 a Market price other loss K price cost avoided b Buyer must prove market price 3 No cover possible specific performance 2716 4 Laredo Hides v HampH P agreed to output K D breached by failing to deliver P forced to purchase hides on open market a Cover made in good faith without unreasonable delay b Burden is on seller D to show cover not properly obtained Seller s remedies resale 1 If seller resells he MAY resell under 2706 a K price other loss resale price cost avoided 2 If seller chooses not to resell 2708l a K price market price cost avoided other loss 3 If no resale possible action for price 2709 a If lostvolume seller recover for lost profits 27082 4 Resale must be in good faith and in commercially reasonable manner RE Davis v Diasonics P buyer breach K w D seller D claimed it was entitled to more than just deposit minus 500 bc it was lost volume seller 1 Lost volume seller predictable and finite number of customers a Seller would have made the resale regardless of whether breach occurred so breach cost him a profit 2 Must show that both sales would ve been possible and profitable 3 If so D gets 27082 damages not just 2706 Medical contracts cases 1 Hawkins v McGee a Expectation difference between 100 expected hand and actual result b Reliance pain and suffering above and beyond what was expected from the operation plus costs of operation c Restitution costs of operation 2 Sullivan v O Connor D predicted two operations needed to fix P s nose D drew line on photo to show expected change a Suffering should be included in damages because it is wasted on an unsuccessful operation opposite of Hawkins which believed pain and suffering was the price P was willing to pay b Holding P entitled to damages for i Outofpocket expenditures restitution ii Worsening of condition expectationreliance iii Pain and suffering expectationreliance c Reliance damages reimburse the nonbreaching party for loss caused by reliance on the contract by putting him in as good as a position as he would have been had the contract not been made i Often rewarded when expectation seems too high split the difference 1 Sullivan v O C0rm0r 18 ii Usually reliance damages in promissory estoppel cases 90 d Restitution prevent unjust enrichment by restoring to the nonbreaching party any benefit that he has conferred i Noncontractual remedy foundation in unjust enrichment not contract ii Comam v Wisdom 103 P gives medical assistance then sues for services 1 Must show that P gave benefit and that bene t wasn t imposed D would have wanted it if he could bargain iii Callcmo v Oakwood Park Homes Corp 108 P plants shrubbery for Pendergast who dies and D property owner resells l Quasicontract exists only where P expected renumeration from D a P expected to be paid by Pendergast not D so no case can t substitute one debtor for another iv Pyeatte v Pyeatte l 10 Couple agrees to put each other through grad school D files for divorce after earning his law degree 1 Compensation was expected unjust to allow D to retain benefits e Punitive damages awarded for tortious conduct that is sufficiently outrageous as to justify punishment i Deterrence as incentive ii Werner et al v Lewis D programs bug in P s computer system 1 Element of malice and willfulness iii The efficient breach arguing against punitive damages 1 Sometimes society as a whole benefits from one party s breach a Utility maximized if resources end up with those who value them most 2 Paretosuperior transaction even when full expectation damages are paid 3 Punitive damages overdeter breach 4 Arguments against a Reservation price does not always re ect value i Wealthy people may pay a lot but value the purchase even more priceless ii Transaction costs in breach of contract f Liquidated damages provided for in K in cases of unforeseeabilityuncertainty i Valid if K anticipates real loss and includes method for calculating it ii Not valid if it unconscionable punishes other party or forces performance under all circumstances 1 Penalty Wassermcm s sum which is fixed not a preestimate of actual damages but a punishment 2 Liquidated damages estimation is advance of actual damages iii 2718 356 Damages must be reasonable in light of a actual or anticipated harm caused by breach b difficulty of proof of loss c inconvenience or nonfeasibility of obtaining an otherwise adequate remedy 2 356 Unreasonably large damages unenforceable on public policy grounds iv Wassermcm s v Township of Middletown Liquidate damages for breach of lease based on 25 of average gross receipts for one year 1 Damages of 290000 may be unreasonable when company sustained tax losses the previous year remanded for consideration of reasonableness v Gustafson v State LD s of 210 per day for 67day delay 19 1 Damages bear reasonable relation to probable damages and they are not disproportionate to reasonably anticipated damages from an unexcused delay in performance VII Limits on remedies a Avoidability i Duty to mitigate the injured party is precluded from recovering for loss that it could have reasonably avoided 1 Rockingham v Luten Bridge P continued to work after being told to stop a After P had notice of breach it was his duty not to increase the damage resulting therefrom ii Employment 1 Not required to take an inferior job 2 Parker v 20 Cent Fox D decides not to produce musical in CA offers P western in Australia a Employment not comparable or substantially similar iii Diminished value rule damages are the difference between value of expected product and value of final product 1 348 use either diminished value rule or cost of performance if cost is not clearly disproportionate to the probable loss in value 2 To use DVR there must be a large difference between the cost of performance and the difference in market value ie economically wasteful to tear down structure a Jacob amp Y oungs v Kent wrong brand of plumbing pipe i Cost of replacing pipe is large no difference in value b Peevyhouse v Garland i Cost of remedial work 29000 far greater than difference in value 300 c Cost of performance instead of DVR i Groves v John Wunder 1 Cost of leveling ground 60k not too much higher than difference in value 12k 3 Consider were the provisions central to the contract Jacob b Foreseeability damages must be those reasonably in contemplation of both parties at the time of K formation as a probable result of breach 35 1 i Hadley v Baxendale P forced to shut down mill after D s delay in taking broken crank shaft to manufacturer 1 Damages not foreseeable bc D didn t know of P s urgency ii Mere knowledge of probable damages is not necessarily the same as assuming the risk cabbie and 100K scenario iii Kenford v County of Erie P seeks to recover for loss of anticipated appreciation of land value when D decides not to build stadium 1 D did not assume liability P assumed the risk c Uncertainty damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty 352 i F era v Village Plaza D breaches lease P recovers anticipated lost profits 1 Usually too speculative but the jury had sufficient evidence to reach an informed decision 20
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