Contracts I Outline 1. Contract a. A contract is a promise or a set of promises that the law will enforce. 2.

Two types of Contracts a. Formal (we will not talk about these) b. Informal (have the elements been met?) a. Unilateral (promise for an act) (performance) b. Bilateral (promise to perform) 3. Mutual Assent a. a showing of mutual assent is necessary for an enforceable contract. Courts require an offer to contract and an acceptance of that offer. 4. Offer a. A manifestation of willingness to enter into a contract in such a way that the offeree knows that assent is all that is necessary to cement the deal. b. A yes-able proposition a. Must have theses three elements: a. Communicated to Offeree (but not necessarily by Offeror) b. Commitment to K c. Definite in its terms c. Offeror is the master of the offer d. What would a reasonable person in the Offeree position believe? e. Lucy v. Zehmer (Zehmer jokingly accepted offer of Lucy to by his farm, as did Lucys wife.) 5. Social Contract a. Deals with family relationships b. Rule: The court will not enforce a social contract because families always make promises they dont intend to keep. It can be enforced if it were made into a commercial transactionput it in writing. This gives intent rather than a promise. 6. Three Categories of Contracts a. Express - Expressed in the form of an offer and acceptance b. Implied In Fact - It is inferred that a contract exists through conduct and declarations of the parties. a. Stepp v. Freeman (Lottery Tickets bought between 20 guys) c. Implied In Law - Not a true contract. Does not need to prove all the elements of a contract.

7. Oral contracts v. Written contracts a. Rules to determine if a written or verbal contract prevails: a. Whether the contract is of a class usually found in writing; b. Need formal writing for full expression; c. Few or many details; d. Large or small amount; e. Common or unusual; f. All details agree on in principal, but not all resolved; g. Was writing discussed or contemplated. b. You dont have to show them all, but you must argue why the ones that you show are the most important. c. Continental Laboratories v. Scott Paper Co. (P thought an oral acceptance was sufficient after 5 other drafts of a contract were made. Wrong!) 8. Acceptance a. Would a reasonable person in the position of the offeror believe that the offer was accepted? b. Communicated c. Absolute and unequivocal d. Responsive: does it meet the conditions of the offer? a. You can accept an offer in the same manner that it was given or faster (telephone, email, etc.) b. Silence is acceptance under some circumstances. e. Day v. Caton (Day built wall between two estates. Caton agreed to pay half indicated by his silence.) f. When a person stands in silence and sees valuable services rendered upon his real estate, such silence, accompanied with the knowledge on his part that the party rendering the services expects payment is evidence of an acceptance of an agreement to pay for it. g. Once there is an acceptance, no party can go back and change the contract. It cements the deal. 9. Acceptance by Performance [Unilateral Contract] a. Requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise.

10. Acceptance by Promise [Bilateral Contract] a. Requires that the offeree complete every act essential to the making of the promise. 11. UCC 2-206 a. Unless otherwise unambiguously indicated by the language or circumstances 2

a. an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances; b. an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. b. Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. 12. Manifesting Assent a. Acceptance of an offer is a manifestation of assent to the terms made by the offeror in a manner invited or required by the offer. b. Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise c. Acceptance by a promise requires that the offeree complete every act essential to the making of the promise.

13. Knowledge of an Offer a. You must have knowledge of the offer in order to accept it. Such as a reward. If you dont know of a reward, you cant accept the offer of a reward. 14. Mode of Acceptance a. There is always a promise on at least one side and sometimes on both. b. Bilateral/Unilateral c. Once performance has begun the offeror cannot revoke the contract. 15. For preparation the offeror can still revoke contract. a. If the offeror doesnt care if acceptance is an act or promise the offer cannot be revoked if you prepare. b. Offeree must complete, also. a. Davis v. Jacoby (Whitehead asked Davis to come care for him and his wife. Davis accepted but needed time to get there) 16. Termination a. Things that take the offer off the table. p 67 a. Revocation Beard Implants v. Krusa (Combine purchase) 3

a. To revoke an offer it must be done in the way it was offered b. Lansing State Journal hypo a. Must be revoked in the Lansing state Journal b. Substantially Equal Publicity rule c. If you make an offer for a period of time, then you must put a revocation for the same amount of time in the same manner. b. Lapse of time Too long on the table. a. Restatement 41: all offers expire whether time is stated or not (in which case it is a reasonable time) for what is being sold, i.e. bananas c. Verbal offers a. Done when you hang up the phone if over the phone. b. Done when you leave the conversation d. Rejection or Counteroffer Offeree didnt want. e. Death or incapacity Davis v. Jacoby ??? a. Does not terminate a contract b. Does not terminate an option contract c. Terminates offers d. Terminates to acceptance of offer f. Non-occurrence of a condition - A must perform a condition for B to fulfill contract. g. Counteroffer It implies a rejection a. Mirror Image rule a. Common Law, the acceptance must look exactly like the offer without any changes, which constituted a counter-offer. Now void. b. Restatement 39 a. Offerees power of acceptance is terminated by rejection of offer UNLESS i. Offeror manifested a contrary intention b. Manifestation of intention not to accept offer is a rejection UNLESS i. Offeree manifests intention to take under advisement c. Terminates an option contract d. Livingstone v. Evans a. Sale of land for $1800, counter at $1600, Evens stood by his price. b. Counter was rejected, but new contract formed when he stood by his price. 17. Tender a. An offer to perform with the demonstrated ability to perform. 4

