Contract Semester 1 Outline - Cardi

8/8/2019 Contract Semester 1 Outline - Cardi

http://slidepdf.com/reader/full/contract-semester-1-outline-cardi 1/39

Contracts Full Outline

Theories of ObligationAgreement with Consideration

Promissory EstoppelUnjust Enrichment

Promises for Benefit Received

IssuesEmployment Contracts

Who breached?

Statute of Frauds?

Consideration

Mitigation

At-will?

Was there promissory estoppel?

Mutuality?

Construction Contracts

When did it occur?

Consideration?

Material Breach?

Remedy Available

Limitation on RemedyLiquidated damages clause?

Foreseeability?

Reasonable Certainty?

Unfair Forfeiture (for minor breaches, ancillary breaches)

Damages

General

Consequential/Incidental

Sale of Goods Contracts

Who breached?

Statute of Frauds?

Consideration?

Remedy Available

Limitations of Remedy

Acceptance of Goods?

Mitigation? Cover?

Liquidated Damages?

Specific Performance?



Foreseeability?

Sale of Land

Who breached?

Statute of Frauds

Consideration?

Remedy Available

Specific performance?

Foreseeability?

Promissory Estoppel Case

Sufficient PromEstop?

1. A promise which

2. the promisor should reasonably expect to induce action or forbearance

3. on the part of the promisee or a third person

4. and which does induce such action or forbearance

5. is binding IF

6. injustice can be avoided

7. ONLY by enforcement of the promise.

8. Remedy granted may be limited as justice requires

Limitations On Recovery

Reasonably Certainty in Profits?

Foreseeability?

Unjust Enrichment

Benefit conferred?

Unjust for D to keep?

Was promise made after benefit was conferred?

Remedies - Which to choose?Lost expectancy

Must use contract

Must be able to prove expected profits with reasonable certainty

Limited by contract price (even if market value would have been higher)

Reliance

Restatement 90 - substitute as consideration, sue under K

PromEstop - reliance only

Value of benefit conferred

Cannot use if there has been substantial performance

Can exceed original contract price (so see if you can use market value instead to gain higher

profit)

If breach was willful, intentional, or malicious, likely cannot recover anything under quasi-

contract

Contract Definition:

promise or set of promises for the breach of which the law gives a remedy or performance of



which the law in some way recognizes as a duty.

Types of Contracts

As to Formation

Express K

formed by language, oral or written

Implied in Fact

formed by manifestations of assent, other than oral or written language

example- by conduct

person sits down in barber chair, barber cuts hair, person pays for haircut

Quasi-Contract or Implied in Law

not really a contract at all

constructed by courts to avoid unjust enrichment

permits P to bring action in restitution to recover the amount of the benefit conferred on the D

As to Validity

Void

one that is totally without any legal effect from the beginning

cannot be enforced by either party

example - contract to commit a crime

Voidable

one that one of both parties may elect to avoid

do so by raising a defense that makes it voidable

ex - infancy or mental illness

Unenforceable

agreement that is otherwise valid but which may not be enforceable due to various defenses extraneous to

the contract formation

ex. Statute of Frauds

Acceptance

Output Contracts

quantity of goods is left open-ended on the understanding that the quantity to be supplied

under the K will be determined either by the buyer's requirements or the seller's output

Reasons for Output Contracts

Seller is confident that it can produce enough to satisfy the buyer's demands, and the buyer is unsure of its

exact needs and wishes to avoid the risk of ordering a specified quantity which may turn out to be short orexcessive.

Seller wishes to dispose of its full production in one transaction and the buyer is confident that it can use

all that the seller can supply

Mutuality is derived from an implied obligation of good faith or reasonableness

Option Contracts

promise to keep an offer open (not revoke it) for a specified period of time.

must have consideration and must be binding on the promisor

option contract is granted to induce the grantee to enter a contract desired by the grantor, the common

law more readily accepts nominal consideration to validate options.



GOOD FAITH definition

Honesty in fact in the conduct or transaction

Merchants held to higher standard of good faith

conduct is evaluated in light of what would be considered fair in the context

Conditional Contracts

If the contingency is an uncertain future event within realm of possibility and outside the

complete and discretionary control of the promisor, the it is genuine and can be seen as

consideration.

Legal detriment is suffered - promisor has bound his future in some way

Detriment of binding oneself on the happening of an uncertain future event outside one's control.

Creation of Contract When a suit is brought in which one party seeks to enforce a K or obtain damages for

breach, a court must first decide whether there was in fact a K.

Ask 3 questions:

was there mutual assent?

was there consideration or some substitute for consideration?are there any defenses to creation of the contract?

Common Law v. Article II Sale of GoodsGenerally, common law governs contracts

Article 2 of the Uniform Commercial Code governs sale of goods

sale is where goods pass from one person to another

goods are movable things

if K involves goods and nongoods, court will determine which aspect is dominant and apply it

to the contract as a whole

some rules only apply is the seller/buyer is a merchant

Mutual Assent - Offer and Acceptance In General

same bargain at same time (meeting of the minds)

court uses objective measure to determine - each party is bound to the apparent intention of

the other

The Offer

To be an offer, must create a reasonable expectation in the offeree that the offeror is willing to

enter into a contract on the baiss of the offered terms.To decide this, ask:

Was there an expression of a promise, undertaking, or commitment to enter into a contract?

(must be intent to enter into K)

Language

Surrounding Circumstances

Prior Practice and Relationship of the Parties

Method of Communication

use of broad communicating media will likely have the courts find the communication as mere

solicitation



advertisements are usually invitations for offers, but sometimes courts have seen them as offers

Industry Custom

generally accepted custom in the industry

Were there certainty and definiteness in the essential terms?

Were enough of the essential terms provided so that the K would be capable of being enforced?

Should include:

identity of the offeree

To be considered an offer, statement must sufficiently identify the offeree or a class to which she

belong to justify the inference that the offeror intended to create a power of acceptance

subject matter

must be certain bc court can only enforce promise if they can tell with reasonable certainty what

the promise is

1. Real estate - must identify land and price terms

2. Sale of goods - quantity must be certain

Requirement and output - quantity capable of being ascertained by referring to objective

extrinsic facts

Reasonable range of choices - allowable

3. Services - nature of the work to be performed is required in offer for services

If terms are missing, court may supply reasonable terms if it appears parties intended to make a

K.

terms will be supplied only where they are consistent with parties' intent

note: the more the parties' left open, the less likely it is that they

intended to enter into binding agreement

price to be paid

Except in K for real property, failure to state the price does not prevent formation of a K if parties

intended to form a K without the price being settled.

Vague Terms

Presumption of reasonable term to supply missing term cannot be used if parties have

included a vague term.

ex. "divide profits liberally "

Vagueness can be cured by:

part performance

uncertainty can be cured by acceptance

promise is still enforceable even if it does not spell out every material term as long as it contains

some objective standard

Was there communication of the above to the offeree?

offeree must have knowledge of the offer

Termination of Offer Must establish whether the offer has been terminated, and if so, in what fashion

1. Termination by Acts of Parties



Offeror - Revocation

Revocation is the retraction of an offer by the offeror. Revocation terminates the offeree's

power of acceptance if it is communicated to her BEFORE SHE ACCEPTS

Communication

1. Direct

publication

2. Indirect

offeree must receive

1. correct information

2. from a reliable source

3. of acts of the offeror that would indicate to a reasonable person that the offeror no longer wishes

to make the offer

Effective When Received

Revocation is generally effective when received by the offeree. When by publication, it's effective when

published.

Limitations

Option Contract

An option is a distinct contract in which the offeree gives consideration for a promise by the offeror not

to revoke an outstanding offer.

Example: An offeror offers to sell her farm - Blackacre- to an offeree for $1million and promises to keep

the offer open for 90 days if the offeree pays the offeror $1000 to keep the offer open. If the offere pays

the offeror $1000, an option contract is formed and the offeror must keep the offer open.

Compare: An offeror offers to sell her farm - Blackacre- to an offeree for $1million and promises to

keep the offer open for 90 days. Because there is no consideration to make enforceable the promise to

keep the offer open, the offeror may terminate her offer at any time despite her promise.

Merchant's Firm Offer Under Article 2 (2-205)

If a merchant

offer to sell goods in signed writing and

the writing gives assurance that it will be held open (specificity in time)

the offer is not revocable for lack of consideration during the time stated, or if no time is stated, for a

reasonable time (but in no event may such a period exceed three months)

Detrimental Reliance

Where the offeror could reasonable expect that the offeree would rely to her detriment on the offer,

and the offeree does so rely, the offer will be held irrevocable as an option contract for a reasonable

length of time.

Part Performance

An offer for a true unilateral contract 15

The Acceptance Acceptance is a manifestation of assent to the terms of an offer.

Offeree exercises the power given her by the offeror to create a contract.

Who May Accept

1. Party to Whom Offer Is Addressed or Directed



generally, only the person to whom the offer is addressed has the power of acceptance.

one may also have the power of acceptance if she is a member of the class to which an offer

has been directed.

if the offer has been made to the general public, anyone may qualify as an offeree.

If the offer requests the performance from an unlimited number of persons, performance by

anyone knowing of the offer will cut off the power of every other person to accept, provided

that the offeror desires only one performance and there is no indication that he is willing to

pay more than once.

2. Offeree's Power of Acceptance Cannot Be Assigned

Unlike rights under an existing contract, the offeree's power of acceptance cannot be assigned.

