CONTRACTS OUTLINE SPRING 2021

Table of Contents
Basic Things to Remember about Contract Law........................................................................6
 Sources of Contract Law-UCC, RSC, & Statutes.....................................................................6
Definition of Goods...............................................................................................................................................6
Goods v. Contracts for Services............................................................................................................................6
Formation of Contracts.................................................................................................................6
I. Contract and Related Obligation, pps. 2-38............................................................................7
White v. Benkowski, p. 5......................................................................................................................................7
II. Introduction to General Theories of Obligation & Remedies, pgs. 38-49…………………7
Sullivan v. O’Connor, p. 41..................................................................................................................................7
III. General Theories of Obligation & Consideration, pgs. 51-69.............................................7
IV. Traditional Enforceable Contract: Agreement with Consideration..................................8
 Coxchansideration= Benefit to the promisor OR a detriment to the promise.........................8
Gift Promise..........................................................................................................................................................8
Promisor’s Motive.................................................................................................................................................9
 What Constitutes as Consideration?...........................................................................................9
Adequacy of Consideration.................................................................................................................................10
 Benefit-Detriment Theory:.........................................................................................................11
 Types of Monetary Remedies.....................................................................................................11
o Compensatory/Loss expectancy damages:................................................................................................11
o Restitution Damages:.................................................................................................................................11
o Reliance Damages:....................................................................................................................................11
o Punitive Damages......................................................................................................................................11
Hardesty v. Smith, p. 53......................................................................................................................................11
Dougherty v. Salt, p. 55.......................................................................................................................................11
Maughs v. Porter, p. 62.......................................................................................................................................12
Carlisle v. T & R Excavating, Inc. p. 65.............................................................................................................12
Trilegiant Corp. v. Orbitz, p.66...........................................................................................................................12
Allegheny College v. National Chautauqua County Bank of Jamestown, p. 69…………………………………...12
Hamer v. Sidway, p. 66.......................................................................................................................................12
Baehr v. Penn-O-Tex Oil Corp., p. 70................................................................................................................12
Neuhoff v. Marvin Lumber and Cedar Co., p. 73...............................................................................................12
Springstead v. Nees, p. 74...................................................................................................................................13
IV. Mutuality of Obligation, pps. 80-94.....................................................................................13
De Los Santos v. Great Western Sugar Co., p. 80..............................................................................................13
Wood v. Lucy, Lady Duff-Gordon, p. 82............................................................................................................14
Weiner v. McGraw-Hill, Inc., p. 85....................................................................................................................14
Mattei v. Hopper, p. 88.......................................................................................................................................14
V. Promissory Estoppel, pps. 94-127..........................................................................................14
The Restatement (Second) of Contracts § 90: Promissory Estoppel...............................................14
 Elements of Promissory Estoppel..............................................................................................14
Kirksey v. Kirksey, p. 95.....................................................................................................................................14
Wheeler v. White, p. 102.....................................................................................................................................15
Hoffman v. Red Owl Stores, p. 107....................................................................................................................15
Elvin Associates v. Franklin, p.117.....................................................................................................................15
Local 1330, United Steel Workers v. United States ………………………………………………………………....15 VI. Unjust
Enrichment, pps. 127-163...................................................................................................................15
DEFENSES FOR UNJUST ENRICHMENT……………………………………………………………………….15
Bloomgarden v. Coyer, p. 127............................................................................................................................16
Blackmon v. Iverson p. 134................................................................................................................................16
Sparks v. Gustafson, p. 135.................................................................................................................................16
 Gift Principle vs. Free Choice Principle....................................................................................16
Gay v. Mooney, p. 139........................................................................................................................................17
Posner v. Seder, p. 145........................................................................................................................................17
Kelly v. Hance, p. 147.........................................................................................................................................17
Britton v. Turner, p. 149......................................................................................................................................17
De Leon v. Aldrete p. 154...................................................................................................................................17
 Watts v. Watts, p. 157.........................................................................................................................................17
VII. Promises for Benefits Received, pps. 163-178............................................................................17
Mills v. Wyman, p. 163.......................................................................................................................................18
Webb v. McGowin, p. 167..................................................................................................................................18
Edson v. Poppe, p. 173........................................................................................................................................18
VIII. Obligations Arising From A Statutory Warranty, pps. 199-212............................................18
Keith v. Buchanan, p. 199...................................................................................................................................18
Sugawara v. Pepsico, Inc. 206.............................................................................................................................18
Webster v. Blue Ship Tea Room, p. 207.............................................................................................................18
IX. Statute of Frauds, pps. 213-223; 233-246....................................................................................19
Howard M. Schoor Associates, Inc. v. Holmdel p. 217......................................................................................19
McIntosh v. Murphy, p. 234................................................................................................................................19
Dumas v. Infinity Broadcasting Corp., p. 240....................................................................................................19
Remedies.......................................................................................................................................19
X. Remedial Theory & the Expectancy Rule, pps. 247-271..............................................................19
Groves v. John Wunder Co., p. 252....................................................................................................................19
Peevyhouse v. Garland Coal & Mining Co., p. 262............................................................................................19
Rock Island Improvement Co. v. Helmerich & Payne, p. 266............................................................................19
Radford v. De Froberville, p. 269.......................................................................................................................20
XI. Making the Injured Party Whole and Efficient Breach, pps. 271-285......................................20
Thorne v. White, p. 271.......................................................................................................................................20
Morello v. Hogan, p. 273....................................................................................................................................20
Freund v. Washington, p. 273.............................................................................................................................20
Warner v. McLay, p. 274....................................................................................................................................20
Handicapped Children’s Education Board v. Lukaszewski, p. 279....................................................................20
XII. Market Price, Contract Price, and Foreseeable Damages, pps. 286-305.................................21
Tongish v. Thomas, p. 286 (omit Problem 3-4 pp. 289-290...............................................................................21
Neri v. Retail Marine Corp., p. 291.....................................................................................................................21
Hadley v. Baxendale, p. 298...............................................................................................................................21
Armstrong v. Bangor Mill Supply Corp., p. 302.................................................................................................21
XIII. Avoidable Consequences & Definite Damages, p. 306-328; Note p. 340................................21
Clark v. Marsiglia, p. 306....................................................................................................................................21
Schiavi Mobile Homes v. Gironda, p. 308..........................................................................................................21
Parker v. 20th Century Fox, p. 311.....................................................................................................................22
In Re Worldcom, Inc., p. 320..............................................................................................................................22
Evergreen v. Milstead, p. 326.............................................................................................................................22
XIV. Reliance Damages & Liquidated Damages, pps. 344-351; 364-383........................................22
Nurse v. Barns, p. 344.........................................................................................................................................22
Chicago Coliseum Club v. Dempsey, p. 344......................................................................................................22
H.J. McGrath Co. v. Wisner, p. 364....................................................................................................................22
Truck Rent-A-Center, Inc. v. Puritan Farms 2nd, Inc. p. 366.............................................................................23
Rinaldi and Sons, Inc. v. Wells Fargo Alarm Service, Inc………………………………………………………..23 Vanderbilt University v. DiNardo,
p. 374...................................................................................................................................................................23
XV. Remedies for Promissory Estoppel & Restitution, pps. 385-402; 407-412...............................23
Goodman v. Dicker, p. 385.................................................................................................................................23
Walters v. Marathon Oil Co., p. 387...................................................................................................................23
Realmark Developments, Inc. v. Ranson, p. 391................................................................................................23
U.S. for Use of Susi Contracting v. Zara Contracting, p. 393.............................................................................23
Oliver v. Campbell, p. 397..................................................................................................................................24
City of Philadelphia v. Tripple, p. 398................................................................................................................24
Johnson v. Bovee, p. 400.....................................................................................................................................24
Osteen v. Johnson, p. 407....................................................................................................................................24
XVI. Specific Performance.................................................................................................................24
Kitchen v. Herring (1851)...................................................................................................................................24
Curtice Brothers Co. v. Catts (1907)...................................................................................................................25
Curran v. Barefoot (2007)...................................................................................................................................26
XVII. Offer...................................................................................................................................30
Reasonably Certain Offer...................................................................................................................31
Lefkowitz v. Great Minneapolis Surplus Store, Inc. (1957)...............................................................................31
Ford Motor Credit Co. v. Russell (1994)............................................................................................................32
XVIII. The Acceptance, pps. 506-509; 513-523 (top)...............................................................32
White v. Corlies, p. 513.......................................................................................................................................34
Ducommun v. Johnson, p. 486............................................................................................................................34
XIX. Duration of Offers, pps. 517-528; 529-545;......................................................................34
Akers v. J.B. Sedberry, Inc., p. 518.....................................................................................................................34
Caldwell v. Cline, p. 529.....................................................................................................................................34
Collins v. Thompson, p. 531...............................................................................................................................34
Dickinson v. Dodds, p. 532.................................................................................................................................34
Marsh v. Lott p., 534...........................................................................................................................................34
Davis v. Jacoby, p. 537.......................................................................................................................................34
XX. Unilateral Contracts, pps. 545-554; 557-565.....................................................................34
Brackenbury v. Hodgkin, p. 545.........................................................................................................................34
Petterson v. Pattberg, p. 548................................................................................................................................34
Drennan v. Star Paving Co., p. 557.....................................................................................................................34
XXI. Bargaining At A Distance, pps. 567-568...........................................................................34
Lewis v. Browning, p. 567..................................................................................................................................34
XXII. Agreements to Agree and Related Matters, pps. 570-577; 582-585.............................34
Arnold Palmer Golf Co. v. Fuqua Industries, p. 570..........................................................................................34
Joseph Martin, Jr. Deli v. Schumacher, p. 582....................................................................................................34
XXIII. Form Contracts, pps. 589-592; 603-606........................................................................34
Hill v. Gateway 2000, p. 603..............................................................................................................................34
XXIV. Policing Agreements and Promises (Intro. pages 611-24, and Duress)......................34
Standard Box Co. v. Mutual Biscuit Co., p. 615.................................................................................................34
Machinery Hauling, Inc. v. Steel of West Virginia, p. 618.................................................................................34
S.P. Dunham & Company v. Kudra, p. 619........................................................................................................34
XXV. Misrepresentation, Concealment, and the Duty to Disclose, pp. 624-637....................34
Bates v. Cashman, p. 625....................................................................................................................................34
Holcomb v. Hoffschneider, p. 632......................................................................................................................34
Porreco v. Porreco p. 636....................................................................................................................................34
XXVI. Public Policy pp. 648-665................................................................................................35
McCutcheon v. United Homes Corp. p. 648.......................................................................................................35
Karpinski v. Ingrasci p. 657................................................................................................................................35
Dwyer v. Jung p. 662..........................................................................................................................................35
XXVII. Inequality Of The Exchange (Intro. J. Story, p. 668; 673-679; 697-703)..................35
Jackson v. Seymour p. 673..................................................................................................................................35
Williams v. Walker Thomas (Handout or acquire on your own)........................................................................35
Jones v. Star Credit Corp. p. 697.........................................................................................................................35
Chalk v. T-Mobile USA p. 700...........................................................................................................................35
XXVIII. Policing The Standard Form Contract pp. 706-712; 729-735..................................35
Fairfield Leasing v. Techni-Graphics p. 709.......................................................................................................35
Jerez v. JD Closeouts, LLC p. 729......................................................................................................................35
XXIX. Policing Contract Modifications pp. 741-745; 749-764................................................35
Alaska Packers v. Domenico p. 741....................................................................................................................35
United States v. Stump Home Specialties p. 750................................................................................................35
Angel v. Murray p. 752.......................................................................................................................................35
Flowers v. Diamond Shamrock Corp. p. 755......................................................................................................35
Foakes v. Beer p. 761..........................................................................................................................................35
Consolidated Edison v. Arroll p. 761..................................................................................................................35
XXX. The Performance Process and Parol Evidence Rules pp. 771-798; 802-813................35
Mitchill v. Lath p. 773.........................................................................................................................................35
Masterson v. Sine p. 779.....................................................................................................................................35
Baker v. Bailey p. 787.........................................................................................................................................35
Gold Kist, Inc. v. Carr p. 795..............................................................................................................................36
Pacific Gas v. G.W. Thomas Drayage p. 802.....................................................................................................36
Eskimo Pie v. Whitelawn Dairies p. 807............................................................................................................36
XXXI. General Principles of Interpretation pp. 827-830.........................................................36
Berke Moore v. Phoenix Bridge p. 828...............................................................................................................36
XXXII. Gap Fillers pp. 863-869..................................................................................................36
 Haines v. City of New York p. 864.....................................................................................................................36
XXXIII. Good Faith pp. 880-896; 900-901................................................................................36
Fortune v. National Cash Register p. 881...........................................................................................................36
Tyshare, Inc. v. Covell p. 889.............................................................................................................................37
City of Midland v. O’Bryant p.891.....................................................................................................................37
Centronics Corp. v. Genicom Corp. 900.............................................................................................................37
XXXIV. Conditional Nature of the Duty to Perform pp. 903-926..........................................37
Merritt Hill v. Windy Heights p. 909..................................................................................................................37
Jacob & Young v. Kent p. 911............................................................................................................................37
Brown-Marx Associates v. Emigrant Savings Bank p. 918................................................................................37
XXXV. Interpretation of Contract Language to Determine if it Creates an Express Condition pp. 924-926
.......................................................................................................................................................38
Glaholm v. Hays p. 924.......................................................................................................................................38
XXXVI. Interpretation of the Content of Express Conditions pp. 932-940...........................38
Gibson v. Crange p. 932......................................................................................................................................38
Forman v. Benson p. 933....................................................................................................................................38
XXXVII. Excuse and Avoidance of Express Conditions pp. 944-967.....................................38
Hanna v. Commercial Travelers’ Mutual Accident Association p. 944.............................................................38
Connecticut Fire Insurance Co. v. Fox p. 949.....................................................................................................38
JNA Realty Corp. p. 955.....................................................................................................................................39
XXXVIII. Implied Conditions Fixing the Quality of Performance pp. 985; 989-1003.........39
O.W. Grun Roofing v. Cope p. 989....................................................................................................................39
Walker v. Harrison p. 993...................................................................................................................................39
John v. United Advertising Inc. p. 999...............................................................................................................39
XXXIX. Anticipatory Repudiation and Prospective Inability to Perform pp. 1029-1035....39
Hochster v. De La Tour p. 1029..........................................................................................................................39
XL. Grounds for Rightful Cessation-Mistake pp. 1051-1071; 1075-1077..............................40
Sherwood v. Walker p. 1054...............................................................................................................................40
Wood v. Boynton p. 1061...................................................................................................................................40
Lenawee County Board of Health v. Messerly p. 1063......................................................................................40
XLI. Impossibility and Impracticability of Performance pp. 1090-1094; 1098-1108............40
Taylor v. Caldwell p. 1091..................................................................................................................................40
The Opera Company of Boston, Inc. v. The Wolf Trap Foundation p. 1094.....................................................40
Marcovich Land Co. v. J.J. Newberry Co. p. 1098.............................................................................................40
Mineral Park v. Howard p. 1105.........................................................................................................................41
XLII. Frustration of Purpose pp. 1121-1127.............................................................................41
Krell v. Henry p. 1121.........................................................................................................................................41
Basic Things to Remember about Contract Law
 Sources of Contract Law-UCC, RSC, & Statutes
Contracts for Services are governed by the Common Law-Restatement (Second) of
Contracts (RSC), and Contracts for the sale of Goods are governed by Article 2 of the
Uniform Commercial Code (UCC).

Definition of Goods
UCC defined goods as anything that is moveable at the time it is identified to the sale
contract.

Goods v. Contracts for Services

A contract is one for the sale of goods, governed entirely by Article 2, if its primary
purpose or main purpose is the transfer of goods, even if services are provided. On the
other hand, if a contract’s main purpose is the provision of services, then the contract is one
for services governed by the common law, even if goods are provided incidentally.

Formation of Contracts

Bilateral Contract is form when one party makes an offer, and another party accepts the offer by manifesting
assent to the offer’s terms (Creating mutual assent), provided there is adequate consideration. A unilateral
contract, on theother hand, exists if ine oarty makes an offer, and the other party accepts by simply performing.
The law provides remedies when a party breaches the contract.

***Aggregate Concepts and Principles***

→ Agreement: According to prof. Corbin is “To say that there is an agreement generally means that two or
more persons have expressed themselves in harmony.”
→ Consideration: “bargained for exchange.”
→ A Theory of Obligation: is a recognized general basis for imposing legal duties
→ Detriment: is a lost and could be meniscal.
→ Benefit: to gain something

***Aggregate Rule and Statutes***

I. Contract and Related Obligation, pps. 2-38

 Contracts are made by Private Parties
 The formula for a contract is: (Offer + Acceptance) Agreement + Consideration= Contract
 Most Judges typically follow Common Law
 Default Rules usually govern if the parties are silent in their contract on the matter in question.
o Restrictions: Article II of the United States Constitution and Statutes that cannot be replaced
by private parties.
o Societal Value: Agreement allows citizens to organize important elements of their own lives.
o Principle: Freedom of Contracts: absolute freedom in transactions.
 Obligation: Legal Theory of Obligation that is a recognized basis for imposing/enforcing legal duties.
 White v. Benkowski, p. 5
 Facts: two adjacent property owners made a contract where one will use the
water source that is controlled by the other. They had a real estate broker
prepare the contract. The issue arrived because the Benkowski’s shut of the
water from the Whites alleging that they used too much.
 Issue: Did the trial court err in reducing the compensatory damages
from $10 to $1? Are breach of contracts actionable?
 Rule: No punitive damages in contracts; may be available if there is an
independent tort situation.
 Holding: No tort was pleaded or provided. In contracts, the damages are
limited to compensation for pecuniary loss sustained. Trial court Must take
into account the inconvenience (odor and taking child over to neighbor to
take a bath) suffered by the plaintiff.

II. Introduction to General Theories of Obligation & Remedies, pgs. 38-49

Sullivan v. O’Connor, p. 41
 Facts: Want to get some plastic surgery from Dr. O'Connor? He was supposed to enhance her
beauty and improve her appearance. We know what happened. She didn't get an improvement.
We know that she was disfigured. And so we know that she is suing him.
 Issue: Whether the trial court err in the instruction that they gave the jury?
 Rule: Some cases have taken the simple view that the promise by the physician is to be treated
like an ordinary commercial promise, and accordingly that the successful plaintiff is entitled to a
standard measure of recovery for breach of contract, compensatory damages, an amount
intended to put the plaintiff in the position he would be in if the contract had been performed.
The plaintiff may elect restitution damages, an amount corresponding to any benefit conferred
by the plaintiff upon the defendant in the performance of the contract disrupted by the
defendant's breach.
 Holding: A patient could bring a breach of contract action against her doctor because he made
promises of a specific outcome, and that pain and suffering beyond that contemplated were
compensable. In an action by a professional entertainer against a surgeon for breach of a contract
to improve the appearance of the plaintiff's nose in two operations, the plaintiff was entitled to
recover not only her out of pocket expenses, but also for worsening of the appearance of her
nose by the surgery and for pain and suffering and mental distress involved in a third operation.
o Takeaway: Not every breach of contract case would receive the remedy of lost
expectancy because there might be no accurate way of measuring such damages.

III. General Theories of Obligation & Consideration, pgs. 51-69

→ The Goal in this course is not simply to ask “is there a contract,” but rather, is there a “theory of
obligation” that justifies relief, and, if so, which one?

 Obligation Agreement Arising from an Agreement with Consideration-The Leading Theory

 Obligation arising from Justified Reliance on a Promise-Promissory Estoppel
 Obligation arising from Unjust Enrichment
 Obligation arising from Promises for Benefit Received
 Obligation arising from Statutory Warranty

IV. Traditional Enforceable Contract: Agreement with Consideration

 Agreement must be VALID
o Two Types of Agreements: (1) Promises; (2) Gifts
 Promise: must gain benefit
  Gift: did not intend legal consequences
 Restrictions: warranty, fraud, mistake
 Consideration= Benefit to the promisor OR a detriment to the promise
 Promisor requires something from the promise in return for the promise= consideration
 Consideration is something bargained for an given in exchange for the promise
 To make a promise enforceable, the promisor must bargain for or request the consideration
supplied by the promise in exchange for the promise
 A party seeking enforcement of a bargain for exchange must also show that the parties
agreed to the exchange
 HOMELESS PERSON HYPOTHETICAL
 If A says to a homeless person: “go around the corner to the clothing shop, you may
purchase an overcoat on my credit”
o No reasonable person would understand that the short walk requested from
the homeless person is consideration.
 However, if A owes a restaurant and the homeless person is living in front of the
restaurant, and A says to the homeless person to go to the shop and buy an overcoat
on his credit, if he picks another spot to live, then that is sufficient consideration.
 You have to look if there is a benefit for the promisor.
 Consideration is considered of either a benefit to the promisor or a detriment to the
promisee.
 But the benefit or detriment must be bargained for.
 Restatement (Second) of Contracts Section 3
 A bargain is an agreement to exchange promises or to exchange a promise for a
performance or to exchange performances
Gift Promise
 A simple promise is not enforceable
 A promisor’s gratitude for the promisee’s past good conduct or services does not constitute
consideration because the promisor is not extracting and the promisee is not supplying
anything as the price of the promisor’s promise
 Restatement (Second) of Contracts Section 2(1)
 A promise is a manifestation of intention to act or to refrain from acting in a
specified way, so made as to justify a promise in understanding that a commitment
has been made.
Promisor’s Motive
 Two things to focus on:
 Promisor’s motive is measured objectively
o That a reasonable person must believe that your motive for making the
promise was to obtain a return promise
o A promisor’s actual motive is irrelevant
o Restatement (Second) of Contracts Section 81
i. The promisor must manifest an intention to induce the
performance in return promise the promisee must manifest an
intention to induce the making of the promise and to be
induced by it.
 2. A promisor’s motive of obtaining something in return for the promise does
not have to be the primary or even a substantial reason for making the
promise, it simply has to be one of the reasons
a. Restatement (Second) of Contracts Section 81(1)
i. The fact that what is bargained for does not “of itself” induce
the making of a promise does not prevent it from being
consideration for the promise.
1. “Of itself”= what the promisor bargains to receive
may be only one of many motives for making the
promise
ii. A reasonable person must also believe that the promise actually induces the promise to
deliver that consideration
 What Constitutes as Consideration?
iii. To constitute consideration, the promisor must either bargain for
1. A return promise, or
2. A performance
A return promise
3. Executory Bilateral Exchange= both parties have made promises, but neither
has performed theirs yet.
4. Each party’s consideration is a return promise
5. Each party is both a promisor and a promise
a. Ex: the seller extracts a promise from the buyer of money in
exchange for the seller’s promise to sell the item and the buyer
extracts a promise from the seller to sell the item in exchange for the
buyer’s promise to pay
A performance
6. Kinds of Performances
a. Acts
i. Actually paying the item
b. Forbearances
i. It includes desisting from exercising one’s legal right
1. Ex: The right to smoke or drink when one is at the age
to
c. Forbearance to sue
d. Forbearance from pursuing a claim is adequate consideration
e. When you know the claim is invalid, courts will not consider the
forbearance as adequate consideration on public policy grounds.
f. Reasonably and honestly thought your claim was valid
g. Then contract law calls your claim colorable or doubtful and treats
your forbearance to sue as good consideration because the motive
was not to extort
h. Restatement (Second) of Contracts Section 74(1)
i. You only have to be honest and reasonable about your beliefs;
you don’t need both.
 ii. Perhaps this approach is too favorable on negligent people-
public policy should discourage negligent people as well as
extortion.
Adequacy of Consideration
Courts are not supposed to weigh the adequacy of consideration
iv. In the theory of freedom of contracts- the parties are the ones that should decide what
something is worth and third parties should not interfere with their decision.
v. Restatement (Second) of Contracts Section 79
1. If the requirement od consideration is met, there is no additional requirement
of equivalence in the values exchanged
2. The slightest consideration is sufficient to the most burdensome litigation.
vi. However, many courts feel uncomfortable enforcing imbalanced exchanges,
especially when the imbalance is severe.
1. Some doctrines authorize courts to strike contracts made unfairly and often
at least part of the evidence of unfairness derives from inadequacy of
consideration:
a. Unconscionability
b. Duress
c. Misrepresentation
 Benefit-Detriment Theory:
o If the promise suffers a detriment, however slight, at the request of the promisor, or the promisor
receives a benefit, however slight, there is consideration.
 Consideration without promisor benefit
 Types of Monetary Remedies
o Compensatory/Loss expectancy damages:
 The make whole remedy
 Standard measure of recovery for breach of contract
 An amount intended to put the plaintiff in the position where s/he would be in if the
contract had been performed
 Forward-looking-takes into account gains prevented by reliance + individuals acts &
forbearance that make up the parties’ detrimental reliance, protects parties who contract for
future performance.
o Restitution Damages:
 An amount corresponding to any benefit conferred by the plaintiff upon the defendant in the
performance of the contract disrupted by the defendant’s breach
o Reliance Damages:
 Between expectancy damages and restitution damages
 Restore plaintiff to original position as if the contract had not occurred at all
 Measure damages by the value of the promised performance
 No protection against breach unless detrimental reliance has been shown
o Punitive Damages
 Punitive damages are generally not recoverable in action for breach of contract unless you
have an independent tort action
Hardesty v. Smith, p. 53
 Facts: Defendant purchased the rights to an invention & later assigned to
plaintiff. Plaintiff argued that there was no consideration for the promissory
notes because the invention was allegedly worthless.
  Issue: Whether the court erred in sustaining a demurer?
 Rule: If the requirement of consideration is met, there is no additional
requirement of equivalence in values exchanged except when it seems
unconscionable.
o § 208: unconscionable contract or term: something that is imbalance
can be so great that courts question whether parties are really
intending a deal
o § 81: if the consideration is MERE Pretense: immateriality of motive
or cause-unless both parties knew that the purported consideration is
mere pretense, it is immaterial that the promisor’s desire for
consideration is incidental to other objectives and even that the other
party knowns this to be so
 Rational: The Court does not want to measure the value, and lets the parties
decide. You do not get the “commensurate” value, but you get what you
contracted for. Consideration can be something even though it is objectively
worthless. Freedom to contract
 Takeaway: Peppercorn Theory: If you are bargaining for something you
know is of no value, the courts will enforce it.

Dougherty v. Salt, p. 55
 Facts: Aunt gave boy money for being good in the past. Aunt gave him a promissory note.
 Rule: Mutual inducement required for there to be consideration. Past
consideration/action which was not agreed to by the parties as part of the
bargaining cannot be used for consideration
 Issue: Whether there was consideration?
 Holding: A gift is unenforceable as a contract because it includes NO
CONSIDERATION. No mutual inducement. Here, no detriment suffered
by the nephew; or a benefit to the promisor—there was no benefit conferred
by the aunt from the child so there is no consideration.
▪ To create consideration: if there were an act imposed upon the nephew in exchange
for the money, there could be consideration.
 Takeaway:
Prof. TAYLOR: Consideration has to be a present exchange.
o Courts do no treat psychological benefits as enforcing a contract
because then every gift would be enforceable.
o Altruism= gift range

Maughs v. Porter, p. 62 (Condition vs. Consideration)

 Facts: Defendant put an ad in the paper stating an auction of 50 new
Ford’s. After a drawing, P was adjudged the winner. She paid the
auctioneer $3. D ordered the car but refused to pay for it when it arrived
and has refused to pay P the value of the car ($461).
 Issue: Whether there was consideration?
 Rule: When the promisee incurs a detriment as a mere condition to
receive a promise, there is no consideration.
o Exception: When promisee's detriment benefits the promisor, then may be
enforceable.
o Rationale: This was not a promise with a consideration but was a gift with a condition.
o Gifts = promises w/o consideration.
 o No bargained-for exchange; no detriment to the promisee nor benefit to
promisor
 Holding: the attendance to the raffle was sufficient evidence for
consideration.
 Takeaway:
o Prof. TAYLOR: The reason he put the ad was to have an
auction. He wanted enough people there to look like there was
something there. He was bargaining for attendance. She was
there for the possibility of winning a car.
 Did the promise induce her detriment/impairment?
Yes.
 Did the detriment induce the promise? Yes, because he
wanted the crowd.

Carlisle v. T & R Excavating, Inc. p. 65

Trilegiant Corp. v. Orbitz, p.66

Consideration
o Consideration = benefit to the promisor OR a detriment to the promisee
o Bargain Theory: FOR consideration, the benefit or detriment must be “bargained for”:
▪ The parties must have bargained for/agreed to an exchange of the promise for the
detriment
▪ AKA MUTUAL INDUCEMENT
o Benefit/detriment does not need to be great or actual; only needs to be something regarded by the
promisor as beneficial enough to induce his promise
o Gratuitous promises ≠ contracts (no consideration, even if written)
Detriment to Promisee

 Any relinquishment of a legal right

 Consideration = the action of incurring the detriment (unilateral contract) or in the promise to act/forbear in
the future (bilateral contract)
 A promise to do something in the future is an abandonment of the legal right not to do it, and is therefore
 consideration
 To be a promise, undertaking must be a genuine commitment; cannot be too vague, discretionary, or
qualified
o Examples:
 The payment in exchange OR the promise to payment
 Accepting something/promise of something in settlement of an overdue claim =
consideration ("detriment" is forbearance from exercising legal right to sue)
 Promise to quit smoking - medically beneficial but legally a "detriment" consideration
because forbearing legal right to smoke

Benefit to Promisor

 Under the bargain theory, benefit to promisor only plays an evidentiary role
 If promisor gets a promise of forbearance, benefit to promisor is seen as meaning simply that promisor
got what they bargained for
 RSC §79(a): gain or advantage to the promisor is not a requirement for consideration
  Motive is not of central concern, if intent to exchange is apparent (but motive may be evidence for intent)

 Evidence of gain or advantage bolsters argument that promisor bargained for the detriment of the promisee

The Bargained-For Exchange

 RSC § 71: performance or return promise must be bargained for to constitute consideration
 Objective test: Performances/promises of the parties must induce each other (manifestation of intent) o
Bargain as an agreement = manifestation of mutual assent
 Means nothing if a party suffers a legal detriment unless parties agree that is the price for the promise

Hamer v. Sidway, p. 66
 Facts: Uncle promised his nephew $5,000 if he would stop drinking,
using Tabaco, swearing, and playing cards until he became 21.
Nephew forbore to engage in those activities until the age of 21 and
sought the money. The uncle then would not pay.
 Issue: Whether there is consideration?
 Rule: Forbearance of a legal right in the present or limiting one’s
freedom of action in the future is consideration when done in
inducement of promisor’s promise
 Holding: The court held that the nephew’s detriment of holding back from
his freedom was enough consideration.
 Takeaway: Defendant Argues that the promise is beneficial to the
nephew, not to him.
 TAYLOR: Did the promise induce the detriment?
Yes.
 Did the detriment induce the promise? Yes.
 The court here determines that if the promise
induces the detriment then that is enough for
consideration.

The Death of Contract (Gilmore)

o Hamer v. Sidway illustrates that the NY Court of Appeals rejected the bargain theory of consideration.

RSC § 81: Consideration as Motive or Inducing Cause

1. The fact that what is bargained for does not of itself induce the making of a promise does not prevent it
from being consideration for the promise
2. The fact that a promise does not of itself induce a performance or return promise does not prevent the
performance or return promise from being consideration for the promise
▪ “Bargained for” – promisor must manifest an intention to induce the performance or return
promise and to be induced by it
▪ Unless both parties know that the purported consideration is mere pretense, it is immaterial that
the promisor’s desire for the consideration is incidental to other objectives and even that the other
party knows this to be so

Allegheny College v. National Chautauqua County Bank of Jamestown, p. 69

Takeaway: The promise and the consideration must purport to be the motive each for the
other, in whole or at least in part. It is not enough that the promise induces the detriment or
that the detriment induces the promise if the other half is wanting.
Baehr v. Penn-O-Tex Oil Corp., p. 70
 Facts: Plaintiff leased filing stations to Kemp, doing business as Webb Oil
Co. Kemp was buying Webb oil from Penn. Kemp became heavily indebted
to Penn and could not meet payments. Plaintiff received a letter from Kemp
stating Penn had all Kemp’s assets tied up. In an exchange of letters Penn
said to plaintiff he would receive a check soon. Nothing happened, and then
plaintiff sued Penn for the rent owed by Kemp
 Issue: Whether there was consideration for the contract by Penn
to pay the plaintiff?
 Rule: For Consideration, promise can’t be accidental, casual, or
gratuitous, bur must be intentional as the result of some deliberation,
manifested by reciprocal bargaining or negotiation.
 Holding: Although Δ’s agent made a promise to π, no consideration.
π’s “forbearance” to sue was not induced by Δ; was done out of
convenience (could’ve done it while away if serious about suing).
There is no promise that either of the parties took Δ’s assurances
seriously or acted upon them in any way.
 Takeaway: The court stated that there was no bargain- the
bargain has to be intentional.
o The promise must induce the forbearance
 TAYLOR: Penn was just trying to get rid of the
plaintiff.

Neuhoff v. Marvin Lumber and Cedar Co., p. 73

 Facts: πs allege that Δ breached an oral contract to provide
replacement windows for free.
 Issue: Whether there was any consideration to constitute an
actual legally-binding contract.
 Rule: For promise in exchange for a promise, there must be
mutuality of obligation or consideration; otherwise invalid and not
enforceable. Usually applies when someone can back out of a
contract or promise at any time. (Not to be confused with mutual
inducement).
 Holding: The court held that there was no consideration because
plaintiff never expressed their willingness to forebear suit before or
after the promise to replace the defective windows was made. And
neither forbearance could have been implied in this set of facts.
 Takeaway: “Implied forbearance” does not constitute consideration
because it did not induce the promise to install the windows.

Springstead v. Nees, p. 74
 Facts: When Nees died he left the “sackett street property” and
“atlantic ave property” to Sophia and George. When it was
discovered that the Atlantic ave property was held in trust for only
George and Sophia, there was murmuring and dissent amongst the
other children. Sophia then stated “we will give you our share of the
sackett street property if you don’t bother us about the Atlantic ave.
property.” Sackett Street property was sold thereafter but D did not
turn over their share of the proceeds to P.
 Issue: Whether there was a contract supported by consideration?
  Rule: Forbearance to assert a legal claim is sufficient consideration;
it is not essential that the claim should be valid, but it is enough if it
could be regarded as a colorful, doubtful, or plausible.
 Holding: Here, πs had no legal right to property in the first place—so
couldn’t forbear. Tried to bargain, but there was nothing to bargain
for in the first place.
 Takeaway: The court stated that forbearance to assert a legal claim is
sufficient consideration.
o It is not essential that the claim should be valid but it is
enough if it could be regarded as colorful, doubtful, or
plausible.
o If it is not, and there is no reason for an honest belief that it
has some foundation in law or in equity, then forbearance
applied to it is not good consideration.

2 Corbin on Contracts

 Forbearance to bring a suit... is not consideration if the forbearance is made with

knowledge that the claim is invalid.
 Policy reason: if such forbearance were recognized as consideration, invalid
claims would increase, and blackmail would become a profitable racket
 Claimant must be asserting the claim in good faith; must not be threatening suit for vexation

Fuller & Perdue: The Reliance Interest in Contract Damages

o There is a policy in favor of promoting and facilitating reliance on business agreements
o When business agreements are not only made but acted on, the division of labor is facilitated, goods find
their way to the places where they are most needed, and economic activity is generally stimulated
▪These advantages would be threatened by any rule which limited legal protection to the reliance
interest
o To encourage reliance, we must dispense with its proof

IV. Mutuality of Obligation, pps. 80-94

Mutuality of Obligation: is generally an essential element of every enforceable agreement that consists of the
obligation on each party to do, or to permit something to be done, in consideration of act or promise of the
other. Mutuality is absent when only one of the contracting parties in bound to perform, and the rights of the
parties exist at the option of only one.

