Contracts

Contracts I
1. What is a Contract?
a. A contract is formed in any transaction in which one or both parties make a legally enforceable
promise. A promise is legally enforceable where it: (3)
i. Was made as part of a bargain for valid consideration;
ii. Reasonably induced the promisee to rely on the promise to his detriment; (or)
iii. Is deemed enforceable by a statute despite the lack of consideration.

2. Requirements of a Contract: O + A + C + (-Misc.) = K

a. Consideration – “the glue that holds the contract together” / A promise (+)…
i. Requires a bargained exchange in which each party incurs a legal detriment.
b. Misc – A Contract MUST be in absence of a Statute / Rule which voids the transaction (a contract is
made, but it is not enforceable because it violates a Statute / Rule)
c. O + A = mutual assent

3. Intent to Contract – The willful or purposeful desire to enter into a contract.

a. Outward Expressions of Intent –
b. Law will impute (attribute / ascribe) intent that corresponds with a person’s words or acts (Ob Test)
c. Secret undisclosed intent is irrelevant - Unless one knows the other had no intent to contract

4. Types of Contracts (2)

a. Formal – enforced because “particular formalities” were observed
i. K’s Under Seal – Sealed with person’s authorization (rubber stamp / signature)
ii. Recognizance – Promise made in open court
iii. Negotiable Instrument – “Checks, etc.”
b. Informal – are enforced because people have expressed their intent to act or not act.
i. Express – an agreement manifested by words – spoken or written – Definite O and A,
ii. Implied
1. Implied in Fact – an agreement manifested by conduct
2. Implied in Law (“quasi-contract”) – not a true contract, but an obligation imposed by
a court, to avoid an injustice or “unjust enrichment”

5. Mutual Assent – The intent of two parties to be contractually bound to each other
a. To determine MA – use the Objective test (view manifested intentions)
i. What would a reasonable person to whom an expression – words or conduct – has been
addressed understand the expression to mean.

6. Social Contracts – The existence of a familial relationship may affect the ability to create an enforceable
contract. Generally – social promises do not result in contracts.

7. Sources of Contract Law

a. Common Law – IS LAW. In most jurisdictions, contract law is not codified, and thus the primary
source of general contract law is case law
b. Uniform Commercial Code (UCC) – IS LAW.
i. UCC Applies to Goods.

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ii. Common Law encompasses everything else (real estate, services, etc. - unless coded)
1. Goods – (Article 2, UCC) – All things which are moveable at the time of
identification at the time of contracting. (Crops are Goods)
2. Except Auctions – Everything falls under UCC in an auction. (Services, Real Estate)
iii. Gap Fillers in UCC – If contract is missing minor details Gap Filler preserves the contract.
1. We are responsible to know 3 of them
a. No Price – Reasonable Price
b. No Location – Pickup will be at the seller’s location.
c. No Time – Reasonable Time.

8. Contract Formation
a. Offer (I) – An offer is a yesable proposition that is definite in its terms, committed to its terms, and
communicated to the other party so that only agreement is necessary from the propositioned party.
i. Made by Offeror
1. Committed – The offeror must have a commitment to contract.
2. Definite – The terms of the O must be strictly defined
3. Communicated –
a. Verbally (Orally or Written)
b. Conduct – Implied in Fact – Conduct implies intent to be contractually bound
c. or BOTH
b. Acceptance (II) – An acceptance is an affirmative answer communicated to the offeror, which is
responsive in matching the terms of the offer, and is absolute and unequivocal in that it leaves no
doubt that the offeree intends to be bound to the terms of the offer.
i. Made by offeree
1. Responsive – Must meet the conditions of the offer
2. Absolute / Unequivocal – Must be absolute and firm in its acceptance
3. Communicated – The O/ee makes it clear to O/or willing to and agreeing to enter K
c. Consideration – A valuable consideration, in the sense of the law, may consist of a right, interest,
profit or benefit accruing to the one party / (or) some forbearance, detriment, loss or responsibility
given, suffered or undertaken by the other.

d. Promissory Estoppel – A legal theory designed to prevent injustice, under which a promise may be
enforced, even in the lack of C, where one party makes a promise knowing that it is likely to induce
reliance by another party, and it does in fact induce reliance by the other party to his or her detriment

e. Moral Obligation – A legal theory under which a court will enforce a promise made subsequent to
an expired statute of limitations, bankruptcy, infancy or in the case where, absent legal duty, one
party has received a material benefit.
f. Termination (III) – Terminating the power of Acceptance make K invalid
i. Revocation
ii. Rejection
iii. Lapse of Time
iv. Death / Incapacity
v. Counter Offer
vi. Battle of the Forms
vii. Indefiniteness

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I. OFFER (Committed – Definite - Communicated)

1. Hold an Offer Open (3 ways)
a. Option – (CL) If you buy within this time frame – you can get it at this price.
i. Other side can revoke option at any time.
b. Option Contract – (CL) Paying to keep a K open for the time stated
i. If Option K was in writing, payment does not need to have been tendered.
c. Firm Offer – (UCC, 2-205) – (O + M + /s/w + Assurance = FO)
i. This offer is irrevocable for the time stated. No time/reasonable time BUT no longer than 3M
ii. If you want to hold an offer open for 4 months, you will have to pay for it in an Option
iii. Firm offer does not require Consideration.
iv. (O + M + /s/w + Assurance = FO)
1. Offer to buy and sell goods must be Commitment, Definite, Communicated
2. By a merchant (who deals in the kind of goods in offer)
3. In a signed (/s/) writing (any intentional reduction to a tangible form)
4. Gives assurances (O will not be revoked, will not be changed, will be held open, etc.)

2. Advertisements – Typically not considered an O unless the ad is very specific about the quantity of
items, who is eligible, and specific time frames. Typically regarded as an “Invitation to deal”
a. Problems with Ad – If you can get around these, may be considered an O.
i. Too Many Offerees.
ii.Too Little Quantity.
b. Statements by Doctors / Attorneys – Not offer unless “I guarantee!”

