Class Outline

Introduction
A contract is a promise or a set of promises for the breach of which law gives a
remedy, or the performance of which the law in some way recognizes as a duty
Restatement (Second) of Contracts 1

Two major questions

a.
Under what circumstances is a promise enforceable?
1.
Not all promises are enforceable
i.
Examples: coercion, violates the law,
misrepresentation
b.
How do courts enforce promises?
1.
Specific performanceordering the person to uphold their
promise; very rare in American courtsvery difficult to do
i.
If you dont do it then you are held in contempt of
court and sent to jail
2.
Money damagescommon remedy, measured by the
amount the damages would have cost the person
Requirement of a Basis for Enforcementdistinguish promises to which
the law will enforce. Need to be sufficiently important
a. Historical bases (e.g. wax seals)
1. Written out, signed, and sealed with wax; Used for
something importantparties thought about it; It provided
trustworthy evidence of the existence and terms of the
contract in the event of a controversy
i. Evidentiarymade, delivered, and sent
ii. Cautionarypeople had to think about what they are
getting into
2. Almost everything that people had to sign put a seal on it
because it became to common, it lost its cautionary
function
i. As time went on the enforceability of the seal
became abolished in the United States (through
the enactment of the Uniform Commercial Code
and statute)
ii. Debtused to enforce some types of unsealed
promises to pay a definite sum of money. The
promisor (debtor) had something belonging to the
promisee (creditor)
iii. Assumpsitcame from cases when the promisee
sought to recover damages for physical injury to

person or property on the basis of a consensual

undertaking.
i. As time went on and the courts extended this
common law they imposed a requirement that
the promisee must have incurred a detriment
in reliance on the promise
ii. The courts went further and said that a party
that had given only a promise in exchange for
the others promise had incurred a detriment
by having its freedom of action fettered, since
it was bound in turn by its own promise
enforce exchanges of promises
b. Principal modern bases
1. Consideration for a promise is something that is
bargained for in exchange for another promise or
performance in which enforcement is there
i.
A promise to something in the future does not follow
this rule of consideration. Does this type of issue need
further criteria to be enforceable?
ii.
Refer to next section
2. Reliance

Basis of Enforcement
a.
1.

Requirement of a Basis for Enforcement

General Principles
i.
When a plaintiff sues a defendant for breach of contract,
the plaintiff claims that the defendant made a promise and did
not keep it, and the plaintiff asks the court to enforce the
promise. E.g. Mills v. Wyman; Feinberg v. Pfeiffer
ii.
A court will not enforce the D's promise unless the P can
show a basis for enforcement
iii.
Three modern basis for enforcement are consideration,
reliance, and in a few special cases, "moral obligation"
iv.
In seeking to prevent enforcement, the D may argue that
the P cannot show one of these three basis for enforcement

Consideration
Consideration as a Basis for Enforcement
General Rule: Consideration for the D's promise may be (1) either a promise or
a performance that was (2) bargained for in exchange for the d's purpose
D's arguments: The D will argue that there is no consideration because these
two elements have not been met.
Arguments for why there is no valid promise or performance:
a. The promise given in exchange is a promise to settle an invalid claim,
and the P did not have a good faith and reasonable belief in the
possible validity of the claim. Cf. Fiege v. Boehm

Consideration for a promise

a. Promise or performance (i.e. action or forbearance)
b. Bargained for (i.e. sought and given) in exchange
Bargain Theory/Definition of Consideration: Rest. 72 (1) +
(2); 79 (a), (b)
Rest 72 (1) + (2)

Any performance which is bargained for is

consideration
Rest 79 (a), (b)

If the requirement of consideration is met, there is no

additional requirement of

A gain, advantage, or benefit to the promisor

or a loss, disadvantage, or detriment to the
promisee, or

Equivalence in the values exchanged

Questions of enforcement stemmed from early English law that was
closely tied to common law actions:
Hamer v. Sidway Court of Appeals of New York, 1891this is the
highest court in the state of New York. The Supreme Court of New York is
the trial court.
Facts: William E. Story Sr. uncle to William E. Story 2nd promised
his nephew if he stopped gambling, drinking, swearing, and
using tobacco until he became 21 he would give the boy
$5,000. When the younger Story turned 21 he sent a letter to
the uncle and the uncle replied that since he was earning the
money an easy way that he would hold onto it until the boy was
old enough to appreciate it. The money was his with interest.
The uncle died two years later.
Holding: The promisee restricted his lawful freedom of action
with certain prescribed limited upon the faith of his uncles
agreement.
It is enough that the nephew restricted his action (Sidway
was wrong). It does not have to be a detriment to the
nephew or a benefit to the uncle.
Reasoning: Does NOT cite any legislation or statute. Contracts is
based on common law. Contract laws are based on previous
rulings!
Possible policy arguments for recognizing consideration as a
basis for enforcement
Economic importance of bargains?
Nothing in life is for free and to get more things you enter
into a bargain. Bargains are important because they

maximize our interest. Promises made with bargains make

it important. Bargains provide an explanation to a promise.
Minimal dangers as to proof?
Can something of trifling value be consideration? (pg. 38 in
Contracts book)

Promise to pay $1000

book (worth less than or equal to $1)

Rest. 79 (b)says no that this scenario is a fair bargain, while

the original says yes. Why the difference? The restatement
believes that this is NO BARGAIN, its a sham!
Fiege v Boehm Court of Appeals of Maryland, 1956
This is an example of the Bargain Theory of Consideration
Fiege promised to pay Hilda Boehm. Boehm promised not to
bring claim if money is paid
Boehm threatened suit through the basterdy claim.
Initially had an exchange she wouldnt bring the claim
against him if he promised to compensate her for being
pregnant. He paid her some of the money and then he
stopped because he had a paternity test and it ended up
that he wasnt the father.
Divides this into two: honest and reasonable
Honest, good faith, bona fide=subjective test

Maggs getting a pay raiseits honest but not

necessarily reasonable

Evaluate the testimony, ask them, are their actions

consistent to their beliefs
Reasonable-objective

To figure out reasonable: what others believe would

be reasonable
Reason for the exception for the bargain theory was that you
dont want tons of bogus claims to go to court
This is a civil nature so its deception and not blackmail.
Criminal cases you cannot settle.
Feinberg v Pfeiffer Co Saint Louis Court of Appeals, Missouri, 1959
Opposite of the Fiege v Boehm. Things that happened in the
past can NOT be bargained for so there is NO consideration
History: Ms. Feinberg worked for Pfeiffer for a long time. They
initially pay her the pension, the owner of the company dies
and the wife assumed the position and then the son-in-law took
over. The wife was not amused by Feinbergs service. When
she retires the son-in-law takes over and asks the accounts
whether he has to pay the pension. They said no and gave her
less money.

 Pfeiffer Co promised to pay pension. Feinberg ??? to Pfeiffer

Past service? Does not count because there was no bargain
Subsequent service? There was still no bargain for her to

keep working to get the pension. She did not have to

render service for the pension.
Act of retiring? Was that consideration? It still was not
bargained for

Promise to make a gift is NOT enforceable

If you do _______, I will do ______
When is a promise like this part of a proposed bargain and when
is it a mere conditional promise to make a gift?
Based on a case-per-case basis
Willistons advice: As an aid, consider benefits/detrimentsmore
of a guide to follow, not set in stone
Refer to appendix 1 part 1 in syllabus
Tension with Hamer v. Sidway (or not)?

When things are unclear have to look at the benefit

or the detriment, but when its clear you dont have to
Promise not to compete after leaving
Columber ()----------> Lake Land Employment
<--------------majority=forbearance is consideration
dissent=no consideration
Mills v. Wyman Supreme Court of Massachusetts 1825
Sailor Wyman was ill on a sea voyage and Mills like a good
Samaritan took care of him until he died. Daniel Mills writes to
Wymans father and the father wrote back thank you for taking
care of my son and Ill pay you for your expenses.
The father had no legal duty to pay for his son. He made
the promise because he appreciated that Mills took care of
his son. He was motivated of transient gratitude.
However, the father breaks his promise.
Court says that the promise was not enforceable, but the court
said the father was immoral. Even though the court will enforce
it, its still immoral
Note 1: Issues with morality; reasons why:
It is essential that the classes of promises which are
enforceable by law shall be clearly defined. The test of
moral consideration must vary with the opinion of every
individual
Another issue would make it all promises enforceable and it
would open a can of worms

 This

case shows criticism of consideration, but also a

rationalization of consideration opposite of morality

Kirksey v. Kirksey Supreme Court of Alabama 1845

Man named Isaac Kirksey found out his husbands widow was
suffering and made a promise to her if she goes down and sees
him he will give her a place to raise her family. After two years
he has her move to the woods and then asks her to leave
Justice Ormand is outvoted, but he wrote that the loss and
inconvenience which the plaintiff sustained, he thought her
moving was part of the bargain. But the other justices believed
there was no consideration because it was a conditional
promise to make a gift
Lake Land Employment Group of Akron, LLC v. Columber Supreme
Court of Ohio 2004
Promise not to compete after leaving
Columber ()----------> Lake Land Employment
<---------forbearance from terminating?
majority=forbearance is consideration
dissent=no consideration
this involves employment at willno specific timeframe. If you
decide to quit you can quit and if the employer wants to fire you
he can
Columber worked for Lake Land and then the presented him with
a promise of a noncompetition agreement (if he leaves the
company). Eventually he quits and he started his own company
and Lake Land sued
The Dissenting opinion
Resnickeven though the employer didnt fire him after
the fact. They really didnt give anything in exchange
Illusory promisesounds like a promise but makes no real
commitment Cf. 2 (1)
Examples: Promise for promisean hour of instruction on the
violin, for $20
Illusory: promise for Optionits not consideration. An
hour of instruction for $20 if the promisee feels like it.
There was no commitment
Can an illusory promise be consideration?
Not if truly illusory; example: Strong
But implied terms may make it non-illusory; example: Mattei,
Wood

Terms implied in factterms are sort of evident and found

in the context of the deal being made
terms implied in law (e.g. 205)every contract imposes
upon each party a duty of good faith and fair dealing in its
performance and its enforcement

What Constitutes a Promise?

