Contracts Rest and Cases

Rest 71 Consideration

To constitute consideration, a performance or a return promise must be bargained for.

(2) 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.

(3) The performance may consist of

(a) an act other than a promise, or

(b) a forbearance, or

(c) the creation, modification, or destruction of a legal relation.

(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.

Rest 151 Mistake Defined

A mistake is a belief that is not in accord with the facts.

Rest 152 When a Mistake of Both Parties Makes a Contract Voidable

1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in § 154.

(2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise.

Rest 154 When a Party Bears the Risk of a Mistake

A party bears the risk of a mistake when

(a) the risk is allocated to him by agreement of the parties, or

(b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or

(c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

Rest 159 Misrepresentation Defined

A Misrepresentation is an Assertion that is not in accord with the facts

Rest 162 When a Misrepresentation is Fraudulent or Material

(1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker

(a) knows or believes that the assertion is not in accord with the facts, or

(b) does not have the confidence that he states or implies in the truth of the assertion, or

(c) knows that he does not have the basis that he states or implies for the assertion.

(2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.

Rest 165 Cure by Change of Circumstances

If a contract is voidable because of a misrepresentation and, before notice of an intention to avoid the contract, the facts come into accord with the assertion, the contract is no longer voidable unless the recipient has been harmed by relying on the misrepresentation.

Rest 176 When a Threat is Improper, Rest 175 says Improper Threats are Voidable

(1) A threat is improper if

(a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,

(b) what is threatened is a criminal prosecution,

(c) what is threatened is the use of civil process and the threat is made in bad faith, or

(d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient.

(2) A threat is improper if the resulting exchange is not on fair terms, and (a) the threatened act would harm the recipient and would not significantly benefit the party making the threat, (b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or (c) what is threatened is otherwise a use of power for illegitimate ends.

Rest 201 Who’s Meaning Prevails

Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning.

(2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made.

(a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or (b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.

(3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.

Rest 203 Hierarchy of Preference In Interpretation

In the interpretation of a promise or agreement or a term thereof, the following standards of preference are generally applicable:

(a) an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect;

(b) express terms are given greater weight than course of performance, course of dealing, and usage of trade, course of performance is given greater weight than course of dealing or usage of trade, and course of dealing is given greater weight than usage of trade;

(c) specific terms and exact terms are given greater weight than general language;

(d) separately negotiated or added terms are given greater weight than standardized terms or other terms not separately negotiated.

Rest 224 Condition Defined

A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.

Rest 225 Effects of a Condition Not Occuring

(1)Performance of a duty subject to a condition cannot become due unless the condition occurs or its non-occurrence is excused.

(2)Unless it has been excused, the non-occurrence of a condition discharges the duty when the condition can no longer occur.

(3)Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur

Rest 228 Satisfaction of the Obligor as a Condition

When it is a condition of an obligor’s duty that he be satisfied with respect to the obligee’s performance or with respect to something else, and it is practicable to determine whether a reasonable person in the position of the obligor would be satisfied, an interpretation is preferred under which the condition occurs if such a reasonable person in the position of the obligor would be satisfied.

Rest 241 Circumstances Significant in Determining Whether a Failure is Material

In determining whether a failure to render or to offer performance is material, the following circumstances are significant:

(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;

(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;

(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;

(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

Rest 250 When a Statement or Act is a Repudiation

A repudiation is

(a) a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach under § 243, or

(b) a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach.

Rest 251 When a Failure to Give Assurances may be Treated as a Repudiation

(1)Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach p. 116under § 243, the obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance.

(2)The obligee may treat as a repudiation the obligor’s failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular case.

Res 261 Discharge by Supervening Impracticability

Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.

Rest 265 Discharge by Supervening Frustration

Where, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.

Loss in Value + Incidental Loss + Consequential Loss - Loss Avoided - Cost Avoided

Restatement Formula for Damages

2-713 Buyers Damages for Repudiation

The measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article (Section 2-715), but less expenses saved in consequence of the seller’s breach.

