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For a free, confidential referral to an attorney in your area, please click here CONTRACTS WHAT PROMISES SHOULD THE LAW ENFORCE? - THE DOCTRINE OF CONSIDERATION
CHAPTER 1 - AN INTRODUCTION TO CONSIDERATION: DONATIVE PROMISES, FORM, AND RELIANCE I. SIMPLE DONATIVE PROMISE A. RESTATEMENTS Sec. 1 CONTRACT DEFINED A contract is a promise or a set of promises for the breach of which the law gives a remedy.
Sec. 17 REQUIREMENT OF A BARGAIN Except as [otherwise provided], the formation of a contract requires a bargain in which there is ... a consideration
Sec. 71 REQUIREMENT OF EXCHANGE To constitute consideration, a performance or a return promise must be bargained for B. Doughterty v. Salt (p. 4) 1. a promise to make a gift is not enforceable a. law does not enforce gifts (donative promises) b. donative promises are not enforceable because the promisee suffers no detriment as a result of the breach 2. A B A gives to B; B must give something back II. THE ELEMENT OF FORM A. Policy reasons for having Consideration 1. EVIDENTIARY a desire to protect both the individual citizen and the courts against manufactured evidence 2. CAUTIONARY emotional altruism cautioned against 3. CHANNELING marked off so know for real 4. INJURY LESS injury is less severe when consideration is given 5. ECONOMIC EXCHANGE want to encourage economic exchange B. SCHNELL V. NELL (p. 11) 1. bargain = substantive transaction a. must have real consideration, not just nominal consideration (1) nominal consideration = in form only (a) ie. one cent for $600 (2) exceptions = option K and guaranties
III. THE ELEMENT OF RELIANCE A. RESTATEMENT 90(1) A promise (1) which the promisor should reasonably expect (2) to induce action or forbearance of the promisee or a third person and (3) which does induce such action or forbearance is (4) binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. B. KIRKSEY V. KIRKSEY (p. 19) 1. reliance on a donative promise is not enforceable C. DEVECMON V. SHAW (p. 21) 1. promise enforceable if reliance 2. 3 kinds of interests enforced by CONTRACTS a. EXPECTATION court puts party where would have been if the promise were enforced b. RELIANCE court puts victim of the breach back to the position he would have been if the promise had never been made when a person relies, the court grants out-of-pocket costs (the net costs incurred by a promisee in reliance on the promise, less the value produced by those costs that can be realized after the breach) not all reliance enforced - only when promisor expects reliance c. RESTITUTION person must pay for the benefit conferred avoids unjust enrichment D. FEINBERG V. PFEIFFER (p. 23) 1. promissory estoppel a. when a promisor induces reliance, then the promisor is stopped from denying that he ever made the promise b. if A says something and B relies - A can't says what he said wasn't true
CHAPTER 2 - THE BARGAIN PRINCIPLE AND ITS LIMITS I. THE BARGAIN PRINCIPLE A. RESTATEMENTS 71 REQUIREMENT OF EXCHANGE; TYPES OF EXCHANGE 1) To constitute CONSIDERATION, a performance or a return promise must be bargained for 2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for his promise - A PROMISE FOR A PROMISE
72 EXCHANGE OF PROMISE FOR PERFORMANCE Except as state in 73 [Performance of a Legal Duty] and 74 [Settlement of Claims], any performance which is bargained for is consideration
79 ADEQUACY OF CONSIDERATION; MUTUALITY OF OBLIGATION If the requirement of consideration is met, there is no additional requirement of 1) a gain, advantage, or benefit to the promisor or a loss, disadantage, or detriment to the promisee; or 2) equivalence in the values exchanged; or 3) "mutuality of obligation" - courts don't want to be paternalistic - parties can best set their values
B. HAMER V. SIDWAY (p. 43) 1. to constitute consideration must be bargained for 2. uncle pay $ if nephew stop drinking 3. newphew restrict legal freedom for promise of $ a. thus, consid. - no evid. that uncle not benefited (warm fuzzy feeling) b. forbearance of legal right = consideration
C. RESTATEMENTS 175 WHEN DURESS BY THREAT MAKES A CONTRACT VOIDABLE If a party's manifestation of assent is induced by improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim
176 WHEN A THREAT IS IMPROPER 1) A threat is improper if a) what is threatened is a crime or a tort 2) A threat is improper if the resulting exchange is not on fair terms, and a) the threatened act would harm the recipient (ie. beating him up) and would not significantly benefit the party making the threat, [or] b) what is threatened is otherwise a use of power for illegitimate ends - if have equal bargaining power and K dictated by general economic forces, OK if A takes advantage of B -- generally held to agreement - also improper if . threaten criminal prosecution . bad faith civil suit (civil suit OK unless bad faith/attaches property) . breach of legal duty K
D. BATSAKIS V. DEMOTSIS (p. 47) 1. Pl loaned D. 500,000 drachma ($25) during war in exchange for $2000 2. held for Pl 3. general economic conditions do not constitute duress a. for duress must have improper threat that leaves no reasonable alternative 4. courts typically won't enforce if have consideration
II. UNCONSCIONABILITY A. UCC 2-302 UNCONSCIONABLE CONTRACT OR CLAUSE (p. A-23) 1) if court finds unconscionable contract or clause, court can a) refuse to enforce the K b) enforce remainder of K w/out the unconscionable clause c) limit the application of any unconscionable clause to the extent that an unconscionable result is avoided 2) in unconscionable suit, parties are given a reasonable opportunity to present evidence of the commercial setting, purpose, and effect to help court in making its determination - purpose = to prevent oppression and unfair surprise B. RESTATEMENT 208 UNCONSCIONABLE CONTRACT OR TERM same as UCC 2-302 - indication of unconscionability = gross inequality in bargaining power + terms unreasonably favorable to 1 side
364 EFFECT OF UNFAIRNESS 1) Specific Performance or an injunction will be refused if such relief would be unfair because. . . a) the K was induced by unfair practices; or b) the exchange is grossly inadequate (substantive) - only applies to SPECIFIC PERFORMANCE
C. WILLIAMS V. WALKER-THOMAS FURNITURE (p. 53) 1. Pl. bought furn. from D. 2. under K, if default, D. can reclaim all furn. every purchased from D. by Pl. 3. stereo = good (something that's moveable - apply UCC) 4. UNCONSCIONABILITY 1) absence of meaningful choice on the part of one of the parties; and 2) a K whose terms are unreasonably favorable to the other party 3) 2 types PROCEDURAL party did not understand the K (ie. fine print/uneducated party) defect in the bargaining process look up REST. 364 SUBSTANTIVE parties clearly understood and volunteered defects in the resulting K - terms unfair/too one-sided 5. to determine unconscionability a. terms of K considered in light of the circumstances when the K made (ie. inequal bargaining power) D. TOKER V. WESTERMAN (p. 62) 1. Pl. sold refrigerator to D. - highly overpriced (two and a half times) -- SUBSTANTIVE 2. held for D. - price so high/overpriced that is was unconscionable -- K unenforceable 3. cooling off period for door to door sales 4. UCCC when inducement by unconscionable conduct a. seller knows consumer can't gain an advantage from the product/services b. gross disparity between price of goods sold and FMV c. seller takes advantage of buyer - ie buyer = illiterate or can't speak English III. FURTHER LIMITATIONS A. RESTATEMENT 74 SETTLEMENT OF CLAIMS 1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless a) the claim or defense is in fact doubtful because of uncertainty as to the facts of law, or b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid 2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is under consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists - QUIT CLAIM DEED
