1 of 48
Meghan Jones
Contracts – Fall 2013
Professor Baradaran
I.
Introduction to Contracts
A. Elements of a Contract:
i. Offer
ii. Acceptance
iii. Consideration
B. Elements of BOK
i. Legally recognized K
ii. K broken
C. Sullivan v. O’Connor [botched nose job]
1. K for 2 surgeries and a better nose. Has 3 surgeries and a disfigured nose.
2. P wants expectancy damages
3. Restitution would allow for out-of-pocket expenses
4. Judge doesn’t decide between reliance and expectancy
a. Court approves reliance damages
b. She would get out of pocket expenses but not under expectancy. Would
allow for recovery of damages for disfigurement.
5. Pain and suffering are sometimes available for breach of contract, but not
recoverable for merchandise. Usually pain & suffering for contracts isn’t expected
or available, but in medical practice, it may be foreseeable
D. Other Types of Damages:
i. Punitive Damages: punishes breaching party for breach
a. Punitive damages usually not available for breach of K
b. 2 exceptions: breach of marriage and tort
ii.
White v. Benkowski
a. A claim for punitive damages must be supported by showing of actual
injury that justifies an award of something more than nominal
damages.
II. Making Arrangements
A. Oral Promises:
a. Embry v. McKittrick:
i.
inner intentions of parties cannot make a K
ii.
If a reasonable person would understand the oral promise to be an
agreement of employment, there is a K
iii.
A K may be formed without subjective reference to the intentions of either
party – no meeting of the minds is necessary
b. Lucy v. Zehmer (“high as a GA pine”): Lucy sued Zehmer for specific performance of
a K by which it was alleged the Zehmer sold to Lucy a tract of land during an
encounter at a bar.
i.
Grounds for rejecting that no K was made: reasonable person would have
seen it as a valid K, and Lucy acted on his belief that it was a K
ii.
Objective theory of K:
a. Whether or not an agreement is made is in the eye of reasonable
beholder
b. K can be inferred by your actions
iii.
Subjective Theory of K
a. How the K looks or is to you
b. Rejected by Lucy court
Contracts – Baradaran – Fall 2013
1
2 of 48
Contracts – Baradaran – Fall 2013
2
3 of 48
THEORIES OF OBLIGATION
A. Consideration: Something [promise, act, forbearance] (1) Sought by the promisor; and (2)
given by the promisee in exchange for the promise
a. Need to get a “something”
b. Policy: Why require consideration?
i.
Evidentiary: evidence that promise took place
a. *Note: If there is part performance of the promise, it may be valid absent
consideration b/c it would fulfill this function
ii.
Cautionary: Ensures that promise was made with caution and not “on a whim”
iii.
Channeling: Must channel your intentions to legally sufficient means
c. RST § 75
i.
Consideration for a promise is:
a. An act other than promise or
b. A forbearance or
c. The creation, modification, or destruction of a legal relation, or
d. A return promise,
e. Bargained for and given in exchange for the promise
ii.
Must be sought by the promisor
d. Adequacy of Consideration: Generally, court will not consider the adequacy of
consideration
i.
Hardesty v. Smith (lamp invention case):
a. The simple fact that the improvement of the lamp was of no utility is not
sufficient to bar a suit on these notes. The consideration agreed upon may
indefinitely exceed the value of the thing for which is it promised, and still the
bargain stand as long as the buyer gets a something.
b. Policy:
i.
To not allow: fairness, protection of stupid buyers
ii.
To allow: personal autonomy, protect future sellers
B. Forbearance as Consideration
a. Forbearance of a legal right is sufficient for consideration if that forbearance is
sought/given in exchange for promise.
b. RST § 81: Ct will not generally look into any possible ulterior motives when ruling
whether a promise is sufficient consideration.
c. Hamer v. Sidway: Nephew forbears on drinking, smoking, gambling, etc in exchange
for money from his uncle.
i.
Value of forbearance doesn’t matter. Only matters that the boy forebore a legal
right and forbearance was sought/given in exchange.
ii.
What induced you to forbear doesn’t matter – the reason for promise is personal
choice
iii.
May have more than one motive to forbear, as long as each party knows the
consideration is real
d. Maughs v. Porter: π attends the car auction of the D
i.
In case of doubt where the promisee has incurred a detriment on the faith of the
promise, courts will naturally be loath to regard the promise as a mere gratuity
and that the detriment incurred as merely a condition
ii.
Going to the auction was not a condition of the agreement, but was a benefit
sought by the D.
C. In order for forbearance of a legal claim to sufficiently constitute consideration, the forborne
claim must be a valid one:
Contracts – Baradaran – Fall 2013
3
4 of 48
a. Colorable Claim Doctrine: Forbearance to bring a suit is not sufficient consideration if
it is with knowledge that the claim is ill founded and void. (Corbin)
i.
Springstead v. Nees
a. Gratuitous promise
b. Ps had no right in the property and at no time threatened or attempted to
assert any claim. Ps were surprised that the deed was in trust to only 2 of the
children, and without further reason, Ds made the promise in question.
Because π had no rights to the property, the forbearance was not sufficient
consideration.
c. Forbearance to press a claim is not consideration unless:
i.
Objective standard: to forebear you must have a reasonable belief that
you have a right under the law
1. (Springstead takes this approach. Must be honest, colorable
belief that they had a right to the property.)
ii.
Subjective standard: honest belief that you had the right
ii.
Baehr v. Penn-O-Tex Oil Corp: Baehr claimed that his forbearance to bring suit
should count as consideration
a. Lacks consideration because Baehr forbore his suit for his own convenience.
b. Forbearance was no consideration because the deprivation wasn’t in
exchange for promise.
c. Consideration must be regarded as such by both parties.
iii.
Neuhoff v. Marvin Lumber & Cedar Co: rotting windows. Alleged consideration
not sufficient: claim forbearance of their legal claims and benefit to D’s
reputation
a. The Neuhoff’s claim of forbearance is not sufficient for consideration since
such forbearance was neither express nor could be found by fair implication
from all circumstances.
b. Not every benefit is consideration (P claims benefit to D’s reputation) – must
be bargained for
c. Mere forbearance to sue on a claim, without any promise either in express
terms or by fair implication from all of the circumstances, does not form
sufficient consideration.” Merrimac Chem Co v. Moore
d. Forbearance not valid consideration if not express or implied in promise.
b. Exception:
i.
Honest belief/Good Faith Doctrine - Even if claim is not legally sufficient,
forbearance of that claim will constitute consideration if the claim is asserted in
good faith.
D. Invalid Theories of Consideration
a. Consideration as mere pretense
i.
RST § 81: Consideration invalid when both parties know it’s mere pretense.
ii.
$1 consideration for a deed of land is questionable and the courts will declare
worthless consideration.
b. Gratuitous Promise: Unenforceable – a gift is not a K – no consideration.
i.
Dougherty v. Salt: Aunt Tilly Case
a. Note was neither bargained for nor accepted, thus no consideration. Not an
enforceable K.
b. Courts won’t look at the adequacy of the consideration (Hardesty), but they
will look at the sufficiency
c. Fuller: sterile transmission: No societal, economic benefit (courts won’t take
the time to uphold such promises) Crystalline Rule.
Contracts – Baradaran – Fall 2013
4
5 of 48
c. Conditional Gift: Not valid consideration if act is merely a condition to the promise
(the means to an end)
i.
Consideration must benefit the promisor, a necessity that distinguishes it from a
conditional gift
ii.
In a close conditional gift case, what is critical to the court?
a. Was something given directly in exchange for the promise?
b. Did the promissor hope to derive benefit from giving the gift? If so, more
likely consideration.
c. Was the promisee’s act a condition to promise? If so, not consideration.
iii.
Tramp Hypo:
a. D tells tramp if she will walk to store, then she can buy something on his
credit. Unenforceable due to lack of consideration. Walking was a condition
of the promise. Tramp’s actions didn’t benefit the promisor.
d. Pre-Existing Duty Doctrine: According to Corbin, neither the performance of duty
nor the promise to render a performance already required by duty is a sufficient
consideration for a return promise
i.
if you already have a duty to do something for $x, you can’t ask for more money
later b/c no new consideration
ii.
Taylor Swift hypo
E. Mutuality of Obligation / Illusory Promise:
i.
Mutuality of obligation: An enforceable K must have mutuality (both sides are
obligated to do something).
ii.
Illusory Promise (lack of mutuality): when only one of the parties is bound to
perform, rights of the parties exist at the option of one only
a. Not a valid K, but the question becomes whether there is an implied promise
iii.
De los Santos v. Great Western Sugar Company [Beet Hauler]
a. No breach because no promise
b. Illusory promise case, nothing was promised, no consideration, not enforced
c. In the absence of a specification of quantity, the D had no obligation to use
any of the P’s services, and the D’s decision to cease using those services after
a certain point is not actionable.
d. Lacked exclusivity: both π and D could do business with other people
i.
Agreement depended upon will of D
iv.
Wood v. Lucy, Lady Duff-Gordon
a. Claims π gave a nothing, but he promised to promote D’s designs and there
was exclusivity (only π was to promote D’s designs)
b. The promise of π to place her endorsements can be fairly implied by the terms
of the agreement.
c. Problem of mutuality or illusory promise
d. UCC 1-304: Every K imposes an obligation of good faith in its performance or
enforcement.
e. UCC 2-306(2): Exclusivity Yields Mutuality: a lawful agreement by either the
seller or the buyer for exclusive dealing in the kind of goods concerned
imposes UNLESS otherwise agreed an obligation by the seller to use best
efforts to supply the goods and by the buyer to use best efforts to promote
their sale.
f. Ask what a reasonable person would think in deciding whether there was an
implication of a promise.
b. Exception: Mutuality is not always essential if other consideration exists
i.
Weiner v. McGraw-Hill, Inc.: Breached promise to only fire π for just cause
Contracts – Baradaran – Fall 2013
5
6 of 48
ii.
II.
There was consideration and a valid K because he had begun or rendered some
of the requested services. Mutuality is not always essential if other consideration
exists.
iii.
This case has no mutuality b/c employee can quit at any time
c. Exception: Mutuality conditioned on promisor’s satisfaction is not illusory if it
obligates parties in some way
i.
Mattei v. Hopper
a. D says deposit receipt was an offer, not a K
i.
Says no consideration because no mutuality because buyer could get
out freely if he could not secure leases– gave up nothing
b. Satisfaction clause is more than a nothing
i.
He must be genuinely dissatisfied with the leases or he has to buy the
property – requires good faith
c. Valid K: promisor’s duty to exercise his judgment in good faith is adequate
consideration to support K.
d. Corbin: Promise made conditional on promisor’s satisfaction is not illusory
F. Developing Promissory Estoppel
a. Kirksey v. Kirksey: invites sister in law to move to the woods then kicks her out
i.
No consideration, so no K, it’s a gratuitous promise
b. Seavey v. Drake: Even in the absence of an enforceable K, a promisee can still recover
damages if he acted in a detrimental way in reasonable reliance on the promisor’s
promise.
i.
P received strip of land from his father and put house on the land, but did not
own the land
ii.
The expenditure in money or labor in the improvement of the land induced by
the donor’s promise to give the land to the party making the expenditure
constitutes, in equity, a consideration for the promise and the promise will be
enforced.
iii.
Not a valid K b/c of SOF (land exchange & not in writing), but can be
compensated because he acted to his detriment in reasonable reliance on
promise.
iv.
No consideration, but part performance and reliance. Leads to creation of
promissory estoppel.
Promissory Estoppel (RST § 90):
A. Alternative COA when BOK is not available.
B. Intro:
a. Elements:
i.
Must be a promise
ii.
Definite and substantial action is induced
iii.
Action or forebearance should reasonably have been expected by promisor
iv.
The promise must, in fact, produce action or forbearance
v.
Must be a breach of this promise
vi.
Injustice can only be avoided by enforcement of promise
b. General remedy available: Reliance (Wheeler), but some cases give expectancy
c. General Rule: Even in the absence of an enforceable K, promisee can still recover
damages if he acted in a detrimental way in reasonable reliance on the promisor’s
promise
C. Ricketts v. Scothorn
a. Granddaughter quits her job in reliance on grandfather’s promise of money
b. Meets elements of PE b/c her quitting was an expected consequence of $
Contracts – Baradaran – Fall 2013
6
7 of 48
III.
D. Wheeler v. White: loan arranger assures developer that he will arrange loan or give the
money himself, so π begins knocking down buildings and doesn’t get loan
a. Not BOK because K wasn’t specific
b. Although there was no K, Wheeler can still sue based on promissory estoppel because
he acted in reasonable reliance upon White’s promise to secure loan (all elements of
PE are met). Says that in PE causes of actions, reliance damages are all that are
available.
c. Opinion by Greenhill citing Bryant v. Clark
i.
Found K was not sufficiently definite to be enforceable
ii.
In cases which Ks held w/in statute of frauds, not enforceable for damages
d. White v. David Arrington Oil and Gas, Inc.
i.
PE is applicable in absence of an otherwise enforceable K
E. Hoffman v. Red Owl Stores
a. K lacks specifics and negotiations were still in progress
b. Reasonable to rely on this K b/c continued assurance
c. Meets elements of PE specifically b/c he was justifiably relying on several promises
F. US Steel Workers v. US Steel Corp: trying to stop plant from closing
a. BOK: indefinite
b. There’s no promise, no reasonable reliance, so doesn’t meet PE elements
G. Elvin v. Franklin
a. P cannot sustain BOK, but can receive PE b/c he performed in reliance upon her
promise and Franklin should have reasonably expected him to do so
H. Elvis case: no reasonable reliance b/c promise didn’t exist at the time of reliance (2nd divorce
action), Not PE.
Contracts & Unjust Enrichment
A. Intro:
a. Elements:
i.
P confers a benefit upon D; and
ii.
Retention of that benefit by D without compensation to π would be unjustified
iii.
Enrichment must come at expense of P
iv.
P must have expected payment at time of services
a. Not a gratuitous gift
b. Must be “on notice” of expecting services
b. Factors considered in UE:
i.
D is unjustly enriched at expense of P
ii.
When it is reasonably foreseeable at the time of the services rendered that D
should have to pay π (in a case with no outward K/promise)
iii.
When D accepts the benefits (or appreciates) π gives there can be UE
iv.
