CONTRACT AND RELATED OBLIGATIONProf. Hillman

I) Theories of Obligation

A) CONTRACT: Agreement with Consideration – Bargain Theory of ConsiderationDefinition: A promise that is supported by consideration because the promisor gets something (extracts) from the promissee in exchange for the promise. Ex: I tell Alice I will sell her my piano for 400 dollars and she agrees. I promised my piano in exchange for something (400 dollars) therefore my promise is enforceable.

1) Bargained for Exchange v. Gift Promisea Legally enforceable while a gift promise is not.b In a gift promise, there is no consideration.

i Consideration is the “price of the promise”c Condition on a promise v. Consideration

i If a benevolent man tells a homeless man to walk to the corner so he can get a free coat: the walk to the corner is a condition on the promise and not a consideration. If the homeless man was sitting outside a restaurant that the benevolent man owned and the benevolent man wanted to get the homeless man to leave and told him to walk to the corner to receive the coat, then that would constitute consideration.

d Consideration must include bargained for exchangee A promisor’s gratitude for past performance or service does not constitute consideration

because the promisor is not extracting and the promissee is not supplying anything at the time of the promise. i Example: Dougherty v. Salt (1919) Aunt pulls nephews cheeks for free

(i) Facts1. An 8 year old boy was given a note by his aunt promising 3000 dollars payable

at her death or before2. It was given with the words “You have always done for me, and I have signed

this note for you. Now do not lose it. Some day it will be valuable.”3. After the death of his aunt, the boy’s mother on behalf of the buy is asking for

the money4. The estate of the Aunt refuses

(ii) Note: If we apply Fuller’s Functions (see below) 1. lacked cautionary

(iii) Rule1. A promise based on a person’s past good conduct or service does not

constitute a consideration and therefore is not enforceable as a contract, rather it is a gift promise

2) Promisor’s Motivea There are two important caveats to motive:

i A reasonable person must believe that your motive for making the promise of the piano was to obtain a return promise of 400 dollars. A promisor’s actual motive is irrelevant.

ii A Promisor’s motive (determined objectively) does not have to the primary or even a substantial reason for making the promise: it simply has to be one of the reasons.(i) Example: Allegheny College v. Jamestown (ii) The fact that what is bargained for does not of itself induce the making of the

promise does not prevent it from being consideration for the promise.

b Not only must a reasonable person believe that one of the promisor’s motive was to extract consideration, but a reasonable person must believe that the promise induces the promissee to deliver that consideration:i Example: Baehr v. Penn O- Tex Oil Corp (1960 ). Slick as oil

(i) Facts1. Baehr’s leverage as a promise not to sue Kemp. Baehr’s theories: contractual

and that Penn O Texx was in possession and an assignee of Kemp’s lease. The argument was that because Penn was holding Kemp’s accounts, then Kemp’s liability transfers to Penn. So all we have left is the contract portion of the case.

2. The Court decides that there is nothing in the evidence that the defendant sought any forbearance by P or thought that it was securing such action: therefore no bargain here, i.e no consideration.

(ii) Rule1. If promisee's forbearance to sue induced the promisor's promise and vice

versa, then there is a bargain and an enforceable contract.ii Uncle tells nephew to stop smoking and he will him 2000. Nephew stops smoking.

Then there is a contract. However, if Nephew had seen a doctor and had decided to stop smoking anyway, then there is no inducing of the forbearance and therefore no consideration: no contract.

3) What must be extracted:a There must be a bargain for either a return promise or a performance.

i Return Promise(i) Executory bilateral exchange (mutuality of obligation) or promise for a promise

ii Performance as consideration(i) It does not have to consist of a return promise. A promisor can extract a

performance as the price of the promise(ii) Such performances include acts and forbearances

1. Forbearances included desisting from exercising from one’s legal rights such as the right to smoke or drink when one is allowed to:

iii Example: Hamer v. Sidway (1891) So, you want me to be a mormon?(i) Facts

1. William E. Story was promised by his uncle in front of many friends and family that if he abstained from certain activities, he would be given 5000 dollars when he turned 21

2. When the turned 21, the nephew wrote to his uncle informing him that he had abstained from said activities

3. The uncle died 12 years later and the money had not been given4. The estate of the uncle refused to pay the nephew

(ii) Rule1. In cases where the promissee has to give up a legal right in order to obtain

the promisor’s gift, then that “giving up” is a consideration and the gift promise become a contract

a. NOTE: It is hard to think of a situation where forbearance would be consideration (bargained for) and if it did not benefit the promisor at least psychically.

b. However, all we can state now is that the fact there is a benefit aids us and is a not a conclusive test of consideration:

(iii) Gilmore, Death of K (1974 p 60): “Hamer illustrates that the NY court of Appeals, unlike most American courts, rejected the so-called bargain theory of consideration”

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1. Gilmore’s criticism goes too far - Uncle had non-economic benefit2. Hypo: Suppose nephew was going to quit smoking anyway b/c doctor said quit

smoking. Then no good consideration b/c no conduct was induced by Uncle’s offer

iv Fuller’s reasons for enforcement(i) evidentiary: promise made before witness & reaffirmed in writing(ii) cautionary: least satisfied, though later letter shows certainty of intent(iii) channeling: clear promise of certain amount of money for certain acts

v Substantive bases of Contract Liability:(i) personal autonomy: actions or forbearance by nephew important to society(ii) reliance: nephew changes position by relying on promise(iii) unjust enrichment: Uncle gained non-economic enrichment

b Consideration can be given by meeting a promisor’s condition if the promisor has bargained -for the realization of the condition (this becomes the “benefit”) So basically an exception to the condition on a promise rule. i Example: Maughs v. Porter (1931) If you’re white, you could win a car!

(i) Facts1. Defendant placed an ad in the local newspaper advertising an auction2. In the ad, Defendant stated that any white person over 16 had the opportunity to

win a free car 3. Plaintiff attended auction and participated in a raffle for the free car4. Plaintiff won said raffle5. Defendant place an order for the car, but refused to pay for it when it was ready

for delivery6. Defendant refuses to pay the plaintiff 461, the alleged value of the car

(ii) Rule1. In gift promises, if there was a condition given at the request of the

promisor, and that request is of benefit to the promisor, then it most likely is a consideration and the gift promise is therefore a valid and enforceable contract.

a. The ad brought people to the auction which benefited him because people might buy his stuff

4) Forbearance to sue as considerationa Forbearance to sue as consideration generally: see Baehr v Penn-o-Tex (Minn 1960

i Action or forbearance which isn’t bargained-for (unsolicited) is not consideration

b The forbearance to sue has to be on a valid claim i If it is not a valid claim and you knew so, and then made a forbearance to sue: then

you are lying and extorting something.ii Caveat: If you reasonably or honestly did not know that it was not a valid claim and

made a forbearance to sue – then it would be enforceable because it would be a colorable claim so:(i) Either reasonable or (ii) Honest

1. So basically if I (or really one could –its an objective standard) reasonably determine that the claim was valid then my forbearance to sue is consideration OR

2. if I believed (subjective standard) in good faith that it was a valid claim then forbearance to sue is consideration.

iii Example: Springsteed v. Nees (1908) And the other three get nada, capice?

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(i) Facts1. Mr. Ness dies2. In his strongbox, they were deeds to 2 properties given to both George and

Sophie3. The other 3 children got zilch4. At the time of the opening, the other 3 chilin “murmured” 5. G + S promised a part of the Sackett Street property if the other children did not

bother them about the Atlantic Ave property(ii) Rule

1. The court rules that there was no claim by the other 3 children, so they could not give anything up. There must be a reasonable or an honest belief that the claim has some foundation in law or in equity (and hence colorable), and only then such forbearance could be consideration.

2. Note: perhaps this policy is too easy on negligent people?iv Corbin on K (1963) p 65: Forbearance to bring suit is not sufficient consideration if

person forbearing knows that claim is ill-founded and void. To rule otherwise would be to encourage blackmail and fraud and settlements of harassing lawsuits.

v NOTE: forbearance of a valid right to rescind (e.g., a wedding proposal) is good consideration

vi in other words - giving up the right to not do something is valid consideration

5) Public policy reasons for enforcing bargained for exchanges a Fuller’s Consideration and Form or as I like to call them: Fuller’s Functions.

i Evidentiary Function: a bargained for exchange tends to produce evidence that a promise was really made.(i) One reason why contract law does not enforce gift promises because it wants to

protect promisor(s) from ill advised and thoughtless promises:ii Cautionary Function: because it requires an exchange transaction, it makes sure that

parties understand the legal ramifications and makes the agreement more stable.iii Channeling function: the bargained for exchange requirement offers parties a

recognizable method of entering into an enforceable obligation.b Substantive basis of contract liability

i Enforcing bargained for exchanges supports the principle of private autonomy b/c people can create their own legal relations through transactions. (i) Protects people who rely on such agreements(ii) Protects people from unjust enrichment situations

c Maybe one reason why the law does not enforce gift promises is not b/c they are unimportant but if contract law did enforce them: they would lose their symbolic value: the world of gift is a world of our better selves.

6) Adequacy of Considerationa One of the principles of contract law is that the Courts are not to decide the adequacy of

consideration: the parties should decide what something is worth (of course there are exception which I will get to) but for now check out:i Example: Hardesty v. Smith (1851) Not exactly Edison over here.

(i) Facts1. Isham sold the right to an invention to Smith2. Smith signed some promissory notes to pay for the rights3. Isham gave the notes to Hardesty4. Hardesty asked Smith for the money

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5. Smith refused to make due on the notes because he said the invention did not work

(ii) Rule1. As long as there is consideration and a valid agreement, and even if the

value of one of the considerations may exceed the value of the other consideration, it is still an enforceable contract.

2. Note: Consideration: the doing of an act at the request of another, which may be a detriment or an inconvenience, however slight to the party doing it, or may be a benefit…to the party at whose request it is performed (page 46)

b Exceptions: includei Unconscionabilityii Duressiii Misrepresentation

c Reasons for enforcing the contract:i Preserves private autonomy ii Impractical/chaotic for Court to intervene anytime there was an imbalance in the

exchange: people have to decide what has value (i) See exceptions above

7) Mutuality of Obligation and Illusory promisesa When there has yet to be performance ( promise for a promise) However, if Alice told me

that she would promise to pay me 400 dollars for my piano in exchange for a statement that I will sell the piano if I want to: Contract law treats my statement as an illusory promise meaning no promise at all and therefore unenforceable.i Example: De Los Santos v. Great Western Sugar Company (1984) Mo Beets, Mo

Money, Mo problems(i) Facts

1. De Los Santos promises to haul as many beets as may be loaded; company promises to pay for the beets loaded and transported

2. No mutuality of obligation because sugar company has the option of doing nothing for the agreement, so no contract

(ii) Rule1. An agreement which depends on the will or pleasure on only one of the

parties is an unenforceable contract that lacks mutuality of obligation.b Sometimes languages appears to be illusory but the circumstances demonstrate that the

promisor really did intend to commit itself (perhaps implied in fact contract?) i Example: Wood v. Lucy (1917 ) Fur coated woman and angry salesman

(i) Facts1. Wood had the exclusive right to place Lucy’s endorsements of fashion designs

on clothing and to place Lucy’s own designs on sale 2. The parties agreed to split the profits3. When Lucy made her own endorsement and kept the money: wood sued for

breach of contract(ii) Rule

1. In exclusive agreements, exclusive control in exchange for an implied obligation to use “reasonable efforts” exercising that control establishes mutuality of obligation, creating an enforceable contract.

