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Contracts Outline
Contracts I (Tulane University)
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CONTRACTS
§1: A contract is a promise or set of promises, for the breach of which the law gives a remedy, or the
performance of which the law in some way recognizes as a duty.
Consideration §71: Did the promisee give up a legal right? Did the promisor promise to induce the
promisee to give up that legal right?
Donative Promises, Gifts
Affective Promises – Unenforceable; no legal right given up, love/affection are not consideration
Dougherty v. Salt: aunt’s promise to give her nephew money
Conditional Gifts – Unenforceable; promisor does not induce promisee to give up legal right
Kirksey v. Kirksey: brother-in-law’s promise to give plaintiff a job if she moved
Gordley’s Benevolent Man Hypo: homeless man walks to nearest store so stranger can buy Jack Daniels
Completed Gifts – Enforceable; changed possession, becomes valid, binding transaction
Nominal Consideration
Traditional Rule, Restatement First – Enforceable (ex. promise under seal)
Modern Rule, Restatement Second – Unenforceable; has form of bargain, lacks substance
Promisor Not Inducing Promisee to Give Up Legal Right – value received not promise price
Schnell v. Nell: defendant promised $600 “in exchange for” plaintiffs’ penny
Exceptions
Option Contract – holds contract open for certain amount of time
Loan Guarantee – lender seeks promisor’s guarantee on loan made to third-party
Legal Detriment v. Detriment-in-Fact §79: if consideration is met, no additional requirement
of gain, advantage, or benefit to promisor or loss, disadvantage, or detriment to promisee.
Courts Will Not Ask Whether Promisee Materially Benefitted from the Promise
Promisor Gives Up Legal Right by Taking Unobligated Action/Forbearance
Hamer v. Sidway: uncle’s promise to pay nephew for giving up smoking/drinking
Pennsy Supply v. American Ash: ∆: if you come pick up this material, you can have it for free. π
picks up material for project, material is bad
Adequacy §79: if consideration is met, no additional requirement of equivalence in values exchanged.
Courts Will Not Question the Adequacy of Consideration (unless grossly inadequate)
Batsakis v. Demotsis: $25 promise during WWII in exchange for $2,000 repayment
Harris v. Time: promise to award plaintiff a watch for opening junk mail
Mutuality, Illusory Promises §77:[apparent] promise is not consideration if by its terms the
promisor reserves a choice of alternative performances; whether both promisor and promisee actually gave up
legal rights rather than just appeared to do so.
Unspecified Quantities – Unenforceable; conditioned entirely on one party’s will, never legally bound
Office Pavillion S. Florida v. ASAL Prod.: promise to sell goods in any quantity defendant wanted
If contract price exceeds market value, defendant will buy nothing
Exceptions: Requirement, Output Contracts – promisor gives up legal right to buy or sell all of the
goods he may need or produce from or to any other source
Free Way In – Enforceability Depends on Condition within One Party’s Control
Hint: ask whether the contract would have consideration without the initial condition
Termination At Will – Unenforceable; no legal right given up if one party is never bound
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Termination With Notice – Enforceable
Legal Right Given Up by Having to Notify Other Party
Linder v. Mid-Continent Petroleum: rent-agreement with 10-day notice of termination
Legal Right Given Up by Giving Other Party Opportunity to Enforce
Implied Promises
Whether Reasonable Person Would Understand Promisor Intended to Commit Himself by Words/Action
Wood v. Lady Duff-Gordon: π promised to keep accounting records, which implied he would use reasonable
efforts to promote ∆’s clothes. *UCC codified rule here: there is consideration if an exclusive right is given.
Conditions of Satisfaction §227
Reasonable Objectivity – commercial, mechanical, utility services
McCartney v. Badovinac: private investigator’s performance can be judged objectively
Hypo: construction contract subject to head architect’s satisfaction can be judged objectively
Good Faith Subjectivity – aesthetics, taste, personal business judgment
Mattei v. Hopper: π’s subjective judgment of property leases is valid consideration
Fursmidt v. Hotel Abbey: hotel valet and laundry services are judged subjectively
*CONSIDER: language, possible ability to objectively judge performance, whether unsatisfied party will be
enriched if contract requires subjective satisfaction, and degree of forfeiture imposed on performing party if the
other escapes liability
If contract’s subject matter is primarily commercial/mechanical, performing party must expressly intend
to meet subjective expectations knowing the possible degree of forfeiture
Morin Building v. Baystone Construction: contract’s aesthetic considerations were secondary to
commercial nature of factory addition, should be judged objectively
Waiver of Conditions §84: promise to perform all/part of conditional contractual duty in spite of
condition’s non-occurrence is binding, whether promise is made before/after time for condition to occur
Clark v. West: defendant knew plaintiff was drinking during contract period and did not revoke or rescind;
supposedly defendant continued to promise full contract price
Reinstatement of Conditions §84: promisor can make his duty again subject to the condition by
notifying promisee while there is still reasonable time to cause the condition to occur or an extension is given,
and reinstatement of the condition is not unjust because of a material change in position by promisee
Past Consideration
Traditional Rule – Unenforceable
Mills v. Wyman: promise to pay plaintiff for nursing sick son after he already died
Schnell v. Nell: promise to pay π’s because his lovely wife’s will said so
Exceptions: Time-Barred Debt, Debt Incurred as a Minor, Debt Discharged in Bankruptcy
Modern Exception: Material Benefit §86: promise made in recognition of benefit previously received is binding
to the extent necessary to prevent injustice unless promisee conferred the benefit as a gift or for other reasons the
promisor has not been unjustly enriched, or to the extent its value is disproportionate to the benefit
Webb v. McGowin: ∆’s promise to pay π for saving his life from falling stone, after ∆ died his estate stopped
payments. Court upheld payments because ∆ promised to pay, it was this promise that made agreement enforceable.
Preexisting Duty §73: performance of a legal duty already owed, which is neither doubtful nor the
subject of honest dispute, is not consideration; a similar performance is consideration if it differs from what was
required in a way which reflects more than a pretense of a bargain [not nominal change]
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Traditional Rule – Unenforceable
Modern Rule – determine how result affects public policy
Duty to the Public = Unenforceable
Gordley’s Law Enforcement for the Rich Hypo: can’t pay the police extra to spend more time
patrolling your neighborhood.
To a Third Party = Enforceability Depends on Disruption of Contractual Relationship
Gordley’s Paying Basketball Player Hypo: paying a player on your favorite team to score baskets
when that’s already his job.
To the Other Contracting Party = Unenforceable
Lingenfelder v. Wainwright Brewery: π threatened to quit working under current contract, demanded
additional compensation to complete performance
Foakes v. Beer: ∆’s promise to pay lower sum on debt presently due
Exceptions: Variation, Disputed Legal Claim, Voluntary Modification
Voluntary Modification §89: promise modifying a duty under a contract not fully
performed on either side is binding if 1) the modification is fair/equitable 2) in view of
circumstances not anticipated by the parties when the contract was made and 3) to the
extent justice requires enforcement in view of reliance by the promisee (fair and
equitable)
Angel v. Murray: garbage man compensated for unexpected increase in waste
McCallum Highlands, Ltd. V. Washington Capital Dus, Inc.: there was an
unforeseen circumstance, however new modification not “fair and equitable” to π.
