OFFER AND ACCEPTANCE Mutual Assent Viewed objectively not subjectively -- Oliver Wendell Holmes shifted contract theory

ry to an objective basis...up until Mid 19th century we used to use a subjective view of mutual assent Objective Theory of Contracts: A partys intent is deemed to be what a reasonable person in the position of the other party would think that the first partys objective manifestation of intent meant. EXAMPLE In deciding whether 'A' intended to make an offer to 'B', the issue is whether 'As conduct reasonably indicated to one in 'Bs position that 'A' was making an offer. Case Lucy v. Zehmer Pg. 7 o If a persons words and acts, judged by a reasonable standard, manifest an intention to agree, it is immaterial what may be the real yet unexpressed state of mind o The material assent of parties is not requisite for the formation of a contract o Undisclosed intention is immaterial unless it is known by the other party Effect of Misunderstanding There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and (a) neither party knows or has reason to know the meaning attached by the other; or (b) each party knows or each party has reason to know the meaning attached by the other. The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if (a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party, or (b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party. Implied Contract: A contract exists as a matter of unspoken understanding ~ To establish a contract implied-in-fact a plaintiff must demonstrate that the circumstances surrounding the parties transaction make it reasonably certain that an agreement was intended. EXAMPLE Dry Cleaners Case Stepp v. Freeman Pg. 9 o The distinction between an express contract and an implied in fact contract is simply one that relates to whether assent is expressed in words (written or oral) an express contract or, as in the case of implied in fact contract, through an interpretation of surrounding circumstances including declarations of the parties and their conduct. The Offer An offer is an expression by one party of assent to certain definite terms, provided that the other party involved in the bargaining transaction will likewise express assent to the same terms. Case Leeds v. First Allied Connecticut Corp Pg. 16 o Court took an objective view: Would a reasonable man, based upon the objective manifestation of assent and all of the surrounding circumstances, conclude that the parties intended to be bound by contract? o Until it is reasonable to conclude, in light of all of the surrounding circumstances, that all of the points that the parties themselves regard as essential have been expressly or implicitly resolved, the parties have not finished their negotiations and have not formed a contract. Case Lefkowitz v. Greater Minneapolis Surplus Store, Inc. Pg. 25 *****OFFERS CREATE POWERS OF ACCEPTANCE*****

**Generally advertisements are not considered offers; they are treated as requests for offers **This is a rare case b/c an advertisement was considered to be an offer** o The test of whether a binding obligation may originate in advertisements addressed to the general public is whether the facts show that some performance was promised in positive terms in return for something requested. o It has been emphasized that where the offer is clear, definite, explicit and leaves nothing open for negotiation, it constitutes an offer - - acceptance of which will complete the contract. o While an advertiser has the right at any time before acceptance to modify his offer, he does not have the right, after acceptance, to impose new or arbitrary conditions not contained in the published offer. o The UCC has dealt a blow to the present courts insistence that nothing be left open for negotiation UCC 2-204(3) Written Contract to Follow We are trying to figure out the intent of both parties -- we therefore look at the facts and circumstances and see what should be reasonably concluded. Question: If you agree to bargain and you decide later that night that you dont want to anymore are you legally liable? Can you be sued? YES YES Answer: An agreement to negotiate in good faith is a binding and enforceable agreement b/c negotiating contracts can be really expensive Time is Money Case Continental Laboratories v. Scott Paper Co. Pg. 29 o If either party intends not to be bound in the absence of a fully executed document, no amount of negotiation or oral agreement as to specific terms will result in the formation of a binding contract. o The court must determine the intent of the parties objectively from their words and actions viewed within the context of the situation and surrounding circumstances. EXAMPLE Problem 9 Pg.33 * P agrees to sell building to D. They have each signed a contract but have not exchanged the documents. Later that night D decided that he doesnt want to go through with the contract. Is he liable? No -- Look at intent -- D did not intend to be bound until he exchanged the documents? Acceptance Effect of Acceptance Case ProCD, Inc v. Zeidenberg Pg. 34 (EXAM) FACTS P sold software that contained a license for using its product. D ignored the verbiage of the license and used the product in a way that contradicted the licensing agreement. o A contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties, which recognizes the existence of such a contract. o A vendor as master of the offer, may invite acceptance by conduct, and may propose limitations on the kind of conduct that constitutes acceptance. o A buyer may accept by performing the acts the vendor proposes to treat as acceptance. o A buyer accepts goods when, after an opportunity to inspect, he fails to make an effective rejection. According to Anderson o Rolling contracts were formed and made legal. Rolling contracts continue to build or layer as the deal progresses. Consumers order and pay for goods before having an opportunity to read most of the terms, which are contained on or in the goods packaging.

It used to be that you couldnt add terms after a contract was complete -things change! Rolling contracts are okay as long as the rules are fair and reasonable and the customer knew or should have known that this rolling contract existed and that he didnt have to accept the terms. o Judge Easterbrook says that Rule 2-207 does not apply if there is just one form; Anderson says that this is crap -- he holds that the rule doesnt say that. o In this case there are really only two valid contracts (1) Between Manufacturer and Retailer, and (2) Between Retailer and Customer The Manufacturer and the Buyer really have no privity of contract, but starting in the mid 1970s courts slowly began holding that the Buyer can sue the Manufacturer under break/pass-through warranties -- but this also means that the manufacturers can passthrough restrictionsAnderson quoted they stopped passing through puppies (warranties) and started passing through snakes (rolling contracts) o See Pg. 75 in the Hillman book Consider a leading case Hill v. Gateway (here we want Gateway to lose b/c their terms were unconscionable yet Easterbrook said that they were okay. The court found that Gateways shipment of the computer with the terms, including the 30-day right of return, constituted an offer. The Hills accepted the offer, according to the court, by keeping the computer for more than 30 days. Best way to handle Rolling Contracts is to focus less on offer and acceptance, which do not tend to produce very definitive results on when a contract is formed, and more on the fairness of the terms that come in the box. o On an exam, when asked about this question you should say What the ruling was or held What Rule UCC 2-207 says That a court now has to get around common law (Easterbrook) and UCC 2-207 Why we think ProCD should win Manifesting Assent ~ would a reasonable person believe the offeree intends to accept the offerors terms and form a contract, not whether the offeree actually intended to do so. This is an objective approach Case Beard Implement Co. v. Krusa Pg. 41 o Where an order form, containing the buyers offer, requires the acceptance of the seller, no contract will exist until the seller has manifested acceptance of the offer. o D made an offer in writing and then wanted to renege afterwardsthe court determined that P had not accepted his offer before D backed out. Case Fujimoto v. Rio Grande Pickle Co. Pg. 48 o If an offeror specifies no mode of acceptance, the law requires no more than the mode adopted shall be in accord with the usage and custom of men in similar cases. o Expressing assent is inconsequential so long as it effectively makes known to the offeror that his offer has been accepted. UCC 2-206 - - Offer and Acceptance in Formation of Contract o Unless otherwise unambiguously indicated by the language or circumstances o

An offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances An order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt current shipment of conforming or non-conforming goods, but such a shipment of nonconforming goods does not constitute acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer o Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time many treat the offer as having lapsed before acceptance. EXAMPLE Problem 12 Pg. 52 (2-206 of the UCC) o Guys get a purchase order in the mail that reads I want 400 West Coast Cigars at $600 a box, shipment to be made FOB truck your plant by a certain date. If acceptable please write immediately. The offeror sent his letter via overnight mail There is a contract even if the guy were to telephone, fax, email any court would say he was not insisting that he actually write There would not be a contract if the guy responded to the offer via regular mail. Timeliness is the keywe expect from his communication that he wants a quick response (he sent his offer overnight) Sending conforming goods instead of a written acceptance is okay as long as the goods would get there just as quick as a return response If you ship non-conforming goods you could be in breach of the contract YES UCC 69 -- Silence as Acceptance Silence is not acceptance o Can you be bound if you want to be bound YES Offer says that doing nothing in response to this offer accepts this offer you can do nothing and accept or you can do nothing and deny the offer in this situation the choice belongs to the offeree Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance only where o Because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept Case Day v. Caton Pg. 54 FACTS P built a wall on Ds property D contends that he never explicitly agreed to this wall and that even though he benefits from it being built, he does not owe P anything o If a P undertook and completed an act with the expectation that the D would pay him for it, and the D had reason to know that the P was so acting with that expectation, and allowed him to act without objection, then a jury might infer a promise on the part of the D to pay the P. o If a party voluntarily accepts and avails himself of valuable services rendered for his benefit, when he has the option whether to accept or reject them, even if there is no distinct proof that they were rendered by his authority or request, a promise to pay for them may be inferred. The Postal Reorganization Act of 1970 Pg. 57

Knowledge of Offer Does the rule that the offeree must know of the offer to accept it follow as a matter of logic? NO most jurisdictions will hold that if the reward offer is made by a governmental entity, the usual rules of contract law do not apply, and any citizen who performs the requested service is entitled to the reward, even if the claimant had no idea that the reward was being offered. o If it is not a governmental entity and if the person did not know about the offer the offeror does not have to pay There are a small minority of courts that hold all offers for rewards have to pay Motive Motive is irrelevant It doesnt matter why you accept unless o Under duress - EXAMPLE Motive was to save your life you will not be bound to a contract Mode of Acceptance Bilateral ~ exchange of a promise for a promise in return (Promise -Promise) o 75 Exchange of Promise for Promise Except as stated in 76 and 77, a promise which is bargained for is consideration if, but only if, the promised performance would be consideration EXAMPLE I promise to buy your car, and you promise to sell it Unilateral ~ exchange of a promise for an act (Promise -- Act) EXAMPLE I promise to give you $40, if you wash my car *Not really a unilateral offer according to Anderson (He says that Hillman would agree) Anderson contends that most offers that look like unilateral contracts are really bilateral EXAMPLE We really want a promise that you are going to wash my car, not the act itself we want people to say okay, and then start washing. Case Davis v. Jacoby Pg. 59 FACTS A man is in poor health and wants relatives to come help him with his business and to take care of his wife. They exchange letters back and forthin these letters he suggests that these relatives will inherit everything when his wife and him die. The relatives agree in a letter to come and help out, but the mans will did not mention them. He ends up committing suicide and the issue here is if a bilateral or unilateral contract existed. If bilateral (promise for promise) then they have a contract when the relatives agreed to help outif unilateral (promise for act) then when the man committed suicide, the relatives are no longer able to perform the services and accept the contract o It is not always easy to determine whether an offeror requests an act or a promise to do the act. As a bilateral contract immediately and fully protects both parties, the interpretation is favored that a bilateral contract is proposed. Goods on store shelves are not offers they are invitations no contract exists until you pay Restatement (Second) Contracts 62 Effective Performance by Offeree where offeror Invites either Performance or Acceptance o Where an offeror invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance

Such an acceptance operates as a promise to render complete performance Problem 18 Pg. 66 Three pigs hired Wolf Construction to build a new roof. Pigs agreed to pay $4,000 upon completion of the roof. Wolf quit the job when it was halfway done, leaving the pigs with a mess and a second contractor charged $5,000 for finishing the job. Can Wolf defend itself by claiming that it never made acceptance? NO Section 62 of the Restatement prohibits this. Restatement (Second) Contracts 45 Option Contract Created by Part Performance or Tender o Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tender the beginning of it o The offerors duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer * Where part performance or tender by the offeree creates an option contract, the offeree is not bound to complete the performance. The offeror alone is bound, but his duty of performance is conditional on completion of the offerees performance Example: o Guy sees a man walking down the street. He says that when you deliver this package in 30 minutes I will give you fifty dollars, and he insists on acceptance by performance. Deliverer takes the package and begins performance, but along the way he sees a sign that reads Free Beer. He goes in and gets drunk. Guy finds deliverer in bar and is mad. Can the drunk/deliverer walk with impunity? YES (1) Offeree has an option to complete the contract, he does not have to complete (2) Offeror made his bed, he should have gotten a promise **This situation could have been different if the offeree got to choose do or promise, then we would have a contract. See 62 Termination of Power of Acceptance Killing an offer (once dead it stays dead) Revocation ~ occurs when a reasonable person (objective) would believe the offeror has withdrawn the offer. A revocation becomes effective when the offeree receives the information that the offer is no longer open. EXCEPTION Offers for unilateral contracts EXAMPLE Reward offered for capturing a criminal or finding a lost pet Revocations are effective in such rewardoffer cases when the offeror gives the revocation the same notoriety as the offer. A revocation can also consist of information the offeree receives that makes it clear to a reasonable person that the offeror cannot intend for the offer to remain open. EXAMPLE P finds out that you have sold an item (you offered to him) to someone else. Such information constitutes an effective revocation of your offer to sell your item to P. Case Dickinson v. Dodds Pg. 67 FACTS D wrote an offer to sell his land to P. The writing stated that the offer would remain open until Friday. P accepted the offer Thursday by giving it to Ds mother-in-lawshe forgot to give it to D. D sold the land Thursday night and P wants specific performance. o