2-714 Buyers Damages for Accepted Goods

1) Where the buyer has accepted goods and given notification (subsection (3) of Section 2-607) he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller’s breach as determined in any manner which is reasonable. (2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. (3) In a proper case any incidental and consequential damages under the next section may also be recovered.

Rest 302 Intended and Incidental Beneficiaries

1)Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and eitherp. 125

(a)the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or

(b)the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

(2)An incidental beneficiary is a beneficiary who is not an intended beneficiary.

Rest 89 Modification of Executory Contract

A promise modifying a duty under a contract not fully performed on either side is binding (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or (b) to the extent provided by statute; or (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise.

Rest 73 Performance of a Legal Duty

Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.

Rest 227 Standards of Preference Related to Conditions

(1) In resolving doubts as to whether an event is made a condition of an obligor’s duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee’s risk of forfeiture, unless the event is within the obligee’s control or the circumstances indicate that he has assumed the risk.

(2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether (

a) a duty is imposed on an obligee that an event occur, or (b) the event is made a condition of the obligor’s duty, or

(c) the event is made a condition of the obligor’s duty and a duty is imposed on the obligee that the event occur, the first interpretation is preferred if the event is within the obligee’s control.

(3) In case of doubt, an interpretation under which an event is a condition of an obligor’s duty is preferred over an interpretation under which the non-occurrence of the event is a ground for discharge of that duty after it has become a duty to perform.

Jacobs & Young v Kent

Upon review, Cardozo found the reason for Reading pipe being specified in the agreement was not meant to actually specify Reading-brand pipe, but instead was meant to require that galvanized steel pipe be installed, and not cast iron (which was the norm at the time). Based on this understanding/interpretation of the agreement, Cardozo found Jacob to have substantially performed his duties under the contract—installing galvanized steel pipe—and his breach to therefore be immaterial.

The court concluded that the measure of damages in this case to not be the cost of replacement (i.e., the cost to replace the Cohoes pipe with Reading pipe), but the difference in the value of the property with the installed Cohoes piping, which was nominal or nothing. A non-breaching party is generally entitled to money that will permit them to complete performance unless the cost of completion is grossly and unfairly out of proportion to the good attained. Due to Jacob's substantial expense in replacing the piping, and the primary purpose of the contract having been performed, "difference in value" was the appropriate method to calculate damages in this case.

Rest 84 not Applying to Waived Conditions

This Section is also related to § 84 (performing despite nonoccurance) on waiver of conditions: it may apply to cases in which § 84 is inapplicable because a condition is material to the exchange or risk. As in cases governed by § 84, relation to a bargain tends to satisfy the cautionary and channeling functions of legal formalities.

JNA Realty v Cross Bay Chelsea

The court found that the Defendant would have suffered forfeiture since it made substantial improvements to the property. (forteiture)
The court also found that the Defendant’s failure to renew the lease was due to “mere forgetfulness” and was not an intentional attempt to exploit a fluctuating real estate market. (venial inattention)
The court found that it was unclear whether the Plaintiff suffered a prejudice from the Defendant’s oversight and therefore a new trial should be granted. (no prejudice)

Rest 153 When Unilateral Mistake Voids Contract

Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in § 154, and (a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or (b) the other party had reason to know of the mistake or his fault caused the mistake.

Rest 164

(1)If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.

(2)If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the transaction upon which the recipient is justified in relying, the contract is voidable by the recipient, unless the other party to the transaction in good faith and without reason to know of the misrepresentation either gives value or relies materially on the transaction.

2-209 Modification, Rescission, and Waiver

1)An agreement modifying a contract within this Article needs no consideration to be binding.

(2)A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.

(3)The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions.

(4)Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.

(5)A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.

Kelsey Hayes v Galtaco Redlaw Castings

Michigan courts recognize the doctrine of economic duress and Defendant’s offer to Plaintiff amounted to economic duress.
Economic duress can exist even in the absence of criminal or tortuous activity, so long as assent is induced by an improper threat and the victim is left with no reasonable alternative.

American Standard v Schectman

Should the trial court have instructed the jury that Plaintiffs damages should be calculated by subtracting the value Plaintiff’s property with Defendant’s performance from its value without Defendant’s performance?

