Contracts Law OutlineContracts Outline
I. Implied Contracts-First look to see if the K is in fact, then look to see if it is in law.
A. implied-in-fact: A K that the parties presumable intended, either by tacit understanding or by the assumption that it existed.
1. Day v. Caton, 119 Mass. 513 (Mass. 1876)-∏ built a party wall, which ∆ had the opportunity to object, but never did. The court allowed ∏ to recover b/c ∆’s conduct showed that he accepted the terms; the promise to pay was inferred.
2. Anisgard v. Bray, 419 N.E.2d 315 (Mass. App. Ct. 1981)-∏, a tennis pro, developed the plans for a tennis facility. ∆ used those plans without compensating ∏. It was implied that ∏ would be compensated for his services (had been discussed three times and ∆ knew ∏ expected to be compensated). There was a memorandum with the terms that had never been turned into a document. The court treated this as an offer.
3. Stafford v. Barnard Lumber Company, Inc., 531 N.E.2d 202-(Ind. 1988)-∆ built a house, during which general contractor was fired & went bankrupt. ∏ (subcontractor) was never paid by the general contractor & sued ∆ for the money. The owner is not liable to the subcontractor when the general contractor hasn’t paid. ∆ must pay for the materials after the general contractor left when he became the new general contractor. The breach occurred after the delivery. ∏ didn’t expect ∆ to pay him.
B. implied-in-law/quasi: An obligation imposed by law because of the conduct of the parties, or some special relationship between them, or because one of them would otherwise be unjustly enriched. It is not actually a K, but instead a remedy that allows the ∏ to recover a benefit conferred on the ∆.
1. Bailey v. West, 249 A.2d 414 (R.I. 1969)-∆ bought a lame horse & shipped it back to the seller. The seller refused it & the horse was sent to ∏’s farm, where ∏ housed the horse. ∏ was an officious intermeddler & knew there was a dispute about ownership. ∆ sent the horse to seller, not ∏.
2. Officious Intermeddler-A person who confers a benefit on another without being requested or having a legal duty to do so, and who therefore has no legal grounds to demand restitution for the benefit conferred.
3. Dines v. Liberty Mutual Insurance Co., 548 NE2d 1268-(Mass. App. Ct. 1990)-Police brought ∆’s stolen trailer to ∏’s storage facility. To prevent unjust enrichment ∏ should receive compensation from the date the trailer was originally stored b/c ∆’s property was safely stored. However, the recovery can’t exceed the amount of the trailer.
4. Mitchell v. Moore, 729 A.2d 1200 (Pa. Super. Ct. 1999)-∏ & ∆ lived together. ∏ took care of house & farm. ∆ paid bills. ∏ claimed unjust enrichment. Unjust enrichment in a domestic relationship doesn’t fall in to a quasi-K. Relationship was conducted based on love, not business. No presumption of gratuity.
5. Bolen v. Paragon Plastics Inc., 747 F. Supp. 103 (Mass. Dist. Ct. 1990)-∏ was attempting to solicit a sale from a company. ∆ said ∏ would be compensated if ∏ allowed other worker to take over. ∏ did but ∆ never paid so ∏ sought quantum meruit from the 3rd party. The court ruled that ∏ can only recover from ∆, not 3rd party. ∏ never expected 3rd party to pay him, only ∆.
6. Salamon v. Terra, 477 N.E.2d 1029 (Mass. 1985)-∆ sold ∏ land. ∏ intended to build homes on the land as a means of financing the agreement. ∏ couldn’t finish the homes & sued ∆ for the cost of the homes. The court ruled that there was an express K that stated ∆ wanted money for the lands; therefore ∏ can’t recover under quasi-K.
II. The Agreement Process-Bargaining will occur when the parties’ options are their own choice, not dictated by the law.
A. Ascertainment of Assent: Traditionally, under common law, court have used the subjective test (“meeting of the minds”; Peerless). Recently, the trend has been to move towards the objective test (“manifestation of mutual assent”; actions; consideration of the surrounding circumstances). Action may show an intent to be bound. If you have no intention to be bound it must be stipulated. Generally, social engagements aren’t binding.
1. Embry v. Hargadine, McKittrick Dry Goods Co., 105 S.W. 777 (Mo. Ct. App. 1907)-∏’s written employment K had expired. He approached ∆’s president & said that he would quit on the spot unless his K was renewed. The president said to not let it bother him and to get on with his work. The court ruled that there was a K which meant that ∆ was bound by his words. The court used a reasonable person test.
2. Lucy v. Zehmer, 84 S.E.2d 516 (Va. 1954)-The parties were drinking at a bar. ∏ offered to buy ∆’s farm (had tried on previous occasions). ∆ thought he was joking, but wrote out a K on a napkin after a 30-40 minute negotiation with ∏. ∆ and his wife signed the agreement. ∏ proceeded to obtain financing for the farm. The court ruled that there was a K because there was an exchange of promises by the buyer and the seller. The court focused on the parties’ actions at the time the K was drawn and the actions of the ∏ afterwards.
3. Cohen v. Cowles Media Co., 479 N.W.2d 387 (Minn. 1992)-∏ sued ∆ (editor) for breach of K b/c ∏ gave information about a candidate on promise of confidentiality, which was breached. The court found ∆ liable under the principle of promissory estoppel b/c ∏ relied on “long-standing journalistic tradition” (subjective and objective). The journalist intended to keep the promise.
B. Offer—Creation of Power of Acceptance: A promise to do or refrain from doing some specified thing in the future; a display of willingness to enter into a K on specified terms, made in a way that would lead a reasonable person to understand than an acceptance, having been sought, will result in a binding K. The offer must have specific terms and it cannot leave anything for the offeree to do except assent.
1. Lonergan v. Scolnick, 276 P.2d 8 (Cal. Ct. App. 1954)-∆ placed an ad to sell 40 acres of land. ∏ and ∆ had a series of communication by letter. There was no K because ∏ still had to do more than assent. The general rule is that newspaper ads are invitations, not offers.
2. Lefkowitz v. Great Minneapolis Surplus Store, 86 N.W. 689 (Minn. 1957)-∆ placed in ad in the paper to sell 3 new fur coats. ∏ went to the store, as per the ad, but ∆ said that the house rule was that the items were to be sold to women only. A week later, ∆ placed another ad in the paper. ∏ went to the store and was told the house rule again. ∏ sued for breach of K. The court ruled that ∏ could recover from the 2nd ad. The 1st ad wasn’t an offer because it was speculative. The 2nd ad was an offer because it only required acceptance. The house rule should have been stipulated before acceptance.
3. Bait and Switch-A sales practice whereby a merchant advertises a low-priced product to lure customers into the store only to induce them to buy a higher-priced product. Most states prohibit the bait and switch when the original product is not actually available as advertised. K law and judicial remedies aren’t very helpful.
4. Liberty Mutual Coins-The US Mint sent out a document to thousands of people about the sale of certain coins. The document was an invitation, with the customer making the offer. There were only a limited number of coins and there was no intent to be bound.
5. Hunt v. Rice, 521 N.E.2d 751 (Mass. App. Ct. 1988)-∆s (executors)
decided to sell land by use of sealed bids to previously selected parties. ∆s send out bids kits. The bidders had to fill out the forms and bring a 10% deposit, with the balance to be paid at the closing. ∏s had the highest bid and were told by the ∆s that they “had bought the farm”. ∆s then accepted a bid from another bidder the next day before they sent out the signed purchase and sale agreement. ∏s sued for breach of K. The court found for ∏s because there was a K at the point of the verbal agreement. The bid kits were an invitation to make an offer and the bid was an offer. If the ∆s didn’t intend to be bound until the ∏s received the purchase and sale agreement, it should have been stipulated in the original offer.
6. McCarthy v. Tobin, 706 N.E.2d 629 (Mass. 1999)-∏ executed an offer to purchase land from ∆. The OTP was subject to a PNS. It also stated that it was a legal document that creates binding obligations. The parties’ lawyers negotiated past the set deadline. They reached an agreement but before ∏ delivered the agreement and deposit, ∆ accepted another offer. The court ruled that the OTP was a binding obligation b/c it was complete and detailed and it expressly stated that it was a K. The revisions were ministerial and non-essential. If it was not intended to be binding it should have been stipulated. The time deadline condition was waived because of the conduct of the partiesx2 .
7. Southworth v. Oliver, 587 P.2d 994 (Or. 1978)-∆ decided to sell some of his land and grazing permits. ∆ had a series of conversations with the ∏, his neighbor, about the potential sale. ∏ and ∆ had a series of conversations about the sale. ∆ sent a letter with an appraisal to ∏ and other neighbors. ∏ immediately accepted by letter. ∆ sent a letter that said there was no intent to make an offer and he no longer wished to sell. The court ruled that there was an offer because of the surrounding circumstances (∏ was justified in believing that the communication with ∆ was an offer based on a reasonable person test). An offer can be made to many people, but the offeror must revoke the offer before acceptance.
8. Auctions and Competitive Bidding
a. “with reserve”: the seller has the ability to accept/reject the offer (ex: E-Bay)
b. “without reserve”: there is an offer when the seller puts the goods up; the seller must accept the highest bid and can only withdraw goods if there are no bids received in a reasonable time
C. Acceptance—Exercise of Power of Acceptance: “The offeror is the master of the offer.”
1. Method and Communication of Acceptance-
a. La Salle National Bank v. Vega, 520 N.E.2d 1129 (Ill. App. Ct. 1988)-There was a provision on an agreement that it was enforceable once it was executed. The trustee never signed the agreement. The court ruled that it was not a K and there was no acceptance, just a preliminary negotiation b/c there was something left to do.
b. Hendricks v. Behee, 786 S.W.2d 610 (Mo. Co. App. 1990)-∏ was an escrowee for ∆s (buyer and seller). B mailed a written offer, which was signed by S. Before B knew it was signed he withdrew the offer by telling S’s real estate agent. The court ruled that there was no acceptance because B wanted acceptance to be return of promise, which didn’t happen before the withdrawal. (RS § 63)
c. Escrow Money-Generally, escrow money is not consideration unless it is explicitly stated that it is to keep the offer open.
d. Ever-Tite Roofing Corp. v. Green, 83 So.2d 449 (La. Ct. App. 1955)-∆ signed and executed a document to obtain ∏’s services to re-roof ∆’s home. The document stated that it would only be binding upon written acceptance. The document was not subject to cancellation. ∏’s sales rep signed, but had no authority to accept the K. ∏ obtained ∆’s credit reports and got approval. The next day ∏ got the supplies and went to ∆’s home only to find other workers there. The court ruled that the acceptance was when ∏ bought the supplies and loaded them in his trucks, the commencement of the work so there was a binding K. The credit report was only preparation work. ∏ didn’t have to notify ∆ about the commencement of the work. (RS § 54, § 62)
e. Corinthian Pharmaceutical Systems, Inc. v. Lederle Labs, 724 F. Supp. 605 (S.D. Ind. 1989)-The shipment of non-conforming goods is generally an acceptance and a breach, but in this case ∆ protected themselves b/c the 1st shipment was an accommodation. It was a counter offer b/c the 2nd shipment was conditional on ∏’s assent. (UCC 2-206)
f. Tierney v. T. Wellington Carpets, Inc., 392 N.E.2d 1066 (Mass. App. Ct. 1979)-∏ was a general contractor who was preparing a bid. ∆ submitted a subbid. ∏ submitted his bid, including ∆’s bid. ∆ backed out after ∏ sent an unsigned K. The court ruled that there was a K because ∆ intended ∏ to include the bid in the general bid. Acceptance occurs when ∏ sent the form to ∆. When a general contractor relies on a bid in preparing his, it prevents the sub-contractor from withdrawing his bid, but it is not acceptance. (RS § 87 (2))
g. Carlill v. Carbolic Smoke Ball Co., 1 Q.B. 256 (1893)-∆ placed an ad in the newspaper that promised a reward to anyone who contracts the flu or cold after using their product 3 times/day for 2 weeks, according to the product’s directions. The ad stated that the reward had been deposited in a bank. ∏ used the product as directed and got the flu, but ∆ didn’t give her the reward. The court ruled that the newspaper ad was an offer and ∏ didn’t need to notify ∆ that she had accepted the offer. ∏ accepted when she bought the product and used it for the 2 weeks as prescribed. Consideration was the inconvenience of using the smoke ball; ∆ benefited from the increase of sales. To recover, ∏ had to get sick and notify ∆. (RS § 54)
h. Glover v. Jewish War Veterans of Unites States, 68 A.2d 233 (D.C. 1949)-There can only be acceptance of an offer if there is knowledge of the offer. Acceptance cannot occur after performance unless it is part performance. (RS § 51, § 53)
i. Industrial America, Inc. v. Fulton Industries, Inc. 285 A.2d 412 (Del. 1971)-∏ didn’t have to give notice of acceptance because ∆ had reason to know the offer was accepted because of ∏’s performance. (RS § 53)
j. Acceptance by Performance Under the RS-
i. unilateral K: a K in which only one party makes a
promise or undertakes a performance (acceptance by performance)
ii. bilateral K: a K in which each party promises a performance, so that each party is an obligor on that party’s own promise and an obligee on the other’s promise (promissory acceptance)
iii. RS § 62: acceptance could be either performance (unilateral) or promise (bilateral)
iv. RS § 45: acceptance only by performance; the commencement of performance creates an option K, which binds the offeror only
k. Adams v. Lindsell, 106 Eng. Rep. 250 (1818)-Mailbox Rule: The principle that an acceptance becomes effective – and binds the offeror – once it has been properly mailed. The mailbox rule does not apply, however, if the offer provides that acceptance is not effective until received. (RS § 40, § 63, § 67)
l. Electronic Communications-Acceptance is upon receipt, like face to face conversations.
m. McTernan v. LeTendre, 351 N.E.2d 566 (Mass. App. Ct. 1976)-An acceptance of an option K is operative upon receipt; however, in this case, the offer stated that acceptance would occur upon mailing. (RS § 63)
n. Russell v. Texas Co., 238 F.2d 636 (9th Cir. 1956)-Silence and status quo can be interpreted as acceptance. (RS § 69 (2))
o. Unordered Merchandise-Can be treated as a gift, with no obligation.
p. “Shrink Wrap” License-Acceptance doesn’t take effect until the consumer consents. In grocery stores the K is when items are placed in the cart, conditioned upon paying for it. This allows a person to change their mind.
q. Ammons v. Wilson & Co., 170 So. 227 (Miss. 1936)-The court pointed to the RS § 69 for how to deal with silence coupled with a course of dealing, which is acceptance (question went to jury). The RS was used because the UCC hadn’t been adopted. (Cf. UCC 2-206, where acceptance can be in the form of silence) (RS § 69(1)(c))
r. Smith-Scharff Paper Co. v. P.N. Hirsch & Co. Stores, Inc., 754 S.W.2d 928 (Mo. Ct. App. 1988)-∏ (paper manufacturer) sold paper bags to ∆ with ∆’s logo (∏ kept a supply on hand to fill the orders promptly) from 1947 until 1983. During that time there was a one year interruption, but ∆ bought all of ∏’s supply. ∆ was liquidated and sold, but ∆ promised that the bags in stock would be bought, but didn’t follow through. The court ruled that there was an implied K and there was an obligation of good faith in the performance of K. ∏ received assurances and there was the previous instance that the court could make their decision on.
2. Nature and Effect of Counter Offer-At common law a counter offer puts an ends to acceptance of the original offer; cannot fall back on the original offer. A counter offer is a rejection unless otherwise stated. (RS § 39)
a. Minneapolis & St. Louis Railway Co. v. Columbus Rolling-Mill Co., 119 U.S. 149 (1886)-A reuest for a smaller amount than was quoted is a counteroffer. After a counter offer is made ∏ couldn’t go back to the original offer. (RS § 38, § 59, § 61)
b. Furtado v. Woburn Machine Co.-The indemnity clause was materially altering. There was no counter offer. If the UCC applied it would be § 2-207.
c. Leonard Pevar Co. v. Evans Products Co., 524 F.Supp. 546 (De. 1981)-The court remanded the case with the following guidelines to determine where the K fell under 2-207. (UCC § 2-207)
d. Mace Industries v. Paddock Pool Equip. Co., 339 S.E.2d 527 (S.C. Ct. App. 1986)-∏ sent ∆ a price quote, in the form of a sales agreement for equipment. Agreement had terms and conditions of potential sale and a clause about late payment. The agreement also had a limited warranty and disclaimed other warranties. ∆ send a purchase order that made reference to the quote. Other side of order had terms and conditions. There were no provisions for legal fees or warranty. ∏ accepted the purchase order but not 2 provisions. The court ruled that ∆’s order was acceptance, not a counter offer. The court reasoned that the acceptance was received in a reasonable time. It did not materially alter the price quote or expressly state that they wouldn’t proceed unless ∏ accepted the new terms. (UCC § 2-207)
e. Commerce & Industry Ins. Co. v. Bayer Corp., 742 N.E.2d 567 (Mass. 2001)-When there is a K through conduct then the parties are bound to the matching terms. (UCC § 2-207)
D. Termination of Offer—Destruction of Power of Acceptance:
1. Dickinson v. Dodds, 2 Ch. D. 463 (1876)-There was an offer and a set time for acceptance. The offeree cannot accept once he learns that the offer has been accepted by someone else if there is no consideration to keep the offer open. (RS § 36, § 41, § 43)
2. Other Means of Revoking-RS § 42, § 46, § 48
E. Irrevocable Offer—Nondestructible Power of Acceptance:
1. Humble Oil & Refining Co. v. Westside Investment Corp., 428 S.W.2d 92 (Tex. 1968)-∏ paid consideration for an option K. ∏ made a conditional acceptance. ∏ later notified ∆ to disregard the previous acceptance and that he was exercising the option. The conditional acceptance was a counter-offer, not a rejection. ∆, as offeror, was bound from the beginning. ∏ was only bound once he exercised the option. (RS § 25, § 37, § 87)
2. Option K Mailbox Rule-An option K takes effect upon receipt, unless otherwise indicated. (RS § 40)
3. Effect of First Refusal-A first refusal isn’t an offer. There could only be a c/a if the land was sold to a 3rd person w/o giving ∏ a chance to buy the land first.
4. Petterson v. Pattberg, 161 N.E. 428 (N.Y. 1928)-An offer to enter into a unilateral K may be withdrawn anytime before performance of act requested.
5. Marchiondo v. Scheck, 432 P.2d 405 (N.M. 1967)-Partial performance in a unilateral K creates an option K (RS § 45). The case was remanded to determine if there was partial performance. (RS § 45àMA doesn’t follow 45 for unilateral K)
6. Brokers and Partial Performance-Some jurisdictions (MA is one) don’t consider actions taken by a broker to be partial performance, which would make the offer revocable.
7. Tristram’s Landing-When there is a unilateral K the broker must:
a. produce a buyer,
b. who is ready, willing and able to purchase
c. and a binding purchase and sales agreement must be entered into.
If the K is not entered into, the broker can still recover the commission if there is fraud or misrepresentation on behalf of the seller. The work that the broker does doesn’t count as part performance. (MA and a growing minority)
8. Hillis v. Lake, 658 N.E.2d 687 (Mass. 1995)-This was a typical unilateral K, so Tristram’s Landing is in effect. The broker should
have protected his interests, but he didn’t.
9. Upper Cape Realty Corp. v. Morris, 756 N.E.2d 1193 (Mass. App. Ct. 2001)-This was a bilateral agreement, so there is no need to focus on part performance. The ∏ is entitled to his commission b/c he introduced the buyer to ∆ through the sale sign.
10. James Baird Co. v. Gimbel Brothers, Inc., 64 F.2d 344 (2nd Cir. 1933)-A sub contractor sent out a sub bid based on an underestimation of the amount needed. The offer needed prompt acceptance after the general K was awarded. The general contractor received the offer and submitted it with his. The sub contractor notified the general contractor of the mistake as soon has he learned of it, but it was after the submission of the general bid. The use of the bid was not acceptance. The subbid was a trivial part of the general bid. (This case is not really applicable anymore.)
11. Drennan v. Star Paving Co., 333 P.2d 757 (Cal. 1958)-The general contractor didn’t know about the mistake in the sub bid. There was no reason for him to know because it fell within the range of bids. The general contractor didn’t delay in acceptance (which might have made the offer expire) and didn’t shop around. (RS § 87(2))
12. Bid Chopping-After the general contractor receives the general K, he goes back to the subcontractor and asks if the subcontractor can do the work for less then the offer. This destroys the irrevocable character of the offer.
13. Bid Shopping-After the general contractor receives the general K he solicits offers from other subcontractors to do the work for less. This destroys the irrevocable character of the offer.
14. Loranger Construction Corp. v. E.F. Hauserman Co., 374 N.E.2d 306 (Mass. App. Ct. 1978); 384 N.E.2d 176 (Mass. 1978)-The subcontractor submitted a bid to the general contractor. After the general contractor was awarded the general K he sent the subcontractor an unsigned K. The subcontractor refused to sign. There was a K. The subbid was the offer and acceptance could have been at one of three times: (1) exchange of promises initially during the phone call, (2) acceptance by performance (use of the bid) which doesn’t require notice (although this generally isn’t acceptance), or (3) the sending of the sub K.
15. Electrical Construction & Maintenance Co. Inc., v. Maeda Pacific Corp., 764 F.2d 619 (9th Cir. 1985)-∆ was preparing a general bid and sought out ∏ to submit a subbid. ∏ said he wouldn’t submit a bid unless he was awarded the sub K if his was the lowest and ∆ was awarded the general K. ∆ agreed and they entered into an oral agreement. ∏ was the lowest bidder, but ∆ didn’t use the subbid. The court ruled that a K was formed before ∆ got the general K, which was supported by consideration.
16. Chicopee Concrete Services, Inc. v. Hart Engineering Co., 479 N.E.2d 748 (Mass. App. Ct. 1985); 498 N.E.2d 121 (Mass. 1986)-Subcontractor sent general contractor a price quote for cement, which general contractor used. General contractor sent subcontractor a letter that said the award was subject to the acceptance of the general bid and that the work was to be performed in the “Scope of Work” of the general K. Subcontractor expanded its facilities and bought new equipment. General contractor was awarded the general K (which said the engineering firm had the right to approve all the sub Ks). General contractor withdrew the purchase order because subcontractor wasn’t approved by the engineering firm. The court ruled that there was a K. The terms of the general K hadn’t been incorporated into the sub K so subcontractor wasn’t bound to the approval clause. In this jurisdiction, concrete is a sale of goods, so UCC § 2-207 is applicable. (UCC § 2-207; RS § 87(2))
17. When a Subcontractor Can Be Excused from Performance-bid shopping or bid chopping; general contractor didn’t accept in a
reasonable time; there was a provision that allowed subcontractor
to revoke the offer any time before acceptance; general contractor
sent back a counter offer or an acceptance with explicit condition;
an in error in the sub bid that the general contractor knew about
III. Insufficient or Defective Formulation of Agreement: Indefinite, Incomplete, and Deferred Terms
A. Defective Formulation and Expression of Agreement: Deals with an
attempt to withdraw from the bargaining relationship.
1. Mistake-A belief not in accord with the facts. There is a K and a
person is seeking to avoid liability.
2. Misunderstanding-An assertion not in accord with the facts. There is no meeting of the minds. Therefore there is no assent or K.
