Ks Outline (final)

Andrew Gniewek Ks Outline Last Updated 04/23/09 Ks Case Database Statute of Frauds Crabtree (Signed and unsigned writings together satisfy SoF, R2D 132) Alaska Democratic Party (Promissory estoppel in spite of not satisfying SoF, R2D 139) Offer and Acceptance Ray (Unilateral mistake is insufficient to invalidate agreement) Lonergan (Generally, ads are not offers, they are requests for offers) Izadi (Car dealership’s ad is an offer) Normile (Buying a house; “Qualified acceptance” is new offer) Petterson (Strict interpretation of offer and acceptance in unilateral K) Cook (Offeror bound by substantial performance by offeree) Consideration Hamer (Uncle and nephew; consideration by foregoing a legal right) Allegheny College (Donation to college; court found consideration, promoted idea of promissory estoppel) Pennsy Supply (Promise and consideration induce each other) Dougherty (Aunt and nephew; recital of value not consideration) Batsakis (Mere inadequacy of consideration will not void a K, R2D 79) Plowman (Past action, moral obligation are not consideration; going to office is a condition on a gift) Promissory Estoppel James Baird (Late acceptance; no PE where offer for exchange) Drennan (PE basically extended to pre-acceptance reliance) Berryman (No option K b/c no consideration; narrow PE rule) Pop’s Cones (PE extended to pre-offer reliance, R2D 90) Kirksey (Widow relied on promise, but no PE rule) Greiner (Son relied on mother’s promise for interest in her land) Wright (PE enforces promise where not biological father) Katz (PE used to enforce pension) Restitution/Unjust Enrichment/Quasi-K Credit Bureau Enterprises, Inc. (Committed man must pay restitution, Rstmt of Restitution 116) Watts (Facts sufficient for unjust enrichment or other claims; good opinion!) Promissory Restitution Mills (No K to pay for past care of son; only moral obligation) Webb (Man saved coworker’s life; K to continue paying man, R2D 86) Principles of K Interpretation Joyner (Ct uses meaning of “innocent” party; similar to R2D 201) Parol Evidence Rule Thompson (Log sale; completely integrated, so no parol evidence) Taylor (Bad faith insurer; PE may be used to clear up ambiguities) Sherrod (Dirt-moving contractor; PE can’t show fraud directly contradicting written K) Nanakuli (Evidence of trade usage and past course dealings will be admitted) Implied Terms and the Obligation of Good Faith Wood (Endorsement deal; implied promise to make reasonable efforts, R2D 205) Locke (Entertainment K dispute) 1

Andrew Gniewek Ks Outline Last Updated 04/23/09 Minority and Mental Incapacity Dodson (Minor tries to disaffirm K b/c car “blew up” nine months after it was sold; Minors may incur only voidable contractual duties; Use Rule, R2D 14) Hauer (Restoration to pre-K positions when mentally incapable party rescinds K UNLESS other party acted in bad faith, R2D 15) Duress and Undue Influence Totem Marine Tug (Cargo hauling; economic duress, R2D 175, 66) Odorizzi (Teacher; undue influence, R2D 177) Fraud, Misrepresentation and Non-Disclosure Syester (Dance lessons; Assertions of opinion may be basis for misrepresentation in certain circumstances, R2D 168-69) Park 100 (Hastily signed lease agreement; ct found fraud) Hill (Termites; duty to disclose in home sales, R2D 161-->R2D 159, CA RULE) Unconscionability Williams (Ct adopts unconscionability as a defeator) Mistake, Changed Circumstances, Impracticability and Frustration Sherman (Pregant/barren cow case; Essence of the agreement vs. value) Lenawee County Board of Health (Both parties innocent; risk allocated by asis clause, R2D 152) Wil-Fred’s, Inc. (Subcontractor estimate wrong; unilateral mistake, R2D 153, IL TEST) Taylor (K to hire music hall frustrated by destruction of hall by fire, R2D 26264) Karl Wendt (Case franchise; impracticability must be based on more than simple downturn in market, R261, 66) Krell (Rented apt loses all value when king’s coronation cancelled; K voidable because deal frustrated by unanticipated change in purposes, R2D 265, 66) Modification Alaska Packers’ Ass’n (Performance already owed is not consideration, R2D 73) Material Breach; Constructive and Express Conditions Oppenheimer (Substantial performance not for express conditions) Jacob & Youngs (Pipe not from Reading; contractor substantially performed) JNA Realty Corp. (Restauranteur failed to exercise option K before deadline; ct may excuse nonoccurrence of condition if party acted in good faith UNLESS the condition was a material part of the agreed exchange) Computing Value of P’s Expectation; Restrictions on Recovery of Expectation Damages (Foreseeability and Mitigation) Sackett (Material breach is grounds for repudiation) American Standard (Df's performance substantially deviated from specifications) Hadley (Damages not natural or foreseeable not awarded, R2D 351) Floraflax Rockingham County (Duty to mitigate; Pl should have stopped building, R2D 50) Havill (Fired employee has duty to make “good faith” effort to find suitable alternative employment) Erlich (Emotional distress damages not available in Ks) Lancelotti (Pl in breach may be able to recover benefit in excess of harm caused to Df UNLESS Pl’s breach was intentional) 2

Andrew Gniewek Ks Outline Last Updated 04/23/09 More Damage Computation; Efficient Breach Handicapped Children’s Education Board (Teacher breached; school entitled to salary difference) Nonrecoverable Damages; Reliance Damages Wartzman (Flag-pole sitting; reliance damages appropriate, R2D 349) Walser (R2D 90 gives cts discretion to limit recovery to reliance costs) Specific Performance City Stores (Specific performance appropriate in store lease case) Reier Broadcasting Co., Inc. (Specific performance not appropriate in personal service case, R2D 367) Agreed Remedies Westhaven Associates (Reasonable stipulated damages will be enforced as stipulated, R2D 356)

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Andrew Gniewek Ks Outline Last Updated 04/23/09 Ks Outline Grounds for Liability—K Proper; Promissory Estoppel; and, Restitution. K Proper What is a K? K: An enforceable promise. • Unilateral K: A promise in exchange for a performance. • Bilateral K: A promise in exchange for a promise. Master Rule for Ks: IF (there is offer and acceptance and consideration and no defeaters), OR (there is a promise and reasonably foreseeable reliance on the promise and actual reliance and injustice can be avoided only by enforcing the promise), THEN there is a legally enforceable promise. Defeators: Statute of Frauds (If the K falls w/in the SoF, no adequate writing, and no exception–such as R2D 139); Undue Influence; Duress; Economic Duress; Unconscionability; Bad Faith (In certain situations); Mutual Mistake; Unilateral Mistake; and, Fraud. Threshold Considerations for K Proper: •

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Statute of Frauds: There are 3 threshold Qs: 1. Is the K at issue one of the types to which the SoF applies so that a signed memorandum is required for enforcement? IF no, THEN no SoF analysis is called. IF yes, THEN… 2. Is the SoF satisfied? That is, is there some sort of writing of its terms signed by the party to be charged sufficient to meet the SoF requirements? IF yes, THEN the case may go forward. IF no, THEN… 3. Are there other factors in the case, such as performance or reliance by the Pl, which might invoke an exception to the statutory bar? In other words, can the Pl still be successful in getting K enforcement? R2D 110 (Rules, pg. 188). 1. The following classes of Ks are subject to the SoF, forbidding enforcement UNLESS there is a written memorandum or an applicable exception: 1. A K of an executor or administrator to answer for a duty of his decedent (the executor-administrator provision); 2. A K to answer for the duty of another (the suretyship provision); 3. A K made upon consideration of marriage (the marriage provision); 4. A K for the sale of an interest in land (the land K provision); and, 5. A K that is not to be performed within one year from the making thereof (the one-year provision). R2D 131. General Requisites of a Memorandum. 1. Unless add’l requirements are prescribed by the particular statute, a K w/in the SoF is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which: 4

Andrew Gniewek Ks Outline Last Updated 04/23/09 Reasonably identifies the subject matter of the K; Is sufficient to indicate that a K with respect thereto has been made b/t the parties or offered by the signer to the other party; and,  States with reasonable certainty the essential terms of the unperformed promises in the K. R2D 132. Several Writings. 1. The memorandum may consist of several writings if:  One of the writings is signed; and,  The writings in the circumstances clearly indicate that they relate to the same transaction. 2. Crabtree, pg. 306—Pl negotiated with Df's representatives. Just one document was drawn up (specified salary and made ambiguous reference to length of employment). Pl claimed he only got half of the raise he was supposed to get. The ct held that piecing together time cards and another document to prove there was a K and using parol evidence to explain ambiguities did not violate the SoF.—IF one or more writings contain all the essential terms of a K, THEN the K satisfies the SoF; and, IF some documents are signed and some are unsigned AND they all treat the same subject matter, THEN they can all be read together.  The Crabtree Doctrine—Satisfaction of the SoF by a series of signed and unsigned writings has been narrowed in subsequent decisions as requiring two threshold tests to be met: 1. The signed writing must itself establish a “contractual relationship between the parties”; and, 2. The unsigned writing must “on its face refer to the same transaction as that set forth in the one that was signed.” R2D 139. Enforcement by Virtue of Reliance (Promissory Estoppel). 1. A promise which the promissor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the SoF if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires. 2. [Lists factors to be considered in determining whether injustice can be avoided only by enforcement of the promise. Rules, pg. 190] 3. Alaska Democratic Party, pg. —Promissory estoppel in spite of not satisfying the SoF.—… 3 reasons for enforcing the SoF (pg. 85-6): 1. Evidentiary—Doing so creates an objective record; 2. Cautionary—It slows King parties down; 3. Channeling—It forces parties into certain K’ing behaviors.  

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Mutual Assent: • R2D 24. Offer Defined. ○ An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. • R2D 50. Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise.

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Andrew Gniewek Ks Outline Last Updated 04/23/09 Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer. ○ Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise. ○ Acceptance by a promise requires that the offeree complete every act essential to the making of the promise. Ray, pg. 23—Pl contracts with Dfs to build home according to specific specifications. A K was negotiated and signed by one of the Dfs, but the other Df refuses to build the home when faced with terms of K.—Absent fraud, IF there is a unilateral mistake as to the K provisions, it is insufficient to invalidate the agreement. ○ The ct adopts an objective theory for mutual assent, rather than using the subjective interpretation of the K’ing parties. ○ K’ing parties have a duty to read: “The law is clear, absent fraud, duress, or mutual mistake, that one having the capacity to understand a written document who reads and signs it, or, without reading it or having it read to him, signs it, is bound by his signature in law…” ○ The subjective intent or the motivation of the K’ing parties is immaterial: Claimed intent is immaterial, where there is reasonable manifestation of assent. ○

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Option K: If the offeree/vendee gives the offeror some consideration (a sum of money, perhaps) to hold the offer open for a stated period of time, under the CLASSICAL SYSTEM the offer will be irrevocable during that period, as an “option K.” (See pg. 108) • R2D 45. Option K Created by Part Performance or Tender. ○ Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option K is created when the offeree tenders or begins the invited performance or tenders a beginning of it. ○ The offeror’s duty of performance under any option K so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer. • R2D 87. Option K. ○ An offer is binding as an option K if it:  Is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or  Is made irrevocable by statute. ○ An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option K to the extent necessary to avoid injustice. Bilateral K: A promise in exchange for a promise. • Lonergan, pg. 34—Df runs an ad in the local paper to sell a piece of land. Due to a slight delay in the Pl’s response/action, combined with realities of business by mail, Df sells the land to another buyer.—… 6

Andrew Gniewek Ks Outline Last Updated 04/23/09

○ The “offer” in the paper was not an offer but an invitation for an offer.

