Contracts I Outline (all cases referenced are from the Farnsworth text; this outline covers common law rules only)
(see Contracts II outline for parol evidence rule, privity, assignment, conditions, substantial performance, and UCC overlay)
1. CLAIM: Breach of contract (“P will sue D for breach of contract claiming that D promised to ___ in exchange for ___ and broke that promise by
___.” For each claim, multiple defenses. Look for implied promises not to do things, promises to negotiate a certain way, do things by certain dates
(each one is a separate claim!). Sue the employer of an agent who breaches.)
DEFENSES:
a. No breach (look to plain meaning of what was said) (P’s response: you implied another promise and breached that)
b. No basis for enforcement:
i.
Consideration - promise or performance bargained for in exchange/sought and given? (Hamer)
1. Was it a gratuitous promise (Kirksey)? (also think no assent to be bound - Lucy v. Zehmer)
2. Sham exchange ($1 book)? (but remember, you can sell an airplane for $1 if it’s a legitimate bargain)
3. Illusory promise (Strong)? Not illusory because promisor had to act in good faith (Mattei)?
4. P can argue: Implied promise sufficient for consideration (Wood v. Lucy) despite apparent absence of consideration? D’s
Response: No such implied promise.
5. Dropping a lawsuit that turns out to be invalid is consideration if bargained in good faith (Fiege)
6. Benefit to promisor/detriment to promisee are indicators of consideration but not sufficient or necessary
7. Received before/confirmed later can be enforceable (Webb)
8. Remember Lakeland – Ohio has departed from bargain theory; promises not to compete are enforceable even without real
consideration (make policy argument, use as analogy)
ii.
Reliance (“P will argue that even if there is no consideration, D’s promise is enforceable on the basis of reliance because ______.”)
1. Promise
2. Action/forbearance by promisee? (Ricketts)
3. Was the action induced by the promise? (Feinberg) (or would Mrs. Feinberg have retired anyhow?)
4. Was the action reasonably foreseeable?
5. Is recovery necessary to prevent injustice? (remember, limited recovery as in Hoffman)
iii.
Moral obligation? Mills/Dementas – general rule is “moral obligation” is not a basis to enforce a promise (policy). Exceptions for:
1. A gratuitous new promise to pay a prior debt 1) discharged; 2) made in infancy; or 3) expired.
2. In some states, moral obligation to pay for material benefit to prevent injustice - Webb v. McGowin, r86
iv.
If none of above, claim for unjust enrichment? ****Make separate UE claim/defense/remedies arguments!
1. Unjust enrichment unavailable if alternative remedy, or if plaintiff is an officious intermeddler, volunteer, or good Samaritan
2. Mistaken payment (r22); compensation for services limited to reasonable value (Cotnam)
c. No assent (intent to be legally bound – this is different from consideration, offer, and acceptance!) – (“D will defend on the ground that he
never assented because they were just exchanging favors, etc.”); assent rule r21, Lucy v. Zehmer
d. No offer (manifestation of willingness to be bound) Harvey/Owen
i.
Advertisement? Not usually an offer. Lefkowitz/Fairmount
ii.
Offer was revoked - by express rejection? by counter-offer acting as implied rejection (M & St. L)? By lapse? Terminated by
death (except option contracts)(Earle)? By offeror's revocation? By indirect communication to offeree, before acceptance, of
offeror’s acting inconsistently with keeping the offer open (Dickinson)?
1. P’s Response: was there a reason offer could not be revoked? Option? Implied option by part performance?
2. P: Mailbox Rule (acceptance effective on dispatch). D: Mailbox Rule doesn’t apply to option contracts.
iii.
Specify which communications are offers, counter-offers, acceptances, etc. SPECIFY!
e. No contract - preliminary negotiations only - not definite enough for contract
i.
P’s Response: There can be contractual liability despite apparently failed negotiations. Examples:
1. Breach of assurances during negotiations. Reliance (Hoffman) - recovery to prevent injustice - doesn't have to be definite.
[note: this triggers reliance damages rather than expectation damages].
