TABLE OF CONTENTS

Atiyah 1
Formality 1
Consideration 1
Benefit 2
Reliance/romissory Esto!!el 2
"#nade$%ate& Consideration 2
Contract Re'isions/(odifications )
"#ll%sory& romises )
%*lic olicy Limits +
O*,ecti'e '- S%*,ecti'e #ntent to Form +
#ntention to Be Bo%nd +
#ndefiniteness .
(is%nderstandin/s 0
Termination of Offers 0
1alid (eans of Acce!tance 2
Battle of the Forms 2
#nter!retation 3
#nte/ration 3
arol E'idence R%le 14
Am*i/%ity 14
(ista5e 11
Standardi6ed Forms/7s of Adhesion 11
E8!ectation 9ama/es 12
A'oida*le 9ama/es 1+
Conse$%ential 9ama/es 1.
:ncertain 9ama/es 10
Reliance 9ama/es 10
Restit%tion 10
Li$%idated 9ama/es '- enalties 1;
S!ecific erformance 1;
9%ress 12
:nconsciona*ility 13
9%ty to 9isclose 13
Conditions 24
#m!ossi*ility and #m!ractica*ility 21
Fr%stration of %r!ose 2)
erfect Tender and S%*stantial erf 2)
#N9E<
Am*i/%ity 14
Atiyah 1
A'oida*le 9ama/es 1+
Battle of the Forms 2
Benefit 2
Conditions 24
Conse$%ential 9ama/es 1.
Consideration 1
Contract Re'isions/(odifications )
9%ress 12
9%ty to 9isclose 13
E8!ectation 9ama/es 12
Formality 1
Fr%stration of %r!ose 2)
"#ll%sory& romises )
#m!ossi*ility and #m!ractica*ility 21
"#nade$%ate& Consideration 2
#ndefiniteness .
#nte/ration 3
#ntention to Be Bo%nd +
#nter!retation 3
Li$%idated 9ama/es '- enalties 1;
(ista5e 11
(is%nderstandin/s 0
O*,ecti'e '- S%*,ecti'e #ntent to Form +
arol E'idence R%le 14
erfect Tender and S%*stantial erf 2)
%*lic olicy Limits +
Reliance 9ama/es 10
Reliance/romissory Esto!!el 2
Restit%tion 10
S!ecific erformance 1;
Standardi6ed Forms/7s of Adhesion 11
Termination of Offers 0
:ncertain 9ama/es 10
:nconsciona*ility 13
1alid (eans of Acce!tance 2
0
art #= rinci!les of Contract%al O*li/ation
Contract > !romise for !romise or !romise for !erformance
Offer ? Acce!tance > Contract
A- The romise rinci!le and its Ri'als
Hurley rule: (family doctor not required to help dying man) no promise no contract
Atiyah: Reliance + promise = contract; Benefit + promise = contract; Promise alone contract
Promise creates e!pectation; Atiyah thin"s e!pectation alone is ne#er suff$ for a %
Atiyah&s refutation of three reasons 'hy promise should = contract
($ Expectations created by K$ Atiyah says no real harm from disappointed e!pectations)
*$ Ks are form of risk allocation and people plan based upon it. Atiyah says (() most %s
not of this type; and (*) it&s o" to renege on %s as long as other party can find someone
else to ma"e the same deal 'ith$ And if you can&t) then there&s a form of reliance$
a$ +: ,hat 'ould Atiyah say is suff$ for reliance- Budgeting- .urning a'ay a
customer- /ried says reliance created through e!pectations 0c of a promise for
future plans$ But Atiyah&s tal"ing a0out reliance as a particular sacrifice
0$ /ried says this leads to infinite regression (if one person can renege) ne!t can
too) etc)$ Also) '1o %s to allocate ris") people cannot plan comple! enterprises$
2$ We want people to honor promises, so we enforce promises. Atiyah says this is circular$
And 'here lia0ilities are promise30ased there 'ill 0e more inequality 0c it&s ine#ita0ly
going to fa#or people 'ho are more a0le to e!ercise their free choice
Reliance 'ithout promise = tort lia0ility or ha#e to find an implied promise
4iff from /ried: Atiyah says reliance or 0enefit nec$ for %; /ried says promise alone is sufficient
Posner: Bc % e!changes are not immediate1simultaneous) future performances are made into present
assets 0y #irtue of the legal enforcement of promises$ Requiring reliance for enforcement of %s creates
incenti#e for opportunistic 0eha#ior 1 enforcing promises deters opportunistic 0eha#ior$
B- @ro%nds for Enforcin/ romises
1- FOR(AL#TA
DeLeo case: oral promise to gi#e donation to synagogue on death0ed not enforcea0le$
o 5o consideration = no promise
o ,here parties don&t intend to ma"e a legally 0inding promise) it is not legally enforcea0le$
5o 'riting is e#idence of) 0ut not dispositi#e of) no %
,hen promises are made '1o consideration or reliance) there must 0e formality to pro#ide
e#idence of %) ensure parties ga#e adequate thought to entering %) act as an out'ard sign of %
(
2- BAR@A#N BCONS#9ERAT#ONC
Restatement 67(: Requirement of 8!change) .ypes of 8!change
o 9onsideration must 0e a promise or performance that is barained for
o 9onsid$ can 0e promise) act) for0earance) or creation) modif$ or destruct$ of legal relation$
o Performance or return promise may 0e gi#en to10y promisor1promisee or another person
6:(: 9onsideration as ;oti#e or <nducing 9ause: /act that 'hat is 0argained for does not induce
ma"ing of the promise does not pre#ent it from 0eing consideration$ Ppl may ha#e multi$ moti#es
Hamer !. "idway (uncle1nephe'): Performance or forbearance (gi#ing up legal right e#en if it ult$
0enefits the promisee) counts as consideration$ (And e#en if promisee 'ould ha#e done it any'ay)
Whitten !. #reeley$"haw (mistress contract) Promise is not legally 0inding unless it 'as 0argained
for 1 consideration sought 0y each party$
Duncan !. %lack: % #oid 0c they&re offering something they don&t ha#e
o /ried counter = 'hy not say 4 accepted ris" he might not recei#e allotment- (compensate)
)- BENEF#T
Restatement 6:>: a promise made in recognition of a 0enefit pre#iously recei#ed is enforcea0le to
the e!tent necessary to pre#ent in?ustice$ Promise not bindin:
o <f promisee conferred 0enefit as gift or promisor is for another reason not un?ustly enriched
o .o the e!tent its #alue is disproportionate to the 0enefit
&ills !. Wyman: no % 'here father promised to reim0urse for careta"ing of emancipated son
o Enforce promise for past consideration or benefit conferred only if promisor ' beneficiary
Webb !. &c#owin: % upheld 'here promisor(s life had 0een sa#ed$
o Add&l distinction: ,ho 'elches on deal- <n &ills) promisor 'elched on deal; court might
allo' this$ @ere) promisor(s executor 'elched on deal; court more hesitant to allo' this$
)n re "choenkerman(s Estate: @ousehold ser#ices 0y persons in family are presumed to 0e
gratuitous) 0ut presumption may 0e o#ercome 0y e!press % or note promising to pay$
)n re *risan(s Estate: Aa' implies promise to pay for ser#ices rendered in an emergency room 0c
la' assumes person 'ould ha#e consented to the ser#ices if a0le$ +romise to pay implied by law.
+- REL#ANCE TO 9ETR#(ENT / RO(#SSORA ESTOEL
Restatement 6B0: Promise that promisor should reasona0ly e!pect to induce action or for0earance
on part of promisee or 2
rd
person and 'hich does induce such action or for0earance is 0inding if
in?ustice a#oided only 0y enforcement of the promise$ Remedy may 0e ltd as ?ustice requires$
o S%mmary= ,ne can reco!er e!en if no consideration if he acted in reliance on a promise
Kirksey (Cister Antilico): 5o % 0c no consideration$ .oday) she 'ould collect under 6B0$
o + 'hether reliance = %) or reliance = no % 0ut damages any'ay-
-lleheny *ollee: ,oman promises DE% to college for 0ldg) gi#es D(% 0ut then re#o"es$
9ardoFo says no reliance damages) 0ut upholds % on consideration 0c fund 'as to 0ear her name
o % 0c promise for promise- Gni#ersity ne#er e!plicitly promised to name) 0ut 0y cashing
chec" there 'as an implied acceptance of her conditions-
o Williston(s .ramp: <f you 'al" around corner to store) <&ll 0uy you a ?ac"et$ 5o % 0ecause
the 'al" is incidental to agreement) not consideration and not something offeror wants$
/01 Benefit to the promisor 'ould 0e e#idence that condition comprises consideration
"ieel !. "pear (furniture insurance): 9ardoFo turns reliance into consideration) e!pands consid$
2einber !. +feiffer *o.: ,oman quits 'or" after promise of pension; reliance found per 6 B0$
o Alternati#e application of consideration theory: future 'or" construed as consideration
*
D(3lisse: Cchool0oard told teachers they 'ould pro0 get a raise$ 5o promissory estoppel 0c 'as
unintentional misstatement of fact) not a promise$ <nstead) tort of negligent misrepresentation$
C- 9efecti'e Consideration
1- TDE ROBLE( OF "#NA9EE:ATE& CONS#9ERAT#ON
Restatement 6*0:: <f % or term thereof is unconsciona0le 'hen % is made court may refuse to
enforce) or may enforce the remainder of the % '1o unconsciona0le term) or may so limit the
application of any unconsciona0le term as to a#oid any unconsciona0le result$
o 9omment a: 9ourts loo" at three factors to determine if % is unconsciona0le:
/01 Cetting) Purpose) 8ffects$ (*) Also) proc$ of ma"ing % and #alue of % itself
o G$9$9$ 6*320*: Gnconsciona0le contract or clause (() says same thing
(*) <f it appears unconsciona0le parties shall 0e afforded reas$ opp$ to present e#idence
as to its comm$ setting) purpose and effect to aid the court in ma"ing determination
9omment (: principle is one of pre!ention of oppression, and unfair surprise, and
not of disturbance of allocation of risks because of superior barainin power.
