IV.A. The economics of contracts

IV.B. Making a contract (consideration; offer and acceptance; mutual mistake; unilateral contracts; implied contracts)
1. Consideration
    *Hamer v. Sidway 124 N.Y. 538 (1891) (Consideration or Intent as Basis of Enforcement)
    nRicketts v. Scothorn, 57 Neb. 51, 77 N.W. 365 (1898) provides an example of a contract without consideration, enforced on grounds of reliance. "Having intentionally influenced the plaintiff to alter her position for the worse on the faith of the note being paid when due, it would be grossly inequitable to permit the maker, or his executor, to resist payment on the ground that the promise was given without consideration."
2. Meeting of the minds (Offer and acceptance)
    yMinneapolis and St. Louis Railway v. Columbus Rolling Mill [from Marks--clear offer and acceptance case]
2.a. Mutual mistake
    *Sherwood v. Walker. 66 mich. 568, 33 N.W. 919 (1887) "there was some evidence that Rose's sale price included her value if pregnant."  => should have been enforced. Possibly so even without evidence since owner is more likely to be knowledgeable. (P104)
    raffles v. wichelhaus 2 H. & C. 906, 159 End. Rep. 375 (Ex, 1864) -- two ships of the same name.
    nColfax Envelope Corp. Local No. 458-33m, 20 F.3d 750 (7th cir. 1994). Lays out clearly what a meeting of a mind must be. It is by Posner and updates Sherwood v. Walker.

Unilateral contracts:
    *Broadnax v. Ledbetter, 99 S.W. 1111 (Tex. 1907) --a real case on whether someone is entitled to a reward if he did not know it had been offered; found the offer unenforceable.
    nGlover v. Jewish War Veterans of US 68 A.2d 233 (1949). The parents of the girlfriend of a murder suspect gave information about the suspect's whereabouts which lead to his arrest. The court found that the parents were not entitled to the reward that had been offered because it is "impossible for an offeree actually to assent to an offer unless he knows of its existence." Similar to broadnax but offers fewer arguments that raise economic issues.
Implied contracts
    *Cotnam v. Wisdom, 104 S.W. 164 (Ark. 1907) is a case where a doctor rendered emergency services to an unconscious payment, who died without recovering consciousness.
    nIn re Crisan Estate, 107 N. W.2d 907 (Mich. 1961) is a similar case involving a hospital. Farnsworth, in whose Contracts I found these examples, comments that "The reader who wonders what effect the patient's religious scruples regarding medical treatment might have will have to be content with the Michigan court's comment that "there is surprisingly little case authority to be found" in this area. (p. 104 fn 27)] Currently, doctor can bill. [basically the same case, but some confusing extra language about public hospitals and relevant code.]

IV.C. Enforcing a contract (incompetence; third-party effects; fraud; duress; bargaining power; impossibility; unconscionability)
    nBowling v. Sperry, 133 Ind.App. 692, 184 N.E.2d 901 (1962) is a case where a minor was allowed not only to disaffirm a contract (for purchasing a car) but to get his money back. [Short and clear, but a marginal econ issue, so doubtful]
    nHeights Realty, LTD. v. Phillips, 106 N.M. 692, 749 P.2d 77 (1988) is a case where an exclusive listing contract between a mental incompetent and a broker was held invalid. [Also short and clear, but also marginal, although it's a more subtle issue than age, and does make use of the "clear and convincing evidence" standard.]
    nSinnar v. Le Roy, 44 Wash.2d 728, 270 P.2d 800 (1954) is a case where a contract was not enforced because "the parties contemplated the use of means other than legal to accomplish the end desired." [hard to follow because of reversed roles of plaintiff and respondent and failure of opinion to refer to the parties by name]
    mGoodier v. Hamilton 172 Wash. 60; 19 P.2d 392; (1933). Precedent cited by Sinnar v. Le Roy, and a clearer example of a case in which a contract won't be enforced if it is illegal.
