Contracts Notes and Briefs Semester One

7/30/2019 Contracts Notes and Briefs Semester One

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Contracts

Approaching a Contract Fact Pattern

Is there a proper contract? `

What are the terms?Are the terms enforceable?

What was the nature of the breach?

What are the nature of the damages?

What is the most appropriate remedy?

Introduction Chapter: Blum pg. 1-16

Contract: An exchange relationship between two or more parties created by written or oral agreement,

containing at least one promise, and recognized by law as enforceable. AEPE

UCC 71 pg. 144

1. Created by oral or written agreement between two or more parties2. An exchange relationship3. At least one promise4. Legal enforceability

Oral/Written Agreement between Two or more Persons

There need only be two persons but there is no limit to the number of parties that may be involved The parties, acting with free will and intent to be bound, reach agreement with the essential terms of

the exchange

Agreement only means that the words and conduct of a party, when considered objectively, wouldallow the other party reasonably to understand that agreement was reached

Free will/volition need not be taken too literally, there may exist pressures on either party to makethe exchange HOWEVER volition does mean that a party cannot be improperly coerced or tricked

into a contract

A contract need not be written to be binding. Although it is more difficult to prove the terms of anoral contract, they are still enforceable if successfully established

An Exchange Relationship

Exchange is an essential element of any contract- the trade of property, services, and/or intangiblerights give up something to get something

A contract results when an agreement has been reached leading to the reciprocal exchange for thebetterment (real or perceived) of both parties


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Promise

Instantaneous exchanges do not constitute contracts, there must exist a commitment for the future, aassumption of liability lasting beyond the instant agreement

A promise is an undertaking to act or refrain from acting in a specified way at some point in thefuture

May be express OR implied Only one promise need exist. Ex. You may have a promise of future action in return for an

immediate action

Legal Enforceability

Contracts act as laws governing private relationships, but when breached the terms of the contract,binding on the parties, is capable of being enforced through the compulsive power of the state

Enforcement of the promise is NOT the primary remedy for breach of contract but rather therewould be a judgment awarding compensatory damages to the disappointed party

Disappointed party MUST prove the breach caused financial loss

Fundamental Policies and Values of Contract Law

I. Individual Autonomy Contracting is an exercise of personal liberty and no person may be bound in the absence of the

persons assent

Ideological basis of contract freedom stems from the notion that market relationships/exchanges aremost efficient when its participants desire them and a free to bargain and reach mutually desirable

terms

Contract liberty is important however it is subject to limitations justified by the need to protect therights of others or the demands of public interest

II. Imbalance of Bargaining Power and Adhesion In many instances, one of the parties has greater sophistication and bargaining power than the other When one part dictates the terms and presents it on a take it or leave it basis, they are considered

contracts of adhesion (the weaker party has no choice but to adhere to the desires of the other)

General policy is not to interfere with contracts because there is an element of adhesion HOWEVERthere are safe guards to prevent abuse

Judicial intervention is possible when a partys conduct becomes unfair or improperIII. The Morality of PromisePacta Sunt Servanda Pacta sunt servanda agreements must be kept reflects the inherent moral dimension of contracts Although the roles morals play is subtle, courts tend to react unfavorably to deliberate breaches,

especially if motivated by bad faith

IV. Accountability for Conduct and Reliance


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Volition is not (and cannot be for practical reasons) measured by the true and actual state of mindof a party, but rather by their actions (their state of mind as made apparent to the outside world)

Reasonable reliance (trust in the other partys intentions and actions) is key The sense of reliance called security of contracts or security of transactions provides an

incentive to make and fulfill contracts

VI. Commercial and Social Values One role of contract law is to facilitate transactions within the context of a free market economy ON THE OTHER HAND another important function of contract law is to regulate free market

forces and promote important social values such as fairness in dealings and protection of weaker

parties

Contracts Introduction Dawson pg. 1-9

Measuring Compensation/Damages

Restitution InterestThe interest of a party in recovering values conferred on the other party through efforts to

perform a contract; party is entitled to recover money/services given to the other

Reliance InterestThe interest of a party in recovering losses suffered by virtue of reliance on the contract,

whether or not there was a corresponding gain to the opposite party; restoring the party to

where they were before the contract

Expectation InterestThe interest of a party in realizing the value of the expectancy that was created by the other

promise; putting the party in the place where they should have been had the contract beenfulfilled

Hawkins v. McGee (New Hampshire 1929) pg. 2-9

Expectation interest: P is entitled to be put in the position they would have been in had the terms ofcontract been fulfilled

Groves v. Wunders pg. 9-20

A person is entitled to contract services for whatever they desire provided it is a legal endeavor. Acontractor, paid in full for the service desired, has no right to stop performing simply because they

do not feel it is beneficial. The owner is entitled to compensation for what he has lost, that is, the

work or structure which has been promised, for which he has paid, and of which he has been

deprived by the contractors breach.


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COMPENSATION BY THE BREACHER

When a promisor breaches a legally enforceable promise, the court will require the promisor to compensate

the promisee for the damage the breach causes. Compensation is almost always in the form of money.

Opportunistic breaches are frowned upon; the breacher wants the benefit of the bargain without bearing theagreed upon cost and exploits the inadequacies of purely compensatory damages

THE EXPECTATION MEASURE OF DAMAGES

The basic rule is: award the non-breaching party enough money to put that party in the same position he or

she would have been if the contract had been performed:

(1) Figure out what the position of the non-breaching party would have been if the promise had not been

breached;

(2) Figure out the position that the non-breacher is presently in as a result of the breach;

(3) Figure how much he or she needs to get from the present position to the position he or she would have

been in if the contract had been performed.

THE EXPECTATION/MITIGATION MEASURE

(1) Figure out what the position of the non-breaching party would have been if the promise had been kept;

(2) Figure out the position that the non-breacher would be in after the breach--provided the non-breacher di

whatever was reasonably possible to mitigate damages;

(3) Figure how much he or she needs to get from the position described in (2) to the would-have-been-in

position of (1).

This is really how courts figure out expectation damages. Doing everything reasonably possible to

mitigate damages is called PROPER MITIGATION.

Acme Mills & Elevator Co. v. Johnson pg. 21

In contracts for the delivery of personal property at a fixed time and at a designated place, themeasure of damages is the difference between the contract price and the market price of the property

at the time and place of delivery.


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Determining Remedies for Breach of Contract

1. Determine the nature and extent of Ps compensable loss including harm suffered and the availabilitof remedies.

2. If more than one remedy is available, decide which most efficiently and comprehensivelycompensates for it

3. Take into account any policies or principles that may limit the defendants liability for lossBasic Considerations

1) Damages for breach of contract are awarded to compensate for injury caused by the breach that is

foreseeable and reasonably within the contemplation of the parties at the time the contract was formed.

2) To recover damages the plaintiff need only show a stable foundation for a reasonable estimate of

royalties he would have earned had defendant not breached.

3) The law awards damages for breach of contract to compensate for injury caused by breach. Such an

injury must be foreseeable and reasonably within the contemplation of the parties at the time the contractwas entered into.

4) The injured party should not recover more from the breach than he would have gained had the contract

been fully performed.

Efficient Breach

If the defendants cost to perform would exceed the benefit that performance would give to both parties,

they may breach and still spend less in compensatory damages then they would have performing the terms

of the contract. (This would need to be in a perfect world of stable markets etc. and seldom happens)

Calculating Expectation Damages

Ps loss in value caused by cost or loss

Non-performance + consequential/incidental - avoided when DDamages breached

Damages in Breach of Contract

Who Breached?Buyer Seller


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Reasonable Cover? Reasonable Resale?

Yes No Yes No

2-712 2-713 2-706 2-708

CP-KP MK-KP KP-RP KP-MP

Exceptions:

When market value is below contracted value

When seller is a whole-sale seller

Limiting Principles of Damages UCC 352 pg. 173

1. Uncertainty: damages are not recoverable for loss beyond an amount that the evidencepermits to be established with reasonable certainty. No speculation

2. Un-foreseeability:a. Damages are not recoverable for loss that the party in breach did not have

reason to foresee as a probable result of the breach when the contract was

made

b. Loss may be foreseeable if it (Foreseeability Test)1. Is in the ordinary course of events OR2. As a result of special circumstance, beyond the ordinary course of

events, that the party in breach had reason to know (known or

should have known) at the time of the contract (not the moment ofbreach)

You do not need to prove that it was foreseen- merely reasonably

foreseeable!

