Bartlett - Contracts Outline

Contracts 130.
01 - Fall 2015 Course Outline

Professor Katherine T. Bartlett Fall 2015
Formation............................................................................................................................................................ 3
Consideration............................................................................................................................................................................... 3
General.............................................................................................................................................................................. 3
Donative Promises and Reliance............................................................................................................................ 5
Past Benefit Conferred and Received.................................................................................................................... 6
Problems with Formation...................................................................................................................................................... 7
General.............................................................................................................................................................................. 7
Duress................................................................................................................................................................................ 8
Unconscionability......................................................................................................................................................... 9
Illusory Promises....................................................................................................................................................... 10
Performance of Legal Duty and Modifications............................................................................................... 12
Waiver............................................................................................................................................................................. 14
Preliminary Negotiations.................................................................................................................................................... 16
General........................................................................................................................................................................... 16
Offer.............................................................................................................................................................................................. 18
What Constitutes an Offer...................................................................................................................................... 18
Revocation.................................................................................................................................................................... 19
Option Contracts........................................................................................................................................................ 21
Acceptance................................................................................................................................................................................. 23
General........................................................................................................................................................................... 23
Lapse............................................................................................................................................................................... 26
Rejection........................................................................................................................................................................ 26
Counter-offer............................................................................................................................................................... 27
Performance as Acceptance................................................................................................................................... 28
Silence as Acceptance............................................................................................................................................... 30
Interpretation.................................................................................................................................................. 31
Implied Contract and Related Non-Contractual Claims.........................................................................................31
Implied in Fact Contracts........................................................................................................................................ 31
Misunderstanding................................................................................................................................................................... 32
Subjective and Objective Elements in Contract.............................................................................................. 32
Problems of Interpreting Purposive Language.............................................................................................. 35
Indefiniteness............................................................................................................................................................................ 36
General........................................................................................................................................................................... 36
Parol Evidence Rule................................................................................................................................................................ 39
The Rule......................................................................................................................................................................... 39
Interpretation of Ambiguity in Written Contracts........................................................................................ 44
Role of Usage, Course of Dealing, and Course of Performance................................................................45
Oral Modification of a Written Contract with N.O.M. Clause.....................................................................47
Form Contracts......................................................................................................................................................................... 48
Battle of the Forms.................................................................................................................................................... 48
Shrinkwrap and Clickwrap Agreements........................................................................................................... 50
Interpretation and Unconscionability in Form-Contracts.........................................................................51
Warranty........................................................................................................................................................................ 53
Performance..................................................................................................................................................... 56
Mistake......................................................................................................................................................................................... 56
Mechanical Errors (Unilateral Mistakes).......................................................................................................... 56
Mistakes in Transcription: Reformation........................................................................................................... 58
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Contracts 130.01 - Fall 2015 Course Outline
Mutual Mistakes (Shared Mistaken Assumptions).......................................................................................58

Nondisclosure.............................................................................................................................................................. 61
Unexpected Circumstances.................................................................................................................................................. 62
General........................................................................................................................................................................... 62
Problems of Performance.................................................................................................................................................... 67
Obligation to Perform in Good Faith................................................................................................................... 67
Substantial Performance..................................................................................................................................................... 68
General........................................................................................................................................................................... 68
Express Conditions.................................................................................................................................................................. 71
General........................................................................................................................................................................... 71
Conditions of Satisfaction....................................................................................................................................... 72
Excuse............................................................................................................................................................................. 73
Power to Withhold Performance and to Terminate a Contract..........................................................................74
General........................................................................................................................................................................... 74
Repudiation, Insecurity, and Assurance............................................................................................................ 76
Damages............................................................................................................................................................. 78
Intro to Damages..................................................................................................................................................................... 78
General........................................................................................................................................................................... 78
Expectation Damages............................................................................................................................................................ 80
Damages for Breach of Contract for Services.................................................................................................. 80
Damages for Breach of Contract for the Sale of Goods................................................................................82
Mitigation...................................................................................................................................................................... 88
Foreseeability.............................................................................................................................................................. 89
Certainty........................................................................................................................................................................ 91
Liquidated Damages.............................................................................................................................................................. 92
General........................................................................................................................................................................... 92
Specific Performance............................................................................................................................................................. 93
General........................................................................................................................................................................... 93
Reliance Damages................................................................................................................................................................... 95
General........................................................................................................................................................................... 95
Restitution.................................................................................................................................................................................. 96
General........................................................................................................................................................................... 96
Statute of Frauds............................................................................................................................................. 98
General......................................................................................................................................................................................... 98
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FORMATION
Consideration
General
Main Topics
 Consideration: What each party gives up as part of the bargain for exchange. Promises need
consideration to be enforceable! (§17)
o Consideration shows the party’s intent to be bound to the contract
o Consideration is evidence that the promise/contract actually exists
 What constitutes consideration? (§71)
o A promise or a performance
 Performance = an act or forbearance
 Adequacy of consideration does not matter (§79)
o Who is the court to determine how much each party values the bargain!
 Nominal consideration: when an exchange has the form of a bargain but does not have the
substance (has no actual consideration)
o This is different from assessing the adequacy of consideration, and instead looks at
whether there is any consideration at all.
o Form used to be important – seals, signatures, etc. – as proving the intentions of the
parties
 Reliance can serve as “substitute” consideration in certain cases (see below).
 A past benefit conferred or received can serve as consideration in certain cases (see below).
 Illusory promises – promises that look like the promisor is giving something up, but really
have no consideration (because the promisor reserves an alternate performance)
Restatements/UCC Provisions
§1 Contract Defined
A contract is a promise or a set of promises for the breach of which the law gives a remedy, or
the performance of which the law in some way recognizes as a duty.
§17 Requirement of a Bargain

(1) Except as stated in subsection (2), the formation of a contract requires a bargain in which
there is a manifestation of mutual assent to the exchange and a consideration.
§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
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(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.
§79 Adequacy of Consideration; Mutuality of Obligation

If the requirement of consideration is met, there is no additional requirement of
(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the
promisee; or
(b) equivalence in the values exchanged; or
(c) “mutuality of obligation.”
§90 Promise Reasonably Inducing Action or Forbearance

(1) A promise which the promisor should reasonably expect to induce action or forbearance
on the part of the promisee or a third person and which does induce such action or
forbearance is binding if injustice can be avoided only by enforcement of the promise.
The remedy granted for breach may be limited as justice requires.
UCC §2-204 Formation in General

(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.
(3) Even though one or more terms are left open a contract for sale does not fail for
indefiniteness if the parties have intended to make a contract and there is a reasonably
certain basis for giving an appropriate remedy.
Cases
Schnell v. Nell
Supreme Court of IN, 1861 – p. 17
Schnell’s deceased wife had willed $200 to each of the plaintiffs. The problem was that she
didn’t actually have any money to will. Schnell promised to give the money to the plaintiffs and
executed a contract to that effect. Plaintiffs paid one cent as consideration. Schnell didn’t pay.
Main Point: This is not an enforceable contract – it is a promise to make a gift and is not
enforceable. The one-cent is nominal consideration, giving this the form of the bargain, but it is
not actually a bargain for exchange.
Hamer v. Sidway
Court of Appeals of NY, 1891 – p. 59
An uncle promised to pay his nephew $5,000 to refrain from smoking, drinking, gambling, etc.
until the nephew’s 21st birthday. The nephew performed, but the uncle refused to pay on the
grounds that the contract was not beneficial to him, and therefore was not enforceable.
Main Point: The benefit to either party is irrelevant in determining whether there is
consideration for the bargain.
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Batsakis v. Demotsis
Court of Appeals of TX, 1949 – p. 63
Plaintiff loaned defendant 500,000 drachma (approximately $25) and in return received a letter
that the defendant would pay back $2,000 plus interest. Defendant refused to pay back more than
$25 (which would be restitution in this case).
Main Point: Inadequacy of consideration is irrelevant.
Note: The defendant needed the money to escape Greece during WWII, and claims she agreed to
the contract while under duress. However, that duress was not caused by the plaintiff and
therefore did not void the contract.
Donative Promises and Reliance
Main Topics
 Donative Promise: A promise to make a gift
o Not enforceable! Courts do not want to get involved in the gift giving process.  Unless
there is reliance. We don’t want to hang people out to dry, either.
 Promissory Estoppel: When a promise induces reasonable reliance, the promisor is
“estopped” from asserting that there is no enforceable agreement (§90)
o Reliance = substitute for consideration
§90 Promise Reasonably Inducing Action or Forbearance
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.
Cases
Dougherty v. Salt
NY Court of Appeals, 1919 – p. 9
An aunt wanted to reward her nephew so she wrote out a note that she would give him $3,000.
Main Point: This was not an enforceable note. It was a promise to make a gift without
consideration.
Kirksey v.Kirskey
Supreme Court of AL, 1845 – p. 26
A brother-in-law promised that his sister-in-law and her children could live with him. He later
asked her to leave.
Main Point: Court did not enforce the brother-in-law’s promise. The reliance of the sister-in-law
didn’t do any work here. Old case – court’s do not have the same view of reliance anymore.
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Feinberg v. Pfeiffer Co.

MO Court of Appeals, 1959 – p. 30
A company promised to pay the plaintiff a monthly retirement stipend when she chose to retire.
Court enforced this promise.
Main Point: The employee retired in reliance on this stipend, which made this promise
enforceable.
Hayes v. Plantation Steel Co.