(iii) Note: Business Context.ii Instinct with obligation” J. Cardozo

c Reasonable efforts is not the only implied promise courts use: they also have the “satisfaction” clause

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i If you state that you will buy something if you are satisfied with it then you are held to a good faith determination of the satisfaction:(i) The good faith obligation means that your decision abut whether you are satisfied

must be 1. reasonable or honest 2. Which test should the courts apply:

a. Commercial value or quality: reasonablenessb. Taste or judgment: honesty

ii Example: Mattei v. Hopper Like the land huh? Sorry, no sell(i) Facts

1. Plaintiff, a real-estate developer, makes a contract to purchase property from the defendant to construct a shopping center. The plaintiff makes a deposit, and agrees within 120 days to “examine the title and consummate the purchase.” The plaintiff’s purchase in doing so was to have a chance to arrange leases for the mall he intended to build prior to completing the arrangement.” However, at the time he is ready, the defendant refuses to hand over the land.

(ii) RuleAn agreement that includes a “satisfaction clause” does not eliminate mutuality of obligation, making the contract invalid, since the promisor can only withdraw from the agreement if his/her satisfaction is in “good faith.(iii) “Duty of good faith” to use reasonable efforts to perform

iii UCC § 1-203: Obligation of Good Faith p 74: “Every K or duty w/in this Act imposes an obligation of good faith in its performance or enforcement.”(i) Restriction on promisee’s freedom is sufficient to satisfy the

consideration requirement. Lucy was giving away something, so she must have expected something valuable in return

iv Restatement (2) § 205: Duty of Good Faith and Fair Dealing p.745: Every K imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.(i) Good faith emphasizes faithfulness to agreed upon common purpose and

consistency with the justified expectations of the other party; it excludes a variety of types of conduct characterized as “bad faith” b/c violates community standards for decency, fairness, or reasonableness

v UCC § 2-306(2): Exclusive K p. 74: “A lawful agreement by either seller or buyer for exclusive dealing in the kind of goods concerned imposes, unless otherwise agreed, an obligation by seller to use best efforts to supply goods and by buyer to use best efforts to promote their sale.”

vi Summers, Good Faith p. 744: No single meaning of “good faith” in case law. Rather, ask what judge is trying to exclude (bad faith) by using “good faith” and then use opposite of bad faith as “good faith” standard

vii So to review: Satisfaction Clause has two conditions:1. satisfaction as to commercial value (value, quality, operative fitness,

mechanical utility) - easy to measure2. use standard of reasonable person

(ii) satisfaction as to fancy, taste, judgment (duration of leases, lease restrictions, rental amounts, character of lessees’ businesses)- too many variables to use objective test

1. use standard of good faitha. “Implicitly imply that the promisor’s duty to exercise his

judgment in good faith is an adequate consideration to support the contract.”

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viii Corbin, p. 79: “A promise conditional upon the promisor’s satisfaction is not illusory since it means more than that the validity of the performance is to depend on the arbitrary choice of the promisor . . he must be dissatisfied with the performance of the contract and his dissatisfaction must be genuine.”

ix Prob. 2-4 p.79: On 1/1, S agrees to sell 12 jet engines to B, delivery to B of one each month beginning 2/1, w/payment due on delivery. Agreement also provides “that S shall be free to terminate this agreement on 24 hrs notice.” Valid K? Yes because no unrestricted discretion to withdraw, but makes S’s performance dependent upon whether he gave notice. Suppose on 2/1, S failed to deliver w/o having given notice. Enforceable K? Yes, mutual promises, and S breached.

d When there is not a bilateral executory exchange, then the mutuality of obligation does not apply but there can still be an enforceable contract:

e In this case, there is a promise for a promise but there is no mutual obligation: I promise to come work for you if you promise not to terminate without just cause. My promise does not have an obligation element to it: I can terminate at will but in this case there was other consideration (quitting old job, rejecting offers). i Example: Weiner v. McGraw Hill (1982) You’re fired

(i) Facts 1. Weiner contends that McGraw-Hill promises “just cause” employment in

exchange for him leaving his old job; in return, Weiner quit his old job and worked with McGraw for 8 years (is this enough consideration?)

2. Weiner did not make any promise to stay on the job a specified period of time, so why is there consideration?

3. No need for mutuality, if promissee has already purchased the promise with consideration by leaving his old job

4. Mutuality of obligation is not necessary to establish a valid contract, so he did not have to promise to stay on for a particular period of time

(ii) Rule1. Mutuality of obligation is not necessary to create an enforceable contract

when one of the parties has already given other consideration for the agreement

2. Note: Is this a half completed exchange?ii Corbin, p 76: “If the employer made a promise, either by express or implied, not

only to pay for service but also that employment should continue for a period of time that is either definite or capable of being determined, that employment is not terminable at-will by the employer after employee has begun or rendered some of the requested service or has given other consideration. This is true even though employee has made no return promise and has retained power and legal privilege of terminating employment at any time.”

iii Wood, A Treatise on Law of Master and Servant (1877) p. 75: A general or indefinite hiring is a prima facie hiring at-will. The employee must prove otherwise if he so believes.

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8) Pre-Existing Duty Doctrinea Traditionally courts apply the unmodified contract because of the “pre-existing duty” but

when the parties have made the modification agreement voluntarily and freely, then the Courts do not view it as extortion and will allow for the modified agreement to stand.

9) Important Note: The Contract – No Contract Dichotomya Fuller (p.41)

i Too much focus on business transactionsii K- No K dichotomy is a fallacyiii Hierarchy of contract interests with ascending scale of enforceability

(i) Restitution to Reliance to Expectancy (see Remedies Section) iv Example: Sullivan v. O’Connor (1973) She was totally a stripper with a bad nose

(i) Facts1. P had some nose surgery, the surgery didn’t go so well2. Court found that P could recover even though there was a weak contract b/c it

fell in between the false K-No K dichotomy (ii) So what do we get out of the case?

1. There is no firm promise so no contract for sale of goods2. Consideration disproportionate to full expectancy damages3. Expectancy damages difficult to measure (what is the good nose worth?)4. Restitution is too little

a. So we award reliance

10) Summary: Agreement with consideration a Bargained for Exchange

i There is extraction of benefit or detrimentii If not bargained for, action/forbearance is not consideration

b Benefit to promisor can be:i Potential benefit or realization of beneficial conditionii Can also be non-economic

(i) Note: What about benefits conferred on one’s psyche?c Detriment to promisee can be:

i Forbearance of exercising valid rightd Defenses

i Giftii Pre-existing dutyiii Foistingiv Lack of colorable claimv Lack of mutualityvi Indefinitenes

B) PROMISSORY ESTOPPEL Definition: A promise which the promisor should reasonable expect to induce action or forbearance

of a definite and substantial character (no longer in the new Restatement) 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 be enforcement of the promise. The remedy granted for breach may be limited as justice requires.

a (2) A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forebearance. Restatement (2) §90 (1981) p. 111

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2) Development of the Doctrinea While we know that a gift promise is not enforceable – what about a “gift” promise

induces a promissee to rely? Shouldn’t the law protect these people if their reliance was reasonable and provable.i Example: Kirksey v. Kirksey (1845) Kick the widow out of the house

(i) Facts1. Plaintiff, the widowed wife of the defendant’s brother, was raising several

children on her home, and was almost able to purchase the land she was living on. In October of 1840 the defendant wrote plaintiff a letter suggesting he would provide land and housing for the plaintiff’s family if she would sell her existing assets and move the family to the defendant’s estate. For two years, she boarded comfortably, but ultimately the defendant kicked her out of the house.

(ii) Rule1. While the Court found that it was not a contract and only a gift promise

with a condition and the condition was not bargained for, therefore it is an unenforceable gratuitous promise: Remember the Tramp hypo.

2. in the Dicta, the Judge states that: the law should enforce the promise because the promise induced the promissee to rely resulting in loss and inconvenience to her. The Judge went so far as to say that the detriment was a “sufficient consideration to support the promise.”

b Obviously in Kirksey, the Judge went too far in saying it was consideration: he got caught in the Contract- No Contract dichotomy and could not think of a new theory of obligation: Promissory Estoppel.

c As time progressed, Courts began to see that in order to justice to be done, they had to create a new theory of obligation:i Example: Ryerrs v. Trustees (1859)

(i) Facts1. plaintiff on many occasions pledges to contribute $100 towards the construction

of a new church, provided that the church was built according to his desires and specifications. The church followed his desires and specifications in building the church and then Ryers refuses to pay. The jury found for the church, and the appellate court affirms

(ii) Rule1. Promissee can recover if justifiably relied on gratuitous promise to its

detriment.d In cases of land transfers: a parole agreement is usually not valid. However, if there is

part performance and justified reliance on the part of the promissee, then the agreement can be enforced:i Example: Seavey v. Drake (1882) Dad, can I get the Ferrari too if I buy a cool

matching jacket and hat?(i) Facts

1. Father makes oral promise of a deed. Son makes improvements on the land. The estate of the father refuses to give son the land

(ii) Rule:1. Court decides that there is “fake” consideration here because they have no got

PE theory down yet. No written agreement needed because of part performance. So they say that the expenditure in money and labor was “consideration”

2. In equity, the detrimental reliance (expending money and labor making improvements on property) constitutes good consideration for promise

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a. Note: today, I think that the son would get 3000 dollars ( the harm to him based on the reliance) and not the land.

e In a family context involving equity, relying on a gift promise is sufficient for making a promisor liable, you don’t need to provide evidence of a bargained for exchange. i Example: Ricketts v Scothern (1898)

(i) Facts1. Grandpa promises granddaughter 2000 dollars so that she never has to work

again2. Granddaughter quits her job 3. Grandpa dies before giving her the money 4. Executor is estopped from denying consideration

f Equitable v. Promissory Estoppeli Equitable Estoppel is not a promise per se; only requires conduct – acts, language or

silence: basically, everything that might imply a promise but is not technically a promise

ii Promissory Estoppel require an actual promise to existsiii See Pomery’s Equity Jurisprudence (1887) p. 87: Essential Elements for Equitable

Estoppelg Corbin – A limit on the reliance doctrine

i “If a promisor offers his promise as part of a bargain for and in consideration of a specified equivalent, the promisee cannot make the promise binding by acting in reliance upon it in a manner that constitutes no part of that specified equivalent.” (i.e. need for relevance)

h What about inaction?i Example Siegel v. Spear (1923) The sofa! The sofa is on fire!

(i) Facts1. Siegel purchased household furniture for the defendant, and decided to move to

another residence for the summer and store the furniture with the defendant. The plaintiff alleges that he arranged with the defendant to store and insure the furniture. The defendant’s credit man told him “I will do it for you; it will be a good deal cheaper, I handle lots of insurance.” The furniture was sent to the defendant’s storehouse, and then destroyed in a fire in June. The defendant had failed to insure the furniture. The jury found for the plaintiff, and the court affirmed.

