CONTRACTS OUTLINE:
Under traditional, common law a promise is not legally enforceable unless you show that the
particular promise fits w/in a particular writ (one had to pursue a specific avenue of writ=
avenue of recovery).
*No writ, no right, no recovery (=with no writ there is no legal right for recovery)
*Remedies for Breach of Contract:
1. Restitution Interest = the party’s interest in recovering values conferred on the other
party through efforts to perform a contract (intended to prevent the undue enrichment of
the promisor)
2. Reliance Interest = party’s interest in recovering losses suffered by virtue of reliance on
the contract, regardless if the other party obtained a corresponding gain (intended to put
the promisee in the same position he was in before the promise was made) [reliance
damages often leads to same recovery as expectation damages!!!]
3. Expectancy Interest = party’s interest in realizing the value of the expectancy that was
created by the other party’s promise (intended to make promisee indifferent to either
breach or performance)
*Non-breaching Party often has a choice of remedies due to the breach:
1. Damages- remedy most frequently used, generally most important, Types of damages=
a. Compensatory- injured party should be placed in the same position as if the
contract had been properly performed, designed to give P the benefit of his
bargain.
b. Punitive- NOT RECOVERALBE in breach of contract claims
c. Nominal- any breach entitles the injured party to at least nominal damages, even
if no actual loss can be proved (thus no compensatory damages)
d. Consequential- in addition to std damages, breaching party also liable for all
losses resulting from his breach that the parties could have reasonably foreseen at
the time the contract was made as likely to result from breach
e. Specific Performance- when damages are not adequate, equity may allow
specific enforcement of the contract
f. Rescission & Restitution- when the breach constitutes a failure of the
consideration bargained for, non-breaching party can choose to rescind/annul the
contract, sue for judicial declaration thereof and restitution of whatever benefits
were conferred there under.
2. Tort Action- improper performance (or nonperformance) may create a tort cause of
action in favor of injured party where a risk of harm to the person or property of others is
reasonably foreseeable in connection with the performance of the contract
3. Election of Remedies- P has to elect which remedies he desires as sometimes the
remedies can conflict in legal effect (cancel the contract by rescission v. enforce through
specific performance)
I. EXPECTATION DAMAGES PRINCIPLE: Damages are measured by the amount of money
it takes to make you indifferent to whether I perform or not; it has to be enough money to put you
in the same position you would have been in if I had performed, but it is no more that that
[Holmes]
1. What did I promise to deliver? How much is that worth? [promisor internalizes cost of
breach]
2. E.D.P. requires that we take into account the Subjective Value of the land
3. In Groves and Peevyhouse, we see that:
a. Subjective Value = Ceiling on recovery; Diminution in Value= Floor
4. In the absence of subjective value [Groves], the diminution in value is a good way to
measure damages!
*KEY CASES= Contracts for Medical Services:
1. Hawkins v. McGee, Supreme Court of New Hampshire, 1929—Def operated on P’s hand
by grafting skin; Def said “I will guarantee to make the hand 100% perfect or a 100% good
hand.” Operation failed and P’s hand was left deformed and useless. Ct held that Def/Dr. made
enforceable promise that was considered breach b/c surgery failed.
THE
 Ct upheld EDP: P’s Damages = diff btwn value of perfect hand (as Def promised)
and value of his hand in its present state.
 Dr fees and P&S not recoverable [b/c they’re consequential to any surgery; part of
consideration]
 Patient is entitled to ED when Dr. Promises specific/certain result that fails to occur!
*Building and Construction Contracts— Measure of damages for breach of construction
contract hinges largely on which party breaches and at what stage the brdemeach occurs—
1. Owner breaches= builder can always recover at least the lost profits.
a. At outset--Builder recovers only the prospective profits.
b. After part performance—Builder recovers profits + expenditures from part
performance
c. After full performance—Builder can sue to recover full contract price!
2. Builder breaches= owner can recover cost of completion [amt extra it costs here above the
CP to finish the job + reasonable compensation for any performance delay]
a. After substantial performance- courts generally apply the cost of completion test,
i. But, Not if this would lead to substantial economic waste!
b. When breach is simply late performance- owner can recover damages for loss of use
of prop; measured by loss of sale value or reasonable rental value of prop
3. Rstmt § 346(1)(a) = For defective/unfinished construction, aggrieved party can get judgment
for:
a. Reasonable cost of construction & completion (if possible and no unreasonable
economic waste); OR
b. If CC leads to unreasonable economic waste, then recovery=
i. Value of Product as contracted for - Value of perform. already been
received by P
4. Groves v. John Wunder Co. [Cost of completion for builder breach]-Def promised to
remove sand/gravel and leave land at uniform grade; Def deliberately breached—is the
$60,000 cost to complete the contract the proper damages measure even if the diminution
value in the value of land is only $12,000?—Yes, Ct awards P the $60,000 CC [BUT in ED
world, should award P $12,000]
a. Damages?= Diminished Value (12,000) v. Cost of Completion (60,000)
b. Cost of completion= the proper measure of damages unless leads to unreasonable
economic waste; Consistent w/the EDP b/c gives what was promised! [Damages=
Mkt Val does same]
c. If CC is less than Mkt Val—should favor CC [CC< MV—go w/CC]
d. If CC is greater than Mkt Val [CC>MV] which do we favor?
i. Promised a particular end result, thus need amt of $ that enables you to get to
same place.
ii. NOTE- that subjective value= recovery ceiling; Diminution in Val of land =
floor!
e. Nothing in the EDP requires that you receive enough $ get there more, rather than
less expensively!!
f. Fungible Goods: Take lower of cost to repair or Mkt Val!!!
i. NOTE- Land not fungible; valuation is tricky b/c land is unique and likely
that one person will value a piece of land more than the market.
5. Case: Peevyhouse v. Garland Coal & Mining Co, Okla. 1962—Ct held that P entitled to
ED when the Mining Co./Def breached promise to restore their land; Held the proper measure
was the $300 diff btwn value of land if restored and value of land in its un-restored state
(NOT the $29,000 CC).
a. Re: Recovery: Ct upheld land value diff NOT cost to restore!
b. Valuation is hard here b/c the Subjective Val (proper benchmark) to P is higher than
the Mkt Val but less than CC—under EDP the CC and Mkt Val ID upper and lower
recovery bounds.
6. Peevyhouse Case v. Groves Case: Peevyhouse fundamentally differs from Groves in that, as
lawyers you were supposed to put a Val on prop had it been restored from perspective of
owner (i.e. Subjective Val to Groves and Peevyhouse)—thus, a jury would place greater
value for Peevyhouse because they still live on the farm, while in Groves it was a gravel pit,
thus no subjective value.
a. Garland breached b/c of Unexpected Changes [flooding, not as much coal available,
etc. caused a dramatic increase in the cost to perform for Def].
i. Issue = can one recover for cost to repair if Breach due to unexpected
conditions?
b. In Peevyhouse, Def/Garland could’ve foreseen that in the business of strip-mining
the process could cause these pits; change NOT foreseeable in Groves (economy—
drop in gravel value)
c. Info Enforcing—can assert that if one side has a lot of info, that info needs to be
disclosed so other party can internalize the implications of the info [i.e. Coal Co.
more likely to know that it may not make sense to restore the land after the fact]
i. EDP forces breaching party to internalize costs of breach, but in some
cases we want to the damage remedy to do other things—i.e. in
Peevyhouse the damage remedy forces one party to disclose info to the
other!
7. Subjective Value= the true value they put on the land, is a question of fact for jury; lawyers
instruct them to take into account the above factors (ceiling= CC; floor = Mkt Val) but jury
makes decision!
II. EDP & Contract-Market Differential:

Contracts for Sale of Goods= Std damage measure for breach of sale of goods is [= CPMkt Price] for goods at the time and place where the goods were to be delivered,
regardless if it’s seller or buyer who commits breach. UCC 2-708
 BUT, NO Damages if Contract price exceeds Mkt price at delivery!!!
1. Case- Acme Mills & Elevator Co. v. Johnson, KY Ct App. 1911-P/Acme contracted to
buy 2,000 bushels of (any type of) wheat from Def for $1.03 per bushel; to be delivered when
threshed. Def didn’t deliver, sold to 2nd buyer for $1.06 per bushel [thus, Def had contracted
at the CP—Sold to 2nd buyer at July 16th price—Finished threshing when Mkt Val was at
much lower July 25th price. P files complaint for $240 damages, $80 for sacks he furnished to
Def.
a. Buyer cannot collect damages for a breach of contract when the contract price (paid
by P) exceeds the market price on the day of delivery [Damages= MP-CP]
b. Ct Held Damages= $80 (sacks/incidental exps) b/c the sale at a higher price during
time btwn contract date & delivery date is of no consequence to P b/c Def didn’t try
to delay threshing
i. On date of delivery—CP > Mkt Val—thus, P was benefited by Breach; No
damages awarded!
c. Ct interpretation assumes the contract means: “I promise to deliver 2,000 bushels of
any type of No.2 merchantable wheat on July 25th (the date which def claims he
finished threshing his wheat after)—thus to apply EDP, have to classify as irrelevant
the fact that the Def is benefited by his breach as he is able to sell his wheat at a
higher price***
d. Posner rejects Holmes: don’t want to give incentives to breach duty for more
desired event!
*Contract Remedies—Land Sale Contracts:
2. General View: Most Cts use same measure as for Sale of Goods Contracts; non-breacher
recovers:
a. Damages = diff btwn Contract Price and fair Mkt Val of land [CP- Mkt Value]
3. Measure of Damages for Non-delivery Must Reflect Actual Loss:
a. Std. measure for failure to deliver under Sale of Goods Contract, Retail Price, only
appropriate if it accurately measure the injury to buyer (See, Illinois Central)
b. If buyer is a wholesale purchaser who suffered no actual loss from non-delivery, then
the wholesale price NOT Mkt price is right measure (thus limits Def’s liability)
c. Damages NOT ALLOWED When No Actual Loss! [Louise Caroline case]
4. Laurin v. DeCarolis Co., Mass. 1977- P purchased a wooded lot from Def who was building
house there; prior to closing Def removed gravel from prop w/out P’s consent; P sued Def—
Trial Ct awarded P $6,480 [Mkt Val of gravel removed]—App. Ct Aff’d (tort theory of
conversion).
a. If Deliberate/Willful Breach: Damages = Fair Mkt Val of the removal from the
prop!
i. Recovery Should NOT include value added of Def’s Labor
b. Held: this is a claim for willful/deliberate breach NOT tort conversion action;
i. Damages limited to Diminution in Value of land can be grossly
inadequate!
c. Case remanded to re-determine damages b/c Trial Ct est. Val of gravel as loaded on
trucks rather than Value as it lay in the land
5. Case- Louise Caroline Nursing Home v. Dix Construction Corp., Mass. 1972—No
recovery if No actual loss—Def contracted to build nursing home for P and then failed to
build it in timely manner and breached contract.
a. Ct held No Recovery for P b/c No actual loss—CC was w/in the balance of CP not
yet paid [i.e. cost to use new contractor is w/in (CP- Amt P already Paid Def)]
b. Rule= Cost of completion is proper measure of damages = reasonable cost of
completing the contract and repairing D’s defective performance less part of CP not
yet paid.
i. Any “benefits of bargain” are maintained as long as construction can be
completed at a cost w/in the CP.
c. P claims; damages should = diff btwn value of the building as left by D and the Val if
fully performed [But that’s measure for defective perform, this is an abandoned
performance]
d. Baird Hypo: Def promised to build P a nursing home (legally enforceable?) for
$10,000, then def decides to breach and P has already paid him $5,000. What is P’s
recovery that will put P in the same position had the nursing home been built as
contracted for? Possible remedies:
i.
$2,000 (this is the value of a hard bid from a general contractor to complete
it)
ii. $9,000 (According to appraisers, had the nursing home been finished
according to plans it would be worth $10,000, but an appraisal of the home
in its current/unfinished condition is $1,000)
iii. NO Damages- b/c $2,000 would be the cost to complete with a new
contractor but to complete under the original contract P would’ve had to
pay an additional $5,000.
iv. We know that the $2,000 value is a sure way to compensate P for the job
he contracted for; therefore, we can conclude that option #2 is not as
good b/c #1 is available (option #2 is NOT conceptually wrong, rather #1
is more accurate)
6. Case- Illinois Central R.R. v. Crail, (U.S. 1930)- P/Coal dealer filed suit v. Def/carrier for
an unexplained shortage of 5,500 lbs in the 88,000 lb coal delivery. P had purchased the coal
in transit and was planning on adding the coal to its inventory; No resale contract (for P’s
business) was affected; at time of breach coal cost $5.50 (wholesale) or $9.70 per ton (retail).
P customarily bought coal at wholesale price but claimed damages at higher retail price.
a. Supreme Ct rejects P’s measure of damages, held that Wholesale Mkt price is
proper measure for P’s actual loss; this is based on the fact that “market value is at
best a convenient means of getting at the loss suffered but it may be discarded and
other more accurate means resorted to if they’re more applicable.”
b. In this case the wholesale price is more accurate because the basic principle
underlying common law remedies it that they shall afford only compensation for the
injury suffered…and P’s loss is capable of and was actually replaced through
purchases made at the wholesale market price***
7. *Limitations on EDP Under the U.C.C.
a. Buyer’s damages for cover under installment contract=
i. Traditional Measure- for failure to deliver on installment, recovery is the
amount by which the Mkt Price at time and place of delivery exceeds the
Contract price
 Damages= Mkt Val- CP differential on several delivery dates
ii. UCC § 2-712: allows buyer to recover for reasonable “cover costs” at the
time of breach, irrespective of the market price on the separate delivery
dates under an installment contract.
8. Case- Missouri Furnace Co v. Cochran, 1881- P contracted with Cochran/Def for the
purchase of 36,621 tons of coke at $1.20 per ton, to be delivered at the rate of 117 tons on
each working day during the year 1880. Def discontinued delivery on Feb 13th and P made a
new contract with Hutchinson to cover his needs for the rest of the year at $4/ton (= current
Mkt price of a forward contract)—then Mkt Val drops significantly prior to end of original
contract w/Def—P sues to recover diff btwn original CP (1.20 per ton) and the $4 price he
had paid.
a. Trial Ct refuses P’s measure of damages and awards P approx. $22,000, which is far
less than the excess he actually paid over the original contract price. Judgment
Affirmed.
b. If Seller Breaches: Buyer cannot recover damages based on increased cost of
Substitute Installment contract—Buyer can only recover excess of Mkt Val over
the original CP (not new, substitute CP)***
c. If delivery is made by installments, the measure of damages will be determined by
the market value at the time each delivery should have been made
i.
This rule places an unreasonable burden on an innocent buyer—Today,
UCC 2-712 allows a buyer to recover for reasonable cover in such
circumstances.
d. *Baird asserts that the Ct was wrong in Missouri Furnace!!! Once est. Seller
breached, 2 options to measure damages for Buyer=
i. 1) Original CP- Substitute CP
ii. 2) CP- Spot price on installments (OR zero, whichever is greater!)
e. Which option do we prefer?
i. Not always forward Mkt w/a Seller willing/able to enter into substitute
contract w/you—but it’s certain that there will be a spot price on that
day—thus #2 more certain, BUT…
ii. Option #2 is systematically too high! We may have to use this option but it
is conceptually wrong! [a forward contract seller absorbs most of the
benefits—thus option #2 truncates the downside of forward contract for
buyer and awards damages that are over-compensatory for buyer
f. Baird: Ct was Wrong in Missouri Furnace—nothing speculative about the cover
contract b/c it does put buyer in position they would’ve been in had seller not
breached***
i. Thus, w/futures contracts available—Option #1 is conceptually right [but if
no futures contract available, then Option #2 is acceptable!]
*Duty of Non-repudiating party to Mitigate Damages- even though the repudiate has right to
bring an immediate action, there is no requirement to do so. But the problem is if he delays,
should he be entitled to damages incurred between the date of repudiation and the dates set for
performance.
 Majority View- the repudiate owes duty to mitigate damages from the repudiation
and if fail to do so, then not entitled to recover such damages that he could have
avoided.
 *Seller’s right to recovery for buyer’s refusal to purchase under contract for sale of
goods:
o UCC 2-706 = Right to Resell= if buyers breach, Seller has right to sell goods
in a reasonable manner [Recovery = CP- Resale Price; not just diff btwn PMkt Val]
o UCC 2-708 = If seller doesn’t resell then she is limited to the contractmarket price differential at time and place of delivery; and if seller does
resell she is not accountable to the buyer for any profit made on the resale.
 UCC 2-709= Action for full price; seller unable to resell- when buyer refused to
by the contracted for goods & seller cannot resell thru reasonable efforts, then Seller
recovers full Contract Price!
9. Neri v. Retail Marine Corp., NY Ct of App. 1972- P/Neri contracts to buy boat from Def
for $12,500 and makes down-pmt of $4,250; P was hospitalized and six days after contract
date, rescinded contract w/Def who had just received the boat from Manuf. Def declined to
refund P’s deposit. P filed claim to recover down-pmt; Def counterclaimed for lost profits
(b/c had P not rescinded, Def would’ve sold 2 boats). [Trial Ct denies claim for lost profits
and incidental damages, awarded P restitution in amt of deposit less the $500 amt awarded to
Def for P’s breach of contract]
a. UCC 2-718 (2b): Trial Ct had awarded Def $500 under this 2-718(2b)—asserts $500
adequate provision to place seller in as good a position as performance would have.
b. Ct of App Reversed—a breaching P/buyer still entitled to restitution less Def’s
recovery:
i. Def’s Recovery= lost profits + incidental damages = $3,250
ii. P’s Recovery= restitution of his down-pmt - Def’s recovery
c. UCC 2-708- std measure of buyer repudiation = excess of CP over Mkt price,
but if this value is inadequate to put seller in as good position as full
performance would have, than the measure of damages is lost profit plus
incidental damages.
d. Re: Def’s Lost profit claim= would’ve sold 2 boats had P not breached; BUT Ct
notes this only the case where seller has unlimited supply of std. goods!
e. UCC § 2-706 = Lost Volume Seller Exception: w/one seller with one item—NOT
deprived of lost profit when buyer breaches—thus recover only incidental costs of
finding new buyer (1:1)---BUT if it’s a seller with numerous items there is a lost
profits! [Neri falls in middle]
f. Baird-the absolute Maximum that Seller can recover here is $2,000 ($12,000 Retail
sales price to Neri – the $10,000 wholesale cost for the retailer).
i. B/c of Buyer’s breach, seller saved cost to maintain/sell boat—Thus
expenses associated w/selling boat must be accounted for in seller’s
recovery which is capped at $2,000. .
g. Thus, the Wholesale-retail diff. is more than lost profits, it serves as good proxy for
incidental expenses/costs to find new buyer!!!
10. Case- Freund v. Washington Square Press, Ct of App NY, 1974- P/Freund was an author
who entered into publishing contract with Def. In contract, P granted exclusive rights to def
to publish and sell his book and def agreed to pay a $2000 advance upon receipt of the
manuscript and if def deemed the manuscript not suitable for publication def could terminate
the agreement by giving notice within 60 days. Def fails to exercise its 60-day right to
terminate, but refuses the publish P’s manuscript.
a. Damages for Non-breaching party cannot be calculated according to money saved
by the defaulting party!
b. Cost of publication NOT appropriate measure b/c would allow P recovery greater
than what contract would have entitled P to, placing him in far better position then
full performance would have (thus nominal damages only!); Ct finds that P’s
expectancy interest in the royalties are clearly speculative, thus not awarded.
c. Money damages are substitutional relief to put injured party in as good a position
without overcharging def for harms he had no sufficient reason to foresee.
d. Baird—if the value to the author is simply having a published book on the
bookshelves then the cost of getting the author there would be the cost of publishing?
