CONTRACTS
coenan--fall 1999
I. General theories of obligation
A. Classic Consideration
1. Definition: "something sought by the promisor and given by the promisee in
exchange for the promise."
2. Reasonable standard (objective theory)--if his words or acts, judged by a
reasonable standard, manifest an intention to agree in regard to the matter in
question, that agreement is established, and it is immaterial what may be the real
but unexpressed state of mind. Regardless of intention, if a reasonable person
would conclude it is a contract, it is. Can't look to secret and unexpressed
intention.
a. Embry case--employee assumed extension of contract from employer's
outward action.
b. Lucy case--intentions appeared sincere to reasonable person. Factors in
determining can include writing, time spent in discussion, signed by 2
people, specific.
c. Distinguishable hypo: coach and student discuss making baseball team says
"don't let it worry you." Reasonable person would not conclude this was a
contract. No reliance or prior contact with coach.
3. Fuller, Requirements for consideration
a. functions performed by legal formalities
1. evidentiary--provides in writing or by notary evidence of contract in case
of controversy.
2. Cautionary--to deter inconsiderate action (ex: wax wafer)
3. Channeling--getting what you want on paper so that an outsider can
understand it.
b. substantive bases of contract liability
1. private autonomy
2. reliance on promise (expectation promise will be fulfilled)
3. unjust enrichment (more immediate reason for judicial intervention than
just reliance.)
c. Policies
1. an unenforceable promise is one that is gratuitous or not relied on.
2. Half-completed exchange is more enforceable than when nothing has
happened.
Examples: Weiner, Seavy
4. Classic Consideration elements
a. Value of promise is irrelevant as long as something is given in exchange for
promise.
1. Hardesty v. Smith (lamp case--title to invention is a something)
b. There must be a something given in exchange for promise to have
consideration (distinction between consideration and gratuitous promise)
1. Gratuitous Promise
a. Doughtery v. Salt--napoleon gave aunt tilly a nothing.
--if tilly asked for a kiss and napoleon gave it, there is consid.
b. Tramp hypo--guy promises tramp a coat. Her walking to store is
only condition of gratuitous promise and can't be consideration unless
some benefit to promisor (ex:mike's bet)
2. Promise to pay can be a something
a. White v. Benkowski--promise to pay to provide water
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b.
c.
d.
e.
Sullivan v. O'Conner--promise to pay to make nose better
Embry v. McKittrick--promise to pay to work
Lucy v. Zehmer--promise to pay for land
Grainseller and Grainbuyer--if seller pulls out, buyer has a cause of
action b/c there was a promise to pay, so there is consideration.
3. Promisor benefits, so there is consideration
a. Maughs v. Porter--auctioneer sought attendance in exchange for
possibility that they may bid.
1. Hypos-a. Aunt tilly asks napolean to clean yard for money.
Consideration because she would benefit.
b. Mom calls in columbus--sick. Come and I'll give you gold
watch. She doesn't give watch. Can you recover? Yes, b/c
your visit was sought by mom in exchange for promise of
watch. If you go home w/o hearing message or talking to
mom, no consideration for watch b/c your visit not given in
exchange for watch. (same as if attending auction not having
read ad--no consideration)
b. OPPOSING VIEW--Promisor does not have to benefit for
consideration
1. Hamer v. Sidway--uncle bill seeks nephew's stopping smoking.
There is consideration for promise even if no benefit to uncle
bill.
4. Forbearance as consideration--refraining from doing something one has a
legal right to do. Blacks--detriment by promisee sustained by virtue
(dependence on) the promise. Forbearance must be sought by promisor.
a. Level of forbearance doesn't matter-- Hamer v. Sidway--nephew
forbears certain vices and uncle promises to pay. (ie if uncle asked
just to give up smoking).
b. If forbearance not sought by promisor, then not forbearance is not
sufficient consideration. Baehr v. Penn-O-Tex--TT claims
forbearance of legal right to sue is sufficient consideration. but not
b/c forbearance not sought by promisor.
c. Claim of right has to exist for forbearance to be suff consideration
1. Springstead v. Nees--siblings claimed forbearance of legal right
to sue for claim over property. If they had a claim to property, it
would be consideration. but they don't have a claim of right, so no
consideration.
*HYPO-1. dad is babbling idiot when made will. Valid claim of right
for siblings? Yes. There would be consideration.
2 .CORBIN--forbearance is not sufficient consideration if it is with
knowledge that the claim is ill-founded..
d. Ill-Founded Claim made in Good Faith is consideration
1. Dyer v. National By-Products--employee thought he had lifelong
job
security b/c of injury, so doesn't sue about injury. Loses
job, sues. Here, there was invalid claim but was made in good
faith. So there is consideration.
2. CORBIN--Even if there is no reasonable basis for claim of right,
it is valid if made in good faith.
e. Motive is Irrelevant for Consideration
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1. Restatement S. 81--motive for the promise is immaterial as long
as a bargained-for exchange is made.
2. Hamer v. Sidway Hypo--nephew is asked to give up smoking for
$, and he hates smoking anyway. Still consideration b/c there is
an exchange.
5. Mutuality--obligation rests on each party to do or permit doing of
something in consideration of other party's act or promise; neither party
is bound unless both are bound.
a. Mutuality necessary for consideration
1. De Los Santos v. Great Western Sugar--beet owner and beet
hauler. Contract dependent on only beet owner's will. There
is no exclusive obligation for the hauler to haul beets.
(illusory promise). No obligation for owner to call hauler to
haul beets.
2. Lucy, Lady Duff Gordon--Lucy says no consideration b/c no
mutuality--that he had no duties. Court disagrees--says
exclusive privilege indicates his obligation to act on her
behalf to seek profit. So there is mutuality.
a. UCC--an agreement concerning goods (ie beets) creates
obligation by the seller to use best efforts to supply the
goods and by the buyer to use best efforts to promote their
sale in an exclusive agreement. Services (ie Lady Duff) are
not included, so this is why Wood didn't have to use best
efforts and why beet case involves doesn't apply here
because it isn't exclusive. 2 ? to ask: is it for sale of goods?
Is the contract exclusive? If yes to both, UCC applies.
3. Mattei--land developer and satisfactory leases--court says
mutuality is necessary--w/o it, no consideration. there is
mutuality here, $1,000. And preexisiting duty--if leases were
found, then they would follow through with contract.
4. Unconscionability--hypo of Farve promising Limbaugh new
car for $5. Doesn't give it to Rush. Can Rush sue?
Questionable because contract is too wildly one-sided to be
enforceable. As a general rule, Courts don't require
equivalence, but they may refuse to enforce.
b. Mutuality not necessary for consideration
1. Weiner v. McGraw/Hill--no mutuality b/c worker could
leave at will. However, mutuality not essential to binding
contract. Consideration is essential. Here, there is consid
b/c worker gave up other offers, gave up first job, etc.
employer got job services in exchange for promise of
coming to work.
B. Obligation arising from Justified Reliance--Promissory Estoppel
1. Definition:
 Arises when promise in which promisor should reasonably expect to induce
action or forbearance (detriment) of a definite and substantial character on
part of promisee and does induce such action. Reliance alone not always
enough--must be of a definite and substantial nature.
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 In most of these cases, there is no possibility to sue for breach of contract and
no consideration here in a classic sense, but reasonable reliance on promise
substitutes for this consideration. (all)
 Indefiniteness of the contract is not a defense to promissory estoppel.
(Aretha, Red Owl)
 Must be made by individuals with authority to do so. (Local 1330)
 Gratuitous undertakings have been enforced when relied upon. (Seigel).
 Where a party agrees to forgo advantage of a condition, the promise is
binding if the promisee, relying thereon, changes his position. (Ricketts, Red
Owl).
 Has to be an expectation of compensation
2. Section 90 Restatement--elements of promissory estoppel
a. was promise one which promisor should reasonably expect to induce
action or forbearance of a definite and substantial character on part of
promisee?
b. Did promise induce such action?
c. Can injustice be avoided only by enforcement of the promise?
3. Papinian & Pufendorf: say that promise should be enforceable because
there is reliance on promise.
4. Examples of Reliance and Forbearance
 The following cases reveal a general tendency for courts to find way around
classical consideration to enforce promises justifiably relied on. Many would
say these cases exemplify legal fictions b/c court tries to conceal change in
law.
a. Seavy v. Drake--there is an inducement by dad for son to live on
property and improve it--reliance is making these improvements
believing the land will be his. Detriment is his giving up right to $200.
Court says that it doesn't have to be in writing b/c there was partperformance, substituting for classical consideration in this case.
b. Ryerss--congregation reasonably relied on preacher's promise for $ as
gift. Detriment = Bought land, built.
c. Ricketts--gdaughter quits job in reliance on gfather's paying of p.note.
detriment/forbearance=quitting job. She worsened her situation b/c of
promise.
d. Seigel--agreement for making insurance policy. Not done, but there was
reliance b/c the owner had possession of customer's stuff and thus
customer was relying on him to execute his promise.
e. Hypo--farmowners ask insurance agent to file claim after fire--agent
doesn't file. Says he is a gratuitous agent. Different from seigel in that
there is no transferring of property or 1/2 completed exchange. And isn't
written down.
f. Wheeler--pe applies here b/c relied on promise of loan. The D tacitly
encouraged TT's action, so TT has every reason to believe that promise
will be carried out. Here, promisee can't get justice unless promisor held
to promise.
g. Hoffman v. Red Owl stores--indefinite contract--but is enforceable b/c of
pe b/c it is needed to prevent injustice. He sold stores, bought site, etc
b/c D told him to do it.
h. Franklin--promoter spends $ and time for aretha--she backs out. He gets
pe b/c he worsened his situation on reliance of her fulfilling her end of
bargain despite indefinite nature of contract.
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i.
US Steel--there is no definite contract, not made by right people. PE
fails b/c there was no promise, condition never fulfilled even if there was
a promise (they never stayed profitable).
C. Obligation Arising From Unjust Enrichment
1. Elements:
 Benefit conferred on D by TT
 Appreciation/Knowledge by D of benefit
 Acceptance/Retention by D of benefit, making it inequitable for D to retain
benefit w/o paying its value.