(ii) Rule 1. If a person makes a gratuitous promise, and another person relies on the

fact that the promising party will perform, the promisor is held to full execution of all he has undertaken (especially since Siegel had other options to insure).

a. Note: Acceptance of goods is part performance of a promise b. There must be actual reliancec. What about a gift defense? Unreasonable reliance?

i Misfeasance v. Nonfeasancej Thorne v. Deas – A and B are joint owners of vessel. A voluntarily undertook the

responsibility to get vessel insured but neglected to do so. If vessel gets lost at sea, even though B relied to his detriment, there was no consideration for his promise - b/c B parted with nothing, already joint owners)i If A gets wrong policy - then liable b/c of misfeasance (like in Mauldin)ii If A never gets policy - then not liable b/c nonfeasance - A never entered into

performance

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3) Section 90 in the Second Restatement: a Promisor’s reasonable expectations

i A promisor ordinarily should not expect unreasonable actions of the part of the promissee.

b Inducement of action or forbearancei The promissee must act because of the promise.

c Injusticei Section 90 of the second restatement contains injustice but leaves out the “indefinite

and substantial” qualification probably b/c it is hard to think of a case where there is injustice and not qualifying condition not satisfied

4) Expansion of Promissory Estoppela While most of the cases that inspired the drafting of Section 90 were gift promises, courts

began to expand the theory by applying where there was an unenforceable bargain. i Example: Wheeler v. White (1965)

(i) Facts1. White promised to procure a loan for Wheeler so that he could develop his

property.2. Wheeler relied on this promise and tore down an existing building to prepare to

build the new building.3. White reneged on his promise, and Wheeler sued.

ii Rule(i) Binding thread is the existence of promises designedly made to influence the

conduct of the promisee. When the promisee relies on a promise by the promisor to the promisor’s knowledge and suffers detriment if the promise is not fulfilled, then there is a harm done by the promisor.

b What if in cases where there is no contract, but the promisor says she will sign one and that knowing her statements will induce action upon the promisee that will be detrimental if promisor backs out? Is this not part of pre-negotiation? How can we extend PE to the pre-negotiation stage?i Example: Elvin Associates v. Aretha Franklin (1990)

(i) Franklin agreed to perform in a musical but did not sign a contract. Producer incurred great expenses preparing for Franklin’s performance.

(ii) Rule 1. Even before there is a signed contract, if the promisor knows that her promise

will induce action by the promissee in reliance of her promise, then PE can be applied.

c What about during negotiations where there is bargained for transactions but not a bargained for agreement?i Example: Hoffman v. Red Owl Stores (1965 )

(i) Facts1. Mr. Hoffman was strung along with the promise of his very own Red Owl store.

Relying upon this promise, he sold stores, and moved and took out loans, and in the end the Red Owl people kept changing the amount of money he needed. Poor Mr. Hoffman.

(ii) Rule1. Under PE, a party can be liable for inducing “promissory representations”

during negotiations.

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2. Note: The Wheeler court said that he could only recover for reliance damages for detriment sustained and not for expectancy as is usual for breach of contract cases.

d Metzger and Phillips, The Emergence of PE (1983) p. 110: Promisors can protect themselves from PE by limiting liability thru:i Raising issue of reasonableness:

(i) Employ conditional or indefinite promises(ii) Attach termination date to promises(iii) Immediately communicate revocations to the promisee

e Note, Waning of Promissory Estoppel (1994) p.111: PE “has remained an inferior doctrine of last resort. . typically [used] only after promisees have exhausted all other possible claims . . courts regard such last ditch attempts at recovery with extreme suspicion.”

C) UNJUST ENRICHMENT Defintion: When a party confers a benefit on another party and it would be unjust for the recipient to retain the benefit without paying for it, the law imposes an obligation on the recipient to pay or return the benefit.

Implied in Fact Contract: is a true contract, containing all the necessary elements of a binding agreement, it differs in that is has not been committed to writing or stated orally in express terms, but rather is inferred from the conduct of the parties in the milieu in which they dealt. v. Quasi Contract: not a contract at all, but a duty under certain conditions upon one party to requite another in order to avoid the former’s unjust enrichment. For a P to recover under a quasi-contractual claim, P must show that the D was unjustly enriched at the P’s expense and that the circumstances were such that in good conscience the D should make restitution.

i Example: Bloomgarden v. Coyer (1973) (i) Facts

1. This guy Bloomgarden puts together two business people, and they become partners and develop this waterfront property and when Bloomgarden put them together he had said that he hoped this would give his company some future business.

2. His company did not take part in the development so he sued for a finder’s fee of a million bucks.

(ii) Rule1. In order for their to be a claim for UE, the benefit conferred cannot be a

gift promise/ gratuitous and that the promise had the opportunity to reject the benefit conferred ( intermeddler) Once that has been established, then it must be shown that the promisor expected something in return for the promise and the promisee understood that.

2) Dobb’s Test:a Not a gift or a gratuitous promiseb Not foisted

3) Unenforceable agreementsa If I ask Alice to mow my lawn for some money and she mows my loan but we never

discussed the amount of hours or actual wages, then Alice can recover the fair market value of her work.

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i Example: Gay v. Mooney (1901) I really can’t stand my in-laws(i) Facts

1. P gave wife’s uncle room and board in return for promise of land to children. Uncle died before conveying deed

2. Fails Statute of frauds requirement but P recovers under UE(ii) Rule:

1. When a benefit is conferred by family members, and an intention to pay for services exists, then UE can apply where there is an unenforceable K.

b Keeping the benefit is Unjust:i One defense to an UE claim is that the benefit conferred was a gift

(i) Generally courts assume that family members intend to confer benefits on each other gratuitously, but the fact that there is an agreement even if it is unenforceable can lead to an UE claim.

c No benefiti The question is: what is a benefit: What if you ask an architect to draw up plans for

you and then you don’t actually build the house: does the architect get money even though the plans did not benefit you: (well, it did benefit your decision?) Generally courts have said that it is a benefit b/c you requested the service, so even if you do not choose to use the service, you owe the fair market value of it to the person who rendered it.

ii Some contract scholars do not think this is UE but justified reliance. (i) Example: Kearns v. Andree (1928)

1. Factsa. Plaintiff Kearns owned an unfinished house and the land it was on.

When the house was nearly finished, the plaintiff entered into an oral contract with defendant to purchase the house for $8500. There was no written agreement, and details surrounding the mortgage were not resolved. After striking the oral contract, the defendant asked the plaintiff to make additional alterations on the house, including cutting down trees and modifying the house in particular ways that made the home generally less valuable. The plaintiff completed the alterations, but the defendant backed out of the deal. The plaintiff sold to another party for $250 after investing additional time and money redecorating to fit the new buyer’s expectations. Plaintiff brings suit to recover the expense of finishing the house for the new buyer, and the difference in the two sale prices.

(ii) Rule 1. Where a promisee justifiable relies at the request of the promisor and

suffers detriment because of the failure of the promisor to uphold his end of the bargain, the promisee can recover damages.

4) Breach of an enforceable contracta If the breaching party has conferred a benefit on the injured party that exceeds the injured

party’s damages, the breaching party may make an UE claim: this is usually referred to as restitution.

b Injured parties may recover under UEi After a breach of contract, the injured party can sue for either breach of contract or

UE(i) Example: Posner v. Seder (1903 )

1. Facts

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a. Plaintiff and defendant agreed to a one-year contract in which the plaintiff would be paid $17 per week to work 10 ½ hours a day. The contract stated that the pay included overtime work which not exceed more than 2 hours in any one or an aggregate of two months over the year. The defendant breached the contract by firing the plaintiff, and the plaintiff sought extra money for overtime expenses.

(ii) Rule 1. The innocent party may sue on the contract for damages for the breach or

under UE for the market value of his services. ii Note: Some scholars think that allowing people to recover the fair market value under

the UE when there is a K with measures that limit the recovery regardless of breach hurts freedom of contract.

iii One exception to an injured party’s right to claim UE is that if there was a specific performance that was supposed to paid a certain amount for and the injured party completed it, the party cannot recover more than what was contracted for.

c Breaching Parties may recover under UEi Example: Britton v. Turner

(i) Facts1. Employer hired employee to work for a year for 120 bucks, but the employee

without good cause quit after nine and a half months 2. Trial court told the jury that the employee could get the reasonable value of his

work(ii) Rule

1. If EE's performance is not substantial, but ER has nonetheless benefited by EE's performance, EE may recover his restitution interest (in "quantum meruit") if his breach was not "willful", less ER's damages for breach.

a. However unlike an injured party, the K price is the ceiling for the breaching party’s recovery.

d Breaching parties cannot recover if benefit is “foisted.” Breaching contractor cannot recover from D for the benefit conferred before the breach if benefit is foisted - D is helpless to return the benefit and never expressly or implicitly accepted it. i Kelley v Hance (Ct. 1928) p. 132 (P breached K by only digging up D’s ground and

not building sidewalk - also did work late. P sues for restitution of unjust enrichment, but can’t recover b/c D has no way of returning or refusing the benefit. D can recover nominal damages on counterclaim for value of dirt taken.)

e Foisting defense to UE bars recovery - no acceptance of benefit, and unable to return or refuse it.i But P would argue that performing work in front of D’s house with is knowledge

implied acceptance of benefit conferredf Criticism from Hillman:

i We all K for complete performance but we know we may benefit from lessii Motivation of court was to punish an irresponsible contractor - violates “no

punitive damages in K” principle(i) But lawyers should play up good faith/bad faith of party

g Breaching party may recover minus damages to injured party as a result of the breachi Example: . DeLeon v Aldrete (Tex 1965) p. 137

(i) Facts1. P defaulted on installment payments for land after paying 70% of money

[$1,070/$1,500], wants to recover these payments b/c D sold to land to someone else [at $1300]; Ct. awarded $1,070 - $200 = $870)

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(ii) Rule1. Breaching buyer may recover money payments made on installment K

minus the damages sustained by the injured partya. Note: breach was made in good faith and was not willful

5) Conferral of a benefit in the absence of a contracta Theory applies on three conditions:

i The party conferring the benefit did not intend to make it a giftii The benefit was not forced upon the recipientiii Justice requires the party receiving the benefit pay for it (reasonable person standard)

b Relationships: i Example: Sparks v. Gustafson (1988)

(i) Facts1. – Plaintiff was the son of Robert Sparks, who was a business associate of the

defendant. In 1980 the two of them purchased the Nome Center building, which the elder sparks managed until his death. After his death, plaintiff continued to manage the building, paying maintenance and remodeling costs and other expenses out of his pocket. The plaintiff mailed the defendant month expense reports detailing some of the costs he was paying out of pocket. In 1982, the plaintiff made an effort to buy defendant’s share of the building, but in 1983 the defendant sold to a third party. Plaintiff filed suit against defendant alleging breach of an oral agreement, and seeking restitution for out-of-pocket expenses.

(ii) Rule1. When a party confers a benefit that is not gratuitous and not foisted upon

another party, and a reasonable person would pay for such services, then there is Unjust Enrichment claim.

a. Note: there may even be an implied – in fact contract:i. Services were carried out under such circumstances as to give the

recipient to understand ii. that they were performed for himiii. that they were not rendered gratuitously, but with expectation of

compensation iv. that the services were beneficial to the recipient

c Personal Relationshipsi Its possible that in personal relationships, parties may have conferred benefits

that accumulate in wealth over the time of the relationship and that then one party has been Unjustly enriched(i) Example: Watts v. Watts (1987)

1. Court says that there was an implied in fact contract here as well as UE2. a benefit was conferred and it would be unjust for the recipient not to pay for it

6) Gilmore, Death of Contract (1974) p. 143: “With growth of UE, classical consideration theory was breached on the benefit side. With growth of promissory estoppel, it was breached on detriment side. We are fast approaching a point where, to prevent UE, any benefit received by D must be paid for unless it was clearly meant as a gift; where any detriment, reasonably incurred by P in reliance upon D’s assurances must be recompensed. When that point is reached, there is really no longer any viable distinction between liability in contract and liability in tort.”a We have seen contrary cases to Gilmore’s notion that “any benefit received

must be paid for unless clearly meant as a gift.” See Bloomgarden and Kelley.

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b Dawson, Gifts and Promises (1980) p. 143: A response to Gilmore: “A bargain consideration has been and will remain for a long time to come a central feature of our law of K, central in the sense that it provides a strong affirmative reason for enforcing promises, the reason is that by a wide margin the most often used, though it is not the only one.”