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“There can be no K unless the minds of the parties have met and mutually agreed upon some specific thing.” ○ Generally, ads are not offers; rather, they are considered requests for offers. ○ “If from a promise, or manifestation of intention, or from the circumstances existing at the time, the person to whom the promise or manifestation is addressed knows or has reason to know that the person making it does not intend it as an expression of his fixed purpose until he has given a further expression of assent, he has not made an offer.” ○ There was not an offer because the letters did not communicate an “expression or fixed purpose to make a definite offer and was sufficient to inform the Pl that some further expression of assent on the part of the Df was necessary.” Izadi, pg. 38—Bait-and-switch car ad—IF a reasonable person would interpret an ad as an offer AND it is actually viewed as an offer by the purported offeree, THEN it constitutes an offer. ○ EXCEPTION—Although ads are not usually offers, this ad was held to be an actionable offer as a referendum on bait-and-switch advertising tactics. This is a classic example of a ct extending K proper to fit new circumstances. Normile, pg. 44—“You snooze, you lose.”—IF an offeree renders a “qualified acceptance” of an offer, THEN the original offer is terminated AND the qualified acceptance constitutes a counteroffer proposed for the original offeror to accept or reject. ○ Changing the terms of the original offer (and then signing it) transforms the offer into a counteroffer, which then must be accepted anew. ○ Option Ks in the original offer will not necessarily be imputed to the counteroffer. ○ What terminates an offer or the offeree's power to accept?  Generally, offers can be revoked anytime prior to acceptance. “Generally, notice of the offeror's revocation must be communicated to the offeree to effectively terminate the offeree's power to accept the offer.” However this communication may be indirect, and it is enough the offeree receives the info. (Normile) • An offer is revoked indirectly if: ○ The offeror takes action clearly inconsistent with the continued intent to enter a K; and, ○ The offeree obtains reliable information of this action.  Passage of time may also terminate offeree's power to accept.  Rejection of the Offer—When an offer is rejected cts have considered that the offer no longer exists. (Normile)  The offeror’s death terminates the offer.  A counteroffer is considered a rejection of an offer and terminates the offeree's power to accept the original offer.  If the initial buyer doesn't manifest acceptance of the initial offer or of a subsequent counteroffer, and the seller sells the prop to another party, then the sale of the prop to the other party serves as 7

Andrew Gniewek Ks Outline Last Updated 04/23/09 “manifestation of intention” on the part of the seller to revoke the offer or counteroffer to the first party. The sale is considered a revocation. Unilateral K: A promise in exchange for a performance. • CLASSICAL K LAW would say that the offer of a unilateral K can be withdrawn or revoked, anytime prior to the completion of the act or performance specified. Using the bridge hypo, the offer can be revoked anytime prior to B reaching the other side. • According to CLASSICAL K LAW, the principle characteristic of a unilateral K offer was that it remained revocable until performance was completed, i.e., an offeree's full performance of the act(s) called for. However, the beginning of performance can be construed as an implied promise to complete the performance called for thus serving as the acceptance of a bilateral K. • R2D 45. “If an offer for a unilateral K is made, and part of the consideration requested in the offer is given or tendered by the offeree in response thereto, the offeror is bound by a K, the duty of immediate performance of which is conditional on the full consideration being given or tendered within the time stated in the offer, or, if no time is stated therein, within a reasonable time. “ • According to MODERN K LAW, “an offeror may not revoke an offer where the offeree has made substantial performance.” The part (or substantial) performance is viewed as consideration to support a unilateral K and hold it binding. Also, acting in justifiable reliance on an offer may in some cases be enough to make a promise binding. • Petterson, pg. 53—A unilateral K is formed wherein a mortgagee shall receive a discount if s/he pays off his/her mortgage on or before a certain date. The mortgagee comes to pay and the mortgagor refuses.—IF an offeree has not completed performance of the act specified by the offeror, THEN the offeror may revoke the offer. • Cook, pg. 58—A case involving a real estate agent bonus whose provisions are contingent on performance.—IF an offeree has substantially performed, THEN that substantial performance constitutes consideration for an option K AND the offeror is bound by his/her promise/offer. ○ CLASSICAL K LAW—The offeror is the master of the offer, and nothing short of full performance terminates his right to revoke. ○ MODERN K LAW—Part performance transforms a unilateral K into an option K, which would be irrevocable.

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Consideration: The promissor receives something of value from the promise. That something of value is called consderation. The formation of a K, except in special exceptions, requires a “bargain” to which the K’ing parties give assent and a “consideration” which can take the form of either a return promise or a performance. There are two theories to consider: (1) A benefit to the promissor or a detriment to the promisee; and, (2) The bargain theory of consideration . ○ BENEFIT/DETRIMENT TEST (OLD TEST)—A benefit to the promissor or a detriment to promisee.—IF the promisee is not harmed AND the promissor is not benefited, THEN the K is without consideration.

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Andrew Gniewek Ks Outline Last Updated 04/23/09 There is consideration ONLY IF there is benefit to the promissor OR detriment to the promisee.  Hamer, pg. 72—An uncle promises a nephew that if he quits smoking and drinking until he is 21, he will give him $5000.—IF there is forbearance to exercise a legal right AND the forbearance to exercise a legal right was at the request of the other party, THEN there is consideration. ○ BARGAIN THEORY OF CONSIDERATION (NEW TEST)—For a promise to be enforceable, it must be the product of a “bargain”: “A negotiation resulting in the voluntary assumption of an obligation by one party upon condition of an act or forbearance by the other.” ○ R2D 71. Requirement of Exchange; Types of Exchange.  To constitute consideration, a performance or a return promise must be bargained for.  A performance or return promise is bargained for if it is sought by the promissor in exchange for his promise and is given by the promisee in exchange for that promise.  The performance may consist of: • An act other than a promise; • A forbearance; or, • The creation, modification, or destruction of a legal relation.  The performance or return promise may be given to the promissor or to some other person. It may be given by the promisee or by some other person. ○ Gratuitous or Donative Promise: Generally, it is not enforceable because there is no exchange of promises or consideration given.  Allegheny College, pg. –…--Rule for Charitable Donations: IF a promisee receives some of the money promised by a donor, THEN the promisee by implication promises to behave consistently with the goals that the promise was made to advance, AND the second promise is consideration for the first.  Pennsy Supply, Inc., pg. 78—Pennsy Supply, Inc. agreed to take the AggRite off American Ash Recycling Corp. of Pennsylvania’s hands in exchange for getting it for free.—IF the occurrence of the condition would benefit the promissor, THEN it is probably a consideration. IF there is no benefit to the promissor, AND the purpose of the occurrence of the condition is simply to enable the promisee to receive a gift, THEN there is probably no consideration. • This is an example of where the b/d test would not find consideration, but the bargain theory of consideration would. We need to look to the parties’ motivation.  Dougherty, pg. 87—Aunt makes a prom note and writes “for value received.”—IF something is not regarded as consideration by both parties, THEN it is not consideration. • Recited/purported consideration alone is insufficient to turn a gift into a K. ○ R2D 79. Adequacy of Consideration; Mutuality of Obligation. 9

Andrew Gniewek Ks Outline Last Updated 04/23/09 If the requirement of consideration is met, there is no add’l requirement of: • A gain, advantage, or benefit to the promissor or a loss, disadvantage, or detriment to the promisee; • Equivalence in the values exchanged; or, • “Mutuality of obligation.”  Batsakis, pg. 93—A case invoIving a signed IOU stating that he agreed to pay $2,000 plus interest later for $25 now.—“Mere inadequacy of consideration will not void a K”. • However, “gross inadequacy of consideration may be relevant to the application of other issues, such as fraud, mistake, lack of capacity, duress, or undue influence.” ○ Even if no finding of fraud, mistake, or undue influence, but transaction was unconscionable, and a product of disproportionate bargaining power, a “K” may be voided. ○ Plowman, pg. 99—Workers laid off and promised pension plan that Employer eventually stops—IF something occurred in the past, THEN it is not consideration. 

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Promissory Estoppel: R2D 90. Promise Reasonably Inducing Action or Forbearance. 1. A promise which the promissor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. 2. A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. Scope of Promissory Estoppel: 1. Donative/Gratuitous Promises: • James Baird, pg. 109–A K’or who relies on an offer that is later retracted—… ○ CLASSICAL RULE– Promissory estoppel must be based on a promise, and an offer is not a promise; therefore, relying to their detriment is not grounds for recovery. 2. Pre-Acceptance Reliance: • Drennan, pg. 112–Similar K bidding process, but twenty years after the fact.—IF there is reasonable reliance by an offeree resulting in foreseeable prejudicial change in position, THEN there is an implied subsidiary promise not to revoke an offer for a bilateral K, UNLESS the offer expressly provides for revocability OR the offeree shops around for a better offer OR the offeror made a bona fide mistake that the offeree should have realized was a mistake. ○ MODERN RULE–When someone makes an offer in a bilateral K, there is a subsidiary implied promise not to revoke the offer when there has been reliance. The 10

Andrew Gniewek Ks Outline Last Updated 04/23/09 consideration for this subsidiary implied promise is the reliance on the offer, by using the offer in the main bid. Thus, the offer essentially becomes a promise, which enables the doctrine of promissory estoppel in “Reliance on an Offer” situations. ○ R2D 87(2)—An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option K to the extent necessary to avoid injustice. 3. Reliance During Negotiations: • Berryman, pg. 122–A case in which a landowner extends an option to a buyer for $10, but later retracts.—IF there is no bargainedfor consideration for an option K, THEN no option K has been formed AND an offer may be revoked any time before acceptance; and, IF no option K has been formed, THEN an offeree cannot reasonably rely upon the offer AND no injustice will result from nonenforcement of the offer. ○ Also, the ct uses a promissory estoppel rule that narrows the definition of injustice to something tantamount to fraud, and says that there are very few cases in which reliance could be reasonably expected. This is a classical court applying a romantic rule narrowly. The court believes that the actors in a bargained-for exchange should be aware of the classical rules and protect themselves under those rules. ○ Cts have been extremely reluctant to find promissory estoppel in situations outside the construction bid context, regardless of what R2D 87(1) suggests.  The nominal consideration of $10 was never paid, thus invalidating the option K. This case might have been different had the option been paid.  Thus, the buyer is arguing promissory estoppel because he “relied” on the offer. However, the reliance was in the wrong place: Lining up potential buyers does not justify reliance. Instead, perhaps if the buyer had purchased add’l tools or something, promissory estoppel might apply.  Also, the landowner probably never “reasonably expected” his offer to induce reliance, the first problem with promissory estoppel. ○ R2D 87(1):  An offer is binding as an option K if it: Is reduced to writing and is signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms w/in a reasonable time; or, Is made irrevocable by statute. 4. Pre-Offer Reliance: • Pop’s Cones, pg. 128–A case involved a TCBY franchisee who sells everything b/c of promise from a potential renter in the course of 11