NOTE ***Mutuality is another form of Consideration, however, We're still talking about consideration.
It's just that now we're talking about it in the context of usually promises that are given exchange for
each other. But we are also looking at it in the context all. And if you have a promise, is there something
else that's given in exchange for the promise of a person having a free way out? It often looks for other
consideration that is not a promis, in the case.***

 All cases of mutuality of obligation boil down to the issue of:

 Whether the promise is real or illusory?
 Illusory Promise= no promise at all therefore is unenforceable for lack of mutuality of
obligation
 A promise in exchange for a promise
  Mutuality of contract exists in the obligation on each party to do, or permit something
to be done, in consideration of the act or promise of the other.
 Mutuality is absent when only one of the contracting parties is bound to perform, and
the rights of the parties exists at the option of one only
 Sometimes language appears to be an illusory promise, but the circumstances
demonstrate that the promisor really did intend to commit it.
 Some courts often interpret such language as a binding promise even though in
form there is no promise
 Satisfaction Clauses
 The good faith obligation means that your decision about whether you are
satisfied with the performance (ex. Sale of land) or promise must be reasonable
or honest
 Whether the party is truly dissatisfied or had some ulterior motive
 If the satisfaction deals with commercial value or quality, courts usually apply
this test
 Courts enforce satisfaction clauses because it believe the parties probably
intended these results.
Bilateral executor exchange:

 Consideration may also be a promise in exchange for a promise (bilateral contract)

 When an agreement consists of promises by both sides that the parties have not yet performed, such an
agreement is enforceable because both promises are supported by consideration, namely the return
promises.
 “If you want to.” Contract law treats your statement as an illusory promise, meaning no promise at all,
and finds the “agreement” unenforceable for lack of “mutuality of obligation.” The agreement lacks an
obligation on your part because you haven’t promised to do anything.

Pre-existing Duty Doctrine: Neither the performance of a duty nor the promise to render a performance already
required by duty is sufficient consideration for a return promise.

De Los Santos v. Great Western Sugar Co., p. 80

 Facts: De los Santos, a trucking company, agreed to transport such tonnage
of beets as may be loaded by Great Western. De los Santos compensation
depended on how many beets its carried for Great Western. De los Santos
knew that Great Western had entered identical agreements with other
carriers. When Great Western terminated the agreement, De los Santos sued
him for breach of contract.
 Issue: Whether Great Western’s promise was an illosry (not real)
promise?
 Rule: In the case of a promise in exchange for a promise, there must be
mutuality of obligation or consideration or else contract is invalid. A
contract is not enforceable otherwise. Usually applies when someone can
back out of contract or promise at any time. (Not to be confused with mutual
inducement)
 Holding: Without a specific quantity, the Δ had no obligation to use any of
the π’s services, and the Δ’s decision to cease using those services after a
certain point is not actionable.
 o Takeaway: Prof. TAYLOR: What if the contract had said: “I
agree to use you as need arises”?
 Then the defendant has limited himself to some extent.
 UCC § 1-304: Obligation of Good Faith
Every contract or duty within the UCC imposes an obligation of good faith in its performance
and enforcement.
 UCC § 2-306(2)
A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods
concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to
supply the goods and by the buyer to use best efforts to promote their sale.

 A Treatise on the Law of Master and Servant, H.G. Wood

o A general or indefinite hiring is prima facie a hiring at will, and if the servant
seeks to make it out a yearly hiring, the burden is upon him to establish it by proof.

 Rethinking Consideration in the Electronic Age, Hillman and O’Rourke

 The bargain theory survives as the best the law can do at line-drawing between those
promises that should be legally enforceable and those that should be left to the promisor’s
“foro conscientiae.”
 The bargain theory’s relative indeterminacy means that courts can enlarge the category of
promises within its ranks if they believe a promise is important and enforcement is
administratively feasible.

Wood v. Lucy, Lady Duff-Gordon, p. 82

 Facts: Wood had the exclusive right to place Lucy’s
endorsements of fashion designs on clothing and to place
Lucy’s own designs on sale. The parties then agreed to split
the profits. After Lucy placed her endorsements, she kept the
profits and then Wood sued for breach of contract.
 Issue: Whether there was mutuality of obligation?
o Rule: When mutual obligations are not specifically stated in
the contract but can be inferred from the parties’ intentions,
court will interpret language as a binding contract and
contract can be enforceable
 Holding: Here, the court (Cardozo) said, the mutuality of
obligation was not expressed but implied.
o It is so implicit that it is inferred from the nature of the
agreement.
o Cardozo: “A promise may be lacking and yet the
whole writing may be instinct with an obligation,
imperfectly expressed. If that is so, there is a
contract.”
 Lucy would not have granted an exclusive right to Wood if he
hadn’t committed himself to doing something. Lucy would
receive no profit unless Wood made some effort.
o DISSENT: Cardozo is meddling in the agreement; he
is rewriting the agreement.
 Takeaway: Prof. TAYLOR: How wide do we want this
door to open? Why did they did this?
  The court didn’t want to put one party at
the mercy of the other.

 Note: Difference between this case and De Los Santos is that there is an exclusive right here, so
it creates a mutuality of obligation on both parties.

Weiner v. McGraw-Hill, Inc., p. 85

(NY Case-Exception to Mutuality of Obligation)
 Facts: Plaintiff was working as a publisher for Prentice-Hall when in
an event Defendant’s representative offered Plaintiff a job and
assured him that it was the company’s firm policy not to terminate
employees without just cause and thus would bring about job
security. Plaintiff was offered more money from previous company to
induce him to stay. Plaintiff rejected offers of employment while
working with defendant. After 8 years, plaintiff was discharged for
lack of application.
 Issue: Whether the employment lacked mutuality of obligation
because it was at-will?
 Rule: When mutual obligations are not specifically stated in the
contract but can be inferred from the parties’ intentions, court will
interpret language as a binding contract and contract can be
enforceable
 Holding: Even though employment contract lacked conventional
mutuality (no promise for promise), court said that the
commencement of the employee’s services/job is satisfactory
consideration and makes the employer’s promise of employment,
indefinite or otherwise, binding. If the employer made a promise not
to terminate employee without good cause, that promise is binding
once employee starts the job. There is sufficient evidence that there
was a contract and a breach to sustain a cause of action.

o Weiner was giving up his job and benefits was used as

consideration in exchange for the 8months employment.

Mattei v. Hopper, p. 88(California Case)

vii. Facts: Plaintiff accepted an offer from defendant to buy his land to build a shopping center.
Written agreement was evidenced on a deposit receipt. The terms were that plaintiff was
required to deposit $1,000 of purchase price and to consummate the title within 120 days.
Prior to the 120 days, while in the process of securing leases defendant notified plaintiff that
she would not sell the land under the terms in the deposit receipt.
o Issue: Whether the contract was lacking mutuality of obligation?
 Rule: Mutuality of obligation exists when a promise is subject to one party’s
satisfaction. Implied obligation of GOOD FAITH in satisfaction clauses can
act as consideration.

 Holding: Court said that deposit agreement = enforceable contract.

Satisfaction clause was not a condition TO forming a contract with Δ but
rather a condition PRECEDING π’s obligation to perform the rest of the
 agreement. The clause bound π to the agreement and imposed an obligation
to exercise the condition in good faith—there was no free way out. A
promise conditional upon the promisor’s satisfaction is not illusory since it
means more than that validity of the performance is to depend on the
arbitrary choice of the promisor.
 Takeaway: Any limitations placed on an agreement does not make an
agreement/promise illusory because it annuls any “free way out”
 The court implied a promise in good faith.
 Here, the court ruled that satisfaction clauses have to be determined
under the reasonable person standard.

V. Promissory Estoppel, pps. 94-127

Promissory estoppel is an ancillary basis for upholding a promise that does not qualify as contractual.

The Restatement (Second) of Contracts § 90: Promissory Estoppel

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a
third person which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the
promise. The remedy granted for breach may be limited as justice requires.
 Elements of Promissory Estoppel (From RSC § 90):
1. There must be a promise that is clear and definite
2. A mere present intention is not a sufficient promise
3. A party who makes a conditional promise is not liable unless the condition is satisfied

The courts will not enforce promises that are vague assurances or
unsupported predictions, statements that a reasonable person
would not rely
 It all depends on the court Some courts are more
flexible than others
 Conditional Promises are not enforceable Party who makes a conditional promise should not
be liable if the condition is not satisfied.

Contracts, Promises and the Law of Obligations – Atiyah

 A person who has actually worsened his position by reliance on a promise has a more powerful case for redress than
one who has not acted in reliance on the promise at all. No definitional jugglery can actually equate the position of the
party who suffers a diminution of his assets in reliance on a promise, and a person who suffers no such diminution.

****Put simply, promissory estoppel is: A promise coupled with detrimental reliance on that promise.***

Nature of Promissory Estoppel as an Independent Basis of Relief or Consideration Substitute

 PE is an ancillary basis for upholding a promise that does not qualify as contractual; it is not needed
where the promise is supported by consideration
 Therefore, when analyzing a problem: consideration analysis→negative?→promissory estoppel
 Promissory estoppel viewed in two different ways:
 Contractual cause of action
 Is treated as an alternative basis for finding contractual liability where consideration
is lacking or there is some other defect in the formation process
 Subject to the statute of limitations applicable for contracts (commonly 6 years)
 An alternative and independent basis for enforcing the promise—a separate theory of
obligation
o Not based on a bargain, but instead based on accountability for conduct that
induces reliance
 o Emphasizes affinity to tort and to equitable estoppel
o Subject to statute of limitations for torts (commonly 2 years)

Difference in Remedial Emphasis Between Contract and Promissory Estoppel

 PE inducing contractual liability→expectation damages (place promisee in position if
contract honored)
 PE inducing reliance→reliance damages (restore victim to before promise was made)
Kirksey v. Kirksey, p. 95
 Facts: Brother-in-law invited his sister-in-law to move to his land after his brother died. The bother-in-law
promised to give her a place to raise her family. She left the land she was planning to purchase, and moved with
him. After two years, the brother-in-law asked her to leave.
 Issue: Whether or not there was consideration?
 Rule: Mere gratuity does not equal a contract
 Holding: The offer was nothing more than “mere gratuity” and refused to enforce the promise.
 Takeaway: Plaintiff’s Argument Is enough consideration to move 60 miles
1. Defendant’s Argument He didn’t bargain for it
2. Mutual type of inducement is absent No consideration.
***Note: If promissory estoppel was available in this case then the plaintiff would
have recovered***
Equitable Estoppel and its Link to Promissory Estoppel
 Because a court of equity exercises its discretion to do justice between parties, it is a general principle of
equity that the litigants must themselves behave equitably in seeking the court’s assistance
 Basic purpose is to preclude a person from asserting a right when, by deliberate words or conduct, they
have misled the other party into the justifiable belief that the right does not exist or would not be asserted
 Involves a balancing of the equities between the parties and a comparative evaluation of the fault and
responsibility of the parties
 Equitable estoppel generally only bars relief when the party asserting the rights deliberately engaged in the
misleading behavior with knowledge or reason to know it could be misleading and could induce reliance
by the other
 It does not matter whether intent of conduct was to mislead; estoppel is based not on fraud but on
accountability for deliberate words or conduct that induced reliance and consequent detriment
Cochran v. Robinhood Lane Baptist Church (Court of Appeals TN, 2005)
 Facts: Church entered into agreement with Pastor before his death that church
would pay wife every 3rd Sunday. Church stopped paying and wife sues for
breach of contract and for promissory estoppel.
 Rule: agreement. For recovery on promissory estoppel, promisee must prove
substantial detriment as a result of reliance on the gratuitous promise.
 Reasoning: (1) No consideration because church did not benefit from her
presence at the church and wife did not have vested right to the benefits at the
time of execution of the Agreement.
(2) No grounds for promissory estoppel. Church did not induce a substantial
change of position by the wife in reliance on the promise. No injustice results in
refusal to enforce a gratuitous promise where the loss suffered in reliance is
negligible... Wife failed to demonstrate detrimental reliance.
Note: Contracts, Promissory Estoppel
o The fear that general adoption of the promissory estoppel doctrine would tend to abolish
consideration in contract cases is almost universal.
o The doctrine lies outside of contract law; the question of what limits would be applied to it once
adopted, seem potent.
 Wheeler v. White, p. 102 (Supreme Court of TX, 1965) – K failed for indefiniteness of
key terms)
 Facts: White promised Wheeler a loan so that he could develop his
property, after Wheeler relied by tearing down an existing building
and preparing the property for new construction. The parties failed to
agree on the key terms therefore there was no contract, the minds did
not meet.
 Issue: Whether the court could apply promissory estoppel when
there is no contract?
 Rule: Promissory estoppel may apply where a contract is
unenforceable
 Holding: Where the promisee has acted in reliance upon a promise to
his detriment, the promisee is to be allowed to recover no more than
reliance damages measured by the detriment sustained. Key terms are
not agreed on → indefiniteness, also not available when it governs a
relationship
 Takeaway: Is there Consideration?
 There was a 5% commission
 There is an agreement with consideration
 Is this sufficient consideration
i. A w. C
1. The agreement (A) is defective because
the details of the agreement were not
worked out.
2. The agreement is indefinite
3. Failed bargain for consideration
The Emergence of Promissory Estoppel as an Independent Theory of Recovery, Metzger and Phillips
 Promisors desirous of limiting estoppel-based liability are, however, not without devices for
achieving a measure of protection. Tactics like employing a conditional or indefinite promise,
attaching a termination date to the promise, or revoking and promptly communicating this to
the promisee can affect the foreseeability and reasonableness of reliance and thus defeat a
promissory estoppel claim.
Reliance in the Revised Restatement: The Proliferation of Promissory Estoppel, Knapp
 The principle of §90 has become perhaps the most radical and expansive development of this
century in the law of promissory liability.

Hoffman v. Red Owl Stores, p. 107 (Supreme Court of WI, 1965)(Case is an outlier)
 Facts: Red Owl’s agent stated to Hoffman and wife they would grant them a Red Owl franchise
for $18,000. During the prolonged negotiations, Red Owl kept upping the price and kept putting
more commitments. Hoffman to meet with these commitments and the price, sold the fixtures
and inventory of their grocery store, buy and then sell a bakery building, and commit to a new
building lot. All this in preparation for the franchise. After the deal fell apart, Hoffman sued for
damages.
 Issue: Whether promissory estoppel could apply to the negotiation process?
 Rule: Under promissory estoppel, a party can be liable for representations made during
negotiations prior to the culmination of a contract
 Holding: Where the promisee has acted in reliance upon a promise to his detriment, the
promisee can recover. Δ’s “promissory representations” induced π to rely to their detriment
 3. Takeaway: TAYLOR: When and under what circumstances do you protect someone
that is on pre-contract negotiations?
 When there is reliance to your detriment
 Bad faith/ fraud
 Here the courts also looked at the unbalanced power between the parties

Promissory Estoppel and Traditional Contract Doctrine, Henderson

 Because the doctrine of promissory estoppel imposes liability without regard to expressed
intention, its use in pre-agreement negotiations is bound to alter the traditional scheme of offer
and acceptance.
 The key to the court’s opinion is its apparent belief that the conventional use of promissory
estoppel as a “substitute for consideration” in connection with gratuitous promises is now
obsolete and that § 90 should serve as a distinct basis of liability without regard to bargain,
contract, or consideration.

Elvin Associates v. Franklin, p.117 (SDNY, 1990)

 Facts: Broadway musical producer, Springer, sued Aretha Franklin for not
appearing for rehearsals; he alleged that, in negotiations of getting Franklin
as the title role of a musical, he incurred substantial expenses making
arrangements.
 Issue: Whether or not the parties to that proposed contract evinced an
intent not to be formally bound before execution of a written, integrated
contract. Or Whether there could be promissory estoppel when the
parties didn’t sing/ agrees to the agreement?
 Rule: When defendant knows their promise is likely to induce reliance,
defendant may be liable under promissory estoppel even without a contract.
 Holding: No agreement with consideration, but promissory estoppel because
π had a reasonable basis to believe Δ (i.e. her enthusiasm; she participated in
arrangements so should’ve known about π’s investments and her fear of
flying did not make her promise conditional because she expressed she
wanted to overcome this fear) and she should’ve known that the producer
would commit major expenditures in reliance before she could be available
to sign the contract.
4. Takeaway: TAYLOR: Why is she responsible when she didn’t
sign?
 She was aware that he was spending money and she didn’t
stop him
 He relied on her performance
 She knows the business
 He knew he needed the signature!
i. Does the court need to protect someone that could
have protected himself?

Local 1330, United Steel Workers v. United States (6th Cir. 1980)
Facts: Defendant plants employ 3.500 employees of Youngstown, OH.
Plaintiffs are two leading labor organizations in the area and have had a
collective bargaining contract with defendant for many years. The plants in
 question have become obsolete due to age of the facilities and changes in
technology. The plaintiff relied on the success of the plant.
Issues: Whether promissory estoppel applies?
Rule: The standard of RSC 90 that plaintiff’ rely on is a standard of
“reasonable expectability” of the promise detrimentally relied on.
 Restatement (Second) of Contracts § 90: Promise Reasonably
Inducing Action or Forbearance
• A promise, which the promisor should reasonably expect to
induce action or forbearance on the part of the promisee or a third
person which does induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the promise...
Holding: The condition precedent of the alleged contract and promise-
profitability of the Youngtown facilities- was never fulfilled, and the actions
in contract and for detrimental reliance cannot be bound for plaintiffs.
Takeaway: TAYLOR: The court is telling them that it wasn’t reasonable
for them to rely.
 If the promise is unreliable, you are not going to win.

VI. Unjust Enrichment, pps. 127-163

This theory has different names

 Quantum Meruit
 Restitution
 Quasi- contract
 Contract implied law
***Note: An action for recovery based upon unjust enrichment is based upon the universally recognized moral
principle that one who has received has a duty to make restitution when to retain such benefit would be unjust. The
theory is not based on the agreement between the parties, but on the justice of requiring one party to eliminate a
benefit from the other party. Unjust enrichment applies when one party to an agreement confers a benefit, but the
agreement is unenforceable for some reason, including it is incomplete or was not written down.****

Definition: When a party confers a benefit on another party and it would be unjust for the recipient to
retain the benefit without paying for it, the law imposes an obligation on the recipient to pay or return the benefit.
Elements of unjust enrichment:
1. Benefit at plaintiff’s expense
2. Benefit given at time of conferment
3. Unjust for defendant to keep the benefit without paying plaintiff
4. Expectation of payment that defendant should’ve known about
Unenforceable agreements
 Unjust enrichment applies when one party to an agreement confers a benefit, but the agreement is unenforceable for some
reason, like state of fraud

Variant Terminology: Unjust Enrichment, Restitution, Quasi-Contract, Quantum Meruit, Common Counts
 The general theory of obligation known as unjust enrichment is applicable in many diverse
contexts, promissory and non-promissory
 Restitution: more frequently used to designate any remedy that redresses unjust enrichment.
o May refer to one kind of remedy for breach of contract, as where an aggrieved plaintiff
simply seeks to recover money paid to the breaching party.
 Quasi-contract: also refers to the unjust enrichment theory of obligation
  Contract implied-in-law: sometimes used to designate the theory of unjust enrichment;
distinguished from contract implied-in-fact
o Contract implied-in-fact: enforceable agreement with consideration based on implication
and inference rather than on explicit assent as in an express contract
o Contract implied-in-law: sometimes used to designate the theory of unjust enrichment
 Quantum meruit: translates to “as much as he deserved;” originally designated a simplified form
of pleading using to bring an action at law to obtain payment for services rendered.
o This form of pleading is called a “common count” in general assumpsit

Restatement (Third) of Restitution § 1

 A person who is unjustly enriched at the expense of another is subject to liability in restitution.

DEFENSES FOR UNJUST ENRICHMENT

THE BENEFIT IS A GIFT
o Retaining the benefit is not unjust
o Generally courts assume that family members or people in other close
relationships intend to confer benefits on each other gratuitously.
 Rebut the presumption introduce evidence that a family
member or a person in a close relationship conferred a benefit
pursuant to an unenforceable agreement rebuts the assumption.
o Courts look at the relationship of the parties:
 Business Relationship
 Quasi-contract the injured party’s obligation does not
arise out of a contract, however the conferred benefit
received would be unjust to keep without paying.
o Is a duty not a contract
o ELEMENTS:
 Restitution
 Defendant was unjustly enriched at the
plaintiff’s expense
 Call it a contract because of the remedy
 When parties manifest their intentions through their
conduct of wanting to enter a contract.
 Personal Relationship
 Courts have recognized unjust enrichment claims when
the parties have behaved as if they were married.
o Is the benefit the kind that is usually a gift?
o Foist the benefit?
 Give the person a reasonable opportunity to decline
 Decide if the person wants the benefit
 NO BENEFIT
o What constitutes a benefit?
 If you requested services even if you choose not to accept the
benefit, or the services, you have benefitted to the extent of the
fair market value of the services rendered.
 o A benefit that is imposed on a party, without consent, is usually
considered no benefit.
Bloomgarden v. Coyer, p. 127 (Court of Appeals DC, 1973)
 Facts: Plaintiff introduced Carly and Coyer, and set up a meeting between
them to discuss some business project. Plaintiff now claims finder fees by
virtue of contract, which should be factually implied.
 Issue: Whether the contract is factually implied, and if so, whether unjust
enrichment theory applies?
Is there an agreement with consideration?
No, there is no exchange of commission for putting these people
together.
Is it an implied contract?
The court looks at the conduct and the circumstances, and from that
is it reasonable to infer that this was a bargain for exchange?
Court stated that there was no implied contract.
Promissory Estoppel?
No, because you need a promise. Here, there was no promise.
Quasi-contract imposes a duty, but is not a contract.
The law imposes a duty as opposed to the consensual contract
 Rule: Expectation of payment-If the recipient does not reasonably
communicate his expectation to have to compensate the party for the benefit
it confers, the party cannot recover under unjust enrichment.

 Holding: Court held that π did not communicate that he expected to get paid
and it was not really implied; therefore, π couldn’t recover under unjust
enrichment. He also couldn’t recover under implied-in-fact contract
 Takeaway: TAYLOR: The court was thinking a lot about policy issues
 They acknowledged that the parties didn’t agree, but
defendant did receive a benefit pay the reasonable value of
the services
 Was the court correct that here there is not even an inference
to get to the jury?
o He organized the meetings
o He was an active participant
o He traveled with them
o However He wanted $1 million and didn’t tell
anyone
o That CANT be implied
Blackmon v. Iverson p. 134 (E.D. PA, 2004)
 Facts: Blackmon suggested that Iverson use “The Answer” as a nickname in
the summer league basketball tournaments in which Iverson would be
playing. Iverson AFTERWARDS promised to give cut of profits, but at the
time of conferment, π never expressed expectation of payment.
 Issue: Whether unjust enrichment theory applies?
 Rule: Expectation of compensation needs to be express at the time of
benefit conferment
  Holding: The π’s facts show that he wanted and intended the Δ to
use the nickname in the summer league without expecting any
payment for that use. No unjust enrichment alleged in the complaint.
Any benefit to the Δ from the marketing of products with the
nickname comes from his fame as a basketball player and the
investment in marketing the products by Reebok. The court dismissed
the unjust enrichment claim.

Sparks v. Gustafson, p. 135 (SC of AK, 1988)

 Facts: Decedent purchased an estate, which plaintiff managed without charge until
decedents death. Thereafter he continued to manage the property without compensation
with the knowledge and consent of defendant, decedent’s estate. Defendant’s property
operate at a loss and plaintiff often provided his own money to do repairs and pay
expenses. D & P signed a purchase agreement to sell the building to plaintiff contingent
on final details. These were never worked out and building was sold to a third party at
which time the plaintiff ceased to manage it.
 Issue: Whether unjust enrichment applies?
Is there an agreement with consideration?
No, there is no inducement.
Promissory Estoppel?
No, there was no promise.
Unjust Enrichment?
 Yes, there was a benefit. Plaintiff kept the business going.
 The court analyzed the extent of what he did.
 The court reasoned that these are the kinds of services that people
pay to get done.
 Rule: Courts will allow a defendant to retain a benefit without compensating the
plaintiff in certain situations, one of which is where the benefit was given
gratuitously without expectation of payment OR where benefit was forced on
you (foisted); however, Δ may recover if the benefit is the type that is usually
done for compensation and would be unjust if not paid
 Holding: Court said π was entitled to restitution since he conferred a benefit on
Δ (even though the building was operating at a loss) and his services were not
offered gratuitously. There was an expectation of payment. Services performed
by π went beyond what one would ordinarily expect to receive from a friend as
mere gratuity. Good friends don’t ordinarily do this for free; so Δ should expect
to pay.
 Takeaway: TAYLOR: Did the court get it right?
 They had promised him that the business would be his.
 Did he do all this thinking that he was going to get the
property?
 He waited two years, which he didn’t indicate that he wanted to
get paid.
 The court here is saying that sometimes without expressing
payment it would be unjust if is not treated as a contract.
 Gift Principle vs. Free Choice Principle
 A person is not unjustly enriched, and therefore not required to make restitution, where the benefit was
conferred by a volunteer or intermeddler.
 This general rule involves two distinct principles:
o (1) Gift Principle: one who has conferred a benefit upon another with an intention to make a
gift has no equitable claim for relief against the recipient of the benefit in the absence of fraud,
mistake, duress or undue influence
o (2) Free Choice Principle: One who confers benefit upon another without affording that other
the opportunity to reject the benefit, has no equitable claim for relief against the recipient of the
benefit in the absence of some special policy that would outweigh the right of free choice in the
benefited party
 Courts often refer to free choice principle in terms of “intermeddlers”
 At times the term “volunteer” can be used to refer to the party conferring the gift in the choice
principle
o But ‘volunteer’ can also be used to refer to the gift principle

Brown v. Brown (DC App., 1987): There is a presumption that services rendered by siblings
are gratuitous.

Gay v. Mooney, p. 139 (SC of NJ, 1901)

 Facts: Defendant’s intestate was the uncle of the plaintiff’s wife and for several
years before his death resided in the plaintiff’s family. However, he died without
conveying the property.
 Issue: Whether there is a benefit, or is it a gift?
Presumption Family members usually give gifts
 They took care of the uncle because that is what family
members do.
Rebut the presumption Is it not a gift!
 There was a bargain
 However, it wasn’t a successful bargain because land
transaction has to be in writing.
Promissory Estoppel?
 There was a promise made.
 Probably by this time this theory had not yet developed.
Unjust Enrichment?
 They expected to be paid.
 They got the reasonable amount of the services, not the
house.
 Rule: Unjust enrichment applies when one party to an agreement, confers a
benefit, but the agreement is unenforceable for some season, like statute of
frauds.
 Holding: There was a problem with the contract, however, because of statute of
frauds because it took more than a year for performance on the contract to be
complete and there was no writing. However, Δ recovered under unjust
enrichment because it would be unjust for π to keep the benefit given to him by
Δ
 Takeaway:
 Posner v. Seder, p. 145 (Sup. Jud. Ct. of MA, 1903)
 Facts: Plaintiff was employed w/ contract for $17/wk for 1 year, where he
would work overtime on some weeks but not others. Plaintiff was fired
before end of K and sued for value of work and overtime.
 Issue: Whether unjust enrichment applies?
 Rule: After breach, injured party may sue either for breach of contract (“on
contract”) OR for unjust enrichment (“off contract”)—whichever theory
affords greater recovery. When fair value of an injured party’s performance
is greater than
 Holding: Court holds that π can sue off contract and recover the VALUE of
the services he rendered minus amount already received (market value of the
work he performed + the overtime) OR can sue on contract and recover
under breach of contract remedy/agreement with consideration ($17/wk
minus amount already paid to him).
 Takeaway: The court allowed the π to sue either ON or OFF the contract
(can’t mix theory). If suing ON the contract, then π is not entitled to overtime
payment because it was not a provision of the contact. If suing OFF the
contract, the court states that there is an unjust enrichment because it would
be unjust to retain the benefit of locking in the π for one year for $17 then
terminating him. The remedy for this would be restitution.
 Plaintiff has two options for remedy:
o Can be compensated based on the contract No overtime
o Focus on restitution compensated for the reasonable value for his
services.

Kelly v. Hance, p. 147 (Supreme Court of Errors of CT, 1928)

 Facts: In September, the π agreed to excavate land in front of the Δ’s
property and construct a sideway + curb. The π started work in December, 3
months later than agreed upon at which time he removed only a strip of land
in front of the Δ’s property. The π never constructed any part of the sidewalk
or curb. In March, the Δ cancelled the contract. The π brought suit to recover
the reasonable value of the work he had performed. The trial court found the
π was entitled to recover $133 for the value of work that was done. The Δ
appealed. Here, the breaching party is the one suing for restitution.
 Issue: Whether plaintiff could get compensation?
 Plaintiff could not claim that defendant breached because plaintiff was the
one that didn’t complete his side of the agreement.
 Promissory Estoppel?
o Won’t work because the plaintiff was the promisor he didn’t do
anything in reliance of a failed promise.
 Unjust Enrichment?
o Failed because even though plaintiff did part of the job it is the type
of enrichment that is on a piece of land
o The defendant could not accept it or reject it it was just done.
 Quantum Merit will not lie when uncompleted work is not what recipient
requested, even if they did benefit some.
 Rule: When breaching party has conferred a benefit that recipient cannot
return, party cannot recover on unjust enrichment.
  Holding: π could not recover under unjust enrichment since he willfully
abandoned the contract with no justification. Except where there has been
an actual acceptance of work prior to its abandonment by π, mere inaction on
part of Δ will not be treated as an acceptance of work for which promise to
pay for it may be implied. Here, no substantial completion (no divisible
portion of the contract had been performed); no justification for
abandonment, mere retention is not acceptance. Δ was powerless to “return”
the work completed and is not required to pay for it.
 Takeaway:

Britton v. Turner, p. 149 (SC of Judicature of NH, 1834) – Quantum Meruit

 Facts: π worked for 9.5 months under contract where would be paid $120 for one
year. He quit after 80% of the contract. Court awarded him $95 because employees
are entitled to compensation for their services even if they cannot complete their
term. Otherwise employer would be unjustly enriched.
 Issue: Whether plaintiff could get recovery for the services prior to the breach?
 Rule:
 Holding: The court affirmed the trial court’s disposition that the employee recover
the reasonable amount of his labor and the jury awarded the employee $95.
Court reasoned:
 Day-to-day laborers you accept their work as they do it each day
and not the same as a long term project.
 Court doesn’t like forfeiture Plaintiff put a lot of work, therefore
defendant should be made whole again, not better then where we
started.
 Which would be if he benefited from 80% of the work
without paying for it.
 Public Policy Courts don’t want employers to try to make the
situation such that the employee will quit before contract is up and
not have to pay.
 Also, without rewarding the plaintiff then would be saying that the
court favors a party who breached without performing at all over a
party who breaches after almost completely performing.
 Takeaway: The Court says that employers are allowed to stipulate that payment is
only available upon completion of job otherwise they must be paid quantum meruit

De Leon v. Aldrete p. 154 1965 (TX Civ. App. 1965)

 Facts: π contracts to buy land but defaults after paying 70% of the purchase
price. Δ sells to another purchaser for $200 less. Δ didn’t want to give money
back to π.
 Issue: Whether plaintiff, the breaching party, could recover the payment
that was made prior to breaching the contract ?
 Rule: After breach, injured party may sue either for breach of contract OR for
unjust enrichment. When fair value of an injured party’s performance is greater
than the contract price of that performance, the party will use UE.
 Holding: But court holds that Δ has to pay money back to π minus the $200
difference. If the purchaser didn’t get the money back, the seller would be
unjustly enriched.
  Takeaway: Punitive damages are alien to the law of contracts. The fundamental
principle of our law concerning the liability of one who breaches his contract is
the principle of compensation

Watts v. Watts, p. 157 (TX Civ. App. 1965) – Personal relationships

 Facts: π and Δ lived together for 12 years in a “marriage-like” relationship
w/ kids. Π quit her job on Δ’s promise to take care of her. The couple shared
expenses, bank accounts, tax returns; Δ included π on his insurance policy
and π worked for Δ’s business. The two broke up and Δ refused to split
50/50.
 Issue: Whether the defendant is receiving a benefit, if so, what does he
have to pay?
 Rule:
 Holding: The fact that π worked in the business, did housework, contributed
to finances, etc. entitles her to compensation under Unjust Enrichment. That
type of work is not the type that would normally be considered gratuitous.
 Takeaway: Quasi-contract
 A benefit conferred on the defendant by the plaintiff
 Appreciation or knowledge by the defendant of the benefit, and
 Acceptance or retention of the benefit by the defendant under
circumstances making it inequitable for the defendant to retain the
benefit.

VII. Promises for Benefits Received, pps. 163-178 (up to Section Six)

Restatement (Second) of Contracts § 86: Promise for Benefit Received

(1) A promise made in recognition of a benefit previously received by the promisor from the promise is binding to
the extent necessary to prevent justice
(2) A promise is not binding under Subsection if the promise conferred the benefit as a gift or for other reasons the
promisor has not been unjustly enriched; or if its value is disproportionate to the benefit
 Comment:
o (a) Past Consideration; moral obligation.

Mills v. Wyman, p. 163 (Sup. Jud. Ct. of MA, 1825)

 Facts: Son of defendant fell sick and plaintiff took care of him. Defendant wrote to
plaintiff and promised that he would pay for the expenses and later refused to do so.
 Issue: Whether unjust enrichment applies?
o Agreement with consideration?
 No, there was no bargain for exchange.
 The promise did not induced the detriment because the detriment already
happened
 There was no mutual inducement
o Promissory Estoppel?
 No, because there is no reliance on the promise.
 The detriment already occurred
o Unjust Enrichment?
 Where there any benefits on the defendant? Yes.
 Expectation of Payment? No.
 o Moral Obligation?
 A moral obligation is a sufficient consideration to support an express promise
only where there is a pre-existing obligation.
 The person made a promise for a benefit received and out of that an obligation
arises.
 Rule: May only award the value of the benefit and here we cannot affix a value to the
life of a child
 Holding: Also father was not given the ability to accept or reject the service provided;
court held that they wouldn’t uphold the retrospective promise even though Δ should
keep his promise “in good conscience.” This is because it would have been a gift and
because there was no consideration. A question of moral obligation is presented.
 Takeaway: TAYLOR: The court is focused on Moral Obligation because of people
making promises without thinking.
 People need to think about promises before they make them
Webb v. McGowin, p. 167 (Court of App. Of AL, 1935)
 Facts: Webb saved McGowin’s life at work and was left handicapped. McGowin
agreed to pay Webb $15 every 2 weeks. McGowin paid until death, then executors
of his estate refused to continue.
 Issue: Whether defendant estate owes plaintiff for the promised?
 Bargain for exchange?
o There was no bargain for exchange
 Rule: Material benefit – promises for benefit received are enforceable as a distinct
obligation (separate from bargained-for exchange) whenever a promise materially
benefits a promisor, not intending a gift, and the promisor then makes a promise to
pay for the benefit.
 Holding: Because π had “materially benefited” Δ, Δ was morally bound to
compensate. The court claimed that the material benefit was sufficient consideration
for Δ’s agreement to pay him for life, and that Δ’s promise raised the presumption
that services had been rendered at Δ’s request.
 Takeaway: Fictionalized Consideration the moral obligation of defendant to
plaintiff is not sufficient obligation because there was no past bargaining, but the court
allows it because of moral reasons, also because the payments had been made for 9
years.
 TAYLOR: The court is equating consideration with
benefit
o The court didn’t take into account the
inducement
o The court is loose with language because is
trying to make this into consideration.
o This is really a gift!