%atsakis: % not unconsciona0le 0c consideration 'as fair (during 'ar) currency !ery hard to come
0y); ris"3return argument: seller ta"ing huge ris" she 'ould ne#er pay 0ac"
o /actor: party see"ing enforcement did not put other party into the #ulnera0le situation
o Batsa"is is proper current doctrine 0ut /ried doesn&t li"e it (don&t tal" a0out consideration)
-merica Home )mpro!ement: % unconsciona0le if #alue o0tained is much less than #alue of
consideration$ @o'e#er) as ca#eat) consider larger #ie' of 'hat #alue is 0eyond ?ust ra' materials
Waters !. &in: % unconsciona0le 0c party see"ing to enforce put P in the #ulnera0le position that
caused her to enter into the disad#antageous %$
2- CONTRACT RE1#S#ONS AN9 TDE LE@ALF9:TA R:LE
G$9$9$ 6*3*0B ; odification) Rescission and ,ai#er: .o modify a % you don&t need ne'
consideration$ But if the modification is unconsciona0le it 'on&t stand$
-K +ackers: ,hen party merely does 'hat he has already promised to do he cannot demand add&l
comp$ and 0y ta"ing ad#antage of the necessity of his ad#ersary force him to promise more$ (672)
"chwart4reich !. %auman$%asch = Parties may rescind 0y mutual consent (consideration = mutual
release from %)$ .hen they can ma"e a ne' %$ /ried thin"s this is 'rong) actually li"e -K
+ackers
#oebel !. Linn (ice shortage): Per Restatement 6:B) if there&s une!pected circumstances 0eyond
the control of the parties) you can modify a contract appropriately
o 9ompare to A% Pac"ers 'here the circumstances 'ere caused 0y the sailors
o <f neither side has fully performed then % may 0e modified such that it&s fair and equita0le
/01 8nforcing the contract 'ould ha#e dri#en the ice company out of 0usiness
o Restatement 6 :B: ;odification of 8!ecutory 9ontract: 9ourt has discretion to loo" at 'hy
% 'as modified and determine 'hether mod$ 'as fair and ?ust$ <f circum$ ha#e changed
drastically such that performance 'ould 0e nearly impossi0le) court 'ill allo' mod$
)- "#LL:SORA& RO(#SES AN9 RELATE9 FA#RNESS #SS:ES
<llusory promise = pledges nothing either 0c #ague or 0c promisor can choose 'hether to honor it
o Restatement of 9ontracts) 677: <llusory and Alternati#e Promises
(() A promise is not consid$ if promisor reser#es a choice of alt$ performances unless:
a$ 8ach alt$ performance 'ould 0e consideration if it alone 'as 0argained for; or
2
0$ Hne of the alt$ performances 'ould 0e consid$ and there is or appears to the
parties su0stantial poss$ e#ents may eliminate the other alternati#es
o Restatement 6*0E: .he 4uty of Iood /aith and /air 4ealing: (() 8#ery % imposes upon
each party a duty of good faith and fair dealing in its performance and its enforcement$
o G$9$9$ 6 (3*02: (() Also good faith in negotiation
o Wickham !. 2armers( Lumber = Celler tied to (E01ton of coal 0ut 0uyer not tied to any
o0ligation to 0uy any amount) so not gi#ing up any rights$ Both sides ha'e to /i'e
somethin/ %! or o*li/ate themsel'es to somethin/ or limit ri/hts in some Gay for 7
o #urfein: Buyer had option of canceling order at any time 0efore it 'as shipped$ Celler
claims no %$ 9ourt upheld % 0ut /ried disagrees) said no mutual consid$ prior to shipping$
/01 #ianni "port = right to cancel at any time; no %
o Wood !. Lucy, Lady Duff$#ordon = ,ood has e!clusi#e % to mar"et clothing$ Aucy argues
no consideration 0c ,ood has no o0ligation to do anything specific to mar"et$ 9ardoFo
finds consideration through implied promise to use best efforts to market; % upheld$
/01 /ried: 9ardoFo is implying promises that aren&t in % as a 'ay to uphold it
/51 /ried&s PHJ (pro0) no consideration 0c 9ardoFo&s implied promise 0ullshit) 0ut %
should 0e upheld 0c Aucy made promise to allo' ,ood to represent her
o ,mni )nc.= Rule: Promise gi#en for promise dependant upon condition not necessarily
illusory) as long as ?udgment a0out 'hether condition 'as met 'as made in good faith$
/01 Hmni&s condition that must 0e satisfactory doesn&t ma"e % unenforcea0le$
Catisfactory means satisfactory to a reasona0le person$
9- Freedom of Contract and %*lic olicy
)n the &atter of %aby 6&( = Hn the surface there&s a #alid % 0ut court refuses to enforce it on 0asis
of pu0lic policy$ Replace a % analysis 'ith an analysis of 'hat&s in the 0est interest of the child$
"heets !. .eddy(s 2rosted 2oods = 'or"er 'ho raised quality concerns internally sues for 'rongful
termination$ Pu0lic policy imposes limitations on a termination of an at 'ill employee$
o /ried: to affect pu0lic policy court 'ill o#erride % o0ligations 0y implying term or 0y tort
Gnger, .he *ritical Leal "tudies &o!ement: % principles are 0ounded 0y their counterprinciples$
8!: parties free to choose terms 1 unfair %s 'ill not 0e enforced$ Gnger fa#ors measured amount of
reg$ of % in order to promote social 'elfare$ Read %s in shado' of pu0lic 'elfare o0ligations$
art ##= Formation
A- The (a5in/ of A/reements
1- OBHECT#1E 1- S:BHECT#1E TDEOR#ES #N CONTRACT
O*,ecti'e intent
o Embry = H0?ecti#e standard to determine 'hether there 'as an offer and terms of %$
/01 ,hat 'ould a reasona0le person in the position of the offeree ha#e percei#ed-
/51 Reasona0leness should 0e understood in the conte!t of the transaction 0y a person
'ith the "no'ledge and attri0utes of the party to 'hom they 'ere directed
/71 <f 'ords are in dispute) q of fact for ?ury$ <f court holds 'ords am0iguous) ?ury
decides ho' reas$ person 'ould interpret$ <f 'ords unam0iguous) court determines
no reas$ person could understand them to mean anything other than 'hat they say$
/81 Allo' % e#en 'hen no meeting of the minds is a tort idea 0ecause it&s analogous to
negligence (tal" at your o'n peril) (Irant Iilmore, Death of *ontract)
S%*,ecti'e #ntent
K
o Hotchkiss = <f one party does not ha#e su0?ecti#e intent to %) 0ut reasona0le person 'ould
ha#e understood his 'ords and actions to constitute an agreement) then % 'ill 0e enforced
/01 Howe!er, if one party knows what the other party intends those words to mean he(s
bound by that, e!en if this meanin is diff from the commonly understood meanin
2- #NTENT#ON TO BE BO:N9
Keller !. Holderman 9 <f neither party su0?ecti#ely intends to contract) there is no contract$
o .here has to al'ays 0e su0?ecti#e intent on the part of at least one party$
o ,here () 'ords are unam0iguous and *) at least one party treated them as %) then %$
&oulton !. Kershaw 9 sending out a price letter is not an offer) it&s merely an in#itation to 0argain
o 9ourt 'ill only enforce price letter as offer if it includes price and amount
/01 Amount doesn&t ha#e to 0e specific L) it could stipulate Ma reasona0le amountN
.exaco !. +enn4oil = Actions and 'ords of Ietty o0?ecti#ely manifested intent to 0e 0ound
o /our factors to consider 'hether parties intended to 0e 0ound only 0y formal signed doc:
/01 8!press reser#ation only to 0e 0ound 'hen a 'ritten agreement is signed-
/51 ,as there partial performance 0y one party that party disclaiming the % accepted-
/71 @ad all essential terms of the alleged % 0een agreed upon-
/81 4id comple!ity or magnitude of transaction demand a formal) e!ecuted 'riting-
Charp, +romissory Liability = offer differs from intent or in#itation to deal 0c there is a promise
Empro &f.= Aetters of intent do not signify intention to 0e 0ound and thus do not ma"e a %$
o Policy: Aetters of intent important for commerce$ Although letters of intent are not legally
0inding) 0rea"ing them may carry reputation costs$
)- #N9EF#N#TENESS
Restatement 622:
(() 8#en though a manifestation of intention is intended to 0e understood as an offer) it
cannot 0e accepted so as to form % unless the terms of the % are reasona0ly certain
(*) .erms are reas$ certain if they pro#ide 0asis for determining e!istence of 0reach and
for gi#ing appropriate remedy$ i.e., K upheld if only minor terms missin
(2) .he fact that one or more terms of a proposed 0argain are left open or uncertain may
sho' that a manifest$ of intent not intended to 0e an offer or an acceptance$
G$9$9$ 6*3*0K: /ormation in Ieneral
(() % for sale of goods may 0e made in any manner sufficient to sho' agreement)
including conduct 0y 0oth parties 'hich recogniFes the e!istence of such a contract$
(*) % for sale may 0e found e#en though the moment of its ma"ing is undetermined$
(2) 8#en though one or more terms are left open % not indefinite if parties intended to
ma"e % and there is reasona0ly certain 0asis for gi#ing an appropriate remedy
G$9$9$ 6*320E: Hpen Price .erm
(() .he parties if they so intend can conclude a contract for sale e#en though the price is
not settled$ <f left unsettled) price is a reasona0le price at the time for deli#ery
/51 ,here) ho'e#er) parties intend not to 0e 0ound unless price 0e fi!ed or agreed and
it is not fi!ed or agreed no %$ Buyer must return any goods already recei#ed or
if cannot) must pay reas$ #alue at time of deli#ery; seller must return any D paid$
TGo !art test for indefiniteness=
o (() ,hether there are terms left open and unresol#ea0le; (*) if terms left open are material
:oseph &artin :r. Delicatessen !. "chumacher = the lease stipulated that the rent for the rene'al
period 'as Mto 0e agreed upon$N % unenforcea0le 0c terms too indefinite$ ;ight ha#e turned out
diff if it said Ma reas$ rentN 0c some parameters$ @ere no reas$ 0asis for gi#ing appropriate remedy$
E
Lafayette +lace -ssocs. !. %oston ;ede!elopment -uth. = se#eral terms in % left unsettled) 0ut
enforced 0c there 'ere mechanisms '1in % to determine terms (appraisers) fair mar"et price)
*ourts sometimes ask what parties would ha!e areed to if they had thouht of this continency
Hoffman !. ;ed ,wl "tores, )nc. = a promise so indefinite such that it 'ould not 0e considered a
contract might still 0e sufficient for promissory estoppel$ 9ourt gi#es reliance damages$
o .oday this might 0e decided under Restatement 6 :7(*)
9ifferent sol%tions to !ro*lems of indefiniteness=
o Parties themsel#es de#elop mechanism to fill holes in the contract (Lafayette)
o 9ourt de#ises method that 'asn&t there to determine 'hat parties 'ould ha#e 'anted if
they&d thought of it = court 'riting stuff in (Lady Duff #ordon19ardoFo) (paternalistic-)
o <f too indefinite for % 0ut court 'ants to gi#e damages) tort damages for malicious misrep$
o @old promise sufficient for promissory estoppel e#en if too indefinite for % 1 e!pectation
damages (Hoffman !. ;ed ,wl)
+- (#S:N9ERSTAN9#N@S
Restatement 6*0: (() .here is no manifestation of mutual assent to an e!change if the parties
attach materially different meanings to their manifestations and
(a) 5either party "no's or has reason to "no' the meaning attached 0y the other; or
(0) 8ach party "no's or each party has reason to "no' the meaning attached 0y the other$
/51 ;anifestations of parties are operati#e in accordance 'ith meaning attached to them 0y one if
(a) .hat party does not "no' of any different meaning attached 0y the other) and
the other "no's or (0) has reason to "no' the meaning attached 0y the first party
;affles !. Wickelhaus = no % 0c no consensus1meeting of minds (parties thin"ing of diff Peerless
ships)$ *onsideration must be the very thing the offeror souht$ Aoss lies 'here it falls$
o Possi0le one party 'asn&t mista"en 0ut 'as snea"ily creating option contract for himself
2ried: Where no party is at fault, parties should share the loss bc they are in a relationship.