1. Exception: Option contracts

an exception exists for the right to accept under an option contract, becuase the power to accept is itself a

contract right in these contracts, and contract rights generally as assignable.

Offeree Must Know of Offer

Offeree must know of the offer in order to accept, and this is whether the offer is for bilateral or

unilateral contract

Acceptance of Offer for Unilateral Contract

If an offer provides that it may be accepted only by performance, rules apply:

1. Completion of performance

most courts hold that an offer to form a unilateral contract is not accepted until performance is completed.

Beginning of performance may create an option so that the offer is irrevocable. However, the offeree is not

obligated to complete perofrmance merely because he has begun performance, as only complete

performance constitutes an acceptance of the offer.

2. Notice

generally, the offeree is NOT required to give the offeror notice that he has begun the requested

performance, but is required to notify the offeror within a reasonable time after performance has been

completed. If a required notice is not given, a contract is formed, but the offeror's duties are discharged for

failure of an implied condition subsequent. However no notice is required if:

1. the offeror waived notice; or

2. the offeree's performance would normally come to the offeree's attention within a reasonable

time.

3. Compare - Article 2

Article 2 has a slightly different rule regarding notice, although the end result is basically the same. It

provides that when a contract is accepted by the beginning of performance, if the offeree fails to notify the

offeror of the acceptance (i.e. the beginning of performance rather than the completion of performance)

within a reaosnable time, the offeror may treat the offer as having lapsed before acceptance (i.e. no

contract was ever formed, as opposed to Restatement view that a contract was formed but performance is

excused by failure of a condition)

Acceptance of Offer for Bilateral Contract

Unless an offer specifically provides that it may accepted only through performance, it

will be construed as an offer to enter into a bilateral contract and may be accepted either

by a promise to perform or by the beginning of performance.



Generally, Acceptance Must be Communicated

1. Exception: Waiver in Offer

If an offer provides that acceptance need not be communicated, then no communication of the

acceptance is required

2. Silence as Acceptance

Although offeree cannot be forced to speak under penalty of having her silence treated as acceptance, if

the offeree silently takes offered benefits, the courts will often find an acceptance. This is especially true if

prior dealings between parties, or trade practices known to both, create a commercially reasonable

expectation by the offeror that silence represents an acceptance. In such a case, the offeree is under a duty

to notify the offeror if she does not intend to accept.

Method of Acceptance

Unless otherwise provided an offer is construed as inviting acceptance in any reasonable

manner and by any meidum reasonable under the circumstances. Any objectives manifestation

of the offeree's counterpromise is usually sufficient

1. Act as Acceptance

The offeror is the master of her offer and may require an act to signify acceptance.

2. Offers to Buy Goods for Current or Prompt Shipment

Under Article 2, an offer to buy goods for current or prompt shipment is construed as

inviting acceptance either by a promise to ship or by current or prompt shipment of

conforming or nonconforming goods.

1. Shipment of non-conforming goods

The shipment of non-conforming goods is an acceptance creating a bilaterla contract as well as a

breach of the contract unless the seller reasonably notifies the buyer that a shipment of nonconforming

goods is offered only as an accommodation. The buyer is not required to accept accommodation

goods and may reject them. If he does, the shipper is not in breach and may reclaim the

accommodation goods because her tender does nto constitute and acceptance of the buyer's original

offer.

Acceptance Must Be Unequivocal

Traditional contract law insisted on an absolute and unequivocal acceptance of each and every

term of the offer (mirror image rule)

1. Common Law Rule

Any different or additional terms in the acceptance make the response a rejection and a counteroffer

1. Distinguish - Statements that make implicit terms explicit

does not prevent acceptance

2. Distinguish - Grumbling Acceptance

effective acceptance as long as it stop short of actual dissent

3. Distinguish - Request for clarification

does not necessarily amount to a rejection and counteroffer

2. Article 2 Rule - Battle of the Forms Provision

Article 2 has abandoned the mirror image rule, providing instead that the proposal of additional or

different terms by the offeree in a definite and timely acceptance does not constitute a rejection and

counteroffer, but rather is effective as an acceptance, unless the acceptance is expressly made conditional



on assent to the additional or different terms. Whether the additional or different terms become part of the

contract depends on whether or not both parties are merchants.

Bilateral Contracts Formed by Performance

Sometimes in business, a contract is not formed by the parties' communications, either

becuase (1) the mirror image rule is not satisfied or (2) in a contract for the sale of goods, the

original offeror's form contains a clause objecting in advance to any new or inconsistent

term and the offeree sends a response with new or different terms that states it is not an

acceptance unless the original offeror agrees to these terms. Clearly no contract is formed at

this point. BUT , as is sometimes the case, if the parties begin to perform as if they formed a

contract, a contract is formed.

RATIONALE: At common law, the last communication sent to the party who performed is

considered a counteroffer. In contracts for the sale of goods, Article 2 provides that conduct

by both parites that recognizes the existence of a contract is sufficient to establish the

contract.

Consideration

The Leading Theory - Bargained-for change in legal position between the parties (i.e.valuable consideration).

While substitute doctrines may permit enforcement of an agreement, only the presence of

valuable consideration on both sides of teh bargain will make an executory bilateral contract

fully enforceable from the moment of formation.

Consideration is the price for enforceability in the courts.

Restatement (First) of Contracts Rule

Consideration for a promise is

an act other than a promise

a forebearance

the creation, modification, or destruction of a legal relation

a return promise, bargained for, and given in exchange for the promise

Fuller, Consideration and Form

Consideration is "for the sake of evidence" and is intended to remove mistaken or perjured

testimony

Promises are not enforceable because they often lack proper deliberation and are made

impulsively.

objection relates not to the content and effect of the promise,but to the manner in which itwas made

Functions performed by legal formalities

Evidentiary - K is the evidence and if it signed by the person denying the K, there is good

evidence this is an enforceable K. Writing is more reliable than oral recollections.

Cautionary - require a formal step which enables a deliberation and have time for parties to

consider consequences to prevent inconsiderate engagements

Channeling - if parties go ahead and put their agreement in writing, they are more apt to

think about other possibilities and other terms to include int heir agreement. Leads us to



come up with a more complete and full agreement.

Cardozo

The promise and consideration must purport to be the motive for each other, in whole or at

least in part.

Courts and Consideration

Consideration is often used to determine the legitimacy of a transaction

Used by courts to serve the purpose of policing bargaining behavior - preventing advantage-

taking, unfair dealing

Lack of consideration only means you cannot recover under a contract. There are other

remedies to recover under instead

CaseLaw

Hardesty v. Smith Rule:

The doing of an act by one at the request of another, which may be a detriment or

inconvenience, however slight, to the party doing it, or may be a benefit, however slight,

to the party at whose request it is performed, is a legal consideration for a promise by such

a requesting party.When a party gets all the consideration he honestly contracted for, he cannot say he gets

no consideration or that it has failed.

Doughetery v. Salt Rule:

Promise without consideration is not enforceable.

Nothing is consideration that is not regarded as such by both parties

Aunt gave promissory note of $3000 to nephew. Dies. Nephew wants to collect from estate. Cannot

collect - no contract, simply gratuitous gift, there was no consideration or bargaining.

Stonestreet v. Southern Oil Rule:

When one receives a naked promise and such promise is not kept, he is no worse off than

he was before the promise was made. He gave nothing for it, loses nothing by it, and upon

its breach, he suffers no recoverable damages.

Maughs v. Porter Rule

Must have legal purpose in conjunction with consideration

Sufficient consideration was present because on one side, Maughs was promised a car and

on the other side, Porter by advertising the giveaway had more people come to the auction

and while some may have just come for the drawing, many may have bid on items.

Hamer v. Sidway RuleGiving up lawful freedom to do as you wish is a form of consideration

He had given up something in return for the $5000 he was to receive. Thus K was

enforceable and was not considered simple promise or gift

Baehr v. Penn-o-Tex Oil Rule

Forbearance of a suit made in "good faith" can be grounds for consideration

But, in this case, the P seemed to not file immediately out of convenience, not one our of

necessity, so it doesn't count as consideration

Springstead v. Nees Rule



Must have right to what you are promising for it to be consideration

Ps never had rights to Atlantic Ave because deed was left for Ds and forbearance of a claim

to such property was never shown

Dyer v. National By-Products Rule

Forbearance of litigation is enough to constitute consideration, even if said litigation is

invalid as long as such forbearance was done in good faith

(fact that invalidity of the claim is obvious may indicate it was not made in good faith

however)

Consideration Elements1. Bargained-for exchange (agreed to exchange)

quid pro quo for the promise could be furnished by a detriment to the promisee or a benefit to

the promisor

benefit can be seen as simply "getting what one bargained for"

motive does not need to be shown or investigated, as long as it is apparent that the intention was to

exchange promise for promise

requires that promise induce the detriment and the detriment induce the promise.

legal detriment is any relinquishment of a legal right

not necessarily harm, just the yielding of a legal right

can take the form of an immediate act, a forbearance, or the partial or complete abandonment of an

intangible right or a promise to act, forbear, or abandon in the future

must limit my future in some way

BOTH ELEMENTS MUST BE PRESENT

1. Gift are not consideration

Conditions of gifts are not consideration

EX: Al says, "If you walk over to my car, I'll give you my skis" Even though Buster has given up his legal

right to remain where he stands, this detriment seems incidental to Al's promise." There's no evidence

to help us reasonably understand that Al was so desirous of having Buster walk to the lot that he felt it

was worth promising him skis to induce him to do it

2. Act or Forbearance by Promisee Must be Of Benefit to Promisor

It is not enough that the promisee incurs detriment; the detriment must be the price of the exchange, and

not merely fulfillment of certain conditions for making the gift.