If the offer has been made for the sell of property, and before that offer is accepted, the person who has made the offer enters into a binding agreement to sell the property to someone else, and the person to whom the first offer was made receive notice in some way that the property has been sold to another person, can he after that make a binding contract by the acceptance of the offer? NO although it is said that the offer is to be left open until Friday Morning, it is not binding. The promise was not supported by consideration (nothing was given for the price of your promise) therefore, it is considered a gift promise (not binding). If an offeree learns that an offeror has conducted himself in a way that alludes the offer is no longer good the offer is revoked o I hereby agree to sell is nothing but an offerand at any moment before complete acceptance by D, P is free to do what he wants An offer not supported by consideration can be revoked at any time o To constitute a contract, it must appear that the two minds were at one, at the same moment of time, that is, that there was an offer continuing up to the time of acceptance. If there was not such a continuing offer, then the acceptance comes to nothing. Option Contracts o If you agree to leave your offer open for 10 days and the other party pays you for it then you have a bargained-for exchange called an option contract. o A fair price for an option contract is difficult to ascertain and the courts are supposed to leave the adequacy of consideration to the parties anyway. o The Restatement of Contracts substantiates the position that option contracts do not require real consideration. Offers that are in writing and signed by the offeror are enforceable as option contracts if they propose a fair exchange within a reasonable time and recite a purported consideration A purported consideration is fake consideration, such as twentyfive cents, which the offeror really did not bargain for. o The Restatement also provides that option contracts are enforceable if made irrevocable by statute 2-205 of the UCC enforces promises to leave offers open when made by a merchant, in writing, and signed by the offeror. Fake consideration is not needed. This section limits the amount of time an offer can be left open -- Time stated or three months (whichever is less) Beginning Performance of Unilateral Contracts (EXAM) o How should contract law treat a revocation of an offer after an offeree has begun, but not finished, performance of a unilateral contract? EXAMPLE An employer creates a benefits package in the form of an offer for a unilateral contract: If you work for us for twenty years, you will earn a pension. -- The modern view protects the offeree who is trying to perform. Although fiction, think of beginning to perform as paying someone consideration to keep the offer open. o Case Petterson v. Pattberg Pg.71 FACTS P tried to begin performance of a unilateral contract, but D had sold the property. P went to Ds house and said, it is I and I have come to pay the mortgage o

Court held that an offer to enter into a unilateral contract may be withdrawn at any time prior to performance of the act request to be done Dissenting opinion held that D should not have been able to revoke his offer after P had offered to make the payment. Anderson says that is a crappy case -- it held that performance had to be complete before there was acceptance How do you tender through a closed door? Anderson says the he has begun the act of tender Good Rule of Thumb: When would a third party sitting on the fence think a legal tender has begum? Merely preparing to perform is NOT performance, you have to begin performing An offer of $100 to walk across a bridge buying walking shoes is not beginning the performance Offers for Bilateral Contracts o See Drennan v. Star Paving case on Page 57 in the Hillman Text. Reasonable reliance on an offer for a bilateral contract is enforceable as a contract. The court invoked Section 90 (2nd Restatement of Contracts) which enforces promises when the promisor should reasonably expect the promisee to rely on the promise Why should an offeror of a bilateral contract reasonably expect an offeree to rely on the offer before acceptance? Court held that contractors customarily relied on subcontractors bids before accepting them, just a Drennaman had done. (Special Case) Lapse of Time An offer remains open for a reasonable amount of time. This means determining how long a reasonable person would believe an offer will stay open (depends on the circumstances). Restatement (Second) Contracts 41 Lapse of Time o An offerees power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time o What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made o Unless otherwise indicated by the language or the circumstances, and subject to the rule stated in 49, an offer sent by mail is seasonably accepted if an acceptance is mailed any time before midnight on the day on which the offer is received. Case Loring v. City of Boston Pg. 82 o When an offer is made which contains no textual time limit, the limit of the offers duration will be that which is considered reasonable. What is reasonable depends on the circumstance of the case Case Phillips v. Moor Pg. 86 FACTS D offered to pay $9.50 for hey and the P agreed. Prior to D picking up the hey, it was destroyed by fire. o Anderson says that this is silence as acceptance case There is a definite acceptance even though there is an add on Anderson poses the question of is D tardy in his reply?

If acceptance if iffy, a counter offer exists. D remains silent so this becomes acceptance you are now bound by your silence If the party to whom an offer is made, makes known his acceptance of it to the party making it, within any period which he could fairly have supposed to be reasonable, goodfaith requires the maker, if he intends to react on account of the delay, to make known that intention promptly. If he does not he must be regarded as waiving any objection to the acceptance as being too late. Termination by Death or Incapacity of the Offeror or Offeree An offerees power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract o The offerees estate and offerors estate cannot act for deceased party EXCEPTION Problem 26 Pg. 89 When there is a continuing offer, such as an offer to act as a guarantor of credit for a 3rd party, some courts hold that the estate may be liable unless it notifies the creditor of the guarantors death Termination by Rejection A rejection terminates the offer. The offeree cannot reject an offer and then come back later and accept the offer The legal ramification of a counter-offer is a rejection of the first offer. 38 Rejection --Restatement (Second) of Contracts o An offerees power of acceptance is terminated by his rejection of the offer, unless the offerer has manifested a contrary intention o A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement. The Mailbox Rule (EXAM) Communication via the Mail or Telegram (the old stuff) o After some debate in the courts, contract law has settled on the acceptance is-good-when-posted rule or the deposited acceptance rule EXAMPLES If A posts acceptance before she receives revocation of the offer A CONTRACT IS FORMED If A posts acceptance and the postal service loses the letter A CONTRACT IS FORMED If A posts acceptance then retrieves the letter from the post office A CONTRACT IS FORMED o Why this way? Offerors can protect themselves form the uncertainty concerning when a contract has been made and offerees cannot. If an offeror fails to avail itself of protection by prescribing a time of acceptance in the offer, then the law should favor the offeree. The offeror, by choosing to use the mail, has made the post office her agent. As soon as an offeree posts an acceptance, constructively it is in the hands of the offeror o Offeror can protect himself by stipulating he has to receive in order for there to be an acceptance o Case Morrison v. Thoelke Pg. 90