3. Unsolicited Mailings – The mailing of unordered merchandise will be considered a gift.

a. Except for Free Samples and Things sent by charities

4. Knowledge of the Offer – (Private vs. Government Rewards)

a. Rewards are offers – calling for an Act for acceptance.
i. Private Reward – You must be aware of the offer prior to your actions.
ii.Government Reward - Any citizen who performs the requested service is entitled to the
reward, even if claimant had no idea that the reward was being offered.
b. Police officers cannot accept ANY rewards.

5. Auctions – (UCC, 2-328 Apply to Everything with Auctions – goods, real estate, services)
a. Auctions with Reserve – Auctioneer can take item of block until certain $ is reached
i. Bidder makes the Offer – Each bid is an offer
ii. Auctioneer has power of acceptance (Until A he can take it off the block any time)
iii. A bidder may always withdraw his offer before the fall of the hammer.
b. Auctions without Reserve – Auctioneer cannot take item off the block.
i. Auctioneer makes the Offer.
ii.Bidder has power of acceptance – Each bid is an Acceptance
iii. If nothing is said – It is presumed to be an Auction with Reserve

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II. ACCEPTANCE (Responsive – Absolute/Unequivocal – Communicated)

1. (3) ways an Offeror can Request an Offeree to Accept his Offer -
• Note: Offeror is the “Master of his offer”, and he can say what he demands as a response to his offer.
• His demand can be as ridiculous as he wants it to be.

a. An Act / Performance – The Offeror is asking that you COMPLETE an act in order to express A
i. (Common Law) Unilateral contract (one sided). Only one side has to make a promise.
1. Once the O/EE begins the act – the O/OR is BOUND to the offer.
2. O/EE can begin the act, and quit halfway through because they never gave a promise.
a. Once Act has begun, the O/OR has to give a reasonable amount of time to
complete act, Then O/EE must follow through on their end
ii. Preparation to Perform – does not count. You have to actually begin the act.
b. Promise – The Offeror is asking for a PROMISE that the Offeree will perform an Act
i. (Common Law) Bilateral contract (two sided). Both sides have to make a promise.
1. Once the promise is returned by the O/EE – BOTH are BOUND to the contract
c. Ambiguous - The Offeror does not make desired acceptance clear (Act or Promise)
i. (This is very common)  the offer can be completed by either an act or a promise.
ii. In the past this was treated as a bilateral contract, but now it can be treated either way.

2. (4) Ways to Accept an Offer

a. An Act / Performance – See Above.
b. A Promise – See Above
c. Both – See above, under ambiguous
d. Silence – If the O/OR states that Assent can be made by silence, and O/EE remains silent = K
i. Course of Dealing – Previous deals lead one to believe it is understood
ii.Course of Performance – The way a party has acted during this particular performance
iii. Exercise of Dominion – Acceptance can be imposed when a party stands by in silence, and..
1. Sees a valuable service rendered to his benefit
2. Knowing that the other party expects to be paid
3. (And) had a reasonable opportunity to object

3. The Mailbox Rule (MBR)

a. Acceptance occurs when O/EE deposits into the mail
b. Rejection occurs when received by O/OR
i. If an O/EE sends more than one response to an offer:
1. O/EE sends a Rejection (BY MAIL), and later sends an A – It is a race to the mailbox.
Whichever one is received first is the binding agreement.
c. FASTER than the way you received it – MBR Applies
d. SLOWER than the way you received it – No MBR unless otherwise accepted by O/OR
e. When does MBR not apply?
i. When the O/OR specifies that A is Effective upon receipt
ii.Option K or Firm Offer – the A has to be received prior to the end of the option period!

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4. An Acceptance is effective if:

a. Restatement 2 (68)
i. When it comes into the possession of the O/OR
ii. When it is received by a person authorized by the O/OR
iii. When it is deposited in a place where the O/OR has authorized communications
b. UCC 1-201 (26)
i. When it comes to the attention of the O/OR
ii. When it is delivered at the business where it was made
iii. When it is delivered to a place O/OR holds for receiving such communications

5. Acceptance must be made in Reasonable Time –

a. The span of this is typically to be determined by a jury.
b. A lapse of time will destroy the power of acceptance.
c. Typically you must accept within 3 months. See below.

6. Once a Contract is Formed – Neither party may unilaterally change the contract.
a. The moment of acceptance fixes the terms of the contract to those agreed upon in the offer.
b. The contract can be amended, but only by agreement by both parties.

III. TERMINATION (7)

1. Revocation – The O is pulled off the table by the O/OR before O/EE can accept
a. Direct - O is revoked directly from the O/OR
b. Indirect - O/EE learns from credible third party that O is revoked

2. Rejection – The O/EE turns down the offer

a. Reliance on Rejection – The reasonable belief that an O has been rejected - the courts will often
forgive any breach for reasonable reliance.

3. Lapse of Time – O/OR is the master of his O and can set a time limit. The O lapses at the time stated
a. Oral offer (telephone, face to face) - Lapses at the end of the conversation, unless something is said
which indicates that the offer should survive the communication.
b. Counting days (see handout) –Always eliminate the first day on which you receive the offer, and
begin the count from the following day – until midnight of the final day

4. Death or Incapacity –
a. Death terminates the offer without notice.
i. Exception – Unless the offer is held open by option contract or firm offer.
1. Option Contract – you paid for it – you can still exercise it.
2. If held by Firm Offer – you have met the requirements of a statute. O will live on.
b. Incapacity / Incompetency – If a person loses capacity to contract – Terminates without notice
i. The above exception (Option Contract and Firm Offer) does not apply to incompetency.

