Financial Regulation-Industry Changes Prompt Need to ...
Contracts – Prof. Hillman – Fall 2005
Chapter 1. Summary 1
I. Contract including implied Contract 1
II. Promissory estoppel 1
III. Unjust enrichment 1
IV. Agreement process 2
V. Remedy 2
A. Note: 2
B. Employment contract: 2
C. Construction contract 2
D. Substitute employee/ cover contract 2
E. Cancelled events and various cost pertinent to it. 2
F. Claims of emotional distress, items of personal value 3
G. Remedies for Promissory Estoppel (No contract) 3
H. Unjust Enrichment: 3
Chapter 2. General Theories of Obligations 3
I. General Theories of Obligations 3
A. Bargain Theory of consideration 3
B. Obligation arising from Justified Reliance – Promissory Estoppel 8
C. Obligations arising from Unjust Enrichment/Implied-In-Law Contract/Quasi Contract 11
D. Obligations Arising from Promises for Benefit Received 15
E. Obligations Arising from Tort 16
F. Obligations Arising solely from Form 17
G. Obligations arising from a statutory warranty 17
H. Statute of Frauds: Requirement of writing 18
I. Theories of Obligations & Defenses: Summary & Practice Question 20
J. Problem 2-10 (pg204) – Practice Exam Question 21
Chapter 3. Remedies 22
I. Breach of Contract 22
A. Expectancy Damages for Breach of an Agreement w/ Consideration 22
B. Construction Contract 22
C. Cover contract: 23
D. Employment contract 24
E. Sales of Goods contract 25
F. Sales of Real property 26
G. Availability of Lost Expectancy Damages – Qualifications and Limits 27
H. Reimbursement of Reliance Costs for Breach of a contract in lieu of expectancy damage 30
I. Liquidated damages 31
J. Specific Performance 31
II. Promissory Estoppel 33
A. Monetary Remedies where there was Promissory Estoppel 33
III. Unjust Enrichment 34
A. Restitutionary Relief and Theories of Obligation 34
Chapter 4. Agreement Process 36
I. The requirement of assent 36
A. When need agreement 36
B. The objective test of assent: 36
C. Offer and acceptance 36
II. The Agreement Process: 40
A. The objective test of assent: 40
B. The Offer 42
C. The Acceptance 42
D. Duration of Offers 44
E. Bargaining at a Distance 47
F. Agreements to Agree 48
G. Contract Formation in the Form Contract Setting (Battle of the Forms) 49
H. Battle of the Forms 49
III. Sample questions 49
A. Father daughter: 49
Summary
1 Contract including implied Contract
1 Promise is part of a bargain for exchange
1 Consideration for a promise is:
1 An act other than a promise;
2 A forbearance, detriment
3 The creation, modification or destruction of a legal relation; or
1 E.g. creditor not to seek previous unpaid debt.
4 A return promise
5 An obligation by one party upon condition of an act or forbearance by the other
6 Bargained for and given in exchange for the promise.
2 Promise induce and is induced by a performance or a return of a promise
3 The consideration is not nominal
4 The agreement is not based on a promise to forebear from asserting a legal right (forbear from suing)
1 If it is, then the claim must be asserted honestly or reasonably
5 The promise to perform did not based on a pre-existing duty
2 Promissory estoppel
1 A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee, and which does induce such action or forbearance is binding if injustice can only be avoided by enforcement of the promise.
2 Elements
1 Promise
1 Promise is an assurance that something is to be done or not to be done.
2 Some courts demand that the promise must be “clear and definite.”
1 “permanent employment” usually does not satisfy this standard.
2 “Dismiss only for good cause” does not satisfy this standard.
3 Court must distinguish a promise from a mere intention, such as I intend to keep the business open.
4 A conditional promise is not liable if the condition does not satisfy.
2 Promisor’s reasonable expectations
3 Inducement of action or forbearance
4 Injustice:
1 There must be detriment or harm, not the kind associated with consideration doctrine, but real economical loss.
2 It is a policy decision and courts can exercise lots of discretion.
3 RSC §90 – Promise Reasonably Inducing Action or Forbearance (New, P110
1 A charitable subscription or a marriage settlement is binding without proof that the promise induced action or forbearance.
2 Remedy is granted as justice requires – quasi expectancy damages may be granted (eg if promisee forwent other opportunities)
3 Unjust enrichment
1 A person who has been unjustly enriched at the expenses of another is required to make restitution to the other
2 Elements:
1 The defendant was unjustly enriched at the plaintiff’s expense
1 Consuming a free bag of pretzel or free hair cut saved D’s money, therefore D is enriched also.
2 The circumstances were such that this enrichment is unjust.
1 Not gratuitous, Intent to charge
1 Intent is measured using an objective standard.
2 If a reasonable person in the recipient’s position would perceive the grantor as not expecting compensation, then it is gratuitous.
3 If doctor render professional service in emergency, he probably intended to charge. If a lay person rendered aid in emergency, he probably did not intend to charge, but out of gratuitous.
2 No imposition (foisting)
1 Request
2 Emergency
1 Immediate action is required
2 Advance assent is impractical
3 The claimant has no reason to believe that the recipient would not wish for the action to be taken
3 Acceptance
3 Measurement of the remedy: TBD, See E&E P224.
4 RSC §86 – Promise For Benefit Received addresses the above confusion:
1 Promise made in recognition of a benefit previously received is binding to the extent necessary to prevent injustice.
2 Promise not binding if (defenses):
1 Promisee conferred benefit as a gift or for other reasons the promisor has not been unjustly enriched
2 Its value is disproportionate to the benefit received
4 Agreement process
5 Remedy
1 Note:
1 Remedy for breaching contract case can be recovered in all three basis.
2 Employment contract:
1 Is there a breach of contract of modification of contract
1 No remedy if there is a modified contract.
2 Decide Expected profit (K price – cost) plus cost occurred plus any other loss (Incidental + consequential) less any cost or loss the P avoided by not having to perform.
3 Reasonable Mitigation:
1 IF accept a new offer, is it a Substitute contract or Loss volume contract?
2 IF did not accept a new offer, is the rejecting reasonable (violate duty to mitigate)?
1 No violation if the new offer is substantially inferior to the previous one.
3 If P rejected the new offer, is his failure of finding other type of work reasonable?
1 If not, the damage must be offset by the potential earning.
4 Is there any consequential damage?
1 No recovery for speculative damages (because it is unforeseeable)
5 Does the contract present a unique feature that cannot be remedied by monetary recovery?
1 If the contract is unique, P may pursue Specific damage remedy.
3 Construction contract
1 Cost of completion or Reduced Market Value as a base for recovery
2 Cost of Restoration unless reclamation was both (a) incidental to K (b) grossly disproportional to DMV. Also, Cost of Restoration if P’s main intent was the restoration.
4 Substitute employee/ cover contract
1 Is the substitute in good faith and reasonable? Reasonable if the new employee is the only one can find. There is no need for exhaustive search.
2 Damage is the difference between the contract price plus the incidental damage if the substitute reasonable.
3 Does the replacement have better quality?
1 If yes, the recovery may be offset by the added value by the new employee / contract.
2 But, better quality may not affect the recovery because is it foisted on P.
4 If the employer is not able to find a substitute for the employee what remedy available?
1 No specific performance remedy in personal service
2 Maybe injunction against the employee work for an competitor, but need definite proof.
3 Lost expected profit
1 Note: the employee’s salary and other variable cost are saved and should be offset from the recovery.
2 Overhead cost? Controversial issue, discuss both.
4 Is there any reasonably foreseeable Consequential damage?
5 Cancelled events and various cost pertinent to it.
1 Expectancy damage would be the expected profit plus the cost have occurred. It is usually not recoverable due to lack of certainty.
2 Restitution cost to cover the deposit or pre-payment to D.
3 Reliance damage:
1 If D cannot prove P has a losing contract, then P will recover all reasonable expense less the salvage value of those not wasted.
1 No recovery for the expense occurred before the contract is signed, such as market survey
2 But if both party understand that the expense would reasonably be consider wasted, P may recover that portion as well.
2 If D can prove P has a losing contract, P’s recovery need to be offset by the expected loss.
6 Claims of emotional distress, items of personal value
1 If they are secondary to the commercial activities, not recoverable.
2 Maybe recoverable if the contract is purely for alleviating P’s suffering or enhancing P’s psychic well-being. E.g., Nursing home failed to notifying P’s mother’s impending death, etc.
3 Maybe recoverable if the breach also qualifies as a tort.
7 Remedies for Promissory Estoppel (No contract)
1 Reward the reliance cost first.
2 Then mention that some court may also want to award the lost profit in a sense that the P relied on D’s promise and incurred opportunity cost. Mention this is a controversial area.
8 Unjust Enrichment:
1 which measure to use (see detailed outline)
General Theories of Obligations
1 General Theories of Obligations
1 Bargain Theory of consideration
1 Definition of Consideration (RFC §75)
1 Consideration for a promise is:
1 An act other than a promise;
2 A forbearance, detriment
3 The creation, modification or destruction of a legal relation; or
1 E.g. creditor not to seek previous unpaid debt.
4 A return promise
5 An obligation by one party upon condition of an act or forbearance by the other
6 Bargained for and given in exchange for the promise.
2 In a professional service setting, court is inclined to use reliance interest instead of using expectancy, as in comer context.
1 Sullivan v. O’Connor: Patient has a contract with a doctor to shortening her nose.
1 Reliance interest: Suffering and pain in the third surgery, out-of-pocket expense, the worsening condition of the nose.
2 Bargained-for exchange versus gift promise.
1 The promisor must bargain for or request the consideration supplied by the promisee in exchange for the promise. Each party’s detriment must induce and be induced by the other’s detriment.
1 Homeless people hypo:
1 J benevolent person promise to buy a homeless person clothes if the homeless person walk to the clothes store a few blocks away.
2 The promise is only enforceable if J bargained for the homeless person to walk to the store, which in turn depends on whether J’s motive is to extract the homeless person’s walk as the price of the clothes.
3 If rich man wished to get tramp away from his restaurant store front – then he did intend to extract the walk from tramp and the promise is enforceable as an agreement w/consideration.
4 “If you walk over to my car and I will give you the ski on the rack.” A reasonable person would not think that “walking over” is the price for a pair of ski and is what one would like to induce the promisee to do. It more suggests that it is a condition to pick up a gift. Therefore the promise is not enforceable. The innermost motive of the promisor is irrelevant here.
5 “Put out your hand and I will put $10 bill on it.” is not an enforceable promise. However, if you talk to a street artist who poses dead-still as a statue, the promise might be enforceable since one could A is bargaining for the pleasure to see B’s abandon his art.
2 Dougherty v. Salt
1 P received from his aunt a promissory note for $3000 payable at her death – executor refused to pay. Aunt sign the note to show she is fond of P without expect to receive anything back.
2 Held: Promise is unenforceable – no consideration was given in exchange for the note. Something must be extracted from the promisee – this was a naked promise.
3 The promisor’s motive
1 Measured by reasonable person standard
1 A reasonable person must believe that you promise is for a return of something.
1 The promisor must manifest an intention to induce the performance or return promise and to be induced by it, and
2 The promisee must manifest an intention to induce the making of the promise and to be induced by it.
3 A reasonable person must believe the promisor made a promise and expect consideration, also a reasonable person must believe the promisee’s act was induced by the promise
1 If uncle promise $2000 to Nephew for quitting smoking, and Nephew quit due to an earlier doctors advice. The uncle’s promise is not enforceable.
2 The promisor’s actual motive is irrelevant.
2 A promisor’s motive of obtaining something in return for the promise does not have to be the primary reason or even a substantial reason for the promise.
1 The motive need only be one of the reasons.
2 Hamer v Sidway
1 If nephew was 99% sure he would stop smoking before promise – uncle’s promise provides the last 1% motivation, the agreement is enforceable.
2 Alternatively, if uncle’s motive was 99% a gift promise but 1% of motivation was to get nephew to quit – agreement is enforceable.
3 A reason must believe that the promise actually induces the promisee to deliver that consideration.
4 What must be extracted?
1 The promisor must bargain for either a performance or a return promise
2 Promise for return of a promise (Executory bilateral exchange)—promise as an act of consideration
1 A promise to sell a piano for $400 to B, and B promise to pay $400. A and B are both promisor and promisee.
2 I will give you $2000 if you promise me not drinking. (B then made the promise). A promise to promise.
3 Enforceable
1 Von Mehren, Contracts in General: If bilateral executory exchanges are not enforceable, there will be a lack of reliance, the economy system becomes inefficient
2 Fuller & Perdue, The Reliance Interest in Contract Damages: If not enforce wholly executory exchange, people who had relied and cannot prove it would suffer.
3 If a bilateral contract remains wholly executory, argument for judicial intervene is not sufficient.
1 The element of exchange is the only basis for liability. Its definition is crucial. E.g. In uncle promise nephew $5000 if nephew promise not to smoke until 21. Can this be treated as bilateral executory contract? Q: While nephew may sue uncle after he reached 21 and earned the reward, can the uncle sue nephew if he smoked before 21?
3 Promise for return of a performance:
1 A promise to deliver the piano for B’s actual payment. (B has already paid)
2 I will give you $2000 if you don’t drink
4 Performance includes acts and forbearance.
1 E.g., nephew forbears the legal right to drink or smoke, Hamer v. Sidway.
2 Promisee’s forbearance does not have to benefit Promisor. Promisee’s detrimental is enough to constitute a consideration.
5 The Consideration must be extracted by the Promisor
1 Maughs v Porter
1 D, offered raffle for free car to whoever attended auction for lots. P won raffle – D refused to perform. Court held that the advertisement induced P’s attendance at auction, consideration was present, agreement valid.
2 P’s attending the auction is detrimental to P, and is also beneficial to D. It is a consideration. It is different from the tramp hypo because the attending is not only a condition to receive gift, it actually benefit Porter because people attend the auction may actually buy something. D extracts from P their attendance.
3 Although P pays $3 dollar, P did not intent it as consideration because it went to the auctioneer.
4 D: the transaction is not legal anyway because lottery is not legal. The court agreed and held that the contract unenforceable as a lottery.
2 Hypo: give somebody 1/10 a chance to receive some gift. It is not consideration.
6 It is good evidence for bargain for exchange that the promisor is extracting some benefit.
1 Hypo: Billionaire promised high school students college education if they stayed in school. How to argue the promise: If the student can show that Billionaire win publicity and financial benefit, it will be good evidence.
7 Extracted forbearance of a legal right is consideration
1 Hamer v Sidway
1 Uncle promises nephew $3000 if he doesn’t smoke/drink/gamble until 21. Nephew does so – court finds contract enforceable – uncle extracted a forbearance of legal rights.
2 If nephew had decided to restrain from smoking before promise – not enforceable. Uncle’s promise did not induce the nephew.
5 Forbearance to sue as consideration
1 If A promise $500 for B’s forbearance to sue based on a valid claim, the promise is enforceable.
2 If you reasonable and honestly believe the claim, the claim is called “colorable” or “doubtful” in contract law. The forbearance of the claim is a good consideration.
3 Restatement requires only reasonably OR honestly believe, not both.
1 Baehr v Penn-o-Tex Oil Corp.
1 P leased filling stations to Kemp. Kemp was in process buying a business from Defendant Penn-o-Tex, Kemp eventually became indebted to D and as a result gave D an assignment of accounts receivable including those involving the Ps filling stations. P claims he had an agreement with D not to sue D in exchange for the rents. As soon as P returned from FL, he began a suit against D.
1 Held: the forbearance to sue was not consideration – the promise to pay rent was a gift promise.
2 PF’s critique: Wrong reasoning. P’s forbearance not to sue fits his own convenience and makes business sense. P could have started suit from FL (there are phones at this time). The right reasoning should be that P’s forbearance is not extracted by D. P did not say that “since you promise to pay Kemp’s rent, I will not sue you now”.
2 Forbearance to bring a suit, to proceed a suit which one already brought, or to press a claim is not a sufficient consideration if the forbearance is with knowledge that the claim is ill founded and void.
1 This is on grounds of public policy, not because the forbearance is not beneficial to the promisor or detrimental to the promisee.
3 Forbearance to press a claim (or promise to forbear) is not sufficient consideration unless the claimant had some reasonable ground for belief in the justice of the claim. All claims must be made in good faith. The absence of any reasonable ground for belief in its validity is some evidence of that the claim is not made in good faith, but it is not conclusive evidence.
4 Springstead v. Nees, P62
1 Facts: S+G (D) promise to share property S, P promise not to bother S+G about property A. Trial court rule against D reasoning that 1) D has no right to property A, 2)there is no consideration because
1 Majority: the claim does not have to be valid. Forbear a colorable claim is enough for a consideration. But here P does not even have a colorable claim since no reasonable person would believe their claim has any foundation in law.
2 Dissent: the deed has not be delivered, thus the property still belongs to the father’s estate.
3 Hypo: John is punched in an elevator by somebody, and John mistakenly thinks Susan did. Susan said that I will give you $100 if you don’t sue me. John may be honest to believe since the elevator is crowd, and it is easy to make a mistaken. If John decides to sue Susan out of convenience, then the claim is not colorable.
1 Two prone test: honesty and reasonableness
2 PF: it sounds more like for the reasonableness test only. ST: if there in only honesty test, then unreasonable suit may happen.
6 The policies behind enforcing bargained-for exchange
1 Formal ground:
1 Evidentiary function: Bargained-for exchange tends to produce evidence that a contract was really made.
2 Cautionary function: An bargained-for exchange would more likely alert the parties to the legal ramifications of their acts and promises than a gift promise
3 Channeling function: An bargained-for exchange offers parties a recognizable method of entering an enforceable obligation.
2 Substantive ground:
1 Private autonomy: people can create their own legal relations through their exchange transactions.
2 Reliance: Protect people who rely on their agreement
3 Unjust enrichment: prevent one being detrimentally relied on the contract and the other unjustly enriched.
7 Adequacy of consideration
1 Courts do not inquire the adequacy of the consideration and leave the party to determine the worth of their promise or performance.