FACTS A sends a contract to B for the purchase of property. Before the contract arrives, but after it is posted, A changes his mind and wants to terminate the acceptance A contract is complete and binding upon posting of the letter of acceptance o The acceptance should be effective when sent (same rules as above). ON THE EXAM ANDERSON IS GOING TO ASK ABOUT THE RULE IN ADAMS V. LINDSELL o RULE STATES THAT: A CONTRACT IS COMPLETE UPON DEPOSIT OF THE ACCEPTANCE IN THE MAIL, REFERRED TO AS DEPOSITED ACCEPTANCE RULE Problem 28 Pg. 97 (EXAM) o Mode of acceptance does not have to be a mirror image it just has to be a reasonable mode of acceptance o On Question 4 the offeror is in the drivers seat He can enforce the contract if he did not make another contract, or he can make another contract even though a valid contract exists (estoppel) Termination by Counteroffer and The Battle of the Forms (EXAM) Common Law o Except with respect to option contracts, the offerees power of acceptance generally terminates when, rather than accepting, the offeree makes a counteroffer. The Mirror Image Rule insisted on by common law states that the acceptance must look exactly like the offer and must not try to change it in any way. If the acceptance tried to add new terms not already implied in the offer, it was no acceptance at all, but instead a counteroffer EXAMPLE I accept but would like my payment to be due 30 days after delivery Courts would generally find that this was an unequivocal acceptance of the offer with a request for the addition of another term o Two reasons why common law mirror image rule was bad: Declining Market Welcher (pro buyer) When the market was declining the goods would come in and the buyer could freely reject the goods b/c there was not an agreed upon contract The Last Shot Rule (pro seller) Whoever sent the last form (typically the seller) would have their contract honored b/c his was the last counteroffer and the buyer acceptance b/c he accepted the goods Case Livingstone v. Evans Pg. 98 o A counter offer is a rejection of the offer o After the counteroffer was made, the D sent a letter stating cannot reduce price. The courts held that is was a reaffirmation of the original offer and demonstrates an intent to be bound by it. It basically reestablished the original offer. The Original Battle of Forms - UCC 2-207 (EXAM) o A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. o The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

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The offer expressly limits acceptance to the terms of the offer The materially alter it (question of fact) It is material if there is undo surprise or harm Notification of objection to them has already been given or is given within a reasonable time after notice of them is received o Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such a case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with supplementary terms incorporated under any other provisions of this act. **Andersons Opinion ** UCC 2-207 gets the job done as best as legislation can do There are three routes to follow (see separate 2-207 w/p) Anderson Information (1) We will rarely see Route A (a) Lawyers are never going to draft an acknowledgement that doesnt expressly condition the assent (2) We will rarely see Route B (a) The buyer would have to read the terms and conditions (b) Would have to accept sellers terms and conditions i. This could happen if the buyer really wants it and seller has the clout and really means it (Microsoft, Dupont) (3) Most of the cases are Route C cases (4) Amendments to 2-207 have not been adopted anywhere Textbook Information (1) Original version of 2-207 got rid of the common law mirror image rule. It simply stated that the acceptance does not need to match the offer exactly, it may contain new or different terms. These terms become part of the contract unless the original offeror objects to them or they would materially alter the original offer (in which case the new terms are stricken, and the contract is formed according to the terms of the offer) (2) Since seller typically sends out the second form, and since the rules of 2-207 tend to create a contract based on the first form, sellers had to have a way of protecting themselves from unwanted liability The way to do this is to make sure that the sellers acknowledgement for is not an acceptance, but instead is clearly a counteroffer If the buyer does not respond to this counteroffer, subsection (3) of the old 2-207 creates a new contract with terms that are common to both parties forms. Case Commerce & industry Ins. Co v. Bayer Corp Pg. 102 FACTS P purchased nylon from D. On the reverse side of Ps purchase orders was an arbitration provision. D remitted to P its own standard invoice, which did not state a preference for arbitration or litigation, but did include a conditional acceptance provision. A fire started b/c of the nylon and now D wants to force P to use their arbitration provision P did not express assent to the additional terms, but merely remitted payment and accepted the goods, this contract was formed by the parties conduct (as opposed to writings).

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Where a contract is formed by the parties conduct, the terms of the contract are determined exclusively by subsection (3) 2-207 of the UCC Under subsection (3) only terms that are common to both parties forms become terms of the resulting contract.

Amended 2-207 o Takes contract formation out of 2-207 and puts it in 2-206 o Took out the proviso clause o 2-207 now only deals with terms o 98.6% of the cases will come out like they did under the original 2-207 Route C cases will still come out as Route C cases

Indefiniteness As a general rule, no mutual assent exists and thus no contract is formed unless the agreement of the parties is sufficiently certain Even if the parties intended their preliminary draft to have legal effect, the draft may not be enforceable if the draft omits too many important terms 2-204(3) states that Event though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy Courts in such situations decline to enforce the contract on the grounds of uncertainty o Even if the parties intended to contract, a court may reason that it would not know what to enforce EXAMPLE A renewal clause in a lease states that, Tennant may renew for an additional period of five years at annual rentals to be agreed upon. Court would hold that there is no basis for establishing a renewal rate Courts should make every effort to fill gaps and enforce agreements when the parties intended to contract EXAMPLE In the example listed above If the parties were serious about granting the tenant an option to renew, the court should enforce the obligation The court could find that the parties impliedly agreed to a reasonable renewal rate, base on the market value of the leasehold o Article 2 of the UCC relaxes the uncertainty test (see above 2-204(3)) Pre world War II, courts required a great deal of specificity Courts have come to believe that people lack specific foresight Case Walker v. Keith Pg. 119 An agreement to agree is not enforceable o The courts should not interfere The rule for indefiniteness is indefinite Courts will bend over backwards to enforce renewals or options to buy Case Rego v. Decker Pg. 126 See summary 2-305: Open Price Term o (1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if (a) Nothing is said as to price, or (b) The price is left to be agreed by the parties and they fail to agree, or

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o o o

(c) The price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded (2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith (3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price (4) Where, however, the parties intend not to be bound unless the price be fixed or agreed there is no contract

CONSIDERATION The Basic Concept Age old definition: Anything of benefit to promisor or detriment to the promisee To be enforceable, the promise must be accompanied by some other factor Restatement (Second) of Contracts 71 ~ Consideration o To constitute consideration, a performance or return promise must be bargained for o A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promise in exchange for that promise o The performance my consist of An act, other than a promise, or A forbearance, or The creation, modification, or destruction of a legal relation o The performance or return promise may be given to the promisor or to some other person. It may be given by the promise or by some other person Oliver Wendell Holmes came up with bargained for exchange The law will not enforce a gift There can be gifts with considerations attached Once the gift is executed, you cannot get the gift back contract law will not undo a deal for invalid consideration A promisors gratitude for the promisees past good conduct or services does not constitute consideration b/c the promisor is not extracting and the promise is not supplying anything as the price of the promisors promise. A lot is riding on the promisors motive for making the promise A reasonable person (objective view) must believe that your motive for making the promise was to obtain a return promise o A promisors actual motive is irrelevant A reasonable person must also believe that the promise actually induces the promisee to deliver that consideration EXAMPLE Uncle wants nephew to quit smoking, so he offers $2000 dollars if the nephew will quit. Nephew already quit three weeks before the offer was made No Contract, the promise did not induce consideration Promisors motive for obtaining something in return for the promise (as determined objectively) does not have to be the primary or even a substantial reason for making the promise, it just has to be one of the reasons Case Hammer v. Sideway Pg. 139- continuum See Summary Anderson thinks that this was a gift with a condition attached, but should be enforced