D) PROMISE FOR A BENEFIT RECEIVED Definition: “A promise made in recognition of a benefit received is binding to the extent necessary to prevent injustice” Restatement (second) § 86

If the value of the promise is “disproportionate to the benefit” the promise is enforceable only up to the value of the benefit;

o Example: If I mow Alice’s lawn expecting compensation and she promises afterward to give me 1000 for my work, her promise is only enforceable to the fair value of the benefit.

1) The old rule: pre-existing obligation a Example: Mills v. Wyman (MA 1825) Father knows best.

i Facts(i) P voluntarily nursed D’s adult son, son dies, afterwards father promised to pay,

and then repudiates promiseii Rule

(i) If P confers a benefit as a gift and D subsequently promise to pay for the benefit conferred, such a promise for benefit received is enforceable if there was already a pre-existing obligation.

(ii) Note: usually a pre-existing obligation no longer exists b/c of certain circumstances and the promise after the fact makes in enforceable.

2) Think back to Dougherty v. Salt, where the Aunt had promised her nephew money for what he had done in the past. a She could not recover b/c K law does not enforce past considerationb The case Harrington v. Taylor presents a very dramatic representation of this theory

i Facts(i) Husband assaults wife who runs to neighbor’s house. Husband begins assaulting

wife, and wife attacks husband with axe. Neighbor intervenes and gets her hand mutilated. Later, Husband offers to pay for Neighbor’s damages. He never does. Is his promise legally enforceable?

(ii) Rule1. A Promisor’s promise to subsequently pay for a promisee’s voluntary

humanitarian act is not an enforceable K.c Fails Fuller’s Cautionary Function

i Not in a business setting but a personal setting

3) So what’s going on here? It seems like there is no theory here but wait we have:

a Webb v. McGowin (1935) Watch out for that falling pine block!i Facts: P is employee who saves D in an emergency and is disabled in doing so, D

promises to pay P $15/wk for P’s life, pays 8 years, D dies, estate won’t keep paying - Ct. says promise if enforceable

ii Rule

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(i) If Promisee confers a non-gratuitous benefit to Promisor, and Promisor subsequently promises Promisee to pay for the benefit, then the legal fiction is that Promisor would have K for the benefit, and so there is an enforceable K.

iii A promise to pay then becomes like a prior request for the benefit i.e consideration iv Difference between Webb and Harrington/ Mills is the context. Webb is a situation

where the 2 parties are strangers so there is no gift defense. v Hillman emphasizes that in Webb, the fact that it is an employment situation is

important.vi Moral Obligation:

(i) The Court held that since Webb mad materially benefited McGowin, the latter was “morally bound to compensate.”

4) Oberer, on Law, Lawyering and Law Professing: The Golden Sanda In all time there have been no two cases exactly alike.b If a case belongs in court, it belongs in court because the legal doctrines do not decide it.c Tools, not rules.

5) Subsequent promises to pay by promisor for non-gift services conferring a benefit to the promisor by the promisee constitute an enforceable K. a Example: Edson v. Poppe (1910) It sure is a swell well!

i Facts:(i) Subsequent promise by landlord to pay driller for digging a well, not dug at

landlord’s request, held enforceable since the “services were beneficial, and were not intended to be gratuitous.”

(ii) Rule: see above (iii) Note: there is no foisting defense because of subsequent promise.

6) Henderson: Promises grounded in the pasta Because a price is not presently asked for a promise anchored in the past, the general

assumption has been that promisor is vulnerable to danger similar to those that threaten the donors of gift promises. i Perhaps fails Fuller’s evidentiary and cautionary functions.ii Do we really want to force people to abide by promises made after the facts, and

perhaps without thinking about it?

E) OBLIGATION ARSING FROM TORT Definition: When a duty is breached under K that would independently be a duty breached under common law and constitute a tort, the injured party may sue for breach of K or under tort. A) Difference between Contract and Tort:

a. Tort is distinguished from breach of K in that the latter arises under agreement of the parties while a tort is usually a violation of a duty fixed by the law, although sometimes have relation to obligations growing out of or coincident with a K, and the same facts will sustain either cause of action. (Busch v. Interborough)

B) Tortious breach of Ka. Example: Mauldin v. Sheffer (1966) Violates the laws of physics, ‘nuff said

i. Facts: Architect enters into K with Engineer to make improvements to several school buildings. Engineer reuses plans from other projects, some that violate the laws of physics and furnishes them to Architect. Architect incurs large costs as a result of Engineer’s incompetence.

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ii. Rule:1. In situations involving professionals, a duty exists independent of the

K to exercise a reasonable degree of care, the duty arises when the professional performs the contract unreasonable constituting misfeasance.

iii. So we have a tort. This is important because now the Architect can possibly get punitive damages which are unavailable under K.

b. Rule: It does not follow that because acts constitute a breach of K (misrepresentation) they cannot also give rise to liability in tort: where the conduct alleged breaches a legal duty which “exists independent of contractual relations between the parties” a P my sue in tort. Example: Oki v. Hargrave Nurserv (1980) Got a case of Bad Vines

c. Rule: There is no tortious breach of K because of a bad faith employment termination where employment was a termination at will K.

i. Example: Foley v. Interactive Data Corp (1988)d. Note: In this case, Court reasoned that employment K’s were different than Insurance K’s

i. When an insurer in bad faith refuses to pay a claim: then there is a tort remedy allowed for that breach of insurance K.

ii. Why the difference: If your insurance company fails to pay your claim, you can’t turn to the marketplace to find another insurance company like you can another job.

e. Rule: In employment K’s, A breach of implied covenant of good faith and fair dealing will be the premise of a tort action if a “special relationship of trust and reliance is demonstrated.”

i. Note: longevity of service does not suffice to create special relationship1. see Wilder v. Cody Country Chamber of Commerce (1994)

F) OBLIGATION ARISING SOLELY FROM FORMDefinition: The least prominent theory. Binding obligations can sometimes arise because they’re put in writing, even without consideration. They usually involve a seal of some kind.

1) Fulfill the evidentiary and cautionary functions

2) Eisenberg, Donative Promises p. 177a The advantages and disadvantages of making donative promises enforceable on the basis

of their form are in rough balance. There is therefore no compelling reason to change the status quo.

G) STATUTE OF FRAUDS 1) Not a formal theory of Obligation. It is a formal writing requirement for the enforceability of

certain agreements with consideration. We have encountered SOF before: (see Gay v. Mooney or Kearns v. Andree)

2) Basic problems arising under a SOF:a Is the case within the statute?b If the case is within the statute, does a memorandum, note or other writing satisfy the

statute?c If the case is within the statute, and there is no writing, does the statue recognize an

exception?d If the case is w/n the statute + no writing + not an exception, do we have any other

doctrine to help us out?

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3) Moral dilemmaa With the exception of the UCC § 2-201(3)(b) involving the sale of goods, the SOF allows

D to admit to an oral agreement yet plead the statue as a bar to recovery by the Pb Courts are hip to this “hiding behind SOF” and sometimes will not enforce it.

4) One example of the SOF: Hawaii (so much warmer than Ithaca, sigh) which is similar to UCC 2-201 – listed below

i K or promise must be written and signed under certain circumstance:ii the deceased promised money from his estate (Gay)iii when the D promises to answer for the debt of anotheriv when the D promises marriagev when the D promises a devisement of land (Kearns)vi upon an agreement that cannot be performed within the space of one yearvii when the promised sale exceeds a certain sum [eg, $500 under UCC 2-201(1)]

b A violation of SoF doesn’t mean no recovery, only stops Agreement with Cc Satisfaction of SoF doesn’t make unenforceable K now enforceable - but can try

obligation arising from form d NOTE: Valid Aw/C must be within the SoF

5) What kind of writing do we need to fulfill the SOF? p.199 Restatement (2) of K § 131i Writing can be letter, signed agreement, etc., but must include:ii Signed by party to be charged (D)iii reasonably identifies the subject matter of the Kiv sufficiently indicates K has been made or offered by the signerv states with reasonable certainty the essential terms of the unperformed

promises in the K(i) Sec. 131 further states

1. Memo may take form of several writings, provided that one of them is signed and the evidence shows that they relate to the same transaction

2. Memo need not have been created specifically for purpose of serving as a memo of K

3. Signature need not be handwritten4. Memo may be signed at any time before or after formation of K5. If original memo has been lost or destroyed, its contents may be shown

by an unsigned copy or by oral evidence6. If memo omits or inaccurately states a term, some case law permits intro

of oral or written evidence to show term

6) Policy Considerationsa Meets cautionary, evidentiary, and channeling functions

7) Rule: Reliance may remove the bar of the SoF. a Example: MacIntosh v Murphy (HI 1970) Getting Lei’d but not paid

i Facts: Employer estopped from asserting SoF after employee moved from California to Hawaii and worked for 2.5 months in reliance on oral agreement of one-year employment K.

b Courts don’t like to throw out case b/c of SoF when valid K is present, so they create exceptions:i applies to promise of 3rd party to pay creditor only if no benefit to 3rd party

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(i) does not apply to promise performable within one year if one party has performed

(ii) does not apply to speciality manufactured goods, admissions in court, part-performance

c Using Promissory Estoppel ( in MacIntosh) to get around a legislative enactment (statute of frauds) whose purpose is to keep out oral agreements (P’ word against D’s word) is troubling to the separation of powers and so the Court then:i limits remedy to detrimental reliance not expectancy

d Appeals court switches theory to PE to get around mixed message to jury on deciding whether or not K started on Saturday.i Note: if it starts on Saturday, then the SOF applies. If on Monday, then it does not.ii Problem with PE is that he was moving to Hawaii anyway: so was there an induced

reliance? Probably not.8) UCC 2-201

a Formal Requirements: Statue of Fraudsi A K for the sale of goods for the price of goods 500 dollars and more

(i) Exceptions:1. Specially manufactured for the buyer and are not suitable for sale to others

ordinarily2. Party against whom enforcement is sought testifies, pleads or says otherwise in

court that the sale was made

H) OBLIGATION ARISING FROM A STATUTORY WARRANTYContact Law enforces warranties made by sellers, lessors others concerning the quality of performance. The UCC has three sections that cover warranty that we need to know about concerning this class:

1) 2-313: governs express warranties, which arise from statements or conduct of the seller

2) 2-314: deals with the implied warranty of merchantability

3) 2-315: implied warranty of fitness for a particular purposea Implied Warranties: they arise under operation of law meaning that these warranties do

not depend on anything the seller says or does. (kinda like UE in that not consensual in nature)

4) Express Warrantya Needs to be an affirmation of fact or promise made by the seller that becomes part of the

basis of bargain i Defense:

(i) Puffing or sales talkb What would a reasonable person believe about what the seller said or did? c Rule: According to UCC 2-312, statements made by a seller in the course of

negotiation over a contract are presumptively affirmations of fact unless it can be demonstrated that the buyer could only have reasonably considered the statement as a statement of the seller’s opinion. (Keith v. Buchanan (CA 1985)

5) UCC 2-315 – Implied Warranty of Fitness – arises only where:a the purchaser at the time of contracting intends to use the goods for a particular purpose b the seller at the time of contracting has reason to know of this particular purpose c the buyer relies on the seller’s skill or judgement to select or furnish goods suitable for

this particular purpose and d the seller at the time of contracting has reason to know that the buyer is relying on such

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skill and judgment.

6) UCC 2-314: Implied Warranty of Merchantability a Example: Webster v. Blue Ship Tea Room (MA 1964) not talking about some insipid

broth as is customarily served to convalescents i Facts: Patron eats some fish chowder, gets a bone in her throat. ii Rule: Food was merchantable, it’s not uncommon for there to be bones in fish

chowder.

