Contracts TermsOutline

By Wendy Ortiz,2014-06-28 21:14
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Contracts TermsOutline ...

    Contracts Outline

    I. Introduction

    A. Intro Cases and Problems

    ? Bailey v. West; Hamer v. Sidway; Ricketts v. Scothorn; Williams v.

    Walker-Thomas Furniture Co.; Sullivan v. O’Connor

    1. Elements of quasi-contract: 1) benefit conferred upon ? by ?; 2)

    appreciation by ? of such benefit; and 3) acceptance and retention by ? of

    such benefit under such circumstances that it would be inequitable to retain

    the benefit without payment of the value thereof.

    2. What constitutes consideration? (Restatement ? 71): 1)

    performance or return promise must be bargained for; 2) performance

    or return 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 (quid pro quo); 3) the performance may consist of an act

    other than a promise (actual performance), a forbearance, or the

    creation, modification, or destruction of a legal relation; 4) the

    performance or return promise may be given to the promisor or to

    some other person. It may be given by the promisee or by some other


    3. Holmes “The duty to keep a contract at common law means a

    prediction that you must pay damages if you do not keep it and

    nothing else.”

    4. Default v. Immutable Rules: Default rules govern when the parties

    have remained silent parties are allowed to privately contract around

    the default rules; Immutable rules displace freedom of contract, and

    are acceptable if society wants to protect 1) parties within the contract,

    and 2) parties outside the contract.

    5. Purposes of Contract Remedies (Restatement ? 344): 1) protect

    “expectation interest,” which is his interest in having the benefit of his

    bargain by being put in a s good a position as he would have been in

    had the contract been performed; 2) protect “reliance interest,” which

    is his interest in being reimbursed for loss caused by reliance on the

    contract by being put in as good a position as he would have been in

    had the contract not been made, or 3) protect “restitution interest,”

    which is his interest in having restored to him any benefit that he has

    conferred on the other party.

    6. Purpose of Damages (for breach) to put the aggrieved party in the

    position that would have been gained if the ? had fully performed

    (expectation plus reliance). Sullivan v. O’Connor.

    II. The Bases of Promissory Liability

    A. Theories of Contractual Obligation

1. Party-Based Theories focus on protecting one particular party to a


    ? Will theories protect the subjective intent of the promisor

    over the objective meaning of his promise

    ? Reliance theories protect the promisee’s reliance,

    enforcing common meaning of promisor’s words, regardless of


    ? Problem: Party-based theories fail to adequately

    distinguish between contract that are legally protected and those

    that are not. Consequently, contract cases must be resolved “ad

    hoc,” using “reasonableness” and policy concepts

2. Standards-Based Theories evaluates substance of contract to make

    sure it conforms to the theory’s primary purpose

    ? Efficiency theories only enforce contracts if they increase the

    overall wealth of society

    ? Substantive Fairness Theories evaluates whether the substance of

    the contract is fair (quantitative analysis of qualitative issue)

    ? Problem: Interferes with individual preferences

3. Process-Based Theories posit appropriate procedures for establishing

     enforceable obligation and then assess any given transaction to

    see if these procedures were followed

    ? Bargain Theory of Consideration enforce if there is consideration;

    don’t enforce if there isn’t

    ? Problem: Trying to strike a balance between over and under-


     B. Bargain Contract: Promise Plus Consideration

     1. Bargain Requirement

    ? Kirksey v. Kirksey (gratuitous act of brother-in-law to take in sister

    was not supported by consideration she didn’t give up anything –

    promisor didn’t benefit); Langer v. Superior Steel Corp. (pension to

    retiree was supported by consideration relied to his detriment by not

    getting another job because of this, promisor benefited); Bogigian v.

    Bogigian; Thomas v. Thomas (nominal consideration is enough

    though this is not the overall rule).

    ? The Second Restatement adopts the rule that nominal consideration

    alone cannot make a contract binding (overturning the First

    Restatement’s position that Blackacre could be sold, and enforced, for

    $1 consideration).

