Carter & Sahadi



Contracts Outline: Fall 2012, LinzerI. Has a K Been Formed and is it Supported by Consideration?Mutual Assent- For a contract to be formed, the parties must reach “mutual assent.” That is they must both intent to contract, and they must agree on at least the main terms of the dealEssential to form a K: Mutual assent of the parties is essential to the formation of a contract and must be gathered by the language employed by themConduct: If his words or acts, judged by a reasonable standard manifest and intention to agree to the matter in question, that agreement is establishedIntention to be Bound: Objective TheoryObjective theory: R2K §17 – in determining whether the parties have reached mutual assent, what matters is not what each party subjectively intended. Instead, a party’s intentions are measured by what a reasonable person in the position of the other party would have thought the first party intended, based on the first party’s actions and statements.Majority view: implies duty to read KFeldman v. Google (did not read click wrap, that is no an excuse to breach the K)Ray v. William Eurice Bros- (P entered in to an agreement with D to build his new home. D did not review P attached plan. D claims it would have been unreasonable to build a house under those conditions.)Rule: The only intent that is essential is an intent to say the words and acts which constitute their manifestation of assent. This stresses the objective theorySubjective Theory: Linzer does not like the subjective “meeting of the minds”No K unless the parties’ subjective intent coincided on the creation and terms of the relationshipMinority view: do both parties intent to enter in to a KLess dependable because it is unreliable to rely on self serving testimony of actual intentContemporary Approach: Drifts towards the center of the two. Sometimes evidence of a party’s subjective understanding could provide an alternative explanation of the meaning of words or actions.Still rooted in the objective standard but willing to consider subjective evidence of mutual assentAgreement to Agree: The parties have reached common ground on a number of matters but have left one or more terms for future agreementUnder a formal contract contemplated, each party may regard himself asNot bound: They may argue that pencil must be put to paper before anyone is bound. Free to walk away (Walker v. Keith) “Where essential terms such as price are not contained in an option contract and no standards are included whereby it may be judicially determined, no contract exists”Fully bound: An arbitrator could decide the issue in the event of a disagreement. Some way could be devised to mechanically solve open provisions (3rd party or an objective standard to fill the gaps)The agreement could be drafted with a formula for deciding the future provision (i.e. Market price of a home in River Oaks on March 2015)Obligated to bargain in good faithCorbin’s View- as long as the parties know that there is an essential term not yet agreed on then no KLetter of Intent- an agreement to bargain in good faith- not clear if you are bound by themIt could mean there is no deal at allThat this is so routine that the paper is a formality that the deal is absolute done nowWe made the basic deal w/ provisions built inLook at the context of the LOI to determine whether or not the parties meant to be boundBiggest question is are they enforceable?Sometimes you do not want to it to be enforceable- put on paper to memorialize itYou can write whether or not it is legally enforceable but they agree that will to bargainIf they can not agree in good faith then it is not enforceableWalker v. Keith (Keith leased a small lot from Walker for a 10 year period for $100 a month. Option for an additional 10 year term under same terms and conditions w/ rental fixed at “comparative business conditions.” Chancellor fixed the rate at $125 a month)Rule: To be enforceable and valid, a contract to enter into a future covenant must specific all material and essential terms and leave nothing to be agreed upon as a result of future negotiations.R2K §33 if there are a ton of material terms missing then it is probably just preliminary negotiationsWas a Valid Offer Made?Offer An offer is a manifestation of intent to be contractually bound upon acceptance by another party. An offer creates in the offeree the power to form a contract by an appropriate acceptance. RK2 § 24Requirements: It must provide material terms with sufficient definiteness and certainty for courts to be able to figure out what the K is about (R2K § 33)The offer normally needs to be addressed to a particular personSubject matter, time for performance, and price may be required, but also may be filled in by the court based on trade custom, past dealings, and course of performanceValidity of particular kinds of offers:If offeree knows or should have known the offer was made in jest then no KSoliciting a bid is considered preliminary negotiations and not a KMost ads are not considered offers to sell- they are an offer to bargainHowever if specific words or particular number of units then it is an offerLonergan v. Scolnick (From an ad in a newspaper by D- P and D began correspondence on a 40 acres of land. D warned that if P did not act fast it would be sold. D sold the land to a third party, which prompted P to sue for specific performance and or damages)Izadi v. Machado (P attempted by a Ford from D. Small print made the ad misleading)Rule: Objective approach to adsAuctions – an item that is put up for auction usually not an offer but a solicitation of offers from the audience. So unless the sale is expressly said to be /out reserve, the auctioneer may w/draw the goods form the sale even after the start of bidding UCC 2-328(3)Price Quotes- price quote is an invitation to offer not an offer to form a binding KE.C Styberg Engineering v. Eaton Corp (P sells brakes to D- P wanted 30k and D wanted to pay 13k- court said price quote is an invitation to offer not an offer to form a binding K)Bilateral Contract: both sides make a promiseUsually the production of a negotiation process of offer and acceptanceUnilateral Contract: one side promises while the other acts on the promiseOfferor is not bound unless and until he has received the performance he soughtClassical view- the offer can be revoked at any time before the offer is completed by the offereeLogic is- if B can quit the act when ever, why can’t A stop the act when everPetterson v. Pattberg (1928)- act requested to be done, a consideration of the offered promise, was payment in full of the reduced principal of the debt prior to the due date thereofRule: An offer to enter into a unilateral contract may be revoked at any time prior to the performance of the requested act. (Not current law under R2K)Modern view- part performance may bar the offeror from revoking the offer if the offeree has started performanceCook v. Coldwell Banker (1998)- Defendant orally conveyed a bonus program which was based on a percentage of commission earned. Defendant stated awards would be given out at banquet in March and that you had to be there to get it. Before the March banquet Plaintiff leaved for a competitor and defendant refused to pay- which prompted a law suit for breach of bonus contract.Rule: An offeror may not revoke an offer where the offeree has made substantial performance. Part performance or tender may thus furnish consideration for the subsidiary promises.Consideration: a unilateral K lacks consideration, but when the promise is performed, consideration is supplied, and the K is enforceable to the extent preformedIrrevocable Offers- usually an offer is revocable at will of the offeror. However, there are some exceptions:1. Option Contract: Option Contracts R2K §87: An offer is binding as an option K whenin writing and signed by the offeror andrecites purported considerationCommon law states offeree has to give consideration to enter in to option contract. Example: for $10 offeror will hold the offer open for a week.Modern (restatement) approach states a signed option contract that recites the payment of consideration will be irrevocableFirm offers under the UCC: UCC is even more liberal in some cases: it allows formation of an irrevocable offer even if no recital of payment of consideration is madeBy 2-205 an offer is irrevocable if:Is by a merchant;Is in a signed writing andExplicit assurance that the offer will be held openNo offer can be made irrevocable for any longer than three months When the Offer is EffectiveReceipt of offer - An offer is not valid until received by the offeree or his agent. R2K § 68Duration of offerIf the offer has a stated time within which the acceptance must be made, any attempted acceptance after the expiration of that time will fail and will merely constitute a counter-offer by the offeree.If no specific time is stated within which the offeree must accept, it is assumed that the offeror intended to keep the offer open for a reasonable period of time, to be determined based on the nature of the proposed contract, trade usage, prior dealings and other circumstances of which the offeree knows or should know.Generally, the time for accepting an offer begins to run from the time it is received by the offeree. If there was a delay in delivery of the offer of which the offeree is aware, the usual inference is that the time runs from the date on which the offeree would have received the offer under ordinary circumstances.Generally, courts hold that in telephonic or face-to-face communications in which an offer is made, the offer lapses when the conversationThe UCC in re to Offer and Acceptance:For the most part the same rules apply to common law transactions and for the sale of goodsArticle 2 has very few specific provisions that cover off under acceptance principles, therefore most are resolved by common lawHowever it is more flexible in regards to business practicesEx. Battle of FormsWas there Acceptance?- Acceptance of an offer is a manifestation of assent to the terms therof made by the offeree in a manner invited or required by the offerWho may accept: an offer may be accepted only by the person whom the offeror intended to create the power of acceptance for- offeree must know about the offerMethod of acceptance: the offeror can decide how the offer will be accepted “master of his offer”When method not specified: If method is not specified the method must be by any reasonable mannerAcceptance through promise or performance: If the offer does not make clear whether acceptance is to occur through a promise or performance then the offeree can accept by either methodShipping goods- the seller can accept by a) promising to ship goods or b) actually shipping goodsGenerally an offer can not be accepted through silenceExceptions:If offeree has reason to understand that silence will constitute acceptance and offeree subjectively intends to be boundWhen an offeree silently receives the benefit of servicesPrior course of dealing may make it reasonable for silent acceptance- R2K § 69Sale of goods under 2-201: if a party does not object to the terms then they assent to the termsAcceptance by dominion- when the offeree receives goods and keeps them this is generally an acceptanceAcceptance of a Unilateral KClassic Rule: The only way to accept a unilateral K is through complete performance. Petterson v. Pattberg and Brooklyn Bridge HypotheticalModern Rule: Creation of an Option K through Part Performance R2K §45Modern law allows the creation of an irrevocable Option K where the Offeree begins the invited performanceMust be completed within a reasonable amount of timeCreation of an Option K through Reliance R2K §87An offer which the offeree should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance which does induce such action or forbearance is binding as an option K to the extent necessary to avoid injusticeAcceptance is Effective when Sent (mailbox rule) (R2K §63)Except for Option Ks: Effective when receivedExcept where offer explicitly states that acceptance is valid only upon receiptIf Misaddressed: If received in same time as if properly dispatched, then valid when sent, if after, then valid upon receiptIf lost by Mail Carrier: Still valid when sent!If both an acceptance and rejection sent the rule depends on what is dispatched first:Rejection sent first- acceptance will be effective if the offeror receives it before he receives rejectionAcceptance sent first- is effective upon dispatchAcceptance Varying From OfferCommon Law: “mirror image rule”The offeree’s response operates as an acceptance only if it is the precise mirror image of the offerIf response conflicts with original offer it creates a counter offerIf Offeree accepts the counteroffer they are assenting to the terms included within the counter offer even if they do not match up with their offer – Princess Cruises v. General ElectricModern courts stray away from this unless the difference materially alters the K Battle of the forms (UCC 2-207) UCC rejects the mirror image rule(1) any expression of acceptance or written confirmation will act as an acceptance even though states terms that are additional or differentNo contract if expressly made conditional on assent to additional or different termsPurported acceptance contains additional/different terms form the offer, and also states something like, “this acceptance of you offer is effective only if you agree to all of the terms listed on the reverse side of this form,” there is no contract formed(2) material alterations to contracts exist if they result in surprise or hardshipPaul Gottlieb v. Alps South (P sells fabric to D to use for prosthetics- relationship sours- limitation of liability clause did not material alter the K- P failed to show it would result in surprise or hardship)Additional term in acceptance – where the offeree’s response contains an additional term, the consequences depend on whether both parties are merchants.At least one party not merchant – if one party is not a merchant, the additional term does not prevent the offeree’s response from giving rise to a contract, but the additional term becomes part of the contract only if the offeror explicitly assents to it. Governed by common law if neither party is a merchant.Both merchants – if both parties are merchants, then the additional term automatically becomes part of the contract, as a general rule. However,Materiality – the addition will not becomes part of the contract if it is one which materially alters the contract. Ex. Disclaimer of warrantyObjection – If the offeror objects to having the additional term become part of the contract it wont.Brown Machine v. Hercules (indemnification clause materially altered a K)Conflicting terms in documents – if an issue is covered one way in the offer doc and another conflicting way in the acceptance, most courts apply the knock out rule. That is, the conflicting clauses “knock each other out” of the contract, so that neither enters the contract. Instead, a UCC gap-filler provision is used if one is relevant, otherwise, common lawLast shot rule - Buyer sends out P.O. with terms A + X, sellers send back acknowledgement saying A+Y, this acts as a counter-offer. A party impliedly assents to and thereby accepts a counter-offer by conduct indicating lack of objection to it. Tended to favor Sellers over Buyers b/c Sellers normally “fire the last shot” (send the last form).Usually on the back of these is the boilerplate that has tons of new terms and conditions that re in favor of the sellerUsually no body looks at these and will be made part of the deal unless they violate 2-207(2)Double knock out rule- there is no K in this