Cases Flashcards
Williams v Walker- Thomas Furniture Co (1965)
Facts
Walker-Thomas Furniture Co. sold household items on an installment plan using a dragnet clause, which kept all items previously purchased as collateral until the total debt was fully paid. If a customer defaulted on one payment, the company could repossess all previously purchased items. Williams, a low-income customer, purchased a stereo but later defaulted, leading Walker-Thomas to attempt repossession of all her previously purchased items.
Issue
Was the contract unconscionable and, therefore, unenforceable?
Holding
The D.C. Circuit held that courts have the authority to refuse to enforce unconscionable contracts, even if no specific law prohibited them at the time. The case was remanded to determine whether the contracts were unconscionable.
Key Reasoning
Meaningful Choice & Bargaining Power: A contract may be unconscionable if there is a gross inequality of bargaining power, leaving one party with no real choice.
Fine Print & Complexity: If important terms are hidden in a maze of fine print or deceptive sales tactics, the weaker party may not truly consent to the contract.
Commercial Reasonableness: Courts should assess whether contract terms are so extreme that they are unfair by contemporary business standards.
Significance
This case helped establish unconscionability as a defense in contract law, influencing future consumer protection laws.
Lhotka v. Geographic Expeditions, Inc.
Facts:
Jason Lhotka died of altitude sickness on a Mount Kilimanjaro expedition organized by Geographic Expeditions, Inc. (GeoEx). Lhotka and his mother, Sandra Menefee, signed a mandatory release form that included an arbitration clause limiting damages to the cost of the trip. Menefee sued for wrongful death. GeoEx moved to compel arbitration.
Issue:
Is the arbitration agreement in GeoEx’s release form unconscionable and therefore unenforceable?
Holding:
Yes, the arbitration agreement was unconscionable and unenforceable.
Reasoning:
Procedural Unconscionability: The agreement was a “take-it-or-leave-it” contract, presented as mandatory and non-negotiable. GeoEx misled plaintiffs into believing that other travel companies had similar terms.
Substantive Unconscionability: The agreement was overly one-sided. It limited damages to the trip’s cost, required plaintiffs to pay half the mediation costs, and made them indemnify GeoEx for legal fees.
Applying the “sliding scale” test, both procedural and substantive unconscionability were present, making the arbitration clause unenforceable.
Rule:
An arbitration clause is unenforceable if it is both procedurally and substantively unconscionable, even in contracts for non-essential recreational activities.
Conclusion:
The court affirmed the denial of GeoEx’s motion to compel arbitration
Donovan v Bachstadt (1982)
Facts:
Edward and Donna Donovan (plaintiffs) entered into a contract with Carl Bachstadt (defendant) for the purchase of real property. The contract stipulated that the seller would provide marketable title. After a title search, it was revealed that the title was defective and could not be cleared. The Donovans sued for compensatory damages, including the difference in mortgage interest rates they incurred when they purchased another home at a higher interest rate due to the breach. The trial court awarded them certain costs but denied their claim for benefit-of-the-bargain damages. The Appellate Division reversed, and the case was appealed to the Supreme Court of New Jersey.
Issue:
Whether a buyer of real property is entitled to benefit-of-the-bargain damages (including interest rate differences) when the seller breaches the executory contract to convey marketable title.
Holding:
Yes, the buyer is entitled to benefit-of-the-bargain damages, including the interest rate difference if it results from the breach.
Reasoning:
Benefit-of-the-Bargain Damages: The court held that the buyer is entitled to recover damages that place them in the position they would have been in had the contract been performed. This includes not only direct expenditures like title search costs but also consequential damages such as the difference in mortgage interest rates caused by the seller’s breach.
Compensatory Damages: The purpose of compensatory damages is to put the injured party in as good a position as they would have been in if the contract had been performed. The court found that the higher mortgage rates due to the seller’s breach were a foreseeable and reasonable consequence of the breach.
Causation and Foreseeability: The seller’s failure to provide marketable title was deemed to have directly caused the Donovans to incur higher mortgage costs, and the damages for this loss were appropriately considered.
Judicial Remedies: The court reaffirmed the American rule for compensatory damages, emphasizing that they are designed to return the injured party to the position they would have been in had the contract been fulfilled.
Rule:
When a seller breaches an executory contract to sell real property, the buyer is entitled to benefit-of-the-bargain damages, which can include consequential damages such as the difference in mortgage interest rates if the breach results in such losses.
Conclusion:
The judgment of the Appellate Division was modified, and the case was remanded for further proceedings consistent with the Supreme Court’s opinion, awarding the Donovans compensation for their losses, including interest rate differences and other expenses incurred due to the breach.
