Does party entering into agreement have authority to do so?

Court found a contract because there was performance, acceptance. Parties in dispute as to meaning of “chicken.”

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Court found a contract because there was performance, acceptance. Parties in dispute as to meaning of “chicken.”

  • Court looks to trade usage, but evidence conflicting and has to be proven to a fact.

    UCC §2-208 Course of Performance of Practical Construction

    1. Where the contract for sale involves repeated occasions for performance [Comment 4: not single occasion of conduct] by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement.[Comment 1: Parties themselves know best what they meant by their words of agreement, and their action under that agreement is the best indication of what that meaning was.]

    2. The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade (Section 1-205).

    3. Satisfaction of Conditions

    Rest. 2d § 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.

    • Morin Building Products v. Baystone Construction (1983)

    Court affirms application of objective standard to satisfaction clause in contract re mill finish siding on factory building.
    Rest. 2d § 229 Excuse of a Condition to Avoid Forfeiture

    To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange.

    • Morin Building Products v. Baystone Construction (1983)

    Court excuses artistic satisfaction of GM re mill finish siding on factory building because construction of building already finished.
    Rest. 2d § 211(3) Standardized Agreements

    Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.

    Comment: Reason to believe may be inferred from the fact that term:

    • is bizarre or oppressive

    • eliminates dominant purpose of contract

    • eviscerates non-standard terms

    • C & J Fertilizer v. Allied Mutual Insurance (1975)

    • Court applies doctrine of reasonable expectations to insurance coverage of burglary with no external signs of break-in, because intention of parties to cover any burglary that is not an inside job.

    • Doctrine applies to adhesion contracts, but only is party truly has no alternative to entering into that contract. Also applies when terms of agreement frustrate reasonable expectations of party.

    C. Remedy in Contract claim is Benefit of the Bargain, amount necessary to put Plaintiff in position she would have been in had contract been performed.

    1. Specific performance under terms of contract

    equitable relief (“you must [not] do this under terms of contract”); compulsion, so courts loathe to award; prefer money damages, less intrusive

    1. Expectation damages in amount that P expected to realize from due performance of contract at issue, reflecting opportunity costs

    2. Reliance damages in amount necessary to restore P to position prior to breach, to extent to which D has been enriched by, or P injured by, P’s actions in reliance on D’s commitment to perform.

    Policies/Purpose of Contracts

    1. Certainty of commercial dealings (Reliance on action, prevent loss incurred by other party performing with assumption that K exists without reciprocal performance)

    2. Vigilance in buyer/seller, adversarial relationship (Law places burden on party who has misunderstanding)

    3. Seriousness of transactions (Legal consequences attach to behavior even if unaware)

    4. Need for documentary evidence/Objectivity (fault is not addressable by K system; no punishment for bad acts or motives for breach, only piece of paper; selective memory, not always deceit, may be at issue so not a moral problem)

    5. Assumption that parties have capacity (adults of ordinary intelligence) to enter into legally binding agreements

    6. Lower transactions costs (otherwise transactions would be too costly, require exchanges of collateral, barrier to entry of newcomers)

    7. If mutual mistake, prevent one party from receiving windfall if enforced when favorable to that party

    1. Discourage opportunistic behavior obligations/benefits change over time, cannot enforce only when favorable to one party

    Pure Restitution
    Unlike Contract, performance/consideration is present, but no Offer or Acceptance. Greatest deviation from Contract model – toughest claim to make.

    1. Classical Contract Doctrine

    • Glenn v. Savage (1887)

    • No recovery for saving lumber that fell into river. No Offer or Acceptance, so no contract.

    • To be liable, party must have requested services or Offered to pay. Not at all clear that owner of wood would have wanted wood to be saved.

    • Court concerned about commercializing gratuitous relationships, turning emotions into quid pro quo – “sordid avarice”

    1. Modern Theory - 3 Types

    1. Rest. Restitution § 116 Emergencies involving life and health

    A person who has supplied things or services to another, although acting without the other’s knowledge or consent, is entitled to restitution therefor from the other if:

    1. he acted unofficiously and with intent to charge therefor, and

    2. the things or services were necessary to prevent the other from suffering serious bodily harm or pain, and

    3. the person supplying them had no reason to know that the other would not consent to receiving them, if mentally competent, and

    4. it was impossible for the other to give consent or, because of extreme youth or mental impairment, the other’s consent would have been immaterial.

