Contents

1)Hawkins v. McGee - ED.................................................................................................................................................................................................4

The Bullet point – The P Phrase.....................................................................................................................................................................................4

2) Groves v. Wunder......................................................................................................................................................................................................... 4

2. Peevyhouse v. Garland Coal......................................................................................................................................................................................5

First restatements of contracts (346)...............................................................................................................................................................................5

The Bullet – P Phrase has 2 methods..............................................................................................................................................................................5

3)Acme Mills & Elevator Co. v. Johnson........................................................................................................................................................................5

The Bullet – Only P Phrase, nothing more, we will not let the other party lay their hands on the profits.....................................................................6

Squib: Laurin v. DeCarolis Constr. Co., Inc.:........................................................................................................................................................................6

4)Missouri Furnace Co. v. Cochran.................................................................................................................................................................................6

Common law: Hockster v De La Tour -................................................................................................................................................................................6

5)Neri v. Retail Marine Corp............................................................................................................................................................................................7

The Bullet: The seller is entitled to the lost profits, plus expenses................................................................................................................................7

Squib: Commonwealth Edison Co. v. Decker Coal Co............................................................................................................................................................7

6)Illinois Central RR Co. v. Crail:...................................................................................................................................................................................7

The Bullet – Not cranking formulas, only actual damages.............................................................................................................................................7

Squib: Watt v Nevada Central RR........................................................................................................................................................................................7

Reliance Damages.......................................................................................................................................................................................................8

7)Chicago Coliseum Club v. Dempsey: Illinois Court of Appeals................................................................................................................................8

Rule:................................................................................................................................................................................................................................ 8

Squib: Security Stove & Mfg. Co v American Ry Express Co.: Mo. App. (1932)...............................................................................................................................9

The Bullet: If reliance of something consistent, can get damages anticipating K.....................................................................................................9

Squib: Anglia Television Ltd. v. Reed:.................................................................................................................................................................................9

Bullet – Can rely when there are many alternatives, and late breach........................................................................................................................9

Restatement of Contracts, §349:.....................................................................................................................................................................................9

8)L. Albert & Son v. Armstrong Rubber Co.:................................................................................................................................................................9

Squib Mt. Pleasant Stable Co. v. Steinberg:.........................................................................................................................................................................10

Section 2 – Limitations on the P Phrase.................................................................................................................................................................10

1)Rockingham County v Luten Bridge Co.:.................................................................................................................................................................10

The Bullet – Mitigate damages.....................................................................................................................................................................................10

Squib: Leingang v City of Mandan Weed Board.............................................................................................................................................................10

Squib: Kearsarge Computer, Inc. v. Acme Staple Co.:..........................................................................................................................................................11

Wrongful discharged employee duty to mitigate:.............................................................................................................................................................11

pg. 1

2)Shirley Parker v 20th Century Fox:...................................................................................................................................................................11

Bullet; Rule - Shirley McClain is not Kearsarge. Kearsarge and RMC is a service - goods dealer. Employees can’t get lost profits; they only

can be at one place at a time. Employees lose recovery by mitigating.........................................................................................................................12

Squib: Billetter v Posell (1949)....................................................................................................................................................................................12

3)Hadley v Baxendale..................................................................................................................................................................................................12

4)Globe Reffining Co. v. Landa Cotton Oil Co.:..........................................................................................................................................................13

Squib: Lamkins v International Harvester Co......................................................................................................................................................................13

Squib: Victoria Laundry Ltd v Newman Indus Ltd...............................................................................................................................................................13

Squib: Heron II................................................................................................................................................................................................................ 14

Squib Hector Martinez & Co v Southern Pacific Transp Co.:................................................................................................................................................14

5)Valentine v General American Credit, Inc................................................................................................................................................................14

Squib: Hancock v. Northcutt..............................................................................................................................................................................................14

6)MindGames, Inc. v. Western Publishing Co.:...........................................................................................................................................................14

Freund v Washington Square Press, Inc.:............................................................................................................................................................................15

Fera v. Village Plaza, Inc.................................................................................................................................................................................................. 15

Section 3- Restitution Alternative Damages..........................................................................................................................................................15

1)Boone v Coe (1913)....................................................................................................................................................................................................... 16

Quantum Meruit:........................................................................................................................................................................................................16

The Bullet: No K; therefore restitution: Only when benefit.........................................................................................................................................17

2)United States v Algernon Blair, Inc............................................................................................................................................................................17

The Bullet: If breachee and MB; Can claim “On k” and “Off K”................................................................................................................................18

Squib: Kearns v Andree.................................................................................................................................................................................................... 18

The Bullet: Breachee can get reliance-restitution.........................................................................................................................................................18

Notes: Farash v Sykes.......................................................................................................................................................................................................18

Notes: The Doing and Giving Problem...............................................................................................................................................................................18

Squib: Oliver v Campbell (1954).......................................................................................................................................................................................19

The Bullet: Only restitution until the point you performed, once performed no res...............................................................................................19

Notes: Noyes v. Pugin...................................................................................................................................................................................................... 19

Notes: Clark-Fitzpatrick Inc. v. Long Island Railroad Co. (pp. 109).......................................................................................................................................19

3)Stark v. Parker............................................................................................................................................................................................................. 19

4)Britton v Turner-(1834)...............................................................................................................................................................................................20

Notes: Schwasnick v. Blandin:..................................................................................................................................................................................................................20

Squib: Thach v. Durham............................................................................................................................................................................................................................20

5)Pinches v Swedish Evangelical Lutheran Church, S.C. of Errors of Ct, 1887.......................................................................................................21

pg. 2

Squib: Kelly v. Hance....................................................................................................................................................................................................... 21

6)Vines v Orchard Hills, Inc...........................................................................................................................................................................................21

The Bullet: When we look at the P phrase, we do damages based on the law, however with restitution, we’re looking at equity.............................22

Squib: De Leon v Aldrete.............................................................................................................................................................................................22

Rule:.............................................................................................................................................................................................................................. 22

Section 4 – Contractual Controls on the Damage Remedy...............................................................................................................................23

Penalty Clauses and Liquidated Damages....................................................................................................................................................................23

1)Muldoon v. Lynch........................................................................................................................................................................................................ 23

Note: Pacheco v. Scoblionko (pp. 135)......................................................................................................................................................................................................23

Squib: Yockey v. Horn...............................................................................................................................................................................................................................24

Squib: Wilt v. Waterfield (MO Sup. Ct. 1954)..........................................................................................................................................................................................24

Comment: Applying Damage Clauses......................................................................................................................................................................24

2)Samson Sales Inc. v. Honeywell Inc. (149).................................................................................................................................................................24

Section 5: Enforcement in Equity..................................................................................................................................................................................24

Note: Manchester Dairy v Hayward.............................................................................................................................................................................25

1)Van Wagner Advertising Corp. v. S & M Enterprises (153)...................................................................................................................................25

Squib:Curtice Bros. v. Catts (154)................................................................................................................................................................................26

UCC §2-716 – specific performance only applicable in extraordinary circumstances.......................................................................................26

Squib: Paloukos v. Intermountain Chevrolet Co. (160)................................................................................................................................................26

2)Fitzpatrick v. Michael (MD Court of Appeals, 1939)...............................................................................................................................................26

3)Lumley v. Wagner........................................................................................................................................................................................................27

Squib: Pingley v. Brunson..........................................................................................................................................................................................................................27

Note: Enforcing Noncompeting Pledges........................................................................................................................................................................................27

Note: ABC v. Wolf (173)...........................................................................................................................................................................................................................27

Squib: Fullerton Lumber Co. v. Torborg...................................................................................................................................................................................................28

Squib: Data Management v. Greene (AK Sup. Ct., 1988).........................................................................................................................................................................28

Northern Delaware Indus Dev Corp v EW Bliss Co..................................................................................................................................................................................28

Squib: City Stores v. Ammerman (DDC, 1967)........................................................................................................................................................................................28

Squib: Grayson-Robinson v. Iris Constr. Corp (NY Ct. of Appeals, 1960)..............................................................................................................................................29

pg. 3

Chapter One: Section One 1)H aw k ins v. McGee - ED

Facts: P claimed K based on doctor’s words; doc guaranteed for a %100 ”perfect” or “good” hand .Jury awarded P K damages. Unlike torts

damages, K damages put someone in the position they would have been in had the promisor performed. Hawkins had 2 claims: (1) Oral Breach

of K (2) Negligence - Hawking’s claimed DR. was careless. P failed to produce sufficient evidence - Non-Suit Ordered Procedural History: A

motion claiming excessive verdict was granted - Dr. McGee was granted a remittitur - after verdict. Dr. requested for a new trial unless Hawkins

remit all $ over $500. Hawkins refused, and appealed. McGee made a list of legal errors – “cross appealed”: (1) Judgment as a matter of law -

Trial judge should grant motion for a directed verdict due to insufficient evidence for the jury (sufficiency test). Claim: No K was formed. (2)

Damage instruction to the jury was in error -1) pain and suffering* 2) ill effect of the operation**. (Instructions was premised on tort damage

measures - restore person to position before the tort)

*This would have been a measure of damage had the negligence/tort claim prevailed. However, In K this does not preclude other pain and

suffering in the “second” surgery to repair what occurred in the first.

**Another tort measure which is backward looking versus it being a K measure, K damages put the promise in the position he would have been in

had the promissor performed, regardless if it is worse or not (THE P PHRASE)

K damages look to the future hypothetical position he would have been in, while tort damages look to the position in the past and restore that

position.

Three interests being considered in breach of K cases:

(1) Expectation interest focus on injured party - forward-looking, it aims at putting her in the same (monetary) position had K been fully

performed. (2) Reliance interest focuses on the injured party - backward-looking put her in the position that she would have been in had she not

made K in the first place. It does so by reimbursing her for the loss caused by her reliance on K. (3) Restitution interest focuses on the breaching

party. It is backward-looking in that it aims to put the breaching party in a position similar to the one she would have been in had no K been made.

Forcing the party in breach, to return any benefits she obtained by breaching.

Injured party Breaching party

Past Reliance Restitution

Future Expectancy ?

How do we accomplish the P Phrase here?

(1) Good hand vs. current damaged hand for remainder of his life. Diminution of market Value

(2) Another remedy is cost of completion - Cost of Performance. SC was wrong is saying that we should not apply COC due to fact that D does

not want to do a second surgery. Prof.: This is sheer nonsense, what reasoning is that?

Reasoning: What was the reasoning of the trial judge? Breach of K – damages for future considerations seem excessive.

Sullivan vs. O’Connor. Mass. SC. Doctor promised to surgically improve P’s nose and it didn’t. Court: had DR

been negligent, although claim was for BOC, we give the patient full K damages (Future). If DR was not negligent

(only BOC), than only give victim tort damages, repair what the action changed - Now Vs. Before. Shows that

rules aren’t rigid and robotic.

The Bullet point – The P Phrase.

2) G roves v. Wunder

SC - Minn. (1939) Facts: D breached K to level ground after removing gravel. Cost of leveling was much higher than MV of the land already

leveled. Issue: is cost of performance the proper measure when it exceeds DIMV? Ruling: Yes. Dissent (Prof): This should occur when it

satisfies the land owners personal taste and desires, not the case here. Notes: P could have specifically stipulated that he wanted COC.

pg. 4

P Phrase comes in two flavors: (1) Cost of performance (where Groves gets the cost of what it would take to set right the wrong) (2)

Diminution in market value (where Groves gets the change in its valuation of the topic under discussion).

Groves was over-compensated: (1) we know he will not (and did not) level the land. (2) In K law we don’t care what the intent of the breach was

(“willful” or not), & we do not give punitive measures. In this case, there was a punitive air (not allowed in K) it’s an issue whether deliberate

breach should matter; usually it does not, but here court said it did; a bad decision. (CRT thought they could analogize the case to construction

K where there is a “good faith” breach, breaching party may not sue, and may not invoke substantial performance limiting damages to DIMV -

Legalines.)

However, in certain circumstances the court should award cost of performance, when we know the money will be used to complete K. Ex:

1. Ugly Fountain (Restatement, Second) - A K’s to construct a monumental fountain in B's yard for 5G, abandons the work after the

foundation has been laid and $2.8G had been paid by B. Fountain is so ugly that it would decrease prop value. COC would be $4G. B

gets $1.8G - cost of completion less the part of the price unpaid. Prof.: Different than Groves: he wouldn’t have done it and fountain

guy will do it at his cost.

2. Peevyhouse v. Garland Coal: Facts: P leased part of their farm to D for strip mining of coal. Express written term of K stated that D

smooth out the land once it was done. D refused to smooth out the land. P sued for COC ($29G) P farm was worth less than $5G -

COC would have added $300. Trial jury awarded 5G Issue: Can award COC rather than DOV when disproportionate? Holding: No.

Analysis: P would’ve spent the money to fix the land (the stayed on land after the case), however, OK court only awarded DIMV

not COC. Prof.: court got it wrong, should have given COC.

How we know groves will not level land: Coase Theorem - In a perfect market, where there are no transaction costs, changing the legal rule

governing a certain transaction will not alter the equations of production (will not cause a reallocation of productive resources) As long as there

is a possible change in the terms of our deal that would produce net benefits, we will negotiate.

First restatements of contracts (346): unless economic waste, where builder breaches, award COC.

The Bullet – P Phrase has two methods.

05/24/2011

3)Acme M i lls & E l e v ator Co. v . Jo h ns o n

Facts: Acme made a deal with a wheat farmer to buy all of his wheat upon delivery at $1.03/bushel, April 23. However, on July 13, D makes a

second deal with another miller for 1.16; further, when threshing ended (Wheat is ready to harvest, threshing must be done immediately. It began

on the 25th, ended on the 29th), wheat is worth less than $1/bushel. (Trial court rules for D) Analysis: Prof: “Delivered from thrasher 1909”: (1)

when and from (2) where is the delivery.

Acme claims that D breached K and asks for damages (diff. between K price and Resell). Johnson responds: (1) Acme was rumored to be

unable to pay (2) damages are 0 - P would have lost about 3C/bushel. (According to the court, breach occurred on the day that D began

harvesting. K doesn’t state a date; court says K was for delivery for wheat on July 25-29.

Ruling: The Court applies diminution-of-value, due to the strictly commercial nature. However, the diminution is zero; no damages. Court

also affirms that there are no punitive damages in K law, unless there is also a tort claim.

Academic theory why courts use expectancy as a remedy: We prefer compensatory damages to punitive or nominal, largely because

we want to respect the efficient breach , it is not necessarily in society’s interest to have every promise be performed.

In our case, breach is efficient because when sold to Liberty Mills; D moved wheat to a higher value user. The expectancy remedy

gives breacher’s benchmarks, and awards breacher for being more efficient.

Q: If the rule is that Acme won’t get $ from Johnson, why did he think he would get $ from the profit?

If D had performed by getting wheat from elsewhere, he would’ve charged Acme $1.03 and made a profit -- rate then was 97C.

However, Acme would claim that K was for D’s specific wheat. D would reply that wheat is fungible - Commercially interchangeable

with other property of the same kind.

A: Acme Believed:

pg. 5

1. D manipulated the threshing and intentionally held off until the market went down (estoppel argument).CT

ruling: no evidence

2. “I have this day sold the wheat to Acme.”- Words of the K-title of the wheat to pass on 4/26 is the intent so after 4/26, the actual

wheat belonged to P already. By selling P’s wheat it is “conversion”* and the remedy is that D has to pay all the profits he got from

Liberty to D. Prof: How the lawyers did not win the argument is question.

(*Tort & criminal law - The wrongful possession or disposition of another's property as if it were one's own)

D’s selling to Liberty on 7/13-14 was antici pa tor i ly repu d iating the K.

Usually when BOC, you find out on the day of the K that it was not performed. Here, he and we knew in advance that he will not

perform. Should measure damages as of 7/13-would be $1.16! (Prof: However this is not the case, he did not breach on 7/13-4, for

he could still replace the wheat).

Law allows you to go to court when informed that the k will not be done.

[**Special case where: fiduciary – relationships - there’s a special trust imposed by the promissor on the promissee]

The Bullet – Only P Phrase, nothing more, we will not let the other party lay their hands on the profits.

Squib: Laurin v. DeCarolis Constr. Co., Inc.:

Facts: P bought a tract of land from D. Before the transaction was closed, D took gravel without permission. P sued for BOC and was awarded

MV of the gravel. PH: case was appealed and reversed because damages weren’t consistent with K damages, but “conversion” tort. They

reduced damages to the amount by which the property’s value reduced by removing the gravel. P appealed. Issue: What damages should be

awarded to P? Rule: D ought to be liable for MV of materials removed. Analysis: Court says it is not sufficient to award damages based on

how much less the property is worth.

Note: Paiz v. State Farm Fire and Cas. Co. - How K was breached is irrelevant. Non-breaching party shouldn’t be able to get extra bonus from

a breach with a high degree of fault.

Common law states that the standard measure for compensation is the amount by which the marker price at the time and place of delivery

exceeds K price. If there are installments; we assess the differential on each date of delivery. However, This however places the buyer in a bad

position of assuming all the risk and the buyer cannot cover for the whole contract. UCC takes the position in this case that the B should not

need to use the spot market: § 2-612. § 2-712.

4)Missouri Furnace Co. v. Cochran

Facts: MF contracts with Cochran to get coke at $1.20/ton but only gets a fraction of K. MF makes a new K on 02/27 with a third party to get the

rest at $4.00/ton. P sues to recover the difference in price (2.80/ton) Ruling: Court rejects that price difference calculation - P is only entitled to

the difference between K price and MP of standard coke at the time of delivery* (Same rule in Acme Mills). Reasoning: MF entered into

another forward K. Had it entered a spot market deal, buying at MP specifically as it happened; it would have been fully compensated. (Since

MF knew it was going to sue and get spot market damages, it should have stuck with that).

Old Rule : where delivery is to be made in installments, damages will be measured based on MP of the time and date of each installment. D can

reenter the K any time he wants and you have to wait and see if he will continue to breach by not delivering at the set times. Prof: This was the

law at that time and is a pretty bad choice.

Law today , the recipient of an anticipatory repudiation is relieved of any duties that he had:

Common law: Hockster v De La Tour - a party that receives an anticipatory repudiation may sue right away and doesn’t

have to wait until the time that he would’ve completed performance

When Buyer breaches contract, how to we do the P Phrase? § 2-610: Anticipatory repudiation / §2-713: Prof.: Why at time learned of breach?

Person may be away, so instead lets you get price on date you learned of breach. Most of the time one learns the day of actual breach. 2-723 (1)

- if action based on anticipatory repudiation comes to trial before day of breach – before time for performance – we asses MV at time when

aggrieved party learned of the repudiation, which seems to confine itself to actions that come to trial before its performance date, we measure

damages at time that learn of repudiation, not of the breach, but only in that one special case when action comes trial before performance date.

pg. 6

Commercially reasonable time after repudiation: Damages should be calculated by use of the market price at the expiration of a commercially

reasonable time after the buyer has learned of the repudiation. Incentivize the buyer to cover.

§2-706(1): Seller's Resale /§ 2-708. Seller's Damages for Non-acceptance or Repudiation /§2-709. Action for Price / §2-718(2) Liquidation

or Limited D / §2-718(3). Buyer restitution in BOC.

5)Neri v. Retail Marine Corp

Facts: P entered K to buy a boat from D. P made a K $12G for the boat and down payment of $4G (for immediate delivery.) P breached K, but

wants his deposit back. D declined and P brings suit. Trial crt awarded P restitution in the amount of $3750 less $500 as an offset amount to D

for BOC under the rules of the §2-718. Rule: Court reverses and finds that that measure of damages (difference in MP at time of sale and

unpaid K price) should be replaced by a rule which shows the appropriate measure of damages to D – Lost profit. Notes: Trial court looks at the

UCC, In this case, $500. It awards D remainder = $3.7G. COA awards damages to RMC in the amount of the profits on the sale, plus the

incidental damages for maintaining the boat while it was languishing. This is less than the deposit, so the balance of the deposit is ordered

returned

There are two different kinds of sellers in the marketplace: (1) One seller with one item: Not deprived of lost profit when a person

breaches in this case. S only has one item to sell thus the only harm or damages would be the incidental cost of finding a new B. Same

# of B for the same number of items (1:1). (2) A seller with inexhaustible supply – Loss of profits in this case. If B performed, S

would have made 2 sales instead of 1 – two sale theory. This situation: same number of B and the same number of items (unlimited:

unlimited)

( The 2 nd Seller : Would D have made 2nd sale? Maybe not, 2 reasons: (1) Boats are out of the same harbor. It is not really likely that another boat

will be sold - 2 similar boats in the same harbor not likely; hence, we should discount the value of a guarantee sale. What would the S discount if

he had a guarantee? (2) Marine has competiion: 2nd buyer could have bought from Neri.)

Prof: COA misread the UCC! Rule: $500 + lost profits.

The Bullet: The seller is entitled to the lost profits, plus expenses.

Squib: Commonwealth Edison Co. v. Decker Coal Co.

Issue: If a seller can recover K price of goods under §2-709, can they alternatively recover larger damages for lost profits under § 2-708(2):

Rule: § 2-708 only applies if the seller cannot recover for the price of the goods under §2-709. § 2-708 is sort of a backup provision. Analysis:

Drafters of the UCC said that §2-708(2) only kicks in if §2-708(1) is insufficient (“inadequate”) to put S in as good a position as performance

would have done. Court argues by analogy that the drafters must have intended that §2-709 is the same sort of front-line provision as § 2-708(1),

and that § 2-708(2) is a backup to §2-709 as well as § 2-708(1). Conclusion: S cannot recover damages under §2-708(2) if he or she can recover

the price of the goods under §2-709.

6)Illinois Central RR Co. v. Crail:

Facts: P, a coal dealer, mad a K with D for the delivery of 88K lbs carload of coal. D delivered an unexpected shortage of 5K. P purchased the

coal with no intention to resell it, just add it to inventory, at a wholesale price of $5.50; NOT at the retail price of $9.70, but sued for the retail

price of coal. Ruling: the court finds that P’s request for measure of damages at the retail price is not an accurate measure of damages and would

over-compensate P. B always bought coal at wholesale here he cannot buy 5K lbs at wholesale – it ONLY came by carload.

The Bullet – Not cranking formulas, only actual damages.

Squib: Watt v Nevada Central RR.

Facts: P collected approx. 700 tons of hay over 4 years which he stored in his ranch to prevent a starvation of his cattle in the event of a harsh

winter. D’s train negligently set fire to P’s hay destroying all of it. P sues D for damages. The trial court finds for P and awards him the value of

hay in the closest hay market to their location – Austin, TX - $10 a ton when bailed. The appeals court reverses and awards P with only $3.50

per ton of hay ($10 Austin price - $2.00 to bail the hay, $6.50 to transport the hay). Notes: Economic function of the hay was that it was drought

insurance, so we could give him the value of insurance for that time and the cost of growing the hay and it would still be less than going to

Austin. Questions: What are Watt’s actual damages?

pg. 7

Trial court was incorrect: (1)P would’ve had to bale the hay to Austin-labor, so the COA changed it to $3.50 b/c deducted labor costs (2) Watt

didn’t go buy the hay and transport it, so it would have over-compensated him. The cheaper way to recover is to grow hay at $5 which is

cheaper than going to Austin, and that’s what he would’ve done. So giving him the price in Austin plus labor, overcompensating.

Reliance Damages

Damages suffered by the party because he relied on K to happen. If A to sell a device to B, and the device costs $2 to make, the reliance damages

if B breaches (by not accepting, for example) are $2. They are intended to put P in “as good a position as he was in before the contract was

signed." Reliance D won’t recover for expenditures before k was made.

(1) Essential Reliance- Money spent in the furtherance of performance of the victim of the breach on the K. Consequential damages.

(2) Incidental Reliance- Money spent in reliance on the promise, but not spent in furthering the K, but rather spent on collateral

transactions. (If Dempsey who BOC expected wine, he may need to repay that)

7)Chicago Coliseum Club v. Dempsey: Illinois Court of Appeals, First District (1932).

Facts: P K’s to host a fight between D and another fighter, paying D $10 upfront and more money later, D agreed not to engage in any boxing

matches prior to date of match. P also entered into an agreement with Wills (other fighter) to deposit $50G in escrow 10 days before fight date.

When it came time to get insurance as required under K, D contended that there was no agreement and that he was scheduled to fight Tunney. P

filed complaint in Indiana to have D restrained from fighting Tunney. Court found K was valid and granted injunction. P sought damages

against D for flagrant BOC in Illinois court.

P sues for four types of damages: (1) Loss of profits from the event not happening. (2) Expenses incurred before K was signed, including K

with the other fighter. (3) Expenses incurred getting and enforcing restraining orders against D. (4) Expenses incurred after K was signed but

before breach.

(1)P admits lost profits can't be calculated and therefore can't be recovered, so denied (However, D lawyers tried b/c of a rule that parties can

agree a K that is executed one day will be effective as of a different date that is before or after date of execution). (2) Court: since expenses

incurred before K was signed were incurred without assurances that K would be signed, they can't be recovered, only expenses that “naturally

flow” – denied. (3) Civil procedure matter about the risks and expenses of litigation, skip. There are multiple parts to (4): one was expenses to a

certain employee, to be paid out of the proceeds - denied. However, the others are valid: the upfront money to D, the cost of buying plans for a

possible location of the fight, and any special expenses incurred after K was signed, such as flights or additional temporary workers (normal

salaried workers are excluded, of course, since they would have been paid K or no K – [Me: how come no fixed cost damages? - Leingang case]).

In the end only those parts of #4 are recoverable.

This rule of reliance damages must have been known to the club’s lawyers, why did they think they can win? If a person takes on pre-K

expenditures when signing the K, they may be held liable.

How do we know D took on responsibility? K was dated same date as the K with Wills(other fighter).Wills executed on 3/6 and D on

3/13, but D’s K bared the date as of 3/6. Hence, it is possible courts got it wrong again Prof.: How did the lawyers screw this up?

Court assumed that the K was effective 3/13, not 3/6 - could be because they left out the words ‘as o f . ’

Rule: Parties can agree that a K that is executed one day will be effective as of a different date; before or after date of execution.

Q.: Is it true club’s profits were speculative? Didn’t they estimate whether the event would fill up*? Why didn’t the court allow it?

The court took the litigating posture in application for injunction from Indiana court that said that in order to get injunction they need to show it

would cause them “irreparable damages”, so ED damages would not be enough. Now here, once they took that theory on, they’re stuck w/ it.

However, it is questionable what the procedural process is, and if the Illinois court had to accept the equity decisions.

If courts can value “hairy hand”; should be able to value ticket pricing? However, we deviate from it, for we don’t know the ED, so how do we

know the RD? How do we know they would have covered their expenses? This leads us to the next case. We shift burden of proof on D -

breacher, not P. We assume he would have covered his damages. This is a procedural maneuver.

Outline:

If ED are too speculative, give reliance damages; like here, where P’s profit was totally dependent on ticket sales, can only grant him amount he

already expended. Restatements 2nd of contracts - §349.

pg. 8

Effort to collect pre-K expenditures that were successful:

Squib: Security Stove & Mfg. Co v American Ry Express Co.: Mo. App. (1932)

Facts: P - Security Stove wanted a demo stove shipped in 22 packages from Missouri to NJ for an appliance exhibition. They hoped to get a

distributor interested in their product. Only 21 packages arrived on time. P sued shipper (D). (D argued that since it was just an exhibition, there

was no real loss of profit, therefore, no ED. P argued that there was considerable loss of goodwill and potential future profits. In addition, they

had a reliance interest which is a measure of compensation given to a person who suffered an economic harm for acting in reliance on a party

who failed to fulfill their obligation. Issue: What damages may P recover? Rule: P has the option to recover reliance damages when ED is too

uncertain. Analysis: Court: application of ED is a general rule that doesn’t apply in all cases. Sometimes injured party can recover reliance

damages even though this money is spent had K been performed. ” Although booth space was rented before K, P had arranged for exhibit

knowing that it could call on D to perform its common law duty to accept and transport the shipment with reasonable dispatch.”. Conclusion:

Judgment of trial court upheld.