II) REMEDIES

1) EXPECTANCY DAMAGES: BREACH OF CONTRACT a Expectancy Damages – Introduction

i Purpose of awarding damages is to compensate the injured party so that she is in the position she would have been in if the breaching party had performed the contract.

ii Monetary equivalent = expectancy damagesiii She does not get punitive damages b/c goal is compensating the injured party not

punishing the breaching partyiv Example: I want to sell my piano to Alice for 1200 when the market value of the

piano is 1400. I break my contract before I deliver the piano and before Alice has paid you anything: then Alice gets 200 dollars. (i) MP – KP = general damages (ii) Note: this is a sale of goods so Art 2. of the UCC applies(iii) But wait – there are consequential and incidental damages as well: time,

opportunity loss and so on.v Why does society award expectancy?

(i) We want to encourage people to make contracts and not break them(ii) Law and Economics theory

1. Efficiency argumenta. Expectancy damages encourage breach when the breach is efficient b. On the other hand, they discourage when breach would lead to more

losses than gains (iii) Not a Talisman, just a theory

1. Many damage rules often limit the recovery of the injured party to well below lost expectancy i.e paying their lawyers and lose prejudgment interest

2. courts rarely award emotional distress damages or sentimental losses (remember Prof. Hillman’s bike)

3. K law also tends to bar recovery for any unforeseeable consequential damages in order to get parties to disclose relevant information

a. For ex: Alice should tell you she is a piano teacher and will lose profits if you fail to deliver the piano

4. k law also only awards provable damagesb Methods of Measuring expectancy damages

i Fundamental Q: Whether a party’s lost expectancy under a K should be measured objectively based on the market value of the promised performance or subjectively based on the value of the performance to the injured party herself?(i) The foolish monument issue: Groves v. John Wunder Co. (Minn 1939 ) p. 209

1. Groves leases land to John Wunder, one of the provisions of the K is that Wunder is supposed to restore the grade of the land. Wunder does not: if the grade had been restored, it would raise the value of the land 12,000. It would cost 60,000 to restore the grade: does Groves get 12 or 60

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2. Formulas:a. MV of the land if performance had been done – MV of the land as it is

now = 12,000b. Cost of Completion = 60,000

3. Majority:a. If an owner wants to build a foolish monument that diminishes the value

of his land, so be it. i. Restatement § 346: Landowners are free to K to erect monuments,

even if they lower their property value. Once D breaches, he cannot argue that a complete performance will be detrimental to the property value. P should recover COC.

b. Groves wanted the land’s grade restored: so he should receive 60,0004. Dissent

a. This is silly: Groves wants to sell the land so just give him the difference in MV: it does not make sense to spend 60,000 to get a 12,000 return.

5. Note: if the goal of K’s is to make people whole and not to punish K breakers, does it matter whether or not John Wunder Co’s breach was willful?

a. Another note: if we knew how important the restoration was to Groves and whether or not that was factored into the price when he leased the land to John Wunder, that would help us figure this case out.i. i.e the fair rental value of the land was 165,000 but Groves leased it

for 105,000 because he wanted Wunder to restore the grade – this would mean that the provision was already reflected in the price

6. If this is the case: what happened in Peevyhouse?a. Hilldog thinks they got shafted

i. Peevyhouse v. Garland Coal Mining company (Oklahoma 1962) p. 218 – P’s brought an action against D’s for failing to restore the land after strip mining

ii. The cost of restoration was 29,000 iii. But would only increase the value of land by only about 300

b. So, COC is much higher than MV differencei. Court says you get 300 bucks

c. Note: trial court had given 5000, a compromise between 300 and 29,000d. How do we square this with Groves?

7. When the difference between cost of completion and the market value difference is disproportionate and the provision concerning the performance is incidental, then the court will usually not give CoC.

ii Peevyhouse cast into doubt by Rock Island Improvement Company v. Helmerich and Payne Inc (1983) p. 221 – Lease had a reclamation clause in it: The D’s breached and never reclaimed the land. D agues that the reclamation was an incidental purpose and the COC was disproportionate to the difference in MV. (i) Court says: Oklahoma has a statute – that says you have to reclaim and even if

there was no statute: the P’s expressly put in a reclamation clause so that it was not incidental .

(ii) Note: moral of the story: if you can show that a provision is bargained for then it is usually not incidental

(iii) Give them COC (cost of performance) – 375,000c If P is intending to use damages to for completion, P can recover the COC, even if

there is no change in value of land whether completion or breach is final result. Radford v DeFroberville (Eng 1977) p.229 - P sold adjacent land to D with stipulation that D would build a wall between, D did not, failure to build wall did not lower property

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value - P recovered cost of completioni Court looks subjectively at P’s “particular circumstance”

1. tailors remedy appropriate to particular needsii If the P contracts for the supply of that which he thinks serves his interest, be

they commercial, aesthetic, or merely eccentric, then if that which is contracted for is not done by the other party, P should be compensated for the COC of the work. (i) Note: P must be seeking compensation for genuine loss (ie, really means to do

this) and not merely using a technical breach to secure an undeserved profit.iii Restatement (2) of K § 347, Comment B: To calculate lost expectancy damages

“requires a determination of the [value of performance] . . . to the injured party himself and not [the value] to some hypothetical reasonable person or on some market . . . [The value of performance] therefore depend[s] on his own particular circumstances or those of his enterprise.

d Non-breaching party may not recover a Cover k price if work K for is different than the original K that was breached. i Thorne v. White (1954) p. 226 – P K’d with D to fix his roof. D breached K. P hired

another roofer to make repairs on the roof, those repairs were more extensive than the original K had called for. P cannot recover the Cover K, KP differential.

ii A cover K that takes into account breached party’s work will not deduct breached party’s work from the damages. So damages will still be Cover K – KP. (i) Morello v. J.H Hogan (1984) p. 227 - A subK did about 9000 dollars worth of

work on a 44,000, and then breached. Substitute K finished the job and charged 55,000. What does injured party get: 55,000 – 44,000. Why don’t we deduct the 9,000? Because it was already into account in the 55,000.

iii Hillman: worst decided case in K history: Freund v. Washington Square Press (1974) p. 227(i) D breaks a K to publish P’s book. Court decides that P cannot get cost of

publishing the book because P is not asking for copies of his book but the royalties. Since the royalties would be uncertain, P gets nothing.

e Eisenberg, The Responsive Model of Contract Law (1984) p.225i Allow for an intermediate measure of loss when:

(i) P has included cost of performance in original KP and decides not to enforce specific performance (doesn’t really want performance of promise) but settles for intermediate amount

(ii) Unforeseen circumstances would give P a windfall1. D’s cost of performance is much higher than anticipated when

contracting - COC would give P a windfallii Intermediate value may be figure that was agreed upon at time of K w/ parties

limited knowledge for cost of completion(i) or jury may pick appropriate amount

iii Lawyer would protect client by:1. bringing in experts to testify about new amounts2. include ceiling price for performance in K3. show that cost of performance is in discounted K price (John Wunder)4. emphasize in K that performance is an important part of K (Peevyhouse)5. if disproportionate in value - must show that client wants work done

(work take money and run) (Radford)iv Main principle: Freedom of K exists for conditions and lawyer’s job is to show

what conditions mean to client

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f Expectancy damages- general damages and consequential damages i General Damages are damages that arise “naturally” or ordinarily from a

breach or such as may have reasonably supposed to have been in the contemplation of both parties at the time of K. (i) See Hadley v. Baxendale (1854) – P’s were miller whose crank shaft broke. They

ordered a new shaft but the shaft was delayed because of the D’s neglect. As a result the P’s suffered lost profits they would have received if they had a working shaft.

(ii) Court says: those damages were not really foreseeable. The D’s are carriers and not in the same business as the millers and the millers never communicated to the D’s that their business would be hurt by a delay. Therefore no recovery for those damages because they do not arise naturally or ordinarily from the breach.

(iii) Note: Posner says a court should look at a contingency not covered is to imagine what the parties would have done to cover the contingency. For example: if you want something delivered the next day: you pay more

ii If Damages are reasonably foreseeable, then they do naturally arise from the breach.(i) Armstrong v. Bangor Mill Supply Corp. (1929) p. 249 - P had a broken

crankshaft and sent it to D’s business to get it repaired. D was neglectful and took too long. P had not profits for 6 days. Same as Hadley but…

(ii) Court says D was in the mill business so D should have reasonably foreseen the harm – we got damages

iii We have a Note! The Tacit Agreement Test ( rejected by the UCC)(i) Tacit Agreement: Some courts have allowed for recovery of consequential

damages when the D tacitly agreed to assume the risk

iv UCC § 2-715(2)(a)(i) Consequential Damages resulting from the seller’s breach include

1. any loss resulting from general or particular requirements and needs which the seller at the time of contracting had a reason to know and which could not reasonably be prevented by cover or otherwise

2) Expectancy Damages in Various Contextsi Owner Breaches: Injured Builder: In order to put an injured builder in as good

a position as if there had been no breach by the owner, K law must give the builder the net profit he would have made on the K and any amount already expended. (i) Warner v. McLay (1918 ) – Owner breaches building K

1. Formula: Profit plus Amount expended or KP – COCii Note: There is a duty to minimize damages or the avoidable consequences principleiii FULLER and PURDUE, The reliance interest in K damages

(i) Why do we have lost expectancy in contracts?1. Private autonomy: parties exercise legislative power—legal enforcement of

private law2. We must take into account “gains prevented” by reliance, that is - losses

involved in foregoing opportunities to enter other contracts. iv VON MEHRENv Economic considerations in choosing between reliance and expectancy?

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(i) Expectancy = higher price + less risk which yields an increase in likelihood of performance

vi If the only substitute employee available is more qualified than the breaching employee, contract law usually ignores any extra benefit the employer receives because employer had no choice but to accept the benefit (i.e. foisting).(i) Handicapped Children’s Education Bd. Of Sheboygan County v. Lukaszewski

(1983)(232 1. Lukaszewski broke her teaching contract with the Education Board who hired

another teacher in her place at a higher salary.2. Court awarded Education Board full difference between substitute teacher’s

salary and Lukaszewski’s even though the substitute teacher had more teaching experience than Lukaszewski, because any additional value the Board may have received from the replacement’s greater experience was imposed upon it and thus cannot be characterized as a benefit.

b A little bit of efficient breachi Posner: Where he makes a profit and can pay for the breach to the breached party,

society benefits and goods are where they are most valued.ii Fuller: This principle leads to the reordering of interests and lack of contract

authorityiii Where market value is the same as contract price, only nominal damages can be

recovered.(i) Cooper v. Clute (1917)(237

1. Clute entered a contract with Cooper to deliver cotton at 10 7/8 cents per pound. Defendant failed to deliver cotton; Market value was the same. Defendant later got 11.03 cents per pound from another purchaser for the same cotton.

2. Market Value – Contract Price3. Written contract shows that cotton was not particular—could have bought

somewhere else and delivered3) United Commercial Code Remedies Clauses

a UCC § 1-106: Remedies to be Liberally Administeredi Aggrieved party may be put in as good of a position as if the other party had

reasonably performed

b UCC § 2-713: Buyers Damages for Non-Delivery or Repudiationi (Market price at time buyer learned of breach) MINUS (contract price + incidental

damages)ii Market price is determined by place for tender or place of arrival

c UCC § 2-712: “Cover” Buyer’s Procurement of Substitute Goodsi After breach, buyer may “cover” by making in good faith and without delay

reasonable purchase of goods in substitution for those from sellerii Buyer can recover (cost of cover) MINUS (contract price) with any incidental

damages

d UCC § 2-708: Seller’s Damages for Non-Acceptance or Repudiationi (Market Price at Time and Place for Tender) MINUS (Unpaid Contract Price) PLUS

(Incidental Damages MINUS Expenses Saved in Consequence)

e LOST VOLUME: If first method doesn’t apply, then Profit (including Overhead) PLUS Incidental Damages.