B. NEWMAN & SNELL'S STATE BANK V. HUNTER (p. 68) 1. when D.'s husband died left $3700 promissory note w/ 50 shares of insolvent stock to Pl. 2. D. said since comp. insolvent, no consideration - don't have to pay anything 3. held for D. a. Pl. neither gave up something or lost something if K not enforced -- no consideration b. invalid or worthless claim not worth anything c. must have objective value - not just subjective value (not just worth to one party)
C. SPRINGSTEAD V. NEES (p. 70) 1. no consideration if one party gives up nothing 2. since Pl. had no right to property, he gave up nothing -- NO promise 3. if order for waiver of claim, person must have honest (subjective) and reasonable (objective) belief of claim - then waiver is consideration a. sincere belief = sufficient consideration b. clearly invalid claim = no consideration
D. MILLER V. MILLER (p. 74) 1. Pl. = wife sue husband for enforcement of marriage K 2. husband said in K, wife has same obligations in K as set forth by law -- no consideration a. wife gave up nothing b. wife had legal duty c. bad social policy 3. held for the husband
IV. THE PROBLEM OF MUTUALITY A. DOCTINE OF MUTUALITY 1. promise to do must be real consideration 2. when have mutual promises, both parties are bound or neither is B. mutual promise = consideration 1. BUYER promises to pay $10 for SELLER'S horse SELLER promises to sell his horse to BUYER for $10. C. NO MUTUALITY 1. unrestricted termination clause (must have termination clause with a notice) 2. no quantity specified D. SCOTT V. MORAGUES LUMBER (p. 81) 1. Pl. agreed to buy ship from D. 2. D. agreed to sell ship to Pl. but then sold to someone else 3. held for Pl a. consideration at the outset - D. bound E. WICKHAM COAL V. FARMER'S COAL (p. 83) 1. agreement said buyer could purchase as much as want to purchase 2. held for the buyer a. each shipment and acceptance of carload = independent K b. just cause will furnish what want to buy not = mutuality of agreement - too 1 sided c. buyer not promise to buy exclusively from seller or specify amt which have to buy - only had to buy as much as wanted d. illusory promise - has form of a promise but gave nothing at all -- not enforceable (p. 89) (1) nothing to enforce since he made no commitment (2) a promise which does not limit some future option - subject to wishes or desires of promisee (3) bargaining for a chance is enforceable though. (p. 90) F. WOOD V. LUCY, LADY DUFF-GORDON (p. 92) 1. Pl. given exclusive rights to place D. endorsements and designs 2. Pl. get half of profits and revenues 3. LLD broke K a. claimed no elements of K cuz Pl. not bound to anything 4. held for Pl. a. duties implied that Pl. going to make reasonable efforts to make profits b. gave Pl. exclusive right UCC (p. A-25) 2-306 OUTPUT, REQUIREMENTS AND EXCLUSIVE DEALINGS 1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. 2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
consideration when say "I buy as much as I require" -gives up right to buy from anyone else -act in good faith
G. LACLEDE GAS V. AMOCO OIL (p. 93) 1. doctrine of mutuality does not mean have equal cancellation rights a. one party can have cancellation clause and another may not b. hwr. cancellation clause must give period of notification to other party
2. K based on requirement is binding when a. needs of buyer are reasonably foreseeable; AND b. time performance is limited H. GROUSE V. GROUP HEALTH PLAN (p. 97) 1. Pl. quit job and forgone other jobs in reliance to D. offer 2. D. then hired someone else a. said since can fire at will OK 3. held for Pl. a. promissory estoppel (1) Pl. relied on D. promise by quitting job and not accepting new ones b. though job terminable at will - must be given good faith opportunity to perform once on the job V. PERFORMANCE OF A LEGAL DUTY AS CONSIDERATION; MODIFICATION AND WAIVER OF CONTRACTUAL DUTIES A. RESTATEMENT 73 PERFORMANCE OF LEGAL DUTY Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain. - money given for a legal duty = bribe - performance of a preexisting legal duty is not consideration B. GRAY V. MARTINO (p. 99) 1. D. = prosecutor a. D. had access to knowledge concerning theft b. went to Pl. and said if give me $500 will give info. for missing jewelry. 2. held for Pl. a. D. performance = legal duty b. can't receive $ unless special circumstances above and beyond his legal duty c. D. gave up nothing -- no consideration C. LINGENFELDER V. WAINWRIGHT BREWERY (p. 102) 1. Pl. building brewery for D. 2. D. commission Pl.'s competitors to build refrigeration plant 3. Pl. wanted more $ to finish what already obligated to do 4. held for D. a. Pl incurred no new detriment b. cannot demand more $ to complete what already contracted to do = extortion (1) if new circumstances OK - ie. increase cost in building materials (a) not the case here
D. FOAKES V. BEER (p. 107) 1. D. owed Pl $ 2. agreement then that if D. pay 500 now and remainder in installments, Pl. would forgive interest 3. Pl. bought suit - said no consid. cuz D. already bound to pay $ -- gave up nothing 4. held for Pl. a. arg. against Pl - Pl got security of getting $ now -- consideraiton b. remedy (1) void old K and make new one c. SUGARHOUSE V. ANDERSON (p. 127) (1) creditor can accept lower payment if debtor incurred a new detriment (ie pay off old loan with a new loan) d. p. 146 when paying $500 is sufficient consideration to discharge a debt of $1000 - limitation applies only if the debt is 1) liquidated 2) undisputed and 3) due - If any of these factors is absent, the new promise or performance is binding, and the performance effects a discharge.
E. DE CICCO V. SCHWEIZER (p. 113) 1. D. agreed to pay daughter $2500/yr once got married 2. paid for 10 yrs. after marriage then stopped 3. for Pl. (daughter) 4. held for Pl. F. STOKES (p. 117) 1. D. promised Pl. (jockey) $1000 if won race 2. Pl. already under a legal duty to make best effort to win race -- NO consideration a. public policy against enforcement -- no bribery G. ANGEL V. MURRAY (p. 119) 1. trash collector asked for and got $10,000 more a year for collecting trash 2. held for the trash collector a. said increase in response to substantial increase in the number of houses b. arg. against was that he already had a legal duty to pick up the trash 3. RESTATEMENT 89(a) does not compel a modification of an unprofitable or unfair K; it only enforces modification if the parties volunatarily agree and if 1) the promise modifying the original K was made before the K was fully performed on either side 2) the underlying circumstances which prompted the modification were unanticipated by the parties 3) the modification is fair and equitable H. CENTRAL LONDON PROPERTY TRUST V. HIGH TREES HOUSE (p. 122) 1. Pl. granted D. 99 yr. lease 2. war depleted economy - D. couldn't fill up apts a. Pl. reduced rent by half 3. after war, Pl. want full payment 4. held for Pl. a. promise understood to be binding only during recession of the war b. once war was over - apts filled up
I. RESTATEMENT 89 MODIFICATION OF EXECUTORY CONTRACT A promise modifying a duty under a contract not fully performed on either side is binding a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the K was made; or b) to the extent provided by statute (UCC); or c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise
J. UCC (p. A-21) 2-209 MODIFICATION, RESCISSION AND WAIVER 1) An agreement modifying a K w/in this Article needs no consideration to be binding. 2) A signed agreement which excludes modification or rescission except a signed writing cannot be otherwise modified or rescinded, but except as between MERCHANTS such a requirement on a form supplied by the merchant must be separately signed by the other party. (modification needs signature except between merchants) 3) The requirements of the statute of frauds section ( 2-201) must be satified if the K as modified is within its provision. 4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3), it can operate as a waiver. 5) A party who has made a waiver affecting an executory (unperformed) portion of the K may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view ofa material change in reliance on the waiver. - abandons doctrine of consideration - common law moving away from consideration - good faith 1) required - test = "observance of reasonable commercial stds. of fair dealing in the trade" 2) sometimes requires an objectively demonstrable reason for seeking modification 3) maybe too unforseen market shift that would make performance hard
K. ROTH STEEL V. SHARON STEEL (p. 128) 1. D. sell steel to Pl at very low prices due to deflated mkt. 2. steel industry improved, D. want more $ 3. Pl. could not get enough steel from anywhere else -- had to buy D. steel 4. held for Pl. a. D. threatening w/out any legal right -- extortion L. UCC (p. A-10) 1-207 PERFORMANCE OR ACCEPTANCE UNDER RESERVATION OF RIGHTS A party who with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as "without prejudice", "under protest", or the like are sufficient. - does not apply to conditioned checks - only applies to mid-stream disputes - when can't continue -- reserve rights to pursue later M. FLAMBEAU V. HONEYWELL (p. 136) 1. D. paid last check minus $14,000 of what owed and wrote on the back of the check "payment in full" 2. Pl. cashed the check -- done deal a. accord and satisfaction 3. UCC 1-207 does not apply to conditioned checks a. UCC 1-207 only applies to mid-stream disputes - when can't continue/reserve rights to pursue later N. DOCTRINE OF ACCORD AND SATISFACTION (p. 148) 1. ACCORD = agreement to accept something else as payment 2. occurs when a debt is 1) UNDISPUTED, 2) LIQUIDATED, 3) DUE OR MATURED a. wouldn't MODIFY K if these things existed b. debt is clear -- more likely to accept promise to give something else 3. EXAMPLE accord = saddle - Debtor owes Creditor $50 - Debtor offers to give saddle instead of $50 - Creditor agrees to accept saddle as payment - Thus, if Debtor furnishes saddle, Creditor must fulfill his promise and take it ** - promise to accept saddle (accord) does not discharge original debt but merely suspends it ** - if Debtor breaches the accord, Creditor can sue for either $50 or the saddle 4. MODIFICATION of a K is different a. substituted K b. once Creditor accepts the new promise, the original debt is broken (1) accord/satifaction - original debt not discharged till performance (2) modification of K - original debt is discharged on the new promise c. under modification, if the Debtor breaches, the Creditor can only sue for the saddle (1) differs from accord/satisfaction - Debtor breaches, the Creditor can sue for either $50 (original debt) or the saddle (the new promise) O. RESTATEMENT (p. 156) 84 PROMISE TO PERFORM A DUTY IN SPITE OF NON-OCCURRENCE OF A CONDITION 1) Except as stated in Subsection (2), a promise to perform all or part of a conditional duty under an antecedent K in spite of the non-occurrence of the condition is binding, whether the promise is made before or after the time for the condition to occur, unless a) occurrence of the condition was a material part of the agreed exchange for the performance of the duty, and the promisee was under no duty that it occur; OR
- only non-material condition can be waived b) uncertainty of the occurrence of the condition was an element of the risk assumed by the promisor - material part of K 2) If such a promise is made before the time for the occurrence of the condition has expired and the condition is within the control of the promisee or a beneficiary, the promisor can make his duty again subject to the condition by notifying the promisee or beneficiary of his intention to do so if a) the notification is received while there is still a reasonable time to cause the condition to occur under the antecedent terms or an extension given by the promisor; and b) reinstatement of the requirement of the condition is not unjust because of a material change of position by the promisee or beneficiary; and c) the promise is not binding apart from the rule stated in Subsection (1) ** see examples p. 156-7 P. CLARK V. WEST (p. 151) 1. Pl. signed conditional K w/ D. to write law books a. if abstain from liquor will pay $4 more/page 2. issue: did D. waive intoxication condition in K?
3. since Pl. drank and D. sold copyright of books to someone else = evidence that books were good a. D. knew that Pl. drank - express waiver 4. waiver = intentional relinquishment of a known right 5. can't waive big things - can only waive non-material conditions - does not shift the risk a. waiver of non-material cond. needs no consideration and is enforceable
UCC (p. A-3)
1-207 WAIVER OR RENUNCIATION OF CLAIM OR RIGHT AFTER BREACH Any claim or right arising out of alleged breach can be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party. - written waiver needs no consideration
Q. NASSAU TRUST (p. 157) 1. K Modification requires consideration a. since have consideration, modification can only be w/drawn by agreement 2. Waiver requires no consideration a. once waiver done, cannot recall/expunge b. but if waiver is still unperformed, it can be withdrawn only if the party whose performance has been waived is given notice of withdrawal and given a reasonable time to perform R. WISCONSIN KNIFE V. NATIONAL METAL CRAFTERS (p. 158) 1. buyer and seller of drill bits -- UCC applies 2. no modification binding if not in writing a. delivery dates were modified - not in writing/orally ** 3. MODIFICATION needs CONSIDERATION in the COMMON LAW a. NO CONSIDERATION under UCC 2-209 (1) 4. UCC 2-209 (2) does not apply between merchants a. between merchant and consumer - on modification clause on merchant's stationary, need the consumer to sign (initial) modification clause 5. UCC 2-209 (4) a. "attempt at modification" = waiver b. K modification in writing = enforceable c. when orally - can operate as a waiver d. don't know when "can operate as a waiver" 6. UCC 2-209 (5) a. difference between a modification and a waiver is that a waiver can be retracted if no reliance CHAPTER 3 - PAST CONSIDERATION (INCLUDING THE PROBLEM OF "MORAL OBLIGATION" AS CONSIDERATION FOR A PROMISE) I. RESTATEMENT (p. 171) 82 PROMISE TO PAY INDEBTEDNESS; EFFECT ON THE STATUTE OF LIMITATIONS - exception to the doctrine of consideration 1) A promise to pay all or part of an antecedent contractual or quasi-contractual indebtedness owed by the promisor is binding if the indebtness is still enforceable or would be except for the effect of a statute of limitations. 2) The following facts operate as such a promise unless other facts indicate a different intention: a) a voluntary acknowledgement to the obligee, admitting the present existence of the antecedent indebtedness; or b) a voluntary transfer of money, a negotiable instrument, or other thing by the obligor to the obligee, made as interest on or part payment of or collateral security for the antecedent indebtedness; or c) a statement to the obligee that the statute of limitations will not be pleaded as a defense. - usually must be in writing to be binding unless promise can be inferred from part payment.
83 PROMISE TO PAY INDEBTEDNESS DISCHARGED IN BANKRUPTCY An express promise to pay all or part of an indebtedness of the promisor, discharged or dischargeable in bankruptcy proceedings begun before the promise is made, is binding.