A promise that is bargained for is consideration if the promised
performance would be consideration. Restatement 75
Strong v. Sheffield Court of Appeals of New York 1895
Promise to pay husbands debt
Louisa Sheffield () --------> Benjamin Strong ()
<---------promise to forbear? Actual forbearance?
Facts:

Strong had sold a business to Sheffields husband on

credit. Later, the buyers debt was embodied in a promissory
note, payable on demand. Mrs. Sheffield endorsed the note, an
act which the law treats as a promise to pay if her husband the
maker of the note did not
She was an insureragree to pay someone elses debt
Strong would not sell the note and he would forbear for an
unknown period of time, such time as I want it
Strong waited about two years to collect the money,
Sheffields didnt have the money and Strong sued the wife
Ruling/Rationale: Order of the general term reversing the
judgment should be affirmed, and judgment absolute directed
for the defendant on the stipulation with costs in all courts.
There was no agreement to forebear for a fixed time or for
a reasonable time, but an agreement to forbear for such
time as the plaintiff should elect
The consideration is to be tested by the agreement,
and not by what was done under it

There was no bargain on the terms of agreement

This was a case of mutual promises

In note 1: the Restatement 77 mentions the

illusory or apparent promise as a type that is not
consideration
Contracts for the Sale of Real Estate
Involves not only the buyer and seller, but third parties as well.
Characterized by more formality than say contracts for the sale
of goods.
Before the formal closing (where a deed is exchanged for the
payment of the price) there are intervening activities involve

the development of information, including a check of the

sellers title to the property, the buyers obtaining financing and
lining up enough satisfactory tenants to make the prospective
shopping center viable
Mattei v. Hopper Supreme Court of California 1958
Promise to convey property
Hopper () -------------> Mattei ()
<-------------express promise to pay if satisfied with leases and implied promise to
act in good faith; could be in law or in fact; it sounds illusory, but you
have to act in good faith before doing anything
Procedure:

Plaintiff brought this action for damages after

defendant allegedly breached a contract by failing to convey
her real property in accordance with the terms of a deposit
receipt which the parties had executed. After a trial without
jury, the court concluded that the agreement was illusory and
lacking in mutuality. From the judgment accordingly entered
in favor of the defendant and the plaintiff appealed
Facts: Plaintiffreal estate developer, defendant owned land and
after sometime they negotiated a sale. There was a deposit
receipt done that said the plaintiff was required to deposit
$1000 of the total purchase price of $57,500 with the real
estate agent and was given 120 days to examine the title and
consummate the purchase. He was going to lease out the
space and he had time to find satisfactory tenants in the
shopping center. Plaintiff took the first step, but did not
complete within the 120 days, but the defendant failed to
tender the deed as provided in the deposit receipt.
Hopper wanted out the deal and Mattei sued her for breach
on contract
The promises must be made mutual in obligation without it
the agreement lacks consideration and no enforceable contract
has been created.
A promise conditional upon the promisors satisfaction is not
illusory since it means more than the validity of the
performance is to depend on the arbitrary choice of the
promisor
Ruling/Rationale: Judgment was reversed, Court disagreed with
the defendant
Contract here was neither illusory nor lacking in mutuality
in obligation because the parties inserted a provision in
their contract making the plaintiffs performance
dependent on his satisfaction with the leases to be
obtained by him

Expansion of Promises
Instead of being expressed in so many words, it could be fairly to
be implied in a promise
Wood v. Lucy, Lady DuffGordon Court of Appeals of New York 1917
Promise of exclusive rights
Lucy () ---------------> Wood ()
<--------------express promise of profits; and implied promise to reasonable
efforts
Facts: Lucy designs a lot of stuff, creator of fashion. She
employed the plaintiff to help her. He was her agent. He was to
have the exclusive right subject to her approval to place
indorsements on the designs of others. He was also to have the
exclusive right to place her own designs on sale or to license
others to market them. In return she was to have of all
profits and revenues derived of the contracts he might make.
This agreement would last a year. The plaintiff says that he
help the contract on his part and that the defendant broke it.
She placed her indorsement without his knowledge and
withheld the profits. He sues her for the damages and she
wants demurrer
Sears approached Lucy to sell her items and she went
ahead and made a deal outside of the contract. Wood said
that she wasnt upholding her end of the bargain
Ruling/Rationale: Appellate decision should be reversed and the
Special Term affirmed
Thought Wood had an implied duty to use his resources
and this was implied in the contract. Was not in favor of
Lucy
The plaintiff had some dutieshis promise to pay the
defendant of the profits and revenues resulting from the
exclusive agency and to render the accounts monthly was
a promise to use reasonable efforts to bring profits and
revenues into existence
Terms that people use to give up their rights
a.
Waivervoluntary relinquishment
b.
Estoppelinvoluntary bar from asserting right

The doctrine of equitable estoppelif one party makes a

statement of fact and the other part reasonably believes this
the first party cannot bring claims

Example: A owns Blackacre. By a mistake in a

survey he fails to include within his fence a small field that
he erroneously believes to belong to his neighbor B. B,

who is uncertain of his boundaries, asks A whether the field

belongs to A. In mistaken reliance upon the survey, A
replies that it does not. Relying upon this statement, B
cuts and disposes of the trees upon it. B is not liable to A
for these acts .
i.
A cannot bring suit to B because B relied
reasonably to A. A cannot contradict the fact.

Reliance
Reliance as a Basis for Enforcement
a.
Stage 1 (before late 1800s): not recognized (Kirksey)
1.
He promised to take care of the family and she went with
it, but not considered for consideration
b.
Stage 2 (late 1800s/early 1900s): not recognized explicitly, but
other doctrines or acts stretched to find consideration
1.
Ricketts (equitable estoppel)general doctrine that says if
a person says a statement of fact and another person relies on
it the original person cannot back out
i.
Unorthodox example: In the case the grandfather
gave his granddaughter money to not work. He didnt pay
the rest, but he died and the executer refused to pay under
no consideration, he thought it was a gift.
ii.
The court believes that there was no consideration,
but it was enforceable on the theory of equitable estoppel
i.
Executor could not raise a question about
consideration
2.
Allegheny (gift v. bargain)facts of the cases were
stretched
i.
Mary Yates Johnston pledged a large sum of money
to her alma mater. She didnt give all the money up front.
Some of her family members went into hard times and
gave them some of the money instead. The college wasnt
too keen and sued
ii.
Argued that it was a gift and there was no
consideration, but the court conclude that there was
consideration because she gave some money to the
college. So the consideration was enforceable
c.
Stage 3 (mid-1900s): recognized explicitly under new
promissory estoppel doctrine Rest. 90, Feinberg
1.
Feinberg had adhere to all of the elements of promissory
estoppel
2.
Promise was based on the idea of reliance and could be
upheld
Elements of Promissory Estoppel (Rest. 90)

Promise
Action/forbearance by promise
Induced by (i.e. taken in reliance on) the promise
Reasonably expected by promisor
Enforcement necessary to prevent injustice

Limitation of Remedy when promise is enforced on the basis of reliance

90 (1)
Promissory Estoppel Policy Considerations
Reason for recognizing as a basis for enforcement
injustice element
o does it have content?
o Standards vs. ruleshow to look at the law.

Rules are predictable; standards are more for the

gray elements, more flexibility
Effect on considerationGilmore Thesis
Have set defined rules and by bringing in reliance you kill
consideration. Easier to prove consideration if you have it
How the law changed
Open-ended standard
Benjamin Cardozo changed the law the legislature didnt

Civil Liability
Types of Civil Liability
Contractpromises
Tortaction to another
Restitution [Syl. App. 3]alternative when there is no contract;
secondary remedy
Liability for unjust enrichment 1

Open-ended standards, cannot be overly specific

Example: recovery of money paid by mistake 22

A person who has paid money to or for the account

of another not intended by him, is entitled to
restitution from the payee or from the beneficiary of
the payment .
Amount of recovery of benefit received=reasonable value
155, Cotnam
Cohen v. Cowles Media Company
Dan Cohen (part of the campaign) did an October Surprise on
Marlene Johnson (His opponent)she was arrested for
protesting and $6 worth of sewing surprise. He went to the
newspaper and gave them the criminal record in return keep his

name quiet. The newspaper published his name and he lost his
job and creditability
What the court says
The court didnt see it as terms of the bargain or
consideration
Court rejected the first amendment argument (its an
agreement)
The court said that under promissory estoppel there should
have been enforcement
Other Names for Claims for Restitutionjust to keep everything
straight
Unjust enrichment
Quasi-contract
Contract implied in law
Constructive contract
Quantum meruit
Money had and received
Cotnam v. Wisdom (Supreme Court of Arkansas, 1907)Theory of
Unjust Enrichment
Facts: Harrison got thrown from a street car and rendered
unconscious and two physicians were called and did a very hard
surgery and it was unsuccessfulalso didnt pay the doctors
and they brought a lawsuit on Harrisons estate
Holding: Harrison did owe the doctors money because of
restitution
It would be unjust for Harrison to receive a benefit from the
doctors and they not getting money back
The court remanded the case of determinationdo not
take into an account of how large his estate was
Plaintiff who usually do not prevail in Restitution actions
Officious intermeddlers 2
Officiousvolunteering ones services where they are
neither asked nor needed

parents
Volunteers 57
Gifts
Not manifesting expectations of getting paid
Plaintiffs with other remedies 110, Callano
A person who has conferred a benefit upon another as the
performance of a contract with a third person is not entitled
to restitution from the other merely because of the failure
of performance by the third person.

Callano v. Oakwood Park Homes Corp. (Supreme Court of New

Jersey, 1966)
Facts: Pendergast was about to buy a house gets a shrubbery,
but dies and never pays for it. Callano added the shrubbery
and the Oakwood Park homes refused to pay for it
Holding: Court said under restitution they cannot recover from
Oakwood park, but the estate of Pendergast. contract

Pendergast <------------Callanosconferred a benefit to Oakwood,

but could recover from P.
shrubbery
Oakwood Park Homes
Problem from Page 109
Employee of Westinghouse twice submitted suggestions. Said
that all decisions were final. They shot down the suggestions,
but a few months later they did the suggestions. So the
employee argues unjust enrichment. Were Westinghouse really
benefited?
Employee cannot claim restitution, Westinghouse said they
came up with it from another way
The defendant doesnt have to lose anything, but more about how much
the plaintiff benefitted
Moral Obligation as a basis for enforcement
Moral obligation is not a general basis for enforcing a promise.
Mills v. Wyman
Courts will enforce a gratuitous new promise reaffirming an old
debt that has been made unenforceable because of
The statute of limitations, 82(1), note (2), pg. 51after a
certain amount of time, if there is a new promise based on
the old one
The promisors prior discharge in bankruptcy, 83
Or the promisors prior infancy, 14, 85under 18
all three preserve justice, there was a basis for
enforcement in the original promise
Courts say these are special exceptions where moral
obligation is the basis for enforcement
In a few states, courts also say moral obligation is the basis for
enforcing a promise to pay for a material benefit previously
received if necessary to prevent injustice. Webb v. McGowin,
86 (1). But most courts disagree. Dementas
Webb v. McGowin

Webb prevented injury of McGowin, and McGowin

makes a promise. When he died the estate stop
paying and Webb sued

There was no promise and no reliance therefore NO

CONSIDERATION

McGowin rewarded a material benefit

Dementas v. Estate of Tallas

Dementas took care of Tallas. Tallas said he would

pay Dementas $50,000 in his will. Never changed it
and the executor didnt give the money and Dementas
wanted the money