But this is not proper measure of damages b/c:
i. Baird Hypo= he wants to get rid of his old car and buyer agrees to pay
$100 for it and then breaches; Baird finds 2nd buyer who he has to pay $200
to take the car!
 Thus, CP-Mkt differential = (100- (-200) = $300 [negative royalty]
11. Case- Fera v. Village Plaza, 1976- Fera/P signed 10-yr lease new shop in Def’s shopping
center (for $1000 min monthly rent). Def gave P’s spot to another tenant and offered P an
alternative spot, P refused. Trial Ct awarded P $200,000 damages for lost profits due to
breach—App Ct reversed. Ct here reinstates lost profit award.
a. Where injury to some degree is found, we do not preclude recovery for lack of
precise proof; especially where it is the Def’s own act or neglect that caused the
imprecision.
b. Baird—just b/c lost profits speculative and hard to measure does NOT mean you
presume them to be zero!!!
c. Must consider if owner can open another store in a new location—thus, measure of
profits should be the incremental profits of opening the store at this location over
the profits from opening the store at a less desirable location. [Mitigation here
modifies the EDP!!!]
III. LIMITATIONS ON EXPECTATION DAMAGES:
1. MITIGATION= non-breacher cannot recover damages he could’ve avoided by reasonable
efforts; has an Affirm. Duty to exercise reasonable efforts to avoid the consequences of the
other party’s breach, to mitigate damages; CANNOT increase damages by affirmative action
nor by inaction fail to minimize losses where ordinary prudent action would have minimized
the damages. By law, mitigation principle/duty kicks in after the breach!
a. Fundamental problem with Expectation damages is that it induces overreliance! It is a species of moral hazard problem—if you know I will make you
whole through recovery awarded to you, you do not act as carefully either.
b. Duty to Mitigate under Construction Contracts- there is no duty by a builder to
avoid the consequences of the owner’s breach prior to (i.e. by securing another
construction job during that period); BUT builder has duty to not add to damages
by continuing to work after owner breaches.
2. Case- Rockingham County v. Luten Bridge Co., US Ct of App 1929- P/Luten Co sued to
recover the sum alleged to be due under a contract with Rockingham County for the
construction of a bridge. After P spent $1900 in labor/materials, the county committee
informed Def contract wasn’t valid and P should stop construction. P felt this notice was
invalid and continued to construct the bridge and then brought action for damages for CP=
$18,300. Trial Ct Verdict for P—Judgment Reversed.
a. Upon receiving notice of breach, P had duty to mitigate damages (cannot
increase the damages flowing there-from). P’s recovery is for any profit he would
have received from his performance and other losses resulting from the breach.
b. Ct held P’s Recovery = Expenses already incurred in reliance of contract
prior to repudiation ($1,900) + Anticipated Profits (profit that would’ve been
realized if contract completed. [= Reliance Expenses + Anticipated Profits]
c. Damages = CP minus expenses NOT incurred as result of breach;
i. = Reliance Expenses already incurred + Lost Profits;
ii. Def has burden to prove value of lost profits & that P benefited from
breach!
iii. NOTE—Restitution puts floor on Expectation Damages
iv. Reliance Damages= good proxy for EDP! [Here= $1900]
3. *Wrongfully Discharged Employee’s Duty to Mitigate Damages:
a. Standard Measure of Damages for Employer Breach=when the employer
breaches, employee is generally entitled to recover the full contract price subject
only to her duty to mitigate. This is true regardless of if the employer breaches at
the outset of the contract, after partial performance, or even after full
performance.
b. Employee’s Duty to mitigate= If employer breaches by wrongfully terminating
employment, the employee has Aff. Duty to exercise reasonable effort to locate
and accept a position of the same rank, type of work, etc. in the same locale, but
not necessarily at the same pay scale. NOTE: burden on employer to show jobs
available]
4. Case- Parker v. Twentieth Century Fox Film Corp., CA Supreme Ct 1970- Shirley
McClain/P was a well-known actress who had contracted to appear in a movie called
“Bloomer Girl” for a min. compensation of $750,000. 20th Century Fox/Def was the producer
of the film and later decided not to produce it. Def notified P of its intent not to produce and
offered P a starring role in a western movie, “Big Country” w/same salary and only slightly
diff contract. Supreme Ct Affirms SJ for P.
a. A wrongfully discharged employee has no duty to accept “inferior
employment of a different kind” simply to mitigate damages.
b. 1st movie was musical w/substantial lead role; 2nd was western—the talents
required by P in each would be different & the contracts differed (P would have
less control in 2nd)
c. Dissent= Ct erred to focus on diff btwn two films rather than the two types of
employment; and the difference btwn the two contracts is a question of fact for
the jury.
d. Take or Pay Clauses5. *Consequential Damages: In addition to the std damages, the breaching party is liable for
all losses resulting from his breach that the parties as reasonable persons should have
foreseen at the time the contract was made as likely to result from the breach.
a. Rationale= the std measure does not provide full compensation for the loss of
the benefit of the bargain in all cases. Often, there are special circumstances that
may aggravate the economic loss to one party if the other fails to perform.
b. Rstmt 1st, UCC 2-710 = Where such circumstances were known to both parties at
the time the contract was made, the breaching party will be deemed to have
assumed the liability for such additional damages in the event of breach. It must
always be shown that the party had a clear understanding of the special
circumstances facing the other party; a generalized knowledge of the other’s
business is not enough.
6. Case- Hadley v. Baxendale, 1854-Hadley/P stopped operation of its mill when a crankshaft
broke. P contracted with Baxendale/Def to have it shipped for repair with delivery to the
manufacturer to be made within a reasonable time (def told P’s servants that if the shaft was
brought in by noon of any day it would be delivered to Greenwich the next day). Delivery of
the shaft was delayed by some neglect; and for five days P lost profits and wages paid
amounting to 300 lbs. Def had not been informed that the mill would not operate until the
shaft was repaired. P files claim v. def for damages due to lost profits—Trial Jury awards P
50 lbs in damages—Def appeals.
a. Damages are those that arise naturally from a breach of the contract (i.e. those
that would be reasonably expected by both parties to flow from the breach).
i. Def only liable for damages arising from special circumstances if they
were reasonably within the contemplation of both parties as being
the probably consequences of a breach.
ii. Full ED awarded only if P informs Def or if reasonably foreseeable!
b. Baird—NOTE: P did tell Def’s clerk that needed shaft immediately! BUT this
wasn’t sufficient b/c NOT clear that the stoppage was due to broken shaft
7. *Case- Lamkins v. International Harvester Co., Ark. 1944-P/Buyer contracted with seller
for tractor and stated he wanted it w/lighting equipment so he could use the tractor at night;
Seller/Def delivers the tractor without lighting. Buyer/P sues for damages + lost profits
alleging that w/out lighting he couldn’t plant and harvest a 25-acre tract on his farm.
a. Rule= Where the damages arise from special circumstances and are so large as to
be out of proportion to the consideration agreed to be paid for the services
contracted for, it raises doubt as to whether the party would have assented to such
liability had it been called to his attention at the time the contract was made
unless the consideration paid was raised as to correspond in some respect to the
liability assumed.
b. Ct held Def not liable for the crop loss b/c it was not reasonable for the ct to
believe that the dealer at the time “tacitly consented” to be bound for more than
ordinary damages in case of default on his part.
c. Baird— Similar to Hadley—have to est. what the parties would have reasonably
contemplated at time of contract—here it doesn’t seem plausible that seller
would have expected and agreed to take on all liability for crop loss
8. “Tacit Agreement” Test- does it seem plausible that seller would have tacitly agreed; what
would the have contemplated had they sat down and bargained [est. in Global Refining case
where Justice Holmes rationalized/interpreted the Hadley case by establishing the “tacit
agreement”]***
a. Holmes= “The extent of a promisor’s liability in contract cases is likely to be
within his contemplation…Mere notice to a seller of some interest or probable
action of the buyers is not enough necessarily…”
b. Thus Hadley Ct is incorrect to say that mere communication/notice of special
needs is enough—Tacit agreement test NOT good law & NOT been widely
adopted!
IV. RELIANCE AS ALTERNATIVE TO EXPECTATION DAMAGES:
1. EDP protects both expectation and reliance interest; the defaulter must acct for gains
prevented & losses caused by the breach.
2. 2nd Rstmt= Damages Based on Reliance Interest = As an alternative to ED, the injured party
has a right to damages based on his reliance interest, including expenditures made in prep for
performance or during performance (= Essential Reliance), less any loss that the party in
breach can prove with reasonable certainty the injured party would have suffered had the
contract been performed. One’s reliance interest can also consist of prep for collateral
transactions that a party plans to carry out when the contract in question is performed (=
Incidental Reliance)
KEY CASES=
1. Case- Chicago Coliseum Club v. Dempsey (IL Ct of App. 1932)- P/Chicago Coliseum
Club organizes boxing matches and entered into contract with Dempsey/Def for a match
between Dempsey and Harry Wills. Contract est. pmt amounts and that Def could not engage
in any boxing match prior to the match contracted for. P then entered into contract with Wills
(but never ended paid Wills the $50,000 contracted for), and prior to the contract with def, P
contracted with Weisburg to help organize the event. P sent Insur. Rep to Def for health
examination; Def refused. P then found out that Def was training to engage in another boxing
match which was against their contract. P filed decree with IN Ct restrain/enjoin Def from
engaging in the other match—IN Trial Ct held for P to recover nominal damages,
including those expenses incurred by P to procure injunction. Ct App. Reversed.
a. General Rule= in an action for a breach of contract, a party can recover only
damages which naturally flow from the act complained (can recover expenses
incurred after agreement made and prior to breach!
b. Ct App. Holding Re: 4 classes of potentially recoverable damages=
i. Lost Profits- NO b/c speculative
ii. Expenses Prior to Contract w/Def- NO b/c of general rule and lack of
certainty.
iii. Expenses due to attempting to enjoin Def- NO b/c there was nothing in
the contract re: attorney fees/servicing Def for injunction.
iv. Expenses incurred after P contracted w/Def- Ct of App ruled that:
1. NO—re: expenses from contract with Weisburg (event
organizer) b/c his comp depended entirely on success of the
event—thus too speculative!
2. P can recover “special expenses” such as special wage payment
to employees; BUT cannot recover regular salary payments
3. P can recover expenses incurred to send insurance rep to for
health exam
c. Baird- ED hard to measure b/c don’t know how successful fight will be, etc.
i. Money spent in reliance on the contract is an indirect measure of EDPBUT if we are trying to capture ED (not adopt reliance as alternative),
we should not exclude Pre-contractual expenses***
d. Dempsey Ruling is inconsistent with EDP; Ct focuses on Reliance damages,
BUT:
i. Reliance may be hard to measure
ii. Reliance damages give promisee bad incentives (he has incentive to
incur costs before promisor breaches thus spends lots $ upfront) & bad
incentives to promisors (who will break promises to often)
2. Case- Security Stove & MFG Co. v. American Ry Express Co. (1932)- P files claim v.
Def for its failure to transport from Kansas City to Atlantic City a oil/gas burner that P had
designed and planned to put on exhibition at a gas convention. The burner was not intended
to be sold at the convention, but P wanted to show it to a potential distributor of the product.
Def delivered on time all but one of the 21 packages, BUT the one missing contained the
most important/essential part that was irreplaceable. P files claim to recover “reliance”
expenses. Ct grants P recovery for all expenses incurred, including those prior to
contract and those P would’ve had even if no breach.
a. Rule= Party can recover expense incurred in reliance on a contract even if
those expenses would have been incurred if no breach of contract. [Reliance=
proxy for ED]
b. Why? - Ct finds that without the most important part the exhibition would have
been entirely valueless and the Def was aware of the necessity of prompt
delivery.
c. Baird-This case is opposite to Dempsey b/c ct allows recovery for expenses prior
to contract;
i. In ED world, Ct would focus on profitable opportunities lost b/c of
seller’s late delivery [but here there were no lost sales, it was an
exhibition, & Ct would not have cared about P’s prior “out of pocket
expenses” which were awarded here]
3. Case- Albert & Son v. Armstrong Rubber Co. (2nd Cir Ct. 1949)-Dec 1942, P/Buyer
agreed to buy four machines from Def/Seller, BUT 2 were not delivered until Aug 1943 and 2
were delayed until early Sept 1945 after conclusion of WWII. P sought to recover $3,000 in
expenses for preparing the foundation for the machines claiming those expenses were
incurred in reliance of Def’s performance. Ct concluded that b/c of Def’s breach (delivery
delay) P justified to reject and return 4 machines and recover the $3000 in expenses subject to
deduction of a sum that the sellers can prove P would have lost had the machines been
delivered on time.
a. Rule= Promisee can recover his outlay in prep for the performance subject to
the privilege of the promisor to reduce it by as much as he can show that the
promisee would have lost had contract been performed.***
b. Baird—Ct upheld EDP, but used Reliance Interest as a proxy for ED b/c ED
here are zero, so look to how P changed position by spending $3000 in prep for
Def’s machines.
c. Where there is a reasonable reliance that exceeds expectation we use Reliance
rather than ED—b/c not going to be worse off by entering into contract!!!
V. Restitution as an Alternative to Expectation Damages:
4. Restitution focuses on undue enrichment rather than contract obligation—appropriate when
there is a transfer of benefit from P to Def.
5. Recovery in Restitution allowed despite actual loss if contract had been performed!
KEY CASES=
6. Case- United States v. Algernon Blair, Inc (4th Cir. 1973)- P/Subcontractor, Coastal Steel
(CS) filed claim under Miller Act b/c Blair had contract w/ US build Naval Hospital and then
sub-contracted with CS. Because Blair refused/failed to make payments for CS’s crane rental,
CS quit after 28% of their job had been completed. Ct found that the subcontract had required
Blair to pay for the crane use and thus Blair’s refusal was a material breach justifying CS
termination.
a. District Ct held any amt due to CS must be reduced by an y loss CS would’ve
incurred by complete performance of contract; Ct found that under the contract
the amount due to Coastal, less what it had already been paid, was $37,000; BUT
the ct also found that had Coastal fully performed they would have incurred
$37,000 in expenses; thus, NO recovery for P! BUT,
b. Cir. Ct held P/CS entitled to recover under Quantum Meruit—
c. Quantum Meruit = allows the promisee to recover the value of his services
irrespective of whether he would have lost money on the contract and been
unable to recover in a suit on the contract;
i. QM= the reasonable value of the performance (where std measure is the
amt for which such services could have been purchased from one in P’s
position at the time and place the services were rendered***
d. Baird- P/CS did not sue under EDP (the amt of profit they would have made
under full performance) b/c ED would’ve been $0—Ct grants Restitution
under QM*
7. *Restitution—Action by Employee in Default
a. Unintentional breach- if employee’s failure to perform is due to circumstances
beyond his control, cts permit restitution for the reasonable value of the services
rendered not to exceed contract rate
b. Intentional breach- whether an employee who willfully breaches the contract
may recover the value of the benefit conferred on the contract is subject to
conflicting views.
i. Earlier view- denied any recovery;
ii. Modern view- permits the breaching employee to recover for the value of
the benefit conferred not exceeding contract price, less damages incurred
by the employer as a result of the breach
8. *Case- Britton v. Turner (NH Supreme Ct. 1834)- P agreed to work on Def’s farm for one
year for $120; P abandoned performance after 9 ½ months, then P filed claim under quantum
meruit alleging the worth of the work he had completed to be $100. Trial judge instructed
jury that P was entitled to recover under QM the reasonable worth of his labor even though he
left the job without Def’s consent and without good-cause. Ct entered judgment for P for $95.
Def appeals. Judgment for P Affirmed.
a. Rule= (modern view) an employee who voluntarily quits may recover the
benefit conferred on employer less damages employer suffers b/c of the
breach, w/the CP serving as max/limit.
b. WHY? = want to encourage fulfillment of contract—if recovery denied P is
better off breaching earlier on—would lead to P who attempts performance being
worse off than a P who wholly disregarded the contract.
i. This rule leaves no incentive for employer to encourage employee to
breach service near end of the term, nor for the worker to breach service
before stipulated time w/out a sufficient reason***
c. Baird- Ct est. a background rule that parties can opt out of contract through
express stipulation in their contract!
d. Britton resembles Neri—breaching party/buyer still entitled recovery but offset
for what the seller was awarded in damages***
e. Restitution Theory- damages based on notion that party not entitled to received
benefit/gains they haven’t paid for—BUT we cannot enforce QM every time one
party bestows a benefit on another party; one who simply bestows a benefit on
another party without that party asking for it or agreeing on it is not entitled to
restitution.
VI. LIQUIDATED DAMAGES & PENALTY CLAUSES:
1. Enforcement of Contractual Damages Provisionsa. Provisions Limiting Damages- the contract may provide that no damages at all may
be recovered for certain types of breach (“exculpatory clauses”) or that any damages
recoverable will be limited to a max sum. In general, cts construe such provisions
narrowly and will strike down provisions found to be “unconscionable.”
b. Stipulated damages provisions- Liquidated damages v. Penalty clauses- contract
may include a provision stipulating a fixed sum to be paid if breach occurs;
i. IF Ct finds it to be valid liquidated damages clause—Yes, Enforced!
ii. If Ct finds it to be an attempted penalty clause—NO, NOT Enforced!
c. Penalty provisions unenforceable- b/c a penalty cannot be enforced at law or in
equity. A provision is held to be a penalty if it was intended to serve as a pecuniary
threat to prevent breach or to provide security to insure the other party’s
performance. Cts determine first if that provision calls for valid liquidated damages,
and if not then it is void as penalty.
d. Liquidated Damages provision may be enforced- if clause is a good faith effort by
the parties to estimate the actual damages that would probably ensue from a
breach, it may be enforced under the rules stated below.
i. Terminology of provision not controlling- the name given to the provision by
the parties is not determinative as to its nature.
ii. Requirements for valid liquidated damages- to be enforceable a stipulated
damages clause must meet both of the following requirements:
1. Damages difficult to estimate at time of contract- 1st, it must be
shown that at the time the contract was entered into, the actual
damages that would result from a breach would be impracticable or
extremely difficult to ascertain or estimate.
2. Reasonable estimate- 2nd, the amt agreed upon by the parties must be
a reasonable forecast (at the time the contract was entered into) of
fair compensation for the harm that would result from breach.
2. 2nd Rstmt § 356 Liq. Damages & Penalties= Damages for breach 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
3. Case- Muldoon v. Lynch (1885) [Penalty Clauses not Enforced]- P contracted with
Def/widow to erect a monument made of Italian marble in the cemetery where Def’s husband
was buried. The Italian marble that P ordered was delayed on delivery for 2 years, but as soon
as P received the marble he built the monument as contracted. The contract stipulated that def
would pay P $18,788 when completed and the monument was to be completed within 12
months “under forfeiture of $10 per day for each day late.” P filed claim holding they were
entitled to the $11,887, the unpaid contract price and def claimed a deduction of $7,820 for a
delay of 782 days.
a. Rule= where it appears that the parties intended a penalty, courts will not enforce
the clause esp. when the result would be a sum disproportionate to any actual
damage.
b. Unconscionability- would it have been impossible to perform? Need to est. if the
contract itself mutually agreed upon? Ct’s are weary of penalties b/c see them as
“advantage-taking” & fear the party may have been subject to adverse conseq.’s to
agree to drastic penalty.
c. Baird- BUT in some cases penalty clauses can be good b/c:
i. ED may be systematically too low; Penalty clause can reflect the high
personal value a party places on performance (i.e. the widow wanted this
monument quickly)!
ii. Penalty can serve as signal for quality/reliability/security!
iii. PC’s can serve as bargaining tool for parties!
