Contracts I

Professor Ferrell
Fall 2010

PART I: PRINCIPLES OF PROMISSORY OBLIGATION

Contract = a legally enforceable promise
-Common Law/ Case Law Subject
-Uniform Commercial Code = state statute that governs the sale of commercial goods in some states

A. Grounds for Enforcing Promises

1. Formality
a. Need reliance or consideration for there to be a contract.
b. For there to be consideration, the consideration must induce the promissor to make the
promise (look at time when promise was made)
c. Gratuitous pledge if oral, not consideration according to DeLeo (because could encourage
fabricated claims against decedents and because cost of creating exceptions)

Consideration legal benefit to promissory or detriment to promisee

Reliance the promissee is worse off as a result of the promise. Used two ways:
1. alternate to consideration for enforcing a contract
2. promissory estoppel

Congregation Kadimah v. DeLeo (188-190)- An oral donative promise may not be enforced if it is not in
writing or not relied upon. The allocation of the money for the purpose of renovating the storage room
did not create the necessary acts of reliance. A hope or expectation is not equivalent to either legal
detriment or reliance. The promise lacked consideration because there was no conditions placed on how
the money could be used and indication as to what the Congregation was required to do in return for
DeLeos promise.
Note (190)

2. Bargain
a. Waiver of a legal right = consideration

Restatement 71. REQUIREMENT OF EXCHANGE; TYPES OF EXCHANGE

(1) To constitute consideration, a performance or a return promise must be bargained for.
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his
promise and is given by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person.
It may be given by the promisee or by some other person.
Comments:
b. "Bargained for." In the typical bargain, the consideration and the promise bear a reciprocal relation of
motive or inducement: the consideration induces the making of the promise and the promise induces the
furnishing of the consideration. Here, as in the matter of mutual assent, the law is concerned with the
external manifestation rather than the undisclosed mental state: it is enough that one party manifests an
intention to induce the other's response and to be induced by it and that the other responds in accordance
with the inducement....But it is not enough that the promise induces the conduct of the promisee or that the
conduct of the promisee induces the making of the promise; both elements must be present, or there is no
bargain. Moreover, a mere pretense of bargain does not suffice, as where there is a false recital of
consideration or where the purported consideration is merely nominal. In such cases there is no consideration
and the promise is enforced, if at all, as a promise binding without consideration under 82-94.
c. Mixture of bargain and gift. In most commercial bargains there is a rough equivalence between the value
promised and the value received as consideration. But the social functions of bargains include the provision
of opportunity for free individual action and exercise of judgment and the fixing of values by private action,
either generally or for purposes of the particular transaction.
Those functions would be impaired by judicial review of the values so fixed. Ordinarily, therefore, courts do
not inquire into the adequacy of consideration, particularly where one or both of the values exchanged are
difficult to measure. See 79.....
d. Types of consideration....Though a promise is itself an act, it is treated separately from other acts.

Unilateral contract consideration is not a return promise, but a performance (not enforceable until the
performance is complete or there has been substantial performance because the moment of contract
formation is when the performance is complete)
Bilateral contract promise for a promise
Conditional gift if you offer something for forgoing a legal right, but that forgoing is not actually what you
are seeking to induce. (Ex. if you walk across the street, Ill give you $20 is a conditional gift unless your
goal is to watch them walk across the street, not to have them come near you)

Restatement of Contracts, Second, 71, 81 (200)

71 an act, forbearance, or change in a legal relation must be sought by the promisor in exchange for his
promise and given by the promisee in exchange for that promise in order to constitute consideration.

81 that just because the performance isnt the thing that induced a promise doesnt mean it doesnt
constitute consideration, and vice versa.

Hamer v. Sidway (195-198) a waiver of a legal right can be consideration (if dont smoke or drink,
consideration)

Earle v. Angell (198) - Mary Dewitt promised Benjamin Earle $500 if he would go to her funeral if he
outlived her. She left an envelope with $500 and these instructions. The court decided for the
plaintiff. a contract to pay money after ones own death is valid.

Whitten v. Greeley-Shaw and note (198-200) Mistress contracted with married man to take her on
vacation and she wouldnt call his home phone. Not consideration because the not calling provision didnt
induce him to sign the contract.

Duncan v. Black (206-209) Dont have to enforce a contract that was illegal. However, you can
make a promise that you cannot fulfill because the other party can get $ for a breach of contract. You just
cant when the contract undermines public policy. (Cant sell allotments because they are nonexistent after a
year and the state gives them out. Doing so is too unpredictable and would undermine the govs attempt to
regulate prices)
Fried, Contract as Promise (Supp. page 1)
Posner, Economic Analysis of Law (Supp. page 2)
Patterson, An Apology for Consideration (200-201)

3. Benefit
 ***Material benefit + later promise to pay hypothetical bargain (would have made bargain if had
chance) Conduct gives rise to an implied bargain.

Restatement of Contracts, Second, 86 and Comment a (222-223)

(1) A promise is made in recognition of a benefit previously received by the promisor from the promisee is
binding to the extent necessary to prevent injustice
(2) A promise is not binding under subsection (1)
(a) if the promisee conferred the benefir as a gift or for other reasons the promisor has not been
unjustly enriched; OR
(b) to the extent that its value is disproportionate to the benefit
Note (223-224)

Restitution different legal claim. The equitable remedy of restoring to an aggrieved party that which was
obtained in unjust enrichment.

Promissory estoppel different legal claim when there has been reliance that a promise will be fulfilled.

Webb v. McGowin (216-220) Legally enforceable promise if agreement made for previous material benefit
to promisor by promissee. In this case, the fact that P saved McGowin from death or grievous bodily harm
was a material benefit to McGowin. Upon receiving this benefit, McGowin became morally bound to
compensate P and as such expressly agreed to compensate P. When the promisee cares for, improves and
preserves the property of the promisor, even without a request to do so, it is sufficient consideration for the
subsequent agreement to pay for the service because of the material benefit received directly by the party.
Once P saved McGowin from death or grievous bodily harm and McGowin subsequently agreed to pay him
for the service rendered it became an enforceable contract.

Mills v. Wyman (211-213) Promise made for services previously rendered is NOT a contract (no
inducement) except for bankruptcy, debts of infants, when statute of limitations are up, or when there was a
material benefit to the promisor (here no benefit to father for innkeeper taking care of his dying son)

In re Schoenkermans Estate (225) - Mrs. Schoenkerman died so Mr. Schoenkerman asked his sister-in-law
and mother-in-law to move in and take care of his children. A year before Mr. Schoenkerman died, he wrote
two notes to these people ($500 for the mother and $1500 for the sister). When he died, they sued his estate
for the money.
Is a note to pay family members for their gratuitous help in ones household sufficient to constitute
consideration. The decedent was under moral obligation to pay the claimants.
By giving the notes, the decedent noted a moral obligation and that made enough for consideration.

In re Crisan Estate (Supp. page 4) Woman was helped by hospital and never regained
consciousness. Brought restitution claim Court ruled that unjust enrichment should require that the
enriched party pay if that party would have agreed to the enrichment at the time. Need to be able to charge:
Intent to charge
Thing is necessary
Dont know the other wont consent
Impossible to give consent
***Promissary estoppel was thought for a while that it would supplant traditional contract law because more
like a tort cause harm and should be compensated. Merges tort and contract. However, torts creates
incentives for people to behave appropriately while

4. Reliance
Reliance the promisee is in a worse position than if the contract had never been made.

Restatement First 90 A promise which the promissor should reasonably expect to induce action or
forbearance of a definite and substantial character on the part of the promissee and which does induce
such action or forbearance is binding if injustice can be avoided only by enforcing the contract.

Restatement Second 90 A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a 3rd person and which does induce such action or
forbearance is binding if injustic can be avoided only by enforcement of the promise. The remedy
granted for breach may be limited as justice requires. (expanded whose reliance counts, limits
remedy, but does allow expectation damages and reliance damages based on justice)

Expectation damages putting the party in the position they would have been in if the promise had been
honored relative to the position they are in now.

Reliance damages put you in the situation you would have been in if there had been no promise.

Kirksey v. Kirksey (230) woman goes to live with bro-in-law after widowed. His offer to have her
come live was not an enforceable contract because (1) no bargain (no consideration) and (2) no promissory
estoppel because she was not worse off.

Ricketts v. Scothorn (Supp. page 7) Grandfather gave granddaughter $ so if she didnt want to work,
she didnt have to. This was not a contract because no inducement or consideration. Although a promise
given without consideration ordinarily does not create a binding contract, the doctrine of promissory estoppel
prevents a promisee from using lack of consideration as a defense to breach of contract. Consequently, a
promise can be enforced even though it was given without consideration if the promisee has reasonably
relied on the promise to her detriment.
Here, the court considered the magnitude of Scothorns good faith reliance on her grandfathers
promise and held that her actions were consistent with that reliance and therefore constituted a sufficient
consideration.

Allegheny College v. National Chautauqua County Bank (234-240)- Cardozo. Woman pledged
$5,000 to college and paid $1,000 then renigged. Court said that it became a bilateral contract when the
church accepted the $1,000. At that time it was a promise (all $5,000) for a promise (name it after her =
benefit to promisor). Other side said was a unilateral contract.

Feinberg v. Pfeiffer Co. (Supp. page 11) - Feinberg worked at Pfeiffer Co for many years. At one board
meeting, the president and rest of board agreed on a resolution that would pay Feinberg $200/month for the
rest of her life when she retired and that she could retire at any time. After Feinberg had retired for some
years and that president had died, another president disagreed and stopped payments to Ms. Feinberg. She
claims that she relied on that money. Whether reliance on promised retirement payments are grounds for the
legal enforceability of that promise. Affirmed for plaintiff using 90.

Goodman v. Dicker (279-280) Company spend $ on sales reps for a franchise deal they thought
theyd get. Want damages for breach of contract. Contract would have been terminable at will. Expectation
damages would have been zero. Court ruled on promissory estoppel. If a party acts to his detriment on the
affirmative assurances of another, that party can be protected by estopping the other party from alleging
anything in opposition to the natural consequences of his own course of conduct. 2) Yes. Reliance damages
are proper under promissory estoppel.

Atiyah, The Rise and Fall of Freedom of Contract (Supp. page 16)

Fried, Contract as Promise (Supp. page 20) Liars and promise-breakers (aka breachers) are
immoral because they use people as means to an end, not as ends in themselves (Kant).

Hillman, Questioning the New Consensus on Promissory Estoppel (Supp. page 27) empirical studies
show that promissory estoppel has not taken over contract law (less likely to win and not used often)

PROMISSARY ESTOPPEL
a. Restatement 90
b. Reasonably anticipated by promissory
c. Inconsistent with freedom of contract
d. Thought would take over contracts, but hasnt
e. Expanded PE giving more discretion to judges to decide remedy

B. Fairness and Other Limits on Enforcing Promises

1. The problem of inadequate consideration
a. Failure of consideration got what promised / breach of K
b. Want of consideration consideration was worthless (or nominal)
c. Inadequacy of consideration disproportional to what gain.

