Contracts OutlinePrinciples of Damages

The Expectations Damages Principle Hawkins v. McGee (2)

o Doctor contracts with his patient, guaranteeing a “100 % perfect hand or 100% good hand,” and patient ended up a crippled hairy hand.

o Rule: “As a general rule, the measure of the vendee’s damages is the difference between the value of the goods as they would have been if the warranty as to quality had been true, and the actual value at the time of the sale, including gains prevented and losses sustained, and such other damages as could be reasonable anticipated by the parties as likely to be caused by the vendor’s failure to keep his agreement and could not by reasonable care on the part of the vendee be avoided.”

o Holding: Damages are the difference in value between a good hand, and the value of hand in the present condition.

Groves v. John Wunder Co. (9)o Groves leases land to John Wunder for gravel removal, and part of the contract

requires the defendant to “leave the property at substantially the same grade as the roadway. Wunder completes the contract but refuses to level, because it would cost $60,000 to level the land, but the land would only be worth $12,160 leveled. What damages?

o Rule: “Defendants here are liable to the plaintiff for the reasonable cost of what defendants promised to do and have willfully declined to do.”

o DISSENT: Groves is receiving 500% more than the property would be worth. This is distinct from the case in which someone is building a structure. The only thing he would have gotten from leveling the land is its market value, so why pay him more.

o Baird prefers the reasoning in the dissent. Subjective value is not a workable metric, because there is no way to independently measure plaintiff’s subjective value. The ceiling on value would be the cost of leveling the land. Dude, this was a gravel pit, likely to low subjective value.

Peevyhouse v. Garland Coal and Mining Co.(16)o Peevyhouse’s leased 60 acres of their 120 acre farm to Garland for coal mining

for five years. The lease expressly provided that defendant would fill all pits and smooth the surfaces before they left. They didn’t. Cost of leveling $29,000. Additional value to land from leveling: $300. What damages?

o Rule: You cannot get more than the value of your land. When cost of repair is disproportionate to value produced, you don’t have to pay.

o Note: Advanced, Inc. v. Wilks Court invoked Restatement Second to sustain a cost of repair figure higher

than market value. Owner may use the damage award for its intended purpose, because he

wants his house or for aesthetic values. This solves the problem of the breach of a contract to build an ugly fountain, decreasing value. We determine this by evaluate the circumstances.

Restatement Second on damages, page 21 Acme Mills and Elevator Co. v. Johnson (21)

o Johnson contracts to sell wheat to Acme mills. Threshes wheat on the 25th of July. At the time fixed for delivery, Acme Mills had suspended business and couldn’t pay. The contracted to pay $1.03 a bushel. Before the date of delivery Johnson sells wheat for $1.16. At the time he was supposed to deliver to Acme, the spot price was $0.975/bushel. Acme mills thus saved 5.5 cents per bushel. Damages?

o Rule: No damages, because Acme mills didn’t actually lose money as a result of the breach. They do, however, get the value of the sacks that they provided ($80).

Laurin v. DeCarolis Constr. Co., Inc. (24)o P’s purchase a wooded lot on which a house is under construction. During the

construction, but prior to the closing, defendants removed gravel without plaintiff’s approval. P sought damages for the removal of the gravel $6480. Value of land is substantially the same post removal.

o Rule: Diminution in value of land is not always the best standard because, as in this case, things with independent value can removed without significantly affecting market value. (Recovery should not include value added by defendants labor, which P’s did not contract for.)

o Baird: Like removing a Dixie cup of water from a swimming pool. Easier to measure the size of the Dixie cup than the diminution of water in the pool.

o Punitive damages only rarely awarded, generally for particularly dick moves.o Note: Paiz v. State Farm Fire and Cas. Co.

Recovery should not depend on the manner in which the contract was breached, and the non-breaching party should not be able to extract an extra bonus from a breach with a high degree of fault.

Missouri Furnace Co. v. Cochran (28)o Cochran breaches a forward contract to sell a large amount of coke to Missouri

Furnace at $1.20 a ton. They were short about 30,000 tons, and rescinded the contract. Plaintiff made a new forward contract at $4.00, the market rate at the time. P wants to recover the difference between original contract price and the new contract price. After February 27th, the price returns to about $1.30

o Rule: Plaintiff should get the difference and value between the spot market on the several dates that coal was to be delivered and the original, not the difference between the new contract and the old contract.

Neri v. Retail Marine Corp. (33)o P contract to buy a new boat for $12,587, pay $40 deposit, shortly after increase

to $4250, in consideration of the dealer’s agreement to arrange for immediate delivery. Six days after the contract plaintiff’s lawyer sends a letter to defendant rescinding sales contract. Boat had been ordered and was delivered before the letter was received. Defendant refuses to return deposit, P sues, D countersues for breach. Boat was sold 4 months later for the same price. D argues but for the breach, they would have sold two boats for a profit of $2579. $600 dollars in storage and upkeep. Attorney’s fees of $1250. What damages?

o UCC §2-710: (1) Measure of damages for breach is different from market place at time and place for tender and unpaid contract price plus incidental damages.

UCC §2-710: (2) If these damages are inadequate, then lost profits plus incidental damages.

o Holding: It is evident that this retail seller is entitled to his profit, because he lost a sale.

o Baird says that the wholesale-retail differential (aka lost profits) is the cap on damages, and represents the cost of finding another purchaser (it takes a lot of schmoozing to sell a boat.)

o UCC §2-708 and §2-710 provide measures of damages for sales (37-8) Illinois Central R.R. Co. v. Crail (38)

o Crail is a coal dealer who purchased 88,700 lbs of coal from Illinois Central. On arrival, the delivery was short 5500 lbs. It was intended to be added to stock of coal for resale, shortage did not interfere with resale, and Crail purchased no coal to replace the shortage. Before and after this purchase, he purchased coal of like quality at $5.50 a ton, market price in MN was $13 a ton. Retail price includes costs he did not incur, and profits that he did not earn. P argues that the damages should be the cost of replacement at the time of shortage at retail value.

o Rule: Common law remedy should only provide recovery for the injury suffered. In these circumstances the market cost was not the measure of the loss, because it was able to be replaced at wholesale.

Louise Caroline Nursing Home Inc. v. Dix Construction Corp.o Partway through construction Dix stopped building without justification. Auditor

found that Nursing Home suffered no damages because the cost to complete was less than the contract price minus what had already been paid. P appealed, claiming it was entitled to value of completed building minus value of existing building.

o Court denies, because the plaintiff is entitled to what makes them whole, and no more. Furthermore, in failure-to-complete cases damages are limited to cost of completing and or repairing.

Watt v. Nevada Central R.R. Co.o D’s locomotive, negligently operated, set fire to a haystack and press on

plaintiff’s ranch. Hay had been stored as reserve feed for cattle in the event of a recurrence of a severe winter that caused loss of $100,000 for a plaintiff. P testifies that ½ of the cattle could have been saved with the quantity of hay, testified that he had no other use for the hay, and has not used it for four years. No market for hay nearer than 37 miles away.

o Hay was worth $10-12 a ton in Austin. Cost of bailing was $2 a ton, and transportation was $6.50 a ton. Trial judge gives plaintiff a judgment at $10 a ton. P appeals, judgment reversed, new judgment entered at $3.50 a ton (Austin price minus transportation and bailing costs.) $80 for the hay press, $30 for transporting hay press.

Reliance Chicago Coliseum Club v. Dempsey (43)

o Dempsey contracted to fight. He was to receive $10, and P agreed to pay Dempsey $300,000 on Aug. 5 1926, $500,000 in cash at least 10 days before the date fixed for the fight, and 50% of net profits over $2 million. D was to receive 50% of motion picture revenue. D agreed to have life and health insured for the

plaintiff. D also agreed not to engage in any boxing matches between the deal and the fight. March 6, 1926 P enters into a contract with Harry Wills to fight Dempsey. On March 8, 1926, P enters into contract with Wiesberg, a boxing promoter, and they incur expenses for travelling and legal services.

o In July, P wired Dempsey in Colorado saying that the insurance people were going to come look at him. He wires back saying no contract. Court says there was a contract. P asks for lost profits, expenses prior to signing, expenses in attempting to restrain D, and expenses incurred after the signing of the agreement and before the breach. P claims the match would have brought in $3 million, and net profit would be 1.6 million. What damages?

o Holding: Chicago Coliseum Club gets none of the damages from before the signing of the contract and no lost profits. Chicago Coliseum Club can recover damages between signing and breach however.

o Baird: Reliance damages function best as a proxy for expectations damages, but just a proxy. A successful promoter must recover the preparation costs from the receipts from the fight, so the money spent prior to contract should be recoverable in expectations.

o Baird: Reliance damages are problematic for 3 reasons: Reliance is hard to measure. Reliance creates bad incentives for promisee – if you get reliance

damages, you have an incentive to incur costs before breach. It leads the promisor to break promises too often because reliance is:

Systematically undercompensatory. Not effective at getting the promisor to take into account the

interests of and costs to the promisee when breaching. Security Stove & Mfg. Co. v. American Ry. Express Co. (48)

o Security Stove contracts with American Ry. for delivery of a prototype oil/gas burner. Security Stove needs it on the 8th, Am. Ry. says they need it on the 4th. P delivers on the 2nd. All but one of the parts are shipped. Missing part was the most important. P sues for $147 (the shipping charge), $45.12 (the return shipment), $101.39 (RR fare for P’s president and employees), $48 in hotel costs, $150 for presidents time, $40 for wages, and $270 for the booth rental. Judgment for P affirmed on appeal.

o Rule: Railway Company had noticed and agreed to deliver. There was reliance on the contract. No profits asked for. In this case the methods of estimating the damages should be reliance, because that is easiest. The damages were suffered in contemplation of defendants performing his contract.

Anglia Television Limited v. Reed (51)o Anglia makes arrangement to produce a play for television. Anglia occurs

expenses before picking their lead actor, Reed. Contract is made on August 30 1968. On September 3, agent calls and says there is a mistake, and Reed is booked in the US during the period. Anglia fails to find a substitute and abandons the project. Sought to recover 2750 pounds in expenditures, all of which except 854.65 pounds had been incurred before contract was made. D says only 854.65 can be recovered. Judgment for the full 2750 pounds.

o Holding: Anglia can recover the full 2750, because defendant must have known that they had spent substantial sums prior to contract that would be wasted if he breached.

o Restatement Second, § 349, Damages based on reliance interests (52): Basically says that reliance damages exist as an alternative to expectations.

L. Albert & Sons v. Armstrong Rubber Co. (52)o Learned Hand!o Albert is seller, Armstrong is buyer. Albert is trying to recover the cost of 4

rubber refiners, used in recycling rubber. Delay of delivery results in Armstrong refusing to pay for 2 of 4 rubber refiners.

o Buyer attempts to recover expenses which it occurred in reliance upon seller’s promises including costs of setting up the department, buying rubber scraps, and building a foundation.

o Held: Expense of the foundation was a part of the contract. The promisee may recover his outlay in preparation for the performance, subject to the privilege of the promisor to reduce it by as much as he can show the promisee would have lost, if the contract had been performed.

o This is essentially Restatement Second § 349 again. Mt. Pleasant Stable Co. v. Steinberg (54)

o Parties contract for P to furnish single and double teams to defendants trucking. Parties operate under contract, defendant breaches. At time of breach, contract had 450 days left, and D’s were using an average 4.5 teams a day. Total profits expected: $2,025. P purchased two horses at $625 for D’s use, and sold them for a loss of $140.

o P’s are entitled to the profits, but not entitled to recover on the loss of the sale of two horses, because you get lost profits or reliance, but not both.

o Theory (55): Expectations damages are best because they force the promisor to internalize the costs of breach,

Mitigation and Other Limits on Damages Rockingham County v. Luten Bridge Co. (60)

o Luten bridge sues to recover sum due under contract for bridge construction. Town votes later to rescind the contract and tell them to stop building the bridge. Luten Bridge Co. keeps building. Luten Bridge claims full damages and profits.

o Rule: Luten bridge had a duty to mitigate, and so can only recover pre-breach expenses and profits. Cannot pile on damages by continuing to erect a useless bridge. They get labor, materials and expenses pre-breach, plus profits that would have been realized had the contract been carried out.

Leingang v. City of Mandan Weed Board (63)o Awards contract to Leingang to cut weeds on municipal lots of more than 10,000

sq. ft. Another contractor has the contract for smaller lots. Leingang sues when he finds that some of the large lots had been assigned to the small lot contractor. City admits contract price was $1,933 and should have gone to Leingang. Leingang says damages should be $1,722 dollars, which is price minus expenses. City argues that only net profits are recoverable, and that in calculating overhead expenses should be subtracted.

o Held: Party should be able to cover expenditures and anticipated profits. Profits determined by reducing contract price by cost to perform, but not overhead expenses. P is compensated for overhead by recovering contract price minus expenses.

Kearsarge Computer Inc. v. Acme Staple Co. (64)o Held: Fixed costs are not deducted from contract price when determining

damages. Parker v. Twentieth Century-Fox Film Corp. (66)

o Shirley MacLaine case.o P contracts to make the musical movie “Bloomer Girl” for $750,000 to begin

filming in May 1966. D notifies that film will not be produced in April ’66 and offers P a role in the drama “Big Country, Big Man” for the same compensation and 31 of 34 of the special provisions in the original contract. P refuses and sues. D argues P had a duty to mitigate. Court finds that the Big Country offer was both different and inferior, so P’s refusal to take it cannot be applied to mitigation of damages. Ruling for P affirmed.

o Rule: measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, minus the amount which the employer proves the employee has earned or might have earned from other employment.

o Held: P is excused from attempting to mitigate damages when the second offer is for different work with different contract terms.