4. Case- Fretwell v. Protection Alarm Co. (Okla. Supreme Ct. 1988)- P was burglarized
then contracted thru his Co. w/ Def to install and maintain a burglary alarm system in P’s
home for a $46 per month. Contract held the if system failure, Def’s liability would be
limited to the lesser of $50 or P’s actual loss, as liquidated damages, and that if P desired that
def assume greater liability a separate and additional price for insurance would apply. P gave
def a key to his house and a list of people to call in the event of an alarm. When P was gone
def received an alarm signal at its monitoring station and sent an employee to check the
house. When employee got there, the police had already arrived and said the house was
secure. Employee never entered the house, which would have revealed that the alarm line had
been cut and thus a second alarm could not be sent. After employee and police left, the
burglars reentered P’s home and took property worth $90,000. P sued Def to recover prop lost
in burglary—Ct held for Def b/c Co. can limit its liability to a token $ amount.
a. Contract limit did NOT attempt to reasonably forecast just compensation for harm—
thus not liquidated damages nor a penalty and is enforceable!
i. NOTE—Doesn’t matter that clause used the term “liquidated damages”
b. WHY? - The Ct avoids compensatory damages; is weary the limitation serves as
insurance—can lead to inherent problems of Insur. w/in a contract (i.e. moral
hazards, adverse selection)
i. EDP creates that incentive; Problem of over-reliance!
VII. SPECIFIC PERFORMANCE:
1. In contrast to EDP, SP gives promisee full value of the promise, not simply its value in the
promisee’s hand; under SP one doesn’t enjoy the value diff btwn the amt you were to pay for
it and the worth someone else places on it.
a. SP typically allowed if: ED hard to measure; unique goods (land); protecting prop
right!
2. General Requirements of SP=
a. Contract terms must be definite and certain- so ct can determine what each party
must do in order to carry out the agreement.
b. Inadequacy of remedy at law- SP granted only if $ damage are insufficient.
c. Enforcement must operate equitably- SP is denied if enforcement will cause great
hardship.
d. Enforcement must be feasible- SP not granted if enforcement of the decree is
unreasonably difficult or if judicial supervision will be extended over a long period.
e. Mutuality of remedy no longer required- SP will be granted to an aggrieved party
even though the remedy of SP is not mutual and would not be available to the other
party.
3. Specific Performance of Land Sale Contracts-Land is inherently unique- damages are
inadequate compensation b/c land is unique; cannot be replaced by other land of equal value;
thus, land buyer can seek SP for land sale v. a breaching seller.
4. Case- Van Wagner Advertising Corp v. S&M Enterprises (NY Ct of App. 1986)- P
signed a 3 yr lease for space on an exterior wall of a building in Manhattan; P built a sign
there and leased it to Asch Advertising for 3 yr term; Then the lessor sold the building to
S&M/Def who then sent P a letter canceling P’s lease citing a provision in the lease that
permitted termination on 60 days notice in the event of a bona fide sale of the building to an
unrelated 3rd party. P abandoned the space under protest and sued for declaration that the
purported cancellation was ineffective and that the lease was still in existence; P sued for SP
and $ damages. Ct refused to grant SP for P b/c adequate remedy at law for $ damages
existed & SP would be disproportionate to its harm to Def and its assistance to P.
a. Rule= SP of “unique” lease contract denied if damages are adequate remedy for
tenant and equitable relief would be place disproportionate burden on defaulting
landlord.
b. Rule= Physical uniqueness not enough to grant SP; SP based on uncertainty of
valuing property
c. NOTE- Trial ct erred; should’ve awarded lost profit damages ONLY thru end of P’s
lease!
5. Case- Curtis Bros. v. Catts (Ch. 1907)- P/owner of a canning plant sued for specific
performance on contract where Def/farmer had agreed to sell his entire tomato crop from
specified land. Chancellor rejected Def’s claim that the ct was without power to grant
equitable relief b/c “the fundamental principles which guide a ct of equity are essentially the
same whether the contracts relate to realty or to personal property.” P filed claim for SP for
contract for sale of goods. Ct grants SP for P.
a. Rule= Where no adequate remedy at law exists, spec performance of a contract
re: sale of personal property will be allowed
b. Ct held that SP justified b/c under this contract the inability to procure at any price at
the time and quality needed the necessary tomatoes to insure the plant operates
successfully; thus the business and its needs are extraordinary as the service promised
by def is “unique” and cannot reasonable be replaced.
c. Baird- Curtis Bros (like Parker case) had duty to mitigate and cover their losses in
the “spot market,” but court found that this would be difficult given their duty would
be capped by the contract-market differential! When spot price is far above contract
price, the seller has incentive to breach and when SP is below CP the buyer has
incentive to breach and buy at the lower price—this gives incentive to cap/min
damages with monetary value in advance and is why cts rarely allow specific
performance for personal service contracts.
d. Why is this contract for tomatoes “unique”?
i. Ct is skeptical that ED will be suffice b/c the ability of the tomato canner is
limited re: obtaining the tomatoes in spot mkt needed for his plant to operate
successfully [demonstrates a “value maximizing exchange” that encourages
the ct to enforce specific performance].
ii. If a farmer can breach an output contract there would be big potential for
cheating, thus this problem is minimized if buyer has SP remedy.
6. Courts rarely enforce Specific Performance for Personal Service Contracts; BUT ct will
issue negative injunctions.
a. Courts enforce Negative injunctions NOT for generic services but for valuable,
unique services (party has unique talents, impossible to replace)***
7. Case- Lumley v. Wagner (1852)- P/Lumley was the lessee of Her Majesty’s Theatre and
contracted with Def/Johanna Wagner for her to sing at his theatre- the contract stipulated that
she was to sing there for three months and during that time not sing at any other theatre; she
was to sing specific parts in selected Operas; and she was bound to sing twice a week during
the three months. Against her contract, Wagner formed a new contract with def/Gye to sing at
his theatre and issued P a protest to try to repudiate the prior agreement. P filed for negative
injunction. Ct grants (-) injunction on Def.
a. Rule= Cts rarely grant SP to enforce personal service contracts; BUT will grant (-)
injunctions to bind the parties to the performance they agreed upon!
b. Judge asserts that the ct does not have the power to force def to sing for P, but they
do have power to refrain Def from singing at Gye’s theatre (b/c of the nature of def’s
contract with P).
c. Baird- Lumley doesn’t enjoy the right to Wagner’s extra talent he just enjoys and is
entitled to Wagner’s service. The nature of relief Lumley is seeking is trying to
capture the value of Wagner singing at Gye’s theatre independent of the value of
Wagner singing at his/Lumley’s theatre. Mitigation is tricky here b/c great difficulty
in finding an equivalent replacement, thus view Wagner’s service as unique service
not as a fungible good!
i. The less fungible the goods, the stronger case is for issuing injunction!***
8. Case- Dallas Cowboys Football Club v. Harris (Tex. Civ App 1961)-Harris/Def contracted
to play w/the LA Rams for one year, and the contract stipulated that the Rams could renew
the contract. Rams tried to renew it which led Def to retire and take a coaching job. Next
year, Def contracted w/Dallas Texans and then Rams (under the belief that their contract
w/Def was enforceable) assigned their rights to Def to the P/Dallas Cowboys; P filed for an
injunction to restrain Harris from playing for anyone except the Cowboys. Trial Ct held
Harris was not “unparalleled and unequal”, thus not unique enough as a football player to
invoke the ct to issue SP on the personal service contract. Ct of App. Reversed- Trial Ct’s
def’n of unique was too narrow.
a. B/c Harris cannot be replaced his contract was unique enough to invoke the court
to issue an injunction.
9. Case- Pingley v. Brunson (1979)- Def/Brunson was a part time organ player and contracted
to play at P/Pingley’s restaurant three nights a week for $50 per night for three years. The
contract est. that Pingley would buy instruments for Brunson’s use and make monthly
payments for them that would be deducted from Brunson’s pay; and in the end Brunson
would own the instruments unless he breached the contract. After playing for nine nights,
Brunson breached and refused to perform. P sued for SP.
a. Rule= Ct won’t grant SP for personal service contract that is not unique in
nature… And, absent an express negative covenant a ct as a rule does not enjoin
an employee’s furnishing of services to another during the term of a breached
contract.
b. Ct rejected P’s claim for SP b/c:
i. 1) Ct found five other comparable organists; 2) No express covenant in
contract
10. Case- Fullerton Lumber Co. v. Torborg (Wisc. 1955)- P operated a retail lumber yard in WI
and hired Def in a “managerial capacity” and appointed him manager of lumber yard. Def
signed a contract agreeing that if he ceased to be employed by P for any reason, he would not
work for any other establishment in the lumber business for 10 yrs and within 15 miles; BUT
Def quit and set up his own lumber hard in the same town. P sued to enjoin him from
working in Clintonville—Trial ct dismissed the complaint b/c the contractual restraint was
“unreasonable and not necessary to protect P’s interests.” Supreme Ct Affirmed that 10 yr
limit was excessive & Covenant unreasonable.
a. Rule= limiting covenant cannot be excessive and unreasonable!
b. Supreme Ct suggested that the min period should be three years since Torborg
himself had built the Clintonville yard’s business up to a fairly constant level in three
years.
c. If the covenant itself is enforceable, damages arising from it are also enforceable!
VIII. The Domain of Legally Enforceable Promises:
1. A past debt, still existing & enforceable, is a sufficient basis for the enforcement of a new
promise by the debtor to pay it (past debt can be contractual or quasi-contractual)
2. Moral obligation— is invoked to enforce 3 exceptions to the bargain test of consideration:
a. 1) Promise to pay an obligation on which the SOL period has run;
b. 2) Bankrupt debtor’s promise to pay a discharged debt; and
c. 3) Promise to pay a contract obligation incurred while a minor.
3. Promises made only out of a sense of honor/moral responsibility are not enforceable in
most states!!
a. Restitution- recovery of unjust enrichment from a breach of contract; stronger
the consequences, the smaller the domain
b. Reliance- tort-like remedy, put promisee back in the position they would’ve been
in if promise had never been made (reliance interest is generally best measure for
EDP)
c. Expectation- Holmes; you should be put in situation had the promise been kept,
receive the benefit of the bargain
d. Specific Performance- no damages, forced action, held in cts of equity. Don’t
just get value of performance but a claim v. or access to the value of
performance.
4. Bargain Promises- bargain is an exchange in which each party views his promise or
performance as the price of the other’s promise/performance. Typically concluded by offer &
acceptance—a bargain constitutes consideration and a bargained-for promise is enforceable
(but not in all cases!)
5. The Bargain Theory of Consideration= A contract/legally enforceable promise cannot exist
in the absence of a bargain and sufficient consideration [Langdell & Holmes]
a. Consideration- must be bargained for performance/return promise; it’s sought by
the promisor in exchange for promise; perform. may be any act or forbearance
from an act.
b. Legal Detriment- when a party obliges herself thru a bargain to perform in a
certain manner even if the performance isn’t ordinarily “detrimental”
i. KEY= relation of reciprocal inducement btwn consideration and promise!
c. Bargained-For Exchange- requires a bargained-for consideration as a
precondition to legal enforceability, serves the following functions:
i. 1)Evidentiary- the necessity for an exchange makes it easier to figure out
after the fact whether someone intended to be legally bound
ii. 2) Channeling- parties know by the existence of an exchange that there
is a legally enforceable promise and can act accordingly
iii. 3) Cautionary- parties are forced to think twice before entering into
contrac
d. BUT, the downside to bargained for exchange rule=
i. Lacks the hard edges/clarity of a formal rule
ii. Judge can find consideration anywhere OR ignore it when it’s there
(Fisher case)
iii. Conceptual Problem- (Baird Brooklyn Bridge Problem) I promise you
$100 to walk across the bridge and once you’ve crossed I’m obliged to
pay you. If I revoke my promise just as you are about across you haven’t
given me what I’ve asked for, thus there is no bargained-for exchange—I
am free to revoke. To enforce promise here would be to enforce a
unilateral promise.
6. Restatement § 17= except where special rules apply, formation of contract requires a bargain
to which the contracting parties give assent, and a consideration which can take form of
either a return promise or an actual performance;
a. Bilateral contract= involves as exchange of promise for promise;
b. Unilateral contract= exchange of a promise for performance
7. Restatement § 19= a promise may be expressed “in acts, w/out words”; the commencement
of performance may by itself constitute a return promise that creates a bilateral contract
a. Promises Grounded in Past- general proposition is that a person who performs
services NOT requested by another doesn’t acquire a right to compensation or
restitution.
b. In general, one who makes a gift, including gift of services, cannot then
withdraw her gift by reconstituting herself as a creditor
KEY CASES=
1. Case- Mills v. Wyman (Mass. Sup Ct. 1825)- P filed claim to recover compensation for
caring for son of Def, Levi Wyman, who was age 25 and just returned from sea voyage and
fell ill. Def/father then wrote letter to P promising to pay P for the expenses incurred to care
for him—NO consideration given for the promise. Judgment for Def b/c lack
consideration—P appealed and filed exceptions.
a. Rule= generally, a moral obligation is not sufficient legal consideration to
support an express promise
b. B/c son is an adult and not under Def’s care, P has no restitution claim v. the
Def/Father! And there was no present consideration for Def’s promise b/c no preexisting obligation.
c. To enforce a promise there must be a pre-existing obligation. Ct notes 3
exceptions=
i. = (1) cases of debts barred by the statute of limitations, 2) debts incurred
by minors, and 3) debts of bankrupts;
ii. Exceptions are enforceable b/c there was an original quid pro quo
where the moral obligation is founded upon an antecedent valuable
consideration.
iii. Baird- Here there’s a general misunderstanding btwn father & P/Mills
2. Case- Webb v. McGowin (Ct of App 1935)- [App. Of Minority View]At work, P was cleaning
in mill and was about to drop heavy weight to floor, noticing McGowin and to avoid hurting
him, P fell himself and was permanently disabled. McGowin promised to pay P a monthly
sum for life, but then McGowin died and pmts stopped. P filed v. Def’s/McGowin’s
(executors of the estate) for the pmts. Ct App held that Def had moral obligation
compensate P.
a. Rule= when promisor receives a material benefit (saved life) and the promisee
suffers a material detriment (disablement), then a moral obligation is sufficient
consideration!
b. Valid Consideration = Material benefit + Moral obligation
c. Webb & Mills differ in that in Mills the promise was based on moral obligation
w/no direct economic benefit; in Webb, the moral obligation arose out of a past
Econ. Benefit;
d. Detrimental Reliance- when the only consideration is moral or past
consideration, the cts may enforce contract if promisee has detrimentally relied
on promise
3. Case- Hamer v. Sidway (NY Ct of App 1891)- P/nephew filed claim to recover $5000 plus
interest on an alleged contract to the executor of William E. Story, Sr.—who promised his
nephew that if he refrained from drinking, smoking, swearing until he was age 21, he would
pay him $5000. P fully performed the conditions inducing the promise and wrote to his
uncle; they agreed that he would hold on to the money until P was able to take care and spend
it wisely—then the Uncle died.
a. Rule= In general, a waiver of any legal right at the request of another party is
sufficient consideration for a promise…any damage, suspension, or
forbearance of a right will be sufficient to sustain a promise.
b. Courts will not ask whether the thing which forms the consideration is a
benefit to the promise or a third party, or is of any substantial value at all for it
is enough that something was promised to, done, forborne, or suffered by the
promisee as consideration for the promise made to him.
c. Baird- Nephew gave up his legal rights in reliance on his uncle’s promise of
$5000!!!
IX. Promissory Estoppel & Reliance:
1. Restatement §90= a promise that induces promisee to take action/change their position, is
binding and enforceable if necessary to avoid injustices; Reliance by promisee sufficient to
create an enforcement right v. promisor even if no “bargain” btwn parties and no
“consideration” given.
a. Liability triggered only if there’s reasonable reliance on promise = reliance
damages
b. Baird- PE could leave us worse off b/c: 1) not a formal rule; 2) promises that
foreseeably would induce reliance are not always intended to be l
2. Case- Fischer v. Union Trust Co. (Mich. Sup Ct 1904)--P/Fisher (incompetent b/c insane)
presented claim v. estate of Fischer/her deceased father, for damages for an alleged breach of
a covenant in a warranty deed (w/a covenant v. all incumbrances and the land granted
included their home & adjacent lot. Father gave Def the Deed at Christmas—P got a dollar
from her brother to give to her father in return—brother held on to it and didn’t record the
deed until 1 yr after father’s death; over a year after their father’s death and 6 and half yrs
after its date. At Fischer’s death his $3000 mortgage was foreclosed for nonpayment and
satisfied out of part of the property conveyed—Thus P’s claim is based upon the
appropriation of her property to pay the mortgage.
a. Ct held no legally enforceable promise between father and daughter b/c lack
consideration. [The $1 P gave to her father for the deed was not sufficient]
b. The deed was a gift, and the gift was made subject to the mortgages and coupled
with it a promise to pay.
c. Rule= “A gift of personalty can be consummated only by unconditional
delivery of the thing. A gift of realty can be consummated only by the execution
and delivery of a deed. If either is incumbered, the donor gives only what he
had to give. He cannot give the interest of a 3rd party in the property.”
d. Baird- Did father intend for mortgage pmt to be legally enforceable? YES!
NOTE- in Hamer we’re not sure if uncle wanted promise to be legally
enforceable. BUT in Hamer there was no ambiguity and there was reliance (thus
uncle’s promise legally enforceable). In Fisher, there was no reliance on the part
of the daughter (thus not legally enforceable).
3. *Reliance on a Promise- The remedy may be limited to the extent of the reliance, rather than
allowing recovery for the full promise performed (2nd Restatement).
4. Case-Allegheny College v. National Chautauqua County Bank (NY Ct of App 1927)Allegheny College/P held a drive to earn an endowment; Mary Johnson signed agreement to
contribute $5000 that would be due 30 days after her death, paid by executor of her will. She
then paid $1000 while still alive; then she notified P/college that she repealed her promise to
give $; P filed suit to recover the remaining $. Judgment for P/college- legally enforceable
promise to give $ was made.
a. J. Cardozo- Ct concludes that this was a legally enforceable promise with
adequate consideration; Generally charitable gifts unenforceable if NO
consideration and detriment alone may not constitute consideration [need
promise + detriment/consid.]
b. Rule= BUT, Promissory Estoppel modifies/substitutes consideration
requirement—thus we must ask if the charitable gift is enforceable when squared
with the test of consideration as qualified by the doctrine of promissory estoppel.
c. The donor was not at liberty to gain the benefit of such an understanding upon
the payment of a part and then disappoint the expectation that there would be
payment of the residue…We do not need to measure the extent either of benefit
to the promisor or of detriment to the promisee implicit in this duty.
5. Promises of Limited Commitmenta. Neither party is bound if one makes an illusory promise (has the form of a
promise but isn’t one) in exchange for the other’s real promise!!!
b. Implied Promises- even if lack mutuality, the contract may be enforced if
surrounding facts and nature of agreement fairly imply a promise of performance.
c. UCC Sec. 2-306(2) = w/sales contracts, Manuf. impliedly agrees to use their best
efforts to supply the goods & the distributor impliedly agrees to use best efforts
to promote sales
6. Case- Wood v. Lucy, Lady Duff- Gordon (NY Ct of App. 1917)- Def contracted/promised
to give P excusive rights to market, sell, license her designs. P got excusive rights for 1 yr for
his services to Def and Def was to get ½ all profits resulting from sales contracts P made.
