Contracts


Sullivan v. O’Connor

Facts: Nose job gone wrong. Patient and Doctor entered into a contract under which the Doctor promised to perform two cosmetic surgeries on Patient’s nose to improve its appearance. The Doctor not only botched the nose job, but he did it in three operations, the third of which caused Patient a lot of pain. Patient alleges that Doctor broke his contract by messing up her nose job. The Doctor had promised to fix the nose in only two operations. But ended up making the nose worse in three surgeries.

At trial, the Judge told the jury that the patient was entitled to recover (1) out-of-pocket expenses, (2) damages flowing directly, naturally, proximately, and foreseeably from the Doctor’s breach, and (3) pain and suffering damages for the third operation. On appeal, Doctor contends the trial judge should have limited recovery to Patient’s out of pocket expenses, and Patient contends she should be awarded the expectancy damages (the difference between her new worse nose and her would-be way better nose).

Issue: Is Patient entitled to recover damages for the worsening of her condition as well as for the pain and suffering/mental distress stemming from the third operation?

Rule: [There’s not really a typical rule from this case, because most courts wouldn’t allow expectancy damages in a med-mal case because there’s always risk involved in medicine…but here are the take-aways:

  1. The promisee is generally entitled to “the benefit of the bargain,” aka the expectation interest.
  2. The promisee has a reliance interest if he/she changed his/her position in reliance on the promise.
  3. The promisee has a restitution interest he/she relied on the promise and provided a benefit on the promisor.

Holding: Patient is entitled to: (1) Out-of-pocket expenses, (2) Damages flowing naturally, and proximately, and foreseeably from D’s breach, (3) Pain and suffering of the third operation.

Discussion: The court says that it doesn’t have to choose between reliance theory and expectancy theory. The worsening of the P’s nose is recoverable under either expectancy or reliance theory because we have to put her in a pre-contract condition and when we have to compensate for the diminution in value of her nose. Pain and suffering from the 3rd operation are recoverable under both damages theories.

Judge favors reliance damages over expectancy damages because the claim for expectancy is suspect because doctors can rarely in good faith make such a promise so it is seldom that a doctor will actually do so…probably just perception/hope of patient. There are also policy concerns here because if expectancy damages are routinely awarded in these cases, doctors will practice defensive medicine.

Notes:

  • Hawkins v. McGee: Award the plaintiff the difference between the value of a good or perfect hand, as promised and the value of the hand after the operation.
  • Robins v. Finestone: In patient-physician actions “the plaintiff is to recover any expenditures made by him and for other detriment following proximately and foreseeably upon the defendant’s failure to carry out his promise.
  • White v. Benkowski: Punitive damages are not available in breach of contract suits.

Embry v. Hargadine, McKittrick Dry Goods

Facts: Mr. Embry was employed by the McKittrick Dry Goods company for $2,000 a year and his contract was set to expire at the midpoint of December of 1903. He had a conversation with Mr. McKittrick on December 23rd expressing his need to have a new written agreement for his employment or else he would have to leave the company to seek employment elsewhere. Mr. McKittrick replied with “Go ahead, you are all right…get your men out and do not let that worry you” which Mr. Embry believed to be an assurance of employment.  Mr. Embry was terminated by the company on March 1, 1904 and filed suit on the grounds that such termination violated a contract for employment that was established during the conversation with Mr. McKittrick and that he is entitled to damages amounting to his annual salary of $2,000.

Issue: Did what was said constitute a contract of re-employment on the previous terms irrespective of the intention or purpose of McKittrick? For a contract to be binding, is it necessary that the inward intent of the parties be to enter the agreement? Would a reasonable person interpret the conversation between Embry and McKittrick on December 23rd as a binding contract based on the outward language used?

Rule: If an individual conducts himself in a way that a reasonable man would perceive as agreement to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms.

Factors to Consider:

  • Reasonable person’s interpretation
  • Intent (Manager’s intent was to get Embry back to work)
  • Position (Hargadine was Embry’s Manager)

Holding: The court holds that the conversation which took place on December 23rd constitutes a valid and binding contract based on the principle that outward expressions trump inward intentions.

Rationale: A reasonable man would interpret Mr. McKittrick’s statement of “Go ahead, you are all right…get your men out and do not let that worry you” as nothing other than an assent to Mr. Embry’s demand that he be employed for another year. Whether or not it was Mr. McKittrick’s intent to actually employ Mr. Embry is irrelevant insofar as his words implied otherwise. Mr. McKittrick’s words, the court ruled, were used for the purpose of calming any apprehension Mr. Embry had about not being retained as an employee and would naturally be interpreted by Mr. Embry as assurance of an additional year’s employment.

Principle: Actual meeting of the minds is not necessary…outward expression trumps inward intention (If a reasonable man would interpret the outward expressions to reflect an actual meeting of the minds, then that is sufficient consideration no matter what the actual internal thoughts might have been)

Notes:

  • Hotchkiss v. National City Bank of New York: A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent.

Lucy v. Zehmer

Procedural Posture: Case was dismissed on the grounds that the Lucy’s had failed to establish their right to specific performance. Reversed and remanded.

Facts: On a Saturday, Lucy asked if Zehmer had sold the Ferguson Farm and upon learning that he had not, offered to purchase the farm for $50,000. Zehmer countered that offer by stating that he would take $50,000 but that Lucy did not have that money. Lucy stated that he did and Zehmer wrote a contract for the sale of the farm for $50,000 on the back of a restaurant check which both he and his wife signed. Mr. Lucy then picked up the contract and offered to seal the deal by giving Zehmer $5 which Zehmer did not accept. Lucy then pulled together $50,000 and hired a lawyer to inspect the title. He then contacted Zehmer on Tuesday saying that he was ready to close and Zehmer stated that he had no intention to sell the farm. Lucy filed suit requesting specific performance of the sale.

Issue: Is a contract between two parties binding if one of the parties to the agreement was only acting in jest?

Holding: The Lucy’s are entitled to specific performance in accordance with the terms of the terms set forth in the valid contract for the sale of Ferguson farm.

Rationale: The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts. If his words and acts, judged by a reasonable standard, manifest an intention to agree, it is immaterial what may be the real but unexpressed state of his mind. The record is convincing that Zehmer was not intoxicated to the extent of being unable to comprehend the nature and consequences of the agreement he executed, and hence that agreement is not to be invalidated. More importantly, Lucy did not interpret the instrument drafted to be one based in jest, but rather a serious business transaction binding on both Zehmer and himself.

General Rule: The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts.


Hardesty v. Smith

Procedural Posture: The TC overruled the demurrer and ruled in favor of the defendant. The Supreme Court of Indiana ruled that the TC erred in not sustaining the demurrer.

Facts: Isham sold Smith an invention which improved lamps in exchange for promissory notes. When Hardesty (who was assigned the promissory notes by Isham) came to collect on those notes, Smith refused to pay based on his assessment that the supposed improvement in the lamp was worthless. States that since the contract was worthless, the contract does not exist.

Issue: Did the court error in overruling the demurrer based on the fact that the contract was invalid since the lamp was worthless?

Holding: Yes, the court erred in not sustaining the demurrer. The fact that the improvement to the lamp was in fact worthless is not a valid reason to prevent Hardesty from collecting his on his promissory notes.

Rationale: The owner of a thing has the right to fix the price of the item he intends to sell and it is up to the buyer to judge whether or not to purchase the item at the price offered. Parties of sufficient mental capacity have the right to make their own bargains. To rule otherwise would effectively do away with all special contracts.

Rule: The parting with a right, which one possesses, to another, at his request, may constitute a good consideration.


Dougherty v. Salt

Procedural Posture: TC set aside the verdict for the plaintiff and dismissed the case. Appellate Court reversed and directed verdict for the plaintiff. Defendant appeals. Judgment of Appellate Court is reversed and remanded for a new trial.

Facts: After discussing her desire to “take care of that child,” the aunt of a young boy wrote him a promissory note with the inscription: “You have always done for me, and I have signed this note for you. Now, do not lose it. Someday it will be valuable.” When the note was not fulfilled by the executrix upon the death of the aunt, the boy filed suit for breach of contract.

Issue: Should the Appellate Court have reversed the judgment of dismissal and reinstated the verdict on the ground that the note was sufficient evidence of consideration?

Holding: The court should not have reinstated the verdict in favor of the plaintiff as there was not sufficient consideration to enforce the promissory note.

Rationale: The note was a voluntary and unenforceable gift as there was nothing that was neither offered nor accepted with any other purpose than as a gift.

Rule: Gift promises are not enforceable as contracts. Not worth the courts time to hear these complaints.

Rule: Consideration for a promise is:

  1. An act other than a promise
  2. A forbearance
  3. The creation, modification or destruction of a legal relation
  4. A return promise…
    • …which is bargained for and given in exchange for the promise.
    • Consideration may be given to the promisor or to some other person. It may be given by the promise or by some other person.