Billetter v. Posell (71)o D employs P to work in store from July 1, 1946 to June 30, 1947 as “floor lady

and designer” for $75 a week plus $500 bonus. During Christmas holidays defendant notifies P that they are employing another designer, and will be moving her to another floor lady job at $55 a week (later raised to $60). P refuses and sues for salary and $300 in unpaid bonus.

o Held: Judgment for Plaintiff affirmed, D’s not entitled to deduct unemployment benefits nor are they entitled to credit for $60 a week they offered to pay her. An employee is not obligated to perform the same work for less pay in mitigation.

o Some dispute over whether or not to count unemployment benefits, see Coral v. Huron Castings Inc. (72), but see Seibel v. Liberty Homes, Inc.

Hadley v. Baxendale (74)o P’s millshaft fractured, and he ordered a new one. They send it via canal, rather

than rail, resulting in a delay in delivery, which resulted in a loss of profits for the mill. Jury found a verdict for the P.

o Rule: Special circumstances not known to both parties cannot be used in damages. If a party lets the other side know about the special circumstances, then the breaching party is liable.

o In a prior case, Black v. Baxendale, judges held that the jury was entitled to determine what costs to P were reasonable.

Globe Refining Co. v. Landa Cotton Oil Co. (77)o Holmes opinion. No longer good law.

o Contract for oil. Shipping contracted for late August and early September. P sent its cars 1,000 miles to pick up oil at a cost of $1000. After P sent the cars, D breached the contract. P says it resulted in a loss of $2000 (sending trains both ways) and they lost the use of their tanks for 30 days, which cost $700. P also could not furnish oils to their customers, which the D knew would be at issue if they did not stick to the deal. Was known to the defendant that P would have to send tanks at great expense and would have to pay additional freight. None of these items were included in the words of the bargain.

o Rule: Damages can be paid on consequences that are within the contemplation of the parties. “The extent of liability in such cases is likely to be within his contemplation and wheter it is or not should be worked out on terms which it fairly may be presumed he would have assented to if they had been presented to his mind. …Mere notice to a seller of some interest or probable action of the buyer is not enough necessarily and as a matter of law to charge the seller on that account with special damages if he fails to deliver the goods.”

Lamkins v. International Harvester Co. (81)o Sale of farm tractor. Buyer told seller he wanted lighting equipment. Tractor is

delivered without lighting equipment, which is never supplied. Buyer claims damages for crop loss.

o Held: Dealer did not make an express contract, nor did they tacitly consent to be bound for more than ordinary damages.

Victoria Laundry (Windsor Ltd.) v. Newman Industries Ltd. (82)o P’s contracted in April 1946 to purchase a large boiler from D. P’s expressed

intention to put boiler into use ASAP. Parties arranged for delivery on June 5, but on June 1 an accidental fall damages boiler, and P’s refuse to accept. D is unable to deliver until Nov. 8. D’s knew that P’s wanted boiler for business use.

o Held: P can recover for loss of profits from June 5 to Nov. 8, but not for profits that P could have made on particularly lucrative dyeing contracts, as defendants had not been specifically told. Only reasonably foreseeable damages, given the knowledge of the parties.

In Heron II (83)o D contracts with P to carry P’s 3000 tons of sugar to Basra. P intended to sell the

sugar, but D did not know it. Voyage would typically take 20 days. Vessels stop at 3 other ports, but was 9 days late. In the interval, a large amount of sugar arrives from Formosa, causing a drop in the market place. P loses approx. 4000 pounds on the deal. Judgment for P based on Hadley, but none of the judges are sure why exactly.

Hector Martinez & Co. v. Southern Pacific Transport Co. (84)o D was a month late in delivering a drag line which shipper intended to use in strip

mining. Sued for rental value of drag line during the delay. Trial court dismissed on Hadley but is reversed.

o Held: Hadley rests on the belief that absent notice, the shaft is not essential to the mill. In this case, it is clear that the drag line itself has use value. It is foreseeable that a loss of rental value will occur during the delay period. P need not show the harm suffered was the most foreseeable of all harms, but rather that it was not so remote as to make it unforeseeable.

o Prutch v. Ford Motor Co. (84) Claim by farmers for defective equipment. CO law authorizes

consequential damages for any loss that is resulting from general or particular requirements that the seller knows or had reason to know about, and could not be reasonably prevented. Rejects the “tacit agreement” test. Foreseeability is not the same as actually foreseen.

Valentine v. General American Credit Inc. (87)o Valentine seeks to recover mental distress damages on a breach of employment

contract. Trial court dismisses and is affirmed. Valentine sues for job security and peace of mind. Absent a contractual provision, an employer or employee can terminate a contract at any time for any reason.

o Rule: Absent allegations and proof of tortious conduct existing independent of the breach exemplary (punitive) damages may not be awarded in common law actions brought for the breach of a commercial contract.

Hancock v. Northcutt (89)o Breach of a house construction contract is not so highly laden with emotions as

contracts where recovery for emotional damages has been allowed.o Restatement Second § 353 says no recovery for emotional damages unless the

breach also caused bodily harm or the breach is of a kind that serious emotional disturbance is a particularly likely result.

Mindgames, Inc. v. Western Publishing Co. (91)o Posner! Making up Arkansas law.o Mindgames formed to sell “Clever Endeavor.” Mindgames licensed the game to

Western, who marketed “Trivial Pursuit.” Western sold 165,000 copies in the first year, but after that, sales fell precipitously. The parties continued under the contract until Jan. 31 1994, despite the fact that Western did not pay the $900,000 it was obligated to continue the contract. Mindgames claimed Western did not promote the game according to the contract, costing them $40 million in royalties. Only question that matters is the lost profits.

o Held: Posner rejects the new business rule, that “anticipated profits of the new business are too remote, speculative, and uncertain to support a judgment for their loss.” Despite this, no damages to Mindgames, because they provided no evidence as to how lost royalties would be calculated.

Freund v. Washington Square Press, Inc. (97)o P contracts with D to publish his book. D was to pay $2000 advance plus

royalties. D agreed to publish a hardbound edition if it didn’t terminate within 60 days. D pays advance but merges and no longer publishes hardbound books and refuses to publish. P sues seeking damages and specific performance. Trial court denies specific performance but says there are 3 possible damage categories. 1) Delay in academic promotion, 2) loss of royalties, 3) cost of self-publications. Trial court said entitled to cost of self-publishing ($10,000).

o Held: Plaintiff can only recover nominal damages, because the contract for royalties of sale, not for the books themselves. Royalties were not ascertained with certainty, so award should be reduced.

Fera v. Village Plaza, Inc. (97)

o P signs 10-year lease for a “book and bottle” shop for $1000/mo plus a percentage of annual receipts over $240,000. P’s space was given to another tenant. D’s offer alternative space but refuses. Jury awards P $200,000 damages for lost profits. Intermediate appellate court overturns, saying no lost profits because no proof of profitability.

o Held: P can recover lost profits, because they provided a reasonable basis for estimating the harm, and the jury weighed conflicting testimony to award damages.

Restitution Boone v. Coe (99)

o P were farmers who made a verbal contract with D to rent his farm in Texas for 12 months. D agreed that if Ps would leave home in Kentucky for Texas, he would have a home built for them on his farm and furnish necessary materials for farming. Ps were to cultivate and would receive a percentage of the crops raised. Ps move to Texas, which takes 55 days. They get to Texas but there is no house and no materials for building a barn. D refused to permit Ps to occupy the house and doesn’t let them cultivate the land. They go back to Kentucky (and get there in 4 days.) P’s claim damages of 1387.80 in damages, including claims for travel, lost time, transportation home, and the loss of home in KY.

o Holding: Statute of frauds prohibit recovery of damages on a lease contract longer than one year that is not in writing. Neither exception (Right to a reasonable recovery when a legacy promised by a dying person and right to recover purchase money and value of improvements on land purchased on a parol contract in violation.) applies.

o Holding, continued: Defendant received no benefit, so he has no obligation to pay. Contract was illegal, D had no legal requirement to carry it out.

o Statute of frauds: Contracts for sale of land, sale of goods exceeding a specified amount, promises to answer for another’s debt, contracts “not to be performed within one year,” and contracts in consideration of marriage must be in writing.

US v. Algernon Blair, Inc. (102)o Can a sub recover in quantum meruit after ceasing work because of a prime

contractor’s breach? Coastal Steel Erectors, Inc sued Algernon Blair in the name of the US. Blair contracted with Coastal to perform erections and supply certain equipment. Coastal commences and supplies cranes. Blair refused to make payments for crane rental, so Coastal terminates performance. Blair completes with a new contractor. Coastal sues. Lower court denies $37,000 recovery because they would have lost in excess of $37,000 by completing the contract.

o Held: Blair retained benefits of Coastal’s labor and rented cranes, and therefore must pay in quantum meruit, which allows them to recover for providing a service which Blair benefitted from but didn’t pay for. The standard for measuring the reasonable value of the services rendered is the amount for which such services could have been purchased from on in the plaintiff’s position at the time and place the services were rendered.

Kearns v. Andree (105)o P owned land on which stood a house then under construction. P sold for $8,500

of which $4,000 was to be paid in cash, and $4,500 was to be in mortgage. D

wanted the house to be finished with things of his choosing. P does this, and D refuses to buy. P sells to another buyer for $8250. P sues to recover expenses incurred in finishing for defendant, repapering and refinishing expenses for second purchaser, and the difference between contract and resale prices.

o Held: The written contract was fatally indefinite as to the mortgage the defendant was to assume, and therefore wholly unenforceable. P can only recover for the expenses in finishing for the defendant, because they were undertaken in good faith on an oral agreement.

o Frash v. Sykes Datatronics, Inc. P claims parties entered into an oral agreement where D would P’s

building for two years. P was to modify the building and complete renovations. P completed modifications but no agreement was never signed and D refused to occupy. P’s suit dismissed by appellate division for failure to state a cause of action.

Held: Claim to enforce oral lease barred by statute of frauds, but can recover for value of work performed in reliance on statements buy and at the request of the defendant. P may recover for the efforts that were at his detriment.

Oliver v. Campbell (108)o P agreed to represent D in a divorce action for a fee $850. Trial lasts 29 days.

After the trial, court indicates intention to give a divorce, but before courts finding was find, defendant dismissed the plaintiff and represented himself. The reasonable value of P’s services was found to be $5000

o Held: P can only recover $300, the unpaid balance of $850. Where an employment contract is terminated by wrongful discharge the terms of the contract are not a limit on recovery. However, in this case, the P had in effect performed, and is therefore limited to the contract price.

o Noyes v. Pugin (109) P had only partly performed when D breached. Court won’t give plaintiff

more compensation for labor actually performed than he would have received for the same services under contract. Contract law is to make whole, not indemnify against all damages.

o Clark-Fitzpatrick Inc. v. Long Island Railroad Co. (109) Contractor sues Railroad alleging breach, fraud, and negligence. Sue for

breach and quasi-contract. Held: Existence of a contract means court won’t enforce a quasi-contract

on the issue. Stark v. Parker (115)

o P contracts with D to work on D’s farm for a year, for $120. Before P leaves, D had paid P $36 dollars. P sues for quantum meruit. Lower court grants quantum meruit for the plaintiff.

o Held: The contract was conditioned on one year of service, and without fulfilling the complete contract P has not satisfied the condition, and is therefore not entitled to anything. Had the breach been on the Defendant’s part, P could recover.

Britton v. Turner (118)

o P agrees to work on D’s farm for one year. P is to work for $120. P works for 9.5 months and then quits. Sues in assumpsit for quantum meruit, asserting that the worth of the work was $100. Defendant claims work was done on a special contract that was unfulfilled. D offers no evidence of damages. Trial judge says P was entitled to recover what his labor was reasonably worth, jury awards $95. D appeals.

o Held: The rule in Stark v. Parker is unjust. When you confer benefit on someone, even if it is not to completion of the contract, you deserve compensation for your work. To do otherwise would be to subject the laborer to a loss of all that he has performed.

o Baird: This is just the default rule, you can contract around it or prove damages. Also, this idea will become important later – what happens when a builder builds a house where the living room is one foot to small. Clearly he doesn’t just lose rights to get paid, and it is too expensive to reasonably repair. He just gets less than the full payment.

Thach v. Durham (122)o Sale of sheep from which a defaulting buyer sought restitution of $3100 down

payment. Court rejects Williston’s argument that the seller should return the portion of the down payment that exceeds the damages, because it is difficult to determine. No recovery of downpayment.

Penalty Clauses and Liquidated Damages Muldoon v. Lynch (136)

o P was to furnish a headstone for the D. The amount to be paid was $18,788 (in 1885). Is this a penalty clause or liquidated damages. Some to be paid in installments with approx $11,000 on completion. Work must be completed in 4 months, with a forfeiture of $10 per day for each day beyond the stated time. Monument was delayed two years. P claims D owes the balance and the $10 a day was a penalty, P claims they owe the balance minus the forfeiture, as the $10 fee is liquidated damages.

o Held: It is a penalty clause, and therefore unenforceable, damages are to be purely compensatory.

o Policy issues: We ban penalty clauses because they make people hope for breach, so they can get huge damages. They also encourage people to act in irrational ways, like spending lots of money to ship marble when it doesn’t make a difference to anyone. Maybe we want penalty clauses, because people can use them to show reliability, especially for a small or unknown competitor. Plus, they provide a way to measure subjective damages that can be hard to show after the fact.

o Pacheco v. Scoblionko (135) P pays D in advance for summer camp, paying full charge of 3100.

Contract states that the $500 deposit will be refunded if cancellation is received before February 1. If refund request is received on or after Feb 1 and prior to May 1, no refund of the deposit, if request is received after May 1, entire sum paid is forfeited. Any sum retained is “liquidated damages.” P cancels on June 14th. Sues.

Test of enforceability is two pronged: 1) whether damages are difficult to estimate accurately and 2) whether the amount is a reasonable forecast.

Holding: Penalty clause, because D did not show damages, and the amount forfeited is excessive compared to the contract price.