When the D can return the benefit given by π there can be UE
v.
If there is substantial performance done by the enricher to the enrichee
vi.
If the K is divisible then maybe UE
c. Remedy available: Restitution
B. Implied in Fact K: True K, with all necessary elements, but not in writing or oral; inferred
from the conduct of the parties
a. Services must be beneficial to recipient and carried out so recipient understands that
(1) it was performed for him; and (2) it was not rendered gratuitously but in
expectation of compensation
C. A quasi-contract is not a contract at all, but a duty thrust under certain conditions upon one
party to requite another in order to avoid the former’s unjust enrichment
D. General Rule: π can collect under UE even when K is unenforceable
a. Gay v. Mooney (P is providing room and board to dying uncle)
Contracts – Baradaran – Fall 2013
7
8 of 48
i.
E.
F.
G.
H.
Not an enforceable K because although consideration, not in writing and it’s
dealing with transfer of land (SOF). Can still collect value of house based on UE
ii.
Can use the K to provide evidence for determining restitution. Use K to
determine:
a. Assess the value of services based on what’s expected (house for children)
b. An expectation of payment
c. What a violation would look like
Dobbs: When one person confers a benefit upon another not required by K or legal duty, the
recipient of the benefit is often UE and required to make restitution of the benefit or its
value
Limits
a. Gift / Volunteer: No UE if the benefit conferred upon D was done so gratuitously or
officiously or if services were rendered to gain a business advantage.
i.
Bloomgarden v. Coyer (Bloomgarden sues for a finder’s fee): No UE b/c no
expectation of compensation, seen as a volunteer, time was given gratuitously
a. When there’s no enforceable K, the π must expect and make his expectation of
compensation known and the recipient of the services should have known
that the services expected compensation and were not given gratuitously.
b. Rule: Benefit received must be “on notice” that the giver expects
compensation for the benefit (either by the words/actions of giver or the
nature of the benefit conferred)
ii.
Exception: UE may be found even if there was no request for compensation if
the benefit is of the nature that one would not expect to receive them
gratuitously
a. Sparks v. Gustafson (P manages building for D)
i.
Although no initial expectation of payment, it’s not the normal service
that you would give gratuitously. Worked several hours a week and
invested his own money into the buildings. Not given gratuitously and
not an officious intermeddler. Focus on fairness (equity) unlike
Bloomgarden which focused on receiver’s expectations.
b. Choice / Officious Intermeddler: there is no UE if one confers benefit w/out affording
other person the opportunity to reject the benefit.
a. EG: Painter comes and paints your house w/out your knowledge, painter
probably can’t recover based on UE.
b. Homeowner inside and doesn’t stop painter (consented by not stopping).
Rule: When a valid K does exist, non-breaching π can sue on breach of K theory or may
choose to abandon K and recover based on UE and recover restitution
a. Posner v. Seder
i.
Asking for restitution damages b/c not suing for BOK. Can choose to sue under
the K or choose to sue for value of your services (QM)
ii.
Choose whether restitution damages or expectancy damages are more valuable
Rule: Breaching party usually can’t recover for value of work done prior to breach
a. Kelley v. Hances (Unfinished sidewalk)
i.
Court identifies various cases where breacher can recover:
a. Substantial performance
i.
Britton v. Turner (Worked 9.5 months/year)
1. Substantial performance (91/2 months/year), Unjust
enrichment, Divisibility, Acceptance; If we don’t allow
recovery, we’re more fairer to big time breacher (person who
breaches before working at all). Although π breached, he can
recover b/c substantial performance.
Contracts – Baradaran – Fall 2013
8
9 of 48
2. Default rule is you pay for the performance that was done
when there was substantial performance (Incentive-based
rationale)
IV.
b. Divisibility
c. Negligence made in good faith: if he thought that the homeowner wanted him
to stop work and breached in good faith
d. Acceptance
e. Implied Promise
ii.
The π cannot recover the reasonable value of the work done, unless there has
been such an acceptance of it by the D as to raise an implied promise on his part
to pay for it.
I. De Leon v. Aldrete (P agrees to pay $1500. π breaches (only pays $1070), and D sells for
$1300 instead)
a. In order to prevent Ds from suffering as a result of Ps default, it is only necessary to
allow them to retain, from the amount paid by P, the sum of $200. Allowing Ds to
keep the amount paid would be too much like punitive damages.
Breach of Promise for Past Benefit Received: Promises to pay for past services; enforceability
likely to depend on whether the recipient initially requested the serves and whether the donor
rendered them in expectation that he would receive payment
A. Intro:
a. RST § 86: A promise made in recognition of a benefit previously received by the
promisor from the promisee is binding to the extent necessary to prevent injustice.
i.
A promise is not binding:
a. If the promisee conferred the benefit as a gift or for other reasons the
promisor has not been UE; or
b. To the extent that its value is disproportionate to the benefit.
ii.
Factors considered in determining whether subsequent promise will be
enforced: (RST § 86 comment b)
a. The definite /substantial character of the benefit received. (Webb)
b. Formality in the making of the promise (e.g.: if it’s in writing, the detail used
in the promise, etc.)
c. Part performance of the promise. (Webb)
d. Reliance on the promise or the probability of such reliance. (Edson)
e. Specificity of promise.
f. Time lapse btw benefit and promise.
b. *Note: Promises for benefits received COA's are similar to UE. COA’s, but it goes a
little further, b/c with this kind of COA, there is an actual promise for the benefit
received.
c. Mills v. Wyman (Son (25) sick on ship)
i.
The kindness and services towards the sick son of D were not bestowed at his
request. π acted the part of the good Samaritan. D, influenced by a transient
feeling of gratitude, promised in writing to pay the π for the expenses he had
incurred.
ii.
Promise cannot be enforced b/c there was no preexisting consideration for
services.
iii.
Hypo: Loan from you in 1995 at 5% interest, want the money 15 years later
a. Statute of limitations has expired
b. If you tell me, don’t worry, I’ll pay you – still not consideration, not a bargain,
gratuitous promise
d. Webb v. McGowin (Man throwing block from top floor)
Contracts – Baradaran – Fall 2013
9
10 of 48
i.
V.
If appellant saved McGowin from death or grievous bodily harm, and McGowin
subsequently agreed to pay him for the service rendered, it became a valid and
enforceable K even though past consideration.
ii.
Case that is not UE and does not have consideration, but is very close to UE, so
he may still recover b/c someone is obviously being unjustly enriched at
another’s expense
iii.
Great detriment to P, more formal promise, part performance, longer lapse of
time between services and promise to ensure that promise was made cautiously
e. Harrington v. Taylor (Mangled hand from saving friend from abusive husband)
i.
Promisor whose life was saved wins and doesn’t have to pay unlike in Webb
where the person who is saved loses and must pay. Promise not enforceable b/c
act was voluntary and humanitarian. No consideration
ii.
4 things to consider (Section 86) for moral obligation
a. Definite and substantial benefit
b. Formality
c. Part performance
d. Reliance
iii.
Mills is brightline rule and Section 86 changes the rule slightly by allowing the
Court to look at underlying consideration of the policy.
iv.
Contrast with Webb
a. Specificity: Webb more specific
b. Part performance: Webb
c. Timeline: Harrington promise was on a whim
d. Reliance: Greater reliance in Webb
f. Edson v. Poppe (Suit brought by well-driller against land-owner)
i.
Landowner says he never made the promise. Huge evidentiary issue. Possible
case of UE, but landowner has a moral obligation under Section 86. Would be
too unjust not to compensate P.
a. Promise is enforceable:
i.
Substantial and definite benefit? Yes.
ii.
Formality? No.
iii.
Part performance? No.
iv.
Reliance? No.
v.
Specificity? No.
vi.
Then why is promise enforceable? B/c of moral considerations – it
would be unjust to not compensate well driller. This case is so close to
UE and ∆’s promise pushes us over the edge
Torts & Contracts
A. Intro:
a. General Rule: No liability in tort for breach of K.
i.
Exception: When D has a legal duty, which exists apart from the contractual
duty.
a. * Note: Only applies to misfeasance (negligent performance of K) and not
nonfeasance (failure to perform K).
b. Ex: Principal/agent, bailor/bailee; professions including attorney, doctor,
carrier or shipper, architech
b. Can sue someone in torts when 3rd party disrupts K to detriment of one of the parties
c. Have to prove negligence or wrongful conduct in torts. You only have to prove strict
liability in contracts.
d. Ways tort and contracts are different:
Contracts – Baradaran – Fall 2013
10
11 of 48
i.
In torts you must show negligence, but contracts is strict liability. A breach is a
breach.
ii.
Torts give punitive damages, and Ks doesn’t.
iii.
Different immunities/defenses.
iv.
In Hargrave saw that may elect tort for jurisdictional issue.
v.
Feasance issues shown in Mauldin.
a. Misfeasance – tort element.
B. Mauldin v. Sheffer (The Terrible Engineer)
a. The misfeasance of a K can lead to a suit in torts when D had a duty to perform
imposed by law and not just under K.
b. A jury would be authorized to find that he failed to exercise that reasonable degree of
care, skill, and ability such as is ordinarily exercised under the same or similar
circumstances by engineers generally in practicing their professions.
c. Hypo: I was supposed to come and fix the heater on your turtle aquarium while you
were out of town, but I didn’t and the turtles died. Nonfeasance.
i.
Can only sue under BOK b/c dealing with nonfeasance-No legal duty
d. If a K imposes a legal duty upon a party, then the neglect of that duty is a tort found in
K.
e. Nonfeasance: failure to perform K; can’t sue under tort
f. Misfeasance: negligent performance of K; can sue under tort when legal duty
C. Hargrave v. Oki (diseased grapes)
a. Want tort to apply long arm statute (personal jurisdiction issue). Companies based in
NY & CA.
b. This is fraud (breached legal duty) b/c misrepresentation of the quality of the grapes
(a material fact). They said they would be free of disease, but were diseased.
i.
Fraudulent misrepresentation is a breach of a legal duty
c. This type of promissory fraud is not based on fraud in the INTENT of promise, based
on KNOWLEDGE (SCIENTER) that claims were false
D. T v. K causes of action
a. T over K
i.
Can receive punitive damages and mental anguish
ii.
K may not be valid for some reason
iii.
Can avoid limitations imposed by breach of K actions
iv.
Successive actions for multiple breaches of a single K
v.
Based on policy apart from what was contracted for. There may be a duty
beyond the K if:
vi.
Relationship btw the parties is close
vii.
There is a duty associated with the activities (like for a dr, engineer, lawyer, etc)
viii.
May avoid defenses like infancy or discharge in bankruptcy
ix.
Permit recovery for wrongful death
b. K over T
i.
Only need to prove breach of K
ii.
Strict liability for failure to perform (in T have to prove negligence or some other
wrongful conduct)
iii.
Compensatory damages – whatever is foreseeable or bargained for emotional
damages. Sometimes damages can be greater
iv.
Longer shorter SOL
v.
Certain ∆’s (charities, municipalities, etc) will not have same immunities
vi.
May be assignable to another party where T can not reach
vii.
Jurisdiction requirements will bar T actions
viii.
No punitive damages available;
Contracts – Baradaran – Fall 2013
11
12 of 48
VI.
VII.
ix.
You can sue in tort even absent a K
Breach of Warranty (& Strict Products Liability)
A. 3 Types: Express, implied fitness for purpose, implied merchantability
a. Breach of express warranty (UCC 2-313(2)): something expressly stated or written
i.
Affirmation of a fact or promise
a. lack of specificity, ambiguous, experimental
ii.
Which becomes a part of the basis of the bargain
a. Doesn’t need to be strict reliance
b. Basis of bargain is presumed, so seller has burden to prove otherwise
iii.
Any description of the goods, which is made part of the basis of the bargain,
creates an express warranty that the goods shall conform to the description
iv.
§ 2-313(3): Not necessary that Seller use formal words such as “warrant” or
“guarantee” or that he have a “specific intention” to make a warranty, but an
affirmation merely of the value of goods or statement purporting to be merely
the seller’s opinion or recommendation of the goods does not create a warranty.
b. Breach of implied warranty of fitness for a particular purpose
i.
UCC § 2-315:
a. Purchaser intends at time of purchase to use the goods for particular purpose
b. Seller aware of intent.
c. Rely on seller skill or judgment
d. Seller aware of reliance
c. Breach of Implied warranty of merchantability
i.
UCC § 2-314:
a. Seller is a merchant with respect to goods of that kind.
b. Should be fit for ordinary purpose for which such goods are used
B. Keith v. Buchanan (Sailboat Case)
i.
Elements of express warranty applied:
i.
Yes
ii.
No
iii.
No
b. Not seaworthy
ii.
Factors indicating mere opinion: lack of specificity, ambiguous, experimental 
no
iii.
Major difference is the reliance. If the seller has no reason to know that he’s
being relied on, then he shouldn’t be held liable.
b. Held that there was breach of express warranty, but not implied warranty of fitness
because the π did not rely on the salesman’s judgment (instead his friend inspected
the boat)
C. Sugawara v. PepsiCo. (Crunchberries)
a. Suing for breach of express warranty. “Crunchberries” is a description and not an
affirmation of fact.
D. Webster v. Blue Ship Tea Room
i.
Breach of Implied warranty of merchantability?
a. No. The chowder fit for the ordinary purpose of eating chowder
ii.
According to rules under restatement (2nd) of torts, the chowder is not defective
a. Also no case for sailboat case b/c there’s no physical harm
b. So, neither is a tort case. Must have physical harm and a defect.
The Statute of Frauds
A. Certain Ks must be in writing:
a. K in consideration of marriage
b. K to guarantee the debt of another
Contracts – Baradaran – Fall 2013
12
13 of 48
B.
C.
D.
E.
F.
c. Executor’s promise to pay a debt
d. K that can’t be performed within 1 year
e. Transferring interest in real property (land)
f. Sale of goods worth $500 or more
Checklist*:
a. 1. Does SOF apply?
b. 2. If so, does memo, note, or other writing satisfy statute?
c. 3. If no, does law recognize an exception?
d. 4. If no, then does any other doctrine mitigate what would otherwise be the effect of
noncompliance?
Purpose:
a. Evidentiary to protect against fraud and perjury
b. Cautionary
Exceptions:
a. Surety: Promise to pay for the debts of another must be in writing.
i.
