HLS Orgs
Contents
I. Remedies 6
Three Damage Interests 6
Expectancy (“benefit of your bargain”): 6
Restitution: 6
Reliance: 6
U.C.C. on Remedies: 7
3 Types of Damages 9
3 Limitations on Damages: 9
Remoteness/foreseeability of harm: 9
Certainty of Harm 10
Avoidability of Harm 12
Contracting around the default rules of damages 13
Equitable Remedies 13
Specific Performance and Injunctions 14
Restitution 15
II. Mutual Assent 16
The Objective Theory of Assent 17
What is an Offer? 18
Preliminary negotiations: 18
Revoking an offer 19
What is an Acceptance? 20
Acceptance by Performance or “Unilateral” Ks: 20
Acceptance by Silence 22
III. Discerning The Agreement 22
Interpreting the Meaning of the Terms 23
Ambiguous Terms 23
Vague Terms: 24
Filling Gaps in the Terms 25
Agreements to Agree 25
Illusory Promises: 25
Identifying the Terms of the Agreement 26
Form Ks/”Ks of Adhesion”: 26
IV. Written Manifestations of Assent 27
Interpreting a Writing—the Parol Evidence Rule: 27
Reforming a Writing—Mistakes in Integration 29
Requiring a Writing—The Statute of Frauds (SoF) and its exceptions 29
V. Enforceability 31
Principles of Enforceability 31
Integrating the Principles via “Consent to be legally bound” 33
Applying the Principles of Enforceability to Cases 33
VI. The Doctrine of Consideration 34
Bargain Theory of Consideration 35
Second Restatement’s Approach to Enforceability: 35
Distinguishing Bargains for Gratuitous Promises 35
Past Consideration 36
Moral Considerations 36
K Modification and the Preexisting Duty Rule 37
Adequacy of Consideration 38
VII. The Intention to Be Legally Bound 38
Using Formalities 38
VIII. The Doctrine of Promissory Estoppel 39
Development of Promissory Estoppel as Substitute for Consideration 40
Family Promises 40
Charitable Subscriptions 40
Promises of a Pension 40
Promissory Estoppel as Alternative to Breach of K 40
Establishing the Elements of Promissory Estoppel: 41
IX. Performance and Breach 41
Breach 41
Constructive Conditions 41
Prospective Nonperformance 42
Cost of Completion v. Diminution in Value: Expectancy Revisited 44
X. Defenses to Contractual Obligation 44
Unconscionability: 45
Mistakes of Present Existing Facts 45
Mutual Mistake 45
Changed Circumstances 47
Impossibility and Impracticability 47
Frustration of Purposes 47
XI. Perspectives on Contract Law (Randy Barnett, ed.) 47
Reading 1: How Should Damages for Breach of Contract Be Measured? 47
Reading 2: Which Commitments Should be Enforced? 48
Reading 3: Are Some Breaches of Contract Efficient? 49
Reading 4: When Should Courts Order Specific Performance? 50
Reading 5: When Should a Court Refuse to Enforce a Contract? 51
Reading 6: Should Form Contracts be Enforced? 51
XII. Gilmore “Death of Contract” 52
Gilmore’s main claims: 52
Major thinkers: 52
Contract Syllabus 52
XIII. Charts 57
Contracts Outline
Section 2: Fall 2009
Table of Contents:
Remedies
I. The 3 Damage Interests
a. Expectancy
b. Restitution
c. Reliance
II. The three Limitations on Damages:
a. Remoteness/foreseeabilty of harm
b. Certainty of Harm
c. Avoidability of Harm
III. Contracting around the default rules of damages
a. Limitations on consequential and incidental damages
b. Liquidated damages v. penalty clauses
IV. Equitable Remedies
a. Specific Performance and Injunctions
i. Ks for land
ii. Ks for goods
iii. Ks for personal services
b. Restitution
i. For breach of K
ii. To the party in breach
iii. Restitution and “quasi-K”
1. Tortious interference w/ K
Mutual Assent
I. Reaching An Agreement
a. The Objective Theory of Assent
b. What is an Offer?
i. Preliminary negotiations
ii. Revoking an offer
c. What is an Acceptance?
i. Acceptance by Performance or “Unilateral” Ks
ii. Acceptance by Silence
II. Discerning The Agreement
a. Interpreting the Meaning of the Terms
i. Ambiguous Terms
ii. Vague Terms
b. Filling Gaps in the Terms
i. Agreements to Agree
ii. Illusory Promises
III. Written Manifestations of Assent
a. Interpreting a Writing—the Parole Evidence Rule
b. Reforming a Writing—Mistakes in Integration
c. Requiring a Writing—The Statute of Frauds and its exceptions
Enforceability
I. Principles of Enforceability
a. Six Core Principles of Enforcability
i. Party-based principles
1. Will Principle
2. Reliance Principle
3. Restitution Principle
ii. Standards-based principles
1. Efficiency Principle
2. Principle of Substantive Fairness
iii. Process Principles
1. Bargain Principles
iv. Integrating the Principles via “Consent to be legally bound”
II. The Doctrine of Consideration
a. Historical Origins
b. Bargain Theory of Consideration
i. Distinguishing Bargains for Gratuitous Promises
ii. Past Consideration
iii. Moral Considerations
c. K Modification and the Preexisting Duty Rule
d. Adequacy of Consideration
III. The Intention to Be Legally Bound
a. Using Formalities
i. The Seal
ii. Nominal Consideration
IV. The Doctrine of Promissory Estoppel
a. Development of Promissory Estoppel as Substitute for Consideration
i. Family Promises
ii. Charitable Subscriptions
iii. Promises of a Pension
b. Promissory Estoppel as Alternative to Breach of K
c. Establishing the Elements of Promissory Estoppel
Performance and Breach
I. Breach
a. Constructive Conditions
b. Prospective Nonperformance
i. The Perfect Tender Rule: Cure and Rescission
c. Cost of Completion v. Diminution in Value: Expectation Interest Revisited
Defenses to Contractual Obligation
I. Failure of a Basic Assumption
a. Mistakes of Present Existing Facts
i. Mutual Mistake
b. Changed Circumstances
i. Impossibility and Impracticability
ii. Frustration of Purposes
Remedies
Three Damage Interests
Expectancy (“benefit of your bargain”):
• this is the difference in value between what was promised and what was actually received (Hawkins v. McGee)
• This is the general American rule—why? Because K law seeks to protect the gains created by wealth enhancing transactions.
• In order to recover, you have to be able to put a $ value on your expectancy. Hawkins shows us how difficult that can be—what’s the value of a “100% good hand”? Usually, we let the jury figure it out (within reason)
• Restatement §347: AP is entitled to expectancy, which = value lost by AP due to BP’s failure to perform fully + any other loss caused by breach (including incidental or consequential losses) – costs saved by AP for not having to perform
• Two ways of calculating expectancy: should lead to same figure most of the time, but not always. Look at both because it can make a difference for the client (Hooker v. Roberts)
1. Expectancy = profit anticipated + costs expended
▪ If lost receipts, then aggrieved party loses because burden is on plaintiff to prove.
1. Expectancy = contract price - costs avoided upon breach (contract market differential, CMD)
▪ If lost receipts, then breaching party loses out and costs are generally included.
• U.C.C. vs. common law: When UCC (applies to goods) and common law conflict, says you can: which do you apply in Ks that involve both goods and services? Hooker v. Roberts says look at the nature of the primarily disputed element.
• U.C.C. Basic principles
o §1-103: Unless displaced by other U.C.C. provisions, general principles of K law and equity supplement the U.C.C.
o §1-202: U.C.C. only applies to goods (and not, e.g., security interests), and the Code doesn’t impair/repeal any other statutes regulating sales to consumers, farmers, and other specified classes of buyers
o §2-105: Goods = all things which are movable other than the money in which price is to be paid, investment, securities, and things in action
o §2-106: Unless context requires otherwise, “K” and “Agreement” only refers to those relating to present or future sale of goods
Restitution:
(“benefit conferred”/”disgorging the ill-gotten gain”): put the promissor in his pre-K position
Reliance:
put the promisee in his pre-K position
• Medical services contracts: aggrieved party can recover “wasted” pain and suffering (Sullivan v. O’Connor)
• Tongish v. Thomas: Is the aggrieved party entitled to actual losses or the difference between the market price and the contract price?
o When UCC provisions conflict, the specific statute holds
▪ In Tongish, conflict between U.C.C. §1-106 and §2-713—normally these two converge, but the presence of the Bambino contract in reliance on original contract yielded divergence in this case.
▪ in breach and the giving of expectancy damages, consequential and incidental costs will be awarded.
o Court gives aggrieved party windfall because breaching party breached in bad faith. Based in part off Allied
▪ Allied Canners and Packers v. Victor Packing Co (1984) Where a valid reason existed for the breach, actual loss (1-106) will be given rather than expectancy (2-713). In Tongish, BP breached b/c he got a better K.
U.C.C. on Remedies:
• §1-106—Remedies to be Liberally Administered: Expectancy Damages but no consequential or special penal damages (Put AGP in position they would’ve been in if K fulfilled – preferred)
• §2-701—Remedies for Breach of Collateral contracts Not Impaired: Remedies for breach of any K collateral or ancillary to a K for sale (i.e. a K where the consideration is to enter into another K) are not impaired by the provisions of this Article.
• §2-702—Seller's Remedies on Discovery of Buyer's Insolvency:
o Where seller discovers buyer is insolvent, can refuse delivery except for cash, and stop delivery (§2-705)
o Where the seller discovers that the buyer has received goods on credit while insolvent, the seller may reclaim goods upon demand made /in a reasonable time after buyer receives goods.
o Seller’s right to reclaim is subject to rights of good-faith purchasers for value (see §2-403) Successful reclamation of goods excludes all other remedies w/ respect to them.
• §2-703—Seller's Remedies in General:
o breach of K by buyer includes:
▪ buyer's wrongful rejection or wrongful attempt to revoke acceptance of goods,
▪ wrongful failure to perform a contractual obligation
▪ failure to make a payment when due, and
▪ repudiation.
o If buyer is in breach, seller can:
▪ withhold delivery
▪ stop delivery (see §2-705)
▪ resell and recover damages under (see §2-706)
▪ recover damages for non-acceptance or repudiation under (§2-708) or in a proper case the price (§2-709)
▪ cancel
• §2-705—Seller’s Stoppage of Delivery in Transit or Otherwise:
o seller may stop delivery of goods in possession of a carrier/other bailee when he discovers the buyer is insolvent (see §2-702) or buyer repudiates or fails to make a payment due before delivery, or for any other reason seller has right to withhold/reclaim goods
o seller may stop delivery until
▪ receipt of the goods by buyer; or
▪ acknowledgment to buyer by any bailee of the goods except a carrier that the bailee holds the goods for the buyer; or
▪ such acknowledgment to the buyer by a carrier by reshipment or as a warehouse; or
▪ negotiation to the buyer of any negotiable document of title covering the goods.
o To stop delivery seller must notify as to enable bailee by reasonable diligence to prevent delivery.
o After such notification bailee must hold & deliver goods according to directions of seller but seller is liable to bailee for any ensuing charges/damages.
o If negotiable document of title has been issued for goods, bailee is not obliged to obey notification to stop until surrender of possession/control of document.
o Carrier that has issued a non-negotiable bill of lading (document issued by carrier to shipper that specifies that goods are on board to be taken somewhere) is not obliged to obey a notification to stop received from person other than consignor.
• §2-712—“Cover”: Buyer’s Procurement of Substitute Goods
o Buyer may cover without penalty by making a good faith attempt- w/o unreasonable delay- to purchase substitute goods;
o If buyer covers, s/he can then recover: Cost of cover - K price + incidental/consequential damages - expense saved in consequence of the breach
o failure to do cover doesn’t bar buyer from any other remedy
• §2-713—Buyer’s Damages for Non-Delivery or Repudiation: K/Mkt Differential at time buyer learned of breach + consequential & incidental (see 2-715), less expenses saved in consequence of breach. Focuses on time of breach, not time of making the contract. Protects buyer against bad faith efficiency breach. Allows for cancellation if market price is lower.
o Can’t speculate on buyer’s breach
o Locked in at breach time and have to get market differential at a reasonable time
▪ Some protection for breaching parties.
• §2-715—Buyer’s Incidental and Consequential Damages defined:
o Incidental Damages include expenses incurred in inspection, receipt, transportation, and commercially reasonable charges having to do with the delay or cover etc.
o Consequential Damages include:
o any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which couldn’t be reasonably prevented by cover; and
▪ injury to person or property from breach of warranty
• §2-716—Buyer’s Right to Specific Performance or Replevin:
o Specific performance may be ordered when the good is unique or “in other proper circumstances”
o Damages can include anything the court deems just.
o After reasonable attempts to cover or if determined such attempts would be futile - buyer may replevin goods.
• §2-717—Deduction of Damages From Price: After notifying seller, buyer may deduct damages from amounts outstanding under the same K
3 Types of Damages
General: the natural and probable consequence of a breach and are deemed to have been within the contemplation of the breaching party. A party seeking general damages need not offer further proof that the damages were foreseeable.
Consequential/special: arise from the special facts and circumstances of the case and are not deemed to be within the contemplation of the breaching party unless he was made aware of such specific facts and circumstances. A party seeking consequential damages must demonstrate that the damages were foreseeable at the time the contract was formed (Hadley)
Incidental: Incidental damages suffered by a seller due to a buyer's breach include any commercially reasonable charges, expenses or commissions incurred by:
• the stoppage of delivery
• the transportation, care and custody of goods after the buyer's breach (sought in Hooker)
• the return or resale of the goods
• actions otherwise resulting from the buyer's breach. [UCC § 2-710]
Incidental damages suffered by a buyer as a result of a seller's breach include expenses reasonably incurred in:
• inspection, receipt, transportation and care and custody of goods rightfully rejected
• any commercially reasonably changes, expenses, or commissions in connection with effecting cover
• any other reasonable expense incident to the delay or other seller's breach. [UCC § 2-715(1)]
3 Limitations on Damages:
Remoteness/foreseeability of harm:
Hadley v. Baxendale limits consequential damages to what’s a) foreseeable or b) specially communicated. This gives buyers two choices w/ respect to unforeseeable consequential damages:
• eat it yourself
• communicate it to seller so it can be priced into K
• See e.g. UCC 2-715(2)(a)
Why Hadley?
• Balance aggrieved party’s reliance w/ interests of breaching party (because we don’t want parties to be scared away from entering Ks)
• Takes away some of the uncertainty risk, leading to fewer injuries
• Limits remedies, so when you breach, you know what you’re liable for
• w/ the risk boundaries clearly delineated, you know how to price better
• Enhances Ks but forcing you to give more information about your risk.
• Limits juries
o Concern that juries will get crazy and give out crazy compensation
What does a post-Hadley world look like?
• party w/ special damages pays for the risk one of three ways:
o Buying insurance
o Tell the other party who will raise the price accordingly
o Don’t tell the other party, and in the event of a breach, the party w/special damages can’t recover
• The party w/out the special damages can:
o Walk away
o Stay in and not take the risk
o Stay in + make the other person take risk
• Special communications brings idiosyncratic damages into play
o If idiosyncratic details aren’t communicated, then you only get what’s reasonably foreseeable.
|Nurse v. Barns |Hadley v. Baxendale |
|Juries can’t limit |Evidence of loss isn’t enough |
|Evidence of loss is enough |Makes jury opinions reviewable as a matter of law |
|Gives deference to juries |No deference to jury |
|Jury dominant in deciding damages |Judge acts more as finder of fact, not just law |
Martinez v. Southern Pacific Transportation Corp.: special communication not necessary if injury was reasonably foreseeable
• Restatement § 351 (echoes Hadley+ Martinez):
o Damages are recoverable if
▪ injury is foreseeable as a probable result or if in the ordinary course of events, or
▪ if party had special notification or “reason to know”
• Puts obligation on aggrieved party to communication
• Courts can limit damages by excluding lost profit, by only giving reliance, or otherwise if it finds justice requires it to avoid disproportionate compensation
• Can limit juries and make judgments reviewable
Morrow v. 1st Nat’l Bank of Hot Springs: communication for special damages isn’t enough; breaching party must also have at least “tacitly agreed” to assume responsibility for special damages.