Yockey v. Horn (138)o Two former business partners enter into a settlement to resolve disputes arising

from their failed relationship. Settlement includes a promise by Horn not to participate in any litigation against Yockey, as well as a clause fixing damages at $50,000 for breach. A few months later Horn contacts Schrock, who is a current business acquaintance of Yockey. Schrock sues Yockey for fraud and securities violations and wins. Horn gives a deposition not under subpoena. Yockey sues Horn for breach. Trial court awards Yockey $50,000.

o Held: $50,000 are reasonable liquidated damages.o UCC says liquidated damages are OK so long as they are reasonable.

Samson Sales Inc. v. Honeywell Inc. (147)o Burglar alarm case. P contracts with Morse Signal for a burglar alarm, pay $1500

for installation and $150 a month for 5 years. They get burgled, and defendant refuses to pay more than $50. P sues for $68,303, the value of the lost merchandise. P alleges negligence and breach of contract. D invokes contract provision which states that D is not an insurer, and the agreement in no way binds the D as an insurer, and all charges are based solely on value of service, maintenance and installation, and in event of failure liability is limited to $50 of liquidated damages. Lower court awards $50, appellate reverses, appealed to SC.

o Held: Reasonable compensation for actual damages is a legitimate objective of liquidated damages provisions, and where the amount specified is inequitable, courts ordinarily regard it as a penalty, and therefore unenforceable. In this case, damages are estimable, and $50 damages is disproportionate to consideration paid to defendant.

o Test for liquated damages: If damages would be 1) uncertain in amount and difficult to prove, 2) contract as a whole is not unreasonable and disproportionate in amount to suggest it is not the true intention of the parties, and 3) the contract is consistent with the conclusion that it was the intention of the parties that damages in the amount stated should follow a breach.

Specific Performance Van Wagner Advertising Corp. v. S & M Enterprises (153)

o Specific performance to lease a billboard space is adequately denied when damages will compensate. Original owner leases to P for 3 years plus option totaling 7 years space on a wall for purposes of a billboard. Van Wagner puts up a sign in early 1982, and leased it to a third party for 3 years. However, in January ‘82 building was sold to D (S&M). D cancels the lease in August 19 with two months notice. There is a clause that allows them to terminate the lease with 60 days notice in the event of a sale. Van Wagner claims the lease only grants the right to the owner, not to the new purchaser, so that the original owner would not have the property encumbered by the lease. Trial says Van Wagner is correct, but they can only get damages. Court awards lost revenues on the sublease. Appealed.

o Rule: Specific performance is at the discretion of the trial court. Not awarded when damages will compensate. When value is uncertain, or there are unique values that cannot be fixed in money, specific performance is available.

Curtice Bros. v. Catts (156)o Tomatoes case!o P owns canning plant, sues for specific performance, as D contracted to sell his

entire tomato crop. o Rule: Where no adequate remedy at law exists, specific performance of a contract

touching the sale of personal property will be decreed with the same freedom as a contract for the sale of land.

o Holding: Specific performance because of the inability to procure at any price at the time the quantity necessary to ensure successful operation.

o Hard to measure expectation damages in output cases, because we can’t really measure the output of the fields from year to year reliably in advance.

o Restatement Second § 360 (162): To determine if damages would be adequate, following circumstances are

significant: a) the difficulty of proving damages with reasonable certainty, b) difficulty procuring suitable substitute performance by means of money, c) likelihood that an award of damages can be collected.

Paloukos v. Intermountain Chevrolet Co. (162)o P paid $120 deposit, and signed an agreement to purchase a pick-up for $3650.

Truck was to be ordered from manufacturer. Defendant returned deposit 5 months later, says it can’t deliver because of product shortage.

o Holding: Dismissal for claim of specific performance is proper. Where goods are unique or in other special circumstance, specific performance is not available. Courts will not order impossible, such as ordering the seller to sell to the buyer that what the seller does not have.

Lumley v. Wagner (174)o P runs an opera company, and contracted with D to sing for a season. 3rd party

persuades D to break contract and sing for him instead. Lumley sues, in an attempt to prevent Wagner for singing for his competitor.

o Held: The court cannot compel her to sing, so the court grants an injunction preventing Wagner from performing at any company other Lumley’s.

Pingley v. Brunson (175)o D enters into a contract to play the organ for P’s restaurant at $50/week for 3

nights a week for 3 years. Contract states that P was to purchase musical instruments for $4260 for D to use. Monthly payments for the instruments would be deducted from D’s paychecks. D gets them when paid off, but breach results in forfeiture of claimed instruments. D plays 10 times, then refuses to perform further. P sues for and was awarded both specific performance and an injunction.

o Held: Reversed. Equity courts will not ordinarily decree specific performance in this kind of case, especially when there are personal services over a period of time. There is an exception when the performer has extraordinary skill or an area of expertise, but there are many other organists of comparable ability to be hired.

ABC v. Wolf (176)

o Employee promises not to compete. Only if explicity promises not to compete in the contract is injunctive relief available. Even when it is explicitly in the contract, it will be rigorously examined and specifically enforced if it meets certain requirements. Specifically: To protect trade secrets, customer lists, good will, or other specific harms.

Fullerton Lumber Co. v. Torborg (177)o P has a lumber yard, hires D as manager. Torborg signs an employment contract

that if he is no longer employed, he won’t work anywhere else handling lumber or building at retail within fifteen miles of any town where he was employed by plaintiff for ten years. (They were afraid he had assimilated their customer list.) Torborg quits in 1953, and sets up his own yard. P sues.

o Held: The time limit is excessive, so it was an illegal restraint of trade. Under earlier Wisconsin decisions, clauses with unreasonable restraint of trade are wholly void. SC suggests that the evidence would support a finding that the time reasonable for plaintiffs protection would be a minimum of 3 years.

Identifying Enforceable Promises

Unenforceable Promises Congregation Kadimah Toras-Moshe v. DeLeo (194)

o P sues to enforce oral promise from an estate for $25,000. Superior court dismissed, this is affirmed. Decedent makes oral promise for $25,000 for a library, never made in writing, and he dies without a will. Trial court says it is a gratuitous pledge with no consideration. D argues that there was consideration, or barring that, reliance. An expectation is not reliance. He may have had a moral obligation, but no legal obligation.

o Held: They don’t get anything, no consideration, no reliance, no will.o Policy: This case can be seen as part of a policy promoting wills.

Pitts v. McGraw-Edison Co. (196)o P sold D’s products on commission for 25 years, no contract. For 5 years after P

quit, D paid P 1% commission on all sales in P’s territory. Payments stop in 1960, P sues for breach of retirement contract. P wanted to show agreement before retirement that if he would turn over customer records, he would be paid a 1% commission. D claims no retirement for one who is not an employee.

o Held: Even if there is a promise that can be found, there remains a question of what passed from plaintiff to make the promise enforceable. Turning over customer records does not count as consideration.

In Re Bayshore Yacht and Tennis Club Condominium Ass’n. Inc. (197)o P buys three penthouse units, and the elevator stops on the 10th floor. After

buying, she asks Bayshore to extend the elevator to the 11th floor. According to P, D said they’d provide access at no expense to P. It never happened.

o Held: Court rejects the claim, saying a gratuitous promise of a future gift lacks consideration and is unenforceable.

The Bargained For Exchange Hamer v. Sidway (201)

o Uncles promises his nephew $5000 if he doesn’t drink, smoke, swear or play cards or billiards until he is 21. Nephew performs. Uncle sends him a letter after he turns 21 acknowledging performance, and promises that he will get his as soon as he is able to take care of it. Uncles estate doesn’t pay, he sues. D says no consideration, because the Nephew benefitted both from not being dissolute and from receiving the money.

o Held: Consideration requires an abandonment of a legal right or limits his legal freedom of action in the future as an inducement for the promise of the first. Nephew abandons legal right to smoke, drink, etc.

Earle v. Angell (204)o Aunt promises nephew $500 to go to her funeral. He made the promise and

attended the funeral. Mary left a paper in a sealed envelope reading “If P comes to my funeral, executor should pay $500.” P can recover, as there was a promise given for a promise. A contract to give money after one’s own death is not invalid, and coming to a funeral is valid consideration.

Whitten v. Greeley-Shaw (204)o Parties engaged in an intermittent extra-marital. Woman makes man sign a

contract that included a payment of $500/mo, visits and phonecalls at certain intervals, trips and jewelry, with no conditions explicitly on defendant, but she agreed not to call his home. Also P loaned D $64,000 to buy a home.

o Held: Legally unenforceable. D’s promised not to call without permission could serve as consideration, but such promise must be sought after by P, and there is no evidence of this.

Restatement Second § 71: Requirements for Consideration/Exchange (206) Fisher v. Union Trust Co. (207)

o Bertha Fischer presented a claim against William Fischer for damages for breach of covenant in a deed. D conveyed property to P, his incompetent daughter, and agrees to pay two mortgages on the land. He dies and doesn’t pay the mortgage, she sues.

o The only real consideration was his love for his daughter, which is legally insufficient to compel performance. There has to be an actual bargain, the ritual of consideration (in this case passing a dollar from daughter to father) is not in of itself sufficient.

Sharon v. Sharon (210)o D promised to pay Miss Hill $250/month in 1883. D claims that he made the deal

on consideration that she would cease irritating him. D denies consideration. Held: He said consideration before he denied it. Judgment for P.

Promises Grounded in the Past Mills v. Wyman (218)

o P sues for compensation for sums spend nursing the son of D. D’s son comes back from a sea voyage, poor and sick, and P takes care. After P takes son in, D writes letter promising to pay expenses. The promise in this case appears to be made without consideration, and services bestowed on the son were not upon request.

o Held: A moral obligation is not a legal obligation. Webb v. McGowin (223)

o P stops a log from hitting D, which results in P being crippled. D promises to pay P $15/2 weeks for the rest of P’s life. D pays until he dies. P sues estate when the estate stops paying.

o Where the promisee cares for or improves the property of the promisor, even without his request it is sufficient consideration for promisor’s promise to pay, because of the material benefit received. Life and preservation of body has material pecuniary values, so when McGowin agrees to pay it is a valid contract.

Harrington v. Taylor (227)o D assaulted his wife, took refuge in P’s house. D goes home the next day,

resumes attack, his wife is about to hit him in the head with an axe when P catches her hand and his hand is badly mutilated. D promises to pay plaintiff her damages. D pays a small sum and won’t pay anymore.

o Held: Facts fail to allege a cause of action, a humanitarian act, voluntarily performed, is not consideration.

Goldstick v. ICM Realty:o Posner!o Person who confers benefits gratuitously attains no legal claim for compensation.

Restatement Second § 86: Promise for Benefit Received (229)o A promise made in recognition of a benefit previously received is binding to the

extent necessary to prevent injustice.o A promise is not binding under subsection 1 if

A) The promisee conferred benefit as a gift or the promisor has otherwise not been unjustly enriched.

B) To the extent that its value is disproportionate to the benefit. Edson v. Poppe (231)

o P drills a 250-foot well at request of tenant of D. P says value was $250, and that after well completed, D promised to pay. P recovered in jury verdict. Held: Judgment affirmed because it was a direct benefit to land and D promised to pay, not gratuitous or an act of voluntary courtesy.

Muir v. Kane (231)o D employed P to find a buyer for their home, oral agreement. Void under statute

of frauds. P finds buyer, contract of sale is signed, promise to pay P $200 in contract. P can recover because there was no moral turpitude in the agreement. Benefit has been rendered, so there is a moral obligation to pay.

In Re Schoenkerman’s Estate (232)o Wife’s mother and sister come to Milwaukee to take care of kids. They do so for

10 years. Schoenkerman executed two notes, promising $500 to mother in law and $1500 to sister in law.

o Held: Decedent was under moral obligation to pay for ten years of services. D was right in that household services of person was assumed to be gratuitous, but an express contract to pay would overcome presumption. In giving the notes Schoenkerman acknowledge a moral obligation that was more than ample consideration, so the sister in law can’t claim “full value” ($4600) but can get the $1500 promised.

Promissory Estoppel Seavey v. Drake (232)

o P was only child of testator. Testator gave a portion of the land to the P. P had a promissory note against his father upon which $200 was due. Father gave a second strip of land to P, and spent $3000 in improvements. P claims that testator promised a deed.

o Rule: Equity protects a parol gift of land equally with a parol agreement to sell it where there is actual possession and improvements have been induced by the promise. (Equitable Estoppel)

Kirksey v. Kirksey (237)o P is the sister in law of D. She resided on public land on contract lease. D lives

in Talladega 60-70 miles away. He writes her and asks her to move, telling her she should sell the land. He says if she comes to see him, he will let her have a place to raise her family. Within a month or two, P leaves and moves to defendants land, where he gives her a house and land to cultivate. After two years, he moved her to a smaller house and then made her leave.

o Held: The promise on the part of the defendant is a mere gratuity, so an action cannot be supported for its breach, no recovery.

Ricketts v. Scothorn (238)o Decedent (grandfather) wrote a promissory note to pay plaintiff on demand $2000

with 6% interest per year. P claims that she quit her employment as a book keeper as consideration. She relied upon it in abandoning her occupation. He said “none of my grandchildren work, and you don’t have too.” She immediately quits. The promise was a gratuity. Is there equitable estoppel?

o Rule: Yes, there is equitable estoppel because there is reliance on the note. Therefore, the estate cannot argue that the note was lacking in consideration.

Prescott v. Jones (240)o Defendants insured plantiff’s building for a year, when it was going to expire they

said via letter they’d renew for another year unless notified. P does not reply, they don’t renew. Building destroyed by fire, P sues, claiming reliance on the letter.

o Held: There was an offer but no acceptance, so no insurance. P neither paid the premium nor communicated promise to do so.