 Test is to show if D have reason to know that TT expects compensation
2. D. Dobbs--Gift and Choice Principle--basic premise is recipient is not u.e.
and not required to make a restitution where benefit was conferred by
volunteer or intermeddler.
a. volunteer--person with intent to make a gift without compensation.
Recipient is enriched, but not unjustly.
b. Intermeddler--the beneficiary has no choice to reject the benefit.
1. HYPO--housepainter paints wrong house. Would be enrichment-would it be unjust if owner didn't pay painter? No, b/c in general
you can't refer to ue if you forced benefit of someone.
3. Examples of U.E. cases
a. Bloomgarden--can't sue for ue b/c never made known his desire for
personal compensation
1.hypos--even if B told them right after intro, still wouldn't be ue b/c the
knowledge of expecting payment must be known when services are
rendered (too little, too late).
b. Sparks--no request here either ("friend-manager"), but D gets $ here b/c
his actions as manager can't be considered gratuitous. He went over and
above what a friend would do. (5 hours daily, 2 years, no pay).
c. Gay v. Mooney--no breach of contract action b/c about land and land
must be written down. There was unjust enrichment b/c was a condition
for uncle living there. TT did seek to receive compensation (made
request known).
d. Posner--could do breach or ue--D breached contract. Chose ue (quantum
meriut). There is an enforceable contract and he chose to sue for ue and
he'd completed 5/6 of job. Rewarded with ue.
e. Watts--good review for ue.
f. Kelly v. Hance--sidewalk builder doesn't give substantial performance.
Acceptance of benefit on land improvement not implied here from mere
retention of land--b/c it is not necessarily a movable good. Is
distinguishable from statue case b/c there is more substantial
performance, goods can be given back, and statues have market value.
g. Britton--whole performance of contract not required in order to show u.e.
b/c there is a community standard to pay for work completed, the amount
done has reasonable worth (there is a benefit conferred), the rule of full
performance is unequal, and the real world consequences would be bad
b/c would encourage someone to quit early. Daily pay implied
acceptance.
D. Obligations arising out of promise of benefit received
1. Elements: Restatement 86 (&comment)
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 Promise made in recognition of a benefit previously received by promisor
from promisee is binding to extent necessary to prevent injustice.
 Promise is not binding if:
a) promisee conferred as gift or for other reasons, the promisor has not been
unjustly enriched.
b) to extent that its value is disproportionate to the benefit.
 Factors for enforcing promise made after benefit received:
1. definite and substantial character of benefit received
2. formality in making of promise
3. part performance of promise
4. reliance on promise
5. probability of such reliance to show no imposition results from
enforcement
*HENDERSON--Have to consider time lag b/w performance and promise;
may afford an opportunity for deliberation and exercise of caution (ex:
McGowin different from Harrington/Mills.
2. Examples of PAST CONSIDERATION (aka promise of benefit
received)
a. Moral obligation does not mean legal obligation
1. Mills v. Wyman--deals with nursing on boat. Example of moral
obligation--not a legal obligation. Father is a bad guy, but still isn't
enforceable b/c child is over 21.
2. Edson v. Poppe--here, well-digger was not a volunteer or
intermeddler. Subsequent promise made out of moral obligation to
compensate for benefits may be valid promise.
b. Where the promisee improves property of promisor, though done w/o
his request, is sufficient consideration for promisor's subsequent
agreement to pay for the service because of the material benefit
received.
1. Webb v. McGowin--life saved is benefit. D paid until death, shows
intention to perform, supports seriousness of promise. moral
obligation enforceable here b/c there is material benefit even though
there is no original liability.
a. Boothe v. Fitzpatrick--promise to pay for past keeping of bull.
Held to be enforceable b/c of material benefit. The point of all
this is that SUBSEQUENT PROMISE IS EQUIVALENT TO
THE ACCEPTANCE OF THE BENEFIT.
2. Harrington v. Taylor--deals with wife and axe. D may be morally
compelled to pay but not legally. Court found here act was
voluntary.
F. Obligation Arising from Tort
1. Differences between Tort and Contract
TORT (ex delicto)
CONTRACT (ex contracto)
1. Violation of a legal duty
1. Violation of an agreement of the parties
2. Must prove negligence
2. Strict Liability (easier to prove--a breach is a
breach).
3. Requires misfeasance (negligent
3. Doesn't require misfeasance--is sufficient to
performance of contract)
show nonfeasance (failure to perform contract)
4. Statute of Limitations is shorter (Prosser)
4. Statute of Limitations longer
5. Punitive damages ARE recoverable
5. Punitive damages NOT recoverable (no
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6. Expectancy damages NOT recoverable
7. Hadley rule does not apply
8. No limitation from contract itself on tort
damages; only limitation on tort action is
"proximate cause."
9. Duty extends to people w/in a legally
defined zone of risk
recovery for mental suffering)
6. Expectancy damages ARE recoverable
7. Hadley rule applies (damages that occur as a
consequence of the breach of contract must be
FORSEEABLE to be recoverable
8. Damages are subject to certain limitations
explicit in contract; there are lots of limitations
on recovery on contract
9. Duty extends only to person with whom
contract is made
2. Reasons for choosing to sue for Tort or Contract:
1. PRO-CONTRACT:
a. only have to prove promise and breach, not negligence
b. longer statute of limitations
c. jurisdiction rules may favor contract claim
d. potential damages are EXPECTANCY
e. no physical harm required
f. plaintiff may be bound to the contract and have excluded their tort rights
2. PRO-TORT:
a. may allow for greater recovery of damages (not limited to contract
amount; can get PUNITIVE damages.)
b. To be successful, doesn't require certainty, legality, consideration, or
statute of frauds application.
c. Today, virtually anyone is subject to tort cause of action. A lot easier to
sued for a tort.
3. A tort can be founded on a contract when the contract imposes a legal duty
which exists apart from the specific obligation of the contract.
a. Mauldin v. Sheffer
1. Architect sues engineer for drafting bad plans that forced him to find
another engineer and cost him some project.
2. 2 causes of action:
a. breach of contract to draft correct plans
b. breach of existing legal duty as a professional to provide a
reasonable level of care. (tort)
3. Factors illustrated by M v. S:
a. Can only sue for tort if there is negligent performance of contract-this is why tort cause of action is allowed here--plans defied physics.
b. If engineer had not performed at all, only action available is breach
of contract.
 Penguin hypo: if I say I'll come and fix your penguin case A/C
unit while you are out of town and I don't do it and they die, then
only action you have against me is contract action. But if I came
and did a crappy job and they died, you can sue me for breach of
contract AND tort. (because you promised to fix the a/c unit
well and didn't).
*could argue that unlike in Mauldin, A/C repairman isn't a
professional, so doesn't require a professional legal duty.
*(Prosser) argues that a/c repairman is a professional b/c he
requires special training.
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4. A tort action can be brought for fraud in contract fulfillment.
 Fraud: an intentional misrepresentation of the term of contract that the
party relies on and is injured by
 This is distinguished from promissory fraud which involves
misrepresentation of intent to perform the contract. Here, the contract is
performed, but is performed negligently.
a. Hargrave v. Oki Nursery
1. Vineyard owners sue nursery for knowingly delivering diseased
grapevines.
2. Tort liability based on social policy (here, deals with the infliction
of harm--the bad vines--without respect to any agreement), also
must involve breach of legal duty.
5. Restatement 402A--Strict liability of seller in products cases
 Basis is that seller is strictly liable for harm caused by his product to
the buyer. If you are a professional seller, you are liable for the harm
your product causes, regardless of your care in preparing the product.
G. Obligation arising solely from form
1. Least prominent theory of obligation.
2. Used in the past.
3. Today, most places say that something under a seal is not necessarily binding.
4. Refer to UCC 2-203: Seals are inoperative (when referring to sale of goods).
H. Obligations arising from statutory warranty
1. Express Warranty [UCC 2-313]
2. Implied Warranty of MERCHANTABILITY [UCC 2-314]
3. Implied Warranty of FITNESS FOR A PARTICULAR PURPOSE [UCC 2-315]
4. Modification of Warranties [UCC 2-316]
A. Express Warranty
 An explicit promise or guarantee by the seller that the goods will have certain
qualities.
1. 3 ways to create an express warranty:
a. an expressed affirmation of fact or promise
1. Is the seller's statement an affirmation of fact or a mere opinion?
i. qualifications for opinion:
 lack of specificity
 made in an equivocal manner (the thing speaks for itself)
 reveals that the goods are experimental
*examples:
"this is a super boat" = opinion.
"it's seaworthy" = debatable
reasons for affirmation: made in a certain context after buyer's
specific request for a long-distance sailing boat, brochure is more
specific by saying "years of careful testing," which is evidence that
it is not experimental.
Reasons for opinion: if no brochure and salesman says that it is
seaworthy; could be a spontaneous sales pitch.
b. description of goods which is made part of the basis of the bargain (the
boat is seaworthy)
1. Ways to determine if statement was part of basis of the bargain
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
The buyer does not have to prove he relied on the express statement;
his reliance is presumed. The burden of proof is on the seller to
prove that the buyer did not rely on the statement. (according to
UCC comment of 2-313, p. 74). Boat seller has to prove boat buyer
did not rely on his statement as basis of bargain.
 Did the buyer rely on his own knowledge or his own past experience
to reach a decision? If yes, seller can escape liability. However,
inspection by experts on behalf of the buyer doesn't necessarily mean
the buyer waives reliance on seller.
*example: Granny examines boat in showroom. Says it's okay, but
didn't really test its seaworthiness b/c she never put it in the water.
Therefore, seller's statement of seaworthiness is still a part of basis of
the bargain.
 Did the buyer know of the defective condition? If yes, he can't sue
for breach of warranty
*example: warranty says boat is orange; I inspect boat and find it is
blue. I buy it anyway. I can't sue for breach of warranty that the
boat wasn't orange b/c the fact that it was orange wasn't a base for
the bargain.
c. sample or model is used and becomes part of the basis of the bargain.
