Kethley v. Draughon Business College, Inc.
535 So. 2d 502, 1988 WL 126979, 1988 La. App. LEXIS 2471 (1988)
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Rule of Law:
When a contract is rescinded due to a mutual error concerning a material cause, such as compensation, a party may still recover damages under the doctrine of detrimental reliance if they reasonably relied on the other party's promise to their detriment.
Facts:
- In September 1986, Draughon Business College, Inc. hired E. Ray Kethley as a part-time instructor, with Kethley understanding his compensation to be $200 per course per month.
- For the 1986 fall quarter, Kethley taught one course, Legal Research I, and was paid $200 per month.
- In late December 1986, Draughon asked Kethley to teach two courses, Legal Research I and Legal Research II, for the 1987 winter quarter, and he agreed.
- Shortly before the quarter began, Draughon asked Kethley to teach both courses together during a single class period, effectively halving his in-class time, to which he also agreed.
- Compensation for the combined class format was not discussed; Kethley assumed he would receive $400 per month ($200 per course), while Draughon intended to pay only $200 per month.
- After teaching for two weeks, Kethley received a paycheck based on the $200 per month rate.
- When Kethley questioned the pay rate, Draughon's academic director, Doris Pitts, confirmed the school's policy was to pay $200 for the combined class, leading Kethley to believe his employment was terminated.
Procedural Posture:
- E. Ray Kethley filed suit against Draughon Business College, Inc. in a Louisiana trial court, seeking payment under the alleged contract, as well as penalties and attorney's fees.
- The trial court found in favor of Kethley on the contract claim, awarding him $1,100.
- The trial court denied Kethley's claim for penalties and attorney's fees, ruling that he was an independent contractor and not an employee covered by the relevant statute.
- Draughon Business College, Inc. (defendant-appellant) appealed the trial court's judgment to the Court of Appeal of Louisiana, Second Circuit.
- Kethley (plaintiff-appellee) answered the appeal, challenging the denial of penalties and attorney's fees.
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Issue:
Does a valid employment contract exist for a specific term when there is a mutual misunderstanding between the parties regarding a material term, such as the rate of compensation?
Opinions:
Majority - Sexton, J.
No. A valid employment contract does not exist because the mutual misunderstanding regarding compensation vitiated consent, meaning there was no meeting of the minds. The court found that compensation was a primary cause for both parties entering the agreement; Kethley would not have taught a second course for no additional pay, and Draughon would not have combined the courses if it had to pay the full amount for two. This mutual error regarding a material term means consent was vitiated under LSA-C.C. Arts. 1949 and 1950, requiring the contract to be rescinded. However, Kethley is not without relief. He can recover under the doctrine of detrimental reliance (LSA-C.C. Art. 1967), as Draughon made a promise to employ him to teach two courses, which he reasonably relied on to his detriment by preparing for and teaching the second class. The court awarded damages based on this reliance, rather than for breach of contract.
Analysis:
This case provides a key illustration of Louisiana's doctrine of detrimental reliance as an alternative theory of recovery when a contract fails for lack of formation. It demonstrates that even if there is no 'meeting of the minds' on an essential term, which invalidates the contract itself, a party who reasonably relies on a promise to their detriment can still be compensated. The decision distinguishes between expectation damages (the benefit of the bargain under a valid contract) and reliance damages (compensation for losses suffered). This solidifies detrimental reliance as an important equitable remedy in Louisiana contract law, providing a safety net where traditional contract theory would leave a party without recourse.