18. Option: a. empty promise 19. Option contract: a. binding for the time offeror specifies b. Requires consideration a. Macys layaway hypo - $300.00 jacket lay away for $5.00. They are required to hold it for you unless there is no consideration. Must be consideration for option contract. Adequacy can be/will be important. Consideration does not have to be money. It can be some other tangible item. 20. Firm Merchant Offer UCC 2-205 a. Elements: a. Offer to buy or sell goods a. Goods means all things (including specially manufactured goods) which are movable b. By a merchant a. Offeror is the only one required to be a merchant b. A merchant is a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill. c. In a signed writing d. Which gives assurances a. Ex: This offer will remain open for 7 days e. Is irrevocable for the time stated, or a reasonable time, but in no case beyond 3 months. 21. Mailbox Rule (Memorize this to put on exam) a. Acceptance takes place as soon as it hits the mailbox. If its mailed and before its received, the acceptance cannot be revoked. b. Must be properly stamped and addressed a. If so, acceptance upon dispatch c. Only applies to USPS (standard mail) a. Not UPS, Fed Ex, etc d. Does not apply to option contracts e. Only applies to acceptance, not rejection. f. Rejection is upon receipt 22. Counting Days a. Start with the date of receipt UNLESS otherwise specified 5

b. Never count day you are in (use next full 24 hour day) c. Weekend are included UNLESS offeror specifies business days d. Holidays count as days UNLESS otherwise specified 23. Forms between merchants a. Acceptance may include additional terms to those agreed upon. a. Under UCC, terms become part of the contract unless a. The offer expressly limits acceptance to the terms of the offer b. They materially alter it c. Notification of objection is given within a reasonable time. b. Proviso Language (expressly conditional on assent to) 24. Indefiniteness a. Contracts that are vague and indefinite cannot be enforced by the courts. b. Indefiniteness under the U.C.C. a. The U.C.C. does not force a contract to fail for indefiniteness if ( 2-204(3)): a. The parties intended to make a contract, and b. There is a reasonably certain basis for giving a remedy c. Uncertainty in the terms of such a provision will render it void unless the parties, by their subsequent conduct or acts supplement the covenant and thus remove an alleged uncertainty. a. The certainty that is required is such as will enable a court to determine what has been agreed upon. b. A renewal covenant in a lease which leaves the renewal rental to be fixed by future agreement between the parties has generally been held unenforceable and void for uncertainty and indefiniteness. 25. UCC requires court to look at the following matters as aids for construction of the contract a. Usage of trade (custom within given industry) b. Course of dealing (parties conduct in past contacts with one another) c. Course of performance (what the parties do while performing this one contract [Practical Construction]). 26. When to do a 2-207 analysis: a. Contract for the sale of goods b. Battle of the forms c. When the return document has a new or different term 27. Consideration a. Benefit to promisor or detriment to promisee. a. Hamer v. Sidway 6

a. Forbearance can be consideration b. Stopped drinking, smoking, etc for $5000 from his uncle 28. Types of consideration a. Money b. Promissory Estoppel c. Moral Obligation a. Life or death situations 29. Sufficiency v. Adequacy a. Sufficiency must have value in the eyes of the law a. Courts do not inquire into the adequacy of consideration. a. Two exceptions a. Fungible for like fungible (brick for brick, $ for $) b. Before decreeing specific performance (in equity) b. Courts do not enforce gifts or what appears to be gifts b. Consideration Aide a. What is the promise to be enforced? b. What is the Act or promise sought in return? c. Was the Act or promise bargained for? d. Does the act or promise have value? a. P (promise) b. A (act) c. B/4 (bargained for) d. V (value) e. You must give up something to get something. c. Adequacy a. Schnell v. Nell a. Wife dies, leaves bequests to 3 guys. b. Past services mean nothing c. Love /Affection mean nothing d. No consideration d. Nominal Consideration a. Nominal consideration: in name only b. Consideration must be bargained for. c. Generally, nominal consideration is inadequate consideration because it is not truly bargained for. a. Exception: Problems 39 (b) (c) where it actually IS bargained for. b. Exception: Option contracts. If nominal consideration is recited (even if not actually paid), courts will consider it to be adequate for the option K (p. 150, RII 87) 7

d. An invalid claim has validity as long as the party reasonably believes the claim is valid. 30. Value of Consideration a. Love, affection, conjuring do not have legal value 31. Restatement 71 Consideration a. To constitute consideration, a performance or a return promise must be bargained for. b. A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promise in exchange for that promise c. The performance may consist of a. An act other than a promise, or b. A forbearance, or c. The creation, modification, or destruction of a legal relation. d. The performance or return promise may be given to the promisor or to some other person. It may be given by the promise or by some other person. 32. Forbearance a. Agreement not to exercise a legal right b. Must have honest AND reasonable belief that you possess the right 33. Illusory Promises a. Nothing is actually promised, promisor has no obligation under the contract a. Hypo: I promise not to sue you, unless I change my mind, if you b. Court will imply certain promises c. Know how to handle multiple promises or acts a. If separated by or both must have value b. If separated by and only one must have value. d. Typically the promisor makes a contract that he gives up nothing so he can break the contract if he wanted to without being held liable or bound to the contract. See Supplement 2-306(2) a. One party promises to give up something but really give up nothing. a. Consideration means one party has to give up something and the other must benefit. ??? e. A promise is illusory if it reserves a choice or alternate performances, UNLESS a. If the two choices are separated by the word or each choice has value 8

b.