Exception: Leading object/main purpose rule: when the leading object of the
promisor is to subserve his own interests or purpose, his promise is not within
SOF although it may be a promise to pay for the debts of another
ii.
Schoor v. Holmdel Heights Construction
a. Oral promise made by attorney of D to pay the debts to P. D claims
unenforceable b/c not in writing. D had substantial personal interests in co.,
so his promise to pay debts does not fall into SOF, and so promise is
enforceable.
b. Not satisfied by a writing, but there is an exception to SOF:
i.
Main Purpose Rule.
ii.
RST 184
1. Where the consideration for a promise that all or part of a
previously existing duty of a third person to the promisee
shall be satisfied is in fact or apparently desired by the
promisor mainly for his own pecuniary or business
advantage, rather than in order to benefit the 3rd person, the
promise is not within [the State of Frauds].
iii.
The attorney needs the engineering work to be finished
1. 1. Lawyer as owner: he stands to benefit from investment in
the company. Increases his return from investment.
2. 2. Lawyer as lawyer: needs to be paid his legal fees
3. 3. Lawyer as creditor: Needs to be repaid for the money that
he has loaned them
iv.
For evidentiary purposes, there’s more likelihood that the promise was
made if it’s for personal benefit. If it’s for someone else’s benefit, then
it needs to be in writing
v.
Cautionary purpose: if making a promise for your own benefit, then
you’re more likely to think about the economic benefits
Sterling v. Taylor
a. P & D drafted a memo regarding the sale of 3 apartment complexes.
b. The writings within this case do not satisfy the SOF because they are vague and
ambiguous (the approximate and actual prices were too different).
c. Extrinsic evidence cannot be used with writings when the extrinsic evidence
contradicts the writings.
Cal Lettuce Growers v. Union Sugar Co.
Contracts – Baradaran – Fall 2013
13
14 of 48
a. Shows that a price term may be calculated from a formula, but it’s based on industry
custom.
b. Parol evidence Rule: When a term, such as price is ambiguous, then you can bring in
extrinsic evidence
G. McIntosh v. Murphy [jobless in HA]
a. A promise, which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a 3rd person and which does induce the
action or forbearance is enforceable notwithstanding the SOF if injustice can be
avoided only by enforcement of the promise.”
b. P moves to HA for a job, but is fired. Issue is whether he was hired for a year.
c. Exception to SOF based on equitable estoppel
i.
Dissent thinks that this is the type of case that the SOF is meant to cover. No
evidence of a promise for 1 year K being made, so shouldn’t force it on the D.
ii.
Factor 2(c): to what extent is the reliance evidence of the promise that was
made? Can make arguments for both sides, but the court says yes. It’s a he-saidhe-said case.
d. 2 different testimonies. This is why we need something in writing.
e. The P’s reliance was such that injustice could only be avoided by enforcement of the
contract. K is valid based on PE although not in writing.
H. Part performance
a. In most states (and UCC), reliance in the form of part performance is sufficient to bar
assertion of the SOF as a defense.
Contracts – Baradaran – Fall 2013
14
15 of 48
REMEDIES
Compensatory:
- Expectancy Damages: compensation for loss of what a person reasonably anticipated from a
completed transaction (puts π where they would have been if K fully performed)
- Restitution Damages: damages to π when D has received benefit at P’s expense (often fees)
o Smallest measure of damages
- Reliance Damages: put the π back in the position he occupied before parties entered upon the
agreement; compensates for detriments suffered in reliance upon the agreement
Non-compensatory: specific performance: requires the party to fulfill agreement or refrain from others
VIII.
Expectancy Damages
A. Codified in RST
B. RST § 347 Comment B – In determining expectancy damages, must FIRST look at loss in
value to π. This value is the value of the performance to π himself, not a reasonable person or
market value.
a. What ultimately matters is what is cost the π not what the ∆ saved. What it cost the
non-breaching party to have the k breached as opposed to what the breaching party
saves.
C. Normal award in Ks is expectancy
D. Policy Reasons:
a. From perspective of economist, should give the value of the difference between
market value and detriment to land cost
i.
$60k is way more than social utility that you’re gaining
ii.
Work that grader is doing is keeping the grader from doing other, more socially
useful work
iii.
Rewarding the $60k gives incentive to finish work, but it’s insufficient,
unnecessary work (based on fair market value)
iv.
Shouldn’t economist want to make people want to make more Ks?
a. Should give cost of performance to make people trust their Ks and not feel
insecure in their K
b. Don’t want to discourage the making of the K by giving what seems like
punitive damages. We want to let people get out of Ks that end up being bad
b/c of the disproportionate value b/w the outcomes.
v.
About efficiency and social utility
b. What about morality and treating others right?
i.
Want to give them exactly what they contracted for, restoration of the property.
$60k. That’s the cost of not keeping your word.
a. This was deliberate breach.
b. Majority looks more like the pastor than the economist.
c. P. 125: Pomponius: no one should be made richer at another’s loss.
i.
Would $60k cause UE of the lessor landowner?
a. According to dissent, it’s a windfall b/c landowner won’t actually spend the
$60k to make a $12k benefit. They will pocket the difference.
ii.
For him not to do the grading, only pay $105K and then $12k as opposed to
$165k, seems like UE.
d. Another perspective: Eisenberg (p253)
i.
Specific performance would avoid a windfall. Maybe Groves doesn’t actually
want to land leveled considering the changed circumstances. This would prevent
Groves from profiting the money.
ii.
More overburden left than anticipated
Contracts – Baradaran – Fall 2013
15
16 of 48
E. How much you give in damages isn’t just a mathematical calculation. You must consider
different value sources (efficiency and morality). Statutes and precedents aren’t invalid b/c
they take these values into account, but sometimes they conflict.
F. Construction/Land Ks
a. Groves v. John Wunder Co
i.
Lessee/grader/D/Wunder & owner/lessor/P/Grove
ii.
Groves owned a tract of land and leased it to D. Made a K in which D agreed to
remove the sand and gravel and to leave the property “at a uniform grade,
substantially the same as the grade now existing...” D breached K deliberately.
iii.
Cost of completing K=$60,000; Land would only be worth $12,160 - rare
iv.
P is awarded cost of completion $60,000
v.
Based on fairness & justice, this award is more than compensation and looks like
punitive damages
vi.
Majority wants to rely on City of St. Paul v. Bielenberg to show why they should
use cost of completion - Public K case - $60K
a. Property owners can do whatever they want with their property
b. Doesn’t matter whether it’s personal or commercial use
vii.
Dissent: π should get $12K (difference in value had K been performed)
a. Distinguishes this case b/c public projects such as roads, etc. have to use cost
of completion b/c there’s no value for these things
b. Says $60k looks like punitive
b. Peevyhouse v. Garland Coal & Mining Co. – Overruled by Rock Island
i.
Peevyhouses leased land to miners who were expected to do restorative work
after completing the mining.
ii.
Cost of completion: $29,000; Estimated loss of land value: $300
iii.
(Bad) Rule: Where the economic benefit, which would result by full performance
of the work, is grossly disproportionate to the cost of completion, the damages,
which lessor may recover are limited to the diminution in value resulting to the
premises b/c of the non-performance.  $300
iv.
Also, restoration wasn’t main purpose of K.
c. Rock Island Improvement Company v. Helmrich & Payne, Inc.
i.
D didn’t leave P’s land in the condition agreed upon.
ii.
Cost of Performance (completion): $375,000
a. Diminution in value of land: $7000
iii.
Rule: P’s are entitled to cost of performance regardless of the difference between
value of the land and cost of completion.
iv.
Open Cut Land Reclamation Act (1967): “…Policy of this State to provide, after
mining operations are completed, for the reclamation and conservation of land
subjected to surface disturbance...”  Overrules Peevyhouse
G. Sassen v. Haegle: D agreed to move manure to certain part of the farm, but the D moved it
somewhere else. π has a right to put manure where he wants it, so they give him cost of
completion regardless of how it effects value of the farm. The main purpose here was to
move the manure and is more central to K unlike in our case where we were only looking for
finished product. The farmer wouldn’t recover for market value b/c you can’t show a change
in value.
a. Under a construction K, the thing lost by a breach is a physical structure or
accomplishment, a promised and paid for alteration in land. That is the “injury” for
which the law gives compensation. It’s only appropriate measure is the cost of
performance.
Contracts – Baradaran – Fall 2013
16
17 of 48
H. Hypo: Want to build statue of daughter at her house that will bring down value of house by
$10k. Cost of completing the statue would be $6k. Majority would say that you get the cost of
completion.
a. Chamberlain v. Parker: (p. 244) a man may do what he will with his own…
b. …the owner is entitled to compensation for what he has lost, that is, the work or
structure which he has been promised, for which he has paid, and of which he has
been deprived by the contractor’s breach.
c. The dissent would agree b/c if for a personal and unique purpose then you get it
d. In the present case, it wasn’t for personal and unique purpose. It was for a general
economic purpose. There’s no affirmative showing to a unique or personal use in the
K. The problem is that you shouldn’t be required to explicitly say in the K what you
wanted it for. You contracted to have it graded.
I. Thorne v. White
a. K to make repairs to roof for $225. D breached, so π hired new co. to do the repairs for
$582.26, so π sues under BOK for difference b/w costs ($357.26).
b. P received more from new co. than he was to receive from D, so an improper measure
of damages was applied. You can’t sue for damages when there are 2 different
contracts unless you try to mitigate and that’s all that’s available. You must compare
apples to apples. Not allowed to recover damages.
J. Morello v. J.H. Hogan, Inc.
a. Subcontractor is hired to do work for a contractor and breaches after doing $9411 out
of the contracted for $44,000 worth of work. Contractor has to hire someone else to
finish the job and pays $54,356. Subcontractor sues the contractor for payment for
the work that he had done and contractor files a counterclaim.
b. Contractor was put in the place he would’ve been in had the K been completed.
Judgment for D for $10, 356 (difference between K1 & K2).
c. Cost of completion factors in the work that’s been completed.
K. Fruend v. Washington Square Press
a. P Ks with D to publish her book. π is to receive royalty % off book sales.
b. P wants cost of publishing analogizing to construction K. Writer wants damages
based on how much publisher would’ve had to spend in publishing the book. Should
instead look at how much was the π out, not how much would the D have spent.
c. Held that π is entitled to royalties that she would’ve received, but since they’re too
speculative, she can only receive nominal damages.
d. Where damages are too speculative or uncertain, a π may only receive nominal
damages.
L. Warner v. McLay
a. π claims he’s entitled to recover damages for expenditures and loss of profits
occasioned by the breach of a written building K.
b. Held: π had the right to recover such sum in damages, as he would have realized in
profits if the K had been fully performed. It was necessary to find the cost and expense
of the work and materials necessary to complete the K. This sum, deducted from K
price, would have given a balance that would be the profit, which would have accrued
to the π out of the K if it had been fulfilled. π had a right to receive this in addition to
his expenditures.
c. Rule: When a building contractor has been wrongfully prevented by the owner from
completing his K, he is entitled to recover damages for his expenditures and the profit
that he would have received if the K were completed. Profit = cost of completing the K
(what he doesn’t end up having to spend) – K price.
d. In expectancy damages, you get ALL of the profits that you Ked for, REGARDLESS of
the work that you’ve done, but take away costs that you avoided because of breach
Contracts – Baradaran – Fall 2013
17
18 of 48
M. Handicapped Children’s Education Bd. Of Sheboygan County v. Lukaszewski
a. D was hired by π (school board) and breached her employment K. Breached K for a
job that was closer to home and had better pay.
b. P sought damages b/c the only available replacement cost $1000 extra. The school
attempted to mitigate damages, so they’re allowed to recover. The P’s health problems
can’t be used as excuse for the breach b/c she knew about them when she took the job
and exacerbated them with own lawsuit.
c. Introduces idea of efficient breach
i.
Posner’s idea is based solely on efficiency of money – no moral consideration
ii.
Expectancy damages is good for efficiency breach b/c party gets what they were
going to get with K
iii.
Expectancy makes sure that the person paying for the goods has to pay more.
You’re only going to breach if that person pays more than what was expected.
Goods will go to the person that values them most. In economics, we only
measure value by how much you pay.
iv.
Economic arguments ignore transactional costs (lawyer fees)
v.
if a party can breach a K bc his profits from breach would exceed his profit from
K, and if it would also exceed the expected profit to the other party from
completion, and damages are limited to loss of expected profit, there will and
should be an incentive to breach
vi.
posner: efficient breach is good. Breach and pay damages if completion would
result in a loss when you can get a better alternative—if breaching gives you
enough money to pay the victim his expectancy damages, breach is good—but
you have to pay expectancy damages to make sure that K law is still an anchor in
society—making sure its expectancy ensures that EVERYONE is better off
vii.
Fuller: need fidelity to K for the stability of society so that ppl can know what to
expect from others
N. Cooper v. Clute
a. D & π entered into a K under which D was to deliver to π cotton at 10 7/8 cents per
pound on 9/26/1916. π was willing to take and pay for cotton, but D failed to deliver
the cotton. Market value at time and place of delivery was 10 7/8 cents per pound.
b. P wanted the difference between the Ked for price that D was going to sell the cotton
to π for and the price that D sold the cotton to buyer 2 for.
i.
Issue: Whether π is entitled to receive the difference between 10 7/8 cents, K
price, and 11.03 cents, which π claims the D received from Sprunt for the cotton.
ii.
Holding: Not entitled to this difference because if the K had been complete, then
he would not have received the greater amount.
c. Rule: The measure of damages recovered for breach of an executory K of this
character is well settled to be the difference between the K price and the actual or
market value of the property at the time and place of the BOK.
i.
If MV is same as K price when K is breached, only nominal damages can be
recovered. π here entitled to nominal damages.
O. UCC § 1-305(a): Remedies to be Liberally Administered
a. The remedies provided by this Act must 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.
P. UCC § 2-713. Buyers Damages for Non-Delivery or Repudiation
a. (1) The measure of damages for non-delivery or repudiation by the seller is the
difference between the market price at the time when the buyer learned of the breach
and the contract price together with any incidental and consequential damages
Contracts – Baradaran – Fall 2013
18
19 of 48
Q.
R.
S.
T.
U.
provided in this Article (Section 2-715), but less expenses saved in consequences of
seller’s breach.
b. (2) Market price is to be determined as of the place for tender or, in cases of rejection
after arrival or revocation of acceptance, as of the place of arrival.
