Intro to Law- Exam 2 Contracts
Zappos: constructive knowledge
- "Because no affirmative action is required by the website user to agree to the terms of a contract other than his or her use of the website, the determination of the validity of a browse wrap contract depends on whether the user has actual or constructive knowledge of a website's terms and conditions." - Constructive knowledge: "whether a website provides reasonable notice of the terms of the contract."
Pennsy: Differentiating consideration from Conditional Gift
- "Consideration must actually be bargained for as the exchange for the promise" - "It is not enough... that the promisee has suffered a legal detriment at the request of the promisor. The detriment incurred must the "quid pro quo" or the "price" of the promise, and the inducement for which it was made. If the promisor merely is gratuitous and the satisfaction of the condition is not a consideration for a contract.
Simpler Consideration
- "promise and detriment" - something must go back and forth between the parties i.e. each party must exchange something - this can be money, a physical item, giving up a legal aright (Hamer v. Sidway) - To constitute consideration, a performance or a return promise must be bargained for. A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise or performance.
Limits on Mutual Assent: Seriousness (Leonard v. Pepsico)
- A Pepsi commerical showed that you could earn Pepsi Points from buying Pepsi products and redeem them for items in their catalog. Plaintiff saw the commerical that included a jet and tried to redeem points for the jet, claiming it was an offer. Pepsi rejected the order form because the jet was not in the catalog and was a joke. Ads are generally not offers, they are invitations to consumers to make an offer.
Statute of Frauds: What's Covered (do not have to meet all just one)
- A contract for the sale of an interest in land (the land contract provision) - A contract that is not to be performed within one year from the making thereof (the one-year provision) (Wassannar case, 3 year contract falls under this SOF) - A contract for the sale of goods (items; property other than land) for the price of $500 or more (not services, i.e mowing a lawn) *all of these must be in writing and signed by the defendant otherwise not enforceable* *do not have to meet all of these just one!*
What is a contract?
- A contract is a promise or set of promises that the law will enforce - "That the law will enforce": some promises are not enforceable as contracts.
Limitations of Hanford case
- A party seeking to enforce a contract could show that there were precautions that could be taken to prevent disease transmission and harm to the public - The decision focused on the fact that the agreement was to produce behavior that would create a serious public health risk - There can be implied limits on the performance of a contract (here, this contract would have had an implied limit that performance would not be required if there was a risk) (compare to Prof. Lee example of a contract for clearing the snow)
Mutuality of obligation/ illusory contracts (REST sec. 77)
- A promise or apparent promise is not a consideration if by its terms the promisor reserves a choice of alternative performances unless each of the alternative performances would have been a consideration if it alone had been bargained for... - If one party retains the unilateral right to eliminate all obligations or to decline to perform at their sole discretion, there is no consideration (no detriment) - "We reserve the right to change this Site and these terms and conditions at any time"
Consideration
- A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accuring to one party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other. - "The second branch of this judicial description is really the most important one. "Consideration" means not so much that one party is profiting as that the other abandons some legal right in the present, or limits his legal freedom of action in the future, as an inducement for the promise of the first."
Hamer View of Consideration
- A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit occuring to the one party, or some forbearance, detriment, loss, or responsbility given, suffered, or undertaken by the other." - The second branch of this judicial description is really the most important one. "Consideration" means not so much that one party is profiting as the other abandons some legal right in the present, or limits his legal freedom of action in the future, as an inducement for the promise of the first.
Offer: (notes)
- An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
The mailbox rule
- As a general rule, communications like offers, revocations, and rejections are effective when received. - ACCEPTANCES only are effective upon proper mailing/sending (for policy reasons, we want the party accepting to be able to start acting on the contract even if the offeror doesn't know they have accepted yet) - Proper mailing means that the acceptance must be sent correctly (the right address, it's actually dropped in the mailbox, has postage, correct email address, etc.) - if you send an acceptance, and then a rejection, the acceptance stands. (The acceptance was effective on proper mailing) - If you send a rejection, then an acceptance, whichever gets that first will be binding
Zappos: Browsewrap and cilckwrap
- Browsewrap agreement: a website owner seeks to bind website users to terms and conditions by posting the terms somewhere on the website, usually accessible through a hyperlink located somewhere on the website; in contrast, - Clickwrap agreement requires users to expressly manifest assent to the terms by, for example, clicking on "I accept" button. -
Examples of cases where there is often unconscionability:
- Cross-collateralization/add-on clauses (like in Walker) - Waiving liability for intentional torts - clauses that state the party will not raise defenses to lawsuits - inflation of total costs through obscure language. **Normally contracts between businesses and consumers are unconscionable, not contracts between businesses.*
Monetary Damages (aka compensatory damages)
- Expectation damages: damages so the non-breaching gets the benefit of the bargain (most common) - Consequential damages: foreseeable consequential damages that come from the breach but were not part of the original bargain. - Nominal damages: essentially no damages
Contract Damages: An overview
- Generally, non-breaching can sue a breaching party for monetary damages which are fixed by the jury (or judge sitting as the finder of fact). They are compensatory, in that they represent the actual damages suffered.