Edson v. Poppe, p. 173 (SD Supreme Court, 1910)

 Facts: Tenant builds a well, and the owner happy with it, promises to
compensate the tenant for the improvement of his land. Later refused to pay.
Defendant denies he ever made that promise.
 Issue: Whether the promise is binding?
  Holding: The court held that based on the circumstances, the subsequent
promise of defendant to pay plaintiff he reasonable value for digging and
casing said well was binding, and supported by sufficient consideration.
o Benefit conferred even though defendant didn’t ask for it defendant
benefitted and promised to pay therefore he is obligated to pay.
o Material benefit is economic and has a determinable value.

o The court enforced the promise because the services were beneficial
to the promisor (past consideration) →services were not intended to
be a gift. Unjust enrichment + promissory confession = created in the
recipient sense or moral obligation
 Rule: Courts may enforce promise for benefits received using doctrine of
moral obligation to prevent unjust enrichment.
 Takeaway:
o Asks: should the doctrine of recovery for past consideration be
extended to economic injuries
o Court distinguishes this case because plaintiff had time to consider
going down into the well
o The Court said even if you didn't ask for it, you could have not made
the promise therefore, "if you make a promise to pay for something
someone already gave to you, we're going to treat it as if you asked
for it in the beginning"
Promises Grounded in the Past: The Idea of Unjust Enrichment and the Law of Contracts, Henderson
 The general assumption has been that the promisor is vulnerable to dangers similar to those
that threaten donors of gift promises
 As a result, policies designed to protect the interests of the makers of unexecuted gifts have
been transferred to the moral obligation promisor; the vehicle for implementation is the
consideration doctrine
 Unjust enrichment... constitutes a substantive ground for the enforcement of promises;
it is enhanced when the enrichment factor is coupled with a promissory confession
 Consideration doctrine declares many promises unenforceable because the maker’s
deliberations are thought to be inadequate to impress upon him the seriousness of the
transaction
 Relevant in Poppe because “You had some lag time between getting the benefit and
making a promise.”
Note: The Concept of Moral Obligation
 Charles Fried: “Morality is concerned with how people should lead their lives and how they
should treat each other... Morality does not in the first degree describe attitudes, beliefs, or
demands about these things...”
 Lon Fuller: “When we say the defendant was morally obligated to do the thing he promised, we
in effect assert the existence of a substantive ground for enforcing the promise.

VIII. Obligations Arising From A Statutory Warranty, pps. 199-212

Background:
o Our law enforces promises made by sellers, lessors, or others concerning the quality of their performance.
Such promises are called “warranties.”
o Express warranties: when you make a description or talk about the quality of the goods and you say that
the good will be of a certain level or of a certain quality
o Other warranties arise from a combination of agreement and common law or statute.
Express Warranty
 UCC § 2-313 Arise from statements or conduct of the seller
o Express warranties by the seller are created as follows:
 Any affirmation of fact or promise made by the seller to the buyer which relates to the
goods and becomes part of the basis of the bargain creates an express warranty that the
goods shall conform to the affirmation or promise
 Any description of the goods which is made part of the basis of the bargain creates an
express warranty that the goods shall conform to the description
 Any sample or model which is made part of the basis of the bargain creates an express
warranty that the whole of the goods shall conform to the sample or model
o It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant”
or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the
value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the
goods does not create a warranty.
 Arise “by operation of law” these warranties do not depend on anything the seller
says or does.
 They are similar to unjust enrichment in the sense that they are not consensual in
nature.

Implied Warranty
(1) UCC § 2-314: Warrant of Merchantability; usage of trade
▪ Unless excluded or modified (§ 2-316), a warranty that the goods shall be merchantable is implied in
a contract for their sale if the seller is a merchant with respect to goods of that kind
• Goods to be merchantable must be at least such as
a) Are fit the ordinary purpose for which such goods are used.
 This warranty arises only if the seller is a MERCHANT
 Merchant person who deals in good of the kind or otherwise by his occupation holds himself
out as having knowledge or skill peculiar to the practices or goods involved in the transaction.
 Many disputes between buyers and sellers involve goods that injure a buyer, either in person or
in the pocketbook, even though the goods are quite ordinary.
(2) UCC Section 2-315: Fitness for a Particular Purpose
Where the seller at the time of contracting has reason to know any particular purpose for which the goods are
required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is
unless exclude or modified, an implied warranty that the goods shall be fit for such purpose.
o This implied warranty focuses on the time of contracting.
o The warranty arises when the seller has reason to know that the
buyer wanted the goods for a particular purpose and the buyer
relied on the seller’s expertise to select of furnish the goods.
o If the buyer reasonable relied on the seller’s selection.
PUFFING/ SALES TALK v. REAL COMMITMENT ON THE SELLER:
o How to determine whether a statement by the seller is an
affirmation of fact or promise or merely the seller’s opinion or
commendation of the goods?
o Puffing/ Sales Talk seller’s opinion
o The statue enforces real commitment on the seller:
  The type of talk that would induce reliance among reasonable
people
 What would a reasonable person believe about what the seller
said or did?
FACTORS TO CONSIDER:
 Is the statement vague or specific?
 Whether the statement is verifiable?
 That the statement relates to a particular fact that could
be checked
 Whether the statement is definitive makes a commitment?
 Whether the statement is oral or in writing?
 Writings command more attention and, therefore a
reasonable person may take more stock in a writing.
BASIS FOR THE BARGAINING REQUIREMENT
o Every seller statement that meets the other conditions for creating an
express warranty is presumed to be a basis of the bargaining unless the
seller proves otherwise.
o No particular reliance needs to be shown in order to weave them into
the agreement
o Courts have not been consistent in deciding whether the seller must
show that the buyer has not relied on the statement.
o Mixed motives approach a statement is a basis of the bargain so long
as the seller’s statement is at least one of the inducements for the
purchase of the product.
 Then, whether, as a result of the statement, a reasonable buyer
would be induced?
 Whether the buyer actually was induced?
SAMPLES AND MODELS
o A sample is actually drawn from the bulk of goods, which is the subject
matter of the sale.
 Creates a stronger presumption that it is a basis of the bargain
than a model.
o Model is not drawn from the goods, but is something the seller offers
for inspection
o The seller’s defense telling the buyer that the item he/she is showing
is for illustrative purposes only, and that the goods sold may be
different.

Keith v. Buchanan, p. 199 (CA, 1985)

 Facts: π sought to purchase a seaworthy sailboat. He talked to the Δ’s
sales rep about a boat. The π had his friend inspect the vessel. The friend
confirmed the vessel was fit for π’s purposes. He then bought the sailboat
and is contesting the seaworthiness of it. The π filed the instant lawsuit
alleging causes of action in breach of express warranty and breach of
implied warranty.
 Issue: Whether there was a breach of (1) express warranty and (2)
implied warranty.
  Rule: We judge whether something was an opinion, or a warranty based
on reasonableness, express warranty is when you make a description or
talk about the quality of the goods and you say that the good will be of a
certain level or of a certain quality
 Holding: There is a breach of express warranty. However, no breach of
implied warranty because π had his friend inspect the boat and did not
rely on sales rep to buy the boat.
o Several factors which tend to indicate an “opinion” statement: (1)
a lack of specificity, (2) a statement that is made in an equivocal
manner, or (3) a statement which reveals that the goods are
experimental in nature.
 Example: “A-1 Condition” Could this be considered an
‘opinion’?
 Depends. Need more information on whether “A-
1” is an industry standard term; are we using this
or a more ‘commoner’ expectation?
 Takeaway: The court held that there was an express warranty that
the boat was “sale worthy”
o Language has to be clear and specific
o Seller argued that the buyer inspected the boat:
 The court stated that it was not the same as inspecting
the seaworthiness.
o If there is an express warranty, burden is on the seller to prove
that the representation was not the basis of the bargaining
inducing the buyer’s purchase.

Sugawara v. Pepsico, Inc. 206 (ED Cal, 2009)

 Facts: The π contends that the colorful Crunchberries, combined with
use of the word “berry” in the product name, convey the message that
Cap’n Crunch is not all sugar and starch, but contains redeeming
fruit. The π sued Δ for breach of express warranty. The Δ moved to
dismiss.
 Issue: Whether there was a breach of (1) express warranty and
(2) implied warranty.
 Rule:
 Holding: While the challenged packaging contains the word
“berries” it does so only in conjunction with the descriptive term
“crunch.” This Court is not aware of any actual fruit referred to as a
“crunchberry.” Furthermore, the display panel clearly states both that
the product contains “sweetened corn & oat cereal.” Thus, a
reasonable consumer would not be deceived into believing that the
Product in the case contained a fruit that does not exist.
 Takeaway:

Webster v. Blue Ship Tea Room, p. 207 (Sup Jud Ct. of MA, 1964)
 Facts: π was injured when a fishbone became lodged in her throat while she
ate at Δ’s restaurant. The π said that the bone in Δ’s fish chowder is a breach
of the implied warranty of merchantability under UCC §2-314.
 Issue: Whether the chowder was fit for the ordinary purpose?
  Rule: Whether the standard is normal/naturally expected to find foreign
substances in a place that it is not normally supposed to be; should be
foreseeable
 Holding: Not doing this for suretyship (on behalf of someone else) but for
personal benefit (self-interest) of the defendant thus→court held that there
was no breach of implied warranty of merchantability because occasional
bones in chowder is an anticipated risk of eating the chowder. Chowder
meets ordinary purpose = originally designed. There is a difference between
natural and foreign substance.
 Takeaway:
 Bones are part of how you make the dish; therefore the court held
that there was no breach.
 Goods are fit for the ordinary purpose even if there is a problem with
it, as long as that problem is ordinary and foreseeable.

IX. Statute of Frauds, pps. 213-223; 233-246

Background:
 The statute of frauds: a formal requirement for the enforcement of certain agreements with consideration,
namely the requirement of a writing.
 In addition to a general statute of frauds, one or more special statutes imposing additional writing
requirements are also in force in virtually all jurisdictions
 The Uniform Commercial Code embodies several special writing requirements, as well as the modern-day
sale of goods counterpart to the old English statute
 Compliance with the statute of frauds does not itself prove the existence of a contract—must show all
the requirements of an agreement w/ consideration
i. Certain agreements must be in writing to be
enforceable
Why?  To combat fraud and perjury.
ii. Writing is evidentiary proof that an agreement is
made
iii. Even if a promise produces a formal or informal
writing that satisfies the statute, the person still has
to contend to all the issues of contract
enforceability
iv. Hawaii Statute of Frauds:
No action shall be brought and maintained in any of the following cases:
 To charge a personal representative, upon any special promise to answer for
damages out of the personal representative’s own estate;
 To charge any person upon any special promise to answer for the debt,
default or misdoing of another’
 To charge any person upon an agreement made in consideration of marriage;
 Upon any contract for the sale of lands, tenements, or hereditaments, or of
any interest in or concerning them;
 Upon any agreement that is not to be performed within one year from the
making thereof;
 To charge any person upon any agreement authorizing or employing an
agent or broker to purchase or sell real estate for compensation or
commission;
 To charge the estate of any deceased person upon any agreement which by
its terms is not to be performed during the lifetime of the promisor.
 Unless the promise, contract, or agreement upon which the action is brought, or
some memorandum or note thereof, is in writing, and is signed by the party to be
charged therewith, or by some person thereunto by the party in writing lawfully
authorized.
SALE OF GOODS
UCC Section 2-201 (1)
 A contract for the sale of goods for the price of $500 or more is not
enforceable by way of action or defense unless there is some writing
sufficient to indicate that a contract for sale has been made between the
parties and signed by the party against whom enforcement is sought.
DOES THE STATUTE OF FRAUDS APPLY?
The contracts that must be in writing:
 Sale of land or interest in land
 Contracts that cannot be performed within one year from the time of contract
formation
i. Memories can fade over time agreements with long durations have
to be in writing
 Contracts for the sale of goods
DOES WRITING SATISFY THE STATUTE OF FRAUDS?
o The actual promise, contract or agreement that the promisee is trying to
enforce must be in writing, or at least be referred in some memorandum or
note in writing that proves the existence of the promise, contract or
agreement.
o The statute of frauds does not require a formal written contract, just
something in writing that proves the contract’s existence.
o The writing must reasonably identify the subject matter of the contract and
include with reasonable certainty the essential terms of the unperformed
promises in the contract.
When there are several writings:
 The signed writing must establish a contractual relationship between the
parties
 The unsigned documents must refer expressly to the same agreement, and
 Evidence must prove the relationship of the unsigned and signed documents
Writing may satisfy the statute of frauds even if the parties did not intend to contract or
to create evidence of a contract.
Who must sign?
 UCC The writing must be signed by the party against whom enforcement
is sought Authorized person may sign on behalf of a contracting party
The basic problem arising under a statute of frauds and its case law are these:
▪  (1) Does the statute apply; or is the case “within the statute?”
▪  (2) Is there writing?
▪  (3) Does writing satisfy the statute?
• Signed by the party to be charged, multiple documents can be aggravated to satisfy
o M – marriage
o Y – year (performance possible in under 1 year)
o L–land
o E – executorship
o G – goods (>$500)
o S – suretyship (paying other ppl’s debts)
▪ (4) Are there exceptions?
▪ (5) Is there an agreement with valid consideration?
 ▪ If Statute of frauds does NOT apply, the court may enforce promises based on promissory estoppel or
unjust enrichment, which do not require the statute of frauds
o Compliance with SOF does not itself prove existence of a contract
o Court held that “self-interest” can act as a proxy for the writing requirement (as in Webster v. Blue
Ship where acting in self-interest supported possible implied warranty)
o Legislative intent: serves as evidentiary measure→suretyship; allows them to pass the gatekeeping
requirements to get into court –
3 Main Categories:
o Contracts for sale of land or any interest in land
▪Includes contracts for ANY interest concerning land
o Contracts not to be performed within one year from the time the contract is made
▪ Courts interpret this as: writing is required when promise CANNOT be performed within 1 year
o Contracts for the sale of goods

Writing Requirement

RSC § 131:
▪  Any writing, signed by or on behalf of party charged which
 Reasonably identifies the subject matter of the contract
 Is sufficient to indicate a contract had been made
 States with reasonable certainty the essential terms of the unperformed promises
▪  When ambiguous terms in a memorandum are disputed, extrinsic evidence is admissible to resolve the
uncertainty. Extrinsic evidence can also support reformation of a memorandum to correct a mistake.

Howard M. Schoor Associates, Inc. v. Holmdel p. 217 (NJ, 1975)

 Facts: Plaintiff was an engineering firm, that renders some professional services to defendant.
Sugarman, defendant’s attorney, promised to personally pay defendant’s bill owed to the
plaintiff. Sugarman started paying plaintiff with a check for $2,000. Plaintiff did all the work but
received no further compensation.
 Issue: Whether this promise is enforceable under the statute of frauds?
 Rule: When leading object is surety, the agreement is within the statute of frauds. However, if
the leading object of the promisor is to serve self-interest, this promise is not within the statute.
whether or not the statute of frauds applies depends upon whether this consideration was mainly
desired for the promisor’s benefit or for the benefit of the original debtor.
 Holding: The court holds that because Δ was acting in his own interest and not trying to pay a
third party’s debt, the statute of frauds doesn’t apply→not a true surety.
 Defendant argued that his promise was not enforceable under the statue of
frauds, because surety ship requires writing, and there was none.
 Under the statute is #2 To charge any person upon any special promise to
answer for the debt, or misdoings of another
 MAIN PURPOSE RULE/ MAIN BENEFIT RULE
o If defendant made the promise for his benefit the court removes the
bar and don’t have to comply with the statute of frauds
o If you make the promise for your benefit and you gain a lot, there is
a strong indication that you made that promise
 Here the court removed the bar.
 Takeaway:
  If it is not in the statute, and it is not in writing, but there is an
exception, the π still has to prove the elements of a contract to prove
that there even is a contract
 If there is no exception, then the Δ wins
 TAYLOR: There is a lot of judicial hostility in these
types of cases.

The “one year” provision of the Statute of Frauds

 In the case where it is plausible that a promise can be fulfilled in one year (or less), the court will likely find that the contract is
not within the statute of frauds
 If one party dies during the performance of a promise with a fixed term, then the contract is not fulfilled—it is terminated

McIntosh v. Murphy, p. 234 (Alternatives to Statute of Frauds)

 Facts: Plaintiff was interviewed by defendant for a position as a sales
manager in the Hawaii office. However, no contract was entered into. About
a month later, plaintiff received a call from GM of possible employment
within 30 days. Plaintiff went to Hawaii and commenced work but in two
months he was fired.
 Issue: Whether the agreement is enforceable under the statute of frauds?
 Rule: promises based on promissory estoppel or unjust enrichment,
which do not require the statute of frauds
 Holding: Court found for plaintiff on the grounds that plaintiff reliance was
such that injustice could only be avoided by enforcing the contract, since
plaintiff reliance and his move from LA to HI were foreseeable.
o Court took the contract out of the SoF by omitting the weekend
dates
o Appellate court agrees with outcome but says argument is moot
because should be based on theory of equitable estoppel
 Takeaway: TAYLOR: Courts don’t like statute of frauds
 Here, the court is giving the plaintiff a chance to prove his
case.

Notes:
 For long-term contracts (i.e. promise to employ in 2 or 3 years) writing is important because of the time
factor
o Details of a contract can fade and become blurry over time; writing will cement
 Taking the contract out of the SoF allows you to prove there was a breach of contract

Dumas v. Infinity Broadcasting Corp., p. 240

 Facts: π and Δ emailed back and forth about a job; even agreed to
salary and starting date and duration of 5 years. Π resigned from his
station but Δ declined to hire him. π sued for BoC and PE.
 Issue:
 Rule:
o For promises that can’t be fulfilled in one year, the Statute of
Frauds requires the contract to be in writing.
 o Cannot circumvent the statute of frauds; one must meet the
requirements for consideration in order to use PE/detrimental
reliance
 Holding: Since the statute of frauds applies with equal force under
either a breach of contract or promissory estoppel theory under IL
law, it is unnecessary to do a separate PE analysis, for the statute of
frauds per se cannot be satisfied
 Takeaway: The court doesn’t use promissory estoppel
o If you have a writing No promissory Estoppel

UCC § 2-201: Formal Requirements; Statute of Frauds

(1) Except as otherwise provided... a contract for the sale of goods for the price of $500 or more is not enforceable
by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been
made between the parties and signed by the party against whom enforcement is sought or by their authorized agent
or broker.

- Note: Part Performance and the Statute of Frauds

 Reliance in the form of part performance may be sufficient to bar assertion of the statute of frauds as a
defense.
o Why?
 All that is required is that the writing afford a basis for believing that the offered oral evidence rests on a
real transaction
 However, an employee’s part performance of an employment contract with a duration of more than one
year generally does not take the contract out of the statute of frauds

- Note: The Statute of Frauds and Electronic Contracting

 Revised UCC Article 1—adopted by most states and applicable to Article 2 sales—includes definitions of
“signed”and “writing.” UCC §§ 1-201(b)(37) & (43).
▪ Clicking on an “I Agree” icon satisfies the statute of frauds under these definitions
 Courts consider an email “writing” and find they are “tangible” because they can be saved on a hard drive
and printed on paper
 The Electronic Signatures in Global National Commerce Act, 15 USC § 7001 allows parties to bind
themselves to contracts online through electronic signatures

Remedies
The Limits of Effective Legal Action – Pound
o Law secures interests by punishment, by prevention, by specific regress, and by substitutional redress.

X. Remedial Theory & the Expectancy Rule, pps. 247-271

 Monetary Remedies Include
o Lost Expectancy Damages: Puts π in monetary position she would’ve been if the agreement had
been performed by Δ.
 Cost of completion: should be the remedy, EXCEPT
 When that term is incidental to the contract’s purpose
 Damages would be grossly disproportionate to the diminution in value
o Reliance Damages: Puts π in the monetary position she would’ve been if the agreement or promise
had never been made. Compensates π for a change in her position in reliance on the promise by Δ.
 o Restitution: π can reclaim any amount given as consideration for the contract and any
benefit/value conferred on Δ when π relied on the promise. Goal is prevention of unjust enrichment.
 Non-legal Sanctions in Commercial Relationship:
o Relationship-specific prospective advantage: party will confiscate asset if promisor breaches
o Loss of Reputation among market participant
o Sacrifice of psychic and social goods—breaching promisor may suffer loss of opportunities for
important or pleasurable associations with others, etc.

Groves v. John Wunder Co., p. 252 (SC of MN, 1939)

 Facts: Wunder leased a piece of Groves’ land in order to excavate
gravel. Wunder promised in the lease to leave the property at a uniform
grade, substantially the same as the grade now existing at the roadway.
At the end of the lease, Wunder returned the land without honoring the
promise to restore it to a uniform grade.
 The cost of restoration $60,000
 The restoration would have increased the value of the land by
a little more than $12,000
 Issue: Whether to award the plaintiffs $60,000 (cost of restoration) or
$12,000 (loss of increased value of the land)?
 Majority Holding: Believes that π should get the cost of restoration ($60k).
Contracts for personalized consideration (ugly fountain) may be treated
differently than contracts for pure economic contracts
o Monument (fountain) analogy the landowner ought to have the
right to do what it wants with its land.
 Dissent:
i. It would have awarded the $12,000 on the theory
that Groves only suffered that amount of loss in
the value of the land as the result of the breach.
ii. No finding that the breach was deliberate and
willful
 Rule: Loss expectancy (forward looking)-Plaintiff relief that would have been
given had the contract originally been performed. One does not get more than
compensation; don’t get better off.
 Takeaway: TAYLOR: This was cost to complete (majority) v.
Diminished value/ $$ for actual loss (dissent)
 When awarding these damages, the courts are worried
about unjust enrichment

Peevyhouse v. Garland Coal & Mining Co., p. 262

 Facts: The Peevyhouse brought an action against Garland for failing
to restore the Peevyhouse’s land after strip mining, as promised on
the contract. The cost of restoration $29,000. It would have
increased the value of the land by $300
 Issue: Whether the court should award expectancy damages?
 Rule: RSC §347: looks at the subjective value of the performance
that the party contracted for
  Holding: The court focused on the huge discrepancy between these
two amounts and denied the Peevyhouse cost of restoration damages.
o DISSENT: The plaintiff specified that they had to clean up
the land. They lived on the land, maybe is a personal motive,
but they still indicated it.
 Takeaway: According to Groves reasoning, the πs here should’ve
recovered $29k because restoration was important to them

Rock Island Improvement Co. v. Helmerich & Payne, p. 266

 Facts: Defendant leased two tracts of land from Plaintiff for coal mining
purposes. The lease contained a reclamation clause that after any mining
operation the surface would be restored to a condition as close as possible to
the condition prior to the mining operation. When the lease period ended, the
land was not reclaimed.
 Issue: Whether the plaintiff is entitled to expectancy damages?
 Rule: introduced extrinsic evidence of their intent. Otherwise, the trial court
should treat interpretation of the contract clause as a matter of law.
 Holding: After Peevyhouse, OK passed the Open Cut Land Reclamation Act
that made it policy of the State for miners “to provide, after mining
operations are completed, for the reclamation and conservation of land
subjected to surface disturbance by open cut mining...” (environmental
concerns) The statute imposes a duty on a strip mine operator to reclaim the
land and allows the state to contract for the work if the operator defaults
o Does the court follow Peevyhouse? No, because of statute.
Environmental concerns.
o However, based on a statute that declared that land conservation was
the policy of the state and requiring the miner to restore the land
regardless of the costs. The majority opinion awarded the cost of
restoration.
 Takeaway: The OK state policy created a strong presumption that the
contract right of landowners to reclamation was not merely incidental to the
contract, but an important, bargained-for term. Even though the cost of
restoration was grossly disproportionate to the increase in value of the land,
the landowner was therefore entitled to the cost of restoration.

Radford v. De Froberville, p. 269

 Facts: Plaintiff was the owner of house, which was broken up into
flats and leased to tenants. Next to the house was another large lot
where another house could be built. Plaintiff sold the lot to defendant
for 6500lbs and defendant promised to build a fence to divide the
properties. Defendant failed to build the fence and now plaintiff is
suing for the cost of the wall.
 Issue: Whether the plaintiff is entitled to expectancy damages?
 Rule: Damages calculation = (K price) – (cost to complete); damages
should be measured by the cost of the work as long as this was not a
technical breach to secure an unjustified profit.
 Holding: The failure to build the wall did not diminish the value of
π’s property; the court awards π the cost of completing the wall. It is
clear that π really wants the wall and will use the remedy to build it.
  There was no diminishing in value for not
putting up the fence
 Subjective approach to expectancy damages
the court measured his loss for his particular
circumstances.
 Takeaway: The court’s rationale is that damages should be based on
the injured party’s intent to have the contract completed
o We look at what the injured party lost, not what the party
theoretically lost

XI. Making the Injured Party Whole and Efficient Breach, pps. 271-285

RSC § 347, Comment B: Measure of Damages in General

The first element that must be estimated in attempting to fix a sum that will fairly represent the expectation
interest is the loss in the value to the injured party of the other party’s performance that is caused by the failure of,
or deficiency in, that performance. This requires a determination of the value of that performance to the injured
party themselves and not the value to some hypothetical reasonable person or on some market. The value of
performance therefore depends on his own particular circumstances or those of his enterprise.

Thorne v. White, p. 271

 Facts: Thorne contracted to put a new roof on White’s residence and make
certain repairs in connection therewith for $225. Within a few hours work
was discontinued due to inclement weather. Thorne never returned. White
then entered into a contract with another company. Cost was $582.26. White
sued Thorne for the difference alleging breach of contract $357.26.
 Issue: Whether White is entitled to expectancy damages?
 Rule: A party damaged by a breach may only recover for losses which are
the natural consequence and proximate result of that breach. Damages are
awarded for the purpose of compensation and the injured party should not be
placed in a better situation than they would have been in had no such breach
occurred. Lost Expectancy: (cover price) – (contract price) = damages
 Holding: Courts put a limit on recovery to prevent unjust enrichment. You
get the difference between the cover and the contract prices; when there is a
breach, you have to get cover with similar value.
 Takeaway:

Morello v. Hogan, p. 273

 Facts: π contacted Δ to do work for a total of $44,000. Δ abandoned the job
after doing work valued at $9,411.87. Reasonable cover was $54,356.36.
The subcontractor sued for $9,411.87 and prime contractor countered for
$10,356.36 ($54,356.36 - $44,000 (cover – K price)). The trial court awarded
the prime contractor $944.49 ($10,356.56 - $$9,411.87).
 Issue: Whether plaintiff is entitle to lost expectancy damages?
 Rule: The award should place the injured party in the same position as it
would have been had the contract been performed.
 Holding: Court said that since π could recover difference between cover and
K price, π would have gotten $10k from Δ. Thus the $9k should not be
rewarded to Δ; Δ should pay π $1k.
 Takeaway:
  You don’t sue on the contract but off the contract and sue for
restitution
 When you have part performance you have to decrease the amount of
damages the injured would have received

Freund v. Washington, p. 273

 Facts: Parties entered into a contract in which plaintiff was to receive royalties form
the sale of published work. Contract allowed defendant to terminate the agreement if
the manuscript was unsuitable. Plaintiff sued for damages of cost of publication and
lost profits.
 Issue:
 Rule: Damages are not measured by what the defaulting party saved by the breach,
but by the natural and probable consequences of the breach to the plaintiff.
 Holding: The court held that when you sue for royalties, that assumes that books
will be published and sold, but we don’t know that with certainty, so plaintiff cannot
be awarded for expected profits because is too speculative. Court awarded nominal
damages only for costs of publication.

o Damages are reduced from $10,000 to 6 cents (sucks 4 u)

 Takeaway:

Warner v. McLay, p. 274

 Facts: Plaintiff argues that he is entitled to recover damages for expenditures and
loss profits occasioned by the breach of contract.
 Issue:
 Rule: Plaintiff has a right to recover compensation in damages that would have been
realized in profits
 Holding: Remedy should not have been assessed just off the contract price alone.
Contract price – the cost of labor and materials required to complete the
building
o Here, injured party (contractor) gets profits + non-salvageable expenses
o Profit = (total cost of work + labor + materials) – (K price)
 Takeaway: This is a construction contract.

The Reliance Interest in Contract Damages, Fuller and Perdue

 If a contract represents a kind of private law, it is a law which usually says nothing at all about what shall
be done when it is violated. There would, therefore, be no necessary contradiction between the principle of
private autonomy and a rule which limited damages to the reliance interest
 It is a cure for these losses in the sense that it offers the measure of recovery most likely to reimburse the
plaintiff for the individual acts and forbearances which make up this total reliance on the contract

Handicapped Children’s Education Board v. Lukaszewski, p. 279

 Facts: Defendant breached employment contract, and plaintiff had to hire
more experienced teacher at a higher salary. Plaintiff sues defendant for the
difference in salary.
 Issue: Whether the breaching party should pay for the price of the
substitute contract?
 Rule: (1) Damages for breach of contract are measured by the expectations
of the parties. (2) Injured parties must take all reasonable steps to mitigate
damages.
  Holding: π is entitled to the benefit of the bargain, the Δ leaving her position
caused her own stress and imposed on the school the cost of hiring a more
expensive teacher; (K price) – (cover); Since the extra benefit of having a
more qualified teacher was foisted on the school, the court awarded the full
difference between the salaries
 Takeaway:
o This is not to say that an employer who is injured by an employee's
breach of contract is free to hire the most qualified and expensive
replacement and then recover the difference between salary pay
o An injured party must take all reasonable steps to mitigate damages;
therefore, the employer must attempt to obtain equivalent services at
the lowest possible cost
o Does not fall into efficient breach; because even if plaintiff comes out
with ~$1,000 this does not account for litigation fees or other fees

Efficient Breach

 Expectancy damages encourage a party breach when the breach is efficient (breach makes some parties
better off without making anyone worse off), but dissuade a party from breaching when a breach would
cause more losses than gains
 Should be an incentive to commit a breach if the profit from breach exceeds the expected profit to the other
party from completion of the contract, if the damages are limited to the loss of expected profit

- Problem 3-2

 For non-at-will employment contracts where employer breached by firing employee not for just cause, we
want to get the employee to a position if the contract had been performed
 The formula is: (contract price) – (what was earned from this job and new job)
 Injured employee gets damages based on the salary because it is the benefit of bargain

-Problem 3-3

 Land sale contract; buyer breached the same day after agreeing to buy the property
 Yes, Norgaard is entitled to damages of $3000; he relied on Anderson to follow through on his promise to
buy the farm for $125,000. Anderson should have known well before that the fair market value of the farm
at all relevant times was $122,000. In entering a contract with Norgaard, Norgaard forwent any other
contracts despite his ability to successfully sell the farm for $125,000.
 Preventing Norgaard to recover is a slippery slope and will encourage people to back out of deals at the
last minute; it essentially undermines the concept of consideration
 (Contract price) – (market value) / Must consider market fluctuation
 Allowing someone to back out even 5 min later can snowball; law prevents for the sake of finality

XII. Market Price, Contract Price, and Foreseeable Damages, pps. 286-305

Sale of Goods

Uniform Commercial Code § 1-305: Remedies to be Liberally Administered

(a) the remedies provided by the UCC must be liberally administered to the end that the aggrieved party may be
put in as good a position as if the other party had fully performed but neither consequential or special damages nor
penal damages may be had except as specially provided in the UCC or by other rule of law.

INJURED BUYER

Uniform Commercial Code § 2-713: Buyer’s Damages for Non-Delivery or Repudiation

(1) Remedy is difference b/w market price (at time when buyer learned of breach) and the K price +
incidental/consequential damages, but less expenses saved in consequence of the seller’s breach.
(2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of
acceptance, as of the place of arrival.

Uniform Commercial Code § 2-712: “Cover”; Buyer’s Procurement of Substitute Goods

(1) After a breach within the preceding section 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 the
seller
(2) Remedy is difference b/w cost of cover and the contract price + with consequential/incidental damages, but
less expenses saved in consequence of seller’s breach
(a) if substitute purchase is in good faith & reasonable, buyer can recover more under 712 than 713 o

Uniform Commercial Code § 2-714: Buyer’s Damages for Breach in Regard to Accepted Goods

When buyer accepts and keeps defective goods, remedy for breach of warranty is difference b/w value of the
goods accepted and the value they would have been if they had been warranted

INJURED SELLER

Uniform Commercial Code § 2-708: Seller’s Damages for Non-Acceptance or Repudiation

(1) Remedy is difference between contract price and market value
(2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as
performance would have done then the measure of damages is the profit (including reasonable overhead) which
the seller would have made from full performance by the buyer, together with any incidental damages provided in
this Article, due allowance for costs reasonably incurred and due credit for payments or proceeds of resale

Uniform Commercial Code § 2-706: Seller’s Resale Including Contract for Resale

(1) For resale, the remedy is the difference between contract price and cover cost

LOST VOLUME SELLER

Uniform Commercial Code § 2-708: Seller’s Damages for Non-Acceptance or Repudiation

(2) If other measures of damages are inadequate to put seller in as good a position as performance would have
done, then the measure of damages is the profit which the seller would have made from full performance by the
buyer + incidental damages

o If you have un “unlimited supply” of something and the BUYER breaches a contract for something, the
SELLER gets lost profit and incidental damages from the contract made with BUYER. Court looks at your
capacity to make another sale AND your intention to make another sale.
 Tongish v. Thomas, p. 286 (omit Problem 3-4 pp. 289-290
 Facts:
 Issue: Whether the buyer is entitled to its actual loss of profit or the
difference between the market price and the contract price.
 Rule: When two statutes govern, use the more specific statute.
 Holding: Differentiate between the Δ in Lukaszewski; here, efficient breach
is encouraged→most efficient use of resources.
 Takeaway:

 The main issue is whether there was an efficient breach

 Fuller: this is a moral issue; the rules of contract law should
incentivize performance of contracts, not the breach of them →
injured party should get damages to the extent that they were harmed
 Doesn’t seem to have been a breach based on “good faith,” but no
evidence it was breached in bad faith; so, will say that the damages
will be the market-contract price differential
 But to what extent is Coop on the hook for their breach of contract
with Bambino?

Problem 3-4

 If the substitute purchase is “in good faith,” is “without unreasonable delay,” and is otherwise reasonable,
Coop can recover more under 2-712 than under §2-713
 (b) Under UCC § 2-712(1) and (2), set forth below, Coop can recover 1 cent per hundredweight. So if the
contract was for 100 lbs. then Coop can recover $5.00 plus any incidental or consequential damages
incurred such as

Neri v. Retail Marine Corp., p. 291

 Facts: Plaintiff makes down payment on boat in exchange for promise of the
boat delivery. Plaintiff rescinds and defendant refuses to return the deposit.
The boat was sold to third party, but the seller still suffered some damages
 Issue: Whether the seller is entitled to recover from the buyer’s breach?
 Rule: Measure of damages for repudiation by the buyers is the difference
between the market price at the time and place for tender and the unpaid
contract price + incidentals
Lost Volume Seller: a breach by the buyer injures the dealer, even if he can
sell to another buyer because he could’ve had two sales. The resale one
replaces the breacher’s sale thus depleting the dealer’s sale by one. To be a
lost volume seller, requires: (1) Volume (2) desire/intent to sell (3) sale at
reasonable market price
 Holding:
 Takeaway:
o Measure of damages for repudiation by the buyers is the difference
between the market prices at the time and place for tender and the
unpaid contract price + incidental damages
o However, a seller is not a lost volume seller if they are out of
capacity because they are not losing out on the potential for another
sale; would be considered
Note: Lost Expectancy, General Damages, and Consequential Damages
o General damages are losses from a breach that arise “naturally or ordinarily.”
o General damages often will be insufficient to make the injured party whole
o The claim for lost profits would be called “special” or “consequential” damages
o To award the aggrieved party full lost expectancy, courts often must award both general and consequential damages
o Typically, consequential damages are subject to greater qualifications and limits than general damages

LOST EXPECTANCY DAMAGES—QUALIFICATIONS AND LIMITS

Hadley v. Baxendale, p. 298

 Facts: π sent a broken crank shaft for repair and next day delivery. Delivery was delayed and the
mill was closed resulting in loss of profits – special/consequential damages.
 Issue: Whether the miller could recover for lost profits?
 Rule: General damages arise naturally and ordinarily from the breach. Special damages are
recoverable if the harm/consequence are so known and communicated by the parties.