Argument was that they knew with legal certainty that the promise would be made.

Why was P successful? There’s an ancient law of common carriers that in exchange for privilege in using king’s highways, carrier

undertakes to carry all items from people who pay the fee. When P made pre-K expenditures, it did it in reasonable reliance that D - a

common carrier - couldn’t refuse K. K was as good as if it had already been made!

P sued for president’s wasted time - Although he gets paid a flat salary, pres. Time was truly wasted expenditures because he couldn’t produce whilst on the train. In contrast to Dempsey, pres. didn’t recover because during wasted time he could’ve made alternate arrangements. Q: Why pay for time, pay for lost profits potentially gained during wasted time? A: Speculative damages!

The Bullet: If reliance of something consistent, can get damages anticipating K.

Squib: Anglia Television Ltd. v. Reed:

Facts: Anglia (P) made preparations to produce a TV play. Anglia K’s with Robert Reed (D) to star in the production. D agreed to come to Eng.

and be available from Sep 9 - Oct 11 to rehearse and act in the film for 1G pounds (+ living expenses and airfare). D breached. P sued D for lost

expenditure. Trial court: P can recover damages from both before and after D repudiated K, D appealed. Issue: What damages are available to a

P in a claim for wasted expenditure? Holding: P is not limited to expenditures incurred after the formation of K, but also before. Analysis:

Court: if expenditures incurred before the parties entered into K were reasonably “ within the contemplation” of the parties as likely to be wasted

if K were to be broken, expenditure are recoverable. Here, D knew or should have known that if he repudiated K, fees incurred for directors and

other expenses would be wasted. Disposition: Affirmed. Notes: Before and after K expenditures; In contrast to CCC v. Dempsey. This is

because before K was signed, there was time to find another actor if D turned down K; once it was signed and breached, there was not enough

time. All of production expenses were incurred in reliance that someone would sign a K. Therefore, once D went into K he assumed that

responsibility.

This case is different from Dempsey: Dempsey was unique - the only heavyweight champion in the world; Reed was just an actor, and there are

other actors P could have signed, but none of the other guys who were eligible to play the part had a legal duty to sign w/ P (By stove, carrier had

a legal duty to K). However, reliance on one of 12 guys was nevertheless reasonable because there’s always a struggling actor. However,

When Reed signed, waited, and then breached, he converted himself to Dempsey and became unique! Had he backed out right away; P

probably wouldn’t have won - could have gotten another actor, but since D waited, and then breached, he caused expenditures to be wasted!

The bullet – Can rely when there are many alternatives, and late breach.

Restatement of Contracts, §349: RD “less any loss that the party in breach can prove…the injured party would have suffered had K been

performed: (a) Don’t want to put P in a better position than had there been performance (b) However, the BOP shifts to the D to prove the loss

saved.

8)L. Albert & Son v. Armstrong Rubber Co .:

Facts: P K’s to sell four rubber refining machines to D for $1G, and D paid $3G to be ready to receive them. P delivered two - 2 years late. Trial

court awarded P cost of the first two machines. D sued for reliance of P promise to deliver: (1) Its investment in a “reclaim project” (118G) (2)

Cost of scrap rubber (27G) (3) Cost of laying the foundation for refineries (3G). Rule: COA awarded claim 3, but denies other 2. Analysis: D

couldn’t prove refinery was the reason or cause of the loss of (1) and (2). S is not an insurer against B presumed benefits and loses. ED is

pg. 9

unknown, hence we rely on RD. True reliance is this case is the 3G, and BOP is on the P to prove that D would have lost money had they actually

sent the refineries.

Squib Mt. Pleasant Stable Co. v. Steinberg:

Facts: P Co. agreed to supply teams of horses at agreed rates as required from day to day by the D for his business. P bought 2 "Cliest" horses. D

repudiated K. P sold horses at a loss; sued Ruling: P not entitled to loss; for it is already recovering lost profits.

Section 2 – Limitations on the P Phrase.

Principle of Mitigation: (A) Construction K – Builder is not required to assume another job due to breach. However, builder must stop for

accruing damages. (B) Employees have very specific ways they need to mitigate.

1)R oc k ingham C ou n ty v Luten B ridge C o.:

Facts: Rockingham County (D) contracted with Luten (P) to construct a bridge. D had completed very little work on the bridge (2G) when P

provided a notice of K cancellation. P proceeded to complete the bridge and sued D for BOC (Full K – 18G). Trial judge gave full amount of K. P

appealed. Issue: What damages are appropriate where one party gives notice of BOC and the other party completes performance? Holding and

Rule: Damages are limited to the amount he would have been able to recover as of the time od repudiation (Profits). D is entitled to expenses

incurred up until repudiation, plus expected profits from K completion, plus losses incurred.(However not costs incurred after BOC the

bridge). Reasoning: P must mitigate damages. It is wasteful to complete a bridge when changed circumstances have rendered it worthless. The

law seeks incentives for efficient breach.

Prof.: Bridge Co. performance is condition precedent for the County to pay - Bridge Co. must finish the bridge before the county’s

responsibility to pay comes about. Law says that if 1 party prevents the other from fulfilling a condition, then the preventer is liable for

breach. County prevented the bridge Co. from fulfilling its condition precedent - breach.

Q: Why did he continue building, was there a breach? A.: He did not know who to listen to, due to political maneuverings. Maybe b/c of the

dissent in the commission P may not have had a clear answer that the county was breaching. We don’t know but it is possible, and would have put

Luten in a very dangerous position – if they listen and letter was notice was sent from a party out of power – they would have been the ones who

breached.

The Bullet – Mitigate damages.

Calculation: Profits = (K - Total Expenditures)

[TE = Total Expenditures (EI + ES): EI = expenses Incurred/ ES = Expenses saved by Breach - AR]

Costs: (1) Fixed Cost (2) Variable Cost (3) Semi-variable Cost (hard to figure)

Fixed Cost: Total cost does not change with changes in the volume of activity. Ex: Rent, insurance, administrative salaries. However, it

changes per product. More products means diminishing fixed cost.

Variable Cost: Changes in total, in direct proportion to changes in the level of activity. The total cost increases/decreases as units made

increases/decreases. Direct material, direct labor and variable overhead are all variable costs. It is a variable cost if it costs you more if

you make or sell one more. However, cost per product remains the same.

Rockingham > K – ES / Leingang > Trial Court: K – TE “net profits”. (He did not do any work). COA: K – ES (Why is that not TE? There is

not variable cost incurred? A: K includes fixed cost) Explained:

05/13/2011

Squib: Leingang v City of Mandan Weed Board

Facts: D awarded K to P to cut weeds from large lots and another K to another party to cut weeds from small lots. D then improperly assigned

some large lots to small lot contractor. P sued for K price of the work he should have been allowed to perform minus the costs P saved by not

performing. Trial court held only “net profits” were recoverable minus saved variable & fixed cost. Issue: How are damages to the P calculated?

Rule: P is to be compensated for all of the damage caused by BOC, including fixed cost Analysis: Court argues that “constant overhead

expenses” should not be included expenses saved of K because they would have been spent whether or not K had been performed, and hence

needs to be given back as damages, for it was not saved. Conclusion: Appeals court ordered a new trial.

pg. 10

In Leingang, they deduct from the K price the money saved from the breach, the variable costs. The lower court however also deducted

also the fixed costs because accountant treated a portion of the fixed costs as expenses for that year (depreciation), regardless of work done,

hence, they are deducting it from the K price.

However, the accountant’s view of profit differs from a lawyer’s view of profit. Accountant doesn’t take into fixed costs because they calculate

causation (cost driver) – constant cost regardless of production. If victims of the breach would incur the expenses regardless of the K, then

breach didn’t cause the damages.

However, accounting is not the whole picture. When get a K, companies use it all to pay variable, fixed, and other expenses. So, in fact

the K you make contribute to paying the fixed expenses. If a K is breached, more cash comes out from the other K’s to pay for fixed

expenses.

Squib: Kearsarge Computer, Inc. v. Acme Staple Co.: (1976)

Acme breached a K with Kearsarge in which P was to perform services for D. Trial Court awarded P full K (12G). D appealed, contending:

(1)”certain savings” saved by not performing K (2) P serviced other clients after the breach – new income. Ruling: No error Reasoning: No real

savings (semi-variable cost are “trivial”) and can service two people at once; it wasn't shown that it would have been impossible to service the

other clients but for the Acme breach:

Rule - If a party breaches and you get a replacement job, you still get the lost profit that you were deprived of if you would have been

able to handle both jobs. (Neri v. RMC)

Q: Can we use Kearsarge to say the replacement contributes to the overhead and replace breacher’s contribution to fixed cost even if

we didn’t allow the second client to replace the profit from the K? A: ME: based on the policy of lost profits (which I disagree with in

the boat case), we can say the same here. The prorated fixed cost should not be replaced by the second client. He could have had two

clients, and therefore more money contributing to the fixed cost.

What about employee and employer? What has the employee need to do to mitigate damages?

Wrongful discharged employee duty to mitigate:

1) When employer breaches, employee can recover full K subject to mitigation.

Employee duty to mitigate means he needs to find comparable work, same position and rank, same locale, however not the same pay-scale

(this he recovers from breach of K). Burden of proof is on the employer.

More unique the skills of the employee may make it difficult for employer to prove comparable E.

2)Shirley P a rker v 20 t h

C e n t ury Fox (Cal. 1970):

Facts: Actress Shirley MacLaine (P), made a K with 20th Century-Fox (D) to play lead in the film “Bloomer Girl” a musical. D thereafter

repudiated the agreement by not producing picture and instead offered P lead role in another picture, a western in AUS (did not grant P the same

control over directors and screenplay) P declined; sued for 750G (54G*14 weeks of work).Trial Court: awarded P full K. D appealed. Issue:

Should P recovery be limited by her failure to accept substitute and possibly inferior work in order to mitigate damages? Ruling: Majority: P

rejecting western does not change her recovery of K price, since offer was inferior; not violating her duty to mitigate. Dissent: 2 K’s were

substantially equivalent, both called for the same type of work.

Fox argued that the P had to accept the second role; she had a duty to mitigate.

Shirley promised to be available to work for 14 weeks for “guaranteed compensation” (regardless if fox makes the movie). She was being

paid to be available to make the movie, like firemen are paid to be available to put out fires. Why structure the K this way? They didn’t

want her to make other movies; only be available to make their movie. Fox was in middle of negotiations – if they couldn’t get her locked

up, they couldn’t market her to get other stars!

She performed - did nothing for 14 weeks and claims FOX owes her K price. She also wants damages for failure to perform.

However, FOX sent her a letter that they will not be making the movie - anticipatory repudiation. They did this so that she can’t claim that

she fulfilled K, and she had a duty to mitigate and won’t recover the full K price (very clever). – They offered her a movie she knew

would not take to get out of cost.

They could not breach by not making the movie. The only way for them to breach is for them to say they will not pay K price.

pg. 11

P’s reply had two claims, the first being the main one (1) that by doing nothing, she in fact earned the K price. The letter stating that they are

repudiating the K b/c they’re not making the movie, is not repudiating the K; she just had to be available in the event that the movie was

made regardless whether they made the movie or not (2) – wrongly the focus of the court – was for damages, which led to the disagreement

if she mitigated or not.

Why did the P lawyers add the second claim? And what’s the difference between K price and damages?

In order to get the K price, must completed performance. If you do not perform (due to the other party breaching) then you get damages

for an anticipatory repudiation or a condition precedent (Not the K price which the lawyers wanted by finishing the bridge) FOX repudiated, so

her “K for availability” ceases to be in effect.

The bullet; Rule - Shirley McClain is not Kearsarge. Kearsarge and RMC is a service - goods dealer. Employees can’t get lost profits;

they only can be at one place at a time. Employees lose recovery by mitigating.

Squib: Billetter v Posell (1949)

D was awarded full wages for employer hiring someone else (for "floor lady and designer") and offering D a lower wage as a floor lady. The

amount owed does not subtract unemployment compensation, nor does it subtract the lower salary offered to the employee.

She had no duty to mitigate, and hence they cannot be deducted from her compensation.

Floor lady/designer changed to be sales in appliances: What is considered inferior? And what does she have to

accept in order to mitigate damages?

What happens when she gets more money to be a waitress?

What happened if she in fact accepted the offer? Prof.: thinks we hold it against her.

Same position but a long commute?

Pp.74 Q. - Speech therapist. They’re getting a better therapist, but not a good argument – they did not ask for a better one, so the old speech

therapist still has to pay; she breached.

R2 § 351(2) - Foreseeability / §2-710(2): Seller’s Consequential damages / §2-715: Buyer's Incidental and Consequential Damages. * Tort

accepts the injured as they are - no limit. Tort may have an out - there is proximity cause - as some point we say causation is too remote and

therefore no faulty. This is not true in K law - consequential damages have a limit.

3)Hadley v Baxendale

Facts (Written by a barrister – Not the judge (US)): P crank shaft broke. It was the only one they had, and without it they could not run their

mill. Made K with the D to send it to the engineers; delivery was delayed; P sued for lost profits. Jury awarded damages of £25. D appealed.

Issue: Is P entitled to damages for lost profits? Rule: D will only be held liable for the P’s losses if they are generally foreseeable or if the P tells

the D about any special circumstances in advance. Analysis: Court: evidence that a client wants to ship a broken item fast does not necessarily

follow they will lose profits if it is not delivered on time. Other circumstances under which P would have acted similarly; D need not have

assumed situation was dire. If special circumstances existed, special provisions can be made in K. Conclusion: New trial

Hadley was the 1st time a court put a limit on what the jury would award in K damages.

1. The famous rule of consequential damages is that damages for a breach:

2. Baron Alderson - Rule (1) Arising naturally, i.e., according to the usual course of things Rule (2)”may reasonably be supposed to have

been in the contemplation of both parties, at the time they made the contract

3. Judge ignores the fact that we’re told that the shipper was aware “P servant told the clerk that the mill was stopped”. Prof: Barrister

disagreed with judge whether they told them if the mill stopped, Judge presumed D did not know.

4. Guido Calabresi - Coase theory that says the allocation of resources is irrelevant and it makes no difference who carries the liability,

“least-cost avoider,” says the opposite. LCA is party who can avoid an accident at the lower cost. LCA relies on the assumption that

either party can undertake a discrete amount of care that is sufficient to prevent an accident - it is socially best for least cost-avoider to

assume responsibility. Rule: assign liability to the least cost avoider. Policy: Coase v LCA

pg. 12

Here, LCA would be mill owner. He was in the position to decide what to do if his shaft broke and he can figure out how to minimize

the cost of the accident. He can decide if it is better-to invests in a spare shaft, or if it doesn’t happen enough get insurance - Mill owner

could figure out what is the least cost - cheapest way, to avoid loss as a result of such an accident.

NASA engineer walks into Joe’s hardware and ask for a replacement part for a rocket. He buys one and installs it into the shuttle and

malfunctions and destroys the rocket. Did Joe sign up for this when he sold the part? A more realistic case is Lamkins. This is the beginning of

the discussion:

4)Globe Reffining Co. v. Landa Cotton Oil Co.:

Facts: P K with D to buy an amount of crude oil, to be delivered at D mill. P obligated itself to pay in advance for the railroad transportation of

its tanks to D mill. D refused to deliver the oil; P sued for the transportation costs, lack of alternative supply due to late notice, loss of customers,

credit and reputation. Rule: Holmes: “Mere notice (tacit) to a seller of some interest or probable action of the buyer is not enough

necessarily and as a matter of law to charge the seller on that account with special damage if he fails to deliver goods.” “It will be seen that

none of the items was contemplated expressly by the words of the bargain. Those words are before us in writing, and go no further than to

contemplate that when the deliveries were to take place the buyer's tanks should be at the defendant's mill.”

Court applies the Hadley rule, saying those extra damages were not foreseeable. This is K not torts. Agreements are a fundamental

aspect of K – Classical Theory of K.

Judge H: knowledge of extra terms "must be brought home to the party sought to be charged" which is stricter than Hadley rule. This is

the "tacit agreement" test; something needs to be made expressly clear and at least “tacitly agreed” to in order to be liable (rather than

just conveying orally a hypothetical)

What is a tacit agreement? Seems vague and hence not based on agreement – something Justice Holmes wanted people to have. Ironic,

because allowing the suit to follow will get people to actually agree on terms in case of failure – Joe would tell NASA that they should

not be buying the part from them.

UCC 2-715 disagrees with “tacit agreement”. If he was informed of potential issue, it may be “reason to know” Modern courts disagree

with “tacit agreement”. Prof. tried to convey reason for “tacit” rule. R2 §351(3) may limit Hadley rule.

Prof.: Oliver W. Holmes (Samuel Williston) was a founder of classic theory – We do not have a fiduciary obligation. One only takes their own

interest into account. We only owe basic duties of civility and such obligations we choose to undertake. Hence, we do not owe anything

“implied” – everything should be written in clear terms. That is the spirit of this case. Corbin was neo-classical.

Squib: Lamkins v International Harvester Co

Facts: Lamkins bought a tractor. He wanted lights on it. Wasn’t delivered with lights and he didn’t get lights for a year. P was unable to work at

night; sued D for his lost profits. Issue: Is D liable for crop loss? Rule: For D to be liable, must be evidence that he tacitly agreed to risk liability

for a crop loss of the size sustained. Analysis: Court argues that the dealer neither made a K to assume such liability, nor, based on the evidence,

made a tacit agreement to do the same. Notes: Problem with Hadley is that it can lead to huge damages. Holmes said it’s not enough to just be

told about the circumstances, but you must present certainty. Ideally, you want to have some sort of agreement about what the damages are. He

probably would’ve loved LDC which state in K what damages will be in event of a breach. Q. what does P show to prove that there was a tacit

agreement? Problem with test is it’s vague and uncertain.

Squib: Victoria Laundry Ltd v Newman Indus Ltd

Facts: P made a K to buy a boiler from D. Boiler was delivered a few months late. P sued for lost profits. Issue: What part of the P’s profits can

they recover? Rule: When there is BOC, breaching party should be liable for damages that naturally arise from breach or damages that both

parties contemplated at the time they made the K. Analysis: Court: reasonable to think that since D knew that P was in laundry business, it was

foreseeable that a lack of boiler would keep them from receiving profits they usually get. D cannot plead ignorance as to what the boiler was for;

any reasonable person would understand that it is essential to their business. Conclusion: damages for ordinary profits but not for special dyeing

K’s that D didn’t know about. Notes: A “reasonable person” in the breacher’s position would have foreseen. Here: D liable for the foreseeable

consequences, but no other damages.

pg. 13

Squib: Heron II

Facts: D K’s with P to carry P’s 3K tons of sugar to Basra. P intended to sell the sugar. D did not know this. Voyage approx. take 20 days.

Vessels stop at 3 other ports, and 9 days late. In the interval, a large amount of sugar arrives from Formosa, causing a drop in MP. P loses approx.

4K pounds on the deal. Rule: Judgment for P based on Hadley, but none of the judges are sure exactly why. Analysis: Should have known that

by adding stops, market might change and hurt their customers.

Squib Hector Martinez & Co v Southern Pacific Transp Co.:

Facts: D delivered a dragline a month late. P sued for the fair rental value of the dragline for delayed period. Trial court dismisses claim. Issue:

Can P recover for rental cost of dragline? Rule: Hadley requires notice only when it is not obvious that a delayed item has use value. Analysis:

Dragline has use value; was being purchased to be used, not to be sold. It is foreseeable that if delivery is delayed, P will have to rent a

replacement. Although possible P was purchasing the dragline to sell, P need not prove their injury was “most foreseeable of all possible harms”,

rather that it was not so remote as to make it unforeseeable – does not need to be probable. Conclusion: Trial court’s decision reversed; D

is liable to P for the rental cost of dragline for delay period. Q.: Does the court disagree with R2 §351 “probable result” rule?

Restatement (Second) of Contracts §351(3) Damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only

for loss incurred in reliance, or otherwise if it concludes that in circumstances justice so requires in order to avoid disproportionate

compensation

“f…another such circumstance is an informality of dealing, including the absence of a detailed written contract, which indicates that there was

no careful attempt to allocate all of the risks. The fact that the parties did not attempt to delineate with precision all of the risks justifies a court in

attempting to allocate them fairly....” Prof: What is the requirement for justice? The official comment (f.) speaks of “informality of dealing”

which means the failure of the parties to allocate risks and the problem of disproportionate losses.

5)Vale n ti n e v General American C red i t , I n c

Facts: P alleged that her employment K was broken. P sued for mental distress due to loss of job security. Mental distress claims dismissed at

trial, decision upheld on appeal. P appealed. Issue: Can employees who lose a job sue for mental distress? Rule: Mental distress damages for

BOC are not recoverable except when K has a personal element or when damages suffered due to breach cannot be compensated within terms of

the K. Analysis: Court: BOC always cause annoyance, but the law does not allow P to recover for such annoyance.

No recovery for mental distress. Rule: in K we use MV Prof: we don’t allow damages for emotional distress, unless we do.

We have this rule because if not, people will hesitate to enter into K. The main reason though is because we already have a market price remedy, although at times it may over/under compensate.

Why do we want a market remedy? Efficient breach. Governments enforce K for the social good and not the individual’s benefit. Hence, it makes sense to judge harm based on the social harm. (At times we do in fact look at the individual within the framework of the K- SP remedy.)

Squib: Hancock v. Northcutt 

Rule: K for the sale of a home; no emotional distress in BOC Analysis: Idea of emotional distress claims in breach of construction K is rejected

on policy grounds. Court: permitting emotional distress damages on K claim for negligent construction of a personal residence would make

financial risks of construction difficult to predict. Only in K’s where 'emotional tranquility' is the K's essence is emotional distress recoverable.

6)MindGames, Inc. v. Western Publishing Co.: Facts: Mar ‘90 P licensed its board game to D for a royalty (%15) to end Jan ‘93. Another year for 1.5M (K stipulated to deduct royalties, in this

case 600G), and with every additional year 300G. The contract continued to Jan 94 past the first renewal date; as such, MindGames claimed

900G for the K’s renewal, plus 40M in lost profits and 300G for the K balance of ‘94(third year). District Court Ruling: Renewal fee and

balance were tossed out because Court ruled K as having been renegotiated in ‘93. As to the lost profits, at the time Arkansas law had a “new

business" rule: “he who is prevented from embarking on a new business can recover no profits because there are no provable data of past

business from which the fact that anticipated profits would have been realized can be legally deduced." D claimed that since P was only 3 months

old, no data. Rule: COA overturns new business rule. It is “at once vague and arbitrary." Note: Purpose of “new business” rule is to prevent

damages for speculative loss, which is incalculable. K law doesn't allow speculative damages.

Court talks about the diff between a rule (new business rule) and a standard (such as “no speculative damages"). There's no way, the Court

pg. 14

continues, that D would have agreed to a K including speculative losses. COA throws out the new business rule, replacing it with the general

speculative-loss doctrine. It therefore cuts out the logic but keeps the result. J Posner: “In this case, the rule is unclear: what is a “business"?

What is “new"? What are “profits"? And given that the courts are sophisticated enough to analyze lost-earnings claims, the new business rule is

unnecessary. Discard rule.

Rules versus Standards: A rule is easily enforceable, but can be simultaneously over & under inclusive. Ex: 55mph speed limit. If it's a

straightaway, and there are no cars, and it's a clear day, what's wrong with 70mph? And if it’s raining, dark, and the car looks rickety, even

55mph can be dangerous. Therefore, rules have “error costs."

The standard, though, is completely subjective, and can be prone to abuse; plus, they are more uncertain. A standard makes it harder to predict

the actions of the decision maker. Therefore, standards have “decision costs."

Usually there's a combination, such as a negligence standard of a duty to care, applied atop a rule. Expectation and other damages tend to be rule-

like; speculative loss is standard-like.

Prof: Posner says new business rule is not a rule

Must prove damages - New business just a fact - Not a limitation on p-phrase but must prove damages

Freund v Washington Square Press, Inc.:

Facts: P made a K with D to publish a book. Terms included 2G advance upon delivery of the manuscript and agreement to publish work. P

delivered manuscript and collected 2G, but D did not publish. P sued at first for SP of K. Trial judge denied SP but granted a trial for monetary

damages. P sued for damages stemming from (1) delay of his academic promotion, (2) loss of royalties, and the (3) cost of publication to publish

book himself. Trial court awarded him the cost of publication (10G) but not the other two elements. P appealed; appellate court affirmed, with the

minority holding P should recover only nominal damages. Issue: Should author be able to recover for cost of publishing book himself? Rule:

COA: Damages are not awarded based on the benefit to the breaching party, but rather according to the consequences of breach to the P.

Analysis: The court argues that the P expected two things from the performance of the K: the advance and royalties. The author already had his

advance, and the court says that damages for lost royalties cannot be awarded because insufficient evidence was presented at trial to support how

much he might get. Conclusion: P may only recover nominal damages. Prof.:

Speculative damages rule is brought out in this case. The other info in this case is interesting:

Was there a BOC? COA said yes. However, K says they had a right to publish and could’ve cancelled, hence no breach.

Assuming BOC, trial court awarded cost of publication. Absurd! - Author doesn’t get cost of publication if his book would’ve been printed

- he was promised royalties, not the books! What is the court doing?!

Fera v. Village Plaza, Inc.

P signed lease to open “book and bottle” shop in D’s shopping center. P’s space was given to another tenant, and D’s offer of alternative spot was

refused because it was unsuitable. Trial court awarded 200G. Appellate court: damages for a new business too speculative. Ruling: Trial court

was correct, just because damages are speculative, doesn’t mean Jury cannot do their jobs of assessing damages. If there is some injury, doesn’t

preclude recovery just because lost profits are speculative.

Restatement (Second) of Contracts §352. Uncertainty as a Limitation on Damages

Section 3- Restitution Alternative Damages

Truly a new section. Section 2 is, in the end, just explaining the P Phrase. Not just limitations, but also elucidating the subtle aspects of the P

Phrase. Section 3 is not contract claims. Why places it in K? A contract claim may not be feasible due to many factors. Hence, this is not about

what the K is, rather what the effects of agreements can have.

RESTITUTION

Four Requirements:

Must be a total breach

Usually the breaching party needs to have received benefit of performance, although the breaching party may not have benefited

from in any economic sense

Injured party must choose to pursue either restitution or damages

pg. 15

if one has completed performance(K) , can only get expectation damages

Restatement §370

Statute of Frauds

1677 English statute that declared certain contracts judicially unenforceable (but not void) if they were not committed to writing and Signed by

the party to be charged (Promisor). The statute was entitled "An Act for the Prevention of Frauds and Perjuries". Statute (based on the

English Statute of Frauds) designed to prevent fraud and perjury by requiring certain contracts to be in writing and signed by the party to be

charged.

• Statutes of frauds traditionally apply to the following types of contracts:

(1) K for the sale or transfer of an interest in land (WP: This applies not only to a contract to sell land but also to any other contract in

which land or an interest in it is disposed, such as the grant of a mortgage or an easement.)

(2) K that cannot be performed within one year of its making,

(3) K for the sale of goods valued at $500 or more

(4) K of an executor or administrator to answer for a decedent's debt

(5) K to guarantee the debt or duty of another

(6) K made in consideration of marriage. UCC § 2-201. Abbr. S/F; SOF.

This can be remembered by the mnemonic "MY LEGS": Marriage, contracts for more than one year, land, executor (or estate), goods (over

$500), surety; or Marriage, one year, land,executor (or estate), guarantor, sale.