Neri v Retail Marine Corp
Key Facts:
The plaintiffs (buyers) contracted with the defendant (retail dealer) to purchase a boat for $12,587.40. They initially paid a $40 deposit, which was later increased to $4,250 in exchange for a guarantee of prompt delivery. Six days after the contract, the buyers’ lawyer rescinded the contract, citing medical reasons that made it impossible for the buyer to make payments. The boat had already been ordered and delivered to the defendant.
The defendant refused to return the deposit and filed a counterclaim for damages, including lost profits and incidental expenses. The defendant sold the boat to another buyer for the same price but argued that without the breach, it would have made a profit from two sales instead of one.
Legal Issue:
The key issue in this case was the correct measure of damages for the seller in a breach of contract by the buyer under the Uniform Commercial Code (UCC), specifically whether the seller could recover its lost profits and incidental damages.
Court’s Analysis:
The court considered the applicable UCC provisions, particularly Section 2-718 (which addresses buyer’s rights to restitution) and Section 2-708 (which governs seller’s remedies for a buyer’s repudiation). The court explained that under UCC §2-708(2), when the usual measure of damages (contract price minus market price) is inadequate, the seller can recover the profit it would have made from full performance by the buyer, along with any incidental damages.
The court rejected the trial court’s reliance on UCC §2-718(2), which had limited the seller’s recovery to $500, explaining that the seller was entitled to its profit and incidental damages under UCC §2-708. The seller was entitled to its profit of $2,579 and $674 in incidental expenses, which included storage, upkeep, finance charges, and insurance.
Court’s Conclusion:
The court reversed the lower courts’ decision and awarded the defendant damages equal to the lost profit and incidental expenses. The plaintiffs were entitled to restitution of their $4,250 deposit minus the $3,253 offset (for lost profit and incidental damages).
Final Decision:
Plaintiffs were entitled to the return of their deposit, minus the defendant’s damages of $3,253 (lost profit and incidental damages), leading to a final restitution of $997.
Implication:
This case highlights the ability of a seller under the UCC to recover lost profits and incidental damages in the event of a buyer’s repudiation of the contract. It shows how the UCC allows for a more comprehensive remedy to make the seller whole, including recovery of lost profits even in retail sales situations.
Promissory Estoppel
Drennan v. Star Paving Co.
IRAC Case Brief: Drennan v. Star Paving Co. (1958)
Issue:
Is a subcontractor’s bid irrevocable under the doctrine of promissory estoppel when the general contractor relies on it to submit a project bid?
Rule:
Under Restatement (Second) of Contracts §90, promissory estoppel applies when:
1. A promise induces reasonable and foreseeable reliance,
2. The promisee detrimentally relies on the promise, and
3. Injustice can only be avoided by enforcing the promise.
Application:
- Defendant (Star Paving) submitted a low bid for paving work, which Plaintiff (Drennan) used in his general contract bid.
- Defendant later revoked the bid, claiming a mistake, after Drennan had already been awarded the contract.
- The court held that Defendant had reason to expect Plaintiff’s reliance.
- Plaintiff detrimentally relied by being bound to perform at the bid price.
- To prevent injustice, the court enforced the bid under promissory estoppel, even without traditional consideration.
Conclusion:
The court affirmed judgment for Plaintiff, holding Defendant’s bid irrevocable due to Plaintiff’s reasonable and foreseeable reliance under promissory estoppel.
Promissory Estoppel
Hoffman v. Red Owl Stores, Inc.
Issue:Does the doctrine of promissory estoppel apply when a franchisor makes assurances that induce significant reliance by a prospective franchisee, even though no formal contract was formed?
Rule:Under Restatement (Second) of Contracts §90, promissory estoppel applies when:
A promise is made that the promisor should reasonably expect to induce action or forbearance,
The promisee actually relies on the promise to their detriment,
Injustice can be avoided only by enforcing the promise.
Application:
Hoffman was repeatedly assured by Red Owl representatives that an investment of $18,000 would be sufficient to establish a franchise.
Relying on these promises, Hoffman took significant actions, including selling his bakery and grocery businesses, purchasing a new site, and relocating his family.
Red Owl continued to modify financial requirements, increasing the required capital from $18,000 to $24,100 and then to $26,000, ultimately demanding that Hoffman’s father-in-law’s financial contribution be an outright gift.
When Hoffman could not comply with the final demands, Red Owl terminated negotiations, leaving him with substantial financial losses and no franchise.