Maughs v. Porter

Facts: D put an ad in the paper stating that there would be an auction of 50 new Ford’s. One person would be the winner of a new Ford. After a drawing, P was adjudged the winner. She paid the auctioneer $3. D ordered the car but refused to pay for it when it arrived and has refused to pay P the value of the car ($461).

Issue: Whether the alleged offer to make the gift can be enforced as supported by a sufficient consideration? If yes, whether the transaction constitutes a lottery which is prohibited by Constitution SS 60 and by statute, code, SS 4693, SS 4694.

Holding: Yes the offer of a gift can be enforced if sufficient consideration is shown. Court held that D’s promise was unenforceable as a lottery.

Rationale: A gift is a contract without a consideration and to be valid must be executed. A valid gift therefore is a contract executed. P cannot recover unless D is bound by a promise which is supported by a consideration sufficient to support the action. The court concludes that there is sufficient consideration to support the gift.

D’s object was to attract persons to the auction with the hope of deriving benefit from their appearance. Although persons may attend only to draw the free car, they might nonetheless be induced to bid on a car once they arrive. P’s attendance was sufficient consideration for the promise of the car, which could be enforced if otherwise legal.

The condition will benefit the promisor (trick to help determine consideration).

Court held the promise was unenforceable as a lottery. A contract with consideration is still unenforceable if it violates public policy.

Rule: A contract with consideration is still unenforceable if it violates public policy.

Notes:

  • Carlisle v. T&R Excavating, Inc. – Consideration consists of either bargained for benefit to the promisor a bargained for detriment to the promisee.
  • Spooner v. Hilbish – A valid gift is a contract executed. The intention to give must be accompanied by a delivery and the delivery must be made with an intention to give.

Hamer v. Sidway

Procedural Posture: At trial judgment was entered for the plaintiff, but that judgment was later reversed. Plaintiff appealed.

Facts: P was promised by his uncle that if her were to abstain from drinking, gambling, swearing and using tobacco until the age of 21, he would give P $5,000. P did abstain as per his uncle’s instructions and on his 21st birthday contacted his uncle to let him know. P’s uncle stated that the $5,000 was in a bank account for the plaintiff and would be give to P once the uncle felt certain that P would use it responsibly. At the time P’s uncle died, no portion of $5,000 has been paid. P presented the claim to D, his uncle’s executor, and claim was denied.

Issue:  Did the court err in reversing the judgment for P?

Holding: Yes. There was sufficient consideration to enforce the contract. Order appealed from should be reversed and judgment of the special term affirmed.

Rationale: A valuable consideration in the sense of the law may consist in some right, interest, profit or benefit for one party or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other party, A waiver of any legal right at the request of another party is sufficient consideration for a promise. It is of no consequence whether the performance was of benefit to the promisor.

Rule: A valuable consideration in the sense of the law may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other.


Baehr v. Penn-O-Tex Oil Corp.

Procedural Posture: At trial, court ruled that D neither took possession of the filling stations nor an assignment of Kemp’s leases. Court granted Ds motion for judgment notwithstanding the verdict. Plaintiff appeals.

Facts: P leased filing stations to Kemp, doing business as Webb Oil Co. Kemp was buying Webb oil from D. Kemp became heavily indebted to D and could not meet payments due to D. D collected rents, received payments, paid debts at Kemp’s discretion, & installed its agents in the office to run the business. P received a letter from Kemp stating D had all Kemp’s assets tied up. P called D’s agent to ask about payment of the filling station rent and was told that Kemp’s affairs were mixed up but they would be straightened up and a check for rent would be mailed to P. P then mailed a letter to D asking what he had to do to get rent checks “or will I have to give it to an attorney to sue.” D sent a letter back stating it was attempting to assist Kemp but that they were in no way operating or taking possession and denied knowledge or responsibility for any rent due. P again called asking for rent and D’s agent said they were interested in making sure P got his rent. No rent was received and a lawsuit was started.

Issue: Was the court in error in granting D’s motion for judgment notwithstanding the verdict?  (Was their consideration?)

Rule: Consideration: Requires that a contractual promise be the product of a negotiation resulting in the voluntary assumption of an obligation by one party upon condition of an act or forbearance by the other.

Holding: The defendant did not take possession of the stations or an assignment of the leases. There was no consideration and the promises did not amount to a contract.

Rationale: There is no evidence that the plaintiff’s delay to file suit was related to the defendant’s promises and there is no evidence that either party took the other’s assurances seriously. It is neither practical nor reasonable to expect full performance of every assurance given.

Definition of Assignment:

(1) The transfer of rights or property

(2) “An assignment is a transfer or setting over of property, or of some right or interest therein, from one person to another; the term denoting not only the act of transfer, but also the instrument by which it is effected. In these senses the word is variously applied in law.” Alexander M. Burrill, A Treatise on the Law and Practice of Voluntary Assignments for the Benefit of Creditors § 1, at 1 (James Avery Webb ed., 6th ed. 1894).


Neuhoff v. Marvin Lumber & Cedar Co.

Facts: Neuhoff’s windows were decaying and Marvin informed the Neuhoff’s that their windows would be replaced once Marvin’s production problems were fixed. The Neuhoff’s filed for breach of contract on the grounds that Marvin breached the oral contract and stated three types of consideration (forbearance of legal claims, time and labor spent assisting Marvin, reputational benefit to Marvin for agreeing to replace windows).

Issue: Was there sufficient consideration to constitute a contract between the Neuhoffs and Martin?

Rule: Mere forbearance to sue on a claim, without any promise either in express terms or by fair implication from all of the circumstances, does not form sufficient consideration.

Holding: The Neuhoff’s claims of forbearance are not sufficient for consideration since such forbearance was neither express nor could be found by fair implication from all the circumstances.

Rationale: The Neuhoff’s agreement to forbear to sue was never expressed before or after the promise to replace the defective windows and was not implied since no reasonable person would interpret the promise to replace the windows as an attempt to induce forbearance by the Neuhoffs.


Springstead v. Nees

Facts: P & D were children of deceased who died intestate, leaving them his sole heirs. When Nees died he was owner of realty called “sackett street property” and “atlantic ave property” which was held in trust for children Sophia and George. When it was discovered that the Atlantic ave property was held in trust for only George and Sophia, there was murmuring and dissent amongst the other children. 
Sophia then stated “we will give you our share in the sackett street property if you don’t bother us about the atlantic ave property.” Sackett Street property was sold thereafter but D did not turn over their share of the proceeds to P.

Issue: Was there consideration in D’s promise to give up their share of the sackett street property?

Rule: If the claim is enough that it could be regarded as doubtful or colorable then it is sufficient consideration. But if the claim be not even doubtful, or colorful, or plausible, in that there is no reason for an honest belief that it has some foundation in law or in equity, then forbearance applied to it is not good consideration.

Holding: No. P had not color of right in the Atlantic ave. property. Promise made by D was not even in response to any suggestion of any possible claim. Court can find no reason based on the evidence why P could suppose that even a doubtful or colorable claim could be asserted. Judgment should be affirmed.

Rationale: Forbearance to assert a legal claim is sufficient consideration. It is not essential that the claim should be valid but it is enough if it could be regarded as colorful, doubtful, or plausible. If it is not, and there is no reason for an honest belief that it has some foundation in law or in equity, then forbearance applied to it is not good consideration.


De Los Santos v. Great Western Sugar Co.

Facts: P & D executed a “hauling contract” stating that P would transport in P’s trucks “such tonnage of beets as may be loaded by D” and unload beets at designated factories. Term of the contract was 10/1/1980 to 2/15/1981. P was obligated to furnish insurance, suitable trucks and equipment, necessary labor, maintenance, fuel and licenses required. Compensation P was to receive was based solely on the amount of beets he transported, with the rate per ton varying with the length of the haul. P was aware that D had executed identical contracts with other independent truckers. In December 1980 P was informed by D that his services were no longer necessary.

Procedural History: P sued D for breach of contract claiming that he was entitled to continue hauling until all the beets had been transported to the factory. P claimed D wrongfully terminated the contract, causing him loss of profits and forced sale of his trucks at a loss. D alleged that they were not obligated under the contract to allow P to haul any particular tonnage and that its determination that it would no longer require P’s services was a determination which was within D’s discretion under the terms of the contract. Court entered summary judgment for D. P appeals.

Issue: Is a contract without mutuality enforceable?

Rule:  Where a promisor agrees to purchase services from the promisee on a per unit basis, but the agreement specifies no quantity and the parties did not intend that the promisor should take all of his needs from the promisee, there is no enforceable agreement and the promisor is not obligated to accept any services from the promisee and may terminate the relationship at any time without liability other than to pay for the services accepted.

Holding:  No. In the absence of a specification of quantity, the defendant had no obligation to use any of the plaintiff’s services, and the defendant’s decision to cease using those services after a certain point is not actionable. 

Judgment affirmed. It is clear that neither P nor D intended to promise to transport a specific quantity of beets or to transport beets during a specific period of time. The term of the contract merely established the period of time during which the promise contained in the contract would be in effect. Although P made a number of promises in the contract, D made no promises other than to promise to pay for the transportation of the beets loaded by D onto P’s trucks. Contract is void for want of mutuality. In the absence of a specification of quantity, D had no obligation to use P’s services.