§ 2-201. Formal Requirements; Statute of Frauds.

Parol contract (p;l-rohl or par-;ll). 1. A contract or modification of a contract that is not in writing or is only partially in writing. Also termed

oral contract; parol agreement; (loosely) verbal contract. 2. At common law, a contract not under seal, although it could be in writing. Also

termed informal contract; simple contract.

1)B oone v Coe ( 1 913)

Facts: D made an oral K with P to move to TX and work on his farm for a year. When they got there, D repudiated and P went back to KY. P

sued for the cost of trip. D demurred and won. P appealed. Issue: Can P recover reliance D on a K that is unenforceable under SOF? Rule:

Damages cannot be recovered when K is unenforceable under the SOF, unless D receives benefit from part performance of a service K, in which

case P may obtain restitution for services rendered. Analysis: Court finds no benefit to D: however “had he received a benefit, the law would

imply an obligation to pay" Notes: This case enforces the “Year provision” of SOF – “(2) K that cannot be performed within one year of its

making.” SOF makes K unenforceable, hence, can’t sue on the K damages - that would be enforcing the K. Case introduces us to Statute of

Frauds which says certain Ks have to be in writing.

Writing is a memorandum of the K, but not actual K. It is evidence that a K exists.

Q. Are they completely out of luck? Is there anything one can do with a K that violates SOF? A. Can claim Quantum Meruit.

Quantum Meruit: Reasonable value of services; damages awarded in an amount considered reasonable to compensate a person who has

rendered services in a quasi-contractual relationship. 2. Claim for reasonable value of services rendered. 3. Common law, count in an assumpsit

action to recover payment for services rendered to another person. Note: QM is still used today as an equitable remedy to provide restitution for

unjust enrichment. It is often pleaded as an alternative claim in a BOC case, P can recover even if the contract is unenforceable.

Important point: theory of the claim is unjust enrichment. It doesn’t have to be that one suffered a loss (could be you did, but not required),

rather it’s that D have somehow benefited, and benefit should have gone to or belongs to me. It is broader than

Restitution is based on the presumption that if 1 person confers benefit on another, it was done on the expectation that he would be paid

for the benefit. This is fundamental. The transferee of any good or service must prove that it was done with donative intent. Hence, had there

truly been a transfer of benefit, courts would have given restitution. This is a fundamental aspect of common law.

pg. 16

Even in the absence of any K, this is a presumption that the common law makes. So if the recipient of the benefit has the burden of proving

that when the conferrer conferred the benefit, he intended to make a gift - must prove that it was a donative transaction. If not, there’s the

presumption and then the recipient must pay the reasonable value of the G/S conferred.

Hence, in this case - P may sue for restitution off the K, but cannot sue for reliance (no K).The key is D must have benefited, why? A: (1) Because BOP that was a gift is on the recipient - maintaining our architectonic principle. 9gift

complete when there is a transfer done with intent) (2) Act of the recipient in receiving the benefit is evidence that there was s/t of a transactional

action going on; retaining benefits shows something is going on between parties.

The Bullet: No K; therefore restitution: Only when benefit.

2)Uni t ed Sta t es v Alger n on Blair, Inc.

Facts: A subcontractor, Coastal (P – called US), starting doing work for a primary contractor, Blair. D refused to make certain payments on a

crane rental and P stopped work. P brought suit against the primary contractor (D) to recover for the services rendered (37G), however if they

would have completed performance P would have lost more than 37G. Trial court: No damages Issue: Can P get damages for services rendered

when primary contractor breaches a K even if the SubC would have lost money if they had completed K? Rule: If ED is insufficient to cover the

P losses, P may substitute restitution damages. Analysis: P is entitled to damages for services rendered because D benefited. Damages should be

measured by MV of labor and equipment provided – not limited by K (was breachee). Conclusion: Ruling reversed and remanded to find out

how much the services P rendered was worth.

An accepted principle of K law is that the promissee upon breach by promisor has the option to forego any suit on the K and claim only

reasonable value of his performance. This is true even if the complaint joins Quantum Meruit claim with a claim for damages from BOC.

Q: Here we have a perfect K and the court lets the lawyers for P decided to sue off K; Why?

A: Sub C chose this route because they would have lost $ if the K had been performed, hence, damages would have been zero on the K. By

allowing the sub to sue off k, they are putting the sub in a better position than he would have been in had the K been performed.

Q: Why do we allow Restitution when there is ED? 1) We care about unjust enrichment, hence we allow restitution. 2) -

Material breach - A BOC that is significant enough to permit the aggrieved party to elect to treat the breach as total (rather than partial),

thus excusing that party from further performance and affording it the right to sue for damages. Rescission (ri-sizh-an) 1.A party's unilateral

unmaking of a contract for a legally sufficient reason, such as the other party's material breach, or a judgment rescinding the contract;

VOIDANCE… accompanied by restitution of any partial performance.

1. An agreement by contracting parties to discharge all remaining duties of performance and terminate the contract. - Also spelled

recession; recession. - Also termed (in sense 2) agreement of rescission; mutual rescission; abandonment. –

"The [UCC] takes cognizance of the fact that the term 'rescission' is often used by lawyers… [1]'Termination' refers to the discharge of

duties by the exercise of a power granted by the agreement. [2]'Cancellation' refers to the putting an end to the contract by reason of a

breach by the other party (prof; by law). Section 2-720, however, takes into account that the parties do not necessarily use these terms in

this way."

Prof: the innovation of cancellation (Material breach - UCC article 2) is that it is automatic. This is not true under Common Law – where K is

rescinded by way of the Chancellor (who decides with his moral compass).

2) The general contractor breached by not paying for crane rentals. This was a unique breach - a material breach - that empowers the victim

to get equitable rescission (he wants to end the relationship – and hence wants restitution). Rescission is the unwinding of a K and

obligations under the K are discharged.

Instead of material breach, sub could have continued performing and then sue for the crane rental fees as long as he wrote a

letter that will finish work and will sue later for the rental fees. This was the safer option. (He may not have done so due to

cash flow issues to pay for crane).

There was a risk in declaring a Martial breach 1) he may not recover the crane rental monies 2) The court may not find that it was

a Martial breach, and they are the ones who breached the K. Same can be said for the D. He should have paid the crane price, and

pg. 17

then send a letter like P could have done (will sue later for crane), would have gained K damages (benefit of the bargain) which

would have offset the loss.

Ask Prof: Can choose on the K vs. Off the K only when MB? A: NO, only when there is MB can he go off the K.

The Bullet: If breachee and MB; Can claim “On k” and “Off K”.

Squib: Kearns v Andree

Facts: D breached K to buy P’s house for 8G; 4G in to be paid in cash and another 4G in a mortgage payment that had not had a lender or terms

as of the making of the K - after P repainted and repapered walls to D’s specifications - additional demands made after the K. P wants expenses

for 1) Meeting D’s specs 2) Meeting purchaser’s specs 3) diff b/t K and resale prices. Issue: Can P recover even if K was unenforceable? Rule:

Yes – even though the attempted K was unenforceable, it showed the parties’ expectation of compensation. Analysis: P complied with D’s

requests with expectation that D would compensate him, doesn’t matter that D did not benefit. Prof Notes: This is NOT a restitution claim, as

there was no benefit to D.

Why was the K b/t the buyer and the contractor unenforceable? The terms of the K were fatally indefinite; the K did not specify the terms of the mortgage. Procedural issue: contrast this form of unenforceability due to indefiniteness, versus the SOF unenforceability. K that is indefinite is “void” while K that lacks the writing that is required is “voidable”; it is an “affirmative defense” – he must claim SOF.

The difference is that usually we require the P to plead certain matters in the complaint, specifically P must plead the “As a elements of”

whatever claim he is making. And then, typically, the BOP follows the burden of pleading – P specified what he want (he adds “and

whatever the court hold is just”). Other matters such as SOF we allocate to the D to plead: affirmative defenses.

K is valid until and unless the D pleads SOF as an affirmative defense, and then the K is rendered void. Definition: Affirmative defense. A defendant's assertion of facts and arguments that, if true, will defeat the plaintiff's or prosecution's claim, even if all the allegations in the complaint are true. • Defendant bears the burden of proving an affirmative defense.

However, (such as in this case) a K that is indefinite is void - K is “ab initio”: void from the beginning (“get go”), as opposed to the SOF which

merely puts K in jeopardy of becoming void.

Courts think that the defaulting B should pay P for work done although K was void and B did not benefit. Therefore, they need to find a

theory that would make B pay :

Court comes up with theory 1) B requested that S do the repapering (2) S reasonably expected to be compensated – we are going to imply a

promise, although no benefit was conferred.

Theory is wrong! When D requested the repapering; P was willing to do it for free, to entice D to continue buying. He was trying to give D

“a gift,” D rejected, so gift was never actually made, no transfer. There was no expectation to be compensated. There needs to be mutual

consideration in order for valid K (bargained for exchange) and here there was no exchange; S was going to do it for free as long as B

wouldn’t breach. This is fundamental: A promise not to breach - cannot form consideration.

The Bullet: Breachee can get reliance-restitution.

Notes: Farash v Sykes

Facts: P claimed that D had agreed to lease space in one of his buildings, and as part of the agreement P would make renovations

and modifications. However, D never signed a lease or even occupied the building. Issue: Can P get reliance damages from having

work done in anticipation of K? Rule: Yes. COA sights Kearns, P can recover damages in reliance of D promise – irrespective of

benefit to D; his reliance was to his economic detriment. Analysis: P could not make the lease enforceable because of the SOF, but

he could still get reliance damages. Dissent: Claim for reliance is just based on the other claims - a K based on a lease of land that

violates SOF, additionally there was no “unjust enrichment”. Ask Prof.: [This case may be different than Kearns due to the nature

of the renovations, were they as a gift to entice the D to buy, such as Kearns? Or was it an agreement? See Prof. Comment to

Kearns.]

Notes: The Doing and Giving Problem

Ex: In the beginning of the note on pp. 106: Case in Restatement §370: (1) Can’t get restitution b/c the buyer didn’t get benefit. (2) S can get

pg. 18

damages for BOC according to the UCC and incidental and consequential damages

Problem on pp. 107 – B make K with S to buy car for 900, 100 DP. S repudiates K. The value of the car at B’s repudiation was $700. Issue: Is

B entitled to restitution of the $100? Analysis: S says you shouldn’t get restitution b/c there are no damages due to the value going down. S did a

favor by repudiating and keeping the crummy car. B will say that restitution doesn’t look at B and whether the he is better off due to breach,

rather at the “unjust enrichment” of S, and here if he keeps the $100, he received unjust benefit. In restitution, we look for unjust

enrichment. Prof: B is entitled to the $100 back.

Squib: Oliver v Campbell (1954)

Facts: P lawyer agreed to represent D in divorce proceeding for $850 for a 29-day trial. D fired P. Court filed findings in favor of D’s wife.

Reasonable value of P’s services was 5G Issue: Did P effectively finished performing under K at time he was fired, thus entitling him only to K?

Rule: Yes. Had P been fired before completing K, would’ve been entitled to restitution of “reasonable value of services.” Analysis: Rule is if P

is fired before completion - repudiates K. K is no longer relied upon as fixing limit of compensation. But P’s performance was “in effect”

complete at time of wrongful discharge. Notes: Other courts would disagree; would pro-rate the K price according to how much work P finished.

Restitution is to prevent unjust enrichment.

Victim of a breach can get off K and on the K whichever puts you in a better position, (Blair), up until victim completes performance.

When completes performance, only get “on the K”; can’t go off K and claim restitution. Why do we only allow off the K damages? Courts

are too lazy to figure out MV of performance and they would rather not bother. Polite people would say it is more efficient to use the

valuation that the parties themselves put on the full performance.

The Bullet: Only restitution until the point you performed, once performed no res.

Notes: Noyes v. Pugin (Bottom of p. 108)

Facts: P had only partly performed when D breached. Court won’t give P more compensation for labor actually performed (value of services on

open market) than he would have received for same services under K (set price). K law is to make whole, not indemnify against all damages.

Rule: K here is a limit to restitution. Note: Not the rule, If P is the breachee, can recover MV(De Leon)

Notes: Clark-Fitzpatrick Inc. v. Long Island Railroad Co. (pp. 109)

Facts: Contractor sues Railroad alleging breach, fraud, and negligence. P Sued for BOC and quasi-K after complete performance; Held:

Existence and completion of K means court won’t enforce a quasi-contract [Oliver]

3)Stark v. Parker (Mass.SC 1824)

Facts: P (employee) agreed to work for D (employer) for one year for the sum of $120. P voluntarily left his service before expiration of the year

and without any fault of D. P now seeks restitution for the work he performed ($27) before P breached. Trial Judge awarded pro-rated sum for

work done. D appeals Issue: Is a breaching party to a K for a stipulated sum to be paid for a term of service entitled to apportionment of the price

when he stops working after only providing part performance? Rule: No. Judgment reversed. Prof.: analysis: Court held that the K was a

conditional K. The labor is a pre-cedent to payment. Employer has not obligation to pay unless employee works for 1 year. Only then, does the

payment clause trigger. At it is an “entire K”, it is not divisible into parts.

K did not say payment will be at the end of the year - This is the J. Lincon interpretation of K. We perceive K in light of the behavior of the

party.

The employer by periodically giving money to employee seemed to waive the “conditional K” aspects of the K.

Corbin treatise of K law: Corbin makes a distinction between interpretation and constructions. Interpretation is the activity of discovering the

meaning the parties had in using certain words. It is the meaning the parties attached to the words they agreed to. A construction is not like

interpretation at all. Constructions already assume that we know the meaning; however, we need to figure out the LEGAL consequences to that

meaning.

What did J Lincon use? Construction. We are not arguing on the facts or meaning, rather the legal understanding. Does it mean after complete

work is done? - Or installments?

Additionally, “Constructive condition of performance”. We know what construction is, what is a condition (subject that is very important in

pg. 19

K)? In this simple case, we have two views. Does the money need to be paid before labor? Or labor before money? Ideally, this should be a

matter of interpretation, not constructive. However, typically they don’t have a clause in K, hence; this is constructive – on the legal principle of

a condition.

Condition: Something that has to happen or not happen before a covenant becomes an obligation becomes enacted. There must be a

triggering event. A subsequent clause is one that takes effect immediately unless something occurs.

“Entire” Vs. Divisible ” – The idea is that a K is entire when it can’t be divided in parts. EX: I K with you to deliver coal to your

furnace, once a week, with expectation to be paid each week – a K for one year. This is divisible. However if the K is for payment at

the end of the year it is entire. U.C.C 2-610.

This case is not like Case of A v. Blair who P was a victim, MB; promissee can end K immediately and get off the K since K ended. In that

case; had he completed K, he can only get K damages. Here, J. Lincoln says this is not the case. Here it P who is in default - breached K, who is

suing. He has no power to wipe K off the table (Breachee can claim MB, not P who walked off the job). In sum:

Constructive condition of performance Employee must fulfill his promise first.

Reflected the custom of the community; If you pay someone first they have no incentive to perform Divisibility:

“Entire contract.”o Not divisibleo Each side responsible for entire performance until the other side completes performance

Places lots of risk on employee as creditor to employero Was the employer unjustly enriched?

No. Employee breached.

This was Judge L argument, and very logical. Until ten years later…..

4)B r itton v Turner-(183 4 )

Facts: P and D made 1 year employment K. P stopped working after 9.5 months. Jury awarded P $95 out of the full $120. D appealed on the

basis that P should get nothing because work had been done under a so-called “special contract”. Issue: May the breaching party recover for

services rendered? Rule: New Rule! - Modern View. A hired laborer is entitled to compensation for work actually performed unless there is an

express stipulation to the contrary in K. Analysis: Court makes an analogy between labor K’s and construction K’s. When you build only part of

a house and then breach, you are entitled to restitution damages for the value you conferred upon the other party. Old rule Stark V. parker.

Court felt that although precedent says differently, the better rule is the one above.

Baird: This is just the default rule; you can K around it or prove damages to employer or provided. Also, this idea will become important later –

when a builder builds a house where living room is one ft. too small? Clearly he doesn’t lose rights to get paid, and it is too expensive to

reasonably repair. He just gets less than the full payment.

Prof.: Damages cannot be more than K, unlike Blair; however, we do not let the breacher go undamaged: They will deduct from the

restitution any damages that the employee caused the employer and will measure the restitution by the reasonable value of the services on the

market. But, the court will not allow MV to exceed value on the K (unlike Blair where the restitution could exceed the K price). This is a

‘punishment’ that the court imposes on a defaulting P.

• J Parker: Restitution for the P in default – the breacher. (Did Justice Parker disagree with Stark v. Parker? Not sure.)

• K was set up that it required the employee perform 100% of what he promised before he gets his wages. This is the way they set it up -

typically it’s not this way; you don’t usually wait a year to get your salary – this seems right.

They did it this way so that the employer can exercise discipline on the employee. This K was entire - the K is not “divisible”. Employee

can’t claim a month’s work at a time, only the whole year.

Note: Restitution interest Not a contracts claim Prevent unjust enrichment

o Can be unjust enrichment if employee walks off the job

Notes: Schwasnick v. Blandin (pp. 124):

Notes: J. Learned Hand: “Justice demands no more than that the promisor shall not profit at the promisee’s expense”

pg. 20

Squib: Thach v. Durham

Facts: D made K to sell sheep to P. P breached. P seeks restitution of 3.1G down payment. Issue: Can breaching buyers get DP back? Rule: No.

Analysis: D (S) was willing to perform. Breaching B should not be favored over S. Purpose of DP is ex ante form of restitution should B breach.

Additionally in this case, damages are speculative. Notes: Breaching B cannot recover in restitution a deposit he gave S even if it exceeds the

amount of damages sustained by the seller due to LD.

5)Pinches v S w edish E v a ngelic a l Luther a n Church, S.C. o f Errors of Ct, 1 887

Facts: P built a church for the D. It wasn’t exactly the way D wanted it, but good enough to be beneficial to D. D refused to pay; P sued. Issue:

Can P recover for the services rendered and value of the materials if he violated the K by good faith mistake? Rule: P is entitled to K price

minus diminution of value of church due to P departure from the agreed-upon specifications. Additionally, D’s architect was also involved in

the mistake. Analysis: 1) he acted in “good faith” 2) was reasonably adopted for intended use 3) To fix it and make it in compliance with K

would cost so much that P would not get any compensation. P is entitled to restitution (K price; not more not less), because otherwise D will

have benefited while P loses. Notes: A case for restitution for a P in default like Britton (violated K). The difference b/t the 2 cases are that here

the court requires that the contractor act in good faith in order to get restitution where in Britton, employee just left w/o good faith – however

employees may not fall under the “good faith “umbrella due to its very nature. Policy: Concern in Britton is that employers will abuse employees

& force employee to quit (makes conditions intolerable) so we don’t care whether the employee acted willfully or not. We don’t have that issue

by Pinches, he is an independent contractor who it not subject to the physical direction of an employer. If the issue is on the quality of

performance, then good faith matters (Schwasnick?), when the issue is one of abandonment, (Britton) then good faith doesn’t matter

(Ask Prof.) Q: What if benefit is more than the value of services? No answer! This is hard stuff.

Rule: A bit of a summary: If P is the breacher: get the benefit conferred to the other party. If you are breachee– can get off the K damages -

market value of your service.

Squib: Kelly v. Hance

Facts: P was hired by D to construct a sidewalk and curb in front of D’s home. After removing strip of earth 12ft wide & 8ft deep P left the

premises and did not return. P sued to recover the reasonable value of work done. Issue: Can one recover in construction K without substantial

performance? Holding: No, reversed. Reasoning: In construction K’s, can only recover with “substantial performance.” Even where the

performance is not substantial but breach is merely negligent, recovery can be allowed, not on the K but in quasi-K. P abandoned work without

justification.

6)Vin e s v O rcha r d Hill s , Inc

Facts: Vines made K to buy a condominium from Orchard Hills for $78G and made a 10% down payment, which K designated as LD in case of

default by P. P was transferred to another state and did not take title to the condo. P sought recovery of the down payment. D refused. P sued. By

the time of trial 6 years later, condo was worth $160G. PH: Trial court found that D had gained a windfall due to this appreciation and awarded

the P $7,8G. D appealed. Issue: Can a B who breaches K recover money paid that unjustly enriched S? Holding: Yes, Judgment reversed and

remanded to determine amount of reward Reasoning: Early cases refused to allow a breaching party to sue, but modern trend permits actions for

restitution to prevent “unjust enrichment” and avoid forfeiture.

Remedies for breach are intended to compensate for loss; injured party should not be allowed to keep money in excess of his actual losses.

Purchasers such as P whose breach was not willful have a restitutionary claim to recover money paid that unjustly enriches S. However, P must

prove that D was unjustly enriched. When breaching party is P, courts should presume that a LDC is a reasonable approximation of S actual

damages. The value of the condo 6 years after breach is not determinative. On remand, P will have to overcome presumption of

reasonableness through adequate proof.

Prof: Seems to just repeat what we learned in Pinches that you can get restitution if your default isn’t willful, and where the deposit exceeds

actual damages. [Here it is a land sale, not a construction K]

Was it willful? His job moved, of course it’s willful – they exercised their will. Prof.: Judge Interprets willful to mean opportunistic. They were

not trying to gain from breach. What does “good faith” mean? Bad faith means you are trying to recapture value you gave up in negotiation.

Court: nobody claimed that breach was willful, so it wasn’t! On remand, D may try to claim breach was willful.

Complication is that the deposit was labeled as a liquidated damages clause. two purposes of a DP: (1)Earnest Money - B shows that he’s

pg. 21

serious - deposit is refundable. (2) Liquidated damages- deposit treated as LD. Here, parties made it clear they intended LD.

There is a conflict between restitution and LD.

The first part, court says they will permit a non-willful defaulter to get restitution if the defaulter can show that the deposit exceeds the actual

damages. However, court has to deal with the fact that the parties agreed that what damages would be if one party defaulted, so it seems they

should enforce the clause. Exceptions to LDC: courts refuse to enforce the clause if B can show there was zero damages - LD clause must

assess damages. Additionally, if LDC is substantially disproportionate to actual damages, courts won’t enforce clause but will allow restitution.

Prof.: There’s the issue of who determines what is substantially different - is it a Q. of law or is it a Q. of fact? And making set amounts still may

unjustly enrich the seller.

Prof: There was a dispute about whether the enormous rise in the value of the house from K and trial was relevant. J Peters held that it was not

relevant to determining what S could recover in damages b/c for breaches of K, guidepost is MV on performance date (not MV on the date of

the trial)

Trial court judge felt (and we arguing with Peters) that this is a claim for “unjust enrichment” not for BOC and it may very well be

relevant that the value went up! S gained by the breach; value went up, are we going to pile on top of that the money S received from P? We

examine the clause and restitution.

J peters rejected or did not see this argument. Trial judge wasn’t an idiot - there is an argument, we just don’t follow that train of

thought.

Elucidating the above points:

Based on assumption that it is a valid clause, J Peters uses the clause and says that the parties’ agreement about the damages governs and those

will be the damages, unless the B can show the clause is a bad clause.

J Peters says that if the clause is valid, we will enforce it. Forget restitution. Additionally, the burden of proving the validity of the clause is on

the proponent of the clause. Here you would think it was the S because S wants to keep deposit, but she puts the burden of proving the invalidity

of the clause on the buyer.

Why does she do that? Technically, S doesn’t want the court to do anything - he has the cash already. B is the P seeking to get back the cash

and he was the one in default. P in default is lucky to get restitution in the first place, and now they don’t like LD, the burden falls on them (was a

debated issue for decades - restitution seeks to compensate for unjust enrichment, and if default, is it really unjust?) Conclusion: J Peters:

Restitution only works after P (here Buyer) shows that the clause is invalid.

The Bullet: When we look at the P phrase, we do damages based on the law, however with restitution, we’re looking at equity.

Squib: De Leon v Aldrete

Facts: De Leon K to purchase land from Aldrete for $1,5G, payable in installments until April 1, 1961. All the payments were late and by July 6,

1961, P had paid $1,070 to D. He also paid $250 to an architect. In February 1962, Aldrete declared a default and sold the land to a third party for

$1,300. Issue: Can P recover money paid towards the fulfillment of a K when his late payments led D to default? Holding: Yes, and recovers

architect fee. Reasoning: Majority rule in US denies a defaulting purchaser right to recover monies paid under K. But “dogmatic” application of

this rule leads to “indefensibly absurd results.” Because the amount of forfeiture is determined by the stage to which performance has progressed

“the purchaser’s loss increases as the seriousness of the breach decreases.” This leaves room for consideration of all relevant factors, especially

the all-important considerations of the amount, which the purchaser has paid, and the extent to which the vendor has been injured by the breach.

D would be enriched unjustly were they permitted to retain more than $200; we can only justify this result if we want to punish P for the breach

Note: Unjust enrichment goes back to the defaulting buyer Note (2): Since S sold the land to someone else, P gets back $870 - $200 of the

amount paid is damages to S for loss. (K = $1,500 , vendor resold for $1,300). P also gets back interest (and $250 for architectural fees*). Prof.:

Court made a mistake returning the architect’s fee - that’s reliance damages - not suitable for restitution. This was a land K - related to a

mortgage K – SOF Note (3): De Leon is the rule today. B who defaults can get back the down payment [2-718; see 2-718(2)(b) (“20% of price

or $500”) and 2-718(3); these last 2 are not cumulative]. One needs to justify keeping DP for it to be allowed.

Rule: In K for sale of land, if B backs out, he can get back his deposit. Under strict foreclosure setup, though, S doesn’t have to give

back any money.

pg. 22

Note: The NY Forfeiture Rule: 10% or less and is presumed to be valid, denying recovery for DP. More then %10, court reserves to right to

make a decision.

Section 4 – Contractual Controls on the Damage Remedy

Penalty Clauses and Liquidated Damages

Common law, a liquidated damage clause will not be enforced if its purpose is to punish the wrongdoer/party in breach rather than to compensate

the injured party (in which case it is referred to as a penal or penalty clause). One reason for this is that the enforcement of the term would, in

effect, require an equitable order of specific performance. However, courts sitting in equity will seek to achieve a fair result and will not enforce a

term that will lead to the unjust enrichment of the enforcing party.

In order for a liquidated damages clause to be upheld, two conditions must be met:

1) Amount of the damages identified must roughly approximate the damages likely to fall upon the party seeking the benefit of the term.

2) Damages must be sufficiently uncertain at the time the contract is made that such a clause will likely save both parties the future difficulty of

estimating damages.

[Note: seems logical inconsistent with requirement one “reasonable forecast” and must be “hard to estimate”]

Traditionally, courts have upheld such a clause unless the agreed-on sum is deemed a penalty for one of the following reasons:

(1) Sum grossly exceeds the probable damages on breach

(2) The same sum is made payable for any variety of different breaches (some major, some minor)

(3) Mere delay in payment has been listed among the events of default.

The UCC and Restatement take the view that reasonableness should be tested “in the light of the anticipated or actual loss.” Thus, contrary to

prior doctrine, there are two moments at which LDC may be judged rather than just one. This works in favor of more frequent enforceability of

agreed damages clauses. Since doctrine is rooted in unconscionability, an evaluation as of the time of breach is rational. Courts generally held

that BOP is on the defendant, that the agreed LDC is disproportionate to the foreseeable [or actual] harm.

Restatement §356: LDC:”is reasonable in the light of the anticipated or actual loss caused by the breach, and the difficulties of proof of

loss. A term fixing unreasonable large LD is unenforceable on grounds of public policy as a penalty.

1)Muldoon v. Lynch

Facts: P was to furnish a headstone for the D. Amount to be paid was $18G (1885). Sum was to be paid in installments; $11G on completion.

