Contracts Outline I. ASCERTAINMENT OF ASSENT TO BE BOUND a. Hill v.

Gateway Hill orders computer from Gateway and keeps it more than 30 days, at which point, according to Gateways terms and conditions, means Hill has agreed to pursue any problems through arbitration. Hill sues Gateway for federal mail and wire fraud. i. Were the provisions contained in the box part of the agreement bt Hill and Gateway? i. Terms and conditions can be a contract law claim ii. Based on ProCD v. Zeidenberg, Hills use of the computer without returning it for more than 30 days constituted his agreement to the additional provisions in the box. iii. The contract was not formed until 30 days had expired from the time the computer was delivered (rolling contract) ii. The contract need not be read to be effective b. Contract: a promise or set of promises that the law recognizes by way of enforcement i. Courts are unwilling to enforce a promise unless something is given in return for that promise (consideration). ii. Promise commitment to the happening/non-happening of a future event iii. Enforcement award of damages or other order by a court of law c. Lucy v. Zehmer Zehmer is joking around with Lucy in a bar and offers, in writing, to sell him his farm for $50,000. He signs this, as does his wife, and Lucy accepts. When Zehmer wont deliver, Lucy sues for specific performance. i. Zehmer manifested an intent to be bound, there was an apparent meeting of the minds . i. The standard for assessing mutual assent is determined based on objective manifestations of the parties, not subjective undisclosed intent. ii. Meeting of the minds is not an actual meeting of the minds, but an apparent one. ii. Reasonable Person standard applied (2 prong test): i. RP in Lucys position would have believed it to be an offer; and ii. Lucy has to have believed this d. Leonard v. Pepsico, Inc.Leonard sues Pepsi for specific performance of a Harrier Jet after seeing a commercial for a Pepsi Stuff promotion (7M Pepsi points). i. What constitutes an offer? i. An advertisement does NOT constitute an offer ordinarily, UNLESS there is convincing language of commitment or some invitation to take action without further communication ii. Objective Theory of Contract Formation Reasonable Person Standard i. Objective Manifestations (2-prong test) ii. The court must not consider defendants subjective intent in making the commercial, or plaintiffs subjective view of what the commercial offered, but what an objective, reasonable person would have understood the commercial to convey. ASCERTAINMENT OF OFFER a. Smith v. Boyd Smiths file suit for specific performance of what they claim was an oral contract to purchase the Boyds house. i. We may or may not have a binding agreement if a written contract is contemplated before that writing is signed. ii. Intent to be bound

II.

i.

Business transactions require that parties to a contract be able to negotiate without fear that they will be bound by mere discussion a. An oral contract, if proved, is perfectly enforceable ii. In a social or familial setting, one is not necessarily bound unless he expresses an intent to be legally bound. a. The exception here is Marvin v. Marvin, where public policy changed to keep up with the changing of societal values and norms. i. This was more of a business deal iii. The court here considered the practice of the profession of real estate a. Generally known that this type of agreement is done in writing. b. While they agreed on terms, did not intend to be bound until signing written offer. c. 27 Existence of contract where written memorial is contemplated.

i. Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations. iv. Doctrine of Illegaility courts will not enforce contracts that will violate public policy

TAKE AWAY: Objective Theory. Know its two prongs and that an objective mutual manifestation is necessary for any contract. If both parties know a written contract is needed, then oral agreements dont hold water. Objective theory is based on the reasonable person standard.
III. OFFER a. 24 Rest. (2nd): An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. b. Parties enter into a contract when they both manifest objectively an intent to be bound. There is mutual assent. The process by which this manifestation traditionally occurs is by offer and acceptance. c. Lonergan v. Scolnick Lonergan, buyer, sues Scolnick, seller, for specific performance of land. The two had been in communication about this piece of land, and had discussed the terms ahead of time, and Scolnick ended up selling it to someone else when he didnt hear from Lonergan re his acceptance of Scolnicks offer. Lonergan received the letter telling him to act fast 6 days after Scolnick had sent it (hed already sold the land to a third party by then). The next day Lonergan sent his letter of acceptance to Scolnick. i. Reasonable Person Standard applied i. A reasonable person in Lonergans position would not have taken the language used between the parties to constitute a valid offer; Scolnick indicated he would sell the land to the first party to accept his offer. ii. An offer puts the power of acceptance into the hands of the offeree. iii. Preliminary negotiations i. There was a request for an offer; an invitation to offer. a. Scolnicks language was NOT intended as an expression of fixed purpose, which is requisite to make a definite offer

ii. Lonergans letter of acceptance is truly the offer d. Maryland Supreme v. Blake i. Blake (contractor) hires Maryland Supreme (sub-contractor) to pour concrete. Maryland raises price mid-way through job. ii. UCC applies since its a sale of goods. i. UCC doesnt define offer, so must go to common law iii. According to trade practice and prior business dealings, Supremes letter constituted an offer (along with Reeds testimony) iv. The language in Supremes letter important: i. on ready mix for the above mentioned project ii. the price will be guaranteed throughout the job v. Supreme contends letter was a price quote b/c dates, quantities, etc. missing vi. Price Quote v. Offer -- A quotation of prices is not an offer to sell, in the sense that a completed contract will arise out of the giving of an order for merchandise in accordance with the proposed terms. i. Price quotes do NOT equal offers a. Merchants must be able to communicate in a market without being immediately bound b. Language and contextual circumstances are the deciding factors in each case e. Lefkowitz v. Minnesota Surplus i. D placed advertisement in paper for two consecutive weeks offering expensive apparel items for $1 each first come first served. On both occasions, P was first to show up but D refused to sell the merchandise to him, citing the house rule that offer was for women only. i. The court ruled in favor of P. Because the ads were clear, definite, and left nothing open for negotiation, an offer was made and P had accepted when he was the first one there and tendered stated purchase price. ii. The words first come, first served are promissory iii. house rule didnt apply because it wasnt mentioned in ad iv. Manifestation of intent can be implied by actions ii. Generally, ads do NOT constitute offers, only invitations to offer. i. An ad can constitute an offer if it: a. calls for performance of a specific act without further communication, and b. leaves nothing open for negotiation c. overcomes multiple liability concerns iii. Statute of Frauds i. RRLs printed name in the ad satisfied an intent to authenticate the offer. iv. Unilateral Mistake of Fact DEFENSE i. RRLs unilateral mistake of fact made in good faith allows them to rescind the contract bc enforcement of the contract at the advertised price would be unconscionable. ii. This defense conflicts with objective theory, but Donovan had reason to believe it was a mistake. iii. Mistake is IRRELEVANT in determining whether or not there was a valid offer or acceptance; this is a defense to enforcement of a contract f. Concept of Bilateral v. Unilateral Contracts

i. Bilateral Contract: If I say Ill pay you $100 when you agree to walk across a specific bridge on your head, and you say I accept,
there is a bilateral contract, a promise for a promise.

ii. Unilateral Contract: If I say Ill pay you $100 if (or after) you walk across the bridge on your head, and in response you say I
accept, there is no agreement yet bc what you were bargaining for was not a promise, but an act; there can be no contract until performance on one side is completed, a promise for a performance. iii. Agnew Case Going into a store and buying goods does NOT constitute a contract

g. To constitute a binding agreement, what must be expressed is the manifestation of intent, but this expression can be implied from conduct.
IV. TERMINATION OF OFFER a. Revocation requires notifying the offeree that the offeror no longer desires to be bound on the terms of the offer. At this point, the offeree is no longer reasonable in the belief that all that is necessary to seal the deal is her assent. i. Dickinson v. Dodds Dickinson sued Dodds for specific performance of land Dodds had agreed to sell him in an offer he promised to keep open til a specific future time. No consideration was given to keep the offer open. Dodds thus sold the land to another before said time. i. Indirect Revocation ii. Nudum Pactum an agreement is unenforceable as a contract bc it is not clothed with consideration. iii. Reasonable Person Standard applied a. Dickinson was informed that Dodds was considering selling the land to someone else, and was therefore no longer reasonable in his belief that Dodds intended to be bound by his agreement to hold the offer open. b. Indirect Revocation occurred when Berry told Dickinson of Dodds intention to sell the property to Allan iv. Constructive Notice Notice arising by presumption of law from the existence of facts and circumstances that a party had a duty to take notice of (i.e., such as a registered deed or pending lawsuit); notice presumed by law to have been acquired by a person and thus imputed to that person. a. In addition to giving consideration to keep the offer open, in order to protect your priority to get the property, give constructive notice. b. This keeps open the option to buy with you and only you v. Priority Rule v. Rule of First in Time, First in Right a. Priority Rule The person who receives the offer first gets the property b. First in Time, First in Right The person who accepts the offer first gets the property. vi. Equal Dignities Rule a. To reject a general public offer, post a revocation in the same or comparable medium of equally wide circulation as the offer was made. b. Rejection the offeree declines the offer by notifying the offeror that she is not interested in doing a deal on the terms of the offer. At this point, the offer can no longer be revived unless the offeror affirmatively elects to renew it. c. Lapse i. Minnesota Linseed Oil Co. v. Collier White Lead Co. This was all done by telegram: Minnesota seeks to recover money representing the balance due for oil it sold to Collier. Collier, in response, says that while there is a balance due, Minnesota had

