Contracts Outline

I. ASCERTAINMENT OF ASSENT TO BE BOUNDa. Hill v. Gateway – Hill orders computer from Gateway and keeps it more than 30 days, at which point, according to Gateway’s terms and

conditions, means Hill has agreed to pursue any problems through arbitration. Hill sues Gateway for federal mail and wire fraud.i. Were the provisions contained in the box part of the agreement bt Hill and Gateway?

i. Terms and conditions can be a contract law claimii. Based on ProCD v. Zeidenberg, Hill’s use of the computer without returning it for more than 30 days constituted his

agreement to the additional provisions in the box.iii. The contract was not formed until 30 days had expired from the time the computer was delivered (rolling contract)

ii. The contract need not be read to be effectiveb. Contract : a promise or set of promises that the law recognizes by way of enforcement

i. Courts are unwilling to enforce a promise unless something is given in return for that promise (consideration).ii. Promise – commitment to the happening/non-happening of a future event

iii. Enforcement – award of damages or other order by a court of lawc. Lucy v. Zehmer – Zehmer is joking around with Lucy in a bar and offers, in writing, to sell him his farm for $50,000. He signs this, as

does his wife, and Lucy accepts. When Zehmer won’t deliver, Lucy sues for specific performance.i. Zehmer manifested an intent to be bound, there was an apparent meeting of the minds .

i. The standard for assessing mutual assent is determined based on objective manifestations of the parties, not subjective undisclosed intent.

ii. Meeting of the minds is not an actual meeting of the minds, but an apparent one.ii. Reasonable Person standard applied (2 prong test):

i. RP in Lucy’s position would have believed it to be an offer; andii. Lucy has to have believed this

d. Leonard v. Pepsico, Inc.—Leonard sues Pepsi for specific performance of a Harrier Jet after seeing a commercial for a Pepsi Stuff promotion (7M Pepsi points).

i. What constitutes an offer?i. An advertisement does NOT constitute an offer ordinarily, UNLESS there is convincing language of commitment or

some invitation to take action without further communicationii. Objective Theory of Contract Formation – Reasonable Person Standard

i. Objective Manifestations (2-prong test)ii. The court must not consider defendant’s subjective intent in making the commercial, or plaintiff’s subjective view of what

the commercial offered, but what an objective, reasonable person would have understood the commercial to convey.

II. ASCERTAINMENT OF OFFERa. Smith v. Boyd – Smith’s file suit for specific performance of what they claim was an oral contract to purchase the Boyd’s house.

i. We may or may not have a binding agreement if a written contract is contemplated before that writing is signed. ii. Intent to be bound

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i. Business transactions require that parties to a contract be able to negotiate without fear that they will be bound by mere discussion

a. An oral contract, if proved, is perfectly enforceableii. In a social or familial setting, one is not necessarily bound unless he expresses an intent to be legally bound.

a. The exception here is Marvin v. Marvin, where public policy changed to keep up with the changing of societal values and norms.

i. This was more of a business dealiii. The court here considered the practice of the profession of real estate

a. Generally known that this type of agreement is done in writing.b. While they agreed on terms, did not intend to be bound until signing written offer. c. §27 – Existence of contract where written memorial is contemplated.

i. Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations.

iv. Doctrine of Illegaility – courts will not enforce contracts that will violate public policy

TAKE AWAY: Objective Theory. Know its two prongs and that an objective mutual manifestation is necessary for any contract. If both parties know a written contract is needed, then oral agreements don’t hold water. Objective theory is based on the “reasonable person” standard.

III. OFFERa. §24 Rest. (2nd): An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding

that his assent to that bargain is invited and will conclude it.b. Parties enter into a contract when they both manifest objectively an intent to be bound. There is mutual assent. The process by which this

manifestation traditionally occurs is by offer and acceptance.c. Lonergan v. Scolnick – Lonergan, buyer, sues Scolnick, seller, for specific performance of land. The two had been in communication

about this piece of land, and had discussed the terms ahead of time, and Scolnick ended up selling it to someone else when he didn’t hear from Lonergan re his acceptance of Scolnick’s offer. Lonergan received the letter telling him to “act fast” 6 days after Scolnick had sent it (he’d already sold the land to a third party by then). The next day Lonergan sent his letter of acceptance to Scolnick.

i. Reasonable Person Standard appliedi. A reasonable person in Lonergan’s position would not have taken the language used between the parties to constitute a

valid offer; Scolnick indicated he would sell the land to the first party to accept his offer.ii. An offer puts the power of acceptance into the hands of the offeree.

iii. Preliminary negotiationsi. There was a request for an offer; an invitation to offer.

a. Scolnick’s language was NOT intended as an expression of fixed purpose, which is requisite to make a definite offer

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ii. Lonergan’s letter of “acceptance” is truly the offerd. Maryland Supreme v. Blake

i. Blake (contractor) hires Maryland Supreme (sub-contractor) to pour concrete. Maryland raises price mid-way through job.ii. UCC applies since it’s a sale of goods.

i. UCC doesn’t define offer, so must go to common lawiii. According to trade practice and prior business dealings, Supreme’s letter constituted an offer (along with Reed’s testimony)iv. The language in Supreme’s letter important:

i. “on ready mix for the above mentioned project”ii. “the price will be guaranteed throughout the job”

v. Supreme contends letter was a price quote b/c dates, quantities, etc. missingvi. Price Quote v. Offer -- A quotation of prices is not an offer to sell, in the sense that a completed contract will arise out of the

giving of an order for merchandise in accordance with the proposed terms.i. Price quotes do NOT equal offers

a. Merchants must be able to communicate in a market without being immediately boundb. Language and contextual circumstances are the deciding factors in each case

e. Lefkowitz v. Minnesota Surplusi. D placed advertisement in paper for two consecutive weeks offering expensive apparel items for $1 each “first come first served.”

On both occasions, P was first to show up but D refused to sell the merchandise to him, citing the “house rule” that offer was for women only.

i. The court ruled in favor of P. Because the ads were clear, definite, and left nothing open for negotiation, an offer was made and P had accepted when he was the first one there and tendered stated purchase price.

ii. The words “first come, first served” are promissoryiii. “house rule” didn’t apply because it wasn’t mentioned in adiv. Manifestation of intent can be implied by actions

ii. Generally, ads do NOT constitute offers, only invitations to offer.i. An ad can constitute an offer if it:

a. calls for performance of a specific act without further communication, and b. leaves nothing open for negotiationc. overcomes multiple liability concerns

iii. Statute of Fraudsi. RRL’s printed name in the ad satisfied an intent to authenticate the offer.

iv. Unilateral Mistake of Fact DEFENSE i. RRL’s unilateral mistake of fact made in good faith allows them to rescind the contract bc enforcement of the contract at

the advertised price would be “unconscionable.”ii. This defense conflicts with objective theory, but Donovan had reason to believe it was a mistake.iii. Mistake is IRRELEVANT in determining whether or not there was a valid offer or acceptance; this is a defense to

enforcement of a contractf. Concept of Bilateral v. Unilateral Contracts

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i. Bilateral Contract : If I say I’ll pay you $100 when you agree to walk across a specific bridge on your head, and you say I accept, there is a bilateral contract, a promise for a promise.

ii. Unilateral Contract : If I say I’ll pay you $100 if (or after) you walk across the bridge on your head, and in response you say I accept, there is no agreement yet bc what you were bargaining for was not a promise, but an act; there can be no contract until performance on one side is completed, a promise for a performance.

iii. Agnew Case – Going into a store and buying goods does NOT constitute a contract

g. To constitute a binding agreement, what must be expressed is the manifestation of intent, but this expression can be implied from conduct.

IV. TERMINATION OF OFFERa. Revocation – requires notifying the offeree that the offeror no longer desires to be bound on the terms of the offer. At this point, the

offeree is no longer reasonable in the belief that all that is necessary to seal the deal is her assent.i. Dickinson v. Dodds – Dickinson sued Dodds for specific performance of land Dodds had agreed to sell him in an offer he

promised to keep open til a specific future time. No consideration was given to keep the offer open. Dodds thus sold the land to another before said time.

i. Indirect Revocation ii. Nudum Pactum – an agreement is unenforceable as a contract bc it is not clothed with consideration.iii. Reasonable Person Standard applied

a. Dickinson was informed that Dodds was considering selling the land to someone else, and was therefore no longer reasonable in his belief that Dodds intended to be bound by his agreement to hold the offer open.

b. Indirect Revocation occurred when Berry told Dickinson of Dodds’ intention to sell the property to Allaniv. Constructive Notice – Notice arising by presumption of law from the existence of facts and circumstances that a party

had a duty to take notice of (i.e., such as a registered deed or pending lawsuit); notice presumed by law to have been acquired by a person and thus imputed to that person.

a. In addition to giving consideration to keep the offer open, in order to protect your priority to get the property, give constructive notice.

b. This keeps open the option to buy with you and only youv. Priority Rule v. Rule of First in Time, First in Right

a. Priority Rule – The person who receives the offer first gets the propertyb. First in Time, First in Right – The person who accepts the offer first gets the property.

vi. Equal Dignities Rule a. To reject a general public offer, post a revocation in the same or comparable medium of equally wide circulation

as the offer was made.b. Rejection – the offeree declines the offer by notifying the offeror that she is not interested in doing a deal on the terms of the offer. At

this point, the offer can no longer be revived unless the offeror affirmatively elects to renew it.c. Lapse

i. Minnesota Linseed Oil Co. v. Collier White Lead Co. – This was all done by telegram: Minnesota seeks to recover money representing the balance due for oil it sold to Collier. Collier, in response, says that while there is a balance due, Minnesota had breached an earlier contract with them, giving rise to damages which operate as a set-off/counterclaim against Minnesota’s claim.