Unconscionability = procedural factors + substantive factors

Schwartz poverty, market unresponsiveness, and incompetency of the buyer should not
provide basis for voiding K, but lack of information does.
Monopolies he claims they are actually not less responsive to consumer preferences.
People act competently to maximize their personal utility. Cannot say that a contract is bad
because the party making it was incompetent and that we know the party was incompetent
because the contract is bad circular. Consumers are actually competent and can make
decisions so market powers will have to compete for marginal customers

U.C.C. 2-302 (Mat. 40)- 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
as 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.

Restatement of Contracts, Second, 208 and Comment (Supp. page 45) Unconscionable Contract or
Term:
If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce
the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit
the application of any unconscionable term as to avoid any unconscionable result.
Comment:
c. Overall imbalance. Inadequacy of consideration does not of itself invalidate a bargain, but gross disparity
in the values exchanged may be an important factor in a determination that a contract is unconscionable and
may be sufficient ground, without more, for denying specific performance. See 79, 364. Such a disparity
may also corroborate indications of defects in the bargaining process, or may affect the remedy to be granted
when there is a violation of a more specific rule. Theoretically it is possible for a contract to be oppressive
taken as a whole, even though there is no weakness in the bargaining process and no single term which is in
itself unconscionable. Ordinarily, however, an unconscionable contract involves other factors as well as
overall imbalance.

Batsakis v. Demotsis (591-594)- Got $20 for a $2,000. SEE NOTES! Guy in Greece paid a lot and got
a little because it was necessary. Procedure fine, substance not so not unconscionable. Too bad have
to pay even though inadequacy of consideration. Both parties were living in Greece. Demotsis had
money in the US, but needed money immediately in Greece. Batsakis offered to give Demotsis
500,000 drachmae ($25) if Demotsis would give him $2,000 American dollars at 8% annum later.
They agreed and Demotsis wrote Batsakis a note stating this. Batsakis sued when this wasnt paid.
Dont look at adequacy of consideration. No it doesnt matter if the consideration is small or
unequal. The ruling of the trial court is affirmed, but the remedy should have been given in full and
paragraph IV should have been wiped from the record.

American Home Improvement Inc. v. MacIver (Supp. page 41) Cant enforce an illegal contract.
American Home Improvement was going to do work on the MacIvers house for a cost of $1,759.
The MacIvers elected to finance their payments and signed a contract for payment. The contract,
however, did not disclose the interest rate or any fees. When the financing application was approved
and the MacIvers learned that they would be paying $809.60 in interest and fees over their original
contract price, they had the plaintiff stop work, but this was after the plaintiff had paid a commission
of $800 due to their reliance on the contract. AMI seeks to enforce the contract, despite that the
contract is illegal under RSA Laws. Is an illegal contract made in good faith still enforceable if the
promissory relies on such a contract? Ruled in favor of MacIver. The motion should be dismissed.

Waters v. Min Ltd. (691-693) Unconscionable K. The plaintiff was dating one of the defendants
(Beauchemin). He encouraged her to sell an annuity that she had which had a cash value of $189,000
at that time for $50,000. He introduced her to the other defendants and acted as their agents in the
contract-making (they paid him by forgiving his debts).

Williams v. Walker-Thomas Furniture Co. (Supp. page 46) Furniture sold with financing that
allowed them to take everything that youd bought if default. Does fact that they were a monopoly give them
power? What would contract have looked like if they read it? What if this was the only way the customers
could afford the furniture and only way store could stay in business? Court remanded for consideration of
whether unconscionable.
a. Market Power (is there a lack of a meaningful choice or do monopolies change price or
contract terms)
b. Information (did parties signing contract know)
c. Hypothetical Bargain (would have agreed to it at time of contract formation)

Sandel, Liberalism and the Limits of Justice (Supp. page 51)

Schwartz, A Reexamination of Nonsubstantive Unconscionability (Supp. page 54) Poverty, market
unresponsiveness, and incompetence should not be a basis for voiding contracts. Monopolies wont
really hurt people. Only information asymmetry.
 Market Power
a. Schwartz says lets assume its a monopoly. Normally consumers lose on price
(assume people understand price and that prices can be regulated
b. Non-price terms according to Schwartz (assuming in information imbalance) there
will be a point where people wont buy product
c. Cellophane Fallacy people will walk away from a product if they dont like the
terms so market powers dont have a grip on people.
d. Schwarts believes no difference between monopolist trying to get a marginal customer
and a market power getting a marginal customer

2. Contract Revisions and the Legal-Duty Rule

U.C.C. 2-209 and Comment (Mat. 37-38) - Modification, Rescission and Waiver.
(1) An agreement modifying a contract within this Article needs no consideration to be binding.
(2) A signed agreement which excludes modification or rescission except by a signed writing cannot be
otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by
the merchant must be separately signed by the other party.
(3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the
contract as modified is within its provisions.
(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or
(3) it can operate as a waiver.

Interest of Parties Ex Ante (what would have agreed to at time of contract formation)

Rule: If cost of performance or value of performance changes substantially, then the contract can be remade
unless the risk of that unexpected change was allocated between the parties at the time of contract formation.

Rule: Cannot recontract for a preexisting legal duty

Policy Argument: Dont want opportunistic behavior

Alaska Packers Assn v. Domenico (601-605) On fishing boat in Alaska and negotiated for highr
wages. Pre-existing legal duties cannot be consideration. No inducement to change terms. Policy says
worried about hold-up problem and opportunistic behavior. No new consideration, so no new
contract.

Schwartzreich v. Bauman-Basch, Inc. (Supp. page 71) Designer was quitting because got another
offer and current offer could contract to raise prices.

Goebel v. Linn (Supp. page 74) Recontracted for price of ice to a beer house. Enforceable contract
because If they knew of the warm winter, they would have agreed to this. Mutually beneficial to
recontract. Interest of parties ex ante hypothetical contract.

3. Illusory Promises and related fairness issues

U.C.C. 2-306 (Obligation in an exclusive arrangement by buyer to use best efforts to promote.)
Output, Requirements and Exclusive Dealings
(1) A term which measures the quantity by the output of the seller or the requirements of the buyer
means such actual output or requirements as may occur in good faith, except that no quantity
unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any
normal or otherwise comparable prior output or requirements may be tendered or demanded,
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods
concerned imposes unless otherwise agred 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.

Implied promise at law UCC - inference that a promise has been made to take a certain action in an
exclusive arrangement. Automatically assume obligation unless you opt out.

Implied promise in fact Cardozo in Lady Duff. Only under obligation geven the facts on a case-by-
case basis. There is a contract if there is an implied promise with an obligation.

Ex anti look back to time of contract formation (torts looks ex post)

Incomplete Contracts by nature contracts are always incomplete because bargaining costs, dont
know future, and ex post and ex anti are not always the same.

Restatement of Contracts, Second, 77 and Comment (360-361) A promise or apparent promise

that gives the promissory a choice of performance is only consideration if
(1) Each alternative alone would be consideration
(2) - The alternative that would not be consideration will to a substantial possibility be
eliminated before the promissory can make his choice.

Restatement of Contracts, Second, 205 and Comment (707-708)

Every contract imposes upon each party a duty of good faith and fair dealing in its
performance and its enforcement.
Comment:
a. Meanings of "good faith." Good faith is defined in Uniform Commercial Code 1-201(19) as
"honesty in fact in the conduct or transaction concerned." "In the case of a merchant" Uniform
Commercial Code 2-103(1)(b) provides that good faith means "honesty in fact and the observance
of reasonable commercial standards of fair dealing in the trade." 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 emphasizes faithfulness to an agreed common purpose and consistency
with the justified expectations of the other party; it excludes a variety of types of conduct
characterized as involving "bad faith" because they violate community standards of decency, fairness
or reasonableness. The appropriate remedy for a breach of the duty of good faith also varies with the
circumstances.
c. Good faith in negotiation. This Section, like Uniform Commercial Code 1- 203, does not deal
with good faith in the formation of a contract. Bad faith in negotiation, although not within the scope
of this Section, may be subject to sanctions....

Gurfein v. Werbellovsky (361) A buyer of plate glass sued a seller for refusing to ship glass when
they had an agreement where the glass had to be shipped within three months and the buyer had an
option to cancel before shipment. This was a contract because there was consideration on the part of
the seller he got the condition that after the goods were shipped, the buyer couldnt cancel.

Wickham & Burton Coal Co. v. Farmers Lumber Co. (Supp. page 77) Wickham and Farmers agent
had an oral agreement where Wickham would ship coal to Farmers for $1.50/ton up to Sept 1, 1916
and then $1.65 from then until April 1, 1917. This became a written agreement later. However,
Wickham sold them three cars of coal and then stopped selling them coal, at which time Farners had
to buy more expensive coal from elsewhere. No contract because mutuality was lacking. No
consideration on one side
 Wood v. Lucy, Lady Duff-Gordon (361-364) Lady Duff contracted with Wood for him to have
exclusive rights to her clothing brand, but then she sold her own stuff. The implied promise that he
would do his best to sell her stuff is implied consideration so it is an enforceable contract and found
against Lady Duff.

Omni Group, Inc. v. Seattle First Natl Bank (365-368) Mr. and Mrs. Clark had an exclusive agency
listing agreement with Royal Realty Company. Omni signed an agreement to purchse the land for
$2,000/acre. The Clarks signed the agreement which stated that Omni had to receive and engineers
and architectsreport from the professionals of the purchasers choice and that if the report (paid for
by the purchaser) was satisfactory, the purchaser shall so notify sellwer in writing withing fifteen
days of sellers acceptance of this offer. Omni then found that there was only 50.3 acres instead of
59 acres, at which point the Clarks agreed to sell the land for $104,000. The Clarks then decided to
not go along with the sale and Omni suied for breach of contract. No, the promise is not illusory even
though it was made on a contingency because Omni must act on good faith and assumed the
obligation to respond to the Clarks within 15 days.

Market Street Associates v. Frey (708-715)

Kessler, Gilmore, and Kronman, Contracts: Cases and Materials (Supp. page 80)

C. Freedom of Contract and Public Policy

Kessler, Gilmore, and Kronman, Contracts: Cases and Materials (Supp. page 94)
2 Principles of Freedom of Contract
a. No contract by compulsion
b. Can give whatever you want in a contract

Unger, The Critical Legal Studies Movement (Supp. page 97)

Freedom of Contract v. Community
Democracy = self-assertion v. Community = attachment
Contract = dont enforce reliance v. Community = promissory estoppel
Need both to have the other
Freedom of Contract v. Fairness
Balance Contract = Freedom v. Fairness = dont let inequality accrue

In the Matter of Baby M (Supp. page 103) Ruled that cant contract for surrogacy and terminate
biological mothers parental rights. 2 Reasons:
1. Violates Statutes (which are designed to support public policy goals)
a. No money for children
b. No counseling before give up kid for adoption
c. Cant agree to give up for adoption before kid born
2. Public Policy
a. State wants keep kids with natural parents
b. Not consider what in best interests of child
c. Commodification of children
d. Exploiting poor
e. Shouldnt be tug-of-war over kids

PART II: REMEDIES FOR BREACH OF CONTRACT

A. Grounds for Enforcing Promises

a. The basic measure: expectation damages

Expectation damages = put the plaintiff in the position that they would have been in if the
contract had not been breached.