3. Raffles v. Wichelhaus, 159 Eng. Rep. 375 (1864)-This is the Peerless case. The court ruled that there was no agreement because the ship was a material part of the K (misunderstanding). Once there is an ambiguity, then evidence must be presented to prove what the parties believed. (RS § 20)
4. Konic Internation Corp. v. Spokane Computer Services, Inc., 708 P.2d 932 (Idaho Ct. App. 1985)-∆’s employee contacted ∏ & was told the price was “fifty-six twenty”. He thought that was $56.20, but ∏ meant $5,620. Two weeks later the price discrepancy was discovered. The court ruled that there was a misunderstanding about the price, which is a material element. Therefore, there is no K. (RS § 20)
B. Indefinite Agreements:
1. Varney v. Ditmars, 111 N.E. 822 (N.Y. 1916)-∏ was ∆’s
employee. ∆ told ∏ that it would be worth his while if he stayed and later promised to raise his pay if he continued to work. ∆ promised that that if ∏ did the work then ∆ would pay him a fair share of the profits. The court ruled that the agreement was too indefinite to be enforced. The court could go back and look at the value of the services and determine if it exceeded his weekly pay. If it did, ∏ could be compensated. (RS § 33)
C. Incomplete and Deferred Agreement:
1. Metro-Goldwyn-Mayer, Inc. v. Scheider, 360 N.E.2d 930 (N.Y.
1976)-The court can use custom/usage of trade to fill in the gaps.
2. Joseph Martin, Jr. Delicatessen, Inc. v. Schumacher, 417 N.E.2d
541 (N.Y. 1981)-(NY, IL and MA follow this case) This was a renewal clause in a rental K. There was no mechanism to determine what the fair market price is, so the whole agreement falls apart. (Depending on the jurisdiction-not MA, NY or IL-if the renewal clause stated a specific duration, but no fee then the court could apply a figure because the parties intent to be bound.)
3. Omitted v. Future Determination-If the term is omitted then a court could impose it if there is intent to be bound. If the term is left to be decided/completed later, then the K fails. Any agreement that leaves an essential term for the future is not a K.
4. Oglebay Norton Co. v. Armco, Inc., 556 N.E.2d 515 (Ohio 1990)-Payment would be made based on the season’s rate, or if that couldn’t be obtained, payment would be mutually agreed upon. ∆ was on ∏’s board of directors and ∏ had a ship named after ∆. Over 23 years the agreement was modified 4 times. This is a K for services (common law), but the court uses the UCC as a guideline (§ 2-305(1)). The court held that the parties had a strong intent to be bound (esp. because the K was long-term). (RS § 33 does not apply)
5. Empro Manufacturing Co., Inc. v. Ball-Co. Manufacturing, Inc.,
870 F.2d 423 (7th Cir. 1989)-A letter of intent to negotiate is not an intent to be bound to K if it is very general with more detail to follow.
D. Remedies Where Agreement Incomplete or Indefinite:
1. Hoffman v. Red Owl Stores, Inc., 133 N.W.2d 267 (Wis. 1965)-∏
and ∆ entered into a franchise agreement. ∆ would build a grocery store and stock it. ∏ would invest a certain amount of money and operate the store. In reliance, ∏ sold his bakery and grocery store. The grocery store was an experiment for the franchise. ∆ continually increased the price ∏ was to invest. The court held that there was no K, but ∏ was justified in relying on the promise b/c ∆ continued to lead to him on. However, ∏ can’t recover for future/lost profits. The court pointed to evidence of potential profits to factor into the good will that he lost when he sold the store in a rush to his employee instead of on the market (reputation of business, customer appreciation—intangibles), which can be added onto the damages. (RS § 90 illustration 10)
2. Tour Costa Rica v. Country Walkers, Inc., 758 A.2d 795 (Vt. 2000)-∏ contacted ∆ with an offer to design walking tours in Costa Rica. ∏ said that because it was a new co. and had limited resources ∏ could only design the tours if there was a two year agreement. ∆ agreed and entered into an oral agreement. ∏ stopped advertising and promoting new business, including turning down other business offers. ∏ conducted tours during part of the 1st year. Then ∆ told ∏ that they would be using a different company in the future. ∏ cancelled all the reservations that had been made for ∆. ∏ had no tours to run during the tourist season. The court ruled that the only way to prevent injustice was to award expectation damages. The damages for the money that ∏ spent is a trivial part. The court could award for restitution because there is no evidence that ∆ received a benefit. (RS § 139(2))
IV. Bargain Contracts: Promise Plus Consideration-Consideration is a bargain for
exchange. It is something of value (such as an act, forbearance, or a return promise) received by a promisor from a promisee. There must be a legal detriment to the promisee; something that the promisee is not already bound to do (i.e.-no preexisting duty). There must be a legal benefit to the promisor; something that the promisor is not entitled to. The legal detriment and legal benefit aren’t the same as actual detriment or benefit.
A. Bargain Requirements
1. Kirksey v. Kirksey, 8 Ala. 131 (Ala. 1845)-If there is no consideration than it is only a gratuitous promise and there is no K. (RS § 71)
2. Langer v. Superior Steel Corp., 161 A. 571 (Pa. Super. Ct. 1932)-
Employer promised a monthly pension as long as ∏ lived, preserved the “attitude of loyalty to the company” and isn’t
employed elsewhere. The pension was paid for about 4 years. The consideration was not seeking employment elsewhere (protection of trade secrets), which is something ∏ was entitled to do. (The court could have found recovery under promissory estoppel.) (RS § 71)
3. Hayes v. Plantations Steel Co., 438 A.2d 1091 (R.I. 1982)-∏ decided to retire and said he wouldn’t retire if he didn’t expect a pension. ∆’s president said the company would take care of ∏ (no further discussion). Only unionized employees, which ∏ was not, received pensions. After he retired, ∏ would visit the company each year to thank the president for the check and would ask how long it would continue so that he could plan his retirement accordingly. The payments stopped and ∏ brought suit. The court held that there was no consideration. ∏’s retirement wasn’t induced by the pension. ∏ was never sure that the payments would continue. The promise was gratuitous. ∏ cannot recover under promissory estoppel b/c he didn’t rely on the promise when deciding to retire. (RS § 71)
4. Bogigian v. Bogigian, 551 N.E.2d 1149 (Ind. Ct. App. 1990)-There is no consideration if you don’t know what you are signing. (RS § 71)
5. Nominal Consideration-Consideration that is so insignificant as to bear no relationship to the value of what is being exchanged (e.g., $10 for a piece of real estate). Such consideration can be valid, since courts do not ordinarily examine the adequacy of consideration (although they do often inquire into such issues as fraud and duress).
6. Thomas v. Thomas, 114 Eng. Rep. 330 (Queen’s Bench, 1842)-On the decedent’s death bed he said that he wanted his W to have their home or a lump some of money. ∆s, his brothers, put the request in writing. Consideration was that W would pay rent.
7. Sealed Instrument-At common law and under some statutes, a legal document to which the bound party has affixed a personal seal, usually recognized as providing indisputable evidence of the validity of the underlying obligations. The common law distinction between sealed and unsealed instruments has been abolished by many states (with the exception of MA). The UCC provides that the laws applicable to sealed instruments so not apply to Ks for the sale of goods or negotiable instruments. In MA, a seal is a definitive presumption of consideration.
8. Marine Contractors Co., Inc. v. Hurley, 310 N.E.2d 915 (Mass. 1974)-∏ was a unique specialized business within 100 miles of Boston, with a small staff. There was a trust for permanent employees. Once an employee leaves, their money is taken out and held for five years. ∆ was a permanent employee. As a result of his employment he became skilled in the field. ∆ decided to quit. ∏ promised give ∆ his portion of the trust immediately in exchange for ∆ signing an “Agreement Not to Compete” within 100 miles of Boston for 5 years. The agreement was based on $1 consideration and said that the parties have “set their hands and seals”. A few months later ∆ began to work in the area. The court ruled that the fact that it was a sealed instrument amounted to consideration. Additionally, the five year acceleration of the trust payment was sufficient consideration. Consideration can move from a third party. Consideration was also the acceleration of the trust. There was no breach of fiduciary duty because ∆ assented. The time and space of the agreement was reasonable. The space was the area where ∏ performed work and would protect ∏’s good will. Five years would have been a problem, but the injunction only barred ∆ for three years, which is more reasonable.
9. Covenants Not To Compete- Non-compete agreements are enforced if they are reasonable, depending upon the facts of the case, to protect trade secretes and good will. A company cannot have a covenant to protect its ordinary trade.
10. Thomas v. Webster Spring Co., 638 N.E.2d 51 (Mass. App. Ct. 1994)-∏ was ∆’s employee of 20 years. ∏ had an invention, which he created off job. ∏ entered into a sealed instrument to give ∆ the rights to the invention, so that it could be patented and the marketed. ∆ obtained a patent, but didn’t market or sell the product. ∏ was allowed to withdraw his promise (the assignment of the patent) because ∆ didn’t fulfill their promise to market the product. The seal was a surplus b/c there was a bargain for exchange/consideration, namely ∆’s promises. (RS § 71)
B. Sufficiency of Exchange-In General
1. Hamer v. Sidway, 27 N.E. 256 (N.Y. 1891)-The nephew’s uncle promised him $ if he would not drink or smoke until he was 21. The nephew fulfilled the requirements of the agreement. The uncle said he would hold on to the money, plus interest until a future date when the nephew was capable of taking the money. The court ruled that there was consideration to support the K b/c the nephew abandoned his legal right to do certain things. The uncle received a benefit b/c the nephew did what the uncle requested.
2. Apfel v. Prudential-Bache Securities, Inc., 616 N.E.2d 1095 (N.Y. 1993)-The parties entered into an agreement in which ∏ conveyed his rights to a computer program and ∆ paid a fee for 5½
years. ∆ was to pay even if the idea became publicly known or a standard industry practice. ∏ promised to not tell anyone unless the idea became known to the public. ∆ refused to pay, claiming that the idea was public at the time of the sale so ∏ had no right to sell it. The court ruled that there was consideration b/c ∆’s conduct proved that they believed the idea was of value. For at least a year, ∆ was the only one in the industry to have used the idea.
3. Disparity of Consideration-Generally, a court won’t look at the disparity, unless there is disparity coupled with: misrepresentation/fraud; duress; or, overreaching.
4. Jones v. Star Credit Corp., 298 N.Y.S.2d 264 (N.Y. Gen. Term 1969)-∏s (welfare recipients) entered into an agreement buy a refrigerator at the sale price for the fridge, plus finance charges. ∏s didn’t pay the whole amount. At trial it was determined that the fridge cost significantly less than what ∏s were charged. The court ruled that what ∏s already paid was sufficient. This was based on unconscionability. The facts are compounded by the fact that it was an at-home sale. Generally, merchants can be justified in increasing the price to protect themselves from the buyer defaulting on the payments, but not in this case. (UCC 2-302)
5. Door-to-Door Sales-The FTC requires a “cooling off period” for
door-to-door sales. The seller must inform the buyer of this, in
writing and in the same language as the sale was made.
6. In re Greene, 45 F.2d 428 (S.D.N.Y. 1930)-The bankrupt, a married man, lived with the claimant, who knew he was married. He gave her money and paid for her house. The claimant alleges that he told her he would marry her. Their relationship then ended and they executed a sealed instrument, in which the bankrupt promised to pay for certain things. The $1 paid was nominal consideration. It wouldn’t support the promise to pay that much money. The promise of marriage wasn’t consideration because it was an illegal promise. The release from the home wasn’t consideration because he wasn’t bound to it. The forbearance from suing isn’t consideration because it wasn’t based on a valid claim. In NY the seal is presumptive evidence of consideration, which can be rebutted.
7. Fiege v. Boehm, 123 A.2d 316 (Md. 1956)-∆ got ∏ pregnant. D agreed to pay for medical expenses and child support. ∏ promise not to bring bastardy proceedings against ∆. A blood test showed that ∆ wasn’t the father. ∏’s consideration of forbearance was valid and made in good faith. ∏ had a reasonable belief that she had a claim.
C. Pre-Existing Duty: If a party is already under a promise to do something, than that promise isn’t valid consideration. New agreements, even if they modify previous ones, need to be supported by consideration.
1. Levine v. Blumenthal, 186 A. 457 (N.J. 1936)-This was about a lease. ∆ couldn’t afford the increase in the rent. It was agreed that the second year would be on account. There was no consideration to support the revised agreement. Consideration could have been a promise to change the payment, like a difference in kind or an agreement to avoid bankruptcy. (RS § 73)
2. Alaska Packers’ Association v. Domenico, 117 Fed. 99 (9th Cir.
1902)-∏s agreed to do any work requested by the captain. When ∏s arrived to start work, they demanded more money. The superintendent said he had no authority to modify the K, but because of the remote location and because he couldn’t find a replacement, the parties signed an agreement that ∏s would receive more money. After the season, ∆ told ∏s that they would only receive money under the original agreement. There was no consideration for the second agreement because it was created under duress and coercion. ∏s were already bound to perform under the first K. ∏s “willfully and arbitrarily” broke the original agreement and therefore, should have been liable to ∆ for damages. ∆ didn’t consent to the breach of K and had no way of knowing that it occurred. (RS § 73)
3. The Hold-Up Game-The pre-existing duty is designed to prevent
the “hold-up game”. An example of “hold-up game” is when a
contractor refuses to complete work unless they are awarded extra
compensation. Courts find that the additional compensation is
unenforceable b/c the contractor is already bound to do the work.
4. Angel v. Murray, 322 A.2d 630 (R.I. 1974)-∆ was under a series of 5-year Ks, in which he provided garbage collection for the town. There was a substantial increase in the cost of collection because of an unexpected, dramatic increase in the number of new homes. The city council granted the pay increase. There was valid consideration because the unexpected circumstances imposed a burden on ∆. Additionally, the negotiations were conducted before the K was to start. If a party has unanticipated difficulties in completing a K, courts are reluctant to apply the pre-existing duty rule. (RS § 89(a))
5. Angel Standard-An agreement can be modified if the parties voluntarily agree “and if
(1) the promise modifying the original contract was made before
the contract was fully performed on either side,
(2) the underlying circumstance which promoted the modification
were unanticipated by the parties, and
(3) the modification is fair and equitable.”
6. Tearing Up The Original Agreement-If there is no break then it is
still under the pre-existing duty rule. If there is a break then you
don’t have to deal with the pre-existing duty rule. There must be a
complete relinquishment of the original K before you enter into the
next one. (See RS § 89, comment 3)
D. Mutuality of Obligation: This section only deals with bilateral Ks, where the consideration is in the content of the promise. What the person has been promised must be examined. The test is whether the parties were bound to do something. If you can show that there was no promise, then the K fails.
1. Rehm-Zeiher Co. v. F.G. Walker Co., 160 S.W. 777 (Ky. Ct. App. 1913)-The parties entered into an agreement. It said that if ∆ lost the whiskey by fire he would be excused from filling the orders. If ∏ couldn’t use the whiskey he would be release from the K. ∏ often ordered less then the amount required by the K, but ∆ never demanded that the full amount be delivered. The court ruled that the K isn’t enforceable because it wasn’t binding on either party.
2. McMichael v. Price, 58 P.2d 549 (Okla. 1936)-The parties entered into a 10 year K in which the seller would supply all the sand (must be comparable to other sand on market) that the buyer would need. The agreement stipulated the cost and when payment would be due. The court ruled that there was an enforceable K b/c both parties were under an obligation and the parties had an intent to be bound. The buyer was bound to all the requirements from his customers; the seller has to supply what the buyer requires. (UCC § 2-306)
3. Wood v. Lucy, Lady Duff-Gordon, 118 N.E. 214 (N.Y. 1917)-∏ got the exclusive right (subject to ∆’s approval) to place ∆’s endorsement on other designs. ∏ had the exclusive right to put ∆’s designs on sale, or allow others to market them. The court ruled that the promise wasn’t illusory because ∏ made a promise and the only way to pay ∆ was to market the goods. ∏ was in the category of an exclusive agent. (See UCC 2-306(2)) Today, a court would find that the parties were under an obligation of good faith.
4. An Illusory Promise-A promise that appears on its face to be so insubstantial as to impose no obligation on the promisor; an expression cloaked in promissory terms but actually containing no commitment by the promisor. This means that the promisee can walk away at any time without liability. Generally, it is difficult to recover when there is an illusory promise.
5. Omni Group, Inc. v. Seattle-First National Bank, 645 P.2d 727 (Wash. Ct. App. 1982)-∆s were trying to sell some land. ∏ was offering to buy. The sale was subject to a satisfactory engineer’s and architect’s feasibility report. ∆s decided not to sell because they thought the provision made the promise illusory. The court ruled that the promise was not illusory, basing its decision on the subjective test. If the report was satisfactory, ∏ would have to give notice within 15 days. It was a common business practice and there was a duty to buy from ∆. The parties were subject to a duty of good faith.
6. Objective Test-Using this test, a court will to see whether in the position of the person others would be satisfied. This test is much easier to prove. When in doubt, the preference it to treat it as an objective test.
7. Subjective Test-This test focuses on the individual person and whether she is satisfied.
V. Moral Obligation: Promise Plus Antecedent Benefit-A moral obligation,
without more, can never be consideration. By its very nature, a promise creates a moral obligation, so why should it be enforced? In order for the promise to be binding there would have to be a pre-existing obligation. For example, if a debt were unenforceable because of a statute of limitations, there is still a debt and a promise to pay. The new promise gives life back to the original promise. Most jurisdictions would require the promisor to put the promise in writing.
A. Quantum Meruit: The reasonable value of services; damages awarded in an amount considered reasonable to compensate a perfom who has rendered services in a quasi-contractual relationship. It is still used today as an equitable remedy to provide restitution for unjust enrichment. ∏ confers a benefit on ∆ and expects payment; ∆ knows or should have reason to know that payment is expected, has the opportunity to reject the services, but doesn’t.
B. Mills v. Wyman, 20 Mass. (3 Pick.) 207 (1825): ∏ took care of ∆’s son until the son died. ∆ then promised to pay for all the expenses. There was no consideration because the adult son received the benefit. (If this were under RS § 86, the promisor would have to have received the benefit.)
C. Material Benefits Rule: The conferring of the benefit needs to be something more than a gift and the promise has to be in writing. This section deals with past consideration. If a benefit was conferred and it isn’t gratuitous then a promise to pay will be upheld. (RS § 86)
D. Manwill v. Oyler, 361 P.2d 177 (Utah 1961): There was no evidence of a bargain for exchange, a prior existing obligation, or that the promise was reduced to writing. It must be shown that there was an expectation of compensation at the time of performance. (RS § 82)
E. Webb v. McGowin, 168 So. 196 (Ala. Ct. App. 1935): ∏ and decedent were co-workers. ∏ was acting w/in the scope of his employment when he was dropping 75 pound blocks from the 2nd floor to the ground. Decedent was walking by as ∏ started to drop the next block. To prevent the block from falling on decedent, ∏ fell with it. Decedent was not injured, but ∏’s right leg was broken, the heel of his right foot was torn off and his right arm was broken. ∏ was crippled for life and was unable to do physical or mental labor. Decedent promised to compensate ∏ twice a month for ∏’s lifetime. When decedent died the payments continued for 27 days and then stopped. ∏ brought suit. The court held that the decedent was bound to pay b/c he received a material benefit. Decedent promised to pay for services rendered, which presumes that the services were rendered at decedent’s request. (RS § 86)
F. Harrington v. Taylor, 36 S.E.2d 227 (N.C. 1945): This is the opposite of Webb. This case comes 10 years later and the court isn’t interesting in extending the doctrine to this type of case. ∆ assaulted his W. W went to ∏’s home. ∆ broke into ∏’s home and assaulted his wife again. The wife knocked ∆ down with an ax. The wife was in the process of decapitating him or cutting his head when the ∏ caught the ax on its way down. ∏’s hand was injured, but ∆’s life was saved. ∆ promised to pay ∏, but didn’t pay the full amount. The court ruled that the promise was unenforceable b/c ∏ performed a voluntary, gratuitous, humanitarian act.
VI. Promissory Estoppel: Promise Plus Unbargained-For Reliance-The principle that a promise made w/o consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promisee to rely on the promise and if the promisee did actually rely on the promise to his/her detriment. This requires an unbargained for reliance; a promise that reduces the reliance. You must look at the K from the perspective of the promisor. Initially, promissory estoppel was only relevant in charitable gifts cases.
A. Ricketts v. Scothorn, 77 N.W. 365 (NE SC 1898): ∏’s grandfather promised to pay ∏ if she would not work. ∏ quit her job and did not work for a year. ∏ began to work, with grandfather’s consent. Grandfather died and had only paid one year’s interest on the note. ∏ was allowed to recover under promissory estoppel. It prevented the defense of no consideration from being raised. It was shown that ∏ relied on the promise to her detriment (that she didn’t work). Even though she suffered a small detriment she was still entitled to recover. (RS § 90)
B. Allegheny College v. National Chautauqua County Bank of Jamestown, 159 N.E. 173 (N.Y. 1927): ∏ was conducting a fundraising drive and Mrs. Johnson pledge. The money was to be put in a memorial fund named after her. Mrs. Johnson paid 1/5th of the pledge, which was placed in the fund. There after she repudiated her promise. After her death, ∏ brought suit to obtain the balance. The court found for ∏ there was an implied promise to pay at the time ∏ accepted the 1st payment, which created a K. Therefore, Mrs. Johnson was unable to revoke the offer and the court doesn’t have to address promissory estoppel. If the school had not followed Mrs. Johnson’s conditions then she could have revoked the offer.
D. King v. Trustees of Boston University, 647 N.E.2d 1196 (Mass. 1995)-∆ had a special collection library and decedent donated some of his papers. A letter with the papers stated that they were in ∆’s custody, but decedent retained the legal rights. The decedent donated more papers each year. Some of the papers would become a permanent gift to ∆ at the end of the year. After the decedent’s death the papers in at the library would become ∆’s. ∆ had convocation, researchers, established a staff and indexed the papers. They actively took care of the papers, spending time and money. Decedent died and his wife sued to recover the papers. The court found that this was a charitable pledge. In MA, to enforce a charitable pledge, it must be shown that there was a promise to give that was supported by consideration or reliance. (Cf. RS § 90(2)) The court upheld the jury’s finding for ∆ because there was sufficient evidence to support the finding, namely that ∆ relied on the promise. If it was merely an expectation then there could be no recovery.
E. Feinberg v. Pfeiffer, 322 S.W.2d 163 (St. Louis Court of Appeals, Missouri 1959): ∏ (employee at will) worked for ∆ for nearly 50 years. ∆ decided to increase ∏’s pay and allow her to choose when she wanted to retire (no K about pension). ∏ eventually retired and was paid her pension through several management changes. ∆ decided that the payment was a gratuity and reduced the payment by 50%. ∏ refused to accept the payment. The court found for ∏, as this is a clear case of promissory estoppel. (RS § 90)
F. Grouse v. Group Health Plan, Inc., 306 N.W.2d 114 (Minn. 1981): ∏ apply to ∆ for a pharmacist position. ∏ interviewed twice and was offered the job by one of the interviewers. ∏ accepted and said he would give his former employer notice. Later that day, ∏ received another job offer, which he declined. The general manager hired someone else over ∏ because he couldn’t get a favorable reference or background check. ∏ then called to say that he was free to work, but was told that he didn’t have a job. The court found for ∏ because he relied on the promise to his detriment. The damages awarded would be for what he lost when he quit his job and when he declined the other employment. Damages for future wages would be speculative.
