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1Contracts Outline Fall 2003

Coenen

Chapter 1 - Introduction

A. General Theories of Obligation and Remedies


- elements for cause of action for breach of contract
1. There has to be a promise
2. The promise has to be broken
- a breaching party can recover damages when a breach of contract occurs when there is
- substantial performance;
- acceptance; OR
- divisible contract case - you actually have part of the product in a tangible form
1. Remedies - 3 kinds
1. Restitution - any benefit given to the D by the P
2. Reliance - to put the P in the position the P was in had he never made a
contract, ie the position before the contract was entered into
3. Expectancy - puts the P in the position she would have been had the contract
been fully performed
- this is the standard measure of damages for breach of contract
2. Sullivan v O’Connor
- P patient alleges that D doctor broke his contract by messing up her nose job
- promises made by the doctor: fix the nose, only in two operations
- the P was awarded money - and the D is appealing saying that the trial judge
should have limited recovery to $622 (reliance damages)
- the P appeals and says that the wants the expectancy damages - the difference
between her new worse nose and her would-be way better nose
- the worsening of the P’s nose is recoverable under either expectancy or reliance
theory - since we have to put her in a pre-contract condition and when we have to
compensate for the diminution in value of her nose
- the court says that it doesn’t have to choose between reliance theory and
expectancy theory
- pain and suffering from the 3rd operation are recoverable under both
- Kaplan (the judge) seems to be leaning more towards reliance damages
- cause of action are suspect - doctors rarely promise specific outcomes
- expectancy is excessive - factors suggest that moderation is appropriate,
and the doctor was absolved of negligence at trial
3. White v Benkowski
- Ds agreed to supply Ps with water prior to P’s buying of house next door
- relationship deteriorated, and Ds cut of water, etc
- contract drawn up by Joe - the real estate agent
- biggest problem with the contract = ambiguity of the term “adequate water
supply”
- other problems - no renewal clause, non contingency plan to assess damages, no
limitations on water usage on either the supply or use side, quality of the water
- there is a breach of contract claim - but the issue is on the remedies
- at trial, the jury awards compensatory damages of $10 and punitive damages of
a bunch
- appeals court struck the punitive damages and reduced compensatory damages
to $1

- Wis Sup Ct reinstated the $10 award - since the jury believed that this was
predicated on actual injury
- they agree with appeals court about the punitive damages - but say that
punitive damages cannot be awarded in an breach of contract case
- reasons for this holding -
- no such cases exist, relies later on persuasive authority from other
jurisdictions, relies on Chitty, Simpson, Corbin - legal thinkers

Chapter 2 - General Theories of Obligation

A. Agreement with Consideration - the leading theory


- consideration (per Restatement) = something (a performance or return promise)
sought by the promisor
given by the promisee
in exchange for the promise
- courts are prepared to find there is consideration even if its clear that the
exchange related motives - the appearing motives - of the promisor and the
promisee are subordinate or subsidiary to other motives
1. Hardesty v Smith
- lamp invention that turned out to be crap case - the buyer is claiming that the
invention was crap, so he shouldn’t have to pay
- for a promise to be enforceable, there has to be consideration for the promise
- in this case - there is consideration - in return for the promise to pay
money, the seller transferred the rights to the invention to the buyer
- courts do not look at the adequacy of consideration
- would have to measure the relative value of things
- do not want the courts to become price judgers, etc
- so the buyer loses and has to pay for the crappy invention
2. Dougherty v Salt
- Aunt Tilly and Napoleon case
- she promises to give him money in the future if he is a good dude
- there isn’t any consideration for the promise - no exchange took place, so the
promise is unenforceable
- based on the facts, it doesn’t show that the kid ever made a promise - so there
was never anything given by the kid to the aunt in return for the promise of the
aunt to give money
- could argue that the guardian filling out the paper is consideration - but this
wasn’t don in exchange for the promise - only incidental to the promise
- a gratuitous promise is never enforced
- however, a completed gift is enforceable - since it is now in the promisee’s
possession, and the promisor clearly had an intent to give
- what if Napoleon had given Aunt Tilly a flower and a kiss after she gave him the
note - still not enforceable - since it wasn’t’ sought by the promisor
3. Fuller - Requirements for Consideration
a. functions performed by legal formalities
1. Evidentiary - provides in writing or by notary evidence of contract is
case of controversy
- need evidence that the promise was really made
2. Cautionary - to deter inconsiderate action - make sure that it’s thought
out and not spontaneous
3. Channeling - getting what you want on paper so that an outsider can
understand it
b. substantive bases of contract liability
1. Private autonomy
2. Reliance on promise (expectation promise will be fulfilled)
3. Unjust enrichment (more immediate reason for judicial intervention
than just reliance)
c. policies
1. An unenforceable promise is one that is gratuitous or not relied upon
2. Half-completed exchange is more enforceable than when nothing has
happened ie Weiner, Seavy
4. Maughs v Porter
- guy advertised in the paper that if people came to his auction, they might win a
new car - P goes to the auction, wins the car and sues the D for delivery of the car
- there is consideration for the promise
- something - the detriment of the promisee of going to the auction
5. Hamer v Sidway
- there is a promise - if the nephew is good until he turns 21, the uncle will give
him $5000 - but the gift isn’t complete
- there is consideration for the promise - the kid gave up his legal right to do the
bad things
- argument made by the uncle’s estate is that the giving up of the privileges
benefitted the nephew - the court says that this doesn’t matter
- there was consideration under the Restatement definition
6. Tramp Hypothetical
- the promisee - the tramp - does what is asked and walks to the store - down the
block - but the promisor runs up and says I revoke
- this is a conditional gift - there is no consideration here, because her walking
didn’t provide a benefit to the promisor
- if you are in this world of conditional gift, you should look at the factor or
whether the condition benefitted the promisor - because then it would be sought
by the promisor in exchange for the promise
7. Baehr v Penn-O-Tex Oil
- a promise is made - there is an assurance given that the assignee would pay the
accounts’ rent for the gas station
- court rules that there is no consideration
- D debt assumer promised to pay Kemp’s rent to P lessor
- the alleged promise is P’s promise not to sue the D - debt assumer
- this is a something - but it wasn’t sought by the promisor (since there is nothing
in the evidence to indicate that he did seek it) - although you can
argue that it is in his interest since no one wants to be sued
- another 2nd and independent reason that there was no consideration - there really
was no forbearance - since he waited until it was convenient for him to sue
- so the forbearance isn’t consideration since it wasn’t sought by the promisor OR
given by the promisee
8. Springsteed v Nees
- Sophia and George (Ds) make an alleged contract with the other siblings (Ps) to
not take the P’s interest in one property in exchange for the Ds getting all of
another property
- the consideration is forbearance (not asserting a claim) about the 2nd property
- 2 doctrine of forbearance per Corbin
1. Colorable claim doctrine - claimant who forbears must have a
reasonable claim - a colorable claim
2. Honest belief doctrine - all the forbearer needs to have is an honest
belief in the claim - even if the claim is totally invalid
- as a practical matter, the difference between these two doctrines might
not be all that great
- the court says that the claim by the Ps isn’t colorable - says that it is clearly
invalid
- there was nothing in the evidence to say that the Ps had an honest belief in their
claim - since they didn’t object to the division of the property at the outset (it was
the Ds who raised the issue)
9. Dyer v National By-Products
- employer gave employee the promise of lifetime employment
- consideration for the promise - promise not to sue for the chopped foot
- court applies the honest belief test here - and the case is remanded
- this test allows more cases to be tried and more Ps to win than the
colorable claim test - since all the P has to have is an honest belief
- they don’t apply the colorable claim test - although even the courts that allow the
honest belief test say that the absence of a colorable claim is evidence that there is
no honest belief
10. De Los Santos v Great Western Sugar Company
- transaction between the hauler and haulee (beet owner), deal is to pay money for
hauling such tonnage as may be loaded, reverse promise is to haul the beets
- here, the beet owner doesn’t employ the hauler enough, so hauler sues
- court said that the haulee wins since he didn’t make a commitment to the
agreement
- haulee had complete discretion to use the hauler some, a lot, or not at all - the
promise was illusory and there was no mutuality of obligation
11. Wood v Lucy, Lady Duff-Gordon
- D promises to give P exclusive rights to her name and revenues from use
- she decides to use her name herself and the sales rep sues her
- she argues that his promise was illusory - since there was nothing in the contract
about what he would have to do