1 Worthless consideration is valid consideration: Hardesty v Smith
1 Inventor sold rights of invention to D. D paid with promissory notes – later assigned the note to P. P sought to collect on notes, D refused to pay as the invention was useless.
2 Held: When one gets all the consideration he honestly contracted for, he cannot say he gets no consideration, or that it has failed.
1 D thought invention worth something at the time of exchange – courts will not pass judgment on the respective values of consideration (policy: invades individual autonomy)
2 The simple parting of the rights of ones own, and upon which he can fixed a price is a consideration.
2 Exception
8 Mutuality of obligation and illusory promise
1 Illusory promise:
1 A promise to sell piano to B for $400 and B promise “I will pay you if I want”.
2 B’s promise is illusory because he retained unlimited discretion to perform.
2 There must be a mutuality of obligations OR some other form of consideration already provided
1 De Los Santos v Great Western Sugar Company
1 P entered into a contract w/ D whereby he would be paid to transport “such tonnage of beets as may be loaded” by the D. D had similar contracts w/other truckers. D informed P that his services were no longer necessary.
2 Held: There was no contract: there was lack of mutuality of obligation (Sugar company made no promise to use P’s services, only to pay him if they did)
1 How could P’s lawyer protect his client? – Get an exclusive contract and specify specific quantities of beets to be transported.
3 A contract unenforceable for lack of mutuality is not enforceable for either party
1 Suppose Sugar Company loads beets on to Santos’ truck and Santos fails to perform, is he liable for breach of contract?
1 No – the contract is not support by consideration, and there is no enforceable contract. Santos has provided a gift promise unsupported by consideration.
2 Weiner v McGraw-Hill Inc
1 P was employed when he was invited to engage in discussions w/D. P assured job security (not to be fired w/o just cause) if he were to join D’s firm. P took the job with D. P can leave at will. After 8 years P was discharged for “lack of application”. D argued no contract ( lack of mutuality of obligation (he could leave at any time) and the employment is at will.
2 Held: Yes – contract enforceable
1 Mutuality is not necessary when the promisee has provided other consideration:
2 P forwent salary increases at past company, left job at other company, P forwent other job opportunities, etc,
3 Notes: That P was induced to leave another job (change his position) is the key – if he had no prior job that he left, no consideration, no enforceable agreement
3 In exclusive agreements, promise appears to be illusory may warrant an implied promise, thus implied contract.
1 If the promise is absolute (requirement contract or output contract), there is no commitment and the promise is illusory.
2 If the promise is subject to limitation such as good faith, reasonableness, and exclusive dealing, there is a commitment, and the agreement is binding.
1 Exclusiveness could be absolute or only related to a particular portion of the requirement or output.
3 Wood v Lucy, Lady Duff-Gordon
1 D employed P to place her endorsements on the design of others. This right was exclusive. In return, P would have ½ of all the profits & revenues. D broke contract by placing endorsements on clothes without P’s consent and kept the profits.
2 D: P has not obligated himself to do anything, the promise was illusory.
3 Held: In exclusive contract cases – there are implied promises to perform to ‘his best efforts’. P was legal obliged, as was D.
4 Why no ‘implied promises’ w/De Los Santos?
1 Because the Sugar company had other contracts w/other truckers – not an exclusive agreement
5 Wood can add an express reasonable effort clause to the contract. But it is still to be defined what is the reasonable effort. Maybe he should add more specific clause such a certain amount, a certain number of vendors, etc.
6 There are implied in the agreement mutual obligation because there is specific things in the contract implied obligations. Lucy would not sign this exclusive contract if Wood did not imply best efforts.
7 ST: Based on the interpretation here, in De Los Santo case, if the sugar company promise giving exclusive hauling, can sugar company only load zero or once. Pf: No best efforts or good faith. Q: If beets market dries up and the sugar company has no incentive to load the beets, then sugar company still have the obligation?
8 ST: what if exclusive using truck, but then use train as well? ST: show the sugar company uses good faith to split the hauling between truck and train.
9 ZJ: Is Lucy in a vulnerable position based on court’s decision? PF: No, mutual obligation gives Lucy some guarantee. Without Cardozo’s holding, neither party has any form of guarantee. But Lucy can only wait to sue after she noticed Wood’s inaction.
4 Satisfaction clause requires “good faith” on the part of the promisor who must be satisfied. The contract is still enforceable.
1 If the satisfaction clause deal with “commercial value or equality, operative fitness, or mechanical utility” court generally apply the objective reasonableness test. Satisfaction can easily be compared with other market alternatives.
2 IF the satisfaction involve “fancy, taste, or judgment,” courts apply subjective honesty test.
3 Mattei v Hopper
1 P real estate developer purchased D’s land with an agreement subject to P obtaining leases satisfactory to the purchaser. P paid deposit. P informed D that satisfactory leases had been obtained and offered to pay the balance of the price. D failed to tender the deed.
2 Held: Yes – the satisfaction clause does not invalidate the agreement – as long as he exercises his judgment regarding the leases in good faith (subjective test).
5 Conditional agreement is binding.
1 A will give his ski to B and B need not pay unless he win lottery which he has already bought the ticket. It is enforceable.
9 Preexisting Duty Doctrine –
1 Cannot bargain with what you are already obligated to do if the performance that is required by the performer is a pre-existing legal duty – this is not valid consideration
1 e.g. A contract B to build a parking lot for $60,000. Half way through they agree on a new contract - $65,000.
2 Traditionally, court may say because there is a preexisting duty. And there is no consideration to support the increased amount; therefore the increase is merely a gift promise.
1 The pre-existing duty only applies if the second agreement is completely encompassed by the first one. If A had any way to added to his performance or obligation, no matter how trivial it is, a new binding agreement is formed.
3 Some courts will want to enforce the second agreement –if it was voluntarily and fairly entered into. The court would consider the new agreement supersedes the original agreement. Others will say B was extorting the money from A, not enforceable.
4 In sale-of-good case, an agreement modifying a contract within UCC article 2 needs no consideration to be binding. The party who benefit from the modification needs to show a good faith.
1 Hypo: if A sales the piano for $400 to B, then modify it to be $450. If A learns that the market value of the piano is $450, then she has a good faith. If A learns that B desperately need a piano, and extort a higher price, then A has no good faith, and the new agreement is not enforceable.
5 If the case does not involve the sale of goods, some court still apply the preexisting duty rule, and may allow the modification of the agreement if the modification is made due to circumstance not anticipated by the parties when the contract was made.
1 But this rule discourage the voluntarily modification of contract if the modification is not due to unanticipated circumstance.
10 False or Nominal consideration
1 The promisor may false recite that the consideration has been received (a sham consideration) to satisfy the consideration requirement.
2 The nominal consideration satisfy the formal functions.
3 However, the restatement does not consider a nominal consideration sufficient if it does not in fact (or at least perceivably) induce the return of a promise.
4 There is mixed treatment
5 Nominal or sham consideration may be treated as insufficient if circumstances suggest that the promisor needs protection from generosity, impulsiveness or unfair imposition.
6 Promisor can not raise the defense that he did not receive consideration. The court would use promissory estoppel theory since the promisor’s earlier conduct induced the promisee reasonably to rely on the validity of the promise and the promisor is therefore held accountable for that conduct.
11 RSC §208 – Unconscionable Contract/Term
1 If a contract/term within is unconscionable at the time the contract is made, the court may invalidate the term or the entire contract
2 Obligation arising from Justified Reliance – Promissory Estoppel
1 RSC §90 – Promise Reasonably Inducing Action or Forbearance
1 Restatement § 90 (second): A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee, and which does induce such action or forbearance is binding if injustice can only be avoided by enforcement of the promise.
2 Elements: Promise, Promisor’s reasonable expectation, inducement of action or forbearance, injustice.
1 Promise: Always argue both side for “clear and definite”
1 Promise is an assurance that something is to be done or not to be done.
2 Some courts demand that the promise must be “clear and definite.”
1 “permanent employment” usually does not satisfy this standard.
2 “Dismiss only for good cause” does not satisfy this standard.
3 “I have big plan for you. You don’t need to look for a new job” is not specific promise of continued employment. “you job is secure” was conclusory and did not promise for a specific period of time. These are not promise, but the combined statement probably should have been enough for the court to deny the employer’s summary judgment.
3 Court must distinguish a promise from a mere intention, such as I intend to keep the business open.
4 Some court may relax the “clear and definite” requirement when persuaded that a party has reasonably relied on a less than clear assurance.
5 A conditional promise is not liable if the condition does not satisfy.
2 Promisor’s reasonable expectations
1 Court has translate it into an inquiry about the reasonableness of the promisee’s reliance.
3 Inducement of action or forbearance
1 The promise must actually induce action or forbearance. Or, the promisee must act because of the promise.
2 If Nephew has learned the danger of smoking and decided quit, and the unaware Uncle promise $ to the nephew later for not smoking. The promise did not induce the action, and is not enforceable under promissory estoppel.
4 Injustice
1 It is a policy decision and courts can exercise lots of discretion.
2 Employment at will issue:
1 Employer: there is no injustice in refusing to enforce a promise of at will employment, even if it induce employee left previous job, because the employee is taking the risk that the new job will not last.
2 Court: The employee has a right to assume he would be given a good faith opportunity to perform his duties to the satisfaction of the employer once he was on the job.
3 If the reliance is indefinite and insubstantial, there would probably no injustice.
1 A promise to mow B’s lawn on Saturday morning, B then go to shopping on that time to avoid noise. There would probable no promissory estoppel if A did not show up.
3 Promissory estoppel is not available if there is a valid contract.
2 RSC §90 – Promise Reasonably Inducing Action or Forbearance (New, P110
1 A charitable subscription or a marriage settlement is binding without proof that the promise induced action or forbearance.
2 Remedy is granted as justice requires – quasi expectancy damages may be granted (eg if promisee forwent other opportunities)
3 Equitable Estoppel:
1 Similar to Promissory Estoppel, but using words or action (factual assertion), instead of promise.
1 Uncle won money on cards, hid in jar, told Aunt it was a gift for niece, and niece spent it. It is equitable estoppel issue. Uncle cannot recover because he deliberately misinformed the niece that it was hers, and the niece relied on Uncles’ assertion and caused damages.
4 Historical development
1 Reasonably expect to induce action or forbearance, the action does occur, no other way to avoid injustice.
1 A promise of $1000 to buy a car is enforceable if the car is bought. A promise of $1000 without any specific purpose is not enforceable even the promisee bought a car.
2 Kirksey v Kirksey, 1845, P82, Not recognized.
1 P was sister-in-law of D w/several children. D wrote letter urging P to move 60 miles live with him. P did so – D put her and children up in comfortable houses, then in a not so comfortable house, then he required her to leave.
2 Holding: For D. It is a gift promise. sixty mile relocation is a condition of collecting the gift.
3 Dissent: when the moving requires a relocation of 60-70 miles; this is sufficient consideration to support the promise of the D to furnish P with a house and land to raise children. D extracted from P this move.
4 Notes: If Promissory Estoppel a theory in existence in 1845, she might have fared better in this case. The court is setting the stage for this new theory of PE
3 Ryerss v Trustees of Presbyterian Congregation of Blossburg, 1859, P83—recognized as consideration
1 D encouraged a congregation to build a church promising he would in turn pay $100. P did so – D denied the contract.
2 Held: Court finds ‘fake’ consideration: the labor, trouble and expense in building a church
3 Notes: Court simply does not like people who make promises on which people rely to their determent – straining to call it consideration. No theory of Promissory Estoppel yet.
4 Seavey v Drake, 1882, P83--recognized
1 D, Father of P gave P a portion of land which P paid all taxes on, erected a house, barn and stables on at a cost of $3000. D refuses to perform on the basis that the agreement was without consideration.
2 Court: finds ‘fake’ consideration: made improvements upon the land – this is sufficient consideration for the promise for the land
5 Ricketts v Scothorn, 1898, P87--recognized
1 Grandfather tells granddaughter “I have it fixed out for you something that you have not got to work any more”
2 Granddaughter quits job --> never received the promised money. Enforceable under equitable estoppel
6 Siegel v Spear & Co, 1923, P87--recognized
1 P bought furniture from D and stored the furniture at the D’s storehouse free of charge. D’s credit man promised and agreed to insure the furniture. A fire subsequently destroyed the P’s furniture w/o insurance having been taken out for it.
2 Held: Court finds consideration – Siegel sent furniture himself after the D’s promise to store, D’s credit man’s promise, and P’s not insuring it himself.
3 Court differentiates from Thorne v Deas (a case used by defense) (A and B own a boat, A promises to insure it, doesn’t, boat lost at sea. No enforceable agreement – naked promise) – by claiming there was nonfeasance in that case and misfeasance (breach of a trust undertaken voluntarily) in this one.
5 Promissory Estoppel can arise out of invalid contracts & bargain situations
1 Wheeler v White
1 P and D had agreement where by D was to secure a loan or provide a loan to finance commercial building/shopping center for P. D was to receive payment/commission. Contract was invalid (vagueness). D urged P to go ahead with the demolition - P did so. D then informed P that he was breaking invalid contract.
2 Held: PE applied despite invalid contract
3 Here we have an actual contract which, although indefinite, the court is still looking to enforce
4 As this is recovery under PE – only reliance damages will be given (no expected profits)
6 Promissory Estoppel can arise out of representations made during negotiations before contract
1 Hoffman v Red Owl Stores
1 P alleged that an agent for D promised (in negotiations) that D would build/stock store for P to run if D provide $18,000 initial investment. In reliance on the promises made by D, P sold bakery building and business, grocery store and business, purchased a building site for the future store and rented a residence. The negotiations eventually broke down.
2 Issue: Is Hoffman entitled to recover reliance damages on the grounds of promissory estoppel even the promise itself did not form a definite and enforceable contract?
3 Holding: Yes – P reasonably relied on promises made by D in negotiations and suffered a detriment
4 The best way to attack a Promissory Estoppel claim is to take the three elements in turn and see if they have been satisfied:
1 Was there a promise where the promisor should have reasonably expected to induce action/forbearance? (Jury question)
2 Did the promise induce action/forbearance to the detriment of the promisee? (Jury)
3 May injustice only be avoided by enforcing the promise? (Court question)
5 Q: Auto supplier initial development plan with OEM. Do they have to express the invalidity of promissory estoppel? PF answer: if this is the custom in the industry and there is an express agreement among both parties, there is no Promissory Estoppel and the no liability agreement will be honored.
6 P110: Limiting the estoppel-based liability:
1 Employing conditional or indefinite promise, attaching a termination date to the promise, or revoking and promptly communication this to the promisee can affect the Foreseeability and reasonableness of reliance and thus defeat a promissory estoppel claim.
7 Definition of ‘Reasonable Reliance’ may be colored by circumstance (eg industry norms)
1 Elvin Associates v Franklin
1 Actor pulled out of deal (no signed contract) with a producer to perform in musical – found to be liable under PE.
2 In show business – many arrangements are made before written contract.
3 This is custom in the industry, and the reliance is reasonably expected by the producer. Actor also should have known that Producer would commit major expenditures before he would be available to sign the contract.
8 Reliance has to be reasonable
1 Local 1330, Utd Steel Workers v US Steel Corp.
1 P (steel workers union) sued the D, US Steel Corp, alleging that the D made proposals to the P to the effect that if the workers put forth their best efforts and made the plants profitable – they would not close (no formal document).
2 Held: PE not applicable – P’s unreasonably relied on their own definition of profits (revenue – direct costs of plant). Unreasonable not to take into account over-head costs.
3 Why not bargain for exchange (hard work for keeping plants open?)
4 Existing Duty Doctrine – employees should have been working as hard as they could before promise
3 Obligations arising from Unjust Enrichment/Implied-In-Law Contract/Quasi Contract
1 Unjust Enrichment: (Quantum meruit, restitution, quasi-contract, contract implied in law)
1 A person who has been unjustly enriched at the expenses of another is required to make restitution to the other. Restatement of Restitution, §1.
2 An implied-in-fact contract is a true contract, containing all necessary elements of a binding agreement; it differs from other contract only in that it has not been committed to writing or stated orally in express terms, but rather is inferred form the conduct of the parties in the milieu in which they dealt. To establish an implied-in-contract to pay for services, the party seeking payment must show:
1 The services were carried out under such circumstances as to give the recipient reason to understand
1 That they were performed for him and not for some other person
2 That they were not rendered gratuitously, but with the expectation of compensation from the recipient;
1 A mentally alert patient receives emergent treatment from a doctor without express any rejection would suggest an implied agreement to receive treatment under contract. It is a implied-in-fact contract.
2 The service was beneficial to the recipient.
1 There is no implied-in-fact contract if either:
1 One party thought the service/promise was a gift or
2 The party intended it as a gift
3 A quasi-contract is not a contract at all, but a duty thrust under certain conditions upon one party to requite (pay back ) another in order to avoid the former’s unjust enrichment. To establish a quasi-contract, the plaintiff must show two elements:
1 The defendant was unjustly enriched at the plaintiff’s expense
1 Consuming a free bag of pretzel or free hair cut saved D’s money, therefore D is enriched also.
2 The circumstances were such that this enrichment is unjust.
1 Not gratuitous, Intent to charge
1 Intent is measured using an objective standard.
2 If a reasonable person in the recipient’s position would perceive the grantor as not expecting compensation, then it is gratuitous.
3 If doctor render professional service in emergency, he probably intended to charge. If a lay person rendered aid in emergency, he probably did not intend to charge, but out of gratuitous.
2 No imposition (foisting)
1 Request
2 Emergency
1 Immediate action is required
2 Advance assent is impractical
3 The claimant has no reason to believe that the recipient would not wish for the action to be taken
3 Acceptance
3 Before apply quasi-contract, always analyze Implied-in-fact contract first!!!
4 In situation involving personal service, a duty to pay will not be recognized if
1 The benefit was conferred gratuitously or officiously, the recipient is enriched, but not unjust.
2 The question of payment was left to the unfettered discretion of the recipient
3 The services were rendered simply to gain a business advantages
4 The plaintiff did not contemplate a personal fee or the defendant could not reasonably have supposed that P did
5 An uncommunicated expectation.
6 One who conferred a benefit upon another without giving him the opportunity to reject the benefit. To grant the claim would outweigh the freedom of choice.