2. Was the warranty breached?
a. Keith v. Buchanan:
 Statement was affirmation
 Yes, buyer considered seller's statement of seaworthiness in his purchase,
even though he used experts to look at boat.
 Yes, warranty was breached b/c boat wasn't seaworthy.
B. Implied Warranty of Merchantability [2-314]
 "unless excluded or modified by UCC 2-316, a warranty that the goods shall be
merchantable is implied in a contract for their sale if the seller is a merchant
w/respect to goods of that kind. Under this section, the serving for value of food
or drink to be consumed either on the premises or elsewhere is a sale."
1. Two questions to ask to determine if there is an implied warranty of
merchantability:
(as evaluated through Webster v. Blue Ship Tea Room).
a. Were the goods sold fit for ordinary purposes for which the goods are
used?
i. Court says yes b/c ordinarily and traditionally in the region, bones are in
the chowder. Person from the area should know this; she was an expert
chowder eater of the area and had a duty to look for the bones.
ii. The goal is to not ruin good food. If buyer/eater wins, then NE chowder as
we know it will become yucky and obsolete.
b. Is the seller a merchant?
i. Court says yes b/c eater is in a restaurant where the primary business
objective is selling food.
ii. Example of not a merchant: Housekeeper selling her car to a buyer can't
be held under this provision b/c she is not a merchant. She is a housekeeper.
C. Implied Warranty of Fitness for a Particular Purpose:
 Where the seller at the time of contracting has reason to know any particular
purpose for which the goods are required and that the buyer is relying on the
seller's judgment to select or furnish suitable goods, there is (unless excluded or
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I.
modified under UCC 2-316) an implied warranty that the goods shall be fit for
such purpose.
1. Elements
a. Buyer intends to use the goods for a particular purpose.
1. In Keith, the buyer was trying to use boat for long sea journey.
b. Seller knows of buyer's intended purpose
1. Seller explicitly told boatseller why he wanted it.
c. Buyer relies on seller's skills in choosing the good for that purpose.
1. No, court says that buyer had extensive experience with sailboats, had
done research on boats, know what kind of boat he wanted, and had
friends to come and inspect boat.
d. Seller knows buyer is relying on that skill.
1. No, seller assumes that buyer is relying on his own research and his
friends.
2. Example of Implied Warranty Possibility:
 G goes to hardware store, tells D his lawn is a mess, wants to cut his grass.
D says "weedwacker would be fine." G examines goods in store, not in yard.
 Interpretive question dealing with reliance on seller's skills. Leads to
distinction b/w general purpose and specific purpose (comment to 2-315,
p.76).
Statute of Frauds
1. Generally:
a. Began in response to the Eggberts of the world; Eggbert is alleged to have made
a verbal promise to sell a rooster. He says he didn't make the promise and isn't
allowed to testify. So the jury only knows of the alleged verbal promise, and can
only rely on that information. Eggbert is required to give rooster. Shows that
certain contracts must be written down in order to be enforceable.
b. To combat fraud, Parliament enacted the Statute of Frauds, requiring certain
contracts for the sale of goods to be in writing in order to be enforceable.
Reasons:
 A lot is at stake
 Better to be in writing so that we are sure the contract exists (shaky dealings)
c. General statute of frauds for all states was modeled after the English SOF.
Special statutes imposing additional writing requirements are in force in most
states.
 UCC (kind of like MPC in criminal) sets forth several special writing
requirements.
(see below; 2-201)
d. Six Categories of Agreements that generally fall w/in statute of frauds (in
most jurisdictions), meaning they must be in writing.
i. Executor/Administrator
 A promise to pay the estate's debts out of executor's own funds (ex: funeral
expenses).
ii. Suretyship
 A contract to answer for the duty of a debt to another
iii. Marriage
 Contractual promise in consideration of marriage
iv. Interest in Land
 Agreement for sale of real property or interest, but also other agreements
pertaining to land, such as mortgages, easement, leases over a year.
v. Performance not to be completed within one year
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vi. Goods priced at $500 or more (UCC 2-201, Section 1)
e. Writing requirements:
 uniform commercial code (UCC) writing requirements [Comment to
UCC 2-201]
i. must show a contract for a sale of goods
ii. must be signed, identifying the party to be charged
iii. must specify a quantity (price, time, and place of payment or delivery and
quality of goods all are not required to fall under SOF).
*deals with movable goods!
 Restatement 131 writing requirements
i. at least one writing relating to the transaction must be signed
ii. a letter not directly referring to the contract may suffice
iii. signature does not have to be handwritten (any symbol will do)
f. Statute is generally construed very narrowly to avoid injustice
i. want to prevent fraud
ii.do not want to let technical requirements hinder good promises.
f. Modern Policies behind the statute (FULLER):
i. evidentiary: decreases perjury (if it is written down, you are less likely to lie
about it)
ii.cautionary: causes reflection and decreases frequency and size of legal error.
iii.channeling to written form: incentives to follow provisions.
g. 2 exceptions to SOF (so no writing is required):
1. "Partial Performance" can validate a contract only for the goods which have
been accepted or for which payment has been made and accepted. (UCC,
Comment 2)
2. "Equitable estoppel" when there is a substantial reliance on the promise-encompassing changing of position for the worse, conduct contrary to equity.
Invoked to avoid unconscionable injury.
 Restatement 139:
1. If there is enough evidence of the promisee's reliance, showing that a
promise has been made, and injustice can only be avoided by
enforcement of the promise, then it does not have to be in writing.
*If promise would normally apply under the statute of frauds (ie, has
to be in writing), can still be enforceable even if not in writing if
there is promissory estoppel.
2. to show injustice, must consider the following…
a. are there other remedies? Yes/no?
b. definite and substantial character of forbearance must exist.
c. Extent to which evidence shows terms of contract and its making
d. Reasonableness
e. Forseeability of forbearance
3. Main purpose/leading object rule:
a. Based on Restatement 184
b. Where third person makes a promise to help fulfill a previously
existing duty and it is for his own pecuniary or business advantage
and his help's main purpose is not to benefit the other parties, then it
is not enforceable under statute of frauds. [which means it doesn't
have to be in writing.]
c. If promise made mainly for the promisor's own benefit, not w/in the
SOF.
h. UCC Exceptions to SOF:
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i.
j.
1. 2-201 (3)(a) no writing is needed if goods are especially manufactured for
buyer and not suitable for ordinary sale to others.
2. 2-201 (3)(b) no writing is required if a party admits an oral contract was
made.
3. 2-201 (3)(c) no writing is required if payment for goods has already been
made or the goods have been received and accepted (partial performance)
Four-Step Test (to decide if contract is valid w/respect to the SOF) p.192
When you see a promise w/o writing, it should always alert you to the statute of
frauds. Ask yourself:
1. Is this the kind of promise which Statute of Frauds says must be
written?
2. Is there a writing which might satisfy the statute (indicate a
promise)?
3. Is there some exception that gets the promisor off the hook despite
lack of writing?
Ex: (a) Part Performance (Seavey v. Drake--father giving his son
land)
(b) Main purpose rule (Schoor v. Holmdel--motivated by
personal benefit to promisor when attorney agreed to pay corp's
debt).
4. Does any other doctrine mitigate what would otherwise be the effect
of non-compliance?
Ex: Unjust enrichment, promissory estoppel
Application of the 4-Part test:
a. McIntosh v. Murphy--deals with employment contract not to be performed
w/in 1 yr. Questionable as to what day the contract was to begin--that is
where disagreement has its root.
1. Yes--under HI statute of frauds, contract must be written if not going to
be completed w/in one year.
2. No--contract was made over phone.
3. Yes--equitable estoppel (if injustice can't be avoided w/o enforcement; P
would suffer unconscionable injury if the contract wasn't enforced).
Moved 2000 miles for job, rented apartment. Relied on part (c)--extent
to which forbearance shows evidence of a contract. Also argument for
part performance.
No--he was going to move to HI anyway, before job offer ever came.
*yes is a stronger argument here. So the contract does not fall under the
statute of frauds and does not have to be in writing to be enforced.
4. Maybe promissory estoppel?
b. Schoor v. Homdel Heights--about the lawyer who promises to answer for the
debt of a company that he represents and has ownership in.
1. Yes, b/c deals with suretyship (and falls under in NJ)
2. Yes, there are checks and letters promising money and saying that he
would pay out of his own pocket if comp didn't follow through. So also
applicable under Restatement 131. Court says the letter does not satisfy
the writing requirement b/c it does not state essential terms.
3. Yes--Main Purpose rule. Court determines that main puropose of lawyer
was his own benefit, not that of the company. Thus, SOF does not apply;
does not negate his duty to pay. Just b/c it isn't in writing doesn’t mean
he doesn't have to pay. So he must pay.
4. ?
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c. Jonesboro v. Cherry--sale of farmland. Land mentioned in agreement, but no
terms explicitly listed.
1. Yes--sale of land
2. Yes--there is a contract. But the court finds this insufficient b/c it doesn't
state terms of sale nor time of payment. (this is not sale of goods, so
UCC stipulation saying these things aren't necessary does not apply)
3. No
4. ?
J. REMEDIES
1. Purpose of Awarding Contract Damages:
a. Restitution Damages amount corresponding to any benefit conferred by TT
upon D in performance of the contract that is disrupted by D's breach. It is a case
where P has lost and D has gained.
GOAL: To restore benefit to P that P has conferred on D. Prevents gain of the
defaulting promisor at the expense of the promisee--prevents unjust enrichment
b. Reliance Damages when P has relied on D's promise and changed his position
for the worse, he should be able to recover damages that will put him in as good a
position as he would have been before the promise was ever made. Occurs when
D has not gained anything, but P has lost something. Generally applies to
promissory estoppel, and some breach of contracts cases.
GOAL: To put the P in the position he was in before the promise was made.
c. Expectancy Damages most common measure of damages in breach of contract
cases-- recovery of whole difference in value between condition as promised and
condition actually resulting. Gives the promisee the value of the expectancy which
the promise created. Specific performance (specific redress) requires the
performance of the contract by the D. Damages (substitutional redress) compels D
to pay the money value of the performance.
