Contracts

The Trianon Bakery has a contract with Marie Antoinette to deliver 1,000 cakes for a Bastille Day Party Antoinette is conducting. Trianon fails to deliver, and Antoinette threatens to sue. Trianon says, "If you agree not to sue, I'll give you a strand of priceless black pearls." Antoinette agrees, and accepts the pearls. Both parties reasonably believe that Antoinette's claim may be valid. Assume that Antoinette's claim is in fact valid.Is Antoinette's promise not to pursue her claim enforceable? Now assume that Antoinette's claim is invalid, because the jurisdiction just shortened the statute of limitation for food-related contracts to five days, and that period has already lapsed. Assume further that neither Antoinette nor Trianon knows about this change, and that their lack of knowledge is reasonable. Is Antoinette's promise not to pursue her claim enforceable?

Answer Yes. The agreement is supported by consideration in the form of Antoinette's promise not to assert her claim. When a party promises to waive a valid claim, that is sufficient "detriment" to constitute consideration for the other party's promise to pay a settlement (here, the pearl necklace). According to most courts, yes. Even though Antoinette's claim is not valid — and she is therefore actually giving up nothing (i.e. suffering no "detriment") — the majority rule is that her promise not to sue will be sufficient consideration if (1) she had a bona fide subjective belief that her claim was valid, and (2) that belief was reasonable. Both appear to be the case under these facts. (Some courts, and the Restatement, go further: they'll enforce the settlement if it's the case that either the promisor had a subjective believe that her claim was valid, or such a belief would have been reasonable.)

What are your options when the other party in a contract is prospectively unable to perform?

It depends on whether or not there's a reasonable chance the other party can or will still perform. If not, you can sue immediately. If so, you'd have to wait until the time for performance is due; if it's not forthcoming, you'd sue for breach then. If you don't or can't sue immediately, that raises the question of whether the other party can reinstate the contract. The rule is that reinstatement is possible as long as the innocent party (you, in this example) hasn't detrimentally relied on the inability in the meantime.

What is a "liquidated damages clause"?

It is a contractual clause providing the amount of damages in the case of a contract breach. The three elements of a valid liquidated damages clause are: The clause must reasonably forecast the probable loss due to breach (as calculated at contract formation); Harm caused by breach must be difficult to calculate; and Parties must tailor the clause to the contract's circumstances (i.e., it cannot be a penalty). Mnemonic: CiDeR (Circumstances; Difficulty of calculation; Reasonable forecast). NOTE: There is no duty to mitigate damages under a valid liquidated damages clause. Note that with a valid liquidated damages clause, the innocent party may recover even if he didn't actually suffer any damages. NOTE: If the contract gives the party a choice of liquidated damages OR actual damages, the liquidated damages clause is probably unenforceable.

What does promissory estoppel do?

It takes the place of consideration. The most significant ramification of this is that it makes gratuitous promises enforceable. (It also does other things, like making the bids of subcontractors enforceable, but it's the enforceability of gratuitous promises that's the most important role of promissory estoppel.) N.B. If there's consideration, you don't need to rely on promissory estoppel! Promissory estoppel makes promises enforceable when there's no consideration to back them up. Say Gomez Addams tells Puggsley, "I know you want that $1,000 embalming kit. If you promise to cut the lawn every weekend this summer, I promise to give you the money to buy it." There's consideration because Gomez bargained for Puggsley's detriment (mowing the lawn). But let's say instead that Gomez said, "I know how much you want a new embalming kit. I'll give you $1,000 to buy it." If Puggsley relies on that promise and spends $1,000 of his own to buy the kit in anticipation of Gomez's gift and Gomez refuses to pay, Puggsley could enforce his promise on grounds of promissory estoppel. Gomez didn't bargain for Puggsley's detriment, but he should reasonably have anticipated it.

When is rescission and restitution an appropriate remedy?

It's most common when there's been misrepresentation or a mistake. However, it's possible for many of the reasons that constitute a defense to contract formation or a discharge of contractual duties (e.g., incapacity, fraud and duress, incapacity, failure of consideration, and the like). NOTE: If the basis of the rescission and restitution action is "mistake," it's important to distinguish between mutual and unilateral mistakes. If the mistake was mutual, rescission and restitution is available to both parties. If it's unilateral, the mistaken party may only rescind and seek restitution if one of two circumstances exist—either the other party knew or should have known about the mistake and took advantage of the mistake, or the mistake involves a basic assumption underlying the contract and the burden on the mistaken party of performing outweighs the burden on the other party if the contract is rescinded. NOTE: Most of the time the recovery under restitution will amount to the market value of the plaintiff's performance. N.B.: For rescission and restitution to apply, it must be possible to restore the parties to their pre-contract state.

Angie Joliett takes her "Golden Goddess" evening gown to the Jenny's Dry cleaners on Tuesday. She tells the manager, "If the dress isn't ready by Thursday, it's curtains!" Angie intends to wear the gown at the premier of her new movie, "Ashes in the Wind" on Thursday evening, a very important engagement. On the dry cleaning slip Angie writes, "Time is of the essence," and takes her copy. When Angie returns on Thursday, the dress is not ready. Is the dry cleaner's breach major (discharging Scarlett's duty to pay) or minor?

It's probably major, because courts of law view time delays where the parties expressly provide that "time is of the essence" as major breaches, forgiving the other party's duty of performance. At equity, the general rule is the same, but equity courts will also take into account whether or not any damage was caused by the delay, whether the breach was willful, and whether denying payment would result in outright forfeiture. Note that the parties need not expressly provide that "time is of the essence," where the purpose of the contract and positions of the parties indicate that it is (although such a breach generally will be considered minor, meriting only damages and not excuse of performance).

What are the basic elements of valid consideration for a bilateral contract?

