Promotes our market economy by encouraging contractual exchange.

POLICIES OF CONTRACT LAW

(The "why" of contract law: why courts have created the particular rules they have created and decided cases the way they have decided them)

1. Predictability
2. Freedom of Contract (individualism)
3. Fairness
4. Efficiency

• "certainty"
• law strives to structure human relations so that ppl can predict the consequences of their actions
• promotes our free market economy by providing certainty for those involved in exchanging goods & services
• encourages ppl to enter into contracts, secure in the knowledge that those contracts will be enforced
• if one party refuses to perform, society, through our judicial system, will step in and assure the aggrieved party can get what she expected (or something close)
• RULE: NO contract unless the parties both express their desire to contract using unqualified language.
• Allows parties to predict the consequences of their negotiating behavior and to negotiate freely and with confidence as to the consequences.
• RULE: Nearly all contracts are enforced.
• Allows parties to predict the consequence of making contracts-- the obligation to perform.

• "individualism"- people are individual actors with free will
• we have the freedom to make whatever contracts we choose to make
• freedom of contract is promoted when courts enforce contracts, even if those contracts seem unfair

• "just," "equitable," or "protection"
• encourages contract making- when parties believe the legal system will treat them fairly, they are more likely to enter contracts

• Contract law promotes our market economy by encouraging contractual exchange.
• Contractual exchange is desirable bc it facilitates each party to an exchange obtaining something she values more greatly than what she currently possesses.
• Contract rules promote "efficient breaches" of contract.

• SUBJECTIVE INTENTION: what the person meant by the words she used
• OBJECTIVE INTENTION: how a reasonable person would understand the words the person used.

• Include every piece of evidence on which the court relied in deciding the case
• SPECIFIC WORDS used by the parties

CONTRACT THEORY:

2 MAJOR GOALS

1. PROMOTE LIBERTARIANISM: freedom of public to operate independently and enforce their own contracts

2. DISTRIBUTIVE JUSTICE: Fairness and Protection

FACTS: Bailey (P) boarded a horse purchased but later rejected by West (D), and West refused to pay for Bailey's services

ISSUE: Was there an implied contract for Bailey (P) to care for the horse? ANSWER: NO

RULE: There can be no contract without the intention of both parties to be bound

BOLIN FARMS V. AMERICAN COTTON SHIPPERS ASSOCIATION

FACTS: Bolin Farms and others (P) agreed to sell a year's cotton crop for a certain price to American Cotton Shippers Association (D), but the open market price for cotton increased dramatically before harvest

ISSUE: Does the increase in the market price for cotton make the sales agreements based on a much lower price unenforceable?

ANSWER: NO

RULE: Changes in outside conditions that do not affect a party's performance will not make a contract unenforceable

**LIBERTARIAN POLICY**

RESTATEMENT § 24: 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.

1. An attempt to clarify and restate the law that already exists- a codification of what the law on contracts is and is adopted by states- legislatures would vote to adopt it or courts would and then it becomes law

2. NOT binding legal authority! Most authoritative secondary source

3. persuasive authority- general consensus of legal scholars on what the law should be

FACTS: Scolnick (D) advertised land for sale; following an exchange of info in letters, Lonergan (P) claimed that he had accepted Scolnick's offer to sell land

ISSUE: Did the correspondence from Scolnick constitute an offer to Lonergan to sell the property? ANSWER: NO

RULE: An offer must be clear, definite, and explicit and state terms

No offer if person receiving it knows or has reason to know person making it does not intend to be final until further expression of assent- meeting of the minds

FACTS: Great Minn. Surplus Store (D) advertised fur coats and stoles on sale for $1.00, first come, first served; Lefkowitz (P) was first in line and (D) refused to sell to him

ISSUE: Does a newspaper ad that is clear, defninite, explicit and leaves nothing open for negotiation constitute and offer, which, if accepted, will create a contract? ANSWER: YES

RULE: An offer that is clear, definite, and explicit, and leaves nothing open for negotiation, acceptance of which will complete the contract

FACTS: Leonard (P) sought to buy a Harrier Jet allegedly offered in a Pepsico (D) tv ad offering to exchange PepsiStuff pts. for merchandise; Pepsico rejected Leonard's demand

ISSUE: Did completion of an order form in response to a humorous ad create a binding contract to sell? ANSWER: NO

RULE: Reasonable person standard when dealing with an ad; an objective reasonable person would consider this an offer

RESTATEMENT §25: Option Contract is a promise which meets requirements for contract formation and limits promisor's power to revoke an offer.

• A contract made to keep an offer open for a specified period, so that the offeror cannot revoke the offer during that period

FACTS: Humble (P) had an option to purchase real estate from Westside (D); Humble suggested changes to the purchase contract. Before the option expired, Humble withdrew the proposed changes and exercisd the option to purchase property

ISSUE: Do continued negotiations or counteroffers by the offeree terminate the power of acceptance contained in an irrevocable option contract? ANSWER: NO

RULE: If the original offer is an irrevocable offer that creats a binding option in the offeree, counteroffers or further negotiations by the offeree do not terminate the power of acceptance; an option is not terminated by continued negotiations btwn the parties

• Ex. if he has 1 wk to buy in option for which he paid $100, and on day 3 proposes changes to sale contract, the option is still open to him and only him for duration

A unilateral contract is a contract in which only one party makes a promise or undertakes a performance

FACTS: Gimbel (D) submitted an offer to supply linoleum, mistakenly priced too low, to Baird (P), a general contractor, who used the offer as part of its bidding on a public building construction project; Gimbel (D) withdrew its offer before the bid was awarded to Baird (P).

ISSUE: Did placing a big using a subcontractor's offer to supply materials create a binding contract btwn. the contractor and the subcontractor if the subcontractor withdrew its offer prior to acceptance by the contractor?

ANSWER: NO

RULE: Promissory estoppel does not apply to a subcontractor's bid that is withdrawn before acceptance.

FACTS: Star (D) submitted a bid to provide paving, mistakenly priced too low, to Drennan (P), a general contractor, who used the bid as part of its bidding on a school construction project; Star (D) withdrew its offer after the bid was awarded to Baird (P).

ISSUE: Did placing a bid using a subcontractor's bid to supply services create a binding contract between the contractor and the subcontractor if the subcontractor withdrew its bid after the bid was awarded to the contractor?