Mutuality is absent when only one of the contracting parties is bound to perform and the rights of the parties exist at the option of one only.

Reasoning: A contract which depends on the wish will, or pleasure of one of the parties is unenforceable. Mutuality of obligation is an essential element of every enforceable agreement. Mutuality of contract consists in the obligation on each party to do, or permit something to be done, in consideration of the act or promise of the other. Mutuality is absent when only one of the contracting parties is bound to perform and the rights of the parties exist at the option of one only.


Wood v. Lucy, Lady Duff-Gordon

Facts: Wood has the “EXCLUSIVE RIGHT”  to place L/LDG’s endorsement on clothing designs. They were to split the profits 50/50. This right was to last one year from April 1st, 1915. L/LDG broke this promise and placed her endorsement on designs without notifying Wood or sharing the profits with him. He sues for breach of contract. L/LDG claims that Wood never bound himself to anything as he did not explicitly state that he would use reasonable efforts to place L/LDG’s endorsements on anything. — Because of this, it lacks the necessary elements of an enforceable contract.

Issue:

  1. May a promise to use reasonable efforts be implied from the entire circumstances of a contract?
  2. Can an implied promise to use best efforts be considered valuable consideration?
  3. Can the duty of good faith compensate for vagueness in an agreement to avoid invalidation of a contract clearly intended by the parties?

Holding: Wood’s promise to pay the defendant ½ of the profits and revenues resulting from the exclusive agency and to render accounts monthly was a promise to use reasonable efforts to bring profits and revenues into existence. In other words, there was an implied promise and the contract is enforceable.

Rationale: Unless there was an implied promise that Wood would use reasonable efforts, the contract would not make any business sense because L/LDG would never get anything.  Therefore, there must have been an implied promise to induce L/LDG to entered into the agreement.


Weiner v. McGraw Hill

Procedural Posture: TC upheld the complaint. AC reversed and granted the motion to dismiss on the basis that Weiner’s employment was at will. Appeal to Court of Appeals.

Facts: Plaintiff claims that McGraw-Hill breached contract by discharging him without just cause.

Issue: Does the plaintiff, though not engaged for a fixed term of employment, have a good cause of action for breach of contract against his employer?

Holding: Yes, the court found sufficient evidence of a contract and a breach to sustain a  cause of action.

Rationale:

  1. First: Plaintiff was induced to leave Prentice-Hall with the assurance that he would not be discharged without cause.
  2. Second: This assurance was incorporated into the employment application.
  3. Third: Plaintiff rejected other offers.
  4. Fourth: When firing other employees, he had been instructed to follow the handbook precisely or risk legal action against the company.

Rule: (Corbin on contracts)

  • If the employer made a promise, either express or implied, not only to pay for the service but also that the employment should continue for a period of time that is either definite or capable of being determined, that the employment is not terminable by him ‘at will’ after the employee has begun or rendered some of the requested service or has given any other consideration.
  • This is true even though the employee has made no return promise and has retained the power and legal privilege of terminating the employment at will.

Notes:  Kamboj v. Eli Lilly & Co – Mere relinquishment of a prior job is insufficient consideration. The employee’s forbearance is a specifically bargained for detriment which can be said to constitute sufficient consideration.


Mattei v. Hopper

Procedural Posture: After trial without jury, TC ruled that the agreement was illusory and lacking mutuality. Plaintiff appealed this judgment in favor of the defendant.

Issue: Given the provision in the contract making the plaintiff’s performance dependent on his satisfaction with the leases to be obtained by him, was the contract illusory and lacking mutuality of obligation?

Rule: When the parties attempt to make a contract where promises are exchanged as the consideration, the promises must be mutual in obligation, which is to say that both parties must have assumed some legal obligations.

Holding: No, the contract was neither illusory nor lacking in mutuality of obligation.


Kirksey v. Kirksey

Facts: Kirksey (D) was the brother of Antillico Kirksey’s (P) deceased husband. The defendant offered Kirksey a home on his property and Kirksey accepted. She moved sixty miles and lived in the defendant’s home for two years. He later forced her to relocate to a remote location on the property and eventually demanded that she leave altogether.

Kirksey sued for breach of contract on the grounds that her costs in relocating to the defendant’s property were sufficient consideration to enforce his promise to provide her with a home. The court entered a judgment in favor of the plaintiff for $200 and defendant appealed.

Issue: Is a gratuitous promise enforceable where a party has reasonably relied on that promise and has suffered loss and inconvenience?

Rule: A gratuitous promise is not enforceable even if a party has reasonably relied on that promise and has suffered loss and inconvenience.

Holding: No. The court held that the promise was a mere gratuity and not enforceable for lack of consideration.

Disposition: Judgment reversed.

Dissent (Ormond): Kirksey’s loss and inconvenience were sufficient consideration to render the defendant’s promise enforceable.

Notes: Contract offers are to be interpreted according to a manifestation of contractual intent. This is determined by considering what a reasonable person standing in the promisee’s shoes would perceive to have been said. Today, the doctrine of promissory estoppel would allow enforcement of the contract because Kirksey reasonably relied upon defendant’s promise to her detriment. Promissory estoppel is a consideration substitute and is not consideration; it must therefore be considered only when consideration is not present.


Seavey v. Drake

Facts: Shadrach Seavey (Shadrach) orally gave a tract of land to his son (Seavey) (plaintiff) and promised to later give him the deed. Subsequently, Seavey took possession of the land, paid all taxes on it, built a house, barn, and stable, and made other improvements upon the land. Shadrach died testate never having giving Seavey the deed and Seavey sued Shadrach’s estate (defendants) for the deed. The defendants moved to dismiss the complaint.

Procedural History: P filed a claim in equity for specific performance of a parol agreement of land. D move to dismiss because there is no cause for equitable relief and because parol contract was without consideration and executory. Problems: unbargained for exchange, statute of frauds, no objective proof of father’s intent.

Issue: Do P’s improvement on the land constitute valid consideration?

Holding: Yes. Problem:

  • S of F;
  • Unbargained for exchange;
  • No objective proof of father’s intent. Plaintiff’s request for specific performance of an oral contract to convey land is granted because the promise induced the plaintiff to take possession and make valuable improvements to the property.

Reasoning: Specific performance of a parol contract is decreed in favor of the vendee who has performed his part of the contract. No action shall be maintained upon a contract for sale of land unless the agreement upon which it is brought is in writing and signed by the party to be charged or someone authorized.

In equity however, it is a fraud for the vendor to insist upon the absence of a written instrument when he has permitted the contract to be partly executed. The expenditure of money or labor in the improvement of the land induced by the donor’s promise to give the land to the party making the expenditure, constitutes, in equity, a consideration for the promise and the promise will be enforced.

Note:  This appears to be a case of promissory estoppel, however promissory estoppel gives you the value of the change in position had the promise not been made. If P gets to keep the land this ends up looking like bargain w/consideration. Specific performance could only be granted if it was determined that money damages would be inadequate.   


Wheeler v. White

Facts: Wheeler sued White because White allegedly breached a contract to finance construction on Wheeler’s land.  In reliance on this contract, Wheeler knocked down some buildings on his land, after which the financing never came through.  Wheeler said if the contract was uncertain, White should be barred from saying the contract was uncertain because of his actions which reasonably induced Wheeler to knock down the buildings.  White said the contract was indeed too uncertain and that the doctrine of estoppel couldn’t create a ground for Wheeler to recover.  The trial court dismissed Wheeler’s case and Wheeler appealed.

Issue: Does the doctrine of promissory estoppel bar White from claiming that the contract is void for vagueness since he induced Wheeler’s reliance?

Rule: When a party acts to his detriment in reasonable reliance on an otherwise unenforceable promise and is injured, that party may have a claim for breach.

Holding: The dismissal is reversed and the case is remanded for trial.

Analysis: The court sort of sees this as a classic promissory estoppel case.  If Wheeler can prove the facts as he alleges them, then he has a good claim against White.  White was trying to influence Wheeler’s conduct by promising to get him financing.  White actually did succeed in influencing Wheeler’s conduct.  But then White backed out.  The contract is no good, but promissory estoppel has the power to make stuff enforceable that is usually not enforceable.

HOFFMAN v. RED OWL STORES

(Promissory Estoppel)

Section 90 does not require that in order to apply promissory estoppel, the promise must be as definite (embrace all essential details) that if there was consideration, there would be a K. 

Court finds that justice can only be avoided if P is compensated.  As far as damages are concerned,

“where damages are awarded in promissory estoppel instead of specifically enforcing the promisor’s promise, they should be only such as in the opinion of the court are necessary to prevent injustice.” 

ACADEMIA:

Henderson (Promissory Estopple and Traditional Contract Doctrine) pp. 114.

Significance of the Hoffman ruling is that the traditional view of Promissory Estopple as a “Substitute for Consideration” IN CONNECTION WITH GRATUITOUS PROMISES is now obsolete.

Section 90 should serve as it’s own distinct basis of liability without regard for bargain, contract, or consideration.