Legal value (detriment to promisee or benefit to promisor); and Bargained-for exchange. NOTE: Bargained-for exchange means the detriment must induce the promise and the promise must induce the detriment—thus, each party's promise is the consideration for the other party's promise. If one party's detriment occurs in reliance on the other's promise, but there is no bargained-for exchange, the promise is enforceable due to "promissory estoppel" (in spite of the lack of consideration). NOTE: Although there need only be, in theory, detriment or benefit, in practice most courts require both.

Does an offeree accept an offer to enter into a bilateral contract by performing?

No, an offeree accepts a bilateral contract offer by promising to perform. It's a unilateral contract offer that's accepted through performance. Note that where the offer is ambiguous as to whether it's seeking a unilateral or bilateral contract, the offeree has her choice of performing or promising to perform. Under the UCC §2-206, an offer to buy goods that is ambiguous as to means of acceptance can be accepted either by a prompt promise to ship or prompt shipment.

The New World Cruise Company hires Christopher Columbus to perform a publicity stunt for them—setting sail due West to discover America, in return for which New World will pay $5,000 and a lifetime supply of dramamine. Columbus agrees. Just before Columbus sets sail, New World says, "We'll name the capital of Ohio after you if you go through with this." Columbus discovers America and collects his $5,000 and dramamine. Can Columbus enforce New World's promise to name Ohio's capital after him at common law? (Assume New World has the authority to do so.)

No, because New World's subsequent promise was not supported by consideration—a bargained-for exchange and either detriment to the promisee or benefit to the promisor. Columbus was already obligated to discover America, and a promise to perform a pre-existing duty does not involve a detriment to him. RELATED ISSUE: Say Queen Isabella, instead of New World, had offered to name Ohio's capital after Columbus (with the authority to do so). Some jurisdictions would enforce Isabella's promise because Columbus' pre-existing duty was to a third party—New World—and not Isabella. NOTE: The UCC does not recognize the pre-existing duty rule, but instead allows binding modifications without consideration for transactions involving goods (UCC §2-209(1)), as long as the modifications are undertaken in good faith.

Princess promises to sell her golden goose to Fred for $200 "unless I change my mind." Can Fred enforce Princess's promise?

No, because Princess' promise is illusory. An illusory promise is one unsupported by consideration due to one party's completely unrestricted right to renege on her promise. Here, there is no restriction whatsoever on Princess' freedom of action—she can change her mind at will. As such, her promise is illusory and unenforceable.

Ima Glamore, owner of the Goddess of Odd-Sizes Shoe Store, and Slick Rick are chatting. Ima Glamore comments, "I'm planning on selling my designer diamond studded pumps for $500." Slick Rick says, "Here's my check. I accept." Could a contract result?

No, because a reasonable person would conclude that Ima Glamore's statement was merely a statement of intent and made no promise. An offer requires the present intention to enter into a contract; here, Ima Glamore did not intend to create in Slick Rick the immediate power of acceptance—as such, no contract results.

The Ring-Around-The-Collar Shirt Store contracts to buy 1,000 shirts from the Triangle Shirt Company, delivery April 25. On April 15, arsonists set fire to Triangle, destroying it. In a jurisdiction where such a claim can be pursued immediately, may Ring sue Triangle due to a prospective inability to perform?

No, because prospective inability requires that the inability be the result of the party's own actions. Here, arsonists set fire to Triangle. As a result, Triangle's duty to perform will be excused due to impossibility.

George Washington's friend Benny Arnold tells him, "If you walk across the street with me now and go into the hardware store, I'll buy you an axe." Washington crosses the street and enters the store. Arnold reneges. Has Arnold breached a contract?

No, because there was no consideration, and promises without consideration are generally unenforceable. These facts highlight the difference between: (a) consideration, and (b) a condition on a gift. In these kinds of cases, you have to look at whether the detriment in question is something the promisor bargained for (a requirement for consideration). In other words, did the promisee's detriment motivate the promisor to make the promise? Here, Arnold wasn't really motivated by a desire to have Washington cross the street and enter the store; instead, these acts were merely a condition to facilitate Arnold's making of the purchase. Since Arnold didn't bargain for Washington's crossing the street, there was no consideration for Arnold's promise. Therefore, that promise was an unenforceable promise to make a gift.

Julius is holding a stag party for his buddy Mark and hires Cleo to perform cartwheels at the bash. The party is set for October 15, with Cleo to be paid $250 after her performance. She calls Julius on September 15 and announces she has retired and will not perform at his party. Must Julius wait until October 15 to file suit for breach of contract?

No, due to Cleo's anticipatory repudiation—her advance, unequivocal refusal to perform her contractual duties. N.B.: Julius must immediately try to mitigate his damages (i.e., by seeking another performer).

Loch Ness owns the Ness Cafe, a tavern. He offers to buy "All the alcohol I need next year" from the Boozitupp Liquor Wholesaler. Before Boozitupp accepts, Prohibition is enacted and the sale of alcohol becomes illegal. Can Boozitupp still accept Loch Ness' offer?

No, due to intervening illegality, which terminates the offer. Rest. 2d §§35, 36. RELATED ISSUE: Had the sale of alcohol become illegal before Loch Ness made the offer, the offer would be invalid; had it become illegal after Boozitupp accepted, the contract would be void due to impossibility.

Alexander the Great throws a birthday party for his mom, Mrs. the Great. In between mouthfuls of cake and ice cream, washed down with cheap champagne, Alexander writes on a sheet of his stationery, "In consideration of today being Mom's birthday, I promise to give her Italy." Mrs. the Great's eyes light up. Is Alex's promise enforceable?

No, unfortunately for Mrs. the Great. Promises are generally not enforceable without consideration. In order for consideration to exist, the promisor, Alex, has to bargain for a benefit to him (or detriment to the promisee) in exchange for his promise. Although he uses the word "consideration" here, his words are a statement of sentiment, not a recital of legal consideration — he's not bargaining for anything from his mother in return for his promise. Since there's no bargain, there's no consideration to back up Alex's promise, and it's unenforceable.