Public Policy: The Basics
- Historically, public policy defenses were available when the subject of a contract 1. Was or became illegal, 2. was immoral, 3. unfairly restrained competition - Hamer case addresses whether a contract that is or becomes highly dangerous to the health of the community could also be considered void on account of public policy - Assuming these facts are not in dispute, this becomes a question of law for the court. - The answer= YES!
Zappos: The Facts
- Huffpost Jan 17th 2012, "Zappos reports security breach, advises costumers to change passwords." - "Any dispute relating any way to your visit to the Site or to the products you purchase through the Site shall be submitted to confidential arbitration in Las Vegas... you hereby consent to and waive all defenses of lack of personal jurisdiction and forum non-conveniences with respect to the venue and jurisdiction in the state and federal courts of Nevada..." - "We reserve the right to change this Site and these terms and conditions at any time. Accessing, browsing, or otherwise using the site indicates that your agreement to al the terms and conditions in this agreement, so please read this agreement carefully before proceeding."
Unconscionability
- If there is unconscionability at the time that a contract is made, the contract should not be enforced (i.e. it is a defense to enforcing the contract, does not mean the contract is invalid) Unconscionability requires 1. an absence of meaningful choice on the part of one of the parties (procedural) and 2. Contract terms that are unreasonably favorable to the other party (substantive) - You must have BOTH 1. procedural and 2. substantive unconscionability, but they do not need to be present in the same amount. If both are not present, the defense of unconscionability will fail.
Factors of procedural unconscionability
- Is there a gross inequality of bargaining power? - Is it a contract of adhesion (take it or leave it?) - Is there a lot of fine print/difficult to understand? Are there deceptive business practices?
Issue/Holding from Lucy v. Zehmer
- Issue: Are the parties contractually bound when one party reasonably believes that they reached an agreement, but the other party did not subjectively intend to agree? - Rule/Holding: Yes, a contract is formed if a reasonable person, standing in the position of the parties, would have believed that the parties reached an agreement, irrespective of one of the parties' subjective belief that the transaction was a joke. (The mental assent of the parties is not requisite for the formation of a contract. If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestation is known to the other party.)
Hanford Limits:
- Limit 1: The party seeking to enforce the contract could show the availability of precaution to prevent disease transmission and harm to the public. - Limit 2: the court's decision seemed to rest on the parties entering into a joint venture to produce the behavior that itself would create a serious public health risk. - Limit 3: The court found a type of implied limitation that would eliminate performance in the event of public health risk.
Liquidated Damages:
- Parties can stipulate in the contract what the damages will be if there's material breach. - This allows parties to efficiently handle breach themselves without involving the courts (most of the time) - Modern rule: are the liquidated damages reasonable under the totality of the circumstances?
Problems with Leonard v. PepsiCo
- Problem 1: This was an "advertisement," not an offer. - TV commercials are generally not offers - Why not? - This advertisement (for the Harrier Jet through the Pepsi Points program) was even less likley to be an offer. - Problem 2: A reasonable person would not have considered the commercial an offer- "evidently done in jest"
Unconscionablility under Williams:
- Rule: Where the element of unconscionability is present at the time a contract is made, the contract should not be enforced. -Unconscionability includes: 1. An absence of meaningful choice on the party of one of the parties together with 2. contract terms that are unreasonably favorable to the other party.
The Offer and Acceptance Dance: Lonergan
- Step 1: Preliminary negotiations/invitation to offer - Step 2: Offer made- the power of acceptance Step 3: five paths - Offer revoked (generally allowed even if the time stated, POA terminated) - Offer lapses (POA terminated) - Offer rejected (POA terminated) - counteroffer made (POA terminated, new offer window opens) - Offer accepted (Mutual Assent)
Hamer v. Sidway
- Story promised his nephew 5k if he stopped drinking, smoking, swearing, playing cards/billards until his 21st bday (= offer). The nephew assented and fully performed. When he turned 21, he asked his uncle for the money, and they agreed to keep it in a trust for him. Uncle died without paying. The exector of Story's estate didn't have consideration to support it, so it was an invalid agreement. Court ruled for plaintiff that it was a valid agreement. (promising to give up a legal right in return for another promise is sufficient consideration to support a contract/sustain a promise)
Procedural History Lucy v. Zehmer (specific performance)
- The Lucy brothers sued the Zehmers in Virginia trial court for specific performance of a contract. The court granted a verdict for the Zehmers, and the Lucy Brothers appealed to the Virginia Supreme court. (reversed and remanded) - Specific performance: grants the plaintiff what he actually bargained for in the contract rather than monetary damages for not receiving it; thus specific performance is an equitable rather than legal remedy. As an equitable remedy, specific performance is order a the discretion of the trial court instances where monetary damages are inadequate and specific performance is equitable under the circumstances.
Statute of Frauds (slides)
- The SOF is a doctrine that limits enforcement of a contract unless there is writing, signed by the party against whom the contract is being enforced.