- court says that he did make a promise - it was implied that P would use
reasonable efforts to make the money, court implies a duty
- court relied on other terms in the contract - duties to account for profits, duties to
get copyrights, trademarks, etc
12. Weiner v McGraw-Hill
- employer promises to employee: the employee will not be terminated without
just cause and promises to retain employee absent just cause for firing
- the employee didn’t make any reciprocal commitment to employer
- employee gets fired and then sues employer
- court says that employee did give consideration
- gave up his previous job and benefits acquired
- employee turned down other jobs
- employee did show up for work - for quite a while
- don’t focus on the mutuality question - look for whether there is consideration
for the promise that P seeks to enforce
13. Mattei v Hopper
- seller promises to transfer his land, buyer promises to pay $, subject to leases
satisfactory to the buyer
- seller breaches the contract - saying that there was no consideration for the
promise to sell
- says the clause about the satisfactory leases negates the consideration
since the buyer wasn’t necessarily going to buy
- court rejects this argument because the promisor’s duty to act in good faith was
consideration
- the promisee - the buyer - has made a return promise that is subject to a
condition - but the promise is still good enough to be a something - and therefore,
the argument of illusory and non-mutuality isn’t good
14. Ricketts v Scothorn
- Grandpa promised that he would give Katherine $2000 and then she wouldn’t
have to work
- is quitting her job consideration - no - it is hard to say that she does it as a form
of paying a price or making a trade for the promise
- court enforces the promise - relying on the doctrine of equitable estoppel

B. Obligation Arising from Justified Reliance - Promissory Estoppel


1. Elements
1. There has to be a promise
2. The promise does induce action or forbearance
3. Reliance has to be of definite and substantial character
4. Situation where injustice can only be avoided by enforcement of the promise
5. Promisor must reasonably expect to induce action of definite and substantial
character that does in fact occur
2. Kirksey v Kirksey
- suit brought by Antillico - who sues her dead husband’s brother - because he
promised to give her a gift of land and a house and then breached the promise
- she doesn’t win - court says that the promise was a gift
- he said that if she moved out to his land, then he would give her some of the
land and a house to live in - through a letter
- court rules that this was just a condition of the promise
- difference from the tramp hypo: the tramp had nothing to lose by walking
around the corner - could argue the decision is wrong, since she had much to lose
by relocating
- then have to figure out if the dead husband’s brother would benefit by her
moving - court says no - but there are arguments that he would
- there is a cause of action for promissory estoppel here
3. Ryerss v Trustees of Presbyterian Congregation of Bloosburg
4. Seavey v Drake
- P seeks to enforce the promise of land given to him by his father
- son had given a $200 note to his father - but this isn’t consideration, since it
happened after the promise - and not at the same time
- the son also built a building on the property - but this isn’t consideration - since
it wasn’t sought by the promisor
- court apples a specialized reliance doctrine - the part-performance doctrine
- enforces the promise because of the particular reliance on the
improvements
5. Siegel v Spear & Co
6. Wheeler v White
- person who wants the loan doesn’t do much work, because of assurances of
loan-arranger
- court says the contract isn’t detailed enough to be enforceable
- but the elements of PE are established
- there is a promise
- the promisor should have reasonably expected forbearance from the
promisee - because there was an added reassurance that the loan would
come through
- the reliance was of substantial character and the promise induced
reliance
- justice can only happen if the contract is enforced
7. Hoffman v Red Owl Stores
- Hoffman relied in various ways for the contract to go through - he bought site,
sold stores, etc.
- can’t sue for breach of contract because there were promises, but there was no K
- the facts are good for PE - but Wisconsin hasn’t adopted the law yet
- argument that there isn’t PE - it was stupid to engage in reliance on indefinite
promises
- this contract is enforceable - because it is necessary to prevent injustice
8. Aretha Franklin case
- broadway show promoter spends lots of time and money to try and get Aretha to
come - negotiations are all but final - she gets scared of flying and doesn’t fulfill
- promoter wins based on PE - since he worsened his situation on reliance of her
fulfilling her end of bargain despite indefiniteness of the K
9. Local 1330, United Steel Workers v US Steel Corp
- company spokesperson tells employees that whether or not the plant becomes
profitable will be a huge factor whether it will close or not
- the plant isn’t profitable and the plant closes - the employees sue
- cause of action for promissory estoppel fails because
- the conditions of the promise weren’t fulfilled
- key step in the courts reasoning: the company didn’t breach the promise,
because the condition under which it was bound to keep the plants
operating never occurred

C. Obligation Arising from Unjust Enrichment


1. implied-in-fact contract
- has elements of binding agreement
- courts can infer a contractual relationship based on circumstances and
surrounding contexts, even if there isn’t an expressed or written promissory
exchange
- to establish an implied-in-fact contract to pay for services
1. Services carried out so recipient should understand that a) performed for
recipients and b) services were gratuitous
2. 2 limitations on ability to recover under UE theory (per Dobbs)
1. Volunteer - gave it as a gift
2. Intermeddler - didn’t give the opportunity to prevent the gift
- in a situation where there is no opportunity to reject the benefit, UE can’t occur
in the absence of some special policy
3. Bloomgarden v Coyer
- introduction by Bloom, the deal-arranger, or Coyer to Carley - which whom
Bloom has a pre-existing business relationship
- Bloom never mentioned his expectation of a finder’s fee - and the Ds thought
that he was going to benefit by increasing business or something
- cause of action for unjust enrichment isn’t good - since he never told the people
that he wanted a finder’s fee - and even when he did insinuate it, it was after he
introduced the people (essentially never giving them a chance to turn it down)
- here, the Ds weren’t unjustly enriched - since they didn’t have a warning that
they were going to have to pay - and thus couldn’t prevent the action
4. Dog house painter hypo
- a painter mistakenly paints wrong house, while the owner watches, but doesn’t
stop him - can the painter recover under UE? Yes - the owner was unjustly
enriched - since he had the opportunity to stop him and didn’t
5. Brown v Brown
- courts will presume that services rendered from one sibling to another are
gratuitous
6. Sparks v Gustafson
- G sues the Sparks estate to recover money for G’s services rendered
- G manages Sparks’ building for many years and then sues for money after
Sparks dies
- using Brown, could argue that there was a relationship established between G
and Sparks that G was willing to manage the property for free
- and he doesn’t sue for the services until after Sparks is dead - indicating that he
didn’t intend to get money from Sparks
- but G gets money here because his actions as manager can’t be considered
gratuitous - they went above and beyond what a friend would do
7. Gay v Mooney
- the P - nephew-in-law and his wife - house the wife’s uncle for many years prior
to his death - and they did this in exchange for him giving a house for the
nephew’s kids
- the breach of contract cause of action doesn’t work because this type of
transaction needs to be in writing
- the terms of the unrecoverable contract are determinants with respect to the UE
cause of action
- P wasn’t a volunteer - since the lodging wasn’t a gift
- P wasn’t an intermeddler - since D promised the house and there was a
deal
- there was UE because his living there was based on a condition
8. Kerns v Andree
- P and D have an oral contract that D will buy a house if P makes certain changes
to the house
- P makes the changes, then D decides not to buy
- P finds another buyer, but has to make other changes
- court says that P can recover money spent by fulfilling D’s demands - since it is
what D wanted, if D had continued with the contract, he would have benefitted
- the money spent making changes to suit the new buyer aren’t recoverable - since
theses didn’t benefit the D
9. Posner v Seder
- cause of action - quantum meruit - reasonable value - of services
- P sues employer for overtime worked - his contract said that he would be paid
$17/week for an entire year - regardless of hours worked - the D fired the P, so D
broke the contract
- court says that the P is allowed to recover the reasonable value of all services
rendered to the employer - issue is how to determine that given the contract
- P claims that he should get money for overtime worked thus far
- D claims that P should get nothing - since the contract said no matter how many
hours he worked, he was going to get $17
- neither theory is right per the court - P should be able to recover for all services
minus the money received
- sent for retrial - to determine hours worked
10. Kelley v Hance
- contract is that the P will build a sidewalk and curb for D, P breaches the
contract after completing some of the work
- P sues for recovery for services performed - but loses - since there wasn’t a
substantial amount of the work done
11. Britton v Turner
- P and D had a contract for employment and P breaks it early
- P can’t recover on breach of contract theory
- but can P recover on UE theory? Yes
- an employer contracts to receive services, so this is different from Kelley -
where the D contracted to receive a whole sidewalk - a finished product
- concern about treating employees unjustly or unequally - a person who breaches
after a term of employment gets treated worse than someone who breaches after
just one day
12. DeLeon v Aldrete
- P defaulted after paying some money towards a tract of land, and wants to get
his money back - D sold the land to another person for a $200 loss
- here - the non-breaching party got expectancy damages - the $200 that they took
as a loss
- but the court permits the P to recover the $800 that the Ds were unjustly
enriched by the payments of the P
12. Watts v Watts
- case is a review - to remind that where one renders services, can assert an
express claim, an implied-in-fact claim, or an UE claim
- court finds here that a co-habitating non-spouse can pursue any suit
13. Variant Terminology
a. Unjust Enrichment
b. Restitution
c. Quasi-Contract
d. Quantum Meruit
e. Common Counts