The breach need not be foreseeable, the damages need to be!

c. A court may limit damages for foreseeable loss and instead use reliance aan estimate for damages if is necessary to avoid disproportionate

compensation

d. Tacit Agreement Test Old View NO LONGER USED: very restrictivewhere D must have agreed to the special terms of the contract explicitly o

implicitly

Liquidating Clauses

A liquidated damage clause is basically a clause in a contract that says what damages the breacherwill owe the non-breacher in the event of breach. Such a clause is said to "liquidate" damages.

Courts do not always enforce liquidated damage clauses.

The black letter law on enforceability: a liquidated damages clause is enforceable only when


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1. the actual damages from a breach would have been difficult to determine accuratelyat the time of contracting AND

2. The amount of damages specified in the clausea. Must be a reasonable estimate of damages, where estimate is made at the

time of contracting; OR

b. Reasonably proportional to the actual damages as determined at the timeof the trial.

Jurisdictions split between A and B. A is a more lenient attitude

Loss Due to Emotional Distress 2-353

Recovery is excluded unless1. the breach also caused bodily harm or the contract OR2. the breach is such that serious emotional disturbance was a particularly likely result

Punitive Damages 2-355

not recoverable for a breach of contract unless the conduct constituting the breach is also a tort forwhich punitive damages are recoverable

THE RESTITUTION ALTERNATIVE

RESTITUTION

Restitution is not strictly a contracts claim and more often than not having a valid contract lessens the

recourse of restitution.

When the defendant has substantially breached the contract: one can ignore the specific terms of the contrac

To recover money in restitution, you must show:(1) that you conferred a benefit on the defendant, AND

(2) that it would be unjust to allow the defendant to retain that benefit.

If you succeed in showing (1) and (2), you are entitled to the reasonable value of the benefit conferred.

P can ONLY recover benefits conveyed from P to D,not to any other parties (reliance)

Determining Damages

Courts have great discretionary power in evaluating damages they could use,

1. Market Value of the benefit conveyed2. Value of the benefit to the recipient

Determining Substantial Breach (assumes other side Substantially Performed)1. Was the breach "willful" (i.e., particularly reprehensible)?2. To what extent did the breacher perform his or her contractual duties; the more work left to be done

the more that counts in favor of finding a substantial breach.

3. To what extent would awarding expectation damages adequately compensate the NON-BREACHER; the more adequate the expectation award, the more that counts against finding a

substantial breach (equivalently, in favor of finding substantial performance).


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4. Would it under-compensate THE BREACHER to force the breacher to sue in restitution? If so, thatweighs AGAINST finding a substantial breach.

Boone v. Coe 99Facts: The defendant made an oral contract with the plaintiffs to move to Texas and work on his farm for a

year. When they got there, the defendant repudiated and the plaintiffs had to go back to Kentucky. Theplaintiffs sued for the cost of making the trip. The defendants demurred and won dismissal of the case. Thplaintiffs appealed.Issue: Can the plaintiffs recover reliance damages on a contract that is unenforceable under the statute offrauds?Rule: Damages cannot be recovered when a contract is held to be unenforceable under the statute of fraudsunless the defendant receives benefit from part performance of a service contract, in which case the plaintifmay obtain restitution for services rendered.Analysis: Because the defendant received no benefit, he has no obligation to pay, since the contract wasunenforceable in the first place.Conclusion: The judgment of the lower court was affirmed.

United States v. Algernon Blair, Inc.103-105Facts: A subcontractor, Coastal, starting doing work for a primary contractor, Blair. Blair refused to makecertain payments and Coastal stopped work. The subcontractor brought suit against the primary contractorto recover for the services rendered.Issue: Can a subcontractor recover damages for services rendered when the primary contractor breaches acontract even if the subcontractor would have lost money if they had completed the contract?Rule:If expectation damages are insufficient to cover the plaintiffs losses, the plaintiff may substitutereliance damages.Analysis:Coastal is entitled to damages for services rendered because Blair has benefited from Coastalsloss. The damages should be measured by the replacement value of the labor and equipment provided by

Coastal.Conclusion: The case was reversed and remanded to find out how much the services that Coastal renderedwere worth.

The Doing and Giving Problem

If the completed work is not delivered so that D receives a benefit from it, P, by his work andmaterial does not lay the foundation for recovery under the common counts; a fair number ofpreparation cases will involve agreements that are unenforceable for some reason (usually nowriting was made) and a damage therefore is unavailable, even one restricted to reliance loss.

Kearns v Andree 105

Facts:P made several modifications to a home at Ds requests in good faith expecting D to follow throughand purchase the property. Court held that while P could not recover the difference btw the contract and theresale price (b/c there had been no enforceable contract made) nor could he recover the costs to adapt whatD wanted to suit the second buyer, P could recover the cost to do what D had request because it was doneunder the terms of an oral agreement to enter into a contract of sale.Holding: P is entitled to the cost of making changes at Ds request less the cost the work also benefitted P

Oliver v. Campbell 107


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Facts: P, a lawyer, was terminated after a divorce proceeding but before the signing of the judgment was

complete. Given that P had already performed he was entitled to the contract price of his performance not

any other value of the work he had done. A party should not benefit by getting more for their performed

services than what was contracted in the first place.

Holding: The remedy of restitution is not available for the one who has fully performed if the only term no

met at that point is monetary compensation.

Why would he even seek restitution? What would have been the benefit? Was he looking to retroactively up

his price?

Britton v. Turner117

Facts: The plaintiff and defendant made a one-year employment contract for 120. The plaintiff stopped

working after 9.5 months and is seeking compensation under quantum meruit. The jury awarded him $95

for the work he had performed. The defendant appealed on the basis that the plaintiff should get nothing

because the work had been done under a so-called special contract. P left without good cause; D sufferedno real damages as a result of the breach

Issue: Can P recover the reasonable cost of his completed work under the count quantum meruit?

Holding: Yes, P may recover. D has not shown damages nor sought to limited compensation based on the

breach.

Reasoning: Old rules: 1.Where a party is contracted for special labor and breaches, the breacher cannot

seek recovery for the labor already preformed. 2. A party contracted which breaches before work begins is

only liable for the damages caused to the other party by non-performance. 3. For any compensation the

labor must be completed as contracted. On the whole these rules offer little justice in cases where a party

breaches with no damages to the other and the other party, by not having to pay for labor performed, has

been unjustly enriched.New Rule: A hired laborer is entitled to compensation for work actually performed unless there is an

express stipulation to the contrary in the contract.

Why reward employees who quit without just cause? Courts are aware, and gross misconduct triggers

common law forfeiture doctrine under which employee owes employer nothing.

Thach v. Durham 121

Facts: A defaulting buyer recovered his down payment of 3,100 for sheep

Reasoning: Should down payments be recoverable? No. Requiring a seller to hold a down payment in case

a buyer changes his mind is counter to the purpose of a down payment which is intended to give the seller

assurance of a future sale.

Holding: No, one who breaks his contract should not be favored over one who takes his losses and

completes performance, nor should he be favored over the other party to the contract who is willing to

perform.


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Developing Common Law:

The rule follows where its reason leads; where the reason stops, there stops the rule.

Pinches v. Swedish Evangelical Lutheran Church 123

Facts: The plaintiff built a church for the defendant. It wasnt exactly the way the defendant wanted it, but

it was good enough to be beneficial to the defendant. D refused to pay, P sued for restitution.

Issue: Can the plaintiff recover for the services rendered and value of the materials if he violated the

contract by good faith mistake?

Rule: The plaintiff is entitled to the contract price less the diminution of value of the church due to the

plaintiffs departure from the agreed-upon specifications.

Reasoning: The church gives value to the defendants. To fix it and make it in compliance with the contract

would cost so much that the plaintiff would not get any compensation. However, the court thinks the

plaintiff is entitled to restitution, because otherwise the church will have a benefit while the plaintiff will

have a hole in his pocket. (Unjust Enrichment and Economic Waste considerations)

When the breach of the promisee is not willful or deliberate he may recover as much as his effortshave benefitted the promisor

When the breach is by the promisor, the promise may abandon the contract and recover in restitutionthe market value of his labor; not limited by contract rate but still capped at the contract price

Willful Breach126

Willful and deliberate breach may preclude restitution however, the pertinent inquiry is not whether the

breach was willful but whether the behavior of the party in default comports with standards of good faith

and fair dealing.