2 Unenforceable agreement
1 Bloomgarden v Coyer
1 P, appellant, sought a finders fee (under Implied-in-fact contract & Quasi Contract theories) for setting up a meeting between appellees and his boss which led to the inauguration of an enterprise to extensively develop certain property on the Georgetown waterfront.
2 Held: No finder’s fee to be awarded – loses on both Implied-in-fact and Quasi contract theories because P did not mention the payment at all.
2 Defense to Unjust Enrichment in Unenforceable Agreement
1 Keeping the benefit is not unjust. The party claiming relief conferred the benefit as gift.
1 Family members or people in close relationships intend to confer benefit on each other.
2 It can be rebutted if the conferred benefit is pursuant to an unenforceable agreement
1 Gay v Mooney
1 D’s intestate was the uncle of P’s wife who for several years resided w/P under the understanding that uncle would devise a certain dwelling to the P’s children in return. Upon uncle’s death, D refused to perform – P sued and won.
2 Held: P can recover on Unjust Enrichment ground (not on the contract – Statute of Fraud precludes this claim, interests in land must be in writing)
3 Rationale:
4 Service was not a gift but a sale – unjust not to perform, justice served by forcing performance
5 (Invalid) contract illustrates the non-gift nature of the service
2 Perillo: Restitution in a (unenforceable) contract context, P122
1 Assume the contract made by the parities never existed. P then states that he had rendered services at the request of D, and D has promised him to pay reasonable amount of money.
2 The promise is not a contractual promise, but a fictional one.
3 Inducing evidence of the oral contract to prove D’s promise
4 D may claimed that P breached the oral contract and should not be recovered based on the terms of the enforceable contract.
5 The majority cases may introduce the term in the contract to calculate the reasonable rate of compensation.
6 At every step, question of facts and laws are referred to the (unenforceable) contract.
3 The writing requirement in contract has a role of rejecting expectancy recovering. It limits the recover to the value of service (restitution damage).
2 No benefit
1 You still have to pay since you have requested service, even if you chose not to accept the benefit, or the services prove fruitless, you have benefited to the extent of the fair market value of the services rendered.
2 Some will argue that you did not receive a benefit, but the ground for recover is Justifiable Reliance.
3 For example: ask architect to draw a house design but not use it. You orally agree to purchase a house on the condition that the seller made some improvement on it. Or hire an oil exploration company to drill on your land, but no oil is found.
4 Kearns v Andree
1 P owned land with a partially completed house on it as well as another house. P and D entered into oral agreement where by D agreed to purchase house with lot and assume a mortgage. D eventually became dissatisfied w/purchase but stood by the bargain on certain conditions: house done a certain way, certain trees removed from land. P satisfied the conditions yet D refused to perform.
2 Held: P can recover under UE
3 Rationale:
1 D was benefited: he requested service/he got service. Simply because he didn’t utilize the benefit isn’t the fault of the P.
2 A paints B’s car at B’s request –B’s drives car off cliff 1 sec later – UE?
3 Yes – despite the fact that B didn’t ‘utilize’ the benefit
3 Breach of an enforceable contract.
1 It is the unjust enrichment theory is also called “restitution”, because the party who has received the benefit must return it or its money equivalent to the other party.
2 Injured party may seek a recovery under the theory of Unjust Enrichment, instead of breach of contract.
1 E.g. P agreed to perform for D for $4000/month for the whole year. D wrongfully fired P at the end of the first month. P’s first month FMV is $8000. P found alternative job for the rest of the year. P can then sue for UE for $8000, instead of Breach of contract for $4000.
2 Rationale: D cannot use contract as a shield to insulate her liability for the actual benefit she received. However, some courts hold the contract price as the upper ceiling for recovery.
3 Exception: No remedy of Unjust Enrichment if the contract is fully performed and the only thing has not rendered is the pay. E.g., If you agree mow D’s lawn for $500, and at the end of contract, D refused to pay. You can not sue for the market value of $800.
4 Posner v Seder (P130)
1 D & P Ked whereby D was to employ the P for 1 yr and pay $17/wk & the D was expected to work extra hours, w/o pay. D broke the contract – discharged the P. P sought extra compensation for the extra hours worked.
2 Held: If suing on K, cannot recover compensation for extra work – K encompassed the extra time. P can sue off the contract and recover market value of all of his services
3 If sued for contract: $17 per week for the whole year – received – reasonable alternative (due to remedy)
1 PF: By the time the case reached court, a year has passed, there is no worry to the difference of the actual alternative or predicted alternative.
4 If sued for restitution: Fair Market Value (FMV) – received
1 P will sue on the K if the original bargain was good (market value of services fallen since)
2 P will sue off the K if the original bargain was bad (market value rose since)
1 Hypo: Hired for two weeks to level backyard for $800. Landowner break the contract after one week without pay. Find job for the second week. Fair market price for one week service is $800. Gardner then may sue for unjust enrichment since FMP $800> contract Price $400.
5 Contract set a higher limit for the breaching party, not the injured party who may recover on fair market value.
6 In Kelley, breaching party sue for UE, then their contract price is the ceiling, otherwise the party will have incentive to breach.
7 Rationale
1 Keeps employers from breaching
2 Allows employees to potentially get more than bargained for
3 A breaching party may seek unjust enrichment claim if he has conferred benefit on the injured party that exceeds the injured party’s damage.
1 Kelly v Hance (P131)
1 P & D K-ed whereby P was construct sidewalk for D. P breached before he performed fully (left after removing a strip of earth) from D’s property. P sought the value of the work done (quantim meruit)
2 Held: P cannot recover value of services – UE undermined by foisting defense (D cannot return the work)
3 Other rules:
1 It is not a divisible contract
2 Substantial performance: In construction contract, the contractor is permitted to recover where the contractor has deviated slightly from the terms of the contract, not willfully, but in good faith, and there has been a substantial performance of the contract of which the other party has received the benefit.
3 Negligent breach of contract: may recover the value of work, less the damage caused by his default.
4 Willful breach of contract without justification: No recovery unless the defendant voluntarily accept the benefit under circumstances sufficient to raise an implied promise to pay for them notwithstanding the nonperformance of the contract.
5 Except where there has been an actual acceptance of the work prior to its abandonment by the plaintiff, mere inaction on the part of the defendant will not be treated as an acceptance of the work from which a promise to pay for it may be implied.
4 Notes:
1 Different result if D admitted that the hole was a benefit (“a substantial start towards the sidewalk”) BUT court found it was not
2 The breach was egregious (Kearns was a prick)– started late, left without notice – Court did not want to find for him
2 Britton v Turner
1 P agreed to work for D for 1 yr for $120. P left D’s service (w/o consent or good cause).
2 Trial court awarded P a judgment of $95 under the theory of quantum meruit.
3 Held: P is entitled to recover off the contract under the theory of quantum meruit
4 Reasoning:
1 Barring a recovery could penalized an employee tried but failed to complete the contract, as oppose an employee who did nothing regarding the contract at all.
2 The employment is day to day, the court presumed that the employer had accepted and should pay for each day’s work notwithstanding his failure to complete.
1 But employer does not receive benefit day to day, such as training period.
3 The general understanding is that an employer should compensate an employee for work performed even if the employee does not complete the contract term
4 The parties did not expressly agree to deny the employee compensation unless he completed the term, even though they could easily have done so. (Modern day state labor law forbid such a strategy)
5 Denying a recovery would create an incentive for employers to create unfavorable conditions near the end of the term to drive the employee out. (But employer may materially breach the contract first by doing so and owe damage to employee.)
5 Notes:
1 The service of labor is (implicitly) received and accepted day-to-day as it is performed
2 If it were not so, than a party who attempts performance may be placed in a worse situation than he who completely disregards his obligations under the contract
3 Distinction between Kelley and Britton
1 If the breaching party is found strategically taking advantage of the breach and realize certain gain, then no Unjust Enrichment recovery. The key is the facts pattern.
4 Conferral of a benefit without a contract in a business settting
1 Defenses to Unjust Enrichment claim are:
1 Foisting: the benefit was forced on the party;
2 Gift: the benefit was not intended as a gift.
1 E.g., Aunt bought nephew a car for his 21 birthday. Nephew promise to pay back. Promise not enforceable.
3 Justice: Whether a reasonable person receiving such a gift would expect to pay for it.
1 Bloomgarden: No Unjust Enrichment
1 He explicitly said he did not expect to be paid for setting up the meeting. Not unjust not to pay – gift defense.
2 B suggested that he was expected to be rewarded in other form, such as receiving contract for his boss. So the other parties may expect reward in that form, but not in the finder’s fee.
3 B may argue the other party should expect him finder fee if the original form of rewarding may not be established. But the court did not recognized it.
2 Why no Implied in fact contract in Bloomgarden? Recipient had no reason to know that P wanted to be paid finder’s fee. Therefore, there is no real contract for finder’s fee.
2 Sparks v Gustafson
1 P continued to manage a property (& collect rents, paid expenses w/own money) on behalf of dead friend (did so when friend was alive). P never requested compensation for his services. P demanding recovery for fund and services provided under UE.
2 Held: Unjust Enrichment – not services rendered by a friend
1 D has received substantive benefit – improvements to building, management of building, collecting rents, etc, which constitute extensive business services for which one would ordinarily expect to be paid.
2 The benefit is not the kind that is usually a gift
3 Would be inequitable for D to retain benefit w/o compensating the P for its value
3 Hypo:
1 Eg A sitting on front porch w/broken leg – lawn mowing service pulls up and does neighbor’s lawn. They motion to A – A nods ( Valid Implied in Fact Contract
2 Eg. Neighbor has hired a lawn mowing service, they also mow A’s lawn by mistake as A hid in bushes and watched ( quasi contract (not to pay would be unjust, and A has accepted)
5 Marriage or Marriage-like arrangements can give rise to Implied-in-Fact K & UE claims
1 Watts v Watts
1 P & D cohabited and held out like a married couple for 12 yrs (children, tax filings, insurance, etc). After separation, D refused to share the accumulated wealth equally.
2 Held: P has claims on both:
1 Implied-in-Fact K grounds &
2 Unjust Enrichment grounds
1 IF the party has been married, the claimant should be entitled to share in the marital estate.
2 When both act as if they are married, the party receiving the benefit reasonably should understand that the other party expect to share in the wealth of the relationship.
3 How can both of the theories be recognized? There are sufficient evidences on her to claim either case so the complaint should sustain. So it is left to P to choose either of them to proceed. P will not be entitled to both in trial because the two claims are mutually exclusively.
4 Distinguish from Bloomgarden: ST: party did not go to the relationship with certain intent to receive.
6 The Death of Contract?
1 Contract: Benefit to promisor + detriment to promisee (that was bargained for)
2 Gilmore: only benefit to promisor or detriment to promisee is enough for remedy.
3 Dawson: Loss of expectancy for Contract v. Restitution for UE v. Reliance for Promissory Estoppel. Need to confer with PF.
4 Obligations Arising from Promises for Benefit Received
1 Where P confers a gift benefit not on D and D subsequently promises to pay the promise is unenforceable notwithstanding D’s moral obligation.
1 Mills v Wyman
1 Action to recover for the board & nursing of D’s son (25 years old – long ceased to be member of family) who, upon returning from a voyage was suddenly struck ill and taken in by the P. D wrote to P promising to pay for all expenses incurred and then failed to do so.
2 Held: promise not enforceable – D did not directly receive economical interest, moral obligation insufficient consideration
3 Caution: The case may be overturned. PF think D has received much more benefit than another case: P took care of D’s cow, and D’s promise was enforceable.
2 Promise for benefit received only enforceable if there was a pre-existing consideration such as pay the debt of infant (owe debt before 18), of the debtor discharged by the statute of limitation, or bankruptcy.
1 Only the new promise is enforceable under the exception.
1 E.g. After SoL, A write to B, “I still owe you $1000, but I will pay $800.” $800 is enforceable.
2 Only acknowledge is not enough.
1 Same facts, A write to B, “I still owe you, but I will not pay you a cent.” Not an enforceable promise.
3 Promise may be implied
1 A write to B, “I still owe you, but I am sorry I don’t have money this year.” Court may imply that A promise to pay back
3 RST §82(1):
1 Promise to pay all/part of an antecedent contractual or quasi-contractual indebtedness owed by the promisor is binding if the indebtedness is still enforceable or would be except for the effect of Statue of Limitation.
4 Moral Obligation as sufficient consideration to enforce promise where promisor has received a non-gratuitous & material benefit
1 Webb v McGowin
1 P, to save D’s life/health, fell with falling block and sustained serious injury, crippled for life – unable to do physical/mental labor. D agreed to maintain P for the rest of his life. After D’s death, D’s estate stopped payment.
2 Held: Promise enforceable – being saved from death or serious bodily injury is sufficient consideration to sustain a subsequent promise to pay & it was not a gift (in the context of employment)
3 Rationale: the subsequent promise to pay is an affirmance or ratification of the services rendered carrying with it the presumption that a previous request for the service was made.
1 Hillman hornbook: Web v. McGowin may have reached the right result with the wrong reason. In stead of creating a legal fiction about implied previous request in order to satisfy the consideration requirement, the court could have declare the promises for benefit received as enforceable as a distinction obligation.
2 Harrington v Taylor (axe case)
1 D’s wife knocked D down with an axe and was about to decapitate him when P intervened and caught the axe badly mutilating her hand. D made promise to pay P her damages but stopped after paying a small sum.
2 Held: Promise not enforceable – common gratitude to alleviate the P’s misfortune is not consideration
1 How to reconcile Webb & Harrington?
1 Webb – employment context, thus not humanitarian act; Harrington – in the context of friendship, more likely to be gratuitous
2 Length of payment – Webb: 8 yrs; Harrington: only a small sum
3 Reconcile Webb and Harrington: Q:
5 RSC §86 – Promise For Benefit Received addresses the above confusion:
1 Promise made in recognition of a benefit previously received is binding to the extent necessary to prevent injustice.
2 Promise not binding if (defenses):
1 Promisee conferred benefit as a gift or for other reasons the promisor has not been unjustly enriched
2 Its value is disproportionate to the benefit received
6 Acknowledgment of the benefit received can lead to obligations
1 Edson v Poppe (well case)
2 D owner of a premise where the tenant of D requested the drilling of a well by P – well improved the value of the premise. D, after examining the well, approved of it and promised to pay for the reasonable value of it. Failed to perform the promise.
3 Held: Promise enforceable – clearly not a gift (P was requested to build the well)
4 Recovery on PE grounds?
1 No – foisting problem. Tenant requested the well – it was foisted on land owner.
2 However, Promise for Benefit Received gets around this once D acknowledges the benefit received
5 Obligations Arising from Tort
1 Contracts w/ professionals give rise to obligations beyond the scope of the contract itself
1 Mauldin v Sheffer (Duty from Professional Obligation)
1 P, architect has oral contract w/ D engineer but D plans are grossly erroneous; P detrimented by D’s actions, in loss of expected profits and damaged reputation. P sues D for willfully and intentionally supplying him with plans he knew to be false. P wants to sue in tort; D alleges the suit must be in contract since the situation arose in a contract context.
2 Held: Tort for breach of professional duties arising outside the contract, arising from LAW
3 For a tort that arises out of a contract situation, there must be a breach of duty independent of the contract. This applies to intentional breach of duty and can also apply to negligence situations.
4 Nonfeasance is not a cause to sue in tort, only malfeasance (actual bad performance)
2 Cause of action exists where there is misrepresentation/fraud within performance of the K
1 Hargrave v Oki Nursery (Misrepresentation tort)
1 D misrepresents health of vines purchased by P for winery; vines are diseased; P claims tort in fraud b/c misrepresentation and five other K claims
2 Held: Recovery allowed under Tort even though D not a professional
3 Rationale:
1 D willfully breached duty to P in selling known diseased vines – misrepresentation
4 Elements of misrepresentation are: falsity, scienter (knowledge of falsity), deception (plaintiff mistaken into buying) and injury
2 What if Oki does not know that the vine is diseased? There will be no tort theory, but P can still bring suit for breach of Contract, or implied warranty. But P has to sue in California since D is doing business in California.
3 Courts will not recognize tort remedies for bad faith breach of employment Ks (Court recognize special relationship w/ insurance companies and insured however)
1 Foley v. Interactive Data Corp.
1 Held: the breach of an employment contract does not place the employee in the same economic dilemma that an insured faces when an insurer in bad faith refuses to pay a claim to accept a settlement offer within policy limits
2 “tortious breach of the implied covenant of good faith and fair dealing” has no cause of action.
3 Employer should be not liable to employee for breach of implied covenant of good faith or fair dealing unless there is expressed agreement.
4 No Promissory Estoppel in wrongful termination (5% successful rate in reality). It is not reasonable to rely on good faith employment
5 Insurance company:
1 If you caused a serious damage to others well above you insurance liability limits. The insurance can not simply pay off the insurance limit liability and without zealously defending the insured, otherwise it is bad faith, and be liable.
2 Valente v. Uni of WY Research Corp.
1 P claimed the institute’s termination of his employment constituted a bad-faith tort because he failed to cooperating in retaliating against another employee who had submitted a complaint.
2 Held: mere longevity doesn’t necessarily constitute a “special relationship” giving rise to a tort remedy.
1 Special relationship of trust and reliance does not apply to Human Resources position since it is inherent in the duties of a HR manager.
6 Obligations Arising solely from Form
1 Least prominent theory of obligation
1 Too easy to forge – evidentiary and cautionary functions lost (recall Fuller)
7 Obligations arising from a statutory warranty
1 Express Warranty (§2-313)
1 Definition: Express Warranty is created by:
1 Affirmations of fact/promise made by seller to buyer relating to the goods, and
2 The affirmations are a basis of the bargain
2 Keith v Buchanan (UCC Boat case)
1 P, a knowledgeable boat person purchased sailboat (described as surefooted seaworthy in brochures) from D. P had friend (who was involved in the boat building industry) help purchase the boat. Upon buying the boat – questions arose as to its seaworthiness. P sued for breach of expressed warranty.