D. Obligation Arising from Promises for Benefit Received


1. Mills v Wyman
- the promisee cares for the son of the promisor, who is an adult, until the son dies
- this occurs for 15 days an involves much effort
- father promises to pay for the services that have been rendered, and expenses
that promisee had to incur
- there isn’t consideration - since the services weren’t sought by the promisor in
exchange for the promise - and since the services pre-date the promise
- there is a moral part to this contract - but because there was no pre-existing
consideration then it is no enforceable
2. Webb v McGowin
- P prevented the block of wood from falling on the D at the expense of injuries to
himself
- the D paid him for his services until the D died
- now the P is suing D’s estate to continue the payments
- the court does enforce a promise to pay based on a moral obligation
- this promise was obviously made cautiously - since there was 30 days between
the act and the promise and the D had paid Webb for so long before his death
3. Boothe v Fitzpatrick
- promise to pay for past keeping of bull
- the care of the bull wasn’t requested by the promisor in exchange for the
promise
- no classical consideration - because there wasn’t a trade - it’s a past
consideration case
- held to be enforceable because of material benefit
- point of this is that subsequent promise is equivalent to the acceptance of the
benefit
4. Harrington v Taylor
- P prevents the D’s wife from chopping D’s head off with an ax
- D then promises to give P payment for saving his life - P sues to get the damages
- this action for promise for past benefit received isn’t sustained
5. Edson v Poppe
- two different Poppes - the father and the son
- the land-owner William rents the land to tenant George - and George has a
driller come on and drill a well
- the land-owner promises to pay for the drilling, then refuses to pay
- 2 defenses in this case: never made the promise, no consideration
- cause of action here is for breach of promise - factors:
- was the benefit definite and substantial? Yes
- was the promise formally made? No
- part performance? No
- reliance on the promise made by the land-owner? No
- promise is specific amount? No
- court says that because this is so close to an UE situation, the additional promise
pushes us over the edge
6. Concept of moral obligation

E. Obligation Arising from Tort


1. Ways tort and contract law fit together
- there is a tort cause of action - intentional interference with contractual relation
- tort cause of action for promissory fraud
2. Mauldin v Sheffer
- concerns whether the non-performance or misperformance of a contractual
obligation is non only a breach of contract, but also a tort matter
- oral agreement for D engineer to give designs to P architect to use in his bid for
a building contract - D’s designs were wrong, so P lost the contract and other
contracts - P sues for expectancy damages and punitive damages (to deter future
bad acts)
- principle - there has to be a breach of legal duty to be sued for tort action
- decide whether there is a legal duty by statute or common law
- in this case, there is a legal duty, because the D was a professional and this
implies a legal duty
3. Distinction between non-feasance and misfeasance
- non-feasance - not performing under the contract at all = no tort action
- misfeasance - performing your duties, but doing so only partially or doing so
incorrectly = yes tort action
4. Foley v Interactive Data Corp
- P claims D fired him unfairly - not in good faith - because he was a
whistleblower
- court dismisses the case
- you can’t sue for a tortious, bad faith breach of contract
- this is distinguishable from bad faith breaches by insurance companies
- insurance companies supply a service that is a public interest
- unless punitive damages are available against insurance companies, there
may not be an incentive to pay - since compensatory damages are only the
amount of the claim originally
5. Hargrave v Oki Nursery
- D sells diseased vines to P
- alleged fraud in this case is that the D knowingly promised healthy vines, but
sent diseased vines
- seller’s argument - action should only be for breach of contract - since it said in
the contract the rights and responsibilities of the seller
- counter - you can have both an action for breach of contract and one for a
tort claim
- elements of fraud:
- representation of a material existing fact, falisity, scienter, deception, and
injury
6. Products liability
- occur mostly when people are in sales transactions
- the Restatement, and most jurisdictions, recognize this tort cause of action for
the delivery of defective products
- 3 things:
1. No privity of contract is required - can sue for product liability even
though you are not in a contract at all
2. You can’t contract around this tort based cause of action - comment m
2-316
3. You’ll discuss it in torts

F. Obligation Arising Solely from Form


- seals and crap don’t really mean much today

G. Obligation Arising from a Statutory Warranty


1. Keith v Buchanan
- P is dissatisfied because he bought a boat that he doesn’t like - says it’s not
seaworthy - so he sues the seller
- claims that P asserts -
- breach of express warranty - something stated or written
- breach of implied warranty - implied through the actions and interactions
between seller and buyer
- could assert
- breach of contract - but have to look at terms of the contract
- UE - probably not
- breach of implied warranty of fitness for a particular purpose
- there’s not a claim under the Song-Beverly Consumer Warranty Act
- there was no written undertaking to preserve or maintain the utility or
performance of a consumer good or to provide compensation
- what express warranty was breached according to the P?
- the representations about the seaworthiness of the boat
- hypo - the salesman says it’s a super duper boat - probably not a good claim,
since it would be characterized more as an opinion rather than statement of fact
- why does the court say that there is not an opinion in this case, but a description
of the boat and an affirmation of fact?
- opinion indicated by:
- lack of specificity in statement
- a statement that is made in an equivocal manner
- or a statement which reveals the goods are experimental in nature
- statements made in negotiation are presumptively an affirmation of fact
- statements made in advertising brochure can create express warranties
- another aspect - the statement of fact has to be part of the bargain
- this doesn’t mean that the statement has to be relied upon by the buyer
- it is enough that the statement is a factor or consideration in the basis for
the bargain
- hypo - brochure said the cabin of the boat is orange - but the cabin turns out to
be blue - can he sue for breach of express contract?
- yes - it wasn’t in accordance with the contract
- no - he walked on the boat and saw the cabin and bought it anyway
- in this case, why does the court throw out the breach of implied warranty of
fitness for a particular purpose?
- P didn’t rely on the seller - but on his own knowledge and the experts
2. Webster v Blue Ship Tea Room
- fish chowder with a fish bone in it is still merchantable - since the goods were fit
for the ordinary purpose for which the goods were used - and everyone knows that
there are fish bones in fish chowder
3. Used car hypo
- Coenen goes to dealership and says he wants a good used car and the
salesperson drives one out - Coenen then test drives the car
- he drives it home and it falls apart - causes of action?
- implied warranty of fitness for a particular purpose? No
- he didn’t rely on the seller’s skill or judgement - since he took it for a test
drive
- breach of express warranty? No
- there was no specific language stating that the car worked
- other side - the seller said that it was a good car
- have to figure out whether this was an affirmation of fact with respect to
the car or just an opinion or commendation?
- tend towards opinion - because the statement lacks specificity
- was the statement part of the basis for the bargain?
- should know that good car is a statement of opinion - plus, he
shouldn’t rely on it anyway - since he’s a used car salesman
- breach of implied warranty for merchantability?
- can’t argue that the buyer hd a particular purpose, but can argue that the
car wasn’t fit for ordinary purposes
- there is a good cause of action for this breach
H. Statute of Frauds
- this is a pervasive and important defense
- in certain settings, according to the SoF, the situation will require that the promise be
put in writing
- 4 questions to ask in any SoF case
1. Does the SoF apply in this case?
2. If the case is within the statute, does a memo, note, or other writing satisfy the
statute?
3. If the case is within the statute and there is no note in writing, does the statute
of the case law recognize an exception?
4. If the case is within the statute, there is no complying writing, and there is no
applicable exception, does any other doctrine mitigate what would other be the
effect of non-compliance?
1. Howard Schoor Associates v Holmdel Heights Construction Co
- D - lawyer for company - made promise to pay Ps for money company owed
- attorney says that he’s not liable - since the promise violates the statute of frauds
- main purpose doctrine
- when you make a promise to pay for the debts of a 3rd party = surety
agreement
- when someone makes a surety agreement for their own interest, the SoF
doesn’t apply
- here, the D was a creditor - by giving the money
- and D was the attorney for the company and the major stock holder - so he had
an interest in the company succeeding - so the SoF doesn’t apply to his agreement
and he is liable
2. Jonesboro Investment Corp v Cherry
3. McIntosh v Murphy
- alleged contract here - the employee P would work for the D employer for one
year - so P moved to Hawaii to start the new job and D fired him after 2 ½ months
- D claims that the contract isn’t valid under the SoF
- whether it’s acceptable under the SoF is determined by when the contract date
started - whether it started on the Saturday that the P called to accept the offer or
on the Monday that he actually started work
- trial judge gets around this problem by saying that he isn’t going to count the
weekend - although this is shaky reasoning since the statute doesn’t say anything
about counting weekends and you would count weekends in the normal
employment contract
- trial judge is probably looking for an excuse to take away the SoF defense -
because the employee relied on the promise
- this goes towards question #4 - there is the doctrine of equitable estoppel and
reliance that would mitigate in this case - and he can succeed on this
- dissent: the jury should be able to decide when the contract started
- it appears that the P in this case receives expectancy damages
- factors to look at to see if there should be an exception:
- evidence that corroborates the making of a promise
- P performed the contract for 2 ½ months
- although you can say that this just proves that he was employed,
not that he had a contract
- making and terms are otherwise established by clear and
convincing evidence - evidence here doesn’t show that the contract
was for one year
- P moved to Hawaii - shows he did rely on some terms
- was there definite and substantial reliance
- depends on your view of how aggressive courts should be in
applying the statute of frauds
- he did move to Hawaii - but, it’s Hawaii, how bad is that?
4. Hypo - person in Hawaii promises to sell an elephant to a person in CA for when he
moves to HI to open up a petting zoo - then the seller says no
- seller asserts statute of fraud defense - since the sale was for more than $500
- exceptions that might apply in this case
- 3a - problem that the buyer has in invoking this - the elephant isn’t
manufactured
- 3b - doesn’t apply
- 3c - we would need to know more - but presumably the answer is no
- can you assert this PE exception under 2-201 of SoF?
- yes - cite McIntosh v Murphy
- no - argue 1-103 - principle of law or equity - here estoppel - is a purpose
of the UCC
- yes - the UCC doesn’t always use the principles - if they are displaced by
a particular provision of the UCC
- and if they wanted to write in an exception they would have
- courts are divided on this - some say that it should be inferred and others
say that it was purposely excluded