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f UCC § 2-706: Seller’s Resale Including Contract for Resalei Contract Price MINUS Resale Price plus Incidental Damages ii Resale must be reasonable and in good faith

g UCC § 2-714: Buyer’s Damages for Breach in Regard to Accepted Goodsi Value they would have been if they had been warranted MINUS Value of Goods

Accepted (at time and place of acceptance)

ii If the dealer has an inexhaustible supply of goods, and there is a breach of K, then measure of damages should be the dealer’s profit on one sale. [Lost Volume Principle](i) Neri v. Retail Marine Corp. (1972)(240 ):

1. Plaintiff had a contract to buy a new special boat for which they made a down payment, and then another payment to indicate “firm sale” required to get immediate delivery. 6 days after contract, plaintiff lawyer sent to defendant a letter rescinding the contract because plaintiff was about to have surgery and could not pay. But boat had already been ordered and delivered before rescinding was received. Plaintiff sued for deposit.

iii UCC §2-708 (2): seller can recover lost profits in lieu of another remedy. “Credit for resale” clause refers to resale of a manufacturer’s raw materials as scrap after a buyer’s breach.

iv Need this provision because market value would not have put him in the same place. 4) Mitigation Principle

i Injured party must act reasonably after a breach to minimize its loss and cannot continue to work to increase damages.(i) Clark v. Marsiglia (1845) p. 252 – D gave P paintings to clean. D breaches K

after P starts cleaning the paintings. Despite the order to stop P continued to clean them.

1. Plaintiff had no right by obstinately persisting in the work to make the penalty upon the defendant greater than it would have otherwise been.

ii When a contract is breached, the non-breaching party has an affirmative duty to take reasonable steps to mitigate his damages. In this case, the P should have considered the D’s father’s offer to purchase the mobile home on behalf of the son. (i) Schiavi Mobile Homes v. Gironda (1983) p. 254 - D K’d with P to buy a mobile

home from P and then breached. P contacted D’s father about the whether or not the D intended to still buy the home. D’s father offered to pay for it but the P sold the home to someone else for less.

iii The duty to mitigate damages in the employment setting includes getting another job, but the injured party does not have to accept a job that is different or inferior.(i) Parker v. Twentieth Century Fox- Film Corporation (1970) p. 256 - Shirley

MacLaine iv HILLDOG: Keeping the deal together after material breach common law mitigation

rules – the UCC, and the RST 2 nd of K’s (i) Courts should consider whether requiring injured employee to accept a new offer

from breaching employer, even reasonable one, impinges on freedom of contractb Lost Volume Cases:

i A lost volume builder (a builder that can satisfy all of its demands for construction at any given time) will not have the profit made on another K in the time that was freed up by the breached K count against them.

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(i) The idea is that they would have been able to do that K and the one that was breached at the same time.

ii A subcontractor can recover lost profits from a general contractor (who breached) despite doing the same work for the landowner (the injured party). (i) Olds v. Mapes- Reeves Construction Company (1900 ) p. 264 - Defendant, a

contractor, agreed to build on land of another. Plaintiffs, subcontractors, agreed with defendant to furnish and set up marble work in building for $3000. Same day as breach, plaintiffs made new contract with owner of building to complete work called for by contract with defendant and to do other work also.

5) Evergreen Amusement Corp. v. Milstead (1955)(266): Loss of profits from a business not yet in operation may not be recovered because those profits are merely speculative and incapable of being ascertained with requisite degree of certaintya Evergreen Amusement Corp. was operator of a drive in movie theater…contracted

Harold Milstead for clearing and grading site of theater ; delayed in his work.b Today this certainty requirement is in decline. Instead, a reasonably certain factual basis

for computation. Courts differ in specific application and often award lost profits when party willfully or negligently breaches rather than innocent/common cause.

6) Lakota Girl Scout Council, Inc. v. Havey Fund-raising Management, Inc. (1975)(268): Court that strongly beleves a breaching party actually caused a loss is more likely to relax the certainty requirement. Here the Court utilizes a “rational basis” for computation.a Girl Scout fundraising scheme hurt when Havey failed to provide degree of assistance

promisedb Court gave Girl Scouts reliance expenses

7) Chrum v. Charles Heating and Cooling Inc. (1982)(273): Courts are reluctant to grant emotional distress damages in commercial contracts, although where a contract breached is a personal agreement involving matters of mental concern and solicitude, damages for emotional suffering are recoverable.a Plaintiffs purchased furnace from defendants which destroyed plaintiff home and

contents but caused no physical harm. Try to collect on distress in breach of contract.8) No punitive damages in breach of contract, unless conduct constituting breach is also a tort.

a Other Qualifications and limits on lost expectancy:b Denial of lost expectancy in medical contexts (Sullivan)c Denial of recovery for loss of good willd Denial of lost expectancy to attorneyse Denial of attorney’s fees and interest

B) Reimbursement of Reliance Costs as an Alternative Remedy Where There is a Breach of an Agreement with Consideration 1) General Information

a Not the same as promissory estoppel. Here an injured party has proven that the other party has breached an enforceable contract but court awards reliance instead of expectancy.

2) Chicago Coliseum Club v. Dempsey (1932)(279): Where lost expectancy cannot be proven because of speculative nature of potential profits, reliance damages can be awarded if costs incurred prior to the breach in reliance on the contract can be adequately proven.a CCC promotes boxing match between Dempsey and Willis for world championship.

Dempsey breaches contract with CCC, fighting somewhere else after CCC had already invested a bunch of money in the effort.

b Major impediment in recovering expectancy: lack of sufficient certainty in expected profit

c BUT can prove amount spent in reliance on contract before the breach

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d Can’t recover fixed overhead because it was a risk taken in the venture and not made in reliance on Dempsey’s promise

e BUT when could have recouped overhead on other projects, then should be able to recover specific fixed cost as reliance

C) Anglia Television Ltd. v. Reed (1971): Plaintiff can claim expenses before as long as they would reasonably be in contemplation of parties as likely to be wasted if the contract is broken.

D) L. Albert & Son v. Armstrong Rubber Co. (1949): Promisee may recover his outlay in preparation subject to privilege of promisor to reduce it by as much as he can show promisee would have lost if contract performed.

E) Coppola v. Kraushaar (1905): Cannot be remote.III) Validity of Clauses Providing for a Specific Monetary Remedy in the Event of Breach or

Repudiation of an Agreement with Consideration [LIQUIDATED DAMAGES]A) General Information

1) Within limits contract law allows contracting parties to agree in contract on damages liability if later breach to avoid expense of calculating and proving damages.

2) Also create an incentive for parties to perform and ensure that injured party can recover when damages would be difficult to prove.

B) H.J. McGrath Co. v. Wisner (1947)(293): Agreed damages must be a reasonable forecast of just compensation for the harm that is caused by the breach and that the harm that is caused by the breach is one that is incapable or very difficult of accurate estimation. [Rest. §339]1) Wisner, a farmer, entered into contract with canning corporation to sell and deliver all

tomatoes. Contract included a liquidated damages provision saying that if Wisner didn’t deliver any portion of tomatoes, company would sustain uncertain damages and Wisner would pay $300.

2) Court found that this damages clause was not enforceable because it was a penalty; not proportionate to potential damages and damages not difficult to ascertain

C) USC §2-718 (1): Damages may be liquidated in agreement only at reasonable amount anticipated breach, difficulty of loss proof, and inconvenience of nonfeasability; Large liquidated damages provisions voided as penalties

D) Truck Rent-A-Center, Inc. v. Puritan Farms 2nd, Inc. (1977)(295): Courts will enforce liquidated damages provisions as long as they are neither unconscionable nor contrary to public policy. Use the two prong test and don’t enforce penalty – amount plainly disproportionate to real damage which is not intended to provide fair compensation but to compel performance.1) Puritan Farms sells milk through home delivery and entered contract with Rent-A-Center to

lease milk trucks. Liquidated damages provision—pay all rentals from breach to real expiration PLUS 50% re-rental value. Puritan breaches.

2) Court found this provision to be enforceable.E) What about when there are no actual damages?

1) Sometimes yes, Southwest Engineering Co. v. United Statesa Situation at time of contract is controlling in determining reasonableness of liquidated

damagesb When agreed, reasonable, and difficult, should enforcec If damages greater, should limit to amount, but should also not suffer damages less

F) Dunbar: How to Draft Liquidated Damages1) Make sure damages fall in range between upper and lower limits of potential damage2) Make sure parties actually negotiate seriously3) Provide machinery for reasonable extensions within contract4) Make amount of damages vary with breach5) Incorporate words “liquidated damages”6) Recite facts causing parties to incorporate facts; say would have been difficult to ascertain

G) Hillman: Limits of Behavioral Decision Theory in Legal Analysis

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1) Why are courts so willing to interfere in liquidated damages provisions but not in freedom of contract in general?a Hold over from equity penal systemb Tough for parties to understand possibility of breach at the start

IV) Monetary Remedies where the Theory of Obligation is Promissory EstoppelA) General Information

1) Williston v. Coudert debate: Either promise is binding or else restore status quo, i.e. reliance v. expectancy

2) Controversy over whether injured parties should get reliance or expectancy still rages today. Rest 2d §90 Comment d enables partial enforcement of promissory estoppel which gives discretion to courts.

B) Goodman v. Dicker (1948)(309): True measure of damage is the loss sustained by expenditures made in reliance on assurance of a dealer franchise.1) Plaintiff, a prospective franchise of Emerson radios who incurred expenses preparing for

franchise after a distributor represented that the plaintiff would get the franchise and an initial delivery of radios.

2) Court gave reliance damages to plaintiff, refusing to grant lost profits.C) Walters v. Marathon Oil Co. (1981)(313): Award lost profits because the Walters forwent the

opportunity to invest and make the profit elsewhere.1) Marathon Oil broke a promise to supply oil products to the Walters after they had improved a

gas station in reliance on the promise. Marathon Oil claimed that the Walters did not suffer reliance damages because the increase in market value of Walters’ land more than made up for cost of improvements. They also insisted that the Walters could not recover lost profits in promissory estoppel case.

2) Court awarded lost profits, justifying lost profits on theory that but for the broken promise, the Walters would have made the profit elsewhere. Like a reliance recovery because Marathon induced Walters to rely.

V) Restitutionary Relief and Theories of ObligationA) General Information

1) Rest 2d of Contracts §371a Measure sum of restitution by either

i Reasonable value to other party of what would have cost in claimant’s positionii Extent to which other party’s property increased in value or other interests advanced

b First measure usually market value; court usually picks more generousB) Craswell, Against Fuller and Perdue

1) Many remedial measures. I.e. if a builder finishes half a house and owner repudiates…increase in market value of land, price homeowner would pay for other half to finish, half of the price originally agreed upon, whatever builder spent on first half of house

2) Some evidence court picks based on behavior of breaching partC) Where a Non-breaching Plaintiff Conferred a Benefit and Elects a Restitutionary Recovery:

Plaintiff victim gives benefit and wants $1) United States for Use of Susi Contractings Co. v. Zara Contracting Co. (1944): The contract

rate is the best evidence of the true value of the benefit to the injured party.a Zara entered subcontract with plaintiffs, agreeing to perform almost all of the work called

for by the main contract, including excavation and strip of runways. They encountered unexpected problems, demanding more money. Both parties declared breach of contract. Zara used plaintiff equipment for three months after they assumed responsibility for the site.