Andrew Gniewek Ks Outline Last Updated 04/23/09

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negotiations.—R2D 90 + IF there is a statement of the probability of an offer AND injustice can be avoided only by the enforcement of that statement as a promise THEN the statement may be considered a promise. ○ The ct extends promissory estoppel to cases of reliance where there hasn’t even been a firm offer.  Even w/o mutual assent, if one of the parties makes a promise, there can be promissory estoppel.  The ct lists 4 elements (An echo of R2D 90): A clear and definite promise; A promise made with expectation that the promisee would rely; A promise on which the promisee reasonably relies; and, The promisee suffers a detriment of a substantial and definite nature. 5. Proxy for Consideration—If there is no consideration for the promise, can reliance on a promise make the K enforceable? • Kirksey, pg. 217–Ct held that a widow moving from her land to brother-in-law’s land was not sufficient consideration to create a K, after brother in law kicked her off the land later. Ct said asking Pl to move from her land to his was a “gift promise,” and thus even though there was a detriment, the gift overrides that so no consideration.—… ○ CLASSICAL TEST–The b/d test should have been applied, but it wasn’t. In any event, the ct doesn’t use promissory estoppel here. • Greiner, pg. 218–Mother promises son an interest in her land. He moves himself and his family and makes improvement to the land. Mother wants to recover possession. Son relied on her promise and judgment was for him.—… ○ NEWER TEST–This is a classic promissory estoppel case. The mother’s son reasonably relied on a promise to his detriment. Wright, pg. 222–Mother trying to enforce child support against a man who claimed to be father (even though he knew he wasn’t)—IF there is a promise AND the promissor should reasonably expect that promise to induce action or forbearance on the part of the promisee or a third person AND the promise does induce such action or forbearance on the part of the promisee or a third person AND injustice would result from nonenforcement of the promise, THEN there is contractual obligation. (Rule as applied; Rule as stated has normal I prong.) Katz, pg. 238–Employee hit on head during robbery, retires, and is paid a monthly pension, which later stops—IF there is a promise AND there is detrimental reliance on the promise AND injustice can be avoided only by enforcement of the promise, THEN the promise is enforceable. (Note: Only actual reliance is required, not reasonable reliance.) 1. This is promissory estoppel in a commercial context. 2. In order to show “relied to detriment,” the party need not show that they lost something to which they were legally entitled, but that they took an action that they were not legally bound to take. 12

Andrew Gniewek Ks Outline Last Updated 04/23/09

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Restitution: A restitution claim is not based on the other party's assent but on that party's "unjust enrichment.” A party unjustly enriched by the conferral of a benefit must make restitution to the party conferring the benefit.— Central to recovery in restitution is proof of unjust enrichment. Express; implied-in-fact; and, implied-in-law Ks. 1. Express K: Oral or written agreement. 2. Implied-in-fact K: An agreement is implied by the parties’ actions. 3. Implied-in-law K (i.e., quasi-K): A benefit conferred and accepted by one party, such that it would be unjust for that party to retain the benefit without compensation. Non-Promissory Restitution–When there is no promise by either party, there can still be restitution. 1. Credit Bureau Enterprises, Inc., pg. 255—Pl was involuntarily committed to the hospital by the police, who feared he was suicidal. A magistrate judge found that he was likely to physically injure himself in accordance with emergency hospitalization procedure. The hospital sought compensation for services provided, and the court (since his consent was immaterial due to mental impairment), found for Df.—IF a party is not competent to refuse services AND the party benefited from the services, THEN that party is liable under K implied in law/quasi-K/unjust enrichment/restitution. 1. In this case, the question revolves around whether the Df was unjustly enriched at the expense of the hospital. Although he never really agreed to pay (K under duress), he can be forced to pay because he received the required treatment. 2. Rstmt of Restitution 116, (pg. 259) 1. A person who has supplied things or services to another, although acting without the other’s knowledge or consent, is entitled to restitution therefor from the other if: 1. S/he acted unofficiously and with intent to charge therefor; 2. The things or services were necessary to prevent the other from suffering serious bodily harm or pain; 3. The person supplying them had no reason to know that the other would not consent to receiving them, if mentally competent; and, 4. It was impossible for the other to give consent or, because of extreme youth or mental impairment, the other’s consent would have been immaterial. 3. Watts, pg. 273–A case involving a couple not married, but the “wife” claimed that she rendered services for which she was not compensated that benefited the Df.—… 1. This is a close case, because it’s not clear that she was unjustly enriched at the expense of her partner. However, this is an equitable solution, so some judges, as here, feel as though restitution is applicable. 4. Normally, persons who act gratuitously (i.e., no intent to charge) cannot recover in restitution. The “no intent to charge” is the key— i.e., EMT folks can charge for services rendered even though the recipient may have been unconscious and unable to give assent. 13

Andrew Gniewek Ks Outline Last Updated 04/23/09

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services rendered were by non-professionals (i.e., good Samaritans). Promissory Restitution–Promissory restitution can serve as an exception to the “no past consideration” rule. Promissory restitution is certainly heftier than non-promissory restitution. 1. “MATERIAL BENEFIT” RULE–If a party receives a material benefit, other than gratuitously, the material benefit can make the promise enforceable. 2. R2D 86. Promise for Benefit Received. 1. A promise made in recognition of a benefit previously received by the promissor from the promisee is binding to the extent necessary to prevent injustice. 2. A promise is not binding under Subsection (1): 1. If the promise conferred the benefit as a gift or for other reasons the promissor has not been unjustly enriched; or, 2. To the extent that its value is disproportionate to the benefit. 3. Mills, pg. 286—A father, upon learning that his son has died in the pro bono care of a doctor, sends a letter promising to pay the doctor restitution. The father's promise was not binding.—IF there is a moral obligation to keep a promise AND there was a prior valid obligation that has been extinguished by the operation of positive law, THEN the promise is enforceable. (In Mills, there was no prior valid obligation.) 1. Perhaps the promise is not enforceable because it was the son who received the material benefit, not the father. Also, this fails in promissory estoppel because we have no proof of reliance. This also fails in K proper because there is no consideration. (It cannot be based on moral obligations.) 4. Webb, pg. 291—Df promised payment to Pl after Pl saved the Df’s life and was seriously injured in the process.—IF a promisee confers a material benefit on a promissor AND a promise is made in recognition of the benefit received, THEN moral obligation can be sufficient consideration for enforcement of the promise. (This is the “material benefit rule,” which was adopted by the R2D 86.) 1. The party did not plan to receive a benefit, but it was nonetheless not gratuitous. Therefore, saving the boss’s life, a material benefit, makes the promise enforceable.

Principles of K Interpretation: • THE SUBJECTIVE THEORY OF K INTERPRETATION interpreted Ks on what was in the mind of the parties—If the parties attributed materially different meanings to the contractual language, no K was formed since there was no “meeting of the minds.” MODERN THEORY rejects THE SUBJECTIVE THEORY. • Cts often state that the “plain meaning” of the language of the K should govern and that extrinsic evidence is admissible only if the ct concludes that the K is ambiguous. Most cts will not admit extrinsic evidence of meaning unless the ct first concludes that the agreement is ambiguous on its face. • OBJECTIVE THEORY: Words and conduct should be interpreted in accordance with the standard of a reasonable person familiar with the circumstances, rather than in accordance with the subjective intent of either of the parties. 14

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MODIFIED OBJECTIVE THEORY: A party is bound by the other party’s meaning if the first party knew, or had reason to know, of the second party’s meaning while the second party did not know or have reason to know of the first party’s interpretation. If there is ambiguity in the K, it is generally resolved against the party that authored the K. MODERN THEORY: A ct should examine all relevant circumstances in interpreting the agreement, including preliminary negotiations and communications between the parties. Definition of terms contained in statutes or administrative regulations are not determinative of the meaning of such terms in Ks. “It is said that a ct in construing the language of the parties must put itself into the shoes of the parties. That alone would not suffice; it must also adopt their vernacular.” R2D 201. Whose Meaning Prevails. 1. Where the parties have attached the same meaning to a promise or agreement or a term thereof; it is interpreted in accordance with that meaning. 2. Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made: a. That party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or, b. That party had no reason to know of any different meaning attached by the other, and the other had reason to know of the meaning attached by the first party. 3. Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent. R2D 202—A writing must be interpreted in context and as a whole document rather than individual sentences. R2D 203—Preferences in interpretation. R2D 204—The ct may supply a reasonable term if one has been omitted from the K. Joyner, pg. 352—A developer and a landlord had an interpretative dispute over the meaning of the term “completely developed.”— IF one party knew OR had reason to know of the other’s meaning of the disputed language, THEN the ct must enforce the K according to the “innocent” party’s meaning. 1. Under the Joyner rule, if both parties are at fault, neither one wins, even though they may be blameworthy to different degrees.

Parol Evidence Rule: Applies only to Ks that are completely or partially integrated. • THE PAROL EVIDENCE RULE determines whether terms neither express nor implied in writing, but purportedly agreed to orally, may be part of a K. • Some classical cts allow extrinsic evidence of patent or latent ambiguity, but more rigidly classical cts require that the ambiguity be patent. 15

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Patent ambiguity can be seen on the face of the writing (as in disagreements over the syntactic structure of a sentence); latent ambiguity arises only from context in which a term is used. Classical cts want to ensure that written agreements will be reliable, while modern cts are willing to a certain extent to sacrifice this benefit in order to protect the underdog. Integration: 1. Completely Integrated K: A K that contains, within its four corners, the entire agreement b/t the parties. a. Only evidence that explains the K terms is admissible. 2. Partially Integrated K: A K in which only a certain part of the transaction is embodied in writing and the remainder is left in parol. This type of K may be supplemented with parol evidence that is consistent with the agreement but may not be contradicted by extrinsic (i.e., parol) evidence. a. All evidence except that which contradicts the K terms is admissible. CLASSICAL APPROACH: 1. Classical cts look only to the “four corners of the K” to determine whether it was completely or partially integrated. The presence of a merger clause would conclusively establish that writing was completely integrated. 2. Classical cts would generally only admit evidence to explain term if the term was ambiguous on its face, or patently ambiguous. 3. Classical cts would only admit evidence of collateral agreement if it dealt w/ a subject distinct from that to which the writing related. MODERN APPROACH: 1. To determine whether K was completely or partially integrated, modern cts look not only to terms of writing but also consider evidence of all facts and circumstances surrounding the execution of the K. The presence of a merger clause would not conclusively establish that writing was integrated. 2. The following factors would be considered in determining whether parties intended the writing to be integrated: a. The subject matter of transaction (the more complex the transaction, the greater the likelihood of integration); b. The length of negotiations; c. The adequacy of time to make the writing conform to oral agreement; d. The business experience of the parties; e. The participation in the negotiations by an attorney or other experienced K negotiators; f. The bargaining situation (the more one-sided the situation, the less likely the agreement should be treated as integrated); g. The degree of standardization of the writing; h. The presence of an integration clause; and, i. The type of transaction (whether the transaction is of a type typically concluded by integrated writing). Thompson, pg. 385—Pl and Df K for logs. P sues to get payment. D claims there was a verbal warranty for the quality of the logs.—IF a written K expresses 16