Chapter 3 - Remedies

A. Expectancy Damages for Breach of an Agreement with Consideration


1. Groves v John Wunder Co
- both sides are looking for expectancy damages here, but measuring them in
different ways
- P and D make a contract that D will use P’s land and then grade it - but D
doesn’t grade the land
- owner lessor seeks - the value of the completed performance of the grading
- lessee says that he should have to pay the value of the land as completed - minus
the value that it is now
- majority thinks that the cost of completion is the proper measure
- the owner is entitled to what he has lost - the lost work - but has he really
lost anything?
- dissent thinks that the value of the completed land minus the present value
should be the measure
- what the owner has lost is the value of the improvement
- hypo - Coenen wants a statute of Fuller on his roof and the contractor leaves
mid-way through and says that he is doing Coenen a favor, since the statute would
decrease the value of the land
- Coenen recovers the cost of completion - since he can do whatever he
wants with his own property
- here, the owner didn’t specifically contract to have his land graded - this is the
problem and where the majority and dissent split
- best case for the P-owner-lessor? Manure case - where the manure-spreader
claimed that if he did his job, the land would be less valuable - and the farm
owner got the cost of completion
- best case for the D? Dry oil well case - difference in value of the land is the
proper measure
- how would this case come out under different theoretical frameworks?
1. Economist
- the dissent is correct - since the grading would cost $60,000 and
you would only get a $12,000 benefit
2. Making of contracts should be facilitated and formed
- majority provides incentives for lessors
- dissent provides incentives for lessees
3. Pastor - do the right thing
- majority wins - keeping your promise is the important rule
4. Concerned about unjust enrichment
- dissent rules - because the cost to grade is far greater than the
value
2. Peevyhouse v Garland Coal and Mining Co
- P and D have contract allowing D to strip mine and then do restorative work
- if the damages for completion are grossly disproportionate to the increase in
value to the land, then they should not be awarded
- court awarded the $300 increase in value to the land, not the $25,000 cost of
completion

- there is a statute in this case that says this - and the court relies on this
3. Rock Island Improvement Co v Helmerich & Payne
- another mining case - where D didn’t reclaim the land
- court concludes that the correct measure of damages is the cost of completion
- because statutes have been enacted
- the statute (and this case) overturn Peevyhouse - but only because the statutes
have been enacted
- the statute doesn’t specifically talk about cost of completion damages for breach
of contract - but the court says that the statute changes everything - because it
articulates an underlying policy of the state that didn’t exist when Peevyhouse
was decided
- criticism - interpretation of the statute didn’t give the parties notice - since
Peevyhouse was still on the books up until this case
- in Groves, Peecyhouse, and Rock Island -
- in each of these cases, the court assumes that remedy should be money
- could order specific performance - this would be good since the injured party
will get what they contracted for - and this would prevent P from using the money
for something other than completion
- could order restitution damages - but this might not come close to putting the
person in the position that they would have been in without the contract
- what would be wrong with juries deciding these cases?
- inconsistency in the application of the law involving disputes
- can discourage people from entering into contracts in the first place
- juries don’t understand technical issues
3. Radford v De Froberville
- before giving cost of completion - see if the owner is really going to complete
4. Freund case
- author wants the cost of manufacturing the books that didn’t get made since the
D broke the contract
- court rules that he can only get royalties - and since these weren’t adequately
specified, he doesn’t get these
5. Thorne v White
- involved a breach of a building contract - by the builder
- the owner then contracts with someone else to build the roof - and then sues for
the difference in costs
- court finds that there is a difference between the work asked of the breaching
builder and the work from the new builder - the new builder did more things
- if we award the difference - we are going to put the owner in a better position
than if the contract had been fully performed
- if the work was the same in both contracts - than he would get the difference in
costs
6. Warner v McLay
- the owner of the property breaches the building contract
- the builder has a right to recover lost profits - from not being able to complete
the contract
- why didn’t the builder win? The two parties don’t have the real figures
- the builder isn’t seeking the actual profit, but a reasonable profit - and this would
not necessarily put the builder in the position that he would have been in if the
contract had been fully performed
- you have to take into account the net profit, the total amount of expenditures
thus far, and the gain that the builder has retained
- ways to measure damages:
- full contract price minus the amount saved by the builder cause by the
breach
- to recoup costs incurred plus the net profit the builder would have
realized had the builder been able to finish the project and get the full
contract price
- full contract price = D
- costs avoided = C
- costs incurred = A
- net profit = B
- so A+B+C=D
- then subtract C from both sides of the equation
- A+B=D-C
- so you can measure the builder’s damages in both ways and they make
sense
7. Handicapped Children’s Ed Bd of Sheboygan County v Lukaszewski
- Luk took a job with the school, but then breaches when she finds job with more
money - the school then has to hire someone - who is more experienced and costs
more
- the school is suing saying that Luk should pay them the difference between her
salary and the new person’s salary
- she says that the new person is better than she was, so the replacement isn’t the
same as the original - but this doesn’t matter, since this new person was the
school’s only option
- this is a case of efficient breach - the extra money that she would make at her
new job would be more than the damages that she would have to pay the school -
so she would come out with more money anyway
8. Concept of Efficient Breach
- should people be encouraged to efficiently breach a contract?
- economist? Yes
- pastor? No - contracts should be honored
- idea behind it is that it increases overall societal welfare
9. Cooper v Clute
- seller contracts to deliver cotton to buyer, seller sells cotton to someone else for
more money
- buyer sues for the difference in price - but gets nothing
- buyer gets nothing - because the market value for the cotton is the original price
that contract was for - so to replace the cotton would have cost the buyer nothing
- the important date is the date that the buyer learned of the breach (per UCC)
10. Neri v Retail Marine Corp
- case where there is a breach by the buyer of a contract to buy a boat and there
has been a purchase price of $12,500
- there is a deposit of $4250 paid to seller, seller orders the boat for a wholesale
price of $10,000, the buyer then breaches
- the seller sells the boat to a 3rd party for the original purchase price - but incurs
$674 in incidental costs and $1250 in attorney’s fees - suit by buyer and
counterclaim by seller
- trial court says that seller only gets to keep $500 in statutory damages - so the
buyer gets back $3750 - per sec 2-718(b) of the UCC
- but the trial judge doesn’t read until the end of the statute - where it says that the
buyer’s right to restitution can be offset by other things
- so the seller should recover his lost profit
- difference between 2-706 and 2-708
- what the trial judge should have done was take the deposit and subtract that from
the lost profit - and then take off the $674 in incidental expenses
- argument that the buyer shouldn’t get back the deposit - it was liquidated
damages - and rules in 2-718(1) prohibit recovering these
- rules in 2-718(2)(b) - situation where there is a deposit - and should get
back either $500 or 20% of deposit, whichever is less - in this case, $500
11. UCC provisions
- 2-708
- sub¶ 1 - focus on can the seller get difference in value damages under
this sub¶ - if the seller resells the goods and makes a good deal - better
than the market price?
- sub¶ 2 - deals with the lost volume seller situation and the situation of
the special manufacturing seller - who doesn’t complete the work
- 2-718
- sub¶ 1 - liquidated damages
- sub¶ 2 and 3 - specialized situation where the buyer makes a deposit and
then the buyer refuses to take delivery and tries to get the deposit back