breached an earlier contract with them, giving rise to damages which operate as a set-off/counterclaim against Minnesotas claim. i. Mailbox Rule the MB rule was turned on bc the offer was done by telegram and so was the response a. Goes directly against Objective Theory b. An acceptance becomes effectiveand binds the offeroronce it has been properly mailed -- DISPATCH i. A contract is concluded when an acceptance of a proposition is deposited in the telegraph office for transmission. c. However, rejections are only effective upon receipt ii. Lapse the offer had lapsed here a. Offer for an Unstated Period is only good for a reasonable time i. A reasonable time in any given case with an offer for an unstated period is deduced from the totality of the circumstances. ii. Volatility of the market came into play here. b. Delay when there is a delay bt when the offer is made and when it is received, the clock begins ticking on the date of receipt ii. An offer made during a face-to-face conversation is only good as long as the parties are in each others faces. iii. Grumbling acceptances still qualify as acceptances. iv. Ambiguity i. When ambiguity arises in a contract, the general principal is that we resolve ambiguity against the party that is in the best position to control the ambiguity. d. Death or Incapacity of the Offeror i. New Headley Tobacco Warehouse Co. v. Gentrys Exr NHTWC seeks to accept an offer made by Gentry before his death to extend its contract for lease. Gentry Exr claims the offer terminated with Gentrys death. i. Revocability a. There was no Consideration to support the option for extension of the lease b. It was, therefore, revocable ii. Revocation occurred with the death of the offeror. a. This is not consistent with objective theory i. The offeree has no direct manifestation from the offeror that the offer has been revoked. b. There can be no meeting of the minds when only one of the contracting parties is in existence. i. The death of a party who had the right of revocation or withdrawal of an offer to contract renders the completion impossible and terminates the negotiations or proceedings at the very point where they were when he died. ii. A revocable offer is terminated by the offerors death or such insanity as deprives him of legal capacity to enter into the proposed contract. iii. Defenses for non-performance of a contract: a. Impracticability you hire a singer to play at your wedding and he dies before he can do so; it becomes impossible to perform the contract b. Subsequent Incompetence

c. Capacity ii. At common law, the offerors supervening mental incapacity, as established by an adjudication of incompetence or appointment of a guardian, has the same effect on the offerees power of acceptance as the offerors death. i. Subsequent Incompetence: incompetence occurring sometime after the offer was made ii. If the offeror was already incompetent when the offer was made, then there is a defense to liability: a. Defense of Capacity i. Minors do not have capacity ii. Mental Incompetents do not have capacity V. IRREVOCABLE OFFERS a. Ancillary: supplementary; an ancillary promise not to revoke an offer until a said time in the future must be supported by consideration. b. Beall v. Beall Carlton sues Cecelia (the wife of Calvin, both of whom have been living on land which Carlton had the option to buy) for specific performance of land which he believed he had an extended option to buy. There was no consideration given for the extension of this option, though in past extensions there had been. i. Consideration i. When the consideration allegedly supporting an option fails or is non-existent, the option is no longer irrevocable but rather it becomes a mere offer to sell, which can be withdrawn by the optioner at any time before acceptance. ii. Revocability i. Bc no consideration existed, the offer was in fact revocable. ii. It still remains an offer, though, so IT CAN BE ACCEPTED UP UNTIL THE POINT OF REVOCATION c. Board of Control of Eastern Michigan University v. Burgess -- The Board sued Burgess for specific performance of his house, which Burgess had agreed to give the Board a 60-day option to buy contingent upon $1 of consideration. Burgess had signed the agreement, which also stated that Burgess hereby acknowledged receipt of this consideration, but no consideration was ever paid to him. i. Consideration i. Mere acknowledgement of receipt of consideration can be overcome if one can come forward with credible evidence to show that consideration was never received. ii. The Restatement says the recital of a legally binding obligation at the time an option is granted is an implied promise to pay which is sufficient as consideration. i. The true manifestations of the parties should not fail due to forgotten niceties. iii. Exception to Necessary Consideration i. Firm Offer: a promise by a merchant in writing to hold an offer open for a specified period, or, if it doesnt specify a period, a reasonable time is a binding contract bc in effect, the writing becomes the substitute for consideration. ii. Just bc there is no consideration does NOT mean there is no offer MANNER OF ACCEPTANCE a. Acceptance: a manifestation of assent, objectively determined, to the terms of the offer made by the offeree in a manner either invited or required by the offer b. Control Over the Mode of Acceptance i. La Salle National Bank v. Vega La Salle is suing Vega for specific performance to enforce an alleged contract for the purchase

VI.

of land from Vega, the seller of land. Borg, who Vega sold the land to, gets in the suit by filing a motion to intervene bc his interests will be directly affected by the outcome of the suit. i. Offer Gives the offeree the power of acceptance ii. Intent to be bound a. An expression of intent to be bound that deviates from the manner of acceptance specified in the offer does NOT constitute a valid expression sufficient to cause a contract iii. Acceptance a. THE OFFEROR IS KING i. He has complete control and mastery over his offer. ii. If an offer proscribes the time, place, and manner of acceptance, the purported acceptance, the manifestation to be bound, in order to be effective must comply without variation to the terms of the offer b. The acceptance here was not in the form proscribed in the instrument itself, even though the bank clearly did assent. c. This stipulation was made to protect the bank against unintended liability for the purchase of property iv. Problems a. The rule that the acceptance must abide by the terms of the offer frustrates the enforcement of the intention of the parties once there is mutual assent ii. Ever-Tite Roofing Corp. v. Green The Greens sign a written instrument with ET for the re-roofing of their home; this document provides that it is not binding until accepted by an authorized officer of ET or upon commencement of the work. i. Acceptance and Revocation are racing here a. Acceptance i. Occurred when ET began loading the trucks b. Revocation i. Had to be done before the commencement of the work ii. Ambiguity/Doubt a. Language will be construed most strongly against the party that drafted the agreement b. ET should have avoided ambiguity, but: i. ET proceeded in a responsible way to engage in the steps necessary to start the work ii. Greens could have and should have easily notified ET they were withdrawing the offer sooner 1. The Greens took the risk of a more liberal interpretation when they contracted with the other roofers iii. Lapse a. Offer good for a reasonable time b. When no time for acceptance is stated, the offer remains open for a reasonable time c. There was no unreasonable delay by ET, so no lapse iv. Object of Contract Remedies a. To make the non-breaching party whole iii. Davis v. Jacoby After sending numerous requests asking Davis and Caro to come and help him get his affairs in order, Mr. W eventually tells Davis in one of his letters that Caro will get everything. He says Please let me hear from you ASAP, and also,

if you come, Caro will inherit everything. He commits suicide after finally hearing from Davis that they would in fact be coming. Upon death, it turn out that Caro was left nothing, and so they sue. i. Unilateral Contract v. Bilateral Contract a. Unilateral Contract -- Offers acceptance said to be based on performance i. If unilateral contract, revoked by Ws death ii. If there is an offer for a unilateral contract for performance, it is only fulfilled by full performance, not just commencement b. Bilateral Contract -- With doubt, theres a presumption in favor of treating offers as being for bilateral contracts i. W was looking for reassurance in the form of a promise ii. ARMS LENGTH issue 1. These parties were in constant communication with each other and could thus rely on each others promises through their special trust and confidence in one another. 2. Parties are working for the benefit of each other c. Key: determining the intention of the offeror d. UCC 2-206 1(a): Specified manner of acceptance will be treated as if the offer did not specify unless the offer clearly, without question, says that the manner it specifies is the only manner of acceptance. e. Otherwise, a party can accept by any manner and by any means reasonable under the circumstances ii. Restatement does NOT deal with unilateral v. bilateral contracts; has to do with accepting the offer in a reasonable manner under the circumstances VII. PROMISSORY ACCEPTANCE a. Hendricks v. Behee The point in time at which a promise as an acceptance is effective: Behee submits a written offer to the Smiths real estate agent to purchase some of their property. The Smiths accept the offer, but sometime bt Behee receiving notice of their acceotance, Behee tells their agent hes changes his mind. In essence, Hendricks, the escrow agent, is suing Behee, but really its the Smiths that are. i. Interpleader Action: here is the thing in question; you, judge, decide who gets it ii. Uncommunicated Offer An uncommunicated intention to accept an offer is NOT an acceptance iii. Promissory Acceptance i. Notice of acceptance is always essential ii. Communication of acceptance of a contract to an agent of the offeree is not sufficient and does not bind the offeror iv. Revocation -- To be effective, revocation of an offer must be communicated to the offeree before he has accepted b. Adams v. Lindsell The point in time at which a promise as an acceptance is effective: Lindsell is a wool dealer in another county from Adams, and he offers Adams, a wool manufacturer, a specified number of fleeces in a letter at set prices. The letter was misdirected and thus reached Adams later than Lindsell had thought, but upon his receipt, Adams immediately sent back a letter of acceptance. Due to the longer response time bc of the delay, Lindsell, who had expected to hear back from Adams by a certain date, sold the fleeces to another party. i. Objective Theory of Contract Formation

i. Acceptance is based on the outward manifestation of one party to another ii. Lapse i. The delay was the fault of the defendant ii. Acceptance was thus not untimely iii. EXCEPTIONS to Objective Theory i. An offer ends automatically upon the death of the offeror ii. MAILBOX RULE / DISPATCH RULE an acceptance by any medium with which there is a gap bt dispatch and receipts is effective at the time of dispatch as long as the rule is turned on a. Applies to any circumstance where there is a gap bt dispatch and receipt so long as the offeror has tacitly assented to this result by making the offer in the same fashion b. it is effective upon dispatch by the same or a more reliable means of communication c. Revocation is NOT effective until received d. In this case, when an offeror makes an offer by mail and not stipulating when acceptance would be effective, the uncommunicated promise was an acceptance e. Risk must be allocated to one of the two innocent parties i. The offeror is somewhat less innocent bc he was the one in the position to protect himself from risk by specifying in the offer that acceptance wouldnt be effective until received f. EXCEPTION in the use of instantaneous or near instantaneous means of communication, the acceptance is not effective until received i. Also, an acceptance of an option contract is not effective until it is received ii. Civil law jurisdictions do NOT have the MB rule g. Technically, this rule did not need to be applied in this case bc there was never a revocation of the offer iii. Equittable Estoppel: when one party by his words or conduct leads another to believe that a particular thing is true and the other relies on this misrepresentation and would be damaged if the first party were to assert the truth of what he had been previously denied, he will be estopped from doing so iv. Rejection Started, Acceptance Started Rule: offer is on unless you first send a rejection or counteroffer before you send an acceptance; in that case, the acceptance is dependant upon whether the rejection got to the offeror before the acceptance was mailed

VIII.