Duress
§175: if party’s manifestation of assent is induced by improper threat [of crime, tort or breach of
contract] by the other party that leaves the victim no reasonable alternative, contract is voidable by the victim
No Duress
McCallum Highlands, Ltd. V. Washington Capital Dus, Inc.: terms of loan agreement changed last minute, π
agreed to avoid bankruptcy, later sued arguing no consideration. Court held for ∆, saying while there was an
unforeseen circumstance, the modification was “fair and equitable” to π.
Chouinard v. Chouinard: ∆’s did not take advantage of company’s preexisting financial crisis, they were simply
what is owed, company’s financial crisis was not their fault
Gordley’s Desperate Traveler Hypo: professor stuck in desert with dinosaur bones
Duress – must show defendant committed wrongful act, threatened immediate possession of needful
goods/services, promisor attempted to attain goods from other source, but had no other alternative
Post v. Jones: ship was rescued by another whaling ship, who in exchange for recue took their cargo and sold it for
themselves. Not enforceable because agreement made under duress.
Totem Marine Tug & Barge v. Alyeska Pipeline Service: Duress exists when the following are established: “(1)
one party involuntarily accepted the terms of another, (2) circumstances permitted no other alternative, and (3) such
circumstances were the result of coercive acts of the other party….” Under element (3), coercive acts may include wrongful
acts or threats, not merely unlawful acts. It has not been specifically determined what constitutes a coercive act, but it will
depend upon the facts of each case. A threat, made in bad faith, to breach a contract or withhold payment of an admitted or
acknowledged debt may constitute a wrongful act. Under element (2), whether there is a reasonable alternative depends
upon the facts of each case. An alternative will not be considered reasonable if “a delay involved in pursuing that remedy
would cause immediate and irreparable loss to one’s economic or business interest.” In the current matter, Totem alleged
that Alyeska, having acknowledged the debt, deliberately withheld payment because it knew Totem’s only choice was to
accept the inadequate amount. Alyeska knew that Totem was facing bankruptcy and that it would, therefore, have to accept
any amount offered. Under these circumstances, Totem accepted the amount Alyeska offered and signed the release.
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Unconscionability§208: if a contract or term is unconscionable at the time it is made, a court
may refuse to enforce the contract or term so as to avoid any unconscionable result.
*ON EXAM* analyze whether a case looks more or less sympathetic than another that we looked at in class.
Unconscionability is almost always related to AUXILIARY TERMS.
Procedural Unconscionability – gross inequality of bargaining power or one party’s lack of reasonable
opportunity to understand the contract’s terms, not enough on its own, must also have Substantive
Unconscionability
Substantive Unconscionability – grossly unfair contract terms
Auxiliary Terms – which party can foresee the risk, control the risk, and spread the risk
Weaker Party Bears Risk – Unenforceable
Weaver v. AMOCO: hold harmless clause buried in fine print, plaintiff unaware (also
procedural unconscionability here)
Maxwell v. Fidelity Financial Services: water heater case, substantive unconscionability
Price Doesn’t Reflect Risk – Unenforceable
Williams v. Walker-Thomas: allowed ∆ to repossess all purchased items (also procedural
unconscionability here)
Performance Terms – Price and Object
Market Price Not Received
Isolation – Unenforceable
Post v. Jones: ∆’s low price for shipwrecked goods
Gordley’s Desperate Traveler: pays high price for third-party rescue
Ignorance – ?
Jones v. Star Credit: don’t know market price freezer if approached at home (also
procedural unconscionability here)
Market Price Received
Temporary Shortage – ?
Batsakis v. Demotsis: unconscionability didn’t exist during WWII
Gordley’s Inuit Village/Penicillin Hypo: court will probably enforce rich woman’s
promise to pay higher price because poor who died could have afforded medicine at the
regular price and survived
Normal Conditions – ?
Cadillac Vacuum Cleaner: always expensive
Object Received – ?
Maxwell v. Fidelity Financial: homeowners bought water heater for $6,500 and
ended up owing $17k for it
Gordley’s Foreign Encyclopedia Hypo
Policy Implications: should court invalidate a contract that parties
willingly entered into simply because one party doesn’t “need” it?
Reliance
§90: 1) a clear and definite promise, which 2) the promisor should reasonably expect to induce
action or forbearance on the part of the promisee or third person, and which 3) does induce such
action/forbearance is binding if 4) injustice can be avoided only by enforcement of the promise.
Was there a promise? Did the promisee foreseeably change his position (and is now worse off)? Was it reasonable
for him to do so?
INJURY:
 is the promissee worse off than he would have been had the promise not been made?
o Reliance damages: restore a promisee back to the position he would have been in if the promise had not
been made.
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 Out of pocket costs
 Opportunity costs
 Is the promisee worse off than he would have been if the promise had been performed?
o Expectation damages: purpose of placing a promisee forward to the position that he would have been in if
the promise had been performed.
Compensation: in our legal system, compensation is measured in money.
On *EXAM*: analyze for consideration, if not there, analyze for reliance. If yes to reliance, look to damages next. Maybe
cite Feinberg in analysis.
Acts as Consideration or Substitute for Consideration – ability to make gratuitous promise enforceable
 Kirksey v. Kirksey: decided before reliance was developed, compensation?
 Feinberg v. Pfeiffer: defendant’s promise reasonably led to plaintiff’s retirement (promissory estoppel)
o
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Compare to Klockner v. Green: In Klockner, the court’s decision was based on consideration: the act of
caring for the old woman was consideration for a unilateral contract where she requested their performance.
The act of caring for her did not have to be induced solely by her offer, since the act itself was the
consideration. In Feinberg, the agreement was enforced not due to consideration, but to her reliance on the
promise.
Hayes v. Plantation Steel Co.: defendant’s promise made after plaintiff’s retirement
Ricketts v. Scothorn: equitable estoppel used to prevent the executor from pleading a lack of
consideration (equitable estoppel “operates always as a shield, never as a sword”)
o Equitable Estoppel: party asserting estoppel relied on a misstatement of fact, a misstatement of
intent or a misstatement regarding a future event is not a basis for equitable estoppel. Can help π
establish a cause of action, but is not in itself a cause of action.
o Promissory Estoppel: based on a promise concerning the future that the ∆ made to the π. A π
CAN bring suit for promissory estoppel.
Carlisle v. T&R Excavating: husband’s excavating company promised to work free of charge, later
couple divorced, and work was not completed. Court ruled contract had no consideration because promise
was gratuitous. COMPARE CASE TO ALLEGHENY, WHY WAS THIS OUTCOME DIFFERENT? Possibly because in this
case the promise was made to a family member, thus less enforceable than a promise to a charitable organization.