2 Held: Breach of Express Warranty – brochures made affirmations of facts (seaworthiness) & they were a part of the bargain (hard to prove)
3 P relied on brochure and oral representation
3 Three part test:
1 Whether the seller’s statement constitute an “affirmation of fact or promise” under UCC
2 Whether the statement was part of the basis of the bargain
3 Breach of the warranty
4 Statements made by a seller during the course of a negotiation over a contract are presumably affirmations of fact unless it can be demonstrated that the buyer could only reasonably considered the statement as a statement of the seller’s opinion. Test:
1 Lack of specificity in the statement made
2 Statement that is made in an equivocal manner
3 Statement which reveals that the goods are experimental in nature
5 Statement in an advertising brochure can create express warranties.
6 Part of the basis of the bargain test:
1 A warranty statement made by the seller is presumably part of the basis of bargain
1 In actual practice affirmations of act made by the seller about the goods during a bargain is regarded as part of the description of those goods.
2 No particular reliance on such statements need be shown
2 Seller has the burden to prove that the resulting bargain does not rest at all on the representation. Here seller did not satisfy the bargain because:
1 Buyer’s inspection of the boat by his own expert does not constitute a waiver of the express warranty.
2 Buyer has not tested in real sea condition.
7 Model or sample could create a strong presumption of that it is a basis of the bargain than a model. Seller can avoid it by specifically state that “this is a model, and the real goods may be different.”
2 Implied Warranty (§2-315) –
1 An implied warranty of fitness for a particular purpose arises only where:
1 Buyer intended this purpose
2 Seller knows the purpose
3 Buyer relies on seller’s skill or judgment in select such goods for this purpose
4 Seller knows buyer’s reliance
2 Keith v Buchanan (UCC Boat case)
1 P had friend (who was involved in the boat building industry) help purchase the boat. Upon buying the boat – questions arose as to its seaworthiness. P sued for breach of implied warranty.
2 Held: No breach of implied Warranty – P relied on own expert at the time of purchase.
3 Implied Warranty of merchantability (§2-314) – Goods to be merchantable must at least be fit for the ordinary purpose for which such goods are used & seller must be merchant of the good
1 Cigarette is merchantable because it fits its ordinary purpose (to be smoked).
4 Webster v Blue Ship Tea Room (chowder case)
1 P had fish chowder and got fish bones lodged in her throat.
2 Held: D did not breach UCC 2314 – Chowder was fit for it’s merchantable purpose (fish bones are not to be unexpected in chowder)
5 Recovering on a theory of Breach of Warranty is an uphill battle
1 White & Summers, UCC
2 Lawyer must prove:
1 that the D made a warranty (exp or imp)
2 goods were defective
3 injury was caused directly by defective nature of goods
4 damages
5 exceptions to disclaimers, statute of limitations, privity, lack of notice, assumption of risk
8 Statute of Frauds: Requirement of writing
1 Generally
1 Originally drafted in England
2 Protect people from fraudulent allegations of oral contracts; writing produces evidence that a contract was actually made
3 Eventually repealed in England ( Statute of Fraud causes more fraud than it avoids; terrible injustice done, D hiding behind Statute of Fraud
4 At present, some version of Statute of Fraud remains in effect in all US states.
2 Hawaii (HI Revised Statutes §656-1)
1 writing required for any interest in land (eg leases, and sale of property, etc)
2 writing required for promises not performable within 1 year of making.
1 One year is counted from the making of the contract to the end of performance promised.
3 sales of goods with price over $500 in UCC.
4 examples of what falls in and out of Statute of Fraud:
1 hire a 22 year old for lifetime employment; oral contract – enforceable (can be performed within a year, she may die)
2 hire a 122 year old for 366 days – writing required; not performable within a year (366 days > 1 yr)
3 Basic issues arising under the S of F:
1 Does statute apply?
2 If so, is there writing that satisfies the Statute of Fraud?
1 Some memorandum – any form of writing will do, but need to identify the subject matter.
2 Signed by party to be charged – the party who is reneging on his promise
3 The revised Articles 2 only require a record in the new technology time era.
3 If not, is there an exception to the writing requirement?
1 Merchants who receive confirmations from other merchants are bound (the Statute of Fraud is satisfied for both parties)
2 Specially manufactured goods exception – no writing required, even if value is +$500
4 If party admits contract exist
1 Partially performance
5 Are there any other theories of recovery that might mitigate would otherwise be no compliance?
1 Promissory Estoppel
2 Equitable Estoppel
6 Important Note: Compliance with the Statute of Fraud does not in itself prove the existence of a valid contract
7 Even if P can prove there is writing satisfying the S of F, the other defenses are available: lack of consideration, consideration not extracted, etc
4 Courts are free to remove cases from S of F and find recovery on other grounds if injustice can be avoided by doing so
1 McIntosh v Murphy
1 D broke oral contract with P for employment for 1-yr.
2 One-year Contract is performable within a year if the offer is accepted on Monday, but not performable if accepted on Saturday, since you have to start to work from Monday and the weekend cannot be count into the calendar year to perform the one-year contract.
2 Held: NO need to decide statue of fraud issue since the case is decided on Promissory Estoppel ground. (P moved belongings, rented apartment, etc in reliance on promise for employment)
3 Ground for maintain Statute of Fraud:
1 Evidentiary function lessens the danger of perjured testimony
2 Cautionary effect reflect the importance of the contract
3 Channelling certain transactions to written form
1 Ground against statute of Fraud:
1 It put P in a very disadvantaged position in case there is an oral contract.
9 Theories of Obligations & Defenses: Summary & Practice Question
|Theory of Obligation |Defenses |
|Agreement w/ Consideration |Gift promise (Dougherty v Salt) |
| |Consideration not extracted |
|Elements: |Non-colorable claim (Springstead) |
|An act other than a promise; |Lack of Mutuality (De Los Santos) |
|forbearance; |Pre-existing Duty |
|creation, modification or destruction of a legal relation; or |Unconscionable Contract/Term (RSC § 208) |
|A return promise | |
|Extracted by promisor for and given in exchange for the promise. | |
|Obligation arising from Justified Reliance – Promissory Estoppel |Unreasonable reliance (note industry custom Elvin Ass v |
| |Franklin) (Utd Steel Workers) |
|Elements: |No extracted reliance |
|Promise reasonably expect to induce action/ forbearance; |No injustice if not enforced (eg gift) |
|Action/forbearance induced; and | |
|Injustice can be avoided only by enforcement of the promise. | |
|Obligations arising from Unjust Enrichment/Implied-In-Law K/Quasi K |Gift intent (Bloomgarden)(note relationship b/w parties |
| |Brown, Ks) |
|Elements: |Benefited foisted (Kelly v Hance) |
|Benefit to D | |
|At the expense of P | |
|Unjust not to compensate P | |
|Promise for Benefits Received |Benefit conferred as a gift (Mills v Wyman; RSC § 86) |
| |Not a material benefit |
|Elements: |Value of promise disproportional to benefit (RSC § 86) |
|Non-gratuitous substantial benefit conferred on D | |
|D subsequently promises to compensate P | |
|Obligations Arising from Tort |Breach of unemployment K does not give rise to tort; even |
|Professional duties (engineers, doctors, etc) |long term employment |
|Misrepresentations: falsity, scienter (knowledge of falsity), deception | |
|(plaintiff mistaken into buying) and injury | |
|K’s involving public trust (insurance companies) | |
|Obligations Arising Solely from Form |Does not meet the evidentiary/cautionary function of |
| |consideration (too easy to forge) |
|Obligations arising from a statutory warranty | |
| | |
|Elements of Express Warranty (UCC §2-313): |Express Warranty defenses: |
|Affirmations of fact/promise made by seller to buyer relating to the goods |Affirmations were puffing (A-1 cert) |
|The affirmations are a ‘basis of the bargain’ (vague) |Not relied upon (burden on D to prove) – reasonable person |
| |test |
|Elements of Implied Warranty (UCC §2-315): | |
|Seller knows that buyer is relying on seller’s skill and judgment to | |
|select/furnish appropriate goods. | |
| |Implied Warranty defenses: |
|Elements of Implied Merchantability Warranty (UCC §2-314) |Seller was expert/had own expert (Keith) |
|Good is fit for the ordinary purpose for which such goods are used |Seller didn’t know the intent of the buyer in purchase |
| | |
| |Implied Merchantability defenses: |
| |Seller wasn’t a merchant of the good |
| |Good was indeed merchantable (Webster) |
10 Problem 2-10 (pg204) – Practice Exam Question
A, with hurt back, asks B (neighbor), to seed lawn. Takes 3 days. B says nothing about payment. Months later, A wants to settle up – B asks for $250. A refuses to pay. What rights does B have?
• Promise for Benefit Received Theory of Recovery:
|Non-gratuitous gift: 3 days of work |Defense to P4BR: |
|‘A’ [implied] promised to pay for benefits received |Gift defense: they are neighbors (Harrington v Taylor) this was a gift|
|Acknowledgment of benefit received – ‘time to settle up’ |No foisting defense (A asked for the labor) |
• Unjust Enrichment Theory of Recovery (quasi K, K implied in law)
| |Defense to UE |
|Benefit conferred: 3 days of labor |Gift Defense: B’ is a ‘Bloomgarden’ – this was a pure gift, never |
|Appreciation of the benefit: Offered to settle up |mentioned payment |
|Unjust not to pay: not a gratuitous gift intent | |
• Contract w/Consideration (Implied in Fact)
|A extracted services from B |B never wished to extract payment – never mentioned payment - GIFT |
|B extracted payment (implicitly) | |
|This is not the kind of work that is done as a gift – there is an | |
|implied expectation to be paid | |
• Statute of Frauds Issues?
o No
• Tort Claim?
o No – no professional duties, or any other arising beyond the K
• Obligation based on Form?
o No – no form
• Obligation based on Warranty?
o No
Remedies
1 Breach of Contract
1 Expectancy Damages for Breach of an Agreement w/ Consideration
1 Goal: compensate the breached party so that she is in a position as if the breaching the party has performed the contract.
2 Expectancy damages—Introduction
1 General damage: Expectancy damage measured by the market price-contract price differential
2 Consequential damage: Contract law compensate P for all the harms to put P in as good a position as if the contract has not be breached.
1 Party claiming consequential damage need to prove that the damage was reasonable foreseeable to the breaching party at the time of contracting, and not too speculative.
3 Breached party receiving expectancy damage would encourage people to make and rely on the contract and benefit the society as a whole.
4 Efficient breach: Expectancy damage encourage a party to breach when the breach is efficient, i.e., some parities will better off and no party is worse off.
5 Contract law bars unforeseeable consequential damages in part to encourage parties to disclose potential losses at the time of contracting.
3 Method of measuring expectancy damages
1 Whether a party’s lost expectancy under a contact should be measured objectively, based on reasonable the market value of the promised performance, or subjectively, based on the value of performance to the injured party himself?
2 The goal of contact remedy is to make the injured party whole, not to punish contract breaker.
3 No contract damage for emotional distress and sentimental loss.
2 Construction Contract
1 For breach of a building/construction K – law aims to give injured party what he was promised (Cost of Completion – K price)
1 Groves v John Wonder Co.
1 P leased land to the D where D agreed to move the remove the sand & gravel and leave the property at a uniform grade. D eventually breached the contract –wholly failed to leave the property at a uniform grade. Cost to performance = $60K; Decrease in Market Value of land due to breach = $12K.
2 Held: P recovers $60K, Cost of Completion (put P in as good a position as if the contract went through)
3 Dissent – wish to put P in as good a position as well as if the K went through ( recover the decrease in value due to non-uniform grade (believes P will simply sell the land)
4 Majority & Dissent are in agreement as to what the law says on recovery: to put the injured party in the same position as he would have been had the K been performed.
5 Source of Disagreement:
1 The more important fact is P’s intention of what to do with the land (sell vs. keep)
1 Majority: P wants to keep. Use foolish monument analogy, P may spend 60K to have 12K return on his land.
2 Dissent: restoration is not important and is only incidental term in the contract. P is not contracting a foolish monument. If P is awarded 60K, P will pocket the windfall.
3 Which opinion is right depends on whose is right on the fact. If P wanted the land to be restored to enjoy the beauty, P should be rewarded 60K, if P simply wants to sell it, it should be rewarded 12K.
4 The nature of the parties bargaining over the restoration when contracting: if P has insisted on the clause and discounted the price because of it, then 60K is a clear choice since P’s lost expectancy would be 60K.
2 They disagree as to the nature of the breach (willful, bad faith breach vs. not done in bad faith)
2 In breach of building/construction K where the breach results in Cost of Completion disproportionably larger than decreased market value; courts will award decreased market value.
1 Peevyhouse v Garland Coal & Mining Co
1 P sued D for breach of lease whereby the D was to conduct strip mining on the farm and perform certain restoration work. D did not perform restoration. Restoration work was estimated at $29K – but the reduced value of the land as a result of the breach was estimated at $300.
2 Held: Damages ( Decreased Market value (Cost of performance >> DMV)
3 Dissent: The restoring clause was insisted by P and they would not agree the contract without the clause. So $29K should be awarded.
2 Eisenberg, The Responsive Model of Contract Law
1 Allow for an intermediate measure of loss when:
1 P has included cost of performance in original KP. Without reward the cost of restoration will give D a windfall. P may seek specific enforcement, decides not to enforce specific performance (doesn’t really want performance of promise) but settles for intermediate amount
2 IF higher cost of restoration is caused by unforeseen circumstances, saving the cost will not give D a windfall, give the cost to P will give P a windfall. Both parties may settle at an intermediate price.
3 Damages will be Cost of Restoration unless reclamation was both (a) incidental to K (b) grossly disproportional to DMV
1 Rock Island Improvement Company v Helmerich & Payne, Inc
1 CofC = $375K; DMV = $7K; OK Open Cut Land Reclamation Act: after mining operations – policy of the state to reclaim the land.
2 Held: Damages ( Cost of Reclamation; not Diminished market value
Can view this case 2 ways:
1 Oklahoma statute overrules Peevyhouse ( Cost of restoration always awarded
2 Oklahoma statute is evidence that Oklahoma landowners will want to follow good environmental policy
1 Policy is not controlling but simply compelling
2 Must look at the parties intentions when they contracted
4 If court are convinced that P genuinely want the construction and will use awards to complete construction, this is probative – not conclusive – in awarding Cost of restoration
1 Radford v De Froberville
1 P lease land to D w/provision tha D build a wall dividing the plots. D failed to build the wall – failure to build the wall did not cause DMV.
2 Held: Damages = Cost of Restoration; P genuinely wants wall – not seeking a windfall.
5 Problem 3-1
1 Former diver and contractor K for construction of a pool 9.5 ft for $40K. Pool Built at 7.5 ft. Pool increased value of home by $45K. Home owner already paid $35K – refuses to pay final $5K. the total cost of construction is $35K. Home owner seeks $80K for whole new pool Damages?
2 Rule of Law: if uncompleted performance is incidental AND cost of completion is grossly disproportional to DMV – award DMV. Otherwise – Cost of Restoration.
3 Argument for no damages (DMV):
1 Extra 2 ft is incidental – contractor didn’t know intentions; 7.5 ft safe to dive
2 Cases: Peevyhouse
4 Argument for damages of $80K (C of Completion)
1 2 feet not incidental – wants to dive
2 expectation interest protection is fundamental to K law; P should be made whole
3 Cases: follow Radford (wall case); Groves (uniform grade case); Rock Island (OK reclamation strip mining case)
3 Cover contract:
1 Party damages by breach may only recover for loss which is the natural consequence and proximate result of that breach.
1 Thorne v White (roof cover contract)
D contracted with P to put a new roof on P’s home for $225. D abandoned the job – P K’d to have work completed at a cost of $582 ($357 extra) where extra work was done.
Held: Award only for cover contract for work originally contemplated – not new work done (5-ply, tearing up old roof, etc.)
• If P, after good faith effort, could only find more expensive Ks with extra work – damages will include extra costs
2 Morello v J.H. Hogan, Inc (cover contract – exclude breaching parties efforts)
P, Contractor, employed subcontractor, D, to perform masonry work for $44K. SubCon abandoned job after work value of $9K. Prime Contractor spent $54K to complete the work. SubCon sued for $9K and Con counter-sued for difference of $44K and $54K.
Held: Contractor should be awarded $10K – difference in cover K and original K
• Note: To award the prime Cont $1K is to award SubCont double the value for their work (Cover contact would have been $10K more without his work – SubCont already given credit for his efforts)
• Must mention this in Exam
3 Freund v. Washington Square Press--remedy is measured by the damage to plaintiff, not by the cost saved by D by breaching
1 P contracted D to publish his book and expected to be paid royalty by selling the books. D breached and did not publish. Court reversed the trial court’s judgment of awarding $10K publication cost, and award 6 cents nominal fee instead since the royalty is uncertain, also the cost and disbursement to P.
2 Injured Contractor entitled to damages equal to lost profit + cost incurred OR Kp – Cost of Work not done, and minus progressive or prepayment the contractor has received.
Warner v McLay (injured contractor)
D & P had a building contract whereby P was entitled to 10% profit upon the contract. D unjustly breached the contract. P demanded damages in the amount of expenditures & loss of profits.