RI Supreme Court, 1982 – p. 36
After the plaintiff announced his retire, the company decided to pay him a retirement stipend.
Plaintiff brought suit when the company stopped paying the stipend, but the court says it is not
enforceable.
Main Point: The employee did not retire in reliance on the stipend (distinguished from
Feinberg). It was clearly just a gift to show appreciation.
Past Benefit Conferred and Received
Main Topics
 Promises based on past debts are definitely enforceable in certain situations (§82, §83):
o A promise to pay a debt barred by the statute of limitations
o A promise by an adult to pay a debt incurred when the adult was a minor
o A promise to pay a debt that has been discharged in bankruptcy
 The promise to pay the past debt can be manifested by voluntarily admitting to the debt or
voluntarily transferring money. (§82(2)).
 In all three situations above, the debt is not legally enforceable for some reason (statute of
limitations, debtor is a minor, bankruptcy).
o Different theories for how to reconcile this with the bargain theory of consideration:
 That the debtor waives the statute of limitations/minor/bankruptcy defenses
 That these are exceptions to the bargain principle in order to prevent unjust
enrichment
 If the promisor has received a material benefit in the past, his subsequent promise to pay for
it is binding to the extent necessary to prevent injustice (§86).
o Wants to avoid unjust enrichment
§82 Promise to Pay Indebtedness; Effect on Statute of Limitations
(1) A promise to pay all or part of an antecedent contractual or quasi-contractual
indebtedness owed by the promisor is binding if the indebtedness is still enforceable or
would be except for the effect of a statute of limitations.
(2) The following fact operate as such a promise unless other facts indicate a different
intention:
(a) A voluntary acknowledgment to the obligee, admitting the present existence of the
antecedent indebtedness; or
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(b) A voluntary transfer of money, a negotiable instrument, or other thing by the

obligor to the obligee, made as interest on or part payment of or collateral security
for the antecedent indebtedness; or
(c) A statement to the obligee that the statute of limitations will not be pleaded as a
defense.
§83 Promise to Pay Indebtedness Discharged in Bankruptcy

An express promise to pay all or part of an indebtedness of the promisor, discharged or
dischargeable in bankruptcy proceedings begun before the promise is made, is binding.
§86 Promise for Benefit Received

(1) A promise 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 benefit 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.
Cases
Mills v. Wyman
Supreme Court of MA, 1825 – p. 44
Mills cared for Wyman’s son. Wyman offered to pay Mills for the care that he provided.
Wyman’s promise to pay had no consideration and was not enforceable.
Main Point: There is no consideration or preexisting obligation between the parties that make
the promise to pay binding.
Webb v. McGowin
Court of Appeals of Alabama, 1935 – p. 48
Plaintiff critically injured himself (while moving a heavy crate in a warehouse – by falling with it
to the ground) to prevent the defendant from being injured. Defendant promised to pay the
plaintiff.
Main Point: This is an enforceable promise because the defendant received a material benefit
(his life was saved) that he later promised to pay for.
Problems with Formation

General
Main Topics
 The bargain theory of contracts is concerned with efficiency and fairness  we are
concerned with situations that compromise the efficiency and fairness of the bargain:
o Duress
o Unconscionability
o Illusory contracts
o Modifications made in hold-up situations
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§72 Exchange of Promise for Performance
Except as stated in §§ 73 and 74, any performance which is bargained for is consideration.
§79 Adequacy of Consideration; Mutuality of Obligation

If the requirement of consideration is met, there is no additional requirement of
(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the
promisee; or
(b) equivalence in the values exchanged; or
(c) “mutuality of obligation.”
Duress
Main Topics
 A contract is voidable if one party puts the other under duress in order to induce assent to the
contract (§175(1)).
 If a party is under duress by a third party, the contract is voidable UNLESS the other party is
unaware of the duress and relies on the contract unknowingly (§175(2)).
 “Threats” can be an important part of the bargaining process. §176 defines when a threat is
improper and will make a contract voidable.
 How do we protect the “desperate traveler” who will pay anything to be rescued from the
exploitative rescuer?
o Encourage the rescue (compensate costs and maybe give a bonus to the rescuer?), but
don’t encourage it too much.
§175 When Duress by Threat Makes a Contract Voidable
(1) If a party’s manifestation of assent is induced by an improper threat by the other party
that leaves the victim no reasonable alternative the contract is voidable by the victim.
(2) If a party’s manifestation of assent is induced by one who is not a party to the transaction,
the contract is voidable by the victim unless the other party to the transaction in good
faith and without reason to know of the duress either gives value or relies materially on
the transaction.
§176 When a Threat is Improper

(1) A threat is improper if
(a) What is threatened is a crime or a tort, or the threat itself would be a crime or a
tort if it resulted in obtaining property,
(b) What is threatened is a criminal prosecution,
(c) What is threatened is the use of civil process and the threat is made in bad faith, or
(d) The threat is a breach of the duty of good faith and fair dealing under a contract
with the recipient.
(2) A threat is improper if the resulting exchanges is not on fair terms, and
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(a) The threatened act would harm the recipient and would not significantly benefit
the party making the threat,
(b) The effectiveness of the threat inducing the manifestation of assent is significantly
increased by prior unfair dealing by the party making the threat, or
(c) What is threatened is otherwise a use of power for illegitimate ends.
Cases
Batsakis v. Demotsis
Court of Appeals of TX, 1949 – p. 63
Plaintiff loaned defendant 500,000 drachma (approximately $25) and in return received a letter
that the defendant would pay back $2,000 plus interest. Defendant refused to pay back more than
$25 (which would be restitution in this case).
Main Point: Inadequacy of consideration is irrelevant.
Note: The defendant needed the money to escape Greece during WWII, and claims she agreed to
the contract while under duress. However, that duress was not caused by the plaintiff and
therefore did not void the contract.
Chouinard v. Chouinard
Fifth Circuit Court of Appeals, 1978 – p. 69
In an dispute among brothers regarding the ownership of a corporation, one party took advantage
of the other’s impending bankruptcy to make a move. That was okay, per the court, because the
economic duress was not imposed by the party to the contract.
Main Point: “Mere hard bargaining positions, if lawful, and the press of financial circumstances,
not caused by the [party against whom the contract is sought to be voided], will not be deemed
duress.”
Unconscionability
Main Topics
 Unconscionability is the absence of meaningful choice on the part of one of the parties
together with contract terms which are unreasonably favorable to the other party  at the
time the contract is created.
o Procedural unconscionability: the absence of meaningful choice by one party.
 Concerned with “unfair surprise” (e.g. fine print, mistakes, ignorance of important
facts) that meant the bargaining did not proceed how it should have)
o Substantive unconscionability: terms that are unreasonably favorable to the other party.
 Concerned with an unjust or one-sided contract.
 Substantive unconscionability can be evidence of procedural unconscionability.
 Most jurisdictions require a showing of both procedural and substantive unconscionability to
void a contract.
 In looking at unconscionability, look at the circumstances at the time the contract was made
(§208, UCC §2-302).
 Courts have discretion to void an unconscionable term or void the entire contract.
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§208 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.
UCC §2-302 Unconscionable Contract or Clause*

(1) If the court as a matter of law finds the contract or any clause of the contract to have been
unconscionable at the time it was made the court may refuse to enforce the contract, or it
may enforce the remainder of the contract without the unconscionable clause, or it may
so limit the application of any unconscionable clause 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.
*In the common law, procedural and substantive unconscionability are usually required to void a
contract, but the UCC allows substantive unconscionability by itself to void a contract. (Maxwell
v. Fidelity Financial Services, Inc.)
Cases
Williams v. Walker-Thomas Furniture Co.
D.C. Circuit Court of Appeals, 1965 – p. 74
Plaintiff bought furniture on credit, but was unaware of the clause that her debt would be
redistributed across all outstanding balances so that she could not pay the furniture off piece-by-
piece. Was the contract unconscionable?
Main Point: Unconscionability requires both a procedural issue (absence of meaningful choice
by one party) and a substantive issue (terms that are unreasonably favorable to the other party).
Maxwell v. Fidelity Financial Services, Inc.

Supreme Court of AZ, 1995 – p. 84
Plaintiff purchased a solar water heater that it financed with a loan. The loan had a 19.5% interest
rate and required a lien on the plaintiff’s house. The court says that substantive unconscionability
alone is enough to void a contract and remands the case to look for it.
Main Point: Minority opinion: substantive unconscionability alone can void a contract.
Illusory Promises
Main Topics
 Illusory Promise: A promise where a party has not actually given any consideration (hasn’t
given up anything; has no detriment). §77
o A promise shrinks the promisor’s realm of choice. An illusory promise does not actually
limit the promisor’s choices.
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o Illusory promises can turn into successful unilateral contracts (e.g. A promises to sell as
many bushes of apples that B wants at wholesale price  seems illusory because B is not
bound  when B responds by giving A the chance to earn business, we have a unilateral
contract).
 Otherwise, not relevant to unilateral contracts
§77 Illusory and Alternative Promises
A promise or apparent promise is not consideration if by its terms the promisor or purported
promisor reserves a choice of alternative performances unless
(a) each of the alternative performances would have been consideration if it alone had been
bargained for; or
(b) one of the alternative performances would have been consideration and there is or
appears to the parties to be a substantial possibility that before the promisor exercises his
choice events may eliminate the alternatives which would not have been consideration.
Cases
Office Pavilion S. Florida, Inc. v. ASAL Prods., Inc.
Court of Appeal of FL, 2003 – p. 96
The contract says “Pavilions agrees to supply ASAL with Aeron chairs,” but did not require that
ASAL order chairs, establish a quantity, etc. Ultimately, Pavilion refused to sell the chairs to
ASAL, which was not a breach because the contract was unenforceable because it did not require
ASAL to buy any chairs.
Main Point: There is no contract here because the ASAL was not bound to do anything.
Mattei v. Hopper
CA Supreme Court, 1958 – p. 104
Real estate deal in which the sale was “subject to the buyer obtaining satisfactory leases.” This is
not illusory because it imposes an obligation to reasonably work to obtain the satisfactory leases
and judge the satisfaction on reasonable terms. Commercial setting.
Main Point: The requirement to do something in a reasonable way is consideration.
Wood v. Lucy, Lady Duff-Gordon