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Allegheny v. Natl. Chautauqua County Bank: woman pledges $5k to college, gives them $1k to start,
they agree to scholarship fund in her name. The College subjected itself to a legal detriment—the duty to
perpetuate Johnston’s name through the fund—by accepting Johnston’s initial donation of $1,000. That implied
duty constitutes valid consideration for Johnston’s promise to donate the remaining money. Johnston gave the
first $1,000 to the College with the instructions to start a scholarship fund in her name. When the College
accepted that $1,000, the acceptance bound the College to use the money to start the fund and do everything that
went along with it, including publishing Johnston’s name as the founder. Once the College was bound to
perpetuate Johnston’s name, Johnston came under the obligation to fulfill her other part of the bargain.
Gordley: "If I make a statement of fact to you, and you use it to your detriment, then I'm not allowed to
deny it later."
Promissory Reliance Damages
§90: remedy granted for a breach may limited as
justice so requires
Expectation Damages – Usually More; puts promisee where he would have been if promise was performed
Feinberg v. Pfeiffer: award plaintiff her retirement annuity every month for the rest of her life
Gordley’s Nephew Goes to Europe Hypo: uncle promises his nephew $10,000 for a trip to Europe,
nephew purchases a $2,000 plane ticket before his uncle breaks the promise, which is not refundable,
nephew compensated full $10,000.
Reliance Damages – Usually Less, puts promisee where he would have been if promise was never made
*Feinberg v. Pfeiffer: *HYPOTHETICAL*: award plaintiff her salary until she became incapacitated with
cancer
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Gordley’s Nephew Goes to Europe Hypo 2: uncle promises his nephew $10,000 to go to Europe,
nephew purchases $2,000 plane ticket that is not refundable before his uncle breaks his promise, nephew
will be compensated $2,000.
Mutual Assent
§ 18: Manifestation of mutual assent to an exchange requires that each party either
make a promise or begin or render a performance
Objective vs. Subjective Intent: Objective test to determine intent of parties is applied first, and then subjective
test if necessary.
Classical Contract Law – Objective and Standardized
Modern Contract Law – Objective AND Subjective Intentions
Four Central Modern Principles to Interpretation:
1. Principle 1: § 201(2)(b): if the parties subjectively attach different meanings to an expression, neither
party knows that the other attaches a different meaning, and the two meanings are not equally
reasonable, the more reasonable meaning prevails.
a. Embry v. Hargdine: Regardless of the parties’ subjective or actual intent, if a reasonable man could
infer from their conduct intent to enter into a binding and enforceable contract, a binding and
enforceable contract is presumed to exist.
i. Exception! If offeree knows offeror meant to not enter into contract, then no contract
2. Principle 2: § 20(1): If the parties subjectively attach different meanings to an expression, neither party
knows that the other attaches a different meaning, and the two meanings are equally reasonable, neither
meaning prevails.
a. Raffles v. Wichelhaus: Peerless ship case
3. Principle 3: § 201(1): If the parties subjectively attach the same meaning to an expression, that meaning
prevails even though it is unreasonable. Reasonableness only relevant where there is not a mutually held
subjective meaning.
4. Principle 4: § 201(2): If the parties, A and B, attach different meanings, Alpha and Beta, to an
expression, and A knows that B attaches meaning Beta, but B does not know that A attache s meaning
Alpha, the meaning Beta prevails even if it is less reasonable than the meaning Alpha . Supported by a
“fault” analysis.
a. Lucy v. Zehmer: case where farm is sold while drinking, ∆ wasn’t serious but he knew π was,
and also that π did not know that ∆ wasn’t serious.
Offer
§24: manifestation of willingness to enter into a bargain so made as to justify another person in
understanding that his assent is invited and will conclude it
§26: manifestation of willingness to enter into a bargain is not an offer if offeree knows/has reason to know that
offeror doesn’t intend to conclude a bargain until he has made further manifestation of assent
Whether Reasonable Person Would Have Understood Offeror Intended to be Bound – language, surrounding
circumstances, prior practices or relationship, method of communication, industry custom
Willingness to Wait for Offeree’s Response – offeree’s immediate power of binding acceptance
Lonergan v. Scolnick: defendant indicated he wanted to sell land immediately
Specificity of Terms – price, object, quantity
Advertisements and Circulars – cannot oversell; considered invitations to negotiate an offer
Lonergan v. Scolnick: newspaper ad and form letters were invitations for π to negotiate an offer rather
than an offer in itself, ∆ wanted to sell immediately and sold to a third party
Sateriale v. R.J. Reynolds Tobacco Company: “camel cash” customer loyalty program, RJR announced
the end of the program on a certain date but ended it sooner, not honoring certificates.
Exceptions:
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Clear, Definite and Explicit Terms – promise to render performance in exchange for something
requested by advertiser; avoids problem of over-selling (ex. rewards, “first come, first serve”)
Unethical Advertising, Bait-and-Switch – cannot modify offer after it is already accepted
Lefkowitz v. Great Minneapolis Surplus Store
§68: A written revocation, rejection or acceptance is received when the writing comes into the other’s possession,
or of some person authorized by him to receive it for him, or when it is deposited in some place which he has
authorized as the place for this or similar communications to be deposited for him.
Terminating Power of Acceptance
Revocation Except under rare circumstances, an offer can be withdrawn before acceptance because there is
no consideration for the offer until its acceptance has been made.
Direct §42: power of acceptance is terminated when offeree receives from offeror a manifestation of an intention
not to enter into the proposed contract
Ragosta v. Wilder: defendant revoked offer to sell store before plaintiffs’ specific performance
Hypo – offeror makes an offer with the option to leave it open for two days. If the offeror revokes
immediately before offeree accepts within two days, there is no contract.
Indirect §43: power of acceptance terminated when offeror takes definite action inconsistent with intention to
enter into the proposed contract, and offeree acquires reliable information to that effect
Dickinson v. Dodds: plaintiff heard defendant sold his property before plaintiff tried to accept
Hypo: on the flip side, π hears nothing about ∆ selling property. By handing the defendant his acceptance
letter on Friday, π makes ∆’s offer binding even if its already sold.
Unilateral Exceptions
Beginning Performance Creates Option Contract §45: where an offer invites acceptance by
performance and does not invite promissory acceptance, an option contract is created when
offeree tenders/begins invited performance. Offeror’s duty of performance under this option
contract is conditional on completion of invited performance in accordance with offer’s terms.
Foreseeable Significant Preparation Creates Option §87(1): an offer is binding as an option
contract if it 1) is in writing and signed by the offeror, 2) recites a purported consideration for the
making of the offer, and 3) proposes an exchange on fair terms within a reasonable time.
1464-Eight, Ltd. & Millis Mgmt. Corp. v. Joppich: option contract where ∆ said they
would buy back land if π did not begin building in 18 mos., $10 nominal consideration
fee to be paid to π which she never received. Failure to deliver nominal consideration
recited in an option contract is NOT enough to preclude enforcement of the contract.