ACCEPTANCE BY PERFORMANCE Unless otherwise indicated by the language of the circumstances, an offer is treated as inviting acceptance in any manner and by any medium reasonable in the circumstances a. Carlill v. Carbolic Smoke Ball Co. Carlill bought a smoke ball after seeing Carbolics ad, which promised to pay a 100 reward to anyone who contracted the flu after inhaling the ball as directed. She contracted the flu 2 months later. i. Ad was NEITHER a company policy or a bet i. Policy something a company is free to follow or not follow as they choose; NOT an offer creating the power of acceptance ii. Bet Court doesnt enforce bets bc theyre either illegal, or gambling contracts, which are also illegal, or enforcement would violate public policy ii. Offer

i. This ad was more than sales puffery bc the company deposited 1000 to show it was serious ii. Therefore, the offer was like a reward iii. The usual rule is that general advertisements will not constitute offers bc youre not reasonable in believing that a merchant will subject itself to liability for an unlimited supply. a. This ad does NOT resolve the issue of multiple liability, so therefore, it is not exactly like a reward b. The words of all ads offering rewards are offers to anybody who performs the conditions named in the ad, and anybody who does perform the conditions accepts the offer iii. Vagueness i. Court read the ad as effective to any person who uses the ball, uses it correctly, and then contracts the flu within a reasonable period of timeNO its not too vague iv. Notice of Acceptance i. Ad is asking for performance unilateral contract a. The requirement of notice has been dispensed with ii. Eliminates the need for notice bc the language they used in the offer implied that there didnt need to be further communication a. Even if notice had been required, Carlill gave notice when she applied for the reward iii. Purchasing of the ball constituted acceptance a. This is what Carbolic wanted; they BARGAINED FOR THE DEED, NOT THE PROMISE/WORDS b. Reasonable person would infer this from the offer v. Consideration i. The consideration for the promise to pay 100 was the purchase of the ball, bc thats what Carbolic made the offer fro ii. This was NOT a gift promise by Carbolic; it had a clear economic objective in mind vi. Unilateral contract happens when it: i. Asks for performance ii. The RP would believe that performance creates a contract vii. Partial performance an offeree who learns of an offer after he has rendered partial performance may accept by completing the requested performance b. Marchiondo v. Scheck Scheck offers to sell real estate to a prospective buyer and agrees to pay a broker percentage; he then revokes the offer to the buyer and the broker sues for the percentage bc he had commissioned work on the deal. i. Part Performance once partial performance is begun pursuant to the offer made, a contract results i. Resulting contract is an option contract a. Where an offer invited an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree begins the invited performance or tenders a beginning of it (Restatement) b. Offerors duty of performance under any option contract is conditional on tender of the invited performance in accordance with the terms of the offer i. What is begun or tendered must be part of the actual performance invited in order to preclude revocation ii. Beginning preparations though they may be essential in carrying out the contract or accepting the offer is not enough

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c. Reliance instead of consideration holds the contract irrevocable

d. An offer which the offeror should reasonably expect to induce action or forbearance is binding as an option contract to the extent necessary to avoid injustice ii. This is a contract with a condition; the condition being full performance iii. Defendants right to revoke his offer depends upon whether the plaintiff had partially performed before he received defendants revocation iv. Restatement if a contract does not stipulate the specific manner of acceptance, under the restatement, it is reasonable to assent by any reasonable means, promise or performance a. 54: if an offeree accepts by rendering a performance and has reason to know that the offeror has no way of learning of the performance, the offerors duty is discharged unless the offeree has taken reasonable steps to inform him (reasonable diligence on the part of the offeree is required)

IX.

ACCEPTANCE BY SILENCE OF INACTION a. Generally, silence or inaction alone are not sufficient to constitute an acceptance bc: i. Substantive fairness if I say Ill sell you my car for 1M, and since the offeror is king, youre failure to affirmatively reject within the next two seconds will constitute an acceptance ii. Doctrinal reason of treating silence as acceptance in most cases would be inconsistent with objective theory (manifestation of assent element) ordinarily the offeror is not reasonable in believing that when the offeree says nothing he is manifesting an intent to be bound by the offer iii. EXCEPTIONS ( 69): i. Where the offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation a. Here, the offeror is being protected b. EX: hot dog vendor in Manhattan ii. Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer a. Here, the offeree is being protected b. EX: if you dont want to accept let me know, and if not Ill assume you want the deal iii. Where bc of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept a. Here, the offeror is being protected iv. All exceptions require silence + ; its the additional circumstances that result in a contract being formed from silence iv. Laredo National Bank v. Gordon Gordon brought suit over a contingency fee; client wanted to settle and asked Gordon to give them his fee, which he eventually did, and they said nothing. They did settle and then decided not to honor his fee, but agreed to pay less. i. The banks silence misled Gordon, this is demonstrated by his taking steps based on the assumption that he would be paid his requested fee

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ii. Where the relationship bt the parties is such that the offeror is justified in expecting a reply, or the offeree is under a duty to reply, the latters silence will be regarded as an acceptance a. One who keeps silent knowing that his silence will be misinterpreted should not be allowed to deny the natural interpretation of his conduct iii. NOTE: when you get unsolicited merchandise in the mail, you may keep it and use it and have no ;liability for the price

X.

IMPERFECT ACCEPTANCES this refers to an acceptance replying to an offer with different terms (such as price) becomes an implied rejection of the original offer and thus becomes a counteroffer which the original offeror now has the opportunity to accept or reject a. Egger v. Nesbit Nesbit sends letter offering land, and Egger accepts, but adds that he also wants the papers related to the land; he later then sent an acceptance to the original offer. i. Under the common laws mirror image rule: an acceptance must be an unconditional assent to the terms of the offer i. Principle purpose of this rule is to protect the offeror from becoming subject to terms other than those in his original offer a. Offeror is KING ii. 59: truly conditional acceptances operate as counteroffers iii. 60: if offer prescribes time, place, or manner of acceptance, it must be followed; if it merely suggests these terms, another method of acceptance is not precluded iv. 61: an acceptance with suggestions or inquiries is still sufficient to form a contract UNLESS the acceptance is made to depend on an assent to the changed or added terms v. The additional terms are to be construed as proposals for addition to the contract. Bt merchants, such terms become part of the contract UNLESS: a. The offer expressly limits acceptance to the terms of the offer; b. They materially alter it; or c. Notification of objection to them has already been given or is given within a reasonable time after notice of them is received ii. An assent to an offer coupled with an additional qualification or condition will NOT conclude a contract bc of the absence of mutual assent i. This new offer is a counteroffer implied rejection and simultaneous counteroffer ii. Offer CANNOT be renewed unless offeror chooses to renew it iii. This problem comes up a lot with standard forms iv. 40: Rejection Started, Acceptance Started if you start a rejection and then start an acceptance, MB rule is turned off and it is a factor of which one gets there first INDEFINITENESS a. 33 (Certainty): i. Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain ii. The terms of the contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy

XI.

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iii. The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is NOT intended to be understood as an offer or as an acceptance iv. UCC 2-204 (3) Even 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 b. Varney v. Ditmars Ditmars said get these things done and on the 1st of January Ill give you a fair share of my profits. Varney works, gets sick, gets fired, and sues for wages from nov thru the end of the year and for fair share of profits. i. For a promise to be enforceable, the intention of the parties has to be expressed with a level of specificity sufficient to allow the court to determine that intention with a reasonable degree of certainty ii. Fair and Reasonable can be deemed specific enough as long as there is some external market standard to provide guidance iii. Illusory promise non-promise iv. Quantum Meruit recovery based on the theory of UE; where one party has conferred a benefit on another party in circumstances where it would be unfair to rest that benefit on that party without due compensation v. If a portion of a contract fails for lack of proof, that does NOT make the whole contract unenforceable for vagueness c. Nora Beverages v. Perrier Group of America Nora and Perrier enter into a contract for Nora to sell Perrier bottles for its water, some with water already in them. They talked on the phone and communicated thru letters. Perrier ended up selecting another supplier of bottles after negotiations had been begun. i. UCC 2-204 Gap Filling provisions operate as default rules that supply the governing rule as to various aspects of the agreement if the parties, though intending to be bound, have failed to address the particular term i. Default rules are designed to emulate what the parties would have agreed to had they spoken to the issues ii. Not necessarily what these parties would have agreed to, but what reasonable persons in the position of these parties would have agreed to assuming that they were bargaining from relatively equal positions of strength a. Price, time for delivery, place of delivery, whether in single units or series of deliveries b. Quantity is the one term ordinarily that cannot be supplied if the parties fail to address it, but prior course of dealing could provide a gap filler iii. NOTE: In many business practices it is desirable to be less than entirely clear in specifying one of the essential terms of the transaction due to: a. Uncertainty about future events b. Inability at the time of contracting to foresee every eventuality ii. UCC 2-204.3: if the parties have intended to make a contract, it will NOT fail for indefiniteness bc one or more terms are left open if there is a reasonably certain basis for fashioning an appropriate remedy i. The more terms the parties leave open, the less likely it is that they have intended to conclude a binding agreement ii. Court found that duration and quantity could be determined from the language of the letters as well as industry practice iii. UCC 2-306 i. a requirements contract is when the quantity is measured by the buyers needs ii. an outputs contract is measured by the sellers supply or capacity iii. 2-306 validates both and takes care of indefiniteness by putting a limitation of good faith iv. Common Law (Article II): just bc a written agreement is contemplated does not mean there was no intention to be bound i. There were issues of fact found as to the intent of the parties

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ii. Missing terms or vague terms can be implied by the court if there is a reasonable basis for doing so; thus the absence of
a term may not be fatal to a contract iii. Other omissions found by the DC to be not necessarily fatal to the contracts existence: a. Indemnification b. Insurance c. Price increases d. Quality control e. Choice of law f. Length of the contract g. Confidentiality h. Price

XII.