Alleghany College v. National Chautauqua County Bank (241)o Cardozo!o Mary Yates rights a letter to pledge $5000 to be due 30 days after her death, the

proceeds to be added to the endowment. On the reverse it says “in loving memory this gift shall be known as the Mary Yates Johnston memorial” for scholarships for ministry students, and conditions of her will must first be met. She pays $1000 while she is still alive, which college sets aside for fund. A year later, she repudiates the promise and gave notice. Alleghany sues after she dies.

o Held: The moment that the college accepted the $1000 as a payment, there was a duty to do whatever was reasonably necessary to maintain the memorial fairly. The P was not allowed to gain the benefit of such an undertaking upon the payment of a part, and disappoint the expectation that there would be payment of the residue.

o Rule: When the promisee subjected itself to such a duty at the implied request of the promisor, the result was the creation of a bilateral agreement. One of the

promises may be a promise implied in fact. One of the promises is the promise by the college to do whatever may be necessary to make the scholarship effective.

o Charitable subscription case: Charitable subscriptions essentially not subject to consideration.

o DISSENT!: It was a promise of a gift, and a promise of a gift can be withdrawn. Siegel v. Spear & Co. (248)

o P purchased furniture from defendant, giving a mortgage and promises not to take the furniture out of his apartment until it is paid for. He is going to leave town and goes to defendant’s credit officer to talk about storing the furniture. Officer agrees to keep it for him free of charge. P claims promise to insure the furniture. Furniture is destroyed by fire, no insurance has been purchased. P sued for the loss, recovers judgment below, D appeals.

o Lower court: If there was a voluntary promise to insure, it was part of the whole transaction, and he is obligated to do it.

o Held: We think that there was a consideration for the agreement to insure, which makes it unnecessary to determine if the P surrendered any right which would establish consideration. (based in a bailment theory.)

Carr v. Maine Central R.R. (250)o Ps were overcharged for freight hauled by defendant, who claimed they could

give no rebate without approval of the ICC. D told P to fill out a form and send it to the railroad and they would forward it. P claims railroad negligently or fraudulently failed to forward the document, which led to their claim being time barred.

o Held: The want of consideration for defendants promise is no grounds for objection, because P relied upon the D’s undertaking to perform that service, and a duty was imposed upon the D to send the documents.

Restatement Second § 90: Promise Reasonably Inducing Action or Forbearance (253)o (1) A promise which the promisors reasonably expect to produce action, which

does produce such action, is binding if justice demands it.o (2) A charitable subscription or marriage settlement is binding under subsection 1,

without proof that the promise induced action or forbearance. First Nat’l Bank of Logansport v. Logan Mfg. Co. (254)

o Bank officer tells Logan Mfg. that they are definitely going to get the loan, despite the fact that the officer can only authorize $100,000. They need $540,000 total. They don’t get it. Officer encouraged them to continue moving to Logansport. They finally get the loan, but the provision is added that the loan had to be guaranteed by the state. Brandt says that the bank will loan even without the guarantee. The state won’t guarantee the loan. Bank won’t give them the loan. They sue based on Brandt’s representations. They win, appealed. Bank says it was not obligated to make the loan, no enforceable oral agreement, and that the adequate measure of damages was the interest rate differential.

o Rule: The doctrine of promissory estoppel encompasses the following elements: (1) A promised by the promisor. (2) Made with the expectation that the promisee will rely thereon. (3) Which induces reasonable reliance by the promisee. (4) Of a definite and substantial nature and (5) injustice can be avoided only by enforcement of the promise.

o Held: These facts meet all five elements, so they get reliance damages of $73,080, and say that justice does not require reward of lost profits.

o Baird: Promissory estoppel may create perverse effects – when you get a promise, you spend in reliance on it so you can win on promissory estoppel.

I & I Holding Corp. v. Gainsburgo D signs pledge to pay $5000 in 4 annual installments to Beth Israel Hospital in a

charitable subscription. Hospital sues. Court says it is a charitable subscription (an offer of a unilateral contract binding when acted on.)

o Dissent says that there must be proof that the promise induced the promisee to perform, which it did not in this case.

Salisbury v. Northwestern Bell Telephone Co. (260)o D promises to donate $15,000 to new college. College fails, D did not pay.

Iowa’s highest court finds the promise enforceable without proof of detrimental reliance, saying that proof of detrimental reliance would make it hard to get charitable donations. Public policy issue, where the subscription is unequivocal, subscriber should keep his word.

Fried v. Fisher (261-2)o It is beyond the pale of argument that a promise by a creditor to release one of the

partners from a debtor firm from obligation is, in the absence of qualifying facts, legally unenforceable for want of consideration.

Mahban v. MGM Grand Hotels Inc. (263)o D leases retail shop space to P. Lease contains a clause permitting either party to

terminate if premises are damaged to an extent that they can’t be used within 180 days of such damage. There is a fire on Nov. 21. On January 30, P receives a letter which says the target date to reopen should be finalized in late February. P claims that he relies on this letter by ordering merchandise for restocking. On March 17, P receives another letter saying D is terminating lease pursuant to destruction of premises clause. P sues. Court awards SJ for D, reversed on appeal.

o Held: SJ is inappropriate because P asserts equitable estoppel and that is not what they ruled on. Rights may be waived by the lessor or he may by his conduct become estopped. D’s letter allows an inference of an intent not to exercise termination right, and instructs P regarding reconstruction plans. Question of fact.

Stearns v. Emery-Waterhouse Co. (264)o P sues for breach of oral contract to employ Stearns for a definite term greater

than one year (5 years at $85,000 a year). P moves to Maine to be in charge of sales. He is notified that he is being moved to a different job for less pay, at which he works for six months, after which he is fired. Sues for breach. D is estopped by the lower courts from asserting its defense under statute of frauds because of reliance on the oral contract.

o Held: There was no evidence of fraud on the part of the employer, and enforcement is barred by the statute of frauds, so no enforcement. Only in cases of fraud can equitable estoppel be invoked to prevent statute of frauds. Promissory estoppel is insufficient to overcome the statute of frauds.

o Goldstick v. ICM Realtyo Posner!

o Employment at will is dominant type of employment and would be at risk if people could claim promissory estoppel to enforce alleged oral agreements. Reliance is too easily shown in an employment setting.

Restatement Second § 139 (267)o (1) A promise which the promisor should reasonably expect to induce action or

forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the statute of frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.\

o (2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:

(a) Availability and adequacy of other remedies. (b) The definite and substantial character of the action or forbearance in

relation to the remedy sought. (c) The extent to which the action or forbearance corroborates evidence of

the making and terms of the promise or they are otherwise established by evidence.

(d) The reasonableness of the action or forbearance and (e) The extent to which the action of forbearance was foreseeable.

James Baird Co. v. Gimbel Bros. (273)o Learned Hand!o P sued for breach of contract to deliver linoleum. D denied making the contract.

D is a merchant who knew that the department of public buildings in PA was seeking contracts for a building. It sent an employee to a contractor with specifications, and the employee underestimated amount of linoleum necessary by ½. D sent a note to contractors offering to supply all the linoleum required to build at a certain price if the contract is awarded. P gets the bid, and on the same day D learns about the mistake and telegraphs the contractors to withdraw the offer, substituting it with a new one of double the amount. P receives withdrawal after it put in a bid. Public authorities accept bid, P sues for breach.

o Held: An offer for an exchange is not meant to become a promise until consideration has been received. A bid does not constitute an acceptance, which means that D is not required to deliver linoleum, and that there was no promissory estoppel, because there was no promise until acceptance. The offer is not an option, and there is no evidence that the D wanted to subject itself to such a one-sided obligation.

Drennan v. Star Paving (276)o P bids on a school job relying on D’s estimate for paving. Defendant was the

lowest bid for paving ($7,131), P put in his own bid in reliance. The next day D says they made a mistake and they couldn’t do it for less than $15,000. P’s next lowest bid was $10,948. Trial court found reliance and entered judgment for the difference plus costs. D contends no enforceable contract, and that they made a revocable offer and revoked it before acceptance.

o Held: Not revocable. No evidence that D offered to make its bid irrevocable. There was not an option. However, P relied on D’s bid when making its own bid.

Restatement § 90 (promissory estoppel). Reasonable reliance serves to hold the offeror in lieu of the consideration normally required to make the offer binding.

E.A. Coronis Associates (D) v. M. Gordon Constr. Co. (P) (279)o Gordon expected to bid on two buildings, solicits bids from subcontractors

including D. D offers to supply and erect steel for $155,413. P is awarded contract, and formal documents executed two weeks later. P had not accepted D’s offer during that two weeks. D telegraphs revocation after P officially gets the contract. P seeks damages for difference between Coronis’s bid and what is charged by another sub. Coronis prevails at trial and there is an appeal, reversed and remanded because promissory estoppel is applicable.

When (and how) Promises Become Legally Enforceable

Precontractual Liability Goodman v. Dicker (286)

o Dicker applies for a dealer franchise from Goodman, a representative of Emerson radio. Trial court finds for Dicker that Goodman had induced him to incur expenses, that they had represented that the application had been accepted and the franchise would be granted, and he would receive a delivery of 30-40 radios. No radios were delivered, and he was told he was not getting the franchise. Goodman claims damages of $1150 cash outlays for set-up, and $350 for lost profits on 30 radios.

o Holding: Goodman is estopped from arguing that they were under no obligation to give Dicker any radios to sell because of the representations and Dicker’s detrimental reliance. The court holds that the true measure of damages is the expenditures made in reliance on the assurance of a franchise, but no lost profits (because they are not reliance damages).

American National Bank v. A.G. Summerville Inc.o Summerville sold two automobiles to Tomlinson for $3900 each. Tomlinson

signed contracts that stated he acknowledged receipt, and that if Summerville assigned the right to the money owed to a 3rd party, Tomlinson is precluded from attacking the validity of the contract (or not paying). Summerville assigns rights to P bank. P sues to collect, and Tomlinson pleaded that he had never received the automobiles.

o Held: Contracts could not preclude him from showing that there was no consideration, or that the consideration promised him had not been given. He could be precluded by estoppel en pais from showing the falsity of a statement of fact on which another had relied.

D’Ulisse-Cupo v. Board of Directors of Notre Dame High Schoolo School board doesn’t rehire teacher despite representations that she would get a

new contract. Sues for damages on a contract claim of promissory estoppel. o Held: Even if the board cannot be held liable for promissory estoppel, they could

still be held liable for negligent misrepresentations, because there is not a requirement that those representations be promissory.

Osborn v. Commanche Cattle Indus.

o Three year contract for services terminable by either party with thirty days notice. Suit on contract for lost profits.

o Held: Promisee may not recover more than he would have gained by full performance. Since the assurance of performance doesn’t last beyond 30 days, neither does his right to recover. Can only recover for 30 days from breach.

Hoffman v. Red Owl Stores (291)o Hoffman’s begin discussions to open a Red Owl store. He says he has $18,000 in

capital, and was repeatedly assured that it would be sufficient. They rely on that representation and buy fixtures and outfit a grocery store to gain experience. They operate it profitably for three months, and then, on Red Owls advice, they sell it and are assured that they would be set up in another location by fall. Red Owl picks a site, and on their suggestion Hoffman obtains an option, paying $1000, and Hoffman sells their bakery building to get capital. They rent a house and pay one months rent. Red Owl then requires them to have $24,100 and then $26,100, and then $34,000. Hoffman then terminates negotiations. Jury gives Hoffman money for all of his expenditures.

o The Issues Section: Set aside the damages for a new trial. The issues: Should we recognize promissory estoppel. Do the facts make out a cause of action for promissory estoppel. Are the jury’s findings sustained by the evidence.

o 1) Yes we recognize promissory Estoppel. Elements of promissory estoppel are: (1) Was the promise one which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character. (2) Did the promise induce such action of forbearance? (3) Can injustice be avoided by the enforcement of the promise? 2) There was promissory estoppel here.

o 3) Approve $2000 in damages for (the loss on the) sale of bakery. Approve $1000 for option on the lot. Approve the rent. Approve moving expenses. Do not approve damages for the sale of the grocery store and equipment because there were no actual losses, and in cases of promissory estoppel, damages cannot exceed potential rewards. Order a new trial on those issues.

o Baird says: Hoffman got lucky, most courts wouldn’t for preliminary negotiations, and there is no contract here.

Raffles v. Wichelhaus (299)o The Peerless Case! Wichelhaus is buying cotton from Raffles. They contract

with Raffles for the cotton to be delivered on the ship Peerless departing from Bombay. There were two ships named peerless, one arrived in October (which was the ones Wichelhaus meant) and one arrived in December (which is the one Raffles meant.)

o Held: No binding contract because they can both show that they meant the other ship Peerless, so there is no meeting of the minds.

Flower City Painting Contractors v. Gumina Construction Co. (300)o Flower is a subcontractor, insists that it is only obligated to paint interior walls of

an apartment. This reading of the sub-contract depended on a finding that the building plans had not been incorporated into the sub-contract by reference. Flower demands additional money to paint. Gumina cancels the subcontract and fires Flower. Flower sues for damages. Trial court dismisses on Gumina’s

interpretation, saying that Flower asking for extra money for work it already did is repudiation.

o Judgment dismissed based on Peerless – no meeting of the minds means no contract. Ambiguity could be resolved by customary practice that painting subcontracts are awarded for the entire project, but the industry usage cannot bind a party unless they know or have reason to know about it. Flower is new at this, and doesn’t know about industry standard.

Konic Int’l Corp. v. Spokane Computer Services Inc.o Buyer asks how much for computer set up. Seller says “fifty-six twenty.” Seller

means $5620, buyer thinks he means $56.20. Misunderstanding is not discovered until after the equipment is installed. They apply Peerless, that the parties are equally at fault. When parties knowingly agree to ambiguous terms, they are agreeing to have the court decide. In this case, where they reasonably agree to something that appears unequivocal, it can be rescinded on the grounds of “mutual misunderstanding” or “latent ambiguity.”