ANSWER: YES for a reasonable amount of time

RULE: Promissory estoppel applies to enforce a subcontractor's bid that is withdrawn before acceptance

DIFFERENCE FROM GIMBEL BROS: subtractor knew of acceptance, and did not revoke in reasonable time

RESTATEMENT § 36:

METHODS OF TERMINATION OF THE POWER OF ACCEPTANCE

1. An offeree's power of acceptance may be terminated by:

• a) rejection or counter offer by the offeree, or
• b) lapse of time, or
• c) revocation by offeror, or
• d) death or incapacity of either party

2. Power of acceptance is also terminated by nonoccurrence of any condition of acceptance

FACTS: LaSalle Nat'l Bank (P) sought to purchase property from Vega (D) on behalf of a trust; the contract for sale was to be in force only when executed by the trust, but the trust never signed the document

ISSUE:  Is an enforceable contract created when an offer has not been accepted in the manner set forth in the offer? "Specific performance" as acceptance

ANSWER: NO

RULE: The language of an offer governs the mode of acceptance. An offeror has complete control over the terms of acceptance of the offer, which must be followed for acceptance to occur and a contract to be created

RESTATEMENT §30:

FORM OF ACCEPTANCE INVITED (ACCEPTANCE)

1.) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance

2.) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances

HENDRICKS V. BEHEE

(Missouri Court of Appeals)

FACTS: Behee (D) withdrew his offer to buy real estate before the Smiths, out-of-state prospective sellers, were able to communicate their acceptance of the offer to Behee (D)

ISSUE: Was a binding contract created when the sellers accepted the offer, but the would-be buyer withdrew the offer before the acceptance was communicated to him?

ANSWER: NO

RULE: An offer may be withdrawn before an acceptance is communicated; when an offer calls for a promise on the part of an offeree, notice of acceptance is essential and there is no contract until acceptance of the offer is communicated to the offeror

RESTATEMENT §38:

REJECTION

1.) An offeree's power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention

2.) A manifestation of intention not to accept an offer is a rejection unless the offerree manifests an intention to take it under further advisement

EVER-TITE ROOFING CORP. V. GREEN

(Louisiana Court of Appeals)

FACTS: Ever-Tite Roofing (P) began work on re-roofing the Greens (D) home within a reasonable time; the Greens (P) could not cancel the accepted order

ISSUE: Does acceptance of an order within a reasonable time by commencement of the work create an enforceable contract?

ANSWER: YES

RULE: Acceptance within a reasonable time creates a contract. The power to create a contract by acceptance of an offer terminates at the end of reasonable time if no time is specified in the offer

CARLILL V. CARBOLIC SMOKE BALL CO.

(1893)

FACTS: Carlill (P) claimed an ad $100 reward after she used the carbolic smoke ball as directed and contracted influenza

ISSUE: If one performs all the conditions for receiving a reward offered in an ad, has the offer been accepted, creating a contract for payment of the reward?

ANSWER: YES

RULE: A reward offered in an ad must be paid if the conditions are met. One who performs the conditions for receiving a reward offered in an ad has accepted the offer, creating a contract for payment of the reward

Ad was clear, definite, specific= offer; purchase, use, and flu= consideration; notice of consideration= acceptance

Notice of acceptance not necessary bc offer was made to "any person" = unilateral contract

RESTATEMENT §41:

LAPSE OF TIME

a.) 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

b.) what is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made

c. unless otherwise indicated by the language or the circumstances, and subject to the rule stated in §49, an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received

RUSSELL V. TEXAS CO.

(US Court of Appeals)

FACTS: The Texas Co. (D) continued to use Russell's (P) land to pump oil from adjacent lands after Russell (P) offered a license to do so at a charge of $150 per day

ISSUE: Does performance under an offer constitute acceptance of the offer, even if the offeree does not intend to accept the offer?

ANSWER: YES

RULE: Performance of conditions set forth for acceptance will be treated as acceptance. If an offeror is reasonably led to believe that the acts of the offeree were an acceptance, a contract is formed

AMMONS V. WILSON & CO.

(Mississippi Supreme Court)

FACTS: Ammons (P) ordered 942 cases of shortening from Wilson (D), but Wilson (D) did not respond to the order for 12 days

ISSUE: Whether silence was acceptance as per previous transaction btwn 2 companies

ANSWER: YES

RULE: RESTATEMENT §69: Silence can act as an acceptance beased on a course of prior dealings. When an offeree fails to reply to an offer, the silence can operate as an acceptance when the offeree has, bc of a course of prior dealings, given the offeror reason to understand that silence is intended by the offeree as a manifestation of assent and the offeror so understands it.

RESTATEMENT §69:

ACCEPTANCE BY SILENCE OR EXERCISE OF DOMINION

1.) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only:

• a) where an offeree takes the benefit of offered servies with reasonable opportunity to reject them and reason to know that they were offered w the expectation of compensation
• b) where the offereee has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer
• c) Where bc of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept

2.) an offeree who does any act inconsistent w/ the offeror's ownership of offered property is bound in accordance w/ the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him

FACTS: Lindsell (D) offered to sell wool to Adams (P) by a letter sent to the wrong address; Adams (P) accepted the offer immediately by return mail, by which time Lindsell (D) had sold the wool to others

ISSUE: When does acceptance occur, transmission or receipt of transmission?

ANSWER: TRANSMISSION

RULE: MAILBOX RULE-  if offeror weren't bound until receipt of acceptance, process of mailing counteroffers, acceptances, revocations, etc. could go on forever

Acceptance occurs when it is mailed.

A contract offered by mail is considered accepted when acceptance is mailed to the offeror.

UCC §2-207

ADDITIONAL TERMS IN ACCEPTANCE OR CONFIRMATION

1.) A definitie and seasonable expression of acceptance or w written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms

2.) The additional terms are to be construed as proposals for addition to the contract. Btwn merchants such terms become part of the contract UNLESS:

• a) the offer expressly limits acceptance to the terms of the offer;
• b) they materially alter it; or
• c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received

3.) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

MINNEAPOLIS & ST. LOUIS RY. CO. V. COLUMBUS ROLLING-MILL CO.