Limits on Liquidated Damages

Contract clause fixing damages in the event of breach is enforceable

ONLY IF It constitutes an amount that is a reasonable in light of the forecasted injury OR actual losresulting from breach (second look) AND THEN

ONLY IF the injury is difficult to measure

Muldon v. Lynch (1885) 135Plaintiff agreed in writing to create for defendant in a San Francisco cemetery a marble monument, to be

completed within 12 months for $18,788. The contract stipulated a "forfeiture" of $10/day for every day it

was late. The marble waited for over two years in Italy, and the defendant tried to withold $7820 because of

lateness. Defendant must pay entire price, as defendant had not suffered any damages that could be

monetarily compensated, and the payment was therefore a penalty which cannot be recovered. (Anyway, th

contract used "forfeiture", which is equivalent to "penalty".)


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Yockey v. Horn (7th Cir.1989) 137

Yockey and Horn parted ways with an agreement not to participate in a suit against the other, with breach

bringing damages of $50,000. Horn later voluntarily testified in a $110,000 suit against Yockey by a third

party. Does Horn's action warrant Yockey's recovery of $50,000 because of the liquidated damages clause?

Rest.2d 356 holds that a liquidated damages clause is enforceable if it was reasonable at the time of

contracting or at the time of injury. Horn's testimony could have hurt Yockey in several hard-to-determine

ways, such as in the business community, and was thus "difficult to evaluate"exactly the purpose of such

a clause. Furthermore, they were also, "what was anticipated."

Salmon Sales, Inc. v. Honeywell, Inc. (1984) 145

Facts: Samson Sales (P) contracted with Morse to have a burglar alarm system installed at Samson Sales

pawn shop. Honeywell (D) assumed responsibility for the agreement when it purchased Morse. A burglary

took place at Samsons shop and Honeywell refused to pay more than $50.

P sued D and sought $68,300 for the value of lost merchandise. P alleged that D was negligent in failing toalert the police after it received the alarm signal. D claimed that its liability was limited to liquidated

damages of $50 as per the terms of the contract. The court entered summary judgment in favor of P but

limited damages to $50. P appealed. The court of appeals held that the provision for liquidated damages wa

a penalty, and the small standard print of the contract, prepared by Morse, contradicted the clear promises in

paragraph 8 and the exculpatory clause which modified the substantive provisions of paragraph 18. D

appealed.

Issue: What must the amount of liquidated damages in a contract be based upon in order to avoid being

determined to be a penalty clause?

Holding and Rule: The sum in a liquidated damages clause must be a reasonable estimate of the damages

incurred or it will act as a penalty clause.Reasonable compensation for actual damages is the objective of liquidated damage provisions. If the parties

have agreed on the amount of damages, ascertained by estimation and adjustment, and have expressed this

agreement in clear and unambiguous terms, the amount so fixed should be treated as liquidated damages an

not as a penalty, if the damages would be (1) uncertain as to amount and difficult of proof, and if (2) the

contract as a whole is not so manifestly unconscionable, unreasonable, and disproportionate in amount as to

justify the conclusion that it does not express the true intention of the parties, and if (3) the contract is

consistent with the conclusion that it was the intention of the parties that damages in the amount stated

should follow the breach thereof.

Under these facts, the damages herein are easily estimable. The stated sum of $50 is manifestly

disproportionate to the consideration paid or the possible damage that reasonably could be foreseen from th

failure to notify the police of the burglary.

Disposition: Affirmed.

Notes: In this case the amount paid by P over the contract term and the protection it received from D in the

event of Ds failure to perform the contract was grossly disproportionate. A clause in the contract limiting

liability to a reasonable amount may have been deemed valid.


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Enforcement in Equity

Manchester Dairy System v. Hayward, 82 N.H. 193, 132 A. 12 (1926)

Manchester sued Hayward for failing to deliver milk from his cows. The contract stipulated that the

damages from a breach by one party would be hard to calculate, that there would be liquidated damages of

$5 per cow, and that plaintiff would be entitled to specific performance.Held: (Parties cannot by contract

decide for specific performance.) The $5 was inadequate, because the damages were far-reaching could not

be measured. Specific performance is appropriate, because of the difficulty in assessing damages and to

keep others from breaching. (Instead of affirmative specific performance, negative specific performance, in

which the farmer cannot sell to others rather than being forced to sell to plaintiff, might be more manageabl

to the court.)

Curtice Bros Co v. CattsCanning plant sued farmer for not delivering his entire crop of tomatoes. (Specific performance can be

administered for real estate or for personal property.) Specific performance is proper. Delivery of the

tomatoes might not be able to be replaced monetarily, and this would directly affect the economic viability

of the factory. "The breach of the contract by one planter differs but in degree from a breach by all."

Factors Affecting Adequacy of Damages

1. Difficulty in proving damages with certainty2. Difficulty in procuring a suitable substitute performance by means of money awarded as damages3.

Likelihood than an award of damages could not be collected

Fitzpatrick v. Michael

Michael, after the death of his wife, asked Fitzpatrick, their nurse, to manage the house, drive the car, andcare for him when ill. In return, Michael would pay her $8/week and would in his will award her the houseand cars. About two years later, Michael changed his mind. Given the nature of the contract (which was notwritten) the statute of Frauds bars action on the contract. Is specific performance appropriate for renderingservices?Held: No, because services (as opposed to property) are in general so personal there is no desire oability of the court to enforce general performance without the assent of both parties. Executory Contact: contract has not yet been performed in full

CONSIDERATION THEORY

Consideration Theory: Oliver W. Holmes 1880 lecture became the foundational concept; let parties make

their own contracts without interference; individualism; gives and means to construct enforceable promises

(and means to construct unenforceable ones)


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So when you are beginning a contracts fact pattern, you first need to establish if there was a legally

enforceable contract in play. There were three categories of enforceable promises we discussed Friday

(maybe there are more I dont know) In the restatement 71, 90 and 86. 71 is by far the most common

(consideration theory) and you always begin by checking to see if your fact pattern falls into this. If not 71,

then move to 90 or 86 and see if those work but ALWAYS begin with analyzing the contract in the context

of 71.

Domain of Legally Enforceable Promises

Consideration Theory (always begin with this) Restatement 2

71 Requirement of Exchange; Types of exchange (144)1) Performance or return promise must be bargained for2) bargained for if it is sought by the promisor in exchange for his promise and is given

by the promise in exchange for his promise and is given by the promise in exchange for

that promise (reciprocal inducement)3) Performanc may consist of

a) An act other than a promise ORb) A forebearance ORc) The creation, modification, or destruction of a legal relation

4) Performance or return promise may be given to the promisor or to some other person; itmay be given by the promise or by some other person

90 Promise Reasonably Inducing Action or Forbearance (147)1) A promise which the promisor would reasonably expect to induce action or forebearance

on the part of the promise

86 Promise for Benefit Received (147)1) Promise made in recognition of a benefit previously received by the promisor from the

promise is binding to the extent necessary to prevent injustice

2) Promise is not binding under subsection 1 ifa) Promise conferred the benefit as a gift or for other reasons the promisor has not

been unjustly enriched

Webb v. McGowin How to Approach Consideration (217)

Does consideration apply? No. Why?

Which does? 90 Benefit received

Promise made in recognition of benefit previously received?Injustice?

Congregation Kadimah Toras-Moshe v. DeLeo, Supreme Judicial Court of Massachusetts (1989)

A dying man makes a promise to give money to a synagogue, put the expected money into their budget, and

promised to convert a storage room into a library and name it after him. Should the estate be held to the


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man's oral statement? Held No, there was no consideration, as the synagogue declared their intention of

what to do with the money independent of the man's promise. (Putting the money in the budget does not

constitute reliance, but merely a record of the synagogue to itself that it expected the money.)

71 apply? No. 86? No. 90? No.

Hamer v. Sidway, Court of Appeals of New York (1891)

Uncle promised nephew that, if the nephew would not drink, use tobacco, swear, or play cards until his 21s

birthday, the uncle would give him $5,000. The nephew did so, and after the uncle died the nephew brought

this action against the estate. Should the uncle be held to the promise, even if the nephew's actions helped

the nephew rather than hurt him? Issue: Was there proper consideration on the part of the nephew?

Held Yes; a suspension of a legal right is consideration, regardless of whether it helps or hurts the party.

Whether there was a benefit to the nephew is irrelevant. What benefit did the Uncle get? Doesnt matter, he

was the promisor seeking a performance which was rendered. Enforceable under consideration theory.