Dickey v. Hurdo Dickey in Georgia writes to Hurd in MA, asking how much he’d want for a piece

of land in Georgia. Hurd replies $15/acre, and he gives him until the 18th (10 days) to accept the offer. Dickey writes back on the 12th and 15th to express interest. On the 17th he telegraphs acceptance and sends a downpayment. Hurd said it was ineffective, because the offer called for the whole price by the 18th. Judge says the original offers were ambiguous, but Dickey’s letters to Hurd indicate that he believed only an answer was due by the 18th. When Hurd received the letters, he had a duty to inform Dickey about the misunderstanding.

o Held: If you know about a mutual misunderstanding, you have a duty to correct it. Embry v. Hergadine, McKittrick Dry Goods Co. (304)

o Appellant was employee under D company. His contract was to expire December 15th, paid $2000 a year. On Dec. 13, he was reengaged for another year for the same pay, but on March 4, he was fired. D says they never reemployed him after termination of his written contract, and so they had a right to fire him. Appellant requests an instruction to set out the conversation between him and McKittrick to show a contract. Court instead gives an instruction saying if both parties intended to contract with each other there would be a contract. Did was McKittrick said constitute a contract of reemployment. The conversation, when Embry approached McKittrick, according to Embry was “go ahead, you’re alright, don’t worry about it.” Embry says he relied on that promise and did not seek employment.

o Held: We think that a reasonable person would think that it was a renewal of contract and he has a right to rely on it. Valid contract.

Offer and Acceptance Morrison v. Thoelke (316)

o Appellee sued to quiet title, appellants counterclaimed. Appellees are owners and appellants, as purchasers executed a contract for sale and mailed the contract to Appelllees in Texas on Nov. 26th. On Nov. 27th, appellees executed the contract and placed it in the mail to appellants. Before it gets to appellants, appellees call

appellants attorney and cancel. Was the contract complete and binding when the letter is mailed?

o Held: The court adopts the common law rule: Once the post office has custody of the acceptance, it is binding on both parties. (Adams v. Lindsell). Court says that is good for two reasons 1) It draws a line and 2) it limits revocation.

o Baird says: This is just the background rule, if the offeror wants to set a different rule for acceptance, they can do that in the contract, but a rule is needed when it is not specified and there is no nonarbitrary rule, so this is as good as any other. Plus, the 19th century had a fetish for mutuality.

Restate of Contracts, Second § 63 (323)o Unless the offer provides otherwise:o (a) An acceptance made in a manner and by a medium invited by an offer is

operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession without regard to whether it ever reaches the offeror, but

o (b) An acceptance under an option contract is not operative until received by offeror.

Moulton v. Kershaw (325)o D, salt dealers, write to P a dealer known to buy lots of salt and say in the letter

that they are authorized to offer salt at $0.85 per bbl, and would be pleased to receive your order. P’s receive order on the 20th, and on the same day wire a reply saying to ship 2000 barrels. At the following day, on the 21st, D’s notify of withdrawal of offer. P sues for $800 in damages.

o Held: Authorize to offer is not the language of sale. Plus, P could demand 1 million barrels of salt and then sue if not delivered, it is much easier to construe the letter as a notice rather than as an offer for any reasonable amount of salt.

Petterson v. Pattbergo Petterson owned real estate, D was owner of a bond and mortgage on the real

estate. D wrote on April 4, 1924 that he agrees to accept cash for the mortgage, and will discount $780 if Petterson pays on or before May 31, 1924. Petterson goes on May 31 with the money, knocks on the door and tries to offer it to him, and D says he has sold the mortgage and refuses to take the money. Prior to this Petterson made a contract to sell the land to a 3rd person, free and clear of mortgage, so it was necessary for him to pay off whole mortgage. He claims loss of $780.

o Held: An offer may be withdrawn before acceptance without formal notice it is sufficient if that person has actual knowledge that that person has done something inconsistent with continuance, such as selling that property to a third person.

Restatement of Contracts Second § 45 Option Contract Created by Part Performance or Tender (334)

o (1) Where an offer invites an offeree to accept by rendering a performance, and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins or tenders a beginning to the implied performance.

o (2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

Restatement 45 requires the performance that is begun be part of the performance provided for in the contract. Walking up to the door with the value of the mortgage (minus $780) is not sufficient.

Carhill v. Carbolic Smoke Ball Co. (334)o Defendant’s make Carbolic Smoke Ball and offers in their ad a 100 pound reward

for anyone who contracts influenza after using the ball for 3 times a day for two weeks. The ad indicates that 1000 pounds have been deposited in Alliance Bank, Regent Street, showing sincerity in the matter. P uses as directed and gets sick. Judge says that she is entitled to recover 100 pounds Carbolic appeals.

o Held: Not a mere puff, because they say that they have deposited the money, showing our sincerity. For what was that money deposited, and the statement made, except to dispel belief that it was a mere puff. This is an offer to pay 100 pounds to any who performs the conditions, and it is a continuing offer. There is consideration, because they are using it to sell smoke balls.

Cobaugh v. Klick-Lewis, Inc. (339)o Cobaugh is playing in a golf tournament, a day after a charity tournament. ON

the 9th hole there is a sign and a Chevy Beretta. The sign says: HOLE-IN-ONE Wins this 1988 Chevy Beretta, courtesy of Klick-Lewis…$49 over factory invoice. He hits the hole in one, and Klick-Lewis refuses to deliver, because the sign was for a charity golf tournament.

o Held: If an offeror makes an offer, and before it is withdrawn another person acts on it, you are bound to perform your promise. KL benefitted from the publicity, and Cobaugh was required to perform an act under which he had no legal duty to perform, so this is adequate to support contracts. No evidence suggests Cobaugh knew it was only for the earlier tournament.

Davis v. Jacoby (349)o P, Caro Davis, was niece of Blanche Whitehead, and she is quite fond of her.

Caro marries Mr. Davis and they move to Canada. In 1930, Blanche becomes ill, and her husband is having a lot of problems and needs help. He writes to the Davis’s and asks them to come down, repeatedly, eventually saying that he believed practically everything would go to Caro under Ms. Whitehead’s will, and he writes again pointing out that he could still save $150,000 with Mr. Davis’s help, which would presumably go to Caro. On April 12, he makes a definite offer: Caro will inherit everything if they come. They get the letter on April 14, and decide to go. They send a letter airmail indicating they accept and would be there on the 25th, which is lost, but Mr.Whitehead acknowledges receipt. On the 22nd, Mr. Whitehead commits suicide. They get there and take care of Ms. Whitehead until she dies about a month later. Records show that they fully performed their side of the agreement. After Ms. Whitehead death, it was discovered that the will actually left everything to Mr. Whitehead’s will, and his will leaves everything to his nephews. Action was commenced on the ground that Mr. Whitehead had a contractual obligation to put “Caro Davis will inherit everything” in his will. Davis’s losses were over $8,000.

o Held: It is elementary that an acceptance that meets the offer’s terms for method of acceptance is valid. Letter constitute acceptance. Damages are insufficient, so specific performance is granted.

Jordan v. Dobbino P Jordan sold goods to Moore on credit, relying on Dobbin’s agreement in writing

to guarantee payment. Dobbins dies before the sale, but Jordan doesn’t know. Court holds that death revokes an offer of guarantee, so Jordan cannot recover.

Restatement of Contracts Second § 36 Methods of Termination of the Power of Acceptance (355)

o (1) An offeree’s power of acceptance may be terminated by: (a) Rejection or counteroffer by offeree or (b) lapse of time or (c) revocation by the offeror or (d) Death or incapacity of the offeror or offeree.

o (2) In addition an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of offer.

Brakenbury v. Hodgkin (355)o Defendant was owner of a farm. She has 6 children, one of whom is codefendant,

and one of whom is coplaintiff. Letters have been exchanged between mother and daughter concerning her and husband moving back to take care of mom. She makes a proposal that if they came back and take care of her, they were to have the use and income of the premises and household goods with certain exceptions that Hodgkins should have what she needs, and that they get it when she dies. Ps come, and it gets sour, and finally she orders Ps to leave, but they refuse. She gives the deed to her son and reserves a life-estate for herself. Son took the deed with full knowledge of the agreement.

o Held: A legally binding contract is proved, and they have accepted the offer by moving and beginning performance. Plaintiff’s are entitled to remedy sought, specific performance.

Limited and Indefinite Promises Wood v. Lucy, Lady Duff-Gordon (371)

o Defendant employs P to market her name. She would place her endorsement on designs of others and has exclusive right to approve. P has exclusive right to place those designs on sale. It lasts one year, and thereafter year to year unless terminated with 30-days notice. P says D broke contract by placing her mark on things without his knowledge. D insists that the agreement lacks the elements of a contract because P does not bind himself to anything.

o Held: No dice! There is an implied promise because he has an exclusive privilege and he assumes the duty, and there is an implication that the plaintiff’s business will be used for the purpose for which it is adapted. His promise to pay ½ profits was a promise to make reasonable efforts to make those profits.

Feld v. Henry S. Levy & Sons, Inc. (379)o Ps operate Crushed Toast Co., D are bakers. They operated a contract where D

agrees to sell P agrees to buy “all bread crumbs produced by the seller at specified factory from June 19, 1968 to June 18, 1969.” It was deemed automatically renewed unless cancelled with six months notice. There was no notice of cancellation. They sell a lot of crumbs, but stop production on May 15, 1969. They say that the process is uneconomical, and they don’t try to buy more economical equipment. D indicates that they would resume if the contract price

(6 cents per pound) be increased to 7 cents a pound. D ends up dismantling equipment and sells the inputs to pet food mfg. D claims contract doesn’t obligate them to create crumbs, just to sell the ones that it does. Does the agreement carry an implication that D was obligated to continue mfg for the whole term.

o Held: A lawful agreement for exclusive dealing in the kind of good imposes an obligation to use the best efforts to supply the goods, unless otherwise agreed upon. If there is a threat of bankruptcy or genuine imperilment of the business, it would warrant cessation, but merely making less than you thought would not.

Corenswet Inc. v. Amana Refigeration Inc.o P sues to enjoin termination of an exclusive wholesale distributorship, claiming

that the termination was “arbitrary and capricious.” The agreement was of indefinite duration and was terminable by either party for any reason, with 10 days notice. District court enjoined as a breach of good faith. Court of appeals reversed, holding that the termination is permissible under the terms of the contract and the UCC. They need to have some reason to terminate, but the reason that they wanted to give it to someone else is a reason. You can’t imply terms that would be opposite to the contract.

Sun Printing & Publishing Ass’n v. Remington Paper & Power Co., Inc. (385)o P agrees to buy 1000 tons of paper per month over 16 months. Payment was to be

made on the 20th of each month for paper shipped the previous month at prices specified for the first 3 months. For the balance the price of the paper shall be agreed upon 15 days prior to the expiration of each period, but no higher than the price charged by the Canadian Export Paper Co. to it’s largest consumers. When the time arrives that they have to agree, the D says contract was imperfect and says they have no obligation to deliver. P demands that the D deliver at the price charged by Canadian Export Paper Co.

o Held: The gaps in the contract make it nothing more than an agreement to agree, so the D has a right to say it is legally unenforceable.

Empro Mfg. Co. v. Ball-Co Mfg., Inc. (389)o Ball-Co makes truck nuts (knock off “truck nutz ®”). Empro is interested in

buying Ball-Co. Empro sends Ball-Co and SBC leasing a 3 page letter of intent to purchase of Ball-Co’s assets. Propose a price of 2.4 million with $650,000 on closing and a 10-year promissory note for the remainder. Parties sign a letter of intent in Nov. and negotiate through March. It falls apart because Ball-Co wants a security interest in the land under the plant and Ball-Co refuses. When Empro finds that Ball-Co is negotiating with someone else, they sue, asking for a TRO.

o Held: Since Empro allowed for itself to back out of the contract, and nothing indicated that Ball-Co was not afforded the same opportunity under the contract, Ball-Co was not bound to only negotiate with Empro.

Restatement of Contracts, Second § 33 Certainty (393)o (1) Even though a manifestation of intention is intended to be understood as an

offer it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.

o (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.

o (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or acceptance.

Southwest Eng’g Co. v. Martin Tractor Co. (394)o Failure to agree on terms of payment would not, in itself, defeat an otherwise

valid agreement. UCC holds that even if one or more terms are left open, the contract does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. The more terms are left open, the less likely they intended to have a binding agreement.

Identifying the BargainThe Effect of Adopting a Writing

Mitchill v. Lath (397)o Lath’s are selling a farm. Mitchill is going to buy it, and the defendants orally

promised and agreed to remove the ice house in the spring. In light of this, she executes a written contract to buy the property for $8,400. They don’t take down the icehouse and don’t intend to.

o When one agreement is entered into wholly or partially in consideration of an agreement to enter into another, the transactions are necessarily bound together. If one is oral and the other is written, the problem arises whether the bond is sufficiently to prevent proof of the oral agreement (parol evidence).

o Rule: Such an oral agreement can vary the written contract when 3 conditions are present: 1) The agreement must be collateral 2) must not contradict express or implied provisions of the written contract 3) it must be one that parties would not ordinarily expect to be embodied in the writing; it must not be so clearly connected with the principle transaction to be “part and parcel” of it.

o Held: This one fails the 3rd test, because the written contract is a full and complete agreement with all obligations enumerated, so one would assume all reciprocal obligations are enumerated.