There is no considerationgratuitous
Also there is no reliance

Tried to argue Webb v. McGowin. Court said no and

even if it did it wouldnt count

Promisor wasnt enriched by the will

General Policy that contractual liability is voluntary

Assent
Requirement of Assent
A promise is not enforceable if the promissory sufficiently
indicates that he or she does not assent to be bound by the
promise
Perspectives on assentwhich one should be used?
Promisorssubjective
what the person actually thinks
Promiseessubjective
^
Reasonable personlaws attempt at an objective
Rule: Promisor has assented if a reasonable person would think
promisor assented unless promise understands promisor did not
assent
Lucy v. Zehmer (Supreme Court of Appeals of Virginia 1954)
Lucy and Zehmer were drinking and discussing the Ferguson
farm. After drinks they drew up a contract and handed it to
Lucy. Lucy goes through the motion to acquire the property
and the Zehmers said they were just joking. Lucy sues
Zehmers. Zehmers were not assented to be bound because
they were drunk and joking.
Did the Zehmers assent to be bound by the promise to sell their
farm?
Zehmers now say: No: they were just joking, not serious.
Bluffing to see if Lucy had the money. Zehmer whispered

to his wife that he was joking. They were as high as a

Georgia Pine.
Lucy thought: Yes: He went out raised the money and got
a lawyer. He protested that they were serious and that he
pulled out the $5 to seal the deal.
Reasonable person would have thought: Yes: Discussed for
a length of time (40 minutes), had previous drafts of the
contract, and discussed the issue prior; not a joke seems to
be a serious deal
Rule: If Lucy had known they were joking then it would have
been a joke. Otherwise as long as a reasonable person thinks it
was serious (no matter what they actually think) then it is
actually serious

Bargaining
Typical Formation of a Bargainmust have these three elements to
prove a bargain
Optimal preliminary negotiations (e.g. inquiries, invitations, etc.)
does not create contractual liability
Offer by offeror Rest. 24, 26
Acceptance by offeree
Offer= manifestation of willingness to enter a bargain 24
Owen v. Tunison
P thinks two parties entered into agreement. D says no offer.
Statement in dispute: would not be possible to sell unless I
receive 16K. Court: not an offer, merely preliminary
negotiations. The claim was breach of contract for the Bradley
block; there was never an offerstuck in preliminary
negotiations
Court must determine if there was an offer to sell; looks at
precedents
Judicial reluctance to define an offer
Harvey v. Facey
Wanted to buy a piece of property in Jamaica. P asks at what
price would property be sold for. D replies Lowest price: 900
pounds. P replies will buy for quoted price. P sues for
performance. D claims no offer. Court: mere preliminary
negotiations; two questions had to be answered and the plaintiff
didnt
It was still in negotiations; it was very open

Distinguishing offers from preliminary negotiations

Plaintiff and defendant arguments
Inherent ambiguity
Judicial reluctance to find offers
Objective nature of inquiry
Important to know what courts consider
Precedent
Arguments based on comparisons
Keywords, context, etc
Price Quote and Advertisements
General rule=not offers 26 cmts. B and C
Reason=reasonable person understands that advertiser would
not want a bargain with everyone who sees advertisement
Exception=factors negating this expectation/understanding
False advertising rules
Fairmont Glass Works v. CrundenMartin Woodenware Co.
Advertisements are NOT offers
P sends preliminary inquiry letter to C-M. Fairmount assumed CMs reply was an offer, and mailed second letter re:
specification. Fairmount said couldnt fulfill order. Ds: (1) price
quotation not offer; (2) contract indefinite; (3) no real offer
because Fairmount wanted 1st class jars. Court: quotes not
offers, but specific language may create exception.
(Immediate acceptance)
Words are too vague
Court is looking at objective factors for willingness to enter a bargain
Are advertisements offers?

General rule=no

Usual explanations=reasonable expectations

Exception=factors negating these expectations

False advertising laws, etc

Lefkowitz v. Great Minneapolis Surplus Store

Facts: Lefkowitz saw the advertisement and waited in line; the

store did not sell the stole because it was implied that the stole was
for women only. So he brought the lawsuit for it.

Advertisement is not an offer, its just preliminary negotiations.

For the advertisement to be an offer it must be clear, definite, and
explicit. Cannot make an offer that the whole world could accept, so
in this case the advertisement is not an offer. The second argument
was that you cannot impose new or arbitrary conditions not
contained in the published offer

The Acceptance
Did the offeree accept?
a.
What was the offer 24 (The offeror is the master of the bargain)
b.
How did the offeror invite the offeree to accept? 32

By completely performing (unilateral contracts in Hamer)

By making a promise to perform (bilateral contract as in

Fiege)
c.
Did the offeree completely perform or promise to perform as
invited?

Confusing point: sometimes the offeree implicitly promises

to perform by starting to work 4

A promise can be made by words or conduct (implicitly

make a promise)
d.
If offeree promised to perform, was the promise made in a
manner permitted by the offer? 30(2)
e.
Was the notice of acceptance required?

Complete performance

No, unless requested 54(1)

2.
Promise to perform

Yes, unless waived 56

f.
Did the offeree provide notice of acceptance?
International Filter Co. v. Conroe Gin, Ice & Light Co.

Correspondence list

Filters proposalpreliminary

Conroes acceptancesaid that this was the offer

Filters approvalacceptance

Filters acknowledgementnotice

Conroes countermandbreach, repudiation of the contract

Facts: Mr. Waterman negotiated the deal between the

international filer and Conroe; they discuss it and it looks like Conroe
wants to buy. Mr. Waterman pulls out a form, international signs the
deal, it goes to Chicago where they wrote ok but they wanted a
sample and then didnt want to buy it anymore. International sued
because of the lack of deal. The issue was there a deal or not? The
paper was not an offer because International Filter did not make an
offer; the proposal had to go back to Chicago for further
negotiations.

Court did alternative holdings (Reversed Appeal)

Notice was not required because of the express terms of

the contract

Notice was delivered anyway notice was given

White v. Corlies & Tift

Corlies was moving up in the world and was moving to a new

office on Broadway. White was going to outfit the office.
Negotiations took place and white got the supplies and Corlies didnt
want and refused to pay. White sued. Corliess argument was that
there was no deal

Discussion

Corli
es
and
Tift:

Reques White
t for walnutin 21 days

too short
Reques

t for pinecan do it

Chang

estimate?)its not going

estimate

e in specs.
Sept.

29 note

ent of work
Sept.

30 countermand

They said that the letter on September 29th was the offer
(everything before was preliminary negotiations)

The offer invites a promise by the offeree

White showed that he accepted the promise through his conduct
(the rule is that you HAVE TO PROVIDE NOTICE)
Courts opinion: P did not take action to notify the D. As
a result there was no acceptance of the agreement

Ever-Tite Roofing Corporation v. Green

Green needed a new rook and Ever-tite spoke to them. He

handed Green a form, they signed and Ever took it back to the
office. After, they were getting ready to do the work another
company was working. Ever-tite sued Green saying that they had a
contract for the roof. D said they really didnt have a bargain

Using the companys firm to make an offer. Ever-tite did not

want to be bound until it was approved by the headquarters. They
were not manifesting a bargain when they first offer a form. It was
the Greens making an offer with the form.

Greens were going to pay for the roof on credit, and Evertite wanted to do a credit search first.

The Green wanted a promise from Ever-tite to do the work

Was starting work a permitted matter of a permission able

method of accepting the terms.

Was notice provided? Yes because the workers showed up

So there was a contract. It was too late when the

workers got to the house that the Greens could not back out
of the agreement

Carlill v. Carbolic Smoke Ball Co.

Carbolic ran an advertisement for smoke balls. Carlill got the flu
from using the Carbolic. They didnt pay and she sued.

The court said that the advertisement was the offer because it
was a reward for anyone getting the flu

What type of acceptance did the offer invite? Complete

performance or promise

Acceptance by complete performancecommon in cases

with reward

Do not have to provide notice because the completion of the

performance was completion of the offer
Indemnity agreement is one whereby a party undertakes contingent
liability for a loss threatening another.
Allied Steel and Conveyors, Inc. v. Ford Motor Co.

Ford ordered machinery from Allied. The first contract was

successful. For the second purchase Ford had an indemnity
amendment. Ordinarily Allied didnt want this agreement, the first
time they voided it, but the second time it was not void.

Timeline after second contract

July 1956Ford submits Amend. 2 No. 2 with clause

requiring Allied to indemnify Ford (Allied would pay Ford for the
liability incurred from any injuries)

Work begun by Allied

September 1956Allied employee injured

November 1956acknowledgment executed by Allied

The court says the offeror prescribes the manner of acceptance

of the offer shall be indicated by the offeree and an acceptance of
the offer in the manner prescribed will bind the offeror

Said that the acknowledgement copy of Amendment was

merely suggested and not required and second that the offer
was accepted and a binding contract effected when Allied
consent and acquiescence undertook performance of the work
called for by the amendmentwould not be binding until it was
accept by Allied

Needed confirmation of the work, they didnt need the form

itself. The copy was a suggestion. Ford needed the promise
that the work was going to get done.

Once the performance starts that are makes it bound. Ford

won the case
Most contracts that are done are bilateralpromise that one party will
do the action. Starting action is a way of performing a promise

Can the offerees silence be acceptance?

General ruleno (it would open the flood gates if it was yes;
contractual liability is voluntary on both sides)

Rationale

Exceptions

Offeree takes serviceswith an offer to reject them and

the offer comes with expectations then you are bound to it;
offered services if you take the benefit from them you are
accepting it

Offer says silence is acceptance and offeree intends to

accept

Previous dealings

Offeree uses offered property

Dont look up whip on the internet
Hobbs v. Massasoit Whip Co.
Court concluded that a silent retention amounted to an
acceptance because the plaintiff and the defendant were not
strangers and had sent the eel skins several times before and
accepted and paid for them
It is under 69 previous dealings were silence is acceptance and
offer says silence is acceptance and offeree intend to accept
Termination of offers 36(1)

Lapse of time 41(1), (2)

If it is not specified, it will be based on a reasonable

amount of time (based on the context of the situation)

Revocation by offeror 42, 43

Death of offeror 48

Rejection by offeree
Revocation by offeror 42, 43

Generally possible any time before acceptance

At any time before acceptance because the offeror can

change his mind and they are still the master of the bargain

Effective only if offeree directly or indirectly receives

communication of revocation before acceptance

Inconsistency can lead to revocation

Not possible if offeror has made a binding promise to keep the

offer open (an option contract) Common law way with dealing with
the issue of unlimited time before an offer is accepted and that the
offeror can revoke any time before that

Binding promise to keep the offer open for a period of time

Dickinson v. Dodds

Dodds owns property and wants to sell it. Barry told Dickinson
that Dodds was selling the property to Allen. Dodds gave written
affirmation that he was going to sell it and it gives it to the motherin-law who never gave it to Dodds. Barry and Dodds went to look
for Dickinson and Dickinson said he had already sold the property.
Dodds said that he revoked the offer before Dickinson could
accept it. Dickinson believed that there was a contract and said
Dodds revocation doesnt count because Dodds said he was going to
keep it open until Friday at 9:00 am and the order of a contract to be
bound was not correct.
Court ruled that it was nudum pactum (promise without
consideration, nothing was promised in returned). Dodds does not
have to sell the property

The $800 dollars was part of the offer and not binding.

It is not a binding promise and Dodds was free to revoke

the offer

Dickinson knew prior to seeing Dodds that Dodds revoked

his offer by selling the property to Allenindirect
communication

If it was a contemporary case you might be able to make it

favorable to Dickinson through reliance

Death of offeror 48

Terminates unaccepted offers (but not most contracts)

No communication required

Option contract can prevent termination

Earle v. Angell

Woman died and said that her nephew if he attended the funeral
he would get money from her.