Earle v. Angell

Motivations are irrelevant; deprivations in fact are not important, merely legal deprivations

Fischer v. Union Trust Co., pg. 201

Facts: A father gave his daughter a deed to his land, on which there were several mortgages, and in return

the daughter gave him a dollar. After his death, the mortgages were not paid. Was there enough

consideration to make this a valid contract?

Held: No; the dollar was obviously in context just a joke. The real consideration was the daughter's love and

affection, which was meritorious but not sufficient to make this a contract rather than a gift. Since the fathedidn't pay the mortgages, the gift was not completed and, being null in one part, is null in its entirety.

Duncan v. Black206

Facts: Black contracted to sell Duncan 359 acres of farm land, with a 65 acre cotton allotment. The cotton

allotment system was set up by the Secretary of Agriculture. When the land was only allotted 49.6 acres,

Black let Duncan use a 15.4 acre allotment on adjacent land, but the next year Black refused to do the same

Is a land allotment valid consideration?

Held: No; Consideration the party has no control over is not valid. Land under the Act was only allotted

every year, so there is no way to know what land will be allotted the next year. Trying to sell an allotment i

like the "purchase of the green cheese monopoly on the moon." (Besides, selling an allotment would

therefore be illegal) Consideration needs good faith claim and the claim must have some legal validity

SECTION 86 PROMISE FOR BENEFIT RECEIVED

Mills v. Wyman(1825) 211 (Moral obligations do not create legal obligations)


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Facts: Levi Wyman returned from a voyage at sea and fell sick among strangers. Mills (P) gave Levi

Wyman shelter and comfort until he died (5 th-20th). After Levis death his father Wyman (D) wrote to Mills

and told him he would pay all of the expenses for the care of his son (24th

). Wyman later refused to pay and

Mills sued. At trial the court directed a non-suit in favor of D because there was no consideration. P

appealed.

Issue: Is a moral obligation sufficient consideration to make a promise enforceable? Is past consideration

sufficient consideration to make a promise enforceable?

Holding and Rule: No and no. The court stated that moral obligation is sufficient consideration in some cases but

not under these facts. Moral obligation is sufficient consideration under the following circumstances: debts barred by

the statute of limitations, debts incurred by infants, and debts of bankrupts. In such cases, enforcing promises based o

preexisting equitable obligations may be enforced because they merely remove an impediment created by the law to

enforce debts that are due, but which public policy protects debtors from being compelled to pay.

In this case, however, the services provided to Ds son were not bestowed at his request. The son had left hi

fathers family and was not under Ds care when he died. The court held that the general position that mora

obligation is a sufficient consideration for an express promise is to be limited in its application to cases

where at some time or other a good or valuable consideration has existed.

If the boy had been a minor, then the father would have had he duty to care for him, and in doing this, P

would have conferred and economic benefit to D and in that case, it would fall under 86. However, the

father had no obligation to care for his emancipated son, and no benefit was incurred unto him by P.

Webb v. McGowin(1935) 216

Facts: Webb (P) and McGowin (D) worked at a mill. Webb was releasing a 75-pound block of wood to the

floor of the mill below when he noticed McGowin standing where the block would have fallen. Webb fell

with the block in order to save McGowins life and broke his arm and leg and ripped his heel off, leaving

him permanently disabled and incapable of performing either physical or mental work. McGowin promised

to pay Webb $15 every two weeks for the rest of Webbs life. Webb received the payments until McGowin

died eight years later. Webb sued the executors of McGowins estate when the payments stopped. At trial, D

obtained a nonsuit against P and P appealed.

Issue: Can moral consideration create an enforceable promise if the promisor has received a material

benefit constituting a valid consideration for his promise?

Holding/Rule: Yes. In this case, the fact that P saved McGowin from death or grievous bodily harm was a

material benefit to McGowin. Upon receiving this benefit, McGowin became morally bound to compensate

P and as such expressly agreed to compensate P. When the promisee cares for, improves and preserves the

property of the promisor, even without a request to do so, it is sufficient consideration for the subsequent

agreement to pay for the service because of the material benefit received directly by the party. Once P savedMcGowin from death or grievous bodily harm and McGowin subsequently agreed to pay him for the servic

rendered it became an enforceable contract.

RELIANCE ON A PROMISE (SEC. 90 Promise Reasonably Inducing Action or Forbearance)

Hoffman v. Red Owl


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Kirksey v. Kirksey (1845)

Defendant, upon hearing that his brother had died, told his brother's wife and children to come live on some

of his land. They abandoned their house, seventy miles away. Two years later he told them to move off his

land. Does reliance on defendant's promise make the promise enforceable? Held: No, defendant's promise

was "a mere gratuity"

Ricketts v. Scothorn (1898)

Katie's grandfather promised to pay her $2000 if she were to quit her job (because none of his grandchildren

should work), so she quit her job. Does quitting her job, relying on his promise, equitably estop the need for

consideration? Held: Yes; the plaintiff altered her position for the worse on the faith that the note would be

paid. The court manipulated the rules of equitable estoppel; they ruled that D was estopped from alleging

that the contract was lacking an essential element (consideration) to protect Katie

Prescott v. Jones (1898)

Defendant insurance agents sent a letter saying they would renew an insurance policy for another year

unless the plaintiff notified them otherwise. When the building was destroyed by fire, the defendants

maintained the policy was not in effect. Held: The plaintiff did not pursue any actions in return (such as

answering with a letter) so there was acceptance and no contract. The statement by the defendant was not a

statement of fact but of future intentions, subject to be modified, and therefore the doctrine of estoppel does

not apply.

Unlike Rickets v Scothorn, the court was unwilling to manipulate the doctrine of equitable estoppel to

protect the P however their interpretation is technically correct

Allegheny College v. National Chautauqua County Bank (1927)

A woman promised a $5,000 donation to the college after her death if they would set up a fund in her name

She gave them $1,000, the plaintiff accepted, and then plaintiff sued for the rest after her death. Held: The

condition of the fund in her name was sufficient consideration, and the plaintiff accepted those terms, so

there is a valid contract with no need to consider promisory estoppel. (The general rule is that consideration

must be a benefit to the promisor or a detriment to the promisee, and that detriment must be something

bargained for in exchange for the promise. Promisory estoppel is really an exception to this rule, in which

the detriment is something that isn't necessarily a bargained for condition but is nevertheless done in

reliance of the promise, estopping the need for consideration.)

First National Bank of Logansport v. Logan Mfg. Co. (1991)

Bank promises to loan Ps $100,000 if they will open a business in the town. After a few loans not equal to

the $100,000, and loan commitment papers, the bank refused further loans. P sued bank for damages as a

result of refusal to loan. There was a promise, even though there was not a contract. Participation in the

business had been suggested by the bank, which represented to P they would provide the financing. Ps


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relied on this promise to their detriment, meeting the elements of promissory estoppel under restatement 90

Bank should have put in clause that getting loan was subject to their best effort. Epstein wouldnt have

treated this as a promise.

Mahban v. MGM Grand Hotels, Inc. (1984)

(P) Shop in hotel had lease clause permitting either party to terminate if the leased premises are damaged or

destroyed to such an extent that they cannot be put into tenantable condition by Lessor within 180 days afte

such damage or destruction. Fire damaged hotel. About ten weeks later, P received letter from D stating

that targeted date for reopening and stating plans for reconstruction must be submitted for approval. P relie

on letter by ordering merchandise to restock; P later received letter terminating lease. Promise can be

enforced; Letter sounds like a waiver to the release clause, and also was reasonable for P to rely on it.

Stearns v. Emery-Waterhouse Co. (1991)

D extended P an oral contract for five years if he would quit his current job and move to Maine to take a

new job. P did, and D fired him after 2 years. Issue: Can an employee avoid the statute of frauds based

solely upon his detrimental reliance on an employers oral promise of continued employment? Perhaps, but

not in this case. Equitable estoppel has been applied for that reason, but in this case, Promissory Estoppel

does not apply; there was no reliance by moving because every employment offer is going to cause you to

quit your old job.