Plaintiff had an exclusive agreement to market the defendant’s image for a portion of the
revenue. Defendant marketed the image on her own and plaintiff brought suit, with the defense
that there was no contract since the plaintiff wasn’t actually required to market the image. The
courts implied a term that he was required to use best efforts to do the marketing.
Main Point: The court implies the promise that the plaintiff would use his best efforts in
bringing about the profits that he was required to split in the contract.
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Performance of Legal Duty and Modifications
Main Topics
 A promise to perform an obligation that one is already bound to do legally (by another
contract, public officials in their employment, per statute) is not consideration.
o A modification is no good unless there is new and different consideration.
 UCC does not require consideration for modifications (good faith is the limitation)
 Widening or narrowing the scope of what constitutes the contract/exchange will give
different perspective to the modification (ex. looking at a modification of a single,
discrete, exchange might show a problem with the legal duty rule = static view, but
looking at an extended exchange/relationship might find no problem with the legal
duty rule over time = dynamic view)
 When are modifications enforceable? UCC §2-209 and Restatement, 2d., §89 say when!
o Change in circumstances (not anticipated by the parties in their agreement)
o As justice requires based on a change in material position and reliance of the parties
o When they are voluntary! (No duress)
 Pay attention to requirements of the Statute of Frauds and modifications!
 Rationale of the legal duty rule: to prevent a hold-up situation where one party is able to
demand more than he originally bargained for.
 The legal duty rule does not allow you to “un-enforce” a completed transaction (e.g. A
contracts to pay B $10,000 for his services, then promises to pay $12,000. If A actually pays
$12,000 she can’t get it back. On the other hand, if A pays $10,000, B can’t claim the other
$2,000).
 “Doubtful” claim – if the parties are confused about the original contract and negotiate new
terms, there is consideration because each party is giving up its original understanding of the
contract!
 Novation/abrogration – not modification, but completely throwing out the old contract in
favor of a new one. Also has consideration because the parties are giving up something.
§73 Performance of a Legal Duty*
Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of
honest dispute is not consideration; but a similar performance is consideration if it differs from
what was required by the duty in a way which reflects more than a pretence of bargain.
§89 Modification of Executory Contract*

A promise modifying a duty under a contract not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the
parties when the contract was made; or
(b) to the extent provided by statute; or
(c) to the extent that justice requires enforcement in view of material change of position in
reliance on the promise.
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UCC §2-209 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.
(5) A party who has made a waiver affecting an executory portion of the contract may retract
the waiver by reasonable notification received by the other party that strict performance
will be required of any term waived, unless the retraction would be unjust in view of a
material change of position in reliance on the waiver.
*Restatement requires that modifications have separate consideration, but UCC does not require
modifications to have separate consideration.
Cases
Gray v. Martino
Supreme Court of NJ, 1918 – p. 110
A woman promised to pay a police officer to find her stolen duty. You can’t pay a police officer
to do a job he is already legally bound to do.
Main Point: Public officials cannot receive a special/extra payment for services they are already
required to perform.
Lingenfelder v. Wainwright Brewery Co.

Supreme Court of MO – p. 111
A contractor got mad that he was not awarded a second contract in relation to the construction of
the brewery so he stopped work until the brewery agreed to pay him an additional 5%. He
brought suit when they did not pay him the additional 5%, but could not recover.
Main Point: The new agreement did not have any consideration from the plaintiff and was not
enforceable.
Foakes v. Beer
House of Lords, 1884 – p. 115
Foakes owed Beer money. Beer agreed to forgo collecting interest from Foakes if he paid 500
pounds in the present and agreed to make future installments of 150 pounds each.
Main Point: Foakes’s promise to pay a lesser sum than he owed is not enforceable.
 A more modern way of interpreting this would be that the receipt of a smaller sum in the
present is valuable for the creditor.
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Austin Instrument, Inc. v. Loral Corp.

Court of Appeals of NY – p. 122
Austin was a subcontractor for Loral’s contract with the Navy. When Loral was awarded a
second contract, Austin threatened to stop work if it didn’t get the subcontract for the second
contract. Trial court affirmed for Austin. Court of Appeals reversed on the grounds that the
modification was obtained under duress.
Main Point: Economic hold-ups are not okay: threatening to halt performance of a contract
unless demands are met can constitute putting the other party under economic duress if the other
party is unable to fulfill its needs from another source.
Angel v. Murray
Supreme Court of RI – p. 129
The trash collector in Newport, RI requested and received more money because the population
had grown more than the contract originally planned for.
Main Point: This is a good modification: Voluntary, and fair in view of the change in
circumstances not anticipated (§89).
Sugarhouse Finance Co. v. Anderson

UT Supreme Court, 1980 – p. 133
Anderson owed money, and reached an agreement where he would borrow money to pay off his
loan. After he borrowed his money, Sugarhouse changed its mind. Held for Anderson – he had no
obligation to borrow to pay off the original debt and doing so constituted consideration.
Main Point: Borrowing money = consideration for a modification
 Public policy – does this give the debtor too much power?
Wisconsin Knife Works v. National Metal Crafters

Seventh Circuit Court of Appeals, 1986 – p. 554
Plaintiff claims that defendant breached its contract for late delivery. Defendant says plaintiff
waived the requirement for timely delivery.
Main Point: Posner says there has to be reliance on an oral modification that is acting as a
waiver under §2-209(4), otherwise it is too easy to strike a term of the contract (make a
modification) by making it seem like a waiver.
Dissent: We don’t need reliance on a waiver when we don’t even need consideration for a
modification under the UCC.
Waiver
Main Topics
 Waiver: Intentional and voluntary relinquishment of a known right
 A waiver is binding unless:
o The condition was part of the exchange (meaning it is a term/promissory condition)
o Uncertainty of the condition’s occurrence was an element of risk assumed by the
promisor
 A party can rescind a waiver and reinstate the condition if:
14
o There is enough time for the condition to still occur

o There has not been a “material change” that would make reinstating it unjust
o The promise with the waiver is not binding
§84 Promise to Perform a Duty in Spite of Non-Occurrence of a Condition*
(1) Except as stated in subsection (2), a promise to perform all or part of a conditional duty
under an antecedent contract in spite of the non-occurrence of the condition is binding,
whether the promise is made before or after the time for the condition to occur, unless
(a) Occurrence of the condition was a material part of the agreed exchange for the
performance of the duty and the promisee was under no duty that it occur; or
(b) Uncertainty of the occurrence of the condition was an element of the risk assumed
by the promisor.
(2) If such a promise is made before the time for the occurrence of the condition has expired
and the condition is within the control of the promisee or a beneficiary, the promisor can
make his duty again subject to the condition by notifying the promisee or beneficiary of
his intention to do so if
(a) The notification is received while there is still a reasonable time to cause the
condition to occur under the antecedent terms or an extension given by the
promisor; and
(b) Reinstatement of the requirement of the condition is not unjust because of a
material change of position by the promisee or beneficiary; and
(c) The promise is not binding apart from the rule stated in subsection (1).
*Here, we are concerned with when a condition is or can be waived.
UCC §1-306 Waiver or Renunciation of Claim or Right After Breach

A claim or right arising out of an alleged breach may be discharged in whole or in part without
consideration by agreement of the aggrieved party in an authenticated record.

binding.*
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.
material change of position in reliance on the waiver
15
Cases
Clark v. West
Publisher agrees to pay $2/page plus an additional $4/page if certain conditions are met,
including the author’s abstention from alcohol. Author did not abstain from alcohol, but claimed
publisher had waived that condition.
Main Point: Modifications v. waivers.
Preliminary Negotiations
General
Main Topics
 Two types of preliminary agreements:
o Preliminary agreement recognizing that the final agreement has been reached, and is
therefore binding on the parties, but requires further formalization
o Preliminary agreement to negotiate in good faith toward a future contractual obligation
 How do you know when preliminary negotiations have ceased and an agreement is reached?
o Related to indefiniteness and what constitutes an offer.
 Duty to bargain in good faith
 Are preliminary negotiations binding? Letters of intent?
o Letters of intent and surrounding circumstances impose a duty to negotiate in good faith.
Agreements to negotiate can be binding if they:
 Have consideration (agreement to negotiate in good faith is consideration)
 Definite terms
 Offer and acceptance
 What if an agreement to negotiate in good faith is breached?
o The injured party can typically cover reliance damages.
o If the injured party can prove that a good faith negotiation would have led to a final
agreement, they may be able to recover expectation damages
 Expectation damages will be difficult to calculate when the final agreement is not yet
determined (the parties are in negotiations to finalize that agreement).
 See Venture Associates Corp. v. Zenith Data Systems Corp. and Hoffman v. Red Owl
Stores, Inc.
§26 Preliminary Negotiations
A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is
addressed knows or has reason to know that the person making it does not intend to conclude a
bargain until he has made a further manifestation of assent.
16
Cases
Channel Home Centers v. Grossman
Third Circuit Court of Appeals, 1986 – p. 476
Parties signed letters of intent to negotiate a lease agreement.
Main Point: A letter of intent/agreement to negotiate is enforceable if it meets the requirements
of a contract (intention to be bound, definite terms, consideration).
 Consideration = giving up the duty to not negotiate; duty to negotiate in good faith
 Damages: reliance damages will be more typical in situations like this, but if the party can
prove that good faith negotiations would have led to a lease, there is the possibility for
expectation damages.
Teachers Insurance v. Tribune Co.

S.D.N.Y., 1987 – p. 480
Main Point: In determining whether preliminary agreements are enforceable, look at the intent
of the parties. Courts need to avoid “trapping” parties in surprise contracts.
Venture Associates Corp. v. Zenith Data Systems Corp.

Main Point: (Posner) It is difficult to award damages for the breach of an agreement to
negotiate. Typically reliance damages are the only thing that can be recovered, unless the party
can show with certainty that negotiations in good faith would have led to a contract, and even
then, how can you calculate damages with any certainty based on an agreement that has not been
established?
Hoffman v. Red Owl Stores, Inc.