Nero is a big fan of professional basketball. His favorite players are Lebron James, Michael Jordan, and Kobe Bryant. Nero finds out that his friend, Romulus, has tickets to the NBA playoffs; if his favorite team wins their next two games, they'll be in the playoffs. Nero tells Romulus, "If the team makes it to the playoffs, I'll buy your tickets for $250." Romulus accepts. Does Nero's promise fail for lack of consideration?

No. A promise unsupported by consideration in the form of an unrestricted right to renege is an "illusory promise," and is not enforceable. However, here, the promise isn't illusory, it's conditional—the obligation(s) of one or both parties is triggered only by the occurrence of some named condition.

Elmer Fudd hires the Loonytoon Construction Co. to build a hunting lodge and resort, the Whatsup Dock Inn, for $500,000. Fudd wants the lodge done in time for hunting season, July 1. The contract provides that if the lodge is not done by June 1, Loonytoon is liable for liquidated damages of $10,000. Will the liquidated damages clause be upheld?

No. A valid liquidated damages clause requires a reasonable forecast of the loss caused by breach. Although the parties have considerable latitude in their forecast, the clause here does not differentiate between a minor delay and a major one, so it is invalid. It should have measured the damages by the lateness of completion (i.e., $1,000 per week past deadline). Note that a valid liquidated damages clause does not stop the wronged party from pursuing other types of relief (e.g., specific performance). It just limits his damage claim.

Socrates offers to sell his collection of Great Philosophers bubble gum cards to Plato for $20. Plato offers $15 for them. At common law, is Socrates' offer still valid?

No. According to the Rest. 2d §38, a counteroffer terminates the original offer. This is the "mirror image" rule. UCC VIEW: Under UCC §2-207, between merchants only, the addition of terms or alteration of others does not, in some cases, terminate the offer. RELATED ISSUE: If Plato had said, "I am keeping your $20 offer under advisement. Would you be interested in taking $15 and an autographed Cleveland Indians baseball instead?", the offer would still be open, because Plato expressly reserved it. This is known as an "inquiry into terms."

Lion Hart is walking through the woods when he steps on a thorn. He languishes in pain for hours, screaming. Furdley Naturelover walks by and sees Lion's predicament. Acting as a good samaritan, without any expectation of payment, Furdley removes the thorn. Lion, immensely relieved, says, "Boy, am I grateful. I'm going to send you $1,000 a month as long as I live." Is Lion's promise supported by consideration?

No. Consideration requires a bargained-for exchange. If the promisee's detriment occurred before the promise was made, then the promisor could not have bargained for that detriment. Here, Furdley has already performed by pulling out the thorn, so his performance wasn't bargained for in exchange for Lion's promise to pay him $1,000 a month. As such, Lion's promise is not supported by consideration. (But the promise might be enforceable without consideration, especially if Furdley somehow relied on the promise; see the next chapter.)

Scarlett owns a saw mill. Cal Carpetbagger contracts to deliver four tons of pine logs to the saw mill. Carpetbagger fails to deliver the logs as promised. May Scarlett shut down the mill and collect damages?

No. She must try to mitigate her damages by buying logs elsewhere. If she refuses to, her damages will be reduced by the amount she could have saved through mitigation.

In its advertising circular, the My Way Mart advertises wash and wear interview suits for $25.99. Is this an offer?

No. Such ads generally are construed as invitations for offers, disseminating prices at which the seller will receive offers. They are not offers because the quantity term is missing and, thus, there is no clear offeree. (As such, there is no "power of acceptance" in a reader of the ad, the exercise of which would create a contract.) N.B.: In rare cases, if the terms are sufficiently definite (most importantly, quantity) and the offeree clearly identified (i.e., "first come, first served"), the ad will be construed as an offer creating the power of acceptance in the one of the general public who satisfies the requirements (e.g., shows up first).

Lincoln tells Johnson that he intends to offer Davis his season ticket to Ford's Theater for $200. Davis overhears Lincoln's comment, walks up, and says, "I accept." Is there a contract between Lincoln and Davis?

No. The offer must be communicated in the manner the offeror intended to create a power of acceptance in the offeree. RELATED ISSUE: Say Lincoln had written the offer in a letter and decided he didn't want to make the offer after all. His secretary picked up the letter and mailed it to Davis, an honest mistake on the secretary's part. The offer would be valid because it was made the way Lincoln had intended, even though he didn't intend to make an offer. (Note that Davis would have to be objectively unaware of the mistake.) This protects the reasonable expectation of the offeree. It would not hold if, say, the letter were stolen by a thief, Booth, who mailed it to Davis—in that instance, no offer would result.

Pavlov offers to sell his laboratory equipment to Fetchitt Rover. They argue about terms for a while and then Fetchitt says, "Well, assuming we can iron out the details later, I accept your offer." Is there a contract?

No. This is an "agreement to agree," and not a valid contract, because there has not been an unequivocal acceptance and there would be no basis on which to grant relief. As such, the offer has neither been accepted nor rejected.

Does a valid liquidated damages clause bar all other available remedies?

No; it only limits the claim for damages. The nonbreaching party may still seek other types of relief (e.g., rescission and restitution, specific performance, and reformation).

Lawd Baron is hiking on his property one day and stumbles into a hidden cave, which is stuffed with ancient treasure. He runs home and calls his fiancé, Mia Lady. She is thrilled, and he says, "Naturally, I'll split it with you." As a result of the find, Baron is fabulously wealthy and he welches on his promise to Lady. Is the promise enforceable due to promissory estoppel?

Not on the facts here, because Lady did not suffer a detriment in reliance on Baron's promise. Without reliance, there is no promissory estoppel.

If a party renders "substantial performance" under a contract, the other party has to perform under the contract as well. So it's pretty important to figure out what constitutes "substantial performance." How do you go about it?