GOAL: To put the P in the position he would have been in had the contract
1.
2. Types of Damages:
a. General Damages:
Always suffered by buyers when a good is not delivered by the seller. Always
includes the difference b/w the contract price and the market value. Some
jurisdictions use the rental value.
b. Consequential Damages:
Damages that only some people suffer from the breach. Some people may
experience no loss of profits and others may experience horrible losses of profits.
Must be forseeable under the Hadley rule.
c. Incidental Damages:
Expenses incurred in an attempt to mitigate. Example: storage, costs, searching
to find cover, etc.
d. Nominal Damages:
A right of action for breach exists, but there was no harm done. The court
awards a small sum.
3. Policy Considerations for remedies:
a. MORALIST: People ought to keep their promises (Fuller)
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b. GOALS: The values to protect are the aims of the parties in making the
agreement.
c. AUTONOMY: If we want to encourage people to continue making agreements,
the restoration of one party can't be so severe as to discourage the other from
making future agreements.
d. ECONOMIC EFFECIENCY: Someone who is willing to pay a large sum of
money for a small benefit need not be protected as much as someone involved in
efficient use of resources. (Posner's efficient breach)
e. AVIOD WINDFALL: (unjust enrichment) Damages should not be awarded to
put the party in a better position than it would have been in if contract had been
fully performed.
4. EXPECTANCY DAMAGES FOR BREACHES OF AGREEMENT WITH
CONSIDERATION:
A. Why we use expectancy damages:
1. party bears less risk that the other party won't perform
2. higher price is paid for performance
3. expectancy measure is economically rational
4. reliance alone gives no protection against breach until you can establish that
reliance has taken place and there has been a sufficient economic cost--that
waiting is dangerous.
5. Need more than reliance to be enticed into an agreement.
6. Reliance damages may encourage premature or excessive reliance
7. Reliance is harder to prove than expectancy.
B. Types of expectancy damages:
1. cost of completion
2. diminution in value
3. specific performance (Eisenberg)--means that the D has to perform the
contract, either by paying or by completing the labor.
4. falls b/w #1 & #2, giving the jury discretion in deciding the value amount
5. courts should inquire into the P's intention.
 If he actually intends the work  cost of completion
 If he doesn't intend  diminution in value
C. How to place a value for expectancy damages (Rest. 347, comment b)
 Must determine the value of performance to the injured party himself rather
than some hypothetical reasonable person. Must look at individual
circumstances of each case.
 Doctrine of Economic Waste (Rest 346) Deals with minor defects in
contract performance; if these defects are minor, must try to decrease
economic waste by correcting the minor defects instead of beginning the
entire project again.
2 rules
1. Where defect can be repaired or cured without undue expense:
 The owner recovers the amount that is reasonably expended in
remedying the defect.
2. Where defect cannot be repaired w/o spending too much money
(disproportionate) to fix:
 Damages will be measured not by the cost of remedying the defect,
but by the difference b/w the value of the building as it is and what it
would have been worth if built in conformity with the contract.
D. Ways to measure expectancy damages: ????????
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Contract Price- Costs Incurred +
Cost avoided
Net profit
= same result
= same result
E. General rules for award of expectancy damages:
1. Injured party may only recover for losses which are the natural consequence
and proximate result of the breach.
2. Cost of Cover: If D breaches, he can usually recover the cost of covering the
breach in excess of the original contract price only if the 2nd contract is the
same as the first.
F. Evaluating Expectancy Damages:
 In determining how to award damages, Court looks at:
i.
reasonable cost of completion
ii.
diminution in value
I. **CONSTRUCTION CONTRACTS**
1. Cost of completion (Reasonable Cost to Complete Contract)
a. Groves v. John Wonder: D was asked to remove sand and gravel from
P's property as a condition of the lease. D breached deliberately. Both
maj and dissent agree on expectancy damages, but maj favors cost of
completion to correct the level ($60,000) and dissent favors diminution
of value of land for measure ($15,000).
 What amount will adequately compensate for loss?
Majority: $60,000. It would cost this much to adequately complete the
contract. People must be assured that their contracts will be performed
or they will hesitate to enter into agreements. (cost of completion)
Dissent: $15,000. Difference in value of the land before and after the
contract. Ruling of $60,000 gives windfall to P and puts him in a better
position than he would have been in if the contract had been performed.
(dimunition of value)
(economic waste theory).
Hypo: (Ugly monument hypo) Coenan hires sculptor for Fuller and
Llewelyn statutes. Sculptor builds 1/2 and leaves. Builder says that
statutes would diminish value of property. Cost of completion is
$10,000. He should get cost of completion even if he is the only person
that would find value in ugly statutes because a man can do what he
wishes with his own property. Value should be measured by the injured
party, not some hypothetical reasonable person (Rest. 2nd, § 347).
Hypo: (Worthless Oil Well) O contracts to have D dig oil well. It is
found that there is no oil in that region and D breaches. O can only get
nominal damages b/c owner is entitled to money which will permit him
to complete unless this cost of completion is grossly out of proportion to
the good to be attained. (if digging well cost is $60,000 and you only get
$100 of oil, it is grossly disproportionate).
b. Rock Island Improvement Co. v. Helmerich & Payne P sues D for breach
of reclamation clause--to restore the land that they were strip-mining--on
land that was leased to them. Like Groves b/c it relied on the statute that
required the reclamation clause to be restored for environmental reasons,
but there is no mention of damages.
 D rely on Peevyhouse, saying that coal mining is main purpose and
reclamation was incidental, and said that reclamation would be
disproportionate to the diminution in value of the land.
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
Court disagrees with D, rely on statute and award cost of performance
damages.
c. Thorne v. White--deals with cost of completion in a cover case, where D
breaches and P has to "cover" and find another way to complete the
work. Here, P house owner sued roof builder for breach, builder left. P
hired new builder for more money. Home owner cannot get cost of
completion b/c the contracts were not identical. If recovery from "cost of
cover" was allowed, P would have been placed in a better position than
he would have been in if the contract than if full performance. Damages
are to compensate and you should only recover the damages that are
proximate result of breach.
d. Warner v. McLay breach by owner instead of by builder. Expenses +
profit [contract price - cost of work/materials = profit to builder] is
awarded to builder. This is = to cost of completion that is normally
awarded to owner when builder breaches.
e. Freund v. Washington Square Press D, publisher, breached contract to
publish P writer's book. Trial court analogizes to construction cases,
awarding cost of completion (cost of D to publish books). App Court
reverses, distinguishing them from construction cases b/c in construction
cases, the value to P is the end product. Here, value to P is royalties
from books. Royalties would be appropriate expectancy damages, but
royalties are too uncertain to award any specific measure b/c we don't
know how many books to be sold. So appropriate award is cost of
completion, but they can't award b/c they are too speculative.
2. Amount the property was devalued (market value theory)
a. Peevyhouse v. Garland: [like Grove's dissent] D rents land from P
(family that lives on the land) to do strip mining with reclamation clause
that the D must return land to its original condition after the mining is
finished. D breached by not leveling the land. The statute in this case
prohibited PH's from recovering greater damages than they would have
under full performance.
 Court finds here that reclamation clause was incidental to the
formation of the contract; so it can't be enforced and dimunition of
value is the only damage award that they can receive. ($300). The
reason that they can't receive cost of performance is that it would put
them in a better position than they would have been in if the contract
had been performed.
 Court disregards Peevyhouse's argument that they wouldn't have
entered into the contract if the reclamation clause wasn't included.
3. Intermediate figure set by jury
Instead of letting the parties set the damages, the jury does so at an equitable
amount (Eisenberg). Problem is that no jury is alike, so no constistency in
damages will exist.
4. Specific performance:
Would force either D to perform or would force an adequate settlement b/w
the parties.
--Advantages: avoids problems in measuring damages.
--Disadvantages: Losing party can refuse to comply, and Ps may have
already covered for the breach. Courts prefer to award damages over
specific performance.
II.**EMPLOYMENT CONTRACTS**
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1. Cost of Completion:
Handicapped Children's Education Board v. Lukaszewski
Luk was hired to teach w/ long commute and health problems. Offered more
lucrative contract closer to home, resigned from first job, citing medical
reasons. Board sues for breach. They search and find another teacher,
paying more money for less educated, but more experienced teacher.
 Court found breach and found that P board took all reasonable steps to
mitigate. D has to pay the cost of cover b/c Board only bargained for
her level of experience and pay, did not bargain for this other teacher.
 Like Thorne, P non-breacher got more than contracted for, but
distinction is that board did try to mitigate damages by looking for an
equally qualified teacher.
 Brings up idea of Posner's Concept of Efficient Breach
 IF profit from the breach would exceed expected profit from
completion of the contract, there is an economic incentive to breach.
This idea is mostly used in the sale of goods context, but Luk is a
good introduction to this idea.
III.
**CONTRACT FOR THE SALE OF GOODS **
1. Common Law (Pre-UCC)
 Contract Price - Actual Market Value at time and place of breach
 If market price is the same at time of breach as when contract was made,
injured party can only get nominal damages
 Ex: Cooper v. Clute Seller breaches by failure to deliver cotton at a
certain time. Market value was same at time of breach as contract price.
D made an efficient breach b/c he made more $ selling to another. P
wanted the difference in what D sold for and market price, which would
have been more than zero. Court disagrees-have to look at marketcontract price. So only nominal damages are awarded.
2. UCC
 § 1-103: Unless displaced by another provision of this act, the principles
of law and equity apply here (estoppel, fraud, misrepresentation, etc.)
 General Rules UCC § 1-106:
1. The remedies…should be liberally administered to the end that the
aggrieved party may be put in as good a position as if the other party
had fully performed (Expectancy)
2. Special or punitive damages are not recoverable by an injured party
in a sale of goods.