5. Counter Offer – A Counter-Offer automatically terminates the original offer.

6. Indefiniteness – The terms of a contract are too different, or too unfixed to be enforceable.

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7. Battle of the Forms

a. “Stock” forms – Sent with every transaction. Often, parties do not read other party’s form.
b. Common Law – Mirror Image Rule – offer must be the same.
i. If the response changes the terms – it is a Counter-Offer, and then terminates the original O
c. The UCC Rule – (2-207) NO “mirror image” concept. When you receive a return document – the
first thing to ask yourself is where / how is the offer changed?
i. If Return Document contained a “Dickered Term” or “Proviso Language” you may have a
“COUNTER OFFER” - go to paragraph 3
a. Dickered Term – A change to the Price or Quantity
b. Proviso Language – Specific condition that the other party insists is agreed on
ii. Does the conduct of the party indicate that there is a K?
1. If Yes – then YOU HAVE A CONTRACT!
2. The terms that do not agree will be fixed by the UCC “Gap Fillers”
a. 2-305 – If the Price is not agreed – then a reasonable price
b. 2-308 – If the Place is not agreed – pickup will be at the seller’s place
c. 2-309 – If the Time frame is not agreed – then a reasonable time
3. If No – then you do not have a contract - you have a counter offer
iii. If Return Document contained an “Additional or Different Terms” – you have an
“ACCEPTANCE” - go to paragraph 2
1. Different Term – a change to a term (cannot be minor)
a. That is not one of the accepted “dickered terms”
2. Additional Term – adding a term to the offer
a. If the contract was between Merchants:
i. The term will automatically become part of the contract
– UNLESS – Any of the following are present:
a. The Additional or Different term materially alters the contract.
b. There is an objection in a reasonable time
c. The offer is limited to its terms
ii. If any of the above were present – you do have a K, but the additional
or different term will be thrown out (the “Knock-Out Rule”)
b. If the Contract was not between merchants:
i. You have a contract – however the additional or different term will be
considered a “proposal for an addition to the contract.” It will only be
effective if the Offeror specifically agrees to it.

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IV. CONSIDERATION
1. What does it take to make Mutual Assent (O + A) / A Contract Enforceable?
a. A “glue” – a reason that this contract / promise should be upheld.
i. Consideration -OR-
ii. Promissory Estoppel -OR-
iii. Moral Obligation

2. Consideration (Actual, Forbearance, Promissory Estoppel and Moral Obligation)

a. Consideration - A valuable consideration, in the sense of the law, may consist of a right, interest,
profit or benefit accruing to the one party / (or) some forbearance, detriment, loss or responsibility
given, suffered or undertaken by the other.
i. “Quid Pro Quo” – Something for Something.
1. O/OR must be seeking what he or she is asking for (bargaining for)
ii. Sufficiency of C – The C offered must be something that has value in the eyes of the law
iii. Adequacy of C – Refers to the quantity of the amounts exchanged
1. As general principal – courts do not inquire into adequacy of consideration.
2. Two Exceptions:
a. At Law – Suing for money damages. If K involved fungible for like fungible.
i. $1 for $500 – it is like fungible - inadequate.
b. At Equity – Suing for equity. Before a court will force someone to deed over
real estate – they may look at the adequacy of consideration.
iv. Consideration Requires:
1. Explicitly Bargained for Benefit to the Promisor (OR)
2. Explicitly Bargained for Detriment to the Promisee
v. (4) Questions to Always Ask!
1. P – Promise sought?
2. A/P – Act/Promise requested in return?
3. B4 – Bargained for?
4. V – Value?
ii. What has Value?
1. An item that would be exchangeable on the market
2. Forbearance of a legal right
3. Forbearance of an invalid claim if honestly and reasonably believes to be a valid
4. Promise may ONLY be consideration if the performance (act) of that promise would
iii. What Does NOT have Value?
1. Love / Affection
2. Conjuring Magic
3. Performance of obvious ideas
4. Venerating someone’s memory
5. Nominal Consideration – has value, but was not bargained for

b. Forbearance – The act of refraining from enforcing a right, obligation or debt

i. Forbearing on a submitting a claim which proves to be invalid is not C unless:
1. If there is honest and reasonable belief that claim is valid
ii. Forbearance of prosecution is illegal

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c. Gratuitous promise – Promise given without any expectation of anything in return (NO C)

d. Illusory Promises
i. A promise which is entirely discretionary on part of the promisor.
ii. If the promisor HAS NOT restricted future actions then illusory promise and not enforceable.

e. Exclusive Dealing Contracts (2-306)

i. Implies “Best Efforts” to sell (this has value)
1. If not stated – the obligation to promote product will be implied (Lady Duff Gordon).
ii. Mutuality of Obligation – both parties must be bound for contract to exist
1. If one party can “opt out” at any time – the contract is illusory

f. Requirement Contracts (All I Require)

i. Supplier = O/OR
ii. Requirement K is kept from being illusory because of the good faith to do business with
only the one source and words of obligation
1. I promise to buy all that I require / need / use
iii. Requirement K’s are not revocable.
iv. If offeree says “I accept” – both parties are bound.

g. Continuing Offer Contracts (All I Want)

i. Purchaser = O/OR
ii. Agreement of continued orders, but not bound for all orders to come from one distributor
1. I promise to buy all that I want / desire / wish
iii. Continuing Offer K’s are revocable by distributor unless: Held open by an option K or FO
iv. Each order will be a mini-contract

h. Output Contracts (ALL OUTPUT) – Promising to buy all output from a distributor

i. Past Consideration
i. A promise to give consideration “after” the benefiting condition has already occurred.
ii. Past consideration is generally not consideration, except when it involves:
1. Promissory Estoppel
2. Pre-existing Duty
3. Past Due Debts (Accord and Satisfaction (or) A&S by Instrument (check)
4. Moral Obligation.
iii. A promise only has value if the performance of the promise has value.

