Consideration
CONSIDERATION Benefit/Detriment (pp. 257) = May consist of either a right, interest profit, or
BENEFIT occurring to one party, OR some forbearance, DETRIMENT, loss, or
responsibility given by the other party (HAMER v. SIDWAY)
71:Consideration Test
a.
b.
1.
Consideration = a performance OR a return promise must be bargained for
2.
A performance or return promise is bargained for if it is sought by the promisor in
exchange for his promise and is give by the promisee in exchange for that
promise
3.
Promise may consist of:
Act
Forbearance
c.
4.
Creation, modification or destruction of a legal relation
Performance or return promise may be given to promisor or some other person
by promisee or some other person
81: Limit
1. If what was bargained for does not itself induce the making of promise does not prevent
it from being consideration
2. Same w/ performance
81 is meant to limit on the Consideration Test of 71 re: how far courts will look into motive or
inducing cause of consideration in that having other motives outside the exact things bargaining
for is OK even if other party knows this, so long as both don’t know it’s a mere pretense (in
some OBVIOUS cases of consideration as mere pretense (see Fisher), that would be Nominal
Damages if the thing given as consideration has no value to the other and is purely
Requirements for Bargained for Exchange:




To constitute consideration, a performance must be bargained for
A return promise is bargained for if it is sought out by the promisor in exchange for his
promise, the promisee gives either a promise or action (detriment)
The performance may consist of:
o An act other than a promise
o A forbearance
The creation, modification or destruction of a legal relation.
Past Consideration
RULE: Ct. can make exception to rule (that there must be opportunity to bargain) in situations
where it’s not practical to bargain i.e. life saving measures, emergencies AND some material
benefit was received to the promisor (WEBB)
Reliance = measured by putting the party in the position they were in before they entered
into the contract.
Statute of Frauds: Requires the following contracts be in writing





Consideration of Marriage (pre-nups)
Cannot be performed in a year.
Transfers of land (leases don’t count)
Executor or estate
Sale of goods over $500

Surety
*Exceptions to the Statute of Frauds: Part Performance & Promissory Estoppel
Gifts as Consideration

RULE: A MERE GRATUITOUS PROMISE ≠ consideration to make enforceable
(Kirksey)
Promissory Estoppel
PE Analysis:
Promise was made very clear (though does not have to be as clear as that in contract)
o Manifestation of Commitment, not just present intention (PRESCOTT)
2. It could be reasonably expected that it would induce her reliance (not looking for other
employment)
o Objective
3. It did induce her reliance
o Resulting in substantial, measurable economic harm
4. Justice could only be achieved by allowing her to recover
= Damages leaning towards Reliance interest (you know $ amount) vs Expectation (predict $
amount)
1.
Mutual Assent (M.o.M)
RULE: When there is a dispute over ambiguity of language, parties’ intent does not matter, only
their objective manifestation (Raffles)
Mistake:
 Mutual Mistake + no party knew or had reason to know of each other’s mistakes =
void contract
 If one party knows or has reason to know of other’s mistake and does not clarify =
can’t claim mistake / terms go by other party’s definition
Offer/Acceptance
MAILBOX RULE:




RAAR = contract: Rejection sent, Acceptance Sent, Acceptance Received, Rejection
Received.
RARA = no contract: Rejection sent, Acceptance Sent, Rejection Received,
Acceptance Received
ARAR = contract: Acceptance sent, Rejection sent, Acceptance received, Rejection
received
ARRA = technically contract, but if offeror can no longer perform b/c they relied
on the 1st rejection received (e.g. sold goods etc.) can claim Promissory Estoppel
= won’t be responsible to perform
o
Morrison
Restatement 2 §63 (pp.371): TIME WHEN ACCEPTANCE TAKES EFFECT
o Unless the offer provides otherwise,
§ (a) an acceptance made in a manner and by a medium invited by an
offer is operative and completes the manifestation of mutual assent as
soon as put out of the offeree's possession, without regard to whether it
ever reaches the offeror; but
§ (b) an acceptance under an option contract is not operative until
received by the offeror.
Exception=
Restatement 2 §40 (pp.370): Offeree sends Rejection, then Acceptance, depends on
whichever arrives first



Options contracts are an exception because they are non-revocable so offeree
better allocates risk.
Counter offer = rejection of original offer
Common law* Mirror Image Rule (differing terms on essential elements) = no
contract
*HOW DOES AD BECOME OFFER?