B. Availability of Lost Expectancy Damages


- the most important provision of the UCC is 1-103(b) - that says that the principles of
law and equity are sucked into the UCC
1. Hadley v Baxendale
- there is a broken crank-shaft and the D is contracted to take it to the repair shop,
but D negligently doesn’t take it on time
- 2 types of damages
- general - arise generally from the contract
- special - or consequential - arise from specific circumstances
- P sues D to recover lost profits - special damages
- judge says that special damages are only recoverable when both parties
understood they would be recovered - reasonably contemplated
- judge says that the result would have been different if the facts were different -
ie if the shippers knew that the mill was stopped until they got the crank-shaft
back
2. Armstrong v Bangor Mill Supply Corp
3. Clark v Marsiglia
- after the owner of the painting tells the repairer to stop, the repairer keeps
working - and then the repairer sues for the full contract price
- court says the owner doesn’t owe the repairer anything - since he said stop
- fairness - it’s not fair to pile damages needlessly
- efficiency - it’s inefficient to do work that no one wants anymore - it’s
not socially valuable
4. Shiavi Mobile Homes v Gironda
- seller could have sold trailer to breaching party’s father, but didn’t
- was the father’s offer valid? Court says that it doesn’t matter - even if it wasn’t
an offer, a reasonable person would still have pursued the utterance of the father
to see if the father would make a deal
5. Duty to Mitigate Damages
- try to make the damages as small as possible - ie sell or replace when you have
the chance
- the decision to mitigate or not is quite consequential
6. Lost Volume Seller Principle
- in the Mobile Homes case, the seller resells the mobile home and then seeks
damages under 2-706 for the difference between the contract price and the resell
price
- this may have been a lost volume seller situation - so should he have
sought damages under a different provision of the UCC?
- Olds case - p 264 - about a lost volume seller of services
- do profits on job b mitigate damages on job a - which was wrongfully
breached?
- this will be determined when you figure out whether he was a lost
volume seller
7. Parker v Twentieth-Century Fox Film Corp
- Shirley McLaine case - she was contracted to perform in one move, D breached
the contract and offered her a part in the other movie
- she doesn’t take the other part and sues for her salary - the D says that she didn’t
mitigate her damages (by taking the other part)
- trial judge awards summary judgement to the P - Shirley gets her money
- dissent: should have gone to the jury - since the judge was really determining
some issues
- is determining whether the employment was inferior or different an issue of fact
or an issue of law?
- issue of fact - the problem is a question of reasonableness - which should
go to the jury
- issue of law - majority says that as an issue of law, the two jobs were
very different
- how do we answer the question about whether the job was different or inferior?
- go to the jury - but we can’t do this every time
- expert testimony - ie how common are approval rights in the movie
industry? - still have the problem about deciding inferiority
- is there an affidavit from the P herself - talking about whether she would
like one job over the other
- have to decide what it means to be inferior or different
- policies underlying the limitation on an employee’s duty to mitigate - such that
an employee doesn’t have to take work if the court deems it to be different or
inferior
- it’s not fair to make the employee take a job for which he isn’t trained or
experienced
- how do we determine what is fair?
- honoring the expectation of the employee
- shouldn’t make the employee do what is unfair or unreasonable
- more specific - shouldn’t make the employee suffer mental or
psychological distress
- concerns of being humane and forcing an employee into a lesser
economic or social status
- per Hillman - p 263 - it wouldn’t be fair to expect the employee to mitigate
damages from the contract-breacher
9. Evergreen Amusement Corp v Milstead
- delay in building, owner sues for lost profits
- court rejects introduction of evidence of profits that the same theater made when
it really opened - since you need specific numbers, not general ideas
- maybe compare it to the first 2 months that it did actually open - and then
compare this with the 2 months of the next year that were the same two months
they are trying to recover for
8. Lakota Girl Scout Council v Havey Fund-Raising Management
- trying to reduce damages recoverable because of speculative nature of lost
profits
- jury awards way less than the P is asking - but the stupid D still appeals
- why is this evidence of lost profits worse than that in evergreen?
- appears to be pie in the sky; the amount raised was way far short
- their damage computation was done based on their own company - not a
projection, but exactly what really did happen
- why is this evident of lost profits better than that in evergreen?
- former campaign director testifies that the goal was reasonable; Heavey
himself also testified that goal was reasonable
9. Chrum v Charles Heating and Cooling
- D installed furnace for P, furnace caught fire and burnt all of P’s stuff
- mental distress damages aren’t recoverable for breach of contract - except where
the contract is intensely personal (ie surgery)
- in Michigan, in order to recover for a tort, you have to show an objective and
substantial physical injury - although not physical impact
- why? To have some objective proof of the harm
- there probably isn’t a tort case here - since they just had emotional distress
- but if there were stressed so bad that their hair fell out, this might be a
tort claim
- compare White v Benkowski - where there was just a little impact - and here the
loss was great, so they should recover
10. Punitive Damages in Contract Cases
11. Qualifications and Limits on Lost Expectancy Recovery
- denial of atty’s fees
- Am rule - subject to 2 exceptions
1. Where the parties contract around the rule - this frequently
happens - esp in contracts for collection of debts - enforceable to
the extent that the fee is reasonable
2. It’s a common law rule - and can be trumped by statute
- ie Truth in Lending Act, Magnuson-Moss Warranty Act
(you can’t disclaim an implied warranty when the seller
makes an express warranty 108-A)
- recovery of pre-judgement interest on non-liquidated amounts of expectancy
damages

- the law on this subject varies from jurisdiction to jurisdiction


- forseeability limit
- speculation
- mental distress

C. Reimbursement of Reliance Costs as an Alternative Remedy Where There is a Breach of an


Agreement with Consideration
1. Nurse v Barns
2. Chicago Coliseum Club v Dempsey
- cause of action for breach of contract - there is clearly a contract and a breach
- issue is damages - question is what can P recover?
- how do we decide this?
- look at expectancy damages - not permitted - too remote and
unpredictable
- they can recover damages incurred after signing the agreement and
before the breach
- where expectancy damages are too indefinite, P can recover
reliance damages
- can P recover the money paid to the other fighter? No
- P never even paid the money - so there was no loss - so no recovery
- this money was contracted before and apart from the contract with D
- another category of damages - expenses incurred in attempting to restrain the D
from engaging in other contests and to force him into compliance ie injunction
- not recoverable - court says that after the breach, anything that you do
isn’t recoverable - even though the money wouldn’t have been spent if the
contract hadn’t been entered into
- things that might be recoverable
- expenses of Weisberg - not likely to get recovered - because there is no
reason for P to pay for the money that Weisberg is out
- $10 to Dempsey - most sure thing - according to Fuller - reliance
damages, but also restitution damages, since it enriched D
- $300 to architect - would get on a reliance theory (wouldn’t get on
restitution - but this doesn’t matter)
- wages to asst secretaries
- salaries of regular officers - least chance of recovering - since they would
have to pay for these people anyway
- money to get Hoffman to Colorado for Dempsey physical
- money to get to LA for signing of contract
- Shank/RR arrangements
3. Autotrol Corp v Water Systems Corp