Foreseeable Significant Preparation Creates Option §87(2): offer which offeror should
reasonably expect to induce substantial action/forbearance on offeree’s part before acceptance
and which does induce such action/forbearance is binding as an option contract to extent
necessary to avoid injustice.
How do you know when someone begins/prepares to perform? Suppose there’s a reward
offer to catch a thief—at what point do you begin or prepare to catch him?
Contractor/Subcontractor Relationship – subcontractor foresees contractor using his
bid in the general irrevocable offer
Drennan v. Star Paving Co.: plaintiff justifiability relied on subcontractor’s
mistaken low bid by using it in his general bid
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Pavel Enterprises v. A.S. Johnson Corp: subcontractor liable for low bid
because general contractor relied on said bid to his detriment.
Lapse of Time §41: power of acceptance terminated at time specified in offer or at the end of a reasonable
time, which depends on circumstances existing when the offer/attempted acceptance are made. Unless otherwise
indicated by language/circumstances, and subject to §49, a mail offer is reasonably accepted if acceptance is
mailed before midnight on the day in which the offer was received.
Reasonable Time Depends on Nature of the Contract (Jury Question of Fact)
Keller v. Bones: The 5:00 p.m. deadline in Keller’s offer applied only to the Boneses’ acceptance of
the offer. When the Boneses accepted at 4:53 p.m., a contract was formed so long as notice of the
acceptance was given to Keller within a reasonable amount of time. The Boneses’ agent gave such
notice a mere 19 minutes after the acceptance, well within a reasonable amount of time after the
acceptance, thus forming a valid contract.
Face-to-Face and Telephone Offers Expire when the Conversation Ends
Unless circumstances indicate otherwise (ex. someone gets up to use the bathroom)
Akers v. J.B. Sedberry: plaintiffs’ offers of resignation would have expired at the end of their
face-to-face meeting, but defendant expressly rejected them anyway
Rejection §38: power of acceptance is terminated by offeree’s rejection, unless offeror manifests a contrary
intention. A manifestation of intention not to accept an offer is a rejection unless offeree manifests an intention to
take it under further advisement.
Express Rejection
Gordley Hypo: offers Volvo for $10,000, offeree says no then says she’ll take it. Offer was terminated by
initial rejection; there is no longer an offer available to accept.
Gordley Hypo: offers Volvo for $10,00, offeree responds, “No, but I’ll buy it for $8,000.” Gordley won’t
sell it for $8,000, then offeree says she’ll take it for $10,000. Original offer was rejected, offeree made
counter offer, Gordley rejected counteroffer.
Implied Rejection – whether a reasonable person in offeror’s position would have understood from offeree’s
words or conduct that she intended not to accept or take it under further advisement
Akers v. J.B. Sedberry: defendant made no indication she intended to consider plaintiffs’ resignation
offers and discussed tasks to be accomplished when they returned to work during their meeting
Counteroffer § 39: offer made by an offeree relating to the same matter as the original offer and proposing
a substituted bargain differing from that proposed by the original offer. A counteroffer terminates the offeree’s
power of acceptance, unless the offeror manifests a contrary intention or the counter-offer manifests a contrary
intention of the offeree.
Mirror Image Rule – must not impose conditions/limitations unless the offeree intends to unequivocally accept
whether the additional request is granted or not
Ex. “I am keeping your offer under advisement, but would you consider...”
Ardente v. Horan: conditionally accepted defendant’s offer to sell their house as long as specific furniture
was included; defendant rejected the counteroffer
Exceptions: Expressing Implicit Terms, Materially Benefitting Offeror
Hypo – $10,000 offer to sell car, offeree says she accepts if the key is included
Rhode Island Dept. of Transportation v. Providence & Worchester: acceptance stated contract’s
wording needed to include plaintiff’s name and there was no need to remove railroad tracks
Last Shot Fired – If an offeror and offeree are arguing over the terms of the offer, whichever terms are expressly
stated before one of them gives in will become binding
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Mailbox Rule §63: Unless offer provides otherwise, (a) acceptance made in a manner and by a
medium invited by an offer is operative and completes manifestation of mutual assent as soon as put out of
offeree's possession, without regard to whether it ever reaches offeror; but (b) acceptance under an option
contract is not operative until received.
§66: acceptance sent by mail/otherwise is not operative when dispatched, unless properly addressed and such
other precautions taken as are ordinarily observed to insure safe transmission of similar messages
Benefits Offeree
Doesn’t know revocation is in the mail, assumes he is bound, passes up other opportunities
Acceptance lost in mail, assumes he is bound, offeror will know of problem by receiving nothing
Exception: Offeree Accepts then Revokes
Restatement applies mailbox rule; offeree should not shop around while offeror awaits reply.
Courts may invalidate acceptance if offeree proves he had change of heart or change in circumstance.
Acceptance
§50: offeree’s manifestation of assent to terms thereof in a manner invited or required by
the offer
Mirror Imagine Rule, Objectivity
Must communicate definite and unequivocal acceptance before any contract comes into being
Mere mental intent to accept is not sufficient
Implied acceptance can occur through the offeree’s actions in response
Whether a reasonable person in offeror’s position would think offeree accepted
Promissory Acceptance, Bilateral Contracts §32: In case of doubt, an offer is interpreted
as inviting the offeree to accept either by promising to perform what the offer requests or by rendering
performance, as the offeree chooses.
Most Offers are for Bilateral Contracts, unless…
 Express Unilateral Language
- Ex. “I don’t want your promise, but if you…”
- Contract is Type Where Offeree Will Only Want to be Liable for Performance (can back out)
- Or offeror seems/should seem uncertain about offeree’s ability to perform, desires to protect
himself by not committing to the promise unless its unilateral
- Offeror is bound if offeree completes duty, but offeree is not bound until the duty is
completed (when jewels found, when house is sold, when cat is found, etc) You accept by
performing. *a way to make a one-sided contract binding. *performance is the acceptance,
not bound until you've given up the legal right.
- Reward, ex. for finding jewels, commission for selling house, reward for finding cat, etc.
Acceptance by Performance, Unilateral Contracts
Traditional Rule – Revocable Anytime Before Completed Performance
Modern Rule – Beginning Performance Creates Option §45: where an offer invites an offeree to accept by
performance, an option contract is created when the offeree tenders or begins the invited performance. The
offeror’s duty of performance under this option contract is conditional on completion of the invited performance
in accordance with the terms of the offer.
Gordley’s Huey P Long bridge hypo: hop across the bridge and I will pay you $500. I don’t have to pay
until task is completed, but once you’ve started I cannot revoke my offer.