    ? Arguments that support nominal consideration say that the adoption of

    this concept takes the place of the seal. A contract is no longer

    enforced just by signing there must be consideration. Thus, nominal

    consideration is a procedural (or “form”) attempt to make a gift


     2. Sufficiency of Exchange

     a. In General

    ? Hamer v. Sidway ($5000 to nephew to not drink, smoke, etc.

    upheld nephew’s forbearance was adequate consideration);

    Apfel v.Prudential-Bache Securities, Inc. (court upheld an

    “idea” as consideration – based decision on fact that the

    parties bargained over this issue); Jones v. Star Credit Corp.

    (contract unconscionable - $900 for $300 freezer unequal

    bargaining power); In re Greene; Fiege v. Boehm (?’s good

    faith promise not to invoke bastardy proceedings if ? agreed

    to support the child was consideration normally an

    agreement to forbear suit on an illegitimate claim isn’t

    consideration but she didn’t know her claim was


    ? Dual notion of consideration either a benefit to the

    promisor or a detriment to the promisee; Bargained-for

    concept of consideration if it’s bargained for, is it enough?

    Usually yes… (form-based arg.)

    ? Federal Trade Commission requires door-to-door sales

    contracts to include in CONSPICUOUS language “YOU,


    ANY TIME PRIOR TO…” (“cooling off” remedy)

    ? Peppercorn Theory of Consideration peppercorn is not

    enough (contract is enforceable if it’s bargained for and has

    consideration, or if the promisee relies to her detriment on the

    promise but not if it’s just a gratuitous act with no

    consideration or reliance)

     b. Pre-Existing Duty Rule

    ? Levine v. Blumenthal; Alaska Packers’ Association v.

    Domenico; Angel v. Murray

     c. Mutuality of Obligation

    ? Rehm-Zeiher Co. V. F.G. Walker Co.; McMichael v. Price;

    Wood v. Lucy, Lady Duff-Gordon; Omni Group, Inc. V.

    Seattle-First National Bank

    C. Moral Obligation: Promise Plus Antecedent Benefit

    ? Mills v. Wyman; Manwill v. Oyler; Webb v. McGowin;

    Harrington v. Taylor

    D. Promissory Estoppel: Promise Plus Unbargained-For Reliance

? Ricketts v. Scothorn; Allegheny College v. National Chautauqua

    County Bank of Jamestown; Feinberg v. Pfeiffer Co.; Grouse v. Group

    Health Plan; Cohen v. Cowles Media

    E. Formalities in Contracting: The Statute of Frauds (discussed in class after


1. Formalities in Contracting: Promise Plus Seal or Other Form

2. The Statute of Frauds

     a. General Scope and Effect

     b. “Within the Statute:” The “One Year” Clause

    ? C.R. Klewin, Inc. v. Flagship Properties, Inc.; North Shore

    Bottling Co. v. C. Schmidt & Sons, Inc.; Mason v. Anderson

     c. Compliance with the Statute: The “One Year” Clause

    ? Crabtree v. Elizabeth Arden Sales Corp.

     d. Effect of Noncompliance

    ? DF Activities Corporation v. Brown

    III. Breach of Contract and Permissible Remedial Responses

    A. Breach

1. A promisor commits a breach when they fail without justification to

    perform when a promised performance is due. A promisor can also

    commit a breach when, by words or conduct, they repudiate a

    performance not yet due under the agreed exchange.

2. Material vs. Minor Breach: Whether a breach by one party excuses the

    other party’s duty of performance depends on whether the breach is

    material or minor. A material breach gives rise to an immediate cause

    of action for breach of entire contract and excuses further performance

    of the innocent party. A minor breach also gives immediate cause of

    action for damages caused by the breach but not on the entire contract.

    It also does not excuse the other party’s duty of further performance.

    Courts sometimes consider when looking at material vs. minor- a

    breach at the outset, willful breach, extent of uncertainty, etc.

    1. “A breach is material if the failure or deficiency in

    performance is so central to the contract that it substantially

    impairs its value.”