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no contract, no bargaining even though there was detriment to the uncle, no consideration o Good judges will push the envelope of the law as far as it will go in order to come to a fair and just verdict o if the deal is a sham or unfair, court has discretion to reach a fair verditct o Abandonment of the use of drugs and alcohol until he was 21 is sufficient consideration Court held that nephews forbearance constituted consideration regardless of whether it benefited the uncle o

Sufficiency Sufficiency ~ The offered consideration must be something that has value in the eye of the law Traditionally, the common law rule was that the courts would inquire into the sufficiency of the consideration, but not the adequacy Problem 39(b) Conjuring is good consideration, but the court said that is was not; good decision bad law Adequacy of Consideration Courts are not supposed to weigh the adequacy of consideration, but As a general matter, many courts feel uncomfortable enforcing imbalanced exchanges, especially when the imbalance is severe Doctrines such as unconscionability, duress, and misrepresentation, authorize courts to strike contracts made unfairly and often at least part of the evidence of unfairness derives from the inadequacy of consideration o Contract law thus includes both an admonishment to courts to keep out of the parties private exchange and an invitation to courts to police agreements for unfairness Failure of Consideration: The consideration fails to do what it is supposed to do (e.g. bought a refrigerator but it doesnt get cold; paying someone to mow your yard but they do a poor job) There is no such thing as inadequate consideration (Nothing wrong w/ $5 today for $10 later, but if it is $5 now for $10 now then it is a gift motive is the key) there is a problem w/ nominal consideration Nominal consideration is bad consideration it is a sham consideration (e.g. $1 for a $10,000 car the court does not believe that $1 was the right amount to pay for that car gift??) Problem 40(F) Exception to the rule of nominal consideration Option Contracts can be of a nominal amount Surety Contracts can be of a nominal amount Why Exception? o It is hard to put a value on an option, so courts do not assess the adequacy Do you have to actually pay the nominal amount? o Majority says yes you have to give the $1 o Minority and Restatement say no the $1 means nothing a recital of good and valid nominal consideration is okay Problem 39 (D) Court held that there was a property right, Anderson disagrees and says that some courts would disagree too (C) Court rejected, no property right Case Batsakis v. Demotsis Pg. 138 See Summary Case Schnell v. Nell Pg. 140

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 See Summary Forbearance as Consideration One partys promise not to assert a claim in which he/she reasonably believes in good faith to be valid, but which in fact is invalid, serves as consideration for a return promise by another party. Basic public policy underlines this decision o The law seeks to encourage out-of-court settlements, which are not coerced. Such settlements Tend to promote good-will Are much less expensive for the parties to pursue than a full-blown court battle Help relieve unnecessary congestion on court dockets Restatement (Second) of Contracts 74 Settlement of Claims Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless o The claim or defense is in fact doubtful b/c of uncertainty as to the facts or the law, or o The forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists (Anderson says bad provision?? Maybe b/c written) A settlement based on forbearance to assert a claim known to be invalid is likely to be coercive and in bad-faith, and courts will not enforce it Case Fiege v. Boehm Pg. 144 See summary Problem 41 Huffing and walking away is not a binding acceptance (i.e. Bad consideration he is not forbearing) You have to be bound to your forbearance to actually forbear Problem 42 The court said that she had a legal right to speak with her husband, but when she didnt she forbeared there was valid consideration Problem 43 She got what she bargained for absolutely nothing Consideration can be nothing, if it is bargained for Anderson Example Anderson has a paper bag, and you really want it. The bag has nothing in it, but you think that he has his lunch in it, and Anderson tells the truth and says that there is nothing in the bag he says that he will sell you whats in the bag (nothing) for $10. Good consideration?? o Majority would enforce you got what you bargained for Nothing!! The Illusory Promise (AKA Mutuality of Obligation) Unless both parties are bound, no parties are bound Illusory promises are contracts that are unenforceable for lack of mutuality of obligation The agreement lacks an obligation on your part b/c you havent promised to do anything. You have reserved the right not to do something

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Sometimes language appears to be an illusory promise, but the circumstances demonstrate that the promisor really did intend to commit itself Case Wood v. Lucy, Lady Duff-Gordon Pg. 151 o See Summary o A promise may be lacking, and yet the whole writing may be instinct with an obligation, imperfectly expressed. If so, then there is a contract o A promise may be implied from the writing even though it is imperfectly expressed Employment Law ~ The Woods Rule If an employment contract does not specify its length then they are considered at will Reasonable Time does not apply to employment contracts Restatement (Second) of Contracts 77 ~ Illusory and Alternative Promises A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless o Each of the alternative performances would have been consideration if it alone had been bargained for, or o One of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternative which would not have been consideration Many courts interpret satisfaction clauses to require good faith on the part of the promisor The good faith obligation means that your decision about whether you are satisfied with the picture must be reasonable or honest Case Sylvan Crest Sand & Gravel Co. v. United States Pg. 153 See Summary UCC 2-309(3): Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable. You have bound yourself to say cancel Stretches the limit of mutuality A promise to buy of another person or company all of some commodity or service that the promisor may thereafter need or require in his business is not an illusory promise; and such a promise is a sufficient consideration for a return promise Forever the law was that exclusive contracts lacked mutuality of obligation Anderson says that the law embarrassed itself Contract Law should be written so that it enforces the type of deals people want to do (Business People) Along came the UCC 49 out of 50 states have adopted 2-306 Output Requirements Subject to Good Faith Standard A minority of jurisdictions already held that this was okay Good faith is fact specific very real obligation with very real teeth includes selling at a loss UCC 2-306 Output Requirements and Exclusive Dealings A term which measures the qty by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no qty unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed in obligation by the