The Rest. 2d §275 looks to these six criteria, to be taken together (paying particular attention to the factors most critical to each case): To what extent has the injured party received benefits? Can the injured party adequately be compensated in damages? Is the breaching party "close" to full performance? Will the breaching party face great hardship if termination is permitted? How willful is the breach? How great is the certainty of completion? Mnemonic: REACH CurFeW (Received benefits; Adequately Compensated; Hardship; Certainty of completion; Full performance; Willful). N.B.: Regardless of these criteria, if the breach is considered willful (knowing or in bad faith), most courts would decide there is no substantial performance! However, if the willfulness concerns a trivial condition, courts will ignore it. Rest. 2d, §§237, Comment d; 241.

Leonard and Adrienne, good friends, were playing pool, watching sports and drinking beer at their local tavern, and having a lovely time. The pool table was in a back room, about twenty meters from the bar itself, which was surrounded by thirsty patrons clamoring for the bartender's attention. When they finished their beers, Leonard said to Adrienne, "I don't want to wade through that crowd, but if you are willing to go up to the bar and get me a beer, you can buy one for yourself on my tab." As Adrienne stepped out of the pool room and toward the bar, Leonard began to wonder whether he had just bound himself by contract to buy Adrienne a beer. Did he?

The answer turns on whether Leonard made Adrienne a conditional gift (not a contract) or entered into a bargained-for exchange (and thus a contract). With a conditional gift, the promisor intends to give a gift; however, the promisee must perform an action (or forbearance) in order to receive the benefit of the gift. In a bargained-for exchange, the promisor intends to make a trade with the promisee, not give her a gift, through the "reciprocal conventional inducement" described by Justice Holmes. The facts presented here make for a close case. On the one hand, Leonard seems to be buying a beer for his good friend out of kindness and generosity, and the physical layout of the tavern simply requires Adrienne to go up to the bar and get it. In this way, the present case is like Williston's tramp. On the other hand, Leonard is asking Adrienne to do some work—wade through the large crowd around the bar—in exchange for her beer. He expressly said that he didn't want to do it himself, suggesting that he really is demanding consideration from Adrienne in exchange for the beer. This is a close case but the better answer is probably that Leonard has indeed bound himself by contract here.

What are the elements of promissory estoppel?

Under Restatement of Contracts §90, promissory estoppel exists when: Someone makes a promise; Which he should reasonably expect; Will lead to the promisee's action or forbearance; The promisee does in fact justifiably rely on the promise to his detriment; and Injustice can be avoided only by enforcing of the promise. NOTE: The court needn't enforce the promise completely; it can enforce it to the extent necessary to avoid injustice. NOTE: Promissory estoppel replaces consideration where the promisee's detriment was not bargained for (as long as the above elements are present).

Under the UCC, what are the buyer's general remedies when the seller breaches a contract for the sale of goods?

Under UCC, the buyer can: Cancel. "Cover" (i.e., buy substitute goods and recover difference between their price and market price). (Note that the buyer must attempt to cover, as mitigation; if the buyer does not attempt to cover, his damages will be limited to the difference between contract price and market value. He may also be entitled to incidental or consequential damages, if appropriate.) If he has not "covered," he may recover damages for non-delivery (i.e., the difference between market price at the time the buyer learned of the breach, and the contract price—plus incidentals AND consequentials). If all or part of the goods were paid for, the buyer can recover goods identified to the contract. Get specific performance (under §2-716).

Fred and Sally Nabors own several ocean-view properties in Hampton Estates. Mike and Linda Needs are friends of the Nabors and have frequently expressed their desire to purchase one of the properties, called Suite Sunrise. During dinner last night, the couples discussed the Suite Sunrise property over several bottles of wine. Terms of the sale were discussed. At the conclusion of the evening, Fred Nabors wrote the following on an unused dinner napkin, "We, Fred and Sally Nabors, agree to sell Suite Sunrise to Mike and Linda Needs for $75,000." Signed: Fred and Sally Nabors. Fred then handed the napkin to Mike and said, "Good Luck" Mike responded, "Thanks, I accept." The next day, Mike presented a check to Fred for $75,000. Fred laughed and said that he was joking and drunk and refused to sell. Was Fred's offer valid?

Yes, Fred manifested the willingness to enter into a contract with the Needs by drafting the terms on the offer in writing. If Mike and Linda reasonably believed that Fred and Sally intended to sell the property after their lengthy conversation and frequently expressed interest in the property, notwithstanding the consumption of wine during dinner, then the offer will be deemed valid and Mike's acceptance binding on Fred.

Can offers made in jest ever be the basis of a contract?

Yes, as long as a reasonable person in the offeree's shoes would understand the offer to create a power of acceptance in him/her. If this objective standard is not met, there's no offer. NOTE: If the offeree knows or has reason to know that the offeror is joking, then there's no offer.

The Camelot Army/Navy Store puts the following ad in a local newspaper: "Sale—Saturday only—singing sword, Excalibur. Was $500, now only $24. First come, first served. Will open at 10 a.m." Arthur King sees the ad, camps out in front of Camelot Friday night, and is the first one in on Saturday morning. He says, "I accept your offer for Excalibur. Here's my $24." Is there a binding agreement?

Yes, because Camelot's offer was specific as to quantity and price, stated to whom the offer was made ("first come"), and, in general, was worded as a "promise." As such, it created an immediate power of acceptance in Arthur King, and when he accepted, a contract was formed. Note that most ads are not as definite as this one, and, as such, typically are considered only invitations for offers or intentions to sell.

Maddy Steward is the host of a daily television craft show called Stamp and Craft. Maddy, visited a local craft show and marveled at the artistic ability of Ella Bean who creates personalized greeting cards. Ella is an attorney, who creates greeting cards to relieve the stress of her legal job. Maddy promises to pay Ella an annual annuity in exchange for her consulting services as a full time creative consultant for the card making segments of her show, if Ella will agree to leave the law business behind. Relying on this, Ella quits her job and begins to work for Maddy. Maddy however is a task master and the stress of the position causes Ella's creativity to wane. Maddy continues to pay the annuity for five years, during which time Ella's bar license lapsed. Is Maddy obligated to continue paying Ella under the doctrine of promissory estoppel?

