Introduction

I. Contract and related obligationa. Major social resources that facilitate agreements and their performanceb. Lawyer is the architect and the builder of human relationships

i. He brings into existence a government for the regulation of the parties' own relation

II. General theories of obligation a. Obligation arising from an agreement with considerationb. Obligation arising from justified reliance on a promise - promissory

estoppelc. Obligation arising from unjust enrichmentd. Obligation arising from promises for benefit receivede. Obligation arising from tortf. Obligation arising solely from "form"g. Obligation arising from a statutory warranty

III. General theories of remedies a. Lost expectancy damages designed to put PL in the monetary position he

or she would have been in if the agreement or promise had been performed

b. Reliance damages designed to put the PL in the monetary position he or she would have been in if the agreement or promise had not been made

c. Sum equivalent to the value of any benefit the PL conferred upon the DEF, restoring this value to the PL

IV. White v. Benkowskia. Punitive damages are not applicable in breach of contract casesb. Historically and authoritatively, breach of contracts cannot result in

punitive damages being awarded, even if the breach is willful.V. Sullivan v. O'Connor

a. Contract-no contract dichotomyb. There exists agreements between two parties with consideration that do

not justify full lost expectancy damages being awarded, especially in non-commercial cases; something between a contract and not a contract

i. e.g. patient-physician agreements - optimistic statements of opinion by doctors can be interpreted as promises by patients

1. The patient may not even have received a firm promise. If actions for breach of promise continue to be maintained, doctors will be scared and practice "defense medicine." Then again, if allow no action to be taken, then doctors would be free to make promises to entice more customers.

  

General Theories of ObligationTheories of obligation and their relevance to the lawyer's role

Creates a source of legal duties and makes remedies available in the event of a breach

o Normative significance Provides Justifying reasons to perform the required actions Provides claims of right in the event of a dispute Grounds for criticizing what was done by the parties Standard for evaluating a court's decision and justification

  Agreement with ConsiderationLeading theory of obligation in contractual and related affairs 

I. Theory of consideration a. Restatement of Contracts

i. Consideration for a promise is [(a) an act other than a promise, (b) a forbearance, (c) the creation, modification or destruction of a legal relation, or (d) a return promise], bargained for and given in exchange for the promise.

ii. Consideration may be given to the promisor or to some other person. It may be given by the promisee or by some other person.

b. Consideration exchanged can be objectively useless absent fraud, warranty or mistake of facts. - Hardesty v. Smith

i. Parties to a bargain are the best judges of its desirability for each of them

 II. Nominal Consideration

a. Consideration requires that a performance or return promise be "bargained for" in exchange for a promise. Promisor must manifest an intention to induce the performance or return promise and to be induced by it, and vice versa.

i. Consideration is something that has been "uttered intentionally as the result of some deliberation, manifested by reciprocal bargaining or negotiation." - Baehr v. Penn-O-Tex Oil Corp

ii. Consideration is an "essential evidence of the parties' intent to create a legal obligation," it "must be something adopted and regarded by the parties as such." - Baehr v. Penn-O-Tex Oil Corp

b. The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration.

i. The promisor may have more than one motive in making the promise, and the person furnishing the consideration need not inquire into the promisor's motives.

ii. Unless both parties know that the consideration is mere pretense, then it is immaterial that the promisor's desire for the consideration is incidental to other objectives and even that the other party knows this to be so.

 III. Gifts

a. No consideration is present if Party A gives to Party B a promise, not for anything offered or promised to the Party A in return. Instead, it is a gift. - Dougherty v. Salt

b. A condition for a gift can be construed to be consideration if the happening of the condition would be a benefit to the promisor and that this was the intent of the promisor. - Maughs v. Porter

i. If not, then the condition for a gift is merely that: a condition to receive the gift, e.g., walking to the store around the corner to pick up the free jacket that the man has given the hobo - not consideration.

VI. Forbearance a. Consideration can be a waiver of any legal right at the request of the

promisor, without regard to whether or not this waiver was a benefit to the promisor. - Hamer v. Sidway

b. Forbearance to bring a suit based on a claim that is ill founded and void and that this is known, is not sufficient consideration for an enforceable contract. - Springstead v. Nees

i. However, if the forbearer reasonably and in good faith believed that the cause of action was valid and the belief was honestly entertained by the person who asserted it, then the forbearance to sue can be consideration. - Dyer v. National By-Products

VII. Mutuality of obligation a. Bilateral executory agreement: an agreement that consists of promises by

both sides that the parties have not yet performedi. e.g. A promises to pay B for B's used television set to be delivered

in one week, B promises to deliver the television set in one week for $100

b. An agreement which depends only upon the wish, will, or pleasure of one of the parties is unenforceable. Mutuality of obligation is an essential element of every bilateral executory agreement. - De Los Santos v. Great Western Sugar Co.

i. Great Western had "promised" De Los Santos that they would load up the truck with as much beets as they wanted to

1. Since it was based on the whims of Great Western, not a real promise

ii. Had Great Western promised De Los Santos to load up all the beets they require, could be a real promise

c. An agreement that is lacking expressly stated duties for one party can still be valid if the whole writing is "instinct with an obligation" to reasonably perform duties. - Wood v. Lucy, Lady Duff-Gordon

i. Lucy gave Wood an exclusive deal to market her products; Wood said Lucy would receive one-half of all profits

ii. Though not explicitly said, Wood's implied promise to Lucy was that he would use reasonable efforts to market the goods

1. Because if he did not, he would not receive money from the company he founded to sell her products

2. As such, there may be an implied promise there; send to fact-finder to determine if there was

d. In the absence of mutuality of obligation, there can be other forms of valid consideration. Mutuality is only a requirement in a bilateral executory exchange. - Weiner v. McGraw-Hill

e. Agreements with satisfactory clauses included in them are not lacking in mutuality because the party with the satisfactory clause is unable to terminate the contract at will. - Mattei v. Hopper

i. Promisor's determination that is he unsatisfied must be made in good faith; two tests employed to determine this:

1. If clause deals with "commercial value or quality, operative fitness,or mechanical utility" courts will use reasonableness test, comparing the product with other products in the same price range. It would not be met if the product is similar to those other products

2. If satisfaction involves "fancy, taste, or judgment" courts will apply the honesty test, to determine whether or not you had an ulterior motive for refusing the product.

II. Mutuality of Assent   Promissory EstoppelObligation arising from justified reliance 

Before promissory estoppela. Reliance on a gift is not valid consideration for an enforceable agreement -

Kirksey v. Kirksey

II. Theory of promissory estoppel a. Restatement (Second) of Contracts

i. A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person 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.

1. A promise2. Promisor's reasonable expectations3. Inducement of action or forbearance4. Injustice

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

b. For promissory estoppel to be used as a cause of action it does not need to resemble a contract. - Hoffman v. Red Owl Stores

c. In promissory estoppel, the promisee's reliance needs to be based on a reasonable expectability that the promise would be fulfilled; some promises are "too good to be true." - Local 1330 v. US Steel

i. Company promises to keep the plant open if it is profitable; workers use unreasonable definition of profitability to bring suit

 III. Gratuitous promises

a. Beginning to see developments of the theory of promissory estoppel, yet the terminology remains the same (consideration)

i. Justifiable reliance with detriment can constitute consideration for an enforceable agreement - Ryerrs v. Trustees

b. Transference of land conveyed orally is enforceable if the promisee acts in reasonable reliance on the promise and incurs detriment to improve the land - Seavey v. Drake

i. PL receives promise from DEF that he would receive the landii. DEF's estate refuses to honor that promise

iii. PL had spent $3000 to build stuff on the land -> detrimentc. An agreement is enforceable without consideration if the PL intentionally

brought about detriment to her own life in reasonable reliance upon the promises of the promisor. - Ricketts v. Scothorn

i. Grandfather told PL that she did not need to work because he promised to give her $2000; quit her job

d. A promise given gratuitously to the promisee, who relies on the promisor to his own detriment, is enforceable for everything that he has promised to the promisee. - Siegel v. Spear

i. Man does not get his own insurance because DEF promises him that he would purchase the insurance; property destroyed