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i. Mailbox Rule – the MB rule was turned on bc the offer was done by telegram and so was the responsea. Goes directly against Objective Theoryb. An acceptance becomes effective—and binds the offeror—once it has been properly mailed -- DISPATCH

i. A contract is concluded when an acceptance of a proposition is deposited in the telegraph office for transmission.

c. However, rejections are only effective upon receiptii. Lapse – the offer had lapsed here

a. Offer for an Unstated Period is only good for a reasonable timei. A reasonable time in any given case with an offer for an unstated period is deduced from the totality of

the circumstances.ii. Volatility of the market came into play here.

b. Delay – when there is a delay bt when the offer is made and when it is received, the clock begins ticking on the date of receipt

ii. An offer made during a face-to-face conversation is only good as long as the parties are in each others’ faces.iii. Grumbling acceptances still qualify as acceptances.iv. Ambiguity

i. When ambiguity arises in a contract, the general principal is that we resolve ambiguity against the party that is in the best position to control the ambiguity.

d. Death or Incapacity of the Offerori. New Headley Tobacco Warehouse Co. v. Gentry’s Ex’r – NHTWC seeks to accept an offer made by Gentry before his death to

extend its contract for lease. Gentry Ex’r claims the offer terminated with Gentry’s death.i. Revocability

a. There was no Consideration to support the option for extension of the leaseb. It was, therefore, revocable

ii. Revocation occurred with the death of the offeror.a. This is not consistent with objective theory

i. The offeree has no direct manifestation from the offeror that the offer has been revoked.b. There can be no meeting of the minds when only one of the contracting parties is in existence.

i. The death of a party who had the right of revocation or withdrawal of an offer to contract renders the completion impossible and terminates the negotiations or proceedings at the very point where they were when he died.

ii. A revocable offer is terminated by the offeror’s death or such insanity as deprives him of legal capacity to enter into the proposed contract.

iii. Defenses for non-performance of a contract: a. Impracticability – you hire a singer to play at your wedding and he dies before he can do so; it becomes

impossible to perform the contractb. Subsequent Incompetence c. Capacity

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ii. At common law, the offeror’s supervening mental incapacity, as established by an adjudication of incompetence or appointment of a guardian, has the same effect on the offeree’s power of acceptance as the offeror’s death.

i. Subsequent Incompetence : incompetence occurring sometime after the offer was madeii. If the offeror was already incompetent when the offer was made, then there is a defense to liability:

a. Defense of Capacityi. Minors do not have capacity

ii. Mental Incompetents do not have capacity

V. IRREVOCABLE OFFERSa. Ancillary : supplementary; an ancillary promise not to revoke an offer until a said time in the future must be supported by consideration.b. Beall v. Beall – Carlton sues Cecelia (the wife of Calvin, both of whom have been living on land which Carlton had the option to buy) for

specific performance of land which he believed he had an extended option to buy. There was no consideration given for the extension of this option, though in past extensions there had been.

i. Considerationi. When the consideration allegedly supporting an option fails or is non-existent, the option is no longer irrevocable

but rather it becomes a mere offer to sell, which can be withdrawn by the optioner at any time before acceptance. ii. Revocability

i. Bc no consideration existed, the offer was in fact revocable.ii. It still remains an offer, though, so IT CAN BE ACCEPTED UP UNTIL THE POINT OF REVOCATION

c. Board of Control of Eastern Michigan University v. Burgess -- The Board sued Burgess for specific performance of his house, which Burgess had agreed to give the Board a 60-day option to buy contingent upon $1 of consideration. Burgess had signed the agreement, which also stated that Burgess “hereby acknowledged receipt of this consideration,” but no consideration was ever paid to him.

i. Considerationi. Mere acknowledgement of receipt of consideration can be overcome if one can come forward with credible evidence to

show that consideration was never received.ii. The Restatement says the recital of a legally binding obligation at the time an option is granted is an implied promise to pay which

is sufficient as consideration.i. The true manifestations of the parties should not fail due to forgotten niceties.

iii. Exception to Necessary Considerationi. Firm Offer : a promise by a merchant in writing to hold an offer open for a specified period, or, if it doesn’t specify a

period, a reasonable time is a binding contract bc in effect, the writing becomes the substitute for consideration.ii. Just bc there is no consideration does NOT mean there is no offer

VI. MANNER OF ACCEPTANCEa. Acceptance : a manifestation of assent, objectively determined, to the terms of the offer made by the offeree in a manner either invited or

required by the offerb. Control Over the Mode of Acceptance

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i. La Salle National Bank v. Vega – La Salle is suing Vega for specific performance to enforce an alleged contract for the purchase of land from Vega, the seller of land. Borg, who Vega sold the land to, gets in the suit by filing a motion to intervene bc his interests will be directly affected by the outcome of the suit.

i. Offer – Gives the offeree the power of acceptanceii. Intent to be bound

a. An expression of intent to be bound that deviates from the manner of acceptance specified in the offer does NOT constitute a valid expression sufficient to cause a contract

iii. Acceptancea. THE OFFEROR IS KING

i. He has complete control and mastery over his offer.ii. If an offer proscribes the time, place, and manner of acceptance, the purported acceptance, the

manifestation to be bound, in order to be effective must comply without variation to the terms of the offerb. The acceptance here was not in the form proscribed in the instrument itself, even though the bank clearly did

assent.c. This stipulation was made to protect the bank against unintended liability for the purchase of property

iv. Problems a. The rule that the acceptance must abide by the terms of the offer frustrates the enforcement of the intention of the

parties once there is mutual assentii. Ever-Tite Roofing Corp. v. Green – The Greens sign a written instrument with ET for the re-roofing of their home; this document

provides that it is not binding until accepted by an authorized officer of ET or upon commencement of the work. i. Acceptance and Revocation are racing here

a. Acceptancei. Occurred when ET began loading the trucks

b. Revocationi. Had to be done before the commencement of the work

ii. Ambiguity/Doubta. Language will be construed most strongly against the party that drafted the agreementb. ET should have avoided ambiguity, but:

i. ET proceeded in a responsible way to engage in the steps necessary to start the workii. Greens could have and should have easily notified ET they were withdrawing the offer sooner

1. The Greens took the risk of a more liberal interpretation when they contracted with the other roofers

iii. Lapsea. Offer good for a reasonable timeb. When no time for acceptance is stated, the offer remains open for a reasonable time c. There was no unreasonable delay by ET, so no lapse

iv. Object of Contract Remediesa. To make the non-breaching party whole

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iii. Davis v. Jacoby – After sending numerous requests asking Davis and Caro to come and help him get his affairs in order, Mr. W eventually tells Davis in one of his letters that Caro will get everything. He says “Please let me hear from you ASAP,” and also, “if you come, Caro will inherit everything.” He commits suicide after finally hearing from Davis that they would in fact be coming. Upon death, it turn out that Caro was left nothing, and so they sue.

i. Unilateral Contract v. Bilateral Contract a. Unilateral Contract -- Offer’s acceptance said to be based on performance

i. If unilateral contract, revoked by W’s deathii. If there is an offer for a unilateral contract for performance, it is only fulfilled by full performance, not

just commencementb. Bilateral Contract -- With doubt, there’s a presumption in favor of treating offers as being for bilateral

contractsi. W was looking for reassurance in the form of a promise

ii. ARMS LENGTH issue1. These parties were in constant communication with each other and could thus rely on each others’

promises through their special trust and confidence in one another.2. Parties are working for the benefit of each other

c. Key: determining the intention of the offerord. UCC 2-206 1(a): Specified manner of acceptance will be treated as if the offer did not specify unless the

offer clearly, without question, says that the manner it specifies is the only manner of acceptance. e. Otherwise, a party can accept by any manner and by any means reasonable under the circumstances

ii. Restatement does NOT deal with unilateral v. bilateral contracts; has to do with accepting the offer in a “reasonable manner under the circumstances”

VII. PROMISSORY ACCEPTANCEa. Hendricks v. Behee – The point in time at which a promise as an acceptance is effective: Behee submits a written offer to the Smiths’

real estate agent to purchase some of their property. The Smiths accept the offer, but sometime bt Behee receiving notice of their acceotance, Behee tells their agent he’s changes his mind. In essence, Hendricks, the escrow agent, is suing Behee, but really it’s the Smiths that are.

i. Interpleader Action : here is the thing in question; you, judge, decide who gets it ii. Uncommunicated Offer – An uncommunicated intention to accept an offer is NOT an acceptance

iii. Promissory Acceptancei. Notice of acceptance is always essentialii. Communication of acceptance of a contract to an agent of the offeree is not sufficient and does not bind the offeror

iv. Revocation -- To be effective, revocation of an offer must be communicated to the offeree before he has acceptedb. Adams v. Lindsell – The point in time at which a promise as an acceptance is effective: Lindsell is a wool dealer in another county

from Adams, and he offers Adams, a wool manufacturer, a specified number of fleeces in a letter at set prices. The letter was misdirected and thus reached Adams later than Lindsell had thought, but upon his receipt, Adams immediately sent back a letter of acceptance. Due to the longer response time bc of the delay, Lindsell, who had expected to hear back from Adams by a certain date, sold the fleeces to another party.