    • In re Estate of Crisan (1961)

    • adopts Rest. Restitution § 116

    • recipient of benefits unable to provide manifestation of assent

    • law implies obligation; assumes that, if parties had opportunity to bargain, D would have requested services from that particular P on those particular terms

    1. Rest. Restitution § 117 Emergencies involving property

    A person who, although acting without the other’s knowledge or consent, has preserved things belonging to another from damage or destruction, is entitled to restitution for services rendered or expenditures incurred therein, if:

    1. he was in lawful possession or custody of the things or he lawfully took possession thereof, and the services or expenses were not made necessary by his breach of duty to the other, and

    2. it was reasonably necessary that the services should be rendered or the expenditures incurred before it was possible to communicate with the owner by reasonable means, and

    3. he had no reason to believe that the owner did not desire him so to act, and

    4. he intended to charge for such services or to retain the things as his own if the identity of the owner were not discovered or if the owner should disclaim, and

    1. the things have been accepted by the owner.

    • opportunity cost theory – “intended to charge for such services”

    considers what party would normally be doing if not providing services

    • requires that party be sort of person with whom you would have bargained, if you would have bargained

    1. Unjust Enrichment

    • Watts v. Watts (WI, 1987)

    3 elements

    1. Benefit conferred

    2. Appreciation or knowledge of benefit

    3. Acceptance and retention of benefit under circumstances making it inequitable to retain the benefit.

    1. Remedy is grounded in equity - damages in amount to which other party has been benefited; unjust for one party to retain all benefits without compensating other party.

    1. Promissory Restitution

    Promise made after the fact to provide compensation for services rendered.

    1. Classical Contract Doctrine

    • Mills v. Wyman (1825 )

    • No recovery because D father has no duty to compensate P for taking care of D’s son.

    • Past services do not constitute consideration for present Promise.

    • Moral obligation not legally enforceable, unless based on prior legal obligation rendered unenforceable only as a matter of law (i.e., for technical reasons, not voluntarily) such as debt by minor, statute of limitation, debt of bankrupt.

    Promise to Pay Indebtedness; Effect on Statute of Limitations

    Rest. 2d Contracts § 82

    1. A Promise to pay all or part of an antecedent contractual or quasi-contractual indebtedness owed by the Promisor is binding if the indebtedness is still enforceable or would be except for the effect of a statute of limitations.

    Promise to Pay Indebtedness Discharged in Bankruptcy

    Rest. 2d Contracts § 83

    (1) An express Promise to pay all or part of an indebtedness of the Promisor, discharged or dischargeable in bankruptcy proceedings begun before the Promise is made, is binding.

    1. Modern Theory

    1. Strained Contract – Material Benefit Rule (before § 86)

    • Webb v. McGowin (1936)

    • Court finds D’s subsequent express Promise to support P for rest of life legally enforceable when P had been severely injured after jumping off second floor of mill holding onto cinder block to save D employer

    • Based on benefit/detriment analysis of consideration - materiality of benefit conferred. Court found benefit sufficiently material to support later Promise related back to imply previous request at time at which services provided; life and limb have measurable pecuniary value.

    • Promise becomes recognition (manifestation of assent) by Promisor of obligation and creates assumption that services would have been requested; Promise as evidence to fit model of § 117 emergency services.

    • Benefit received by Promisor, not third party.

    • Time elapsed between services and Promise – evidence that Promise not spontaneous outburst of emotion.

    • Some payments (8 years) were made – voluntary assumption of obligation more likely to be continued by court.

    • Cf. Harrington v. Taylor

    1. Rest. 2d Contracts § 86 Promise for Benefit Received

    (1) A Promise made in recognition of a benefit previously received by the Promisor from the Promisee is binding to the extent necessary to prevent injustice.

    1. A Promise is not binding under (1)

    1. if the Promisee conferred the benefit as a gift or for other reasons the Promisor has not been unjustly enriched; or

    2. to the extent that its value is disproportionate to the benefit.