Yes, because all the elements are satisfied. There was a promise that Maddy should reasonably have expected Ella to rely on, she did rely on it to her detriment, and enforcing the promise is the only way to avoid injustice. Here, the key is that Ella can no longer get her old job back, so the only way to avoid injustice is by enforcing the promise.

Does a missing quantity term invalidate a contract?

Yes, because without a quantity term there is no reasonably certain basis on which to give an appropriate remedy. This is true at common law and under the UCC. N.B.: A quantity term need not be an express quantity in the contract itself, as long as it can be definitely ascertained. Thus, requirements contracts (e.g., "We will buy all the flanges we need next year from you") or output contracts (e.g., "We will buy all the sunshine salad you produce next year") are valid.

Mark Antony promises to buy a new barge for his girlfriend, Cleopatra, as a token of his love for her. He shows her the brochure of the model he has chosen and tells her the boat will arrive in five days. Cleo goes out and leases a berth on the Nile, hires a crew, purchases barge accessories, and, most importantly, buys a new sailing wardrobe. Antony changes his mind and never gives her the gift. Can Cleo enforce the promise? If so, what will the damages be?

Yes, but she'll only recover for her reasonable expenditures. Despite the lack of consideration, Antony's promise is enforceable due to promissory estoppel — Cleo's reliance to her detriment on Antony's promise was both reasonable and foreseeable. Note, however, that a court will generally only enforce a promise under the p.e. doctrine to the extent necessary to avoid injustice. That generally means that a court will award reliance damages, rather than specific performance. So here, Antony will not have to buy Cleo a barge, but he will have to reimburse her for all her out-of-pocket expenses. Also, a court might find that although Cleo's basic reliance was reasonable, some of her particular expenditures were not; in that case she wouldn't recover for the unreasonable ones.

Emperor Maximillian of Mexico knows that President Monroe has long wanted Texas and they've dabbled with the idea of a sale. However, all the talk's come to nothing. Max is at a White House reception and walks up to Monroe. He slaps Monroe on the back and says, "Tell you what.. .I've been thinking about this for a while. I don't particularly like the weather in Texas and I know you want the land, so I'm going to give Texas to you." Monroe says, "Are you kidding?" Max says, "Absolutely not." When Monroe calls the following week, Max reiterates the promise. Monroe is thrilled. He moves 500,000 settlers into Texas, redesigns the American flag, commissions a new map, and establishes a football team in Dallas, all of which costs about $10 million. Maximillian changes his mind. May Monroe enforce the promise? (Assume justifiable reliance.)

Yes, if we assume that international agreements can be made in this informal way. Most American courts would enforce the agreement under the doctrine of promissory estoppel. Maximillian made a promise on which he should reasonably have expected Monroe to rely, Monroe justifiably relied on the promise to his detriment, and injustice can only be avoided by enforcing it. NOTE: Promissory estoppel overcomes the Statute of Frauds requirements (among other things, the Statute of Frauds requires that contracts for the sale of land have to be in writing). NOTE: Courts have some discretion in fashioning remedies for promissory estoppel. They needn't enforce the entire promise if justice doesn't require it. So here, a judge could order Max to pay the $10 million that Monroe spent on Texas, instead of requiring that he turn over the deed to Texas.

Einstein, intending his statement as a joke, tells Oppenheimer, "I'll sell you my chemistry set for $50." Oppenheimer, who has no idea that the set's plutonium alone is worth many times the $50 price (or that Einstein is joking) says, "I accept." Is there a contract?

Yes, probably. If a reasonable person in Oppenheimer's position would have no reason to know of the value of the plutonium (or any other reason for thinking that Einstein was joking), then under the objective theory of contracts, Einstein's offer would create an immediate power of acceptance in Oppenheimer. The fact that Einstein actually was joking is irrelevant; it's the appearance of a valid offer that counts. If, however, Oppenheimer knew that Einstein had a very dry sense of humor, and realized at the time that Einstein was joking, there'd be no valid offer and thus no contract. (An "offer" which the offeree knows is made in jest is not a valid offer, regardless of what any other "reasonable person" might think.)

Alexandra promises to give Bob $100 if he stops drinking for one week. If Bob does so, may he enforce Alexandra's promise?

Yes. Alexandra is the promisor and Bob is the promisee. The consideration that makes the contract valid (and the promise thus enforceable) is Bob's refraining from drinking at Alexandra's request (so it's "bargained for"). Thus, Alexandra owes Bob $100. NOTE: Be sure to distinguish the consideration here from a mere condition to receiving a gift. What differentiates these facts from a conditional gift is that there is no relationship between quitting drinking and receiving $100; there's no logical reason why Alexandra requested that Bob stop drinking to receive the $100. NOTE: Benefit to the promisor does not require economic benefit. Peace of mind or personal satisfaction is sufficient.

Pierre agrees to sell Jacques a rare truffle-snuffing pig, knowing that Jacques intends to harvest truffles in time for the profitable summer season, in which Jacques intends to make a $10,000 profit. Pierre phones Jacques in April to tell him he plans to keep the pig and hog the entire truffle harvest for himself. Jacques is unable to find a replacement pig. In his suit against Pierre, is he likely to be able to recover the $10,000 lost profits?

Yes. Consequential damages, like lost profits, are appropriate where they are reasonably foreseeable to the breaching party at the time the contract was formed. Where the seller knows of special circumstances facing the buyer, which make the buyer incapable of mitigation in the event of breach, the seller will be liable for losses due to the special circumstances. That's the case here; Pierre knew the truffle season was short, that Jacques would be unlikely to find a replacement pig, and what Jacques' profit would likely be. As a result, Pierre is liable for Jacques' $ 10,000 lost profit.