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3. Promissory Estoppel - A legal theory designed to prevent injustice, under which a promise may be
enforced, even in the lack of C, where one party makes a promise knowing that it is likely to induce
reliance by another party, and it does in fact induce reliance by the other party to his or her detriment.
i. A promise
ii. Reasonable Reliance on the Promise is Foreseeable (and Actually Occurs)
iii. Injustice can only be avoided with Enforcement of the Promise
iv. Remedy can be Limited (as required)
a. Put a person back where they were – not in a better place (Lost profits not generally granted)
b. The remedy of promissory estoppel should only be enforced for valuable items.
i. Differences between First & Second Restatement on Promissory Est.
1. Restatement 2 Same as Restatement 1 Except:
a. Will allow reliance by a third party
b. Drops that the forbearance be of a “definite and substantial character”
c. Adds that the remedy for the breach may be limited as justice requires.
d. Adds, paragraph 2 – A charitable subscription is binding under Subsection 1
without proof that the promise induced reliance, action or forbearance.
c. Charitable Donations – To what extent are charitable donations enforceable?
i. Promise Money In Return for Doing Something (Naming Building)
ii. Interlocking promises.
1. Person C - gives money because other people are giving money.
2. If there is only one promise – it won’t work. Must have at least two promises.
iii. Promissory Estoppel with Reliance. (section 90, para 1)
iv. Promissory Estoppel without Reliance (section 90, para 2)
1. If you make a promise to a charity in this country – it is going to be enforceable.
2. Limitations to Promissory Estoppel, Determination of Damages
a. Promissory Estoppel is only relevant to the extent of damages actually
suffered. Damages should not exceed the loss.
b. Cannot collect Lost Profits under Promissory Estoppel!!!
d. General/Sub Contractor Context – Promissory Est.
i. Courts are split on whether or not to apply PE in this setting-
1. (Minority) When the sub-contractor makes his bid to the general it is an offer, and
offers can be revoked at any time before acceptance.
a. So just because the general uses the sub’s bid that does not mean he accepted
2. (Majority) If a sub sends a bid (here he would be the promisor) and the general relies
on it, it would seem to fit all 3 elements of PE
e. Pre-Existing Duty (Usually about Services)
i. Promising to do what you are already obligated to do has no value / is not valid consideration
ii. Cannot demand extra C for something already under contract to perform
iii. How can you get around pre-existing duty rule?
1. Common Law -
a. Add something new to BOTH sides of a contract.
b. Rescind the contract and enter Substitute Contract.
2. UCC – 2-209(1)
a. Modification of a contract for the sale of goods needs no C.
b. Modification must be in good faith.
c. There must be a legitimate commercial reason.

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f. Past Due Debts – Accord & Satisfaction - Two parties decide to modify contract on debt.
i. Accord – Agreement where one party agrees to give – and the other party agrees to accept
something other than originally agreed upon.
ii. Satisfaction – Carrying out the accord. Doing what they said they would do.
1. Effective Accord & Satisfaction – where accord will be enforced – you have to have
consideration (on both sides).
iii. Where you have a good faith dispute – a party is not legally obligated to pay anything until
that dispute is legally resolved by suit.
1. If you pay before the dispute is legally resolved – you have done something to your
detriment, which is the consideration for the new agreement.
2. You cannot dispute the entire bill on a credit card statement – just because you dispute
one item. You are still liable for the rest of the bill, but you can hold on payment of the
disputed debt.
3. If a question does not tell you – always assume it is a good faith debt.
a. Executory Accord – An agreement bargaining for the future discharge of an
existing claim by performance.
b. Executory period – The time between the agreement and when the
satisfaction is completed
iv. A & S by Use of Instrument / “Paid in Full Checks” (UCC 3-311)
1. If we have a check – with a disputed debt – and it is clearly marked, “paid in full”
(payment must be made in good faith) – and the other party cashes the check – the
dispute is resolved. No more debt is owed.
a. The debtor has tendered a check of early payment.
2. UCC 3-311 gives creditor some protection, in case the check was cashed by
accident. The following acts will undo the A&S:
a. Repay the check writer within 90 days
b. If you are a corporation – and you have sent out clear notice that any disputed
debt payments are to go to a specified address.
2. Moral Obligation – A legal theory under which a court will enforce a promise made subsequent to an
expired statute of limitations, bankruptcy, infancy or in the case where, absent legal duty, one party has
received a material benefit.
a. A promise to pay after the fact with no consideration is generally not viewed as enforceable
b. Exceptions – If you make a subsequent promise to pay one of the following – it will be enforceable:
i. Debts Barred by the Statute of Limitations – (Has to be in writing)
ii. Debts declared after Bankruptcy –
iii. Debts Incurred by infants (minors) –
1. A debt that a person enters into before they are of the age of the majority is non-
binding – unless they acknowledge and promise to pay the debt after they reach the
age of majority.
iv. Material Benefit
1. A moral obligation is a sufficient consideration to support a subsequent promise to pay
where the promisor has received a material benefit – although there was no original
duty or liability resting on the promisor.
a. Received material benefit
b. Under circumstances to create obligation
c. Subsequent promise to pay’

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V. DAMAGES
1. Remedies for Breach of Contract At Law v. At Equity
a. At Law – Money
b. At Equity – Specific Relief
i. Injunction – Order by Court that a Person not do something, or cease doing something
ii.Specific Performance – Asking for the contract to be enforced as written
c. Law Courts and Courts of Equity used to be separated. Now the courts are merged.
d. In Torts law – the injured party usually asks for enough damages to return to the pre-injury position
e. In Contracts law – the injured party asks for damages to be put in as good a position as if the other
party had fully performed. (Gives the person the “benefit of the broken bargain”)
2. Interests – What a person is interested in being able to collect.
a. Expectancy Interest (Lost profit) – What you expected to make out of the contract
i. Any profits expected
ii. Any difference in the amount you thought you would pay, and how much you actually paid
iii. Objective – To put the P in as good a position as he would have been had D performed

b. Reliance Interest (3) (Lost Expenses) – Losses occurred by P reliance on K

i. Expenses (out of pocket – to 3rd party) which the P has incurred in reliance on promise
ii. Sometimes required by the contract / sometimes not.
iii. Objective – to put the P in as good a position as he was before the breach.

c. Restitution Interest (2) – D has been unjustly enriched, so we extract this benefit back from him.
i. Objective – the prevention of unfair gain by the breacher
1. It is unfair for someone to keep a benefit which they do not deserve.