Hatley v. Stafford (402)o P, lesee, sues for trespass against D (lessor). P leases the farm to grow wheat, and

the contract reserves a buyout of $70/acre, which is $20 more than he paid. The D tries to terminate the lease six months after and buy out at $70/acre. P demands 400/acre which is the fair market value of the wheat. P alleges that parties orally agreed that the buyout would apply only for a period of 30-60 days. D comes in and cuts down the wheat. Trial court allows this evidence, and jury finds for P.

o Held: In the modern era contracts that are partly oral and partly written are increasingly common, so courts can decide if the contract is complete as written, and the jury decides whether the terms are actually agreed upon. Trial court’s verdict can be upheld if and only if 1) such an agreement was not inconsistent with the written lease and 2) if the agreement was such as might naturally be made as a separate agreement by parties similarly situated. Trial court was entitled to consider that a literal reading would allow them to buy out for $70 wheat that was worth $400, so there was significant evidence to justify trial court’s decision, and it was properly left to a jury.

o Baird says that this case is the modern rule for Parol Evidence. When contracts don’t make lots of sense without parol evidence it is usually allowed.

Hayden v. Hoadley (407)o As part of consideration for P’s conveyance of farm, Ds promised in writing to

make certain repairs on a house and barn they were conveying to Ps. As justification for non-performance Ds offered to show that at the time the agreement was signed it was orally agreed that they would have until Oct. 1, no more than $60 was to be expended and #2 shingles were to be used. The evidence was excluded because the time for performance was not specified in the contract, and the law presumes a reasonable amount of time. The provision, though implied by law, is as binding as any in the contract, because the contract is unequivocal and complete.

Restatement of Contracts Second §§ 209, 213, 214, and 216 (408)o §209: Integrated agreements: 1) An integrated agreement is a final expression in

writing of one or more terms in an agreement. 2) Whether there is an integrated agreement is determined by the court as preliminary to questions of interpretation or application of the parol evidence rule. 3) Where parties reach an agreement in writing which reasonably appears complete, it is taken to be integrated unless established by other evidence that it was not final expression.

o §213: Effect of integrated agreement on prior agreement (Parol Evidence Rule): 1) Binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them. 2) Also discharges prior agreements to the extent that they are within its scope. 3) Integrated agreement that is not binding or is voidable and voided does not discharge a prior agreement but an integrated agreement, even though not binding may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated.

o §214: Evidence of prior or contemporaneous agreements and negotiations: Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible to establish: (a) That the writing is or is not an integrated agreement (b) That the integrated agreement, if any, is completely or partially integrated (c) The meaning of the writing, whether or not integrated (d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating clause. (e) Ground for granting or denying recision, reformation, specific performance, or other remedy.

o §216: Consistent additional terms: 1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated. 2) An agreement is not completely integrated if the writing omits a consistent additional agreement term which is: (a) Agreed to for separate consideration or (b) such a term as in the circumstances might naturally be omitted from the writing.

Interpreting the Promise W.W.W. Associates, Inc. v. Giancontieri (440)

o Action for specific performance of contract to sell real property. Ds own 2 acres in Suffolk County, they contract for sale of property to P. Purchase price was $750,000, $25,000 at execution, $225,000 at closing. $500,000 two years later. They signed a printed form contract of sale, supplemented by several of their own

paragraphs. There was a reciprocal cancellation provision and a merger clause. Reciprocal cancellation provision says that the parties acknowledge that the sellers have been served with process instituting an action concerned with the property; in the event that the sale is delayed by the litigation it is agreed that closing will be adjourned until after the litigation If it is not concluded by 6/1/87, any party can cancel and down payment is returned. Merger provision reads that: all prior understandings and agreements are merged into this contract, and the contract is complete and full. Contract of sale, in other paragraphs the parties added provided that the purchaser alone could cancel in 10 days, and that purchaser alone could cancel if at closing seller was unable to deliver building permits for 50 houses for senior citizens. D prolongs the lawsuit and they cancel the contract and return the downpayment. P sues for specific performance. Based on ¶31, which was the reciprocal cancellation provision. P claims it was added for their sole benefit, and they discovered that D was delaying the litigation to cancel the contract.

o Held: The extrinsic evidence is not material, because the contract plainly manifests the intention that D or P can cancel under the terms.

PG&E Co. v. G.W. Thomas Drayage & Rigging Co. (443)o Dispute over what the phrase “indemnity” means in a contract. D accidentally

wrecks P’s turbine. P says that the indemnity means that D has to pay, D alleges that the industry usage is for third party injury only. PG&E wins at trial. D’s want to prove that under similar contracts entered into with P, indemnity clause meant injury to third parties only. Language used is classic language for a third party indemnity provision, and one could easily conclude that it is to indemnify third parties. Trial court nevertheless held that the plain language of the agreement applied the indemnity to D’s conduct.

o The Test: Is the proffered evidence necessary or relevant to prove a meaning to which the language of the instrument is reasonably susceptible? Meaning varies based on context and circumstances. A word has no one true meaning. Accordingly, a rational interpretation requires at least preliminary consideration of all credible evidence offered to prove intention. Reversed.

Columbia Nitrogen Corp. v. Royster (446)o Columbia contracted to buy phosphate from Royster at a certain price. The

bottom fell out, and Columbia refused to take the phosphate at (significantly) above market price. Refused to take full amount. Royster sues. Columbia argued that typical contracts in this field change amounts all the time, because the negotiations take into account that there are price fluctuations, and wanted to offer testimony to that effect from witnesses long experienced in the trade.

o Held: The testimony is admissible because a finding of ambiguity is not necessary for admission of extrinsic evidence about the usage in the trade or the parties course of dealing. The test is not whether the contract appears complete but rather the proffered evidence can be reasonably construed as consistent with the express terms.

o Baird says: Columbia is going to look really stupid in front of a jury… Robert Indus. v. Spence (447)

o A contract is to be read in light of the circumstances of its execution. When the written agreement as applied to the subject matter is in any degree uncertain or equivocal, all circumstances of the parties leading to its execution may be shown for purposes of elucidating but not contradicting terms.

Fed. Dep. Ins. Corp. v. W.R. Grayson Co. (448)o Fact that parties to a contract disagree about meaning of language in it does not

show that it was ambiguous. High standard to show ambiguity. Spaulding v. Morse (448)

o P sued in equity to enforce a trust created by defendant. Critical provision obligated defendant to “pay to said trustee, in trust for his minor son Richard, the sum of $1200 per year until the entrance of Richard in some college. Thereupon, instead of said payments, he shall pay the trustee payments of $2,200 a year for the period of higher education for not more than 4 years. The trustee was directed to give the money to Richard’s mother for as long as she was taking care of him. Richard completes high school and enters the army. D stops paying. First court says he has to keep paying until Richard finishes college. Appeals court reverses. Court holds that the main purpose of the contract was to provide for Richard’s education, and those purposes were achieved or preempted by Richard’s military status.

Restatement of Contracts Second § 212: Interpretation of Integrated Agreemento 2) a question of interpretation of an integrated agreement is determined by the

trier of fact, if it depends on the credibility of extrinsic evidence or on a choice among reasonable inferences, drawn from extrinsic evidence. Otherwise a question of interpretation of an integrated agreement is to be determined as a question of law.

Frigaliment Importing Co. v. B.N.S. International Sales Corp. (450)o Contract provides for sale of chickens. Dispute over meaning of chicken, whether

it is stewing chickens or broiler chickens. P alleges contract is for broilers, D alleges contract is not specific.

o The benchmark that Friendly uses is the contract as written, but takes evidence according to the custom of the trade, process of negotiations, and market information. In the trade, chicken includes all types of chicken. Also interprets contract such that the people entering into it would make a profit rather than a loss.

Baird says: Friendly doesn’t go back to a “syphilitic 19th century judge” to determine what chicken means, he looks to the standards of the trade. This is the tradition of Lord Mansfield (who also, incidentally, wanted to do away with consideration)

Contracts Without Bargaining Livingstone v. Evans (456) (CANADIAN, EH!)

o D wrote P offering to sell land for $1,800. P responds will give $1600 cash. D says “won’t reduce price.” P then writes to accept. In the interim, D enters into contract to sell to someone else who is joined as a D to the action.

o Holding: When an offer has been rejected, it is thereby ended, and cannot be accepted without consent of him who made it. The P’s counter-offer, was in law,

a rejection. In this case, the D’s response “won’t reduce price” is a renewal of the offer, inviting P’s acceptance. Therefore specific performance for P.

Richardson v. Union Carbide Indus. Gasses Inc. (461)o Two parties exchange documents with conflicting indemnity clauses. Three

approaches to conflicting terms. 1) Majority position is that the conflicting terms fall out and are replaced with UCC terms. 2) Minority view: Offeror’s terms control. 3) Terms of the offer prevail over the different terms of the acceptance only if the latter are materially different, this is the least common approach.

o Held: This court sides with the majority “knock-out” rule.1

Pro-CD Inc. v. Zeidenberg (468)o Shrink-wrap licenses are enforceable unless their terms are objectionable on

grounds applicable to contracts in general. We treat licenses as ordinary contracts accompanying the sale of contracts and are therefore governed by common law of contracts and UCC.

o Baird says: This case is interesting because it is actually a significant break from doctrine, because (a) generally the purchaser makes the offer and (b) it was purchased from a third party, not in privity with Pro-CD. But Baird likes the outcome.

Hill v. Gateway 2000 Inc. (472)o One of the terms included with a Gateway computer is an arbitration clause which

governs if the consumer does not return the computer within 30 days. Ps keep computer for more than 30 days before filing suit in federal court. Gateway asks the district court to enforce the clause. Federal court refuses. Gateway appeals.

o Held: The agreement is enforceable. P could have requested terms in advance, consult public sources, or read them after opening the box and return within 30 days.

Klocek v. Gateway Inc. (474)o P buys computer, included the standard terms in the box, including an arbitration

clause. Gateway’s argument that P accepted arbitration by keeping the computer for 5 days must fail. It provided no evidence that it had informed P of the 5 day review and return period, and keeping it 5 days is not sufficient to demonstrate that P expressly agreed to terms.

Restatement of Contract Second § 69 Acceptance by Silence or Exercise of Dominion (476)

o (1) Where an offeree fails to reply to an offer, his silence and inaction operates as an acceptance only (a) where an offeree takes the benefit of the offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation (b) where the offeror has stated or given offeree reason to understand that assent may be manifested by silence or inaction, and that offeree in remaining silent and inactive intends to accept the offer. (c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept.

o (2) An offeree who does not act inconsistent with the offeror’s ownership of offered property is bound in accordance with offered terms unless they are

1 “The wet spinach is everywhere; somebody has to pay for it.”

manifestly unreasonable, but if the act is wrongful, as against the offeror, it is an acceptance only if ratified by him.

Hobbs v. Massasoit Whip Co. (477)o P sent D some eel skins, which D kept for some months and were destroyed. P

did not receive notice that D declined to accept. In the past, Hobbs had sent eel skins in the same way several times, and they had been accepted and paid for.

o Held: In these circumstances, the P was warranted in sending the skins, and it imposed a duty on the defendant to act. Silence, coupled with retention for an unreasonable time might be found by a jury to warrant P assuming it was accepted, which would create acceptance.

Austin v. Burge (480)o D’s father and law paid for 2 year subscription to P’s newspaper, directing that it

be sent to D. Subscription runs out, P continues to send. Twice P paid bills submitted and said “stop sending it.” D keeps sending the newspaper.

o Held: If he continues to receive them, when he knows they are not free, he has agreed by implication to pay for it. (In this case, he takes them home from the post office, rather than refusing to accept.

Martin v. Little, Brown & Co. (481)o Martin sends information to Little Brown about copyright infringement, and

wants a reward. Little Brown gives him $200. He keeps it and doesn’t cash it, instead, he files suit to get 1/3 of recovery appellee gets.

o Held: When someone requests another to perform services, an intention to pay is inferred. When someone’s work is voluntarily given to another, an intention to pay cannot be inferred. Because payment wasn’t discussed in any of the correspondence, he was a volunteer, and has no reason to be compensated for his action.

Collins v. Lewis (484)o P, deputy sheriff, attached and took away cows in possession of Kind. P later

learned cows actually belonged to D. P returned cows to Kind’s farm, Kind refused to take them. D said he couldn’t take them at the time. P informs D that cows are being kept for him, and that he will be held for cost of keep. They were boarded for 38 days and then sold. During the period, D knew P was expecting to be paid, and by selling the cars, he appropriated the benefits of the 38 days care, and needs to make restitution, because it was an implied contract.

Seaview Ass’n of Fire Island NY v. Williamso P homeowners assoc. maintains community things. They assess a share of their

annual operating expenses. Defendants, year round residents in the real estate business, own 7 houses in Seaview, but refuse to pay payments, contending that non-members who don’t facilities cannot be charged. Trial court says there is an implied contract. Ds had actual or implied knowledge of the rules of the community, and the purchase is acceptance of those rules.

Martin v. Campanaroo Claimants are allowed to recover on quantum meruit basis, but qm is ambiguous

because it could mean that there is a contract implied in fact to pay reasonable value of service or that claimant can recover on a quasi-contract to prevent unjust enrichment for that reasonable value. Confusion is because the old phrase

implied contracts has been used for implied in fact and implied in law (quasi-contract). A contract implied in fact arises from intent, a contract imposed by law (quasi-contract) doesn’t care about intent.

Mistake and Excuse Laidlaw v. Organ (492)

o Organ buys Tobacco from Laidlaw, knowing that the war of 1812 is over. Laidlaw doesn’t know. That means Tobacco will be much more valuable. Laidlaw finds out, and comes and takes it back two days after the sale. Laidlaw says that it was misrepresentation. The question is whether Organ has to give up this information.

o Held: No, Organ doesn’t have to give up the information. The sale was legal and Organ didn’t say anything about the end of the war. If he had been asked and lied then he would be guilty of misrepresentation, but withholding information is not illegal.

Jackson v. Seymour (493)o Jackson conveys land for $275 to her brother through his representation that it

was valueless. Turns out there was timber on it worth $2300 to $5000. Brother sells it for a considerable profit. Jackson claims the representations made to her that induced her to sell were false and fraudulent. She offers to restore the money if he will rescind, and he says no, because he is a dick-hole.

o Held: Court finds no evidence of actual fraud, but considers constructive fraud because of the confidential and close relationship and gross inadequacy of price. P is entitled to equitable relief on the ground of constructive fraud, as a direct result of the relationship and trust she put in him. D gets purchase price back, with interest. P gets fair value of timber removed with interest and fair rental value for the time D had it.