Work must be completed in 4 months, with a forfeiture of $10 per day beyond the stated time. Monument was delayed 2 years. D insisted on

deducting 7G for the delay, P sued. Trial court held forfeiture in K to be a penalty, ordered D to pay full K, D appealed. Issue: Is forfeiture of

$10 per day a penalty clause or LD? Ruling: It is a penalty clause, and therefore unenforceable. Policy issues: We ban penalty clauses because

they make people hope for breach, so they can get huge damages. Also encourages people to act in irrational ways, like spending lots of money to

ship marble when it doesn’t make a difference to anyone. However, we may want penalty clauses, because people can use them to show

reliability, especially for a small or unknown competitor. Additionally, they provide a way to measure subjective damages that can be hard to

show after the fact.

Prof.: The harder damages are to ascertain, the more room we allow the parties to “pre-estimate.” Here injury is emotional damages, and we

don’t permit that in K damages, so should we permit it in LD? Another problem is that the clause has no time limit – no cap. Q: How can we

arrange a LDC to make it more enforceable? A: We can reword it as a bonus stipulation . Q.: p.138 - What if delay in building the

monument is 10 days, not 2 years? A.: Do you condemn a clause b/c it produces bad results, or do you only condemn it if it does in a specific

case produce bad results? No answer!

UCC 2-718: Liquidation or Limitation of Damages; Deposits. Sum stipulated must be a reasonable pre-estimate of the probable OR actual

loss [Question, does this include post-facto reasonableness in “hindsight”? First look vs. Second look.] Never use the term forfeiture, many

aspect of the clause is characterization made by the parties.

Note: Pacheco v. Scoblionko (pp. 135)

Facts: P pays D in advance for camp, paying 3G. K states $500 deposit will be refunded if cancellation is received before Feb1. If refund

pg. 23

request is received on or after Feb 1 and prior to May 1, no refund of the deposit, if request is received after May 1, entire sum paid is forfeited.

Any sum retained is “liquidated damages.” P cancels on June 14th, sues. Ruling: Camp must return full 3G. Reasoning: In this case LD a

penalty clause; D did not show damages, and the amount forfeited is excessive compared to K price.

Squib: Yockey v. Horn

Facts: 2 former business partners enter into a settlement to resolve disputes arising from their failed relationship. Settlement includes a promise

by D not to participate in any litigation against P, as well as a clause fixing damages at 50G for breach. A few months later, D spoke to Schrock,

who is a current business acquaintance of Yockey. Schrock sued P successfully (fraud and securities violations) wins $111G. D gives a

deposition not under subpoena. P sues D for breach. Trial court awards P $50G Held: $50G is reasonable LD. Notes: Court said that the

Schrock suit did not need D to be successful, and Judgment for Schrock “was in no part based on horn’s testimony”, however court gave

damages for reputation loss to P as one of his former partners “participated in litigation against him”. Such damages are “difficult to evaluate”

and accordingly “proper subject” for a K, and was “anticipated” hence, reasonably made. Prof.: Rule: when no proof of damages no LD.

Squib: Wilt v. Waterfield (MO Sup. Ct. 1954)

Facts: P k with D to purchase a farm for $19G. P made DP of $1,9G. D sold the farm to another. P sued and was awarded $7G. D appealed

stating K capped recovery to 10% of agreed sale price. Issue: Can P recover damages beyond those stipulated? Holding: Yes, Affirmed.

Reasoning: Clause is a penalty. If D had failed or neglected to perform any one of the partial stipulations, some of which are difficult to

ascertain and others easy, some of the damages to P may be disproportionate to the $1,9G stipulated to in K; Clause applies the same amount of

damages to a wide variety of harms.  It’s an “undifferentiated clause”(see below) hence, clause is a penalty – Invalid. Courts then give actual

damages; 7G is very reasonable. If we can accurately measure the harm done upon breach, it’s very unlikely we’ll uphold an agreed damages

clause because we can give actual compensatory damages.

Prof.: 1) insufficiently specific clause 2) reasonable pre-estimate of damages.

“Undifferentiated Clause”:

Conventional view is that a damage formula that “is invariant to the gravity of the breach” applies to a variety of breaches of varying

degrees of importance is not a reasonable effort to estimate damages Also true when fixed sum greatly exceeds losses likely to flow

from minor breaches

Comment: Applying Damage Clauses

PP. 145 – Problem: Facts: Co. discharged VP two-year employment K. Contract clause: “should K be discharged without cause – Co. will be

responsible for full unpaid salary for two years” (not as LDC), VP was entitled 75G, went to work someplace else for 50G. Note: How can we re-

characterize the LDC to make it not a LDC? They could have done better. They can call this guy “Shirley McClain”, if you draft the clause as

paying employee money to be available to work for 3 years. Then there’s no LDC, but same economic consequence and then there is no duty to

mitigate. Most courts allow a party to contract out of duty to mitigate.

Q1: 50G from second employment relevant to clause? A: Why won’t he? What is wrong with that?

Q2: Will VP get 75G? A: probably yes b/c he can contract out of duty to mitigate

Q3: Would A. change if he received 150G from second job? A: depends if clause was reasonable estimate; for good or bad.

2)Samson Sales Inc. v. Honeywell Inc. (149)

Facts: Burglar alarm case - P K’s with Morse Signal for a burglar alarm, paid $1500 for installation and $150 a month for 5 years. They get

burglarized, and D (acquired by Honeywell) refuses to pay more than $50. P sues for 68G, the value of the lost merchandise. P alleges negligence

and BOC. D invokes K provision which states that D is not an insurer, and the agreement in no way binds the D as an insurer, and all charges are

based solely on value of service, maintenance and installation, and in event of failure “liability is limited” to $50 LD. Lower court awards $50,

appellate reverses concluding clause as a penalty, appealed to SC. Ruling: Reasonable compensation for actual damages is a legitimate objective

of LDC, and where the amount specified is inequitable, courts ordinarily regard it as a penalty- unenforceable. Here, damages are estimable; $50

damages are disproportionate to consideration paid to D. Notes: This case the clause may be called a “limitation of liability”. Prof.: lots of

cases where they misuse LDC. How can a clause that limits liability be a penalty? It is not, Courts wrong again!

pg. 24

Section 5: Enforcement in Equity

Specific Performance

Note: Manchester Dairy v Hayward

Facts: P made a K with D to buy all his dairy products. Among the provisions is one that enjoins D to SP (equitable relief). Trial court denied all

equitable relief, P appealed. Issue: Does P have a right to SP? Rule: Equity (i.e. SP or injunctive relief) may enforce a K when the legal remedy

(i.e. money damages) is not adequate. Prof. Reasoning: If set $5/cow in damages that is a reasonable estimate of damages, however the SC

says there are other damages that the $5 won’t compensate for.

Although most courts have combined equity and law into one court, equity is still “jurisdictional” - it has subject matter jurisdiction and you have

to show that legal damages are inadequate -you have to show the jurisdictional premise of equity. You must establish that before one gets into

the court of equity.

• Point (5) p. 150) is important: Enforcement may place a burden on the D that is disproportionate to the benefit to P. Since equity is rooted in the

chancellor’s conscience (unique to each individual), maybe the SC is sending the case back to the chancellor so he can make his decision. He has

to balance the burden and benefit himself (based on his own conscience).

1)Van Wagner Advertising Corp. v. S & M Enterprises (153)

Facts: Original owner leases to P for 3 years + option totaling 7 years space on a wall for purposes of a billboard. P puts up a sign in early ‘82,

and leased it to a third party for 3 years. However, in Jan ‘82 building was sold to D (S&M). D cancels the lease in Aug with 2 months’ notice.

There is a clause that allows them to terminate the lease with 60 days’ notice in the event of a sale. P claims lease only grants rights to original

owner, not to new purchaser, so that the original owner would not have the property encumbered by the lease. Trial court says P is correct, but

can only get damages. Court awards lost revenues, P appealed. Rule: SP is at the discretion of the trial court. SP to lease a billboard space is

adequately denied when damages will compensate. When value is uncertain, or there are unique values that cannot be fixed in money, SP is

available. Prof.: Appellate court is free to disagree only when it’s a question of law. Equity: only remedy is SP. This does justice when legal

rules fail to do justice.

Procedural Elements: Parol Evidence Rule: The common law principle that a writing intended by the parties to be a final embodiment of their

agreement cannot be modified by evidence of earlier or contemporaneous agreements that might add to, vary, or contradict the writing. • This

rule usu. operates to prevent a party from introducing extrinsic evidence of negotiations that occurred before or while the agreement was being

reduced to its final written form. "The basic principle is often called the 'parol evidence rule', and according to this rule evidence is not

admissible to contradict or qualify a complete written contract.

Ambiguity exception : if anything in the writing is ambiguous we will allow evidence outside the writing. K interpretation is always a question

of law. This was the problem in Van Wagner. Q. of ambiguity is a Q. of law - judge decides.

COA will be subject to plenary review in Q. of law. This is a Q. of law for K interpretation is a Q. of law in general-the burden of interpreting the

meaning and words and phrases in a K is on the Court and not on the fact finder. The reason for this is because judges don’t trust juries - they feel

the need to protect the security and stability of agreements so they keep the task of interpretation to themselves.

This Case: Possible meaning of the clause: There is a clause that only: 1) “the lessor (or its successor) may terminate and cancel this lease”. 2)

The successor can break it only when they are getting ready to sell 3) both parties can break the lease

(1) Trial judge said he finds the clause un-ambiguous as a matter of law (says only the lessor who’s getting ready to sell can break the K). If

ambiguous; Parol Evidence showed that the successor cannot terminate K if not selling. The reason he brings in parol evidence; trial judge knows

clause will be subject to review, so in case COA find he’s wrong, in the interest of efficiency, he resolves the ambiguity in favor of P by with

parol evidence (in the end COA did accept parol evidence as “fact”) (2) COA finds that as a matter of law clause was ambiguous, and they have

plenary review. Trial judge’s ruling has no weight. However, they then have to look only to the finding of fact – inquire if the facts are clearly

erroneous, and they found that it was not - Trial judge’s finding of the fact in P favor is the conclusion that they embrace.

Now we deal with the problem of the case:

1) Did P meet the jurisdictional premise to be in equity at all? Then, assuming he did; What was the trial crt holding? After we resolved the

ambiguity and find that S&M breached by evicting P, what is the remedy? P wants to be in Equity to get SP. S&M says that legal damages are

pg. 25

adequate.

Judge K (p. 155) that the decision to award SP rests solely on the “sound discretion” (Judge K description) of trial judge, “not within the

absolute discretion of the Supreme Court.” Trial judge did not abuse his discretion: This is the holding. T Judge’s decision whether to let P

into equity court and how to balance the benefits, are in the sound discretion of the trial judge.

What does discretion mean? When they make a decision, their decision can’t be wrong - it cannot be reversed for error on appeal.

They also can’t be right-it has no precedential value (can’t make a chancellor’s conscience binding on a future chancellor). However,

the discretionary decision does have some parameters restraining it: the doctrine of abuse of discretion. Ex: flipping a coin to decide,

bribes, arbitrary decisions w/o evidentiary support. The statement of this holding is just her explaining why the trial judge didn’t abuse

his discretion.

First Q. to the trial court was whether P would get to an equity court. Strikes Prof. as the very thing equity damages seek to fix. Damages are

rendered inadequate when the subject matter is unique; money can’t compensate the victim of a breach. MV of an object doesn’t capture the

subjective value to the individual. In this case, Judge K says uniqueness isn’t that we can’t calculate dollar value; everything has a price. It

follows that nothing is unique. Judge believes “Uniqueness” is uncertainty of valuing the object . SP is awarded when the market value doesn’t

reflect the value to the specific owner.

Transactions are not a zero sum game. Proper resource allocation creates a consumer surplus. That’s why SP a favored remedy in

construction K is – “not rebuttable presumption that land is unique” Legal rules are always inadequate.

The only reason why they would give P all the damages now is in case S&M would go out of business, or if S&M would voluntarily go out of

business; what can P do then? Trace S&M’s assets (seems difficult). This may be what is on J Kaye’s mind and that’s why she gives these

damages now, not in a few years’ time when damages will be speculative

Squib:Curtice Bros. v. Catts (154)

Facts: P owns canning plant made K with D to buy his entire tomato crop. Issue: SP? Rule: Where no adequate remedy at law exists, SP of a K

touching the sale of personal property will be decreed with the same freedom as a K for the sale of land. Holding: SP because of the; “inability to

procure at any price at the time needed and of quality…the quantity necessary to ensure successful operation”. Analysis: Hard to measure ED in

output cases, because we can’t really measure the output of the fields from year to year reliably in advance, damages weren’t easily ascertained

by the canner. Notes: spot market for tomatoes of the quality and quantity is thin or non-existent. Q.: Can’t make any guesses to damages?

Restatement Second §360 (162): To determine if damages would be adequate, following circumstances are significant: a) the difficulty of

proving damages with reasonable certainty, b) difficulty procuring suitable substitute performance by means of money, c) likelihood that an

award of damages can be collected.

UCC §2-716 – specific performance only applicable in extraordinary circumstances/ REPLEVIN: an action for the

repossession of personal property wrongfully taken or detained by the D, whereby the P gives security for and holds the property

until the court decides who owns it. 2. A writ obtained from a court authorizing the retaking of personal property wrongfully taken

or detained.

Squib: Paloukos v. Intermountain Chevrolet Co. (160)

Facts: P paid $120 deposit, and signed an agreement to purchase a pick-up for $3.6G. Truck was to be ordered from manufacturer. D returned

deposit 5 months later, says it can’t deliver because of product shortage. Holding: Dismissal for claim, SP is not available where goods are not

unique (car) - will not order something impossible, such as ordering S to sell to B that what S does not have.

2)Fitzpatrick v. Michael (MD Court of Appeals, 1939)

Facts: D hired P as his personal nurse and promised $8 a week + room and board, a life estate in his home, and full title to his cars. After P

served for over 2 years, D suddenly terminated P employment with no benefits. Procedural history: P sued for enforcement of K; Trial court

refused. Issue: SP for a personal service K? Holding: No, affirmed. Reasoning: Although there is no remedy at law, equity will not enforce K

for personal services. (1) Courts are unwilling to force a relationship on unwilling parties, this would be a variation of peonage which offends the

13th amendment in the US and (2) courts admit they do not have the means or ability to enforce such decrees.

pg. 26

Prof.: Two things about this case: 1) Anticipatory repudiation 2) SOF problem.

SOF Exception: Definition: Part-performance doctrine - Equitable principle by which a failure to comply with the SOF is overcome by a

party's execution, in reliance on an opposing party's oral promise, of a substantial portion of an oral contract's requirements.

"Enforcement has instead been justified on the ground that repudiation after 'part performance' amounts to a 'virtual fraud.' A more

accurate statement is that courts with equitable powers are vested by tradition with what in substance is a dispensing power based on

the promisee's reliance, a discretion to be exercised with caution in the light of all the circumstances." Restatement (Second) of

Contracts §129 cmt. (a).

SOF was triggered by land clause*: D promised life estate of his house. SOF requires a written memo signed by the party to be charged (*not the

one year clause – for D could have died within a year).

However, part performance only applies when the P is seeking SP and not damages. Here, P is seeking SP. Why should he be seeking SP? The

only place you could go to get relief from the SOF is a court of equity. Once he has to go to an equity court, then his only option is to seek SP b/c

can’t get money damages in a court of equity (that’s for a court of law). There are purely historical reasons for this rule b/c it has no socially

redeeming value.

•However, she could get Quantum Meruit if she could show that the wage that D paid her was lower than MV. She accepted lower wage b/c

would get benefits later on. If she in fact was being paid under market, court will give her the difference. There was no K, and when there is no

K, we give MV for performance.

3)Lumley v. Wagner

P runs an opera company, made K with D to sing. Competitor persuades D to break K, and sing for him. P sues, in an attempt to prevent D from

singing for his competitor; and only sing for him. Held: Court cannot compel her to sing; no SP. However, court grants an injunction preventing

D from performing at any company other than P’s (effectively causing her to sing for P.) Prof.: Personal service K: no SP. If a party made an

express negative covenant, Court will enforce it. In this case it was an “ implied ” negative covenant; D would not to sing for a rival Co. This

court ruled in favor of an implied covenant – this made people very nervous due to its implication. Note: Order for SP has to be easily

administered. Other choice is to appoint a receiver of order negative convention. Equity can do this and law can’t.

Limitations on whether the court will enforce an express negative covenant. (law is complex and varies around the country.) One is that they’ll

enforce it only if the employee has some 1) special talent that makes the injury more than just the loss of services to the employer, 2) enhances

the advantage of the employer’s competitors.

Policy: we want people to sing for the most amounts of people that will benefit. So competitors should always be fighting for talent; efficient

breach for a Personal Service K. What the Judge did her was astonishing.

Squib: Pingley v. Brunson

Facts: D enters into a K to play the organ for P’s restaurant at $50 for 3 nights a week (3 years). K states that P was to purchase musical

instruments for $4G for D to use. Monthly payments for the instruments would be deducted from D’s paychecks. D gets it when paid off, but

breach results in forfeiture of claimed instruments. D plays 10 times, and refuses to perform further. P sues for and was awarded both SP and an

injunction. Held: Reversed. Equity courts will not ordinarily decree SP in this kind of case, especially when there are personal services over a

period of time. There is an exception when performer has extraordinary skill or an area of expertise, but he can hire many organists of

comparable ability. Injunction was also denied no express covenant to perform elsewhere. Notes: Court held Brunson wasn’t unique to justify the

award of a negative injunction even although there was a negative covenant.

Note: Enforcing Noncompeting Pledges

Discusses enforcing post performance agreements not to compete - won’t compete after termination of the K. Rights of the employer after

termination are much stricter than while still employed. Court looks at whether the covenant is too broad in time and area. Courts may not

enforce a valid covenant if it is too broad. The court will rewrite the clause to make if fair. The employer then drafts overbroad clauses to scare

the employee from competing.

pg. 27

Note: ABC v. Wolf (173)

Facts: Employment K between ABC and Wolf, which included a renewal option. The renewal option said: (1) 90 days prior to the expiration of

the K, D was to enter into good faith negotiations with P for a K renewal (12/6/79 - 3/4/80) (2) during the first 45 days prior, D could not

negotiate with anyone else. (12/6/79 - 1/19/80) (3) If an agreement could not be made, P had a right of first refusal. For 3 months following the

expiration, D could not work in certain capacities (sportscaster, etc.) without first giving ABC the opportunity to offer him an agreement on

substantially the same terms and the D would have to accept. (3/5/80 - 6/3/80)

ABC and Wolf couldn’t come to an agreement. D met with CBS (rival) in early Oct (before the 90-day period). On 2/1/80 Wolf and CBS made

an oral agreement (after the first 45 day period). K with CBS had an effective date of 3/6/80, but Wolf paid $100 as consideration for the option

to hold the offer open until 6/4/80, when he would be free from the terms of ABC's K. Wolf resigned, and ABC tried to negotiate with him, but

Wolf refused. ABC then brought this suit on 5/6/80 claiming breach of the good faith negotiation and the right of first refusal provisions of the K.

ABC sought specific enforcement of their right of first refusal, and an injunction against D's K with CBS. Issue: Whether the court should grant

an equitable remedy for breach of an employment K by a TV personality (personal service K).Holding: No. There is BOC, but equitable relief is

inappropriate. Notes: Employee promises not to compete. Only if explicitly promises not to compete in K, is injunctive relief available. Even

when explicitly in K, it will be rigorously examined and specifically enforced if it meets certain requirements, Ex: protect trade secrets, customer

lists, good will, or other specific harms.

Squib: Fullerton Lumber Co. v. Torborg

Facts: P has a lumber yard, hires D as manager. D signs employment K stating that if he is no longer employed, he won’t work anywhere else

handling lumber or building at retail within 15 miles of any town where employed by P for a period of 10 years, he was afraid of customer list. D

quits in ‘53, and sets up his own yard. P sues. Held: Time limit is excessive; illegal restraint of trade. Under earlier Wisconsin decisions, clauses

with unreasonable restraint of trade are void. SC suggests reasonable time for P protection would be a max 3 years. Prof. Notes: overreaching by

employer. Strike the clause but here they rewrite it.

Squib: Data Management v. Greene (AK Sup. Ct., 1988)

Facts: P sued 2 former employees to stop them from providing computer services to named individuals, alleging they breached a 5-year

noncompetition covenant in Alaska. PH: A preliminary injunction was granted, but trial court granted summary judgment to D’s because

agreement was too broad, and because clause could not be narrowed down by deleting broad words - unenforceable. P appealed. Issue: Was the

trial court correct in making the whole covenant unenforceable because it was too broad, or should another approach be used? Holding: Court

remands the case for more information about P’s good faith and whether K could be altered to make the covenant reasonable. Reasoning: Court

looked at 3 approaches to dealing with overly broad covenants: (1) Strict method: When a clause is overbroad, and hence unconscionable, it will

not be enforced. Court says they don’t like this approach for it is too harsh - any overly broad clause will be void automatically; parties should

have the freedom to bargain Ks. This was the approach adopted by the trial court. (2) Blue Pencil Method: Make clause enforceable by striking

out certain words that make it unconscionable. Court rejects this option; all it changes are the words, not substance of the clause. Stupid rule for

it values wording over substance (3) Rule of Reasonableness: “Reasonably” alter the covenant to make it enforceable, in accordance with their

intentions, if it is found to have been written “in good faith”. This is the position of most states and the Restatement Second § 184(2) and

consistent with UCC 2-302 which says the rest of the K can be enforced without the “unconscionable” clause. This position has been criticized

because it lets employers overreach in drafting

Northern Delaware Indus Dev Corp v EW Bliss Co

Facts: P and D made a K to update a steel plant. D was too slow; P sought a court order forcing them to hire more workers. Issue: Should court

issue the order? Rule: Court can decline to enforce SP if doing so would put a burden that is disproportionate with the benefits Analysis: Court

won’t become involved in supervising & refuses to simply order D to hire 300 workers, because SP cannot be ordered to fulfill personal service

K. Conclusion: Court does not order SP. Notes: Ruling is incorrect. Hiring 300 guys isn’t imposing a personal service K. However, damages are

easy to calculate, not speculative, known damages for a delay in established construction Co.: Equity should not be awarded. P did not show that

legal damages were inadequate, so he is not entitled to equity!

pg. 28

Squib: City Stores v. Ammerman (DDC, 1967)

Facts: D owned land in Tyson’s Corner, VA. P had been negotiating for rezoning on a nearby site. D promised P that if it lobbied on its behalf

for the rezoning of the site, P would be given an “opportunity” to become one of D’s major tenants. P got it approved. D refused to lease to P.

Procedural history: P sued for SP. Issue: Are the legal remedies adequate to compensate P? Holding: No. P can get SP. Reasoning: D had

given P an option with 2 conditions – approval of the necessary rezoning and execution by defendants of leases to other major tenants which

“could provide the essential terms of a lease to be offered to P.” Since both conditions occurred and P exercised the option so as to produce a

valid K, P can have SP. There is no way to calculate P’s future earnings as a tenant in the mall and by its expansion into the suburbs. Notes: SP is

granted.

Squib: Grayson-Robinson v. Iris Constr. Corp (NY Ct. of Appeals, 1960)

Facts: D owned a piece of land and agreed to build a building that would be rented to P for 25 years. After D started to build it, D told P that it

could not secure financing in order to continue, unless P would agree to a raise in rent, the project would stop. P refused and per the K the dispute

went to arbitration. The arbitration panel rejected D’s excuse that it could not find financing and ordered D to precede building. The arbitration

statute then said that the courts were to enforce the order. Procedural history: The NY COA, in a 4-3 decision affirmed the lower court ruling -

the dissent pointed out that D had tried unsuccessfully to get financing from 27 lending institutions. In the end the building was not completed

and the court appointed referee awarded P $3,287,483 for rental value lost. The case was then settled for $550k. Notes: Shows how the court

treats arbitrators - can’t play around with the decisions of arbitrators, even when arbitrator is wrong. •It is clear that D couldn’t get the loans

because the banks believed the rent D was going to charge P, was too low, and the rent was security for the loan. This is why D went to P to raise

the rent. The arbitrator was an idiot. •The case was settled for 500G which showed that the P knew that they would have trouble on appeal with

the 3M ruling.

pg. 29

ContentsChapter Two:................................................................................................................................................................................................................... 30

Section one: Introduction................................................................................................................................................................................................ 30

Congregation Kadimah Toras-Moshe v. DeLeo.........................................................................................................................................31

The Bullet: gift promises are not enforceable [beside for the seal in some states]. 32

Squib: Pitts v. McGraw-Edison Co. (190) 32

Squib: In Re Bayshore Yacht and Tennis Club Condominium Ass’n. Inc. (191) 32

Section 2. The Bargained For Exchange........................................................................................................................................................32

Hamer v. Sidway (195)...........................................................................................................................................................................................33

Squib: Earle v. Angell (198) 33

Squib: Whitten v. Greeley-Shaw (198) 33

Fisher v. Union Trust Co. (201)..........................................................................................................................................................................34

Squib: Sharon v. Sharon (204) 34

Comment: Schnell v Nell (1861) 34

Promises to surrender or Forbear from Asserting Legal Claim 34

Duncan v. Black (MO Ct. of Appeals, 1959).........................................................................................................................................35

Squib: Military College v. Brooks (NJ, 1929) 35

Section Three: Promises Grounded In The Past...............................................................................................................................35

Mills v. Wyman (211)..............................................................................................................................................................................................35

Webb v. McGowin (216)........................................................................................................................................................................................36

Squib: Harrington v. Taylor (220) 36

Squib: Edson v. Poppe (224) 37

Squib: Muir v. Kane (224) 37

In Re Schoenkerman’s Estate (225) 37

Section Four: Reliance On A Promise......................................................................................................................................................37

Seavey v. Drake (225)..............................................................................................................................................................................................37

Kirksey v. Kirksey (230)........................................................................................................................................................................................38

Ricketts v. Scothorn 1898 (231)..........................................................................................................................................................................38

Squib: Prescott v. Jones (233) 39

Alleghany College v. National Chautauqua County Bank (234).........................................................................................................39

pg. 30

Squib: Siegel v. Spear & Co. (241) 40

Squib: Carr v. Maine Central R.R. (243) 40

First Nat’l Bank of Logansport v. Logan Mfg. Co. (246)........................................................................................................................40

Squib: I & I Holding Corp. v. Gainsburg (252)41

Squib: Salsbury v. Northwestern Bell Telephone Co. (253) 41

Notes: Fried v. Fisher (254) 41

Mahban v. MGM Grand Hotels Inc. (255) 41

Stearns v. Emery-Waterhouse Co. (256)........................................................................................................................................................42

Squib: Goldstick v. ICM Realty (258) 42

Section Five: Precontractual Obligation.................................................................................................................................................42

Thomason v. Bescher (261).................................................................................................................................................43

James Baird Co. v. Gimbel Bros. (265)...........................................................................................................................................................43

Drennan v. Star Paving (269)..............................................................................................................................................................................44

Squib: E.A. Coronis Associates (D) v. M. Gordon Constr. Co. (P) (273) 44

Goodman v. Dicker (279).......................................................................................................................................................................................44

Squib: American National Bank v. A.G. Summerville Inc. (280) 45

D’Ulisse-Cupo v. Board of Directors of Notre Dame High School 45

Osborn v. Commanche Cattle Indus. 45

Hoffman v. Red Owl Stores (284)......................................................................................................................................................................45

Chapter Two:Section one: IntroductionIdentifying Enforceable and Unenforceable Promises

People are morally and ethically obliged to keep promises, however, promises should not be legally enforceable.