D. Validity of Clauses Providing for a Specific Monetary Remedy in the Event of Breach or
Repudiation of an Agreement with Consideration
1. HJ McGrath Co v Wisner
- concerns a liquidated damages clause
- traditional test for assessing the validity of a clause:
1. Were the damages not susceptible to accurate estimation
2. The damages must be a reasonable forecast of the non-breaching party’s
actual damages
- if the clause doesn’t meet these requirements, then it is termed a penalty
clause and is unenforceable - why?
- because we should presume there was some sort of bargaining
wrongdoing
- penalties don’t seem to unjustly enrich the non-breaching party
- there is a farmer and a cannery who make a contract that the farmer will deliver
all of the farmer’s tomatoes to the canner - if the grower breaches, he will pay
liquidated damages of $300
- grower does breach - selling to higher amounts, canner seeks $300 in damages
- CA Sup Ct says this clause is unenforceable - because the damages formula here
wasn’t a reasonable forecast of the actual damages
- court said that the damages could have been accurately computed - by
taking the cover price
- if this happened today, UCC 2-718 would govern the case - so the 2-part test
wouldn’t be applied - and the liquidated damages clause would be upheld
- since the amount was reasonable and comparable to the actual harm
2. Better Food Markets v American Dist Telegraph Co
- the burglar alarm use contracts that they will get only $50 liquidated damages if
the company breaches their contract
- court applies 2-part test - although this doesn’t make sense, since it’s the owner
of the store that is saying that the liquidated damages clause isn’t enough to cover
the losses
- in looking at this through the UCC - look to see whether the clause is
unconscionable
- if we characterize the clause as a limitation on damages clause - this changes the
analysis

E. Monetary Remedies Where the Theory is Promissory Estoppel


1. Williston and Coudert car hypo
- uncle promises Johnny $1000 to buy a car, but Johnny buys one for only $500
- does Johnny get the extra $500?
- no - Johnny would be unjustly enriched if he got the money
- there is an argument that both are wrong - since there was no consideration for
the promise
2. Goodman v Dicker
- promise to deliver radios and to permit the franchisee to have a franchise
breached
- court finds no finalized contract here, but permits an action for PE - since the
franchisee relied on the promise to his detriment ($1150)
- damages awarded by the trial court - reliance damages of $1150 for setting up
the store and expectancy damages of $350 for lost profits
- but the court seems if-y to let an award for both reliance and expectancy
damages stand
- argument that he shouldn’t have gotten the $1150 - he could have used it to buy
other things, he would have had to spend this to get the profit
- use Restatement 90 to argue that expectancy damages should be a cap on awards
3. D&G Stout (General) v Bacardi Imports
- court deals with the type of PE where the relied upon promise is the promise to
employ in an at-will relationship
- Bacardi promised to General that it would remain Bacardi’s distributor - so
General didn’t sell the company
- then Bacardi withdrew their account from General and General had to sell the
business for $550,000 less than the original offer - B sues to recover difference
- contract was terminable at will - and this matters because then there were no
expected profits
- court holds that it was reasonable for General to rely on the promises made by
Bacardi - even though their relationship was at will - since B knew that G was
entering into negotiations - so B made the promise in a particular context that it
knew was important
4. Walters v Marathon Oil Co
- P made improvements to gas stations, based on promises made to them by D that
D would supply them with oil for their station - but before this happened, D
stopped giving out new contracts
- court seems to say that this is the exceptional case where expectancy damages
are recoverable because this would put the P in the position he would have been in
if the contract hadn’t been entered into
- did the franchisees take reasonable steps to mitigate their damages?
- court blends the facts, common sense, and the law in determining what
they tried to do
- they didn’t try to contact D, but they aren’t expected to have done this
- even assuming proper mitigation, are damages too speculative?
- yes - cite new business rule - can’t recover lost profits, since they are
trying a new business
- no - expert witnesses; and it isn’t a new business anyway - since there
had been a gas station there before
F. Restitutionary Relief and Theories of Obligation
1. Where a Non-Breaching Plaintiff Conferred a Benefit and Elects Restitutionary
Recovery
a. US for Use of Susi Contracting Co v Zara Contracting Co
- there is a material breach of contract - and based on this breach, the non-
breaching party elects to seek restitution rather than expectancy damages
- the P grader seeks payment for unexpected costs created by difficult sub-surface soil conditions - we
know that under the contract itself, the
grader wasn’t entitled to any extra costs
- there is no cap on the recovery - ie the limit in the contract is not the
limit for possible recovery
- because the D is the one that defaulted, the P can waive the contract and
sue in quantum meruit
b. Johnson v Bovee
- it is appropriate to cap the restitutionary recovery even of a non-
breaching P suing a contract-breaching D
- court says that the cap should be the contract price - and % completion
should be paid as a % of the contract price for all the work
2. Where a Non-Breaching Plaintiff Conferred a Benefit but had a Negative Expectancy

3. Where a Non-Breaching Plaintiff Conferred a Benefit but Cannot Prove Lost


Expectancy
a. Bausch and Lomb v Bressler
- P pays D $500,000 to be the exclusive distributor of D’s products
- D breaches the contract
- buyer can’t recover $500,000 on expectancy theory - because it’s not
related to expected profits
- reliance theory? No - the reliance would be offset by the loss - and there
was evidence that this was a losing contract - so, under the theory of the
Albert case, you can’t get damages based on reliance
- restitution theory? Have to ask sub-questions...
- can a non-breaching party recover restitution damages if the other
two measures are unavailable? Yes - although there has to be a
substantial or material breach - which there was here
- the P won’t get all of the $500,000 - it needs to be off-set by the value
the Ps received during the period before the contract was breached
b. Osteen v Johnson
- same kind of case as B&L and Zara - non-breaching party sues the
contract breaker
- rule: if there is a breach, you can get restitutionary damages
- hypo - the breach was a supposed mis-listing of the other person as co-
author of a song - no recovery, since the breach wasn’t material
- here - the breach was material - failure to put out the 2nd record
- so she gets $2500 paid to promoter minus the benefit conferred
on her by the D promoter
4. Where the Plaintiff has Materially Broken the Contract After Conferring a Benefit
5. Where the Plaintiff has Conferred a Benefit but the Contract is Invalid, Frustrated, or
Otherwise Unenforceable

G. Specific Performance
1. Kitchen v Herring
- proposition: when land is involved in a suit, the court will always use specific
performance to remedy the breach of a conveyance of land contract - a purchase
and sale of land
- broader rule - court will order injunctive relief when monetary damages
won’t be an adequate remedy
- court says that it would be a departure from the settled rule of the court not to
award specific performance in this case
- they don’t want to carve out an exception to this very convenient rule
that triggers the right result in the vast majority of cases
- UCC 2-716 governs sales of unique objects
2. Curtice Brothers v Catts
- court orders specific performance of delivering tomatoes
- the tomatoes don’t have to be unique, under the UCC, there can be other
circumstances
- court says that there is no adequate remedy at law, so specific performance
should be ordered
- although this isn’t really true - since they can calculate lost profit -
although they can’t calculate loss of market share, reputation, etc
- what evidence is there that the buyer can’t cover on the open market - and so
specific performance should be ordered?
- the contract itself
- might be a decision based on pricing rather than supply
3. Defenses to Specific Performance
- providing of personal services limitation
- specific performance can be denied even though the performance might
be unique
- 13th amendment prohibits slavery
- the people might not be performing to their capabilities
- unconscionability
- unfairness
4. LaClede Gas v Amaco Oil
- agreement for D to supply P with propane gas until natural gas mains were put
into the area
- court awards specific performance, applies UCC 2-716
- what is the single best fact for the buyer in demanding specific performance?
- it was a long term contract
- specific performance given because the buyer couldn’t find a substitute without
incurring a lot of expenses
3. Pratt Furniture Co v McBee
- chair buyer sues seller for breach of contract - since the seller decided not to
make the chairs, but to make tables at a higher profit
- buyer seeks remedies -
- injunction from keeping the seller from making tables
- specific performance of the chair contract
- or money damages in the amount of both the $90,000 (difference
between the chairs cost under the contract and the market price) and
“restitution” of the seller’s extra profit from the breach
- the $90,000 is undisputed - and going to the P
- but the P also wants the profit to prevent UE to the seller
- court says that he can’t get specific performance - because the chairs aren’t
unique and there isn’t an inability to cover
- also - it frustrates efficient breaches, more difficult for courts to enforce,
policy reasons - things might go badly if we force people to deal with one
another
- P doesn’t recover the $80,000 UE - ill-gotten gains - money
- since this isn’t in the calculation of expectancy damages
- courts shouldn’t penalize people because of the breach
- and courts shouldn’t put parties in a better position because of the breach

