Precedents II
1. Capacity to Contract
Rule:
Legal capacity requires parties to be of sound mind and legal age. Contracts entered into by minors or mentally incapacitated persons are voidable.
Significance:
Protects individuals lacking full understanding from exploitation and provides a mechanism for disaffirmance.
2. Sherwood v. Walker (1887) – Mutual Mistake
Rule:
A contract is voidable when both parties are mistaken about a material fact essential to the agreement.
Significance:
Distinguishes between substance (material) and quality (incidental) mistakes; foundational case in mutual mistake doctrine.
3. Lenawee County Board of Health v. Messerly (1982) – Risk Allocation in Mistake
Rule:
A contract will not be rescinded for mutual mistake where the risk was allocated by contract or assumed by a party.
Significance:
Refines Sherwood, incorporating UCC-style risk allocation; emphasizes contractual responsibility.
4. Laidlaw v. Organ (1817) – Duty to Disclose
Rule:
Silence does not constitute fraud unless there is a duty to disclose.
Significance:
Introduces early American rule on asymmetric information in negotiations; limited duty to speak.
5. Vokes v. Arthur Murray (1968) – Misrepresentation & Puffery
Rule:
A false statement of opinion may be actionable if the speaker holds superior knowledge.
Significance:
Defines limits of puffery; marketing statements can become fraudulent misrepresentations.
6. Hill v. Jones (1986) – Duty to Disclose Latent Defects
Rule:
Sellers must disclose latent (hidden) material defects not discoverable by ordinary diligence.
Significance:
Establishes fraud liability based on non-disclosure in real estate.
7. Promissory Fraud
Rule:
A misrepresentation of intent to perform a future act, made with no intention of performance, can constitute fraud.
Significance:
Bridges tort and contract; actionable even in formation if promise was knowingly false.
8. Austin Instrument v. Loral Corp. (1971) – Economic Duress
Rule:
A contract modification is voidable if induced by a wrongful threat that deprives a party of free will.
Significance:
Defines economic duress and limits coercive renegotiation.
9. Fleet v. US Consumer Council (1984) – Unlicensed Practice of Law
Rule:
Contracts involving unauthorized legal practice are unenforceable.
Significance:
Affirms public policy limiting contractual enforcement where underlying conduct is unlawful.
10. Ferguson v. Countrywide Credit Industries, Inc. (2002) – Unconscionable Arbitration Clauses
Rule:
Arbitration provisions can be unconscionable when procedurally and substantively unfair.
Significance:
Limits use of mandatory arbitration clauses in employment agreements under procedural fairness doctrines.
11. Sinnar v. LeRoy (1951) – Illegality
Rule:
Courts will not enforce a contract that violates a statute or public policy.
Significance:
Illustrates boundary of contractual freedom where illegal conduct is involved.
12. Datamangement Inc. v. Greene (2001) – Covenant Not to Compete
Rule:
Restrictive covenants must be reasonable in scope, duration, and geography to be enforceable.
Significance:
Establishes balancing test between employer’s interest and employee’s right to work.
13. Watts v. Watts (1987) – Implied Contract in Cohabitation
Rule:
Courts may enforce implied-in-fact agreements between unmarried cohabitants.
Significance:
Applies contract principles to non-marital domestic relationships.
14. Kass v. Kass (1998) & A.Z. v. B.Z. (2000) – Reproductive Agreements
Rule:
Courts will enforce agreements regarding reproductive material only if clear, knowing, and voluntary.
Significance:
Raises constitutional and contract questions in reproductive autonomy and intent.
15. Wallis v. Smith (2001) – Fraudulent Inducement & Reproductive Misconduct
Rule:
Claims for reproductive deceit (e.g., lies about contraception) are not typically cognizable in contract law.
Significance:
Limits judicial involvement in intimate personal relations; public policy constraints.
16. Special Controls on Promissory Liability – Formation Defenses I & II
Rule:
Doctrines such as duress, fraud, incapacity, illegality, and unconscionability can bar enforcement of otherwise valid promises.
Significance:
Reinforces that voluntary, informed, and lawful agreement is central to enforceability.
17. Alaska Northern Dev. Inc. v. Alyeska Pipeline (1983) – Pre-Contract Negotiations & Reliance
Rule:
Reliance on preliminary negotiations does not establish a contract unless intent to be bound is clearly shown.
Significance:
Clarifies distinction between negotiation and agreement in precontractual settings.
18. Pacific Gas & Electric v. Thomas Drayage (1968) – Interpretation & Extrinsic Evidence
Rule:
Ambiguity need not appear on the face of a contract to admit extrinsic evidence.
Significance:
Establishes modern contextual interpretation approach in California.
19. Frigaliment Importing Co. v. B.N.S. Sales Corp. (1960) – "What is Chicken?"
Rule:
When contract language is ambiguous, courts look to trade usage, course of dealing, and performance.
Significance:
Illustrates contextual ambiguity and gap-filling via extrinsic evidence.
20. Centronics Corp. v. Genicom Corp. (1990) – Duty of Good Faith
Rule:
Every contract imposes an implied duty of good faith and fair dealing.
Significance:
Explains scope of post-formation duties, especially in commercial contexts.