(US SUPREME COURT)

FACTS: Columbus (D) offered to sell 2000 to 5000 tons of iron rails at a set price; the railroad (P) placed an order for 1200 tons, which Columbus rejected, and the railroad then tried to order 2000 tons

ISSUE: Was the order for the quantity of 1200 a counteroffer, nullifying the original offer? Was a K created when the railroad (P) placed an order that varied in material terms from the offer made by Columbus (D)? ANSWER: NO

RULE: A counteroffer terminates an offer. Any cariance from an offer in an attempted acceptance constitutes a counter-offer not an acceptance and no K has been formed.

A counteroffer is a rejection. "An offeree having once rejected an offer cannot afterwards revive tendering acceptance."

DTE ENERGY TECH., INC. V. BRIGGS ELEC., INC.

(Eastern Dist. of Michigan- US Dist. Court)

FACTS: A seller sued a buyer for failure to pay for electric generators, but the buyer argued that the court lacked personal jurisdiction bc it had not assented to the forum-selection clause in the aknowledgment returned by the seller in response to the buyer's purchase order

ISSUE: Did the forum-selection clase contained sent in response to the buyer's purchase order govern parties agreement? ANSWER: NO

RULE: Different terms in an acceptance ordinarily do not become part of the contract. A contractual forum-selection clause may not be enforced against one not bound by the K.

RULE: UCC §2-207 (2) BTWN MERCHANTS!!!! Add'l terms become additions to the K, unless offer expressly limits acceptance to its terms, they materially alter it, or notice of objection is given within reasonable time after notice of changes recorded.

Court found that acknowledgement form was acceptance, not counteroffer, fine print not binding bc it expressly relied on buyers assent

TEXTILE UNLIMITED, INC. V. A.. BMH & CO.

(US Court of Appeals)

FACTS: A.. BMH (D) attempted to require Textile (P) to arbitrate a contract dispute related to the sale of yarn in Georgia in 38 previous occasions; Textile (P) obtained an injunction against the arbitration in a federal court action in California

ISSUE: Is a preliminary injunction by a California court warranted against an arbitration being constructed pursuant to an arbitration clause contained in a seller's invoice, the terms of which were not explicitly accepted by the buyer?

ANSWER: YES

RULE: Arbitration clauses are not imposed by assent agreement. An arbitration clause contained in a seller's invoice whose terms are not expressly accepted by the buyer will not be imposed on the parties by the UCC

UCC 2-207- Court found no contract under UCC 2-207 bc acceptance of add'l terms was conditioned on assent and P did not give "specified and unequivocal assent" thus, not part of the K.

Problem w/ this case is 38 previous dealings. They suggest that terms were agreed to as never addressed by purchaser, bc had chance to decline terms in the 38 previous transactions.

A method of dispute resolution involving one or more neutral third parties who are usually agreed to by the disputing parties and whose decision is binding

A court order commanding or preventing an action.

To get an injunction, the complainant must show that there is no plain, adequate, and complete remedy at law and that an irreparable injury will result unless the relief is granted.

HILL V. GATEWAY 2000

(US Court of Appeals)

FACTS: The Hills (P) purchased a computer from Gateway (D), which was shipped with standard K terms, including an arbitration clause to be binding if the computer was not returned within 30 days

ISSUE: Do terms, including an arbitration clause, packaged with a product bind customers who use the product after an opportunity to read the terms and to reject them by returning the product?

ANSWER: YES

RULE: Contract terms packaged w/ products are binding on consumers. The K terms packaged w/ a product bind customers who use the product after an opportunity to read the terms and to reject them by returning the product. 

Add'l terms become proposals for additions.

Court said clause was valid, shipment of computer was offer to accept add'l w/in 30 days. terms and an offeror is "master" of the offer

Ad said computer came with warranty and add'l terms

KLOCEK V. GATEWAY

(US District Court)

FACTS: Klocek (P) purchased computer from Gateway (D), whoch was shipped w/ standard K terms, including an arbitration clause, to be binding if the computer was not returned within 5 days (class action suit against Gateway. Same as Hill but 5 days instead of 30)

ISSUE: Did the K for sale of the computer contain the Standard Terms as part of the agreement?

ANSWER: NO

RULE: K terms packaged with products are NOT binding on consumers. The K terms packaged w/ a product do not bind customers who use the product after an opportunity to read the terms and to reject them by returning the product

Add'l terms become proposals for addition

Court found that offer was from the buyer, acceptance from the seller, thus add'l terms had to be agreed expressly upon to be binding bc buyer is NOT a merchant, so not controlled by the UCC.

**MAYBE A HINT AT UNCONSCIONABLITY

** INCONSISTENCY BTWN HILL and KLOCEK

- Stephen Friedman suggestion that lawmakers embrace a requirement of "template notice" that "would notify buyer that impt. terms would be subsequently and that buyer would have a right to reject such terms and avoid the transaction." (from Improving the Rolling Contract)

A bargained for exchange of values providing benefit or detriment to either party

• a) values do NOT have to be equal (ex. peppercorn for a macbook is fine)
• b) love and affection have no legal value
• a bargained for exchange of something of legal value that is of detriment to the promisor or of benefit to the promisee
• nothing in contract law which requires contract to be adequate- sufficient consideration need not be adequate
• consideration need not be novel; parties of a contract are free to bargain, even if the consideration bargained for is of unequal or dubious value 

KIRKSEY V. KIRKSEY

(Alabama Supreme Court 1845)

FACTS: a widow attempts to enforce her brother- in- law's promise that induced her to move to his estate

ISSUE: Is a change of residence in reliance on a promise to provide a new house and land sufficient consideration to create an enforceable contract? ANSWER: NO

RULE: Reliance on a promise made without a bargain does not create contractural liability; a promise that is mere gratuity is not enforceable - no consideration from her 

HAMER V. SIDWAY

(NY COURT OF APPEALS 1891)

FACTS: An uncle, who promised to pay his nephew $5,000 if he refrained from drinking alcohol, using tobacco, swearing, and playing cards until he was 21 years old, failed to pay

ISSUE: Can a promise be supported by valid consideration even in the promisor does not benefit? ANSWER: YES

RULE: A legal detriment or forbearance can constitute adequate consideration; a promise is supported by consideration, and therefore enforceable, if one party suffers some detriment or forbearance as a result of the promise 

**Forbearance of legal right= detriment to the promisor= consideration 

**This case illustrates meaning of LEGAL VALUE

Acceptor- nephew (benefit to nephew to obtain $5,000, detriment was that he didn’t do things he was legally able to do- he had the legal right to drink and smoke, but gave it up)

offeror, promisee- uncle

(AN EXCHANGE OF CONSIDERATIONS IN THIS CASE- CONTRACT UNLIKE IN KIRKSEY WHERE THERE WAS ONLY 1 CONSIDERATION- NO CONTRACT) 

LANGER V. SUPERIOR STEEL CORP.