Possible Claims / Cause of Action

Breach of Contract – No

          Henderson (pp. 114): This is still in pre-contract negotiation phase…no contract yet.

          (Think back to White v. Wheeler – no contract because there were not enough details/specifics for there to be an OFFER)

  • KEY: OFFER (Keep that term in mind)

Fraud – No

           For fraud to be an action, there must be intent not to perform.

Promissory Estoppel:

          Promise – Red Owl would say there is no promise

          Reasonable Reliance – Red Owl would say that it is not reasonable to rely upon pre-contract negotiations and that, if you do so, you are doing it at your own risk.

          White v. Wheeler: Court says that there is justifiable reliance.

          But in White v. Wheeler, there is an agreement/deal even though there was not an enforceable contract.

Continuous assurance provided by Red Owl rep at each step along the way.

***Key: Courts are very keen about balances of power

           – Hoffman has no experience with thisRed Owl has the bargaining power

Elvin Associates v. Franklin

(Promissory Estoppel)

Every draft read “this letter…shall constitute our understanding until a more formal agreement is prepared” thus D was not contractually bound and the case for Breach must be dismissed. Court finds however that D unequivocally and intentionally committed herself to be in the production. Her continued expression of enthusiasm to P provided a reasonable basis for beginning to make various arrangements and expenditures necessary to bring the production to fruition. Further, since D was not to sign a contract until arriving in NY, D could not reasonable have expected that P could have performed his obligations to her without committing himself and spending large sums of money prior to her affixing her signature on the contract. D’s fear of flying did not make make her promise conditional or ambiguous such that P should have been alerted to suspend his efforts. It would be unconscionable not to compensate P for losses incurred by his entirely justified reliance on D.

LOCAL 1330 v. US STEEL CORP

(Promissory Estoppel)

The district judge rejected the estoppel contract on three grounds: 1) none of the statements made by D constituted a definite promise to continue operations if the plants were to become profitable; 2) statements relied on by P were made by employees and public relations officers of D, not by company officers; 3) the plants never became profitable.

P relies on a standard of reasonable expectability of the promise detrimentally relied upon. The court cannot find that reliance on a promise to keep plants open on the basis of coverage of plant fixed costs was within the reasonable expectability. Court ruled that this cost coverage promise was not one of “reasonable expectability” and that reliance on such a promise does not entitle plaintiff to relief (because it is poor policy to reward stupidity).

Key Takeaway: If it’s not a promise a reasonable person could rely on then you haven’t met the burden of promissory estoppel.

CONTRACTS AND UNJUST ENRICHMENT

  • RESTATEMENT 1: Unjust enrichment (1937)
    • A person who has been unjustly enriched at the expense of another is required to make restitution to the other.
  • THEORY & ELEMENTS:
    • Benefit to promisor
    • The law does not imply a promise. The law implies a debt or obligation.

Implied in-fact contract: a true contract, containing all the necessary elements of a binding agreement, but it has not been committed to writing or stated orally in express terms. It is inferred from the conduct of the parties.

Party seeking payment must show that

Services were carried out specifically for the recipient

Services were rendered with expectation of compensation

Services were beneficial to the recipient

Knowledge occurs at time of service

Quasi contract: Is not a contract but a duty thrust under certain conditions upon one party to require another in order to avoid the former’s unjust enrichment.

Must show that:

Defendant was unjustly enriched at plaintiff’s expense, and

The circumstances were such that in good conscience the defendant should make restitution.

Situations where there is no duty to pay:

If the benefit was conferred gratuitously or payment was left to the discretion of the recipient

Services were rendered simply to gain a business advantage

Payment was not expected or expected payment was not communicated.

BLOOMGARDEN v. COYER

(implied in fact & quasi contract)

P introduced parties who eventually conducted real estate deal and now P wants a finder’s fee. For P to recover on the basis of a contract implied in fact, he would have to show additionally that he looked forward to personal payment for his services, and that the circumstances under which he introduced Coyer and Guy to Carley were such as would reasonably have put them on notice that he had that in mind. As such, court rules that Plaintiff did not expect to be personally compensated for introducing the parties and, for that reason, has no enforceable claim.

– “Bloomgarden did not contemplate personal remuneration for his services, and that in consequence he lacked an indispensable prerequisite to recovery on either an implied-in-fact contract or a quasi-contract.”

– Where the benefit was conferred gratuitously or where the question of payment was left to the unfettered discretion of the recipient, there can be no remuneration. (Bloomgarden 1973).

– An uncommunicated expectation of payment cannot serve the plaintiff’s purpose when the defendant has no cause to believe that such was the fact (Bloomgarden 1973).

– A contract will not be implied unless the recipient knows or has reasonable grounds to believe that the beneficial acts were performed in anticipation of compensation. (Bloomgarden 1973).

SPARKS v. GUSTAFSON

(Unjust enrichment)

Sparks and Decedent bought property and Sparks managed it for two years without compensation with the knowledge and consent of D. There is no question the P conferred a benefit upon D. The services that P provided are not the type that one would ordinarily expect as a mere gratuity. His services were the type for which one would ordinarily expect to be paid. Decision affirmed.

Quantum Meruit: When seeking to recover from an unenforceable contract, and services have already been rendered, the legal remedy is by an action on the quantum meruit for the value of the services. (Gay 1901).

Although a bargain may be unenforceable, it can used as a means of determining that a service was not a gift. (Gay 1901).

GAY v. MOONEY

(Quantum Meruit)

The bargain is unenforceable because it is related to land and there was not susceptible proof as could be maintained under the statute of frauds. However plaintiff can recover on the value of the services provided. When a bargain is unenforceable the legal remedy is by an action on the quantum meruit for the value of the services.

Unenforceable Contract is Useful in Proving Unjust Enrichment

     1) Use it to determine value of unjust enrichment (Rate of compensation)

     2) Evidence of expectancy (not just a gift)

     3) Show evidence of a breach of the agreement (even though breach of contract is not available as a cause of action).

Plaintiff put in evidence tending to show an understanding between himself and the deceased that the latter would devise a certain dwelling house to the plaintiff’s children in return for what he should receive as a member of the family.”

DEFENSES:

The Gift Principle and the Choice Principle (D. Dobbs, Remedies 1973).

Gratuitously rendered services and gifts – no UJ

Officious Intermeddler: One who confers a benefit upon another without affording that other the opportunity to reject the benefit has no equitable claim for relief against the recipient of the benefit.

Where work has been done on one’s land, the benefit cannot be returned and an acceptance of the benefit cannot be implied from retaining the land. (Kelley v. Hance 1928) – pg. 145

KELLEY v. HANCE

(Unjust Enrichment)

D contracted P to excavate and build a sidewalk in front of D’s house for $420. P agreed to start work within a week and complete it before the cold weather set in. P did not start work for three months, removed a strip of earth along the front of D’s property, left and has not returned. D notified P that he had cancelled the contract.

There is no claim that P can collect upon the theory of a performance of a divisible portion of the contract, nor is he entitled to recover on the theory of substantial performance. No portion of the sidewalk was finished and P without justification abandoned his contract before completion. P cannot therefore recover the reasonable value of the work done unless there has been such an acceptance of it by the defendant as to raise an implied promise on his part to pay for it. No acceptance of the work by the defendant prior to the breach is found and no promise to pay for the benefit received can be implied from the mere fact that he has received a benefit which from the nature of the case he could not avoid receiving and was powerless to return.

There can be no recovery where a contractor has willfully abandoned his contract without justification. (Kelley 1928)

1) If 120ft of sidewalk was constructed

          – Can Recover substantial performance – must be more than 50%

2) If constracted for 14 segments and he completes five

          – Can Recover – Divisibility

3) If builder quit because he mistakenly thought owner wanted him to quit

           – Can Recover – Negligence or good faith

4) If builder is contracted to make 140 sculptures and D keeps the 100 P makes

          – Can Recover – Acceptance

5) (the fifth example of a when a breacher can recover under undue enrichment)

          – Implied Promise

Britton v. Turner

1) Substantial performance (8 months of year)

2) Divisible (can break up the work he’s provided)

3) Acceptance

– In a contract to labor day to day for a certain period, the party for whom the labor is done stipulates to receive it from day to day as it is performed, so there has been an acceptance of what has been done in pursuance of the contract. (Britton 1834)

Reasons the court allows for the plaintiff to recover:

1) Clearly unjust to not allow the plaintiff to recover

2) If we don’t allow recovery here, the law is fairer to the BIG breacher (works nothing) than for the minor breacher (works 9 months of year)

3) Value the employer would get would far exceed the value received by the employee breacher.

4) Employer accepted…labor is day to day so, therefore, acceptance of the labor is day to day.

5) Court also says that the defendant could protect himself from breacher recovering by creating a contract that includes a specific phrase saying that “breacher can’t recover for anything short of full performance.” (This is no longer legal but it was at the time of this suit).

6) Default rule favors the employee because we think that employers are in a better position to protect themselves.

