California Supreme Court: Breathalyzer Test Not Enough In Se

The California Supreme Court seems now to be saying that blowing a 0.08 is not enough in itself to warrant a DUI arrest. This is nothing new to DUI lawyers, of course.

Outline: Contracts - X - Damages (Legal Remedy)

Contracts (Spring 2006, Hull)

X. DAMAGES (LEGAL REMEDY)

1. Expectancy vs. Reliance
   1. Monetary damages
      1. Reliance – Out-of-pocket expenditure; restore plaintiff to original position
      2. Restitution – Make breaching party disgorge any benefit conferred; prevents unjust enrichment
      3. Expectation – Put injured party in position it would have been in if contract had been performed
   2. R.2d 347 – Measure of Damages in General
      1. loss in value to injured party of breaching party’s performance, plus
      2. any other loss, including incidental or consequential loss, caused by the breach, less
      3. any cost or other loss that injured party has avoided by not having to perform
   3. R.2d 349 – Reliance Damages – As an alternative to R.2d 347, injured party has right to damages based on reliance, including expenditures made in preparation for performance or in performance, less loss that breaching party can prove with reasonable certainty injured party would have suffered had the contract been performed
   4. Sullivan v. O’Connor – Victim of botched nose job entitled to out-of-pocket expenditures, worsening of condition, and pain and suffering beyond that "contracted for" (which she had waived).
      1. "Values"
         1. Promised nose = $15
         2. Original nose = $5
         3. Botched nose = $4
         4. "Contracted for" pain and suffering = $3
         5. Additional pain and suffering = $2
         6. Doctor's fees = $1
      2. Expectation = ($15 - $4) + $2
      3. Reliance = ($5 - $4) + $2 + $3 + $1
      4. Restitution = $1
      5. Court = ($5 - $4) + $2 + $1
   5. Role of Certainty [Gruber v. S-M News Co. - Card manufacturer whose distributor did not exercise "diligence" (contract term) in distribution entitled to difference between actual payment and payment given reasonable "diligence" (which manufacturer must prove); distributor has burden to prove actual payments would have resulted in loss]
2. Time of Measuring Value - Measure of damages for breach of land sale contracts is increased value, if any, of land at time of breach, in excess of contract price. [Bachewicz v. American Nat. Bank & Trust Co. – Where date of breach and date originally contracted for performance are close, market value of property not likely to have been far off contract price, so damages are nominal.]
3. Right to Sue for Payments Not Yet Due
   1. If duties remain on both sides, injured party can sue for everything now, as long as damages are foreseeable and terms are certain
   2. If the only duty on part of repudiating party is to pay money, injured party must wait until money is due before suit (majority). [R.2d 243] [Greguhn v. Mutual of Omaha Insurance Co. – Although insurance company is not relieved of payment obligations, insured may continue to file disability claims, but only as they are breached by insurance company]
4. Limitations on Damage Recovery
   1. General limitations
      1. No emotional distress damages (R.2d 353)
      2. No punitive damages (needs tort) (R.2d 355)
      3. Must be reasonably certain (R.2d 352 – factor willfulness)
      4. Must be foreseeable (R.2d 351)
      5. No disproportionate compensation (R.2d 351)
      6. Mitigation (R.2d 350)
      7. "Economic waste" (R.2d 348)
      8. Prejudgment interest (generally limited to liquidated sums) (R.2d 354)
      9. Lawyer’s fees (Cal. Civil Code 1717)
   2. Foreseeability – Where there are special circumstances, defendant only liable for foreseeable losses unless informed of those circumstances by plaintiff. [Hadley v. Baxendale – Carrier who could not have known of production stoppage at miller due to broken shaft not responsible for lost profits]
   3. Mitigation
      1. R.2d 350 – Avoidability as Limitation on Damages – No recovery for loss injured party could have avoided without undue risk, burden or humiliation, except to the extent he has made reasonable but unsuccessful efforts at avoidance.
      2. George v. School District No. 8R – Teacher/coach who was unaware he could not be reinstated did not fail to mitigate when he declined full-time job at another district.
   4. "Economic Waste"
      1. Possible damages
         1. value as promised to plaintiff less value as performed to plaintiff (preferred; closest to placing plaintiff in position he would have been in had contract been performed)
         2. cost of repair to make as promised
         3. cost of repair to make of same value as promised
         4. diminution in market value caused by breach
      2. R.2d 348 – Alternatives to Loss in Value of Performance
         1. Uncertain loss of value from delay of property use: recovery based on rental value or interest on value of property
         2. Uncertain loss of value from defective or unfinished construction: recovery based on a) diminution in market price caused by breach; b) reasonable cost of completing performance or remedying defects if not clearly disproportionate to probable loss in value
         3. Breach of promise conditioned on fortuitous event which was not certain to have occurred in absence of breach: recovery based on value of conditional right at time of breach
      3. County of Maricopa v. Walsh & Oberg Architects, Inc. – Where defects in completed structure could not be physically remedied without tearing down and rebuilding at imprudent and unreasonable cost, damages may be awarded for difference in value of building completed in accordance with contract and value of building actually erected, rather than for reasonable cost of completion.
5. Liquidation of Damages Provisions
   1. Analysis
      1. Reasonable alternative performance?
      2. If liquidated damages, is amount reasonable?
      3. At what point to examine reasonableness?
         1. time of contract?
         2. after the breach?
   2. Ridgley v. Topa Thrift and Loan Association – Liquidated damages clause conditioned on prepayment conditioned on late interest payments unenforceable because charge unrelated to purported function as alternative performance.
   3. Blank v. Borden – Withdrawal-from-sale clause stipulating 6% of “price of property” set elsewhere in exclusive-right-to-sell contract valid where parties freely negotiated, and contract reserved to homeowner power to make realistic and rational choice.
   4. Schrenko v. Regnante – Sellers who profited on sale of property after first buyer defaulted, and who retained first buyer’s deposit but demanded more costs, have made deposit into minimum charge rather than liquidated damages, and are not entitled to retain deposit.