Are there any limitations placed on a requirements or output contract?

Yes. No quantity requested by a buyer in a requirements contract or provided by the seller in an output contract can be unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirement. UCC §2-306(1). If an estimate of output or requirement is included in the agreement, no quantity unreasonably disproportionate to it may be tendered by the seller or demanded by the buyer. Any miminum or maximum set by the agreement is a clear indication of the extent of elasticity intended by the parties. UCC §2-306(1), Official Comment #3.

Einstein, as a joke, tells Oppenheimer, "I'll sell you my chemistry set for $15." Oppenheimer, who has no idea the plutonium alone is worth many times $15, says, "I accept." Could there be a valid contract?

Yes. Oppenheimer could reasonably have assumed that Einstein's statement created an immediate power of acceptance in him. The fact that Einstein was joking is irrelevant; it's the appearance of a valid offer that counts. RELATED ISSUE: Say that Oppenheimer knew Einstein had a very dry sense of humor and realized Einstein was joking, even though he sounded serious. Then there would be no offer. That's because if the offeree knows or should know that the offeror isn't serious, there's no offer.

Magellan offers to buy the unusual birdbath Pisarro keeps in his front yard for $400, providing Pisarro gets it to Magellan's house by Saturday. Pisarro says, "Well, I'm not at all fond of your terms, but OK." Does a contract exist?

Yes. Pisarro's acceptance is called a "grumbling acceptance"—he has not offered different terms, but merely expressed his dislike for those Magellan offered. However, because his acceptance is valid apart from the "grumbling," a contract results. The test is an objective one: Would a reasonable person assume the original offer had been rejected?

Rock Racer's Aston Martin luxury sports car is stolen and he offers $20,000 for its return. Suzie Sleuth, an amateur detective, locates and retrieves the car, which was abandoned in an alley near the airport, after learning of the reward and returns it to Rock (after taking it for an innocent spin around the block). Is Suzie entitled to the reward?

Yes. Rock's offer was to the public in general. Because Suzie knew of the offer, was the first to respond, and was under no pre-existing legal duty to return the Aston Martin, she is entitled to the reward. NOTE: As an offer for a reward, the offeror is looking for performance in return, not a return promise. As such, it seeks a unilateral contract. The offer of a reward is one of the very few clear-cut instances in which an offer could not be construed as seeking a bilateral contract.

If a party substantially performs under a contract, is she entitled to any payment at all?

Yes. She'll be entitled to the contract price less the amount necessary to complete anything left undone and correct any defects. RELATED ISSUE: If a party doesn't substantially perform, she may still have a right to recover something. However, her recovery won't be under the contract; it will be in "quasi-contract"—that is, she'll recover for the value of her performance that the other party retained (from the other party's perspective). And note that if her breach was willful, many courts won't allow her to recover anything.

The Discovery Boat Supply Wholesaler contracts to deliver 500 standard lifeboats to the Titanic Boat Company for $10,000. Discovery obtains the lifeboats, but when it tries to deliver the lifeboats to Titanic, Titanic wrongfully refuses to accept the shipment. Discovery places an ad for the lifeboats and sells them to the I-Can Canoe Co. for $10,000. Under the UCC, will Discovery be able to recover the cost of the ad from Titanic?

Yes. The cost of the ad and the costs of shipping the boats are recoverable as "incidental damages"—as storing, inspecting, and additional sales commission costs would be. Note that Discovery is not entitled to "compensatory" damages—reflecting the difference between contract and resale price—because it got the same price from I-Can. However, Titanic could be liable for Discovery's profit lost due to Titanic's breach under UCC §2-708(2). The section is applicable to businesses, whether retail, wholesale, or manufacturing, for which volume contributes significantly to sales.

Gerald promises to sell Jim N. E. Cricket a woodworking set "if and only if my son, Pinochet, enters my business." Is Gerald's promise enforceable?

Yes. The promise looks as though it might be an illusory promise—one unsupported by consideration due to one party's completely unrestricted right to renege on the promise. However, the promise here is actually a conditional promise, because the consideration— Pinochet joining the business—is not entirely within Gerald's control. As such, the promise is enforceable.

Hercules Manufacturing agrees to buy "all the thing-a-ma-bobs we need to produce our what-cha-ma-callits for the next year" from Zeus Metalworks. Zeus declines to deliver. Is Zeus bound? Assume instead that the agreement was for Hercules to buy "all the thing-a-ma-bobs we order for the next year." Is Zeus bound?

Yes. This is a typical "requirements" contract. Both requirements and output contracts are enforceable under the UCC, because they are deemed to be supported on both sides by consideration. This is so because the UCC imposes an implied obligation of good faith upon the parties, as well as one of exclusivity, in such output and requirements contracts. That is, Hercules has implicitly agreed to run his business in a good-faith way, so that he will continue to have a need for thing-a-ma-bobs. This (together with his agreement that he will not buy any thing-a-ma-bobs from anyone but Zeus), provides sufficient consideration to make the contract enforceable. Since Hercules has bound himself, Zeus' return promise is supported by consideration, making Zeus also bound. No. Under these facts, Hercules has not restricted his freedom in any way — he can choose to buy one unit, 100 or none. His promise is therefore illusory, and does not constitute consideration. Consequently, that promise cannot serve as consideration for Zeus' return promise, and Zeus is therefore not bound.

In determining whether an offer to enter into a contract has been made, is the context of the communication relevant?

Yes. Where the language itself is not definite, the relationship between the parties, prior practices, method of communication, and the like frequently can determine whether an offer has been made.

In determining whether an offer has been made, do you use a subjective standard (i.e., from the perspective of the offeror) or an objective standard (i.e., from a "reasonable person's" perspective)?

You use an objective standard. It is: Would a reasonable person in the offeree's shoes assume that the power of acceptance had been created in him? Note that this means that if the offeree knows or has reason to know that the offeror hasn't made an offer (e.g., he's joking), then there's no offer.