CONSIDERATION among the limitations that exist on enforcement, the most fundamental is the requirement of consideration a. The doctrine of consideration traditionally rested on 2 main legs: i. Promise is legally binding if it is given in return for some benefit which is rendered, or to be rendered, to the promisor ii. Promise becomes binding if the promisee incurs a detriment by reliance upon it, that is, if he changes his position in reliance on the promise in such a way that he would be worse off if the promise were broken than he would have been if the promise had never been made at all b. To constitute consideration, a performance or a return promise must be bargained for i. A performance or return promise is bargained for if it is sought by the promisor in exchange for the promise c. The performance may consist of i. An act other than a promise; or ii. A forbearance; or iii. The creation, modification, or destruction of a legal relation iv. The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person. d. Before there was the doctrine of consideration for determining which promises to enforce, there was the seal i. What important purposes did the use of the seal serve? i. Cautionary function protected against a promise made on emotion (ensured seriousness) a. Ensured that the promisor was really intending to make a commitment that he was going to be bound by ii. Evidentiary function for the courts crystal clear evidence of the existence of a promise iii. Channeling function made it easy to channel the enforceable promise from the non-enforceable one e. The promise must be the voluntary assumption by one party of an obligation upon condition of an act, forbearance, or return promise by the other party. i. The promise and consideration bear a reciprocal relationship of motive and inducement: i. THE PROMISE MUST INDUCE THE CONSIDERATION, AND THE CONSIDERATION MUST MOTIVATE THE PROMISE f. There is NO consideration for gift promises (nudum pactum)

14

g. Kirksey v. Kirksey Plaintiffs husband died, and her bro-in-law invited her to come live on his land with her children, so she abandons
her land and goes. 2 years later, he puts her out in the woods in an uncomfortable house, and then a little later, kicks her out altogether. i. With a promise of mere gratuity, an action will NOT lie for its breach ii. An agreement with two promises is a bilateral contract i. As long as neither party has fully performed his promise, the agreement is described as executory iii. If the agreement is unilateral in form, a promise requesting some act, or is fully executed by either party, then there is only one promise to be enforced iv. When an inconvenience is simply action taken to take advantage of a gratuity, that is NOT consideration i. This is what happened here, she needed to move 60 miles in order to get what was promised, but theres no exchange bc there was no benefit to the promisor v. If the happening of some condition will be a benefit to the promisor, it is a fair inference that the happening was requested as consideration h. Hamer v. Sidway Uncle promises his nephew $5000 if he refrains from drinking, gambling and smoking until he turned 21. Uncle was going to give him the money, but died before he could. i. For there to be consideration, there must be either a benefit to the promisor or a detriment to the promisee i. It is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him ii. Forbearance agreeing not to do something which one has the legal right to do i. This is a legal detriment iii. NOTE: 79: Courts will not inquire into the adequacy of consideration, just whether or not it exists i. Schnell v. Nell Schnells wife left a will giving Nell et al. $200 each, but she had no property (it all became Schnells alone when she died). Schnell wrote them, saying that in consideration of one cent and in consideration for the love and respect Nell bears to his wife, he would give them the $200. He doesnt follow thru when he falls on hard financial times. i. Past consideration is NO consideration i. Precisely be the requirements of motive and inducement of exchange are lacking ii. Nominal Consideration the transaction is a ruse; it was not a bargain; it was a gift masquerading as a bargain i. Great disparity is signal/red flag that the consideration was a sham ii. 79: if the requirement of consideration is met, there is no additional requirement of equivalence in the values exchanged (presumption of underlying bargain) iii. Black acre for $1 is OKBlack acre for $1 wink, wink, is not! iii. What purpose does consideration serve beyond purely the purposes of form? i. Limiting enforcement to promises which essentially excite reasonable expectations in the market place iv. If the claim is legally unfounded, even if it is made in good faith, it does not constitute good consideration j. Dyer v. National By-Products, Inc. Dyer is injured in a job-related accident and loses his foot. He is later rehired in his same position but several months later is laid off. He sues, claiming breach of an alleged contract of employment for life. i. The fact that a claim is ill-founded is not in itself enough to prevent forbearance from being sufficient consideration for a promise ii. 74: the compromise of an unfounded claim can constitute consideration in 2 instances: i. Reasonable belief you are acting in good faith (objectively reasonable); or

15

ii. An honest belief in the validity of the claim

iii. POLICY: settlement of disputed claims without resorting to court action k. Reed v. University of ND and The ND Assn for the Disabled Reeds coach required him to run in this race if he wanted to stay on the
team, and the NDAD allowed him to run in it in exchange for his promise not to hold them responsible for any claims or injuries arising out of his participation. He runs the race and as a result suffers a fairly grievous injury. i. A mere promise as distinguished from an actual performance can be consideration ii. Reeds surrender of a legal right in exchange for NDAD allowing him to run the course during the race constitutes consideration for the release iii. POLICY: burning man hypo courts wont enforce a release form that promotes conduct disfavored by public policy

XIII.

MODIFICATION traditionally, modification of an existing contract required a separate consideration for the new promise and if the modification affected only one partys performance, then it would often fall under the pre-existing duty rule: a performance or promise to perform something the promisor is already bound to do does NOT constitute good consideration a. Alaska Packers Assn v. Domenico Group of fisherman who signed on with defendant for a set fee, once there, threaten to cease work unless they get paid more. Defendant has no other option but to agree to do so, so they go back to work. He refuses to pay the increased wage he had promised, and they sue. i. Any time there is a one-sided modification, it is often a signal that the modification is a by-product of duress or bad faith ii. When a party merely does what he has already obligated himself to do, he cannot demand an additional compensation therefore, and although, by taking advantage of the necessities of his adversary, he obtains a promise of more, the law will regard it as nudum pactum, and will not lend its process to aid in the wrong iii. Pre-existing duty rule seeking to prevent coercion/ the hold up game b. Angel v. Murray An action by the citizens of the town to recover an additional $20,000 paid to a refuse collector in RI as a consequence of the increased cost involved as a result of the unanticipated construction of 400 new dwelling units in the middle of a 5 year contract. i. UCC 2-209(1) an agreement modifying a contract for sale of goods needs no consideration to be binding; modification must meet the test of good faith ii. Restatement 89 (a) not only prohibits modifications obtained by coercion, duress or extortion, but also fulfills societys expectations that agreements entered into voluntarily will be enforced by the courts iii. 89: Modified agreements will be enforced as long as: i. The promise modifying the agreement must NOT be coerced ii. Circumstances prompting the modification must NOT be anticipated iii. The modification must be fair and equitable in light of those unanticipated circumstances iv. Contract must still be executory on both sides (there must still be performance obligations left on both sides) a. This requirement was added by 81 b. When one party has fully performed and there is some type of forgiveness of full performance by the other party, the scenario falls under a different doctrine of law: not modification, but discharge accordant satisfaction iv. EXCEPTION to the pre-existing duty rule: when unexpected difficulties arise and modification is made voluntarily QUASI-CONTRACTS AND RESTITUTION

XIV.

16

a. Quasi-Contract somewhere bt contract and tort; liability is based neither on an express nor an implied in fact promise; promise implied
in law to make a defendant pay for a benefit received from another under circumstances where it would be inequitable to allow that person to retain that benefit without paying for it (unjust enrichment) i. The cause of action for a QC is based on the doctrine of unjust enrichment separate theory of liability (distinct from ordinary contract liability) that provides a remedy, namely restitution, in circumstances where no true contract exists i. Restitution both the substantive legal rules that embody the right of an innocent party to recover for UE and the remedy, at law or equity, that is available to redress such an UE ii. One who without intent to act gratuitously confers a measurable benefit upon another is entitled to restitution if he affords the other an opportunity to decline the benefit or else has a reasonable excuse for failing to do so i. If the other refuses to receive the benefit, he is not required to make restitution unless the actor justifiably performs for the other a duty imposed upon him by law iii. What are some forms of benefits of a QC claim? i. Transferring property to the defendant; ii. Saving, preserving or improving his property; iii. Rendering personal services for him iv. Performing for him a duty imposed directly by law by his own contractual arrangements b. Not at the Request of the Defendant i. Cablevision of Breckenridge, Inc. v. Tannhauser Condominium Assn (CLASSIX EXAMPLE OF UE) Tennants in condo association had originally contracted for cable service, but later on they cancelled the service and installed their own wiring so that they could get the signals; they were still receiving Cablevision service, but Cablevision didnt find out til it was hired to install cable for the condos new building. i. Conversion the wrongful misappropriation of a protected interest ii. Implied contracts can exist under the theory of UE iii. What must a plaintiff show to recover under a theory of QC or UE? a. Benefit was conferred on the defendant by the plaintiff b. Benefit was appreciated by the defendant c. Benefit was accepted by the defendant under such circumstances that it would be inequitable for it to be retained without payment of its value iv. This case is a perfect example of UE and a solid example of restitution based on UE where the defendants didnt specifically request the benefit but enjoyed it when they knew it wasnt intended to be free v. Party confers a benefit upon another not only where he adds to property of another, but also where he saves the other from expense or loss vi. Word benefit denotes any form of advantage ii. Watts v. Watts Plaintiff lived with defendant for 12 years and contributed to his business, etc. They separated and now she wants to be compensated under theory of UE. Plaintiff argues that it is unfair for defendant to retain all assets they accumulated and that a constructive trust should be imposed on the property as a result of defendants UE. i. Constructive trust equitable device created by law to prevent UE; to state a claim on this theory, the complaint must state facts sufficient to show: a. UE