.- TER(#NAT#ON OF OFFERS
Restatement 62>) Re?ection of an Hffer: Hffer is re?ected 'hen offeror is ?ustified in inferring
from 'ords or conduct that offeree intends not to accept offer or not to further consider it$
,b<ecti!e standard: conduct of offeree <uded from standard of reasonable person = 62:(*)
i$ Aapse of .ime
.extron = offer #oid after reas$ amount of time = + on 'hat is reasona0le goes to ?ury (6K()
o /ried: alt$ theory is that 0uyer of steel&s acceptance 'as ne' offer) and then seller&s
ac"no'ledgement 'as acceptance that made a ne' %
o (irror ima/e r%le = offer and acceptance must mirror each other perfectly$ <f
acceptance comes after either time specified or reas$ time) then doesn&t mirror the offer
o Hral offer terminates 'ith the end of the con#ersation$
o Policy: reasona0le time is contained such that it doesn&t allo' the offeree to gam0le at
the e!pense of the offeror (and see if mar"et #alues change to their ad#antage)
ii$ 4eath or <ncapacitation of Hfferor or Hfferee
Da!is !. :acoby = case turns on distinction of 'hether offer 'as 0ilateral or unilateral
o :nilateral offer= enforcea0le upon performance
o Bilateral offer= enforcea0le upon acceptance (strong presumption in fa#or of)
o Hffer 0ilateral so enforcea0le upon agreement (e#en though offeror died 0efore perf$)
>
Hffer dies 'ith offeror unless it 'as already accepted as a 0ilateral offer
Restatement 62*: <n case of dou0t) offer is interpreted as in#iting offeree to
accept either 0y promising or performance) as the offeree chooses$
o /ried thin"s this could also ha#e 0een enforced under 6:7(*) (e#en if court had found it
'as unilateral)) 0c it induced reliance$ Automatically functions as an option %$
iii$ Re#ocation = offeror may re#o"e at any time 0efore acceptance e#en if offer states it 'ill 0e held
open for a gi#en time$ Re#ocation must 0e communicated to offeree) directly or indirectly$
Restatement 6*E) Hption %s: Hption % is a promise 'hich meets the requirements for the
formation of a % (i$e$) consideration) and limits the promisorOs po'er to re#o"e an offer$
Restatement 6KE:
(() ,here offer in#ites offeree to accept 0y performance and does not in#ite promissory
acceptance) option % is created 'hen offeree tenders or 0egins in#ited performance$
('ould change the result in +etterson !. +attber and Broo"lyn Bridge e!ample)
%einnin performance cannot imply a promise to complete performance
per =>5 below bc here promise is not in!ited as a !alid means of acceptance
(*) HfferorOs duty of performance under any option % so created is conditional on
completion or tender of in#ited performance$ (+attber is li"e Broo"lyn Bridge if
offeror himself had pre#ented offeree from completing 0ridge crossing)
Restatement 6>*: (() ,here offer in#ites offeree to choose 0et'een acceptance 0y promise
or 0y performance) tender or 0eginning of in#ited performance is an acceptance 0y perf$
(*) Cuch an acceptance operates as a promise to render complete performance
Restatement 6:7) Hption 9ontracts: (() Hffer is 0inding as option % if (a) in 'riting and
signed 0y offeror) recites purported consid) and proposes e!change on fair terms '1in
reasona0le time; or (0) is made irre#oca0le 0y statute$
B2C Offer Ghich offeror sho%ld reasona*ly e8!ect to ind%ce action or for*earance on
the !art of offeree *efore acce!tance and Ghich does ind%ce s%ch action or
for*earance is *indin/ as an o!tion contract to the e8tent necessary to a'oid in,%stice-
o ?@/51 !. AB = 6B0 reliance is for promises 'here no consideration is as"ed for or
gi#en = a promise not lookin forward to any future action. 6:7(*) reliance is for an
offer that loo"s for'ard to further action (i$e$) acceptance) (e!$ Hoffman !. ;ed ,wl)$
G$9$9$ 6*3*0K: /ormation in Ieneral
(() % for sale of goods may 0e made in any manner sufficient to sho' agreement)
including conduct 0y 0oth parties 'hich recogniFes e!istence of such a %$
(*) Agreement constituting % may 0e found e#en if moment of ma"ing undetermined
G$9$9$ 6*3*0>: Hffer and Acceptance in /ormation of a 9ontract
(() Gnless other'ise unam0iguously indicated 0y the language or circumstances:
(a) Hffer construed as in#iting acceptance in any manner and 0y any reas$ medium;
(0) Hrder or other offer to 0uy goods for prompt or current shipment construed as
in#iting acceptance either 0y prompt promise to ship or 0y prompt or current shipment
G99 6*3*0E: /irm offers: Hffer 0y merchant to 0uy or sell goods in signed 'riting 'hich
gi#es assurance that it 'ill 0e held open is not re#oca0le for lac" of consideration during the
time stated or for reas$ time) 0ut period of irre#oca0ility may not exceed 7 months; any such
term of assurance on a form supplied 0y the offeree must 0e separately signed 0y the offeror$
Dickenson !. Dodds = not enforcea0le to "eep an offer open for a gi#en period of time
'ithout consideration1option 0ought
o As soon as offeree learns of reco#ation = regardless of how = offer is re#o"ed
7
+etterson !. +attber = 'here offer is unilateral) may 0e re#o"ed up to #ery moment of perf$
o /ried disli"es 0c offeror himself pre#ents completion of performance$ 5ecessity to
complete performance should 0e e!cused$ Hfferor should 0e 0ound to accept perf$
%rackenbury !. Hodkin = the 0eginning of performance is your tender (Restatement 6>*)
:ames %aird *o. !. #imbel %ros, )nc. and Drennan !. "tar +a!in *o. 9 comparison
o Ieneral1su0contractor cases$ Ieneral puts in 0id) depending on 0ids it gets from su0s
%aird holds su0 not 0ound 0y offer to general e#en after general has used
su0&s 0id to 'in %) 0c there has 0een no acceptance 0y the general
/ried says that 6B0 doesn&t apply 0c there&s no po'er im0alance
@and: this custom is in the long run to the ad#antage of 0oth generals
and su0s$ Co in a case 'here it leads to a 0ad outcome for one party)
not right to claim reliance damages 0c they generally 0enefit from it
Drennan rules in fa#or of general under 6B0 = su0 reneged on 0id as in %aird
MAs 0tn su0 'ho made the 0id and general 'ho reasona0ly relied on
it) loss resulting from mista"e should fall on the party 'ho caused itN
;estatement =?@ resol!es all of this in fa!or of 4rennan: Where a sub makes
an offer, it will be enforced if the eneral has relied on it in makin their own
bid. .houh no actual acceptance it(s enforced on the rounds of reliance.
0- 1AL#9 (EANS OF ACCETANCE
i$ Ienerally) Restatement 620
Li!inston !. E!ans 9 counteroffer operates 0oth as re?ection of first offer and as a ne' offer
ii$ .he ;ail0o! Rule
Restatement 6>2: .ime ,hen Acceptance .a"es 8ffect
(() Acceptance as soon as it is put out of the offeree(s possession; 0ut
(*) An acceptance under an option contract is not effecti#e until it is recei#ed 0y the offeror$
Restatement 6K0: Re?ection or 9ounteroffer 0y ;ail or .elegram: Re?ection or counteroffer
0y mail does not terminate po'er of acceptance 0y offeree 0ut limits po'er of acceptance so
that a letter of acceptance started after the sending of the re?ection or counteroffer is only a
counteroffer unless the acceptance is recei#ed 0efore the re?cection or counteroffer$
#n s%m= Acce!tances are enforcea*le once yo% !%t them in the mail- Re,ections are
enforcea*le Ghen recei'ed *y the offeror- BThis creates a 5ind of o!tion-C #f offeror
recei'es the earlier re,ection *efore the acce!tanceI the acce!tance is a co%nteroffer-
B%t if the acce!tance o'erta5es the re,ection thereJs a contract-
H#erta"ing re?ection:
o Hfferor 'ho has accepted the o#erta"ing re?ection has an option contract upon
recei#ing the acceptance and can decide 'hether or not to enforce the contract
o @o'e#er if he&s already sold a unique good such that he could not fulfill the original
%) and sold it at a lo'er price) he could possi0ly sue for e!pectation damages
Alt$ 8uro$ Rule: acceptance is only #alid upon receipt 0c only then does offeror "no' that
he&s 0ound$ Pro#ides certainty for offeror 0ut no' the offeree doesn&t "no' 'here he stands$
iii$ Cilence as Acceptance
Restatement 6>B: Acceptance 0y Cilence or 8!ercise of 4ominion (() ,here offeree fails to
reply to offer) his silence and inaction operate as acceptance in the follo'ing cases only:
(a) ,here offeree ta"es 0enefit of offered ser#ices '1 reas$ opportunity to re?ect
and reason to "no' they 'ere offered 'ith the e!pectation of compensation$
:
(0) ,here offeror gi#es offeree reason to understand that assent may 0e manifested
0y silence or inaction) and offeree in remaining silent intends to accept
(c) ,here pre#ious dealings mean offeree should notify offeror if no acceptance
Day !. *aton = (P 0uilds 'all) 4 ta"es the *enefit) = <f party #oluntarily accepts #alua0le
ser#ices rendered for his 0enefit) 'hen he has an option to re?ect them) e#en if there is no
proof they 'ere rendered 0y his authority or request) a promise to pay may 0e inferred$
Hobbs !. &assasoit Whip *o. = K03B1CBcC ? detriment = 'hen P and 4 ha#e ha0itual
relationship as 0uyer and seller) and P deli#ers goods to 4 'ith e!pectation he 'ill 0e paid)
relationship means silence implies acceptance$ -lso, + suffered detriment in i!in up oods
&orone = (li#e3in house"eeping ser#ices presumed gratuitous) = silence 'ill not count as
acceptance requiring payment if neither party e!pected it to) 0ut e!press % may 0e enforced
i#$ .he MBattle of the /ormsN
,here parties sending forms 0ac" and forth '1 different terms and 'arranties on each$
o .rad$ last shot r%le: 8ach ne' form is a counteroffer; therefore) last form controls
Aast shot rule applied in )daho +ower *o. !. Westinhouse Electric *orp
o B%t in modern 'orld) '1 0ig companies) each 'ith their o'n forms) this rule seems
ar0itrary$ Co :CC K2F24; enacts something closer to a first shot r%le) 'hich says
that the reply 'ith ne' stipulations is not a counteroffer 0ut is actually an
acceptance
4eal as originally outlined is confirmed; additional terms only ne' proposals
%etween merchants such additional terms 'ill 0e held part of the %
(not simply proposals)) unless they materially alter % or are re?ected
<f parties ha#e 0een acting li"e there&s a %) there&s a %; 'here terms on the
respecti#e forms coincide) they apply; 'here they conflict) they do not apply
B- Lritten Contracts and the arol E'idence R%le
Restatement R%les of #nter!retation
6*0( = Whose meaninC (*) Where different meanings given, go with one of them at time of K if one
knew or had reason to know of the meaning attached by the other, and the other did not
(3) Neither party is bound by the interpretation of other, even if this means no mutual assent
202 Interpretive aids
(1) All circumstances taken into account; if principle purpose ascertainable, given much weight
(2) Interpret as a whole; all writings interpreted together
(3) (a) Gse generally-prevailing meaning, or (b) technical meanings where appropriate
(K) 9ourse of performance gi#en much 'eight
(E) ;anifestations interpreted as consistent 'ith each other
6*02 = ,rder of canons of interpretation
(a) ;eaning that is la'ful) reasona0le) effecti#e
(0) 8!press terms P course of performance P course of dealing P trade usage
(c) Cpecific P general
(d) Ceparately negotiated or added terms P standardiFed terms
6*0K: 9ourt supplies reasona0le terms for omitted ones that are essential
1- #NTRO9:CT#ON
"tatute of 2rauds = (%st !%t into Gritin/ 7s for: (() <nterests in land) (*) Iuarantees) (2) Cale of
goods (:CC K2F241 o#er DE00)) (K) %s not to 0e performed '1in one year) (E) Promises to ans'er
for the de0t of another) (E) %s for the sale of land
B
G$9$9$ 6 *3*0(: /ormal Req&ments1Ctatute of /rauds = (2) % for sale o#er DE00 not 'ritten H% if:
(a) <f goods are specially manufactured for 0uyer and not suita0le for sale to others in
ordinary course of seller&s 0iF) and the seller) 0efore notice of repudiation is recei#ed
and under circumstances 'hich indicate that goods are for the 0uyer) has made
either su0stantial 0eginning of manufacture or commitments for procurement; or
(0) <f party against 'hom enforcement is sought admits in pleading) testimony) or in
court that % 'as made) 0ut % not enforcea0le 0eyond quantity of goods admitted; or
(c) ,1 respect to goods accepted of for 'hich payment has 0een accepted (see 6 *3>0>)
2- #NTE@RAT#ON AN9 A99#T#ONAL OR #NCONS#STENT TER(S
Restatement 6*0B: <ntegrated Agreements
(() <ntegrated agreement is 'riting constituting final e!pression of terms of agreement
(*) ,hether there is an integrated agreement is determined 0y the court as preliminary
to determination of interpretation or to application of the parol e#idence rule$
(2) ,here the parties reduce agreement to 'riting 'hich 0y its completeness and
specificity reasona0ly appears to 0e complete) it is ta"en to 0e integrated unless it is
established by other e!idence that the writin did not constitute a final expression.