• BUT this isn’t “the law”. The U.C.C. explicitly rejects the tacit agreement test (§2-715: Section 2 of Official Comment). Morrow court choice not to follow UCC because it was a services (not goods) contract (but only Arkansas does tacit agreement)
• Trying to avoid disproportionate damages (e.g. Tongish, Sullivan)
• Court assumes/projects a reasonable person standard – unless it was explicitly stated, you couldn’t have agreed/it couldn’t be true.
Certainty of Harm
CCC v. Dempsey:
• Aggrieved party can’t get lost profits when too speculative; must present evidence that gives reasonable certainty
o Differs from Hawkins
▪ Doesn’t allow “some evidence” to get to the jury (speculative damages normally went to juries)
• Another decision that shrinks power of juries and expands power of judges.
• Juries not sophisticated enough, unpredictable, want less lawsuits
▪ Policy: Encourage people to form contracts
▪ Prevent the increased risk of injury
• Aggrieved party cannot be compensated for litigation costs
o American way: litigate at your own risk
▪ Way to more carefully screen the merits of your claim
▪ Who benefits: Breaching parties (less litigation, brings down litigation costs)
o Can only collect if it’s part of the contract
• Aggrieved party can’t get damages based on actions taken pre-K
• Aggrieved party can recover all expenses incurred between the formation of K and the breach by BP that were 1) necessary to further performance and 2) wouldn’t have been incurred anyway
Anglia v. Reed:
• Aggrieved party can recover wasted expenses incurred prior to entering K w/ breaching party if
o reasonable person would’ve contemplated that the expense would have been wasted in breach, and
o waste results from BP’s breach
• You can’t get both expectancy and reliance. If you can’t prove expectancy (in this case, lost profits), then you can get reliance (i.e. costs reasonably in contemplation of parties as likely to be wasted if the contract is breached). Technically could still be expectancy interest: expenses + profit (which would have to be $0 because too speculative)
o Inconsistent w/ Dempsey, but the difference is that Reed was a “fungible good” (any actor could’ve done the role), while Dempsey was the whole point of the event/K
• Courts hate waste
o Contracts are supposed to be value-enhancing. This destroyed value.
Winston v. Wells-Whitehead: Where damages resulting from breach of K can’t be measured by any definite standard (e.g. market value), parties themselves have to figure it out in K. If you don’t spell it out in K, jury can’t hear the damages evidence because it’s too speculative
Mistletoe Express v. Locke: When there is uncertainty about profits that a party would have made in a contract, an aggrieved party can recover reliance expenses.
• Normally the aggrieved party would have the term of the contract to recoup expenses and people make contracts with the presumption that they’ll make at least their expenses back.
• Aggrieved party typically would want this in a losing K. No rational person would enter K unless they expect to at least cover expenses, so court strongly presumes that intent on part of AP
• Dempsey/Mistletoe point: whichever party wants to claim the benefit of lost profits has to prove w/ reasonable certainty (in losing K, BP wants to include profits, in winning K, AP wants to include profits)
• Election of remedy: aggrieved parties can get either expectancy or reliance
Restatement
• §346—Availability of Damages:
o AGGRIEVED PARTY has right to recover damages for any breach by a party against whom the K is enforceable unless claim suspended or discharged
o if breach caused no loss or the loss isn’t proved, nominal amount without regard to amount of loss will be awarded
• §349—Damages Based on Reliance Interest:
o As alternative to expectancy (Restatement §347), injured party can get reliance (including expenses incurred via performance/preperation for performance), less losses the BP can prove the AGGRIEVED PARTY would have suffered if the K performed
• §352—Uncertainty as Limitation on Damages:
o Aggrieved party can’t recover for losses that can’t be established w/ reasonable certainty
Avoidability of Harm
• Duty to mitigate (Luten Bridge):
o Aggrieved party has duty to not increase damages after being notified of breach
o When aggrieved party is informed of BP’s repudiation of K, aggrieved party is only entitled to expected profit for the entire project + expenses incurred prior to notification of breach
o Why?
▪ Aggrieved party could be overcompensated (if AP doesn’t perform when BP tenders notice of repudiation, AP gets free time + expectancy)
▪ Because continuing performance would inflict damage on BP w/out benefitting AP. AP will get his profit anyway, and could use the time saved by breach to work on other projects.
o Rule of Waste: courts won’t impose a rule that causes waste (violates one of the fundamental tenets of contract law (contracts are wealth-generating instruments)
▪ E.g. U.C.C. §2-711: In order to recover consequential damages, you have to cover w/in reason
• Exception to duty to mitigate: you don’t have to mitigate when the alternative work offered is comparable/substantially similar to the contracted-for employment. If the other employment if different/inferior you don’t have to accept it (Shirley MacLaine Parker v. 20th Century Fox)
Restatement §350—Avoidability as a Limitation on Damages:
o Damages not recoverable for losses that could have been avoided w/o undue risk, burden or humiliation to AGP
o AP not precluded from recovery under 1 if reasonable, though unsuccessful, efforts were made to avoid loss.
• Lost volume sellers (Neri v. Retail Marine Corp): If aggrieved party has more than enough goods to fulfill all demand, then aggrieved party can recover the entire profit of one sale from a BP (even if aggrieved party sold the good in question to another party), since AP’s expectancy included that additional sale.
o UCC 2-708: If contract-market differential isn’t enough to get to expectancy, then you can get profit.
Contracting around the default rules of damages
• Limitations on consequential and incidental damages
• Liquidated damages v. penalty clauses
o In order to enforce a liquidated damages clause, the damages must be both uncertain and reasonable/proportionate to the breach. If the clause is penal (i.e. it imposes excessive damages that “punish” BP/ give AP more than expectancy), court wont enforce (Kemble v. Farren)
o Why? “Equity abhors a forfeiture.” (i.e. total loss of a right/thing for failure to complete required action)
• Why use liquidated damages clauses?
o Up front with damages so pricing can be done easily and sellers can affect cover
o Demonstrates will of parties (Will Theory)
o Reduction in court costs/time
o Increased credibility of parties.
o Can be an incentive to perform
• U.C.C. §2-718—Liquidation or Limitation of Damages; Deposits:
▪ Term fixing unreasonably large liquidated damages void as penalty
▪ Buyer (BP) entitled to restitution when AP justifiably withholds further deliveries if payments exceed:
• liquidated damages clause or
• 20% of value of total performance or $500 (whichever smaller)
▪ right to restitution subject to offsets
▪ resale shall be treated like payments unless notice given by buyer before resale—then follow §2-706
o Lake River Corp. v. Carborundum: liquidated damages clause is penal if the damages are
▪ Easy to determine, or
▪ The estimate of damages in the clause greatly exceeds a reasonable upper estimate
Equitable Remedies
Background info:
• Equity used when legal rules were too rigid/inadequate; based on a higher moral principle
• No jury, the judge makes the decision. Courts usually look to the remedy to determine if the action is legal or equitable.
• 3 types of equitable remedies
o coercive/injunctive: orders a party to do/abstain from doing something
o declaratory: declares rights of parties w/ respect to one another so they know what they can/can’t do legally
o restitutionary: seeks to restore to AP something that, in good conscience, belonged to him/her
• Law and equity used to be separate courts, but have since merged in the vast majority of all jurisdictions
Specific Performance and Injunctions
• Ks for land: the rule is specific performance, as opposed to monetary damages (Loveless v. Diehl), because “land is unique”
o Specific performance is pure expectancy
o If giving money for land, you will be either over or undercompensated
• Ks for goods: although the general rule for goods is monetary damages, an AP can get specific performance if:
o There’s no adequate remedy at law
o Articles at issue are of peculiar, sentimental, or unique value
o Article isn’t readily available due to scarcity, or
o It would require AP to incur considerable expense, delay, and inconvenience to cover (even if good isn’t unique) – Sedmak v. Charlie’s Chevrolet
• AP can’t use replevin in place of specific performance if the good isn’t unique/irreplaceable (Scholl v. Hartzell)
o Same principle behind Restatement §356
• Ks for personal services:
o CAN’T be enforced via specific performance (Mary Clark)
▪ Can get monetary damages
▪ Court makes morality argument
▪ Saves court time/resources
• If enforced, Clark could do a bad job and then boss comes back to sue again
• If enforced, Clark could be abused by employer and come back to sue.
▪ Exceptions: apprenticeships (in loco parentis) military (nat’l security concerns)
o BUT, negative injunctions:
▪ Lumley v. Wagner: if a party agrees to perform at one place and nowhere else, the negative element (i.e. not performing elsewhere) can be enforced via injunction.
• In this case, court said there could be specific performance
o Distinguished from Clark: no negative stipulation to NOT perform elsewhere in Clark
• Negative injunction is the only way to compensate and give remedy
o Allowing defendant to perform elsewhere adds to total damages faced by plaintiff.
o HOWEVER, couldn’t get profits because uncertain (Dempsey)
▪ Ford v. Jermon contradicts Lumley: Court refuses to enforce a negative injunction on the grounds that it allows AP to force BP to do something indirectly (if BP can’t perform anywhere else, she’s effectively required to perform for AP) that it couldn’t do directly (i.e. specific performance) (substance over form)
▪ Duff v. Russell: Duff court goes back to Lumley, but takes one step further. Lumley said no negative performance clause = no injunction. This court says no clause = can still get injunction.
• Looks at substance over form
Restitution
• For breach of K:
o When paying for goods in advance, AP can choose to recover the full advance + interest (restitution) instead of advance less decrease in market price (expectancy) (Bush v. Canfield). Plaintiffs get to choose their remedy.
▪ Why? Protects against strategic action (don’t want BP to not perform and pocket the drop in market price)
• To the party in breach:
o If you are the breaching party in a labor contract, you can recover wages for services rendered due to quantum meruit (unjust enrichment) – Britton v. Turner)
▪ Why? Because BP conferred a benefit to AP, so requiring AP to pay for services rendered prevents unjust enrichment.
▪ Tangible benefit conferred to aggrieved party and that should be compensated for.
• BUT, if you confer in full, you aren’t entitled to restitution, just expectancy (Restatement §373(2)): Once a contract is completed, you can only recover for the value of the contract and not the value conferred.
▪ Trying to build cooperation into contracts.
• Restitution and “quasi-K”: courts will infer Ks as a result of broad public policy considerations:
o Emergency medical services: courts will infer a K in law, when a party renders emergency medical services to an incapacitated party who didn’t ask for/consent to service. (Cotnam v. Wisdom)
▪ BUT, court has to determine price. Does doctor get an industry standard price, or what the doctor’s own pricing scheme dictates?
• Court says doctor should get average price charged across all doctors, not whatever they want – no advantage-taking (see Harris, Stilk v. Myrick)
▪ Policy rationale:
• Incentivize action: we want doctors to save people’s lives!
• Even if this particular person didn’t want assistance, the general policy is still good.
o However, court won’t infer K in fact (i.e. based on a reasonable interpretation of the actual actions o both parties) when one party volunteers info to another that happens to confer a benefit, when there’s no “reasonable expectation” that the volunteering party would be compensated. (Martin v. Little Brown)
U.C.C. on Remedies
• §2-706—Seller’s Resale Including K for Resale:
o Seller may recover diff btw resale price and K price + incidentals – expenses saved by buyer’s breach
o all aspects of the sale(s) must be reasonable
o Seller must give buyer reasonable notice of intention to sell and
▪ only identified goods can be sold;
▪ in public sales, the time and place of resale unless goods perishable;
▪ prospective buyers must get chance to inspect;
▪ seller may buy
▪ purchaser protected from buyer even if seller fails to do any part of this section
▪ Seller not accountable to buyer for any additional profit made
• §2-708—Seller’s Damages for Non-Acceptance or Repudiation: if price at time of performance won’t give seller his expectancy, then the seller can recover profit he would have made via full performance
• §2-709—Action for Price:
o If buyer doesn’t pay when payment becomes due, seller can recover, along w/ any incidental damages (§2-710) price
▪ of goods accepted by buyer
▪ of conforming goods that were lost/damaged w/in commercially reasonable time after risk of loss shifts to buyer
▪ of goods in K if seller can’t resell after reasonable effort at reasonable price (or circumstances reasonably indicate that such effort to sell will fail)
o When suing for price seller must hold for buyer any goods still in seller’s control (exception: seller can resell at anytime prior to collecting judgment, in which case the sale must be credited to buyer)
o After buyer pays judgment, she is entitled to any goods not resold.
• §2-710—Seller’s Incidental Damages: includes any commercially reasonable charges/expenses incurred via:
o stopping delivery
o transportation, care, and custody of goods after breach
o return/resale of goods/otherwise resulting from breach
• §2-711—Buyer’s Remedies in General; Buyer’s Security Interest in Rejected Goods:
o When Buyer rightfully rejects goods or seller fails to deliver them, buyer may cancel and get restitution of money paid and
▪ cover or,
▪ collect damages for non-delivery (§ 2-713: K/Mkt differential)
o Buyer can also replevy goods or obtain specific performance (§2-716)
• §2-714—Buyer’s Damages in Regard to Accepted Goods:
o Measure of damages is difference in value at time and place of acceptance of accepted goods and the value if they had been as warranted unless special circumstances show proximate damages of different amount
o in proper case incidentals and consequentials may also be given
Mutual Assent
Reaching An Agreement (Contracting as a binary system: you’re either totally bound (and thus have access to the full range of remedies) or totally unbound)
The Objective Theory of Assent
• When a reasonable person would construe the actions of both parties as intending to enter into a K, a K is formed irrespective of the parties’ actual intent (Embry v. Hargadine). Objective manifestation of subjective intent (similar to Hawkins). Why this standard:
o We want parties to rely on Ks
o Incentivize clarity and bringing information to the table
o Protection against BP being able to say “I never intended…”
o Enforceability: courts can actually understand/view the objective manifestation of parties.
• A written K is binding if AP reasonably believed that K was real even if BP intended for it to be a joke but never expressed the joking intent until after the agreement was signed (Lucy v. Zehmer)
o Same as Embry: reasonable person standard (if a reasonable person would think it’s a contract, then it’s a contract
o Different from Embry: there are outward manifestations of subjective intent not to form K in this case.
o Once a K is signed, it’s a done deal on acceptance.
o Concerns with Lucy
▪ Dicey fact situation but black and white remedy
o Upside of Lucy:
▪ Allocation of power between parties (everyone is bound or no one is bound)
▪ Tool kit of remedies in Ks can’t slice and dice percentages
▪ Be careful about formalities: magic words need to work most of the time or they’re not magical.
• Restatement
o §17—Requirement of a Bargain:
▪ bargained for consideration & mutual assent make a K
▪ absent bargain, K formed under special rules
o §18—Manifestation of Mutual Assent:
▪ requires that each party either:
• make a promise, or
• begin to render a performance
o §19—Conduct as Manifestation of Assent:
▪ Can be done by written or spoken words, acts, or failures to act
▪ Conduct doesn’t manifest assent unless
• party intends to engage in the conduct, and
• knows/has reason to know other party will view it as assent
▪ Conduct may manifest assent though party doesn’t assent (Lucy v. Zehmer), but such a K may be voidable b/c of fraud, duress, mistake, or other invalidating clause
What is an Offer?