Supreme Court of WI, 1965 – p. 483
Plaintiff negotiated with defendant to open a Red Owl store in a new town. Plaintiff made a lot of
preparations (unclear if it is “performance” but also irrelevant in this case), such as selling his
bakery, buying a different grocery store to practice, buying land for the new store, etc. In the end
the defendant backed out and decided not to open the new Red Owl store. Plaintiff was able to
recover under a promissory estoppel (§90) theory, but had no contract.
Main Point: Plaintiff’s only option for recovery was promissory estoppel because he had no
contract with the defendant. There was consideration, offer, and acceptance, but the terms of the
contract were not definite enough to determine a breach/calculate damages  no contract, just
preliminary negotiations.
Grouse v. Group Health Plan, Inc.

Supreme Court of MN, 1981 – p. 495
Plaintiff thought he had an employment contract with the defendant, so he quit his old job (in
reliance). Defendant repudiated their offer of employment. Plaintiff was able to recover under
promissory estoppel.
Main Point: Reliance must be reasonable (in this case it was). Difficulty in calculating damages
with an at-will employment contract is breached/relied upon because we cannot make the
17
employee better off than he would have been had the contract been completed (and he was fired
on day 1).
Racine & Laramie, Ltd. v. California Dept. of Parks & Rec.

CA Court of Appeals, 1992 – p. 497
Main Point: Specifies that letters of intent, certain circumstances impose the obligation to
bargain in good faith toward a final agreement.
Offer
What Constitutes an Offer
Main Topics
 Offer: the manifestation of willingness to enter into a bargain, so made as to justify another
person in understanding that his assent to that bargain is invited and will conclude it.
 Must be sufficiently definite!
 Advertisements (circulars, catalogues) and price quotations are invitations for offers.
 When is an advertisement an offer? (as opposed to an invitation for an offer)
o They invite performance of a specific act without further communication
o “Whether the facts show that some performance was promised in positive terms in return
for something requested.” Williston on Contracts, §27.
o Ex. “First come, first serve” at a certain price, advertisements for a reward for the return
of a lost pet, etc.
 Offer’s can be terminated by:
o Rejection (even before the offer expires)
o Lapse
o Revocation
o Counter-offers
o Death or incapacity of the offeror
 Once an offer is terminated, it cannot be accepted
o This protects the offeror!
§24 Offer Defined
An offer is the manifestation of willingness to enter into a bargain, so made as to justify another
person in understanding that his assent to that bargain is invited and will conclude it.
§26 Preliminary Negotiations

A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is
addressed knows or has reason to know that the person making it does not intend to conclude a
bargain until he ahs made a further manifestation of assent.
§49 Effect of Delay in Communication of Offer
18
If communication of an offer to the offeree is delayed, the period within which a contract can be
created by acceptance is not thereby extended if the offeree knows or has reason to know of the
delay, though it is due to the fault of the offeror; but if the delay is due to the fault of the offeror
or to means of transmission adopted by him, and the offeree neither knows nor has reason to
know that there has been delay, a contract can be created by acceptance within the period which
would have been permissible if the offer had been dispatched at the time that its arrival seems to
indicate.
UCC §2-205 Firm Offers

An offer by a merchant to buy or sell goods in a signed writing which by its terms gives
assurance that it will be held open is not revocable, for lack of consideration, during the time
stated or if no time is stated for a reasonable time, but in no event may such period of
irrevocability exceed three months; but any such term of assurance on a form supplied by the
offeree must be separately signed by the offeror.
Cases
Lonergan v. Scolnick
CA Court of Appeals, 1954 – p. 360
Defendant placed an ad in the paper that he was selling 40 acres. Plaintiff was interested in
buying the land and exchanged a few letters with the defendant. Defendant said “If you are really
interested, you will have to decide fast …” There was no offer.
Main Point: Offers have to be definite. Defendant’s language here is not definite!
Lefkowitz v. Great Minneapolis Surplus Store

Supreme Court of MN, 1957 – p. 363
Plaintiff responded to the ad for 3 fur coats for $1 each to the first person, but the store said it
was an offer for women only.
Main Point: An offer can’t be modified after it has been made (can’t say “jk, just for women”).
Also, the terms of the advertisement must be definite and explicit to constitute an offer.
Revocation
Main Topics
 An offer can be revoked (until it is accepted) as long as there is no consideration or reliance
on the offer. (§42)
o Exception: UCC does not allow revocation for offers that are signed writings for the sale
of goods. (§2-205)
 Revocation is effective when it is received by the offeree. (§68)
o Even indirect revocation is okay. (§43)
 Option contracts cannot be revoked when part performance is tendered. (§37)
§42 Revocation by Communication From Offeror Received by Offeree*
19
An offeree’s power of acceptance is terminated when the offeree receives from the offeror a
manifestation of an intention not to enter into the proposed contract.
§43 Indirect Communication of Revocation

An offeree’s power of acceptance is terminated when the offeror takes definite action
inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable
information to that effect.
§68 What Constitutes Receipt of Revocation, Rejection, or Acceptance

A written revocation, rejection, or acceptance is received when the writing comes into the
possession of the person addressed, or of some person authorized by him to receive it for him, or
when it is deposited in some place which he has authorized as the place for this or similar
communications to be deposited for him.
§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
§45 Option Contract Created by Part Performance or Tender

(1) Where an offer invites an offeree to accept by rendering a performance and does not
invite a promissory acceptance, an option contract is created when the offeree tenders or
begins the invited performance or tenders a beginning of it.
(2) The offeror’s duty of performance under any option contract so created is conditional on
completion or tender of the invited performance in accordance with the terms of the offer.
UCC §2-205 Firm Offers*

An offer by a merchant to buy or sell goods in a signed writing which by its terms gives
assurance that it will be held open is not revocable, for lack of consideration, during the time
stated or if no time is stated for a reasonable time, but in no event may such period of
irrevocability exceed three months; but any such term of assurance on a form supplied by the
offeree must be separately signed by the offeror.
 UCC does not allow the revocation of an offer that is a signed writing. This differs from the
Restatement, which allows revocation at any point before acceptance, as long as there is no
reliance or consideration.
UCC §2-206 Offer and Acceptance in Formation of Contract

(1) Unless otherwise and unambiguously indicated by the language or circumstances
20
(a) An offer to make a contract shall be construed as inviting acceptance in any

manner and by any medium reasonable in the circumstances;
(b) 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 non-conforming goods, but such a
shipment of non-conforming goods does not constitute acceptance if the seller
seasonably notifies the buyer that the shipment is offered only as an
accommodation to the buyer.
(2) Where the beginning of a requested performance is a reasonable mode of acceptance an
offeror who is not notified of acceptance within a reasonable time may treat the offer as
having lapsed before acceptance.
Cases
Dickinson v. Dodds
Court of Appeal, 1876 – p. 382
The offer to buy land was open until June 12. On June 11, the offeree learned the seller was
planning to sell the land to somebody else and he tried to accept. Too late!
Main Point: An offer can be revoked (even indirectly) at any point before acceptance.
 This was not an option contract (options need consideration) – it was just an offer.
Option Contracts
Main Topics
 Option contracts keep an offer open.
 Classic contract law would not enforce unilateral contracts until the performance was
complete, which meant that the offeror could revoke at any time
o Classic example = revoking while the offeree is halfway up the flag pole
o This discourages unilateral contracts: why would an offeree accept if the contract could
be revoked in the middle of performance? This leaves the offeror without anybody to
contract with!
o Solution: the offer for a unilateral contract becomes irrevocable and binds the offeror as
soon as the offeree tenders part performance.
 Options need consideration. (§87(1))
o Is nominal consideration enough? (Joppich says so).
o Is writing alone enough?
 Starting performance ≠ promise to complete performance
o Starting performance means the offer can’t be revoked and that the offeror is bound
 Part performance allows the offeree to get expectation damages under §45 because the
contract is fully enforceable. *Applies only to unilateral contracts.
o Part performance of a unilateral contract creates an option contract under §45.
 Preparation for performance allows the offeree to get reliance damages under §87(2) for
reliance on the offer. *Applies to all offers.
21
§37 Termination of Power of Acceptance Under Option Contract
Notwithstanding §§ 38–49, the power of acceptance under an option contract is not terminated
by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the
requirements are met for the discharge of a contractual duty.
§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 offeree’s
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.
§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.

(2) The offeror’s duty of performance under any option contract so created is conditional on

(a) An offer to make a contract shall be construed as inviting acceptance in any manner and
by any medium reasonable in the circumstances;
(b) 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 non-conforming goods, but such a shipment of non-
conforming goods does not constitute acceptance if the seller seasonably notifies the
buyer that the shipment is offered only as an accommodation to the buyer.
22
Cases
1484-Eight, Ltd. & Millis Management Corp. v. Joppich
Supreme Court of TX, 2004 – p. 385
Joppich agreed to buy an undeveloped lot from the defendants. The sale had an addendum with a
buy-back option for the defendant with $10.00 for consideration. The $10.00 was never paid, but
defendant tried to exercise the buy-back option. Held that they could.
Main Point: Options need consideration, but the nominal consideration not being paid does not
matter – that the option is in writing was enough here. The whole deal here also had
consideration – if the option had not been in an addendum, this would not have even been a case.
 Options: nominal/purported consideration seems to be enough as long as the option is in
writing.  We like options!
Ragosta v. Wilder
Supreme Court of VT, 1991 – p. 392
Plaintiff took out a loan in order to purchase the defendant’s shop (“The Fork Shop”), which they
said they would sell at any time before Nov. 1, but the defendant’s revoked the offer. The
securing financing was not preparation of performance (so the option wasn’t binding). Reliance
on the offer does allow for recovery under §87(2).
Main Point: Distinguish between preparation for performance and actual performance.
Drennan v. Star Paving Co.

