Background Elements: The Contract Curve and Expectation Damages
basic goal of any contract: both parties believe it to be their benefit. not a zero-sum game
Basic issues to examine:
i. is there a K formed?
ii. what is meant by the K (interpretation)?
iii. is there a breach of K?
iv. how is the breach to be resolved (damages)?
v. Common Law (probably) or UCC (good = movable commercial items. not land, employment, etc)
Consideration and the Bargained-for Exchange – what is the nature of the bargain?
i. §17 – enforceable K requires bargain and consideration, except where “special rules” apply
1. bilateral K – exchange of promises or promise for a promise.
2. unilateral K – exchange of a promise for a performance
3. §31 – presumption favors bilateral K in case of ambiguity
ii. §71 – to count as consideration a performance or return promise (inducement required) must be bargained for (quid pro quo requirement). bargain theory of liability.
iii. §19 – Promise need not be in writing (“in acts” ok)
1. but see UCC 2-201 (writing required for sales of ‘goods’ > $500)
2. also see SOF (writing required for K not to be performed w/in 1 year)
iv. note: return promise need act as only partial inducement for the promise in order to function as consideration.
1. If promise is 99% altruistic and only 1% induced by return promise there is still consideration.
2. §81 – (1) what is bargained for need not induce a promise to count as consideration; (2) promise need not induce performance or return promise to count as consideration
3. legality: consideration / inducement must be legal. illegal = unenforceable K.
Promises to Make a Gift
i. Bargain and consideration found?
1. if yes then gift promise is enforceable (see Hamer v Sidway – giving up legal right = consideration)
2. if no then promise may still be enforceable under §90
a. see Ricketts v Scothorn – reliance was induced by gift promise. (reasonable reliance)
b. c.f. Kirksey v Kirksey – widow moves to step-brothers house; promise did not seek to induce that reliance (moving) so no §90 – no reasonable reliance.
3. if no (and no reliance) and promise merely a gratuity then not enforceable.
ii. Generally: gift promises not enforced with some exceptions (i.e. promisor dies and enforcement is against estate); desire is to effectuate intent of the parties.
1. Nominal consideration (i.e. $1 in hand paid…) – can be used to make donative/gift promises enforceable
2. adequacy of consideration is not evaluated by court; existence (not equality) of bargain is what matters
Reliance and Promissory Estoppel
i. rationale: expand the bargain-theory of consideration to protect expenditure of parties when no consideration
ii. §90 Promissory Estoppel – promise expected by promisor to induce action, and does induce action/reliance, is binding and enforceable if necessary to avoid injustice. Remedy granted for breach may be limited as justice requires.
1. Is there actually a promise on which to rely? (See East Providence v Geremia – promise to renew insurance policy)
2. Did the promisor expect to induce action? (See Ricketts – Uncle expected to induce action – quitting job)
3. Was there reliance and was it reasonable?
4. What remedy is required to avoid injustice?
a. note: §90 liability does not entail that damages must be reliance damages; just a means of creating an enforceable K. Could still have expectation damages.
i. §77 – promise which does not bind one party in any way (unfettered discretion of party to perform) is illusory.
1. “as much as you want” – illusory (See Wickham – coal)
2. “as much as you need” – arguably not illusory – can be somehow measured.
3. if the promise as a whole is something that is not entirely discretionary then it is not illusory.
ii. illusory promises is not enforceable as an offer / promise; cannot serve as consideration for a K.
iii. promise to use good faith or best efforts not illusory – can be measured and enforced (See Wood v Lady Duff – promise to use best efforts implied in fact)
Moral Obligation and Past Consideration
i. another exception to the consideration requirement
ii. Generally: unrequested service/performance does not acquire right to compensation but there are exceptions
1. Beneficiary of voluntary service subsequently promises.
a. promise enforceable if promisor was beneficiary (see Webb v McGowin)
b. promise unenforceable if promisor was not beneficiary (See Mills v Wyman)
2. subsequent promise may support an implied promise at law in absence of traditional consideration (i.e. actual promise) iff the benefit of the act was received by the promisor himself.
a. note: no actual K for implied promise at law so any suit will be in restitution.
b. ex: doctor providing services to unconscious patient who then dies (In Re Crisan)
c. c.f. implied promise in fact: based on the circumstances/facts of case (See Allegheny College; Wood v Lady-Duff – implied promise to use ‘best efforts’) as opposed to pure legal fiction (implied promise at law).
iii. §86 – promise made in recognition of previous benefit binding to extent necessary to prevent injustice (no requirement of moral obligation) unless §86(2)(a) benefit was conferred as a gift or if promisor would not be unjustly enriched or §86(2)(b) value of promise is disproportionate to benefit received
Contract Formation – has a contract been formed?
i. basically K requires offer and acceptance of that offer. parties must somehow indicate their assent to be bound by the K. when this is lacking there will be no K.