3. ALL DAMAGES MUST BE PROVEN WITH CERTAINTY

a. Diminution in Value (Cost of Performance)
i. Courts generally hold that you would use Cost of Performance as a measure of damages –
Unless enforced by COP there would be economic waste.
ii. Can also use diminution in value if you can show that the breach was minor / incidental to
the contract as a whole.
b. Expectation Damages - Can recover all three of the interests (expectancy, reliance, restitution)
although not all reliance and restitution will be recoverable
c. Lost Profits – Awards damages for the difference in what was contracted for and what was gotten
i. If you had to spend a higher amount to get a replacement – the difference you had to pay is
also considered a (primary) lost profit
d. Incidental Damages - Any other reasonable expenses incident to the delay or other breach.
e. Consequential Damages – Any loss resulting from general or particular requirements and needs of
which the seller had reason to know and which could not reasonably be prevented to cover.
i. Damages which naturally and proximately flow from the breach
f. Loss of Primary Profits – Difference between what buyer would have earned from reselling the
goods in question had there been no breach – and what was earned after the breach occurred.
g. Loss of Secondary Profits – The sales of other products has suffered as a result of the breach
i. When the primary product does not conform to the warranty – it is foreseeable that there will
be a loss in other sales.

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h. NRE’s – Not Recoverable with Expectation - (Assumed Costs) With Expectation Damages, you
cannot collect certain consequential, reliance, or restitution damages – because they are costs that you
bargained to assume
i. Reliance NRE:
1. Survey fee
2. Mortgage fee
3. Architect plan for boathouse
i. Reliance Damages – Can recover two interests (reliance, restitution)
i. All reliance and restitution will be recoverable
j. Restitution Damages – Can recover one interest - all restitution will be recoverable
i. You have benefited the breacher, and allowing them to keep the benefit would be unfair.
1. This can be money paid to the breacher or items given to the breacher.
2. In restitution, you add boxes 8 and 3. Then subtract any monies paid from breacher to
non-breacher (limited losses avoided)
ii. YOU DO NOT COLLECT SALVAGE IN RESTITUTION
k. Losses Avoided – In all of the above damages scenarios – if the non-breaching party has avoided
some of the damages, then that amount will be deducted from the total amount of the damages. The
main two we are concerned with are:
i. Salvage
ii. Money paid To the non-breacher FROM the breacher

4. Notes on How to Read the Pink Handout

• Row 1 – Expectation Interest – If it involves lost profits – it goes to the top field (Expectation)
• Row 3 – Restitution Interest – If it involves the breacher – it goes to the bottom field (Restitution)
◦ If the part performance (item) is in the physical control of the breacher it goes to restitution.
• Row 2 – Reliance Interest – Everything else – goes in the middle field (Reliance)
◦ If the part performance (item) is in the physical control of the non-breacher it goes to reliance.

• Column 2 - Primary / General Damages

◦ (1) Lost Primary Profits –
▪ What did the non-breacher think he was going to get out of the contract.
▪ Can be shown by either actual lost profits, or the difference in what he expected to pay, and how
much more he had to pay to get a replacement
◦ (2) Primary Reliance Damages –
▪ Non-Breacher’s out of pocket expenses to third parties, required by contract
◦ (3) Restitution – Any Items:
▪ Paid to breacher
▪ Given to breacher
▪ Done on breacher’s land (where he has control of the part performance)
• Column 3 - Secondary / Special Damages – You MUST establish foreseeability
◦ (4) Lost Secondary Profits
▪ Profits you have lost with third parties because of the breach (but were not profits directly
contemplated under contract).

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▪ You don’t have to show with absolute mathematical precision, but you have to make a diligent effort
at accuracy.
▪ Loss of Goodwill – Loss of future customers
◦ (5) Recoverable with expectation
▪ Secondary Consequential Damages (subject to foreseeability)
• They would not have occurred but for the breach.
• Examples
◦ Pain and suffering from second operation – not originally contemplated, but necessary to fix
injury
◦ Embarrassment from having a hairy hand
◦ Severe Emotional Distress - Only recoverable when:
▪ Physical Injury results from distress
▪ The harm is of a kind from which serious emotional distress was likely to result
▪ Secondary Reliance Damages (subject to foreseeability)
• Things which you expended as a consequence of the contract, although not directly a
contemplated factor under the contract
◦ In problem A – you went out and purchased an option for the lot next door for 1K (to build a
parking lot to the building which was the actual contemplation of the contract).
▪ Incidental Damages (subject to foreseeability)
• Consequential Damages incurred in ascertaining and trying to prevent the breach.
▪ Other Direct Losses (subject to foreseeability) – Anything else…

• Column 1 - Unlabeled (not recoverable with expectancy damages)

◦ (7) Non-Recoverable w/ expectation (were bargained for with expectation)
▪ Expenses which you assumed as a part of the contract you entered into (because you were expecting
to get something back, you were willing to contract with these as consideration)
◦ Consequential Damages (subject to foreseeability)
▪ Ex. Pain and Suffering that non-breacher was aware would occur prior to contracting for surgery
◦ Reliance Damages (subject to foreseeability)
▪ Ex. Getting a 10K property survey on a lot, and then the deal falls through.
▪ Generic building plans –not designed specifically for contract – which can be used again.
▪ Mortgage Application Fee – you know that you will have to pay a fee when you attempt to borrow
money for a loan
◦ Other Direct Losses (subject to foreseeability) – Anything else…

◦ (8) Non-Recoverable with expectation (were bargained for with expectation)

▪ Restitution – Benefits given to breacher
▪ First operation Cost
▪ The reason that we would place an item in box 8 instead of box 3 depends on whether or not a person
could be made “whole” under expectation. If a person has the value of the harry hand + the value
in the difference between a good hand and a harry hand – we have made them whole – with
where they expected to be.
▪ If the non-breacher is made whole, the breacher gets to keep his fee.

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• Column 4 - Losses Avoided

◦ (6) Losses Avoided
▪ Salvage – The amount that you can sell the item to another party
▪ Money paid TO non-breacher FROM breacher
◦ Limited Losses Avoided
▪ This occurs in a “losing contract”
• Take the amt. that the non-breacher would have lost on the contract if full performance – and
deduct that from the reliance damages. Then compare to restitution.
▪ You do not calculate salvage on a losing contract.