Supreme Court of CA, 1958 – p. 399
General contractor relied on the low bid submitted by the subcontractor, but the subcontractor
later said they made a mistake and refused to do the work for the price. General contractor was
justified in relying on the bid and was able to recover.
Main Point: The court allowed equitable recovery based on reliance using §90. Should have
used §87(2) – the subcontractor’s bid was an offer that the general contractor relied on!
Acceptance
General
Main Topics
 Power of acceptance lands with the offeree, but can be terminated by
o Revocation
o Lapse
o Counter-offer
o Rejection
o Death or incapacity of the offeror
 Offeror gets to decide what constitutes acceptance, though an offeree can generally accept in
the same manner the offer is made. (§30)
 Mailbox rule: Acceptance is effective as soon as it is dispatched.
o Allows the offeree to begin performance immediately
23
o The acceptance must be properly dispatched (e.g. correctly addressed, etc.) in order to be
effective on dispatch. (§66)
o Even an improperly dispatched acceptance is effective if it is received by the offeror on
time. (§67)
 An offer can be accepted by a promise (bilateral contract) or performance (unilateral
contract). (§32)
o When there is doubt about the acceptance, the offeree can choose whether to accept with
a promise or to perform
o When performance is acceptance, the offeree must notify the offeror of the acceptance (or
make sure the offeror is aware) within a reasonable amount of time. (§54)
 Silence is acceptance only in particular circumstances. (§69)
 Option contracts keep an offer open.
§30 Form of Acceptance Invited
(1) An offer may invite or require acceptance to be made by an affirmative answer in words,
or by performing or refraining from performing specified act, or may empower the
offeree to make a selection of terms in his acceptance.
(2) Unless otherwise indicated by the language or the circumstances, an offer invites
acceptance in any manner and by any medium reasonable in the circumstances.
§37 Termination of Power of Acceptance Under Option Contract

Notwithstanding §§ 38–49, the power of acceptance under an option contract is not terminated
by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the
requirements are met for the discharge of a contractual duty.
§60 Acceptance of Offer Which States Place, Time or Manner of Acceptance

If an offer prescribes the place, time or manner of acceptance its terms in this respect must be
complied with in order to create a contract. If an offer merely suggests a permitted place, time or
manner of acceptance, another method of acceptance is not precluded.
§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 offeree’s
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.
§64 Acceptance by Telephone or Teletype

Acceptance given by telephone or other medium of substantially instantaneous two-way
communication is governed by the principles applicable to acceptances where the parties are in
the presence of each other.
§65 Reasonableness of Medium of Acceptance
24
Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is

reasonable if it is the one used by the offeror or one customary in similar transactions at the time
and place the offer is received.
§66 Acceptance Must be Properly Dispatched

An acceptance sent by mail or otherwise from a distance is not operative when dispatched, unless
it is properly addressed and such other precautions taken as are ordinarily observed to insure safe
transmission of similar messages.
§67 Effect of Receipt of Acceptance Improperly Dispatched

Where an acceptance is seasonably dispatched but the offeree uses means of transmission not
invited by the offer or fails to exercise reasonable diligence to insure safe transmission, it is
treated as operative upon dispatch if received within the time in which a properly dispatched
acceptance would normally have arrived.


(a) An offer to make a contract shall be construed as inviting acceptance in any manner and
by any medium reasonable in the circumstances;
(b) 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 non-conforming goods, but such a shipment of non-
conforming goods does not constitute acceptance if the seller seasonably notifies the
buyer that the shipment is offered only as an accommodation to the buyer.
UCC §2-207 Additional Terms in Acceptance or Confirmation

(1) A definite and 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 construed as proposals for addition to the contract.
Between 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.
25
(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 cases 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 provisions of this Act.
 “Acceptance with suggestions”
Lapse
Main Topics
 An offer might specify when it expires, otherwise, an offer lapses after a “reasonable”
amount of time has passed.
 Offers made face-to-face or over the telephone generally expire at the conclusion of the
conversation unless otherwise specified.
 Offers can be revoked or rejected at any point before they lapse/expire.
§41 Lapse of Time
(1) An offeree’s power of acceptance is terminated at the time specified in the offer, or, if no
time is specified, at the end of a reasonable time.
(2) What is a reasonable time is a question of fact, depending on all the circumstances
existing when the offer and attempted acceptance are made.
(3) Unless otherwise indicated by the language or the circumstance, and subject to the rule
stated in §49, an offer sent by mail is seasonably accepted if an acceptance is mailed at
any time before midnight on the day on which the offer is received.
Cases
Akers v. J.B. Sedberry, Inc.
Court of Appeals of TN, 1955 – p. 368
In a face-to-face meeting, plaintiff offered to resign his position. Defendant did not respond
during the meeting, but sent a letter accepting the resignation a few days later. Too late!
Main Point: The offer terminated after the face-to-face meeting.
Rejection
Main Topics
 Rejection terminates an offer when it is received.
 An offeree cannot renew the power of acceptance after rejecting an offer.
§38 Rejection
26
(1) An offeree’s power of acceptance is terminated by his rejection of the offer, unless the
offeror has manifested a contrary intention.
(2) A manifestation of intention not to accept an offer is a rejection unless the offeree
manifests an intention to take it under further advisement.

Cases
Kukuska v. Home Mut. Hail-Tornado Ins. Co.
A farmer applied for hail insurance (offer to purchase insurance) but was not notified of a
rejection until 28 days later. The day of the rejection, his crops were destroyed. The farmer
brought suit on the grounds that he would have secured alternate insurance but for the silence of
the defendant. Held for the farmer.
Main Point: Rejection is effective when it is received; main issue here is the “silence” of the
insurance company.
Counter-offer
Main Topics
 Classic common law = mirror image rule
o Acceptance of anything but the exact terms of the offer is a counter-offer
 Modern contract law says a conditioned acceptance ≠ counter-offer
o Where acceptance is unequivocal, a request or suggest for a modification may be
considered a “conditional acceptance”  Acceptance is independent of the suggested
condition.
o Restatement §59 and UCC §2-207 soften the classic common law rule.
 Three ways to view a counter-offer:
o Rejection that terminates the offer unless the offeror renews it (classic common law)
o Acceptance with additional terms to be negotiated (§59 and UCC §2-207)
o Putting the offer on hold (reserving power of acceptance on the original offer) while other
terms are discussed.
§39 Counter-Offers
(1) A counter-offer is an offer made by an offeree to his offeror relating to the same matter as
the original offer and proposing a substituted bargain differing from that proposed by the
original offer.
27
(2) An offeree’s power of acceptance is terminated by his making of a counter-offer, unless

the offeror has manifested a contrary intention or unless the counter-offer manifests a
contrary intention of the offeree.
§59 Purported Acceptance Which Adds Qualifications

A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms
additional to or different from those offered is not an acceptance but is a counter-offer.

(c) Notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.
 “Acceptance with suggestions”
Cases
Ardente v. Horan
Supreme Court of RI, 1976
Plaintiff was purchasing a house and sent the signed agreement, deposit, and a letter expressing
concern that certain furniture and fixture are a part of the sale.
Main Point: Plaintiff added new terms – his acceptance was a “qualified acceptance” not an
absolute acceptance with a separate inquiry.
Performance as Acceptance
Main Topics
 When an offer invites either performance or a promise for performance, the offeree may
choose whether to perform or make a promise to perform. (§32)
 When accepting with performance, the offeree must make sure the offeror knows of the
acceptance, by notifying the offeror if necessary. (§54)
§32 Invitation of Promise or Performance
28
In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to
perform what the offer requests or by rendering the performance, as the offeree chooses.
§54 Acceptance by Performance; Necessity of Notification to Offeror

(1) Where the offer invites an offeree to accept by rendering a performance, no notification is
necessary to make such an acceptance effective unless the offer requests such a
notification.
(2) If an offeree who accepts by rendering a performance has reason to know that the offeror
has no adequate means of learning of the performance with reasonable promptness and
certainty, the contractual duty of the offeror is discharged unless
(a) The offeree exercises reasonable diligence to notify the offeror of acceptance, or
(b) The offeror learns of the performance within a reasonable time, or
(c) The offer indicates that notification of acceptance is not required.

The offeror’s duty of performance under any option contract so created is conditional on

Cases
Klockner v. Green
The stepson and step-granddaughter entered into an oral agreement with the decedent that they
would support her and she would bequeath her real property to them. The decedent made drafts
of a will saying this, but never executed them (because of superstition). The plaintiffs said they
would have supported the decedent even without the contract. Held for the plaintiffs. Plaintiffs
accepted with performance.
Main Point: The plaintiff’s performed their contractual duty of taking care of the decedent. That
they would have taken care of her anyway is irrelevant, they are still entitled to the benefit of
their bargain.
 Statute of Frauds issue (bequeathing real property, dealing with executor of the estate) – but
the evidentiary function of the Statute of Frauds is not needed in this case (we had drafts of
the will for that), and the court emphasizes that the Statute of Frauds cannot be used to “work
a fraud.”
 Don’t count on this result – courts typically do not like to interfere with wills.
Bishop v. Eaton
29
Defendant said something like “If my brother needs more money, make sure he gets it, and I will
pay it.” The plaintiff signed a surety note on the brother’s behalf then sent a letter notifying the
defendant. The defendant never received the letter.
Main Point: The plaintiff did what he was supposed to in notifying the defendant of his
acceptance, so it does not matter that the defendant never actually received it. (Similar to the
mailbox rule.)
 The consideration and acceptance were the same act (signing the surety agreement) in this
contract.  Common when performance is acceptance.
Silence as Acceptance
Main Topics
 Silence is acceptance ONLY in a very narrow set of circumstances:
o Offeree takes the benefit of the bargain knowing there is an expectation of compensation.
o Offeror makes it known that silence is acceptance.
o Previous dealings show that silence is acceptance.
§69 Acceptance by Silence of Exercise of Dominion
(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an
acceptance in the following cases only:
a. Where an offeree takes the benefit of offered services with reasonable opportunity
to reject them and reason to know that they were offered with the expectation of
compensation.
b. Where the offeror has stated or given the offeree reason to understand that assent
may be manifested by silence or inaction, and the offeree in remaining silent and
inactive intends to accept the offer.
c. Where because of previous dealings or otherwise, it is reasonable that the offeree
should notify the offeror if he does not intend to accept.
(2) An offeree who does any act inconsistent with the offeror’s ownership of offered property
is bound in accordance with the offered terms unless they are manifestly unreasonable.
But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.
Cases
Vogt v. Madden
Court of Appeals of ID, 1985 – p. 420
Plaintiff and defendant had a sharecropping agreement that the plaintiff considered renewed on
the basis of the defendant’s silence during multiple conversations about planting beans instead of
wheat. Held for the defendant that his silence did not constitute acceptance based on §69.
Main Point: Very strict interpretation of silence as acceptance.
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Ganley v. G. and W Limited Partnership

Court of Appeals of MD, 1980 – p. 425
Plaintiff was a real estate broker who first said he would take an 8% commission, but then stayed
silent at a later meaning when the owners discussed a 4% commission based on the reduced sale
price of the property. Held for the owners for a 4% commission.
Main Point: The broker had a “duty to speak” because he was in a situation where he knew his
silence looked like acceptance and that the other party was relying on that acceptance.
 The fiduciary relationship between the parties here played a large role in the court’s
determination, not only that silence ≠ acceptance, but also in imposing a “duty to speak.”
Kukuska v. Home Mut. Hail-Tornado Ins. Co.