Andrew Gniewek Ks Outline Last Updated 04/23/09

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(1) an entire agreement (2) on its face, THEN parol evidence is inadmissible to contradict, vary, or supplement the terms of the agreement. SUB-RULE: IF the evidence is distinct from the subject matter of the K, THEN it is admissible as a collateral agreement. 1. CLASSICAL APPROACH: The only evidence the ct will consider in determining integration is what is within the document itself. 2. MODERN APPROACH: You consider the writing itself, but you also consider contextual evidence, for the purpose of deciding what is final. R2D 209—Definition of an integrated agreement. R2D 210—Difference complete and partially integrated agreements. Taylor, pg. 394—An insuree sues his/her insurer for acting in bad faith.—IF a writing is integrated, THEN the PER bars outside evidence. However, IF there are any ambiguities, THEN the PE may be admitted to clear them up. 1. OLD TEST: PLAIN MEANING TEST: Patent ambiguity can be seen on the face of the writing (as in disagreements over the syntactic structure of a sentence). 2. NEW TEST: CORBIN-CONTEXTUAL APPROACH: Latent ambiguity arises only from the context in which a term is used. Exceptions to PER (i.e., Evidence will be admitted in the following circumstances): 1. To establish oral modifications after execution of a K (MODIFICATION); 2. To establish that the agreement is invalid due to fraud, duress, undue influence, incapacity, mistake or illegality (INVALIDITY); 3. To establish that the agreement was subject to an oral condition (ORAL CONDITION); 4. To establish a right to an equitable remedy (EQUITABLE REMEDY); 5. To explain terms if they are not specific enough or have special meaning (EXPLAIN); and, a. PLAIN MEANING TEST (PATENT AMBIGUITY)—Ambiguity on the face of the writing. b. CORBIN-CONTEXTUAL APPROACH (LATENT AMBIGUITY)—Not necessary for ambiguity to exist on the face of the writing. 6. To establish a distinct collateral agreement (prior to or concurrent w/ the K) b/t the parties (COLLATERAL AGREEMENT). Sherrodd, pg. 410— The Pl was a sub-K’or for a sub-K’or. The K said that the Pl would be paid in a lump sum based on the bid of $3.90/cubic yard for 25,000 cubic yards. The job had much more than 25,000 cubic yards, but the Df only paid him the $97,500. The standard sub-K provisions said that no verbal agreement could modify the terms of the K, stated that the K would be a complete expression of the agreement, and that no changes could be made unless written and signed.—IF (1) a K is in writing AND (2) there is no mistake AND (3) there is no challenge to the validity of the K AND (4) there is no allegation of external fraud THEN the writing supersedes any previous or concurrent oral agreement (i.e., Parol evidence is inadmissible.). 1. MINORITY—Most cts allow evidence of fraud, PER notwithstanding. Nanakuli, pg. 476—Df breached the K by failing to price protect Pl b/c of trade usage (according to asphaltic paving trade in Hawaii) and an obligation of good

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Andrew Gniewek Ks Outline Last Updated 04/23/09

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faith (advance notice of price increase). Just b/c Df's management has changed doesn't mean that that Df no longer obligated to abide by K.—… 1. Trade usage and past course dealings b/t K’ing parties may establish terms not specifically enumerated in the K, so long as no conflict is created w/ the written terms. Korobkin’s PER Analysis: 1. If you have a situation in which someone is offering evidence, do you have evidence to which the parol evidence even applies? 2. If you do have that kind of evidence, do you have the kind of writing to which the parol evidence rule applies? 3. Do you have an integrated writing? Is it partial or complete? a. If you do have an integrated writing, you apply the PER. ○ If you have a complete integration, anything contradictory or supplementing the writing is inadmissible. ○ If you have a partial integration, contradictory evidence is inadmissible, but evidence of consistent add’l terms is admissible. b. There is a thing called a merger clause, which basically says that “any other oral Ks are not relevant here.” Thus, if the ct is applying a CLASSICAL APPROACH, the existence of a merger clause means that we have complete integration. However, if you are following the MODERN APPROACH, the merger clause is important, but it’s not conclusive. 4. Are there exceptions? Yes, of course. (See above)

Implied Terms and the Obligation of Good Faith: • R2D 77. Illusory and Alternative Promises. ○ There is no consideration if the promissor “reserves a choice of alternative performances” UNLESS all of the alternatives would have been consideration, or there is, or appears to both parties to be, a substantial possibility that the promissor might eliminate the alternatives that would not be consideration.  i.e., There’s no K when a promissor says, “Paint my house, and either I’ll pay you or I won’t,” unless there’s a substantial possibility that the promissor will choose to pay. • Even if promise was illusory, it could still be enforceable if the K’ing parties knew exactly what they were bargaining for. • CLASSICAL THEORY required mutuality of obligation. If one party was required to perform by the K and the other party was free to either accept or reject performance, then K was not enforceable. ○ Exceptions:  Unilateral K—An offeror may be bound once the offeree's performance has begun (R2D 45), but the offeree is not. If the offeree elects not to complete performance, he is subject to no liability.  Option K— • MODERN THEORY does not require mutuality of obligation if the requirement of consideration is met. (R2D 79)

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Andrew Gniewek Ks Outline Last Updated 04/23/09 In cases involving an exclusive distributor, the court will often imply a promise by the distributor to use his "best efforts" to sell the product.  This implied promise serves as consideration. The Obligation of Good Faith ○ Wood, pg. 438— Df breached the K b/c she independently endorsed her fabrics and withheld profits from the Pl who was her exclusive endorser. — IF a K is “instinct” with an obligation though imperfectly expressed, THEN a promise will be implied.  Good faith can be an implied promise. An implied promise can be create a legally binding K. In this case, an implied-in-fact term completed consideration, making a legally binding K.  R2D 205—Every K imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.  Implied-in-fact term–An actual intent to have the K include these terms, but it remains unexpressed.  Implied-in-law term–As a matter of justice and fairness, the ct decides to fill impute a term to the K. ○ Locke, pg. 470–Entertainment K dispute.—…  Even though they followed the letter, their “artistic discretion” did not give them the right to break the implied covenant of good faith. ○

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Rescission Doctrines: Bargaining Defects and Other Substantive Problems: Minors: GENERAL RULE: A minor may disaffirm or rescind a K however they may not escape “necessaries”—The minor will still be liable for the cost or depreciation of any use he may have received from the object of the K prior to rescission. ○ Dodson, pg. 519—Pl minor tries to disaffirm K b/c truck engine “blew up” nine months after it was sold.—…  GENERAL RULE—A minor may disaffirm the K, giving back whatever is left of the prop, and receiving back whatever s/he gave.  NEW RULE (MINORITY)—When a minor rescinds the K, s/he has to pay for the “use of, depreciation, and willful or negligent damage of the article purchased.” ○ R2D 14—In general, until 18, can only incur voidable contractual duties. Mental Incapacity: GENERAL RULE: The vast majority of cts have held that an incompetent person's transaction is voidable; that is, the incompetent person has the power to void a K entirely. Generally, the incompetent person is required to make restoration to the other party UNLESS special circumstances exist. ○ General Test for Incapacity:  R2D 15. Mental Illness or Defect. • The contractual duties of a person with a mental illness or defects are voidable if s/he is unable to understand in a reasonable manner the nature and consequences of his transaction UNLESS the K is on fair terms, the other party does not know of the mental issue, and avoidance is unjust. 19

Andrew Gniewek Ks Outline Last Updated 04/23/09

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manner the nature and consequences of the transaction. • Hauer, pg. —The ct applies an objective test, focusing purely on the person mental abilities rather than his/her actions.—… ○ In Hauer, it was found the other party (the bank) acted in bad faith and therefore was not entitled to restoration.  VOLITIONAL TEST—A person is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition. • This subjective test involves the other party and focuses only on action, not mental abilities.  Where the K is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance terminates to the extent that the K has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case, a ct may grant relief as justice requires. ○ Hauer, pg. –…--…  GENERAL RULE—The ct would attempt to void the K and return all parties to pre-K positions, meaning that the mentally incapable party would pay back all of the money or prop.  If the other party knew or should have known of the mental illness or defect, proceeding is a breach of good faith, and the mentally incapable party will receive full damages. Duress: ○ R2D 175. When Duress by Threat Makes a K Voidable.  If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the K is voidable by the victim.  If a party’s manifestation of assent is induced by one who is not a party to the transaction, the K is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction. ○ The Main Elements of Duress:  A wrongful or improper threat (It doesn’t have to be illegal); • R2D 176—A threat is improper if what is threatened: ○ Is a crime of a tort, or the threat itself would be a crime or a tort if it resulted in obtaining prop; ○ Is a criminal prosecution; ○ Is the use of civil process and the threat is made in bad faith; ○ Is a breach of the duty of good faith and fair dealing under a K with the recipient; ○ Results in an exchange that is not on fair terms, and:  The threatened act would harm the recipient and would not significantly benefit the party making the threat; 20

Andrew Gniewek Ks Outline Last Updated 04/23/09 The effectiveness of the threat inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat; and,  What is threatened is other a use of power for illegitimate ends.  A lack of reasonable alternatives; and,  Actual inducement of assent to the K because of the threat.  Also consider whether the party making the promise created the constraint. ○ Totem Marine Tug, pg. 538—Pl wants to rescind settlement b/c it was forced into settlement by economic duress of imminent bankruptcy. Df knew of the Pl's vulnerability, Pl had no viable assets, both parties were partially at fault, and the Df has much more economic power and stability. —IF (1) one party deliberately commits a wrongful act and (2) has knowledge that the other party has no choice economically but to accept the offer, and (3) the other party involuntarily accepts the offer, THEN the K is voidable for economic duress.  There is a debate about what the wrongful act could be: either causing the economic duress, or taking advantage of the other party’s vulnerability by making offers in unjust conditions. Undue Influence: The unfair persuasion of a party under the domination of the party exercising the persuasion, or who by virtue of the relationship b/t the parties, is justified in assuming that the dominant party will not act in a manner inconsistent w/ the servient party’s welfare. ○ R2D 177. When Undue Influence Makes a K Voidable.  Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation b/t them is justified in assuming that that person will not act in a manner inconsistent with his welfare.  If a party’s manifestation of assent is induced by undue influence by the other party, the K is voidable by the victim.  If a party’s manifestation of assent is induced by one who is not a party to the transaction [voidable unless other party gives value or relies materially]. ○ Undue influence involves persuasion (usually high pressure) which tends to be coercive in nature (i.e., influence which prevents another party from acting according to their own judgment). ○ Undue influence may be found in situations in which:  A family, confidential, or fiduciary relationship is taken advantage of; or,  The servient party is unduly susceptible (i.e., temporary or permanent weakness of mind or body), and in which the dominant party is excessively forceful. ○ Characteristics of Undue Influence:  Discussion of the transaction at an unusual or inappropriate time;  Consummation of the transaction in an unusual place;  Insistent demand that the business be finished at once;  Extreme emphasis on untoward consequences of delay; 