I. JONES V. JONES (p. 167) A. husband sent letter, after the statute of limitations, which promised to pay old debt B. husband waived defense to statute of limitations by sending new letter C. past consideration = consideration II. 3 Situations in which a Promise to Discharge an Unenforceable Obligation is Binding. A. The 3 Situations: 1. Promise to Pay a Debt barred by the Statute of Limitations a. partial payment = consideration and statute of limitation starts running from that point on 2. Promise to Pay a Debt which has been Discharged in Bankruptcy. a. can choose who want to pay back and amount to pay back 3. A person who entered into a K while under the legal age (so that the K was not enforceable against him) promises to perform the K after becoming of age. B. Explanations 1. Moral obligation from the beginning = consideration for the later promise. a. When the debtor recognizes this moral obligation by making a promise, he becomes liable. 2. Initially the legal claim is barred by statute of limitations, bankruptcy, and infancy. a. new promise "waives" these defenses against the pre-existing legal right. b. the new promise does not create a new legal right but merely removes a defense to an existing legal (and not merely moral obligation). III. MILLS V. WYMAN (p. 177) A. Facts: 1. Wyman = sick/no longer member of dad's family 2. Pl. took care of him till he died 3. Wymans' dad found out and promised to pay for expenses incurred - broke promise B. NOT ENFORCEABLE 1. no original consideration 2. promise made here without pre-existing legal consideration 3. no legal obligation for son once son leaves father's family 4. taking care of son was a gift. a. no material benefit conferred IV. RESTATEMENT (p. 185)
86 PROMISE FOR BENEFIT CONFERRED 1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. a) if the act is officious b) if most people would want it done c) look at the circumstances 2) A promise is not binding under Subsection (1) [EXCEPTIONS] a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or b) to the extent that its value is disproportionate to the benefit. - denied many times if benefit thrust upon them (MILLS V. WYMAN p.177) - SEE ILLUSTRATIONS p. 185-87
V. WEBB V. MCGOWIN (p. 180) A. FACTS: 1. Pl., to avoid dropping block on D., fell w/block and sustained permanent injuries. 2. D. agreed/promised to pay $15 every 2 weeks for the rest of his life. 3. D. died - payments stopped 2 weeks later 4. Pl. want $ B. held for Pl. 1. When the promisee care for, improves, and preserves the property of the promisor, though done without his request, it is sufficient consideration for the promisor's subsequent agreement to pay for the service, because of the material benefit received. a. moral obligation = sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor. ** 2. subsequent promise is equivalent to a previous request VI. ESEINBERG, THE PRINCIPLES OF CONSIDERATION (p. 188) A. A confers a benefit on B without B's prior request: 1. B is legally obliged to compensate A under the law of restitution, as where A has paid B money by mistake. a. B's subsequent promise to compensate A = unenforceable 2. B is morally but not legally obliged to compensate A, as where A has suffered a loss in rescuing B. a. subsequent promise = ENFORCEABLE 3. B is neither legally nor morally obliged to compensate A, as where A has given B a wedding gift. a. subsequent promise = unenforceable
REMEDIES FOR BREACH OF K CHAPTER 4 - AN INTRODUCTION TO K DAMAGES I. RESTATEMENT (p. 192) 344 PURPOSES OF REMEDIES Judicial remedies under the rules stated in [the Restatement of K] serve to protect one or more of the following interest of a promisee: a) his "expectation interest" = his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the K been performed. b) his "reliance interest" = his interest in being reimbursed for loss caused by reliance on the K by being put in as good a position as he would have been in had the K never been made. - out-of-pocket costs c) his "restitution interest" = his interest in having restored to him any benefit that he has conferred on the other party. ** victim can only collect one of them II. HAWKINS V. MCGEE (p. 192) A. FACTS: 1. Pl. went to doctor to get skin graft from chest to hand to remove scar as result of severe burn. 2. doctor said "I will guarantee to make the hand 100%" 3. hand was damaged even more B. lwr court wanted to grant him reliance damages 1. reliance damages = difference between present condition and prior condition prior condition - present condition = amt injury C. Proper assessment of damages = Expectation Damages 1. expectation damages = difference in value of good hand and hand in present condition promised condition - present condition = damages D. Promised condition greater than prior condition -- expection measure of damages is greater than reliance III. REASONS FOR EXPECTATION OVER RELIANCE A. easier to establish in court the value of performance than the extent of reliance 1. reliance = forgone cost which is speculative 2. expectation = K price which is known B. expectation damages create incentive for promisor to deliver promise 1. K law not designed to punish but to preserve K. IV. POSNER'S EFFICIENT BREACH THEORY Seller has an original K with the Buyer - buyer can get widgets for $11 - seller agrees to sell widgets go $10 - third party needs widgets right away -- willing to pay $15 - seller should breack K with buyer and sell to third party for $15 - seller then pays original buyer compensatory damages of $1/widget
- seller has $4/widget profit - buyer can get widgets at regular mkt price of $11 -- put where would have been had K been performed (expectation damages) - third party has widget
reasons against - litigation costs on both sides - buyer and seller general Am. rule = each side must pay attorney's fees (transaction costs) - seller's reputation is hurt - encourages seller to breach K -- undermines the stability of K (inefficient)
CHAPTER 5 - THE EXPECTATION MEASURE I. DAMAGES FOR BREACH OF A K TO PERFORM SERVICES A. BREACH BY PERSON WHO HAS CONTRACTED TO PERFORM SERVICES 1. LOUISE CAROLINE NURSING HOME V. DIX CONSTUCTION (p. 209) a. FACTS: (1) LCN sue Dix for K breach of K to build nursing homes ** b. MEASURE OF DAMAGES (breach to perform services) (1) Pl. = FMV Promised Condition - FMV Present Condition (2) Court gives cost of completion measure: ** Cost of Completion - Balanced Owed to K-1 (3) EXAMPLES (a) - K-1 price = $100,000 - no work done by K-1 - nothing paid to K-1, owner still owes $100,000 - K-2 charges $125,000 - cost of completion damages = $125,000 - $100,00 = $25,000 (b) - K-1 price = $100,000 - no work done - owner paid $75,000 - still owes $25,000
- K-2 = $125,000 - cost of completion damages = $125,000 - $25,000 = $100,000 (c) - K-1 price = $100,000 - some work done - need $50,000 to complete by K-2 - owner paid $75,000 - still owes $25,000 - cost of completion damages = $50,000 - $25,000 = $25,000
2. PEEVYHOUSE V. GARLAND COAL & MINING (p. 211) a. FACTS: (1) Pl. enter in K w/ D. to lease land for coal mining (2) D. breached K by failing to perform restoration services to land (3) cost to restore land = $29,000 (4) promised cond. (FMV) = $300 b. judgement given to Pl. only $300 = value of land if K not breached ** c. basic measure of breach of service provider usually = COST OF COMPLETION but where cost of completion = unreasonably disproportionate - economic waste - DIMINUITIVE VALUE THEORY problems = this particular consumer places higher value on land than the FMV & D. knew that Pl. would not enter into K. unless land restore (bad faith on part of the D.). ** courts should enforce K, not alter to benefit 1 party.
B. BREACH BY A PERSON WHO HAS CONTRACTED TO HAVE SERVICES PERFORMED 1. AIELLO CONSTRUCTION V. NATIONWIDE TRAILOR (p. 222) a. FACTS: (1) Pl. enter into K w/D. to level D.'s lot (2) D. had to stop payments due to lack of $ (a) breack of K by the recipient of services (3) Pl. stopped work and sue to damages b. 2 formulas for damages * (1) K-1 price - cost saved by not completing - installments paid - materials on hand example K-1 = $100,000 cost to build = $80,000 owner paid = $10,000 no performance by builder before breach by recipient of services $100,000 - $10,000 -$80,000 = $10,000 to builder
(2) Profits + cost incurred - installments paid - materials on hand example K-1 = $100,000 cost to build = $80,000 (profit = $100,000 - $80,000) owner paid = $10,000 no performance by builder before breach by recipient of services $20,000 + 0 - $10,000 = $10,000 * different numbers in this formula if have loss instead of profit on original K.
I. DAMAGERS FOR BREACH OF A K TO SELL GOODS A. BREACH BY THE SELLER 1. buyer's remedies fall into 2 broad categories a. specific relief (Chapter 6) b. damages (1) buyer's remedies when the seller fails to deliver or the buyer properly rejects the goods or rightfully revokes his acceptance (UCC 2-712, 2-713). (2) buyer's remedies when the buyer has accepted the goods, and cannot or does not want to rightfully revoke his acceptance, but the goods are defective (UCC 2-714). 2. UCC (p. A-54 to A- 56) 2-711 (1) BUYER'S REMEDIES IN GENERAL Where the seller fails to make delivery or repudiates or the buyer rightfully or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole K ( 2-612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid a) "cover" and have damages under the next section as to all the goods affected whether or not they have been identified to the K; or b) recover damages for non-delivery as provided in 2-713
2-712 "COVER"; BUYER'S PROCUREMENT OF SUBSTITUE GOODS 1) After a breach within the preceding section the buyer may "cover" by making in good faith and without reasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. 2) The buyer may recover from the seller as damages the difference between the cost of cover and the K price together with any incidental or consequential damages as hereinafter defined in 2-715, but less expenses saved in consequence of the seller's breach. 3) Failure of the buyer to effect cover within this section does not bar him from any other remedy. - as long as buyer acted in good faith and in a reasonable manner - immaterial if not cheapest method
- SELLER'S BREACH (buyer does cover) Cover Price - K Price + C + I - Expense Saved
2-713 BUYER'S DAMAGES FOR NON-DELIVERY OR REPUDIATION 1) Subject to the provisions of 2-723 (respect to proof of mkt price), the measure of damages for non-delivery or repudiation by the seller is the difference between the mkt price at the time when the buyer learned of the breach and the K price together with any incidental and consequential damages provided by 2-715, but less expenses saved in consequence of the seller's breach. 2) Mkt price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival. - SELLER'S BREACH (buyer does not cover) Mkt. Price - K Price + C + I - Expense Saved
2-714 BUYER'S DAMAGES FOR BREACH IN REGARD TO ACCEPTED GOODS 1) Where the buyer has accepted goods and given notification, he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable. 2) The measure of damages for breach of warranty is the difference between value of the goods accepted and the value they would have had if they had been warranted, unless special circumstances show proximate damages of a different amount. 3) In a proper case, any incidental and consequential damages under the next section may also be recovered.