c.

d.

e.

a. Ill pay you $500 if you 1) Wash my car or 2) Paint my house =K b. Ill pay you $500 if you 1. Love me or 2. Paint my house = no k If the two choices are separate by the work and, only one or the other choice has to have value a. Ill pay you $500 if you 1. Wash my car and 2. Paint my house = K b. Ill pay you $500 if you 1. Love me and 2. Paint my house = K c. Ill pay you $500 if you 1. Love me and 2. Conjure spirits for me = NO K Wood v. Lucy, Lady Duff-Gordon a. Wood didnt bind himself to anything because he promised to do nothing. He did this on purpose. b. The court ruled that there was an implied promise. Requirements or output K: If the K is to run for 1 year, acceptance of this offer would form a binding obligation of 1 years duration. a. Look for words of obligation: require, need, use, produce b. Word of obligation + good faith = requirements K that is NOT illusory c. Note: Output K is the flip side of a Requirements K (all the products that you can produce v. all the products that you can use.) Acceptance of a continuing offer: If the Continuing O were to run for a year, no one acceptance would form a binding obligation for a year: rather, you would have a series of As forming a series of Ks. Unless the continuing O were irrevocable for some reason, it could be revoked before the 1 year had run. a. Ambiguous words = want, wish, might want, might require, desire

34. Requirement/Output Contracts a. Requirement Contract: a contract for all the product you need b. Output contract: a producer agrees to sell its entire production to the buyer, who in turn agrees to purchase the entire output

35. Continuing Offer a. If you dont have words of obligation and you instead have ambiguous words it makes a continuing offer 9

b. Revocable at any time c. Each individual acceptance creates an individual contract. 36. Pre-Existing Duty Rule (PED) a. If you have the legal duty to do something and you take something for doing it, there is no consideration because you are already obligated to do it. There is no exchange. b. It was established to void extortion. c. Still talking about consideration a. Harris v. Watson, Stilk v. Myrick a. Harris = Public Policy b. Stilk = Preexisting duty b. Lingenfelder v. Wainwright Brewery Co a. Lingenfelder was under a PED to finish Brewery 1. a. Amounted to extortion. b. This case defined the PED rule. d. How to get around the PED a. Rescind old K and enter into a new K (in the same document) b. Restructure or rewrite the K, and promise something new a. Old: $1 M for 3 years b. New: $10 M for 5 years a. Youve added something new on both sides. c. Must add something new on both sides. 37. PROMISSORY ESTOPPEL a. A promise that the Offeree could reasonably relied upon, and did rely upon, and suffered damages that could have been avoided, and the only remedy is for the promise to be enforced. b. Promise? c. Reasonable to think theyd rely on it? d. Actually relied on it? e. Injustice avoided if the enforce promise? f. Remedy as justice requires? g. Allegheny College a. D promise to pay College $5000. College said it would create a fund in her name. Paid $1000. Later, she tries to revoke. D died. Said it was a gift, but court ruled it was consideration. b. Implicitly implied that there was a contract with consideration. c. A minor task that one is not otherwise obliged to do can constitute valid consideration. 10

d. Promissory estoppel cannot be applied when there is consideration. e. Charitable subscriptions are enforceable in the absence of consideration if promissory estoppel applies f. A court need not measure the extent of the benefit to the promisor or the detriment to the promisee implicit in any duty assumed. g. There was reliance on the part of Allegheny College. h. Limits of the Doctrine a. Hoffman v. Red Owl Stores a. Guy sold his bakery in order to obtain finances for a supermarket franchise with Red Owl. Red Owl said that that would secure him the franchise. After that was done Red Owl raised the price and Hoffman finally couldnt go along with the deal. He sued under Promissory Estoppel. b. Court held for P. c. The court held that under these facts, injustice would result if P were not allowed relief because P relied to his detriment on promises which D failed to keep. d. Justice does not require that the damages awarded should exceed any actual loss sustained. e. Red Owl claimed that there was no offer so PE cant be used. Said no acceptance. Only negotiations. The court said you dont need an offer. Because of the promise there was an injustice. This case looks like fraud, but there is no way to show intent so the court remedied the injustice. f. There was a large amount of reliance. i. Promissory Estoppel in regards to Sub Contractors a. 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. b. 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. c. Baird v. Gimbel a. Linoleum for project b. Sub put in bid c. Underestimated by 50% d. Court said that Contractor didnt lock in the contract which would have bound the contractor to the price. Contractor could get bids, submit bids, get main contract, and then shop around for better bids. 11