2 ways to determine expectation: (Second Restatement 348)

1- Cost rule the cost to complete performance (Groves)
2- Diminution rule the difference in market values between what have now and
what wouldve had (Peevyhouse)

Measure damages based on market value In contracts for the delivery of personal
property at a fixed time and at a designated place, the measure of damages is the difference
between the contract price and the market price of the property at the time and place of
delivery. (Acme). When a seller removes property from land, the buyer can recover the fair
market value of that property even if it did not affect the value of the property. (Laurin)

Substantial Performance/ materiality If a party substantially performs and if there was a

nonmaterial breach, expectation damages are the difference in market value of what the
promissee got and what he was promised (Jacob & Youngs). A party doesnt have a duty to
pay until the other party substantial performs. If there was a material breach because the
introduction of Redding pipe was an express condition to payment, then the failure to install
Redding pipe would have been a forfeiture and Kent would not have had a duty to pay. The
plaintiff has the burden of proof of substantial performance. To determine if there is a
stubstantial performance, look at:
1. justice want the harm owners suffered to be commensurate with damages.
Forfeiture vs. harm
2. intent if willful more damages

Restatement 347 Subject to the limitations stated in 350-53, the injured party has a
right to damages based on his expectation interest as measured by
(a) the loss in the value to him of the other party's performance caused by its failure or
deficiency, plus
(b) any other loss, including incidental or consequential loss, caused by the breach, less
(c) any cost or other loss that he has avoided by not having to perform.
Comments:
c. Other loss. [T]he injured party is entitled to recover for all loss actually suffered. Items of
loss other than loss in value of the other party's performance are often characterized as
incidental or consequential. Incidental losses include costs incurred in a reasonable effort,
whether successful or not, to avoid loss, as where a party pays brokerage fees in arranging or
attempting to arrange a substitute transaction. Consequential losses include such items as
injury to person or property resulting from defective performance.
d. Cost or other loss avoided. Sometimes the breach itself results in a saving of some cost that
the injured party would have incurred if he had had to perform. Furthermore, the injured party
is expected to take reasonable steps to avoid further loss. See 350. Where he does this by
discontinuing his own performance, he avoids incurring additional costs of performance. See
Illustrations 6 and 8. This cost avoided is subtracted from the loss in value caused by the
breach in calculating his damages. If the injured party avoids further loss by making substitute
arrangements for the use of his resources that are no longer needed to perform the contract,
the net profit from such arrangements is also subtracted. The value to him of any salvageable
materials that he has acquired for performance is also subtracted. See Illustration 7. Loss
 avoided is subtracted only if the saving results from the injured party not having to perform
rather than from some unrelated event.

Restatement 348 Alternatives to Loss in Value of Performance: (2) If a breach results in

defective or unfinished construction and the loss in value to the injured party is not proved
with sufficient certainty, he may recover damages based on
(a) the diminution in the market price of the property caused by the breach
(Peevyhouse) or
(b) the reasonable cost of completing performance or of remedying the defects if that
cost is not clearly disproportionate to the probable loss in value to him

Hawkins v. McGee Hairy hand case. Dr. guaranteed him a perfect hand. The plaintiff was entitled to
expectancy damages plus incidental losses resulting from the breach. Expectancy damages are
damages sufficient to put the plaintiff in the position he would have been if the contract had been
performed. In this case, Hawkins was not entitled to damages for pain and suffering because he
would still have endured them had the procedure been successful. Hawkins was entitled to the
difference between what he sought a perfect hand, and what he received a hairy hand. The
plaintiff was also entitled to incidental losses resulting from the breach.

Groves v. John Wunder Defendants were supposed to remove gravel and leave the property at a
uniform grade. Wunder didnt make the land level. Here the level of damages should have been the
cost to make the land level ($60,000) even though the value of the property was less.

Peevyhouse v. Garland Coal & Mining Garland was supposed to fill pits and smooth surface of
land at end of lease. This would have cost $29,000, but the market value of the property would only
increase $300. Court ruled that expectation damages should be $300 by using the diminution rule.

Acme Mills & Elevator Co. v. Johnson Johnson was supposed to deliver bushels of wheat. Johnson
did not deliver on time, but sold the bushels to another company for a higher price. Although Acme
wanted to recover Johnsons profits from the breach, the court held that their expectation damages
from the breach were $0 because at the time of breach, the price of wheat was less than their contract
price.

Laurin v. DeCarolis Constr. Co The seller took 360 truckloads of gravel off of property he had sold
to Laurin. Laurin could recover the fair market value of the gravel, but not the labor to haul it away.

Jacob & Youngs v. Kent Redding Pipe case. Expectation damages were 0 because there was not a
material breach, there was substantial performance, and the pipes cost the same. Cardozo wrote the
opinion. Think about what the parties would have agreed to at the time of contract formation.

b. Rationales for the expectation measure (and their limits)

1. Efficient breach want the party who values the product the most to end up with the
contract. tempted to break his contract simply because his profit from breach would
exceed his profit from completion of the contract. Posner.
Critique is it theft for S to give to B2 instead of B1 when B1 could give to
B2? Maybe not because S better positioned to find B2
Critique transaction costs of litigating this make it inefficient
Critique its hard for courts to figure out expectation damages
Critique - Does this violate B1s property rights?
 Critique FRIEDMAN remedy doesnt provide a perfect substitute. Like
theft of that extra property
2. Efficient insurance Assume a given probability of breach. If give overcompensatory
damages, the buyer ends up paying for it with a higher contract price (buyers would
want a breach) and if undercompensatory, buyers would not recover.
3. Efficient precautions want the money expended on precautions to be less than or
equal to the reduction in the probability of breach times the buyers valuation of
completion. If overcompensatory, will take too many precautions and buyer will have to
pay for in price of product. If undercompensatory, wont take enough precautions. This
level where social desire and level of precautions are equal)
Posner see above, particularly breach

Non-pecuniary insurance - insurance against nonmonetary loss (like loss of a child).

People do not insure against these because no loss of earnings. Common law does not allow
recovery for pain and suffering except for death, bodily harm, or if you drop a casket and
the family sees the dead body.
Friedman Contractual rights are like property rights. Breach is therefore like theft
Efficiencies
a. Pareto efficiency at least one individual better off without making any other
individual worse off
b. Kaldor-Hicks efficiency those that are made better off compensate those who are
made worse off so that all would end up no worse off than before
Rawls make the poorer off before the wealthier no matter what. Society depends on
benefit of lowest

c. Limitations on recovery of expectation damages

i. Avoidable Damages
Post breach obligation: non breaching party has a duty to mitigate damages post
breach. (Luten Bridge)
Pre breach obligation: non breaching party will not be able to recover full
expectation damages if the damages were unforeseeable by the other party (Hadley)
Overhead costs these should not be subtracted from a contract price to determine
expectation damages because they would have been incurred anyway. Not avoidable
damages.
Another job to mitigate The value of expectation damages for a discharged
employee is the contract price minus what the employee has earned or could
reasonably have earned at employment that is of a similar kind (aka not different or
inferior)

Restatement 241 Determination of Materiality

In determining whether a failure to render or to offer performance is material, the following
circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit which he reasonably
expected;
(b) the extent to which the injured party can be adequately compensated for the part of that
benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure,
taking account of all the circumstances including any reasonable assurances; (e) the extent to
which the behavior of the party failing to perform or to offer to perform comports with standards
of good faith and fair dealing.

Rockingham County v. Luten Bridge The contractor continued to make the bridge
after the contract was repudiated. The court held that the amount of damages the
plaintiff can recover is limited to the amount of damages that he would have been able
to recover as of the time notice was given. Luten is entitled to expenses incurred up
until notice was given, plus expected profit from completion of the contract, plus any
other losses incurred up until the time of breach. A party who receives express notice
of breach has a duty to mitigate damages.

Leingang c. City of Mandan Weed Board The board improperly assigned some lots
that the contractor was supposed to cut to someone else. The court ruled that the value
of damages should be the contract price minus the cost of performance, which should
not include overhead costs that would have been incurred anyway. Fixed costs or
invariant costs do not reduce profits, but variable costs do.

Parker v. Twentieth Century-Fox Film Corp. Parker was going to star in a musical.
Fox cancelled and offered her a job starring in a Western. The court said that because
the Western was different and inferior to the musical, she did not have a duty to
mitigate and the full contract price was due to her.

ii. Consequential Damages

Disproportional and unforeseeable damages If damages arise from special
circumstances and are so large that they are disproportional to the consideration, then
it raises doubt if that was the initial intent of the parties. Use the tacit agreement test
what parties would have agreed to. If party should reasonably have known they
would need that part though, then this rule doesnt apply. (Victoria). It doesnt have to
be the most foreseeable use, just a foreseeable consequence of breach.