Preliminary negotiations:
• A mere statement of price at which property is held (which doesn’t include time for delivery or exact quantity) is an invitation to deal, not an offer to sell (Nebraska Seed). Uses objective manifestation of subjective intent, reasonable person standard (Hawkins, Embry). Why?
o Lacks essential terms for offer
o Could have been sent to 100 people when seller only has enough for 1
o Not specific enough to bind individual parties
o Should assume the invitation went to various parties and that negotiations/offer should take place.
o Policy: want people to be able to advertise without fear they are forming a contract.
• Advertisements: an ad can be an offer (Lefkowitz and the rabbit fur coats), but courts apply an “objective reasonable person” standard (Leonard v. PepsiCo). In this case, it was an invitation to deal. Factors court will/did consider:
o Commercial was humorous
o Are there words of limitation? (in this case, yes)
o Puffery: promotional statements and claims that express subjective rather than objective views, such that no reasonable person would take them literally
o Definiteness of ad
o Reservations (if any) in ad
o Reasonable person wouldn’t construe the ad as an offer
▪ Unreasonable price (NOT dispositive; remember that courts generally don’t look to adequacy of consideration)
• UCC is less rigid than common law on this because it’s not slowed down by formalities.
o §2-204: Can have a contract without offer and acceptance
▪ Trying to protect negotiation process of commerce
▪ All about reasonable person’s objective manifestation of subjective intent.
▪ Can end up binding people who didn’t want to be bound
• But if rest on formalities, then it’s too narrow and risk underenforcement.
▪ Puts court in position of having to come up with reasonable terms in the contract
o §2-305: Open price term
▪ Allow to get something close to market price
o §2-308: What happens when delivery terms are excluded
• Restatement
o §22—Mode of Assent: Offer & Acceptance:
▪ Manifestation usually requires offer followed by acceptance; but it can be made even if neither can be identified or moment of formation can’t be determined
o §24—Offer Defined:
▪ offer = manifestation of willingness to enter bargain, so made as to justify another’s understanding that his assent is invited and will conclude it
o §26—Preliminary Negotiations:
▪ manifestation of willingness to enter into a bargain isn’t offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made further manifestation of assent
o §29—To Whom an Offer Is Addressed:
▪ Manifested intention of offeror determines who has power to accept; this power can be given to multiple parties
o §33—Certainty:
▪ Though manifestation of intention can be an offer; can’t be K unless terms are reasonably certain
▪ terms are reasonably certain if provide basis for remedy (see also U.C.C. §2-204)
▪ one or more open terms may signal no offer or acceptance
Revoking an offer
An offer is not valid until received by the offeree or his agent (Restatement §68)If the offeree has reason to know that an offer has been revoked, the offeree cannot accept the offer to form the K. An offeror can revoke an offer any time before acceptance so long as offeree knows or has reason to know of the revocation (Dickinson v. Dodds); see also Restatement §§17-18, 22 and 24
• When offeror takes an “act inconsistent” that is sufficient for notification
o Shows there is no “meeting of the minds”
o No objective manifestation of subjective intent
• Nudum pactum (“naked promise”—unenforceable for lack of consideration): If offeror makes promise to hold an offer open, offeree must offer consideration to turn the offer into a binding option K.
o Examples of option contracts
▪ CEO stock
▪ Trying to get investment money
▪ Construction contracts (when assembling costs to make a bid for project)
▪ Recording artists and athletes
• EXCEPTION: U.C.C. §2-205 (Firm Offers): signed written offer by merchant (def. of merchant at §2-104) to buy/sell goods which gives assurance that offer will be held open isn’t revocable due to lack of consideration for the stated period of time, or if none is stated, a reasonable time not to exceed 3 months.
• Restatement
o §25—Option Ks:
▪ Option K = promise that meets the requirements for K formation that limits promisor’s power to revoke offer
o §35—Offeree’s Power of Acceptance:
▪ offer gives offeree continuing power to form K via acceptance, but can’t be exercised once terminated by one of the ways in §36
o §36—Methods of Termination of the Power of Acceptance:
▪ offeree’s power of acceptance is terminated by
• rejection or counteroffer by the offeree, or
• lapse of time, or
• revocation by the offeror (including sale to another), or
• or death of the offeror or offeree; or
• by non-occurrence of any condition of acceptance under terms of offer
o §37—Termination of Power of Acceptance Under Option K:
▪ Power of acceptance of option K only terminated when requirements met for the discharge of contractual duty, NOT by rejection, counteroffer, revocation, death or incapacity of offeror
o §42—Revocation by Communication from Offeror Received by Offeree:
▪ Power of acceptance terminated when offeror communicates intent to not enter into K with offeree
o §43—Indirect Communication of Revocation:
▪ Upon receipt of reliable information showing that there’s no longer an intent to K with you, power of acceptance terminated (Dickinson)
What is an Acceptance?
Intro
• Offer can be revoked up until the point of acceptance (exception: option Ks)
• Mirror image rule: offer doesn’t bind offeror unless offeree accepts offer according to the terms on which it was made. If offeree changes any of the terms, it’s still just negotiations.
o BUT, the rule doesn’t apply when performance indicates existence of K. When we have acceptance by performance, the exact terms of K can be unclear (i.e. performance may not coincide exactly w/ terms of offer)
Bilateral vs. Unilateral Ks:
|Bilateral K: acceptance by promise |Unilateral K: acceptance by performance |
|promise | promise |
|S B |S B |
| | |
Acceptance by Performance or “Unilateral” Ks:
• Offeror is “the master of her own offer”; so you can make acceptance easy or hard (Leonard v. PepsiCo)
• Restatement §30—Form of Acceptance Invited:
o Offer may invite or require acceptance to be made via:
▪ Affirmative answer in words,
▪ Performing or not performing a certain act, or
▪ Offer may allow offeree to select terms of her acceptance
o Unless language/circumstances indicate otherwise, an offer invites acceptance in any manner/by any medium reasonable in the circumstances
• Restatement §32—Invitation of Promise or Performance:
o in case of doubt, offer is interpreted as inviting offeree to accept either 1) by promising to perform what offerer requests or 2) by rendering performance, as offeree chooses
• 3 types of unilateral offers (Leonard v. PepsiCo):
o “prove me wrong” cases (e.g. Carbolic Smoke Ball)
o prizes for skill/luck (e.g. games at a carnival)
o rewards for returning lost property (e.g.: “$100 for whoever finds my dog”)
• Special problems w/ unilateral Ks:
o Notification
o Revocation: cannot revoke after the offeree begins performance of the promised act to any extent (Restatement §45)
o Reliance (in form of partial performance)
Carlill v. Carbolic Smoke Ball Co. (1893): example of “prove me wrong” unilateral offer. You can accept an offer given to the general public and created a contract without notification when the offeror expresses or implies an offer without puffery in an advertisement and an offeree performs in reliance.
o Acceptance and performance can occur simultaneously
o Master of your own offer: offeror has full control to form offer, so if s/he wants restrictions, they must be put in offer prior to acceptance.
o Public policy reason: we don’t want people to rely on extravagant claims to their detriment
• Differences from Nebraska Seed
o Enticement in saying there was money on deposit ready for whichever consumer proved the tool didn’t work
o More specificity in the advertisement
o Nebraska Seed just offered to see. This case doesn’t offer to sell, just gives remedy for those who buy and use.
Restatement
• §54—Acceptance by Performance; Necessity of Notification to Offeror:
o No notification necessary unless specified; accepting by performance doesn’t work in offeror has no reason to know of it and no care is taken on part of performing party to inform them in a reasonable time
• §30—Form of Acceptance Invited:
o Offeror may specify; if not any reasonable acceptance will do
• §32—Invitation of Promise or Performance:
o When in doubt, offer is the thing inviting offeree to perform or promise
Starting to perform isn’t the same as acceptance: An offer to enter unilateral K can be withdrawn at any time prior to acceptance (i.e. completing performance), even if offeree indicates to offeror that s/he is about to accept and/or may have begun to perform (Petterson v. Pattberg)
• Policy reasons
o Offeror hasn’t received any benefit yet
o In a unilateral K, the offeree has all the power (under the Restatements. In Common law, offeror has power) and this is one way to even the power of the parties.
• If offeror doesn’t like terms of unilateral K, can ask other party for some consideration and turn it into a bilateral K.
Restatement
• §45 – Option Contract Created by Part Performance or Tender
o An option contract is created when the offeree tenders or begins invited performance
▪ Gives offeree the right to complete acceptance, but it’s not required for them to do so.
o Offeror’s duty of performance is condition on the completion or tender of the invited performance based on the terms of the offer
• §62 – Effect of Performance by Offeree Where Offer Invites Either Performance or Promise
o When offer invites offeree to choose between acceptance by promise or by performance, starting the invited performance is an acceptance by performance
▪ This operates as a promise to complete the performance.
Acceptance by Silence
• Two approaches for inferring Ks:
o Offer + (implied) acceptance by silence = K (Hobbs v. Massasoit Whip Co.: if, based on a previous course of dealing (i.e. in past, seller shipped unsolicited goods to buyer, who in return sent payment) seller ships unsolicited goods to buyer and buyer doesn’t give notice of acceptance or rejection, court will infer an acceptance; onus is on the buyer to notify seller of rejection)
▪ Alternatively, could have said that BP was offeror per previous interactions (standing offer) and offeree was fulfilling offer by sending eelskins (thus, unilateral K and open until BP says STOP!
▪ Contract implied in FACT (different from Cotnam where it was a contract implied in law. Similar to Little Brown which was for a K implied in fact).
o Implied offer (based on previous dealings)+ acceptance by performance = K
Restatement §69—Acceptance by Silence of Exercise of Dominion:
• silence is K when:
o benefit taken though given reasonable opportunity to reject and offeree knew or had reason to know compensation necessary
o when offeree knows silence will be interpreted as acceptance
o due to course of dealing [UCC 1-205] offeree should know to notify
o offeree takes action inconsistent w/ offeror owning goods at issue
• Why look to course of dealing when inferring Ks?
o Cements long term relationships
o Potentially cheaper
o Keeps goods and services moving
• Policy Reasons
o Keeps goods and services moving
o Might have a relationship with the contract partner (you know better than anyone else how the relationship usually works
o Respects norms of industry that may be more efficient
o Faster relationships between buyers and sellers
o Gives greater weight to precedent dealings
o Reminds of Hadley: need to contract for surprises or else too bad. Looks at what’s foreseeable.
Discerning The Agreement
Intro
• After interpreting mutual assent, you have to ascertain the terms that bind the parties. 3 parts:
o Interpreting the meanings of the words used
o Gap-filling: when situation arises that terms of K don’t address
o When terms of offer differ from terms of acceptance, which terms did the party accept as binding
▪ Although the American rule for determining assent is “objective manifestation of subjective intent”, when interpreting terms, American courts use “an objective approach w/ a significant subjective twist”.
Interpreting the Meaning of the Terms
Ambiguous Terms
• Raffles v. Wichelhaus rule: Latent ambiguity (i.e. not apparent from the wording of a document but is caused by external circumstances) destroys a K when both parties attach a different, reasonable meaning to an essential term or the parties reasonably believe they were contracting for a different item (Oswald v. Allen) because there’s no consensus ad idem (meeting of the minds)
o Raffles shows us that there’s no neutral outcome in K enforcement, because one party always loses the benefit of the bargain (no splitting the difference)
▪ Consistent with Will Theory: only want to enforce will of parties
o Consistent with Hawkins: in this case, no meeting of minds = no objective manifestation of subjective intent
▪ Not clear what a reasonable person would think
o If you can’t figure out the reasonable person standard, can’t interpret the K even without meeting of the minds (point that is distinguished from Hawkins)
o Shows that written Ks can still have problems:
▪ Good because there’s no hearsay and no patent ambiguity (from π perspective)
▪ Court can still say that a written K isn’t all-inclusive of value. Ks take out patent ambiguity but are not conclusive evidence.
• Weinberg v. Edelstein: latent ambiguities don’t destroy contracts. Court decides to interpret questions of fact and not just of law in trying to figure out “what is a dress?” If you intend for a certain interpretation of key terms in the contract, you have to write that into the K. Ways to interpret the K:
o Look at trade usage
o How were the items sold
o How were items manufactured
o Style trends and functionality of mixing and matching
o Pricing: as a set or individually?
o Dictionary definition
• Restatement
o §20—Effect Of Misunderstanding:
▪ No manifestation of mutual assent to an exchange if parties attach materially different meanings to their manifestations and
• neither party knows/has reason to know meaning attached by the other; or
• each party knows or each party has reason to know the meaning attached by the other.
▪ The manifestations of the parties are operative in accordance with the meaning attached to them by A if
• A doesn’t know of any different meaning attached by B, and B knows the meaning attached by A; or
• A has no reason to know of any different meaning attached by the other, and B has reason to know the meaning attached by the first party.
•
o §200—Interpretation of Promise or Agreement:
▪ Interpreting is determining meaning
o §201—Whose Meaning Prevails:
▪ If the parties attach the same meaning to a term, the term will be interpreted with that meaning
▪ If the parties attach a difference meaning, the term will be interpreted in accordance with meaning attached by party “A” if:
• Party A only knew one meaning and party B knew that party A only knew one meaning; OR
• Party A had NO reason to know another meaning and party B should have known that party A attached that meaning
• 1+2 = if you knew what I was thinking then K on my terms; ignorant party’s term rules
▪ Neither part bound by other’s meaning even though may result in failure of mutual assent (Raffles)
• Restatement §202—Rules in Aid of Interpretation:
o Words, conduct, circumstances used; if principle purpose obvious then given great weight;
o Writing is whole and every writing that’s part of same transaction read together
o Unless manifested otherwise,
▪ general meaning prevails
▪ technical terms given meaning common to their field
o course of performance given weight if not complained of earlier
o where reasonable manifestations of intent interpreted as consistent with each other, course of performance, course of dealing, or trade usage
Vague Terms:
• Party that wants idiosyncratic construction has burden to prove that’s what was meant by the K; When there’s a latent ambiguity, burden of persuasion falls on person that wants the strict construction over the general (Frigaliment)
o Similar to Weinberg
o Presumption is that burden of proof is on the plaintiff to prove restrictive covenant or to use the narrower interpretation of the contract.
• courts view a variety of factors when interpreting vague terms in K:
o Facts
▪ Pricing
▪ Appearance
▪ Manufacturing
▪ Market price
o Policy:
▪ Least restrictive interpretation
o Writing/Negotiation:
▪ match Ks
▪ 3rd party references
o Interpretation of Rules:
▪ Interpret against the drafter
▪ Interpret against party who wants to go outside of trade usage
▪ Interpret against party that wants enforcement of restrictive covenant.
Choosing Between Raffles and Frigaliment
• Which is better?
o Raffles: court isn’t in best position to say what a K should be. If people aren’t smart enough to write clear Ks, then tough luck. If there’s ambiguity, parties aren’t necessarily contracting for the same thing. Cheaper method for courts – less waste/more efficiency. Makes the law mechanical
o Frigaliment: speaks to the fact that both parties actually wanted the K and tries to find a balance. Since the parties showed intent to K, court should support that. Doesn’t allow BP to create ambiguity to eliminate the K when favorable for them. Allows courts to look at good faith (Allied). Tries to find a more fair outcome.