 Holding: The jury should not take the loss of profits into consideration in estimating the
damages
 Takeaway:
o The court gave two options: general damages and consequential damages
o General damages: e.g. recovery for the rental value
o Consequential damages: Damages will be awarded upon a breach of contract only if
it was reasonably foreseeable and communicated at the time both parties enter into
the contract
 If the information is communicated to the entering parties, then it will allows
parties to either make appropriate adjustments, back out of the contract, or
secure insurance for potential liability

Armstrong v. Bangor Mill Supply Corp., p. 302

o Facts: Defendant is a machinist and repairs plaintiff’s
crankshaft, but doesn’t do it properly and plaintiff loss profits
as a result.
o Issue: Whether the plaintiff could recover from loss profits?
o Rule: (1) Special damages are recoverable if the
harm/consequence that are OBJECTIVELY foreseeable as a
probable result of the breach (2) A workmanlike manner is
implied by law→established by industry standard, custom, or
prior dealing between parties

o Holding: (1)The mills operation/profits was impeded by Δ’s

failure to complete his obligations (2)The jury could properly
include this element of loss in their award; the damages
awarded do not exceed the losses sustained.
o Takeaway:
 The court includes that loss expectancy damages are
entitled to the π, but does not say that this was
communicated between the parties when the contract
was made
 Though there is no explicit discussion about whether
the Δ knew that the mill would shut down, it can be
inferred that the Δ knew of the shutdown bc they are
 in the business of fixing crankshafts and should
reasonably know that broken crankshafts could cause
mills to shut down

XIII. Avoidable Consequences & Definite Damages, p. 306-328; Note p. 340

Clark v. Marsiglia, p. 306

 Facts: π continued to clean and repair paintings even after Δ told him to stop. π cannot
recover for fully.
 Rule: (1) Reasonable Damages Doctrine – no recovery for damages that you could have
reasonably avoided. Formula: (K price) – (consequence cost?) = loss
(2)Rule: Injured party must act reasonably to mitigate losses
 Reasoning: Court doesn’t want parties to try to increase their damages by continuing to
work after breach of contract. Decreases the cost to complete and increases the damages
incurred charged to the losing party.
 Takeaway: If buyer repudiates/breaches contract, you are not obligated to continue / you
can’t insist on completing the job and then demand costs incurred after the breach
 in these cases, the injured party only gets the damages from the breach, which do
not include the damages resulting after the breach— because these were not
incurred from the breach itself

Convention on Contracts for the International Sale of Goods, Article 77

o A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss,
including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the
damages in the amount by which the loss should have been mitigated.

Duty to Mitigate

Schiavi Mobile Homes v. Gironda, p. 308

 Facts: Δ signed contract to purchase mobile home from π. Δ paid
deposit but later breached the purchase contract. Δ’s father
offered to buy the home but π declined and sold to someone else
then sued Δs.
 Issue: Whether there was proper mitigation of damages?
 Rule: Test for Duty to Mitigate – whether reasonable efforts were
used to mitigate damages. Failure to mitigate damages. reduces
the amount to recover. If not for the breach, seller would have
made another sale.
 Reasoning: π is not a loss volume seller because they sold the
mobile home at a different price than standard price. They didn’t
have to sell for a lower price→could have even tried to pursue the
father’s offer to compensate/buy the home.
 Note: If the father had bought the home, the π would not be a lost
volume seller because the father is not buying as an independent
buyer, but as a substitute buyer

Parker v. 20th Century Fox, p. 311

 Facts: Employment contract; employer breached. π was to star in a feminist
musical but was then recasted for an inferior western role.
 Issue: Whether π acted reasonably in refusing the substitute offer.
 Rule: Test for Duty to Mitigate for the non-breaching party. Substantially
similar: duty to mitigate to mature the substitute job must be comparable or
similar to the original job. Factors: in same field, same rights, same
 Holding: the substitute job was different and inferior; π lost her approval
right, thus inferior. Extra weight when the employer tries to rehire the
employee. (policy issue)
 Takeaway:
o Formula from Problem 3-2: (contract price) - (what was earned) +
(diligent search costs)
o This case adds to the above formula: (what would have been earned
from mitigation)
o Court says employee doesn't have to take the offer if it is inferior, but
the employee does have to take it if the offer is comparable or
substantially similar
o Dissent: this is a factual issue which the trial court should not have
determined on a motion for summary judgement - need to open it up
from summary judgment
o Facts that would be used when taken to the jury to determine if the
substitute offer was substantially different or if π reasonably
mitigated:
 Is taking this role make you worse off in her profession?
 Would want to know how important it would be for œÄ to
live in Australia vs. the US.
 Does she have property or family in Australia?
o Does the character of the role truly matter to the π?
 Burden of proof on the employer that employee did not make reasonable
efforts to mitigate
- Keeping the Deal Together After Material Breach-Common Law Mitigation Rules, the UCC, and the RSC

 Under the rule of avoidable consequences, the injured party must, when reasonable, make
substitute agreements with third parties to avoid loss from breach. The extent to which the
injured must deal with the breaching party to avoid loss is less clear.

In Re Worldcom, Inc., p. 320

 Facts: MJ endorsement deal. He was like an independent contractor,
required to work a max of 16 house per year. MCI went bankrupt and fired
him. MJ sued for damages under a lost volume analogy.
 Issue: Whether MJ is entitled to damages under loss volume?
o MJ claims that he is a loss volume seller
 Loosing a sale when he could have had 2.
 Rule: (A)The non-breaching party must show that it “could and would have
entered into” a subsequent agreement. To recover lost profits under this
theory, they must prove three things: (1) that the seller of services had the
capability to perform both contracts simultaneously; (2) that the second
contract would have been profitable; and (3) that the seller of services would
have entered into the second contract if the first contract had not been
terminated. (B) if a truly a loss volume seller, then you don’t have to
mitigate. LVSs must have continuous effort to sell + virtually limitless
supply.
 Holding: Jordan is not a lost volume seller because he had no intent to
continue selling his services; there was evidence that he rejected other
opportunities.
  Takeaway: Court said formula for π’s damages is: (what Δ owed π) – (what
could have been earned if he had entered into another contract)

Evergreen v. Milstead, p. 326

 Facts: Plaintiff is suing for lost profitsprofits he would have made
had the theater been open when it should.
 Issue: Whether the court would award loss profits to a new business?
 Rule: Well-established businesses can calculate lost profits based on
its history. Loss of profits from a “new business” may not be
recovered because they are merely speculative and incapable of being
ascertained with requisite degree of certainity.<-- New business rule.
 Holding: The court stated that the damages cannot be speculative and
incapable of being ascertained with a degree of certainty.
 Takeaway: Recovery for lost profits requires certainty that there
would have been a loss—not just speculative. Illustrates another
limitation courts have placed on recovery for expectancy damages
 TAYLOR: Who’s fault is that plaintiff cannot
prove damages? Defendant
o Is that fair?
o New businesses you don’t know what
they would have made because there is
no record.
o Some courts will go the extra mile and
calculate the damages.

-Note: The ‘New Business’ Rule Today

 The ‘new business rule’ of Evergreen is in decline. Some courts find it grossly unfair to deny recovery of
lost profits where the defendant’s breach prevented the plaintiff from establishing the amount of lost
profits.
 Other courts are wary of denying the recovery of lost profits to a new business because doing so would
encourage parties contracting with such businesses to breach.
- Note: Punitive Damages in Contract Cases
 Restatement (Second) of Contracts § 355(1979):
▪ “Punitive damages are not recoverable for a breach of contract unless the conduct constituting the
breach is also a tort for which punitive damages are recoverable.”
 The most common exception [for punitive damages for breach of contracts] is where the breach constitutes
an independent, willful tort in addition to being a breach of contract.
- Note: Other Qualifications and Limits on Lost Expectancy Recovery
 There are many additional qualifications and limits on the recovery of lost expectancy damages.
▪ Denial of lost expectancy recovery in medical contexts.
• “Considering the uncertainties of medical science and the variations in the physical and
psychological conditions of individual patients, doctors can seldom in good faith promise
specific results.”
▪ Denial of recovery for loss of reputation or goodwill.
• To some courts, the measure of damages for lost expectancy does not include compensation for loss
of reputation or loss of good will.
▪ Denial of lost expectancy to attorneys.
• Some courts allow wrongfully discharged lawyers only the reasonable value of their services.
▪ Denial of attorney’s fees and interest.
• General rule: a victorious party cannot recover attorneys’ fees from the losing party.
- Contract Lore, Hillman
 It is a fallacy that the goal of expectancy damages is to make injured parties whole.
 A large set of remedial rules often limits the recovery of injured parties to well below expectancy.
 There are several impediments that constitute costs of litigation and apply across all areas of law.
 More specific to contract law, injured parties cannot recover unforeseeable or difficult-to-prove damages.
In addition, courts typically compute damages objectively, thereby ignoring a party’s special
circumstances, including emotional distress and sentimental value.
 Takeaway: some problems aligning theory and reality

XIV. Reliance Damages & Liquidated Damages, pps. 344-351; 364-383

Background:

 Injured party can also recover reliance costs which are separate from damages from a contract; these reliance costs are
recovered from the theory of promissory estoppel.

-  Liquidation: the UCC allows for recovery of liquidated damages, parties anticipated that, so they can get liquidated damages even if no
actual damages.

-  Liquidated Damages

 Contract law allows contracting parties to agree in their contract on their damages liability if they later breach
 Helps injured parties recover when damages are too difficult to prove
 Creates an incentive for parties to perform

 Liquidated damages clauses are only enforceable if:

▪ (1) agreed damages are a reasonable forecast of just compensation
▪ (2) the harm that is caused by the breach is one that is incapable or very difficult to accurately estimate

Nurse v. Barns, p. 344

 Facts: The π declares, that the Δ in consideration of 10P promised to let him
enjoy certain iron mills for six months; and it appeared that the iron mills
were worth but 20P per annum, and yet damages were given in the amount
of 500P by reason of the loss of stock laid in; and per Curiam the jury may
well find such damages, for they are not bound to give only the 10P but also
the special damages.
 Takeaway: If you reasonably expected, then the courts sees no problem
granting damages even if they are very disproportionate. Also gets 500P
for reliance damages – for loss of stock that π bought for the mill;
apparently the Δ didn’t allow π to get the stocks from original mill

Chicago Coliseum Club v. Dempsey, p. 344 (App Ct of IL, 1932)

Facts: Boxing promotor spared no expense preparing for the fight and then the
fighter repudiated on the offer. o Takeaway: Good review of what’s been
covered – goes through 4 different theories

 (1) Profit = (gate costs) – (expenses) / court said no bc:

 don’t know how many spectators would show up
  analogous to new business rule—loss needs to be certain, not
speculative
 (2) recovery for expenses prior to signing of damages
 Court says no bc can only recover for damages resulting from the
breach (not before)
 Doesn’t follow that π can recover for anything prior to the
contract
 (3) Whether π can recover damages for expenses incurred in attempting
to restrain the Δ from engaging in other contracts and to force him into a
compliance with the terms of his agreement with the plaintiff
 Court said no because this was after the contract was signed and
after the breach
 Similar to Clark v. Masiglia—because you can’t recover
damages from what you do after the breach; can’t just pile on
things after contract is already breached
 Could’ve put in an agreed remedy clause
 (4) reliance damages
 The contract in question was a ‘losing contract’—meaning that if the
contract had gone through, then the π would’ve lost money.
K price / $3 million
 Expenses / - $4 million
 -----------------------------------------------------------------------------
 Profit / -$1 million
 ▪  However, if π will get reliance damages, they get $4 mil but this would
put π in a better position
 In such situations, K price is ‘ceiling’ to prevent putting the π in a better
position; subtract from the reliance damages the absolute amount that
would have been profited
 Other takeaways:
 The π could’ve included an agreed remedy clause
 Could have also included a clause that says that in case of
litigation, loser must pay attorney’s fee

The Reliance Interest in Contract Damages, Fuller and Perdue

 The reliance interest may offer the π a more generous measure of recovery than the expectation interest.
 Is there any basis for this notion that recovery based on reliance should never be allowed to exceed the
value of the expectancy? To pass this question it is necessary to inquire what things may bring it about that
the reliance interest exceeds the “reasonable value” of the Δ’s promised performance.
 But does an excess of the reliance over the expectation interest necessarily imply that the π has entered a
losing bargain?
 In contrast to “essential reliance” is the kind of reliance involved in Nurse v. Barns, called “incidental
reliance.”
H.J. McGrath Co. v. Wisner, p. 364
 Facts: Wisner entered into a written contract to grow tomatoes on 6 acres of
land and to sell and deliver all tomatoes to McGrath at a price of $28/ton. In
case of breach, Wisner agrees to pay $300 as liquidated damages and not as
penalty and may deduct sum from money due to McGrath. McGrath testified
that he sold some tomatoes to Wisner, but also at the market for a higher
 price, in violation of the contract. Winser learned of this and deducted $300
from the money paid.
 Rule:
 Issue: Whether the court will enforce the liquidated damages provision?

 Rule: (A)liquidated damages clause cannot be a penalty and must be
proportionate to real loss
(B) A provision fixing the amount of damages prior to a breach
will not constitute a penalty if: (1) the amount fixed is a reasonable
estimate of just compensation for the harm caused by the breach, and (2)
the harm caused by the breach is not susceptible to accurate calculation.
These were not met.
 Holding: Why farmer breached? He got a better deal on the market.
o The court adapted the Restatement and determined that the
provision failed the two-prone test.
o The court states that there should be an estimation because of
market price
 Takeaway:
o Efficient breach
o Policy for not allowing penalty:
 Want people to perform the contract in a way that’s not
coercive and that the estimate they’re coming up with
represents just compensation
 TAYLOR: The court saw the provision as a
penalty
o Contract law is to make the injured
party whole but not to penalize the
breaching party for breaching.

Truck Rent-A-Center, Inc. v. Puritan Farms 2nd, Inc. p. 366

 Facts: Contract stated that if D were to breach the contract, P would
be entitled to damages in the amount of ½ of all rentals that would
have become due had the agreement run its full course. After nearly
three years, D sought to terminate the lease. D sent a letter to D
stating that P had failed to make the necessary repairs on the trucks
so D would be terminating the lease without penalty and without
purchasing the trucks.

 Issue: Whether the liquidated damages provision can be enforced

or is it a penalty?
 Rule: liquidated damage amount must be in reasonable proportion to
the probable loss and the amount of loss must be incapable or
difficult of precise estimation.
 Holding: Court said determination for whether liquidated damages is
reasonable if the damages were reasonable at the time the parties
entered into the agreement and agreed on the clause. Parties have a
right to agree to liquidated damages.
 Takeaway:
 Δ claimed that even though he breached, the π also breached because
they didn’t repair the trucks
  The implicit question is whether the Δ acted in bad faith; if he had a
colorable claim, even if he lost, then he would have had his option to
buy the trucks for $48K or be responsible for liquidated damages
 If liquidated damages amount to $600 but actual damages amount to
$900 should the liquidated damages provision be enforced?
o Taking a risk that you will get less from liquidated damages
than actual damages
▪ But if actual damages are $0, should liquidated damages be
enforced? What about $1?
 TAYLOR: Sometimes even if the liquidated damages are valid
there are other things going on.

Vanderbilt University v. DiNardo, p. 374 -Essence of the K

o Facts: Δ signed a contract to be a coach. K had a liquidated
damages provision that equated the net salary for the time
remaining on the K. Δ then went to another team; π sued
seeking liquidated damages; but Δ said that liquidated
damages provision was a penalty.
o Issue:
o Rule: A liquidated damages provision that constitutes a
penalty is unenforceable. Parties may agree to one if
reasonable and proportional to actual damages. In TN, a
provision is for liquidated damages, rather than a penalty, if it
is reasonable in relation to the anticipated damages for breach,
measured prospectively at the time the contract was entered,
and not grossly disproportionate to the actual damage
o Holding: Vanderbilt valued the stability provided by the 5-
year contract period. Damages would go beyond mere cost of
replacing the head coach (attracting talent, etc.) and would
therefore be difficult to measure.

o Dissent: presents 3 points supporting that section 8 was a penalty or

looked like a non-compete clause:
 (1) section 8 does not purport to impose liability for liquidated
damages unless the coach the coach accepts another job; (2) the
formula incorporates other variables that bear little or no relation
to any reasonable approximation of anticipated damages; and (3)
no evidence that the parties were attempting to come up with a
reasonable estimate of the university’s probable loss if the coach
left

Note: More on DiNardo

 The case record shows the contract’s stipulated damages were bilateral, meaning that if Δ were
terminated without ault, he would have received his salary for the remainder of the contracts’
term with no obligation to mitigate

 The court pointed out that non-compete clauses are unenforceable under TN law
 Professor Randall Thomas and Lawrence Van Horn found only 23 college football coach
contracts that included a noncompete instead of a termination payment.
 Rinaldi and Sons, Inc. v. Wells Fargo Alarm Service, Inc. (1976)
o Takeaway: A limitation of damages to $50 must be distinguished from a
liquidated damages clause, “analytically a different category with different
governing rules.”

XV. Remedies for Promissory Estoppel & Restitution, pps. 385-402; 407-412

 Reliance damages v. Lost expectancy courts vary

 Damages could be the change in position in reliance of promise

Nephew/Uncle hypo:
 A situation where nephew relies on uncle’s promise to his detriment.
 Williston POV: Nephew should get expectancy damages (“either the promise is binding or it is not”)
 Coudert POV: Nephew should get detrimental reliance damages because that’s what he spent

Restatement (Second) of Contracts § 90: Promise Reasonably Inducing Action or Forbearance

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the
promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided
only by enforcement of the promise. The remedy granted for breach may be limited as justice requires
o Comment (b) Character of Reliance Protected:
▪ The principle of this Section is flexible. The promisor is affected only by reliance which he does
or should foresee, and enforcement must be necessary to avoid injustice. Satisfaction of the latter
requirement may depend on the reasonableness of the promisee’s reliance, on its definite and
substantial character in relation to the remedy sought, on the formality with which the promise is
made, on the extent to which the evidentiary, cautionary, deterrent and channeling functions of
form are met by the commercial setting or otherwise, and on the extent to which such other policies
as the enforcement of bargains and the prevention of unjust enrichment are relevant.
 Comment (d) Partial Enforcement:
o A promise binding under this section is a contract, and full-scale enforcement by normal remedies
is often appropriate. But the same factors which bear on whether any relief should be granted also
bear on the character and extent of the remedy. In particular, relief may sometimes be limited to
restitution or to damages or specific relief measured by the extent of the promisee’s reliance rather
than by the terms of the promise
o Takeaway: remedy as justice requires; keep in mind what the goal is when trying to figure out the
remedy

Goodman v. Dicker, p. 385

 Facts: Δ was a radio distributor who encouraged π to be a franchisee
told π that π would receive an initial order of
 Issue: Whether plaintiff could recover when there was no agreement?
Rule: When recovering in reliance, you can only recover on the
amount you spend on the promise (change in position). The true
measure of damages is the loss sustained by expenditures made in
reliance upon the assurance of a promise.

 Holding: Just recover what was spent in reliance only→there is no

reasonable certainty of future profits. π position has been changed
only to extent you’ve paid for some stuff already, but you haven’t
been harmed as to profits yet or at least can’t prove it. Justice and fair
 dealing require that one who acts to his detriment on the faith of
conduct of the kind revealed here should be protected by estopping
the party who has brought about the situation from alleging anything
in opposition to the natural consequences of his own course of
conduct.
 Takeaway: Court decided that they do not award loss of profits for
PE; only expenditure costs (reliance damages). Important difference
between loss of opportunity and loss of future profits.
 TAYLOR: More like loss opportunity he
could have been in deal with someone else.

Walters v. Marathon Oil Co., p. 387-Loss Expectancy

 Facts: Marathon Oil broke a promise to supply oil products to the Walters
after they had improved a gas station in reliance to their promise. Marathon
claimed that the Walters did not suffer reliance damages because the increase
in the market value of the land more than made up for the cost of the
improvements.
 ISSUE: Whether Walters could recover damages?
 Rule: One must take ordinary care standard to mitigate damages; lost
profits can be awarded if π foregoes opportunity to invest and make
profits elsewhere.
 Holding: But for the broken promise, π would have made profit
elsewhere. There was no contract, therefore, and the court gave loss
of profits
 Takeaway: The damages recovered by πs look like loss expectancy
supported by evidence from expert testimony; however, the court
predicates the damages on a promissory estoppel theory despite the
lack of evidence that there were forgone opportunities

Note: Reliance Recovery When the Agreement Has Been Disrupted

o A contracting party occasionally may rightfully cease performance because of the occurrence of an unforeseen
contingency that makes performance unfairly onerous or impossible or even because of a shared mistaken
assumption about the facts existing at the time of contracting
o Upon such rightful cessation, the Restatement (Second) of Contracts and some modern courts suggest that a
party may be entitled to recover reliance expenses

Restitutionary Relief and Theories of Obligation

- Background:
o Courts use the term “restitutionary relief” to refer to both monetary remedies and to certain forms of specific
relief, such as an order requiring monetary remedies
o A monetary remedy is restitutionary in nature insofar as it requires A to pay B the monetary value of any benefit
B conferred to A
o Courts sometimes award B its full outlay in preparing to perform or in performing, even if this measure exceeds
A’s gain

Restatement (Second) of Contracts § 371: Measure of Restitution Interest

If a sum of money is awarded to protect a party’s restitution interest, it may as justice requires be measured by
either
 (a) the reasonable value to the other party of what he received in terms of what it would have cost
him to obtain it from a person in the claimant’s position, or
(b) the extent to which the other party’s property has been increased in value or his other interests
advanced.
 Restitution relief may be granted to a party whose agreement is unenforceable for various reasons
(indefiniteness, lack of consideration, lack of writing requirement)
 Losing contract: where a non-breaching party conferred a benefit BUT HAD A NEGATIVE
EXPECTANCY
 -  An injured party who has performed in part will usually prefer to seek restitution damages based on his
restitution interest / expectation interest / reliance interest because such damages include net profit
 -  Injured party has the right to recover a greater amount in restitution that they could have recovered in
damages

 Ways to Measure the benefit
 Damages based on the value of the services provided
 Damages based on increased market value
 Measure the benefit conferred by your cost of performing the services
 Measure of the benefit would be the contract price, not because you want the court
to enforce the contract, but because the contract rate might be the best evidence of
the true value of the benefit
 There is some evidence that courts are influenced in their choice of measurement by how
well or badly the breaching party behaved.
 In suits for restitution there are many cases permitting the plaintiff to recover the value of
the benefits conferred on the defendant, even though this value exceeds that of the return
performance promised by the defendant.
 Plaintiff may recover from a defaulting defendant, the cost of labor and materials minus
payments already made, even if it exceeds the price fixed in the contract
 Remedy= [Cost of labor & materials] – [payments already made]
 When you have fully performed on the contract then you can collect for the breach of
contract but can’t go off the contract and collect more.
 In restitution for material breach subtract the benefit the breaching party conferred from
the amount for recovery.

Realmark Developments, Inc. v. Ranson, p. 391

Rule: Proper measure of damages in unjust enrichment should be the greater of the
two measures
Reasoning: There may be cases where the enhancement to the Δ’s property < value
of π’s efforts and enhancements
would not reflect unjust enrichment or value of enrichment > cost of improvements

Against Fuller and Perdue, Craswell

o There are many different remedial measures that could plausibly pass under the name of restitution.
o In the example where a builder finishes building half of a house before the homeowner unjustifiably repudiates
the contract, and the builder sues for the reasonable value of the half-completed house, that value can be measured
in several different ways; the builder could collect:
 (a) any increase in the market value of the home-owner’s land resulting from having a half-
completed house on it;
(b) whatever price the home-owner would have to pay another builder, at current construction rates,
to build that half-completed house;

(c) half of the price the home-owner originally agreed to pay this builder, for the fully completed
house; or even
(d) whatever this builder spent to build the first half of the house, taking the builder’s actual costs
as rough measure of the house’s value.

o But there is some evidence that courts are influenced in their choice of measurement by how well or badly the
breaching party behaved.

▪ If the breach was particularly egregious, the courts may be more inclined to measure the nonbreacher’s services
in a way that gives him a particularly generous measure of recovery

o The egregiousness of the breacher’s behavior may also be one factor in deciding whether the breach was “total”
or “material,” which is the doctrinal prerequisite for the nonbreacher to have the option of figuring his damages in
restitution

U.S. for Use of Susi Contracting v. Zara Contracting, p. 393

 Facts: Δ entered into a sub-K with π. K was to smooth tarmac for airport
runway that required additional work due to difficult conditions. An
unexpected condition caused difficulty in the performance of the work. Δ
breached. The πs sued Δ, alleging wrongful termination of the subcontract. π
sought reasonable value of their work. The district court found that Δ had
wrongfully terminated the contract and owed the πs $39,107.10 for the πs’
services and
$18,600.00 for the increased cost of excavation
 Rule: The K price or the unit price per cubic yard of construction or
excavation contract does not bar recovery .
 Issue:
 Holding: When suing in restitution, you are suing OFF the contract and
therefore recover ≠ K price, instead reasonable value of your services and the
extra work done. Restitution is the exception for loss of expectancy.(Susi
rule)
Takeaway: One who is wrongfully discharged and prevented
from performance may elect to treat contract as rescinded and
sue on quantum meruit, and may recover value of services even if
they exceed the original contract price
Makes recovery very unpredictable Goes against efficient
breach

Oliver v. Campbell, p. 397

 Facts: Plaintiff was defendant’s lawyer, and when he was basically done with his job, Δ broke
contract. π sued for restitution.
 Issue:
  Rule: Usually when someone is wrongfully discharged during performance, can treat contract as
rescinded, and can sue upon restitution/quantum meruit for reasonable value of services
performed. (Susi rule) But in cases where the performance was basically completely performed,
then K price will be considered the ceiling of what can be recovered by π

 Question: but can a party work up to a point and then breach to get restitution which is more
than the contract price?
 Takeaway: How much is “nearly complete” is a judgment call.

Losing Contract (Non-breaching π conferred a benefit but had negative expectancy)

RSC § 373
(a) injured party will generally prefer to seek recovery based on expectation, but will seek reliance if can’t prove expectancy
(b) if π would’ve sustained a loss, restitution may give him a larger recovery than would damages on either basis o Note: this idea is
very controversial; takes a losing situation to a winning situation.

City of Philadelphia v. Tripple, p. 398 - Losing Contract, restitution granted

 Facts: π hired Δ to construct in 125 days, but construction was
delayed past that. π took no action and Δ continued work. Later, π
was dissatisfied with progress & told Δ to stop. The Δ subcontractor
stops work and sues for labor and materials.
 Issue:
 Rule: If the subcontractor is fired by the contractor, and if the
subcontractor acted in good faith, they have an equitable claim for
reimbursement. work.
 Holding: Δ spent $ in good faith to attempt performance which
supports an equitable claim for restitution even if greater than KP.
 Takeaway:

Johnson v. Bovee, p. 400- Losing contract, restitution not granted

 Facts: π started building house for Δ and Δ became dissatisfied with
quality of construction and stopped paying. The house was 90%
completed.
 Issue:
 Rule: No breaching party is entitled to the reasonable value of his
services, but the contract price constitutes a ceiling for recovery.
 Holding: Don’t want π to get unjust enrichment by recovering full
value for services which exceed KP, which is what he would’ve
gotten if the contract was completed.
 Takeaway:

The Law of Restitution and the Reliance Interest in Contract, Childrens & Garamella
o There is no justification for the position that the terms of the promise do not regulate the recovery of reliance

damages in some cases which may be twisted into an “acton in quantum meruit.”
o A promise excites expectations and causes reliance, for both of which the law should justly give protection. o The crucial question,
then, is whether or not the promise which was relied upon, being the provocateur of the reliance, will regulate the damages recoverable in
event of a breach.

- Restitution as a Remedy for Breach of Contract, Kull

o A more straightforward way of putting the same proposition would be to say that courts in some circumstances favor a punitive remedy
for breach of contract, and that stripping a defendant of the benefits secured by a contract he has failed to perform has seemed to judges,
in some circumstances, to be no more than poetic justice.

-  NOTE: RELIANCE IS STILL PREDICATED ON A CONTRACT—EVEN IF IT’S A LOSING CONTRACT

Osteen v. Johnson, p. 407

 Facts: π wanted to be a singer and π sued Δ because as a promotor, he didn’t
fulfill his end of the contract (making and distributing second record and
adding co-writer)
 Issue:
 Rule: Restitution will not be enforced unless π returns what they received as
part performance by the Δ.

 Holding: The court couldn’t calculate lost expectancy because the damages were too
uncertain. To get restitution damages, there needs to be a material or substantial breach.
Here, the court considered Δ’s failure to distribute records as a material/substantial breach
for π to recover restitution bc the essence of the K was for π to be a singer which required Δ
to perform on his end.
 Determining Damages: Because Δ partially performed his part, π will get 2,500 paid by πs
to Δ less the reasonable value of the services which the Δ performed on behalf of πs.
 Takeaway:

Situations in which restitution may be granted:

o When π confers a benefit to Δ but the contract is invalid or unenforceable
o When π confers a benefit onto Δ, but materially breaks the contract, π may still be granted restitutionary relief to prevent
unjust enrichment on Δ
▪ In this case, π would cannot recover on a contract theory.

XVI. Specific Performance

→ Rule: Under the UCC sec 2-716: Buyer’s Right to Specific Performance or Replevin
1. Specific performance may be decreed where the goods are unique or in other proper circumstances.
2. The decree for specific performance may include such terms and condition as to payment of the
price, damages, or other relief as the court may deem just.

 Awarding Specific Performance

 Courts usually do not like awarding specific performance.
 Specific performance is most often awarded in land issue cases.
 Courts do not like to issue specific performance in cases that does not involve land.
 Awarded if there is a land issue, if the product contracted for is unique, of if there was a
long term contract that could not be replaced


Kitchen v. Herring (1851)

 Facts: D promised to sell land to P but then sold the land to someone else to pay off
debt.
 Rule: Specific performance could be granted when a seller of a land breaks the
contract
 ISSUE: Whether the court will grant specific performance?
 Reasoning: Land whether poor or rich can’t be used to pay debt until personal property
has been exhausted. Specific performance may be granted and vendor only recovers
purchase price+ cost+ disbursements
  Takeaway: The general rule about land was misconstrued.
o Rule One for Land: Land is assumed to have a peculiar value, so as
to give an equity for a specific performance, without reference to its
quality or quantity.
o Rule Two for Other Property: less favored, a specific performance
will not be decree, unless there be peculiar circumstances; for if with
the money, an article of the same description can be brought in
market-corn, cotton, etc., the remedy at law is adequate.
o Preference for specific performance in land cases is not given for any
special reason, it has been a custom.
o For cases of personal property. Specific performance will not be
decreed unless there be peculiar circumstances.

Note: Remedial Rights Under A Contract for The Sale of Land

*****Idaho Supreme Court announced a different rule on the vendee’s right to specific performance. They will
grant specific performance only to a vendee who can show some “particular, unique purpose” for which he or she
wanted the land.*****
 According to the general view today, a vendee of land is entitled to specific performance.
 Land is inherently unique and thus damages cannot be an adequate remedy.
 There are a few qualifications to the vendee’s right to specific performance.
o If before performance of a contract to sell land, the vendor contracts to convey the same land to a
bona fide purchaser, Courts generally hold that the first vendee is entitled only to damages and that
the subsequent bona fide purchaser has the right to the land.
 Many courts also grant specific performance for the unpaid purchase price to disappointed vendors of land
—through money decrees
o One theory is that the value of land is too speculative, and the vendor will be unable to prove
damages
 In addition to specific performance, the vendor in most states has a further remedy—an action at law for
the unpaid balance of the purchase price.
 In many states, the vendor can both retake possession of the land and retain the payments

General Rule: A vendee of a land is entitled to Specific Performance (absent a defense) because Land is
inherently unique and thus damages cannot be an adequate remedy. (Kitchen v. Herring). Additionally, a
Vendee can recover money damages for any delay (Daves v. Potter).

Curtice Brothers Co. v. Catts (1907)

o Facts: Plaintiff had a tomato cannery and Defendant promised to sell the entire
product of tomatoes to plaintiff. Defendant breached the contract.
o Issue: Whether plaintiff is entitle to specific performance?
o Rule: When damages aren’t an adequate remedy, specific performance is allowed.
o Takeaway: About personal property. Given the circumstances, money damages are not an
adequate remedy for Curtice since it cannot simply replace the tomatoes. No adequate
remedy exists in law, and thus specific performance is an appropriate equitable remedy for
Curtice.
 When Catts failed to deliver the contracted-for tomatoes, Curtice did not have time
to find additional tomatoes of the same quantity + quality. No alternate available
supply of tomatoes existed.
 The court considered the implications beyond monetary damages such as reputation
  But Δs argue that special performance will require personal services and therefore the court cannot uphold
a special performance; however, the court said that if the Δ doesn’t perform, they will be restrained from
selling to others or will pay for another source of the crop

****Argument why specific performance would not be best, the farmer could probably sent their worst
tomatoes to the vendee.***

Curran v. Barefoot (2007)

o Facts: Δ was supposed to sell a lake house to π along with certain personal
property (accessories, furniture, etc.) Δ backed out of the sale on closing date
o Rule: UCC § 2-716: Specific performance is awarded where the goods are
unique or in other proper circumstances.
o Jurisdiction to enforce specific performance rests, not on the
distinction between real and personal property, but on the ground
that damages at law will not afford a complete remedy.
o Reasoning: Here the plain language of the contract + defendant’s admissions
proves Δ intended to convey to πs a furnished lake house with 3 water craft for
$550k.
o Takeaway: Court said that it wouldn’t make sense to make the Δ sell the house
but not the personal property bc they go together and that’s what was bargained-
for. Specific performance is ok in this case because the price of the furniture
would not be accurately determined because the sale
In re Dorsey Trailer (2009)
o Rule: specific performance is allowed when the goods are unique or scarce
o Rationale:
▪  Scarcity of a good is a factor in determining whether specific
performance should be granted
▪  Courts determine whether goods are replaceable as a practical
matter (aka if similar goods available in open market), and if they
are not, then specific performance is advised
▪  Specific performance can be awarded when substitute goods are
available, but the buyer cannot recover his
losses because breacher’s breach caused financial difficulties
 2 Standards
 Unique
 Improper Circumstances
i. Ex. Scarcity of goods on the market
ii. Whether goods are replaceable as a practical matter?
iii. Whether it would be difficult to obtain similar goods on the open
market?

Note: Defenses to and Limitation on Availability of Specific Performance (Professor-said to go back and
make note of the defenses)
→ Specific performance is limited once

 One element of contract planning is invalidity risks; a lawyer must plan for the legal enforceability of the
agreement.
  In order to do this, the lawyer must understand the legal requirements of a valid agreement.
 The law governing the validity of an agreement specify the principal requirement of an “agreement with
consideration.”
 Nevertheless, even if a party’s contract claim fails because of the absence of a valid agreement, another
theory of obligation may still apply

The Nature of Assent

Restatement (Second) of Contracts § 20: Effect of Misunderstanding
(1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to
their manifestations and
(a) neither party knows or has reason to know the meaning attached by others; or
(b) each party knows or each party has reasons to know the meaning attached by the other. (This is what
the court applied in Raffles)
(2) The manifestations of the parties are operative in accordance with the meaning attached to them by one
of the parties if (a) that party does not know of any different meaning attached by the other, and the other
knows the meaning attached by the first party; or
(b) that party has no reason to know of any different meaning attached by the other, and the other has
reason to know the meaning attached by the first party

Embry v. Hargadine, McKittrick Dry Goods Co.

 Facts: π told boss he would leave job right then and there if his
employment K was not renewed in order find new employment. Δ told
him “not to worry about it.”
o The π claims he was told by his boss that his 1 year K was
confirmed for renewal.
o Δ argument: When accosted by π in December, Δ told him that he
will have to see him at a later time. But did say to get π’s men out
on the road.
 Rule: If a reasonable person would see the statement as a promise, then it
can be the basis for an enforceable contract, but belief must be both
reasonable and honest
 Reasoning: The law imputes to a person an intention corresponding to
the reasonable meaning of his words and acts. It judges his intention by
his outward expressions and excludes all questions in regard to his
unexpressed intention. It is immaterial what may be the real, but
unexpressed, state of mind
 Takeaway:
o Employment contract with a definite term
o The trial court gave the jury instruction that the decision should be made if
both parties intended, through their conversation, that a contract was made
o Appellate court said that this instruction is wrong
o Court established an objective standard: the “hearer” of the words must
manifest a reasonable belief that the words constituted a contract
 “apparent”
 “The objective standard creates a risk of permitting untruthful
reliance, but it overall protects reasonable reliance
***Assent will be determined based on your intent through the manifestation that is
apparent not what the person in inwardly thinking***

Hotchkiss v. National City Bank of New York (1911)

  Takeaway: A contract has, strictly speaking, nothing to do with the personal, or individual,
intent of the parties. A contract has an obligation attached by the mere force of law to certain
acts of the parties, usually words, which ordinarily accompany and represent a known intent.