d. Branco v. Delta Roofing a. Install roof. Delta put in bid. General told sub it was using subs bid. Sub tried to withdraw. b. Court said that Delta would have got the job because the General was relying on their bid. They were tied into the bid. j. PE and Subcontractors a. Branco: binds the subcontractor b. Baird: does not bind k. Promissory Estoppel usually only gives damages for out of pocket expenses. No Damages. a. Requires detrimental reliance ii. Must be reasonable 38. Accord and Satisfaction (It discharges a debt) a. Accord a. An agreement whereby one party agrees to give and the other party agrees to accept something other than that originally agreed to. b. Must have a good faith dispute c. I owe you $300 you say that I owe you $500. We settle on $400. That is an accord. b. Satisfaction a. The carrying out of the accord. b. Must have a good faith dispute. c. When I pay you, that is satisfaction or the debt is satisfied. c. Disputed debts a. Where you have a disputed debt, the debtor does not have to pay anything until the debt is legally resolved. a. Payment on a non-disputed debt is payment on account b. Payment on a disputed debt will discharge the original debt because there is no duty to pay the disputed debt until legally resolved. a. Must say payment in full b. UCC 1-207 c. UCC 3-311Yellow handout. d. UCC 1-205 e. If vendor holds the payment too long then silence will count toward acceptance. 12

b. Must have a good faith dispute. If not, you are talking about a Pre-Existing Duty rule. c. Organizations have two ways to protect themselves from accord and satisfaction a. 90 day return period b. Special address for disputed payments 3-311 d. An accord is when you write a check for $300 and a satisfaction is when they cash that check. a. Best Buy example. Scott buys software at Best Buy for $300. Best Buy says $500. You settle at $400. This is a good faith dispute. d. Executory Accord a. An executory accord is an agreement for the future discharge of a pre-existing claim for performance, and does not discharge the underlying claim until it is performed. b. An accord (agreement) that hasnt been carried out yet (the satisfaction has not happened yet) a. The underlying debt is not discharged until satisfaction occurs. c. Clark v. Elza a. Executory Accord b. Auto accident, Elza settled for 9500 but refused to sign agreement because it was later found injuries were more serious. No satisfaction by accepting. Not a substitute contract like Clark thought. 39. Past Consideration a. An act or promise already made/performed cannot be consideration b. There is nothing being bargained for, as required by our definition of consideration because it is already done or promised BEFORE the negotiations begin. c. Hayes v. Plantation Steel Co a. Guy announces retirement and tries to use his past employment to get a pension. Co. promises to pay pension to Hayes b. Co. did not have to pay pension because it was not bargained for. He announced retirement before promise of pension. c. 25 years of service already done. Cant bargain for something youve already done. 40. Apparent Authority 13

a. Refers to a situation where a reasonable person would understand that an agent had authority to act. This means a principal is bound by the agent's actions, even though the agent had no actual authority, whether express or implied. b. It raises an estoppel because the third party is given an assurance, which he relies on and would be inequitable for the principal to deny the authority given. c. Must be able to show circumstances. 41. Covering a. Finding a replacement for the service or good when contract is breached. b. The buyer is permitted (but not required) to find another source of the same type of goods. c. The buyer may then file a lawsuit against the breaching seller to recover the difference, if any, between the cost of the goods offered and the cost of the goods actually purchased. d. If the buyer is able to buy elsewhere and sue for the difference, that provides an adequate remedy. e. UCC 2-712 a. Cover defined as a good faith substitute. b. If fail to cover, no secondary lost profits, no consequential damages c. Not limited to merchants. 42. Moral Obligation a. A moral obligation is not a legal obligation EXCEPT a. Statute of limitations b. Infancy c. Bankruptcy b. Statute of Limitations a. There is no obligation to pay when the SOL runs out, unless you make a payment on the balance. b. If you make a payment on a portion then you will be held to that portion. c. If you make a payment and dont state that it is a portion, then you owe all of it. d. Payment in full, only payment, c. Infancy a. Parents have a moral obligation ( and legal obligation) to pay the debts of their underage children 14

b. Infants cannot be sued for breach of contract because they cannot legally enter into a contract. d. Bankruptcy a. Law gives a clean slate after bankruptcy b. Judge determines which debts you are required to pay, if any. c. If you make a payment, the same applies as it does with SOL 43. Material Benefit Rule a. Material benefit MUST be LIFE OR DEATH circumstances b. Promisor must receive a material benefit from the promisee c. Material benefit must be received under circumstances that raise to a moral obligation d. Promisor must make a subsequent promise to pay e. Nature of the circumstances make it reasonable that the promisee expected compensation f. Mills v. Wyman a. Young man, 25 years old, got sick on a voyage at sea and was cared for my a stranger. Father said that he would pay the expenses. b. The court stated that moral obligation is sufficient consideration in some cases but not under these facts. c. D not liable because there was no legal obligation, even though there was a moral promise. d. The services provided to Ds son were not bestowed at his request. e. The court says that there is no enforceable promise here, because this was just a verbal promise without any consideration. g. Moral obligation is sufficient consideration under the following circumstances: a. debts barred by the statute of limitations, b. debts incurred by infants, and c. debts of bankruptcy d. Material Benefit Received h. In such cases, enforcing promises based on preexisting equitable obligations may be enforced because they merely remove an impediment created by the law to enforce debts that are due, but which public policy protects debtors from being compelled to pay. i. Webb v. McGowin a. Webb was working at a lumber mill and threw a 75 lb block of wood to the floor below. He noticed McGowin there and jumped off with the block to save McGowin. McGowin promised to pay Webb $15 15