    2. Anticipatory Breach: Occurs when party repudiates

    obligation in anticipation of when performance is due.

    3. Under UCC 2-609 D could cancel order because it is the

    Right to adequate assurance of performance: “a contract for

    sale imposes an obligation on each party that the other’s

    expectation of receiving due performance will not be


    B. Right to Suspend Performance or Cancel Upon Prospective Inability or Breach

    1. Hochster v. De La Tour: Contract to travel and carry D’s baggage. D

    repudiates contract and P seeks other employment before date of his contract

    with D was supposed to commence. Court holds for P and says he can seek

    other employment before date of rescinded contract was supposed to start.

    Rule: When a party clearly repudiates a material promise in advance, the other

    may treat this as a breach immediately and can seek relief for breach without


    2. Taylor v. Johnston: P makes contract to breed horses with D’s stud. Ds argue

    was no repudiation because P’s actions made it impossible for them to fulfill

    contract. D never expressly repudiated contract so court holds for D and says

    there was no anticipatory breach.

3. AMF, Inc. v. McDonald’s Corp.: Contract for P to supply cash registers to D.

    The cash registers fail to live up to expectations in contract and D cancels

    order. Court holds for D because they had reasonable insecurity that P

    wouldn’t be able to fulfill contract.

4. Plotnick v. Pennsylvania Smelting & Refining Co.: P sues D for not being

    paid for lead P Delivered. Issue is whether buyer committed such a breach that

    constituted a repudiation. Court says no and says seller failed to establish

    justification that repudiation occurred. The P was not in danger economically

    for the delay in payment.

    C. Compensatory Damages

1. If one party to an enforceable bargain repudiates or fails to perform and other party

    has suspended performance or canceled contract, court will address what remedies

    are available.

    a. Compensatory Damages:

    i. Expectation: This is usual way to compensate the victim of a

    breached bargain. Expectation damages give the victim enough

    money to put him in the position he would have been in if the

    promise had been performed. They can be viewed as a substitute

    for performance. These are limited to reasonably foreseeable

    damages. They are based on the contract price (in practice exam

    question they would cover the cost Mary would have to pay to buy

    same furniture on the open market and she would have to prove

    that she have to spend more on the open market than if she got

    them from Bill and then she could receive the difference in prices).

    Note: concept of expectation relief under common law and UCC

    are very similar.

    ii. Calculating expectation damages: Injured party entitled to damage

    recovery equal to: the value lost by reason of other party’s default

    plus the expenditures he has made to carry out the expenditures (if

    any) of carrying out his own obligations of the contract.”

iii. Reliance Damages: This measure is usually used when a promise

    is enforceable only because of reliance, as in case of a relied-upon

    donative promise. Reliance damages give the breach victim her

    costs, so that she is put back into the position she would have been

    in had the promise not been made. Generally reliance damages are

    not available unless expectation damages are too speculative.

    iv. Restitutionary damages or quasi contractual damages: The

    general rule is that these are available when the non-breaching

    party has transferred a benefit to the breaching party. These are

    usually awarded when a party has conferred a benefit on another

    under an unenforceable contract (maybe unenforceable under

    statute of frauds etc.), when no contract was formed but a benefit

    was conferred in a pre-contractual stage etc.

    v. Punitive damages: To punish the wrongdoer and deter from

    engaging in similar conduct in the future. These are generally not

    allowed in commercial contract cases. They are available if the

    conduct constituting the breach is independently a tort. They may

    also be available for a breach of good faith duty on theory that

    good faith breach is tortious.