Princess Mary is about to get married and orders her wedding dress from the tailor who clothes her entire family, Savvy Row. The dress is to cost $3,000. When the dress is delivered, four days before the wedding, Mary is horrified to find that Savvy Row has cut the dress to the measurements of her grotesquely fat father, King Henry VIII, by mistake. She immediately ships the dress back and orders the same thing from another tailor, Saville-Bassoon. It costs her $5,000. Assuming Mary didn't pay Savvy Row anything up front, how much will she be able to recover from them in damages?

$2,000, which was the "cover" cost—that is, the additional cost Mary entailed by having to find substitute goods elsewhere.

How do you distinguish an offer for a bilateral contract from an offer for a unilateral contract?

An offer for a bilateral contract seeks a promise in return; an offer for a unilateral contract seeks performance in return. Note that almost all contracts, except for offers of rewards or offers in which the offeror expressly demands only performance in return, can be construed as bilateral contracts. This distinction is not as strictly maintained today as it used to be, because both the 2nd Restatement and the UCC have abandoned the strict bilateral/unilateral split.

What is an "offer"?

An offer is: A communication by the offeror; creating a reasonable expectation in the offeree; that offeror is willing to enter into a contract; on specified terms; such that offeree need only accept in order to form a contract. NOTE: The offeror must manifest an intent to be presently bound. It is important to distinguish an offer from a negotiation or offer to negotiate. The offer must have the language of a promise, definiteness as to essential terms, and be communicated to the offeree. FACTORS: In determining if there has been an offer, look to see if the communication is a promise. Consider language, circumstances, prior practices and relations of parties, method of communication, and industry custom. Language like "I offer" or "I promise" is typical; words like "I quote," "I'm asking," and "I'd consider" typically are words inviting negotiation (although they don't have to be).

What is an ambiguity?

Any word or terminology in a contract that is susceptible to multiple interpretations or meanings is by its very nature ambiguous. Once identified, extrinsic evidence is admissible to explain the meaning intended by the parties. Where the meaning intended by the parties differs, the party that offers a meaning to which the contract language or term is more reasonably susceptible in light of all of the evidence has a greater likelihood of acceptance by a trial court.

Ivor E. Keyes is a gifted pianist. On hearing him play, his beloved Aunt Charity determined to do something to help him advance his career. Ivor told her that he needed to get some training from a really fine pianist to improve his interpretation and style. He had contacted the celebrated Maestro Molto Bravissimo but had not engaged him as a teacher because he could not afford his fee of $150 an hour. Aunt Charity declared: "You shall have him as your teacher. I will send you a check for $15,000 tomorrow. That should cover 100 lessons." Ivor thanked her and said, "Auntie, if I ever make it to Carnegie Hall, I will get you the best seat in the house." She replied, "Yes, that will be nice, dear. I'll hold you to it." Do Ivor and Aunt Charity have a contract?

Aunt Charity clearly has suffered a detriment in promising to pay $15,000 to Ivor. However, this is nothing more than a gratuitous promise, like her promise to Chevy in Example 4, unless Ivor has given consideration in exchange for it. The only undertaking that could conceivably qualify as consideration is his assertion that he will get her the best seat in the house if he ever makes it to Carnegie Hall. (His implicit undertaking to use the money for piano instruction is best treated as nothing more than a condition of the gift and should not qualify as consideration.) It is not clear that Ivor's statement was really a serious promise at all. The context in which it was made and its tone suggest that it may have been nothing more than an expression of gratitude and hope for spectacular success. Even if it is a real promise, it has several problems. First, it is very vague. It does not make it clear what is meant by the "best seat"; nor does it specify the concert or concerts for which it will be obtained. Second, it is contingent on a very uncertain future event. A conditional promise could qualify as consideration unless the fulfillment of the condition is entirely at the will of the promisor or the condition is a sham because it could not possibly occur. Here the condition is not impossible, so not a sham, but it is remote enough to add doubt to its validity as true consideration. Third, unless Ivor can be interpreted to have promised a large number of free concerts, the value of his apparent consideration is disproportionately small in relation to Aunt Charity's promise. (It is worth even less than the face amount of a ticket because its value must be discounted to take account of the uncertainty of the condition occurring.) Courts normally do not evaluate the adequacy of consideration, and a court may decline to do so in this case. However, sometimes (especially when there are other indications of gratuitous intent) a court could take a significant discrepancy in values into account, and may find that the transaction is really not an exchange but a gift formalized by a nominal return. Finally, even if Ivor did make a promise and Aunt Charity accepted it by her response, it does not seem that his promise was in exchange for Aunt Charity's promise. He made it after she had already told him she would give him $15,000, so it cannot be said to have induced her promise. The basis for holding that Ivor gave consideration for Aunt Charity's promise is therefore quite thin, and the transaction really seems to be nothing more than a promise of a gift. An argument for consideration is not inconceivable, but it is shaky.

Ben Hur offers to sell his chariot to his cousin, Hardy Har Hur, for $400. Hardy Har accepts. What's the consideration in the contract?

Consideration requires bargained-for legal value. "Bargained-for" means the detriment must induce the promise, and the promise must induce the detriment. Ben's detriment = selling the chariot, prompted by Hardy Har's willingness to pay for it; Hardy Har's detriment = paying the $400, based on Ben's willingness to sell. Note that each party's promise is the consideration for the other party's promise.

What's the difference between promissory estoppel and consideration?

INn promissory estoppel, the promisor doesn't request the promisee's detriment; in consideration, on the other hand, the promisee's detriment is bargained for.

What do you call a promise that's not supported by consideration?

It depends on whether it's cloaked in terms that make it appear the promisor has committed himself. If it's just a naked promise ("I promise to give you my car"), then it's a gratuitous promise. If it's cloaked in terms of commitment that make it seem like there's consideration ("I promise to give you my car unless I decide not to move to Australia in August"), but the promisor has a completely unrestricted right to renege on his promise, then it's an illusory promise.