Hadley v. Baxendale Millers (plaintiffs) had a broken crank that they sent to get
fixed. The defendants did not get the crank there in the said time (next day) and
Hadley sued them for lost profits. The court found that the amount of damages should
be a reduced amount from expectation because they should only be what the parties
would have agreed to if the defendant had known of the special circumstances.
3 Justifications for Hadley
a. Precautions and market incentives want to allocate loss to the party
with the weakest market incentives. Because companies have other market
incentives like their reputation, they might not need legal liability on them.
Market incentives lower the need for liability. However, the non-breaching
party, Hadley for example, may be able to take precautions to share
information and to fix the information asymmetry, but would not have
market incentives to do so without legal liability.
b. Insurance if buyers are risk averse, they could get insurance from the
seller or from a third party, not through damages. If we didnt have the
Hadley rule to lower expectation damages, ultimately all buyers of a
service or product would be insuring those who have huge damages.
c. Cross-subsidization Subset of insurance. All customers with small
damages would be subsidizing others seller will think of average liability
per customer and will go into the price. With Hadley we avoid this
Restatement 351 - UNFORESEEABILITY AND RELATED LIMITATIONS
ON DAMAGES
(1) Damages are not recoverable for loss that the party in breach did not have reason
to foresee as a probable result of the breach when the contract was made.
(2) Loss may be foreseeable as a probable result of a breach because it follows from
the breach
(a) in the ordinary course of events, or
(b) as a result of special circumstances, beyond the ordinary course of events, that the
party in breach had reason to know.
(3) A court may limit damages for foreseeable loss by excluding recovery for loss of
profits, by allowing recovery only for loss incurred in reliance, or otherwise if it
concludes that in the circumstances justice so requires in order to avoid
disproportionate compensation.
Comments:
a. Requirement of foreseeability....It is enough, however, that the loss was foreseeable
as a probable, as distinguished from a necessary, result of his breach. Furthermore, the
party in breach need not have made a "tacit agreement" to be liable for the loss. Nor
must he have had the loss in mind when making the contract, for the test is an
objective one based on what he had reason to foresee. There is no requirement of
foreseeability with respect to the injured party....Although the recovery that is
precluded by the limitation of foreseeability is usually based on the expectation
interest and takes the form of lost profits (see Illustration 1), the limitation may also
preclude recovery based on the reliance interest (see Illustration 2).
b. "General" and "special" damages. Loss that results from a breach in the ordinary
course of events is foreseeable as the probable result of the breach. See Uniform
Commercial Code 2-714(1). Such loss is sometimes said to be the "natural" result of
the breach, in the sense that its occurrence accords with the common experience of
ordinary persons. For example, a seller of a commodity to a wholesaler usually has
reason to foresee that his failure to deliver the commodity as agreed will probably
cause the wholesaler to lose a reasonable profit on it. Similarly, a seller of a machine
to a manufacturer usually has reason to foresee that his delay in delivering the
machine as agreed will probably cause the manufacturer to lose a reasonable profit
from its use....The damages recoverable for such loss that results in the ordinary
course of events are sometimes called "general" damages.
....In the case of a written agreement, foreseeability is sometimes established by the
use of recitals in the agreement itself. The parol evidence rule (213) does not,
however, preclude the use of negotiations prior to the making of the contract to show
for this purpose circumstances that were then known to a party. The damages
recoverable for loss that results other than in the ordinary course of events are
sometimes called "special" or "consequential " damages. These terms are often
misleading, however, and it is not necessary to distinguish between "general" and
"special" or "consequential" damages for the purpose of the rule stated in this Section.
c. Litigation or settlement caused by breach. Sometimes a breach of contract results
in claims by third persons against the injured party. The party in breach is liable for the
amount of any judgment against the injured party together with his reasonable
expenditures in the litigation, if the party in breach had reason to foresee such
expenditures as the probable result of his breach at the time he made the contract.... In
furtherance of the policy favoring private settlement of disputes, the injured party is
 also allowed to recover the reasonable amount of any settlement made to avoid
litigation, together with the costs of settlement.
f. Other limitations on damages. It is not always in the interest of justice to require
the party in breach to pay damages for all of the foreseeable loss that he has caused.
There are unusual instances in which it appears from the circumstances either that the
parties assumed that one of them would not bear the risk of a particular loss or that,
although there was no such assumption, it would be unjust to put the risk on that party.
One such circumstance is an extreme disproportion between the loss and the price
charged by the party whose liability for that loss is in question. The fact that the price
is relatively small suggests that it was not intended to cover the risk of such liability.
Another such circumstance is an informality of dealing, including the absence of a
detailed written contract, which indicates that there was no careful attempt to allocate
all of the risks. The fact that the parties did not attempt to delineate with precision all
of the risks justifies a court in attempting to allocate them fairly....

Restatement of Contracts, Second 353 Loss due to Emotional Disturbance

Recovery for emotional disturbance is excluded in damages unless the breach also
caused bodily harm or the breach is of such a kind that serious emotional disturbance
was a particularly likely result

U.C.C. 2-715 Buyers Incidental and Consequential Damages

(1) Incidental damages resulting from the seller's breach include expenses reasonably
incurred in inspection, receipt, transportation and care and custody of goods rightfully
rejected, any commercially reasonable charges, expenses or commissions in
connection with effecting cover and any other reasonable expense incident to the delay
or other breach.
(2) Consequential damages resulting from the seller's breach include
(a) any loss resulting from general or particular requirements and needs of
which the seller at the time of contracting had reason to know and which could
not reasonably be prevented by cover or otherwise; and
(b) injury to person or property proximately resulting from any breach of
warranty.

Lamkins v. International Harverster Co Plaintiffs bought a tractor that was supposed to

have lights, but didnt so they sued for the crops they couldnt plow. Court said that they
could not fully recover.

Victoria Laundry v. Newman Industries a broiler wasnt delivered to a Laundromat and the
Laundromat sued for lost profits. They could recover because the broiler provider should
have known, even if he didnt think about it at the time of contracting. Use reasonable man
in their position standard.

Hector Martinex & Co. v. S. Pacific Transport Co. A carrier that was late delivering a
dragline which the plaintiff was going to rent was found to be liable because they could
have foreseen that rental was a way it would be used.

Valentine v. General American Credit, Inc Emotional and mental distress from a breach of
an employment contract cannot be recovered because such damages could apply to all
contracts, law doesnt try to compensate all damages ( attorneys fees), and here there is not
element of personality in the contract like a contract to marry or deliver a baby.
 iii. Uncertain Damages
New business rule = he would is prevented from embarking in on a new business can
recover no profits, because there are no provable data of past business from which the
fact that anticipated profits would have been realized can be legally deduced.

Restatement Second 352 Uncertainty as a Limitation on Damages

Damages are not recoverable for loss beyond an amount that the evidence permits to
be established with reasonable certainty.

MindGames v. Western Publishing MindGames could not recover lost profits when it
was unknown what those profits would have been (Western stopped selling the game
early, but they didnt know what the market would be like later)

Fera v. Village Plaza, Inc. Damages can be awarded to a new business if its a book
and bottle shop in a shopping center whose space was given away and who cannot
find an equivalent location.

d. Alternative Interests: reliance and restitution

i. Reliance damages in lieu of expectation damages

Restatement of Contracts, Second 349 Damages Based on Reliance Interest

The injured party can choose to go for reliance damages instead of expectation
damages, but such damages will be mitigated by any losses the plaintiff would have
sustained if the contract had been performed.

Reliance is a proxy for expectation damages when expectation damages would

not provide justice or are difficult to calculate

Precontractual reliance not recoverable however, could argue that should be

because it increases the size of the pie for both parties. However, if you did that, they
it would incentivize overinvestment.

Security Stove & Mfg. v. American Express Co Stove company was going to show new oil
and gas stove at a exhibition, but couldnt because it shipped too slowly. Although
expectation damages were zero, could recover reliance (hotel room fees etc. made after
contract). Reliance sets a floor for expectation damages. In this case, they can include pre-
contractual reliance (even though normally cant) because American Express had a common
law duty to accept the package.

L. Albert & Son v. Armstrong Rubber Co. - Plaintiff agreed to buy machines from defendant
for reconditioning old rubber, and two of four were delivered after WWII had ended. Plaintiff
had prepared foundations for the machines, but this cost might have been more than the
profit plaintiff would have made. Plaintiff can be awarded reliance expenses minus whatever
the defendant can show would have been plaintiff's loss had the contract been fulfilled.

ii. Damages in promissory estoppel cases

Restatement 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 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.
(2) A charitable subscription or a marriage settlement is binding without proof the
promise induced action or forbearance

iii. Restitution as a remedy for breach of contract (*its own cause of action)

Restitution = unjust enrichment

It can be in lieu of expectation damages in a losing contract.

It can be used in quasi-contracts when there has not been substantial
performance.
Restitution is not available to one who has fully/ substantially performed.

Restatement Second, 373 FIND IN BOOK

Restitution when other party is in breach and you conferred a benefit on the other
party by part performance or reliance. Cant get resititution if 100% complete and just
need payment.

US v. Algernon Blair Inc. Blair would not pay for Coastals cranes even though it was
part of their contract. It was a losing contract for Coastal so expectation damages would
have been zero, but they could recover for the materials and labor costs they had
provided. Here the contract was void because there was a material breach. Here contract
price did not limit unjust enrichment.

Britton v. Turner Plaintiff worked for 9.5 months/ 1 year contract. Although couldnt
recover for breach of contract because he was the breacher, could recover restitution.

Oliver v. Campbell A lawyer who was discharged just before he completed a contract
was only able to recover for the price of the contract, not for restitution (which was
higher) because he had basically fully performed.

Kohoe v. Rutherford Kehoe worked on a road until he found out it was through private
property. ???????

e. Contractual provisions setting damages

Restatement Second, 356 Liquidated Damages and Penalties

(1) Damages for breach by either party may be liquidated in the agreement but only at an
amount that is reasonable in the light of the anticipated or actual loss caused by the breach and
the difficulties of proof or loss. A term fixing unreasonably large liquidated damages is
unenforceable on grounds of public policy as a penalty.
Comments....
b. Test of penalty.....A determination whether the amount fixed is a penalty turns on a
combination of these two factors. If the difficulty of proof of loss is great, considerable
latitude is allowed in the approximation of anticipated or actual harm. If, on the other hand,
the difficulty of proof of loss is slight, less latitude is allowed in that approximation..
 c. Disguised penalties.....Neither the parties actual intention as to its validity nor their
characterization of the term as one for liquidated damages or a penalty is significant in
determining whether the term is valid.
d. Related types of provisions....A term that fixes as damages an amount that is unreasonably
small does not come within the rule stated in this Section, but a court may refuse to enforce it
as unconscionable under...208.....

U.C.C. 2-718 (1) Liquidation or Limitation of Damages; Deposits

(1) Damages for breach by either party may be liqudated in the agreement but only at an
amount which is reasonable in the light of the anticipated or actual harm caused by the breach,
the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining
an adequate remedy. A term fixing unreasonably large liquidated damages is void as penalty.

Liquidated damages cannot be recovered if the damages specified in the contract are
penalty damages. To determine if a contract term creates a penalty, look to see if at the time of
contract formations, the term was a reasonable estimate of cost from breach.

Wilt v. Waterfield A contract for the sale of a farm that had a 10% liquidated damages
provision was void because in breach the detriment was hugely disproportional to the small
liquidated damages.

Lake River Corp. v. Carborundum Company Lake River was supposed to deliver Ferro
Carbon and it got special machinery to do this. There was a provision that Carborundum
would deliver a certain amount in first three years. When they didnt Lake River wanted
damages. Court held that this was a penalty clause because not a good estimation of damages
at time of contract formation.

