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Guide to the Secrets of the Contracts Universe

(1) What bodies of law apply? UCC or Restatements


(2) Is there an enforceable contract?
(3) Has either party unjustifiably failed to perform?
(4) What are the remedies?
- Liquidated damages, Specific Performance, Expectation Damages, Reliance, Restitution

Not All Ks Are Enforced + Is There An Agreement


(Mutual Assent)
What is a Contract?
Definition
A written or spoken agreement that is intended to be enforceable by law
Two primary requirements:
o Mutual assent
o Definitiveness
Theories
Objective:
o Mutual assent if a reasonable person judging outward acts of parties and associated circumstances
believes an offer has been made and accepted
o Objective test is what reasonable person would think judging parties actions
What person believes intent would be
Courts rely on objective tests
Dont want to encourage deceptive behavior
Subjective:
o Contract not formed if offeree subjectively (actually) knows that offeror is not serious in making the
offer
o Based on actual intent of parties
o Not favored
Elements
Offer
o

Rest. 24: manifestation of willingness to enter into a bargain, so made to justify another person in
understanding that his assent to that bargain is invited and will conclude it
Consideration
o Classical
Benefit or detriment
It has value
o Modern
Must be bargained for
Acceptance
o Black letter law: offeror dictates terms of acceptance
o UCC 2-205
An offer by a merchant to buy or sell goods in a signed writing which by its terms gives
assurance that it will be held open is not revocable, for lack of consideration, during the time
stated or if no time is stated for a reasonable time, but in no event may such period of
irrevocability exceed three months; but any

What is Mutual Assent?


Common law: A communication is sufficient as an offer if

Cases

o (1) Parties
o (2) Subject matter
o (3) Quantity
o (4) Price
o (5) Time of performance
UCC
o If communication specifies the parties and quantity, it is sufficient as an offer
Restatement 24
o Manifestation of willingness to enter into a bargain such that if the other party accepts there is a K
Exists if a reasonable person believes and offer has been made and accepted
o Outward acts and associated circumstance
Restatement 20
o (1) 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 has reason to know the meaning attached by the other
o (2) Manifestations of the parties are operative in accordance w/ 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 any different meaning attached by the other, and the
other has reason to know the meaning attached by the first party
Preliminary Negotiations
o Restatement 26
Willingness to enter into a bargain is null if the offeree knows or has
reason to know that the offeror intends to bargain until they have
made further manifestation of assent.
o How to spot prelim
Amount of people offer was sent to
Response to an inquiry from the other party
RR v. MH
o Father entered into a surrogacy agreement w/ birth mother. Agreed to pay $10,000
o Rule: A surrogacy agreement is not valid if money was paid to the birth mother
with the purpose of influencing her decision to give up the child.
Lucy v. Zehmer
o Selling of the farm w/ K written on receipt paper
o Rule: The objective, outward expression of a partys intent to be bound in an
agreement, as opposed to that partys subjective mental assent to the
agreement, is all that matters when determining the existence of a valid and
enforceable contract.
Leonard v. Pepsico
o Harrier Jet to a little kid
o Rule: An advertisement does not constitute an offer unless its terms are
sufficiently clear and leaves nothing open for negotiation and an
advertisement intended to be a joke cannot be sufficiently clear.

Is There An Agreement?
(Mutual Assent + Offers)

Invitation to Offer

Must make an express commitment


When an advertisement is clear, definite, and explicit, and leaves
nothing open for negotiation, it is an offer.
Termination of Offer
o The offer is terminated if
Offeree rejects offer R 38
Offeree counters R 39
Offeror revokes R 38
Offeror or offeree dies/incapacity
Direct revocation
Indirect revocation
Person or thing necessary for performance ceases to exist
o An inquiry does not terminate power to accept
o The offeror can always renew offer after its been rejected/countered
Revocation
o Bilateral K
R 36: Offer can be revoked ANY time before acceptance
Dickinson v. Dodds
o Unilateral K
R 45: as soon as performance begins, offeror cannot revoke; BUT
The offeror doesnt need to perform for offeree until offeree finishes
Davis v. Jacoby
Option Contract
o

Cases

Restatement 87
An offer is binding as an option contract if it
Is in writing an signed by the offeror, recites a purported consideration
for the making of the offer, and proposes an exchange on fair terms w/in
a reasonable time; or
Is made irrevocable by statute

o
o

CANNOT BE REVOKED
Eastern Michigan v. Burgesss

Gleason v. Freeman
o Selling Elvis home on eBay
o Rule: Ongoing negotiations evidence a lack of mutual assent to definite terms.
Lonergan v. Scolnick
o Ad for sale of property. Scolnick wrote lonergan for a description of the
property. It was deemed preliminary negotiation
o Rule: If the promisee knows or has reason to know that the promisor does not
intend it as an expression of his fixed purpose until he has given a further
expression of assent, the promisor has not made an offer.
Sateriale v. RJ Reynolds
o Camel Cash
o Rule: An advertisement constitutes an offer when the advertiser, in clear and
positive terms, promised to render performance in exchange for something,
and the recipient of the advertisement reasonably might have concluded that
by acting in accordance with the request a contract would be formed.
Dickinson v. Dodds
o Dickinson was informed by agent that Dodds was intending to sell the property to another.

Rule: An offer may be revoked by the offeror without an express or actual


statement of revocation communicated to the offeree provided there has been
no meeting of the minds and the offeree is aware of conduct by the offeror
demonstrating intent to revoke the offer.
Eastern Michigan v. Burgess
o 60-day option to buy house w/ $1 acknowledged consideration, but it was never paid
o Rule: A lack of consideration renders a contract unenforceable, even where the
party seeking to avoid the contract has acknowledged receiving consideration.
o

Is There An Agreement?
(Acceptances)