7) Court is also concerned that not allowing the plaintiff to recover would incentivize employers to force the employees out, to breach, after they have performed substantial performance.

Mills v. Wyman

(preexisting obligation)

Levi Wyman returned from a voyage at sea and fell sick among strangers. Mills (P) gave Levi Wyman shelter and comfort until he died. After Levi’s death his father Wyman (D) wrote to Mills and told him he would pay all of the expenses for the care of his son. Wyman later refused to pay and Mills sued

Rationale and Rule:

1) The court stated that moral obligation is sufficient consideration in some cases but not under these facts. Moral obligation is sufficient consideration under the following circumstances:

          – debts barred by the statute of limitations,

          – debts incurred by infants,

          – and debts of bankrupts.

In such cases, enforcing promises based on preexisting equitable obligations may be enforced because they merely remove an impediment created by the law to enforce debts that are due, but which public policy protects debtors from being compelled to pay.

2) In this case, however, the services provided to D’s son were not bestowed at his request. The son had left his father’s family and was not under D’s care when he died. The court held that the general position that moral obligation is a sufficient consideration for an express promise is to be limited in its application to cases where at some time or other a good or valuable consideration has existed.

Webb v. McGowin

(presumption of preexisting obligation)

Webb worked for a lumber mill and in the correct performance of his job was about to drop a 75lb block of wood that would have fallen on McGowin. He, instead, fell with the block, saved McGowin’s life and incurred serious, crippling injuries. In consideration of P preventing injury to him and in consideration of the injuries sustained, McGowin offered P $15 every two weeks for the remainder of P’s life. Payments were made until McGowin’s death at which time they ceased. P brings suit for unpaid installments.

It is well settled that a moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor.

Rationale:

Comparable situation to that involving a doctor saving a patient’s life and still requiring payment for this service.

Rule:

A moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor.

Notes:

Boothe v. Fitzpatrick: The court held that a promise by defendant to pay for the past keeping of a bull which had escaped from defendant’s premises and been cared for by plaintiff was valid, although there was no previous request, because the subsequent promise obviated that objection; it being equivalent to a previous request.

HARRINGTON v. TAYLOR

(Moral Obligation – Past Consideration)

Facts:

Defendant was about to be axed to death by his wife but the plaintiff intervened and sustained an injurious ax blow to her hand and sought recovery.

Issue:

Does past consideration qualify as valid consideration sufficient to create a binding contract?

Holding:

No. Past consideration does not qualify as valid consideration sufficient to create a binding contract.

Rationale:

However much the defendant should be impelled by common gratitude to alleviate the plaintiff’s misfortune, a humanitarian act of this kind, voluntarily performed, is not such consideration as would entitle her to recover at law.

EDSON v. POPPE

(past services)

Plaintiff digs well for defendant and, after the well is dug, defendant promises to pay the plaintiff for the services but never does.

Issue:

Is there a moral obligation which supports a cause of action to enforce a promise to pay for services rendered, where the promise was made subsequent to the rendering of the services?

Holding:

Yes, under these circumstances, the subsequent promise of defendant to pay plaintiff the reasonable value for digging and casing said well was binding, and supported by sufficient consideration.

Rationale:

          1) Services benefitted the defendant

          2) Circumstances show that this work could not be deemed gratuitous

                    – As such, the promise is valid consideration.

TORTS AND CONTRACTS

  • Ayres & Klass – Insincere Promises
    • For a court to conclude that a promisor made a material promissory misrepresentation for which she should be held liable, it must make three key inferences:
      • Decide what the promisor said with her promise, explicitly or implicitly
      • Decide whether, at the time of promising, that representation was true
      • Decide whether the promisor made the promissory misrepresentation in question recklessly or knowingly, that is, with the scienter necessary for punitive sanctions.

MAULDIN v. SHEFFER

(obligation in tort)

P architect formed an oral contract with D engineer to provide engineering designs, plans, specifications and data for P’s project on five Georgia schools. D provided really terrible work deliberate disregard for ethical and moral standards required of an engineering professional. P moves to bring an action ex delicto.

Issue:

Is P permitted to raise a cause of action in ex delicto for something arising out of breach of contract based on the claim that D’s conduct violated his professional duty imposed by law and does P’s complaint sufficiently allege the violation of this duty imposed by law?

Holding:

Yes, the petition in this case does allege the violation of a duty imposed by law under the principles which were set forth in the case.

Professional Standard

The law imposes upon persons of professional standing performing…engineering…services, pursuant to their contracts with their clients, an obligation to exercise a reasonable degree of care, skill, and ability. This is a duty apart from any express contractual obligation.

HARGRAVE v. OKI NURSERY

(tort due to misrepresentation)

P bought wine making vines from D.  D represented that the vines were free of disease and suitable for wine production. The allegations state a claim for fraud and if OKI indeed made the fraudulent representations it is subject to liability in tort whether the agreement is enforceable or not.

Rule:

Where the conduct alleged breaches a legal duty which exists independent of contractual relations between the parties, a plaintiff may sue in tort (Channel Master Corporation v. Aluminum Limited Sales.

Rationale:

The complaint in this case presents all the elements of an action in tort for fraudulent representations, namely:

1) representation of a material existing fact, 2) falsity, 3) scienter, 4) deception, and 5) injury.

Keith v. Buchanan

(warranties)

Keith researched the Island Trader 41, enlisted the advice of his expert friend, and purchased the boat which was to be ocean-going and capable of travelling long distances.

Issue:

(1) Can there be an express warranty where the language is not in writing and the buyer does not demonstrate reliance on that language?

(2) Must the plaintiff rely on the skill and judgment of the seller for there to be an implied warranty of fitness?

Holding:

(1) Yes – An express warranty under section 2313 of the California Uniform Commercial Code was created in this matter. Actual reliance on the seller’s factual representation need not be shown by the buyer.

(2) No, there was no implied warranty of fitness because there is ample evidence to support the finding that buyer did not rely on the skill or judgment of the seller in the selection of the vessel. The buyer had experience with sailboats at the time of the purchase and precise specifications in regard to the type of boat he wanted. He also had friends look at the boat before deciding to purchase it.

Sugawara v. Pepsico, Inc.

Crunchberries

“A reasonable consumer would not be deceived into believing that the product in the instant case contained a fruit that does not exist.” Therefore, not basis of the bargain.

CONTRACTUAL FORM (AND THE STATUTE OF FRAUDS)

Written Contract Required For:

Contract in consideration of Marriage

Contract to Guarantee the debt of another

Executors promise to pay an estate debt

Contract that cannot be performed within one year

Contract Transferring interest in real estate

Contract for Sale of goods worth $500 or more

Basic Problems with Statute of Frauds

1) does the statute apply?

2) if so, does a memorandum, note or other writing suffice?

3) If there is no writing does the law recognize an exception?

4) If not, does any other doctrine mitigate non-compliance?

Purpose:

The primary purpose of the statute is evidentiary, to require reliable evidence of the existence and terms of the contract and to prevent enforcement through fraud or perjury of contracts never in fact made.

To avoid the possibility of one mistaking the intentions of a party

To avoid an assertion of intent that is false

Gives a form of objective evidence

Contract for Consideration of Marriage:

Contract made upon consideration of marriage: A promise for which the consideration is marriage or a promise of marriage is within the Statute. [291 – 292]

Example: Tycoon says to Starlet, his girlfriend, “If you will promise to marry me, I’ll transfer to you title to my Malibu beach home even before our marriage.” Starlet replies, “It’s a deal.” No document is signed. If Tycoon changes his mind, Starlet cannot sue to enforce either the promise of marriage or the promise to convey the beach house, since the consideration for both of these promises was her return promise to marry Tycoon. Conversely, if Starlet changes her mind, Tycoon cannot sue for breach either.

Exception for mutual promises to marry: But if an oral contract consists solely of mutual promises to marry (with no ancillary promises regarding property transfers), the contract is not within the Statute of Frauds, and is enforceable even though oral. That is, an ordinary oral engagement is an enforceable contract.

Contract to Pay the Debt of Another:

General rule: A promise to pay the debt or duty of another is within the Statute of Frauds, and is therefore unenforceable unless in writing. [285 – 289]

Main purpose rule: If the promisor’s chief purpose in making his promise of suretyship is to further his own interest, his promise does not fall within the Statute of Frauds. This is called the “main purpose” rule. [289 – 290]

Example: Contractor contracts to build a house for Owner. In order to obtain the necessary supplies, Contractor seeks to procure them on credit from Supplier. Supplier is unwilling to look solely to Contractor’s credit. Owner, in order to get the house built, orally promises Supplier that if Contractor does not pay the bill, Owner will make good on it. Because Owner’s main purpose in giving the guarantee is to further his own economic interest – getting the house built – his promise does not fall within the suretyship provision, and is therefore not required to meet the Statute of Frauds. So it is enforceable even though oral.

Howard Schoor Associates v Holmdel Heights Construction Co

(statute of frauds)

1) D = lawyer for company

2) made promise to pay Ps for money company owed attorney says that he’s not liable since the promise violates the statute of frauds

Leading Object – Main Purpose Rule

If the main purpose the promise was made was for the promisor’s pecuniary or business advantage and not for the primary benefit of the third party (company), then the promise is NOT WITHIN THE STATUTE OF FRAUDS.

