CONTRACTS SPRING 2015

WERTHEIMER
What is a contract?
- Contract = Agreement with consideration.
- A promise for the breach of which the law provides a remedy.
- If there is no remedy, then there was likely NO contract to begin with
- Courts are looking for evidence that gives them comfort level to say yes/no contract.
Sources of Contract Law:
1. The Contract
2. Common Law
3. The Restatement
4. Statutes
5. Treatises
-

ASSENT
How courts decide if an agreement was made/reached.
Embry v. Hargadine, McKittrick Dry Goods
Actual intention of parties is immaterial if a contract/agreement was reached and
understood.
Lucy v. Zehmer Drunk land sale.
Outward manifestation of intent is all that is evaluated when determining if
agreement was made.
Formation of agreement is determined by objective reasonable standard, not
subjective intent.
Morrow v. Morrow
Exception to general rule In family situations, intention of parties to actually form a
contract is important in proving a contract was created.
Cargill v. Mowery
Mutual mistake can be the basis for believing an agreement is made, if it is
reasonable to do so.

UCC 2-204(3)
- Even though one or more terms are left open, a contract for sale does not fail for indefiniteness if
the parties have intended to make a contract, and there is a reasonably certain basis for giving an
appropriate remedy.
Mutual Understanding of a Term
- If the term is material to agreement, a mutual understanding can void it. [Raffles v. Wichelhaus
(Peerless Case p. 459)]
- When a party knows the other misunderstands a term, but does not correct/clarify, they are bound
by the terms understood by the other. [Dickey v. Hurd, p. 462]

Restatement (2nd) of Contracts 20 Effect of Misunderstanding

- No manifestation of mutual assent to an exchange if parties have materially different meanings
and
Neither party knows of has reason to know the meaning attached by the other.
Each party knows or has reason to know the meaning attached by the other.
- Manifestations of the parties are operative in accordance with meaning attached to them by one of
the parties if:
That party does not know of any different meaning attached by other, and the other
knows the meaning attached by the first party; or
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.
In Sum:
1. When both parties dont know the definition of an ambiguous term No Mutual Assent.
2. When one party knows or has reason to know what the other party means by an ambiguous term
Contract.

OFFER
What is an offer?
- Expression by one party of assent to certain definite terms, provided that the other party involved
in the bargaining transaction will likewise express assent to the same terms.
Lefkowitz v. Great Minneaplis Surplus Store
An advertisement can be unilateral offer susceptible to binding acceptance, when it is
clear, definite, explicit, and leaves nothing to negotiation.
o More people the ad reaches, the less definite it becomes.
Ford Motor Credit v. Russell
The test of whether a binding obligation may originate in advertisements addressed to
the general public is whether the facts show that some performance was promised in
positive terms in return for something requested.
Courteen Seed Co. v. Abraham
The more recipients of a price quote, the less likely it is that it was an actual offer.
Price quotes alone DO NOT constitute an offer.
Southworth v. Oliver
Test for Offer Would a reasonable person have believed there was an offer
susceptible to acceptance given the context surrounding the incident?
Duration of Offers
- If no specification by offeror, acceptance must happen within a reasonable amount of time.
Akers v. J.B. Sedbury Resignation of offer case.
A reasonable time limit to an offer if a question of fact to be determined by observing
the context of the offer.

In face-to-face situation, a verbal offer reasonably expires after the conversation

ends.

Vaskie v. West American Insurance

Reasonable time limit for an offer is only a matter of law when the offer involves
commercial transactions in predictable industry standard situations.
Reasonableness of time it takes an offeree to accept is measured from the perspective
of a reasonable offeree. (What amount of time would be thought satisfactory by
offeror by a reasonable offeree?)
SOL is a factor but not dispositive of a reasonable time limit on an offer.
Caldwell v. Cline
An offers time limit runs from when it is received, not when it was created or sent.
Termination of Offers
- Offeror can terminate at any time prior to acceptance, unless contracted otherwise.
Restatement (2nd) of Contracts 36 Methods of Termination of Power of Acceptance
(1) An offerees power of acceptance may be terminated by
a. Rejection of counter-offer by offeree, or
b. Lapse of time, or
c. Revocation by offeror, or
d. Death or incapacity of the offeror or offeree.
(2) In addition, an offerees power of acceptance is terminated by the non-occurrence of any
condition of acceptance under the terms of the offer.
Offerors Power to Revoke
- Supported by fact that offer cannot be binding when there is no consideration.
- Revocation is effective when received.
Exception: When the method of revocation is reasonable, it is affective even if not
received. [Shuey v. U.S. Govt used same method to notify of revocation as method to
notify of the offer of unilateral K]
Options
- Contracts not to withdraw an offer for a negotiated period of time.
- Consideration for contract not to withdraw must be present.
Marsh v. Lott
When the actual value of the option is hard to determine, consideration is sufficient if
the overall exchange is fair.
Offer to sell is irrevocable if given for consideration, for the time period agreed upon.
Restatement (2nd) of Contracts 87(1)
An offer is binding as an option contract if it:
(a) Is in writing and signed by the offeror, recites a purported consideration for the making of the offer,
and proposes an exchange on fair terms within a reasonable time; and
(b) Is made irrevocable by statute.