Held: P entitled to :
1) Profit + cost incurred – payment received; or
2) Kp – Cost of Completion – payment received
3 Policy Supporting Protecting the Expectancy Interest
Fuller & Perdue, The Reliance Interest in Contract Damages
• Expectancy damages covers reliance damages which is really the heart of the matter in Contract law (must protect gains foregone)
• “To encourage reliance we must therefore dispense with its proof”
Von Mehren, Contracts in General
• Protecting the expectation interest is economically rational ( increases the likelihood that parties will perform
• Increased protection comes at a price ( higher damages when one breaches
4 Employment contract
1 Injured employee require Reasonable Substitute Job.
1 If the employee take a clearly inferior job, such as $4000/mo of a piano teacher to a $1000 janitor, the contract will still award the $3000 damage and probably the longer commuting cost as a consequential damage
2 In Employment K – injured employer may recover Cover K – Original
Handicpd Childred’s Edu Bd of Sheboygan Cty v Lukaszewski (employee breach)
P, hired D for school year. D accepted. Before start of year – D offered another position, D accepted & resigned original position. P forced to higher better teacher at higher salary.
Held: When employee breaches – Employer may recover Cover K – Original K
• P may recover full difference as the Cover K was foisted on them
3 In Employment K – injured employee may recover Original K – Cover K (if obtained)
Problem 3-2 (Breaching Employer)
P unemployed for 10 months after firing w/o cause w/good faith effort to seek employment. Would have been paid $1500/month – market value of work only $1200/month.
Damages: $1500 x 10 months. (MV of service irrelevant ( protecting the expectancy interest)
4 The employment K – injured employer may recover the K difference regardless the foisted profit.
Movie Production Hypo
Movie producer hired unknown for $10K for movie. Unknown breaches, Robert DeNiro is foisted upon them for $500,000. Movie makes $50M – movie would have made $1M w/unknown. Damages?
Under Lukaszewski: $490,000 despite the $49M in extra profits as DeNiro was foisted.
5 Sales of Goods contract
1 In Sales of Goods Contracts – Injured buyer entitled to Kp – MV @ time & place of tender (Common Law measure of damages)
Cooper v Clute (breaching seller)
D had K with P to sell cotton 1,430 bales at 10&7/8 cents/lb – D breached and sold cotton to third party for 11.03 cents/pound.
Held: damages ( K price - MV @ time and place of the breach. P suffers no damage is the market price is the same as the contract price.
2 Uniform Commercial Code
§2-713 Buyer Damages for non-delivery
• Market Price (at place of tender) – K price + incidental damages @ time buyer learned of breach (less expenses saved)
• Timing: at the expiration of a commercially reasonable time after the buyer learned of breach but no later than the time for tender.
This is a departure from Cooper v Clute Common Law Rule (time & place)
§2-712 Cover, Buyer’s Procurement of Substitute Goods (buyer buys replacement goods)
• Injured buyer may cover through reasonable purchase of substitute goods
• Injured buyer may recover (Cover K) – (K) + expenses incurred – expenses saved
• The recover price may by higher than the market price if her action is reasonable, in that case, the buyer may recover more that she would under §2-713.
• If the recover price is lower than the market price, the buyer may choose §2-713 instead to recover more than §2-712 and argue the purchase is not a recover, instead a separate investment. But arguably, she is put in a better position than the contract was not broken.
1 Problem on Page 238, Problem 3-4
1 §2-712: 2a: cover – KP: 11,3/8 – 10,7/8; 2b: 11,1/8 – 10,7/8
2 §2-708: Kp – MV: 10,7/8 – 9
3 §2-706: KP – resale: 10,7/8 – 9,7/8 (MV 10)
4 §2-714: Q: 15c – 5c, why not 17 – 5c.
§2-714: Buyer’s damages for Breach in Regard to accepted Goods not conform to K
Buyer may accept the non-conform googs and send notice to the seller
Buy may recover MV of expected goods – MV of received goods + Incidental damages
§2-708(1) Seller’s Damages for Non-acceptance or Repudiation
• Damages for non-acceptance/repudiation = Kp – MP (@time&place of tender) – expenses saved
• Seller only hurt if seller was selling for more than MP
§2-708(2): Seller may alternatively recover:
Expected profit (including reasonable overhead) + incidental damages due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.
§2-706 Seller’s Resale Including K for Resale
• Seller may resell goods
• damages = K – resale price + incidental damages - expenses saved
Injured Seller can elect between 2-708(1) & 2-706 to get higher damages.
§2-710: Seller may recover “incidental damage”
consisting of any “charges, expenses or commissions incurred in stopping deliver,” any expenses in transporting and caring for the goods after the breach and any similar damages.
UCC § 2-715(2)(a) – Consequential damages
Consequential damages resulting from the seller’s breach include any loss resulting from the general/particular requirements which the seller had reason to know and which could not reasonably be prevented by cover or otherwise.
3 A lost volume dealer is entitled to profits lost from the breach of K
(Lost Volume deal = one who can sell as many items as there are buyers)
Lost volume rule applies any context where the injured party loses volume as the result of breach.
Neri v Retail Marine Corp.
P contracted to purchase boat from D. P breached contract. D later sold said boat to another buyer for same price.
Damages: Profits from K1 + incidental fees (storage, upkeep) – expensive saved
Key Note: If a sale is dependant on the breach of the first sale contract, no entitlement to lost profits
§2-718: restitution to buyer’s deposit: Liquidation or limitation of damages, Deposit:
(1): the contract may specify liquidated damages
(2): the buyer is entitled to restitution of any amount by which the sum of his deposit or prepayment exceeds
(a) the liquidated damages
(b) if the liquidated damages is not specified, 20% of the total value or $500, whichever is smaller
(3): the buyers’ right to restitution under subsection (2) is subject to offset to the extent that the seller establishes
(a) a right to recover damages in other provisions such as §706, 708
(b) the amount of value of any benefits received by the buyer directly or indirectly by reason of the contract.
4 UCC § 2-704(2): Injured party may complete performance if they believe it will mitigate damages or cease manufacture and resell for scrap in a reasonable manner. P253.
6 Sales of Real property
1 Injured seller can recover the difference between contract price and market price, together with incidental damages.
2 Injured purchaser can recover the difference between the market price and contract price. In other authority, no expectancy, but only recover the restitution of the amount the purchaser has already paid unless the seller is willful or in bad faith.
3 Summary - Remedies for Breach of Agreement w/ Consideration
|Type of Breach |Formula |Source |
|Construction / Land Improvement |
|Contractor breach |C of C – Kp (or unpaid Kp) |Rock Island Improvement Company |
|Performance not incidental | |(Groves v John Wunder) |
|C of C approx = DMV | | |
|What about contractor breach and contractor sue for Unjust | | |
|Enrichment? | | |
|Contractor breach |DMV – Kp (or unpaid Kp) |Rock Island Improvement Company |
|COC >> DMV & | |(Peevyhouse v Garland Coal & Mining Co.)|
|Performance incidental | | |
|Injured Owner |Cover Contract – Kp (or unpaid Kp) |Thorne v White |
|Owner breach (injured contractor) |(1) Profit + cost incurred or |Warner v McLay |
| |(2) Kp – C of C | |
|Employment |
|Employee breaches |Cover Price – Kp |Lukaszewski |
|Employer breaches; employee reasonably mitigates |Kp – New wage | |
|Employer breaches; employee w/o work (reasonable search) |Kp (not Market Value) |Problem 3-2 |
|Sale of Goods (UCC) |
|Injured buyer* |MP (time of knowledge of breach) – Kp – |UCC §2-713 |
| |exp saved | |
|Injured Buyer (Procurement of Sub goods) |Cover Kp – Kp – expenses saved |UCC § 2-712 |
|Injured Seller |Kp - MP (time/place of tender) – exp |UCC §2-708-1 |
| |saved | |
|Injured Seller (Lost Volume) |Profit + incidental fees |UCC §2-708-2 |
|Injured Seller who resells |Kp – resale price + incidental fees - |UC C §2-706 |
| |expenses saved | |
* Under Cooper v Clute: damages = MP (time/place of breach) – Kp – exp saved
7 Availability of Lost Expectancy Damages – Qualifications and Limits
1 Summary:
1 Injured party must mitigate their damages
2 Injured builder must quit work after the landowner’s repudiation to limit further damage
3 Injured party must prove their damage with substantial certainty
1 Court may deny lost profit in new business because of the absence of proof
4 Contracting party must prove their damage is reasonably foreseeable.
1 Court may bar a miller unforeseeable lost profit when a carrier delays delivering the milers broker crankshaft.
2 Breaching party held liable for only those damages that may reasonably have been contemplated at the time of contract
1 Hadley v Baxendale (broken crank shaft)
1 P employed D, carriers, to transport broken crankshaft. P told D mill was stopped and shaft must be sent immediately. Delivery of shaft was delayed through neglect, mill was stopped for several days longer – mill lost profits.
2 Held: Miller only entitled to rental costs of crankshaft – common carries not expected to know the ramifications of a broken crankshaft to a miller
2 Armstrong v Bangor Mill Supply Corp. (broken crank shaft)
1 P employed D, machine shop owner, to repair broken crankshaft. D’s negligence resulted in P’s mill being shut down for 6 days.
2 Held: P entitled to earnings and expenses of maintenance of mill during the 6 days
3 Special circumstance known to the crank shaft engineer
3 UCC § 2-715(2)(a) – Consequential damages
1 Consequential damages resulting from the seller’s breach include any loss resulting from the general/particular requirements which the seller had reason to know and which could not reasonably be prevented by cover or otherwise.
4 Court generally discarded Tacit agreement
1 Under tacit agreement, the breaching party is not bound by the relatively disproportionate consequential damages with small consideration unless they tacitly agree so even if the injured party communicated the special circumstances to the breaching party.
3 Injured party must act reasonably to mitigate damages - cannot augment damages
Clarke v Marsiglia (painting restoration case)
P was employed by D to clean and repair a number of paintings. P started work on them when D desired him not to go on – P continued with work regardless.
Held: P is entitled to be compensated for the labor and materials used up to the point of the breach only
4 Formula for damages for injured contractor: Kp – Cost of Completion
Injured Contractor Hypo
D is to clean 10 paintings @ $10 painting. P breaks contract after 6 have been cleaned. Cost to clean paintings is $2.
Damages: Kp – CofC = $100 – ($2*4) = $92
5 UCC § 2-704(2): Injured party may complete performance if they believe it will mitigate damages
Problem 3-8 (UCC 2-704(a) in action)
S and B agree that S will manufacture standard valves for B for $40K. Before delivery – B repudiates.
According to S:
• Cost of manufacture was $27K (profit = $13K)
• Can cease make the valves:
o re-allocate $15K of labor to produce $10K worth of goods
o resell for $8K components purchased for K for $10K
o $2K of overhead lost
What can seller recover under Marsiglia if S doesn’t complete the K?
• Damages = Profit (including reasonable overhead) + incidental damages – payment/proceeds of re-sale.
• Here: $13K (profit)+ $2K (lost overhead) + $2K (incidental damages from resale of components) + $5K (labor producing less valuable products) = $22K
Bases on Uncompleted building contract?
Expected profit + Cost occurred + Incidental damages – saved expense
= 13K + (15K + 10K + 2K) – (10K + 8K) = 22K
What can seller recover under UCC § 2-704(2) if S does complete the K? (Market collapses – could only sell for $15K)?
• $25K (Kp – Mp)
6 Non-breaching party has affirmative duty to actively mitigate damages
Schiavi Mobile Homes Inc v Gironda (mobile home case)
D contracted with P for the purchase of a mobile home. D repudiated contract and D’s father offered to buy the mobile home, P declined. P eventual sold home to third party for less.
Held: D not entitled to lost profits – didn’t pursue father’s offer.
Key Note: If he had sold boat to D’s father – could not recover lost profits as a lost volume dealer – this sale would have been dependant on the breach of the first K
7 Injured Employee has no duty to accept substantially different or inferior work
Parker v 20th Century Fox Film Corp (employment breach damages)
P K’d with D to play lead female in D’s musical film filmed in CA. D repudiated the K – offered new part in a dramatic western-type movie in Australia with identical compensation. P declined offer.
Held: P entitled to expectation damages from first K – no duty to take 2nd part
Strong Dissent: Whether the 2nd part was of a substantially different/inferior kind a question for the jury
Problem 3-10 p264
T fired from job as typewriter salesmen – was earning $275/wk. Offered as a computer salesmen for $300/wk 20 miles from home. Should he take the job (is he obligated to do so under duty to mitigation?)?
Factors to consider:
o More money, higher status; Computers are growing industry - probably not inferior
o Need details of employment: hours, vacations, work on weekends, etc.
o What is reasonable for T?
o Does he know computers?
o How heavy is the 20 mile burden to T? (eg does he have a car? If not – heavy burden)
o Note: If computer job a night position and typewriter job was a day job ( taking a night job would not affect recoverable damages at all; he is a LOST VOLUME EMPLOYEE
8 A subcontractor is a lost volume dealer and entitled to lost profits
Olds v Mapes-Reeves Construction Co. (Subcontractor as lost volume seller)
D, contractor, Ks with 3rd party to erect building – P, subcontractors, hired by D to furnish all marble work. D eventually fired P - P made new K with 3rd party owner to complete the work called for by original K with D.
Held: P entitled to the profits from original K – he is a lost volume dealer
Hillman: This is bad decision - Second job is a substitute job only available due to the breach of the first job (lost volume doctrine doesn’t apply. The subcontractor has the duty to take the job as a reasonable approach to mitigate his loss.
IF P incurred other expenses or lose in trying to mitigate his expectation loss, he could recover these expense as well.
9 Lost profits recoverable only where there is some degree of certainly – problem for new business. However, the new business may recover the rental value of the property if the builder had not delayed.
Evergreen Amusement Corp v Milstead (New Business Rule)
P, Kd w/ D for the clearing and grading of a site for a new theater. D breached - delayed the opening of theater.
Held: Lost profits not recoverable as there is no degree of certainly as to the probable loss of profits of a new business (new business rule)
Hillman: Bad decision
• Holding despite evidence of profits from other theater in area
Note: New business rule in decline ( all that may be require for recovery is a reasonably certain factual basis for computation of probable losses
10 Lost profits recoverable where (1) loss occurred (2) loss flowed from breach (3) rational basis from which the amount can be inferred (Rational Basis Test)
Lakota Girl Scout Council Inc. v Havey Fund Raising Management, Inc.
P hired to provide assistance and supervision of fund-raising venture. D breached K by failing to provide adequate services (personal shifting, inadequate consultation & direction, etc) – campaign fell well short of goal.
Held: P could recover the expectation damages as there was a rational basis from which the amount could have been inferred (witness testimony as to success of past ventures by D)
Hillman: Bad decision
• Holding despite evidence offered was from venture in different states and different types of clients (YMCA vs Girl Scouts)
11 If K is a personal agreement involving matters of “mental concern & solicitude” – emotional damages are recoverable
Chrum v Charles Heating and Cooling, Inc.
P, purchased furnace from D - furnace eventually caused a fire which destroyed P’s home & contents.
Held: Commercial K (purchase of furnace)– no recovery of emotional distress allowed (emotional distress not foreseeable). Damages for mental distress may be allowed where injury suffered is to person
Note: Consequential damage such as the loss of house is still recoverable.
Hillman: Bad decision
• emotional distress is surely foreseeable when a house burns down
12 Can recover emotional damages if the breach involved a Tort which allows the recovery of emotional damages
Chrum v Charles Heating and Cooling, Inc.
No recovery again:
• No tort – furnance installer is not a profession w/ elevated duties (Recall Mauldin v. Sheffer – crazy engineer case)
• No physical manifestation of emotion upset
13 Other Qualifications & Limits on Lost Expectancy Recovery
o Court may deny expectancy damages in medical contexts (expectancy interest to vague)
o Loss of reputation or goodwill may be denied (no good way to determine damages)
o Loss of expectancy damages to lawyers (only allowed recovery for service rendered)
8 Reimbursement of Reliance Costs for Breach of a contract in lieu of expectancy damage
1 Goal: Reliance damages put the injured party in the position she was in before making the contract. Hurdles to overcome to recover reliance:
1 Obligations assumed by injured party before K not recoverable because take the risk that if the K is broken, he will bear the cost. However, expense before K may be recovered if both parties know it will be wasted before sign the contract.
2 Expenses incurred in attempting to restrain the defendant from engaging in other contests and to force him into a specific performance is not recoverable.
1 These expenses were took at P’s own financial risk. There is nothing in contract regarding attorney’s fee and specific performance.
2 PF disagree: P proceed in legal process enjoy D from doing another match. P affirmatively try to mitigate its loss, and in doing so incurred cost. PF think that this reliance should be recovered.
Chicago Coliseum Club v Dempsey
P K’d with D whereby P was to promote a boxing match b/w D and 3rd party. P hired 3rd party before K’d with D.
Held: Cannot recover amount due to 3rd party – obligation undertaken before K
3 In losing contract case, reliance damage need take away to potential loss (proved by D).
4 Fixed overhead recovering is controversial.
1 No recover in Chicago Coliseum
2 PF think it should be recovered.
2 Expenses incurred by injured party subsequent to the signing of K are recoverable
P spent money to promote the match (travel expenses, plans for venue, professional promoter)
Held: Can recover “essential reliance” costs incurred subsequent to formation of K
• Does not extend to cover “over head” – Hillman: bad decision
1 Lost profit: income of $3M, expense $1.4M, Lost profit = $1.6M. Court said that the amount is too uncertain, no recovery. P may have to prove that in similar time of the year in Chicago, two boxer of similar reputation would have this profit.
2 Expense before Contract is made?
1 NO recovery. What about the hauffman case? Promissory estoppel? Court never enforce Promissory estoppel when there is a valid contract.
3 All limitations on expectancy recoveries also apply on reliance recovery. E.g., foreseeability.
1 Coppola v. Kraushaar, P286. P ordered wedding gown from D, D failed to deliver on time, P claim reliance damages including wine, presents, clothes, etc.
2 Hold: Recover $10 paid for the gown, no other recovery since they are two remote, citing Hadley v. Baxendale (broken shaft and mill case)
4 Expenditures incurred before K recoverable if of a type that would reasonably be consider wasted by both parties if the K was broken
Anglia TV Ltd v Reed
P sued D for expenditures incurred prior to K-ing with D. P hired D to play lead in a film – before the parties K-ed, P spent money to hire a director & other key people.
