Contracts Outline Fall

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I. INTODUCTORY MATERIALA. Approaching a Contract Fact PatternIs there a proper contract?What are the terms?Are the terms enforceable?What was the nature of the breach? What are the nature of the damages?What is the most appropriate remedy?

Contract: An exchange relationship between two or more parties created by written or oral agreement, containing at least one promise, and recognized by law as enforceable.

B. Fundamental Policies and Values of Contract Law1. Individual Autonomya. Contracting is an exercise of personal liberty and no person may be bound in the absence of the persons assent b. Ideological basis of contract freedom stems from the notion that market relationships/exchanges are most efficient when its participants desire them and a free to bargain and reach mutually desirable termsc. Contract liberty is important however it is subject to limitations justified by the need to protect the rights of others or the demands of public interest2. Imbalance of Bargaining Power and Adhesiona. In many instances, one of the parties has greater sophistication and bargaining power than the otherb. When one part dictates the terms and presents it on a take it or leave it basis, they are considered contracts of adhesion (the weaker party has no choice but to adhere to the desires of the other)c. General policy is not to interfere with contracts because there is an element of adhesion HOWEVER there are safe guards to prevent abused. Judicial intervention is possible when a partys conduct becomes unfair or improper 3. The Morality of Promise Pacta Sunt Servanda a. Pacta sunt servanda agreements must be kept reflects the inherent moral dimension of contractsb. Although the roles morals play is subtle, courts tend to react unfavorably to deliberate breaches, especially if motivated by bad faith 4. Accountability for Conduct and Reliance a. Volition is not (and cannot be for practical reasons) measured by the true and actual state of mind of a party, but rather by their actions (their state of mind as made apparent to the outside world)b. Reasonable reliance (trust in the other partys intentions and actions) is key c. The sense of reliance called security of contracts or security of transactions provides an incentive to make and fulfill contracts 5. Commercial and Social Valuesa. One role of contract law is to facilitate transactions within the context of a free market economy b. ON THE OTHER HAND another important function of contract law is to regulate free market forces and promote important social values such as fairness in dealings and protection of weaker parties C. Measuring Compensation/Damages1. Restitution Interest The interest of a party in recovering values conferred on the other party through efforts to perform a contract; party is entitled to recover money/services given to the other2. Reliance Interest The interest of a party in recovering losses suffered by virtue of reliance on the contract, whether or not there was a corresponding gain to the opposite party; restoring the party to where they were before the contract3. Expectation Interest The interest of a party in realizing the value of the expectancy that was created by the others promise; putting the party in the place where they should have been had the contract been fulfilled1. Figure out what the position of the non-breaching party would have been if the promise had not been breached;2. Figure out the position that the non-breacher is presently in as a result of the breach3. Figure how much he or she needs to get from the present position to the position he or she would have been in if the contract had been performed.D. Determining Remedies for Breach of Contract1. Determine the nature and extent of Ps compensable loss including harm suffered and the availability of remedies.2. If more than one remedy is available, decide which most efficiently and comprehensively compensates for it3. Take into account any policies or principles that may limit the defendants liability for lossE. Basic Considerations 1. Damages for breach of contract are awarded to compensate for injury caused by the breach that is foreseeable and reasonably within the contemplation of the parties at the time the contract was formed. 2. To recover damages the plaintiff need only show a stable foundation for a reasonable estimate of royalties he would have earned had defendant not breached.3. The law awards damages for breach of contract to compensate for injury caused by breach. Such an injury must be foreseeable and reasonably within the contemplation of the parties at the time the contract was entered into.4. The injured party should not recover more from the breach than he would have gained had the contract been fully performed.

II. CONTRACT REMEDIES (Damages or Specific Performance)A. DAMAGES1) Goals1. The aggrieved party receives gains prevented (expectancy interest) plus losses sustained (reliance and restitutionary interests), subject to limitation imposed by(1) Foreseeability (UCC 351)(2) Certainty (UCC 352)(3) Mitigation (UCC 350)2. Place aggrieved party in the economic position they would have been in had the contract been performed; benefit of the bargainIII. LIMITATIONSA. FORESEEABILITY1. Contract damages cannot be recovered unless they are foreseeable to the parties at the time of contracting Prutch v. Ford Motor Co.: Ford is liable for crop damages from defective equipment, the damages were "foreseeable."