Acceptance
o Restatement 50
A statement or act that indicates offerees intent enter a deal
Acceptance must take place before revocation
o Mirror Image
(1) Acceptance must be the mirror image of the offer
(2) If terms are materially different then NO K
o Under UCC 2-206
(1) After chance to inspect goods, buyer retains them; or
(2) Buyer fails to make an effective rejection after inspecting goods; or
(3) Buyer does any act inconsistent w/ sellers ownership
o Bilateral Contract
Acceptance is a promise to perform
Offeree MUST inform offeror of acceptance R 56
Hendricks v. Behee
MAILBOX RULE: offer by mail can be accepted as soon as placed in the mailbox
Adams v. Lindsell: Non-delivery of wood
o Unilateral/Option Contract
Offeree must PERFORM
Offerors duty to perform is conditional on full performance R 45
Offeror is liable to offeree for failure to perform, but the offeree cannot be liable for
failure
Offeree is NOT required to notify offeror of acceptance UNLESS it is requested R 54
Carlil v. Carbolic
o Bilateral or Unilateral?
In case of doubt, an offeree has the power to accept by return promise OR performance
Restatement 30
An offer may invite or require acceptance to be made by an affirmative answer
in words, or by performing or refraining from performing a specified act, or may
empower the offeree to make a selection of the terms in his acceptance
Unless otherwise indicated by the language or the circumstances, an offer invites
acceptance in any manner and by any medium reasonable in the circumstances
o Acceptance by Silence R 69
Acceptance by silence is allowed if
(1) Offeree take benefit from offered services with reasonable opportunity to
reject and knowledge that they were offered with the expectation of payment;
OR
(2) Offeror told offeree that acceptance can happen by silence/inaction
(3) When it is reasonable that the offeree should notify the offeror if he does not
intend to accept.


Cases

Laredo Bank v. Gordon

Lasalle National Bank v. Vega


o The K terms stated that banks trustee was supposed to sign off, but never did.
o Rule: An offer to form a contract may only be accepted according to the terms
and conditions of the offer.
Davis v. Jacoby
o s came from Canada to help older
o Rule: An offer is to enter into a bilateral contract as opposed to a unilateral
contract when only a promise to perform and not actual performance is
requested by the offeror as proper acceptance.
Hendricks v. Behee
o Purchase of real estate where written offer was mailed, accepted, but the
buyer withdrew offer before acceptance was made
o Rule: When an offer calls for a promise by an offeree, there is no contract until
the offeree communicates acceptance the offeror or the offerors agent.
Carlil v. Carbolic Smoke Ball
o Offered to pay a $ prize to anyone who used the product and ended up
contracting the flu
o Rule: A general advertisement of an award constitutes an offer that is capable
of being accepted and binding the offeror in a valid contract, provided at least
contemporaneous notice and some consideration are present.
Laredo National Bank v. Gordon
o Lawyer who worked for the bank was asked to settle a dispute and requested Lawyers fee. Upon
request there was no answer so assumed that he would be paid
o Rule: Where a party knows his silence will be misinterpreted, he may be bound
by the offer of another party, even if the party did not respond to or explicitly
accept the offer.

Is There An Agreement?
(Acceptances, Deficient Agreements)

Imperfect Acceptance
o Counter offer: Implied rejection of original offer
Imperfect acceptance can also take form of acceptance with new condition of different or
additional terms, but CANNOT condition acceptance
o UCC 2-207 SEE ATTACHED
Dortman v. Aikman Co. (Carpet case w/ bad carpet)
Electronic Acceptances
o Shrink-Wrap
(1) When buying physical item, and the Ts and Cs are located in the box or shrinkwrapped to product
Opening or breaking the wrap constitutes acceptance
Glocek v. Gateway
o Click-wrap
When transacting online, and Ts and Cs must be accepted in order to download
Hancock v. American Telephone
o Browse-wrap
Click on notice brings users to another screen where the Ts and Cs can be found
Not required to click agree or even view terms.
Misunderstanding

Cases

Restatement 20
(1) There is no K if the misunderstanding concerns a material term and
a) neither party knows or has reason to know of the misunderstanding; or
b) each party knows or each party has reason to know the meaning, no K
(2) The manifestation 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; 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.

Hancock v. American Telephone


o Click-wrap agreement gave sufficient notice to s before signing up for product
o Rule: A clickwrap agreement is enforceable if it gives consumers adequate
notice of the terms and an adequate opportunity to read and accept them.
Raffles v. Wichelhaus
o Two-ships Peerless. Both parties were under the impression of the same ship but different dates
o Rule: There is no contract if there is a mutual misunderstanding by both parties
as to the meaning of a term of an agreement.

Is There An Agreement?
(Deficient Agreements)

Cases

Restatement 33 (Varney)
o Even though a manifestation of intention is intended to be understood as an
offer, it cannot be accepted so as to form a contract unless the terms of the
contract are reasonably certain
o The terms of a contract are reasonably certain if they provide a basis for
determining the existence of a breach and/or giving an appropriate remedy
o The fact that one or more terms of a proposed bargain are left open or
uncertain may show that a manifestation of intention is not intended to be
understood as an offer or as an acceptance
Restatement 32 (Moolenar)
o Contract is valid if it so definite in its terms that the performances to be rendered by each party are
reasonably certain
DEFAULT RULE SHOULD EMULATE WHAT THE OTHER PARTIES AT THE TIME THEy
ENTERED INTO THE K WOULD GACE SELECTED
EFFECTUATE INTENT OF PARTIES
o COURTS ASK WAS THERE INTENT TO BE BOUND?
If so, then set price at fair market balue

Varney v. Ditmars
o Architect was hired at $35/w, and requested $5 upgrade. was also to receive fair share of
profits. DISSENT: Although fair share was uncertain, the couldve produced evidence to
alleviate the uncertainty.
o Rule: For a contract to be valid, the agreement made must be definite and
explicit enough to permit the full intent of the parties to be ascertained with a
reasonable degree of certainty.
Community Design v. Antonell

Promised to pay any employee working by Christmas a bonus, but the exact amount was
undetermined. Antonell benefitted the Company so he was rightfully owed the bonus
o Rule: When determining whether a contract is unenforceable for want of
certainty, the court will look to whether the complaining party conferred a
benefit upon the party in breach.
Moolenar v. Co-Build
o Farmer who was promised a renegotiated rate based on fair market value.
Property was sold to
o Rule: A contract that omits an essential term can be enforceable if the
contract provides the means by which to ascertain the term with sufficient
certainty.
o

Considerations
(Bargain)