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i. Objective Theory of Contract Formationi. Acceptance is based on the outward manifestation of one party to another

ii. Lapsei. The delay was the fault of the defendantii. Acceptance was thus not untimely

iii. EXCEPTIONS to Objective Theoryi. An offer ends automatically upon the death of the offerorii. MAILBOX RULE / DISPATCH RULE – an acceptance by any medium with which there is a gap bt dispatch and

receipts is effective at the time of dispatch as long as the rule is “turned on”a. Applies to any circumstance where there is a gap bt dispatch and receipt so long as the offeror has tacitly

assented to this result by making the offer in the same fashionb. it is effective upon dispatch by the same or a more reliable means of communicationc. Revocation is NOT effective until receivedd. In this case, when an offeror makes an offer by mail and not stipulating when acceptance would be effective, the

uncommunicated promise was an acceptancee. Risk must be allocated to one of the two innocent parties

i. The offeror is somewhat less innocent bc he was the one in the position to protect himself from risk by specifying in the offer that acceptance wouldn’t be effective until received

f. EXCEPTION – in the use of instantaneous or near instantaneous means of communication, the acceptance is not effective until received

i. Also, an acceptance of an option contract is not effective until it is receivedii. Civil law jurisdictions do NOT have the MB rule

g. Technically, this rule did not need to be applied in this case bc there was never a revocation of the offeriii. Equittable Estoppel: when one party by his words or conduct leads another to believe that a particular thing is true and

the other relies on this misrepresentation and would be damaged if the first party were to assert the truth of what he had been previously denied, he will be estopped from doing so

iv. “Rejection Started, Acceptance Started” Rule: offer is on unless you first send a rejection or counteroffer before you send an acceptance; in that case, the acceptance is dependant upon whether the rejection got to the offeror before the acceptance was mailed

VIII. ACCEPTANCE BY PERFORMANCE – Unless otherwise indicated by the language of the circumstances, an offer is treated as inviting acceptance in any manner and by any medium reasonable in the circumstancesa. Carlill v. Carbolic Smoke Ball Co. – Carlill bought a smoke ball after seeing Carbolic’s ad, which promised to pay a 100£ reward to

anyone who contracted the flu after inhaling the ball as directed. She contracted the flu 2 months later.i. Ad was NEITHER a company policy or a bet

i. Policy – something a company is free to follow or not follow as they choose; NOT an offer creating the power of acceptance

ii. Bet – Court doesn’t enforce bets bc they’re either illegal, or gambling contracts, which are also illegal, or enforcement would violate public policy

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ii. Offeri. This ad was more than sales puffery bc the company deposited 1000£ to show it was seriousii. Therefore, the offer was like a rewardiii. The usual rule is that general advertisements will not constitute offers bc you’re not reasonable in believing that a

merchant will subject itself to liability for an unlimited supply.a. This ad does NOT resolve the issue of multiple liability, so therefore, it is not exactly like a rewardb. The words of all ads offering rewards are offers to anybody who performs the conditions named in the ad, and

anybody who does perform the conditions accepts the offeriii. Vagueness

i. Court read the ad as effective to any person who uses the ball, uses it correctly, and then contracts the flu within a reasonable period of time…NO it’s not too vague

iv. Notice of Acceptancei. Ad is asking for performance – unilateral contract

a. The requirement of notice has been dispensed withii. Eliminates the need for notice bc the language they used in the offer implied that there didn’t need to be further

communicationa. Even if notice had been required, Carlill gave notice when she applied for the reward

iii. Purchasing of the ball constituted acceptancea. This is what Carbolic wanted; they BARGAINED FOR THE DEED, NOT THE PROMISE/WORDSb. Reasonable person would infer this from the offer

v. Considerationi. The consideration for the promise to pay 100£ was the purchase of the ball, bc that’s what Carbolic made the offer froii. This was NOT a gift promise by Carbolic; it had a clear economic objective in mind

vi. Unilateral contract happens when it:i. Asks for performanceii. The RP would believe that performance creates a contract

vii. Partial performance – an offeree who learns of an offer after he has rendered partial performance may accept by completing the requested performance

b. Marchiondo v. Scheck – Scheck offers to sell real estate to a prospective buyer and agrees to pay a broker percentage; he then revokes the offer to the buyer and the broker sues for the percentage bc he had commissioned work on the deal.

i. Part Performance – once partial performance is begun pursuant to the offer made, a contract resultsi. Resulting contract is an option contract

a. Where an offer invited an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree begins the invited performance or tenders a beginning of it (Restatement)

b. Offeror’s duty of performance under any option contract is conditional on tender of the invited performance in accordance with the terms of the offer

i. What is begun or tendered must be part of the actual performance invited in order to preclude revocation

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ii. Beginning preparations though they may be essential in carrying out the contract or accepting the offer is not enough

c. Reliance instead of consideration holds the contract irrevocabled. An offer which the offeror should reasonably expect to induce action or forbearance is binding as an option

contract to the extent necessary to avoid injusticeii. This is a contract with a condition; the condition being full performanceiii. Defendant’s right to revoke his offer depends upon whether the plaintiff had partially performed before he received

defendant’s revocationiv. Restatement – if a contract does not stipulate the specific manner of acceptance, under the restatement, it is reasonable to

assent by any reasonable means, promise or performancea. § 54 : if an offeree accepts by rendering a performance and has reason to know that the offeror has no way of

learning of the performance, the offeror’s duty is discharged unless the offeree has taken reasonable steps to inform him (reasonable diligence on the part of the offeree is required)

IX. ACCEPTANCE BY SILENCE OF INACTION – a. Generally, silence or inaction alone are not sufficient to constitute an acceptance bc:

i. Substantive fairness – if I say I’ll sell you my car for 1M, and since the offeror is king, you’re failure to affirmatively reject within the next two seconds will constitute an acceptance

ii. Doctrinal reason of treating silence as acceptance in most cases would be inconsistent with objective theory (“manifestation of assent” element) – ordinarily the offeror is not reasonable in believing that when the offeree says nothing he is manifesting an intent to be bound by the offer

iii. EXCEPTIONS (§ 69):i. Where the offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that

they were offered with the expectation of compensationa. Here, the offeror is being protectedb. EX: hot dog vendor in Manhattan

ii. Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer

a. Here, the offeree is being protectedb. EX: if you don’t want to accept let me know, and if not I’ll assume you want the deal

iii. Where bc of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept

a. Here, the offeror is being protectediv. All exceptions require silence + ; it’s the additional circumstances that result in a contract being formed from

silenceiv. Laredo National Bank v. Gordon – Gordon brought suit over a contingency fee; client wanted to settle and asked Gordon to give

them his fee, which he eventually did, and they said nothing. They did settle and then decided not to honor his fee, but agreed to pay less.

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i. The bank’s silence misled Gordon, this is demonstrated by his taking steps based on the assumption that he would be paid his requested fee

ii. Where the relationship bt the parties is such that the offeror is justified in expecting a reply, or the offeree is under a duty to reply, the latter’s silence will be regarded as an acceptance

a. One who keeps silent knowing that his silence will be misinterpreted should not be allowed to deny the natural interpretation of his conduct

iii. NOTE: when you get unsolicited merchandise in the mail, you may keep it and use it and have no ;liability for the price

X. IMPERFECT ACCEPTANCES – this refers to an “acceptance” replying to an offer with different terms (such as price) becomes an implied rejection of the original offer and thus becomes a counteroffer which the original offeror now has the opportunity to accept or rejecta. Egger v. Nesbit – Nesbit sends letter offering land, and Egger accepts, but adds that he also wants the papers related to the land; he later

then sent an acceptance to the original offer.i. Under the common law’s mirror image rule: an acceptance must be an unconditional assent to the terms of the offer

i. Principle purpose of this rule is to protect the offeror from becoming subject to terms other than those in his original offera. Offeror is KING

ii. § 59 : truly conditional acceptances operate as counteroffersiii. § 60 : if offer prescribes time, place, or manner of acceptance, it must be followed; if it merely suggests these terms,

another method of acceptance is not precludediv. § 61 : an acceptance with suggestions or inquiries is still sufficient to form a contract UNLESS the acceptance is made to

depend on an assent to the changed or added termsv. The additional terms are to be construed as proposals for addition to the contract. Bt merchants, such terms become

part of the contract UNLESS:a. The offer expressly limits acceptance to the terms of the offer; b. They materially alter it; orc. Notification of objection to them has already been given or is given within a reasonable time after notice of them

is receivedii. An assent to an offer coupled with an additional qualification or condition will NOT conclude a contract bc of the absence of

mutual assenti. This new “offer” is a counteroffer – implied rejection and simultaneous counterofferii. Offer CANNOT be renewed unless offeror chooses to renew it

iii. This problem comes up a lot with standard formsiv. § 40: Rejection Started, Acceptance Started – if you start a rejection and then start an acceptance, MB rule is turned off and it is

a factor of which one gets there first

XI. INDEFINITENESS a. § 33 (Certainty) :

i. Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain

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

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

iv. UCC § 2-204 (3) – Even though one or more terms are left open a contract for sale does NOT fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy

b. Varney v. Ditmars – Ditmars said “get these things done and on the 1st of January I’ll give you a fair share of my profits.” Varney works, gets sick, gets fired, and sues for wages from nov thru the end of the year and for fair share of profits.

i. For a promise to be enforceable, the intention of the parties has to be expressed with a level of specificity sufficient to allow the court to determine that intention with a reasonable degree of certainty

ii. Fair and Reasonable can be deemed specific enough as long as there is some external market standard to provide guidanceiii. Illusory promise – non-promiseiv. Quantum Meruit – recovery based on the theory of UE; where one party has conferred a benefit on another party in

circumstances where it would be unfair to rest that benefit on that party without due compensationv. If a portion of a contract fails for lack of proof, that does NOT make the whole contract unenforceable for vagueness

c. Nora Beverages v. Perrier Group of America – Nora and Perrier enter into a contract for Nora to sell Perrier bottles for its water, some with water already in them. They talked on the phone and communicated thru letters. Perrier ended up selecting another supplier of bottles after negotiations had been begun.

i. UCC 2-204 Gap Filling provisions – operate as default rules that supply the governing rule as to various aspects of the agreement if the parties, though intending to be bound, have failed to address the particular term

i. Default rules are designed to emulate what the parties would have agreed to had they spoken to the issuesii. Not necessarily what these parties would have agreed to, but what reasonable persons in the position of these parties

would have agreed to assuming that they were bargaining from relatively equal positions of strengtha. Price, time for delivery, place of delivery, whether in single units or series of deliveriesb. Quantity is the one term ordinarily that cannot be supplied if the parties fail to address it, but prior course

of dealing could provide a gap filleriii. NOTE: In many business practices it is desirable to be less than entirely clear in specifying one of the essential terms of

the transaction due to:a. Uncertainty about future eventsb. Inability at the time of contracting to foresee every eventuality

ii. UCC 2-204.3 : if the parties have intended to make a contract, it will NOT fail for indefiniteness bc one or more terms are left open if there is a reasonably certain basis for fashioning an appropriate remedy

i. The more terms the parties leave open, the less likely it is that they have intended to conclude a binding agreementii. Court found that duration and quantity could be determined from the language of the letters as well as industry practice

iii. UCC 2-306 i. a requirements contract is when the quantity is measured by the buyers’ needsii. an outputs contract is measured by the sellers’ supply or capacityiii. 2-306 validates both and takes care of indefiniteness by putting a limitation of good faith

iv. Common Law (Article II) : just bc a written agreement is contemplated does not mean there was no intention to be bound