17

b. Abuse of a confidential relationship or some other form of unconscionable conduct, which can be inferred from allegations in the complaint which show a family relationship, a close personal relationship, or the parties mutual trust ii. Action for recovery based on UE is grounded on the moral principle that one who received a benefit has a duty to make restitution where retaining such a benefit would be unjust (QC) iii. Unmarried cohabitants may raise claims based upon UE following the termination of their relationships where one party attempts to retain an unreasonable amount of property acquired thru the efforts of both iii. Good Samaritan Hypo: Arguably, a doctor could get compensated for work done for a patient who has not had the opportunity to assent to treatment. You could argue the doc does not ordinarily work for free and thus it was a detriment, and the individual received a benefit, and therefore was unjustly enriched. i. The law does NOT protect mere volunteers or officious intermeddlers

XV.

PAST CONSIDERATION these circumstances resemble UE cases, but theres usually some element of UE theory missing a. Harrington v. Taylor Plaintiff has her hand chopped off while saving the defendant from being decapitated by his wife with a axe; defendant then promises to pay her for her losses, but then reneges, so plaintiff sues. i. According to the court here: however much the defendant should be impelled by common gratitude to alleviate the plaintiffs misfortune, a humanitarian act, voluntarily performed, is NOT such consideration as would entitle hr to recover at law b. Mills v. Wyman Mills rendered care to defendants adult son; after the aid had occurred and the son had died, the defendant promised to reimburse Mills for the care rendered by him to his son. i. Mills acts were deemed as a gift; there was no opportunity to decline the benefit, therefore, no bargain ii. General position that moral obligation is 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 iii. Past consideration is usually NOT good consideration EXCEPT in the instances where: i. Promise reviving a previously enforceable obligation has become barred by an applicable limitations period ii. A promise to pay an obligation rendered discharged by insolvency you woe a debt to someone, it becomes discharged in bankruptcy, but promise to pay anyway; as a matter of common law, that promise is enforceable iii. A promise to pay a voidable obligation incurred by an infant after the minor reaches the age of majority if revive the debt after reaching the age of majority, it will hold up even though the consideration was in the past iv. In all of these cases there was originally quid pro quo that subsequently was rendered inoperative, but then revived by a new promise v. 2 classes or person lack the capacity to contract: a. Minors b. Mental incapacitants c. In the next case, the common law overcame the technical application of the doctrine of consideration d. Webb v. McGowin To save McGowins life, Webb falls with a 75-lb pine block from the upper floor of a lumber mill in order to divert its direction. Webb is disabled for life, and after that occurs, McGowin is appreciative and promises to pay him $15 every two weeks for the rest of his life. McGowin does so, but then dies, and after his death the payments cease; Webb sues the estate to enforce the promise. i. Material benefit rule ( 86) the circumstances under which the defendants moral obligation will be sufficient to support a

18

subsequent promise by a party who received a material benefit from the past act of the promise i. This doctrine allows the court to enforce a promise it feels ought to be enforced even though theres technically no consideration and some element of UE is NOT satisfied ii. 86 of the Restatement: i. 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 ii. A promise is NOT binding under section (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 iii. There was no time for deliberation in this case, and the court found that if there had been time, this deal would have been struck as an exchange iv. It is well settled that a moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor e. Webbs acts gratuitous (out of necessity/instinct) and no opportunity to bargain f. Mills acts an intentional decision to confer a benefit as opposed to an instinct g. WHILE MORAL OBLIGATION, STANDING LONE, IS AN INSUFFICIENT BASIS FOR ENFORCEMENT OF A PROMISE, WHEN YOU COUPLE IT WITH SOME BENEFIT RECEIVED BY THE PORMISOR, THE CASE FOR ENFORCEMENT BECOMES COMPELLING, PARTICULARLY IF PHYSICAL INJURY IS INVOLVED h. Consideration: i. Promise + Bargain ii. Promise + Moral Obligation + Prior Benefit iii. Promise + Unbargained for Reliance iv. Promise in Writing by a Merchant (Firm Offer)

XVI.

PROMISSORY ESTOPPEL the promisor is being estopped from asserting the non-existence of consideration as a defense; distinguishable from equitable estoppel a. Requires only a promise that induces detrimental reliance i. No requirement of some false representation as to a matter of past or present fact b. Not used as a shield/defense to liability, but as a sword to enforce a claim that would otherwise be unenforceable bc of the absence of consideration c. Restatement 90: i. a promise which the promsior should reasonably expect to induce action or forbearance on the part of the promisee or third 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. ii. A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance i. Thus, purely gratuitous promise may be enforced ii. There is now a fault-based rationale in place

19

d. What are the elements required to invoke promissory estoppel? i. Promise ii. Detrimental reliance on such promise by the promisee i. Reliance must be reasonable iii. Foreseeability of the reliance by the promisor iv. Injustice can be avoided only by enforcement of the promise e. Ricketts v. Scothorn Plaintiffs grandpa gave her a not promising to pay her $2000, saying that none of his grandchildren work, and that she shouldnt have to work. She then quit her job. The agreement didnt require her to quit, and she did eventually go back to work. When her grandfather dies, she sues the estate. i. Promissory estoppel is the basis for this ruling ii. If the promisee is NOT reasonable in relying on the promise, then maybe you do not enforce it for that basis: have to examine all elements and perspectives iii. Ordinarily, gratuitous promises, like this one, are not enforceable. Ricketts made no condition, requirement or request and gave the money as a gratuity, her abandonment was merely voluntary. However, there is a class of cases (such as a not given in church where the faith of the donee on the promise constitutes valuable and sufficient consideration) in which based on the equitable principle that, after allowing the donee to incur obligations on the faith that the note would be paid, the donor would be estopped from pleading want of consideration. When payee changes his position to hid disadvantage in reliance on the promise, a right of action DOES arise iv. Remedy: full expectation v. reliance interest i. either give the non-breaching party her expectation, or ii. measure the reliance interest and put her back in the position (status quo ante) as if the promise hadnt been made f. Katz v. Danny Dare, Inc. Katz, 67, is injured in an attempt to thwart a robbery; his injuries result in memory loss and other impairment, so the president and his bro-in-law, Shopmaker, wants to induce him to retire. They negotiate for 13 months, and agree on $13,000 a year (as opposed to his current salary of $23,000). He did eventually start working part time again 3 years later, and when this happened Danny Dare tried to only send him half his usual check. Shopmaker says he would have been fired had he not agreed on this proposal. i. Three elements to be satisfied to invoke the doctrine of promissory estoppel: i. A promise ii. A detrimental reliance on such promise iii. Injustice can be avoided only by enforcement of the promise

XVII. CONSTRUCTIVE CONDITIONS & SUBSTANTIAL PERFORMANCE -a. Promise Theorists say that if you find a basis to enforce the promise you enforce it: put him back in as good a position as he was before
(expectance measure)

b. Reliance Theorists counter that since what were really doing is compensating an injured party for a detrimental change in position, we
should measure damages based on recoupment of the cost of the detriment incurred c. Possible Responses to Breach, and the Categories of Breach i. Waive the right to pursue the breacher ii. Amend or modify the existing contractual relationship

20

iii. Seek compensation for the partial breach while keeping in place the whole contract iv. Suspend performance, keeping the contract in limbo until the breacher gives more definite indications of his true intent v. Take the position that total breach has discharged him from future performance
d. You can suspend performance or terminate only when the breach is a MATERIAL BREACH e. Restatement 237: it is a conditions of each partys remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time i. Thus, the duty to tender performance is conditioned upon the other partys not being in material breach f. Gibson v. City of Cranston Gibson entered into a contract with the city to be the superintendent of schools; the contract said she would receive an annual performance evaluation, and when she asked about the criteria, the board suggested she submit her own form. When her first evaluation came up, 5 members used the form, two wrote notes, and two didnt evaluate her at all. She later asked the committee to provide her with a statement of performance objectives, which they never supplied. She accused the city of breaching the contract and so she breaches her part. i. This was NOT a material breach, which meant she had no right to cease working and in fact she became the party in material breach ii. If someone commits a non-material breach, you cam bring a claim not for breach of the whole, but a claim for damages resulting from the non-material breach iii. A contracting party may cease performance and seek damages only if the other contracting party commits a material breach: a breach that goes to the essence of the contract iv. 241: What are the factors used to determine whether a failure to render/offer performance is material? i. Extent injured party will be deprived of the benefit which she expected under the contract ii. Extent she can be compensated for that benefit iii. Extent the party failing to perform will suffer a forfeiture if we deem the breach material iv. The likelihood that the party failing to perform will cure that failure v. Extent to which the behavior of the party failing to conform comports with the standards of good faith and fair dealing v. The determination of materiality must be based largely on a standard of objective reasonableness than purely subjective belief g. Express Conditions will be respected and enforced require strict compliance i. EX: I agree to buy your hose, subject to financing. If financing is not approved, then Im relieved from my contractual duty to buy the house. ii. When parties condition their performance, they are allocating the risk from the promisor to the promisee h. Constructive Conditions each partys performance becomes a condition to the other partys performance; when possible, you want parties to be able to perform simultaneously. These impose security. If this is NOT possible, who goes first? i. Contract may specify, but if notthe default rule states that the party whose performance will require a period of time will have to perform first ( 234) ii. If I dont perform an unconditional performance, Ive breached iii. If I dont perform a conditional promise bc the condition did not occur, there is no breach and performance is excused bc the risk of nonoccurrence of the condition is on the promisee i. Condition an event not certain to occur but which must occur, unless excused, before liability for non-performance of the promise to which the condition relates can be imposed