Restatement 87 Option Contract: an offer that cannot be revoked

(1)An offer is binding as an option contract if it(a) Is in writing and signed by the offeror, recites a purported consideration for the making of the

offer, and proposes an exchange on fair terms within a reasonable time; or(b)Is made irrevocable by statute

How can you identify an option contract issue? Offerer attempts to revoke a written offer, and offeree

attempts to accept. If the offer is revocable = no contract; offer is irrevocable = contract

Thomason v. Bescher 1918 261

Facts: The Beschers (defendants) signed a contract under seal to sell a tract of land to C.E. Thomason

(plaintiff) in consideration of the sum of one dollar to [them] in hand paid by C.E. Thomason, the receipt o

which is hereby acknowledged. The contract stated that it would go into effect as long as Thomason asked

for the deed and paid $6,000 by a certain date. A few days later, well before the expiration of the option,Thomason promised to pay the $6,000 the following week, but the Beschers told him that the option given

to him had been withdrawn. Thomason brought suit for specific performance. The trial court found that the

one dollar consideration had in fact not been paid, but also that Thomason was at all times able and willing

to pay the $6,000. The trial court then ruled in favor of Thomason and granted specific performance.

Issue: Are offers under seal enforceable at equity?


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Rule: Instruments under seal are binding at common law even without consideration. When the offer is

accepted, it becomes a bilateral contract enforceable at equity.

Analysis: The court finds that the sealed instrument is effective to bind the offerors to keep their offer open

until the date they said they would. The plaintiff was ready to give him the money before that date, and the

defendants refused, breaking their sealed promise.

Conclusion: The trial court is upheld; the plaintiff has a right to specific performance.

James Baird Co. v. Gimbel Bros. 1933 pg. 265

Facts: Gimbel Brothers (D) sent subcontractor bids to approximately 20 to 30 contractors, offering to suppl

all of the linoleum for the construction of a building for the Pennsylvania Department of Highways. In

preparing the bid Gimbel Brothers underestimated the size of the project by 50% and therefore mistakenly

quoted a price that was only half the necessary amount. Contractor James Baird Co. (P) received the offer

and used the quoted price to submit a bid on the main contract. Later the same day Gimbel realized the

mistake and retracted the bid by telegraph and quoted a new price approximately twice that of the original.James Baird did not receive the retraction until after submitting the bid on the main contract and was

awarded the main contract two days later. James Baird formally accepted Gimbel Brothers offer two days

after receiving Gimbel Brothers withdrawal of the offer. Gimbel Brothers refused to recognize the

existence of a contract and James Baird sued for damages. The trial court entered judgment for Gimbel

Brothers and James Baird appealed.

Issue: 1) Can promissory estoppel be used to enforce an offer that is not meant to become binding until

consideration has been received? 2) Does promissory estoppel render a subcontractors bid irrevocable?

Holding and Rule (Learned Hand): 1) No. Promissory estoppel cannot be asserted to compel an offeror to

perform where the offer is not meant to become a binding contract until consideration has been received. 2)

No. Promissory estoppel does not render a subcontractors offer irrevocable even if the contractor has reliedupon it in submitting a bid for a general contract.

Reasoning: The court held that if an offer is withdrawn before it is accepted, the acceptance is too late.

James Baird argued that Gimbel Brothers offer should have been irrevocable in the event James Baird used

it to submit its bid for the general contract and that it would have been an unreasonable hardship to expect i

to lose the contract and forfeit its deposit. Offers are ordinarily made in exchange for a consideration; either

a counter-promise or some other act. In such cases they propose bargains and presuppose that each promise

or performance induces the other. The doctrine of promissory estoppel is used to avoid the harsh results of

allowing the promissor to repudiate when the promisee has acted in reliance upon the promise.

The court held that an offer for an exchange is not meant to become a promise until a consideration has bee

received; either a counter-promise or whatever else is stipulated. Gimbel Brothers offered to deliver the

linoleum in exchange for James Bairds acceptance, not in exchange for James Bairds bid on the general

contract. That offer could become a promise to deliver only when James Baird promised to take and pay for

it. Promissory estoppel is not applicable in this case.

Disposition: Affirmed; Judgment for Gimbel Brothers.


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Drennan v. Star Paving Co,

Can reasonable, justifiable, and foreseeable reliance render an offer binding? What is the test for applying

promissory estoppel? Sec. 90. In order for promissory estoppel to apply there must be: 1) a clear and

definite offer; 2) a reasonable expectation that the offer will induce reliance in the other party; 3) actual and

reasonable reliance by the offeree; and 4) a detriment which only can be avoided by enforcement of theoffer. Star Pavings subcontractor bid constituted a promise to perform under conditions both express and

implied, according to the circumstances. It was silent on revocation and therefore the court determined

whether there were conditions imposed by law or reasonably inferred. The court turned to Restatement (2d)

of Contracts 45; merely acting in justifiable reliance on a unilateral offer is sufficient to make that offer

irrevocable for a reasonable period of time to complete performance.

Promissory estoppel must only be used if there is no consideration. Drennan effectively overruled James

Baird Co. v. Gimbel Bros. Inc. and is the seminal case for the modern approach to applying promissory

estoppel in the context of subcontractor bidding disputes based on mistake.

Was there a reason to know that the offer was a mistake? No. The offer was not unreasonable

CHAPTER 3: WHEN AND HOW PROMISES BECOME ENFORCEABLE

I. MUTUAL ASSENTA. Agreement may be manifested wholly or partly by words, written or spoken, by acts, or even failure

to act.

B. Subjective (what did each party actually perceive) v. Objective (what would a reasonable personhave perceived) approach

C. Objective: places greater emphasis on one partys right to rely on the reasonable expectations createby the apparent agreement of the other (allows for expectation damages, not merely reliance)

Raffles v. Wichelhaus 1864 (later a Sec. 20 A, no mutual assent, no meeting of the minds, no fault by either

Facts: P and D agreed to a sale of cotton to be arriving on a particular ship Peerless with a commonname. There was a misunderstanding over which ship was carrying the cotton, and the buyer refused

to accept the goods when they game. The market price had gone down at that point and to the buyer

mind the cotton was months late.

Issue: Is there a contract if there is no meeting of the minds? the two men subjectivelymisunderstood the terms of the contract

Reasoning: No, if there is a misunderstanding of a material term in the contract there is no mutualassent. Look to what each party perceived (subjective)SEC 20 pg. 140

(1)There is no manifestation of mutual assent to an exchange if the parties attach materially differentmeanings to their manifestations and

a.) Neither party knows nor has reason to know the meaning attached by the other party or


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b.) Each party knows or each party has reason to know the meaning attached by the otherFlower City Painting v. Gumina 1979 (Sec. 20 B No meeting of the minds, no contract)

Facts: Misunderstanding results on a contract between a contractor and subcontractor

Reasoning: No contract under Peerless (Raffles v. W) using the subjective and objective view. Eachparty held a different and reasonable view of the undertaking, Flower on the basis of its literal

reading of the word units and Gumina because of its supposition concerning trade practice; No

meeting of the minds, no contract

Dickey v. Hurd 1929 (Sec. 20, the party who knows that there is not a true meeting of the minds has the

responsibility to correct the mistake)

Dickey is considering purchasing land from Hurd, Dickey thinks he needs to accept the offer byJuly 18, Hurd wants the payment in full by July 18 but has reason to know that Dickey, through

multiple letters, does not think that.

The court held that it was not open of Hurd to lie quietly by until the time had expired and thendemand the full payment

Protect the party that does not know, or has no reason to know of an ambiguityEmbry v. Hargadine-McKittrick Dry Goods Co.

(Contract law is not concerned with subjective intent, only objective)

Facts: Embry (P) was an employee of (D). A written employment contract between the partiesexpired, a meeting occurred eight days later at which Embry said that he would seek work elsewhere

unless his contract was renewed. D told P Go ahead, youre all right. Get your men out and dont le

that worry you. Embry remained with the company until he was fired a few months later. D denied

having told P not to worry about his employment contract.

At trial the court gave a jury instruction regarding contract formation and refused Embrys proposedinstructions. The jury was instructed that it was necessary for both parties to have had a subjective

intent to contract or there would be no contract. The jury returned a verdict in favor of D and P

appealed based on the jury instruction.

Issue: May a contract be formed without reference to the subjective intentions of either party? Reasoning: Yes. A contract may be formed without reference to the subjective intentions of either

party. Appeal court uses reasonable person (objective) standard, would a reasonable person act as P

acted believing that his contract had been renewed given the words and actions of D?