- Advertisements are not usually offers for contracts because it doesn’t vest power of
acceptance in a particular person.
o Doesn’t specify a quantity
o Doesn’t specify a person and vest the power to accept. (Courts everyone)
§ A million ppl can’t come into a store and accept offer for shoes.
- The Carbolic Smokeball ad readily infers a quantity and the power to accept




COMMON LAW: If specified by name, or by deed (“first 4 people who come”) =
they enjoy power of acceptance = UNILATERAL CONTRACT
UNILATERAL CONTRACT = a contract is formed when an act is performance
by one party based on belief other party will fulfill some promise upon their
performance
BILATERAL CONTRACT = Promise made for another promise
OPTION CONTRACT = Offeror gives up right to revoke offer for a time (pretense
of consideration)/other party gives their consideration by paying for that (deposit)
or some performance or forbearance
 UCC eliminated need for consideration in firm offers between merchants

(MOULTON) RULE: Ad must specify party they are extending an offer to = legal offer

COBAUGH (hole in one sign): outward manifestation of offer (sign) was unambiguous,
so does not matter offeror’s subjective intent, OFFEROR responsible for the reasonable
understanding of offer
UNILATERAL CONTRACT = ACCEPT BY PERFORM
When can offeror revoke Unilateral Contract?
- Tender (Petterson) willingness and ability to perform
Restatement 2d §45 (2) (pp.387): Offeror’s duty under an option contract is conditional on
completion or tender of the invited performance in accordance with terms of the offer.
Preparation FOR Performance
Even if needed to perform = not suff
Preparation TO Perform
The act of performance begun = suff.
Unilateral contract: walk across the Brooklyn bridge and I will pay you $100 bucks, Offeror
shouts out 3 feet before end of bridge “I revoke”

Once consideration starts, most courts won’t accept the stopping of it, but offeree can
choose to give up walking
Option Contract = Offeror Give up right to revoke offer for a time

Alternative: Pretense of Consideration = don’t have to make irrevocable and
other give deposit
 If no term est., no longer than 3 months
Contractor/Subcontractor Quotes as Offers + Bids as Acceptance
I.
James Baird Co v. Gimbel Bros: Contractor/Vendor, Bids *MINORITY*
Def sub contractor received offer, made incorrect calculation + sent wrong $
number by ½ to PL → PL receives, factors Def’s # into bid, submits to Gov →
Def realizes mistake and calls revoking offer → PL awarded bid → Def refuses to
give services at incorrect price → PL sues




Was Def’s offer revocable? Or option?
o Def’s offer was revocable b/c it was made on a condition
“acceptance of bid” that PL had yet to fulfill @ time of revoking
Did Def revoke before acceptance = acceptance not just meeting
conditions, but notifying of acceptance too
o Yes, PL did not accept by submitting a bid w/ Def’s numbers, they
would’ve accepted upon 1. Getting bid and 2. notifying Def
Can PL claim part performance?
o No, submitting master bid might be prep to perform, but not
performance
Can PL claim promissory estoppel?
o No, there was no promise yet, b/c PL had not given consideration
yet:
= Ct rules for Def b/c initial communication was offer, but on condition “upon
acceptance of bid”, so still had power to revoke; not an option contract; not a
RULE: A general contractor cannot enforce a bid made by a subcontractor as a
bilateral contract when:

The general contractor is under no obligation to use the subcontractor’s
bid if awarded the job so it puts the subcontractor at a disadvantage in the
bargaining process.