Held: P can recover money spent before K – D knew it would be wasted if D breached. By joining the project, D implied to agree to indemnify P for any pre-contractual reliance.
azzx
5 Post K reliance recoverable even when profits are not provable – must subtract losing K losses (burden on D to prove losing K)
L.Albert & Son v Armstrong Rubber Co.
D K’d with P to sell P 4 refiners – D breached by delivering late, P spent $3K for foundation of refiners.
Held: $3K recoverable – spent in reliance on the K
Dicta: Reliance recoverable subject to qualifications for D’s proof that the contract will suffer a loss. Then the loss should be subtracted from the recovery.
9 Liquidated damages
1 Liquidated damages enforceable where they are (1) reasonable forecast of damages (sliding scale) and (2) harm is difficult/impossible to estimate at the time of K
McGrath Co v Wisner (Tomato Case)
D K’d with P for delivery of 11 tons of tomatoes. Undisputed was a clause in the contract whereby any breach by the farmer would result in $300 in liquidated damages. P breached after 1 delivery.
Held: Liquidated damages illegal – not enforceable. No sliding scale ($300 fine if 1 tomato not delivered); the harm is not difficult to estimate (MV – Kp)
Dunbar, Drafting The Liquidated Damage Clause – When and How
Make the amount of damages agreed upon vary with the breach – allowing for a sliding scale of damages depending on the extent of the breach
2 Liquidated damages must be proportional (reasonable forecast) to the probable loss that is difficult/incapable of being estimated at the time of K. Liquidated damage clause must not be unconscionable or contrary to public policy.
Truck Rent-a-Center Inc v Puritan Farms 2nd, Inc
D leased trucks from P for 7 years – liquidated damages provision provided that if D breaches ( D must pay P 50% of the value of all remaining rents on trucks. D breaches after 3 years.
Held: Liquidated damages provision enforceable – liquidates damages varies with degree of performance and is a reasonable forecast of the damages
Reasonable: liquidated damage is proportional to the weeks left before lease expire, difficult to estimate: the uncertainty of re-rent or resale the truck. P may re-rent all of them and fully recovered the rent, or cannot rent a single one al all. So the liquidated damage is a half of them, the expected damage, which is reasonable.
3 If D can prove P has a losing contract and prove P’s lose of L, and P’s reliance damage is R, the court reward P damage = R – L; if Loss is larger than reliance damage R, no reward to P. But court did nod award the saving of P’s potential loss to D either
4 Liquidated damages may not be enforceable if parties don’t demonstrate actual negotiate
Liquidated Damages outside the US
• Usually enforced as negotiated – part of the bargain
10 Specific Performance
1 In land sale Ks – specific performance is required as there is no adequate remedy in law as the land has an irrefutable unique/particular value
Kitchen v Herring
D and P K’d for a tract of land for which P paid in full. D subsequently cut down all the timber on the land – the chief value of the land.
P sought specific performance, for an account of the profits and for an injunction.
Held: Land assumed to have a peculiar value – specific performance to be granted. Even if the land is incidental if you buy a house or a long term lease of a building NYC, the remedy is still specific performance.
2 If the seller has sold the land to a bona fide purchaser, the buyer may cover the sellers’s profit, e.g., if the land market price is 18K, and the seller sold it for 20K, the buyer can recover $2K.
3 Where no adequate remedy at law exists, specific performance of a K regarding the sale of personal property will be awarded
Curtice Bros Co. v Catts
P runs a tomato canary – K’d with D whereby D was to sell to the P the entire product of certain land planted w/tomatoes. P plant could can 1M cans of tomatoes in 6 weeks. Preparations must be made for this activity. D breached K – P sought specific performance (ie delivery of tomatoes)
Held: D to comply with the terms of the K and deliver the tomatoes – SP required as no other adequate remedy exists
o P’s contract is unique since it is impossible to secure tomatoes of certain quality within the needed time span with any price, thus warrant specific performance
4 UCC § 2-716 – Buyers Rights to Specific Performance or Replevin
1. Specific Performance may be decreed where the goods are unique/in other proper circumstance (broad)
2. Decree for specific performance may include payment of the price, damages or other relief as the court may deem just
5 Specific performance granted when injured party is placed in an insurmountable financial strain & will suffer an irreparable harm & there is no adequate remedy at law
Stephan’s Machine & Tool v D & H Machinery Consultants
P bought a machine from D for which P borrowed $96K. Machine failed to function. D agreed to replace machine, failed to do so. P unable to purchase another due to lack of funds.
Held: P entitled to specific performance
6 Specific Performance allowed in K implicating personalty and where remedy at law is inadequate
(personalty - movable assets which are not real property, money or investments)
Laclede Gas Co v Amoco Oil Co
P & D entered into long-term agreement to provide central gas distribution systems to various residential developments. K specified that P would determine if a system was appropriate and if so, D would supply. D breached the K – P sought specific performance
Held: P to receive specific performance – other Ks inadequate: short-term, unclear if these other supplies are appropriate, P unable to get another long-term K for gas supply
7 Defenses and Limitations on Availability of Specific Performance
1 General: Specific performance is not available unless monetary damage is not adequate.
1. Grounds of unfairness
• Where granting of specific performance would be furthering sharp business practice, an unfair advantage taking, etc
2. Lack of mutuality of performance
• Where specific performance will not be granted unless there is some certainty that P will perform in turn
3. Indefiniteness of Agreement
• K may not be invalid b/c this vagueness, but may be too vague to grant SP
4. Impracticability of Performance
• Difficulty in enforcement or supervision (eg a construction of building case)
5. Contracts for personal services
• May enjoin from providing service to others – but will not grant SP for services
6. Efficient Breach Argument
• Court should not enforce a K that has been efficiently breached
8 Efficient breach: Pratt Furniture co. v. McBee (chair and table case)
1 P contract with D to make chair for D at $10 per chair. P find opportunity to make table for $350K profit. P breached the contract, and the market price of chair on the day of D learns of the breach is $11. P sue for specific performance, or alternative, the profit D gains from another contract.
2 Held: No specific performance. Government by UCC, damage is the market price – expected price. Disgorge the profit from another contract is invalid restitution claim.
3 Concurrent: promote efficient breach
4 Dissent: efficient breach contract does not make the injured party whole. The breaching party may also lost the reputation and there is long time damage. “Highest value use” does not always suggest efficient use of societal resources.
5 Hypo: Praff has made the chair, but send it to other party for higher price, and pay McBee market value.
9 Arbitration
1 Cost much less.
2 Arbitration used to favor a particular business and due to individual’s lost opportunity of filing class action. If there is an arbitration clause in contract, and the parties have agreed to engage in arbitration first, big business get more protection since individual may forgo arbitration opportunity due to its cost and the individual lost the class action opportunity.
10 Specific Performance outside the US
Like liquidated damages – it is enforced to a much greater extent in the international community
2 Promissory Estoppel
1 Monetary Remedies where there was Promissory Estoppel
1 Promissory Estoppel damages include damages measured by the value of the injured party’s detrimental reliance or damages measured by the value of the promise.
2 The true measure of damages [in PE] is the loss sustained made in reliance upon the assurance
Goodman v Dicker
D, local distributors for radios encouraged P to apply for deal franchise to sell - trial court found D through representations & conduct induced appellees to incur expenses in preparing to do business (employment of salesmen, orders for radios, etc).
Held:P awarded damages for reliance – but no lost profits (no expectancy)
3 Lost profits are recoverable under PE if (a) lost profits was a direct result of reliance and (b) can be proved with reasonable certainty
1 Waters v. Marathon Oil:
Walters v Marathon Oil
D Oil Company contacted P for the possibility of running a foodstore/service station on a vacant gasoline service station. On the reliance of promises made by D, P bought site and made improvements upon it. Eventual, D placed moratorium on new business franchises.
Held: P entitled to (a) profits b/c of lost investments & certainty.
Alternative suppliers may have existed and P’s failure to explore these alternative may not impair the recovery if P lacks of sophistication with which to conduct such a research.
1 Waters relies on negotiation and made investment on a gas station. Issue: whether to award lost profit and reasonable mitigating damages?
2 Award lost opportunity because of detrimental reliance made the defendant lost opportunity to invest elsewhere. P tried to mitigate the loss by looking for other supplier, but failed.
3 court does not award if P says that just give me the lost market interest of the detrimental cost.
4 Reasonable standard: a reasonable person in Waters’ shoes (lack of sophistication)
5 There is inconsistence here because on one had awards the foregone opportunity, on the other side, they were not able to secure another supplier and the certainty of the opportunity is not really there. The court did not hold their failure against them.
6 PF: the court probably just want to give the benefit of the doubt to the injured party here. In the 8% successful promissory estoppel cases, half awards lost profit, half award reliance lost.
4 ZJ: There are two way of awarding damages: one is only reliance cost, which means to reimburse the cost, the other is adding lost profit to it in a sense that the P reliance D’s promise and incurred lost opportunity. Which of these two to use in exam?
1 PF: Reward the reliance first, and then mention that some court may also want to award the lost profit in a sense that the P relied D’s promise and incurred opportunity cost. Mention this is a controversial area.
3 Unjust Enrichment
1 Restitutionary Relief and Theories of Obligation
1 Goal: Give the claimant a money remedy based on the benefit the injured party conferred on the other party.
2 RSC § 371 – Measure of Restitution Interest
1 Monetary restitution may be measured by:
1 reasonable value to the other party of what he received in terms of what it would cost him to obtain it from another
2 the extent to which the other party’s property has been increased in value/his other interests advanced
2 Key Issue in Restitution Cases ( what measure?
1 Usually several competing measures
1 Cost to receive the work from another
2 Value conferred on D (increase in MV)
3 Value of work done by P (P’s cost)
4 A reasonable portion of the contract price
2 Courts will consider the conduct of the breaching party, the worse the breaching party’s conduct, the higher measure of restitution.
1 Court will allow the more generous value unless the party seeking remedies is in breach.
3 However, some court will use the contract price as a ceiling of the contract, reasoning the contract rate may be the best evidence of the true value of the benefit to D.
1 It may be rebutted that a contract breaker should not be able to use the very contract as a shield against the additional liability.
4 Also, the higher than K price remedy is not available if only thing left for the completion of the contract is payment. The recovery there is the payment.
3 Non-breach party conferred a benefit and elects a restitutionary recover: labor and material
1 Susi v. Zara
United States for Use of Susi Contracting Co v Zara Contracting Co.
Subcontractor P performs work & supplies equipment for contractor D. P started working but encountered tough soil conditions which made their work difficult and required performance of work not called for by contract. P demands extra money from D, and eventually stops working. Both sides claim breach of contract. D takes up contract and utilizes P’s equipment.
Held: D breached K - P not limited to K price where D has breached; can seek restitution outside K terms (market price of renting the equipment and work done including extra work due to unknown subsurface condition, which P agreed to waive in contract.)
1 Contract rate is the best evidence of what the market value of P conveyed. Cost of Market rate is used here, not the improved market value of the Owner’s property.
2 If Susi has completed the work, and D breach and refuse to pay, use the Oliver v. Campball, the damage is limited to the contract price. If not, as the case is here, P may recover more based on market rate.
3 But Susi breaches after 99% work is done, it is the breaching party seeking remedy, the recover is limited by the contract price.
4 One court does not like the rule and held the contract price is the ceiling of recover. Johnson v. Bovee. Minority view. Reward: contract price – cost to complete ( a reliance approach)
2 Problem 3-15:
1 Expectancy recovery: 350 – 360 (105 + 255 performance) = -10, it is a losing contract.
2 Reliance should not be used here since it is an enforceable contract.
3 Restitution:
1 Restate 371-B: increased value is $100K,
2 The actual cost: 105K – 5K (savage) = 100K. (see Philadelphia v. Tripple)
3 The value conferred to the owner: K price – third party market cost to complete = 350 – 270.
4 Another way of conferring: K price – P’s cost to complete = 350 – 255
1 You may never need this option since the option a and b is higher.
5 In negotiation: you don’t make the first offer. You only show you have the stronger case. If you think you will lose then you might not mention the 80K at all.
Oliver v Campbell
P K’ed with D to represent D in divorce proceedings for $850. When P’s services essentially completed (including 29 days in trial)– D discharged P after paying $550. P sued for quantum meruit.
Held: P may only recover the difference $850 - $550 since his work has been completed.
4 Non-Breaching P conferred a benefit but have a losing contract: recover labor and material.
City of Philadelphia v. Tripple:
P contracted with D to excavate a conduit. P spent more than contract price but still has not finished contract. D breaches.
Award (reimburse) P its actual expenditure even though it exceeds the contract price because D breaches first and P spent in good faith to complete the contract. However if D did not breach, P will only get the contract price at the completion of the contract.
Johnson v. Bovee
P contractor finished 90% of contract. D owner breach. Court reward: Contract price – payment already made by D – cost for P to complete the rest 10%. P wants to recover the reasonable market value which he claims is higher than contract value, Court denied and held that contract price as a ceiling is reasonable.
5 Non-Breaching P conferred a benefit but cannot prove lost expectance
1 Bausch & Lomb v. Bressler
1 P contracts to be exclusive distributor of D’s products for 5 years; P paid $500K for the right of exclusive distributor. Breach by D – D distributes in P’s “exclusive area” and later terminates agreement.
2 Held:
1 No expectancy damage. Uncertain to calculate.
2 No reliance damage, reliance damage must be less than the expected profit. P’s cost need to be offset by the loss in a losing contract. There is an indication of losing contract in this case, but unknown quantity.
3 Restitution is adequate since there is a clause stated that the $500K paid is nonrefundable. The $500K is used to as the base for the value of the distributorship
4 Award prorated restitution damage based on $500K and the number of years P enjoyed exclusive distributorship and adding the damage caused by D’s breaches in other territory.
2 Osteen v. Johnson
1 D orally agreed to promote singer P for $2.5K. D substantially performed agreement (promoted 1st tape) but did not mail out second record, which went to the essence of K.
2 Held:
1 No expectancy damage, because the lose is too speculative.
2 Restitution Damages – $2500 paid to D minus the value of D’s partial service.
6 Restitution damage award also available if
1 P has conferred a benefit, but the contract is invalid, frustrated, or otherwise unenforceable
2 P has materially broken the contract after conferring a benefit
1 P can not recover on a contract theory (agreement with consideration)
2 See Britton v. Turner P 133
3 De Leon v. Aldrete P 137.
Agreement Process
1 The requirement of assent
1 When need agreement
1 Both agreement and consideration are required for a valid contract. Consideration requires that at least part of the motivation of the promisor is to extract some benefit from the promisee, that requires some subjective test. But the agreement is totally objective standard, using reasonable person standard. See P428: difference between agreement and consideration and P58: Restatement §81
2 The objective test of assent:
1 Intention to Contract corresponds to:
1 what a reasonable person would believe the promisor intended to be bound and the promisee actually believed.
2 The promisor’s subject intention is not important
2 Misunderstanding in Intentions
1 Where the incorrect intention (unilateral mistake) is corrected before reliance – the K can be retracted w/o liability
1 Q: how to distinguish the bona fide mistake or intentional change of contract term? 35K bushel wheat v. selling farm when drunk
2 NO binding contract if there is a misunderstanding that a reasonable person would take as ambiguity (objective) and the actually parties have a misunderstanding of the intentions (subjective). Ship Peerless
3 Binding contract if the contract is ambiguous but the party 1 knows of the intentions of party 2, need circumstance evidence.
3 Offer and acceptance
1 Offer: whether a reasonable person under the circumstances, would believe alleged offeror intended to be bound upon assent (acceptance) by the other party (objective) and the offeree actually believe there was an offer (subjective).
1 The offer has to be clear, definite, and left nothing open for negotiation.
1 Specify the subject matter, price, and quantity.
2 Subject to circumstantial evidence to prove.
1 If the offer is too good to be true, there may be no offer
1 $139 fur for $1 is ok since it is a common practice
2 If in drunk selling of farm case, the market price is far more than the party price, the court may not enforce it.
3 Pepsi’s offer of the fighter jet is not valid either for Pepsi points.
2 Industry custom may be used to fill in the gap about the vaguness
1 10 car load of jars and deliver no later than April 25 may be a valid contract.
3 Non-definite examples
1 Ford advertisement of 11% APR financing is not an offer because reasonable buyer with poor credit history will know he would get it and have to negotiate it.
2 Advertisement may be only an invitation, not an offer, if it is speculative such as value worth up to $100.
3 Words such as “want a certain amount of good” or “about 1800 bushel” are not definite to make a reasonable to conclude that the party intended to be bound.
4 Be careful about the word “asking” and “offering” Courteen seed, asking 23c.
2 Acceptance: whether a reasonable person would believe the offeree intends to accept the offeror’s terms and form a contract (objective), and the offeror believe that the offeree has accepted the offer (subjective)
1 Not whether the offeree actually intended to do so.
2 Effective acceptance must be definite and unequivocal – may not impose additional conditions on the offer
1 An acceptance is valid despite conditional language if it is clear that the acceptance is positively and unequivocally to accepted the offer whether such request is granted or not.
3 Manner of acceptance
1 Common law: Offer of bargain from one to another imposes no obligations on the former until the offer is accepted according to the terms in which the offer was made.
1 A suggested method of acceptance does not preclude acceptance by other method, such as by performing.
2 Partial performance is an acceptance even without formal acceptance if there is a meeting of mind.
3 If offeree start to perform, and the offeror did not object, the offeror is estoppel from object.
2 Restatement: 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 choose.
3 An attempt by the offeree to accept the offer in a manner different than the one stipulated by the offeror is not binding in the absences of a meeting of he minds on the altered type of acceptance. (Contractor outfitting office)
1 Acceptance may still be valid if the contractor work on something earmarked for the particular the client, then there is a manifestation of acceptance which is to be communicated to the client.
1 The offer is for a bilateral contract, the offeree accept it by unilateral performance.
4 Suggestions v. Prescription:
1 “I would like to here from you by Sep 12” is a suggestion. You may accept on Sep 13.