 IV. Business Negotiations

a. Promises made after a contract has been signed are enforceable even if the contract itself is unenforceable if the promisee justifiably relied to his detriment on the promise uttered. - Wheeler v. White

i. Contract made and signed, but too indefinite to be enforceable, to secure a loan for PL

ii. PL demolishes buildings at the behest of DEF relying on loan to build afterwards; DEF does not secure loan

b. Promises made before a contract has been signed and during the negotiations phase of a contract, are enforceable under promissory estoppel, if the criteria for PE have been met. - Hoffman v. Red Owl Stores

i. DEF made promises to PL during the course of negotiating to open a new store, PL suffered detriment; no contract ever signed

c. Promises made before a contract has been signed but after negotiations have ended, are enforceable under promissory estoppel. - Elvin Associates v. Franklin

i. DEF assured PL that she would perform in musical; contract ready to go except needed signature from DEF

ii. PL incurred costs of setting up for her arrival

Unjust EnrichmentObligation arising out of unjustly enriching another.

I. Theory of unjust enrichment a. Restatement of Restitution § 1

i. A person who has been unjustly enriched at the expense of another is required to make restitution to the other.

b. Elementsi. Benefit to the DEF

ii. Must be at the PL’s expenseiii. PL must expect a return at the time of conferral of benefitiv. DEF must know or cause to believe that the PL expected the returnv. If the DEF has cause to believe that the compensation would be

expected, the PL must communicate the expectation (cannot be a foisterer or intermeddler)

I. PL must communicate the expectation to the DEF – Bloomgarden v. Coyer

II. Enforceable agreements a. Injured parties

i. When a party breaches an enforceable contract, the injured party may bring a cause of action based on unjust enrichment rather than breach of contract. The party is able to choose the type of agreement to bring suit under. – Posner v. Seder

ii. The recovery allowed is based on the market value of the benefit conferred rather than the contract value. – Posner v. Seder

b. Breaching parties i. The breaching party can recover for the benefit conferred upon the

other party based on unjust enrichment. – Britton v. Turnerii. There is a ceiling on the recovery allowed that is set by the

contract price. Contrasts with Posner which states that contract price is not a limit on recovery. – Britton v. Turner

iii. There must be acceptance of the benefit conferred for a recovery based on UE to be applicable; acceptance can be the mere retention of the benefit. – Kelley v. Hance

I. Retention of the benefit does not apply to cases dealing with services rendered upon your land, as such benefits could not easily be returned.

iv. Payments made by the breaching party during the course of performing the contract can be recovered minus the damages inflicted by the breach to the other party. – De Leon v. Aldrete

I. Not consistent with the majority opinion in the country, which says that the breaching party cannot recover “any money paid by him under the contract to the vendor.”

III. Unenforceable agreements a. Unjust

i. Keeping the benefit is not unjust if the benefit conferred was given as a gift.

ii. The presence of a contract, regardless of the enforceability of the contract, means that the conferral was not a gift – Gay v. Mooney

I. It can be used to show that the benefit conferred upon the other party was not a gratuitous service, but a service with the expectation of compensation.

b. Benefit i. Services performed by the PL which were performed at the request

of the DEF with the expectation that compensation would be made, and with DEF's acquiescence (an agreement is present) must be compensated for by the DEF, regardless if the DEF actually benefited from the service – Kearns v. Andree

I. A contract’s enforceability is inconsequential, so long as the PL in good faith believes in the enforceability of the contract – Kearns v. Andree

ii. If the terms of the agreement are too vague, which results in a difference in expectations of services rendered by the two parties, there can be no unjust enrichment recovery even if the service has been performed – Anderco v. Buildex

IV. Absence of agreement a. Gratuitous Intent

i. To determine if the PL’s conferral of benefits could be expected by the DEF to have been gratuitous, three elements must be fulfilled - Sparks v. Gustafson

I. The type of services provided should be reasonably assumed to the type to be a gratuitous service given to a friend

I. EX: managing a building is considered not to be a service normally rendered for free – Sparks v Gustafson

II. EX: bringing together two business partners for a deal is considered to be a gratuitous service if no compensation has been requested – Bloomgarden v. Coyer

II. There is a close friendship/relationship between the partiesIII. Compensation was never sought for the services rendered

ii. Gratuitous intent can be extinguished if there is the presence of a contract, regardless of the enforceability of the contract – Gay v. Mooney

I. It can be used to show that the benefit conferred upon the other party was not a gratuitous service, but a service with the expectation of compensation.

b. Implied-in-fact Contracts i. Parties form this type of contract by not expressly agreeing to

perform, but by manifesting their intentions to enter a contract through their conduct. – Bloomgarden v. Coyer

ii. The service carried out must give the recipient the understanding that:

I. They were performed for himII. That they were not rendered gratuitously but with the

expectation of compensationIII. Bloomgarden v. Coyer

Obligation from promises for benefit received

I. Theory of obligation a. Restatement (Second) of Contracts § 86

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 injustice.

ii. A promise is not binding:I. If the promisee conferred the benefit as a gift or for other

reasons the promisor has not been unjustly enriched II. To the extent that its value is disproportionate to the benefit

b. The benefit that was conferred must be conferred upon the promisor. – Mills v. Wyman

i. Son of DEF was taken care of by PL. He was sick, poor, and in distress. PL gave him board, nursing. When son passed away, DEF was notified of the care the son had received from PL. After all the expenses had been incurred, DEF wrote a letter to the PL promising to pay him such expenses.

ii. Promise was ruled to be unenforceable. c. The benefit should be a material benefit to the promisor. – Webb v.

McGowini. Such a material benefit is the prevention of loss of promisor’s life.

ii. PL saved DEF’s life at the cost of PL being crippled for life. DEF agreed to care for and maintain him for the remainder of PL's life. After DEF died, estate stopped supporting PL.

iii. Promise was ruled to be enforceable.d. Differences between the two cases:

i. Material benefit was conferred in Webb.

ii. Benefit was conferred upon the promisor in Webb.

Obligation arising from tortI. If there exists a contract that imposes a legal duty upon a party, which duty exists

apart from the specific obligation of the contract, the neglect of that duty is a tort founded upon a contract. – Maudlin v. Sheffer

a. This type of contract usually arises in contractual relations in the fields of medicine, architecture, engineering, and other skill services that have an obligation to exercise a reasonable degree of care, skill and ability.

b. EX: professional relationship of principal and agent, bailor and bailee, attorney and client, physician and patient, carrier and passenger or shipper

II. Special Liability of Seller of Product for Physical Harm to User/Consumer a. One who sells any product in a defective condition unreasonably

dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if (a) seller is engaged in selling such a product, (b) product is expected to reach the consumer without changing much of it

i. This applies even when (a) the seller has exercised all possible care in the preparation and sale of his product, and (b) user has not entered into a contractual relation with the seller – Restatement Second of Torts

ii. Consumer’s cause of action does not depend upon the validity of his contract with the person, and is not affected by any disclaimer

b. This tort theory emerges and largely replaces contract theoryIII.

Obligation arising from formI. Many statute statutes specifically provide that a mere donative promise under seal

has no binding effecta. Others recognize the seal but only as presumptive evidence of

considerationII. New York General Obligations Law provides that certain agreements and

promises are enforceable if in writing and signed

Obligation arising from warranty

Express warrantyUCC provides that express warranties are created by:

Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain

Any description of the goods which is made part of the basis of the bargain

Distinguishing between statement of opinion and fact – Keith v. Buchanan:Lack of specificityStatement made in an equivocal mannerStatement which reveals that the goods are experimental in nature

EX: Keith v. BuchananPL purchased sailboat from DEF. PL testified he relied on

representations in sales brochures about the boat to purchase it. PL and sales rep also discussed PL's desire for a boat that was ocean-going and would cruise long distances.