B. Specific Performance
Needs to be uncertain to value, not just unique: A court should award specific performance in
breaches of real estate contracts (sales, not leases) and in other breaches where the uniqueness of
the property in question raises uncertainty in valuing it. (Van Wagner)

Restatement Second 360 Factors Affecting the Adequacy of Damages

In determining whether the remedy in damages would be adequate, the following circumstances
are significant:
(a) the difficulty of proving damages with reasonable certainty,
(b) the difficulty of procuring a suitable substitute performance by means of money awarded as
damages, and
(c) the likelihood that an award of damages could not be collected.
Comments....
b. Difficulty in proving damages. The damage remedy may be inadequate to protect the injured
party's expectation interest because the loss caused by the breach is too difficult to estimate with
reasonable certainty.... Some types of interests are by their very nature incapable of being valued
in money. Typical examples include heirlooms, family treasures and works of art that induce a
strong sentimental attachment. Examples may also be found in contracts of a more commercial
character.
The breach of a contract to transfer shares of stock may cause a loss in control over the
corporation ....The breach of a covenant not to compete may cause the loss of customers of an
unascertainable number or importance. The breach of a requirements contract may cut off a vital
supply of raw materials. In such situations, equitable relief is often appropriate.
 c. Difficulty of obtaining substitute. If the injured party can readily procure by the use of money
a suitable substitute for the promised performance, the damage remedy is ordinarily adequate.
Entering into a substitute transaction is generally a more efficient way to prevent injury than is a
suit for specific performance or an injunction and there is a sound economic basis for limiting the
injured party to damages in such a case. Furthermore, the substitute transaction affords a basis for
proving damages with reasonable certainty, eliminating the factor stated in Paragraph (a)....
e. Contracts for the sale of land. Contracts for the sale of land have traditionally been accorded a
special place in the law of specific performance. A specific tract of land has long been regarded as
unique and impossible of duplication by the use of any amount of money. Furthermore, the value
of land is to some extent speculative. Damages have therefore been regarded as inadequate to
enforce a duty to transfer an interest in land, even if it is less than a fee simple.....

U.C.C. 2-716 Buyers Right to Specific Performance or Repevlin (get back what you had)
(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 conditions as to payment of
the price, damages, or other relief as the court may deem just.
(3) The buyer has a right of replevin for goods identified to the contract if after reasonable effort
he is unable to effect cover for such goods or the circumstances reasonably indicate that such
effort will be unavailing or if the goods have been shipped under reservation and satisfaction of
the security interest in them has been made or tendered.

Schwartz The Case for Specific Performance Should do specific performance because
1. damages may be undercompensatory
2. promisees will sue for damages when they can because more economic and time and litigation
saving
3. promisees know more about circumstances and can judge better when specific performance
should be required

Van Wagner Advertising Corp v. S&M Enterprises Van Wagner wanted a specific billboard
space. This was a lease, not the sale of real estate (which normally does require specific
performance) and the value of it can be judged by looking at similarly situated advertising
spaces so damages are appropriate.

Curtice Brothers Co. v. Catts You can grant specific performance for a farmer to sell all of his
tomatoes to a canner when there is limited time and the canner cannot get the tomatoes from
elsewhere

PART III: ASSENT

A. The Making of Agreements

a. Objective vs. Subjective Theories in Contracts
i. Rule from Embry: To decide if there was an offer and acceptance of a contract, an
objective observer must believe that one party was assenting to the offer of another
and that the other party relied on that acceptance. Use objection, not subjective
standard to decide if offeree could have reasonably thought other party was assenting
and then subjective standard to see if they actually believed that there was a contract
(subjective)
 ii. To form a valid contract there must be a meeting of the minds and both parties must
agree to the same thing in the same sense. If a man conducts himself such that a
reasonable person would believe that he was assenting to the terms proposed by
another party, and that other party upon that belief enters into the contract, that man
would be equally bound whether or not he had actual subjective intent.
iii. Embry v. Hargadine-McKittrick Embry walked into McKittricks office and asked
that his contract be renewed a year. McKittrick replied go ahead, youre all right.
The court found that it was a question for the jury whether a reasonable man would
have thought this was assent to a contract.
b. Intention not to be bound
i. A letter is not an offer, but instead an advertisement, if it does not specify the
quantity that could be bought
ii. Moulton v. Kershaw a salt dealer mailed a letter to the plaintiffs saying that they
could sell car-loads of salt for a given price, but when an order can in, they refused to
accept ti
c. Indefiniteness
i. Restatement 33-Certainty:
(1) Even though a manifestation of intention is intended to be understood as an
offer, it cannot be accepted so as to form a contract unless the terms of the
terms of the contract are reasonably certain
(2) The terms of a contract are reasonably certain if they provide a basis for
determining the existence of a breach and for giving an appropriate remedy
(3) The fact that one or more terms of a proposed bargain are left open or
uncertain may show that a manifestation of intention is not intended to be
understood as an offer or as an acceptance
ii. UCC 2-305 (1) :The parties if they so intend can conclude a contract for sale even
though the price is not settled. In such a case, the price is a reasonably price at the time
for delivery if
a. nothing is said as to price
b. the price is left to be agreed by the parties and they fail to agree or
c. the price is to be fixed in terms of some agreed market or other
standard as set or recorded by a third person or agency and it is
not so set or recorded
iii. Rationales for Default Rules (Craswell)
(1) Even if you agree with Fried that contracts should reflect what the parties
would have wanted (to reflect their autonomy), this does not tell you what the
default rule should be. To decide this, you will have to use other approaches,
perhaps economic efficiency, fairness and justice, maybe unconscionability.
(2) Hard to determine if a contract even exists because we dont require a seal for
a contract.
(3) Rawls would want to craft default rules so that they lead to an equal
distribution of all primary social goods
(4) One approach would be to not enforce the contract which would force parties
to specify everything in their contract. However, this would lead to huge
contracting costs and we still would live in a world of incomplete contracts
(5) Penalty default if dont include in contract get zapped. Might not be
efficient. Craswell says not efficient because overcompensatory damages will
raise the price so buyers are buyig right to higher damages.
(6) Majoritarian Default what most contracting parties would want most of the
time
iv. Condition to Existence of a contract vs. an Implied promise
 (1) If a condition to the existence of a contract _____________________
(2) If an implied or explicit promise (term of the contract) then failure to perform
is a material breach and the contract can be voided.
(3) Policy considerations for allocating loss when deciding if condition
a. Information seller knows more perhaps
b. Insurance who is in a better position to get insurance
c. Incentives want to give nonbreacher incentives to prevent
d. Allocation of risk was there one in the contract
v. Cases

Wheeter v. White Wheeler leveled land in reliance that White would receive a loan for
him. However, White could not acquire the loan and Wheeler brought suit to recover. The
court ruled that he could recover reliance damages, but no more because he was in part
responsible for

Hoffman v. Red Owl Stores Hoffman relied on a belief that $18,000 would be sufficient to
allow him to buy into a Red Owl franchise and in reliance of this, Hoffman bought fixtures
and inventory of a small grocery store, moved to get experience at another Red Owl, and
moved multiple times. The court ruled that Hoffman could recover for promissory estoppel
under Restatment 90.

d. Misunderstanding
i. Restatement of Contracts, Second 20
(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 the
other; or
b. Each party knows or each party has reason to know the meaning
attached by the other.
(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.
ii. Ambiguity voids the contract when there is a misunderstanding as to the identity of a
fundamental term
iii. Raffles v. Wickelhaus If there was no meeting of the minds (consensus) at the time of
contract formation, then the contract was never legally enforceable. Peerless case.
Plaintiff sold cotton that arrived on a ship in December, but the defendants refused to
pay because they thought that Peerless was the ship arriving in November.
e. Termination of offers
i. In general Restatement Second 36 Methods of Termination of the Power of
Acceptance
(1) An offerees power of acceptance may be terminated by
a. Rejection or counter-offer by offeree, or
b. Lapse of time, or
c. Revocation by the offeror, or
d. Death or incapacity of the offeror or offeree
 (2) In addition, an offerees power of acceptance is terminated by the
nonoccurrence of any condition of acceptance under the terms of the offer
ii. Lapse of Time Time starts when offeree receives the offor (ex. 8 days after). Also, if
never revoked, question for jury if offer still on table. Offeror is master of the offer
and can decide the substance, offeree, and procedure for acceptance
iii. Death or incapacitation of the offeror or offeree if its a unilateral contract and
offeror dies = no contract because offer revoked upon death. If bilateral = contract
lives because promise for a promise.

Davis v. Jacoby Caro, niece of Mrs. Whitehead, was asked to come to California to take
care of him and his wife. Before she made the trip, Mr. Whitehead committed suicide. Court
ruled that she could recover because it was a bilateral contract.

iv. Revocation
(1) Rules (3 restatements = 3 ways to create option contracts)
a. Restatement 25 Option Contracts An option contract is a promise
which meets the requirements for the formation of a contract and limits
the promisors power to revoke an offer
b. Restatement 45 Option Contract Created by Part Performance
or Tender
i. Where an offer invites an offeree to accept by renderin 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.
ii. The offerors 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.
***Sidenote: beginning preparations is not enough
c. Restatement 87 87. OPTION CONTRACT
(1) 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 statute.
(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.
Comment:
e. Reliance. Subsection (2) states the application of 90 to reliance on an unaccepted offer,
with qualifications which would not be appropriate in some other types of cases covered by 90.
It
is important chiefly in cases of reliance that is not part performance. If the beginning of
performance
is a reasonable mode of acceptance, it makes the offer fully enforceable under 45 or 62; if not,
the
offeror commonly has no reason to expect part performance before acceptance. But circumstances
may be such that the offeree must undergo substantial expense, or undertake substantial
commitments, or forego alternatives, in order to put himself in a position to accept by either
promise
or performance.... But the reliance must be substantial as well as foreseeable.
Full-scale enforcement of the offered contract is not necessarily appropriate in such cases.
Restitution of benefits conferred may be enough, or partial or full reimbursement of losses may
be
proper. Various factors may influence the remedy: the formality of the offer, its commercial or
social
context, the extent to which the offeree's reliance was understood to be at his own risk, the
relative
competence and the bargaining position of the parties, the degree of fault on the part of the
offeror,
the ease and certainty of proof of particular items of damage and the likelihood that unprovable
d. UCC 2-204 (1) A contract for sale of goods may be made in any
manner sufficient to show agreement, including conduct by both parties
which recognizes the existence of such a contract. (2)An agreement
sufficient to constitute a contract for sale may be found even though the
moment of its making is undetermined (about actions creating a
contract)
e. UCC 2-206 (1) Unless otherwise ambiguously indicated by the
language or circumstances
i. An offer to make a contract shall be construed as inviting
acceptance in any manner and by any medium reasonable in the
circumstances
ii. An order or other offer to buy goods for prompt or current
shipment shall be construed as inviting acceptance either by a
prompt promise to ship or by the prompt or current shipment of
conforming or nonconforming goods, but such a shipment of
non-conforming goods does not constitute an acceptance if the
seller seasonably notifies the buyer that the shipment is offered
only as an accommodation to the buyer.
f. Restatement Second 86 Option Contract
i. (1) An offer is binding as an option contract if it
1. is in writing and signed by the offeror, recites a
purported consideration for the making of the offer, and
proposes and exchange on fair terms within a reasonable
time; or
2. is made irrevocable by statute
ii. (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

(2) Cases

Dickinson v. Dodds An open offer to sell terminates when the offeree learns that the offeror
has already agreed to sell to someone else. Dickinson wanted to accept Dodds offer that was
open until the 12th and heard from a third party that Dodds had sold the property to another.
No contract.