Cases with SOF
- The SOF may be satisfied even if the signed writing is not made as an offical "memorandum of contract" - Lucy was in writing and was signed by party being sued - Sidway was not initially in writing, but the uncle wrote him a letter eventually and signed it (he acknowledged the existence of the contract, and he signed the letter) this satisfies the statute of frauds
Statute of Frauds
- The SOF says that certain types of contracts must be in writing and signed by the party against whom the contract is being enforced.
Wassenaar: The facts
- The contract provides for a three-year term of employment beginning on Jan. 1st, 1977, renewable at the employee's option, and stipulates damages in case the employer terminates the employee's employment before the expiration of the contract. - "It is further understood that should this contract be terminated by the Towne Hotel prior to its expiration date, the Towne Hotel will be responsible for fulfilling the entire financial obligation as set forth within this agreement or the full period of three years.
Is the injury caused by the breach difficult to estimate at the time of contracting? (Factor 2) Liquidated Damages
- The more difficult it is to estimate or prove damages, the more likely the stipulated damages will be viewed as reasonable. This is sometimes referred to as the "difficulty of ascertainment test." - Factors: * difficutly of producing proof of damages at trial * Difficulty of determining what damages the breached caused *Difficulty of ascertaining what damages the parties contemplated when they contracted *Absence of a standardized measure of damages for the breach *The difficulty of forecasting all the different types there might be from the breach (loss of job, loss of reputation, and inability to get another job, etc.)
What does Zappos teach us?
- This case teaches us that consideration requires that there is mutuality of obligation: If one party retains the unilateral right to eliminate all obligations or to decline to perform at their sole discretion, there is no consideration (the agreement here says we reserve the right to change the site and these terms and conditions at any time)
REST Sec. 71
- To constitute consideration, a performance or a return promise must be bargained for. A performance or return promise is bargained for it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise or performance
Wassenaar: Procedural History
- Wassenaar sued to cover damages associated with breach due to termination. - At trial, the jury awarded Wassenaar $24, 640 which represented 21 months of pay pursuant to the stipulated damages clause. - On appeal, circuit court struck down stipulated damages clause as a penalty. - What would Wassenaar recover, had that decision stood? (The unemployment (without a job) and then also see what his new was and if there is a gap in payment, and if the new salary is lower, the hotel would have to pay the different - On appeal to the Supreme court, the stipulated damages provision was upheld and the jury verdict affirmed
Objective manifestation
- We look at the objective manifestation (what a reasonable person would think is in the person's head based on what they say, what they do, and any additional facts that may be relevant)
When can an ad be an offer?
- When there is language of specificity that adds more limitations - examples: limits on the quantities of an object, limits on who can accept, limits on the terms of acceptance, language indicating seriousness
Williams v. Walker-Thomas Furniture Co.
- Williams purchased items form Walker-Thomas via a contract with an installment payment plan. If there was a default on the monthly payments, Walker-Thoams could repossess any of the items purchased as the store, even if those items were already paid off. Williams claimed that the contract was unenforceable because the terms of the agreement were unconscionable.
Consideration requires mutuality of obligation
- both parties have to incur some sort of legal obligation - They may be able to change the obligation per the terms, but there still has to be some obligation - Example: Zappos could change the terms and conditions at any time, meaning they were not obligated to perform
Pennsy: Understanding the Motiviation
- byproduct: no commercial use, significant disposal cost - Aggrite: commercial use, avoids greater disposal cost
Kemble v. Farren (historical view) The facts
- comedian signed a contract to work for the theater, they agreed he would be paid a certain amount for the seasons, one night off per season. - If either party broke the contract they would have to pay 1000 pounds. - Comedian refused to play during the second season. - they did not want this to be a penalty, but fairly compensate the parties. - The trial court awarded 750 pounds on account of breach (out of 1,000)
Kemble v. Farren
- contract between the theater and a comedian for the comedian to perform for four seasons for 3 pounds each night. Contract had liquidated damages clause that if any party breaches, they must pay 1,000 pounds to the other party. The court held that they would not enforce the liquidated damages clause because the 1,000 pounds was in far excess of the damages incurred.
Defenses to a contract (When they apply)
- defenses ONLY apply if there is a valid contract - I there is not a valid contract (i.e. no offer, acceptance, or consideration), then there is no need for a defense - For the purposes of an exam, if a question asks you to determine if there is a contract and talk about defenses, you should still fully discuss the defenses, even if you conclude there was not a valid contract
Wassenaar v. Towne Hotel
- employment contract for 3 years. Contract stipulates damages if the employer terminates the contract before the term is over to be the remainder amount due under the contract. Court upheld the jury award and said the liquidated damages clause was valid. They said the clause was reasonable under the totality of the circumstances. (loss of income, consequential damages like time to find another job and reputation, the other job the plaintiff got).
What were the tip offs in Leonard?
- exaggerated claims - youth flying harrier jet to school - adolescent fantasy - the product is a military plane, not a consumer vehicle - the disparity between the price of the points and the actual value.