PL filed lawsuit alleging cause of action in breach of express warrantyCourt ruled that since the brochures stated that the boat was seaworthy,

and the PL made it known that seaworthiness was important since he was gonna take it out on long trips, there was an express warranty

Implied warrantyUCC § 2-314(2) states that “Goods to be merchantable must be at least such

as:[…]are fit for the ordinary purposes for which such goods are used […]”

To determine the ordinary purposes for which goods are used, the court can examine what a person normally expects to encounter when using the good. – Webster v. Blue Ship

Woman eats fish chowder and chokes on bone. Sues the restaurant. Court rules that bones are normally found in fish chowder, so the woman should have expected that there would be bones. As such, there is no implied warranty to provide for the absence of bones.

Statute of FraudsNot a theory of obligation, but a formal requirement for the enforceability of certain agreements with consideration, namely that of writing.

I. Statute of frauds requires contracts to be in writing for the following categories: a. To charge a personal representative, upon any special promise to answer

for damages out of the personal representative’s own estateb. To charge any person upon any special promise to answer for the debt,

default, or misdoings of anotherc. To charge any person, upon an agreement made in consideration of

marriaged. Upon any contract for the sale of lands, tenements, or hereditaments, or of

any interest in or concerning them

e. Upon any agreement that is not to be performed within one year from the making thereof

f. To charge any person upon any agreement authorizing or employing an agent or broker to purchase or sell real estate for compensation or commission

g. To charge the estate of any deceased person upon any agreement which by its terms is not to be performed during the lifetime of the promisor

h. Sales of goods (of $500 or more) – UCC § 2-201 (1)II. Answering for another’s debt

a. If a person who has promised to assume the debt of another person or company, whose primary reason for doing so is for his own pecuniary or business advantage and not for the benefit of the other person/company, then the promise does not fall within the statute of frauds and does not have to be written – Schoor v. Holmdel Heights

III. Selling of land a. For a written contract for the sale of land to be taken out of the statute of

frauds, the terms and conditions of the sale must be stated in the written contract. – Jonesboro v. Cherry

i. When the contract does not state the conditions and terms of the sale and the time of payment, the contract is barred by the statute of frauds

IV. Alternative theories of obligation a. Where an oral agreement is made and the subject matter comes under the

statute of frauds and there is no exception, a party cannot recover for breach but can recover for promissory estoppel or unjust enrichment, or another theory of obligation. – McIntosh v. Murphy

Remedies- Three purposes that can be pursued in awarding contract damages

o Restitution interest - PL has in reliance on the promise of the DEF conferred some value on the DEF

Prevent unjust enrichmento Reliance interest – PL has in reliance on the promise of the DEF changed

his position Purpose is to undo the harm Put him in as good a position as he was in before the promise was

madeo Expectation interest

Put him in as good a position as he would be if the promise were fulfilled

- Claims to judicial intervention o Restitution interest presents the strongest case for relief

Maintenance of an equilibrium of goods among members of society

Unjust gain in combination with unjust impoverishment is fixed

o Reliance interests is second strongest Fixing something that is broken, healing a disturbed status quo

o Expectancy interests is weakest No longer fixing the status quo, but bringing into being a new

situation

Expectation Damages

I. Damages Generally a. Purpose is to compensate the injured party so that she is in the position she

would have been in if the breaching party had performed the contracti. Gets the monetary equivalent of what she expected under the

contract

II. Measuring Damages Generally

a. Subjective vs. Objective (oil well vs. monument) – Groves v. Wunderi. If the contract is for additions to the land that would increase the

value of the land, then the measurement of damages that would be awarded is “diminution in value” – oil well case

ii. If the contract is for the creation of something regardless of the change in land value, then the measurement is the “cost of completion” – monument case

I. Radford v. De Froberville – PL sold land to DEF with the DEF promising to build a wall between the two plots of land; DEF failed to build the wall, which did nothing to the land value; PL sought cost of completion because the wall was not for increasing the land value of the property but because the PL sought to preserve the aesthetic quality of his land

iii. To determine what type of contract it is, can look at number of things, like in Groves:

I. Intention of the parties after the contract would have been completed: (1) if the party is going to resell the land, then award the diminution in value; (2) if the party is keeping the land, award the cost of completion

II. If the party was going to keep the land, then he may have irrationally contracted for something for a higher amount than the change in land value

III. Nature of the parties’ bargaining at the time of contract could be an indication as to the motive of the parties; in Groves, if the PL had discounted the rental price to the DEF by the costs-of-completion, could be an indication that PL had bargained for that provision

b. If the “cost of completion” damages is grossly disproportionate to the “diminution in value” damages, then the court may grant the “diminution in value” damages instead – Peevyhouse v. Garland Coal

i. Cost of completion: $29,000ii. Diminution in value: $300

iii. Also, court concluded that the restorative provisions in the contract were not the primary purposes of the contract

I. If performance was what was contracted for, then could recover completion costs

iv. Seems to be wrongly decided though, because the PL seems to have said that he would not agree to the contract unless the provisions were in there

c. “Loss in the value to the injured party of the other party’s performance that is caused by the failure of, or deficiency in, that performance” – Restatement § 347

i. In principle, this requires a determination of the value of that performance to the injured party himself and not the value to some hypothetical reasonable person or on some market

d. General and Direct Damages i. Damages that flow from a given type of breach without regard to

the particular circumstances of the victim of the breach – Hadley v. Baxendale

ii. Never barred because by their principle, such damages should be reasonably considered to arise naturally due to the breach

e. Consequential and Indirect Damages i. Damages, above and beyond, that flow from a breach as a result of

the buyer’s particular circumstancesI. Typical damages awarded are lost profits

ii. Requirements needed in order for the PL to recover consequential damages - Hadley

I. Reasonable foreseeability: DEF must have had reason to foresee the damages as a probable result of the breach

I. In Armstrong v. Bangor, the DEF worked with stuff involving mills and the PL was a mill operator; so when the DEF failed to repair the PL’s crankshaft, he should have reasonably known that the PL’s mill would shut down

II. Seems strange though, because why would he know this? Reasonable to think that the PL had a spare crank shaft around

II. The damages must have had been contemplated by both parties at the time of agreement

f. Certainty – damages can be recovered only if the amount is reasonably certain of computation – not certain, then called “speculative”

i. Consequential damages I. Old business : Not treated as speculative and are

recoverable because future profits can generally be estimated from previous profits

II. New business: a business that has not gone into operation yet cannot recover lost profits because the estimation of lost profits rests on speculation – Evergreen v. Milstead

I. This doctrine is in decline; some courts only require a reasonably certain factual basis for computation of probable losses

II. Can look to surrounding businesses of the same type

III. Evergreen concerned a PL who was seeking lost profits for the DEF who failed to build the movie theater contracted for in time; delay from June to August; PL sought lost profits of the delay

ii. Modern trend – not to cut off damages based on uncertainty unless the uncertainty is fairly severe – UCC provides that the remedies will be liberally administered

g. Duty to mitigate i. Injured party cannot recover damages that could have been

avoided by reasonable efforts – varies depending on type of contract

ii. Sale of goodsI.