3. Sometime statutory language may trump a fair result of damages (ex:
placing the buyer/seller in the position he would have been in had the
contract been fulfilled--IS NOT INSURED UNDER UCC!)
a. BUYER'S RIGHTS AND REMEDIES IF SELLER BREACHES:
1. Buyer's remedies in general: UCC § 2-711 Where seller fails to
make delivery or repudiates or the buyer rightfully rejects or
justifiably revokes acceptance, the buyer may cancel and may in
addition, recover that which he has paid.
2. Buyer's incidental and consequential damages are recoverable from
seller: UCC § 2-715
 Incidental: Expenses reasonably incurred in inspection, receipt,
transportation, etc of goods and in connection with searching for
cover.
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
Consequential/Special: Any loss resulting from general or
particular requirements and needs which the seller at the time of
contract had reason to know and which could not have been
reasonably been prevented by cover of the buyer, and injury to
person or property proximately resulting from breach.
 Incidental and Consequential can be recovered by buyer whether
he covers or not.
 UCC says particular needs of the buyer must usually be made
known to the seller while general needs must rarely be made
known.
 Rejects the tacit agreement test of Hadley which says that just
giving crankshaft to courier and not explicitly saying they need
it back tomorrow makes the D courier responsible for damages
incurred by his breach to the crankshaft owner, even if he did
not know the special circumstances.
3. Buyer's choice of remedies if seller fails to deliver at all or delivers
defective goods which the buyer rightfully rejects:
a. IF BUYER COVERS: UCC § 2-712
The buyer's purchase of substitute goods must be:
1. made in good faith
2. without unreasonable delay
THEN, buyer can recover the difference b/w the contract price and
the cover price.
[CONTRACT PRICE - COVER PRICE]
b. IF BUYER DOESN"T COVER: UCC § 2-713 (see comment
5)If seller does not deliver or repudiates and buyer does not cover,
either because he can't or he doesn't want to, he can recover the
difference between the contract price and the market price at the
time the buyer learned of the breach (of course, if it is higher)
 different from c/l because under common law, it is measurable
from the time of the breach, not when the buyer learned of the
breach.
 Ambiguity of when buyer learns breach
Ex: seller tells buyer on 2/1 that he isn't going to deliver on
2/26. Is breach when seller informs buyer? Or when seller
actually fails to deliver on the actual day of contract? See §2723 and § 1-102 (should determine all damages in light of
expectancy damages).
[PRICE AT TIME BUYER LEARNED OF BREACH - CONTRACT PRICE]
c. IF SELLER DELIVERS DEFECTIVE GOODS (breach of
warranty, both express and merchantability): UCC § 2-714
If a buyer has accepted the goods and they turn out not to be as
warranted, then the buyer can recover the difference at the time and
place between the value of the goods as accepted and the value of
the goods as they had been warranted, unless special circumstances
show proximate damages as a different amount.
*example: seller delivers and buyer keeps smutty grain.
Grain was supposed to be worth 17 cents but was delivered
worth 5 cents. Even if buyer keeps these smutty goods, he
can still recover the 12 cents difference.
[VALUE OF GOODS EXPECTED - VALUE OF GOODS DELIVERED]
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b. SELLER'S RIGHTS AND REMEDIES WHEN BUYER BREACHES:
1. Seller's remedies in general: UCC § 2-703
Where the buyer wrongfully rejects or revokes acceptance or fails to
make payment, the seller may:
a. withhold delivery of such goods
b. stop delivery (UCC § 2-705)
c. resell and recover (UCC § 2-706)
d. recover damages for non-acceptance (UCC § 2-708)
e. cancel
2. If buyer breaches, seller's has a choice of remedies:
a. If seller resells goods: (UCC § 2-706)
The seller can resell the goods and get the difference between the
contract price and the resale price (assuming it is lower of
course) plus incidental damages.
 The resale must be in a commercially reasonable manner
 This is similar to UCC § 2-712 if seller breaches and buyer
covers.
[CONTRACT PRICE - RESALE PRICE]
b. If seller does not resell: (UCC § 2-708, (1))
If he doesn't resell, seller can recover the difference between the
unpaid contract price and the market value of the goods at the
time and place of delivery.
[UNPAID CONTRACT PRICE - VALUE OF GOODS AT
TIME AND PLACE OF TENDER]
c. Lost profit recovery: (UCC § 2-708 (2))
If the remedies of a & b don't make seller whole, then he may
recover lost profits.
 LOST VOLUME SELLERS: When buyer breaches and
seller subsequently sells to someone else, seller may recover
for lost profit of first sale when seller has a large enough
supply that he would have made 2 sales and 2x the profit if
not for the breach
Ex: granny selling her old car vs. car dealership
Ex: Neri v. Retail Marine Corp. looks at § 2-708 (2) and §
2-718. Buyer pays a larger than normal deposit to insure
getting a new boat in faster time than usual. Buyer
repudiates, boat has already been delivered to seller. 4 mo
later, seller finally sells to another buyer for the same price.
P tries to recover deposit; D counterclaims for breach.
What damages are available to the seller? The seller is
already asking for damages under § 2-708 (b/c buyer
repudiates)--since he is already asking these, his right to
recover under § 2-718 is limited under subsection (3).
*application of § 2-718 (b)--for deposits, the buyer who has
made a deposit and then breaches will face a penalty of
$500 or 20% of the contract price, whichever is smaller.
Here, this does not apply b/c of sub (3).
*so, the damages here is the lost profit from one sale plus
incidental damages, costs reasonably incurred, and due
credit for payments or proceeds in resale (§ 2-708 (2)). § 2-
19
706 does not apply here b/c this deals with a manufacturer
and not an individual.
c. LIMITATIONS TO EXPECTANCY DAMAGES:
* Limitations on Expectancy Damages: *
1. If non-breaching party failed to mitigate
2. If damage measure is too speculative (Evergreen--application of the
new business rule)
3. If damages are not reasonably foreseeable by D
4. If expectancy damages are disproportionate to the actual loss
 Restatement § 351--Court has ability to limit damages if it
concludes that justice requires this limitation in order to
avoid disproportionate compensation.
5. Medical contexts b/c of uncertainty of medical field (Sullivan v.
O'Connor)
6. Loss of reputation or goodwill (you can't get expectancy damage if
your
reputation is damaged).
7. Attorney's fees not recoverable
8. Discharged attorneys can only get reasonable value of their services
9. If non-breaching party fails to communicate special circumstances
(Hadley rule)
The following limitations apply to damages in general:
10. Can't recover for pre-judgment interest.
11. Damages for mental distress are not recoverable.
12. Punitive Damages can't be recovered in breach of commercial
contracts, only in personal contracts.
**Examining Limitations:
1. Forseeability:
If special circumstances could not reasonably be forseen by the breaching
party, the breaching party cannot be held responsible for consequential
damages.
a. Hadley v. Baxendale: P could not recover lost profits from his closed
mill because of D courier's failure to quickly deliver a crankshaft.
Court said courier could not have foreseen the ultimate damage to the
miller.
 2 types of expectancy damages:
1. general--damages that arise naturally from the breach
2. special--damages that arise from special circumstances and
are only recoverable if they could have been contemplated by
both parties at time contract was made, if the P
communicated special circumstances to the D.
 If facts were as is, under UCC, UCC § 2-715 2(a), then D
would not be liable b/c needs are particular. If, though, there
were a national crankshaft crisis, it would be a general need
and D would be liable.
b. exception to Hadley rule is Armstrong case where lost profits were
allowed under implied necessity.
2. Mitigation:
a. General rule: Expenses incurred in a reasonable effort, whether
successful or not, to mitigate or avoid harm can be recovered.
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b. Stop Work Orders: When a person performing services is given a
stop order, he must stop immediately if continuing would result in
economic waste.
i. Example: Clark v. Marsiglia Art restorer refused to stop fixing
paintings when stop order was given. At point order was received,
restorer had a cause of action for breach. But b/c he continued to work,
he wasted resources and could not recover.
a. Under fairness argument, it would be unfair for restorer to
continue working just to get more damages.
b. Under economic efficiency, his continuing wastes materials,
resources, and labor.
ii. When stop work order is received and P is very near completion of
work and to stop work would result in economic waste, the order may
be ignored w/o penalty.
a. Ex: Contractor builds all but a bit of a house, then receives
stop order, he can complete it and still recover.
b. If a sale of goods, see UCC § 2-704 (2)
c. Seller's "Duty" to Mitigate:
When a contract is breached, the non-breaching party has an
affirmative duty to take reasonable steps to mitigate damages.
1. Schiavi Mobile Homes v. Gironda--Son breaches contract after
making deposit to buy mobile home. Dad offers to purchase, P seller
refuses offer then re-sells to 3rd party for lower price. P seller then
sues for diff b/w contract price and resale price. P does not get this
b/c he failed to mitigate in accepting the father's offer.
 The offer to mitigate damages must be reasonable and not
conditional or vague.
 The non-breaching party only has to take reasonable steps (not
subject to risk, humiliation, or expense).
d. Mitigation in Employment Contracts
An employee who is terminated w/o cause has a responsibility to
mitigate by taking comparable and substantially similar
employment. Employment will not be forced to accept work of a
"different and inferior" kind. Nor is person required to accept other
mitigating offers from the breaching employer (Parker v. 20th
Century Fox).
Mitigation exception for "different" or "inferior" contract-REASONS:
1) It is too severe to demand that someone attempt to find and
perform work for which he has no training.
2) Want to minimize unnecessary personal and social costs of
contractual failure; in taking a different and inferior contract,
personal costs would result, so reason to mitigate disappears.
(Llewellyn)
3) If the wrongfully terminated employee has only one offer and
that one offer is from her previous employer, the employee will
not be required to take that offer in many juris b/c employees
should not have to deal with someone who has already wronged
them.
21
Hillman's criticism: the contract breaker should not be rewarded
by the breach by requiring the injured party to accept the new
offer.
e. Speculative Damages Barring Recovery:
1. New Business Rule: Loss of anticipated profits from a new
business may not be recovered b/c they are merely speculative.
Ex: Evergreen Amusement v. Milstead (new movie theater)
*this interpretation of the new business rule is declining b/c it is
basically unfair; it encourages breaches against new businesses.
But should be allowed if a reasonably certain factual basis for
computation of losses can be made.