UCC § 2-712. “Cover”; Buyer’s Procurement of Substitute Goods
a. (1) After a breach within the preceding section, the buyer may “cover” by making in
good faith and without unreasonable delay any reasonable purchase of or K to
purchase goods in substitution for those due from the seller
b. (2) The buyer may recover from the seller as damages the difference between the cost
of cover and the contract price together with any incidental or consequential damages
as hereinafter defined (Section 2-715), but less expenses saved in consequence of the
seller’s breach.
UCC § 2-708. Seller’s Damages for Non-Acceptance or Repudiation
a. (1) Subject to subsection (2), the measure of damages for non-acceptance or
repudiation by the buyer is the difference between the market price at the time and
place for tender and the unpaid K price together with any incidental damages
provided in this Article (Section 2-710), but less expenses saved in consequence of the
buyer’s breach.
b. (2) If the measure of damages provided in subsection (1) is inadequate to put the
seller in as good a position as performance would have done, then the measure of
damages is the profit (including reasonable overhead) which the seller would have
made from full performance by the buyer, together with any incidental damages
provided in this Article, due allowance for costs reasonably incurred and due credit
for payments or proceeds of resale.
UCC § 2-706. Seller’s Resale Including K for Resale
a. (1) Under the conditions state in Section 2-703 on seller’s remedies, the seller may
resell the goods concerned or the undelivered balance thereof. Where the resale is
made in good faith and in a commercially reasonable manner the seller may recover
the difference between the resale price and the K price together with any incidental
damages allowed under the provisions of this Article (Section 2-710), but less
expenses saved in consequence of the buyer’s breach.
UCC § 2-714. Buyer’s Damages for Breach in Regard to Accepted Goods
a. (1) Where the buyer has accepted goods and given notification (subsection (3) of
Section 2-607) he may recover as damages for any non-conformity of tender the loss
resulting in ordinary course of events from the seller’s breach as determined in any
manner which is reasonable.
b. (2) The measure of damages for breach of warranty is the difference at the time and
place of acceptance between the value of the goods accepted and the value they would
have had if they had been as warranted, unless special circumstances show proximate
damages of a different amount.
c. (3) In a proper case any incidental and consequential damages under the next section
may also be recovered.
Neri v. Retail Marine Corp.
a. Ps buying boat from D for $12,500. $4000 deposit. P’s breach and sue for deposit. D’s
counterclaim for BOK and damages for lost profit ($2000). Sold boat to another
customer for K price. Entitled to recover profits because they are a lost volume seller.
Would’ve gotten profits from 2 sales rather than only 1
b. UCC § 2-708: The measure of damages provided in subsection (1) is inadequate to put
the seller in as good a position as performance would have done (UCC § 2-708 [2]), so
under subsection 2, the seller is entitled to profit together with incidental damages,
Contracts – Baradaran – Fall 2013
19
20 of 48
IX.
due allowance for costs reasonably incurred and due credit for payments or proceeds
of resale.
i.
§ 2-706 doesn’t apply b/c D had an unlimited supply of boats. He would’ve made
the 2nd sale even if he’d made the 1st.
ii.
So D is allowed to recover lost profit ($2000) and incidental damages ($600),
and returns remainder of deposit.
c. Rule: A lost volume seller may recover lost profits when a buyer breaches in order to
put the seller in as good a position as he would have been had the contract been
performed.
Limitations on Expectancy Damages
A. Intro
a. Limits to expectancy damages:
i.
Foreseeability limit
a. Hadley, Armstrong
ii.
Duty to mitigate limit
iii.
Disproportionality limit: Lampkin case
iv.
Uncertainty or speculativeness in recovering lost profits
a. If too uncertain or speculative, then you can’t recover.
v.
Mental distress limit
vi.
Medical contexts
vii.
Loss of goodwill
viii.
Prejudgment interest (different in each state)
ix.
Attorney’s fees, you typically don’t get to recover
a. Only if by agreement if it’s clear
B. Hadley v. Baxendale
a. Ps were millers and their mill stopped b/c of a broken crankshaft. They ordered a new
shaft from a company at Greenwich. π contracted with Ds to have Ds deliver the old
crankshaft to the company at Greenwich to make a duplicate. The delivery of the
shaft was delayed by some neglect, and the working of their mill was thereby delayed
and they lost profits for several days work. Ps paid 2 pounds for the delivery.
b. Categories of damages:
i.
Arising naturally  General damages
a. “Rental value of the shipment for the time of the unreasonable delay”
i.
AKA cover or market value
ii.
Would make you whole by getting the money for that crankshaft.
iii.
You always get your general damages.
ii.
Special circumstances  consequential or special damages
a. Trying to recover special damages
b. Limit on special damages.
i.
Damages must be foreseeable
c. When trying to recover special damages from a BOK, π must show that the damages
were foreseeable by the D from the terms of the K.
d. UCC § 2-715(2)(a):
i.
Consequential damages resulting from the seller’s breach include:
a. (a) any loss resulting from general or particular requirements and needs of
which the seller at the time of contracting had reason to know and which
could not reasonably be prevented to cover or otherwise
b. “had reason to know” = doesn’t have to have been explicitly stated
e. Under Ayres
Contracts – Baradaran – Fall 2013
20
21 of 48
i.
C.
D.
E.
F.
The outcome of Baxendale is a penalty default: if you do nothing, this is the
penalty. You get nothing if you don’t communicate. Punishes the person who
lost the profit for not communicating.
a. If you have the knowledge that will change the circumstances of the K, then
you’re required to communicate this information
b. This will result in an increase in cost to you because you have passed the risk
on to the carrier. For the carrier to take on this risk, he must be compensated
for that risk.
Armstrong v. Bangor Mill Supply Corp.
a. P sent a broken crankshaft from his mill to the D’s shop for repairs. The D’s workers
left the shaft out of alignment, necessitating its return for realignment. The mill was
shut down for 6 days.
i.
D’s K to repair the crankshaft implies an undertaking on its part to perform the
work in a reasonably skillful and workmanlike manner.
ii.
Breach of warranty in service
b. Ps were allowed to recover special damages. The mill was “impeded in its efficient
operation” by the D’s failure to fulfill the obligations impliedly imposed by its K
c. Where the special damages of a BOK are foreseeable, the D may be held liable for such
damages.
Tacit Agreement Test: Lamkins v. International Harvester Co.
a. Farmer purchased a tractor for over $1400 from a dealer, and told the dealer that he
desired lighting equipment worth $20 so that he could work at night. The tractor was
delivered without the lighting equipment and the farmer claimed he was therefore
unable to plant 25 acres of soybeans. Farmer sought damages of $450.
b. Nothing in the testimony showing knowledge that appellant expected him to assume
liability for a crop loss if he should fail to deliver a $20 lighting accessory
c. There was no express K on the dealer’s part
d. Holding: The facts and circumstances are not such as to make it reasonable for the
trier of facts to believe that the dealer at the time tacitly consented to be bound for
more than ordinary damages in case of default on his part.
e. Tacit Agreement Test: Did the dealer tacitly consent to be bound by more than
ordinary damages in case of default on his part?
i.
UCC rejects tacit test
f. RST §351(3): Disproportionality limit
i.
A court may limit damages for foreseeable loss by excluding recovery for loss of
profits (because the light cost $20, but farmer sought $450 in damages, but
tractor cost $1400)
Clark v. Marsiglia
a. P was to repair and clean paintings for D. D asked him to stop, but π continued.
b. Rule: Promisor must stop work when a π desires that work cease using reasonable
commercial judgment unless the work is a specific job for a specific person.
i.
If you think you can finish and cover, then you don’t have to stop.
ii.
Here you have a specific job for a specific person and you can’t sell it someone
else. At the point of breach, you will still be made whole by expectancy.
iii.
“Lost profits” applies to only to unlimited inventory.
Schiavi Mobile Homes, Inc. v. Gironda
a. Involves a retailer’s duty to mitigate damages following a customer’s BOK for the
purchase from the retailer of a mobile home. Issue concerning the retailer’s alleged
failure to mitigate damages. Father offered to buy the home after D was unable to.
Contracts – Baradaran – Fall 2013
21
22 of 48
b. P was obliged to take reasonable affirmative measures to keep its losses to a
minimum. He had a party willing to pay the full price and had a duty to pursue this
opportunity. A nonbreaching party has a duty to mitigate damages caused by BOK.
c. UCC 2-706 Must resale commercially in a reasonable manner.
G. Parker v. Twentieth Century-Fox Film Corp [“Bloomer Girl” v. “Big Country”]
a. P Ked to star in D’s movie. D decided not to film the movie and offered her a role in
another, dissimilar movie. She declined and seeks recovery of the agreed guaranteed
compensation. π seeks money due under the K and damages resulting from BOK.
b. Majority says that the roles are different and the new one is inferior, so she doesn’t
have to mitigate
c. To not have a duty to mitigate, the alternative jobs must be inferior and different.
i.
The law dictates, the rule follows where the reason leads.
ii.
Policy for the test of not having to mitigate if inferior and different: too severe to
demand of a person that he attempt to find and perform work for which he has
no training and experience. One need not accept work in an inferior in rank or
position nor work, which is more menial or arduous.
d. Hillman: People are never required to work with the breaching party, so that breacher
isn’t rewarded. People don’t want to work with breacher.
e. P wins compensatory damages: $750,000 (K price). If she does another movie for
$500,000, she is entitled to $250,000. If she does another for $1 million, then she
gets no compensatory damages. She’s not a lost volume seller. Were she doing one
movie, she wouldn’t be in the position to do another movie.
H. In Re Worldcom, Inc. (Jordan v. MCI)
a. Jordan files a claim for $4 million. The case is in bankruptcy court. The point of
bankruptcy is to allow the company to reemerge.
b. Here, π could have mitigated damages, but did not because he did not intend to enter
into Ks similar to the one at issue.
c. If a π is not a lost volume seller and is required to show that not only is he capable of
being a loss volume seller, but he would have been, then he is required to mitigate
damages.
I. Evergreen Amusement Corp. v. Milstead
a. Milstead was delayed in completing the construction of the drive-in theater.
b. Discussing the counterclaim for $12,500 for lost profits for the period of the delay.
c. Supposed to be completed June 1, but completed mid-August
d. TC found that Milstead should have to pay Evergreen
e. Milstead claims that the TJ erred in not allowing in evidence about profits:
i.
1. Need for theater
ii.
2. $12,500 in profits during 2nd year of operation during same months
iii.
3. Based on expert opinion, this would all be the same in the lost 1st year.
f. Agree with TC, because a new business cannot recover lost profits.
g. Expectancy damages cannot be recovered when they are speculative
h. Test about whether damages for lost profits can go to jury:
i.
RST §331: damages are recoverable for profits prevented by a BOK “only to the
extent that the evidence affords a sufficient basis for estimating their amount in
money with reasonable certainty”, and that where the evidence does not afford a
sufficient basis, “damages may be measure by the rental value of the property.
ii.
Comment d of RST says you can recover lost profits for a well-established
business – doesn’t say a new business cannot recover.
iii.
Not a clear test. Verbal formula, but what really matters is how the cases treat
these formulas. Only takes meaning when judges apply them in certain cases.
Contracts – Baradaran – Fall 2013
22
23 of 48
iv.
Could’ve at least looked at their start-up period, beginning in August, to set a
floor level of profits b/c once the court says that it’s too speculative, it’s done.
J. Lakota Girl Scout Council, Inc. v. Havey Fund-Raising Management
a. P hired D to help them raise funds. Jury finds BOK by D.
b. The losses were clear
c. Fund-raising goal was $345,000, and they had to pay $34,000 and only grossed
$88,842.32.
d. D says that the calculation of profits was too speculative, but the court upholds an
award for lost profits
e. Distinguish from Evergreen: Iowa has adopted the New Business Rule
i.
Escaped the new business rule by saying:
a. That it was a single venture, with a specific goal to be achieved within a
reasonably clear timeframe. Girl Scouts have been around. Lots of respect in
the community.
ii.
Computing Lakota’s damages:
a. Ed Breen said reasonable to expect help from families in the area since Girl
Scouting was not new to the area. Local campaign chair.
b. James D. Harrison, former campaign director and director of sale for D, says
that if the campaign had been done properly and followed the K, then the goal
would have been met.
c. D says the goal was feasible.
f. Policy reasons: D whose wrongful conduct has rendered difficult the ascertainment of
the precise damages suffered by the P, is not entitled to complain that they cannot be
measured with the same exactness and precision as would otherwise be possible. The
wrong doer should bear the risk of uncertainty that his own conduct has created.
g. Corbin: The more sure that you are that profits would have been made, the more
liberal you can be with allowing jury to calculate damages.
K. Chrum v. Charles Heating & Cooling, Inc.
a. P purchased a furnace from D that D installed. The furnace caught fire and destroyed
P’s house and contents. Settled other claims, but still had the mental distress claim.
b. Rule: Mental distress damages are not recoverable for BOK, except in personal
agreements (such as nursing home not telling π about mother’s death).
c. General rule applies here. Strictly property loss.
d. In Sullivan v. O’Connor
i.
Sullivan recovered damages b/c it was a personal agreement. It had to do with
the body.
ii.
Under White v. Benkowski would not be allowed to recover damages for mental
distress b/c they were simply denied access to small part of property. Ps here
lost their entire property.
e. Court offers possibility of a tort claim to lessen the blow of not giving damages
i.
Need a definite and objective physical injury produced as a result of mental
distress, such as ulcers from the stress
ii.
Suggests more than a problem, but also the extent of the problem
f. You don’t get punitive except in personal agreements
L. Other qualifications and limits on lost expectancy recovery
a. Denial of lost expectancy recovery in medical contexts:
b. Denial of recovery for loss of reputation or goodwill:
i.
Some cts. say the measure of damages for lost expectancy does not include
compensation for loss of reputation or loss of goodwill
Contracts – Baradaran – Fall 2013
23
24 of 48
ii.
Other cases have allowed the recovery of lost goodwill in proper circumstances.
The party claiming damages for loss of goodwill must “provide the trier of fact
with a reasonable basis from which to calculate damages.”
c. Denial of attorneys’ fees and interest. The general rule is that a victorious party
cannot recover attorneys’ fees from the losing party.
i.