III. Construction Contracts

a. Injured builders i. Measurement – must give the builder the net profit it would have

made on the contract, and any amount already expended in furtherance of the project

I. Also can measure it by contract price minus costs of completion – Warner v. McLay

I. EX: PL would have been paid $150,000 for contract and costs $120,000; spent $50,000 so far; would cost $70,000 to finish; so would be able to recover $80,000

II. Difference between Cost-plus Contracts and Fixed-Price Contracts would result in different recoveries because it would value the contract price differently

I. Cost-plus: Payment on the contract is determined by a percentage above what it costs the PL to build it

II. Fixed-price: Payment is a fixed-rateII. If the contract was a cost-plus contract, the jury

would have to determine what the future costs of the project would be and add it to the current costs, and then take a percentage of that

I. Damages = Payment – [costs + future costs]

III. If the contract was fixed-rate contract, the jury only needs to look at the contract price

I. Damages = Payment – cost of completion – salvageable outlay

III. Any progress payments made to the builder would be subtracted from the damages

ii. Mitigate – builder cannot continue working on the project when the DEF repudiates the contract just to ratchet up the damages that could be awarded to him – Clark v. Marsiglia

I. Builder must act reasonably after a breach by the DEFII. “The plaintiff had no right, by obstinately persisting in the

work, to make the penalty upon the defendant greater than it would otherwise have been”

III. Builder therefore cannot recover the costs that were incurred after DEF’s repudiation

IV. Occasions may arise where it is reasonable to complete the job after repudiation

I. For example, if there is a rapidly rising market for the completed goods and the manufacturer can resell them for more than the contract price – UCC § 2-704(2)

iii. Lost volume builders – if a builder has the ability to fulfill multiple contracts at once and the builder receives a profit on another job after your breach, the profit is not subtracted from the damages that could be awarded because the builder could have done both jobs – Olds v. Mapes-Reeves Construction

I. Only applies when the builder can take on multiple jobs; if the builder is only able to take on one job at a time and finds an alternative job when a DEF breaches a contract, then this would lessen the damages that builder can receive

b. Injured Landowners i. Measurement – when a builder repudiates an agreement to provide

a benefit to the landowner, the landowner is able to recover the amount it would cost him to complete the same work, over and above the original contract price – Thorne v. White

ii. Mitigate – the owner is not able to contract with another party for things that are above and beyond what the original contract called for – Thorne v. White

I. If the extra benefit is “foisted” upon the injured party, such that the only alternative source for providing the original benefit contracted for also provides additional benefits, then the injured party may recover for the extra costs to hire the alternative source even though what the new agreement contracts for more than the original contract – Handicapped Children v. Lukaszewski

iii. Injured parties usually look to recover consequential damages (lost profits) – must show that the damages were reasonably foreseeable and sufficiently certain

I. Like discussed before, certainty is becoming less and less of a factor

II. Even if the new business rule prevents recovery, most courts will grant damages for the delay in construction, as measured by the lost rental value of your property (measuring the rental value of the improved property) – Evergreen Amusement Corp.

IV. Employment and Other Services Contracts

a. Injured Employers i. Measurement – employers who hire another employee to replace

the one who repudiated the contract can recover the difference between the salary of the new employee and the old employee – Handicapped Children v. Lukaszewski

ii. Mitigate – employer must hire a reasonable replacement, meaning that the employer must “attempt to obtain equivalent services at the lowest possible cost” – Handicapped Children

I. If the only other employee brings additional benefits, contract law will ignore the other benefits because the employer had no choice but to accept the other benefits – idea of “foisting” a benefit onto an employer

II. In Handicapped Children, the PL had hired the DEF, a teacher, to work for its school; the DEF repudiated; the PL hired another teacher that was more qualified than the DEF but cost more; Court allowed PL to recover the extra money even though the PL received more benefits than originally contracted for because the third-party was the only teacher that was still available

III. Law ignores this because the PL did not seek the additional benefit; it was “foisted” upon them (like UE theory)

b. Injured Employees i. Measurement – if an employer wrongfully terminates an employee,

the employee is entitled to any unpaid salary up to the time of the breach and her salary for the remaining term – Parker v. 20th Century Fox

ii. Mitigate – the employee has a duty to mitigate the damages that result from the wrongful termination

I. If the employer offers an alternative employment with the employer that is similar but not exactly the same as the original employment contracted for, then the employee has a right to refuse the new employment and still be able to retain her ability to recover lost compensation for the services – Parker v. 20th Century Fox

II. In Parker, the court refused to accept that the PL did not mitigate damages when she refused employment by Fox because it was substantially different

I. The new film was to be shot in Australia and not California

II. The new film was a western and not a musicalIII. The new offer was inferior because Parker lost her

approval rightsIII. Factors in determining if the new offer is a reasonable

substitute: I. Offer for a job is in the same field

II. The employee has the same rightsIII. The compensation must be the sameIV. The effect of the substitute on the injured party’s

career IV. If the mitigation rule applied in Parker, then it would

impinge on her freedom of contractI. She originally contracted to do work in California

and not Australia; the mitigation rule would essentially force her to work in a location she did not contract to

II. Also, it would force her to work with an employer that has already repudiated her contract before, a party who lacks reliability and trustworthiness

III. As such, courts have seemingly adhered to a policy that if an employee refuses alternate employment by the same employer, then there is not a lack of mitigation of damages

iii. If an employee takes a clearly inferior job, then the employee can recover the difference in salary as well as other consequential damages but not the difference in prestige

c. Service Contracts i. Measurement - Hadley is the most famous service contract case;

said that you can recover the consequential damages (lost profits) that the lack of service causes

I. Defined consequential damages as those that are reasonably foreseeable

II. Lost profits in this case were consequential because not all mills would have lost profits

I. Some mills would have a replacement crank shaft ready

III. In Hadley, the miller did not tell the carrier about the consequences of the delay nor would a reasonable carrier have gleaned the ramifications from the circumstances (unlike Armstrong which dealt with a repairman who had history dealing with mills and crank shafts)

I. As such, the lost profits were not reasonably foreseeable and not recoverable

V. Sales of goods

a. Consequential and Incidental damages i. Must be reasonably foreseeable

ii. For example, if you break a contract to sell a piano to Alice, then you will be liable for any reasonably foreseeable consequential damages such as lost profits from her piano teaching business – UCC § 2-715(2)

I. Also provides that the lost profits must not be reasonably preventable

iii. For incidental damages, if you were the seller and Alice breaches the contract before you can deliver the product, then you can recover such incidental damages as any charges, expenses, or commissions incurred in stopping delivery

b. General and Direct Damages i. Buyers and sellers may recover general damages as well, as

provided in Article 2

c. Injured Buyers i. If a seller breaches an agreement with a buyer, the buyer can

recover the difference between the market-price and the contract-price – UCC § 2-713

I. Market price is determined at the time when the buyer learned of the breach

II. Different than in Cooper v. Clute, which states that the market price is based on when the breach occurs

ii. If a buyer manages to purchase a substitute, then the buyer can recover the price-contract price differential – UCC § 2-712

I. If the purchase is reasonable and made in a timely fashion, and in good faith, then the buyer can sometimes recover more under 2-712 than 2-713

II. Occasionally, will pay more than market price for a substitute good if they need it right away to prevent future losses

iii. If a buyer accepts goods that are damaged or defective, then the buyer can recover the difference the value of what she received and the value of what was promised her – UCC § 2-714

I. Market value of a piano is $1100, selling it to buyer for $1000, piano is defective and worth only $800; buyer can recover $300

iv. Mitigate: If the seller fails to deliver, then the buyer has a right to cover (buy substitute goods and recover damages). If the buyer fails to cover, she will be barred from recovering any consequential

damages that she could have prevented by covering – UCC § 2-715(2)

d. Injured Sellers i. If a buyer breaches an agreement, then the seller can recover the

contract price-market price differential – UCC § 2-708(1)I. Buyer agrees to purchase the good for $1000. The market

price of a good is $900. Seller can recover the $100 difference

II. Market price is determined “at the time and place for tender” – when the breach occurs

ii. If a buyer breaches an agreement, and the seller resells for less than the contract price and market price, then the seller can recover the difference between the contract price and the sold price, if he has resold “in good faith and in a commercially reasonable manner” – UCC § 2-706(1)

I. Seller resells a good for $850; market price $900; contract price is $1000; seller can recover the $150

II. Cannot sell at a discount to penalize the buyer or to curry favor with another customer

iii. Mitigate: The seller is obligated to take affirmative measures to keep its losses at a minimum, to take advantage of opportunities to minimize the costs of the breach; not taking advantage of the opportunities must be for a legitimate reason – Schiavi Mobile Homes v. Gironda

I. DEF signed contract with PL to sell a mobile home to DEF; DEF breached contract; DEF’s father asked PL if he should mortgage the house to pay off the PL; PL said no, that it would not be necessary; PL then sold the home to someone else, and then sued for lost profits and interest expense incurred

e. Lost Volume Sellers (same as in lost volume suppliers in construction cases)

i. If the seller has an inexhaustible supply of goods and the buyer has breached an agreement to purchase one of the goods, then the seller is able to recover the profits from that one sale – UCC § 2-708(2) – Neri v. Retail Marine Corp.