every two weeks for the rest of Webbs life. McGowin dies 8 years later. Payments stopped. Webb sued. b. In this case, the fact that P saved McGowin from death or grievous bodily harm was a material benefit to McGowin. Upon receiving this benefit, McGowin became morally bound to compensate P and as such expressly agreed to compensate P. j. Material Benefit Received for Moral Obligation a. Promisor received a material benefit from the promisee b. The material benefit was received under circumstances that raise a moral obligation c. A subsequent promise to pay d. The nature of the circumstances makes it reasonable that the promisee expected compensation. e. It has to be a life or death circumstance. Remedies 44. Damages a. The aggrieved party will be put in as good a position as if the other party had fully performed. No more! 45. Three components to damages a. Expectation (Expectancy) a. Typically lost profits b. What you expected to earn c. We always start with Expectation d. Goal - Put the non-breacher in the position they would have been in if the contract had been performed b. Reliance a. Out of pocket expenses b. What it cost you to make this contract c. Goal Put the P in as good a position if contract was performed. c. Restitution a. Unjust enrichment b. Puts the breacher back to where they were before the breach c. Goal Allow one party to recover the value of a benefit conferred upon the other party 46. If you sue for expectation damages you get a. All lost profit b. Some out of pocket expenses (Reliance) 16

c. All the restitution d. You always start with Expectation when you sue in a breach of contract. e. Hawkins v. McGee a. Hairy Hand Case Doctor guaranteed 100% good hand. b. Expectation Damages a. Damages sufficient to put the plaintiff in the position he would have been if the contract had been performed. f. Peevyhouse v. Garland Coal a. Strip mine coal from Ps property. Refused to perform restoration work on property. Sued for $25,000. b. $25,000 is cost of which would only increase the value of the land by $300. P would be unjustly enriched. c. Diminution in Value Rule v Lost Expectancy a. Must show economic waste, and b. The breach must be insignificant. d. Two tests for Expectation Damages a. Cost of Performance Rule a. How much money would it cost the non-breacher to be put in the position he or she should have been in had the K been performed as promised? b. Diminution in Value Rule a. If the cost of performance would result in unreasonable economic waste, AND the breach is insignificant, only award the diminution in value caused by the breach. 47. If you sue for Reliance you get a. All of your out of pocket expenses (Reliance) b. All of your Restitution c. Sullivan v. OConnor a. Entertainer had two surgeries on her nose to make her beautiful. Dr. screwed up and she got a bulbous nose. Could not do another surgery. b. Reliance Damages a. An agreement between a doctor and a patient which calls for a specified result can be enforced. b. Pain, suffering, and mental distresses are compensable damages for breach of contract under either expectancy or a reliance damages. d. Anglia Television v. Reed 17

a. P was producing a play for t.v. and contracted Robert Reed to play the lead. P spent $ for director, and other stuff. Reed backed out. b. Reliance Damages c. P recovered for damages that P paid for even before they had Reed sign the contract. Court allowed because Reed should have known, or knew that they did all this work prior to his coming on. d. Minority view. Not done in USA. 48. If you sue for Restitution you get a. All of Restitution back b. Prevent unjust enrichment c. Areas where Restitution may be appropriate: a. Implied in Law (quasi contract) b. Express K c. Breacher sues for restitution d. Statute of frauds d. Maglica v. Maglica a. Maglica owned a machine shop. The business boomed and is now worth hundreds of millions of dollars. After their split up Claire sued for breach of contract, breach of partnership agreement, fraud, breach of fiduciary duty and quantum meruit. b. The measure of recovery in quantum meruit is the reasonable value of the services rendered provided they were of direct benefit to the defendant. c. If one has received a benefit which one may not justly retain, one should restore the aggrieved party to his former position by return of the thing or its equivalent in money. d. The idea that one must be benefited by the goods and services bestowed is thus integral to recovery in quantum meruit. e. You do not need a contract to recover in quantum meruit. f. Quantum meruit should be measured by the reasonable value of the services rendered provided they were of direct benefit to the D. e. Feingold v. Pucello a. D was in car accident. Fiengold (plaintiff) was a personal injury lawyer. plaintiff sent D a fee agreement for a 50/50 split. D didnt sign. Fired P. P sues for Restitution. b. In rejecting the fee, defendant told plaintiff to keep his workproduct. Thus plaintiff did not confer any tangible benefit on defendant. 18

49. (Secondary Damages) a. Consequential Damages: a. Expenses or losses beyond general damages that the P would never have incurred but for the breach b. Losses that do not flow directly from an injurious act, but that result indirectly from the act. b. Incidental Damages: a. Generally, a type of consequential damages incurred in ascertaining and trying to prevent the breach. b. Mitigate damages P must mitigate the damages by selling the bananas if P can. c. Special Damages: a. Damages that arise out of a peculiar set of facts (special to this K) d. Secondary Damages usually fall into the Reliance category but sometimes the Expectation Damages 50. Big 3 for Secondary Damages (Must Show All Three for Secondary Damages) a. Certainty a. Caused by breach (the injury[damage] occurred) b. $ How much (Must show court a dollar amount) c. If you cant be certain, show a parallel, i.e. McDonalds, Burger Kinga measuring stick! d. Freund v. Washington Square Press e. College professor who entered into a written contract to publish a manuscript. Washington paid $2,000 down, but refused to publish the work. Freund sued for specific performance and sought to recover for damage to his career and lost royalties. f. Delay in promotion cant prove (he got it) g. Lost future Royalties secondary lost profits (loss of resale to third parties) h. Freund couldnt prove with reasonable certainty i. Certainty (primary and secondary) a. Must prove with certainty: a. The injury (damage) occurred and b. The dollar amount of the damage j. Humetrix v. Gemplus a. Humetrix contracted with Gemplus to provide portable patient data storage solutions to the US health care market. Humetrix registered the trademark Vaccicard in the US even though the name had already been registered by 19