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i. There were issues of fact found as to the intent of the partiesii. Missing terms or vague terms can be implied by the court if there is a reasonable basis for doing so; thus the absence of

a term may not be fatal to a contractiii. Other omissions found by the DC to be not necessarily fatal to the contract’s existence:

a. Indemnificationb. Insurancec. Price increasesd. Quality controle. Choice of lawf. Length of the contractg. Confidentialityh. Price

XII. CONSIDERATION – among the limitations that exist on enforcement, the most fundamental is the requirement of considerationa. The doctrine of consideration traditionally rested on 2 main legs:

i. Promise is legally binding if it is given in return for some benefit which is rendered, or to be rendered, to the promisorii. Promise becomes binding if the promisee incurs a detriment by reliance upon it, that is, if he changes his position in reliance on

the promise in such a way that he would be worse off if the promise were broken than he would have been if the promise had never been made at all

b. To constitute consideration, a performance or a return promise must be bargained for i. A performance or return promise is bargained for if it is sought by the promisor in exchange for the promise

c. The performance may consist ofi. An act other than a promise; or

ii. A forbearance; oriii. The creation, modification, or destruction of a legal relationiv. The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee

or by some other person.d. Before there was the doctrine of consideration for determining which promises to enforce, there was the seal…

i. What important purposes did the use of the seal serve? i. Cautionary function – protected against a promise made on emotion (ensured seriousness)

a. Ensured that the promisor was really intending to make a commitment that he was going to be bound byii. Evidentiary function for the courts – crystal clear evidence of the existence of a promiseiii. Channeling function – made it easy to channel the enforceable promise from the non-enforceable one

e. The promise must be the voluntary assumption by one party of an obligation upon condition of an act, forbearance, or return promise by the other party.

i. The promise and consideration bear a reciprocal relationship of motive and inducement:i. THE PROMISE MUST INDUCE THE CONSIDERATION, AND THE CONSIDERATION MUST MOTIVATE

THE PROMISEf. There is NO consideration for gift promises (nudum pactum)

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g. Kirksey v. Kirksey – Plaintiff’s husband died, and her bro-in-law invited her to come live on his land with her children, so she abandons her land and goes. 2 years later, he puts her out in the woods in an uncomfortable house, and then a little later, kicks her out altogether.

i. With a promise of mere gratuity, an action will NOT lie for its breachii. An agreement with two promises is a bilateral contract

i. As long as neither party has fully performed his promise, the agreement is described as executoryiii. If the agreement is unilateral in form, a promise requesting some act, or is fully executed by either party, then there is only one

promise to be enforcediv. When an inconvenience is simply action taken to take advantage of a gratuity, that is NOT consideration

i. This is what happened here, she needed to move 60 miles in order to get what was promised, but there’s no exchange bc there was no benefit to the promisor

v. If the happening of some condition will be a benefit to the promisor, it is a fair inference that the happening was requested as consideration

h. Hamer v. Sidway Uncle promises his nephew $5000 if he refrains from drinking, gambling and smoking until he turned 21. Uncle was going to give him the money, but died before he could.

i. For there to be consideration, there must be either a benefit to the promisor or a detriment to the promiseei. It is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as

consideration for the promise made to himii. Forbearance – agreeing not to do something which one has the legal right to do

i. This is a legal detrimentiii. NOTE: § 79: Courts will not inquire into the adequacy of consideration, just whether or not it exists

i. Schnell v. Nell – Schnell’s wife left a will giving Nell et al. $200 each, but she had no property (it all became Schnell’s alone when she died). Schnell wrote them, saying that in consideration of one cent and in consideration for the love and respect Nell bears to his wife, he would give them the $200. He doesn’t follow thru when he falls on hard financial times.

i. Past consideration is NO considerationi. Precisely be the requirements of motive and inducement of exchange are lacking

ii. Nominal Consideration – the transaction is a ruse; it was not a bargain; it was a gift masquerading as a bargaini. Great disparity is signal/red flag that the consideration was a shamii. § 79: if the requirement of consideration is met, there is no additional requirement of equivalence in the values exchanged

(presumption of underlying bargain)iii. Black acre for $1 is OK…Black acre for $1 wink, wink, is not!

iii. What purpose does consideration serve beyond purely the purposes of form? i. Limiting enforcement to promises which essentially excite reasonable expectations in the market place

iv. If the claim is legally unfounded, even if it is made in good faith, it does not constitute good considerationj. Dyer v. National By-Products, Inc. – Dyer is injured in a job-related accident and loses his foot. He is later rehired in his same position

but several months later is laid off. He sues, claiming breach of an alleged contract of employment for life.i. The fact that a claim is ill-founded is not in itself enough to prevent forbearance from being sufficient consideration for a promise

ii. § 74: the compromise of an unfounded claim can constitute consideration in 2 instances :i. Reasonable belief you are acting in good faith (objectively reasonable); orii. An honest belief in the validity of the claim

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iii. POLICY: settlement of disputed claims without resorting to court actionk. Reed v. University of ND and The ND Ass’n for the Disabled – Reed’s coach required him to run in this race if he wanted to stay on the

team, and the NDAD allowed him to run in it in exchange for his promise not to hold them responsible for any claims or injuries arising out of his participation. He runs the race and as a result suffers a fairly grievous injury.

i. A mere promise as distinguished from an actual performance can be considerationii. Reed’s surrender of a legal right in exchange for NDAD allowing him to run the course during the race constitutes consideration

for the releaseiii. POLICY: burning man hypo – courts won’t enforce a release form that promotes conduct disfavored by public policy

XIII. MODIFICATION – traditionally, modification of an existing contract required a separate consideration for the new promise and if the modification affected only one party’s performance, then it would often fall under the pre-existing duty rule: a performance or promise to perform something the promisor is already bound to do does NOT constitute good considerationa. Alaska Packers’ Ass’n v. Domenico – Group of fisherman who signed on with defendant for a set fee, once there, threaten to cease work

unless they get paid more. Defendant has no other option but to agree to do so, so they go back to work. He refuses to pay the increased wage he had promised, and they sue.

i. Any time there is a one-sided modification, it is often a signal that the modification is a by-product of duress or bad faithii. When a party merely does what he has already obligated himself to do, he cannot demand an additional compensation

therefore, and although, by taking advantage of the necessities of his adversary, he obtains a promise of more, the law will regard it as nudum pactum, and will not lend its process to aid in the wrong

iii. Pre-existing duty rule – seeking to prevent coercion/ “the hold up game”b. Angel v. Murray – An action by the citizens of the town to recover an additional $20,000 paid to a refuse collector in RI as a consequence

of the increased cost involved as a result of the unanticipated construction of 400 new dwelling units in the middle of a 5 year contract.i. UCC § 2-209(1) – an agreement modifying a contract for sale of goods needs no consideration to be binding; modification

must meet the test of good faithii. Restatement § 89 (a) not only prohibits modifications obtained by coercion, duress or extortion, but also fulfills society’s

expectations that agreements entered into voluntarily will be enforced by the courtsiii. § 89: Modified agreements will be enforced as long as:

i. The promise modifying the agreement must NOT be coercedii. Circumstances prompting the modification must NOT be anticipatediii. The modification must be fair and equitable in light of those unanticipated circumstancesiv. Contract must still be executory on both sides (there must still be performance obligations left on both sides)

a. This requirement was added by § 81b. When one party has fully performed and there is some type of forgiveness of full performance by the other party,

the scenario falls under a different doctrine of law: not modification, but discharge – accordant satisfactioniv. EXCEPTION to the pre-existing duty rule: when unexpected difficulties arise and modification is made voluntarily

XIV. QUASI-CONTRACTS AND RESTITUTION

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a. Quasi-Contract – somewhere bt contract and tort; liability is based neither on an express nor an implied in fact promise; promise implied in law to make a defendant pay for a benefit received from another under circumstances where it would be inequitable to allow that person to retain that benefit without paying for it (unjust enrichment)

i. The cause of action for a QC is based on the doctrine of unjust enrichment – separate theory of liability (distinct from ordinary contract liability) that provides a remedy, namely restitution, in circumstances where no true contract exists

i. Restitution – both the substantive legal rules that embody the right of an innocent party to recover for UE and the remedy, at law or equity, that is available to redress such an UE

ii. One who without intent to act gratuitously confers a measurable benefit upon another is entitled to restitution if he affords the other an opportunity to decline the benefit or else has a reasonable excuse for failing to do so

i. If the other refuses to receive the benefit, he is not required to make restitution unless the actor justifiably performs for the other a duty imposed upon him by law

iii. What are some forms of benefits of a QC claim? i. Transferring property to the defendant; ii. Saving, preserving or improving his property;iii. Rendering personal services for him’iv. Performing for him a duty imposed directly by law by his own contractual arrangements

b. Not at the Request of the Defendanti. Cablevision of Breckenridge, Inc. v. Tannhauser Condominium Ass’n (CLASSIX EXAMPLE OF UE) – Tennants in condo

association had originally contracted for cable service, but later on they cancelled the service and installed their own wiring so that they could get the signals; they were still receiving Cablevision service, but Cablevision didn’t find out til it was hired to install cable for the condo’s new building.

i. Conversion – the wrongful misappropriation of a protected interestii. Implied contracts can exist under the theory of UEiii. What must a plaintiff show to recover under a theory of QC or UE?