I. Alternative Dispute Resolution


- arbitration - a contractually specified remedy - the amount of the remedy isn’t
liquidated, but it is a consensually agreed upon mechanism for resolving disputes

Chapter 4 - Agreements and Promises

A. Planning and Drafting


1. Planning and Drafting Against Risks

B. The Nature of Assent


1. Embry v Hargadine, McKittrick Dry Goods Co
- an employer and an employee had a conversation that the employer says didn’t
result in a contract and the employee says that it did
- trial court instructions said that the jury had to find that both parties needed to
intend to make a contract in order for there to have been one
- P employee appeals on the basis of wrong instructions
- this case shows that contracts can be formed by oral conversation, even if both
parties didn’t intend for the contract to occur
- the courts don’t make a distinction between written and oral contracts
- the focus of the courts is how we decide whether words used - either written or
spoken orally - form a contract
- according to appeals court - 3 possibilities exists if we believe the employee’s
side
1. No contract as a matter of law
2. There is a contract as a matter of law
3. The jury gets to decide if there is a contract
- the words - “go ahead, you’re all right. get your men out, and don’t let that
worry you” - were what made it a contract
- distinguish this case from where the basketball coach said the same words to a
tryouter
- Embry case - employee gave pres an ultimatum in the course of the
situation
- the tryouter isn’t offering anything in return for the contract
- no contract previously existed in the basketball case
2. Lucy v Zehmer
- case involved three separate possible arguments of why Lucy should lose
1. Whether or not the D was intoxicated - so drunk that the D was legally
incapacitated and therefore unable to participate in the making of the
contract
2. There was no contract actually formed
3. Even if there was a contract, equity should decline to enforce it under
the circumstances
- court rejects the argument that there is no enforceable agreement here
1. There is a legally binding contract because of the execution of the
contract was a serious business matter and not a joke
- Both the wife and husband signed the contract - shows that they
were less likely to both be joking - also suggests seriousness and
deliberateness
- Other 10 facts - making the contract appear valid
2. Lucy actually believed - and a reasonable person would have believed
as well - that he was entering into a contract
- tried to get money, went to a lawyer, immediately disagreed when
the Zehmers said they were kidding
3. Tilbery v Eagle Lock Co
- company “promises” or “offers” benefits to employees
- question is whether Eagle Lock ever assumed an contractual duty
- argument that no contract was made:
- language “we reserve the right to discontinue these benefits” and “this
doesn’t mean that we are making a contract”
- so how did the court conclude that there was a contract?
- desiring to show our appreciation cuts the other way
- we “offer” - this is standard language of a contract
- they are trying to get employees to work harder - and you don’t do this
by giving nothing
- interpretive principles
- don’t interpret language to mislead people
- have to interpret language in the context of the whole letter
4. Cargill Commission Co v Mowery
- seller sends an offer that has a code word that is wrong as to the amount that is
being offered, buyer accepts the invitation and seller says that he isn’t going to
deliver
- court enforces the contract - and notes that the buyer had resold the wheat before
he learned of seller’s breach
- if the buyer hadn’t already resold the wheat, the court might be more
lenient, since then the buyer wouldn’t have relied on the seller’s promise
5. Raffles v Wichelhaus
- buyer had contracted with the seller to buy bales of cotton from the boat the
Peerless - but there were actually two boats - and the buyer wants cotton from the
Oct boat, while the seller is thinking of the Dec boat
- buyer rejects the cotton
- court concludes - under Restatement 20 - that there is no contract here - because
there was no manifestation of mutual assent
- the seller loses in this case
- Restatement section 201 says that if both acted in good faith and they didn’t know about
each other’s misunderstanding, there is no enforceable contract
C. The Offer
1. Lefkowitz v Great Minneapolis Surplus Store, Inc
- D advertises that there are coats for sale, P goes to buy the coats and the seller
won’t sell to him - says they are only for women or something
- buyer wins - but not on the first breach of contract (too speculative) but does win
on the second breach of contract
2. Ford Motor Company case
- if goods are advertised for sale at a certain price, there is no contract - only an
invitation to bargain
3. Courteen Seed Co v Abraham
- court finds the wire sent saying 23 cents per pound not to be an offer
- court says the seller’s motion for nonsuit should have been granted because
- the seller was asking - he wasn’t offering anything
- ask is the verb that is used in the key written communication - which
isn’t the same as offering
- single most important fact in this case?
- seller sent a sample prior to Oct 8 communication - indicates that we are
somewhere along the progression of negotiation
- communication from buyer to seller - says to wire firm offer
- practical reason it couldn’t be an offer - if everyone replied to the circular, he
wouldn’t have enough stuff
3. Fairmont Glass Works v Grunden-Martin Woodenware Co
- 3 separate issues:
1. Does the seller’s letter on Apr 23 constitute an offer?
- court says yes - because of phrase “for immediate acceptance”
2. Was the Apr 23 offer - once we conclude that it’s an offer - properly
accepted?
- no - letter sent in return violated the mirror image rule - it
contained an extra provision - “first quality goods”
- but the court says that it didn’t violate the mirror image rule -
because this wasn’t what the seller was concerned with, this was a
standard business term, offer implicitly included the provision -
since who would want crappy goods?
3. Assuming there was a proper offer and acceptance, was the resulting
contract too indefinite to be enforced?
- seller’s arguments: 1. 10 carloads is too indefinite - courts reject
this argument, 2. Contract is indefinite with
respect to the types of jars that are covered and the timing of the
delivery - court rejects this argument too
4. Southworth v Oliver
- buyer alleges that there is a complete contract for the sale of land, seller says
that he never meant to make the offer
- court says that a reasonable person could find that an enforceable offer was
made and accepted here - relying on the surrounding circumstances
- argue that court is wrong - the P buyer knew that the information was being sent
to other parties - so not everyone could accept
- word “information” on the materials provided - as opposed to “offer”
- reference to market value is purely informational
- negotiable sale date - more like we don’t have an offer, since it is
negotiable
- mirror image rule - the seller was trying to sell the permits together with the
land, and the buyer only wanted a piece of the land - although this desire of the
seller was never communicated
- the seller’s intentions don’t matter - it’s more about what he actually did -
principle of manifested intent

D. The Acceptance
1. Ardente v Horan
- case where the P buyer is seeking specific performance of a real estate contract
- buyer bids, seller agrees - and buyer prepares and sends agreement
- judge preceded on the wrong assumption that the delivery of the purchase and
sale agreement to P constituted an offer by Ds to sell property
- wrong because when the seller sent the buyer the document, he didn’t
sign it - so it was more like an invitation than an offer
- if we ignore this problem and go with the assumption, have to decide if there
was acceptance
- question about whether the extra condition about the furniture being
included was a collateral issue (where the acceptance would be good) or
amended to the contract (in which case it would violate the mirror image
rule - and acceptance wouldn’t be good)
2. Eliason v Henshaw
- court finds that there is no contract here - if we accept the facts as the evidence
indicates them to be
- no contract as a matter of law - since there was no acceptance
- this is the acceptance was sent to the wrong place, and got to the Ds after they
had already sold the goods
- there isn’t a contract until the offer has been received and accepted by both
parties
- the mode of transportation isn’t the issue - just so long as it gets there in the time
period allotted by getting to Harper’s Ferry by wagon
3. White v Corlies
- offer by the owner of a building - the builder says the owner accepted, and so he
breached the contract
- owner says he rescinded his offer prior to the builder’s acceptance
- case has to do with whether acceptance can occur by performance of the contract
- or whether it has to be a direct communication
- court finds that as a matter of law, there wasn’t any acceptance
- since the builder never communicated to the owner that he accepted or
that this is what his work was supposed to indicate
- could characterize the builder’s performance in this case as preparation - so it
wouldn’t be commencing performance