1. Limitation on Recovery (3)

g. Certainty - The limitation of certainty involves 2 things you must demonstrate with your evidence to
deny that damages are too speculative
i. Causation – show that the breach actually caused the damage.
ii. You have to put a dollar amount on it, to show that the breach caused “this amount”
of damages.
iii. When you can’t prove any damages – the court gives you nominal damages.
1. What is the benefit of getting nominal damages? Under some statutes – if you win the
case and get damages, even nominal damages – that may still entitle you to attorneys
fees paid by the other side.
iv. The “new business rule” is not a hard fast rule. If a new business (or company
beginning a new leg of business) can provide enough evidence to give an accurate
measurement to what their profits would have been – then they are admittable and
recoverable.
1. How can one show “lost profits” on a new business? Comparative market scenarios
with similar industries.
v. If you can’t show causation & you cannot introduce evidence to a specific amount of
how much you were damaged – then it is too speculative – you won’t get it.
1. All damages must be proven. Doesn’t matter if primary or secondary.

h. Foreseeability
i. Opposite from Torts!!
1. Torts – Looks to see if harmful action were foreseeable.
a. Could station have foreseen the scales crashing on Ms. Palsgraf?

2. Contracts – Looks to see if Results / Damages (from some harmful action) were
foreseeable.
a. If plane crashed – could the courier service have foreseen the economic
damage that would occur to the sender because a package on the plane did not
get delivered?

b. Hadley v. Baxendale – known for coming up with the test when it is

foreseeable
i. Held – must be in contemplation of both parties.
a. Would it be foreseeable at the time of contracting that these
damages would occur because of the breach?

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c. H v. B - No longer the rule - Now it only has to be foreseeable by ONE

party.
d. Claim of damages for secondary lost profits – must be foreseeable to the
breacher at the time of contracting.
e. The situations that cause the specific breach themselves DO NOT have to be
foreseeable. What must be foreseeable is that: if there is a breach – what are
the consequences to the non-breacher?

ii. Emotional distress - not usually awarded unless the breach also caused bodily harm –
or- the breach is of such a kind that serious emotional disturbance was a particularly likely
result:

i. Avoidability / Mitigation of Damages

i. The non-breaching party has a duty to mitigate their damages
1. Must perform an act that staves off future damages
ii. Obligation to “Cover” –
1. If seller defaults, buyer (not just merchants) is required - without unreasonable delay,
to seek out any reasonable good faith substitute.
a. Damages will be figured for the difference in the item you contracted for, and
the item you ended up having to settle for

iii. Obligation to “Re-Sell” –

1. If buyer defaults, seller is required to attempt to re-sell the goods to another party
(even if at a reduced price).
a. Damages will be figured for the difference in the amt. you were to get under
the contract, and the amt. you were actually able to sell for.

iv. Liquidated Damages Clauses – (i.e. Penalty Clause)

1. Agreement in contract to pay damages if contract breached / Cannot represent a
penalty
a. Elements Necessary for Valid Liquidated Damages Clause:
i. Must show need for clause (parties expected damages could arise if
contract breached)
ii. Reasonable estimate of damages at the time of the contract,
although parties did not have any solid data to go on
iii. In Terroreum – if the language is there to terrify someone, then
that is penalty clause
b. When doubt as to classification as liquidated or penalty, courts find penalty
and strike out the clause
i. Finding of penalty clause does not prohibit recovery – must simply
seek to recover actual damages, not damages under liquidated clause
c. Exception – construction contracts (courts will generally enforce liquidated
damages clause under construction contracts)

v. Employment Contracts

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1. General Rule - the measure of damages by a wrongfully discharged employee is the

amount agreed upon minus the amount that the employer can affirmatively prove that
the employee has obtained elsewhere (by mitigating)
a. Unemployment compensation NOT deducted from damages
2. Employee must mitigate damages by searching for and accepting employment of same
“type”
a. Not required to accept different or inferior employment

g. Restitution
i. Recovery method when a contract is unenforceable because of some defect such as lack of a requisite
writing (Statute of Frauds problem), impossibility, mistake, or incapacity

j. Implied in Fact Contract – A contract is intended by the parties even though none of its terms are
expressly agreed upon. Generally intent interpreted to exist out of conduct and working history
between two parties.

k. Implied in Law Contract - Quasi Contract (Action in Restitution) – Imposed upon the parties
irrespective of their intent when court thinks there should be a remedy (avoid unjust enrichment of
one side).
a. Generally – it is a defense to a quasi-contract claim if one party had communicated to the
other party that they did not want the benefit
b. NO RESTITUTION IF THE CONTRACT IS COMPLETE
i. If the contract is completed, then payment on the contract price may be ordered – and
the amount expended will not be a factor.

c. Quantum Valebant – the value of property delivered to another

d. Money Had and Received – money held by one person but belonging to another
e. Quantum Meruit – the value of services rendered to another
i. Allows recovery for the value of the beneficial services, NOT the value by which
someone benefits from those services.
1. Can recover the value of the salary for their position.
2. Cannot recover monies earned by employer as a result of person’s work.
f. The standard for measuring the reasonable value of the services rendered is the amount for
which such services could have been purchased from one in the plaintiff’s position at the time
and place the services were rendered.
i. What was the “going rate” on this kind of labor?
g. What is the difference between quantum meruit and implied contracts? The overlap is
fuzzy.
i. They both involve the court attempting to “do right” and prevent unjust enrichment.
ii. Quantum meruit is more tied to benefits conferred where implied contracts
look at some implied agreement.

l. Restitution used by Non-Breacher

a. If you are suing as the non-breacher – you are suing for the value that the other person has
received. (Quantum Meruit).