The most important exception is that courts will generally enforce a specific K
clause providing for recovery of attorneys’ fees to the extent the fees are
reasonable.
ii.
Reliance damages if the π wasted attorneys’ fees due to the D’s breach
iii.
Ps generally cannot recover pre-judgment interest unless the amount of
damages is ascertained or liquidated prior to the entry of judgment.
a. A claim is liquidated if ‘data in the evidence makes it possible to compute the
amount with exactness, without reliance on opinion or discretion.
X.
Reliance Damages
A. When expectancy is too speculative, go to reliance. The purpose of reliance is to put the
promisee (P) in the position he would’ve been in had the K never been made.
a. The expenses that occur between K and breach are recoverable under reliance.
B. CCC v. Dempsey [boxer breaches with promoter]
a. CCC suing for BOK
b. The issue is damages:
i.
Lost profits – expectancy damages? No. Too speculative.
a. Not a normal business. The success of the event depends on so many different
circumstances.
b. Expenses incurred prior to K?
i.
Money Ked to pay Wills
1. This money was promised before the K made with D, so the π
didn’t rely on the K for these damages. They came before the
K so they aren’t recoverable under reliance.
2. Anglia Television: D’s liable for preparation expenses
because he should’ve known that the expenses would’ve been
made.
3. This case might also fall under that, but the money is also not
recoverable because the money was never actually paid. Had
it been paid, then it could’ve been recoverable under Anglia.
c. Attorney’s fees for injunction?
i.
Promoter would not have made these expenses without the
breach.Under pure reliance, the litigation expenses are recoverable, but
the ct. says the π spent this money at their own risk.
ii.
General rule that you don’t get to recover attorney’s fees.
d. The expenses that occur between K and breach are recoverable under
reliance.
e. 8 types of possible recovery
a. 1. Weisberg (promoter): going to be paid on profit, so he can’t be
paid. No.
b. 2. $10 to D - Yes
c. 3. $300 to architect to prepare venue - Yes
d. 4. Wages to assistant secretaries – Maybe. Those that were made
in furtherance of the K. They wouldn’t have been paid otherwise.
e. 5. Salaries to regular officials. – No. They were already on the
payroll. They might get special expenses.
Contracts – Baradaran – Fall 2013
24
25 of 48
f.
XI.
6. Expenses of going to CO to give physical. – Maybe. Only if it was
reasonable and before the breach.
i. You can’t keep marking up damages after breach
(Marsiglia)
g. 7. RR fares for those who went to LA for the purpose procuring
the signing of the agreement. – No because they were incurred
before the K. They weren’t in reliance on the K.
h. 8. RR arrangements for the event. Maybe
2. $10 is the clearest amount of damages. Weisberg expenses are the
weakest because the money was never paid. Lots of uncertainty.
C. Albert & Son v. Armstrong Rubber Co.
a. Where a losing K is breached, you can get the damages available under the K, but the
burden is on the breacher to prove that the K wasn’t profitable and to deduct any sum
that would have been the nonbreacher’s loss upon the K.
b. The foundation is something that would normally have been recovered, but we can’t
put the π in a better position than he would’ve been in had the K been completed.
c. The Buyer will be allowed to set off $3000 against Seller’s recovery with interest
subject to the Seller’s privilege to deduct from that amount any sum which upon a
further hearing it can prove would have been the Buyer’s loss upon the K.
d. Hypo:
i.
What if CCC throws a big party (costs $10,000) for Shank because he’s doing
such a good job at the railroad preparation?
a. Under Hadley, this isn’t recoverable. This is not a foreseeable expense.
D. Coppola v. Kraushaar:
a. P isn’t allowed to sue for the broken marriage because the damages weren’t
foreseeable.
Liquidated Damages: K spells out damages
A. Intro:
a. Test for if liquidated damages are appropriate
i.
Reasonable forecast of damages
ii.
Damages are not subject to accurate estimation
iii.
If it meets these 2 standards, then it’s proper
iv.
If it’s a penalty, then not enforceable
b. Modern tendency of courts to be lenient in granting liquidated damages
i.
Hold people to their bargained for exchange
c. How to assess whether liquidated damages are enforceable
i.
Traditional 2 part test of common law in RST
a. Are the liquidated damages a reasonable forecast of actual damages
b. The damages are not subject to accurate estimation (AKA no cover available)
c. Adhoc balancing in McGrath case of these
ii.
UCC § 2-718(a) if it’s for a sale of goods
a. Is it reasonable in light of anticipated or actual loss?
b. Inconvenience or nonfeasibility of otherwise obtaining an adequate remedy
B. Policy reasons:
a. Why are penalties bad?
i.
Based on theory of efficiency, a penalty might discourage breach where breach
would be efficient.
a. Reminds us of punitive damages
ii.
What’s the difference b/w enforcing liquidated damages and not punitive
damages?
a. Parties have agreed to liquidated damages.
Contracts – Baradaran – Fall 2013
25
26 of 48
b. If it’s actually been bargained for, then it should be enforced.
c. Similar to thought process of lamp case. Court won’t look into adequacy of the
consideration.
d. Here though, we might not have appropriate bargaining power.
iii.
Also a fairness argument of enforcing penalty damages
a. Windfall
b. Behavioral biases, we don’t expect breach
b. H.J. McGrath Co. v. Wisner
i.
Efficient breach where farmer decides to sell his tomatoes to someone else who’s
willing to pay more.
ii.
The K said if the D breached, then he would have to pay $300
iii.
The damages are unenforceable.
a. Why unreasonable forecast of damages?
i.
No matter how much of the K he completes, D must pay the same
amount. Whether he delivers 0r tomatoes or all, but 1.
ii.
D said that this # was based on previous years and past experience. The
actual damages are $275, so this formula was very reasonable.
b. Why are damages not difficult to estimate?
i.
The tomatoes have a market price.
ii.
P could have covered, then sued for damages.
iv.
The court gives actual damages  $275.
v.
Problems with test of liquidated damages:
a. If it could be reasonably forecast, the damages are difficult of accurate
estimation
b. Not entirely at odd because cts. give more leeway for estimation of harder to
forecast damages.
vi.
Today, under the UCC, the liquidated damages wouldn’t stand
vii.
Common law is 2 necessary prongs. Must show both for enforceable liquidated
damages.
a. UCC is open-ended. Take all these factors and juggle them together. Multifactor balancing test.
C. Hypo: Construction case in which K imposes $1000 per day in delay in damages for
completing a bridge.
a. It’s reasonable.
b. It’s not a market situation. Damages would be difficult to ascertain.
c. What if they delay, but there are no damage because there’s another road that can be
used?
i.
In the event of reasonable liquidated clause, but no actual damages, some courts
will enforce and some courts won’t enforce.
ii.
Construction Ks with these clauses are very common.
D. Could good drafting have saved McGrath?
a. Problem 3-12
i.
Vary the extent of the damages according to the degree of breach
ii.
Base off of current MV. Peg it to something real.
iii.
Put it within a range of possible damages you’d normally get.
iv.
Prove that it’s been bargained for by indicating that they’re liquidated damages
and not a penalty.
E. Vanderbilt University v. DiNardo
a. Tennessee test vs. the common law test in McGrath
i.
Reasonable in light of the actual damages
ii.
Is the 2nd prong of McGrath irrelevant?
Contracts – Baradaran – Fall 2013
26
27 of 48
XII.
a. Difficulty of measuring damages is important according to the court. Goes
into calculus of reasonability.
b. Did the drafters of Vanderbilt create a good clause?
i.
Extent of damages varied with breach
ii.
Reciprocal damages - equal bargaining
iii.
Evidence of negotiation shown by his requested changes being adopted.
iv.
Clearly states that they’re liquidated damages and not a penalty
v.
Explain why the damages are difficult to measure
c. Liquidated damages provision of K is enforceable
F. Damages for BOK causes of action  expectancy and reliance when we have a K and breach.
Promissory Estoppel
A. Intro:
a. YOU DO NOT HAVE A K. You have a promise that’s been reasonably relied upon.
Trying to recover damages from relying on that promise
b. Williston & Coudert:
i.
Johnny wants to buy a car and his uncle promises $1000 to buy a car.
ii.
He only spent $500 on the car
iii.
Williston says that he should get the $1000
iv.
Coudert says that he should only get $500 b/c that’s what he spent
a. Not fair to give extra $500
c. Puffendorf: promisor is bound to make good the matter lest the other suffer loss
thereby
i.
We’re protecting π from relying to his detriment, not on what he’s expecting
ii.
Expectancy is $1000, but my reliance interest is what I went and did based on
that promise and how much I’m in the hole based on your promise
iii.
We want to protect people from going in the hole and relying to their detriment
d. One who acts to his detriment on the faith of the conduct of the kind revealed here
should be protected by estopping the party who has brought about the situation from
alleging anything in opposition to the natural consequences of his own course of
conduct Dair v. US
B. How much should a recipient of a promise to establish an at-will relationship get in reliance
damages?
a. RST says look at the nature of the promise and determine the extent of the remedy
i.
“…Full scale enforcement by normal remedies”
ii.
Often you can give expectancy; sometimes you give reliance, sometimes
restitution.
iii.
No rule on any of the 3, but courts usually resolve doubts in favor of the nonbreacher
C. Goodman v. Dicker
a. Appellees (Ps) applied for a dealer franchise with the knowledge and encouragement
of appellants (Ds) to sell Emerson products
i.
Appellants induced appellees to do business under the franchise
a. Apelles would receive initial delivery of 30-40 radios
b. No general assumption that courts have to give reliance damages, but they often do.
c. 2 promises: establish franchise as franchisee and to make initial delivery of 30-40
radios.
i.
No K.
ii.
Proper PE COA because π relied on the promise by employing salesmen and
soliciting orders of radios
iii.
TC awarded: $1150, which is how much Ps spent
a. $350 in lost profits
Contracts – Baradaran – Fall 2013
27
28 of 48
i.
He’s getting double damages because this gives him expectancy and
reliance damages (expenses & your profits)
ii.
In order to get the profits you have to make the expenses
iii.
Expectancy is less than reliance here. All they get is $350.
1. All they explicitly promised was the one-time delivery of
these radios b/c the promise of franchise was terminable at
will
b. $1100 (in cash outlays) is more likely to do justice because it’s reasonable to
assume that the franchise owner would deliver more than one set of radios
c. Generally resolve doubts in favor of non-breacher.
D. Walters v. Marathon Oil Co.
a. Appellees purchased a service station and made improvements on it based on
promises made by and the continuous negotiations with D appellant. Before appellees’
proposal was accepted by appellant, but after it was received, appellant placed a
moratorium on the consideration of new applications for dealerships and seller
arrangements, and refused to sign the agreement.
b. Court gives expectancy damages because of lost opportunity to make an investment
elsewhere
c. Reliance: They still have the building and the land and it was improved. They would
receive $0 because now the land is worth more than it was before.
d. Relationship with Dempsey: ct. prepared to award reliance b/c expectancy was too
uncertain. Here, expectancy is more certain than lost opportunity reliance.
e. 2 issues:
i.
Award on lost profits.
a. Were these too speculative? No.
b. Based his numbers off of the historical record of that station
c. Can you argue that they’re too speculative as a matter of law?
i.
Look at Evergreen. It’s technically a new business. Use New Business
Rule. But, you can argue both sides.
ii.
Alleged failure to take reasonable steps to mitigate their damages:.
a. Standard of review used by TC was clearly erroneous standard
b. Lawyer of π does good job establishing facts
c. Ample evidence of mitigating: Contacted several other suppliers
E. D & G Stout, Inc. & Bacardi Imports, Inc.
a. P is forced to sell for $550,000 less than an original offer after D breaches a promise
to allow π to be their distributor.
b. Why shouldn’t π recover?
i.
It was terminable at-will. No promise of duration. No enf. K.
ii.
D argues: Bacardi’s promise wasn’t a promise and it wasn’t reasonably reliable.
c. Must determine whether the loss incurred from the price drop was attributable to lost
expectation of future profit or resulted from an opportunity forgone in reliance on the
promise.
i.
Loss of future profit = future sales of Bacardi products
ii.
Opportunity forgone = opportunity to sell for $550,000 more than they sold for.
d. Are the damages analogous to future wages or moving expenses? (expectancy
damages or reliance)
i.
Is it money you had but lost in reliance on promise or are you looking for money
that you could’ve gained.
e. This loss was like the moving expenses because you would’ve had those things if the
promise was never made. Compensating for losses and not potential gains.
F. Damages related to PE cases:
Contracts – Baradaran – Fall 2013
28
29 of 48
XIII.
a. Generally you get reliance, but in Walters we saw expectancy because reliance was too
speculative
i.
Give because of couple’s forgone investments
ii.
How much are you in the hole, not how much did you stand to gain?
Restitution Damages
A. Intro:
a. Restatement (Second) of Contracts § 371: Measure of Restitution Interest
i.
If a sum of money is awarded to protect a party’s restitution interest, it may as
justice requires be measured by either
a. (a) 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, or
b. (b) The extent to which the other party’s property has been increased in value
or his other interests advanced.
ii.
Comment a. (Usually based on MV of substitute)
a. Ct. has considerable discretion choosing between a and b
iii.
Comment b. When seeking restitution for part performance, commonly allowed
the more generous measure of reasonable value
b. Can recover restitution under UE and under BOK
c. Looking at the various benefits inferred
B. US for use of Susi Contracting Co. v. Zara Contracting Co.
a. Ps enter subK with Ds. After beginning work, Ps encountered unexpected soil
conditions that made their work extremely difficult and generally required work not
Ked for. Ps requested extra money and then came mutual claims of BOK.
b. Based on the breach, nonbreaching party elects to seek restitution rather than follow
the K and receive expectancy
i.
Not allowed to recover under the K because of an article in K
c. With the breach falls the K, so once it’s breached we can go for damages beyond those
available under the K
d. This court says no cap because of the K
e. RST §373: he is entitled to recovery even if the K price is stated in terms of a rate per
unit of work and the recovery exceeds that rate
i.
You’re allowed to recovery damages even under a losing K
C. Oliver v. Campbell
a. Where the only agreed part of the exchange that has not been rendered by the D is a
sum of money, the remedy of restitution in money is not available to one who has fully
performed his part of the K
b. RST follows this rule
c. This court would say that Zara π could not recover if they had 99% of the work
because of Oliver Rule. If you’re basically done with the K, then you can’t throw it out.