Inovaction, a French company. It was registered in France. Gemplus ignored repeated phone calls from Humetrix and backed out of the agreement. b. New Business Rule a. A new business often cannot offer reliable proof of prospective profits. b. This did not apply because there was reasonable certainty of the losses that Humerix would sustain. b. Foreseeability a. Within the reasonable contemplation of the Breacher what the damages would be. If the Breacher does not know, then there is no foreseeability b. This creates the biggest problem for lawyers c. Hadley v. Baxendale d. A shaft in Hadleys (P) mill broke rendering the mill inoperable. Hadley hired Baxendale (D) to transport the broken mill shaft to an engineer in Greenwich so that he could make a duplicate. Hadley told Baxendale that the shaft must be sent immediately and Baxendale promised to deliver it the next day. Baxendale was negligent and did not transport the shaft as promised. e. The Rule of Hadley for consequential damages a. Did the breacher understand the consequences of breaching the K at the time the K was formed? f. The court held that in this case Baxendale did not know that the mill was shut down and would remain closed until the new shaft arrived. g. No loss of profits because Baxendale didnt know that the mill would close. h. Has to be within the reasonable contemplation of the Breacher. P has to tell them. c. Mitigation (Avoidability) a. P cant make it worse b. P has to limit the damages or the Breacher will win. c. Rockingham County v. Luten Bridge Co. a. P was contracted to build a bridge, but the contract was cancelled. P built the bridge anyways and sued the D. b. Luten is entitled to expenses incurred up until notice was given, plus expected profit from completion of the contract, plus any other losses incurred up until the time of breach. c. A party who receives express notice of breach has a duty to mitigate damages. 20

d. It is wasteful to complete a bridge when changed circumstances have rendered it worthless to the party who contracted for its construction. e. The court argues that once a party to a contract receives word that the other party is repudiating the contract, they should consider it a breach and stop performing their end of the deal. f. The amount of damages the plaintiff can recover is limited to the amount of damages that he would have been able to recover as of the time notice was given. d. Parker v. Twentieth Century Fox a. Shirley MacLaine was told that she could star in Musical, but then they breached. They tried to mitigate by giving her a Western. She refused. b. The general rule is that the measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment. c. The damages to a wrongfully dismissed employee should be the salary for the period of the contract minus the amount the employer affirmatively proves the employee did earn or could have earned from another similar job. d. Parker did not fail to mitigate damages by refusing to accept the part in Big Country, as the role was not comparable to that of Bloomer Girl. e. Plaintiff was under no obligation to accept the inferior role and was not unreasonable in her refusal to mitigate the damages. 51. Liquidated Damages a. An agreement that the parties agree to at the time of the contract in the event of a breach. The amount must be reasonable, but if it not the court will throw it out and will make you start with expectation damages. b. Lake River Corp v. Carborundum a. Carb entered into a contract with L R for abrasive powder used in making steel. L R was required to install a bagging system to handle the contract. Carb didnt ship the amount of powder. There was a clause in the contract that was disputed. 21

b. Liquidated damages must be a reasonable estimate at the time of contracting of the likely damages from breach. c. The liquidated damages clause was really a Penalty Clause. It required a fixed amount no matter what. It is designed always to assure Lake River more than its actual damages. d. There is a difference in whether you breach in the beginning or end of the contract so a fixed penalty is unjust. c. Valid Liquidated Damages Clause (p. 336) a. When there would be difficulty in determining damages b. Reasonable estimate at the time of K a. Reasonable: must VARY according to the SEVERITY and the TIMING of the breach. b. Damages will be different is breach is done at the end of a contract rather than the beginning. 52. Specific Damages and Punitive Damages a. If you want these from the court you have to ask. Courts only assume that you want Expectation, Reliance, and Restitution. b. Punitive Damages a. Usually cant recover because of tort. b. R 355 You can recover in some jurisdictions for: c. Breach of fiduciary relationship d. Breach of Good Faith e. Consumer Protection Statutes c. Hibscham Pontiac v. Batchelor (p. 329) 53. Breach of Contract Losing Contract a. United States v. Algernon Blair, Inc. b. K to build a naval hospital. General contractor breached. Subcontractor sues for Restitution. Contract would have been a losing contract for subcontractor. c. Losing K a. Reliance interest = $37,000 b. Cost for sub to complete? More than $37,000 a. This amount would have to be deducted from reliance, which would be $0 or a loss b. So, go to Restitution d. If the expectancy is too difficult to prove, the P is entitled to recover out-ofpocket expenses unless the D can prove that the contract was a losing 22