a) General Damages: arise naturally, in the ordinary course that should be obvious to the breacher without any special or particular knowledge of the other partys circumstances or affairs b) Incidental Damages: costs and expenses incurred by the victim of breach in attempting to deal with it and in attempting to deal with it and taking action to seek a substitute transaction or to curtail lossesc) Consequential Damages: losses or injuries suffered by the victim of a breach going beyond the mere loss in value of the promised performance (direct damages) and resulting from the impact of the breach on other rights, transactions, or endeavors affected by the contract Victoria Laundry: Laundry owner ordered boiler delivered five months later than promised. D is liable for lost profits except a few lucrative deals defendant could not have known about. Hadley v. Baxendale: Mill needed crank delivered, no damages from lost profits from the new shaft being delivered days late, because the damages did not naturally flow from a late delivery in general and the special circumstances were not communicated to the other party. Martinez v. Southern Pacific: Shipping company late in delivering a dragline for strip mining was liable for the fair rental value for the period of delay. Unlike Hadley, the dragline was valuable in itself, and that it could have been rented "should have been foreseen." Lamkins v. International Harvester Co: Farmer ordered tractor with lights for running at night but did not receive the lights for about a year; could not collect for not being able to harvest a crop because of not running at night because it is unlikely the dealer was aware 2. Avoiding Economic WasteIf the performance would be disproportionately costly, the proper measure of damages is the diminution in value measure Groves v. Wunder: The defendant owes plaintiff, not the difference between the value of the land if defendant had performed (value of land with level grade), but the value of the actual performance lacking by breach of the contract. Peevyhouse v. Garland Coal: D refuses to restore the farm after strip mining as specified in contract. The performance would be disproportionately costly, the proper measure of damages is the diminution in value measure. Dissent: Restoration was an essential part of this agreement and it was a condition. If the value of the performance should be considered in determining damages, the value of the benefits received should also be considered. The law cannot make a better contract for the parties than they have made for themselves and should not alter it for the benefit of one party and to the detriment of the other.When diminution may be inappropriate or inadequate measurement Laurin v. DeCarlois: P bought a tract of land from the D.Before the transaction was closed, D took gravel from the property without permission.The P sued for breach of contract and were awarded the market value of the gravel. The profit on the gravel was theres to make3. Sale of Goods (2-712, 2-713, 2-706, 2-708)a) Sellers Non-DeliveryBuyer recovers as general damages 1. difference btw market price and contract price or 2. difference btw reasonable cover and contract price Acme Mills & Elevator Co. v. Johnson: D sells wheat to another buyer; Johnson covers. In contracts for the delivery of personal property at a fixed time and at a designated place, the measure of damages is the difference between the contract price and the market price of the property at the time and place of delivery. Missouri Furnace Co. v. Cochran: P contracted with D to deliver a year's worth of coal at specified delivery dates, and when D breached P purchased the remainder from another individual. P is entitled only to the difference of the original contract price and the market price on each of the breached delivery dates Reliance Cooperage Corp. v. Treat: For a breach in Sep. for staves due in Dec., "there is no duty to mitigate damages until there are damages to mitigate," difference between contract price and the price when the contract was due was awarded. Illinois v. Crail: D failed to deliver entire amount of coal contracted for. Whether P is entitled to compensation calculated using the retail (small amount of replacement coal) or the wholesale price (more coal than necessary)? Given that there was coal available at wholesale price and that this is the manner in which P purchased more coal, he is only entitled to compensation at that price. b) Sellers Breach of WarrantyBuyer recovers as general damages difference btw value the goods as warranted and their actual value. Value is determined at time and place of acceptance. (Difference in Value) Hawkins v. McGee: The measure of damages is the difference between the value of a good and perfect hand and the hand actually received.c) Buyers Breach1. Seller may recover difference in contract price and the market or resale price2. Volume Sellers: may recover instead profit including reasonable overhead which seller would have made had buyer performed 2-708 Neri v. Retail Marine: Buyer breaching contract for boat, seller is awarded repayment of down payment minus the profit seller would have made as well as seller's incidental expenses (Policy: a volume seller, even if he finds a replacement buyer, is only making one profit when he could have had two)

d) Consequential and Incidental Damages in SalesCD and ID are available to a buyer if foreseeable. Sellers cannot claim CD but frequently get ID.

4. Employment Contractsa) Employers Breach1. Employees discharged in breach of contract may recover the income payable during the contract term less the income they have earned by properly mitigating2. The employees rejection of or failure to seek a different or inferior kind of employment may not be considered; employer must show that the otheremploymentwas comparable or substantially similar to that employment of which the employee was deprived. The employees rejection of or failure to seek a different or inferior kind of employment may not be considered. Parker v. 20th Cent. Fox: actress rejects replacement film offered; employer must show that the otheremploymentwas comparable or substantially similar to that employment of which the employee was deprived. Billeter v. Posell: D was awarded full wages for employer hiring someone else (for "floor lady and designer") and offering d a lower wage. The amount owed does not subtract unemployment compensation, nor does it subtract the lower salary offered to the employee.b) Employees BreachIf an employee quits in breach, employer recovers difference in market value of services and contract price 5. Construction Contractsa) Contractors DelayDamages measured by the rental value of the completed premises for the period of the delayb) Failure to CompleteCompensated by additional cost of completion plus delay damages Nursing Home Case: A construction company that did not finish construction on time is only liable for the amount it would cost to finish construction minus amount not paid. In this case, the amount not paid was more than it would cost to finish construction, so nothing was owed p.c) Defect in ConstructionCost of correcting the defect, unless this would constitute unreasonable economic waste, then diminution in value with the defect Pinches v. Swedish Evangelical Lutheran Church: P contracted to construct a building for D, but the ceilings were lower, the windows narrower, and the seats narrower than the specifications require. Cost to address issues would be great. P should be awarded the contract price minus the diminution in value from the deviation.d) Owners Breach1. If no work has been done, contractor recovers the anticipated profit (contract price cost of performance) 2. If the work has been started, contractor recovers anticipated profit + cost of labor supplies actually expended 3. If the contract was unprofitable, the contractor would likely sue for restitution rather than damagese) Consequential DamagesIf foreseeability is shown, CD are available against a breaching contractor but if an owner breaches by failure to pay or by repudiating, consequential damages are never available to the contractor.