• Balance of power issues: same as employment Ks (MacLaine, Anglia, Mary Clark)
Filling Gaps in the Terms
Agreements to Agree
o Restatement §34: Certainty and Choice of Terms; Effect of Performance or Reliance
▪ Terms of K may be “reasonably certain even though they empower one or both parties to make a selection of terms doing performance
▪ Part performance may remove uncertainty and establish binding K
▪ Reliance may allow AP to get a remedy even if there’s still uncertainty.
o Restatement §204: Supplying an Omitted Essential Term: if parties enter K but fail to define an essential term, court will supply a term that’s reasonable given the circumstances
Illusory Promises:
o Requirements Ks:
▪ Definition: one party agrees to supply as much of a good or service as is required by the other party, and in exchange the other party expressly or implicitly promises that it will obtain its goods or services exclusively from the first party.
▪ Always have element of exclusivity, which gives K its mutuality
▪ AP can enforce requirement K
• Even though no definite quantity (normally a reason for K failure at common law) (New York Central Iron Work Co. v. U.S. Radiator Corp.)
• Even if it turns out to be commercially unviable for BP, as long as done in good faith (Eastern Airlines v. Gulf Oil Corp.)
▪ BUT, U.C.C. §2-306 (Output, Requirements, and Exclusive Dealings) appears to limit the rule in (c):
• Requirements Ks are interpreted as binding seller to provide as much as buyer may require to run its business in good faith
• buyer cannot demand an amount “unreasonably disproportionate” to any stated estimate (if no stated estimate, look to normal output/comparable prior output (so if you want something that’s potentially way outside what’s normal, you have to say so so that it can be priced in)
• In comments section, U.C.C. focuses on “reasonable elasticity”—the idea that some variation around a general estimate is to be expected. Why is this a good idea?
o Allows us to take into account changing business conditions while keeping the parties bound to contract
o predictable rule--parties agreed to a K that they knew had elasticity
o Courts in the past said it was too uncertain b/c don’t know what parties agreed to, but business practices have changed; Businesses want and need these – e.g.. don’t know how much computers I’ll need, but need to know can get chip at fixed price to determine what to sell them for
• good lawyering: build your expansion into K (“It’s reasonably foreseeable that Acme Co. will expand 5x in the next 3 years)
▪ Exclusive dealings Ks: even if there’s no express mutuality of obligation in a K of this type, courts infer an implied promise that parties will make reasonable efforts to perform as agreed. (Lucy, Lady Duff Gordon)
• If an explicit promise is lacking, you can infer a promise based on obvious obligation on other side to create mutuality.
• Why?
o Because court wants to give transaction the “business efficacy” that both parties clearly intended
o Essentially a contract implied in fact.
o Fairness of having both parties bound when one side behaves as if he was bound.
• Another example of Cardozo putting his spin on things.
Identifying the Terms of the Agreement
Form Ks/”Ks of Adhesion”:
• A standard form contract with a forum-selection clause is enforceable when it is fair and reasonable even if not negotiated (Carnival Cruise Lines v. Shute)
• Restatement §211—Standardized Agreements:
o Where a party 1) manifests assent to a writing and 2) has reason to believe the writing is like those regularly used in agreements of the same type, the writing becomes an integrated agreement (i.e. no parole evidence allowed) w/ respect to the writing’s terms.
o The writing is always interpreted (where reasonable) as treated all signers equally, irrespective of whether or not they knew/understood the terms
o EXCEPTION: when the other party has reason to believe that the party manifesting assent wouldn’t do so if he knew that the K had a certain term, that term isn’t part of the agreement
Written Manifestations of Assent
Interpreting a Writing—the Parol Evidence Rule:
prevents party to a written K from contradicting (or sometimes adding to) the terms of the contract by seeking the admission of evidence extrinsic to the K
• BIG ISSUE: does a written agreement preclude a fact inquiry w/ respect to terms? 2 approaches:
o Thompson v. Libbey: if written K exists and appears to be a complete expression of K terms, assume it’s complete an exclude parol evidence; views intent as a question of law
▪ Issue of intent. If it’s written, it’s intended (the objective manifestation of subjective intent).
o Brown v. Oliver: look at negotiations and parol evidence to see if K is complete; views intent as a question of fact for judge to decide
• Judge analyzes parol evidence
o If jury hears it, they will know. Can’t unring the bell
o Consistency across cases
o Expertise in reading contracts.
o Downside: judge doing fact-finding instead of jury.
• Why parol evidence rule?
o Protects negotiation process
o Certainty
o Clarity: less litigation, know the consequences of breach (e.g. Hadley)
o Encourages parties to put all their info on the table (e.g. Hadley)
o Will Theory: the ultimate K is a reflection of the will of the parties.
• Negatives to parol evidence rule
o Limits ability of someone to come back and say that the K doesn’t really encapsulate what the person agreed to.
o People can give oral promises outside of the contract and the K has an integration clause which says it’s complete.
Same struggle as in Frigaliment and other cases in that line about how to interpret Ks and find the most fair outcome.
U.C.C. §2-202 rejects parol evidence rule and adopts the Brown approach: parties can’t contradict a written K w/ evidence of prior agreement or contemporaneous oral agreement, but K can be explained/supplemented by:
• course of dealing, trade usage, or course of performance
• evidence of consistent additional terms (unless court finds parties intended written K to be “complete and exclusive”
o California is weird: In CA, parol evidence is always admissible, even when written K is clear on its face, because terms are always ambiguous according to Traynor (Trident, following Pacific Gas and Electric Co.). Kozinski hates the rule and would overturn if he could.
▪ See Raffles for how agreements could be always ambiguous.
▪ Parol evidence rule doesn’t apply because “magic words” only represent the judge’s interpretation and there’s no way to tell if that was the meaning the parties attached.
• Differences between Brown and Thompson and California cases
o In Brown and Thompson, look to see if the contract is integrated
▪ If integrated, no parol evidence.
▪ If partially integrated, then step 2
• Judge hears parol evidence to see if it can be admitted
o In California cases, they turn on ambiguity in the K and how to interpret it
▪ More like Frigaliment
▪ Jury gets to hear ambiguities and decide (way of introducing a “reasonable person” standard?
• Today, parol evidence rule is very small and whittled down.
Restatement’s Approach to Written Agreements and the Parol Evidence Rule:
• §209: Integrated Agreements
o integrated agreement = writing or writings constituting a final expression of one or more terms of an agreement.
o Court determines if there’s an integrated agreement prior to determination of a question of interpretation or to application of the parol evidence rule.
o Where parties reduce agreement to a writing which in view of its completeness and specificity reasonably appears to be complete, it is taken to be an integrated agreement
▪ unless it is established by other evidence that the writing did not constitute a final expression.
• §210: Completely and Partially Integrated Agreements
o completely integrated agreement = integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement.
o partially integrated agreement = any integrated agreement that’s not completely integrated
o Court determines if agreement is completely or partially integrated prior to determination of a question of interpretation or to application of the parol evidence rule.
• §213: Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)
o A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.
o A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.
• §214: Evidence of Prior or Contemporaneous Agreements and Negotiations:
o Agreements and negotiations prior to or contemporaneous w/ the adoption of a writing are admissible in evidence to establish
▪ that the writing is an integrated agreement
▪ that an integrated agreement (if it exists) is completely or partially integrated
▪ meaning of the writing, whether or not integrated
▪ invalidating cause (e.g. illegality, fraud, duress, mistake, lack of consideration)
▪ grounds for granting or denying a given remedy (e.g. recission, reformation, specific performance)
• §216: Consistent Additional Terms:
o Evidence of a consistent additional term is admissible to supplement an integrated agreement
▪ unless the court finds that the agreement was completely integrated.
o An agreement is not completely integrated if the writing omits a consistent additional agreed term which is
▪ agreed to for separate consideration, or
▪ such a term as in the circumstances might naturally be omitted from the writing.
Reforming a Writing—Mistakes in Integration
• A party is entitled to reformation of K if drafting party made innocent, unilateral mistake in writing K (Traveler’s Insurance Co. v. Bailey)
• Why? There was a meeting of the minds, it just was written down wrong. There’s only one reasonable interpretation of what was agreed, so no party can reasonably say that it relied to its detriment.
o Problems:
▪ How do we know the intent of parties?
▪ One party may lose benefit of bargain
Restatement §155—When Mistake of Both Parties as to Written Expression Justifies Reformation: when a writing fails to express the agreement due to a mutual mistake, court can reform K except when it unfairly affects the rights of a 3rd party (e.g. good faith purchaser for value)
Requiring a Writing—The Statute of Frauds (SoF) and its exceptions
• The Statute of Frauds was created to prevent over-enforcement of agreements (i.e. fraudulent claims)
• Parties cannot recover for reliance expenses on a promise that is barred by the Statute of Frauds (Boone v. Coe).
o Similar to parol evidence:
▪ Procedurally: prevents evidence from going to court that may show there’s a contract, push back on evidence outside K
• Gives greater weight to written evidence.
o Parties can recover for any benefit conferred to breaching party, but no expenses incurred relying on the BP’s promise.
Restatement
• §110—Classes of Ks Covered by SoF
o The following classes of Ks are unenforceable unless there’s a writing or an applicable exception:
▪ Executor-administrator: Ks of executor/administrator to answer for duty of decedent
▪ Suretyship: K to answer for the duty of another
▪ Marriage: K made upon consideration of marriage
▪ Land: Ks for sale of an interest in land
▪ One-year: Ks that aren’t to be performed within a year of formation
o Ks for sale of goods at price of $500 or more (§2-201), Ks for the sale of securities (§8-319), and Ks for sale of personalty for more than $5K (§1-206) are governed by the U.C.C.’s SoF provisions
• §125—K to Transfer, Buy, or Pay for an Interest in Land:
o Any promise to transfer an interest in land is within SoF
o However, promise to pay the price isn’t within SoF unless the price is itself (in whole or in part) an interest in land.
o Short term leases and Ks to lease are exempt from SoF’s land and one-year provisions in most states by statute (usually for term not longer than 1 year)
• §129—Action in Reliance; Specific Performance (Exception to Restatement 125(1)):
o Land Ks may be enforced (even if they don’t comply w/ SoF) if party seeking enforcement
▪ reasonably relied on K and,
▪ changed position based on continuing assent of the party against whom enforcement is sought, such that specific performance is the only way to avoid injustice
• §130—K not to be Performed W/in a Year:
o When any promise in K can’t be fully performed w/in a year from formation of K, all promises in K are under SoF until one party to K completes performance
o Once one party to K has fully performed, the one-year provision of SoF doesn’t prevent enforcement of other parties’ promises
• §139—Enforcement by Virtue of Action in Reliance:
o If promisor makes promise that he should know would cause promisee or 3rd party to act/forebear from acting, and promisee/ 3rd party does act/forbear, then it’s enforceable even if SoF requirements aren’t met if justice requires it.
o Remedy to be limited as justice requires
o Circumstances to determine if justice requires enforcement:
▪ Availability/adequacy of other remedies (esp. cancellation and restitution)
▪ Definite/substantial character of action/forbearance in relation to remedy sought
▪ if evidence of making/terms of promise is clear/convincing (including the action/forbearance itself)
▪ reasonableness of action/forbearance
▪ extent to which action/forbearance was foreseeable by promisor
• §143—Unenforceable K as Evidence:
o SoF doesn’t block court from admitting an unenforceable K as evidence for any purpose, except for enforcement of said K in violation of SoF
Enforceability
Principles of Enforceability
Six Core Principles of Enforceability
• Party-based principles: focus on one particular party to a transaction
o Will Principle: commitments are enforceable because promisor has willed/freely chosen to be bound.
▪ K law gives expression to and protects will of parties
▪ Distinguishes K from tort: source of tort duty is law; source of K duty is the promisor herself
▪ Limitation: Will theory has difficulty explaining enforcement of the objective K where one party’s subjective understanding of K differs from her objectively manifested behavior (i.e. we’re enforcing something that wasn’t the true will of a party at time of formation)
o Reliance Principle: views K enforcement as effort to protect promisee’s reliance on the promises of others.
▪ Helps explain why parties should be bound by the “objective” meaning of their words regardless of their intentions
▪ Reliance principle appears to blur the tort/K distinction (see Gilmore’s “Death of K”)
▪ Commonly thought to be reflected in the doctrine of promissory estoppel
▪ Limitation: clearly there are sometimes when reliance-based injury shouldn’t be actionable, but the reliance principle has trouble determining which reliance-inducing actions have legal consequences. Adherents to this principle say AP’s reliance should be “reasonable/ justifiable” in order to recover. But those terms are vague.
o Restitution Principle: views enforcement as preventing BP from unjust enrichment (“disgorging the ill-gotten gain”)
▪ in most cases, restitution interest is merely a special case of the reliance interest, insofar as the BP’s gain has resulted from reliance of AP (see Fuller’s “The Reliance Interest in K Damages”)
▪ Limitation: restitution-based cases are relatively rare when compared to will and reliance-based cases, which lessens the principle’s explanatory power; restitution principle doesn’t tell us why promise should be enforced until we know why it’s unjust to break a promise
Problem w/ Party-Based theories: Each principle rests on unarticulated considerations to distinguish enforceable from unenforceable commitments, so theories based solely on any one of these principles fail to tell us which commitments get legal protection and which don’t
• Standards-based principles: look to substance of K to see if it conforms to a particular standard of evaluation
o Efficiency Principle: enforce Ks when benefits from enforcement exceed costs; two ends of the efficiency analysis spectrum
▪ General: why does enforcing promises in general tend to benefit the parties and society at large?
▪ Specific: look to the efficiency of particular exchange/type of exchange
▪ Limitations:
• Can we really objectively tell which agreements enhance wealth and which don’t? It seems that such information is only available via the real market
• If the ultimate goal is efficiency, why contract at all? Since contracting increases transaction costs, it would make sense under this theory to allow for efficient theft (i.e. B could take A’s property w/out A’s consent as long as B agreed to pay A the value of that property)
o Principle of Substantive Fairness: courts should enforce K if the substance of K is fair; Limitations:
▪ presupposes that we can objectively evaluate the substance of a K for fairness, but no one has come up w/ such a criterion.
▪ Doesn’t tell us anything about which conscionable agreements should/shouldn’t be enforced
Problems w/ Standards-Based Principles:
o Identifying/defending the appropriate standard to distinguish enforceable from unenforceable commitments
o Require constant interferences w/ individual preferences; 2nd guessing the wisdom of the parties can create more unfairness than it cures
• Process Principles: focus on the manner in which the agreement was reached
o Bargain Principle: Ks require “bargained-for consideration”—i.e. each party’s promise/performance must be inducted by the other’s
▪ Advantages:
• Existence of a bargain provides good evidence of an intention to be bound
• Tends to exclude most social promises (i.e. those between friends and family members) that aren’t intended to create/alter legal relations
▪ Limitations:
• If interpreted restrictively, the bargain principle might lead to underenforcement: even if parties intended to be legally bound, if there’s no bargained-for consideration, this principle wouldn’t enforce (e.g. promises to convey land, promises to pay for past favors, promises to give to charities, etc.)