UCC 2-205 Firm Offers

- Offer by merchant to buy or sell goods in signed writing which by its terms says it will be held
open is not revocable, for lack of consideration, during the time stated or if no time istated for a
reasonable time, but in no event may such period of irrevocability exceed three months; but any
such term of assurance on a form supplied by offeree must be separately signed by offeror.
Unilateral Contracts
- Offer for a unilateral contract request full performance as a form of acceptance to bind the offeror.
No contract arises until the completion of the act called for.
- Offer for bilateral contract requests a promise to fully perform as acceptance to bind the offeror.
Exchange of promises, contract arises before any performance.
Davis v. Jacoby
Courts favor finding a bilateral contract over a unilateral contract, because the former
leaves both parties protected from a potential breach.
Brackenbury v. Hodgkin
A party entering into a contract, or offering a unilateral contract, cannot act to prevent
the other party from performing.
Such action constitutes a breach, even in potential unilateral contract situations.
Restatement (2nd) of Contracts 45 Option Contract Created by Part Performance or Tender
(1) Where an offer invites an offeree to accept by rendering a performance and does not invite a
promissory acceptance, an option contract is created when the offeree tenders or begins the
invited performance or tenders a beginning of it.
(2) The offerors duty of performance under any option contract so created is conditional on
completion or tender of the invited performance in accordance with the terms of the offer.
*** Limited to acceptance by performance only! Cases where the offer does not invite a promissory
acceptance.
Carlill v. Carbolic Smoke Ball Co.
Unilateral contracts are not formed until the offeror should reasonably know or have
been notified that performance is completed.
Partial performance does not bind an offer for a unilateral contract as an option,
unless the offeree is reasonably notified.
Construction Bids
- Bids from subs are not irrevocable offers, even if the prime contractor relies on them to make
main bid. [James Baird Co. v. Gimbel Bros.]
Uses contract law as a basis for decision since the prime contractor is not bound to use
the subcontractor, even if the main bid is accepted.
- Bids from subs are irrevocable if the prime contractor relies on them to make their main bid and
the bid is accepted. [Drennan v. Star Paving Co.]
Relies on industry custom to determine that in this unique situation where every party
involved knows the importance on relying on bids from subs, those subs should be held
responsible for the bids that they make.
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Restatement (2nd) of Contracts 87(2)

- An offer which the offeror should reasonably expect to induce action or forbearance on the part of
the offeree before acceptance, and which does induce such action or forbearance is binding as an
option contract to the extent necessary to avoid injustice.

ACCEPTANCE
Offer is not binding on offeror until it is accepted by offeree.
Subjective intent to accept does not matter.
It must be shown that a reasonable person would have recognized the offerees outward
manifestations to constitute an acceptance.
Must except on the exact terms of the offer Otherwise it must then be counteroffer and accepted
by initial offeror.
Ardente v Horan
Acceptance with conditions or limitations is not valid acceptance It is a counteroffer.
Acceptance with inquiries completely separate from whether acceptance will occur is
still valid acceptance.
Eliason v. Henshaw
When explicit terms set forth in an offer are not met, an acceptance is not valid.

Alternative to Acceptance Counter-Offer

- If an offeree manifests an intention to take the offer into further advisement, this does not
constitute a rejection.
Collins v. Thompson
Counter-offers that stipulate that the original offer is still being considered does not
constitute a rejection.
Method of Acceptance
- When terms of acceptance are not explicitly mentioned in the offer, any reasonable method of
acceptance by the offeree is permitted. [UCC 2-206(1)(a)]
Allied Steel v. Ford
A method of acceptance is valid, even if it is different than method suggested by the
offeror, as long as the offer did not explicitly and exclusively require a certain
method of acceptance.
Starting performance on K is valid method of acceptance if the offeror knows that
offeree started performance and does not object.
White v. Corlies
Starting performance on a contract does not count as acceptance if the offeror does
not know about it. (Unreasonable.)

Bargaining at a Distance
- Mailbox Rule
Offer is effective when it is received.
Acceptance is in effect when it is mailed absent explicit provisions in the offer that
require actual receipt.
Adams v. Lindell
makes offer with time limit for acceptance.
mails acceptance but it gets misdelivered (because of ), reaches after the time
limit on acceptance.
Court held that acceptance is legally effective when it is mailed, not received, unless
otherwise stipulated by offeror in the offer.
Worms v. Burgess
Restatement rules that exercising an option contract does not apply the mailbox rule
actual notification or receipt of acceptance is required.
Agreement to Agree
- When parties sign letters or memos of intent before formalizing contract.
Arnold Palmer Golf v. Fuqua
An agreement to agree binds the parties to original agreement if the outward intent of
the parties is to be bound.
o Look at context of deal to figure out objective intent.
o Were the principal terms clear? The clearer they are, the more likely the
parties intended to be bound.
Restatement (2nd) of Contracts 27
- A binding contract may be made before a contemplated written memorial is finalized if
manifestation of assent on principal terms.
Empro v. Ball-Co
In a contract or agreement to agree, if one party expressly manifests an intent not to
be bound the other party cannot be bound by the agreement either.

CONSIDERATION
Consideration Legal detriment suffered by promisee in exchange for promisors promise.
Exchange of Value = Consideration!
Primary validation for obligations of contracts.

Legal Detriment
- Where promisee gives something of value in the exchange for a promise (action).
- When a promisee chooses to give up a legal right in exchange for a promise (forbearance).
Hamer v. Sidway
promised to give $5,000 if he did not smoke, drink, or gamble until he was 21.
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Court rules for because there was consideration.