§ Not really an option
and the general contractor did not accept the subcontractor’s bid before it
was revoked.
A general contractor is also unable to enforce the subcontractor’s bid
based on promissory estoppel when there is no consideration
Restatement of Contracts § 87 Option Contract: Narrow exception to normal rules of
consideration rarely used and only in the case of merchants.
II.
Drennan v. Star Paving: Gen/SubContract/Bids, Option Contract *MAJORITY*
Def Sub Contractor gave wrong # for quote $7K; PL submitted bid based on #,
awarded bid, PL goes to tell Def that they won bid, D tells them mistake with $,
PL got another paving co for 10k
= Ct ruled for PL on basis there was no contract (similar to Braid, b/c Def revoked
before PL accepted), no option contract (no consideration b/c PL did not HAVE to
use D’s bid) but PE (PL detrimentally relied on Def’s promise)

Different from Gimbel Bros. – “After the contract has been awarded” so did not
know the contractor would rely on this.
o Paving Co. No such language and custom dictated this was how it was
done. (paving co should know as part of industry for long time)
RULE/CHEN LAW *MAJORITY* = § 45 if part of the requested performance is given to the
offeror in a unilateral contract, the offeror won’t revoke his offer, and if tendered, it will be
accepted. = Implied Subsidiary Promise to Not Withdraw (also supported by industry standard
“Def should’ve known” they’d use quote in bid and, if won, would need them to honor
quote)/Combined with §90 where acting in reliance sometimes makes the promise binding.
Preliminary Agreements
Question #1: Did Parties intend to be presently bound by this preliminary
agreement?



Look at LANGUAGE and ACTIONS of parties during negotiation (term
sheet, preliminary agreements, joint press conference)
If yes = Objective manifestation of intent = type 1 or 2 depending how many
terms
If no = subjective interpretation of 1 party = likely non-binding
Type I vs. Type II
1. LANGUAGE used by parties conveys intention to be bound
2. Immediate PART PERFORMANCE- conveys intention to be bound
3. HOW MANY ESSENTIAL TERMS left open
Whether transaction was of size/complexity on would expect written official doc
SILENCE AS ACCEPTANCE
General rule: silence does not imply acceptance, most especially by a stranger,
Hobbs Rule/Exception: UNLESS the seller has a reason to believe buyer will accept (previous
relationship included)

Allowed to throw out goods and not respond if stranger sends you something. BUT w/
exceptions (in Hobbs there was reason to believe there was acceptance = Prior
relationship)
Restatement 2d § 69. Acceptance By Silence Or Exercise Of Dominion
1. Where an offeree fails to reply to an offer, his silence and inaction operate as an
acceptance in the following cases only:
a.
Offeree takes the benefit of offered services with a reasonable chance to reject
them & reason to know that they were offered with the expectation of compensation.
b.
Offeror has stated or given the offeree reason to understand that assent may be
manifested by silence or inaction, and the offeree in remaining silent and inactive intends to
accept
Where because of previous dealings or otherwise, it is reasonable that the offeree should
notify the offeror if he does not intend to accept.

Rule: In order to construe an implied contract from a course of conduct between two parties, an
intention to pay on the part of the alleged promisee must be reasonably inferable.

As a general rule, volunteers don’t recovery under this doctrine
Express contract : UCC 2-207(1)
o Overt bargain and acceptance
 Writing, battle of the forms
Contract Implied in Fact: UCC 2-207 (3)
o Contracts in Fact
 Inferred by actions, not verbalized or written

Surrounding facts and circumstances, understood terms, common
knowledge.
Order at a bar, “What’ll ya have?” = Can’t expect it’s for free
Mutuality of Obligation