2-715 (1) BUYER'S INCIDENTAL AND CONSEQUENTIAL DAMAGES 1) Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach. B. BREACH BY THE BUYER 1. UCC (p. A-50 to A-54) 2-703 SELLER'S REMEDIES IN GENERAL Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make payment due on or before delivery or repudiates with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole K, then also with respect to the whole undelivered balance, the aggrieved seller may 1) withhold delivery of such goods; 2) stop delivery by any bailee as hereafter provided in 2-705; 3) proceed under the next section respecting goods still unidentified to the K; 4) resell and recover damages as hereafter provided 2-706; 5) recover damages for non-acceptance ( 2-708) or in a proper case the price ( 2-709); 6) cancel.
2-704 (1) SELLER'S RIGHT TO IDENTIFY GOODS TO THE K NOTWITHSTANDING BREACH 1) An aggrieved seller under the preceding section may a) identify to the K conforming goods not already identified if at the time he learned of the breach they are in his possession or control; b) treat as the subject of resale goods which have demonstrably been intended for the particular K even though those goods are unfinished. 2-706 SELLER'S RESALE INCLUDING K FOR RESALE (p. A-52) 1) Under the conditions stated in 2-703 on seller's remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the K price together with any incidental damages allowed under 2-710, but less expenses saved in consequence of the buyer's breach. BUYER'S BREACH (resale of good) K Price - Resale Price + I - Expenses Saved
2-708 SELLER'S DAMAGES FOR NON-ACCEPTANCE OR REPUDIATION (NERI V. RETAIL MARINE P. 231) 1) Subject to subsection (2) and 2-723, the measure of damages for non-acceptance or repudiation by the buyer is the difference between the mkt price at the time and place for tender and the unpaid K price together with any incidental damages provided in 2-710, but less the expenses saved in consequence of the buyer's breach. BUYER'S BREACH (no resale - use mkt price) K Price - Mkt Price + I - Expenses Saved
2) If the measure of damages provided in subsection (1) is inadequate to put the seller in a 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 incidental damages provided in 2-710, due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. - seller gets PROFIT
2-709 ACTION FOR THE PRICE (when seller can't resell) 1) When the buyer fails to pay the price as it becomes due, the seller may recover, together with any incidental damages, the price a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and b) of goods identified to the K if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing. 2) Where the seller sues for the price, he must hold for the buyer any goods which have been identified to the K and are still in his control except that if resale becomes possible, he may resell them at any time prior to the collection of the judgement. The net proceeds of any such resale must be credited to the buyer and payment of the judgement entitles him to any goods not sold. 3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated 2-610, a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section.
2-710 SELLER'S INCIDENTAL DAMAGES Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyer's breach, in connection with return or resale of the goods or otherwise resulting from the breach.
2. NERI V. RETAIL MARINE CORP (p. 231) a. FACTS: (1) Buyer entered into K to buy boat from Seller (2) Buyer gave D. $4250 for immediate delivery (3) Buyer then breach and want $ back b. for Seller (1) $3,253 = lost profits + incidental damages c. lost volume seller (1) seller has inexhaustible supply of replaceable (fungeable) goods (2) seller would have had 2 sales instead of one --measure of damages = inadequate to put seller in as good as position if performance was done (a) entitled to profit [UCC 2-708 (2)] (b) profit (includes reasonable overhead) = sale price - cost II. MITIGATION; CONTRACTS FOR EMPLOYMENT A. ROCKINGHAM COUNTY V. LUTEN BRIDGE CO. (p. 236) 1. FACTS: a. Pl. contracted w/ D. to build bridge b. after D. spent $1900, Pl. breached K c. D. kept on building the bridge 2. held for County (Pl.) a. though County had no right to breach, D. must stop work once County breached and mitigate damages (1) Luten can't continue working on bridge and make damages greater on County 3. DAMAGES K Price - Cost Saved - Amt Paid by the Owner - Materials on Hand or Profit (Loss) + Costs/Expenses - Amt Paid - Material on Hand 4. UCC (p. A-51) 2-704(2) SELLER'S RIGHT TO SALVAGE UNFINISHED GOODS (exception) Where the goods are unfinished, an aggrieved seller may in the exercise of reasonable commercial judgement for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the K or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner. - manufacturer of goods given a choice
- sometimes efforts to mitigate damages is better if can sell to someone else - EXAMPLE K Price = $10,000 Cost to Build = $8,000 Builder already spent $4,000 Expenses Saved = $4000 Resale of Scrap = $2,000 Resale of Scrap K Price $10,000 - Resale $ 2,000 + I - ES $ 4,000 ________ $ 4,000
B. SHIRLEY MACLAINE V. TWENTIETH CENTURY FOX (p. 241) 1. FACTS: a. Fox enter into K w/Shirley who was to receive $750,000 to play in a musical b. Fox negated K-1 and offer Shirley same salary to appear in dramatic western w/no director and screenplay approval rts. 2. held for Shirley a. second movie = inherently different 3. Rules a. Pl. must DILIGENTLY seek other employment b. alternative employment must be comparable and substantially similar c. when an employer wrongfully discharges the employee, the employee has the duty to exercise reasonable diligence to locate and accept similar and comparable employment in the same local. (1) if new job has a reduction in salary - employer who breached must pay difference
III. FORESEEABILITY A. HADLEY V. BAXENDALE (p. 249) ** landmark case 1. FACTS: a. Pl. broke his shaft b. Pl. took it to the D. who said would be delivered the next day c. delivery of the shaft was delayed -- Pl. did not receive his shaft for several days d. Pl. sued for lost profits cuz mill was delayed without the shaft 2. held for D. 3. RULE a. can only have damages for those consequences that arise naturally b. Hwr, if special circumstances were communicated and thus known to both parties, D. would be liable for the damages that arose from these special circumstances. B. VICTORIA LAUNDRY (p. 254) 1. delay of delivery of professional size washer caused loss of profits 2. held for Pl. a. damages were foreseeable even though not specially communicated because they arose naturally (1) why else buy huge washer except for commercial use C. KOUFOS (p. 256) 1. D. liable for delay in delivery of sugar 2. D. knew that sugar is dependent on mkt price a. though D. did not know mkt price would go down - foreseeable mkt condition b. foreseeability factor (1) must have substantial possibility w/in contemplation (2) 2% not compensable under HADLEY - 25% is compensable D. UCC (p. A-56) 2-715 (2) CONSEQUENTIAL DAMAGES Consequential damages resulting from the seller's breach include a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise (must cover) - A buyer does not have to cover under UCC 2-712 (3) - if buyer does not attempt to cover, consequential damages, including loss of profits, cannot be recovered. b) injury to person or property proximately resulting from any breach of warranty. E. RESTATEMENT (p. 259) 351 UNFORESEEABILITY AND RELATED LIMITATIONS ON DAMAGES 1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the K was made. 3) A court may limit damages for foreseeable loss by a) excluding recovery for loss of profits b) by allowing recovery only for loss incurred in reliance c) or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.