Restatement 6*(2: 8ffect of <ntegrated Agreement on Prior Agreements (Parol 8#idence Rule): A
0inding integrated agreement discharges prior agreements 'here it is inconsistent 'ith them$
Restatement 6*(K: 8#idence of Prior or 9ontemporaneous Agreements
(() Agreements prior to or contemporaneous 'ith 'riting are admissi0le to esta0lish:
(0) .hat an integrated agreement) if any) is completely or partially integrated
(c) .he meaning of the 'riting) 'hether or not it is integrated
(d) <llegality) fraud) duress) mista"e) lac" of consid$) or other in#alidating cause
(e) Iround for granting or denying rescission) reformation) spec$ performance) etc$
Restatement 6*(>: 9onsistent Additional .erms = also see 3** =5$5B5
(() 8#idence of a consistent add&l term is admissi0le unless % is completely integrated
(*) Agreement not completely integrated if 'riting omits consistent add&l agreed term:
(a) Agreed to for separate consideration) or
(0) Cuch a term as in the circumstances might naturally 0e omitted from 'riting$
arol E'idence= e#idence of additional agreements around the formation of a 'ritten %
o Ste! 1= ,hen loo"ing to include e#idence outside the 'ritten %) courts 'ill first determine
'hether % is integrated (complete)$ How to determine whether K is integrated:
/01 + corners r%le = no e!trinsic e#idence (gut chec") feels complete) (@and rule)) HR
/51 Ta5e into acco%nt circ%mstantial or conte8t%al e'idence that mi/ht ,%stify Ghy
this term Gas not incl%ded in the main Gritten a/reement = e!: families might
not feel compelled to 'rite e#erything do'n (.raynor rule)
o Ste! 2= <f contract is not fully integrated) parol e#idence of agreement admissi0le 'hen:
(a) .he agreement does not contradict the pro#isions of the 'ritten %
(0) .he agreement is such that 'ould not ordinarily 0e e!pected to 0e included
&itchell !. Lath = 'ritten % for land) 4 orally promised to remo#e icehouse) P sues 4 to remo#e
o @ere) three conditions 0efore parol e#idence 'ill 0e admitted:
/01 Hral agreement must 0e collateral (not under um0rella of the integrated 'ritten %)
Ceparate consideration is sufficient to sho' this 0ut may not 0e necessary
/51 ;ust not contradict pro#isions of 'ritten %
/71 ;ust 0e one parties 'ould not ordinarily e!pect to 0e em0odied in the 'riting
9ourt held 2
rd
condition not met 0c 'ould not ha#e 0een in a sep$ agreement
(0
4issent thought it 'as natural for it not to 0e in the % 0c icehouse 'as on a
different piece of property$ .hey also say it 'as collateral 0c there 'as
separate consideration = remo#e icehouse and 'e 'ill sit do'n to negotiate
Hatley !. "tafford 9 applies *3part trad$ parol e#idence rule 0ut conceptualiFes the second prong as
a test of MnaturalnessN = 'ould the parties naturally ha#e made this a separate agreement-
o <n determining 'hat is natural court as"s 'hether % is e!tremely one sided$ <f so) they
consider this e#idence that the % 'as not fully integrated$ (equity)
Hayden !. Hoadley = Parol e#idence can&t 0e used to fi! time of performance 'hen not specified
in 'ritten %) 0c time of !erformance is somethin/ yo% e8!ect to *e incl%ded in the Gritten 7
)- A(B#@:#TA
Restatement 6*(*: <nterpretation of ,ritten Agreements: (*) A + of interpretation of an integrated
agreement is determined 0y the trier of fact if it depends on the credi0ility of e!trinsic e#idence or
on a choice among reasona0le inferences to 0e dra'n$ Hther'ise interp$ is determined as + of la'$
As": What would the parties ha!e reasonably areed to if they had considered this continencyC
%ethlehem "teel 9 e!trinsic e#$ as to meaning not permitted unless te!t '1in K corners is am0ig$
o ,here parties are repeat players 'ho 'ould understand a standard clause) no am0iguity$
o @o'e#er) if one party is unsophisticated and not a repeat player) out of considerations of
fairness) the court might hold that it is am0iguous$
;obert )ndus. !. "pence = e#idence of circumstances surrounding formation of % is rele#ant to a
determination of am0iguity (unclear 'hether you loo" at circum$ before decidin that K is ambi$)
+acific #as D Electric *o. !. #.E. .omas Drayae D ;iin *o. 9 loo" 0eyond % itself to the
conte!t in 'hich % 'as made to determine 'hether it&s am0iguous in the first place /.raynor rule1
*ofman !. -cton *orp. 9 + as to 'hether omission in % 'as intentional or accidental$ H0?ecti#e
analysis of 'ritten % holds that omission is accidental *c 7 as Gritten is contrary to *i6 sense of
any reasona*le !arty- 9ourt as"s 'hat parties 'ould ha#e put in if they had thought of this$
%i East !. %* = formalist interpretation of % holds amendment not enforcea0le) 0ut perhaps court
is really refusing to enforce a penalty clause that attempted to ma"e B9&s 0reach inefficient
2rialiment )mportin *o. 9 ('hat is chic"en-) = ,hen there is an am0iguity and 4&s su0?ecti#e
intent agrees 'ith at least one rele#ant definition) it&s accepta0le$
o Rule on trade %sa/e: 'hen one party is not a mem0er of the trade standard usage may 0e
accepted if he either (() had actual "no'ledge of the usage or (*) the usage is so generally
"no'n in the community that his actual "no'ledge may 0e inferred
Posner: ,e should ha#e a presumption that construes am0ig$ terms in a 'ay that ma"es commerc$
sense instead of 'asteful fact3finding$ Gtility #ie') 'ants to help ppl allocate resources efficiently
o Rule: MAn interp$ 'hich sacrifices a ma?or interest of one of the parties 'hile furthering
only a marginal interest of the other should 0e re?ected in fa#or of an interpretation 'hich
sacrifices marginal interest of 0oth parties in order to protect their ma?or concerns$N
C- (ista5e
1- (:T:AL AN9 :N#LATERAL (#STA7E
(%t%al mista5e = 'hen 0oth parties are 'rong a0out a material element of % 0eing 0argained for
o % in#alid if mutual mista"e as to 'hat the su0stance or material element of the 0argain 'as
/01 "herwood !. Walker) 4issent says this 'as a unilateral mista"e 0y the person in the
0est position to "no' the info) so % should 0e upheld$
/51 "mith !. Eimbalist = #iolin case of mista"en #alue$ ;utual mista"e = no %$
/71 &c;ae = no % 0c mutual mista"e) 0ut court gi#es reliance damages
((
:nilateral mista5e = 'hen one party is 'rong and one party isn&t
o <f 0uyer ma"es unilateral mista"es 0c seller 'ithholds info) court 'ill not enforce %$ But if
seller ma"es unilateral mista"e 0c 0uyer 'ithholds info) court 'ill enforce %$
/01 ,ant to ma!imiFe information in mar"et for efficiency (see duty to disclose)
o 9lerical errors that cause unilateral mista"e 'ill not 0e enforced 0c they are difficult to
pre#ent and so no social interest is ser#ed 0y enforcing them (Elsinore 3nion Elementary)
o Purchaser is 0ound 0y patent defects or defects that a reasona0le in#estigation 0y purchaser
'ould normally disclose; court 'ill consider a0ilities of purchaser (Hinson !. :efferson)
9- Assent to Standardi6ed Forms
Contract of Adhesion/standardi6ed form = lac" of opportunity for discussing and negotiating %
<ntroductory note: .he sophisticated 0uyer pro#ides protection for those that are entirely ignorant$
Boilerplate terms must not alter or impair fair meaning of dic"ered terms and cannot 0e unreas$
G99 6*32(K: <mplied ,arranty: ;erchanta0ility; Gsage of .rade
(() A 'arranty that goods shall 0e merchanta0le is implied in a % for their sale if the
seller is a merchant 'ith respect to goods of that "ind$ (includes restaurants)
(*) Ioods to 0e merchanta0le must 0e at least such as (c) are fit for the ordinary
purposes for 'hich such goods are used; and (f) conform to promise or affirmations
G$9$9$ 6*32(E: <mplied ,arranty: /itness for Particular Purpose
o ,here seller at time of contracting has reason to "no' any particular purpose for 'hich
goods are required and that 0uyer is relying on the sellerOs s"ill or ?udgment to select or
furnish suita0le goods) there is an implied 'arranty that goods shall 0e fit for such purpose
G$9$9$ 6*32(>: 8!clusion or ;odification of ,arranties: (*) e!clusion or modification of implied
'arrant of merchanta0ility or 'arranty of fitness must 0e in 'riting and conspicuous
o (2)(d) All implied 'arranties 'ai#ed 0y phrases such as Qas isQ) Q'ith all faults)Q etc$
o (2)(e) Also 'ai#ed '1 regard to defects 'hich an e!amination out to re#eal 'here 0uyer
0efore entering into % e!amined goods as fully as desired or refused to e!amine goods
Restatement 6 *((: CtandardiFed Agreements
(() Except as stated in "ubsection /71) 'here a party to an agreement has reason to