Outline: Contracts - IX - Specific Performance (Equitable Remedy)

Contracts (Spring 2006, Hull)

IX. SPECIFIC PERFORMANCE (EQUITABLE REMEDY)

1. Prerequisites for Specific Performance
   1. Inadequate legal remedy
      1. Unique property (land presumed unique)
      2. Inability to pay damages
   2. Administratively feasible
   3. Certain terms
2. Inadequacy of Legal Remedy
   1. Severson v. Elberon Elevator, Inc. – Specific performance available when contract involves property which is unique or possesses special value, such as real estate.
   2. R.2d 360 – Factors Affecting Adequacy of Damages
      1. difficulty of proving damages with reasonable certainty,
      2. difficulty of procuring suitable substitute performance by means of monetary award, and
      3. the likelihood that award of damages could not be collected
   3. R.2d 361 – Effect of Provision for Liquidated Damages – Specific performance or injunction may be granted to enforce duty even if there is a provision for liquidated damages for breach of that duty
   4. R.2d 363 – Effect of Insecurity as to the Agreed Exchange – Specific performance or injunction may be refused if substantial part of agreed exchange for performance to be compelled is unperformed and performance not secured to court’s satisfaction
   5. UCC 2-719(1)(b) – Contractual Modification or Limitation of Remedy – Resort to remedy as provided is optional unless remedy expressly agreed to is exclusive, in which case it is sole remedy
3. Problems with Specific Performance
   1. Judicial burden
   2. Deters efficient breaches (sometimes, society benefits from certain kinds of breaches, because it incentivizes better allocation of resources, and everybody basically wins; compensation still available to injured party)
   3. Distate for compulsion
4. Construction and Employment Contracts
   1. R.2d 365 – Effect of Public Policy – No specific performance that would entail compulsion contrary to public policy [Petry v. Tanglwood Lakes, Inc. – Court will not compel specific performance of developer’s promise to homeowner to build lake because it counters developer's promise to HOA not to build lake, especially where developer financially unable to build lake]
   2. R.2d 362 – Effect of Uncertainty of Terms – No specific performance unless the terms of contract are sufficiently certain [Goldblatt Bros., Inc. v. Addison Green Meadows, Inc. – Developer’s failure to pave access road justifies specific performance; but failure to provided explicitly stated number of parking spaces is not, if a sufficient number has been provided]
   3. R.2d 367 – Contracts for Personal Service or Supervision [Nassau Sports v. Peters – Hockey player who signed on to competing league in violation of contract not compelled to play for original league, but enjoined from playing for new league]
      1. promise to render personal service will not be specifically enforced
      2. promise to work exclusively for one employers will not be enforced by injunction against serving another if result will compel performance involving personal relations that are undesirable if continued, or to leave the employee without other reasonable means of making a living
5. Equitable Defenses
   1. Balance of hardships [Goldblatt]
   2. Unfair price
   3. "Unclean hands" - Party seeking equity must be acting equitably
   4. "Laches" - Unreasonable delay in asserting rights against other party

Outline: Contracts - VIII - Termination and Rescission

Contracts (Spring 2006, Hull)

