Contracts Outline
Prof. Craswell
Fall 2009
Express and Implied Breaches
If there might be an implied term, also try to argue that you could interpret an express term out of the contract, as courts are more willing to interpret express terms than find implied terms.
If you think there is . . .
Try to argue that there’s actually . . .
Implied Excuse
Express excuse
Implied Warranty
Express warranty
Implied obligation of good faith
Express obligation
Implied limits on conditions
Express limits
Liability for nondisclosure
Liability for misrepresentation
Conditions
If a condition fails, any breach causes off-contract remedies (on-contract only if the condition was also an implied promise). Exact compliance for conditions is required (substantial performance doesn’t matter)[1]: midnight, not 12:01.
Could this also be interpreted as a promise? If so, court has more leeway: off-contract if material, on-contract if not material breach.
A contract term can be a promise and a condition: “I’ll give two-week notice of shipping” means I’ll give notice and I’ll ship. The shipper can’t just choose not to give notice and thereby cancel the contract.
In practice, strict performance is required and followed if the breach is significant. Only material conditions should be strictly enforced (Childress). BUT predictability
A conditional promise is not really a promise. Viewing it in this way might devalue personal (unconditional) promises (Shiffrin).
Warranties
There is a warranty if it is part of an established category or if the court decides to make a new category. Though the decision is category-by-category, there are case-by-case decisions about what the warranty covers and how to measure damages.
A breach of implied warranty is strict liability: the contract is breached regardless of fault.
A seller can try and limit recovery by 1) a disclaimer or 2) specifying remedies in case of a breach, but courts are suspicious of disclaimers.
The remedy for an implied warranty is on-contract remedies subject to the usual limits, or off-contract if 1) the breach was material and 2) if the non-breacher prefers it.
Categories of Implied Warranties
Area (Source)
Warranty Duty
Sale of Goods (UCC)
Merchantability
Residential Apartments (property law)
Habitability
Product liability/physical injury (tort law)
Defective Products
Malpractice (tort law)
Professional Care
Sale of New Homes (contracts common law)
Habitability/Skillful construction?
The court generally makes new categories if
· Parties have unequal bargaining power:
o Buyers have little information, or
o Buyers have little control over defects (precautions), or
o Large difference in size
· Market incentives are insufficient
· Private insurance policies aren’t available
New warranty categories can cause cross-subsidization and can discourage buyers’ precautions.
Misrepresentation and Nondisclosure
For a contracts nondisclosure/misrepresentation claim, the remedy is off-contract.
Misrepresentation
· Innocent misrepresentation/nondisclosure is enough: the breacher reasonably didn’t know the statement was false.
· For an additional torts claim, the standards for misrepresentation are higher:
o Knowing: Knew the statement was false
o Reckless: Didn’t care if the statement was false
o Negligent: Should have known the statement was false.
Statements about the future aren’t actionable as misrepresentation!
· Since it’s off-contract, the remedy for nondisclosure/misrepresentation is rescission/restitution. For the torts damages, there are two possibilities: out of pocket damages (the same as reliance) or “benefit of the bargain” damages (the same as expectation damages)
1. After the misrepresentation
2a. If misrepresentation never said
2b. If contract actually lived up to the representation
Unfavorable contract
No contract
More favorable contract
Out of Pocket Damages = Reliance
Benefit of the Bargain = Expectation
Requirements for misrepresentation:
· Seller made representation
· Representation was false
· Misrepresentation was material or the buyer reasonably relied on it (practically, this is presumed and doesn’t have much bite—if it wasn’t material, why would the seller mention it?)
· (for torts + culpability)
Nondisclosure
Requirements for nondisclosure:
· The fact was known to one party (so tort culpability satisfied)[2]
· Fact was not disclosed
· Violates a basic assumption of the contract (it’s material)
· The nondisclosure violates good faith and fair dealing.
Restatement 2d Duty to Disclose when:
· The other party asks about it
· Disclosure would correct a mistake of the other party
· Relationship of trust a
of the minds: There is one interpretation that both parties should have been using. Based on:
1. Ordinary language
2. Customary meaning
3. Default rules
B. Subjective Meeting of the Minds: When the parties hold materially different understandings of the contract, no contract has been formed (as in Peerless[4]): use off-contract remedies
C. Interpret ambiguity against the drafter of a contract.
Offer and Acceptance
Is there an offer? Consider whether:
· Reason to know it’s an offer
· Completeness of its terms? (Could you say “I accept!”)
· Multiple recipients? (if only one item to sell) (under the common law, and advertisement was never an offer; now mixed)
· Hardship to the alleged offeror?
· Would the alleged offeror want to be committed?
A counter-offer is not an acceptance; it can be a rejection or a new offer.
An offer last until:
A. It’s rejected
B. It’s revoked (before acceptance)
1. Mailbox rule: For acceptance, when dispatched by a reasonable means; for revocation, when received (always depends on the acceptor)
2. Unless the offer provides otherwise
C. It lapses (before acceptance)
1. At the time stated in the offer
2. If no time is stated in the offer, then after a reasonable time.
3. At the death of the offeror.
Reliance on an Offer
Reliance can be a substitute for acceptance under Restatement 2d § 87(2) (it was § 90 under the first restatement) under the following circumstances:
General contractor/subcontractor: Clear rule for contractor receiving damages
[1] Oppenheimer v. Oppenheim: P/breacher Oppenheimer sub-let old space to non-breacher under a contract requiring written approval; P supplied only verbal approval, but that substantial perform didn’t matter.
[2] Hill v. Jones termite case: Hill bought house from Jones and asked about termite damage and was told there wasn’t any (lie). When the seller of a home knows of facts materially affecting the value of the property that are not readily observable and not known to the buyer, the seller is under a duty to disclose them to the buyer. Ps won on nondisclosure.
[3] Somers v. Somers: Somers had profit-sharing agreement; he argued he was fired to avoid payment.
[4] Raffles v. Wichelhaus