Must be “almost done”
i.
This seems unfair because if you breach halfway, then you would recover more.
ii.
It’s more efficient this way. Easier to manage damages this way.
D. Baush & Lomb, Inc. v. Bressler
a. P is distributor of and D is manufacturer of ophthalmic devices. Entered into sale and
distribution agreement under which π was to become the exclusive world-wide
distributor of D’s A-Scan and B-Scan products for 3 years. π paid $500,000 and
agreed to make minimum annual purchases of D’s products. This was the 1984
agreement.
b. D breaches and TJ awards $550,000 plus interest
Contracts – Baradaran – Fall 2013
29
30 of 48
c. Was awarding the $500,000 based on the prepaid royalty an application of
expectancy damages?
i.
No. That would be in error because it does not follow that π would have realized
a $500,000 return if the K had been fully performed.
ii.
This would be too speculative.
iii.
No evidence connecting the $500,000 to profits.
d. Reliance?
i.
P would likely recover $0 under reliance because it was a losing K for P. They
weren’t making many sales and were discounting prices.
ii.
Similar to Judge Hand, Albert case on the losing K for a foundation
a. Burden is on D to show that it is a losing K and the amount of loss.
e. Restitution?
i.
P may recover the portion of $500K that it shows was UE of the D.
ii.
Cannot recover the full amount b/c it bought them the distribution rights. So DC
must determine the value of these distribution rights and offset it from the
$500,000. Will probably have to rely on the K as evidence of the market value in
the absence of a readily available market price.
iii.
Restitution damages are not limited because with the breach falls the K. So even
though your damages would’ve been $0, you can get damages
iv.
In restitution, the K is set aside.
v.
The K isn’t totally useless. It’s evidentiary. In the absence of a readily market
price, then look to K for damages.
a. This may not be totally accurate because the D was also selling in their
territory and perhaps taking away some of their profits.
vi.
RST 371 says you get the greater amount of the 2 options
E. Osteen v. Johnson [K to publicize Linda]
a. Breach of an oral K
b. You can only get restitution for material, substantial breaches.
c. Distinguish between material and immaterial breaches.
d. The material breach was the failure to send out the 2nd records
e. Was the failure to send out the 2nd record a breach? Yes. Was it material? Yes because
the primary method of publicizing Linda was to get the records out.
i.
The essence of the K was to publicize Linda, and the way to do that was to send
out the 2nd record.
f. The π is entitled to receive part of the $2500 that they paid. Must subtract the value of
the work that the D had completed to calculate damages.
F. Sometimes a breaching party can also seek restitution
a. Problem 3-16
i.
Suing for restitution damages by a breacher. We don’t want to the victim of the
breach (B – owner) to be unjustly enriched. We also don’t want A to be put in a
better position.
ii.
Not going to put the victim of breach in a worse position than if K was complete.
iii.
Must look at the extent of the improvement. That measure is favored over the
cost of doing work where the cost of the work doesn’t match the extent of the
improvement.
iv.
A should not get and B should not pay more than $1000. Capping the breaching
party’s recovery is the only way to prevent the nonbreaching party from being
put in a worse position than if the K were completed.
a. 10,000 – 9,000
b. Owner has to pay 9000 to fulfill the 10,000 K.
Contracts – Baradaran – Fall 2013
30
31 of 48
v.
XIV.
Nonbreacher should not have to pay more than the total K price because of A’s
breach.
vi.
If you have a choice of increase in value and how much it will cost to complete,
then you get the lesser value.
Specific Performance: Where no adequate remedy exists at law, a court of equity may order
specific performance – occurs when K item is unique (land is always unique)
A. Kitchen v. Herring
a. In BOK for sale of land, you get SP because there’s no adequate remedy at law. When
there’s land, there’s no adequate remedy at law.
b. With BOK for sale of land, use specific performance
c. General Rule: you give SP when there is no adequate remedy at law.
d. With land, it’s presumed that there is no adequate remedy because land is unique.
e. Does it apply that land is unique here?
i.
Argument against: The chief value of this land was the value of the timber on the
land. He could be compensated.
ii.
Ct. doesn’t buy that argument. The ct. wants to lay out a bright line, inflexible
rule here that all land can get specific performance and we’re not going to
question it.
iii.
Not all courts do this.
f. Hypo: instead of selling land, selling a potted bonsai plant signed by Big Pappy.
g. UCC § 2-716
i.
SP may be decreed where the goods are unique or in other proper
circumstances, so you can have SP because it’s unique.
B. Curtice Brothers v. Catts [tomato canners needing SP]
a. Ct. awards SP for the sale of tomatoes
b. Under UCC 2-716, SP would not apply because tomatoes seem replaceable
c. Here though, there was an irreparable injury with no adequate legal remedy
d. They do plan to buy other tomatoes on the market. Ct. says there’s an uncertain
market. The tomatoes aren’t otherwise recoverable.
e. Let’s say buyer can’t cover, what other remedies can they get?
i.
They can probably get lost profits, but that wouldn’t be adequate. They could
lose good will with customers, etc.
ii.
Intangible nature of lost profits
f. This is a future’s contract. In the future, I’m going to set up my process and you’re
going to give me what I need to complete the process according to this K. Managing
my affairs for the tomatoes that I’m going to get in the future.
i.
They’re doing a lot of work and preparation for the process, so they need these
Ks to protect their certainty.
ii.
Higher reliance on futures contracts.
g. P is awarded SP. D is restrained from selling crops to others and can use a receiver to
retrieve the tomatoes.
h. Can also get SP for not land because it’s unclear whether they could have covered.
i.
Gives SP in order to discourage breach in commercial fields. Not all futures Ks
receive SP, but this ct. felt that it was important that this K was completed
because it was unclear if P could have covered.
ii.
UCC says may be unique or in other proper performances.
C. Stephan’s Machine & Tool, Inc. v. D & H Machinery Consultants, Inc.
a. P bought a machine from D and borrowed $96K to pay for it. Machine failed to
function. π is substantial debt.
b. The machine is not unique or irreplaceable, but it is unique for the P, so SP granted
because no adequate remedy at law – P can’t cover.
Contracts – Baradaran – Fall 2013
31
32 of 48
D. Personal Services Specific Performance
a. Dempsey case: could promoter get SP? No.
i.
We don’t force personal services.
b. Shirley McClain: SP? No.
i.
Don’t want to force people into Ks with breaching party
ii.
Supervision problems.
iii.
Involuntary servitude issues.
c. Do not give specific performance for personal services.
E. Laclede v. Amoco
a. Couldn’t find anyone else to enter into a long-term K because of uncertain world-wide
energy supplies.
b. Court awards SP because they can’t get complete cover, and it’s unique because it was
an unwise K for D.
c. Not a unique good, but this particular π cannot cover.
d. Trend toward allowing SP even when not a unique good or land.
i.
Going this way because there are a lot of defenses
F. Defenses to SP:
a. Trading a bag of candy and $1000 for an old lady’s house
i.
Based on unfairness: sharp practice, unfair advantage taking, non-disclosure,
post-contractual unconscionability, inadequacy of consideration, mistake,
misrepresentation, duress, undue influence
ii.
Unfairness like in Wollums v. Horsley
a. Gets swindled by a savvy businessman
iii.
In granting SP, ct. will consider adequacy of consideration
b. Lack of mutuality
i.
You have to perform, but you feel certain that they can’t pay for this
performance once you pay for it.
c. Impracticability of performance
i.
In order for a party to be entitled to SP the K must be so uncertain and
unambiguous in its terms and in all its parts that a court can require the specific
thing contracted for to be done.
d. Court becoming more willing to grant SP because of all of these defenses.
G. Pratt Furniture Co. v. McBee
a. Difference between market price and K price at the time when π finds out about the
breach.
b. P also wants D’s profit on the tables. (ill-gotten gains). P can cover, so no SP
c. Many reasons for not giving SP
i.
It’s a personal service
ii.
Very harsh consequence for not building chairs
iii.
Waste of judicial time to supervise the building of chairs
d. Expectancy is based on your profit, not on someone else’s profit. $80,000 isn’t
allowed because this would put π in a better position than if K had been completed.
e. Concurring / Posnier:
i.
Efficient breach. Resources should be allocated to the person who most values
them. Value is determined by who can pay the most.
ii.
You’re making the nonbreacher whole.
f. Dissenting / Rawlz:
i.
Economic argument leaves out other factors that aren’t accounted for
a. Litigation costs – money-wise, maybe they’re not actually made whole
b. Good will (makes you look bad to breach Ks)
i.
May make you lose your good name
Contracts – Baradaran – Fall 2013
32
33 of 48
ii.
ii.
iii.
If the breacher loses his good will, he’s already made the decision for
the cost of his good name. He’s decided that the extra profit is worth
the possible loss in reputation.
iii.
The good name of the nonbreacher is also damaged.
c. In real life, people do monetize good will and will still breach.
d. You aren’t factoring in all the measureable and unmeasureable costs
Efficient breach isn’t actually supported by K law
a. Judges have not articulated that theory at all. They’re all Posner’s cases.
b. Just because they’re not articulating it doesn’t mean they’re not thinking it.
Economic theory definitely has some influence over judges.
Policy:
a. If Ks aren’t enforced, then there’s no freedom to K. We want people to get out
of their Ks when they become really onerous, but we want them to stick. Do
the remedies that we have in K already account for the same things that
efficient breach tries to account for?
b. Practicality: When you measure market price is very disputed. Is at the time
of cover, or when they find out about breach?
i.
This lawyer’s argument was very simplistic.
ii.
Relies on “doctrine of efficient breach”, but there’s no such doctrine.
This is just a theory.
Contracts – Baradaran – Fall 2013
33
34 of 48
I.
CONTRACT FORMATION
Agreements and Promises
A. The Nature of Assent
a. Rule: Must look at a K in relation to all other provisions when considering whether it
is a K. Cts. will assume there is no K if ordinary people don’t intend there to be legal
consequences to such an agreement.
i.
Where a company purposely induces reliance by its employees through a
promise, a K can be interpreted.
ii.
Tilbert v. Eagle Lock Co.
a. Facts: P’s husband was employed with D for over 7 years and died on
before notice of cancelled death benefit plan.
b. Company trying not to make a K.
i.
The ct. says that there’s a binding K such that there is a duty
to pay the beneficiaries.
1. Principles outlined by the ct:
a. When interpreting a K, you look at it in relation
to other provisions.
b. The court won’t infer the K to mislead, because
the whole letter would be meant to mislead.
2. What language makes it binding? They suggest a trade
– loyalty for benefit. There’s also an offer. Inducing
reliance by expecting them to remain in this
employment.
a. The K not binding language can’t mean the
whole thing isn’t binding according to the ct.
b. The ct. isn’t saying that they’re interpreting the
K, they’re saying you aren’t allowed to do this.
We can’t make the whole thing misleading
based on part of the language. You’re inducing
reliance, so you’re going to be bound.
ii.
Corbin says look at the context of what’s being traded. Is it
something that is normally formal in a K or not? Benefits are
usually in a formal K.
1. Social center doesn’t give encouragement for
employees to say. Possibly very little consideration
there.
2. Reliance measure of if we enforce the social center K as
opposed to enforcing the death benefits. Death benefits
and insurance documents are important part of
employment.
3. High formality and reasons for inducement given.
iii.
Key to differentiating is: Is it a statement of binding promise
(if you do this, I will give you this) or a statement of present
intention (I will give you pizza)?
b. Rule: Agreements b/w family members usually are not enforceable unless the parties
agree to make them legally enforceable.
i.
Morrow v. Morrow
a. Facts: Warren and Betty Morrow (P) brought action to recover for
services rendered to the decedent, mother of π and Woodye Morrow
Contracts – Baradaran – Fall 2013
34
35 of 48
B.
C.
D.
E.
F.
(D). π also wanted to set aside a conveyance of mineral interests from
D to D’s son that was made without consideration.
i.
P argument – D got title to decedent’s real property and
made an oral agreement with π that if they would care for
Maude, when she died D would sell the property, pay Ps for
their care rendered, and divide the rest among the heirs.
b. Presumption is that K between family members is unenforceable, and
you must convince the trier of fact otherwise by putting it in writing –
make your intent clear that it’s a legally binding K.
ii.
Friend alleges that since he gave you baseball tickets, then you have to give
him the Barry Bonds ball that you got.
a. Generally, when friends or family make a K, it’s not legally binding
and needs to be in writing. You must overcome the assumption that
it’s friendly.
Raffles v. Wichelhaus
a. P and D agreed on a sale and delivery of cotton that was to arrive on the ship
“Peerless”. 2 ships were leaving Bombay and called Peerless. When the goods arrived,
the D refused to accept or pay for the goods.
b. Where there is no consensus on terms, there is no binding K.
c. RST § 20
i.
There’s no manifestation of mutual assent to an exchange if the parties
attach materially different meanings to their manifestations and
a. (a) Neither party knows or has reason to know the meaning attached
by the other; or
b. (b) each party knows or each party has reason to know the meaning
attached by the other.
d. Under RST, must be materially different meaning. This doesn’t seem to be a material
difference. The court is enforcing a brightline rule.
Dickey v. Hurd
a. Dickey sent a letter to Hurd requesting the price of Hurd’s land. Hurd made Dickey an
offer and stated that he would give Dickey until July 18 including that day to accept
the offer. Dickey telegraphed an acceptance on July 17 and promised to send a down
payment. D claimed his offer required Dickey to pay the cash price by July 18.
b. Ct. says that this is a binding K, because the seller knew what the P’s mindset was
regarding modes of acceptance. He was put on notice to the mistake and could have
corrected it.
c. Follows RST § 2(a) or (b).
i.
(a) That party does not know of any different meaning attached by the other,
and the other knows the meaning attached by the first party; or
ii.
(b) That party has no reason to know of any different meaning attached by
the other, and the other has reason to know the meaning attached by the first
party.
d. If you’re aware that the other party is thinking differently, then you must correct their
mistake, or you cannot hold them liable for their mistake.
RST § 201: Effect of a misunderstanding
a. If each acted in good faith and neither had reason to know of the difference in
meaning. Both claims fail.
Either both are mistaken and neither knows or both know (Peerless – not binding) or one is
mistaken and the other person knows that you’re thinking different (Dickey - this is
binding).