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seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale Footnotes: A contract for output or requirements is not too indefinite since it is held to mean the actual good faith output or requirements of the particular party. Nor does such a contract lack mutuality of obligation since the party who will determine the qty is required to conduct his business in good faith and according to commercial standards of fair dealing in the trade so that his output or requirements will approximate a reasonably foreseeable figure. Subsection (2) makes explicit the commercial rule embodied in the Act under which the parties to such contracts are held to have implicitly , even when not expressly, bound themselves to use reasonable diligence as well as good faith in their performance of the contract Case McMichael v. Price Pg. 156 See Summary Past Consideration 82 Restatement (Second) of Contracts Promise to Pay Indebtedness Declares directly that o A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. Promises are not binding under the Restatement approach if the promisee intended to make a gift of the benefit or The promisor has not been unjustly enriched o In addition, if the value of the promise is disproportionate to the benefit the promise is only enforceable up to the value of the benefit You cannot bargain for something if it has already been given Includes Pre-existing duty you cannot give something that you already have a duty to give Exceptions to Past Consideration Statute of Limitations o Even though it has run and there is no obligation a new promise to pay or a promise not to raise the statute of limitations is good consideration, even though past Most states require this in writing Bankruptcy o Doesnt happen much today Infancy o Anybody below the age of 18 cant bind themselves to anything o If infant makes a new promise or implicitly keeps paying on a debt made in infancy, then contract is enforceable Hayes v. Plantations Steel Company Pg. 162 See Summary Mills v. Wyman Pg. 168 A promise without any consideration cannot be enforced Decided not to enforce a moral obligation o Moral obligation is a sufficient consideration for an express promise is to be limited in its application to cases where at some time or other a good or valuable consideration has existed Restatement (Second) of Contracts 86 Promise for Benefit Received Referred to as Promissory Restitution

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A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice (2) A promise is not binding under Subsection (1) a) If the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched, or b) To the extent that its value is disproportionate to the benefit EXAMPLE A guy promises a million dollars to someone after that person saved his life Anderson holds: Unjust enrichment = reciprocity, not benevolence ** 86 normally appears in emergency situations** Webb v. McGowin Pg. 172 See Summary Application of 86 Hayes, Mills, and McGowin would all have the same outcome as the original outcome if 86 were used an all cases. Problem 49 He does not have to pay this was a gift Not a 86 case Pre-Existing Duty Rule You cannot give something (as consideration) that you already have a duty to give This is bad consideration A promise, to be enforceable, must involve consideration flowing from the promise to the promisor When a promisee only agrees to do that which he is obligated to do, he has in fact given nothing to the promisor Two types of pre-existing duty cases (1) Modification of an existing contract (Easy) o Asking for extra and doing nothing more o Law of contracts for the longest time said so sorry no consideration under new terms Rolling contracts be damned cant add w/out approval We were throwing out too many good cases to get rid of the bad ones under the old law o Exception: If a pittance is thrown in (washing sidewalk) in addition to mowing lawn This will be good consideration o Case Lingenfelder v. Wainwright Brewery Co, Pg. 179 See Summary A promise made to induce compliance with a valid contact is not enforceable o Case Stilk v. Myrick Pg 178 See Summary Employees cannot enforce agreements to pay additional wages for performing additional duties during an emergency situation Modifications of employment contracts which are occasioned by emergency or duress unenforceable o Paradigms Things happen/good faith Extortion o 89 Modification of Executory Contract = New Law

(1)

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A promise modifying a duty under a contract not fully performed on either side is binding If the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made or To the extent provided by statute, or To the extent that justice requires enforcement in view of material change of position in reliance of the promise Anderson holds: This rule looks to the future anticipate changes in circumstances Strict reading = may limit changes that were anticipated (price of gas going up) UCC 2-209 is a more liberal rule On an EXAM you would hold that technically you have to have a change in circumstances (you would argue that a preexisting condition) to bad so sad, but courts would still enforce Modification does not require circumstances o If all you do is what you originally agreed to do, you have suffered no detriment High Trees case enforced modification even though he did no more than he was supposed to do o Problem 55 Not enforceable = old cases and not good New = 3rd party agreement is binding 73(d) (2) Discharge of a debt obligation (Indebtedness) (Harder) o Accord : is a contract (settlement contract) has to have all elements of a valid contract o Consideration problem in accord: A owes B $50. B says give me $40 instead A gives $40 and B then sues for the other $10 B will win everywhere b/c there is no consideration Anderson says that this is a stupid rule credit card companies do this all the time we should encourage settlement If you pay a lesser amount early or if you pay it off in a different place then the deal has been changed up in some way and there is now good consideration o Problem 58 Giving up the right to declare bankruptcy is detrimental and therefore valid consideration o Case Foakes v. Beer (Andersons head) Law everywhere is that payment of a lesser sum will never discharge a debt obligation unless something else is given (horse, hawk, robe) o Case Clark v. Elza Pg. 183 See Summary Executory contract = unperformed contract Executor Accords do not discharge claims until they are performed o Accords are weird there are two categories (1) Regular (2) Substituted Contracts Intent determined whether accord is Route (1) or (2) o 417 An Accord; Its Effect When Performed and When Broken (a) Such a contract does not discharge the duty, but suspends the right to enforce it as long as there has been neither a breach of the

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contract nor a justification for the creditor in changing his position b/c of its prospective nonperformance (b) If such a contract is performed, the previously existing duty is discharged (c) If the debtor breaks such a contract the creditor has alternative rights He can enforce either the original duty or the subsequent contract (d) If the creditor breaks such a contract, the debtors original duty is not discharged. The debtor acquires a right of action for damages for the breach and if specific enforcement of that contract is practicable he acquires an alternative right to the specific enforcement thereof If the contract is enforced specifically, his original duty is discharged One who has a legal duty to perform an obligation cannot recover additional funds for performing on a day on which his employment contract does not require him to work EXAMPLE Public health inspector cannot require a restaurant owner to pay him for an inspection made outside his normal working hours EXCEPTION An employer asks an employee to work an extra day for an additional $50. This would probably be enforceable unless the employee already owed his employer the duty to work as many hours as were necessary to complete a given task A reneged settlement is a possibility in any lawsuit. Jurisdictions vary greatly as to how to deal w/ such a situation. Some permit a judge to enforce the settlement; others require a separate action for specific performance this makes enforcing a settlement a cumbersome process Problem 59 This is full and complete satisfaction o There is no consideration w/ a bad-faith dispute there must be goodfaith involved Problem 60 Businesses have a way of protecting themselves UCC 3-311(b) Promissory Estoppel On an exam, never discuss Estoppel until you have explained why a contract does not exist 90 Promise Reasonably Inducing Action or Forbearance (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a 3rd person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance PE is a substitute for Consideration 75 and 90 cannot be put together (know sections by heart) o 75 is matter and 90 is anti-matter (cannot be put together) General approach: Promises which foreseeably induce reliance on the part of the promisee will often be enforceable without consideration, under the doctrine of promissory estoppel EXAMPLE A promises to pay for Bs college education if B will attend school full time. A intends this to be a gift. B gives up a good job and enrolls in college, incurring a liability of $5,000 for the first year. A then refuses to pay the bill. Under the doctrine of P.E., B would be able to recover at least the value of the lost