BUT, Def then made another contract w/out P’s knowledge and w/held all profits. P/Wood
filed suit--Judgment for P.
a. Rule= An implied promise to give reasonable efforts can constitute sufficient
acceptance and consideration to est. promise as binding.
b. J. Cardozo- An implied promise to give reasonable efforts gives reason to the
deal/agency btwn P and Def; thus contract is binding!
i. NOTE- w/out an implied best efforts promise by P, there would be no
basis for Def’s compensation of ½ of profits (which were to result from
P’s efforts)
c. Offer & Acceptance= offer was P giving up rights to her designs for 1 yr; Def’s
acceptance of the excusive agency was an assumption of its duties.
d. Note-Cardozo created a legally enforceable duty to use reasonable efforts!
i. UCC 2-306(2)- adopted Wood Holding (implied “best effort” promises)
7. Case- Feld v. Henry S. Levy & Sons, Inc. (NY Ct of App. 1975)- P operates Bread Business
and Def is engaged in wholesale bread baking business—Def entered into written contract
(output contract) w/P to sell all bread crumbs produced by Def’s factory for one year;
contract auto renewed if no notice w/in 6 months; Def breached b/c production was
“uneconomical” but would resume at higher price.
a. Held: Def justified b/c it was a “good faith termination” since production
uneconomical.
b. Rule = UCC 2-306 rejects notion that output contracts lack mutuality and
are unenforceable b/c indefinite—
c. UCC (2-306)- (1) a term which measures the qty by the output of the seller or
the requirements of the buyer means such actual output or requirements as may
in occur in good faith. (2) a lawful agreement for exclusive dealing in the kind of
goods concerned imposes an obligation by seller to use best efforts to supply the
goods and by the buyer to use best efforts to promote the sale.
i. 1) The output qty. = the good faith qty.;
ii. 2) Output contracts impose an obligation on seller to use best efforts.
d. Output contract- agreement to sell all goods/services a party may
produce/perform to another party. Generally obligate parties to buy/sell at stated
price but then don’t specify the quantity.
e. Ct concluded- Def had contractual right to a good faith cancellation of
production which terminates P’s obligations; Def’s losses from continuance
have to be more than trivial.
i. Baird- this case is the fallout of the Wood v. Lady Duff ruling!
X. MUTUAL ASSENT-THE “MEETING OF THE MINDS”:
1. 2nd Rstmt § 22- 1st requirement of a contract is that the parties manifest to each other their
mutual assent to the same bargain, usually in form of offer & acceptance.
2. Offer = proposal by one party to other manifesting a willingness to enter into a
bargain…other party is justified in believing that his assent to that bargain is invited and will
result in binding contract. Thus, offer creates power in offeree to create a contract.
a. 3 elements needed for legally sufficient offer=
i. 1) Manifestation of present contractual intent;
ii. 2) Certainty & definiteness of terms;
iii. 3) Communication to offeree.
3. Case- Raffles v. Wichelhaus (1864)- [No Mutual Assent where latent ambiguity exists] Def
agreed to buy from P 125 bales of Surat cotton to arrive on ship called “Peerless” from
Bombay; Contracted stipulated how, when, cost, by which cotton would be picked up at.
Cotton did arrive by the Peerless in Dec and P was willing to deliver to Def. Def
breached/refused to accept goods nor pay P for them b/c Def had anticipated a different
Peerless ship that would have delivered cotton in October. Neither party knew 2 Peerless
ships existed. P files for breach of contract—Def expected Peerless-Oct; P expected PeerlessDec. Judgment for Defa. Rule= If both interpretations of an ambiguous term are reasonable, and neither
party knows or has reason to know of the ambiguity at the time of contract,
contract is binding only if both parties subjectively intended the same thing
i. Contract Not binding if each party attaches diff. meaning to
contract/term
b. B/c no “consensus ad idem- no agreement on the same thing” there was no
meeting of the minds, thus contract NOT binding/enforceable!
4. Raffles est. Traditional rule= There cannot be a contractual agreement between the parties if
there was no meeting of the minds (if the two did not actually consent)***
a. Holmes view Re: Raffles: Raffles is case that embraced an objective theory of
contract- “must judge parties by their conduct;
i. Basis for Raffles= not that each party meant something different from
the other, rather that each party said something different from the
other.”***
ii. Holmes’ Interpretive Rule = each party was entitled to their own
interpretation b/c “a proper name means one individual thing and not
another…”
b. Judge L. Hand- agrees w/Holmes; we should only take objective measures!
5. Case- Flower City Painting Contractors v. Gumina Constr. (2nd Cir. 1979)- P/Flowers
subcontracted w/Def to perform a painting subcontract. P interpreted the contract to require
painting of interior walls only, not exteriors. Def’s expected the exteriors to be painted as it
was customary practice in their industry to award contracts on “an entire project basis.”
[Note- this was P’s first substantial subcontract thus was not familiar w/customary practice.]
When P held to its interpretation and then demanded more $ to do exterior work, Def
cancelled the subcontract w/P. P sued for damages—Claim dismissed, Trial Ct held that P’s
asking for extra pay for work it was obligated to do under contract constituted repudiation. P
appealed. Judgment (for Def) Affirmed (ct upholds Peerless ruling).
a. Rule = A binding, legally enforceable contract does not exist if there is not a
“meeting of the minds—when two plausible interpretations of contract arise
from ambiguity—no valid contract!
b. Baird- problem w/ applying Holmes’ interpretive rule here is that apartment is
not a proper noun (as was the case in Raffles).
c. Alternatives to Holmes’s Interpretive Rule=
i. 1) Look to the trade usage/customary practice of the industry in that area
ii. 2) Information-Enforcing Rule- the party w/most expertise, capabilities
should be required to interpret the meaning of the word and contract
iii. 3) Penalty default rule
6. Case- Embry v. Hargadine-McKittrick Dry Goods (MO Ct of App. 1907) P/Appellant/Embry was employed by Def/Respondent and approached Def (President of Co.)
several times prior to expiration of his contract re: renewal—finally 8 days after his contract
expired, P spoke w/ Def who assured him he was re-employed for another year (by telling
him to continue working and not worry). Def’s words constitute a contract of re-employment
on the previous terms irrespective of his intention—Judgment for Def Reversed.
a. Rule= intention does not create a contract, rather—“the law judges his intention
by his outward expressions and excludes all questions in regard to his
unexpressed intention.
i. Reasonable Man Std= a reasonable man would interpret Def’s response
as an assent to P’s employment demand; P had right to rely on the assent
as employment contract
7. Case- Kabil Developments Corp v. Mignot- P/Kabil alleged that Def agreed to provide P
w/helicopter services needed for a construction job. Def denies such contract existed and
claims they had their agent Honeycutt tell P that after an inspection they found the site was
not safe enough and not economical. P claims that the subjective intention is not totally
irrelevant—Judgment for P.
a. Rule= law not concerned w/parties’ undisclosed intentions; law gives heed only
to their communications and overt acts
i. BUT, this does not mean the objective test prohibits party from testifying
re: if he thought at time of contracting that he was in fact entering into an
agreement.
b. Objective theory = asserts that the parties’ manifestations are to be judged
under reasonable man std; BUT this does NOT mean 2 parties will be held to
contract if neither meant to assent
8. 2 Theories of Contracts: Actual Intent/Meeting of the minds theory v. Objective Theory
a. 1) “Objective Theory”—J. Hand= “A contract has nothing to do w/ the
personal or individual intent of the parties. A contract is an obligation attached by
the mere force of law to certain acts/words of the parties…
b. 2) “Meeting of the Minds Theory”—J. Frank = objectivists went too far in
treating all kinds of agreements alike and holding the actual intent of the parties
as legally irrelevant.
XI. OFFER & ACCEPTANCE:
1. Offer- When is communication regarded as an offer v. mere invitation to negotiation?
2. Acceptance- Once the offer has been made, the final step in contract formation is acceptance
by offeree. Offer becomes a contract upon acceptance.
a. Offeror can revoke if does so before offeree has recorded acceptance
b. Offeror is “master of his offer”; dictates the stipulations of the deal & form of
acceptance
c. Offeree can skip verbal acceptance and directly perform the act requested by the
offer (=acceptance)
3. Problems of Mistakes- Unilateral v. Mutual Mistake- when only one party is mistaken as
to some material fact and the other party is not chargeable w/knowledge of the mistake being
made, there is an enforceable contract.
a. Purely unilateral mistakes do NOT make contract voidable; BUT
b. Mutual Mistakes as to material facts make contract voidable by either party if:
i. 1) Enforcement would make performance by that party significantly more
burdensome that it would have w/out the mistake; and
ii. 2) Fact in question is not one as to which the parties realized there was doubt
at the time of bargaining.
4. Principles Under the U.C.C.
a. U.C.C. §1.103 = unless they are displaced by particular provisions of the Code, the
general principles of common law apply to transactions govern the code.
b. U.C.C. §2.204 = Ct should focus on the existence of agmt btwn parties, whether
shown by words or conduct; IF agmt apparent, Ct shouldn’t concern w/technicalities
of contract.
i. §2.206 eschews technical rules on the manner and medium of acceptance; an
offer should be interpreted as inviting acceptance by any reasonable mode
unless the offer or circumstances make it clear that the mode is restricted.
c. UCC § 2.207 = abolishes the common law mirror image rule and proposes that
buyers & sellers not too concerned re: little details of deal; focus on essentials
(i.e. price, qty.)
i. At common law, if doc’s didn’t mirror each other = NO contract. Response
w/differing terms = counteroffer which would negate the contract!.
5. Case- Cobaugh v. Klick-Lewis, Inc. (PA 1989)- [Control over Contract Formation]
P/Cobaugh was playing in gulf tournament when he saw an ad at the 9th hole for a free car if
you get a hole in one. P aced the 9th hole and tried to claim the prize, but Def/Klick-Lewis
refused b/c it was an old sign for a charity gulf event 2 days prior. Def/Appellant claims they
merely proposed a contingent gift, which is w/out consideration and thus unenforceable &
contract voidable b/c of mutual mistake (Ct rejects both arguments).
a. Held: the old sign est. an enforceable offer w/consideration; unilateral mistakes
don’t void contract
b. 2nd Rstmt §24= Offer= an offer is a manifestation of willingness to enter into a
bargain; justifies another in understanding his assent is invited and concludes the
bargain.
c. 2nd Rstmt §29= It is the manifested intent of the offeror and not his subjective intent
which determines the persons having the power to accept the offer.
i. Here, offeror’s manifested intent = a hole in one wins a free car!
d. Consideration- Contract has adequate consideration here b/c Def made an offer for
an award of a free car in exchange for making a hole in one & P paid to golf.
e. Unilateral Mistake- The mistakes here were by Def only (failed to limit its offer and
remove the sign); thus a unilateral mistake (not mutual) and contract not voidable!!!
6. Note- Unknown offers of rewards- there can be no contract unless the claimant when giving
the desired info knew of the offer or the reward and acted w/ the intention of accepting such
offer…
7. Note- “Master of the Offer”- Traditionally speak of offeror as “master of the offer”—has the
power to determine the substance of exchange, id of the offeree, and time, place, form or
mode of acceptance; Cobaugh est. that offeror can waive formal acceptance, suffice if
offeree performs!
8. Case- Dickinson v. Dodd (CA 1876)- [Offer & Acceptance]-Def/Dodds signed and
delivered to P/Dickinson on Wed, June 10th a memo stating he agreed to sell P his estate and
that the offer would be left open until June 12th, Fri at 9am. Next day P was informed that Def
offered and agreed to sell the prop to Allan; P then went to Def’s house and left a formal
acceptance in writing with Def’s mother in law, who reportedly forgot to give it to Def. P’s
agent also gave Def a copy on Fri, but Def said it was too late. P filed claim v. Def for SP and
to enjoin Def from conveying prop—Judgment for Def.
a. Rule= A promise to hold an offer open, being a mere nudum pactum, is not binding
and can always be w/drawn on notice to the offeree.
b. Rule= Once the offeree knows that the property has been sold to someone else, it is
too late for him to accept the offer, thus no binding contract.
i. Sufficient that offeree got notice from 3rd party (doesn’t have to be
offeror).
c. Def’s signed doc constituted an offer (despite the wording “I agree”), thus not
binding!
9. Case- Petterson v. Pattberg (NY Ct App. 1928)- P is the executor of Petterson’s will/estate.
Def owned a bond executed by Petterson and secured by a 3rd mortgage on his parcel of RE.
An amt remained unpaid on the principal of the bond and since it’s paid in installments this
meant 5 yrs remained before the entire sum became due. Def had promised P $780 if bond
paid before end of May, but P went to Def’s house in May to pay off the bond and Def
refused to accept $ b/c he had already sold bond and mortgage to 3rd party (P had sold the
parcel to a 3rd party and promised it would be mortgage free). P sues to recover loss of
$780—Judgment for Def.
a. Def’s letter= Unilateral contract = Def promised $ to P if P performed in full (by pmt
in full)
b. Rule= Revocation of Offers= if an act is requested, that very act and no other must
be given…any offer to enter into a unilateral contract may be w/drawn before the act
requested to be done has been performed.
c. Rule= Offeror can revoke before offeree acts, however brief the interval of time btwn
the two acts, and even if he knows the offeree intends to perform.
d. Def clearly w/drew offer before acceptance was tendered (before promise became
binding)!
10. MODERN RULE= Does NOT permit revocation when offeree renders substantial part
performance!!!
11. Case- Carlill v. Carbolic Smoke Ball Co. (1892)- Def put ad in newspaper claiming $100
reward to anyone who use their Smoke ball as directed (3 times/day, for 2 weeks), and still go
flu. P used it & got the flu.
a. Judgment for P: Def made clear promise, notice of acceptance does NOT have to be
prior to it; and adequate consideration b/c Def benefited from future sales and P/user
of smoke ball incurred inconveniences to use it.
b. Rule= the performance of the conditions is the acceptance of the offer!
c. General Rule= in order for contract to be binding, not only does there need to be
acceptance of the offer, but acceptance must be notified. BUT, Exception to Notice
Requirement=
i. When offer constitutes a continuing offer—offeror gets the notice of
acceptance when he gets notice of the performance of the condition
d. Conditional Promise- a promise subject to condition NOT legally enforceable;
i. BUT here there is a promise w/adequate consideration= Bargained-for
exchange!
e. Public Policy issue- Advertising allows high quality sellers to distinguish themselves
from low quality sellers. Should companies be held liable for all guarantees,
promises, etc in their advertisements?
XII. CONFLICTING & INDEFINITE TERMS:
A. Poel v. Brunswick-Balke-Collender Co. of NY (NY Ct App. 1915)- P claims
Def/Brunswick agreed to accept and pay for certain rubber sold by P, and that Def’s refusal to
accept and pay for the rubber was a breach of contract. Ct analyzes a series of 4 written
documents between Def and P to determine whether a contract existed between the parties. P
brought action v. Def to recover damages for breach of an executory contract. Def appealed
Judgment for P—Judgment for P Reversed.
a. Ct held No contract existed b/c the written docs didn’t satisfy SOF (thus not
contract); Def’s April 6th letter—not acceptance; was a counteroffer b/c Def changed
the terms (by est. clause requiring prompt acknowledgment of offer); and then P
failed to accept.
i. Rule= If one does not accept the offer proposed they reject it; a proposal to
accept the offer if modified or an acceptance subject to other terms and
conditions was equivalent to an absolute rejection of the original offer and is
a counteroffer
b. When repugnancy exists between written and printed clauses of an instrument that
which is written will prevail over that which is printed, but b/c there was a conflict
between the printed and written clauses of the contract which are in no way
repugnant to the other clauses of the contract, whether written or printed, are to be
disregarded.
c. THIS CASE IS THE MINORITY VIEW!
B. “Battle of the Form”- if you have a purchase order that says one thing, but the fine print on
the back says another thing re: warranty and merchantability clause, the forms of the deal
don’t see eye to eye.
a. 2 Potential Problems=
i. 1) B/c of a change (price change) one party wants to get out;
ii. 2) one receives your product, uses it, and it doesn’t work—Can the party sue
if their fine print said that the seller was to guarantee the product would work
but seller’s terms don’t make such a guarantee—If buyer’s terms govern they
can sue…
C. Mirror Image Rule= the offer and acceptance have to mirror each other (state same terms), if
there is a substantial difference (i.e. warranty term) there is no enforceable deal between the
parties.
a. Problem- What to do when the offer and acceptance mirror each other except that
one contains a brief clause in fine print that is very trivial (i.e arbitration clause), or
one has a very trivial mistake (such as a misspelled name). How do you handle these
trivial errors?
i. De minimis non curat lex= that mistake is too immaterial, it does not matter
ii. Common law approach to this situation is that there was no enforceable deal,
BUT
iii. UCC 2-207 = abolishes common law Mirror-Image Rule!
D. US v. Orr Construction Co. (5th Cir. 1977)- Def/Orr was a general contractor for the US
Army Corps for construction of the Chicago Bulk Mail Center. Def subcontracted w/Great
Lakes Plumbing & Heating for the project—GL filed suit v. Orr alleging that a substantial
amt remained unpaid to them under the subcontract (sued under the Miller Act.) During
settlement parties came to a written agreement, but dispute arose re: “proper legal releases.”
Def backed out b/c Army wouldn’t pay Def—thus, Def cannot pay GL. Judgment for P
Reversed (no contract!).
a. Rule= A contract is not invalid simply b/ c it calls for the parties to reach an
agreement in the future…to be enforceable, it’s necessary that the terms to be agreed
upon in the future can be certainly determined…either by virtue of the agmt,
commercial practice or custom.
b. NOT ENFORCED b/c the contractual language governing the performance is so
indefinite that we cannot say what adequate performance would be.
i. To est. definiteness in the terms Ct looks at:
1. Fixed meaning from the contractual language;
2. Parties conduct for evidence of “meeting of the minds.”
E. Sun Printing & Publishing Ass’n v. Remington Paper Co. ( NY 1923)- P agreed to buy
and Def agreed to sell 1,000 tons of paper/month for just over 1 yr. Quantity, quality, pmt
method were stipulated- pmts to be made on 20th of each month at rate of $3.73 ¾ per 100
lbs. The Price and term of that price during the period can be changed if agreed upon 15 days
prior to expiration of the term. Def gave P advance notice that the contract was imperfect and
Def disclaimed for its future obligation to deliver. P filed claim v. Def to enforce contract.
Judgment for Def.
a. B/c the parties left 2 essential contract elements open [price & term for which that
price governs] there is no binding contract [ no meeting of the minds]
b. Ct concluded this contract NOT option b/c w/price & term open, not = a single
option.
c. Cardozo asserts the need for certainty; focuses on parties’ Obj. manifestations, not
intent!
XIII. RELIANCE & PRE-CONTRACTUAL NEGOTIATIONS:
A. Goodman v. Dicker (DC Cir. 1948)- [Expenses in reliance on franchise grant]
Def/Goodman was a distributor for Emerson Radio Co, and made representations to Dicker/P
that he could have an Emerson Franchise; P relied on Def’s reps and expended money to hire
salesman, etc. No Franchise was ever granted! Def claims that even if franchise had been
granted it would have been terminable at will, thus Def not liable. P sued for breach of
contract to recover expenses + lost profits. Judgment Affirmed as to P’s expenses;
Reversed as to lost profits.
a. P’s reliance on Def’s reps to give P a franchise was justifiable to estopp Def!!!
b. Rule= Promissory Estoppel will not allow recovery according to the benefit of
the bargain; rather, damages are measured by the injury suffered as a result of
reliance.
c. NO recovery of lost profits b/c that loss not due to P’s reliance (and too
speculative)
d. General Principle= one cannot, by his language or conduct, lead another to do
something he wouldn’t have otherwise done, and subject them to loss by
disappointing the expectations upon which he acted”
e. Baird- How can PE apply here if no promise was made?
i. The Ct here pushes the scope of PE!!!
f.