E. Duration of Offers
- if you make an offer - this creates the power of acceptance in the other party - and if the
party accepts, then you have to make the contract
1. Akers v JD Sedberry
- the employees met with Sedberry - and make an offer of recision - to call off the
contract; Sedberry doesn’t accept the offer at the meeting - but calls them 3 days
later to accept the offer
- the power of acceptance had gone away
- lapse of time - basic test to determine this - if the offer is in a face to face
conversation, the offer has to be accepted within the conversation
- within a reasonable time - assuming no amount of time has been
specified
- she also rejected the offer - she said that she didn’t accept the resignation
and then talked about what they would do with the business
2. Caldwell v Cline
- there is an offeror who makes an offer to transfer property, there is an acceptance
by the offeree - Caldwell, but offeror says the offer is withdrawn
- problem here - there is ambiguity as to when the power of acceptance goes away
- it all boils down to interpreting the language of the offer - we’ll give you 8 days
to accept or reject the offer
- if we measure 8 days from the sending, the acceptance is too late
- if we measure 8 days from the receipt, the acceptance isn’t too late
- court says that there is a contract as a matter of law
- language of the offer - will give you 8 days - so it should be counted
from time of receipt
- abstract principles of contracts - contracts aren’t formed until the offeree
has heard about the offer - although this doesn’t really have to do with the
reasonable person standard and the offeror could contract around it
- since he didn’t contract around it, the only fixed date that we have to
calculate the 8 days from is the time of receipt
3. Dickinson v Dodd
- we have an offer that specifies a period of time within which the offer can be
accepted - and we also have an attempted acceptance

- question is whether the acceptance is effective


- it does come within the specified period of time
- problem is - there was a revocation of the offer prior to acceptance
- stands for the proposition that an offeror can revoke the offer even though the
period of time specified in the offer hasn’t yet run
- also stands for that the revocation can come by way of a 3rd party, rather than the
offeror himself
- the time of the receipt of the revocation is the time when the power of
acceptance goes away - subject to the exception in the Shuey case - when there is
a reward involved - no offer when the revocation is published in the same manner
that the offer was published
- reasons to think this was wrongly decided: you shouldn’t be able to do this; was
the language of the 3rd party actually a revocation
- promises are enforceable if they are supported by consideration - but in this
case, the promise to keep the offer open wasn’t supported by consideration - so
it’s a gratuitous promise - a nudum pactum
- this is why offerors aren’t required to go through with their promises
sometimes
4. Marsh v Lott
- there is an offer that specifies a period of time in which the offeree can accept
- there is an attempted revocation and then a later attempted acceptance
- D offeror’s 2 arguments
- law of remedies and specific performance - there is a special rule that we
can look at adequacy of consideration in this context - and 25 cents isn’t
consideration - the court says he’s interpreting this incorrectly
- this is pretextual consideration - there wasn’t any real consideration
- we have a transaction that envisions the payment of $100,000 - so
25 cents wasn’t sought by the promisor - court says this doesn’t
matter - even nominal consideration will suffice in these cases
- Marsh seems to say that there is a special rule when we are talking about
consideration for a promise to keep an offer open - an option contract
- even nominal consideration would qualify as consideration to make such
a promise binding
- the Restatement goes one step further - all there has to be is a writing that recites
a preported considedration
- UCC 2-205 goes further than the Restatement - you don’t have to go throught
the ritual of reciting preported consideration - it’s enough if the offer is by a
merchant that there be a signed writing - that the offer will be held open and isn’t
revokable for lack of consideration
5. Collins v Thompson
- a rejector or counter-offeror loses the power of acceptance by reason of rejection
- but there is an exception - the buyer or counter-offeror can qualify his
acceptance to leave the period of acceptance intact
6. Davis v Jacoby
- promisor said that he would give all his property to Ps if they came and stayed
with him
- according to D - how was the power of acceptance terminated so that no contract
was made?
- the promisor died - it’s a Restatement 36(1)(d) case
- this was a unilateral contract - and acceptance could only occur upon
performance - and the Ps had yet to perform
- in this case - it matters whether the contract was unilateral or bilateral
- court says that it’s bilateral - and the acceptance was the return communication
- due to the distance between the two parties - D didn’t want performance,
but a promise to perform
- best fact - text of the letter - “will you let me hear from you asap”
- D was in a desperate situation
- the relationship with the Ps caused D to trust them
- in determining the meaning of an offer - we ask what would a reasonable person
view as the intention of the person who makes the contract or communicates the
offer
- here there is a special rule that is operable - there is a presumption that
the offer is a bilateral contract
- why? In assuming this, you are more likely to protect both parties
7. Brooklyn Bridge hypo
- unilateral contract - acceptance can only occur once the person has completely
cross the Brooklyn Bridge - so the offeror can revoke at any time before this
- per original Wormser
- however - per Restatement - once the person has started crossing the bridge -
they have created an option contract
- the person doesn’t have to finish - but they won’t get paid
- but the offeror can’t revoke once the person started to walk
8. Brackenbury v Hodgkin
- 1st issue in this case - is there a valid contract? Court says yes - it was a
unilateral contract
- this is the mother offeror who requested that the daughter and son-in-law take
good care of her - they move and start to take care of her, but they stop because
she is mean
9. Petterson v Pattberg
- the debtor approaches the door of the lender and offers to pay the mortgage with
the cash that he brought - lender refuses the money - saying that she already sold
the mortgage to someone else
- the power of acceptance had gone away - the offer was revoked - when the
offeror told the offeree of the selling of the mortgage
- dissent: the statement by the offeree that he had come to pay off the mortgage
plus his present ability to pay constituted acceptance - and occurred prior to the
revocation by the offeror
10. Baird v Gimbel Bros
- D is a linoleum supplier - his employee makes a mistake in computing the bid,
but the bid is still submitted to the supplier saying that if the general
contractor is successful in getting the contract, then he can use the price
- P general contractor gets the price, but the D supplier withdraws the bid
- court says the supplier isn’t bound - since there was a pre-acceptance revocation
- P contractor tries to get the money on promissory estoppel - but the judge says
that there wasn’t sufficient reason for the contractor to rely on the offer - since the
offer said that the quote was good only after they were awarded the contract
11. Drennan v Star Paving Co
- there is an offer and attempted acceptance, but the subcontractor revokes the
offer because there was a mistake in the offer
- court rules that promissory estoppel applies here
- sub didn’t say that his offer was revokable at any time - so there was
good reason to rely on the offer
12. Holman Erection Co v Orville Madsen and Sons
- the general contractor tries to escape any sort of contractual duty
- contractor uses P’s sub bid in the contractor’s bid for the entire job - but then
decide to use someone else on the actual work
- court says that the general contractor isn’t liable to the sub - reasons
- there isn’t any reliance on the part of the sub - whereas there was clearly
reliance in the Drennan case
- public interest - need to facilitate flexibility in the finialization of the gen
contract - to comply with MBE rules
- fairness argument
- the sub has tons of time to compose the offer
- the gen contractor has very little time to do this

F. Bargaining at a Distance
- mailbox rule - the rule that when the offeree puts the acceptance into the mail - it is then
that the offer is accepted
- in cases where the offer is made by mail or other additional circumstances where
the offeror envisions acceptance by mail
1. Adams v Lindsell
- stands for the mailbox rule - mail acceptance is effective upon mailing rather
than receipt
- other argument on behalf of offeree - to say that a contract was formed whether
or not the date of the posting the acceptance or the date of receiving the
acceptance is controlling?
- the misdirection of the letter was the fault of the offeror - and the offeree
sent it as soon as it was received
- the offer wasn’t properly revoked - since the offeror didn’t tell the offeree
2. Worms v Burgess
- under ordinary operation of the mailbox rule, there would have been a contract
- but this isn’t an ordinary case - since there is an option contract involved
- the court doesn’t follow the authorities that suggest that the mailbox rule should
be abandoned with an option contract
- why does the court do this?
- statute that says the mailbox rule
- mailbox rule is widely recognized as custom - so why should people
think that it shouldn’t apply to option contracts
- risk of dealing through the mail
- offeror could have dealt with the risk in the contract itself - and since
they didn’t, the mailbox rule should apply
- the other authority didn’t give good reasons for their arguments
- even Corbin said that you need to look at surrounding circumstances
- cases that rely on this authority are only a slight majority

G. Agreements to Agree
1. Joseph Martin Delicatessen v Schumacher
- an agreement to agree later isn’t good - unless it is specified how you are going to agree or the
courts can adequately determine amounts