No.
In cases when the court has calculated the damages as being the difference between the value of the land with and without the defendant’s performance, were ones when the non-performance was not intentional and substantial performance was made, or the performance was only incidental to the purpose of the contract.
In this case, the facts show that Defendant did not substantially perform and the performance was the main purpose of the contract.

Morin Bldg Prods Co v Baystone Constr Inc

Is an objective standard the proper standard to invoke in contract cases involving the construction of commercial buildings?

Yes.

Judgment affirmed. An objective standard is the appropriate standard to employ in a contract for the construction of a commercial building. Therefore, General Motor’s rejection of the Defendant’s work on aesthetic grounds was unreasonable.

Sally Beauty Co v Nexxus Prod Co

Is a contract assignable to direct competitor or a wholly-owned subsidiary of a competitor?

No.

Judgment affirmed.
The court disagreed with the lower court and found that this contract was not contract dealing with personal services. Instead, it was primarily a contract for the sale of goods.
The duty of performance under an exclusive distributorship may not be delegated to a competitor in the marketplace without the obligee’s consent.

Rest 318 Delegation of Performance of Duty

1) An obligor can properly delegate the performance of his duty to another unless the delegation is contrary to public policy or the terms of his promise.

(2) Unless otherwise agreed, a promise requires performance by a particular person only to the extent that the obligee has a substantial interest in having that person perform or control the acts promised.

(3) Unless the obligee agrees otherwise, neither delegation of performance nor a contract to assume the duty made with the obligor by the person delegated discharges any duty or liability of the delegating obligor.

Sackett v Spindler

Newspaper Stock Sales Case: Is repudiation of a contract justified where the other party has materially breached the contract?

Yes. Judgment affirmed.
Repudiation is justified where a material or total breach has occurred.
In the instant case, the court found that the Plaintiff’s failure to tender the balance due under the contract constituted a material breach.

Hadley v Baxendale

Are Defendants liable to Plaintiffs for damages suffered by Plaintiffs due to lost profits?

No.

A nonbreaching party is entitled damages arising naturally from the breach itself or those that are in the reasonable contemplation of the parties at the time of contracting. Here, while the breach by Defendants was the actual cause of the lost profits of Plaintiffs, it cannot be said that under ordinary circumstances such loss arises naturally from this type of breach. There is a multitude of reasons for a miller to send a crank shaft to a third party. Defendants had no way of knowing that their breach would cause a longer shutdown of the mill, resulting in lost profits. Further, Plaintiffs never communicated the special circumstances to Defendants, nor did Defendants know of the special circumstances.

Hornell Brewing Co v Spry

Iced Tea Scammer Case: Is a party entitled to assurances when they have reasonable circumstances to believe that the other party will not meet its contractual obligations?

Yes.

Declaratory judgment granted. The Defendant has no continuing rights with respect to the Plaintiff’s products.

Truman Flat and Sons v Schupf

Is a contract repudiation effective when the repudiation was retracted prior to the seller’s changing position or notifying the buyer that they believed the repudiation to be final?

No.

Judgment reversed and remanded.
A repudiation must be clear and unequivocal.
In the instant case, the Plaintiff’s letter to the Defendant seeking to modify the price term in the contract was not a clear and unequivocal repudiation.

Totem Marine Tug & Barge v Aleyska Pipeline Service Co.

Whether Plaintiff was forced to accept the terms and conditions of the amendment such as to allow rescission based on economic duress. Held. The Court of Appeals, in overturning the lower Court, held that economic duress exists where (1) one party involuntary accepts the conditions of the other party, (2) circumstances permitted no alternative, and (3) such circumstances were the result of coercive acts of the other party. The Court held the Plaintiff had introduced sufficient evidence to withstand a motion for summary judgment. Plaintiff showed that Defendant had deliberately withheld payments of a debt, with knowledge that Plaintiff had no choice but to accept the conditions of the amendment or declare bankruptcy, and that the only way Plaintiff would be able to avoid bankruptcy would be to accept the amendment. The Court then remanded the case back to the trial court for a complete factual determination of whether a claim for economic duress truly existed.