G. Cohen v. Cowels Media Co.: This was a promise of confidentiality, which failed because the K couldn’t be enforced. ∏ was left to recover under promissory estoppel.
H. Rooney v. Paul D. Osborne Desk Co., Inc., 645 N.E.2d 50 (Mass. App. Ct. 1995): MA law forbids the issuance of corporate stock for future services, which is designed to protect the stockholders. If the statute was enforced, then ∏ would have received a detriment. The directors/shareholders consented to the agreement; the illegality doesn’t preclude relief. ∏ could only recover under unjust enrichment or wrongful termination, not both.
I. Hoo Siong Chow v. Transworld Airlines, 544 N.E.2d 548 (Ind. App. 1 Dist. 1989): ∏ missed his connecting flight through no fault of his own. ∏ was twice assured that if he missed the connection he would be placed on the next flight. ∏ learned that he had no reservation and eventually ∆ told him that they could no longer help him out. ∏ had to buy a business class seat. The court found for ∏ as a classic case of promissory estoppel. ∏ didn’t have to prove that ∆ would have gotten him a seat in coach to recover. (RS § 90)
VII. Formalities in Contracting: The Statute of Frauds- The SF must be raised as a defense; the court will not raise it. If it is not raised as a defense the oral K will be enforced.
A. General Scope and Effect: A statute designed to prevent fraud and perjury by requiring certain Ks to be in writing and signed by the party to be charged. The SF applies to the following types of Ks: (1) a K that cannot be performed within one year of its making, (2) a K for the sale or transfer of an interest in land, (3) a K for the sale of goods valued at $500 or more, (4) a K of an executor or administrator to answer for a decedent’s debt, (5) a K to guarantee the debt or duty of another, and (6) a K made in consideration of marriage.
B. “Within the Statute”: The “One Year” Clause: “Within the statute” means that the transaction has to be in writing. If it isn’t in writing but it is a K, it can’t be enforceable when the SF is raised as a defense. ∆ is the party to be charged. Under UCC 2-201 there is no one year rule, so the common law must be used.
1. The One Year Rule-When a promise cannot be fully performed within a year of the making thereof, it must be in writing. The year does not include the date that the K was entered into.
2. Exceptions-indefinite time period and a contingency that can be completed in the year
3. C.R. Klewin, Inc. v. Flagship Properties, Inc., 600 A.2d 772 (Conn. 1991)-∆ was to construct several buildings for a university. ∏ was to be the construction manager. They agreed on a fee that was subject to change based on when different phases were being constructed, but no other terms or conditions were agreed upon. They publicized the agreement and held a press conference. They signed a standard form, but didn’t fill in the blanks. ∆ only used ∏ for the first phase of the construction. The court held that the oral K was outside the SF and was enforceable. The court looked at the terms of the agreement, and found that it was of indefinite duration.
4. North Shore Bottling Co. v. C. Schmidt & Sons, Inc., 239 N.E.2d 189 (N.Y. 1968)-∏ and ∆ entered into an oral agreement in which ∏ was the exclusive wholesale distributor in the county of ∆’s beer as long as ∆ sold beer in the state. The court held that the oral agreement was enforceable because it is outside the SF. It is outside the SF because ∆ had the power to terminate the K (NY law). (Other courts might have enforced it because it was a K of indefinite duration.)
5. Subject Matter of the K-A K for support is contingent on the person, who could die. This means that the K would no longer be enforceable. If there is a K for employment the person could die and then the K would be completed.
6. Mason v. Anderson, 499 A.2d 783 (Vt. 1985)-∏ loaned the decedent $ based on an oral agreement that the decedent would pay the loan back in monthly installments. The decedent made the payments until he died ∏ then brought suit for the rest of the money. The court found for ∏ because the performance of lending the money was full performance from the time of the oral agreement. Under RS § 130, this takes it out of the SF and enforceable. (MA and NY do not follow this opinion.) (RS § 130)
7. Meng v. Trustees of Boston University, 693 N.E.2d 183 (Mass. App. Ct. 1998)-∏ was a vp at BU, who resigned in protest against BU’s president. Upon ∏’s resignation, the president orally promised a severance package (14 months salary/benefits and free tuition for two of his children). At the president’s request, ∏ prepared a description of his duties so that the president could transfer ∏’s responsibilities. The court found for ∆ because the oral agreement was within the SF because it could not be fully performed in one year. It does not matter that ∏ performed his duties because in MA, performance on one side doesn’t take it out of the SF. (∏ could have recovered under quantum meruit.)
8. Colorado Carpet Installation, Inc. v. Palermo, 668 P.2d 1384 (Colo. 1983)-∏ negotiated with ∆ to supply and install flooring in ∆’s home. ∏ claims that ∆ orally agreed. ∏ ordered the flooring that ∆ chose from styles she had seen in retail stores. ∆ then decided to use another company. ∏ was able to return or sell the unused flooring. The court held that it was a sale of goods and wasn’t subject to the specially manufactured goods exception of the SF (Cf. Smith-Schariff).
9. Primary Purpose/Principle Thrust Test-This is used to determine whether a K is for the sale of goods or is for services. You must look at the language, balancing of the price, the expectations involved with the K itself. Were the goods moveable at the time of the agreement? Carpeting to be purchase and installed in a theater would probably be services b/c the cost of installation would exceed the purchase.
10. Specially Manufactured Goods Exception-The goods make the K outside of the SF and enforceable w/o writing. A small change to the product that allows it to be sold in the ordinary course of business takes the K outside of the specially manufactured goods exception.
a. the goods must be specially made for the buyer;
b. the goods must be unsuitable for sale to others in the ordinary course of the seller’s business;
c. the seller must have substantially begun to have manufactured the goods or to have made a commitment for their procurement; and,
d. the manufacture or commitment must have been commenced under circumstances reasonably indicating that the goods are for the buyer and prior to the seller’s receipt of notification of contractual repudiation
C. Compliance with the Statute: The “One Year” Clause:
1. Crabtree v. Elizabeth Arden Sales Corp., 110 N.E.2d 551 (N.Y. 1953)-∏ negotiated with ∆ for an employment K. ∆’s offer was drawn up on a blank telephone order. A few days later ∏ accepted the offer. On ∏’s first day of work there was a pay card with the proposed salary. ∏ received the first increase, but not the second. Another card was drawn to reflect the mistake. However, the president refused to approve the increase. ∏ sued for breach of K. The court found for ∏ in that the K was within the SF and enforceable because of the various memoranda. To satisfy the SF there needed to be proof of a memo, which was satisfied by the payroll cards and the memo. The documents can be pieced together because they all relate to the same transaction and therefore, meet the memo requirement. (RS § 132)
2. Signature-A signature (can be a letterhead or a rubber stamp-anything equivalent to a signature) is needed to authenticate the documents and meet the SF.
EX: UCC 1-201(39): “Signed includes any symbol executed or adopted by a party with present intention to authenticate a writing.”
3. Memo Requirements Under 2-201-The requirements are less then required for a sale of land. It must
a. indicate what is being sold;
b. include a quantity term (which is binding even if it is wrong); and,
c. be signed by the parties to be charged.
D. Effect of Noncompliance:
1. Louis v. Hughes, 346 A.2d 231-Involuntary admissions from the testimony is permissible. (This case shows how testimony can elicit admissions.)
2. DF Activities Corp. v. Brown, 851 F.2d 920 (7th Cir. 1988)-∏ wanted a chance to make ∆ testify to prove that ∆’s affidavit was false and that the sale of goods was over $500, making it an exception to the SF. The court refused because it was doubtful that ∆ would change her statement; it was pointless to keep the case alive. Also, if the case was to proceed and there was an admission, then there would be an ambiguity at trial. There was no evidence that the K was enforceable under the SF. (UCC 2-201(3)(b) doesn’t apply)
3. Estoppel-Under the UCC there probably isn’t a need to get to estoppel because of the limitations (10 day time limit, specially manufactured goods, delivery of goods, payment of goods, testimony). If there is a partial shipment of goods it will depend on the K. If it is an indivisible K then the SF cannot be used as a defense. Under the RS there is § 129 (land transactions) and § 139 (other areas).
E. Suretyship Provision: One party assumes liability for a debt, default, or other failing of a second party. This must be in writing. Estoppel cannot be used in surety agreements because it would defeat the purpose of the suretyship. Reliance will not prevent a ∆ from raising the SF as a defense in suretyship relationships, whereas in other cases it would prevent the defense. (RS § 112)
1. Thomas A. Armbruster Inc. v. Barron, 491 A.2d 882 (Pa. Super. Ct. 1985)-∆ was an officer and sole shareholders of a corporation that was going to construct a bowling alley. ∏ was the general contractor that was going to build the bowling alley. ∆ entered into an oral agreement where he promised to pay the debt of the corporation. The court ruled that ∆ had to pay because the agreement didn’t satisfy the main purpose doctrine because the corporation was fledgling. (RS § 116)
2. Main Purpose Doctrine-The doctrine that if a promise to guarantee another’s debt is made primarily for the promisor’s own benefit, then the SF does not apply and the promise does not have to be in writing. (RS § 116)
3. Statute of Limitations-If a debt is unenforceable because of the s/l there can still be a suretyship relationship because there is a moral obligation.
4. Webster v. Kowal, 476 N.E.2d 205 (Mass. 1985)-∆ (attorney) agreed to pay his client’s/∏’s patient’s overdue medical bills in exchange for ∏’s expertise testimony at the patient’s trial. ∆ claimed that he only promised to pay an expert witness fee. The case was remanded for proper jury instructions. If it is a voidable or unenforceable debt there is still a debt because there is a moral obligation to pay on the part of the debtor. Therefore, the oral promise to pay the unpaid debt is the promise to pay the debt of another. It must be in writing, unless it is an exception under the main purpose doctrine. (RS § 116)
F. Agreement to Transfer an Interest in Land: A memo can be a receipt, a check or a provision in a will. (RS § 131)
1. Tzitzon Realty Co., Inc. v. Mustonen, 227 N.E.2d 493 (Mass. 1967)-∆ wrote a receipt (memo) that included the date they received the check, the amount of the check and a description of the land. The description of the land was a short-hand version of a 7 paged description. ∆ got a better deal and refused to sell. The court ruled that the memo was not void because it didn’t expressly refer to a sale. Only a general reference was needed, which showed a meeting of the minds. Consideration was not needed, only the unperformed duties of the parties to be charged.
2. Estoppel-There is an oral agreement for the sale of land. The purchaser relies on the promise, goes on the land and does some activity. The seller then refuses to sell. In that case when the SF is raised as a defense there is fraud. Under § 129, there is a means for the buyer to obtain specific performance. What the buyer does isn’t part performance; it is an act in reliance on the promise. The reliance must be reasonable and the person must change their position in reliance of that promise. (RS § 129-promissory estoppel for land and specific performance)
3. Hickey v. Green, 442 N.E.2d 37 (Mass. App. Ct. 1982)-∏ orally agreed to buy ∆’s land. ∏ paid a deposit by check, but kept the payee line blank. ∆ held on to the check, didn’t fill in a name, didn’t cash it or endorse it. Relying on the sale, ∏ sold his house within a week. ∆ knew ∏ was going to sell his house. ∆ decided to sell for a higher offer. The court found for ∏ under RS § 129. The case was remanded to the trial court to hear evidence on the sale of ∏’s home. If ∏ was still bound to the sale then there would still be reliance; if ∏ wasn’t bound then it would be up to the judge’s discretion and there could be full restitution for the cost of the litigation and the cost associated with the sale of the house. (RS § 129)
4. Barber v. Fox, 632 N.E.2d 1246 (Mass. App. Ct. 1994)-∆ wanted to unify ownership of his father’s land after the father died. ∆ bought his sibling’s shares except for ∏’s. ∏ wanted to build a house on part of the land in the future. ∆ promised that if ∏ conveyed the land to ∆, ∆ would convey a portion of the land back in the future. This was done because ∏ was going through a divorce and ∆ had plans to develop the land. 19 years later ∏ demanded her portion of the land but ∆ refused. The court found for ∏ under RS § 129 because she changed her position in reliance on ∆’s promise.
5. Sullivan v. Rooney, 533 N.E.2d 1372 (Mass. 1989)-∏ and ∆ had a 13 year relationship. They planned to get married, but never did. They bought a house together, but put it in ∆’s name only so that they could get 100% Veterans’ Administration financing. ∆ continually promised to place the deed in both names, but never did. Eventually they broke up and ∏ sued for ½ the house. The court found for ∏ on a theory of constructive trust, which is another means of preventing unjust enrichment. The court analogized it to RS § 129. The court reasoned that ∆ breached his fiduciary duty.
6. Douillette v. Parmenter, 139 N.E.2d 526 (Mass. 1957)-∆ bought a farm and asked ∏ (brother-in-law) if he wanted to move there and ∆ would deed him a piece of land. ∏ first moved in with ∆ and paid rent for one room. ∏ began to build a house on the promised land. The house was almost completed, so ∏ moved into it. Then, ∆ refused to deed the land to ∏. ∏ brought an action at law and the court found for ∆. The only bargain was the promise of the deed. There was no bargain for the building of the house. ∆ received a benefit because ∏ lived with ∆ and ∆ fed them. ∆ could raise any other expenses not compensated for. ∏ never acted with the expectation of payment because only the land was bargained for, not labor and services. ∏ had to amend his complaint to bring a suit in equity (RS § 129) in order to recover for the benefit conferred on ∆.
7. Rich v. DeAvellar, 318 N.E.2d 184 (Mass. App. Ct. 1974)-The deceased owned land with a small gravel pit. He told ∏ that if he went into business with his son ∏ would be paid from the proceeds of the gravel sale. If the business was incorporated, then the deceased promised that he would deed 17 acres of land to the corporation. ∏ agreed and started to work on the pit. The deceased never honored his promise. The court found that the oral promise could not be enforced, so ∏ was only allowed to recover the fair value of his services and the materials he supplied because ∏ brought a suit at law, not equity.
8. Modification-The SF must be complied with (i.e.-it must be in writing) when there is a change in the terms. There is an exception when there is an oral agreement to extend the time of performance (562 N.E.2d 845).
G. Agreement to Make a Testamentary Devise: An oral agreement to make a will requires that the entire K be in writing and signed by the parties to be charged. If it is not in writing, then quantum meruit can be the remedy for services rendered. Estoppel for part performance isn’t allowed for testamentary devises.
1. Mateza v. Walker, 469 F. Supp. 1276 (Mass. DC 1979)-∏ claims that ∆ promised to give ∏ her home when she no longer needed it. In return, ∏ was to take care of ∆. ∆ submitted an affidavit that stated that she had devised her home to ∏, but had eliminated the devise. ∏ submitted a letter from ∆ as a memo for evidence. The letter told ∏ to stop worrying about the future. It said that as ∆ previously stated, when ∆ moved she would provide a document that gave ∏ permission to live in the house (rent and tax free) until ∆ died, at which point the house would go to ∏. The court ruled that the letter was friendly and personal. It was a gratuitous promise that was revocable and didn’t contain a proposed arrangement. Therefore, the letter doesn’t satisfy the SF. ∏ was allowed to amend her suit to bring an action in equity. (If ∏ hadn’t been eliminated from the will, it would have been enough to satisfy the SF. ∏ can’t make use of RS § 129. In this case, the fair value of the services can exceed the value of the devise (the house). ∏ can receive the fair value of the services because the oral K is unenforceable and therefore, there is no cap.)
2. Hastoupis v. Gargas, 398 N.E.2d 745 (Mass. App. Ct. 1980)-∏ met the decedent (“uncle”) shortly after he emigrated from Greece with his family. At the uncle’s urging, ∏ and his family moved into his house. The uncle helped ∏ get a job at a bakery. ∏’s wife did most of the household chores. The uncle continually told ∏ that ∏ would be provided for in his will. ∏ didn’t buy a bakery because the uncle said ∏ would be written out of the will. When the uncle became sick he made ∏ take care of him. ∏ was afraid of being fired so the uncle told ∏ that if ∏ took care of him the uncle would give him ½ of his estate. The uncle died without providing for ∏ in his will. Because the promise was oral and therefore unenforceable under the SF, ∏ could only recover for quantum meruit for the fair and reasonable value of his services. The court awarded damages for nursing care, domestic help and caretaking of the uncle’s real estate. Those services were difficult to ascertain, so the court used the value that the uncle placed on the services (½ the estate).
3. D’Ambrosio v. Rizzo, 425 N.E.2d 369 (Mass. App. Ct. 1981)-The deceased orally promised to leave his house to ∏’s son (his grandson) if the baby was named after him. The son received the benefit. The value of the name would be difficult to ascertain, so the court put the value that the deceased placed on the name (the value of the house). That does not mean that ∏ will received the whole value of the house because that is a question for the jury.
H. Special Business Brokerage Statute of Frauds: This applies to situations where the broker is bringing businesses together, not real estate brokers. By statute (MGL c. 259, § 7 was enacted in 1985; NY has an identical one) the agreement must be in writing and signed by the parties to be charged. The exceptions are lawyers and real estate brokers. There is NO restitution under this statute. In order to recover, the parties must stick to the statute.
1. Alexander v. Berman, 560 N.E.2d 1295 (Mass. App. Ct. 1990)-In 1981 ∏ (broker) and ∆ (seller) entered into a written agreement by which ∏ was the exclusive broker for the sale of ∆’s business. In 1983, ∆ told ∏ to stop trying to sell. In 1985 ∏ called ∆ to see if ∆ was still interested in selling his business. ∆ was still interested. ∏ asked if they had a deal and ∆ said yes. The sale went through, but ∆ never paid the commission. The court ruled that the oral 1985 agreement was subject to § 7. The written 1981 agreement was no longer valid. Either ∆ ended the 1981 agreement when he told ∏ to stop trying to sell, or the 1981 agreement was ended because too much time had lapsed. ∏ could not recover under quantum meruit because the statute prohibited recover because the agreement was not in writing.
2. Bay Colony Marketing Co. v. Fruit Salad, 672 N.E.2d 987 (Mass. App. Ct. 1996)-∏ (food broker) had a written agreement with ∆ (supplies food) in which ∏ marketed the products to the military market (not at issue). ∏ and ∆ entered into an oral agreement in which ∏ would marketed the products to the civilian market. In return, ∏ would receive a monthly commission. ∆ paid the commission for the civilian sales for a while and then stopped. The court found for ∆ because a food broker falls under § 7 and the K was oral so there is no recovery.
IX. Avoidance of Contract
A. Capacity of Contract: Infancy, Mental Incompetence: There is not much litigation about children now.
1. Infants- The age of maturity is now 18 (it used to be 21). A K that an infant enters into is a voidable K. This means that the infant can avoid the K during their infancy, or within a reasonable time thereafter. Affirmation must be made in a reasonable time after the age of majority. What is reasonable will depend on the jurisdiction. There are some Ks that an infant can’t avoid because of a statute or because it is a necessary K. If it is a necessary K, then recovery would be the fair market value, not the K price. In MA, even if an infant misrepresents his age, the infant can still avoid the K (this varies by jurisdiction). There are other situations in which an infant cannot avoid a K. Such an example would be when a smart 17 year old is working for a company and has access to trade secrets. In that case, the infant would be bound to a covenant to not disclose those secrets.
2. Mental Incompetence-There are two forms: (a) the person cannot comprehend what is going on; (b) the person may comprehend what is going on, but cannot act in a reasonable manner. If it is the latter, then knowledge is required on the part of the other person. (RS § 15) The question is how to deal with the situation. The court will look to see what is fair and just under the circumstances. The presumption is that the person is competent until it is rebutted.
3. Guardianship-If the incompetent is under guardianship, then the incompetent has no contractual ability. The K would be void. A guardian is someone who looks over the person and the body.
4. Conservatorship-If the incompetent is under conservatorship then the K can still be avoided. A conservator looks after the person’s property. If the conservator decides to go through with a transaction, she should get permission in order to protect herself from future litigation.
5. Heights Realty, Ltd. v. Phillips, 749 P.2d 77 (N.M. 1988)-The incompetent (84 years old) decided to sell her property. She contacted ∏, a real estate broker. An exclusive listing agreement was signed. An addendum was created a few weeks later to change the deposit price. A month later there was an offer to purchase, which the incompetent denied. ∏ brought this suit for commission having performed under the agreement. To determine competency, you must look at the person at the time the K is entered into. The incompetent didn’t have a lawyer or an appraiser. When she changed the deposit she had a broken foot, in pain and was lying down. She didn’t have any recollection of the event. The granddaughter and son-in-law testified about her incompetence. She was unable to communicate with people or order room service. She forgot that her brother had died. The court rules that ∆ rebutted the presumption of competency.
6. Inadequacy of Consideration, Plus Something Else-Courts won’t be concerned with disparity of consideration unless there is something else. In this case there was something else. The incompetent was suffering from diminished capacity (organic brain syndrome from excessive drinking). The court allowed for a rescission of the K.
7. Rescission-(1) A party’s unilateral unmaking of a K for a legally sufficient reason, such as the other party’s material breach. Rescission is generally available as a remedy or defense for a non-defaulting party and restores the parties to their precontractual positions. (2) An agreement by contracting parties to discharge all remaining duties of performance and terminate the K.
8. Beavers v. Weatherly, 299 S.E.2d 730 (Ga. 1983)-The incompetent was under guardianship. The guardian sold the land to an innocent 3rd party. By virtue of the fact that she was under guardianship makes the K void. The 3rd party doesn’t receive the title because void title cannot be passed. However, the 3rd party does have recourse against the guardian for restitution of the purchase price.
9. Problem: The Case of the Drug Influenced Seller-Alvin owned a gold and silver welterweight champion belt. He took LSD and began to hallucinate. A voice told him to sell the belt and donate the proceeds to charity. Alvin went to a pawn shop and sold the belt. There was no reason for the buyer to know of the incapacity, so there was no problem with the transaction. Additionally, it was involuntary incapacitation. (RS § 16)
10. Farnum v. Silvano, 540 N.E.2d 202 (Mass. App. Ct. 1989)-∏ (90 years old) sold her property (valued at $115,000) for $64,900 so that she could move into a nursing home. ∆ (24 years old) was the buyer who knew ∏ because he mowed her lawn and did her landscaping. ∏ trusted ∆ and had confidence in him. ∏’s nephew warned ∆ not to go through with the sale. ∆ supplied an attorney for ∏ at the closing. ∏ had tried to sell to a neighbor for even less. A few years before the conveyance, ∏’s mental competence began to fail and she had organic brain disease. After the transaction, ∏’s nephew became her guardian. The court ruled that there was a basis for avoiding the K. The decisive factor was that ∆ was aware of ∏’s inability to act in a reasonable manner. (RS § 15)
11. Avoidance-When you avoid you are rescinding the transaction. The question becomes whether the parties must be returned to status quo. In the previous case, ∆ doesn’t have to pay interest on the money. Depending on the facts, the court might order payment for improvements made on the property (even though she didn’t request the improvements).
B. Unilateral and Mutual Mistakes: One party can be mistaken or there can be mutual mistake. When there is a mutual mistake, the party that has been adversely affected can avoid the K. If one party is at fault, then rescission isn’t precluded. If there is knowledge on part of one of the mistake then the K is voidable, not void. When a K is to be avoided, the parties will have to be put back in status quo. (RS § 152, § 153, § 154 § 157)
1. Restitution-Restitution is for the purchase price. If improvements were made on the property, then it would be up to the discretion of the courts.