Lucy v. Zehmer (1954)

 Facts: Δ and π spoke for 40 minutes about π’s purchasing the farm. π invited Δ
to write out a contract who drafted an agreement on the back of a bar receipt
stating his intention to sell the farm to Lucy for $50k and Δ even had his wife
sign it but neither party communicated to her that they intended it to be a joke.
When π attempted to get the farm, Δ refused, and π sued for specific
performance.
 Rule: Contract law enforces apparent, not necessarily real, intention of the
promisor. Court must look to the outward expression of a person manifesting his
intention rather than to his secret and unexpressed intention (difficult to prove
what people actually had in mind)
 Reasoning: Even if it was a joke, π reasonably believed the transaction was
valid. Court said enforceable because a reasonable person would have taken Δ
contract for a promise/assent.
▪ Court found “persuasive” evidence that the parties’ agreement was a
“serious business transaction rather than a casual, jesting matter.”
 They had argued about it and discussed its terms for a
long time (40 min)
 They wrote up 2 drafts lmao
 Mrs. Zehmer signed the contract
 Takeaway:
o Contract law seeks to protect promisees who rely on their
contracts and to encourage such reliance, something that would
be impossible if a promisor could avoid liability simply by
claiming that he was joking

Objective Test
o Contract law determines what a reasonable person would believe by examining the circumstances,
including:

→ Language of the alleged agreement

→ The length of the negotiation
→ The subject matter of the contract
→ The setting of negotiations
→ The previous conduct of the parties
→ The relationship of the parties, etc.

The Restatement of Contracts and Mutual Assent, Whittier

→ The liability for carelessly misleading the other party into the reasonable belief that there was assent might
well have been held to be in tort.
→ Under the present law the non-consenting party is liable on the contract itself if careless.
→ To hold one for the merely careless use of language which causes no damage whatever to the party to whom the language is
addressed is certainly inconsistent with principles generally applied.

Opinion No. 79, Legal Ethics Committee Opinion 169

A lawyer may not prepare, or assist in preparing, testimony that he or she knows, or ought to know, is false or
misleading. So long as this prohibition is not transgressed, a lawyer may properly suggest language as well as the
substance of testimony, and may—indeed, should—do whatever is feasible to prepare his or her witnesses for
examination.

Morrow v. Morrow (1980)

Facts: Δ said they would compensate π if they took care of their ill mother
Issue: Whether the intent was gratuitous or a bargaining intent to form a K
Reasoning: The presumption is that family members don’t intend to enter into contracts
with each other and just do things out of love and affection. In such cases the party asserting
the contract has the burden of setting aside our belief that most such arrangements are not
contractual.

Tilbert v. Eagle Lock Co. (1933)

Facts: Widow of employee requested payment for death benefit promised by
employer to deceased husband. The
Issue: Whether or not the death benefit promised was a gift or contract.
Holding: As the termination of the agreement was not complete until
August 28, Tilbert’s death at any time on that date entitled his beneficiary to
the designated benefit
Takeaways:
Applying the objective theory: objectively, it appears that there is no
contract because of the words “that it constitutes no contract.” But court
looked at totality of circumstances.
 The court says that the schedule B intends to induce employees and
the purpose could be that the employer is just clarifying an
employee’s at-will status and not actually misleading employees

 Court says you can’t bargain and pretend that you’re not bargaining
—the manifestation of the conduct is overriding the words on the benefits
document

1 Corbin on Contracts § 2.13 at 190

o When the subject matter of an agreement is of a kind that is customarily dealt with in enforceable contracts, and the parties have in fact
acted under the agreement, a court is likely to look with some distaste at provisions that seem to exclude all sanction and remedy.

Cargill Commission Co. v. Mowery (1916)

Facts: Cargill negotiated with Hutchinson Grain company for the purchase of wheat.
Seller put the wrong number of bushels it was offering to sell. He intended to sell only
3,500 but put 35,000. Cargill immediately resold that number of bushels on the
market. But then the seller told him it was a mistake and now Cargill is suing.
ISSUE: Whether the parties intended the contract?
Using the Reasonable Person Test- Objective Standard
1. Cargill reasonably believed that the amount was clear and
unambiguous.
2. There was immediate reliance- he sold that amount in the market.
3. If the mistake had been discovered and notified before the plaintiff acted
upon it then there would be no contract.
4. Is this an incentive on people who relied quickly?
 Raffles v. Wichelhaus (1864)
Facts: The partiesentered into an agreement whereby the plaintiff would sell
to defendant such amount of cottonto arrive in “Peerless” from Bombay. The
goods didarrive and plaintiff was then and there ready and willing and
offered to deliver saidgoods to defendant. Defendant refused to accept the
goods or pay for them because there was an error of the “peerless” ship.
There was one that arrived in October and one that arrived in December.
Plaintiff was only willing to offer defendant cotton from the December ship.
ISSUE: Whether the partied intended the contract?
Holding: Court held that there was no contract.
TAYLOR: Here there was a timing issue and there was ambiguity.
There was no meeting of the minds therefore no contract.
HYPO: Buyer meant the October ship/ seller meant the
December ship. However, they both arrive at the same time. Both
parties are not harmed. Is there a misunderstanding?
Yes, but how would the court resolve it?
a. The mistake is not material.
b. The court has to figure out whether the parties intended to
contract
i. Look at the circumstances and apply the reasonable
person standard.
Dickey v. Hurd (1929)
Facts: Dickey (π) in GA sent a letter to Hurd (Δ) in MA requesting the price of Δ’s
land in GA. On July 1926, Δ offered to sell the land at “$15 per acre cash” and
stated that he would give π “till July 18, 1926 including that day to accept this
offer.” Then π telegraphed an acceptance on July 17 and promised to send a $500
down payment. Although Δ received the telegram on July 17, he claimed his offer
required Dickey to pay the cash price by July 18.
Holding/Reasoning: Not open to Δ to lie quietly by until after time of acceptance
had expired

 The words “to accept this offer” are equivocal. They may mean that
he would give through July 18 to accept the offer by paying the price
or that he would give him through that date to give notice of an
answer.
 Two letters were put into evidence by π to Δ—both dated before July
18. Both letters disclose that π understood the offer did not require
him to pay the purchase price on or before July 18 but to give an
answer, notice of acceptance, on or before that day.
 The letter says “I’ll give you an answer” like a billion times
 When defendant received those letters, if it was not the meaning
which he intended, it was defendant’s duty to let Plaintiff know
immediately that the offer called for payment of the price on or
before the 18th and not just a notice of acceptance.

Takeaway: RSC §20 (2) applied here bc π should have known that Δ had another
understanding of the terms
 Colfax Envelope Corp. v. Local No. 458-3M, Chicago Graphic Communications
Intern (1994)
o Takeaway: When parties agree to a patently ambiguous term, they submit
to have any dispute over it resolved by interpretation. That’s what courts and
arbitrators are for in contract cases—to resolve interpretive questions
founded on ambiguity.

XVII. Offer
An offer is a manifestation by an offeror that she is willing to enter a bargain, justifying acceptance by the
offeree. The acceptance by the offeree forms the contract. Power of acceptance is the offeree’s power to accept
and create a binding contract. To form the contract upon acceptance, the offer must be reasonably certain and
communicated to the offeree, and must not have terminated prior to acceptance.
Reasonably Certain Offer
 An offer is reasonable certain if a reasonable person in the offeree’s position would conclude that
an offer has been made.
 Elements of a Reasonable Certain Offer are:
(1) Identify the parties
(2) Describe the Subject of the agreement
(3) When applicable, price term; Under the UCC a quantity is required.
 Communications that seems like an offer but cannot form a basis for a contract are:
o Jokes: RSC § 18 - once the offeree knows that the offer is making a joke a contract
CANNOT be formed; HOWEVER, if a REASONABLE PERSON would see the joke
as an offer then it is an offer. GENERAL PRINCIPAL: whether an offer exists is
measured by the offeree’s reasonable perceptions not the offeror’s subjective intent.
o Preliminary Negotiations: RSC § 26-includes an invitation to bid, a negotiation of
terms, a price quotation, or a proposal of terms. They are not considered binding
offeror’s due to lack of manifestation by the offeror to conclude final bargain; and
o Advertisements: RSC § 26-An advertisement is generally not an offer, unless the
language makes an express promise to adhere to specific terms. Courts have typically
construed advertisements as either invitations to negotiate or solicitations of offers,
rather than as offers.

1 Corbin on Contracts § 1.11 at 28

o An offer is an expression by one party of assent to certain definite terms, provided that the other party involved
in the bargaining transaction will likewise express assent to the same terms.

General Rule for advertisement is that an advertisement is not an offer because they are too general and would lead
to Multiple Acceptance Problem.
Lefkowitz v. Great Minneapolis Surplus Store, Inc. (1957)
Facts: Defendant put two ads on the newspaper, one was for a fur coat that was worth $100,
but the store stated that “fist come, first serve $1 each”; the other ad was for some scarfs
that were worth for $89.50 but had the same deal. Plaintiff both times was the first one there
but the store didn’t sold the items to him because the house rule was that it was intended for
women only.
i. ISSUE: Whether the ad was an offer?
ii. General Rule for advertisement is that an advertisement is not an offer because
they are too general and would lead to Multiple Acceptance Problem.
iii. Rule: The court set out a test: Whether the offer was clear, definite and explicit,
and leaves open for negotiation, it constitutes an offer, acceptance of which will
complete the contract.
5. Coat advertisement: the court held it was not an offer because the value-
$1- was too speculative.
a. TAYLOR: The value may be speculative but the amount is clear.
i. However, this may affect remedies because they probably
cant come up with an amount.
ii. Although, the court could have awarded him $1 as
nominal damages just to show him that he won on the
issue.
6. Scarfs Advertisement: here the court held that it was an offer because it
was clear, definite and explicit, and leaves nothing open door for
negotiation.
a. TAYLOR: Multiple Acceptance Problem
i. Protects the offeror to not contract with people that he or
she doesn’t want to contract with
ii. Defendant is arguing that plaintiff came two times-
doesn’t he know already the house rules!?
iii. Counter? They should have made the ad clearer, specially
the second one.

Ford Motor Credit Co. v. Russell (1994)

Facts: A car dealer advertised a ford escort for $7,826. The advertisement set forth
monthly payments of $159.29, based on a 60 month loan at 11% APR.
ISSUE: Whether that was an offer?
Holding: The court held that it was not an offer for financing at 11% because a
reasonable person would understand that not everyone qualifies for financing.
TAYLOR: Those are things that are open for negotiation.

Courteen Seed Co. v. Abraham (1929)

Facts: Defendant was mailingout samples of clover seed with a note stating “Red
clover…I am asking 24 centsper…” Plaintiff wired defendantstating “your price too
high. Wire firm offer.” Defendant wired back stating “I amasking 23 cents/lb…”
Plaintiff wired backs “We accept your offer. Ship promptly…
ISSUE: Whether there was an offer?
Was it clear, definite and explicit, not leaving nothing open for negotiation?
Holding: Court held that it was not an offer. The court relied on the Nebraska
case where the party said “I want” such amount.
Here it looks like they were negotiating.
 The language used by Δ of “I am asking” does not equal language
that says “I offer to you.”
▪ The word “offer” in the Δ’s telegram was in reference to a different
offer he had from someone else.
 Each of the words “offer” and “asking” has its meaning; and we
cannot assume that the writer of the
  telegram meant to use these words in the same sense, nor can we
eliminate the word “asking”
 Takeaways:
▪ There is a question of whether there is ambiguity. If there is, courts
are likely to err on the side of yes and consider that this is not a deal.
Uniform Commercial Code § 2-204(3)
o Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have
intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
- Uniform Commercial Code § 2-311(1)
o An agreement for sale which is otherwise sufficiently definite (subsection (3) of § 2-204) to be a contract is not made
invalid by the fact that it leaves particulars of performance to be specified by one of the parties. Any such specification must
be made in good faith and within limits set by commercial reasonableness.

XVIII. The Acceptance, pps. 506-509; 513-523 (top)

When analyzing an acceptance, go through the offer analysis first because in order to accept something you need
an offer

 Acceptance Rule for Bilateral Contract :

o Where there is an offer to form a bilateral contract, the offeree must communicate his acceptance to
the offeror in a clear and unequivocal manner before contractual obligations can arise. A mere
mental intent to accept the offer, no matter how carefully formed, is not sufficient.
 Mirror Image Rule:
o The acceptance must mirror the offer, and if it doesn’t mirror the offer, it isn’t a true acceptance
(may be a counter-offer, in which case the offeree becomes the offeror and vice versa)
 Counter Offer:
o When you have an offer that is clear, definite and explicit, the offeree must communicate his
acceptance to the offeror in a clear and unequivocal manner before contractual obligations can
arise. A mere mental intent to accept the offer, no matter how carefully formed, is not sufficient.
Additionally, The acceptance must mirror the offer, and if it doesn’t mirror the offer, it isn’t a true
acceptance (may be a counter-offer, in which case the offeree becomes the offeror and vice versa).

The offeror could be the master of the acceptance(how it should be done Bergey v. HSBC).

Definition (RSC): Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a
manner invited or required by the offer

- Test: Whether a reasonable person would believe the offeree intends to accept the offeror’s terms and form
a contract, not whether offeree actually intended to do so (it is objective like with mutual assent)

- Conditional Acceptance: Not a legal acceptance at all – must agree to be bound definitely and unequivocally

Ardente v. Horan (1976)

Facts: The offeree of a real estate signed a purchase agreement for certain real estate
but his lawyer included a letter with the contract stating in part that his clients were
concerned about certain personals in the house.
ISSUE: Whether there was an acceptance to the offer?
Holding: The court held that there was no acceptance because the letter was
conditional. The acceptance varied from the offer therefore it was a counter
offer.
 An acceptance which is equivocal or upon condition or with a limitation is
a counteroffer and requires
acceptance by the original offeror before a contractual relationship can exist.
 Letter doesn’t unequivocally state that even w/o the items plaintiff willing
to complete contract
▪ The letter goes on to stress the difficulty of finding replacements for the items;
this is indication that π did
not view the inclusion of the items as merely collateral or incidental to the
transaction
 Mirror Image Rule: The acceptance must mirror the offer, and if it
doesn’t mirror the offer, it isn’t a true
acceptance (may be a counter-offer, in which case the offeree becomes the
offeror and vice versa)
(common law)
Rule: Where there is an offer to form a bilateral contract, the offeree must
communicate his acceptance to the offeror in a clear and unequivocal manner before
contractual obligations can arise. A mere mental intent to accept the offer, no matter
how carefully formed, is not sufficient.
Takeaway:
▪ The lack of a signature here was important because a signature is a
manifestation of an agreement
▪ Courts give leeway and allow for counter-offers in which an accepting
party may accept an offer and then add something else; the counter-offer is
characterized by an acceptance regardless or not the additional conditions are
met
▪ Consistent with the objective test of assent, contract law asks whether a
reasonable person would believe the offeree intends to accept the offeror’s
terms and form a contract, not whether the offeree actually intended to do so

Dickey v. Hurd (1929)

Facts: Dickey (π) in GA sent a letter to Hurd (Δ) in MA requesting the price of Δ’s
land in GA. On July 1926, Δoffered to sell the land at “$15 per acre cash” and stated
that he would give π “till July 18, 1926 including that day to accept this offer.” Then
π telegraphed an acceptance on July 17 and promised to send a $500 down payment.
Although Δ received the telegram on July 17, he claimed his offer required Dickey
to pay the cash price by July 18.

Holding/Reasoning: Not open to Δ to lie quietly by until after time of acceptance had
expired

 The words “to accept this offer” are equivocal. They may mean that he
would give through July 18 to accept the offer by paying the price or that he
would give him through that date to give notice of an answer.
 Two letters were put into evidence by π to Δ—both dated before July 18.
Both letters disclose that π understood the offer did not require him to pay
 the purchase price on or before July 18 but to give an answer, notice of
acceptance, on or before that day.
 The letter says “I’ll give you an answer” like a billion times
 When Δ received those letters, if it was not the meaning which he intended,
it was Δ’s

Bergey v. HSBC Bank USA (2010)

o Facts: Δ sold house to π for cash + financing. Then found buyers who
did not need financing. The Δ authorized π’s cash offer and real estate
agent conveyed news to π’s agent with addendum + other instructions.
Then Δ instructed agent to withdraw offer to πs and accept another
buyer’s offer.
o Rule: Conditioned acceptance = counteroffer ≠ contract. A condition
does not invalidate an acceptance unless the acceptance is dependent on
the condition.
o Holding: Δ’s acceptance was not a conditional acceptance; Δ accepted
π’s offer and by stating in writing that Δ, through its agent, accepted π’s
offer, Δ complied with the term of π’s offer requiring the acceptance to
be in writing
o Reasoning: You can accept in any way unless the offer says you
MUST accept the offer in a certain way. Suggested methods don’t
bind you to those methods. Further, performance is acceptance when
a promise is required but not vice versa. Δ did not specify how the
writing requirement could be met, therefore email and other parts of
the record can count.
Uniform Commercial Code § 2-206(1)(a)
o (1) Unless otherwise unambiguously indicated by the language or circumstances
▪ (a) an offer to make a contract shall be construed as inviting acceptance in any matter and by any medium
reasonable in the circumstances.
- Restatement (Second) of Contracts § 32: Invitation of Promise or Performance
o In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the
offer requests or by rendering the performance, as the offeree chooses.

White v. Corlies, p. 513

Facts: π purchased supplies to construct officers for Δ BEFORE they gave notice of
accepting the construction
project. Then Δ retracted their request; π sued for cost of materials + cost of K.
o Issue: Whether preparatory acts for performance under an agreement are sufficient to
communicate acceptance of an offer
o Rule: For an acceptance to be binding it has to be manifested by some appropriate act;
ACTUAL notice must also be given within some reasonable time
o Reasoning: If Δ required a promise as acceptance then performance wouldn’t be
enough→notice says “upon agreement.” Intent can’t be implied; no unjust enrichment of
just wanting compensation for generic supplies that can be used on any construction project.
o Takeaway:
 ▪  No question about the fact that there was an offer
 ▪  Δ argued that they revoked the offer but π argued that they accepted the offer; so,
the question is which one
came first
  ▪  Here, it sounds like the Δ wants to get notice of acceptance; but the language in
the note given by the Δ, it appears that the Δ wanted a promissory act
Distinction between unilateral and bilateral contract & acceptance
 “I will pay you $1000 if you fit up my offices.” – unilateral, where
acceptance is the act
 “Upon agreement, I will pay you $1000 if you fit up my offices. You can
begin at once.” – bilateral, where acceptance is a promise to perform

Ducommun v. Johnson, p. 486

Facts: A real estate agent’s right to a fee depended on whether one of
the sellers had accepted the terms of the sale. The contract of sale was
mailed to the seller for her approval, but nothing was heard from her
for 30 days, when the sale fell through. The agent claimed that the
seller accepted by failing to object to the terms of the sale.
o Holding: Seller was not obligated to say one way or another
whether she approved. Passage of time would be more inclined to
express disapproval than approval. General rule of law that silence
and inaction ≠ acceptance of an offer.

 Restatement (Second) of Contracts § 69: Acceptance by Silence or Exercise of Dominion

(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the
following cases only:
(a) where an offeree takes the benefit of offered services with reasonable opportunity to reject them
and reason to know that they were offered with the expectation of compensation.
(b) where the offeror has stated or given the offeree reason to understand that assent may be
manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept
the offer.
(c) where because of previous dealings or otherwise, it is reasonable that the offeree should notify
the offeror if he does not intend to accept.
(2) An offeree who does any act inconsistent with the offeror’s ownership of offered property is bound in
accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the
offeror it is an acceptance only if ratified by him.
 -  39 USC § 3009 (2006): Mailing of Unordered Merchandise
(a) Except for (1) free samples clearly and conspicuously marked as such, and (2) merchandise mailed by a
charitable organization soliciting contributions, the mailing of unordered merchandise *** constitutes an
unfair method of competition and an unfair trade practice ***.
(b) Any merchandise mailed in violation of subsection (a) of this section, or within the exceptions
contained therein, may be treated as gift by the recipient, who shall have the right to retain, use, discard, or
dispose of it in any manner he sees fit without any obligation whatsoever to the sender. All such
merchandise shall have attached to it a clear and conspicuous statement informing the recipient that he may
treat the merchandise as a gift to him and has the right to retain, use, discard, or dispose of it in any manner
he sees fit without any obligation whatsoever to the sender.
-  Note: Independent Significance of Agreement and Consideration
o It has recently been argued that the English doctrine of consideration is merely another aspect of the
requirement of offer and acceptance.

XIX. Duration of Offers, pps. 517-528; 529-545;

Akers v. J.B. Sedberry, Inc., p. 518
Facts: Two employees orally offered their resignations at a meeting with their employer, but
their employer did not accept their resignations. A few days later, the employer sent a
 telegram to them stating that “we must accept your kind offer of resignation effective
immediately”
ISSUE: Whether or not you have a rejection, and if there is a rejection was it in
reasonable time?
Holding: The court held that the offers to resign were no longer open when the employer
sent the telegram, so there was nothing to accept.
RULE: Face to face offer ends at the end of the conversation. The court reasoned that
there was an implied rejection.
An offer is rejected when the offeror is justified in inferring from the words or action of the
offeree that the offeree intends not to accept the offer or take it under further adviseme
i. TAYLOR: She could have told them she needed some time to think.
Silence is not enough.

Caldwell v. Cline, p. 529

Facts: Plaintiff received aletter from defendant, dated 1/29, proposing to pay $6,000
and deed some of his landto plaintiff in exchange for plaintiff’s farm. Defendant gave
plaintiff eight days to accept or reject the offer. Plaintiff received the letter on 2/2 and
sent areply accepting the proposal on 2/8 and the telegram reached D on 2/9. Defendant
argues that the acceptance was not within the time stipulated.
ISSUE: Whether an offerthat is mailed become effective as of the day that it is
mailed or the day thatit is received?
Holding: The court ruled that the offer is going to be from receipt, not from when
the offer is made.
Counting from the day you receive the offer.
You cant accept an offer if you don’t know about it.
Letters must come to the knowledge of the party to whom they are
addressed before they are accorded
legal existence. You cannot accept an offer you don’t know about. You have to
get the offer before you accept it.
Must be communication to have mutual assent.
Rule: When a person mails an OFFER letter, the offer is not made when it is mailed, but
when it is RECEIVED

Restatement (Second) of Contracts § 39(2)

o An offeree’s power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention
or unless the counter-offer manifests a contrary intention of the offeree.

Collins v. Thompson, p. 531

Issue: Whether the acceptance of the proposed consent decree with
the March 1 date constituted a rejection of the rejection of the
February 13 offer
o Rule: RSC § 39(2): An offeree’s power of acceptance is terminated
by making a counteroffer, unless the offeror has manifested a
CONTRARY intention or unless the counteroffer manifests a
contrary intention of the offeree. Generally, a rejection or
counteroffer ordinarily terminates the power to accept the previously-
made offer.
o Reasoning: The prisoners did not reject the April 1st date and
 alternatively accepted both dates pushing for the March 1st date.
Positively asserted acceptance of initial offer.

Dickinson v. Dodds, p. 532

Facts: On June 10, Δ signed memo offering to sell real estate to π. The document
stated that the offer would be open until 9am on June 12. On June 11, π was
informed that Δ changed his mind and wanted to sell someone else. π immediately
attempted to communicate his acceptance to Δ but Δ never got the message
eventually selling the estate.
Rule: RSC § 42 – Offeree’s power of acceptance is terminated when offeree
receives from offeror a manifestation of intent not to enter into K
o Reasoning: Δ effectively revoked his offer to sell to π by expressing his intent to sell to Allen instead; this intent
was communicated to π before his acceptance of Δ’s offer.

Gifts and Promises, J. Dawson

o Dickinson v. Dodds concluded that a time limit fixed by the offeror could not prevent revocation before the time
limit had expired, for in the absence of consideration any restriction on the power to revoke was simply nodum
pactum.

- The Offeror’s Power to Revoke

Restatement (Second) of Contracts § 42

 An offeree’s power of acceptance is terminated when the offeree receives from the offeror a manifestation
of an intention not to enter into the proposed contract.
- One explanation for this result is that a representation that an offer will remain open is a bare promise,
unsupported by consideration, and therefore unenforceable.
- Another explanation is:
 An offer is merely one of the elements of a contract; and it is indispensable to the making of a contract that
the wills of the contracting parties do, in legal contemplation, concur at the moment of making it. An offer,
therefore, which the party making it has no power to revoke, is a legal impossibility.

Marsh v. Lott p., 534

Facts: Case about $0.25 option contract for a KP of $100,000
Issue: Whether the Δ could revoke the option contract because of inadequate consideration
Reasoning: Any money consideration, however small, paid and received for an option to purchase property at its
adequate value is binding upon the seller thereof for the time specified therein, and is irrevocable for want of its
adequacy. Court does not question adequacy of consideration, especially in an option contract.
Takeaways:
▪ Option contract—or a preliminary contract—which is a contract for time
▪ An option contract is like any other enforceable contract; however, it is secondary to the principle
proposedexchange.
▪ The court refuses to apply the CA statute because there is not a standard for an adequate amount for
optional contracts nor does it posit an adequate way to determine the standard
• The court applies the RSC because in that, the consideration does not require a receipt but instead
just to recite consideration
▪ Courts have not been receptive to “sham” consideration arguments re: option contract price because a fair price
for an option is too difficult to ascertain. Courts are supposed to leave the adequacy of consideration to the parties.
• Court will reject if contract is $0.25 but option contract is $10ok – disproportionate; looks like a gift
▪ The effect of an option contract is that it gives the offeree time to decide for a price; therefore, even a nominal
amount for the option contract is adequate as a symbol of consideration
▪ Option contracts may be held valid because:
• (1) the option mechanism promotes/supports real estate transactions
• (2) courts don’t enjoy allowing an offeror to wiggle out of a promise to leave an offer open
o Before Restatement, this court said: it will need some money, no matter how small, for the option contract to
have consideration and be enforceable.

Restatement (Second) of Contracts § 87(1): Option Contract

An offer is binding as an option contract if it
(a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer,
and proposes an exchange on fair terms within a reasonable time; or
(b) is made irrevocable by state
Comments

(a) Consideration and form. The traditional common-law devices for making a firm offer or option
contract are the giving of consideration and the affixing of a seal. But the firm offer serves a useful purpose
even though no preliminary bargain is made: it is often a necessary step in the making of the main bargain
proposed, and it partakes of the natural formalities inherent in business transactions. The erosion of the
formality of the seal has made it less and less satisfactory as a universal formality. As literacy has spread,
the personal signature has become the natural formality and the seal has become more and more
anachronistic. The rules stated in this section reflect the judicial and legislative response to this situation.
(b) Nominal consideration. Offers made in consideration of one dollar paid or promised are often
irrevocable under Subsection (1)(a). The irrevocability of an offer may be worth much or little to the
offeree, and the courts do not ordinarily inquire into the adequacy of the consideration bargained for...
Hence a comparatively small payment may furnish consideration for the irrevocability of an offer
proposing a transaction involving much larger sums.

 Uniform Commercial Code §2-205: Firm Offers

An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not
revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such
period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be
separately signed by the offeror.

Davis v. Jacoby, p. 537

o Facts: Whiteheads
o Issue: Whether offer was an offer to enter into a unilateral contract (vs a
bilateral contract) and the promise to perform had no legal effect.
o Rule: A unilateral contract is one in which no promisor receives a promise
as consideration for his promise. A bilateral contract is one in which there
are mutual promises between two parties to the contract; each party being
both a promisor and a promissee.
▪ Between a unilateral contract and a bilateral contract is a vague
field where the particular contract may be unilateral or bilateral depending
upon the intent of the offer and the facts and circumstances of each case.
Holding: The offer was an offer to enter into a bilateral contract which was
accepted by the letter of April 14. Subsequently πs fully performed their part
of the contract.
Takeaways:
▪ Under RSC § 36(d), if this was a unilateral contract, then the πs’
power of acceptance was terminated with Mr. Whitehead’s death
 because the consideration in a unilateral contract is the performance
(or initiationthereof)
▪ If there is ambiguous language (whether unilateral or bilateral),
courts presume it is a bilateral contract.
• Bilateral contracts protect both parties because once you
make the promise on both sides, then you’re done—there is
consideration on both sides
▪ An argument against the πs here is that this could be considered a
familial relationship
▪ Absent ambiguity, contract law is clear: the offeree can accept only
by following the offeror’s prescription.
If a reasonable person would believe the offeror required a
return promise as an acceptance, the promisee can accept only by
promising.

- The True Conception of Unilateral Contracts, Wormser

o When an act is thus wanted in return for a promise, a unilateral contract is created when the act is done. It is
clear that only one party is bound.
 In unilateral contracts, on one side is an act and on the other is a promise.
 If one party withdraws their offer before the other has performed; it is elementary that an offeror may
withdraw their offer until it has been accepted. It follows logically that the offeror is perfectly within their
rights in whit drawing their offer before the other has accepted it.
 In the case where there is a unilateral contract and A has overtook B after B had done half of the work, B
could have refused at the time, or any other time, to continue to finish the work without making himself in
any way legally liable to A.
- Bars to Revocation – Beginning/Part Performance of Unilateral Contracts

XX. Unilateral Contracts, pps. 545-554; 557-565

- Restatement of Contracts § 45: Option Contract Created by Part Performance or Tender
(1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory
acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a
beginning of it
(2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender
of the invited performance in accordance with the terms of the offer.

Brackenbury v. Hodgkin, p. 545

Facts: Defendant offered plaintiff her home if she cared for defendant for the
rest of defendant’s life. Plaintiff being a bitch and decided to revoke her
offer (unilateral contract).
Issue: when does performance begin? Courts makes distinctions between
preparation to perform and actual performance.
Rule: A valid unilateral K can have an act/performance for consideration.
Once you start performance, the offeror can’t withdraw the offer as long as
complete performance is within a reasonable time.
o Holding: There was a contract and Δ had to give π the house since Δ
violated the contract.
Takeaways:
 ▪  The first Restatement of Contracts tries to protect the offeree who
is trying to perform by binding the offeror on condition that the
offeree complete or at least tender full performance.
  ▪  The Second Restatement utilizes the option contract conception—
once you begin to deliver or tender, you have created an option
contract that binds the offeror to allow you to complete performance.
(Akin to beginning performance as consideration to support offeror’s
promise to keep the offer open).
 ▪  As with the first restatement, the second restatement creates a
condition precedent to the offeror’s liability, namely your
“completion or tender of the invited performance.”
 ▪  An offeree who has begun performance of a unilateral contract
must “exercise reasonable diligence” to notify the offeror if the
offeror otherwise reasonably would not learn of the performance.
 ▪  Under RSC § 45, the offer is irrevocable upon part performance

Petterson v. Pattberg, p. 548

Facts: Δ had mortgage on π’s property. It was due in 5 years but if π
paid Δ in cash within the certain time limit, π would save a certain
amount of money. Unilateral contract. The π went to Δ’s door to give
him the money, and as he knocked on defendant’s door, before
plaintiff could give him the money, defendant rescinded the offer.
Issue: Whether an offeror of a unilateral contract withdraws/revokes
an offer if the offer, before actual tender is made, approaches the
offeror with the intention of proffering performance
Rule: The offeror may see the approach of the offeree and know that
an acceptance is contemplated. If the offeror
can say ‘I revoke’ before the offeree accepts, however brief
the interval of time between the two acts, there
is no escape from the conclusion that the offer is terminated.
 An offer to sell property may be withdrawn before
acceptance without any formal notice to the person
to whom the offer is made. It is sufficient that
person has actual knowledge that the person who
made the offer has done some act inconsistent with
the continuance of the offer, such as selling the
property to a third person.
Reasoning: Δ’s offer was withdrawn before its acceptance had been
tendered. It is unnecessary to determine, therefore, what the legal
situation might have been had tender been made before withdrawal.
Holding: Since Δ revoked before π actually showed the money to
pay mortgage, π had not yet begun performance →no binding
contract. It was not binding until completed and it was withdrawn in
time
Dissent: The Δ’s letter to π constituted a promise on his part to
accept payment. If the condition precedent has not been performed, it
is because the defendant made performance impossible by refusing ti
accept payment, when the plaintiff came with an offer of immediate
performance. Here, a promise to accept payment, by its very terms,
must necessarily become binding. Clearly the Δ could not have
expected or intended that the π would make a formal tender of
payment without first stating that he had come to make payment
Notes:
 ▪ 1st RSC→needed acceptance of payment
▪ 2nd RSC→just need payment to be tendered, not necessarily accepted
Modern Unilateral Contracts, Petit
o The drafters of the RSC considered it a step forward when they minimized the importance of unilateral-bilateral
distinction and sought to eliminate the term “unilateral contract” from the lexicon of the law.
o Unilateral contract has become an important concept in defining relationships that arise in our increasingly
organized society.
o Unilateral Contracts Between Employers and Employees
▪ The most notable expansion of unilateral contract analysis has occurred in disputes between employers
and employees.

Note: The Duty of the Offeree of a Unilateral Contract Who Has Begun Performance to Notify the Offeror
o When must notice of acceptance be given to the offeror? In Carlill V. Carbolic Smoke Ball Co. (1893), the court
stated that the offeror “does not expect and does not require notice of the acceptance apart from notice of the
performance.”
o Similarly, under the Restatement (Second) of Contracts § 54(1), a contract is formed by performance without
any notice, “unless the offer requests” a notice. Under § 54(2), however, the offeror is discharged if the offeree
“has reason to know that the offeror has no adequate means of learning of the performance” promptly, unless the
offeree “exercises reasonable diligence” to notify the offeror, or the “offeror indicates that notification of
acceptance is not required.”

o UCC §2-206(2):
Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified
of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.

Drennan v. Star Paving Co., p. 557

 Facts: Drennan (π), a general contractor, was preparing a bid for a school
construction project. As was customary, Drennan solicited bids from
subcontractors to perform the paving work necessary for the project. Star
Paving Co.(Δ) contacted Drennan and submitted a bid of $7,131.60 for
the paving work. This was the lowest bid, and Drennan relied on Star’s
bid when computing his own bid for the project. Drennan’s bid was
lowest and he was ultimately awarded the general contract. Drennan
promptly informed Star it was awarded the subcontract. However, Star
informed Drennan that it had made a mistake in computing its bid and
could only complete the work for $15,000. Drennan stated this was
unacceptable and proceeded to look for another subcontractor to perform
the paving work. After months of searching, Drennan awarded a new
subcontract to a company bidding $10,948.60 for the project; the lowest
bid found by Drennan. Drennan sued Star to recover damages caused by
Star’s failure to perform work as specified in its bid.
 Issue: Did π’s reliance make Δ’s offer irrevocable?
 Rule: RSC § 90: A promise which the promisor should reasonably
expect to induce action or forbearance of definite and substantial
character on the part of the promisee and which does induce such
action or forbearance is binding if injustice can be avoided only by
enforcement of the promise.
▪ If an offer for a unilateral contract is made, and part of the
consideration requested in the offer is given or tendered by the offeree in
 response thereto, the offeror is bound by a contract, they duty of
immediate performance of which is conditional on the full consideration
being given or tendered within the time stated in the offer, or, if no time
is stated therein, within a reasonable time.”
 Reasoning: The very purpose of RSC § 90 is to make a
promise binding even though there was no consideration
“in the sense of something that is bargained for and given
in exchange.” Reasonable reliance serves to hold the
offeror in lieu of the consideration ordinarily required to
make the offer binding. When plaintiff used defendant’s
offer in computing his own bid, he bound himself to
perform in reliance on defendant’s terms. It is only fair to
allow π an opportunity to accept Δ’s bid when π had
reason to understand that π would rely on the bid and π
did rely on it.
 Takeaway:
▪ The Δ revoked its offer, but need to find out when the accepted
occurred—before or after revocation?
▪ Did the contractor give any sense of consideration—expressly
or implied?
▪ The court characterized the contract to be bilateral; but the court
used RST §45 to analogize:
• Reasonable reliance in bilateral contracts is the functional
equivalent to part performance in a unilateral contract which is
the functional equivalent to consideration
- A Summary of the Law of Contracts, Langdell
o An offer which contains no stipulation as to how long it shall continue, as it confers no right on the offeree, is in
its nature revocable at any moment. *** An offer, therefore, which the party making it has no power to revoke, is
a legal impossibility.