2. The "One-Shot" Deal:" Unlike new business rule, if there are
witnesses with first-hand knowledge that testify that a campaign
would have succeeded if not for breach and there is a "rational
basis from which the amount of loss can be inferred," it is up to
the jury to set a reasonable amount of damages and barring
glaring mistakes, the verdict for non-breaching party will be
upheld. Ex: Lakota Girl Scouts.
3. Restatement § 331 Damages for lost profits are recoverable if
they can be measured with a reasonable certainty. Where there
is not a sufficient basis, damages may be measured by rental
value (as was applied Evergreen).
4. Corbin says that courts are more inclined to reject speculative
arguments in cases where it is very clear that there has been a
lost profit.
f. Mental Distress in Commercial Contracts:
1. General Rule: mental distress not recoverable if resulting from
loss of property or from breach of a commercial contract.
Damages can be recovered if agreement is of a deep personal
nature. (furnace case--Chrum v. Charles Heat and Cool).
2. Why not recoverable:
a. personal anguish not usually forseeable in commercial
contracts.
b. Very difficult to compute such damages
c. This is an easy claim to fabricate
d. Mental distress is not considered a serious injury by the
courts.
g. Punitive Damages
1. General Rule: Punitive not recoverable in contract actions
unless the conduct constituting the breach is also a tort. This
rule applies even when the breach has been affected with
malicious intent
2. Why not recoverable for breach:
a. Hard to compute; contract losses are easier to compute.
b. Breaches can sometimes be efficient and desireable.
3. Exceptions (Corbin):
a. Breach of contract to marry
b. Failure of public service company to not monopolize
c. Breach of fiduciary duty (legal malpractice, for ex.)
d. Breach of contract accompanied by fraudulent conduct.
e. Insurer acts in bad faith w/ refusal to settle a claim
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IV. RELIANCE DAMAGES [as an alternative to expectancy for breach of contract]
 General Rule: applied when expectancy damages for breach of contract can't
be fairly determined
 Premise: If it is too hard to determine where the P would have been had the
D not breached, then the court will back up and figure out where P would
have been if no contract had been made
 Basis: Only damages recoverable are those made (Dempsey)
1. after the contract was signed
2. expenses that arose directly out of the contract
A. Dempsey v. CCC
F: Dempsey contracted to fight @ CCC; backs out, says no contract, but lots
of preparations have been made on reliance on his promise.
1. Four propositions for damages:
a. expectancy lost profits [court said no. too speculative--weather,
etc. more like Lakota b/c one-time venture. Not new business. But
Lakota had a specified goal in fund-raising and expert testimony
allowed]
b. reliance expenses prior to signing contract [court said no. contract
for $50,000 w/other fighter entered into b4 dempsey]
c. expenses incurred from filing injunction [court said no. these
expenses did not flow naturally from the breach. CCC took these
steps at its own financial risk.]
d. post-agreement, pre-breach expenses [court said YES--the
expenses (ie special secretaries) that were incurred in reliance on this
fight]
B. HYPOS:
1. Coppola--wedding dress late coming in; bride cancelled wedding.
Fiancee can recover for cost of dress, but not for other reception
expenses like party stuff b/c too remote.
2. Hypo: CCC has costume party to celebrate fight 2 days before breach.
Can't recover b/c expenses are too remote. These consequential damages
of the breach are not forseeable.
C. Two types of reliance damages: (Fuller and Perdue)
1. "Essential Reliance": the price of whatever benefits the contract may
involve for the P. [can only recover at most contract price]
ex: performance of the agreed exchange, preparation done to perform,
losses involved in entering the contract itself (foregoing the opportunity
to enter into other contracts)
2. "Incidental Reliance": Reliance that flows naturally from the agreement.
Is usually forseeable. [almost no limits placed on recovery here]
D. Losing Contract (Fuller and Perdue)
1. When P enters a losing contract, he may want to sue for reliance
damages instead of expectancy b/c reliance will give him more than
expectancy (with expectancy, he could have gotten -$).
VI.
LIQUIDATED DAMAGES
A. Definition: sum party to contract agrees to pay if he breaks some promise,
and, which having been arrived at by good faith effort to establish actual
damage that will probably ensue from breach, is recoverable if breach occurs.
 2 requirements for enforceable liquidated damages (Rest § 339)
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1. The amount is a reasonable forecast of just compensation for the
harm caused by the breach
2. The harm caused by the breach is incapable or very difficult to
accurately estimate.
 Tips for Drafting Liquidated Damage Clause:
1. make sure damages fall between upper and lower limits of
potential actual foreseeable damages.
2. Consider all foreseeable consequences
3. If the performance is required by a certain time, include what to
do if you have to extend (rental rates, daily fee for lateness)
4. Make sure amount of damages varies with extent of breach
5. Include facts which cause the parties to write a liquidated
damage clause in the first place; include words "liquidated
damages."
 Courts will not enforce liquidated damage clause if it is a penalty.
Penalty = an attempt to coerce performance
B. McGrath v. Wisner
1. F: farmer wisner makes contract to supply cannery with all of his
tomatoes. Agrees to a liquidated damage clause if he breaches. He breaches
and sells some to others. Court says that liquidated damages not enforceable
here.
a. why?
1. amount not reasonable estimate b/c it is not proportional to the
extent of the breach
2. the prospective damages are ascertainable
2. Case happened before UCC. What if under UCC?
a. UCC § 2-718 (1)
Liquidated damages must be reasonable in light of:
1. anticipated or actual harm caused by the breach
2. difficulties of proof of loss
3. inconvenience or nonfeasibility of otherwise obtaining an
adequate remedy
 if unreasonably large damages, clause is void as a penalty
b. Wisner under UCC:
1. yes, b/c actual damages were $275 & liq was $300.
2. No, no clear proof of loss besides the actual # of tomatoes he
didn't get
3. Yes, difficulty in determining expectancy and reliance; liq
avoids this difficulty.
C. Pace v. Moonlight
1. deals with advertising pages and prices--company revokes some of their
pages and magazine wants to enforce liquidated damages
2. Court decides it can't be enforced b/c:
a. damages are disproportionate (mag would be placed in a better
position than if original contract had been performed)
b. damages are calculable.
D. Better Food Markets
1. Burglar alarm fails to transmit break-in info in a timely manner to cops.
Food market burglarized. Over $30,000 in damages; liquidated was only
$50.
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2. Court decides that it can upheld. Damages would be too hard to measure
b/c there is no way to know what burglar would take. But, P argues that
$50 remedy is unconscionable. Court then would argue that it is diff to
tell what % of loss is due to company.
E. Other Considerations:
1. Causation--the breach had to actually cause the harm (Better Food
Mkts.)
2. Proportionality--unconscionable part
3. No actual harm--sometimes ruled as impossibility to enforce liq, sometimes
liq can be enforced here. When enforced, argument is that there might not be
damages this time, but next time the harm could be serious.
VII.
MONETARY REMEDIES UNDER PROMISSORY ESTOPPEL
A. General Rule: PE remedy can be of any type, as long as it is used to promote
justice. Considerations to satisfy "justice" requirement (2nd Rest § 90 &
comment):
1. Depends on reasonableness of promisee's reliance
2. Definite and substantial character in relation to the remedy sought
3. Formality of the promise
4. Extent that Fuller's (channelling, evidentiary, cautionary) are met
5. Extent that other policies of enforcement and prevention of UE are
available
6. Sometimes full-scale enforcement isn't possible, relief is sometimes
limited to restitution or to specific relief measured by the extent of
promisee's reliance and not by the terms of the promise.
 NOTE: The rest does not specify that reliance damages are the proper
measure the courts will award. However, this is usually the case, but the
courts have discretion to award expectancy or restitution damages as
justice demands.
Ex: Wheeler v. White granted reliance; while McIntosh v. Murphy
granted expectancy.
 Reliance damages aren't always the proper damages to award for PE.
Courts bring out other facts--could the people have gone somewhere else
for promise, etc--to decide if restitution or expectancy damages would
better promote justice.
B. Case examples:
1. When lost profits cannot be awarded:
a. Goodman v. Dicker (reliance damages awarded)
Setting up a radio franchise for P to sell radios furnished by D's agents.
D told P that franchise would be granted & radios delivered; P expended
$1150 in reliance on the promise. When D repudiated, P sued for the
expenses (1150) + radio profits (350). Court only allowed expenses b/c
the profit from the 30 radios wasn't part of the promise.
2. When a party in reasonable reliance on a promise forgoes other
opportunities, he may be reimbursed on the basis of the opportunities
foregone.
a. D & G Stout, Inc. v. Bacardi Imports, Inc.
At-will contract. Bacardi promised to continue distributing for a
liquor business when that business had lost its other distributors and
they would have sold the business for $1 mil (offer from another
company) if not for Bacardi's promise. Bacardi renunciated, liquor
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VIII.
co lost their bargaining edge and sold for $500,000. So reliance
damages for the difference of $500,000 should probably be awarded
on remand. Compared situation to one of moving expenses where
opportunity is foregone. No expectance is fair here.
b. Walters v. Marathon Oil:
Couple looking for a gas station to buy and operate; they find one
and marathon promised to provide gasoline--couple relied on this
promise (and its future profits) when buying this gas station and
improving on it. Marathon repudiates; says Walters did not try to
mitigate damages. Court decides that P did attempt to mitigate
damages based on their knowledge of the business & specific
amount of damages awarded were expectancy b/c reliance can't be
accurately calculated.
RESTITUTIONARY RELIEF AND THEORIES OF OBLIGATION
A. Basics:
1. Rest § 371:
a. The award of $ restitution may be measured as justice requires by
1. the reasonable value to the other party of what he received in
terms of what it would have cost him to obtain it from a person
in the claimant's position (ie reasonable market value) or
2. extent to which the other party's property has been increased in
value or his other interests advanced (ie amount the breaching
party was enriched).
b. The Court has discretion in measuring--can look to the purposes of
making the promise.
c. Choice of measure--Party seeking restitution for part performance is
usually allowed the more generous measure of reasonable value
unless that measure is difficult to apply or when the party seeking
restitution is the breaching party.