2. Rescission-Rescission at law means that you tender back what you received. You would call up the other party and say that you rescind the K. You accomplish the rescission by yourself. Rescission in equity means that you cannot accomplish rescission by yourself. You don’t have to tender back the property at the time of avoidance. The court will establish that.
3. Boise Junior College District v. Mattefs Construction Co., 450 P.2d 604 (Idaho 1969)-∆ was one of 10 construction K bidders. ∆ submitted a bid bond with the bid. The bond stated that ∆ promised to pay the difference between the bid and the next highest bid if ∆ refused to enter into a K with ∏. The bid couldn’t be withdrawn until 45 days after it was opened. ∏’s architect estimated that the project would cost $150,000. The lowest bidder was $134,896. ∆ was the next lowest at $141,048. The third lowest bidder was $148,915. The first bidder refused to enter into a K. ∆ refused to enter into a K because of an omission of glass (mistake in formulation). ∏ brought suit to enforce the bid bond. ∆ wanted rescission of the K. The court found that there was a unilateral mistake of fact. The omission was 14%, which was significant because the project had a small anticipation of profit. ∏ wouldn’t be adversely affected because they already had someone else lined up and they weren’t going over their budget. Additionally, ∆ discovered the mistake the day of the bidding and promptly notified ∏.
5. Mistake in Judgment-A mistake in judgment is a mistake in estimating the amount of glass needed. It would be a mistake in judgment if the glass had been included for $10,000 when it should have been $100,000.
6. Beachcomber Coins, Inc. v. Boskett, 400 A.2d 78 (N.J. Super. 1979)-∏ was a retail coin dealer; ∆ was a part-time coin dealer. ∏ brought this action for rescission of a dime that ∏ bought from ∆ for $500. The dime was minted in 1916 in Denver. At the time of the sale both parties believed that the coin was genuine. ∏ examined the coin for 45 minutes before buying it. It was really a counterfeit. This was a mutual mistake about a basic assumption. There was no evidence that there was any discussion about the coin being faked. The normal policy for coin dealers was a return privilege for altered coins. Trade and usage could be part of the evidence only if there is advanced notice to the other party that it is going to be used. In this case, ∆ didn’t notify ∏ that trade and usage would be used as evidence.
7. Lanawee County Board of Health v. Messerly, 331 N.W.2d 203 (Mich. 1982)-The Pickles bought a piece of land with a 3-unit apartment from ∆s. ∏ condemned the property shortly thereafter and got a permanent injunction that prohibited human habitation on the property until the sewage system was brought up to code. ∆s had acquired the land from a man who installed a septic tank on the property w/o a permit and in violation of the health code. The court found that there was a mutual mistake on a basic assumption of the K. The subject matter of the K was income-producing property. Even those there was a mutual mistake of fact, the K had a provision that opened the door for the court to say the Pickles took the land as is. Therefore, the allocation of risk was on the Pickles, so they can’t recover.
8. Problems: The Cases of the Unknown Oil Deposits, Mestrovic’s Drawings, and a Barren Cow-
a. A farmer agreed to sell 40 acres of land to a neighbor. Before closing it was discovered that the land contained valuable oil deposits. The farmer brought a suit for rescission. The court ruled that there was no mistake because it was up to the farmer to ascertain the value of the land before he sold it. The subject matter of the K was for the sale of 40 acres.
b. A bank, as executor of the estate of a deceased widow of a famous artist entered into a K to sell the home. At the closing, the buyer complained that the premises were in a cluttered condition. The bank said that they could do the cleaning, or the buyer could and keep any items of personal property that was found. The court held that there was no meeting of the minds. There was a common assumption that both parties believed that there was only trash.
c. The parties entered into a K to buy/sell a cow that was assumed to be with calf. The price was five times the market price for a comparable non-pregnant, barren cow. Shortly thereafter, it was discovered that the cow was barren. The court would allow for rescission.
9. Derouin v. Granite State Realty, Inc., 459 A.2d 231 (N.H. 1983)-The parties entered into a K for the sale of a house. A month after closing the buyer discovered that the center chimney and fireplaces were unsafe and needed to be rebuilt. A mason began work on the repairs. The buyer filed a suit against the seller and the broker for restitution of the purchase price. The court held that because the parties cannot be put in status quo, ∏ is stuck with the house. When ∏ discovered the condition of the chimneys, he should have contacted the seller and then try to avoid the K, which he would have been able to do. There would have been a basis for avoidance because of the mutual mistake about the chimney. If ∏ had made some minor repairs before the mistake was discovered, then it would be up to the court to determine whether there could be restitution for fair market value.
10. D. Federico Co. Inc. v. Commonwealth, 415 N.E.2d 855 (Mass. App. Ct. 1981)-∆’s designer (a private engineering firm) underestimated the amount of excavation and replacement fill would be needed. No test borings or soil analyses were done for the estimation. The engineer based his estimate on previously constructed roads in the area. The estimate to excavate was 85,650 cubic yards; reality was 215,492. The estimate to be brought in was 30,150 cubic yards; reality was 278,493. ∏’s bid was based on the estimates. ∆ made clear that the estimates weren’t ensured or guaranteed and ∏ should have made his own estimate. The court found for ∆ because ∏ assumed the risk. ∏ should have followed the K and brought the price adjustment to ∆’s attention before continuing.
11. Mistake in Expression or Integration-Something is omitted from the document. It is a mistake in putting the agreement in writing.
12. Reformation-Reformation can only take place in equity. You must show by clear and convincing evidence what the agreement was and that it is different from the written agreement. Under the RS, reformation is a mutual mistake, unless an innocent 3rd party has intervened.
Ex: A agrees to sell land consisting of 5 lots to B, but neglects to include a part of the land. A then sells C to an innocent 3rd party. B’s deed will have to be reformed to exclude the lot sold to C and the price will be taken out of the purchase price. This is abatement?
13. Bollinger v. Central Pennsylvania Quarry and Construction Co., 229 A.2d 741 (Pa. 1967)-The parties entered into a written agreement, which allowed ∆ to deposit construction waste on ∏’s property. ∏ claims that it was agreed that before the waste was deposited, ∆ would remove the topsoil so that it could be used to cover the waste. ∏ signed the agreement believing that the topsoil provision was included. At first, ∆ did remove the topsoil; however, they stopped after a while. ∏ filed an action in equity requesting that the K be reformed to include the topsoil provision. At trial, ∏ introduced a neighbor’s K with ∆, which included the topsoil provision. The court reformed the K because there was clear and convincing evidence to show that there was a mistake when the oral agreement was committed to writing.
14. Ayer v. Western Union Telegraph Co., 10 A. 495 (Me. 1887)-∏ gave ∆ a message to transmit to someone in Philadelphia. ∆ delivered the message with a lower price. The receiver replied, stating that he accepted the offer. ∏ discovered the error later. ∏ shipped the goods at the lower price and sued ∆ for the difference. There was foreseeability because ∆ should have known that if they made a mistake in transmitting the message there could be damages. The receiver had no knowledge of the mistake. This case places the blame on ∏ because he was the one who selected the means of transmission. However, the court agreed to the difference between what was paid and market price.
15. Holtz v. Western Union Telegraph Co., 3 N.E.2d 180 (Mass. 1936)-∏ sent the buyer an unrepeated night telegram with a price of $1.75/shoe. The message that ∆ sent was for $1.25/shoe. The fair market value was $2.25. The buyer knew that it was below the fair market value. Two orders were shipped before the price was caught. The buyer refused to pay the higher price, so ∏ requested the shoes back. A majority of the shoes had been sold. ∏ brought an action against ∆ to recover the difference. The court ruled that there was no K because the buyer didn’t receive the offer that ∏ sent. What was purported to be accepted was not the offer; therefore, the parties weren’t bound. ∆ is not the agent of ∏. ∆ is an independent contractor; ∆ has the sole control of all the operations. There is no evidence that the parties knew of the mistake. Liability was limited to $500 because of a statute.
16. Problem: Mistake in Transmission-The Outer Fringes of the Objective Test-Sam owns race horses named Flasher and Dancer. Brenda was interested in buying one or both. She visited the farm and offered to buy Dasher for $5000 and Flasher for $6000. Sam said that under no circumstances would he sell Flasher because he was giving him to his daughter at her next birthday. He said that he would sell Dasher for $7000. Brenda said it was too high, but if he decided to lower the price he could contact her at home (she lived 500 miles away).
a. The next day Sam decides to sell Dasher for $6000, so he sends a properly addressed offer to Brenda. On the way to the mailbox, he changes his mind. However, he was hit by a bicycle and knocked unconscious. A stranger sees the letter in his hand and mails it. Once Sam regains consciousness, he calls Brenda to say that he didn’t intend to sell Dasher. There would be a problem because of conflict. A court could go either way. (RS § 19)
b. The next day Sam decides to sell Dasher for $6000 and has his secretary type up the offer. She writes Flasher instead. Brenda promptly accepts and then resells to Thad for $8000. Brenda knows that Sam only intended to sell Dasher.
(RS § 20(2))
C. Fraud and the Duty to Disclose:
1. Mistake-Mistake is a state of mind not in accord with the facts. Relief is avoidance.
2. Misrepresentation-Misrepresentation is an assertion not in accord with the facts, either oral or written. It can be innocent (the court will look at the materiality of the fact) or intentionally false (the court won’t look at the materiality of the fact). The available remedies are rescission and restitution; avoidance and restitution; reformation; tort claims for damages; use as a defense. Misrepresentation can be the result of conduct, such as concealment.
3. Morta v. Korea Insurance Corp., 840 F.2d 1452 (9th Cir. 1988)-∏ was in a car accident. ∆ was the other driver’s insurer. ∆’s agent offer ∏ $900 provided that he sign a standard release form. ∏ consult an attorney without a copy of the release. After he signed the K ∏ had to have emergency surgery for a brain clot. ∏ brought a suit, claiming fraud, undue influence and mistake. The court found for ∆. ∆’s agent was an adversary and it was an arm’s length transaction. There is no basis to avoid based on fraud because none of the facts were misrepresented and ∏ didn’t rely on the statements because he consulted with an attorney. Failure to read is no mistake; it is not fraud. There was no fiduciary relationship to establish undue influence.
4. Laidlaw v. Organ, 15 U.S. (2 Wheat.) 178 (1817)-∏ called ∆ to make an offer to sell tobacco to ∆. ∏ asked if there was news that might increase the price. ∆ knew that the British blockade of New Orleans was over, along with the War of 1812. ∆ remained silent and didn’t answer the question. ∏ should have pressed the issue. When a question is asked, the whole answer is required. A half truth can amount to misrepresentation. The case was remanded for the jury to determine what the silence amounted to.
5. Vokes v. Arthur Murray, Inc., 212 So. 2d 906 (Fl. Dis. Ct. 1968)-Over 16 months ∏ bought 2302 hours of dance lessons for $31,090.45. ∏ was constantly praised and cajoled into buying more lessons even though she had no ability. ∆ knew that when he made statements ∏ didn’t have potential. ∆’s statements can be treated as factual. The court only ruled that there was a c/a and remanded it for a trial. (If this case had been in MA, there might be a c/a for unfair and deceptive trade practices-93A.)
6. When Opinions Become Fact-When a person is making an opinion with superior knowledge it can be taken as fact. If the parties were on equal terms then it would only be an opinion.
7. Tort of Deceit-There can be recovery for the tort of deceit. Damages will be for the benefit of the bargain, which is the difference between what was promised and what was actually received. If there is innocent misrepresentation then damages will be out-of-pocket, which is the difference between what was paid and what was actually received. This will also include any incidental costs.
8. Hill v. Jones, 725 P.2d 1115 (Ariz. 1986)-∏s bought ∆s’ home. ∆s had a termite inspection report prepared. ∏s saw a ripple on the floor in the house. ∆s said that it was water damage, not termites. There had been water damage to the house. After ∏s moved in they learned that there was termite infestation. When ∆s bought the house they received termite guarantees that showed that the house had been treated for termites. There was an integration clause that said ∏s had inspected the property and took it as is. However, this doesn’t bar the introduction of evidence based on fraud or false misrepresentation. The misrepresentation occurred after the K was formed. The case was remanded for a determination of whether the termite infestation was a material fact. This is an unusual case; not the general rule.
9. Material Fact-A material fact is one that a reasonable person would consider to be important in making his decision.
10. Duty to Disclose-At common law there is no duty to disclose to a potential buyer. If the buyer doesn’t ask the question then the buyer is out of luck, unless there is active concealment. In MA, a seller is not liable for fair non-disclosure, i.e., “don’t ask, don’t tell”.
11. 93A-In MA it can be used for recovery if ∆ is a commercial entity. The commercial entity must disclose any fact that it knows that would make the buyer not want to buy. This cannot be used against a private homeowner.
12. 3rd Party Beneficiary-In Hill, the buyer was a 3rd party beneficiary because the seller hired the termite inspector for the buyer’s benefit. The buyer could go after the inspector.
13. Grossman v. Waltham Chemical Co., 436 N.E.2d 1243 (Mass. App. Ct. 1982)-The purchaser hired a chemical company. The company saw that there was evidence of insects, but said that the house was fine. The court found that the company was in breach of K with the purchaser and allowed recovery under 93A.
14. Henshaw v. Cabeceiras, 437 N.E.2d 1072 (Mass. App. Ct. 1982)-∏s bought a house with a pool from ∆s. ∏s asked about the smell in the cellar; ∆s said that it was probably because the cellar was closed up. Water had entered the cellar because of a blizzard. ∏s asked if there had every been any problem with the pool, including leaking. ∏s should have asked if water had leaked into the cellar, so that was not actionable. It was unclear as to who was responsible for the pool leaking. ∏s repositioned the drains in the cellar and installed new pipes, so it could have been their fault that there was subsequent water leakage.
15. Sargent v. Koulisas, 560 N.E.2d 569 (Mass. App. Ct. 1990)-∏s owned a pizza business, which they listed with a broker in order to sell it. The equipment was in bad condition. ∆s were interested and wanted to visit the premises. ∏s told ∆s that they didn’t want a kitchen employee to know the business was for sale, so ∆s didn’t thoroughly inspect the kitchen. ∏s didn’t disclose that the equipment needed to be repaired or replaced. Additionally, there was insufficient electricity to run air conditioning and upgrade the food processing or refrigeration units. ∏s agreed to connect an older air conditioner and guaranteed that at the time of closing the equipment would be working. ∏s brought this suit because ∆s refused to pay. There was no action for deceit under common law, but there was under 93A. The damages were what it would cost to replace the equipment, times three. ∆s also received attorney’s fees. ∆s’ action against the broker was not sustained because there was no reason why the broker would have known the true state of the affairs.
16. 93A: Consumer Protection-Failure to disclose information that would have caused the buyer to not go through with the transaction is actionable. An act may be deceptive if it could reasonably be found that it caused a person to act different than they otherwise would have. If there is intentional misrepresentation then the egregiousness of the act will decide whether it will be double or treble damages. If there is innocent misrepresentation then there cannot be multiple damages. The court must look at the nature of the transaction, the parties involved, what activities the parties undertook and whether it is a business transaction or if it is for personal gain.
17. Rousseau v. Gelinas, 507 N.E.2d 265-∆ knew that a house could not be built on the property, even though he said it could. ∆ entered into a K to sell. H acted as an agent of W. H was a real estate broker. Was the sale under 93A or was it a private transaction, and not under 93A? The court held that it was in the business context. After the K was entered into the couple divorced and H skipped town, whereabouts unknown. ∏ brought suit against W. The court allowed recovery under 93A because H was the agent of W, which means that she was vicariously liable.
18. Brandt v. Olympic Construction Inc., 449 N.E.2d 1231 (Mass. App. Ct. 1983)-∏s bought land that ∆ said was next to conservation land that would not be built upon. ∆ filed new plans for the land the day before the closing. After the closing ∏s learned that the conservation land was going to be divided into 3 lots for development. This was intentional misrepresentation; ∆ was in bad faith. The court did not require ∏ to double check the land before the closing. There had been some discussion of a water easement under the land. This was proof that for a period of time ∆ had other plans for the land. ∏s brought suit seeking injunctive relief, treble damages and attorneys fees under 93A. ∆ argued that there was duplication in the damages and the injunction. The court did not agree because the injunction only preserves the unimproved portion of the lot and the monetary award is due to
∏s’ loss of the improved portions as conservation and the debris nuisance created by ∆.
19. Anzalone v. Strand, 436 N.E.2d 960 (Mass. App. Ct. 1982)-∏ bought land from ∆ by a quitclaim deed, which did not mention square footage. The property contained 21,200 square feet, but the broker’s ad incorrectly described the land as containing 27,000 square feet. ∏ brought a suit under 93A (because it was a business transaction, seeking damages based on the proportional difference. The court held that the proper assessment of damages is to calculate ∏’s out-of-pocket losses, which is the difference between the purchase price and the actual value of the property (market price). Treble damages were not allowed because the misrepresentation was not willful or knowingly.
20. Greenery Rehab v. Antaramian, 628 N.E.2d 1291 (Mass. App. Ct. 1994)-∏ bought an office building who sued the sellers for not disclosing that one of the tenants would default. The parties were commercial entities who were dealing at arms length. There was a clause in the K that provided what the representations to be bound by would be. ∏ never ran credit checks and only asked the sellers about the tenant’s payment record. Payment was made by a subsidiary once, which is not enough to put ∆s on notice that they would default. At common law there was no duty to disclose. Under 93A, ∆s did not know that the tenant would default, so there cannot be any liability. ∏s also sought to “pierce the corporate veil”, but the court said there was no evidence that ∆ knew.
21. Kannavos v. Annino, 247 N.E.2d 708 (Mass. 1969)-
22. Wolf v. Prudential-Bache Securities, Inc., 672 N.E.2d 10 (Mass. App. Ct. 1996)-∏s bought a limited partnership unit in 1991. Sometime afterwards the units became worthless, but it is unclear why. Ten years later ∏s read a magazine article that mentioned the general partner in the partnership had been convicted of embezzlement and mail fraud in 1967. ∏s brought an action for misrepresentation and alleged that had they known of the conviction they would not have purchased. The duty would come from the essence of the transaction. The court concluded that something that occurred 16 years prior was not basic to the transaction. Today this could be under 93A. Under 93A there is nothing about a fact basic to the transaction. Recovery would probably be better under 93A, but it is unclear how something 16 years old would be material.
23. Urman v. South Boston Savings Bank, 674 N.E.2d 1078 (Mass. 1997)-∏s bought a residential condominium unit from ∆. At the time of the purchase ∏s did not know that there was evidence of contaminated ground water near the unit. A year earlier a local school had been closed for clean-up. There was no evidence that ∏s were exposed to unsafe levels of contamination. ∏s brought suit alleging fraud, deceit (93A) and negligent infliction of emotional distress. The court found for ∆. ∆ did not make any representations about the condition of the unit and ∆ was not in a fiduciary relationship with ∏s. The problem was off-site and no longer existed. There was no duty to disclose at common law. Under 93A there was no duty to disclose non-material facts.
24. MGL c. 231, § 85J: Fraud or Deciet in the sale of Personal Property; Treble Damages-Sometimes a ∏ cannot get treble damages under 93A, even if there is a violation (would get attorneys fees). This statute only applies to personal property and has to be brought by the purchaser against the seller. “Whoever by deceit or fraud sells personal property shall be liable in tort to a purchaser in treble damages for the amount sustained by him.”
25. 553 N.E.2d 930-∏ purchased a car. The dealer said it was a used car in good condition, but knew that it wasn’t. ∏ only had the car for a few days, but had to put a lot of oil in it. The dealer didn’t give a reasonable response to her demand letter. So ∏ brought a suit. 93A only allowed ∏to recover double damages and attorneys fees. Under c. 231, §85J treble damages was allowed.
26. Fraud in the Inducement-Fraud occurring when a misrepresentation leads another to enter into a transaction with a false impression of the risks, duties, or obligations involved; an intentional misrepresentation of a material risk or duty reasonably relied on, thereby injuring the other party without vitiating the K itself, esp. about a fact relating to value. (RS § 164, 167)
27. Fraud in the Factum; Fraud in the Essence; Real Fraud-Fraud occurring when a legal instrument as actually executed differs from the one intended for execution by the person who executes it, or when the instrument may have had no legal existence. Compared to fraud in the inducement, fraud in the factum occurs only rarely, as when a blind person signs a mortgage when misleadingly told that it’s just a letter. There is no K. There is no reasonable opportunity to discover the real character or the essential terms. This means that there is no consent. (RS § 163)
28. Eldorado Jewelry Co. v. Darnell, 114 N.W. 344 (Iowa 1907)-The merchant (∆) was trying to get out of the agreement. ∆ thought that he was signing a sale of commission. ∆ couldn’t read because his glasses were broken. ∆ had to rely on ∏’s agent, who told him that he was entering into a K for the sale of commission (an essential term of the K). The agent took the K and gave it to the company. ∆ attempted to revoke the order, not the K. This was fraud coupled with mistake on the part of the merchant. There is misrepresentation by the company and a mistake in belief on the part of the merchant. This type of fraud (in the essence) makes the K a complete nullity.
29. Schaeffer v. United Bank and Trust Co., 360 A.2d 461 (Md. 1976)-The Estepps were seeking a debt consolidation loan, but needed a co-signer. H was ∆’s supervisor who helped ∆ with funeral arrangements when ∆’s W died. ∆ was almost illiterate and ∏ did not explain the nature of the K, just said it was a character reference. ∆ didn’t understand that he was assuming financial responsibility when he signed the note. When the Estepps defaulted and skipped town the bank sued ∆. ∆ raised fraud in the factum as a defense. For ∆ to win (which he did) it had to be shown that there was fraud in the factum and that ∆ was excusably ignorant. A holder in due course (the bank) is not protected against the defense of fraud in the factum. ∆ argued that there was no consideration, but that doesn’t matter because he was a surety. Even though the bank was not a party to the fraud it cannot go after ∆.
30. Excusably Ignorant Factors-age, education, business experience, representations made to him and his reason to rely on it or to have confidence in the person making the representation, person’s ability to read English, presence or absence of any 3rd party who might read or explain the K to him, the need to act immediately to sign the document.
31. Hidalgo v. Surety Savings and Loan Assoc., 502 S.W.2d 220 (Tx. 1973)-∆ entered into a K with Western to make improvements on her house. It was negotiated that it would be $2000, but the actual terms were for $3194. The note was assigned to ∏. ∆ made part payment and then defaulted. The note included a lien on the property. ∏ foreclosed on the house. ∆ claimed that at the closing ∏ collected everything that it was owed. ∆ alleges that there is no basis for this lawsuit. ∏ continued with the action because it didn’t want to be subject to a claim for wrongful foreclosure. The court characterized this as a high pressure sales tactic and compares it to a door-to-door situation. The difference was a substantial part of the K. This was fraud in the essence. The case was remanded to determine whether ∆ was excusably ignorant (whether she had the ability to actually discover the truth about the transaction.
32. High Pressure Situations (Door-to-Door Sales)-It must be shown that the consumer did not have the ability to actually discover the truth about the transaction. If so, then the consumer would fall into the category of excusably ignorant.
33. Consumer Protection in Promissory Notes-In MA, under these circumstances the consumer is protected. MGL c. 255, § 12C refers to a promissory note executed for the sale of goods is not a negotiable instrument. If there is a promissory note, then the note must be labeled a consumer note, not a negotiable instrument.
D. Duress: The person is coerced into actually signing, knowing the details of the K. Once the pressure is relieved then the person can take steps to ge the money or property back. Duress is not a tort. There is not an action at law for damages. The K could be voidable or void. If there is physical duress (taking the person’s hand and making them sign the K) then the K is void. It will depend on the facts of the case. You must look at all the facts and circumstances.