- Restatement (Second) of Contracts § 87(2)

 An offer which the offeror should reasonably expect to induce action or forbearance of a substantial
character on the part of the offeree before acceptance and which does induce such action or forbearance is
binding as an option contract to the extent necessary to avoid injustice.

Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract: A Comparative Study

 Once negotiations have reached the stage where one of the parties has made an offer... should an offeree be
entitled to rely on an offer or should the offeror, according to the bargain (reciprocity) principle, be free to
revoke with impunity so long as the other party has not committed himself by acceptance?
 Is there a middle position to be taken? This would mean that a mere offer cannot be relied upon. The
offeree who changes his position before acceptance has himself to blame if the offeror changes his mind.
But a firm offer might be treated differently.

XXI. Bargaining At A Distance, pps. 567-568

Mailbox Rule
o Acceptances are valid upon putting the letter in the mail o Mailbox rule DOES apply to an option contract.
o Standard rule→want uniformity
 Lewis v. Browning, p. 567
Takeaway: Mailbox rule applies→offeror is master and can receive offerees acceptance in
kind→therefore can opt out of mailbox rule just by switching medium/or specifying
medium of offer

XXII. Agreements to Agree and Related Matters, pps. 570-577; 582-585

a. The legal significance of Business Draft Agreements
viii. MEMORANDUMS OF INTENT
1. Contract Law could find that the memorandum is legally enforceable
a. Restatement (Second) of Contracts Section 27  Comment
i. Parties who before the final writing is made, agree upon
all their terms which they plan to incorporate therein
orally or by exchange of several writings, it is possible
thus to make a contract the terms of which include an
obligation to execute subsequently a final writing which
shall contain certain provisions.
2. Contract Law could find that the memorandum is NOT legally
enforceable
a. Restatement (Second) of Contracts Section 27
i. If either party knows or has reason to know that the other
party regards the agreement as incomplete and intends
that no obligation shall exists until other terms are
assented to or until the whole has been reduced to another
written form, the preliminary negotiations and
agreements DO NOT constitute a contract
3. Contract Law could find that the memorandum constitutes a legal
obligation to make a reasonable effort to conclude the deal
a. Determine the parties’ intent with the reasonable person-
objective test.
ix. TAYLOR: The most you can do is clarify yourself in the beginning
1. If you don’t want the memorandum of intent to be legally enforceable,
even if it has all the terms there then make it clear
2. “This is not a binding contract until both parties have signed!”
x. THE REQUIREMENT OF CERTAINTY IN BUSINESS AGREEMENTS
1. Even if the parties intended their preliminary draft to have a legal
effect, the draft may not be enforceable if it omits too many important
terms.
2. Courts decline to enforce the contract on the grounds of uncertainty
3. Courts should make the effort to fill gaps and enforce agreements when
the parties intended to contract
4. UCC Section 2-204 (3)
a. Relaxes the uncertainty test
b. States that event though one or more terms are left open a
contract for sale does not fail for indefiniteness if the parties have
 intended to make a contract and there is a reasonable certain
basis for giving an appropriate remedy.

Arnold Palmer Golf Co. v. Fuqua Industries, p. 570

Facts: Palmer and Fuqua’s memorandum of intent included the general
understanding of the agreement that had been reached between the parties, contained
detailed statements about how the company would be run and funded. Before the
definitive agreement was prepared, Fuqua terminated negotiations with Palmer.
ISSUE: Whether the parties intended to be bound by the memorandum
or is it just the usual agreement to agree?
Fuqua’s arguments:
c. That he could back out because the memo of intent stated
“satisfactory to both parties and their respective counsels”
Hold: Court states that “Satisfactory to both parties and their
counsels”= that they had already agreed to the document therefore there
is a preliminary agreement.
The parties used words like “shall” “will” etc. and there was a press
release therefore there is an issue her for fact finders to determine.
TAYLOR: Is this too much of a stretch?
d. You can have all the terms there and not have a deal until you
sign
Circumstances to determine existence of a contract: whether contract of this kind is usually put in writing,
amount of detail, whether common or unusual type of contract, standard contract, preparation

Indefiniteness & Certainty

Uniform Commercial Code § 2-204(3)
Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have
intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.

Joseph Martin, Jr. Deli v. Schumacher, p. 582

Facts: Parties agreed that the lease would be renewed in 5 years and upon an agreed
price. The Δ wanted $900 but π said market value is $545
Issue: Whether the renewal clause in the contract was unenforceable for
indefiniteness
Rule: An agreement to agree in which a material term is left for future negotiations
is unenforceable.
Reasoning: Too many important terms were omitted. No basis for determining the
renewal rent rate. The words
leave no room for legal construction. Neither the tenant nor the landlord was bound
by any formula. There is no commitment to be bound by fair market rental value or
the reasonable rent.
Dissent: The better rule would be that if the tenant can establish its entitlement to
renewal under the lease, the mere presence of a provision calling for renewal at
“rentals to be agreed upon” should not prevent judicial intervention to fix rent at a
reasonable rate in order to avoid a forfeiture.
Takeaway: COURTS WON’T ENFORCE A CONTRACT IF A MATERIAL
TERM IS LEFT FOR FUTURE NEGOTIATIONS
XXIV. Policing Agreements and Promises (Intro. pages 611-24, and Duress)
Background
o The policing of agreements is another way to determine whether a contract is enforceable – the other half of the
loaf (the first half is offer, consideration, etc.)

DURESS

 Definition: Generally, deny enforcement of agreements when something is wrong with the process of
forming the agreement or when the discrepancy between what each party receives is too large or both; not
free will
 -  Elements:
o Threat must actually overcome the will of the person (subjective test) (involuntary action)
o One party must intend to act or threaten the other in order to induce assent (injuring party must
know or intend to take advantage of the other party)
o Threat must induce the assent
o Coerced party must have no reasonable alternative or adequate remedy if the threat were carried
out (take the person to court, get product elsewhere)

Standard Box Co. v. Mutual Biscuit Co., p. 615

Facts: π offered option contract to Δ for 1905 price. Later, earthquake happened and
Δ wanted to pay 1905 price for π’s boxes but π made Δ pay market value. When π
sued Δ for not paying, Δ countered saying π should’ve upheld previous option
contract offer. Claimed economic duress.
Reasoning: No duress; because no actual contractual obligation for π to sell at 1905
price. π was merely selling boxes at market value. Δ could’ve brought claim before
paying π, but even then, there was no denial of a right a threat which coerced Δ to
pay market value. π can set his price at whatever he wants; π isn’t responsible for
Δ’s predicament.
Takeaways: It would’ve been inequitable to allow Δ to pay the previous price because it
creates a slippery slope in the sense that it would set a standard that dire circumstances
override contractual stipulations

Machinery Hauling, Inc. v. Steel of West Virginia, p. 618

Facts: Δ contracted π to transport steel product to a 3rd party. The 3rd party refused
product for defects and Δ instructed π to pay the price of the undelivered product or
else Δ would no longer do business with π and π refused.
Reasoning + Holding: No business/economic duress because there was no
continuing contract between the parties. The demand for π to pay for the
defective steel was not coupled with a threat to terminate an existing
contract. Furthermore, the π did not accede to the Δ’s demand and pay over
the money. Future expectancy is not a legal right on which the π can
anchor a claim of economic duress. Parties are allowed to drive a hard
bargain to make the other party concede.

S.P. Dunham & Company v. Kudra, p. 619

Facts: π turned sent coats to Δ for storage and cleaning. Then π went
bankrupt and Δ still had coats; demanded π to pay for coats and other
outstanding balance before returning the coats. π eventually paid Δ but then
sued for economic/business duress.
Holding/Reasoning: There was duress because π was constrained to do what
 they otherwise wouldn’t have done. One cannot claim duress if they pay
money for the relief of another person. Court noted there is evidence of
duress when: (1) There is no “complete and adequate remedy” at law at the
time of compliance (time is of the essence); (2) there is a lack of choice
Takeaways:
▪ There was a withholding of a legal right here
▪ Says that seeking counsel falls into the factor of deliberation but
does not necessarily preclude a claim of duress ▪ An objective test
has been rejected (reasonable MAN) and now a subjective test has
been adopted (was the individual’s will overborne? Or was the
individual’s free will constrained?)
o Elements of duress from the case: (a) lack of reasonable
alternatives (including whether there was an available legal remedy);
(b) motivation to take advantage; (c) improper pressure; (d) denial of
legal right (for coats π paid Δ for)

Price Gouging
o Some states have enacted “price gouging” statutes that apply during a state of emergency
o This falls in line with the concept that exploitation of dire circumstances can be grounds for duress

 -  Restatement (Second) of Contracts § 176: When a Threat is Improper

(1) A threat is improper if:

(a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in
obtaining property
(b) what is threatened is a criminal prosecution
(c) what is threatened is the use of civil process and the threat is made in bad faith, or

(d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient (2) A
threat is improper if the resulting exchange is not on fair terms, and

(a) the threatened act would harm the recipient and would not significantly benefit the party making the
threat, or (b) the effectiveness of the threat in inducing the manifestation of assent is significantly
increased by prior unfair dealing by the party making the threat, or
(c) what is threatened is otherwise a use of power for illegitimate ends

 -  Undue Influence

o A policing doctrine related to duress defined as “undue susceptibility” of one party and “excessive pressure”
placed on that party by another.
o The pressure must be exerted by a person enjoying a special relationship with the victim that makes the victim
especially susceptible to the pressure

o Differences between Duress and Undue Influence

 Duress typically requires actual harm or a threat of harm
 Undue influence can be established by over persuasion and pressure short of actual threats or harm
 Duress has more to do with taking advantage of lack of alternatives, particularly economic alternatives, in
order to coerce consent
 Undue influence has more to do with taking advantage or creating emotional/psychological state
XXV. Misrepresentation, Concealment, and the Duty to Disclose, pp. 624-637
Background:
o Misrepresentation is a tort so violated party can sue for punitive damages if there is material fraud (malicious
fraud) and not simple fraud (innocent misrepresentation)
- Innocent Misrepresentation
o Elements:
▪ False representation made by mistake
▪ Reasonable detrimental reliance
▪ Material fact
o Remedy:
▪ Rescind contract; or
▪ Out of pocket money spent
Bates v. Cashman, p. 625 (1918)
 Suit to recover for the breach of a written contract to buy the stocks and bonds of the
Newburyport Cordage Company. It was said that there was an easement
 The Δ contends that they were induced to sign it by such false representations by the π
as released him from obligation to perform.
 A person reasonably may rescind a contract to which he has been induced to become a
party in reliance upon false though innocent misrepresentations respecting a cognizable
material fact made as of his ownknowledge by the other party to the contract.
 CONTRACTS & TORT LAW
 Why would a party bring the suit in tort law, instead of
contracts?
 Punitive Damages
Bates v. Cashman (1918)
 It was a contract to buy stocks and bonds. Plaintiff wanted to
rescind the contract, but defendant did not know.
 The court allowed it.
 Person may rescind a contract to which he was induced to
sign in reliance on a false though innocent misrepresentation
which is also a material fact to contract.

- Negligent Misrepresentation
o Damages
 Benefit of the bargain – difference between what the property value would’ve been and what they actually
received
 Rescission
 Damages necessary to bring π back to position prior to contract
 In such cases, can sue in tort as a strategy because of punitive damages

Holcomb v. Hoffschneider, p. 632(1980)

 Facts: πs attended an open house where Δ told them the property was 6.8 acres;
the πs walked the property and later bought it. Then they discovered the property
was actually 4.6 acres and brought a tort action for fraudulent misrepresentation.
Δs argued that the πs did not rely on Δ’s representation bc they were aware of
the boundaries of the property.
 Rule: A party may rely upon representations as to the ownership of property, its
location, and the like; and that, to entitle him to recover for fraudulent
 representations, he is not bound to show that he instituted inquiry by consulting
records or plats, or employing a surveyor, or the like.
 Note: Generally, a recovery of exemplary or punitive damages in an action on a
fraudulent sale will be allowed only where the fraud is an aggravated one, as
where it is malicious, deliberate, gross, or wanton.
▪  Takeaway: TAYLOR: The plaintiff was in doubt
He asked him like 15 times!
 Defendant is arguing that plaintiff didn’t relied
if he had so much doubt.
Fraudulent Misrepresentation:
o Reasonable reliance
o On a material fact
o That the person who makes the statement knows is not true o Which results in detriment

Ability to Discover Concealment

Porreco v. Porreco p. 636(2002)
Facts: Man gave woman an engagement ring; woman signed a prenup listing
the ring’s value at $21k. Woman then found out the ring was fake. Claims
she wouldn’t have signed the prenup or married him if she would’ve known
about the ring.
Rule: there must be justifiable reliance that would preclude her from
discovering the ring was fake earlier
Reasoning: Susan had possession of the ring and had plenty of time
to obtain an appraisal of the ring and inform herself of the nature and
extent of her own assets, rather than rely on her husband’s statements
concerning her valuation of her holdings.

XXVI. Public Policy pp. 648-665

- Background:
o Public policy defense should not interfere with freedom to contract so that the party seeking to avoid
the contract, or a term based on public policy has the duty of convincing the court that the public policy
they assert outweighs the importance of freedom to contract. Parties have found success in a limited
array of cases.

- Exculpation Clause: Absolves a contracting party from liability to the other party for any number of acts
or omissions
o UCC allows sellers to disclaim implied warranties
o Courts usually overturn these if they violate a specific part of the law or if they hurt the public
o General rule: can’t contract out of your own negligence

Printing & Numerical Registering Co. v. Sampson (1875)

- Liberty of contracting is more important than public policy –
contracts when entered into freely & voluntarily shall be held
sacred – you must show a paramount public policy to
overrule this

McCutcheon v. United Homes Corp. p. 648

• Facts: πs fell down the stairs in their apartment complex; Δ
argues that both signed their lease which had an exculpatory
clause which exculpated the lessor from liability for any injuries
 to the lessee
• Issue: Whether the lessor of a residential unit within a multi-
family dwelling complex may exculpate themselves from liability
for personal injuries sustained by a tenant, which injuries result
from the lessor’s own negligence in maintenance of the facilities
available for the tenants’ use.
• Rule: One who leases a portion of his premises but retains control
over common areas has a duty to use reasonable care to keep them in
safe condition for the use of the tenant. The landlord is required to do
more than passively refrain from negligent acts.
o RSC § 547: exculpatory clauses are legal in the abstract,
however, when applied to a specific situation, one may be
exempt from liability for their own negligence only when the
consequences thereof do not fall greatly below the standard
established by law
• Holding/Reasoning: An exculpatory clause destroys the concept of
negligence in the landlord-tenant relationship. Since the landlord’s
duty applied to the public, and not the private, the court ruled against
the exculpatory clause since the court wants to protect the interests of
the public and bc the clause goes against common law tort doctrine
• Takeaways: Tort case (no issues about punitive damages) where
contracts (exculpatory clause) is used as a defense to a tort claim.
Court applied a standard and said that the exculpatory clause fell
below the standard established by law (Restatement of Contracts §
574)

• Henderson v. Expeditions (2005)

o Facts: Henderson was injured while on a white-water
rafting trip operated by Δ. Δ argues that π signed a waiver
which released Δ from liability for its negligence.
o Rule: Parties may contract that one shall not be liable for his
negligence to another but that such other shall assume the risk
incident to such negligence… Further, it is not necessary that
the word ‘negligence’ appear in the exculpatory clause and the
public policy of TN favors freedom to contract against liability
for the negligence.
o Holding/Reasoning: Exculpatory clause upheld because there
is no public policy interest; recreational activities are not a
professional trade and not “essential” or of great importance to
the public
o Notes: The TN Supreme Court adopted six criteria from
Tunkl as useful in determining when an exculpatory
provision should be held invalid as contrary to public
policy:
• (1) it concerns a business of a type generally thought suitable for public regulation
• (2) the party seeking exculpation is engaged in performing a service of great
importance to the public, which is often a matter of practical necessity for
some members of the public
• (3) the party holds himself out as willing to perform the service for any member
of the public who seeks it, or at least for any member coming within certain
established standards
• (4) as a result of the essential nature of the service, in the economic setting of
the transaction, the party involving exculpation possesses a decisive advantage
 of bargaining strength against any member of the public who seeks his services
• (5) in exercising a superior bargaining power, the party confronts the public with
a standardized adhesion contract of exculpation, and makes no provision
whereby a purchaser may pay additional reasonable fees and obtain protection
against negligence
• (6) finally, as a result of the transaction, the person or property of the purchaser is
placed under the control of the seller, subject to the risk of carelessness by the
seller or his agents

Karpinski v. Ingrasci p. 657

• Facts: Δ was hired by π to be assistant oral surgeon. They signed a non-compete
covenant stating that if Δ left, he could not practice oral surgery or dentistry in
the 5 counties forever. Δ left and started his own practice, getting a lot of π’s
patients.
• Rule: Non-compete covenants are only enforceable to the point where they are
reasonable
• Holding/Reasoning: Upheld most of covenant; severed parts of covenant that
said Δ could not practice dentistry in the counties because it was too broad and
would have dire effects on Δ’s livelihood. Otherwise, geography and time frame
were found to be okay.
• Takeaway: Court severed the “bad” part of the contract – problematic bc could
argue that court’s job is to enforce contracts, not “create” them

Dwyer v. Jung p. 662

• Facts: πs and Δ entered a law partnership agreement which included a list
designating certain clients to each partner. Agreement had non-compete clause
saying that partners can’t do business with clients assigned to someone else.
• Rule: Usual employee restrictive covenants will generally be found to be
reasonable where it simply protects the legitimate interests of the employer,
imposes no undue hardship on the employee, and is not injurious to the public.
• Holding/Reasoning: Such covenants go against public policy because people
are entitled to be represented by a lawyer of their own choosing. The attorney-
client relationship is consensual, highly fiduciary on the counsel’s part, and they
may do nothing which restricts the right of the client to repose confidence in any
counsel of their choice.

XXVII. Inequality Of The Exchange (Intro. J. Story, p. 668; 673-679; 697-703)

- Background: the function of the court is not to determine the validity of a contract between ordinary
business men based on a belief of inadequacy of consideration. Courts don’t interfere with private
bargaining.

Jackson v. Seymour p. 673(Constructive Fraud)

o Facts: π sold her property to her brother (Δ) for low price. $275 b/c thought land had no value. Δ
realized that there was timber then made huge profit. π sued claiming fraud. At trial, actual fraud had
not been sustained, but the question of constructive fraud was left unanswered.
o Rule: Where inadequacy of price is such as to shock their conscience, equity is alert to seize upon
the slightest circumstance indicative of fraud, either actual or constructive.
o Holding/Reasoning: Court said that drastic inequity of exchange + the nature of the
relationship between buyer/seller is enough to void the contract.
 o Takeaways: Court said that it was Δ’s implicated fiduciary duty, as the π’s agent, to get the land
appraised. Need to look at the characteristics of the individual parties
▪ Here, the Δ was a successful business man while the π was described as a “poor widow
woman”
▪ Courts do look at these factors and the dynamic between the parties
o The parties did not ask to look for constructive fraud, but the court found it regardless
o Courts don’t inquire about the adequacy of the contract
▪

UNCONSCIONABILITY

- Background:
o Today, the UCC incorporates unconscionability doctrine and makes it available as a defense in all
sale of goods cases, not just those in which an equitable remedy such as specific performance is
sought.
o Distinction between unconscionability and public policy:
▪ Rather than focus on the relationship between the parties and the effect of the agreement
upon them, public policy analysis requires the court to consider the impact of such
arrangements upon society as a whole

- Uniform Commercial Code § 2-302: Unconscionable Contract or Clause

(1) If the court as a matter of law finds the contract or any clause of the contract to have been
unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce
the remainder of the contract without the unconscionable clause, or it may so limit the application of
any unconscionable clause to avoid any unconscionable result.
(2) When it is claimed or appears to the court that the contract or any clause thereof may be
unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its
commercial setting, purpose and effect to aid the court in making the determination.

Williams v. Walker Thomas (seminal case on unconscionability (substantive & procedural))

• Facts: Buyers entered into installment contracts with the furniture company and
eventually defaulted and the due payments. The buyers contended that their
contracts with the company were unenforceable due to unconscionability.
• Rule: The UCC provides that the court may refuse to enforce contracts found to
be unconscionable at the time it was made. Little bargaining power → little real
choice, when such signs a commercially unreasonable contract with little or no
knowledge of its terms, no true assent or objective manifestation of consent.
• Reasoning: In determining reasonableness of fairness, the primary concern
must be with the terms of the contract considered in light of the circumstances
existing when the contract was made. Test: absence of true assent + substantive
unconscionability
• Absence of meaningful choice, of reasonable opportunity to discover or understand
the terms
• Contract terms unreasonably favorable to the seller
• Takeaway: Court describes two types of unconscionability:
• Substantive: contract is grossly one-sided; seller takes advantage of buyer’s
“condition”
• Procedural: language of contract is too convoluted to where buying/agreeing
party doesn’t understand the terms when signing
o The legislature eventually made it illegal to include such clauses in contracts; the legislature saw it as a
way to enter into predatory contracts and exploit poor individuals of color
 Jones v. Star Credit Corp. p. 697( substantive unconscionability/racist predatory
lending)
o Facts: Joneses (π) were welfare recipients; bought freezer from door-to-
door salesman for $1,200 though its value was $300. At the time of
lawsuit, πs had paid over $600
o Rule: UCC § 2-302 allows court to nullify contract if found, as a matter
of law, that a contract was “unconscionable at the time it was made,”
o Holding/Reasoning: Court relieves πs from making further payments on
grounds that the contract was unconscionable at the time it was made.
$600 toward the purchase of $300 made the Δ amply compensated, did
not allow πs to recover, bc still wanted to uphold idea that ppl have
freedom to contract and courts
• Seller knew of πs’ economic status at the time of the sale. There was an extreme disparity of
value and bargaining power. Making a meaningful choice is essential to the making of
contract and can be negated by gross inequality. Decided mostly because of disparity of
value and π financial situation (sympathetic).
o Takeaways: One factor a court looks at in cases of unconscionability is the
lack reasonable alternatives

Chalk v. T-Mobile USA p. 700 (substantial unconscionability for class action suits)
• Facts: Consumers brought a class action lawsuit in fed court against T-Mobile.
But T-Mobile said they can’t do that bc signed waiver of class action lawsuits
• Rule: A class action waiver in a contract where individual damages are
likely to be small is substantively unconscionable as a matter of state
contract law.
• Holding/Reasoning: Such waiver is substantively unconscionable as a matter of
Oregon law. A class action waiver in consumer contract is unreasonably
favorable to a company for two reasons:
• (1) such a waiver is inherently one-sided when contained in a consumer
contract. Even if the waiver on its face applies equally to both parties, it is
entirely unilateral in effect. T-Mobile would never want/need to bring class
action against customers
• (2) A consumer class action waiver frequently prevents individuals from
vindicating their rights.

In re Lisa Fay Allen (1994)

o Facts: π leased washer/dryer and 1 week later filed for bankruptcy
relief. Court said no procedural or substantive unconscionability on the
issue of whether the lease was unconscionable. Δ didn’t engage in
oppressive bargaining prices after π had been denied credit to purchase
a washer/dryer at 2 stores. Lease was written in understandable terms; it
disclosed weekly payment rent and the right to purchase for half the
price. Terms were not unreasonably favorable to Δ.

AT&T Mobility v. Conception 2)

o Takeaway: This case overturned or at least placed severe limits on the holding in Chalk and other
cases finding unconscionable terms in consumer contracts that waive class-action arbitration.
o The Court considered the effect of the Federal Arbitration Act (FAA) on such decisions which states in
part that a written agreement to arbitrate “shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract.”
XXVIII. Policing The Standard Form Contract pp. 706-712; 729-735
- Benefits: reduction of costs of production & distribution
- Cons: used by enterprises with strong bargaining power & weaker party in need of services cannot get better terms
because the standard contract has a monopoly, or all competitors use the same clauses
- Terms of Adhesion – lack of bargaining & negotiation of any of the terms – on a take it or leave it basis – person
who is bargaining does not have a reasonable alternative - For the most part, courts hold Terms of Adhesion as legal

- Restatement (Second) of Contracts § 211: Standardized Agreements

(1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests
assent to a writing and has reason to believe that like writings are regularly used to embody terms of
agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms
included in the writing.
(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated,
without regard to their knowledge or understanding of the standard terms of the writing.
(3) Where the other party has reason to believe that the party manifesting such assent would not do
so if he knew that the writing contained a particular term, the term is not part of the agreement.

- Standard form contracts are contracts of adhesion

o Contracts of adhesion – contracts created that are non-negotiable
(1) There is no ability to negotiate (one-sided bargaining power)
(2) It is a take-it-or-leave-it contract
(3) Party can’t shop around (monopoly or all competitors use the same clause)
(4) Terms must be conspicuous (written so that a reasonable person ought to have noticed)
o If party could’ve gotten a better deal elsewhere, court won’t look at it as adhesive

Fairfield Leasing v. Techni-Graphics p. 709-( inconspicuous jury waiver invalid)

o Facts: π bought coffee maker then found cockroach larvae in it. Tried to sue but Δ said π signed
standard form contract which had jury trial waiver; said it was take-it-or-leave-it contract bc all other
sellers of coffee makers have the same provision
o Rule: Where the parties have been represented by counsel or there was evidence of negotiation w/o
substantial inequality in bargaining positions, or the waiver provision was conspicuous, tendency has
been to enforce waiver.
o Holding/Reasoning: Jury waiver here is inconspicuous. Where a non-negotiated jury waiver
clause appears inconspicuously in a standard form contract entered without assistance of
counsel, the waiver should not be enforced.
▪ When an adhesion contract calls for π to waive a fundamental right, Δ must prove that π
knowingly waive this right. Otherwise, it offends public policy. Terms can’t be
inconspicuous. There is strong presumption against waiver of the right to a jury trial
o Takeaways: Here the Court made a rule by analogy: The UCC requires waivers of warrantability to be
conspicuous and therefore waivers of a constitutional right such as jury trials should also be
conspicuous

XXIX. Policing Contract Modifications pp. 741-745; 749-764

- People should be free to modify agreements, since it supports freedom of contracts and facilities
exchange. However, when parties take undue advantage modifications will not be enforced.

- Uniform Commercial Code § 2-209: Modification, Rescission, and Waiver

 (1) An agreement modifying a contract within this Article needs no consideration to be binding
(a) modification must meet test of good faith
(b) extortion of modification without legit commercial reason is violation of good faith
(2) Test of Good Faith: observance of reasonable commercial standard of fair dealing in trade

- Pre-existing Duty Doctrine

o Neither the performance of a duty nor the promise to render a performance already required by duty is
a sufficient consideration for a return promise. Would need additional consideration. Usually coercion
is present. (Consideration Doctrine)
***Note: If there is a pre-existing duty to do something, you cannot get more money for doing the same thing
unless the contract/duty was cancelled by both parties voluntarily and without coercion.***

United States v. Stump Home Specialties (1990) p. 750

- The best way to deal with these modification cases is to pull out duress instead –
- Other courts, however, are invoking Restatement 89

Alaska Packers v. Domenico p. 741– modification ok

- FACTS: ∆ packers contracted w/ π sailors to go between San Fran & Alaska for
$50/season plus 2 cents per salmon they catch – when sailors get to Alaska they
demand $100/season instead – hold up game / arm twisting - ∆ agrees & π works
then ∆ only pays $50 – π’s sued ∆’s claiming the new price was demanded bc ∆
had given them defective fishing nets – that fact is in dispute
- RULE: Where parties enter a new agreement under which one party agrees to
do no more than he was already obligated to do under an existing contract, the
new agreement is unenforceable for lack of consideration.
- HERE: bc the ∆ aren’t getting any more than what they did in the original deal,
the new deal fails for lack of consideration – the sailors performance was a pre-
existing duty that c/n be negotiated for a new price - court doesn’t seem to
believe that the ∆ employer’s breached by not giving them proper nets – if that
fact had not been in dispute then it w/h been different but Evidence of whether
or not the nets were defective was conflicting – court said not defective –
working w/ the nets given cannot be consideration for a new deal
Hypo: what if the fishermen said they would work 15 min more? Yes this w/b
consideration if they had previously agreed to only work so many hours a day – courts
don’t Q the value of consideration they only Q the existance of it

Angel v. Murray p. 751

• Facts: City Council agrees to pay π more for his services. No pre-existing duty
because both parties agreed to new contract which was cancelled on agreement,
without coercion being present.
• Rule: A modification of an initial contract can be enforced if the parties
voluntarily agree and if (1) the promise modifying the original contract was
made before the contract was fully performed on either side, (2) the underlying
circumstances which prompted the modification were unanticipated by the
parties, and (3) the modification is fair and equitable.
• Takeaway: Does not look like “hold up” situation. Under pre-existing duty
lens, does not follow consideration doctrine aspect bc there was no change
in duty. Instead, court adopted Restatement.

- Restatement of Contracts § 89D (a):

A Promise modifying a duty under contract not fully performed on either side is binding if the
 modification is fair and equitable in view of circumstances not anticipated by the parties when the
contract was made.”
(a)Only prohibits modifications made by coercion, duress, or extortion, and also fulfills
society’s expectation that agreements entered into voluntarily will be enforced by the courts
(b)Hillman feels that 89(a) is under-inclusive since it implies that unanticipated circumstances
must be found. Thinks “fair and equitable” should be standard.
(i) long term business contracts – maybe parties will simply agree based on
reasonableness and fostering the continued relationship
(ii) 3 part – not fully performed on within side; fair and equitable; not anticipated; no
consideration for the new promise if already obligated to do it

ACCORD AND SATISFACTION

- Typically, in an accord and satisfaction, the creditor agrees to accept a lesser payment in full
satisfaction of the amount due. There must be an unmistakable communication to the creditor that their
acceptance of a lesser payment constitutes full payment. The two will agree (if there is a bona fide
dispute) on a new contract (needs to meet all contract requirements) which is clear. The debtor’s
consideration is that they are paying the creditor now, while the creditor’s consideration is that they
aren’t taking the case to court.
- Elements:
(1) There needs to be a bona fide dispute – honestly and reasonably believe in the validity of the
claim
(2) There has to be consideration and agreement to the new contract/agreement (offer to
settlement)
(3) There has to be mutual agreement
(4) There has to be an unmistakable communication
(5) The acceptance has to be clear and explicit
- Consideration for the new contract is a release of the claim to sue
- The accord and satisfaction defense rests upon:
o A new contract, express or implied, in which the parties agree to the discharge of the existing
obligation by means of the lesser payment tendered and accepted
o The minds must meet where resting in implication the facts proved must irresistibly point to such
conclusion
o There must be an unmistakable communication to the creditor that tender of the lesser sum is upon the
condition that acceptance will constitute satisfaction of the underlying obligation
o Contract price must be so clear, full, and explicit that it is not susceptible of any other
interpretation; that the offer must be accompanied with acts and declarations which the
creditor is bound to understand

Flowers v. Diamond Shamrock Corp. p. 755

o Facts: Δ gave π full payment of royalties checks representing
what both parties believed Δ owed π. Then π found out the
amount should be more and sued for the rest.
o No bona fide dispute and no accord and satisfaction because π didn’t
know there was a problem with the checks
o For accord and satisfaction, must be a meeting of the minds and
mutual assent to settlement of dispute. Must be shown that the
creditor understood what he was doing when surrendering the
claim. Parties must know that there is a bona fide dispute between
them.
o Essentially: “release of claim” for exchange of payment now
 Foakes v. Beer p. 761 (1884)
o Rule: A promise to pay a preexisting debt is not valid
consideration.

Consolidated Edison v. Arroll p. 761

• Facts: Con Ed cashed Δ’s checks; Δ thought his bills were too high and told
π’s president that the checks he sent were what payment should be. Δ cashed
the checks and then sued saying it wasn’t e-nuff
• Rule: Where an amount due is in dispute, and the debtor sends a check for less
than the amount claimed, and clearly expresses his intention that the check has
been sent as payment in full, the cashing or retention of the check by the creditor
is deemed an acceptance by the creditor of the conditions stated, and operates as
an accord and satisfaction of the claim.
• Holding/Reasoning: When amount due is in dispute and debtor sends checks
for less than full amount + expresses intention that payment is full, the cashing
of the check by the creditor is an acceptance of the payment to serve as payment
in full and operates as an accord and satisfaction of the claim.
• Δ honestly disputed the amount due and clearly intended the checks to satisfy the
disputed obligation. Gave Con Ed sufficient notification that checks were
tendered in full
• Bona fide dispute if parties believe, in good faith, that they have a dispute, even
if this is based on unsound reasoning.
• Case is different from Flowers because the correspondence shows that both
parties were aware of the dispute The defendant honestly and in good faith
believed that he owed less than the amount Con Edison claimed. It cannot be
said that a bona fide dispute did not exist
• Con Edison accepted the benefits of defendant’s checks. It cannot, by arranging
for someone else to accept payment of bills for its own convenience, avoid the
consequences of the law.
XXX. The Performance Process and Parol Evidence Rules pp. 771-798; 802-813
Background:
o COURT MUST FIND THE INTENT OF THE PARTIES
o The Parol Evidence Rule controls the evidence a party can introduce at trial to prove the intended
terms of a contract
o Bars evidence of prior oral agreements that contradict a term in the writing. Also precludes
evidence of prior written agreements
o Contradictory terms will not be allowed as parol evidence
o If there is fraud, mistake, or misrepresentation in the writing, the parol evidence rule will be
allowed
o Policy concerns:
▪ Rule has a useful role in permitting the exclusion of evidence that is probably unreliable
or dishonest, but it also has the potential of producing injustice by preventing a party
from proving what was actually agreed
▪ The more flexible the rule, the greater discretion in evaluating the reliability of
evidence, but also the weaker the protection against undesirable evidence. Often
detracts from certainty and clarity of the law

- substantive content of contract – this shit goes easier if lawyers draft clearly

Parol Evidence Rule: jurisdictional rule that governs the extent to which a party may introduce in court evidence
of a claimed prior or contemporaneous agreement, misunderstanding, or negotiation to explain, supplement or
vary a written agreement. Basically: what evidence outside of the contract can you use to interpret the contract?
- Tends to favor written evidence
- Balancing between blind adherence to the writing & extrinsic evidence that affect the writing
- Policy justifications: memories fade – if you care about something you put it in the contract –
communication & channeling & evidentiary reasons – we don’t wanna have the jury decide a lying contest
or being swayed by irrelevant emotional info

- INTEGRATION:
o Complete integration:
▪ Writing is the final embodiment of all the terms so the extrinsic evidence cannot
contradict or supplement any of the terms in the writing
o Partial integration:
▪ Writing is a final embodiment of some of the terms but not all of the terms. Then we
can allow additional supplemental terms as long as they don’t contradict the terms in
the writing.
o Test for Integration: Whether the parties intended the writing to be a full and final expression
of their agreement or whether extrinsic evidence will be allowed in to show the actual intentions
of the parties
▪ Traditional Rule: Objective test; looks at what is contained within the “four corners” of
the contract (only looks to the actual writing of the contract). If it appears that the writing
is complete and holds the full intent of the parties, then no parol evidence will be
admissible to add or alter the meaning of the writing.
Look at what the contract says, and if the words are clear and unambiguous,
don’t look to extrinsic evidence (four corners rule)
▪ Modern Court: Looks at the context of the writing; or in other words, the court will
look to extrinsic evidence to see if the extrinsic evidence should be integrated
Look to Extrinsic Evidence to see if there were other meanings/intentions than what
was in the contract (Natural Test)
 Mitchill v. Lath p. 773- traditional parol evidence rule (integrated writing)
- FACTS: ∆ owned a farm & an icehouse on another persons property – contracted to
sell farm to Π for $8,400 – Π found icehouse objectionable & requested removal – ∆
orally agreed to remove icehouse then refused afterwards – Π sued for specific
performance of oral agreement – trial court ruled for Π
- RULE: test for integrations: for an oral agreement to be admitted to vary the terms
of a final written agreement, the oral agreement must NOT be integrated in the
contract, it MUST be:
o (1) be truly collateral (distinct and independent from the written
agreement) in form;
o (2) not contradict express or implied provisions of the written contract;
o (3) be one that parties would not ordinarily be expected to embody in a
written agreement, based on circumstances of written agreement.
- Basically the test asks: did the oral agreement survive the writing or get succumbed
by the writing - is there complete or partial or no integration?
- HERE: Evidence of the alleged oral agreement between Mitchell and Lath
regarding removal of the icehouse is not independent and distinct from the final
agreement to sell Lath’s property to Mitchill and is thus inadmissible – the writing
is v detailed, thus if it were to be agreed to have the ice house removed it w/h/b in
the writing and it was not, so the oral agreement is invalid – because it did not
make its way into the contract and it is not separate and distinct enough to stand on
its own as a separate contract, the bond between the subject matter (ice house &
property) is too close & there’s no separate consideration
- DISSENT: Agreement over icehouse is related to the farm but is collateral to
agreement – satisfies (1) – agreement to remove icehouse made in addition to
written contract to sell farm & does not contradict any terms in written contract –
satisfies (2) – written agreement is complete because contains all terms associated
with conveyance of land but agreement to remove building has nothing to do with
conveyance of another piece of property so it is natural to assume this would be
given orally– satisfies (3)
o Wants court to look at circs to decide if K is integrated but they look more at
the K itself

Writing integrated?
o (1) truly collateral, distinct and independent from the written agreement in form;
o (2) not contradict express or implied provisions of the written contract;
o (3) be one that parties would not ordinarily be expected to embody in a written
agreement, based on circumstances of written agreement.