(PA 1932)

FACTS: Langer (P) retired from Superior Steel Corp. (D), which promised to pay him $100 per month as long as Langer did not work for a competitor. He was then notified he was not receiving anymore payments, sued for breach

ISSUE: Is a promise enforceable if the promisor derives some benefit from the promisee's act or forbearance? ANSWER: YES

RULE: a promise is supported by consideration if the promisor derives some benefit from the promisee's act or forbearance; adequate consideration exists if a former employer benefits from a promisee's act or forbearance

Sufficient consideration exists if one refrains from doing anything he has the right to do, whether or not there is any actual detriment to him or actual benefit to the promisor.

Was there consideration from the employer to the retiree? YES. For there to be a contract here the retiree needs to give consideration to the employer and the employer needs to give consideration to the retiree.

DETRIMENT: Employer promised to pay retiree $100 each month as long as he lives if he gives up his legal rights to work at another company.

DETRIMENT: Retiree received a detriment bc he gave up his legal rights to work somewehre else.

BENEFIT: Retiree $100 each month

Employer didn't receive a benefit.

JARA V. SUPREMA MEATS, INC.

(CA Court of Appeals 2004)

FACTS: A father and son, both shareholders in the son's meat distributing company, entered into litigation over whether they had formed a valid contract that the father must agree to increases in the son's compensation 

ISSUE: Did the parties enter into an enforceable contract regarding the requirement of Jara Sr's (P) agreement to increases in the officers' compensation? 

ANSWER: NO (Jara Sr. did NOT promise to do anything of legal value- NO CONTRACT)

RULE: agreements, to be enforceable, must be bargained for. A gratuitous, unsolicited promise that is lacking in consideration will not be enforced, even where it has been reduced to writing.

THOMAS V. THOMAS

(1842)

FACTS:  Defendant entered into agreement with Plaintiff to convey house (of dead husband) to Plaintiff for life, or until she remarried. She agreed to pay one pound yearly for ground rent and to keep the house in repair. 

ISSUE:  Does consideration exist for the contract? 

ANSWER: YES (wife paid consideration 1 pound every year)

Equality of consideration necessary when it is bargained for?

RULE: NO. The equality of the consideration need not be equal in order for a contract to be in place.

The terms show sufficient legal consideration that was bargained for independent of the moral feeling which led the executors to enter into the agreement. Morality was their MOTIVE in entering the contract, not their consideration.

This was an express agreement. Consideration was not found in a usual place. A promise to perform an act may constitute valuable consideration.

Courts are not going to look at the adequacy of the consideration or the equality of the exchange, but they are going require value above a nominal amount.

Does it matter that bc the executor wanted to honor the wishes of the deceases would that nullify the contract? NO bc motives don't matter. only thing that matters is if you've exchanged something of legal value

BROWNING V. JOHNSON

(WA 1967)

LIMITS ON CONSIDERATION DOCTRINE

ADEQUACY OF VALUES EXCHANGED: NOT NECESSARY THAT VALUES BE EQUAL. 

FACTS: 2 osteopaths entered into a contract whereby one would sell his practice to the other, but the seller later changed his mind and purportedly entered into an agreement with the buyer to cancel the sale (formed contract to pay $40K to cancel 1st, then 1st K deemed invalid. P claimed lack of consideration bc original contract wasn't valid so had no value) 

ISSUE: Did the parties enter into an enforceable agreement to cancel the sale in exchange for a payment of $40,000 to the would-be buyer? Still valid consideration?

ANSWER: YES

RULE: Values were held at a time K was made, no fraud existed. In a unilateral contract, a detriment suffered by the promisee at the promisor's request, and as the price for the promise, is sufficient consideration, even though the promisor is not benefited thereby. Adequacy of consideration is different than sufficiency. 

• One requirement for forming a valid contract
• Requires that each party to a contract promise to perform or actually perform "something" in exchange for "something" from the other party
• This something may be very little and of slight value, or it may be quite valuable
• RULE: Courts allow parties the freedom to make their own contracts, whether they are "good" or "bad" deals, as long as each party gets something
• Consideration needs to be SUFFICIENT, does not need to be adequate

FACTS: Apfel (P) sold an idea to Prudential (D) relating to a computerized system for holding, trading, and issuing municipal securities, and Prudential paid the plaintiffs pursuant to the parties' agreement for a period of time, but stopped making the payments, claiming the idea was not novel

ISSUE: Is a contract for an idea supported by legal consideration, even if the idea is not novel? ANSWER: YES

RULE: Parties to a contract are free to bargain, even if the consideration bargained for is of unequal or dubious value. Consideration need not be novel. Novelty was not the basis for the value.

JONES V. STAR CREDIT CORP.

(NY SUPREME COURT 1969)

FACTS: The Joneses (P) agreed to purchase a $300 freezer on credit, at a price that exceeded $1200 with additional credit charges and fees. (Freezer sold to ppl on welfare for 3x its value + interest)

ISSUE: Unconscionable terms? Under certain circumstances, is a contract for a purchase at an exorbitant price unconscionable under Section 2-302 of the U.C.C.? 

ANSWER: YES

RULE: If a court finds that a contract or any contract clause is unconscionable, it may refuse to enforce the contract or the clause, or it may limit the application of an unconscionable clause to avoid the result

**FACTORS: disparity btwn. value and price, credit charges compared to actual value, limits to buyer's resources, inequality of bargaining power 

• Extreme unfairness
• Normally assessed by an objective standard:
• 1) one party's lack of meaningful choice and
• 2) the principle that a court may refuse to enforce a contract that is unfair or oppressive bc of procedural abuses duing contract formation or because of overreaching contractual terms, esp. terms that are unreasonably favorable to one party wile precluding meaningful choice for the other party.
• *Because unconscionability depends on circumstances at the time the contract is formed, a later rise in market price is IRRELEVANT

IN RE GREENE

FACTS: Greene and his former lover agreed at the termination of their relationship that Greene would pay his former lover $1,000 per month in exchange for $1 (not proven to have been paid) and "other valuable considerations" (sex?), but Greene stopped making the payments and declared bankruptcy

ISSUE: Was there legal consideration? Is an agreement btwn. parties based on their prior cohabitation enforceable? Couldn't be cohabitation (prostitution is illegal) so the $1?