The Clause: Kemble
- if either of the parties should neglect or refuse to fulfill the said agreement or any party thereof, or any stipulation therein contained, such party should pay to the other the sum to 1,000 pounds, to which sum it was thereby agreed that the damages sustained by any such omission, neglect, or refusal should amount; and which sum was a penalty or penal sum, or in nature thereof. - The damages do not add up, 1,000 pounds for missing 3 seasons? seems unreasonable
Basics of a Contract
- is a promise or set of promises enforced by the law
Facts why Pepsico was a joke:
- it was a military jet it was worth in the millions, but the Pepsi points only amounted to 700k - the commercial was fanciful
Factors for substantive unconscionability:
- look at the terms of the contract in connection with the circumstances - consider commercial needs and practices
Requirements of a contract (3 things)
- offer: manifestation of willingness to enter into a bargain - Acceptance: an unequivocal (leaving no doubt; unambiguous) assent (agreeing to something) to the terms - Consideration: bargained for exchange
Hanford: Procedural History
- plaintiffs brought a lawsuit to recover for breach of contract. - The defendant's answer raised a defense on the grounds of public policy, which included the allegations about the polio outbreak. - the plaintiff's demurrer, which basically contests the sufficiency of the defendant's allegation, i.e. even if what you claim is true, it is legally insufficient to change the result. - The plaintiff's demurrer is overruled, and the case is appealed up to the CT Supreme court.
Hanford v. Connecticut Fair Assoications
- plaintiffs entered into a contract to host a baby show and provide materials for the show. Defendant canceled the contract because of an epidemic of infantile paralysis in this area. Plaintiff sued for breach of contract. The court says that they won't require performance or award damages for breaching a contract that would be highly dangerous to health. - The holding is that if we assume that this is a public health risk and there's no way to prevent disease transmission, the defendant could avoid performance as a matter of public policy. Case remanded to see if defendant can demonstrate these things
Preliminary Negotiations: Lonergan v. Solnick
- seller placed an ad in the newspaper. Buyer sent a letter responding with interest, seller responded that it was a form letter and said if the buyer was really interested, they must decide fast because he expected to have a buyer in the next week. The seller sold it 2 days before the buyer received the letter. The court determined there was no offer here- the sellers communications was no an offer because a generic form letter was not specific to any single party. - An ad is not an offer and a generic form letter going to multiple parties is not an offer
Liquidated Damages (slides)
- sum of money stipulated in the contract as damages that will go to the non-breaching party in the event of a material breach. - Goal: - allow efficient contract breach - reduce uncertainty and difficulty in ascertaining damages - reduce litigation expense.
Courts ruling on Williams v. Walker-Thomas
- the court said that the trial court did not consider the procedural or substantive unconscionability, so there needs to be a trial to decide these issues. - Though the court is not making a decision about unconscionability of this contract, it seems like they think that this contract was unconscionable
Three limits to contracts
- the lack of seriousness, -lack of specificity - preliminary negotiations *all of which indicate that the communication should not be considered an offer in the legal system.
Determining if Lucy was serious:
- the prior interactions - the current setting - the consumption of alcohol - the exchange - the writing and signatures - the post-agreement conduct
Major Contract Questions?
-Is there a deal? Was there the necessary consideration or consideration substitute? - Is there some reason based on the agreement process or the terms of the agreement not to enforce the agreement? - What are the terms of the deal? - When is someone who made an enforceable deal excused from doing what she agreed to do because of some post-agreement occurrence or nonoccurrence? - How does the law enforce a deal? - What are the alternatives to contracts and contract law? - When can someone assert legal rights because of a deal made by others?
Statute of Frauds Steps
1. Determine if SOF applies (does the contract fall into one of the 3 categories?) 2. If SOF applies, are the requirements of the SOF met? - A contract within the SOF is enforceable if it is evidenced by any writing, signed by or on behalf of the party to being sued which (1. reasonably identifies the subject matter of the contract 2. is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party and 3. states with reasonable certainty the essential terms of the unperformed promises in the contract. **If a contract is subject to the SOF and the requirements are NOT met, then the contract is not enforceable.**
Liquidated Damages: We use several factors to determine if a clause is reasonable:
1. Did the parties intend to provide for damages or for a penalty? (You can look to the label of the clause. It is not conclusive, but may be indicative of the parties' intent) 2. Is the injury caused by the breach difficult to estimate at the time of contracting? (separate slide) 3. Are the stipulated damages a reasonable forecast of the harm caused by the breach? (for our purposes we consider at the time of the contracting) **Notice these are factors, NOT elements. Elements must all be met to prove the cause of action. Factors are something that courts consider hen making their decision and are not necessarily dispositive. (legal)
Two general remedies in contract law
1. Monetary: the breaching party must pay a designated amount of money to the non-breaching party for their breach 2. Specific performance: the breaching party must perform what they were obligated to perform under the contract; usually only awarded in circumstances when monetary damages will not suffice. (Lucy v. Zehmer, Lucy got the farm as damages)
2 types of monetary damages
1. compensatory damages: damages that put the non-breaching party in the same position they would have been in absent the breach (i.e. so they get the benefit of the bargain) 2. Punitive damages: damages intended to punish the party (You cannot collect punitive damages in contract law)
Sometimes the liquidated damages clause sets a damages amount that is disproportionate to the non-breaching party's anticipated actual loss. What occurs in this situation? a)The clause will be considered a punishment b)The court will enforce the clause c)The court will pick a different remedy d)The clause will be cut in half
A
At dinner one night, John says to Mary, "I'm thinking of selling my signed first edition of Ecstasy of Contract. Do you think that $400 is a fair price?" Mary, who has always wanted to own the book, replies, "I'll take it!" and tenders $400 to John. Which of the following best describes how the statements by Mary and John can best be characterized? (More than one answer can be correct!) (a) John's statement was a mere manifestation of future intent. (b) John's statement was an offer. (c) Mary's reply was an acceptance of John's offer which formed a contract. (d) Mary's reply was an offer.