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j. Reciprocal Obligations: In a bilateral contract involving an exchange of promises, each partys performance of his or her promise
becomes constructively a condition to the other partys duty to perform, unless there is a contrary clause in the contract i. These reciprocal obligations are called constructive conditions of exchange play an important role in assuring each party that he will receive the promise of the other ii. Thus, mutual promises are regarded as dependent and whenever possible to be performed simultaneously (concurrent conditions, 234) k. Substantial Performance where each party makes one or more promises to the other, each partys substantial performance of his promise is generally a constructive condition to the performance of any subsequent duties by the other party l. Jacob & Youngs, Inc. v. Kent (SUBSTANTIAL PERFORMANCE AS A BASIS FOR EXCUSING CONSTRUCTIVE CONDITIONS) Plaintiff, contractor, has built an expensive residence for Kent; Kent wanted a specific type of pipe, Reading, that was of the same quality of pipe that JY used. JY wants to recover the balance of the contract price that he has not yet been paid, bt the architect informs him that he has to redo all of the piping. i. Doctrine of Substantial Performance: When the performance is substantial, then we will (with respect to the nonoccurrence of the little bit thats left) look at the rest as excused i. An omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage, and will not always be the breach of a condition to be followed by a forfeiture ii. The parties can overcome the rule of substantial performance by express stipulation in the contract i. The doctrine of substantial performance to excuse non-performance of conditions speaks to constructive conditions, not express ones iii. Deviation, no matter how trivial, will not be tolerated if it frustrates the purpose of the contract iv. How much slack under the doctrine of substantial performance well cut the breaching party will depend on the quality of the breach v. Absent a clear specification to the contrary, strict performance down to the finest minutiae would likely be a perversion of intention, which would result in an unfair forfeiture i. The law abhors unfair forfeiture XVIII. SUBSTANTIAL PERFORMANCE / MATERIAL BREACH a. O.W. Grun Roofing & Construction Co. v. Cope OW contracts with Cope to install a new roof on Copes house; the contract specifies that the roof is to be uniform in color. The roof installed, though serviceable, was streaked and the streaking did not blend over time. Only way to attain uniform colorization would be to reinstall the entire roof. i. A constructive condition to the obligation has not been satisfied ii. There is no recovery under QC bc the Copes bargained for a uniform colored roof, which means theyll have to rip off this one and put a new one on iii. A material breach or a breach which goes to the root of the matter or essence of the contract defeats the promisors claim despite his part performance iv. Doctrine of Substantial Performance: a promisor who has substantially performed is entitled to recover, although he has failed in some particular to comply with his agreement v. In order to determine whether the contractors performance amounts to substantial performance, what factors are to be considered?

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vi. vii.

viii.

ix.

x.

Extent of nonperformance The purpose to be served The desire to be gratified The excuse for deviating from the letter of the contract The cruelty of enforcing strict adherence or of compelling the promisee to receive something less than that for which he bargained Contractor must have in good faith intended to comply and shall have substantially done so in the sense that the defects are not so pervasive, do not constitute a deviation from the general plan, and are not so essential that the object of the parties cannot with difficulty be accomplished by remedying them. Substantial performance permits only such omissions or deviations from the contract as are: i. inadvertent and unintentional, ii. are not due to bad faith, iii. do not impair the structure as a whole, and iv. are remediable without doing material damage to other parts of the building in tearing down and reconstructing A person has, particularly with respect to his home, to choose for himself and to contract for something which exactly satisfies that choice, and not to be compelled to accept something else Divisible contract is one under which the whole performance is divided into two sets of partial performances, each part of each set being the agreed exchange for a corresponding part of the set of performances to be rendered by the other promisor i. The failure to perform one part does NOT bar recovery for performance of another ii. Where defendant has defectively performed, plaintiff normally can recover the cost of remedying defendants defective performance; but if the cost of remedying defects is clearly disproportionate to the loss in market value from the defective performance, plaintiff will only recover the loss in market value iii. EX: Non-divisible contract Contract to build a house, and it provides for the contract price to be paid in progress installments Contractor signs the contract and excavates the foundation, puts up the framing, and then walks away. Can he make a claim for the 20% of the total work hed done? a. No; this was a contract for the entirety, a single performance, and staggering of the payments was just done as a convenience. He has not substantially performed and so the owner should not have to pay. iv. EX: Divisible contract A single contract with a developer who owns a tract of land to build 2 identical houses on 2 adjacent lots for $250K each. Contractor completes the first house per the specifications and then breaches, not doing the second house; can he recover for substantial performance? a. Yes; in this case, there is a much better argument that although it was a single contract we had two discreet performances that could have been 2 separate performances, but in actuality we were bargaining for the full contract, which means he only go half-way. We take the cost of whatever it will cost the owner to get another contractor out of the contractors damages. A breach can occur in one of two forms: i. An actual breach entails the failure to perform at the time the performance is due ii. A prospective/anticipatory breach (repudiation) a repudiation of an obligation in advance of the time for performance

i. ii. iii. iv. v.

XIX.

ANTICIPATORY BREACH in the event of prospective nonperformance, if it is material, it will give rise in the aggrieved party the right

23

to invoke both her defensive and offensive remedies a. Hochster v. De La Tour Defendant had engaged Hochster to accompany on his trip as a courier for 90 days. Defendant repudiated the contract before the time they were supposed to leave, and Hochster brings action. i. It is wasteful to make the plaintiff wait until the date when the actual breach would occur (the date they were to leave) bc it is wasteful, preventing him from mitigating damages by obtaining subsequent employment and it also penalizes the party who has put his faith in the others renunciation, and expands the option for the party who has announced his intention to breach ii. 250 of the Restatement: Repudiation is defined as i. Express repudiation that would constitute a material breach ii. A voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach (implied repudiation) iii. 253 of the Restatement: Rights if the promisee when there is repudiation i. Immediately cancel the contract and seek damages for breach ii. Insist on performance and stand ready to breach to see whether or not there is an actual breach iv. Common Law in 2-610: When either party repudiates the contract with respect to a contract not yet due, the loss of which will substantially impair the value of the contract to the other, the aggrieved party may i. Wait a commercially reasonable time for performance a. if you wait, you run the risk that the party may retract his repudiation ii. Immediately resort to remedy for breach v. Basically, a party should have the right to mitigate damages, which he is required by law to attempt to do, rather than wait around for the actual date of breach b. Truman L. Flatt & Sons Co., Inc. v. Schupf Parties entered into a contract for land for $160,000. The buyer inserted an express condition which said his obligation to perform was conditioned on obtaining a zoning approval in advance for his intended use of the property. The plaintiffs attorney, after discovering the substantial public opposition to the zoning application, send a letter to defendant telling him they withdrew their proposal to the city, and would like to purchase the land for a lesser price. Defendant responds that they dont want to sell for less, and then the plaintiffs attorney responds to that, saying theyll proceed with the original contract. When he doesnt hear anything back, he sends two more letters, and the defendant finally responds, claiming that when the plaintiffs failed to waive the condition at the time it became clear that it wouldnt be satisfied, and then try to renegotiate the price, that was a repudiation of the original contract. Plaintiff sued for specific performance. i. A repudiation must contain a clear, unequivocal manifestation of an intent that a party no longer intends to perform ii. Upon repudiation, the aggrieved party can treat the contract as repudiated without notice, but this is true only if the aggrieved party can show some change in position i. This limitation is necessary to prevent the complete evisceration of the right of retraction a. No repudiating party would ever be able o retract a repudiation bc after receiving a retraction, the aggrieved party could, if it wished, simply declare it had already decided to treat the repudiation as a rescission or termination of the contract ii. The doctrine of anticipatory repudiation requires a clear manifestation of an intent not to perform the contract on the date of performance. That intention must be a definite and unequivocal manifestation that he will o not render the promised performance when the time fixed for it in the contract arrives a. Doubtful and indefinite statements that performance may or may not take place are not enough to constitute

24

anticipatory repudiation b. Suggestion for modification of the contract does NOT amount to a repudiation iii. Where the aggrieved party has not otherwise undergone a material change in position, the aggrieved party must indicate to the other party it is electing to treat the contract as rescinded. This can be accomplished either by bringing suit, by notifying the repudiating party, or by in some way manifesting an election to treat the contract as rescinded. Prior to such indication, the repudiating party is free to retract its repudiation. iii. What options do you have if you are the defendant in Truman? i. Wait and see if plaintiff breaches a. In the mean time watching damages mount ii. Stop performance and breach yourself iii. You can get assurance that the other party will perform a. We want to protect the party who has understandably become concerned about the prospects for damages resulting from potential nonperformance b. Until you get assurance, you can withhold your own performance. Failure to provide adequate assurance after a reasonable time is itself treated as repudiation. c. Norcon Power Partners, LP v. Niagara Mohawk Power Corp. Norcon was accruing a lot of credit and Niagara was worried they wouldnt be able to pay when they got to the third pay period; Niagara demanded Norcon provide adequate assurance to them that it would duly perform all of its future repayment obligations. Norcon sued. i. UCC 2-609: allows adequate assurance of future performance when reasonable grounds for insecurity arise i. When assurance is not forthcoming (within 30 days), repudiation is deemed confirmed ii. This is done for predictability, definiteness, stability in commercial dealings and expectations ii. Restatement 251also recognizes adequate assurance of future performance i. When reasonable grounds arise, the obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance ii. If adequate assurance is not provided in a reasonable time, obligee may treat this as a repudiation d. For a party (sometimes referred to as the aggrieved party, and generally assumed to be innocent of any breach), society does provide courts and enforcement mechanisms to allow a chance for redress.