case2-207(3): But sometimes they preform and conduct may show recognized Kthe terms consists of what the parties agree on (time, quantity, delivery, things that agree on boiler plate)The default rules of the UCC will cover in the gaps (problem is UCC is seen as pro buyer)Conflicting terms: Princess case- “not liable for damages”= “liable for damages”- under UCC these will knock each other outGo back to the original things they have agreed upon: comment six of 2-207Duration of the Power of Acceptance To become valid if must be effective while the power of acceptance is still in effect- Ways to terminate power of acceptance:Rejection of offer (only valid if made before acceptance)exceptions- a) offeror indicates that the offer still stands despite the rejection or b) the offeree states “not now accepting- wish to consider in future” Counter-offersame exceptions as aboveDistinguish counter-offer from explorationNormile v. Miller (1985)- P made offer on D'. D D made a counter offer to P containing changes in contract. P was under the impression that they had first option on the property and that no one could offer while they had a counter offer to decide on. Soon after P Segal signed an offer to purchase with similar terms to the aforementioned counter offerRule: A conditional acceptance to an offer rejects the original offer. If it is accepted then the offeror assents to the new terms not the original offers terms. Also, once a counteroffer has been revoked you can not have power to accept original offer. Lapse of timeOfferor can set a time limit for acceptance, if no end of a reasonable timeIf bargaining face to face/phone the power of acceptance continues only during that conversation (unless contrary intent)Death or incapacity terminates power of acceptanceRevocationOfferor is free to revoke his offer at any time before it is acceptedA revocation does not become effective until it is received by the offeree (if revocation letter is lost then it never becomes effective)- direct revocationIf offeror behaves in a way inconsistent w/ an intention to enter the contract and offeree learns about it then the offer has been revoked- indirect revocation5. Death or incapacity- must occur before acceptance. If death or incapacity occurs after acceptance the K will be enforced on the estate/ incapable person.Late Acceptancethe communication may qualify as a counter-offer;the offeror may waive the lateness and honor the acceptance;if the acceptance is nevertheless sent within a reasonable time, albeit after the offer's stated expiration, the acceptance is valid and results in the formation of a contract if the offeror does not reject it within a reasonable timeIndefiniteness: Generally no contract will be found if the terms of the parties’ agreement are unduly indefiniteMissing Term: If the court believes that the parties intended to contract and if the court believes that it can supply a reasonable value for a missing term they will generally do soUCC 2-204- expressly allows court to fill in terms for price, place for delivery, time for shipment, time for payment, etc., as long as the parties intended to make a contractJannusch v. Naffziger (P sold D a concession stand business and D tried to return it- D/ trial court said no meeting of minds due to open terms but under UCC this is ok because the essential terms were agreed upon)Next level test taking- 2-301, 2-308, 2-503, 2-309, 2-310, 2-312 are all gap fillersNon-UCC- most modern courts follow the “supply the missing term on a reasonable basis” if the parties have shown intent to create a binding contractIn a rare case a court might find an agreement void for indefinitenessImplied obligation of good faith/ fair dealings (UCC 1-304)“honesty in fact and the observance of reasonable commercial standards of fair dealing”A party is required to behave in a way that is consistent w/ the other party’s reasonable expectations about the the contract will workAgreement to Agree (Linzer does not like this term)Court will generally supply a missing term if the parties intentionally leave that term to be agreed upon later and then they don’t agree on termThey are agreeing to bargain.Classical Contract said as long as there is mutual assent that there is another term to be agreed upon, there is no K. (K to make a K is not a K).MisunderstandingsGeneral rule- a misunderstanding about what they are agreeing to may prevent them from having a meeting of the minds and thus no contractNo contract will be formed if:Parties each have a different subjective belief about a term of the contractTerm is a material oneNeither party knows, or has reason to, of the misunderstandingIf on party knows or should know of a different understanding the contract will be in terms of the innocent oneOfferee does not understand the offerOfferee is negligent- if offeree’s failure to read or understand the offer is due to his own negligence, he is bound by the terms of the contract as stated in offerUnless the terms invoke the doctrines of fraud or unconsciousabilityMisrepresentation- if offeree’s misunderstanding is due to the offeror’s misrepresentation of the terms, and the offeror knows this, the contract will be applied on terms understood by offereeObjective Theory: The objective theory of mutual assent can still apply thereLucy v. Zehmer- offer was made jokingly but the offeree was in earnest and under the obj. test had no reason to believe the offeror was notCompared to the PepsiCo Case where the court asserted the offer should have been seen as a jokeElectronic ContractingPolicy: Vast majority of modern contracts involve parties w/ radically unequal bargaining powerThe contracts consist of standard forms and involve little, if any, negotiationsThe contracts are often formed through electronic transactions rather than person to person communicationsThe standard terms must be fair and reasonable, the court has discretion in this matterUsually must be stated in clear, conspicuous and intelligible termsShrinkwrap Terms: purchaser orders a product by various means then the product is received it is wrapped in plasticUse of the product constitutes the purchaser’s agreement w/ those terms that are listed w/ the packageIf dissatisfied the purchaser can return in a reasonable time period (if not they agree to terms)Must expressly say that if sending it backs rejects terms and conditionsDeFontes v. Dell (never made clear that they can reject the TC by returning- options must be readily apparent to the consumer to be enforceable)Clickwrap Terms: before completing the purchase of the product, the purchaser must scroll through the sellers terms of sale and click on “I agree” buttonIf they refuse to do so they can not complete the saleFeldman v. Google (failure to read the click wrap agreement does not make the K unenforceable for P)Most cases have upheld click wrap and it’s probably the best way to get- Linzer does not like it (not very protective)Linzer: It does not really matter because people do not read itBrowsewrap Terms: typically involves information made available by internet providers of their websitesTerms of use say “by using the site the user agrees to providers terms of use”Weakest of the three, can be upheld if the terms are conspicuousHines v. (P never assented to the $30 restocking fee that was found at the bottom of the website- user has to know the terms are there)Electronic Contracting: In these three situations the purchaser places an order- this is not an offerThe offer occurs when the vendor ships the product w/ the terms of sale includedVendor is the master of the offer- if it states that purchaser accepts the offer by retaining the product beyond the period of time set forth the purchaser is bound by the vendors terms if he does not return in time frameThis is fuzzy and up to debate- it is not black and whiteRelevant statutes are UETA and E-SignGoal is to make sure regular laws of K are applied to electronic transactionsIs there Valid Consideration?Consideration is a bargained for exchange of performances or promises R2K §71A gain or advantage of POR is not a requirement for consideration R2K §79Forms of Consideration: Act, forbearance, or the creation, modification, or destruction of a legal rightMay be given to the parties or to a third partyPennsy Supply Inc. V. American Ash Recycling Corp. Consideration is bargained-for even if “free”Adequacy of Consideration R2K §79: Courts generally do not look into the adequacy of consideration Batsakis v. DemotisMinimum Acts are generally sufficient consideration (“a mere peppercorn will do”)Nominal and Sham Consideration: Disproportionate values between benefit and detriment may indicate that there is no bargain at all, but rather the “exchange” is merely a pretense for a giftWhether or not consideration is valid turns on whether it was bargained forNominal- where the consideration is so small that it is nominal (court may conclude from a factual matter there is no real bargain present)Extreme disparity in value between what promisee gives up and receives may suggest that there is not in fact a bargain or that it was an unfair bargainSham- R2K §71- a mere pretense of bargain does not suffice as where there is a false recital of consideration or where the purported consideration is nominalMutuality of Obligation Required – Both parties must make promise that somehow bind themIllusory Promises: “I’ll do this when I decide to” “promise to buy or not to buy” are not valid promises because it lacks binding consideration R2K §77Alternative Promises are valid as long as each alternative alone would be valid considerationImplied Promise: Promises to act on POR’s own “best efforts” performed in “good faith”, are a sufficient detriment to constitute valid considerationPromises to make gifts: generally unenforceable b/c lacks bargain elementExistence of condition (of acceptance) does not necessarily make consideration because the conditions were not bargained forSome courts have held charitable donations, as a matter of public policy the courts try to enforce the promisesKing v. Trustees of Boston University (There was consideration because the University went through the steps of indexing, taking care of and making the papers available to researchers- this went beyond a mere promise to use the gift as instructed by the donor)Even if the person promising to make a gift requires the promisee to meet certain conditions in order to receive the gift it may not mean considerationKirksey v. Kirksey (A man told his deceased brother’s wife “if you come see me, I will give you a place to stay The court found that the man’s offer was hardly a promise and rather a “mere gratuity,” thus being unenforceable)This is like the example where a man says if you go to the store you may purchase a coat on my account there. The mere fact that she has to walk to the store cannot be constituted as consideration- NOT BARGANING FOR THE WALK!Occurrence of condition is of benefit to promisor will meet the bargain elementHamer v. Sidway (Uncle Story promised to pay $5K to Lil’ Willie if he would refrain from liquor, tobacco, swearing, or playing cards or billiards for money until his 21st birthday. Nephew refrained, Uncle said ok. Story died 12 years later without paying William. William had assigned his right to the money to Hamer, and Uncle Story’s Executor, Sidway refused to pay. There was consideration.)This is a detriment to the Lil’ Willie b/c it was his “legal privilege (right)” to do these things, and he chose not to do them. He was constricted from his freedom of action. This is a benefit to Uncle Story because he wanted Lil’ Willie to do this.Altruistic pleasure is not sufficient: the fact that one who promises to make a gift expects to derive altruistic pleasure, or love and affection, from making the gift is not sufficient to constitute a bargainDougherty v. Salt (1919)- Dougherty was eight years old when his aunt gave him a promissory note for $3000. The note included the words “value received” and she told him “you have always done for me, and I have signed this note for you.” P brought suit against Salt, the executrix of his aunt’s estate for payment on the noteRule: past acts and mere recitation of consideration does not actually constitute considerationPast Consideration- past consideration is generally no consideration since it was not bargained forPlowman v. Indian Refining Co. (1937) Plaintiffs, Plowman and seventeen others similarly situated or their estates, worked for Defendant Indian Refining Co., for many years. Defendant offered to pay Plaintiffs one-half of the wages currently being earned. Plaintiffs remained on the payroll, receiving the offered money, but did not render any services other than coming to the office for their remittance. Defendant had to end program and Plaintiff brought suit.Reasoning: Past or executed consideration is a self contradictory term because consideration is something given in exchange for a promise or in reliance upon the promise. Something which has been delivered before the promise is executed cannot be considerationWilliston’s Tramp: “if you go around the corner to the clothing shop there, you may purchase an overcoat on my credit.”The walk is merely a necessary condition to get to the store.He is not bargaining w/ the tramp to walk to the store. It’s not like a bargain, a walk across the bridge.Father/Daughter Tiffany’s Ring: What about an estranged father who tells his daughter to be at Tiffany’s at a set time so he could buy her a ring and reneges when she arrives?The travel to get there may be more than a necessary condition of his buying her the ring. He may have used the offer to get her there, so benefit/detriment may be present.Pre-Existing Duty Rule- if a party does or promises to do what he is already legally obligated to do or forebears to something he is not legally entitled to do this is not a detrimentModifying a contract for the sole benefit of one will be unenforceable for lack of considerationRestatement: There is an exception where the modification is fair and equitable in circumstances not anticipated by the parties (ex. of painting the bridge)Extra Duties: If there is a slight detriment then there will be considerationUCC: For contracts for the sale of goods, the UCC abolishes the preexisting duty rule. Section 2-209(1) provides that "an agreement modifying a contract … needs no consideration to be binding." But there must be good faith, and any no-oral-modification clause must be complied with.Option Contract and Consideration- the offeror’s power of revocation may be bargained away in exchange for return considerationPurported option contract w/ out consideration is merely a continuing offer that may be revoked anytime before acceptance and will be terminated by rejection or counter-offer (Normile v. Miller)Option contracts will often cite nominal consideration such as $10 or $1Cases generally hold that even a very small amount of money can serve as effective consideration to make an option contractSome courts have allowed for a promise for consideration at a later timeOfferee in an option contract may give services or some other form of consideration instead of the payment of moneyR2K s87(1)(a) shows you don’t actually make exchange of consideration- it says of an offer made in signed writing is binding if it proposes an exchange on fair terms within a reasonable time and recites a purport consideration for its makingModern formality- akin to contracts under seal from NormileRight to Terminate: Must give considerationParty with right to terminate at any time has given no considerationDuty to give “reasonable notice” may be valid consideration in itselfUCC §2-309: Requires reasonable