A, D
Liontamer wanted a piece of expensive equipment for a new training method he wanted to try. Friend, who is Liontamer's oldest and closest friend, happened to possess a vast stock of lion training equipment at his home so Liontamer paid him a visit. Friend was excited to see the trainer and offered to give Liontamer all the equipment he wanted free of charge. The Liontamer replied, "While I am grateful for your generosity, I still think we should write up a contract that way you don't take me to court later complaining that we don't have a binding contract." Friend understood and the two parties drafted and signed a simple, written agreement that provided, "Friend will deliver to Liontamer the lion training equipment specified below in exchange for good and valuable consideration of $1." Has Liontamer provided consideration for Friend's promise? A.No. Liontamer did not provide valid consideration. B.Yes. A court will not inquire into the adequacy of consideration where, as here, the parties have expressly agreed in writing that their exchange involves adequate consideration. C.Yes. Liontamer's promise to pay $1 demonstrates how much these parties have valued the equipment and therefore is consideration.
A. Consideration requires a bargained-for exchange. There may be an exchange here but there is no bargain; there is "illusory" or nominal consideration. Simply saying that the parties' promises are good consideration does not bind a court to conclude that the parties exchanged consideration. Answer B is incorrect. Simply stating that there is consideration is generally not enough. There is a possibility that a court might not inquire into the consideration and take what the parties say at face value, but generally the rule is that creating the illusion of having a consideration is not enough for a contract.
Farmer made the following offer during a phone call with Buyer, "I will sell you two chickens for a total of $300." Buyer told Farmer he would think about it and get back to Farmer in two days. Farmer replied, "I will do nothing until I hear from you." After two hours of thinking about whether he could afford the chickens, Buyer decided to buy the chickens and called Farmer. Before Buyer could tell Farmer he agreed to buy the chickens, Farmer told Buyer he had just sold the chickens to another buyer. The buyer was furious and said, "Farmer, I accept your offer to sell me the chickens. You told me you would sell me the chickens and gave me two days to get back to you. Only two hours have passed!" Did Farmer breach an agreement between him and Buyer? A. No. Farmer's promise to not sell the chickens for two days was not binding and Farmer revoked the offer. B. No. The offer from Farmer lapsed at the end of the phone call. C. Yes. Farmer promised Buyer the offer would not lapse for two days, Buyer accepted within that two-day period, and Farmer wrongfully tried to revoke the offer before the two days expired. D. Yes. Farmer made an offer and Buyer accepted it.
A. The issue is one of revocation and acceptance. An offer generally can be revoked at any time before acceptance. That is what happened here. Timing is everything. "Before Buyer could tell Farmer he agreed to buy the chickens, Farmer told Buyer he had just sold the chickens to another buyer." This is an effective revocation. We didn't talk about Answer B in class. Answer C is incorrect because an offer can be revoked at any time before acceptance. Answer D is incorrect because the offer was effectively revoked before acceptance.
When are liquidated damages clauses enforceable? a)When the innocent party wants to punish the breaching party b)When the loss to the innocent party will be either too uncertain or too difficult to calculate c)When the parties agree that they'd rather not calculate the actual damages d)When the court approved the damages amount before the contract is executed
B
Painter signed a written agreement with Dealership on November 1. The terms of the agreement included the following: "By December 1, Painter will paint 100 cars belonging to Dealership. Dealership will pay Painter $1,000 per car. Dealership called Painter on November 7 and told Painter it no longer wanted Painter to paint the cars. Painter had not started painting the cars yet or purchased any materials. $600 reflects Painter's cost of labor for painting each car. Painter sues Dealership for breach of contract. Ignoring any issues of mitigation with respect to Painter finding other work, what amount, if any, is Painter likely to recover in expectation damages? A. Nothing. Because the Dealership contacted her before she started, Painter will not be successful because she did not actually suffer any loss. B. $40,000. C. $60,000. D. $1,000,000 because that is what Painter was promised.
B, Painter would have been paid 100K ($1,000 per car * 100 cars), and it would have expended 60K ($600 to paint each car * 100 cars). Dealership breached the agreement, so we want to put the non-breaching party (Painter) in the position to get the benefit of the bargain, which would be net 40K (100K-60K)
How are liquidated damages different from other damage awards? a. they are indefinite b. they are predetermined c. they are based on the amount of actual loss d. they are meant to cover future loss.
B.