A major problem in K law is determining what promises are legally enforceable. Normally problem is resolved by examining

the promise to see if it is supported by doctrine of “consideration. – a bargained for exchange:

A benefit received by the promisor or a detriment incurred by the promisee, although at times his definition is

inadequate

Inducement (incentive) is the key to consideration—the promise must be induced by performance and the

performance must be induced by the promise. This is a bargain.

Analysis of the kinds of promises that can raise questions of enforceability is useful in solving such problems:

Promises can be divided into broad categories:

Bargain promises (consideration)

pg. 31

Promises based on past or moral consideration

Relied upon promises (reliance)

Promises of limited commitment

Formality:

1. Introduction. A gratuitous or donative promise is a promise to make a gift. In common law, such a promise was generally

unenforceable for lack of consideration for two reasons: (1) uncertainty of a promise (2) policy: gifts should not be enforced.

However, in common law, any promise under seal - writ under covenant -, even a donative promise, was legally enforceable.

The formality of the seal was sufficient even though no consideration was involved. This rule has been changed by statute in

half the states.

2. Nominal consideration. A transaction of nominal consideration (Ex: one dollar)when it has the form of a bargain, containing

a recital of bargained-for consideration, but lacks the substance of a bargain because neither party really views each promised

performance as the price of the other. Such transactions typically involve the purchase of an intended gift for a nominal sum,

so the “K” does not have the effect of a donative promise. Nominal consideration will not make K enforceable, except when

an option or guaranty is involved.

Restatements:

Doctrine of Consideration may be a promise or an act in two forms –

a. Bilateral executor contract - a promise for a promise - both sides make promises (Both Promises)

(1) Ex: If you promise to walk across the bridge, I promise to pay $100 (2) Accept by agreement. (3) One promise

is seeking a counter promise - trying to motivate a promise (4) once performed it becomes a unilateral K.

b. Unilateral Contract-Exchange of a promise for an act – only one side is making a promise;

(1) Ex: If you walk across the bridge, I promise to pay $100 (2) You accept with performance (3) Promise is trying

to motivate an act, not a promise.

Reliance –

Restitution has 2 elements: 1) restitution interest served outside the P Phrase 2) Restitution in a non-contractual

transaction that is the remedy for unjust enrichment.

Reliance, has 2 elements (1) Remedy in the P Phrase (2) a claim to enforce a promise. This type of reliance theory is

promissory estoppel (§90 of the Restatement – referred to as section 90) – when a promisor understands or should know

that promissee reasonably relies on the promise - than promissee can bring a claim against promissor to enforce the

promise.

Case: Congregation Kadimah Toras-Moshe v. DeLeo (Mass Sup. Ct., 1989)Facts: decedent suffered a prolonged illness during which he orally (in the presence of witnesses – 4 times) promised to give 25K.

Never put in writing and after patient died, wife refused to donate the money. PH: SC rendered summary judgment for the estate

and dismissed the complaint. Mass SC affirms. Issue: Is an oral promise enforceable when it does not involve consideration or

reliance? Holding and Rule: No! Allocation of the money for library did not create the necessary acts of reliance. Hope or

expectation is not equivalent to either consideration or reliance. There were no conditions placed on how the money could be used

and indication as to what the Cong. was required to do in return for D’s promise.

A charitable subscription is ‘an oral or written promise to do certain acts or to give real or personal property to a charity or for a

charitable purpose.’ To enforce a charitable subscription a party must establish that there was a promise to give some property to a

pg. 32

charitable institution such as a religion or religious organization, and that the promise was supported by consideration or reliance.

Court refused to enforce a promise in favor of a charity where there was no consideration or reliance. Had DeLeo

promised 25k in e x ch a nge for Rabbi’s promise to build a library and name it after him, then promise would have been

enforceable – consideration.

Additionally, had started building, he can sue under promissory estoppel - detrimental reliance. DeLeo had reason to

believe that the money would be relied upon. In this case: There was neither.

Court: promise was not written. Prof.: doesn’t why this was an issue – not a SOF issue. Possible answer: Public Policy is

against enforcing promises against an estate when original party can’t testify, and when there is no injustice in declining

to enforce it.

Diff. between consideration and reliance claims is that consideration supporting a promise can be either a benefit to the promisor or

a detriment to the promisee.(Hamer v Sidway - Uncle trying to motivate the nephew to avoid bad habits. Promise trying to induce

the legal detriment of stopping to smoke.) In promissory estoppel (reliance), the promisor is simply aware that the detriment

might reasonable happen based on the promise, and is not trying to induce the detriment.

Seal Device - Historical, however, culture of the seal is on the decline in US.

This is considered a formal device, and was a great way to enforce gift promises.

Promises under seal are enforced because of the law of covenant - King’s court saying that they will enforce promises

made with certain formalities - promises made under seal are enforceable. Why have seals declined? It may be unjust

to enforce some promises. Equity came out to help promissor from promises made under seal when it was unjust to

enforce them. [Uniform Obligation Act – NY]

The problem with informal promises manifest when it is hard to determine when a promise becomes binding as far as

consideration and K formation. This issue doesn’t exist with formal promises.

The Bullet: gift promises are not enforceable [beside for the seal in some states].

Squib: Pitts v. McGraw-Edison Co. (190)

Facts: P sold D’s products on commission for 25 years, with no K. For 5 yrs. after P quit, D paid P 1% commission on sales in P’s

territory. Payments stops, P sues for BOC. P tried to show agreement before retirement that if he would turn over customer

records, he would be paid 1% commission. D claims retirement K only for employees. Ruling: Assuming there is a promise;

remains a Q. of what passed from P to D .Turning over customer records doesn’t count as consideration.

Squib: In Re Bayshore Yacht and Tennis Club Condominium Ass’n. Inc. (191)

Facts: P buys 3 penthouses, elevator stops on the 10th floor. After buying, P asks D to extend elevator to 11th floor. P claims D

agreed at no expense to P; never happened. Ruling: Unenforceable - gratuitous promise of a future gift lacks consideration.

Section 2. The Bargained For ExchangeI. Introduction. A bargain is an exchange in which each party views his promise or performance as the price of the other’s

promise or performance. Typically, bargains are concluded by the process of offer and acceptance. As a general rule, a

bargain constitutes consideration; a bargained-for promise is enforceable. However, some types of cases involve an

apparent bargain, yet the courts do not find consideration was given.

II. Legal detriment. In terms of the traditional benefit/detriment test of consideration, courts will normally find a legal

detriment whenever a party obliges herself through a bargain to perform in a certain manner, even if the performance is

not detrimental in the ordinary sense of the word.

pg. 33

Indebitatus assumpsit: an express or implied promise, not under seal, when one person undertakes to do some act or pay.

Hamer v. Sidway (195)Facts: Uncles promises Nephew 5K if he doesn’t drink, smoke etc. until age of 21. Nephew performs. Uncle sends him a letter

acknowledging performance, and promises that he will get his money when Nephew fully matures. Uncles estate doesn’t pay, P

sues. D claims no consideration; P benefitted. Held: Consideration can be an abandonment of a legal right or limits his legal

freedom of action in the future as an inducement for the promise. P abandoned legal right to smoke, drink, etc. Analysis:

Formulation of rule “consideration can be either a benefit to the promisor OR a detriment to promisee”

Prof.: uncle not requiring P to promise anything; Nephew’s forbearance will be acceptance - Unilateral K. He must perform

completely.

It is clear that the uncle is seeking that the nephew should stop smoking – it was a legal detriment. Additionally, if the

nephew behaves, it would benefit uncle due to a good family name.

Court could have said that what the uncle did in putting the money into an account was a: self-declaration of trust - a special type

of living trust in which you, as trust maker, declare yourself to be trustee of your own assets. In so doing, you continue to be

responsible for those assets for as long as you are able and willing. Many people find a self-declaration of trust to be superior

to a will for the following reasons: (1) Ease of Transition – The trust agreement provides for the appointment of a successor

trustee to take over in the event of your death, incapacity, or decision to resign as trustee. In the event you become unable to

manage your affairs – or if you choose to relinquish those duties – the administration of your trust transfers smoothly to your

chosen successor, no need for any legal proceedings.

In our case; if Uncle makes the Nephew another trustee on account, when he dies, will go smoothly to the nephew. It is not a

promise.

Q: What if the nephew was in jail so couldn’t smoke and drink-could he still enforce it? A: No, he didn’t have the legal right

in jail; hence he did not give up anything. Note: What if there was an underground black market where he could get drinks

and cigarettes in jail?

R2 §71: Requirement of exchange; types of exchange / §81. Consideration

Squib: Earle v. Angell (198)

Facts: Aunt promises nephew $500 to go to her funeral. He made the promise and attended the funeral. Mary left a paper in a

sealed envelope reading “If P comes to my funeral, executor should pay $500.” Ruling: P can recover; a promise given for a

promise. K to give money after one’s own death is valid (in a BK); coming to a funeral is valid consideration. Analysis: Bilateral

executory promise: both sides were making promises. Aunt was seeking his pro m ise to come to the funeral and he was seeking a

promise to get $500. Unilateral wording would be offensive. Prof.: Q. on 199: What if he would have come anyway? A: she

sought his promise, which he did not have to give. However she wanted a UK, there would be no consideration (in some cases).

Squib: Whitten v. Greeley-Shaw (198)

Facts: Parties engaged in an extra-marital affair. Woman makes man sign K that included a payment of $500/Mo, visits and phone

calls at certain intervals & trips and jewelry, with no conditions explicitly on D, but she agreed not to call his home. At some point

P loaned D 64K to buy a home, she did not pay, so he foreclosed and brings suit against woman D – who counterclaims BOC.

Held: Counterclaim legally unenforceable. D’s promise not to call without permission could serve as consideration, but such

promise must be sought after by P (clause was made by D – she felt he should get something).

R2 §71: Requirements for Consideration/Exchange - Love and Affection: When the recited consideration is only nominal and

pg. 34

the real motivation for the contract is expression of love and affection, there is no consideration sufficient to make promise

enforceable. Case of Nominal Consideration:

Fisher v. Union Trust Co. (201)Facts: Fisher Sr. conveyed property by warranty deed to his incompetent daughter. Deed stated that she was to get the land and

that Fischer Sr. would pay off any mortgages on the property. P received the deed for consideration of $1. After Sr.’s death the

property was foreclosed upon to settle a $3K mortgage. Fischer (P) sued Fischer Sr.’s estate (Union T-Co. - D) to enforce Fischer

Sr.’s promise to pay off mortgage. Judgment was entered for P; D appealed. Issue: Is $1 given in exchange for real property

considered consideration? Holding: No. $1 given in exchange for valuable real property is not consideration. Consideration for

this transaction was love and affection between Fischer Sr. and P, and his desire to provide for her support after he was dead. New

trial ordered.

Prof.:

Case facts: Bertha was in an insane asylum; is she really the one suing? Does she have mental competence to sue? This was a

gift. No bargained for exchange. D here was the dad’s executor: they wanted the money to go the brothers and not to the sister

because money would go to the insane asylum.

Note: Court may be working with the Union Co.: It didn’t want the money going to the insane asylum. Dad could’ve handed her

cash to pay the mortgage. Instead, he gave her the deed for the land. The problem was that the deed contained a promise that he

would pay off the mortgage: a promise for the future. The document (deed) affected the transfer of the land, but did not make the

promise to pay the mortgage binding.

Q: How could the dad achieve legally what he intended? A: Make a trust fund for his daughter (Hamer v Sidway.)

Q: Is “Nominal Consideration” the basis for the ruling? This causes issues with what is the line of what is nominal and what is not

- Courts do not usually look at the numbers unless they suspect fraud or nominal consideration (Batsakis v. Demotsis).

A: However, you have to look to see if there was really a bargain. Did $1 induce D to give the deed? Absolutely not. Dad is trying

to give a gift and is trying to dress it up as a bargain, to make it enforceable. The court is taking the position that this is not a

bargain.

Interesting Q: How do the courts look at the dollar as nominal? What is the PV of the dollar? What is the Discount rate? These

are questions courts need to ask. It seems like something we should think about when it comes to nominal consideration.

Squib: Sharon v. Sharon (204)

Facts: D promised to pay Miss Hill $250/month. D first claims that he made the deal on consideration that P would cease irritating

him. D then denies consideration. Held: Consideration before he denied it; Judgment for P. Prof.: she had accepted some of the

payments. P: “I hereby agree” - had to be consideration.

Comment: Schnell v Nell (1861)

Facts: Promisee promised to pay $200 to 3 people as per his deceased wife’s will (which was ineffective). Made promise in

exchange for 1 cent, Rule: Court: unconscionable K void upon its face; an illustration of nominal consideration. Prof.: Parties

weren’t rally making a bargain, was like Fisher v U; dressing up a gift as a bargain.

Promises to surrender or Forbear from Asserting Legal Claim

1. Former rule: At one time, courts held (like MO) that a bargained for promise to surrender or forbear from asserting a claim

would constitute consideration only if there was an honest AND reasonable basis for believing the claim was valid. Restatement

pg. 35

(first) of contract § 76 (b) the claim forborne must be neither (a) absurd in fact from the standpoint of a reasonable man (b) nor

obviously unfounded in law to one who has “elementary knowledge of legal principles”

2. Modern rule: the modern rule - Restatement §74: Settlement of Claims. - a promise to surrender or forbear from asserting a

claim is sufficient consideration if the promisor’s belief in the validity of the claim is either reasonable OR is held in good faith.

Duncan v. Black (MO Ct. of Appeals, 1959)Facts: Black sold 359 acres to Duncan. K included a 65-acre cotton allotment in conjunction with the federal quota system to

prevent overproduction of cotton. With the purchase of 359 acres, came the rights to profit from 65 acres of cotton. Quotas were

established annually and apportioned by the county commissioners. First year following P’s purchase, county allotted 49 acres (15

acres less). D made up the diff. the first year, but refused after that. P threatened to sue D for BOC & D gave P $1.5K to stop P

from suing. D then failed to pay; P sued. PH: Trial court refused to force D to pay on the note because forbearance to sue was not

sufficient consideration. P appeals. Issue: Is forbearance to sue on an unenforceable claim sufficient consideration? Holding: No.

Reasoning:

1. In order for forbearance to sue to constitute legal consideration, legal claim must be one made in “good faith” based on

a reasonable, tenable ground. Q: What does “good faith” mean? Does it mean there he thinks there is some legal

foundation, or is the perception that there should be a legal claim enough although you know you have no chance?

2. Cotton acreage allotment exists only for 1 year and not subject to D’s control. When D made good on K for the first

year he had done what K could require Additionally, K was inherently illegal since it was in direct conflict with Fed quota

plan. Forbearance to sue under an illegal K is against public morals.

Prof.: many claims are doubtful. Courts favor settlement to foster social peace. There must be at least some validity or good faith.

Squib: Military College v. Brooks (NJ, 1929)

Facts: D used a $927 promissory note to pay for his son’s tuition at P’s school, because he wanted to avoid a lawsuit that would

injure his credit. D also claimed his son was wrongfully dismissed. PH: Trial court granted summary judgment for P. Issue: Does

D’s action to postpone maturity of the note meets the standard of consideration? Holding: Yes. Reasoning: D’s financial situation

was so precarious that a lawsuit, regardless of the result, would be disastrous, he bought “peace” by giving the first note, which

postponed any suit until maturity of that note, not to mention that by renewals it was further postponed until Feb, 1928.

Section Three: Promises Grounded In The PastIntroduction: promises made only out of a sense of honor or moral responsibility is not enforceable in most states. The prevailing

rationale is that the test of moral responsibility varies with the individual and courts can’t determine which of his promises he is

“morally” bound to perform. Majority view:

Mills v. Wyman (211)Facts: D’s son came back from a sea voyage, poor and sick, and P took care of him. After P “Good Samaritan” takes son in, D

writes letter promising to pay expenses, he reneges, and P Sues for BOC. Promise made without consideration to D himself, and

services bestowed on son were not requested. Held: A moral obligation is not a legal obligation [Majority view]. Reasoning: P

originally characterized services as a gift. When dad then promised to reimburse expenses, P tried to re-characterize transaction as

a K. A gift remains a gift.

Prof.: P cannot get restitution because father did not benefit. Father was a stranger to his son. If son was a minor, would be a

diff. case because father would be obligated to take care of his son. Court made a line, a line based on legal duty, not moral.

Another way to look at this case is past co n siderati o n . Ҥ79(4 performance or return promise may be given to the

pg. 36

promisor or to some other person. It may be given by the promissee or by some other person “this would be an argument

for P, however, consideration of one must motivate the consideration of the other. There needs to be an exchange. The

promise to pay couldn’t have motivated P’s taking care of his son - it already happened.

This presents an inducement problem - promise didn’t induce care; no consideration supporting the promise. P did not

confer a benefit on the dad (son a minor)

Q. on p. 213: Can Mills recover from the son’s estate if he knows the value of his services is $50? A: Mills was an innkeeper -

that was his job. See in Webb the case of a doctor who serves an unconscious person. Is bodily health similar to food and shelter?

Webb v. McGowin (216)Facts: P stops a log from hitting D, which results in P being crippled. D promises to pay P $15 every 2 weeks for rest of P’s life.

D paid until he died. P sues estate, who stopped paying. Rule: Where the promisee cares for or improves the property of the

promisor, even without his request it is sufficient consideration for promisor’s promise to pay, because of the material benefit

already received. Life and preservation of body has material pecuniary values, so when D agreed to pay; it is a valid K.

This ruling is the Minority view: Moral obligation plus material benefit to promisor equals consideration.

Notes: difference between Mills and Webb is that in Mills the promise was based on a moral obligation where the promisor did not

receive himself a direct economic benefit, even though the promisee incurred expenses. In Webb, the moral obligation arouse out

of a past economic benefit directly tied to the promisor (#2 – p. 218.).*

Note 2: Mills V. Wyman says that the order of performance and promise is important and that in order to have a bargain, we must

first have the promises and then have the performance. But Webb v. McGowan stretches the doctrine to find consideration based

on a benefit already conferred at the time of the promise. Courts generally do not enforce performance before the bargain –

unless gross unjust enrichment. Policy: ordinarily, we don’t want salesman doing a service and pressuring people into saying

they will pay for past performance. Court wants to protect consumers.

Reasoning: (1) Court brings example of the Dr. that assists an unconscious person. Does this ex. fit the facts of this case? The Dr.

is entitled to restitution because K “implied in law” since the dr. was exercising the profession for which he usually gets paid.

Subsequently, they enter into a bargain - the patient promises to pay and the Dr. waives of his claim of restitution. We don’t have

to rely on a subsequent promise to pay, for there’s an actual bargained for exchange. In our case: not clear that Webb was

performing a service for which he expected to be paid.

Squib: Harrington v. Taylor (220)

Facts: D assaults his wife. Wife took refuge in P’s house. D gains entry into P’s house, and resumes attack on his wife. Wife is

about to hit D in the head with an axe when P catches wife’s hand and P hand is badly mutilated. D promises to pay P her

damages. D pays a small sum and won’t pay anymore. Ruling: Facts fail to allege a cause of action, a humanitarian act,

voluntarily performed, is not consideration.

Prof.: distinguished from Webb because P inserted himself into the situation, he was a bystander and chose to interfere. Officious

intermeddler - A person who confers a benefit on another without being requested or having a legal duty to do so, and who

therefore has no legal grounds to demand restitution for the benefit conferred.

Webb launched the harm to McGowin, and therefore an intrinsic part of the event. Harrington didn’t launch the harm; hence, we

can argue that she was an officious intermeddler.

Distinction between Harrington and Webb:

Harrington: (1) P had a state of mind - he could think about it what he was giving (2) “Good Samaritan” was clearly making a

pg. 37

gift, but tried to re-characterize it. Court didn’t let him re-characterize it.

Webb: (1) It is unclear what Webb intended - he probably had no state of mind and just reacted (2)That case there was no

characterization, and now P wants to characterize it as something for which he expected payment. [read other notes; did not

follow] [It can be argued that Webb already gave money to him, thereby recognizing a K or promise.]

R2 §86: Promise for Benefit Received (222)

Squib: Edson v. Poppe (224)

Facts: P drills a well at request of a tenant of D. P says value was 250 and that after well completed, D promised to pay. P wins

Reasoning: was a direct benefit to land, and D promised to pay, not gratuitous: R2 §86 - Q: Is there really unjust enrichment?

Squib: Muir v. Kane (224)

Facts: D orally employed P to find a B for their home. Void under SOF. P finds B, K of sale is signed - with a clause D promising

to pay P 200 Rule: P can recover because there was no moral turpitude in the agreement. Benefit has been rendered, so there is a

moral obligation to pay. R2 §86.

In Re Schoenkerman’s Estate (225)

Facts: A man’s (dead) Wife’s mother and sister come to take care of kids. They do so for 10 years. Schoenkerman executed 2

notes, promising 500 to MIL and 1.5K to SIL before he died. Held: Decedent was under moral obligation to pay for 10 years of

services. D is correct in the claim that services were assumed to be gratuitous, but there is an express K to pay that overcomes this

presumption. In giving the notes, D acknowledge a moral obligation that was more than ample consideration, (SIL can’t claim

“full value” $4K) but can get the 1.5K.

Section Four: Reliance On A PromiseR2 §90. Promise Reasonably Inducing Action Or Forbearance

Comments: a. This Section is often referred to in terms of "promissory estoppel," a phrase suggesting an extension of the doctrine

of estoppel. d. Partial enforcement. A promise binding under this section is a contract, and full-scale enforcement by normal

remedies is often appropriate…In particular, relief may sometimes be limited to restitution or to damages or specific relief

measured by the extent of the promisee's reliance rather than by the terms of the promise...Unless there is unjust enrichment of the

promisor, damages should not put the promisee in a better position than performance of the promise would have put him.

History of §90: §90 of the R1 set forth the following core requirements: promise, reasonably foreseeable reliance, actual

inducement of reliance by the promise, and achievement of justice only through enforcement of the promise. R2 revised §90 of R1

in 3 major respects. (1) Eliminated the requirement that the action or forbearance be foreseen by the promisor, and induced by the

promise to be "of a definite and substantial character." (2) added that "[t]he remedy granted for breach may be limited as justice

requires. (2) added a new subsection providing that "[a] charitable subscription or a marriage settlement is binding…without

proof that the promise induced action or forbearance." (Rejected by NY).

Seavey v. Drake (225)Facts: P was only child of testator (A person who has made a will). Father gave P possession of one tract of land, who then spent

$3K in improvements. P has evidence that his father owed him $200, which was forgiven when his father gave a second strip of

land. P claims that testator promised him the deed to land, but died. P sues for SP. Rule: Not important if it was a gift or K:

“Equity protects a parol gift of land equally with a parol agreement to sell it, if accompanied by possession “and where

improvements have been induced by the promise. Equity: Part performance doctrine (reliance although no K) takes away SOF and

allows for SP.

pg. 38

Issues: (1) can one get K damages (reliance) when the K in unenforceable due to SOF? (2) What is the evidence that a K exist and

not a gift (this case court didn’t think it relevant) (3) can part performance doctrine allow us to bypass the SOF and then allow for

SP?

Prof.: You would think that P can get restitution for improvements; however, he asked for SP – he wants the land, he can’t claim

that the Father was “unjust enriched”. Hence, D can use the desire of the son for the land to prove no restitution. Son must ask for

SP. Court: “expenditure in money or labor in the improvement of the land induced by the donor’s promise to give the land to the

party making the expenditures constitutes, in equity, a consideration for the promise and the promise will be enforced.”

Discussing (3) above regarding the SOF: What is the “part performance” in this case? Possession – unsure of this claim,

Improvements is on shaky ground as well.

If this is a gift no SOF issue. Prof.: equity is not rescuing the vendee from the SOF, though the cases do, because language of the

SOF says that no action may be maintained on the sale of land, and suits in equity are not actions - they are proceedings. SOF

confines itself to actions in law and if the chancellor’s conscience is moved, he can give an equitable remedy. The main concern is

evidentiary – want to assure that there was an oral promise; part performance is evidence.

Hamer: Either benefit to promisee or detriment to Promisor) Seavey: father did not seek son to spend 5k on the land

No reliance; It just happened. Gift promises that induce reliance

Kirksey v. Kirksey (230)Facts: P is the SIL of D. She resided on public land under a lease K . D lives in Talladega 60/70M away. D writes her telling her

to move, and that she should sell the land and if she comes to see him, he will let her have a place to raise her family. P leaves and

moves to D’s land, giving her a house and land to cultivate. After 2 years, he moved her to a smaller house and then made her

leave. P sues for BOC Held: The promise on the part of D is a mere gratuity, no K, no recovery. Reasoning: Classic approach to

K - Williston. Fact that she relied on the promise is unjust. However, she didn’t supply any consideration that makes promise

enforceable. Court must have had a narrower rule in mind - only benefit to the promissor. The detriment to her was not

consideration; it was a condition to get the gift. Prof.: We can really make it a benefit, for he desired at one point for her to move.

Dissenting Judge thinks that there was consideration in the form of a detriment to the promissee (Hamer) Using that rule, P would

have won - her reliance wasn’t incidental of the promise - it was sought by the promise.

Is there an argument that the sister ought to lose anyway even though we believe that there was a K? UK is by performance. She

didn’t take up her “preference.” She was living on land under the “Homestead Act”, so she could go to the Gov land office and get

a deed to the publicly owned land. The land was given away by the Gov when you went to live on it, you got a deed. However,

she didn’t get a deed, so she did not perform. My Q: “I would advise”: how was this condition to performance?

Ricketts v. Scothorn 1898 (231)Facts: Decedent (grandfather) wrote a promissory note to pay P on demand $2K with 6% interest per year. P claims that she quit

her employment as consideration. She relied upon it in abandoning her occupation. He said “none of my grandchildren work, and

you don’t have too.” She immediately quits. The promise was a gratuity. Is there EE? Rule: Yes, there is EE - reliance on the note.

Therefore, estate cannot argue note was lacking in consideration. Prof.: Easy argument for P: Grandfather cared about family

reputation; it made him proud that she did not have to work – exactly like Hamer v Sideway. Arguments against P: “For

something more than a year P was without an occupation, but…with consent of her grandfather & by his assistance, she secured

a position as bookkeeper” He didn’t tell her to stop working.

EE - Court calls it equitable estoppel - earliest approach to PE was EE. The idea is that there would be some inequity, wrong,

pg. 39

fraudulent act. The wrong is that you lured the person into reliance in addition to the failure to keep promise - “wrongful luring”.

Squib: Prescott v. Jones (233)

Facts: D insured P’s building for a year, when it was going to expire they said via letter they’d renew for another year unless

notified. P didn’t reply, but they didn’t renew. Building destroyed by fire, P sues, claiming reliance on letter. Held: There was an

offer but no acceptance, so no insurance. P neither paid the premium nor communicated promise to do so. Notes: an acceptance

requires word or deed. Prof.: prototypical PE case, why did crt not find for P?

Alleghany College v. National Chautauqua County Bank (234)Judge Cardozo – Facts: Mary Yates rights a letter to pledge $5K to be due 30 days after her death, the proceeds to be added to

the endowment. On the reverse it says “in loving memory this gift shall be known as the Mary Yates Johnston memorial” for

scholarships for ministry students, however, conditions of her will must be met first. She pays $1K while still alive, which college

sets aside for fund. A year later, she repudiates the promise and gave notice. P sues after she dies. Held: The moment that the

college accepted the $1K as a payment; there is a duty to do whatever was reasonably necessary to maintain the memorial fairly

and to announce the name of the foundation. Donor was not allowed to gain the benefit of such an undertaking upon the payment

of a part, and disappoint the expectation that there would be payment of the residue. Rule: She asked for the foundation “name”

When the promisee subjected itself to such a duty at the implied request of the promisor, the result was the creation of a bilateral

agreement. One of the promises may be a promise implied in fact. One of the promises is the promise by the college to do

whatever may be necessary to make the scholarship effective.