a. Benefit was conferred on the defendant by the plaintiffb. Benefit was appreciated by the defendant c. Benefit was accepted by the defendant under such circumstances that it would be inequitable for it to be

retained without payment of its valueiv. This case is a perfect example of UE and a solid example of restitution based on UE where the defendants didn’t

specifically request the benefit but enjoyed it when they knew it wasn’t intended to be freev. Party confers a benefit upon another not only where he adds to property of another, but also where he saves the other from

expense or lossvi. Word “benefit” denotes any form of advantage

ii. Watts v. Watts – Plaintiff lived with defendant for 12 years and contributed to his business, etc. They separated and now she wants to be compensated under theory of UE. Plaintiff argues that it is unfair for defendant to retain all assets they accumulated and that a constructive trust should be imposed on the property as a result of defendant’s UE.

i. Constructive trust – equitable device created by law to prevent UE; to state a claim on this theory, the complaint must state facts sufficient to show:

a. UE

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b. Abuse of a confidential relationship or some other form of unconscionable conduct, which can be inferred from allegations in the complaint which show a family relationship, a close personal relationship, or the parties’ mutual trust

ii. Action for recovery based on UE is grounded on the moral principle that one who received a benefit has a duty to make restitution where retaining such a benefit would be unjust (QC)

iii. Unmarried cohabitants may raise claims based upon UE following the termination of their relationships where one party attempts to retain an unreasonable amount of property acquired thru the efforts of both

iii. Good Samaritan Hypo: Arguably, a doctor could get compensated for work done for a patient who has not had the opportunity to assent to treatment. You could argue the doc does not ordinarily work for free and thus it was a detriment, and the individual received a benefit, and therefore was unjustly enriched.

i. The law does NOT protect mere volunteers or officious intermeddlers

XV. PAST CONSIDERATION – these circumstances resemble UE cases, but there’s usually some element of UE theory missinga. Harrington v. Taylor – Plaintiff has her hand chopped off while saving the defendant from being decapitated by his wife with a axe;

defendant then promises to pay her for her losses, but then reneges, so plaintiff sues.i. According to the court here: however much the defendant should be impelled by common gratitude to alleviate the plaintiff’s

misfortune, a humanitarian act, voluntarily performed, is NOT such consideration as would entitle hr to recover at lawb. Mills v. Wyman – Mills rendered care to defendant’s adult son; after the aid had occurred and the son had died, the defendant promised to

reimburse Mills for the care rendered by him to his son.i. Mills’ acts were deemed as a gift; there was no opportunity to decline the benefit, therefore, no bargain

ii. General position that moral obligation is sufficient consideration for an express promise is to be limited in its application to cases where at some time or other a good or valuable consideration has existed

iii. Past consideration is usually NOT good consideration EXCEPT in the instances where: i. Promise reviving a previously enforceable obligation has become barred by an applicable limitations period ii. A promise to pay an obligation rendered discharged by insolvency – you woe a debt to someone, it becomes discharged in

bankruptcy, but promise to pay anyway; as a matter of common law, that promise is enforceableiii. A promise to pay a voidable obligation incurred by an infant after the minor reaches the age of majority – if revive the

debt after reaching the age of majority, it will hold up even though the consideration was in the pastiv. In all of these cases there was originally quid pro quo that subsequently was rendered inoperative, but then revived by a

new promisev. 2 classes or person lack the capacity to contract:

a. Minorsb. Mental incapacitants

c. In the next case, the common law overcame the technical application of the doctrine of consideration…d. Webb v. McGowin – To save McGowin’s life, Webb falls with a 75-lb pine block from the upper floor of a lumber mill in order to divert

its direction. Webb is disabled for life, and after that occurs, McGowin is appreciative and promises to pay him $15 every two weeks for the rest of his life. McGowin does so, but then dies, and after his death the payments cease; Webb sues the estate to enforce the promise.

i. Material benefit rule (§ 86) – the circumstances under which the defendant’s moral obligation will be sufficient to support a subsequent promise by a party who received a material benefit from the past act of the promise

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i. This doctrine allows the court to enforce a promise it feels ought to be enforced even though there’s technically no consideration and some element of UE is NOT satisfied

ii. § 86 of the Restatement :i. A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the

extent necessary to prevent injusticeii. A promise is NOT binding under section (1)

a. If the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched, or

b. To the extent that its value is disproportionate to the benefitiii. There was no time for deliberation in this case, and the court found that if there had been time, this deal would have been struck as

an exchangeiv. It is well settled that a moral obligation is a sufficient consideration to support a subsequent promise to pay where the

promisor has received a material benefit, although there was no original duty or liability resting on the promisore. Webb’s acts – gratuitous (out of necessity/instinct) and no opportunity to bargainf. Mills’ acts – an intentional decision to confer a benefit as opposed to an instinctg. WHILE MORAL OBLIGATION, STANDING LONE, IS AN INSUFFICIENT BASIS FOR ENFORCEMENT OF A PROMISE,

WHEN YOU COUPLE IT WITH SOME BENEFIT RECEIVED BY THE PORMISOR, THE CASE FOR ENFORCEMENT BECOMES COMPELLING, PARTICULARLY IF PHYSICAL INJURY IS INVOLVED

h. Consideration: i. Promise + Bargain

ii. Promise + Moral Obligation + Prior Benefit iii. Promise + Unbargained for Relianceiv. Promise in Writing by a Merchant (Firm Offer)

XVI. PROMISSORY ESTOPPEL – the promisor is being estopped from asserting the non-existence of consideration as a defense; distinguishable from equitable estoppela. Requires only a promise that induces detrimental reliance

i. No requirement of some false representation as to a matter of past or present factb. Not used as a shield/defense to liability, but as a sword to enforce a claim that would otherwise be unenforceable bc of the absence of

considerationc. Restatement § 90:

i. a promise which the promsior should reasonably expect to induce action or forbearance on the part of the promisee or third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

ii. A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance

i. Thus, purely gratuitous promise may be enforcedii. There is now a fault-based rationale in place

d. What are the elements required to invoke promissory estoppel?

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i. Promiseii. Detrimental reliance on such promise by the promisee

i. Reliance must be reasonableiii. Foreseeability of the reliance by the promisoriv. Injustice can be avoided only by enforcement of the promise

e. Ricketts v. Scothorn – Plaintiff’s grandpa gave her a not promising to pay her $2000, saying that none of his grandchildren work, and that she shouldn’t have to work. She then quit her job. The agreement didn’t require her to quit, and she did eventually go back to work. When her grandfather dies, she sues the estate.

i. Promissory estoppel is the basis for this rulingii. If the promisee is NOT reasonable in relying on the promise, then maybe you do not enforce it for that basis: have to examine all

elements and perspectivesiii. Ordinarily, gratuitous promises, like this one, are not enforceable. Ricketts made no condition, requirement or request and gave

the money as a gratuity, her abandonment was merely voluntary. However, there is a class of cases (such as a not given in church where the faith of the donee on the promise constitutes valuable and sufficient consideration) in which based on the equitable principle that, after allowing the donee to incur obligations on the faith that the note would be paid, the donor would be estopped from pleading want of consideration. When payee changes his position to hid disadvantage in reliance on the promise, a right of action DOES arise

iv. Remedy : full expectation v. reliance interest – i. either give the non-breaching party her expectation, or ii. measure the reliance interest and put her back in the position (status quo ante) as if the promise hadn’t been made

f. Katz v. Danny Dare, Inc. – Katz, 67, is injured in an attempt to thwart a robbery; his injuries result in memory loss and other impairment, so the president and his bro-in-law, Shopmaker, wants to induce him to retire. They negotiate for 13 months, and agree on $13,000 a year (as opposed to his current salary of $23,000). He did eventually start working part time again 3 years later, and when this happened Danny Dare tried to only send him half his usual check. Shopmaker says he would have been fired had he not agreed on this proposal.

i. Three elements to be satisfied to invoke the doctrine of promissory estoppel: i. A promiseii. A detrimental reliance on such promiseiii. Injustice can be avoided only by enforcement of the promise

XVII. CONSTRUCTIVE CONDITIONS & SUBSTANTIAL PERFORMANCE -- a. Promise Theorists say that if you find a basis to enforce the promise you enforce it: put him back in as good a position as he was before

(expectance measure)b. Reliance Theorists counter that since what we’re really doing is compensating an injured party for a detrimental change in position, we

should measure damages based on recoupment of the cost of the detriment incurredc. Possible Responses to Breach, and the Categories of Breach

i. Waive the right to pursue the breacherii. Amend or modify the existing contractual relationship

iii. Seek compensation for the partial breach while keeping in place the whole contractiv. Suspend performance, keeping the contract in limbo until the breacher gives more definite indications of his true intent

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v. Take the position that total breach has discharged him from future performanced. You can suspend performance or terminate only when the breach is a “MATERIAL BREACH”e. Restatement § 237 : it is a conditions of each party’s remaining duties to render performances to be exchanged under an exchange of

promises that there be no uncured material failure by the other party to render any such performance due at an earlier timei. Thus, the duty to tender performance is conditioned upon the other party’s not being in material breach

f. Gibson v. City of Cranston – Gibson entered into a contract with the city to be the superintendent of schools; the contract said she would receive an annual performance evaluation, and when she asked about the criteria, the board suggested she submit her own form. When her first evaluation came up, 5 members used the form, two wrote notes, and two didn’t evaluate her at all. She later asked the committee to provide her with a statement of performance objectives, which they never supplied. She accused the city of breaching the contract and so she breaches her part.

i. This was NOT a material breach, which meant she had no right to cease working and in fact she became the party in material breach

ii. If someone commits a non-material breach, you cam bring a claim not for breach of the whole, but a claim for damages resulting from the non-material breach

iii. A contracting party may cease performance and seek damages only if the other contracting party commits a material breach: a breach that goes to the essence of the contract

iv. § 241: What are the factors used to determine whether a failure to render/offer performance is material? i. Extent injured party will be deprived of the benefit which she expected under the contractii. Extent she can be compensated for that benefitiii. Extent the party failing to perform will suffer a forfeiture if we deem the breach materialiv. The likelihood that the party failing to perform will cure that failurev. Extent to which the behavior of the party failing to conform comports with the standards of good faith and fair dealing

v. The determination of materiality must be based largely on a standard of objective reasonableness than purely subjective beliefg. Express Conditions – will be respected and enforced – require strict compliance

i. EX: “I agree to buy your hose, subject to financing.” If financing is not approved, then I’m relieved from my contractual duty to buy the house.