The test is whether the act or forbearance by the promisee would be of any benefit to the promisor. In

other words, if the promisor's motive was to induce the detriment, it will be treated as consideration. If

motive was no more than to state a condition of a promise to make a gift, there is no consideration

3. Economic Benefit Not Required

the benefit to the promisor need no have economic value. Peace of mind or the gratification of

influencing the mind of another may be sufficient to establish bargained-for consideration, provided that

the promisee is not already legally obligated to perform the requested act

4. Past or Moral Consideration

General Rule - not sufficient - If something was already given or performed before the promisee was made,

it will not satisfy the bargain requirement. The courts reason that it was not given in exchange for the

promise when made.



Ex. Al agrees to sell Buster his skis for $100. A week later, Al says he wants to sell the skis for $150.

Even if Buster accepts the new price, it is not binding because Al has not offered anything new in

exchange (no new consideration)

Exception - supervening difficulties affect the basic assumption under which the K was made -

courts will generally find the modification enforceable since the modification was likely to have

been an attempt to take into account the unexpected burden

Exceptions

1. Debt Barred by a Technical Defense

If a past obligation would be enforceable except for the fact that a technical defense to enforcement

stands in the way (statute of limitations) courts will enforce a new promise if it is in writing or had

been partially performed. However, courts will only enforce the contract only to the extent of the

new promise.

2. Promise to Pay Arising Out of Past Material Benefit (Material Benefit Rule)

Some courts will enforce a promise if it is based on a material benefit that was preivously conferred

by the promisee on the priomisor and if the promisee did not intend to confer the benefit as a gift.

This includes situations in which the promisee perofmraned an act at the primosor's request or

perofrmed an unrequested act during an emergency. Restatement follows rule except to the etext it

is disproportionate to the benefit conferred.

2. legal value

the detriment element is emphasized in determining whether an exchange contains legal value

Adequacy of Consideration

courts of law normally will NOT inquire into the adequacy of consideration. If a party

wishes to contract to sell an item of high market value for a relatively low price, so be it.

However, courts of equity may inquire into relative values and deny an equitable remedy if

they find the K to be unconscionable. (sufficiency)

HOWEVER - if it appears that the unbalance in value was caused by fraud, duress, unconscionability, or

mistake, they will not enforce it - not fairly bargained for

1. Token Consideration

If the consideration is only token (something entirely devoid of value), it will usually not be legally

sufficient. The courts reason that this indicates a gift rather than a bargained-for consideration.

2. Sham Consideration

Parties to a written agreement often recite that it was made in consideration of $1 of some other

insignificant sum. Frequently, this recited sum was not in fact paid and indeed it was never intended to be

paid. Most courts hold that evidence may be introduced to show that the consideration was not paid and

no other consideration was given in its stead.

3. Possibility of Value

Where there is a possibility of value in the bargained-for act, adequacy of consideration will be found

even though the value never comes into existence.

Legal Benefit and Legal Detriment Theories

1. Majority Rule

Detriment to the promisee in performing an act or making a promise is the exclusive test of consideration.

The fact that this act or promise may confer a legal benefit on the other party, taken alone, is not sufficient



consideration.

2. Minority and First Restatement

Either detriment or benefit to the party will suffice

3. Second Restatment

Where something was bargained for and given in exchange - only question asked

4. Detriment and Benefit Defined

Legal Detriment to Promisee

Legal detriment will result if the promisee does something he is under no legal obligation to do or

refrains from doing something taht he has a legal right to do. It is important to remember that the

tdetriment to the promisee need not involved any actual loss to the promisee or benefit to the

promisor.

Legal Benefit to the Promisor

Reverse side of legal detriment. It is forbearance or performance of an act by the promisee which the

promisor. IOW, it is forbearance or performance of an act by the promisee which the promisor was not

legally entitled to expect or demand, but which confers a benefit on the promisor

Specific Situations1. Preexisting Legal Duty

1. General Rule - promise to perform an existing legal duty will not be sufficient consideration

2. Exceptions

1. New or Different Consideration Promised

If promisee has given something in addition to what she already owes in return for the promise she

now seeks to enforce, or has in some way agreed to vary her pre-existing duty, such as by

accelerating performance, there is consideration

2. Voidable Obligation

A promise to perform a voidable obligation is enforceable despite the absence of new

consideration.

3. Preexisting Duty Owed To Third Party

when a preexisting duty was owed to a third party, courts held the new promise did not constitute

consideration. Second Restatement says new promise constitutes consideration.

4. Honest Dispute As To Duty

If the scope of legal duty owed is the subject of honest dispute, then a modifying agreement relating

to it will ordinarily be given effect. The compromise by each party is a detriment.

5. Unforeseen CircumstancesMere unforeseen difficulty in performing is not a substitute for consideration. But if the unforeseen

difficulty rises to the level of impracticability, such that the duty of performance would be

discharged, most states will hold that the unforeseen difficulty is an exception to the pre-existing

legal duty rule.

6. Modification of Contract for the Sale of Goods

A contract modification is generally unenforceable unless it is supported by new consideration.

Article 2 does not follow this rule. Under Article 2, contract modifications sought in good faith are

binding without consideration. Modifications extorted from the other party are in bad faith and are



unenforceable.

3. Existing Debts

Payment of a smaller sum than due will not e sufficient consideration for a promise by the creditor to

discharge the debt. Neither a legal detriment nor a benefit would be present.

Courts will attempt to avoid this result by application of exceptions.

2. Forbearance to Sue

The promise to refrain from suing on a claim may constitute consideration. If the claim is valid, the

forebearance to sue is sufficient consideration. If the claim is invalid and the claimant is aware of this fact,

he has no such right; his suit is not more than the wrongful exercise of a power.

Statute of FraudsA contract within the SoF may not be enforced unless a memorandum of it is written and

signed by the party to be charged.

does not require entire K to be written, but only a memorandum of it.

Only the party against whom enforcement is sought needs to have signed it

consequence of non-compliance is usually unenforceability, not invalidity.

PurposeStatute of Frauds keeps one person from perpetrating a fraud on another and on the court by

requiring more certain proof that an oral contract was made

GENERAL RULE - oral contracts are perfectly good

SoF is an exception, and a pretty narrow exception

Compliance with Statute of Frauds does not itself prove the existence of a contract.

Plaintiff must still show all the requirements of an agreement with consideration

Seems most often, SoF is used as a defense by D against enforcement of K

REMEMBER - compliance with statute is different from adequate proof of the contract for the

purpose of relief

Requirements

Common Law:

1. Identify the parties

2. Nature of the exchange

3. all or most of the material terms

U.C.C.

1. quantity of goods sold

2. some writing sufficient to indicate a K for sale has been made between the partiesWhat is sufficient writing?

Restatement

A contract within the Statute of Frauds is enforceable if it is evidenced by:

any writing signed by or on behalf of the party charged (person wishing to use SoF as a defense),

which:

writing is any intelligible marks on a tangible surface

Common law - any mark or symbol placed by the party on the paper with the intention of

authenticating it



letterhead will also suffice

U.C.C. - "any symbol executed or adopted by a party with present intention to authenticate a

writing"

technology must be accommodated in the statute - emails, voice recording, photos?

reasonably identifies the subject matter of the contract

is sufficient to indicate that a contract with respect thereto has been made between the parties or

offered by the signer to the other party

states with reasonable certainty the essential terms of the unperformed promises in the contract

does not need to BE the contract, just needs to be evidence of a K

Can be "tacked" or linked together

UCC 2-201(1)

"some writing sufficient to indicate that a contract for sale has been made between the parties and signed

by the party against whom enforcement is sought"

What kind of contract requires signed writing?

1. sale of goods of $500 or more

2. contract to answer for the day of another (suretyship)

3. contract for the sale of an interest in land

4. contract this is not to be performed within one year from the making thereof

contract does not need to LAST for longer than a year, but will not be completed within a

year of the contract

ex. If on July 1, 1996, a customer makes a contract with a popular resort to rent a room for a long weekend

on July 4, 1997, the contract falls within the statute even though performance will only last three days.

Statute of Frauds applies to modifications of contracts, too

Three question checklist

Is the oral agreement within the Statute of Frauds?

No - it's enforceable

Yes - go to next question

Is the agreement evidenced by writing?

Yes - it's enforceable

No - go to next question

Is there an exception?

Yes - enforceable

No - not enforceable

Statute of Frauds Problem Procedure

1. Does the statute apply - "is this case within the statute?"

2. If the case is within the statute, does a memo, note, or other writing satisfy the statute?

3. If the case is within the statute and there is no complying writing, does the statute or case

law recognize an exception?

4. If the case is within the statute, there is no complying writing, and there is no applicable

exception, does any other doctrine mitigate what would otherwise be the effect of non-

compliance?