Colfax Envelope Corp. v. Chicago Graphic Communications Intern. (Posner)
Contracts – Baradaran – Fall 2013
35
36 of 48
a. When parties agree to patently ambiguous term, they submit to have any dispute over
it resolved by interpretation.
b. When parties agree to terms that reasonably appear to each of them to be unequivocal
but are not, cases like that of the ship Peerless where the ambiguity is buried, that the
possibility of recission on grounds of mutual misunderstanding, or, the term we
prefer, latent ambiguity, arises.
G. Cargill Commission Co. v. Mowery
a. Hutchinson used the wrong code word on a telegram when offering to sell bushels of
wheat.
b. Cargill brings action against Hutchinson for refusal to deliver more than 3,500
bushels.
c. Important that the π had acted on the K and sold what he had Ked for.
d. You’re bound by this K. If it had been formally written, then you couldn’t get out of it
by correcting your mistake.
e. Difference between mistake about a meaning of a word and mistake about a word.
f. A K is binding even when one party makes a mistake about the meaning of a word
when the other party has relied upon the K.
H. Ethical Point:
a. Worst question he asks is “only midway?” Suggests that attorney is not satisfied with
the answer.
THE OFFER
The offeror is the master of the offer. He can expect the acceptance in any manner he
desires.
OBJECTIVE TEST
1. Intro:
a. Corbin: An offer is an expression by one party of assent to certain definite terms,
provided that the other party involved in the bargaining transaction will likewise express
assent to the same terms.
b. 2 cases about whether an ad constitutes an offer
i. In Ford it did not because there wasn’t an unlimited supply and not everyone
qualifies for the financing
ii. Leftkowitz was an offer because it was self-limiting
iii. Generally an ad is not an offer
iv. Southworth was an offer even though the communication went to more than 1
person
2. Lefkowitz v. Great Minneapolis Surplus Store, Inc. [fur ad for $1 – 1st come, 1st serve]
a. There was acceptance of this “offer” because the π was the first one at the store and had
the $1 for the coat.
i. What’s the consideration? The coat for $1 (cts. don’t care about the adequacy.
Lamp case. Is it pretextual? He was there and he was early. The D got what he
wanted. Maus case.)
ii. Pretextual: gift promises, Aunt Tilley ($5000 for a flower. Not bargained for)
b. Issue 1: Is an offer made? Yes.
c. Issue 2: What are the terms? First person to come gets the coat for $1.
d. Issue 3: It has not been modified before acceptance.
e. Can’t modify an offer after acceptance.
3. Why do we have a K in Lefkowitz, but not in Ford Motor Credit Co. v. Russell?
Contracts – Baradaran – Fall 2013
36
37 of 48
a. Lefkowitz says ads are generally not offers, but are an invitation for an offer.
b. Why have the rule generally that ads aren’t offers?
i. They don’t have unlimited product for sale. Not everyone that comes and accepts
will be in a binding K.
ii. In Lefkowitz, it’s self limited because it says first come first serve, so people are
aware that there’s only one, so if they’re the 1st person, then they get the coat
4. Rule: To figure out whether something is an offer, you consider the surrounding circumstances
and ask whether a reasonable person would have thought it was an offer
a. Courteen Seed Co. v. Abraham
i. D Seller sends seed sample to π and asks π if interested in buying. π says “your
price too high, wire firm offer.” Seller sends letter saying “we are asking 23 ¢
per pound.” π accepts offer. Seller breaches, saying it wasn’t valid offer.
ii. Not an offer because he says, “I am asking”.
iii. The court considers the whole exchange, and the seller refers to another buyer’s
offer b/c there are other people that they are offering to.
iv. The seller responded in clear non offer terms and relies on Nebraska Seed Co.
where the seller said “I want”
v. How can you distinguish this case from Nebraska Seed Co.?
1. The buyer specifically said, “wire firm offer” prior to receiving the asked
for price. There was no such fact in Nebraska
2. This offer was sent to a bunch of people and not everyone can accept that
offer, so we must determine it not to be an offer.
3. The telegrams in Courteen were sent specifically to the buyer and weren’t
in the context of an ad and the facts implied that seller was having
difficulties selling.
a. The transaction was getting more specific and more concrete as
they exchanged telegrams. This was also no longer out of the blue.
b. UCC § 2-204:
i. (3) Even though 1 or more terms are left open a K for sale doesn’t fail for
indefiniteness if the parties have intended to make a K and there is a reasonably
certain basis for giving an appropriate remedy
c. UCC § 2-311(1):
i. (1) Agreement otherwise sufficiently definite (2-204(3)) to be K not invalid by
fact that it leaves particulars of performance to be specified by one of the parties.
Any such specification must be made in good faith and w/in limits set by
commercial reasonableness
d. Southworth v. Oliver
i. P & D began negotiations about the sale of D’s land, and when the sale became
complicated due to a 3rd party, the D tried to back out and claim that the price
quotation was not an offer.
ii. Was there an offer?
1. The court says yes because of the surrounding circumstances.
2. It is the manifestation of a previous intention that is controlling, rather
than a person’s actual intent.
3. The terms were definite. The D sought out the P, and it wasn’t out of the
blue. It was also sent to others.
4. Single best fact that there was no offer: buyer knew that the seller was
sending this to other people. (We wouldn’t care if only the seller knew that
he was sending it to other people.)
a. An offer may be made to more than one person.
Contracts – Baradaran – Fall 2013
37
38 of 48
iii. The fact that a price quotation is sent to more than one person does not, of itself,
require a holding that such a price quotation is not an offer.
1. Test is whether, under all of the facts and circumstances existing at the
time that the letter was received, a reasonable person in the position of
the π would have understood the letter to be an offer by Ds to sell the land
to him.
iv. Did the buyer properly accept?
1. The seller says that he meant to sell the pieces of land together and with
the permits and that the buyer didn’t want both pieces.
2. The land is physically separate and in 2 different enclosures.
3. Seller says a reasonable person should have known that the permits and
land were all being sold together because it’s the custom. Typically in
ranchland this is how it’s done. If you can prove that they should have
known that land would not be sold without permits, then that’s a strong
argument. There are also facts that show they aren’t linked though.
THE ACCEPTANCE
Acceptance must be a mirror image of the offer to be valid. If it adds terms or conditions, then it’s
probably a counteroffer (objective standard).
UCC § 2-206(1)(a)
(1) unless otherwise unambiguously indicated by the language or circumstances
(a) an offer to make a K shall be construed as inviting acceptance in any manner and by any
medium reasonable in the circumstances.
a. [either you be very clear, or the acceptance can come in any reasonable manner]
RST § 32: Invitation of Promise or Performance
- 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.
Ardente: If a reasonable person would see the acceptance as a counteroffer, then it does not constitute
acceptance and the counteroffer must be accepted by the original offeror. You must accept a mirror
image of the offer.
Eliason: Offeror is the master of the offer. The more specific that the offeror is in his acceptance
requirements, then the more stringently the court will apply them.
White: In case of doubt on whether an offer was accepted, it must be manifested by an appropriate act
used in the usual course of events. - Starting work would have been sufficient, but preparing for work is
not.
1. Ardente v. Horan
a. Seeking specific performance of sale of house
b. P sought to buy a residential property from D. D sent an offer to π and π accepted, but
added conditions of his own (asking for certain furnishings).
c. The unexpressed intentions of the buyer are irrelevant.
d. Should have said “I accept, but please throw in these additional items.”
Contracts – Baradaran – Fall 2013
38
39 of 48
i. Williston (& Corbin agree): So long as it is clear that the meaning of the
acceptance is positively and unequivocally to accept the offer whether such
request is granted or not, a K is formed.
ii. Look at the language and how a reasonable person would interpret it. The
acceptance must be definite and unequivocal.
e. If you say “I accept, but only if you do a, b, and c”, then the court construes this as a
counteroffer.
f. Statute of frauds may have been an issue, but no one raised it. You must have a signature
by the party against whom we’re trying to enforce the K. There was not. SOF could be
saved with other documents that had a signature.
2. Eliason v. Henshaw
a. Judgment for D – No K
b. D sent an offer to π requesting to buy flour from P. The D required that the acceptance be
sent by wagon the next day to certain location, but instead it was sent by mail and to
wrong location.
c. There’s no effective acceptance because the offeror is master of the offer.
i. The offeror gets to decide how it will be accepted, but that doesn’t give them
control of the whole K. Once it’s accepted, they lose power.
ii. The court focuses on time and place. It was sent to Georgetown and was
supposed to be sent to Harper’s Ferry within allotted time.
1. Acceptance could be sent in any way so long as it’s within the time asked
for and to the correct location.
iii. The rule is that if the offeror is clear on how they want it accepted, then you must
follow their rules for accepting.
1. The more explicit you are in the mode of acceptance, the less wiggle room.
3. White v. Corlies
a. P was a builder, D sought work on furnishing of a suite of offices. π had given an estimate
and D sent a note that “upon agreement in two weeks” π could start work “at once.” The
following day, π purchased materials to begin work.
b. Power of acceptance terminated before he accepted by a preacceptance revocation of an
offer. Before you accepted this, I revoked my offer. (He can do this.)
c. Acceptance must be manifested by an appropriate act that will in reasonable time in
regular course of events communicate the acceptance to somebody else.
i. Depends upon whether offeror should have known that the offer an been
accepted.
ii. Intention to accept is not sufficient.
d. Actually beginning performance on the building is enough to constitute an acceptance,
but preparing to perform is not. Even if the D did not know he had started, he should
have known in the regular course of events.
4. Silence/Inaction is not acceptance (unless stated as such by offeror).
a. If it wasn’t mailed, looking at RST § 69 Acceptance by Silence or Exercise of Dominion.
i. (1) Where an offeree fails to reply to an offer, his silence and inaction operate as
an acceptance in the following cases only:
1. (a) Offeree takes benefit of offered services with reasonable opportunity to
reject & reason to know that they were offered with the expectation of
compensation.
2. (b) Offerror states/gives offeree reason to understand that assent may be
manifested by silence or inaction, and offeree in remaining silent and
inactive intends to accept the offer.
3. (c) B/c of previous dealings or otherwise, it is reasonable that offeree
should notify offeror if he does not intend to accept.
Contracts – Baradaran – Fall 2013
39
40 of 48
ii.
1. (a) This is like Bloomgarden
2. (b) If offeror has stated that silence could be an acceptance and the
offeree intended the silence to be acceptance, then silence is acceptance.
a. Can only use subjective intent with silence.
3. (c) Previous dealings make it so that it is reasonable that the offeree
should notify the offeror if he does not intend to accept
iii. (2) Asking whether any act inconsistent with the offeror’s ownership.
1. Is it more like a test-drive or ownership? Good argument that opening
and using CD was treating it like owner, but that’s what the company
expected.
5. Problem 4-11
a. Edgar receives a record in the mail and didn’t like it and set it aside. What are the rights
of the company that sent it to him?
i. If it’s mailed through postal service?
1. Covered by 39 USC § 3009 only if it’s mailed
a. Except for
i. Free samples clearly and conspicuously marked as such,
and
ii. Merchandise mailed by a charitable organization soliciting
contributions, the mailing of unordered merchandise or of
communications prohibited by subsection (c) of this
section constitutes an unfair method of competition and an
unfair trade practice
b. Any merchandise mailed in violation of subsection (a) of this
section, or within the exceptions contained therein, may be treated
as a gift by the recipient, who shall have the right to retain, use,
discard, or dispose of it in any manner he sees fit without any
obligation whatsoever to the sender. All such merchandise shall
have attached to it a clear and conspicuous statement informing
the recipient that he may treat the merchandise as a gift to him
and has the right to retain, use, discard, or dispose of it in any
manner he sees fit without any obligation whatsoever to the
sender.
c. No mailer of any merchandise mailed in violation of subsection (a)
of this section, or within the exceptions contained therein, shall
mail to any recipient of such merchandise a bill for such
merchandise or any dunning communications.
d. Treat it as a gift. There’s no liability.
DURATION OF OFFERS
RST § 36: Method of Termination of the Power of Acceptance
(1) An offeree’s power of acceptance may be terminated by
(a) rejection or counter-offer by the offeree, or
(b) lapse of time, or
(c) revocation by the offeror, or
(d) death or incapacity of the offeror or offeree
(2) In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any
condition of acceptance under the terms of the offer.
Contracts – Baradaran – Fall 2013
40
41 of 48
Williston: An offer is rejected when the offeror is justified in inferring from the words or conduct of the
offeree that the offeree intends not to accept the offer or to take it under further advisement.
Farnsworth: offeror may rely on the acceptance. Part of that reliance is not revoking the offer. As soon
as there’s some kind of rejection, the offer is closed because otherwise the offeror won’t know to revoke
the offer because they think it’s been rejected.
When the power of acceptance terminates:
Akers: Is the offer still open? 1st: Specific time period? If not, then what would a reasonable person infer
from the surrounding circumstances (objective). If this was a face to face conversation, then the offer
usually ends with the conversation.
Caldwell v. Cline: Where the timeframe for acceptance is ambiguous and the offer didn’t occur face-toface, the offer doesn’t exist until it reaches the 2nd party, unless explicitly stated by the offeror.
Collins: Where the offer has been left open as an alternative to a proposed counteroffer, then that does
not constitute a rejection of the offer.
Dickson v. Dobbs: Offer is extinguished by revocation where the offeree knew that the offer had been
revoked prior to his acceptance, regardless of whether the offeror explicitly told the offeree. No
consideration for offers.
1. Akers v. JB Sedberry, Inc.
a. 2 employees offered to resign orally
b. Employer did not explicitly accept or reject offer, did not indicate that she needed to
think about it and sent telegrams accepting resignation 3 days later.
c. Offer was no longer on the table 3 days after it was initially offered. No acceptance
d. How much time does an offer stay open before lapsing?
i. Look first at whether there is a specified time.
ii. If no specified time, then it stays open for a reasonable amount of time.
iii. Offers are open until the end of a conversation, unless otherwise stated.
1. Take into consideration surrounding circumstances.
e. RST § 40, Illustration 2:
i. A makes B an offer to which B makes no reply. A few hours later, B states that he
accepts. There is no K unless the offer or surrounding circumstances indicate that
the offer is intended to continue beyond the immediate conversation.
f. Based on her conduct, it was reasonable for the men to believe that their offer had been
rejected.