B.
C.
D.
E.
F.
PE leads to reliance based damages, not ED—b/c theory of recovery under PE
is not based on value of one’s promise, rather on one’s reliance on the
promise***
§90 Doctrine of Promissory Estoppel applies here even thought the promise P relied on
doesn’t contain all essential elements of a contract (b/c an PE action not equivalent to a
breach of contract action). Def made promises—P relied on & acted to their detriment.
a. Required Elements of PE=
i. 1) Promise; 2) substantial reliance; 3) detriment; 3) injustice unless
damages granted; 4) foreseeability of reliance by P.
b. Re: Damages Under PEi. Should be only what’s necessary to prevent injustice…damages should
not exceed loss caused by the change of position (Reliance-based not ED
damages!)
UCC §2-205 = Firm Offers = a signed, written offer by a merchant to buy or sell goods,
which states that it will be kept open, is irrevocable for whatever period of time is stated in
the offer (or if none is stated, for a reasonable period of time); period of irrevocability cannot
exceed 3 months.
Hoofman v. Red Owl Stores, Inc (WI 1965)- [Reliance on negotiations]- Red Owl/Def was
involved in a grocery store franchise proposal with Hoffman/P whereby Def would grant a
franchise to P for $18,000. P purchased a small grocery store to gain experience; Def made P
sell that store, required P to put up $1,000 for an option on land in Chilton to build the store
and to move his family; P was told that he would get the franchise as soon as he sold his
bakery, which he did. Then Def continued to raise purchase price in their offer. P rejected,
filed action for damages on his reliance & Def’s nonperform. Judgment for P Affirmed.
a. NOTE- Ct extends the PE doctrine b/c doesn’t rationalize PE in terms of reliance
as a substitute for consideration (b/c no offer here, just negotiations).
i. Ct applied PE even though promise relied on by P was missing
essential terms!
Hoffman Case v. Goodman Case: Key Distinctions=
a. 1) Hoffman sues the person who had the power to bring/grant the franchise
(while P filed claim v. Goodman who wasn’t an agent of Emerson Radio—easier
to find liability here);
b. 2) Hoffman broke off the contract himself, sought damages
c. 3) Goodman knowingly lied; while Red Owl made reps. to Hoffman in good faith
d. Distinctions of Hoffman case:
i. P acted in actual reliance of their negotiations;
ii. Hoffman differs from Dempsey b/c here P’s reliance on pre-contractual
negotiations and not on a contract;
iii. Hoffman Ct asserts legal liability on Def when there were numerous open
contract terms; BUT in Sun Printing, Ct held no liability b/c of 2 open
terms.
iv. Hoffman is an outlier case! Today, NOT easy to win on Sec. 90 PE
claim!
James Baird v. Gimbel Bros, Inc.-(2nd Cir. 1933)- Def/NY merchant sent employee to a
contractor for a linoleum estimate for contracting job in PA. Def’s employee underestimated
the total yardage by approx. ½ the true amt. On Dec 24th, Def sent 20-30 contractors who
were likely to bid on the job an offer to supply all the linoleum required for the job. Def’s
“guaranteed” their offer. P/contractor in WA received Def’s offer the same day that Def sent
letters re: mistake; P made bid on job—accepted on Dec 30th—P received Def’s
mistake/withdrawal letter Dec 31st—BUT P didn’t formally accept Def’s original offer till
Jan 2nd. P sued Def for breach of contract. Judgment for Def Affirmed- the parties didn’t
have a contract and Def didn’t make an irrevocable offer.
a. No irrevocable offer here & Def already w/drew offer so P’s acceptance too
late!
b. Def’s offer = “we are offering these prices for …prompt acceptance after the
general contract has been awarded” does NOT imply Def’s use of it is
equivalent to acceptance.
c. Ct held PE does NOT apply b/c=
i. An offer is not meant to be a promise until a consideration has been
received (counter-promise, etc.)—here Def made offer re: linoleum and
the offer would become a promise to deliver only when the P promised
to take and pay for it.
d. Old View= Baird v. Gimbel = “no liability for subcontractor withdrawal”
e. Modern View= Drennan= “liability for SC withdrawal if reliance is reas.
Foreseeable”
G. Drennan v. Star Paving Co. (CA 1958)- P/General contractor was preparing bid and stated
it was customary that GC’s receive bids of subcontractors by phone on the day set for bidding
and to rely on them in computing their own bids. P’s bid included names of subs and a bond
as security; Def/Star Paving made lowest sub bid to Def over phone—P submitted bid
naming Def as sub—P awarded bid—Def backed out/raised price b/c had made mistake—P
resorted to more expensive bid. Judgment for P for diff. btwn Def’s orig. bid and actual
paving cost to P w/new subcontractor.
a. Restatement Sec. 45= if an offer for a unilateral contract is made & part of
consideration requested is given by offeree, the offeror is bound by contract.
i. Mere justifiable reliance on offer is suffice to est. binding contract;
absence of consideration is not fatal; § 90 PE applies here!
b. J. Traynor- Def did NOT make irrevocable offer—Def’s bid induced “action of
a definite and substantial character on the part of the promisee”
c. Subsidiary Promise- notion that w/in an offer there is a subsidiary promise
implying that if part performance; offeror won’t revoke and tender will be
accepted.
d. KEY= Ct asserts an implied promise—b/c injustice would result if offeror could
revoke offer after offeree acted in detrimental reliance; and changed their
position.
i. Even w/unclear terms, Ct will imply a promise
e. Drennan = Modern View (apply PE)
H. Key Distinctions btwn Drennan (binding contract/PE) v. Gimbel Bros (no contract/no PE):
a. Gimbel Bros. -Def made a mistake re: linoleum offer, but realized it too late.
i. Use of the sub’s offer by GC not acceptance b/c lacks mutuality!!!
ii. Mutuality lacking b/c Baird could get the contract, breach it, and have
NO liability to Gimbel Bros= NO CONTRACT= NO PE b/c no actual
promise.
b. Drennan- Ct allowed P recovery under PE b/c Def made implied promise,
i. Def didn’t revoke offer until after acceptance; Note there’s no language
here (as in Gimbel) stating “this offer is for prompt acceptance”;
c. UCC applies to Gimbel (sale of goods) but not Drennan (service); thus rules
governing how to make a firm offer differ here.
XIV. THE STATUTE OF FRAUDS:
I. Statute of Frauds= Not only does a contract require bargained-for exchange, correspondence
between the parties, objective meeting of the minds re: material terms; BUT also there has to
be a writing signed by the person who is to be bound, evidencing the agreement.
J. UCC § 2-202(1)= enforceable contract must be in writing, signed by party seeking
enforcement
K. Why have a legal rule requiring writing?
a. Fuller [???]- Cannot enforce a contract w/out a formality that est. a contract
exists—thus
i. Evidentiary Function= one knows how to distinguish and est. a legal
contract.
ii. Cautionary Function= generates people taking proper steps needed to
est. a legally enforceable contract by putting it in writing.
L. Baird- SOF one of most failed legal rules; not effective b/c too many exceptions!
M. Southwest Engineering Co. v. Martin Tractor (Kansas 1970)- P/Southwest is GC and
before P submitted bid to the US Engineers Corps at Air Force Base, P’s Rep (Cloepfil)
called Def asking for a bid price for a standby generator; Def responded by phone on April
13th w/$18,500. P submitted its bid on April 14th, then on April 20th notified Def that its bid
had been accepted. P and Def met April 28th and Def raised the price, BUT parties still reach
agmt—Def later revoked; P had to buy generator at from another Co. for a higher price,
$27,500.
a. Judgment for P Affirmed- P granted $6,000 in damages; $9,000 for substitute
price diff.
b. Meeting btwn P & Def resulted in enforceable agmt under UCC; Docs satisfied
the SOF!
c. UCC 2-202(1) =… a contract for the sale of goods for the price of $500 or more
is not enforceable by way of action or defense unless there is some writing
sufficient to indicate that a contract for sale has been made btwn the parties and
signed by the party v. whom enforcement is sought or by his authorized agent. A
writing is not insufficient b/c it omits or incorrectly states a term agreed upon but
the contract is not enforceable beyond the qty of goods shown in writing.
i. UCC 1-201(3)= Defines what constitutes signed= which means simple,
executed, w/present intent to execute a writing
d. Docs satisfy SOF b/c met 3 requirements= signed, est. for sale of goods, qty was
est.
e. De minimis non curat lex= the issue or problem is too immaterial
f. Southwest alerts us to following:
1. This case doesn’t seem to align with Drennan [J. Traynor est. an implied
promise, thus PE applied & contract binding]
2. Southwest Ct contradicts Poel b/c asserts that even though no agmt re: price,
Ct still finds an enforceable deal (despite no meeting of the minds)
a. Poel Ct- held no contract b/c of counteroffer [Mirror Image Rule]
XV. UNDERSTANDING LEGALLY ENFORCABLE OBLIGATIONS:
*CONFLICTING TERMSN. ProCD, Inc. v. Zeidenberg (7th Cir 1996)- P/ProCD compiled info from 3,000 phone
directories into a computer database (that cannot be copyrighted) and sells it on CD called
SelectPhone. Database is costly; P sells it at price discrimination so to control arbitrage P has
an enclosed license. Def bought P’s product and chose to ignore the license and resell the info
in the database for a cheaper price. P filed suit v. Def seeking an injunction—Judgment for
P.
a. Rule= Shrink-wrap licenses are enforceable contracts unless their terms are
objectionable on grounds applicable to contracts in general (i.e. if
unconscionable).
b. 2nd Rstmt § 211= notice on the outside, terms on the inside, and a right to return
the software for a refund if the terms are unacceptable, may be a means of doing
business valuable to buyers and sellers alike.
c. UCC §2-204(1) = A vendor, as master of the offer may invite acceptance by
conduct, and may propose limitations on the kind of conduct that constitutes
acceptance. A buyer may accept by performing the acts the vendor proposes to
treat as acceptance.
d. UCC §2-606(1b) = Acceptance= a buyer accepts goods under 2-606(1b) when,
after an opportunity to inspect, he fails to make an effective rejection under 2602(1).
e. J. Easterbrook- Ct asserts the following:
i. Buy buying software, Def agreed to be subject to a license;
ii. Cannot expect vendors to fit all terms in microscopic print on outside of
package;
iii. Common to have deals where $ precedes communication of the detailed
terms (i.e. purchase of insurance or airline tickets or consumer goods).
f. Ct enforced deal under notion of offer & acceptance—
i. Offer = made by having the software at the store
ii. Acceptance = (NOT when buyer purchases) when he takes it home and
uses it
1. Similar approach (yet more of stretch) used in Gateway case.
g. IWM= guarantees that the product “has to pass w/out rejection in the trade under
contract”; thus one can be protected from hidden terms by the IWM;
i. UCC 2-316= A disclaimer of the IWM must be conspicuous…promises
to make firm offers or negate oral modifications must be separately
signed.
O. Hill v. Gateway 2000, Inc. (7th Cir 1997)- P/Rich and Enza Hill purchased a computer w/
term stating an arbitration clause; P kept it longer than the allowable 30 days, and then
complained of its performance & asserted that the arbitration clause did not stand out and P
filed suit in Fed Ct. Judgment for P Reversed- b/c by keeping it over 30 day limit, P
accepted Def’s containing an arbitration clause and P must comply w/it.
a. J. Easterbrook- cites ProCD, noting it exemplifies a transaction where
consumers pay for product w/the terms to follow.
b. P urges the Ct to limit the ProCD ruling to computer software and executory
contracts/licenses—Ct refuses to do so!
*PAROL EVIDENCE RULEP. PER = Writing intended by parties to be final evidence of agmt and may not be contradicted;
parole evidence not admissible to est. terms agreed upon prior to contract; BUT admissible to
show subsequent modifications!
Q. INTEGRATED AGMREEMENTS= 2nd Rstmt § 209:
a. 1) An IA = a writing(s) constituting a final expression of one or more terms of an
agmt;
b. 2) 1st Ct determines if there’s an IA; 2nd Ct determines application of PER to
agmt
c. 3) If parties have put the Agmt in writing which appears complete—Ct presumes
complete agmt unless evidence that writing did NOT constitute final/complete
expression
d. COMPLETE IA =
i. Cannot be contradicted or supplemented; “Four-Corners Rule”
e. PARTIAL IAi. Cannot be contradicted, BUT can be supplemented!
f.
Majority View re: PER = extrinsic evidence barred if reasonable person
would’ve included matter in the writing of the agmt.
i. Modern Trend= extrinsic evidence admissible based on intent of parties
to include matter in writing (Corbin Test)
nd
R. 2 Rstmt § 213= PER= a written agmt that is found to be completely integrated (represents
a full and final embodiment of parties understanding) discharges any prior agmt that falls
within its scope.
a. 1) Binding IA discharges prior agmts to extent that it’s inconsistent w/them;
b. 2) Binding Completely IA, discharges prior agmts to extent that they are w/in its
scope;
c. 3) Non-Binding IA that’s voidable and avoided does not discharge a prior agmt;
BUT
i. An IA, binding or not, can render inoperative a term which would have
been part of the agmt if it had not been integrated.
KEY CASES=
S. Mitchell v. Lath (Ct App NY 1928)- Lath/Def wanted to sell their farm; P/Mitchell engaged
in a written contract to buy the farm for $8,400 after they agreed that Def would remove Ice
House as consideration for P’s purchase; P spent lots $ improving the property, then Def
refused to remove ice house—P sued for SP- Def appealed Trial Ct Judgment for P—
Judgment of App. Div. Reversed.
a. Prior Oral Agreement NOT Collateral to Written Agmt—thus, NOT admissible
i. Collateral agreements are admissible b/c PER doesn’t apply to them!
b. PER= defines the limits of the contract; attempts to modify contract by parol,
BUT
i. PER DOESN’T APPLY TO COLLATERAL AGMTS distinct from
writing!
c. PER Admissibility Test= For Oral Agmt to bind Written Agmt:
i. 1) Agmt must be a collateral (= capable of being expressed in separate
agmt)
ii. 2) Cannot contradict express/implied provisions of the written contract;
iii. 3) Must be one that parties would not ordinarily be expected to embody
in the writing; OR not clearly connected w/principal transaction as to be
part of it.
d. Ct asserts that it makes sense to reasonably assume that parties would’ve
contracted for the removal of ice house in final/written agmt—Thus, NOT
collateral, NOT admissible!
e. Baird- This case is about Consideration;
i. Prior oral agmt enforceable IF entails separate consideration by
promisee—
f. Basic intuition= deal is est. in written doc; don’t look past doc to est. what deal
entails;
i. Rationale-parties will negotiate more completely b/c final doc will be
strictly enforced; makes contracts more inclusive—
ii. BUT, here Def clearly promised remove ice house but no enforcement
b/c PER!
T. Hatley v. Stafford (OR 1978) - P/lessee rented a 52-acre farm from Def/Stafford under a
lease that gave Def right to “buy out P at a cost no greater than $70 per acre.” P claims
written lease was only a partial agreement & they orally agreed the buy out provision was
only for first 30-60 days after lease execution—Def disagrees, tries to terminate lease, claims
Oral Agmt inadmissible b/c contradicts the written lease. P sued for trespass; Judgment for
P—parole evidence here is admissible!
a. Parole Evidence Admissible if Oral Agmt =
i. 1) not inconsistent w/the written lease; and
ii. 2) Such an agmt that might naturally be made as a separate agreement
iii. 2nd Rstmt § 240
b. PER- you cannot bring in evidence that should have (and is reasonable to assume
that it would have) been covered/agreed upon in the written contract
i. But, Partial Agmt can be supplemented by parol evidence!
c. PER has 2 parts:
i. 1) Ct Must first decide if there is a Complete IA;
ii. 2) IF not a CIA, than you can introduce new terms/evidence to the deal
as long as they do not conflict w/the original/written deal!
d. Hatley and Mitchell propose 2 views of PER= 1) a formal view of the rule [ct
exclude a prior agreement that most likely occurred); 2) it is useful to look at the
writing and stick to terms of writing and shouldn’t let other terms come in and
disturb what is in writing
U. PG&E Co. v. G.W. Thomas Drayage & Rigging Co. (CA 1968)- Def contracted w/P to
provide labor and equipment for work on P’s steam turbine. Def agreed to indemnify P v. all
loss, damage, injury to P’s property and to provide insurance coverage. During work, the
cover fell and caused damage to the turbine. Def claims that the indemnity clause was
intended only to cover injury to 3rd parties, not P’s property. P sued for damages to prop;
Judgment for P Reversed.
a. Rule= general rule is that extrinsic evidence is not admissible to add to, detract
from, or vary the terms of a written contract; BUT
b. Test of Admissibility—is the offered evidence relevant to prove a meaning to
which the language of the instrument is reasonably susceptible?
i. If meaning est. from words alone, extrinsic evidence should be excluded.
ii. If meaning is ambiguous, extrinsic evidence is relevant and admissible.
c. J. Traynor—Trial Ct erred in refusing to consider Def’s EE offered to est. that
the Indemnity clause didn’t cover injuries to P’s prop (EE relevant &
admissible).
d. Baird- possible explanation for this case is Hadley, only liable for foreseeable
harms.
e. Ct’s focus here not re: admission of a collateral agmt; Rather, focus is should Ct
allow external evidence to clarify terms of the contract at hand.
V. Legal Realism- [Lewellyn] to understand a contract btwn merchants you have to understand
that the contract was est. re: their customs & trade practices; Thus, contract law should
acknowledge the customs of the industry; Consideration NOT only thing that est. a contract!
a. The expressed language will still trump the customary factors except when
the written terms are unclear
W. Columbia Nitrogen Corp. v. Royster Co. (4th Cir. 1971)- Trial Ct held for P/Royster for
Def’s breach of contract re: purchases of P’s phosphate, and held trade/custom evidence was
inadmissible. Def/Columbia claimed that in light of trade usage the contract imposed no duty
to accept at the quoted prices b/c custom is that express price and qty terms in contracts in
the mixed fertilizer industry are mere projections to be adjusted according to market forces.