0elie#e that li"e 'ritings are regularly used to em0ody terms of agreements of the
same type) he adopts the 'riting as an integrated agreement '1 respect to its terms$
(*) Cuch 'riting is interpreted 'here#er reas$ as treating ali"e those similarly situated)
'1o regard to their "no'ledge or understanding of the standard terms of the 'riting$
B)C Lhere the other !arty has reason to *elie'e that the !arty manifestin/ s%ch
assent Go%ld not do so if he 5neG that the Gritin/ contained a !artic%lar termI
the term is not !art of the a/reement-
/ried thin"s this part is doing all the 'or"$ @e also does not see 'hy this
'ould only hold for standardiFed agreements$
&undy !. Lumberman(s 9 laG /enerally im!lies a d%ty to read 7
;ichards !. ;ichards = (form 'ai#er for 'ife to ride '1 hu00ie) = % #oid for three reasons:
(() % 'as for t'o purposes and title didn&t indicate that
(*) ,ai#er 'as 0road and all3inclusi#e = so all3inclusi#e that it protected the company
from all liability for harm caused to that person e!er in the world
Cee 6*(((2) = reas$ person 'ould not assent to such 0road release of lia0ility
(*
(2) % is a standardiFed agreement '1o opportunity for 0argain
o Policy: e!culpatory %s disfa#ored 0c they allo' conduct of care 0elo' accepta0le standard
%roemer !. -bortion "er!ices of +hoenix = standardiFed form at a0ortion clinic not enforced 0c (()
no effort to e!plain details to the patient; (*) P 'as in state of great emotional stress so there can
0e no real meeting of the minds; (2) in medical circumstances pro#ider has a sort of monopoly
o 9ounterargument = it&s the legislature&s ?o0 to 'rite1regulate these forms
o Lhen decidin/ on 7 of adhesionI consider reas- e8!ectations and %nconsciona*ility
&istake is an inappropriate way to dismiss a K of adhesion) 0c in the case of a unilateral mista"e
% is only #oida0le if the other party knew that a mista"e 'as 0eing made and also 0c a mista"e
completely #oids % and sometimes 'ith %s of adhesion you only 'ant to se#er terms (see &undy)
"il!erstein !. "t. +aul = Lhen standard 7 is %nFinte/ratedI co%rts consider c%stomsI !racticesI
and %sa/es Ghen determinin/ Ghether there is am*i/%ity- Rou shouldn&t 0e 0ound 0y standard
% you ha#en&t assented to$ @ere) lead insurer&s form hadn&t arri#ed 0efore B1(($ @a#e to go 'ith
form they had) e#en though custom and usage 'ould say go 'ith lead insurer&s form$
art ###= Remedies for Breach of Contract
A- 9ama/es
1- TDE BAS#C (EAS:RE= E<ECTAT#ON 9A(A@ES
Restatement K)+;= (eas%re of 9ama/es in @eneral
o Cu0?ect to the limitations stated in 66 2E03E2) the in,%red !arty has a ri/ht to dama/es
*ased on his e8!ectation interest as measured 0y
(a) Aoss in #alue to him of the other partyOs performance caused 0y failure or defic$ +
(0) Any other loss) including incidental or consequential loss) caused 0y 0reach) less
(c) Any cost or other loss that he has a#oided 0y not ha#ing to perform$
G$9$9$ 6 *37((: BuyerOs Remedies in Ieneral; BuyerOs Cecurity <nterest in Re?ected Ioods:
,here seller 0reaches or 0uyer rightfully re?ects deli#ery) 0uyer may reco#er 'hat he&s already
paid) he can co#er) or he can reco#er e!pectation damages$
o Buyer has security interest in imperfectly tendered goods
G$9$9$ 6*37(*: M9o#erN; Buyer&s Procurement of Cu0stitute Ioods: if seller 0reaches % and 0uyer
gets commodity at m"t price higher than % price) 0uyer can reco#er difference from the seller
G$9$9$ 6*37(2: Buyer&s 4amages for 5on34eli#ery or Repudiation: 0uyer entitled to e!pectation
damages 'here seller 0reaches = diff 0tn m"t #alue of goods at time of % and time of 0reach$ (<f
price of goods goes do'n 0t' time of contract and time of seller 0reach) 0uyer reco#ers nothing$)
G$9$9 6*370>: Celler&s Resale (MCeller&s 9o#erN): seller can resell the goods that 0uyer 0reached
on and reco#er the difference in price
Classic r%le of e8!ectation dama/es= Falue measure. plaintiff is entitled to difference in #alue
0et'een the % as promised and the % as performed$ 8!$ Hawkins !. &c#ee (hairy hand case)
/01 Pain and suffering not included in e!pectation damages
/51 9annot 0e a'arded cost of an add&l operation to get hand to 'here it 'as promised
#ro!es = Cost of com!letion measure of damages$ 4 leased land) agreed to le#el after remo#ing
gra#el$ 8fficiently 0reached 0c it 'ould ha#e cost more to le#el the land than to pay e!pectation
damages (loss in #alue of land)$ 9ourt gi#es P cost of completion$ 2ried thinks bad law 0c purely
economic in#estment for P$ Aand to him only meant its #alue so loss in #alue appropriate$
(2
+ee!yhouse = Jalue measure) 'here facts similar to Iro#es$ @ere) cost of smoothing mines 'ould
ha#e 0een more than #alue Ps 'ould ha#e gained 0y the this action$ 9ourt applies #alue rule) gi#es
negligi0le damages; no !erson can reco'er a /reater amo%nt in dama/es than he Go%ld ha'e
/ained *y f%ll !erformance on *oth sides- Policy: economic 'aste1efficiency argument$
o /ried disagrees: .his should 0e an ugly fountain case) 0c personal attachment to land$
/01 :/ly Fo%ntain R%le= Restatement 62K:(*)(0)
o Gnder court&s rule) no term in a % that 'on&t impro#e #alue can 0e enforcea0le
/01 Policy: rule restricts freedom to % such that party 'ho sees #alue 'here courts do
not cannot % to ha#e ?o0 done; restricts inno#ation and may reduce efficiency
-cme &ills D Ele!ator *o. !. :ohnson = % for 'heat at D($02 per 0ushel$ Celler fails to deli#er on
time and 0reaches 0y selling the 'heat else'here for D($(>$ Buyer 'ants to sue for profit seller
made 0y 0reaching) under the theory that that 'as his 'heat so the profit 0elongs to him$ 9t holds
that 0c it 'as a futures contract) you 'ere only entitled to #alue of 'heat on day you 'ould ha#e
recei#ed it) and 0y then the price had gone 'ay do'n) so 0uyer sa#ed money 0y seller&s 0reach$
o @eld: 5o reco#ery 0c P suffered no financial harm$ @e 'as no 'orse off as a result$ <n
fact) he 'as pro0a0ly 0etter off 0ecause he could 0uy for B7S$
Laurin !. De*arolis = 'hen 0uyer reasona0ly assumes that the stuff 'ould stay on the property
con#eyed) 0ut seller ta"es it off 0efore tendering the property) damages are measured 0y the fair
market !alue of the oods remo!ed not the diminution of !alue of the premises
Louise *aroline Gursin Home !. Dix *onstruction = 5o 'indfall 0c you&re a #ictim of 0reach$
Chould only reco#er reasona0le cost of completing % less remaining payments sa#ed$
o 5o harm 0ecause cost of completion is less than remaining payments
o ,hen plaintiff 0enefits from 0reach or is left in same position 0y 0reach) no damages
:acob D Houn !. Kent = (Redding pipe) = 5o e!pectation damages 0c no functional difference
o 5o Mugly fountainN 0c 9ardoFo thin"s that 4 is ?ust e!ploiting the situation$ 9ost to replace
pipe e!tremely disproportionate to any possi0le 0enefit$ Also) error negligent) not 'illful$
/01 9ontrast to Iro#es) 'here 0reach 'as 'illful and court ga#e cost of completion$
o 9octrine of s%*stantial !erformance = 'here one party has su0stantially performed (i$e$
not materially 0reached) the other party is not relie#ed of his duties = 4 must pay on %
2- RAT#ONALES FOR TDE E<ECTAT#ON (EAS:RE BAN9 TDE#R L#(#TAT#ONSC
Restatement 62K:: Alternati#es to Aoss in Jalue of Performance
(*) <f a 0reach results in defecti#e or unfinished construction and the loss in #alue to the in?ured
party is not pro#ed 'ith sufficient certainty) he may reco#er damages 0ased on: (a) the
diminution in the mar"et price of the property caused 0y the 0reach (!alue); (0) the reas$ cost
of completing performance if that cost is not clearly disproportionate (cost of completion)
(2) <f a 0reach is of a promise conditioned on a fortuitous e#ent and it is uncertain 'hether the
e#ent 'ould ha#e occurred had there 0een no 0reach) the in?ured party may reco#er damages
0ased on the #alue of the conditional right at the time of 0reach$
#oodman !. Dicker 9 Reliance dama/es granted) 0c e#en if there had 0een % for a franchise)
there 'ould ha#e 0een no e!pectation damages) 0c franchise 'as to 0e cancela0le at 'ill$
o Lhere im!ossi*le to 5noG e8!ectation dama/es the co%rt Gill /rant reliance dama/es
(K
o Gnless there is un?ust enrichment of the promisor) damages should not put the promisee in
a 0etter position than enforcing the % 'ould ha#e put him
D(3lisse$*upo 9 Cchool0oard did not rehire teacher despite representations other'ise$ % claim
against school fails 0c no offer or promise$ @o'e#er) court finds nelient misrepresentation.