Hatfield offers to buy "some of McCoy's moonshine equipment for $100." Could a contract result?

No. Hatfield's offer is too vague. "Some of" does not create an offer sufficiently certain to be enforceable; a court could not supply the missing terms to fulfill the intent of the parties, and as such, there could be no contract. RELATED ISSUE: Suppose Hatfield instead said, "I'll pay you $100 for any one of your stills." That would be sufficiently definite, because it specifies one still. It is permissible to leave the offeree with a choice.

What are the two basic types of legal detriment?

Promisee does something he's not obligated to do (e.g., paint the promisor's fence); Promisee refrains from doing something he is entitled to do (e.g., give up smoking).

What is the Plain Meaning Rule?

The Plain Meaning Rule is a common-law rule of interpretation, which states that if a writing or term of a contract in question appears to be plain and unambiguous on the face, its meaning must be determined within the "four corners" of the contract without the use of extrinsic evidence. NOTE: The Plain Meaning Rule has been soundly criticized due to its lack of consideration of the surrounding circumstances and the verbal context in which language is expressed. However, it remains a viable basis for interpretation of contractual terms.

How do you distinguish a bargained-for legal detriment from a condition on a gift?

The distinction here focuses on whether a requested act is consideration or just a condition on receiving a gift. If it's consideration, the promise is enforceable; if it's just a necessary condition on receiving a gift, it's not. The way to tell the difference is to ask whether the defendant was bargaining for the act in question—would it benefit the promisor in any way? For instance, if Dagwood tells his neighbor,Herb Woodley, "Come over to my garage and I'll give you my hedge clippers," he's made a conditional gift; it's not an enforceable promise. That's because Herb coming over to the garage wouldn't benefit Dagwood; he wasn't bargaining for it. It's a necessary condition on Herb's receiving the hedge clippers. If instead Dagwood said, "Come over and trim my hedges and I'll give you my hedge clippers," then there is consideration, because Dagwood receives something he bargained for—getting his hedges trimmed. NOTE: The size of the requested detriment is relevant in deciding whether it's a condition or a bargained-for legal detriment. The smaller the requested detriment, the less likely it is that the detriment in question is what the promisor was bargaining for.

Under what circumstances can a repudiating party retract her repudiation?

The majority view is that the repudiation is retractable any time before the time the party is supposed to perform, unless: The innocent party has notified the wrongdoer that the repudiation is accepted; or The innocent party has changed position in detrimental reliance on the repudiation. NOTE: The retraction can be by words or actions. For example, let's say that Lincoln agrees to sell Fort Sumter to Davis. Two months before the transaction is set to take place, Lincoln sells Fort Sumter to Victoria. A month later, Lincoln buys it back from Victoria; therefore, he owns it when he's supposed to sell it to Davis. The repudiation would be retracted by action. NOTE: The same rule applies to reinstating a contract after a prospective inability to perform.

What is the consideration in a unilateral contract?

The promisee's continued performance constitutes consideration in a unilateral contract. Note that in a unilateral contract, there is no obligation on the offeree to perform; but if he does, the offeror is obligated to perform.

What is the rule on recoverability of damages from Hadley v. Baxendale?

The rule from Hadley v. Baxendale, followed by most states, is that money is recoverable for damages which: Necessarily, naturally, or probably resulted from the contract breach; or At the time of contract formation, may reasonably be within the contemplation of both contracting parties. Note that the damages under #1 are so-called "natural" damages. The damages under #2 are so-called "consequential" damages; they're unique to the circumstances of the plaintiff and only recoverable if foreseeable by the defendant at the time the contract was formed.

What are "requirements" and "output" contracts?

They're contracts where the quantity is measured by a party's requirements or output of a stated item. For instance, in a requirements contract, the buyer expressly agrees to buy all of his requirements of some item from a seller (e.g., "I promise to buy all the solar-powered flashlights I require next year from the Oxymoron Manufacturing Company"). In an output contract, the seller agrees to sell all of his output of a certain item to a buyer (e.g., "I promise to sell my entire output of recyclable bathroom tissue to the Earthsaver Store Chain"). The philosophical problem with requirements and output contracts is that they seem illusory; there doesn't seem to be any consideration. But in fact, the buyer (in a requirements contract) and the seller (in an output contract) do have their discretion limited and that's what supplies the consideration. In a requirements contract, the buyer suffers a detriment in the form of giving up the right to buy from others; in an output contract, the seller suffers a detriment by giving up the right to sell to others. Requirements and output contracts are enforceable as long as the parties act in good faith and the quantities involved are reasonably foreseeable at the time the contract is entered into. UCC §2-306.

How is a unilateral contract accepted?

Through performance. Compare this to a bilateral contract, which requires a return promise, not performance. Note that in a unilateral contract, only the offeree is bound to perform! NOTE: With a unilateral contract, the offeree need not notify the offeror of acceptance—he need only begin to perform. N.B.: There are very few situations in which an offer clearly seeks performance instead of a return promise. One clear case is the offer of a reward; another is where the offeror specifically limits the acceptance to performance. Most other offers could be construed as desiring a promise in return. UCC VIEW: Under UCC §2-206(1)(a), an offeree can accept a bilateral or unilateral contract by any reasonable means, unless the offer expressly and unambiguously states otherwise.

What is the aim of the damages remedy?

To place the non-breacher in the position he would have been in had the contract been fully performed. As a general rule, this means giving the plaintiff the amount of money reflecting the gains prevented and losses caused by the defendant's breach, less any savings made possible. Note that this rule is sometimes stated differently, focusing on three interests of the plaintiff: his expectation interest (the prospect of gain from the contract); his restitution interest (the return of benefits conferred on the defendant); and his reliance interest (reflecting his detriment in changing position in reliance on the defendant's promise). Under this formulation, the plaintiff will get expectation damages as a first choice. Where those damages are uncertain or nonexistent, either of the other two is available.