Issue Spotting
Ann and Betty enter into a legally binding contract pursuant to which Ann is to build Betty a lovely mansion in Aspen. Betty is an avid skier and wants to enjoy the next winter in her new home. To ensure that this is possible, Ann and Betty include in their contract a provision requiring Ann to complete performance by October 30th. On October 1st, Betty visited the building site and noticed that only ½ of the work was completed. She immediately called Ann who said “Yeah, sorry about that. My workers are busy on other projects.” If Betty then tells Ann that “I consider this contract is over”."
What is the issue here?
The issue revolves around anticipatory repudiation. While Betty might have had reasonable grounds for insecurity upon seeing only 1/2 the project done, she did not properly demand assurances and allow Ann to provide them before stating that the contract was over. Since this was not a definite and unequivocal statement of intention not to perform to constitute repudiation, Betty will likely end up in breach if she doesn't continue to perform.
Three ways to impose legal obligation
- Contract
- Promissory Estoppel
- Restitution
Restatement and definition of an Offer
R24: Offer is a manifestation of willingness to enter a bargain so made as to justify another person in understanding that their assent is invited and will conclude it.
Elements of Intoxication Defense
Elements:
- @ time of K formation
- party = intoxicated
- party = cannot understand or act rational about K
- Other party: Knows/has reason to know AND disregards to take advantage
UCC applies to what contracts. . .
UCC governs contracts for movable goods. UNLESS contract specifies otherwise (freedom of contract is honored).
Pike's Place Paul entered into a deal with Distributor for fifty pounds of wild troll-caught Alaskan salmon at $12 per pound. Distributor sourced all of her salmon from the Alaska Totem at $8 per pound. Unbeknownst to either party, the Totem had an unfortunate accident with an iceberg two days before they signed the contract.
Warming ocean currents have resulted in dismal salmon returns throughout Alaska, and have caused the price to increase dramatically. The current rate for wholesalers is $20 per pound.
What issues would you discuss?
2. Changed circumstances - impracticability BUT it was already in existence at time of K formation and it cannot be founded on market conditions
Zeus is in bad financial shape and his fellow gods are all angry with him. Zeus then decides his best course of action is to file bankruptcy. On May 1st Medusa visits Zeus and asks for repayment of the $1,000 loan she made to him last year. Zeus says ok and writes out a note stating “I promise to pay Medusa $1,000 one year from today.” Exactly one year later Medusa comes to collect.
What rule might legally obligated Zeus to fulfill his promise?
Pre-Existing Legal Duty- a promise not supported by consideration may be binding if it revives prior legal obligation which was made unenforceable by operation of law (but will not be enforced purely based on moral obligation absent pre-existing legal duty rule) (Mills father no pay 4 sons nurse)
Discharges:
What is the mailbox rule and how does it apply to option contracts?
Mailbox rule- acceptance is effective upon dispatch, unless offer provides otherwise (R§63)
Mailbox rule exceptions
When is non-disclosure a defense?
If duty to disclose --> affirmative statement --> justified reliance on fraud/material misrepresentation --> defense = voidable
1. Did they have a duty to disclose? If yes, omission --> affirmative statement (R§161) (Hill termite damage)
2. Is it a misrepresentation? (R§164)
Jordan, the owner of a marijuana business in Colorado, decided to sell some of the old equipment from the business that she doesn't use anymore. Jordan sent Ben, a tobacco business owner, a letter stating the following: "Dear Ben, I have 4 drying machines we no longer use here. I will sell them to you for $25,000 if you want. Signed Jordan."
Ben received the letter the next day and wrote back: "Dear Jordan, could I take the week to think about it? Signed Ben."
Jordan responded the following day: "Yes, no problem. You have one week from today to tell me your decision. Signed Jordan."
Two days later Jordan sold the machines to someone else and sent Ben the following email: "Ben, I'm sorry. I received an offer too good to pass up and the machines are gone."
Describe the legal relationship that exists between Ben and Jordan.
Jordan's letter stating Ben had one week to decide constitutes a firm offer under UCC 2-205. Jordan attempted to revoke the offer, but by that point it was irrevocable.
Option K are irrevocable even w/o consideration when. . . .
Grady and Mallory had a contract for Mallory to build a commercial office building on Grady’s land. It was a typical contract with partial payment in stages as phases of construction were completed. While Mallory was working on the roofing, he started hearing rumors that Grady was in grave financial trouble. When the roofing was completed, Grady did not pay for that phase. When confronted, Grady said his architect had discovered that the shingles were of a lesser grade than specified in the contract. This was true, although the substitution due to oversight, not intentional. The difference would not seriously impair the function of the roof or value of the building. The amount Mallory saved by the substitution was a very small fraction of the withheld progress payment.