As the attorney can you tell the nephew that if he testifies to the
promise then it could become an ethical issue

it opens Pandoras box. The client might want to commit

perjury.
Possible Responses to an offer

Acceptance

Inquiry, comment, silence

Rejection 38(1)

Counter-offer 39(1), (2)

Presumed to be a reject and new offer

Purported acceptance with qualifications

Operates not as an acceptance but as a counter-offer

under mirror image rule 59

If the purported acceptance is not a mirror image of

the offer than you have not accepted and actually
make a counter-offer

Minneapolis & St. Louis Railway Co. v. Columbus Rolling-Mill Co.

Needed rails to make a railway

D didnt send the rails after correspondence and P sued. The

negotiations seems to be more of preliminary negotiations not an
offer or contract
Mailbox rule: An acceptance is effective upon its dispatch 63(a)

Consequences: after dispatch of acceptance, offeror cannot

revoke and offeree cannot reject

Exceptions to the rule:

Offer indicates otherwise (extremely common)

Offer subject to an option contract 63(b)

Offeree attempts to reject after dispatch of acceptance

Offeror agrees to cancel (waiver)

Offeror relies on attempted rejection (estoppel)

Scope: Rule Applies

Only to acceptances, not rejections or revocations

To any dispatches, not just U.S. mail

Even to lost acceptances that never arrives

Can there be contractual liability despite failed or apparently
failed negotiations?

General ruleno liability (e.g. Owen, White, Dickinson, etc.)

Possible bases for exceptions

Breach of implied promise not to revoke offer (45,

Drennan)

There is an option contract that arises when dealing

with a performance. Once the person starts the
performance. There is an implied promise to keep it
open

Breach of assurances during negotiations (Hoffman)

Breach of contract to negotiate in a particular manner
(Channel)

Drennan v. Star Paving Co.

Star Paving (subcontractor)-->offer to do paving $7,131-->Drennan
(general contractor)-->offer to build school $317,385-->Lancaster School
District

General contractor named Brennan and he learned that the

Lancaster School district wanted to build a new school. Drennan
submits a bid for $317,385 to build the school. When Drennan
submitted the original number it was just an offer. Drennan took the
subcontractors offer and didnt accept it immediately (because if
they didnt get the school district they would have still had to pay
Star and didnt want to do that). Brennan got the contract from
Lancaster and he went to star paving to tell them and to accept
their offer. Star Paving revoked the offer before the acceptance
because they made a mistake.
Court ruled that there must have been an implied promise by the
subcontractor not to revoke the promise of the contractor. Promise
was enforceable

Drennan reasonably relied on it so there was a contract

between the two parties

Subcontractor said that they made a mistakejustice does

not enforce a promise

Judge said that is another reason to enforce the

promise because they mislead P

Hoffman v. Red Owl Stores

P wanted to start a grocery store. Most major grocery stores are

franchises. P approached a man named Lukowitz (Red Owl
Representative) who would help P start a franchise. Rep. said that P
needed to buy a grocery store and run it. He was told to sell the
grocery and move. They had to sell a bakery and buy a property in
a new town. Now rep said that P needed to get more money and he
asked his father-in-law. Everything fell through and P sues D.

Court ruled that the promise was enforceable

To have monetary damage they calculated the amount

based on the amount that was going to be relied on
Promissory Estoppel

Promise

Action/forbearance

Induced by (taken in reliance on)

Reasonably expected

Preventing injustice
Can there be liability despite failed or apparently failed
negotiations?

General rule-no liability

Possible bases for exceptions

Breach of implied promise not to revoke offer (45,

Drennan)

Breaches of assurances during negotiations (Hoffman)

Breach of contract to negotiate in a particular manner

(Channel)

Definiteness/Certainty 33, Varney

Terms must be "reasonably certain," must look at whether or not:

What is a breach

What is an appropriate remedy

Reluctance to find indefiniteness

e.g., Fairmount, Hoffman, Channel, Toys

Effect of trade usage, implied terms, etc.

Varney v. Ditmars

D (architect) was sued by P (draftsman). D made a promise to P

to pay his ordinary salary, and P would get a fair share of the profits.

P voted and that made D mad and only paid the salary

Court said that P could not get the fair share of the profits
because the fair share amount is unknown. It was too indefinite for
the court to enforce. It would be "pure conjecture"
Toys, INC. v. F.M. Burlington Company

Toy store entered into a lease with the mall for a five year period.
The lease had an option to renew for another five year period. The
rental rate after the five years was left unknown when P wanted to
renew the lease. P wanted to renew D gave a new figure. There
were negotiations, but then D gave the store to another company.

D's argument was that the amount was indefinite.

Court rejected the argument that it was too indefinite. Court

didnt like the term renegotiate-start from scratch. Court held that
there was a prevailing rate. Cannot start from scratch have to just
give an offer and allow for the other party to accept it.
Channel Home Centers, Division of Grace Retail Corp. v.
Grossman
"letter of intent"
Take of market negotiate only with Channel
Act in good faith 205
Grossmans (D) --------------------------------------------------------------------->
Channel (P)
<--------------------------------------------------------------------Proceed with leasing
Follow up Question: Would implied duty of good faith in 205 have
prevented breaking of negotiations in bad faith absent a contract to
negotiate?

Grossmans were purchasing a rundown mall and wanted to

revitalize it. Wanted some anchor stores. Approached Channel
Home Centers. Grossmans wanted a letter of intent (memorandum
of understanding) [both do NOT have a fixed definition] from the
Channel Home Center. The parties sat down and signed the letter
(Channel needed approval from their headquarters). While P and D
were negotiating a third party were interested in the space. D
signed the lease from the third party
Court reversed the judgment of the district court and remanded
the case for further proceedings consistent with this opinion.

It was sufficiently definite of keeping the property from the

rental market

Consideration: What did the Grossmans get out of this?

They got the actual letter and could use the letter to show that
the property was being sold and would help the Grossmans to
get more finance for the property

Statute of Frauds
Statute of Frauds

Any statute saying certain kinds of promises are not enforceable

unless evidenced by a signed writing

Purpose is to prevent P from falsely alleging D made certain

kinds of promises

At least 2500 statutes in US (extraordinary promises require

extraordinary proof)

Complicated judicial interpretation (often finding unwritten

exceptions
Six famous types of promises covered by a statute of frauds in
most states
Remember MYLEGS
Marriage

110(c), 124, Syl. App.

4

Year

110(e), 130(1),(2)

Land

110(d), 125(1),(3)

Executors (to answer anything for an

estate), need assigned writing since it's
not the executors money

110(a), 111

Goods (anything that is moveable is a

good) > $500 must be assigned writings

UCC 2-201 [Supp. 30]

Suretyships (answer for the duty of

110(b), 112
another, its a contract in which the
surety promises to pay the principal's
debtor to the credit. They do not receive
a direct benefit from it) "fool with a
fountain pen"
Example:
Romeo and Juliet
Promise to give sleeping potion
Friar Laurence (D) -----------------------------------------------------> Juliet (P)
<----------------------------------------------------promise to marry Juliet
promise to marry
Juliet (D) ---------------------------------------------------------------->Romeo (P)
<---------------------------------------------------------------Promise to marry
2 mutual promises do not count. My promise is made under the promise
of consideration. Juliet would not be covered
Comments from 124 of the Restatement (Second) of Contracts
Engagement to marry. Mutual promises to marry were within the words
of the English statute, but were not within the statutory purpose and
were soon excluded by judicial interpretation. A number of American
statutes explicitly except such promises from the marriage provision.
They may, however,
fall within the one-year provision. Statutes in many states bar actions for
breach of a promise to marry.
One year Provision 110(e) , 130
Easy Cases: 6 months, 4 years, etc.
Special cases:

Exactly 1 year: do not need writing, have to look at statutory

interpretation

Lifetime: could be performed in one year (death)

Promise to pay money over multi-year period--does not need

evidence of assigned writing because you could complete it in a
year

Only 1 party's promise will take > 1 year 130(1): both promises
to work and do have to be evidence of assigned writing. If one of
the parties will take more than a year to perform than it must be
written down

One party has already completed performance 130(2)

Promise realistically will take > 1, but contract does not prevent
earlier performance Klewin

C.R. Klewin, INC. v. Flagship Properties

Formed a deal with a handshake and a "we got a

deal"

D was not happy with P's performance and fired him

and got someone else.

P said we had a deal. One of the defense's D raised

was statute of frauds. D said that the action could not be
fully performed in one year. P said that the terms could not
prevent completion in one year. Nothing in the contract
said it would take over a year, but that it could.

Court said that an oral contract that does not say in

express terms that performance is to have a specific
duration beyond one year is as a matter of law the
fundamental equivalent of a contract of indefinite duration
for the purposes of the statute of frauds

Have to go by what is legally possible, not

realistically possible

Contract could be terminated in 1 year, but not fully performed

Syl. App. 4

Land--must be evidence by assigned writing

Seller's promise to sell land (i.e. convey a deed), promise to sell

Buyer's promise to pay for land, promise to pay

Exception-after deed has already been conveyed then you don't

need to have it in writing
Suretyship
Student
Principal
Debtor

Promise to pay
----------> Car Dealer
<----------- creditor
car

Parent
surety
Langman v. Alumni Ass'n

P developed a piece of real estate called "Ferdinand's Arcade"

and wanted to give it to UVA. The property was subject to a
mortgage and they were paying back the lender and the money was
turning a profit. So they gave it to UVA and UVA took it. After a
while they weren't making enough money to pay off the debt. P
paid off some of the debt and wanted UVA to reimburse them and D

said no they wouldnt reimburse them. UVA was supposed to take

on the debt from the debt assumption clause.

The appellate court said that if you agreed to the deed then you
promise to do it and that it was NOT a suretyship promise because
they didnt promise the lender that they would pay the debt, but the
mortgagor to pay the debt.

This does not need assigned writing because they deed has
already been conveyed 125(b)
Requisites of Writing and Signing 131
o Unless additional requirements are prescribed by the particular
statute a contract within the statute of frauds is enforceable if it
is evidenced by any writing

Essential terms

Identify the subject matter

Sufficient to indicate that a contract with respect thereto

has been made between the parties or offered by the signer to
the other party

State with reasonable certainty the essential terms

Signed by party to be charged-depends on who the defendant is

(D cannot sign it to not have it enforced)

Lucy v. Zehmer example (p. 118) restaurant strip was enough of

a contract, Zehmer signed, but Lucy did not.