                                Applied to this case

                                                Lawyer benefits personally in following ways:

                                                                Legal fees

                                                                Equity

                                                                Credit paid

Leading Object Rule

1) Evidentiary

– It is more likely that an alleged promise which is for the benefit of the promisor actually did take place than a promise made for the benefit of a third party.

2) Cautionary

– In promise made for one’s own benefit, it is much more likely that you have throught through the decision and consequences.

Promises made for others don’t inspire careful consideration of the consequences

What kind of writing satisfies the statute of frauds?

1) Reasonably identifies the subject matter of the contract

2) Is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and

3) States with reasonable certainty the essential terms of the unperformed promises in the contract.

Contract for Interest in Real Estate:

Vendee’s part performance: Second, the vendee under an oral land contract may in reliance on the contract take actions which: (1) show that the oral contract was really made; and (2) also create a reliance interest on the part of the vendee in enforcement. Such a vendee may then obtain specific performance (a court order that the vendor must convey the land) even though the contract was originally unenforceable because oral.

Taking possession and making improvements: For instance, if the vendee pays some or all of the purchase price, moves onto the property, and then makes costly improvements on it, this combination of facts will probably induce the court to grant a decree of specific performance.

Payment not sufficient: Usually, the fact that the vendee has paid the vendor the purchase price under the oral agreement is not by itself sufficient to make the contract enforceable. (Instead, the vendee can simply recover the purchase price in a non-contract action for restitution.)

Contracts to be Performed Within One Year

  • General rule: If a promise contained in a contract is incapable of being fully performed within one year after the making of the contract, the contract must be in writing. [296]
    • Time runs from making: The one-year period is measured from the time of execution of the contract, not the time it will take the parties to perform. (Example: On July 1, 1990, Star promises Network that Star will appear on a one-hour show that will take place in September, 1991. This contract will be unenforceable if oral, because it cannot be performed within one year of the day it was made. The fact that actual performance will take only one hour is irrelevant.)
  • Impossibility: The one-year provision applies only if complete performance is impossible within one year after the making of the contract. The fact that performance within one year is highly unlikely is not enough. [296 – 298]
    • Judge from time of contract’s execution: The possibility of performing the contract within one year must be judged as of the time the contract is made, not by benefit of hindsight.
      • Example: O orally promises A that O will pay A $10,000 if and when A’shusband dies. A’shusband does not die until four years after the promise. The promise is nonetheless enforceable, because viewed as of the moment the promise was made, it was possible that it could be completed within one year – the fact that it ended up not being performed within one year is irrelevant.
  • Impossibility or other excuse: It is only the possibility of “performance, not the possibility of “discharge, that takes a contract out of the one-year provision. Thus the fact that the contract might be discharged by impossibility, frustration, or some other excuse for non-performance will not take the contract out of the Statute. [297 – 298]
    • Fulfillment of principal purpose: It will often be hard to tell whether a certain kind of possible termination is by performance or by discharge. The test is whether, if the termination in question occurs, the contract has fulfilled its principal purpose. If it has fulfilled this purpose, there has been performance; if it has not, there has not been performance. Using this rule gives these results:
      • Personal service contract for multiple years: A personal services contract for more than one year falls within the one-year rule (and is thus unenforceable unless in writing) even though the contract would terminate if the employee died. The reason is that when the employee dies, the contract has merely been “discharged”, not performed.
      • Lifetime employment: A promise to employ someone for his lifetime is probably not within the one-year provision, since if the employee dies, the essential purpose of guaranteeing him a job forever has been satisfied. So an oral promise of a lifetime job is probably enforceable.
      • Non-compete: A promise by a seller of a business not to compete with the buyer for a period longer than a year is not within the one-year provision, since if the seller dies within a year, the buyer has received the equivalent of full performance (he knows the seller won’t be competing with him).
  • Termination: Courts are split about whether the existence of a termination clause that permits termination in less than a year will remove a more-than-one-year contract from the one-year provision. [298]
    • Example: Boss orally hires Worker to work for three years. Their oral agreement allows either party to cancel on 60 days notice. Courts are split on whether this contract is within the one-year agreement and must therefore be in writing. The Second Restatement seems to say that the giving of 60 days notice would be a form of “performance,” so that this contract will be enforceable even though oral – Worker might give notice after one month on the job, in which case the contract would have been “performed” within three months of its making, less than one year.
  • Full performance on one side: Most courts hold that full performance by one party removes the contract from the one-year provision. This is true even if it actually takes that party more than one year to perform. [299]
  • Applies to all contracts: The rule that a contract incapable of performance within one year must satisfy the Statute applies to all contracts (including those that just miss falling within some other Statute of Frauds provision). For instance, even though the special UCC sale-of-goods statute (discussed below) requires a writing only where goods are to be sold for more than $500, a contract to sell goods for $300, to be delivered 18 months after the contract is made, must be in writing.

MCINTOSH v. MURPHY

(statute of frauds – oral agreement)

P was interviewed twice. The position of sales manager was discussed but no contract was entered into. About a month later P received a call from the GM informing him of possible employment within 30 days if he was still available. P indicated his continued interest. Later in April P sent a telegram to D to let him know he would be in Honolulu. The day before his arrival, P received a call from D notifying him that the position of assistant sales manager was available. P expressed surprise at the change in job title from sales manager to assistant sales manager but reconfirmed that he would be arriving the following day. The day after his arrival, P commenced work. 
P worked for D for approximately 2 ½ months at which time he was discharged on the grounds that he was unable to close deals with prospective customers and could not train salesmen.

ISSUE: Can P maintain an action on an oral contract in light of the prohibition of the Statute of Frauds?

HOLDING: Yes. But the contract is enforceable under the doctrine of promissory estoppel. There is no question that the actions of P moving 2200 miles from L.A. to Hawaii was foreseeable to D. Injustice can only be avoided by the enforcement of the contract and the granting of money damages. No other remedy is adequate. Judgment of the trial court is affirmed on the ground that P’s reliance was such that injustice could only be avoided by enforcement of the contract.

Memorandum: What qualifies…

  • General requirements for: Even if there is no signed “contract,” a signed “memorandum” summarizing the agreement may be enough to meet the Statute of Frauds. A memorandum satisfies the Statute if it:
    • (1) reasonably identifies the subject matter;
    • (2) indicates that a contract has been made between the parties;
    • (3) states with reasonable certainty the essential terms of the contract; and
    • (4) is signed “by or on behalf of the party to be charged.”
  • Signature: Because of the requirement of a signature “by the party to be charged,” some contracts will be enforceable against one party, but not against the other. [305]
    • Example: Buyer orally agrees to buy Owner’s house for $200,000. Buyer then sends a document marked “confirmation,” which states, “This confirms our agreement whereby I will buy your house for $200,000. [signed, Buyer]” Owner can enforce the agreement against Buyer, but Buyer cannot enforce it against Owner, since only Buyer has signed the memorandum.
  • UCC: Under the UCC, a writing satisfies the Statute if it is “sufficient to indicate that a contract for sale has been made between the parties and [is] signed by the party against whom enforcement is sought….” § 2-201(2). [305 – 307]
    • Omissions: Even if the writing contains a mistake as to a term, there will often be enough to satisfy the Statute, under the UCC. For instance, a mistake on price or quantity, or even description of the item, will not be fatal (but plaintiff may only recover for the quantity actually stated in the memorandum). Contrast this with non-UCC cases, where a major mistake is likely to invalidate the memorandum.
    • Confirmation: Under the UCC, there is one situation in which a memorandum will be enforceable even against a party who does not sign it: if the deal is between merchants, one merchant who receives a signed confirmation from the other party will generally be bound, unless the recipient objects within 10 days after receiving the confirmation.
      • Example: Buyer and Seller are both merchants (i.e., they deal in goods of the kind in question). Buyer telephones Seller to order 1,000 widgets at $10 apiece. Immediately after receiving the order, Seller sends a written confirmation, correctly listing the quantity and price. Assume that this confirmation constitutes a memorandum which would be enforceable by Buyer against Seller. Unless Buyer objects in writing within 10 days after receiving the memo, he will be bound by it, just as if he had signed it.

Sterling v. Taylor

(Statute of Frauds)

Written memorandum for property transaction

Rule:

A memorandum satisfies the statute of frauds if it identifies the subject of the parties’ agreement, shows that they made a contract, and states the essential terms with reasonable certainty.

Signed memo or document can satisfy statute of frauds even if there is not a written contract.

Extrinsic evidence is allowable

– The more persuasive the plaintiff’s oral testimony is, the less will be required of the memorandum.

KEY TAKEAWAY:

The problem here is the PRICE CONFLICT…Prof. B says that it would actually be stronger if the price term was left out entirely.

          – Court is very clear that the statute of frauds is to be very loose…They are generally not supposed to be very strict…but here they are…moral of the story: DO AS THIS COURT SAYS, NOT AS IT DOES.