1. Subjective Test-Was this person left with no reasonable alternative? There must be an improper act and there must be no reasonable alternative because of the improper act. Many times there are alternatives; however, depending upon the circumstances there may not be a reasonable alternative.
2. Note-H wants W to sign a settlement agreement for their divorce. H knows that W hasn’t filed taxes and threatens to report her. Under the circumstances he can report her, but can’t use it as pressure to force her to settle.
3. Austin Instrument Inc. v. Loral Corp., 272 N.E.2d 533 (N.Y. 1971)-The Navy awarded ∆ a $6 million K to produce radar sets. The K included a schedule of deliveries, a liquidated damages clause and a cancellation clause if ∆ defaulted. (If a person has a K with the government and the person needs a delay it is likely that he won’t be awarded a K in the future.) ∆ awarded a subbid to ∏. The parties had had previous dealings. This time ∆ wanted less then a full order. ∏ refused to deliver unless it was a dull order. ∆ didn’t comply, so ∏ stopped delivery. ∆ couldn’t find another company to fill the order, so agreed to a full order with ∏. ∏ brought a suit to recover payment for the order and ∆ brought an action based on economic duress. When ∏ refused unless awarded the K for the whole amount ∆ could have filed for breach (which would have taken awhile) or it could have found another supplier. Under these circumstances (where they needed the goods and were unsuccessful in obtaining a K with another company) ∆ had no other choice. The burden is on ∆ to prove they it had no reasonable alternative. (RS § 176)
4. Duress v. Hard Bargaining-In hard bargaining the parties are on equal footing.
5. Machinery Hauling, Inc. v. Steel of W. Virginia, 384 S.E.2d 139-The parties entered into a K, in which ∏ was to transport steel to Shelby Steel. When delivery was almost finished ∆ told ∏ that the product was not of merchantable quality and Shelby had rejected it. ∆ orally told ∏ to return the last three loads ad to pay the price of the undelivered loads, or else ∆ would cease doing business with ∏. ∏ brought a suit, seeking monetary damages for the demands. The court ruled that there was no action under economic duress because ∏ didn’t suffer any damages since there was no on going K. The court referred to situations where it would be a compulsion document, such as oil transportation because there is only one means of transportation.
6. Reporting to Authorities-Reporting to authorities will amount to duress when it is for private gain.
7. Undue Influence-Undue influence is unfair persuasion that falls short of duress. This is a situation where there is a person who is in a superior bargaining power and probably used unfair persuasion. It could be a situation where the person is in a position of trust and confidence. The subservient person believes that the other will do what is in their best interest (i.e., Sullivan v. Rooney). If you are dealing with a fiduciary relationship then the fiduciary has to show that the transaction is free from fraud. The best thing to do is to be sure that the party has access to advice from a 3rd party.
1. Consumer Transactions-This section deals with abuses that are contained in the document. It is the abuse of superior bargaining power. It is both procedural (looking at the procedure under which the person entered into the K) and substantive (disparity in the bargaining power). The court has to determine whether as a matter of law the K or part of the K was unconscionable at the time the K was entered into. There is a problem with standard forms because of boilerplate language. It doesn’t mean that a court will strike any clause.
a. Cutler Corp. v. Latshaw, 97 A.2d 234 (Pa. 1953)-The parties entered into a K, in which ∏ was to supply materials and repair ∆’s property. ∆ was not satisfied with the work, so she ordered ∏’s employees to stop until the defects were corrected. The K had a confession of judgment clause. It needed to be shown that ∆ assented to the clause and that it was part of the K. This K would normally have taken 2 ½ pages, but in this case it was written over 5 pages. Additionally, the clause was on the back, which was never used. It’s not enough that the K said the terms were continued on the back, it needed to be brought to ∆’s attention.
b. Confession of Judgment Clause-This is a very potent clause. If the court upholds it then the consumer is without any remedy. In MA, these types of clauses are void.
c. Williams v. Walker-Thomas Furniture Co., 198 A.2d 914 (DC CA 1964)-∆ was of limited education, separated from her H and was maintaining herself and 7 children through pubic assistance. ∆ had a 5 year course of dealing with ∏, in which ∆ bought various household items on credit. Title of all items would remain with ∏ until ∆ paid off all 14 purchases in full. ∆ signed 14 Ks, which were 6 inches long and each had a long paragraph in small print. Payments after the 1st purchase would be prorated on all purchases outstanding. No one explained the K to ∆. Because of ∆’s circumstances there were probably few places that she could deal with (procedural unconscionability). This K was made before the adoption of the UCC, many states have provided for unconscionability under the common law. It must be shown that there was a lack of meaningful choice, a disparity of bargaining power and unfair clauses. There is no action for damages. The court can strike the clause or the whole K. The case was remanded to determine whether it was unconscionable at the time of the making. (RS § 211 (3))
d. Germantown Manufacturing Co. v. Rawlinson, 491 A.2d 138 (Pa. 1985)-H embezzled money from his employer (∏) and was fired. H told W (∆) that he had stolen money, but not the amount. ∆ stated that when she learned this her world fell apart. A few weeks earlier ∆ had had a miscarriage a few weeks earlier and was tired and depressed. ∏’s insurance rep came to their house to have ∆ co-sign two judgment notes (∆ never learned the full amount that H stole). The first was for the amount H had admitted to stealing and the second was a confession of judgment for any amount over the amount covered in the 1st note that ∏ would determine at a later point. ∆ asked if she needed an attorney. The rep said ∏ wasn’t interested in criminal prosecution, but if they didn’t sign then H would go to jail. ∆ sought relief from liability of the second note. The rep’s statement amounts to duress because even though the threat was something ∏ had a legal right to do, it was for their personal gain. There was fraudulent and material misrepresentation. The elements of unconscionability was satisfied, even if it wasn’t pleaded at trial. The defense has been extended beyond the UCC to non-sale of goods cases. The judgment clause was a “material, risk-shifting term”. The president of ∏ was bound to act in good faith (implied promise). There was no accounting. The interest was never discussed with ∆ and there is no discussion about the rate or that ∆ agreed to pay interest on the principle. (RS § 162, 175)
e. Burden of Proof-B has to prove that the K was unconscionable or a part of it was. Once evidence has been presented then the burden shifts to the merchant to show that the clause was not unconscionable based on the surrounding circumstances.
f. Standardized Forms-A court can remove a clause if it is shown that the merchant knew B wouldn’t enter into the K if they knew about the clause. There can be a standardized form that is not an adhesion K. To have an adhesion K there must be a standard form and the person offering the K must be in a superior bargaining position. The K is presented as take it or leave it. (RS § 211 (3))
2. Commercial Transactions-It is very difficult to find a set of circumstances where the court will allow relief based on unconscionability in a commercial transaction. It would have to be shown that the clause bears no reasonable business relationship to the other party. (see Hoffman v. Red Owl)
a. Weaver v. American Oil Co., 276 N.E.2d 114 (Ind. 1971)-∏ (oil company) presented a printed form K as a lease to be signed by ∆ (a filling station operator). It contained normal leasing provisions and had a “hold harmless” clause, which meant that ∆ would hold harmless and indemnify ∆ for any negligence of ∏ occurring on the leased premises. ∆ would have to pay for any damages that ∏ caused due to negligence. ∆’s education included only 1 ½ years of high school. ∏’s agent placed the K in front of ∆ and said “sign”. ∆ did not read the K. ∏’s employee sprayed gas over Weaver and his assistant, who were burned and injured on the leased premises. In order for ∏ to hold ∆ to the clause it would have to show that it had explained the clause and ∆ understood it. Under these circumstances the clause should be stricken. The court makes reference to the UCC only for analogy.
b. Zapatha v. Dairy Mart, Inc., 408 N.E.2d 1370 (Mass. 1980)-∏ was a high school grad who completed a year of college. He had taken some college evening courses in business administration and business law. ∏ received a brochure from ∆ that stated the franchise was a stable and secure business. ∏ entered into a franchise K with ∆. There was a termination provision in the margin that allowed either party to terminate without cause with 90 days notice after the first 12 months. There were also four reasons why ∆ could terminate without notice at any time. A few years later ∆ presented a new and more detailed form for execution, which included extending the hours of operation. ∏ refused to enter into the new agreement and ∆ terminated the franchise. The focus is on the termination without cause, not on the brochure. The misstatement in the brochure doesn’t preclude recovery for ∆. The termination clause was not obscure or hidden. A clause that provides for termination without cause is not unconscionable by itself. There was no oppression; no use of superior bargaining power. 90 days notice was not unreasonable. There is no evidence that ∆ did not act in good faith. There was no statute that prevented ∆ from terminating the agreement. ∏s would receive 80% compensation on the purchase price of the inventory.
c. When Termination Could Be Bad Faith-There are some statutes that prohibit termination of certain franchises. There have been cases where an employer terminates an employee to avoid paying commission in the future. In Zapatha many other stores were probably open extended hours. Assuming that the evidence was that ∆ was attempting to move them out so they could benefit then it would raise the question of bad faith.
F. Illegality: Agreements Unenforceable on Grounds of Public Policy: A person has a right to enter into a K. At what point will the courts say that they won’t enforce the K? A statute might say that failure to comply would mean that you can’t recover. If the illegality is of a serious nature then the court can raise it on its own. Generally, when there is an illegal K the court won’t allow for restitution. Whether restitution should occur depends on the facts, especially if the illegality is of a minor character (i.e., construction K).
1. Sinnar v. Le Roy, 270 P.2d 800 (Wash. 1954)-∏ owned and operated a grocery store. He applied to the Washington state liquor control board for a license to sell beer, but was denied. ∆ was a customer, neighbor and friend of ∏. ∆ told ∏ that he knew someone who worked for the city and thought this person could get ∏ the license (actually only the state could issue the license). ∏ gave ∆ $, but never received the license. ∏ brought a suit to recover the $. ∆ didn’t argue illegality at the trial court level. In this case the court raised it because the illegality was a serious matter. There was a statute that described how the license could be obtained. Additionally, the money was really to bribe a public official.
2. Beacon Hill Civic Association v. Ristorante Toscano, Inc., 662 N.E.2d 1015 (Mass. 1996)-The Boston license board held a hearing to determine whether ∆ should have a license to sell beer and wine. Before the hearing ∏ told ∆ that it would oppose the application unless ∆ signed a K in which ∆ promised to not apply for an all alcohol license in the future. ∆ complied; the board granted the license but stated that the K was illegal. Nine years later ∆ applied for an all alcohol license. ∏ filed a suit for breach of K. The statute outlined the procedure to get a liquor license. People shouldn’t be allowed to K away from that process or circumvent the public policy. Public policy supercedes any doctrine of public policy.
3. Homami v. Iranzadi, 211 Cal. App. 3d 1104 (1989)-The parties were brother-in-laws. ∆ was not fluent in English and had given ∏ power of attorney for 6 months. ∏ loaned ∆ money; the K said that there would be no interest. After the loan ∏ began to write himself checks from ∆’s account which included interest. At trial ∏ stated that the K didn’t include interest because he was trying to avoid paying taxes. This case dealt with the serious matter of tax evasion. The court won’t sanction it. Since ∏ violated the law he is not entitled to the money.
4. 425 N.E.2d 401-A house was for sale. The price was $100,000. The buyer didn’t want the price included in the K because he didn’t want to pay taxes. The seller decided to not go forward with the sale. The superior court ordered specific performance, but required ∏ to pay $100,000 up front. ∏ appealed. The appeals court points out that the K was entered into with the deliberate intent to mislead authorities. The court treats the K as in violation of the statue, which means that it is unenforceable. The parties couldn’t be left as it. Even though public policy wasn’t addressed in the lower court the K would be unenforceable and the seller has to return the money paid by the buyer.
5. Town Planning and Engineering Assoc. v. Amesbury Specialty Co., 369 Mass. 737 (1976)-An uncredentialed engineer was hired, but subsequently not paid for engineering work. MA statute provides that engineering is to be performed only by registered engineers. ∏ brought a suit to recover and ∆ raised illegality as a defense. The court did not deny that there was a statutory violation. However, all the facts must be taken into consideration. It was determined that the illegality was an incidental part of the K (de minimus). Additionally, ∏ complied with the other provisions of the K. ∏ was not limited to quantum meruit.
6. Problems: Impact upon K Enforcement of Statutory Violation-Tenant signed a one-year lease with landlord, but decided to not occupy the premises. Landlord sues for damages. Tenant argues that the lease is void because the apartment was not registered as a residential unit, nor did the Landlord secure an occupancy permit, as required by city code. Many times when there is a violation by a landlord it may preclude him from recovering.
7. The Case of the Unmetered Fuel Oil Deliveries-B owned two homes to which S delivered fuel oil on several occasions. The law requires that deliveries be metered or S would be subject to fine and/or imprisonment. S sued for $5000 worth of oil delivered but not metered. This will bar S’s recovery.
8. The Case of the Uncertified Carrier-Four times carrier transported owner’s horses in interstate commerce, but without having obtained a “certificate of public convenience and necessity” as required by the Interstate Commerce Commission Act”. Owner can interpose the statutory violation as a legal justification for not paying carrier.
9. UCC 2-316A: In MA, when dealing with consumer goods, you cannot limit implied warranties or exclude the remedy for breach of those warranties. (3) This paragraph contains limiting express warranties. Express warranties can be limited if the manufacturer has a facility in MA in order to provide reasonable and expeditious repair.
10. Cormier v. Central Mass. Chapter of NSC, 620 N.E.2d 784 (Mass. 1993)-∏ was enrolled in a beginner motorcycle safety course conducted by ∆. ∏ was presented with and signed a “motorcycle safety course waiver form”. The form was a release for liability, loss, damage, costs, claims and/or causes of action. ∏ could not participate unless she signed the lease. ∏ thought that the release was for any accidental injury, not ∆’s negligence. ∏ was injured during the class and brought a suit. The court held that recovery was barred because it was a valid release.
11. Zavras v. Cape Way Robers Motorcycle Club, 687 N.E.2d 1263 (Mass. 1997)-A person cannot K away their right to sue for gross negligence. ∏ was a participant in a race and he signed a waiver for ordinary negligence. He attempted to go over a jump, but didn’t make it. The flag waver was supposed to warn the other riders, but failed to do so. ∏ alleged gross negligence on the part of the flag waver and the Club for hiring minors. This was a case of 1st impression in MA. In other jurisdictions a person cannot K against gross negligence. The court held that the K didn’t exempt ∆ from gross negligence. The case was remanded to determine whether there was gross negligence.
12. MGL c. 149, § 29C-This MA statute protects the subcontractor. He only has to indemnify acts of himself, his employees, his agents or his subcontractors (those within his chain of control). See M.D. Mateo v. Dellovadi, 652 N.E.2d 635
YOU NEED 2-316A…
13. Data Management, Inc. v. Greene, 757 P.2d 62 (Alaska 1988)-∏ employed ∆s. The parties signed a non-compete covenant for 5 years after termination. After ∆s were terminated ∏ filed this suit against them for breach of the covenant. ∏ sought a preliminary injunction to enjoin ∆s from rendering computing services to 21 named individuals. This was a case of first impression, so the court looked at approaches in various jurisdictions. The court held that the employer is only entitled to protection against unfair competition. This is determined by looking at the employer and what his needs are; namely what has to be protected. The employees have a right to earn a living. If what they are doing is confidential or involves trade secrets then the court can impose the covenant. If the covenant can be reasonably altered to make it enforceable, then the court can do so, unless the covenant was not drafted in good faith.
14. MA’s Approach-The preferred approach is to reduce the covenant to the extent that is fair to the employer.
15. The “Blue Pencil” Rule-A court can delete words in the covenant if they can be deleted in a way to make it enforceable. You would have to be able to remove a specific, such as the name of a town. This approach is too mechanical. For example, the Marine Contracting covenant was for a 100 mile radius, which can’t be taken out.
16. Sale of a Business-The sale of business includes the sale of good will. The buyer has a right to be protected. If it isn’t expressly stated in the K, then good will is implied.
17. Statutory Restrictions on Covenants Not To Compete-There are areas where a covenant not to compete is prohibited by statute. One area is attorneys, which is included in the rules of professional responsibility. The purpose is in the interest of the client (unless it is conditional on retirement benefits). See 687 N.E.2d 1237; MCL c. 12, § 12X. Additionally, physicians are not bound by covenants not to compete. The purpose is to protect the patient so that they can seek out the doctor they want for treatment. See 629 N.E.2d 291
18. Unlicensed Professionals-An unlicensed real estate broker couldn’t recover for the sale of real estate, but could recover for personal property. An unlicensed plumber cannot recover for his services, but can for the supplies.
19. Watt v. Watt, 405 N.W.2d 303 (Wis. 1987)-∏ and ∆ lived together in a “marriage-like” relationship and had 2 children who were given ∆’s surname. This case wasn’t determined on its merits. The court was looking at whether there was a cause of action. The court sent the case back to be determined on its merits. Even though the statute wasn’t meant to apply to nonmarried couples, there is a cause of action. There is a basis for an express K because ∆ told ∏ that he would take care of her. There is also a basis for implied in fact K because he didn’t reject her services.
20. Capazzoli v. Holzwasser, 490 N.E.2d 420 (Mass. 1986)-A man says to a woman, “divorce your H, come live with me and I’ll take care of you the rest of your life.” The court allowed the woman to amend her complaint because of the statements he said after the divorce when he reaffirmed the promise. The promise was contrary to public policy. There was a dissent about the circumstances of the woman’s marriage and whether it was suffering previous to the promise.
21. Surrogacy Agreements-If the surrogate is carrying a child and enters into an agreement to sign away custody, then there might be a statute that requires a four day waiting period after birth.
X. Determining the Scope and Content of Obligation-This section deals with prior negotiations and making a determination as to when they can become part of the K. Look at what the parties intended. The judge will look at the document to determine whether the parties intend to have an integration. Once it is determined that it was an integration the judge looks at the evidence to determine if it is a total or partial integration. If it is partial then there is room for the other evidence to be admitted. Even if it is a total integration evidence can be admitted to determine what the terms mean. You must look at all the surrounding circumstances and what the parties intended. If there is a document that appears to be complete, then there is a presumption of integration. (RS § 209)
A. Integrated Writings and the Parol Evidence Rule: The judge listens to all the evidence and makes the determination of whether there is integration. Then the judge considers what the parties intended: partial or total integration. If it is total then evidence cannot be admitted under the parol evidence rule. If the evidence is allowed in then it goes to the trier of fact. Don’t look at the four corners, look at all the surrounding circumstances. The parol evidence rule does not apply to substantive agreements of the parties. (RS § 209-217)
1. Mitchill v. Lath, 160 N.E. 646 (N.Y. 1928)-∆s decided to sell their house to ∏s. Across the street was ∆s’ ice house. ∆s orally promised and agreed to remove the ice house in the spring. ∏s’ consideration was to buy the house. The parties entered into a written K. ∏s took possession of the house and improved the land. ∆s never removed the ice house. The focus is on the K, not the deed. The K must contain all of the necessary requirements. The K was very detailed as to the obligations of the parties, but didn’t contain any reference to the ice house. The court held that it was a total and complete integration. If the ice house was agreed upon then it should have been in the K.
2. Collateral Agreement-Three conditions must be satisfied and in Mitchill the third one was not met:
a. the agreement must collateral
b. it must not contradict express or implied provisions of the written K
c. it must be one that the parties would not ordinarily be
expected to embody in the writing.
3. Masterson v. Sine, 436 P.2d 561 (Cal. 1968)-The Mastersons conveyed a ranch to ∆s by a deed. The deed contained an option for the Mastersons to purchase the land within the next 10 years for the same consideration plus depreciation value of any improvements ∆s made. After the conveyance H Masterson was declared bankrupt. His W and trustee in bankruptcy sought to exercise the option. A deed is not treated as a full integration. Applying the three factors: (2) the evidence doesn’t contradict the terms of the deed; (3) there is something that wouldn’t necessarily be found in the deed. The court holds that this is something that might have been included in a separate agreement.
4. UCC-If it would most certainly been in the agreement then it cannot be allowed.
5. Common Law-If it would naturally have been included then it cannot be allowed.
6. Alexander v. Snell, 424 N.E.2d 642 (Mass. App. Ct. 1981)-∏s allege that they made an agreement with ∆ that ∏s and ∆ would buy the property. ∏s would pay half the purchase price, live on the property and maintain the property. ∆ would live upstairs when she retired. ∆’s interest in the estate would accrue to ∏s at her death. ∏s performed, but ∆ did not. ∆ is estopped from raising SF as a defense because of part performance (RS § 129). Additional consistent terms (no right of partition, which is implied in a joint tenancy) may be admissible if it is found that it was a complete integration. Even though it contradicts a term by law it would still be allowed in. Explaining the words is not introducing new terms. Evidence can be admitted to show fraud or mistake.
7. Alaska Northern Dev. Inc. v. Alyeska Pipeline Serv. Corp., 666 P.2d 33 (Alaska 1983)-∆ sent ∏ a letter of intent with the price blank. It stated that it was a letter of intent, subject to the final approval of the owner committee. ∏ signed the letter and filled in the price. The owner committee rejected the proposal. ∏ brought a suit, alleging that the parties understood the subject to approval language as meaning that ∆’s owner committee would review to ensure that the price was fair and reasonable. ∆ argued that approval meant the whole K. The court held that the letter was a partial integration, but that the letter was subject to over all approval. The evidence that ∏ introduced was inconsistent with a reasonable meaning of the K itself. That means that the evidence would contradict the terms of the entire agreement. The court defines contradict based on the UCC: it must create a lack of harmony in the terms.
8. Merger Clause-If there is a merger clause in the agreement then it will take effect and further the presumption that the agreement is integrated.
9. The Statute of Frauds-The SF determines the enforceability of the agreement. The Parol Evidence Rule allows or disallows evidence. If the document is a total and complete integration then it will impact the SF. If it is a total and compete integration then you cannot get anything introduced to show that it is insufficient.
10. Luther Williams, Jr., Inc. v. Johnson, 229 A.2d 163 (D.C.C.A. 1967)-The parties entered into a K for improvements on ∆s’ home. ∆s testified that they signed the K because they thought it was an estimate. They told ∏ that the K would depend on obtaining financing (condition precedent). ∏ testified that ∆s said they had financing. There was a merger clause. There can be a condition precedent to the performance of the K and there can be a condition precedent to the formation of the K. The condition precedent was collateral. It doesn’t preclude admissibility as long as it is proved that it doesn’t contradict the terms of the agreement. There was nothing in the K that would contradict this particular term. The merger clause reinforces the presumption.
11. Comments to RS § 217-If there is a condition precedent then it is a partial integration until the condition is satisfied. Then the agreement will be total and complete. Even though it looks total and complete, evidence must be admitted to determine if there is a condition precedent.
12. Condition Subsequent-The Parol Evidence Rule does not apply to condition subsequent.
13. Modification-Modification is not effective unless there is consideration or the parties are under RS § 209.
14. Sound Techniques, Inc. v. Hoffman, 737 N.E.2d 290 (Mass. App. Ct. 2000)-∏ wanted to lease commercial space for a recording studio. He leased a vacant space above a restaurant. ∏ was told that the restaurant was expanding its dining area and would only have background music (innocent statement). ∏ tested the sound quality once in the middle of the day. In reality the restaurant upgraded its sound system and expanded its premises to include a dance floor. This rule only applies to commercial entities. The K had a merger clause, which doesn’t bar admissibility of evidence if there is intentional misrepresentation. The merger clause doesn’t matter in this case because the misrepresentation was negligent.