notice to terminate a K prematurelySettlement of Claims (accord/satisfaction): If parties agree to modify a debtor’s amount owed and the debtor pays the newly agreed to amount, then it discharges the debt. If debtor fails to pay the newly agreed to amount, then creditor may sue on the original K amountPromissory EstoppelDefinition: Promises which foreseeably induce reliance on the part of the promisee will often be enforceable w/out consideration- “safety valve for the subject of consideration”R2K § 90 - A (1) promise which the promisor should reasonably expect to induce action or forbearance on the apart of the promisee or a third person and (2) which does induce such action or forbearance is binding if (3) injustice can be avoided only by enforcement of the promise.Actual reliance: The promisee must justifiability rely on the promise.Two questions- did the promise induce the reliance and was the reliance justified?Foreseeable reliance: The promisee’s reliance must also have been reasonably foreseeable to the promisorHarvey v. Dow (P relied on her parents words and actions that she would eventually get title to their land and took steps to ensure that- the K was enforced through PE since there was no consideration)Express Promise- the promise does not have to be expressPop’s Cones v. Resorts Int. Hotel (P reliance for a ice cream stand- never expressly made- deal pulled out under them and they were able to recover)Four prong test for PE (Aceves v. US Bank- bank convinced P to not file for Ch.11 they would help her, she relied on this promise but then they did not help her)promise has to be clear and unambiguousreliance by the party to whom the promise is madereliance must be reasonable and foreseeablethe party asserting the estopped must be injured by reliance.Amount of recovery: Where P.E. is used, the damages awarded are generally limited to those necessary to "prevent injustice."Usually P receives reliance damages, rather than the greater expectation measure. In other words, P is placed in the position he would have been in had the promise never been made.Example: If A promises B a franchise, and B quits his job in reliance, the court will probably award B the value of the lost job, not the greater sum equaling profits that B would have made from the franchise.Possible applicationsPromise to make a gift: The P.E. doctrine is most often applied to enforce promises to make gifts, where the promisee relies on the gift to his detriment.Kirskey v. Kirskey (P moves to D’s land and abandoned property- court says the offer to live on the land by D was mere gratuity and no consideration- Dissent makes the modern argument of reliance- 100 years before R2K § 90)Classic “Williston’s Tramp” scenario. He could not get her gift, if she did not come see him; so it was a condition.Charitable subscriptions: A written promise to make a charitable contribution will generally be binding without consideration, under the P.E. doctrine. Here, the doctrine is watered down: usually the charity does not need to show detrimental reliance. (But oral promises to make charitable contributions usually will not be enforceable unless the charity relies on the promise to its detriment.)King v. Trustees of Boston UniversityRule: If the person receiving a gift assumes a duty purported by the donor then that is probably sufficient consideration to make the promise enforceable. A valid contract must have either consideration or reliance.R2K §90(2) – Charitable subscriptions should be binding without proof that the action induced action or forbearance.Most courts reject this notionGratuitous bailments and agencies: If a person promises to take care of another’s property (a "gratuitous bailment") or promises to carry out an act as another person’s agent (gratuitous agency), the promisor may be held liable under P.E. if he does not perform at all. (However, courts are hesitant to apply P.E. to promises to procure insurance for another.)Offers by sub-contractors: Where a sub-contractor makes a bid to a general contractor, and the latter uses the bid in computing his own master bid on the job, the P.E. doctrine is often used to make the sub-bid temporarily irrevocable.Drennan v. Star Paving (P relied on D’s bid and was awarded the job- then D realized there was a mistake- REASONABLE reliance on P’s part)Promise of job/ Pension: If an employer promises an at-will job to an employee, and then revokes the promise before the employee shows up for work, P.E. may apply.Katz v. Danny Dare, Inc. – (retiring was a detriment)Negotiations in good faith: A person who negotiates with another may be found to have a duty to bargain in good faith; if bad faith is found, the court may use P.E. to furnish a remedy.Promises of franchise: The use of P.E. to protect negotiating parties is especially likely where the promise is a promise by a national corporation to award a franchise to the other party. (Example: P, a national company that runs a fast food chain, promises B a franchise. B quits his job and undergoes expensive training in the restaurant business. If A then refuses to award the franchise, a court might use P.E. to enforce the promise, at least to the extent of reimbursing B for his lost job and training expenses.)PE cannot be asserted to compel an offeror to perform where the offer is not meant to become a binding contract until consideration has been received- not binding anymoreJames Baird v. Gimbel Bros (D make a mistake in their bids- P used the mistaken price for his bid- P did not receive the correction till after his bid was made- P accepted D’s mistaken bid two days after receiving D’s offer to withdraw- no PE for P)May not apply to employment-at-will because it is not guaranteed you will Restitution- When a benefit has been conferred on a recipient under circumstances in which it is unfair to permit him to retain it without pay, cause of action for unjust enrichment is available to the person who conferred the benefitAction for unjust enrichment:Plaintiff conferred a benefit on Defendant,Defendant has knowledge of the benefit,the benefit has been accepted or retained by Defendant, andunder the circumstances it would be inequitable for Defendant to retain the benefit without paying for it.Basis of Liability:person who has been unjustly enriched at the expense of another is required to make restitution to the other.Watts v. Watts (quasi married couple- P worked for D and gave a benefit for D- the split and she wants restitution for the benefit that she gave D- court says D may have been unjustly enriched)Absence of a Promise:One party has received benefit from another, but has made no promise to pay for that benefit.Credit Bureau Enterprises, Inc. v. Pelo – (P hospitalized and refused to sign release form and finally did but said under duress- he received benefit and the court says he had to pay up since he was mentally impaired his objections were irrelevant)If done w/ out knowledge or consent- restitution lies when:he acted unofficiously and w/ intent to charge therefor andthe things or services were necessary to prevent the other form suffering serious bodily harm or pain andthe person supplying them had no reason to know that the other would not consent to receiving them, if mentally competent, andit was impossible for the other to give consent- extreme youth or mental impairmentPromissory Restitution: Recipient makes a promise to pay for the services, AFTER the services are received.No classical consideration b/c there is no past consideration.Mills v. Wyman (P takes care of D’s son- after son died D promise to pay P- failed- P brings suit for compensation- denied- no consideration)Webb v. McGowin (P saves D’s life and D promises to pay P for the rest of his life- D dies and payment stops- P brings suit against estate- D has to pay because saving the life was an enrichment- minority rule)Quasi-K- a K implied in lawBecause on person benefited from another the law created a fictional KGenerally if someone does something without being asked the they will usually not be able to recoverYou were not unjustly enriched because you did not ask for itBy conduct you can create an understanding that the relationship between the two could create an enforceable KKid always mows a yard for $20- family goes out of townIt would be unjust for a promisee not to be able to recover form a promise by the promisor that the promisee relied onFamily and Professional DifferencesWhat should you get-black letter only applies to professional servicesMaybe the expenses you put in- LinzerLinzer disagrees that it should be limited to professionalsDid you do it w/ an intent to be paid?Professional: We presume that a professional that did it w/ a intent to be paidIf you have no intent to be paid then you probably will not get paidFamily: What about if you did not know there was money?Ex. a kid takes care for their aging parentsWill probably not be able to recover if they just drive up on the weekends and do ordinary thingsHowever, if they keep their job and move in etc.. then they probably can recoverServices providedWhen a claimant under s28 seeks restitution in respect of services, the measure of recovery is value of the services rendered, not their traceable productUsually when a family members provides a service for another family member it is seen to be gratuitousIf non family members then they are presumed to be for compensationThis presumption can be overcome- courts differ on how so there is no set standardA subcontractor must prove two thing to recover in a quasi contract w/ an ownersubcontractor had exhausted all remedies against the GC and still remained unpaid andthe owner had not given consideration to any person for the improvise furnished by the merce Partnership v. Equity (P did not get paid by not get paid from D because D did not pay general contractor)Restitution Damages:Fair market value of goods or services deliveredII. Is there a legal reason why the agreement should not be enforced?Statute of Frauds- Contracts that fall w/in the statute of frauds are unenforceable unless in writing- purpose is to prevent fraud by requiring that certain categories of K be reduced to writing- R2K § 131-134Requirements: Must be in writing and signed by the party to be suedMore than one document may be linked together either expressly or impliedly by the subject matter to satisfy SoFCrabtree v. Elizabeth Arden (memo and payroll cards for employment were added together to show the full K)Six categories that fall under Statue of FraudsExecutor-administrator provisionContract of an executor or administrator to answer for a duty of his decedentExecutor personally orally guarantees creditors so that they will not sue the estate, but since it is not in writing it is not enforceable.Linzer: has to be in writing because you are not legally obligated to do this- you are doing it to be helpful, easy to be abused.Suretyship- “Good exam question”Contract to answer for the debt of another- a third party standing besides somebody Creditor: Applies only to promises made to creditors, not the debtorCollateral Promise: Must be collateral to another’s promise to pay, not the primary purpose.Main purpose rule – if the promisor’s chief purpose in making his promise of suretyship is to further his own interest, his promise does Not fall w/in the S of F- R2K s116Ex. Bailments puts up your bail and you pay a fee. If you don’t show up bondsmen has to go to court and then demand the money back from driver. Suretyship is not an insurance policy.Damages are the amount that the surety is outMarriageContract made upon consideration of marriageEx. If A says to B, if you promise to marry me, ill give you my beach house and B says Ok and no document is sign; if A changes his mind, B cannot sue to enforce either promise to marry or for beach house b/c the consideration for both was for the marriage taking place.Land ContractInterest: Includes sale of land, leases (typically, more than 1 year), easements (more than 1 year), fixtures, liens, minerals (if to be severed by buyer), mortgages, etc.Minerals: If K concerns growing crops, cutting timber, etc., then sale of goods under UCC §2-107.Contract to Build: Not covered under SOF.Exception: Part Performance for an Oral K for Sale of Land.Seller: Seller conveying can recover purchase price.R2K §129 (Buyer’s Detrimental Reliance): Allows specific performance (not monetary damages for breach) if buyer relies in at least two ways:Payment;Taking possession; and/orMaking valuable improvements.One year ProvisionContract that cannot be performed w/in one year from its makingReally Important Note: It is not the length of actual performance that is crucial, but the time between making the K and the end of performanceImpossibility – one year provision applies only if complete performance is impossible w/in one year after the making of the contract. Fact that performance w/in one year is highly unlikely is not enough.Lifetime employment – Not w/ in SOF because someone could die at anytimeUCC and the Statute of FraudsUnder the UCC 2-201, a contract for the sale of goods for a price of $500 or more must be in writingCourts are very loose on what constitutes writing, enforcement will be possible on the basis of fragmentary notations of terms, so long as the court is persuaded that the writing does indicate a contract for sale has been madeNo price? That is ok. Use published price list or market priceThere are a lot of ways to figure a priceBuffaloe v. Hart (K for sell of barns- UCC- D did not sign check so the SoF fraud was not met- however part performance was met so SoF does not apply)NOTE- the six exceptions above fall under the statute for UCC as wellExceptions to Statute of Fraud:Specially manufactured goods – no writing is required if the goods are to be specially manufactured for the buyer, are not suitable for sale to others, and the seller has made “either a substantial beginning of their manufacture or commitments for their procurement” Sec. 2-201(3)(a)Partial Performance- Beaver v. Brumlow (P and D had verbal agreement to sell land- P made improvements on the land, spent time, etc…K is not barred since there was partial performance)Merchant Confirmation Exception: Goods accepted or paid for – no writing is required w/ respect to goods for which payment has been made and accepted or which have been received and acceptedPromissory Estoppel may override SoFAlaska Democratic Party v. Rice (P and D entered into an oral K for employment- P accepted and left current job- D breaches- P is able to recover under PE even though the K should be barred by Sof)Note- Some courts still refuse to use it at all other courts will use it conservatively to prevent “unjust and unconsciousable injury and loss”A contract barred by SF is unenforceable not voidVoid means it was never there, that is not the case w/ a SF KThis is important because if void there can be no further cause of action for anything but if it is unenforceable there may be cause of actionsEx. Tort of interference w/ KEx. Contract w/ a minor, minor says he does not have to preform- this makes it voidable not voidTest Tip: When SoF is used as a defense for enforcement of a promise, ask:Is the K at issue on of the types to which the SoF applies (need a signed memorandum to be enforced) if no, then no SoFIf yes, is the SoF satisfied? (is it signed by the Defendant). If yes, then the statute presents no bar to enforcement and the case my proceed in normal fashion.If not signed, are there other factors in the case such as performance or reliance by the P which might invoke an exception to the statutory bar?If you don’t get out on statute of frauds you can try to get out w/ parol evidence ruleE-Sign