          – Court essentially says that there is too much ambiguity to send this to trial

Cal Lettuce Growers Case

– The formula used here is not ambiguous because it is supported by customary practice which makes it very objective.

Statute of Frauds – Quick Case Review

  • Where the consideration for a promise that all or part of a previously existing duty of a third person to the promisee shall be satisfied is desired by the promisor mainly for his own advantage, rather than in order to benefit the third person, the promise is not within the Statute of Frauds. (schoor)
  • It is not sufficient that the note or memorandum express the terms of a contract; it is essential that it completely evidence the contract which the parties made by giving all of the essential terms. A contract for the sale of land which fails to show the terms and conditions of the sale, the price to be paid and the time for payment is not sufficient to satisfy the requirements of the statute of frauds. (Jonesboro)
  • The statute of frauds requires that any agreement that is not to be performed within one year from the making thereof to be in writing in order to be enforceable. (mcintosh)
  • The doctrine of estoppel to assert the statute of frauds is consistently applied by the courts to prevent fraud that would result from refusal to enforce oral contracts in certain circumstances. Such fraud may inhere in the unconscionable injury that would result from denying enforcement of the contract after one party is induced by the other seriously to change his position in reliance on the contract. (mcintosh)
  • Section 139 of Restatement Second of Contracts: 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 the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.
  • Part performance is usually enough to avoid the writing requirement
  • UCC section 201: A contract for the sale of goods 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 contract for sale has been made between the parties and signed by the party against whom the enforcement is sought or by his authorized agent or broker.
    • A contract that is enforceable under this section is not unenforceable merely because it is not capable of being performed within one year or any other period after its making.
    • A writing is not insufficient because it incorrectly states a term agreed upon, but it’s not enforceable beyond the quantity of goods shown in such writing.
    • Parties can prove that the terms are different from the writing but not the quantity of goods beyond that stated in the writing.
    • The writing need be signed only by the person against whom enforcement is sought.
    • Part performance of an oral contract for the sale of goods that is capable of apportionment is enforceable only as to that portion of the contract that has been fully or partially performed.
    • The writing need not be a formal contract, just something that proves the contract’s existence. The writing must reasonably identify the subject matter of the contract.

Where does the court get this authority to make these exceptions to the SoF?

1) They use their authority to INTERPRET the statute.

2) Interpret statute to encompass these exceptions.

REMEDIES – EXPECTANCY DAMAGES

Groves v. John Wunder Co.

Facts: K for commercial land lease for $105K. Δ Lessee promises to grade property, but deliberately fails to do this.

Would cost π lessor $60K to grade the land (what Δ lessee was supposed to do)

However, if work had been done, land value would have increased by only $12K.

Issue: How should court measure expectancy damages?

Plaintiff:

Wants the amount of money it would take to finish the grading of the land – $60,000 (Reasonable cost of completion)

Defendant:

Wants the award to be the difference in market value between graded land and ungraded land. (Market value if contract had been fully performed = $12k)

Arguments: Both make “Question Begging” arguments

Majority:

Agrees with Plaintiff and awards damages in the amount of money it would take to finish the grading of the land. ($60,000).

“only appropriate compensation is the cost of performance”

Enforcing only market value would be unjust enrichment to defendant

Property owners can do whatever they want with their property

Dissent:

This type of award has never been decided

Fairness – Not fair to award more money in damages than the value of the land.

The willfulness of the breach should not affect the measure of damages.

Only if the contract is for a unique and specific purpose (especially for something that would decrease property value) should “cost of completion” damages be awarded. (Ex. A sculpture of the Statue of Liberty with your Mother’s in the front yard)

Distinguish Groves from Peevyhouse below:

Peevyhouse v. Garland Coal & Mining

“We Hold that where the economic benefit which would result to lessor by full performance of the work is grossly disproportionate to the cost of performance, the damages which lessor may recover are limited to the diminution in value resulting to the premises because of the non-performance.”

Exception: In contracts for “improvements” which will actually reduce the property value, the measure of damages for breach would ordinarily be the cost of performance.

ROCK ISLAND V. HELMERICH & PAYNE

Key Takeaway:

State policy changed – rules in opposition of Peevyhouse (public outcry after Peevy)

Oklahoma enacted an Open Cut Land Reclamation Act that declared that after any mining operations are completed the land is to be reclaimed.

The statute makes no exception for cases in which the expenditures for reclamation are disproportionate to the resulting increase in land value.

Rationale:

To enhance its image in the community

To protect against possible tort liability for conditions on premises

  • Restatement (Second) of Contracts § 347, Comment B
    • Must determine the loss in the value to the injured party of the other party’s performance that is caused by the failure of, or deficiency in, that performance.
    • Requires a determination of the value of that performance to the injured party himself and not the value to some hypothetical reasonable person.

Thorne v. White

Facts: Builder leaves after having started roofing job

Original builder was going to charge $225

New builder charges $582

Difference = 357 (This is what the trial court awards in damages)

Appellate Court: Reverses because the new builder used better materials. Thus, the trial court’s award would have put the homeowner in a BETTER position than he would have been had the original builder fully performed.

Key Takeaway:

A party damaged by breach may only recover for losses which are the natural consequence and proximate result of that breach.  Injured party should not be placed in a better position than he would have been in had no breach occurred.

Warner v McLay (Limit: Specifically defined profits with instructions for how to calculate)

Facts: The owner of the property breaches the building contract by running the builder off. The builder has a right to recover lost profits so he sues for not being able to complete the contract

Rule: Sueing for expected profit is OK but you must prove exactly and specifically what your profit would be and how you’d calculate it.

Must have specifics

Full contract price minus the amount saved by the builder cause by the breach

full contract price = D

costs avoided = C

costs incurred = A

net profit = B

so A+B+C=D

then subtract C from both sides of the equation

A+B=D-C

Freund v. Washington

Facts: Contract for defendant to publish plaintiff’s book.  Defendant would pay royalties to plaintiff based on sales. Δ does not publish book, breaches. Plaintiff asks for cost of completion to publish book; analogizing it to construction contract.

Focus is on the PLAINTIFF when considering expectancy damages

Should be Value plaintiff was going to get from the contract, not the amount of money the Defendant would have paid to publish and advertise the book. SHOULD be Royalties. However, court says that determining the value of the royalties would have been too speculative and we could not possibly determine what the damages could be.

Therefore, only nominal damages are awarded.

Purpose of this case:

WE do not care how much the defendant would have spent in the cost of publishing.

We care what the plaintiff is OUT, and the plaintiff is only out the value of the royalties.

Handicapped Children’s Ed Bd of Sheboygan County v. Lukaszewski (Limit: Cover)

Facts: Plaintiff took a job with the school, but then breaches when she finds job with more money. The school then has to hire someone who is more experienced and costs more. The school is suing saying that plaintiff should pay them the difference between her salary and the new person’s salary.

Sufficient Mitigation: New person was the school’s only option -> Attempted to mitigate their loss

Efficient breach: the extra money that she would make at her new job would be more than the damages that she would have to pay the school. So she would come out with more money anyway

Contract law is designed to encourage efficient breach

Efficient Breach – Posner – Economic Analysis of Law

Economic efficiency demands that damages never exceed nor be less than expectation loss.

A is only going to breach contract with B if C promises to pay more than B is going to get because you are going to have to make B whole.

Economic argument, however, ignores the transaction cost…(Cost of litigation)

Measuring Expectancy Damages for Breach of Contract for SALE OF GOODS (U.C.C.)

  • UCC: governs goods
    • UCC § 2-105: A good = something moveable
    • UCC § 1-103(b):
      • Unless displaced by the UCC, common law supplements the UCC.
        • UCC trumps common law
        • Principles of law and equity are sucked into UCC
  • UCC § 1-106: 
    • Remedies to be liberally administered to put non-breaching party in as good as a position if the breaching party had gully performed.

SELLER BREACHES CONTRACT

  • UCC Article 2: (SELLER BREACHES CONTRACT)
    • UCC § 2-713:  Buyers Damages for Non-Delivery By the Seller
      • (1) Measure of damages is the difference btw the market price at the time the buyer learned of the breach and the contract price, with any incidental or consequential damages, but less expenses save by the breach.
        • Note: only applies when buyer doesn’t cover
      • (Market Price) – (Contract Price) + (Incid./Conseq. Damages) – (Expenses Saved)
  • UCC § 2-712:  Cover by the Buyer
    • (1)  After a breach, the buyer may “cover” by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution
    • (2) Buyer may recover from the seller the difference between the cost of cover and the contract price, together with any incidental or consequential damages.
  • UCC § 2-714:  Buyer’s Damages for Breach of Accepted Goods
    • (1)  Where buyer has accepted goods, he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from seller’s breach.
    • (2) Measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless there are special circumstances which show cause for damages of a different amount.
  • UCC § 2-715: Buyer’s Incidental and Consequential Damages
    • (1) Incidental damages include transportation costs, etc. in buyer receiving good
    • (2) Consequential Damages from 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 be reasonably prevented by cover.
      • (b) injury to person or property resulting from breach of warranty

 

Copper v. Clute:

Facts: Common Law – When the breach occurs

Seller contracts to sell to Buyer-1 for 10 7/8 per LB

Seller breaches and actually sells to Buyer-2 for 11.03 per LB

Damages:

Buyer-1 says he deserves the difference between 10 7/8 and 11.03 even though the market value at the time of the breach was 10 7/8.