2. The main uses for restitution damages are to prevent UE in situations
where:
a. P has partly performed before the other party breaches
b. A breaching P who has not substantially performed
3. Measured by the value rendered to the D by the P.
a. can be given by $ or return of item.
b. Market value is usual standard measuring device.
 Ask "how much would the D have to pay to get the = of the P's
performance on the open market?
 The exception is when P's performance has little or no market
value. Then, look at the value to the D.
4. D who breaches is not able to say that only the contract price can be
recovered in trying to limit the P's damages;
a. also, the breaching party's damages are capped by the contract price.
B. Where a non-breaching P conferred a benefit and chooses restitutionary
recovery:
1. Zara case:
a. Subcontractors want to recover for work performed (extra b/c of hard
soil + regular work) and rental value of equipment supplied in
performance of their contract.
b. "with the breach falls the contract"--since the contractors breached,
the limit to recovery is not the contract price. The subcontractors can
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IX.
sue based on quantum meruit (the reasonable value of the work they
performed)
c. Recovery based on avoidance of unjust enrichment--restitution
damages. Gives reasonable market price value of his performance,
not just amount of benefit retained.
2. Oliver v. Campbell-- attorney finishes job and client has only partially
paid on agreed price. Attny says that the value of services are more than
that--sues for quantum meruit. Court does not allow, saying that if the P
has completed the performance, cap damages at the contract price.

Problem with difference in recovery for partial performance
(expectancy) and full performance (reliance--contract price) is that if
a person fully performs, he is allowed less damages than if he
partially performed.
C. Losing Contracts:
1. Rest § 373, comment D:
Where injured party would suffer a loss instead of a gain, he should sue
for restitution b/c it will give him a larger recovery than reliance or
expectancy would.
2. Two theories:
a. total price of contract as cap
b. pro-rated cap (50% of performance would be 50% of contract price)
3. Johnson v. Bovee: building contract with extras--owners were
dissatisfied so they stopped paying, P stopped work. Would have been a
losing contract for him, so he recovers only the amount of the full
contract price (house is 90% finished). [ex of cap being full contract
price]
D. Where non-breaching P conferred a benefit but can't prove lost
expectancy
 When the P can produce no evidence except for nominal damages but
there has been a material breach, P can recover restitution.
1. Bausch and Lomb v. Bressler
B&L pays for exclusive distributorship of product; other company
breaches by selling in the exclusive area. B&L can't prove the
expectancy damages from breach b/c too speculative. But they can
recover restitution in order to avoid UE.
2. Osteen v. Johnson (country music singer)
Main rule = in order to get restitutionary damages, there must be a vital,
material breach that gets to the "essence" of the contract.
E. When P materially breaches the contract, his recovery will be the least of all
of the computations. (ex: Britton v. Turner).
SPECIFIC PERFORMANCE:
A. General Rule: when monetary damages will not give an adequate remedy to
an injured party, a court in equity may order specific performance of the
contract.
B. UCC § 2-716 Allows specific performance " where the goods are unique or
in other proper circumstances"
C. Examples of goods that may require specific performance:
1. Land--hornbook principle is that land is inherently unique and has
peculiar value, thus $ damages are not adequate.
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a. Kitchen v. Herring (timber on land)--differs from goods like cotton
that can be sold at market b/c those have a market value and can be
given an adequate remedy.
2. "Where goods are Unique…" (ex: Van Gogh's sunflowers--one of a
kind)
a. When looking at goods, you can consider UCC § 2-716
Deals with SP--can get it for something unique and other proper
circumstances (very ambiguous)
b. Products Needed for a particular purpose at a particular time
Curtice Bros v. Catts
Canner needed full supply of tomatoes at a specific time. Court
awarded SP on basis of peculiar situation and needs of the parties. P
had to show that reliance, expectancy, and restitution were
inadequate remedies. They were b/c his preparations and needs were
unique.
1. expectancy inadequate b/c doesn't take into account goodwill
and reputation loss as well as loss of profits.
2. Reliance inadequate b/c no way he could cover in unstable
market on such short notice
3. Restitution inadequate b/c prevention of UE can't be
avoided.
 Court says that farmer can be restrained from selling to
others or appoint a receiver (court official) to observe what's
going on.
3. "…other proper circumstances" (comment 2 says: inability to cover)
a. Pratt Furniture v. McGee: fictional case with chairs and tables
1. RULE: If a party can cover with an alternative, he can't get
specific performance.
2. 3 views:
a. relies only on RULE as applied strictly to the fact of the
case.
b. Encourages efficient breach, saying the best allocation of
resources would be for the seller of chairs to breach to get
more money. Economic argument (in reality, very few
courts actually encourage efficient breach.)
c. Encourages performance of contracts, not breach. People
could respect their contracts. If you want to conduct future
business and maintain your reputation, you don't want to
breach. Utilitarian argument--people would breach all of the
time if it were so easy.
5. Limitations on granting specific performance:
 Can only be awarded if no other remedy at law is adequate.
a. Unfairness
*ex: dumb farmer v. experienced businessman
b. Lack of mutuality of performance
*ex: D breaches contract at midpoint b/c he thinks that P can't pay. P can
only get SP if he can prove that he can pay.
c. Indefiniteness of agreement
* Contract may be specific enough to be valid, but not specific enough
for the court to precisely order SP (ex: contract to build "first-class"
theater.
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d. Impracticability of performance and difficulty of enforcement
*if it is too complicated to supervise or enforce--lots of different
divisions and operations to oversee.
e. Personal services
* court won't grant unless personal services are unique b/c you wouldn't
want a haircut from a person you just sued.
THE AGREEMENT PROCESS:
I. In order to have a valid contract, must have:
A. OFFER
B. ACCEPTANCE
K as matter of law For factfinder No K as matter of law
C. CONSIDERATION
GENERAL RULES:
1. To determine whether parties formed an agreement, a jury will use an objective standard and
ask whether a reasonable man would have considered either the words or the conduct of the
parties sufficient to form a contract. The purpose of the objective standard is to encourage
reliance and not force a party to read the other's mind.
2. "To constitute a contract, there must be a meeting of the minds and both parties must agree
to the same thing and the same sense."
a. Raffles: 2 ships named the same; D and P had in mind different ships.
3. It is enough that one party had a reason to believe that the other party intended to enter the
agreement, even if that party did not have the intention.
"If a person's words and acts, judged by a reasonable person standard, manifest an intention
to agree, it is immaterial what may be the real but unexpressed state of his mind.
a. Embry v. Hargadine
b. Coenan's Basketball Team Hypo
c. Lucy v. Zehmer: drunkenness, joking around, or other situations will not negate
assent to an offer if a reasonable man would not have been aware or had reason to be
aware that the assenting party was not serious.
4. Even if D states that a promise is not a contract in a written agreement, if a reasonable man
would have relied on the promise, it may still be enforceable.
a. Tilbert v. Eagle Lock: Certificate of benefit given to employees when insurance was
discontinued. Employer tried to revoke the day of employee's death. Ct. says that
benefits are valid despite the fact that it said "this is not a contract" because a
reasonable person would have relied on it as a contract. And, employee died before
attempted revocation.
b. Court is likely to look w/distaste at provisions that seem to exclude all sanction and
remedy.
5. Standardized Agreements:
a. Restatement 2nd § 211: When a party signs or manifests assent to writing and has reason
to believe that similar writings are usually used for the same type of agreement, the
writing is an agreement.
Exception: When other party has reason to believe that the party giving its assent
wouldn't do so if he knew that a particular term was contained in the writing, that term is
not part of the agreement.
6. Effect of Misunderstanding:
a. Rest 2nd § 20:
(1) No manifestation of mutual assent if:
a) neither party knows or has reason to know the meaning attached by the other
ex: Raffles--2 ships, same name (Peerless); neither knew of the other's error, so court
said no mutual assent, therefore no contract.
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OR
b) both parties know or have reason to know meaning attached by other.
EX: Tilbert: employer's lawyer could have used this--there is no mutual assent
b/c the employees had reason to know that employers didn't want this to be a
contract.
(2) Manifestations of parties are operative if:
a) party doesn't know of any different meaning attached by the other and the other
knows the meaning attached by the first party
b) …or has reason to know…
ex: Cargill: listed 35,000 instead of 3,500 wheat bushels; the buyer had reason to
know that the wheat seller didn't want to sell that much.
b. Restatement § 201: Neither party is bound by the meaning attached by the other party,
even though the result may be a failure of the mutual assent, even if the claims are made
in good faith.
1. If D is fully appraised of how P understood the language of his offer by knew that
was not the meaning D intended, then it is his duty to inform P at once that the offer
was to be interpreted in a different way.
EX: Dickey v. Hurd: Seller knew that the buyer misunderstood when payment was
due, but failed to inform him that he was in error. Verdict for buyer b/c it is the
seller's responsibility to tell.
A. OFFER
1. Corbin: An offer is an expression by one party of his assent to certain definite terms
2.
3.
4.
5.
provided that the other party involved in the bargaining transaction will likewise express
his assent to the identically same terms. (The Mirror Image Rule)
Intent: Court finds intent by looking closely and with scrutiny at every word in the
language of the agreement.
EX: Merely "asking" for a certain price doesn't = offer (Courteen Seed)
Objective standard applies. Context of offer is important. The word "OFFER" itself
doesn't have to be used in the exchange if the whole thing implies intent to offer.
EX: Southworth v. Oliver: D sent informational letter including price, terms of sale, etc
for land. Court said reasonable man would have believed this was an offer by looking at
surrounding circumstances.
Criticism: "information" doesn't = offer, same info sent to other potential buyers
that buyer knew about, things such as permits needed to be negotiated.
Indefiniteness:
a. customary language/uses of a trade are acceptable and won't be found indefinite.
Ex: Fairmount: "first rate goods" not specified in offer, # of carloads, # of types of
jars not included. B/c industry practice is to sell first rate-goods, it is not indefinite.