I. Theory is that because there is an inexhaustible supply, even though the seller eventually sold the product, if the buyer had gone through with the agreement, he would have sold two goods and not just one

f. Punitive Damages i. Not recoverable in breach of contract cases unless the conduct

constituting the breach is also a tort for which punitive damages are recoverable

ii. Three rationales as to why this is:I. Law of contracts governs primarily commercial

relationships, where the amount required to compensate for loss is easily fixed

II. Breaches of contract do not cause the kind of “resentment or other mental and physical discomfort as do the wrongs called torts and crimes”

III. Nothing that breaches of contract that are in fact efficient and wealth-enhancing should be encouraged

iii. Some breaches do result in punitive damagesI. Breach of a contract to marry

II. Failure of a public service company enjoying monopoly or quasi-monopoly power to discharge its obligations to the public

III. Breach of a fiduciary duty

g. Limitations on Lost Expectancy i. Denial of lost expectancy in medical contexts

ii. Denial of recovery for loss of reputation or goodwilliii. Denial of lost expectancy to attorneys

I. Some courts allow wrongfully discharged lawyers only the reasonable value of their services up to the date of discharge

iv. Denial of attorneys’ fees and interestI. General rule is that victorious party cannot recover

attorneys’ fees from the losing partyII. Rationale: Taxing the losing party would discourage the

poor from litigating possibly meritorious claims

Reliance Damages (with breach of enforceable contract)- Here, an injured party has already proven that the other party has breached an

enforceable contract- Different than reliance damages in promissory estoppel cases

I. Definition a. Damages that are incurred before the breach and made in reliance on an

enforceable contract are recoverable as reliance damages – Chicago Coliseum Club v. Dempsey

i. PL was a contractor that conducting boxing matches, and contracted with DEF, a boxer; DEF breached the contract; PL sought to recover the costs incurred after the signing of the agreement and before the breach; Court agrees and says that this is recoverable as reliance damages

ii. Why not expectancy? New business rule – profits from the boxing match were difficult to determine

I. Difficulty in proving lost profits does not have any impact on an ability to recover reliance damages

II. Must easier to prove how much you spent in reliance on the contract

b. Damages incurred before the contract can occasionally be recoverable, if it can be shown that the costs incurred were such as would reasonably be in the contemplation of the parties as likely would be wasted if there was a breach – Angilia Television v. Reed

i. PL was making a movie and contracted with DEF to have him star in it; PL sought recovery for the costs of hiring a director and other key persons; Court said that the DEF, in entering the contract, knew that such costs had already been incurred

c. Two contrasting opinionsi. Angilia – can recover precontractual reliance as long as it is

reasonably in the contemplation of the partiesii. Dempsey – cannot recover precontractual reliance

II. Fixed Overhead a. Fixed overhead: general cost of running your business

i. Dempsey said that such costs cannot be recoverable, because they would have been incurred anyway, with or without the breach

b. But occasionally, overhead expenses can be recovered from a breach of contract if the overhead expenses are quite likely to be recovered if it were not for the breach by the DEF – Autotrol v. Continental Water Systems

i. Theory is that the overhead expenses that were incurred would be transferred to other projects, which would lower the profits received from other projects

ii. The DEF’s breached contract would have covered its overhead expenses but instead, those expenses are covered by other projects

Liquidated Damages I. Within limits, contract law allows contracting parties to agree in their contract on

their damages liability if they later breach

II. Difference Between Liquidated Damages and Limitation of Damages Clauses a. Liquidated damages: specifies what specifically is recoverable in the event

of a breachb. Limitation of damages: specifies the maximum amount of what is

recoverable in the event of a breach

III. Most courts apply two different tests to determine if the liquidated damages clause is enforceable – UCC §2-718(1)

a. Agreed damages must be a “reasonable forecast of just compensation for the harm that is caused by the breach” – HJ McGrath v. Wisner

b. The harm that is caused by the breach is one that is incapable or very difficult of accurate estimation – HJ McGrath

IV. Some courts enforce liquidated damages clauses even though the other party’s breach caused no actual damages

a. Theory is that each party entered into the contract with full knowledge of the contractual provision for liquidated damages and is bound by such provisions

V. In HJ McGratha. Liquidated damages clause was not proportionate to the damage that the

breach would cause b. Clause said that DEF would pay the PL $300 as liquidated damages

VI. In Better Foods Market v. American Dist Telegrapha. Clause said: "in case of failure to perform such services and a resulting

loss its liability hereunder shall be limited to and fixed at the sum of fifty dollars as liquidated damages, and not as a penalty, and this liability shall be exclusive."

b. Because the loss was hard to measure (PL owned a store, and the DEF provided security for it; the loss as a result of DEF’s actions would be very hard to determine) and the parties attempted to estimate the damages that would arise from the breach, then the clause is enforceable

Promissory Estoppel I. Some courts have granted reliance damages while others have granted a form of

lost expectancya. The remedy granted for a breach of a promise which the promisor should

reasonably induce action, is limited as justice requires – Restatement § 90

II. Reliance Damages a. Court awarded reliance damages to the PL who incurred expenses in

preparing for the franchise of Emerson Radios – Goodman v. Dickeri. Court refused to grant lost profits, stating that “the true measure of

damages is the loss sustained by expenditures made in reliance upon the assurance of a dealer franchise”

b. Court awarded reliance damages to the PL who had relied on the DEF’s promise and chosen not to take an earlier offer to sell his business – D&G Stout v. Bacardi

i. DEF was one of PL's remaining major suppliers of liquor. DEF knew the PL was in the process of selling, and promised that PL would continue being the main distributor for Northern Indiana. Because of this promise, PL decided to turn down the selling price it was offered. DEF then withdrew its account. Without DEF's account, PL could not operate and returned to the negotiating table, accepting an amount $550,000 less than the first offer.

ii. Court awarded the PL the difference in the previous offer and the new price at which he sold his company

III. Lost Profits (Expectancy Damages) a. Court awarded lost profits for the foregone opportunity the PL passed up

in reliance on the DEF’s promise – Walters v. Marathon Oili. PL contacted DEF about the possibility of building a combination

foodstore and service station. PL bought the land and improved

upon it, based on the promises made and continuing negotiations. In the process of negotiating, DEF refused to sign the agreement. PL brought action for the lost profits he suffered as a result of DEF's actions.

ii. Court found that reliance damages would have resulted in zero damages

iii. Instead, the Court awarded lost profits as it concluded that the PL’s could have taken their money and invested it elsewhere to receive a profit – concluded that they could have received oil from another company – discussed evidence of the number of gallons of gas previous owners of the station had pumped, and the amount of profit the Walters would have made on each gallon they sold