2 Reasonable person standard.
5 Courts reserve the right to determine if conditions on acceptance are prescriptions or merely suggestions for acceptance (Reasonable Person Test)
6 Where an offer is made by one party to another when they are not together – the acceptance of it must be manifested by some appropriate act.
7 UCC: acceptance: Unless otherwise unambiguously indicated by the language or circumstances, an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the3 circumstances.
8 Accept by silence: the same objective test standard.
1 Usually mean no
2 But if there is a reasonable expectation has been created to form a contract using silence acceptance, the other part should break the silence to show the non-acceptance.
3 RST vs USC mailing order regarding Acceptance by Silence
1 RST § 69 – Acceptance by Silence
1 Failure to reply to offer operates as acceptance only when:
1 Offeree has taken the benefit offered with reasonable opportunity to reject them & knowledge that payment was expected
2 Offer makes clear that silence/inaction is acceptance
3 Previous dealing indicates that it is reasonable the offeree should notify if he does not intend to accept.
2 39 USC § 3009- Mailing of Unorder Merchandise
1 Sample sent in the mail my be treated as gifts by the receiver – Mailer cannot include a bill w/unordered merchandise
4 Offers for unilateral and bilateral contracts
1 Unilateral offer: I will sell you my piano for $400 if you pay me $400;
2 Bilateral offer: I will sell you my piano for $400 if you promise to pay me $400
3 If the language regarding unilateral or bilateral is not clear, Court may interpret it as bilateral offer.
4 In restatement, offeree may accept an ambiguous offer by rendering the performance or by a promise to render such performance.
5 If the offer is unambiguous, the acceptance must follow the prescription of the offer.
6 The offeree can still accept an offer for a bilateral contract by beginning performance if a reasonable person would have believe that the offeree’s conduct in performing constitutes a promise to perform
5 Duration of offer (Restatement): offer may be terminated by
1 Rejection or counter-offer by the offeree
1 A reasonable person would believe that the offeree rejected offer or counter-offered.
2 Lapse of time
1 An offer made in a face to face conversation continues only to the close of the conversation, unless the offer specify the time limit.
2 Statute of Limitation is relevant but not dispositive time limit. The reasonable time is not to be decided as a matter of law.
3 When the offer is made by mail, the offer starts when the offeree receive the mail.
3 Revocation by the offeror
1 A revocation occurs when a reasonable person wuld believe the offeror has withdrawn the offer.
1 Exception: offers of unilateral contracts, such as reward offer for capturing a criminal or a pet. The offeror must give the revocation the same notoriety as the offer.
2 Bars to revocation-option contract
1 Promise to keep contract is a gift promise without consideration and is revocable.
2 Promise to keep contract open with consideration is an option contract, irrevocable.
1 Adequacy of the consideration, “sham” consideration?
2 Generally court is not receptive to the sham consideration argument, arguing the price for an option is too vague to ascertain.
3 Restatement does not require consideration for Option contract to be valid. Offers that are in writing and signed by the offeror are enforceable as option contracts if they propose a fair exchange “within” a reasonable time” and “recite a purported consideration” such as 25c.
1 By requiring the writing and recite the consideration, the “evidentiary, cautionary, and channeling” functions are satisfied.
3 UCC §2-205: enforces promises to leave offers open for three months when made by a merchant in writing and signed by the offeror. There is no need for reciting fake consideration.
3 Bars to revocation of unilateral contracts after one party starts to perform
1 Old view that the offeror can revoke the offer before the offeree completed the unilateral contract. I will pay your pension if you work for me for 20 yrs. The employer may revoke it in the 15th year.
2 P454 Restatement II §45: by beginning the performance or tender to full performance (offer to perform), the offeree created an option contract that binds the offeror to allow the offeree to complete the performance. In other words, the offeror is bound, but the offeree has the right to revoke.
1 Tender to performance: Petterson took out all money and say here is the money, it is tender to performance. Simply say “I am here to pay” is not tender.
3 The offeree need to inform the offeror within a reasonable time about his beginning of performance.
1 Controversial issue: what constitute the beginning of the performance?
1 Petterson v. Pattberg: Pay mortgage money at door case: P brings money to the door, before handling the money, D revoke the offer. Court says it is not performance.
2 Dissent: If the promisor is the cause of a failure to perform an obligation due to him, he cannot take advantage. The contract should not be construed as P pay at certained date if I want to accept it.
3 PF agree with the dissent
2 When must the offeree who begins performance notify the offeror? According the restatement,
1 the offeree does not have to notify the offeree at all unless the offeror ask for the notification, or
2 the offeree has reason to know that the offeror will not otherwise learn of the performance with reasonable promptness and certainty, then the 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.
3 Q: notice within a reasonable time v. Restatement §45 P454, option contract?
4 Unilateral contract can be best illustrated in employment situation such as work 20 years then get pension. TBC
4 Bars to revocation—Promissory Estoppel: offers for bilateral contracts Drennan v. Star paving
1 No revocation of bilateral contract if there is reasonable reliance
1 offeror has the reason to rely on the offer and did rely on it.
2 Note: analyze the problem in a regular way first:
1 The party did not enter an option offer since the subcontractor did not promise to keep the promise open in exchange for the consideration, which is the contractor use its bid.
2 The contractor’s use of the subcontractor’s bid was not an acceptance of the subcontractor’s offer for a bilateral offer. A reasonable people will not believe that use the bid will bind the contractor.
3 The subcontract revoked the offer before the contractor promise to use its bid.
3 PF’s concern: The reliance by the contractor is at his own risk. Also, to apply reliance, the Restatement II §90 require the offeror of a bilateral contract reasonably expect an offeree to rely. But why rely on before acceptance?
4 Drennan should accept the offer first in his meeting before introducing himself to avoid all trouble.
5 The legal effect: Star paving saying “there is a mistake” before the acceptance effectively revoked the offer.
6 Read P468 If you fail to accept the sub’s offer, the general don’t want to accept the sub’s contract until the general has secured the general contract.
7 Q: what if Drennan calls and says “ I will use your bid if I get the general contract.”
8 Industry custom may help the general contractor if it is common to rely the bids without accept first. ON the other hand, the GC did not want to accept the contract because they can do bid shopping after receive the general contract.
4 Death or incapacity of the offeror or offeree
5 Non-occurrence of any condition of acceptance under the terms of the offer
6 Credit card case:
1 Issuer’s brochure is an invitation.
2 PF: In case there is an annual fee, Cardholder’s application for the card is an offer. Issue the card is the acceptance of the offer and formed the contract. However, when the issuer change the terms such as increasing annual fee, there is a change of terms agreement. But it requires the holder’s affirmative action to decline or accept. Pf: the requirement may not hold in court. There is an acceptance problem. Silence may mean decline the offer.
3 Cardholder agreements are standing offers to extend credit.
4 Contract is not formed at the issuance of the card. Each use of the card constitutes a separate contract. The issuer can modify the term at will. The holder can accept it by using another time, or decline the offer by not using the card. Credit card company’s offering (card terms) is a bilateral contract offer because when you use the card, you don’t pay immediately, instead you promise to pay.
5 The sugar beets case: there is no bilateral obligation. But each load of the truck is an individual contract.
7 Acceptance is valid when put in the mail. Adams v. Lindsell
1 Sep 2: D seller offer: receive your answer by course of post
2 Sep 5: P receive offer, accept
3 Sep 7 Seller should have heard
4 Sep 8: Seller sells to 3rd party: It is not a valid revocation unless the seller notify and the buyer actually receive the notice.
5 Sep 9: Seller receive acceptance
1 What if the post failed deliver and seller never receive the acceptance.
2 Adams rule is a default rules, so it can be override by the prescription. You cannot fish the letter out of the mail since the post office is considered as the agent of the receiver..
3 When there is a doubt about the acceptance, let’s get the benefit to the offeree because the offeror can prescribe the term and protect himself.
4 Fedex? PF: may treat Fedex as a private carrier, so it is the agent of the offeree, and is different from the post office. You can pull it out. Unless you find the fedex is similar to the post office.
8 Morrison
9 Problem 4-15: acceptance is good if put in the post.
2 The Agreement Process:
1 The objective test of assent:
1 Intention to Contract corresponds to: (1) what a reasonable person would believe what the intention was (Reasonable Person Standard) & (2) what the injured party actually believed D intended
Embry v Hargadine, McKittrick Dry Goods Co. (‘Get Men Out’ Case)
P was employee of D under a K that expire on Dec 15/03. P contends that several times before the expiration time, he attempted to get an understanding for another year.
P testified: During a meeting on Dec 23/03 in which P attempted to get an understanding or another K D said: “Go ahead, you’re alright. Get your men out and don’t let that worry you”. On Feb 15/04, P was discharged.
D testified: On Dec 23/03 – made no such statements, was busy and simply said the matter would be dealt with later.
Held: If what D said would have be taken by a reasonable man to be an employment, and P so understood it, there is a valid contract.
Whittier, Rest of K & Mutual Assent (not happy w/Embry Rule)
o One may be obligated to perform K w/o intention to K ( liable for expectancy damages
o This is simply unfair – should simply have a “meeting of minds” requirement (this is not accepted by K law)
o This type of action should be taken care of under Tort law for “careless use of language”
2 Must look to the outward expression of a person as manifesting his intent rather than to his secret and unexpressed intent – consider many factors
Lucy v Zehmer (Drunk land deal)
P and D K’d for the sale of land, D did not deny this fact, but D stated that he thought the offer was made in jest and accepted the offer, in his own writing (re-written to include wife – who also signed) , after having a few drinks. Moments after K-ing, D told P he had no intention to sell the land. D contends that he was calling P’s bluff of having $50K, was drunk and had no intention to sell the farm.
Held: P was warranted in believing that a binding K was formed – specific performance granted
3 Factors in determining the intent of the parties
i. Length of negotiations before alleged K
ii. Re-drafting of K
iii. Signing of K
iv. Completeness of K
v. Setting (bar vs. board room)
vi. Fairness of K (reasonable offer was accepted)
vii. Events proceeding the alleged K (previous offers)
4 Where a reasonable person would find that the D intended to K and the injured party did in fact believe they had K’d – an agreement was formed
Tilbert v Eagle Lock Co. (Certificate of Benefit Case)
P’s husband was employed by D corporation - D issued “Certificate of Benefit” to P’s husband. On Aug 28/31 – D informed employees that certificates were canceled through a note given with pay envelopes which P’s husband did not receive due to his death.
Consideration is the demonstrated loyalty and continuing work for company. The company has received such benefit.
Held: The Certificate of Benefit was a valid, binding agreement with consideration until the end of day Aug 28/31. P’s husband performed – D is obligated to perform as well.
Hillman: Wrongly decided – a reasonable person would read the Certificate of Benefit provisions where the company disclaimed any legal obligation and reserved the right to cancel Certificate at any time without legal liability.
5 Where the incorrect intention (unilateral mistake) is corrected before reliance – the K can be retracted w/o liability
Cargill Commission Co. v Mowery (35,000 Bushel case)
Through telegrams, P & D negotiated for the purchase of wheat. Seller mistakenly offered to sell 35K bushels instead of 3K-3.5K – buyer relied on promise and in turn, resold 35,000 bushels on the market. Seller subsequently corrected its error.
Held: Buyer entitled to 35000 bushels – relied on 35K of bushels
o No reliance ( perhaps a different outcome
6 Where there is a misunderstanding that a reasonable person would take as ambiguity (objective) and the actually parties have a misunderstanding of the intentions (subjective)– not binding K
Raffles v Wichelhaus (Cotton from Bombay Case)
P & D agreed that P should sell to D 125 bales of cotton arriving on “Peerless” from Bombay. A ship named Peerless arrived from Bombay in Oct and D refused to perform as this was the wrong Peerless – correct Peerless, according to P, arrived in Dec.
Held: No K – K ambiguous
7 Where the K is ambiguous but the party 1 knows of the intentions of party 2 – binding K
RST § 20(a) – Effect of Misunderstanding
• If K ambiguous but one party know the intentions of the other – the K is binding
Dicky v Hurd
P wrote to D requesting price at which D would sell certain land in GE. D offered to sell land at $15/acre – would give P until July 18 to accept. P telegraphed an acceptance on July 17 which was received that day and promised to send down payment. D claimed no K as his offer required cash price be paid by July 18. Evidence showed that D knows P’s understanding as only accept by notice.
Held: Offer and acceptance valid – valid K as both D & P knew P’s construction of the K
2 The Offer
1 Where a reasonable person would believe there is an offer [objective] and (2) the person actually believed there was an offer [subjective] – the K is binding upon acceptance.
2 Where the offer is clear, definite and explicit and leaves nothing for negotiation, it constitutes an offer, acceptance of which will complete the contract.
Ford Motor Credit v Russel
Ford Motor: Ads to sell car for $7K – monthly payment based on 11% APR
Held: Reasonable person should expect that negotiations are still left – the 11% APR cannot be guaranteed to everyone who wants to buy a car.
• Someone with low credit cannot reasonably expect to get the same deal as someone with good credit.
Courteen Seed Co. v Abraham
D sent telegram to P which read “I am asking 23 cents/lb for the car of red clover seed from which your sample was taken….” P responded: “We accept your offer”.
Held: No firm offer – “am asking” does not equal “am offering”. Asking and offering have to distinct meanings.
Hillman: Wrong decision – language is not everything – must look at context as well (previous correspondence b/w the parties)
3 Where a reasonable person would believe that the offer intended to be bound by the offer upon acceptance – the K is binding upon acceptance.
1 If an offer is clear, definite, and explicit, and leaves nothing open for negotiation, it is an offer, and acceptance of which will complete the contract.
Lefkowitz v Great Minneapolis Surplus Store, Inc (Fur Coat Case)
D refused to P a certain fur piece which D offered for sale in a newspaper ads.
1st Ad [week 1]: First Come First Served – 3 $100 fur coats for $1
2nd Ad [week 2]: First Come First Served – 2 $89 pastel mink 3-skin scarf for $1; $139 Lapin Stole for $1
After both ads, P was first to present himself at the appropriate counter (the acceptance) but was denied sale as house rules dictated that offer was meant for women only.
Held: 1st Offer binding - P can recover/ 2nd offer not binding (reasonable person would know it was not for him based on previous interaction)
Fairmount Glass Works v Grunden-Martin Woodenware Co. (Jar Case)
P, wrote to D asking the lowest price they could make for them on 10 car loads of jars. D replied with quotes and stated that for immediate acceptance and shipment – P should send cash in ten days. P accepted the next day – the next day, D said it could not perform – sold out.
Held: Reasonable person would believe that an offer was made – once accepted, K is binding.
• What of the vagueness/indefinitness?
i. Court will use industry custom to bill in the gaps of the K
3 The Acceptance
1 General Rule: (1) Whether a reasonable person would find that there was in fact an intention to accept the offer [objective] and (2) the person did in fact believe they accepted the offer [subjective]
2 Effective acceptance must be definite and unequivocal – may not impose additional conditions on the offer
1 An acceptance is valid despite conditional language if it is clear that the acceptance is positively and unequivocally to accepted the offer whether such request is granted or not.
2 Ardente v Horan
D offered property for sale – P made bid of $250K for the property with a letter expressing a desire that certain items remain with the house upon sale. D refused to agree to such a condition and did not sign the agreement or sell to P.
Held: Not an effective acceptance of the offer – it was conditional on terms not in original offer
3 Offer of bargain from one to another imposes no obligations on the former until the offer is accepted according to the terms in which the offer was made.
1 Eliason v Henshaw (wagon-letter case)
1 D buyer (@ Harpers Ferry) sent letter to P seller (@ Mill Creek) via wagon offering to purchase flour at market price – required reply through letter via wagon (time and place conditions on acceptance). P accepted through letter via different wagon delivering letter to different location (Georgetown).
2 Held: No binding K – offerer not obliged to buy flour – did not abide by conditions of the offer
4 UCC: acceptance:
1 Unless otherwise unambiguously indicated by the language or circumstances, an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the3 circumstances.
5 Partial performance is an acceptance even without formal acceptance if there is a meeting of mind.
1 A suggested method of acceptance does not preclude acceptance by other method, such as by performing.
2 If offeree start to perform, and the offeror did not object, the offeror is estoppel from object.
6 Restatement: 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 choose.
Allied Steel & Conveyors Inc v Ford Motor Co. (Ford-Allied machinery case)
Aug 19/55 – Ford ordered from Allied numerous items of machinery & equipment to be installed by Allied (or installed by Ford under the supervision of Allied employee). Agreement stipulated that if Allied worked on Ford premise – they would be liable for all damage/harm as a result of their own negligence.
Dec 16/55 – Ford made amendment: Ford would install equipment.
Allied accepted both original agreement and amendment.
July 26/56 – Amendment #2 ( Ford to buy additional equipment to be installed by Allied.
Sept 5/56 – In the course of installation of additional equip., Allied employee injured by Ford’s negligence.
Held: Allied Steel liable as they accepted A2 through partial performance
7 An attempt by the offeree to accept the offer in a manner different than the one stipulated by the offerer is not binding in the absences of a meeting of he minds on the altered type of acceptance
8 Courts reserve the right to determine if conditions on acceptance are prescriptions or merely suggestions for acceptance (Reasonable Person Test)
9 Where an offer is made by one party to another when they are not together – the acceptance of it must be manifested by some appropriate act.
White v Corlies (office contractor case)
P, builder, D merchant. D furnished the P with specifications for fitting offices at 57 Broadway and requested an estimation. Sept 28 – P left D with estimation; later that day, D made change to specifications and sent a copy to P for assent under his estimation. D did so by signing and returning the changed specifications.
Sept 29 – D’s bookkeeper wrote to P ‘the Agreement’ – P never replied but began purchasing lumber and work at his own place of business.
Sept 30 – Countermand was sent to P.
Held: No K – no external manifestation of the acceptance was conveyed to D.
Hillman: Case could have gone the other way – offeror could have stipulated how acceptance was to be conveyed – he did not, could take P’s actions as acceptance.