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Andrew Gniewek Ks Outline Last Updated 04/23/09 Use of multiple persuaders by the dominant side against a single servient party;  Absence of third-party advisors to the servient party; and,  Statements that there is no time to consult financial advisors or attorneys. ○ Odorizzi , pg. —Pl arrested on homosexual charges and forced to resign as teacher or face public humiliation. Dfs approach the Pl at midnight just after he’d been arrested and didn't allow him time to think it over or seek counsel.—  Duress: IF (1) there is a threat of unlawful action, AND (2) the threat causes consent (3) through fear, THEN there is duress.  Fraud: IF (1) there is conscious misrepresentation or nondisclosure of a material fact, AND (2) it was intended to induce reliance, AND (3) it induces the innocent party to enter the K, THEN there is fraud.  Undue Influence (Two possible rules): • IF (1) there is excessive pressure by a dominant subject AND (2) excessive pressure is used to persuade “one who is vulnerable to excessive pressure,” THEN there is undue influence. • IF (1) there is excessive pressure (objective) AND (2) there is undue susceptibility (subjective), THEN there is undue influence. ○ Several factors to be used in testing for excessive pressure: An unusual or inappropriate time or place for the agreement, multiple persuaders, demand to finish at once, absence of advisors, restricted access to counsel. Misrepresentation (Fraud): Conscious misrepresentation, concealment, or non-disclosure of a material fact, which induces an innocent party to enter a K. ○ R2D 162. When a Misrepresentation Is Fraudulent or Material.  A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker: • Knows or believes that the assertion is not in accord with the facts; • Does not have the confidence that he states or implies in the truth of the assertion; or, • Knows that he does not have the basis that he states or implies for the assertion.  A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so. ○ R2D 163. When a Misrepresentation Prevents Formation of a K.  If a misrepresentation as to the character or essential terms of a proposed K induces conduct that appears to be a manifestation of assent by one who neither knows nor has reasonable opportunity to know of the character or essential 

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Andrew Gniewek Ks Outline Last Updated 04/23/09 terms of the proposed K, his conduct is not effective as a manifestation of assent. ○ R2D 164. When a Misrepresentation Makes a K Voidable.  If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the K is voidable by the recipient.  [Fraud or misrepresentation by third party: The K is voidable unless the other party gave value or relied on it in good faith.] ○ Elements of Misrepresentation:  Df made false statements. • Statements of opinions may give rise to misrepresentation if: ○ The party giving the opinion knows facts that are incompatible with the opinion; or, ○ The party giving the opinion has no basis for forming the opinion. • Promises made with no intent to perform constitutes a false statement on which an action for rescission may be brought.  False statements were as to material matters with reference to the entering of the K (“material” misrepresentation); or, Df knew that the statements were false (“fraudulent” misrepresentation).  Pl believed the false statements and reasonably entered into the K in reliance on the false statements. • The recipient of an opinion may reasonably rely on it if the party giving the opinion: ○ Is in a fiduciary relationship w/ the Pl; ○ Is an expert on matters covered by the opinion; or, ○ Renders the opinion to a party who, because of age or other factors, is peculiarly susceptible to misrepresentation. ○ Remedies:  Fraudulent Misrepresentation—Both a K action for rescission and a tort action for damages are available. There are 2 rules for determining damages in tort cases: • The out-of-pocket rule allows the Pl to recover the difference between what s/he parted with and what s/he received, plus consequential damages suffered prior to the discovery of the fraud. • Under the benefit-of-the-bargain rule, the Pl is to be put in the position in which s/he would have been had the Df spoken truthfully. • Punitive damages may be awarded in a tort action for misrepresentation.  Material Misrepresentation—A K action for rescission is available. A tort action may not be available or recovery may be limited. ○ Syester, pg. 557— Pl elderly widow purchased thousands of hours of dance lessons (3 lifetime memberships) b/c Df used dishonest selling techniques, told her she had potential to be a professional dancer and 23

Andrew Gniewek Ks Outline Last Updated 04/23/09

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that she had improved when really she did not. Df had ex-instructor convince her to drop suit and they would offer past due commissions. Df persuaded Pl not to seek counsel.—…  R2D 168-69—Assertions of opinions can be the basis for misrepresentation. If these opinions can be justifiably relied upon, and they are not in accord with the facts, they can be called a misrepresentation. ○ Park 100, pg. 580—…—  First Rule: DUTY TO READ RULE: Both parties are required to know the terms of the agreement they are signing, and they cannot avoid their obligations for failure to read it.  Second Rule: Two different versions of exceptions to the DUTY TO READ RULE: • IF party A employs misrepresentation to induce another party B’s obligation under an agreement, THEN party A cannot bind party B to the terms of the agreement. • IF the guarantor has been induced to enter the K of guaranty by fraudulent misrepresentations or concealment on the part of the guarantee, THEN the K of guaranty cannot be enforced by the guarantor.  Third Rule: IF there was (1) a material misrepresentation of fact by one party AND (2) it was made with knowledge or reckless ignorance of the falsity of the statement AND (3) it was relied upon by the other party AND (4) it proximately caused the injury to the relying party, THEN there is fraud. Nondisclosure: ○ A party’s non-disclosure of a fact known to him/her is an assertion (for misrepresentation purposes) in the following cases only:  Where disclosure of the fact is necessary to prevent a previous assertion from being mistakenly relied upon;  Where he knows that disclosure of the fact would correct a mistake of the other party about a basic assumption, and if non-disclosure amounts to a failure to act in good faith;  Where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing; or,  Where the other person is entitled to know the fact because of a relationship of trust and confidence between them (i.e., a fiduciary relationship). ○ Factors to consider in deciding whether fairness requires disclosure of material information:  Difference in intelligence of the parties;  Relationship b/t the parties;  The manner in which the information is acquired. Information acquired through deliberate and costly investigation might not have to be disclosed (because it creates an incentive to investigate);  The nature of the fact not disclosed. In Ks to sell property, there is usually a duty to disclose an intrinsic defect not discoverable by reasonable care;

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Andrew Gniewek Ks Outline Last Updated 04/23/09 The general class to which the party who is concealing the information belongs. It is much more likely that a seller will be required to disclose information than a purchaser;  The nature of the K itself. In releases and insurance Ks, practically all material facts must be disclosed;  The importance of the fact; and,  The conduct of the concealing party. Active concealment of any material fact should be fraudulent as a matter of law. ○ Hill, pg. 567—Df sellers knew of termite problems but didn't tell Pl homebuyer about it.—IF the seller of a home knows of facts materially affecting the value of the prop AND those facts are not readily observable AND the facts are not known to the buyer, THEN the seller is under a duty to disclose them to the buyer AND the K is voidable if the seller does not disclose.  An alternative the ct considered was the CA RULE: • IF the seller of a home knows of facts materially affecting the value of the prop AND those facts are known or accessible only to the seller AND they are not known to the buyer AND they are not within the reach of the diligent attention and observation of the buyer, THEN the seller has a duty to disclose AND the K is voidable if the seller does not disclose.  R2D 161 lets us know that a nondisclosure can be equivalent to an assertion for the purposes of R2D 159.  Note that this is a case where evidence of fraud under the CORBINCONTEXTUAL APPROACH should have been admissible under the PER as an invalidating cause. Unconscionability: Unconscionability includes the absence of meaningful choice together w/ K terms that are unreasonably favorable to one party. In determining the reasonableness or fairness, the terms of the contract must be considered in light of circumstances existing when the K was made. The Q of unconscionability is legal issue to be decided by the ct. ○ R2D 208. Unconscionable K or Term.  If a K or term thereof is unconscionable at the time the K is made a ct may refuse to enforce the K, or may enforce the remainder of the K without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result. ○ IF there is unconscionability at the time a K is made, THEN the K should not be enforced.  Unconscionability includes the absence of meaningful choice and K terms that are unreasonably favorable to the other party. • There are several factors to define the absence of meaningful choice. • The rule for whether terms are unreasonable is whether they are unconscionable according to the mores and business practices of the time and place. (Circular reasoning) ○ Williams, pg. 586—If Pl defaulted on payment on any item, Df could repossess all the items previously purchased—IF there is [(1a) an absence of meaningful choice by one party OR (1b) gross 

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Andrew Gniewek Ks Outline Last Updated 04/23/09

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inequality of bargaining power] AND (2) terms unreasonably favorable to the other party, THEN the K/term is unconscionable.  This is an atypical approach to unconscionability, in that it doesn’t discuss procedural/substantive unconscionability. Corbin says: “If no reasonable person would enter, and no honest or fair man would accept, there is no K.” You need both procedural and substantive unconscionability: They must be inversely proportional.  PROCEDURAL UNCONSCIONABILITY refers to some defect in the bargaining process. Consider: • The use of printed form Ks drawn by the party in the stronger position, which establish industry-wide standards on a takeit-or-leave -it basis; • The circumstances surrounding the execution of the K including its commercial setting, its purpose and its actual effect; • The hiding of clauses which are disadvantageous to one party in a mass of fine print; • Phrasing clauses in language that is incomprehensible to the layman; and, • Inequality of bargaining or economic power.  SUBSTANTIVE UNCONSCIONABILITY relates to the fairness of the terms of the resulting bargain, such as price or remedies provided in the event of breach. Consider: • Significant cost-price disparity or excessive cost; • A denial of basic rights and remedies to a buyer of consumer goods; • The inclusion of penalty clauses; • An overall imbalance in the obligations and rights imposed by the bargain.

Justifications for Nonperformance: Mistake: ○ R2D 151: A mistake is a belief that is not in accord with the facts. ○ Mutual Mistake: • R2D 152. When Mistake of Both Parties Makes a K Voidable. a. Where a mistake of both parties at the time a K was made as to a basic assumption on which the K was made has a material effect on the agreed exchange of performances, the K is voidable by the adversely affected party UNLESS he bears the risk of the mistake under the rule stated in R2D 154. b. In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise. • Elements of a Mutual Mistake: a. The mistake must concern a basic assumption on which the K was made;

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Andrew Gniewek Ks Outline Last Updated 04/23/09 Look for an unexpected, unbargained-for gain on the one hand and an unexpected, unbargained-for loss on the other. b. The mistake must have a material effect on the agreed exchange of performances. ○ A material effect is found when the resulting imbalance in the agreed exchange is so severe that the adversely affected party cannot fairly be required to carry it out. ○ Look for a disadvantage to the party seeking avoidance and an advantage to the other party, though the advantage is not necessary. c. The adversely affected party must not bear the risk of the mistake. ○ R2D 154—A party bears risk of mistake when:  The risk is allocated to him by agreement b/t the parties; • "As is" or "no reliance" clauses in the K have been interpreted as allocating the risk to the buyer. • There is a hesitancy to use "as is" clauses found in standard boilerplate language to allocate the risk of mutual mistake (because of a general aversion to boilerplate clauses); however, a specifically tailored provision which results from bargaining may be enforced.  The party is aware that s/he has only limited knowledge with respect to the facts which the mistake related but treats his limited knowledge as sufficient (“Conscious ignorance”); or,  The risk is allocated to him by the ct on the ground that it is reasonable to do so. Sherman, pg. 668—Pregant/barren cow case—IF the mistake of the parties goes to the whole substance (essence) of the agreement, as opposed to being a mere quality (accident), THEN rescission may be granted. a. The judge says “the parties” would not have made the sale if they had known that the cow was pregnant rather than barren–This seems to be willful ignorance of the strategic behavior or deviance of parties. b. A mistake about category is a real mistake–Essence of the agreement v. value—OLD TEST. Lenawee County Board of Health, pg. 664—Bloom installed defective septic tank, then sold to Df, who then sold to Pickles. Raw sewage seeped from the ground. --IF there is a mistaken belief relating to a basic assumption of the parties upon which the K is made AND that assumption materially affects the agreed performances of the parties, THEN the ct has ○

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Andrew Gniewek Ks Outline Last Updated 04/23/09 discretion to grant rescission, UNLESS the party seeking rescission has assumed the risk of loss in connection with the mistake. a. Lenawee adopts R2D 152. b. Even if the mutual mistake is material, an “as is” clause allocates the risk, invalidating the excuse of mistake (See above). ○ Unilateral Mistake: • R2D 153. When Mistake of One Party Makes a K Voidable. a. Where a mistake of one party at the time a K was made as to a basic assumption on which he made the K has a material effect on the agreed exchange of performances that is adverse to him, the K is voidable by him if he does not bear the risk of the mistake under the rule stated in R2D 154; and, ○ The effect of the mistake is such that enforcement of the K would be unconscionable; or, ○ The other party had reason to know of the mistake or his fault caused the mistake. • Elements of a Unilateral Mistake: a. A basic assumption of the parties; b. A material effect on the agreed exchange; c. The party seeking to avoid the K must not bear the risk of the mistake; and, ○ The effect of the mistake is such that enforcement of the K would be unconscionable and the other party can be returned to his pre-K state; or, ○ The other party had reason to know of the mistake or his fault caused the mistake. • Some jurisdictions have adopted further requirements: a. Rescission will be allowed for mistakes of fact but not for mistakes of judgment. More recent cases, however, focus on the strength of the proof that a genuine and identifiable mistake was made. b. Some jurisdictions require that the mistake not be due to negligence. There is a clear tendency to relax this requirement where proof of mistake is strong and the effect of the enforcement will be devastating to the mistaken party (Gross negligence will usually defeat a unilateral mistake claim). • Wil-Fred’s, Inc., pg. 674–Wil-Fred’s, Inc. relies on Ciaglo’s wrong bid (An echo of the Drennan case).—… a. Wilfred’s, Inc. uses the IL TEST: ○ The mistake relates to a material feature of the K; ○ The mistake occurred notwithstanding the exercise of reasonable care; ○ The mistake is of such grave consequences that enforcement of the K would be unconscionable; and, ○ The other party can be placed in status quo.