Petterson v. Pattberg An offer can be revoked anytime before performance, in this case,
upon delivery of the money. Pattberg offered that if Petterson paid his mortgage, he would
 credit him $780. When Petterson came to pay, Pattberg revoked the offer. Difficult because
offeror can prevent specific performance. Could apply Restatement 45, but what is
performance.

James Baird Co. v. Gimbel Bros. HAND A subcontractors miscalculated bid was used by
a general contractor in another bid before it was accepted. Hand said held for the
subcontractor saying that a contract is not created when the contractor uses a bid, but instead
when the bid is accepted. The contractor could have made an option contract or a bilateral
contract. (Hands default rule = penalty default cuz wants parties to contract around it or
majoritarian because subcontractors wouldnt want a one-sided offer)

Drennan v. Star Paving Co. TRAYNOR contractor used subcontractors bid for paving bid.
Promissory estoppel in this case. Uses section 45 to create an implicit promise to keep the
promise open. Then uses 90 that this implicit, subsidiary promise was relied upon. (Traynor
majoritarian default because contractors would value using a subcontractor who will be
around)

*both this and Baird agree no bilateral contract because no acceptance.

However, in Baird the offer could not be a gratuitous offer so couldnt so
couldnt use promissory estoppel while in Drennan, the offeror didnt ask for
anything in consideration so could use section 90 for subsidiary promise.

*Tort notions who is the CCA? The subcontractor. Subcontractor was

negligent. If say CCA is contractor, maybe because should have noticed low
(last clear chance)

f. Valid means of acceptance

i. General concepts
(1) A counter-offer closes the offer.
(2) An introduction of a new term means that the offer is dead unless
a. Immaterial
b. Attempts to make implicit terms explicit
c. Accepting and suggesting a new term is of (grumbling acceptance)

Livingston v. Evans defendant made offer. Plaintiff responded Send lowest cash price.
Will give $1600. Defendant responded Cannot reduce price. Court said this was a
renewal of the previous offer so the contract could be enforced.

ii. The battle of forms

(1) U.C.C. 2-207 Additional Terms in Acceptance or Confirmation
(1) A definite ad seasonable expression of acceptance or a written
confirmation which is sent within a reasonable time operates as an
acceptance even though it states terms additional to or different from
those offered or agreed upon, unless acceptance is expressly made
conditional on assent to the additional or different terms.
(2) The additional terms are to be constued as proposals for additions to
the contract. Betweeen merchants such terms become part of the
contract unless:
(a) the offer expressly limits acceptance to the terms of the
offer;
 (b)they materially alter it; or
(c) notification of objection to them has already been given or is
given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a
contract is sufficient to establish a contract for sale although the
writings of the parties do not otherwise establish a contract. In such
case the terms of the particular contract consist of those terms on which
the writings of the parties agree, together with any supplementary terms
incorporated under any other provision of this Act.
(2) Different than common law. 2 mechanisms for establishing a contract
a. Forms themselves create a basis for saying there is a contract
b. Conduct shows there is a contract (Union Carbide)
(3) 3 approaches to conflicting terms
a. Conflicting terms fall out (majority)
b. Offerors terms control (minority)
c. Terms of offer prevail over different terms only if different terms are
materially different
iii. The Mailbox rule acceptance occurs when it leaves the possession of the offeree
(when they put it in the mailbox)
Restatement 63 Time When Acceptance Takes Effect
Unless the offer provides otherwise,
(a) an acceptance made in a manner and by a medium invited by an
offer is operative and completes the manifestation of mutual assent
as soon as put out of the offerees possession, without regard to
whether it ever reaches the offeror; but
(b) an acceptance under an option contract is not operative until
received by the offeror.
iv. Silence as Acceptance
Restatement 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 offerors ownership of
offered propertybound 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.

Monrone v. Monrone Unmarried couple. Wife sues for implied and express contract.
Court ruled that unmarried parties can expressly contract, but no implied contract for
domestic housework.
 Union Carbide battle of forms. Two contracts had opposing indemnity clauses. 2-207 is
unclear as to whether additional and different, or just additional terms fall out. Here the
court said additional terms fall out.

B. Written Evidence and the Parol Evidence Rule

a. Statute of frauds The statute of frauds refers to the requirement that certain kinds of
contracts be memorialized in a signed writing.
Traditionally, the statute of frauds requires a signed writing in the following circumstances:
Contracts in consideration of marriage.
Contracts which cannot be performed within one year.
Contracts for the transfer of an interest in land.
Contracts by the executor of a will to pay a debt of the estate with his own money.
Contracts for the sale of goods involving a purchase price of $500 or more.
Contracts in which one party becomes a surety (acts as guarantor) for another party's
debt or other obligation.
Today UCC says need a memoradum for sale of goods over $500.
Need for interest in land (includes sale and transfer of title, but not lease)
Not performed within 1 year
*does not require K in writing, just a K it exists

Policy want to lower number of frauds, decrease the need for courts to make ex post
determinations, and creates a penalty default to incentivize these behaviors

b. U.C.C. 2-201 Formal Requirements; Statute of Frauds

(1) Paraphrase Must be record for sale of goods over $500.
(2) A memo that is received and not objected to in 10 days that the recipient has reason to
know the contents of satisfies the requirement in (1)
(3) Contracts that dont satisfy (1) are enforceable if (a) goods are to be specially
manufactured fr buyer and are not suitable for sale to others (b) party against whom
enforcement is sought admits K was made (c) payment was made and accepted or goods
have been sent or accepted
(4) Contract not made unenforceable because it is not capable of being performed in a
year

c. Restatement 209 (p.401 book) Integrated Contracts: Basically, 1st ask if the contract is
integrated (inteded to be a complete and final expression of at least some terms). If
completely integrated, it includes all terms and conditions. Completely discharges all prior
agreements, both oral and written in the scope of the contract. If partially integrated, knocks
out old agreements about the terms addressed.

d. Restatement 214 Evidence of Prior or Contemporaneous Agreements and

Negotiations: No parol evidence in cases of fraud or duress

e. Parol evidence rule- can use outside evidence only if the terms of a K are ambiguous. You
can use parol evidence to decide if they are ambiguous.

f. Two approaches:
1. Wilistonian thought parol evidence should not be used to decide if
ambiguous. Just look at the K.
 2. Corbin/ Trayner Use parol evidence in applying parol evidence rule.
(Restatment)
g. Integration and Additional or Inconsistent Terms
i. Allow in parol evidence if
(1) The oral agreement must in form be collateral to written
(2) It must not contradict express or implied provisions of the written
contract
(3) It must be one that parties would not ordinarily be expected to embody in
the writing

ii. Mitchell v. Lath Michell bought a farm from Lath and Lath said he would take down
an ice house. The court held that you should not include parol evidence in when the
agreement because the oral agreement was the type of thing would be expected to
write down - one agreement was entered in consideration of the other so tranactions
are bound together (Willistonian approach - rule) dissent said here oral contract was
inducement for written so distinct enough (Corbin look at the writing and the
negotiation standard/. Same as Traynor in Pacific Gas and in Restatement)

h. Ambiguity
i. You can hear parol evidence to determine the meaning and intent of the parties,
but not to add to, detract from, or vary terms of the contract. If ambiguous, can
include parol evidence. Pacific Gas & Electric TRAYNOR (Pro Standard)- the
defendant was replacing the metal cover of the plaintiffs steam turbine and in the
contract said he would indemnify the plaintiff against loss to property (D claimed
others property and P all property). Traynor used parol evidence to decide if the K
was ambiguous

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

Terms with respect to which the confirmatory memoranda of the parties agreeor 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 mya
be explained or supplemented by
(a) by course of dealing or usage of trade or by course of performance; and
(b) by evidence of consistent additional terms unless the court finds the
writing to have been intended also as a complete and exclusive statement
of the terms of the agreement

C. Assent to Standardized Forms (Contracts of Adhesion)

a. Restatement 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 writing.
(2) Such 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 know that the writing contained a particular term, the term is not part of
the agreement
 **aka if a customer had a reasonable expectation to know a term wouldnt be in the
contract, that term wont be enforced. This is good because you cant bring
misrepresentation claim (you could have read the contract or a mistake claim (both
parties assume a state of the world and both are wrong) or a they told me wrong claim
(parol evidence rule).
b. Rakoff article Notion of the market for lemons. If product quality is unobservable. Market
will degenerate to the lowest level despite that there is a market for the high quality product =
lost opportunities and inefficient. Do Ks of adhesion also do this?
i. Market for Lemons says that the market will deteriorate towards the product of the
lowest quality. The price that will make the market reach equilibrium is too low. This
is the result of an information asymmetry. There are options to fix this asymmetry (1)
provide a warranty as a signal (2) allow reputation of dealers to play in (3)
government regulation

PART IV: POLICING THE BARGAIN

A. Duress
a. If duress is found void K
b. Duress must overcome a person of ordinary courage
c. Silsbee v. Webber Holmes. It should be up to the jury whether or not a woman was under
duress when she paid her sons employer for his misactions so that the employer would not
tell her sick husband. Although the threat was not actionable, Holmes says that if law was
perfect, it would be ideal so might be duress
d. Hackley v. Headley The court said it was not duress when the plaintiff went to the defendant
to recover $6,200 for the cost of scaling logs and the defendant refused to pay any more than
$4,000. The plaintiff accepted because he was in dire straights. However, today the court
might say could recover.
e. Offer v. threat see Supp 4 p.10

B. Mistake and Nondisclosure

a. Mutual and Unilateral Mistake
Mutual
i. If the parties believe that the thing being contracted is materially different than
that which they contracted for, the contract is voided
ii. Misunderstanding = 2 parties think different things. Mistake = 2 parties think
same thing which turns out to be different (was meeting of the minds)
iii. Lets would-be breacher off hook like Hadley (unforeseeable losses while here
unforeseeable events) and Jacob Youngs and the level grade case
iv. Policy precautions, insurance etc.
v. Mistake works when there is an implied condition in the K
vi. Restatement ????? provides wide latitude and discretion for discerning the intent of
the parties at the time of K formation. To void K need (1) addresses a basic
assumption (2) material (3) no assumption of risk (to decide look at price and other
factors also
vii. Restatement 502 - conscious ignorance (know you dont know is not an
excuse)
viii. If you dont take steps to verify your consideration, then there is a valid contract .
The existence of the consideration is a promise. (McRae)
 Sherwood v Walker Rose 2nd cow misunderstanding. Court voided K because
materially different the court found both parties believed she was barren.
Differentiated things that are material and collateral (no void)

Beachcober Coins, Inc. v. Boskett When neither party knew that a rare coin was
actually a fake, the contact could be rescinded because neither party knew there was
an uncertainty.