VIII. TERMINATION AND RESCISSION

1. Termination, Rescission, Setoff, and Suspension
   1. Termination - Affirms existence of contract, discharges injured party from performance, and grants injured party right to recover damages
   2. Rescission - Disaffirms contract; arose from equity court
   3. Rescission may occur only by mutual consent or in case of material breach. [Woodruff v. McClellan – Where buyer in real property refused to sign closing papers despite repeated extensions, there is no mutual consent, thus no rescission, so attorney’s fees applicable]
   4. Courts are merging termination (law) and rescission (equity), and sometimes confuse terms.
   5. Setoff - Similar to dependency of obligations [GTM Investments v. Depot, Inc. – Dispute over placing of sign in business lease does not entitle tenant to withhold rent, particularly where lease explicitly provides against setoffs]
   6. Suspension of Performance [Romig v. De Vallance – Where real estate buyer discovered defect and refuses to finish payment, and agreement requires seller to deliver clear title upon full payment and not before, buyer’s potential remedy to be determined based on:]
      1. Did buyer have reasonable grounds for insecurity with respect to seller’s performance?
      2. If so, and buyer demanded adequate assurance of performance, and such was not provided, buyer’s failure to pay is not breach. [2-609 – Right to Adequate Assurance of Performance – Failure to perform is not breach without adequate written assurance of due performance.]
      3. If seller’s failure to provide adequate assurance was repudiation, seller is in breach. [2-610 – Anticipatory Repudiation]
2. When Can a Party Terminate or Rescind?
   1. Express Conditions – If there is a condition, it hasn’t been met, and it hasn’t been excused, there is a termination.
      1. Elements
         1. Is there a condition to performance?
         2. If so, has the condition been satisfied?
         3. If not, has the condition been excused?
      2. Haymore v. Levinson – Term “satisfactory” in construction contract where purchase price is held in escrow conditioned on “satisfactory completion” must be reasonable.
      3. ARD Dr. Pepper Bottling Co. v. Dr. Pepper Co. – Where contract spells out method of determining satisfactory conditions, contract is not otherwise illegal, and injured party has made good-faith determination of breach, termination is proper.
      4. Waiver of condition
         1. No consideration required to enforce waiver.
         2. Waiver may be inferred from conduct. [Burger King Corp. v. Family Dining, Inc. – Where franchiser has not demonstrated history of holding franchisee to literal interpretation of development plan, it has waived terms, and is not entitled to termination]
         3. Waiver of one right does not waive other rights. [American Continental Life Ins. Co. v. Ranier Construction Co., Inc. – Where both parties have deviated from formal requirements in other terms, builder’s obligation to issue final certificate for payment to secure buyer’s payment has not been waived]
      5. Language of promise, condition, or both? [see R.2d 227]
         1. Language of promise: Non-breaching party may still be required to perform, but has cause of action for breach.
         2. Language of condition: Failure of condition means that party whose performance was conditional need not perform unless condition is excused.
         3. Language of promise & condition: Party whose performance is conditioned need not perform and can sue for breach.
   2. Implied Conditions [Jacob & Youngs v. Kent – Builder who used different brand of pipe entitled to payment despite contractual requirement to use original brand of pipe, where branding is only difference, and buyer already occupies house; implied condition was one of substantial completion]
   3. Material breach
      1. Walker & Co. v. Harrison – Seller’s delay in maintaining sign as stipulated in contract, while annoying, is not sufficiently material to warrant repudiation by buyer.
      2. R.2d 241 – Factors of Material Breach
         1. extent to which injured party will be deprived of reasonably expected benefit
         2. extent to which injured party can be adequately compensated for part of benefit deprived of
         3. extent to which failing party will suffer forfeiture [policy to avoid forfeiture]
         4. likelihood failing party will cure failure, taking account of circumstances including any reasonable assurances
         5. extent to which behavior of failing party comports with standards of good faith and fair dealing
   4. Anticipatory Repudiation
      1. R.2d 250 – A repudiation is:
         1. by words – statement that party will commit breach
         2. by conduct – act renders party unable or apparently unable to perform
      2. R.2d 253 – Effect of Repudiation
         1. Repudiation alone makes repudiator liable for damages for total breach
         2. Injured party relieved of remaining duties to perform
      3. Stonecipher v. Pillatsch – Buyer entitled to restitution or rescission when seller manifested intent to repudiate through, and is not obliged to wait until original date of performance.
      4. R.2d 256 – Nullification of Repudiation
         1. Repudiation by statement may be nullified by retraction if injured party notified of retraction before materially changing position in reliance or indicating to breaching party that he considers repudiation final
         2. Repudiation by action may be nullified if injured party notified that events have ceased to exist before materially changing position in reliance or indicating to breaching party that he considers repudiation final
3. Effect of Rescission and Restitution
   1. R.2d 373 – Restitution When Other Party is in Breach
      1. Breach by non-performance, or repudiation, entitles injured party to restitution for benefits already conferred in reliance.
      2. Injured party has no right to restitution if he has finished performance and no performance remains due by breaching party other than payment.
   2. Ennis v. Interstate Distributors, Inc. – Although rescission usually granted only to restore status quo ante, inability to return to former position where there has been material breach (loss of consideration paid for covenant which was breached) which, though partial, goes to the essence of the contract, makes rescission proper.
   3. Divisible Contracts – If a contract is divisible into corresponding pairs of equivalent performances, breach of one pair does not excuse breach of another. [R.2d 240]
      1. Siemans v. Thompson – Where salary promise and stock purchase promise were dependent, failure to pay salary obviated obligation to purchase shares.
      2. Rudman v. Cowles Publishing – Promise to employ in return for acquisition was independent of promise of “number one man” position, supported by fact that promises were independently signed, so breach of one was adequately compensated by damages, and restitution is impracticable as acquisition was complete.
   4. Delay as Bar to Rescission
      1. 2-607(3)(b) – Where tender has been accepted, if claim is for infringement [2-312(3)], and buyer is sued as a result, he must notify seller within reasonable time after notice of litigation, or be barred from remedy for that litigation.
      2. R.2d 381 – Loss of Power of Avoidance by Delay – Party which does not manifest intention to avoid within reasonable time loses power to avoid. [Snyder v. Rhoads – Buyer of dry cleaning business that continued to operate it despite claims of profitability by seller and to make payments cannot after such unreasonable delay bring counterclaim for both rescission and affirmance [R.2d 380], but may bring suit for damages under fraud after counterclaim for affirmance]
   5. Restitution
      1. R.2d 374 – Restitution for Breaching Party – Reasonable value of services provided, capped at contract price minus damages from breach
         1. Injured party must get what it bargained for – e.g., if one pays $3000 for a project built to certain specifications, one should not pay more than that. [Kutzin v. Pirnie – Where real estate purchase contract did not contain liquidated damages clause, buyer who paid deposit then decided not to buy is entitled to recover portion of deposit in excess of loss caused to seller by buyer’s breach]
         2. Breaching party should recover reasonable value of work done, as long as injured party gets what it bargained for.
      2. Innocent Party’s Action for Restitution [see R.2d 373]
         1. Reasonable value of services provided, no cap unless work is entirely performed (capped at contract price), if injured party elects rescission
         2. United States v. Western Casualty & Surety Co. – If rescission is proper, supplier entitled to value of goods supplied, not percentage of price equivalent to percentage of contract performed.
   6. Hypos – Restitution for Breaching Party
      1. Hypo 1
         1. Facts: contract price = $3000; FMV of work completed = $3000; cost to complete = $500
         2. Restitution = $2500
         3. Damages = $2500
      2. Hypo 2
         1. Facts: contract price = $3000; FMV of work completed = $1500; cost to complete = $500
         2. Restitution = $1500 (value conferred)
         3. Damages = $2500 (assuming substantial completion and no material breach)
   7. Breach of Accord
      1. Terminology
         1. Executory accord - Original contract is dischargeable only upon performance of accord; if accord is breached, injured party may sue on original contract
         2. Substitute contract - Original contract discharged by making of substitute agreement; upon breach of substitute, injured party may sue only on substitute, not original contract [R.2d 279]
         3. Novation - Substitute contract where 3rd party is substituted to perform obligations of one of original parties
      2. Bradshaw v. Burningham – Where modified agreement in well-drilling contract stipulates that original contract was "still effective except for changes mentioned herein", and terms were not defined in original contract, new contract is substitute contract, not executory accord.