- exclude recovery under certain conditions a) extreme disproportion between the loss and the price charged by the party whose liability for that loss is in question - small price to great liability i) since price relatively small = evidence that it wan not intended to cover such liability b) informality of the dealing (absence of written K) i) no careful attempt to allocate risks
IV. UNCERTAINTY A. FREUND V. WASHING SQUARE PRESS (p. 262) 1. FACTS: a. Pl. give D. manuscript to publish b. D. could terminate w/60 days - if didn't had to publish and give Pl. royalties c. D. breached - didn't publish 2. held for Pl. but only given nominal damages of six cents a. rule (eroding) (1) damages must be reasonably certain (a) royalties were only speculative - can't ascertain -- only nominal damages (2) maybe here could have been certain but he did not prove it b. specific performance denied (1) service K here -- bad to force unwilling parties to work c. new business rule (1) uncertainty (also speculative) prevents recovery of damage for new business when leasor breaches (2) don't know how much new business would have made (3) also eroding - now use mathematical analysis of similar restaurants 3. UCC (p. A-3) 1-106 (1) REMEDIES TO BE LIBERALLY ADMINISTERED The remedies provided by this Act shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special nor penal damages may be had except as specifically provided in this Act or by other rule of law. - damages do not have to be calculated with mathematical accuracy - only approximate
V. DAMAGES FOR MENTAL DISTRESS A. VALENTINE V. GENERAL AMERICAN CREDIT (p. 268) 1. FACTS: a. Pl. sue D. for mental distress damages for breach of employment K b. Pl. claims under K, she was entitle to job security 2. affirmed for D. a. employment K = economic/not for mental well-being (1) policy reasons for business risks (2) always have emotional distress when lose job b. instead of foreseeability - law will grant emotional damages for breach of K, only if K has personal element (1) delivery of baby (2) marriage K (3) exception (a) bad faith breach of insurer's duty to defend (insurance company) (b) can get punitive damages in a breach (c) insurance company has a special relationship with their client
VI. LIQUIDATED DAMAGES A. TRUCK RENT-A-CENTER V. PURITAN FARMS (p. 274) 1. FACTS: a. D. lease trucks from Pl. b. had liquidated damage clause where if D. breach, would pay Pl half of rent that would have due c. arg. against (1) don't anticipate mkt failure (2) never know what damages at time K made - go with time K was made 2. held for Pl. a. 3 conditions for liquidated damages to be enforceable (1) Actual damages are difficult to estimate (unascertainable) at the time the K was made (2) liquidated damages are a reasonable estimate (bears a reasonable proportion) to the anticipated loss (3) liquidated damages can not be grossly disporportionate to the probable loss (actual damages) (a) can not be unconscionable or contrary to public policy - if all 3 conditions are not satisfied, liquidated damage clause will not be enforced and there will be a penalty 3. UCC (p. A-58) 2-718 (1) LIQUIDATION OR LIMITATION OF DAMAGES 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 or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty. - broader than the common law B. LAKE RIVER CORP. V. CARBORUNDUM (p. 282) 1. FACTS: a. Pl. build new bagging system ($89,000) to new K with D. to bag b. liquidated damage clause (1) if default D. pay Pl. difference between quantity bagged and quantity guaranteed c. entered into volunatarily - both knew about consequences before making K. 2. damages too much a. fails # 2 & 3 of rule in TRUCK RENT-A-CENTER (p. 274) (1) liquidated damages are unreasonable in relation to the antipated loss (2) liquidated damages are grossly disproportionate to actual loss
CHAPTER 6 - SPECIFIC PERFORMANCE I. LONDON BUCKET V. STEWART (p. 288) A. FACTS: 1. D. didn't complete installation of a heating system in a large motel 2. Pl. wants specific performance B. NO SPECIFIC PERFORMANCE GRANTED 1. only specific performance is other rememdies by law are inadequate a. rule = can not get specific performance if have adequate damages 2. Situations and Specific Performance a. Construction K (1) general rule = no specific performance (2) damages = adequate rememdy (3) courts unable to superintend b. K for sale of land (1) buyer can get specific performance when the seller breaches (a) land is unique c. Employment K (1) no specific performance unless the job is unique (ie professional athlete) d. other kinds of personal service (1) usually no specific performance - don't want to force people to work together I. RESTATEMENT (p. 290) 359 EFFECT OF ADEQUACY OF DAMAGES 1) Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation interest of the injured party.
360 FACTORS AFFECTING ADEQUACY OF DAMAGES In determing whether the remedy in damages would be adequate, the following circumstances are significant: a) the difficulty of proving damages with reasonable certainty (ie royalties) b) the difficulty of procuring a suitable substitute performance by means of money awarded as damages (thus specific performance); and c) the likelihood that an award of damages could not be collected - give nominal damages when can not prove - many times sentimental attachment and unique situations make it hard to prove damages II. UCC (p. A-54, A-57)
2-709 ACTION FOR THE PRICE (seller's remedies when buyer breaches) 1) When the buyer fails to pay the price as it becomes due, the seller may recover, together with any incidental damages under the next section, the price... a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and b) of goods identified to the K if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing. 2) Where the seller sues for the price, he must hold for the buyer any goods which have been identified to the K and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgement. The net proceeds of any such resale must be credited to the buyer and payment of the judgement entitles him to any goods not resold. 3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated 2-610, a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section. - seller gets damages 2-716 BUYER'S RIGHT TO SPECIFIC PERFORMANCE OR REPLEVIN 1) Specific performance may be decreed where the goods are unique or in other proper circumstances. 2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just. 3) The buyer has a right of replevin for goods identified to the K if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonbly indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interest in them has been made or tendered.
III. LACLEDE GAS V. AMOCO (p. 295) A. FACTS: 1. Amoco breached K to sell propane to Laclede B. specific performance for Laclede 1. difficult for Laclede to secure long-term K as they had with Amoco -- specific performance 2. long-term special services K = unique -- specific performance
CHAPTER 7 - THE RELIANCE AND RESTITUTION MEASURES I. RELIANCE DAMAGES IN A BARGAIN CONTEXT A. SECURITY STOVE V. AMERICAN RYS EXPRESS (p. 301) 1. FACTS: a. Pl. rented space in exhibit b. since Pl. stove couldn't be sent in time by freight, Pl. hired D. (1) D. expressly promised that it would get there in time (2) special circumstances were communicated c. everything got there except for the main part - Pl. exhibit was futile 2. for Pl. a. only give expenses to Pl. which are foreseeable to the promisor (1) example $1000 expenses - $200 would have lost if K performed _______ (expenses incurred before K) $800 give b. parties can ask for reliance or expectation (1) expectation is usually greater than reliance Expectation (foreseeable cost + profit) > Reliance (foreseeable costs) ** (2) expectation measure = ceiling on reliance damages (a) never put party ahead of where would have been if K performed I. THE RESTITUTION MEASURE A. INTRODUCTION 1. 2 types of restitution a. Substantive (1) the recapture of a benefit conferred on the D. by the Pl. through which the D. has been unjustly enriched. b. Remedial (1) recoveries that are measured by the amount of a D.'s unjust enrichment. 2. Indebitatus assumpsit a. Pl. could sue on a new promise to pay a pre-existing obligation. 3. Implied-in-Fact a. real K made with conduct instead of work (implied K through conduct) (1) examples (a) go to restaurant - no express promise to pay after eat (b) go to doctor's office - implied promise pay after doctor examines you b. EXPECTATION DAMAGES 4. Implied-in-Law a. not a real K (1) ie get a check in the mail by mistake (a) can not keep money (b) unjust enrichment (2) quasi-contract (a) D. has received a benefit (b) retention of the benefit is inequitable ** b. quantum meruit (1) "as much as he deserves" (2) recovery for the reasonable value of work, labor, and services performed at the request of the defendant. (3) must have a benefit conferred upon the D. c. gift does not equal unjust enrichment d. if someone without asking paints our house - not unjust to retain e. RESTITUTION DAMAGES
B. RESTITUTIONARY DAMAGES FOR BREACH OF K 1. OSTEEN V. JOHNSON (p. 309) a. FACTS: (1) Pl. pay $2500 to D. (2) D. would ... (a) advertise Pl. daughter music for 1 yr. (b) pay for recording studio (c) press and mail records - do second one if first one successful (3) D breached b. restitution damage to Pl. = $2500 - amount of work D. already had done c. service K - normally get cost of completion + profits d. Pl. want $ back (1) wants rescission of K (2) restitution e. minor breach only get expectation (1) if material breach ... (a) then can rescind K and get restitution (rescission and restitution) (b) must go to the essence of the K to be a material breach. 2. RESTATEMENT (p. 311)
344 PURPOSE OF REMEDIES Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a promise ... c) his restitution interest = his interest in having restored to him any benefit he has conferred on the other party.