2. Breach of contract to negotiate in a particular manner? Channel
3. Breach of implied promise not to revoke offer (Rest. 45, Drennan)
f. No acceptance - offer was never accepted
i.
Steps: What was offer? How did offer invite acceptance (promise [bilateral]/performance [unilateral])? Did offeree fail to promise
(either expressly or implicitly) or to perform? If acceptance was by promise, was it in an acceptable manner? Was notice
given (required if bilateral unless waived; not if unilateral unless sought)?
ii.
Cases: Filter accepted by endorsing; White should have notified; Ever-Tite accepted by beginning work; Carlill called for
unilateral acceptance; Allied Steel accepted by beginning work
iii.
Acceptance usually cannot be by silence except in limited instances: 1) taking of services with time to reject (haircut); 2) where
silence is an explicit agreed option for acceptance (book club); 3) previous dealings Massasoit; 4) where offeree uses offered
property in a way inconsistent with offeror's continued ownership
g. Indefiniteness (essential terms are missing Channel) - courts reluctant to find indefiniteness because both parties wanted to be bound
i.
Good faith and reasonable effort are definite terms if determinable by external standard Varney v. Ditmar
ii.
Court may look at preliminary negotiations, prior communications, external sources, trade usages, course of dealing, performance
iii.
Option contract construed to be binding if possible Toys v. FM, not all terms must be listed just material terms
h. Statute of limitations/bankruptcy.
i.
Settlement/waiver.
j.
Statute of Frauds – (acronym: MYLEGS, but don't forget other possible situations where state might require a writing)
i.
Marriage. Exception is mutual promise (marriage for marriage ok; marriage for money not ok unless written).
ii.
Year. If performance will legally require more than one year (regardless of feasibility), must be written. Exceptions are possible for
early completion (but not termination) and one party's full performance. Klewin.
iii.
Land. Exception is where transfer has been made (but not if price includes land itself).
iv.
Executor.
v.
Goods over $500 - UCC 2.
vi.
Suretyships. Langman.
P’s response: Doctrines permitting recovery despite noncompliance with statute of frauds: 1) Equitable estoppel (Richard), 2) promissory
estoppel (Monarco) in some states, 3) bring a separate unjust enrichment claim, seek restitution.
NOTE: the following defenses (“k” through “u”) are both defenses to P’s enforcement of a K and bases for a P to seek rescission
STATUS of the parties (policy argument)
k. Infancy (*restitution! If A defends on infancy, B v. A for restitution!) (Keifer); exception for necessaries (food, etc.)
l.
Mental infirmity or any incapacity! (medicine!)
i.
Traditional test. P’s response: D could understand (apply to facts). (Cundick)
ii.
Modern. P’s response: D was capable of acting reasonably (apply to facts). (Broadbent)
CONDUCT of the parties
m. Duress (improper threat, no reasonable alternative)
n. Modification (cancel the first contract and make a new one; can’t modify existing K without new consideration)
Pre-existing duty rule. (Alaska Packers)
i.
P’s response: Contract cancelled and new one made. (Schwartzreich)
ii.
P’s response: Modern modification rules allow for enforcement (fair, etc.). (Watkins & Sons)
o. Misrepresentation (fraudulent and/or material); but opinon/puffery is fine.
p. Active concealment/half-truth (Kannavos); but no disclosure of adverse facts is required (Swinton) unless statute or confidential
relationship (such as lifelong friendship) so requires.
q. Mistake (Stees - assumed risk, Sherwood - assumed sterile cow)
i.
Mutual. Response: Any one of five parts is missing: mistake of fact, mutuality, basic assumption, material effect, assumption of
risk (Wood v. Boynton)
ii.
Unilateral. Response: Not accepted in all states. Same conditions as mutual apply.
SUBSTANCE of the agreement
r. Public Policy (state what policy is violated!) (Black v. Bush)
i.
Traditional (actually against public policy, O’Callaghan). Response: Any of 8 factors in O’Callaghan decision.
ii.