    *Laidlaw v Organ, 15 U.S. 178 (1817). See also the discussion of the case in Anthony T. Kronman, "Mistake, Disclosure, Information, and the Law of Contracts, 7 J. Leg. Stud. 1, 9-18 (1978). Organ's victory induces rent seeking. 169: But it encourages the quick spread of information. "If the Louisiana Supreme Court had ruled in favor of Laidlaw rather than Organ, and consistently followed the same rule in other cases, the result would have been less speculation and more unstable prices for agricultural commodities."
    170: so speculators produce valuable information, but the value does not correspond to the size of the profit.
    P110: organ learned of end of war of 1812 early. laidlaw tried to back out of tobacco contract. Supreme Ct said no. 111: Getting information is not free, and organ's transaction helped move market toward new equilibrium.
    *Stambovsky v. Ackley: 169 A.D.2d 254; 572 N.Y.S.2d 672 (1991) "We do not want a system in which people who happen to have information highly relevant to the value of what they are selling... have an incentive to withhold it...."
    m-Love v. Elliott, 350 So. 2d 93 (Fla. App. 1977) is a case where Russell fraudulently got Mrs. Elliott, who was illiterate, to sign by her mark a deed conveying a much larger mineral interest in her property than she had agreed to sell. Russell then recorded his deed and sold his interest. The buyer was held to have good title, the court holding that a deed procured by fraud, unlike a forged deed, could be used to pass title to a bona fide purchaser. [also required a quick request to rescind and that did not happen]
    nCumberland Capital Corp. v. Robinette, 331 So. 2d 709 (Ala. App. 1976) On the other hand held that a signature procured by deceiving the grantor about what he was signing counted as a forgery.
    m+Harding v. Ja Laur Corp., 20 Md. App. 209 , 315 A. 2d 132 (1974) gives a similar result for a slightly different fraud.--this one discusses the distinction between fraud and forgery; good example of bona fide purchaser.
    m-Weaver v. American Oil Co., 257 Ind. 458, 276 N.E.2d 144 (1971) is a case where a contract was found unenforceable in part on the basis of unequal bargaining power. -- good example of unconscionable terms
    yAlaska Packers Assn. v. Domenico U.S. Circuit Court of Appeals, Ninth Circuit 117 F. 99 (1902) (Formation Defenses: Coercion, or Absence of Consideration) -- more in the nature of duress
    mAustin Instrument Inc. v. Loral Corp., 29 N.Y.2d 124, 272 N.E.2d 253 (1971) is a case where a firm obtained refund of a price increase, which it had agreed to pay under pressure, on grounds of economic duress. The case does not fit our analysis of the sinking ship, since the "emergency" was the result, not of an external emergency, but of the supplier threatening to breach its contract if it did not get the higher price. Arguably this is closer to the case of the mugger. [not clear that it differs much from alaska packers--file questions suggest it might but I don't see how, except that Austin asked for future contract too.]
    COMMENTS AND QUESTIONS 1. There was an element of "self help" in Loral's behavior toward Austin. What was it? Was it justified, as held by Justice Fuld in his opinion? 2. Can you discern differences between the behavior of Austin, and the behavior of the crew members in the Alaska Packers case?
    nHenningsen v. Bloomfield Motors, Inc., 32 N.J. 368 368, 161 A.2d 69 (1959) --bogus duress: "contracts of adhesion"--take it or leave it. --is an example of a contract invalidated by the court because "From the standpoint of the purchaser, there can be no arms length negotiating on the subject. ... He must take or leave the automobile on the warranty terms dictated by the maker." It is not duress, since the seller (Avis in Friedman) must persuade you to sign. [this case deals with attempts to get out of a warranty and is very long and exhaustive; not clear that it illustrates what Friedman is trying to show.]