345 JUDICIAL REMEDIES AVAILABLE The judicial rememdies available for the protection of restitution interests include a judement or order ... c) requiring restoration of a specific thing to prevent unjust enrichment, d) awarding a sum of money to prevent unjust enrichment
370 REQUIREMENT THAT BENEFIT BE CONFERRED A party is entitled to restitution under the rules stated in this Restatement only to the extent that he has conferred a benefit on the other party by way of part performance or reliance. * see examples on p. 312
371 MEASURE OF RESTITUTION INTEREST If a sum of money is awarded to protect a party's restitution interest, it may as justice requires be measured by either a) the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant's position (reasonable value to the party to whom restitution is sought), or - cost-of-completion from someone else - cost to get someone else to do it b) the extent to which the other party's property has been increased in value or his other interests advanced (addition to his wealth). - increase in value - usually a) > b) -- give more $ to the innocent party
3. UNITED STATES V. ALGERNON BLAIR (p. 314) a. FACTS: (1) Blair K w/ Coastal to help Blair w/ construction (2) Blair refused to pay for crane as was required in K (material breach) (3) Trial court found $37,000 due Coastal for completed work (a) Coastal would have lost $37,000 if K not breached. b. held for Coastal - quantum meruit c. material breach -- Coastal can have either restitution or expectation (1) chose restitution - can get more $ with restitution than with expectation - K were performed, Coastal would have lost money (2) restitution = mkt value of services performed 4. IMPORTANT PRINCIPLES a. restitution for benefit conferred and unjust enrichment
(1) quantum meruit - restitution for service K (as much as they deserve) b. if benefit thrust upon you, don't have to pay c. when use restitution (1) no K, but a benefit conferred (2) K is not enforceable (3) when damages are too speculative (4) MATERIAL BREACH (goes to the essence) + PART PERFORMANCE (a) NON-BREACHING party has a choice of RESTITUTION AND RESCISSION of K or EXPECTATION (b) MINOR breach only get EXPECTATION d. once work is finished - only get K price, no restitution ** e. for the non-breaching party, expectation is not a ceiling for restitution ** (1) expectation hwr is a ceiling for reliance for the non-breaching party f. restitution v. reliance (1) restitution based on the benefit to the defendant (2) reliance damages based on cost to the plaintiff
C. RESTITUTION IN FAVOR OF A PL. IN DEFAULT 1. BRITTON V. TURNER (p. 318) a. FACTS: (1) Pl. performed $95 of $120 K of employment for 1 year (2) Pl. breached without D.'s consent (3) Pl. want money for work done b. for Pl. (1) D. can't receive unjust enrichment (2) even though Pl. breached, worse if D. unjustly enriched (3) if D. receive benefit, must pay for it 2. PRINCIPLES a. a breaching party can only get RESTITUTION - EXPECTATION is the CEILING (1) increase in value to the property or substitute mkt value (a) breaching party gets the lower one (b) K price = $100,000 increase value = $ 50,000 mkt value services= $ 60,000 - breaching party gets $50,000 (2) no encouragement to breach b. DOBBS MEASURE (1) contractor = breaching party K-1 = $50,000 K-2 = $20,000 (cost of completion) $30,000 = damages for benefit conferred paid by contractor (breaching party) - K-1 ($50,000) paid to original contractor - he breached - costs landowner $20,000 to have someone else do it - breaching contractor pays $30,000 to landowner - landowner now has house for $50,000 (K-1) c. UCC (p. A-58)
2-718 LIQUIDATION OR LIMITATION OF DAMAGES 2) Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds a) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1), or - liquidated damages = ceiling - seller gets to keep if have liquidated damage clause b) in the absence of liquidated damages clause, 20% of the value of the total performance for which the buyer is obligated under the K or $500, whichever is smaller. - 20% of K price or $500, whichever is smaller - rest goes to the buyer - if seller damages are greater, get that too 3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller establishes a) a right to recover damages under the provisions of this Article other than subsection (1), and b) the amt or value of any benefits received by the buyer directly or indirectly by reason of the K. 4) Where a seller has received payment in goods, their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of subsection (2); but if the seller has notice of the buyer's breach before reselling goods received in part performance, his resale is subject to the conditions in 2-706.
ASSENT CHAPTER 8 - AN INTRODUCTION TO INTERPRETATION I. LUCY V. ZEHMER (p. 330) A. FACTS: 1. Pl. and D. entered into a written K where Pl. was to buy from D. his farm for $50,000 2. both were drunk at the time 3. Pl. was serious 4. D. said it was a joke but did not manifest his outward intentions B. for Pl. 1. if words or actions have one reasonable meaning, then the undisclosed intent = immaterial unless unreasonable 2. specific performance - land unique I. RAFFLES V. WICHELHAUS (p. 334) A. FACTS: 1. Pl. agreed to sell to D. cotton on ship named Peerless from Bombay 2. hwr, there were 2 ships named Peerless and D. meant a different one B. for D. 1. ambiguity does not make a K binding a. since ambiguity, no consensus -- no binding K II. FRIGALIMENT V. BNS SALES (p. 335) A. FACTS: 1. D. entered into K where it would ship "chicken" to Pl. a. did not specify what type 2. Pl. wanted young broiling chicken 3. D. sent older fowl B. complaint dismissed for D. 1. just like PEERLESS - attach a different meaning 2. buyer (Pl.) knew or should have know of seller's (D.) definition 3. seller = innocent party -- choose his definition and he wins III. RESTATEMENT (p. 340) 20 EFFECT OF MISUNDERSTANDING 1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and a) neither party knows or has reason to know the meaning attached by the other; or b) each party knows or each party has reason to know the meaning attached by the other. 2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if a) that party does not know of any different meaning attached by the other; and the other knows the meaning attached by the first party; or b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.
201 WHOSE MEANING PREVAILS 1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. 2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made a) that party did not know of any different meaning attached by the other; and the other knew the meaning attached by the first party; or b) that party had no reason to know of any different meaning attached by the other party, and the other had reason to know the meaning attached by the first party. 3) Except as stated in this section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent. IV. EMBRY V. HARGADINE (p. 342) A. FACTS: 1. Pl. = employer of D. 2. written K expired on 12/15 a. went to D. to request new K or else wouldn't work b. D. said "Go ahead, you are all right. Get your men out, and do not let that worry you." 3. Pl. said cmmt = new oral K 4. D. fired Pl. in February B. for Pl. 1. does not matter what inner intentions are a. if outward manifestation/conduct = so that reasonable man would believe he was assenting - K b. objective std - not subjective std of employer's intent c. if subjective - anyone could get out of K ** (see examples p. 346- 349) V. HAINES V. NEW YORK (p. 351) A. FACTS: 1. D. to build and maintain sewer system 2. Pl. want to build more house -- want city to expand sewer system which is already operating at max. capacity B. for D. 1. D. must maintain, not expand 2. 3 ways to interpret a. actual intent b. hypothetical intent c. fair and reasonable 3. rule a. where the parties have not clearly expressed the duration of a K, the courts will imply that they intended performance to continue for a reasonble time. VI. RESTATEMENT (p. 354)
204 SUPPLYING AN OMITTED ESSENTIAL TERM When the parties to a bargain sufficiently defined to be a K have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.