one and that the P would not have made enough from the contract to make up these expenditures. e. If the D can carry the burden of showing that the contract was really a losing one, the court will deduct the loss from the Ps outlay. f. The plaintiff may substitute reliance damages when expectation damages are insufficient. g. Recovery for quantum meruit is equal to the reasonable value of performance and is not diminished by any loss that would have been sustained by complete performance h. A promisee, upon breach, has the option to forego any suit on the contract and claim only the reasonable value of his performance. In other words, a plaintiff has the option of recovering damages for a breach of contract (which is a losing proposition here since completion of performance would have resulted in a loss) or in quantum meruit for the value of the performance already completed. Hence, the case was remanded for computation of damages in quantum meruit, which are not to be reduced by the loss Plaintiff would have incurred by complete performance. 54. Calculating a losing K a. Compare Reliance Interest for losing K with the Restitution interest. Go for whichever is greater. b. Calculating Reliance Interest fro a losing K a. Total reliance interest (without regard to profit or loss) b. - The Loss c. = Reliance interest for a losing k d. Then compare to restitution, and go for whichever is greater. 55. Calculating Restitution a. If a sum of money is awarded to protect a partys restitution interest, it may as justice requires be measured by either a. The reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimants position , or b. The extent to which the other partys property has been increased in value or his other interests advanced. b. Britton v. Turner a. The plaintiff and defendant made a one-year employment contract. The plaintiff stopped working after 9.5 months. The jury awarded 23

b.

c. d. e.

him $95 out of the full $120. The defendant appealed on the basis that the plaintiff should get nothing because the work had been done under a so-called special contract. NEW RULE! A hired laborer is entitled to compensation for work actually performed unless there is an express stipulation to the contrary in the contract. A plaintiff may recover in quasi-contract when the performing party did not render substantial performance A breacher can recover quantum meruit from the non-breacher. A breacher, in other words, can sue for restitution. The reasonable value of your services, but it cant exceed the contract price.

56. Equitable Remedies a. Asking the court for something other than money damages b. Specific Performance a. Granted where the damages remedy at law would be inadequate b. Generally, K for the sale of land = SP because land is unique. c. If buyer is trying to enforce K for sale of land SP because B wants the LAND. d. If seller is trying to enforce K for the sale of land No SP because S wants $$. e. Land is unique so you can argue SP. Goods are not unique so you cant argue SP c. Centex Homes Corp. v. Boag (Specific Performance) a. K to buy a condo. Buyer breaches. Seller wants Specific Performance. b. Specific performance should be confined to those special instances where a vendor of real estate will otherwise suffer an economic injury for which his damage remedy at law will not be adequate or where other equitable considerations require that relief. c. Under the provisions of Centexs purchase agreement regarding liquidated damages for breach, the amount is limited to such monies paid by the Boags at the time of the breach, or $525. d. Under the condominium housing scheme the units which are sold are considered real estate, and the purchaser receives a deed which is then recorded. e. The only difference between condominiums and other realty is that the owner of a condominium also owns an undivided interest in common areas. 24

f. The Court found that the condominium unit at issue in this case was neither special nor unique and that hundreds of identical units were being offered for sale by the vendor. The Court noted that, despite the condominium units label of realty, the units shared the same characteristics as personal property. d. Laclede Gas Co. v. Amoco Oil Co. a. Plaintiff and Defendant entered into a contract when Plaintiff would buy and Defendant would supply propane. The contract contained a clause, which stated that Plaintiff could terminate the contract at any time, provided that it was thirty days before the end of each year. There was no such clause for Defendant. Defendant decided to back out of the contract. b. Specific performance is appropriate when the terms of the contract are express, so that the court can determine what specific performance should be, the contract has a definite end, and remedy at law is inadequate. c. Usually, specific performance is only available for a breach of contract to sell real estate because each piece of real estate is unique and it is unlikely that money damages would put the injured party in the same position they would have been in if the contract had been performed. d. Here, is an example of when specific performance can be used in a case involving personal property. 57. Injunction a. A court order that orders a party to do or refrain from doing a certain act (or acts) as opposed to a money judgment. b. Lumley v. Wagner a. P contracted with D for her to sing at Lumleys theater for three months. D promised not to perform at other theaters while under the contract without written consent. D subsequently arranged to sing at Gyes theater for more money. b. An injunction can be granted to enforce a negative covenant of a contract. c. The court cannot compel specific performance to render personal services, but it can grant the remedy of injunctive relief to prevent a party from performing personal services. The court can compel the defendant to abstain from those acts she promised not to commit under the contract.

25

d. This contract contains a positive covenant (the requirement that the singer sing for the theatre) and a negative covenant (the implied requirement that she wouldn't sing in a different theatre). e. Courts should not necessarily enforce positive covenants like these since we don't want to force employees to work for employers they don't want to work for. f. However, courts can enforce negative covenants if the commodity in question in the contract is sufficiently rare or has a specific talent. 58. STATUTE OF FRAUDS REQUIREMENTS a. Must be memorialized in a writing or record; b. Must be signed by or on behalf of the party against whom enforcement is sought; c. indicate that a contract has been made between the parties; d. state with reasonable certainty the essential terms of the unperformed promises, in the case of non-goods contracts; a. Specify the term of quantity, in the case of contracts for the sale of goods . UCC 2-201 specifically states that "a record is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable . . . beyond the quantity of goods shown in the record." 59. Contracts Within the Statute of Frauds a. My Legs (Universal S/F Contracts) a. Marriage (property promised in anticipation of) b. Year or more Ks (Cant possibly be performed with a year) c. Land (contract for the sale of land) d. Executor Ks (a promise by an executor to make payment on behalf of estate from the executors own funds) e. Goods ($500 or more, Personal Property $5000 or more) f. Surety Ks (Co-signer) 60. Three Questions a. Does the type of K fall within the S/F? a. No oral K is enforceable b. Yes go to #2 b. Is the writing requirement satisfied? a. Yes k is enforceable b. No- go to #3 below c. Is there an exception to the S/F that applies? a. Yes K enforceable b. No K is not enforceable 26