Mere Preparation Not Sufficient
Ragosta v. Wilder: plaintiff’s prepared financing to deliver specified sum; defendant free to
revoke his offer
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Modern Exception – Reasonably Foreseeable Significant Preparation §87(2):an offer which offeror
should reasonably expect to induce action/forbearance of a substantial character on offeree’s part before
acceptance and which does induce such action/forbearance is binding as an option contract to the extent
necessary to avoid injustice. [offeree not yet entitled to damages]
Ragosta v. Wilder: plaintiffs prepared to perform before defendant actually made offer
Drennan v. Star Paving: subcontractor bound by mistaken offer; court applied §90 to §45
Performance Lacking Consideration §81: promise not itself inducing performance or return promise does not
prevent the performance or return promise from being consideration for the promise
Requested Act Need Only Be Done with Intent to Accept
Klockner v. Green: elderly woman’s promise to will her estate to long-time caregivers
Knowledge of an Available Offer
Simmons v. U.S. – fisherman knew about diamond rockfish reward but was not induced to go fishing by
the offer; offeror is still contractually bound to give him the reward
Exception: Public Rewards
Stephens v. Memphis – knowledge necessary for recovery violates public policy by encouraging
people to only do their civic duty when they will be compensated
Notice of Acceptance §54(1): where offeror invites offeree to accept by performance, no notification is necessary
to make acceptance effective unless offer requests such
Keller v. Bones: If an offer doesn’t establish a deadline for communicating the acceptance, such
communication must be made within a reasonable time after the acceptance. If offeror does NOT set a
deadline by which the offeree must communicate his acceptance to the offeror, then a default rule applies:
acceptance must be communicated within a reasonable time. Acceptance occurred at the moment the
document was signed, not the moment it was communicated to the offeror.
If notice is required, no particular form/manner is necessary unless the offer also specifies
Exception: §54(2): where offeree has reason to know that offeror has no adequate means of learning of
performance with reasonable promptness/certainty, offeror’s contractual duty is discharged unless (a)
offeree exercises reasonable diligence to notify offeror of acceptance, (b) offeror learns of performance
within reasonable time, or (c) offer indicates that notification of acceptance is not required
Bishop v. Eaton: In this case, ∆ made the offer by letter, and it is reasonable for π to accept the offer in
the same manner. Because π lived in Illinois, and ∆ lived in Nova Scotia, ∆ should have expected to
receive notice of acceptance in the mail. It would be a particularly harsh rule to hold π responsible for
∆’s failure to receive the letter. π did all he was required to do to accept the offer of guaranty when he
placed the letter of acceptance in the mail.
Silence Not Acceptance Unless
§69(a): offeree takes benefit of offered services with reasonable opportunity to reject them and reason to
know they were offered with expectation of compensation
Hobbs v. Massasoit Whip Co.: plaintiff shipped goods that defendant kept and used, silence
amounted to an acceptance, “past conduct”
Austin v. Burge: continued to take newspapers out of his P.O. box and read them, “exercise of
dominion”
McGurn v. Bell Microproducts: employer did not change or acknowledge an employee’s edit to
their contract, because the edit was clear and visible court enforced it.
§69(b) offeror gives offeree reason to understand that assent may be manifested by silence or inaction,
and offeree, in remaining silent/inactive, intends to accept
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Kukuska v. Home Mutual: insurance company’s failure to notify applicant within reasonable
amount of time to avoid impending loss (hailstorm) constitutes acceptance
§69(c) previous dealings or otherwise dictate that offeree should notify offeror if he does not intend to
accept [offeror should be protected from impending loss – offeree is taking advantage of the situation,
reserving time to see if contract will be profitable]
Hobbs v. Massasoit Whip Co.: π previously shipped goods to ∆ without receiving specific order
and received payment from him, silent retention is acceptance
Quasi Contracts
avoids unjust enrichment when one party bestows benefit on another under a
reasonable expectation of compensation and opposing party unjustly retains the benefit
Rescue
Party Must be Incapable of Assenting (ex. unconscious, bleeding out, etc.)
Professional Rescuer Only – entitled to standard fee; rescue by someone other than healthcare provider is
unclear whether rescue was really needed and how much the rescue was w9orth
Compare Webb v. McGowin to Harrington v. Taylor
Receiving Benefit Knowing Compensation is Expected – must have opportunity to object
Nursing Care Services v. Dobos: accepted nursing services following hospital discharge
Gordley’s Swimming Pool Hypo: installer misreads address and installs pool in Gordley’s backyard
while he is away on vacation, not required to pay because he did not know services were being rendered
and had no opportunity to object
Gordley’s Swimming Pool Hypo 2: installer tells Gordley, “I’m going to install a pool in your backyard.
Is your gate open?” Gordley replies, “Yes, the gate is open.” Gordley is legally obligated to pay for the
services because he had the opportunity to object but didn’t say anything.
Receiving Benefit with Good Faith Assumption Someone Else is Paying
Nursing Care Services v. Dobos: assumption Medicare was paying not legal defense to responsibility
*Note on Two Types of Restitution Claims: 2 types of restitution and unjust enrichment claims in
Dobos:
1. The two weeks of in-hospital care, which was justified intervention, albeit unrequested,
because ∆ was incapacitated.
2. The two weeks of at-home care, which is up in the air depending on if π and ∆ had a contract,
or if knew either knew or have reason to know that π expected to be paid.
Gordley’s Wine of the Week Hypo: wine delivery shows up at your door, you didn’t order it but you
accept it and drink it anyway
Implied-in-Fact §69(a) v. Implied-In-Law (Quasi Contract)
Assent
Implied-in-Fact/Implicit Assent: actions speak as well as words, intention to create a contract
McGurn v. Bell Microproducts: reasonable person may would see the change in contract and
know that the ∆’s silence in exchange for π’s labor constituted implicit acceptance.
Gordley’s Martin Wine Cellar Hypo: have an account at Martin Wine, walk out with bottle of
wine and waive, reasonable person would expect account to be charged.
Implied-in-Law: nonperforming party may not intend to enter a contract at all
Nursing Care Services v. Dobos: π suffering from abdominal aneurysm, doctor orders round the
clock care, unsure whether π accepted care in the beginning.
Gordley’s Swimming Pool Hypo: sees pool installers in his yard from his second-story window
and ducks out of his house and drives away
Enrichment
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Implied-in-Fact Does NOT Need Enrichment
Implied-in-Law Needs Unjust Enrichment – if opposing party does not benefit, no grounds for
recovery
Nursing Care Service v. Dobos: ∆ unjustly enriched if π were not compensated for its services
Recovery
Implied-in-Fact Measured by Contract Price
Implied-in-Law Measured by Fair Value of What Was Retained
Fair amount for a bottle of wine (Implied-in-Law) v. ticket price on the bottle at the store
(Implied-in-Fact)
Defenses
§153: Where a mistake of one party at the time a contract was made as to a basic assumption on which he made
the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is
voidable by him if he does not bear the risk of the mistake under the rule stated in §154, and (a) the effect of the
mistake is such that enforcement of the contract would be unconscionable, or (b) the other party had reason to
know of the mistake or his fault caused the mistake.