1. If there is implied standard of good faith promise, something needs to be
pointed to as their outward manifestation of intent (objectively) to be bound
that supports that
2. Cannot be too illusory
 If no risk by one party
 Option/Alt to not perform at all
3. Terms need to be reasonably certain
Restatement 2d §77. Illusory and Alternative Promises = A promise w/ alternatives
is only consideration if all of the alts = consideration or the one they will likely be
left with = consideration
Restatement Second of Contracts § 33: Certainty (offer req. Terms to be
“reasonably certain”
DAMAGES
UCC REMEDIES: Non-Performance
Type of
Remedy
Buyer Breach
Seller Remedies
Seller Breach
Buyer Remedies
*Cant get Consequential
Self-Help
UCC 2-706
“Resale”
1. Allow commercially reasonable
resale in good faith (protected
by law)
2. Seller can collect price diff
between resale price - contract
price together + incidental
damages (2-710)
If resale price higher, no
resale damages
Market
Damages
UCC 2-708
“Market Price/Contract Price/Diff
or Lost Profit”:
UCC 2-712:
“Cover” = Substitute
1. Allow Buyer to seek
commercially reasonable
cover made in good faith
w/out unreasonable
delay Contract price
2. Buyer may recover diff
between contract price and
cover + consequential +
incidental damages (as
described in Sec 2-715)
a. If cover price lower
that contract price,
no cover damages
UCC 2-713
“Market Price/Contract Price
Difference”: (Alternative)
1. Allows measure of market value
1. Allows to measure diff
diff between “at time/place of
between contract price tender” - unpaid contract price =
market value from time nonX+incidentals
breaching party “learns of
2. Allows measure of profit had
breach” + incidental +
buyer performed + Incidentals:
consequential damages
o If damages are
a. If market price lower
inadequate to put seller
than contract price,
in good position, seller
no marked price diff
gets profit (including
damages
reasonable overhead)
2. Majority: when nonseller would’ve made
breaching party informed of
from full performance
breach
o Lost Volume Seller = If
Vs
you have a ready supply
Minority: time and place of
then difference in
would-be performance
market price might not
be adequate to give diff Cosden Oil
in market price.
o + incidental damages
(Sec. 2-710)
Specific
Performance
UCC §2-709
“Action for Price”:
1. When buyer fails to pay for
goods, if seller is UNABLE
after reasonable effort to
resell goods at reasonable
price = seller recover FULL
PURCHASE PRICE OF
GOODS
2. Or if goods still under seller’s
control he can force the
exchange of goods for
contract $
UCC §2-716
“Replevin” = Specific
Performance
1. Specific Performance
decreed for when goods
are
a. Unique OR
b. Other proper
circumstances
2. + other price/ damages
Foxco industries v fabric world
Seller Breach / Buyer Incidental + Consequential Damages: § 2-715. Buyer's
Incidental and Consequential Damages.
(1expenses reasonably incurred in inspection, receipt, transportation and care and custody of
goods rightfully rejected, any commercially reasonable charges, expenses or commissions in
connection with effecting cover and any other reasonable expense incident to the delay or other
breach.(2) Consequential damages resulting from the seller'sbreach include
 (a) any loss resulting from general or particular requirements and needs of which the
seller at the time of contracting had reason to know and which could not reasonably be
prevented by cover or otherwise; and
 (b) injury to person or property proximately resulting from any breach of warranty.
Buyer Breach / Seller's Incidental Damages: 2-710: a buyer's expenses
reasonably incurred in caring for goods after a seller's breach of contract.
Seller Breach
UCC Sec. 2-710: a buyer's expenses reasonably incurred in caring for goods after a seller's
breach of contract.
2-715 Buyer’s Incidental and Consequential Damages: any loss resulting from seller breach
that seller at time of contracting had reason to know and which could not be prevented by
cover or otherwise
Buyer Breach
Liquidated Damages 2-718: If seller justifiably withholds delivery of goods, buyer still entitled
to 20% of value of total performance not received or $500 whichever is less offset by seller’s
proof of keeping said deposit for their recovery
Restatement Second of Contracts § 347 Measure of Damages in General
The injured party has a right to damages based on his expectation interest as measured by
 the loss in the value to him of the other party's performance caused by its failure or
deficiency + incidental or consequential loss, caused by the breach - any cost or other
loss that he has avoided by not having to perform.
Restatement 2 § 348 (2)
o (1)(a) provides that for “defective and unfinished construction” the aggrieved
party can get judgment either for:
§ (i) diminution in the market price of the property
§ Or (ii) the reasonable cost of completing performance or of remedying
the defects if that cost is not clearly disproportionate to the probable loss
of value to him. (Value to him = expectations)
 2d Restatement gets rid of economic waste language. Puts burden on
breaching party
NEW RS 347+348 = No longer says “economic waste”, now says “diminution in the market price
of property” OR “reasonable cost of completing performance or of remedying the deficits if
that cost is disproportionate to the probable loss in value to him”
o Peavyhouse = reward non-breaching party w/ diminution of market value IF
purely economic value so disproportionality btwn very low diminution in value to
property vs very high cost of completion
o Landis = reward non-breaching party w/ cost of completion IF
aesthetic/personal value to the non-breacher, even if only small diminution of
value
 EXCEPTION (Pinches): Personal value (church) BUT completion
for specs as contracted for impractical / non-breachers still
use/enjoy somewhat + breachers performed in good faith = reward
BREACHER $ RESTITUTION = CONTRACT – LOSS OF
VALUE
RELIANCE RULES:
Damages awarded for losses suffered in reasonable reliance on a
promise. Reliance damages are calculated by asking what it would take to
restore the injured party to the economic position occupied before the party
acted in reasonable reliance on the promise. Reliance damages may be
awarded after a breach of contract or by way of promissory estoppel
1. Usually cannot get pre-contractual Reliance Expenses (Dempsey)
2. Reliance is capped at total expectancy damages
3. Breaching party must show to a reasonable degree of certainty no economic gain was to
be had by non-breaching party/losing deal
Limits of Expectancy Damages:
1. Avoidability = Ability to Mitigate (Parker)
 Non-breaching party has a duty to mitigate damages if replacement
opportunity is not different, or inferior work AND, if of aesthetic value to
non-breaching party, is up to their personal standards
2. Foreseeability = Damages Foreseeable (Hadley=Breacher must have foreseen at time
of contract + naturally occur )
3. Certainty = Dollar Amount is Reasonably Ascertainable to Court (MindGames)
 If not reasonable degree of certainty, Ct will under-compensate vs.
overcompensate
Restitution = Measured only by benefit to breaching party that it would be wrong to allow
them to keep / Does not rely on enforceable contract
 Restitution only factors in money received by breaching party for their
benefit; does not factor in loss avoided by breach
 Quantum meruit - a reasonable sum of money to be paid for services
rendered or work done when the amount due is not stipulated in a legally
enforceable contract.
-
Restitution for Breacher:
 Restitution damages are an available remedy for non-breaching
party in a breach-of-contract claim if the breaching party engaged in an
opportunistic and profitable breach only if three specific conditions
exist:
1. The breach was deliberate = conscious opportunistic calculation
(not just efficient breach)
2. The breaching party’s profit was greater than the injured
party’s loss, and
3. The regular contract remedy is inadequate to protect the injured
party’s contractual entitlement
SPEICIFC PERFORMANCE = ordered when irreparable injury by reason of the breaches
of the contracts is the inability to procure at any price, at the time needed, and of the
quality needed (Reed Foundation)