A farmer applied for hail insurance (offer to purchase insurance) but was not notified of a
rejection until 28 days later. The day of the rejection, his crops were destroyed. The farmer
brought suit on the grounds that he would have secured alternate insurance but for the silence of
the defendant. Held for the farmer.
Main Point: Rejection is effective when it is received; main issue here is the “silence” of the
insurance company.
Hobbs v. Massasoit Whip Co.

Supreme court of MA, 1893 – p. 431
Without any specific order, plaintiffs shipped eel skins to the defendant 4 or 5 times and the
defendant paid each time. The defendant did not pay for the final order.
Main Point: Held for the plaintiff. The defendant had a duty to reject the order because silence
was acceptance in this circumstance.
Austin v. Burge
Supreme Court of MO, 1911 – p. 431
Plaintiff is a newspaper and the defendant was a subscriber who did not renew his subscription.
The plaintiff sent two newspapers to the defendant, and the defendant paid both times but tried to
cancel the subscription. The plaintiff continued to send the paper and the defendant stopped
paying. Held that the defendant had accepted the benefit (he read the papers) and that his silence
was acceptance.
Main Point: Taking the benefit of the bargain is acceptance.
INTERPRETATION
Implied Contract and Related Non-Contractual Claims
Implied in Fact Contracts
Main Topics
 Implied in Fact Contract: Based on actual or apparent intent
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o Implied in fact = same as an express contract, but the assent is implied from the conduct
of the parties
 Implied in Law Contract: Imposed by the court for reasons of fairness
o Implied in law = equitable doctrine to prevent unjust enrichment. How we think the
world should be!
o Why create contractual obligations where the formal rules say there are none?
 We want to hold people to the way they manifest their intent (prevent/discourage
deception).
 Promote contracts and efficiency
 Fill in the blanks with what we know
 Avoid unjust enrichment, reliance, etc.
 Hypo: What if a contractor builds a patio that the owner’s did not contract for?
o If the owner did not know about the patio, the owner does not have to pay.
o If the owner does know about the patio being constructed, the owner must reject it.
o If the owner thought the patio was included as part of the original contract, we have a
tough case.
 Look at it under mistake.
 Remember, there are usually restitution claims available for benefit conferred when there is
no implied in fact contract and the law does not impose an implied in law obligation.
Cases
Nursing Care Services, Inc. v. Dobos
FL Court of Appeals, 1980 – p. 436
Defendant received nursing care after a stay in the hospital. She never agreed to nor rejected the
care, and was under the assumption that Medicare would pay for it.
Main Point: Where services are rendered and voluntarily accepted, the law presumes an implied
promise to receive payment and to pay. Implied in law = equitable remedy.
Vertex, Inc. v. City of Waterbury

Supreme Court of CT, 2006 – p. 439
Plaintiff provided services to the defendant for Y2K. Defendant did not pay, thinking they were
included as part of another contract. Jury was instructed on implied in fact contracts, but should
have been instructed on implied in law (unjust enrichment) contracts because that was the claim.
Main Point: Implied in law and implied in fact are analytically distinct doctrines, but often deal
with the same questions. (e.g. Is there a reasonable expectation that payment was required?)
Wagenseller v. Scottsdale Memorial Hospital

An at-will employee was terminated from her job at a hospital and the court looks at the situation
to determine if employee procedures, handbooks, etc. are implied in fact contracts, and whether
public policy requires an implied in law contract be imposed.
Main Point: Implied in fact contracts are determined by looking at the conduct of the parties
(handbooks, practices, etc.). Implied in law are the public policy issues.
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Misunderstanding
Subjective and Objective Elements in Contract
Main Topics
 A contract requires the meeting of the minds!
 Objective Intent: What the party seemed to have mean
 Subjective Intent: What the party “really meant” – the party’s state of mind
 Two types of misunderstandings:
o Is there even a contract?
 Was there a meeting of the minds?
o What does the contract mean?
 Was there a misunderstanding?
 Latent ambiguity – the problems come up later on
 The law will adopt the meaning of the party that is less at fault (the party that holds the more
reasonable understanding.
o Difficulty when there is a mutual misunderstanding and neither party is more at fault.
o When resolving a misunderstanding ask: What did each party know or have reason to
know about how the other party viewed the contract.
 Four Principles of Modern Contract Law Interpretation:
o If the parties mean different things, and neither party knows the other means something
different, and the too meanings are not equally reasonable  the more reasonable
meaning prevails  §201(2)(b)
o If the parties mean different thing, neither party knows the other party means something
different, and the meanings are equally reasonable  neither meaning prevails, there is
no contract  §20(1)  Raffles v. Wichelhaus (Peerless case)
o If the parties mean the same thing, that meaning prevails, even if it is unreasonable 
reasonableness is relevant only where there is a subjective misunderstanding  §201(1)
 The parties have screwed up their language, but who cares! We only need to look to
“reasonableness” if the parties disagree on what was meant.
o If the parties A and B each mean something different, but A knows what B means, B’s
meaning prevails, even if it is less reasonable  §201(2)
 Supported by a fault analysis. Bad A for moving forward with the contract when it
knew B misunderstood.
§20 Effect of Misunderstanding
(1) There is no manifestation of mutual assent to an exchange if the parties attach materially
different meanings to their manifestations and
(a) Neither party knows or has reason to know the meaning attached by 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
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(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.
§201 Whose Meaning Prevails

(1) Where the parties have attached different meanings to a promise or agreement or a term
thereof, it is interpreted in accordance with that meaning.
(2) Where the parties have attached different meanings to a promise or agreement or a term
thereof, it is interpreted in accordance with the meaning attached by one of them if at the
time the agreement was made
(a) That party did not know of any different meaning attached by the other, and the
other knew the meaning attached by the first party; or
(b) That party had no reason to know of any different meaning attached by the other,
and the other had reason to know the meaning attached by the first party.
(b) Except as stated in this section, neither party is bound by the meaning attached by the
other, even though the result may be a failure of mutual assent.
Cases
Lucy v. Zehmer
Supreme Court of VA, 1954 – p. 328
Plaintiff wanted to buy the defendant’s farm. Defendant wrote a promise to sell the farm for
$50,000 on a napkin. Plaintiff thought they had a deal, but defendants thought it was a joke.
Main Point: Court said they had a contract. With the mutual misunderstanding over whether a
contract existed, the facts should go to a jury to determine what a reasonable person would have
objectively understood.
Raffles v. Wichelhaus (Peerless)

Court of Exchequer, 1864 – p. 333
Seller (plaintiff) meant delivery by the Peerless in December, buyer (defendant) meant arrival by
the Peerless in October. Court held there was no contract.
Main Point: Different approaches: (1) there was no meeting of the minds and therefore no
contract; (2) there was a mutual misunderstanding and we take the reasonable interpretation.
“Latent ambiguity.”
Frigaliment Importing Co. v. B.N.S. Intern Sales Corp

S.D.N.Y., 1960 – p. 336
What is chicken? Seller sold stewing chickens, buyer wanted broilers, the contract price was
somewhere in the middle. Held for the seller because it is more reasonable that the contract price
was for stewing chickens (below the contract price) than more expensive broiler, on which the
seller would lose money.
Main Point: Mutual misunderstanding, adopt the more reasonable view.
Mears v. Nationwide Mutual Ins. Co.

Eight Circuit Court of Appeals, 1996 – p. 337
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Mears won a contest with a price of 2 Mercedes-Benz cars, but the promoter said it did not know
which make, model, year, etc., and thus the contract didn’t exist because it was too indefinite.
Court allowed the plaintiff to win two of the least expensive models.
Main Point: A minor ambiguity will not derail an entire contract.
Embry v. Hargadine, McKittrick Dry Goods Co.

MO Court of Appeals, 1907, 337
Employee did not want to continue working unless he knew his contract would be renewed. The
employer told him to go back to work and not to worry about it. Was the contract renewed in that
conversation? Court says yes.
Main Point: Takes the objective view of whether a reasonable person would conclude that a
contract had been formed and ignores the intentions of the parties. Classical approach.
Morales v. Sun Constructors, Inc.

Third Circuit Court of Appeals, 2008 – p. 341
Plaintiff (Spanish speaker) was required to sign an English language employment contract with
an arbitration clause. The employer asked a bilingual applicant to help the plaintiff, but the
bilingual applicant did not explain the arbitration clause.
Main Point: It’s your job to understand the contracts you are signing!
Dissent: That the bilingual applicant was appointed by the employer to translate gives the
employer some responsibility here.
Problems of Interpreting Purposive Language
Main Topics
 What should courts do if there is a missing term from the contract?  Imply them
(sometimes called constructive terms).
o Terms that the parties probably had in mind but did not trouble to express
o Terms that the parties, whether or not they actually had them in mind, would probably
have expressed if the question had been brought to their attention
o Terms that the parties would have expressed if they had envisioned problems they are no
encountering
 Ask: what would the parties have intended/agreed to if they had thought of this while writing
the contract?
§204 Supplying an Omitted Essential Term
When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to
a term which is essential to a determination of their rights and duties, a term which is reasonable
in the circumstances is supplied by the court.
Cases
Spaulding v. Morse
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A divorced father agrees to pay child support until the son graduates from college. Instead of
entering college, the son joins the army, but the agreement did not provide for what to do in that
case. Court looks at the purpose of the agreement (supporting the son) and says it is no longer
required since the son is now in the army.
Main Point: Missing term is supplied by looking at the overall intention of the parties.
Beanstalk Group, Inc. v. AM General Corp.