Mechanical Error calculation mistake has material effect on contract’s performance
Traditional Rule – mistaken party not held to its error if other party knew of the mistake
Modern Rule – mistaken party not held to its error if both parties will return to status quo
Status Quo – if one party relies on the mistake and cannot be restored to pre-contractual position,
error may be enforced
De Prince v. Starboard Cruise Services: cruise line made a serious mistake as to the price of a loose
diamond; court ruled that defense of unilateral mistake to a breach-of-contract claim requires evidence
that the breaching party did NOT act negligently or with undue care.
Traveler’s Insurance Co. v. Bailey: life insurance policy mistakenly written for much more than agreed
upon, π sued to reform, court agreed.
Significant error in price term = mistake regarding basic assumption on which contract was made
Chimart Associates v. Paul: HIGH LEVEL OF PROOF REQUIRED IF ONLY ONE SIDE ALLEGING
MECHANICAL ERROR. “Substantively, reformation based upon mistake is not available where the
parties purposely contract based upon uncertain or contingent events… Procedurally, there is a heavy
presumption that a deliberately prepared and executed written instrument [manifests] the true intentions
of the parties and a correspondingly high order of evidence is required to overcome that presumption.”
Gordley’s General Contractor Hypo: If there is reliance, you cannot get relief from a mechanical
mistake. General contractor adds up price of contract wrong, or accidentally leave out a line item, etc, so
bid is wrong.
1. If bid is so much lower than all the others that person knows something is likely wrong, then that
means he knows and you get relief.
Cases in UAL bankruptcy case say that as long as I can prove that I made a mistake then as long as there
isn't reliance on behalf of the other party you can be let out of the contract. If the other party has relied on
your bid, you cannot.
Contractor/Subcontractor Mistake Hypo (basically Drennan v. Star Paving)
Mutual Mistake/Shared Mistaken Factual Assumption
Vague Rule – unclear meaning of substance/essence of a contract
Contract Falls – mistake concerns utility of the contract’s subject matter; is the thing still suitable for its
normal purpose?
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Sherwood v. Walker: ∆ sold a fertile cow at the sterile cow price
Contract Stands – one party assumes the risk; §154: (a) risk is allocated by agreement of the parties, (b)
he is aware at the time the contract is made that he has only limited factual knowledge to which the
mistake relates but treats his limited knowledge as sufficient, or (c) risk is allocated to him by the court
because it is reasonable in the circumstances to do so.
Nester v. Michigan Land: π misestimated use value of wood on ∆’s land
Everett v. Estate of Sumstad: π auctioned off a locked safe worth $30,000
Lenawee County Bd. of Health v. Messerly: signed “as is” clause, land later condemned
Post-sale fluctuation in value does not establish a mutual mistake at the time the contract was
made
Gordley’s B&B Hypo: I sell you a property as a house, you bought it to use as a B&B but it
cannot be used that way- promise enforceable because it can be used for what it was sold for.
CHANGED CIRCUMSTANCES
Doctrine 1: Frustration of Purpose §265: Where a party's principal purpose is substantially
frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on
which the contract was made, his remaining duties to render performance are discharged, unless the language or
the circumstances indicate the contrary. Performance is still possible, but it no longer has any value.
Objective – character mistake makes item no longer suitable for its advertised use; rescission is not warranted
where one party’s subjective purpose is frustrated
Krell v. Henry: ∆ agreed to rent a flat to watch king’s procession, later cancelled. Why is this changed
circumstances and not mistake? Because the change happened after the contract was formed. If the coronation had
been canceled prior to the formation, and the parties simply didn’t know, then it would be a mistake.
Chase Precast Corp. v. John Paonessa Co.: Frustration of purpose excuses a contracting party’s performance
when neither party anticipates or causes the event that destroyed the contract’s purpose. Frustration of purpose
applies to a breached contract when 1) performance remains possible, but 2) the expected value of that performance
has been destroyed AND 3) the destroying event can’t have been anticipated or caused by either party. Because π
could’ve foreseen the elimination of the barriers, the risk of elimination fell on π and ∆ could rely on frustration of
purpose as a defense to its nonperformance under the contract.
Gordley Wedding Dress Hypo: you get broken up with, you don’t get to cancel your wedding dress
Doctrine 2: Impossibility
Treats Results Contract like Best Efforts
Performance Must be Impossible – unforeseen, uncontrollable event like war, a plague, a hurricane, etc; not
performing party “couldn’t help it”
Contract of best efforts: I promise to use reasonable/best efforts to get the results.
Contract of results: I am liable if I don't accomplish the result, even if I use reasonable efforts to try.
Taylor v. Caldwell: ∆ not liable for π’s damages after music hall burned down. In contracts in which the
performance depends on the continued existence of a given person or thing, a condition is implied that the
impossibility of performance arising from the perishing or destruction of the person or thing shall excuse
the performance. In contracts in which the performance depends on the continued existence of a given
person or thing, a condition is implied that the impossibility of performance arising from the perishing or
destruction of the person or thing shall excuse the performance. This is analogous to the rule in personal
services contracts which states that “where a contract depends upon personal skill, and the act of God
renders it impossible, as for instance, in the case of a painter employed to paint a picture who is struck
blind, it may be that the performance might be excused.”
Mishara Constr. Co. v. Transit-Mixed Concrete Corp.: Transit’s claimed defense is impossibility of
performance caused by the formation of the picket lines. Under the Uniform Commercial Code,
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performance is excusable if: (1) the performance has become impracticable, and (2) the impracticability
was caused by the occurrence of a contingency, the non-occurrence of which was a basic assumption of the
parties. In regards to the first prong, strict impossibility is not required as long as there is commercial
impracticability. In regards to the second prong, a central consideration is whether the parties have
undertaken to allocate the risk of the contingency among themselves. The doctrine of impossibility only
covers those risks that are so unusual and that have such severe consequences that they are beyond the
scope of risks that would have been contemplated and assigned among the parties. In this case, whether the
picket lines were a contingency that meets the requirements for impossibility is a factual determination. It
would depend on what the parties knew about labor difficulties in that industry at the time of contracting,
and the anticipated extent of difficulties caused by picket lines.
Exception: Albre Marble & Tile v. John Bowen Co.: A party may be allowed to recover for
preparatory expenditures if facts justify this outcome. In this case, the ∆’s violation of statutory bidding led
to cancellation of the general contract, making performance of the subcontract impossible. In addition to
this being mostly ∆’s fault, the contract π signed had specific requirements for performance, so not all
expenditures within the π’s control.
Exceptions – impossibility is immaterial; turns best efforts contract into results contract
No Money, No Workers, No Supplies
Doctrine 3: Impracticability
Turns fixed price contract into cost-plus contract depending on certain criteria, only fixed price contract will be
unenforceable.
"Fixed price": $60,000. You agree to pay but if he goes over he loses, if he comes in under he makes the
difference. Usually estimate is over what the cost is. *doctrine of impracticability applies here, only when
price is WAY over what is anticipated, due to circumstances that could NOT be foreseen*
OR
"Cost plus": cost goes over, you must pay the difference. *do NOT need doctrine of impracticability* any
additional expenses you just get charged for.