B. CERTAINTY 1. The fact of loss and its amount must be proved with substantial certainty2. Lost profits which cannot be proven, such as those from a new business, are generally not recoverable, New Business Rule Mind Games: P cannot recover lost profits for Ds alleged breach of its duty to promote a new board game because the profits are too uncertain. a) Alternatives 1. Protection of Reliance InterestWhere aggrieved party cannot establish the lost expectancy interest with sufficient certainty, may recover expenses for preparation and part performance as well as other foreseeable expenses incurred in reliance Chicago Coliseum Club v. Dempsey: P contracted with D for a boxing match, and D breached. Lost profits weren't awarded, too speculative. Expenses made before the contract not awarded (compare with Anglia T.V) Expenses made trying to force the defendant to comply were made at the P's risk. Security Stove: P hired D to transport a burner for a trade show. D delivered one crucial box late.P sued for reliance damages because expectation damages were too uncertain. Watt v. Nevada: The ds locomotive set fire to the ps hay stack and hay press.P sued for the market value of the hay destroyed, even though he only needed the hay for cattle feed in case of a severe winter since the hay had no use as feed, it was unsure whether or not it had any future use.Therefore, theres no way to calculate the damages due for that hay.It is deemed important that the plaintiff did not avail himself of the opportunity to purchase hay inAustin,Nevadato replace the hay destroyed.If D can show that the contract was a losing proposition for P, an appropriate deduction will be made for the loss not incurred. 2. Rental Value of Profit-Making PropertyIf breach disables the aggrieved party from using profit-making property, the aggrieved party may recover rental vale of the property (if profits cannot be shown, alternative to expectation)3. Value of an OpportunityA mutual agreement between two parties in which the performance of the contractual obligations of one or both parties depends upon a fortuitous event, and the breach makes it uncertain whether the event would have occurred, the aggrieved party may recover the value of the chance that the event would have occurred. (Applies only to aleatory contracts)C. MitigationDamages that could have been avoided by reasonable efforts cannot be recoveredAggrieved party may recover reasonable costs incurred in an effort to mitigatea) ExceptionsOne is not required to enter into another contract with the breaching arty even if offered contract would reduce damages Parker v. 20th Century Fox (Shirley MacLaine) Luten Bridge: City breaches contract to build a bridge but Luten doesnt stop work then demands the full contract price, should have properly mitigate.b) Non-exclusive contracts Mitigation is not applicable when relationship is non-exclusive, if the aggrieved party is free to enter into other similar contracts, entry into one after breach does not reduce damages Kearsarge v. Acme: D breached a service contract with P in which P was to perform. P recovers full contract price, even though P serviced other clients after the breach, because it wasn't shown that it would have been impossible to service the other clients but for Ds breach.D. Present Worth DoctrineWhere damages include payments that were required to be made in the future, the value of the payments must be calculated in such a way that adequately compensates P but does not enrich (awarding a lump sum which could be invested would do that; could be awarded a judgment for an annuity that would, over the period, yield the same amount the contract would have) E. Liquidated DamagesA liquidated damages clause is an alternative performance, not a penalty; enforceable only when1. Actual damages from a breach would have been difficult to determine accurately at the time of contracting AND2. The amount of damages specified in the clause (jurisdictional split) a. Must be a reasonable estimate of damages at the time of contracting; ORb. Reasonably proportional to the actual damages as determined at the time of the trial.3. Cannot recover liquidated damages in addition to other damages; one or the other4. May theoretically recover attorneys fees if expressed in the clause Muldon v. Lynch: P agreed in writing to create for defendant in a San Francisco cemetery a marble monument, to be completed within 12 months for $18,788. The contract stipulated a "forfeiture" of $10/day for every day it was late. The marble waited for over two years in Italy, and Dtried to withold $7820 because of lateness. D had not suffered any damages that could be monetarily compensated, and the payment was therefore a penalty which cannot be recovered. (Contract also used "forfeiture", which is equivalent to "penalty".) Yockey v. Horn: P and D parted ways with an agreement not to participate in a suit against the other, with breach bringing damages of $50,000. D later voluntarily testified in suit against P by a third party. D's testimony could have hurt P in several hard-to-determine ways, such as in the business community, and was thus "difficult to evaluate"exactly the purpose. Salmon Sales v. Honeywell: P contracted with D to have a burglar alarm system installed. A burglary took place and D claimed that its liability was limited to liquidated damages of $50 as per the terms of the contract. Held: Amount paid by P over the contract term and the protection it received from D in the event of Ds failure to perform the contract was grossly disproportionate. A clause in the contract limiting liability to a reasonable amount may have been deemed valid.F. Enforcement in Equity (specific performance) Manchester Dairy System v. Hayward: D failed to deliver milk from his cows. Specific performance is appropriate, because of the difficulty in assessing damages and to keep others from breaching. (Instead of affirmative specific performance, negative specific performance, in which the farmer cannot sell to others rather than being forced to sell to plaintiff, might be more manageable to the court.) Curtice v. Catts: Canning plant sued farmer for not delivering his entire crop of tomatoes. Delivery of the tomatoes might not be able to be replaced monetarily, and this would directly affect the economic viability of the factory. G. Other Limitations on DamagesParties may agree to limit damages a) Punitive damages (UCC 2-355)Not available without independent tortb) Metal Distress (UCC 2- 353)Recovery is excluded unless 1. the breach also caused bodily harm or the contract OR 2. the breach is such that serious emotional disturbance was a particularly likely result