• If interpreted too loosely, might lead to over- enforcement: an expanded concept of consideration might bind a party that never intended to be bound (e.g. promises of financial assistance between family members)
Limitations of Process-Based Principles: exacerbates difficulties of enforcement
o Exclusive focus on process conceals substantive values that must support a choice among possible processes
• Can’t explain why certain kinds of commitments aren’t and shouldn’t be enforceable (e.g. Ks for slavery or murder)
▪ Advantages of Process-Based Principles: better provides advantages of a system of generally applicable laws (i.e. facilitating private planning, ensuring equal treatment of similarly situated parties)
Integrating the Principles via “Consent to be legally bound” (Barnett’s theory): courts should presumptively enforce commitments when there’s a manifested intention to create a legal relation (a.k.a. “consent”)
• Consent gets around the “subjective assent” issue because it’s based on objective, external behavior
• Seeks to strike a balance between the other principles
• Limitations:
o Will lead to over- and underenforcement in some cases (from standpoint of the underlying principles of enforceability
o Doesn’t explain the substantive limitations we put on contracting (e.g. Ks to do illegal activities)
Applying the Principles of Enforceability to Cases
• Marvin v. Marvin: Express services K between unmarried partners for property and financial support can be enforced, unless based upon consideration of meretricious sexual services; court allows parties to do by K what is usually done my marriage
• Morone v. Morone: In NY, court won’t infer (in fact) a services K between unmarried cohabiters, because it doesn’t want to allow via K what the legislature had decided to rescind (i.e. common law marriages)
o If the other party dies, there’s no one to confirm or deny contract
o If you want an agreement, it must be in writing
o Court doesn’t care if you gave something, but whether it’s reasonable to believe that whatever given was done gratuitously or in exchange for something else (has to be bargained-for consideration.
• Posner v. Posner: You can’t contract out of child support obligations. Prenups have to be under condition of “candor and fairness”
o Why no K for child support?
▪ Because otherwise the state/society would have to pay (child support) (law and econ justification
▪ Father has a status relationship with the children
▪ Belief that keeping families together keeps families more stable.
o Have to tell how much money you have (Hadley-esque
▪ Must be fair (reasonableness standard)
o “This is the 1st time we’ve seen the court inquire as to the terms of the K” -Professor Warren
Contract vs. Status:
Examples of status relationships:
• Parent/child
• Spouses
• Intestate decedent
• Member of armed forces/state
• Landlord/tenant
• Trustee-beneficiary
• Employeer/employee
• Principal agent
Benefits of Contract:
• Allows parties to take idiosyncracies into account/can better reflect reality than status
• Will theory (you get what you intend)
• Explicit
• Clearly to courts
• You can contract out of relationships
• You know what you’re on the hook for
• Indicates seriousness of the bargain
• Protects “non-traditional” relationships (e.g. gay couples)
Benefits of Status
• Can protect the party w/ less bargaining power (Ks tend to reinforce unequal bargaining power)
• Preserves channeling function (i.e. “if you want to get married, you have to do it our way.”)
• Cheaper than K-ing (“one size fits all”)
• Takes care of unforeseeable
Contracts have to wrestle w/ status relationships—state has options:
• No you can’t contract at all
• Yes, you can contract freely
• You can contract, but we’re going to take a close look to make sure the status relationship remains in tact
The Doctrine of Consideration
“Consideration is our way of saying that we’ll only put the expensive engine of the law behind wealth/value-enhancing transactions” –Professor Warren
Historical Origins
• The rise of assumpsit (common law action for recovery of damages from breach of K) extended promissory liability into areas previously outside the scope of the common law.
• This generated a need for a new boundary to separate enforceable from unenforceable promises
• Consideration created this boundary by reference to the circumstances in which the promise in question is made
• At common law, consideration meant the factors that motivated the promisor’s promising—the doctrine of consideration required that court look to the reasons motivating the promise in order to determine if it was legally binding
Bargain Theory of Consideration
Second Restatement’s Approach to Enforceability:
o K = enforceable promise (§§1 and 2)
o W/ some exceptions (§17(2)), a promise must be supported by consideration in order to be enforceable (§17(1))
o A promise is supported by consideration if it is bargained for (§71(1))
o Reciprocal conventional inducement: a promise is bargained for if it’s “sought by the promisor in exchange for his promise and is given by promisee in exchange for that promise” (§71(2))
Distinguishing Bargains for Gratuitous Promises
o Gratuitous/gift promise: promise to do/refrain from doing something that’s not supported by consideration.
o In the U.S., gratuitous promises are only enforceable at the moment of delivery, because that’s when we think the injury occurs. Why the hesitancy to enforce gifts?
▪ will theory: you manifest your will at delivery
▪ not wealth-enhancing
▪ don’t want to deal w/ personal relationships
▪ creates a clear boundary
o By contrast, the French do enforce promises for gifts—it’s a policy consideration
o An executory gift promise isn’t enforceable prior to delivery even if the intended recipient has promised to use the gift in a certain way (Johnson v. Otterbein University)
▪ No bargaining
▪ No reciprocal conventional inducement
o However, giving up a legal right counts as consideration even if the promisor doesn’t directly benefit (Hamer v. Sidway)
▪ Distinguished from Otterbein
• Gift in Otterbein wasn’t restrictive and this was.
• Restriction in Otterbein didn’t “cause pain”
▪ To turn a gift into a K, make a return promise (e.g. named building, discounted football tickets, etc)
▪ Policy considerations:
• Encourages value-enhancing transactions (grandson values $5K over smoking and drinking; grandfather values regulating grandson’s behavior over $5K)
• Prevents injury by promise (in the form of detrimental reliance)—grandson was injured because he gave up smoking and drinking
o Detrimental reliance on a promise to make a gift doesn’t make it enforceable if there was no bargained-for consideration (Kirksey v. Kirksey)
▪ Question of law: no conventional reciprocal inducement (no K
o Restatement §24, Comment b—Proposal of Contingent Gift: a promise to make a gift can only become an offer if it specifies a promise or performance by the offeree that serves as consideration.
o If you can find a way to give consideration for a gift, you can make it enforceable. The consideration doesn’t have to be to your detriment, it just has to result in an exchange of value (e.g. naming a building after a benefactor in exchange for a promise to make a large donation)
Past Consideration
o will not support a K (Moore v. Elmer)—promises have to be prompted by one another (Holmes’ “reciprocal conventional inducement”)
▪ Since there were separate transactions, they’re just executory gifts and gifts aren’t binding until delivery.
▪ Importance of mutual exchange and reciprocity
▪ Classic bargain theory case
Moral Considerations
o also will not support a K (Mills v. Wyman)
▪ In this case, parent had no legal duty because son was an adult, despite status relationship
o However, detrimental reliance which confers a benefit to promisor can lead court to infer a K even if the consideration is past/moral (Webb v. McGowin)
▪ Professor Warren said that Webb was a “very cabined opinion” because there were many factors in favor of enforcing the promise:
▪ Compare to Cotnam
• Parties didn’t have a chance to negotiate
• No 3rd party issue (like Mills)
• Extreme benefit conferred
• Plaintiff had lost the ability to make a living (in this case)
▪ Differences from other cases
• No way of measuring damages (like in Cotnam)
• Not actually a promise in this case (though party did perform what was ostensibly promised)
▪ Public policy: we want to encourage people to save the lives of others when possible
Restatement §86—Promise for Benefit Received:
• Promise made in recognition of a benefit previously received by the promisor from the promisee is binding to extent necessary prevent injustice.
• A promise is not binding under (a)
o if promisee conferred the benefit as gift or for other reasons promisor has not been unjustly enriched; or
o to extent its value is disproportionate to the benefit.
K Modification and the Preexisting Duty Rule
• Harris v. Watson and Stilk v. Myrick:
o In Harris, court found that a promise to modify K made under duress isn’t enforceable on public policy grounds: we don’t want people to be able to make extravagant demands in times of danger/emergency.
o Stilk court reaches the same decision, but on the grounds that there was no consideration for the modification (no emergency/duress in Stilk).
▪ We want people to rely
▪ Person who starts performance (in this case, sailors agreeing to work) has a lot of power and could punish someone from relying (see Anglia, Dempsey)
• If you pick someone who’s interchangeable, you can rely all the way back at T1. Once performance has begun, you’re stuck.
▪ The court and the plaintiffs viewed the Ks differently (highly formalistically, looking at the words and structure and not the reality of the K):
• Court: sailors promise to do all they could in exchange for money; 2nd promise was nudum pactum
• Plaintiffs version:
o K1= sailors promise to do 1/12 of the work in exchange for money
o K2= sailors agree to additionally split the workload of the 2 deserting soldiers in exchange for additional pay.
▪ Compare to other cases
• In Frigaliment, court tried to figure out what the contract was for
• In Raffles, court went by strict terms of K and doesn’t want to sit and figure it out.
• Alaska Packers: K can only be modified if additional consideration was given for the change (consistent w/ Stilk)
• HOWEVER, a subsequent oral modification to a written K is valid where unanticipated conditions arise that were not contemplated by either party when the written K was executed (Brian Construction and Development Co. v. Brighenti)
o Unlike Harris and Stilk, there isn’t the worry of advantage-taking when modifying a contract
▪ Advantage-taking would be not allowing the K to be modified as circumstances had changed.
• Perhaps could have also been alleged in Raffles since parties were thinking different things. BP could have alleged no K?
• Restatement §89—Modification of Executory K
o promise modifying a duty not fully performed on either side is binding
▪ If modification is fair + equitable in view of circumstances not anticipated by the parties when the K was made; or
▪ to extent provided by statute; or
▪ to extend justice requires enforcement in view of material change of position in reliance on the promise
• U.C.C. §2-209—Modification Rescission, and Waiver: No consideration needed to form binding agreement to modify a K.
o BUT, the modification must be made in “good faith”/in observance of reasonable standards of fair dealing.
o Policy consideration: keeps goods and services flowing because parties don’t have to adhere to the technicalities of consideration
Adequacy of Consideration
• The consideration doesn’t have to be commensurate with the value of the promise, but in order to form a binding K, the consideration cannot be valueless (Newman & Snell’s State Bank v/ Hunter)
o Contracts are supposed to be an exchange of value.
o Court shows that they look at substance vs. form when looking at consideration.
• Restatement §79—Adequacy of Consideration; Mutuality of Obligation:
o Once the requirement of consideration is met (see §71), there’s no additional requirement of
▪ A benefit to promisor or detriment to promisee
▪ Equivalence in values exchanged
▪ “mutuality of obligation
o Official Comment: Consideration must have been bargained for in order to form a binding K; sham/pretense/nominal consideration won’t satisfy the consideration requirement (Schnell v. Nell)
• Restatement §364: Effect of Unfairness:
o Court won’t give specific performance or an injunction if it the exchange is grossly inadequate or K terms are otherwise unfair.
The Intention to Be Legally Bound
Using Formalities
• Introduction:
o Fuller identifies four major functions of formalities in Ks:
▪ Evidentiary function: provides reliable evidence that a given transaction took place
▪ Cautionary function: indicates that promisor had ample opportunity to reflect/deliberate on the wisdom of his act
▪ Channeling/earmarking function: people know that if they do the formalities, they’ll get a certain result; facilitates the judicial task of determining intent of parties
▪ Clarification: when parties reduce transaction to writing, they are more likely to work out details not included in the oral agreement
• The Seal: Prior to the rise of assumpsit, parties used the seal to demonstrate an intention to be legally bound. Want of consideration (i.e. neither party intended for exchange of consideration) wasn’t a defense against enforcement, but failure of consideration (parties contemplated exchange of valuable consideration, but it never exchanged hands) was a defense
o Restatement §95—Requirements for Sealed K or Written K or Instrument:
▪ In the absence of statute, a promise is binding w/out consideration if:
▪ It’s in writing, sealed, and delivered; and
▪ Promisor and promisee are named/described in the document such that they can be IDed at delivery
o U.C.C. §2-203—Seals Inoperative: The law of sealed instruments doesn’t apply to Ks for sale or offers to buy or sell goods
• Nominal Consideration: 2nd Restatement says that nominal consideration won’t make a K binding because the law wants an element of bargain. However, Fuller takes the opposite view on the grounds that it shows intent to be legally bound.
o Courts won’t enforce promises to exchange money for money (Schnell v. Nell);
▪ Compare to Kirksey v. Kirksey where court held it was just a gratuitous promise.
o Exceptions
▪ Rare coins
▪ Money now for money in the future (e.g. loans)
▪ Foreign exchange
▪ Money that has sentimental value (e.g. “my mother’s lucky silver dollar”)
• Restatement §71—Requirement of Exchange; Types of Exchange:
o K = an enforceable promise
o With some exceptions, to be enforceable a promise must be supported by a consideration
o consideration = bargained-for performance/reciprocal promise
o promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise (basically, each party desires the promise of the other party)
• Restatement §87—Option K: offer is binding as option K if
o it’s in writing and signed by offeror
o recites purported consideration
o proposes exchange on fair terms w/in reasonable time
• Arguments that nominal consideration should bind:
o Formality (goes to intent)
o Cautionary function
o Channeling
o Slippery slope: there are no clear boundaries to divide nominal from real consideration
• Arguments that nominal consideration shouldn’t bind:
o No real exchange for value
The Doctrine of Promissory Estoppel
Development of Promissory Estoppel as Substitute for Consideration
Family Promises
• When a party is induced to detrimentally rely on a promise to make a gift, and the promisor knew/had reason to know that promisee would detrimentally rely, AP is entitled to full expectancy even if there was no consideration (Ricketts v. Scothorn)
o Don’t want people to rely to their detriment and want to protect them from harm (inconsistent with Kirksey)
▪ Same concept as Anglia, Harris, Stilk
▪ Distinguishable from Anglia
▪ Inconsistent with Boone in that in both cases, the person was induced to rely to their detriment
• May be that court looked at Boone and said since it was Statute of Frauds, they’re just not going there.
▪ Similar to Webb v. McGowin
o Decision would be puzzling to legal realists
Charitable Subscriptions
• However, some judges will turn basically anything into consideration. E.g. in Allegheny College v. Chautauqua Bank of Jamestown, Cardozo finds that promise to preserve one’s legacy can be bargained-for consideration.
o Creating a memorial fund in someone’s name is sufficient consideration
o Dissent says that if it was a K, it was a unilateral K and could only be accepted by performance (which hadn’t been done).
Promises of a Pension
• AP’s forbearance from seeking new employment is sufficient detrimental reliance on a promise such that BP is estopped from defending on grounds that there wasn’t a binding K (Feinberg v. Pfeiffer)
o Similar to Ricketts: gave expectancy, both were gifts, both detrimentally relied
▪ Turned the gift into a contract
▪ If promissory estoppel, would get reliance
▪ If a contract, then expectancy
Promissory Estoppel as Alternative to Breach of K
• Even if there’s no K, definite promises leading to reasonable detrimental reliance are compensable under doctrine of promissory estoppel as reliance damages
o Goodman v. Dicker: party can use estoppel to recover reliance damages (but not expectancy) incurred in reliance on a non-fraudulent misrepresentation of fact
▪ OK if reliance happened during negotiations (usually the case in Ks that there must be an actual contract before one is bound and that you’re generally free to revoke at any time prior to acceptance)
o Hoffman v. Red Owl Stores, Inc.: party can get reliance damages via estoppel for detrimental reliance that occurs during negotiation phase that fails to result in K
▪ Dangers of Hoffman decision:
• Court binds parties before they agree to be bound
• Chills negotiations since talking can lead to liability
Restatement §90—Promise Reasonably Inducing Action or Forbearance:
• Promise is enforceable if
o promisor should reasonably expect to induce action/forbearance on part of promisee/3rd party, and
o promisee/3rd party does act/forbear,
o and enforcement is the only way to avoid injustice
• remedy granted for breach can be limited as justice requires
Restatement §87(2) – an option contract is irrevocable where the offeree relied to his detriment upon the offer itself if the detrimental reliance was reasonably foreseeable by the offeror
Restatement (Second) of Torts (1977):
• §526—Conditions Under which Misrepresentation is Fraudulent (Scienter): A misrepresentation is fraudulent if maker:
o knows/believes the matter isn’t as s/he represents it to be
o isn’t confident in accuracy of or knows that s/he doesn’t have basis for the (stated/implied) representation
• §530—Misrepresentation of Intention:
o Representation of maker’s own intention is fraudulent if maker doesn’t have that intention or meets conditions of §526
Establishing the Elements of Promissory Estoppel: “Promise, Reasonable Reliance, and Injustice of Nonenforcement”
• Ypsilanti v. General Motors: example of injury by promise; lower court found that facts met PE test, but appellate court found that there wasn’t an “actual, clear, and definite” promise, and even if there had been, π‘s reliance would’ve been unreasonable
Performance and Breach
Breach
Constructive Conditions
• Jacob and Youngs v. Kent: Where a party substantially performs its part of K w/ trivial and innocent defects, the measure is diminution in value. (another great inference of fact case by Cardozo)
o Looks at the nature of the utility of the item to measure award
▪ Since it was pipes in this case and the main point is to move water, not as big a deal than if it was art (where you’re paying to look at it)
o Uses “innocent” standard to protect from fraudulent behavior and strategic acting.
