CONTRACTS AND SALES QUESTION Peter responded to an advertisement placed by Della, a dentist, seeking a dental hygienist. After an interview, Della offered Peter the job and said she would either: () pay him $50,000 per year; or (2) pay him $40,000 per year and agree to convey to him a parcel of land, worth about $50,000, if he would agree to work for her for three consecutive years. Peter accepted the offer and said, I d like to go with the second option, but I would like a commitment for an additional three years after the first three. Della said, Good, I d like you to start next week. After Peter started work, Della handed him a letter she had signed which stated only that he had agreed to work as a dental hygienist at a salary of $40,000 per year. After Peter had worked for two years and nine months, Della decided that she would sell the parcel of land and not convey it to him. Even though she had always been satisfied with his work, she fired him. What rights does Peter have and what remedies might he obtain as to employment and the parcel of land? Discuss.
ANSWER TO QUESTION GOVERNING LAW The U.C.C. governs contracts for the sale of goods, and the common law governs all other contracts. These facts concern an employment and land sale contract; therefore, the common law applies. CONTRACT FORMATION The next issue is whether a valid contract was formed between Della and Peter. To form a valid contract there must be mutual assent (e.g., offer and acceptance) and consideration. Offer An offer is: (i) an expression of a promise, undertaking, or commitment to enter into a contract, (ii) with certain and definite terms, (iii) communicated to an offeree. The fact that an offer gives the offeree a choice of terms does not make it too uncertain. When the offeree accepts, the terms of the contract will be certain. Here, Della expressed a commitment to enter into a contract with Peter by stating that she would pay him $50,000 per year or $40,000 per year plus a parcel of land if he would agree to work for her for three years. The terms are sufficiently definite and certain since they include the nature of the work to be performed and the duration of the work. Della spoke directly to Peter. Thus, Della made a valid contract offer. Acceptance An acceptance is a manifestation of assent to the terms of the offer. The common law requires the absolute and unequivocal acceptance of each and every term of the offer (the mirror image rule). Any different or additional terms in the acceptance make the response a rejection and counteroffer. Peter purported to accept Della s offer of $40,000 per year and the parcel of land in exchange for his promise to work for her, but he changed the term of employment from three years to six. Thus, the purported acceptance was ineffective; instead, it constituted a rejection of Della s offer and a counteroffer to Della. Della s response of Good, I d like you to start next week, will likely be deemed an acceptance of Peter s counteroffer since by this communication Della seems to have accepted all of Peter s terms. Alternatively, Peter may argue that he accepted Della s three-year offer and then made a separate offer for an additional three years of employment, which Della accepted. This would result in two separate contracts, which would affect Peter s remedies. Consideration A contract requires consideration on both sides. Consideration is a bargained-for exchange involving legal value. One promise can be consideration for another promise. Here, Della promises to pay money and land, and Peter promises to work. Thus, there is consideration on both sides of the contract. [An examinee might raise the parol evidence rule as a bar to Peter s proving the terms of the contract. Under the parol evidence rule, if the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, the writing is an integration. Any other expressions written or oral made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing. Here, the only writing is the signed letter Della gave Peter when he started work stating that he had agreed to work as a hygienist for $40,000 per year. All of the terms Peter wishes to prove were agreed to prior to Della s letter. However, the parol evidence rule requires that the parties (not one party) intend a writing to be the final expression of their agreement. That is not the case here. There was no writing that the parties intended to memorialize their agreement.