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Andrew Gniewek Ks Outline Last Updated 04/23/09 b. In this case, a unilateral mistake was found, but Wil-Fred’s, Inc. couldn't have relied on Ciaglo’s bid too much b/c it was aware immediately of the mistake and the impact of the mistake was so severe. Also, the discrepancy so great and obvious that Wil-Fred’s, Inc. should have recognized that there was a mistake.

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Changed Circumstances: Impracticability: ○ Increased cost alone does not excuse performance UNLESS the rise in cost alters the essential nature of the performance; ○ A rise or collapse in the market is not sufficient (though if the market collapses completely, there will usually be an impossibility defense); ○ A severe shortage of raw materials or supplies due to a contingency such as war, embargo, local crop failure, or unforeseen shutdown of major sources of supply, which either causes a marked increase in cost or altogether prevents the seller from securing the supplies necessary to his performance will usually constitute impracticability; ○ Where the K provides for an exclusive means of performance, the impracticability of that means may release the promisor from his duty. Where the performance is set out in unqualified terms, the promisor may be required to perform by alternate means even though those means are more expensive; ○ The claimed impracticability must arise from an unforeseen contingency and without fault of the party seeking to avoid the K; ○ The nonoccurence of the contingency must be a basic assumption of the K; and, ○ The parties must not have explicitly or implicitly allocated the risk that the contingency might occur. Assumption of risk may be determined by examining:  The extent to which the parties allocated other risks;  The circumstances surrounding the K, including trade usage;  The purpose of the K; and  Force majeure clauses may make a determination of impracticability easier by pointing to who bears the risk. Impracticability may only be used to avoid enforcement (rescind) of the K. Impracticability involves a case where a change of circumstances not specifically provided for in the agreement occurs after the agreement is made. Impossibility: R2D 262-64 ○ A situation where there are specific goods, unique to the K, are destroyed, making fulfillment impossible. The main case is Taylor, in which the K to hire a music hall was held to be frustrated, by the destruction of the music hall by fire. Impracticability: R2D 261, 66 ○ The first response to this, as an excuse, should be: C’mon! After all, a K allocates the risk of performance. This excuse is seldom raised, and 29

Andrew Gniewek Ks Outline Last Updated 04/23/09

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accepted even less. The Q is, what would a case have to look like in order to allow you to prevail with impracticability. (See pg. 697) ○ Karl Wendt, pg. 687–Pl and Df had dealer sales and service agreement. Df suffering severe financial losses sold farm equipment to Case. Case didn't offer Pl a Case franchise.—…  Impracticability must be based on way more than a simple downturn in the market. Frustration of Purpose: R2D 265, 66: If in the case of a supervening event, after K formation, the purpose of the K is frustrated, a K may also be considered void. ○ The main case is Krell, in which a Krell’s flat is rented to view the king’s coronation, but the coronation is cancelled, and the flat no longer has any value.—IF a deal loses all value to a party, because of an unanticipated change in purposes, THEN the K is voidable. Modification: ○ GENERAL RULE: Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration. ○ R2D 89. Modification of an Executory K. A promise modifying a duty under K not fully performed on either side is binding:  If the modification is fair and equitable in view of circumstances not anticipated when the K was made;  To the extent that justice requires enforcement in view of material change of position in reliance on the promise; or,  To the extent provided by statute. ○ Alaska Packers’ Assn, pg. 715–Fishermen agreed to work in Alaska fishing for $50/day. Once there, they threatened to not work unless their wages were raised to $100/day. The court held that the one-sided modification was unenforceable because there was no consideration for the promise to pay the add’l amount. Pre-existing obligations or legal duties do not constitute consideration.—IF party A agrees to give add’l consideration to party B for B’s performances of the exact services that B was already under K to render, THEN the new promise is without consideration. Two “narrowings” of this rule:  IF the parties agree to modify their K, so that each party is giving the other party some add’l consideration, THEN K. The new K has the old terms, plus add’l consideration from both parties.  IF both parties agree to voluntarily rescind their promises and create a new K, THEN K. The new K can be completely different from the old.  The rationale for the PRE-EXISTING DUTY RULE is that the ct is worried about the potential for extortion in allowing one party to induce the other party’s reliance up to the last possible moment.  A modification of a K must have fresh consideration.  R2D 73—PRE-EXISTING DUTY RULE—Merely promising to perform an existing (contractual) obligation will not serve as valid consideration for add’l return compensation from the other party.

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Andrew Gniewek Ks Outline Last Updated 04/23/09 •

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However, such small add’l compensation as one day’s rent has been seen as adequate consideration for modification. (See pg. 719) Exceptions to the PRE-EXISTING DUTY RULE (See R2D 89 (See pg. 225)): • “Unanticipated difficulties” encountered in the performance of obligated duties; • The possibility of modification will induce a material change of position, so that injustice will result if the modification is not enforced; or, • Circumstances unexpectedly changed and one party relied on resulting proposed modification. MODERN APPROACH—We seek to regulate modification through “good faith” concepts rather than consideration.

Justifications for Nonperformance: Conditions: ○ There are 3 different mechanisms a party can impose upon another party to induce a performance:  Duty –Bargain for that performance to be part of the party’s duties/obligations under the express terms of the K. Nonperformance of a duty makes the non-performer liable for damages.  Condition something that the other party wants you to do on their doing something you want them to do (i.e., I will pay on the condition that you deliver).  Promissory Condition –Condition your obligation on the other party’s performance, and make that performance a duty for the other party (i.e., I will pay on the condition that you deliver, and you must deliver or I can sue for damages.). Difference B/t a Duty and a Condition: ○ “I promise to buy 1000 bushels of wheat from you at $10/bushel, on condition that you deliver to my factory in Lowell.”  Nonoccurrence of the condition (delivery) relieves the buyer from his/her duty to perform. ○ “I promise to buy 1000 bushels of wheat from you at $10/bushel; you promise to sell me 1000 bushels of wheat at $10/bushel and deliver the wheat to my factory in Lowell.”  The seller has a duty to deliver the wheat; if the seller doesn’t deliver, he has breached the K. Express Conditions: ○ CLASSICAL THEORY: Express conditions must be expressly fulfilled. A failure to do so results in the discharge of a duty to perform. ○ MODERN THEORY: Express conditions must still be fulfilled (i.e., If the condition is met, the performance by the other party is then required), but there are certain exceptions which will excuse the failure of the condition and require the other party to perform. ○ R2D 235. Definition of Duty.  Full performance of a duty under a K discharges the duty. 31

Andrew Gniewek Ks Outline Last Updated 04/23/09

 When performance of a duty under a K is due any nonperformance is a breach. R2D 224. Definition of a Condition.  A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a K becomes due. ○ R2D 225. When a Performance Becomes Due.  Performance of a duty subject to a condition cannot become due unless the condition occurs or its nonoccurrence is excused.  Unless it has been excused, the nonoccurrence of a condition discharges the duty when the condition can no longer occur.  Nonoccurrence of a condition is not a breach by a party unless he is under a duty that the condition occur. ○ Oppenheimer, pg. 786–A case involved an express condition to get permission for tenant work, which later didn’t happen.— IF the parties have expressly conditioned their duties under a K, THEN substantial performance does not satisfy the express condition on either party’s duties. (An express condition must be literally performed unless it is waived by the party requesting performance.) Implied Conditions: ○ Constructive Condition of Exchange—“I’ll give you this for that.” Does the nonperformance of one party justify the nonperformance of the other?  These implied conditions require substantial performance. ○ Jacob & Youngs, pg. 806—Df deviated from the K by not using the specified pipe.—IF the parties have not expressly conditioned their duties under the K, AND party A has substantially performed, THEN A’s substantial performance constitutes satisfaction of the constructive condition on his duties, UNLESS A is a willful transgressor.  Determining whether an omission was significant to the parties or there has been substantial performance is a fact-intensive inquiry. • Factors include the purpose to be served, the desire to be gratified, the excuse for deviation, and cruelty of enforced adherence. • “Substitution of equivalents may not have the same significance in fields of art on the one side and in those of mere utility on the other. Nowhere will change be tolerated, however, if it is so dominant or pervasive as in any real or substantial measure to frustrate the purpose of the K.” Excuses for Nonoccurrence of a Condition (which would still create the conditioned duty): ○ Prevention (A failure of good faith):  A condition is excused if a party that must perform is hindered from doing so by the other party or does not make a good faith effort to meet the condition. ○ Waiver: A condition is excused if the promissor intentionally relinquishes a known right or acts in a way inconsistent with claiming it.  A waiver needs no consideration to be binding;  A waiver may be retracted at any time, so long as the other party has not changed his position in reliance on the waiver; and, ○

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Andrew Gniewek Ks Outline Last Updated 04/23/09 A waiver may be effective after expiration of the time for performance of a condition has expired, if: • The condition which is asserted to have been waived is not a material part of the agreed exchange; and, • Its nonperformance does not materially affect the value received by the obligor. ○ Forfeiture: A condition is excused if the enforcement would cause disproportionate forfeiture. Failure of a condition to occur should not be excused if the condition was a material part of the agreed exchange.  A condition may be excused to avoid forfeiture even though the failure of the condition consisted of a failure by the obligor, by his own inadvertence, to perform an affirmative duty;  Most cts would excuse failure of a condition to avoid forfeiture in cases where performance of the condition was impracticable; and,  This is most likely enforced in the area of renewal of leases when there are substantial leasehold improvements.  JNA Realty Corp., pg.—A case involved a restauranteur who wishes to exercise an option on a lease, but fails to do so before time expired. Restauranteur claims it didn't know notice of renewal was required.—… • What if the excuse of forfeiture is caused, inadvertently, by the nonoccurring party? The equitable solution is, if they acted in good faith, to still hold that the duty is required. • Will there be some terrible hardship to the party that was trying to satisfy the condition? • RS229. Excuse of Forfeiture. ○ To the extent that the nonoccurrence of a condition would cause disproportionate forfeiture, a ct may excuse the nonoccurrence of that condition unless its occurrence was a material part of the agreed exchange. ○ Estoppel:  When a party makes a statement that induces another party to act, that party shouldn’t be permitted to escape liability for the consequences that come from its statement inducing the other party to act (i.e., If JNA Realty Corp. had said: “Don’t worry about it.”)  You would use estoppel if there was a strong opposition to waiver b/c of materiality.  You need substantial reliance. Material Breach: Deals with whether degree of nonperformance is sufficient for other party to repudiate the K. ○ R2D 237—Except as stated in R2D 240, it is a condition of each party’s remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time. 