Promissory Estoppel Damages
o <f possi0le) court 'ill remedy situation 0y restoring status quo through reliance damages)
0ut under 6B0 court has discretion to enforce as promise if promisee incurred a detriment
o 9ourts torn o#er 'hether to allo' e!pectancy damages in promissory estoppel cases
,illiston says if reliance damages alone 'on&t restore ?ustice) then the court can use
its discretion to a'ard e!pectation damages in a promissory estoppel case$
"harp, +romissory Liability $ Reliance is often difficult to pro#e and measure$ Applying
e!pectancy damages may 0e the surest and 0est 'ay to protect parties from reliance damages$
+osner= ad#ocate of efficient 0reach
o Efficient *reach= <f party 'ould ma"e more money from 0reach than from performance)
and if e!pected profits of 0reacher e!ceed e!pected loss of 0reachee) 0reach should occur
o <f 0reach prohi0ited) inefficient) 0c no' an e!tra transaction 0tn ne' 0uyer and orig$ 0uyer
2riedmann = opposed to efficient 0reach = transaction costs do not decrease from efficient 0reach
0c Posner falsely assumes that 0reached party 'ill not ma"e a fight o#er the amount of damages
*raswell 9 ad#ocate of efficient 0reach
o H#er3compensatory remedies do not Mgi#eN 0uyers any 0enefit$ Rather they sell the right to
this 0enefit 0c seller 'ill increase price of products to reflect ina0ility to efficiently 0reach
o ;ost efficient = lo' price for 0uyer) high gain for seller; efficient 0reach leads to this
)- L#(#TAT#ONS ON RECO1ERA OF E<ECTAT#ON 9A(A@ES
i$ A#oida0le 4amages
Restatement 62E0: A#oida0ility as a Aimitation on 4amages: 4amages are not a#aila0le for
loss that in?ured party could ha#e a#oided '1o undue ris") 0urden or humiliation
Luten %ride = no reco#ery for continued damages incurred after you learn of 0reach
o 4amages a'arded for la0or) materials and e!penses up to the time % 'as 0reached
plus profit that 'ould ha#e 0een realiFed
+arker !. .wentieth *entury$2ox 2ilm *orp $ general rule: measure of reco#ery for a
'rongfully discharged employee is amount of salary agreed on less amt 'hich employer
pro#es employee has earned or '1 reas$ effort might ha#e earned from other employment
o 4oesn&t apply to inferior or different employment; consolation mo#ie offered to
Chirley ;c9laine for same salary too different to satisfy mitigation requirement
o 4issent: 'hether replacement employment is suita0le should 0e a + for the ?ury
%illetter !. +osell = Boss can&t 0reach employment % and offer lo'er 'age e!pecting that
employee 'ill ha#e to ta"e it under duty to mitigate damages$ 5o duty to mitigate damages
0y ta"ing lo'er paid inferior ?o0$ 8mployee can sue for full damages$
ii$ 9onsequential 4amages
G$9$9$ 6*37(0: Celler&s <ncidental 4amages = <ncidental damages to an aggrie#ed seller
include any commercially reasona0le charges) e!penses) or commissions incurred in
stopping deli#ery) in the transportation) care and custody of goods after the 0uyer&s 0reach)
in connection 'ith return or resale of the goods or other'ise resulting from the 0reach$
(E
G$9$9$ 6*37(E: Buyer&s <ncidental and 9onsequential 4amages
(() <ncidental damages resulting from sellerOs 0reach include e!penses reas$ incurred in
inspection) receipt) trans$ and care and custody of goods rightfully re?ected) any
commercially reas$ charges) e!penses or commissions in connection 'ith effecting
co#er and any other reasona0le e!pense incident to the delay or other 0reach$
(*) 9onsequential damages resulting from the sellerOs 0reach include (a) any
loss resulting from general or particular requirements and needs of which
the seller at the time of contractin had reason to know and which could
not reasonably be pre!ented by co!er or otherwise; and (0) in?ury to person
or property pro!imately resulting from any 0reach of 'arrant
Restatement 62E(: Gnforeseea0ility and Related Aimitations on 4amages
/01 4amages not reco#era0le for loss that party in 0reach did not ha#e reason to foresee
/51 Aoss may 0e foreseea0le 0c it follo's from the 0reach in the follo'ing situations:
(a) <n the ordinary course of e#ents) or
(0) As the result of special circumstances that party in 0reach had reason to "no'
/71 A court may limit damages 'here ?ustice requires to a#oid disproportionate comp$
Restatement 62E2: Aoss 4ue to 8motional 4istur0ance = reco#ery for emotional distur0ance
'ill 0e e!cluded unless 0reach also caused 0odily harm or if it 'as a particularly li"ely result
o % damages #$ tort damages: this e!tends % damages in the direction of tort 0c 'e&re
gi#ing damages 'hen the damage 'as foreseea0le e#en if it 'asn&t in the contract
Haley !. %axendale = to reco#er consequential damages must 0e damages that 'ould 0e
foreseen in normal course or that the 0reacher had reason to "no' a0out (notice)
Heron case = for commodities carrier cases) shipping company pays damages equal to the
difference 0tn price of goods at deli#ery and price 'hen they should ha#e 0een deli#ered
o ,hen lost profits should 0e foreseen 0c it&s part of the nature of your 0usiness) if that
lost profit occurs as a consequence of your 0reach) you ha#e to pay the difference
Tustification: 0c these consequential damages are a usual ris" of the 0usiness)
they&#e 0een ta"en into account in the pricing in the 0usiness model
Lamkins !, )nternational Har!ester *o. = .acit agreement test = permits consequential
damages only if seller specifically contemplated (circumstances such as to ma"e it reas$ for
fact finder to 0elie#e that one party tacitly consented to 0e 0ound for more than ordinary
damages in a case of default on his part) or actually assumed the ris" of such damages
o 4ifference 0tn ca0 co$ and /ed8! hypos = /ed8! charges premium for higher ris"
iii$ Gncertain 4amages
Restatement 62E*: Gncertainty as a Aimitation on 4amages = 4amages are not reco#era0le
for loss 0eyond an amount that the e#idence permits to 0e esta0lished 'ith reas$ certainty$
o 8!: 2reund !. Washinton "Iuare +ress, )nc. = difficult or impossi0le to calculate
royalties) if any) '1 precision$ .herefore no e!pectation damages$
2era !. Fillae +i44a = outlier = ne' 0iF suing for lost profits got e!pectation damages$
M,here in?ury to some degree is found) 'e do not preclude reco#$ for lac" of precise proofN
+- ALTERNAT#1E #NTERESTS= REL#ANCE AN9 REST#T:T#ON
i$ Reliance 4amages in Aieu of 8!pectation 4amages
(>
Restatement 62KB: 4amages Based on Reliance <nterest = -s an alternati!e to the measure
of damages stated in 62K7) in?ured party has a right to damages 0ased on reliance interest)
including e!penditures made in prep$ for perf$ or in perf$) less any loss that the party in
0reach can pro#e in?ured party 'ould ha#e suffered had % 0een performed$
"ecurity "to!e. = 'hen e!pectation damages cannot 0e calculated due to uncertainty) reliance
damages may 0e a'arded$ .his is 'hen there <C a %) so diff from 6B0 promissory estoppel$
L. -lbert D "on !. -rmstron ;ubber *o. =
o P may reco#er damages for outlay and prep$ for perf$ (reliance) su0?ect to pri#ilege of
4 to reduce a'ard 0y as much as he can sho' P 'ould ha#e lost if % 'as performed
Burden of proof shifts to 0reaching party to sho' that the 0usiness 'ould
ha#e 0een a failure and the reliance 'ould ha#e 0een in 'aste
.o a'ard damages for collapse of 0usiness 'ould ma"e seller insurer of the
ru00er 0iF; suppliers of equip$ are not insurers of the 0iF to 'hich they sell
ii$ Restitution as a Remedy for Breach of 9ontract
Restatement 6272: Restitution ,hen Hther Party is <n Breach
(() Cu0?ect to the rule in su0section (*)) on a 0reach 0y nonperformance) in?ured party
is entitled to restitution for any 0enefit that he has conferred on the other party
(*) <n?ured party has no right to restitution if he has performed all of his duties under %
and no performance 0y the other party remains other than payment of definite sum
G$9$9$ 6 *37(:: Aiquidation of Aimitation of 4amages; 4eposits
(*) <f seller ?ustifia0ly 'ithholds deli#ery of goods or stops performance 0c of
the 0uyerOs 0reach or insol#ency) 0uyer is entitled to restitution of any
amount 0y 'hich the sum of 0uyerOs payments e!ceeds the amount to 'hich
the seller is entitled 0y #irtue of terms liquidating the sellerOs damages
Restit%tion dama/es are for 'hen the other party has gi#en a 0enefit that can&t 0e returned$
,hen someone 0reaches %) #ictim of the 0reach can either sue on % or can disaffirm % and
operate under legal fiction that % ne#er e!isted and they are entitled to #alue of the 0enefit
conferred to the 0reaching party$ P 'ould only sue for restitution damages if she could not
reco#er e!pectation or reliance damages 0c she can&t pro#e them) or 0c she has a negati#e
e!pectation = she 'ould ha#e lost money on % (see -lernon %lair)$ @ere) 0reach 0enefits P
o E%ant%m (er%it = fair #alue of 'or" performed (a type of restitution)
-lernon %lair = 'hen % has 0een 0reached) #ictim of the 0reach may sue under quantum
meruit rather than e!pectation damages if it&s to their ad#antage
o 8!: 0uilder 'as to 0e paid (00 under %) had already 0een paid :0) 0ut fair mar"et
#alue of 'or" already performed 'as actually (20$ Gnder e!pectation they can
recei#e *0 ((003:0) 0ut under restitution they can get E0 ((203:0)$
,li!er !. *ampbell = 'hen you&#e su0stantially performed) you are entitled to % price) not
quantum meruit$ Cee Restatement 6272(*)$
%ritton !. .urner = 'here breachin party sues for restitution) he may recei#e fair #alue for
'or" performed up to the time of 0reach) capped at the pro rata % price$
o Policy: <f you ma"e losing %) can&t 0e 0etter off 0y 0reaching) then suing for restit$
Fines !. ,rchard Hill, )nc. = court ordered that that (0U do'n payment not 0eing returned
0y seller upon 0uyer&s 0reach 'as o" 0c it 'as liquidated damages and not a penalty) 0c it
appro!imated the harm that seller suffered = the forfeit%re r%le
o (0U do'n payment creates a re0utta0le presumption of proportionality of damages
(7
Kehoe = opposite of -lernon; 0reachee&s damages limited to %$ Anomaly$
.- CONTRACT:AL RO1#S#ONS SETT#N@ 9A(A@ES
G$9$9$ 6*37(:: Aiquidation or Aimitation of 4amages; 4eposits
(() 4amages for 0reach 0y either party may 0e liquidated in the agreement 0ut
only at an amount 'hich is reasona0le in the light of the anticipated or
actual harm caused 0y the 0reach) the difficulties of proof of loss) etc$
Restatement 62E>: Aiquidated 4amages and Penalties
/01 4amages for 0reach 0y either party may 0e liquidated in the agreement 0ut only at
an amount that is reasona0le in the light of the anticipated or actual loss caused 0y
the 0reach and the difficulties of proof or loss$ A term fi!ing unreasona0ly large
liquidated damages is unenforcea0le on grounds of pu0lic policy as a penalty.
*ity of ;ye = city see"s to reco#er entire (00% 0ond 0c de#elopers didn&t complete 0uilding
on time$ <s 0ond in#alid as penalty or #alid as liquidated damages-
Aiquidated damages must 0e a reasona0le estimate of anticipated pro0a0le harm
Lake ;i!er *orporation !. *arborundum *o. =
Posner&s philosophy: <t is paternalistic to refuse to enforce penalties 0et'een
t'o corporations) 0ut he has to decide the case according to state la'$
Rule of case: there has to 0e some proportion 0t' liquidated damages and the
actual e!pected loss$ <n this case) no relation 0et'een liquidated damages and
e!pected loss) 0ecause () disproportionate and *) ta"es no account of e!penses
a#oided 0y P) clause is considered penalty clause and nullified
&uldoon !. Lynch = 'ido' %s for monument; deli#ery of mar0le late$ 9lause in % struc"
do'n as penalty 0c liquidated damages disproportionate to actual harm plaintiff suffered
But ho' to calculate #alue to elderly 'ido' of seeing monument completed-
Wilt !. Waterfield = penalty clause setting liquidated damages at (0U of purchase price
deemed #oid for infle!i0ility) 0c no matter 'hat type of 0reach) damages are the same$ /or a
liquidated damages to 0e enforcea0le) damages must 0e in proportion to harm$
B- S!ecific erformance
G$9$9$ 6 *37(>: Buyer&s Right to Cpecific Performance or Reple#in
(() Cpecific perf$ may 0e decreed if goods are unique or in other proper circumstances$
Restatement 62>0: /actors Affecting Adequacy of 4amages = <n determining 'hether the remedy in
damages 'ould 0e adequate) the follo'ing circumstances are significant:
a$ .he difficulty of pro#ing damages 'ith reasona0le certainty)
0$ .he difficulty of procuring suita0le su0stitute perf$ 0y means of D a'arded as damages
c$ .he li"elihood that an a'ard of damages could not 0e collected
Common laG !reference is for dama/esI not s!ecific !erformance
Arguments against specific performance=
Posner = Cpecific performance deters efficient 0reach$ Damages involve fewer
transaction costs and less oversight by the courts.