Plaintiff wants to strictly read the agreement so that it would require the sale of the Hummer
trademark by the principal to be interpreted as a licensing agreement that would entitle the
plaintiff to a proportion of the revenue.
Main Point: We don’t want to interpret contracts literally if that will lead to “absurd” results
(results the parties would have never agreed to seek and are counter to their intentions).
Indefiniteness
General
Main Topics
 The rules surrounding, indefiniteness, preliminary negotiations, and the duty to bargain in
good faith developed to define what exactly constitutes offer and acceptance.
o Terms need to be definite enough to determine what constitutes a breach and the remedy
for that breach §33(b).
 Promissory estoppel (§90) is available for equitable recovery if a court finds that
there is no agreement due to indefiniteness.
 Court can use “gap fillers” to interpret an indefinite contract (UCC §2-305–§2-310).
o These are default rules that the court reads into contracts in the absence of the parties’
actual agreement on the grounds that they represent ordinary understanding about
common matters and therefore most likely would have been used by the parties had they
considered the term when they made the agreement.
§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 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.
§34 Certainty and Choice of Terms; Effect of Performance or Reliance

(1) The terms of a contract may be reasonably certain even though it empowers one or both
parties to make a selection of terms in the course of performance.
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(2) Part performance under an agreement may remove uncertainty and establish that a
contract enforceable as a bargain has been formed.
(3) Action in reliance on an agreement may make a contractual remedy appropriate even
though uncertainty is not removed.

UCC §2-305 Open Price Term

(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 reasonable price at the time for delivery if
(a) Nothing is said as to price; or
(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.
(2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.
(3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed
through fault of one party the other may at his option treat the contract as cancelled or
himself fix a reasonable price.
(4) Where, however, the parties intend not to be bound unless the price be fixed or agreed
and it is not fixed or agreed there is no contract. In such a case the buyer must return any
goods already received or if unable so to do must pay their reasonable value at the time of
delivery and the seller must return any portion of the price paid on account.
UCC §2-308 Absence of Specified Place for Delivery

Unless otherwise agreed
(a) the place for delivery of goods is the sellers place of business or if he has none his
residence; but
(b) in a contract for sale of identified goods which to the knowledge of the parties at the time
of contracting are in some other place, that place is the place for their delivery; and
(c) documents of title may be delivered through customary banking channels.
UCC §2-309 Absence of Specific Time Provisions; Notice of Termination

(1) The time for shipment or delivery or any other action under a contract if not provided in
this Article or agreed upon shall be a reasonable time.
(2) Where the contract provides for successive performances but is indefinite in duration it is
valid for a reasonable time but unless otherwise agreed may be terminated at any time by
either party.
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(3) Termination of a contract by one party except on the happening of an agreed event
requires that reasonable notification be received by the other party and an agreement
dispensing with notification is invalid if its operation would be unconscionable.
UCC §2-310 Open Time for Payment or Running of Credit; Authority to Ship Under Reservation
Unless otherwise agreed
(a) payment is due at the time and place at which the buyer is to receive the goods even
though the place of shipment is the place of delivery; and
(b) if the seller is authorized to send the goods he may ship them under reservation, and may
tender the documents of title, but the buyer may inspect the goods after their arrival
before payment is due unless such inspection is inconsistent with the terms of the contract
(§2-513); and
(c) if delivery is authorized and made by way of documents of title otherwise than by
subsection (b) then payment is due at the time and place at which the buyer is to receive
the documents regardless of where the goods are to be received; and
(d) where the seller is required or authorized to ship the goods on credit the credit period runs
from the time of shipment but post-dating the invoice or delaying its dispatch will
correspondingly delay the starting of the credit period.
Cases
Academy Chicago Publishers v. Cheever
Supreme Court of IL, 1991 – p. 468
Mrs. Cheever agreed to compile a collection of short stories for the defendant to publish. The
contract (no problem with consideration, no problem with offer and acceptance) was very vague
and had lots of details missing. The trial court had no basis to supply the missing terms.
Main Point: If the contract is too vague to define what constitutes a breach (alternatively, what
constitutes performance), and there is no basis to fill in the blanks, the contract is not valid.
Rego v. Decker
Supreme Court of AK, 1971 – p. 473
Main Point: Courts should fill gaps in contracts where the expectations of the parties are
reasonably clear. Courts cannot impose any performance to which a party did not and probably
would not have agreed.
AROK Construction, Co. v. Indian Construction Services

Main Point: Incomplete agreements are often necessary/unavoidable because of limitations to
foreseeability, to contract drafting generally, and because parties may want to maintain
flexibility.
Saliba-Kringlen Corp. v. Allen Engineering Co.

Plaintiff was a general contractor, defendant was a sub-contractor that won the contract for
electrical work, but refused to honor its low bid, claiming it was too indefinite to be binding
because it only listed a price. Held for the general contractor. Price is the material term and the
parties never got around to negotiating the other terms. Matches customary business practice.
Main Point: Courts can use customary business practices as a gap filler.
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Hoffman v. Red Owl Stores, Inc.

Plaintiff negotiated with defendant to open a Red Owl store in a new town. Plaintiff made a lot of
preparations (unclear if it is “performance” but also irrelevant in this case), such as selling his
bakery, buying a different grocery store to practice, buying land for the new store, etc. In the end
the defendant backed out and decided not to open the new Red Owl store. Plaintiff was able to
recover under a promissory estoppel (§90) theory, but had no contract.
Main Point: Plaintiff’s only option for recovery was promissory estoppel because he had no
contract with the defendant. There was consideration, offer, and acceptance, but the terms of the
contract were not definite enough to determine a breach/calculate damages  no contract, just
preliminary negotiations.
Parol Evidence Rule

The Rule
Main Topics
 Parol evidence rule: governs the treatment of evidence regarding a separate or prior
agreement that is superseded by a written agreement.
o The parol evidence rule only comes into play when the agreement is in writing!
o The parol evidence rule does not preclude the use of extrinsic evidence to interpret a
written contract.  the plain meaning rule does that.
 Plain meaning rule: precludes the use of extrinsic evidence to interpret a term unless the
term is ambiguous on its face.
o Broader than the parol evidence rule in the amount of evidence it excludes.
 Fomalistic approach (Williston): If an agreement is integrated, there is no need for parol
evidence.
o Trade off: A strict, formal approach of the written agreement can lead to injustice by
excluding extrinsic evidence
 Modern approach (Corbin): Look to the intentions of the parties to determine if an agreement
is meant to be integrated.
o Trade off: Looking at the entire agreement (written and oral) can lead to injustice by
allowing perjury as to what formulation is the true agreement.
o CA has the most liberal approach: Evidence should only be excluded if it is likely to
mislead  focus is on the credibility of the evidence (anticipates the fact finder’s role)
 When is oral/extrinsic evidence allowed? (exceptions to the parol evidence rule - §214):
o When the writing is not an integrated agreement;
o When the writing is partially integrated;
o To interpret an ambiguous meaning of the writing, whether or not integrated;
 See plain meaning rule
o To prove illegality, fraud, duress, mistake, lack of consideration, or other invalidating
cause;
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o As ground for granting or denying rescission, reformation, specific performance, or other

remedy.
 Whether an agreement is integrated is a factual determination typically made by the trial
court judge by considering the agreement and all extrinsic evidence.
 Merger/integration clauses: clauses that explicitly state the contract is integrated. Not
conclusive!
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§209 Integrated Agreements

(1) An integrated agreement is a writing or writings constituting a final expression of one or
more terms of an agreement.
(2) Whether there is an integrated agreement is to be determined by the court as a question
preliminary to determination of a question of interpretation or to application of the parol
evidence rule.
(3) Where the parties reduce an agreement to a writing which in view of its completeness and
specificity reasonably appears to be a complete agreement, it is taken to be an integrated
agreement unless it is established by other evidence that the writing did not constitute a
final expression.
§210 Completely and Partially integrated Agreements

(1) A completely integrated agreement is an integrated agreement adopted by the parties as a
complete and exclusive statement of the terms of the agreement.
(2) A partially integrated agreement is an integrated agreement other than a completely
integrated agreement.
(3) Whether an agreement is completely or partially integrated is to be determined by the
court as a question preliminary to determination of a question of interpretation or to
application of the parol evidence
§213 Effect of Integrated Agreement on Prior Agreement (Parol Evidence Rule)

(1) A binding integrated agreement discharges prior agreements to the extent that it is
inconsistent with them.
(2) A binding completely integrated agreement discharges prior agreements to the extent that
they are within its scope.
(3) An integrated agreement that is not binding or that is voidable and avoided does not
discharge a prior agreement. But an integrated agreement, even though not binding, may
be effective to render inoperative a term which would have been part of the agreement if
it had not been integrated.
§214 Evidence of Prior Contemporaneous Agreements and Negotiations

Agreements and negotiations prior to or contemporaneous with the adoption of a writing are
admissible in evidence to establish
(a) that the writing is or is not an integrated agreement;
(b) that the integrated agreement, if any, is completely or partially integrated;
(c) the meaning of the writing, whether or not integrated;
(d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause;
(e) ground for granting or denying rescission, reformation, specific performance, or other
remedy.
§215 Contradiction of Integrated Terms