Yes, Completely (Mitchell v. Yes, Partially (Masterson v. Not Integrated

Lath; Masterson dissent) Sine)
Parol evidence bar Supplemental, additional terms No Parol evidence bar
No info re this is admitted = admissible. All info is admissible
Agreement succumbed by the Contradictory terms agreement survives the
writing ≠ admissible writing
Some of the agreement
survives the writing
 Masterson v. Sine p. 779– (modern parol evidence rule (partially integrated)
 FACTS: Π owned ranch as tenants in common – conveyed ranch to
∆s through grant deed, reserving option for grantors to purchase
property back within 10 years of conveyance – deed stated Πs could
exercise option by paying same consideration minus depreciation in
value of property – Π declared bankruptcy & trustee took over their
estate – π’s trustee tried to enforce option to repurchase property –
trial court allowed evidence showing that the “consideration”
mentioned in the agreement was $50,000, and that any “deprecation
in value” referred to depreciation allowable under income tax laws -
∆’s wanted to admit evidence showing the option was only for the π’s
and not a 3rd party trustee – trial court denied this evidence from ∆
per parol evidence rule – both appealed
 Is evidence of a separate oral agreement admissible to prove terms of
a written K when it is unclear whether the written K was intended to
be complete? – YES
o RULE: When unclear whether a written contract is intended to be complete,
evidence of a separate oral agreement may be admissible to prove the
terms of the contract if the oral agreement is something that would
naturally be made as a separate agreement by the parties given their actual
situation and circumstances when drafting the written contract.
o HERE: trial could s/n/h excluded the ∆’s evidence re no 3rd parties -
evidence of oral collateral agreements should always be admitted unless
it is likely to mislead the trier of fact (rule based on the credibility of the
evidence) - Formal nature of the deed didn’t leave room for oral agreements
– it is partially integrated - If it is partial integration: then we might be able
to get some parol evidence in – here we can - Given these particular factual
circumstances (this is the modern part), the trial court should have admitted
evidence offered by the Sines that the parties agreed that the option was not
assignable
 This court looks more like the dissent in Mitchell – they look at the
circs to see if the K is integrated, not just the K itself!
 DISSENT: no ambiguity exists regarding the granting language of the option in the
written contract - Nothing mentions that the option was intended to not be
assignable – K looks integrated & complete

Baker v. Bailey p. 787 -merger clause, yes integrated

o FACTS: ∆s lived in mobile home on daughter’s property who sold it to Πs
but reserved 1 acre for ∆s – Πs & ∆s entered into Water Well Use
Agreement – agreement made solely for ∆’s benefit & was to terminate once
they left – ∆ understood Π would supply water to successive owners if Π
thought they were acceptable, giving Π right of first refusal bc π didn’t like
hippies – ∆ tried to sell property – Π said they would not be transferring
water rights to anyone – property worth $47k but ∆’s had to sell prop for $8k
w/o the water – Πs used right of first refusal to buy the property – Π sued for
unpaid expenses & ∆ countersued for breach of Agreement - ∆ wanted to
admit info re oral agreement that π would honor water rights for reasonably
subsequent owners but parol evidence rule blocked it
  RULE: extrinsic evidence is inadmissible where parties to a
contract have reduced their agreement to an integrated writing
and that writing is unambiguous
 HERE: the oral agreement would contradict the writing
bc the writing is clear on its own – it contained a Merger
clause: it is the intention of the parties to include all oral
agreements – the agreement was made w/ the intent to be
integrated - The implied covenant of good faith and fair
dealing is not violated unless an express term of the
Agreement has been breached
Williston & Jaeger on Contracts: Lawyers need to make sure clients insist on oral agreements in writing -
Parties don’t always insist on these things - The writings matter ! oral agreements should almost never be admitted
– if its important to you, negotiate to get it in the writing

Corbin on Contracts: all relevant evidence s/b allowed bc you’re trying to get to the intentions of the parties –
evidence helps us understand what they each intended

UCC §2-202 Final Written Expression: Parol or Extrinsic Evidence

- Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set
forth in a writing intended by the parties as a final expression of their agreement with respect to such terms
as are included therein may not be contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement but may be explained or supplemented
o (a) by course of dealing or usage of trade or by course of performance; and
o (b) by evidence of consistent additional terms unless the court finds the writing to have been
intended also as a complete & exclusive statement of the terms of the agreement
- Division of functions between jury & judge can give preference to written evidence over oral evidence –
some evidence is to be heard initially only by the judge & that the judge may invoke the rule to keep this
evidence from the jury
- Invoking 2-202 to exclude oral evidence – 2-202 favors written evidence
o (1) Judge may exclude the evidence if finding that the parties intended the writing to be a complete
& exclusive statement of the terms of agreement
o (2) Judge may exclude evidence extrinsic to terms set forth in the writing if he decides that the
writing is a final written expression as to these terms
 Whether a writing is a final written expression as to the terms it does include would be for
the judge
o (3)In passing on any parol evidence rule objection, the judge may decide that the proffered
evidence of terms extrinsic to the writing is not credible & he may exclude on that ground
- Ambiguity Exception
o If the writing is ambiguous, the courts admit evidence to ascertain its meaning
o next line of cases are ways to determine whether or not the writing is ambiguous enough to
allow parol evidence. Three approaches:
 (1)*Plain meaning rule: look to the K itself – is it uncertain? If no, not ambig.
 (2)**Trainor’s approach: look to all relevant evidence to get to subj. intent of parties!
 (3)***Mansfield’s approach: compromise – look to circs as a reasonable person familiar
w/ the trade would but do not look at subj intent of parties

Gold Kist, Inc. v. Carr p. 795- (partial integration, but contradictory to writing so not
admitted)
o FACTS: Π negotiated purchase of trucks & hauling equipment from ∆ –
initial agreement between parties provided ∆ would have exclusive right to
 haul peanuts in TX – Π corporate office objected to granting ∆ exclusive
hauling rights – later entered into written agreement providing Π under no
obligation to engage ∆ to haul peanuts – they explained to ∆ that provision
meant they would not use his hauling services if he failed to meet
expectations – ∆ then signed & later sued for breach of contract, arguing
entitlement to exclusive hauling rights – trial court found for ∆
o RULE: Generally, under parol evidence rule, extrinsic evidence is not
admissible to contradict the terms of an unambiguous written contract.
o RULE: contracts are ambiguous/uncertain If contract as a whole in light
of the circumstances surrounding the contract is genuinely uncertain and
doubtful or it is *reasonably susceptible to multiple interpretations
o HERE: reversed – contract is clear that π was under no obligation to have
∆ haul peanuts – doesn’t matter that ∆ had a different interpretation bc a
reasonable person w/n interpret the contract differently than what the
contract clearly says – contract is partially integrated bc they clearly
contemplated the exclusive rights to haul and affirmatively decided against it
– bc writing is partially integrated but this info is CONTRARY to the
writing, the info is not admissible.
o Notes: *Plain meaning: if the term is unambiguous on its face, the court
will apply the plain meaning of the writing – court takes it as obvious &
plain that “we reserve the right to use you time to time” ≠ “exclusive right to
haul”
 to determine the if the plain meaning is unambigious: the court looks
at the writing in light of the surrounding circs
o Winnie: if he relied on an oral promise here could go off contract and bring
a promissory estoppel claim
 A fraud claim would be harder though bc you have to show intent for
fraud

Pacific Gas v. G.W. Thomas Drayage p. 802

o FACTS: ∆ entered contract with Π to provide labor & equipment necessary to
remove & replace upper cover of Π’s steam turbine – ∆ agreed to perform at its
own risk & expense & indemnify Π for loss, damage, expense, & liability
resulting from injury to property or any other act associated with performance of
contract – cover fell & damaged exposed rotor of Π’s turbine – Π sued to
recover $25,000 in damages - Trial court found indemnity provision protected Π
from damage to its own party bc “plain meaning” of indemnity provision permits
indemnification of damage to Π’s property in addition to property of 3rd parties
– no extrinsic evidence on this issue – ∆ wanted to admit extrinsic evidence to
show indemnity clause was meant to apply only to damage of property of 3rd
parties, not Π
- RULE: If a preliminary consideration of all credible evidence
offered to prove the intent of the parties still leaves contractual terms
fairly susceptible to at least two rational interpretations extrinsic
evidence relevant to prove either of these meanings is admissible.
- HERE: **Trainor – court should take in all of the credible and
relevant evidence and then see if that makes the writing susceptible
to ambiguity - You can have both facial ambiguity and latent
ambiguity - The court should look at extrinsic evidence to determine
if there is latent ambiguity - Context will help you understand what
 the parties mean - Mult meanings to the word ball for example - Mult
meanings to the word labor - Trainor: we need to get to the intent
of the parties, so we need any credible and relevant extrinsic
evidence – reversed and remanded for review w/ extrinsic evidence
 REJECTS *PLAIN MEANING RULE – looks at
**circs for latent ambiguity

Trident Center v. CT Gen Life Ins (9th Cir 1988)

o Judge *Kozinski criticizes **Trainor’s position
above: The words in the contract have to mean
something - For contract certainty, stability, the
foundation of contracts (and getting a system of
lawyers to help them) you have to go to the plain
meaning rule – we need to have an understood
meaning of some words/terms so ppl can rely on what
is put in the contracts & somewhat predict how they
will be enforced. This case illustrates that even when
the transaction is very sizeable and involves
sophisticated parties, and negotiated with the aid of
counsel, and results in contract language that is
devoid of ambiguity, costly and protracted litigation
cannot be avoided if one party has a strong enough
motive for challenging the contract.

- Face of the Document Test: The court can only look to objective extrinsic evidence to see if the term
is ambiguous (rules of a trade/business.)

Eskimo Pie v. Whitelawn Dairies p. 807

FACTS: ∆ Eskimo entered integrated contract giving π1 right to
manufacture ice cream products w/ Eskimo wrappers & labels -
∆ contracted w/ π2 supermarket to purchase & sell Eskimo products
in NYC – both contracts provided π’s would have “non-exclusive”
rights – ∆ began selling on its own & granted other manufacturers
right to make & sell its products – π’s sued for breach of contract &
wanted to introduce parol evidence that term “non-exclusive” =
“exclusive subject to a few exceptions” – Π argued parties agreed not
to include clause expressly limiting ∆’s ability to sell its own
products & grant licenses to other companies, understanding term
“non-exclusive” would encapsulate that - ∆ argued parol evidence is
barred
RULE: Parol evidence is not admissible to prove the meaning of
unambiguous language in an integrated contract - A term is ambiguous if it
is capable of having more than one meaning when viewed objectively by a
reasonable person who w/b acquainted with applicable customs, usages,
and the surrounding circumstances in the trade
o Rule: Subjective extrinsic evidence is barred by the parol
evidence rule; only objective extrinsic evidence allowed. Look to
experts and trade customs as to what “non-exclusive” mean
HERE: ***Mansfield takes middle position between plain
meaning rule (*Godkist & Greenfield) and the all credible
evidence rule (**Trainor in Pacific Gas v. GW) to see
 whether or not a term is ambiguous - term “non-exclusive,” in
a legal license typically means that the licensee does not have
the right to exclude others BUT π’s s/b able to present
evidence that the term is ambiguous in a preliminary hearing -
Evidence such as the terms of the contract, the surrounding
circumstances, common usage, and custom may be presented
BUT the court s/n look at the subjective understanding of
the parties - Once the trial court has made a determination as
to ambiguity, a separate jury trial on the issue of liability is to
commence
Winnie: Mansfield’s middle ground on ambiguity
makes the court an intermediary – filtering out
extrinsic info to decide what the jury should get to see
based on circs, not on parties’ subjective interpretation
– like Trainor MINUS the subjectivity part

Joy v. Hay Grp Inc (7th Cir 2005)

o Judge Posner follows **Trainor’s approach to finding ambiguity - Even
when a contract is clear on its face, there is relevant info we should look
at - When the written contract is unclear at all, any evidence admissible
under the rules of evidence is usable to establish the contract’s meaning. Joy
v. Hay Group (2005)
• Takeaway: Even if a contract is clear “on its face” – which is to say, even if someone who
knew nothing of the contract’s background or commercial context would think its meaning
clear—extrinsic evidence, which is to say evidence besides just the written contract itself, is
admissible to demonstrate that the contract may not mean what it says, provided the
evidence used to show this is “objective” in the sense of not being merely self-serving,
unverifiable testimony.
• When written contract is unclear, any evidence admissible under the rules of evidence is
usable to establish the contract’s meaning.

‘Condition Precedent’ Exception to the Parol Evidence Rule: Courts sometimes allow parol evidence to prove
a condition precedent.
o Evidence of an oral condition precedent is admissible where the evidence does not
“directly” or “explicitly” contradict the writings.

Corbin’s Note: both the SOF & parol evidence rule exist bc we can’t trust juries Similarities: Goals/ends.
Differences: Means.
- SOF: doesn’t exclude parol evidence, just requires writing, doesn’t have anything to do w/ integrated
versus non-integrated writing, can void a whole contract
- Parol Evidence Rule: refers to writing as being integrated/partially or not, excludes evidence, does not
void whole contracts it just excludes stuff so it impacts how we interp contracts

XXXI. General Principles of Interpretation pp. 827-830

- Background:
 A court will always look to the intentions of the parties
  When a contract doesn’t deal with every situation, the court can use extrinsic evidence (PER) or
reasonable terms based on the parties’ intent to fill the gaps
 If there are too many gaps, the contract will be unenforceable for indefiniteness
 If both parties were thinking about the same meaning of a word, the court will side with that
subjective meaning even if it differs from the plain meaning of the word (Berke Moore v.
Phoenix Bridge)
 Court will look to the presumed intent of the parties (Hanes v. NYC)
 Court will imply the parties’ intent including duration of the contract EXCEPT with employment
contracts
 Court can use trade custom to fill in gaps

RS (2nd) of Contracts §201 - Whose Meaning Prevails

(1) where the parties have attached the same meaning to a promise or agreement or a term thereof, it is
interpreted in accordance with that meaning
(2) where the parties have attached different meanings to a promise or agreement or a term thereof, it is
interpreted in accordance with the meaning attached by one of them IF at the time the agreement was
made
a. that party did not know of any different meaning attached by the other, and the other knew the
meaning attached by the first party; or
b. that party had no reason to know of any different meaning attached by the other, and The other
had reason to know the meaning attached by the first party (Berke Moore had reason to know if
they did the calculation but the other side would not have reason to know they would do the
calculation)
(3) Except as stated in this section, neither party is bound by the meaning attached by the other, even though
the result may be a failure of mutual assent

Berke Moore v. Phoenix Bridge p. 828

o Facts: ∆ was to receive payment for 4000 square yards of concrete surface to
build bridge for NH – ∆ entered subcontract with Π to perform concrete
work, paid per square yard of concrete – Π aware the general contract
estimated 4000 square yards – Π performed work & sought payment for
8,100 square yards of total concrete placed – ∆ argued Π only entitled to
payment for square yards of concrete in upper surface area, amounting to
4000 square yards
 RULE: The private understanding of one party to a contract can be binding on the
other party where there is evidence both parties shared the same understanding
o HERE: ∆ understood π would only be paid for upper surface – facts show
that π shared this understanding bc π knew of the gen contractor’s estimate
of yardage – π should only be paid for the upper surface, not the total square
yards of concrete – court is looking at the facts to interpret what the π’s
understanding was or should have been

XXXII. Gap Fillers pp. 863-869

- A contract may fail to deal with some matter – creating a gap
- Line between contract interpretation and gap filling is blurry
 If contracting parties leave so many gaps in a contract that a court simply doesn’t
know what to enforce, the court will declare the contract unenforceable for
indefiniteness.
 However, courts are inclined to fill in the gaps for the parties, rather than give up on
the contract.
 Sometimes parties leave gaps because a problem may be unforeseeable.
 Also, parties may understand the existence of an issue but choose not to deal with it in
the contract because they believe they can resolve it on their own.
 The court enforces what a reasonable person would believe a contract means, not
necessarily what the parties actually intended.
 APPROACHES TO HOW FILL THE GAPS
 What the parties would have done?
o Courts fill gaps based on what the parties would have done had they
contracted on the issue they support this by invoking freedom of
contract.
o Fill the gap with the term the parties would have wanted economic
efficient
 Contract law’s goal should be to reduce the costs of transactions,
such as the cost of bargaining to reach an agreement
o Allocating the risk of profit to the party who can deal with the problem
most inexpensively.
 Superior Risk Bearer
 Superior Risk Avoider
o The goal of the parties is to maximize their gains from the transaction
o TAYLOR The courts may be making up the intentions of the parties
to avoid appearing to rewrite the contract.
 Creating Incentives
o Penalty-default gap-filling strategy create incentives for future
contracting parties
o Cost of revealing information may outweigh the gain
 Fairness Concerns
o Courts fill gaps based on their view of what is fair in the circumstances.
o Whether filling the gap in a certain way would cause considerable harm
to one of the parties?
o Whether there is reliance of one of the parties?
 Fairness takes into account the reasonableness of the parties

Haines v. City of New York p. 864

o FACTS: ∆ NYC contracted with neighborhood citizens to construct sewage
system & treatment plant, requiring them to extend sewer lines when “necessitated
by future growth & building constructions of respective communities” –
eventually flow through plant increased beyond capacity so it was inadequately
treated – Π owned land he wanted to develop into residences & applied for
permission to connect to sewage lines – ∆ denied application, arguing no
obligation to expand plant to increase capacity – Π sued for declaratory &
injunctive relief, arguing contract was perpetual in duration so ∆ was obligated to
expand plant
  RULE: Where the parties have not clearly expressed the duration of a
contract, the courts will imply that they intended performance to continue for
a reasonable time
 HERE: π is wrong to assume contract goes on forever and ∆ is wrong to
assume the contract is voidable at will – both of those takes are extreme, court
finds middle ground – K is silent on duration courts infer the contract was
meant to go on for a reasonable time – gap filler: courts infer the reasonable
time by looking at the surrounding circumstances and the parties' intents – circs
reasonably lead to the inference that the parties intended the city to maintain the
sewage disposal facility until water for the city was no longer needed - Gap 1 is
the time, gap 2 is the scope: To oblige them to build a new plant (which would
be necessary to extend these lines) that would be unreasonable
 General Rule; When the time period is left open, it is filled with a reasonable
period of time
o Exception: employment contracts and those of the like (default
employment contracts are at will & bc the court doesn’t want to be
in the business of involuntary servitude) ~ policy reason ~
 Steps to get to judicial gap filling:
o (1) contract is silent – there is a gap
o (2) If actual intent cannot be id’d, attempt to id parties presumed
intention: what would they have intended at contract formation
o (3) If presumed intention cannot be id’d, fill the gap based on what
is fair/reasonable
 Courts tend to lean towards relying on the presumed intent
or the actual intent
 Because they don’t want to be accused of rewriting the
contract

XXXIII. Good Faith pp. 880-896; 900-901

- good faith in this chapter shapes the content of the duty to perform – in most jurisdictions there is an
implied covenant of good faith in every agreement
 Courts impose an obligation of good faith performance
 Some courts say that if a person has worked at a place for a long period then they have
a vested interest in the job, and the employer cannot in good faith fire the person
without a work performance related reason.
 TAYLOR What is the fair way to decide these cases?
 Restatement (Second) of Contracts Section 205 Duty of Good Faith and Fair Dealing
 The phrase good faith is used in a variety of contexts, and its meaning varies
somewhat with the context. Good faith performance or enforcement of a
contract excludes a variety of types of conduct characterized as involving bad
faith because they violate community standards of decency, fairness or
reasonableness.
 OVERREACHING INTERPRETATION
 To determine whether the actions were in bad faith, the court must interpret
the contract to determine whether there was a right to do this.
 If there is no such right, then the court would find bad faith
  Courts have recognized that terms that appear to allow a party sole discretion
do not necessarily allow the party to exercise the discretion in an arbitrary or
unreasonable manner.
 FAILING TO COOPERATE
 Good faith performance can rule out uncooperative conduct even when the
express contract terms do not.
 Parties would agree to cooperate

Fortune v. National Cash Register p. 881

FACTS: Π salesman worked for ∆ – employment contract said at will & Π
is entitled to commissions & bonus credits – Π to earn 75% of bonus when
order placed, 25% of bonus credits when order was delivered & installed, &
100% of bonus credits when order was placed, delivered & installed – In
Nov, a company within Π’s territory bought $5 million worth of cash
registers to be delivered over 4 years – In Jan, Π received termination notice
dated Dec.– Π was still allowed to remain employed in sales support position
– Π received commissions for 75% of bonus credits for the $5 million deal –
2 years later, Π was terminated & sued for unpaid commissions due
- under employment contract or to recover under quantum meruit the
reasonable value of his services relating to $5 million order - ∆
argued that the firing was justified because it was “at will”
- RULE: Common Law: A termination of an at will employment
contract motivated by bad faith or malice constitutes a breach
o Restatement: Where the principal seeks to deprive
the agent of all compensation by terminating the
contractual relationship when the agent is on the
brink of successfully completing the sale, the
principal has acted in bad faith and the ensuing
transaction between the principal and the buyer is to
be regarded as having been accomplished by the
agent.

- Here: Reason for firing: π got a sale and they didn’t want to give him
commission or bonus - the employee’s rights to the money had
already vested, so you cannot take away those rights with a
termination - Part of this is a moral issue (decent and reasonably
expected among contracting parties) - There is a split among the
jurisdictions about good/bad faith terminations when you have
employment at will bc where do we draw the line? At will has to be
different than just cause - Weiner case: if you’re employed for a
certain term, that is not at will, you can be terminated for just cause
only
- Note: Under Employment Restatement, employees must show that
the employer’s motivation was to deprive the employee of its just
desert

Tyshare, Inc. v. Covell p. 889

o Tymshare had a quota plan - Everytime Covell was close theyd change it -
But Tymshare had reserved the right to change their quota plan within their
 sole discretion - Hinges on the existence of various factors to change the
quota: unanticipated volume of business, etc - Just raising the commission to
keep that person from getting it is bad faith - But the case is remanded for
further consideration, bc its not clear that they are just doing this for bad
faith - Sole discretion: there is an implied limitation that this needs to be
done in the absence of bad faith - Scalia: we have to go back to the intention
of the parties - What did they really mean by sole discretion? - Remanded to
determine Tymshare’s motives of raising the quotas

City of Midland v. O’Bryant p.891

 π police officers had sued the city re disabilities act - they were demoted out of
retaliation from the suit - court said nope there is no good faith duty here other than
your employers duty to refrain from asking you to do illegal acts – Court says
employers have the right at will to set up their workplace

Summers on Good Faith in Gen Contract Law & the Sales Provisions in the UCC
- Its meaning is informed by what it is not, versus what it is - Good faith is merely the absence of bad faith -
You exclude all of the bad conduct and what is left is good

RS 2nd of Contracts §205 - Duty of Good Faith and Fair Dealing

 Every contract imposes upon each party a duty of good faith & fair dealing in its performance & its
enforcement
 Comments:
o (a) Meaning of Good Faith: meaning varies with context – faithfulness to an agreed common
purpose & consistency with the justified expectations of the other party – conduct is excluded as
bad faith when it violates community standards of decency, fairness or reasonableness –
appropriate remedy varies
o (d) Good Faith Performance: Subterfuges & evasions violate obligation of good faith in
performance even though actor believes conduct is justified – bad faith may be overt or may consist
of inaction – fair dealing may require more than honesty – bad faith includes evasion of spirit of
bargain, lack of diligence, slacking off, willful rendering of imperfect performance, abuse of power
to specify terms, & interference with or failure to cooperate in other party’s performance –
examples of (a)

Note: Good Faith in the UCC

1-304: obligation of good faith is implied in every contract
2-306: sometimes there are statutes that apply good faith in specific provisions
- 2-306 refers to output contracts
2-201: statute of frauds comes up a lot too

Centronics Corp. v. Genicom Corp. 900

 souter: saying a lot of what scalia is saying in Tymshare - sometimes ppl really do
get into a bad deal - he says a bad deal isnt always the same as bad faith - the
purpose of the good faith doctrine isnt meant to fix a bad deal someone got into
BUT to give a moral baseline

XXXIV. Conditional Nature of the Duty to Perform pp. 903-926

- Is the contract structured in a way that the duty to perform is subject to some kind of contingency?? - If so:
that is a condition!
 o You can use conditions to indicate order of performance and to regulate quality of performance
o In this section we are trying to determine if we have conditions, promises, promises & conditions,
or neither.
o Conditions that must happen for a duty to mature - limitation on a party’s duty to perform
- Express conditions precedent: those the parties have intended by their agreement
o requirement to perform work before duty to pay matures – if duty to perform does not mature
because of failure of express condition, no breach of duty
- Promissory conditions: an event that is both a condition & a promise
o when one may choose both to make an event a condition of his own duty & to have the other party
promise to bring the event about
- Implied in fact conditions precedent: based on the presumed intentions of the parties
- Implied in law conditions: based on statute or common law
- “Quality of Performance” Gap – court will examine evidence of actual or probable intentions of parties
& then imply in fact the appropriate condition with respect to quality of performance – if not enough
evidence, then courts use implied in law conditions (ie. substantially perform)

- Background:
o A Condition is something that must be done before any duty of performance arises
- Implied in-fact, implied in-law

- Non-Promissory Condition: If the condition is not met, the person who had a duty does not have to
perform BUT they also cannot sue for breach of contract or get consequential damages

Merritt Hill Vineyards Inc. v. Windy Heights Vineyard, Inc. (1984)

o Facts: π entered into a written agreement with Δ to purchase a majority stock interest. The
agreement had express non-promissory condition that sale would close provided that Δ had
obtained a title insurance policy and submitted mortgage confirmation to Merritt Hill by the
date of closing. Condition wasn’t met and π refused to close sale; Δ sued for deposit back as
consequential damages.
o Holding/Rule: Case of ‘failure of conditions.’ The Court looked at the provision/section titled
“Conditions Precedent…” which they took as a manifestation of intent. Court did not give
damages of $26k because this was the damages for breach of contract; there was a non-
promissory condition and if condition is not fulfilled, then cannot sue for breach of
contract. For party to get damages in a conditional contract, must make language promissory i.e.
‘promise to fulfill conditions.’ To protect seller in such contracts, should add sentence along the
lines of “these in no way constitute a promise,” or “these are conditions and not promises”

Merritt Hill v. Windy Heights p. 909

o FACTS: Π entered written agreement with ∆ to buy majority stock interest in
vineyard – agreement provided ∆ retains $15,000 deposit tendered as liquidated
damages if sale did not close, provided ∆ obtained title insurance policy &
submitted mortgage confirmation to Π by date of closing – at closing, ∆ had not
obtained insurance policy or provided mortgage confirmation – Π refused to close
& demanded deposit – ∆ refused & Π sued for deposit & $26,000 in consequential
damages
o Lower court denied summary judgment – appellate division reversed as to cause of
action for return of deposit but dismissed consequential damages
o RULE: A condition is an event which must occur, unless its non-occurrence is
excused, before duty to perform under a contract matures
  HERE: π’s right to the return of its deposit or damages depends on whether
getting the policy was non-conditional promise or a condition – promise:
manifestation of intent to act or refrain from acting in a specified way – a
condition is an event not certain to occur but must occur before duty to
perform matures – the getting of the ins requirement was located in the part
of the contract called “Conditions Precedent to Purchaser's Obligation to
Close” so its obv an express condition – π entitled to return of deposit for
the failure of the condition BUT NOT consequential damages –
consequential damages are for the breach of a promise to perform – bc
condition failed, the duty to perform did not mature, so breach of promise,
thus no consequential damages – it w/h/b different if they made a separate
and independent promise to get the ins, but they didn’t
 Failure of a condition ≠ breach of promise --- make sure to keep
language straight !

- Substantial Performance Doctrine: Where a contract is made for an agreed exchange of two
performances, one of which is to be rendered first, substantial performance rather than exact
performance is adequate to entitle the party to recover on it.

Jacob & Young v. Kent p. 911

o FACTS: Π general contractor built country residence for ∆ – contract for
$77k & one specification that all pipes used be manufactured in Reading – ∆
noticed a year later that some of the pipes were manufactured not in Reading
& demanded pipes to be replaced – the pipes used were of same quality as
Reading pipe & Π used them due to innocent mistake caused by
subcontractor – ∆ refused to pay remaining $3,483 due – Π sued - During
trial, Π not allowed to introduce evidence that pipe was same quality as
Reading pipe – jury found for ∆
o RULE: If a party substantially performs its obligations under a contract,
that party will not be forced to bear the replacement cost needed to fully
comply with the agreement, but instead will owe the non-breaching party the
difference in value between full performance and the performance
received.
 HERE: the pipe type was no express condition precedent, there is a constructive
condition – π substantially performed w/ only trivial defects so π entitled to full
payment – the defect was insignificant - in effect the pipes were the same, we won’t
see them in the walls - it w/b unfair for π to not get paid the 3.4k due – Cardozo
constructs condition precedent that was fulfilled: π’s substantial performance
matures the ∆’s duty to pay – concerned about forfeiture for something trivial –
“We must weigh the purpose to be served, the desire to be gratified, the excuse for
deviation from the letter and the cruelty of enforced adherence” when looking to see
when implied duty to pay matures
 DISSENT: bc ∆ contracted for the reading pip he s/h/gotten it – π’s
mistake was most of the pipes so he was either negligent or willful
o Class notes: reminds us of Peevy House:
 Winnie said Cardozo worked overtime to say the type of
pipes were not a condition precedent bc this case just wasn’t
fair lol – he constructed an implied condition precedent in
substantial performance which matured the duty to pay –
some ppl say Cardozo went too far
Express Condition Precedent:
o Something that must happen before duty to perform arises; express because it’s written and
 communicated. Promisor must make it clear that they want 100% compliance. NO
SUBSTANTIAL PERFORMANCE—must do the WHOLE THING.