Outline: Contracts - VII - Unenforceability

Contracts (Spring 2006, Hull)

VII. UNENFORCEABILITY

1. Misunderstanding - Related to ambiguity exception to PER. [Frigaliment Importing Co. v. B.N.S. International Sales Corp. – Where buyer has not established narrower meaning of "chicken", contract is unenforceable with narrower meaning]
2. Mistake of Fact
   1. Mutual Mistake
      1. R.2d 152
         1. Mutual mistake regarding basic assumption
         2. Materiality
         3. No risk assumption under R.2d 154
      2. Reilley v. Richards – Where buyer and seller both mistaken as to character of land which was material (FEMA designation which prevented building), rescission is proper.
      3. Woyma v. Ciolek – Signature of release for personal injury may be set aside in case of latent injuries, which neither side would have known about (so no assumption of risk on her part), and which was material to release.
   2. Unilateral Mistake
      1. R.2d 153
         1. Unilateral mistake regarding basic assumption
         2. Material
         3. Non-mistaken party had reason to know of mistake or enforcement would lead to unconscionable result
         4. No risk assumption under R.2d 154
      2. Donovan v. RRL Corporation – Rescission is proper where typo in ad in one of many local papers establishes good-faith unilateral mistake on part of car dealer, which was not assumed because typo was made at newspaper.
   3. R.2d 154 – When Party Bears Risk of Mistake
      1. Risk is allocated by agreement of parties; or
      2. Party is aware of its limited knowledge but treats it as sufficient; or
      3. Risk is allocated by court on grounds of reasonability
3. Impossibility
   1. Impracticability - Seller's excuse
      1. Impracticable performance
      2. Caused by event which contract assumed would not occur [Mishara Construction Co. v. Transit-Mixed Concrete Corp. – Labor strikes which disrupt delivery of concrete subject to jury determination of foreseeability]
      3. Event not caused by party seeking excuse
      4. Party seeking excuse did not assume risk
   2. R.2d 266(1) - Where a party’s performance under a contract is impracticable without his fault at time of formation because of a fact he has no reason to know, and whose non-existence is assumed, there is no duty to perform. [Sunflower Electric Co-Op. v. Tomlinson Oil Co. – Where gas reserves were exhausted, provider should have known that reserves are inherently unknowable, and use of word "guarantee" assumed risk, for which provider is liable]
   3. Foreseeability
      1. Economic Theory (Posner) – Supplier in better position to anticipate and prevent loss of production due to strikes by its employees, so should incorporate them in contracts
      2. Relational Contract Theory – Risk should be distributed to prevent burdening one party and to minimize loss, so parties should compromise/adjust to continue contractual relationship
   4. Frustration of Purpose - Unusual, not readily available; buyer’s excuse, because when purpose is gone, no sense for buyer to continue to perform [Chase Precast Corporation v. John J. Paonessa Company, Inc. – Government deletion of order for concrete was beyond buyer contractor’s control, seller provider was aware of the risk, and buyer paid for concrete already produced, contract had no more purpose, and is unenforceable]
      1. Event causes substantial frustration of principal purpose of contract
      2. Contract made assumption that event would not occur
      3. Event not caused by party seeking excuse
      4. Party seeking excuse did not assume risk
4. Adhesion Contracts and Unconscionability
   1. Adhesion Contracts – An adhesion contract is not enforceable if it [Graham v. Scissor-Tail, Inc. – Reasonably expectable arbitration clause in concert promotion contract was unconscionable for designating arbitrator with identical interests]:
      1. Does not fall within reasonable expectations of weaker or adhering party
      2. Is unduly oppressive or unconscionable, even if expectations are reasonable
   2. 2-203 – Unconscionability Analysis [Williams v. Walker-Thomas – Contract which redistributed balance of payment so that buyer would always have balance until every item is paid off is subject to UCC analysis]
      1. Purpose - prevent oppression and unfair surprise
      2. Procedural element - Problems in bargaining process, lack of meaningful choice, need of person bargaining, vitality of service, alternatives, lack of education, sophistication, legalese, fine print, deceptive sales practices
      3. Substantive element – Terms unreasonably favorable to one party
      4. Determination - At time of contract
      5. Decision for judge - May enforce clause to some extent or not at all
   3. R.2d 208 - Unconscionable Contract or Term – Court may refuse to enforce contract, or may enforce without unconscionable term, or limit application of unconscionable term to avoid unconscionable result.
   4. Price Unconscionability
      1. Jones v. Star Credit Corp. – Mathematical disparity between $300 retail price and $900 purchase price, fact that welfare buyer already paid $600 of an estimated $1200 in installments, weigh in favor of reforming contract to amend payment to amount already paid.
      2. Remco Enterprises, Inc. v. Houston – Use FMV retail price to figure ratio; limit contract-to-retail ratio ~ 5:2; where ratio is low (108%), and buyer need not maintain good, no price unconscionability.

Outline: Contracts - VI - Parol Evidence Rule

Contracts (Spring 2006, Hull)