Size of the Risk, Contract’s Allocation of the Risk, Foreseeability of the Risk
Mineral Park Land Co. v. Howard: the extra earth and gravel Howard needed for the performance of
the contract should be considered as not available at Mineral Park's property because its extraction was
extremely expensive. This excessive cost rendered Howard's performance impracticable and, for all intents
and purposes, impossible. It is as though the gravel and earth were not there at all. On this holding, Mineral
Park should not have recovered damages on the second cause of action and the judgment of the trial court is
so modified.
Transatlantic Financing Corp. v. U.S.: ship taking wheat to Iran had to reroute bc war had closed Suez
Canal. Here an unexpected contingency that required an adjustment of method or route will not, by itself,
render performance of a contract legally impossible. *Compare to Mineral Park, much smaller
difference in cost of performance so doesn’t count.
Increased Financial Difficulty –
Ocean Tramp Tankers Corp v. V/O Sovfracht: the blockage of the canal did not result in a fundamentally
different situation to cause a frustration. This is because, among other factors, the cargo on
the Eugenia was not adversely affected by a longer trip, the delay only resulted in a longer journey and
higher expenses, and the difference over the whole voyage was not so radical as to produce a frustration.
Expectation Damages
Restores injured party to position she would have been in if contract had been performed
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Breach by a Performing Party
Cost of Performance v. Diminution in Value
General Rule – Damages are the Reasonable Cost of Performing the Incomplete Work
Louise Caroline Nursing Home, Inc. v. Dix Construction Co.: job completed within original contract
price; plaintiff received its expectation, suffered no compensable loss
Exception: Resulting Economic Benefit is Grossly Disproportionate to Cost of Performance – damages
limited to diminution in value resulting from non-performance
Peevyhouse v. Garland Coal & Mining Co.: aesthetic work = $29,000, diminution in value =
$300, shows how to determine damages if full performance would result in economic waste
(arguably party also breached in bad faith here)
Droher & Sons v. Toushin: good faith saggy house; cost of performance > $20,000
Eastern Steamship Lines, Inc. v. U.S.: cost of performance = $4 mill, diminution = $2 mill;
plaintiff said he would not use damages to repair ship anyway
Where party only intends to obtain the best immediate economic position, the lowest cost
(whether performance or market value) will be awarded
Exception to the Exception: Breaching Party Breaches in Bad Faith
School District of Elmira v. McLane Construction: defendant knew plaintiff’s purpose in
requesting specific aesthetically-pleasing, maintenance-free wood for swimming pool area and
used defective materials anyway (distinguish from Peevyhouse)
Personal Value
Contracting party may enter into a contract for reasons other than increasing the value of his property; fact finder
may not limit recovery to diminution if it determines plaintiff will use damages for its intended purpose
If injured party’s personal value is somewhere between low market value and high cost of performance,
court only has three alternatives:
Under Compensate by Awarding Diminution in Value
Overcompensate by Awarding Cost of Performance
Guess the Personal Value – may still result in over/under compensation; how should the
personal value be determined?
Advanced, Inc. v. Wilks: “Where the property has special significance to the owner and
repair seems likely, the cost of repair may be appropriate even if it exceeds the
diminution in value.”
Breach by a Non-Performing Party
Nanosecond Rule – as soon as the parties sign the contract, performing party is entitled to full benefit of its
bargain (expected profit), even if performing party hasn’t done anything yet
Calculations: Expenses Incurred + Expected Profit – Payments Received = Expectation Damages
OR
Contract Price – Cost of Completion = Expectation Damages
Special Situation: Overhead Costs
Kearsarge Computer, Inc. v. Acme Staple Co.: illustrates that, in a breach-of-contract suit for
full price, an injured party’s damages award won’t be reduced based on expenses saved if
concurrent performance is possible.
Special Situation: Loss of Volume, Unlimited Quantities
Neri v. Retail Marine Corp: A lost-volume seller may recover lost profits and incidental expenses
resulting from a buyer’s repudiation or cancellation of a valid contract. Had π honored his
contract, ∆ would’ve had this sale plus the additional sale of the second boat. Under UCC seller
gets put back in the same position performance would’ve put him. Private person doesn’t suffer
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damages if first person doesn’t buy the car and a second does, but car dealership does suffer
damages because they lost out on an additional sale.
Lazenby Garages v. Wright: Similar to Neri but different outcome: the secondhand cars are all
unique and thus not interchangeable. ∆ decided not to purchase after signing contract and π later
sold it for an even higher price. π sued ∆ for breach of contract, alleging they could’ve had 2 sales
instead of 1 but for the breach. Court held for ∆ because the second sale was never guaranteed as
no
Wired Music v. Clark: court assumed if ∆ had not relocated its business, π would have two
contracts, including the new tenant, instead of just one
Gordley’s Carpenter Hypo: carpenter booked for July. Other party breaches, but carpenter finds
other work for that month. He cannot recover damages other than the difference in contract price
because he cannot perform both contracts during July (can’t sell the same thing twice)
Limits on Expectation Damages
Mitigation of Damages §350: damages not recoverable for loss that injured party could have avoided
without undue risk or burden. Injured party is not precluded from recovery to the extent that he has made
reasonable but unsuccessful efforts to avoid loss.
Failure to Mitigate Determined by Reasonableness of Conduct at the Time of Breach – not required to incur
more than slight expense; no need for personal monetary outlays or sacrificing substantial rights
Rockingham County v. Luten Bridge: π continued to build useless bridge after breach, ∆ not liable for
any damages incurred after breach. π can recover expenses up to the point of breach, and loss of profits,
and any other losses, but no more.
Exception: Bomberger v. McKelvey: π agreed to demolish building for a price and to salvage the glass, ∆
changed mind but π did it anyway. A contracting party can continue performing after being instructed to stop,
and recover damages based on the continued performance, if the party is not interested solely in the profits from
the agreement but must perform the work in order to fulfill other obligations.
Contracts for Personal Service – injured party must accept work of same kind/type, same quality, and in
the same place as the party’s original employment (not different, inferior, distant)
Cannot reject work based on lower wages because defendant will compensate injured party’s expectation
Shirley MacLaine Parker v. 20th Century-Fox: plaintiff not required to accept role in Australia
under contract offering less benefits than the original: 1) different location, 2) different role
(western vs. musical), and 3) different level of control (did not have say over director in new
film)
Mr. Eddie, Inc. v. Ginsberg: “the expenses for which a recovery may be had include necessary
and reasonable disbursements made in an effort to avoid or mitigate the injurious consequences of
the ∆’s wrong… if such expenses are the result of a prudent attempt to minimize damages they
are recoverable even though the result is an aggravation of the damages rather than a mitigation.”
Southern Kewwick v. Whetherholt: “wrongfully discharged employee is not obligated to seek
employment of a different or inferior nature but if he obtains such employment within the
contract period his earning should be used in mitigation of damages.”