Brown-Marx Associates v. Emigrant Savings Bank p. 918

 FACTS: Π obtained loan commitment from ∆ to purchase &
renovate building – commitment provided for ceiling loan of $1.1
million or floor loan of $750,000 – Π would receive ceiling loan if
certain conditions were met by closing (satisfactory renovations &
signed leases worth at least $714,447 annually) – if not met, Π only
entitled to floor loan – Π unable to meet minimum annual rental
requirement & ∆ refused to lend ceiling loan – Π sued for breach of
contract - Jury instructed that Π had to prove they substantially
performed conditions precedent to ceiling loan – jury found for Π,
$543,000 in damages – district court granted new trial because
doctrine of substantial performance inapplicable to minimum annual
rental requirement, finding for ∆
 RULE: doctrine of substantial performance is not applicable to the performance
of a condition precedent
 Doctrine of substantial performance applies when two performances are exchanged
and one performance is due before the other – doesn’t apply to conditions precedent
which M/b fulfilled before duty to perform matures – conditions precedent must
be fully complied w/ in order to mature duty to perform - Here, the contract sets
forth conditions precedent and provides that if the conditions precedent are not met,
Brown-Marx would only receive the floor loan - Since the contract expressly
provides for the consequences of less than perfect performance, application of the
doctrine of substantial performance is inappropriate.
 Different from Jacobs & Young – Cardozo: you can substantially perform a
constructive condition of substantial performance - This court: there’s no forfeiture
here bc they can get the lesser amount before they meet the condition precedent –
you cannot substantially perform an explicit condition precedent, those are either
performed completely or not at all.
- RS 2nd of Contracts 237 - Comment D
- Substantial Performance: In an important category of disputes over failure of performance, one party
asserts the right to payment on the ground that he has completed his performance, while the other party
refuses to pay on the ground that there is an uncured material failure of performance.
- Unjust enrichment is the theory for the value of what is owed – being paid on the contract v. off the
contract -
- If the parties have made an event a condition of their agreement, there is no mitigating standard of
materiality or substantiality applicable to the non-occurrence of that event.
- If the agreement makes full performance a condition, substantial performance is not sufficient & if relief is
to be had under the contract, it must be through excuse of the non-occurrence of the condition to avoid
forfeiture.
- Special Rules Applicable to Express Conditions
o Courts require strict compliance with express conditions precedent relating to quality of
performance
o The rule of strict compliance is very different from the gap-filling rule concerning quality of
performance

Interpretation of Contract Language to Determine Whether it Creates an Express Condition

 - Courts must often consider whether contract language means that (1) a party promises to bring an event
about, or (2) the event is only an express condition precedent to a duty of the other party, or (3) the event is
both a promise & a condition, or (4) the event is neither

XXXV. Interpretation of Contract Language to Determine if it Creates an Express

Condition pp. 924-926

- Courts must often consider whether contract language means that (1) a party promises to bring an event
about, or (2) the event is only an express condition precedent to a duty of the other party, or (3) the event is
both a promise & a condition, or (4) the event is neither

o Satisfaction clauses: if satisfaction clause is an express condition precedent must apply good faith

Glaholm v. Hays p. 924

o FACTS: Π (ship owner) & ∆s (freighters) had contract that
included clause “the vessel to sail from England on or before the
4th day of February next” – vessel did not sail – ∆s refused to
perform contract & Π sued – ∆s argued the clause was condition
precedent so Π’s noncompliance with condition excused ∆s from
contract
 RULE: Both the (1) terms of a contract and its (2)
subject matter indicate whether the parties intended a
clause to constitute a condition precedent or an agreement.
o HERE: (1) terms of the contract show the parties intended the
clause to be a condition precedent - All other agreements within
the contract are specifically framed in the language of an
agreement (they shall do this, that, etc) - whereas the language of
the clause at issue is distinctly different (Vessel to sail on or
before) - Moreover, the words “to sail” are commonly interpreted
to mean “conditioned to sail.” (2) The subject matter also
suggests the clause was intended to be a condition precedent -
since the timing of a voyage is usually crucial to the success of a
mercantile contract - Whole PURPOSE of the deal was to get to a
place at a certain time – this is both a condition & a promise –
THUS: failure of ship to sail on or before feb 4th released the ∆’s
from performance
- Note: If they had said it was a promise and not a condition - Freighters
would owe what they would owe on the contract, and they would have to
show damages for breach (that they didn’t make as much bc of the delay)
- Remedial difficulties: sometimes a reason for courts to construe
language as a condition instead of just a mere promise

XXXVI. Interpretation of the Content of Express Conditions pp. 932-940

Gibson v. Crange p. 932
 FACTS: Π asked ∆ to be allowed to create enlarged portrait of ∆’s deceased
daughter – Π promised ∆ would not have to pay unless completely satisfied, urging
no risk – ∆ did not like the portrait & refused to accept – Π tried to fix it but ∆ sent
letter stating he was dissatisfied with portrait, he would not take it or anything
similar & he was canceling order – ∆ refused to examine new portrait – Π sued to
recover contract price
  RULE: If an express contract between seller and purchaser requires that the article to be
purchased meet the unqualified approval of the purchaser, such approval is a condition
precedent to the purchaser’s obligation to pay.
 Here: Cranage is not obligated to pay for the portrait or to proceed with the contract
because the portrait produced by Gibson did not meet Cranage’s satisfaction - he
was free under the terms of the agreement to accept or reject it - court goes with
subjective evaluation of satisfaction, not objective (or reasonable standard bc The
contract was fairly made and the buyer reserved the right to say that he didn’t like
the painting & he actually looked at it
- NOTE: if the ∆ said I don’t even want to see the picture, im not going to like it - Good
faith would limit this – you have to at least look at the thing - If you have unfettered
discretion re whether or not your satisfied, that might indicate lack of mutuality and thus
lack of consideration - How did they bridge the gap: doctrine of good faith! You
promise to use good faith in your subjective eval of the painting – that’s enough for
consideration here

Forman v. Benson p. 933

o FACTS: Π offered to buy real property from ∆ for $125,000 – purchase
price to be paid over 10 years – before signing, ∆ expressed concern about
credit – Π’s realtor suggested conditioning contract upon seller’s approving
buyer’s credit report – ∆ signed & received credit report – during additional
discussions, ∆ mentioned higher purchase price, then later rejected Π’s credit
– Π sued for specific performance – subject to the condition that I approve
your credit report – duty to sell is conditioned on a favorable credit report -
At trial, experts testified Π’s credit was excellent – trial court found ∆
required to evaluate credit under standard of reasonableness & ∆ had
unreasonably rejected Π’s credit – ordered specific performance of contract
 RULE: a satisfaction clause included to induce a party to sign an agreement is NOT
governed by the standard of reasonableness – this is an exception to the general
rule that commercial satisfaction clauses are objective, not subjective
o Satisfaction of commercial things are generally evaluated objectively bc
we are capable of doing so – there is an industry standard available to
compare it to – this is not a case of objective standards though bc here the
satisfaction clause was purposeful to the seller’s signing of the contract – he
intended to reserve the freedom to make a personal and subjective
evaluation of the π’s creditworthiness – parties can carve out exceptions to
the gen rule of objective satisfaction clauses in commercial context – here
they did – btw his subjective eval still needs to be in good faith

XXXVII. Excuse and Avoidance of Express Conditions pp. 944-967

- WAIVER OF CONDITION
o RULE: Corbin: “a condition of a promisor’s due can be eliminated by a mere voluntary
expression of his willingness to waive it, if it’s performance does not constitute a
material part of the agreed equivalent of the promise and it’s non-performance”
o Waiver must be voluntary, and it can’t waive a material term of the K
 Hanna v. Commercial Travelers’ Mutual Accident Association p. 944
- FACTS: ∆ issued accident insurance policy to insured – insured disappeared in
1913 & found dead in 1917 – insurance policy stated that failure to report
accident within timeframe results in invalidation of any claims – notice of
accident & death no provided to ∆ within time – Π sued, arguing noncompliance
with notice requirements of policy excused by impossibility of compliance prior
to discovery of body – trial court found for Π, $5,978 – notice is the condition
precedent – Π admits failure of conditions
- RULE: The nonperformance of a condition precedent is not waived by the
occurrence of an unforeseen contingency
- Failure to perform a duty created by law due to unforeseen contingency is
generally excused - However, where a duty is created by an express contract,
an unforeseen contingency will not excuse performance – parties could have
provided for contingencies in contract - In this case: notifying the ins co of the
accident w/in 10 days was a condition precedent to performance under contract –
court will not enlarge obligation of insurer – they agreed to this express
condition precedent, if they didn’t agree to it they s/h negotiated a better deal
(ooh burn) - trial court reversed
o Goal of provision: info of claim – finality of claim – preventing fraud
Dissent: noncompliance with notice requirements should not act as complete defense –
precedent shows insured/ representative must have knowledge of facts underlying claim
before being required to give notice of that claim – some impossibilities ought to be
implicit in the contract’s notice requirements - If the autopsy takes 4 mo, you have that
time! Reasonable after you have the information
Even if there is a non-waiver provision, the court can say there was still a waiver.
Connecticut Fire Insurance Co. v. Fox p. 949
o Facts: Fire in π’s hotel; Δ’s policy said π had to provide proof. Π signed non-waiver provided
by agent. Insurance denied π’s proof.
o Holding: The jury expressly found that the agents of GAB, and specifically Foster, did have
authority to extend the time for filing the proofs of loss and thus waived the condition for πs.
Takeaways:
▪ The non-waiver in the insurance policy was put there to protect the insurance
company from allowing inspection agents from authorizing people to waive their
claim
▪ Even though the πs’ attorney advised them against it, the πs signed the non-waiver
agreement
▪ Here, the court doesn’t dispute the fact that there was a non-waiver agreement but rather
circumvents
▪ The court infers that the insurance company has other motives of not accepting the
waiver of claim such as retaliation against the πs for not accepting the settlement
▪ Waiver = is the relinquishment of a known right
Waiver of Express Condition
o Can’t waive a material part of the agreed exchange because eradicating a material
term would get rid of consideration and thus make the agreement a gift.
o Can waive non-material parts of the agreement BUT only voluntarily
Waiver of constructive condition of IMPLIED conditions
o You can waive the material part of the contract, but damages have to be paid so that the
contract doesn’t turn into a gift

8 Corbin on Contracts:
- Generally, the promisor’s waiver of a condition is followed by the promisee’s substantial change of
position. At the very least, the promissee will be induced by the waiver not to perform the
 condition, if the condition consists of some act or forbearance of the promisee.
- In many cases, however, the waiver takes place after the failure to perform the condition has already
occurred, and the promisee makes no subsequent change of position on which to base an estoppel 
the court in Connecticut Fire applies this
- A condition of a promisor’s duty can be eliminated by a mere voluntary expression of his
willingness to waive it, if its performance does not constitute a material part of the agreed equivalent
of the promise and its non-performance does not materially affect the value the promisor received.

- Hillman, Principles of Contract Law: Courts tend to restrict waivers without consideration or
reliance to non-material relinquishments of a right… Parties generally cannot waive material terms
without consideration or reliance.

Q. Vandenberg & Sons v. Siter (1964)

o Facts: Seller warranted that flower bulbs were capable of flowering
properly. The contract provided that “all claims here under shall be
deemed waived unless presented within 8 days after receipt of goods.”
o Procedure: Trial court struck buyer’s evidence that defects in the
bulbs, although existing at the time of delivery, were latent, and could
not be discovered until long after the 8 days.
o Holding: A limitation which renders the warranties ineffective as
regards latent defects, literally covered by the warranty but not
discoverable within the limitation period of the contract, is manifestly
unreasonable and therefore invalid under § 1-204 of the code.

- Uniform Commercial Code § 1-205: Reasonable Time; Seasonableness

(a) Whether a time for taking an action required by the UCC is reasonable depends on the nature,
purpose, and circumstances of the action.
(b) An action is taken seasonably if it is taken at or within the time agreed or, if no time is agreed, at or
within a reasonable time.

- Negligent Mistake (to prevent forfeiture)

o Courts don’t like forfeitures
o Applies with both an express condition precedent and constructive conditions
3 Approaches to Negligent Mistake/Forfeiture:
(1) A balancing approach which measures what the tenant has put into the land and what they
have to lose VERSUS whether the landlord would be prejudiced

JNA Realty Corp. p. 955- NY Approach*

o Facts: JNA leased commercial property to Chelsea with option to
renew. The lease required the restaurant to inform JNA at least six
months prior to the end of the lease term if it wished to exercise the
option. Chelsea made improvements upon the property. Chelsea forgot
to renew the lease; JNA sued for enforcement of agreement.
o Rule: The tenant would be entitled to equitable relief if there is no
prejudice to the landlord. However, a tenant who has intentionally
delayed should not be relieved of a forfeiture simply because this
tenant, who was merely inadvertent, may be granted equitable relief.
o Reasoning: JNA did not rely on the letter of the agreement then and
should not be permitted to rely on it now to exact a substantial
forfeiture for the tenant’s unwitting default (must be resolved at a new
trial). There is a possibility where a tenant holding an option to renew
might intentionally delay beyond the time prescribed in order to exploit
 a fluctuating market
Dissent:
▪ Relieving the tenant of its negligent failure to exercise its option
to renew a lease within the prescribed time upsets established
precedent, introduces instability in business transactions, and
disregards commercial realities. Awarding equitable relief in
such situations has been limited to cases where the tenant can
show that there was fraud, mistake, or accident.
▪ Under the guise of sheer inadvertence, a tenant could gamble
with a fluctuating market, at the expense of his landlord, by
delaying his decision beyond the time fixed in the agreement.
Takeaways: Courts concerned about forfeiture; Chelsea would lose their
investment and their goodwill
 Court said that if there is an inadvertent, small-time default that is
outweighed by the forfeiture, as long as it doesn’t prejudice the
other party, then it will be excused
▪ Court says that JNA might have acted in bad faith because they
notified Chelsea of other responsibilities, but somehow failed
to notify Chelsea of the option acceptance. Said that JNA used
this tactic to evict other tenants before.
Stewart v. Newbury (1917)
o FACTS: Π contracted with ∆ to do excavation & concrete work, to be paid
on per-cubic-foot & per-ton basis – contract made no specification as to
when he would be paid – Π worked July to September, then submitted bill –
∆ responded with letter saying bill would not be paid because work was
incomplete – Π stopped working & sued - At trial, Π testified that after
sending the bill, he spoke with ∆ on the phone to confirm the payment would
be made “in the usual manner” – Π testified custom to receive payment for
85% of work on monthly basis – ∆ denied phone conversation – trial court
instructed jury that if contract is silent about timing of payment, Π entitled to
payment at reasonable intervals & ∆’s refusal to pay gives Π the right to stop
work & sue – jury found for Π
 RULE: Where a contract requiring performance of work does not specify the timing
of payment, then the work must be substantially performed before payment is
required (looks like Jacobs & Young)
o Here: the agreement between Stewart and Newbury did not specifically
require that some payment be made monthly, then the rule of substantial
performance applies and Newbury could not be required to make payments
until Stewart had substantially performed the contracted work – new trial
necessary to see if work was substantially performed
- (2) Restatement (Second) of Contracts § 229
To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court
may excuse the non- occurrence of that condition unless its occurrence was a material part of the
agreed exchange.
XXXVIII. Implied Conditions Fixing the Quality of Performance pp. 985; 989-1003

Plante v. Jacobs (1960)

 FACTS: ∆s contracted with Π to construct a house for them with specifications in contract
– total price $26,765 – ∆s paid $20,000 during construction – ∆s became concerned about
quality of construction & refused to continue payments – Π stopped building house &
wanted lien on property to collect remaining contract price – ∆s argued Π failed to
substantially perform due to poor quality of work – repairs had to be made & living room
was not made according to contract specifications – ∆ arguing no substantial performance,
points to misplaced wall & many defects, quantified this into a percentage - Trial court
found contract was substantially performed by Π – applied cost of repair rule to determine
damages
o RULE: there is substantial performance when the completed performance meets the essential
purpose of the contract, unless the parties specifically made the specifications of performance the
essence of the contract.
- Here: court gives 2 examples that are unlike this case: where deviation from the terms of a contract to
build a boat house resulted in a structure that could not be used for its intended purpose  no substantial
performance - where a contract to build a boiler produced a boiler that operated at less than half the
capacity than the parties agreed to  no substantial performance – here the K between π & ∆ did not state
that strict compliance with the terms of the building contract was essential to the contract - deviations from
the terms of the contract as proven at trial do not bar this defense – the purpose of the K is still there 
YES substantial performance - the placement of the living room wall did not affect the value of the
property and so the trial court was correct in awarding no damages for the living room wall

O.W. Grun Roofing v. Cope p. 989

 FACTS: ∆ entered contract with Π to install roof – Π agreed to $648 installation fee, with
russet glow shingles, describing them as brown varied color – after roof installation, ∆
noticed yellow streaks – Π installed replacement shingles, that did not match original
shingles – ∆ waited 10 months for shingles to become more uniform, that never occurred –
roof can only be uniform in color if whole roof was replaced – ∆ refused to pay – Π filed
mechanic’s lien on home – ∆ sued for $1,5000 in damages based on ∆’s failure to install
satisfactory roof & to set aside mechanic’s lien – Π filed cross-claim for $648 - Trial court
found for ∆ for $122.60 in damages, set aside mechanic’s lien & denied cross claim
 RULE: When a contract contains dependent promises, a promisor who has
substantially performed obligations is entitled to recover even if he has failed in
some particular way – depends on factors:
o (1) extent of non-performance – deficiency in performance must be so
pervasive to frustrate purpose of contract in any real or substantial sense
o (2) purpose to be served by contract
o (3) desire to be gratified under contract
o (4) excuse for deviating from exact terms of contract
o (5) cruelty of enforcing strict adherence to contract or compelling promisee
to receive less than for which he bargained
o (6) ration of the money value of the part-performance compared to that of the
promised performance
o (7) party seeking to enforce contract based on part-performance must have
made a good faith effort to perform contract
 KEEP IN MIND If you don’t have substantial performance, then you
get quantum meruit
  HERE: ∆ homeowner had the right to K for the exact type & color of the roof she
wanted – the object & purpose of the K was for a substantial roof of uniform color –
it w/b unfair to force ∆ to accept a roof that is less than for which she bargained –
π must replace entire roof to make the tile color uniform – no way π can successfully
argue that it substantially performed its contractual obligations by completing work
that is so deficient – π not entitled to recovery for the work it performed based on a
theory of quantum meruit because there is no evidence that ∆ received any benefit at
all from π’s performance - ∆ cannot be held to have “accepted” the benefit
conferred by π by continuing to live in her home - It would be unjust to require ∆ to
move out of her home to avoid a finding of implied acceptance of a deficient roof

Walker v. Harrison p. 993

- FACTS: ∆ is a dry-cleaners – Π sells & rents advertising billboards – enter into contract
where Π agrees to build & install neon electric sign on ∆’s property for 36 months at
$148.50 per month, provided Π maintains sign & title of sign reverts to ∆ at the end of lease
– Π installs sign & ∆ makes payment for August, then notices maintenance issues with sign
(hit with tomato, formed rust & cobwebs) – ∆ requested maintenance he thought he was
owed under contract – Π did not perform – ∆ informed Π they would stop paying – Π sued
for entire balance due under contract ($5,197.50) – ∆ counterclaimed for damages, arguing
Π breached contractual obligation to perform maintenance – no express condition precedent
of express compliance with every term of the contract – so then what is the quality of
performance required without an express condition precedent? Substantial performance
implied in law constructive condition - if there is a material breach, has there been
substantial performance? No - Trial court found for Π, granting cash price of sign, services
& maintenance by Π already extended & accepted by ∆, & interest for amount owed by ∆
- RULE: A minor failure of performance is not a serious enough breach to justify repudiation
of the entire contract - Whether a breach is material is determined by considering the
following factors:
o (1) the extent to which the injured party will obtain the substantial benefit which he
could have reasonably anticipated;
o (2) the extent to which the injured party may be adequately compensated in damages
for lack of complete performance;
o (3) the extent to which the party failing to perform has already partly performed or
made preparations for performance;
o (4) the greater or less hardship on the party failing to perform in terminating the
contract;
o (5) the willful, negligent or innocent behavior of the party failing to perform;
o (6) and the greater or less uncertainty that the party failing to perform will perform
the remainder of the contract.
 Very different from minor breach – breach is so egregious that I no longer
am bound by the contract
In this case: Π entitled to damages – Π delayed 1 week to service the sign after ∆
complained – does not constitute material breach for ∆ to repudiate contract – timeliness
is at the heart of the conflict – not a material breach - so you can’t suspend your
performance & cannot terminate the contract - so now the ∆ is the contract breacher &
the other party can sue you for contract breach
How many weeks can pass before you advise your client that there has been a breach?
- Uncertain-Duty-Risk: the need to act or refrain from acting in the face of uncertainty concerning the
duties of the parties – exists often in disputes, but also without – a party has to often act on his
 interpretation of performance obligations at he peril of being held wrong in the event of subsequent
disputes
o Tender of performance can reduce uncertain duty-risk after disputes arise – an offer to
performance a condition coupled with the present ability of immediate performance, so that the
condition would be immediately satisfied, if it were not for the refusal of cooperation by the party
to whom tender is made

Convention on Contracts for the International Sale of Goods

Art. 25: A breach of contract committed by one of the parties is fundamental if it results in such detriment to the
other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in
breach did not foresee, and a reasonable person of the same kind in the same circs would not have foreseen, such a
result
Art. 49(1)(a)
(1) The buyer may declare the contract avoided:
a. If the failure by the seller to preform any of his obligations under the contract or this convention
amounts to a fundamental breach of contract
Art. 64(1)(a)
(1) The seller may declare the contract avoided:
a. If the failure by the buyer to perform any of his obligations under the contract or this convention
amounts to a fundamental breach of contract

Note: Divisible Contracts

- Divisibility per Coady v. Wellfleet Marine Corp (MA, 2004)
o One party’s breach does not bar recovery for the other party’s breach IF the different parts of the
contract can be considered separable or divisible
o Consistent w/ 2nd RS
- RS of Contracts §240: if the performances to be exchanged under an exchange of promises can be
apportioned into corr pairs of part performances so that the parts of each pair are properly regarded as
agreed equivalents,

John v. United Advertising Inc. p. 999

o FACTS: Π hired ∆ to erect 7 outdoor signs to advertise Π’s motels for $95
per month – contract apportioned $35 of monthly contract price to 1 sign &
$10 of month contract priced to each of the 6 other signs – contract included
term stating termination of one part of agreement does not affect any other
part – ∆ failed to properly erect 2 signs – Π sued for $680 that he paid ∆ –
has the breaching party substantially performed? - Trial court found ∆’s
breach was severable breach - $120 of the amount paid by Π represented
money apportioned to those 2 signs – found Π failed to satisfactorily
demonstrate damages – dismissed case
o RULE: If a breach of contract is severable, the π is limited to recovering the
portion of damages attributable to that breach.
o Issue of whether a contract is entire or severable is a question of fact
depending on party’s intent – must look at contract terms & surrounding
circumstances - Significant factor is whether consideration provided can be
apportioned, & whether a party would not have entered contract if any one
promise were no included
o In this case: Π argues he would not have entered contract unless all 7 signs
were properly erected – ∆ argues money paid by Π was apportioned under
contract & termination clause suggest contract was intended to be severable
 – trial court used evidence to find the contract was severable, so court should
affirm their finding – trial court wrongly found Π failed to prove damages –
judgment reversed with instructions to enter judgment for Π for $120
o Π: must look at the package sign all together, not the individual signs
o ∆: divisibility aspect – we should be able to apportion the duty under the
contract - severable
o Constructive Conditions
 Substantial performance of the promise is a sufficient compliance
with the constructive condition to permit recovery on the contract –
limited to cases where ∆ received the benefit of the performance
 Severability: divides & weakens the force of constructive conditions
– influenced by the principle of avoiding unjust enrichment as well as
by the terms of the contract
 Waiver: permits a partial failure of a constructive condition to be
excuse dby loos & dubious manifestations of consent – influenced by
unjust enrichment

XXXIX. Anticipatory Repudiation and Prospective Inability to Perform pp. 1029-1035

Hochster v. De La Tour p. 1029
- FACTS: ∆ entered contract to pay Π to accompany him on a trip, beginning June 1 – on
May 11, ∆ informed Π that he changed his mind – Π sued on May 22 to recover
damages in anticipation of future breach on June 1 – Π obtained employment with
another party, beginning July 4 – trial court found for Π - Whether you can bring the
cause of action before the date of performance?
 RULE: When one party to an agreement is informed by another party to the
agreement that the second party intends to breach the agreement, the first
party has an option to file suit for damages immediately in anticipation of the
breach, or to wait until the act was supposed to be done.
 HERE: ∆ argues: (1) The contract cannot be breached if the date of
performance hasn’t passed – you are sued for failure to performed so how
can you be sued for the lack of performance (2) Will also argue that you
have to show you were prepared up to the date of performance to do your
part of the contract (stand by argument) (3) Will also argue issues with
calculating damages
 Court rejects all 3 ∆’s arguments;
o (1): What is the injury created? You are promising impliedly
that you will not do anything to undercut that relationship –
insecurity that you cause to the relationship by repudiation
o (2): person ought to be allowed to mitigate damages –
otherwise the ∆ will have to owe even more damages if the
other party does not go out & mitigate damages instead of
preparing to perform up to date of performance
o (3) : the jury is always predicting the damages in anticipation
of the end of the breach
- Court’s policy argument: idleness & wasting time
- In this case: Π entitled to damages for breach once ∆ informs him of
intent to breach – if Π had to wait until first day of contract, he will
miss opportunities to mitigate damages by finding other employment
– Π can seek damages or additional employment in anticipation of
breach – trial court affirmed
 CLASS NOTES:
- Argument against this: technically there is no injury yet if the
performance wasn’t supposed to have started yet- How can you
breach non-performance if you’re not injured
- INJURY: broken engagement – this is what the above court says
o Undermined security of expectations
o Harm: impairing the person’s expectations of your
performance
- Additional argument: loss of opportunity to mitigate damages
o You out to want me to go work w/ other ppl so you wont owe
as much in damages
- Court: wants to induce MITIGATION of damages and avoid
impairing expectations of performance
- What else could the other side argue:
o You you c/h broken your leg on 5/23 the day after you sued
and you wouldn’t have been able to work on 6/1 anyway
o w/b hard to calculate damages
 if you break your leg the day after you sue, what
would you even get
 how do we calc damages when we don’t have the
certainty that you w/h/h the physical ability to perform
 Court’s response: that this is the case for any contract,
this one ends in September!
 Its difficult no matter when they sue, no one
knows the ~future~
 So this Is problematic anytime you have a long
term contract
- Can you retract a repudiation before performance is due?
o The above court says no!
o Doesn’t matter if you change your mind – that would be a
strange request
 You broke your trust once now you’re gonna say trust
me again??

XL. Grounds for Rightful Cessation-Mistake pp. 1051-1071; 1075-1077

 Restatement (Second) of Contracts § 152: When Mistake of Both Parties Makes a Contract Voidable
(1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the
contract was made has a material effect on the agreed exchange of performances, the contract is voidable
by the adversely affected party unless he bears the risk of the mistake under the rule stated in § 154
(2) In determining whether the mistake has a material effect on the agreed exchange of performances,
account is taken of any relief by way of reformation, restitution, or otherwise.
 -  Restatement (Second) of Contracts § 154: When a Party Bears Risk of a Mistake

A party bears the risk of a mistake when

(a) the risk is allocated to him by agreement of the parties (Lenawee), or

(b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the
facts to which the mistake relates but treats his limited knowledge as sufficient (Wood), or
 (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so
(Noroski)

MUTUAL MISTAKE

Arises at agreement stage (similar to invalidity)

- Mutual Mistake: a party who learns that the circumstances at the time of contracting were materially
different from what the parties has assumed at that time may claim relief on the ground of mutual mistake
o Argument for: Mutual assent – you have to agree to what you are dealing with
 Unfairness aspect – unjust enrichment, you are getting more than what you are contracting
for
o Argument against: Freedom of contract to make bad deals
 Finality concept of contracts – you want to know certainty – what if the cow became
pregnant 3 years later? Rescission allows for rescission after the delivery

Sherwood v. Walker p. 1054- (1887) – Rose the Cow / Mutual mistake

o Facts: π sought to buy Rose the Cow from Δ. Δ told π that Rose was
barren but π wanted to buy anyway and paid the amount typical for a
beef cow. Then Δ did not want to sell Rose anymore bc found out she
was preggo and thus was worth more.
o Procedure: trial court held for Sherwood; said doesn’t matter whether cow
was fertile or not
▪ Appellate said it IS material whether the cow was fertile or not
→ essential to determine whether it is a material fact that was
mistaken
▪ Walker appealed.
o Issue: Whether Walker had the right to rescind the sale by refusing to
deliver the cow
o Rule: Rescission is permitted when there is a mutual mistake.
▪ If there is a difference or misapprehension as to the substance
of the thing bargained for; or if the thing actually delivered or
received is different in substance from the thing bargained for,
and intended to be sold, then there is no contract
o Holding: The cow was sold as a beef creature would be sold; she is in
fact a breeding cow, and a valuable one. The court should have instructed
the jury that if they found that the cow was sold, or contracted to be sold,
upon the understanding of both parties that she was barren, and useless
for the purpose of breeding, and that in fact she was not barren, but
capable of breeding, then the defendants had a right to rescind, and to
refuse to deliver, and the verdict should be in their favor.

Takeaway:
▪ Court held the rule: rescission is permitted when there is mutual
mistake
• Majority thought there was enough in the record to support
mutual mistake
▪ Policy/fairness considerations for mutual mistake defense:
• Prevents unjust enrichment
• No mutual assent because there was a meeting of the
minds; the parties have been bargaining over an item that
does not exist
• Alternative argument:
o Here, a barren cow does not exist, while a farrow
 cow does
o No mutual assent: what was sold was a pregnant
cow, but they bargained for a barren cow
▪ Competing policy consideration:
• Lack of certainty and finality if there may be rescission when
there is a mutual mistake
• The court should not interfere with deals absent fraud,
duress, or unconscionability
▪ Hypo: what if buyer does not say anything when seller says, “I’m
selling a barren cow for $80”? Should the court conclude that they
are both thinking the same thing when there is silence—and
therefore there IS a mutual mistake and therefore allow rescission?

Wood v. Boynton p. 1061

• Facts: woman found rock and took it to a jeweler who said it was worth $1.
Woman took it to other jewelers. Eventually woman went back to first jeweler
and sold it to him for $1. Turned out to be an uncut diamond worth more than
$700. Woman claimed mutual mistake.
• Rule: The only reasons for rescinding a sale and revesting the title in the vendor
so that they may maintain an action at law for the recovery of the possession
against the vendee are (1) that the vendee was guilty of some fraud in procuring a
sale to be made to him; (2) that there was a mistake made by the vendor in
delivering an article which was not the article sold—a mistake in fact as to the
identity of the thing sold with the thing delivered upon the sale.
• Reasoning: Here, there can be no just ground that the plaintiff was induced to
make the sale she did by any fraud or unfair dealings on the part of Mr. Boynton;
both were entirely ignorant at the time of the character of the stone and of its
intrinsic value
• If she chose to sell it without further investigation as to its intrinsic value to a person
who was guilty of no fraud or unfairness which induced her to sell it for a small sum,
she cannot repudiate the sale because it is afterwards ascertained that she made a bad
bargain
• There is no pretense of any mistake as to the identity of the thing sold; it was produced
by the plaintiff and exhibited to the vendee before the sale was made, and the thing sold
was delivered to the vendee when the purchase price was paid
• Holding: Mr. Boynton could not have rescinded the sale on the ground that there had been a
breach of warranty, because there was no warranty, nor could he rescind it on the ground of
fraud, unless he could show that she falsely declared that she had been told it was a
diamond, or, if she had been so told, still she knew it was not a diamond.
• Takeaway: Should the woman be able to rescind on the basis of mutual mistake?
• Analyze whether mistake of ESSENCE or mistake of VALUE (Test from Sherwood)
• Maybe both: will come out the same whichever standard picked
• Mistake of Value: they knew it was a mineral/rock
• Mistake of ESSENCE: Both parties were not aware that this was an uncut
diamond; it is not like knowing that the cow was fertiled
• If someone sells a good under a binding contract, the seller must show either (1)
fraud or (2) mistake to void the sale and reclaim the good
• Fraud: generally, requires the buyer to deceive the seller
• Mistake: what was delivered is not what the seller agreed to sell; mutual
ignorance of value is not enough
Lenawee County Board of Health v. Messerly p. 1063- mutual mistake of material fact

Holding: The Pickleses are not entitled to the equitable remedy of rescission and,
accordingly, reverse the decision
Takeaways:
▪ Buyer thinks they are getting profitable property, but actually
worthless property
▪ Rule: Mutual mistake – buyers should be able to rescind because of
mutual mistake Holding: Court does not allow rescission based upon
mutual mistake. Because Δ bore the risk because there is allocation
of risk based on the clause
• There was an “as is” clause; you are buying the property in the
present condition
The court abandoned the “essence” vs. “value” test
▪ NEW TEST: RST § 152(2) BASIC ASSUMPTION TEST
Where a mistake of both parties at the time of a contract as to the
BASIC ASSUMPTION on which the contract was made has a
MATERIAL EFFECT on the agreed exchange of performances, the
contract is voidable by the adversely affected party UNLESS HE
BEARS THE RISK of the material under the rule stated in § 154.
• In determining whether the mistake has material effect on
the agreed exchange of performances, account is taken of
any relief by way of reformation, restitution, or otherwise.
▪ RST § 154: when a party bears a risk of a mistake (unilateral
mistake)
• A party bears the risk of mistake when
o The risk is allocated to him by agreement of the parties
(Lenawee – “as is” clause), or
o He is aware, at the time the contract is made, that
he has only limited knowledge with respect to the
facts to which the mistake relates but treats his
limited knowledge as sufficient (Wood—
diamond/rock), or
o The risk allocated to him by the court on the
ground that it is reasonable in the
circumstances to do so
▪ Professor Taylor: Court could have used interpretation to
work around the “as is” clause, because this seems like unjust
enrichment

Caveat emptor: let the buyer beware → the buyer assumes the risk of
most anything that goes wrong after the sale For rescission to be
allowed, must be a mutual mistake of a material fact
XLI. Impossibility and Impracticability of Performance pp. 1090-1094; 1098-1108
 Generally, you must do what you promised—but there is a narrow category in which a court will excuse
performance.

Taylor v. Caldwell p. 1091

Facts: Δ agreed to rent hall out to π for four days.
After the contract was formed, but before the first
concert, the hall was destroyed by fire. The
destruction was such that Taylor could not host the
concerts there as planned. Taylor
sued Caldwell to recover damages for the money
spent advertising and preparing for the concerts.
 Issue:
Rule: In contracts in which the performance
depends on the continued existence of a given
person or thing, a condition is implied that the
impossibility of performance arising from the
perishing of the person or thing shall excuse the
performance
Holding: Here, looking at the whole contract, it is found
that the parties contracted based on the continued existence
of the Music Hall at the time when the concerts were to be
given; that being essential to their performance.
Takeaway: Risk allocation. Nothing in the contract allocates the
risk in case of a fire. Court tries to figure out the intent by looking
at the contract; constructed condition
▪ Court clear about the intent: implied-in-fact
▪ Court not clear about the intent: implied-in-law
• Constructed condition: Duty performance is conditioned
upon the CONTINUED EXISTENCE of the building
▪ Supervening event: after the contract is made, but before
complete performance = impossibility
 An event that destroys the FOUNDATION of a contract
AFTER you enter the contract
 Compare to
o Mistake is a belief INCONSISTENT with the facts

The Opera Company of Boston, Inc. v. The Wolf Trap Foundation p. 1094
Takeaway: The doctrine of impossibility of performance
as an excuse or defense for a breach of contract was for
long smothered under a declared commitment to the
principle of sanctity of contracts.
o The growth of commercial activity in the nineteenth
century, however, made this rigidity of the doctrine of
impossibility both “economically and socially unworkable”
o The English courts recognized these changed conditions

122
 and, relying largely on civil law precedents, relaxed the
constraints on the doctrine by the principle of sanctity of
contracts as followed by the English courts. o Said no
excuse—must perform contract COME HELL OR HIGH
WATER

IMPRACTICABILITY OF PERFORMANCE
-
Uniform Commercial Code § 2-615: Excuse by Failure of Presupposed Conditions
Except so far as a seller may have assumed a greater obligation and subject to the
preceding section on substituted performance:
(a) delay in delivery or non-delivery in whole or in party by a seller who complies with
paragraphs (b) and (c) is not a breach of his duty under a contract of sale if performance
as agreed has been made impracticable by the occurrence of a contingency the non-
occurrence of which was a basic assumption on which the contract was made or by
compliance on good faith with any applicable foreign or domestic governmental
regulation or order whether or not it later proves to be invalid
(b) where the causes mentioned in paragraph (a) affect only a part of the seller’s capacity
to perform, he must allocate production and deliveries among his customers but may at
his option include regular customers not then under contract as well as his own
requirements for further manufacture. He may also allocate in any manner which is fair
and reasonable
(c) the seller must notify the buyer seasonably that there will be delay or non-delivery and, when
allocation is required under paragraph (b), of the estimated quota thus made available for the
buyer.

Marcovich Land Co. v. J.J. Newberry Co. p. 1098-

impracticability via extreme difficulty/expense beyond
normal range
Facts: were damaged or destroyed by fire,
Marcovich would be responsible for repairing or
reconstructing the premises at its own expense.
Building was destroyed by fire. Marcovich did not
rebuild the structure because it would have cost at
least $452,000.00, an amount which Marcovich
considered commercially unfeasible.
 Issue:
 Rule:
Holding: However, the test is not simply whether a particular
performance would be a bad business risk or even a “very poor
deal” but rather whether there was “extreme difficulty,
expense, injury, or loss” which goes well beyond the normal
range of what might have been expected
 Takeaway:
 Contract had expressed allocation of risk

123
  Court said that subjective impossibility argument doesn’t
pass because Δ did not have the right insurance – aka their
fault
 Court looked at another rule: Impracticability – goes to
magnitude whether there was extreme difficulty, expense or
injury or loss that goes beyond normal range→too
expensive

Mineral Park v. Howard p. 1105 impracticability via

magnitude beyond available means
Facts: π contracted Δ to build a bridge over ravine;
said to use all the gravel on the property needed. π
sued Δ when finding out that it only used most
gravel and not all. However, Δ said it was
impracticable to use all because most of gravel was
below sea level. M
o Rule: Where performance depends upon the
existence of a given thing, and such existence was
assumed as the basis of the agreement, performance
is excused to the extent that the thing ceases to exist
or turns out to be nonexistent.
▪ A thing is impossible in legal contemplation when
it is not practicable; and a thing is impracticable
when it can only be done at an excessive and
unreasonable cost.
o Takeaways:
▪ Court heading to the direction that there was a
fundamental understanding of a specific term of the
contract, • However, court does not analyze this as a
mistake because gravel was below water level and
there was no supervening event→existing
impracticability
 Modern movement has gone beyond literal
impossibility to impracticability
 Not impossible to perform under these facts.
However, it is so much more difficult to
perform, that the court will allow excuse
 ▪  Policy→court is supposed to enforce the
parties’ reasonable expectation

XLII. Frustration of Purpose pp. 1121-1127

 Person is arguing that the purpose/ incentive for the contract is gone.
 Could he perform? Yes

124
  Excuse for this when the purpose for the contract is destroyed and she/ he
could not reasonably anticipate this so as it can protect themselves from the
risk
Krell v. Henry p. 1121
Facts: Krell (Plaintiff) rented room out to defendant to
watch King’s coronation. However, King became ill and
coronation did not happen. Δ refused to pay and π sued.
Rule:
▪ The test seems to be whether the event which causes the
impossibility was or might have been anticipated and
guarded against. Use principle of Taylor v. Caldwell
where the foundation of the contract is at issue.
• Basis of entering into contract = the foundation of
the contract = had to do with the coronation taking place
Takeaways:
 Krell’s argument: his incentive to pay was dissipated before
his performance and therefore should not perform
o  Dissent expresses doubt that parties didn’t have it
in their mind that there was a possibility that
something could’ve happened that the coronation
wouldn’t have occurred
 But key is to consider whether the “excuse” is foreseeable
 Generally, no excuse for partial frustration because there is
too much subjectivity and factors that would need to be
analyzed
Purpose of K was frustrated because the parade was cancelled and
that was NOT FORESEEABLE; however, would not be the same
case if something like fog, because can argue it was foreseeable

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