Forbearance of legal right is sufficient to be considered part of an exchange for
consideration.
Motive or actual benefit to promisor is not important if bargain for legal detriment
occurs in exchange for the promise.

Baehr v. Penn-O-Tex Oil Co.

There must be actual evidence that a party bargained for the forbearance as an
exchange for consideration.
Neuhoff v. Martin Lumber and Cedar Co.
Implicit forbearance from suit is not enough to constitute a consideration.
Springstead v. Nees
Promise for forbearance from suit must involve a legally colorable claim in order to
be legally binding consideration.
Bargained for and Mutual Exchange
- Where the promisor made his promise as part of a bargain Promise made in exchange for
promisees legal detriment.
- Promise for a Promise Promises for past actions ARE NOT CONSIDERATION
Unenforceable.
Doughtery v. Salt
No exchange means no consideration and no legally enforceable obligation.
Exchange has to be for a promise of future events/conduct Not past events.
Maughs v. Porter
A consideration for a promise is present if there is an exchange in benefit and
detriment between the promisee and promisor.
Gifts Lack Exchange to be Consideration
- Promises without asking for an exchange = Gifts.
- A gift can come with a condition, but if such condition does not benefit the promisor in any way,
promise is not enforceable.
Equivalence of Exchange
- As long as exchange is done in good faith, anything is fine.
- However, if exchange is done under pretense to merely form consideration, equivalence of value
may be examined.
- When an exchange does not rise to level to be consideration, it is considered unconscionable.
Equivalence of value is a factor but is not dispositive.
Other factual issues must be present (i.e. one party is disadvantages in negotiations.)
Hardesty v. Smith
Third party sells his rights to his lamp invention to for promissory note, invention
ends up being worthless.
Something is worth whatever someone is willing to pay for it at the time of the
exchange barring unconscionability.
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Other Requirements
Good Faith in Performance and Enforcement
- Every contract or duty within the UCC imposed an obligation of good faith in its performance
and enforcement.
De Los Santos v. Great Western Sugar Co.
Beets case. knew of other contracts and that contract with was not for set amount
of beets to be transported.
Good faith reading of contract required.
Wood v. Lucy, Lady Duff-Gordon
Exclusive agent endorsement case.
A good-faith effort must be put forth by both parties and is implied in the contract,
regardless of the technical language.
Mutuality of Obligation
- The principle that each party must contribute their own value/legal detriment in an exchange for
consideration.
Weiner v. McGraw-Hill
Mutuality of contract does not mean two halves of the same thing.
It means that both parties must contribute something.
Pre-Existing Duty Doctrine
- If duty already exists and a further promise is made without any further exchange, the individual
dos not have to pay extra because there is no consideration.
- Example
If B wants more money for a project from A and A agrees to give more, that agreement is
not enforceable because there was no consideration. (A is not getting more for price
increase.)

PROMISES FOR BENEFIT RECEIVED

Way of creating an enforceable contract even when no consideration or reliance exists.
Mills v. Wyman
If no legal/actual benefit received no contract can be formed under this theory of
obligation

Restatement (2nd) of Contract 86

1. A promise made in recognition of a benefit previously received by promisor from the promise is
binding to the extent necessary to prevent injustice.
2. A promise is not binding
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a. If the promisee conferred the benefit as a gift or for other reasons the promisor has not
been unjustly enriched for,
b. To the extent that the value is disproportionate to the benefit.
Restatement (2nd) of Contracts 82
- If a legal technicality bars enforcement of a debt for benefit received (Statute of Limitations,
Bankruptcy, etc) but the debtee promises to pay anyway, implicitly or explicitly, that promise is
enforceable, regardless of technicality.
Webb v. McGown
Saves life, agrees to pay savior for life.
Subsequent promise to compensate for material benefit conferred can be treated as a
prior request and be enforceable.
A promise to pay shows the promisor acknowledged that it was not a gift.
Harrington v. Taylor
A voluntary and humanitarian act is not recoverable.
Edison v. Poppe
Subsequent promise to pay after a benefit is received is binding, even if receiving the
benefit was not requested.
*** Purpose of consideration and reliance is to make courts comfortable that a contract was
actually made.
-

PROMISSORY ESTOPPEL
Used to find recovery for a party in the absence of other modes of finding obligation such as
consideration.

Restatement (2nd) of Contracts 90

- A promise for which the promisor should reasonably expect to induce action or forbearance of a
definite and substantial character on the part of the promisee and which does induce action or
forbearance is binding if injustice can be avoided only be enforcement of the promise.
Functions of Promissory Estoppel
- Can be used to enforce promises that are otherwise unenforceable. (i.e. promises a gift, acts
in reliance, promissory estoppel is used to enforce the promise of the gift even though there is
no consideration).
Whether it can enforce a promise is determined by whether a court can determine the
terms/what the promise was.
- Can be used to provide a remedy/damage for detriment suffered from reliance on a promise
otherwise unenforceable. (i.e. indefinite terms, no consideration.)

Implied-in-Fact Contract
All elements of a contract are present except the actual written or oral statement
of terms.
Implied-in-Law Contract
Not a contract but a way to recover remedy based on a promise.
Ricketts v. Scothorn
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Promise enforced even without a showing of consideration because acted in

reliance to a promise.