B. Interpretation: The ascertainment of the meaning to be given K language.
1. Pacific Gas & Electric v. G.W. Thomas Dray. & Rigging Co., 442 P.2d 641 (Cal. 1968)-The parties entered into a K, in which ∆ would furnish the necessary labor and equipment to remove and replace the upper metal cover of ∏’s steam turbine. ∆ agreed to perform the work “at own risk and expense” and to indemnify ∏. ∆ agreed to provide insurance over $50,000 to cover any liability. ∏ brought a suit to recover the cost of repairs from the cover falling during the repairs. The trial court found for ∏ based on the indemnity clause. The supreme court reversed because there was evidence of prior Ks with ∆ presented evidence that the indemnity clause was only meant to cover 3rd parties.
2. Factors to Consider Whether the Evidence Is Relevant to the Meaning of the K Langugage-
a. surrounding circumstances
b. how the parties performed under this K
c. how the parties have performed under prior Ks
3. A. Kemp Fisheries, Inc. v. Castle & Cooke, Inc., 852 F.2d 493 (9th Cir. 1988)-The parties entered into an agreement in which ∆ would provide a fishing ship. The final agreement was entitled the “Charter Agreement.” ∏ thought that ∆ agreed that the engines would be in good working order and orally represented that the freezing system would meet ∏’s specific needs. However, agreement didn’t include any such provisions and disclaimed all warranties. ∏ signed the agreement despite this. The court held that the agreement was complete and comprehensive. It doesn’t include an integration clause, but the letter of intent shows that the parties intended the agreement to be the final document. ∏ had ample time to express its understanding of the agreement. The agreement provided for a survey for insurance purposes and that the ship must be seaworthy. The judge misinterpreted that to mean a warranty that the ship is seaworthy.
4. UCC § 2-201: This section applies in all situations whether it is a total or partial integration.
5. UCC § 2-208(2): You must look at the express terms first. If they conflict then express terms overrides course of performance, which overrides court of dealing which overrides custom and usage.
6. Frigaliment Importing Co. v. B.N.S. Int’l Sales Corp., 190 F. Supp. 116 (S.D.N.Y. 1960)-The parties entered into a K for frozen chicken. ∏ found that the chicken in the initial shipment were not suitable for broiling and frying because they were stewing chicken. ∏ protested. The second shipment was made, but was stopped in transport. ∏ was new to the business. In order for ∏ to prevail he would have to show that the word chicken means young chicken (broilers). The only evidence in ∏’s favor was a trade publication. The court found for ∆. This case is not under the UCC. Today suppliers are much more sophisticated and detailed in what they are selling. (RS § 201, § 202)
7. Gray v. Zurich Ins. Co., 419 P.2d 168 (Cal. 1966)-∏ had an insurance policy from ∆. The coverage section of the policy stated that the insurer will defend any suit against ∏. There was another provision that specified that situations of bodily injury or property damages caused intentionally by or at the direction of the insured would not be covered. This was an adhesion K. The exclusion clause was written in small print and was in a section separate from the coverage section. ∏ brought a suit, alleging that ∆ should have defended against a suit between ∏ and Jones. ∏ claimed that it was self-defense. The court held that ∆ should have defended the suit because it couldn’t be determined whether the injury was intention until trial. ∆ was bound to the reasonable expectation of the insured. The court ruled that ∆ could have the term, but it must be clear. It could be in bold underneath the paragraph that discusses the coverage. This would not occur in MA because statute requires that policies be explicit.
XI. Allocation of Risk: Conditions and Warranties
A. Express Conditions: When there is an express condition it must be performed before the other party is required to perform.
1. Dove v. Rose Acre Farms, Inc., 434 N.E.2d 931 (1982)-∏ was employed by ∆. ∆ offered ∏ a bonus program for certain detailed construction work. ∏ was required to work at least five full days a week for 10 weeks. During the 10th week ∏ became sick and reported to work with a 104º temperature. ∏ said that he couldn’t work. ∆ told him that if he went home he would forfeit the bonus. ∆ said that ∏ could lie on the couch or make up his lost days on Saturday or Sunday. ∏ went to the doctor and missed two days of work. ∆ refused to pay the bonus. The court found for ∏ because he didn’t fulfill all the conditions.
2. Burden of Proof-∏ must prove that the condition was met. If ∏ does not, then the other party is relieved of performance under the K. A condition precedent has to be pleaded and shown that it has been met by ∏. A condition subsequent occurs when the K is already being performed. It relives ∆ of continued performance. See McCarthy v. Tobin. The condition is usually within the control of ∏ (ex: file insurance forms in timely manner).
3. Wal-Noon Corp. v. Hill, 119 Cal. Rptr. 646 (1975)-The parties entered into a lease agreement for the construction and occupancy of a building. The roof began to leak in ∏s’ market. Other tenants complained about the leaky roof. ∏s made several repairs at their expense. ∏s were told that a new roof was needed. The lease provided that the lessors would make all repairs unless the repairs were necessary because of the lessees’ negligence or improper use. The court held that there was an implied condition precedent because the owner of the property has to make a determination as to who is responsible for the damage.
4. Jacob & Young v. Kent, 129 N.E. 889 (N.Y. 1921)-∏ constructed ∆’s home. ∆ refused to pay because the pipes ∏ installed were not Reading, as required by the K. The court held that ∏ substantially performed the K (not in material breach). There was no express condition precedent. The K only describes an item. The court does not use the general computation for damages in substantial performance cases. Instead, the court determines that the measure of damages should be the difference in value (which is either nominal or nothing).
5. Damages-If there has been substantial performance then damages are generally K price minus cost of completion minus what’s already been paid.
6. In re Carter, 134 A.2d 908 (Pa. 1957)-The parties entered into a written agreement to sell. The K was 25 pages and broke down the warranties and had a section entitled “Conditions Precedent”. The parties were sophisticated businessmen and were represented by attorneys. The condition precedent was that the company would be in the same financial situation in September as it was in June. At the time of the closing B had the right to documentation as to the condition of the company, but he went through with the sale, thereby waiving the condition. B could have brought accountants in to determine the financial status of the companies. If B wasn’t sure then he could have postponed the closing.
7. Clark v. West, 86 N.E. 1 (N.Y. 1908)-The parties entered into a written K. ∏ was to write and prepare for publication for ∆ a series of law books. The manuscripts had to be satisfactory to ∆. ∏ was to be paid $2/page. If ∏ didn’t drink then he would be paid an additional $4/page. The court held that drinking was a condition precedent. A condition can be waived if it is not a material part of the K. The $2 was not a part of the condition; it is what is owed. Therefore, there was no implied waiver of condition precedent. There is a basis for an express waiver because ∆ knew that ∏ wasn’t completely abstaining.
8. Waivers and the UCC-Modification must be in writing. If it is not then it is an implied waiver. The only time the waiver cannot be retracted is if the other party has changed his position in reliance.
9. Aetna Casualty and Surety Co. v. Murphy, 538 A.2d 219 (Conn. 1988)-∆ terminated his lease and left the premises damaged. ∆ was served, but did not give his insurance company notice for two years. The policy required notice as soon as practicable or if a suit was brought then immediately. ∏ brought this suit for the damages. ∆ filed a 3rd party complaint impleading his insurance company. The insurance company moved for summary judgment because ∆ delayed in reporting. The court granted the motion. The purpose of the clause is so that the company can determine what the damages are. CN has a different rule. The burden of proof is on the insured to show that the insurer was not prejudiced. In most jurisdictions the burden is on the insurer. This was a K of adhesion. Enforcement would operate as forfeiture.
10. Constructive Condition of Exchange-This is different than an express condition precedent. It is a situation where the court implies the order unless the parties expressly state it themselves at the time of contracting.
11. Excuse of an Express Condition-A court may excuse the express condition if it is considered to be a non-material part of the K in order to prevent the party from loosing a substantial payment. Incidental conditions can be waived. The case must not have any ambiguity. The K must be valid at the time it is entered into. (RS § 229)
12. Common Law-If the condition is waived and the person performs then you cannot retract your position and try to enforce the condition.
B. Constructive Conditions of Exchange: This section only applies to bilateral Ks. The language does not stipulate what each party is to perform. The court will imply the order of performance. The court does this to protect both parties. The K must indicate at what point payment is owed. If not the court will apply the general rule, which means that performance must be completed before any payment will be rendered. When a court discusses a condition precedent it means that one party must perform before the other.
1. Kingston v. Preston, 99 Eng. Rep. 437 (King’s Bench 1773)-∆ agreed to be ∏’s apprentice for 1 year. When the year passed ∆ would give his business to ∏. ∆’s nephew would receive the shares and the business would be carried out in ∆’s house. ∏ didn’t provide the security. The court said that the security was the essence of the K. The covenants are dependent upon each other. ∆’s performance is dependent upon ∏ first performing.
2. Types of Conditions-
a. independent mutual (either party can recover for a breach)
b. dependent (performance on one depends on performance of the other)
c. mutual to be performed at the same time (if one has performed, but the other hasn’t then there is liability)
3. Goodison v. Nunn, 100 Eng. Rep. 1288 (King’s Bench 1792)-The parties entered into a K, in which ∏ was to sell an estate to ∆ for 210. If the K was not executed then ∆ was to pay 21 (liquidated damages). There was no conveyance. ∏ had to show he was willing to perform, but he didn’t make an offer to sell. Usually a liquidated damages clause will be enforced. However, ∏ failed to perform.
4. Palmer v. Fox, 264 N.W. 361 (Mich. 1936)-The parties entered into a land K. ∏ was the vendor; ∆ was the vendee. A deposit was to be paid at execution and the balance was to be paid in monthly installments. The entire amount was to be paid on or before 5 years. The K contained provisions that ∏ was to make improvements on the land, which were not done. ∏ never tendered a deed to the property. ∏ was in material breach because there wasn’t substantial performance. Therefore, ∆ is excused from performance. The conditions were mutually dependent. The court considered the early payment to be independent.
5. Jacob & Young v. Kent-see above
6. O.W. Grun Roofing and Construction Co. v. Cope, 529 S.W.3d 258 (Tex. App. Ct. 1975)-The parties entered into a written K, which required ∆ to install a new roof on ∏’s home. The shingles were to be russet glow, which ∆ thought was brown. ∆ thought that it was his obligation to install a roof of uniform color. After the roof was installed there were yellow streaks. ∆ (the breaching party) has conferred no benefit on ∏, so there cannot be an action for quantum meruit. For ∏ to have a uniform roof a new roof would have to be installed. The court held that ∆ did not substantially perform. The object of the K was a roof of blended color. ∆’s conduct frustrated the purpose of the K. ∆ was in material breach.
7. Lowy v. United Pacific Insurance Co., 429 P.2d 577 (Cal. 1967)-∏s (owners and subdividers) entered into a K with ∆ (licensed contractor) for excavation and grading work and street improvement. ∆ performed 98% of the excavation and grading work when the parties began to dispute. The court held that ∆ was in material breach of the second part and that he had substantially performed the first part. The K is divisible because they were computed differently (lump sum v. installments) and each part had a separate bond.
8. Divisible Ks- A way to avoid forfeiture is to find that the K is divisible. Look at the K and whether the parts can stand by itself. To be divisible there must be separate parts that operate independent of each other. There is a presumption that the K is entire.
9. Britton v. Turner, 6 N.H. 481 (1834)-The parties entered into a K, in which ∏ was to work for a year and ∆ was to pay him for the work. Payment was to be made at the end of the year. ∏ stopped working without ∆’s consent after 9 ½ months without good cause. ∆ did not prove any damages, but he could have. ∏ was in material breach, so he cannot recover for the K. The court allowed ∏ to recover under quantum meruit because ∆ derived a benefit for the time ∏ worked. This is the basis for the net benefit rule.
10. Net Benefit Rule-If ∏ has conferred a benefit on ∆, even though he is in breach, he should be allowed to recover, minus the damages that the other party has suffered.
11. Britton in MA-The court held that there was no basis for recovery. See Stark v. Parker 19 Mass. 267 (1824).
12. Liquidated Damages-If you cannot ascertain what S will lose then a valid liquidated damage will take the place. Even if B can show that someone else is willing to buy then they will still be held to the clause. IF there is no liquidated damages clause (or there is one and it is stricken as a penalty) then S will have to show actual damages.
13. Maxton Builders, Inc. v. Lo Galbo, 502 N.E.2d 184 (N.Y. 1986)-The parties entered into a K, in which ∏ would sell his home to ∆s. ∏ accepted a down payment for 10% of the purchase price. ∆s cancelled the K and stopped payment on the check. The court treated the down payment as a liquidated damages clause. (RS § 374-doesn’t apply to a valid liquidated damages clause, would be under (2))
14. Lancelloti v. Thomas, 490 A.2d 117 (Pa. Super. 1985)-The parties entered into an agreement, in which ∏ agreed to buy ∆s’ luncheonette business and ∆s rent the premises to ∏. ∏ was to build an addition in consideration that no rent be paid for a few months. If the addition wasn’t built according to the agreement then ∏ would owe ∆s the rent that wasn’t paid and the equipment would revert back to ∆s. ∏ did not build the addition. The court adopted RS § 374 (the net benefit rule; only if there is material breach); benefit conferred minus damages. ∆ could have sought specific performance and then there would have been no need to discuss § 374.
15. Peabody N.E., Inc. v. Marshfield, 689 N.E.2d 774 (Mass. 1998)-∏ was to do construction for ∆. If there was an unexcused extension ∏ was to pay ∆ liquidated damages. The K stated that once ∏ substantially performed he was not required to perform additional work. ∏ completed 99% of the work and ∆ required additional work. In MA a person cannot recover on the K if there is less than full performance. If there is substantial performance then recovery is based on a theory of quantum meruit. Many times overhead costs will be included in quantum meruit, but not in this case. In MA, if a ∏ is in material breach then he will get nothing.
16. Damages for Substantial Performance-K price minus cost of completion minus cost already paid.
17. U.S. Steel v. M. DeMatteo Construction Co., 315 F.3d 43 (1st Cir. 2002)-Subcontractor was in material breach because he didn’t substantially perform. Subcontractor filed for bankruptcy. ∏ (preferred creditor) sought to recover money that ∆ owes Cyclone. ∏ argued that the terms allowed for recovery of damage clause. You are bound by the common law unless the terms have been changed. In this case the terms of the K altered the common law rule. The contractor could have explicitly stated that even though subcontractor is in material breach he would still pay him.
18. Kass v. Todd, 284 N.E.2d 590 (Mass. 1972)-∆ conveyed a lot to ∏. The parties then entered into a K for the construction of a house on the lot. ∏ told ∆ that he wanted to move into the house in order for his children to attend school in the fall. ∆ said that he would try to accommodate this, but did not make any guarantees. ∆ built the house, but not by the fall. ∏ brought a suit in equity, seeking damages for the delay. The K required that ∏ pay the bills within 7 days of receipt. ∏’s failure to pay in the time specified makes him in material breach. ∆ continued to perform even when ∏ failed to make payments. The court held that ∆ fully performed (which means he is not at fault), so he can only recover on the K price. If ∆ had stopped when ∏ was in material breach then he could have recovered under quantum meruit (the price would have been higher because the K price was very low). Because the K did not have a date for completion ∏ is not entitled to any damages.
C. Representations and Warranties of Quality: There are express and implied warranties of merchantability and fitness for a particular purpose. If there is an implied warranty then the merchantability can only be made by a merchant; fitness for purpose can be made by merchant or non-merchant. The parties can K around the implied warranties, but the K has to be explicit that the merchant is not including implied warranties. All implied warranties are excluded by “as is” or “with all faults” type clauses.
1. Henningsen v. Bloomfield Motors, 161 A.2d 69 (N.J. 1960)-∏ was the wife of the purchaser of the car; there was no privity of K between the ∏ and ∆. There was no protection in the K for personal injury. ∏’s H signed the standardized form at the time he bought the car. The dealer did not for the K and was not in a position to change the terms. The K was created by the Automobile Manufactures Association. The K was take-it or leave-it and the buyer did not have the ability to negotiate the terms. The court held that the lack of privity of K between ∏ and H does not prevent ∏ from recovery. The court allowed recovery because the K was a K of adhesion where ∆ had superior bargaining power and ∏ had no bargaining power. In a consumer K the limitation of a K to prevent liability for personal injury is a prima facie case for unconscionability. A party cannot exclude liability for personal injuries.
2. Murray v. Holiday Rambler, Inc., 265 N.W.2d 513 (Wis. 1978)-∏purchased a motor home from ∆. ∏ signed a K which warranted only defective parts for one year, at their option to replace or repair. ∆ excluded all warranties, express or implied. The K stated that the motor home was free of all defects at the time ∏ accepted the product. The motor home was not free of defects and ∏ continually took the motor home to the dealer for repairs. At the point ∆ was unable to give ∏ a product free from defects ∏ could revoke acceptance of the product. The clause failed at its essential purpose and it opens the door to all remedies including consequential damages.
3. UCC § 2-316A-Implied warranties of consumer goods cannot be limited or disclaimed. Express warranties can be limited or modified so long as the manufacturer has facilities in the Commonwealth sufficient to provide reasonable and expeditious performance of the warranty obligations.
4. Jacobs v. Yamaha Motor Corp., 649 N.E.2d 758 (Mass. 1995)-∏ purchased a motorcycle from a Yamaha dealer. After 15 attempts to repair the motorcycle over a year ∏ finds out that ∆ is going to rebuild the engine. ∏ revoked acceptance and told the dealer he wanted his money back. The dealer refused and ∏ called the headquarters. The dealer went out of business and ∏ continued the suit against the manufacturer. ∏ sued for breach of express warranty, implied warranty and 93A violations. ∏ did not receive a call back from ∆ in response to his request for a refund. In MA, under §2-316A ∆ could not limit the implied warranties. There was no problem with privity of K between the parties. Revocation of acceptance in this case is addressed by the court as far as revocation against a remote seller (the manufacturer). The court did not need to address this question because of the jury award for damages.
5. MGL c. 106, § 2-318-Under this MA law no privity of K is required between the manufacturer and end purchasers of the product.
6. Lapatofsky v. Resort Transportation, 1995 Mass. App. Div. 133 (1995)-∏ rented a bike from ∆ while visiting Nantucket. ∏ did not read, but signed a release that limited liability against ∆. ∏ was riding the bike when a rusty pedal dell off and she fell down. ∏ was not able to chose her own bike and relied on ∆ to giver her a bike suitable for the purpose of bike riding. The court held that ∆ could not waive any implied warranties of merchantability or fitness for a particular purpose.
XII. Changed Circumstances: Impracticability
A. Existing Impracticability:
1. Mineral Park Land Co. v. Howard, 156 P. 458 (Cal. 1916)-The parties entered into a written agreement, in which ∏ agreed to allow ∆ to haul gravel and earth from ∏’s land. ∆ agreed to take 114,000 cubic yards. ∆ did not take all of the gravel. In order to obtain the gravel ∆ would have to rent or lease a steam dredge to get it out from the water. This would increase the cost 10-12 times. At the time of the case the rule was that if you could perform you would have to. In later cases there are times when performance is impossible to do at rate cost. If there was an assumption that there was gravel, but there isn’t (not due to the parties fault) then there is an existing impracticability. (RS § 266)
2. United States v. Wegematic Corp., 360 F.2d 674 (2nd Cir. 1966)-∆ was a newcomer to the field and agreed to manufacture a computer for ∏. There was a liquidated damages clause and if ∏ had to get the services from another source ∆ would be responsible for any excess cost. ∆ was unable to perform. The court held that the risk was allocated to ∆, so the court does not have to address the issue of impracticability (even though it does). Additionally, price by itself is not enough to excuse a person on the theory of impracticability. (UCC §2-615)
3. Subsurface Conditions-When a contractor encounters unexpected subsurface conditions upon the land of another which delay or increase the cost of performance, the usual rule is that the contractor assumes the risk unless the other party has agreed to assume the risk, misrepresented the conditions or failed to disclose known difficulties. See Frederico.
4. Existing Impracticability v. Mutual Mistake-There is a parallel between existing impracticability and mutual mistake. There is no duty to render performance when dealing with impracticability. When dealing with a mutual mistake, the party adversely affected has the right to avoid.
5. Foreseeability-If the performing party can foresee something and doesn’t bargain against it, then he assumes the risk. If neither party foresees, then there would be a basis for avoidance. If it is foreseeable, then it must be determined whether it is beyond the scope of what the parties agreed upon. It is not clear cut. The parties may have foresaw it but did not K about it because they thought it was unlikely to occur.
B. Supervening Impracticability:
1. Taylor v. Caldwell, 122 Eng. Rep. 309 (King’s Bench 1863)-The parties entered into a K. ∆s agreed to let ∏s use the Surrey Gardens and Music Hall for 4 days. ∏s were to have 4 grand concerts. A day before the first concert the Hall was destroyed by fire accidentally. The court held that the parties were excused from performance. There was an implied condition that the hall exists. Once it no longer existed there was no obligation. ∆s did not have to offer another hall because once the Hall was destroyed then the obligation was at an end. (RS § 263)
2. Personal Service Ks-If a singer becomes ill and cannot perform, then she is excused. If dealing in another area it would depend on the circumstances. If you hire a cabinet maker for his personal skills and he cannot perform, then his performance would be excused. If the services were coming from a company and not for a person’s specific skills then the K wouldn’t be excused because another person could perform the work.
3. Canadian Ind. Alcohol Co. v. Dunbar Molasses Co., 179 N.E. 383 (N.Y. 1932)-∏ bought through a middle man. The middle man got his supply from a national refinery. ∏ had to buy from another source, so he sued. The middle man should have put a clause in the K that his performance would be contingent upon the national refinery being able to produce molasses. If they didn’t produce then he would be free. If the refinery was destroyed by fire then ∆ would have been excused, but that is not the situation.
4. Problem: A Builder in the Quagmire of Impracticability-
a. The contractor begins to bulldoze and discovers rock formation four feet under the surface. It is usually the obligation of the contractor to make test-runs. Whether or not going down four feet is customary is unclear.
b. The contractor did not perform any tests and the house sinks. The contractor has assumed the risk.
c. Construction begins and then a zoning ordinance is passed which puts an injunction on the construction. The injunction is lifted and the crew refuses to complete work. The regulation is an event of non-occurrence. It will excuse performance for that period of time. Whether the contractor can be compelled back to work will depend on the circumstances. A 10% increase in price would not be burdensome. (RS § 264)
d. When a contractor builds a house he carries the burden of risk and should get insurance to protect against things like fire. If the contractor was only repairing a roof then the homeowner would bear the risk.
e. Death excuses performance if it is personal.
5. Dills v. Enfield, 557 A.2d 517 (Conn. 1989)-The parties entered
into a construction K. ∆ was to submit preliminary plans for approval. The K allowed ∆ to withdraw if he couldn’t obtain financing after the plans were approved. ∏ could terminate the K if ∆ failed to submit satisfactory plans. ∆ didn’t submit plans because he couldn’t obtain financing. ∆ bore the risk of not having financing. There is no basis for excusing the condition on impracticability. The situation was foreseen.
6. Long Terms Ks-When parties enter into long term Ks the supplier assumes the risk that the market will go down. The buyer is assured that the purchase price will remain the same.