HYPO



B admits to oral contract but says that court can't enforce it because Statute of Frauds, no

signed writing. How should court react?

find an exception to the rule

in this case, B admitted to making the K, which makes it enforceable for sales of goods (as long as the

admittance is during the course of the trial)

narrow its application through interpretation and other devices

Exceptions/Special Situations

UCC exceptions

goods are specially manufactured

party against whom enforcement is sought admits the K was made

REMEMBER - rationale for Statute of Frauds is to prevent fraud, not help parties cause fraud

REMEMBER - this is for sale of goods, not land/houses

REMEMBER - UCC requires that the admission be in court

REMEMBER - NO COMMON LAW EXCEPTION

concerned about impact on litigation - incentive for parties to commit perjury

concerned that admission may not be truly voluntary because parties can be compelled to admit

things during litigation

goods have been received and accepted

UCC 2-201(2)

1. Both parties are merchants

2. Within a reasonable time of the oral contract, one of the parites sends a written confirmation to the

other, which is signed by the sender and satisfies the statute against the sender

3. recipient has reason to know its contents

4. recipient does not give written notice of objection to it within ten days of receipt

Complete Performance in a Year

If there is ANY possibility that performance could be completed before a year, the statute is

held to be inapplicable.

ex. A contract entered into on July 1, 1996 provides that a builder must complete the construction project

by August 1, 1997. Although it may be shown to be impossible, as a practical matter, for the builder to

complete the work ahead of schedule, the contract does not require performance of more than a year

because it would not be a breach for the builder to complete ahead of schedule. Thus, Statute does not

apply.

ex. Fitness freak purchases lifetime membership in a gym, the contract clearly contemplates a long-term

relationship, extending for many years. However, such a contract is typically treated as performable within

a year because at the time of the contracting there is a possibility performance will last less than a year -

customer's remaining lifetime may terminate before the year is over.

Main Purpose Rule - Suretyship Exception

If one promises to answer for the debt of another, but the promise is made mainly to

benefit the surety, the Statute of Frauds does not apply

Part Performance Rule

Reliance in the form of part performance may be sufficient to bar assertion of SoF defense.

All that is required is that the writing afford a basis for believing that the offered oral evidence rests on a



real transaction.

In an action for damages, part performance of an oral land sale contract does not remove the bar of the

statute of frauds

An employee's part performance of an employment contract with a duration of more than one year

generally does not take the contract out of the statute of frauds.

McIntosh v. Murphy Rule

"Don't make the law look ridiculous." - Justice Levinson

There is considerable discretion for a court to implement the true policy behind the Statute

of Frauds, which is to prevent fraud or any type of unconscionable injury. When P's reliance

was such that injustice could only be avoided by enforcement of the contract, court will

rule for P.

P moved to Florida in reliance on D's promise of employment. D raises SoF defense because employment

could not have been completed in one year from K date because K was made on Saturday and P couldn't

start working until Monday.

Lost Writing Rule

General - If no writing, then no cause of actionHOWEVER - if you say that you had a writing and you lost it, the courts will allow you to bring your cause

of action

unless they don't believe you, then no cause of action

Technology

Where technology substitutes some different means of identifying authorship, this must be

viewed as the equivalent of signature, provided that it serves to authenticate the

communication.

Promissory Estoppel

Restatement 139 recognizes the function of prom-estop in these cases

Could be useful as a supplementary basis for enforcement when there is some evidence of

performance, but the evidence is not sufficient to invoke the part performance exception.

Using the Statute of Frauds in Court

Must be raised as an affirmative defense

If defense succeeds, contract is considered unenforceable

Party who has received performance no longer has right to keep it, so it must be returned

under principles of RESTITUTION

Mutual and Illusory Promisesboth parties must be bound or neither is bound

consideration consists in the exchange of mutual promises, undertakings on both sides

must be real and meaningful

Illusory Promise is a statement which appears to be promising something but which in

fact does not commit the promisor to do anything at all.

Promises are illusory when they do not limit the promisee's future

Ex. "I promise to sell you my skis unless I change my mind"

Conditional Promises



A promise is not illusory simply because it is conditional

Illusory conditional promise:

I will pay for skis if Elvis is returned to Earth by aliens.

Genuine conditional promise:

I will pay for skis if I work next Friday.

CaseLaw

Mattei v. Hopper Rule

Illusory promise is not supported by consideration and is therefore not enforceable.

De Los Santos v. Great Western Sugar Company Rule

Mutual Obligation

An agreement which depends upon the wish, will, or pleasure of only one of the parties is

unenforceable.

Weiner v. McGraw Hill Rule

If an employer made a promise, either express or implied, that the employment should

continue for a period of time that is either definite or capable of being determined, that

employment is not terminable by him "at will." This is true even though the employee has

made no return promise and has retained the power and legal privilege of terminating the

employment "at will".

D's agreement in the handbook created a contract and in fact did not create an employment "at will". D's

claim that the K was not valid because it didn't create a mutual obligation fails. Mutuality simply means

that both parties have an obligation, not that said obligations are of the same type/nature.

BreachIf it is found that

promisor is under absolute duty to perform and

this absolute duty of performance has not been discharged, then

failure to perform constitutes a breach

Breach can only occur when performance is due.

Total and Material Breach

promisee may

withhold performance

rescind

claim full damages from breach

Breach if material, but not total

promisee may

suspend performance

await cure

claim compensation for any loss suffered

Breach is not material (substantial performance)

promisee may

claim compensation for any loss suffered

Anticipatory Repudiation

If a party commits an anticipatory repudiation by making it clear before the time for



performance that she will not honor her promise when the date to do so arrives, the

promisee does have the right to take action immeidately in response to the repudiation

and it not required to wait until the due date.

If a part commits an anticipatory repudiation, then promisee must mitigate damages by

STOPPING performance immediately, unless it is more reasonable to finish project in

order to salvage materials.

Minor v. Material Breach

1. Effect of breachesa. Minor Breach

obligee gains the substantial benefit of her bargain despite the obligor's defective

performance.

ex. insignificant delay in completing performance or small deficiencies in quality or quantity in

performance (when precision is not critical)

Aggrieved party IS NOT relieved of duty of performance under the contract

b. Material Breach

obligee does not receive the substantial benefit of her bargain as a result of failure toperform of defective performance

consequences more severe

non-breaching party may treat contract as at an end

ex. any duty of counterperformance owed by her will be discharged

will have an immediate right to all remedies for breach of the entire contract, including total

damages

c. Minor Breach with Anticipatory Repudiation

If minor breach is coupled with anticipatory repudiation, the non-breaching party may treat

it as a material breach (she may sue immediately for total damages and is permanently

discharged from any duty of further performance)

Aggrieved party MUST NOT continue on because to do so would be a failure to mitigate

damages.

HOWEVER - U.C.C. modified this to allow party to complete manufacture of goods to avoid

having to sell unfinished goods at the lower salvage price

2. Determining Materiality of Breach

General Rule

1. Amount of benefit receivedgreater the extent, the less material the breach

2. Adequacy of Damages

greater the extent, less material the breach

3. Extent of part performance

greater the extent, the less material the breach

4. Hardship to the breaching party

If a finding of materiality and termination of the contract would cause great hardship to the breaching

party, the breach is less likely to be found to be material



5. Negligent or willful behavior

greater the extent, the more material the breach

6. Likelihood of full performance

greater the extend, the less material the breach

Failure of Timely Performance

basic question is whether the parties to the contract must perform on time. Assuming that the

defaulting party had a duty of immediate performance when his failure to perform occurred,

then his failure to perform on time will always be a breach of contract.

1. As specified by nature of contract

unless the nature of the contract is such as to make performance on the exact day agreed upon of vital

importance, or the contract by its terms provides that time is of the essence, failure by a promisor to

perform at the stated time will not be material

2. When delay occurs

delay at the onset of performance before the delaying party has rendered any part of his agreed-upon

performance is more likely to be considered material than delay where there has been part performance

3. Mercantile Contracts

In mercantile contracts, timely performance as agreed is important and unjustified delay is material

4. Land contracts

more delay in land contracts is required for materiality than in mercantile contracts

5. Availability of Equitable Remedy

in equity, the courts are generally much more lenient in tolerating considerable delay. Thus, tend to find

the breach immaterial and award compensation for the delay where possible

Limitations on Expectation RecoveryCertainty

P must show that breach resulted in financial loss, and must provide adequate evidence of the

monetary extent of the loss.

Plaintiff must prove that losses suffered were certain in their nature and not speculative.

Traditionally - courts would not allow lost profits from prospective business as damages

because they are too speculative.

Modern - courts may allow lost profits as damages if they can be made more certain by

observing similar businesses in the area or other businesses previously owned by the same

party

ForeseeabilityExtent and scope of damages should be consistent with what was reasonably contemplated by

the parties at the time of contracting.

Mitigation

Law does not allow P to recover for increased losses resulting from her own irrational or unfair

behavior

If P unreasonably or dishonestly worsens the loss following a breach, damages will not be

included in compensation

Causation

P can only claim those damages caused by the breach - must show causal connection between



breach and the loss

Unfair Forfeiture

Courts may temper the enforcement of contract rights when rigid enforcement would have an

unjustifiably harsh effect on the party against whom those rights are asserted

discretion when normal damages would result in windfall for the P

Duty to Mitigate Nonbreaching party has a duty to mitigate damages. Must refrain from piling up losses

after she receives notice of the breach; she must not incur further expenditures or costs,and she must make reasonable efforts to cut down her losses by procuring a substitute

performance at a fair price. Should she not do so, she will not be allowed to recover

those damages that might have been avoided by such mitigation after the breach.

Generally a party may recover the expenses of mitigation.