And, w/industry standards, can measure by carloads. And offer can be altered later
b/c contract doesn't have to have all terms defined. Look at UCC
1. UCC § 2-204 (3): Even though one or more terms are left open, a contract for
sale does not fail for indefiniteness if the parties have intended to make a
contract.
2. UCC § 2-311 (1): An agreement for sale which is otherwise sufficiently definite
to be a contract is not made invalid just b/c it leaves particulars of performance to
be specified by one of the parties. Any specification must be made in good faith
and within set by commercial reasonableness.
Is an invitation to make an offer valid as an offer?
a. Lefkowitz: Ads about mink stole at store; Court considers it an offer. As compared to
Ford case where ads were considered an invitation to bargain, the ads in this case were
30
more definite. All buyer had to do was show up. With Ford, more is required (credit,
payment over time). Also, indefinite # of cars; definite # of mink stoles.
B. ACCEPTANCE
1. Corbin--An acceptance is a voluntary act of the offeree where he exercises the power
conferred on him by the offer, and sets the legal relations called a contract.
 The offerer in the beginning has full power to determine the acts that constitute
acceptance. After he has once created the power, he (offeror) may lose control over
it and may become disabled to change or revoke it.
 The fact that in the beginning the offerer has full control of the immediately
succeeding relation called a power distinguishes contractual relations from
noncontractual relations.
 (the offeror is the master of the offer)
2. Elements of Acceptance:
a. Acceptance must be communicated in some overt manner
1. A mere mental intent to accept is insufficient
2. Generally via the same medium the offer was made on
b. Acceptance must be definite and unequivocal, and it must mirror the terms of the
original offer w/o imposing any additional conditions on the offer or adding any
limitations. Any condition or limitation on the acceptance is a counteroffer and
requires acceptance by the original offeror before a contract is formed.
 Rest § 58
1. Ardente v. Horan: Selling house--buyers sign agreement to buy house and
include letter "to make sure" furniture included. Court says this condition is a
counteroffer; the items described are a part of the transaction. So in order to be
valid, the counteroffer must be accepted.
2. Exception: If accepting person makes it clear that he's accepting the offer and
THEN voices the conditional request, it is a valid acceptance
Ex: "We accept. We would appreciate the inclusion of these things."
3. Eliason v. Henshaw: Mirror Image problem; offeree doesn't follow terms of the
offerrer b/c he sent to the wrong office. The offeree did not perform the exact
terms the offeror requested. Again, the problem is in drafting.
If came up today, would apply UCC § 2-206 (1)(a):
"unless otherwise unambiguously indicated by language or circumstances, an
offer can be seen as inviting acceptance in any reasonable manner or reasonable
medium under the circumstances."
3. Invitation of Promise or Performance (Rest 2d §32): In case of doubt, an offer is
interpreted as inviting the offeree to accept either by promising to perform what the offer
requests or by rendering the performance as the offeree chooses.
a. Must be appropriate, overt act if parties are not together.
b. Offeror not bound if manifestation is not put in a proper way or in some reasonable
time communicated to the offeror.
c. Preparation to perform does not equal performance (so it doesn't equal acceptance)
Ex: White v. Corlies: offer said "upon an agreement, you can begin at once." (was to
call again later to talk) The contractor bought stuff and began working w/o
communicating. No acceptance b/c the acts done weren't specific to this offer. No
way for offeror to know that contractor had begun. Manifestation is not put in
proper way.
 HYPO: if he came in to offeror's building and put up a stud wall, Acceptance?
Yes, b/c specific act to fulfill this contract and owner will probably learn about
it.
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4. Silence does not equal acceptance (Ducommun)
a. But, Rest 2d §69: Silence can be acceptance when:
1. if offeree takes benefit from offeror and has reasonable opportunity to reject and
doesn't.
2. where offeror gives reason that assent may be manifested by silence
3. b/c of previous dealings, it is reasonable that offeree should notify the offeror if
he doesn't intend to accept.
C. DURATION OF OFFER
1. Rest 2d § 36: Methods of Termination of the power of acceptance
1) an offeree's power of acceptance may be terminated by:
a. rejection or counteroffer by the offeree
b. lapse of time
c. revocation by the offeror prior to acceptance
d. death or incapacity of the offeror or offeree
2) in addition, an offeree's power of acceptance is terminated by the nonoccurrence of
any condition of acceptance under the terms of the offer.
2. Lapse of Time:
a. Offers may be terminated in not accepted within the time fixed, or if no time
specified, within a reasonable time.
b. In face to face convo, offer only lasts until close of conversation unless it is expressly
said to continue longer.
Ex: Akers v. Sedberry: Employee's resignation offer wasn't accepted by boss during
face to face meeting. Thus it couldn't be accepted the next day.
c. When an offeror uses mail to make an offer, the offer is not made until it is received
by the offeree.
Ex: Caldwell v. Cline: offeror gives 8 days to accept or reject. Offeree accepts w/in
8 days of getting the letter, but not w/in 8 days of offeror's sending of the letter.
Test: What would a reasonable person in the position of the offeree have reason to
believe is a reasonable time? (Rest 2d §41)
d. Reasonable Time: Vaskie (car accident) statute of limitations and reasonable timehas to go to the jury to determine the reasonable time. Shows dummy lawyer and
mistakes in drafting.
3. Revocation:
a. A revocation must be received before the offeree's power of acceptance is terminated.
b. Dickinson v. Dodds: offeree learns of revocation through 3rd party, but Court says
that is good enough. The offeror doesn't have to explicitly communicate a revocation
to the offeree for the revocation to be valid.
 Offeree simply must know that the offeror no longer means to keep an offer
open.
 Up until end of time limit for acceptance, offeror has power to revoke.
 Emphasis is on what information the offeree has, not what offeror did to convey
revocation.
4. Option Contracts:
a. Restatement § 87 (1): An offer is binding as an option contract if it is:
1) in writing and signed by the offeror, recites a purported consideration for the
making of the offer, and proposes an exchange on fair terms within a
reasonable time (brings lots of ? as to what is reasonable), or
2) is made irrevocable by statute
Comments:
a. generally, a signature and consideration will satisfy requirements.
32
b. No matter how disproportionate the consideration is to the value of the option it
is probably still irrevocable. If grossly disproportionate ($.25 cent option for
$100,000 house for 3 year option), more of a chance to be invalid.
c. Generally, a small consideration (see above) will be sufficient for short-term
offers (1 week) will probably not be revocable.
b. Firm Offers UCC § 2-205: An offer by a merchant to buy or sell goods in a signed
writing which by its terms assures that it will be held open is not revocable, for lack
of consideration, during the time stated, or if no stated, for a reasonable time, but it
can't exceed 3 months.
c. Marsh v. Lott: shows that court will not inquire into the adequacy of the
consideration (case is like above example). Any monetary consideration, however
small, paid and received for an option to purchase property at its adequate value is
binding upon the seller thereof for the time specified therein, and is irrevocable
despite its adequacy.
5. Unilateral v. Bilateral Contracts:
a. Bilateral Contract:
1. Promisor's promise is made in exchange for either another promise to perform by
promisee or actual performance by the promisee.
2. Presumption that contracts are bilateral b/c they fully protect both parties. Both
parties are immediately bound.
b. Unilateral Contract:
1. Promisor's promise is made in exchange for an act. Promise is not accepted by
the promisee until the act is performed.
Ex: Brooklyn Bridge Hypo. A promises B $100 if B walks across the bridge. B
can only collect after she has walked over the entire bridge. (Original Wormser-must have full performance for contract to be complete; if A revokes before full
performance, even 99.9%, it's still okay to revoke).
2. The New Wormser/Rest § 45: If offeree begins performance, there is a valid
contract and it can't be revoked.
c. To decide which one you have, look at the intent of the offeror and the
circumstances. What would a reasonable person in the position of the offeree
believe?
1. Davis v. Jacoby: aunt gets niece to come and care when she is dying. Bilateral
b/c contract is made when letter by niece is written saying that they are coming.
Promise to come is the act desired by the uncle.
2. Brackenbury v. Hodgkin: falling out among families. Unilateral b/c the act was
caring for her until she died, and they didn't perform.
d. When is acceptance complete?
1. Petterson v. Pattberg: although P walked to D's door and offered adequate
payment then and there, the offeror's revocation before the money was tendered
was valid. 3 views on performance:
a. must offer to pay with present intent and ability to pay
b. must actually tender the $ before revocation (maj view)
c. tender and acceptance (prob: it's not an offer, thus can be no acceptance.)
 tender = attempt to transfer physical possession of property.
HYPO: 1. what if got on phone and said 'I accept'? NO. b/c requires act and the
present ability to give. 2. Merely walking up to door does not = tender just like
stretching doesn't equal performance of walking across the Brooklyn Bridge.
6. General Contractors and Sub-Contractors
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a. General Rule: A sub-contractor is bound by a price he gives a general contractor as
a bid. However, a general contractor is not bound to accept the bid of the
subcontractor for use in his project. (Drennan--paving thing)Why?
1. General contractors must rely on the bids they get; subs put in the same costs to
give their bids to different general contractors.
2. General contractor might have legit reasons (past involvement, need to involve
minority workers) that validate his change in subs.
3. Bid process is hectic, complex, last-minute process. Need for flexibility in
finalizing prices.
b. James Baird v. Gimbrel Bros.: A sub does not have to honor prices quoted to general
if he stipulates that the acceptance is not made until the "successful award" of the
general contract.
c. Rest § 87(2): An offer which the offeror should reasonably expect to induce action
or forebearance of a substantial character on the part of the offeree before acceptance
and which does induce such action or forebearance is binding as an option contract to
the extent necessary to avoid injustice.
Ex: Drennan: sub should have reasonably believed that gen would use his bid if it
were the lowest given and would act on it.
1.
2.
no punitive damages allowed on breach of contract case!
BREACH gives EXPECTANCY DAMAGES
P.E. gives RELIANCE DAMAGES
U.E. gives damages measured by REASONABLE VALUE SERVICES/BENEFIT GIVEN
U.E. also can give RESTITUTION DAMAGES for part performance (what services are
worth-what he's already received).
U.E. cases--you can't get more than original contract.
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