ANSWER: NO (no consideration)

RULE: An agreement that is based solely on the parties past cohabitation lacks adequate consideration

NOMINAL CONSIDERATION: consideration in name alone with no value is not consideration

• consideration that is so insignificant as to bear no relationship to the value of what is being exchanged (ex. $10 for a piece of real estate(
• such consideration can be valid since courts do not ordinarily examine the adequacy of consideration (although they do often inquire into such issues as fraud and durress)
• termed PEPPERCORN

FACTS: Boehm (P) agreed to release her right to bring a paternity suit against Fiege (D), the alleged father of her illegitimate child, in exchange for Fiege's agreement to pay certain expenses and later found it was not his child and refused to pay

ISSUE: Is forbearance to assert a claim adequate consideration if the forbearing party had an honest belief that he or she had a claim? Was her not filing bastardy claim valid consideration even though not his kid?

ANSWER: YES bc at time contract was made, the exchange had some material value to each of them

RULE: Releasing a claim is valid consideration as long as the party releasing the claim honestly believed the claim was valid and there as an objectively reasonable basis for the claim. Forbearance of a claim may be sufficient consideration

**Lack of bargaining process, fraud, duress, mistake, etc. can all be exceptions to non-requirement of adequate values in consideration

• a previously established legal duty is not valid consideration for a new contract
• The rule that if a party does or promises to do what the party is already legally obligated to do-- or refrains or promises to refrain from doing what the party is already legally obligated to refrain from doing-- the party has not incurred detriment.
• This rule's result is that the promise does not constitute adequate consideration for contractual purposes
• Ex.) if a builder agrees to construct a building for a specified price but later threatens to walk off the job unless the owner promises to pay an additional sum, the owner's new promise is not enforceable bc, under the pre-existing duty rule, there is no consideration for that promise

LEVINE V. BLUMENTHAL

(NJ SUPREME COURT)

FACTS: NJ 2 yr commercial lease to increase in the 2nd yr. Levine (P) landlord who leased retail space to Blumenthal (D) agreed to accept lower amount of rent. Blumenthal (tenant) left with one month left, landlord sued for that month and difference from monthly contract amount and amount paid in year 2 

ISSUE: Does a party's payment of a lesser rent constitute a valid lease modification supported by adequate consideration? Tenant said he agreed to lower so modified contract. Court said no additional consideration bc already owed amnt in original contract.

ANSWER: NO

RULE: Parties are free to modify existing agreements, as long as the modification is supported by new and independent consideration.

Yes bargain but no additional legal value.

ALASKA PACKERS' ASSOCIATION V. DOMENICO

(US COURT OF APPEALS)

FACTS: Fishermen were hired to perform fishing and cannery services, got to Alaska then refused work without more $ than previously agreed to. Cannery's only choice was pay or lose investment and $ for whole season. When they returned to SF, cannery refused to pay more than the original contract amt. P sued for breach.

ISSUE: If workers demand increased compensation to perform contracted work, is a promised raise enforceable? 

ANSWER: NO

RULE: if a contractual party demands additional compensation to perform a duty it is already obligated to perform under the contract, an agreement to pay more compensation lacks consideration and is unenforceable

• Court said no additional consideratin so no modification
• No fair bargain + no additional value, so no consideration
• new agreement was based on coercion

ANGEL V. MURRAY

(RI SUPREME COURT)

FACTS: Maher (D), a garbage collector, contracted with the city for additional money because the number of dwelling units he serviced increased, a citizen sued saying there was no valid consideration

ISSUE: Does the pre-existing duty rule prevent parties from modifying a contract if unexpected or unanticipated difficulties arise during the contract term? 

ANSWER: NO

RULE: The preexisting duty rule does not prevent parties from modifying a contract if the original contract has not been fully performed, the parties did not anticipate the circumstances necessitating the modification, and the modification is fair and equitable.  

A contract modification is enforceable without consideration under certain circumstances. 

• The agreement of both parties to a contract to be bound in some way. 
• Bilateral contract

REHM-ZEIHER CO. V. F.G. WALKER CO.

(KENTUCKY COURT OF APPEALS 1913)

FACTS: Whisky Company to sell certain amount to dist. for 4 yrs at set price. Contract said if D lost product due to fire it wasn't bound, and if P could not buy full amount for "any unforseen reason" it wasn't bound to buy the full amount

ISSUE: Is there consideration if one party has the ability to modify the contract at their own discretion?

ANSWER: NO

RULE: ILLUSORY PROMISE- no mutuality bc both parties weren't equally bound, so no contract

• enforceability only favored P
• unforseen reason clause is illusory bc it is completely discretionary

A contract that gives no certainty and excuses a party to the contract from performing at its own discretion, is not binding on either party and is unenforcable

MCMICHAEL V. PRICE

(OKLAHOMA SUPREME COURT)

FACTS: D (McMichael) had agreement with P (Price) to buy "all the sand he could sell" for 60% of market price. P then argued no contract bc it was lacking in mutuality, all Price had to do was stop selling sand

ISSUE: Was the indefinite quantity term lacking in obligation?

ANSWER: 

RULE: Mutuality of intent binds both, yes he could  leave the biz, but that was not his intention

• if he did stop selling sand, it wouldn't ultimately hurt the seller bc pt. of the agreement was to omit competition
• In NY it is implied that all contracts have an implied convenant of good faith and fair dealing

WOOD V. LUCY, LADY DUFF- GORDON

(NY COURT OF APPEALS 1917)

FACTS: D, a fashion guru hired the P agency to have the exclusive right to her endorsements and fashion designs. The P was to find business for the D and in return, the P was to receive ½ of all the income.  The D placed her endorsements on fabrics without the knowledge of the P and thereby withheld profits from the P.

ISSUE: Is the contract enforceable even though the agent isn't bound to do anything?

ANSWER: YES. 

RULE: It is implied by the writing that P is supposed to make reasonable efforts to find business for D, it is both their best interests.

