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Contracts
St. Louis University School of Law
Walsh, Nancy M.

CONTRACTS OUTLINE
 
I. Damages in General                                                                      2
II. Limitations on Damages                                                             4
                A. Remoteness/Foreseeability                                         4
                B. Uncertainty                                                                     5
                C. Avoidability                                                                   6
III. Liquidated Damages                                                                  8                                                                                                            IV. Specific Performance                                                                       11
                A. Land or Goods                                                               11
                B. Personal Services                                                          12
V. Restitution                                                                                       14
                A. On the Contract                                                             14
                B. For the Party in Breach                                              15                                                                                                                 C. Quasi-Contract                                                               16
VI. Offer and Acceptance                                                                17
A.      Objective Theory of Assent                                     17
B.      Preliminary Negotiations                                        18
C.      Agreements in Principle/ Letters of Intent          21
D.      Revoking an Offer                                                     21
E.      Valid Acceptance & Mirror Image                       22
F.       Acceptance by Correspondence                             23          
G.      Acceptance by Performance                                   23
H.      Acceptance By Partial Performance                    24
I.        Acceptance by Silence                                               25
J.       Acceptance in General                                             26
VII. Interpreting Assent                                                                    28
                A. Agreements to Agree                                                    28
                B. Ambiguous Terms                                                        28
                C. Filling In the Gaps                                                        30
                D. Illusory Promises                                                          31
VIII. Form Contracts/ Contracts of Adhesion                            33
                A. Form Contracts                                                             33
                B. UCC § 2-207 (Terms in Acceptance)                        34
                C. Battle of the Forms                                                       35
                D. Terms that Follow Later                                             35
IX. Writings as Evidence                                                                 36          
                A. Parol Evidence Rule                                                    36
                B. Statute of Frauds                                                           39
X. Consideration                                                                                43
                A. Consideration in General                                           43
                B. Past Consideration                                                       44
                C. Moral Consideration                                                   45
                D. Pre-Existing Duty Rule                                                45
XI. Reliance/Promissory Estoppel                                                48
 
I. Damages for Breach of Contract
 
Three “Damage Interests”
•Expectation [Benefit of the Bargain]: Put promisee in position he would have been in had the contract been performed:
                •Measure: Wealth of promisee if promise had been performed – Actual Wealth
•Reliance (losses incurred due to expectation): Put promisee in the position he would have been in had the contract never been made
•Restitution (e.g., down payment, deposit): Put the promisor back in the position he would have been in had the promise never been made
 
Second Restatement § 347: Measure of Damages in GeneralSubject to the limitations stated in §§ 350-53, the injured party has a right to damages based on his expectation interest as measured by (a) the loss in the value to him of the other party’s performance caused by its failure or deficiency, plus (b) any other loss, including incidental or consequential loss, caused by the breach, less (c) any cost or other loss that he has avoided by not having to perform. [Expectation]  
Damages=
                Plaintiff’s loss in value (what the plaintiff received from what was promised)
+
Any other loss

Any cost or loss that the plaintiff avoided by not having to perform
 
 
Expectation Damages=
                Loss in Value (contract price) + other loss (consequential/incidental damages – cost avoided – loss avoided (salvage                 value)
                                                OR
 
                Expected profit + costs incurred (main out of pocket) + other loss (collateral transactions/incidental reliance) – loss                 avoided
 
 
Reliance Damages=
                Out of pocket expenses/main/essential + collateral – salvage
 
                                ***Does not include lost profit
 
Incidental Reliance: money from casually related damages parties should have known would flow from the promisor’s breach
                – Other transactions you entered into based on reliance on initial contract
                – Damages you have to incur to fix problems caused by breach, i.e. travel costs
                **Harder to receive because more difficult to prove
 
Essential Reliance: money the promisee spent in order to fulfill their obligations of the contract
 
                **Must be reduced by losses they would have incurred in performance
 
 
 
Hypo: Voice lessons:
P signs up for lessons with D at a rate of $1500 for 28 hours
D cancels and P finds another teacher for $1800
                Damages= $300
Cases when P could have made a substitute transaction, but chose not to
What if P had not found a replacement? – Could still sue for difference between market
value (if higher) and the amount that would have been charged by D
Cases involving Lost Income that cannot be Recouped
Pupil (D) decides that she does not need lessons and backs out on her agreement
Teacher (P) cannot find another student
Payment of $1500
Cases when the P loses income, but also saves
If P would have had to pay for a piano accompanist at $600 (and could not find a replacement pupil), then the damages are $1500-$600= $900
*** Overhead/fixed expenses are not considered (ie. cost of renting the studio)
 
 
 
 
 
 
 
 
 
 
 
*See Pg. 71-72 for Damages Problems (Answers also in notes)
 
Hawkins v. McGee (The “Hairy Hand” Case) (63) (NH 1929)
Facts
P agreed to have hand operated on- doctor messed up skin graft procedure- P’s hand permanently deformed
Issue
What is owed (damages)?
Holding
Expectation damages = value of a “perfect hand” – hand that resulted
Rationale
Jury allowed to consider pain and suffering- corrected on appeal
Looked at earning potential of the P before v. after the surgery
D and P both knew that the doctor was aiming for a perfect result
*Court focused on Expectation Damages
 
 
 
Sullivan v. O’Connor (72) (Mass 1973)
Facts
D promised to perform plastic surgery on P’s nose. P had to undergo three surgeries and her appearance worsened. Her nose became deformed and these problems could not be corrected. P’s change of appearance did not result in loss of employment.
Issue
Whether P was entitled to anything other than out-of-pocket expenses (reliance).
Holding
Yes. Plaintiff was entitled to recover also for the worsening of her condition, and for the pain and suffering and mental distress involved in the third operation.
Rationale
If pain and suffering was reasonably foreseeable then you can recover for these damages. Unlike McGee this court closely related them to reliance damages in the sense that the pain and suffering didn’t exist before the parties entered into the agreement.
*Court focused on reliance damages
 
J.O. Hooker & Sons v. Roberts Cabinet Co.(78) (Miss. 1996)
Facts
P entered into contract with D to remove cabinets. D underestimated costs and demanded more money. There was a dispute over whose duty it was to dispose of the cabinets.
Issue
Whether the damages awarded by the jury were the result of bias, passion, and prejudice or against the weight of the evidence.
Holding
No, but the court issued a remittitur.
Rationale
Court is trying to apply expectation damages. It analyzed costs for Administrative time, storage of the cabinets, and the loss of profit in making its decision.
 