Hancock v. Northcut: A contract for building a house is not sufficiently concerned with emotional well-being that a breach could bring about emotional disturbance damages. Valentine: Valentine was not awarded damages from breach of employment contract for mental anguish because an employment contract is primarily about economic issues.c) Nominal DamagesEvery breach creates a COA and nominal damages may be awarded w/out actual damages or economic harm d) Efficient Breach TheoryPareto Superior: the breach does not make either partys position worse; the party who stands to benefit should breache) Anticipatory Repudiation (2-610)When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party maya. For a commercially reasonable time await performance by the repudiating party; orb. Resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; andc. In either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704).B. RESTITUTION 1) GoalsPut party in same economic position they were in before entering into the contract; requires D to restore P what D had received however, D is not responsible for costs that did not benefit them (reliance). Recovery not based on contract (quasi contractual); substantial breach (voiding contract), or unenforceable contract. 2) Determining DamagesCourts have great discretionary power in evaluating damages they could use, 1. Market Value of the benefit conveyed or2. Value of the benefit to the recipient 3. Less any benefit received 3) Determining Substantial Breach to void contract 1. Was the breach "willful" (i.e., particularly reprehensible)?2. To what extent did the breacher perform his or her contractual duties?3. To what extent would awarding expectation damages adequately compensate the NON-BREACHER; the more adequate the expectation award, the more that counts against finding a substantial breach (equivalently, in favor of finding substantial performance).4. Would it under-compensate THE BREACHER to force the breacher to sue in restitution? If so, that weighs AGAINST finding a substantial breach. United States v. Algernon Blair, Inc.: A subcontractor, Coastal, starting doing work for a primary contractor, Blair. Blair refused to make certain payments and Coastal stopped work. Coastal is entitled to damages for services rendered because Blair has benefited from Coastals loss. The damages should be measured by the replacement value of the labor and equipment provided by Coastal. Britton v. Turner: P and D made a one-year employment contract for 120. The plaintiff stopped working after 9.5 months and is seeking compensation under quantum meruit. A hired laborer is entitled to compensation for work actually performed unless there is an express stipulation to the contrary in the contract.4) No restitution after complete performance Restitution not available if a debt has been created Oliver v. Campbell: A lawyer, was terminated after a divorce proceeding but before the signing of the judgment was complete. Given that P had already performed he was entitled to the contract price of his performance not any other value of the work he had done. A party should not benefit by getting more for their performed services than what was contracted in the first place. 5) Election of remediesIn absence of statute, P cannot recover both restitution and damages 6) Specific Restitutiona) Specific restitution may be awarded when money damages seem inadequate ex. A unique sale, real property or if damages are conjectural but definite, or a restraining order b) Affirmative rule of mutuality, available to either partyc) Not applicable to personal service contracts or situations requiring supervision

IV. CONSIDERATION AND EQUIVALENTSA promise that is not supported by consideration or its equivalent is not enforceable. Gratuitous promises are not so supported, and are only enforceable if the meet the requisites of promissory estoppel, or in certain limited instances, arise from a moral obligation.

A. THEORIES: LEGALLY ENFORCEABLE PROMISES1. 71 Consideration Theory: Requirement of Exchange (pg. 144)a. Performance or return promise must be bargained for b. bargained for if it is sought by the promisor in exchange for his promise and is given by the promise in exchange for his promise and is given by the promise in exchange for that promise (reciprocal inducement)c. Performance may consist of1) An act other than a promise OR2) A forbearance OR3) The creation, modification, or destruction of a legal relation2. 90 Promise Reasonably Inducing Action or Forbearance (pg. 147)a. A promise which the promisor would reasonably expect to induce action or forebearance on the part of the promise3. 86 Promise for Benefit Received (pg. 147) a. Promise made in recognition of a benefit previously received by the promisor from the promise is binding to the extent necessary to prevent injusticeb. Promise is not binding under subsection 1 if the promise conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched

B. CONSIDERATION (SEC. 71)1. Promisee must incur a legal detriment (do what he is not legally obligated to do or refrain from doing what he is privileged to do; legal detriment to the promise or legal benefit to the promisor; someone other than the promisee may incur the detriment 2. Promisor must have bargained for the detriment given in exchange for the promise. MOTIVE AND PAST CONSIDERATIONPast consideration and motive are not consideration; from a practical standpoint, parties cannot bargain for an exchange of something that has already happened ADEQUACY Any detriment, no matter how economically inadequate, will support a promise provided that the detriment is in fact bargained for. Any amount of consideration will do- there is no issue deciding how much is necessary. (all or nothing) Limited exceptions, for example, a. inadequacy of consideration may be an indication that the detriment was not truly bargained for, or fraud etc. b. when equitable relief such as specific performance is sought, detriments adequacy will be consideredc. court can always review fairness of legal feesd. court can review under the doctrine of unconscionability Hamer v. Sidway: Uncle promised nephew that, if the nephew would not drink, use tobacco, swear, or play cards until his 21st birthday, the uncle would give him $5,000. A suspension of a legal right is consideration, whether there was a benefit to the nephew is irrelevant. What benefit did the Uncle get? Doesnt matter, he was the promisor seeking a performance which was rendered. Enforceable. Allegheny College v. National Chautauqua County Bank: A woman promised a $5,000 donation to the college after her death if they would set up a fund in her name. She gave them $1,000, the P accepted, and then P sued for the rest after her death. Held: The condition of the fund in her name was sufficient consideration, and the P accepted those terms, so there is a valid contract with no need to consider promisory estoppel. CONTRACTS UNDER SEAL Thomason v. Bescher: D signed a contract under seal to sell a tract of land to P in consideration of the sum of one dollar to [them] in hand paid by C.E. Thomason, the receipt of which is hereby acknowledged. The contract stated that it would go into effect as long as Thomason asked for the deed and paid $6,000 by a certain date. A few days later, well before the expiration of the option, Thomason promised to pay the $6,000 the following week, but the Beschers told him that the option given to him had been withdrawn. Rule: Instruments under seal are binding at common law even without consideration. When the offer is accepted, it becomes a bilateral contract enforceable at equity.

C. NO CONSIDERATION 1. PROMISES TO MAKE GRATUTIOUS GIFTSNo consideration, not enforceable Congregation v. DeLeo: A dying man makes a promise to give money to a synagogue, put the expected money into their budget, and promised to convert a storage room into a library and name it after him. Should the estate be held to the man's oral statement? Held No, there was no consideration, as the synagogue declared their intention of what to do with the money independent of the man's promise. (Putting the money in the budget does not constitute reliance, but merely a record of the synagogue to itself that it expected the money.)2. SHAM AND NOMINAL CONSIDERATIONa. Sham Consideration: a lie, when a purported contract says that a consideration has been given when it hasnt. b. Nominal or token Consideration: when parties know that a promise will be unenforceable for lack of consideration, they attempt to make it so by exchanging a small token sum to create the form of a bargain. Fischer v. Union Trust Co: A father gave his daughter a deed to his land, on which there were several mortgages, and in return the daughter gave him a dollar. After his death, the mortgages were not paid. Was there enough consideration to make this a valid contract? No.