Wheeler v. White 306

(Terms which are not definite enough for specific performance will not bar recovery under reliance theory)

Facts: D encouraged P to make preparations for construction indicating that he would secure a loanbut never did; D alleges the promise is unenforceable and P wants promissory estoppel

Holding: P relied to his detriment on Ds promise, while the terms were not definite enough forspecific enforcement but enough to support an action for damages


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Promissory estoppel is defensive and prevents D from claiming that the promise was unenforceable All that is necessary to achieve justice is to put the promisee in a position he would have been in had

he not acted in reliance upon the promise

POLICY

Protects those who reasonably rely on that other people say or do can seek recovery and Ds cannotescape liability by claiming a different subjective intention

Encourages parties to be careful Simplifies litigation (forget subjective intentions which are too hard to prove)II. OFFER AND ACCEPTANCE

SEC. 63 Time When Acceptance Takes Effect

Unless the offer provides otherwise,a. An acceptance made in a manner and by a medium invited by an offer is operative and complete the

manifestations of mutual assent as soon as put out of the offerees possession without regard to

whether it ever reaches the offeror; but

b. An acceptance under an option contract is not operative until revised by the offerorMorrison v. Thoelke 309 Mailbox Rule

(Mailbox rule applies only to acceptance, not revocation; acceptance is valid one that acceptance is in

possession of the post office; revocations are only valid upon receipt)

Offer and acceptance to purchase property done through the mail, one party accepts and sends outthe signed acceptance but calls to repudiate before the mail gets to the offeror, can they repudiate?

An offer of acceptance made through the mail is binding as soon as that notice of acceptance isplaced into the hands of the post office NOT when it is actually received

Policy: 1) if the rule was that it was not accepted until received, then the party would be bound tonotify the other of their receival of the acceptance and this could go on ad invinitum. This rule

protects the acceptors and allow them to act on the premise that they have accepted once that notice

has been properly dispatched 2) protects the acceptor and allows for them to act on the contract as

soon as they put their acceptance into the mail 3) provides a clear rule

Moulton v. Kershaw (Advertisements GENERALLY are NOT offers merely solicitations)(Compare with Carbolic Smoke Ball)

Defendant by letter offers to contract to sell salt, setting the terms thereof. Plaintiff the day ofreceiving the letter telegrams to place an order. The following day, D withdraws their offer. Was

there a contract?

Held: the letter was a notice to P from D of Ds ability to contract, there is nothing to indicate it wasa firm offer to sell a definite amount of property


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Peterson v. Pattberg (offer requiring performance may be revoked before performance is completed)

Facts: P, the executrix of Pettersons estate, is seeking $780 in damages from D, Pattberg. P came toDs home, having met the other conditions, to pay off the remaining principal minus $780 pursuant

to Ds offer. D refused to accept the money and informed P that the bond and mortgage had been

sold to a third party. Whether D can revoke the offer?

If an act is requested in a contract, no other must be given, an offer requiring an act to be performedcan be revoked at any time until the act has been performed ; an offering party has the right to name

the precise act performance of which would convert the offer into a binding promise

Holding: offer withdrawn; D required the act of payment which P did not perform prior to Dsrevocation

Dissent: The Dissents argument is that Defendant made Pettersons performance impossible. Underthe facts of this case, the dissent argues that Petterson did everything he could to perform the

requested action, or as the dissent characterizes it, the condition precedent. The dissent does not

think Defendant should benefit from a failure of a condition when it is solely Defendants actionsthat caused the condition to fail. The dissent also notes that Defendants letter could be construed as

requesting exactly what Petterson did, resulting in the condition having been met.

Wormser Conception of Unilateral Contracts Traditionally

(Unilateral contracts: offer can be revoked before performance is complete)

Brooklyn bridge hypo: A says he will give B $100 to walk across the bridge; to accept this offer, B must

perform the entire act; A can revoke at any time before B has completed performance

SEC. 45 OPTION CONTRACT created by part performance of tender

1) Where an offer invites an offeree to accept by rendering a performance and does not invite apromissory acceptance, an option contract is created when the offeree tenders or begins the invited

performance or tenders a beginning of it.

2) The offerors duty ofperformance under any option contract so reated is conditional oncontemplation or tender of the invited performance in accordance with the terms of the offer

Preparations for performance: Beginning preparations, though they may be essential to carrying out the

contract or to accepting the offer, is not enough. Preparations to perform may, however, constitute

justifiable reliance sufficient to make the offerors promise binding under sec. 87

Carlill v. Carbolic Smoke Ball Co.

(Advertisements are valid offers if a reasonable person would, under the facts, construe them as offers;

objective intent outweighs subjective intent)

Defendant sells smoke balls and claims that if used correctly, they will pay out 100 for anyone whostill gets influenza. To provide proof of their intentions they alleged to have placed 1000 into a bank


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for the purpose of paying out. P used the ball correctly, contracted influenza, and D refused to pay

out.

Was there a true offer? What would constitute acceptance? Yes there was an offer and consideration, the offer invited performance which P carried out.

Whether D intended to pay or not is irrelevant, given their advertisement, a reasonable person would

assume they did, objective intent outweighs subjective intent.

Cobaugh v. Kilck-Lewis, Inc.

(Offerors failure to use due care does not void a unilateral contract once performance has been completed)

P while golfing sees an advertisement offering a car to any golfer who makes a hole in one on the 9thole. P does and D says that that offer had expired, but they hadnt moved the signs etc., and refuse

to pay out to P.

The manifested intent was to make good on the offer, there was consideration, the offer was notlimited, the mistake in this case was not mutual and was the product of the offerors failure to

exercise due care. Such a mistake does not permit them to avoid the contract.

OFFERS OF REWARDS AND UNKNOWN OFFERS

At least so far as private rewards are concerned, there can be no contract unless the claimant whengiving the desired information knew of the offer of the reward and acted with the intention of

accepting such offer.

A contract of reward, like any contract, must be supported by consideration, something of value. Theconsideration that supports the promise of reward is the trouble or inconvenience resulting to the

person who has acted on the faith of the promise.

Because an unaccepted offer of reward grants no contractual rights, the offer can be revoked orcanceled at any time prior to its acceptance by performance. Once a person has performed or

partially performed the requested action, an offer of reward cannot be revoked to deprive a person o

compensation. An offer must be revoked either in the way in which it was made or in a manner that

gives the revocation the same publicity as the offer. A later offer, in different terms from the first,

does not revoke the first offer.

Generally an offer of reward that has no time limit is considered to have been withdrawn after areasonable time.

MASTER OF THE OFFER

Offeror is master of the offer (bilateral or unilateral) and invites acceptance; they may set the speificterms of acceptance so long as they are reasonable

Allied Steel & Conveyors, Inc. Ford Motor Co.

(Limited means of acceptance, must be articulated clearly)

Allied employee performing installation on Fords premises was injured due to the negligence ofFord employees. Allied had executed a purchase order that contained and indemnity form making


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Allied liable for Fords negligence in connection with Allieds work. The work commenced and the

injury occurred months before the indemnity provision was acknowledged.

Whether Allied is liable under the broader indemnity provision even though it did not execute theacknowledgement copy until several months after the employee sustained his injury?

Fords amendment gave a suggested mode of acceptance (sign and return) which did not precludeAllieds acceptance by another method (acceptance by beginning performance). Allied accepted

when Allied undertook performance of the work called for by the amendment with the consent and

acquiescence of Ford. Also, it was well settled that part performance would complete the

contract.

Notes: Allied accepted by commencing work and could not claim that it had not accepted the termsin contradiction of that act of acceptance. There was also a settled rule that part performance would

complete a contract. For means of acceptance to be limited, offeror needs to articulate expressly

Davis v. Jacoby

(An ambiguous offer is presumed to be bilateral because it protects the interests of both parties) Blanche Whitehead and her husband Rupert enjoyed a close relationship with their niece Caro Davi

(P). The Whiteheads suffered health and financial difficulties and Rupert asked Davis to come to

California to help take care of Blanche and assist Rupert with his business affairs. She was promised

an inheritance in return for her assistance. One week after Davis agreed Rupert committed suicide.

Davis moved to California to care for Blanche. Upon Blanches death Davis learned that Rupert had

left his entire estate to two nephews. Davis sued Ruperts estate (Jacoby, D) asserting that her

agreement with Rupert had created a contractual obligation for him to make a will and bequest his

estate to her and that she was entitled to quasi-specific performance. Davis appealed the trial courts

ruling in favor of the estate that no contract had been formed because Rupert had made a unilateral

offer that could only have been accepted via performance.

What type of offer is presumed to have been made where the offer is ambiguous as to whether it isunilateral or bilateral?