Ulilateral
ix. Restatement ? says for unilateral mistake to rescind the contract need
1. Material mistake
2. Party seeking to void the K was not negligent
3. Enforcing the K would be unconscionable
4. Other party has not changed its position for the worse
x. Clerical mistakes at time of contract formation can be rescinded
xi. Mistakes in judgment cannot be rescinded
xii. Notions of tort play into the doctrine (last clear chance and trying to prevent
excessive precautionary expenditures.
xiii. Implied warranty
2-316. Exclusion or Modification of Warranties.
(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate
or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the
provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative
to the extent that such construction is unreasonable.
(2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it
the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or
modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to
exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no warranties
which extend beyond the description on the face hereof."
(3) Notwithstanding subsection (2)
(a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions
like "as is", "with all faults" or other language which in common understanding calls the buyer's
attention to the exclusion of warranties and makes plain that there is no implied warranty; and
(b) when the buyer before entering into the contract has examined the goods or the sample or model
as fully as he desired or has refused to examine the goods there is no implied warranty with regard to
defects which an examination ought in the circumstances to have revealed to him; and
(c) an implied warranty can also be excluded or modified by course of dealing or course of
performance or usage of trade.
(3) Remedies for breach of warranty can be limited in accordance with the provisions of this
Article on liquidation or limitation of damages and on contractual modification of remedy
(Sections 2-718 and 2-719).
2-317. Cumulation and Conflict of Warranties Express or Implied.
Warrantieswhetherexpressorimpliedshallbeconstruedasconsistentwitheachotherandascumulative,
butifsuchconstructionisunreasonabletheintentionofthepartiesshalldeterminewhichwarrantyis
dominant.Inascertainingthatintentionthefollowingrulesapply:
(a) Exact or technical specifications displace an inconsistent sample or model or general language of
description.
(b) A sample from an existing bulk displaces inconsistent general language of description.
(c) Express warranties displace inconsistent implied warranties other than an implied warranty of
fitness for a particular purpose.
 (4)
xiv. Overall rational for mistake
low probability events
functionally voids K and gets the breacher off hook
Risk allocation functions like an implied promise or an implied warranty
Last clear chance for unilateral
Kronman mistake is a cost to society because misallocation of resources.
Court should assign liability of mistake to the party with the most information.
Deliberatedly aquired dont need to report, but casually acquired should
disclose.
i. Was the contractor negligent in his calculation?
1. If yes, under Restatement enforce the K
2. If yes, some courts will still void the K because no harm done
ii. Was there reliance on the calculation?
1. If yes, under Restatement enforce the K
2. If yes, some courts will still void the K but make pay low reliance
damages????

Elsinore Elementary School v. Kastorff A contractor forgot to include the bid from
his plumber (subcontractor) in his bid. At the time the school board made its bid, he
had already rescinded. Recission may be had for mistake of fact if the mistake is
material to the contract and was not the result of neglect of a legal duty, if the
enforcement of the contract as made would be unconscionable, and if the other party
can be placed in status quo. (Mistake can be inferred from price

Where a seller of land sells it for a specific purpose such as for a single-family
dwelling, and subsequently he and buyer learn that the property cannot be used
for that purpose, the seller breaches an implied warranty. Hinson v. Jefferson
Defendant bore the loss when the property he sold to the plaintiff for building a single-
family dwelling was too close to sea level to get a septic permit.

McRae v. Commonwealth Disposals Commission - relying on rumours, the

Commission sold to McRae the right to salvage an oil tanker thought to be marooned
at the specified location. Unfortunately, the tanker did not exist. The Commission
argued the contract was void because of a common mistake as to the existence of the
subject matter, but the court noted that the Commission "took no steps to verify what
they were asserting and any 'mistake' that existed was induced by their own culpable
conduct." McRae wasted money searching for the non-existent wreck. His claim for
the loss of profits expected from a successful salvage was dismissed as too
speculative, but reliance damages were awarded for wasted expenses. Was a contract.
Then failure of consideration.

Courier cited in McRae A sold corn to B that had already rotted. A sued for $ from
B, but court didnt make B pay. The McRae court said that there was a contract here,
but there was a material breach so dont have to pay. Unlike McRae which was a
failure of consideration.

b. The Duty to Disclose Information

 i. Restatement 161 Non-disclosure. A persons non-disclusure of a fact known to
him is equivalent to an assertion that the fact does not exist in the following cases
only:
1. (a) where he knows that disclosure of the fact would correct a mistake of the
other party as to a basic assumption on which that party is making the contract
and if non-disclosure of the fact amounts to a failure to act in good faith
2. (b) Known mistake as to a basic assumption if seller knows buyer is
mistaken on a basic assumption must disclose.
***aka here need (1) a fact that is (2) a basic assumption of the contract and
(3) failing to disclose is is failing to act in good faith and fair dealing.
(Kronman deliberatively and casually acquired)
ii. Restatement 552? - For a misrepresentation claim it must be
1. A representation
2. False
3. Intentional
4. Material
iii. Remedies
1. If misrepresentation as a contract claim reliance (in position if K had never
been made because K is void). This is like an implied warranty (expectation
damages).
2. If tort misrepresentation claim (reckless) expectation damages (in position
if misrepresentation had been true).
iv. History
1. Laidlaw v. Organ dont have to disclose that the War of 1812 ended and the
price of tobacco would rise
v. Cases
Hill v. Jones Termite case. Left the issue of whether or not past termite problems was
material. A seller of a property must advise the buyer of material facts within his
knowledge pertaining to the value of the property. The doctrine of caveat emptor has
waned in its influence recently. The modern view is that a vendor has an affirmative
duty to disclose material facts where (Second Restatement 161). Disclosure is
necessary to prevent a pervious assertion from being a misrepresentation or from
being fraudulent or material. Disclosure would correct a mistake of the other party as
to a basic assumption on which that party is making the contract and if nondisclosure
amounts to a failure to act in good faith and in accordance with reasonable standards
of fair dealing. Disclosure would correct a mistake of the other party as to the contents
or effect of a writing, evidencing or embodying an agreement in whole or in part.

Reed v. King sold house without telling buyer that 10 years earlier a woman and 4
kids. Whether Reed will be able to prove her allegation the decade-old multiple
murder has a significant effect on market value we cannot determine. If she is able to
do so by competent evidence she is entitled to a favorable ruling on the issues of
materiality and duty to disclose. Her demonstration of objective tangible harm would
still the concern that permitting her to go forward will open the floodgates to
rescission on subjective and idiosyncratic grounds.

C. Conditions and the Duty to Perform

a. Types of Conditions
i. Express Conditions
1. If an express condition then doctrine of substantial performance does not apply. If
condition precedent then the party with the burden of proof needs to prove 100%
compliance with the condition. No substantial performance.
2. Condition subsequent refers to an event or state of affairs that brings an end to
something else. A condition subsequent is often used in a legal content as a marker
bringing an end to one's legal rights or duties. A condition subsequent may be either an
event or a state of affairs that must either (1) occur or (2) fail to continue to occur.
Contract is formed and is voided by condition (aka condition comes subsequent to the
contract formation).
3. Condition precedent refers to an event or state of affairs that is required before
something else will occur. In contract law a condition precedent is an event which must
occur, unless its non-occurrence is excused, before performance under a contract
becomes due, i.e., before any contractual duty arises. Contract formation is suspended
until condition is met.
4. Ways to decide if precedent or subsequent
a. Wording does it suggest obligation to pay only once condition happens
(precedent) or is obligation there from the start (subsequent)
b. Cause of action test (Holmes) if can bring a cause of action before the
occurrence or nonoccurrence of a condition, then it is a condition subsequent
(Holmes would have characterized Gray v. Gardener as a condition precedent)
c. Functionality allocate based on who is best able to meet the burden of proof.
Encourages information asymmetries and seeks to induce to correct them.
(Essence of contract if timing, then more likely a condition, Price if a party
who seeks to get out of an obligation is the one who assumed the risk of the
price change, then it is likely a promise because other party might not have
agreed to a condition, If promise, would breach allow one party to game the
system. Who does the condition protect? If it is a condition to protect you, you
can waive the condition.)
5. Examples

Gray v. Gardner Defendants gave plaintiffs a note to buy oil at 60 cents per gallon and
another note to buy the reside at 85 cents per gallon unless more oil arrived before
October 1. If this condition was a condition precedent, it would mean that the defendants
would not have to pay unless the plaintiffs proved that more oil had not arrived. Thus the
obligation to pay would arise with the nonoccurrence of the event. If this condition was a
condition subsequent, the defendants would have a duty to pay until they could prove that
the ship had arrived before October 1. The ship arrived during the night between Nov. 30
and October 1 and no one could prove when exactly. The court ruled that the condition
was a condition subsequent so the defendants had to pay the plaintiffs.

ii. Constructive Conditions

Authority
1. You dont have to perform unless the other party substantially performs.
2. Restatement 238 Effect on Other Partys Duties of a Failure to Offer
Performance
Where all or part of the performances to be exchanged under an exchange of
promises are due simultaneously, it is a condition of each partys duties to render
such performance that the other party either render or, with manifested present
ability to do so, offer performance of his part of the simultaneous exchange.
3. Restatement 234 Order of Performances Where all or part of the
performances to be exchanged under an exchange of promises can be rendered
 simultaneously, they are to that extent due simultaneously, unless the language
or the circumstances indicate the contrary.
4. U.C.C. 2-307: Delivery in Single Lot or Several Lots
Unless otherwise agreed all goods called for by a contract for sale must be
tendered in a single delivery and payment is due only on such tender but where
the circumstances give either party the right to make or demand delivery in lots
the price if it can be apportioned may be demanded for each lot.
Comments
When agreement doesnt say, delivery in lots is not permitted
The but part above is for when delivery in one sale is not feasible
If in lots, price for lots if it is apportionable
Examples
Nichols v. Raynbred Old case that shows that in a bilateral contract, a party need not
perform before recovery on the contract was allowed. In this case Nichols promised to deliver
a cow to Raybred. When Raybred did not pay, Nichols brought a breach of contract action
against him (assumpsit in those days) even though he hadnt delivered the cow either.

Kingston v. Preston A party can not bring a breach of contract claim against another
party if they themselves have not substantially performed. Here the plaintiff worked for
the defendant for a period of time and then was supposed to inherit part of the defendants
business. However, there was a covenant that the plaintiff must secure sufficient security for
the defendant. There are 3 types of covenants (1) mutual -independent (2) conditions -
dependant (3) mutual conditions performed at the same time. The plaintiff claimed was (1).
Defendant and court said it was (2).

Conley v. Pitney Bowers In bilateral contracts for an agreed exchange of performances,

where one partys performance is to be rendered prior in time to that of the other, it is a
constructive condition precedent to the latters duty. In this case Conley sued his
employer, Bowers, in court before exhausting administrative procedures in violation of his
employment contract. However, the letter denying him benefits did not inform him of appeal
procedures in violation of the contract. The court ruled that the duty of the employer to inform
him of the administrative conditions was a constructive condition precedent to Conleys duty
to exhaust administrative procedures. Here it was constructive because they examined if
employer materially breached= yes.