    2. Basic Policies

    a. Sullivan v. O’Connor: Plastic surgery nose case. The court does not

    grant expectation damages because doctors rarely promise to provide a

    specific result in surgery. Expectation damages too difficult to

    calculate here.

    b. Allen v. Jones: Oral contract to cremate p.’s brothers remains p. claims that

    d. was negligent in packaging and transporting the body. Difficult to draw

    line of when damages can be awarded for emotional distress. Both a tort and

    contract theory. Court holds that p. can recover for mental distress without

    accompanying physical injury but not other claims because allegations were

    too vague.

    c. F.D. Borkholder Co. v. Sandock: D constructs concrete block addition

    for P that has permanent moisture problems and the P can’t use for

    intended use. Court awards compensatory damages and awards

    punitive damages because was evidence that D engaged in fraud.

    d. Boise Dodge, Inc. v. Clark: P buys car from D believing that car was new. D knowingly set odometer back. Court awards punitive damages

    difficult to calculate other compensatory damages and fraud was

    present in this case. Rule in their state was that fraud, malice and

    oppression allowed for punitive damages finding.

    4. Consequential Damages: Foreseeability; Mitigation; Certainty; Incidental Reliance

    a. Consequential Damages: Special or consequential damages are the damages above and beyond general damages that flow from a breach as a result of the

    buyer’s circumstances. (Often used to determine lost profits General rule is

    that consequential damages are “only available to the extent that a reasonable

    person at the time of entering in to the contract would have foreseen that

    such damages would result from breach.” Example: in practice exam, Mary

    would be unlikely to recover many consequential damages because her

    expenses resulted from entering the contract and not from breach. She could

    have argued special consequential damages if she had told Bill that she

    needed couch for guests and instead had to put them up in hotel, but they

    must be foreseeable and easier to recover if she had told Bill what potential

    consequences could be.

    b. Duty to Mitigate: An injured party is not permitted to recover damages that could have been avoided with reasonable efforts.

    i. Under the UCC 2-715, if seller fails to deliver, the buyer has

    a right to cover (buy substitute goods and recover damages).

    If buyer fails to cover, she will be barred from recovering

    any consequential damages she could have prevented from


    ii. Employment Contracts: If the employer wrongfully

    terminates the employment, the employee is under a duty to

    mitigate by looking for a comparable job.

    iii. Hadley v. Baxendale: P loses profits because D fails to

    deliver crank shaft on time to P’s mill. A party injured by

    breach should recover only those damages that should

    reasonably be considered as arising naturally or in the usual

    course of things or might reasonably have been

    contemplated by the parties at the time the contract was

    made. Consequential damages can be recovered only if, at

    the time contract made, the seller had reason to foresee that

    the consequential damages were the probable result of the

    breach. Judge says shouldn’t have taken loss of profits

    into account in estimating damages because they

    weren’t reasonably foreseeable.

    iv. Spang Industries, Inc., Fort Pitt Bridge Division v.

    Aetna Casualty & Surety Co.: Contract to deliver steel.

    Court says it was foreseeable that delay in delivery

    would cause difficulties so awards consequential


    v. Hydraform Products Corp. v. American Steel &

    Aluminum Corp.: P brings action for D’s failure to

    supply steel to make woodstoves. Court says

    consequential damages should not have included lost

    profits beyond the between the 400 listed in the contract

    and the 250 actually sold.

    vi. L. Albert & Son v. Armstrong Rubber Co.: Contract to

    deliver four rubber refiners. Issue is whether buyer can

    recover on expenses incurred from reliance on promise

    of delivery of refiners. Court awards reliance damages

    for the buyers preparation for refiners to arrive.

    E.Equitable Remedies for Breach of Contract: Prohibitory Injunction and Specific


    1. Specific Performance: An equitable remedy where the court orders the breaching party to perform as promised. Usually

    invoked when there is no adequate remedy at law; ie where

    damages are not an adequate remedy. Damages are not adequate

    when contract pertains to unique subject matter such as land or

    when damages cannot be measured with reasonable certainty.

    2. Courts won’t order specific performance unless “it is easy to

    administer, the balance of hardships tips in favor of the P, and

    there is no harm to society.” (kieff)

    3. UCC 2-716 gives buyer the right to specific performance “where

    the goods are unique or in other proper circumstances.”