I. Problem with this approach is that they are assuming that the PL’s would have made a profit elsewhere

II. Also, PL did not prove that he had foregone other opportunities

IV. Employment Contract (Terminable at-will) a. Courts have limited promissory estoppel recovery for terminable at-will

contracts to reliance damagesi. Cannot recover for breach of contract because the agreement is

terminable at-willb. Such reliance damages are limited to the lost salary from the job she quits

in order to take the new job, and lost salary from other job offers that she declined in order to work for the DEF employer – Grouse v. Group Health Plan

i. There, the PL had received a promise of employment with a hospital and accepted the promise; he quit his old job and refuse another employment offer from another hospital; DEF then repudiated the employment offer, and the PL brought suit for reliance damages

ii. Court granted damages equaling the loss wages in the form of the job he quit as well as wages lost from declining another offer of employment

I. Messed up in this sense, because he should not be able to recover BOTH wages from his old job and wages from the job he never took

II. Should more likely be able to recover wages from his old job because those are easier to measure

I. New job, has not worked there yet, do not know anything about the new job

Unjust EnrichmentI. When the remedy is the money equivalent of the benefit conferred, there are two

ways of measuring it – Restatement § 371

a. Reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant’s position

b. Extent to which the other party’s property has been increased in value or his other interests advanced

II. Unenforceable Contract a. Available to recover the value of a benefit conferred on another, where a

contract is unenforceable due to various factors such as Statute of Frauds, lack of mutual assent, lack of consideration, promissory estoppel unavailable, etc.

III. Breach of Contract a. In order to bring a cause of action based on restitution damages for breach

of contract, the injured party must show that the defendant’s non-performance is so material as to go to the “essence” of the contract – Osteen v. Johnson

b. Measurementi. Some courts have said where the contract has been breached, the

entire contract falls out of view, and the amount of restitution damages that can be awarded can exceed the contract price – United States v. Zara (Zara Doctrine)

ii. Other courts have said that using the contract price as a ceiling for the amount of damages awarded is the correct choice – Johnson v. Bovee

iii. Others have built in an exception to recovery without regard to the contract price – Oliver v. Campbell

I. If someone has already fully performed his part of the contract, and the only part left of the agreed exchange for such performance is the DEF rendering a sum of money constituting a liquidated debt, then the contract price provides a limit on how much restitution damages can be awarded

c. Losing Contracti. Where the DEF breaches, and the PL has in good faith expended

money in the course of work done has exceeded the contract price the PL still recover the costs of labor and materials used in the course of work done even if he would not have recovered all those costs if the contract had been completed – Philadelphia v. Tripple

I. Because the DEF gave up his contract rights by repudiating the contract, DEF also gave up his right to enforce the contract even if the builder suffers

II. Does not matter if lost expectancy would be less than restitution damages

ii. In a losing contract, where lost expectancy and reliance damages cannot be recovered, restitution damages can still be recovered – Basuch & Lomb v. Bressler

Specific PerformanceI. Specific performance: not monetary relief, but trying to get somebody to do

something

II. Situations where specific performance is granted a. A vendee of land is entitled to specific performance automatically –

Kitchen v. Herringi. Always give specific performance for refusal to convey land

ii. Land is assumed to have a peculiar value, which is not measurable by the market price

b. Specific performance may be decreed where the goods are unique or in other proper circumstances – UCC § 2-716

i. Cutice v. Catts – PL sought specific performance for delivery of tomatoes because the season for packing tomatoes lasted only 6 weeks and he needs the tomatoes right now

I. Court assumed that the PL was unable to receive the tomatoes elsewhere

II. Wants to also give specific performance to prevent the loss of reputation the PL would incur, because people could not depend on PL as a reliable supplier anymore

III. Also, without specific performance, the other people that the PL has contracted with might repudiate their contracts as well – it would be a bad example the court is setting if it does not grant specific performance

c. Where substitute goods are available but the buyer is unable to cover her losses because the seller’s breach caused the buyer financial difficulties, the court will grant specific performance – Stephan’s Machine & Tool v. D&H Machinery

d. Where a seller breaches a long-term supply contract and the buyer is unable to procure a contract of similar length, then the court may also grant specific performance – Laclede Gas Co v. Amoco

e. Court will not grant specific performance for personal services; will not grant specific performance for an opera singer that has contracted to sing

III. Efficient Breach Theory and Specific Performance a. Efficient breach theory: question asked is if the profit that would result

from a breach of an agreement outweigh the lost-expectancy damages that the breacher would be required to pay; if so, then Posner would say that in such a situation, the breach of the agreement is efficient

i. Society would be better off as a whole because of the breachii. Problem is that this theory does not take into account the time she

spent devoted to the lawsuit, and the legal costs incurred b. Granting specific performance would defeat the efficient breach theory

i. People would not breach contracts even for efficiency reasons because they would be forced to go through with the contract anyway

Agreements and Promises

Nature of AssentI. Objective test of assent

a. If a person has indicated outward acceptance of the terms of the contract, but he did not think that he had accepted the contract at the time when he expressed acceptance, then it is still acceptance of the offer – Embry v. Hargadine

i. An objective acceptance of the offer is enough to constitute acceptance; subjective acceptance is irrelevant

b. The outward expression of a person manifesting his intent is enough, rather than looking at his secret and unexpressed intention – Lucy v. Zehmer

i. Facts: Lucy and Zehmer were drinking together one day; Lucy offered Zehmer $50,000 for Zehmer’s farm, which Zehmer refused to sell to Lucy in the past; Zehmer claimed that he thought Lucy made the offer in jest; they wrote on the back of a guest check an agreement, which Zehmer and his wife signed; Zehmer claimed he was drunk

ii. Court ruled that there was actually mutuality of assenta. That the two parties negotiated for forty minutesb. That they wrote two draftsc. That they had Mrs. Zehmer sign the contractd. What the court found was that Zehmer’s actual intentions

were irrelevant, so long as Lucy reasonably believed Zehmer’s behavior

c. The belief in the outward expression of a person must be both reasonable and honest – Embry

d. Rationalei. It is important to protect the parties’ reasonable expectations in

relying on a promise, and the need for security and certainty in business transactions

ii. Must be able to rely on the manifested intentions, rather than internal, secret intentions

II. Marriage : an arrangement between husband and wife does not constitute a contract – Balfour v. Balfour

III. Even if there is an objective understanding that there is an option to withdraw from the contract, it does not mean that the obligations as stated in the contract are null – Tilbert v. Eagle Lock

a. DEF had made promises to its employees that if the employees worked more than 5 years for them, they would pay a beneficiary, upon death, up to $1000 a year

i. Included a provision that stated that the benefit plan was voluntary on the part of the DEF, and that there is no contract

b. Court concludes that such a promise, in writing, was in fact enforceable because the granting of such benefits was done to secure the employment of its employees

IV. Mutual agreement is not needed where an employer has stated a general company policy that applies to all employees equally and made that policy known to its employees – Toussaint v. Blue Cross & Blue Shield

a. Facts: when PL was hired, he was handed a company policy booklet that said that the company only fires employees for good cause; then he was fired and brought action against the employer

b. Court said that even though "the statement of policy is signed by neither party, can be unilaterally amended by the employer without notice to the employee, and contains no reference to a specific employee, his job description or compensation, and no reference was made to the policy statement in pre-employment interviews and does not learn of its existence until after the hiring," there is still a contractual right in the employee

V. Misunderstanding : when there is a misunderstanding the contracting parties, there is no mutuality of assent and no enforceable contract – Raffles v. Wichelhaus

a. Three elements needed to show that there was misunderstanding:i. Parties’ contract is ambiguous, meaning that it is susceptible to

more than one meaningii. Parties actually had in mind different interpretations of the

languageiii. Misunderstanding is material or important

b. In Raffles, the two parties had contracted for delivery from a ship named “Peerless” – there are two ships named Peerless, one which arrived after the other – nobody knew which one they contracted for

i. Court concluded that there was no mutuality of assent and enforceable contract

c. Restatement of Contracts § 20i. There is no manifestation of mutual assent to an exchange if the

parties attach materially different meanings to their manifestations and

a. neither party knows or has reason to know the meaning attached by the other; or

b. each party knows or each party has reason to know the meaning attached by the other.