QUOTE FROM CARDOZO: "The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a broader view today. A promise may be lacking, and yet the whole writing may be "instinct with an obligation," imperfectly expressed. If that is so, there is a contract."

OMNI GROUP, INC. V. SEATTLE- FIRST NATIONAL BANK

(WASHINGTON COURT OF APPEALS 1982)

FACTS: P offered to buy land from D at $2K/acre with stipulation of satisfactory architect's feasibility report, D accepted. P got report, discussed terms with D, reached an agreement. Lower court found for D.

ISSUE: Is a contract with a personal satisfaction clause enforceable even though there is no hard obligation to perform?

RULE: Satisfaction clause is enforceable bc there is an implied obligation for buyer to act in good faith.

Mutuality existed due to purchaser's duty to act in good faith and exercise reasonable judgement when assessing report

Limitation with implication of good fairth follow through remains valid as long as its not so great as to make the entire promise illusory.

• Generally, a court will enforce a promise (even with no formal acceptance or consideration) if a party detrimentally relies  on that promise
• Reasonable detrimental reliance
• Rest. S90: to enforce based on promissory estoppel:
1. Promise must have reasonably induced reliance from the promisor's pt of view (promise need not be definite on all details);
2. Promise must actually induce such reliance; and
3. Injustice can only be avoided by enforcement of the promise
• ELEMENTS:
• PROMISE
• REASONABLE DETRIMENTAL RELIANCE
• RESULTING INJUSTICE
• What constitutes a promise that can be used as a basis for promissory estoppel?
• Strict view- promise must not be a statement of belief (ex. "puffing") and must be definite and unequivocal
• Flexible View- can a promise (that would induce reliance) be reasonably inferred?
• ** In evaluating contracts problems on exams, look first to consideration; if it is not present, then look for promissory estoppel (satisy 19th century man first)

Elements (Definition of) Promissory Estoppel, Restatement (Second) § 90

l  Promise Reasonably Inducing Action or Forbearance

1.      A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

2.      A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.

l  In Class Definition:

  To have promissory estoppel one needs: no contract, a promise, reasonable expectation of reliance, actual reliance, detriment, injustice can only be avoided by enforcement of the promise.  Ricketts v. Scothorn, Restatement § 90.

RESTATEMENT (SECOND) OF CONTRACTS §90 (1981)

PROMISE REASONABLY INDUCING ACTION OR FORBEARANCE

1. A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a 3rd person and which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of the promise. The remedy granted for breach may be limited as justice requires.

RICKETTS V. SCOTHORN

(1898)

FACTS: Grandfather leaves promissory note $2k to his granddaughter so 'she won't have to work;' Granddaughter quits her job, for a yr, then began working again, he died, executor contested claiming no consideration.

ISSUE: Should the Defendant be precluded from challenging the validity of the contract based on the theory of "equitable" estoppel when there is a lack of consideration?

ANSWER: YES.

RULE: “To have promissory estoppel one needs: no contract, a promise, reasonable expectation of reliance, actual reliance, detriment, injustice can only be avoided by enforcement of the promise.”, Restatement § 90.

A promise made with intent of causing forbearance that then occurs is enforceable.

Court enforces the contract based on her reliance despite the fact the note was a gift (it didn't require her to quit)

• A gift is not enforceable as a contract, nor is a promise to make a gift which is unsupported by consideration.
• Sometimes, if a gift induces reliance, a court will enforce it anyway
• Promissory estoppel

ALLEGHENY COLLEGE V. NATIONAL CHAUTAUQUA COUNTY BANK OF JAMESTOWN

(NY 1927)

FACTS: A woman promised $5k to school 30 days after her death on the condition that the school create a scholarship in her name for a student going into ministry, gave 1K before death to prove she was serious. She later revoked promise. School sued her estate after she died for the remaining $4k

ISSUE: Is the promise made with consideration and thus enforceable?

ANSWER: YES.

RULE:   “To have promissory estoppel one needs: no contract, a promise, reasonable expectation of reliance, actual reliance, detriment, injustice can only be avoided by enforcement of the promise.”, Restatement § 90.

An assumption of duty to promise whatever was necessary to carry out the conditions of her gift is valid consideration. When the college accepted the $1,000 there was an assumption of duty to maintain the memorial and name. This duty acts as consideration resulting in a bilateral agreement, implied in fact by the conduct of the P. The measure of the benefit to the promisor is not relevant in determining the validity of the contract.

NO GROUNDS FOR PROMISSORY ESTOPPEL

CARDOZO found that the school's naming of the fund and provision of the student going into ministry was consideration enough to call this a contract.

DISSTENT: No offer existed bc it was a gift. Said Cardozo had strained to find value in things with no legal value. The acts have not been performed bc there was no acceptance in her lifetime. An offer that is revocable dies with the maker.

CONGREGATION KADIMAH TORAS-MOSHE V. DELEO

(Mass. Supreme Court 1989)

FACTS: Deleo (D) on deathbed made an oral promise to Congregation (P) to give $25k to temple; Deleo died intestate without having put the promise in writing and his estate refused to honor the promise. Congregation planned to use $ to build a library. No written doc., no request that they build library. Trial and appeals found for D (testator).

ISSUE: Is this oral donative promise enforceable?

ANSWER: NO.

RULE: No enforceable promise bc all they did was put $$ in budget to build the library, they never actually did anything; so no real detriment.

Deleo had no reason to believe they would act on his promise.

IT IS AGAINST PUBLIC POLICY TO ENFORCE A VERBAL PROMISE AGAINST AN ESTATE.

BLINN V. BEATRICE COMMUNITY HOSP. & HEALTH CENTER, INC.

(Neb. Supreme Court 2006)

FACTS: A hospital employee turned down a better job elsewhere based on promises of continued employment w/ his current employer, which 6 months later terminated his employment.

ISSUE: Did Blinn (P), who had previously been an at will employee, properly stae a claim against Beatrice (D) for wrongful termination of his employment?

ANSWER: YES.

RULE: Oral promises may or may not require the definiteness of a contract in order to be enforceable. The diff btwn contract claims and promissory estoppel is that a K req that the promisor intended to make a binding promise, while promissory estoppel req only that the promisee's reliance on the promise be reasonable and foreseeable, even if the promisor did not intend to be bound.

COHEN V. COWLES MEDIA CO.