Collector, who collects sea shells, placed letters on the doorsteps of all of the residents living in a beachfront city. The letters said, "I, Collector, will pay two dollars for every ten sea shells sent to me by the first 100 people who respond. I am a multi-millionaire, and I am trying to develop a very large collection." Are the letters offers? A.Yes. The letters are an offer because they are similar to advertisements by retailers which are generally considered to be offers. B.Yes. This is an offer because Collector expressed commitment, included the requisite certainty of terms, and limited potential liability. C.No. There is not an offer because the offeree is not identified. D.No. There is not an offer because there is no language demonstrating Collector's commitment.
B. An offer requires some language of commitment, generally with some limit on the potential liability of the advertiser (an ad for a TV cannot be an offer because there's no language limiting the number of TVs that are available. If the ad was an offer, that would create the power of acceptance in every single person who saw the offer, and realistically there aren't enough products for everyone to accept). Here, Collector expressed a manifestation of assent by expressing his commitment ("will pay") to pay two dollars for every ten sea shells recipients of the letter sent to Collector, indicated an ability to make the promised payments, and the offer capped the number of offerees at the first 100 of the recipients to respond.
Attorney offered Friend, who is also an attorney, an opportunity to go into business with her. Attorney said, "I will give you a 50% stake in my law firm if you give me $50,000. This offer will remain open for two weeks." One week later, Friend rejected Attorney's offer. The next day, Friend told Attorney that he would pay $40,000 to join Attorney's business. Attorney did not respond. Two days after that, Friend had a change of heart and called Attorney. Friend said, "I changed my mind. I accept your $50,000 offer." Attorney said nothing. Have Attorney and Friend formed a contract? A.No. The parties did not form a contract because Friend rejected Attorney's offer, and Attorney did not accept Friend's offer. B.No. The parties did not form a contract because Friend made a counteroffer that Attorney did not accept. C.Yes. The parties did form a contract because Friend accepted the offer. D.Yes. Attorney accepted Friend's new offer by Attorney's silence.
B. An offeree's power of acceptance may be terminated by rejection. Friend's power of acceptance was terminated when he rejected the original $50,000 offer. Friend's $40,000 proposal would be considered a new offer that Attorney did not respond to. Friend made another offer for $50,000, and Attorney never accepted the new offer from Friend. The parties did not form a contract. Answer B is incorrect because Friend never made a counteroffer. Friend rejected Attorney's offer and then made a new offer. At the time Friend made the $40,000 offer there was no offer from Attorney to counter because it had been rejected. Answer C is incorrect because Friend's rejection terminated Attorney's offer. Answer D is incorrect because silence does not equal acceptance, and we didn't talk about this in class anyway.
The City enters into a contract with General Contractor for the construction of a building for $300,000. General Contractor expects to expend $225,000 to do the work. Before any work has begun, the City announces that it has decided to scrap the project and tells the General Contractor not to do the work. You represent the General Contractor. How much is the General Contractor entitled to recover in expectation damages? A.$300,000. B.$225,000. C.$75,000. D.Nothing, unless General Contractor can prove that it could not find alternative work after expending reasonable efforts.
C, Because the city was going to pay the contractor 300K to do 225K of work, the contractor would have net profited 75K
Nick sent a letter to Sabrina offering to sell her his motorcycle for $1,000. Upon receipt of the letter, Sabrina sent a fax to Nick that said, "The price is a little high, I'll give you $800. Nick replied via fax that he would not accept $800. The next day, Sabrina called Nick and said she would pay $1,000 for the motorcycle. Nick refused to sell the motorcycle to Sabrina. If Sabrina sues Nick for breach of contract, which of the following would be Nick's best argument? A.Because Sabrina's purported acceptance was oral, it constituted a different mode of communication from the written offer. B.The contract was unenforceable under the Statute of Frauds, because Sabrina's purported acceptance was oral. C.Sabrina's counteroffer terminated her power of acceptance. D.Nick's rejection of Sabrina's counteroffer terminated Sabrina's power of acceptance.
C. After receiving Nick's offer, Sabrina responded with a counteroffer of a different price. This was a counteroffer and therefore terminated Sabrina's power of acceptance (counteroffers both terminate the offeree's power of acceptance and create a new offer). Nick rejected the counteroffer. Then, when Sabrina called Nick and said she'd pay $1,000, she had made a new offer, and now Nick had the power of acceptance. He rejected her offer. A is incorrect because we didn't talk about mode of communication in class. B is incorrect because while the Statute of Frauds would likely require the agreement to be in writing since it was for the sale of goods over $500, there is no contract here because there was never a valid acceptance. The counteroffer rejected the initial offer, making later acceptance impossible. We do not look to defenses like SOF unless there is a valid contract. D is incorrect because Nick's rejection of Sabrina's counteroffer terminated his power of acceptance, but Sabrina's was terminated before then -- when she made her counteroffer.