7. Kaiser-Francis Oil Co. v. Producer’s Gas Co., 870 F.2d 563 (10th Cir. 1989)-∏ was the seller and ∆ was the buyer. ∆ was to take or pay for certain minimum quantities of gas from wells that ∏ had an interest in. The cost of gas decline and ∆ refused to pay for gas it did not take. ∆ obtained gas from another source for less money. The K contained a take-or-pay clause, which is designed to protect the seller/producer to cover his minimum cost if the buyer decides to get his supply elsewhere. ∆ argued that the decline in price was a force majeure. The court held that force majeure clauses don’t protect people from market changes. The parties could have included an escalation clause to re-negotiate when there is a change in the market.
8. Force Majeure-
C. Frustration of Purpose: This differs from impracticability because a K could be performed, but the purpose has been frustrated. It has to be the principle purpose of the K. It must not make any sense to go through with it. The purpose of the K no longer exists.
1. Krell v. Henry, 2 K.B. 740 (1903)-∆ rented a room to see the procession for the coronation of the king. It didn’t take place because the king was ill. ∏ sued for the balance owed on the room. The court held that the purpose of the K was frustrated. The court used Taylor, but that case is different because it dealt with a condition, not frustration of purpose.
2. Washington State Hop Producers, Inc. v. Goschie Farms, Inc., 773 P.2d 70 (Wash. 1989)-In order for farmers to market their hops they would have to have a federal allotment, which ∆s bid for. A few days later the government dissolved the regulation. ∏ brought a suit to enforce the Ks. No one had any idea that the regulation would be dissolved. ∆s had no opportunity to protect themselves by inserting a clause into the K.
3. Chase Precast v. John J. Paonessa Co., 566 N.E.2d 603 (Mass. 1991)-∏ contracted with ∆ to supply concrete barriers for a government project. Neighbors protested the use of concrete barriers, so the government decided to not use them. ∏ brought a suit for lost profits on the barriers that ∆ did not buy. Lost profits are not an element of damages in public works K because of the unit price philosophy (unless it can be shown that ∆ breached the K, which is not at issue here). The unit price philosophy is that you only get paid for what you produce. There was no allocation of risk. The court was concerned that the risk was not allocated to the general contract. Because the barriers were no longer needed the purpose of the K was frustrated.
4. Divisible Ks and Excused Performance-If there is a series of excused performances and the K is divisible, then the parts that have been performed will be paid for at K price. There will be a basis for restitution for the parts that haven’t been performed. Restitution will usually be to the extent that the other party has benefited.
XIII. The Duty of Good Faith
A. Scope and Content of Good Faith Duty: In order to protect a person in the negotiation process it must be shown that there is a K to negotiate in good faith. An implied obligation of good faith cannot be contracted away.
1. Centronics Corp. v. Genicom Corp., 562 A.2d 187 (N.H. 1989)-The parties entered into a K for business assets. There was an arbitration clause if there was a dispute about purchase price. Money was deposited in escrow until the price could be determined. Release of the money could occur under two situations: consent of both attorneys or within 10 days of final determination. ∏ brought a suit for breach of an implied covenant of good faith because ∆ refused to release a portion of the fund that was considered to be free from dispute. ∆ didn’t receive any degree of discretion, so there was no bad faith. ∏ could have protected itself by including a provision in the K in the event that the arbitration process continued too long.
2. Implied Duty of Good Faith-
a. standards of conduct in K formation (traditional duty of care to not misrepresent and to correct any errors that are discovered, i.e., fraud) → this deals with negotiations where there must be a good faith agreement
b. termination of at-will employment Ks (implied in the K itself)
c. limits on discretion in contractual performance (see Omni and Walker)
3. Questions to Be Asked-
a. does the agreement ostensibly allow to or confer upon the ∆ a degree of discretion in performance tantamount to a power to deprive the ∏ of a substantial proportion of the agreement’s value?
b. if the obstensible discretion is of that requisite scope, does competent evidence indicate that the parties intended by their agreement to make a legally enforceable K?
c. assuming an intent to be bound, has the ∆’s exercise of discretion exceeded the limits of reasonableness? (must determine the common purpose(s) of the K)
d. is the cause of the damage complained of the ∆’s abuse of discretion, or does it result from events beyong the control of either party, against which the ∆ has no obligation to protect the ∏?
B. Reserved Discretion:
1. Omni Group Inc. v. Seattle-First National Bank, 645 P.2d 727 (Wash. 1982)-see above
2. Nuemiller Farms, Inc. v. Cornett, 368 So.2d 272 (Ala. 1979)-The parties entered into a K in which ∆s would deliver 12 loads of chipping potatoes to ∏. They were to be Grade #1 potatoes. ∏ claimed that the potatoes weren’t chip satisfactory. ∆s had their crop tested by an expert who determined that the potatoes were suitable. ∆s sent another load (from another seller who had sold to ∏ for a lower price) to ∏. ∏ said that the load was not satisfactory wither. This is an example of the objective approach. ∏ was wrongful to object, which means that he was in breach. The door is open for damages. It could easily be shown that the potatoes were satisfactory because they could be tested. Damages would be the difference between the market price and the unpaid K price plus incidental damages less expense of sale.
3. Feld v. Henry S. Levy & Sons, Inc., 335 N.E.2d 320 (N.Y. 1975)-∏ agreed to purchase bread crumbs from ∆ who manufactured them. ∆ told ∏ that crumb production would be resumed if the K price was increased, which was in bad faith (along with dismantling the machine). Otherwise it was no longer economical for ∆ to produce the crumbs. ∆ did not make any effort to buy more economical equipment. This is an exclusive output K. ∆ could only be excused if it was facing bankruptcy or the existence of the business was substantially hurt. The mere fact that ∆ was not making the anticipated profit doesn’t mean that it can cancel the K. Under UCC § 2-306 the output has to be in good faith. If it is an exclusive K then there must also be best efforts.
4. Buyer Increases Requirements-If the B increases his requirements it doesn’t have to be followed if it is unreasonably disproportionate.
5. Exclusive Dealings-In an exclusive dealing there is an implied agreement to deal in best efforts. If the agreement is not exclusive then the parties must agree in the K for best efforts. Best efforts involves diligence.
C. Modification: The reason a party looks for modification is because it cannot be excused for impracticability.
1. Angel v. Murray-see above
2. Circumstances Not Anticipated-It is not anticipated if it was a remote possibility but wasn’t included in the K. Modification has to be fair and equitable under the circumstances.
3. Roth Steel Products v. Sharon Steel Corp., 705 F.2d 134 (6th Cir. 1983)-∏ was to buy hot rolled steel from ∆. The price of steel increased, so ∆ threatened to not sell if ∏ refused to pay an increase. ∏ assented. Later ∏ would order the steel and it would be shipped at the current market price. ∆’s shipments were habitually late, which meant that the cost was increased. ∏ believed that this was due to the shortage of raw material. ∏ then learned that ∆ was allocating a substantial amount to a subsidiary. There was a basis for increasing the price, which cannot be challenged. The court examined honesty in fact (subjective) and how other merchants would have dealt with the situation. There was a basis for modification, but ∆ went about it incorrectly. However, there is an inference of bad faith of ∆’s part because of the conditional threat. The court ruled that ∆ used coercive tactics to get the modification. ∏ should have sought assurances and put it in writing. (UCC § 2-209, § 2-608)
D. Mutual Termination of Contractual Relations→Discharge: This section deals with discharging the obligation. This can be done in several ways. It can be paid in different kind or paying a larger sum with a lesser sum coupled with consideration. (RS § 278, § 280, § 281)
1. “Payment In Full”-This occurs when there is a dispute over the amount of money owed. If the payment is sent as “payment in full” and the other party accepts the check then the debt is discharged under common law, even if it is crossed out. Under UCC § 1-207 the party could cross off “payment in full”. However, that section was only intended to address part performance.
2. AFC Interiors v. DiCello, 544 N.E.2d 869 (Ohio 1989)-∏ was the creditor and ∆ was the debtor. ∆ gave ∏ a check for less than what ∏ expected. The note on the check stated that it was payment in full. ∏ crossed out the note and wrote “Payment on Account”. The court held that ∏ either had to accept the check as is or reject it and return it to ∆. ∏’s actions do not constitute accord and satisfaction. (RS § 281)
3. UCC § 1-207-This section has been amended. (2) states that (1) doesn’t apply to accord and satisfaction. This is because it is a check. Accord and satisfaction really belongs in article 3 (§ 3-311). Accord and satisfaction can be discharged by 1-107 without consideration if you are the aggrieved party.
4. Other Ways to Discharge-
a. mutual agreement (RS § 278)
b. substitute a K (different from accord and satisfaction because the substituted K immediately discharges the duty; for A/S it is not discharged until it is satisfied) (RS § 279)
c. novation (RS § 280)
E. Unilateral Termination of Contractual Relations
1. Zapatha v. Dairy Mart, Inc-see above
2. Seubert v. McKesson Corp., 223 Cal. App. 3d 1514 (1990)-∏ signed an employment application that stated the employment was not for a definite period of time and it could be terminated at any time without prior notice. The parties then entered into an employment K. Several years later ∏ was hired because he didn’t meet ∆’s quota requirement. ∏ was not able to sell because there were problems with the computers he was selling. The court held that ∆ terminated ∏ in bad faith. There was no integration clause and the K did not state that employment could be terminated for any reason. The application was not intended to be the entire employment agreement.
XIV. Assignment and Delegation
A. Assignment of Rights: When the assignment is made it is important that the assignee give notice to the obligor. Notice has an impact on the defenses available to the assignee. (RS § 317, § 321, § 328, § 329, § 333, § 336, § 342; UCC § 2-210)
1. Fitzroy v. Cave, 2 K.B. 364 (Court of Appeals 1905)-∏ was the assignee of 5 debts due from ∆ to five tradesmen. ∏ was the director of a company. ∆ was the co-director. ∏ did not like ∆ and wanted ∆ to file bankruptcy so that he could be removed from his position. This is the simplest assignment-accounts receivable. The tradesmen had the right to assign their accounts. ∏ was in the position to collect from ∆.
2. No Right to Assign-There are some circumstances where there is no right to assign. One case is if it would adversely affect the obligor by making the obligation greater. (RS § 317; UCC § 2-210)
3. Allhusen v. Caristo Construction Corp., 103 N.E.2d 891 (N.Y. 1952)-∆ was a general contractor who subcontracted with Kroo. The Ks stated that Kroo could not assign the K or any interest in the Ks without ∆’s written permission; otherwise the Ks would be void. Kroo assigned the rights to someone who assigned the rights to ∏. The court held that the assignment limitation was valid and did not violate public policy. Under UCC § 9-104 (when sums are due) this case is no longer good law.
4. UCC § 2-210-(2) Due performance can be assigned despite an agreement otherwise. If the sums are already owed then there is little opportunity to be successful as far as it being considered valid-comments. (3) The K is to be construed as barring only delegation.
5. Government Ks-For a while the rights to government Ks could not be assigned. Now the rights can be assigned if it is over $2000.
6. Continental Purchasing Co. v. Van Raalte Co., Inc., 295 N.Y.S. 867 (1937)-Potter assigned her wages to ∏. ∆ was Potter’s employer. ∆ received written notification. ∆ paid ∏ for two months, then made payments to Potter. The court held that ∆ was required to pay ∏ because ∆ was given notice. ∆ acknowledge the assignment when it made 6 payments.
7. Modification-Modification is allowed to the extent of the unperformed part of the K if it is in good faith.
8. Defenses-This is anything that would destroy the K (mutual mistake, fraud, duress…). Those defenses in the formation of the K can be used against the obligee, assignor. When the assignment takes place the assignor stands in the shoes of the assignee. You must look at the situation in reference to the types of defenses that are available after the transfer. At the time of the assignment the assignor gives notice to protect against any defenses that the obligee may have. A holder in due course is in a better position than an assignee.
9. Warranties-The assignor makes certain warranties in reference to the assignment. The assignor can be liable to the assignee. They can K that the assignor will not do anything to frustrate the original K and that there are no outstanding defenses. Under RS § 333(1) if the assignee seeks to recover and is met with a defense that was not disclosed to him then the assignor is in violation of § 333(1)(a). The assignor does not warrant that the obligor is solvent.
B. Delegation of Duties: There are certain duties that cannot be delegated because of statute or it is contrary to public policy or the delegee has a substantial interest in seeing the duty performed. When the assignor delegates the duties he is still a surety when it comes to those duties. The assignee promises to perform the unperformed duties. The obligor becomes a 3rd party beneficiary of the promise. (RS § 318)
1. Sally Beauty Co. v. Nexxus Products Co., Inc., 801 F.2d 1001 (7th Cir. 1986)-Nexxus entered into a K with Best Barber. Best was to be the exclusive distributor for Nexxus hair care products. Best was bought by and merged into Sally (competitor of Nexxus). Nexxus cancelled the agreement. The court held that the rights were not assignable. The court ruled that the case was governed by UCC § 2-210 because it was for the sale of goods. Nexxus could have asked for assurances (UCC § 2-619). (Because the agreement was exclusive Best had to exercise best efforts-even though it was handling other products.)
2. Langel v. Betz, 164 N.E. 890 (N.Y. 1928)-∏ entered into a K (for the sale of real property) with Hurwitz and Hollander, who assigned it to Benedict, who assigned it to ∆. The assignments did not contain delegation to the assignee the performance of the assignor’s duties. ∆ requested that the date for performance be extended. When the date came for performance ∆ refused to perform. The court held that there was no right to substitute parties. There was no evidence of assumption of duty by ∆. The original assignor is still a party because he is a surety. If ∏ refused to sell then ∆ could bring an action, which means that he impliedly promises to perform the unperformed duties.
3. Hypo-Contractor enters into a K to build an addition for homeowner. Contractor says he getting out of the business and moving to FL. The K was assigned to X. If the homeowner doesn’t reserve the rights and accepts the services of X then a novation arises. The duty of the assignor is discharged.
XV. Third Party Beneficiaries-There is a promisor, a promisee and a 3rd party beneficiary. The promisor makes a promise to the promisee. It is often to make a payment to the 3rd party. If the payment is to discharge a debt from the promisee to the 3rd party then is it RS § 302(1)(a). The 3rd party is the intended beneficiary of a creditory type. The payment by the promisor is going to discharge the promisee’s debt. Assuming the promisor doesn’t make the payment then what the 3rd party can do depends on their standing.
A. Creation of Rights:
1. Choate, Hall & Stewart v. SCA Services, Inc., 378 Mass. 535 (1979)-∆ and Steir had a settlement agreement in which ∆ would pay for Steir’s legal debt owed to ∏, in return for Steir acting as a consultant for ∆. ∆ began to pay, but refused to pay when it learned Steir was going to be sued again. The court adopted RS § 302(1)(a) because ∏ was a creditor beneficiary.
2. Rae v. Air Speed, Inc., 386 Mass. 187 (1982)-∏’s H died in a plane crash. ∏ was employed by ∆. ∆ didn’t have workers’ compensation insurance because Hansman failed to renew the policy. ∏ alleged that she was an intended beneficiary of the K between ∆ and Hansman. The court held that Hansman had a duty to procure the insurance because of foreseeability. This case was under RS § 302(1)(b) because ∏ was an intended beneficiary since the performance was owed by employer to employee. ∏ was required to amend her complain to add herself individually (not as administratrix) because MA workers’ comp law only permits recovery by dependents of a deceased employee.
3. Flattery v. Gregory, 489 N.E.2d 1257 (Mass. 1986)-The car owner entered into a K with the insurance agent. The agent got compulsory coverage (not the full). The owner was an in accident and hurt the other driver. The driver sued the agent to recover for failing to procure the insurance and breach of K. The court looked at the driver’s reasonable reliance. On the failure to procure claim the driver was limited to compulsory recovery because there was compulsory coverage. On the K theory the driver was allowed to recover for the higher amount of insurance.
4. Werman v. Aratusa, Ltd., 630 A.2d 302 (N.J. Super. A.D. 1993)-∏ sustained personal injuries when she fell at a restaurant. ∆ sued the restaurant, who filed a 3rd party complaint against the insurance broker. ∏ amended her complaint and named the broker as a direct ∆. The court held that it does not matter whether the insurance is compulsory or optional. The agent still owed a duty. The intended beneficiary need not be identified at the time the K is entered into. This is a similar application as in Air Speed. Performance must move to the beneficiary.
5. Incidental Beneficiary-Any party that is not an intended beneficiary. Performance doesn’t move directly to the beneficiary; doesn’t have any right. (RS § 302(2))
6. Hale v. Groce, 744 P.2d 1289 (Or. 1987)-∆ was directed by a client to prepare testamentary instruments. It was to include a bequest of a specific sum for ∏. After the client died it was discovered that the gift wasn’t included in the will or in a related trust instrument. The court held that ∏ was an intended 3rd party beneficiary and has an action for damages for the nonperformance. (RS § 302(1)(b), § 304)
7. Homeowners-Homeowners are not usually an intended beneficiary of the K between the general contractor and the subcontractor. It could be indicated in the K that the owner is the intended beneficiary. Performance moves from the subcontractor to the general contractor to the homeowner, which makes the homeowner an incidental beneficiary.
B. Nature of Rights:
1. Vested Interest-The TPB’s interest vests when he substantially changes his position in reliance, brings a suit or manifests assent.
2. Modification-If the promisee wrongfully modifies after the interest has vested and receives consideration from the promisee then the TPB is entitled to the consideration, even though the TPB is a donee beneficiary. The TPB doesn’t have an action against the promisee. The only time the TPB can bring an action against the promisee (other than promissory estoppel) is if there is a wrongful modification. In that situation the TPB will have a right to the consideration. The only way modification is valid after vesting is with the consent of the TPB.
3. Enforcement-When there is a creditory beneficiary or a person who is owed a duty by the promisee the TPB has a c/a against the promisor because of the K. The TPB also has a claim under RS § 302(1)(a) because the promisee owes the 3rd party money. When the 3rd party doesn’t get the money he can bring an action and sue both promisee and promisor. When he brings an action the if in the course of the action the promisor doesn’t pay and the promisee is forced to pay the whole debt then the promisee stands in the shoes of the 3rd party in going after the promisor. If the promisor only pays part and the promisee is forced to pay the rest then the promisee has an action against the promisor for the balance. If the promisee gets wind that the promisor hasn’t complied then he could seek specific performance before the TPB brings a suit.
4. Ovation-The TPB and the promisee may enter into a novation. It is a substitution of the promisor for the promisee.
5. Disclaim Interest-A TPB may acquire knowedge that he is a TPB and not want any part of the deal. He can disclaim the interest. (RS § 306)
6. Defenses Available to the Promisor-There must be a K between the promisor and the promisee. If there is a defense available under the K (reason for avoidance or no consideration) then it can be raised by the TPB. If the promisee’s performance is excused then it will affect the promisor’s rights against the TPB. The promisor doesn’t have any right to defenses between the TPB and the promisee. These defenses are similar to those under assignments.
XVI. Right of Suspend Performance or Cancel Upon Prospective Inability of Breach-This section deals with situations where someone, before the time for performance, decides that he cannot perform on the due date. What is the impact of that statement? It is not a repudiation. The other party should ask for assurances under UCC § 2-609. If the person said that he will not perform then there is repudiation. The other party could bring an action for breach then or wait until the date of performance.
A. Hochster v. De La Tour, 118 Eng. Rep. 922 (Queen’s Bench, 1853): ∏ was a courier who agreed to accompany ∏ on a trip on June 1. Before June 1 ∆ wrote and cancelled. ∏ obtained another position. ∆ argued that ∏ could not bring an action until June 1. The court held that ∏ may bring a suit before the day set for performance if the other party refuses to perform before that day. (∏ could have insisted on performance. If he did and ∆ retracted the repudiation then ∏ would have been obligated to perform.
B. Revocation of Repudiation: If ∏ insists on performance and the other party retracts the repudiation and performs then ∏ is bound to perform under the K.
C. When Repudiation Takes Effect: Repudiation takes effect by statement or conduct. (RS § 250)
D. UCC § 2-610: This section deals with repudiation. MA follows this section. However, under common law there is an old case that requires ∏ to wait until the date of performance. Today the courts would probably follow § 2-610 by analogy.
E. Taylor v. Johnston, 539 P.2d 425 (Cal. 1975): ∏ contracted with ∆ to have his two mares breed with ∆’s stallion. ∆ sold the stallion and repudiated. ∏ demanded performance. ∆ arranged for ∏’s mares to be sent to a stable near the stallion. ∏ contacted the new owners about 4 times to breed the mares with the stallion. ∏ were in breach of the K because he was premature. There was still a month left for the K to be performed. ∏ should have asked for assurances. (If there is an implied repudiation then it must be shown that ∆ put it out of his power to perform.)
F. Assurances: Under common law assurances are within a reasonable time. Under the UCC it is within 30 days. (RS § 251)
G. AMF, Inc. v. McDonald’s Corp., 536 F.2d 1167 (7th Cir. 1976)-∏ had a computerized cash register which was placed in ∆’s store as a prototype, which did not have any warranties. ∆ placed an order for more registers. The prototype performed poorly and was removed. ∏ was unable to produce a register in a reasonable time. The parties mutually understood that the orders had been cancelled. ∆ had a basis to seek assurances, which it did (UCC § 2-609). The assurances were unsatisfactory. Technically the assurances did not have to be in writing because UCC § 2-609 says “may”, not “shall”. Under UCC § 2-610 ∏ repudiated. Under UCC § 2-711 the buyer can seek to cancel the K, which ∆ did. ∆ is not allowed to recovery for the prototype because it did not come with warranties.
H. Insolvency: If there is a rumor that S is insolvent then the most B can do is look for assurances. If B is insolvent then S can demand that the buyer pay in cash (UCC) and under RS § 252 the seller cannot supply until he receives assurances.
I. Cost Escalation: B tells S that he cannot supply unless the price is increased. If B doesn’t get assurances within 30 days then the K will be treated as repudiated. (UCC § 2-609(4)). If there is commercial impracticability then B has no remedy. If S decides to repudiate and B sues for breach and it is found that B was insolvent and would not have been able to perform his part of the K then B cannot recover. (RS § 254)
XVII. Compensatory Damages-Generally, the remedy for Ks is money. Specific performance is a remedy available only when the remedy at law is inadequate. Damages are to compensate ∏, not to punish ∆. Foreseeability of damages must be examined at the time the K was entered into. The injured party has a duty to mitigate damages. There are several interests that must be protected: expectation interest (benefit of the bargain; makes injured party whole); reliance interest (reimbursing the injured party for the losses he has suffered); and restitutionary interest (benefit ∏ conferred on ∆).
A. Basic Policies:
1. Sullivan v. O’Connor, 296 N.E.2d 183 (Mass. 1973)-∆ (doctor) gave ∏ a botched nose job. ∏ was allowed out-of pocket expenses, pain and suffering of the 3rd operation (required to fix nose) and emotional harm. ∏ didn’t present any evidence that she lost any work. Recovery was based upon reliance and restitution. For other damages foreseeability would have to be considered. In this case the question would be whether it is foreseeable that if ∆ breached the K there would be this type of damage.
2. St. Charles v. Kender, 646 N.E.2d 411 (Mass. App. Ct. 1995)-∆ was ∏’s primary care doctor. ∏ was pregnant and began to have pain and bleed. ∏ called ∆, but ∆ never returned her calls. ∏ suffered a miscarriage. The K was theory was that ∏ was a third party beneficiary of the K between ∆ and the HMO. The HMO handbook stated that a reasonable time for a call back would be 1-2 hours, not 2 days. There was a basis to find that ∆ breached the K, however, ∏ could not prove actual damages. The court affirmed the summary judgment, but allowed ∏ to refile for nominal damages ($1). (RS § 353: ∏ could recover if she could prove that the breach was of the nature that would likely cause emotional distress or that it caused bodily harm. This includes breach of privacy, stillbirth because of a C-section, wrong body presented to the family.)