▪ Dissent didn’t believe this was an innocent or non-trivial breach
• Tries to push back on “strategic acting” from other side (majority concerned with actions of buyer/AP, while dissent worried about seller/BP)
o Inconsistent with Hadley? Hadley said if you want something in particular, you have to put it into the contract.
Prospective Nonperformance
The Perfect Tender Rule: Cure and Rescission
• Ramirez v. Autosport:
o Seller must provide perfect tender of goods, otherwise buyer may reject.
▪ Does not matter if the defects are trivial or innocent
o Seller has right to cure defect in reasonable amount of time.
o If buyer accepts defective good, can only revoke if defect substantially devalues.
o Still consistent with Jacob and Youngs
▪ In Jacob and Youngs, the party had accepted tender whereas Ramirez did not.
Warranties in the U.C.C.
• Old Common Law Rule – Caveat Emptor
• But the U.C.C. builds in warranties
o U.C.C. §2-312—Warranty of Title and Against Infringement; Buyer’s Obligation Against Infringement:
▪ Implied warranty that seller is conveying good, clear title
▪ BUT, you can get out of the implied warranty if 1) you say so in the K or 2) circumstances give buyer reason to know that seller isn’t conveying totally good, clear title (e.g. at a foreclosure sale)
▪ Unless otherwise agreed, if seller is a merchant that regularly deals in goods of the kind, there’s an implied warranty against 3rd party infringement claims (exception: where buyer gives specifications to seller, seller’s not liable for claims that arise out of compliance w/ specifications)
• Keeps goods and services flowing, best practices (Llewelyn)
o U.C.C. §2-313—Express Warranties by Affirmation, Promise, Description, Sample:
▪ Like advertising; don’t have to say magic words (“guarantee” “warranty”)—sufficient that you’ve represented what some is supposed to be and will be held to that
▪ But, this subsection 2 leaves room for puffery
▪ See Carbolic Smoke Ball, PepsiCo
o U.C.C. §2-314—Implied Warranty: Merchantability; Trade Usage:
▪ Unless excluded by express warranty, if seller merchant then implied warranty that it will work for general purposes according to trade understandings
o U.C.C. §2-315—Implied Warranty: Fitness for Particular Use:
▪ Unless excluded by express warranty, if Seller knows or has reason to know that the good is being purchased for particular purpose and Buyer is relying on Seller’s skill as professional in the business then Seller warranties to give good fit for such a purpose
▪ Liz: “Describing your problem to Seller creates an implied warranty unless otherwise modified”
• Like in Hadley, no surprises and have to flag idiosyncratic details
o U.C.C. §2-316—Exclusion or Modification of Warranties:
▪ Reasonable words or conduct relating to express warranties shall disclaim those provided by default in U.C.C.;
▪ must be in writing and conspicuous to get rid of implied warranties
• to get rid of merchantability must mention it (if written, must be conspicuous)
• to get rid of fitness, must be in writing and conspicuous
• but generally language such as “there are no warranties which extend beyond that herein described” is fine;
• magic words: “as is” “with all faults disclaim warranty, b/c everyone knows what they mean
• if goods examined (or decided didn’t want to examine them) and OK with them, but then later find fault, no implied warranty since had opportunity to decide if an examination ought to have revealed the defect claimed on
• implied warranties can be modified by course of dealing, course of performance, or trade usage, remedies can be limited
Cure, Revocation, and Rejection in the U.C.C.
• U.C.C. §2-508—Cure by Seller of Improper Tender or Delivery; Replacement
o If buyer rejects, and time for seller’s time for performance hasn’t expired, seller can notify of intention to cure and then cure w/in the “K time” (K time can be modified by action of part) Ramirez v. Autosport
• U.C.C. §2-601—Buyer’s Rights on Improper Delivery (Perfect Tender Doctrine)
o Only applies prior to acceptance
o If tender of delivery fails to conform to K in any respect,
▪ Reject the whole; or
▪ Accept the whole; or
▪ Accept any commercial unit(s) and reject the rest
• UCC §2-602—Manner and Effect of Rightful Rejection
o Buyer has to reject and notify seller of rejection w/in reasonable time
o After rejection, buyer can’t exercise ownership over goods
o If buyer takes possession of goods prior to rejection, has to hold them w/ reasonable care for sufficient time to permit seller to remove them
• UCC §2-606—What Constitutes Acceptance of Goods: occurs when, after reasonable time to inspect goods has passed, buyer:
o Signifies to seller that goods conform or that that s/he’ll keep them in spite of a non-conformity, or
o Fails to make effective rejection
• UCC §2-607—Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to Person Answerable Over:
o Burden on buyer to establish a breach on part of seller
o If you accept, you can’t revoke, even for non-conformity (unless you had reason to believe seller would cure)
▪ But you still can have access to all other remedies
• UCC §2-608—Revocation of Acceptance in Whole or Part
o Buyer can revoke acceptance if non-conformity “substantially impairs” value of goods, if acceptance occurred
▪ On reasonable assumption that seller would cure
▪ w/out discovering non-conformity because of seller’s assurances or because of difficulty of discovery
Cost of Completion v. Diminution in Value: Expectancy Revisited
• Peevyhouse v. Garland Coal Mining Co.: When the cost of completing a contract is disproportionately higher than the diminution in value from breach and breach is incidental to the primary purpose of the contract, the court may only award diminution in value. When the contract provision breached is not innocent nor trivial and is incidental to the main purpose of the K and the economic benefit to the AP is disproportionate to the cost of performance, the AP cannot recover cost of performance.
Restatement §348—Alternatives to Loss in Value of Performance:
• If breach results in defective/unfinished construction and loss of value to AP isn’t proved w/ sufficient certainty, AP can recover damages based on:
o Diminution in property’s market price caused by breach, or
o Reasonable cost of completing performance or remedying defects if that costs isn’t clearly disproportionate to probable loss of value to AP
Defenses to Contractual Obligation
Failure of a Basic Assumption: Common sense, common knowledge, and common language helps us communicate, but what happens when the thing being communicated is uncommon or parties have uncommon understanding? We get mistakes in K and certainly no consensus ad idem.
Unconscionability:
• Williams v. Walker Thomas: Although the risk is typically on the party w/out full knowledge of the terms, a lack of bargaining power for a buyer, along with unreasonable contract terms can cause a contract to be ruled unconscionable and therefore, unenforceable.
o Why unconscionability?
▪ Worried about vulnerable parties and unequal bargaining power
▪ No meeting of minds when terms are confusing or hidden
• Impenetrable language
• Look at if reasonable person would agree to the terms
▪ Procedural v. substantive unconscionability
• Procedural: small print, weaknesses in contracting process
• Substantive: language of K
• U.C.C. §2-302—Unconscionable Contract or Clause:
o If court finds as a matter of law that a contract is unconscionable at the time it was created, it can: [note: court, and not jury, finds this, despite unconscionability being a fact-based question because think juries would be too soft]
▪ Refuse to enforce the contract
▪ Enforce the contract, but not the unconscionable clause
▪ Can limit the application of the clause to avoid the unconscionable result
o When a claim of unconscionability is made, parties are allowed to bring in evidence as to the commercial setting, purpose and effect to help the court make its determination
Restatement §208—Unconscionable K or Term: (mirrors U.C.C.)
• Wille v. Southwestern Bell Telephone: A liquidated damages clause limiting recoverable damages to K price is not facially unconscionable when both parties are experienced, there’s no unequal bargaining power, and BP breach is simply negligent (as opposed to willful/grossly negligent .
o Lesson: small biz owners need to become more sophisticated because held to a higher standard
▪ SW Bell contracted around expectancy
• If customer doesn’t perform (pay) (SW Bell gets expectancy
• If SW Bell doesn’t perform (only have to pay reliance?
• In re Realnetworks: An arbitration clause shown in an online pop up window was found to be neither substantively no procedurally unconscionable (very fact specific opinion, no clear rule…As Warren said, no clear legal standard for unconscionability)
Mistakes of Present Existing Facts: Mere mistakes like mere promises don’t get you anywhere (out of/ in to K). Mistake must be couple with something else to justify avoidance since on some level everyone who breaches made some kind of mistake. Mistake + other circumstances can constitute a K defense and/or a valid plea in avoidance?
Mutual Mistake: Requirements in order to void the contract due to mutual mistake:
1. Basic assumption: The mistake must concern a basic assumption on which the contract was made. (Examples: The belief that a violin is a Stradivarius when it is in fact a worthless 20thcentury imitation is a "basic" mistake. But the seller’s belief that a buyer to whom he is selling on credit is credit-worthy is probably a "collateral" rather than a "basic" mistake.)
2. Material effect: The mistake must have a material effect on the "agreed exchange of performance." (Example: If both Buyer and Seller thinks that a violin is a Stradivarius, but it is in fact a Guarnarius worth almost the same amount, the mistake would not have a "material effect" on the agreed exchange.)
3. Risk: 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. Often, the contract does not make it clear which party is to bear the risk of a certain type of mistake, so the court allocates this risk in the manner that it finds to be "reasonable" in the circumstances.
4. Cases:
a. Sherwood v. Walker: A party can rescind a contract when the contract was formed on the basis of a mistaken assumption of material fact made by both parties
b. Wood v. Boynton: In order to obtain rescission of a contract based on mutual mistake, the mistake must be in regard to the identity, not with regard to a mistake in value
5. Restatement:
a. §51—Mistake Defined: A mistake is a belief that is not in accord with the facts
b. §152—When Mistake of Both Parties Makes a K Voidable: K voidable by the adversely affected party when:
i. both parties mistaken at formation, and
ii. that mistake has a material effect on the exchange of promises/ performances,
iii. unless he bears the risk of mistake under §154
iv. to determine if mistake has material effect account is taken of the relied available by way of reformation, restitution, or otherwise
c. §153—When Mistake of One Party Makes K Voidable: Where one party makes mistake as to basic assumption of K at time of formation that has a material detrimental effect to that party, she can void K if she doesn’t bear risk of mistake (under §154), and
i. mistake would make enforcement unconscionable, or
ii. other party had reason to know of mistake or his fault caused mistake
d. §154—When a Party Bears the Risk of A Mistake
i. Bears it when:
1. risk allocated to him by agreement;
2. aware at time of contracting of limited knowledge on the issue that mistake arises from, but considers his knowledge sufficient to go on;
3. risk allocated by court on reasonableness grounds
e. §157—Effect of Fault of Party Seeking Relief:
i. mistaken party’s fault in failing to know/discover facts before making K doesn’t bar her from avoidance/reformation unless done in bad faith/not in reasonable standards of fair dealing
f. §158—Relief Including Restitution:
i. Court can do whatever’s needed to avoid injustice, including awarding restitution or reliance damages
Changed Circumstances
Impossibility and Impracticability
a. Taylor v. Caldwell: When unforeseen circumstances render a party’s performance impossible by destroying the item contracted for, and the risk of such an event wasn’t allocated to that party, K is not enforceable.
i. Court infers a term in K that the party’s obligation to perform ceased when the item contracted for ceased to exist
b. Restatement:
i. §261—Discharge By Supervening Impracticability: Unless there is language to the contrary, the occurrence of an event for which the non-occurrence was a basic assumption on which the K made, discharges performance
ii. §263—Destruction, Deterioration or Failure to Come into Existence of a Thing Necessary for Performance: If existence of something is necessary for performance, then
1. it’s failure to come into existence,
2. destruction, or
3. such deterioration as makes performance impracticable,
is an event the non-occurrence of which was a basic assumption on which the K made
c. U.C.C. §2-613—Casualty to Identified Goods: If goods suffer casualty w/o fault of either party prior to risk of loss transferring to Buyer or under a “no arrival, no sale” term (2-324) and loss is –
i. total, then K avoided;
ii. partial, then buyer can choose to inspect remainder and avoid or accept them with allowances on price, but w/o further right against Seller
Frustration of Purposes
Krell v. Henry: When an unforeseen event frustrates the purpose of K, duty to perform is excused (consistent w/ Restatement §265)
Perspectives on Contract Law (Randy Barnett, ed.)
Reading 1: How Should Damages for Breach of Contract Be Measured?
a) Fuller and Perdue, The Reliance Interest in Contract Damages
• Courts should award expectancy on the grounds that it serves the reliance interest.
• They want to limit recovery to just curing the injury
b) Kelly, The Phantom Reliance Interest in Contract Damages
• Courts should award expectancy because AP should be able to recover lost profits that are the consequence of BP’s breach
• Kelly thinks the default rule for damages should be: Cover expenses so that AP will break even, but presume (subject to persuasive refutation by either party) that the K would have produced zero profit
c) Craswell, Beyond Fuller and Perdue
• Focus on the effect we want to produce (not the interests we want to protect)
• Divides damages into 3 categories:
i. Remedies above expectancy (advance beyond Fuller and Perdue, bc they saw expectancy as the largest possible remedy)
ii. Remedies that approximate expectancy (same as Fuller and Perdue)
iii. Remedies below expectancy (advance beyond Fuller and Perdue, bc it’s broader that their two sub-expectation remedies (restitution and reliance))
Reading 2: Which Commitments Should be Enforced?
a) Six Reasons for Enforcing Promises
a. Cohen, The Basis of Contract
i. Surveys 6 different theories and their limitations (see pp.188-200 for details; see also the “6 Principles of Enforceability” in the Outline):
1. sanctity of promises: morally, we find it repugnant we people don’t keep their promises
2. will theory of K: we want to protect will of parties
3. injurious-reliance theory: we want BP to be liable when he makes a (explicit or implicit) promise and AP detrimentally relies
4. equivalent theory: we don’t want one party to be unjustly enriched
5. formalism in K: makes it clear when you’re in and when you’re out
6. K and distribution of risks: K law as an attempt to determine the rights/duties of parties under circumstances that weren’t expressly
b) Contract as Promise
a. Shiffrin, The Divergence of Contract and Promise
i. Understands K as a way of providing support for the political and public values associated w/ promising—thinks of K as “public compliment to the private promisor relationship” (i.e. you render public you efforts to morally manage disparate interests)
ii. 3 ways in which K law diverges from morality
1. damages: the general rule is expectancy, but Shiffrin argues that specific performance is more moral than expectancy
2. AP’s duty to mitigate: Shriffin argues that morality generally places the burden on BP to locate/provide a substitute
3. Punitive/liquidated damages: Court won’t enforce penal liquidated damages clauses, even when parties agree to them
b. Fried, The Convergence of Contract and Promise
i. Agrees /w Shiffrin that K is rooted in the “morality of promising”
ii. Argues that Ks should be enforced because they are promises
iii. Law should reflect morality
iv. Takes reverse view of Shiffrin, arguing that expectancy damages rather than specific performance should be the default remedy, when you consider the morality of promising
v. Morality is about more than just promising (e.g. it’s moral to ask AP to reasonably mitigate damages)
c. Bagchi, Contract Versus Promise
i. Enforcing private promises is to costly from a moral point of view to justify legally enforcing them in the usual case
ii. Best way to understand the divergence between K and private promise is the unity of interest in private promises
iii. Private promise is unlike K in:
1. Nature of obligation undertaken
a. Stronger moral commitment in private promising
b. While Ks must (usually) be bilateral, private promises can always be bilateral or unilateral
2. It’s effect on the relationship within which it takes place
a. The interests of intimates are already partially unified, thereby making the distribution of gains and losses less impt.