VII. SPAULDING V. MORSE (P. 354) A. FACTS: 1. mom and dad got divorce 2. divorce agreement said dad pay mom $1200/yr till son got into college a. once son in college - dad pay $2200/yr b. trust to provide son w/financial security to maintain education 3. after high school, Richard went to join the army cuz of WWII. 4. mom still want dad to pay $1200/yr B. for dad - don't have to pay $ while son in army 1. instrument interpreted as to what intent was through the words a. must not be inconsistent to law/repugnant to other terms of the agreement. b. since intent of trust for financial stability in son's education and son not getting educated while in army - dad relieved of payment (1) in addition, son being supported by the army
CHAPTER 9 - THE MECHANICS OF A BARGAIN (I) -- OFFER & REVOCATION I. WHAT CONSTITUTES AN OFFER A. RESTATEMENT (p. 359)
24 OFFER DEFINED An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. - offeree must think all have to do is say yes to have acceptance
- look to see if reasonable person would think his acceptance if invited and will conclude it B. LONERGAN V. SCOLNICK (p. 359) 1. FACTS: a. seller placed ad in paper for land b. seller wrote form letter describing property c. buyer sent letter to seller asking for description of land and see escrow agent OK d. seller wrote to buyer said must act fast and escrow agent OK e. buyer did not act fast so seller sold to someone else -- buyer sue 2. for seller a. each letter further assent was needed to make acceptance C. LEFKOWITZ V. GREAT MINNEAPOLIS SURPLUS STORE (p. 362) 1. FACTS: a. see ad on p. 362 b. D. place add in paper which said would sell fur coat for $1 c. Pl. went to buy and D. would not sell to him (1) said offer only open to women (2) D. said ad = invitation to make an offer not automatic K once accepted 2. for Pl. ** a. rule Where the offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the K. b. normally ad not an offer (1) usually invites someone to take further action for further negotiation. (2) sent out to too many people - everybody can't accept c. reasonableness for offer (when reasonable person thinks offer) (1) manifestation of present K intent (2) must have definiteness of terms D. advertisements must be in stock or have reasonable amt - not hook and bait
I. TERMINATION OF THE OFFEREE'S POWER OF ACCEPTANCE: LAPSE, REJECTION, AND COUNTER-OFFER A. AKERS V. J.B. SEDBERRY (p. 368) 1. FACTS: a. Pl. worked for D. b. Pl. offered to resign (1) D. did not accept resignation (2) D. cont. to talk business (3) D. sent Pl. back to work c. following Monday - D. said accept Pl.'s resignation 2. for Pl. ** a. offer can be terminated by . . . (1) being rejected (2) not accepted w/in the specified time or w/in a reasonable time (a) usually offer made during a conversation ends at the end of a conversation (3) revocation (a) offer can be revoked any time before accepted (4) counter-offer B. RESTATEMENT (p. 372)
41 LAPSE OF TIME 1) An offeree's power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time. 2) What is reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made. 3) Unless otherwise indicated by the language or the circumstances . . . an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received. - considerable longer time may be reasonable C. ARDENTE V. HORAN (p. 373) 1. FACTS: a. Pl. agreed to buy D. residential property b. Pl. sent letter to D. w/$20,000 deposit (1) want certain patio furniture to remain (2) confirm as part of transaction (3) would be difficult to replace 2. for D. a. letter was a counter-offer (not a acceptance coupled with an inquiry) -- killed the offer b. to be an effective acceptance must be definite and unequivocal (1) conditional acceptance = counter-offer (rejection of the original offer) (a) kills the offer (b) counter-offer requires acceptance by the original offeror (2) acceptance coupled with an inquiry = acceptance (3) condition implied in the offer = acceptance - basically the same offer D. RESTATEMENTS (p. 376)
39 COUNTER-OFFERS 1) A counter-offer is an offer made by an offeree to this offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. 2) An offeree's power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree. - counter-offer = rejection - hwr. counter-offer = offer -- still can be accepted by the offeror -- carries negotiations on rather than cutting them off ** - see examples p. 376
59 PURPORTED ACCEPTANCE WHICH ADDS QUALIFICATIONS A reply to an offer which purports to accept it but is conditional on the offeror's assent to terms additional to or different from those offered is not an acceptance but is a counter-offer. (CONDITIONAL ACCEPTANCE)
E. RYDER V. WESCOAT (p. 378) 1. FACTS: a. Wes gave Ryder option K b. Wes thought Ryder rejected before end of option K 2. for Ryder ** a. option K not killed by a rejection (1) person has paid for the right to keep the offer open for a certain amt of time (2) can enforce rejection when other party has relied (3) death of either party usually kills an offer - not terminated an option K b. RESTATEMENT (p. 381)
37 OPTION K The power of acceptance under an option K is not terminated by rejection, or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for offer and discharge of a contractual duty.
II. TERMINATION OF THE OFFEREE'S POWER OF ACCEPTANCE: REVOCATION A. DICKINSON V. DODDS (p. 382) 1. FACTS: a. D. said offer to Pl. open till 6/12 9AM b. Pl. on 6/11 knowing D. had changed his mind, left formal acceptance w/D.'s mom c. 7AM 6/12, agent gave D. acceptance - D. said already sold property 2. for D. a. since seller made offer, must revoke it - can't just sell to someone else (1) revocation can be direct or indirect b. if buyer knows seller does not intend to sell to him - equivalent to a revocation (1) RESTATEMENT (p. 385)
43 INDIRECT COMMUNICATION OF REVOCATION An offeree's power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed K and the offeree acquires reliable information to that effect. B. PAYNE V. CAVE (p. 386) 1. FACTS: a. Pl. = auctioner D. = buyer b. D. offered 40 for worm (1) when Pl. said would not weigh it, D. retracted the offer befored the hammer went down 2. for Pl. a. buyer gave bid to auctioner (1) bid = offer (2) since it is an offer - can revoke (a) if bid is an acceptance - can't revoke cuz have K now 3. UCC (p. A-33)
2-328 1) In a sale by auction, if goods are put in lots each lot is the subject of a separate sale 2) A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. Where a bid is made while the hammer is falling in acceptance of a prior bid, the auctioneer may in his discretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling. 3) Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve, the auctioneer may withdraw the goods at any time until he announces completion of the sale. In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In either case, a bidder may retract his bid until the auctioneer's announcement of completion of the sale, but a bidder's retraction does not revive any previous bid. 4) If the auctioneer knowingly receives a bid on the seller's behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale. This subsection shall not apply to any bid at a forced sale (foreclosure). C. SHUEY V. UNITED STATES (p. 387) 1. FACTS: a. Pl. gave info. that led to arrest of Surrat b. $25,000 reward for arrest of Surrat was w/drawn 5 months earlier 2. for the D. a. Pl. only gave info. - offer for apprehension -- only liberal damages b. offer revoked in the same manner it was given
c. offer here = unilateral K (1) unilateral K - want act/performance as acceptance (2) bilateral K - offer and acceptance both are promises - a promise for a promise D. PETTERSON V. PATTBERG (p. 392) 1. FACTS: a. D. agreed to accept $ for mortagage less $780 b. when Pl. came by to D.'s with money, D. sold mortagage to someone else c. Pl. had relied on D.'s promise (1) made promise to sell land to third party free and clear of mortgage 2. for D. a. an offer to enter into a unilateral K can be withdrawn before act requested is done b. Wormser (1) why should A be bound but not B (2) can revoke any time before action completed c. McGouney (1) 2 promises in a unilateral K (a) promise to pay for completed act (b) implied collateral promise to keep offer open for reasonable time (2) consideration given by starting performance (a) return promise = to hold offer open for a reasonable time (b) arg. against - no consideration - bargain for completed act (3) Restatement adopted McGouney's reasoning E. RESTATEMENT (p. 398)
45 OPTION K CREATED BY PART PERFORMANCE OR TENDER 1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option K is created when the offeree tenders or begins the invited performance or tenders a beginning of it. 2) The offeror's duty of performance under any option K so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer. - get money when complete - offeree is not bound to complete performance - offeror is bound to pay if offeree does complete performance F. MARCHIONDO V. SCHECK (p. 400) 1. FACTS: a. seller agreed to Pl. to pay % commission to broker b. offer open for six days c. seller revoked in writing on day 6 before the acceptance. 2. did not decide issue a. unilateral K for Pl. to perform sale (1) until performance received - no consideration -- no K (2) does not matter if offer is exclusive (3) Once partial performance is begun pursuant to the offer made, a K results. This K = K with conditions or a option K. G. DRENNAN V. STAR PAVING CO. (p. 403) 1. FACTS: a. Pl. = contractor D. = subcontractor b. Pl. submitted bid for work need to D. c. D. supplied bid to Pl. d. Pl. relied on D.'s bid to make offer e. Pl. got the job f. D. then said it would cost twice as much for his part g. Pl. went and got somebody else and sues for the difference 2. for Pl. a. D.'s action induced Pl. (1) injustice can only be avoided by enforcement of the K ( 90 of Restatement) (2) option K - keep open for a reasonable time b. D. had reason to expect and want Pl to rely on bid c. Pl. acted reasonably to mitigate damages 3. UCC (p. A-18)
2-205 FIRM OFFERS An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not |