and UETA give the effect of an electronic signatureDuress: Ks induced by a wrongful threat or action, voidable and rescindable as long as not affirmed. (a subjective test)Elements of DuressAn improper or wrongful threatLack of a reasonable alternativeActual inducement of manifestation of assent by threatPhysical Duress: Easy to spot; Makes K void- §174Economic Duress: Hard to prove; Taking advantage of another’s economic needs is generally not a defense.Totem Marine. v. Alyeska Pipeline Services (P sues over settlement agreement signed under economic duress- D w/ held payments of a debt w/ knowledge of P’s bad economic state- P had no choice but to accept reduced settlement or face bankruptcy)Economic duress exists whereOne party involuntary accepts the conditions of the other party,Circumstances permitted no alternative, andSuch circumstances were the result of coercive acts of the other partyUndue Influence: Improper use of power or trust in a way that deprives a person of free will and substitutes another’s objective. Free will, but misbehavior of person of trust; “Constructive fraud”; Voidable by the victim.RestatementR2K §177(1) (Defined): (Undue Influence is) Unfair persuasion of a party who is under domination of person exercising persuasion or of a person by their relation is justifiably assumed to be acting not inconsistent the person’s welfare.R2K §177(3) (Third party): If undue influence by third-party, K voidable unless other party, in good faith and without reason to know of undue influence, gives value or relies materially.Odorizzi v. Bloomfield School District (homosexual school teacher who was basically forced to resign under undue influence).Undue Influence Factors: Multi-factor test,Discussion of the transaction at unusual or inappropriate time;Consummation of transaction in unusual place;Insistent demand that business be finished at once;Extreme emphasis on untoward consequences of delay;Use of multiple persuaders by dominant side against a single servient party;Absence of third-party advisers to servant party; orStatements that there is no time to consult financial or legal advisors.Incapacity: Most of the main cases involve lack of capacity due to ageMost states have the age of a capacity as 18 years old (one day before you don’t have capacity, one day after you have capacity)You can disavow the contract if you lack capacity, you can do it anytime while you are under 18 and then for a reasonable amount of time (No bright line but usually 3 months is acceptable- if not you ratify it)It is only the person w/ out capacity who can void the contactEx. 17 year old buys car and wrecks it. Is the car dealer screwed for the payment of the car?The courts are split on how to handle a situation like thisOne view- dealer should have known and there are plenty ways of protecting themselvesMental capacityIf declared mentally incompetent then the K is rendered voidSome cases show where it was obvious that the person was mentally incompetent and therefore the offeror should not have entered in to a deal w/ themMisrepresentation: A misrepresentation is (1) an assertion that is not in accord with the facts. R2K §159. Or (2) an intended or an action intended or known to be likely to prevent another from learning a fact. R2K §160Elements of Misrepresentation:Misrepresentation of Fact – opinions do not qualify as misrepresentationsGeneral opinions such as “this car is great” will very rarely be misrepresentations, but modern courts have erred on the side of fact rather than opinion. – ex: “this car is mechanically perfect” may qualify as a misrepresentation. Specificity seems to be the key here.Exceptions: where opinions are actionable as misrepresentationsFiduciary relationships (corporation and shareholders)Where the person making the statements holds himself out as an expert (jeweler, “this stone, in my opinion, is worth > $1000”)Justifiable Reliance – party asserting misrepresentation must show that he relied on the misrepresentation in-fact and that his reliance was justifiable.However, some courts have held that the reliance does not have to be justifiable or “reasonable” where the misrepresentation was intentionalWhere Misrepresentation makes K VOID R2K §163When Misrepresentation is as to the essential terms of a proposed contractInduces manifestation of assentWhere Misrepresentation makes K VOIDABLE R2K §164Misrepresentation is induced by fraudulent or material misrepresentation, but not of an essential termFraudulent Misrepresentation justifies reformation R2K §166Innocent misrepresentation can make a K voidable if material and justifiably relied onVendor/SellersA seller has an affirmative duty to disclose material facts which adversely affect the value of the property.Modern view: A vendor has an affirmative duty to disclose material facts when disclosure:Is necessary to prevent a previous assertion form being a misrepresentation or form being fraudulent or materialWould correct a mistake of the other party as to a basic assumption on which that party is making the K and if nondisclosure amounts to a failure to act in good faith and in accordance to the reasonable standards of fair dealingWould correct a mistake of the other party as to the contents or effect of a writingThe other person is entitled to know the facts because of relationship of trust or confidence between themHill v. Jones (D had a duty to tell P that the home had termites in it- D knew that it would effect the value of the home so the termites were a material fact)Fraud: In order to rescind an agreement on the basis of fraud, a party must show misrepresentation, knowledge of falsity, intent to induce reliance, justifiable reliance, and resulting damages. – Fraud requires an intent to deceive§164(1) a contract is voidable for either fraudulent or material misrepresentationActual Fraud involves conscious misrepresentation, or concealment, or non-disclosure of a material fact which induces the innocent party to enter in to a KConstructive fraud arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance by the latter to his prejudiceElements of Fraud (Syester v. Banta- lonely dancer- all elements must be met)that the defendants made one or more representations claimed by plaintiff,that said statements, or one or more of them, were false,that said false statements or representations were as to material matters with reference to the entering into the contract,that the defendants knew the said representations, or one or more of them, were false,that said representations were made with intent to deceive and defraud the plaintiffthat the plaintiff believed and relied upon said false representations and would not have entered into the contract, except for believing and relying upon said misrepresentations, andthat the plaintiff was damaged in some amount through relying on said?representations.Fraud in the execution §166Fraud is an exception to the general rule that a party is held to their signature. Where the party’s signature is procured through fraud, the defrauded party is not held to the agreement.One can not be bound to a K if they entered the K because of fraudPark 100 Investors v. Kartes (P was fraudulently induced to sign a personal guarantee for a lease- he was not held to signature)Defense of Fraud- PUFFERY!Policy- However, some less educated people may not know it was puffery so this may be unfair standardHowever, did not work against Old Lady Dancer (extreme case though)Unconscionability: Allows for avoidance or reformation of a K if, at the time of making the K, the contract or a term of the K unjustifiably gave an excessive advantage to one party and the party has taken advantage of the first party’s dependence, economic distress or urgent needs, or of its improvidence, ignorance, inexperience or lack of bargaining skills, or if there is a lack of meaningful choiceScope: Originally only Sale of goods, but courts have applied to all types of Ks.UCC§2-302: Court as matter of law may find a K or a clause unconscionable and refuse enforcement, enforce without unconscionable clause, or limit application of a clause to avoid unconscionable result.R2K §208 (Unconscionable K or Term): Almost identical to §2-302.Procedural Unconscionability – where one party inserts a term the other does not agree to and does not noticeLack of Meaningful Choice: e.g., Adhesion K (“Take it or leave it”) for necessary good.Disparate Bargaining PowerOverwhelming Power by one PartyWilliams v. Walker-Thomas Furniture (cross collateralization/ pro rata where if P defaulted on payment the store could repo all furniture EVER bought- could not pay off till you pay everything off- Court remands to see if this is unconscionable)Unreasonably Favor One Party: Unfair risk-shifting, such as (Note: not always unconscionable):Confession of Judgment clause – allows a party to make a judgment against themDisclaimer of warrantyAdd-on Clause: Subjecting all property purchased from seller to repossession if newlyDefect in Bargaining Process: Quasi-fraud, duress, high pressure sales tactics, misrepresentation, etc.Unfair Surprise: adhesion K, small print, terms not conspicuous or explained, boilerplate that is inconspicuous or incomprehensible to average personExculpatory Clause: Release party from liability for intentional wrongful acts is unconscionable; release from negligent acts may be unconscionable if inconspicuous, but generally not for hazardous activities, e.g., skiing.Substantive Unconscionability – (what the deal says)–Unconscionability resulting from actual terms that unduly harsh, commercially unreasonable, and grossly unfair given the circumstancesOppressive TermsIn re Checking Account Overdraft Litigation (banks did not in good faith use overdraft policies- they construed it to get the most money out of customers as possible)Grossly Unfair Price.Use of Unconscionability DoctrineDefensive Use: Some courts say only used as affirmative defense when sued for breach. You can not use it to get out of a K.Offensive (minority): Few courts say P can sue and find allow damages or restitution after a finding of unconscionability.Note- Most courts have held that both procedural and substantive unconscionability must be present on a “sliding scale” so that if more of one element present, less may be required of the other.Higgins v. Superior Court of LA (Extreme Homemaker Over Case- arbitration agreement was unconscionable because procedural- kids didn’t get counsel basically, parents told them just to sign- substantive because adhesion K)Another note- not really needed if fraud is met, use as an alternative theory for fraudPublic Policy and Restrictive CovenantsIn cases involving professionals, public policy concerns may outweigh any protectable interest the parties may have. Courts have been willing to enforce reasonable covenants that do not arise from professionalscovenant usually has to have a geographic region and a specified amount of timeA restriction is unreasonable and not enforceable ifthe restraint is greater than necessary to protect the employer’s legitimate interest orif that interest is outweighed by the hardship of the employee and the likely injury to the public.Valley Medical Specialist v. Farber (P and D enter in to restrictive covenant- duration was 3 years- too long, area was 5 miles – to wide given the circumstances of patients- and was way too broad)Look for affecting third partiesR2K §179 recognizes a number of categories of K which my be unenforceable on the grounds of public policyR.R v. MH (surrogacy agreement was unenforceable because it was against the adoption statute)R2K 178: When a Term is Unenforceable on Grounds of Public Policy(1) A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms(2) In weighing the interest in the enforcement of a term, account is taken of(a) the parties’ justified expectations(b) any forfeiture that would result if enforcement were denied, and(c) any special public interest in the enforcement of the particular term(3) In weighing a public policy against enforcement of a term, account is taken of(a) the strength of that policy as manifested by legislation or judicial decision(b) the likelihood that a refusal to enforce the term will further that policy(c) the seriousness of any misconduct involved and the extent to which it was deliberate, and(d) the directness of the connection between that misconduct and the term“Illegality”: although the process of contract formation is untainted, a contract may still be unenforceable because the contract itself either violates or runs directly contrary to some public policy [the term “illegality” is a misnomer because in many situations the contract itself is not illegal] Generally illegal contracts:Gambling or wagering contractsLending contracts that violate usury statutesContracts to perform services where the provider lacks a required license or permitIII. What are the Terms of the Contract?Principles of Interpretation – The process by which a court gives meaning to the contractual language when the parties attach material different meaning to the languageThree ViewsSubjectivist View: If parties materially different meanings to contractual language, no K was formedObjectivist View (Williston): Words should be interpreted in accordance with standard of a reasonable person familiar with the circumstancesModern Theory: (Corbin) Whose meaning controls the interpretation of the K? What did that party mean?Did one party know or have reason to know what the other party intended K to mean? If so the K is binding on those terms per mutually aware of understanding. R2K §201(2)If in the highly unusual circumstance that both parties attach different meanings, but neither party knew or had reason to know the meaning of the other, THEN there is no K. – Mutual Mistake. R2K § 20ONLY FOCUS ON THIS– NOT ENOUGH ROOM TO DISCUSS OUTDATED METHODSGeneral ApplicationAmbiguous term will be construed against the draftsmanInnocent Party- Courts must enforce a K according to an innocent parties meaningApplies when party A knows what the term means but B does not- it will be by the definition of what party B thinks it meansJoyner v. Adams (parties disagree what “completed development” of subdivisions mean- not clear if D knew in this case remanded to find out)Custom can show that parties intended for a contract term to have particular meaning UCC 2-208 “course of performance” – how the parties have interpreted the term during the life of the present contract“course of dealing” – how the parties have interpreted the same term in prior contracts between themAsk- Does the history of dealing between the parties shed light on their interpretation of the disputed term?“trade usage” – how the term has been interpreted within a particular industry (Frigaliment v. B.N.S.)UCC-1-303(c): Any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed w/ respect to the transaction in question.Note- Will be implied in the K if they are so prevalent that the parties would have intended to incorporate them (Nanakuli v. Shell)Reasonable Expectation Doctrine – Consumers who enter into adhesion Ks are not bound to unknown terms which are beyond the range of reasonable expectation and which eliminate the dominant purpose of the transaction thru bizarre or oppressive terms.C & J Fertilizer, Inc. v. Allied Mutual Insurance Co. (burglary policy in insurance K did not cover the specific type of burglary- this violated P’s reasonable expectation)Terms Omitted from the ContractThe courts may supply a reasonable term in a situation where the contract is silent – ex: good faith;Walker v. Keith (rent case- super vague how rent would be determined and the court did no enforce the K- if they would have given specifics then the court may have determined the price)Ambiguous TermsTwo Kinds of AmbiguityPatent, or intrinsic (within the writing)Latent, or extrinsic (ambiguity derived not from words alone but from circumstances)Judge determines whether or not a term is ambiguous or unambiguous based upon three possible approaches:“four corners” rule – very strict- no evidence allowed outside of the contract“plain meaning” rule – when determining whether a term is ambiguous the court will hear evidence about the “context” or circumstances surrounding the agreement, but will not hear evidence about parties’ preliminary negotiations.