Hoffman v. Red Owl Stores

Costs incurred during pre-contract negotiations susceptible to promissory estoppel.
Elvin Assoc. v. Franklin
Reliance damages awarded when knows relied to a detriment.
Alden v. Presley
Reliance stops once a promise knows the promisor does not intend to keep the
promise.
Siegel v. Spear and Co.
Promissory estoppel formed when relied on s promise to insure, thus changed his
action of getting insurance himself.
Ryerss v. Trustees of Presbyterian Congregation of Blossburg
An executory gift can become an enforceable contract when a promise reasonably
acted upon it.
*** Reliance is shown when a party reasonably acts differently than they otherwise would have
because of the promise that is made by another party.

UNJUST ENRICHMENT
1. A benefit was conferred upon at the expense of .
2. In an unjust situation.
Not always a way of forming a contract, but a way of PROVIDING RELIEF.
Quasi Contract
- A way of making a party pay for something they received unjustly (Restitution).
Watts v. Watts
Unmarried couple separating.
Unjust enrichment is not a contract, it is a way of recovering for those who conferred
a benefit towards another in an unjust situation.
Determining an Unjust Situation
- To determine if situation was unjust:
a. Did the person conferring the benefit expect to be paid when they conferred the benefit?
i. If not explicit, was it reasonable for conferrer to expect compensation?
b. Did the person receiving the benefit expect to pay the conferrer for the benefit?
i. If not explicit, was the benefit received of a type the recipient should have
reasonably expected?
Sparks v. Gustafson

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Relationship between the conferrer and the recipient is a factor in determining if it

was reasonable for the parties to expect payment for the benefit conferred.

Gay v. Mooney
Familial relationship suggests no unjust enrichment.
Evidence of a contract can be used to negate a familial relationship that would
preclude unjust enrichment.
Kearns v. Andre
Finds unjust enrichment even though did not technically receive benefit, merely by
saying he would have received benefit if not for his breach.
Gift Principle and Choice Principle
- Gifts are not eligible for restitution by an unjust enrichment theory.
- Conferring benefit without giving recipient a choice to reject it is also not enforceable by unjust
enrichment.

STATUTE OF FRAUDS
Certain types of contractual agreements must be in writing!
What typically fits under statute of frauds:
Contract to pay anothers debt.
Contract relating to real property.
Any contract that is to last more than a year.

Purpose
- To assure courts that a contract actually existed.
Issues Faced Under the Statute of Frauds
- Does it apply?
- If it does, is there a writing?
- If no writing, is there an exception?
Sterling v. Taylor
Extrinsic evidence (information gathered from other sources besides the primary
writing) can be used to clear up ambiguities.
Extrinsic evidence cannot be used to dispute the K. If the terms in memo are not
ambiguous, no extrinsic evidence is necessary.
McIntosh v. Murphy
Moving to HI for new job.
Reliance actions can be used as evidence to prove a contract was made, in spite of the
lack of a written agreement that violates the statute of frauds.
Jury can make factual determination of what the terms and damages should be once a
contract is established by reliance.
UCC Statute of Frauds
- Contracts worth more than $500 need to be in writing unless

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Product made for the party is specifically manufactured for that party and not suitable for
sale to others.
Party being charged admitted to the contracts existence.
Part of the agreement was performed.
Between two merchants, if an agreement was sent to the party being charged, a signature from
that party is not necessary if the party confirmed receiving agreement and did not object to the
terms within 10 days.

Partial Performance
- Partial performance can serve as evidence of contract and preclude the need for statute of frauds.
- Usually not in employment or property cases!

PAROL EVIDENCE RULE

Parol Evidence Rule Applies When
1. Two or more parties form a written contract/agreement,
2. The contract is integrated,
3. Evidence is antecedent to the contract,
4. Evidence varies or contradicts the contract.
Integration
- If the contract or specific term seems complete on its face, and/or
- If there is an express written clause stating the contract or term is integrated (while complete on
its face)
- Evidence that parties agreed to other terms outside the written ones defeats integration.
Approaches to the Parol Evidence Rule
Masterson v. Sine
Even if a K or term appears complete on its face, absent an explicitly written
agreement on integration, parol evidence can be heard to determine if it is credible
and thus admissible to the jury.
Court can hear parol evidence to determine if a jury can use parol evidence.
Baker v. Bailey
If a contract or term appears complete on its face, even absent an explicit written
agreement on integration, and even if parol evidence appears credible, parol evidence
applies against varying and contrasting evidence. [Majority Approach]
Parol Evidence Rule Exceptions
- Ambiguities
A contract term is ambiguous if it is objectively and reasonably susceptible to multiple
meanings. [Gold Kist]
Even if a contract term seems unambiguous on its face, evidence can be heard by the
court on a preliminary basis to determine if such an ambiguity exists. [Eskimo Pie]
Evident to create and explain an ambiguity is allowed.
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Subsequent Agreements
Collateral Agreements
Evidence of collateral agreement will be allowed if it is alleging a type of agreement that
would not naturally be part of a written agreement. [Mitchell v. Lath]
Allegations of Motive to Mislead 3rd Party
Even if a written contract appears integrated and unambiguous, if a party alleges that
written terms were meant to deceive a third party and not actually manifested intent of
the parties, court may hear parol evidence to prove the alterior motive on a clear and
convincing evidence standard. [Hield v. Thyberg]

REMEDIES
Restitution = Compensating for benefit received.
Reliance = Compensating for detriment suffered by parties acting in reliance. (Can encompass
restitution).
Expectancy = Compensate for where the non-breaching party would have been had K been fully
performed. (Includes profit, restitution, and reliance)
Cooper v. Clute
and had a contract where sold cotton for 10 cents per pound.
breached. Market price for cotton at time was identical to contract price.
Without evidence of incidental damages, cannot cover for breach because he did
not suffer any damage from price as it was the same.
o No Damage = No Remedy!
General Damages = Direct damages that occur as a result of the breach.
Consequential Damages = Damages that are idiosyncratic to the terms/situation in a particular contract.