Judgment Reversed- Trial Ct erred in excluding trade/custom evidence.
a. Rule= a finding of ambiguity is not necessary for the admission of extrinsic
evidence about the usage of the trade and the parties’ course of dealing
i. Test of Admissibility = NOT whether the contract is complete on its
face, but whether the proffered evidence re: custom/trade usage can
reasonably be construed as consistent w/the express agmt terms***
b. UCC= contract shall be liberally construed…evidence of trade usage/course of
dealing should be excluded ONLY if it contradicts w/the express contract.
c. Ct asserted that trade/custom evidence must be taken into acct to determine if
seller & buyer, acting w/in conventions of the industry, would’ve wanted &
expected an adjustment to be made in the event of sudden/material change in
market conditions.
i. Extrinsic evidence admissible if supplements & explain the written
contract
d. Notion that you don’t want to make parties spell out all details of contract
when in a world where the general terms and customs are understood
X. Wilson Arlington Co. v. Prudential Insur. Co. (9th Cir. 1990) - Prudential/Def contracted
with P/Wilson to sell them Hyatt Hotel. Parties signed a Sales Agmt & other docs; After the
Escrow was closed, P demanded that Def pay them for expenses during the closing; Def
refused so P filed a claim to CA Sup. Ct. to recover $300,000 for the pre-closing accounts
payable. Def moved the action to Federal Ct under USC Sec. 1332 and counterclaimed for
$600,000 consisting of the hotel’s cash on hand and accts receivable—Judgment for Def’s
recovery Reversed.
a. Rule= Virginia’s PER adheres to “plain meaning rule”—writing will be the sole
evidence re: the agmt and no PE admissible when plain meaning of contract is
clear.
i. VA Cts hold PE as admissible under few exceptions (i.e. fraud, mutual
mistake, ambiguous contractual language)—none of those conditions
apply here!
b. A contract is not ambiguous merely b/c the parties disagree as to the meaning
of the language; VA Ct rejects the CA rule allowing parol evidence to est.
ambiguity
*MISTAKE & EXCUSE:
A. Mutual Mistake- if both parties mistaken re: material fact when enter contract, contract is
voidable by either party b/c of mutual mistake if:
a. 1) enforcement would make performance by that party significantly more
burdensome than it would have been absent the mistake; and
b. 2) at the time of bargaining the fact in question was not one as to which the
parties realized there was doubt. [1stRstmt Sec.502]
B. Unilateral Mistakea. No relief for purely unilateral mistake not known/taken advantage of by other
party. BUT
b. Relief granted where coupled w/other factors—i.e. 1) where the mistake is
basic; 2) unconscionable hardship would follow if the bargain were allowed to
stand (Def then entitled to reliance losses due to setting aside the bargain).
C. Mistake in basic assumptions- this refers to cases where a contract exists, but one or both of
the parties executed contract under a mistake re: some basic fact/circumstance affecting
contract’s value.
a. Normal remedy here is rescission!
b. Mistake must be “basic”; mere materiality is not enough, the mistake must go to
the very basis of the bargain
D. Sherwood v. Walker (MI 1887) P/Sherwood agreed to buy a cattle (Rose 2d of Aberlone)
from Def for 5 ½ Cents per pound; sale confirmed in writing. Both parties believe the cattle
was barren, then Def discovered she was pregnant and refused to sell to P. P filed replevin
action for the cow.
a. Judgment for P Reversed- b/c the mutual mistake re: if cattle was barren
invalidates contract; a barren cow is substantially different than a breeding one
b. Rule= if the good delivered/received is diff in substance from what was
bargained for and intended—there is NO contract (mistake must be material)
i. contract still binding if the diff is minor (i.e. quality) even if that mistake
was the motive of the buyer/seller
c. Baird: This case would turn out differently if P had known it wasn’t barren—
then it’s a mutual mistake and have to address non disclosure issues
i. This is an information-disclosing enforcement rule!
E. Errors in Computation= if offeror submits a bid based on error in computation—
a. Offeree unaware of error- then there’s a binding contract on the offeror’s terms;
generally no equitable relief allowed.
b. Offeree aware of error- or should’ve known, the mistake invalidates the
contract!
F. Elsinore Union Elementary School District v. Kastorff (CA 1960) (unilateral mistake
known to the other party) Def/contractor, submitted a bid for construction on a school; P
accepted the $89,000 bid as it was much lower than other bids, so P asked Def is the figures
were correct—Def said yes! Def then discovered it omitted plumbing costs and promptly
notified P; P refused to w/draw Def’s bid. P then gave the job to next lowest bid but paid
$12,900 more. Judgment for Def.
a. Rule= where a contractor submits a winning bid on a contract but inadvertently
omits a major cost item from the total, the courts ALMOST ALWAYS allow the
contractor (provided there has been NO SUBSTANTIAL RELIANCE on the
contract) to rescind or reform his bid on the ground that enforcement would be
unconscionable.
i. Is this like Petterson v Pattberg? A unilateral offer may be revoked at
any time prior to the offeree’s completing the act of acceptance
b. Baird: Elsinore v. Drennan= Same Ct, very diff ruling? Why?
c. Drennan decision based P’s detrimental reliance on Def’s bid (same in
Elsinore)
i. The court est. reliance as the basis for liability in Drennan;
ii. BUT, Elsinore has expectation damages b/c Def promised the job
at cheap price; then revoked and P had to pay $12,000 more for the
job.
d. Quick breach cases= when one party makes unilateral mistake, Ct will let
them off the hook only if there is a quick breach & thus no damages; thus
a fundamental unilateral mistake can make the contract voidable!
i. Elsinore = outlier case b/c it pushes v. the reach of EDP!
G. Impossibility Justifies Non-Performance = a thing is impossible when it is not
practicable-when it can be done only at an excessive and unreasonable cost—where
performance depends on the existence of a given thing, it is excused if the thing
ceases to exist or turns out to be nonexistent
a. UCC 2-613- Background rule of impossibility- the deal is off b/c that
which is foundational to the deal NO longer exists!
H. Taylor v. Caldwell (1863)- Def contracted w/P agreeing to let P use the Music Hall for
four days in order to give 4 concerts- P agreed to the four nights stated and to pay 100
lbs for each day; parties were in error to call the deal a “letting” b/c Def retained
possession of the Music Hall and P was just granted use; After est. terms of deal,
BUT before the first concert, the Hall was destroyed by fire. Held: P & Def excused!
a. Rule= if at the formation of the contract, the parties contemplated such
continuing existence as the foundation of performance of contract…the
contract is construed as subject to an implied condition that the parties
shall be excused (before breach) if performance becomes impossible b/c
the condition/thing ceases to exist
b. Parties contracted on the basis of the continued existence of the Music
Hall—b/c the Hall no longer exists at no fault of either party, both are
excused.
I. Opera Co. of Boston v. Wolf Trap Foundation(4th Cir 1987) P/Opera Co. agreed to give 4
opera performances that would meet the Co.’s est. standards at the Filene Center
(sponsored by Wolf Trap). Filene consists of a main stage tower, auditorium, open
lawn, and a parking area that is usually lighted along w/the pathways to the Center for
the patrons. Def would pay P total of $270,000 in installments & provide lighting
equipment as specified by P. The first 3 shows were sold out and each party fully
performed; severe storm prevented 4th show; Def canceled refused to pay P; 5 yrs
later P files suit; Def claims impossibility excused perform.
a. Rule= Taylor Rule= if performance depends on continued existence of a given
person/thing, a condition is implied that the impossibility of performance shall
excuse it
b. 2nd Rstmt § 263,265 = to est. the defense of impossibility, one must est.:
i. 1) unexpected occurrence of an intervening act;
ii. 2) Such occurrence was of the character that its non-occurrence
was a basic assumption of the contract;
iii. 3) That occurrence made performance impracticable.
c. Held: Case remanded; the power was necessary for performance of the
show thus power outage meets the “non occurrence requirement”
d. Today, notion of impossibility expanded by adoption of term =
impracticability!
e. Baird: But could Def have used back up generators? Would that be
sufficient to light stage & walkways? Should Def have restitution claim?
[YES]
J. Baird Hypo- the show gets cancelled b/c the lights out and this affects the following
parties—who can sue who? What can the parties recover?
a. Parties= 1) Wolf Trap; 2) Opera Co.; 3) Domingo; 4) Baird’s mother
b. Baird’s mother- paid $50 for a ticket, $5 for travel, but could’ve sold it for
$500—thus the value of the show to her is at least $500. What is she
entitled to?
i. Her expectation damages would be $550
ii. Or should she only get $55 to cover ticket and travel? (reliance
damages)
c. Domingo- had agreed to sing at the Opera show for $10,000, and incurred
a $500 airplane ticket to get therei. Can claim entitled to that value b/c if he hadn’t entered into the
deal here he could’ve gone elsewhere to perform for same payment
(reliance claim)
d. Opera Co= not clear that they could book a show elsewhere & net
$10,000.
i. If they can prove they could have scheduled elsewhere then can
argue they are entitled to $10,000.
e. Wolf Trap= claim recovery b/c they were able to able to schedule a very
popular show but then lost out, thus likely they could do it again
f. Can argue each party entitled to recovery—BUT the reality is that legal
liability will be dispersed such that some party is going to take the fall—
K. Carroll v. Bowerstock(KS 1917)- P agreed to build a reinforced concrete floor in
Def’s warehouse, so P removed the old floor, built wooden forms for concrete pillars
to support the floor, and installed reinforcing rods. Warehouse was then destroyed by
fire (no fault of either party) and P sued to recover for performance prior to fire.
a. Judgment for P Reversed; Def not liable for all work performed
before fire
i. P shouldn’t recover for their supples/labor/superintendance/use of
tools
b. Ct noted that if a contractor engaged to furnish all labor and material to
build a house which then burned down before completion, then he would
bear all loss. But if he only contracted to re-floor a couple rooms and
completed a room before the house burned then he should be paid
something.
c. To be liable the owner must be benefited—law asserts an obligation on
the owner on grounds of the consideration he has received as a
benefit/advantage to him
d. Test of benefit- “liability of the owner should be measured by the amt of
the contract work done which (had it not been destroyed) would have been
conferred as a benefit to owner as part of contract”
e. This case is similar to Opera House Hypo above: cannot est. liability
unless you have an idea as to the underlying responsibilities of the
involved parties***
L. Krell v. Henry(1903)- P/Krell filed claim v. Def/Henry for 50 lbs (unpaid rental
balance) as Def had agreed to rent a flat for two days for the purpose of viewing the
King’s procession. Then Def agreed w/P’s solicitor that he only needed the rooms
during the day; then the King got sick and parade was cancelled. P filed claim under
Taylor rule.
a. When the purpose of a contract is frustrated by an unforeseeable supervening
event and the purpose was w/in the contemplation of both parties when the
contract was made, performance is excused.
i. Purpose may be implied—i.e. he high rent was for the purpose of
viewing the parade.
b. Direct subject of the contract doesn’t have to perish, it is sufficient that a state
of things or condition expressed in the contract & essential to its performance
perishes
c. *Test for est. the “foundation of the contract- 3 questions to consider:
i. What was the foundation of the contract? Was the performance of
the contract prevented? Could the event causing impossibility have
been anticipated or guarded against?
CONDITIONS:
A. Nichols v. Raynbred (1615)= Independent Promises; P filed action in Assumpsit v.
Def/Raynbred alleging that as consideration for a cow P was to deliver, Def had promised to
pay 50 shillings.
1. Held: P doesn’t’ have to deliver the cow b/c this was a promise for a promise =
independent promises; & promises must be at one instant to be enforceable.
2. Dependency of Mutual Promises= old CL view= NO longer good law!!!
3. In Lord Mansfield’s Kingston opinion see the emergence of Bilateral contracts—
B. Kingston v. Preston(1773)- P brought action of debt for non performance by Def of
covenants est. in articles of their contract. March 24th, 1770 P covenanted to Def to
serve as Def’s servant for 1 ¼ yrs as a silk mercer, for 200 lbs/yr—as consideration
Def promised to would give P his business and stock at the end of the year and that
“deeds of partnership for 14 yrs should be executed btwn then.” Included was a
covenant that P would accept those conditions and procure security of 250 lbs/month
to be given to Def for the monthly earnings of the stock (and until the stock valued
dropped to 4000 lbs). P filed claim v. Def for breach of contract b/c Def refused to
give up his business & stock at year end—Def claimed P failed to offer and give
sufficient security/pmt—
1. Judgment for Def- b/c P’s performance was a condition precedent.
2. Lord Mansfield held that there are 3 kinds of covenants= 1) Mutual &
Independent- either party can recover from the other due to breach; 2)
Conditions & Dependent- performance of one depends on the prior
performance of another, thus the other party is not liable until the prior
condition is performed; 3) Simultaneous Mutual Conditions- if one party is
ready and performs his part and if the other party is not ready or refuses to
perform their part, the performing party has cause for action;
3. Order is key- their (the dependence or independence of the covenants)
precedency depends on the order of time in which the intent to the
transaction requires their performance.
4. Before Def gave up his business and stock he was entitled to good security
of pmt from P—thus the giving of the security is a condition precedent
5.
C. 2nd Rstmt § 234- Order of Performances- (1) Where all or part of the performances
to be exchanged under an exchange of promises can be rendered simultaneously,
they’re due simultaneously unless the language of the contract indicates otherwise.
D. 2nd Rstmt § 238- Effect on Other Party’s duties of a failure to offer performancewhere all or part of performances to be exchanged under an exchange of promises are
due simultaneously, it’s a condition of each party’s duties to render such performance
that the other party render or offer performance of his part of the simultaneous
exchange.
E. Price v. Van Lint- (NM 1941)- Van Lint agreed to give $1500 to Price to buy land for
the Co. and as security P agreed to give mortgage deed & insur for that amt. [this
transaction is almost exactly like Kingston v. Preston- b/c there’s a promise for a loan
and Price promises to pay back the loan. Both parties understand that Price doesn’t
get ownership of the land for some time b/c the deed had to go to Amsterdam to get
cleared and that the deed may NOT come back before Feb 1st and that the loan was to
be given in Feb 1st. Thus, the deed cannot be seen as a condition precedent b/c the
parties specified and were aware that the deed may not be available by Feb 1st. Ct
held that giving the security was NOT a condition precedent to giving the loan!
1. Held: the covenants were indep; thus Def was required to deposit the balance of
the agreed loan before Feb 1st regardless of the delayed deep preventing P from
delivering the mortgage as security on the loan.
2. Rule= If dependent promises- then P’s failure to perform his part denies
him right to recovery; if Indep—Def is obligated to perform and then look
to remedy for P’s breach
3. Rule= a promise should not be est. as indep unless the nature of the
contract or circumstances compel a contrary inference—thus the
assumption favors interpreting as agreed exchange of promises.
4. Rule= Glaser v. Dannelley- if a contract has mutual promises to be
preformed at different times, then the latter promise is an indep obligation
and nonperformance thereof merely raises a cause of action in the
promisee and doesn’t defeat the right of the party making the claim to
recover for a breach of promise.
5. Damages: properly awarded for travel expenses and rent; but lost profits too
speculative
i. Generally no damages for breach of contract to loan $
ii. But here Def knew P had plans to build on land & relied on the loan
iii. Damages for Breach of Loan= costs to secure new loan less interest
savings + other unavoidable, foreseeable harms (i.e. travel expenses to
go secure new loan)
F. Plant v. Jacobs- (Wis. 1960)- Def/Jacobs entered into written contract w/ P who was
to furnish the materials and construct Def’s house for $26,765. During the course of
construction P was paid $20,000 but then the parties began to dispute and Def refused
to continue pmt. P filed suit to est. lien on Def/Jacob’s prop to recover unpaid balance
of the contract price of building Def’s house. Def alleges no substantial performance
by P who breached contract, and counterclaims for damages due to faulty and
incomplete construction. Judgment for P- b/c P didn’t have to meet exact design
specs to substantially perform (note- there was no exact blueprint).
1. Rule= the test for substantial performance is whether the performance
meets the essential purpose of the contract; does not have to meet exact
design specs (unless details are made the essence of the contract).
2. Rule= for Substantial Performance, the P should recover the Contract
Price less the damages caused to Def for incomplete performance
3. Rule= whether a defect should fall under the cost of replacement rule or
be considered under the diminished value rule depends upon the nature
and magnitude of the defect.
4. Diminished Value Rule= rule for damages re: incomplete performance is
i. Value of house as contracted for- Value incomplete house
ii. Ct held misplaced wall valued under the DVR
G. Jacob & Youngs v. Kent (NY 1921) P sued to recover $3500 the balance of a CP of
over $77,000 for building Def’s house. P completed the house; Def moved in; 1 yr
later Def learned that a pipe didn’t meet the plan specs. The pipe was enclosed in
walls and to replace would require expensive demolition. Def’s architect ordered P to
replace the pipe, P refused, and then the architect refused to issue final pmt to P.
1. B/c P’s default was unintentional and trivial and P’s performance was
substantially what Def bargained for, P was entitled to recover the
unpaid contract price less Def’s damages, measured by the diff in value
of house if any resulting from the use of pipe other than Reading pipe.
2. Cardozo: if the defect/error is incapable of surrender b/c it’s united to the
land, NOT treaded as a defective condition that’s easily fixed.
H. Perfect Tender Rule= With respect to the quality (inherent attributes) of the goods
there has to be perfect tender—if you promised good of specified quality/brand, then I
can sue you if you fail to deliver the specified good, and can recover [UCC 2-601]
1. Measure of the perfect tender is tied to the obligations of the contract
*EXPRESS CONDITIONS:
I. Howard v. Federal Crop Insur. Corp (4th Cir 1976)- P tobacco crop damaged in storm,
but still harvested and sold the depleted crop, then filed notice and proof w/the FCIC
(which had issued them 3 insurance policies for the tobacco)—but when the FCIC
inspector came to inspect the fields, P had already plowed the fields fro their crop of
rye. Def denied P’s claims on grounds that P violated policy by destroying the crops
assoc w/their loss claim before Def could make inspection.
1. 2nd Rstmt § 261= Interpretation of Doubtful words as promise or
condition= where its doubtful whether words create a promise or an
express condition, they are interpreted as creating a promise; but the same
words may sometimes mean that one party promises a performance and
that the other party’s promise is conditional on that performance.
i. Contract provisions won’t be construed as conditions precedent
in the absence of clear language requiring such.
2. District Ct erred in holding that the insureds compliance w/the inspection
provision (5f) was a condition precedent to the recover—Ct concludes
that it was a condition subsequent
3. Conditions: if it is a condition precedent one asserts that before I owe you
pmt that condition must be met; BUT if it’s a condition subsequent, one
asserts that I have an obligation to pay that is voided if this condition
occurs
J. Mascioni v. IB Miller Co.(NY Ct. App. 1933) Def agrees to pay said amt to P for P’s
subcontracting service to build concrete walls. The written contract had a provision
stating that Def’s pmt would be made to P upon receipt of pmt to Def from the
owner. The owner never paid Def, so Def failed to pay P. Def brought forth parole
evidence to est. that P had expressly assumed the risk of never being paid.
1. 2nd Rstmt § 295= the approved tests are whether: a) a debt for
performance rendered has already arisen and the condition relates only to
the time when the debt is discharged; or b) existence of the condition is no
material part of the exchange for the promiser’s performance and the
discharge of the promiser will operate as forfeiture.
i. Rstmt est. that in either case, impossibility that would discharge
the duty to perform a promise excuses the performance of a
condition!!!
2. NOTE- there is NO Restitution claim here b/c there was no benefit
conferred upon the General contractor- thus restitution not an issue here
(subcontractor’s work bestowed benefit onto
K. Semmes v. Hartford Insur. Co. (1871) [Excuse for Impracticability- nonoccurrence
of a condition] P filed suit v. Def/Insur. Co. on a fire insurance policy issued by Def.
Def claimed P had no cause of action b/c a contract provision stated that “no suit
should be sustainable in Ct unless brought w/in 12 months of when the loss/damage
occurred (and here P waited 6 yrs). P claimed that the Civil War prevented earlier
commencement of their action (w/in the 12 mos.).
1. If meeting a condition is impossible, P cannot be barred from recovery for
failing to meet that condition
2. Ct concluded that the 12 month period “cannot open and extend itself so to
receive w/in it 3-4 yrs of legal disability (ct essentially rejects tacking
here even though tacking is appropriate for SOL).