    nCutler Corp. v. Latshaw, 374 Pa. 1, 97 A.2d 234 (1953), the court held unenforceable a warrant of attorney with confession of judgement, which was buried in fine print on the back of the agreement. The court dictated that "when a party to a contract seeks to bind the other with ... a device not ordinarily expected...the inclusion of such a...provision must appear in the body of the contract and cannot be incorporated by a casual reference with a designation not its own." [warrant of attorney with confession of judgment is a hard concept to cover]
    yGoebel v. Linn 47 Mich 489 (1882) (Commercial Impracticability and Allocation of Uncertainty): failure to deliver ice was upheld since performance threatened bankruptcy of supplier. Was not opportunistic--promisor's costs had risen suddenly [good contrast to alaska packers--here there was a new development]
    yWilliams v. Walker-Thomas Furniture Co., 350 E2d 445 (D.C. Cir. 1965). P117: "Suppose that an installment contract provides that a default will entitle the seller to repossess the good no matter how small the remaining unpaid balance of the buyer's note and to keep the full proceeds from reselling the good to someone else." [more famous case than weaver re unconscionability] unconscionability--"a voguish term for fraud, duress, and breach of fiduciary obligation."] dissent claims that "appellant knew what

IV.D. Interpreting a contract (filling gaps; assigning risk; contract conditions; substantial performance)
    yWood v. Duff-Gordon. 222 N.E. 88, 118 N.E. 214 (1917): "contract for an exclusive dealership contains an implied condition that the dealer shall use his best efforts to sell the supplier's product." -- good example of implied terms; designer
    Case law about landlord/tenants: "The general rule has been stated that in the absence of a lease provision to the contrary, a tenant is not relieved from the obligation to pay rent despite the total destruction of the leased premises:
    nMagaw v. Lambert, 3 Pa. 444 (1846) [too little of substance--just rules out some evidence]
    mHoy v. Holt, 91 Pa. 88 (1879) [OK example of being bound to a covenant despite a fire; but promised to deliver the item in good repair in the contract; confusing distinction between lease and bailment]
    m+Suydam v. Jacskon 54 N.Y. 450 (1873) illustrates initial rental agreements, with tenants liable
    y Manderino, J. in Albert M. Greenfield & Co. V. Kolea, Supreme Court of Pennsylvania, 1976, 475 Pa. 351 , 380 A.2d 758 [good case about excusing tenants in case of fire--present example; good passages about assigning risk]
    nCrow Lumber & Bldg. Materials Co. v. Washington County Library Bd., 428 S.W.2d 758 (Mo. App. 1968) discusses the common law rule, its exceptions, and legislative abrogation of the rule in some states. [repeats greenfield, and limited to lease of part of a building; greenfield is more comprehensive, but this is a good review of earlier holdings.]
    mBentley v. State. 73 Wis. 416, 41 N.W. 338 (1889) WI hired bentley to build wings for capital. sued when they collapsed. state lost since bentley had followed architect plans, and plans were faulty. state could have prevented loss more cheaply by more careful selection of architect. [issue over who is responsible for faulty plans--OK but a little turgid for the point to be made]
    yMorin Building Products Inc. v. Baystone Construction Inc. 717 F. 2d 413 (1983) (Reasonableness Standard in Acceptability of Performance) (7th Cir. 1983): acceptable paint job (P95n3) [Gibson v. Cranage, 39 Mich. 49 (1878)--personal portrait] [Posner case--reasonableness accepted because of vagueness of wording]
    mJacob & Youngs, Inc. v. Kent, 230 N.Y. 239, 129 N.E. 889 (1921) 133: "we predict (and find) that the law does not allow the promisee to excuse nonpayment by reason of a minor breach by the promisor. The law implicitly compares the cost of the promisee's self-help to the promisor with the promisee's damages and refuses to allow self-help when the former cost substantially exceeds the latter." [not sure it's that different from morin--it is not as clearly written and not worth it unless a clasic.