Expectancy Damages
-

What did the non-breaching party lose? What would it take to put them where they would have
been had the contract been fulfilled?

General Expectancy Damages

When a party breaches a contract by cancelling a performance calculate damages by:
Cost Incurred Until the Breach + Profit
OR
Contract Price Amount Saved by Not Finishing
Profit = Contract Price Price to Perform
Add any reasonable reliance or other costs.
Subtract any amount paid by the breaching party, any amount recovered by salvaging
materials.
Evidence of profit must be brought by .

Cost of Completion v. Diminution in Value

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When a party obligated under K to perform acts as part of consideration and breaches by
failing to complete.
Groves v. John Wunder Co.
Non-breaching party is entitled to cost of completion not the diminution of value
resulting from breach by incomplete performance.
Radford v. DeFroberville
Actual value to from s contract performance is immaterial. If wanted
something to be performed in a contract and agrees, is obligated to perform.
Peevyhouse v. Garland
Cost of completion not awarded when it is grossly disproportionate to value of
completion. [EXCEPTION]

Doctrine of Economic Waste Exception to Cost of Performance

In the event that a party breaches by building something with a defect Cost of
performance (remedying the problem) cannot be used to find damages for the
non-breaching party if the cost involves destroying the building.
Instead, calculate damages as
Value of Building as it was Supposed to Be Value of Building as it is

Restatement (2nd) of Contracts 347, Comment B

Expectancy damages must represent the loss in value to the injured party of the
breaching partys performance that is caused by failure of or deficiency in that
performance. Requires a determination of the value to the injured party himself
and not the value to some hypothetical reasonable person or market.
Value of performance depends on particular circumstances.

Loss of Bargain
When a party has to find replacement contract because of breach
Nonbreaching party is entitled to the difference between the cost of replacement
contract and cost of breached contract if it causes a detriment.
Morello v. J.H. Hogan
can recover expectation damages in the form of the extra amount it cost to get the
same work done under the breached contract with .
Breaching party only gets restitution for partial completion on a contract after the
non-breaching party is fully compensated for where she would have been if the
contract was performed.
Thorne v. White
To get expectancy damages based on loss of bargain, non-breaching party must show
that the replacement contract was substantively the same as the initial one.
Replacement contract must be reasonably obtained.
Handicapped Childrens Education Board v. Lukaszewski

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If the non-breaching party has no other reasonable option than to acquire a more
expensive alternative to fulfill the breaching partys performance, breaching party is
liable for expectancy damages arising from the loss of bargain.

Lost Profit
In a pure executory situation (no action actually taken by non-breaching party).
Expectancy Damages = Profits.
Freund v. Washington Square Press
In order to receive expectancy damages, must show with a degree of certainty,
exactly what he sought to gain had the contract been fulfilled.
If it is impossible to know with certainty what the profits would have been then no
expectancy damages.
Warner v. McLay
Expectancy damages for purely executory contract can include damages for loss of
profit if the non-breaching party can show evidence that she sought to gain a profit
and how much.

Employment Cases
Breaching employer still owes the full payment of the rest of the contract as expectancy
damages minus mitigation.
Non-breaching employee must reasonably search for a comparable job, but will get
expectancy damages between the two positions/if they are unequal.

Availability of Expectancy Damages Qualifications/Limits

-

Foreseeability for Consequential Damages

Hadley v. Baxendale
Shaft repair delivered late.
Consequential expectancy damages must be reasonably foreseeable to the breaching
party.
Armstrong v. Bangor Mill Supply Corp.
Shaft repair conducted late.
If consequential damages reasonably foreseeable from s breach, then is liable.
The more directly culpable for the consequential damages, the more reasonably
foreseeable it was.

Tacit Agreement Test (Minority View)

Express consent needed for breaching party to be bound for more than ordinary damages.

Duty to Mitigate Damages Arising from Breach

Non-breaching party has a duty to mitigate the damages incurred in the event of a breach
by the other party.

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Non-breaching party can only receive damages suffered after a reasonable attempt to
mitigate damages is shown, and if the mitigation does not fully compensate where nonbreaching party would have been had contract been completed.
Clark v. Marsiglia
Painting cleaner case.
Non-breaching party has a duty to mitigate damages and not increase damages as a
result of breach.
Schiavi Model Homes v. Gironda
Man was supposed to buy mobile home, decided he wasnt going to, father said he
would take responsibility for the payments but co. decided to sell to someone else.
Failure to mitigate damages arising from breach is a defense for the breaching party.
Failure to mitigate is determined by whether the non-breaching party acted in a
reasonable manner to mitigate after the breach.