ii. When parties condition their performance, they are allocating the risk from the promisor to the promiseeh. Constructive Conditions – each party’s performance becomes a condition to the other party’s performance; when possible, you want

parties to be able to perform simultaneously. These impose security. If this is NOT possible, who goes first?i. Contract may specify, but if not…the default rule states that the party whose performance will require a period of time will

have to perform first (§ 234)ii. If I don’t perform an unconditional performance, I’ve breached

iii. If I don’t perform a conditional promise bc the condition did not occur, there is no breach and performance is excused bc the risk of nonoccurrence of the condition is on the promisee

i. Condition – an event not certain to occur but which must occur, unless excused, before liability for non-performance of the promise to which the condition relates can be imposed

j. Reciprocal Obligations: In a bilateral contract involving an exchange of promises, each party’s performance of his or her promise becomes constructively a condition to the other party’s duty to perform, unless there is a contrary clause in the contract

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i. These reciprocal obligations are called constructive conditions of exchange – play an important role in assuring each party that he will receive the promise of the other

ii. Thus, mutual promises are regarded as dependent and whenever possible to be performed simultaneously (concurrent conditions, § 234)

k. Substantial Performance – where each party makes one or more promises to the other, each party’s substantial performance of his promise is generally a constructive condition to the performance of any subsequent duties by the other party

l. Jacob & Youngs, Inc. v. Kent (SUBSTANTIAL PERFORMANCE AS A BASIS FOR EXCUSING CONSTRUCTIVE CONDITIONS) – Plaintiff, contractor, has built an expensive residence for Kent; Kent wanted a specific type of pipe, Reading, that was of the same quality of pipe that JY used. JY wants to recover the balance of the contract price that he has not yet been paid, bt the architect informs him that he has to redo all of the piping.

i. Doctrine of Substantial Performance: When the performance is substantial, then we will (with respect to the non-occurrence of the little bit that’s left) look at the rest as excused

i. An omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage, and will not always be the breach of a condition to be followed by a forfeiture

ii. The parties can overcome the rule of substantial performance by express stipulation in the contracti. The doctrine of substantial performance to excuse non-performance of conditions speaks to constructive conditions,

not express onesiii. Deviation, no matter how trivial, will not be tolerated if it frustrates the purpose of the contractiv. How much slack under the doctrine of substantial performance we’ll cut the breaching party will depend on the quality of the

breachv. Absent a clear specification to the contrary, strict performance down to the finest minutiae would likely be a perversion of

intention, which would result in an unfair forfeiturei. The law abhors unfair forfeiture

XVIII. SUBSTANTIAL PERFORMANCE / MATERIAL BREACH a. O.W. Grun Roofing & Construction Co. v. Cope – OW contracts with Cope to install a new roof on Cope’s house; the contract specifies

that the roof is to be uniform in color. The roof installed, though serviceable, was streaked and the streaking did not blend over time. Only way to attain uniform colorization would be to reinstall the entire roof.

i. A constructive condition to the obligation has not been satisfiedii. There is no recovery under QC bc the Copes bargained for a uniform colored roof, which means they’ll have to rip off this one

and put a new one oniii. A material breach or a breach which goes to the root of the matter or essence of the contract defeats the promisor’s claim

despite his part performance iv. Doctrine of Substantial Performance : a promisor who has substantially performed is entitled to recover, although he has failed

in some particular to comply with his agreementv. In order to determine whether the contractor’s performance amounts to substantial performance, what factors are to be

considered?i. Extent of nonperformanceii. The purpose to be servediii. The desire to be gratified

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iv. The excuse for deviating from the letter of the contractv. The cruelty of enforcing strict adherence or of compelling the promisee to receive something less than that for which he

bargainedvi. Contractor must have in good faith intended to comply and shall have substantially done so in the sense that the defects

are not so pervasive, do not constitute a deviation from the general plan, and are not so essential that the object of the parties cannot with difficulty be accomplished by remedying them.

vii. Substantial performance permits only such omissions or deviations from the contract as are :i. inadvertent and unintentional, ii. are not due to bad faith, iii. do not impair the structure as a whole, and iv. are remediable without doing material damage to other parts of the building in tearing down and reconstructing

viii. A person has, particularly with respect to his home, to choose for himself and to contract for something which exactly satisfies that choice, and not to be compelled to accept something else

ix. Divisible contract is one under which the whole performance is divided into two sets of partial performances, each part of each set being the agreed exchange for a corresponding part of the set of performances to be rendered by the other promisor

i. The failure to perform one part does NOT bar recovery for performance of anotherii. Where defendant has defectively performed, plaintiff normally can recover the cost of remedying defendant’s defective

performance; but if the cost of remedying defects is clearly disproportionate to the loss in market value from the defective performance, plaintiff will only recover the loss in market value

iii. EX : Non-divisible contract – Contract to build a house, and it provides for the contract price to be paid in progress installments Contractor signs the contract and excavates the foundation, puts up the framing, and then walks away. Can he make a claim for the 20% of the total work he’d done?

a. No; this was a contract for the entirety, a single performance, and staggering of the payments was just done as a convenience. He has not substantially performed and so the owner should not have to pay.

iv. EX : Divisible contract – A single contract with a developer who owns a tract of land to build 2 identical houses on 2 adjacent lots for $250K each. Contractor completes the first house per the specifications and then breaches, not doing the second house; can he recover for substantial performance?

a. Yes; in this case, there is a much better argument that although it was a single contract we had two discreet performances that could have been 2 separate performances, but in actuality we were bargaining for the full contract, which means he only go half-way. We take the cost of whatever it will cost the owner to get another contractor out of the contractor’s damages.

x. A breach can occur in one of two forms:i. An actual breach – entails the failure to perform at the time the performance is dueii. A prospective/anticipatory breach (repudiation) – a repudiation of an obligation in advance of the time for performance

XIX. ANTICIPATORY BREACH – in the event of prospective nonperformance, if it is material, it will give rise in the aggrieved party the right to invoke both her defensive and offensive remediesa. Hochster v. De La Tour – Defendant had engaged Hochster to accompany on his trip as a courier for 90 days. Defendant repudiated the

contract before the time they were supposed to leave, and Hochster brings action.

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i. It is wasteful to make the plaintiff wait until the date when the actual breach would occur (the date they were to leave) bc it is wasteful, preventing him from mitigating damages by obtaining subsequent employment and it also penalizes the party who has put his faith in the other’s renunciation, and expands the option for the party who has announced his intention to breach

ii. § 250 of the Restatement : Repudiation is defined asi. Express repudiation that would constitute a material breachii. A voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach

(implied repudiation)iii. § 253 of the Restatement : Rights if the promisee when there is repudiation

i. Immediately cancel the contract and seek damages for breachii. Insist on performance and stand ready to breach to see whether or not there is an actual breach

iv. Common Law in 2-610 : When either party repudiates the contract with respect to a contract not yet due, the loss of which will substantially impair the value of the contract to the other, the aggrieved party may

i. Wait a commercially reasonable time for performance a. if you wait, you run the risk that the party may retract his repudiation

ii. Immediately resort to remedy for breach v. Basically, a party should have the right to mitigate damages, which he is required by law to attempt to do, rather than wait around

for the actual date of breachb. Truman L. Flatt & Sons Co., Inc. v. Schupf – Parties entered into a contract for land for $160,000. The buyer inserted an express

condition which said his obligation to perform was conditioned on obtaining a zoning approval in advance for his intended use of the property. The plaintiff’s attorney, after discovering the substantial public opposition to the zoning application, send a letter to defendant telling him they withdrew their proposal to the city, and would like to purchase the land for a lesser price. Defendant responds that they don’t want to sell for less, and then the plaintiff’s attorney responds to that, saying they’ll proceed with the original contract. When he doesn’t hear anything back, he sends two more letters, and the defendant finally responds, claiming that when the plaintiffs failed to waive the condition at the time it became clear that it wouldn’t be satisfied, and then try to renegotiate the price, that was a repudiation of the original contract. Plaintiff sued for specific performance.

i. A repudiation must contain a clear, unequivocal manifestation of an intent that a party no longer intends to performii. Upon repudiation, the aggrieved party can treat the contract as repudiated without notice, but this is true only if the

aggrieved party can show some change in position i. This limitation is necessary to prevent the complete evisceration of the right of retraction

a. No repudiating party would ever be able o retract a repudiation bc after receiving a retraction, the aggrieved party could, if it wished, simply declare it had already decided to treat the repudiation as a rescission or termination of the contract

ii. The doctrine of anticipatory repudiation requires a clear manifestation of an intent not to perform the contract on the date of performance. That intention must be a definite and unequivocal manifestation that he will o not render the promised performance when the time fixed for it in the contract arrives

a. Doubtful and indefinite statements that performance may or may not take place are not enough to constitute anticipatory repudiation

b. Suggestion for modification of the contract does NOT amount to a repudiation

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iii. Where the aggrieved party has not otherwise undergone a material change in position, the aggrieved party must indicate to the other party it is electing to treat the contract as rescinded. This can be accomplished either by bringing suit, by notifying the repudiating party, or by in some way manifesting an election to treat the contract as rescinded. Prior to such indication, the repudiating party is free to retract its repudiation.

iii. What options do you have if you are the defendant in Truman? i. Wait and see if plaintiff breaches

a. In the mean time watching damages mountii. Stop performance and breach yourself iii. You can get assurance that the other party will perform

a. We want to protect the party who has understandably become concerned about the prospects for damages resulting from potential nonperformance

b. Until you get assurance, you can withhold your own performance. Failure to provide adequate assurance after a reasonable time is itself treated as repudiation.

c. Norcon Power Partners, LP v. Niagara Mohawk Power Corp. – Norcon was accruing a lot of credit and Niagara was worried they wouldn’t be able to pay when they got to the third pay period; Niagara demanded Norcon provide adequate assurance to them that it would duly perform all of its future repayment obligations. Norcon sued.

i. UCC 2-609: allows adequate assurance of future performance “when reasonable grounds for insecurity arise”i. When assurance is not forthcoming (within 30 days), repudiation is deemed confirmedii. This is done for predictability, definiteness, stability in commercial dealings and expectations

ii. Restatement § 251 also recognizes adequate assurance of future performancei. When reasonable grounds arise, the obligee may demand adequate assurance of due performance and may, if reasonable,

suspend any performance for which he has not already received the agreed exchange until he receives such assuranceii. If adequate assurance is not provided in a reasonable time, obligee may treat this as a repudiation

d. For a party (sometimes referred to as the “aggrieved” party, and generally assumed to be innocent of any breach), society does provide courts and enforcement mechanisms to allow a chance for redress….