There a lot of legal models in this case and they/ we look to see which model best fits the data.

Charitable subscription case: not subject to consideration (§90).

There is a pledge; hard to say it is an enforceable promise by wording of pledge. College tried to set the pledge up so that it looked

like an exchange -‘in consideration of interest in Christian and other subscribers.’ Q: Is the college really promising anything?

Was Mary trying to induce others to pledge?

Cardozo’s model: (Majority)

(1) It began as a pledge when originally gave 1K to the college. However, once she sent money, the 1K is an offer to enter into a

bilateral executory K – for a return promise. This was offered and accepted by the college, and it changed the rules of the game;

we don’t need to wait till she dies. Additionally, it is not a unilateral K, because she is seeking a promise to set up fund in her

name. This was all implied; none of it was expressly stated. (Prof.: where did Cardozo get this model? - Agrees with dissent.)

J Kellogg dissent: the pledge was an offer, but the college never accepted the offer so there was no formation of a K, gives 2

models:

(2) If we must; Pledge was an offer for a unilateral K; that fund will be set up in her name. Only once the college did that would

the college accept her offer. Since that event wouldn’t happen till after she died, the offer dies because offerer died (This is the

law. K formation is the meeting of the minds, can’t be a meeting of the minds when one party is dead [law in Cardozo times was

that there are no implied acceptance by action). So, an offer was made that could never be accepted - could only be accepted after

death, and at death, the offer is gone.

(3) Making a gift with a condition subsequent attached. The condition was that collage needed to set up fund, name it after Mary,

and used for Christian education. If the college didn’t do any of these things, money would revert to Mary’s estate.

Prof.: The simplest model for what happened: Mary was making a gift of 1K with a condition. (4) Cardozo distinguishes it

because the gift with the condition benefits Mary. He quotes the classicist against Kellogg that if the condition benefits the

pg. 40

promissor, it suggests that he is a promissor not a donor.

Sought expectations that could be in action not just words- Neo-classical v Classical (reluctance accept anything other than explicit

words) Cardozo was neo-classical.

Parts of the case that bothers Jacobson: Cardozo’s attitude to Hamer v Sidway which said that consideration to support a promise

can be benefit to the promissor or a detriment to the promisee. Is he denying that a detriment to the promisee will be sufficient

consideration? Cardozo: If there is a detriment, doesn’t mean there is consideration. Detriment must have been sought by t he

promise in ord e r for t h e r e to be mutu a l c o nsidera t ion .

Q. Why doesn’t he just invoke PE for charitable consideration instead of going to the difficulty of finding an implied K?

NY did not mind giving PE for Chartable consideration when there was detrimental reliance, However NY- COA never

accepted §90

A: (1) Says the college set the money aside to be held by the ministers - doesn’t really see like there’s reliance. (2)Hard to

prove reliance - need to show that you did an action that you otherwise wouldn’t have done. It’s hard for a charity to show that b/c

they don’t change their actions based on pledges - they have their budgets and projects and won’t act until they get the money

because charities know not guaranteed. No detrimental reliance, hence, no PE. Cardozo needed to find implied K.

JACOBSON: when Mary Johnson tendered the money it was an offer to enter into a K When college accepted her money they entered into a K. Courts today are reluctant to enforce charitable subscriptions unless detrimental reliance.

o PE depends on the promisee detrimentally relying on the gift.o Kellogg: gift with a condition [conditions are the nuclear bombs of K law]. Mary stipulated conditions for the

gift [no need to distort facts]. o NO NY COURT OF APPEALS ACCEPTANCE OF RESTATEMENT 90(1)o §90 CHARITABLE GIFTS ARE BINDING

Squib: Siegel v. Spear & Co. (241)

Facts: P purchased furniture from D, taking a mortgage and promises not to take the furniture out of his apartment until it is paid

for. He is leaving town and goes to D’s credit officer to talk about storing furniture. Officer agrees to keep it for him free of

charge. P claims there was a promise to insure furniture. Furniture is destroyed by fire, no insurance has been purchased. P sued,

wins, D appeals.PH: If there was a voluntary promise to insure, was it part of the whole transaction & he is obligated to do it.

Held: There was consideration for the agreement to insure which makes it unnecessary to determine if the P surrendered any right

which would establish consideration.

Squib: Carr v. Maine Central R.R. (243)

Facts: P was overcharged for freight hauled by D, who claimed they could give no rebate without approval of the ICC. D told P to

fill out a form and send it to the railroad and they would forward it. P claims railroad negligently or fraudulently failed to forward

document, which led to their claim being time barred. Held: Although no consideration, because P relied upon the D’s undertaking

to perform service, a duty was imposed upon the D to send the documents. Notes: Detrimental Reliance

First Nat’l Bank of Logansport v. Logan Mfg. Co. (246)Facts: Bank officer and VP named Brandt sought to attract new business. He learned of a small Michigan Co. called Winamac,

which suffered loses and wanted to move to Indiana. Brandt met with Garret and Moore (P’s) who were interested in Winamac to

move to Logansport. However, the officer can only authorize $100K for P’s (to purchase majority interest in Co.) with promises

for additional funding. Bank denies loan for Winamac. D later gives them another loan of 346K with 250K credit for the newly

renamed Winimace Co. called Logan - with conditions that the loan be guaranteed by the state. Brandt says that the bank will loan

even without the guarantee. The state didn’t guarantee the loan, and Bank said they won’t give the loan. They sue based on

pg. 41

Brandt’s representations. They win, appealed. Bank says it was not obligated to make the loan, no enforceable oral agreement, and

that the adequate measure of damages was the interest rate differential.

Rule: PE encompasses the following elements: (1) A promised by the promisor. (2) Made with the expectation that the promisee

will rely thereon. (3) Induces reasonable reliance by the promisee. (4) Of a definite and substantial nature and (5) injustice can be

avoided only by enforcement of the promise.

Held: These facts meet all 5 elements. They get reliance damages of 73K, however, no lost profits. PE does not make us do the P

phrase, was not a real promise, but we will give reliance. Prof: even that they should not get even that. Baird: PE may create

perverse effects – when you get a promise, you spend in reliance on it so you can win on PE.

Prof.: Did bank fulfill Brandt’s assurances? Brandt is an idiot, kind heart- empty head. When do expectations become a promise?

Squib: I & I Holding Corp. v. Gainsburg (252)

Facts: D signs pledge to pay 5K in 4 annual installments to Beth I. Hospital. Hospital sues. Court: a charitable subscription and a

binding UK. Dissent: Must be proof that promise induced the promisee to perform - not in this case.

Squib: Salsbury v. Northwestern Bell Telephone Co. (253)

Facts: D promises to donate 15K to new college. College closes, D doesn’t pay. SC finds promise enforceable without proof of

detrimental reliance, necessity for proof of detrimental reliance would make it hard to get charitable donations. Public policy:

when subscription is unequivocal, subscriber should keep his word. Calamari: Typically, charity would need to show it did

something differently than it would have done without the promise.

Notes: Fried v. Fisher (254)

Rule: It is beyond the pale of argument that a promise by a creditor to release one of the partners from a debtor firm from

obligation is, in the absence of qualifying facts, legally unenforceable for want of consideration.

Mahban v. MGM Grand Hotels Inc. (255)

Facts: D leases retail shop space to P. Lease contains clause permitting either party to terminate if premises are damaged to an

extent that they can’t be used within 180.There is a fire on Nov. 21. On Jan 30, P receives a letter which says the target date to

reopen should be finalized in late Feb. P claims that he relies on this letter by ordering merchandise. On March 17, P receives

another letter saying D is terminating lease pursuant to destruction of premises clause. P sues. Court awards Summary judgment

for D; reversed on appeal. Held: SJ is inappropriate because P asserts EE and that is not what they ruled on. Rights may be waived

by the lessor or he may by his conduct become estopped. D’s letter allows an inference of intent not to exercise termination right,

and instructs P regarding reconstruction plans: Question of fact. Note: there was not a clear waiver, this case is more PE. If it was

a waiver, letter should have said “we are waiving out right to shut down”.

Prof.: The courts don’t really treat these 2 terms with accuracy and consistency. They are different terms with different meanings.

Courts don’t always use them correctly. Distinction between waiver and estoppel:

Waiver - A knowing and intelligent relinquishment of a (known) right. Two important characteristics:

(1) Does not require any consideration to be effective.

Normally, a creditor cannot effectively release a debtor from a portion of debt, without additional consideration. [Consideration

may be trivial - Courts don’t scrutinize adequacy of consideration. However, there has to be bargained for exchange that would

serve as a modification of the K.]

A more general rule (including the legal duty rule*) is that K can’t be modified unless there is new consideration by both sides.

pg. 42

(Modified K has the same rules as new K.) *Levine - legal duty rule – there is no consideration when there is already a legal duty

(Ex: cop solves crime when not on the job)

However, Waiver doesn’t need consideration even though it effectively modifies a K. Conclusion: If we can characterize this

letter as a waiver, then it will be effective.

(2) A waiver does not require reliance in order to be effective. The doctrine of PE - key is reliance. From PE view point,

we require reliance. If we look at it from waiver view, no need for reliance or consideration!

Prof.: no promise. Court said tenant was allowed to rely on the letter. Should have waited until the target date.

Waiver v. Estoppelo Always be warned when you see waiver/estoppel

Waiver is the voluntary relinquishment of a known right Valid without consideration then do it for free. Once it’s done, it’s done. The right is gone.

You cannot restore it.o Estoppel:

Requires reasonable reliance Usually the result of voluntary actions Counterparty relied on certain things that were reasonable for them to rely on and unfair for them to

disappoint their expectations Estoppel can be reversed

If you are no longer entitled to those observations Courts confuse the two all the time.

Stearns v. Emery-Waterhouse Co. (256)Facts: D made an oral K to employ P for a term greater than one year (5 yrs. at 85K/Y). P moves to Maine to be in charge of sales.

He is then notified that he is being moved to a different job for less pay, at which he works for 6 months, after which he is fired. P

sues for oral BOC. D is estopped from asserting its defense under SOF because of reliance on the oral K. Held: PE is insufficient

to overcome SOF. No evidence of fraud on the part of the employer, and enforcement is barred by SOF. Only in cases of fraud can

equitable estoppel be invoked to prevent SOF. Notes: Court: §139-highly restrictive. Some courts aren’t so restrictive-may just

heighten the standard of proof, but they won’t require fraud by the employer. Using §139 - PE to overcome the SOF is a complex

subject. In employee and employer K. PE makes courts very nervous to override SOF: impossible to distinguish reliance of

ordinary employee entering 1 year from a term of many years & concerned employees will lie.

EE V. PE: EE doctrine is estoppel imposed by the court of equity for “fraudulent conduct – promise for employment”. PE

only requires a promise upon which the person relies, and not bad behavior. EE can only serve as a shield – whereas PE is a shield

or a sword. EE depends upon a misrepresentation of an existing fact.

Squib: Goldstick v. ICM Realty (258)

J Posner -Rule: “Employment at will [no K] is the dominant type of employment relationship, and it would be seriously

undermined if employees could use PE to make alleged oral promises enforceable.” PE is too easily shown in employment setting.

JACOBSON: SOF no matter what you say about reliance.

o Why does the court reject reliance on reliance? General concern with SOF is that people can make stuff up. Nothing to distinguish employee who had promise and one that did not, higher evidentiary standard than

for normal claim. PE ONLY when Clear and convincing evidence Higher burden on the P Moral balance starts to shift

Reliance based exceptions to SOF is tricky. Lots of moral pressure to enforce.

Restatement Second § 139 (259)

pg. 43

Section Five: Precontractual ObligationRevocability of “firm offers” – A firm offer is one that by its terms is to remain open until a fixed date the general rule is that

even a firm offer can be revoked prior to expiration of its term, and such a revocation terminates the offeree’s power of acceptance.

The rationale is that the provision stating that the offer will be held open is merely a promise not supported by consideration (or a

seal).

Revocation of an Option Contract:

(a) General rule: if an offeree has given any consideration (even nominal value) for the offer it becomes an option. An option is a

completed contract in which the offeror has a bound himself not to revoke the offer.

(b) Effect if recital of consideration: under the general view, a mere recital of consideration is not conclusive. The courts decide

whether the consideration was paid. However, in a case of “sham consideration”, Restatement (2nd) §89 provides that an offer is

binding as an option if it is in writing, signed by offeror, and recited a purported consideration.

UCC 2-205: Firm offers; offers expire after 3 months if date of acceptance not specified. Offer must be written

down.

Restatement Second §87. OPTION CONTRACT (1) An offer is binding as an option contract if it (a) Is in writing and signed by the offeror, recites a purported consideration

for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or (b) Is made irrevocable by statute.

Thomason v. Bescher (261)Facts: D made a promise under seal that in return for $1 from P, they would sell P a timber tract in exchange for 6K by a certain

date. Before 6K was tendered, D notified P that they had revoked the offer. P sued for SP. Jury found that the $1 had never been

paid, but that P was able and willing to pay the 6K the whole time: granted SP. D appealed. Issue: Are offers under seal

enforceable at equity? Rule: Instruments under seal are binding at common law even without consideration. When the offer is

accepted, it becomes a BK, trial ruling affirmed. Analysis: Court: sealed instrument is effective to bind the offerors to keep their

offer open until date they said they would. P was ready to give him the money before that date, and D refused, breaking their

sealed promise.

JACOBSON: option here: promise not to withdraw offer should be enforceable like any other promise (consideration in

exchange). Neither present here. Options have market prices. Promise to keep option open is a gift promise. Compensation

to be received by offerer is fair. Assumption of the breach of option will be followed

Damages a law would be different for breach of option than v. underlying contract. AN OFFER IS BINDING ON A UNILATERAL CONTRACT/OPTION IF:

Offer is binding if in writing and signed by offeror Recites purported consideration for making of the offer [1 penny] Exchange of terms are fair in related to the value of the actual goods etc.

James Baird Co. v. Gimbel Bros. (265)Judge Learned Hand - Facts: D, a linoleum seller, made a mistake as to how much linoleum was needed to build a new public

building: they thought only half as much was needed as actually was required. D sent out offers to a bunch of contractors to

supply all the linoleum necessary to build the new building, but the offer price was basically half of what it should have been. One

P, having received the offer, put in a bid to build the state building based on that offer. First, D telegraphed all the contractors to

let them know of the mistake. However, State had already accepted the offer, and P sent D an acceptance. D denied K. P sued

BOC. Trial court found D. P appealed: it was understood that the contractors would be making bids in reliance on D’s offer to

supply linoleum. Rule: A bid does not constitute an acceptance, which means that D is not required to deliver linoleum, and no

pg. 44

PE, because D was bargaining for an acceptance. Analysis: Hand finds there was no K between parties because putting in a bid

could not be construed to constitute an acceptance.

JACOBSON: sub made an offer for bilateral/executory but general contract never accepted. 3 models for holding sub liable:

o 1st model - Best: parties actually entered into a K By submitting a bid the subcontractor made an offer that general contractor accepted by using it in

his bid for gov K. (gov giving the K is a Precedent conditional to both K’s) 1st model rejected: sub withdrew.

o 2nd Model Below: PE- however, in this case, setting is not conducive to gifts.

o 3d Model - Entirely within purview of the parties to specify relationships Both parties were free to walk “shop the bid.” “If successful in being awarded”; however, it may have

been an option. 3d model rejected: (1) Option seems one sided, he can now shop the Offer.

WRITE IT DOWN OR LOSEModern view:

Drennan v. Star Paving (269)Jude Traynor - Facts: P is a contractor who was looking for a SubC to do some paving. D put in an unusually low bid, and based

on this bid, P made the low bid for the main construction K. However, after K was made(and GC called and confirmed the price),

D said they had made a mistake and wouldn’t do the paving for the price they’d offered. P had to go out and find a different

subcontractor to do the paving at a higher price. P sued D for diff. in cost. D argued that there was no K because D made a

revocable offer and revoked it in time. P claims reliance. Issue: Did P reliance make D’s offer irrevocable? Rule: If you make a

promise that you should reasonably expect will cause the promisee to act in reliance to their detriment, and it actually does cause

them to act, then you may be bound to that promise if necessary to avoid injustice. Analysis: The court finds that D reasonably

induced reliance on the part of P. No evidence that D offered to make its bid irrevocable - Restatement §90 (PE). Reasonable

reliance serves to hold the offeror in lieu of the consideration normally required to make the offer binding.

If we want to reconcile the case from James Baird, we can. Here the subC was far more reckless.

o JACOBSON: subs offer uncharacterized. Evidence of a custom of the trade. o 3rd model (see last case): PE

Sub promised - Hand says “no promise.” Not a gift promise Classic Traynor made the PE up “out of the air.” Legislative. Traynor wanted to rectify power differential between subs/general contractors

He leveled the playing field by using PE. But it didn’t work. What are the rules?

Squib: E.A. Coronis Associates (D) v. M. Gordon Constr. Co. (P) (273)

Facts: Gordon expected to bid on 2 buildings, solicits bids from SubContractors including D. D offers to supply and erect steel for 155K. P is

awarded K, and formal documents executed 2/weeks later. P had not accepted D’s offer during that 2 weeks. D telegraphs revocation after P

officially gets the K. P seeks damages for diff between Coronis’s bid and what is charged by another SubC. Coronis prevails at trial. On appeal;

reversed and remanded because PE is applicable.

Pre-K Liability

Goodman v. Dicker (279)Facts: P was the local distributor for Emerson Radio. P encouraged D to apply for an Emerson franchise. P induced D to incur

business expenses to be under the franchise including employment of salesmen and solicitation of orders for merchandise. P

represented that D had been approved for a franchise and that he would receive a delivery of 30 radios, but later informed D that

there would be no deal. D sued P and was granted a judgment of 1.5G of which $350 was for expected profits from the sale of the

radios. P appealed, asserting that the franchise agreement was “at will” (can cancel whenever it pleases) and therefore no liability.

pg. 45

Holding: P is estopped from arguing that they were under no obligation to give D any radios because of representations and D’s

detrimental reliance. Court: true measure of damages is the expenditures made in reliance on the assurance of a franchise, but no

lost profits (not reliance damages).

Q: Did D make a promise? That the franchise would be granted? Sounds like a prediction or a claim of fact, not a promise.

Q: Is PE the right claim here? P reaction should inquire what it means or get it in writing if he was going to substantially rely. Are

you really going to go starts setting up when you didn’t sign yet b/c you’re going by direction of a 3rd. party?

Prof.: negligent misrepresentation. PE is a cover for the real claim. Problem is that PE can get full P Phrase, here no promise (in

any of these cases). Traynor says we can imply a promise. Who bears the cost of insurance as a result of breaches?

Conversation on page 283: Williston wants PE in cases such as Chapter Three Wheeler v White. When we know there was a K,

believed there was a K, but it was enforceable due to vagueness and indefinite. Hence, there is either a K or not. However, when

we get to PE as reliance when no real promise exists, it creates the issue of excess money that the conversation was about.

Squib: American National Bank v. A.G. Summerville Inc. (280)

Facts: Summerville sold 2 automobiles to Tomlinson for 3.G each. Tom signed K that stated he acknowledged receipt, and that if S assigns the

right to the money owed to a 3rd party, Tom can’t attack K validity (or not paying). S assigns rights to P-bank. P sues to collect, and Tom pleaded

that he never received automobiles. Held: K does not preclude him from showing no consideration, or that consideration had not been given. He

can be precluded by estoppel en pais - showing the falsity of a statement of fact on which another had relied.

D’Ulisse-Cupo v. Board of Directors of Notre Dame High School

Facts: School board doesn’t rehire teacher despite representations that she would get a new K. Sues for K damages on PE. Held:

Even if the board cannot be held liable for PE, they could still be held liable for negligent misrepresentations (intentional is

fraud) - no requirement that those representations be promissory. Notes: This case & Goodman are more suitable for negligent

misrepresentation claims. Q: Do you have a right to rely on a 3rd. party? Maybe the 3rd. party made a mistake and not necessarily

careless.

Osborn v. Commanche Cattle Indus.

Facts: 3 year services K terminable by either party with 30/d notice. Suit on K for lost profits. Held: Promisee may not recover more than he

would have gained by full performance. Since the assurance of performance doesn’t last beyond 30 days, neither does his right to recover: can

only recover for 30 days from breach.

Hoffman v. Red Owl Stores (284)Facts: Hoffman owned a bakery, but wanted to open a Red Owl store. Red Owl “repeatedly assured” P that 18K was sufficient.

He started working on opening a store, which included selling the bakery, buying and later selling a small grocery, paying some

money for a lot and house in Chilton, and moving to Neenah. Then D starting raising the amount of capital they wanted from P to

be able to open the store. P backed out of negotiations and sued D. Trial court found P had acted to his detriment in reasonable

reliance on D promises, and awarded him reliance damages. D appealed. On appeal, judge upheld everything except damages for

the sale of the small grocery store. D appealed again. Analysis: The promise lacked essential terms that would make a K.

Issues: (1) should we recognize PE. (2) Do the facts make out a cause of action for PE (3) Are the jury’s findings sustained by the

evidence.

Rule: (1) Yes we recognize PE. Elements of PE are: [1] was the promise one which the promisor should reasonably expect to

induce action or forbearance of a definite and substantial character. [2] Did the promise in fact induce such action of forbearance?

[3]Can injustice be avoided by the enforcement of the promise? (2) There was PE here. (3) Approve 2K in damages for (the loss

pg. 46

on the) sale of bakery. Approve 1K for option on the lot. Approve the rent. Approve moving expenses. Do not approve damages

for the sale of the grocery store and equipment because there were no actual losses, and in cases of PE, damages cannot exceed

potential rewards. Order a new trial on those issues. (When inducement created an opportunity for profits, PE will not give him

lost profits, for being induced again to leave said profitable venture.)

What he is recovering is pre-K expenditures. In Dempsey, courts did not allow Pre-K expenditures. Here, we are not trying to

enforce K, hence, we allow pre-k cost. Why? Because the costs are incurred while in negotiation, after “promise” was made. Due

to wrongful behavior of D – we are allowing pre-k expenditures; this is “Culpa in contrahendo” – civil law rule that assures

negotiation with care. In the classical theory of K, there is no liability when behavior is in questions – short of gross intentional

fraud.

Classical theory advocates would disagree with giving pre-k reliance. We want to force the parties to negotiate and elucidate the

full terms. We don’t want courts sifting and clarifying. Parties should have that burden. However, this may lead to over-

negotiation. People can’t spend forever in working every detail. Additionally, there is a very minor amount of these types of cases.

Another point, maybe all these risks may be a deal-breaker – people are risk averse. This can lead to many deals falling through.

Baird: P got lucky, most courts wouldn’t allow PE for preliminary negotiations, and there is no K here.

There is something called a letter of intent, that all would agree, that such reliance would be correct. Letter of intent says what the

prelim negotiation is. Would allow him to go to the bank for funding, and hence is legit reliance. This case; company would have

said immediately 18K isn’t enough.

NOTES: this decision extends the PE doctrine since it does not rationalize it in terms of reliance as a substitute for considerations.

Here, there is not even an offer. There is simply negotiation. The implication is that parties must bargain in good faith; if they do

not, and if one party relies to its detriment, PE will apply and damages will be awarded to prevent injustice from the detrimental

reliance.

Prof.: prolonged negotiations between franchisee/franchisor Red owl never promised anything Until you have everything you don’t have anything Should the law reflect reality? Traynor Should the law provide a firm framework for bargaining? Hand.

Q on pp. 289: The distinction between Hoffman and this Cosgrove is that there is clarity when the father says he is “thinking”,

there was no “assurance” that created ambiguity. He did not set up the listener to misconstrue to facts.

pg. 47

ContentsChapter One:...................................................................................................................................................................................................................... 4

Section One......................................................................................................................................................................................................................... 4

1)Hawkins v. McGee - ED.................................................................................................................................................................................................4

The Bullet point – The P Phrase........................................................................................................................................................4

2) Groves v. Wunder......................................................................................................................................................................................................... 4

2. Peevyhouse v. Garland Coal.....................................................................................................................................................5

First restatements of contracts (346).................................................................................................................................................5

The Bullet – P Phrase has two methods............................................................................................................................................5

3)Acme Mills & Elevator Co. v. Johnson........................................................................................................................................................................5

The Bullet – Only P Phrase, nothing more, we will not let the other party lay their hands on the profits........................................6

Squib: Laurin v. DeCarolis Constr. Co., Inc.:...................................................................................................................................6

4)Missouri Furnace Co. v. Cochran.................................................................................................................................................................................6

Common law: Hockster v De La Tour -............................................................................................................................................6

5)Neri v. Retail Marine Corp............................................................................................................................................................................................7

The Bullet: The seller is entitled to the lost profits, plus expenses...................................................................................................7

Squib: Commonwealth Edison Co. v. Decker Coal Co.....................................................................................................................7

6)Illinois Central RR Co. v. Crail:...................................................................................................................................................................................7

The Bullet – Not cranking formulas, only actual damages...............................................................................................................7

Squib: Watt v Nevada Central RR.....................................................................................................................................................7

Reliance Damages.............................................................................................................................................................................................................. 8

7)Chicago Coliseum Club v. Dempsey: Illinois Court of Appeals, First District (1932).............................................................................................8

Rule:..................................................................................................................................................................................................8

Outline:..............................................................................................................................................................................................8

Squib: Security Stove & Mfg. Co v American Ry Express Co.: Mo. App. (1932)...........................................................................9

The Bullet: If reliance of something consistent, can get damages anticipating K........................................................................9

Squib: Anglia Television Ltd. v. Reed:.............................................................................................................................................9

The bullet – Can rely when there are many alternatives, and late breach.....................................................................................9

Restatement of Contracts, §349:........................................................................................................................................................9

8)L. Albert & Son v. Armstrong Rubber Co.:................................................................................................................................................................9

Squib Mt. Pleasant Stable Co. v. Steinberg:....................................................................................................................................10

Section 2 – Limitations on the P Phrase........................................................................................................................................................................10

pg. 48

1)Rockingham County v Luten Bridge Co.:.................................................................................................................................................................10

The Bullet – Mitigate damages........................................................................................................................................................10

Squib: Leingang v City of Mandan Weed Board............................................................................................................................10

Squib: Kearsarge Computer, Inc. v. Acme Staple Co.: (1976).......................................................................................................11

Wrongful discharged employee duty to mitigate:...........................................................................................................................11

2)Shirley Parker v 20th Century Fox (Cal. 1970):.......................................................................................................................................................11

The bullet; Rule - Shirley McClain is not Kearsarge. Kearsarge and RMC is a service - goods dealer. Employees can’t get lost

profits; they only can be at one place at a time. Employees lose recovery by mitigating...............................................................12

Squib: Billetter v Posell (1949).......................................................................................................................................................12

3)Hadley v Baxendale...................................................................................................................................................................................................... 12

4)Globe Reffining Co. v. Landa Cotton Oil Co.:..........................................................................................................................................................13

Squib: Lamkins v International Harvester Co.................................................................................................................................13

Squib: Victoria Laundry Ltd v Newman Indus Ltd........................................................................................................................13

Squib: Heron II................................................................................................................................................................................14

Squib Hector Martinez & Co v Southern Pacific Transp Co.:........................................................................................................14

5)Valentine v General American Credit, Inc................................................................................................................................................................14

Squib: Hancock v. Northcutt...........................................................................................................................................................14

6)MindGames, Inc. v. Western Publishing Co.:...........................................................................................................................................................14

Freund v Washington Square Press, Inc.:........................................................................................................................................15

Fera v. Village Plaza, Inc................................................................................................................................................................15

Section 3- Restitution Alternative Damages..................................................................................................................................................................15

1)Boone v Coe (1913)....................................................................................................................................................................................................... 16

Quantum Meruit:.............................................................................................................................................................................16

The Bullet: No K; therefore restitution: Only when benefit............................................................................................................17

2)United States v Algernon Blair, Inc............................................................................................................................................................................17

The Bullet: If breachee and MB; Can claim “On k” and “Off K”...................................................................................................18

Squib: Kearns v Andree...................................................................................................................................................................18

The Bullet: Breachee can get reliance-restitution............................................................................................................................18

Notes: Farash v Sykes.....................................................................................................................................................................18

Notes: The Doing and Giving Problem...........................................................................................................................................19

Squib: Oliver v Campbell (1954)....................................................................................................................................................19

The Bullet: Only restitution until the point you performed, once performed no res..................................................................19

pg. 49

Notes: Noyes v. Pugin (Bottom of p. 108)......................................................................................................................................19

Notes: Clark-Fitzpatrick Inc. v. Long Island Railroad Co. (pp. 109)..............................................................................................19

3)Stark v. Parker (Mass.SC 1824).................................................................................................................................................................................19

4)Britton v Turner-(1834)...............................................................................................................................................................................................20

Notes: Schwasnick v. Blandin (pp. 124):........................................................................................................................................21

Squib: Thach v. Durham..................................................................................................................................................................21

5)Pinches v Swedish Evangelical Lutheran Church, S.C. of Errors of Ct, 1887.......................................................................................................21

Squib: Kelly v. Hance......................................................................................................................................................................21

6)Vines v Orchard Hills, Inc...........................................................................................................................................................................................21

The Bullet: When we look at the P phrase, we do damages based on the law, however with restitution, we’re looking at equity.