An offer is presumed to be bilateral if it is ambiguous with regard to whether it is unilateral orbilateral. The court pointed to Ruperts statement Will you let me hear from you as soon as

possible as a request for an immediate reply so that he could make arrangements and rely on

Daviss promise to come to California. Furthermore, since Rupert asked her to take care of them

until both of them had died, it was apparent that he had to rely on Daviss promise to continue to

care for Blanche if she survived him.

SEC. 36 Methods of Termination of the Power of Acceptance

(1)An offerees power of acceptance may be terminated bya. Rejection or counter offer by the offeree orb. Lapse of time orc. Revocation by the offeror ord. Death or incapacity of the offeror or offeree


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(2)In addition, an offerees power of acceptance is terminated by the nonoccurrence of any condition oacceptance under the terms of the offer

Brackenbury v. Hodgkin 347

(Poor result; should have called it a bilateral contract not accepted until they moved and performed, then

awarded reliance damages instead of forcing servitude in a manner of speaking)

Widow Sarah Hodgkin (D) wrote to her daughter and son-in-law (Brackenbury, (P)) and askedthem to move from Missouri to Maine to care for her for the rest of her life. In exchange Mr. and

Mrs. Brackenbury were given the use of the farm and household goods and were to receive the

property upon Hodgkins death. Ps moved to Maine and lived on the farm and cared for D until an

argument ensued several weeks later. D asked P to depart and executed and delivered the deed to the

property to her son Walter. P sued for a re-conveyance of the property. D appealed the trial courts

judgment for P.

The plaintiffs accepted the offer for a unilateral contract by moving. What arethe legal consequences of an offeree beginning performance of a unilateral contract?

Beginning performance of a unilateral contract creates an option contract that renders the offerirrevocable until the offeree has had a reasonable time to complete performance. An option contract

is created when the offeree begins the invited performance under a unilateral offer. In this case Ds

offer was in writing and there was no dispute regarding its terms. Ds offer was unilateral and Ps ac

of moving and beginning to care for D was substantial part performance.

LIMITED AND INDEFINITE PROMISES

Mutuality of obligation: when consideration consists of the exchange of mutual promises, the undertakings

of both sides must be real and meaningful. If the promise of one party has limitations so strong that they

negate it, it is really no commitment at all and is an illusory promise.

the fact that a rule of law renders a promise voidable or unenforceable does not prevent it from being

consideration

Some contracts may be enforceable against one party but not the other, minors, fraud, etc.

Obering v. Swain-Roach Lumber Co. (a contract, not enforceable when signed, may become enforceable

once one side performs)

The executor of Henry Buhners estate sought to sell his farmland containing valuable timber.Swain-Roach Lumber Co. (Swain-Roach) (plaintiff) was interested in purchasing the timber and

Buhners relatives and heirs (Obering) (defendant) were interested in purchasing the land without th

timber. Swain-Roach entered into a contract with Obering stating that if Swain-Roach bought the

Buhner farmland, it would subsequently sell the land to Obering after it removed the timber. Swain-

Roach did buy the farmland and tendered a deed for the land to Obering, reserving the timber for

itself. However, Obering refused to accept the deed and Swain-Roach brought suit. The trial court


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ruled in favor Swain-Roach. Obering appealed, contending, among other things, that the contract

lacked mutuality.

Issue: (1) Is the contract invalid for want of mutuality? (2) Is the contract too indefinite? Rule: (1) Just because the contract doesnt kick in until the plaintiff does something to accept it and

provide consideration doesnt mean that the contract is unenforceable once the plaintiff does that

thing. The court finds that the contract was unenforceable when it was signed, but became

enforceable againstboth parties upon the plaintiffs performance (buying the land from Buhner). (2)

less formality of description is required for a contract for the sale of land than is necessary in

conveyance. Parol evidence may be introduced

SEC. 77 Illusory and Alternative Promises

(1)A promise or apparent promise is not consideration if by its terms the promisor or purportedpromisor reserves a choice of alternative performance

Wood v. Lucy, Lady Duff-Gordon (implied promise is enough for an enforceable contract) Lucy made an exclusive endorsement deal with Wood. Lucy would get half the profits on anything

Wood put her endorsement on. Lucy subsequently gave her endorsement to other products without

Woods knowledge and without sharing the profits. Wood sued, but Lucy claimed the endorsement

deal wasnt an enforceable contract because Wood didnt actually promise to do anything.

Was there an enforceable contract? An enforceable contract may be construed through an implied promise of one of the parties. Cardoz

finds that there is an implicit promise on the part of Wood to try to put Lucys endorsements on stuf

and sell it. The court finds Lucy liable for breach of contract. a promise may be lacking, and yet the

whole writing may be instinct with an obligation imperfectly expressed

Omni Group, Inc. v. Seattle-First Natl Bank365

(A promise dependent on the promisors satisfaction of a condition is not illusory, it is binding. Omni had

to get an engineers report and report must be satisfactory; Omni could only cancel in good faith)

Policy: increases security for both parties when the parties will have extended dealings before completion

Omni was contracting to buy land from the Clarks. The Clarks backed out and argued that theywerent bound bythe earnest money agreement because Omnis performance was conditional and

thus its promise was illusory. The trial court entered a judgment for the Clarks and Omni appealed.

Was Omnis promise illusory because it was conditional? A promise dependent on the promisors satisfaction or the quality of the promisees performance

is not illusory.

The court finds two conditions upon which Omnis performance depends: (1) Omni must receive anengineers report and (2) the report must be satisfactory to Omni. The court finds that Omni ha

not given itself the unfettered power to get out of the contract at any time for any reason; rather,

Omni cant cancel unless the report is unsatisfactory, and it would be up to the factfinder to decide

whether Omni cancelled in good faith under the circumstances.


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The trial courts ruling is overturned and specific performance of the earnest money agreement isordered.

Lima Locamotive

(Requirement/output contracts have immense social utility 2-306 makes them enforceable )

requirements contract for steel castings, no specific number; quantity is left open. Traditionally, no enforceable contract, the terms are too vague to enforce Requirement/output contracts have immense social utility 2-306 makes them enforceable

Empro Mfg. Co. v. Ball-Co Mfg., Inc. 380

(A letter containing an agreement that is subject to the execution of a definitive contract has no independen

force; Empro carefully insulated itself against the deal being binding. If Empro was free to walk, it stands

to reason that Ball-Co was too. The judgment of the trial court is affirmed.)

F: Empro wanted to buy Ball-Cos assets. Empro sent Ball-Co a letter of intent to purchase theirassets, but the letter required a later final agreement and other conditions. Ball-Co bailed and started

negotiating with another buyer. Empro filed for a TRO. The trial court dismissed Emproscomplaint, saying that the letter of intent had no legal force based on its own insistence that its not

contract. Empro appealed to the Circuit Court.

I: May Empros complaint be dismissed even if the parties intended to be bound by the letter ofintent?

H: A letter containing an agreement that is subject to the execution of a definitive contract has noindependent force.Easterbrook makes a policy argument about why intent is judged objectively

rather than subjectively in contract law. If intent had to be judged subjectively, every contract case

would go to a jury, and that would be highly inefficient and very bad for business. Looking at the

letter, Easterbrook finds that Empro carefully insulated itself against the deal being binding. If

Empro was free to walk, it stands to reason that Ball-Co was too. The judgment of the trial court is

affirmed.

The court is trying to distinguish the letter of intent here from the type seen inBorg-Warner, whereit looks like the two parties are notfree to walk away, even though they havent 100% settled on the

terms of a final agreement. A breach of a legally enforceable duty to negotiate a final contract

would consist of the failure to come to such a final agreement plus a demonstration of bad faith on

the part of one party.

Borg-Warner 2-204(3)

(A breach of a legally enforceable duty to negotiate (firm option) a final contract would consist of the failur

to come to such a final agreement plus a demonstration of bad faith on the part of one party)

SEC 33. Certainty

(1)Manifestation of intent is intended to be understood as an offer however also need reasonably certaiterms

(2)Reasonably certain if they provide basis for determining the existence of a breach and for giving anappropriate remedy


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

CHAPTER 4 INDENTIFYING THE BARGAIN

A. The Effects of Adopting a WritingMitchell v. Lath

(binding integrated agreement discharges prior agreements to the extent that they are w/in its scope)

D owned a farm, which they wished to sell and orally promised in consideration of the purchase oftheir farm by the P to remove the (ugly) icehouse. Relying on that promise P made a written contrac

to buy the property and after receiving the deed they entered into possession and spent considerable

amounts of money improving the property. D has not fulfilled the promise.