ii. The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if

a. that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party or

b. that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party

d. Illustration of Restatement 20(2)(a) – Dickey v. Hurd

i. PL wrote to DEF requesting price at which DEF would sell certain land. DEF stated that he would give PL until July 18 to accept the offer. PL telegraphed acceptance on July 17. DEF claimed that his offer required that cash price be paid by July 18. PL had sent letters to DEF that indicated that he believed the offer did not require him to pay the purchase price.

ii. Court held that PL had accepted. a. DEF had received notification that the PL believed the offer

did not require paymentb. Was DEF’s duty to clear up the mistake and tell him that

the offer was for the payment of the pricec. Therefore, the meaning of the offer is what the PL attached

to it: acceptance by mere notification

The OfferI. Legal significance

a. Offer creates a power of acceptance in the person to whom the expression was addressed

b. If an expression constitutes an offer, offeree has the power to conclude a bargain by giving assent in the appropriate manner (acceptance) and enter into a contract and bind the offeror

c. Corbin believes that contract law must determine whether a reasonable person, acquainted with all the circumstances, would believe that the author of the communication alleged to be an offer intended to be bound upon assent (acceptance) by the other party

d. The offer is an expression by one part of assent to certain definite terms, provided that the other party involved in the bargaining transaction will likewise express assent to the same terms

II. Advertisements a. A reasonable person would believe the store intended to be bound upon an

acceptance if the advertisement is “clear, definite, and explicit” – Lefkowitz v. Great Minneapolis Surplus

i. Test is whether the advertisement addressed to the general public is if the facts show performance in positive terms in return for something requested

ii. Depends on the legal intention of the parties and the surrounding circumstances

b. A reasonable person would not believe that an advertisement for a car with financing details means that everybody qualifies for financing regardless of their own financial situation – Ford Motor Credit v. Russell

i. In this case, Ford advertised a new Ford Escort Pony at $8,000. Monthly payment was set forth at $159.29 per month based on a 60 month loan at 11% APR. Russells sought to purchase the car as advertised, but could not obtain the financing at 11%. Got it at 13.75%.

ii. Court says that the advertisement did not constitute an offer of sale to the general public and that most ads do not constitute an offer

a. Also, usually, performances are not promised in positive terms in ads

b. Only is an offer if, like in Lefkowitz, the ad is clear, definite, and explicit, and leaves no room for negotiation

c. In this case, it was unreasonable for appellants to believe that the advertisement was an offer binding the advertiser

d. Does not make sense that they believed everybody qualified for the same financing terms

III. Two elements needed for an offer:a. Intent to enter a bargain

i. Courts have declined to find offers based on communication that includes the language “I want” or “I am asking”; rather, courts have found them to be general advertisements; lack the degree of definiteness required to satisfy a reasonable person that the seller intended to be bound upon n acceptance – Nebraska Seed Co. v. Harsh

a. Example – Courteen Seed v. Abrahamb. DEF telegraphs to the PL that he is “asking for 23 cents per

pound. Court concludes that there is no offer because the language was too general; might be used in advertisement or circular addressed generally to anyone in the business

c. Words “offer” and “asking” have proper meanings, and cannot assume the DEF’s meant something else when they used the words they did

I. Objective manifestation of assentii. Standing alone, a price quotation is not an offer, but there may be

circumstances in which a price quotation can be considered an offer; also, the fact that the quotation was sent to more than one person does not, of itself, preclude an offer from being made – Southworth v. Oliver

a. Facts: Two parties met about the possibility of selling land to one party; after the meeting, both began preliminary preparations for selling of property; DEF sent letter that included the price, acres, exactly location of land, terms of sale (very definite, explicit, and clear; did not seem to be open for negotiation); PL accepted, but DEF said it was not an offer

b. Court concluded that it was an offer, considering the circumstances surrounding the discussion involved

c. Had met previous to discuss the selling of the property; did so numerous times

d. DEF’s letter with the quotes does not seem to be a mere quotation of prices; had been sent in response to an inquiry by the PL

e. Circumstances surrounding their relationship led the court to conclude that there was a offer to sell

b. Definiteness – will usually look to see if the offer made includes the subject matter of the proposed bargain, the price, and the quantity involved

i. Lack of these factors does not preclude recovery; Courts will generally look at the entire circumstances surrounding a purported offer to see if a reasonable person could believe that there was an actual offer – Fairmount Glass Works v. Grunden

a. Facts: PL wrote to DEF asking for the lowest price available for ten car loads of mason green jars. DEF responded by quoting prices "for immediate acceptance." PL responded by ordering green jars. DEF responded by stating that they were sold out. PL brought suit.

b. Court said that the use of the language “for immediate acceptance” and the fact that the PL did not ask for a quote, but the lowest price they could make

I. DEF’s answer to PL’s question then, even though it used the word “quote” in it, was not a quotation but a definite offer to sell on the terms indicated

II. Still an offer though the purchaser could decide, among other things, the quantity of each size jar and the precise delivery dates

ii. Still an offer though one side of the agreement has power to control the particulars of performance

a. 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 appropriate remedy – UCC 2-204(3)

b. An agreement for sale which is otherwise sufficiently definite to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one of the parties – UCC 2-311(1)

IV. Too Good to Believe a. Some offers are just to good to believe

i. Ex: Pepsi’s offer that if you collected 7 million “Pepsi stuff” points off its packaging, then you could redeem them for a Harrier fight jet; court said that this purported offer was too good and outrageous to believe

b. If the offer is too good to believe, that a reasonable man would not know that the offer was not intended to be bound upon assent (acceptance) by the other party by the original party

The AcceptanceI. “Acceptance of an offer is a manifestation of assent to the terms thereof made by

the offeree in a manner invited or required by the offer.” – Restatement § 50(1)

II. Mirror Image Rule a. An acceptance of an offer must be a mirror image of the original offer,

unless the additional terms added are independent of the acceptance; a qualified acceptance is not an acceptance at all – Ardente v. Horan

i. PL had returned an agreement that complied with the money requirement of the offer, but included a list of additional items the PL wanted included

ii. Court ruled that “the acceptance cannot impose additional conditions on the offer, nor may it add limitations”

iii. But there can be acceptance if the PL’s acceptance was independent of his desire for additional provisions

a. So if PL had said, “I accept, but I was wondering if these things could be included as well. Even if not, I still accept.”

b. The mirror image rule of acceptance also applies to the time, manner, and place of the acceptance if the offer dictates the time, manner, and place of the acceptance in an unambiguous manner – Eliason v. Henshaw

i. PL had sent the acceptance back not in a timely manner – had sent the acceptance back by mail which took longer than the DEF had originally expected, since he expected it by wagon

ii. PL had sent it to the wrong place – sent it back to Georgetown rather than Harper’s Ferry

iii. PL had sent it by the wrong manner – sent it via mail rather than wagon, which contributed to the tardiness of the acceptance

iv. UCC § 2-206(1) – Unless otherwise unambiguously indicated by the language or circumstances (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances.

c. In case of doubt, an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses – Restatement § 32

i. In Allied Steel v. Ford Motor, the DEF had indicated with a provision that acceptance “should be executed on acknowledgment copy which should be returned to buyer.”