XX. MONEY DAMAGES (P. 883)– courts tend to compute damages as the amount necessary to put the aggrieved party in the same position that he would have been in had there been performance; money substitutes for performancea. Three principle purposes when awarding contract damages :

i. Expectation Interest – without insisting on reliance by the promisee or enrichment of the promisor, we may seek to give promisee the value of the expectancy which the promise created

i. Standard measure of damages for breach of contractii. OBJECTIVE : put plaintiff in as good a position as he would have occupied had the defendant performed his promiseiii. Ordinarily most generous measure of damages – takes profits and reliance expenditures into account (Recovery = 100%)

ii. Reliance Interest – plaintiff has, in reliance on the promise of the defendant, changed his positioni. OBJECTIVE : put plaintiff in as good a position as he was in before the promise was made

a. Undoing the harm which his reliance on the defendant’s promise has caused him ii. Takes just reliance and expenditures into account – court generally awards the plaintiff his out-of-pocket costs incurred

in the performance he has already rendered (Recovery = 90%)

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iii. Restitution Interest – plaintiff has, in reliance on the promise of the defendant, conferred some value on the defendant, and the defendant fails toperform his promise

i. OBJECTIVE : put the promisor back in the position he would have been in had the promise not been madea. Prevention of gain by the defaulting promisor at the expense of the promisee (prevention of UE)

ii. Court forces the defendant to pay the plaintiff an amount equal to the benefit which the defendant has received from the plaintiff’s performance

a. Restitution is designed to prevent UEiii. Normally the least generous measure of damages

b. Expectation interest – preferred methodi. How is expectation interest measured? (§ 347)

i. The loss in value to the injured party of the other party’s performance caused by its failure or deficiency; plusii. Any other loss, including incidental or consequential loss, caused by the breach; lessiii. Any cost or other loss that injured party has avoided by not having to perform

ii. (LOSS IN VALUE [LV] + OTHER LOSS [OL]) – (COST AVOIDED [CA] + LOSS AVOIDED [LA])i. Loss in Value – the difference bt what was promised and what was received; difference from the contract priceii. Other Loss – incidental or consequential damagesiii. Cost Avoided – what I would have had to spend to earn the bargainiv. Loss Avoided – gain made possible by breach; mitigation

c. Hawkins v. McGee – Harry hand case; defendant doc told the plaintiff “I will guarantee to make the hand a hundred percent perfect hand or a hundred percent good hand.”

i. There is no warranty of cure in a patient-physician relationship, but his statements here established oneii. Here, the court found that damages should put the plaintiff in as good a position as he would have been in had the defendant kept

his contract (expectation interest)d. Leingang v. Mandan Weed Board – Leingang had contracted to cut weeds for the city with respect to lots of a certain size, but the city

breached by not assigning him to lots that should have fallen under his contract. i. The issue here was whether to reduce the price he would have received by the applicable share of the indirect or fixed expenses in

addition to deducting the direct expensesii. For breach of contract, the injured party is entitled to compensation for the loss suffered, BUT can recover no more than

would have been gained by full performanceiii. When the contract is for service, and the breach prevents the performance of that service, the value of the contract consists of

two items:i. Party’s reasonable expenditure towards performance, including costs paid, material wasted, and time and services spent

on the contract, andii. Anticipated profits

a. These must be reasonable, NOT speculativeiv. King Requirement : plaintiff will be compensated for all the detriment caused by the breach

i. Constant overhead expenses are NOT deducted from the contract price bc they are expenses the plaintiff had to pay whether or not the contract was breached

v. The court here assumed that Leingang was unable to take on any other jobs than these (no way to mitigate the loss)

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vi. (LV + OL) – (CA + LA)i. Look at Damages Hypos

e. Groves v. John Wunder Co. – Contract lease under the terms of which Groves is to pay Wunder to remove gravel on his property, and he agrees to leave the property at uniform grade, substantially the same as the grade of the adjacent RR. Wunder breaches by removing only the best sand, and wholly and deliberately fails to do the grating work which would have required removal of the overburden, leaving the land ragged instead of at uniform grade.

i. Diminution Value – loss in value should be calculated as the difference bt the value of what the land is now and what it would have been had the contract been fully performed

i. This argument is supported by the doctrine of economic wasteii. Doctrine of Economic Waste – it is wasteful economically to award damages to permit work to be done that is substantially

disproportionate to the vale attainedi. Here, no one would spend $60,000 to make the land worth $12,000

iii. The willful transgressor should NOT be rewarded with, to him, the more generous diminution in value measure bc he willfully breached

iv. Under contract law, the aggrieved party is entitled to compensation for the loss of value caused by the breach to the benefit of his bargain

i. In contract law, you are entitled to the benefit of your bargain – just bc what the owner contracted for may not produce proportionate enrichment in the property is NOT grounds to deprive him of what was promised

ii. Contract law remedies are supposed to be about compensation, NOT punishment or deterrence

XXI. LIMITATIONS ON DAMAGES – a. Direct Damages – difference at the time and place of acceptance bt the value of the goods accepted and the value they would have had if

they had been as warranted i. These damages are given automatically

b. Other Losses – only if a loss that the seller was undertaking to accepti. Incidental Damages – expenses that would not be incurred but for the breach, such as storage costs or commissions associated

with finding another buyer for goods if the buyer breachedi. Relatively small in comparison to consequential damagesii. May have to run an ad, store goods, look for another buyer, etc.iii. Foreseeabiliy is generally not an element

ii. Consequential Damages – damages indirectly caused by the breach, such as lost profits or incidental reliance expenditures (those that were incurred in expectation of performance but were NOT necessary in order to perfect the right to the other party’s performance

i. Focusing on a breach that results in lost profitsii. Non-breaching party can only recover consequential losses if in fact she can establish not just “but-for” causation,

but also proximate causationiii. Unlike direct damages, which are automatically recoverable bc suffered by any plaintiff, consequential damages are

unique to a particular plaintiff’s situation and are only recoverable when they are foreseeable – the loss must be of a kind that the seller was undertaking to accept when she entered into the bargain

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iii. NOTE: The distinction bt these two losses is not truly important; when calculating damages, they are both classified as other losses

c. Hadley v. Baxendale – Plaintiff’s crank shaft broke, which was required to run the mill, so he brought it to Baxendale, a transport/carrier company, to transport to the makers in another city to fix. At this point, he tells Baxendale that the mill has been stopped. Due to neglect on the part of the defendant, the shaft was delivered to the makers late, and thus, return of the shaft took longer than was expected, and so the mill was closed for longer than it needed to be. Plaintiff sued for profits for the period of the additional closure.

i. When dealing with damages unique to a plaintiff’s situation (“special circumstances”), the defendant should ONLY be liable for the damages they were aware of, those that the plaintiff communicated to the defendant

i. This way, the breaching party has tacitly agreed to be responsible for those damages when he agrees to the contract – almost like another, special deal

ii. The party here has the option of choosing whether or not he wants o be responsible for those damagesii. The defendant must be presumed to have knowingly assumed the risk as to both the TYPE and AMOUNT of damages

unique to the plaintiff’s situation that might have flowed from the breachiii. Restatement § 351 or UCC 2-715(2) : Forseeability standard

i. Focus is shifted from tacit agreement (have to agree to be responsible for those damages) to ones of foreseeability and avoidability, the seller is liable for consequential damages if she knew of had reason to know from the general or particular requirements of the buyer that these types of damages might result and those damages must not be preventable by cover (substitute) or otherwise

d. Manouchehri v. Heim – Defendant salesman sells plaintiff doc a used x-ray machine; knowing the doc wants a 100-100 machine, he knowingly sells him a 100-60 machine, telling him it is a 100-100 machine. When the doc alerts him that the machine needs to be fixed, defendant continues to tell him he’ll fix it but never does. Doc sues for breach of warranty.

i. Warranty – an affirmation of fact about the basic characteristics or qualities relating to goods so that if they don’t measure up to that affirmation, the risk and responsibility are on the seller

i. This is a strict liability theoryii. For breach of warranty, the buyer may recover direct, incidental, and consequential damages under the UCC

ii. 3 classic limitations on the recovery of consequential damages are raised :i. Avoidability – the duty to mitigate

a. According to the UCC, the injured party should take steps to avoid undue risk, but it may, however, be reasonable to rely upon a breaching party’s assurances that the breach will be remedied

ii. Foreseeability – a. Any reasonable person would assume such damages

iii. Certainty – a. When it is possible to present accurate evidence on the amount of damages, the party upon whom the burden rests

to prove damages must present such evidenceiii. Hollywood Fantasy Corp. v. Gabor – HFC contracted with Gabor to be the on-site celebrity for one of their fantasy vacation

weekends. She, after adding an out-clause to her contract which allows her to cancel her appearance if a significant acting opportunity in a film came up, cancels two weeks before the weekend, and HFC sues her for breach.

i. Issue of certainty comes into play with respect to the damages incurreda. Don’t have to prove damages with mathematical certainty, but you do have to show reasonable certainty