Enforce oral agreement? No.The agreement to remove the icehouse was such that it would have naturally been included in the

written contract for the sale of the farm. The oral agreement contradicts the written agreement. The

writing was concluded as being a complete integration and cannot be modified. Dissent: The removal of the icehouse could not be expected to be included in the writing, and

therefore the writing is not a complete integration. Therefore, the oral agreement is parol evidence

and may be admitted to prove the contents of the written agreement.

Hatley v. Stafford

(when terms of a partially integrated agreement do not conflict, parol evidence may be admitted)

Hatley signed a lease to rent a farm from Stafford to grow wheat. There was a provision in thecontract that Stafford could buy out the lease at the rate of $70 per acre. The contract didnt

say when Stafford could exercise the buy out option. Hatley claimed that there had been an

additional oral agreement that the buy out could only be done within the first 30-60 days of the

lease. Stafford came onto Hatleys land and cut down the wheat in preparation for building

a mobile park. Hatley sued for trespass.

Should the evidence of the oral agreement been allowed? The court says that a term of the oralagreement must contradict an express provision of the written agreement in order to be considered

inconsistent with it. Therefore, this part of the rule is satisfied because the written agreement doesn

say anything about a buy out.

Hayden v. Hoadley (wrong!)

(Court creates gap-filler term of the contract then uses the term to exclude a previous agreement b/c they arcontradictory)

PAROL EVIDENCE RULE

1) Operates in situations where there is a writing that represents thefinal embodiment of the contractor some of its terms. The rule governs whether parties may introduce evidence of extrinsic

agreements to prove the existence of additional or modified terms.


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2) The PER does not bar extrinsic evidence offered for the following purposes:a. to aid in the interpretation of existing termsb. to show that a writing is or is not an integrationc. to establish that an integration is complete or partiald. to establish subsequent agreements or modifications between the partiese. to show that terms were the product of illegality, fraud, duress, mistake, lack of

consideration or other invalidating cause

3) Williston v. Corbin: Conflicting Theories on PERWilliston: we want people to put terms in writing and simplify litigation

Corbin: true goal is to interpret the intention of the parties and there is no reason to give preference

to a writing.

4) Finality of an agreementThe more formal and complete a writing is, the more likely it is that it represents the finalembodiment of the agreement.

The writing need not be signed or complete in order to be deemed final. Any relevant evidence may

be admitted to demonstrate that the writing was not intended to be final.

5) Integration of a Writinga. Complete integration: an expression of the parties' agreement in its entirety; orb. Partial integration: an expression of only a portion of the agreementc. No integration: all evidence is admissible

6) Effect of Integrated Agreement on Prior Agreements (PER)1. Binding integrated agreement discharges prior agreements to the extent that is

inconsistent with them2. A binding completely integrated agreement discharges prior agreements to the extent tha

they are within its scope

3. An IA that is not binding or that is voidable may still render inoperative a term whichwould have been part of the agreement if it had not been integrated.

SEC. 214 Evidence of Prior of Contemporaneous Agreements and Negotiations

SEC. 216 Consistent Additional Terms


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DEFINITIONS

I. REMEDIES/DAMAGES

Expectation: standard measure of damages for breach of contract; a monetary award designed to compensat

the victim of breach to place the victim in the economic position that she would have been had the contract

been carried out; must be foreseeable to a degree of substantial certainty and the victim must mitigate

Reliance: costs and expenses incurred in reliance on the contract and wasted on the contract once breached.

If the cost or expense is incurred in performing duties required by the contract it is direct or essential

reliance. If the cost or expense is incurred for the purpose of enjoying or using a benefit reasonably expecte

from the contract it is incidental reliance.

Restitution: remedy under which the court grants judgment for restoration of property (specific restitution)

or its value (monetary restitution) to a party from whom the property was unjustly taken or has been

unjustly retained.

General Damages: arise naturally, in the ordinary course; including all easily imaginable direct damages an

also consequential damages that should be obvious to the breacher without any special or particular

knowledge of the other partys circumstances or affairs

Special Damages: requires that to recover from a loss arising under a particular set of circumstances, those

circumstances need to have been in the contemplation of both parties when agreeing to the contract. A party

cannot recover if the damages were not contemplated by the other party or reasonably foreseeable.

Incidental Damages: costs and expenses incurred by the victim of breach in attempting to deal with it and in

attempting to deal with it and taking action to seek a substitute transaction or to curtail losses

Consequential Damages: losses or injuries suffered by the victim of a breach going beyond the mere loss in

value of the promised performance (direct damages) and resulting from the impact of the breach on other

rights, transactions, or endeavors affected by the contract

Direct Damages: losses incurred by the victim of breach in acquiring the equivalent of the performance

promised under the contract, so as to substitute for the performance that should have been provided by the

breacher

Specific Performance: A remedy when the court grants specific performance it orders the breacher to do

what the breacher promised to do in the contract. (BLL) Often they will not use SP if money damages will

suffice

Specific Performance


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An order directing D to render the contractual performance as promised. SP is an equitable remedy,and is the exception rather than the rule, available only when other damages are not satisfactory.

Factors: efficiency; adequacy of legal remedy; hardship to D; balance of the equities; practicality ofenforcement; need for clarity in the order; specific performance as a partial remedy; P return

performance

Sale of Goods UCC 2-716:Most times, money damages will be adequate. Typically, the non-breaching buyer can buy replacement goods; the non-breaching seller can resell.

Specific performance IS often when the goods involved areA. "unique" orB. Cover is impossible given the circumstances, "inability to cover is strong evidence of

'other proper circumstances.' "

Final Notice:UCC 2-709 seller's specific performance remedy; when "the buyer fails to pay theprice as it becomes due the seller may recover the price" of the goods, with some restrictions.

Performance: (1) it IS generally available for breach of a contract to sell LAND; (2) it is NOTgenerally available for breach of an EMPLOYMENT contract.

Difficulty of supervision: sometimes it would be hard for the court to ensure that the breacher wouldperform properly. The "cost" here is the difficulty of monitoring performance.

Cost to the judicial system: sometimes the problem is not that there is no good way to monitor butthat monitoring will cost the judicial system money

Excessive cost of performance: there are cases in which the dollar cost to the performer is so greatthat the court will not order specific performance.

Cost of Performance: a remedy. It is, sometimes, awarded when there is work still to be completed under a

contract, or when the work called for under the contract was completed improperly.

BLL: the non-breacher is entitled to the cost of completion unless that amount is grosslydisproportionate to the value that would be produced by completing the work.

When the amount is grossly disproportionate, the non-breacher gets the "diminution in value:" thedifference between the value generated by the actual performance and the value that would have

been generated if the contract had been performed as promised.

Badness of the Breach: When the breach is "willful," courts will sometimes award cost ofcompletion--even when that award is grossly disproportionate with the value that would be produced

by completing the work. "Willful" breaches are those in which the breacher's conduct is especially

bad, especially reprehensible.

Equitable Estoppel: sometimes known as estoppel in pais, protects one party from being harmed by another

party's voluntary conduct. Voluntary conduct may be an action, silence, acquiescence, or concealment of

material facts


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Promissory Estoppel: provides that if a party changes his or her position substantially either by acting or

forbearing from acting in reliance upon a gratuitous promise, then that party can enforce the promise

although the essential elements of a contract are not present.

A. A promisorone who makes a promisemakes a gratuitous promise that he should reasonablyhave expected to induce action or forbearance of a definite and substantial character on the part of

the promiseeone to whom a promise has been made.

B. The promisee justifiably relies on the promise. A substantial detrimentthat is, an economic lossensues to the promisee from action or forbearance. Injustice can be avoided only by enforcing the

promise.

C. Historically, came about as a means to expand consideration theory; evolved into Sec. 90D. (1) a promise by a promisor (2) made with the expectation that the promise will rely thereon (3)

which induces reasonable reliance by the promise (4) of a definite and substantial nature and (5)

injustice can be avoided only by enforcement of the promise

II. BREACH

Determining Substantial Breach

(1) The solvency of the breacher: if the breacher is financially shaky, that may make suspending

performance desirable

(2)Hardship on the breacher: This is a timing issue. Contracts usually call for performance in a particular

time sequence. If we allow one side to suspend performance, that may put the other side in a bind.

To have an excuse for suspending performance, you have to have some reason for imposing a hardship on

the other party. The grea

Contracts Notes and Briefs Semester One

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