VI. PAROL EVIDENCE RULE

1. The Rule – If two parties have made a contract and expressed it in a writing to which both have assented as the complete and accurate integration of that contract, evidence, parol or otherwise, of prior agreements and negotiations will not be admitted for the purpose of changing or denying the writing.
2. Analysis
   1. Is there a written contract?
   2. Is there evidence of prior agreement or contemporaneous oral agreement? Note: PER does not apply to modifications.
   3. Did parties intend writing to be final expression of terms in agreement (partial integration)?
   4. Did parties intend writing to be final expression of all terms of contract (complete integration)? [W.W.W. Associates v. Giancontieri – Extrinsic and parol evidence inadmissible to create ambiguity in written agreement which is complete and clear on its face]
3. Integrated Writing
   1. Detail of contract
   2. Sophistication of parties
   3. Merger clause
   4. Do parties in such circumstances frequently leave things out of written contract?
   5. Form contract
4. Exceptions to Rule
   1. Contracts not even partially integrated
   2. Condition precedent [Scott v. Wall – Contract conditional on obtaining acceptable 3-year lease not enforceable without lease]
   3. Consistent additional term (not completely integrated) [Masterson v. Sine – Where contract is not explicitly integrated (deeds don’t usually cover all details, especially when family involved) and does not address assignability of personal option on real property, PER does not apply]
      1. R.2d 216(2)(b) - Parol evidence is permissible if the unwritten term is such "as in the circumstances might naturally be omitted from the writing."
      2. UCC 2-202, comment 3 – "If the additional terms are such that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact."
   4. Ambiguity – [Frigaliment Importing Co. v. B.N.S. International Sales Corp. – Buyer’s burden to prove narrower meaning of "chicken"]
   5. Course of performance, course of dealing, usage of trade [Columbia Nitrogen Corp. v. Royster Co. – Despite merger clause, evidence of trade usage of “gentlemen’s agreements” admissible where not specifically negated in contract]
   6. Misrepresentation [Keller v. A.O. Smith Harvestore Products, Inc. – Existence of disclaimer does not preclude finding of reliance; evidence of negligent misrepresentation admissible as tort]
      1. R.2d 164 - Misrepresentation
         1. Contracts induced by misrepresentation by one party are void.
         2. Contracts induced by misrepresentation by third party are void unless non-assenting party in good-faith did not know, and gives value for or relies on transaction.
      2. R.2d 196 – Consequences of Misrepresentation – A term unreasonably exempting a party from consequences of misrepresentation is unenforceable.
      3. R.2d 214 – Non-Fraudulent Misrepresentations – Evidence of prior or contemporaneous agreements admissible to establish
         1. Integration of writing
         2. Degree of integration
         3. Meaning (explanatory)
         4. Illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause
         5. Ground for granting or denying rescission, reformation, specific performance, or other remedy
   7. Mistake – "scrivener’s error" – Extrinsic evidence not allowed to contradict terms of contract, but to show contract was not final. [Thompson v. Estate of Coffield – To obtain reformation, seller must show (1) instrument representing prior agreement to be reformed, (2) mutual mistake or mistake by one and inequitable conduct by other, resulting in instrument not reflective of what either intended, and (3) proof of these by clear and convincing evidence.]

Outline: Contracts - V - Statute of Frauds

Contracts (Spring 2006, Hull)

V. STATUTE OF FRAUDS

1. What's Covered
   1. One Year Term
      1. Performance cannot be completed by one year
      2. Time runs from making of contract
      3. Impossibility does not take contract out of Statute of Frauds
         1. Personal service
         2. Employment – Definite terms covered; lifetime employment subject to contingencies less than one year not covered [Burton v. Atomic Workers Federal Credit Union – Employer’s oral promise not to fire employee except for just cause until retirement age is unenforceable because not in writing, but equitable estoppel may be available.]
         3. Furnishing support
   2. Land Sales [Jolley v. Clay – Despite oral contract for land sale, payments, substantial improvements to land, and payment of taxes constitute partial performance sufficient to compel specific performance.]
   3. Goods >$500 – UCC 2-201
2. Functions
   1. Evidentiary - Writing shows that contract exists
   2. Cautionary - Attestation forces signers to think twice
   3. Channeling - Notarization shows intent to be bound
3. Statute of Frauds under Restatement
   1. R.2d 131 - Type of writing required
      1. Signed by or on behalf of party to be charged
      2. Reasonable identification of subject
      3. Indication of existence of contract
      4. Reasonably certain essential terms
   2. R.2d 132 - Memorandum may consist of several writings [Hoffman v. Sun Valley Co., Inc - An unsigned writing may be considered a part of the memorandum only where express reference to it is made in a signed writing.]
   3. Exception - R.2d 139 - Reliance
4. Statute of Frauds under UCC [2-201]
   1. 2-201(1) – Transactions involving sales of goods over $500 must be in writing, signed by the party to be charged, and need only reflect the quantity of goods sold even if it omits or incorrectly states a term.
   2. 2-201(2) – Merchant’s Exception – Silence is acceptance if reasonable, written contract is received, unless there’s an objection by writing within 10 days. [Bazak International Corp. v. Mast Industries, Inc. - Annotated purchase order forms that had been signed by a buyer, sent to a seller, and retained without objection, qualify as sufficient writing.]
   3. 2-201(3) - A contract which does not satisfy (1) but is otherwise valid is enforceable if:
      1. (a) - Special Goods - Goods specially manufactured and not suitable for sale to others, if seller has substantially begun manufacture before notice of repudiation is received
      2. (b) - Admissions - If the party charged admits, there is a contract
      3. (c) - Partial Performance - Acceptance of goods or of payment validates a contract that otherwise violates Statute of Frauds. [Allied Grape Growers v. Bronco Wine Company – Where there is no partial performance under 2-201(3)(c), a separate oral contract may still be enforceable by promissory estoppel when one party changes its position to its detriment in reliance on the contract.]
5. Restitution - Restitution is a middle ground between enforcement and invalidation. R.2d 375 – A contract otherwise invalidated by the Statute of Frauds is not exempt from resolution by restitution.
6. Oral Modifications under Restatement (complicated)
   1. R.2d 149(1) – No oral modifications for contracts under statutes of fraud.
   2. R.2d 150 – Reliance trumps R.2d 149

Oral Modifications under UCC (see Modifications under UCC)

Outline: Contracts - IV - Express and Implied Promises

Contracts (Spring 2006, Hull)