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job and first-year tuition from A, even though As promise was a promise to make a gift and was thus not supported by consideration. Actual reliance: The promisee must actually rely on the promise. (Example: On the facts of the above example, B must show that without As promise, B would not have quit his job and attended college.) Foreseeable reliance: The promisees reliance must also have been reasonably foreseeable to the promisor. Elements necessary for PE according to Hillman Promise Promisors reasonable expectations o Promisor must reasonably expect to induce action or forbearance Inducement of action or forbearance o The promise must actually induce action or forbearance The promisee must act b/c of the promise Injustice o Courts have lots of discretion Possible Applications: Promise to make a gift: The P.E. doctrine is most often applied to enforce promises to make gifts, where the promisee relies on the gift to his detriment. o Intra-family promises: The doctrine may be applied where the promise is made by one member of a family to another. (Example: Mother promises to pay for Sons college education, and Son quits his job. Probably the court will award just the damages Son suffers from losing the job, not the full cost of a college education.) Charitable subscriptions: A written promise to make a charitable contribution will generally be binding without consideration, under the P.E. doctrine. Here, the doctrine is watered down: usually the charity does not need to show detrimental reliance. (But oral promises to make charitable contributions usually will not be enforceable unless the charity relies on the promise to its detriment.) Gratuitous bailments and agencies: If a person promises to take care of anothers property (a "gratuitous bailment") or promises to carry out an act as another persons agent (gratuitous agency), the promisor may be held liable under P.E. if he does not perform at all. (However, courts are hesitant to apply P.E. to promises to procure insurance for another.) PE Not suing for breach, instead you are bringing a cause of action Court has very broad base for remedies on PE Estoppel Equitable: Stops someone from bringing a point There has to be a misrepresentation of existing fact o EXAMPLE Guy takes out a loan and a friend puts up a silo of wheat as collateral Silo of wheat does not exist (imaginary) Bank forecloses and wants Silo of wheat Friend says that there is no wheat Judge says that you are estopped from saying that Man had to pay fair market value of a Silo of wheat Promissory: Different animal -- Dont need misrepresentation of fact Shut-Up: ??? Case Allegheny College v. Natl County Bank Pg. 189 See Summary Judge held that when the college accepted the money it assumed the duty to perpetuate the name of the founder of the memorial o That was sufficient in itself to give validity to the subscription within the rules that define consideration for a promise of that order

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Dissent argued that it was termed a gift by Johnston Why do we strain ourselves to make it, not a gift, but a trade Motive is the key did she want to perpetuate her name, or did she want to give a gift and suggest that her name be used? Differing opinions exist Problem 61 Pg. 197 Can get (all, some, or nothing) money with the last sentence of Section 90 Problem 63 Pg. 197 (GOOD EXAM QUESTION) If contract is lost expectation then the amount is $5,000.00 If contract is reliance interest then the amount is $3,000.00 Williston and 90 was to regard expected interest (see below) This is a gift w/ a condition attached (more so than Hammer v. Sidway) o Argument 1: Gift w/ condition go suck eggs o Argument 2: Gift w/ condition PE may give you something PE is good until you get to the remedy o What are the damages? How do we put a monetary value on this? Second sentence of 90 allows court to decide damages o Does the benefit outweigh the detriment? Some jurisdictions would yes to PE but maybe the benefit received is greater than the detriment (go suck eggs) o This is a fact issue the more conditions there are, the more this thing looks like a contract Case Universal Computer Sys. V. Medical Serv. Pg. 198 See Summary Anderson thinks a lot of courts would go the other way Case James Baird Co. v. Gimbel Bros. Pg. 204 See Summary Know that the bid was a big mistake so big that it should have put the offeree on notice Similar to Drenon v. Star Paving Co. Section 20 of Restatement (Second) Contracts o There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations(listed above) Parties and sub contractors dont intend to have a deal until the final deal is done o Contractor may not know subcontractors work Learned Hand sad that PE did not apply to this case An offer looks to acceptance, not reliance Trainer disagreed w. Learned Hand o He thinks the subcontractor is praying for reliance so PE should be used contractor used the bid to his detriment Courts follow Trainer decision Case Branco Enterprises v. Delta Roofing Pg. 207 See Summary Case Hoffman v. Red Owl Stores Pg. 212 See Summary No duty to negotiate in good-faith All of those thises required consideration There was no contract, but there was PE Ways to get Around Consideration (EXAM) Promissory Estoppel

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 Promissory Restitution REMEDIES/DAMAGES 344 Purposes of Remedies Judicial remedies under the rules stated in the restatement serve to protect one or more of the following interest of a promisee (a) Expectation interest: interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed (b) Reliance interest: his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been had the contract not been made (c) Restitution interest: his interest in having restored to him any benefit that he has conferred on the other party Expectation interest is always greater than the reliance interest unless you made a bad deal Expectation often includes the reliance interest When you base your recovery on the reliance interest you can never recover more than the expectation interest Reliance and restitution are very rare cases in contract law reliance interest expectation interest Restitution is based on that D has been unjustly enriched, and enrichment must be returned to P Specific performance is not a preferred remedy and is to be used sparingly The court will not knowingly put P in a better position than he originally was before the contract Contract law does not punish it only rectifies Contract law is purely compensatory -- only concerned with economics Must prove damages with a requisite degree of certainty Expectancy Damages Injured party gets the monetary equivalent of what they expected under the contract Never gets any more than expectancy never punitive damages b/c contract laws goal is to compensate injured party, not punish breaching party Why should injured parties in breach of contract situations receive expectancy damages? It is the best method for encouraging people to make and rely on their contracts, which benefits them and society A damage measure any lower would undermine peoples confidence in their contracts a damage any higher would discourage people from making contracts b/c they would be wary of the extent of their liability for breach Economics offers another rational Theory of efficient breach expectancy damages correctly encourage a party to breach when the breach is efficient, in that the breach makes some parties better off without making anyone worse off -- other hand, expectancy damages dissuade a party from breaching when a breach would cause more loss than gain Measuring Expectation Damages Some courts measure lost expectancy based on the injured parties subjective perspective Value of performance to the injured individual Come courts measure lost expectancy base don the injured parties objective perspective Value of performance to some hypothetical reasonable person EXAMPLE Sell land to developer Developer promises to build a wall that will divide property Wall will decrease market value of land $1,000 but you want it b/c