1. Employment Contracts

If employer breaches, the employee is under a duty to use reasonable care in finding a

position of the same kind, rank, and grade in the same locale (although it does not

necessarily have to be at the same exact pay level). BUT, burden is on the employer to showthat such jobs were available.

2. Contracts for Sale of Goods

If the buyer is in breach, recall that the seller generally cannot bring an action against the

buyer for full contract price unless the goods cannot be resold at a reasonable price or were

damaged or lost when the risk of loss was on the buyer.

3. Manufacturing Contracts

If the person for whom the goods are being manufactured breaches, the manufacturer is

under a duty to mitigate by not continuing to work after the breach. However, if the facts

are such that completion of the manufacturing project will decrease rather than increase the

damages, the manufacturer has the right to continue.

EX. partly manufactured goods may be without value because they cannot be sold. The non-breaching

manufacturer may complete production and recover for his expenses in doing so, because finished goods

usually can be resold, and the damages will be decreased as a result.

4. Construction Contracts

A builder does not owe a duty to avoid the consequences of an owner's breach (by securing

other work), but does have a duty to mitigate by not continuing work after the breach.

Again, however, if completion will decrease damages, it will be allowed.Expectation/Mitigation Measures

1. Figure out what the position of the non-breaching party would have been if the promise had

been kept

2. Figure out the position that the non-breaching party would be in after the breach - provided

the non-breaching party did whatever was reasonably possible to mitigate damages (proper

mitigation)

3. Figure out how much we need to give the non-breaching party to move them from the

position they are in after the breach to the position they would have been in had the contract



been performed.

Mitigation applies to EVERY way a non-breaching party can save money

For example, construction company is non-breaching party, owner breaches

Construction company must stop work immediately AND figure out if they can sell/salvage

already purchased materials

Court assumes non-breaching party is a proper mitigator

SO, they only give damages to move you from the position of a proper mitigator to the position

you would have been in had the contract been performed as promised.

Reasonable mitigation?

Courts look at how much mitigation steps would cost versus how much the non-breaching

party would save by taking those steps. If the non-breaching party has to spend money to

reduce losses, but is still spending less than he or she gains, then spending money is probably

proper mitigation

HYPO:

Suppose market price of construction materials is falling. A nevertheless decides to sell the

materials. It costs $800 to transport construction materials to another site, and when they getthere, A can only sell them for $700, so Luten actually lost $100 on the deal. B does not

want to pay the $100 loss because Luten did not mitigate. Should A be allowed to recover

$100?

It depends.

the non-breaching party is required to act reasonably based on the circumstances at the time, not from

the advantage of hind-sight. If it appeared reasonable at the time to transport the materials and try to

sell them for more than $800, the court will not penalize A for being wrong. That is when it figures

what A lost as a result of the breach, it will include the $100 it lost in trying to mitigate. Of course, if at

the time it was not reasonable to transport the materials, then A could not recover the $100.

Employment Contracts

Yes, you can recover damages spent in trying to reasonably get another job

Consider - if employee could have taken job after they are fired without being fire (i.e. could have taken

the part-time job, had been considering part-time job) then it doesn't necessarily mean they are mitigating -

same with construction company that accepts new job after the breach - could they have performed both?

Burden of proof?

Breaching party must show the non-breaching party did not mitigate - the Non-breaching party

must prove damagesMitigation Main Points

Limitation of Damages

non-breaching party is not permitted to recover damages that the party could have avoided

by making reasonable efforts

Duty to mitigate

The damages are the same whether the party mitigates or not. This is because the

expectation measure of damages treats the non-breaching party as a proper mitigator

whether the non-breaching party properly mitigated or not.



Reasonableness

In an employment contract, the employee does not have to take inferior job in mitigation.

Money earned is not deducted in mitigation if the party could have earned the money even

if there had not been a breach (Contractor able to do two jobs at once, for example)

Expenses occurred in reasonable mitigation are recoverable even if the effort to mitigate was

not successful, as long as the expenses were reasonable at the time.

Walters v. Marathon Oil Co.

Ps were charged with failing to mitigate; court found that reasonable persons in their position

(unfamiliar with the business, not professionals, little experience) did as much as they could

have - treat like persons alike, different persons differently with respect to reasonableness to

mitigate...

Standard Measures of Damages for Every SituationContracts for Sale of Goods

Buyer's Damages

1. Seller does not deliver OR Buyer rejects goods or revokes acceptance

Buyer gets difference between contract price and either the market price (benefit of the bargain) or the cost

of buying replacement goods (cover), plus incidental and consequential damages, if any, less expenses

saved as a result of the seller's breach.

In case of buyer's anticipatory repudiation, buyer's damages are measured as of time she learns of breach

1. Difference between contract price and market price

if the buyer measures the damages by the difference between the contract price and market price,

market price usually is determined as of the time the buyer learns of the breach and the place of tender

(2-713)

NOTE - BUYER DAMAGES ARE MEASURED AS OF TH TIME SHE LEARNS OF THE BREACH, SELLER

DAMAGES ARE MEASURED AS OF THE TIME FOR DELIVERY

2. DIfference between contract price and cost of replacement goods "Cover"

if the buyer choose the cover measure, the buyer must make a reasonable contract for substitute goods

in good faith and without unreasonable delay (2-712)

2. Seller delivers nonconforming goods that buyer accepts

1. Warranty Damages

If buyer accepts goods that breach one of the sellers warranties, the buyer may recover as damages

"loss resulting in the normal course of events from the breach" The basic measure of damages in such

a case is the different between the value of the goods as delivered and the value they would have

had if they had been according to the contract, plus incidental and consequential damages.

2. Notice Requirement

to recover damages for any defect as to accepted goods, the buyer must within a reasonable time after

she discovers or should have discoered the defect, notify the seller of the defect. If she does not notifiy

the seller within a reasonable time, she loses her right to sue. "Reasonable time" is a flexible standard.

3. Seller anticipatorily breaches contract

(2-713) - Difference between the market price at the time the buyer learned of the breach and the contract

price.

Seller's Damages



1. Buyer refuses to accept goods or anticipatorily breaches contract

Basic damages, plus incidental (BUT NOT CONSEQUENTIAL) damages, if any less expenses saved as a

result of the breach.

If damages based on difference between the contract price and market or resale price, do not put the

seller in as good a position as performance would have, then the seller may recover lost profits plus

incidental damages (2-706, 2-708, 2-710)

Anticipatory Breach - seller's damages are measured as of the actual time for performance, unless the

suit comes to trial before the time for performance, in which case damages are measured as the time

seller learned of the breach.

1. Difference between contract price and market price

market price is measured as of the time and at the place for delivery

2. Difference between the contract price and resale price

seller must resell under provisions of 2-706. Section requires good faith, commercially reasonable sale

that may be either price or public (auction). In the case of a private sale, the breaching buyer must be

given reasonable notice of intention to resell. In the case of auction, sale must be at usual market for

such goods if such a market is reasonably available. Notice of the sale must be given to the breaching

buyer unless the goods are perishable or threaten to decline rapidly in value. Only existing and

identified goods may be sold, unless there is a market in futures for the particular goods. The seller

may buy the goods at an auction sale.

3. Damages based on lost profits

If two other measures do not give adequate compensation for buyer's breach...

1. Lost Volume Seller (seller can obtain or manufacture as many goods as he can sell)

Lost profit is measured by contract price with the breaching buyer minus cost to the seller

(because although he is able to resell the goods for the same or similar price, he loses volume of

business - would have made two sales instead of just the one

2. Action for Price

If buyer accepts goods and has not paid, or has not accepted the goods and the seller is unable to resell

them at any reasonable price, or if the goods have been lost or damaged at a time the risk of loss was on

the buyer, the seller may maintain an action against the buyer for full contract price

Contracts for Sale of Land

Difference between contract price and the fair market value of the land

Employment Contracts (Check to see who breached - employee or employer)

1. Breach by Employer

Regardless of when the breach occurs (i.e. before performance, after part performance, or

after full performance), the standard measure of employee's damages is full contract price

2. Breach by Employee (Check to see whether breach was intentional or unintentional)

Intentional Breach - employer is entitled to a standard measure of damages computer

according to what it costs to replace the employee - difference between the cost incurred to

get a second employee to do the work and the cost to the employer had the first breaching

employee done the work (modern view allows employee to offset any monies due from

work done to date)

Unintentional Breach - same for intentional breach, but employee may have right to a



quasi-contract recovery for work done to date

Construction Contracts (Check to see whether owner or the builder is breaching)

1. Breach by Owner (Check to when breach occurred)

1. Breach before construction started

builder is entitled to profits he would have had derived from the contract

2. Breach during construction

builder is entitled to any profit he would have derived from the contract + any costs he has incurred to

date OR

contract price minus the cost of completion

either formula will give same result

3. Breach after construction occurs

builder is entitled to the full contract price plus interest thereon

2. Breach by builder (check to see when breach occurred)

1. Breach before construction started

owner's measure of damages is the cost of completion (the amount above the contract price that it will cost

to get the building completed) + reasonable compensation for any delay in performance

2. Breach during construction

owner is entitled to cost of completion + reasonable compensation for any delay in performance

IF COMPLETION INVOLVES UNDUE ECONOMIC WASTE, the measure of damages will be the difference

between the value of what the owner would have received if the builder has properly performed the

contract and the value of what the owner actually received

3. Breach by late performance

Owner has right to damages for any loss incurred by not being able to use the property when performance

was due - loss of rental value. BUT if damages for "lost use" are not easily determined or were not

foreseeable at the time the contract was entered into, the owner can only recover the interest on the value

of the builder as a capital investment

3. Cost of Performance Rule

Groves v. John Wunder Co. - only case where the cost of performance rule has been

followed under circumstances where the cost of performance greatly exceeded the

diminution in value resulting from the breach.