You represent Mallory. He is considering suspending performance or walking off the job. He does not want to do any more work because he thinks Grady is insolvent. He wants his last progress payment (if he can get it) but is willing to make an adjustment for the different shingles.
What are the issues you'd need to address?
1. Characterizing Mallory's Breach - (likely partial immaterial)
2. Anticipatory Repudiation & Adequate Assurances - (Mallory should seek them and force Grady into repudiation)
3. Seek Declaratory Judgment - (after forcing Grady into repudiation by seeking assurances, ask the court to characterize Grady's failure to provide and/or pay as a total material breach)
Ed is the owner of the newly opened Ed’s Custom Car Wash, where car washes cost $25. While he was grocery shopping in his home town, which is located 20 miles from Ed’s Custom Car Wash, he was greeted by his friend Alice. After they chatted for a moment, Ed said, “Come by my new car wash and I’ll give you a free car wash tomorrow.” Alice replied, “Thanks. By the way, we’ve got a few extra tickets for the game tonight. If you want them, they’re yours.”
As soon as Ed arrived at work the next day, he found a long line of cars at the car wash. He phoned Alice and told her that he would not give her a free car wash.
What element is missing to legally bind Ed?
Bilateral K? --> NO - past consideration (tickets) ISN'T. This is promise for performance (driving to car wash).
Unilateral K? --> Yes BUT. . . Alice never started performance so acceptance is missing under all jurisdictions.
(Berryman v. Kmoch): Berry & Kmoch enter option on land. Kmoch never paid $10 for option. Kmoch used time to gather investors. Berry wanted to be released, but Kmoch would not. Berry sold to someone else.
What rule do we get from this case?
Rule: Promissory Estoppel as a substitute for consideration to make an option K binding and irrevocable (R§87)
Option K is binding when . . . .
Promissory Estoppel: If it should reasonably expect to induce action/forbearance on part of offeree before acceptance and does induce it . . .
Iris Odem’s nineteen-day-old son was admitted to Children’s Hospital of Birmingham due to a serious illness. On the date of admission, March 15, 1985, Odem completed and signed an inpatient registration form, whereby she agreed to be responsible for all charges incurred in the hospital for the medical treatment rendered to her child. The contract provided that in the event she failed to pay and the hospital had to sue to collect, Odem would be liable for attorneys’ fees. As of that date, Odem was seventeen, and thus a minor under Alabama law. Odem did not pay the charges, which totaled more than $5,000. The hospital sued, incurring $2,000 in attorneys’ fees. During the pendency of the suit, Odem turned eighteen and shortly thereafter disaffirmed the contract with the hospital.
Will Odem prevail on a minority defense?
No, a court would likely view medical care to prevent serious harm as a necessity and minors do not enter voidable contracts for necessities.
Ann and Bill entered into an oral agreement in which Ann agreed to be the exclusive distributor of Bill’s products in Delaware for an indefinite period of time. The contract included a “good cause” termination provision.
Is this K voidable since it does not comport with the statute of frauds?
No - this contract is not subject to either CL or UCC statute of frauds and therefore is not voidable.
UCC explanation: this is a K for distribution which is a service not a good
CL explanation: "indefinite" means it can be done within a year
Percy and Daria entered into a valid written contract for Percy to design and install landscaping for an exclusive housing development that Daria owned. Percy agreed to perform the work for $15,000, payable upon completion. Percy estimated that he would work approximately 100 hours a month on the project and would complete the project in three months.
His usual hourly fee was $100, but he agreed to reduce his fee because Daria agreed to let him photograph the entire landscaping project for an article he planned to propose to Beautiful Yards and Gardens magazine. He anticipated that publicity from the article would more than compensate him for his reduced fee.
Percy completed two months’ work on the project when Daria unjustifiably repudiated the contract. He secured a different project with Stuart in the third month, which paid him $1,500 and took 15 hours to complete. He could have completed Daria’s project at the same time. Percy has sued Daria. What remedy or remedies may Percy reasonably seek and what is the likely outcome? Explain.
1. Expectation damages (might have foreseeability and certainty issues)
2. Reliance damages (Promissory estoppel claim)
3. Restitution damages
At the start of winter, grumpy old Professor told an 18-year-old neighbor: “Any time it has snowed, if you come over before 7:00 AM and completely shovel my walks and driveway I’ll pay you $20.” This worked well for the first two snowfalls. On the third, Neighbor arrived before 7:00 AM and started shoveling. However, the snow was falling so hard that he made little progress, grew tired, went home, and never finished the job. Professor didn’t get to work on time and had to hire others to do the job for $50 (it was a big storm). Professor claims neighbor legally owes him at least $30. Is he right?