3. Punitive Damages-Some jurisdictions do not allow recovery of punitive damage unless provided for by statute, such as 93A in MA (93A would be a second count). Many times the person may sue at law for damages, not based on the K under 93A. Under RS § 355 punitive damages are not allowed unless the conduct was a tort.
4. F.D. Borkholder Co. v. Sandock, 413 N.E.2d 567 (Ind. 1980)-The parties entered into a K for a concrete addition to ∏’s preexisting structure. ∏ was concerned about moisture in the walls. ∆ negligently built the addition and there was a moisture problem. The court held that there would have to be a tort action in conjunction with the breach of K in order to award punitive damages. In this case the tort was fraud because ∆ stated the moisture was the result of condensation, not failure to perform according to the plan. The building was a public building, so there was a strong public interest and possibility of serious harm to the public.
5. Deceit/Fraud-When there is evidence of deceit/fraud then the available remedies are avoidance/rescission or ratification and sue for damages.
6. Material Breach-If there is a material breach then ∏ could seek specific performance, damages, or cancel the K.
7. Boise Dodge, Inc. v. Clark, 453 P.2d 551 (Idaho 1969)-∆ bought a car with 165 miles from ∏. ∏ represented the car as being new. However, ∏ knew that the odometer had been set back almost 7000 miles. ∆ stopped payments on the check. ∏ sued, which affirmed the K. This court used the out-of pocket damages for intentional misrepresentation (which MA doesn’t use; instead, MA uses benefit of the bargain). The fraud had been approved by the dealership; it was a calculated commercial fraud. This decision is to serve as a deterrent, so a high level of punitive damages was awarded.
B. Breach or Repudiation by Payor: The sums paid are not payable until performance is completed or substantially performed unless otherwise indicated in the K. It is a breach of a promise to accept and pay for the performance.
1. John Hancock Mutual Life Insurance Co. v. Cohen, 254 F.2d 417 (9th Cir. 1958)-The insured (who died) was covered by a life insurance policy issued by ∆. There was a family income benefit provision. The beneficiary was to receive monthly payments for 20 years and then a final lump sum. ∆ made the monthly payments and then a lump sum after 15 years, refusing to perform, claiming that the parties intended for 15 years, not 20. This is a situation where the injured party has fully performed the K. If there has been full performance then the injured party will have to wait until the time for the other’s performance. (In anticipatory repudiation neither party had performed.) There was no acceleration clause. ∏ might want an order from the court requiring ∆ to make payments. If the payments are not made then ∆ will be in contempt.
2. Full Performance v. Partial Performance-If the obligor repudiates and the other party still has a duty to perform then it will be treated as a breach. If the other party has fully performed then there is no claim for damages until the time set for performance. (RS § 243)
3. American Mechanical Corp. v. Union Machine Co. of Lynn, Inc., 485 N.E.2d 680 (Mass. App. Ct. 1985)-∏ was to sell its real estate and business equipment to ∆. ∆ knew that ∏ was having financial difficult and was being pressured by the mortgagee to sell. ∆ repudiated. At that time the remedy available to ∏ was specific performance. The bank sold the equipment and the land. Traditionally the measure of damages would be the K price (market price). This was not used because ∏ did not present evidence of the market value. Additionally, ∆ knew the true state of affairs (foreseeability). The court doesn’t find that ∏ failed to mitigate damages.
4. New Era Homes Corp. v. Forster, 86 N.E.2d 757 (N.Y. 1949)-∏ was to make extensive alterations to ∆s’ home. Payment was to be made in four installments when different things were accomplished. ∆ made the first two payments, but then stopped. Even though there was times for performance this is an entire K. Usually installment Ks are considered to entire. ∏’s alternatives were to sue under quantum meruit (treats the K as cancelled) or to sue under the K for what he lost, proportionate loss of profits (K price – payments made – cost of completion). This was a material breach, unlike John Hancock.
5. Reliance-This is what is put into the K. The other party can show that it was performing at a loss. There is also an issue of foreseeability.
6. Net Benefit Rule-∏ is the breaching party. The benefit conferred on the other party is lesser (extent to which the homeowner’s land was improved). It is benefit minus damages. ∏ will get nothing if his deviations are so to frustrate the purpose of the K.
7. Expectation-This is the benefit of the bargain (generally, lost profits). It is what ∏ would have had if the K had been fully performed.
8. Restitution-If the performing party has fully performed then the amount of restitution will be limited to the K price.
9. Bernstein v. Nemeyer, 570 A.2d 164 (Conn. 1990)-∏s invested in a partnership. ∆s loaned $3 million to the partnership, but defaulted on the obligations to the financiers of the project, despite good faith efforts. The mortgages were foreclosed and the parties lost their entire investments. ∏s knew that the business was highly speculative. In order to have rescission it would have to be shown that ∏s tendered back. ∆s cannot be put back in status quo. Material breach doesn’t automatically signal restitution. The court must consider all the facts. ∆s did not derive a benefit.
10. Locks v. Wade, 114 A.2d 875 (N.J. Super. 1955)-∏ was to lease a juke box to ∆ for two years. ∏ agreed to supply records and replace worn parts. ∆ repudiated the K, so ∏ never installed the juke box. This is called a lost volume sale. When ∆ repudiated it did not create an opportunity for ∏ to make another sale. ∏ always had the ability to make another sale because he had an unlimited supply. The measure of damages is the difference between the K price and the cost of performing the 1st K.
11. Lost Volume Sale-This is a situation where a lessor/seller has a warehouse of goods and can always make a second sale. It is different from sales of real estate. A sale of real estate cannot be sold to a 2nd person until the 1st person breaches. It does not apply outside of the commercial realm. (will not be on exam)
12. Employee’s Remedies for Breach of Employment K-Even though the employer wrongfully discharges the employee the damages will depend on what the terms of the K were. If the employee was discharged April 1, even though his K went to September 1, then damages generally are lost wages. The employer can reduce the amount owed by showing that there are positions available that would provide for responsibilities, benefits, etc (close to what he already has) as long as the employee hasn’t applied. If the employee has applied and does not get a job then the damages cannot be reduced. If the employee is moonlighting when he was employed then those sums cannot be deducted from what it owed. During the course of unemployment the employee may get benefits, which are not deducted from damages for wrongful breach. If the employer uses unfair tactics against the employee then there is a basis for recovery if it can be shown that there is a tort. There cannot be a c/a under 93A in employer/employee Ks.
C. Breach or Repudiation by Performer: This is a breach of a promise to sell and deliver goods or land, construct a home or perform personal or professional services.
1. Reliance Cooperage Corp. v. Treat, 195 F.2d 977 (8th Cir, 1952)-∆ agreed to produce and deliver “white oak bourbon staves”. ∆ repudiated. ∏ insisted on performance. ∆ did not perform. The cost of performance escalated. ∏ wanted damages to be measured by performance date of K (actual breach) rather than when anticipatory repudiation occurred. When there is an anticipatory repudiation ∏ should have gotten the services elsewhere and sue for the difference in price. ∏ could also have tried to mitigate damages. The court held that ∏ was entitled to recover damages based on the market of actual breach. (UCC § 2-713: When a party learns of the breach there is no duty to mitigate direct damages. There is a duty to mitigate consequential damages.
2. Revised Article 2-If the case comes to trial before the date of performance then damages are the market price at the time of breach minus K price.
3. Comments to UCC § 2-610-If ∏ waits until a commercially reasonable time then there will be extra damages. ????
4. Benefit of the Bargain-This will give ∏ what he would have received has the K been performed.
5. Direct Damages-This is damages that results immediately at the time of the breach.
6. Rivers v. Deane, 619N.Y.S.2d 419 (1994)-The parties contracted for ∆ to build an addition in a good and workmanlike manner, which he did not. The general rule, which the court adopts is the market value of the cost of correcting the deficiencies.
7. Subjective Test-
a. RS § 347: loss of value to the injured party plus any costs (incidental and consequential)
b. UCC § 2-217: more certain
c. RS § 348: can’t prove actual value then talking about cost
of completion (which can be ascertained)
8. American Standard, Inc. v. Schectman, 439 N.Y.S.2d 529 (1981)-∏s were awarded damages for ∆’s failure to complete grading and to take down certain foundations and other subsurface structures to one foot below the grade line. ∆ was to get certain equipment and buildings from the deal. ∆ was in material breach. The balance of the bargain of the exchange was the grading, which ∏ was entitled to.
9. Restitution of Down Payment by Payor-If ∏ is the injured party and ∆ has not performed then ∏ has the right to cancel. If ∏ has paid money ∏ is entitled to that money. If ∏ was allowed to reside on the property then the rent owed would have to be subtracted from the down payment. Under the UCC the buyer can get back the deposit, plus buy the goods elsewhere and sue for the difference.
10. Consequential Damages-This is what would flow from the breach. If the breaching party is to be held to special damages it must be shown that those damages were foreseeable.
11. Hadley v. Baxendale, 156 Eng. Rep. 145 (Court of Exchequer 1854)-∏s were millers. The crank shaft broke, so it was sent to ∆ for repair. ∆ did not return the crank for a few days. ∏ did not tell ∆ that it was the only shaft and the mill would have to shut down if it didn’t have it. ∏ did not tell ∆ that it was important that it receive the shaft back ASAP, so there was no recovery.
12. Special Circumstances-UCC § 2-715(2) tells what damages are to be included. It discusses prevention by cover. At the time of the K, S must be made aware of special circumstances in reference to the goods. RS § 351 states that damages for loss cannot be recovered unless the party in breach had reason to know at the time the K was made of special circumstances.
13. Spang Industries, Inc., Fort Pitt Bridge Division v. Aetna Casualty & Surety Co., 512 F.2d 365 (2nd Cir. 1975)-This was a subK to deliver steel. The steel was late. Subcontractor had reason to know that there would be a problem with pouring the cement if there was a delay because he had made deliveries before. The court focused on foreseeability at the time the parties agreed on a time for performance. The general contractor could have waited, but he worked around the clock in an attempt to mitigate the damages.
14. Hydraform Products Corp. v. American Steel & Aluminum Corp, 498 A.2d 339 (N.H. 1985)-∏ sold woodstoves. It began to purchase steel from ∆. Some deliveries were late. ∆ promised that if ∏ placed another order it would be on time. It wasn’t and some of the steel was defective. By the time ∏ sought to cover it was too late. ∏ had to sell its business. Damages must be ascertainable, so there cannot be recovery for future lost profits. There must be causation between the failure to furnish the steel and the decrease in value when selling the business in order to recover for that loss.
15. L. Albert & Son v. Armstrong Rubber Co., 178 F.2d 182 (2nd Cir. 1949)-S was to deliver six Refiners. The first two were late, so B refused to accept the next four. The burden shifts to the breaching party once it has been proven that there was reliance. The breaching party must prove that if the injured party had performed it would have performed at a loss. That sum of money can be deducted from reliance damages. (This case is misleading.)
16. Patterson v. Meyerhofer, 97 N.E. 472 (N.Y. 1912)-∏ was to sell four parcels of land with houses to ∆. ∏ was to buy the land at foreclosure after the K was entered into. ∆ went to the foreclosure and outbid ∏. The court found that there was an implied duty of cooperation. ∏ could recover for the total amount ∆ paid for the land under the K price.
17. Iron Trade Products Co. v. Wilkoff Co., 114 A. 150 (Pa. 1922)-∆ was to deliver rails to ∏. ∆ failed to deliver. There is no indication that it was a particular source or that ∆ wasn’t allowed to acquire it from another source. Failure to deliver wasn’t ∏’s fault.
18. Billman v. Hensel, 391 N.E.2d 671 (Ind. App. 1979)-∆s were to buy ∏s’ home. There was a condition in the K that ∆s were to secure a mortgage on the property. ∆ went to a bank, which would give the mortgage once ∆ prove he could secure the difference between the purchase price and the amount of the mortgage (∆ never filled out a form). ∆s told ∏s that he couldn’t secure the mortgage. ∏s said they would lower the price, but ∆s said no. ∏s heard ∆’s father say not to buy. ∆ was in breach of the promise. In order to recover ∏s must shoe that ∆ did not make a reasonable and good faith effort to obtain financing because ∆ stopped payment on the check.
19. Liquidated Damages-The purpose of liquidated damages is that if there is a breach the damages could not be ascertained. It would be very difficult to determine what the damages would be. The focus is on the relationship of the clause and the actual harm or the anticipated harm. If the clause is excessive then it will be stricken as a penalty and actual damages will be awarded. If it is a valid clause then it will limit the amount of damages. To determine whether it is valid you must look at all the circumstances. The time of contracting test is the prevalent test. This focuses in on the time the K was made and what the anticipated damages would be. (RS § 356; UCC § 2-718)
20. United Air Lines, Inc. v. Austin Travel Corp., 867 F.3d 737 (2nd Cir. 1989)-∏ sued to recover damages for breach of leases that obligated ∆ to use ∏’s computerized reservation system and unpaid accrued rentals. ∆ claimed that the liquidated damages clause of the Ks with ∏ were unreasonable and unenforceable. The court said that the clause was overly generous because other airlines charged 100%, not 80% as ∏ did. Liquidated damages apply when there is a material breach.
21. Leeber v. Deltona Corp., 546 A.2d 452 (Maine 1988)-∆ was the developer of a condo. ∏s decided to invest as a group in one of the units. The balance was to be paid at closing, which was to be specified by ∆ within 4 years of the original agreement. ∏s refused to close. ∆ sold the land to someone else and made a profit. In FL, a 15% deposit is customary. ∏s’ conduct cost ∆ because he could have marketed the land earlier. The clause was reasonable under the circumstances at the time it was entered into. ∆ could have sought specific performance. A liquidated damages clause doesn’t bar specific performance, unless the clause indicates that it is the sole remedy for breach. (RS § 361)
22. Kelly v. Marx, 705 N.E.2d 1114 (Mass. 1999)-∏s brought a suit to recover the deposit (5% of the purchase price) for the purchase of ∆s’ property. ∆s were able to sell to another party at a profit. The court said that the single look approach was appropriate because the parties knew what the damages would be. ***This court adopted the single look approach.*** The fact that the property was sold at a profit doesn’t affect the valid liquidated damages clause. If the liquidated damages clause was struck as a penalty then S would have to sue for damages, which means that the profit would have to be taken into consideration.
23. Limitation of Liability-Limitation of liability is different from liquidated damages. When there is limitation of liability amount of damages must be proven. If there is a liquidated damages clause then the court is only concerned with whether it is valid.
24. Lewis Refrigeration Co. v. Sawyer Fruit, Vegetable and Cold Storage Co., 709 F.2d 427 (6th Cir. 1983)-The K warranted that the freezer was capable of meeting ∆’s needs. If the machine failed to perform then ∏ would have to the right to promptly repair or replace the part. ∏ was to supply Freon for a while. Consequential damages were excluded. By the time the repair remedy didn’t work rescission was not possible because ∆ had run a substantial loss. Additionally, ∏ was reluctant to rescind the K. ∆ was lead along and thought that the problem would be fixed. Once those remedies fail you can move on to other remedies under Article 2. The K state no consequential damages, but it should be determined whether it was unconscionable. It would be unconscionable if the K were between a merchant and a consumer, but UCC § 2-719 doesn’t say that. If it is found to be unconscionable then it becomes a valid K with no recovery. The cost of Freon would be allowed because it was incidental damages, not consequential.
XVIII. Equitable Remedies for Breach of Contract: Prohibitory Injunction and Specific Performance-There is a presumption that land is unique. The injured party normally has a right to specific performance. To be in equity and to get a remedy it will have to be shown that there is no adequate remedy at law. There are provisions to enjoin the other party from breaching the K. See Choate, Hall and Stewart. You can also obtain specific performance and money damages (FRCP 54(c)). When the court decides to grant relief it exercises discretion. The court will look at all the circumstances, whether relief should be granted and to what extent. This will include the conduct of the parties. Because S comes into court looking for specific performance and nonmaterial misrepresentation (unclean hands) the courts can take note and deny relief by way of specific performance, but there is still a K. S will be entitled to damages. Courts grant relief to the vendor because the remedy at law might not be adequate. There are some jurisdictions (IL) that would not allow specific performance for construction Ks because of continued supervision by the court (too much responsibility).
A. Curtice Brothers Co. v. Catts, 66 A. 935 (N.J. Eq. 1907): ∏ was in the business of canning tomatoes and brought this suit seeking specific performance of the K. ∆ agreed to sell ∏ the entire product of specified land that was planted with tomatoes. There was no ability to effect cover on the market. The court could enjoin ∆ from selling to a 3rd person.
B. Laclede Gas Co. v. Amoco Oil Co., 522 F.2d 33 (8th Cir. 1975)- The parties entered into a written agreement to provide for gas distribution systems to various residential developments until natural gas mains were extended into those areas. This is a requirement K. Specific performance would be granted as a matter of law because there is no adequate remedy at law. There was a substantial public interest, which overrides the need for continuous supervision.
C. UCC and Specific Performance: Under UCC § 2-716 specific performance is granted where the goods are unique or other special circumstances (such as output K or requirement K). A liquidated damages clause doesn’t prohibit specific performance unless the clause is stipulated to be the sole remedy.
D. Clean Hands: You must come into equity with clean hands. Actions at law include fraud or misrepresentation. S could make a statement that doesn’t meet all the elements of common law fraud and it was an immaterial fact. S goes into court for specific performance. S doesn’t get specific performance. However, the statement is not enough to give a defense under common law fraud. S can still get damages. If ∏ has unclean hands then it will prevent specific performance.
E. Northern Indiana Public Service Co. v. Carbon County Coal Co., 799 F.2d 265 (7th Cir. 1986)-∆ was the owner and operator of a coal mine and agreed to sell a certain amount of coal each year to ∏. ∏ was able to buy electricity for cheaper. This was an efficient breach. It would have been uneconomical to award specific performance. (The simplest example of efficient breach is when ∏ seeks to enforce the K. ∆ wants to violate a covenant not to compete. ∆ could pay ∏ off for losses suffered.)
F. Walgreen Co. v. Sara Creek Property Co., 966 F.2d 273 (7th Cir. 1992)-∏ leased from ∆. The lease contained a clause in which ∆ promised not to lease a space in the mall to anyone who wants to operate a pharmacy or a store that contains a pharmacy. This court looks at the cost and the benefit at the different types of relief. In this case, the only downfall of specific performance is the potential supervision by the court, which would be minimal. Damages in this case would be difficult (good will, present worth, ten more years on the lease). The court points out that there are certain categories where there is a presumption that remedy by damages would be inadequate.
G. Personal Service K: These will not be enforced.
This is a common Property Law Outline for University Law School classes at:AKRON ALABAMA ALBANY UNION AMERICANAPPALACHIAN *ARIZONAARIZONA STATE ARKANSAS-FAYETTEVILLE ARKANSAS-LITTLE ROCKAVE MARIA SCHOOL OF LAWBALTIMORE BARRY UNIVERSITY *BAYLOR BOSTON COLLEGE BOSTON UNIVERSITY BRIGHAM YOUNG BROOKLYN CALIFORNIA - BERKELEY CALIFORNIA - DAVIS CALIFORNIA - HASTINGS CALIFORNIA - LOS ANGELES CALIFORNIA WESTERN CAMPBELL CAPITAL CASE WESTERN RESERVE CATHOLIC UNIVERSITY OF AMERICA CHAPMAN CHICAGO CINCINNATI CITY UNIVERSITY OF NEW YORK CLEVELAND STATE COLORADO COLUMBIA CONNECTICUT CORNELL CREIGHTON DAYTONDENVER DePAUL DETROIT MERCY DISTRICT OF COLUMBIA DRAKEDUKE DUQUESNE EMORY FLORIDAFLORIDA A&M*FLORIDA COASTALFLORIDA INTERNATIONAL*FLORIDA STATEFORDHAM FRANKLIN PIERCE LAW CENTERGEORGE MASONGEORGETOWN GEORGE WASHINGTON GEORGIA GEORGIA STATE GOLDEN GATE +GONZAGA HAMLINE HARVARD HAWAIIHOFSTRAHOUSTONHOWARD IDAHO ILLINOIS ILLINOIS INSTITUTE OF TECHNOLOGY INDIANA - BLOOMINGTONINDIANA - INDIANA POLISINTER-AMERICAN IOWATHE JOHN MARSHALLJOHN MARSHALL (ATLANTA)*JUDGE ADVOCATE GENERAL'S SCHOOLKANSASKENTUCKYLAVERNE*LIBERTY*LEWIS AND CLARKLOUISIANA STATE LOUISVILLELOYOLA - CHICAGO LOYOLA MARYMOUNT - L.A. LOYOLA - NEW ORLEANSMAINE MARQUETTE MARYLAND MCGEORGE MEMPHIS MERCER MIAMI MICHIGAN STATE MICHIGAN, UNIVERSITY OF MINNESOTA MISSISSIPPI COLLEGE MISSISSIPPI, UNIVERSITY OFMISSOURI-COLUMBIA MISSOURI-KANSAS CITYMONTANANEBRASKANEVADA-Las Vegas NEW ENGLAND NEW MEXICO NEW YORK Law School NEW YORK UNIVERSITYNORTH CAROLINA NORTH CAROLINA CENTRALNORTH DAKOTA NORTHEASTERN NORTHERN ILLINOIS NORTHERN KENTUCKY NORTHWESTERN NOTRE DAME NOVA SOUTHEASTERN OHIO NORTHERN OHIO STATE OKLAHOMA OKLAHOMA CITY OREGONPACE PENNSYLVANIA PENNSYLVANIA STATE PEPPERDINE PITTSBURGHPONTIFICAL CATHOLIC OF P. R.PUERTO RICOQUINNIPIAC REGENT RICHMOND ROGER WILLIAMS RUTGERS - CAMDEN RUTGERS - NEWARK ST. JOHN'S SAINT LOUIS ST. MARY'S ST. THOMAS (FLORIDA) ST. THOMAS (MINNESOTA) SAMFORD SAN DIEGO SAN FRANCISCO SANTA CLARA SEATTLE SETON HALL SOUTH CAROLINA SOUTH DAKOTA SOUTHERN UNIVERSITYSOUTHERN CALIFORNIASOUTHERN ILLINOIS - CARBONDALE SOUTHERN METHODIST SOUTH TEXAS SOUTHWESTERN STANFORD STATE UNIVERSITY OF NEW YORK STETSON SUFFOLK SYRACUSE TEMPLE TENNESSEETEXAS AT AUSTINTEXAS SOUTHERN TEXAS TECH TEXAS WESLEYANTHOMAS JEFFERSON THOMAS M. COOLEYTOLEDOTOURO TULANETULSA UTAHVALPARAISO VANDERBILT VERMONTVILLANOVAVIRGINIAWAKE FORESTWASHBURN WASHINGTON AND LEE WASHINGTON WASHINGTON UNIVERSITYWAYNE STATEWESTERN NEW ENGLAND WESTERN STATE*WEST VIRGINIA WHITTIER +WIDENER WILLAMETTE WILLIAM AND MARY WILLIAM MITCHELL WISCONSIN WYOMING YALE YESHIVA