*RENEGOTIATION & OPPORTUNISTIC BEHAVIOR:
L. Alaska Packers Assn. v. DomenicoM. Austin Instrument Co. v. Loral CorpN. Oxxford Clothes XX v. Expeditors Int’l Inc
*RESTRAINTS ON ABILITY TO CONTRACT:
A. Williams v. Walker-Thomas Furniture Co
B. Vokes v. Arthur Murray- Ct held that Def’s continuously induced P to spend over
$30,000 on 14 dance lessons by lying to her and making false representations re: her
dancing ability (Def knew she was bad but told her she had great ability/potential)
a. Rule: to est. misrepresentation that is actionable it has to be re: facts rather
than opinions; but this does not apply where: 1) there is a fiduciary
relationship btwn parties; or 2) there has been some artifice or trick
employed by the representor; or 3) the parties don’t generally deal at arms
length; 4) the representee does not have equal opportunity to become
apprised of the truth or falsity of the fact represented.
b.
*CONTRACTUAL RELATIONSHIPS & RIGHTS OF 3RD PARTIES:
A. Lawrence v. FoxB. Seaver v. Ransom*ASSIGNMENT & DELEGATION
C. Derivation Principle- basic principle
D. Macke Co. v. Pizza of Gaithersburga. Rule=
E. Lumley v. Gye (1853) P owned Opera Theater and contracted w/Wagner to perform at
his theater under provision she wouldn’t perform elsewhere; Co-Def/Gye who was
aware of the contract w/P and maliciously persuaded Wagner to break the contract
w/P by singing at his opera. P filed for 2 injunctions v. the Def’s; Ct granted both
injunctions for P.
a. Rule= = modern rule, one who wrongfully and maliciously, w/notice,
interrupts the master-servant relation by procuring the servant to breach
service to master during the time est. for service, and the master is injured,
commits a wrongful act for which he is responsible at law!
b. Rule Re: enticing servants= it is action able under law if one 3rd party
entices the servant to break their contract w/master regardless if the
service was actually subsisting at that time or not.
c. It doesn’t make a difference whether the service had actually started or if
it was not continuing at the time—what is important is that there was a
binding contract of hiring and service
F. Baird Hypo: moving the lawn v. brain surgery scenario—A wants Baird to perform
surgery for him so Baird has to go tell L that he can no longer mow his lawn; B is
better off and makes more $ b/c he gets $100 for the surgery rather than $10 to mow,
but L is worse off b/c he has to pay another guy $20 to mow his lawn.
a. Posner’s “Efficient Breach” View: [Posnerian extension of Holmes]
notion of an efficient breach- not only should L be able to sue Baird for
expectation damages b/c he encouraged B to make an efficient breach, we
look at this as a good thing that the contract was breached!
I.
a.
Conditions
Conditions and the Duty to Continue Performance
i.
The Rule of Conditions does Two Things:
ii. (1) Gives you the right to sue for breach AND
iii. (2) Calls off their ability to sue you for breach.
iv.
Nichols v. Raynbred: (dependency of mutual promises) π agreed to deliver a
cow to ∆ and ∆ promised to give π 50 shillings. Π didn’t aver the delivery of the cow,
but sought instead to recover the 50 shillings. Tr. Ct. ruled that b/c a promise was given
for a promise π didn’t need to plead that he had in fact delivered the cow. Since he didn’t
say he was going to deliver the cow, he could maintain an action for the $50 shillings.
The promises are independent.
v. A party who accepts a promise for a promise may recover w/o pleading his
own performance. Today cts would imply a constructive condition that π must
perform his promise before seeking recovery on ∆s return promise.
vi. Common Law: At common law, promises were not viewed as dependent.
Ordinarily, your obligation to perform is contingent upon my performance. If I
do not mow your lawn, you do not have to pay me. Lord Mansfield established
this idea in Kingston, after it was gotten wrong in Nichols.
vii.
Kingston v. Preston: (dependent covenants) π brought a cause of action for
debt for nonperformance, claiming that he had begun performance and was willing to
continue to perform but ∆ refused to perform. π would work for ∆ for 1-¼ years, as a
servant and then ∆ upon π’s presenting good security, would transfer his business and
stock in trade to π at a fair valuation. ∆ refused to perform the transfer stating π didn’t
offer sufficient security. Issue- Is the presenting of good security a condition precedent
to ∆’s obligation to perform? Yes, Judgment for ∆. Before delivering the business to π, π
was to show good security for the payment of the money to be received by ∆. Since π
failed to give good security, ∆ had no obligation to perform.
viii. The Kingston court delineated 3 types of covenants:
A. (1) Mutual and Independent- Either party may recover damages
from the other in the event of breach by the other, and an alleged
breach by one party is no excuse to the other party.
B. (2) Conditional and dependent- Performance of one party depends
on the prior performance of the other, and until the prior condition is
performed, the other party will not be held to performance of his
covenant.
C. (3) Simultaneous- If one party tenders and the other party refuses to
perform, the first party has an action for default against the refusing
party.
ix. The Modern View- Each party’s performance is deemed an implied-in-law
condition to the other’s obligation to perform. Thus, neither party’s duty to
perform arises until the other has performed or tendered performance.
A. Exp. B is under no duty to pay if S hasn’t delivered; and S is likewise
under no duty to deliver the car if B hasn’t paid.
x.
Price v. Van Lint: (speculative timing of performance) ∆ agreed to loan π
1500 by Feb 1, 1940 for construction of a building. In order to secure a loan, ∆ had to get
a mortgage on the property. Both parties were aware that π had to purchase the land from
the owner in Amsterdam for ∆ to get a mortgage thus delays were inevitable. ∆ had
difficulty raising funds sufficient to cover the loan by 02/02/40 and informed the
suppliers who had already supplied materials to π that ∆ would be unable to supply the
loan. Π suffered 2.5-month delay in the completion of the building as a result. Π sued for
damages. ∆ claimed that πs inability to tender the mortgage on the date the loan was to be
made excused him for counter-performance. Tr.Ct ruled that the promises were
independent and found for π. ∆ appeals but judgment is affirmed. b/c π and ∆ knew at the
time of contract that π might not be able to tender a mortgage on the loan date thus the
promises are independent.
xi. Whether these promises are independent or not depends on what the parties
WANTED!
A. When a contract contains mutual promises and at the time for
performance for one party is to arrive before performance by the
other, the promises are independent. Therefore πs failure to tender a
mortgage on the date of the loan didn’t preclude π from recovery for
breach of the promise made to him.
xii.
Plante v. Jacobs: (construction contracts) π contracted to build a house for ∆
for 26750; ∆ paid 20000 and refused to pay more on the basis that there was faulty
construction. Π refuse to complete the job and sued for breach of contract; ∆ claimed π
hadn’t substantially performed the contract. Tr. Ct. ruled that π had substantially
performed, ∆ appeals but the AC affirms. The court found that Π had substantially
performed, although there were no detailed construction plans, Π performed the basic
purpose required under the contract. There were no detailed construction plans. Thus
since π performed to the substantial purpose of the contract, π rendered substantial
performance and is due the contract price. However ∆ should receive damages for πs
failure to perform in finishing the home. Each element of the damages should be
separately assessed. The misplaced wall didn’t diminish the value of the home, and so it
doesn’t amount to material breach.
xiii. SUBSTANTIAL PERFORMANCE DOCTRINE: I am still entitled to be
paid (less damages) even if I have not lived up to my promises as long as I
have substantially performed. Moreover, even if I have not substantially
performed, I may have a quantum meruit action against you. (I may be
entitled to restitution for the value of the benefit I have bestowed on you.)
A. NOTE: The doctrine does NOT arise unless I am in breach! When I
promise to mow your lawn, I do not promise to clip every blade of
grass. Only if I have failed to do something I was obliged to do will
the issue arise.
xiv.
Jacob & Youngs v. Kent: J&Y sues to recover payment for the construction of
D’s house. The pipe in the house is supposed to be “Reading” as provided in the
contract. Kent discovered about a year later that the pipe used was not “reading” thus
withheld payment (he DID NOT SUE FOR BREACH!). J&Y sues Kent for the last
payment. Although there was a series of progress payments made by Kent, Kent is saying
you can’t sue me for the last payment b/c you didn’t keep your promise - his obligation to
pay J&Y is conditioned upon their promise to build a house the way they said they would
in the contract. The NY AC found substantial performance on the party of J&Y thus
granted them recovery of the contract price less any deficiencies in the contract. This is a
substantially greater award then under a Quantum Meriut action (Compare to Algernon
Blair- breaching party can still sue for restitution)
i. Cardozo’s Opinion: Specific Provisions and Substantial Performance: Kent
made specific provision in his building contract (unlike Plante) for the
installation of reading pipe. But Cardozo doesn’t enforce it??
1. Cardozo’s opinion finds that some consumer preferences are simply too
remote and idiosyncratic to be taken seriously! Although Cardozo
normally defers to what the parties want – what their objective
intentions are, the language in this contract isn’t good enough for
Cardozo!
ii. Is A Commitment to Substantial Performance Avoiding Penalty Clauses?
Compare to Peeveyhouse –where they wanted the land leveled b/c they lived on
the land. Here, Kent had NO SUBJECTIVE VALUE attached to the pipe – they
were behind the walls! To the extent that Kent really cares about reading pipe, it
is likely not to be for subjective value but much more likely to be for a penalty
clause type element.
xv. PERFECT TENDER RULE: In the case of goods, we have at common law
and in the Uniform Commercial Code a perfect tender rule (no substantial
performance rule!) If my goods do not comply perfectly with the contract
b.
description, you can refuse to take them (You get ED damages here unlike
Substantial performance).
A. The UCC, however, has retreated from the perfect tender rule with
respect to how the goods are shipped.)
B. Abuse of Perfect Tender and Substantial Performance: The
substantial performance doctrine and the perfect tender rule each
create their own potential for abuse. In a world with the perfect
tender rule, buyers can opt out of contracts by pointing to trivial
defects. In a world with the substantial performance doctrine, parties
can get away with doing less than they promised.
Express Conditions
i. Howard v. Federal Crop Insurance Corp.: P sued to recover for losses to
their tobacco crop due to rain damage, P still sold the depleted crop—filed
notice to Def/insurer. Def claims P cannot recover b/c P plowed field prior to
inspection (v. policy terms). Def contends that this provision is a condition
precedent to recovery & violation is a forfeiture to recovery—Ct disagrees.
ii. RST §261: Where it is doubtful whether words create a promise or an express
condition, they are interpreted as creating a promise: but the same words may
sometimes mean that one party promises a performance and that the other
party’s promise is conditional on that performance. Yet the court does not
hold that the language of 5(f) if definitely a promise
iii. Condition, Duty or Both: Distinguishing between a condition precedent, a
promise and a combination of the two determines a party’s future obligations
as well as a party’s entitlement to damages:
A. (1) PROMISE AND CONDITION: The failure of the other party to
perform may be both a promise and a condition precedent to my own
performance. I am entitled to call off the deal and sue for expectation
damages;
B. (2) CONDITION: The failure may be a condition precedent. I am
entitled to walk off, but I cannot sue. No promise has been broken;
C. (3) PROMISE: The failure was merely a promise. I was not entitled
to walk off. My walking off was therefore a breach on my part. The
other party can sue me for expectation damages less whatever
damages its own breach of promise caused.
iv.
Gray v. Gardner: Assumpit on a written promise to pay P 5198 dollars and 87
cents on the condition that “if a greater quantity of sperm oil should arrive in whaling
vessels at Nantucket and New Bradford, on or between the first day of April and the first
day of October…then the obligation to be void.” Evidence shows that the boat may not
have arrived at the dock by the 1st day or October. In order for the vessel to be
considered “arrived”, it was necessary that she would have come to anchor somewhere
before midnight following the first day of Oct. Like a bond with a condition, if the
obligator would avoid the bond, he must show performance of the condition. Judgment
for P. Since D in this case promised to pay a certain sum of money, on the condition that
the promise shall be void on the happening of an event, it is plain that the burden of proof
is on D – if he fails to show that the event happened then the promise remains good.
v.
Conditions Precedent and Subsequent And The Burden of Proof:
vi. Condition Precedent: when I sue you, I have the burden of showing all the
conditions are met before I can bring an action.
vii. Condition Subsequent: it is an affirmative defense.
A. So conditions matter here in order to determine the burden of proof.
My obligation to pay you is entirely contingent upon some event
coming to pass. This is different from saying, I promise to pay you
but only if X condition happens:
B. How you phrase something determines who’s got the burden going
forward and also if the language will be interpreted as a condition or
a promise Howard.
viii.
Mascioni v. I.B. Miller, Inc.: P and D entered into an agreement where P, the
subcontractor, agreed to provide all the materials and all the work for the erection of
concrete walls, and D, the contractor, agreed to pay 55 cents per cubic foot. The walls
were to be erected as specified by a contract between D and Village Apartments, the
owner. In that contract, D’s promise to pay stated “payments to be made as received by
the owner.” In spite of the fact that the owner has made no payment to D for the work
and materials, P recovered a judgment against D for the agreed price. Issue: Whether D
assumed an absolute obligation to pay P, even though payment might be postponed till
moneys were received from the Owner, or whether the D’s obligation to pay arose only
if and when the owner made payment to D. Judgment reversed for D. In this case, there
is an express promise to pay moneys “as received from the Owner,” and the event upon
which that promise would ripen into an absolute, immediate obligation has not occurred.
That was D’s risk, but D’s promise to pay P for stipulated work on condition that
payment was received by D shifted that risk to P, if the condition was a material part of
the exchange of P’s promise to perform for D’s promise to pay.
ix. Condition or Duty? In resolving doubts as to whether an event is made a
condition of an obligator’s duty, and to the nature of such an event, an
interpretation is preferred that will reduce the obligee’s risk of forfeiture,
unless the event is within the obligee’s control or the circumstances indicate
that he has assumed the risk.
x. Compare to Carroll v. Bowerstock, was a benefit bestowed? The
subcontractor has performed here – if he can’t get payment from D until the
owner pays him, he can recover under a quantum merit action.
xi. Parol Evidence Question: To what extent do we have a factual inquiry to find
out intention when they were drawing up the contract (the owner could
feasibly NEVER pay – then what?) But this is mostly a question of how we
interpret the words in the contract.
xii.
Semmes v. Hartford Insurance Co.: P, a MS resident, brought suit on a policy
of fire insurance issued by D, a CT company. P’s loss occurred on January 5, 1860 but
suit was begun on October 31, 1866. D relied on a provision of the policy, stating that no
suit should be sustainable in any court unless the suit is commenced within the term of 12
months next after any loss or damage – the presumption being, failure to sue within 12
months is conclusive as to the validity of your claim. But P contends that the Civil War
prevented commencement of the action w/n 12 months of the loss. The court finds for P
and states, “we have no doubt that the disability to sue imposed on P by the war relieves
him from the consequences of failing to bring suit w/n 12 months after the loss, b/c it
rendered a compliance with that condition impossible and removes the presumption
which the contract says shall be conclusive against the validity of P’s claim. That part of
the contract, therefore, presents no bar to P’s right to recover.”
 The court reporters at this time are NOT reliable – they got the dates wrong
o Thus the question then is REALLY can P collect MORE then 12 months
after the war considering that it was impossible to collect on the policy
while the war was going on.
 Question of Impossibility/Excuse: We have not a promise, but a condition and an
event occurs that makes it impossible to comply with the condition. What to do?
o (1) The clock stops for 4 years and picks up after the war
(2) 12 months = 12 months. The insurance company bears risk of a fire, not
the risk of the Civil War. Let the losses fall where they may (British Rule)
o (3) Condition eliminated: Still have the same contract, but excused from
that condition. This is how excuse applies to this environment. (Restitution
– the American Rule)
 IS excuse really the Answer? The problem here is not to solve all the problems, it
deals with excuse! Should this be dealt in the same way as in the context of excuse:
o Restitution leave Hartford out in the cold! IS this the best solution?
o
II.
Renegotiation and Opportunistic Behavior
i.
Alaska Packers’ Ass’n v. Domenico: Alaska Packers hire independent
fisherman in San Francisco to go to Alaska to fish. Once there, the fishermen decide that
they want to get paid twice as much as they contracted for. They stop working and tell
Alaska that they won’t do anything unless Alaska agrees to double their wages. Alaska
agrees (although the Alaska rep says he doesn’t have authority to change the contract),
and the workers continue. When back in San Francisco, Alaska doesn’t pay them. The
court finds for Alaska b/c the promise to pay more was not supported by consideration. It
was based on having the workers perform just those services that they were already
contractually bound to do. Alaska’s promise is unenforceable. But is there an argument
that there was consideration? Did the fishermen give up something in exchange for more
money? The fishermen contend that the nets were full of holes. Part of their pay was on
a piecework basis: two cents per catch. If they can’t catch fish, they’re not getting
money. They argue that they were implicitly promised decent nets, but they got crappy
nets. They argue that they’re not going to get as many two cent catches as they expected.
Are they dropping this claim in return for $50?
ii. Why No Consideration: It is not part of a bargained for exchanged even if it
is a promise seriously made. To prevent this problem, the fishermen should
have made sure that the P was getting something back! This issue goes back
to Foukes v. Beer: Which states that these promises to renegotiate a loan are
not supported by consideration.
A. Consideration has a LOW standard - All the fisherman had to do to
get around this doctrine promise to pay in a different place...really
ANYTHING to change the consideration in the original promise
(give a dollar or gum even)!!
B. Remember Petterson v. Prattberg. That was the case in which a
person was offered a reduction in his mortgage obligation and the
question was whether the offer was revocable. There was not a
Foukes problem there because the payment was being accelerated.
iii. In a Holmesian universe, isn’t Alaska allowed to choose between paying the
fishermen and being liable for damages?
A. We have to worry about duress in this situation b/c we DON’T think
ED is gonna do the trick. Look back to the specific performance case
of Curtice Bros. Co. v. Catta) – the remedy there was specific
performance b/c ED were not going to make the packers whole!
iv. Doctrine of Economic Duress: The doctrine of economic duress is much like
specific performance in Curtice Brothers. It enters into the picture in those
situations in which ED are going to be inadequate. There has to be something
the matter with ED before economic duress sounds plausible. Ordinarily, a
refusal to perform a contract is a right that we all retain as Holmesians.
Sometimes breach of a contract is affirmatively desirable.
v.
Blackmail v. Renegotiation: We need to be able to distinguish between the
problem of my taking advantage of your inability to get true ED if I break my promises
from the problem of renegotiating when conditions change.
vi. Once we get over the consideration issue – do we have blackmail?
A. Oppression by this big corporation being extorted by fishermen OR
B. Do we have a corporation taking advantage of the fishermen OR
C. Is there simply a miscommunication between the parties?
vii. In a world of ED – can’t always distinguish the case of blackmail v.
renegotiation in light of changed condition.
A. If fishermen are repeat players, they probably have to work next
summer thus pissing off an employer is probably not a good idea –
Most likely a miscommunication.
viii.
Austin Instrument Co. v. Loral Corp.: Loral got a contract to make radar
equipment for the Navy. It subcontracted to Austin to produce precision gear components
fro them. When Loral got another Navy contract, Austin bid again and wanted to make
all the components. Loral refused and said they would only be able to produce the
components that they had the lowest bid on. Austin threatened to stop delivery on the
components under the original subcontract unless they got to make all 40 components in
the new contract and get a higher price for all the past and present components. Loral
looked for another supplier, but was forced to accede to Austin’s demands b/c couldn’t
meet the Navy’s deadline w/o Austin. Austin sued Loral to recover money still due on
the 2nd subcontract, but Loral also sued Austin for the price increases, claiming Austin
exacted the increases illegally under duress and shouldn’t be enforced. The lower courts
found for Austin, and Loral appealed to NY Appellate. Judgment reversed for Loral b/c
the court finds that what happened to Loral is a “classic case” of economic duress.