    4. Injunction: An order of the court compelling the performance of

    a specified act. When court considers whether an injunction

    restraining D from breaching contract is appropriate they

    consider if: without the relief, will the P suffer irreparable harm,

    Is there a substantial probability of success on the merits, will

    other be injured by the injunction and will the injunction be

    inconsistent with or further the public interest.

    5. A mandatory injunction is one where the court demands that an

    action occur and a prohibitory injunction is one where they won’t

    allow contract to go through.

i. Curtice Brothers Co. v. Catts: Contract for D to sell

    tomatoes to P. Court says not an ordinary sales

    contract because these tomatoes needed at a certain

    time and of this quality to further the business

    adequately. Court holds that D cannot sell crop to

    others. (a prohibitory injunction example?)

ii. Laclede Gas Co. v. Amoco Oil Co.: P, a gas

    company, seeks mandatory injunction prohibiting D

    from stopping gas supply. Court grants

    injunction/specific performance of contract because

    of public interest of continuing gas supply to


iii. Northern Indiana Public Service Co. v. Carbon

    County Coal Co.: P has contract with D to sell coal

    at set price for twenty years. Prise decreases and D

    attempts to get out of contract. P seeks specific

    performance. Court doesn’t grant specific

    performance because says can calculate damages. P

    argues that workers lost jobs in mines reason for

    spec. performance but court says workers not party

    to the contract. Court says specific performance too

    expensive and would impose costs on society

    greater than the benefits.

iv. Walgreen Co. v. Sara Creek Property Co.: P sues D

    for not following clause in contract that would

    prevent them from offering mall space to a

    competitor. Court does analysis of whether damages

    or specific performance would be more expensive

    because of negotiations and bargaining between

    parties and says that damages would not adequately

    compensate. Court holds for specific performance

    in form of permanent injunction and won’t allow

    competitor in until expiration of Wal Green lease.

v. American Broadcasting Companies v. Wolf: P and

    D have employment contract with clauses that say

    will have good faith negotiations after termination

    of first contract. P seeks injunction requiring D not

    to work at competitor TV station. Court says that

    contract had been terminated and so can’t get

    equitable relief even though he violated good faith

    negotiations clause.

    III. The Bargain Relationship

     A. The Agreement Process: Manifestation of Mutual Assent

1. Determining whether a bargain was made by mutual assent of parties

    is done with the “Objective” Test: Whether a reasonable person under the

    circumstances would have considered there to be a bargain through words

    and conduct.

2. Modern contract law rejects notion that a subjective meeting of the minds is

    necessary. However, if both parties subjectively give same meaning to a term

    then that meaning will govern even if it is not a reasonable meaning of term.

3. Has been greater acceptance of objective theory in common law decisions

    since twentieth-century. Evidence from party’s state of mind can sometimes

    be helpful in interpreting and giving context to words and conduct. This

    subjective evidence is not likely to be given weight unless it gives

    understanding to the objective meaning of assent.

4. Article 2 of UCC deals with the sale of goods and ordinary transactions.

    UCC Sale of Goods. UCC- 204 has a very liberal interpretation of when a

    contract is formed. 2-207 discusses when good are accepted but is different

    than common law because deals with terms differently. UCC 2-204-208

5. If offeror does not state the duration of the offer, it must be accepted within a

    reasonable time. No exact rule on effect of late acceptance (may be a new

    offer, may not make a difference etc.)

    i. Embry v. Hargadine, McKittrick Dry Goods Co.: P. believes

    that he has a renewed employment contract for the next year based

    on a statement from the president. Court holds that there was a valid

    contract because a reasonable man would have construed the

    statement to mean his employment was extended. Was no meeting of

    minds but contract still enforced.

    ii. Lucy v. Zehmer: Contract for sale of land in writing made

    while P and D drunk and discussing in bar. Court says was a

    binding contract because was in writing and were negotiations

    and because a reasonable person would have construed a

    contract. Court grants specific performance.

    iii. Cohen v. Cowles Media Company: D newspaper fails to keep

    P’s name confidential. Says contract for confidentiality

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