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you dont want to see development Developer breaks promise to build and it will cost you $3,000 to get someone else to build you are better financially b/c he broke promise, but you want the wall Issue is controversial, some courts would award $3,000 some would not Probable intentions are a key point in deciding how to measure loss expectancy damages Two Types of Expectancy Damages General o Arise naturally from a breach meaning that every injured party under the circumstances suffers these damages o Do not scare commercial debtors Special o Arise b/c of an injured partys particular circumstances (extra expense cased by the breach) o Two types: Incidental Caused by the breach Consequential Best definition is loss of use Biggest reason for non-recovery is mitigation Really scare commercial debtors open ended liability Most contracts today have disclaimers for consequential damages courts will enforce Question 2 Pg. 232 Reliance Money or Expectation Money? Reliance is 5 Expectation is 7 Under 90 you are going to get reliance damages only, unless you have a really convincing argument (see above) Case Hawkins v. McGee Pg. 229 See Summary Case Peevyhouse v. Garland Coal and Mining Pg. 233 See Summary We dont know all of the relevant facts If you measure damages by the cost of repair it makes no sense to compensate if they are not going to repair Escrow accounts are now required for Peevyhouse situations Remedy is to compensate not to punish If completion covenant is part of the deal the original deal was 120,000, but Ps wanted completion covenant D said ok and them gave them 90,000 (Completion covenant is worth 30,000) If D breaches, then D has been unjustly enriched P should win this type of case 100% of the time Case Sea Colony East v. Carl M. Freeman Pg. 240 See Summary Useful Life Theory There is nothing titled the useful life theory It is called the enhancement theory o Argument: If D repairs building, the life of the building will be extended and P will now be in a better place o Courts agree with this theory, but there has to be credible evidence to support the theory

Problem 66 Pg. 247

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12K maybe depending on the mitigation factor of 2 Connecticut Rule Loss + Other Loss Expenses Saved Mitigation Massachusetts Rule Contract Price Expenses Saved Mitigation factor Both rules will arrive at the same number Reliance Damages Incurred b/c we relied on the contract If neither party can prove w/ sufficient precision the amount of the profits or losses to be obtained the courts give the benefit of the doubt to the injured party Providing relief based upon expectancy is too speculative Fixed Overhead General cost of running your business can be recovered provided that the injure party can prove it could have recouped its overhead expenses on other projects Can D be responsible for reliance expenses incurred before then contract was entered into? Courts are split Anderson like foreseeability Three categories of Reliance Damages Promissory Estoppel Weird Promises (Sullivan v. OConnor) o Not many cases Cannot Prove Damages with Reasonable Certainty (Anglia) o Lots of cases Case Sullivan v. OConnor Pg. 247 See Summary Court was wary of granting expectancy damages precisely because of the relative weakness of the contract theory of recovery Case Anglia Television v. Reed Pg. 253 See Summary Asking for reliance damages does not have expectancy damages Can always choose reliance unless it puts you into a better position if the contract had been performed Why would we do this? o P is a really nice guy o P is dumber than hell o P made a bad deal P is turning adversity into advantage This is a case where the reliance interest would recover more than the expected interest Problem 67 Pg. 256 Can recover damages based on reliance interest or expectancy interest but not both Limits on Recovery Certainty: The P is generally denied any relief that is too speculative Requested relief can be too speculative because there is too much uncertainty as to either o (1) The fact that the breach caused the type of injury that P alleges Must be by a preponderance of the evidence (>50%) o (2) The extent to which the P suffered from the breach (dollar amount of damage caused)

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Amount of loss is determined by less a preponderance of the evidence (only has to be a rational way to come up with a figure) o (3) both the causation and amount Case Freund v. Washington Square Press Pg. 257 o See Summary Case Humatrix v. Gemplus Pg. 261 o See Summary Foreseeability: We were never supposed to understand foreseeability Case Hadley v. Baxendale Pg. 268 o See Summary o Established basic structure for contract damages o Special damages were the profits while the mil was down UCC equivalent 2-715 buyers 2-710 sellers Problem 69 Pg. 271 o See 351 of the Restatement\ Judges often misuse foreseeability as a fairness principle they want to achieve a fair result Avoidability: Obligation to mitigate damages most important limitation to the contract principle Case Rockingham County v. Luton Bridge Pg. 281 o See Summary Case Parker v. 20th Century Pg. 286 o See Summary o If an offer of employment is of a different or inferior kind, it does not matter whether the employee acts reasonably or unreasonably in rejecting the offer The person with the duty to mitigate need not expose themselves to undue risk, humiliation, or expense Mitigation based on reasonableness can increase damages if you incur costs mitigating Even if you didnt have to mitigate (take unreasonable job) but you do the money you earned counts against your mitigated damages When to Mitigate Damages Problem 73 Pg. 286 Here we are dealing with goods (Luten Bridge = not goods) o Goods are a different situation We might be able to resell the goods Question when contract is breached: Should I stop creating goods now and mitigate damages, or should I complete the goods, sell them, and now mitigate damages? o Need to know: If I complete the goods, how much can I resell them for Sell for 1,000 cost 2,500 to complete = do not finish o If you anticipate to sell goods for more than the const to complete (including lost opportunity cost on selling for scrap) = you should complete them It will cost 2,620 to complete the goods: 2,500 + 120

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Problem 74 Pg. 293 Goods are different than jobs, probably do not have to go back Punitive Damages for Breach of Contract No punitive damages contracts does not want to punish People can recover damages for breach of contract they can also recover punitive damages for the tortious conduct displayed in breaching the contract Really two separate things (punitive comes form the tort side) Mental suffering cannot be recovered in breach of contract unless it is that kind of case Ex: Leaky caskets Liquidated Damages Courts will enforce liquidated damages -- as long as they are compensatory and not penalties Courts will not enforce agreed penalties Liquidated Damages have to be: Reasonable in amount Arise because of uncertainty incalculable damages o It makes good sense to let the possible damaged parties set damages when the court would have a hard time doing it Pevvyhouse is a good example Goods almost always have readily calculable value Provisions for liquidated damages are usually held to be no good when goods are involved easy for the courts to determine fair compensation Land is inherently unique Provisions for liquidated damages are usually upheld when dealing with the sale of land THE RUB: Reasonable forecast of what kind of damages? o Approximate Damages, or o Actual Damages Majority Rule Actual damages are irrelevant as long as parties met the forecast courts dont care about actual Approximate is fine as long as they are reasonable Minority Rule TX Anderson Actual damages are important, and everything above actual damages is a penalty o If the person is awarded approximate and the estimation is higher than the actual damages then the P will be unjustly enriched when D breaches Majority does not care about that fact majority will never say this, but they think penalties are ok Two sophisticated people contracting They use this back door to enable parties to contract for penalties Problem 77 Pg. 301 Courts will throw out b/c there is one set amount for all types of cases Problem 75 Pg. 301 Courts will throw out b/c the more you perform, the more you stand to lose Problem 78 Pg. 301 Courts will probably throw out gets all the money and does not have to deduct expenses saved

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Hillman 15-27 31-37 37-86 133-158 165-179 184-187

Sale of goods UCC dominates

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