Cases

Restatement 71: Modern


o An exchange of something of value
o Ask yourself
Did the promise bring on the performance/return promise?
Did the performance/return promise bring on the original promise?
o Classic approach
Benefit; or
Detriment; or
It has value
Pre-existing duty: Cant change agreement w/o consideration
Classic Approach: NO MODIFICATION
Modern Approach: Restatement 89
o A promise modifying a duty under K not fully performed on either side is binding:
A) if the modification is fair and equitable in view of circumstances not anticipated by
the parties when the K was made; OR
B) To the extent provided by statute, OR
C) To the extent that justice requires enforcement in view of material change of position
of reliance on the K
Hamer v. Sidway
o was to refrain from drinking, smoking, and gambling until 21 years old as consideration for
$5,000. Since had a right to do those things, and successfully refrained from them,
consideration was valid.
o Rule: Adequate consideration sufficient to form a valid and enforceable
contract may consist of either a right, interest, profit, or benefit accrued to
one party, or some forbearance, detriment, loss, or responsibility given,
suffered, or undertaken by the other.
Hooters of America v. Phillips
o signed multiple arbitration agreements for Hooters employment. Hooters
retained the right to change arbitration procedures at any time. Agreement
was overly favorable to Hooters
o Rule: An agreement is illusory when one party can freely amend it
Angel v. Murray
o Refuse collection service asked for extra $ per year because of unexpected
increase in dwelling units

Rule: When unexpected or unanticipated difficulties arise during the course of


performance of a contract, the parties may modify the initial contract even
without additional consideration for the modification as long as (1) the parties
voluntarily agree and the promise modifying the initial contract is made before
the contract is fully performed on either side; (2) the underlying
circumstances prompting the modification are unanticipated by the parties;
and (3) the modification is fair and equitable.

Consideration
(Moral Obligation)

Cases

Moral Obligation/Past Consideration


Generally NOT enforceable
o Restatement 86
(1) A promise made in recognition of a material benefit previously received by the
promisor is binding to the extent necessary to prevent injustice
(2) A promise is not binding under (1) if
a) if the promise conferred the benefit as a gift; or
b) to the extent that its value is disproportionate to the benefit received
Harrington v. Taylor (Traditional Rule)
o Tayler assaulted his wife who ran to neighbors house. Taylor broke in and began assaulting his
wife again until he was knocked down and was nearly struck by an axe. saved Taylor, and
Taylor promised to pay Harrington
o Rule: A voluntary humanitarian act does not constitute sufficient consideration
to support a contract.
Webb v. McGowin (Modern Rule)
o saved boss at a lumber mill by preventing a 70lb block from falling.
suffered serious injuries, and promised to pay for his heroic effort. died
shortly after and estate refused to keep paying money to
o Rule: When a promisee confers upon a deceased promisor a benefit that is
material and substantial, and is conveyed upon the person of the promisor
and not merely his estate, the promisee is entitled to recognition and
compensation from the promisors estate either by an executed payment or
an executory promise to pay.
McGowin TWO
o Past consideration works if person received a material benefit
o Rule: A moral obligation is a sufficient consideration to support a subsequent
promise to pay where the promisor has received a material and substantial
benefit.

Consideration
(Contemporary Applications & Promissory Estoppel)

Promissory Estoppel
o Black letter
When promisor intentionally causes promise to alter position for the worse on reliance of
the promise, without consideration, the promisor cannot escape enforcement
o Restatement 90
(1) A promise which the promisor should reasonable expct to induce action or
forbearance on the part of the promise and which does induce such action or

o
Cases

forbearance is binding if injustice can be aboided only by enforcing such a


promise.
Check list
Clear definite promise
Where the promisor has reasonable expectation that the offer will induce action
It results in actual and reasonable action
Causes a detriment that can only be avoided by enforcing promise
Last Resort: CLAIM PROMISSORY ESTOPPEL
Least amount of recovery

Ricketts v. Scothorn
o quit her job as a result of her Grandpa paying her. Gpa stated that he
didnt want his grandchildren to work.
o Rule: Equitable estoppel prevents a promisor from revoking an otherwise
unenforceable gratuitous promise if the promisee foreseeably and reasonably
relied on the promise to her detriment.
Pavel v. AS Johnson
o solicited bids for a job. bid with an error in the amount, and backed out after had already
been awarded the job. could only find another subcontractor for more $, and sued for the
difference. lost
o Rule: In the context of a construction contract, a promise by the subcontractor will only
create an enforceable obligation when the subcontractor made a clear and
definite promise that reasonably induced detrimental action on the part of the
general contractor.
McIntosh v. Murphy
o Employment in Hawaii where relied and moved there for the job
o Rule: An oral employment promise is enforceable, despite the Statute of
Frauds, if the injured party seriously changes his position in reliance on the
promise and failing to enforce the promise would result in unconscionable
injury.

Unenforceable Ks
(Fraud)
Is there an enforceable K or some other basis for enforcement?

Statute of frauds
o Certain categories of contracts that MUST be in writing to be considered enforceable
Writing does NOT have to be formal (offer letter, emails) as long as they include the deal
terms
Usually need a signature
o Restatement 110
Within statute of frauds NEEDS TO BE IN WRITING IF
Employment not to be performed w/in one year
Sale of land
o UCC 2-201
Sale of goods above $500
o Examples of not performed w/in one year
Example: Hired on 10/3 for one year contract and begin on 10/3 = not within
statute, could be an oral agreement
Hired on 10/3, begin on 10/4 = cannot be completed in one year from hiring


Cases

date, within statute of frauds, must be in writing


Enter K on Jan 15 2013, but work doesnt begin until April 15 2014 = more than a
year until performance begins, MUST be in writing

McIntosh v. Murphy (SOF/Promissory Estoppel)


o Employment in Hawaii where relied and moved there for the job
o Rule: An oral employment promise is enforceable, despite the Statute of
Frauds, if the injured party seriously changes his position in reliance on the
promise and failing to enforce the promise would result in unconscionable
injury.
Radke v. Brenon
o Lake property sale was offered in writing and set out a price to equally divide the land. Even
though the price changed it was clear that it intended to be equally divided
o Rule: Under the Statute of Frauds, a contract for the sale of land is void unless
it is memorialized in writing.
DF Activities v. Brown
o Dominoes guy who wanted FLW chair. admitted in the affidavit that no K was ever made
therefore no more discovery
o Rule: When a defendant raises a statute of frauds defense and submits a sworn
affidavit denying the formation of a contract with the plaintiff, the plaintiff
may not seek additional discovery to attempt to gain an admission from the
defendant of the contract under oath.