1. §20 – (1) no mutual assent if parties attach materially different meanings unless (2) one party knows or has reason to know of the other meaning – then use that meaning
a. meeting of minds is sufficient but not necessary to create K under §20
b. See Raffles v Wichelhaus (Peerless Case) – no meeting of the minds = no K to be enforced.
c. consider prior dealings, trade customs, language / terms of K, etc. in considering what meaning parties should have attached.
2. reasonable person standard: objective test: what reasonable person can infer from objective actions about what party intended.
a. EX: if reasonable person would understand there to be a K, and party subjectively does so understand, then there is meeting of minds and a K.
b. don’t need a true meeting of the minds where subjective intent of both parties matches (§20)
Statute of Frauds
i. applies to (1) interests in land, (2) Ks not possible to perform in one year, (3) UCC goods greater than $500, (4) promise to pay 3P debt.
1. need a written confirmation of K or written K itself – need not be entire K, just enough to confirm
a. common law requires essential terms
b. UCC needs a confirmation note, doesn’t need to contain all essential terms
2. party being enforced against must have signed somewhere.
Offer and Acceptance
i. What constitutes an offer (as opposed to initiation or element of bargain)?
1. consider surrounding circumstances – advertisements or circulars generally not considered offers; consider reasonable person standard – is it reasonable to view it as an offer?
2. generally price quotations are not offers – it is the order itself that constitutes the offer
ii. Is there actual acceptance (before revocation or is purported acceptance really a counteroffer)?
1. offeror is master of the offer: valid acceptance depends on terms of the offer
a. §31 rebuttable presumption in favor of bilateral K – acceptance presumed to require promise to perform
b. 2-206(1) – offer may be accepted by any reasonable medium given the circumstance
c. sometimes (i.e. recurring transactions) commencement of performance counts as acceptance
i. 2-206: offer (i.e. purchaser order) can be accepted by commencement of perf.
ii. §§32 and 62: commencement of performance or nature / structure of K may constitute acceptance, act as an implied promise to perform, and thus create a bilateral K.
1. Failure to complete perf. would be breach.
2. See Allegheny College (commencement of perf. implies existence of legal dut
use traditional offer and acceptance doctrine.
b. 2-207(1): offeree’s form treated as acceptance, not counteroffer even if additional/different terms from purchase order “unless acceptance is expressly made condition to assent to the additional or different terms.”
i. See Idaho Power – narrow interpretation of “unless” clause – must be very explicit that acceptance is condition on assent to additional/different terms – mere presence of additional terms is insufficient
ii. Disputed terms are either supplied by the offeror or by the UCC (knockout rule)
c. 2-207(2): additional terms are included unless (a) the offeror expressly limits his offer to its own terms (b) the offeror objects to additional terms or (c) the additional terms materially alter the K (and are not assented to)
i. note: (2) only looks at what terms of K are, not whether or not there is a K. Only get to (2) if there is a K, otherwise we don’t reach it.
ii. therefore materially altering terms don’t by themselves mean there is no K under (1); otherwise you would never reach (2)
iii. additional terms: courts are split as to whether additional terms means additional terms only or also includes different terms. solutions:
1. majority rule: knockout rule – different terms are knocked out (supported by Comment 6 – but limited because comment 6 only refers to confirming forms)
2. minority rule: different terms treated like additional terms (supported by Comment 3) OR different terms always drop out (supported by (2) which only refers to additional terms)
d. 2-207(3): If no K under (1) but actions (i.e. delivery and payment) indicate parties believed there was an enforceable K then K consists of terms on which parties do agree
i. note: (3) only applies if no K under (1) – if there is a K under (1) then look to (2) to determine terms of it.
ii. Knockout Rule:
1. 2-207(2) version: is there actually a knockout rule here? Different terms knocked out?
2. Comment 6 version: K consists of (1) terms expressly agreed to (2) terms on which confirmations agree and (3) terms supplied by UCC, including 2-207(2).
a. issue: does knockout rule apply to forms that constitute an offer and acceptance or to those that confirm existence of agreement.
b. Comment 1 mentions both kinds but Comment 6 (which contains knockout rule) only discusses confirming forms courts are split so discuss both.
e. general aim of 2-207: impart controlling status to the form submitted by buyer/offeror.
Unfairness and Unconscionability – is there actual assent to the bargain?
Traditional Elements: Duress, Incapacity and Misrepresentation – render a K voidable if present
i. Duress – difficult to establish
1. violence or threat of economic harm constitute duress: standard is whether person making threatening action reasonably believed or should have believed duress would result.
2. do not enforce opportunistic use of leverage.
ii. modification of an existing K