Restatement on offers with questionable consideration: an offer is binding as an option contract if it 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. 3. INVALID CLAIMSA promise to surrender a valid claim constitutes a detriment and, if bargained for, constitutes consideration. However, it is uncertain whether surrendering an invalid claim is a detriment. Restatement: either good faith or objective uncertainty as to the validity of a claim is sufficient 4. PRE-EXSISTING DUTY RULEPerforming a legal duty is not a detriment; no legal right is surrendered. 5. AGREEMENT TO ACCEPT PART PAYMENT TO SATISFY DEBTPart payment of a debt indisputably owed is not detriment to support a promise by the creditor to discharge the entire amount; the same is true even if there is purported discharge. (think about this as being in accordance with the legal duty rule; some jurisdictions make exceptions, for example, if unforeseen hardships make full payment more burdensome than anticipated)6. MORAL OBLIGATIONA promise made in recognition of a prior moral or legal obligation is not enforceable Mills v. Wyman (1825): Ds son returned from a voyage at sea and fell sick among strangers. P gave the son shelter and comfort, D wrote to P and told him he would pay all of the expenses for the care of his son. D later refused to pay. If the boy had been a minor, then the father would have had he duty to care for him, and in doing this, P would have conferred and economic benefit to D and in that case, it would fall under 86. However, the father had no obligation to care for his emancipated son, and no benefit was incurred unto him by P.7. INVALID/UNENFORCEABLE Duncan v. Black: Black contracted to sell Duncan 359 acres of farm land, with a 65 acre cotton allotment. The cotton allotment system was set up by the Secretary of Agriculture. Land under the Act was only allotted every year, so there is no way to know what land will be allotted the next year. Trying to sell an allotment is like the "purchase of the green cheese monopoly on the moon." (Besides, selling an allotment would therefore be illegal) Consideration needs good faith claim and the claim must have some legal validity.D. RELIANCE: PROMISSORY ESTOPPEL (SEC 90)1. A promise that foreseeably induces substantial and definite acts of injurious reliance by the promisee or a third party is foreseeable1. Promise is required2. Reliance must be of a kind that the promisor could have reasonably foreseen3. Reliance must be substantial and injurious rather than simply detrimental4. Promise will not be enforced unless injustice can be avoided by doing so, and only to the extent which justice requires Normally the offeree must accept the offer before relying and the reliance must be reasonable, reliance on an estimate or on a mistaken bid so low as to indicate a mistake would not be justifiable. Bank of Logansport v. Logan: Bank promises to loan Ps $100,000 if they will open a business in the town. After a few loans not equal to the $100,000, and loan commitment papers, the bank refused further loans. There was a promise, even though there was not a contract. Ps relied on this promise to their detriment, Bank should have put in clause that getting loan was subject to their best effort. Hoffman v. Red Owl: Man relies on promise to get his own grocery store, chain does not follow through. P relied to his detriment on promises which D failed to keep. When damages are awarded in promissory estoppel, they should be only such as are necessary to prevent injustice. Justice does not require that the damages awarded should exceed any actual loss sustained. Stearns v. Emery-Waterhouse Co.: D extended P an oral contract for five years (void under statute of frauds) if he would quit his current job and move to Maine to take a new job. P did, and D fired him after 2 years. Promissory Estoppel does not apply; there was no reliance by moving because an employment offer is going to cause you to quit your old job and move (potentially). Compare the decision in this case Hoffman who was able to successful because there was more definitereliance? Boone v. Coe: D made an oral contract with the plaintiffs to move to Texas and work on his farm for a year. When they got there, the defendant repudiated and the plaintiffs had to go back to Kentucky. The plaintiffs sued for the cost of making the trip. The defendants demurred and won dismissal of the case. The plaintiffs appealed.Damages cannot be recovered when a contract is held to be unenforceable under the statute of frauds unless the defendant receives benefit from part performance of a service contract, in which case the plaintiff may obtain restitution for services rendered. D received no benefit, he has no obligation to pay, since the contract was unenforceable in the first place. Kirksey v. Kirksey (1845): D, upon hearing that his brother had died, told his brother's wife and children to come live on some of his land. They abandoned their house, seventy miles away. Two years later he told them to move off his land. Does reliance make the promise enforceable? No, defendant's promise was "a mere gratuity" Ricketts v. Scothorn (1898): Katie's grandfather promised to pay her $2000 if she were to quit her job. Does quitting her job, relying on his promise, equitably estop the need for consideration? Held: Yes; P altered her position for the worse on the faith that the note would be paid. The court manipulated the rules of equitable estoppel; they ruled that D was estopped from alleging that the contract was lacking an essential element (consideration) to protect Katie. Red Owl v. Hoffman James Baird Co. v. Gimbel Bros.: 1) Can promissory estoppel be used to enforce an offer that is not meant to become binding until consideration has been received? 2) Does promissory estoppel render a subcontractors bid irrevocable? Holding and Rule (Learned Hand): 1) No. Promissory estoppel cannot be asserted to compel an offeror to perform where the offer is not meant to become a binding contract until consideration has been received. 2) No. Promissory estoppel does not render a subcontractors offer irrevocable even if the contractor has relied upon it in submitting a bid for a general contract. Drennan v. Star Paving Co: Can reasonable, justifiable, and foreseeable reliance render an offer binding? Star Pavings subcontractor bid constituted a promise to perform under conditions both express and implied, according to the circumstances. Restatement (2d) of Contracts 45; merely acting in justifiable reliance on a unilateral offer is sufficient to make that offer irrevocable for a reasonable period of time to complete performance. Promissory estoppel must only be used if there is no consideration. Drennan effectively overruled Baird v. Gimbel and is the seminal case for the modern approach to applying promissory estoppel in the context of subcontractor bidding disputes based on mistake. Was there a reason to know that the offer was a mistake? No. The offer was not unreasonable, and reliance was justifiable.E. BENEFIT PREVIOUSLY RECEIVED (SEC. 86)Promise made in recognition of a benefit previously received by the promisor from the promise is binding to the extent necessary to prevent injustice Webb v. McGowin: (a precursor to sec. 90) P saved Ds life leaving him permanently disabled. D promised to pay P $15 every two weeks for the rest of Ps life. P received the payments until D died, P sued the executors of McGowins estate when the payments stopped. Upon receiving this benefit, D became morally bound to compensate P and as such expressly agreed to compensate P. It is sufficient consideration for the subsequent agreement to pay for the service because of the material benefit received directly by the party. Once P saved D from death or grievous bodily harm and P subsequently agreed to pay him for the service rendered it became an enforceable contract. (stretched consideration to protect P).