Modern (extended to private matters, Henningsen, make up that there exists a policy against really crappy contract terms in nearly
invisible fine print, etc.). Response: No such public policy.
s. Unconscionability (shocking to the conscience of an ordinary person)
t. Strict construction of a clause in adhesion contract/construction against the drafter indicates it doesn’t apply/no breach (look for form
contracts and exculpation clauses!) (Gallagan)
u. No notice (of clause in adhesion contract) (Klar)
2. CLAIM: Unjust enrichment - look for this where breach without full performance/payment
a. Not available if P has an alternative remedy (Callano), or if P is officious intermeddler (Schott), volunteer/good Samaritan unless
exceptional
b. Available for mistaken payment (r22)
c. Compensation for services limited to reasonable value (Cotnam)
3. CLAIM: Rescission (“P will sue to rescind the contract with D on the basis of ______, asserting that D ______...”)
a. These are all bases for rescission: infancy, infirmity, duress, modification w/o new consideration, misrepresentation, concealment, halftruth, mutual mistake, unilateral mistake. Rescission = “avoiding” a “voidable” contract.
(If there is a public policy/unconscionability issue, the contract is void and unenforceable by any party, not merely voidable).
b. If rescission, then P will seek restitution (unless infant making K for non-necessaries where subject matter is gone).
Remedies (Just as you have P’s claims and D’s defenses, for each claim you should have P’s selected remedies and D’s limitations.)
1. Specific performance. (first choice if a plausible remedy)
Limitation: Damages would be adequate, or consideration was unfair/inadequate. McKinnon v. Benedict.
P’s response. Land is unique, so there’s no way damages can be adequate? Tuckwiller.
2. Expectation damages (always preferably to reliance or restitution damages): gives P the benefit of the bargain.
Calculus: Expectation damages = loss in value + other loss - costs avoided - other loss avoided
a. Incomplete/defective performance? (ex: P is suing home builder who only built half of a house)
i.
P will seek the highest of:
1. Loss in value to P. But, not if P can't prove with reasonable certainty.
a. D’s response: Too uncertain, P should only get lower of #2/#3.
b. D’s response: Cost to complete would be lower than loss in value, P can avoid loss by taking cost to complete.
If P can't prove loss in value with reasonable certainty, then P may recover either #2 or #3:
2. Cost to complete. Rest. 348(2). (policy)
D's response: Cost to complete is clearly disproportionate to probable loss in value to P (cost of building the
remaining half of the house well exceeds [resulting value of house] less [current value of half a house]), so #1/#3.
P's response: Contract was to suit my taste; breach was willful, give me cost to complete (don’t reward bad faith).
3. Loss in market value. No caveat/always available. (D will argue this if lowest.) Jacob & Youngs, Peevyhouse, Groves.
b. Limitation: Avoidable. P had a duty to mitigate and should have avoided losses. Rockingham v. Luten Bridge, Parker.
c. Limitation: Unforeseeable*. Damages not reasonably foreseeable. Hadley v. Baxendale. Counter: P might argue special circumstances/it
was foreseeable. Counter-counter: P didn't notify of special circumstances, so general reasonableness applies.
d. Limitation: Uncertain*. There is no way to ascertain the value of the benefit of the bargain. Collatz, Fera.
*Can't determine what P would have gotten from benefit of bargain, so put P back where P was before bargain (D will push for
reliance/restitution instead.)
3. Reliance damages: put P back in the position that P was in before the contract ever happened. Sullivan v. O'Connor.
If you use reliance/promissory estoppel, or the promissory estoppel exception to SOF, or reliance on assurances, then reliance damages!
4. Restitution damages: restore P for benefit conferred on D only.
5. Nominal damages: small sum on principle (six cents or one dollar), where no actual damages to P but P wins.
6. Liquidated damages: where agreed to in contract. Gustafson.
a. D's Response: Unfair and unreasonably large as penalty; not related to 1) actual/anticipated loss, or 2) difficulty of proving damages.
b. Or P's Response: Unconscionably small.
Bottom line: analyze the facts. P will claim…. D will defend…. Even if D is right, P will argue…. If P is successful, P will seek specific performance….
If P loses the breach of contract claim, P might sue for unjust enrichment….