Potential Recovery: Loss of Opportunity to Practice One’s Profession
Foreseeability §351: damages are not recoverable for loss that the party in breach did not have reason to
foresee as a result of the breach when the contract was made
Natural and Probable Consequences – any reasonable person would know of them
Special Circumstances Made Known to the Breaching Party
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Hadley v. Baxendale: defendant did not know broken mill shaft was crucial to plaintiff’s business,
“specifically the proper test for determining whether particular items of damage should be compensable
is to inquire whether they should have been foreseen by the promisor at the time of the contract.”
Siegal v. Western Union: man wired money to bet on horse, didn’t get there in time and the horse he
would’ve bet on won. Sued Western Union and lost bc if he wanted a guarantee the money would get
there in time he should have said so, and likely paid a higher fee for the extra guarantee
Exception: Rule of Disparity – vast disparity between contract price and damages is unforeseeable
Gordley’s Bill Gates in a Cab Hypo: Bill Gates tells United cab driver he needs to make flight
in order to close $10mil deal, cab driver takes him to Bay St. Louis instead. Cab driver is still
likely not liable for $10mil.
Uncertainty §352: damages are not recoverable for loss beyond an amount that evidence permits to be
established with reasonable certainty.
Traditional Rule – plaintiff must prove everything in order to recover (all or nothing); new businesses not likely
to recover because there is no reasonable basis on which to estimate lost profits
Kenford Co. v. Erie County: cannot recover for stadium’s future loss profits; only one comparison,
calculations based on assumptions/speculations of stadium’s success (although large amount of data)
Rational Basis Rule: there is a rational basis on which to calculate the lost profits, but still
speculative so not allowed to be recovered.
Modern Rule – plaintiff must offer evidence stronger than conjecture/speculation, damages must be measured by
known, reliable factors (statistical data allows a court to estimate)
Modern New Business Rule – plaintiff allowed to use best efforts by comparing to similar businesses
and discounting the probability of various risks occurring
Rombola v. Cosindas: compensation based on racehorse’s consistent winnings prior to
and subsequent the contract period
Contemporary Mission v. Famous Music: statistical data about record’s potential
success on billboard charts
Gordley’s Coin Flipping Hypo: flipping a coin for $20k, value to each person is $10k.
Liquidated Damages §356(1): damages for breach by either party may be liquidated in the agreement
but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the
difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of
public policy as a penalty.
(1) uncertain damages at contract, (2) uncertain damages at breach, (3) liquidated damages = reasonable
estimate
NPS, LLC v. Minihane: New England Patriots season tickets sold for 10 years, ∆ didn’t pay 2 nd year and
acceleration clause required him to pay the remaining years immediately. Liquidated damages clause
enforceable bc it is proportionally and reasonably related to actual damages.
Norwalk Door Closer Co. v. Eagle Lock and Screw Co.: liquidated damage clause in contract NOT
enforced when contract is breached IF no damage has been sustained by π
Gross Receipts Not Likely to be Reasonable Estimate (Penalty) – do not include plaintiff’s costs or taxes,
overestimating the actual damages amount; Beefy Trail, Inc. v. Beefy King Int’l, Inc.
Damage Award Discrepancy when Actual Damages are Certain at Time of Breach
Lee Oldsmobile v. Kaiden: π entitled to recover Rolls Royce deposit minus actual damages because
actual damages could be easily calculated at the time of breach
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Circuit Split on When to Determine Enforceability of Liquidated Damages Clause – half the states hold that
the enforceability of liquidated damages is to be determined at the time the contract is made, and half the states
hold that it will be determined, or also determined, at the time of breach (aka “second-look” test)
Kelly v. Marx: such a clause is enforceable if, at the time the parties signed the agreement, potential damages
were difficult to determine and the clause was a reasonable estimation of damages. This standard best meets the
parties’ expectations at the time of execution. At the time the parties signed the contract, the Marxes’ potential
damages in the event of a breach by the Kellys were difficult to predict, but the deposit, equal to five percent of
the purchase price, was a reasonable estimate. Certainly, the estimate was not grossly disproportionate to
expected damages. Further, the Marxes did not reap an undue windfall on account of their sale to the third party.
That sale is not part of the court’s analysis given the reasonableness of the liquidated-damages clause.
VS.
Hutchison v. Tompkins: liquidated damages will only be considered penalty if damages are ascertainable
at the time of the contract’s formation, as damages are nearly always ascertainable at the time of breach.
The better result is to allow the liquidated damage clause to stand if the damages are not readily
ascertainable at the time the contract is drawn, but to permit equity to relieve against the forfeiture if it
appears unconscionable in light of the circumstances existing at the time of breach.
Specific Performance §359(1): specific performance or injunction will not be ordered if damages
would be adequate to protect the expectation interest of the injured party.
Unique Item/Not Readily Available on the Market – assume a house, a painting and a piece of land are always
unique; fungible item may be unique if plaintiff can’t physically acquire it without excessive burden
London Bucket Co. v. Stewart: not entitled to ∆’s specific performance for construction contract because
π could easily hire another construction worker
Laclede Gas Co. v. Amoco Oil Co.: entitled to specific performance because it could not have made a
natural gas supply contract for the same duration as the original contract with defendant
Exception: Land Purchased for Economic Reasons –
Watkins v. Paul: π did not buy land for any “particular, unique” purpose, they only bought to resell so
specific performance not necessary
Exception: Employment Contracts: Cannot Compel a Performance Involving Personal Relations
Opera Singer Hypo: cannot force a singer to sing even if she breaks her contract and monetary damages
are an inadequate form of relief.
Employment Non-Competes: often these are tantamount to ordering specific performance, thus
in those cases not enforceable
Uncertain Damages
Walgreen Co. v. Sara Creek Property Co.: future damages are difficult/costly to calculate, especially
when they include factors like loss of customer goodwill, so sometimes injunction (aka specific
performance) is the most reasonable option
Exception: Difficult for Court to Administer
First Class Hotel Hypo
“Funny” Reliance Damages – Surrogate to Expectation
Nanosecond Rule Applies – party entitled to full expectation damages immediately after acceptance
Uncertain Expectation Damages – best estimate are expenses prior to breach, plaintiff at least expected to make
that money back
Security Stove. v. American Rys. Express Co.: carrier failed to deliver products in time for convention.
When a defendant carrier has notice of peculiar circumstances surrounding a shipment that will result in unusual
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loss to the shipper in case of delay in delivery, the carrier is responsible for the actual damages sustained by the
shipper from the carrier’s delay.
Anglia TV v. Reed: π incurred $500,000 expenses before offering ∆ lead in TV show. A nonbreaching
party can recover either lost profits or lost expenditures. If he chooses lost expenditures, he can recover those
incurred both before and after the contract was made, so long as the expenditures can reasonably be expected to
have been incurred and lost if the contract is breached.
Gordley’s Woody Allen Replacement Hypo: replacement actor should not pay damages when he quits a
movie, because company expected to recover prior expenses with Woody Allen as the lead, not him.
Woody Allen might be one responsible for damages.
Exception: Impossibility Doctrine: Woody Allen dies then not responsible for damages.
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