Misrepresentation

MisRep

Contracts can be voidable by innocent or fraudulent misrep.


MODERN RULE: Fraudulent concealment voids K
TRADITIONAL: No duty to disclose
Restatement 164
How important was the representation?
Was it material
Did the other party rely on that misrep?
Was the reliance reasonable?
Restatement 162
A misrepresentation is fraudulent if the maker ibtends his assertion to induce a party to
manifest his assent and the maker
Knows or believed that the assertion is not in accord with the facts; or
Does not have the confidence that he states or implies the truth of assertion; or
Knows that he does not have the basis that he stated or implies for the assertion
Misrepresentation is material if it would likely induce a person to manifest his assent, of
if the maker knows it would be likely to induce the recipient to do so.

Halpert v. Rosenthal
o Agent said there was no termite issue when there was. Buyer of the house won
o Rule: A party may rescind a contract due to an innocent, negligent, or
fraudulent material misrepresentation.
Swinton v. Whitinsville Savings
o Sellers were aware of termite infection and did not tell buyer. Seller wins
o Rule: A seller may not be held liable for the mere failure to disclose a defect in
the property of which he is aware and of which the buyer is unaware.

Weintraub v. Krobatsch
o Seller intentionally showed buyer property to cover up cockroach issue, and
seller made no representation about the defect. Buyer wins
o Rule: Even where a party has made no representation about the subject
matter of a contract, fraudulent concealment or nondisclosure of a material
fact may provide grounds for contract rescission where justice so requires.

Unenforceable Ks
(Capacity, Duress, Illegality, Public Policy)

Cases

Capacity
o Restatement 12
A natural person who manifests assent to a transaction has full legal capacity to incur
contractual duties unless
Under guardianship
Infant
Mentally ill, or defective, (not controlled w/ meds) or
Intoxicated (must be obvious)
Ratification: cant ratify the K, if for example, not of legal age when you enter K but
once you are legal age, you can act on K making it binding.
Ratification must be done expressly
Duress
o Restatement 174
If conduct that appears by a party who does not intend to engage in that conduct is
physically compelled by duress, the conduct is not effective as a manifestation of assent
o Restatement 175
(1) If a partys manifestation is induced by an improper threat by the other party that
leaves the victim no reasonable alternative, the contract is voidable
(2) Induced by one who is not party to transaction, contract is voidable by victim, unless
other party to transaction acts in good faith w/o reason to know of duress.
o Economic Duress
(1) One party involuntarily accepts terms of another
(2) Circumstances permit no other alternative
(3) Such circumstances were result of act of other party
Good faith v. bad faith (holdup, economic duress) (Alyeska)
Undue Influence
o Over-persuasion
Involves use of pressure to persuade party
Susceptibility of the weaker party, and overpersuasion over stronger party

Totem Marine Tug v. Alyeska Pipeline


o K to transport pipeline. Hit rough spots and terminated the contract, but needed payment.
settled at a very small $ payment and knew of s financial duress
o Rule: A settlement and release may be rescinded due to the existence of
economic duress.
Odorizzi v. Bloomfield School
o was accused of homosexuality. s told that if he did not resign the school
would suspend and publicize the incident. was under severe emotional
distress at the time

Unenforceable Ks
(Public Policy, Unconscionability, Mistake)

Unconscionability
o Terms are so extremely unjust, or overwhelmingly one-sided in favor of party w/ superior power
o BLL: A contract must be procedurally and substantively unconscionable
Procedurally
Unfair Bargaining/Absence of Choice
Substantively
Unfair Contract Terms
If either one is blatantly obvious, the other is not required to be prove
o Restatement 208
o UCC 2-302
If the court as a matter of law find the contract or any clause of the contract to
have been unconscionable at the time it was made the court mat refuse to enforce
the contract, or it may enforce the remainder of the contract without the
unconscionable clause, or it may so limit the application of any unconscionable
clause as to avoid any unconscionable result
When it is claimed or appears to the court that the contract or any clause thereof
may be unconscionable the parties shall be afforded a reasonable opportunity to
present evidence as to its commercial setting, purpose and effect to aid the court
in making the determination.
o Williams v. Furniture (1)
K is enforceable, K must be read by party, but if cannot read or understand, they
are responsible for having someone who can
o Williams v. Furniture (2)
Williams had little bargaining power
Remanded for new trial
Mistake
o Modern: Just because one party may be unaware and assumes a risk, does not mean
the K should be unenforced
o Classic: If mistake goes to substance of a thing bargained for; no K
o Restatement 154
Party bears the risk of mistake when
A) The risk is allocated to him by agreement of the parties; or
B) He is aware, at the time the contract is made, that he has only limited
knowledge with respect to the facts to which the mistake related but
treats his limited knowledge as sufficient
C) The risk is allocated to him by the court on the ground that it is
reasonable in the circumstances to do so
o Mistake v. Misunderstanding
Misunderstanding
Two different interpretations of the same term
o VOIDABLE
Mistake
Both make wrong interpretation on same fact
o VOID (there is a difference between VOID and VOIDABLE)
Mistake of law:
o A + B make K guided on a false law in the jurisdiction; not
voidable
Ignorance of law is not an excuse
Mistake of Fact:

o
o
Cases

A sells infertile cow to B for $80. Cow is fertile and worth $1000
VOID
A found stone and sold it as topaz for $30 Stone turns out to be
diamond worth $7000 NOT VOID

Valley Medical v. Farber


o Restrictive covenant that was against policy. 235 miles and three year non-compete
disrupted patient-doctor relationship
o Rule: Public policy requires that restrictive covenants between
physicians be strictly scrutinized for reasonableness.
Williams v. Walker Thomas Furniture
o Under-privileged making installment plans for furniture
o Rule: When an element of unconscionability is present at the time of
contract formation, the resulting contract is not enforceable.
Sherwood v. Walker
o Cow that was barren but turned out not to be
o Rule: When a contract is made based on the mutual mistake of the
parties that relates to a material fact such as the subject matter of
the sale, the price, or some other fact which materially affects the
agreement, the parties may rescind the contract once they learn of
the mistake.

Terms of the Deal


(Trade Custom)
What are the terms of the agreement?