21. Market Street Assoc. v. Frey (1991) – Strategic Silence & Good Faith
Rule:
Deliberate silence about known contract terms may violate the duty of good faith.
Significance:
Extends good faith to negotiation tactics and opportunistic behavior.
22. Zapatha v. Dairy Mart (1980) – Termination Clauses
Rule:
Termination-at-will clauses are enforceable unless unconscionable or against public policy.
Significance:
Balancing contractual freedom and fairness in ongoing commercial relationships.
23. Feld v. Henry S. Levy & Sons (1975) – Good Faith in Output Contracts
Rule:
Good faith prohibits arbitrary cessation of production under an output contract.
Significance:
Limits use of output contracts as escape mechanisms; obligates continuity.
24. Warranties and Representations
Rule:
A warranty is a binding promise about a product; a representation is a statement of fact made to induce agreement.
Significance:
Differentiates express and implied warranties from non-binding promotional statements.
25. In re Carter (Bankruptcy) – Executory Contracts
Rule:
Executory contracts may be affirmed or rejected in bankruptcy at trustee’s discretion.
Significance:
Shows how contractual obligations are altered in insolvency.
26. Clark v. West (1908) – Waiver & Modification
Rule:
A party may waive a contract condition by their conduct, even if not in writing.
Significance:
Recognizes flexibility and pragmatic enforcement based on conduct.
27. Ferguson v. Phoenix Assurance (1894) – Contract Formation and Agency
Rule:
An agent’s authority to bind a principal may arise by estoppel or conduct.
Significance:
Validates contract even when formal authority is lacking if reliance is justified.
28. U.S. v. Wegematic Corp. (1966) – Impossibility and Commercial Impracticability
Rule:
Performance is not excused unless truly impossible or unforeseeably impracticable.
Significance:
Sets high bar for excuse of performance due to difficulty or expense.
29. Taylor v. Caldwell (1863) – Impossibility Doctrine
Rule:
Destruction of subject matter discharges duty of performance.
Significance:
Foundational English case establishing doctrine of impossibility.
30. Krell v. Henry (1903) – Frustration of Purpose
Rule:
If the principal purpose of a contract is frustrated without fault, duty may be discharged.
Significance:
Defines frustration of purpose as distinct from impossibility.
31. Contract Performance I & II
Rule:
Contracts must be performed per terms or excused by substantial performance, waiver, or impossibility.
Significance:
Highlights flexible doctrines for managing partial, late, or altered performance.
32. Hochster v. De La Tour (1853) – Anticipatory Breach
Rule:
A party may sue upon repudiation before performance is due.
Significance:
Recognizes anticipatory breach as actionable.
33. Taylor v. Johnston (1975) – Conditional Promises
Rule:
When promises are conditional, failure of condition excuses the dependent promise.
Significance:
Demonstrates interdependency of promises and defenses to breach.
34. AMF Inc. v. McDonald’s Corp. (1976) – Material Breach
Rule:
Failure to meet performance standards may constitute material breach.
Significance:
Determines whether breach excuses counter-performance.
35. American Mechanical Corp. v. Union of Lynn (1986) – Substantial Performance
Rule:
Minor deviations do not defeat contract; remedy is offset, not rescission.
Significance:
Applies substantial performance to protect non-breaching but good-faith parties.
36. Bernstein v. Nemeyer (1992) – Expectation vs. Restitution
Rule:
A party may be denied restitution if it would result in a windfall.
Significance:
Illustrates conflict between fairness and enrichment in restitution claims.
37. Locks v. Wade (1959) – Mitigation of Damages
Rule:
Non-breaching party must take reasonable steps to mitigate damages.
Significance:
Limits recoveries to losses that could not be avoided.
38. Reliance Cooperage Corp. v. Treat (1950) – Lost Profits
Rule:
Lost profits are recoverable only if reasonably foreseeable and provable.
Significance:
Establishes criteria for consequential damages.
39. Peevyhouse v. Garland Coal & Mining Co. (1962) – Diminution in Value
Rule:
Cost of performance may be denied if grossly disproportionate to value gained.
Significance:
Draws line between specific performance and economic waste.
40. American Standard v. Schectman (1981) – Cost of Completion
Rule:
If the breach defeats the contract purpose, the cost of completion is the proper measure of damages.
Significance:
Contrasts Peevyhouse; affirms full expectation interest.
41. Hadley v. Baxendale (1854) – Foreseeability in Damages
Rule:
Damages must be reasonably foreseeable at time of contract.
Significance:
Cornerstone of consequential damage limitation.
42. Mental Anguish & Punitive Damages
Rule:
Not typically awarded in breach of contract; permitted only where tort-like behavior is involved.
Significance:
Differentiates contract from tort in damages calculus.
43. Northern Indiana Public Service Co. v. Carbon County Coal (1986) – Efficient Breach
Rule:
Specific performance is disfavored where damages suffice and performance is wasteful.
Significance:
Illustrates economic efficiency rationale in remedial discretion.
44. Liquidated Damages & Settlements
Rule:
Enforceable if reasonable forecast of harm and not a penalty.
Significance:
Balances predictability with fairness in advance agreements.
45. Remedies I & II
Rule:
Contract remedies include expectation, reliance, restitution, and specific performance.
Significance:
Outlines full remedial toolkit for breach of contract.