Will not order SP when ct need to oversee to enforce = impractical (Fitzpatrick)

UCC 2-716: “specific performance may be ordered where goods are
unique”
LIQUIDATED DAMAGES PROVISION
VALID
At the time of contract formation,
1. Was NOT intent of parties to deter or
punish
2. Actual loss difficult to calculate
3. The $ amount of damages in the LDP
was a reasonable forecast of the sum
of damages of the probable loss
AND/OR the loss actually occurred
(proportionate)
= Breacher Cannot Collect Restitution for
Returned LDP
INVALID
1. LDP formed as a penalty = Breacher
shows $ amount disproportionate to
the actual damages the breach
caused the non-breaching party
= Breacher Can Claim Restitution for
Returned LDP
EXCUSES FOR NON-PERFORM
1. Mistake (sherwood/barren cow) neither party in a superior position of knowledge
 Mistake due to CONSCIOUS IGNORANCE ≠ Mistake Defense
2. Frustration of Purpose (Krell- coronation)
3. Impossibility (taylor/caldwell- burned down)
= Variations of same thing - Basic assumption underlying the contract fails, how will
court allocate risk
 If one party was superior risk allocator, that party would probably be unable to
invoke any doctrines
 If parties in equal ability or inability to predict, then doctrine could be successfully
invoked