Cases

Trade Custom & Usage


o General Rule: Even if trade usage is not incorporated, it is still a default term or gap filler as long
as parties have actual knowledge of the custom or trade usage
o UCC 1-103
(c) A usage of trade is any practice or method having such regularity in a place,
vocation, or trade as to justify an expectation that it will be observed with respect
to the transaction in question. The existence and scope of such a usage must be
proved as facts. If it is established that such usage in embodied in a trade code or
similar record, the interpretation of the record is a question of law.
Threadgill v. Peabody
o Coal case with the test probe that breaks after the negligently built whole Who pays? Public
policy mandates that a party cannot, by contract, shift the burden of liability
for its own negligence to another party.
o Rule: Trade customs are evidence of the parties intent when the parties have
actual knowledge of the custom or the custom is so pervasive that
constructive knowledge is justified, provided the trade custom is neither
illegal nor in conflict with public policy.
Town Bank
o Office building purchase, $2.5mil for building and $6.5mil reno. What was in
the $2.5mil K was last and final K with no mention of remaining 6.5mil
o Rule: When the parties to a contract embody their agreement in writing and
intend the writing to be the final expression of their agreement, the terms of

the writing may not be varied or contradicted by evidence of any prior written
or oral agreement in the absence of fraud, duress, or mutual mistake.
Traders Bank
o $ for the dealership floor plan. Daddy came to the rescue of his son
o Rule: A promissory note maker has standing to assert a tort claim for fraud in
the inducement.

Terms of the Deal


(Parol Evidence & Ambiguity)

Parol Evidence
o MUST BE WRITTEN CONTRACT, NO ORAL AGREEMENT
Complete and e
o General Rule: When there is a final, written agreement, cant use pre-agreement representations
that were made before the final agreement was signed.

Merger Clauses
o Majority/Modern View: doesnt automatically make contract fully integrated contract, only goes to
pre-formation acts
o Minority/Classic: mere presence of a merger clause means courts cannot look at extrinsic evidence

Integrated Term: Term that appears in final written form of contract


Fully Integrated: All terms that parties have agreed to
o CANNOT HAVE EVIDENCE CONTRADICT OR ADD NEW TERMS, only clarify
Partially Integrated: Agreement that contains some terms that have been agreed to, but other terms come from
different source (such as prior agreement)
o Every K is at least partially integrated
o EVIDENCE IS NOT PERMITTED TO CONTRADICT, BUT EVIDENCE OF A CONSISTENT
ADDITIONAL TERM IS ADMISSIBLE
Restatement 213
o (1) A binding integrated (PARTIALLY) agreement discharges prior agreement to the extent that it
is inconsistent with them.
o (2) A binding completely integrated (FULLY) agreement discharges prior agreements to the extent
that they are within its scope
UCC 2-202
o Terms with respect to which the confirmatory memoranda of the parties agree or which
are otherwise set forth in a writing intended by the parties as a final expression of their
agreement with respect to such terms as are included therein may not be contradicted by
evidence of any prior agreement or of a contemporaneous oral agreement but may be
explained or supplemented
A) By a course of dealing or usage of trade or by course of performance
B) By evidence of consistent additional terms unless the court finds the writing to
have been intended also as a complete and exclusive statement of the terms of the
agreement

Ambiguity
o BLL: Capable of more than one meaning when viewed objectively by a reasonably
intelligent person who has examined the content of the agreement
A court will decide if a term is ambiguous
o Restatement 214
Agreements and negotiations prior to or contemporaneous with the adoption of a writing
are admissible in evidence to establish

Cases

(a) That the writing is or is not an integrated agreement


(b) That the integrated agreement, if any, is completely or partially integrated
(c) The meaning of the writing, whether or not integrated
(d) Illegality, fraud, duress, mistake, lack of consideration, or other invalidating
cause
(e) Ground for granting or denying rescission, reformation, specific
performance, or other remedy
Restatement 203
In the interpretation of a promise or agreement or a term thereof, the following standards
of preference are generally applicable:
(a) an interpretation which gives a reasonable, lawful and effective meaning to
all the terms is preferred to an interpretation which leaves a part unreasonable,
unlawful or of no effect;
(b) express terms are given greater weight than course of performance, course of
dealing, and usage of trade, course of performance is given greater weight than
course of dealing or usage of trade, and course of dealing is given greater weight
than usage of trade;
(c) specific terms and exact terms are given greater weight than general
language;
(d) separately negotiated or added terms are given greater weight than
standardized terms or other terms not separately negotiated.

Frigaliment v. International Sales (ambiguity)


o Chicken case
o Rule: When the parties to a contract subjectively, but in good faith, construe an
ambiguous term differently, courts may look to external factors to determine
the proper interpretation of the term.
Random House
o Ebooks case. Who owns the rights?
o Rule: Where modern interpretations of contract terms were not available at the
time the contract was signed, the resulting ambiguity should be resolved
based on the language used in the contract.
Trident Center
o Law Firm merger and purchase of office building. Shitty interest rate so tries to breach for a
better one
o Rule Under California law, a contract must be interpreted in light of any
relevant evidence of the parties intent, including evidence extrinsic to the
written agreement itself, even if the agreement is clear and unambiguous on
its face.

Terms of the Deal


(Implied Terms of Good Faith; Statutorily-imposed Terms)

Cases

Implied Terms of Good Faith


o BLL: Where a K confers on one party a discretionary power affecting the rights of the other, a
duty is imposed to exercise that good faith in accordance w/ fair dealing.
GOOD FAITH is implied in ALL Ks, unless explicitly stated

Wood v. Lucy Lady-Duff


o K to sell clothing designs. Lady-duff entered into another K b/c she thought wasnt diligent
about selling her clothes

Rule: (1) A contract may be enforced when there is no evidence of a


promise, exchanged as consideration, in the explicit terms of the
contract. (2) A promise to use reasonable efforts may be implied
from the entire circumstances of a contract.
Locke v. Warner
o Clint Eastwood case where the studio refused to produce movies by
Locke in bad faith
o Rule: A party to a contract can require the other party to exercise
discretionary duty granted to it under the contract.
o

Contractual Excuses
(Conditions, Modifications)
Has either party ultimately failed to perform those terms?