IV. EXPRESS AND IMPLIED PROMISES

1. Express Promises – Promise must be reasonably definite (i.e., provide a basis for finding breach and rendering remedy) to be enforceable. R.2d 33. [Abrams v. Illinois College of Podiatric Medicine – A vague and indefinite promise prevents the creation of a binding and enforceable oral contract.]
2. Exception – Facts can overcome express promises. [Payne v. Sunnyside Community Hospital – Inconsistent representations and/or contradictory practices may negate an express disclaimer.]
3. 2-313(1)(b) – Express Warranties – Any description of [the quality, character, or condition of] the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
   1. UCC 2-313(2) - Formal words not required. [Carpenter v. Chrysler Corporation – Statements of fact (i.e., conveying sufficiently definite information about the quality of a product) create an express warranty. Implied warranty of merchantability.]
   2. Puffery – Exaggerations by the seller do not create an express warranty unless they are statements of fact. [Scheirman v. Coulter – Seller’s statement that a product has been discontinued is puffery; express warranties do not include price.]
4. Inchoate Agreements
   1. Traditional View – An agreement to agree is not enforceable.
      1. Cottonwood Mall Company v. Sine – An agreement to extend or renew lease without specifying rate and duration of the lease is not enforceable.
      2. Exception – promissory estoppel [Hoffman v. Red Owl Stores, Inc. – A promise unenforceable for lack of definite terms may still be enforced under promissory estoppel if injustice would otherwise result because defendant’s conduct induce plaintiff to act to his detriment.]
      3. Unjust enrichment [Dursteler v. Dursteler – Buyer in failed mink farm deal without adequately comprehensive contract entitled to restitution for reasonable value of benefits conferred.]
   2. R.2d 27 - Where parties clearly intend to agree, but have not have filled out every detail, the court may attempt to fill in the gaps. [Berrey v. Jeffcoat – In a failure to agree to rental amount for a renewal of an existing lease, a court can determine reasonable terms for renewal.]
5. Implied Terms
   1. Good Faith
      1. R.2d 205 - Good Faith and Fair Dealing - Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
         1. Carrico v. Delp – Where induced by promise to extend credit, extra collateral is consideration, making agreement enforceable, with implied good faith obligation to exercise reasonable discretion.
         2. Triangle Mining Co., Inc. v. Stauffer Chemical Co. – Absent special elements of reliance and unequal bargaining power, no implied good faith limitation on a contract with unambiguous terms of termination.
         3. Casa D’Angelo, Inc. v. A & R Realty Company – Burden on plaintiff to demonstrate bad faith; where base rent is substantial, there is no implied covenant to generate percentage rent.
      2. 2-203 - Obligation of Good Faith [Brewster of Lynchburg, Inc. v. Dial Corporation – A requirements contract allows a buyer to reduce the quantity demanded to any amount, including zero, so long as it does so in good faith.]
   2. 2-314 – Implied Warranty of Merchantability – A merchant’s wares carry an implied warranty of merchantability.
   3. 2-315 - Implied Warranty of Fitness - If a seller has reason to know particular purpose of purchase, there is an implied warranty that the goods are fit for that purpose.

Outline: Contracts - III - Modifications and Mutuality of Obligation

Contracts (Spring 2006, Hull)

III. MODIFICATIONS AND MUTUALITY OF OBLIGATION

1. Modification – An agreement to amend a prior agreement must be supported by consideration. [Jole v. Bredbenner – An adjustment in grace period does not modify a rental agreement because there was no consideration.]
   1. R.2d 73 – Prior Promise – Promising to perform a prior promise is not consideration. [Gilbert Steel Ltd. v. University Construction Ltd. – Oral agreement to modify contract not enforceable because promise to “give a good price” is not consideration.]
   2. R.2d 89 - Modifications Without Consideration – A promise modifying a duty under a contract not fully performed on either side is binding
      1. Fair and equitable (good faith)
      2. Statute
      3. Promissory estoppel
   3. NOM Clauses are not enforceable. [Wagner v. Graziano Construction Company – Even where the contract specifically states no oral modification will be recognized, the parties may yet alter their agreement by parol negotiation.]
2. Duress
   1. R.2d 175(1) - Duress; R.2d 176 - Improper Threat
   2. 1-103 - Duress among factors that can be considered.
3. Settlement of Claims - Settlement requires consideration. [Mathis v. St. Alexis Hospital – A promise to forbear pursuit of a legal claim can be sufficient consideration to support a contract when the promisor has a good faith belief in the validity of the claim.]
4. Mutuality
   1. R.2d 79 - If there is no consideration, mutuality of obligation ("promise for promise") will do. [Weiner v. McGraw-Hill – Mutuality is not required where there is valid consideration.]
   2. Requirements Contracts – The seller promises to supply the buyer for a certain period of time at an agreed price, and the buyer promises that he will buy exclusively from the seller.
      1. Requirements contracts require mutuality. [USAA v. Schlang – Where the seller doesn’t promise to supply the buyer during a certain time, and the buyer doesn’t promise to buy only from the seller, there is no valid requirements contract.]
      2. Mutuality may be implied. [Laclede v. Amoco – Required 30-day notice negated buyer’s unilateral right to cancel, and hooking pipes up to seller’s system implicitly bound buyer to buy only from seller.]
5. Modifications under UCC [2-209]
   1. 2-209(1) - "An agreement modifying a contract . . . needs no consideration to be binding."
   2. 2-209(2) - NOM Clauses - Enforceable; but between merchants, the other party must sign.
   3. 2-209(3) - Original Contract in SoF - If original contract is within statute of frauds (UCC 2-201), need writing. [Wixon Jewelers, Inc. v. Di-Star, Ltd. – Where one was in breach of the original contract, the other did not have to honor the contract or oral modifications of it.]
   4. 2-209(3) - If original contract is not within statute of frauds, and quantity increased in sales case, need writing.
   5. 2-209(4) - If modification doesn’t meet (2) or (3), it can operate as a waiver (of own rights). (Oral waivers are allowed.)
   6. 2-209(5) - A waiver under (4) may be retracted by reasonable notification unless the other party has relied on the waiver.
6. Settlement of Claims under UCC
   1. 1-107 - Settlement of Claims - No consideration needed if signed and delivered by aggrieved party.
   2. 2-209(1) - "An agreement modifying a contract . . . needs no consideration to be binding." Implies requirement of good faith (per 1-203).
   3. 3-311 - Payment in Full - Cashing a "payment in full" check is acceptance of settlement. [County Fire Door Corporation v. C.F. Wooding Company – Any sum paid toward dispute is sufficient consideration; creditor may not cross out "payment in full" and cash check as partial payment. "You can’t eat your cake and have it too."]