A brand new riding lawn mower is delivered to Norma's house. Seeing the delivery truck, Nicholas walks across the street to chat with his neighbor about the delivery. Nicholas says to Norma, "What are you going to do with your old lawn mower? I am interested in buying it. Is it for sale?" Norma replies, "I might consider selling it for $200." Nicholas responds, "I wish you would take $100, but I agree to buy it for $200." Norma does not respond. When Nicholas presents Norma with $200, Norma refuses to sell Nicholas the lawn mower. Nicholas sues for breach of contract. In an action against Norma, Nicholas will: A.Win, because Norma made an offer and Nicholas accepted B.Win, because Nicholas made an offer that Norma accepted. C.Lose, because Norma never made either an offer or an acceptance. D.Lose, because Nicholas never made either an offer or an acceptance.
C. An offer is the manifestation of willingness to enter into a bargain. In other words, an offer must contain some form of commitment. Nicholas's first communication is not an offer—there is no language of commitment and no price. Norma's statement, that she "might consider" selling her old lawn mower for $200, is not a commitment to sell the lawn mower to Nicholas. Therefore, Norma did not make an offer for Nicholas to accept. Nicholas's second statement was the first time he expressed a commitment to buy the lawn mower; he stated, "I agree to buy it for $200." This statement was an offer to buy the lawn mower. However, Norma did not respond to Nicholas' second statement, and did not accept his offer. Answer A is incorrect because Norma's statement, that she "might consider" selling her old lawn mower for $200, is not a commitment to sell the lawn mower to Nicholas and therefore Norma did not make an offer. Answer B is incorrect. Nicholas's second statement was the first time he expressed a commitment to buy the lawn mower; he stated, "I agree to buy it for $200." This statement was an offer to buy the lawn mower. However, Norma did not respond to Nicholas's second statement, and did not accept his offer. Silence is not acceptance. Answer D is incorrect because, although nothing in Nicholas's first statement contained a commitment to buy the lawn mower, his second statement did. Therefore, Nicholas made an offer when he said "I agree to buy [the lawn mower] for $200."
Seller mailed an offer to Buyer to sell Buyer a Dalmatian puppy. On the day Buyer received the offer, Buyer immediately mailed a rejection letter to Seller. Later that day, Buyer received notice that he inherited a 40-acre farm from his aunt in Illinois. He realized he could now afford the puppy. Buyer immediately emailed an acceptance to Seller. Because Buyer emailed the acceptance, Seller received the acceptance before Seller received the rejection. Do Seller and Buyer now have a binding contract for the puppy? A.No. Because Buyer mailed the rejection first, his power of acceptance was terminated B.No. Buyer did not accept the offer within a reasonable time. C.Yes. An acceptance is effective on dispatch, and Buyer emailed the acceptance, and Seller received it, before Seller received the rejection.
C. Generally, communications in the formation of a contract are effective only upon receipt. A rejection or counteroffer by mail or telegram does not terminate the power of acceptance until received by the offeror. Here, the acceptance by Buyer was dispatched before Seller received the rejection and Seller received the acceptance first, and it is therefore effective because of the Mailbox Rule. Answer A is incorrect. The rejection is effective only upon receipt, and Seller received the acceptance first here. Here, even though Buyer mailed out the rejection first, Seller's dispatch of the acceptance will be effective because it arrived first. Answer B is incorrect because we didn't talk about reasonable time in this class.
Homeowner wanted Saleswoman to stop coming by her house trying to sell items from a clothes catalogue. Homeowner told Saleswoman, "I will pay you $40 if you do not come to my house for at least one year." Saleswoman replied, "You've got a deal." Has Saleswoman formed a contract with Homeowner? A.No. Saleswoman did not effectively accept the offer because she has not yet performed the act of not coming to Homeowner's house. B.No. Failing to do something cannot be consideration to make a promise enforceable. C.Yes. Saleswoman effectively accepted Homeowner's offer because forbearing from doing something can be consideration D.Yes. Saleswoman accepted the offer but if Saleswoman comes by homeowner's house during the next year, she will not have breached the contract.
C. Like in Hamer v. Sidway, giving up a legal right can serve as consideration. Because Saleswoman has the legal right to go to Homeowner's house, giving up the right to go to Homeowner's house is consideration. Answer A is incorrect because we did not talk about time of performance in this class. Answer B is incorrect because a promise to forbear can be consideration. See Hamer v. Sidway. Answer D is incorrect. We didn't really talk about breaching in cases like this, but if the contract is for Saleswoman not to come, then if she does come, that is a breach.
Jack and Betty enter into an oral agreement whereby Jack will mow Betty's lawn for all of the summer months for the next three years for a fee of $800 per season. In this situation: A.There is not contract because it is not in writing. B.Jack will be allowed to mow Betty's lawn because he could conceivably die during the term of the contract. C.Although there is a contract, the courts will not enforce it because it is not in writing. D.This contract lacks consideration.
C. The Statute of Frauds (SoF) applies because the contract cannot be performed within one year from making it, and this is an oral contract (there is no signature on either side), meaning it was in writing and not signed, so the SOF will render the contract unenforceable. A is incorrect because there is a contract here, it is just not enforceable under the defense of the Statute of Frauds. The contract is valid because there is offer, acceptance, and consideration. But the contract cannot be enforced because it is subject to the Statute of Frauds since it cannot be performed within one year (you cannot perform 3 years within 1 year). B is incorrect because this is not a lifetime contract, it's a term of 3 years. Jack could die within that time, but that's irrelevant -- the three years would not be completed. This would be the correct answer if the term of the contract was "for remainder of lifetime" instead of 3 years because his lifetime could be less than 3 years and thus would not be subject to the Statute of Frauds. Dis incorrect because consideration exists: Jack will mow lawn, Betty will pay $800 per season.