The court found that Red Owl made representations that they should have reasonably expected Hoffman to rely upon and that he did so to his detriment.
Conclusion:The Supreme Court of Wisconsin ruled in favor of Hoffman, holding that Red Owl’s representations induced reasonable and detrimental reliance. Under promissory estoppel, Red Owl was liable for damages, even though a final contract was never executed.
Promissory Estoppel
Valley Bank v. Dowdy
Case Brief: Valley Bank v. Dowdy
Facts
Larry Dowdy purchased a tractor/trailer from Weeks Brothers, with financing from Valley Bank. Although Dowdy expected title transfer, the Bank retained it as the first lienholder. Dowdy used the vehicle, made repairs worth $6,658.98, and later defaulted on the loan. The Bank sued for repossession, and Dowdy counterclaimed for repair costs under detrimental reliance and promissory estoppel. The trial court ruled in favor of the Bank for repossession but awarded Dowdy reimbursement for repairs. The Bank appealed.
Issue(s)
1. Did Dowdy establish detrimental reliance or promissory estoppel to recover repair costs?
2. Was Dowdy entitled to reimbursement based on the Bank’s alleged failure to transfer title?
Rule(s)
- Promissory Estoppel (Restatement (Second) of Contracts §90):
- A promise inducing reasonable reliance is binding if injustice can only be avoided by enforcement.
- Equitable Estoppel requires a false representation or concealment of material facts to induce reliance.
- Lienholder Rights: A first lienholder retains title until loan repayment.
Application to the Rules
- The Bank never promised immediate title transfer; title remained with the lienholder as per standard practice.
- Dowdy had full use of the vehicle and did not repay the loan. His expectation of title transfer did not justify repair expenses.
- Unlike valid detrimental reliance, Dowdy’s losses stemmed from his failure to pay the loan, not the Bank’s actions.
- If Dowdy had tendered payment and the Bank failed to transfer title, a claim for detrimental reliance would be valid. However, this did not happen.
Judgment/Reasoning
The Supreme Court reversed the trial court’s award of repair costs, ruling that Dowdy failed to establish detrimental reliance or promissory estoppel. Dowdy did not suffer a legal detriment caused by the Bank’s failure to transfer title, and he did not fulfill his obligation to pay off the loan. Therefore, he was not entitled to reimbursement.
Promissory Estoppel
East Providence Credit Union v. Geremia
Case Brief: East Providence Credit Union v. Geremia
Facts
Defendants borrowed $2,350.28 from East Providence Credit Union, secured by a chattel mortgage on their car, which required them to maintain insurance. When their policy was at risk of cancellation, the plaintiff sent a letter stating it would renew the policy and charge the cost to the loan. Defendant wife called and approved this arrangement. However, the plaintiff failed to pay the premium, leading to policy cancellation. When the car was later destroyed, no insurance coverage existed, leaving the defendants unable to cover their loan balance. The trial court found for the defendants on their counterclaim.
Issue(s)
1. Did the plaintiff’s promise to pay the insurance premium create an enforceable obligation?
2. Did the plaintiff’s failure to fulfill this promise constitute a breach of contract or invoke promissory estoppel?
Rule(s)
1. A promise supported by valid consideration is enforceable as a contract (Restatement (Second) of Contracts § 71).
2. Under promissory estoppel, a promise is enforceable if:
- The promisor should reasonably expect reliance.
- The promise induces such reliance.
- Injustice can only be avoided by enforcing the promise (Promissory Estoppel: Requirements and Limitations of the Doctrine, 98 U. PA. L. REV. 459).
Application to the Rules
- The plaintiff’s promise to pay the premium was not gratuitous; the mortgage agreement allowed the plaintiff to add such payments to the loan balance with interest, making it a contractual obligation.
- Even if the promise were gratuitous, promissory estoppel would apply because the defendants reasonably relied on the promise, did not pay the premium themselves, and suffered financial harm when their car was destroyed without coverage.
- The plaintiff’s failure to pay the premium constituted a breach of contract, making it liable for the defendants’ losses.
Judgment/Reasoning
The Supreme Court affirmed the trial court’s ruling in favor of the defendants. The plaintiff’s promise to pay the insurance premium was enforceable as either a contractual obligation or under promissory estoppel. The plaintiff’s failure to act resulted in financial harm to the defendants, justifying the judgment against it.