2) Henderson:a Restitution enables courts to reallocate risk more equitably, taking into account defendant

conduct and plaintiff loss led to his gain

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3) Oliver v. Campbell (1954): Remedy not available to one who has fully performed his part of a contract, if only part of agreed exchange that has not been rendered is a sum of money from defendant

D) Where Non-breaching Plaintiff Conferred Benefit but had Losing Expectancy (a “losing” contract)1) Rest §373: Usually expectancy is a more profitable route for plaintiffs, EXCEPT when they

have a losing contract and restitution interests grow2) City of Philadelphia v. Tripple (1911): When builder has in good faith expended money in

the course of work done for benefit of the owner, and has in absence of contract, an equitable claim to be reimbursed…Owner has deprived himself of legal right which would have sufficed to defeat equity and stands defenseless in front of builder’s claim

3) Johson v. Bovee (1978): It is illogical to allow recovery for full cost of services when he would be limited to contract price plus extras if he had completed the house.a Childres & Garamella: Question: whether or not promise will govern restitutionb Kull: Court sometimes favor punitive remedy because seems poetic

E) Where a Non-Breaching Plaintiff Conferred a Benefit but Cannot Prove Lost Expectancy 1) Bausch & Lomb, Inc. v. Bressler (328)(1992): A nasty contract breaker should not be able to

use the very contract that she breached as a sield against the additional liability – contract price cannot govern.a B&L exclusive distributor of Sonomed opthamologic products. Defendant repudiates

contract. Not clear whether or not they got a benefit. Although contract may be evidence, they do not control a relationship.

2) Osteen v. Johnson (1970)(332): There must be a material breach before restitution election becomes available.a Plaintiffs paid defendant to promote her as a singer. He didn’t put out a second record as

he had promised. F) Where Plaintiff Has Conferred a Benefit But the Contract is Invalid, Frustrated, or

Otherwise Unenforceable1) Still Restitutionary relief

G) Where the Plaintiff has Materially Broken the Contract After Conferring a Benefit1) Plaintiff who has committed uncured material breach of contract cannot recover on a contract

theory2) Still the plaintiff may have conferred a benefit on the defendant and it may be unjust for

defendant to retain the benefit in whole or partVI) Specific Performance

A) General Information1)

B) Kitchen v. Herring (1851): Money damages are inadequate because the purchaser cannot use her damages award to purchase equivalent property.1) Side note: If before execution sells to someone else, first person only entitled to damages

BUT also can get money if cost more for second guyC) Curtice Brothers Co. v. Catts (1907)(338): Where no adequate remedy at law exists specific

performance of a contract touching the sale of personal property will be decreed with the same freedom as in the case of a contract for the sale of land1) Curtice cans tomatoes and wants specific performance ordered for defendant who promised

to give him all tomatoes grown on his land. 2) Court finds irreparable injury here. Plaintiff could not have gotten any place, quality at a

certain time—necessary to ensure successful operation of plant.D) UCC § 2-716: Buyer’s Right to Specific Performance or Replevin

1) Specific Performance can be decreed where goods are unique or in other proper circumstances

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a May include special terms 2) New Draft version says that even those activities which are not consumer contracts can

mandate a specific performance decree if parties agree on it ahead of time.E) Stephan’s Machine & Tool, Inc. v. D&H Machinery Consultants Inc. (1979)(341): Suffered

irreparable harm and there was no adequate remedy at law so specific performance is required.F) Laclede Gas Co. v. Amoco Oil. Co (1975)(342): For a remedy at law to defeat a grant of specific

performance, it must be as certain, prompt, complete, and efficient to attain ends of justice as a specific performance decree.

G) Defenses to and Limits on Availability of Specific Performance1) Defenses:

a Unfairness -- . if someone knows that something is worth more than the person who owns it, he buys it from them and sells it for the higher price… then the guy gets wise and decides that he won’t sell… can’t enforce specific performance.

b Lack of mutuality of performance – Court won’t grant specific performance to P unless D can be reasonably assured of receiving a return performance for which he has contracted

c Indefiniteness of agreement – Even if contract not invalid, it can still be too indefinite to serve as basis for specific performance

d Impracticability of Performance – Difficulty in enforcement or supervision; makes performance provocative of frequent disputes

e Courts won’t grant to provide personal servicesH) Pratt Furniture Co. v. McBee (1987)(345): This case represents the debate between efficient

breach and upholding of contracts. Where there are other alternatives available and the goods are not unique, specific performance cannot be granted.1) Pratt contracted McBee to make him a bunch of chairs. McBee was then offered another

contract to make tables at more of a profit. He was the only person who could make tables in the area while there were others who could make chairs.

2) Court denied specific relief because there were other alternatives available and the chairs were not unique.

3) Concurrence: Efficient breach benefits society at large4) Dissent: We should encourage contract performance, not breach

VII) OFFER AND ACCEPTANCEA) Introduction: The Requirement of an Agreement (in Bargained for exchange, Agreement with

consideration)1) “An agreement is manifestation of mutual assent on the part of two of more persons.” – RST

2nd of Contracts § 3 2) The Objective Test of Assent

a Suppose you casually mentioned to Alice that you were thinking of selling your piano for 400 dollars and before you could say another word she announced that she would accept your offer and would pick it up immediately. You could say that you did not actually offer her the piano and win if she sued you for breach of K. However if you said “I promise you this piano for 400 and will deliver it upon your acceptance,” you would be bound if Alice accepted even if you were joking.

b Contract Law generally enforces the apparent not necessarily the real intention of the promisor. Farnsworth, Contracts: what controls are the external or objective appearance of the parties intentions as manifested by their actions.

c It was only necessary that a reasonable man would have understood it as an intention to contract and that the promisee believed that the promisor intended to contract. i Embry v. Hargadine McKittrick Dry. Goods Co. (1907) p. 379 - Embry asks his boss

for a renewed contract: I’m not working here any more unless I get a new contract.”

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Boss replies that: Not time to talk now. We’ll talk about it later. Go ahead, you’re all right. Get your men out, and don’t let that worry you. (i) Court rules that as long as a reasonable man would have believed that the

promisor intended to contract and that the promisee believed that the promisor intended to contract, then there is a K.

(ii) Remember Reasonably and honestly believed.d The objective test of assent trumps actual intentions: “If it were proved by twenty bishops

that either party when he used the words intended something else that the usual meaning which the law imposes upon them, he would still be held unless there were some mutual mistake or something else of the sort. (Hotchkiss v. National City Bank of New York (1913) p. 382)

e WHITTIER:i It would have simplified our law of contracts if actual meeting of the minds actually

mutually communicated had remained essential. The liability for careless misleading that there might be assent could have become a tort.

ii Problem 4 -4(i) Monroe is like a promisee, so a reasonable person must believe that

Honeycutt intended to contract and that Monroe honestly believed that Honeycutt intended to K. The Court: Intention is probative.

f In deciding if there was intent to K, we must look to the outward expression or a person as manifesting his intention rather than to his secret and unexpressed intention.i Lucy v. Zehmer (1954) p. 383 – Lucy meets Zehmer at a restaurant. They are both

drinking and talking. After about forty minutes of talking about selling Zehmer’s Farm, Lucy offers 50,000 for it. Zehmer, considering that the offered was made in jest: scratches out a note on the back of a bill that he will sell the farm to Lucy for 50,000 and then signs it and has his wife sign it. Lucy takes it, offers Zehmer five dollars to bind the bargain. Zehmer refuses and tells Lucy that it was just a joke. Lucy leaves.(i) Apply the Embry test: Would a reasonable person have believed Zehmer? Did

Lucy believe Zehmer? Court says YES. (ii) What do you think is the most telling factor in favor of the court

1. -40 minutes of bargaining (cautionary function)2. written out (beats Statute of frauds and evidentiary function3. good bargaining – suggested intent to contract (got wife to sign it and changed I

to we)4. The price was reasonable

(iii) What are the arguments against the Court’s decision?1. it’s a restaurant, they are drinking2. lack of a formal contract3. prior history

g A promise is good unless and until it is withdrawn and a promise is not withdrawn until the promisee has been notified that it has been withdrawn. i Tilbert v. Eagle Lock Co. (394)(1933 - Plaintiff’s husband worked for defendant.

Defendant cancelled group insurance and issued “Certificate of Benefit” which promised $1000 to wife on Tilbert’s death. Tilbert died on August 28, 1931 at 2 am; Also on August 28, defendant decided to put cancellation of certificates into pay envelopes

ii Restatement Second of Contracts § 211: Standardized agreements

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(i) Where a party to an agreement signs or otherwise manifests assent to a writing, then he adopts the writing as an integrated agreement with respect to the terms included in the writing.

iii Once the promisee has relied on the agreement, the promisor must be held to the agreement even if the promisor made the agreement by mistake.(i) Cargill Commission Co. v Mowery (1916) p. 399

1. D mistakenly agrees to sell 35,000 bushels when he wanted to sell 3,500. Plaintiff purchases them and then resells them before D can tell P that it was a mistake.

iv Restatement Second of Contracts § 20(i) There is no manifestation of mutual assent to an exchange if the parties attach

materially different meanings to their manifestations and1. neither party knows or has reason to know the meaning attached by the other or 2. each party knows or each party has reason to know the meaning attached by the

other(ii) The manifestations of the parties are operative in accordance with the meaning

attaches to them by one of the parties if 1. That party does not know of any different meaning attached by the other, and

the other knows the meaning attached by the first party; or 2. that party has no reason to know of any different meaning attached by the other

and the other has reason to know the meaning attached by the first partyv When neither parties know or have reason to know the meaning attached to

something material in the K and have different meanings, then there is no assent, and therefore no K.(i) Raffles v. Wichelaus (1864) p. 400 -Plaintiff sold 125 bales of cotton to

arrive on the “Peerless” from Bombay;(ii) P meant the Peerless that would depart in December and the D meant the Peerless

that would depart in October. So no K.vi Look to language of the offer to see if the time restraint for acceptance refers to

actual performance or notice of acceptance. (i) Dickey v. Hurd (1929) p. 403

3) OFFERa Corbin on K: An offer is an expression by one party of his assent to certain definite

terms, provided that the other party involved in the bargaining transaction will likewise express his assent to the identically same terms.

b An offer and acceptance form an agreement that is legally enforceable (a K)c Note: that the offer is an expression of assent and not the actual assent

i K law must determine whether a reasonable person, acquainted with all of the circumstances, would believe that the author of the communication alleged to be an offer intended to be bound upon assent (acceptance) by the other party.

d A reasonable person would believe the offeror intended to be bound upon an acceptance because the offeror’s advertisement was clear, definite, and explicit and nothing open for negotiation. i Lefkowitz v. Great Minneapolis Surplus Store, Inc. (1957) p. 404

(i) Department store advertised fur coats – worth 139.50, only 1.00. First come, first served.

1. Question: if you came down to the store and was the first one there: would the store be bound to sell it to you for $1? This depends upon whether the store’s communication was an offer or merely an invitation for you to come to the store to negotiate about the stole. The issue boils down to the reasonable person standard.

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(ii) Note: if the value of the goods being offered is speculative, there is no offer.e An advertisement for a car with financing was not considered to be an offer because

a reasonable person should know that not everyone qualifies for financing.i Ford Motor Credit Co. v. Russel (1994) p. 406– D advertised a Ford escort with a 60-

month loan with 11 percent APR financing.4) ACCEPTANCE

a Corbin: The Mirror Image Rule:i An acceptance is a voluntary act of the offeree whereby he exercises the power

conferred upon him by the offer, and thereby creates the set of relations called a K. ii After the offeror has created the power, the legal consequences thereof are out of his

hands, and he may be brought into numerous consequential relations of which he did not dream and to which he might have not consented. These later relations are nevertheless called contractual.

iii RST Second of K §50: Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer. (i) Consistent with the objective test of assent: Contract law asks whether a

reasonable person would believe the offeree intends to accept the offeror’s terms and form a contract, not whether the offeree actually intended to do so.