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i. At a minimum, opinions or estimates of lost profits must be based on objective facts, figures, or data from which the amount of lost profits may be ascertained

b. We must establish damages not just to amount but to cause as well – make some reasonable showing as to both amount and cause

i. The mere hope for success of an untried enterprise, even when the hope is realistic, is NOT enough for recovery of lost profits

ii. In this case, there was a failure to show the nexus bt Gabor’s breach and going out of businessii. Restatement § 349 : as an alternative to expectation, the injured party has a right to damages based on her reliance interest

a. Use reliance interest when:i. You cannot prove expectation damages

ii. Cost of proving expectation damages is too muchb. Can’t prove their expectation, so let’s put them back in the position they would have been in had the contract

never been madeiii. General Rule : the victim of a breach of contract should be restored to the position he would have been in had the contract

been performed. However, an injured party may, if he so chooses, ignore the element of profits and recover as damages his expenditures in reliance

iv. Parker v. Twentieth Century-Fox Film Corp. – Contract for movie in which Parker would play the female lead; movie studio decided not to produce the movie and notified plaintiff that they would not comply with their obligation under the written contract, which had guaranteed her minimum compensation of $750,000 (repudiation). Instead, they offered her a chance to mitigate her damages (they’d pay her the same amount) by doing a different movie. She didn’t reply and the offer lapsed. She sued to recover her guaranteed minimum compensation.

i. Standard by which a duty to mitigate is measured : was the other opportunity comparable or substantially similar to the opportunity the plaintiff has been deprived of bc of the breach

a. This DOES NOT require accepting an inferior means of employment ii. General Rule : the measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the

period of service, less the amount which the employer affirmatively proves the employee has earned, or with reasonable effort might have earned, from other employment

iii. PONOROFF FAVORS THE DISSENT!!! -- Things to Note in Sullivan’s Dissent :a. The mitigation rule exists to minimize the unnecessary personal and social (e.g., nonproductive use of labor,

litigation) costs of contractual failureb. What is meant by the duty to mitigate is that if one unreasonably rejects an opportunity, he will not be

heard to say that the loss of wages from then on shall be deemed the jural consequence of the earlier discharge (lost wages from that point on are no longer thru the fault of the defendant)

i. He will have broken the chain of causation, and loss resulting to him thereafter is suffered thru his own act

c. He feels that under the majority’s holding, which said that the substitute employment must not be of a different or inferior kind, nothing would do except an offer for the original job

i. Majority probably had a difference in kind in mind, but this is NOT clear in their explanation of the standard, where the precedential value of the case is.

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d. Sullivan’s approach is more “did the plaintiff act reasonably;” so if the same studio guy turned around and offered Parker an offer of substitute employment, according to Sullivan, she wouldn’t have to take it, but under the majority’s opinion, she would

e. “It is better to take testimony of difference in cache then simply decide those issues by taking judicial notice of the matters as a general proposition” (this case should have gone to the jury)

iv. NOTE: it is up to you whether or not you take steps to mitigate the loss, but if it would be reasonable to do so and you don’t, that scales back the damages recovery

XXII. OTHER REMEDIAL MEASURES (RESTITUTION) – damages usually equal the amount the plaintiff has spent in performing or in preparing to performa. Where are these damages used?

i. There is a contract but expectation damages cannot be accurately calculatedii. There is no contract but some relief is justifiable

b. Restatement § 371 : Measure of Restitution Interesti. Cost – the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a

person in the claimant’s positionii. Net Enrichment – the extant to which the other party’s property has been increased in value or his other interests advanced

c. Restatement § 272 : Restitution when Other Party is in Breachi. Injured party is entitled to restitution for any benefit he has conferred on the other party by way of part performance or reliance

ii. Injured party has NO RIGHT to restitution if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money for that performance

d. Restitution is NOT AVAILABLE where the plaintiff has fully performed – if at the time of defendant’s breach, plaintiff has fully performed the contract (and defendant only owes money, not some other kind of performance), most courts do NOT allow plaintiff to recover restitution damages

e. Restitution may even be awarded where plaintiff has partly performed, and would have lost money had the contract been completed

f. United States v. Algernon Blair, Inc. – Blair entered into a contract with the US to build a naval hospital and subcontracted with Coastal for steel erection and equipment. While Coastal is in the middle of this work, a dispute arises over who will pay for the rental of the equipment, and as a result, Coastal terminates its performance (28% of it done) bc of Blair’s alleged breach. Coastal exercised its defensive remedies and sued for damages.

i. Bc Coastal ended up saving more money than it would have lost by completing the contract, there can ONLY be recovery of damages under the theory of quantum meruit (theory of restitution for recovering damages)

i. The impact of quantum meruit is to allow a promisee to recover the value of services he gave to the defendant irrespective of whether he would have lost money on the contract and been unable to recover in a suit on the contract, even though this value exceeds that of the return performance promised by the defendant

ii. We’re not talking about restitution as a remedy to prevent UE in a classic QC situation; rather, this is restitution to an injured party as an alternative remedy for the other’s breach

ii. Idea of restitution is that the breacher must account for the benefit conferred

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i. We’re trying to put the breaching party back in the position he would have been in had the contract never been entered into

ii. If the non-breaching party seeks to enforce the bargain, either under the expectancy or reliance approach in a losing contract, there will be no recovery, and he won’t come out even

iii. When dealing with a restitutionary recovery, one has to be focused on the fact that what is relevant for restitution is the value of the benefit conferred, NOT the cost incurred

iv. Restatement § 373 (2) : where the plaintiff has fully performed and all that remains for the party in breach is to pay a stipulated sum of money, that restitutionary relief is NOT available and all you are entitled to is the unpaid contract price

i. If at the time of the breach Coastal had finished the work and Blair breached, the recovery WOULD NOT EXCEED the unpaid contract price on the basis that the value of the work would have increased the property value by a greater amount than originally bargained for

a. At that point expectation damages are fixedv. The amount paid is NOT always proportional to the value of work done

vi. Restatement § 374: Net-Benefit Rule – the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach

i. In the case of a party in breach seeking restitution, the contract price is the ceiling for recoveryg. Britton v. Turner – Plaintiff had agreed to work for the defendant for 1 year, for which he would be paid $120. Plaintiff stopped working

9.5 months into it, without cause, but he is suing his employer for the work he did; nothing has been paid so far.i. The plaintiff CANNOT recover under:

i. the contract (bc it was for a year), ii. there was no substantial performance, and iii. the other way constructive condition can be satisfied (thru the doctrine of divisibility) does not apply bc the contract was

for the entirety and was not divisibleii. But he CAN recover under restitution under the theory of quantum meruit, even though he is the breaching party

iii. What are the 3 ways to ameliorate a forfeiture resulting from the application of constructive conditions? i. Substantial performanceii. Divisibilityiii. Restitution

iv. Net Benefit Rule – the breaching party can recover the value of the benefit conferred net of any damages caused by his breach

i. Where the party receives value—takes and uses the materials, or has advantage from the labor—he is liable to pay the reasonable worth of what he has received

v. According to the courts, when the breaching party seeks restitution, the contract price acts as a ceiling/cap for restitution damages bc they did not want to encourage others to breach contracts and get restitution

i. When the non-breaching party is seeking restitution, it is not clear whether the contract price provides a ceiling

XXIII. EFFICIENT BREACH –

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a. Theory of Efficient Breach – properly calculated expectation damages increase economic efficiency by giving the other party an incentive to break the contract if, but only if, he gains enough from the breach that he can compensate the injured party for his losses and still retain some benefits from the breach

i. There are no punitive damages ever awarded for breach of contract

XXIV. STIPULATED / LIQUIDATED DAMAGES – sometimes parties agree in advance on what the remedy would be should one party fail to performa. What is the question we are trying to answer?

i. To what extent are contract remedies amenable to modification by the parties?i. There are definitely limits in place re this issue and freedom of contract

b. 2 theories on liquidated damages :i. § 256: Traditional Theory – the court will NOT enforce a stipulated damages provision if it operates as a penalty or forfeiture

clausei. This is based on the premise that the whole theory behind remedies is compensation, not punishment or deterrenceii. Principle Limitation: must not operate as a penalty, which is the very reason that parties often bargain for this provision I

the first place – to operate as a deterrent against breach…ironica. EX: construction contracts (per diem loss for every day that the contractor is late

iii. NOTE: this is the prevailing viewii. Contemporary Theory – enforce whatever bargain has been struck by the parties, allowing them to determine their own economic

self-interest and allocate the risk as they see fit; presumably, they will adjust their economic relationships accordinglyi. these matters are best left to the bargain arena where if the party has agreed to a particular stipulated damage provision,

even if it is a penalty clause, the court should leave it alone bc parties are rational, economic actors, and the party probably got something in return for that penalty provision

a. To limit stipulated damages is costly, wasteful, and deprives the other party of what they paid forb. Market-based solution to an economic problem

c. Liquidated Damages Provision :i. Avoids litigation costs and risks

ii. Promotes rational decision makingd. O’Brian v. Langley – O’Brians enrolled their daughter at Langley but later decided to withdraw her. They sent their letter of withdrawal

12 days after the deadline, and the contract bt the parties had said that in such an event, the O’Brians would have to pay her full tuition as well as whatever court costs Langley might incur in collecting that money from them.

i. The traditional conditions for enforcement of a stipulated damage provision (LDP) :i. Parties must not intend the liquidation of damages to operate as a penalty or forfeiture

a. This is based on a policy against compulsion of performanceii. The damages anticipated from the breach must be uncertain in amount or difficult to prove when measured at the time the

contract was entered in toa. When a court measures this, the traditional rule is to look at this factor at the time the contract was entered into

(O’Brian), although if one of the purposes of LDP is to reduce the cost of proof, one could argue there is good

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reason to accept uncertainty and difficulty of proof at the time of breach as well as the time of contract in determining whether or not it is enforceable

iii. The stipulated sum must be a reasonable forecast of damage in light of the presumed loss a. The time when the resonableness is judged is traditionally at the time when the contract is made, not when the

breach occursb. In a case where the stipulated sum was reasonable when the contract was entered into, if no loss actually results,

should it still be enforced?i. UCC – the stipulated sum must be made in light of a reasonable forecast of the anticipated loss, and some

courts hold that as long as that element is satisfied, the LDP should still be enforced, even with no actual loss

1. in this case the court basically makes an exception if the defendant can prove NO ACTUAL LOSS

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