Cases

Conditions precedent
o Non-occurrence of something K expressly provided must occur as an excuse for not doing what
you agreed to do.
on condition provided that
o Restatement 224
A condition is an event, not certain to occur, which must occur, unless its non-occurrence
is excused before performance
o Restatement 225
(1) Performance of a duty subject to a condition cannot become due unless the condition
occurs or its non-occurrence is excused
(2) Unless it has been excused, the non-occurrence of a condition discharges the duty
when the condition can no longer occur
(3) Non-occurrence of a condition is not a breach by a party unless he is under a duty that
the condition occur
Modifications
o UCC: can modify at any time, no consideration
o Restatement: Unless unanticipated event, a modification needs consideration
Restatement 229
o To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a
court may excuse the non-occurrence of that condition unless its occurrence was a material part od
the agreed exchange
Luttinger v. Rosen (FORMALISTIC APPROACH)
o was required to obtain a proper mortgage, but after due diligence could not secure a
mortgage. Sued for down payment back. won
o Rule: A condition precedent must be met before performance by the
parties is required under a contract, and the contract will not be
enforced if the condition is not met.
National Fuel v. Hartford Fire
o Surety bond with third party and condition that the third party is notified w/in a certain
time before paying out bond. did not give proper notice to satisfy condition precedent
o Rule: An express condition precedent must be literally performed or
satisfied before the other party is obliged to perform its obligations.
ACME v. Johnson
o Security transport, but didnt receive the receipt and therefore was not liabie for the
robbery. Question was whether the lack of receipt was material

Drake
o
o

Rule: Under Pennsylvania law, a party may avoid forfeiture based on


nonoccurrence of a condition precedent if the forfeiture would be
disproportionate and the condition was not a material part of the
contract.
did not act proper to satisfy the IRS liens so the condition was never satisfied. won b/c
acted in bad faith
Rule: Non-occurrence of a condition precedent is excused when the
non-occurrence is fairly attributable to the promisors own conduct.

Contractual Excuses
(Impossibility, Impracticability, Anticipatory Repudiation)

Impossibility (Traditional)
o Parties excused if performance is impossible
Impracticability (Modern)
o If a K is made, and performance is impractical, not by parties own fault, performance is excused
BLL/Restatment 261: After a K is made, if one partys performance is made impractical w/o fault by the
occurrence of an event, and the non-occurrence of the event was a basic assumption on which the K was
made, then the obligation to perform is discharged.

Frustration of Purpose
o BLL/Restatement 265
The frustration cannot be contemplated at the time of the K formation
If a partys principal purpose is frustrated by the occurrence of an unanticipated
event; and the non-occurrence of the event was a basic assumption upon which
the K was made; then that partys obligation to perform is discharged
UNLESS the parties language or other conduct indicate a different result

Anticipatory Repudiation (Can sue before K was supposed to begin)


o Party must make it clear and unequivocable that they will not be performing, courts will
view as breach
o If it nost clear or unequivocable, must ask for adequate assurance that they will perform
o Restatement 250
A repudiation is
o A) a statement by the obligor to the obligee indicating that the
obligor will commit a breach that would of itself give the obligee
a claim for damages for total breach under 243, or
o B) a voluntary affirmative act which renders the obligor unable
or apparently unable to perform without such a breach.
o Restatement 251 (adequate assurance)
Where reasonable grounds arise to believe that the obligor will commit a breach
by non-performance that would of itself give the obligee a claim for damages for
total breach under 243, the obligee may demand adequate assurance of due
performance and may, if reasonable, suspend any performance for which he has
not already received the agreed exchange until he received such assurance.
The obligee may treat as a repudiation the obligors failure to provide within a
reasonable time such assurance of due performance as is adequate in the
circumstances of the particular case.
o Restatement 253
Where an obligor repudiates a duty before he has committed a breach by nonperformance and before he has received all of the agreed exchange for it, his

Cases

repudiation alone gives rise to a claim for damages for total breach.
Where performances are to be exchanged under an exchange of promises, one
partys repudiation of a duty to render performance discharges the other partys
remaining duties to render performance.

Taylor v. Caldwell
o Renting of the music hall that then burned down
o Rule: In contracts in which the performance depends on the continued
existence of a given person or thing, a condition is implied that the
impossibility of performance arising from the perishing or destruction of the
person or thing shall excuse the performance.
Route 6 v. Ruby Tuesday
o Claimed that b/c of 2008 crash they couldnt perform. Not true b/c they had
complete discretion with what they did with their $
o Rule: In order to use a force majeure clause as an excuse for nonperformance, the event alleged as an excuse must have been beyond the
partys control and not due to any fault or negligence by the non-performing
party.
Financial hardship is not grounds for avoiding performance
Mel Frank Tool v. Dichem
o Hazardous chemicals case where not ALL inventory was hazardous, so b/c city code prohibited
hazardous materials does not mean the can avoid performance
o Rule: A partys performance under a lease may not be excused when a law or
ordinance restrict use of the premises, but does not completely render the
premises unusable by the party.
Hochester v. De La Tour (Anticipatory Repudiation)
o K to be a courier, but employer decides before date of performance to not have him as an
employee
o Rule: If two parties enter into a contract to be performed at a designated time
in the future, and one party refuses to perform the contract before the
designated time the parties agreed to perform, the other party may sue
before the contract was to be performed. That party need not wait until the
time for performance has passed.

Contractual Excuses
(Material Breach)

Material Breach
o Common law v. Sale of Goods
Material breach in a common law concept excuses performance of other party
ONLY if breach is material
UCC takes perfect tender approach
Any breach by the seller will excuse buyer from performing (no substantial
performance)
If party does NOT 100% perform breach
o Restatement 237
Except as in 240, it is a condition of each partys remaining duties to render
performances to be exchanged under an exchange of promises that there be no
uncured material failure by the other party to render any such performance due at
an earlier time
o Restatement 241