Hill v. Jones (500)o Four rules for disclosure: Modern view is that vendor has a duty to disclose

material facts where: 1) Disclosure is necessary to prevent a previous assertion from being a misrepresentation or from being fraudulent or material. 2) Disclosure would correct a mistake of another party as to a basic assumption on which that party is making the contract and if nondisclosure amounts to a failure to act in good-faith and with reasonable standards of fair-dealing. 3) Disclosure would correct a mistake of another as to contents or effect of a writing. 4) The other person is entitled to know the fact because of the relationship of trust and confidence between them. (RSC § 161)

Sherwood v. Walker (Replevin for a Cow!) (501)o Rose 2d of Aberlone is a cow, presumed to be infertile. Walker buys the cow

from Sherwood, while the cow is being held for Walker to pick up, it is shown to be pregnant, and Walker refuses to take the money or deliver. P sues.

o Held: This is a mistake of the nature of a thing, because a barren cow is substantially different from a breeding one, and parties would not have made the contract except for the fact that the cow was barren. The jury should have been instructed that if the contract was based on the assumption that the cow was barren, and she was not barren, the D should have a right to rescind.

Beachcomber Coins Inc. v. Boskett (505)

o P purchases coin from D for $500. P then receives offer for $700 subject to test of genuineness. It is judged counterfeit. P sues D on theory of mutual mistake. Trial court says customary procedures require purchaser to make his own investigation and assume the risk.

o Classical case of recision because of mutual mistake. Each person thinks the coin is not counterfeit, but it is, so no contract.

Smith v. Zimbalist (508)o D, a violinist, is at home of P, a collector of rare violins. He asks what P would

want for “the Stradivarius.” P says $5000. Then he asked what P would ask for “this Guarnerius.” P says if he takes both, he can have them for $8000. D pays $2000 in cash, and takes them. Turns out they are both cheap imitations worth not more than $300. Smith sues to recover amount unpaid, judgment for D is affirmed because of mutual mistake. Since it was a sale by description, with a warranty that the goods would correspond to the description, therefore no sale.

Gartner v. Eikillo Parties assume that property sold could be developed, but it can’t because of

zoning issues. It is not a monetary issue, but it goes to the very nature of the property. Just because the buyer didn’t go to city hall to make sure doesn’t mean that it precludes recision. Rule: Failure to investigate does not always preclude recision, for example, when there is reliance on seller’s statements.

Unilateral mistake (Elsnore)o Unilateral mistakes are only tolerated in quick-breach cases, where there is no

reliance on the mistake. Taylor v. Caldwell (538)

o Ps and Ds had a contract by which Ds agreed to let Ps use Surrey Gardens and Music Hall for 4 days for a concert for 100 pounds a day. Parties inaccurately call it a letting and a rent, but D’s maintain possession, and contract was just to give P the use of it on those days. The existence of the music hall, in a state fit for concert, is essential for fulfillment of the contract. It burns down.

o Held: When entering into the contract both parties must have contemplated buildings continued existence. In the absence of any express or implied warranties the parties should be excused if performance is impossible.

o In class: Opera Co. of Boston v. Wolf Trap Opera Company pays a certain amount of money to Wolf Trap to put on

an Opera. Wolf Trap is stuck by lightening, loses all electricity – no stage lights or

house lights. What result (Like Taylor v. Caldwell.) What do you pay Placido? You may have to pay the full cost, because of

the opportunity cost of missing out on other performance. A world without excuse is a world like one of strict liability. Excuse is

like a negligence based rule.o In class: UCC 2-613 (Casualty to Identified Goods – goods identified in the

contract destroyed.) When risk shifts to the buyer, he can no longer plead casualty to identified

goods (impossibility). Payment is due when risk shifts. Roberts v. Lynn Ice Co. (541)

o Roberts “let” his ice business and privileges with use and benefit of his icehouse to D for 9.5 months, later extended to another 3 years. Before term expired, ice house burned down. Roberts sued to recover rent for period after the fire.

o Held: Whether rent is due depends on whether agreement was a lease or a license, if it was a lease then it is the property of the D, and the loss is D’s loss for the term of the lease.

Harrison v. Conlano Decedent employs P to play organ at church. Priest dies, no successor is

appointed, and the church closes. Judgment for P for full $50 is reversed. Court finds that the organ is furnished by the pastor, and services are rendered to him personally, so upon his death, contract is ended. P gets time served.

Carroll v. Bowerstock (545)o P works on D’s building. Before work is done, building is destroyed by fire

without fault of either party. P sued to recover performance prior to the fire. Wins at trial, D appeals. To make the owner liable, the owner must be benefitted. The test for benefit has been variously stated. Sometimes benefits accrue when contractors material or labor become attached to owner’s realty. Liability of owner in cases like this should be measured by amount of contract work done at the time of construction.

o Held: Applying the test, P should recover for work done in cutting away and removing the old floor, contractor should not recover for material furnished or labor performed in the construction of either column or floor forms, because they were temporary devices. Contractor can’t recover for things not attached to the building and left there.

Olsson v. Moore (547)o P’s are willing to buy D’s property but it is unsuitable for winter habitation, and

they ask permission to begin renovations immediately. Olsson agreed, and Moore places utility services in their name and begins renovation. For the whole time they are negotiating the purchase price. Close on the 15th. On the 16th, the house burns down. Olsson is insured, and collects $40,000, no part of which is for the Moore’s improvements. P’s tender a bill for $5000, D refuses to pay. Ps sue and are award $4800.

o Held: No contract of sale existed at time of fire, party’s minds had not met, but Olsson had received benefits of P’s improvements because he was legal and equitable owner at the time of the fire, he benefitted from the improvements, and he agreed to and sanctioned the improvements. The critical issue is that there is no contract of sale, so he is still the owner.

Lincoln Welding Works v. Ramirez (548)o D general contractor subcontracts to P who completes work and is paid in full. A

month later, flood causes extensive damage to work P performed. D asked P to make repairs. P does so, believing that they would be compensated. D refused to pay P cost of repairs, contending that their subcontractors had incorporated by reference the prime contract, and obligated all subs to bear risk of loss until the whole project was formally complete. SJ for defendant affirmed.

Restatement of Contracts Second § 264 Prevention by Regulation or Order (552)

o If the performance of a duty is made impracticable by having to comply with a domestic or foreign governmental regulation or order, that regulation or order is an event the non-occurrence of which was a basic assumption on which the contract was made.

Louisville and Nashville R.R. v. Crowe (552)o P conveyed land to D’s predecessor for right of way in consideration for an

annual pass on the railroad. Congress passes a law banning annual railroad passes. The court declared that a contract that is lawful when made is terminated by a later government regulation is terminated, but the party that received the benefit of performance should not be able to retain it without payment.

Krell v. Henry (565)o P sues D. D agreed to pay 75 pounds to use a flat owned by P to view the

coronation. King is sick, the coronation parade doesn’t happen, and P sues for the balance owed on the rent contract. D counterclaims for return of 25 pounds.

o Held: There had been a failure of consideration for the contract. D doesn’t need to pay but P keeps the 25 pounds. This rule changes to a P must return rule later, and then parliament changes it to a P must return deposit minus reliance damages rule.

Policing the Bargain Levine v. Blumenthal (608)

o D’s leased store premises from P for two year term with an option to renew for three more. D’s introduce evidence that before the first year was over, they tell P that it is impossible for them to pay agreed upon increased in rent because business is bad (because of the great depression) and they would be forced to go out of business. P agrees to cut the rent to first year levels. Renewal is not exercised, and D’s leave, leaving the last month unpaid. P sues for unpaid rent and contract price of last month’s rent. District court says that oral agreement to modify terms was not supported by consideration and was therefore ineffective. Doing what you are already legally obligated to do is not consideration.

o Held: Agreements to modify contract terms must be supported by consideration. Alaska Packers Ass’n v. Domenico (613)

o Hire fishermen in SF to go to Alaska and fish. Fisherpeople demand twice what they contract for, and assert they won’t work unless they get double wages. Alaska agrees, because they can’t get extra fishermen, and pays them. Alaska sues fishermen upon return.

o Held: There is no consideration for the contract, because the fishermen are legally obligated to keep working. A threat of non-performance is not consideration. More interesting on a duress theory, but not decided that way.

o Baird says: This is the case every lawyer thinks about when thinking about the doctrine of duress, but is almost never cited. Maybe 15 times in the last century, half of which are by Posner. One reason is that this is an admiralty case.

Schwartzreich v. Bauman-Basch (617)o Contract by which Bauman employs Schwartzreich to work full time as a designer

of coats and wraps on a salary of $90 a week, ja! Schwartzreich testifies that he told Bauman in October that he got an offer for $110 a week and asked for advisement from his employer. Next day Bauman says I’ll give you $100 a week

if you stay. Bauman claims he said I cannot give you a designer, I’ll give you $100 a week rather than let you go. They sign a new contract for $100 a week . Schwartzreich gives original contract back with signatures torn off. Works until Dec., where he is fired.

o Held: Judgment for damages to Schwartzreich affirmed. Parties can rescind a contract by mutual assent and agree to make a new contract. Their mutual promises are consideration.

Austin Instrument Inc. v. Loral Corp. (618)o Time constrained company gets screwed by supplier. Needed components for

Radar sets for the military. Supplier refuses to supply components based on the terms of prior contract. Loral agrees to a new higher priced contract and later sues claiming duress.

o Held: Contract is voidable on grounds of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will. Existence of economic distress or business compulsion is demonstrated by proof that immediate possession of needed goods is threatened.

o Baird says: Why not sue for expectation damages if they don’t fulfill the contract. Or try and get preliminary relief? When you give Loral the right to the duress doctrine they essentially get a supercompensatory award.

Smithwick v. Whitley (621)o P contracted to purchase D’s farm and land for $35/acre. Went into possession

without a deed and began to clear it. 3 years later, P informed D that the year was off. P informs D that he can have the land for $50 an acre. P paid rather than lose the land he had worked for 3 years. D gives him a deed, P sues for overpayment. Held: Nonsuit ordered and upheld because the payment was made voluntarily. P could have sued in equity for specific performance when the D demanded a higher price and didn’t.

Weise v. Parke-Burnett Galleries Inc. (672)o P purchased a painting listed at auction as the work of Raul Duffy. Later, all

parties learned that paintings in question were forgeries. D denied legal responsibility, Weise sued to recover, alleging that D’s catalog presentation was an express warranty of authenticity. D relies on disclaimer that says all property sold as is. Held: Weise has no knowledge of conditions of sale, and that a reasonable bidder would not expect that a catalog overwhelmingly devoted to describing works of art to disclaim liability. Gallery must do substantially more to inform bidders.

Henningsen v. Bloomfield Motors, Inc. (677)o Henningsen purchased car from Bloomfield. Bloomfield disclaims all warranties

at sale.o Held: You can’t disclaim the implied warranty of merchantability.

Williams v. Walker-Thomas Furniture Co.o Walker-Thomas sells Williams a variety of stuff on credit, despite the fact that

Williams was on welfare. The various sales contracts have cross-collateralization clauses that say the payments are pooled, and the goods are not paid off until all of them are paid off, allowing Walker-Thomas to repossess as much of the goods

as necessary to cover the remaining payments owed. The contract was really hard to read (many first-year contracts professors don’t get it immediately.)

o Held: Contract is unconscionable. Brower v. Gateway 2000 Inc. (713)

o Gateway includes standard terms and conditions with computer which are binding 30 days after delivery. Dispute resolution provision sets out that all disputes are subject to arbitration at a specific forum. The forum has a high upfront cost ($4000), $2000 of which is non-refundable. P also must bear cost of Gateway’s legal fees if they don’t win.

o Held: That is unconscionable because it is effectively a complete bar to litigation. Under NY law unconscionability requires a showing that the contract is “both procedurally and substantively unconscionable,” there must be some showing of an absence of meaningful choice on the part of one of the parties together with contracted terms that are unreasonably favorable to the other.

Martin v. Joseph Harris Co. (718)o Here the unconscionability ruling was on a finding that farmers who purchased

seeds did not understand the implied warranty, did not have it explained to them, and couldn’t have bargained for waiving the implied warranty, because it was a clause in the standard seed order and salesman could not modify. District court found that Joseph Harris Co. used this provision to transfer liability to the party least able to bear the risk. Rule: A legally sophisticated seller may not take advantage of a buyer’s lack of legal expertise about warranties to shift, by cryptic language, the risk of loss for latent undiscoverable defects.

Restatement § 205 Duty of Good Faith and Fair Dealing (720)o Every contract imposes on each party a duty of good faith and fair dealing in its

performance and enforcement. Market Street Assocs. Ltd. Partnership v. Frey (721)

o Market Street enters into sale and leaseback arrangement with Frey. They sell and the pension trust leases back for 25 years, Pension Trust must finance costs of expenses for construction and improvements provided the cost is at least $250,000. Pension trust agrees to give reasonable consideration to providing financing, and should negotiations fail Penney can rebuy at the original price sold plus 6%/year. Approached regarding this piece of land, on which a drugstore will lease if Market Street builds them a store, which is customary. They call and ask for the loan, and Frey does not reply. Frey then says we’ll review it and get back to you. Negotiations don’t really go anywhere. Market Street rights a letter formally requesting $2million in funding that does not mention the lease. They are continually unresponsive and don’t write back. They send a second letter requesting financing, and the next day they get a letter turning down the original request for financing, because Frey is not interested in making loans for less than $7 million. Market Street then notifies Frey that they are buying back according to contract. Frey refuses to sell, Market Street sues.

o Held: Posner says that Market Street doesn’t need to tell Frey about the contract, as they both have a copy. Good faith doesn’t mean you have to be your brother’s keeper, especially when your brother is the GE pension trust, whose lofty indifference to “small transactions” (under or equal to seven million) is the

signifier of its grandeur. You don’t have to be forthcoming, so long as you don’t lie or misrepresent. The dispositive question is “were they trying to trick Frey.” The only way for that to come out as yes is for you to read facts as favorably as possible to Frey, which we don’t because Frey wants summary judgment.

o Baird says: This is problematic because Posner relies on Globe Refining, which is just bad law.