 
 
 
 
 
 
Tongish v. Thomas(86) (KS 1992)
Facts
Sale of seeds Tongish to Coop; Coop has resale contract with Bambino. Coops profits would have been the handling fee. Tongish breached due to market price increase
Issue
Whether damages should reflect the change in the market price [market price- contract price] (Expectation), or the loss in profit (Reliance)
Holding
Expectation damages awarded
Rationale
Bad faith breach- Tongish took advantage of the market increase and sold to another buyer
Encourages a more efficient market and discourages breaches in contracts
 
UCC §1-106: Remedies to be liberally administered so as to put Promisee in position he would be in had the contract been performed (General Expectancy)
 
UCC §2-105: “Goods” means all things, which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities, and things in action. “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in goods to be severed from realty.
 
§2-712: “Cover”; Buyers Procurement of Substitute Goods
(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 for those due from seller.
(2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages defined in §2-715 but less expenses saved in consequence of the seller’s breach
(3) Failure of the buyer to effect cover in this section does not bar him from any other remedy
**Cost of substitution to Promisee minus Contract Price (“Cover”)
 
§2-713: Buyer’s Damages for Non-Delivery (Pg. 92)
(1) Measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages but less expenses saved in consequence of the seller’s breach
**Market Price minus Contract Price, plus incidental damages
 
§2-715: Buyer’s Incidental and Consequential Damages
(1) Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt, transportation and ca

ct and breach
Issue
Whether D is liable for damages due to breach
Holding
Lost profits are too speculative, Expenses prior to contract- not recoverable- cannot rely on a promise which has not yet been made, Expenses between contract and breach (reliance) – recoverable , expenses incurred to gain compliance- not recoverable
Application
Today courts are more lenient about lost profits- in cases that involve P starts a business and D breaches contact which causes business to fail
P had the burden of showing damages
*General Rule: A party can recover only on damages, which naturally flow from and are the result of the act complained of.
**Profits are rejected as an item in calculation of damages because they are subject to too many contingencies and are too speculative
 
Second Restatement of Contracts §346: Availability of Damages(1) The injured party has a right to damages for any breach by a party against whom the contract is enforceable unless the claim for damages has been suspended or discharged. (2) If the breach caused no loss or if the amount of the loss is not proved under the rules stated in this Chapter, a small sum fixed without regard to the amount of loss will be awarded as nominal damages.
 
Second Restatement of Contracts §349: Damages Based on Reliance Interest
As an alternative to the measure of damages stated in § 347, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.
 
Second Restatement of Contracts §352: Uncertainty as a Limitation on Damages
Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty
 
Anglia Television v. Reed(125)(UK 1971)
Facts
D contracted to work on a TV/movie in the U.K. and later decided not to
Issue
Whether P can claim damages for expenses incurred before Reed’s contract was signed
Holding
Expenditures before and after contract made are recoverable- beyond reliance
Application
Usually a promisee can seek lost profits or wasted expenditures, but not both
P didn’t claim lost profits- too speculative (Expectation)
P instead sought lost expenditures (Reliance)
     * Expenditures both before and after contract was formed are recoverable – court is striving for expectation damages and assumes that the promisor reasonably knows that expenditures have been made and will be wasted
 
 
Mistletoe Express Service v. Locke(128) (TX 1988)
Facts
P enters into a contract for delivery service – purchase vehicles and ramp in reliance. P’s business activity, however, was a losing enterprise
Issue
Can a party in a losing enterprise gain reliance damages?
Holding
Reliance damages rewarded
Record contains no figures showing the amount of loss or how Locke calculated the loss
        *breaching party has the burden of proving that loss
Application
-Breaching party cannot claim that there would have been losses- this is just as speculative as proving profits.
-Reliance damages in the case of a losing contract (therefore burden is on the breaching party to prove the amount of loss the breachee would have sustained had the contract been kept and have it subtracted from the breachee’s reliance damages.
-Courts disagree as to whether pre and post contract expenditures should be awarded (Anglia), or just post contract expenditures (Dempsey)
-If party proves profit or loss would have resulted, the court will entertain such evidence. However, the default assumption is no profits/no loss
-Reliance rule (also used by Anglia and Mistletoe) allows a breacher to rebut the expenditures incurred by the breachee by showing that the expenditures would have been a loss anyway- means that the standard is not really reliance
-If it was really reliance, whether the expenditures would have been lost shouldn’t matter- The expenditures were made in reliance on the promise – therefore they should be recoverable
*Rule: Losses will be used to reduce reliance damages, but only if the defendant proves them.
Hypo:
–          What if: Reliance (P in situation of no surgery) – Cost of surgery, Earnings of P
–          What if: Restitution (D in situation of no surgery) – doctor pays P his earnings
Formula For Calculating Damages when Breach Occurs in the middle of a contract
Gross Profit: Contract Price- total direct cost (so far)
Plus: Reliance Expenditure
Less payments made by Breaching party, and salvage for resale = Recovery