23 O.S.1961 Section 96 - No person can recover a greater amount in damages for the breach of an

obligation, than he would have gained by the full performance thereof on both sides

23 O.S.1961 Section 97 - Damages must, in all cases, be reasonable, and where an obligation of any kindappears to create a right to unconscionable and grossly oppressive damages, contrary to substantial

justice no more than reasonable damages can be recovered.

Contracts Calling for Installment Payments

if a payment is not made, there is only a partial breach. The aggrieved party is limited to

recovering only the missed payment, not the entire contract price. HOWEVER, the contract

may include an acceleration clause making the entire amount due on any late payment, in

which case the aggrieved party may recover the entire amount.

Expectation Damages



Restatement 347

First element that must be estimated in attempting to fix a sum that will fairly represent the

expectation interest is the loss in value to the injure party of the other party's performance that

is caused by the failure of, or deficiency in, performance.

requires determination of the value of that performance to in the injured party himself not

some reasonable person

General Damages

losses from a breach that arise naturally or ordinarily

Special/Consequential Damages

damages incurred that would not have ordinarily arose - subjective

Limits on Recovery

Damages resulting from a breach of K which they would reasonably contemplate, would be the amount of

injury which would ordinarily follow for a breach of K under these special circumstances so know and

communicated

Nonlegal SanctionsSacrifice of Relationship-specific Prospective Advantage

Committing party places a particular asset under the control of another party; that party will

confiscate or destroy the asset if the promisor breaches.

ex. posting of collateral

ex. revoking right to use trademark (franchisee)

Loss of Reputation Among Market Participants

reputation for reliability among market participants who are potential transactors, thus

breaches result in loss of opportunities in future trade

Sacrifice of Psychic and Social Goods

loss of opportunities for important or pleasurable associations, loss of self-esteem, feelings of

guilt

ex. business person snubbed at local club or guilt during Sunday sermon

Essentially, the legally enforceable contract formally states parties' obligations, but

nonlegal pressures - particularly concern for business reputation - actually induce

compliance

Monetar y Remedies (Damages)1. Compensatory Damages

Put the innocent non-breaching party in the position she would have been in had the promise

been performed

1. Expectation

"Simulate as closely as possible the P's economic situation in the absence of breach."

P's loss in value caused by the D's non-performance

+ any other loss

- any cost or loss the P avoided by not having to perform

Substitute Contracts

P's cost to obtain equivalent services

- contract price for services



OR

P's cost to obtain equivalent services (market price)

- contract price for services

Service Contracts

P's expected profit (K price - variable costs)

Lost Income, Saved Costs

P's expected profit

- any cost or loss P avoided by not having to perform

Breach in midst of performance

(Contract Price

-total direct cost) = gross profit

+ reliance expenses

- payments received

= RECOVERY

Breach in midst of performance (Customized Dress example)

(Contract Price

-total direct cost) = gross profit

+ reliance expenses

- payments received

- and salvage/cover

= RECOVERY

Lost Volume Seller

Contract Price

- total direct cost

NO COVER NEEDED - new sales will not be considered "substitute"

2. Punitive

generally not awarded in contract cases

3. Nominal

breach is shown but no actual loss is proven

4. Liquidated Damages

Parties stipulate what damages are to be paid in the event of a breach. These liquidated

damages must be in an amount that is reasonable in view of the actual or anticipated harm

caused by the breach.

Liquidated DamagesUCC 2-718

Damages for breach by either party may be liquidated in the agreement but only at an amount

which is REASONABLE in the light of the anticipated or actual harm caused by the breach, the

difficulties of proof of loss, and the inconvenience of nonfeasibility of otherwise obtaining an

adequate remedy. A term fixing unreasonably large liquidated damages is VOID AS PENALTY.

1. Requirements for Enforcement

1. Damages for a contractual breach must have been difficult to estimate or ascertain at the



time the contract was formed.

2. The amount agreed on must have been a reasonable forecast of compensatory damages in

the case of breach.

The test for reasonableness is a comparison between the amount of damages prospectively

probable at the tiem of contract formation and the liquidated damages figure.

If the liquidated damages amount is unreasonable, the courts will construe this as a penalty

and will not enforce

U.C.C. Rule

allows a court to consider actual damages to validate a liquidated damages clause. Even if

the clause was not a reasonable forecast of damages at the time time of the contract

formation, it will be valid if it was reasonable in light of the subsequent actual damages.

(2-718(1))

Drafting Liquidated Damages Clauses

1. Make sure damages stipulated will fall within range between the upper and lower limits

of potential actual damages foreseeable at the time of the making of the contract. (Otherwise

provision will likely be held to be invalid as penalty)2. Parties must actually, seriously negotiate on the question of the amount of measure of the

liquidated damages, with full consideration of all foreseeable consequences of breach.

Then, for added protection, incorporate in the contract recitals which will show that they

have done so.

3. If the contemplated breach is of a covenant which requires the party to perform a

particular act within a time limit, provide suitable machinery for reasonable extensions to

adjust for delays which may result from actions or derelictions of the other party or of third

parties. (especially do so in construction contracts)

4. Make the amount of damages agreed upon vary with extend of the breach, such as

duration of the delay or period of default.

5. Incorporate a suitable recital indicating that it was the intention of the parties to provide

for liquidated damages; at least, characterize by labeling LIQUIDATED DAMAGES.

6. Recite the facts which caused the parties to incorporate the provision in the contract such

as that for stated reasons the amount of damages upon the breach will very very difficult to

ascertain with precision.

2. Recoverable Even If No Actual Damages

If one of both of the above requirements are not met, the provision fails, and the P will reoveronly those damages she can prove.

CaseLaw

H.J. McGrath v. Wisner Rule

Penalties are unenforceable

Court felt that the damages were in fact determinable and that the damages in the clause were not

reasonable in terms of the breach.

Better Food Markets v. American Dist. Telegraph Co. Rule

Reasonable for parties to assume that a multitude of damages might occur

$50 was in range of possible damages.



in the event of a break in, from a ham being stolen to vandalism to the safe being robbed.

Difficult to ascertain to what extent D would be liable in the event of a break-in. He could

have contacted the police immediately, and the store might still have lost their money.

BUT - this clause seems more like LIMITATION OF DAMAGES CLAUSE

Limitation of Damages clauses state that regardless of what the damage of a breach is, the non-breaching

party would only be liable up to a certain amount.

To not get a damage clause thrown out, important to state that it is not a liquidated damages clause,

and not an estimated amount of damages.

Promissory EstoppelConsideration is not necessary if the facts indicate the promiser should be estopped from

not performing.

Restatement §90

1. A promise which

2. the promisor should reasonably expect to induce action or forbearance

3. on the part of the promisee or a third person

4. and which does induce such action or forbearance5. is binding IF

6. injustice can be avoided

7. ONLY by enforcement of the promise.

8. Remedy granted may be limited as justice requires.

PARTIAL ENFORCEMENT

A promise is enforceable if necessary to prevent injustice if:

1. the promisor should reasonably expect to induce the action or forbearance

2. of a definite and substantial character

3. and such action or forbearance is in fact induced

4. remedy may be limited as justice requires

Exception: charitable subscription and marriage settlements is binding under promissory

estoppel without proof the promise induced action

Typically the court will grant reliance damages - courts following the first restatement

might grant expectation damages.

Limit Estoppel-based Liability

use conditional or indefinite promises

attach termination date to the promiserevoke and promptly communicate this to the promisee

anything that affects the foreseeability and reasonableness of reliance on the promise

Promissory Estoppel and Statute of Frauds

Restatement §139 recognizes the function of prom-estop in these cases

Could be useful as a supplementary basis for enforcement when there is some evidence of

performance, but the evidence is not sufficient to invoke the part performance exception.

Case Law

Wood v. Lucy, Lady Duff-Gordon Rule



Implied-in-Law Contract: A promise may be lacking within a contract, and yet the whole

writing may be taken by a court to imply such a promise, which creates an obligation.

Implied promise to faithfully market D's product amounts to fair consideration creating performance

obligations by both parties.

Two Important Questions to Consider:

1. Did she promise anything in return?

2. Did he understand that he would be the only person with this right? Was that the implied promise?

Weiner v. McGraw Hill Rule

If an employer made a promise, either express or implied, that the employment should

continue for a period of time that is either definite or capable of being determined, that

employment is not terminable by him "at will." This is true even though the employee has

made no return promise and has retained the power and legal privilege of terminating the

employment "at will".

D's agreement in the handbook created a contract and in fact did not create an employment "at will". D's

claim that the K was not valid because it didn't create a mutual obligation fails. Mutuality simply means

that both parties have an obligation, not that said obligations are of the same type/nature.

Ryerss v. Trustees of Presbyterian Congregation Rule

Well-proved promise relied upon by another is enough to imply consideration.

Seavey v. Drake Rule

Promissory estoppel may be used as a substitute for compliance with the statute of frauds

just as it may be used to substitute for consideration.

A promise to make a gift of land is not enforceable for lack of consideration, but may be

enforced under the promissory estoppel doctrine.