Professor is wrong because his offer was for a unilateral contract.
It is a unilateral offer that neighbor is free to accept by performance each snow fall. Estoppel won’t work because neighbor did not make a promise for him to rely on.
What is the expectation damages formula?
(Loss in Value + Other Loss) – (Cost Avoided + Loss Avoided) = Expectation Damages
Luisa agreed to buy Renee’s armoire for $500, thinking it was made of mahogany and worth much more money. Renee never told Luisa the armoire was made from mahogany. Before the date of delivery and before she had paid Renee, Luisa learned that the armoire was made of pine and worth only $200.
If Renee seeks to enforce the contract against Luisa, what result?
She will win because. . .
Unilateral mistake (R§153). Enforcement would not be unconscionable. Clearly Luisa can afford it, she agreed. Renee did not cause it or have reason to know (BMW forgot to flag account). Luisa bares the risk because she treated her limited knowledge as sufficient. (R§154)
Non-disclosure won’t work --> Renee did not have duty because Luisa did not tell her she thought this which would have prompted the duty on Renee to correct the mistake. (R§161)
Kravat is a manufacturer of men's ties. Clothier operates a men's clothing store. Kravat telephoned Clothier and told him that he was closing out the stock of last year's ties. "I have six dozen silk ties of assorted patterns. I will let you have them for $250 a dozen.”
Clothier replied, "I'll take them." The next day Kravat mailed the following letter:
This will confirm our contract for six dozen silk ties of assorted patterns at $250 per dozen, plus shipping charges for immediate shipment, payment on delivery. (Signed) Kravat.
Clothier did not reply to this letter which he received two days after it was mailed. Kravat shipped the ties to Clothier's place of business and enclosed an invoice that billed Clothier for $1600 -six dozen ties at $250 a dozen, plus $100 shipping charges. Clothier accepted the ties, made no complaint about them or the charges, but he refused to pay anything to Kravat.
A month later, when Kravat complained about not having been paid, Clothier admitted that he owed Clothier $1500, but contended that he did not owe the $100 because "I never 'agreed to pay the shipping charges."
In an action to recover the shipping fees, Kravat will:
Lose because Clothier never signed anything.
Lose because Clothier had no knowledge that Kravat was going to charge shipping fees.
Win because the ties are specially manufactured goods.
Win because Clothier did not object to the shipping fee provision in a reasonable time.
Answer = 4
2-207 Comment 6: If parties enter into K orally, then one party sends a written confirmation of acceptance with additional terms, if the other party does not respond then per comment 6 these additional terms become part of the contract.
Vacatogo ran a promotional advertisement which included a contest, promising to fly the contest winner to Scotland for a one-week vacation. Vacatogo’s advertisement stated: “The winner’s name will be picked at random from our page on Nosebook for this trip to ‘Golfer’s Heaven.’ If you’re on our page, you will be eligible for this dream vavation”
After reading Vactogo’s advertisement, Polly entered her name on the Vavatogo Nosebook lage which required her to accept all kinds of ads in the future. Luckily for Polly, her name was picked, and Vacatogo notified her. That night Polly celebrated her good fortune by buying and drinking an expensive bottle of champagne.
The next day Polly bought new luggage and costly new golfing clothes for the trip. When her boss refused to give her a week’s unpaid leave so she could take the trip, she quit, thinking that she could look for a new job when she returned from Scotland.
After it was too late for Polly to retract her job resignation, Vacatogo advised her that it was no longer going to award the free trip that it had promised.
Make arguments on both sides as to legal obligation.
What issues would you discuss?
1. Vavatogo arguments
- ads do not equal offers
- no consideration
- this was a gift they were free to revoke
- changed circumstances (w/ more facts)
2. Polly arguments
- contract formation
- promissory estoppel (changed her position BUT were the things she did foreseeable & reasonable?)
Abby is a disgruntled law student. She hates being cold called. As she is only a first year, she consults with Taylor, a brilliant recent DU graduate and newly minted attorney. She asks “are there any legal theories I could use to stop my evil Contracts professor from calling on me out of the blue?”
Taylor, being brilliant says “I have an idea. If we look at your exchange as the equivalent of a contract, there may be some hope.” What is Taylor’s idea? Explain.