.........................................................................................................................................................................................................22

Squib: De Leon v Aldrete................................................................................................................................................................22

Rule:................................................................................................................................................................................................23

Section 4 – Contractual Controls on the Damage Remedy..........................................................................................................................................23

Penalty Clauses and Liquidated Damages.......................................................................................................................................23

1)Muldoon v. Lynch........................................................................................................................................................................................................ 23

Note: Pacheco v. Scoblionko (pp. 135)...........................................................................................................................................24

Squib: Yockey v. Horn....................................................................................................................................................................24

Squib: Wilt v. Waterfield (MO Sup. Ct. 1954)...............................................................................................................................24

Comment: Applying Damage Clauses............................................................................................................................................24

2)Samson Sales Inc. v. Honeywell Inc. (149).................................................................................................................................................................24

Section 5: Enforcement in Equity..................................................................................................................................................................................25

Note: Manchester Dairy v Hayward................................................................................................................................................25

1)Van Wagner Advertising Corp. v. S & M Enterprises (153)...................................................................................................................................25

Squib:Curtice Bros. v. Catts (154)..................................................................................................................................................26

UCC §2-716 –..................................................................................................................................................................................26

Squib: Paloukos v. Intermountain Chevrolet Co. (160)..................................................................................................................26

2)Fitzpatrick v. Michael (MD Court of Appeals, 1939)...............................................................................................................................................26

3)Lumley v. Wagner........................................................................................................................................................................................................27

Squib: Pingley v. Brunson...............................................................................................................................................................27

Note: Enforcing Noncompeting Pledges.........................................................................................................................................27

Note: ABC v. Wolf (173)................................................................................................................................................................28

Squib: Fullerton Lumber Co. v. Torborg.........................................................................................................................................28

pg. 50

Squib: Data Management v. Greene (AK Sup. Ct., 1988)..............................................................................................................28

Northern Delaware Indus Dev Corp v EW Bliss Co.......................................................................................................................28

Squib: City Stores v. Ammerman (DDC, 1967)..............................................................................................................................29

Squib: Grayson-Robinson v. Iris Constr. Corp (NY Ct. of Appeals, 1960)....................................................................................29

Chapter Two:................................................................................................................................................................................................................... 31

Section one: Introduction................................................................................................................................................................................................ 31

Case: Congregation Kadimah Toras-Moshe v. DeLeo (Mass Sup. Ct., 1989)...........................................................................................................32

The Bullet: gift promises are not enforceable [beside for the seal in some states].........................................................................33

Squib: Pitts v. McGraw-Edison Co. (190).......................................................................................................................................33

Squib: In Re Bayshore Yacht and Tennis Club Condominium Ass’n. Inc. (191)...........................................................................33

Section 2. The Bargained For Exchange........................................................................................................................................................................33

Hamer v. Sidway (195).................................................................................................................................................................................................... 34

Squib: Earle v. Angell (198)............................................................................................................................................................34

Squib: Whitten v. Greeley-Shaw (198)...........................................................................................................................................34

Fisher v. Union Trust Co. (201)......................................................................................................................................................................................35

Squib: Sharon v. Sharon (204)........................................................................................................................................................35

Comment: Schnell v Nell (1861).....................................................................................................................................................35

Promises to surrender or Forbear from Asserting Legal Claim......................................................................................................35

Duncan v. Black (MO Ct. of Appeals, 1959).................................................................................................................................................................36

Squib: Military College v. Brooks (NJ, 1929)................................................................................................................................36

Section Three: Promises Grounded In The Past..........................................................................................................................................................36

Mills v. Wyman (211)...................................................................................................................................................................................................... 36

Webb v. McGowin (216).................................................................................................................................................................................................. 37

Squib: Harrington v. Taylor (220)...................................................................................................................................................37

Squib: Edson v. Poppe (224)...........................................................................................................................................................38

Squib: Muir v. Kane (224)...............................................................................................................................................................38

In Re Schoenkerman’s Estate (225)................................................................................................................................................38

Section Four: Reliance On A Promise...........................................................................................................................................................................38

Seavey v. Drake (225)...................................................................................................................................................................................................... 38

Kirksey v. Kirksey (230).................................................................................................................................................................................................. 39

Ricketts v. Scothorn 1898 (231)......................................................................................................................................................................................39

Squib: Prescott v. Jones (233).........................................................................................................................................................40

Alleghany College v. National Chautauqua County Bank (234).................................................................................................................................40

pg. 51

Squib: Siegel v. Spear & Co. (241).................................................................................................................................................41

Squib: Carr v. Maine Central R.R. (243).........................................................................................................................................41

First Nat’l Bank of Logansport v. Logan Mfg. Co. (246).............................................................................................................................................41

Squib: I & I Holding Corp. v. Gainsburg (252)..............................................................................................................................42

Squib: Salsbury v. Northwestern Bell Telephone Co. (253)...........................................................................................................42

Notes: Fried v. Fisher (254).............................................................................................................................................................42

Mahban v. MGM Grand Hotels Inc. (255)......................................................................................................................................42

Stearns v. Emery-Waterhouse Co. (256).......................................................................................................................................................................43

Squib: Goldstick v. ICM Realty (258)............................................................................................................................................43

Section Five: Precontractual Obligation.......................................................................................................................................................................43

Restatement Second §87. OPTION CONTRACT........................................................................................................................................................44

Thomason v. Bescher (261).............................................................................................................................................................................................44

James Baird Co. v. Gimbel Bros. (265)..........................................................................................................................................................................44

Drennan v. Star Paving (269).........................................................................................................................................................................................45

Squib: E.A. Coronis Associates (D) v. M. Gordon Constr. Co. (P) (273)......................................................................................45

Goodman v. Dicker (279)................................................................................................................................................................................................ 45

Squib: American National Bank v. A.G. Summerville Inc. (280)..................................................................................................46

D’Ulisse-Cupo v. Board of Directors of Notre Dame High School................................................................................................46

Osborn v. Commanche Cattle Indus................................................................................................................................................46

Hoffman v. Red Owl Stores (284)...................................................................................................................................................................................46

Chapter 3: When (and how) promises become enforceable........................................................................................................................................53

Section 1. Mutual Assent – Requirement of Offer and Acceptance............................................................................................................................53

UCC “gap fillers”:...........................................................................................................................................................................54

Raffles v. Wichelhaus (299).............................................................................................................................................................................................55

Conclusion:.................................................................................................................................................................................55

Squib: Flower City Painting Contractors v. Gumina Construction Co. (300).................................................................................55

Note: Konic Int’l Corp. v. Spokane Computer Services Inc...........................................................................................................55

Squib: Dickey v. Hurd.....................................................................................................................................................................56

Embry v. Hergadine, McKittrick Dry Goods Co. (304)...............................................................................................................................................56

Kabil Developments v. Mignot.......................................................................................................................................................................................56

Squib: NY Trust Co v Island Oil & Transport Corp.......................................................................................................................57

Wheeler v. White............................................................................................................................................................................................................. 57

Section 2. Offer and Acceptance.....................................................................................................................................................................................57

pg. 52

Morrison v. Thoelke (309)...............................................................................................................................................................................................57

Moulton v. Kershaw (317)...............................................................................................................................................................................................58

§33. CERTAINTY..........................................................................................................................................................................58

Petterson v. Pattberg (320)..............................................................................................................................................................................................58

Restatement of Contracts Second § 45 Option Contract Created by Part Performance or Tender (326)..............................................................59

Carlill v. Carbolic Smoke Ball Co. (327).......................................................................................................................................................................59

Lefkowitz v. Great Minneapolis Surplus Store, Inc........................................................................................................................59

Cobaugh v. Klick-Lewis, Inc. (331)...............................................................................................................................................................................60

Pine River State Bank v. Mettille (336)..........................................................................................................................................60

Allied Steel & Conveyors, Inc. v. Ford Motor Co(338)................................................................................................................................................61

Davis v. Jacoby (341)....................................................................................................................................................................................................... 61

Squib: Jordan v. Dobbin..................................................................................................................................................................62

Brakenbury v. Hodgkin (347).........................................................................................................................................................................................62

Section 3. Limited and Indefinite Promises (353).........................................................................................................................................................62

Davis v General Food Corp.............................................................................................................................................................62

Nat Nat Service Stations v Wolf.....................................................................................................................................................63

Obering v. Swain-Roach Lumber Co.............................................................................................................................................................................63

Wood v. Lucy, Lady Duff-Gordon (361).......................................................................................................................................................................63

Omni Group, Inc. v. Seattle-First National Bank (365)...............................................................................................................................................64

Feld v. Henry S. Levy & Sons, Inc. (370).......................................................................................................................................................................64

Squib: Corenswet Inc. v. Amana Refigeration Inc..........................................................................................................................64

Sun Printing & Publishing Ass’n v. Remington Paper & Power Co., Inc. (376).......................................................................................................65

Empro Mfg. Co. v. Ball-Co Mfg., Inc. (380)..................................................................................................................................................................65

Borg-Warner Corp. V. Anchor Coupling Co..................................................................................................................................65

Squib: Southwest Eng’g Co. v. Martin Tractor Co. (394)...............................................................................................................66

Chapter 3: When (and how) promises become enforceableSection 1. Mutual Assent – Requirement of Offer and Acceptance. (1) How Manifested - in General: the first requirement of a K: parties must manifest to each other mutual assent to the same

bargain, usually in the form of offer and acceptance. [restatement (2nd) §22]

(2) Offer:

i. Definition. An offer is a proposal by one party to another, manifesting a willingness to enter into a bargain, and made

in such a way that the other person is objectively justified in believing that his assent to that bargains is invited and, if

given, will result in a binding K. An offer creates a power in offeree to create a K by appropriate acceptance [R2 §24]

pg. 53

3 essential elements to a legally sufficient offer: (1) manifestation of present contractual intent (2) certainty

and definiteness of terms (3) communication to the offeree.

ii. Requirements of manifestation of present contractual intent - The words or conduct used in the proposal must be

words of offer rather than words of preliminary negotiation.

The test: Objective = reasonable actions taken would lead one to presume agreement – manifestations of

assent. Policy: Subjective meeting of the minds is too speculative and businesses need some certainty [R2 §20]

iii. Factors considered in applying the test. A single one is not conclusive (1) Words (2) context (3) to whom proposal

is made (public ads are an invitation) (4) definiteness and certainty of terms (5) written K contemplated (is the K

when they agreed or when written?)

(3)Acceptance:

(A) Definition: an acceptance is a voluntary act by the person to whom an offer is made, by which such person

exercises the power the manifestation of assent on the manner requested authorized by the offeror. [R2 §52]

(B) Requirements for a valid acceptance: (1) who may accept: offer may only be accepted only by the person

to whom the offer is made. Offer to public can be accepted by anyone. (2) Acceptance must be unequivocal;

any modification is a new K.

(4)Requirement of Certainty and Definiteness of Terms: Offer must be sufficiently clear to allow courts to fix damages in case

of non-performance [Restatement (2nd) §32.]

Essential terms: Parties, Subject, Time for performance, price:

Implication of reasonable terms: Terms must be clearly stated or capable of reasonable implications from their agreements.

Reflecting a general policy of liberal construction so as the uphold the expectations of the parties, courts may imply ”reasonable”

terms in an offer, so long as they are consistent with the expressed intentions of the parties. Such terms are implied in fact from the

dealings and relationship between the parties.

i. No Implication when some provisions made by parties. However, courts will never imply terms when the parties have

imperfectly of incompletely convert the terms in questions. Courts won’t remake K.

ii. Price: (a) Price completely omitted: courts will imply a “reasonable” price – fair market value. (b) Price term indefinite: too

vague, no enforceable K. No “reasonable” terms will be read in.

iii. Time for performance: if parties fail to set a time, courts will imply K must be performed within a reasonable time after date

of acceptance.

iv. Agreement “to agree”: An offer may reserve some terms for future agreement, K not enforceable till they agree on terms.

UCC “gap fillers”:

K for sale of goods, omission of one or more essential terms does not render K invalid, as long as “parties intended to make a

contract and there is a reasonably certain basis for giving an appropriate remedy”. §2-204. Definition of Reasonable terms:

a) Price omitted: “a reasonable price at the time set for delivery” §2-305

b) Place of delivery: if omitted, delivery is sellers’ place of business. §2-308

c) Time for shipment: “ a reasonable time after contacting” §2-309

d) Time for payment: if not specified, payment is due at the time and place where the buyer is to receive the goods. §2-310

e) Quantity: U.C.C does not fill gap. See Moulton v Kershaw

(5) Ambiguities: language can logically be interrupted many different ways. Types: 1) Latent – offer and acceptance are certain,

rather extrinsic facts causes’ uncertainty (peerless case) 2) Patent – words and expressions are uncertain (stricter version).

pg. 54

Raffles v. Wichelhaus (299)Peerless Case – Facts: D made a K with P for cotton to be delivered on the ship “Peerless” departing from Bombay. There are 2

ships named peerless, one arrived in Oct (which D intended) and another arrived in Dec (P intended) Held: No binding K - both

can show they meant the other ship Peerless, hence, no “meeting of the minds.” Consensus id idem Notes: English position on K

ambiguity - courts will admit parol evidence. Q. is whether courts will admit evidence to show that there is an in fact a latent

ambiguity, or ambiguity need to be patent (obvious on face of the K – strict requirement)? This court allowed latent - let them

show that there were 2 ships named peerless.

Q. pp. 293 - (1) Wine case is different. Wine can have different tastes whereas who cares about which warehouse. Judge Milward

is right; we can’t know when Peerless is sailing, for it depends on the winds and how many stops it makes. The best you could do

to specify the time is to say the next Peerless – to assure in the case of sinking merchandise - which peerless is irrelevant. Prof.:

Cotton prices may is like the wine case – due to price fluctuation.

(2) What if both parties knew there were 2 ships? §20. However, If both knew and both knew the other knows as well, then

they are indifferent between ships, however, §20(1)b rules there is no K. Prof.: S should be allowed to put cotton on either ship

(3) Both know there are 2 ships and both intended Oct. – Presumably allow parol evidence that parties meant Oct –valid K.

Conclusion:

If both unaware – No K. Subjective will the same – K

If both aware – No K (if both aware of the others awareness, prof.: K, S decides.) Subjective will the same – K

One is aware, and the other is not – K binding on the innocent party’s subjective understanding.

Squib: Flower City Painting Contractors v. Gumina Construction Co. (300)

Facts: P a subcontractor insists that it is only obligated to paint interior walls of buildings not exteriors. P demands additional

money to paint. D cancels SubC and fires P. P sues. Trial court dismisses on D’s interpretation: P asking for extra money - is

repudiation. Held: Judgment dismissed based on Peerless – no meeting of the minds. Ambiguity is resolved by customary practice

that painting SubC are awarded for the entire project, but the industry usage cannot bind a party unless they know or have reason

to know about it. P was new at painting, and didn’t know industry standards. Prof.: This case is like Peerless- Term is

unambiguous on its face, but if both parties intended same meaning, then there would be K. Here, the words only had one normal

meaning to contractor trade men in that area. Why don’t we apply objective theory of K interpretation? Why subjective meeting of

the minds? Court: neither party acted so unreasonably to justify enforcing the K. They are imposing a fault standard to K

formation.

Sub may be at fault. Entering a trade as novices, dealing with contractors, they must know that it is possible people in the trade

attach special meanings to certain words - their obligation to make sure that you know the meanings of words in a K. GenC may

be at fault: Shouldn’t they have to tell Sub his intent when knows a special meaning is attached? Both parties acted unreasonably!

Then no K

Note: Konic Int’l Corp. v. Spokane Computer Services Inc.

Facts: B asks how much for computer set up. S replies “fifty-six twenty.” S meant 5.6G, B thinks he meant 56.20.

Misunderstanding is not discovered until after the equipment is installed. Held: Peerless; both parties are equally at fault. When

parties knowingly agree to ambiguous terms, they are agreeing to have the court decide. Here: they reasonably agree to something

that appears unequivocal, it can be rescinded on the grounds of “mutual misunderstanding” or “latent ambiguity.”

pg. 55

Squib: Dickey v. Hurd

Facts: Dickey in Georgia writes to Hurd in MA, asking how much he’d want for a piece of land. D replies $15/acre, and he gives

him until the 18th (10 days) to accept offer. P writes back on the 12th and 15th to express interest. On 17th he telegraphs acceptance

and sent DP. D said it was ineffective; offer called for the whole price by the 18th. Judge: original offer was ambiguous, but P’s

letters to D indicate that he believed only an answer was due by 18th. When D received the letters, he had a duty to inform P about

misunderstanding. Held: If you know about a mutual misunderstanding, you have a duty to correct it. D had a duty to clarify so he

loses! pp. 294, J Posner: Damages would be arbitrary to choose either one, so you choose neither!

Braucher (Reporter to restatements) - if there is disagreement about the terms, no one is really at fault. Do not get the impression

that objectivism is gone and the subjective theory has snuck in through Peerless. Courts do bind parties to K even when they meant

different things by the words and the court may attach meaning to the words that neither party had.

§20. EFFECT OF MISUNDERSTANDING

Embry v. Hergadine, McKittrick Dry Goods Co. (304)Facts: Appellant was employee under D company. His K expired Dec 15th, paid 2K/Y. On Dec. 13, he was reengaged for another

year with same pay, but on Mar 4, he was fired. D claims they never reemployed him after termination of his written K & they had

a right to fire him. Court: if both parties intended a K, a valid K. Did what McKittrick (pres.) said constitute a K of

reemployment? The conversation, when P approached McK, according to P was “go ahead, you’re alright, don’t worry about it.”

P says he relied on that promise and did not seek employment. Held: We treat P as making an offer to work for another year, and

then if D said things that a reasonable person would think is acceptance and if P did so think - a K is formed, although D did not

subjectively think he was accepting the offer – we don’t care what D thinks. Subjective Intent Irrelevant - Objective theory of

K formation.

Notes: P wanted the court to instruct the jury according to subjective theory of K formation- K is formed only if both parties

intended it to be formed. Both parties must subjectively think they have made a K. Theory stems from the dominant 19th century

approach (pre-Holmes) “will theory of K formation” The metaphor of this theory is ”meeting of the minds” - both sides have to

wish to make a K. This case rejects the subjective theory!

There are several problems with Obj. theory: It is a response to the problem of subjective theory: people may behave in a

way that seems accepting the offer, but then might be able to prove that he didn’t in fact think he was accepting. This theory forces

D in position that he has to be careful with his speech and makes him liable by careless speech. However, this is why the objective

theory is odd; you end up with D entering into a K that he thought he didn’t make and then is liable for ED when there will be zero

reliance interest and only expectancy – we need to know what his thoughts were. It is hard to be a strict objectivist. We want to

hear his thought to know if it is reasonable. Problem (2) is over in the “reasonable person” test. There are many reasonable people

who have different opinions!

Objective theory isn’t purely objective: (1) You have to be reasonable in believing in the promise and (2) you actually

have to believe. We care about what “reasonable person” would have thought and we care about what Embry did in fact think.

This says that we also care about McK’s thoughts were.

Q: If Embry knows that McK thought it was a joke? When both parties know it’s a joke; No K. However, what if Embry believes

that Pres. believes that the transaction is a joke? But, Pres. doesn’t in fact think it is a joke. Then what? An issue for objective

theory.

Kabil Developments v. Mignot Facts: P alleges that D orally agreed to supply P with helicopter services. D denied K. At trial, testimony was admitted that P

pg. 56

subjectively thought they had a K with D. P won. D appealed on the basis that subjective testimony of P shouldn’t have been

admitted. Issue: Was the jury allowed to find K on the basis of a subjective standard instead of an objective standard? Rule: When

a court determines whether a party has assented to an agreement, the only intention that matters is the party’s apparent, objective

intention (“reasonable person” would infer). Analysis: The subjectivists and objectivists fought it out over many years, but the

objectivists won. Jury is only to consider whether a reasonable person would have inferred a promise on the part of D. However,

court finds that subjective evidence is relevant, though not completely determinative. Jury was instructed correctly: judgment for

P affirmed.

Squib: NY Trust Co v Island Oil & Transport Corp

Facts: D was trying to circumvent Mexico laws, by created shell companies which allowed them to exploit oil. They kept accounts

showing payments between the subsidiaries and Island CO., and these accounts had balances due that Island theoretically had to

pay shell companies. Island mortgaged stock in the shell companies, and the stock was sold at foreclosure. In bankruptcy

reorganization, P bought shares of the shell Co. and sued the receiver of Island for balance due from Island to the shell co. P claim

was dismissed; P appealed. Issue: Should legal duties be created by “utterances” designed to scam a third party? Rule: The fact

that writing was a sham trumps the fact that it would otherwise on its face appear legally binding. Analysis: It wasn’t really

anticipated that the shell co. and the real company would ever be at odds since the latter created the former to basically scam the

government. Naturally, you wouldn’t break K with yourself. But when shell co. and the real company get separated , it turns out

that the fictional dealings between them have no legal force. Notes: Case is evidence of Hand taking subjective evidence - context.

Officials of subsequent are conspiring against Mexican Gov.

Pp. 305: Kind v Clark: “No sale results where one party to an outwardly seeming sale knows that the other does not mean his

words or acts to be taken seriously” Squib: Robbins v Lynch: Prof.: Posner Sticking with objective test.

Wheeler v. White Facts: P sued D for allegedly BOC to finance construction on P’s land. In reliance on this K, P knocked down some buildings.

However, financing never came through. D should be barred from saying K was uncertain because his actions reasonably induced

P to knock down buildings. Trial court dismissed case; P appealed. Issue: Does PE bar D from claiming that K is void for

vagueness since he induced P’s reliance? Rule: When a party acts to his detriment in reasonable reliance on an otherwise

unenforceable promise and is injured, party may have a claim for breach. Analysis: K is void for indefiniteness. However, Court

sees this as classic PE and gives P reliance damages (Goodman v Dicker.) D was trying and succeeded in influencing P’s conduct

by promising to get him financing. But then D backed out. K is no good, but PE has the power to make K enforceable Notes:

Williston Would say that this case is Classic PE. Judge: understands that K is insufficiently definite to enforce SP: no way of

knowing what to order the lender to do since no terms were agreed upon, but, this K is sufficiently definite to enforce at law for

money damages. Greenhill pp. 308: would give full damages for BOC, which means that the borrower gets ED, not just reliance

damages – does not mean SP although he may want it – it can mean just damages. R2 and the UCC say that if the actual breach

doesn’t force us to look at the faulty parts of the K, they will enforce the K.

Section 2. Offer and AcceptanceProblems with offer and acceptance: K must be accepted the manner requested by offeror. This leads to many issues. Bilateral K

- Calls for a counter-promise, effective when properly dispatched. This is called the “mail-box rule”.

Morrison v. Thoelke (309)Facts: P owns some property in Florida that they were going to sell to D. D mailed a K for the sale of the property to P in Tex. P

signed K and sent it back. After mailing K back but before D received it, P called to repudiate K. P sued to quiet title in order to try

pg. 57

to prevent D from selling property. Trial court ruled for P: repudiation was effective; D appealed. Issue: When does a mailed

acceptance become effective? Rule: The “mailbox rule” says that an acceptance is effective as soon it is deposited in the mail.

Analysis: Court: factors in creating the rule in the case of Adams v. Lindsell: (1) it’s efficient to establish a hard-edged rule. (2)

In terms of doctrine, a mailed offer is considered an offer that remains continuously open while it’s in the mail. Baird: This is just

the background rule, if the offeror wants to set a different rule for acceptance, they can do that in K, but a rule is needed when it is

not specified and there is no non-arbitrary rule, so this is as good as any. Prof.: Although this seems to side with the offeree

interest, we may say that the offeror could have stipulated manner of acceptance.

Offers terminate: (1) Natural death (rules that decided the manner offers leave the table in different circumstances)(2) counter-

offer (3) revocations (4) rejection. Offers normally are effective on receipt by offeror. We want the offeror to be the first to know

about the acceptance; so that he can make sound decisions going forward; some protection. Offeree should have some assurances.

Mail-box rule: “proper” dispatched through “authorized” means, offer is than effective immediately, even if it never reaches

offeror. Modern rule: Unless offer specifies medium of acceptance, offeree may use any reasonable medium under the

circumstances - Restatement Second 29(2) - UCC 2-206(1). Common Law: if specified, he still can use something faster, unless

an absolute condition (If absolute means – “qualified offer” – new K §66(a)).

What would happen if a rejection letter is send after acceptance, but reached offeror first? Court wants to stay consistent – there is

a K. Prof.: why, what is wrong with that? Me: he is effectively creating his own option. - R2 §63 (315)

Moulton v. Kershaw (317)D, salt dealers, write to P a dealer known to buy lots of salt and say in the letter that they are “authorized to offer” salt at 85/C per

barrel, and would be pleased to receive your order. P’s receive order on the 20th, and on the same day wires a reply saying to ship

2K barrels. Following day, D’s notifies of withdrawal of offer. P sues. Held: “Authorize to offer” is not the language of sale. Plus,

P could demand a million barrels of salt and then sue if not delivered; much easier to construe the letter as a notice rather than as

an offer for any reasonable amount of salt - it didn’t contain a quantity term and offers need to have material terms.

§33. CERTAINTY - Terms of the contract must be reasonably certain. Meaning K needs material terms. Sufficient to say that

quantity is a material term! If no quantity, K is void (not just voidable, for courts couldn’t enforce it if they wanted to: don’t know

quantity.)

Q. What if the seller said “we offer as much salt as you order” or in a case where we have some prior history of output (§2-306) A.

would be enforced so long as the amount you order is reasonable. They would view reasonable amount as an implied term in the

offer.

Q pp. 319- what if the letter had been preceded by a wire from the B? A: would seem that there is a K. Quantity is limited by the

buyers request for 2K barrels. Second, the term “authorize to offer” may be a response to B’s wire: Interruption more reasonable.

Petterson v. Pattberg (320)Facts: P owned real estate; D was owner of a bond and mortgage on the real estate. D wrote on April 4 that he agrees to accept

cash for the mortgage, and will discount $780 if P pays on or before May 31. P goes on May 31 with the money, knocks on D’s

door and tries to offer it to him. D says he has sold the mortgage and refuses to take money. P sues for loss of $780. Held: An

offer may be withdrawn before acceptance without formal notice. It is sufficient if that person has actual knowledge that that

person has done something inconsistent with continuance, such as selling that property to a third person.