(MN Supreme Court)

FACTS: Cohen (P) gave newspaper reporters info abt a political candidate in exchange for a promise to keep his identity confidential, but newspaper editors revealed Cohen's (P) identity in news stories.

ISSUE: Is the promise of confidentiality enforceable under the doctrine of promissory estoppel?

ANSWER: YES.

RULE: A promise of confidentiality to a news source is enforceable. A promise of confid made to a news source may be enforced under the doctrine of promissory estoppel to prevent any injustice resulting from revealing the source's identity.

He was promised anonymity, relied on it, was fired= detriment

only method of avoiding injustice= $$$

ALL-TECH TELECOM, INC. V. AMWAY CORP.

(7th Cir. 1999)

FACTS: Amway (D) and All-Tech (P) contracted for the sale and purchase of a product, but All-Tech (P) was dissatisfied and sued Amway (D), claiming that Amway's (D) product research was not thorough.

ISSUE: Can a party bring a claim for promissory estoppel if it fails to show a breach?

ANSWER: NO.

RULE: A breach is necessary for the use of prom estoppel in a warranty situ. While a warranty may give rise to a prom-estoppel claim in certain limited circumstances, a party may not use prom estop. if it fails to show a brach of K based on warranty.

• When there is an express contract governing the relationship out of which the promise emerged and no issue of consideration there is no gap for prom estopp to fill
• PE doesn't give you a 2nd bite at the apple!
• this promise was more of a warranty than anything else. it was part of the original K.

UCC § 2-201

FORMAL REQUIREMENTS

STATUTE OF FRAUDS

1. Except as otherwise provided in this section a K for the sale of goofs for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a K for sale has been made btwn the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient bc it omits or incorrectly states a term agreed upon but the K is not enforceable under this paragraph beyond the quantity of goods shown in such writing.
2.  if within a reasonable time a writing in confirmation of the K and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received- DOES NOT NEED TO BE SIGNED.BETWEEN MERCHANTS

3. A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable

   • (a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or
   • (b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or
   • (c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2-206).

Refers to the requirement that certain kinds of contracts be memorialized in a signed writing. Traditionally, the statute of frauds requires a signed writing in the following circumstances:

1. Contracts in consideration of marriage
2. Contracts which cannot be performed within ONE YEAR
3. Contracts for the transfer of an interest in land
4. Contracts by the executor of a will to pay a debt of the estate with his own money
5. Contracts for the sale of goods involving a purchase price of $500 or more
6. Contracts in which one party becomes a surety (acts as a guarantor) for another party's debt or other obligation

FACTS: The P drafted a sponsorship agreement btwn the parties, but the D sponsor never signed it, and when the D terminated the agreement, the P sued for breach of K, arguing that the parties had an oral agreement; a question arose as to whether the Statute of Frauds applied, such that the oral agreement was void.

ISSUE: Is an oral agreement void under the Statute of Frauds if performance is to extend for more than a yr., when the party charged w/ performance can cancel within a years time but didn't exercise that option?

ANSWER: NO.

RULE: An option to terminate within a yr, whether exercised or not, may remove a K from the statute of frauds. The Statute of Frauds applies only to those agreements that exclude, by their very terms, the possibility of performance within 1 yr, and if the agreement could have been performed within 1 yr, the Statute is inapplicable.

SULLIVAN V. PORTER

(Me. 2004)

FACTS: REAL ESTATE WRITING REQ.

The seller of a horse farm attempted to renege on the deal and asked for more $, after the buyer had expended substantial effort in improving the property and it was appraised for even lower than the original asking price, and the court ordered specific performance of the original K of sale.

ISSUE: Did the parties enter into an enforceable agreement for the sale of the farm properly, even though it was never reduced to writing, where the buyer had partially performed under the K? Can a verbal K exist over real estate, and can specific performance be ordered as a remedy?

ANSWER: YES.

RULE: Oral K can bind real estate agreement if party seeking enforcement can prove K through evidence, and prove that all the exception applies. 

Here the exception is PAST PERFORMANCE DOCTRINE: 3 Elements

1. K exists- verbal agreement had definite terms: property, parties, price financing, $down etc.
2. party seeking enforcement partially performed- $3k paid to D was partial performance on the $20k down, (renovations were not considered performance bc not part of K)
3. performance was induced by others misrepresentations- D's misreps were acceptance of $ down, allowing P to renovate, knowledge that P was refinancing other home, promise to have paperwork drawn up.

The exceptional remedy of specific performance is appropriate in cases involving sales of unique property. To remove a K from the operation of the Statute of Frauds based on part performance, the party seeking enforcement must establish by clear and convincing evidence that the parties did not in fact enter into a K; that he partially performed under the K; and that his performance was induced by the other party's misrepresentations, which may include acquiesence or silence.

CRABTREE V. ELIZABETH ARDEN SALES CORP.

(NY 1953)

FACTS: Elizabether Arden Sales Corp (D) hired Crabtree (P) as a sales manager and entered into a 2 year employment contract with him, but the agreement's terms were memorialized in 3 writings, only 2 of which were signed by Arden's (D) representatives.

ISSUE: Is the requirement of a writing under the Statute of Frauds satisfied by oral testimony that establishes the relationships btwn several documents, some signed and others unsigned?

ANSWER: YES.

RULE: A combo of signed and unsigned writings may be sufficient to satisfy the statute of frauds. Where some writings have been signed and others have not (and verbal portions too) they all combine the K if they reference the same transaction. Don't need to reference each other.

All evidence combined makes this K clear, lower court affirmed.

INCAPACITY TO CONTRACT:

INFANCY & INCOMPETENCY

• If one party has no capacity to contract, the contract is voidable by the party who lacks capacity.
• Party that doesn't lack capacity doesn't have power to void.
• A natural person who manifests assent to a transaction has full legal capacity to incur contractural duties thereby unless he is
• a) under guardianship, or
• b) an infant, or
• c) mentally ill or defective, or
• d) intoxicated
• POLICY CONSIDERATIONS:
• The extent that the "capacity" cases relate both to the objective of achieving fairness in the exchange and
• to the processes of change in the society, such as the legislative trend lowering the age of majority from 21-18 and changes in the understanding and treatment of mental illness and drug addiction.

• a) A contract is voidable to minors (up until the day before their 18th bday)
• b) A disaffirming minor need only return as many of the goods as possible (i.e., not full restitution)
• c) A minor cannot disaffirm for necessaries (This is typically limited to food, shelter, and clothing-- not autos, stereos, etc.)