CONTRACTS AND SALES There was only the letter prepared and signed by one party. Thus, the parol evidence rule does not come into play.] BREACH OF CONTRACT If a promisor is under an absolute duty to perform that has not been discharged, failure to perform in accordance with the contract terms is a breach of contract. The nonbreaching party must show that he is willing and able to perform but for the breaching party s failure to perform. Here, Della was under an absolute duty to pay Peter for six years work and to convey the tract of land to him. By firing him without cause and refusing to convey the land to him, Della breached the contract. Material Breach The next issue is whether the breach is material or minor. If the obligee has not received the substantial benefit of his bargain, the breach is considered material. If the breach is material, the nonbreaching party may treat the contract as at an end and may sue immediately for remedies for breach. Here, Peter did not receive the substantial benefit of his bargain. The total value of what he was to receive under the contract was $240,000 ($40,000 per year for six years) plus land worth $50,000. At the time of the breach, he had been paid at most $20,000. Thus, the breach was material, and Peter may sue Della. Modification Argument Della may argue that she did not breach the contract because her letter setting forth the agreement simply as one for employment for $40,000 per year was an attempted modification of the oral agreement. However, to be valid, a modification of a common law contract must be agreed to by both parties and be supported by consideration. Here, nothing indicates that Peter agreed to the modification (generally silence is not acceptance), and no consideration supports the purported agreement to modify. Thus a modification argument will fail, and Della will be found to be in breach. STATUTE OF FRAUDS Contracts Not Performable Within One Year and Interests in Land To be enforceable, certain agreements must be evidenced by a writing signed by the party sought to be bound. Agreements that must be evidenced by a writing under the Statute of Frauds include promises that by their terms cannot be completed within one year and agreements concerning an interest in land. Here, the contract involves a multi-year employment agreement, which by its terms cannot be completed within one year. Furthermore, the agreement involves title to a parcel of land. Therefore, to be enforceable against Della, the agreement must be evidenced by a writing signed by Della. Sufficiency of the Writing The contract itself need not be in writing, but there must be one or more writings signed by the party to be bound that reflect the essential terms of the contract. A memorandum signed by the party to be charged is adequate. The memorandum need not contain all of the terms of the contract but must evidence that there is a contract and state the essential terms with reasonable certainty. Which terms are essential depends on the circumstances, including the nature of the dispute between the parties. However, in the case of a land sale contract, a description of the land, the parties, and price are required. A contract for services must include the nature of the services and the duration. If the writing does not include the essential terms, it does not satisfy the Statute of Frauds and extrinsic evidence cannot be submitted to supply the missing terms. Since Peter is suing Della, Della is the party to be charged. The only writing signed by Della is the letter stating that Peter agreed to work as a dental hygienist at a salary of $40,000 per year.
The memorandum does not state the term of employment or describe the tract of land. Thus, essential terms are missing, and the writing cannot satisfy the Statute of Frauds. Performance Exceptions to Statute of Frauds Do Not Apply Full performance of a contract that cannot be performed within one year will usually take the contract out of the Statute of Frauds. Here, Peter did not fully complete his performance, so that exception does not apply. Similarly, there is an exception for part performance of land sale contracts if the performance unequivocally indicates a contract for the sale of land and two of the following are present: payment (in whole or part), possession, and valuable improvements. Here, Peter s performance was not unequivocal because it was more consistent with an employment contract than a land sale contract. Moreover, he had only one of the two necessary factors for the exception partial payment. Therefore, the part performance exception to the Statute of Frauds does not apply to this contract. Estoppel Estoppel is sometimes applied in cases where it would be inequitable to allow the Statute of Frauds to defeat a meritorious claim. When a defendant s conduct or promise foreseeably induces a plaintiff to change position in reliance on an oral agreement, courts may use the doctrine of promissory estoppel to remove the contract completely from the Statute of Frauds. Thus, to prevent injustice, the defendant is estopped from raising it as a defense. Here, Della told Peter that she would pay him $50,000 per year or $40,000 per year for six years and at the end of the third year she would convey the $50,000 tract of land to him. Della intended by her statement to induce Peter to work at the lower rate and thus could reasonably expect her promise to induce his action or forbearance. Peter did in fact detrimentally rely. Based on Della s promise, Peter did work for Della at the reduced rate of $40,000 per year for nearly three years; i.e., he changed position in reliance on her promise. Therefore, the court could find that Della is estopped from raising the Statute of Frauds as defense to Peter s suit. [An examinee might discuss equitable estoppel. It is available when there has been a fraudulent misrepresentation. A fraudulent misrepresentation requires that, at the time the statement was made, the speaker knew the assertion was untrue or lacked confidence the assertion was true and presented it as fact. Here, the facts state that Della changed her mind; so the statement was not fraudulent when made, and an equitable estoppel argument will fail.] DAMAGES If the court finds that Della is estopped from asserting the Statute of Frauds, Peter will be able to recover damages for Della s breach of contract. Damages should put the nonbreaching party in the position he would have been in had the contract been performed. For breach by an employer of an employment contract, the standard measure for the employee s damages is the full contract price. Here, Della, the employer, breached the employment contract by firing Peter. Thus, assuming that the contract was for six years, Peter should be able to collect the $40,000 per year salary for the remaining three years ($20,000) and three months ($0,000), as well as damages for the value of the land parcel. The standard measure of damages for breach of a land sale contract is the difference between the contract price and the fair market value of the land. So, Peter will be entitled to the return of his payment (roughly $30,000 $0,000 per year for three years) and the difference between the contract price ($30,000) and the fair market value of property (presumably $50,000). Thus, Peter should be able to recover $50,000 for the loss of the property ($30,000 returned payment plus $20,000 for difference between contract price and fair market value) in addition to the $30,000 in lost salary.