b. Since intimates know more about each other than strangers, they alter performance more reliably based on each other’s evolving interests as they go along
3. Voluntary performance is essential to private promise but not legal promise
Reading 3: Are Some Breaches of Contract Efficient?
a) Example of efficient breach:
a. P1 and P2 enter K
b. Opportunity arises for P2 such that, if he breaches his K w/ P1, he can profit to the point that he’ll be able to repay P1’s expectancy and still have profit left over
c. This makes everyone “better off”
b) Posner, Fundamental Principles of Contract Damages
a. Likes efficient breach because it leads to overall better use and resources, and compelling completion/ specific performance when efficient breach is possible leads to waste.
b. Remember Holmes’ dictum that “a K is only an agreement to pay damages if you fail to perform, and nothing else” aka “Do the thing or pay the money”
c. Cases that support efficient breach
i. Hawkins: give party value of the K (expectancy)
ii. Hadley: gives seller all info needed and cuts off remedies
iii. Dempsey: can only go with provable profits which benefits breaching party
c) Friedmann, The Efficient Breach Fallacy
a. Dislikes efficient breach/Holmes’ dictum because if it’s allowed/encouraged:
i. Parties won’t have faith that they’ll get benefit of their bargain
ii. Parties will take on more costly/less efficient means to get what the want
iii. Should lead us to accept efficient conversion/theft: if I know you value a piece of property at $X, and I know I can sell your property for more than $X, then I would be justified in taking your property w/out your permission and selling it, as long as I give you $X, and I can pocket the extra money.
b. Thinks that efficient breach theory incorrectly assumes that the remedy provides a perfect substitute for the right (Friedmann thinks the purpose of remedy is to vindicate the right, not to replace it)
d) Jiminez, A Utilitarian Critique of Wealth Maximization Theory
a. Efficient breach theory relies on an improper conflation of monetary wealth and “utility” (i.e. the subjective intrinsic value parties attach to performance)
b. Utility and wealth are two different concepts, and utility is almost always a more accurate measure of the value a party puts on a good/service than market price is, because utility takes onto account the specific mindsets of the actual parties to the negotiation.
c. Jiminez creates a framework for damage awards:
i. If K specifies liquidated damages, employ this measure bc it gives you the clearest indication of the intrinsic value that parties attached to the objects at issue
ii. If no liquidated damages clause, award specific performance
iii. If you can’t do (i) or (ii), then award expectancy
Reading 4: When Should Courts Order Specific Performance?
a) Posner, Specific Performance
a. Prefers damage remedies to specific performance bc
i. SP discourages efficient breach
ii. In physically impossible Ks, party in breach could potentially incur infinite costs if injunction is issued, even if the AP’s costs for the other party’s nonperformance were minimal
iii. Availability of injunctive relief creates a “bilateral monopoly”, which is the source of high transaction costs
iv. limiting buyers to monetary damages eliminates efficiency loss by foreclosing post-breach negotiations
v. SP is hard for courts to administer: damages are a “one-shot deal” for courts, but when they award SP, they have to keep the case on docket until performance is complete, in case AP says that BP isn’t performing in good faith. (remember Mary Clark?)
b) Schwartz, The Case for Specific Performance
a. Monetary damages can over-or undercompensate, but SP is just right.
b. AP should be able to select the remedy that best compensates her. We shouldn’t have to worry about parties in breach being exploiting because the incentives would lead AP to chose monetary damages when they are even only approximately compensatory.
c. Moral objections: SP interferes w/ the freedom of the party in breach more so than monetary damages. You have to reconcile or chose between 4 relevant goals of K law:
i. Permitting promisor to chose the terms under which to K (including an SP clause)
ii. Preventing promisor from being compelled to perform
iii. Minimizing the costs of undercompensation
iv. Giving AP the performance s/he bargained for bc of moral entitlement
d. Breaching party’s liberty interest isn’t compromised when SP is required for goods, bc it’s basically like cash or when large companies have to render services
e. However, SP does affect liberty interests of:
i. individuals who have to perform personal services (current law doesn’t allow this—Mary Clark)
ii. those who have to part w/ goods that hold a sentimental value (current law does allow this; Schwartz suggests that we disallow this)
Reading 5: When Should a Court Refuse to Enforce a Contract?
a) Duress, Undue Influence, and Unconscionability
a. Epstein, Unconscionability: A Critical Reappraisal
i. Unconscionability Doctrine should only be used to police the process (procedural unconscionability) as opposed to the outcomes (substantive unconscionability)
b. Eisenberg, The Bargain Principle and Its Limits
i. Rejects Epstein’s procedural unconscionability approach, applying unconscionability to classes of cases where the assumptions of the bargain principle aren’t valid (i.e. when there’s not a perfectly competitive market)
ii. While specific unconscionability norms make contracting more complex than letting the bargain principle run free, and placing restrictions on the bargain principle increases administration costs; limiting the bargain principle via unconscionability will help make the system more just.
Reading 6: Should Form Contracts be Enforced?
a) Rakoff, Contracts of Adhesion: An Essay in Reconstruction
a. Creates a distinction between visible and invisible terms
i. Visible terms are terms that were either bargained for or terms that a reasonable party is expected to have shopped for
ii. Invisible terms of everything else
b. Rakoff says visible terms should be enforced according to the “ordinary” rules of K law, while invisible terms should only be enforced if there’s “affirmative justification” for tem
b) Barnett, Consenting to Form Contracts
a. When one adopts
i. a consent theory of K based not on promise but on the manifested intention to be legally bound, and
ii. a properly objective interpretation of this consent, then
b. form Ks can be seen as entirely legit (although some terms should be subject to judicial scrutiny that would be inappropriate w/ nonform agreements)
c. Barnett rejects Rakoff’s approach to “invisible terms”—Barnett thinks they should be enforced except when they are radically unexpected.
Gilmore “Death of Contract”
Gilmore’s main claims:
• K law as artificial construct by scholars building a system via inductive reasoning (as opposed to being driven by the messy realities of the common law)
• By mid-20th century, Ks starts being reabsorbed into Torts
o Ultimately, Gilmore overstated his case. There’s definitely a boundary between Ks and Torts, it’s just blurred
Major thinkers:
• GRAND THEORY/objectivist guys (Langdell, Holmes, and Williston)
o Langdell: 1st to see K law as an abstraction; launches idea that there is/should be a general theory of K law
o Holmes (SCOTUS judge) and Williston (author ofRestatement (1st) of Ks):
▪ Believed in making it hard to get into K, but once you get in, you’re absolutely liable (difference between K and torts
▪ Didn’t view morality as a party of K law (remember Holmes’ statement that a K is only a promise that if you don’t perform, you’ll pay the monetary equivalent)
▪ They don’t like equitable remedies
▪ No quasi Ks
▪ Restatement (1st) §75: consideration as result of reciprocal bargain
▪ Cases that didn’t fit their theories were “wrong”
• Subjectivist guys (Cardozo, Corbin, Llewellyn):
o Cardozo: great common law judge; focused on ambiguity & intent (e.g. “good/bad faith”); read consideration into cases where it wasn’t really bargained for
o Corbin: refutes Williston’s view (as expressed in Restatement) through specific cases that didn’t fit his principles
▪ Restatement (1st) §90: promissory estoppel: chips away at bargain principle
o Llewellyn: author of U.C.C., loves trade usage
o They wanted it to be easier to get into Ks, but they correspondingly lessened remedies (e.g., to reliance in some cases, like Torts)
Contract Syllabus
Assignments are in the 2008 Barnett casebook or the 2009 Barnett reader. In addition, be sure to read the Restatements and UCC sections, whenever cited, and read all case excerpts. The other material is optional.
Assignment for the week of September 1:
Hawkins v. McGee (Tuesday, Wednesday)
Work problems on page 71-72 (Wednesday)
Assignment for the week of September 7:
Finish Hawkins v. McGee (Tuesday)
Nurse v. Barnes (Tuesday)
Barnett Reader, p. 3-45 (Tuesday)
Sullivan v. O’Connor (Tuesday)
J.O. Hooker & Sons v. Roberts Cabinet Co. (Tuesday)
Tongish v. Thomas (Wednesday)
Assignment for the week of September 14:
Read UCC 2-701, 2-702, 2-703, 2-705, 2-706, 2-708, 2-709, 2-710, 2-711, 2-712, 2-713, 2-714, 2-715 (Monday)
Hadley v. Baxendale (Monday, Tuesday)
Hector Martinez v. Southern Pacific (Tuesday, Wednesday)
Supplemental Reading:
Barnett, p. 187-225
Assignment for the week of September 21:
Morrow v. First National Bank of Hot Springs (Monday)
Chicago Coliseum v. Dempsey (Monday)
Winston Cigarette Machine v. Wells-Whitehead (brief coverage--Monday)
Anglia Television v. Reed (Monday)
Mistletoe Express v. Locke (Tuesday)
Rockingham County v. Luten Bridge (Tuesday)
Shirley Maclaine Parker v. Twentieth Century Fox (Wednesday)
Barnett, p. 47-70
Assignment for the week of September 28:
Shirley Maclaine Parker v. Twentieth Century Fox (Monday)
Neri v. Retail Marine (Monday)
Kemble v. Farren (Monday)
Skip p. 165-171
Lake River Corp v. Carborundum (Monday)
Supplemental reading, Barnett, Perspectives 71-92
Skip 175-192
Read 193-198 (Tuesday)
Loveless v. Diehl (Tuesday)
Cumbest v. Harris (Tuesday)
Scholl v. Hartzell (Tuesday)
Sedmark v. Charlie’s Chevrolet (Wednesday)
Mary Clark, a Woman of Colour (Wednesday)
Assignment for the Week of October 5
Lumley v. Wagner (Monday)
Ford v. Jermon (Monday)
Duff v. Russell (Monday)
Barnett reader, 93-102
Skip 232-249
Bush v. Canfield (Monday)
Britton v. Turner (Tuesday)
Skip 261-264
Cotnam v. Wisdom (Tuesday)
Martin v. Little Brown (Tuesday)
Skip 272-285
Assignment for the Week of October 12
Embry v. Hargadine McKittrick (Wednesday)
Lucy v. Zehmer (Wednesday)
Nebraska Seed v. Harsh (Wednesday)
Leonard v. Pepsico (Wednesday)
Skip 319-328
Dickinson v. Dodds (Wednesday)
Skip 336-342
Assignment for the Week of October 19
Carlill v. Carbolic Smoke Ball Co. (Monday)
Fluff 346-355—read it if you want; be sure to read 356
Leonard v. Pepsico (Monday)
Skip 358-361
Petterson v. Pattberg (Monday)
Hobbs v. Massasoit Whip (Monday)
Skip 370-395
Raffles v. Wichelhaus (Tuesday)
Assignment for the Week of October 25
Raffles v. Wichelhaus (Monday)
Oswald v. Allen (Monday)
Weinberg v. Edelstein (Monday)
Frigaliment v. BNS International (Monday)
Skip 421-428, but read Restatement 34, 204
New York Central Iron Work Co. v. US Radiator (Tuesday)
Eastern Airlines, Inc. v. Gulf Oil Corp. (Tuesday)
Lucy, Lady Duff Gordon, UCC 2-306 (Tuesday)
Skip 435-486
Thompson v. Libbey (Tuesday)
Brown v. Oliver (Wednesday)
Pacific Gas & Electric v. G.W. Thomas Drayage & Rigging (Wednesday)
Trident Center v. Connecticut General Life Insurance (Wednesday)
Travelers Insurance Co. v. Bailey (Wednesday)
Assignment for the Week of Nov 2
Boone v. Coe, skip Riley, but read pages 518-519 (Monday)
Skip 520-584, read 585-605
Marvin v. Marvin (Monday)
Morone v. Morone (Tuesday)
Posner v. Posner (Tuesday)
Read 615-620
Johnson v. Otterbein University (Wednesday)
Hamer v. Sidway (Wednesday)
Kirksey v.Kirksey (Wednesday)
Moore v. Elmer (Wednesday)
Mills v. Wyman (Wednesday)
Webb v. McGowin (Wednesday)
Harris v. Watson (handout) (Wednesday)
Assignment for the Week of November 9
Stylk v. Myrick (Monday)
Alaska Packers v. Domenico (Monday)
Brian Construction v. Brighenti (Monday)
Newman & Snell’s State Bank v. Hunter (Monday)
(skip 676-681, read 681-688, skip 688-691)
Schnell v. Nell (Monday)
(skip 697-721)
Ricketts v. Scothorn (Monday)
(skip 728-730)
Allegheny College v. National Chautauqua County Bank (Tuesday)
Feinberg v. Pfeifer (Tuesday)
(skip 742-750)
Assignment for the Week of November 16
Goodman v. Dicker (Monday)
Hoffman v. Red Owl (Monday)
(read 763-771, skip 772-775)
Sherwood v. Walker, p. 1051 (Monday)
Wood v. Boynton, p. 1062 (Monday)
Taylor v. Caldwell, p. 1087 (Tuesday)
Krell v. Henry, 1099 (Tuesday)
Jacob and Youngs v. Kent, p. 883 (Tuesday)
Assignment for the Week of November 23
Ramirez v. Autosport, p. 919 (Monday)
UCC warranty (2-312 through 2-316), cure, revocation, and rejection (2-601, 2-602, 2-606, 2-607, 2-608, 2-508)
Peevyhouse v. Garland Coal Mining Co., p. 934 (Monday)
Williams v. Walker-Thomas, page 1025 (Tuesday)
Willie v. Southwestern Bell Telephone, page 1033 (Tuesday)
In re Realnetworks, page 530, 1035 (Tuesday)
Barnett Reader, 401-428
Assignment for the Week of November 30
Carnival Cruise Lines, page 445 (Monday)
Restatement 211, p. 455 (Monday)
Barnett reader, p. 153-84 (Monday)
Ypsilanti v. General Motors, p. 779 (Monday)
Ypsilanti v. General Motors, p. 787 (Monday)
Discussion, no reading (1st class on Tuesday)
Gilmore, “Death of Contracts” (2nd class on Tuesday)
Talk about contract law, final exams, and the Meaning of Life (Wednesday)
Charts
Seller of automobile breaches
|Nature of breach |Applicable UCC sections |Contract price |Cover price, or market |Damages |
| | | |price, or value of goods |(Alternatively: Would specific |
| | | |accepted, as applicable |performance be available under |
| | | | |2-716?) |
|Seller fails to deliver or |2-711, 2-712, 2-715 | |$22,000 cover |$2,000 plus consequential and |
|repudiates and buyer covers with| |$20,000 | |incidental damages, less expenses |
|reasonable substitute purchase | | | |saved in consequence of breach |
|Seller fails to deliver or |2-711, 2-713, 2-715 | |$21,750 mkt. price when |$1,750 plus consequential and |
|repudiates and buyer does not | | |buyer learns of breach |incidental damages, less expenses |
|cover | | | |saved in consequence of breach |
|Seller delivers a defective car | 2-714, 2-715 |$20,000 (the value of the |$19,000 |$1,000 plus consequential and |
|that buyer keeps (hence damages | |good as warranted, for |(e.g. $1,000 repair |incidental damages |
|will be only for partial breach)| |which the contract price |costs) | |
| | |may be a good estimate). | | |
|Seller delivers a defective car |2-711, 2-712 or 2-713, | $20,000 |$22,000 cover, using 2-712 |$2,000 plus consequential and |
|that buyer justifiably returns |2-715 | | |incidental damages, less expenses |
|to seller (either rejecting | | | |saved in consequence of breach, |
|under 2-601 or revoking | | | |together with restitution of money |
|acceptance under 2-608). | | | |already paid by buyer |
| | | |$21,750 mkt. price when |$1,750 plus consequential and |
| | | |buyer learns of breach, |incidental damages, less expenses |
| | | |using 2-713 |saved in consequence of breach, |
| | | | |together with restitution of money |
| | | | |already paid by buyer |
Buyer breaches and seller is not an automobile dealer
|Nature of breach |Applicable UCC sections |Contract price |Resale price or market |Damages |
| | | |price, as applicable |(No consequential damages |
| | | | |(1-106(1)) |
|Buyer refuses delivery, |2-706, 2-710 | |$18,000 resale |$2,000 plus incidental |
|repudiates, or rejects | |$20,000 | |damages, less expenses |
|goods without | | | |saved in consequence of |
|justification, and seller | | | |breach |
|resells in good faith and | | | | |
|in commercially reasonable | | | | |
|fashion | | | | |
|Buyer refuses delivery, |2-708(1), 2-710 | |$17,250 mkt.price at time |$2,750 plus incidental |
|repudiates, or rejects | | |and place for tender |damages, less expenses |
|goods without | | | |saved in consequence of |
|justification, and seller | | | |breach |
|does not resell | | | | |
|Buyer accepts delivery but |2-709(1) | |N/A |$20,000 (in essence |
|does not pay or pays less | | | |specific performance) plus |
|than contract price because| | | |incidental damages |
|of incorrect claim of | | | | |
|damages asserted under UCC | | | | |
|2-717 | | | | |
Buyer breaches and seller is an automobile dealer
|Nature of breach |Applicable UCC sections |Contract price |Lost profits |Damages |
| | | | |(No consequential damages |
| | | | |(1-106(1)) |
|Buyer refuses delivery, |2-708(2), 2-710 |$20,000 |$3,000 |$3,000 plus incidential |
|repudiates, or rejects | | | |damages |
|goods without | | | | |
|justification, and seller | | | | |
|resells in good faith and | | | | |
|in commercially reasonable | | | | |
|fashion for same price as | | | | |
|contract price | | | | |
|Buyer accepts delivery but |2-709(1) | | |$20,000 (in essence |
|does not pay or pays less | | | |specific performance) plus |
|than contract price because| | | |incidental damages |
|of incorrect claim of | | | | |
|damages asserted under UCC | | | | |
|2-717 | | | | |
Contract for construction or renovation of residence. Assume that land owner contracts with general contractor for construction or renovation of a residence for the contract price of $250,000. As in the examples above, either the land owner or the contractor may breach and the timing and nature of the breach may vary. Assume that there is no consequential or incidental damage (as there would be, for example, if the contract called for construction of an apartment building and the contractor's delayed or defective performance resulted in a loss of rents to the land owner). Recall also that the party aggrieved by the breach may respond in different ways: it may continue its own performance notwithstanding the breach (claiming only damages for partial breach) or it may terminate the contract and refuse any further performance of its own obligations (claiming damages for total breach). Where the aggrieved party performs its own obligations and is thus seeking only damages for partial breach, I so note in the first column. Values in the middle columns are hypothesized.