Employment Contracts Duty to Mitigate

In the event a contract is breached by the employer:
Employee is entitled to damages
Contract Price Mitigation (Comparable Work Found Post-Breach)
Mitigation is calculated only when employee takes a separate job that is
comparable to the former.
Content and Pay
If the subsequent job an employee has to take is one where employee could have
held it while still working other job, it does not count as mitigation.
Parker v. Twentieth Century Fox
Second movie was not sufficiently comparable so that declining it was a
failure to mitigate.

*** Some courts have been reluctant to hold a non-breaching party to fulfill their duty to mitigate
by accepting a second offer from the breaching party.
-

Lost Volume Seller

Merchants who are non-breaching parties can receive lost profit damages without a duty
to mitigate even if:
Unlimited supply
Intent to continuously sell supply
In re World Com
MJ argues that he is lost volume seller and so duty to mitigate does not apply.
MJ had capacity to find other endorsements after s breach but did not want to.
Not a lost volume seller.

Lost Profit Limitations

Evergreen Amusement Corp. v. Milstead
counter sues for loss of profit arising from s breach to complete the work
by a certain date.
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New businesses cannot get lost profit damages without reliable

evidence/reasonable basis for calculating what the profit would have been had
the breaching party fulfilled the contract.

Mental Distress
Chrum v. Charles Heating and Cooling
General rule is that in a commercial contract, damages for mental distress are not
recoverable.
Exception When the breach of contract leads to person/human related damages
where mental distress is highly foreseeable or inevitable.
Mental distress from pure loss of property is not recoverable in a breach
of contract.
*** Punitive damages are not recoverable in breach of contract unless breach arose from a tort
action.
Other Limitations to Expectancy Damages
- Medical Context Uncertainties in medical context make it unreasonable to do so.
- Loss of Reputation Hard to tell where your reputation would have been had contract been
fulfilled. Impossible to calculate worth.
- Loss of Expectancy to Attorneys Attorneys only get compensated for service rendered until
client terminates contract/employment.
Interest on pre-judgment award.

Reliance Damages
-

Used if evidence to calculate full expectancy damages are not available.

Used if non-breaching party does not want to deal with the extensive discover necessary for
awarding expectancy damages.
Used if the reliance damages cost more than the expectancy damages (losing contract).
Chicago Coliseum v. Dempsey
Pre-contract reliance damages usually unrecoverable.
Anglia Television LTD v. Reed
contracts to appear in a television show. breaches.
sues for reliance damages incurred before the contract was signed.
Pre-contract reliance damages can be awarded when the breaching party should
have known/knew that the non-breaching party incurred pre-contract expenses.
(Foreseeability)

Losing Contract
- Non-breaching party cannot recover the full amount of reliance damages for a losing contract.
- Non-breaching party can recover reliance damages minus whatever they would have lost from the
contract had it been completed. [L. Albert v. Armstrong]
*** Award for damages cannot place party in a better position than they would have been had the
contract been fulfilled.

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Consequential Reliance Damages

- Same reasonable foreseeability rule as expectancy.
Coppola v. Kraushaar
Wife cancels wedding because of dress being late.
Non-breaching party cannot recover for consequential reliance damages were too
remote/unforeseeable to form a breach.
*** In an exam, always mention why damages were unforeseeable. Argue facts to support
conclusion.

Overhead Costs as a Part of Reliance Damages

- Includes expenses for regular operating costs.
- Can be awarded only based on a showing of causation. [Autotrol v. Continental]

Restitutionary Relief and Theories of Obligation

-

Doctrine based on equity.

Can be monetary relief or specific performance.
Form of relief can be from unjust enrichment but also breach of contract.

Restatement (2nd) of Contracts 371

a. The reasonable value to the other party of what he received in terms of what it would have cost
him to obtain it from a person in the claimants position. (Quantum Meruit)
[OR]
b. The extent to which the other partys property has been increased in value or his other interests
advanced.
Realmark v. Ransom
Court rules that non-breaching party is entitled to the greater of the two forms of
restitution relief.
Where a non-breaching plaintiff conferred a benefit and elects a restitutionary recovery
- Form of remedy for a breach of contract.
- Losing contract does not limit restitution damages.
Susi v. Zara
The calculations of restitutionary relief is not automatically limited by the
provisions of the contract breached.
Oliver v. Campbell
Restitutionary relief can be limited to the contract price if the non-breaching
party fully performed the contract.
Bausch and Lomb v. Bressler
Non-breaching party gets the value of the benefit conferred minus any value of
benefit the non-breaching party received in exchange. (Years that did enjoy
exclusive rights)
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Osteen v. Johnson
can get restitution relief for the amount paid minus the reasonable value of
what did fulfill in the agreement.
Where the plaintiff conferred a benefit but the contract is invalid or unenforcible
- Restitution relief can be form of relief in a valid contract with consideration or
- Restitution can be a form of relief in an agreement that cannot be enforced as a contract, but
benefit was conferred on to the non-breaching party, if there is any money left over after taking
care of the non-breaching partys interests.

Where the plaintiff has materially broken the contract after conferring a benefit
- Breaching party cannot recover on a contract theory but can recover for any unjust enrichment of
benefit conferred on to the non-breaching party, if there is any money left over after taking care of
the non-breaching partys interest.

Monetary Remedies Where the Theory of Obligation is Reliance

-

Whether there is a contract has a huge role in determining a remedy.