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Andrew Gniewek Ks Outline Last Updated 04/23/09

 There, to argue that nonperformance is justified, a party must ○ ○

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show the other party has left an uncured material failure (i.e., no substantial performance). Note: Even if you give substantial performance, forcing the other side to perform their duty, you have still probably breached the K. Analyzing Breach:  The ct must first determine whether the breach is material. IF it is, THEN;  The ct must determine whether the breach has become total—This will depend on “materiality” factors listed below and: • The extent to which further delay appears likely to prevent or hinder the making of substitute arrangements; and, • The degree of importance that the terms of the agreement place on performance without delay. Federal Ct Four-Factor Test for Materiality:  Whether the breach operated to defeat the bargained-for objective of the parties;  Whether the breach caused disproportionate prejudice to the nonbreaching party;  Whether custom and usage consider such a breach to be material; and,  Whether the allowance of reciprocal nonperformance will result in the accrual of an unreasonable and unfair advantage. Sackett, pg. 817— Pl delayed payment and Df allowed several extensions before notifying him that sale was off. Df then offered to accept cash payment but Pl made no offer.—IF a party commits a material breach, THEN the other party may repudiate the K.  Two Types of Breach: • Total Breach—A complete discharge of all duties under the K. • Partial Breach–You can sue later, but you still owe a duty to complete. ○ However, in terms of the ongoing relationship, you have the right to suspend your performance until it is certain that the breach is total.  Only a total breach of the K justifies repudiation, not a partial breach. Whether breach is total or partial depends on its materiality (R2D 241): • The extent to which the injured party will be deprived of a benefit that he reasonably expected; • The extent to which the injured party can be adequately compensated for a lack of complete performance; • The extent to which the party failing to perform will suffer forfeiture; • The likelihood that the party failing to perform will cure the failure; and, • The extent to which the behavior of the party failing to perform comports with the standards of good faith and fair dealing (This allows courts to make moral 34

Andrew Gniewek Ks Outline Last Updated 04/23/09 judgments on parties' culpability rather than being restricted to willfulness).  Note: Sackett blends “material failure” with total breach. DO NOT DO SO. An uncured material defect tells you whether the condition in question is excused or not. Determine total or partial breach by using R2D 242. • Note: It is critical to keep the question of total or partial breach separate from the question of whether there is a uncured material defect, which tells you whether the condition in question is excused or not. ○ R2D 241. Circumstances Significant in Determining Whether a Failure is Material. (pg. 270) ○ R2D 242. Circumstances Significant in Determining When Remaining Duties Are Discharged. (pg. 270) Amanda’s Notes on Constructive Condition of Exchange:

1. Step 1: “Is there a constructive condition of exchange?” In the absence of expressed language, would the failure of one party to perform duties excuse the nonperformance of the other party to perform their duties? (Does the fact that Jacob & Youngs failed to use Reading Manufactured pipe/complete the K to precise specifications justify Kent in saying “I don't have to pay you the K price”?) a. Constructive Condition of Exchange (Jacob & Youngs): i. R2D 234 (1)—Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, they are to that extent due simultaneously, unless the language or the circumstances indicate the contrary. ii. R2D 234 (2)—Except to the extent stated in RS234 (1), where the performance of only one party under such an exchange requires a period of time, his performance is due at an earlier time than that of the other party, unless the language or the circumstances indicate the contrary. 2. Step 2: Even if there is a constructive condition of exchange, what would it take to satisfy the condition? What counts as occurrence? Substantial Performance/No Material Failure as in (See R2D 241 (See below)) a. R2D 237—Except as stated in R2D 240, it is a condition of each party's remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time. b. So to trigger the other party's duty, the first party need only substantially perform its commitments/substantially comply. c. No uncured material failure; or, substantial performance. d. Literal performance is not necessary to trigger this party's duty. i. Cardozo then asks "Under the facts presented, did Jacob & Youngs substantially perform?" And then, how do you determine whether a party has substantially performed? That's where you get the language. (pg. 808) e. R2D 241 answers "How do you determine if a party has substantially performed?" (i.e., What is an uncured material failure?) 35

Andrew Gniewek Ks Outline Last Updated 04/23/09

f. R2D 241. Circumstances Significant in Determining Whether a Failure Is

Material.—In determining whether a failure to render or to offer performance is material, the following circumstances are significant: i. The extent to which the injured party will be deprived of the benefit which he reasonably expected; ii. The extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; iii. The extent to which the party failing to perform or to offer to perform will suffer forfeiture; iv. The likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; v. The extent to which the behavior of the party failing to perform or offer to perform comports with standards of good faith and fair dealing. 3. Step 3: If there is substantial performance (which there is found to be in Jacob & Youngs) then the other party's duty is not discharged. Then, there are “pure” vs. “promissory” conditions. a. If you don't satisfy a pure condition, you don't comply with it. It doesn't necessarily mean that the K is in breach. b. A promissory condition is a condition when not complying with the condition would be a breach of the promise. 4. Step 4: Recognize that even if there is substantial performance (i.e., the condition has been satisfied), there may still be a breach. How do you measure damages? a. Cost-to-Complete—What Cardozo says is the GENERAL RULE. b. Expectation Damages—What the K’or wanted as the benefit of bargain. c. Difference-in-Value (Better argument in Jacob & Youngs)—Cardozo basically says: “In a situation where the defect is really minor and where the cost to complete is grievously out of balance with the benefit that would be rendered from completing, you can measure damages not by cost to complete but by difference in value”

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Computing the Value of the Pl’s Expectation; Restrictions on Recovery of Expectation Damages (Foreseeability and mitigation): Damages occur when there is an unjustified nonperformance (i.e., breach of the K). R2D 344— ○ 3 Types of Damages:  Expectation Interest: The interest an injured party has in being put in as good a position as she would have been in if both parties had fully performed.  Reliance Interest:  Restitutionary Interest: Expectation Damages: The general intent of expectancy damages is to put the injured party in a position that he would have been in had the K been performed on both sides—The expectation to be protected is the Pl’s net expectation. ○ R2D 347 lays out the formula for computing expectation interest: 36

Andrew Gniewek Ks Outline Last Updated 04/23/09

 Expectation Damages=Loss in Value + Other Loss – Cost Avoided

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– Loss Avoided (pg. 848) • Loss in Value=Value to injured party of the performance – Value of any given performance. • Other Loss=Incidentals. • Cost Avoided=The further cost that the performance would have incurred. • Loss Avoided=Any benefit from reallocating resources already purchased.  Short-Form Expectation Damages=Expected profit + Nonreimbursed expenditures. Usually the Pl will seek expectation damages (unless it’s a losing K or there is a high loss avoided). A “cover purchase” is one that the aggrieved party purchases, and the cost fixes the damages as long as the cover was reasonable.  Handicapped Children’s Education Board, pg, 857–Pl brought suit against Df for resigning in breach of employment K despite medical documentation saying that job stress caused hypertension. Pl had to pay higher salary for substitute but substitute also more qualified.—IF one party breaches a K, THEN the other party should be compensated for the difference between what that party expected to receive and what that party actually received (provided that the party satisfies the duty to mitigate). • The hiring of the other teacher was a reasonable “cover purchase” which fixed damages. • Merely b/c the cover purchase was more expensive does not automatically make it unreasonable. In cases in which the item is unique (such as land), the ct will use market value as the measure. In construction cases, the usual measure of expectation damages is cost to complete.  American Standard, pg. 861– Df's performance substantially deviated from specifications where Df failed to completely clear foundations on Pl's land.—… • Just like Jacob and Youngs, the ct may decide that difference in value is a better measure than cost to complete if there is an economic waste, UNLESS: ○ The breach was willful; and, ○ The work not done is not incidental. • R2D 348–Alternatives to cost-to-complete. R2D 347–Expectation damages are the norm. Restrictions on Expectations Damages:  Hadley, pg. 869–Pl millowner sent broken crank shaft to get repaired thru Df's carrier service. Delivery delayed causing delay in operation of mill.—IF consequential damages arising from breach are either general damages or special damages, THEN the damages are recoverable. • 2 Types of Expectation Damages: 37

Andrew Gniewek Ks Outline Last Updated 04/23/09

○ General damages are damages naturally arising from the breach in the usual course of things.

○ Special damages are those reasonably supposed

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to have been in the contemplation of both parties at the time the K was made as a probable result of the breach. (OLD TEST) • R2D 351 (NEW TEST)— ○ Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the K was made. ○ Loss may be foreseeable as a probable result of a breach because it follows from the breach:  In the ordinary course of events; or,  As a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know. ○ A ct may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.  HADLEY TEST OF FORESEEABILITY allows injured party to recover: ○ Those damages reasonably considered arising naturally from breach itself; and, ○ Damages reasonably contemplated at the time the K was made as probable result of breach (i.e., Df only needed to have reason to know, he mustn’t have actually known.).  Florafax, pg. 874– …--… • 3-Part Test for Consequential Damages: ○ Contemplated at the time of the signing (Foreseeability); ○ Flow directly from the breach (Causation); and, ○ If the loss is capable of being measured (Reasonably certain, and not speculative). Alternative Damages: ○ Reliance Damages: Generally, these are out-of-pocket expenses and expenditures induced by reliance on the K itself. Reliance damages include value of gains forgone in reliance on Df's performance.  Reliance damages may be mitigated by the Df showing that full performance would have resulted in net loss. In this way, the Df would not be insurers of the Pl's ventures.  Wartzman, pg. 965–H wanted to raise money thru flagpole sitting venture but W structured corporation wrong and failed to hire securities specialist. H did not have to mitigate damages by paying for securities specialist.—IF anticipated profits (expectation damages) are too speculative to be determined, THEN 38

Andrew Gniewek Ks Outline Last Updated 04/23/09 monies spent in part performance or in reliance are recoverable, LESS any loss that the breacher can prove with reasonable certainty that the injured party would have suffered had the K been performed. (R2D 349) • Reliance damages are still a bad idea if the K was a losing one, because it still factors in loss avoided. However, proving loss will probably be too speculative as well. The main advantage of reliance damages is that they are easier to prove. • 2 Types of Reliance Damages: ○ Essential Reliance—Damages incurred in the preparation and performance of K; or, ○ Incidental Reliance–Damages incurred by relying on the existence of K. ○ Reliance Damages Based on Promissory Estoppel:  Walser, pg. 975—…--The discretion to award reliance or expectation damages is delegated to the trial judge, even when reliance is the basis for enforcing the promise. Some jurisdictions limit damages to reliance when the basis of liability is reliance. • If the case is based on promissory estoppel, the reliance damages will probably only be out-of-pocket expenses instead of full reliance damages. ○ Restitutionary Damages: Damages awarded for unjust enrichment.  GENERALLY: • MODERN K LAW allows the nonbreaching party to elect recovery of restitutionary rather than expectation damages. (R2D 373) • At COMMON LAW, the breaching party could not recover under restitution because that would encourage breach. But since purpose of K law is not to punish but to compensate, under MODERN K LAW, even a breaching party may be entitled to restitution by virtue of the benefit conferred on the other party by part performance. (See Lancelloti, R2D 374) • If performance obligations imposed by the K have been "discharged" for some reason, such as incapacity or impracticability, either or both of the parties may be entitled to restitutionary relief. (R2D 375-77)  APPLICATION: • 3 Different Situations in Restitution Cases: ○ Df breached; Pl seeking remedy; ○ Pl breached, but asserts his rights to restitution nonetheless; or, ○ Neither party is in breach.  R2D 373: • Subject to the rule stated in Subsection (2), on a breach by nonperformance that gives rise to a claim for damages for total breach or on a repudiation, the injured party is entitled 39