(ii) Let’s say you offered your piano to Alice for 400 dollars and you tell her you will deliver the piano over the weekend and that the deal is “as is.” Let us assume your offer is “clear, definite and explicit.” (see Lefkowitz ) Alice says: I will purchase the piano. I am concerned about the quality of the piano. Is it first rate?

1. The Issue is whether a reasonable person would believe Alice definitely and unequivocally intended to bound by the offer. Hillman: NO. She does not say she accepts and the “I will purchase” appears to mean she has not accepted yet and also she wants further assurances about the quality of the piano.

(iii) We must be concerned only with the language actually used, not the language (the offeree) thought he was using or intended to use.

1. Ardente v. Horan (1976) p. 417 – D offered to sell his house to the P. P signed the purchases agreement but had his lawyer drafted a response that read: “My clients are concerned that the following items remain with the real estate: a) dining room set and tapestry wall covering in dining room…etc. I would appreciate your confirming that these items are a part of the transaction as they would be difficult to replace.

2. The Court held that despite the signed purchase agreement, the letter rendered the offeree’s entire communication a “qualified acceptance” which as a legal matter is “no acceptance at all.” The Court found that the letter does not unequivocally state that even without the enumerated items the offeree is willing to complete the contract. So no K.

iv Silence as an Acceptance(i) K Law treats silence as any other response to an offer: it applies the objective

reasonable person test to see if the party has accepted. Decisions often recite the principle that silence does not constitute an acceptance but in reality such language means that in the usual case, a reasonable person would not believe the silent offeree intends to be bound.

1. It is a general rule of law that silence and inaction do not amount to an acceptance of an offer.

a. Ducommun v. Johnson (1961) p. 427 - D sent contract of sale by mail to P. P never responded and so D claimed that the P had accepted by failing to object to the terms of the sale.

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i. Court: no Agreement. Passage of time would be more inclined to express disapproval than approval.

2. RST 2nd $ 69 – Silence as a responsea. If one has reason to know that silence constitutes acceptance because you

had reason to know offeror’s expected payment and you took the benefit of offeror’s service with a reasonable opportunity to stop offeror OR

b. Offeree is bound to an offer when she does not act inconsistent with the offeror’s ownership of offered property.

v The offeror has the power to prescribe the terms of the offer: He is Captain of his offer!(i) An offeror can also prescribe the terms concerning the manner in which an

offeree must accept an offer. There is a difference between prescriptions in terms and suggestions.

(ii) An offer imposes no obligation on offeror until accepted by offeree, according to terms in which offer was made. Any departure from those terms invalidates offer, unless offeror agreed to departure.

1. Eliason v. Henshaw (1819) p. 420 - defendant informed plaintiff that he wished to buy flour in Georgetown at all times. Defendant mentioned that he could use two or three hundred barrels of flour, and would pay $9.50 a barrel for him. In the letter they asked for return notice on the offer to be sent by wagon to Harper’s Ferry. The plaintiff accepted in a return offer, but it was sent by mail to Georgetown rather than Harper’s Ferry. The defendant rejected the flour, saying that they had received it from another source. Plaintiff brought suit to recover.

2. Court: The buyer had a right to dictate the terms upon which his offer could be accepted. In failing to meet those conditions, there could be no agreeable contract. The place where the answer was to be sent constituted an essential part of the buyer’s offer. Therefore, there is no contract

(iii) If an offer is not clear whether acceptance is by promise or performance, an offeree, at his option, may accept either by promising to perform or by beginning performance.

1. Allied Steel and Conveyors Inc v. Ford Motor Co. (1960) p. 422 a. An offeror has the right to prescribe the manner in which acceptance

should be indicated. In this case, the methods of acceptance were just a suggestion, and other modes of acceptance were not ruled out. By beginning performance, Allied could also have accepted the contract

(iv) Restatement 2nd of K § 32: “In case of doubt, an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.”

(v) Builder's purchase of materials and commencement of work was not a valid acceptance though his actions were in line w/ industry customs if he gave no other indication, as requested, to offeror of acceptance.

1. White v. Corlies (1871) p. 425 - defendants furnished plaintiff with specifications for constructing a suit of offices and requested an estimated. The plaintiff manifested his assent by signing his name and returning the specs to the defendants. The defendant’s bookkeeper returned the following note: “Upon an agreement to finish the fitting up of offices in two weeks from date, you can begin at once.” The plaintiff never replied to this note, and on the next day the note was countermanded. Before the countermand was received, the plaintiff commenced performance by purchasing materials and beginning work.

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b Duration of Offers i Restatement 36: Methods of termination of the power of acceptance

(i) An offeree’s power of acceptance may be terminated by(ii) A rejection or counter-offer by the offeree(iii) Lapse of time(iv) Revocation by the offeror(v) Death or incapacity of the offeror or offeree

ii When a reasonable person would believe the offeree does not accept an offer, K law treats the offeree’s decision as a rejection of the offer. (i) Akers v. J.B Sedberry Inc (1955) p. 429 – Quoting Williston: An offer is rejected

when the offeror is justified in inferring from the words or conduct of the offeree that the offeree intends not to accept the offer.

(ii) When parties are bargaining face-to-face or over the telephone, the power of acceptance continues only during the conversation, unless the parties' words or actions indicate that they intend the power of acceptance to continue.

(iii) P’s were having some problems at work and offered to resign. D did not say anything and by her conduct led them to believe that she had rejected the offer, brushed it aside and proceeded with the discussion. Three days later, she sent them telegraphs accepting resignation to plaintiffs.

(iv) Court held that she had rejected their offer and so could not accept after her rejection. Corbin: “there is no contract unless the offer or the surrounding circumstances indicated that the offer is intended to continue beyond the immediate conversation.”

(v) General rule: Offers stay open for a reasonable time if no other stipulations made.

iii Farnsworth: Rejection by the offeree terminates the power of acceptance. The rationale is that the offeror may rely on the rejection

iv When no time is prescribed in the offer, the offer is left open for a reasonable amount of time. (i) Vaskie v. West American Insurance Co. (1989) p. 434 – D had left open a

settlement offer with no prescribed time limit. The Offer was accepted 8 days after Statute of limitations had run. D argued that the offer terminated on the day the SoL had run on the claim.

(ii) Fact finder: Decides what is reasonable, just b/c SoL has run does not mean that is the termination of the time.

v The offer is not made when it is posted but when it is received. (i) Caldwell v. Cline (1930) p. 438 – D told P he had eight days to accept the offer.

The eight days begins the day P receives the offer in the mail, not the day D posted it.

vi Just because offeror has set a prescribed time limit does not bar offeror from revoking offer before that time. (i) Dickinson v. Dodds (1876) p. 441 - : Dodds gave Dickinson a signed paper

offering to sell real estate to him until Friday, June 12 at 9 a.m. Bill said that Dickinson decided to accept offer on June 11th, but did not tell Dodds right away because he still had time. That afternoon, someone told him that Dodds offered land to another, so Dickinson tried to tell Dodds he wanted it, when Dodds said that his offer had been revoked.

(ii) Offeror’s Power to Revoke

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(iii) Rationale: representation that an offer will remain open is an unenforceable bare promise without consideration

c Bars to revocation: Option Contractsi An option given by the owner of a land for a valuable consideration, whether

adequate or not agreeing to sell it to another at a fixed price if accepted within a specified time, is binding upon the owner.

ii Marsh v. Lott (1908) p. 442 - Lott gave Marsh contract for option to purchase with a privilege of a 30 day extension for thirty cents. Plaintiff wrote to defendant asking for extension and defendant wrote back revoking the option and withdrawing property from sale. Plaintiff says that consideration given and offer should be binding

d Restatement Second of K § 87: Option Ki An offer is binding as an option K if it

(i) Is in writing signed by the offeror recited a purported consideration for the making of the offer and proposes an exchange on fair terms within a reasonable time

(ii) Or is made irrevocable by statutee UCC § 2-205

i Offer by merchant that gives assurance will be held open is NOT REVOCABLE for lack of consideration during time stated/reasonable time(i) Irrevocability cannot exceed 3 months

f Bars to revocation: beginning performance of unilateral contractsi A unilateral K is one in which no promisor receives a promise as consideration

for his promise (performance instead) and a bilateral K is a promise for a promise.(i) Davis v. Jacoby (1934) p. 446 - Davis was the niece of Whiteheads…very close

relationship. Aunt Whitehead got sick; financial trouble; uncle asked them to come out and take care of things and to care for aunt. Davises agreed and plan to go out… then Whitehead kills himself. Nonetheless, Davis maintain their end of the bargain. Will is not as Whiteheads had thought—actually gives money to two nephews with whom they were not as close… Davises sue for their rights with the first contract

(ii) Court holds that the K is bilateral and enforces it.ii WORMSER 1: If A tells B that he will give B 100 dollars if you walk across the

Brooklyn Bridge, then A can revoke while B is in the middle and it is not binding. iii WORMSER 2: Actually, once B begins to perform, A cannot revoke without

breaching the K.iv A unilateral K requires performance or an act for a promise.

(i) Brackenbury v. Hodgkin (1917) p. 452 1. Although in this unilateral K situation, beginning of performance by offeree

makes offer irrevocable, offeror's duty under K is conditional on offeree's completing performance as specified in offer.

2. (Mrs. Hodgkin asked daughter and husband to leave their home, come live w/her, and take care of her until she dies in consideration for inheriting place when she dies. When couple moved in, they fought w/mother and mother tried to evict them. No K exists until couple completes performance asked for in Mrs. H's offer. However, b/c couple has begun performance, H is bound by option K, and her offer is irrevocable as long as couple continues to perform. Couple is not bound by K, and may cease performance whenever they wish (thus declining to exercise their option).

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v Offeror can revoke offer of a unilateral K before offeree has begun performance. This begs the question: when does performance begin?(i) Petterson v. Pattberg (1928) p. 455

1. P goes to D’s house to pay off the mortgage. P announces I have to come pay off the mortgage. D answered that he had sold off the mortgage.

2. Court: this is a unilateral K and as Williston says: If offeror can say, "I revoke," before the offeree accepts, offer is terminated.

3. Dissent: P did everything he could do to accept. D refused to accept. This is unfair.

vi When must an offeree who begins performance notify the offeror: According to the second restatement, the offeree does not have to notify the offeree at all unless the offeror asks for notification or the offeree has reason to know that the offeror will not otherwise learn of the performance with reasonable promptness and certainty. (RST § 54)(i) Offeree must exercise reasonable diligence to notify the offeror unless the offeror

actually learns of the offeree’s performance in a reasonable time or the offer stated that the offeree did not have to notify the offeror.

g Bars to Revocation – offers for bilateral contractsi Suppose Alice offers to purchase your piano for 400 dollars if you promise to deliver

it. This is a bilateral K: promise for a promise.ii Reasonable reliance on an offer for a bilateral k is a bar to revocation.

(i) Drennan v. Star Paving Co (1958) p. 464 - D submitted a bid to P. P used the bid to procure a K. Before P could accept the bid, D told the P the bid was a mistake. Court held that P had reasonably relied on D’s bid and using PE to enforce the agreement.

h Bargaining at a distance i Offer is accepted when it is posted in the mail by the offeree, not when it is

received by the offeror unless a specific prescription is made in the offer about when it is received. (i) Adams v. Lindsdell (1818) p. 477

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