Lost writings--yes it is not necessary that you have the paper, but
that you can prove that there is writing that had been signed

Electronic writings--there is legislation that electronic writing can

count as signing as long as it is authorized. Court didn't really care.
Signature is just enough to make it clear who is producing the
document

Relationship to other requirements (e.g. consideration, offer and

acceptance, definiteness)

Just having it writing still doesnt make a contract. This is

just an additional requirement
Statute of Frauds: Requirement of a signed writing

Purpose: to prevent P's from falsely alleging D's made promises

Unintended consequences: __________________

Judicial responses: (sometimes does more harm than good

Hostile interpretation of statute to make compliance easier

Doctrines permitting recovery despite non-compliance

Controversy: legislative vs. judicial supremacy

Possible ways P might recover even if D did not sign a writing as
required by the statute of frauds

Restitution (375): allow for some recovery and tries to prevent

total unfairness

Equitable estoppel to bar allegations there is no signed writing

So-called "part performance" doctrine for land buyers (129 and
syl. App; Richard); misnamed. The reliance is three things 1) pay of
part of purchase price (not alone, more than that), 2)taking
possession or 3) making improvements on the property (or both 3
and 4). Relies on the promise to sell land when there is
improvements and taking possession.
4.
Promissory estoppel 139, Monarco (only about 20 states to allow
this to overcome statute of frauds)

Richard v. Richard

Couple separated and during the divorce Family court ordered

that Norman to convey residence to Gregory and Jennifer. The
ground of the order was in an agreement. Barely any records.
Before the sale agreement was made Greg and Jennifer occupied
the land as tenants and made monthly payments and made
improvements onto the house. Normal believed that since there
was not written contract he did not have to give the land to Greg
and Jennifer. Jennifer argued that she did part performance by doing
home improvements (they couldnt be moved

LAW for an oral argument there is still reliance on the

agreement. The statute of frauds is not to be taken lightly, and any
partial performance must unequivocally indicate the existence of
the purported oral agreement. By making improvements and take
possession can rely on it.
o
In this case there is enough evidence that Greg and
Jennifer adequately indicated the existence of the purported
oral contract to constitute a part performance thereof through
improvements and partial payment
Monarco v. Lo Greco

Facts: Parents wanted Christie to work for him and expressed

orally that they would leave him the property and the money when
they die with some money to the other children and grandchild.
Near the end of his life Natale decide to change his will to leave his
share of the property to his grandson.

Court looked at the California statute -An agreement that by its

terms is not to be performed during the lifetime of the promisor.
The "real-property" clause of the statute concerns only agreements
for leasing realty, and sales of real-property interests
o
LAW

Used estoppel to assert the statute of frauds had

been consistently applied by the courts to prevent fraud
that would result from refusal to enforce oral contracts in
certain circumstances

Elements of dealing with the fraud

Injury would result from denying

enforcement of the contract

Unjust enrichment that would result if a

party who has received the benefits of the other's
performance

"an estoppel to plead the statute of frauds can only

arise when there have been representations with respect to
the requirements of the statute indicating that a writing is
not necessary or will be executed or that the statute will
not be relied upon as a defense"
In this case court ruled that D did enough of his part of the
agreement and the court affirmed lower courts ruling
No equitable estoppel in this case; the Judge says that
there is promissory estoppel

o
o

The statute of frauds is a statute and the legislation reigns supreme;

consideration and definiteness is common law and the judiciary can
tinker with it

Policing the Bargaining Process

Cases where the law may refuse nonetheless to enforce the bargain
Examples: lawless threat and outright fraud
Variety of Mechanisms that have been adopted for policing what
society dictates as bargaining abuses

Status of the party seeking relief from a promise

o
Disqualify certain classes (minors, married women,
mentally infirm)

Behavior of parties during the bargaining process

o
Treatment of duress illustrates the problem and implicates
the difficult issue of how the law should deal with disparities in
bargaining power b/w parties

Substance of the resulting bargain

o
Courts will not inquire into the adequacy of the
consideration. Measures that treat particularly lopsided
bargains with disfavor

Capacity
Incapacity two major types: minority (infancy) and mental infirmity
Married women in common law had incapacities because they were
seen as one person underneath their husbands.
Infants and the Law

Contracts
Infancy is a defense and a basis for rescission 7, 14 Syl.
App.

But infants can enforce (i.e. contract is voidable, not void)

Often one sided in that the infant can enforce it but the
non-infant cannot force the contract
Restitution-Rest. Restitution 62t cmt.b (not required when the
subject matter or the proceeds are unavailable).
Example cannot return a ruined car
Some companies will not do work with infants, example:
car dealers, large loans

Generally req'd if contract is voided

Not required is subject matter unavailable (possible

requirement is ___________)

Req'd for necessaries if infant is emancipated

Encourage people to sell things to them

Torts Rest. Torts 895I

No immunity based on infancy

Children can commit torts

Infants to void a contract has to be a reasonable amount of time before

turning 18
Kiefer v. Fred How Motors, Inc.

Facts: P bought a five year old car from D when he was underage
(in his contract he said he was 21, but he was a few months short).
After becoming 21 (in a reasonable time afterward) P returned the
car and sued to recover the price. Car had a crack engine block.

P argued that he was an infant and wanted to void the

contract. D asked the court to make an exception--public policy
that emancipated minors over 18 should be legally responsible
for all of their contracts (P was married and had a child)

Court: infancy doctrine (had lost some of it's gloss). Couldnt

drop the age to 18, did not think it was appropriate, but the
advantages do not outweigh the disadvantages. It is not up to the
courts to determine infancy age for the state. Moreover minors
require protection from the pitfalls of the market and they should be
able to sue and recover the price of the car. Didnt have to make
restitution. An infant can void a contract and as an infant you
dont have to pay restitution

Dissenting Opinion: 21 years of age is no longer an

indication of contractual maturity and has no basis of fact or in
public policy. The car for the respondent (P) was a necessity
and therefore the contract could not be disaffirmed. Since it
was a necessity P should have to pay restitution.

Voiding promises based on mental illness/defect

Traditional ground 15(1)(a)<-still available in all states

=promisor was unable to understand

Additional modern ground 15(1)(b)<-available in a few states

=promisor was unable to act reasonably

+promisee had notice or knows about it

15 Person incurs only voidable contractual duties by entering

into a transaction if by reason of mental illness or defect
When a promise is voidable based on mental illness/defect

All states: promisor was unable to understand 15(1)(a)

A few states: promisor was unable to act reasonably and promise

had notice 15(1)(b)
Ortelere v. Teachers' Retirement Bd.

P was an old women who retired because she had a mental

illness. In her state she decided to take a large amount of her
retirement and died two months later. When she died her husband
sued for the amount stating that P was mentally ill and could not
make a reasonable choice. P's husband said that she was mental
incompetent

Court ruled that the traditional standards for dealing with

contractual mental capacity (cognitive test) was out of date and not
with the prevailing view)

Restatement 2nd Contracts reads (1) a person incurs only

voidable contractual duties by entering into a transaction if by
reason of mental illness or defect(b) he is unable to act in a
reasonable manner in relation to the transaction and the other
party has reason to know of his condition

Court said that the board should have known

Reversed the ruling, remands the case

Dissenting opinion: the evidence shows that P

had the mental reasonableness to know her actions.
Cundick v. Broadbent

P and D make a one page contract that P would sell his ranching
properties to D, P's attorney made it larger and later they made
revisions to make the contract better for P. P was executing the
documents and when everything was pad and the sale almost
completed P rescinded and his wife as the guardian ad litem brought
action against D to set aside the agreement because her husband
was mentally incompetent to the contract and D overreached him.

Court said that the modern rule is that a contractual act by one
claiming to be mentally deficient, but not under guardianship,
absent fraud, or knowledge of such asserted incapacity by the other
contracting party, is not a void act but at most only voidable at the

instance of the deficient party. Court didnt believe the testimony

that he could have mental illness but friends and family didnt see it
or notice it.

To make a contract depends on the ability to have

sufficient reason to be able to understand the contract

D did not overreach

Dissenting relies on the medical experts and believes that

the majority's reliance on the evidence was trivial and
inconsequential

Duress, Modification, and Attempted

Modification

Courts have traditionally been insistent that no advantage should

be gained through gross unfairness in the process of bargaining
Duress-impermissible pressure exerted by one party over
another either during pre-contractual bargaining or as is often the
case during the attempted renegotiation of an existing deal
Pressure in bargaining

If pressure the victim can regain what they have lost or the
promise made under duress may not be enforced against the
victim

Economic coercion has become the "junior partner" of

duress

There are limitations towards duress--must show resistance

and there needs to be substance to the threat

Rules of Duress

A promise induced by duress is voidable 175(1)

Duress is
o
An "improper threat"
o
That leaves the promisor no reasonable alternative but to
make the promise

Examples of improper threats

o
Threat to commit crime/tort 176(1)(a)
o
Threat to breach exist contract in bad faith 17(1)(d)
If two parties have formed a bargain, and ten one subsequently
promises to do more than originally agreed, is the subsequent
promise enforceable?
No, if induced by stress

175(1), 176(1)(d)

No, if no new consideration ("pre-existing duty

rule"--not really bargain for it)

Alaska Packers, 73

Yes if original contract controlled

Schwartzreich

Yes, if circumstances changed ("modern

modification rule," reasonable modification)

Watkins, 89 (only about

12 states)

Examples
Original Contract
Promise to pay $44k
Student ----------------------------------->GW Law School
<----------------------------------Promise to educate
Later on
Promise to pay $2k more
Student ----------------------------------------> GW Law School

To get duress for the second contract the law school couldnt
attend at all (an improper threat). Good faith breach of contract in
this case would be the school would shut down if they didnt get $2k
more money. A bad faith breach of contract would be to just deceive
us.
If you cannot show bad faith is there another way out?

There is no new consideration, we were already promised a

legal education. It must be bargained for or exchanged

Pre-existing Duty Rule: performance if a legal duty

owed to a promisor which is neither doubtful nor the
subject of honest dispute is not consideration
(Restatement Section 73).

Alaska Packers' Ass'n v. Domenico

P and D had a contract for fishing and on the expedition D

wanted it changed. The P representative on board said he could not
and they forced him to make a new contract.

Court ruled that since there was no consideration because it was

not voluntarily done by both parties, just the first and that the work
being done was the same exact deal under the original contract
therefore the second contract was not enforceable and the lower
court's ruling was reversed
Scwartzreich v. Bauman-Basch, Inc.

P was going to work but he got a better offer and was going to
quit, but the company made a new contract. After he was fired and
wanted the money from the second contract, but the company
didnt want to do that so could P get the most money?

Court ruled that since both parties mutually rescind the contract
and removed the preexisting duty and had the same consideration
as the original contract

Watkins & Son v. Carrig

P hired to excavate the cellar for a business that D wanted to

build and started digging and saw that it was mostly rock and it
would cost more-- P said it was going to be 9 times the cubic price

Have a referee judge and had two parties enter into a bargain
and one party makes a new promise. Is the new promise
enforceable?

No evidence of duress: No duress because there was a

good faith reason for breaking the contract; not breaking
contract to extort more money but that he needs more money
to do the work.

The referee said that the oral agreement superseded

the written agreement. The old one was rescinded so it
was new contract

New Hampshire Supreme Court ruled that modification is a

partial rescission. There were new circumstances that are fair and
unreasonable so that it was fine to have a new contract that would
be enforceable

That's how people do business

If there is a change in circumstance and that it was agreed

on than he is bound by the new contract

Misrepresentation, Concealment, and NonDisclosure

Misrepresentation
A promise is voidable if it is induced by

A material or fraudulent misrepresentation (not accordance with

the facts but not material or fraudulent, accidentally mistake) of fact
(but not mere opinion or puffing--not enough) 159, 164(1), 162

159 Something that is a statement of fact. Not in

accordance with the facts

164 material (very important) and important, and

fraudulent (meanings you are lying)

162 you lied about

Allowed to engage in opinion or puffing--it's not a fact

because the person you are saying it to aren't really interested
or that we know it is an opinion

An active concealment of facts 160 OR

Take steps to cover up the facts

A half-truth, Kannavos

Being a misrepresentation of the facts even if the facts are

true; make it so that another person believes you.
On which the promisor was justified in relying

Kannavos v.Annino

P bought a house, but D had illegally converted the house into a

multi-family house and P wanted to rescind.