2. Caldwell v. Cline
a. K for sale of land; D sends 1/29/29; P receives 2/2/29; Accepted on 2/9/29  too late
according to offeror
b. Offeror says “offer is open for 8 days.”
c. Without more evidence of the offeror’s intention; and the unconditional acceptance
having been received by Cline within the specified time limit, the result was a
concurrence of the minds of the contracting parties upon the subject-matter of their
negotiations; in other words, a K.
d. The ct. is forcing the offeror to use a specific date in the future to help with efficiency and
protect himself.
e. RST: lapse of time applies
3. As an illustration of an acceptance with a request
Contracts – Baradaran – Fall 2013
41
42 of 48
a. Collins v. Thompson
i. Prisoners seek the enforcement of a consent decree (settlement) with the State
about prison population. The inmates sought approval of a decree with a
mistaken date (March 1) that the State amended with the correct date (April 1).
After the court denies prisoners’ requests for (1) March 1 decree or alternatively
(2) for a notice reflecting the modification to April, the prisoners accepted a
settlement for April 1.
ii. The inmates actually never rejected the April 1 offer, because they offered it as an
alternate.
4. Dickinson v. Dobbs
a. D seller sends π buyer an offer to sell land: open until “Friday at 9AM.”
b. Before that time & before π had accepted, π found out that D had offered to sell land to
another buyer, but D never contacted π and revoked explicitly.
c. Have an offer and attempted acceptance, which was not accepted because the offer was
revoked. (RST  extinguishment by revocation of the offer). Offeror is the master of the
offer – he’s changing his mind on the way it’s accepted. There’s no consideration with
open offers.
d. Beyond all question, π knew that D was no longer minded to sell the property to him. The
offeree knew that the offeror no longer wanted to sell the property to him. Amplifies the
way that offers can be revoked. There’s no consideration for offers. If someone hears
through the grapevine that you want to revoke, then that counts.
e. Once an offer is accepted and before revocation, it’s a K.
f. *still good law. Even though RST § 42 says that you have to hear from the offeror. Must
prove that offeree knew it before he accepted.
g. RST § 43
Contracts – Baradaran – Fall 2013
42
43 of 48
OPTIONS CONTRACTS
RST § 87(1): An offer is binding as an option K if it (a) is in writing and signed by the offeror, recites a
purported consideration of the making of the offer, and proposes an exchange on fair terms within a
reasonable time; or (b) is made irrevocable by statute.
UCC 2-205: Firm offers: An offer by a merchant to buy or sell goods in a signed writing which by its
terms gives assurance that it will be held open is not revocable, for lack of consideration, during
the time stated or if no time is stated for a reasonable time, but in no event may such period of
irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree
must be separately signed by the offeror.
*3 month only applies if no time specified – no consideration required, only that firm offer is in writing.
Marsh, RST & UCC all set about the same standard.
Courts won’t inquire into the adequacy of consideration, but the consideration must actually be paid.
1. Marsh v. Lott
a. Facts: P&D entered into a K for an option on land in consideration of 25¢. π had up to
and including June 1st, with the privilege of a 30 day extension. On June 1st, π notified D
of his wish to exercise the right of extension. On June 2nd D told π the option was
revoked and that she withdrew the property from sale. On the 29th, within the extended
time, π attempted to make the purchase, per the K and demanded Ds performance.
b. The original option is for approx. 4 months (with option for 30 day extension)
c. Is this promise enforceable? – Court says yes.
i. Cts. will not inquire into the pre-textual, nominal, or inadequacy of consideration
in options contracts – it may be less than nominal. (*BRIGHT LINE RULE)
ii. There is no standard to determine the adequate value of an option; the land has a
market value but the option value often depends on proposed or possible
improvements in the vicinity.
d. Counterarguments: Here we have such a difference in figures it isn’t a stretch to say it is
unequal.
2. How does Dickinson come out?
a. -Marsh – no consideration so still revocable, same outcome.
b. -87(1) – purported, written consideration just means you have to write it in there. It is
not actual consideration. Same outcome
c. -UCC 2-205 – doesn’t actually apply to Dickinson because it’s not for the sale of a good,
but if it did, the lack of consideration doesn’t matter so it would be the opposite outcome.
He can’t revoke.
3. Hypo: What if in Marsh the seller could prove the 25¢ were never paid? What result under:
a. Marsh – not enforceable because according to the court the option has to actually been
sold.
b. 87(1) – it is enforceable because the consideration was recited
c. UCC 2-205 – it is not enforceable because it was longer than three months.
Unilateral K
Contracts – Baradaran – Fall 2013
43
44 of 48
Only accepted by starting performance, not by a promise to perform.
Wormser: (walking across Bklyn Bridge hypo):
 Part performance = binding (late Wormser)
 Preparation for performance ≠ binding
However, per RST § 45, offeree has now created an option k
 Offeree doesn’t have to finish (can if they want)
 But the offerror can’t revoke after part performance.
RST § 42: an offeree’s power of acceptance is terminated when he receives from the offeror a
manifestation of intent not to enter into the K.
RST §43: an offeree’s power of acceptance is terminated when the offeror takes definite action
inconsistent with the intention to enter into the K and the offeree acquires reliable information about
that action.
General Rule: RST § 45:
(1) Option K is created when offeree tenders or begins invited performance or tenders a
beginning of it.
(2) Offeror’s duty of performance under option K conditional on completion/tender of invited
performance in accordance with terms of the offer.
[Offeror can’t revoke once act is started, but does not have to do his part (pay or
whatever) until act is completed]
Unilateral Contract: an offer for a return act
Bilateral Contract: an offer for a return promise; Cts. will presume a bilateral K.
1. Brackenbury v. Hodgkin
a. D writes to Ps (daughter and son-in-law) asking them to move and take care of her for
life, promised house in return. Ps move. D mom kicks them out and breaches/
b. Unilateral K because the children had to take care of the mom until she died (the act)
and THEN they get the land (THE PROMISE)
i. Thus enforceable b/c performed act requested.
c. Became a bilateral K when daughter started part performance b/c there’s an implied
promise to complete the work.
d. In unilateral Ks, no acceptance until performance & part performance is sufficient.
2. Peterson v. Pattberg
h. P has a loan from D on his property
i. ∆ offers π $780 off a mortgage if π pays it in full within month
j. π goes to house, knocks on door, tells Δ he is there to pay mortgage
k. Before π gives Δ cash, ∆ announces the offer is revoked
l. Δ revokes b/c Δ sold mortgage to another mortgager
m. By telling π that he had already sold the mortgage to someone else, then the offer was
revoked
n. What if when D opened the door, π stuck the money immediately through the door and
said “I tender”? Then it would be a K according to dissent. The offeror D had a duty to
accept the acceptance.
i. According to RST § 45, once there’s tender, we have a K, and under RST § 35, if
it’s revoked even a second before acceptance, then there’s no acceptance.
Contracts – Baradaran – Fall 2013
44
45 of 48
o. Assuming it’s complete tender, in hypo, is there a K according to Kellog? No because
until the D accepts the tender, then it’s not a K.
i. Why is Kellog wrong to require post-tender taking of the money?
1. Language in the offer cuts strongly into this. He says “I agree to accept…”
2. He has the obligation to accept once the performance is made.
ii. According to Lehman (dissent)? No. It’s clearly a unilateral K. He asks for
performance and not promise of performance. Return promise doesn’t cut it.
iii. According to RST § 45: No K. There’s zero tender.
p. Main case under RST § 45: He’s asking for full payment of mortgage. If it’s beginning
tender it’s a K, but if it’s only preparation for tender, then it’s not.
i. In a unilateral K, we’re asking for performance
Reliance on an offer before acceptance
RST § 87(2): Option K:
(2) An offer which offeror should reasonably expect to induce action/forebearance of substantial
character on the part of offeree before acceptance & which does induce such action/
forebearance is binding as option K to the extent necessary to avoid injustice.
- expands holding of Drennan
- Turns offer into option K to offeree before acceptance
James Baird Co. v. Gimbrel Bros – protects subcontractor (Judge Hand)
 Facts: ∆ (sub contractor) linoleum supplier submits offer to π (general contractor) for linoleum
for K, and underestimates linoleum. Π uses offer price in bid and wins bid. ∆ revokes offer prior
to being made aware of acceptance.
 No acceptance, because the offer was 1st revoked. Based on language of K, it’s allowed.
 Language shows no option K.
 PE is not allowed when there is an offer as opposed to a promise.
 Governed by UCC § 2-205
o It would be a K. If it’s in writing, then you don’t need consideration.
o If no reliance and big mistake, then D should not be bound based on Cargo Wheat case.
Because there’s reliance, the court holds them to it. You can get out if there’s a mistake
absent reliance.
Drennan v. Star Paving Co. - protects general contractor
 Rule now favors general contractors, and a general contractor can recover for reasonable
reliance on a quote. Submitting a quote creates an option K for sub. If general accepts the quote
then sub has to perform.
 ∆ (sub contractor) submits offer to π (general contractor) for paving
o Δ underestimates. π uses Δ’s quote for bid. π wins general bid
 ∆ revokes offer, saying there was no acceptance.
 Sub revoked immediately before P’s official acceptance.
 Ct. applies RST 90, PE and finds in effect that this offer was a promise to perform on
acceptance. Since elements are met, the π has a PE COA.
 The sub isn’t entirely without protection. The sub can protect himself by K-ing around the mode
of acceptance.
 If π goes around asking for other bids, then not bound.
 RST 87 expands Drennan
o RST 87: must be reasonable reliance on a promise to be recoverable.
 Damages for Drennan: expectancy (difference between cover price and bid price) with PE –
don’t just assume reliance damages
Contracts – Baradaran – Fall 2013
45
46 of 48
MAILBOX RULE
Whereby an acceptance of an offer in which mail is an acceptable mode of acceptance is effective when
deposited in the mail properly addressed and with sufficient postage affixed (unless an option K which
is not accepted until receipt).
-
Offeror is master of the offer and can decide when the acceptance will be counted as valid (Lewis
Ks around it)
If ambiguity in language it will be construed in favor of offeree - (mailbox rule is default)
Offeree cannot revoke acceptance once they have already mailed an offer regardless of the
offerors receipt (can’t go to USPS and get letter back)
Creates problem as in Adams v. Lindsell
Risk of reliance by an offeree once acceptance by mail occurs – need a dependable basis
Need to allow offeree to be able to rely
The offeror has decided to transact by mail so it’s fair to make him bear the risks
Precedent and past practice: some rules become self-perpetuating and make since only because
they’ve been around for so long
1. Big question is when mailbox rule applies.
a. Offer and acceptance both occur by letter
b. Sometimes applied to other contexts, may be hand delivered
c. Variations on rule, such as an acceptance is sent and then it’s retracted
i. Acceptance is valid as soon as it’s sent. The offeree can’t have it both ways.
2. Adams v. Lindsell
a. ∆ sends offer to π by mail for wool; misdirects mail & π doesn’t get till late. π accepts
offer, sends acceptance; by the time ∆ gets acceptance, Δ has already sold wool.
b. Acceptance occurs only upon receipt. – Not what the court says
c. Is there an effective revocation pre-acceptance? No.
i. RST 42 and 43: May revoke through someone else but it must be communicated
d. Offer acceptance is effective on posting.
3. Lewis v. Browning
a. Communicative issues
b. The K has been deemed to be completed as soon as the letter of acceptance has been put
into the post-office duly addressed.
c. Would a reasonable person view it as being acceptance on receipt?
RST § 64(b) – unless the offeror provides otherwise, acceptance under an option K is not valid until
received.
1. Corbin supports this exception
2. HOWEVER:
a. Worms v. Burgess: Option K that follows mailbox rule
i. Mailbox rule should definitely apply w/ option k’s, because the offeree has paid
consideration. Should be treated better.
d. General Rule: Acceptance is effective on posting, but in options K, it’s accepted on
receipt.
e. Disagrees with all of the authorities – RST, Corbin, Puffendor
f. 5 cases say that actual notice is needed – bound only when you get them
Contracts – Baradaran – Fall 2013
46
47 of 48
i. They’re only a slight majority that follow the rule. That’s a way to get around
problematic precedent, but it IS a majority.
g. Why aren’t RST & Corbin determinative?
i. Saying that the authority is not based on good reasons. They think the way the
authority was created is wrong.
h. Palo Alto Town and Country Village, Inc. is powerful because it is based on an
interpretation of the statute similar to one in OK.
i. Fairness arguments:
i. Reliance. Established precedent to use mailbox rule. People expect it.
ii. Offeror has chosen to use mail
j. Why the mailbox rule should apply even though the ct. doesn’t say so:
i. There’s consideration. You’ve actually already paid for this offer to remain open.
You have bought an options K.
ii. If we’re going to make them hold it open in Adams, then shouldn’t it be more so
held open here?
k. Should mailbox be ineffective here b/c the offeror specified that it’s accepted upon
receipt?
i. The language says, “Shall be notified.” The ct. doesn’t buy it. They think a
reasonable person would not read it that way.
Options k usually have option for you to respond by a future date. Trick is to determine whether it’s an
option (supported by consideration) or a promise for an offer.
Contracts – Baradaran – Fall 2013
47
48 of 48
How to tackle exam question:
Things to avoid
 Outline dump
o If you spot an issue, don’t say everything you know about the issue. Say this is PE b/c…
o Engage the facts. Don’t just list the elements, but work with the facts.
 Kitchen sink
o Identified every issue that doesn’t exist
 Go deep into the issues that she’s looking for
What to do:
 Organize the test however you want to do it
o Outline your issues
 Use headings:
 PE
 Damages
 Offer
o Just start writing
o It can be bullets, don’t worry about transitions.
o Give points on the issues
 If obviously talking about breach, don’t go into consideration
o If we’re past K formation, don’t go into that.
 Don’t recite facts – cite a case. This is a shorthand.
o If you can’t remember, then say “the rule is…”
o You can say “As in Clark v. Marsiglia…”
 Sometimes a rule needs further explaining
o She’s going to try to squeeze between 2 cases
o This looks a little bit like X…., but also like…
o Sometimes there’s no good explanation of why the cases differ. Say that. Highlight where
they fall between 2 cases – that’s where the points are at.
Contracts – Baradaran – Fall 2013
48