CONTRACTS AND SALES Avoidable Damages A nonbreaching party cannot recover avoidable damages. At issue is whether Peter could have procured a comparable job in the same locale. Therefore, Della may be able to reduce the damages owed to Peter if she can show that Peter could have taken a comparable job in the same locale. If she can show that such a job was available, Peter s damages will be reduced by the amount he would have earned from that comparable job. EQUITABLE REMEDIES If the court does not accept Peter s estoppel argument, the Statute of Frauds will prevent him from recovering damages at law, but he can still pursue equitable remedies (see, e.g., quasi-contract below). Specific Performance Specific performance is an equitable remedy in which a court orders a breaching party to perform that which he has promised to perform under the contract. It is available when damages are an inadequate remedy. Generally, employment contracts are not specifically enforceable by either the employee or the employer because of the difficulty of enforcement and the adequacy of damages. Thus, Peter cannot get specific performance as to his employment contract. He can, however, seek to specifically enforce the part of the contract involving the parcel of land. Land sale contracts are always specifically enforceable by the buyer because land is unique and damages are therefore inadequate. Statute of Frauds For an equity court to decree specific performance, there must be an enforceable contract. Because contracts involving an interest in land must be in writing to be enforced, Peter s contract falls within the Statute of Frauds. Since the contract is not in writing, Peter will have to show that an exception to the Statute applies. As discussed above, Peter most likely will convince the court that Della should be estopped from asserting the Statute of Frauds defense because she induced Peter to change his position in reliance on her promise. Conveyance to Bona Fide Purchaser If the land in a land sale contract has been sold to another who purchased it for value and in good faith (i.e., a bona fide purchaser), the right to specific performance is cut off. At issue here is whether Della has sold the property and, if so, whether the buyer is a bona fide purchaser. Specific performance is an equitable remedy, and a bona fide purchaser s equities are as strong as Peter s. Thus, even though Peter may be entitled to specific performance, if Della has sold the property to a bona fide purchaser, Peter will not be able to recover the tract of land. QUASI-CONTRACT Even if the contract were found to be unenforceable, Peter may be entitled to some type of restitutionary recovery. Restitution is a remedy used to prevent unjust enrichment. When a defendant receives a benefit as a result of an unenforceable contract, the defendant may be required to pay for her unjust gain. If services have been performed, the general measure of recovery is the value of the services. The contract rate is admissible as evidence of the value of services, but it is not conclusive. The value may be more or less. Here, Peter performed his employment services for Della s benefit. If those services are valued at more than $40,000 per year, to prevent Della s unjust enrichment, Peter will be entitled to recover the difference in the amount paid and the value of his services even if his services are valued at more than $50,000 per year or the value of the land.
QUESTION GOVERNING LAW Issue: Whether this is a contract for the sale of goods Rules: The common law governs all contracts other than those for the sale of goods Analysis and Conclusion: This is an employment and land sale contract, and the common law applies CONTRACT FORMATION Issue: Whether Peter accepted Della s offer or whether Della accepted Peter s offer Rules: To form a contract there must be mutual assent (e.g., offer and acceptance) and consideration Offer: (i) An offer is an expression of willingness to enter into a contract with definite and certain terms communicated to an offeree. (ii) The fact that an offer gives the offeree a choice of terms does not make it too uncertain. When the offeree accepts, the terms of the contract will be certain. (one point for each enumerated statement) 2 Acceptance: (i) Bonus: An acceptance is a manifestation of assent to the terms of the offer. (ii) The common law requires unequivocal acceptance of every term of the offer (mirror image rule); any different or additional terms in the acceptance make the response a rejection and counteroffer (one point for each enumerated statement) 2 Consideration: (i) Consideration is a bargained-for exchange involving legal value. (ii) A contract requires consideration on both sides. (iii) Bonus: One promise can be consideration for another promise (one point for each enumerated statement) 3 Analysis: (i) Della expressed a commitment to enter into a contract with Peter by stating that she would pay him $50,000 per year or $40,000 per year plus a parcel of land if he would agree to work for her for three years. (ii) The terms are sufficiently definite and certain, and she spoke directly to Peter. (iii) Thus, Della made a valid contract offer. (one point for each enumerated statement) 3 (i) Peter purported to accept Della s offer of $40,000 per year and the parcel of land in exchange for his promise to work for her. (ii) But Peter changed the term of employment from three years to six, which results in a rejection of Della s offer and a counteroffer. (iii) Della s response of Good, I d like you to start next week, will likely be deemed an acceptance of Peter s counteroffer. (one point for each enumerated statement) 3 Alternative analysis: (i) Peter accepted Della s three-year offer and then made a separate offer for an additional three years of employment, which Della accepted. (ii) This would result in two separate contracts. (one point for each enumerated statement) 2 Here, Della promises to pay money and land, and Peter promises to work; thus, there is consideration on both sides of the contract. Conclusion: There was an offer, acceptance, and consideration on both sides; thus a contract was formed BREACH OF CONTRACT Issue: Whether Peter received the substantial benefit of his bargain Rules: If a promisor is under an absolute duty to perform that has not been discharged, failure to perform in accordance with the contract terms is a breach of contract