XX.

MONEY DAMAGES (P. 883) courts tend to compute damages as the amount necessary to put the aggrieved party in the same position that he would have been in had there been performance; money substitutes for performance a. Three principle purposes when awarding contract damages: i. Expectation Interest without insisting on reliance by the promisee or enrichment of the promisor, we may seek to give promisee the value of the expectancy which the promise created i. Standard measure of damages for breach of contract ii. OBJECTIVE: put plaintiff in as good a position as he would have occupied had the defendant performed his promise iii. Ordinarily most generous measure of damages takes profits and reliance expenditures into account (Recovery = 100%) ii. Reliance Interest plaintiff has, in reliance on the promise of the defendant, changed his position i. OBJECTIVE: put plaintiff in as good a position as he was in before the promise was made

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a. Undoing the harm which his reliance on the defendants promise has caused him

ii. Takes just reliance and expenditures into account court generally awards the plaintiff his out-of-pocket costs incurred
in the performance he has already rendered (Recovery = 90%) iii. Restitution Interest plaintiff has, in reliance on the promise of the defendant, conferred some value on the defendant, and the defendant fails toperform his promise i. OBJECTIVE: put the promisor back in the position he would have been in had the promise not been made a. Prevention of gain by the defaulting promisor at the expense of the promisee (prevention of UE) ii. Court forces the defendant to pay the plaintiff an amount equal to the benefit which the defendant has received from the plaintiffs performance a. Restitution is designed to prevent UE iii. Normally the least generous measure of damages b. Expectation interest preferred method i. How is expectation interest measured? ( 347) i. The loss in value to the injured party of the other partys performance caused by its failure or deficiency; plus ii. Any other loss, including incidental or consequential loss, caused by the breach; less iii. Any cost or other loss that injured party has avoided by not having to perform ii. (LOSS IN VALUE [LV] + OTHER LOSS [OL]) (COST AVOIDED [CA] + LOSS AVOIDED [LA]) i. Loss in Value the difference bt what was promised and what was received; difference from the contract price ii. Other Loss incidental or consequential damages iii. Cost Avoided what I would have had to spend to earn the bargain iv. Loss Avoided gain made possible by breach; mitigation c. Hawkins v. McGee Harry hand case; defendant doc told the plaintiff I will guarantee to make the hand a hundred percent perfect hand or a hundred percent good hand. i. There is no warranty of cure in a patient-physician relationship, but his statements here established one ii. Here, the court found that damages should put the plaintiff in as good a position as he would have been in had the defendant kept his contract (expectation interest) d. Leingang v. Mandan Weed Board Leingang had contracted to cut weeds for the city with respect to lots of a certain size, but the city breached by not assigning him to lots that should have fallen under his contract. i. The issue here was whether to reduce the price he would have received by the applicable share of the indirect or fixed expenses in addition to deducting the direct expenses ii. For breach of contract, the injured party is entitled to compensation for the loss suffered, BUT can recover no more than would have been gained by full performance iii. When the contract is for service, and the breach prevents the performance of that service, the value of the contract consists of two items: i. Partys reasonable expenditure towards performance, including costs paid, material wasted, and time and services spent on the contract, and ii. Anticipated profits a. These must be reasonable, NOT speculative

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iv. King Requirement: plaintiff will be compensated for all the detriment caused by the breach
Constant overhead expenses are NOT deducted from the contract price bc they are expenses the plaintiff had to pay whether or not the contract was breached v. The court here assumed that Leingang was unable to take on any other jobs than these (no way to mitigate the loss) vi. (LV + OL) (CA + LA) i. Look at Damages Hypos e. Groves v. John Wunder Co. Contract lease under the terms of which Groves is to pay Wunder to remove gravel on his property, and he agrees to leave the property at uniform grade, substantially the same as the grade of the adjacent RR. Wunder breaches by removing only the best sand, and wholly and deliberately fails to do the grating work which would have required removal of the overburden, leaving the land ragged instead of at uniform grade. i. Diminution Value loss in value should be calculated as the difference bt the value of what the land is now and what it would have been had the contract been fully performed i. This argument is supported by the doctrine of economic waste ii. Doctrine of Economic Waste it is wasteful economically to award damages to permit work to be done that is substantially disproportionate to the vale attained i. Here, no one would spend $60,000 to make the land worth $12,000 iii. The willful transgressor should NOT be rewarded with, to him, the more generous diminution in value measure bc he willfully breached iv. Under contract law, the aggrieved party is entitled to compensation for the loss of value caused by the breach to the benefit of his bargain i. In contract law, you are entitled to the benefit of your bargain just bc what the owner contracted for may not produce proportionate enrichment in the property is NOT grounds to deprive him of what was promised ii. Contract law remedies are supposed to be about compensation, NOT punishment or deterrence i.

XXI.

LIMITATIONS ON DAMAGES a. Direct Damages difference at the time and place of acceptance bt the value of the goods accepted and the value they would have had if they had been as warranted i. These damages are given automatically b. Other Losses only if a loss that the seller was undertaking to accept i. Incidental Damages expenses that would not be incurred but for the breach, such as storage costs or commissions associated with finding another buyer for goods if the buyer breached i. Relatively small in comparison to consequential damages ii. May have to run an ad, store goods, look for another buyer, etc. iii. Foreseeabiliy is generally not an element ii. Consequential Damages damages indirectly caused by the breach, such as lost profits or incidental reliance expenditures (those that were incurred in expectation of performance but were NOT necessary in order to perfect the right to the other partys performance i. Focusing on a breach that results in lost profits

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ii. Non-breaching party can only recover consequential losses if in fact she can establish not just but-for causation, but also proximate causation iii. Unlike direct damages, which are automatically recoverable bc suffered by any plaintiff, consequential damages are unique to a particular plaintiffs situation and are only recoverable when they are foreseeable the loss must be of a kind that the seller was undertaking to accept when she entered into the bargain iii. NOTE: The distinction bt these two losses is not truly important; when calculating damages, they are both classified as other losses c. Hadley v. Baxendale Plaintiffs crank shaft broke, which was required to run the mill, so he brought it to Baxendale, a transport/carrier company, to transport to the makers in another city to fix. At this point, he tells Baxendale that the mill has been stopped. Due to neglect on the part of the defendant, the shaft was delivered to the makers late, and thus, return of the shaft took longer than was expected, and so the mill was closed for longer than it needed to be. Plaintiff sued for profits for the period of the additional closure. i. When dealing with damages unique to a plaintiffs situation (special circumstances), the defendant should ONLY be liable for the damages they were aware of, those that the plaintiff communicated to the defendant i. This way, the breaching party has tacitly agreed to be responsible for those damages when he agrees to the contract almost like another, special deal ii. The party here has the option of choosing whether or not he wants o be responsible for those damages ii. The defendant must be presumed to have knowingly assumed the risk as to both the TYPE and AMOUNT of damages unique to the plaintiffs situation that might have flowed from the breach iii. Restatement 351 or UCC 2-715(2): Forseeability standard i. Focus is shifted from tacit agreement (have to agree to be responsible for those damages) to ones of foreseeability and avoidability, the seller is liable for consequential damages if she knew of had reason to know from the general or particular requirements of the buyer that these types of damages might result and those damages must not be preventable by cover (substitute) or otherwise d. Manouchehri v. Heim Defendant salesman sells plaintiff doc a used x-ray machine; knowing the doc wants a 100-100 machine, he knowingly sells him a 100-60 machine, telling him it is a 100-100 machine. When the doc alerts him that the machine needs to be fixed, defendant continues to tell him hell fix it but never does. Doc sues for breach of warranty. i. Warranty an affirmation of fact about the basic characteristics or qualities relating to goods so that if they dont measure up to that affirmation, the risk and responsibility are on the seller i. This is a strict liability theory ii. For breach of warranty, the buyer may recover direct, incidental, and consequential damages under the UCC ii. 3 classic limitations on the recovery of consequential damages are raised: i. Avoidability the duty to mitigate a. According to the UCC, the injured party should take steps to avoid undue risk, but it may, however, be reasonable to rely upon a breaching partys assurances that the breach will be remedied ii. Foreseeability a. Any reasonable person would assume such damages iii. Certainty a. When it is possible to present accurate evidence on the amount of damages, the party upon whom the burden rests