“liberal” rule – evidence of prior negotiations permissible in determining whether a term is ambiguousWeakens the parol evidence rule – if a litigant can use the parties pre-contract statements to prove that “the contract doesn’t mean what it seems to mean”Interpretation of Ambiguous TermsConstrued against the drafter (contra proferentum)All terms will be interpreted, where possible, so they have reasonable, lawful and effective meaning. R2K §203(a)“Primary Purpose” rule – if primary purpose can be ascertained, that purpose is given great weight in determining the meaning of ambiguous terms. R2K §202(1)Unambiguous TermsIf the judge deems a term unambiguous then he will determine its meaning and dictate the term’s meaning to the jury.Maxims for Contract InterpretationWhen meaning of language is in doubt a court should choose an interpretation of that is reasonable and in accord w/ public policyNoscitur a socciis—A word is affected by its immediate context.Ejusdem generis—A general term joined with a specific one will be deemed to include only things that are like the specific one. Ex., S contracts to sell B his farm together with the “cattle, hogs, and other animals.” This would probably not include S’s dog but would include his sheep.Exprssio unius exclusio alterius—If one or more specific items are listed, without any more general or inclusive terms, other items although similar in kind are excluded. Ex. S contracts to sell B his farm together with “the cattle and hogs on the farm.” This would exclude the sheep and S’s house dog.Ut magis valeat quam pereat—An interpretation that makes a contract valid is preferred to one that makes it invalid.Omnia praesumuntur contra proferentem— holds that contractual ambiguity should be resolved against the party who drafted the agreementInterpret contract as a whole—Terms should not be isolated from the whole contract. They should be interpreted together as a whole.Purpose of the Parties —This should prevail, but should be used with caution. If the purpose of the parties is obscure, the court will be forced to a plain meaning interpretation.Specific provision is exception to a general one—If two provisions of a contract are inconsistent with each other and if one is general enough to include the specific situation to which the other is confined, the specific provision will be deemed to qualify the more general one, that is, to state an exception to it.Handwritten or typed provisions control printed provisions.Public interest preferred in interpreting a contract.Parol Evidence Rule- Evidence, possibly consisting of oral evidence, letters of negotiation, memoranda and preliminary drafts of the document executed prior to the K. R2K §§209-218PER: “Integration” – Interpretations of the final expressionPartial Integration – When the document is not intended by the parties to include all details of the agreement but it is intended to be finalHow the Parol Evidence Rule Applies to Partial Integration:No evidence of prior agreements or negotiations (oral or written) may be admitted if this evidence would contradict a term of the writingUnintergraded party may be supplemented by such extrinsic evidence, that is it may explain an ambiguity or vaguenessComplete Integration - When the document is intended by the parties to include all the details of their agreementHow the Parol Evidence Rule Applies to Total Integration:No evidence of prior agreements or negotiations (oral or written) may be admitted which would either contradict or add to the writingKs of Adhesion cannot be total integrationThompson v. Libby (D refused to accept P’s logs because of breach of oral warranty- this evidence was inadmissible since it was made after K and it would contradict the K- Linzer: rigid ex. of PER)Merger clause: Most contracts contain a "merger" clause, i.e., a clause stating that the writing constitutes the sole agreement between the parties.The presence of such a clause makes it more likely that the court will find the writing to have been intended as a total integration (in which case not even consistent additional prior oral or written terms may be shown)U.C.C. Parol Evidence Rule: §2-202When a writing is a final expression of the parties’ agreement (an “integration”), it may not be contradicted- whether a total or partial integrationA final writing may, however, be “explained or supplemented” by:Evidence of course of dealing, trade usage, or course of performance, see interpretation, supra. Or by;Evidence of “consistent additional terms” when agreement is a partial integrationTrade Usage and Course of DealingTrade usage or course of dealing may be used to explain or supplement the express terms of a written contract.A trade usage will be binding on a person who is either a member of the trade or is a person who knows or should know of the trade usage.Nanakuli Paving v. Shell Oil (price protection- PER does not bar TU and CoD)CISG takes a modified objective approach to interpretationFocuses on what the parties knew or had reason to know abut each other’s intentPermits use of extrinsic evidence in arriving at that interpretation (consistent w/ R2K §201)Parol Evidence Rule does not cover:Subsequent Oral Agreement- the parol evidence rule does not bar admission of evidence of oral agreements made after the writing.That is, a written contract may always be modified after its execution, by an oral agreement."No oral modifications" clause: However, if the written document contains a "no oral modification" clause, that clause will usually be enforced by the court, unless the court finds that the defendant waived the benefits of that clause.Interpretation- The parol evidence rule does not bar admission of evidence about the meaning the parties intended to give to particular contract terms.The party who is construing a word in a narrow sense has the burden to establish meaningFigaliment v. BNS (what is chicken? - can use PER to determine the meaning of a word)Evidence to Show: § 214That a writing is or is not an integrationThat an integration is complete or partialProduct of illegality, fraud, duress, mistake, or lack of consideration R2K §214(d)However, a party cannot base a claim of fraud upon the very type of a representation that is disclaimed in writingSherrod v. Morrison-Knudsen- (had a merger clause- P argues that D fraudulent said 25k yards when it was not- PER banned because contradicted merger clause)that effectiveness of agreement was subject to oral condition precedent. - R2K §217This exception will not apply if there is a merger clauseEvidence introduced to establish a collateral agreement between the partiesTrade usage or course of dealing under the UCCCGood Faith- court must allow PER in determining whether there was a breach of good fiathSeidenberg v. Summit Bank (P gets hired by D after selling business but D never had intention to use them)Contemporaneous writing: If an ancillary writing is signed at the same time a formal document is signed, the ancillary document is treated as part of the writing, and will not be subject to the parol evidence rule.Where Parol Evidence Rule AppliesWhen parties try and use letters/ emails/ or other documents that were made before the final written agreement to prove that issues or terms have been discussed and that the parties intended to be bound to themThe parol evidence rule applies to oral agreements and discussions that occur prior to a signing of an integrationRoles of the Judge and JuryPreliminary determinations made by judge: Nearly all courts hold that the judge, not the jury, decides: (1) whether the writing was intended as an integration; (2) if so, whether the integration is "partial" or "total"; and (3) whether particular evidence would supplement the terms of a complete integration.Conflicting views: Courts disagree about how the judge should make these decisions.Four corners rule- judge decides whether there is an integration, and whether it is total or partial, by looking solely at the documentDanger here is that what appears plain and clear to one judge my not be so plain to anotherUninformed by context may not reflect the intent of the partiesArgues that the other method does exactly what the parol evidence rule is used to preventThis approach gives parties the inventive to negotiate written agreements carefully and it reduces the cost of litigationThompson v. LibbyCorbin View- questions are to be answered by looking at all available evidence, including testimony, to determine the actual intention of the parties.Can’t determine if parol evidence rule applies unless you determine the intent of the parties in an agreementYou can not contradict the meaning of the word till you know the meaning of the wordTaylor v. State Farm Mutual Automobile insurance (D did not settle a claim within P’s policy limit- Court adopts Corbin’s view)3. Current Status: It is not resolved but the recent trend is towards the restrictive view, however Linzer agrees w/ Corbin (of course he does)Policy Issues with Parol Evidence RuleArguments For:Preference for agreements in writing b/c memories are badRule is black and white and comforting in that what is in the agreement is settled and that is all that matters.It has its sister on plain meaning; reliance in words; final agreement governs.Arguments Against:Presupposes an integrated agreement.PER bars oral as well as written evidence, so the argument that memories are bad goes out the window b/c written agreements prior to the written agreement have nothing to do with memories.Words don’t have a settled meaning or don’t have just one meaning; so the final agreement should govern, but other stuff should be used to find out what that final agreement means.Supplementing the Agreement: Implied Terms and the Obligation of Good-FaithImplied in Fact- any term that the court finds to be implicit in the parties’ words or conduct even though not literally expressed by them in an implied termWood v. Lucy, Lady Duff- Gordon (K did not say anything about P doing anything but the court said that a promise to use reasonable efforts should be implied in the K given the circumstances of their deal- Cardozo said w/ out this implied term the K would have been pointless to make- use common sense)Implied in Law- any term that the court does not find in the parties’ agreement, even as broadly viewed, but that the court holds should be implied by lawMade a part of that agreement by operation of the rules of law rather than by the agreement of the parties themselvesGap Filling provisions of Article 2: What the parties would’ve agreed to if they had sat down and thought about it. (i.e. Wood v. Lucy and “reasonable time” provision.)As a matter of law will be implied in K for sale of goods unless otherwise agreed by the parties§§2-308 (place of deliver), 2-310 (time of payment), 2-509 (risk of loss), 2-513 (buyer’s right of inspection)Reasonable Notice- where reasonable notice of termination for a K is not given a cause of action may existReasonable notice does not relate to the method of giving notice, but to the circumstances under which the notice is given and the extent of advanced warning of termination that the notification givesCircumstances may be parties’ present or prior agreements and by industry standardsWhere there is a relationship of manufacturer-supplier and dealer-distributor, reasonable notice of intent to terminate an ongoing verbal agreement is required under the UCC § 2-309Reasons: Distributor’s need to sell of its reaming inventory, recoup reasonable initial or continuing investments, close out product lines and minimize lossesLeibel v. Raynor (D cancels distributorship w/ P- reasonable notice of termination was needed for reasons listed above)A reasonable duration will be implied in franchise agreements where a dealer has made substantial investments in reliance or agreementDefault Rules: Useful rules b/c custom rules take time and are expensive. Not just “gap-fillers”, they are there so lawyers can use them; they are “off-the-peg” contract terms. (“C Drive”)Implied Obligation of Good FaithDuty of Good Faith or Fair Dealing: One of the most important implied terms; thought not to be a default rule. Every K has a duty of good faith and fair dealing.A court must allow parol evidence in determining whether a breach of the covenant of good faith has occurred (Seidenberg v. Summit Bank- P sells D business and is hired by D- D never intended to use them)R2K §205 :Every contract imposes upon each party a duty of good faith and fair fealing in its performance and its enforcement.UCC §1-201(b)(20) good faith means “honesty in fact and the observance of reasonable commercial standards of fair dealings”A claim under the implied warranty of good faith and fair dealing is not negated merely because the claimant had equal bargaining power, had engaged counsel, or was not financially vulnerable when negotiating the agreement. (Seidenberg- both parties were sharp businessmen- not a bar for recovery)These are factors which the trier of fact may consider in weighing the sufficiency of plaintiffs’ claim but they are not the only factors.Bad faith must be distinguished from sharp commercial practice and this is best left up to the judge and juryDiscretionary Power- when a K confers one party a discretionary power affecting the rights of the other party an implied covenant of good faith requires to exercise that discretion in good faith in accordance w/ fair dealingsLocke v. Warner Bros, Inc. (Eastwood gets P hired w/ D in a settlement- D had no intentions to use her as a director)Satisfaction and Good FaithReasonable person standard is employed when the K involves commercial quality, operative fitness or mechanical utility. The standard of good faith is employed when the K involves personal aesthetics or fancyR2K §228 states if practicable….satisfaction occurs when a reasonable person in the position of the obligor would be satisfiedMorin Building v. Baystone Construction (D hired P to erect aluminum walls- D did not like the way they looked - D’s rejection was unreasonable)Generally a clause that says to the absolute satisfaction of owner will not be applied because of the unlimited power it will grant the obligorIf it is a third party determining satisfaction it might be applicable since they do not have a selfish interest in the matterSubjective standard of honest satisfactionLook for a conditionAt-Will Employment: You can be fired at any time (no protection), but you can also leave at any time.There is no implied duty of good faith and fair dealing with respect to employment at-will contracts, except where the termination threatens clear public policyDonahue v. FedEx (P whistleblower is fired by D- P was under no legal obligation to whistle blow- the matter dealt w/ employee handbook)When good faith may be breachedDeprivation of compensation that appeared to have already been earned before terminationMay apply w/ regard to the manner in which an at will employee is terminatedA promised evaluation must have good faithGoes against public policyCan’t fire if you whistle blow on something