If promissory estoppel forms a contract, then all remedies are available.
Goodman v. Dicker
If PE does not form a contract, then loss of profit cannot be awarded.
D&G Stout v. Bacardi
Court rules that can recover reliance damages for the difference in price
between initial offer and subsequent offer as a result of s broken promise.
Walters v. Marathon Oil Co.
In cases where promissory estoppel is the theory to obligation that creates a
contract (serves as consideration), expectancy recovery is allowed.
When expectancy damages (loss profits) are clear as to what they would have
been had the contract been fulfilled.

*** Whether or not PE can be used to form a contract is usually determined by how clear the terms
of the proposed agreement was that was relied upon (i.e. was everything there besides signature?)

Specific Performance
-

Court order to have a party perform contract (i.e. injunction).

Requires
Item/thing in the contract is unique.
Other remedies at law (monetary damages) cannot fully compensate the non-breaching
party.
Never includes personal service contracts.
Kitchen v. Herring
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Land is unique by definition.

Monetary damages cannot fully compensate a non-breaching partys interests in a
sale of land contract.

Curtice Bros. v. Cutts

Situation can dictate whether an item is unique. If the non-breaching party cannot
obtain the chattel through other viable means in the market.
Scarcity of chattel in a situation can substitute for the uniqueness requirement.
Curran v. Barefoot
agreed to sell a house with all the furniture. breaches.
Specific performance to sell the personal property with real property of the house
is appropriate.
Contract for chattel susceptible to specific performance as an equitable remedy
when a remedy at law is inadequate to fully compensate a non-breaching party.
Laclede Gas v. Amoco Oil
Propane contract case.
Future/long term interest can create situational uniqueness for the purpose of
specific performance.
Defenses to Specific Performance
1. Unfairness A part that has not been fair. Clean hands in a transaction cannot seek the
equitable remedy of specific performance.
2. Lack of Mutuality of Performance Specific performance will not be ordered unless the party
seeking performance can prove they can pay/compensate for the performance.
3. Indefiniteness of Agreement If an agreement is ambiguous in its terms such that the court
cannot clearly determine that the specific performance entails, no specific performance is
allowed.
4. Impracticality of Performance If it is difficult to enforce specific performance or requires
more than minimal court supervision to do so, specific performance not likely to be awarded.

Specified Damages Clauses

-

Liquidated damages clause means that these clauses are recoverable (when you call something
liquidated damages, you are concluding that it is recoverable).
Other clauses that outline specific damages are not liquidated damages if they seek to punish not
fairly compensate for breach of contract.
H.J. McGrath v. Wisner
Specified damages Clauses can only be considered liquidated damages and
recoverable when:
The amount is reasonable to compensate for the breach.
It is otherwise difficult to determine what actual damages are.

UCC 2-718(a)
- Damages for breach by either party may be liquidated in the agreement if the amount is
reasonable in light of the anticipated or actual harm caused by the breach, the difficulties of proof
of loss, and the inconveience or nonfeasibility of otherwise obstaining an adequate remedy.

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Liquidated Damages Awarded In the Absence of Actual Damage

- Some courts have held that if it was reasonable, at the time of the formation of the contract, for
parties to assume there would be damages from a breach, and a specified damages clause was
drafted, then liquidated damages can be awarded even in the event of no actual damage.
- The rationale being that a reasonably formed specified damages clause can at time award a nonbreaching party less than actual damages, so it should at times award more than actual damages.
Three Main Requirements of Finding Specified Damages Clauses to be Liquidated
1. Is it a reasonable calculation of probable damages arising from breach? (most important)
2. Was it difficult to predict what the actual damages would have been at time the contract was
formed?
3. Is it proportional to actual damages?
Specified Damages Clauses Seeking to Limit Recovery in the Event of Breach
- Usually not allowed as liquidated damages [Rinaldi v. Wells Fargo]

POLICING DOCTRINES
How courts will invalidate a contract.
Two Types
Procedural Formation process.
Substantive Unfair treatment/content of the contract.
Unconscionability
Would a reasonable person have agreed to this? So outrageous that the
court will not enforce it.
Examine the context of the situation, including who the parties are.
The more substantive issues that the court finds, the more likely they are to find
procedural flaws in the contract.

Duress
- When a party is forced to accept the terms of a contract, in certain situations that party will not be
liable for fulfilling the terms.
Standard Box v. Mutual Biscuit
Duress can only be alleged when it is caused by the party to whom a duty is
owed.
The person forcing you to agree must be the same individual causing the duress.
Misrepresentation
- Misrepresentation of fact.
- Reliance on misrepresentation.
- Materiality of fact.
Porreco v. Porreco
wants to rescind a prenupt that she signed because her wedding ring ended up
being fake.
Court rules for .

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It was unreasonable for not to get her ring appraised before the prenupt
because the ring was an asset for her.
Court focuses on the reasonableness of her reliance.
*** Smell Test If it smells bad it likely is bad. ***

Public Policy
- Contracts that violate public policy are not enforceable!
- Exculpatory Clauses
Contract clauses seeking to limit liability.
Exculpatory clauses that try to exempt parties from any liability arises from negligence
will be void as a matter of public policy.
- Non-Compete Covenants
Contract clauses where the former employer or partner is bound to certain restrictions.