D argued that it was not voidable because it was a case of fair

non-disclosure (like Swinton) also that P could have looked at the
public record to see the zoning rules

Dont want people to engage in half-truths and misrepresentation

Not a good argument

Discussion of confidential relations

You assume that a person is on your side to give you the

information to help them
A bare non-disclosure of facts by the promisee does not make a
promise voidable, Swinton, unless

A statute requires disclosure, or

The promisee has a "confidential" (not "arm's length") relation

with the promisor requiring disclosure, 161(d)
Swinton v. Whitinsville Sav. Bank

P bought the house from the bank and went to the war and
wanted out of the house because it was filled with termites and P
sues to rescind the contract

Did d make any fraudulent misrepresentation of the house?

Not really

Did they actively conceal the termites?

Not really

Bare nondisclosure is perfectly fine.

Mistake
People make promises based on what other people say. A mistake is an
assumption that is thought to be true.
Mutual mistake: where both parties to the contract are mistaken as to
the same basic assumption
Promises induced by a Mutual Mistake 152

Mistake of fact (not mere incorrect/poor prediction) 151

o
Something fundamental
o
Believe something that isn't true

Mutual (i.e. made by both parties)

o
Unilateral is not enough, must be mutual to both parties

"basic assumption"
From the mistake
Material effect
o
Could be easily corrected
Affected party does not bear risk of mistake 154
o
Who's problem is it?
o
Party bears the mistake when the risk is allocated to him
by the agreement of the parties, or that he aware of limited
knowledge of the facts, the risk is allocated onto him from the
court
o

Stees v. Leonard (promise to build--->not voidable)

P hired to make a building and D thought they could do it but the

building fell down so they built it up again and it fell down

The lot was made of quick sand

D wanted to get out of the contract and they weren't allowed to

do so

Mistake of fact: quick sand in the plot. Not sure whether it

was quick sand or not

Both parties were mistaken that the ground was

quick sand and it wouldnt hold up a building

Stees should bear the risk because they would know more
about construction
Sherwood v. Walker (promise to sell cow--->voidable)

D had a bunch of cattle because he fed them corn mash and

decided to sell one to a banker P and set the price $80 and then D
refused to deliver the cow b/c he thought the cow was infertile but it
was pregnant

Was it enforceable? Walker could refuse because it was voidable

Mistake of fact: cow was infertile

Wood v. Boynton (promise to sell diamond--->not voidable)

Found a pretty looking stone and took it to a jeweler

She sold it to him for a dollar but then she wanted to rescind the
contract because it was a rough diamond (jeweler thought it was a
topaz)

The court would not allow her to rescind the contract

Mistake of fact: it was believed it was not a diamond.

Depending on what sides it was a mistake of fact of a poor
prediction

The two parties were bargaining over a different

animal--a barren cow is very different than a breeding one

Affected party that bears the mistake because the jeweler

knows more about jewels and stones rather than Wood would
know

Denying Specific Performance

Promises induced by a unilateral (not mutual) mistake

Traditionally not voidable, e.g. Swinton

Modern rule (~25 states), 153(a)--might not be voidable

Effect on bare non-disclosure rule? In most cases this

happens, but if you hide it then it could it voidable

Policy considerations--facilitate business, deterrence.

Looking out for the guy who is injured
Courts of Law and Courts of Equity History lesson that helps to
understand what is going on with specific performance

English history: two sets of courts-law and equity

Some of the courts didnt have SMJ and if you didnt like
what happened in court that you can petition the monarch. The
monarch sent the petitions to the chancellor and he decided
and he had too many petitions and the petitions were given to
subordinate positions in what developed the court of equity

In most states there is only a court of law and no more

court of equity. Everything is unified

The court will decide the equitable remedy based on

the contract--the rules that governed equity still govern
when you can get equitable remedies in the court of law
today

Modern courts will look at the fairness of the

transactions

Types of remedies

Legal=damages

Equitable=specific performance, injunctions, rescission,

etc.

Containing relevance despite unification of courts in most

jurisdictions
Equitable grounds for denying specific performance/injunction
even if contract is enforceable

damages would be an adequate remedy 359(1), 360

Specific performance or injunction will not be ordered if

damages would be adequate to protect the expectation interest
of the injured party 359(1)

The exchange was inadequate/unfair 364(1)(c) Cf. 79(b)

Performance or injunction if the exchange is grossly

inadequate or the terms of the contract are otherwise unfair

Etc. many other grounds

McKinnon v. Benedict

No improvement/cutting trees
Benedicts---------------------------------------------> McKinnon
(D) <-------------------------------------------(P)
loan and advice

D wanted to buy property that was next door to P and the

property was used as a resort/camp

Entered into a bargain. P promised to loan D money to secure

property and to offer some side help/advise to get Ms. Verr out and
they promised not to make any improvements close to the tenet's
property then what it already happened. The camp wasnt
successful and decided to make some improvements. P saw that
they were breaching the contract and they were bulldozing the trees
and wanted to add to the camp (a trailer park).

The remedy that was being sought: needed an equitable

remedy: If there are equitable remedies you cannot have
equitable relief

No action of law no adequate remedy of law

Damages are not going to do it here, need specific

performance--cannot enjoy his summer home if there is
building, cannot compensate/ give damages--would be difficult
to quantify the harm that is done

Court ruled that he could not get the injunction since it would be
too unfair to the D

If he could prove damages he could get it even if it was

unfair

You could always get damages, but not specific

performance

Did not think the contract was fair and D had to give up a
lot more and P didnt give good advice and the loan wasn't
worth that much
See how equity can police a bargain--could seek and prove damages you
could get them. Most important to look at consideration but since there
is equitable remedy have to look at fairness and you have to evaluate on
fairness
Tuckwiller v. Tuckwiller

John and Ruby Tuckwiller lived on a farm and the house was
owned by Mrs. Morrison (John's Aunt) had parkinsons and became ill
and she would have to be taken care for. Entered into a bargain
with her niece--Ruby would quit her job and take care of Morrison
and Morrison would give her the farm when she died . The aunt
died before she could change her will, Ruby only took care of her
aunt for about a day

Ruby wanted specific performance

Are damages adequate? Is the contract unfair?

Court said that the damages were not adequate

since land is unique--fairness of the contract and adequacy
is done then you can look at the land
Always get specific performance on land because of
England
Ruby was going to be taking care of her aunt. The
specific legal rule of judging adequacy--need to look at it
prospectively or retroactively. No one was going to know
she was going to die. Was it a fair deal at the time
If adequate and fair than it can be enforced

Public Policy
Some promises are void because they violate public policy

Policy-contract to commit crimes, illegal acts

Examples

Torts 192 (Syl. App.): A promise to commit a tort or to

induce the commission of a tort is unenforceable on grounds of
public policy.--would not benefit society

Marriage 189 (''): A promise is unenforceable on grounds

of public policy if it is unreasonably in restraint of marriage.-traditionally when talking about public policy we didnt look at
the fairness of the two parties, but look to the harm of the
public-society looks at marriage as beneficial

Might be a good contract, but it is still bad; the victim is not the
individual, the victim is the people

Litigants often asks courts to recognize new classes of void

promises Black, 178

A promise or other term of an agreement is unenforceable

or the interest in its enforcement is clearly outweighed in the
circumstances by a public policy against the enforcement of
such terms.
Black Industries, Inc. v. Bush
Bush---------------->Black Indus-------->Hoover/Standby------>U.S. Gov't
(manufacturer)
(middleman)
(contractor)
(ultimate
buyer)
Quvils
4.40
Primers
11.50
Supports 12.00

8.10
16.00
21.20

U.S. gov't needed supplies for the war effort

Bush going to sell to Black and Black sell to Hoover and Hoover
give it U.S.: All work would be done by Bush
Black sued Bush for not making the goods
Why did Bush not have to keep his promise?

Have to give a reason to violate public policy because

Black was making an excessive profit on war materials--it
should be against public policy when a middleman makes
excessive profits on military projects
Court looked at existing public policy--should not make more
money on war supplies. The court ruled that the case does not
violate public policy because it did not fall under existing
categories , no evidence of fraud, process was done in the legal
process-there was competitive betting process

Exculpation Clauses in Adhesion Contracts

Standard form contracts: preprinted contract and not negotiated
term-by-term by a party (Ever-Type case)

Helpful for the consumer and the users. You wouldnt want to
say these are a problem.

Sometimes have problems; offered on a "take it or leave it" cases

Still have to do contracts even if you do not like all of the

terms on the contract; example: take it or leave it basis will
have an exculpation term

Can you get out of terms in a contract

adhesion contracts: offer the means by which one party may impose
its will upon another
exculpation terms: exempts from liability somebody who has done
something wrong
Three arguments that will NOT work

Standard form contracts are not enforceable--not true

I didnt read it

Adhesion contract are not enforceable--not true

Avoiding Terms in Adhesion Contracts
Strict construction--most important and powerful, it can 206,
also be defeated-fails to deal with it because of ambiguity Galligan
in the language; in case of ambiguity a contract is
interpreted against the person who drafted it. Why? They
are the ones that supplied the words, drawer had the
advantage here.

In choosing amount the reasonable meanings of a promise

or agreement or a term thereof that meaning is generally
preferred which operates against the party who supplies
the words or from whom a writing otherwise proceeds
Adequate notice/assent--except as stated in subsection
(3) where a party to an agreement signs or otherwise
manifests assent to a writing and has reason to believe
that like writings are regularly used to embody terms of
agreements of the same type, he adopts the writing as an
integrated agreement with respect to the terms included
in the writing

211 and
comment D
on pg. 240,
Klar

If you dont know the writing contains terms you are NOT
bound
Public policy--must state what policies the contract is in
violation of

178,
O'Callaghan,
Henningsen

Unconscionability--developed out of public policy. If the 208, UCC 2court as a matter of law finds the contract or any clause of 302(1) +cmt.
the contract to have been unconscionable at the time it
1
was made the court may refuse to enforce the contract, or
it may enforce the remainder of the contract without the
unconscionable clause, or it may so limit the application of
any unconscionable clause as to avoid any unconscionable
result.
Misc. other statutes regulating substance of contracts

e.g. note (2),

pg. 471;
minimum
wage, usury,
etc.