you are obligated to report or if you fail to commit a crimePromissory estoppel may prevent at will terminationRequirement/ Output K- UCC § 2-306(1)Must meet test of fairness and good faithNo quantity unreasonable disproportionate to any stated estimate or absence of a stated estimate, to any normal or otherwise comparable prior output or requirementsModificationConsideration- Courts generally require that a modification be supported by new consideration on both sides- even if it is nominalPre-Existing Duty- Merely promising to perform an existing obligation will not serve as valid consideration for additional return compensation from the other partyNew consideration for a modification serves as a safe guard against coercive behaviorFisherman should have said the nets are defective therefore they are entitled to an increase- this would meet the consideration elementAlaska Packers v. Domenico (Fisherman were to be paid $50 for season during fishing season they demanded $100- D agreed but at the end of the season paid them $50- court says this was ok because the fisherman were doing what they were already obligated to do- can’t modify w/ out consideration)Statute of FraudsSoF will not bar an oral contract modification where one party reasonably relied upon the modification and where the oral agreement did not materially alter the terms of the original agreement.Brookside Farms v. Mama Rizzo (P relied on D to change a no oral modification clause)UCC 2-209 says for oral modification clauses to be enforceable they must be changed in writingExceptionsUCC § 2-209 says a modification needs no consideration to be binding (must be in writing though)Duress- Modifications will be voidable if they are made under duress.Usually the party who does not want the modification has to make clear that they are doing so under protest- tries to eliminate secret intentionsKelsey Hayes v. Galtaco Redlaw (D tires to charge a higher price for brake part- P had no choice but to accept the charge or it would hurt their relationship w/ Ford and Chrysler- court says modification unenforceable because of duress)Bad Faith- modifications will be voidable if they were done in bad faithNotice- You should try to give notice that you are protesting but it is a thin lineIf you accept the deal but say that you are protesting and may sue then the other party will not make the deal with you and the harm can comeWaiver- consideration is generally required for a waiver of a conditionWarranties- basically a guarantee, not based on the law of negligenceExpress Warranties-An express warranty for an item will exist where a (1) seller makes an affirmation of fact or promise to the buyer which (2) becomes part of the basis of the bargain. Also a description must conform to actual item.It is a guarantee if it does not meet the guarantee, no matter what, the P can recover. (Ex. Say a car that can go 50 mph, it is the fastest car in the world but it cannot go 50mph, even if it can go 49.9 mph it breached the warranty)UCC § 2-313 creates express warrantiesCan be provided in several ways:Making a representation about the goods, giving a description, or displaying a sample or modelBayliner Marine Corp v. Crow (brochure was not an express warrant because the model in the brochure was different than the one purchased)Mere opinions or puffery do not constitute express warranties.No reliance on a such statements need to be shown to weave them into the fabric of the agreementDisclaimers of warrantiesUCC § 2-316 a disclaimer of an express warranty is inoperative if the disclaimer cannot be construed as consistent w/ terms in the K that would create the express warrantyPER may be usedImplied Warranties- not based on actual agreement of the parties but were instead imposed by law on the sellerImplied Warranty of Merchantability (UCC § 2-314) - impliedly warrants to the buyer that the goods are of good quality and are fit for the ordinary purposes for which they are usedThree Part Test:Pass without objection in the trade or,Are fit for the ordinary purposes of which such goods are used andBayliner (boat meets this)Seller was a merchantImplied Warranty of Fitness for a Particular Purpose (UCC § 2-315 )- created when buyer relies on the seller’s skill or judgment to select suitable goods and the seller has reason to know of the relianceBreach of this warranty does not require a showing that the goods are defective- merely it means they are not meant for their particular purpose (must not be one other than the ordinary use of the goods)Ex. of Linzer buying a pro skateboard- seller did not sell for particular purposeBayliner (did not breach this warranty because it could be used as a fishing boat- seller had no reason to know of buyers expectation of 30mph for fishing distance)Not limited to merchantsImplied Warranty of Habitability in Residential Leases- generally a landlord must:Follow house codes, make all repairs necessary; keep it safe and clean; good working electrical, plumbing, sanitary, heat; clean up garbage, rubbish and ashes; supply running water and reasonable heatImplied Warranties of Quality in New Home Sales- majority has recognized thisWarranty imposes a contractual liability to build new homes with skillful performance and mon law rule of Caveat Emptor (buyer beware) may not be invoked in the context of new home construction.Some states have enacted legislation for thisCourts are divided if it applies to commercial propertiesBuilder-Vendor holds themselves out expressly or impliedly as having the expertise necessary to construct a livable dwellingCaceci v. DiCanio Construction (D build P a new home on terrible foundation and floor started caving in- breached warranty)This can be disclaimed or modified but it must be clear, unambiguous and reflect both parties intentionDisclaimers of Implied WarrantiesUCC § 216(2)-(3) for a merchant to disclaim a warranty is must be conspicuousIV. Was the K Performed?Conditions- A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a K becomes due R2K § 224Basics of ConditionsThe parties agree that a particular promised performance or set of performances will not become due until and unless a particular uncertain event occursGenerally it makes no difference if a condition is express, implied or construedParty can waive a condition that is for their benefit onlyIf discretion/satisfaction is involved, the obligee must use reason, best efforts and honesty Express Conditions- language of the K, on its face, articulates the intent to make performance content on the event- Ex. “on condition that”, “provided that”, “if”Strict Enforcement- condition must be fulfilled exactly as stated and cannot be satisfied by substantial complianceSubstantial performance is not available to excuse the failure to perform an express condition precedent as required by contract.Freedom of K- parties clearly chose the language so court should enforce itOppenhimer v. Oppehniem (express condition to have sublease signed- this was not met and the K was not enforced- also no substantial perfomance)Look at satisfaction, supra, if the promisee hinges on satsifactionImplied (in fact) Conditions- contextual evidence may support the inference that the parties intended a performance to be conditionalInterpret the words used by the parties in light of the circumstances surrounding their KNo legal difference between express and implied conditionHowever, courts may be more flexible in enforcement since it was not expressly made however strict enforcement is generally needed (tries to avoid harsh results- court has more leeway)Constructive Conditions- no evidence that the parties actually agreed to the conditionCourt will imply it as a matter of law if the circumstances and nature of the K compel the conclusion that if the parties had addressed the issue they reasonably would have intended the condition to be a part of the KFlexible Enforcement- standard of strict compliance does not apply because the parties have not clearly indicated, by express language, that they intended the condition to be strictly enforcedDoctrine of Substantial Compliance- may be invokedIf action would be a serious violation of the K then rescission will be allowed but if it is trivial the court will not permit rescissionPerformance of ConditionOne Party Performance- If a condition intended to relate only to the performance of one of the parties, that party can choose to performance despite the nonoccurrence and may fully enforce the K against the otherCondition Relates to the Whole- a nonoccurrence discharges the rights of both parties to demand performance and neither can unilaterally waive itPure Conditions and Promissory ConditionsPromissory Condition- a term that is not only a condition but is both a condition and a promise that the condition will occurNonfulfillment of a promissory condition has the combined effect of entitling the other party both to withhold performance and seek a remedy for breachPure Condition- is intended when a party has no power to influence the happening of the eventDifference between the two:Pure condition the performance obligation falls away and there is no basis for claiming breach if condition is not metPromissory condition- if not fulfilled the party whose performance was contingent on it is entitled both to withhold counter performance and to seek a remedy for breachTime Sequence:When a K provides for counter-performance in exchange for each other and the K does not prescribe a sequences of performances the general presumption is that if the performances are capable of being rendered simultaneously they are due at the same timeForfeiture- general principle under which the court may exercise its discretion to decline full enforcement of one party’s legal rights where doing so would have disproportionately harsh impact on the other party- doctrine is used sparinglyInequitable conduct of the beneficiary of the condition may preclude his assertion of the nonfulfillment or the impact of the condition may be so harsh that is enforcement is unjustCondition maybe excused if there is bad faith or any wrongful action buy a partyMost useful w/ express conditions and unambiguous conditions (not really needed if court could be flexible) R2K § 229JNA Realty v. Cross Bay Chelsea (D was not aware of six-month notice provision for lease. D made substantial improvements to the property and P would suffer no prejudice if the notice was waived- court says for equity this was a mistake it D would suffer a forfeiture if enforced)TermsObligor- party whose performance is conditioned- the one whose performance obligation is at issueObligee- the one to whom the performance obligation is owed and the one who is presumably attempting to enforce itBreach of a K- failing for whatever reason, to honor a promise of performance when that performance falls due R2K § 235(2)Four Questions to Establish a Breach of KDetermine existence and content of the contractual terms to ascertain the exact nature and extend of the promise that was made (use interpretation)Establish the date that the promised performance fell due (breach of K or improper performance cannot occur until the time arises for the party’s duty to render)Decide if the performance complied w/ the promise- any shortfall is a breachDecide severity of the breach- total? Partial? Material?Summary of Actions for PromiseeTotal breach: Promisee may- withhold performance, terminate the K, claim full damages for breachBreach is Material/ not total- Promisee may- suspend performance, await cure, claim compensation for any loss sufferedNot material/Substantial performance- Promisee may- claim compensation for any loss sufferedMaterial Breach- breach is material if the failure or deficiency in performance is so central to the K that it substantially impairs its value and deeply disappoints the reasonable expectations of the promiseNo fix standard have to look at context of contractual language and nonperformanceMaterial if it so badly defeats the promisee’s expectations that they are entitled to terminate the K and sue for relief for lossTotal Breach- R2K § 242A breach of a K that is both material and incurable entitling the victim to rescind the K and claim full expectation reliefTotal breach relieves the nonbreaching party from the duties under the K and can recover damages for non performance and future damagesPartial- trivial breachA party has substantially performed, the deficiency in performance is a partial breachNot a material breach because yet because there is still time to cure (deficiency may be rectified)- it may be serious enough to give right of termination but not just yetIf not cured it becomes a total breachThe measure of damages for a trivial and innocent omission is not the cost of replacement but the difference in valueJacob & Young v. Kent (different type of pipe- cost a lot to change out the pipe so P got the difference in value between the pipes- which was nothing)Curable material breach is treated as partial because promisor can prevent total breachCuring must be within a reasonable amount of timePromisee cannot immediately sue for damages for breach or terminate the K BUT they may be able to suspend performance until the condition is curedW/ sale of goods this falls under UCC 2-508Substantial Performance- nevertheless a breach (partial), however it is a non material breach- R2K § 237 (does not apply to sale of goods, see Perfect Tender)A party who substantially performs is entitled to return performance under the K- subject to an offset for damages caused by the partial breachGives no basis of terminationOther party is not entitled to withhold any return performance that is due but has the right to claim damage for the breachUsually the amount of damages is cost to place the promisee in the position he would have been in had the performance been in compliance w/ the KHowever, if no difference in value the promisee will not recoverWillful transgressor will not be entitled to recover under the substantial performance doctrineAnticipatory Repudiation- occurs when a party breaches in advance of performanceRepudiate obligation in anticipation by clear words or actions that they will breach when performance falls dueCodified by UCC §§ 2-609 - 612Must be a clear, unequivocal and voluntary repudiation by one of the parties and provided that the threatened action or failure to act would be a material and total breachTruman Flatt Sons v. Schupf (the P’s letter to the D seeking to modify the price term in the contract was not a clear and unequivocal repudiation. P’s offer and found that it did not amount to repudiation because the offer did not clearly threaten nonperformance)Repudiation of a contract is justified only where the breaching party’s breach constituted a total or material breach, not merely a partial breach.Sackett v. Spindler (Defendant was justified in repudiating because the Plaintiff’s behavior gave rise to uncertainty that he would fulfill his obligations and the evidence was sufficient to infer that the Plaintiff never intended to remit the payment as required by the contract)Promisee’s Response- when one of the parties clearly repudiates a material promise in advance, the other may treat this as a breach immediately and seek relief of breach w/ out delayTwo Responses Possible for PromiseeAccept (don’t say this on exam) repudiation by treating it as immediate breachEntitles them to refuse to render her own performance, terminate the K and to sue for relief for total breachRisk is that the other party may argue they did not repudiate and then the promisee may be sued for breachDelay response- they may even take affirmative steps to encourage reaction of the repudiation by notifying the promisor that he has specified time to recantPromisor’s ResponsePromisor has the ability to retract a repudiation because by definition it is a prospective breach that occurs before the due dateRecant is not absolute- promisor’s ability to recant is lost as soon as the promisee notifies the promisor that the repudiation has been accepted- cannot take it back once action has been taken on itAdequate Assurance § 2-609 - may occur when one party has reasonable grounds for insecurity can demand adequate assurance of due performance from the other partyFailure to give such assurance constitutes an anticipatory repudiation of the K (this would turn the table and you have to be careful)Similar concept in R2K § 251Hornell Brewing Co. v. Spry (beverage supplier K gone awry- P had more than enough reason to demand assurance- Spry was a sham)Grounds for insecurity may be:Buyer’s growing debt, failure to respond, failure to discuss debt, failure to perform important obligations, failure to deal w/ defects, deliveries are lateSometimes it may not have to do w/ the parties action- market conditions may provide reasonable ground for insecurityEven rumors may be grounds- the other side would have to show that the rumors would be false (if unreliable they are not grounds- fact for jury)Adequate assuranceMay range from a mere verbal guarantee to the posting of a bondDemanding party must wait a reasonable time not to exceed 30 daysPerfect Tender Rule UCC § 2-601- the slightest mistake makes it not a perfect tenderIf the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may(a) reject the whole; (mitigated by right to cure under § 2-508) or(b) accept the whole; or(c) accept any commercial unit or units and reject the rest.Inspection and rejection must be in a reasonable time frameInstallment K’s do not fall under Perfect Tender RuleAllows buyer to reject any installment that has a nonconformity that substantially impairs its value and cannot be curedIf cure is possible and permissible, the buyer may not reject the installment if the seller gives adequate assurance of the cureSee: UCC § 2-612Revocation of Acceptance in Whole or in Part- § 2-608(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it(a) on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or(b) without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.