In determining whether a failure to render or to offer performance is material,


the following circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit
which he reasonably expected;
(b) the extent to which the injured party can be adequately compensated
for the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform
will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform
will cure his failure, taking account of all the circumstances including any
reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to
offer to perform comports with standards of good faith and fair dealing.
o Simultaneous performance (Modern): either party that doesnt perform is in breach.
Restatement 234(1)
(1) Where all or part of the performance to be exchanged under an
exchange of promises can be rendered simultaneously, there are to that
extent due simultaneously, unless the language or circumstances indicate
the contrary.
Breach can be accidental, does not have to be result of negligence
Construed towards rights of non-breaching party
1.) Breach is Not Material (Substantial Performance)
o Non-Breaching party can:
Seek monetary damages for any loss
2.) Breach is material, but not total
o Non-breaching party can:
Suspend performance
Wait for cure
Seek monetary damages for any loss
3.) Breach is material and total (incurable)
o Non-breaching party can:
Withhold further performance
Terminate contract
Seek full monetary damages
Jacobs v. Kent
MODERN: look to intent of parties
FORMALIST: look at words of contract
Material breach v. Substantial Performance
o They are inverse
If there is material breach NO SUBSTANTIAL, vice versa
Perfect Tender Rule
o UCC 2-601: Buyers Rights on Improper Delivery
Subject to the provisions of the Article on breach in installment of contracts and unless
otherwise agreed under the sections on contractual limitations of remedy, if the good or
the tender of delivery fail in any respect to conform to the contract the buyer may:
Reject the whole, or;
Accept the whole, or;
Accept any commercial unit or units and reject the rest

Cases

Nichols v. Raynbred
o Cow for 50 schillings who performs first?

Rule: In a contract exchanging a promise for a promise, a party does not have
to perform before he can recover.
o NOTES: COURT APPLIED EARLY RULE WHICH HELD THAT IN AN
EXCHANGE OF PROMISES FOR A PROMISE, EACH PROMISE IS TREATED
AS INDEPENDENT OF THE OTHER. THEREFORE, EACH PARTY IS
ENTITLED TO SUE THE OTHER FOR NONPERFORMANCE
Kingston v. Preston
o Silk Merchant buying the business
o Rule: When one partys performance under a contract is dependent on the
prior performance of the other party, the other partys performance is a
condition precedent and performance will be excused unless the condition is
satisfied.
Brinton v. Turner
o K to perform one year of labor for $120. stopped performing at 9mos and did not pay at all
o Rule: If a party breaches, but had partially performed a special contract, he
may still be able to recover a reasonable sum for the service he has actually
performed.
Jacob & Youngs v. Kent
o Wrong pipe in the big house. Cant tear down the house. substantially performed and received
expectation damages for full performance minus the shitty pipe they installed
o Rule: A party who substantially performs its obligations under a contract is
entitled to expectation damages based on full performance of the contract,
minus an offset for defects in the partys performance.
Alaska v. Eagon Forest Products
o Log shipment that changed due to fluctuation in market that damaged the value of the K
o Rule: Under Article II of the Uniform Commercial Code (U.C.C.), only perfect
tender will satisfy a sales contract, and a buyer may reject delivery of goods
that do not conform exactly to the contract.
ESPN v. MLB
o ESPN had deal with MLB to show games. ESPN wanted to preempt those games with NFL, but
needed permission from MLB. No permission was granted so ESPN still preempted. MLB could
(1) elect to continue contract and sue for damages or (2) terminate K and sue for damages. MLB
continued 1998 season, but after same thing happened in 1999, MLB terminated
ELECTION OF REMEDIES:
(1) Continue and recover damages
(2) Terminate
o

Enforcing Ks/Damages
(Specific Performance, Liquidated Damages)
What remedies, if any, are available to the aggrieved party?

Efficient Breach: may be times when it is more economically efficient to breach and pay damages

Specific Performance (Exception Remedy)


o ARE THE GOODS/SERVICES UNIQUE?
o ONLY USED when awarding money damages would be inadequate
o NOT TYPICAL FOR US COURTS TO ENFORCE SPECIFIC PERFORMANCE
More interested in economic recovery
o Concern: forces court to police the parties
Liquidated Damages
o Damages explicitly stated at time of contract

o
o
o
o

Cases

Any party that breaches must pay set amount


If liquidated damages provision is meant to be penalty, generally wont be enforced
If meant to be estimation of damages, then generally enforced
Restatement 356
(1) Damages for breach by either party may be liquidated in the agreement but
only at an amount that is reasonable in the light of the anticipated or
actual loss caused by the breach and the difficulties of proof of loss. A term
fixing unreasonably large liquidated damages is unenforceable on grounds of
public policy as a penalty.
BLL: A party opposing liquidated damages is entitled to discovery and proof that the
damages resulting from the breach are susceptible to definite measurement or that the
damages are unreasonable when compared to actual damages suffered by non-breaching
party

Ash Park v. Alex & Bishop (Real Estate is Unique)


o K to purchase land from Ash Park. K contained clause allowing suit for specific
performance.
o Rule: Upon a buyer of lands breach of contract, the seller of the land
does not have to demonstrate that a legal remedy would be
inadequate before a court awards specific performance.
Lan Systems v. Netscout
o contracted to resell software w/ perpetual software upgrades and unlimited support.
Wanted specific performance but wasnt unique
o Rule: Courts may grant specific performance where the goods are
unique, in that they irreplaceable as a practical matter on the open
market.
Carr-Gottstein v. Benedict
o Construction that had to be finished in one year. Actual damages too hard to ascertain, but
liquidated damages was reasonable
o Liquidated damages clauses are proper where it would be difficult to
ascertain actual damages and where the liquidated amount is a
reasonable forecast of the damages likely to occur in the event of
breach.
Kvassay v. Murray
o Baklava case where the liquidated damages clause ended up being a
penalty since it was $105,000 when he would only make $20,000
o Rule: A liquidated damages clause will be upheld where it is deemed
reasonable considering (1) the harm anticipated or actually caused
by breach, (2) the difficulty of proving losses, and (3) the feasibility
of otherwise obtaining a sufficient remedy.
Learjet
o Lost volume seller for Learjet. Although another buyer bought the
jet for more, Learjet still lost out on one more sell of a plane
o Under the Uniform Commercial Code (U.C.C.) adopted by Kansas, a
lost-volume seller is entitled to damages for lost profits for a buyers
breach of a sales contract even if the item sold to another buyer.