61. Signature a. An agreement that falls within the statute of frauds must be signed by or on behalf of the party against whom enforcement is sought. a. An agreement may consist of several writings or records and only one need be signed if the circumstances clearly indicate that the various writings relate to the same transaction. b. A signature may include any mark or symbol with which the signer intends to authenticate a writing. a. The signature may be written, printed, stamped, engraved, or otherwise marked on the writing. Signatures may include initials, imprinted signatures, letterhead, and firm logos. c. Electronic signatures are good. d. Signed Confirmation Between Merchants a. In a contract for the sale of goods between merchants, the contract may be enforced even against a merchant that did not sign the writing if: a. within a reasonable time of the making of the oral contract, one merchant sends a signed writing to the other which would satisfy the statute of frauds as against the sender; b. the other merchant receives the writing and has reason to know of the writing's contents; and c. the non-signatory merchant fails to send a written notice of objection within 10 days of the date of receipt of the confirmation. 62. Avoidance of the Writing Requirement a. Goods Contracts a. Contracts for the sale of goods that fall within the statute of frauds may be enforced, at least partially, in the absence of a writing, in the following circumstances: a. where payment has been made and accepted or the goods have been received and accepted a. Such partial performance makes only the portion performed and accepted enforceable, not the oral contract in its entirety. b. In a contract for specially manufactured goods where the seller cannot sell such goods to third parties in the normal course of his business, once the seller has made a substantial beginning in manufacturing or procurement of such goods, provided that the seller can establish that the goods were intended for the buyer. c. Where the party against whom enforcement is sought admits in a pleading, testimony or otherwise under oath that a 27

b.

c.

d.

e.

contract was made but the contract is only enforceable up to the quantity of goods admitted. Contracts for the Sale of Real Estate a. A contract for the sale of real property will be enforceable if the buyer has taken possession and has made permanent improvements upon it. a. The extent of the improvements made that will justify enforcement varies from jurisdiction to jurisdiction. Contracts That Cannot be Completed Within One Year a. In a contract which cannot by its terms be completed within one year, lack of a writing will not preclude enforcement once full performance has been completed. Equitable Estoppel a. Where the promisor makes a representation pertaining to the writing and the party seeking to enforce the contract relied to his detriment upon such representation the promisor may be estopped from raising the lack of writing as a bar to enforcement. a. e.g., that the writing has been executed, that the statute of frauds will not be raised as a defense to the enforcement, or that the statute of frauds does not apply to the transaction in question Promissory Estoppel a. A non-goods contract that fails to satisfy the statute of frauds may nevertheless be enforceable if the promisor's promise foreseeably induces action or forbearance on the part of the promisee or a third person and enforcement is the only means of avoiding an injustice. a. Mere reliance on the oral contract itself is generally not enough to justify estoppel; most cases require some additional statement or promise. b. A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statue of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is limited as justice requires.

f. Surety Contract 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. c. The promise must be made to the creditor (or at least the creditor must be aware of the promise). 28

d. You must get by the main purpose rule. a. If the party who agrees to guarantee the debt of another does so to secure a personal benefit for themselves, the statute of frauds does not require a writing. e. Yarbro v. McGinnis f. Russell buys tractor, doesnt make payments, Yarbro said hed pay the missed payments. g. Main Purpose Rule a. The main purpose of the promisor is not to answer for the debt of another, but to obtain a substantial benefit to himself, which he actually secures as the consideration for his promise, then not only is the promise valid though oral, it is supported by good and sufficient consideration. b. If it was to benefit him, it is NOT a promise to pay the debt of another and NOT within the S/F.

g. Marriage Contracts a. S/F Does NOT cover promises to marry b. S/F DOES cover promises to a. Support a child b. Leave property to spouse c. Prenuptial agreements h. Land Ks What is land? a. Land a. Minerals not yet extracted b. Minerals extracted by buyer c. Covered: buy/sell land, assumption, extensions, modifications of RE mortgages b. Goods a. Mineral extracted by seller b. Growing crops i. One Year Provision a. IF the K cannot possibly be completed within 1 year, it must be in writing a. One Year = January 1 December 31 midnight b. Fiscal year = July 1 June 30 midnight c. Year + 1 day = July 1 July 1 29

b. Counting rule discard partial first day of K, and start the next day a. Date of K making = 9/30/02 b. Date of 1 year anniversary = 9/30/03, but under the Counting rule, 1 year = 10/1/02 through 9/30/03 j. Modification of a K a. If the parties to an existing contract modify it, the new contract must comply with the S/F if the contract, as modified, falls within the S/F. b. Watch = $500 Needs writing for S/F c. Watch reduced to $450 No writing 63. The Writing UCC a. Quantity b. An indication the K has been made c. Signed by the party to be charged 64. Confirmations 2-201 (2) a. Between merchants b. Within reasonable time written confirmation c. Sufficient against sender d. Received/has reason to know of contents e. Satisfies S/F unless objection within 10 days is received

30