General contractor breaches
|Nature and timing of breach|Contract |Cost to owner |Progress payments by |Damages |
|O = owner |price | |owner prior to breach | |
|C = contractor | | | | |
|C repudiates contract |$250,000 |$275,000 cost for construction by |$0 |$25,000 plus other loss |
|before any preparation or | |another contractor | | |
|performance | | | | |
|C substantially performs, | |Cost of completion or repair or |Not relevant (O owes |Typically, cost of completion or |
|but construction either | |diminution in market value |balance under contract,|repair, unless disproportionately |
|incomplete or defective | | |offset by damages) |higher than diminution in market |
|(damages will be only for | | | |value in which case damages are |
|partial breach) | | | |diminution in market value (see |
| | | | |Jacob and Youngs v. Kent) |
|C does not substantially | |Cost of completion or repair or |$0 (None owed because |Typically, cost of completion or |
|perform (construction is | |diminution in market value |of lack of substantial |repair, unless disproportionately |
|either incomplete or | | |performance, but C |higher than diminution in market |
|defective), and O cancels | | |likely entitled to |value in which case damages are |
|contract | | |restitution for value |diminution in market value (see |
| | | |of work performed) |Jacob and Youngs v. Kent) |
| | | |$200,000 (No more owed |Typically, cost of completion or |
| | | |because of lack of |repair, unless disproportionately |
| | | |substantial |higher than diminution in market |
| | | |performance, but C |value in which case damages are |
| | | |likely entitled to |diminution in market value (see |
| | | |restitution to extent |Jacob and Youngs v. Kent) |
| | | |of value for work | |
| | | |performed in excess of | |
| | | |$200,000, offset by | |
| | | |damages) | |
Owner breaches
Damages for total breach = loss in value + other loss (assume $0 in examples below) - cost avoided - loss avoided - progress payments received from owner
Damages for partial breach = loss in value + other loss (assume $0 in examples below)
Where "loss in value" = amount promised by the owner that the owner has not yet paid; "cost avoided" = estimated cost to complete construction (not given below), or = original estimated costs of entire project less costs incurred before breach, and "loss avoided" = compensation from alternative use of same resources (e.g. unused lumber)
Equivalent alternative formula for total breach: Damages = anticipated profit + costs incurred before breach + other loss (assume $0 in examples below) - loss avoided - progress payments received from owner.
Nature and timing of breach
O = owner
C = contractor |Contract price |Contractor's anticipated expenses of construction |Contractor's anticipated profits |Contractor's expenses incurred before time of breach |Contractor's loss avoided due to breach |Owner's progress payments at time of breach |Damages | |O repudiates contract before C begins or prepares for performance |$250,000 |$220,000 | $30,000 |$0 |$0 |$0 |$30,000 | |O fails to make progress payment during construction and C cancels for material breach | | | |$100,000 |$10,000 |$80,000 | $40,000 | |O fails to make progress payment during construction but C completes construction, or O fails to make progress payment after completion of construction | | | |Not relevant |$0 |$150,000 |$100,000 (in essence specific performance)
(damages are for partial breach) | |
Epstein, Unconscionability: A Critical Reappraisal
• Argues that the principles underlying the common law defenses of duress, fraud, and incompetence can be used to explain (and limit) the application of the defenses of unconscionability and undue influence
• INTRODUCTION
1. Although there was a general presumption of enforcing Ks at common law, there were certain grounds on which court wouldn’t enforce (fraud, duress, undue influence, incompetence), courts wouldn’t set aside unconscionable/unjust Ks.
a. Two justifications for the presumption of enforcement:
i. Utilitarian: as long as tort law protects the interests of strangers to the agreement, enforcement tends to maximize the welfare of parties/society as a whole
ii. Libertarian: people should be able to do as they please w/ what they own w/out having to justify it to the state
1. The traditional “hands off” view is less popular nowadays; the question is now what kind of public intervention is appropriate. One major tool courts use is the unconscionability doctrine
2. Epstein’s argument: UD should only be used to police the process (procedural unconscionability) as opposed to the outcomes (substantive unconscionability)
• TRADITIONAL COMMON LAW DEFENSES
A. Duress
a. When a party makes you abandon one of your rights to protect another
i. Simple duress: Agree to this K or I’ll hurt you
ii. Duress of goods: A agrees to clean B’s clothes for $10, but after B accepts, A says I won’t give them back unless you give me $15
1. But raising your price prior to acceptance is OK (economic duress), because you don’t have a right to A’s services before you K for them
b. Duress as a defense should be limited to where one party puts the other to a choice between two of his/her entitlements via wrongful means (e.g. force or breach of another valid K)
B. Fraudulent Misrepresentation
a. You enter K because someone intentionally gave you false info. Where promise induced by fraud has yet to be performed, fraud is a defense against an action for breach. Where promise has been performed, fraud is a justification for rescission (or money damages where appropriate)
b. The common law rule is that you can’t conceal, but you don’t have to disclose (i.e you don’t have an affirmative duty)
c. Although some argue that there should be an affirmative duty to disclose, arguments against that are:
i. It’s difficult to determine as a matter of public policy what info must be disclosed bc it’s “material”; it’s cheaper to let the other party ask for what it wants to know
ii. Forces the seller to act as a fiduciary
C. Incompetence (Infancy, Insanity, and Drunkenness)
a. Two kinds of costs associated w/ the rules governing incompetence:
i. Enforcing Ks that that shouldn’t be enforced
ii. Not enforcing Ks that should be enforces
b. How do we minimize these costs? Author says “take 3 considerations into account”:
i. Attempt to identify broad classes of individuals who in general aren’t able to protect their interests in negotiation
ii. Rules should be designed to allow 3rd parties to identify those in a protected class so that they can avoid K-ing w/ them
iii. Rules shouldn’t create artificial incentives for parties to lower the level of competence they bring into the marketplace
c. The infancy defense has costs, but courts have tried to deal w/ it fairly (see p. 409)
D. Unconscionability Applied
a. Ground rules are set up in order to determine whether a certain defense is valid in a particular case.
b. The rules may never eliminate errors in enforcement, but the goal is to mi minimize those errors
i. E.g., the Statute of Frauds and the parole evidence rule will lead to nonenforcement of otherwise totally valid Ks
ii. UD is similar, except instead of focusing on the writing to control against abuse, it focuses on the subject matter of the agreements and the social positions of the persons who enter them
c. One of the strengths of the UD is it’s flexibility, bc it’s difficult to determine in advance when all the situations to which it might in principle apply
d. BUT, there should be limits on the UD
E. Substantive Unconscionability
a. Most clauses that do appear in Ks can’t be fairly challenged on grounds that they were substantively unfair
b. Another problem w/ substantive unconscionability is that the attacked clauses are (@ the time of formation) arguably in the interests of both parties to the agreement
Eisenberg, The Bargain Principle and Its Limits
• Argues that unconscionability has broader application than Epstein believes, suggesting that it applies to whole classes of cases in which the assumptions on which the “bargain principle” rests do not hold
• Rejects Epstein’s procedural unconscionability approach
1. The Bargain Principle
a. Traditional view @ common law: “courts don’t inquire into the adequacy of consideration”
i. Although that principle appears to be substantive, it’s in large part a rule about remedies; i.e. AP is entitled to expectancy, not restitution
b. Arguments can be made in terms of fairness and economic efficiency that the principle should be universally applied:
i. The idea of reviewing a bargain for fairness of terms implies that an objective value can be placed upon a bargained-for performance. But a counterargument would be that such a concept is unmeaning because the value is what the parties are willing to pay for it (subjective)
1. countered by the fact that the law often measures objective value in bargains that are not made in a perfectly competitive market (e.g. off-market trustee/beneficiary Ks, off-market fiduciary/corporation Ks)
ii. We don’t want a party to have to settle for less than full performance because we don’t know if said party would’ve entered K for any lesser price
1. But, if price was set by unfair mechanism, then in may not be unfair to judicially revise it
iii. Failure to full enforce promises subverts efficiency by diminishing the willingness of private actors to enter into and plan upon he basis of credit transactions (i.e. bargains involving exchanges over time)
1. But we don’t want to encourage all types of credit transactions
iv. The K price is normally the most efficient price, because it normally moves the product to its highest valued uses.
1. But this argument loses it’s effectiveness in imperfect markets
c. BUT, these arguments are strongest in the exemplary cases, i.e. a half-completed bargain in a perfectly competitive market—i.e. a market w/ the 4 following elements
i. Homogenous commodity
ii. Perfect, cost-free info concerning price is readily available
iii. Productive resources that are sufficiently mobile such that pricing decisions readily influence there allocation
iv. Participants whose market share is so small that none can affect the commodity’s price (so everyone has to take the market price as given by outside forces)
d. The rest of the article will focus on the strength of the bargain principle when the assumptions of the exemplary case are relaxed
2. The Principle of Unconscionability
a. Intro
i. There’s always been a strong countercurrent against the bargain principle in law, giving rise to the doctrine of unconscionability
ii. But how do we square UD w/ the bargain principle?
1. Leff’s distinction between procedural and substantive unconscionability has been used to argue that courts should only accept unconscionability insofar as it can be reconciled w/ the bargain principle (i.e. only look to procedural, not substantive unconscionability)
iii. However, Eisenberg argues that the 2nd Restatement, the UCC, and case law have all authorized (@ least to some extent) substantive unconscionability
iv. One of the basic theses of this article: unconscionability as a paradigmatic concept can never be exhaustively described, but Eisenberg attempts to create a methodology though which unconscionability norms can be developed. 3 general purposes underlie the methodology:
1. Since the bargain principle rests on arguments of fairness and efficiency, it’s appropriate to develop and apply a specific unconscionability norm whenever a class of cases can be identified in which neither fairness nor efficiency supports the bargain principle’s application
2. Development and application of specific unconscionability norms is closely related to the manner in which the relevant market deviates from a perfectly competitive market
3. The distinction between procedural and substantive unconscionability is too rigid to provide significant help in either the development or the application of such norms
b. Transaction Incapacity
i. In cases where the subject matter of the bargain is highly complex, such that the average person wouldn’t be able to make an informed judgment, another party can exploit this ignorance to his/her advantage. But we don’t like this because market theory is predicated upon the idea that knowledgeable consumers will move commodities to their highest-valued uses. Such Ks would frustrate the market mechanism by moving goods away from the knowledgeable consumer
ii. Counterargument to this defense: it leads to uncertainty in contracting
1. But that’s a problem in all K defenses—it’s just a choice we’ve made to lose some certainty in favor of fairness
iii. This defense also applies in Ks between sophisticated sellers who craft complex contractual provisions in the event of non-performance (e.g. Williams v. Walker-Thomas Furniture Co.)
1. Eisenberg argues that, in this case, the K should stand, minus the offending term, unless the seller shows that a) s/he explained it to the buyer, b) the buyer knew what the term meant, or c) the buyer would have signed even if s/he knew what the term meant
c. Unfair Persuasion: use of bargaining methods that seriously impair the fee and competent exercise of judgment and produce a state of acquiescence that he promisee knows or should know is highly likely to be highly transitory
d. Price-Ignorance: seller sells product for WAY more than the market price
i. In the modern economy, most buyers assume that the advertised price is at least roughly the normal, prevailing price
ii. We shouldn’t apply the bargain principle here, because such pricing doesn’t promote fairness or efficiency, the twin aims of the bargain principle
3. Conclusion
a. Specific unconscionability norms make contracting more complex than letting the bargain principle run free, and increasing administration costs. However, they help make the system more just.
Epstein:
(1) look at PROCESS of contract formation for unconscionability
(2) avoid getting into the substance of individual contracts
(3) set up rules of unconscionability that give clarity and predictability to parties contemplating contracting
• Duress = one party puts another to a choice between that party's entitlements by invalid means
o "economic duress", however is not a defense to enforceability because economic duress is essentially how markets work
• fraud defense should be limited to active misrepresentation, without creating duties to disclose
• And as with so many things in contracts, the unconscionability doctrine has to try to strike an appropriate balance between under and over enforcement
• substantive unconscionability is not a good idea because of subjective value
Eisenberg:
• the bargain principle (i.e. don't look into substance of contracts) is undermined when we think about contracting in imperfect markets
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Gap fillers for when terms are absent in a contract.
promise
performance
Did the party accept tender?
If no, then UCC 2-601 governs
If yes, then UCC 2-608 governs
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