(2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.V. Is there an Excuse or Reason for Non-Performance?Mistake – a belief that is not in accord w/ the facts- justification for non performanceMutual mistake – both parties have the same mistaken beliefThree requirements for avoidance- case by case basis given the circumstancesBasic assumption – mistake must concern a basic assumption on which the contract was made (what you think you are getting out of the K)Material effect – must have a material effect on the agreed exchange of performanceRisk – the adversely affected party (the one seeking to avoid the contract) must not be the one on whom the contract has implicitly imposed the risk of the mistake.Lenawee County Board of Health v. Messerly (P buys home as is and failed to do a thorough inspection- property had defective sewage- P could not rescind the K)Unilateral mistake – only one party has the mistaken beliefFor avoidanceMust show all three above, plusUnconscionability, ORReason to know – the other party had a reason to know of the mistakeR2K § 153- permits avoidance of a K for mistake of one party whenThe mistake be such that enforcement of the K would be unconscionableSevere hardship of substantial lossWil-Fred v. Metro Sanitary (P a contractor tried to rescind deal once a error in subcontractors math was discovered- enforcement of the K would have ruined subcontractor- court said it would be unconscionable due to substantial hardship to enforce the K- All D would have lost was what they should not have received in the first place- math mistake)The other party either have reason to know of or be responsible for causing the mistakeImpossibility- Impracticability- Frustration of Purpose – justification for non performanceCourt’s Option- Only two choices in reality if one of these is met- either make the party perform or relieve them from performanceMinority View - you may be able to reform the K (Alcoa decision is one of the few to do this)Impossibility: It is impossible to complete my side of the bargain (objective and subjective impossibility)Three main typesDestruction of the subject matter (essential to the performance of the contract)Failure of the agreed upon means of performanceDeath or incapacity of a partyR2K §263: Destruction, Deterioration or Failure to Come into Existence of a Thing necessary for Performance.R2K §262: Death of Incapacity of Person Necessary for Performance.Valid Defense- defense not only when performance is impossible but also when supervening circumstances make performance impossibleTaylor v. Caldwell (K to use a music hall but the music hall burnt down- w/ out fault- impossible to perform the k)Impracticability- R2K §261 – Even though performance clearly is not literally impossible {not even subjectively} it was sufficiently different from what the parties had both contemplated at the time of contracting Usually seller’s remedyNo Impracticability when:Market shifts, increased cost, natural disaster or war are usually not grounds for relief261 comment d- impracticably is more than a mere change in degree of difficulty due to increased wages, prices or cost, etc…. well beyond the normal range (fixed price is intended to cover these things)Karl Wendt Farm v. International Harvester (market conditions and shit in economic was not a basic assumption for which a superseding event could lead D to breach the K)Disadvantaged Party Must Show (can apply to frustration)Substantial reduction of the value of the KNonoccurrence was a basic assumption of the KWithout the parties faultParty seeking relief does not bear the risk of that occurrence of the event either under the language or surrounding circumstances of the KFrustration of Purpose (§§ 265-66) It is not impossible to complete my side of the bargain, but the purpose for which I needed it has lost all value to me, the purpose has been frustrated.Case law actually applying the doctrine is sparse§ 265 Requires three factors:Purpose frustrated by the supervening event must have been the principal purpose the party making the KFrustration must be so severe that it is not fairly to regarded as within the risk assumed under the KFrustration must have been a basic assumptionDistinguish from impossibilityNot claiming that you Can’t perform, but claiming that it makes no sense for you to perform, bc what you will get in return does not have the value you expected at the time you entered into the contractVI. What are the Consequences for Non-Performance?Basics of RemediesThree Protected Interests (R2K § 344)ExpectationTo put the promisee in as good a position as he would have been in had the contract been performed. Benefit of the bargain to the injured party’s reasonable expectation.Sometimes this involves specific performance, but this is not typical. Specific performance not very efficient for the courts and is usually only ordered in cases where compensation is “inadequate,” such as in land sales, since each parcel of land in considered unique and therefore not susceptible to substitution.This is the favored remedy.Williston thinks you should get expectation damages even if the basis of the bargain is PE. Think Johnny and the Car. Williston thinks you should get $1,000 for the car even if you pad $500 on the car.RelianceTo put the promisee in as good a position as he would have been in had the contract never been made; reimburses the party for loss caused by reliance on the contract.Example: Building a barn to house animals you were contracted to buy.Hard to prove reliance, that is why expectation damages are preferred- FullerRestitutionTo protect the promisee’s interest in having restored to him any benefit he has conferred upon the other party.Disgorgement may be a way to get the promisee his benefit backExample: A down payment.Efficient Breach- Linzer does not think this is a good thing “fairness and justice are more important”Efficient breach hypothesis: A promisor will exercise an “option” to breach and pay expectation damages instead of performing when it is in her economic interest to do so.Efficient breach is one reason for contracts to avoid punitive damages. “Hard bargaining, ‘efficient’ breaches, and reasonable settlements of good faith disputes are all acceptable, even desirable, in our economic system.Based on a notion that there is nothing immoral about breaching a K, but Lizer thinks this is not necessarily soLook for impracticability, impossibility or frustration of purpose- this may be a better way out of the K for the breaching partyIf a court is against efficient breach one tool they have is to compel specific performance on the breaching party so that they perform their contractual duty. Linzer agrees w/ this and thinks money damages are a diluted substituteIF there is a breach, the non breaching property may have a property right in whatever the breaching party earns from breaching the KHandicapped Children’s Board v. Lukaszewski (D left job for a better once, has to pay full compensation of loss of the benefit Linzer thinks this is the only good efficient breach in the book)Farnsworth Formula (also R2K § 37)- Damages = P’s Loss in value + other loss – cost avoided – loss avoidedLoss in value- the Contract Price: the difference between the value to the injured party of the performance that should have been received and the value to that party of what, if anything, actually was received. Basically, K price minus amount received Other lossIncidental: additional costs incurred after the breach in a reasonable attempt to avoid loss, even if attempt is unsuccessfulMay includes such expenses as the transaction cost of taking action to mitigate the effects of the breach and/or entering into a substitute transactionConsequential: harm to property, business, person in other transactions that were dependent on this K or any other type of loss or injury caused by breach Cost avoided- what you would have paid out either for the contract, or for supplies to make a product, if employees are under contract they are not cost avoided- still have to pay them, etc.Loss avoided- Money you get from selling to someone else, ex. $30,000 of goods but only worth $15,000 resell your loss avoided would be $15,000Linzer uses the term salvageAlways have to mitigate this!Note- this works extremely well in construction K’s and most types of KExpectation Damages- goal of remedy is to cure that disappointment of breach by giving the victim of the breach exactly what was promised and justifiably expected under the K- get the benefit of their bargainBasics of Expectation Damages:Does not take in to account any non economic injuriesSpecific Performance- most obvious way the court could give P his benefit of the bargainGenerally not used. Only if award of damages would be inadequate. At discretion of judge. General exception only made for land (unique). Sometimes used in cases of gross unfairness.UCC 2-716 and Specific Performance:(1) Specific performance may be decreed where the goods are unique or in other proper circumstances.(2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just.(3) The buyer has a right to replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing…Note: Specific performance easier under the UCC than the common lawExpectation Relief- a monetary award will approximate the resultSometimes it will be impossible to find a substitute transaction in which case courts may award damages in full consideration of the bargained for exchangeEx. P and D agree for voice lessons for $1,500. D breaches and P has to get lesson or $1,800- her damages would be $300 in this caseCrabby’s v. Hamilton (P and D enter in to K for land/restaurant- measure of damages is difference between K price and FMV price when sale should have been completed)UCC Buyer’s Remedies: 4 options (see UCC 2-711):Cover (UCC 2-712): codifies this by expressing the buyer’s damages as the difference between the cover (repurchase) price and the K price. Basically cover your tail by rebuying something similar.Requirements:Good faithWithout unreasonable delayReasonable purchaseSubstitutionDamages = cost of cover – contract price + incidental and consequential damages under 2-715 – expenses saved in consequence of breachComment 2: Immaterial that the method of cover was not the cheapest or most effective. Just has to be ment 3: No requirement of covering. Can use 2-713 instead..Damages Based on Market Value (UCC 2-713):If the market price is lower than Contract Price: Seller entitled to difference between Contract price and Market PriceIf the market price is higher than Contract price the Buyer is entitled to Contract Price – Market PriceComment 5: If you cover, cannot use 2-713.Damages for accepted (defective) goods (UCC 2-714):Requirements:AcceptanceNotification under 2-607Damages = difference in value of goods at the time and place of acceptance and goods as warranted + incidental and consequential damages under 2-715Specific performance (UCC 2-716)Note- Generally Buyer can always recover incidental and consequential damages on top of these four aboveUCC Seller’s RemediesResale (UCC 2-706): damages is the diff b/t the K price and the lower resale price. Requirements:Good faithCommercially reasonable mannerNotification under the rest of 2-706Damages = K price – resell price + incidental damages under 2-710 – expenses saved in consequence of breachMarket Damages (UCC 2-708(1)):Damages = market price and time and place of tender – unpaid contract price + incidental damages under 2-710 – expenses saved in consequence of breachLost-volume sellers (UCC 2-708(2)):Lost volume seller: Getting second sale does not make them whole. You have to be able to make the extra sale and that sale has to be profitable. Not lost volume if you only have one of that particular product. Would you have made both sales? Has to be part of your regular inventory. Have to prove someone would have bought that exact product.Damages = profit (including reasonable overhead) + incidental damages under 2-710 + costs reasonably incurred – credit for resale708(2) also available if you stop building a customized item and can’t resell. K price- cost of productionAction for the price (UCC 2-709):If buyer has accepted the goods, seller can recover the price (1)(a)Recover price if goods are lost or damaged after the risk of their loss has passed to the buyer (1)(b)Goods identified to the contract that the seller is unable to resell after a reasonable effort or circumstanced indicating that such effort will be unavailing. Basically force the goods on to the buyer.Note- can generally cover consequential and incidental damages on top of any other damage aboveConstruction Contracts: Expectation = Profit + Unreimbursed expenditures For the Sale of Land:Sellers: Contract Price – Market ValueBuyers: Contract Price – Difference in Market ValuesIncidental and Consequential Damages may be permitted, but must:Be reasonably foreseeableSpeculative damages are prohibited (damages must be proven with reasonable certaintyLimitations on Expectation Damages- Foreseeability, Mitigation and Certainty Foreseeability- Breach must be cause in fact and the damages must be foreseeable Damages can not be speculative. Two types, direct damages (arising directly from not getting what you bargained for form the K) and consequential damages (supra)Two part test:Damages arose naturally, i.e., according to