Correct Damages: (Market Price) – (Contract Price)

BUT, Since there is no difference between the contract value and market value, no damages are required to make the buyer-1 whole.

BUYER BREACHES CONTRACT:

  • UCC Article 2:
  • UCC § 2-703:  Seller’s Remedies in General

Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment when due or repudiates a part or the whole, then aggrieved seller may

(a) Withhold delivery of such goods…

(d) Resell or recover damages

UCC § 2-708:  Seller’s Damages for Non-Acceptance or Repudiation

(1) Measure of damages is the difference between the market price at the time

and place for tender [date of delivery] and the unpaid contract price, together with any incidental damages, minus expenses saved.

(2) If the damages are inadequate to put seller in as good a position as

performance would have done, then the measure of damages is the profit which seller would have made from full performance by the buyer, with any incidental damages

UCC § 2-718: Deposits

(2) Where buyer has made a deposit and breaches, he is entitled to restitution of his deposit when deposit exceeds:

(b): 20% of total price of K OR $500 (which ever is smaller)

(3) Buyer’s right to restitution is subject to offset when seller established

(a): a right to recover damages under UCC

  • Note: [meaning deposit buyer already paid will be subtracted from seller’s total damages if seller can establish damages]

UCC § 2-706:  Seller’s Resale Including K for Resale- [Seller way to Cover]

(1) Under § 2-703, seller may resell the goods concerned or undelivered

balance thereof.  Seller may recover the difference between the resale price and the contract price, when the resale is made in good faith a in commercially reasonable manner

UCC § 2-710:  Seller’s Incidental Damages

Seller’s incidental damages include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in transportation, care and custody of goods after buyer’s breach, in connection with return or resale of the goods or otherwise resulting from breach.

Lost Volume Seller – Seller has high volume of business w/ unlimited goods to sell. Buyer breaches, and seller subsequently sells to someone else, Seller may recover lost profit of 1st sale if supply is large enough that he would have made 2 sales. In situations like that in Neri, a lost volume seller is treated as if it did not make a resale b/c there could have been 2 sales. – 2-706 doesn’t apply.

Neri v. Retail Marine Corp.

Facts:

K to sell boat @ $12K. 

Buyer makes deposit of $4K and breaches. 

Boat is sold to 3rd party for same price.

Buyer sues to get $4K deposit back 

Seller claims his lost profits are $2K and that his other expenses are $600. 

Buyer claims he should get nothing b/c seller resold the boat for the same price, and therefore, under 2-706 seller gets nothing, they should get full deposit back.

Held:

2-706 doesn’t apply here b/c seller is a lost volume seller

He had an unlimited amount of boats to sell, and would have made the 2nd sale even if he had also made first sale. 

Court concludes that seller has established damages. Therefore, according to 2-718(3)(a), they subtract those damages from deposit.

Therefore, applied  2-708 (2)  — seller is entitled to profits and incidental damages.

Profits = $2K (determined by looking at price v. wholesale value)

Incidental damages = $600

Total damages = $2600.

Subtract from original deposit ($4k MINUS $2600 = $1400).

Buyers only get $1400 of deposit back, seller keeps the rest.

Limits on Expectancy Damages:

Foreseeable Limit

Duty to Mitigate Limit

Proportionality Limit

Recovering Lost Profits Limit

Mental Distress Limit

Foreseeability Limitation:

Damages for breach of K must have been foreseeable to the parties at the time of K.  They must be (types of expectancy):

General Damages: Arise naturally from the breach

Consequential Damages: damages that arise from special circumstances (not a direct result)

Only recoverable if foreseeable, contemplated by both parties at time of k

Subject to greater limits than general damages

Incidental Damages: expenses reasonably incurred in connection w/ cover costs.

U.C.C. Consequential Damages Resulting From the Seller’s Breach:

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 be cover or otherwise.

Hadley v Baxendale  

(famous shaft case) (Lost profits must be foreseeable)

Facts: There is a broken crank-shaft and the D is contracted to take it to the repair shop, but D negligently doesn’t take it on time. P sues D to recover lost profits – special damages – 2 types of damages

General: arise generally from the contract

Special or consequential: arise from specific circumstances

Rule: Special damages are only recoverable when both parties understood they would be recovered.

Must be reasonably contemplated by both parties.

Can recover special damages when those damages are “generally foreseeable.”

UCC 2-715(2)(a): What the seller “should have known.”

Ayres-Gertner: Least cost avoider

Person who can negate chance of damages for the lowest cost

If contractor tell courier of the risk, courier will charge more. But that’s OK, because he now has more liability

Penalty Default:

If the miller doesn’t say anything to the carrier and there is a breach, the miller gets nothing.

Penalty Default punishes one side for not communicating the risks.

Miller has the information but the carrier does not.

Disclosure passes the risk on to the carrier and will likely raise the price but this is economical.

Armstrong v. Bangor Mill Supply Corp.

How is this case distinguishable from the Hadley case:

Machine shop breached in this case whereas it was the currier in the last case.

Machine shop work is generally urgent because it is in the business of fixing things that are required for operation

If fixing crank shafts is part of your business, then you should have some idea of the implications arising from a broken crank shaft.

Disproportionate Recovery Limitation:

Restatement §351(3) (Disproportionate compensation)

Ct may limit damages for foreseeable loss by excluding recovery for loss of profits to avoid disproportionate compensation. Only allows for lost profits in reliance

Rule: damages may be limited if disproportionate

For exam:

UCC doesn’t address disproportionality.

Use Lamkins case.

Lamkins v. International Harvester Co.

Tacit Agreement Standard – REJECTED

Farmer lost $450 in profits b/c tractor seller didn’t install $25 light that would allow work to be done at night. Ct barred recovery b/c seller did not tacitly consent to be bound for extraordinary damages.UCC rejects the Tacit Agreement tes.

Clark v. Marsiglia

Facts:

 Painting cleaner continues to finish the cleaning job even though the owner of the painting asked him to stop the cleaning.Trial court: Instructs the jury that the cleaner had a right to finish it, and to recover the whole value of his labor and for the materials furnished.Appellate Court:Says that the cleaner was obligated to stop working when the owner asked him to stop and the cleaner was able to recover for the work performed up to the point when the cleaner was asked to stop.Trying to prevent injustice: the repair man can be made whole when he is fully recompensed for his part performance and indemnified for his loss in respect to the part left unexecuted.UCCWhere the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner.Times when it would be wise not to stop work:When you think that you can finish and coverCommercial value in your finished product.

Schiavi Mobile Homes, Inc. v. Gironda

Trial Judge:

Says the father’s offer to buy the house was vague and conditional…thus, the seller had not failed to try to mitigate.Appellate Court:Duty to mitigate…duty to act reasonably.Father’s offer was reasonable enough to have at least warranted the seller’s follow up on the offer.UCC Rule:  Non-breaching party has the duty to take all reasonable steps to mitigate damages.

Attempt to resell in a commercially reasonable manner.

Mitigation of Damages Limitation (Employment Contract)

Rule: Wrongfully discharged employee must reasonably try to secure other employment that is not different or inferior in kind to one of which he was deprived.

Policy: Motivate employees to find other work and discourage laziness

Minimizes unnecessary litigation.

Parker v. 20th Century Fox Films:

Facts: K for actress to appear in movie.  Producer breaches but offers actress a part in another movie.  2nd movie is a different genre (It is not a musical, it’s a Western). Also, Parker won’t have approval rights and it will be filmed in Australia.  Actress fails to accept 2nd movie offer and sues for breach.  Producer claims she failed to mitigate damages.

Held:Actress can collect:  in mitigation of damages, employee only has duty to try to secure other employment not different or inferior to 1st

Policies underlying the Rule:

Too severe to demand of a person that he attempt to find and perform work for which he has no training or expertise.

Inferior in rank or position or more menial or arduous

Dissent: Thinks that the test should be not whether any differences exist btw 2 jobs, but whether the differences are substantial enough (specifically the approval rights) to constitute differences in the kind of employment and to render 2nd offer inferior.

Hillman – Keeping the deal together after material breach

Reasonability does not require that the injured party deal further with breaching party.

In Re Worldcom, Inc.

Bankruptcy: Point is to allow the company to reemerge and to allow them to forego some of their responsibilities.

Facts: MCI argues that he could have mitigated the damages from MCI’s breach. Jordan argues that he is a lost volume seller – like a car dealership

Court finds in favor of MCI:

Basically, court says that he would not have sought another endorsement had MCI not breached.

Trying to purchase a franchise

Was trying to avoid diluting his brand

Plaintiff Must Show:

Could have entered into another contract without breach

WOULD have entered into another contract without breach