V. MUTUAL ASSENT: OFFER AND ACCEPTANCEA. MUTUAL ASSENT1. Agreement may be manifested wholly or partly by words, written or spoken, by acts, or even failure to act 2. Subjective (what did each party actually perceive) v. Objective (what would a reasonable person have perceived) approach3. Objective: places greater emphasis on one partys right to rely on the reasonable expectations created by the apparent agreement of the other (allows for expectation damages, not merely reliance) Raffles v. Wichelhaus 1864 (later a Sec. 20 A, no mutual assent, no meeting of the minds, no fault by either) P and D agreed to a sale of cotton to be arriving on a particular ship Peerless with a common name. There was a misunderstanding over which ship was carrying the cotton, and the buyer refused to accept the goods when they game. The market price had gone down at that point and to the buyers mind the cotton was months lateB. MANIFESTATION OF ASSENT (SEC 20)1. There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and 2. Neither party knows nor has reason to know the meaning attached by the other party or3. Each party knows or each party has reason to know the meaning attached by the other Flower City Painting v. Gumina: Misunderstanding results on a contract between a contractor and subcontractor. No contract under Peerless (Raffles v. W) using the subjective and objective view. Each party held a different and reasonable view of the undertaking. Dickey v. Hurd:Dickey is considering purchasing land from Hurd, Dickey thinks he needs to accept the offer by July 18, Hurd wants the payment in full by July 18 but has reason to know that Dickey, through multiple letters, does not think that. the party who knows that there is not a true meeting of the minds has the responsibility to correct the mistake Embry v. Hargadine-McKittrick Dry Goods Co.(Contract law is not concerned with subjective intent, only objective) P was an employee of D. D mistakenly extended Ps employment, but P was reasonable in his interpretation of Ds words. A contract may be formed without reference to the subjective intentions of either party. Wheeler v. White: (Terms which are not definite enough for specific performance will not bar recovery under reliance theory) D encouraged P to make preparations for construction indicating that he would secure a loan but never did; P relied to his detriment on Ds promise, the terms were not definite enough for specific enforcement but enough to support an action for damages. Promissory estoppel is defensive and prevents D from claiming that the promise was unenforceable. All that is necessary to achieve justice is to put the promisee in a position he would have been in had he not acted in reliance upon the promise C. OBJECTIVE INTENT POLICY1. Protects those who reasonably rely on that other people say or do can seek recovery and Ds cannot escape liability by claiming a different subjective intention2. Encourages parties to be careful3. Simplifies litigation (forget subjective intentions which are too hard to prove)VI. OFFER AND ACCEPTANCE A. Unilateral ContractsWormser Conception of Unilateral Contracts Traditionally, offer can be revoked before performance is completeBrooklyn bridge hypo: A says he will give B $100 to walk across the bridge; to accept this offer, B must perform the entire act; A can revoke at any time before B has completed performanceB. Time When Acceptance Takes Effect (SEC 63)Unless the offer provides otherwise,1. An acceptance made in a manner and by a medium invited by an offer is operative and complete the manifestations of mutual assent as soon as put out of the offerees possession without regard to whether it ever reaches the offeror; but2. An acceptance under an option contract is not operative until revised by the offeror C. Mailbox RuleMailbox rule applies only to acceptance, not revocation; acceptance is valid one that acceptance is in possession of the post office; revocations are only valid upon receipt Morrison v. Thoelke: Offer and acceptance to purchase property done through the mail, one party accepts and sends out the signed acceptance but calls to repudiate before the mail gets to the offeror but an offer of acceptance made through the mail is binding as soon as that notice of acceptance is placed into the hands of the post office NOT when it is actually receivedD. Mailbox Rule Policy1. If the rule was that it was not accepted until received, then the party would be bound to notify the other of their receival of the acceptance and this could go on ad invinitum. This rule protects the acceptors and allow them to act on the premise that they have accepted once that notice has been properly dispatched2. Protects the acceptor and allows for them to act on the contract as soon as they put their acceptance into the mail 3. Provides a clear ruleE. Advertisements Advertisements GENERALLY are NOT offers merely solicitations Moulton v. Kershaw: (Compare with Carbolic Smoke Ball) D by letter offers to contract to sell salt, setting the terms thereof. P the day of receiving the letter telegrams to place an order. The following day, D withdraws their offer. Held: the letter was a notice to P from D of Ds ability to contract, there is nothing to indicate it was a firm offer to sell a definite amount of property Carlill v. Carbolic Smoke Ball: D ells smoke balls and claims that if used correctly, they will pay out 100 for anyone who still gets influenza. To provide proof of their intentions they alleged to have placed 1000 into a bank for the purpose of paying out. P used the ball correctly, contracted influenza, and D refused to pay out. There was an offer and consideration, the offer invited performance which P carried out. Whether D intended to pay or not is irrelevant, given their advertisement, a reasonable person would assume they did, objective intent outweighs subjective intent. Cobaugh v. Kilck-Lewis: P while golfing sees an advertisement offering a car to any golfer who makes a hole in one on the 9th hole. P does and D says that that offer had expired, but they hadnt moved the signs etc., and refuse to pay out to P. Offerors failure to use due care does not void a unilateral contract once performance has been completed.

F. Offers Requiring PerformanceMay be revoked before performance is complete (Brooklyn Bridge Hypo) Peterson v. Pattberg: P came to Ds home to pay a sum in lieu of a debt owed. D refused to accept the money and informed P that the bond and mortgage had been sold to a third party. If an act is requested in a contract, no other must be given, an offer requiring an act to be performed can be revoked at any time until the act has been performed ; an offering party has the right to name the precise act performance of which would convert the offer into a binding promise. Dissent: D made Ps performance impossible.D. TERMINATION OF REVOCABLE OFFERS (SEC 36)1. Lapse of time2. Death or lack of capacity 3. Revocation 4. Death or Destruction5. Supervening Illegality 6. Rejection of counter-offer by Offeree

VII. IRREVOCABLE OFFERS: OPTION CONTRACTSA. OPTION CONTRACT (SEC 87)1. An offer is binding as an option contract if ita. 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; orb. Is made irrevocable by statute2. Induces action (reasonably foreseeable) of a substantial character becomes binding to the extent necessary to avoid injustice.