the usual course of things, from the breach of contract itself; orDamages may be reasonably supposed to have been in contemplation of the parties, at the time they made the contract, as the probable result of the breach of it.Hadley v. Baxendale (Mill owners not allowed to recover lost profits when slow shipment of a mill part forced them to shut down operations for longer than anticipated. The owners had not communicated the particular circumstances to the shipper, so the shipper had no reason to expect to be liable for lost profits)UCC § 2-715(b) states damages in the terms of foreseeability of the loss at the time of the K not time of the breachOnly matters if it is foreseeable; does not matter in which the loss occursFocus on foreseeability of breaching partyObjective approachForeseeable as a probable breach of the KLost profits are recoverable so long as they are:foreseeable when the contract was made; they directly or proximately result from the breach and they are capable of accurate estimation.Florafax v. GTE Market (breach of telecommunication K- loses profits from breach)Mitigate- The injured party has a duty to mitigate damages. Failure to mitigate does not preclude recovery, but it does reduce damages by the amount that could have reasonably been avoided. R2K § 350(b)Avoidable Consequences- P may not recover for those injurious consequences of the defendant’s breach that the P could by reasonable action have avoidedRockingham County v. Luten Bridge (Bridge builder was told not to continue construction due to public opposition, and continued to build until completion. Builder was denied extra damages resulting from the continuation of construction.)Employer’s Breach | Comparable Work - Generally only a need to mitigate w/ alternative work that is comparable to the position lost, you do not have to get job if not comparable If another position is taken that is not comparable the income will still offset w/ expected income- courts are split on this but Linzer thinks that you should not have to offset if the job is not comparable If there is a question of humiliation or security then you may not have to retake your job if offered back to youManess v. Colins (Employment K breached- failure to mitigate did not bar the P because there were no comparable jobs available)Ex. Party A offers job for 100k a year to B but then breaches. B mitigates and accepts job for 50k a year. The expectation damage would be 50k.However, if B does not mitigate and 50k was a reasonable offer and therefore he should have taken it, what else he does would be the difference of the 50kEmployee’s Breach – When the employee breaches, the employer may recover whatever it costs to replace the employee. However, if employer has to pay extra for the substitute, breaching employee must pay if the substitution was reasonable. (Much like cover in sales of goods.)Hire A for 50k a year, he reneges so you have to hire B for 70k a year- A will have to pay 20kA prohibitory injunction may be placed on A if the situation calls for itEmployer may be able to sue for direct damages and consequential damagesLost Volume- The duty to mitigate damages does not apply to lost volume sellers. UCC § 2-708Basically when a P could have done another job at the same time they can still recover from the DTo be a lost volume seller, P must prove:That its possessed the capacity to make an additional saleThat it would be been profitable for it to make an additional saleThat it probably would have made the additional sale regardless of buyer’s breachPolicy Linzer thinks this screws independent workers who can only do one job at a timeJetz Service v. Salina Properties (laundry case- they had sufficient resources to make sells after the breach)UCC:Under UCC 2-704(2) a manufacturer may proceed to completion upon the buyer’s repudiation instead of salvaging, as long as it is “in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization. Seller may then base recovery on the goods as completed.UCC gives buyers and sellers the option to arrange a substitute transaction (2-706, 2-712) or to do nothing and accept market damages (2-708, 2-713). If the injured party fails to take affirmative action and find a substitute transaction, the damages are based on the difference between the contract price and the market price at which it could have arranged a hypothetical substitute transaction.Avoidance only relates to consequential damages (see UCC 2-715(2)).Cannot recover for lost profits of refusing to cover. Consequential damages have to be foreseeable and not avoidable.Damages must be proved with reasonable certainty, though not with mathematical certainty.Problematic in showing damages to reputation, etc.Lost profits can generally be recovered as long as you can prove with certainty. This is harder for new businesses.Reliance Damages- In the event of a breach of contract, damages for expenses incurred in reliance on the contract are recoverable, less any loss that would have resulted if the contract had been performed. R2K § 349Even if expectation damages would in theory be recoverable they may not be probable w/ reasonable certaintyIn this case the P fallback provision will usually be to seek recovery for reliance damagesGenerally reliance damages are thought of as out of pocket expensesHowever this may extend to gains the P would have had he they not relied on the promises by the D (think quitting a job because of reliance) Wartzman v. Hightower Productions (Woody Hightower case- anticipated profits were speculative so they got reliance damages)Essential Reliance: You can not get more than what you would for expectation damages- basically if the cost of completing the K is more than the K price you lose. Ex. K for 100k, it is breached and you had spent 130k to perform the K. You can only recover the 100k in expectation damages and not the 130k in reliance.P cannot escape the consequences of a bad bargain by falling back on reliance interestIncidental Reliance: Part of the process, but not part of the process of completing the KEx. Sell store for 20k and buy 100k worth of stock. K is breached and you have to sell the stock for 50k. You will be able to recover 50k.Linzer- you could probably call this consequential damagesLimitations- foreseeability, mitigation and certainty, with a few additions:If it can be shown that the full performance would have resulted in a net loss- no recoveryEqual opportunity exception if both P and D had an opportunity to mitigatePay may be able to recover if he did not mitigate in this situationCertainty – π can only recover reliance damages that can be proved and calculated to a reasonable certainty § 349Causation – π can only recover reliance damages when he can show that the damages are incurred as a result of the breachMitigation – π cannot recover reliance damages that would have been reasonably avoidedLook! Important- Parties cannot recover for reliance costs incurred before the K was madePromissory Estoppel and Reliance Damages- as the use of PE has become more widespread some question whether expectation damages are just since originally. Courts are splitView 1- Expectation damages and lost profits should usually be denied in PE and reliance damages are preferredWalzer v. Toyota (P thought he was approved of dealership, only got out of pocket expenses)View 2 – majority is that remedies for PE should be flexibleRemedies may include- expectation, reliance, or restitution Specific performance- usually land KRestitution Damages- R2K §§ 373-77, allows a nonbreaching party to elect recovery of restitutionary rather than expectation damages for breach of the K (benefit conferred on the other party by part performance)If performance obligations have been discharged- either or both parties may be entitled to restitutionary relief§§ 375- SOF, 376- K is voidable (mistake, capacity, undue influence, etc..), 377 (impract., imposs., FofP)However, courts are hesitant to do this. Look at the facts and make a reasonable argument.When a P elects restitution as a remedy for breach of K by the DMeasure of recovery is the reasonable value of the performanceRecovery is undiminished by any loss which would have been incurred by complete performanceFollowed by a majority of the courtsA subcontractor may recover in quantum meruit for the value of labor and equipment furnished, regardless of whether he would be entitled to recover for suit on the contractThe measure of recovery from quantum meruit is the reasonable value of performance, which is determined by the amount for which such services could have been purchasedUS, Coastal Steel v. Algeron (sub justifiably breached a K due to lack of payment and recovered lost of labor and equipment furnished)Breaching Parties RemediesA breaching party is entitled to restitution in excess of the loss caused by the breach.Old rule prohibited a defaulting party on a K from recovering- R1K excluded defaulting purchaser from recoveringPolicy- Weakness was it failed to recognized that non breaching party should not obtain a windfall from the breachModern Rule- party who committed a beach should be entitled to recover “any benefit…in excess of the loss that he has caused by his own breach” – R2K § 374(1).Supported also in UCC § 2-718- right of restitution on behalf of breaching partyRecovery should be limited to the lesser of eithervalue of the benefit conferred orthe defendant’s increase in wealthDisgorgement- the act of giving up something (such as profits illegally obtained) on demand or by legal compulsion Restatement (Third) of RestitutionCourts may uses this to prevent unjust enrichment from a breach of K- usually only in bad faith breach or wanton and willful breach Maybe used w/ an opportunistic breach but the question is when is there an opportunistic breachStrong moral argument against efficient breachLimitationsIf nonbreaching party has fully performed obligation under the K and the breaching party’s only remaining duty of performance is the payment of moneyThe non breaching party may not elect a restitutionary recovery but is limited to expectation damagesNote 1- Most scholars think this is a bad thing, however most courts agreeNote 2- Keep in mind this is not based on KVentura v. Titan (there was nothing in the K about the intellectual property but he was still able to recover since the D was unjustly enriched- there is a right to publicity)Other Damage RulesAmerican Rule- attorneys’ fees are not recoverable in an action for breach of contract. The caveat to the rule is that attorneys’ fees may be recoverable in an international contract, when dealing with a party whose laws would allow it to recover. Additionally, when a party breaches in bad faith, and causes another party to go additional lengths, including litigation, that party may be liable for attorneys’ fees.In Texas if you win a K case (among others) you can get other reasonable atty feesThe D does not get their side paid if they winZapata v. Hearthside Baking (cookie bad faith breach- gives grounds for attorney fees)Tort remedies are not available in breach of contract actions. Exception to this rule is when the breaching party breaches an additional or special duty, or acts with intent and malice.- generally it needs to be really clear, usually the tort is obviousEmotional distress—can recover if bodily harm is a result or if emotional distress is particularly likely consequence of the breachErlich v. Menezes (dream house- no ED in this specific case)No punitive damages because the aim is to expectation or reliance interest not damage interests This would give more than the benefit of the bargainSpecific Performance- An equitable remedy, only conferred when other remedies at law are unjust or inadequate, where the court orders the breaching party to perform as specified in the K.Specific relief will not be denied merely because the parties have left some matters of their agreement orLeft some issues to be agreed on in the future, particularly when the parties have agreed on all material terms and other equitable factorsR2K § 362, comment bLand K- American courts will routinely grant specific performance to purchasers of real estate. Land is unique. R2K § 360, comment e – indicates that specific performance has traditionally been given to both buyers and sellersException- Building K for buildings are unlikely to get SP because of difficulties of supervision and construction services can be readily be purchased on the market w/ money damages receivedFactors R2K §360Difficult to prove damages with reasonable certaintyDifficult to procure a substitute performance by means of money awarded as damagesThe likelihood that an award of damages could not be collectedThe K was the product of mistake or unfair practicesSpecific performance would cause unreasonable hardship or loss to the party in breachPossible impact on 3rd parties Specific Performance under the UCCBuyer- § 2-716 declares that SP may be decreed for a buyer where the goods are unique or in other proper circumstancesSeller- § 2-709(1)(b) allows goods to be forced on the buyer and the price obtained when the goods are not reasonable subject to resale to othersLiquidated Damages– Where parties stipulate in the K what the damages will be in the event of a breachTo be Enforceable, Liquidation Damage Clauses Must:Be Reasonable – relative to the anticipated or actual loss from breachTraditional View: Reasonable at the time of contractingIf P’s damages are much less or much more than what was reasonable at the time of Contracting, the liquidated damages clause remains enforceable (as long as it is not viewed as punitive from the time of formation)Modern View: Must be reasonable, either (1) at the time of formation, or (2) in light of the actual damages which have occurred R2K §356(1Not be Punitive (from the time the liquidated damage provision is drawn) – if the courts consider the liquidated damages provision is high enough to be considered a penalty then unenforceable on grounds of public policyWhere Liquidated Damage Clauses are viewed skeptically:If actual loss is much less than liquidated amountIf liquidated amount is computed without reference to time remaining under the K (if damages are the same if K is broken on either the first or last year of a 30 yr. lease)Damage computation keyed to gross revenues or gross profitsAlso if liquidated damages are very low, it's viewed as an exculpatory clause much like a contract of adhesion limiting liability.Liquidated Damages under the U.C.C. §2-718(1) – Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in light of the anticipated or actual harm caused by the breach, and difficulties of proof of loss, and the inconvenience or non-feasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large damages is void as a penalty ExceptionsPossibility that K was made in mistake/unfair practices or w/ unclean handsSP may lead to unreasonable hardship or loss if enforcedMay have an impact on a third partyA promise to render personal series will not be specifically enforced R2K § 367(1)Policy and practicality reasonsUndesirability of forcing parties to continue in a relationship that has souredInvoluntary servitude (violates Thirteenth Amendment- Linzer thinks this is a week argument)However, courts have been willing to grant negative enforcement by way of injunction that prohibits a breaching party from performing for anyone other than the non breaching partyUsually only granted for services are not easily replaceable or unique (artists, athlete, etc…)Anti trust acts (Sherman anti trust act) prevents restraint of tradeCovenant not to compete must be limited to time and place ................
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