BOWLING V. SPERRY

(IND. COURT APPEALS 1962)

FACTS: Bowling (P), 16 yr old kid buys used car from dealer, Sperry (D), finding out it needs new bearing, tries to return, dealer resists-- his argument is that grandma was present at purchase

ISSUE: May a minor, during his minority or upon reaching his maturity, disaffirm any or all of his contracts except those for necessaries, regardless of whether the other party is returned to the status quo?

ANSWER: YES.

RULE: INFANCY: A minor may, during his minority or upon reaching his majority, disaffirm any or all of his contracts except those for necessaries, regardless of whether the other party is returned to the status quo.

HEIGHTS REALTY, LTD. V. PHILLIPS

(N.M. 1988)

FACTS: An elderly homeowner, who declined to accept a purchase offer that exceeded the asking price for her home, refused to pay a commission to Heights Realty (P), the real estate company that had listed her property.

ISSUE: If substantial evidence is presented, can a trial court properly conclude that the presumption of a party's competency is overcome?

ANSWER: YES.

RULE: An elderly homeowner is not liable bc she lacked the mental capacity to enter into the agreement. A party to contract is not liable for paying a real estate commission if clear and convincing evidence overcomes the presumption that the homeowner had the mental capacity to enter into the contract.

 MENTAL INCOMPETENCE- the party asserting lack of capacity must rebut the presumption of competency by clear and convincing proof.

CITIFINANCIAL, INC. V. BROWN

(5th CIR. 2002)

FACTS: Brown (D), a severly retarded and illiterate man who was cared for by his mother, signed a debt consolidation agreement that contained an arbitration clause.

ISSUE: Is an arbitration clause contained in a debt consolidation agreement signed by a mentally incompetent person enforceable against the debtor?

ANSWER: NO.

RULE: A person is not bound by a contract if he lacked the capacity to understand it. A mentally incompetent person is not bound by the terms of a contract that he signs if he lacks capacity to enter into the contract. MENTAL INCOMPETENCE

Meeting of the minds is necessary for K to exist. If he didn't understand, there can be no K.

ERVIN V. HOSANNA MINISTRY, INC.

(CONN. SUPER. COURT 1995)

FACTS:

ISSUE:

ANSWER:

RULE:

• GOAL: to put parties in the position they would be in if contract had been performed.

1. Party claiming loss has duty to mitigate his losses.
2. Way to calculate loss:
• [all financial] (what position would you have been in if contract had been performed?) minus (what position are you in now?) = ACTUAL DAMAGES 

ANTICIPATORY REPUDIATION- prior to the time of performance you inform the other party that you will not perform the performance. breach of a K subsequent to formation but prior to the time performance is due.

FACTS: Cohen (P) was the beneficiary of a John Hancock Mutual Life Insurance Co. (D) life insurance policy under which she was to receive monthly payments for 20 yrs w/ $5k at the end. After 15 yrs, John Hancock (D) refused to continue making payments on the ground that the policy was issued for 20 yrs by mistake.Trial court awarded $8k as remaining amnt due, this was error; award should have been declaratory relief making them pay for remainder, then pay $5k at end per the K.

ISSUE: Is the doctrine of anticipatory breach accplicable to actions for the enforcement of contracts for future payment of money only, in installments or otherwise?

ANSWER: NO.

RULE: The doctrine of anticipatory breach is inapplicable to actions for the enforcement of contracts for future payment of money only, in installments or otherwise.

Court said that rather than try to categorize contracts by the parties that enter into them ("insurance contract," etc.), one should look at the actual K.

AMERICAN MECH. CORP. V. UNION MACH. CO.

(Mass. App. Ct. 1985)

Example of how to apply damages formula

FACTS: American Mechanical Corp. (P), made a contract with Union Machine Co. of Lynn, Inc. (D), to sell its real estate and equipment for $135,000. D repudiated contract, knowing the P's mortgage lender, Saugus, would foreclose on P. At the foreclosure sale, P's real estate ($55k) & equipment ($35K) sold for $90K.

ACTUAL DAMAGES= $135K - $90K= $45K

ISSUE: For breach of a real estate purchase contract, is an injured party entitled to recover his actual losses when the traditional recovery formula is inadequate?

ANSWER: YES.

RULE: For a breach of a real estate contract, an injured party is entitled to recover his actual losses when the traditional recovery formula is inadequate.

The general rule is to place the injured party in the position he would have been had the contract been performed.

• Thus, in case of a breach, the injured party can recover forseeable damages that were contemplated by the parties at the time of contract.
• Damages are measured by calculating the difference btwn the K price and the market price at the time of breach.
• When the formula calculates an inadequate remedy, correct measurement should be the difference btwn the contract price and the foreclosure sale price. $45k loss

LOWY V. UNITED PACIFIC INSURANCE CO.

(Cal. 1967)

FACTS: Wolpin (D) completed 98% of a construction job for Lowy (P), but after a dispute with Wolpin (D), Lowy (P) hired another contractor to complete the job.

ISSUE: Is Wolpin (D) entitled to recover for his substantial performance, even though he did not complete performance of the K due to the conduct of Lowy (P)? IS THERE A BREACH?

ANSWER: YES. D stopped working and said you need to pay the value.

RULE: A party is entitled to compensation for substantial performance if the other party prevented full performance. A person who does not fulfill all the obligations of a K is entitled to partial compensation if full performance has been excused, prevented, or delayed by the other party.

NEW ERA HOMES CORP. V. FORSTER

(1949)

FACTS: Forster (D), refused to pay New Era Home Corp. (P) $1500 due under a construction agreement to remodel his house, contending that the P is not entitled to the ful $1500 third installment

ISSUE: Is a contract that provides a payment of the contract price in installments serverable?

ANSWER: NO. Contract was not divisible.

RULE: Installment payments do not make a contract severable. A court must look to the language of a contract that provides for installment payments is severable.

Severable contract: a contract that includes 2 or more promises, each of which can be enforced separately, so that failure to perform one of the promises doesn't necessarily put the promisor in breach of the entire contract.

If contract were divisible (Lowry case). since here it was not divisible, he cannot recover damages . However contractor does have a remedy (restitution) quantim merit- going to compensate the contractor for the costs of what he has already done, which is different than his profit.