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b. “Losing Contract” – one in which if it had been fulfilled, the non-breacher would have
expended more than they would have gained.
i. In figuring damages on a losing contract, you do not deduct salvage as a “loss
avoided” – salvage is a gift to the non-breacher.
ii. Calculating Damages on a Losing Contract
1. You figure the Reliance Damages, and then deduct the amount that would have
been lost on the contract.
a) Reliance Damages – $ Lost on Contract =
Reduced Reliance Damages
2. You then compare this amount to the total a party could get under restitution,
and you take the higher amount.
a) DO NOT FIGURE SALVAGE IN RELIANCE DAMAGES ON
A LOSING CONTRACT! (or restitution – as usual)
b) From the non-breacher’s position, restitution is not limited to the price
of the contract.

m. Restitution used by the Breacher

a. If the non-breacher has obtained a benefit, the breacher can sue for restitution.
i. The amount he can sue for is the reasonable worth, but the maximum amt. he can
recover is what he would have gotten under the contract (limited to contract price).
ii. In common law – if the breach were willful – you could not get restitution.
iii. Restatement says that willfulness is only a factor to be considered as to
whether a breacher may use restitution.

h. Equitable Remedies
j. Sometimes in the case of a breach, monetary damages are not sufficient
k. Specific Performance – ordering the promisor to perform on a contract on penalty of being found in
contempt of court
1. Before enforcing contract – court may look into adequacy of consideration.
a. Quid Pro Quo / Something for Something / Fungible for Fungible.
i. Why would someone sell a 500K farm for $10?
2. Basic Standard – are Damages Inadequate?
a. Most often specific performance is used as a remedy in real estate because land is so
unique.
i. However, there are times when a court will refuse specific performance because
the party was the seller, and was only seeking to get money from the sale anyway
– therefore damages are adequate.
b. Most often, damages are the remedy for “goods” because goods are not so unique that
they cannot be replaced.
i. However, there are times when a court will order specific performance because
acquisition of a good faith substitute good is not possible.

3. Should a court order specific performance if the seller has already sold the property or item
to someone else?
a. If you know about the other contract – your hands are “dirty.”

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i. Generally the court will not grant specific performance to a requesting party who’s
hands are dirty.
1. You would get damages.
2. Hands are “dirty” when you knew about the other party at the time that you
entered your contract.

b. Bona Fide (Good faith) purchaser without Notice. This is the person the court wants.
(BFP w/o Notice).
4. Normally a court does not grant specific performance on a contract of a personal nature. (it is like
involuntary servitude). This is often dangerous tromping grounds.
a. However, a court will issue an injunction on contracts of a personal nature.

l. Mutuality of Remedy – Older legal theory. In the past, courts would not enforce a remedy unless the
remedy is available to both sides.
1. More modern courts say that remedy does not have to be exactly mutual (mirror each other).
a. The fact that the remedy of specific enforcement is available to one party to a contract is
not in itself a sufficient reason for making the remedy available to the other.
b. Mutuality of Remedy should be limited to special instances where a vendor will otherwise
suffer an economic injury for which his damage remedy at law will not be adequate.

m. Buyer’s Remedies (UCC)

1. If seller breaches a contract – what is buyer supposed to do?
a. Cover – good faith substitute. Then deduct contract price. (UCC 2-712)
i. Cover price has to be higher than contract price to have damages.OR
ii. Market Price – Contract Price = Damages (UCC 2-713)

n. Seller’s Remedies (UCC)

1. Re-sell.
a. Contract Price – Resale Price = Damages.
b. Resale price must be lower than contract price (UCC 2-706)
2. If you cannot Re-Sell:
a. Contract Price – Market Price = Damages (UCC 2-708)

j. Punitive Damages
a. Purpose is punishment. To deter them from doing whatever they did again.
b. If a contract is broken, the measure of damages should be the same, whatever the cause of the
breach. Generally – punitive damages are handled in torts.
c. Normally cannot get in contracts.

d. At least (4) situations in contracts where you can get PD (or something similar to PD)
i. Where breach is accompanied by malicious tort, for which punitive damages are
recoverable.
1. Ex. Tort of forcible entry by landlord into your apartment. Lease says landlord may
only enter with your permission. They do a forcible unauthorized entry.
a. This may allow for punitive damages.

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ii. Where breach violates a fiduciary relationship (relationship of trust in confidence,

like an attorney – not supposed to steal your client’s money). Law treats these relationships
very seriously.
1. Ex. Club wrongfully expels a club member.
iii. Where breach is of obligation of good faith and fair dealing.
1. Normally limited – breach of an insurance contract
a. Bad faith of ins. Co. to settle a claim. (pg. 722)
iv. If you violate a consumer protection statute – you can get treble (triple) damages.

k. Statute of Frauds
a. Out of the Statute of Frauds  ENFORCEABLE EVEN WITHOUT WRITING
b. Within the Statute of Frauds  NOT ENFORCEABLE UNLESS IN WRITING

c. SOF is a Defense to an alleged contract. P takes D to court to sue for breach of contract. D will say
that the contract is not binding because the law requires it to be in writing.

d. Requires certain contracts to be in writing to be enforceable.

i. It is possible to have a perfectly valid oral contract.
1. SOF does not mean that oral agreements within the scope of the Statute cannot be
made and performed or that they are illegal.
a. It merely means that enforcement may be unavailable if one of the parties
refuses to fulfill their obligations.
i. If all parties agree that they are bound by the contract, the contract will
remain enforceable despite the statute of frauds.

2. The SOF does not of itself render a contract void. The statute of frauds makes certain
contracts "voidable" by one of the parties, in the event that the party does not wish to
follow through on the agreement.

e. In some instances, part performance, waiver or equitable estoppel may prevent SOF from operating.

f. Modifications to Contracts
i. Modification to contract within SOF may have to be in writing
ii. Modification to contract that was not within SOF must be in writing if it brings the
contract into the SOF

g. If a contract is unenforceable under SOF, a party may still recover restitution interest
i. On occasion can also recover reliance interest, but NEVER expectation interest

h. Demurrer – Admit everything that is in the complaint but contend that it still doesn’t state a cause of
action
i. If you demur to the complaint, do you waive your SOF defense?
1. States differ under common law
2. UCC – If you admit to goods, then it does not have to be in writing.