(:
/ried = ,hat 'as it that you promised- .his #ery thing) or the #alue of this thing- <f the
real 0argain 'as for the #alue) then e!pectancy damages are sufficient$ ;ost %s 'hich are
0iF dealings are transfers of ris"1economic #alue) so e!pectation damages should 0e suff$
Arguments for specific performance=
Cch'artF = 5o reason to 0elie#e 0uyer can co#er more efficiently than the seller$ Co 'hy
not specific performance- (Posner 'ould counter that this increases transaction costs$)
#n case of noncommodity/%ni$%e /oodI e'eryone a/rees s!ecific !erformance sho%ld *e defa%lt
So the $%estion is Ghether the /ood is or is not %ni$%e
<n the case of real estate) specific performance is the default rule
9ost of completion (as opposed to #alue measure) resem0les specific performance
Fan Waner -d!ertisin *orp. !. "D& Enterprises = ,hen you can calculate the financial loss
resulting from 0reach) courts are more li"ely to go 'ith e!pectation damages$ Tudge 'ants to a'ard
e!pectation damages for 0reach of lease for 0ill0oard space instead of specific performance$
o 8#ades real estate default rule for specific performance 0y saying this is a lease) not a sale
o Iets around the uniqueness point 0y saying this space may be physically uniIue but it is
not economically uniIue; it may 0e effecti#ely e#aluated in money
But then it pro#es difficult to #aluate) so 'ould spec$ perf$ ha#e 0een easier-
*urtice %rothers !. *atts = specific performance of % to sell tomatoes enforced 0c no other tomatoes
of that quality could 0e acquired '1in right timeframe (unique and irreplacea0le)
art #1= olicin/ the Bar/ain
A- 9%ress
Restatement 6(7K: ,hen 4uress 0y Physical 9ompulsion Pre#ents /ormation of a 9ontract =
9onduct physically compelled 0y duress is not effecti#e as a manifestation of assent$
Restatement 6(7E: ,hen 4uress 0y .hreat ;a"es A 9ontract Joida0le
(() <f assent is induced 0y an improper threat lea#ing no reas$ alternati#e) % is #oida0le 0y #ictim
(*) <f assent is induced 0y duress 0y 2
rd
party) % is #oida0le 0y #ictim unless other party to % in
good faith and '1o reason to "no' of the duress gi#es #alue or relies materially on the %
"ilsbee !. Webber = @olmes says an illegal threat is not necessary for duress) must determine 'hether
the fear of threat 'as a sufficiently po'erful moti#e to naturally o#ercome self interest
-ustin )nstrument !. Loral = % can 0e #oida0le for duress on grounds of economic coercion
o 8conomic duress sho'n 0y proof that possession of needful goods is threatened) i$e$ 'here
one party threatens to 0reach and '1hold goods unless other party agrees to further demand
Hackley !. Headly = 4ispute o#er #alue of % for cut logs$ P is 0ro"e and forced to accept lo'er price)
sues to #oid % for duress$ @olding: no duress 0ecause (() 4 acted in good faith) as e#idenced 0y
genuine interpreti#e dispute) and (*) duress not caused 0y 4) rather 0y e!ternal circumstances of P
5oFic" on 9oercion: A !arty is coerced Ghen the offer he is /i'en is one he Go%ld rather not ha'e
*een /i'en) i$e$ a mugging$ 4istinguish %atsakis) 'here it&s a 0ad deal 0ut a deal she 'anted$
2arnsworth 9 la8 d%ress test (sufficient to o#ercome the mind of a person of ord$ firmness) #$ strict
d%ress test (enough to depri#e person of free choice) destroy #olition or o0tain consent only in form)
o Presumption that threatening 'hat you ha#e legal right to do is not duress (ie) threat to sue)
B- :nconsciona*ility
(B
Restatement 6*0:: Gnconsciona0le % or .erm = <f % or term is unconsciona0le 'hen % is made) court
may refuse to enforce) or may enforce remainder '1o the unconsciona0le term) or may so limit the
application of any unconsciona0le term as to a#oid any unconsciona0le result /3** =5$7B5 same1
*ampbell "oup !. Went4 = 5o specific performance 0c % so one sided as to 0e unconsciona0le$
o /ried thin"s 'rongly decided 0c he thin"s the court should only stri"e the unconsciona0le
term (per G$9$9$ 6*320*)) and here the unconsciona0le term is not in play
Henninsen !. %loomfield &otors = % has 'ai#er of implied 'arranty of merchanta0ility for car$
9ourt says #oid for pu0lic policy$ Celler may not free itself of lia0ility 0y 'ai#er) as 0uyer is in a
much 'ea"er 0argaining position and has little choice 0ut to accept the terms of % as 'ritten$
Williams !. Walker$.homas = e!ploitati#e installment % in poor neigh0orhood$ 9ourt says clause
could 0e unconsciona0le) remands$ ,1in po'er of court to declare unconsciona0le for pu0lic policy
o When party of little barainin power sins commercially unreasonable K with little or no
knowlede of its terms, it is unlikely that his consent was e!er i!en to all its terms
o /ried thin"s this is paternalistic) it regulates the 0uyer&s options; 0c she has no credit) she
might not 0e a0le to get furniture any'here no'; *y ste!!in/ in and sayin/ a choice she
Gants to ma5e is not 'alidI the co%rt is stri!!in/ her of di/nity and a%tonomy
/ried&s distinction 9 in Henninson there 'as monopoly po'er) all the car
companies used the same % of adhesion
Ber"&s counter = effecti#e monopoly po'er in this particular poor community
Lochner = court says la' regulating hours of 0a"ers for their o'n safety) and not allo'ing them to %
to 'or" as many hours as they li"e) is unconstitutional and paternalistic
o Pro3paternalism counterarg: 'e are a social 'elfare state) 'e insist that people 0e safe 0c if
they are in?ured then those costs are e!ternaliFed to society (as 'ell as 2
rd
parties li"e "ids)
Chapiro) 9ourts) Aegislatures) and Paternalism = 9ourts sometimes cloa" su0stanti#e paternalism in
procedural issues (i$e$) not ha#ing seen the o0?ectiona0le terms)$ Reluctant to 0e openly paternalistic
4a'son = G99 6*320* allo's court to in#alidate any % that offends it$ .hrough litigation) he e!pects
and hopes) the scope of this clause 'ill narro' and 0ecome managea0le
C- The 9%ty to 9isclose #nformation
Restatement 6(>((0): 5ondisclosure of a fact is equi#alent to an assertion that the fact does not e!ist
in the follo'ing cases only: (0) 'here party "no's that disclosure 'ould correct a mista"e of the other
party as to a 0asic assumption on 'hich that party is ma"ing the % and if nondisclosure of the fact
amounts to a failure to act in good faith and in accordance '1 reas$ standards of fair dealing$
Restatement 6(E2: ,hen ;ista"e of Hne Party ;a"es % Joida0le = ,here mista"e) made as to a
0asic assumption on 'hich party made %) has material effect on the agreed e!change of performances
ad#erse to him) % is #oida0le 0y him if he does not 0ear ris" of the mista"e under 6(EK) and:
a) .he effect of the mista"e is such that enforcement of % 'ould 0e unconsciona0le) or
0) .he other party had reason to "no' of the mista"e) or his fault caused the mista"e
Laidlaw !. ,ran = no duty to disclose info re: e!trinsic circumstances that are pu0licly disco#era0le
o Policy: this re'ards and encourages disco#ery of information
;eed !. Kin 9 house of multiple murder = Celler has duty to disclose material facts that he "no's 'ill
affect property #alue if it&s the type of fact the 0uyer 'ould not 0e e!pected to inquire a0out$
Eytan !. %ach = painting in old frame not a #alua0le antique = 9ourt found 4 had no duty to disclose
0c price of paintings 'ere sufficiently lo' as to put purchaser on notice he 'as not 0uying antique art$
Hill !. :ones = Rule: a matter is material) such that a seller has a duty to disclose) if it is one a reas$
person 'ould attach importance to in determining his choice of action$ ;ateriality is + for trier of fact
unless reas$ minds could not differ$ 5ondisclosure may 0e gi#en legal effect = to fraud and misrep$
*0
art 1= erformance and NonFerformance
A- Conditions and the 9%ty to erform
1- TAES OF CON9#T#ONS
9P: Restitution is appropriate 'here one party does not perform entirely and so % is nullified$
9onditions are terms that if they do not come to pass #oid %$ .herefore) restit%tion is the
a!!ro!riate remedy Ghere one !arty see5s dama/es from 7 Ghere conditions Gere not met-
(8!cept in the case of su0stantial performance) 'here e!pectation damages 'ould 0e appropriate$)
,e are trying to determine 'hat is a condition precedent to perf$ and 'hat is a mere pro#ision$
i$ 8!press 9onditions
Restatement 6**K = A condition is an e#ent 'hich must occur 0efore perf$ 0ecomes due$
Restatement 6**7: Ctandards of Preference 'ith Regard to 9onditions
(() <n resol#ing dou0ts as to 'hether an e#ent is made a condition of an o0ligorOs duty)
and as to the nature of such an e#ent) an interpretation is preferred that will reduce
the oblieeJs risk of forfeiture, unless the e#ent is 'ithin the o0ligeeOs control or the
circumstances indicate that he has assumed the ris"$
#ray !. #ardner = 'here e!press conditions) strict termination of % if condition not met$
9omment) Burdens of Pleading and Proof = in pleadings) all P has to do is a#er generally
that the conditions ha#en&t 0een met and then 0urden shifts to 4 to sho' 'ith specificity and
particularity that the condition has 0een met = recall /R9P B(c)
+arsons !. %ristol = payment to architect for phase * dependent on securing a construction
loan; P "ne' this 0ut 0egan phase * performance any'ay; construction loan not secured; P
cannot reco#er$ ,here no 0reach) no restitution damages) and if there is a condition that
alloGs 7 to *e 'oidedI !arty has acce!ted ris5 and thereJs no *reach Ghen 'oided
iii$ 9onstructi#e 9onditions and the Hrder of Performance
Restatement 6 *2K: Hrder of Performances
(() ,here all or part of performances to 0e e!changed can 0e rendered simultaneously)
they are to that e!tent due simultaneously) unless lang or circum$ indicate other'ise
(*) 8!cept to the e!tent stated in su0section (()) 'here performance of only one party
under such an e!change requires a period of time) his performance is due at an
earlier time than that of the other party) unless indicated other'ise$
Restatement 6 *2:: 8ffect on Hther Party&s 4uties of a /ailure to Hffer Performance = ,here
all or part of the performances to 0e e!changed are due simultaneously) it is a condition of
each party&s duties to render performance that the other party either render or) '1 manifested
present a0ility to do so) offer perf$ of his part of the simultaneous e!change
G$9$9$ 6 *3207: 4eli#ery in Cingle Aot or Ce#eral Aots: Gnless other'ise agreed all goods
called for 0y % for sale must 0e tendered in a single deli#ery and payment is due only on
such tender) 0ut 'here the circumstances gi#e either party the right to ma"e or demand
deli#ery in lots) the price) if it can 0e apportioned) may 0e demanded for each lot$
Lafayette +lace -ssociates = constructi#e condition: yo% cannot !%t the other !arty in
defa%lt Bno actiona*le *reachC %nless he has either re!%diated the contract or yo% are
readyI Gillin/I and a*le to !ay (you are ready to perform your side of the 0argain)$
*(
*onley !. +itney %owes = condition to collect is req&ment to e!haust admin$ procedures
0efore appealing to courts) 0ut there&s an add&l pro#ision that employer 'as to gi#e notice of
appeals procedure$ 9ondition precedent to condition precedent not met) so P may reco#er$
"tewart !. Gewbury = 'hen payment schedule not enumerated in %) 'or" must 0e
su0stantially done 0efore payment can 0e e!pected (therefore no e!pectation damages 0efore
su0stantial perf)$ But under %ritton !. .urner) you may still reco#er under quantum meruit$
2- CON9#T#ONS AN9 RO(#SES
Recall :acob D Houn !. Kent = Redding pipe 'asn&t condition precedent) it 'as a pro#ision
Howard !. 2ederal *rop )ns. *orp. = 5ot cutting stal"s 0efore the insurance company could
in#estigate not a condition) only a pro#ision of %) so % not #oided and insurance company