Outline: Contracts - II - Contract Formation

Contracts (Spring 2006, Hull)

II. CONTRACT FORMATION

1. Offer - An offer must be sufficiently definite and made in such a manner that a reasonable person receiving the offer would believe that all he must do is accept the offer in order for a contract to be formed (or that acceptance will form a contract).
   1. Leonard v. Pepsico - An advertisement is not an offer, but an invitation to begin negotiations, unless it has words of limitation, or is otherwise “clear, definite, and explicit, and leaves nothing open for negotiation.”
   2. The offeror is the master of the offer
   3. Revocation - Offer can be revoked at any time before acceptance [R.2d 42, Allen R. Krauss Co. v. Fox – Arizona land deal, seller took property off market before buyer closed escrow] unless:
      1. Option supported by consideration. R.2d 45.
      2. Firm offer rule - UCC 2-205
      3. Option contract - R.2d 87 applies (purported consideration, fair terms, reasonable time) [Newberger v. Rifkind – Stock option agreements constituted enforceable contracts in consideration of the continued employment.]
      4. Promissory estoppel - R.2d 87(2) [S.M. Wilson & Co. v. Prepakt Concrete Co. – Because the two parties remained in communication after the expiration of the original proposal, the original proposal is enforceable.]
   4. Revocation learned "through the grapevine" still counts. R.2d 43.
2. Acceptance - A manifestation of assent of the terms made by the offeree in a manner invited or required by the offer.
   1. Forms of acceptance – R.2d 50
      1. Bilateral - By promise. R.2d 50(3).
      2. Unilateral - By performance. R.2d 45.
         1. No revocation once performance begins. R.2d 45(1).
         2. No enforcement until performance completed. R.2d 45(2).
      3. Where unspecified, offeree chooses. R.2d 32
      4. Where unspecified, and offeree begins performance, (1) he has chosen acceptance by performance, with (2) a promise to render complete performance. R.2d 62.
   2. Mailbox Rule - Acceptance is complete once the mail is posted. R.2d 63(a).
      1. Henthorn v. Fraser – When it is reasonable to communicate by post, an acceptance is complete as soon as it is posted.
      2. Worms v. Burgess – If the acceptance is lost in the mail, it is still effective.
   3. Expiration of Offer
      1. Lapse of time – If no expiration time specified, reasonable time. R.2d 41. 3 months max. 2-206(3).
      2. Death/Incapacity – No power of acceptance if either party is dead or incapacitated. R.2d 48.
   4. Rejection is effective when offeror learns of it. R.2d 40.
   5. Acceptance by Silence
      1. Generally, silence does not equal acceptance. [Curtis v. Mason]
      2. Exceptions (R.2d 69):
         1. Offeree takes benefit with reasonable opportunity to reject.
         2. Offer gives notice that silence equals acceptance, and offeree intends to accept.
         3. Prior dealings create reasonable expectation that offeree will object unless he intends to accept.
      3. Contrast UCC 2-206(1)(b)
3. Formation under UCC
   1. 2-204 – In General
      1. 2-204(1) - Any manner sufficient to show agreement, including conduct.
      2. 2-204(2) – Sufficient agreement may be found even if moment of making it is unknown.
   2. 2-205 - Firm Offer (no consideration required)
      1. In signed writing
      2. Explicit assurance to hold offer open
      3. Irrevocability cannot exceed 3 months
   3. 2-206 - Acceptance
      1. (1)(a) General – Acceptance can be in any reasonable manner unless offer specifies mode of acceptance. (Silence can be acceptance.)
      2. (1)(b) Prompt Shipout – For offers including prompt shipment, acceptance is manifested by prompt shipment or prompt promise to ship.
      3. (2) Time Lapse Rule - If there has been no notification to offeror within a reasonable time, the offer may be voided.
4. Discrepancy Between Offer and Acceptance
   1. Common Law
      1. "Mirror Image Rule" – Acceptance must mirror offer. Discrepancies mean “acceptance” is really a rejection and counteroffer. R.2d 39.
      2. "Last Chance Doctrine" - Performance indicates acceptance of counteroffer. Terms in the counteroffer thus “win” the battle of the forms. R.2d 50.
   2. Change of Terms – Acceptance invalidates contract only if proposals make contract dependent on changed or additional terms. R.2d 61.

      UCC

   3. 2-207 - Additional Terms
      1. 2-207(1) - An acceptance can contain additional terms unless the acceptance expressly limits assent to those terms. [Brown Machine v. Hercules, Inc. – The order acknowledgement did not make acceptance of indemnification clause a condition for shipment, therefore indemnification is not a term of the contract.]
      2. 2-207(2) - Additional terms are proposals for addition to the contract; between merchants, they become part of the contract unless:
         1. (a) Offer expressly limits acceptance to terms of offer.
         2. (b) Proposals materially alter terms (there is surprise or hardship to offeror). [Ohio Grain Co. v. Swisshelm – Agricultural commodities are typically subject to conditions, so proposal to add terms are not material alterations.]
         3. (c) Party proposing additional terms reasonably notified of objection.
      3. 2-207(3) - If the writings do not establish a contract, conduct by both parties consistent with existence of a contract establishes a contract.
      4. Contrast “Rolling Contract Theory” – “money now, terms later”. If you buy it, and you keep it, you have accepted the terms of the contract. [ProCD – Shrinkwrap license is an ordinary contract. UCITA § 209. UCITA view on software license is in the minority.] This approach is favorable to manufacturers, not consumers.
   4. Proposed 2-207 - If there’s a contract, the terms are:
      1. terms that appear in the records of both parties;
      2. terms, whether in a record or not, to which both parties agree; and
      3. terms supplied or incorporated under any provision of this Act.
   5. 2-208(2) - Practical Construction - If the following are not reasonably consistent with each other, construction follows this order of priority:
      1. express terms
      2. course of performance
      3. course of dealing
      4. usage of trade (1-205)
      5. other implied terms (e.g., good faith obligation)