Valuable additions were made to the gift of land and such additions were induced by reliance on promise

to give it, and that is enough for consideration.

Partial performance of a gift of land was made (by son taking possession of land) even though it wasn't

done in writing.

Siegal v. Spear & Co Rule

Mere agreement to provide a trust voluntarily is not obligatory, but when the party relied

upon the agreement and it is reasonable to do so, there is sufficient consideration present

to make the agreement binding.

P did not get himself insurance because he relied upon D to do so for him, this serves as consideration in

their agreement.

Wheeler v. White Rule

Classic Promissory Estoppel

D knew P was relying on him to obtain a loan.

P proved reliance by tearing down old building

P unable to obtain a loan through any other channel

Local 1330 United Steel Workers V. United States Steel Corp Rule

If P does not perform it send of the "alleged agreement", P cannot claim that they actually

relied on D's promise.

D knew that P was relying on its promise, but since P did not make the plants profitable, D was justified in



shutting them down, regardless of whether the promise by D was actually enforceable or not.

Goodman V. Dicker Rule

"True measure of damages is the loss sustained by expenditures made in reliance upon the

assurance of a dealer franchise" - no loss of profits damages allowed.

No contract, but P had acted in reliance on the promise made by D

D & G Stout v. Bacardi Imports Rule

P was entitled to recover the quite fixed, definite sum that it turned down in reliance on D's

promise, but not the "profits" that it would have made from a continuation of the P-D

relationship.

Loss incurred resulted from an opportunity forgone in reliance on the promise

Walters v. Marathon Oil Co. Rule

Since it was unclear what they would have made in another investment, but it was clear

what they would have made in profits from the Marathon deal, the court said most likely the

profits from another investment would have been about the same as profits would have

been from the Marathon deal, and therefore the P forbore that amount

Grouse v. Group Health Plan RuleReliance on at-will job offer entitled P to damages in what he lost in quitting the job he held

and forgoing one other offer of employment elsewhere NOT what he would have earned

from D at job

P was assured job with new company, told he would have to resign from old company. P does so, then is

never given the chance to take new job. Court held that P was denied "good faith opportunity" to perform

his duties to the satisfaction of D once he was on the job.

Restitution (remedy) - Unjust Enrichment (cause of action)RESTITUTION - The act of restoring something or its value.

Available when there isn't a contractnot predicated on accountability for promise

usefulness is greatest when no promise has been made

Available as an alternative remedy when there is a contract

Based on preventing UNJUST ENRICHMENT (cause of action)

one has conferred a benefit on another without gratuitous intent.

unjust to allow the beneficiary to keep the benefit

is unjust when:

one has conferred benefit with intent to charge for itbenefit was not imposed on the beneficiary

examples of actions defeating imposition

1. request

2. emergency

3. acceptance (you didn't ask for the benefit, but you accepted it and could have returned it, but

didn't)

Party that breaches K cannot use K to limit what other party can recover under unjust

enrichment



can provide remedy:

when a K exists and has been breached

when a K is unenforceable

even when no formal contractual relationship exists between parties

1. Terminology - when a contract is unenforceable or no contract exists between the parties, an

action to recover restitutionary damages often is referred to as an action for an implied in law

contract or a quasi-contract.

2. Measure of Damages - value of benefit conferred

usually based on the benefit received by the defendant (e.g., the increase in defendant's

property or the value of the goods received), recovery may also be measured by "detriment"

suffered by the plaintiff (reasonable value of the work performed or the services rendered) if

the benefits are difficult to measure or the benefit measure would achieve an unfair result.

focus of restitutionary damages is recipient's gain

Market Value (helpful when benefit consists of receipt of property or services)

Quantum Meruit (as much as deserved)

used when services are involved

used to express market value

Quantum Valebant (as much as they are worth)

Recipient's Net Gain

actual amount by which the recipient's wealth has been increased

can be measured subjectively

what is the benefit in relation to recipient's needs, circumstances, and intentions

can be measured objectively

what is the benefit based on the worth in market terms

example of measure of damages

Contractor builds patio on Owner's property without authorization, but under circumstances making

contractor neither intermeddler or volunteer. Market value of the work is $1000. Patio enhances the

value of the house by $400. However, Owner has no intention of selling the house and hates sitting

outside. Owner has received labor and materials worth $1000 on the market, but her objective gain is

$400 and her subjective gain is $0.

Examples:

Builder finishes building half of a house before homeowner unjustifiably repudiates the K, and the builder

then sues for the reasonable value of the half-completed house, that value could be measured in several

different ways:

1. any increase in the market value of the homeowners land resulting from the half-completed house

on it

2. whatever price the homeworner would have to pay another builder, at the current construction

rates, to build that half-completed house

3. half of the price the homeowner originally agreed to pay this builder for the fully completed house

4. whatever this builder spent to build the first half of the house, taking the builder's actual costs as a

rough measure of the house's value.

How do choose a measure:



1. Market value tends to be preferred because it is fairest and most balanced basis of compensation

conceptually most consistent with underlying theory because the market value would likely have been

used to create the terms of the K.

2. If benefit was not requested and there is some element of imposition (but not enough to constitute

intermeddling - think doctor rendering life-saving services), lowest measure of relief tends to be used.

3. If party materially breaches a K after have partially performed, breacher is limited to smallest recovery

measure

4. if one measure is disproportionately large or small, it may not be selected.

5. If the recipient has been guilty of dishonest or improper conduct, the highest measure is likely to be

used.

6. If benefit was requested (there's a K, but conferrer chooses to recover under restitution), any price

agreed to by the parties is probitive evidence of value and may be used in preference over other measures

7. Court discretion in making an award keep with the circumstances

3. Specific Applications

1. When a contract is breached

When a contract has been breached and the non-breaching party has not fully performed,

he may choose to rescind the contract and sue for restitution to prevent unjust enrichment.

NOTE: If plaintiff has fully performed, he is limited to his damage under the contract. This

may be less than he would have received in a restitutionary action because a restitutionary

remedy is not limited to the contract price.

1. "Losing" contracts

A restitutionary remedy often is desirable in the case of a losing contract (i.e. a contract in which the

actual value of the services or goods to be provided under the contract is higher than the contract

price), because normal contract expectation damages or reliance damages would be for a lesser

amount.

2. Breach by Plaintiff

Typically, the plaintiff will be seeking restitution because the defendant breached the contract.

However, under some circumstances, a plaintiff may seek restitution even though the plaintiff is the

party who breached. If the breach was intentional, some courts will not grant the breaching party

restitution; modest courts, however will permit restitutionary recovery but limit it to the contract price

less damages incurred as a result of the breach.

2. When contract is unenforceable - quasi-contract remedy

Restitution may be available in a quasi-contract action when a contract was made but is unenforceable

and unjust enrichment otherwise would result.

3. When no contract involved - Quasi-Contract Remedy

Restitution may also be available in a quasi-contract action when there is no contractual

relationship between the parties if:

1. the P has conferred a benefit on the D by rendering services or expending properties;

2. the P conferred benefit with the reasonable expectation of being compensated for its value;

3. the D knew or had reason to know of the P's expectation;

4. the D would be unjustly enriched if he were allowed to retain the benefit without compensating the P.

NOTE: Where the parties are in a close relationship to one another, it is usually presumed that the benefits



were given gratuitously and the party claiming relieft bears the burden of showing that they were conferred

with an expectation of being paid therefor.

4. Exam Tactic

ALWAYS KEEP QUASI-CONTRACTUAL RELIEF IN MIND

esp if P has suffered a loss or rendered services

4. Material Benefit Rule

"Moral Obligation": Prior Benefit + Latter Promise

Consider: Officious meddlers impose a benefit onto you. You promise to pay them for that benefit, even

though you never requested it. Your promise validates the benefit and the acceptance of it.

The other prerequisites for relief - prior benefit, enrichment, intent to charge - are satisfied so now you can

turn to question of relief

Court discretion for relief

do not want to reinforce meddlesome behavior

will consider the evidentiary and cautionary functions of legal formality v promise making

was original imposition outrageous?

Restatement §371If a sum of money is awarded to protect a party's restitution interest, it may as justice requires

be measured by either:

1. the reasonable value to the other party of what he received in terms of what it would

have cost him to obtain it from another person in the claimant's position

usually based on market price of such a substitute

2. the extent to which the other's party's property has been increased in value or his other

interests advanced

3. out-of-pocket expenses + reasonably certain profit

Person seeking restitution for part performance is commonly allowed the more generous

measure of reasonable value, unless that measure is unduly difficult to apply, except when he is

in breach.

Restatement §372

An injured party who has performed in part will usually prefer to seek damages based on his

expectation interest instead of a sum of money based on his restitution interest because such

damages include his net profit and will give him a larger recovery

Even if he cannot prove what his net profit woudl have been, he will ordinarily seek damages

based on his reliance interest, since this will compensate him for all of his expenditures,regardless of whether they resulted in a benefit to the party in breach

CaseLaw

U.S. w. Susi Contracting v. Zara Contracting Rule

Non-breaching party is attempted to recover so court will allow the most generous form of

recovery to be used.

Contract rate of work completed + increased cost of dealing with clay + rental value of

equipment used by D - amount paid up front by D

Once a contract has been breached (particularly in construction cases) the promisee has an



option to forgo any suit on the contract and claim the reasonable value of his performance

on the theory of quantum meruit

Oliver v. Campbell Rule

If contractor has nearly completed the contract (all the work is done and all that remains is

the payment of money), the innocent nonbreaching party cannot waive the contract and sue

for unjust enrichment. They have to sue for the value of the contract.