Michelle contacts Hannah and asks her if she would be interested in purchasing her car for $2000. Hannah immediately takes $2000 to Michelle and says she wants to buy the car. Michelle subsequently does not wish to proceed. What is the consequence of the above scenario? a) A contract was made when Hannah accepted Michelle's offer. b) Michelle has the right to refuse before she takes possession of the cash. c) As the value of the car is only $2000 the courts will not hear the case and no enforcement can be ordered. d) There is no contract as Michelle only requested information and did not make an offer to
D
Lonergan v. Scolnick The Facts/Timeline
During March 1952, the defendant placed an ad in a Los Angeles paper reading, so far as material here, 'Joshua Tree vic. 40 acres need cash, will sacrifice. In response to an inquiry from this ad the def. Wrote a letter to the plaintiff dated March 26th, briefly describing the property and how to get there, stating that his rock-bottom price was $2,500 cash, and stating that 'This is a form letter.' On April 7th, the plaintiff wrote a letter saying that he was not sure he had found the property, asking for its legal description, asking whether the land was all level or where it included certain jutting rock hills, and suggesting a certain band as escrow agent should I desire the land.' On April 8th, the defendant wrote to the plaintiff saving, 'From you description, you have the property': that this bank is OK for escrow agent': that the land was fairly level; giving the legal description and then saying, "If you are really interested, you will have to decide fast, as I expect to have a buyer in the next week or so." On April 12th, the def. Sold properly to a third party for $2,500. The plaintiff received the defendant's letter of April 8th and April 14th. On April 15th, he wrote to the defendant thanking him for his letter 'confirming that I was on the right land', stating that he would immediately proceed to have the escrow opened and would deposit $2,500 therein 'in conformity with you offer' and asking the defendant to forward a deed with his instructions to the escrow agent. On April 17th, 1952, the plaintiff started an escrow and placed in the hands of the escrow agent $100, agreeing to furnish an additional $2,4000 at an unspecified time, with the provision that if the escrow was not closed by May 15th, 1952, it should be completed as soon thereafter as possible unless a written demand for return of the money or instruments was made by either party after that date. It was further stipulated that the plaintiff was ready and willing at all times to deposit the $2,400.
Mutual Assent (Lucy v. Zehmer)
Facts: Lucy had wanted to buy the farm from Zehmer for many years. One night, Zehmer wrote out an agreement after discussion of it for 40 minutes, there were multiple drafts, a discussion of what's included in the sale, provision to examine the title, completeness of the instrument, and Lucy took the signed agreement and Zehmer did not ask for it back. Zehmer claimed it was a joke, but he led Lucy to think he was serious (his objective intent was to sell, even if that was not his subjective intent)
General Rules compared to Mailbox Rule
General Rule: contracted communications (offers, acceptances, renovations, rejections) are legally operative when received. - Exception: The Mailbox Rule: - An initial acceptance by mail (or the equivalent) is effective when it's sent, but a rejection is still effective when it's received. (Acceptance then rejection: acceptance, but if the rejection is sent first, followed by an acceptance, whichever gets there first will be legally operative)
Pennsy Supply Inc. American Ash Recycling Corp.
Pensy uses paving material that was free from American Ash. The material was hazardous, Pensy had to remove it, and they sought recovery of the costs of removal from American Ash. Issue is whether this was a gift or a bargained for exchange. Court says its not a gift; it saved American Ash huge costs in disposal of the material, which serves as consideration. - What's the consideration on both sides, i.e what is going back and forth between the parties? (Pennsy received the paving material for free, American Ash received the benefit of not having to dispose the material)
Statute of Frauds: "Writing" Requirements
Rest Sec. 131: A contract within the SOF is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged- the party you are sueing (i.e. being sued for enforcement), which - A. reasonably identifies the subject matter of the contract - B. Is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and - C. States the essential terms of the unperformed promises in the contract.
In re Zappos
Zappos has a browse wrap agreement that stated that any disputes would be resolved in arbitration (is a private process where disputing parties agree that one or several individuals can make a decision about the dispute after receiving evidence and hearing arguments.) Issue of whether there was an actual or constructive notice of the terms and conditions. there was no manifestation of assent because the terms and conditions were not conspicuous (standing out so as to be clearly visible) on the site and not easily visible to users, so they couldn't have entered into an agreement if they had no notice. Arbitration provision not enforced.
Mutual Assent: The Objective Theory
within an objective theory of contract framework, we will ask three questions: - 1. Would an objective, a reasonable person understand from what the offeror did/said that the offeror intended to make an offer and be bound by it? -2. Would an objective, reasonable person understand from what the offeree did/said that the offeree intended to accept the offer and be bound by it? - 3. did the party seeking to enforce the transaction know, or should have known, that the other party harbored an unexpressed objection to the deal?