IV.E. Breaking a contract (consequential damages; penalties; liquidated damages; forfeitures; specific performance; self-help)
    yGroves v John Wunder Co. 205 Minn. 163 , 286 N.W. 235 (1939). The cost of the levelling would have been $60,000, the value of the land after leveling only $12,000. The court awarded damages of $60,000, thus giving the plaintiff the upper limit of the bargaining range (assuming he had bargained with the threat of insisting on specific performance of the contract), and making the defendant (assuming he had anticipated the result) indifferent between breaching and (inefficiently) performing. The case is discussed in Richard Posner, Economc Analysis of Law, 5th edn., p. 134. [key case showing poor economics]
    yPeevyhouse v. Garland Coal & Mining Co., 382 P. 2d 109 (Okla. 1963).121n: A result opposite to Groves [it seems both cases are decided incorrectly--wunder awards too much for a business property and peevyhouse awards too little for a residential property; ironic that the results are reversed]
    nAutotrol Corp. v. Continental Water Systems Corp., 918 F. 2d 689 (7th Cir. 1990). [Posner--lengthy discussion of allowable damages, fixed costs and substitute use of resources. Not irrelevant but too much tedious detail.]
    yHawkins v. McGee 84 N.H. 114 (1929) Expectations damages case--from paper chase; normally a tort case; covers expectations damages
    m-EVRA Corp. v. Swiss Bank Corp., 673 E2d 951 (7th Cir. 1982), for an application of this principle ("avoidable consequences") to the question whether a bank should be liable for consequential damages resuhing from a negligent failure to make an electronic funds transfer. (Consequential damages). [Posner, so clear, but a little long, but interesting. However, probably unnecessary given Hadley v. baxendale.]
    mFeinberg v. Pfeiffer Co., 322 S.W.2d 163 (Mo. App. 1959) and Ricketts v. Scothorn are detrimental reliance cases. The latter is closer to the example in the book. The plaintiff's grandfather had made a promise to her but, after his death, his executor refused to honor it; the court held for the plaintiff.] Tort law or refusing to honor informal contracts might be more efficient, the latter inducing more formality. [-- it shows detrimental reliance and cites Ricketts, rejected above. It contends that a detrimental reliance makes the contract enforceable; it does not contribute to the range of damages.]
    yHadley v Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854). Moral hazard pulls in opposite direction of risk spreading. [this basically illustrates that liability is limited to what damages can in general be anticipated, not special damages such as lost profits, unless specifically warned of special circumstances]
    nMaxton Builders, Inc. v. Lo Galbo, 68 N.Y.2d 373, 502 N.E.2d 184 (1986) is a case upholding liquidated damages where the amount was held reasonable, since the amount (a 10% penalty for breach of a contract to purchase real estate) was close to the underlying economic loss. [not novel enough--buyer failed to make a timely notice of intent to cancel, though it did make oral notice in time--written notice requirement is strictly enforced]
    yLake River Corp v. Carborundum Co. 769 F.2d 1284 (1985) is a case where a contract provision was held unenforceable because the court viewed it as a penalty rather than reimbursement of actual damages. [this could be the only liquidated damages case--if so, assign it. It's a Posner decision, well argued with some economic calculations.]
    yWalgreen Co. v. Sara Creek Property Co., 966 F.2d 273 (1992) -- Posner opinion; approved an injunction vs. damages for breach of contract [essentially a specific performance requirement]
    nCurtice Borthers Co. v. Catts, 72 N.J. Eq. 831, 66 A. 935 (1907).]: An example of a case where specific performance was granted for a contract not involving real estate (involving, in fact, the supplying of tomatoes, which were in short supply) [like walgreen--nice and short too]
    m+Ruxley Electronics & Construction Ltd. v. Forsyth, [1995] 3 All E. R. 268 (H. L.).: the defendant had contracted to build a swimming pool for the plaintiffs that would be 7 feet 6 inches deep at its deepest point. After the pool had been built the plaintiffs discovered that it was only 6 feet 9 inches deep at its deepest point and only 6 feet deep at the point where people would dive into the pool. The plaintiffs were awarded some damages, but less than the cost of rebuilding the pool to the contractually specified depth, which was what they had sought. [a good case--british, but considers consumer surplus; like morin but well argued--better than jacob & youngs--goes well with breaking a contract--use unless you can find a better example of expectation damages]