Nonmonetary Remedies

1. Buyer's Non-monetary Damages Under Article 21. Cancellation

If a buyer rightfully rejects goods because they do not conform to the contract, one of her

options is simply to cancel the contract

2. Buyer's Right to Replevy Damaged Goods

1. on buyer's prepayment

if buyer has made at least part payment of the purhcase price of goods that have been identified under a

contract and the seller has not delivered the goods, the buyer may replevy the goods from the seller in two

circumstances.

1. The seller becomes insolvent within 10 days after receiving the buyer's first payment

2. the goods were purchased for personal, family, or household purposes

in either case, buyer must tender any unpaid portion of the purchase price to the seller

2. on buyer's inability to cover

the buyer may replevy undelivered, identified goods from the seller if the buyer, after reasonable effort, is

unable to secure adequate substitute goods.

3. Buyer's Right to Specific Performance

right to specific performance even where the goods have not yet been identified.

Court may not decree (even if parties agree to it) specific performance if the breaching

party's sole remaining contractual obligation is payment of money

2. Seller's Non-monetary Damages Under Article 2

1. Seller's Right to Withhold Goods

if buyer fails to make a payment due on or before delivery, the seller may withhold delivery

of goods

may also withhold goods when the goods are sold on credit and before the goods are

delivered, seller discovers buyer is insolvent

2. Seller's Right to Recover Goods1. Right to Recover from Buyer on Buyer's Insolvency

Seller may reclaim the goods upon demand made within 10 days after buyer's receipt of the goods.

2. Right to Recover Shipped or Stored Goods from Bailee

1. On buyer's insolvency

2. On buyer's breach

3. When goods may not be stopped

4. Obligation of Carrier or Bailee

3. Right to Demand Assurances



If the party reasonably fears that the other party will not perform, he may demand assurances

that the performance will be forthcoming at the proper time. Until he receives adequate

assurances, he may suspend his own performance. If the proper assurances are not given within

reasonable time, he may then treat the contract as repudiated.

Specific Performance Order from court to the breaching party to perform or face contempt of court charges

If the legal remedy is inadequate, the non-breaching party may seek specific

performanceLegal remedy is generally inadequate when the subject matter of the contract is rare or unique

1. Available for land and rare or unique goods (always available for land sale contracts)

2. Not available for service contracts

Court feels it is tantamount to involuntary servitude

1. Injuction as alternate remedy

court may enjoin a breaching employee from working for a competitor throughout the duration of the

contract if the services contracted for are rare or unique.

3. Covenant not to compete

4. Equitable Defenses Available???

Court may not decree (even if parties agree to it) specific performance if the breaching party's

sole remaining contractual obligation is payment of money

Defenses to and Limitations on Availability of Specific Performance

1. Grounds of unfairness is decreeing performance

ex. old, ill, illiterate farmer tricked into selling his land. Discovers trickery, will not be

forced to sell land (even though unique)

2. Lack of mutuality of performance

ex. Court will not grant specific performance unless D can be reasonably assured of

receiving the return performance for which he has contracted.

3. Indefiniteness of Agreement

Ex. Contract is not so indefinite to be held invalid, but is too indefinite to serve as basis for

decree of specific performance

4. Impracticability of Performance

Ex. performance is difficult in enforcement or supervision

5. Personal Services

Ex. Performance of K to play music at P's restaurant is denied

Ex. Employment

Courts can issue injunction preventing that person from performing for a third-party

UCC Remedies1-106 Remedies to be Liberally Administered

The remedies provided by this Act shall be liberally administered to the end that the aggrieved

party ma be put in as good a position as if the other party had fully performed.

SELLER BREACHES - No delivery, Repudiates

2-713 Buyers Damages for Non-Delivery or Repudiation

Difference between market price at the time when the buyer learned of the breach and the



K price together with any incidental and consequential damages, less expenses saved in

consequence of seller's breach

Determine market price as of the place for tender, or in cases of rejection after arrival, or

revocation of acceptance, as of the place of arrival.

BUYER MUST COVER

2-712 "Cover"; Buyer's Procurement of Substitute Goods

After a breach within the preceding section, the buyer may cover by making:

1. in good faith and

2. without reasonable delay

3. any reasonable purchase of of contract to purchase goods

4. in substitution for those due from seller.

Buyer may recover from seller as damages the difference between the cost of cover and the

K price together with any incidental or consequential damages, but less expenses saved in

consequence of seller's breach.

2-714 Buyer's Damages for Breach in Regard to Accepted Goods

Buyer has accepted goods and given notificationhe may recover as damages for any non-conformity of tender the less resulting in the

ordinary course of events from the seller's breach as determined in any manner which is

reasonable

The measure of damages for breach of warranty is the difference at the time and place of

acceptance between the value or the goods accepted and the value they would have had if

they had been as warranted, unless special circumstances show proximate damages of a

different amount.

BUYER BREACHES - Non-acceptance, Repudiates

2-708 Seller's Damages for Non-Acceptance or Repudiation

Difference between market price at the time and place for tender and the unpaid contract

price together with any incidental damages, less expenses saved in consequence of the

breach.

If measure of damages is inadequate to put seller in as good a position as performance

would have done, then the measure of damages is the profit including REASONABLE

OVERHEAD which the seller would have made from full performance by the buyer,

together with any costs reasonably incurred and due credit for payments or proceeds of

resale.SELLER RESALE

2-706 Seller's Resale Including Contract for Resale

Seller may resell the goods concerned or the undelivered balance. Where the resale is made

in (1) good faith and in a (2) commercially reasonable way, the seller may recover the

difference between the resale price and the contract price together with any incidental

damages allowed under the provisions of this article, less expenses saved in consequence of

the buyer's breach.

Perfect Tender Rule - Sale of Goods



Article 2 generally does not follow the common law substantial performance doctrine.

Instead is follows perfect tender

If goods or their delivery fail to conform to the contract in any way, the buyer generally

may reject all, accept all, or accept any of any commercial units and reject the rest

1. Commercial Unit Defined

The test for the "commercial unit" is "not only what unit has been the basis for the contract, but

also whether the partial acceptance produces so materially an adverse effect upon the

remainder as to constitute bad faith" 2-601

2. Right to Reject Cut Off by Acceptance

A buyer accepts when:

after a reasonable opportunity to inspect the goods, she indicates to the seller that they

conform to requirements or that she will keep them even though they fail to conform

she fails to reject within a reasonable time after tender or delivery of the goods or fails to

reasonably notify the seller of her rejection

she does any act inconsistent with the seller's ownership

Notice

if in connection with rejection, the buyer fails to state that the goods have a particular defect that

is ascertainable by reasonable inspection, she cannot rely on that defect to justify rejection of to

show seller's breach if:

1. seller could have cured the defect if he had been told about it

2. between merchants, when seller has after rejection, made a request in writing for a full

and final written statement of all defects upon which the buyer proposes to rely

3. Buyer's Responsibility for Goods After Rejection

1. Buyer must hold goods with reasonable care

2. When seller gives no instructions on disposal of goods

3. When buyer resells goods

4. Buyer's Right to Revoke Acceptance

Once goods are accepted, the buyer's power to reject the goods generally is terminated and the

buyer is obligated to pay the price less any damages resulting from the seller's breach.

Under limited circumstances, buyer may revoke an acceptance already made.

Proper revocation of acceptance has the effect of a rejection.

Buyer may revoke her acceptance of goods if the goods have a defect that substantially

impairs their value to her and

1. she accepted them on the reasonable belief that the defect would be cured and it has not been, or

2. she accepted them because of the difficulty of discovering defects or because the seller's assurance that

the goods conformed to the contract

Revocation of Acceptance must occur:

1. within a reasonable time after the buyer discovers or should have discovered the defects

and

2. before any substantial change in goods occurs that is not caused by a defect present at the

time the seller relinquished possession.

5. Exceptions to the Perfect Tender Rule



1. Installment contracts

the right to reject on an installment contract is much more limited

can only be rejected if the installment delivery substantially impairs the value of that

installment and cannot be cured.

Whole contract is breached only if the nonconformity substantially impairs the value of the

entire contract

2. Seller's Right to Cure

1. Single Delivery Contracts

seller can cure by notice and new tender within time for performance

ex. if buyer has rejected goods because of defects, seller may within the time originally provided for by

performance "cure" by giving reasonable notice of her intention to do so and making a new tender of

conforming to goods that the buyer must then accept

seller's right to cure beyond original contract time

usually, seller would have no right to cute

BUT, in cases where the buyer rejects a tender of nonconforming goods that the seller reasonably

believed would be acceptable "with or without money allowance" the seller, upon reasonable

notification to buyer, has reasonable time to complete beyond original contract

2. Installment Contracts

Article 2 provides that a defective shipment in an installment contract cannot be rejected if the defect can

be cured.

ex. buyer could reject, but then be forced to accept under above stated terms or

ex. if a deficiency in quantity occurs, seller can cure by delivering more, etc

Requirement that No Defenses Exist Article 2 Provision for Interpreting Contracts

Performance at Common Law Performance Under Article 2Party's Duty to Perform Absolute Absolute Duty to Perform Discharged

Contract Semester 1 Outline - Cardi

Documents

Transcript of Contract Semester 1 Outline - Cardi