ConditionsConditions and the Duty to Continue Performance

Nichols v. Raynbred (733)o P promised to deliver D a cow, D promised to deliver P 50 shillings. P sues

Raynbred.o Held: P wins, because there was consideration (a promise for a promise).

Kingston v. Preston (735)o Person promised to buy out a silk mercer. Can’t post promised collateral.

Demands that mercer turn over the whole store, or else he will suffer damages. Since promises are independent, silk mercer is going to get screwed. No value in expectations damages from no collateral. (Lord Mansfield)

o Held: There are three kinds of contracts. 1) Mutual and independent, where either party may recover damages from the other for injuries from breach. 2) Conditions and dependant, in which the performance of one depends on the prior performance of another. 3) Mutual conditions to be performed at the same time, if one party was ready and offered to perform and the other neglected to refuse, he who is ready may maintain an action against another. P didn’t put up collateral, so he can’t sue, because he didn’t fulfill the condition.

Restatement of Contracts Second §234 Order of Performances (737)o (1) Where all or part of the performances to be exchanged under an exchange of

promises can be rendered simultaneously, they are to that extent due simultaneously unless language or circumstances indicate otherwise.

Restatement of Contracts Second §238 Effects on Other Parties Duties of A Failure to Offer Performance (737)

o Where all or part of performances to be exchanged under an exchange of promises are due simultaneously, it is a condition of each party’s duties to render such performance that the other party either render or with manifested present ability to do so, offer performance of his part in a simultaneous exchange.

Price v. Van Lint (738)o Van Lint agrees to deposit $1500 by Feb. 1 for which Price agrees to give

mortgage-deed and insurance for the $1500, and agrees to use the amount to erect a building on the land. D was a local agent of the Maxwell Land Grant Co., but does not have authority to exercise a deed in its behalf. D advanced $134, the purchase price of the land, repayable from proceeds of the loan. D seeks release from the contract, because he is having trouble getting funding. P refuses to release him. Trial court finds that P never gave D deed, that he never offered the balance of the loan, and never returned the $134. P has to suspend work on his building. Court renders judgment in P’s favor for $543.55.

o Held: Rule of decision is not to construe promises as independent unless the nature of the contract is to favor such an inference. The nature of the contract, with its surrounding circumstances, compels a contrary inference.

o Rule: Where a contract contains mutual promises to pay money or perform some other act, and the time for performance of one party is to, and does, arrive before time for performance by the other, the latter promise is an independent obligation.

Interpreting Conditions Glaholm v. Hays (772)

o Mutually agreed in a charter party that the vessel will go to Trieste and load cargo and then to the UK. It will be 40 days in transit. Ds sued by ship owner for refusing to accept the charter. Ds say that the ship wasn’t delivered in time. “When a particular clause is a condition which, if not performed, allows the party to abandon the contract, or amounts only to a promise, the breach of which is recompensed by damages, must depend on the intentions of the parties.” Clause specifying Feb. 4th date in the original contract is a condition, and therefore Ds can get out of the contract because it did not fulfill a necessary condition.

Howard v. Federal Crop Ins. Corp. (773)o P sues his nsurance company for alleged crop loss. When the ins. Adjustor comes

to inspect, the field had been plowed, so he denies claim on the basis that landowner had violated the policy that he cannot destroy until there is an inspection.

o Held: When it is doubtful whether words create a promise or a condition precedent, they will be construed as making a promise. In this, case it is a promise, not a condition, so Fed. Crop Ins. Corp. can sue for damages, but must perform its side of the contract. See also RSC § 261.

Merritt Hill Vineyards Inc. v. Windy Heights Vineyard Inc. (776)o Six months after closing P learns that D sellers had failed to secure two things

provided for in the agreement: a title insurance policy and an FHA mortgage confirmation statement. P then refuses to close and demands return of $15,000 deposit. P sues when they don’t return it, for the deposit and $26,000 in damages.

o Summary Judgment for the deposit, and they find that P’s obligation to pay is subject to fulfillment of the requirement, no wording of promise applies.

Gray v. Gardner (778)o D has a written promise to pay plaintiff $5,198.87 on the condition that “if a

greater quantity of sperm oil should arrive in whaling vessels at Nantucket and New Bedford on or by April 1 and October 1 inclusive than arrived at said places in whaling vessels on or within the same term last year then this obligation is void.” Consideration is the quantity of oil sold by P to D. An unconditional note was given by the defendants for the value of the oil at $0.60 per gallon.

o Held: There was a contract that showed a promise to pay which was defeated by the arrival of a certain quantity of oil. It is like a bond with a condition. If D wants to avoid payment, the D has to show that the condition was met. Burden of proof is on the D, and if they fail to show it the promise is good. Vessel must drop anchor to count as arrived. Strictly held to the terms.

o Baird Says: For a condition precedent, the burden was on the plaintiff to prove it. For a condition subsequent, the burden was on the defendant. Under modern

pleading rules we tend not to obsess about this – under the federal rules, the P can assume condition precedent is met in complaint, and the D will deny in answer.

Semmes v. Hartford Ins. Co. (793)o P brings suit on a fire ins. policy issued by D. P’s loss occurred on Jan.5 1860,

suit begins on Oct. 1 1866. Policy says you must bring a claim within 12 months after loss. The civil war intervened between the loss and the suit. Trial court says that the suit is barred.

o Held: The disability imposed by the war rendered compliance with the condition impossible, so it removes the presumption that the contract says should be conclusive against the P’s claim. P can recover because contract as written was impossible to fulfill.

Protecting the Exchange on Breach Plante v. Jacobs (828)

o Suit to establish a lien to recover unpaid balance of contract price plus extras of building a house for D who alleged no substantial performance and breach of contract by P, and counterclaimed for damages for faulty workmanship and incomplete construction. P wins at trial. Jacobs enter into a contract with P to furnish material and construct a house for $26,765. P was paid 20,000 during construction. Dispute, P stopped paying, D stopped working. Trial court found that contract was substantially performed and the wall was built in the wrong place (2 feet off). Extra value of the 2 feet was $960. Court allowed the cost of repairing defects. Defendants were not damaged by misplacement of wall between kitchen and living room.

o Held: P can recover if he had completed substantial performance. Test for substantial performance: Does the performance meet the essential purpose of the contract? As applied to the construction of the house, substantial performance doesn’t mean that every detail is in compliance with exact specifications. Even though D’s were dissatisfied, it was not in error to find substantial performance. P can recover contract price minus diminished value (cost of finishing what they didn’t finish, replacing what they didn’t put in.)

Jacob & Youngs v. Kent (831)o P built a house for D for $77,000. Sues to recover unpaid balance approx. $3500.

Contract specified that all pipes must be wrought iron of Reading Manufacture. Ds learned that P used some pipe not made by Reading. They demand that it be redone, even though they have been living in the house for 9 months, and it would require pretty massive demolition at great expense. P won’t do it, and asks for final payment. D denies, P sues. Evidence indicates omission was neither fraudulent nor willful.

o Held: Jacob & Youngs should be able to admit the evidence that the pipe was basically the same, and therefore it was an insignificant defect. Damages not the cost of replacing, but the difference in value (which is probably nothing).

o Baird says: This is funny, because Cardozo says they can contract around the rule, and if you read their contract, that is exactly what they did, but Cardozo doesn’t care about facts.

Reynolds v. Armstead (834)

o Ps contract to apply veneer to D’s house, expressly promising to match as close as possible the existing bricks. Ps failed to use such brick, but trial court found that the veneer was otherwise sound, and entered judgment for the contract price for Plaintiffs minus damages for failure to perform fully, which is roughly 50%. Affirmed, because the plaintiff’s breach was “material.”

Contractual Relationships and the Rights of Third PartiesThird Party Beneficiaries

Lawrence v. Fox (858)o Holly gives Fox $300 on the condition that Fox pays off Holly’s debt of $300 to

Lawrence the next day. Fox doesn’t pay off the debt. Lawrence sues Fox. Fox says no consideration and no privity.

o Held: Third party beneficiaries of a contract can sue for damages or to compel enforcement.

o Baird: This is the canonical third party beneficiary case. Seaver v. Ransom (864)

o Husband draws up wife’s will according to her instructions to give $1000 to P, $500 to P’s sister and P’s mother, and $100 to other people, the use of her house for her husband for life, and the remainder to the ASPCA. When the will was read to the old lady she said it was not how she wanted it, and that she wanted to leave the house to the P. She declines having another one written, because she didn’t think she would be alive long enough to sign it, but said she would sign as written if the husband leaves enough to the P to make up the difference. “He avouched the promise by his uplifted hand with all solemnity, and his wife then executed the will.” Husband does not make the provision. P sues estate, claiming that decedent had made a promised and induced his wife to sign the will by that promise.

o Held: Where a legatee promises the testator that he will use the property given him by the will for a specific purpose, a trust arises. Husband was bound by the promise, but no property was bound to it, so no trust in P’s favor. An action for contract damages stands on different ground. Right of the third party is upheld. The tendency in american authority is to permit the gift in all cases and allow the donee/third party beneficiary to recover on the contract. Draws distinction between implied promise and legacy.

Restatement of Contracts Second § 302 Intended and Incidental Beneficiaries (869)o (1) Unless otherwise agreed between promisor and promisee, beneficiary of a

promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either:(a) the performance of the promise will satisfy and obligation of the promisee to pay money to the beneficiary or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

o (2) An incidental beneficiary is a beneficiary who is not an intended beneficiary. Pierce Assocs. v. Nemours Foundation (871)

o Language of the contract must be evaluated in context. Parties may depart from typical patterns of relationships but the intent to do so must be found in the contract documents.

Assignment and Delegation

Macke Co. v. Pizza of Gaithersberg, Inc. (899)o D contracts with Virginia to supply beverages for its vending machines. Virginia

is bought out by Macke, and D attempts to terminate the contract, and Macke sues. D alleges they liked Virginia better and had bad experiences with Macke, and hired Virginia because they didn’t want to hire Macke.

o Held: In the absence of a contrary position, rights and duties under a bilateral contract may be assigned or delegated subject to the exeception that duties under a contract to provide services may never be delegated, nor rights be assigned where “delectus personae” (a specific person) was an agreement in the bargain. Amazing people are important, but ditch diggers are fungible. Pizza place can’t get out of it, because specific performer is not a part of the contract, and duties may be delegated.

Crane Ice Cream Co. v. Terminal Freezing and Heating Co.o Frederick has a contract with Terminal, sells business to Crane, and D refuses to

deliver to Crane, and they are allowed to do it because Terminal made a contract with an individual who they trusted.

Tortious Interference with Contractual Relations Lumley v. Gye (912)

o Lumley had made a contract with Wagner to perform at his opera house. Gye then induces breach by offering Wagner a better contract to perform at his better opera house. Lumley sues for tortious interference. Lumley sues based on a 1350 statute that made it a tort to hire away another’s service.

o Held: Lumley wins based on this argument. o Baird Says: What damages? o Cases tend to go back to Lumley v. Gye, like the Pennzoil case from the 1980s.

Pennzoil has a deal with Getty (in principle.) Texaco, a NY company, goes to Getty and says you are having these negotiations with Pennzoil, have you signed anything? Getty says no. Texaco offers more, and enters into a deal with Getty.

Pennzoil sues under Lumley v. Gye. Does Lumley v. Gye apply when there is not actually a contract yet? Pennzoil tries to enjoin Getty from selling. Pennzoil tries to get an injunction. Texaco is served but doesn’t show. Delaware denies relief. At this point, Pennzoil wants to sue everyone in Texas. Pennzoil is a Texas firm. Pennzoil claims “a man’s word is his bond.” Pennzoil wanted to go to Texas to argue this in front of a Texas jury. Getty says you can’t do that, because you already sued us in Delaware.

So Pennzoil sues Texaco, saying that Texaco interfered with the contract. Pennzoil wins, and claims damages of all of Getty’s revenue. Pennzoil get $10 billion dollars from this award. Case was probably settled for about 4 billion, of which Pennzoil’s lawyer got about 10%.

Della Penna v. Toyota Motor Sales USA Inc. (914)o Della Penna resells Toyotas. He buys Lexuses and resells them to Japan, which

was prohibited by Toyota’s contract with the dealer from whom he purchased the cars. Toyota tries to enforce the contract with the dealer, and Della Penna sues for tortious interference with contract.

o Held: Toyota has an ongoing contract with the dealers, and Della Penna makes a new contract every time he buys car. There is a difference between interfering with a currently existing contract and someone getting in to an existing contract. If you prevent someone from entering into a contract, it is not malicious interference. Della Penna must plead and prove that Toyota knowingly interfered with prospective contract and did something wrongful other than interfere.

o Baird Says: Della Penna is interfering with Toyota’s contractual relationships, not the other way around.

J.D. Edwards and Co. v. Podany (918)o Company contracted to sell computer services and the buyer breached the

contract. Computer services company sues consultant claiming tortious interference. The issue is whether the jury was entitled to reject the “consultant’s privilege,” which allows a consultant to provide good faith advice to their employer without liability should the advice harm a third party. The facts indicate that Podany gave the advice in order to promote his own advantage, not as good faith advice to a third party.

o Held: “Consultant’s privilege” does not apply in cases where the consultant is acting to further his own interest, and not providing advice in good faith.