Galligan v. Arovitch

P sues D in tort because P was injured on the premises

D says they are not liable since the lease included common
areas--had an exculpation clause--the landlord is not liable with
common areas

In lower court judgment given towards D but on appeal it was

reversed

Read contract strictly--lawn and sidewalk are completely

different areas

Klar v. H & M Parcel Room, Inc.--has strict construction, adequate

notice, and public policy elements

Checked a package and given a parcel tag and when we went

back to pick up the goods and they had given it by mistake to
someone else

P said that there was about $1K worth of goods: D said there was
a disclaimer on the stub that they would only pay for $25-exculpation clause on the stub and that's all D has to pay

Klar wants to get out of the clause--could they get out of the
exculpation clause: there was not adequate notice that there were
terms. They are not saying that they didnt have a contract, but
they knew that there was a contract since they handed over the
stuff and they would pay for it. If they argue no contract they do not
have a basis for relationship. They weren't given adequate notice of
the exculpation clause of the terms that the claim check included
terms to this contract

Wouldnt ordinarily expect a claim ticket to have clauses

just use it to get a claim check to ID the parcel when you picked
it up

P won in this case

Similar to strict construction because they could change their way of
giving notice
Does not violate public policy, just only adequate notice issue
Want to have facilities like this to store packages and if they are
sued for every mistake it would be economically feasible
They dont have to keep them with the parcel company
How is it different than not reading the contract? The difference is
if you are given something with you know has contractual terms on it
you are held to it, but in this case they didnt think the stub had
contractual terms on it.
O'Callaghan v. Waller & Beckwith--deals with public policy argument

P lived in an apartment building and she slipped and fell, injured

in the apartment building and sued the company for negligence

P's claim: tort of negligence--landlord negligently

maintained the property

D's defense: exculpation clause in contract

P's potential counter argument:

Could P say adequate notice--no she signed a

lease so she knows it was a contract

Could she say it was a standard form contractno

Strict construction contraction--lease actually

purports to relieve the lessor and its agents from an
liability to the lessee for personal injuries or property
damages caused by any act or neglect of the lessor or
its agents.
P's reply (view of dissent): exculpation clause is unenforceable
because it violates public policy of [modern view]

Discouraging negligence

Prevent persons with economic power from overreaching

D's reply (view of the majority): clause does not violate public
policy because [traditional view on public policy]

Freedom of contract--nothing wrong with two people

coming together to make a contract. It is a policy in the law
because contractual liability is voluntarily

Residential leases concern only private interest, not public

interests--public policy violations were to keep third parties to
get hurt. It cannot be something that is unfair for the parties
involved

Dissents response to this was that this was going to

impact thousands who rent every day and all contracts
have these exculpation clauses

Clause may benefit both tenant and landlord

Reduction of standard of care permissible

No proof of overreaching in this case

She didnt ask for different terms. There isn't

anything about the negotiations

Legislation has addressed housing shortage

Legislature can do this better than the court can

Landlords do not have monopoly power

Housing shortage is temporary

Henningsen v. Bloomfield Motors, Inc.-public policy argument

P bought a car and there was a problem with the steering wheel
(came loose)

When a merchant sells goods the merchant warrants when the

goods are merchantable--good for ordinary purchases

D agreed that there was liability but raised an argument. They

said there was disclaimer and only get the implied warranty for 90
days or 4,000 miles and they would replace the part--very bad
warranty

Adhesion contract--it's take it or leave it; that's not enough

Court does not rely on strict construction and adequate

notice, but mentions it

Strict construction--a reasonable person looking at

the phrase would look at defective parts or workmanship

and that they would not be entitled to a new car, but if you
get into a wreck you just get a new steering wheel

Adequate notice--there was some notice but was

designed to not be obvious
This violated public policy because it is tricking the consumer.
Judicial-protect ordinary man from the company

Creation of Unconscionability doctrine started to develop

Power of the courts to invalidate unconscionable clauses

Policy arguments for/against giving courts this power

For=fairness? Candor? See UCC 2-302(1) cmt. 1--helping

people over unfairness in parts of contracts

Against=more subtle issues and do not prevail

vagueness?--it's up to the court's discretion; it's

subjective

Paternalism?--judges taking the control, not

equalized

Wealth redistribution?--there is always some wealth

redistribution; could use the clause to redistribute it; should
be a legislative decision

Sparing use in actual practice because the courts see tons of

shocking stuff. Not going to mess around with the little things.
Taking it too far would be against people's freedom to enter into a
contract

Mostly used to invalidate attempts to exclude liability for

personal injury

ATM fees?--usage fees Movie tickets?--too expensive

Tuition?--oy

Remedies to Breaches: Expectation, Reliance,

and Restitution Interests
Enforcement of a promise by order of specific performance

Limited availability

Grounds for denying

o
Damages would be an 359(1), 360 adequate remedy
o

Bargain was unfair 364(1), McKinnon

Enforcement of a promise by judgment of money damages

General
availability

346(1)

Possible measurements

Expectation--his interest in having the benefit of his bargain 344(1),

by being put in as good a position as he would have
347
been had the contract been performed
Measured by the loss in the value to him of the other party's
performance caused by its failure or deficiency + any other
loss including accidental or consequential loss caused by
the breach - any cost or other loss that he has avoided by
not having to perform
Reliance--his interest in being reimbursed for loss caused 344(b),
by reliance on the contract by being put in as good a
349
position as he would have been in had the contract not been
made
As an alternative to the measure of damages stated in

347, the injured party has a right to damages based

on his reliance interest, including expenditures made in
preparation for performance or in performance, less
any loss that the party in breach can prove with
reasonable certainty the injured party would have
suffered had the contract been performed
Restitution --his interest in having restored to him any
benefit that he has conferred on the other day

344(c),
370

A party is entitled to restitution under the rules stated in

this Restatement only to the extent he has conferred a
benefit on the other party by way of part performance or
reliance
Nominal --if the breach caused no loss or if the amount
of the loss is not proved under the rules stated in this
chapter, a small sum fixed without regard to the amount of
loss will be awarded as nominal damages

346(2)

Liquidated-damages for breach by either party may be

liquidated in the agreement but only at an amount
that is reasonable in the light of the anticipated or
actual loss caused by the breach and the difficulties
of proof of loss. A term fixing unreasonably large
liquidated damages is unenforceable on grounds of public
policy as a penalty

356

A term in a bond providing for an amount of money as a

penalty for non-occurrence of the condition of the bond is
unenforceable on grounds of public policy to the extent that
the amount exceeds the loss caused by such nonoccurrence.

Limitations

Avoidability, uncertainty, etc.

Interest Formula
Restitution: what did they actually lose
Reliance: what they loss + future losses
Expectation: loss in value + other loss -costs avoided-other loss avoided;
[what D promised-[costs P expected-what D delivered]
costs P incurred]
Would be if the contract had been performed; how much worse off is the P

Example 1

Uptowner wants to expand and goes to a contractor makes a payment and

shuts down. Contractor never shows up. What could Uptowner receive?
promise to expand
Contraction (D)----------------------> Uptowner Caf (P)
<--------------------promise to pay

Restitution: down payment (what Uptowner gave the contractor)

Reliance: down payment + shut down loss
Expectation: [expansion - 0] + lost additional profits (how long?/subject
to limitations) - [contract price - down payment] -

Example 2
promise to pay
Owner (D)------------------------->Builder (P)
<------------------------promise to build

Price owner must pay=100

Builder's expected cost=90
Price paid already=0
Costs incurred already=0/60
Market value of words so far=0/40

Different in the hypothetical comes

from uncertainties in building or a
half built building isn't worth too
much
Restitution: 0--market value of the D, not really getting anything/40
Reliance: 0/60
Expectation: (100 - 0) + 0 - (90-0) - 0=10/(100-0) + 0 - (90-60) - 0=70

Example 3

promise to pay
Owner (D)------------------------->Builder (P)
<------------------------promise to build

Price owner must pay=100

Builder's expected cost=90

Price paid already=30
Costs incurred already=60
Market value of words so far=40

Restitution: 40-30=10
Reliance: 60-30=30
Expectation: (100-30) + 0 - (90-60) - 0=40 [has 10 for profit and you add the
reliance)
Sullivan v. O'Connor

P wanted to fix her nose and went to D and promised to pay a doctor's
fee. Doctor wasn't successful and she was not happy with her appearance

Court said it was not an error about the damages given to P

o
Said it might be too high to give expectation damages. Does
the court have to decide on this issue? No because she didnt appeal
and if pain/suffering and disfigurement should be included in the
damages. The court didnt have to decide whether it was reliance or
restitution because you would have gotten both measurements under
the rule
o
She did not get reimburse on expectation damages and recover
for the enhancement of your appearance since you did not get pain
and suffering on all three operations
Restitution: what incurred on the D--Doctor's Feeds
Reliance: Doctor's fees + pain/suffering (3 operations) + disfigurement +
Hospital fees (3 operations)
Expectation: (enhanced appearance of nose - 0) + disfigurement pain and
suffer (3 operations) hospital fees (3 operations) - (Dr.'s fee-Dr.'s fee)-0
promise to enhance appearance
O'Connor (D)---------------------------------------------->Mrs. Sullivan (P)
<----------------------------------------------promise to pay Dr.'s fee
Hospital fee (3 operations)
Disfigurement
Pain and suffering (3 operations)

Expectation Damages and Incentives ("Efficient Breach")

Expectation damages 347: loss in value + other loss -costs avoided-other
loss avoided;
[what D promised-[costs P expected-what D delivered]
costs P incurred]
When dealing with avoidability you use the same formula but you do not add
the costs P incurred since they could have avoided the costs.
Expectation damages: put the P where they were initially

Efficient breach: D decides that it would be for D to breach and pay

damages than to perform
this is desirable since one side is better off and another is in the same
position; best economically
Class Discussion about the Seller and Distributor of "Red October"
Promise to pay for paperback rights, but wait until October to publish
in paperback
Berkley
(D)--------------------------------------------------------------------------------------------------------->Naval Institute (P)
<----------------------------------------------------------------------------------------------------------Paperback rights for "Red October"
Berkley's Choices

Dont breach (i.e. wait until October)

o
Make no profit in September
o
Pay no damages to Naval Institute

Breach (i.e. publish in September)

o
Make $100K additional profit in Sept.
o
Pay $40K expectation damages to Berkley--money to give the
press with the profit sales for hardcover of the book
There is no third choice!!
Questions to Ponder

What will Berkley choose? Thinking about money what choice will they
pick? They will go with breaching the contract because the damages do
not outweigh the profit.

In theory*, does the choice matter to Naval Institute? (subject to a lot

of considerations) No because they are going to make the same amount of
money either way.
o
Expectation damages--amount of money necessary to put you in
the same place before the breach of contract
Issues

Have to deal with a lawsuit to get damages.