B. OPTION CONTRACT created by part performance of tender (SEC 45)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 reated is conditional on contemplation or tender of the invited performance in accordance with the terms of the offer C. Preparations for performance Beginning preparations, though they may be essential to carrying out the contract or to accepting the offer, is not enough. Preparations to perform may constitute justifiable reliance sufficient to make the offerors promise binding under Sec. 87 D. OFFERS OF REWARDS AND UNKNOWN OFFERS 1. At least so far as private rewards are concerned, there can be no contract unless the claimant when giving the desired information knew of the offer of the reward and acted with the intention of accepting such offer. 2. A contract of reward, like any contract, must be supported by consideration, something of value. The consideration that supports the promise of reward is the trouble or inconvenience resulting to the person who has acted on the faith of the promise.3. Because an unaccepted offer of rewardgrantsno contractual rights, the offer can be revoked or canceled at any time prior to its acceptance by performance. Once a person has performed or partially performed the requested action, an offer of reward cannot be revoked to deprive a person of compensation. An offer must be revoked either in the way in which it was made or in a manner that gives the revocation the same publicity as the offer. A later offer, in different terms from the first, does not revoke the first offer.4. Generally an offer of reward that has no time limit is considered to have been withdrawn after a reasonable time.

E. MASTER OF THE OFFER1. Offeror is master of the offer (bilateral or unilateral) and invites acceptance; they may set the specific terms of acceptance so long as they are reasonable Allied Steel & Conveyors, Inc. Ford Motor: Allied employee performing installation on Fords premises was injured due to the negligence of Ford employees. Allied had executed a purchase order that contained and indemnity form making Allied liable for Fords negligence in connection with Alliedswork. The work commenced and the injury occurred months before the indemnity provision was acknowledged. Allied accepted by commencing work and could not claim that it had not accepted the terms in contradiction of that act of acceptance. For means of acceptance to be limited, offeror needs to articulate expressly F. Unilateral or Bilateral? An ambiguous offer is presumed to be bilateral because it protects the interests of both parties Davis v. Jacoby: The court pointed to Ruperts statement Will you let me hear from you as soon as possible as a request for an immediate reply so that he could make arrangements and rely on Daviss promise to come to California. Furthermore, since Rupert asked her to take care of them until both of them had died, it was apparent that he had to rely on Daviss promise to continue to care for Blanche if she survived him. Bilateral. Brackenbury v. Hodgkin: Mother forced to let child remain after inviting them to take care of her. Poor result; should have called it a bilateral contract not accepted until they moved and performed, then awarded reliance damages instead of forcing servitude in a manner of speaking.G. LIMITED AND INDEFINITE PROMISES1. Mutuality of obligation: when consideration consists of the exchange of mutual promises, the undertakings of both sides must be real and meaningful. If the promise of one party has limitations so strong that they negate it, it is really no commitment at all and is an illusory promise. 2. Some contracts may be enforceable against one party but not the other, minors, fraud, etc. Obering v. Swain-Roach Lumber: The executor of estate sought to sell his farmland containing valuable timber. P was interested in purchasing the timber and Buhners relatives and heirs (d) were interested in purchasing the land without the timber. P entered into a contract with D stating that if P bought the land, it would subsequently sell the land to D after it removed the timber. D refused to accept the deed. Just because the contract doesnt kick in until P does something to accept it and provide consideration doesnt mean that the contract is unenforceable once P does that thing. The contract was unenforceable when it was signed, but became enforceable against both parties upon the plaintiffs

3. SEC. 77 Illusory and Alternative Promises A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performance Wood v. Lucy, Lady Duff-Gordon (Cardozo) Lucy made an exclusive endorsementdeal with Wood. Lucy subsequently gave her endorsement to other products without Woods knowledge and without sharing the profits. An enforceable contract may be construed through an implied promise of one of the parties. There is an implicit promise on the part of Wood to try to put Lucys endorsements on stuff and sell it, Lucy must be held to the same promise (mutuality) Omni Group, Inc. v. Seattle-First Natl Bank: A promise dependent on the promisors satisfaction of a condition is not illusory, it is binding. Omni wanted an engineers report and the report must be satisfactory; Omni could only cancel in good faith and D must go through with the sale.Policy: increases security for both parties when the parties will have extended dealings before completion. Lima Locamotive: requirements contract for steel castings, no specific number; quantity is left open. Traditionally, no enforceable contract, the terms are too vague to enforce. Policy: Requirement/output contracts have immense social utility 2-306 makes them enforceable Empro Mfg. Co. v. Ball-Co: Empro wanted to buy out Ball Co. A letter containing an agreement that is subject to the execution of a definitive contract has no independent force; Empro carefully insulated itself against thedealbeing binding.If Empro was free to walk, it stands to reason that Ball-Co was too. The judgment of the trial court is affirmed. Borg-Warner 2-204(3) A breach of a legally enforceable duty to negotiate (firm option) a final contract would consist of the failure to come to such a final agreement plus a demonstration of bad faith on the part of one party)

Catherine MartinContracts Nyquist Fall