Stewart v. Newbury Old rule Where no contract is made to perform work and no
agreement is made as to payment, the work must be performed before payment can be
demanded. Here the defendants hired the plaintiff, a contractor, to do concrete work for them.
Payment was to be done in the usual manner (determined verbally). When the plaintiff was
85% done, defendant refused to pay the bill.
***Rule today would be that if the timing of payments is not specified, they should be in
installments

b. Conditions and Promises

i. How different there is a contract and if the other party doesnt fulfill the condition, it is
a breach of contract. However, the nonoccurrence of the condition releases the party from
performance.
Jacob and Youngs v. Kent example. The defendant wanted it to be a promissory
condition??????
 Howard v. Federal Crop Ins. Corp Crops were destroyed by rain. Before the insurance
carrier came to inspect the field, the plaintiffs had plowed over the fields. The contract in
5(b) said that it was a condition precedent that the farmers establish that their crop had
been damaged in a way the policy covered and section 5(f) just said that the crop should
not be destroyed until inspection. The court ruled that requirement not to destroy was a
promise, not a condition precedent to payment.

D. Other Justifications for Non-Performance

a. Impossibility and Impractiability cost of performance becomes infinite
i. Development of the Doctrine
1. In contacts 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. Taylor v. Caldwell
a. The plaintiffs had leased Surrey Gardens and Music Hall for 4 days for
grand concerts. However, due to no fault of either party, the Music Hall
burned down. The plaintiffs sue the music hall owner, Caldwell, to
recover the loss they sustained. The court found there was no contract
and reasoned that the parties at the time of contract formation based
their obligations on the assumption that Surrey Gardens would still be
there. It was an implied condition to the existence of the contract.
Unlikely that owner had taken to insure Taylor against fire.. Tenant,
knowing business, is in a better position to be insured.
b. Hadley considerations for moving loss from breacher (owner) to
non-breacher: precautions, insurance.
2. When an actor engages unconditionally, by express contract, to do an act,
performance is not excused by inevitable accident or other unforeseen
contingency not within his control. Tompkins v. Dudley
a. A contractor was building a school and when he was it was almost
totally done, it burned down due to no fault of either party. The school
board brought suit against the builder saying he didnt perform. The
court agreed that the contractor bears the loss and reasoned that he had
assumed the duty to deliver a completed product. If he didnt want to
assume the risk, it should have been in the contract (seems like a
penalty default).

ii. Modern Approach

1. In order to excuse performance on a theory of commercial im-
practicability, performance must cause extreme and unreasonable
difficulty. American Trading v. Shell Intl
a. The American Trading company was transporting goods from Texas to
India. The Suez canal closed so they had to go an extra 9,000 to
complete performance and they sued for the additional cost. The court
said that they could NOT recover because the contract made it seem
that the Suez canal was a possible and even probable route, but not they
only way to perform. Also, the ship owner knew of risk and could have
incorporated into original price or taken out insurance.
b. Plaintiffs wanted to use impossibility to void the contract and then seek
restitution. Reasons to not to void the K = precautions, insurance
 2. Certain risks are so unusual and have such severe consequences that they
must have been beyond the scope of the risks assigned. Mishara Constr. V.
Transit-Mixed.
a. Transit was supposed to deliver concrete to Misharas work site.
However, due to picketing, they did not deliver. Mishara sued to
recover the difference in price between the concrete they received and
Transits concrete. The court said that this could be commercial
impracticability under UCC 2-615.

b. Frustration of Purpose value of purpose becomes infinite

i. There is no duty to perform when a superceding and unforeseeable event has
frustrated the purpose of the contract that the parties contemplated at the time of
contract formation. Knell v. Henry
ii. Frustration of purpose voids the contract it never existed, but can bring a
restitution claim
iii. When an event neither anticipated nor caused by either party, the risk of which
was not allocated by the contract, destroys the object or purpose of the contract,
thus destroying the value of performance, the parties are excused from further
performance. Chase Precast Corp. v. Paonessa (concrete barriers case)
iv. UCC
1. 2-614 Substituted Performance (1) Where without fault of either party the
agreed berthing, loading, or unloading facilities fail or an agreed type of carrier
becomes unavailable or the agreed manner of delivery otherwise becomes
commercially impracticable, but a commercially reasonable substitute is
available, such substitute performance must be tendered and accepted. (2) If
the agreed means or manner of payment fails because of domestic or foreign
governmental regulation, the seller may withhold or stop delivery unless the
buyer provides a means or manner of payment which is commercially a
substantial equivalent. If delivery has already been taken, payment by the
means or in the manner provided by the regulation discharges the buyers
obligation unless the regulation is discriminatory, oppressive or predatory.
2. 2-215 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 part by a seller who complies with paragraphs (b) and (c) is not a
breach of his duty under a contract for sale if performance as a agreed has been
made impracticable by the occurrence of a contingency the the non-occurrence
of which was a basic assumption on which the K was made or by compliance
in good faith with any applicable foreign or domestic governmental regulation
or order whether or not it proves to be invalid (b) (must allocate production
among customers) (c) (seller msut give buyer notice of delay or non-delivery)
3. 2-216 Procedure on Notice Claiming Excuse A buyer who learns that delay
of goods, he can terminate or modify the contract
v. Policy
1. Posner and Rosenfield Discharge from performance should economically
be allowed where the promisee is the superior risk bearer. Where the promisor
is the superior risk bearer, the nonperformance should be treated as a breach of
contract. You can be a superior risk bearer by:
a. Best place to take precautions
b. Best position to insure
 For example, in the Suez canal case, the promisor, the shipping company, was
the superior risk bearer so could only have been treated as a breach of contract
(which there was none).
2. Kull: Says that Posners ex post method is not predictive and that a rule would
be better a penalty default in this case. He argues that you should let the loss
lie where they are (the windfall principle). He wants no implied excuses so
people will contract around them, but the whole point is that they are
unforeseeable. His point only kicks in when the contract is void, so doesnt add
anything to figuring out if its void.

E. Unjustified Non-performance and the Problem of Forfeiture

a. The perfect-tender rule and the doctrine of substantial performance
i. Common Law = buyers must pay if substantial performance
ii. UCC = still perfect tender rule, but modified by fact that buyers must allow
sellers to fix if before time specified in contract
iii. Failure of perfect tender does NOT void the contract, but does release the buyer
from performance

iv. QUANTITY matters. delivery of goods must generally be the exact quantity
ordered.Prescott v. Powles The seller of crates of onions sold 300 crates. However,
there was not enough room on the ship for all of it so he only delivered 240 crates and
the buyer refused to accept them. The seller sued for the difference in price between
the contract price and what he actually sold the crates for. Court held for the buyer
saying the delivery of goods must generally be the exact quantity ordered.

v. Ramirez v. Autosport People worried that the perfect tender rule would make buyers
reject goods for minor nonconformities. The UCC retains the perfect tender rule in
2-601, but mitigates the harshness by balancing their interests of the buyer and
seller. 2-601 excludes installment contracts which means that installments are
subject to a test of substantial impairment while one time delivery of goods is
subject to perfect tender.

i. TIMING: Delivering goods on time isnt a condition of a contract unless specified

as such. Beck v. Colorado Milling The plaintiff designed and made engravings to
make the defendant printed letterhead. The plaintiff delivered the goods so that they
arrived on Jan 1 and 4th. The defendant refused to accept them. The court held for the
plaintiff saying that the time of performance is not necessarily of the essence,
unless express provisions of the contract or the nature of the subject matter
indicates that the parties intended performance on time to be a condition
precedent.
ii. cost-of-repair or replacement rule which says that when there are defects which can
be remedied without the reconstruction of a substantial part of the building or a great
sacrifice of work, the reasonable cost of correcting the defect should be allowed
1. Plante v. Jacobs Plante was building a house for Jacobs and when Jacobs
stopped paying, Plante stopped working. A wall in the house was a foot in the
wrong direction and there were other minor problems. When the builder sued
for the rest of his contract, the court found that he had substantially performed
(therefore a promise, not a condition) and that he could recover the rest of the
contract price minus the loss from not completing performance (except not to
move the wall).
iii. UCC 2-508 -Cure by Seller of improper Tender or Delivery; Replacement
 1. Where any tender or delivery by the seller is rejected because non-conforming
and the time for performance has not yet expired, the seller may seasonably
notify the buyer of his intention to cure and may then within the contract time
make a conforming delivery.
2. Where the buyer rejects a non-conforming tender which the seller had
reasonable grounds to believe would be acceptable with or without money
allowance the seller may if he seasonably notifies the buyer have a further
reasonable time to substitute a conforming tender.
iv. Good = all thingswhich are movable at the time of identification to the contract for
sale.
b. Restitution (again)
i. UCC 2-718 Liquidation or Litation of Damages; Deposits (allows recover down
payment)
1. Damages for breach by either party may be liquidated in the agreement but
only at an amount which is reasonable in the light of the anticipated or actual
harm caused by the brach, the difficulties of proof of loss, and the
inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A
term fixing unreasonably large liquidated damages is void as a penalty.
2. Where the seller justifiably withholds delivery of goods because of the buyers
breach, the buyer is entitled to restitution of any amount by which the sum of
his payments exceeds
a. The amount to which the seller is entitled by virtue of terms liquidating
the sellers damages in accordance with subsection (1), or
b. In the absence of such terms, twenty per cent of the value of the total
performance for which the buyer is obligated under the contract or
$500, whichever is smaller
3. The buyers right to restitution under subsection (2) is subject to offset to the
extent that the seller establishes
a. A right to recover damages under the provisions of this Article other
than subsection (1), and
b. The amount or value of any benefits received by the buyer directly or
indirectly by reason of the contract
3. Where a seller has received payment in goods their reasonably value or the
proceeds of their resale shall be treated as payments for the purposes of
subsection (2); but if the seller has notice of the buyers breach before reselling
goods received in part performance, his resale is subject to the conditions laid
down in this Article on resale by an aggrieved seller.
iii. The forfeiture rule (dont recover down payment) = If you made a down payment
on real estate, you lost it if you defaulted. Other transactions including UCC 2-718
permit a defaulter to recover the net benefit conferred by part performance. They dont
with real estate because 10% down payment is reasonable, the defaulter must prove
that they were enriched, and real estate contracts are generally arms length contracts.
1. Vines v. Orchard Hills - Vines (P) placed a down payment of $7,880 on a
$78,800 condominium that was being sold by Orchard Hills (D). The contract
stipulated that Orchard Hills would retain the down payment as liquidated
damages in case of default. The court held that Vines had the burden of proof
in showing that the liquidated damages clause was invalid and unenforceable,
or that the sellers damages were substantially less than the amount of
liquidated damages.