Outline: Contracts - I - Basics

Contracts (Spring 2006, Hull)

I. BASICS

1. Promise - A contract is a promise for a promise (bilateral) or a promise for performance (unilateral). R.2d 32.
2. Consideration - A promise is unenforceable without consideration. R.2d 71.
   1. Act - Benefit to promisor [Cash v. Benward – Promise to fill out insurance form is not a benefit to the promisor, as general niceties are not enforceable promises.]
   2. Forbearance - Detriment to promisee
      1. Hamer v. Sidway – Promise to pay in return for refraining from vices until turning 21, and subsequent compliance, is a detriment to promisee because he gave up what would have been a legal right.
      2. Kirksey v. Kirksey – Sister-in-law who moved did not have detriment because she did not give up a legal right.
   3. California Civil Code § 1605 – "Any benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducement to the promisor, is a good consideration for a promise."
3. Exceptions
   1. Moral Obligation/Past Consideration – Promise for a benefit previously received. R.2d 86.
      1. Webb v. McGowin – Promisee who prevented bricks from falling on promisor was entitled to payments promised by promisor, who had kept paying during his life.
      2. Harrington v. Taylor – Promisor who did not pay in full for saving him from an axe was not compelled to pay remainder, because promisee had not acted with expectation of compensation.
   2. Promissory Estoppel - Where there is no contract, courts will still enforce a promise where justice requires. R.2d 90.
      1. Ricketts v. Scothorn – Granddaughter who relied, to her detriment, on grandfather’s wish for her not to work was entitled to promised money despite lack of consideration.
      2. Hayes v. Plantations Steel Company – Employee who announced his own retirement before the promise did not rely on that promise.
      3. Other situations (R.2d 90, comment b)
         1. Definite and substantial character of reliance
         2. Reasonableness of reliance
         3. Formality of promise
   3. Reliance - R.2d 139(a)
      1. Reasonable expectation to induce action or forbearance
      2. Actual induction of action or forbearance
      3. Injustice can be avoided only by enforcement
4. Implied-in-Fact Contract - Obligation to pay for goods or services implied from facts (i.e., flagging down a taxi implies an obligation to pay)
5. Quasi-Contract/Implied-in-Law Contract
   1. Schott v. Westinghouse Electric Corporation – Company who offers employees rewards for improvement ideas, then uses submitted ideas without payment, is unjustly enriched, and has entered a quasi-contract.
   2. Restitution – Where there is a quasi-contract, restitution is a measure of recovery: Reasonable value of goods or services (cost saved or benefit conferred).
   3. Officious intermeddler – A person who voluntarily enriches someone else.
      1. The law does not require compensation here.
      2. Exceptions: Emergency medical care rendered to someone incapacitated so that he is incapable of soliciting such care.
   4. Matter of Estate of Milborn – Couple who helped non-relative decedent had an implied-in-fact contract.
   5. Palimony - When people live together, some services may be legally compensable. On the same facts you can argue either that the service provided were gratuities, or were legally compensable services.
6. UCC Basics
   1. 1-103 - UCC to be supplemented by general principles of law
   2. 1-203 - Obligation of Good Faith (always applicable)
   3. 2-104 - Merchant
   4. 2-105 - Goods - Services under Restatement; Goods under UCC; Mixed:
      1. Majority - Predominance Test
      2. Minority - Gravamen test

Outline: Contracts

Contracts (Spring 2006, Hull)

1. BASICS
   
2. CONTRACT FORMATION
   
3. MODIFICATIONS AND MUTUALITY OF OBLIGATION
   
4. EXPRESS AND IMPLIED PROMISES
   
5. STATUTE OF FRAUDS
   
6. PAROL EVIDENCE RULE
   
7. UNENFORCEABILITY
   
8. TERMINATION AND RESCISSION
   
9. SPECIFIC PERFORMANCE (EQUITABLE REMEDY)
   
10. DAMAGES (LEGAL REMEDY)

Copyright vs. Freedom of Expression

Cathy Young explores the tension between intellectual property and free expression in the context of the "sequel" to Cather in the Rye:

The U.S. Constitution authorizes Congress to enact copyright laws "to promote the progress of science and useful arts"; the Copyright Act of 1790 mentions "the encouragement of learning." Yet copyright law in its present form often seems to do the exact opposite. A few years ago, Margaret Mitchell's estate tried to stop the publication of a novel called The Wind Done Gone retelling Gone with the Wind through the eyes of a black slave. The grandson of James Joyce, Stephen Joyce, has used his position as administrator of the writer's estate to terrorize scholars, block the staging of a play by Joyce and readings from his work at a festival, and kill a multimedia project based on his grandfather's famous novel, Ulysses.

Borrowing is an essential part of the creation of culture. If we eliminated all derivative works, we would lose, among other things, Shakespeare's Romeo and Juliet (based on a story by an Italian writer), and Jean Rhys's acclaimed novel Wide Sargasso Sea, the story of Mr. Rochester's mad wife from Charlotte Bronte's Jane Eyre. Of course, classics have also inspired mediocre sequels or reimaginings, such as third-rate novels that continue the story of Elizabeth and Mr. Darcy from Jane Austen's Pride and Prejudice. But that's for readers to decide.

Copyright terms of protection have certainly extended, thanks in no small part to the efforts of the Mouse House, and reflects a trend toward protecting established producers of culture, effectively raising the barrier of entry into the creative space. Some of the arguments are understandable, such as a desire on the part of authors to protect their characters, much like the rationale behind the doctrine of droit d'auteur in European systems.

The question is, at what point does the protection cease to reward innovation, and ends up rewarding those who rest on their laurels?