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to prove damages must present such evidence

iii. Hollywood Fantasy Corp. v. Gabor HFC contracted with Gabor to be the on-site celebrity for one of their fantasy vacation
weekends. She, after adding an out-clause to her contract which allows her to cancel her appearance if a significant acting opportunity in a film came up, cancels two weeks before the weekend, and HFC sues her for breach. i. Issue of certainty comes into play with respect to the damages incurred a. Dont have to prove damages with mathematical certainty, but you do have to show reasonable certainty i. At a minimum, opinions or estimates of lost profits must be based on objective facts, figures, or data from which the amount of lost profits may be ascertained b. We must establish damages not just to amount but to cause as well make some reasonable showing as to both amount and cause i. The mere hope for success of an untried enterprise, even when the hope is realistic, is NOT enough for recovery of lost profits ii. In this case, there was a failure to show the nexus bt Gabors breach and going out of business ii. Restatement 349: as an alternative to expectation, the injured party has a right to damages based on her reliance interest a. Use reliance interest when: i. You cannot prove expectation damages ii. Cost of proving expectation damages is too much b. Cant prove their expectation, so lets put them back in the position they would have been in had the contract never been made iii. General Rule: the victim of a breach of contract should be restored to the position he would have been in had the contract been performed. However, an injured party may, if he so chooses, ignore the element of profits and recover as damages his expenditures in reliance iv. Parker v. Twentieth Century-Fox Film Corp. Contract for movie in which Parker would play the female lead; movie studio decided not to produce the movie and notified plaintiff that they would not comply with their obligation under the written contract, which had guaranteed her minimum compensation of $750,000 (repudiation). Instead, they offered her a chance to mitigate her damages (theyd pay her the same amount) by doing a different movie. She didnt reply and the offer lapsed. She sued to recover her guaranteed minimum compensation. i. Standard by which a duty to mitigate is measured: was the other opportunity comparable or substantially similar to the opportunity the plaintiff has been deprived of bc of the breach a. This DOES NOT require accepting an inferior means of employment ii. General Rule: the measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount which the employer affirmatively proves the employee has earned, or with reasonable effort might have earned, from other employment iii. PONOROFF FAVORS THE DISSENT!!! -- Things to Note in Sullivans Dissent: a. The mitigation rule exists to minimize the unnecessary personal and social (e.g., nonproductive use of labor, litigation) costs of contractual failure b. What is meant by the duty to mitigate is that if one unreasonably rejects an opportunity, he will not be heard to say that the loss of wages from then on shall be deemed the jural consequence of the earlier

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discharge (lost wages from that point on are no longer thru the fault of the defendant) i. He will have broken the chain of causation, and loss resulting to him thereafter is suffered thru his own act c. He feels that under the majoritys holding, which said that the substitute employment must not be of a different or inferior kind, nothing would do except an offer for the original job i. Majority probably had a difference in kind in mind, but this is NOT clear in their explanation of the standard, where the precedential value of the case is. d. Sullivans approach is more did the plaintiff act reasonably; so if the same studio guy turned around and offered Parker an offer of substitute employment, according to Sullivan, she wouldnt have to take it, but under the majoritys opinion, she would e. It is better to take testimony of difference in cache then simply decide those issues by taking judicial notice of the matters as a general proposition (this case should have gone to the jury) iv. NOTE: it is up to you whether or not you take steps to mitigate the loss, but if it would be reasonable to do so and you dont, that scales back the damages recovery

XXII. OTHER REMEDIAL MEASURES (RESTITUTION) damages usually equal the amount the plaintiff has spent in performing or in
preparing to perform a. Where are these damages used? i. There is a contract but expectation damages cannot be accurately calculated ii. There is no contract but some relief is justifiable b. Restatement 371: Measure of Restitution Interest i. Cost the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimants position ii. Net Enrichment the extant to which the other partys property has been increased in value or his other interests advanced c. Restatement 272: Restitution when Other Party is in Breach i. Injured party is entitled to restitution for any benefit he has conferred on the other party by way of part performance or reliance ii. Injured party has NO RIGHT to restitution if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money for that performance d. Restitution is NOT AVAILABLE where the plaintiff has fully performed if at the time of defendants breach, plaintiff has fully performed the contract (and defendant only owes money, not some other kind of performance), most courts do NOT allow plaintiff to recover restitution damages e. Restitution may even be awarded where plaintiff has partly performed, and would have lost money had the contract been completed f. United States v. Algernon Blair, Inc. Blair entered into a contract with the US to build a naval hospital and subcontracted with Coastal for steel erection and equipment. While Coastal is in the middle of this work, a dispute arises over who will pay for the rental of the equipment, and as a result, Coastal terminates its performance (28% of it done) bc of Blairs alleged breach. Coastal exercised its defensive remedies and sued for damages. i. Bc Coastal ended up saving more money than it would have lost by completing the contract, there can ONLY be recovery of

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damages under the theory of quantum meruit (theory of restitution for recovering damages) i. The impact of quantum meruit is to allow a promisee to recover the value of services he gave to the defendant irrespective of whether he would have lost money on the contract and been unable to recover in a suit on the contract, even though this value exceeds that of the return performance promised by the defendant ii. Were not talking about restitution as a remedy to prevent UE in a classic QC situation; rather, this is restitution to an injured party as an alternative remedy for the others breach ii. Idea of restitution is that the breacher must account for the benefit conferred i. Were trying to put the breaching party back in the position he would have been in had the contract never been entered into ii. If the non-breaching party seeks to enforce the bargain, either under the expectancy or reliance approach in a losing contract, there will be no recovery, and he wont come out even iii. When dealing with a restitutionary recovery, one has to be focused on the fact that what is relevant for restitution is the value of the benefit conferred, NOT the cost incurred iv. Restatement 373 (2): where the plaintiff has fully performed and all that remains for the party in breach is to pay a stipulated sum of money, that restitutionary relief is NOT available and all you are entitled to is the unpaid contract price i. If at the time of the breach Coastal had finished the work and Blair breached, the recovery WOULD NOT EXCEED the unpaid contract price on the basis that the value of the work would have increased the property value by a greater amount than originally bargained for a. At that point expectation damages are fixed v. The amount paid is NOT always proportional to the value of work done vi. Restatement 374: Net-Benefit Rule the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach i. In the case of a party in breach seeking restitution, the contract price is the ceiling for recovery g. Britton v. Turner Plaintiff had agreed to work for the defendant for 1 year, for which he would be paid $120. Plaintiff stopped working 9.5 months into it, without cause, but he is suing his employer for the work he did; nothing has been paid so far. i. The plaintiff CANNOT recover under: i. the contract (bc it was for a year), ii. there was no substantial performance, and iii. the other way constructive condition can be satisfied (thru the doctrine of divisibility) does not apply bc the contract was for the entirety and was not divisible ii. But he CAN recover under restitution under the theory of quantum meruit, even though he is the breaching party iii. What are the 3 ways to ameliorate a forfeiture resulting from the application of constructive conditions? i. Substantial performance ii. Divisibility iii. Restitution iv. Net Benefit Rule the breaching party can recover the value of the benefit conferred net of any damages caused by his breach i. Where the party receives valuetakes and uses the materials, or has advantage from the laborhe is liable to pay the

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reasonable worth of what he has received

v. According to the courts, when the breaching party seeks restitution, the contract price acts as a ceiling/cap for restitution
damages bc they did not want to encourage others to breach contracts and get restitution i. When the non-breaching party is seeking restitution, it is not clear whether the contract price provides a ceiling

XXIII. EFFICIENT BREACH a. Theory of Efficient Breach properly calculated expectation damages increase economic efficiency by giving the other party an
incentive to break the contract if, but only if, he gains enough from the breach that he can compensate the injured party for his losses and still retain some benefits from the breach i. There are no punitive damages ever awarded for breach of contract

XXIV. STIPULATED / LIQUIDATED DAMAGES sometimes parties agree in advance on what the remedy would be should one party fail to
perform a. What is the question we are trying to answer? i. To what extent are contract remedies amenable to modification by the parties? i. There are definitely limits in place re this issue and freedom of contract b. 2 theories on liquidated damages: i. 256: Traditional Theory the court will NOT enforce a stipulated damages provision if it operates as a penalty or forfeiture clause i. This is based on the premise that the whole theory behind remedies is compensation, not punishment or deterrence ii. Principle Limitation: must not operate as a penalty, which is the very reason that parties often bargain for this provision I the first place to operate as a deterrent against breachironic a. EX: construction contracts (per diem loss for every day that the contractor is late iii. NOTE: this is the prevailing view ii. Contemporary Theory enforce whatever bargain has been struck by the parties, allowing them to determine their own economic self-interest and allocate the risk as they see fit; presumably, they will adjust their economic relationships accordingly i. these matters are best left to the bargain arena where if the party has agreed to a particular stipulated damage provision, even if it is a penalty clause, the court should leave it alone bc parties are rational, economic actors, and the party probably got something in return for that penalty provision a. To limit stipulated damages is costly, wasteful, and deprives the other party of what they paid for b. Market-based solution to an economic problem c. Liquidated Damages Provision: i. Avoids litigation costs and risks ii. Promotes rational decision making d. OBrian v. Langley OBrians enrolled their daughter at Langley but later decided to withdraw her. They sent their letter of withdrawal 12 days after the deadline, and the contract bt the parties had said that in such an event, the OBrians would have to pay her full tuition as well as whatever court costs Langley might incur in collecting that money from them. i. The traditional conditions for enforcement of a stipulated damage provision (LDP):

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i. Parties must not intend the liquidation of damages to operate as a penalty or forfeiture
a. This is based on a policy against compulsion of performance ii. The damages anticipated from the breach must be uncertain in amount or difficult to prove when measured at the time the contract was entered in to a. When a court measures this, the traditional rule is to look at this factor at the time the contract was entered into (OBrian), although if one of the purposes of LDP is to reduce the cost of proof, one could argue there is good reason to accept uncertainty and difficulty of proof at the time of breach as well as the time of contract in determining whether or not it is enforceable iii. The stipulated sum must be a reasonable forecast of damage in light of the presumed loss a. The time when the resonableness is judged is traditionally at the time when the contract is made, not when the breach occurs b. In a case where the stipulated sum was reasonable when the contract was entered into, if no loss actually results, should it still be enforced? i. UCC the stipulated sum must be made in light of a reasonable forecast of the anticipated loss, and some courts hold that as long as that element is satisfied, the LDP should still be enforced, even with no actual loss 1. in this case the court basically makes an exception if the defendant can prove NO ACTUAL LOSS

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