J Kellogg: offer was withdrawn, tender occurred after withdrawal of offer. First creditor said he sold it and then debtor tried to

give money. J Lehman - 2 arguments: Stronger argument: (2) There was a K. Creditor promised to “accept payment” which

became binding when a present offer to pay is made. Creditor wrote: “I hereby agree to accept cash: If he wanted to reserve the

pg. 58

right to refuse payments, he should have used other words. (2) Law of conditions; promissor whose obligation is being triggered

by the condition cannot do anything to stop condition from occurring. Debtor paying was a condition precedent to the seller’s

obligation to reduce the debt. Once P embarked on performance he created an option agreement where the offeror has to keep the

offer open for a reasonable time. Prof.: However, rule is that he can revoke offer before it is accepted, why is it a bad faith effort?

Here the creditor frustrated performance before the parties had a K – there was no K.

J Lehman interprets the letter: When parties make promises, court will try to figure out what the parties were wanted/seeking to

do. He believes we can ignore parts of the letter when it is inappropriate. This is a common method of interpretation today when

the courts read confused agreements.

Kellogg: offeror is not bound until debtor actually pays. Other judges: tender would be enough to bind the offeror to keep the

offer open and accept payment. If it were totally in the creditors power whether the debtor could perform or not, then it would be

very risky to embark on costly preparations - offeror could refuse to accept payment. Kellogg: preparations are a risk assumed by

offeree.

Legal realism - A2 of UCC - tries to look at what’s really happening. Turn it into law to fit business practices rather than make

business fit law. However, Cardozo, a big realist, agreed with majority because creditor had withdrawn offer in writing (see

note), but it couldn’t be evidence due to dead man statute (D had died before trial). Kellogg was trying to do justice. Lehman is

following the dead man’s statute! Others Judges believe it is a stupid statute. If we didn’t know about the letter, Lehman would

be right, however we do know.

R2 §45 Option Contract Created by Part Performance or Tender (326)(1) Where an offer invites an offeree to accept by rendering a performance, and does not invite a promissory acceptance, an option

contract is created when the offeree tenders or begins or tenders a beginning to the implied performance. (2) The offeror’s duty of

performance under any option K so created is conditional on completion or tender of the invited performance in accordance with

the terms of the offer. Analysis: §45 require performance that is begun be part of the performance provided for in the K. Walking

up to the door with the value of the mortgage (minus $780) is not sufficient. Only applies only to a case where the offer is clear

UK. Offeror is bound to keep offer open once performance is started & bound to do what promised when offeree completes. §62 -

where offer invites choice, the tender of the beginning of act of choice, it is binding to complete performance.

Carlill v. Carbolic Smoke Ball Co. (327)Facts: D makes Carbolic Smoke Ball and offers in their Ad a £100 reward for anyone who contracts influenza after using the ball

for 3 times/ 2 weeks. Ad indicates that £1K have been deposited in a bank showing sincerity in the matter. P used as directed and

gets sick. J. says that she is entitled to recover £100; D appeals. P argued that the ad and her reliance on it, was a K. D argued it

was not a serious K Held: COA rejected D’s arguments and held that there was a binding K for £100. Reasons (1) Ad was a

unilateral offer to the public (2) satisfying conditions for using the smoke ball constituted acceptance of the offer (3) Purchasing or

merely using the smoke ball constitutes consideration: was a distinct detriment incurred at the behest of the Co. and, furthermore,

more people buying smoke balls by relying on the A was a clear benefit to Co. (4) D’s claim that £1K was deposited in the Bank

showed serious intention to be legally bound.

Lefkowitz v. Great Minneapolis Surplus Store, Inc.

Q. pp. 330: (1) sat 1 A.M.: Fur coats for $1 - First Come First Serve. Ad gives terms, but there is a house rule “only woman” that

is omitted and not even incorporated by reference, Mr. Lefkowitz is first in line multiple times &wants to buy. There is an offer. If

the rule had been incorporated, offer would have been limited by those rules. However, rule was not referenced. Court formulated

the much-cited test of whether “the offer is clear, definite, and explicit, and leaves nothing open for negotiation." This

pg. 59

advertisement met the commitment requirement because “some performance was promised in positive terms in return for

something requested.” since it was much more specific as to subject matter, offeree, and manner of acceptance than the ordinary

ad; it constituted an offer that the plaintiff could accept by being the first one in the store on Saturday.

Normally: Rule: Ads are not offers. Why? They are solicitations of offers, not offers; sellers have limited supply and would be

offering unlimited amount. Hence, it is not reasonable for consumers to believe an offer is being made. This case is distinguished:

singles out the offeree – first come first served. The 1st X amount to show up are the intended offeree’s. How do they accept?

Showing up or by tendering money? We don’t want to say that by showing up one is bound to buy, logically paying is acceptance.

The 2nd time he showed up, store told him that now he knows house rules because they told him rule the 1st time, valid argument?

- Carlill V Carbolic may be determinant: limited amount of people that will use it correctly and contract flu.

(2) Self-service supermarket leaves food out and shopper puts it into basket - is there a K? No - hasn’t paid for it. Tendering

payment is acceptance of the offer. Some Courts believe that it is a K: we want to give the shopper the warranty of merchantability

under the UCC. If something happens to or from the products, consumer would be protected under K law, no need for tort law.

Cobaugh v. Klick-Lewis, Inc. (331)Facts: P is playing in a golf tournament, day after a charity tournament. On the 9th hole there is a sign & a Chevy Beretta. Sign

says: HOLE-IN-1 wins this car, courtesy of Klick-Lewis - $49 over factory invoice. He aces the hole in 1, and D refuses to deliver,

bc sign was for a charity golf tournament. Held: If an offeror makes an offer, and before it is withdrawn, another person acts on it,

you are bound to perform your promise. KL benefitted from publicity, & D was required to perform an act under which he had

no legal duty to perform, so this is adequate to support K. No evidence suggests P knew it was only for the earlier tournament.

Prof.: This case is loss of control, back to the objective theory. A reasonable person would have thought that D making an offer.

D’s intentions do not matter Consideration. Issue: D was seeking to induce a hole in 1 by offering the car, but did P feel induced

by the offer? How about if it had been longer after the car had been put there for the intended tournament? Rule: a reasonable

amount of time. What is a reasonable amount of time? Maybe it is a continuing reiteration of an offer. (Another analysis)

Pine River State Bank v. Mettille (336).

Facts: Mettille was an “at-will” employee in MN fired for incompetence in loan processing. Mettille claimed that employee

handbook was a K, and that Pine River did not follow its own procedures for stated disciplinary policy. Bank argued that

handbook was unsupported by consideration - not part of employment K. Trial court awarded damages to D. Bank appealed, MN

SC affirmed. Rule: An employee handbook can be a K if it contains an offer and it is communicated to an employee by

dissemination. Analysis – In at-will employment - manual is an offer for UK that employee can accept by continuing to work.

Prof: Problem with this analysis is the rule that a modification of K requires consideration like K itself. Employer by giving the

manual is providing something new and different; employee is not. J. Macy: PE situation: giving the manual is a promise that

employer assumes employee will reasonably rely and employee did. Prof.: Wasn’t reliance - P would have worked even with no

manual. Suppose manual was just available in the office and wasn’t given to P - would the manual be part of K now or does D

have to tell P about it and the reference to read carefully before signing? Is it important that he personally gave him the manual?

PE claim is questionable and that is why majority didn’t follow it. So back on a K claim and then there is problem of

consideration. One approach to it is to say that don’t need consideration for the modification of an “at will” K. This is what the

majority says. Default position of employee K’s is that it is “at will”; free to fire whenever they want & employee is free to quit. If

given manual and says take it or leave it & employee keeps working, parties have made a fresh K.

This case would seem ridiculous in the classical theory of K law because it insists on distinct moment that K was made. Neo

classical critique (Corbin), don’t believe you can find exact moment in every case. Legal realism - 2-204(2) “an agreement for K

pg. 60

for sale may be found even though the moment of its making is undetermined”. §2-204-sale of goods valid even if just behavior

that shows K was made. 2-204(3) K for sale good if party intended to make K even if indefiniteness as long as available remedy at

law.

Allied Steel & Conveyors, Inc. v. Ford Motor Co(338). Facts: Ford bought some machinery from Allied in 1955 to be installed by Ford’s employees. Ford offered to buy more machinery

in 1956 to be installed by Allier’s employees. Along with the offer was an indemnification form that said P must take

responsibility for negligence committed by D’s workers as well as its own. P began installing machinery before they sent back the

acceptance of the offer. One of P’s employees was injured as a result of the negligence of one of D’s employees. Then P sent back

their written acceptance of offer. Employee sued Ford, and Ford brought in allied as a third-party defendant. At trial, employee

prevailed against Ford, but Ford prevailed against Allied. Allied appealed. Issue: Was indemnity form enforceable against P even

though they hadn’t sent back written acceptance of it? Rule: If a certain manner of acceptance wasn’t prescribed, but merely

suggested, other methods of acceptance may meet up with an offer to make a K. Analysis: Court: P accepted K by performance;

interprets K to be a suggested method of acceptance. Diff. would be if K stipulated that a written response was the only way of

accepting Prof.: We can solve this case by saying that Allied showing up to work was a counter-offer for a new K, and Ford

letting Allied in before they signed was acceptance. It was a counter-offer with the same terms in written in the order, without

including acceptance clause.

Davis v. Jacoby (341)Facts: P, Caro Davis, was niece of Blanche Whitehead, and she is quite fond of her. Caro marries Mr. Davis and they move to

Canada. In 1930, Blanche becomes ill, and her husband is having a lot of problems and needs help. He writes to the Davis’s and

asks them to come down, repeatedly, eventually saying that he believed practically everything would go to Caro under Ms.

Whitehead’s will, and he writes again pointing out that he could still save 150K with Mr. Davis’s help, which would presumably

go to Caro. On April 12, he makes a definite offer: Caro will inherit everything if they come. They get letter on April 14, and

decide to go. They send a letter airmail indicating they accept and would be there on the 25th, which is lost, but Mr. Whitehead

acknowledges receipt. On the 22nd, Mr. Whitehead commits suicide. They come and take care of Ms. Whitehead until she dies a

month later. Records show they fully performed their side of the agreement. After Ms. Whitehead death, it was discovered the will

left everything to Mr. Whitehead’s will, and his will leaves everything to his nephews. Action was commenced on the ground that

Mr. Whitehead had a contractual obligation. Davis’s losses were over 8K. Held: It is elementary that an acceptance that meets the

offer’s terms for method of acceptance is valid. Letter constitute acceptance. Damages are insufficient, so SP is granted.

Prof.: Difficult to tell what sort of offer is being made.1) “If you come, will inherit”: A unilateral K, performance is them coming

2) “Let me hear from you ASAP”: BK – seeking security of a promise. If it was a UK, offer dies with offeree’s death.

Court use R1-§31; if ambiguous, there is a presumption a BK was offered for policy reasons: in order to give the offeree security.

At the time of the 1R, I offer to pay $100, if cross bridge-halfway across withdraw offer; Out of luck didn’t complete the act.

Offeree is at risk until complete performance. Therefore, 1R made presumption that in case of ambiguity, offer BK. In the courts

defense – with some justice, it seems he knew he was going to die, and wanted them to come - peace of mind of them coming.

Proof of this was the letter saying they will come – acceptance of the desire for a promise.

Q. pp. 346: If after letter of acceptance of the offer, Davis had written another letter that they will not move, is Davis liable for

expectancy? Prof.: No. Problem with section is that §45: offeree does not have to finish. (Comment d.: “if invited performance

takes time…beginning of performance carries with it an express or implied promise to complete performance, see §62.”) – is this

performance that takes time? In MY opinion yes!

What does it mean to commence performance? There is a distinction between preparations and commencement, which has to be

pg. 61

part of the performance: a category issue. See comment f. to §45

3 employments: 1) “at will” 2) just cause (employee may quit – employer needs a cause) 3) service at term (hired for a period of

time - can only fire if it is a material breach) IS at will a K? Prof.: Yes – there are agreed to terms of a future time. Some argue –

illusory promise; all the power is in employers hands.

U.C.C §2-206 – Unless an offer to buy goods expressly limits acceptance to shipment, it is to be construed as a BK.

Squib: Jordan v. Dobbin

Facts: P Jordan sold goods to Moore on credit, relying on Dobbin’s agreement in writing to guarantee payment. Dobbins dies

before the sale, but P doesn’t know. Court holds that death revokes an offer of guarantee, so P cannot recover.

§36 - Methods of Termination of the Power of Acceptance (347)

Brakenbury v. Hodgkin (347)Facts: D wrote a letter to her daughter and Son IL saying that if they would come and take care of her, they would inherit her

property. They came, but D and P’s started fighting. She wrote a deed to give her property to her son, who told P they had to get

out. P sued to force the son to give the property back to his mother and keep him/her from kicking them out of the property. Trial

court found for P. D appeals. Issue: Was there a valid K? Did P have an equitable interest in the property? Did P breach their

duty under K? Rule: To accept an offer of a UK, only performance is necessary. A trust concerning land must be created by a

signed writing. Analysis: court: a valid K. D made an offer for a UK which was accepted by P by coming to take care of her. K

created an equitable interest in the land on the part of P. D was primarily responsible for things going sour. Analysis: She may

have kicked them out preventing them from completing condition. No §45; an unambiguous offer for a UK was made, but

commencement of performance creates an option K. Comment 350 – they ended up living with her; “was unpleasant to the end.

Section 3. Limited and Indefinite Promises (353)1) Mutuality of obligation. BK is enforceable, when each sides bargained-for-promise is legally sufficient consideration or

its counter promise - both parties must be bound or neither will be. Effect of an illusory promise: a statement that has

the form of a promise, but is not a promise in substance – promissor is no bound, his promise is only illusory, and hence;

promissee is not bound. No mutuality of obligation in UK.

2) Requirements and Output K: In a “requirement contract,” A agrees to buy all of her requirements of a given commodity

from B, and B agrees to sell that amount to A. In an output K, A agrees to sell all of her output of a commodity to B, and

B agrees to buy that amount from A. Former rule: At one time, courts tented to treat requirements & output K’s as

illusory, on the ground that B in a requirements K was not obliged to have any requirements, and the S in an output K was

not obliged to produce any output. Modern Rule : Courts normally enforce requirements & output, since parties have

limited their options. UCC §2-306(1) : enforceable if a)”good faith” b) reasonable quantity c) implied promise to stay in

business. SOF issue : most courts in requirements “Ks will consider the K divisible: a series of contracts places each time

by B.

Davis v General Food Corp

P wrote D about a new recipe. D replied: compensation would be at D’s discretion. Held: Letter giving D unlimited right to decide

is not consideration; no K so no recovery in quantum meruit. Prof.: We promise to pay you if we feel like it - classic illusory

promise

Nat Nat Service Stations v Wolf

D, wishing to get a discount from its supplier, told P (Wolf) that if he purchased gasoline from D and they accepted order, they

pg. 62

would pass on discount. This a K not to be completed within 1 year, barred by SOF? Held: Original K did not bind either party to

take any action, D could buy gas anywhere, D could decline to accept the order & D could at any time decline to give future

discounts. Each time D accepted an order causing a separate K & forcing a discount, hence, not covered by SOF.

Q: 356 1) Suppose a K for the sale of 500 wool sweaters to be delivered by S in installments of 100/month, with a provision for

payment by B for each installment at the rate of $30 a sweater, within 60 days after delivery. Would K be enforceable by either

party if it contained any one of the following clauses? (a) S reserves the right to cancel this K immediately in the event of any

default in payment by B? Not unrestricted – B must default first. (b) S reserves the right to cancel K on 10 days’ notice? Not

unrestricted – 10 days is a restriction (Corenswet Inc. v. Amana Refigeration). (c) S reserves the right to cancel this K on the

giving of notice? Seems unrestricted, Prof.: notice is something that may restrict S ability to cancel.

Obering v. Swain-Roach Lumber Co. Facts: Buhner died and his executor was going to sell some land. Obering and Swain were going to make a deal whereby Swain

would buy the land, sell it to Obering for 8K, and harvest timber within 4 years. Swain bought the farm and brought Obering deed.

Obering repudiated and Swain sued for SP. Trial court found for P; ordered SP. D appealed. Issue: Is K invalid “for want of

mutuality”? Rule: Just because K doesn’t kick in until P does something to accept it and provide consideration, doesn’t mean K is

unenforceable once P does that thing. Analysis: Court finds that K was unenforceable when it was signed, but became enforceable

upon P’s performance (buying land from Buhner). Notes: R2-§77 - An alternative promise is a K device - promise will purchased

500 on 4/1 or 600 on 6/1- both are good consideration, and are no-illusory, you just have a choice. Here: Prof: it wasn’t an illusory

promise to begin with, but rather a power to choose! Was a condition precedent- Swain must purchase tract from the estate. Ex: car

insurance condition that before it pays a claim is that car crashes. No obligation until there is a car accident. The problem w is that

the triggering effect is in sole control of the promisor. However, because promisor purchased tract before suit, promisor lost

control over the triggering condition, so result is perfectly sensible.

An alternative promise – in K to an illusory promise - is when there some future state of the world which the promisor

experiences themselves as obligated at the moment they make the K.

Wood v. Lucy, Lady Duff-Gordon (361)Facts: D employs P to market her name. She would place her endorsement on designs of others and has exclusive right to

approve. P has exclusive right to place those designs on sale. It lasts one year, and thereafter year to year unless terminated with

30-days notice. P says D broke K by placing her mark on things without his knowledge. D insists that agreement lacks elements

of a K because P does not bind himself to anything. Held: No dice! There is an implied promise because he has an exclusive

privilege and he assumes the duty, and there is an implication that the P’s business will be used for the purpose for which it is

adapted. His promise to pay half profits was a promise to make reasonable efforts to make those profits. Analysis: Courts are

doing what they say they would never do-making the terms of the K. Lucy gave wood an exclusive right to use her name for

endorsements. If she gave absolute rights, then she would have been at his mercy, and the parties could not have meant that. If she

had wanted P to use reasonable efforts to market her name they would have put it in and they didn’t! Cardozo is making up that the

K is intact with an obligation that is imperfectly expressed. Holmes: it wasn’t expressed clearly. Leave people to make their own

devices; don’t make up terms for them! Cardozo says no, it was implied that he would use reasonable efforts to market her name

& part of the parties’ intention! However, At most, he has an obligation of good faith, what does that mean? Hard to answer.

Omni Group, Inc. v. Seattle-First National Bank (365)Facts: Omni was K to buy land from the Clarks. Clarks backed out and argued that they weren’t bound by the earnest money

agreement because Omni’s performance was conditional and thus its promise was illusory. Trial court entered a judgment for the

Clarks’ estate, and P appealed. Issue: Was P’s promise illusory because it was conditional? Rule: A promise dependent on the

pg. 63

promisor’s “satisfaction” or the quality of the promisees performance is not illusory. Analysis: The court finds two conditions

upon which P’s performance depends: (1) P must receive an “engineer’s report” and (2) the report must be “satisfactory” to P.

Court finds that P has not given itself the unfettered power to get out of the K at any time for any reason; rather, P can’t cancel

unless the report is unsatisfactory, and notifies D, it would be up to the factfinder to decide whether P cancelled in good faith under

the circumstances. Analysis: Where there is a condition precedent to the promissor’s duty that the promissor be satisfied, such an

agreement may require performance that is personally satisfactory to the promissor, or performance that would be acceptable to a

reasonable person. Whether the promissor is actually satisfied or a reasonable person would have been satisfied is a question of

fact. P can cancel by failing to give notice only if the feasibility report is not satisfactory. Otherwise P is bound to give notice and

purchase property. Analysis: P had a constraint upon its decision - a condition of satisfaction in good faith. 2 types of

“satisfaction”, one in a commercial settings, another personal taste. This case was a developer, and hence was bound the

commercial standard of what is satisfaction.

Feld v. Henry S. Levy & Sons, Inc. (370)Facts: Ps operate Crushed Toast Co., D are bakers. K that D agrees to sell & P agrees to buy “all bread crumbs produced by S at

specified factory from June 19, ‘68 to June 18, ‘69.” It was deemed automatically renewed unless cancelled with 6 months’ notice

from either party. D stopped producing breadcrumbs without notice & after P refused to pay a higher price, dismantled equipment

and started selling bread product to others. D maintains the K did not require it to produce bread crumbs, only to sell those it

produced. Does the agreement carry an implication that D was obligated to continue mfg for the whole term? Held: A lawful

agreement for exclusive dealing in the kind of good imposes an obligation to use the “best efforts” to supply the goods, unless

otherwise agreed upon. This is known as an "output" K and under §2-306 there is sufficient mutuality to uphold K. UCC also

states that for exclusive agreements S must use “good-faith efforts to supply the product” - a question of fact here. Only a

"genuine imperiling of the very existence of its entire business caused by the production of the crumbs would warrant cessation of

production of that item." Notes: Judge: trivial losses don’t count; must produce even at no profit - doesn’t give us any guidance

what is trivial. There was a 6 month notice in the termination clause. Case where there was an elaborate termination clause. Court

ignores termination clauses in output K. Problem in the case is more difficult than the book suggests. Ex: requirements K-

manufacturer of glass made K for coal with a coal S at a certain price for 1YR. Suppose price of coal shoots up, the K is favorable

to the glass maker; can sell the glass cheaper than competitors so more people will buy; will need more glass so will need more

coal so requirement up. At what point can the coal seller say ordering too much and could be selling at a much higher price. UCC

addressed this problem - no quantity unreasonable to estimate or to average prior output is allowed in a requirement/output K.

Squib: Corenswet Inc. v. Amana Refigeration Inc.

Facts: P had an exclusive wholesale dealership which D wanted to terminate based upon K for indefinite duration but that any

party could terminate "at any time for any reason" With 10 days’ notice. P said the termination was "arbitrary and capricious."

UCC has an obligation of good faith, but § 2-309(2) allows successive, indefinite K’s to be terminated at any time. Held UCC § 2-

309(2) applies, allowing termination with the notice given in K for franchises and dealerships. Both parties were given equal

ability to "cut the knot" should the relationship turn sour. "What public policy does abhor is economic overreaching—the use of

superior bargaining power to secure grossly unfair advantage. That is the precise focus of the code’s[§2-302] unconscionable

doctrine; it is not at all the concern of the code’s good faith” Issue: Whether party should be able to waive any requirement of

good faith? Judge said why not. Some courts will automatically read “good faith” clause in spite of 2-309(2). This may be due

to the problem that franchisee is often in a weaker position than the franchisor. Franchisee has to make substantial upfront

investments. If franchisor not bound by “good faith” & can terminate at any time; franchisee will lose a lot of money.

pg. 64

Sun Printing & Publishing Ass’n v. Remington Paper & Power Co., Inc. (376)Facts: P agrees to buy 1K tons of paper per month over 16 months. Payment was to be made on the 20th of each month for paper

shipped the previous month at prices specified for the first 3 months. “For the balance, price of the paper & length of terms for

which such price shall apply shall be agreed upon 15 days prior to the expiration of each period, but no higher than the price

charged by the Canadian Export Paper Co. to its largest consumers.” When the time arrives that they have to agree. D repudiates

claiming K was imperfect & no obligation to deliver. P demanded each month that D deliver at the price charged by Canadian, &

D now wants damages Held: Gaps in K make it nothing more than an agreement to agree, so D has a right to say it is legally

unenforceable. Notes: Cardozo reads line “said price in no event to be higher than the contract…” to apply to the agreement

clause, not to the general clause of paper and month. Meaning, even if they agree upon the price at which to buy, and the standard

at which to cap the price, that is not enough to be legally binding; it lacks a specified term during which to buy at agreed upon

price. Without specifying the term, K has functionally morphed into an options contract, offering the option to accept or deny the

benchmark maximum price every month or buy nothing. I.e. they agreed to a benchmark maximum - Canadian standard - but not

the term. Say Canadian standard starts at $30 in Jan and they agree to price but not the term. However, it goes up to $35 in Feb. If

they haven’t specified the term, Sun Printing can say, “No thanks, we’ll keep taking it at $30.” Which we agreed in Jan.

Alternatively, if the price goes down, they can take the lower price every month; this left D exposed in a way it clearly did not

intend to be. So while the parties had a good faith agreement to hedge against the possibility that they can’t agree on a price, they

forgot to hedge against not agreeing on the term. Without specifying the term, they have functionally only made an “agreement to

agree”. Note 2: Cardozo rejects 2 arguments from P (1) D was obliged to accept a “reasonable term” in the event of no negotiation.

He rejects this argument: Would be rewriting K. (2) D had a duty to simply assume term would expire every month (again reads

the clause into the possible agreement). Cardozo: K does not stipulate that. DISSENT Crane: Because parties agreed to buy and

sell 16K tons of paper, capped at a certain price, if B offered to B at that price, S had a contractual obligation to S (reads “at no

event…” into the original agreement, not the clause). Since intent of K, quantity of paper, and price were not in question, court

should be very wary of any conclusion that lets D simply step out of K. In this case, when the renegotiating time came around, D

didn’t ship, didn’t agree on a price, and didn’t even attempt to negotiate a price. In default of its renegotiating obligations, it

should be held to the Canadian standard.

Empro Mfg. Co. v. Ball-Co Mfg., Inc. (380)Facts: D makes truck nuts (knock off “truck nutz ®”). P is interested in buying Ball-Co. P sends D and SBC a 3 page letter of

intent to purchase of D assets, but the letter required a later final agreement and other conditions. Parties sign a letter of intent in

Nov. When P hears D is negotiating with someone else, P sues for a TRO. Held: P was allowed back out of K, and nothing

indicated D was not afforded the same opportunity under K, D was not bound to only negotiate with P.

Prof.: Letter of intent is an extremely useful device: When parties - for business reasons - wish to enter into an agreement in

stages. Problem with letters of intent is whether it is binding. This is an interpretative Q. Sometimes it is drafted in a way that it

imposes upon the parties to negotiate any remaining terms in “good faith”.

Borg-Warner Corp. V. Anchor Coupling Co. Facts: P entered into negotiations for the purchase of D. D’s directors

assured P that if it made an offer within 50 days it would accept. D also required that P give suitable assurances that

personnel would not be fired & that a “mutually acceptable” arrangement would be made for the continued employment

of one of the owners. These conditions were left open to be ‘agreed upon” in good faith after a K was executed. P made

an offer that was accepted. D later refused to perform. Issue: Can a K be formed even though some terms were left open

to be decided by parties at some future time. Rule: When two parties manifest intent to K and reach substantial agreement

a K is formed, even though minor issues are left to be resolved.

pg. 65

Here, Q. was the Q that was raised in the Borg-Warner case, and the judge distinguishes it. Empro says it was like Warner - had an

option to purchase D’s plant; Letter of intent was an option agreement. Judge said no. An option is a promise to hold open the offer

for a certain amount of time. However, B has to give consideration to secure an option. If option agreement is in writing and is

recited that the offer is in exchange for the consideration, then they will not look at it. Fact that the 5K is returnable doesn’t matter;

had writing signed by the grantor of the option. The problem in warner was that the terms were so open that would be issues if the

parties had to be bound. Terms for this case seems to be reasonably complete, could use some gap fillers, or could impose on them

good faith negotiation. Empro was seeking to change a term that was already understood by the parties; not good faith Agreed to

take interest in the ground, so can’t change it to include plant too. Last argument is that the letter of intent expressly gave P outs

and did not give D’s outs. Why would a letter of intent give outs if they hadn’t considered the letter binding? If they didn’t intend

it to be binding, then they wouldn’t need to have outs.

Squib: Southwest Eng’g Co. v. Martin Tractor Co. (394)

The more terms are left open, the less likely they intended to have a binding agreement. R2 §33

pg. 66