1. K formation
The offer is the professor teaching/grading Abby in exchange for Abby’s participation in cold calls making this a unilateral contract inviting acceptance by performance. Abby’s participation is cold calls thus far constitutes beginning of performance and potentially substantial performance making this an irrevocable offer (Cook)(R§45). Taylor is likely suggesting that Abby argue this is an unenforceable contract for lack of consideration. Under the bargained for exchange test, it is the professor’s promise to supply a grade that induces Abby’s detriment of answering cold calls making the grade/teaching a conditional gift (Kirksey). Furthermore, this could even be viewed as Abby’s detriment of answering calls inducing the professor’s grade at the end of the semester establishing it as insufficient past consideration (Plowman). Thus, is Abby could establish a lack of consideration, she may be able to make the exchange of grade for cold calls an unenforceable agreement.
However, the professor will argue that this is supported by bargained for exchange consideration in which the professors promise to grade induces Abby’s detriment of answering and Abby’s detriment of answering induces the professor’s promise to grade (R§71). Additionally, Abby’s clear detriment of ceding her legal right to remain silent in class is accompanied by the professor’s minor benefit of the warm fuzzies of teaching (Hamer). Thus, if the professor succeeds, Taylor might suggest looking toward defenses to enforceability.
Defense ideas: Undue Influence, Unconscionability
Explain the two views of Shrinkwrap terms under the Defontes case
1. Majority: Vendor = offeror/Buyer = offeree
- Vendor is the master of the offer when they send the product and buyer is offeree
- Contract is formed when customer receives and keeps the item (acceptance)
Additional terms included in the shrinkwrap box become part of the contract because not returning it constitutes acceptance of both the product and the shrinkwrap terms and conditions
Buyer can reject the shrinkwrap terms and conditions by returning the product (vendor must make it reasonably apparent to buyer how to reject terms and conditions) (DeFontes Shrinkwrap/Explosive vacuum)
2. Minority: Buyer = offeror/Vendor = offeree
- Vendor website is invitation for offers. Buyer creates offer when they submit order.
- Contract is formed when the goods are shipped (seller accepts the offer from the customer by accepting payment and shipping the product)
Terms = whatever is on website at time of order
Shrinkwrap terms = Additional- Apply UCC §2-207 – if buyer is not a merchant, the additional terms are not binding unless the buyer explicitly assents to them
A landowner contracted to sell a plot of land to a buyer for $50,000. After agreeing to the sale, the landowner discovered a mineral deposit on the land, driving the worth of the land up to $500,000. The contract did not indicate that either party would bear the risk of a mistake as to the value of the land or as to the absence or presence of any mineral deposits on the land.
The landowner now refuses to sell the land as agreed, and the buyer has sued for specific performance of the contract.
Which of the following facts, if true, would be most helpful to the landowner in resisting the sale?
1. Unbeknownst to the buyer at the time of contract, the landowner was suffering severe financial difficulties.
2. Unbeknownst to the landowner at the time of contract, the buyer had recently discovered a mineral deposit of the same kind, just across the boundary line on adjacent land.
3. Prior to the parties’ contract, the landowner had done extensive excavation work on the land and had never before found any indication of a mineral deposit.
4. Prior to the parties’ contract, the buyer had misrepresented the status of the bank loan that the buyer intended to use to pay for the land.
Answer: 3
Answer option 3 is correct. A mistake is a belief not in accordance with the facts existing at the time of the contract. See Restatement (Second) of Contracts § 151 (1981). If a mutual mistake regarding a basic assumption of the contract is made, then the adversely affected party may avoid performing the contract as long as the mistake had a material effect on the exchange and the party seeking to avoid performance did not bear the risk of the mistake. See id. §152(1). Here, the value of the land was a basic assumption of the contract and the mistake will have a material effect on the exchange. However it is uncertain whether a court would place the risk of the mistake on the landowner.
While the outcome is still uncertain, the buyer’s awareness of the mineral deposit before the time of contract would make it less likely that a court would place the risk on the landowner, because the landowner did not have the upper hand in determining the truth if the buyer already knew the truth. Accordingly, answer option 3 is the most helpful to the landowner.
Explain how UCC 2-209 works (modifications)
UCC §2-209: MOD needs no consideration to be binding
(2): Non Oral Modification Clause / Private SOF (ensures everything said after K isn't treated as a modification; provides certainty)
(3): SOF must be satisfied if . .
(4): If party accepts oral MOD, but 2/3 are not satisfied- acceptance = waiver
(5): Waiver can be rescinded by reasonable notification UNLESS other materially relied on it