Andrew Gniewek Ks Outline Last Updated 04/23/09 to restitution for any benefit that he has conferred on the other party by way of part performance or reliance. • The injured party has no right to restitution if he has performed all of his duties under the K and no performance by the other party remains due other than payment of a definite sum of money for that performance.  U.S. & Coastal Steel Erectors, pg. 983–Dispute arose when Blair refused to pay sub-K’or (U.S. & Coastal Steel Erectors) for crane rental. U.S. & Coastal Steel Erectors terminated performance after completion of about 28% of the sub-K when the Df failed to make payments. The ct held that U.S. & Coastal Steel Erectors entitled to restitution (i.e., recover in quantum meruit)—… • If the aggrieved party in a breach situation is on the losing end of a K, they may use quantum meruit to try and get market value for their work. • Quantum meruit allows promisee to recover value of services undiminished by any loss which would have been incurred by complete performance (i.e., “market value restitution”). The standard for measuring the reasonable value of the services rendered is the amount for which such services could have been purchased from one in the Pl's position at the time and place the services were rendered • Essentially, if your K would be a losing one, you may want to say “forget the K” through restitution. ○ Restitutionary Damages for Breaching Party:  R2D 374. Restitution in Favor of Party in Breach. • Subject to the rule stated in Subsection (2), if a party justifiably refuses to perform on the ground that his remaining duties of performance have been discharged by the other party's breach, the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach. To the extent that, under the manifested assent of the parties, a party's performance is to be retained in the case of breach, that party is not entitled to restitution if the value of the performance as liquidated damages is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss.  Lancellotti, pg. 988–Pl contracted to buy Df's hoagie business and paid Df money. However, due to a dispute over certain terms for improvement, Pl abandoned the business and sued for restitution of his payment. Df counterclaimed and sued for rent.—… • Under R2D 374, Pl in breach may be able to recover benefit in excess of harm caused to the Df. Because the party who is seeking restitution has generated the problem of determining restitutionary damages by his/her breach, recovery should be limited to the lesser of either: ○ The value of the benefits conferred; or, ○ The defendant's increase in wealth. 40

Andrew Gniewek Ks Outline Last Updated 04/23/09 •

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However, comment (b): Intentional variation from terms of the K will preclude restitution, even if his performance benefits other party. • A breaching party may still request market value for the enrichment they give the other party. ○ Exception to Restitutionary Damages: R2D 373(2)—If the nonbreaching party has fully performed his obligations under the K and the breaching party's only remaining duty of performance is the payment of a sum of money, the nonbreaching party may not elect a restitutionary recovery but is limited to expectation damages. Non-Recoverable Loss: Emotional distress damages are generally not recoverable. ○ R2D—“Recovery for emotional disturbance will be excluded UNLESS the breach also caused bodily harm or the K or the breach is of such a kind that serious emotional disturbance was a particularly likely result. Common examples are Ks of carriers and innkeepers with passengers and guests, Ks for the carriage or proper disposition of dead bodies, and Ks for the delivery of messages concerning death. Breach of such a K is particularly likely to cause serious emotional disturbance. Breach of other types of Ks, resulting for example in sudden impoverishment or bankruptcy, may by chance cause even more severe emotional disturbance, but, if the K is not one where this was a particularly likely risk, there is no recover for such disturbance.” ○ Erlich, pg. 920–Homeowners filed an action against the K’or who built their new house for breach of K, fraud, negligent misrepresentation, and negligent construction. Plaintiffs testified they suffered emotional distress as a result of the defective condition of the house and Df’s invasive and unsuccessful repair attempts.—…  Emotional distress damages are not available in Ks.  Usually, injuries must be dealt with in tort, and not in Ks.  Reasonable Breach–Breachers are not outlaws, but, in fact, may be efficient.  There is no culpability element in breach of K, therefore no punitive damages may be awarded. (See pg. 927) Mitigation of Damages: ○ R2D 350—“[D]amages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation,” UNLESS the party has made “reasonable efforts” to avoid the loss. ○ The Pl may not recover for those injurious consequences of the Df's breach that the Pl could by reasonable action have avoided.  After an absolute repudiation or refusal to perform by one party to a K, the other party cannot continue performance to collect the entire K amount.  The Df has the burden of proving that: • One or more discoverable opportunities for a comparable K were available (The opportunities must be truly comparable —Look at location, type of services, hours, status, etc.); • The nonbreaching party unreasonably made no attempt to avoid damaging consequences; 41

Andrew Gniewek Ks Outline Last Updated 04/23/09

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It was reasonably likely that the nonbreaching party could have formed an alternate K; • The Df will be liable for all expenses that the nonbreaching party had to expend in seeking to mitigate the damages; • If the Pl makes a K that is not comparable, his damage recovery will still be reduced. This does not apply, however, when the plaintiff could have performed both the new K and the breached K. Also the Pl has no duty to mitigate by taking a non-comparable job. ○ Rockingham County, pg. 887–…--…  After an absolute repudiation or refusal to perform by one party to a K, the other party cannot continue performance to collect the entire K amount. ○ Havill, pg. 890–…--…  A fired employee has a duty to make a “good faith” effort to find suitable alternative employment–Burden of proof is on Df to show that the fire employee didn’t. Other Applicable Remedies: ○ Specific Performance: The ct awards the promisee the very benefit he was promised by making the other party perform as agreed upon.  2 Broad Categories Where Specific Performance may be Timely and Feasible: • Where specific relief does not require cooperation of defaulting promissor (i.e., to seize goods or prop). Practical impediments are at a minimum; or, • Where specific performance does require the cooperation of the promissor. This requires coercion so practical impediments are substantial. ○ The ct will not coerce performance that is personal in nature; ○ The ct is reluctant to order specific performance where difficulties of supervision or enforcement are foreseen; and, ○ The ct is reluctant to grant specific performance where a damage remedy is adequate.  R2D 359. Effect of Adequacy of Damages. • Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation interest of the injured party. • The adequacy of the damage remedy for failure to render one part of the performance due does not preclude specific performance or injunction as to the K as a whole. • Specific performance or an injunction will not be refused merely because there is a remedy for breach other than damages, but such a remedy may be considered in exercising discretion under the rule stated in R2D 357.  Essential criteria for determining whether specific performance should be granted is inadequacy or impracticability of legal remedies (R2D 360): • Where damages are inadequate to compensate party; 42

Andrew Gniewek Ks Outline Last Updated 04/23/09 •

Where it is impossible to arrive at legal measure of damages; and, • If damages are awarded, the likelihood that damages would be collected.  City Stores, pg. 1010– If Df able to secure zoning to allow shopping center, Pl had opportunity to lease space in Df's mall on terms at least equal to those offered to other dept. stores in the center. Consideration for unilateral K was found based on Df using Pl's letter to support their case in the zoning hearing. However, terms left open so may or may not be option; Ct found this to be K w/ conditions precedent: 1) Df gets zoning and 2) Df must enter lease w/ other major tenants. Ct found unilateral K w/ option despite conditions precedent b/c not too indefinite.—IF a party has been placed under a duty to offer a lease to the other party, AND money damages for the lost right to enter into the lease would be incalculable and inadequate, THEN specific performance may be the appropriate remedy. • In many settings, especially employment settings, courts have been unwilling to enforce specific performance—it’s too close to forced servitude. However, courts are increasingly willing to enforce specific performance, especially in land cases. • MINORITY RULE—Specific performance, while limited, can be granted if specific conditions are met. • “Equity will not grant specific performance if the hardship to the defendant is greater than the potential benefit to the plaintiff.”  Steps in Determining Whether to Grant Specific Performance: • Does a K exist? • Are its terms sufficiently certain and definite? ○ Where all material terms have been agreed upon, specific performance will not be denied on the ground of indefiniteness (R2D 362). ○ However, failure to agree on material terms may result in denial of specific performance but sometimes may be overcome by trade usage, course of performance, implication of terms, or “courageous common sense” (See comment b to R2D 362). ○ Korobkin’s Rule of Specific Performance (MAJORITY RULE—Specific performance is hard and complicated):  Ask whether the remedy at law is adequate.  Is the K specific enough or the type that would be easy to supervise?  Does the party seeking relief have clean hands?  Does specific performance hurt third party interest?  R2D 367. Ks for Personal Service or Supervision.—Against specific enforcement of personal service K but recognizes exception of negative enforcement by injunction.

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Andrew Gniewek Ks Outline Last Updated 04/23/09 •

A promise to render personal service will not be specifically enforced. • A promise to render personal service exclusively for one employer will not be enforced by an injunction against serving another if its probable result will be to compel a performance involving personal relations the enforced continuance of which is undesirable or will be to leave the employee without other reasonable means of making a living.  Reier Broadcasting Co., Inc., pg. 1022–In dispute arising from K for exclusive rights to broadcast university athletic events, broadcast company was not entitled to injunctive relief to prevent football coach from performing services elsewhere during K.—… • Specific performance should never be granted in a personal service K (Public policy against involuntary servitude). • Enforcing a negative covenant which would force Df into personal service also not allowed. ○ Agreed Remedies:  GENERALLY: • When there is a breach, parties can agree on damages and litigate only on issue of whether nonperformance was excused breach to save judicial resources. • Sometimes the original K specifies remedy in case of breach. Agreed remedy provision (liquidated damages clause) subject to judicial scrutiny and will not be enforced unless certain tests are met. Advantages of stipulating damages in advance: ○ Facilitates in the calculation of risks and reduces the cost of proof. ○ For the injured party, it may afford the only possibility of compensation for loss that is not susceptible of proof with sufficient certainty. ○ May save judicial resources and also parties' time, energy and money.  APPLICATION: • R2D 356. Liquidated Damages and Penalties. ○ Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty. ○ A term in a bond providing for an amount of money as a penalty for nonoccurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such nonoccurrence. • Westhaven Associates, pg. 1032–Parties agree to liquidated damages if in case of breach—IF the stipulated damages 44

Andrew Gniewek Ks Outline Last Updated 04/23/09

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are reasonable, THEN they will be enforced as stipulated. Korobkin’s 3-Step Analysis: • Look at the intent of the parties: Is this really an effort to measure damages in breach, or is it just punitive? This step often doesn’t do much work, because there is not much content. These clauses are often a combination of the two, and it’s hard to identify the unstated motive of the parties. • At the time of K, are the damages difficult to estimate? This speaks to the main purpose of stipulated damages. A legitimate use of stipulated damages is to fill in a gap of this sort, and thus the ct looks for such a gap. • In retrospect, do the stipulated damages represent a reasonable forecast of the actual damage? This is kind of comparing the estimation from step 2 to the reality of step 3.

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