CONTRACTS AND SALES Bonus: The nonbreaching party must show that he is willing and able to perform but for the breaching party s failure to perform (i) If the obligee has not received the substantial benefit of his bargain, the breach is considered material. (ii) If the breach is material, the nonbreaching party may treat the contract as at an end and may sue immediately for remedies for breach. (one point for each enumerated statement) 2 Analysis: (i) Della was under an absolute duty to pay Peter for six years work and to convey the tract of land to him. (ii) By firing him without cause and failing to convey the land to him, Della breached the contract. (iii) The total value of what Peter was to receive under the contract was $240,000 ($40,000 per year for six years) plus land worth $50,000. At the time of the breach, he had been paid at most $20,000. (one point for each enumerated statement) 3 Conclusion: Peter did not receive the substantial benefit of his bargain; thus, the breach was material, and Peter may sue Della ALTERNATIVE ANALYSIS MODIFICATION Rules: A modification of a common law contract must be: (i) agreed to by both parties, and (ii) supported by consideration (one point for each enumerated statement) 2 Analysis: (i) Della presented Peter with a signed letter setting forth the agreement simply as one for employment for $40,000 per year. (ii) Nothing indicates that Peter agreed to a modification (generally silence is not acceptance), and (iii) no consideration supports the purported agreement to modify. (one point for each enumerated statement) 3 Conclusion: A modification argument will fail, and Della will be found to be in breach STATUTE OF FRAUDS Issues: Whether the contract is within the Statute of Frauds and whether the writing signed by Della would satisfy the Statute Rules: (i) Agreements within the Statute of Frauds include promises that by their terms cannot be completed within one year and agreements concerning an interest in land. (ii) There must be one or more writings signed by the party to be bound. (iii) The writing must evidence that there is a contract and state the essential terms with reasonable certainty. (iv) Bonus: Which terms are essential depends on the circumstances, including the nature of the dispute between the parties. (v) In the case of a land sale contract, a description of the land, the parties, and price are required. (vi) If the writing does not include the essential terms, it does not satisfy the Statute of Frauds and extrinsic evidence cannot be submitted to supply the missing terms. (one point for each enumerated statement) 6 Analysis: (i) The contract involves a multi-year employment agreement, which by its terms cannot be completed within one year and also involves title to a parcel of land. (ii) To be enforceable against Della, the agreement must be evidenced by a writing signed by Della. (iii) The only writing signed by Della is the letter stating that Peter agreed to work as a dental hygienist at a salary of $40,000 per year. (iv) The memorandum does not state the term of employment or describe the tract of land. (one point for each enumerated statement) 4 Conclusion: The essential terms are missing, and thus the writing cannot satisfy the Statute of Frauds PERFORMANCE EXCEPTION TO THE STATUTE OF FRAUDS Issues: Whether Peter s performance is sufficient to take the contract out of the Statute and whether Della could be estopped from asserting the Statute Rules: Bonus: Full performance of a contract that cannot be performed within one year will usually take the contract out of the Statute of Frauds
There is also an exception for part performance of land sale contracts if (i) the performance unequivocally indicates a contract for the sale of land and (ii) two of the following are present: payment (in whole or part), possession, and valuable improvements (one point for each enumerated statement) 2 Analysis: Bonus: Peter did not fully complete his performance, so the full performance exception for service contracts does not apply Peter s performance with respect to the land was not unequivocal (it was more consistent with an employment contract than a land sale contract) and he had only one of the two necessary factors for the part performance exception partial payment Conclusion: The part performance exception to the Statute of Frauds does not apply to this contract ESTOPPEL Issue: Whether Peter relied to his detriment on Della s promise or was fraudulently induced to make the agreement Rules: If a defendant s conduct or promise foreseeably induces a plaintiff to change position in reliance on an oral agreement, courts may use the doctrine of estoppel to remove the contract completely from the Statute of Frauds (i) Equitable estoppel is also available when there has been a fraudulent misrepresentation. (ii) A fraudulent misrepresentation requires that, at the time the statement was made, the speaker intended to induce the other party to enter the agreement and knew the assertion was untrue. (one point for each enumerated statement) 2 Analysis: Della falsely (and possibly intentionally) told Peter that she would pay him $40,000 per year for six years and at the end of the third year she would convey the $50,000 tract of land to him. Note: This point would be the same if the examinee found there were two contracts, but it might apply only to the first three-year contract. The facts state that Della changed her mind; so the statement was not fraudulent when made and equitable estoppel will not apply (i) Della intended by her statement to induce Peter to work at the lower rate and thus could reasonably expect her promise to induce his action or forbearance. (ii) Based on Della s promise, Peter worked for Della at the reduced rate of $40,000 per year for nearly three years; i.e., he changed position in reliance on her promise. (iii) Peter may invoke promissory estoppel. (one point for each enumerated statement) Conclusion: The court could find that Della is estopped from raising the Statute of Frauds as defense to Peter s suit DAMAGES Issue: The measure of damages for breach of an employment contract and a land sale contract Rules: Bonus: Damages should put the nonbreaching party in the position he would have been in had the contract been performed For breach by an employer of an employment contract, the standard measure for the employee s damages is the full contract price The standard measure of damages for breach of a land sale contract is the difference between the contract price and the fair market value of the land (i) A nonbreaching party cannot recover avoidable damages. (ii) If a breaching employer can prove that a comparable job in the same locale was available, contract damages for lost wages will be reduced by the wages that the plaintiff would have received from that comparable job. (one point for each enumerated statement) 2
CONTRACTS AND SALES Analysis: Assuming that the employment contract was for six years, Peter should be able to collect the $40,000 per year salary for the remaining three years ($20,000) and three months ($0,000), as well as damages for the value of the land parcel For the land, Peter will be entitled to the return of his payment (roughly $30,000 $0,000 per year for three years) and the difference between the contract price ($30,000) and the fair market value of property (presumably $50,000) If Della can show that Peter could have taken a comparable job in the same locale, Peter s damages will be reduced by the amount he would have earned from that comparable job Conclusion: Assuming no avoidable damages, Peter should be able to recover $50,000 for the loss of the property in addition to the $30,000 in lost salary Even if the examinee determined there were two separate contracts, the damages should be the same for breach of both contracts EQUITABLE REMEDIES SPECIFIC PERFORMANCE Issue: Whether Peter can force Della to rehire him or convey parcel Rules: Bonus: Specific performance is an equitable remedy in which a court orders a breaching party to perform that which he has promised to perform under the contract (i) Specific performance is available when damages are an inadequate remedy. (ii) Generally, employment contracts are not specifically enforceable. (one point for each enumerated statement) 2 (i) Land sale contracts are always specifically enforceable by the buyer because land is unique and damages are therefore inadequate. (ii) If the land in a land sale contract has been sold to another who purchased it for value and in good faith (i.e., a bona fide purchaser), the right to specific performance is cut off. (one point for each enumerated statement) 2 Analysis: Peter cannot get specific performance of his employment contract Because contracts involving an interest in land must be in writing to be enforced, Peter will have to show that an exception to the Statute applies to get specific performance of the land sale contract As discussed above, Peter most likely will convince the court that Della should be estopped from asserting the Statute of Frauds defense because she induced Peter to change his position in reliance on her promise (Points awarded only once; see Statute of Frauds, above) 0 Bonus: Specific performance is an equitable remedy, and a bona fide purchaser s equities are as strong as Peter s Even though Peter may be entitled to specific performance, if Della has sold the property to a bona fide purchaser, Peter will not be able to recover the tract of land Conclusion: Peter cannot get specific performance as to his employment contract, but he can seek to specifically enforce the land sale contract QUASI-CONTRACT Issue: Whether Peter can recover in restitution if the contract is unenforceable Rules: (i) Bonus: Restitution is a remedy used to prevent unjust enrichment. (ii) When a defendant receives a benefit as a result of an unenforceable contract, the defendant may be required to pay for unjust gain; (iii) if services have been performed, the general measure of recovery is the value of the services. (iv) Bonus: The contract rate is admissible as evidence of the value of services, but the value may be more or less. (one point for each enumerated statement) 4
Analysis: Peter performed his employment services for Della s benefit. If Peter s services are valued at more than $40,000 per year, to prevent Della s unjust enrichment, Peter can recover the difference in the amount paid and the value of his services even if his services are valued at more than $50,000 per year or more than the value of the land. Conclusion: If the contract is unenforceable, Peter may be entitled to recover the difference via restitution PASSING SCALE Raw Score 0-4 Significantly below passing 5-8 Below passing 9-28 Slightly below passing 29-38 Passing 39-49 Above passing 50+ Significantly above passing