Attorney fees--both sides have to pay for their attorney fees
Reputation about breaching contracts could have long-standing
consequences
Speculative costs--there is no certainty to the amount of books that
could have been sold. Expectation damages are hypothetical. We will
never know how many books were going to be bought
Encourages people to make contracts--two different strains of though

Limitations on Damages
Avoidability--mitigation of damages (reduce the amount

350 (1),

of damages)
Luten,

Except as stated in Subsection (2), damages are not Parker

recoverable for loss that the injured party could have
avoided without undue risk, burden, or humiliation

The injured party is not precluded from recovery by

the rule stated in Subsection (1) to the extent that he had
made reasonable but unsuccessful efforts to avoid loss

Doctrine of "constructive service": employment

contracts. Serving part and willing to serve the full amount
the cost P incurred is the amount of actual labor PLUS the
amount of constructive (willing to work) labor. What can you
plug into costs that you incurred.
o
Example: Maggs has a four year salary but
was fired after two. What would be his expectation
damages? Like Gandell v. Pontigny (English case)--court
allowed to recover for the whole time including the part
he didnt work

(4 years salary-2 years salary) + other

loss-(4 years of labor-2 years of labor [or 2 years
actual labor+2 years constructive later) -other loss
avoided

Cancels each other out

o
American opinion of Gandell: doctrine of
constructive service "is so wholly irreconcilable to the
great and beneficent rule of law"

Case Howard v. Daley

Could only include the actual costs

incurred
o
If employer breaches the contract because
the employee was ready and willing to work the whole
part of the contract
Modern Law is in between--you can always get
your actual costs incurred and you could get your
constructive labor if you cannot find comparable labor
after a reasonable amount of time

Common sense. P cannot recover damages that couldnt be

avoided
Virtue v. Bird

P sued D for making him wait and his horses died

and the court ruled that he should have put the horses in the
shade
Incomplete/defective performance
If a breach results in defective or unfinished construction and the
loss in value to the injured party is not proved with sufficient
certainty, he may recover damages based on:

The diminution in the market price of the property

348(2),
Jacobs,
Groves,
Peevyhous
e

caused by the breach, or

The reasonable cost of completing performance or of
remedying the defects if that cost is not clearly
disproportionate to the probably loss in value to him
Example: Maggs wants a swimming pool and it costs
$30K and he pays in advance the construction company. He
tells the company what he wants and a diving board.
Company builds the pool, but it is not to what Maggs
wanted. They dont include the diving board.
o
Formula: (pool with diving board-just a pool)
+0-($30K-$30K)-0 How do you measure that?
o
Should be able to cover the subjective
difference to P.

Can get anything EXCEPT if it is not grossly

disproportionate to the probable cost of P

Loss in value to P--cannot be done without

reasonable certainty

Loss in market value--what it would be costs now

Cost to complete/remedy--get what you need

We look at the cost to complete proportionate to the loss of value
to P
Unforeseeability
351

Damages are not recoverable for loss that the party

in breach did not have reason to foresee as a probably result
of the breach when the contract was made

Loss may be foreseeable as a probably result of a

breach because it follows from the breach
o
In the ordinary course of events, or
o
As a result of special circumstances, beyond
the ordinary course of events, that the party in breach
had reason to know

A court may limit damages for foreseeable loss by

excluding recovery for loss of profits, by allowing recovery
only for loss by incurred in reliance, or otherwise if it
concludes that in the circumstances justice so requires in
order to avoid disproportionate compensation
Not foreseeable of damages at the time of the contract
agreement
Example: Missing your flight-have to pay to change your ticket.
-->having to pay a fee is an ordinary circumstances. Losing a
profit because you missed a business meeting since you missed a
flight-->special circumstances
Damages are foreseeable if they arise

In ordinary circumstances ("direct" or "incidental"

damages), OR
From special circumstances the D had reason to
know about ("special" or "consequential" damages)

Uncertainty
352
Damages are not recoverable for loss beyond an amount that the
evidence permits to be established with reasonable certainty.
They might not get expectation damages, but they could get
something still.
What may be uncertain:

Fact of loss: Collatz (cannot show that he would

have won), cf. 348(3)--uncertain whether the event

would have occurred had there been no breach, the

injured party may recover damages based on the value
of the conditional right at the time of breach

Extent of loss--can you prove what you loss with

reasonable certainty; older businesses-know what they have
made in the past; new businesses it is hard to know what the
loss of profits is. Cannot show with reasonable certainty
Value of loss cf. McKinnon --cannot prove this
without reasonable certainty--Maggs missed his
Thanksgiving dinner; do we know the extent of the loss? He
missed thanksgiving dinner; but it's difficult to figure out the
value of missing thanksgiving dinner
o

352--damages are not recoverable for

loss beyond an amount that is evidence permits to
be established with reasonable certainty

Rockingham v. Luten Bridge--avoidability

Pay for bridge
County (D)---------------------->Luten Bridge (P)
<---------------------Build bridge

P wanted to make a bridge through the forest and hired D to build a

bridge and they started doing the work and then P decided they didnt
want the road so they didnt need a bridge. D still went on and built the
bridge due to the contract. P repudiated the contract. Did the D have a
duty to build the bridge if P broke the contract. D did not have a duty to
build the bridge. They were excused by the county's repudiation.

P didnt want to pay for the bridge and D first sued for the entire
purchase price of the bridge. D wanted to get expectation damages
Expectation formula: [price of bridge-amount paid so far]+0-[costs of
building bridge-{only cost at breach ($1900) OR actual cost at
completion(all costs)}]-0
There was a dispute on the costs P incurred. P wanted the full price of
completion and the D wanted only cost of breach

Court said they could have avoided some of the costs so you go with
the costs at breach. Person cannot pile up damages

Professor Williston theory--if a man engages to have work done, and

afterwards repudiates his contract before the work has been begun or when it
has been only partially done, it is inflicting damage on the defendant without
benefit to the plaintiff to allow the latter to insist on proceeding with the
contract. The work may be useless to the D and yet he would be forced to pay
the full contract price. On the other hand, the P is interested only in the profit
he will make out of the contract. If he receives this it is equally advantageous
for him to use his time otherwise
For every additional dollar the P gets it had to put in the dollar to work. No
really benefits
Parker v. Twentieth Century-Fox Film Corp.

P was going to make a movie with D to star in a musical Bloomer Girl.

D was going to pay her and P was going to dance and have director rights.
D decided not to make the movie, but they were going to make another
movie Big Country, Big Man--western movie, filmed in Australia. P didnt
want to do the movie, she wanted to do the musical. P sues for breach of
contract for not getting paid.

Formula: ($750K-0)+0-(14 weeks of labor-14 weeks of constructive

labore)-0=$750K
o
Disagreement of the costs P incurred. D thought she should get
nothing for doing no weeks of labor since she was offered a
comparable substitute. P thought she should put in the whole price
of 14 weeks of constructive labor.

Court Held: The second movie was different and inferior because it
was a different movie (subject matter), location of the movie, and P could
have picked her own dance director or anything else about the latter
movie. Net resolve was that she could put in 14 weeks of constructive
labor
o
Dissent: it's not supposed to be the same field and it was
relatively the same contract, but that the legislative intent was to
look specifically
o
Court does not want you to be idle--try to find work
Jacob & Youngs v. Kent

P built the house, but D didnt finish paying for the house because the
contract called for a different type of plumbing then was actually used
(really no difference between the two types of pipes)
o
D thought he didnt have to pay because there was a breach on
contract

Court said you still have to pay and subtract an allowance from the
amount. (Issue was how much to subtract from the payment). Measure of
recovery here: entitled to get cost to remedy but if it was unfairly
disproportionate to get the damages.

Formula for Kent's damages: (House with Reading Pipe-House with

Cohoes pipes)

No substantial loss--no one cares what type of pipes it has;

doesnt maintain a loss in market value. Cost to remedy/completewould be a lot to change the types

Seem value of economic efficiency value over breaching a contract

Groves v. John Wunder Co.

P sold a screening plant to D and it was a lease to dig up the sand and
the gravel and leave it in a good condition. After the lease was up D made
it uneven against the contract. P wanted the restoration of the grade

Formula: (restoration of grade-no restoration of grade)

o
Look at the subjective loss to P--not a lot since it was an
industrial area
o
Market value: $12K
o
Cost to remedy/complete: $60K

Plurality said that P was able to recover the cost of remedy/complete-rejected restatement. Took another position (difference between contracts
vs. torts)
o
In torts what you try to do how much were you injured, but with
a contract it's not what you were injured but what were you promised

Dissent: diminished value rule be applied in the absence of evidence to

show that the completed product was to satisfy the personal taste of the
promise, and denied that the willfulness of the breach should affect the
measure of damages
o
Same as the restatement and Jacobs v. Young & Kent ruling
Peevyhouse v. Garland Coal & Mining Co.

P owned a farm and agreed for a coal company to engage in strip

mining, but part of the agreement the coal company at the end of the
lease they would restore the ground. They did not restore the ground to a
level grade. P sued D and had statistics. Was there any proof to the loss
of value to the P?
o
Loss in value to P? unknown
o
Loss in market value ?$300
o
Cost to remedy/complete? $29,400

Court followed the Jacobs case--they are not entitled to the cost to
remedy/complete. They could only recover $300.
Purpose of expectation damages--put P where they were originally. Not to
encourage the D not to keep their promises--this is a major debate with
expectation damages
Hadley v. Baxendale unforeseeability

Hadley brothers owned a flour mill that ran with a steam engine and
the main shaft of the engine broke and they couldnt run the mill. Pickford
and Co. owned by D told P that they could deliver the shaft. D promised
next day delivery. D couldnt get it on time and it took 6 day delivery. P
lost 300 pounds and sued D.

Says exactly what the restatement 351 says

Court held: extraordinary circumstances and the D couldnt foresee

this, so P could not get the other loss from the case. Only cover for
foreseeable damages
o
If special circumstances were known then they could have
negotiated special terms (cap the amount that they would be willing
to pay if they didnt receive the shaft in time)

Alternative Remedies in cases of Uncertainty

Nominal damages ($1 or
$0.06)--very little

346(2)--if the beach caused no loss or if the

amount of the loss is not provided under the
rules stated in this chapter, a small sum fixed
without regard to the amount of loss will be
awarded as nominal damages

Reliance damages

349--As an alternative to the measure of

damages stated in 347, the injured party has a
right to damages based on his reliance interest,
including expenditures made in preparation for
performance or in performance, less any loss
that the party in breach can prove with
reasonable certainty the injured party would
have suffered had the contract been performed.

Specific performance

360(a)--In determining whether the remedy in

damages would be adequate, the following
circumstances are significant:

The difficulty of proving

damages with reasonable certainty

Show
bargain was fair
Damages
wouldnt be
adequate

Liquidated damages

McKinnon--D promised they weren't going to cut

the trees near P's house and P wanted specific
performance for the trees

356(1)--damages for breach by either party

may be liquidated in the agreement but only at
an amount that is reasonable in the light of the
of the anticipated or actual loss caused by the
breach and the difficulties of proof of loss. A
term fixing unreasonably large liquidated
damages is unenforceable on grounds of public
policy as a penalty.

Collatz v. Fox Wisconsin Amusement Corp

Contest--asked quiz question and they each got the question wrong
and they gave the prize to the other person not P. P's claim that there is a
contract--if he won the contest than he would have won the car--he sues
for breach of contract for not having a fair chance to complete the
contract because he wasnt allowed specific performance to complete the

contract of applying the rules of the game. He claims his loss is and that
he wanted half interest in the car. The court said that P suffered no
damages because of the d's breach of the contract, for it cannot be
assumed nor is it susceptible of proof that had the contest proceeded to a
proper finish he would have become the winner. He may not have won
Fera v. Village Plaza, Inc. extent of loss

P wanted to open a particular kind of store in D-liquor bookstore. New

owners lose the contract and gave the lease to someone else. Unknown
how much they were going to make--tried to show what other similar
businesses make. The proof showed expert witnesses to testify about the
type of business the store would make. Mr. Fera testified on behalf of his
case. Jury gave $200K and the Supreme Court of Michigan held that as
long as you can prove what you are going to make and convince the jury
than it is fine.
o
Emperor China fallacy--could have all the experts testifying it is
still NOT accurate
o
Could get reliance damages--made a business plan, ordered
products, took out loans, ordered inventory--could he prove these
with reasonable certainty

Liquidated Damages and Penalties