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i. The Writing / Common Law

i. The Writing Must:
1. Be signed by the “party to be charged”
2. Indicate that a contract has been made (or is being offered)
3. Identifies parties to the contract
4. Reasonably describes the subject matter of the contract
5. States the essential terms of the contract

j. The Writing / UCC 2-201

i. 2-201 (para 1) - A contract for the sale of goods for the price of $500 or more must be in
writing. The writing must contain:
1. A quantity
2. An indication that contract has been made
3. Signed by “the party to be charged”
a. Signature can be any symbol executed by a party with present intent to
authenticate a writing (Letterhead can be signature)
b. A “writing” is any reduction to tangible form.
i. Answering machine can qualify.

ii. 2-201 (para 2)

1. Between Merchants: (Confirmation)
a. If an agreement is made and later reduced to writing - and that writing is sent
to the other merchant (confirming agreement), that other merchant has 10 days
to object to the terms of the writing. After 10 days, the contract is formed as
indicated by the terms in the writing.
iii. 2-201 (para 3)
1. Three situations where you do not need the writing under the SOF (despite not
having a writing, the contract will be enforceable)
a. Part payment or part performance, but only for that part paid or for that part
performed
b. A party admits in pleading, testimony, or otherwise in court that the contract
exists
i. This is ONLY with goods. Does not apply to real estate.
c. Specially manufactured goods not suitable in the ordinary course of business
for resale.

k. Kinds of Contracts within the scope of the Statute of Frauds (Not enforceable without writing)

i. MYLEGS: (1) Marriage; (2) Year or more; (3) Land; (4) Executor; (5) Goods, sale of +
$500; (6) Suretyship.

ii. A promise to “Pay the Debt of Another” is not enforceable without a writing.

1. Executor / Administrator Contracts –

a. Contracts by an executor to answer for the debts of a decedent, and payable out
of the executor’s own personal assets generally must be in writing.

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b. Promises to pay “out of the estate” do not have to be in writing.

2. Surety Contracts –
a. A promise of payment or performance if another fails to pay or perform
b. Most surety agreements require that a person looking to the surety (asking for
payment) must first attempt to collect or obtain performance from the
responsible person or entity.

3. Requirements for a contract to “Pay the Debt of Another” to fall under SOF
a. There must be a principal debt owed to someone else
b. The promise must be a “promise to pay the debt of another” and may not be an
original promise. / Must not be “primarily liable party”
i. Ex. Aunt tells store to let nephew charge what he wants and bill her.
c. The promise must be made to the creditor (or at least the creditor must be
aware of the promise)
d. The promise must pass the “Main Purpose Rule”
i. If main purpose of making the promise was for benefiting himself, it is
NOT considered a promise to pay the debt of another, and not within
SOF.

iii. A promise made in contemplation of marriage is not enforceable without a

writing.
1. If Mark promised that he would give $1000 to charity if I would marry him – this
would not be a legally enforceable promise, unless in writing.
2. Does not include mutual promises to marry.

iv. A promise for the Sale of an Interest in Land is not enforceable without a writing.

v. A promise which cannot be performed within a period of one year from the date
of making is not enforceable without a writing. (includes services, employment, etc.)

1. A Year Runs:
a. July 1 (12:00am) – June 30 (11:59pm/midnight)
b. December 1 (12:00am) – November 30 (11:59pm/midnight)

2. Ex. Levy orally contracts with Bill to work for one year. Contract entered into on
11/30/ 07. Contract is to begin 12/1/07.
a. If contract is to run one year, it would stretch from 12/1/07 at 12:00am to
11/30/08 at 11:59pm/midnight.
b. In counting one year under SOF, you cross off the first day that contract
was made.
i. Contract made 11/30, so cross that off, and begin counting from
12/1/07 at 12:00am.
1. Anniversary of contract will be 11/30/08 at 11:59pm/midnight
ii. This contract directly matches the one year SOF – so it passes
the test.

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3. Ex. Levy orally contracts with Bill to work for one year and one day. Contract
entered into on 11/30/ 07. Contract is to begin 12/1/07.
a. If contract is to run one year and one day, it would stretch from 12/1/07 at
12:00am to 12/1/08 at 11:59pm.
b. In counting one year under SOF, you cross off the first day that contract
was made.
i. Contract made 11/30, so cross that off, and begin counting from
12/1/07 at 12:00am.
1. Anniversary of contract will be 11/30/08 at 11:59pm
ii. 12/1/08 is one day over the 11/30/08 limit – and therefore this
contract does not pass the test and would have to be in writing.

4. The fact that a contract is not completed within one year does not mean that it is
voidable under a statute of frauds.
a. For the statute to apply, the actual terms of the contract must make it
impossible for performance to be completed within one year.

i. Ex. Deal to house sit until I return from sabbatical is made on June 25,
2007. There is no time requirement of when full performance will be
met.
1. I could return in one month.
2. I could return in 2 years.
3. Because the actual terms are not fixed – and the actual terms
have not made it impossible for performance to be completed
within one year - the contract does not have to be in writing
under SOF.

ii. Ex. If Levy orally offers to employ Bill for a five year period –
this would need to be in writing.
1. There is no way that 5 years can be performed in 1 year.
2. However, if a contract allows for another way for the
contract to be completed, that “could” happen within one
year – the contract will not need to be in writing.

a. Ex. Knowing of Bill’s bad health, Levy orally offers to

employ Bill for a five year period, if he lives so long.
i. Bill could die in the first year – and therefore
could fully perform the contract.

b. Ex. Similarly, knowing of Bill’s bad health, Levy orally

offers to employ Bill for “life.”
i. Bill could die in the first year – and therefore
could fully perform the contract.

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vi. UCC – Goods under the SOF

1. A promise for the sale of goods for price of $500 or more is not enforceable
without a writing.

2. A promise for the sale of Personal Property other than goods for the price of
$5000 or more is not enforceable without a writing. (Intellectual Property, etc…)

l. Equitable Estoppel under the SOF –

i. A party may be stopped from asserting the defense of SOF when the elements of equitable
estoppel are present.
1. There must be some misrepresentation
a. Misrepresented that a writing was necessary (or not)
b. Misrepresented that a writing would be executed
c. Misrepresented that a writing had already been executed
2. Detrimental Reliance

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