Acceptance may still be valid if the contractor work on something of earmark feature of the client’s order, then there is a manifestation of acceptance which is to be communicated to the client.
10 RST vs USC mailing order regarding Acceptance by Silence
RST § 69 – Acceptance by Silence
Failure to reply to offer operates as acceptance only when:
• Offeree has taken the benefit offered with reasonable opportunity to reject them & knowledge that payment was expected
• Offer makes clear that silence/inaction is acceptance
• Previous dealing indicates that it is reasonable the offeree should notify if he does not intend to accept.
39 USC § 3009- Mailing of Unorder Merchandise
Sample sent in the mail my be treated as gifts by the receiver – Mailer cannot include a bill w/unordered merchandise
4 Duration of Offers
1 Methods of Termination
RST § 36 – Method of Termination of the Power of Acceptance
• An offeree’s power of acceptance may be terminated by:
• Rejection or counter-offer by the offeree,
• Lapse of time
• Revocation by the offer
• Death/incapacity of the offeror or offeree
• Power of acceptance terminated by the non-occurance of any condiction of acceptance under the terms of the offer.
2 Once an offer is rejected – the offer is no longer valid (Farnsworth & RST § 36)
3 When two negotiating parties are in each other’s presence, and one make an offer without indicating any time for acceptance – the normal inference is that an answer is expected at once
Akers v JB Sedberry Inc (offer to resign case)
Due to trouble at work Ps, on Sept 29: offered to give 90 days for their resignation - D declined offer. Next D, accepted resignations.
Held: Resignation was rejected; offered terminated
o A gap filling rule – reasonable attempt to determine what the offeror would have wanted
o ZJ: what if the employer said, “let me think of it.” Then the offer is still open subject to the reasonable time laps limitation.
▪ If both are silent about the offer before the end of the conversation, then the offer ends at the end of the conversation.
▪ The fact that the employer left the room can be interpreted in two ways:
• The conversation is over.
• The business conversation may last a whole day therefore the conversation is still going on.
o If the employer said, “let me think of it, I will let you know my answer next Monday.” And the employee said ok. Then there is a new offer by the employee because his ok reiterated his old offer, and the new offer will last till next Monday.
4 An offer is rejected when the offeror is justified in inferring from the words/conduct of the offeree that the offeree intends not to accept the offer.
• Subject view of offerer is relevant under the Embry Test
• Internal intention of offeree NOT relevant – reasonable person cannot consider it.
5 Where an offer is made with no time restrictions on acceptance – offer will be open for reasonable amount of time (what a reasonable offeror would expect under the circumstances)
Vaske v West American Insurance Co.
P involved in auto accident with a vehicle owned/operated by persons insured by D. P’s lawyer and D began negotiations to settle the claim, D offers $25K to settle – did not specify a date on which the offer would terminate. P’s lawyer sent telegram saying they unconditionally accept the offer after the SofL expired.
D refused to pay.
Held: Remanded to determine what a reasonable amount of time for acceptance would be.
• Hillman: Reasonable person cannot believe that the offer is valid past the running of S of L, West American not in the business of giving gifts. So after SOL, the offer is closed. The time is out of the reasonable time lapse range.
• After SOL, there is no consideration in exchange of the settlement.
• Therefore, there is no valid contract between the insurance company and the accident victim. Judgment should give to the insurance company.
6 When the offeror uses post to make an offer, the offer is made on delivery, not when it is posted.
1 This is a default rules. As a contract planner, you need to specify the exact day.
Caldwell v Cline
D, owner of track of land, proposed to P to pay him $6K and to deed his own land in exchange for P’s land in a letter dated Jan 29 – gave 8 days to accept.
P received letter on Feb 8 – P wired acceptance on Feb 9.
Held: Parties K’d – offeree accepted within 8 days of delievery
7 Offer is terminated when there is a counter-offer – the offer is not accepted
Collins v Thompson
Offeree responded to a mistake – wanted to accepted mistake offer; but if not available, would take real offer.
Held: This is a binding K – not a counter-offer.
“I am still considering your offer, meanwhile I am now willing to buy the property you offer if you will reduce the price by $500.” This is NOT a counter offer. The original offer is still open and can be accepted later.
Hypo: 3500 bushel wheat mistaken as 35000 bushel case. Offeree: “I accepted you offer 35,000, but if you would perform 3,500 bushel, I will take that too.” Reasonable person will believe that seller has made a 3,500 bushel offer. Reasonable person also believe the offeree intent to be bound by the 35,000 offer, so it is not counter-offer.
8 Offer is revoked when a reasonable person would believe the offeror has withdrawn the offer
Dickinson v Dodds
D offered to leave offer to sell land open to P until Friday. P tries to accept on Thursday after learning of D’s intention to sell to 3rd party
Held: Offer was revoked – the offeree (reasonably) should have known that the offeror has revoked.
Lucy v. zieman two prong test: We need two party
9 Can Dodds revoke the offer when he said that the offer will be open until Friday?
1 Yes, since the offer is only a promise and there is no consideration on the offeree to bind the offer. Offeree can give consideration to purchase an option contract.
10 A revocation must be received before the offeree’s power of acceptance is terminated.
1 Exception: Same publicized proclamation as the offer. (criminal apprehension)
11 Option Contracts are binding if consideration is given in exchange for the option to K
Marsh v Lott
P in exchange for 25c, given option to purchase land owned by D for $100K up until June 1/05 w/privilege of 30 day extension. P exercised option to extend on June 1 – D revoked offer on June 2.
Held: Offer was binding on offerer – consideration given for option to accept.
• Hillman: there is no problem valuing an option on the purchase of land – Court was incorrect. Option had a value.
• Court does not believe it’s own logic --> 25c was shame consideration.
• Why did the court do what it did? Court simply wants to enforce private deals – court bending contract law to enforce it
• Adequacy of the consideration:
o Land sale is valuable. The courts want to enforce the form of the contract (using consideration), so the party will more
o There is an executed unilateral contract here.
RST § 87(1) – Option Contracts
Offer is binding as an option if it
a) Is in writing and signed by the offer, recites a purported consideration, and proposes an exchange on fair terms within a reasonable time; or
b) Is made irrevocable by statute
UCC § 2-205 – Firm (Option K) Offers
• Offer by merchant to buy/sell goods in a signed writing is not revocable (even for want of consideration) during the time specified – but it cannot exceeds 3 months.
▪ If merchant promises the offer for two months, the merchant can not revoke.
▪ If merchant promises the offer open for four months, it can be revoked after three months.
▪ If merchant simply promises to keep the offer open. It can be revoked after a reasonable time. The reasonable time should be less than three months.
• If no time stated – reasonable amount of time (stable market --> longer time reasonable)
12 Reasonable person Test to determine if offeror wanted a promise or the actual performance (bilateral or unilateral)
• Unilateral K – A promise in exchange for a requested act/forebearance/etc “If A does X, B will pay …” – A not obligated, B is obligated if A performs
• Bilateral K – a promise in exchange for a promise. Both parties obligated.
Davis v Jacoby (bi vs uni lateral Ks)
D, in letter, offers to P that if P comes to CA from Canada and takes care of financial affairs and wife until death of wife – P will inherit everything. Asks for response. P writes return letter accepting the offer. P comes to CA to perform, D kills self before performance can take place and subsequently discovers that they will inherit nothing from will. P seeks inheritance.
“If frank could come to help financial affairs” suggests a unilateral offer, and the unilateral offer dies after D committed suicide.
“Will you let me hear from you” make the offer as bilateral offer. When there is ambiguity, always assume bilateral contract. Since P has send out letter to accept the offer, the bilateral contract is binding on the date of acceptance.
Hypo: if suicide was on April 14, and P has send out the acceptance letter yet, but has not left for CA, it is still a bilateral contract and binding. If P arrived CA without send out the acceptance letter first, their performance still means acceptance when the offeror was aware of their arrive.
Held: Bilateral – D (offeror) really just wanted a promise to come, which he got.
13 Offeree hasn’t accepted offer for unilateral K until performance is complete
Wormser (Yale L J): Offeror can revoke offer for unilateral K until the performance is complete – acceptance is when the performance is complete. Partial performance is not accepted.
Compare to:
14 Partial performance is acceptance of a uniateral contract (Modern View)
RSC § 45 – Option K created by part performance or tender
Acceptance of unilateral K when offeree begins the invited performance – not when performance complete
Brackenbury v Hodgkin
D, mother of P offered to P that if she and husband came and took care of her, they would have use of the home and income of the premise and the home when she passed away. P moved in with co-D but relationship soured – mother attempted to order daughter & husband out, they refused.
“if you move and take care of me”: unilateral contract.
Held: K enforceable – P’s partial performance is acceptance (protect the reliance interests of the offeree)
Remedy: injunction requires the estate to convey back to Ms. xx, and injunction prevent the Hodgkin’s kicking off the couples.
PF: the court’s remedy has a problem since it is a personal service contract, and specific performance may violate “involuntary servitude” clause. But the convey the land is good remedy.
Wormser: Check P454.
15 An unilateral offer may be withdrawn before the requested act has been performed
1 Pettterson v Pattberg (mortgage case)
1 D was owner of a bond executed by P – payable by installments or payable at a discount in a lump sum of cash. P attempted to offer the full mortgage in cash for the discount to save $780 – D decline stating he had sold the bond. 1) P said, “I have come to pay the mortgage.” 2) D: “I have sold the mortgage.” This is D’s revocation. Offer is closed. 3) P showed the money to tender performance. 4) D refused to take.
2 D’s offer is unilateral performance: give discount in exchange of payment (not promise to pay).
3 Held: No K – D withdrew the offer before performance by P (P did not give the money – only offered it)
4 Hillman: had P thrown the money at D before he said anything – binding K (ridiculous result under Contract Law – but true). Under Restatement §45, tender performance make the offer irrevocable. If D has sold the mortgage, D will have to pay the damage.
16 If the promisor is the cause of a failure to perform an obligation due to him, he cannot take advantage
Dissent in Petterson v Pattberg
17 Each use of the card is a unique & separate acceptance of the conditions of use – offer to extend credit is a unilateral K which is accepted every time the card is used. It may be revoked at anytime.
Garber v Harris Trust & Sav. Bank
P claimed D (credit card company) breached their agreement by changing the terms of the agreement (one of the Ds announced that it was increasing the annual fee and min monthly payments). P alleges that this was done w/o consideration and was a breach of K created by the offer and acceptance to extend credit set out in credit card brochures, ads and displays.
Held: Each use of the card is a unique & separate acceptance of an offer of a unilateral K
• Hillman: similar to De Los Sanots (beets case) ( each loading of beets is an acceptance of an offer for unilateral K
18 Silence may be interpreted as acceptance depending on the circumstances
Silence as acceptance (RST §69):
• Acceptance of an offer can be indicative of an acceptance depending on the circumstances (see above)
• One cannot accept modifications to an original arrangement through silence
19 Reliance [RST § 90] applies in offer & acceptance – may obligate offeror
Drennan v Star Paving (subcontractor bidding case)
P, general contractor, submitted bid on job relied on submitted bid of $7K by D, sub-contractor. D subsequently told him bid was wrong – should have been $15K. D refused to perform for less than $15K.
Held: Subcont is bound – K was formed. Contractor was offering a bilateral K, not a unilateral K (industry norms – reliance)
20 For unilateral contracts – it is reasonable for the offeree to begin the performance and have that as reasonable reliance as a basis for recovery (Hillman)
5 Bargaining at a Distance
1 Acceptances are good when posted in the mail, not when actually received.
Adams v Lindsell
Hillman: Why favor the offeree over the offeror when both cannot know at the same time?
• Because the offeror can proscribe in the offer that ‘no K until we receive letter’ – if offeror doesn’t do that – the law will fill in the blanks in favor of the offeree
6 Agreements to Agree
1 Agreements to agree are enforceable to various degrees depending on the reasonable intent of the parties
Arnold Palmer Golf Co v Fuqua Industries, Inc.
Factors to consider:
o Language of the agreement, conditions, terminology (Shall, may, etc)
o Actions by the parties
o Industry Custom
o Detail of the agreement
( We’ve seen this before in Lucy v Zemer (drunk land deal)
Itek Corp v Chicago Aerial
P and D had agreement to agree: “Parties shall make ever effort to agree upon and have prepared as quickly as possible a K …”
Held: ( Very strong language – easy to determine the intent of the parties here, Palmer Golf case not so easy.
2 Courts will only provide a remedy for vague K if there is a source to fill in the gaps consistent w/the original intent of the parties
Joseph Martin, Jr Deli v Schumacher (vague option to renew lease)
Another “agreement to agree” case - issue: indefiniteness of the option to renewal agreement
Held: No K – no way for court to fill in the blanks (Hillman disagreed)
Uniform Commercial Code § 2-204(3) (Vague Ks)
o Thought terms in a K may be open, it will not fail for indefiniteness if the parties have intended to make a K and there is a reasonably certain basis for giving an appropriate remedy
7 Battle of the Forms
HYPO:
Buyer: orders glue through a purchase order (filled with terms favorable to the buyer - warranties)
Seller: accepts offer through acknowledgment form (filled with terms favorable to the seller – disclaimer of warranties)
Now (
o Seller delivers glue
o Buyer accepts, pays for glue and uses it in all its millions of products
o Glue starts to fail – product falls apart. Manufacturer (Buyer) is liable to all consumers.
o Buyer wishes to sue seller for breach of warranty
▪ Issue: What terms will govern the deal?
Who wins under common law (classic offer-acceptance analysis)?
o K – buyer purchaser order is initial offer; seller’s acceptance acknowledgment form is a counter-offer which was accepted by the buyer. Thus – there was offer/acceptance – on the terms outlines by seller. Second party wins. K under the terms of Seller – NO WARRANTY.
Seller, or the party who drafted the last form always wins….
Thus, is unjust result resulted in:
UCC § 2-207 (Additional Terms in Acceptance or Confirmation)
• definite expression of acceptance/confirmation of offer operates as acceptance even though it states terms additional to or different from those offered or agreed upon,
• unless acceptance is expressly made conditional on assent to the additional of different terms
• Additional terms are to be construed as proposals for addition to K, unless-
• Offer expressly limits acceptance to the terms of the offer
• They materially alter the K
• Notification of objection to them has already been given or is being given within a reasonable time after notice of them is received
• Conduct may consist a valid K despite the lack of a valid written K – terms of K will be determined by (a) writings agreed to; and (b) gap fillers of 2-207(2)
• This last term, (3), is vague
• 2-207 is the most litigated rule of commercial K law
Who wins under UCC § 2-207?
o Buyer – the disclaimers are not in operation as 2-207(1) takes the acknowledgment form as acceptance and the additional/different terms are not in operation as they were not made conditional
o Seller could have won had they included the phrase – “We accept your order on the condition that you accept the fact that there is no warranty with the purchase of the glue…”
▪ This would satisfy § 2-207(1) “unless statement is expressly made conditional” clause
3 Sample questions
1 Father daughter:
1 Is there an agreement: offer and acceptance
2 Is there a consideration
3 Is a Statute of fraud issue.
4 In offer for bilateral contract:
2 High school buddy (40 lines and 40 mins question)
1 Consideration:
1 P walk to the back of room alone is not consideration for getting food, it is a condition to pick up a gift. There is no benefit obtained by D.
2 Do you mind pick up base ball bat? It could be a consideration if D said that if you pick up the bat and I will give you food. Whether a reasonable person will believe D is extracting benefit from D or it is still part of the condition to pick the gift? Note: a reasonable person (objective) standard is used here.
3 You can put secondary sources: fuller’s cautionary, evidentiary, channeling function? If a case is in a board line, and you are not sure which way to go, bring such policy can be very helpful.
4 Restatement chapter 2. Only 1/10 of reasonable mixed motion is ok for make the promise enforceable.
2 Agreement? Offer and acceptance
1 Is it a lucy v. Zermor question? If there is an intent to contract, it is then an offer for unilateral contract, which has been accepted. No Stature of Fraud problem here.
3 Promissory Estoppel? Equitable Estoppel?
1 Was P induced by the promise to do something to his detriment and will justice be avoided only by enforce the promise.
2 It is weak in detrimental reliance. The remedy is problematic, not for food, but the Fair market price for service done (take the base ball bat)
3 It is weak in unjust enrichment for picking up the base ball bat.
4 Promise for benefit received.
1 Since D does not recognize, the motivation of P. talk Mill v. winor case. Court held that moral obligation is not enough. Long ago of $25 is more a moral obligation. Can Webber v. Magown save P? Webber was decided in a way because the court assume it a work place duty, you don’t have that element here. Implied past request analysis to boast the idea to enforce the promise, if Mag would have say that if you saved me I will give you $. It is hard to argue here the P will have this implied past request.
5 Unjust enrichment for $25?
1 The $25 is not foisted on him, it is not gift, if the statute of limitation not run, P may get $25 back if he remember it.
6 May give credit for talking about consequential damage for not receiving food. Is it foreseeable damage?
7 Briefly mention the conclusion: the strength and weakness of the case.
8 It is fair game to mention all the potential damages for all the theories.
4 Final review:
1 General
1 No need to memorize case name. In a few case, the case names may appear in multiple choice questions.
2 Assume the applicable law is common law unless told otherwise. On essay question, if you find a UCC may apply, mention it. No need to explore UCC not mentioned in class.
3 Three essay questions. 40, 30, 20 mins. There is space limits.
4 Organization is not important. List all issues and key points.
5 Must write the counter-analysis, or the weak point for your positions.
6 Equitable estoppel and promise estoppel.
1 Overall conduct v. promise inducing reliance.
7 Liquidated damage clause v. Limitation of remedy
1 Limitation of remedy: used in sales of goods situation, what seller will do for the seller if the goods have some problem.
8 It is subject to interpretation in the beginning of performance, not preparation, or reliance, must be actual reliance. Subject to interpretation, mention counter-argument.
9 Offeror says you must walk to the end of the bridge, and I might revoke in between. The offer is very clear, so offeror will win here.
1 What if the question the case 20 years employment and give benefit? There is a mixed message, court find for P.
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