Promissory Estoppel
Ricketts v Scothorn
(1898) Nebraska Supreme Court
Parties
- Defendant: Andrew Ricketts
- Respondent: Katie Scothorn
Facts
John C. Ricketts, the grandfather of Katie Scothorn, issued a promissory note promising to pay her $2,000 with interest at 6% per annum. He told her she “did not have to work anymore,” as none of his other grandchildren worked. Relying on this promise, Katie quit her job as a bookkeeper. After Ricketts’ death, his executor, Andrew D. Ricketts, refused to honor the note, arguing that it lacked consideration. Katie sued to enforce the promise.
Issue(s)
Was the promissory note enforceable despite the lack of traditional consideration?
Did the doctrine of equitable estoppel prevent the executor from denying payment based on a lack of consideration?
Rule(s)
A promise unsupported by consideration is generally unenforceable as a mere gratuitous gift (Restatement (Second) of Contracts § 17).
Under the doctrine of equitable estoppel, a promisor may be precluded from denying the validity of a promise if the promisee reasonably relied on it to their detriment (Simpson Centenary College v. Tuttle, 71 Iowa, 596, 33 N.W. 74).
Equitable estoppel applies when:
The promisor makes a representation or promise intending reliance.
The promisee reasonably relies on the promise.
The promisee suffers a detriment due to that reliance.
Application to the Rules
The court found that the promissory note lacked traditional consideration because there was no exchange or requirement that Katie quit her job in return for the money.
However, equitable estoppel applied because Katie reasonably relied on her grandfather’s promise when she quit her job, thereby changing her financial position for the worse.
Since her grandfather intended for her to rely on the note and she acted upon it, the court determined that it would be inequitable to allow his estate to avoid payment.
Judgment/Reasoning
The Nebraska Supreme Court affirmed the lower court’s ruling in favor of Katie Scothorn. While the note was not enforceable as a contract due to lack of consideration, the doctrine of equitable estoppel prevented the executor from denying liability. Ricketts induced Katie’s reliance, leading her to leave her job, and fairness required enforcing the promise
Defenses
Cousineau v Walker
Here’s the case brief formatted using the IRAC (Issue, Rule, Application, Conclusion) method:
Cousineau v. Walker (613 P.2d 608, 1980) – Supreme Court of Alaska
Issue:
Can a buyer rescind a land sale contract and seek restitution due to false statements made by the seller regarding the property’s highway frontage and gravel content?
Rule:
A contract may be rescinded if:
1. A misrepresentation (even if innocent) was made.
2. The misrepresentation was material, meaning a reasonable person would consider it important in making a purchase decision.
3. The buyer relied on the false statements.
4. The buyer’s reliance was justified, meaning they were not obligated to investigate further under the circumstances.
Application:
- Misrepresentation: Walker and his real estate agent falsely claimed that the property had 580 feet of highway frontage and significant gravel deposits. However, it only had 415 feet of frontage and no commercial gravel deposits.
- Materiality: The court found that both factors (highway frontage and gravel) were significant to the buyer, as evidenced by Walker’s marketing of the property and Cousineau’s immediate actions to extract gravel upon purchasing.
- Reliance: The trial court initially found that Cousineau did not rely on the false statements. However, the appellate court disagreed, emphasizing that Cousineau—who was in the gravel business—would naturally rely on representations about gravel. Additionally, the appraisal reaffirmed the existence of a gravel base.
- Justified Reliance: The court rejected Walker’s caveat emptor defense, noting that modern real estate law imposes greater obligations on sellers. While Cousineau could have conducted further investigations, he was entitled to rely on the seller’s statements without being required to verify them independently.
Conclusion:
The Alaska Supreme Court reversed the trial court’s ruling and held that Cousineau was entitled to rescind the contract and recover the payments made. The case reinforced buyer protections in real estate transactions and limited the application of caveat emptor when sellers make material misrepresentations.
Defenses
CBS Inc. v. Ziff-Davis Publishing Co
CBS Inc. v. Ziff-Davis Publishing Co. (1990) – Court of Appeals of New York
Issue:
Does a buyer’s disbelief in the accuracy of warranted financial information before closing bar a breach of express warranty claim?
Rule:
A breach of express warranty claim does not require the buyer to believe the warranted information is true at closing—only that the warranty was part of the bargain and relied upon when entering the contract.
Application:
- CBS bid on Ziff-Davis’s magazines based on financial statements warranted as accurate.
- CBS later doubted the accuracy but still proceeded with closing under a mutual agreement that the warranties survived.
- Ziff-Davis argued CBS’s disbelief nullified reliance, but the court held that reliance was on the warranty itself, not the information’s truth.
Conclusion:
The court reinstated CBS’s claim, ruling that a buyer need not believe the warranty at closing to sue for its breach—only that it was a bargained-for term.
Hawkins v McGee