can only get damages$ )nsurance policies enerally construed aainst insurer. ,hen it is
dou0tful 'hether 'ords create pro#ision or a condition precedent) presumption for pro#ision
B- Other H%stifications for NonFerformance
1- #(OSS#B#L#TA AN9 #(RACT#CAB#L#TA
Restatement 6*>(: 4 ischarge 0y Cuper#ening <mpractica0ility = ,here) after % is made) partyOs
performance is made impractica0le '1o his fault 0y the occurrence of an e#ent the non3occurrence
of 'hich 'as a 0asic assumption on 'hich the contract 'as made) his duty to render that
performance is discharged) unless the language or the circumstances indicate the contrary$
G$9$9$ 6*3>(K$ Cu0stituted Performance$
(() ,here '1o fault of either party agreed 0erthing) loading) or unloading facilities
fail or agreed type of carrier 0ecomes una#aila0le or the agreed manner of deli#ery
other'ise 0ecomes commercially impractica0le 0ut a commercially reasona0le
su0stitute is a#aila0le) such su0stitute performance must 0e tendered and accepted
G$9$9$ 6 *3>(E$ 8!cuse 0y /ailure of Presupposed 9onditions M 8!cept so far as a seller may
ha#e assumed greater o0ligation and su0?ect to preceding section on su0stituted performance:
(a) 4elay in deli#ery or non3deli#ery in 'hole or in part 0y a seller is not a
0reach if performance as agreed has 0een made impractica0le 0y the
occurrence of a contingency the non3occurrence of 'hich 'as a 0asic
assumption on 'hich % 'as made or 0y compliance in good faith 'ith
any applica0le foreign or domestic go#ernmental regulation$
(0) ,here the causes mentioned in paragraph (a) affect only a part of the
sellerOs capacity to perform) he must allocate production and deli#eries
among his customersV in any manner 'hich is fair and reasona0le$
(c) Celler must notify 0uyer seasona0ly that there 'ill 0e delay or non3
deli#ery and) 'hen allocation is required under paragraph (0)) of the
estimated quota thus made a#aila0le for the 0uyer$
G$9$9$ 6 *3>(>$ Procedure on 5otice 9laiming 8!cuse$
(() ,here 0uyer recei#es notification of a material or indefinite delay or an allocation
?ustified under the preceding section he may 0y 'ritten notification to the seller)
'here the prospecti#e deficiency su0stantially impairs the #alue of the 'hole %)
**
(a) .erminate and there0y discharge any une!ecuted portion of %; or
(0) ;odify % 0y agreeing to ta"e his a#aila0le quota in su0stitution$
(*) <f after receipt of such notification 0uyer fails so to modify % '1in reas$ time not
e!ceeding 20 days the % lapses 'ith respect to any deli#eries affected$
(() 4e#elopment of the 4octrine
.aylor !. *aldwell = rented concert hall 0urned do'n 0efore performance (Cee 6*>2)
o <n %s 'here perf$ depends on continued e!istence of person or thing) condition
implied that impossi0ility arising from perishing of person or thing shall e!cuse perf$
o @ere) circum$ predicating impossi0ility of perf$ 'ere 0eyond contemplation of parties
Analogy to doctrine of mista"e = no meeting of the minds on this contingency
o <n case of commodities destroyed) 0uyer can co#er and reco#er price diff from seller
.ompkins !. Dudley = % to 0uild schoolhouse) schoolhouse destroyed 0y fire 0efore it 'as
completed$ Cchool0oard sues surety company for cost of completion) etc$ Curety co says %
#oid 0ecause circumstance not in contemplation of parties and performance impossi0le$
o @eld) 0uilder in 0reach for not re0uilding schoolhouse after fire) 0c *%ilderJs fire
ins%rance is !roof that sit%ation Gas in contem!lation of the !arties
(*) ;odern Approach
-merican .radin = CueF canal case = 0c route 'as not e!pressly specified in %)
impossi0ility of using that route does not nullify %$ Another route 'as still a#aila0le and
custom and usage of industry implied that alternate route 'as adequate$ Purpose of % 'as to
deli#er oil to <ndia) not to deli#er through CueF canal) so closure of canal did not ma"e perf
impossi0le$ <mplied e!pectation inadequate proof of allocation of ris" to the promisee$
&ishara *onstr. *o !. .ransit$&ixed *oncrete *orp. = Pic"et lines could ma"e deli#ery of
concrete impractica0le) remanded$ .'o factor test to determine commercial impractica0ility:
o .est under 6*3>(E: Mcircumstances drastically increasing the difficulty and e!pense of
the contemplated performance)N A54
o <nter#ening circumstance must 0e one that parties assumed 'ould not occur
4a'son = arguments against courts re'riting %s in conte!t of impractica0ility:
o Tudges are not qualified to in#ent #ia0le designs for disrupted enterprises
o 9i#il li0erties arg: ,hat source of po'er do courts ha#e to impose ne' % '1o free
assent of 0oth parties-
3ner = Msolidarity is the social face of lo#eN 9 'here relationship formed) you should not
let one party 0ear all loss; responsi0ility of 0oth to figure 'ho can 0ear loss more easily
"peidel =
o Description: as courts 0ecome more concerned 'ith fair outcomes in impossi0ility
cases) they 'ill re'rite terms of % rather than ?ust canceling it$ .here&s this ne'
s!irit of contract that essentially is a form of tort in that it implies duty of good faith
and imposes terms and conditions into contracts that 'eren&t e!pressly 0argained for$
o +rescription: M'hen changed circumstances) the ris" of 'hich the party did not
assume) cause e!treme hardship and imperil the relationship) the ad!antaed party
acts in bad faith if he fails to accept a proposed modification that 'ould 0e
enforcea0le if accepted$ .his refusal ignores the economic hardship to the
disad#antaged party) further imperils a relationship that should 0e preser#ed) and
permits the ad#antaged party to reap un0argained3for gains$ ,ithin these constraints)
*2
a 0ad faith refusal ?ustifies a court3imposed price ad?ustment) 'hether 0y reformation
or as a conditional decree) on terms that are reasona0le in light of the unanticipated
e#ents$
2- FR:STRAT#ON OF :ROSE
Restatement 6*>E: /rustration of Purpose = ,here) after % is made) a partyOs principal
purpose is su0stantially frustrated '1o his fault 0y occurrence of e#ent the non3occurrence
of 'hich 'as a 0asic assumption on 'hich % 'as made) his remaining duties to render
performance are discharged) unless lang or circumstances indicate the contrary$
Krell !. Henry = coronation case = Renter for 0alance unpaid$ (5H BHG598)
o Procession implied condition of %) '1o it purpose 'as frustrated and % discharged
o 4 denied cross claim for amount he had paid do'n) court lets loss lie 'here it falls
2ibrosa = 'here some D has 0een paid 0ut purpose frustrated) party 'ho paid can get D 0ac"
(restitution = ( BHG598) 0ut other party first su0tracts reliance costs (.,H BHG598C)
o @ypothetical 2ibrosa )) = imagine no do'n payment 0ut factory still spent D in
reliance$ 9an factory get na"ed reliance damages- 5o$
Restatement 6*7* allo's na"ed reliance 0ut not many cases ha#e follo'ed
-nus !. "cully = Lro%/ht in doctrine= 'here performance 0ecomes impossi0le mid'ay
through) party can get quantum meruit for 0enefit conferred up to the point of frustration
*hase +recast !. :ohn :. +aonessa = P 'as paid for median 0arriers already deli#ered) sued
for e!pectation damages for remaining 0arriers under %; 'here 'hole pro?ect had 0een
cancelled) court finds frustration of purpose) P can&t collect damages for remainder$
Posner and Rosenfield = <n impossi0ility) frustration or impractica0ility) if parties assign the
ris" e!pressly) then that party 0ears loss$ <f ris" not e!pressly assigned) to aid interp$ 'e as"
'hether promisee or promisor is the s%!erior ris5 *earer$ <f promisee) then discharge of %
should 0e allo'ed$ <f promisor) then should find nonperformance and promisor is in 0reach$
C- :n,%stified NonFerformance and the ro*lem of Forfeit%re
1- TDE ERFECTFTEN9ER R:LE AN9 9OCTR#NE OF S:BSTANT#AL ERFOR(ANCE
G$9$9$ 6*3E0:: 9ure 0y Celler of <mproper .ender or 4eli#ery; Replacement
(() ,here tender 0y seller is re?ected 0c non3conforming and time for perf$ not e!pired) seller may
notify 0uyer of intention to cure and may 'ithin % time ma"e a conforming deli#ery$
(*) ,here 0uyer re?ects non3conforming tender 'hich seller had reasona0le grounds to 0elie#e
'ould 0e accepta0le seller may ha#e further reas$ time to su0stitute a conforming tender
G$9$9$ 6*3>0(: Buyer&s Rights on <mproper 4eli#ery 3 <f goods or tender of deli#ery fail in any
respect to conform to %) 0uyer may (a) re?ect the 'hole; (0) accept the 'hole; or (c) accept any
commercial unit or units and re?ect the rest
G$9$9$ 6*3>(*: M<nstallment contractN; Breach A *%yer in an installment contract m%st acce!t
installments that are deli'ered in conformity Gith 7I e'en if all the installments are not
deli'ered in conformityI %nless the fail%re to deli'er all installments s%*stantially im!airs the
'al%e of the Ghole contractI in Ghich case there is a *reach of the Ghole-
o G99 (perfect tender rule rather than su0stantial performance) applies to goods) not ser#ices)
0ut 'hen there is a mi!ed goods and ser#ices contracts) courts 'ill determine 'hat is the
dominant part of the contract to determine 'hether the G99 applies$
*K
o @o'e#er) some courts still apply the principles of the G99 to ser#ices contracts as persuasi#e)
not 0inding) authority
,shinsky !. Lorraine &f. *o. = purchaser is not 0ound to accept and pay for goods unless they are
deli#ered on the day specified in the contract
o <n accordance 'ith 0uyer&s rights on improper deli#ery from G$9$9$ 6 *3>0( (perfect tender)
+rescott *o. !. :. %. +owles *o. = purchaser is not 0ound to accept and pay for goods unless they are
of the quantity specified in the contract 9 compare to G$9$9$ 6 *3>(*
;amire4 !. -utosport = policy for G$9$9$ 6*3>(*: in a declining mar"et the 0uyer 'ould re?ect goods
for minor nonconformities and force the losses on surprised sellers
%eck and +auli Lithoraphin *o. !. *olorado &illin and Ele!ator *o. 9 % for personaliFed
lithographed stationary is fulfilled four days late$ 9ourt says this is more of a % for ser#ices than
goods so the strict rules of the G$9$9$ don&t apply$ Cu0stantial performance is enough for ser#ices) and
here they su0stantially performed$
%artus !. ;iccardi = 0uyer of hearing aid orders a specific model) seller deli#ers ne' and impro#ed
#ersion of that model$ Buyer accepts ne' model and it turns out not to ser#e his needs$ Celler than
attempts to replace 'ith the older) originally requested model and 0uyer repudiates$
o 9ourt cites to G$9$9$ 6*3E0:) says that e#en though % time e!pired) seller reasona0ly 0elie#ed
that re?ected nonconforming tender 'ould ha#e 0een accepted) and so may cure
+lante !. :acobs = house constructed not completely according to plans$ 9ourt finds su0stantial
performance enough 0c this is a ser#ice %) not goods$ Perfect tender rule does not apply$
o ,here su0stantial performance) promisor must "eep his promise to pay the other party for the
'or" done 0ut can then sue for damages$ ,here cost of completion damages are prohi0iti#e
and 'asteful of #alue) the court applies diminution of #alue as the measure of damages$
o @ere) court finds that there 'as no diminution in #alue so no damages for the misplaced 'all$
5ote: Restitution for the M,illfulN 4efaulter
o .he ;assachusetts rule = ,here party su0stantially performed) they may reco#er in quantum
meruit (li"ely capped at % price per %ritton !. .urner)) 0ut only if they made a good faith effort
to perform fully$ ,here 0reach 'as 'illful there can 0e no reco#ery$
o <n many other ?urisdictions) such as 5R) the court ta"es the 'illfulness of the 0reach only as
one factor to consider$ A 'illful 0reach does not negate #alue already conferred and preclude
reco#ery for restitution$
*E