a. Method of acceptance was interpreted by the Court as being merely a suggested form of acceptance

b. As such, performance of the terms stipulated in the offer by Allied is acceptance by Allied

c. Ford had a chance to revoke when it saw Allied perform, but chose not to revoke

d. As such, performance was acceptance when done in the presence of the offeror

d. Performance cannot be acceptance if the performance is done by one party when another is not there; it must be manifested through the appropriate means – White v. Corlies

i. Also, in White, the note in question stated “upon an agreement” which implies that what was sought by the offer was a return promise, and not performance

ii. In White, the PL, upon receiving the offer, commenced performance by purchasing the materials and beginning work on the materials

a. Was not in the presence of the DEF at the time of performance

III. Silence as Acceptance a. General rule that silence and inaction do not amount to an acceptance of

an offer – Ducommun v. Johnson b. Silence and inaction operate as an acceptance in the follow cases only –

Restatement § 69i. Where an offeree takes the benefit of the offered services with

reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation

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

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

c. Any mailing of unordered merchandise can be treated as a gift by the recipient, and may use it as he sees fit without any obligation whatsoever to the sender – 39 UCC § 3009 (1994)

i. Unordered merchandise means merchandise mailed without the prior expressed request or consent of the recipient

Bilateral and Unilateral Contracts

Duration of OffersI. When an offer terminates, the offeree can no longer accept the offer because it no

longer existsa. There are a number of different types of offer terminatorsb. One such offer terminator is when the acceptance does not satisfy the

“mirror image rule” i. When the acceptance does not correspond to the offer, then the

offer is off the tables and has been revoked – Restatement § 59 and § 39(2)

ii. “A qualified or conditional acceptance …is a counter-offer and ordinarily terminates the power of acceptance of the original offeree”

c. Offer terminators – Restatement § 36

i. Rejection or counter-offer by the offeree, orii. Lapse of time, or

iii. Revocation by the offeror, oriv. Death or incapacity of the offeror or offereev. In addition, an offeree’s power of acceptance is terminated by the

non-occurrence of any condition of acceptance under the terms of the offer

II. Rejection or Counter-Offer a. An offer is rejected when the offeror is justified in inferring from the

words or conduct of the offeree that the offeree intends not to accept the offer or to take it under further advisement – Akers v. J.B. Sedberry

i. Once the offer has been rejected, there can no acceptance ii. In Akers, two employees had offered their resignations to their

employer. Their employer said that she would “not accept them” and put them to the side. A couple of days later, the employer sent a letter that said she accepted the resignations. The court ruled that she had rejected the initial offer and could not turn around and accept it a couple of days later

iii. This rule allows the offeror to go out and look for other people who would want to accept his offer, without having to worry about an outstanding offer

b. If the offerree manifests an intention to take the offer under further advisement, then the manifestation of intention not to accept an offer can be construed to not be a rejection – Restatement § 38

i. For example, “I don’t think I can take this offer now, but I will think about it some more and get back to you”

c. For counter-offers, a reasonable person would believe that if a person responded to the initial offer with something like, “that is too high, I will take it for $350 and no more,” that the initial offer has already been rejected and thus taken off the table

i. An offeree’s power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree – Restatement § 39(2)

ii. In Collins v. Thompson, the PL had accepted the new offer without rejecting the original offer

a. Prisoners who had been made an initial offer to reduce the population of the prison on March 1st; was sent another offer with the correct timeframe of the reduction, for April 1st

b. Prisoners accepted the March 1st offer; Court found that the agreement could not be enforceable because there was no meeting of minds; prisoners then attempted to accept the April 1st offer

c. In prisoners’ acceptance of the March 1st offer, they moved for either (1) acceptance of the March 1st offer, or (2) notice to the class to reflect to change of the April 1st offer

d. Court ruled that the motion clearly indicated that the PL’s were not rejecting the entire settlement, and fully intended to accept the offer even if the date were the April 1st date

III. Lapse of time a. Offerors can prescribe the length of time their offers stay openb. When parties are engaged in a personal conversation, then offers made

during the conversation terminate at the end of it unless there is an express and unambiguous statement that the offer continues beyond the end of such a conversation – Akers v. J.B. Sedberry

i. Also, if there is a history of keeping offers open, then courts would presume that the offer does not terminate at the end

ii. Really depends on if a reasonable person would believe that an offer terminates at the end of the conversation

c. When the offer is made by the post, the offer is not made when posted but when it is received – Caldwell v. Cline

i. In the case, the DEF had made an offer that gave the PL eight days to accept or reject the offer on Jan 29

ii. PL received the offer on Feb 2 and accepted the offer on Feb 9iii. Court ruled that the time limit started when the PL received the

offer (Feb 2), and not when it was sent (Jan 29)

IV. Revocation a. Revocation occurs when a reasonable person would believe the offeror has

withdrawn the offer; occurs when the offeree receives the information that the offer is no longer open – Restatement § 42

b. For reward-offer cases, the revocation of the offer must be given the same notoriety as the original offer – Shuey v. United State

i. For example, if the original offer was made in a newspaper, then the revocation of the offer must also be in the newspaper

c. Revocation does not have to communicated to the offeree by the offeror, revocation can also occur when the offeree reasonably knows that the offeror has received an acceptance of his offer by a third-party – Dickinson v. Dodds

i. PL received information that DEF had received an acceptance by another party; immediately contacted DEF and told him that he accepted the offer; cannot do that, because a reasonable person would know after receiving that information that the offer has been revoked

d. Bar to revocation: option contractsi. Any promises to keep the offer open are usually not enforceable

because they are usually made gratuitously (know that gratuitous promises are not enforceable)

ii. But if the promise to keep the offer open is exchanged for consideration given, then an option contract has been agreed to and is an enforceable contract that is secondary to the original contract

iii. The adequacy of the consideration given is not normally inquired into by the courts; any money consideration, however small, is consideration – Marsh v. Lott, Restatement § 87(1)

a. Done because it seems that the two parties involved in the agreement has more knowledge into what is adequate consideration than a court does

b. Restatement Second also says that option contracts are enforceable if made irrevocable by statute

iv. UCC § 2-205 enforces promises to leave offers open when made by a merchant (deals in goods that are the subject matter of the contract), in writing, and signed by the offeror – firm offers

a. No consideration is needed for such a firm offerb. However, the time limit is set by either the offeror or three

months, whichever is lessc. If no time limit is set, then the offer remains open for three

monthsd. If a time limit is set for 6 months but no consideration has

been given, then the time limit is 3 monthse. Bar to revocation: unilateral contracts and beginning performance

i. By beginning performance, the new Restatement says that the offer cannot be revoked anymore; the offeree must make it known to the offeror that he is beginning performance

ii. Brackenbury v. Hodgkin: PL begins performance by starting to care for his mother but cannot finish performance (what was promised as to care for her until she died); DEF cannot revoke the offer because PL has started performing what was promised

iii. In a situation involving the paying of money, the offeror can still revoke even after the offeree has withdrawn money from the bank and is approaching your house to pay you off; performance does not begin until you hand the money over – Petterson v. Pattberg

a. However, this ruling is strange, because it would seem as if performance has begun when the person withdrew the money and came up to the door to pay the mortgage off

b. Maybe it could rest on the fact that the offeree did not properly communicate the beginning of his performance to the offeror in a noticeable manner, and the offeror was unaware of the beginning performance

f. Unilateral Contracts and Credit Cardsi. For credit cards, the issuance of a credit card is but an offer to

extend a line of open account credit; it is unilateral and supported by no consideration; offer may be withdrawn at any time for any reason – City Stores v. Henderson

ii. A separate contract is formed each time the card is used, according to the terms of the cardholder agreement at the time of such use; and that the agreements were subject to modification at will – Garber v. Harris Trust

g. Bars to revocation: offer for bilateral contracts i. Does not matter if the offer was relied on if the acceptance was not

properly conveyed – James Baird v. Gimbel Bros

V. Bargaining at a Distance a. Mailbox Rule: acceptance is when the acceptance is posted in the mail,

and not when the offeror receives it – Adams v. Lindsell b.