Austin’s actions left Loral with no choice because its government contract was so big and
important.
ix. “A contract is voidable on the ground of duress when it is established that
the party making the claim was forced to agree to it by means of a wrongful
threat precluding the exercise of his free will.”
x. The Doctrine of Economic Duress enters into the picture in those situations
in which expectation damages are going to be inadequate. There has to be
something the matter with the expectation damages remedy before economic
duress sounds plausible.
III.
A. Austin decided not to perform their contract thus why don’t Loral just
sue for damages or get an injunction?
B. As long as Austin is solvent, they can pay damages, no problem.
This is not a case like Alaska Packers where we fear the fishermen
are insolvent. This is a LLC with assets! Why should there EVER be
duress when you’re dealing with a limited liability company?
a. What motivates this doctrine is that the ED that you get
are not really ED: Substantial performance, specific
performance all arise b/c we fear we’re not getting ED!
xi.
Oxxford Clothes XX, Inc. v. Expeditors International, Inc.: Oxxford has a
contract with Expeditors where Expeditors would pay the customs fees or taxes on their
textile imports. Expeditors continued to swallow Oxxford’s costs w/o payment until their
bill reached $97,000. Oxxford owed a lot of people a lot of money, particularly Heller
International. Heller had a security interest in Oxxford’s assets and b/c of this interest;
Heller exercised its right to all of Oxxford’s assets OVER Expeditor and other creditors.
Heller then sold the assets to Tom James and James creates a new entity called Oxxford
XX using the assets. The old Oxxford is complete eliminated and Oxxford XX is a
complete new entity with NO TIES to the original company. But Expeditors, after XX
asked them to continue to import textiles for them, withheld the fabrics from XX until
Oxxford’s debt of $97,000 was paid off. XX filed for a preliminary injunction which the
court denied b/c Expeditors claimed it had valid liens on the fabric – which XX knew was
absolutely false!! XX DOES NOT APPEAL but instead files a complaint for duress
which Posner denies.
xii. Posner and Duress: What is the touchstone for duress according to Judge
Posner and why isn’t it met here?
A. The engine behind his analysis is that XX didn’t take an appeal from
the denial of the preliminary injunction. Expeditors had NO RIGHT
to hang on to XX’s fabric so the DC’s denial of the injunction was
stupid. This does not create duress b/c XX had a legal remedy
available to it! Since it had this, there is no duress:
B. Posner doesn’t doubt the efficacy of the legal system!! – He believes
that if the appeal was filed in time, XX would have resolved the
problem w/n the time crunch it was under. Posner is convinced that
any problem XX had, if they had just come to the courts or legal
system, it would have been solved.
xiii. The touchstone for duress is the LACK of an effective remedy. To bring a
duress claim, you must show why it was you had this legal right and somehow
you had to succumb to extortion and you couldn’t get a court to protect you at
the time. As long as you could have gone to court, it can’t be duress!! (i.e.
Alaska Packers had no available legal remedy – no courts or judges in
Alaska).
Restraints on the Ability to Contract
i.
Williams v. Walker-Thomas Furniture Co. WT, a retail store, sought to
repossess various household items it had sold to Williams, a welfare recipient, over a
period of some five years. Each sale (including the last, a stereo sold for $514.95) was on
credit, Williams being obligated to make monthly payments until full purchase price was
satisfied. The purchase agreement contained a so called cross-collateral provision for
which the purpose was to secure the customer’s indebtedness by empowering WT, in the
event of default, to repossess not only the particular item (the stereo) to which the
indebtedness related, but EVERY other article purchased from WT on which any balance
remained. Williams having defaulted on the stereo installments, the company, pointing
out that under the cross-collateralization clause she still owed money on other items
sought to “scoop up” all the merchandise it has ever sold her. Williams resisted on the
ground that the cross-collateral provision was unconscionable and thus unenforceable.
The DC reluctantly held for WT b/c the UCC §2-302 had not been enacted yet. On
appeal, the D.C. Circuit court held no statutory authorization was required for a finding of
unconscionability.
ii. UCC 2-302: Unconscionability: A contract entered into by competent adults
is binding without regard to anyone’s opinion of its fairness; but where the
circumstances indicate that on party did not or could not, fully comprehend the
meaning of the contract then the court is free to use its own judgment to
determine whether the contract terms are fair.
A. Thus the threshold in this case is whether WT made the crosscollateral clause clear to Ms. Williams at the time she signed the
form contract?
iii. What is the effect of the cross collaterization clause: Since WT has a
security interest in the stereo, when Williams’ defaults, WT doesn’t have to go
to court to collect! They can take it as long as there is no breach of the peace
(pre Fuentes v. Shevin).
A. It is most likely the case that the assets here are no subject to creditor
levy – they are immune under D.C. law. Thus by virtue of the
security interest under the clause, these items are no longer immune
and WT can collect them. Thus W/O the clause, these items would
not be subject to creditor levy. The sheriff could not touch them.
iv. By virtue of Williams signing the contract, she’s giving up a legal right she
probably didn’t know she had. She is letting her property loose its
immunity! Would she have agreed to this if she had known?? Does this
contract comport with “substantial fairness”
v. Unconscionability meant or included TWO FACTORS:
A. (1) An absence of meaningful choice on the buyer’s part (in effect)
and
B. (2) The presence of contract terms “unreasonably” favorable to the
seller.
vi. Shae’s Point / Freedom of Contract Argument: But if we say that the Ms.
Williams’ of the world should never be allowed to enter into these types of
contracts, will she ever be able to buy such items? What happens if we impose
this rule?
A. A constraint on my freedom of action can be justified only if
someone else is better positioned than I am to know what is in my
interest.
B. You don’t want Mrs. Williams to have to pay so much for a
refrigerator or a stereo. On the other hand, you do not want to deprive
them of any chance to get one.
vii.
Vokes v. Arthur Murray, Inc. Vokes, 51-year widow, wanted to become an
accomplished dancer, and she sought the services of D. Initially, D sold Vokes 8 ½ hr
lessons to be used within 1 month. Over a period of 16 months she was sold 14
additional dance courses under separate contracts. During that interim D encouraged
Vokes to sign the subsequent contracts by assuring her that she had grace and poise;
rapidly improving and developing her dance skill. Vokes soon discovered that she did
not develop in her dancing ability and even had difficulty hearing the beat. It can be
reasonably inferred that D had “superior knowledge” as to whether Vokes had “dance
potential” and as to whether she was noticeably improving. The undenied averments in
Voke’s complaint that the flowering eulogiums heaped upon her by D proceeded more to
hear the ring of the cash drawer than from any honest or realistic appraisal of her dancing
prowess or a factual representation. The court finds that a statement made by a party
having superior knowledge may be regarded as a statement of fact, although it would be
considered as opinion if the parties were dealing on equal terms. The court reverses for
Vokes.
viii. Disclosure and Duty: Even in a contractual situation where a party owes no
duty to disclose facts within his knowledge or to answer inquiries respecting
IV.
a.
such facts, the law is if he undertakes to do so, he must disclose the whole
truth.
ix. Role of Regulation: In Vokes and Walker-Thomas, are some contractual
relationships better governed by regulation? Health club memberships can last
for only a year (no life memberships). You cannot take a security interest in
household goods. It does not matter how knowing or sophisticated the waiver,
we simply will not allow some kinds of arrangements. Why?
A. There are some kinds of risks that people are not good at
calculating!
x. THREE POINTS ABOUT THIS CASE:
A. (1) The idea that when we look at this problem – look at the
difference between consumer transactions and business transactions
even though the law does not distinguish between these types of
contracts.
a. We want merchants to live in a Darwinian world, but we
want to protect consumers. We have no interest in
encouraging the unsophisticated to become merchants, but
we do want all consumers to participate in market
transactions and not to be taken advantage of even if they
are not well informed.
B. (2) What should the law be doing – how to decide this case v. other
avenues of relief? How to regulate these industries…is this an
alternative?
C. (3) You can look at this case and say substantive unconscionability
but there are other arguments that can work here: We can’t come up
with a slam dunk restitution or fraud argument: But first try to have
other theories work here.
Contractual Relationships and the Rights of Third Parties
Third Party Beneficiaries
i.
Lawrence v. Fox: Defendant Fox borrowed $300 form an acquaintance named
Holly. As Holly owed the same amount to Lawrence, Fox promised Holly that on the
very next day he would repay Holly, in effect, by paying Holly’s debt to Lawrence.
(assumption is that these may be gambling debts which could not be enforced directly)
Fox ultimately refused to pay Lawrence and Lawrence sued Fox. Fox defended on the
ground that his promise has been addressed to Holly alone and not to Lawrence: while
Holly (the promisee) might claim against Fox (the promisor) if he chose, Lawrence had
no equivalent right. Fox, after all, had received no consideration from Lawrence and as
Lawrence was not a party to the contract between Fox and Holly, he (Lawrence) lacked
standing to seek enforcement. The NY App. Crt. held for Lawrence finding that Fox had
received ample consideration from Holly and in return has made an unequivocal promise
to repay the amount borrowed in accordance with Holly’s direction.
ii. What was the Consideration: “The consideration received and promised to
Holly made it as plainly his (Fox’s) duty to repay the plaintiff as if the money
has be remitted to him for that purpose.
iii. Why do we need 3rd party beneficiary contracts? Are there situations (real
commercial transitions that we care about) where if we don’t have such a
doctrine, we could be in trouble?
A. (1) Life insurance contracts? / Trusts
B. Generically at common law, 3rd party contracts were really not
accepted. Problems with 3rd contracts: WHEN DO YOU GET OFF
THE TRAIN?
iii. Lawrence’s claim, unlike a traditional promisee, could be divested by action of
other parties and perhaps without his knowledge: (ex: After the deal is made
between Holly and Fox for Fox to pay Lawrence, they make a further deal in
which Holly and Fox call off the deal – can Lawrence still have a COA to get
Fox to pay?)
C. The court does NOT find this to be a dangerous situation b/c once
Lawrence has recovered a judgment from fox, Holly’s power to make
an independent settlement extinguishes
D. In effect, the danger that recognition of 3 rd party rights might
generate legal confusion – overlapping claims, or settlements without
consent of the affected party – seemed to the court majority to be a
manageable risk.
iv. With two potential lawsuits, the ED principle gets complicated! How to
aggregate and allocate losses.? Need to look at parties’ intentions – not
subject intent, but what the contracts actually say! As between adults,
promises are enforced as to their terms.
A. The principle that should be at work is simply one of intention. If we
had thought about it explicitly, would we have given Lawrence the
right to sue? What did the contract ACTUALLY SAY (objective
manifestation).
a. Under Restatement §302, someone such as Lawrence is an
“intended” beneficiary (which means they get the cause of
action) if recognizing the action will effectuate the intention
of the parties and
i. (1) The performance of the promise will satisfy the
promisee’s obligation to pay money to the
beneficiary; or
ii. (2) The circumstances indicate that the promisee
intended to give the beneficiary the benefit of the
performance.
v. The common law did not develop consistent definitions of “donee” and
“creditor” beneficiaries, but the gist of most of the rules is clear.
A. Most people would have an intuition that when you and I enter into
contract to, we don’t want a 3rd party to come in and be able to sue
you - We usually do not assume that I want to benefit someone else,
but if the circumstances appear that I do (such as when I am already
obliged to pay money to 3rd party), we will grant the cause of action.
vi. Two Categories of Cases: Why treat them Differently?
A. Donnee Beneficiary Cases:
a. Does it make sense to have this box for Lawrence v. Fox and
Seaver v. Ransom and another box for the Tony Bennett
case?
B. Creditor Beneficiary Cases:
a. Tony Bennett – as a slotted performer in my nightclub when
you and I contract to build a nightclub.
vii.
Seaver v. Ransom: Mrs. Beman was about to die. Her husband drew up a will
according to her instructions. P is her niece who sometimes lived with the Bemans.
When the will was read Mrs. Beman isolated an error, she had wanted the house to go to
the P in remainder, but it was identified as going to her husband for life, remainder to the
ASPCA. B/c she was failing fast her husband asked her to sign the will, and stated that he
would leave enough in his will for P to make up the difference ($6k). After he died there
was no provision to this effect. P files a claim to recover against the agreement whereby
Mr. Beman induced his wife to execute the will by his promise to give P $6000. The
contract was made for the P’s benefit. She alone was substantially damaged by its
breach. Because the testatrix bequeathed the promise to P, and not b/c close relationship
or moral obligation sustained the contract, the P could have recovered in law against Mr.
Beman for the value of the house. Judgment, after trial, for P, and judgment affirmed.
viii. The Law of Wills, Trusts and Estates: Testamentary gifts (i.e. wills) are
required by statute to be in writing and to be dated, executed, and formally
witnessed; oral dispositions made at the last gasp generally wouldn’t qualify
b.
as legally effective substitutes. The court’s willingness to give effect to a
hasty, deathbed agreement – neither promisor (Husband) nor promisee (Mrs.
Beman) being available to verify it may suggest that (1) there was powerful
evidence in support of the agreement or (2) the niece made a sympathetic plea
to the judge!
A. Resort to 3rd party Beneficiary law enabled the Court to make an
end run around the much sticker rules and requirements that
otherwise apply to testamentary dispositions.
a. But aren’t we undercutting the whole idea of wills? Are we
allowing the nieces of the world an avenue for fraud?
Assignment and Delegation
i.
Macke Co. v. Pizza of Gaithersburg, Inc.: D is a group of 4 pizza shops under
common ownership, at 6 locations. D arranged to have installed drink vending machines
owned by Virginia. Virginia’s assets were purchased by Macke and the 6 contracts were
assigned to Macke. D attempted to terminate the contracts b/c D doesn’t want Macke
taking care of the machines – D wants the original vendor - VA!! Virginia transferred the
burden of the contract to Macke (delegation). Now Macke is suing saying it doesn’t
matter what D wants. He entered into a contract and the contract is still good b/c Virginia
was able to delegate the burden under the contract. P’s argument is that the contract
couldn’t be assigned b/c it contained personal service obligations. The court could not
regard the agreements as contracts for personal services. They were either a license or
concession or a lease and assignable by Virginia UNLESS they imposed on VA duties of
a personal or unique character which could not be delegated. The difference btwn VA’s
service and Macke’s service did not mount up to such a material change in the
performance of obligations under the agreements as would justify D’s refusal to
recognize the assignment. The delegation of duty by VA to Macke was entirely
permissible under the terms of the agreements.
ii. If D didn’t want Macke to ever be a party to their contract (P actual chose
Virginia OVER Macke) why didn’t he put it into the contract that the duties of
Virginia were non-delegable?
c. Every contract is a bundle – There are good things and bad things that come with it.
Two Distinct Categories of a Contract:
i. (1) Assignment: What is my ability to transfer the good thing (BENEFIT)
about the contract to some 3rd party
A. Rule for Assignments: With respect to the monetary obligation that
comes from you to me – the benefit I have is assignable regardless of
what the contract says. Ex: I lend you $10 and you promise to pay
you $11 next week – I may assign that $11 payment to someone else
EVEN if our contract says it is not allowed. Why? Your abstract
promise to pay me does NOT come with any covenants!!
a. Does the 3rd party have the ability to go after me for the $11
dollars? What are the damages – is the burden the same in
each case?
B. Derivation Principle: You (3rd party) can get no more than what I
have. In the absence of an exception, a transferee gets only what her
transferor had. The assignee stands in the assignor’s shoes.
C. Assignments of Performance: Dougie promises to mow my lawn and
I promise to pay him $10. What about my ability to assign his
promise to mow my lawn? I can only transfer what he promised me
(Dougie promises to mow my lawn, not ANY lawn). So if I’m
selling my house and assign Dougie’s promise to mow my lawn to
the new owner – is this allowed?
a. The Restatement and the UCC have a presumption in favor
of assignability of these kinds of things unless it would
materially increase the burden or risk imposed on the
d.
obligor. An insurance contract is something that you
typically cannot assign.
D. Multiple Assignments: What do we do when there are MULTIPLE
(and necessarily fraudulent) assignments of the same obligation: (Ex:
Dougie promises to pay Ricardo $100 but he assigns that promise to
me, Schwab, Mr. Dunn, etc.)
a. Look to the Law of Negotiable Instruments: If the obligation
is reduced to a single piece of paper and NOT held in the
abstract, then it follows that there can only be one
assignment or transfer of the promise.
ii. (2) Delegation: What is my ability to transfer the BURDEN of the contract to
some 3rd party.
A. What is Non-Delegable? The law makes a distinction: Rare genius
and extraordinary skill are not transferable and contracts for their
employment are therefore personal and cannot be delegated. But rare
genius and extraordinary skill are not indispensable to the
workmanlike digging down of a sand hill or the filling up of a
depression to a given level, or construction of brick sewers with
manholes and covers, and contracts for such work are not personal
and may not be assigned. Delegation is a default term and we
assume that when you have PERSONAL services, they are not
delegable but when you have non-personal services (i.e. leveling a
street) this is delegable.
a. This assumes that work by one carpenter is just as good as
another. You have a line being drawn but probably doesn’t
even make sense on its own terms. In this case, the pizza
shops deliberately DID NOT want to use Macke!! They
chose Virginia b/c of their personal service. But what you
do in these cases is put a non-delegation term in the
contract!!!
b. Unlike assignment, delegation is a matter of gap-filling. It is
not clear that the common law presumption captures what
people want. (All ditch-diggers are not the same.) Even if I
may delegate, I remain fully liable
Tortious Interference with Contractual Relations
i.
Lumley v. Gye: Wagner contracted with Lumley to perform operas
exclusively at his playhouse. Wagner, persuaded by Gye, decided not to sing at Lumley’s
theater and instead would perform at Gye’s theater in Paris. Aside from bringing a
breach of contract action against Wagner, Lumley brings an action against Gye for
interfering with his contract with Wagner and persuading her to breach.
 Is there a difference in recovery between what Lumley can get from Gye that he
can’t get from Wagner? Ex: If I Wagner Did perform for Gye and was a big success
– what recovery for Lumley?
o HE would ONLY get what HE LOST by Wagner not performing. He is not
entitled to the profits of Gye. Only ED.
o Even if he brought a tort action against Gye – Lumley would still only be
entitled to the damage he sustained.
 How can Lumley GET MORE THAN ED? He should get compensated for what he
lost at his theater (ED) and all the ill-gotten gains that Gye received from Wagner’s
performance?
o TORTIOUS INTERFERENCE: Ex: Two rival schools. Headmaster of
School A throws stones at students on their way to school B. The students
DEFINITELY have a COA against headmaster A, but when does the
headmaster of school B have a recovery?
o


The kind of activity that will give rise to tortuous interference as against B
occurs when and A is conducting tortuous activities b/c of the harm and
effect it will have on A – then this is actionable!!!
When is Tortious Interference Actionable?
o In this case, the idea that malicious behavior is the same thing as conducting
behavior with notice is the GIANT leap being made in this case! Having
notice of the other contract is actionable!
If Dougie promise to mow your lawn on Saturday for $10. Jones comes to Dougie
and says, “Doug, you have been ripped off. I’ll pay you $15 to mow my lawn on
Saturday. Forget about your other promise. Let them sue you.” I find out about this
on Friday. I now have to spend $20 to get someone to mow your lawn. What are
your remedies?
o Lumley v. Gye suggests that you have a cause of action against Jones,
provided Jones acted WITH KNOWLEDGE of the contract.
o Later cases expanded the doctrine beyond the context of employer and
employee. Pennzoil v. Texaco is its most recent and most widely known
application.
 Penzoil and Getty Oil have a deal – but not a done deal for oil
stock (lawyers haven’t executed the contract fully yet). Texaco
comes in and promises Getty more $$ - can Texaco do this?
 Under Lumley – it depends on what Texaco knows? It is assumed
that Texaco at least has some KNOWLEDGE of the deal.