Enforcing Ks/Damages
(Expectation)

Expectation Damages

o
o

Cases

Restatement 345
Injured party has a right to damages based on expectation interest
Restatement 347
Subject to the limitations stated in 350/353, the injured party has a right to damages
based on his expectation interest as measured by:
The loss in value (to the injured party) of the other partys performance caused
by its failure or deficiency, plus
Any other loss, including incidental or consequential loss, caused by the breach,
less
Any cost or other loss that (the injured party) has avoided by not having to
perform
Putting a party in the position it would be if the K was FULLY PERFORMED
Can calculate either
Replacement; OR
Loss in value
Remedies
(1) Purchase full performance
(2) Diminution in value
(3) DEFAULT: Pay and replace; UNLESS
the cost is WAY higher than the diminution in value (peevyhouse)

Economic Waste Doctrine


If it costs a lot to remedy harm and it is not worth it when compared with the loss in value
HOWEVER
If the breach is willful then the economic waste is overlooked (Groves)

Lost Volume Seller


More inventory than buyers = Lost volume
More buyers than inventory (no lost volume)
Can resell to other buyers

Hawkins v. Mcgee
o Hand that was operated on, but ended up growing hair Court could not put a value on a
perfectly good hand
Broke the warranty for a perfectly good hand
o Rule: When one party breaches a contract, the non-breaching party may
recover damages based on the difference between the value of the contract
as fully performed and the actual value of the non-breaching partys present
condition, plus any incidental damages reasonably foreseeable to all parties at
the time of contract formation.
Lewis Electric v. Miller
o substantially performed the K but did not pay. can recover unpaid K price minus what they
didnt perform
o Rule: Where a construction contractors performance is incomplete but
remedial, the contractor can recover the unpaid contract price minus the cost
of completing any unfinished work and remedying any defective work, plus
any other damages suffered by the owner, not to exceed the benefit actually
received by the owner.
Groves v. John Wunder Co.
o Gravel plant leased to who did not return it to its normal state because it wasnt worth it to them.
$60,000 to perform for a $12,000 value

Rule: Damages for willful breach of a construction contract, even where there
has been substantial performance are awarded as the cost of completing the
failed performance.
PeevyHouse
o Farm w/ coal that was leased to a mning co. who did not return land back to original state as
required. $29,000 for just a $300 dollar increase in value. gets $300
o Rule: when the contract provision breached is merely incidental to the main
purpose in view and where the economic benefit which would result to the
owner from full performance is grossly disproportionate to the cost of
performance, damages should instead be limited to the diminution in value
resulting to the premises because of the non-performance.
o

Limitations on Money Damages

Cases

Avoided Cost
o If breach saves non-breaching party $, then expectancy analysis has to be reduced
Avoided Loss (Mitigation) (Parker v. 20th Century Fox)
o If non-breacher has opportunity to mitigate losses but fails, then court will reduce amount of loss
that could be prevented
o Restatement 350
(1) Except as stated in subsection (2), damages are not recoverable for loss that the
injured party could have avoided without undue risk, burden, or humiliation.
(2) The injured party is not precluded from recovery by the rule states in subsection (1) to
the extent that he has made reasonable but unsuccessful efforts to avoid loss
Foreseeability (Hadley v. Baxendale)
o Restatement 351
Consequential damages are recoverable if they reasonably follow from contract made, or
where there was explicit discussion that would put party on notice for expecting damages
Parker v. 20th Century Fox
o Actress who wanted one film that ended up not being produced. She was asked to do another that
was supposed to be the same. It wasnt.
o Rule: The measure of recovery by a wrongfully discharged employee is the amount of salary
agreed upon, less the amount which the employee has earned or with reasonable effort might have
earned from substantially similar employment.
Argentinis v. Gould
o gave a defective building, and didnt pay $43,000 to for performance. was double
compensated
o Rule: When a buyer receives a defective or incomplete building, any part of the
price that is as yet unpaid is deducted from the cost of completion that is
awarded to the buyer.
Hadley v. Baxendale
o Crank shaft was shipped negligently and claimed loss profits. The urgency for shipment to
avoid loss of damages was not communicated.
o Rule: When one party breaches a contract, the other party may recover all
damages that are reasonably foreseeable to both parties at the time of
making the contract, as well as damages stemming from any special
circumstances, provided those circumstances were communicated to and
known by all parties at contract formation.
ESPN v. MLB
o MLB did not show evidence of damages so they received nominal damages

Enforcing Ks/Damages

(Reliance and Restitution)

Cases

P has burden of proof and should present to court a proper basis for ascertaining the damages it seeks to
recover when seeking compensatory damages
When seeking damages for loss of goodwill, the P must not only prove the fact of loss w/ certainty, but the
loss must be reasonably certain in amount
o Damages may not be speculative or imaginary, must be reasonably certain and directly traceable to
the breach
Nominal damages:
o Awarded to a party that has not suffered substantial injury or loss for which he must be
compensated
Rest. 349: Damages based on Reliance Interest
o A P may recover damages based on his reliance interest, including expenditures made in
preparation for performance or in performance, less any loss that the party in breach can prove
with reasonable certainty the injured party would have suffered had the contract been performed
Reliance Damages:
o Put non-breacher back in position BEFORE they entered into contract. Reward damages based on
costs incurred based upon reliance on promise by breaching party
o Easier to prove, as money already spent (paper trail)
Restitution:
o Give the non-breaching party an amount equal to the benefit their performance conferred on the
breacher (i.e., disgorge amount by which unjustly enriched)
o Sometimes can exceed contract price
o Restatement 347:
Injured party has right to damages based on restitution interest, which is his interest in
having restored to him any benefit that he has conferred on the other party

Hollywood Fantasy Corp v. Gabor


o Rule: Under Texas law, damages for breach of contract may not be based on
unsupported claims of lost future profits, but the injured party may be
compensated for actual expenditures made in reliance on the contract.

United States v. Algernon Blair, Inc.


o Subcon can recover in quantum meruit the value of labor and equipment already
furnished to the contract irrespective of whether he would be been entitled to recover in a
suit on the contract
o D breached and retained benefits of equipment without having fully paid for them
o Moral view of assessing damages
Remedies Run-Down:
o Expectation:
Put non-breaching party in position that THEY WOULD HAVE BEEN IN had the
contract been fully performed
o Reliance:
Put non-breaching party in position THEY WERE IN BEORE the contract
o Restitution:
Give the non-breaching party an amount equal to the benefit their performance conferred
on the breacher