Unconscionability
- General idea that contract is unenforceable because it is shockingly unfair.
- Substantive
Terms of K shock the conscience of the court.
- Procedural
Bargaining process was oppressive, unequal , or shocking.
If elements of both are found, the court is more likely to void.
- Doctrine can incorporate elements of fraud, misrepresentation, inequality of exchange, and
duress.
- Inequality of the Exchange
Failure of consideration.
Does it shock conscience of a reasonable person?
GROUNDS FOR LEGITIMATE RESCISSION
Mutual Mistake
- Both parties make same mistake of fact prior to contract formation (not opinions, judgments,
predictions).
- Fact was material Relates to basic assumption of the parties.
- Risk was not allocated to party seeking rescission.
Sherwood v. Walker
Pregnant cow case.
Court rules that seller can keep cow.
Mutual mistake is found when the mistake of fact is material as to change the
essence of consideration.
Wood v. Boynton
Diamond sold as pebble case.
Unless buyer knew of the actual value, has duty to know what he was selling.

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What was given was what was bargained for Fact that it ended up being
something else after the sale does not rescind because should have
checked/done reasonable research.

Lenawee County Board v. Messerly

Sewage tank case.
Court rules against buyer trying to rescind.
A mistake of fact is material if it relates to the basic assumption of the parties
upon which K is made.
Even if mutual mistake of fact is found, a court has the discretion to weigh the
equities and decide who should bear the risk. If K assigns the risk of mistake to
buyer, then no rescission.

Unilateral Mistake
- General rule is that unilateral mistake will not be grounds to rescind a K absent a showing of
fraud. [Triple A Contractors v. Rural Water]
- Court may rescind based on unilateral mistake. [Donovan v. RRL Corp.]
Clerical error or good faith error resulting from minor negligence.
Mistake regards a basic assumption made for the contract.
Party that made the mistake did not bear the risk.
Enforcing the contract would be unconscionable.
Impossibility and Impracticability
- Impossibility -- Voids contract obligations if the event responsible for impossibility is not caused
by a party. [Taylor v. Caldwell]
Unless party bore the risk.
Unless party could have done something to prevent impossibility.
- Impracticability Not impossible but close!
Marcovich Land v. J.J. Newberry
was tenant store burns down and landlord refuses to rebuild. Likely no
insurance/inadequate insurance to pay for rebuild.
Question of who gets stuck/who pays?
Court tries to decide at what level would they let someone out of k? Bad business
deal IS NOT enough!
Test = Whether there is extreme difficulty, expense, injury, or loss that goes well
beyond the range of what might be expected.
Mineral Park Land Co. v. Howard
Gravel hauling K For all the gravel that they need. Contract becomes too
expensive because the gravel is too hard to remove.

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Must be more than bad deal!! There was k, amount was specified must look
to intent of the parties/scope of the duties contemplated.

Transatlantic Financing v. United States

Suez canal closed, forcing to have to travel around cape of Africa taking longer
than what it should have.
3 Criterion for Impracticability
Contingency Something unexpected happens.
Must not have been allocated by agreement or custom.
Occurrence must have made event impracticable.
** SO unexpected that it wouldnt even normally be in K.
** Must be such a bad deal that consideration fails!
Mishara v. Transit Mixed Concrete
Contract for to supply all of the concrete needed. Workers picketing so
stopped delivery.
claims impracticability, but court says that does not have to cross picket line
if it is against their values, BUT they must assume responsibility for any
consequences.
*** If no allocation of risk in K Look to parties intent. Case by case decision BASED ON FACTS!
Flowchart for Impracticability
Unexpected Event? ----> No Not impracticable.
|
|
Yes -------> Allocated in K? ----> Yes End of Issue.
|
|
No ------> Can we figure out intent of parties? ----> Yes End of Issue.
|
|
No -------> Commercially Impracticable?
Frustration of Purpose
Krell v. Henry
leased flat to for 75 pounds for viewing the coronation of King Edward VII.
did not have full amount but put down 25 pound deposit. Coronation was
cancelled and doesnt want to pay rest of the amount/wants their 25 back.
Foundation of the contract = the coronation, without that event happening, there
is no K. This event was of such a character that it cannot have been contemplated
by the parties when contract was made.
Test = Whether the event that causes this was or might have been
anticipated/guarded against.
Lloyd v. Murphy

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leased premises for the sole purpose of selling new cars WWII starts and is
unable to maintain a viable business, wants out of K.
Frustration is not impossibility. Performance is still possible, but in this case, it
should be evident that value of performance to party seeking rescission has been
destroyed by something unforeseeable.
Question to be Answered = Whether to place the burden on or .
Must prove extreme hardship:
Risk was not foreseeable.
Value of performance was totally or nearly totally destroyed.
Acts of the govt/war cannot invoke the doctrine of frustration.

Downing v. Stiles
buys share of restaurant business on promissory note and relies on funds from
bar next door to pay for this Bar burns down, refuses to pay.
Not enough that transaction is less profitable for party or that he will sustain a
loss Must be SO severe that it is not fairly to be regarded as within the risks
that he assumed under the K.
In this case, bar closed but the restaurant continued doing business for 6-7
months, so was not severe enough.

Smith v. Roberts
Entered into lease with intent to make an opening to expand into the new area.
Fire destroys the original store.
Application of Commercial Frustration
Frustrating event was not reasonably foreseeable.
The value of counterperformance by the lessee had been totally or nearly
totally destroyed by frustrating cause.

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