    1. Remedy is grounded in equity - damages in amount to which other party has been benefited; unjust for one party to retain all benefits without compensating other party.

    Promissory Estoppel

    P changes position in reliance on D’s Promise so D estopped from denying Promise. Also used to make Offers irrevocable.

    Classical Contract Doctrine

    • Kirksey v. Kirksey (AL, 1845)

    • Court denied P’s request for transfer of real property from male to female; found condition to a gift rather than bargained-for exchange

    • intra-family dispute difficult to address out of commercial context

    Modern Theory

    1. Strained Contract as basis for Promissory Estoppel

    • Allegheny College (1927)

    • Thaumatrope - Cardozo blends contract doctrine and promissory estoppel theory to enforce charitable contribution to college

    • no contract because no mutual obligation - college could have returned partial payment ($1000 received of $5000 pledged) without liability

    • no promissory estoppel claim because no present detrimental reliance

    • uses future detrimental reliance (obligation of college to use money for designated purpose of creating scholarship) to create present legally cognizable detriment upon receipt of payment – weak consideration because no obligation to incur this future detrimental reliance

    • policy underlying decision: to encourage charitable contributions - if not enforced, would discourage planning charity activities because too risky

    1. Promise Reasonably Inducing Action or Forbearance

    Rest. 2d Contracts § 90

    1. A Promise which the Promisor should reasonably expect to induce action or forbearance on the part of the Promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the Promise. The remedy granted for breach may be limited as justice requires.

    2. A charitable subscription or a marriage settlement is binding under (1) without proof that the Promise induced action or forbearance.

    Katz v. Danny Dare (1980)

    • Promissory Estoppel different from Contract claim because detrimental reliance test different from detriment test for consideration.

    • Katz’s retirement in reliance on promise of pension was not a matter of giving up something to which he was legally entitled (due to employment-at-will doctrine), but rather acting on a Promise to his detriment.

    • Universal Computer v. Medical Services (1980)

    • Reasonableness of reliance turns on agency question – actual v. apparent authority of Gebert!

    C. Remedy is reliance damagesstatus quo ante - reimbursement for out of pocket expenditures made in reliance upon Promise. Puts P in position before D made Promise, not in position had D fully performed. Contract remedy therefore higher than remedy available for Promissory Estoppel
    Policies/Purpose of Promissory Estoppel

    1. Enforce charitable contributions

    2. Not as likely to be used in commercial context – would expect to see more calculated risks, use of contract rules. Also, with commodities, less likely to find reliance because many sources and options so loss less likely to occur.

    3. Limit Revocability of Offer – constitutes consideration for option contract Rest. 2d §87(2)

    4. enforces sub-contractor bids when relied upon by general contractor in main bid

    • Baird v. Gimbel (1933)

    • No bilateral contract because no Acceptance – terms of Offer required Acceptance only after main contract awarded

    • No unilateral contract because use of SC bid in GC contract not performance requested, nor was it consideration for option; use in GC bid did not obligate GC to use SC (warehouse full of linoleum even if didn’t win contract)

    • Court doesn’t use Promissory Estoppel because believes useful only in donative Promises – unilateral obligation. In commercial setting, parties should be making mutual obligations.

    • Fairness to Sub-contractors

    • Drennan (1958)

    • Court uses Promissory Estoppel because reasonable reliance that results in foreseeable change in position; Promise made with knowledge and intent that other party would act on Promise

    • Analogy to § 45 Option - Subsidiary Promise implied to hold Offer open if bid is used – use of bid like partial performance, while requested performance is use of services after Main Contract awarded

    • No contract because use of bid neither consideration for option nor Acceptance

    • Limitations on use of Promissory Estoppel:

    1. timely Acceptance by GC of SC’s bid

    2. not enforceable if GC aware of mistake in SC’s bid so not reasonable reliance

    3. SC expressly states that bid is revocable

    4. mere estimates rather than firm bids

    • Issue: Fair to place risk of loss on Sub-Contractor?

    Court protects General Contractor and ultimate Customer – preserves ability of General contractor to get best price for Customer. If Sub-Contractor not bound, loss ultimately borne by Customer if General Contractor has to revise bid.

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