Except as stated in the preceding section, where there is a binding agreement, either completely
or partially integrated, evidence of prior or contemporaneous agreements or negotiations is not
admissible in evidence to contradict a term of the writing.
§216 Consistent Additional Terms
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(1) Evidence of a consistent additional term is admissible to supplement an integrated

agreement unless the court finds that the agreement was completely integrated.
(2) An agreement is not completely integrated if the writing omits a consistent additional
agreed term which is
(a) Agreed to for separate consideration, or
(b) Such a term as in the circumstances might naturally be omitted from the writing.
§217 Integrated Agreement Subject to Oral Requirement of a Condition

Where the parties to a written agreement agree orally that performance of the agreement is
subject to the occurrence of a stated condition, the agreement is not integrated with respect to the
oral condition.
UCC §2-202 Final Written Expression: Parol or Extrinsic Evidence

Terms with respect to which the confirmatory memoranda of the parties agree or which are
otherwise set forth in a writing intended by the parties as a final expression of their agreement
with respect to such terms as are included therein may not be contradicted by evidence of any
prior agreement or of a contemporaneous oral agreement but may be explained or supplemented
(f) by course of performance, course of dealing, or usage of trade; and
(g) 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.
Cases
Mitchill v. Lath
Plaintiff entered into an agreement to buy a farm from the defendant. Before the sale of the farm,
the defendant orally promised to remove an icehouse from across the street to induce the plaintiff
to enter into the sale agreement. The defendant never removed the icehouse and the plaintiff
brought suit. The court did not allow evidence oral agreement
Main Point: This is a very formalistic approach. The court does not consider that the removal of
the icehouse was a condition on which the contract was based. Under §217, an oral condition on
which the contract is based is an exception to the parol evidence rule.
Masterson v. Sine
A deed gave the original owners the option to buy back a piece of land. When the trustee in
bankruptcy of the original owner wanted to buy back the land, the defendants would not let him
because they said the option was non-assignable and the land had to stay in the immediate
family. The court allowed the parol evidence in to show that the option was non-assignable.
Main Point: Deeds are very formal documents so this is a liberal view of the parol evidence
rule.
Snyder v. Lovercheck
Supreme Court of WY, 1999 – p. 518
Plaintiff bought a wheat farm and discovered that a lot of the rye was infected. Before the sale,
plaintiff had examined the property, had received information from the seller and another former
owner through the seller that there were problems with some of the wheat (about 100 acres), and
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signed a contract with a disclaimer that he wasn’t relying on any representations. Plaintiff wanted
to introduce parol evidence to show fraud.
Main Point: Parol evidence can be introduced to show fraud in the making of a contract (§214),
but there is no fraud here and the plaintiff doesn’t have such evidence.
Steuart v. McChesney
Supreme Court of PA, 1982 – p. 527
Defendant had a right of first refusal on the sale of land to purchase it at the price on the county’s
assessment rolls. County had not kept the rolls up-to-date, and the price listing ($7,820) was way
less than the market value ($30,000) of the property. Plaintiff wanted plain language rule.
Main Point: Court applied plain language rule – opted for certainty.
Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.
The clause indemnifying the plaintiff against all loss in the contract to remove and replace a
steam turbine did not specify that it applied only to the loss of third parties. Defendant wanted to
show extrinsic evidence to show that meaning.
Main Point: Court took a very liberal approach to the plain meaning rule, allowing in evidence
to show a meaning of a term as long as the meaning offered is one to which the contract is
“reasonably susceptible.”
Interpretation of Ambiguity in Written Contracts
Main Topics
 Plain meaning rule: precludes the use of extrinsic evidence to interpret a term unless the
term is ambiguous on its face.
o Broader than the parol evidence rule in the amount of evidence it excludes.
 See below for the role of usage, course of dealing, and course of performance in contract
interpretation.
 This section is concerned with interpreting ambiguous terms in a contract. See Indefiniteness
and Supplying an Omitted Term for gap fillers the court uses in interpreting a written contract
with missing terms.
§212 Interpretation of Integrated Agreement
(1) The interpretation of an integrated agreement is directed to the meaning of the terms of
the writing or writings in the light of the circumstances, in accordance with the rules in
this chapter.
(2) A question of interpretation of an integrated agreement is to be determined by the trier of
fact if it depends on the credibility of extrinsic evidence or on a choice among reasonable
inferences to be drawn from extrinsic evidence. Otherwise a question of interpretation of
an integrated agreement is to be determined as a question of law.
Cases
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Steuart v. McChesney
Supreme Court of PA, 1982 – p. 527
Defendant had a right of first refusal on the sale of land to purchase it at the price on the county’s
assessment rolls. County had not kept the rolls up-to-date, and the price listing ($7,820) was way
less than the market value ($30,000) of the property. Plaintiff wanted plain language rule.
Main Point: Court applied plain language rule – opted for certainty.
Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.
The clause indemnifying the plaintiff against all loss in the contract to remove and replace a
steam turbine did not specify that it applied only to the loss of third parties. Defendant wanted to
show extrinsic evidence to show that meaning.
Main Point: Court took a very liberal approach to the plain meaning rule, allowing in evidence
to show a meaning of a term as long as the meaning offered is one to which the contract is
“reasonably susceptible.”
Role of Usage, Course of Dealing, and Course of Performance
Main Topics
 Allowing usage, course of dealing, and course of performance as evidence to interpret a
contract is a more modern and liberal standard of contract law.
o UCC §2-202 and §2-208 and Restatement §221, §222, §223 allow usage, course of
dealing, and course of performance to explain or supplement a written agreement.
§221 Usage Supplementing an Agreement
An agreement is supplemented or qualified by a reasonable usage with respect to agreements of
the same type if each party knows or has reason to know of the usage and neither party knows or
has reason to know that the other party has an intention inconsistent with the usage.
§222 Usage of Trade

(1) A usage of trade is a usage having such regularity of observance in a place, vocation, or
trade as to justify an expectation that it will be observed with respect to a particular
agreement. It may include a system of rules regularly observed even though particular
rules are changed from time to time.
(2) The existence and scope of a usage of trade are to be determined as questions of fact. If a
usage is embodied in a written trade code or similar writing the interpretation of the
writing is to be determined by the court as a question of law.
(3) Unless otherwise agreed, a usage of trade in the vocation or trade in which the parties are
engaged or a usage of trade of which they know or have reason to know gives meaning to
or supplements or qualifies their agreement.
§223 Course of Dealing
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(1) A course of dealing is a sequence of previous conduct between the parties to an

agreement which is fairly to be regarded as establishing a common basis of understanding
for interpreting their expressions and other conduct.
(2) Unless otherwise agreed, a course of dealing between the parties gives the meaning to or
supplements or qualifies their agreement.
UCC §1-303 Course of Performance, Course of Dealing, and Usage of Trade

(a) A “course of performance” is a sequence of conduct between the parties to a particular
transaction that exists if
a. The agreement of the parties with respect to the transaction involves repeated
occasions for performance by a party; and
b. The other party, with knowledge of the nature of the performance and opportunity
for objection to it, accepts the performance or acquiesces in it without objection.
(b) A “course of dealing” is a sequence of conduct concerning previous transactions between
the parties to a particular transaction that is fairly to be regarded as establishing a
common basis of understanding for interpreting their expressions and other conduct.
(c) A “usage of trade” is any practice or method of dealing having such regularity of
observance in a place, vocation, or trade as to justify an expectation that it will be
observed with respect to the transaction in question. The existence and scope of such a
usage must be proved as facts. If it is established that such a usage is embodied in a trade
code or similar record, the interpretation of the record is a question of law.
UCC §2-202 Final Written Expression: Parol or Extrinsic Evidence

Terms with respect to which the confirmatory memoranda of the parties agree or which are
otherwise set forth in a writing intended by the parties as a final expression of their agreement
with respect to such terms as are included therein may not be contradicted by evidence of any
prior agreement or of a contemporaneous oral agreement but may be explained or supplemented
(a) by course of performance, course of dealing, or usage of trade; 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.
UCC §2-208 Course of Performance or Practical Construction

(1) Where the contract for sale involves repeated occasions for performance by either party
with knowledge of the nature of the performance and opportunity for objection to it by
the other, any course of performance accepted or acquiesced in without objection shall be
relevant to determine the meaning of the agreement.
(2) The express terms of the agreement and any such course of performance, as well as any
course of dealing and usage of trade, shall be construed whenever reasonable as
consistent with each other; but when such construction is unreasonable, express terms
shall control course of performance and course of performance shall control both course
of dealing and usage of trade.
(3) Subject to the provisions of the next section on modification and waiver, such course of
performance shall be relevant to show a waiver of modification of any term inconsistent
with course of performance.
Cases
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Foxco Industries, Ltd. V. Fabric World, Inc.

Fifth Circuit Court of Appeals, 1979 – p. 541
Plaintiff agreed to deliver “first quality” fabric to the defendant. Defendant refused to accept a
portion of the shipment it considered defective. “First quality” is an industry term.
Main Point: If defendant should reasonably have known the industry usage then the industry
usage is admissible.
Hurst v. W.J. Lake & Co.

Supreme Court of OR, 1932 – p. 546
Buyer claims discount on horsemeat scraps because the contract called for 50% protein and the
delivery was 49.53% protein. Trade standards allow sellers to round up.
Main Point: Trade usage was allowed to show the meaning of the contract.
Nanakuli Paving and Rock Co. v. Shell Oil Co.

Ninth Circuit Court of Appeals, 1981 – p. 550
Shell offered a price protection to Nanakuli in two instances, but not in the third. Nanakuli sued,
claiming that course of performance established price protection. Shell claimed it was a waiver.
Court said it was course of performance; trade usage also did a lot of work in this case.
Main Point: How many instances establish a course of performance – in this case only 2
(coupled with strong trade usage to support that course of performance).
Oral Modification of a Written Contract with N.O.M. Clause
Main Topics
 Parol evidence concerns prior or contemporaneous agreements and is inapplicable to later
agreements or modifications.
 Contracts that have N.O.M. clauses prohibit oral modifications, but the law typically
disregards the N.O.M. clause using the reasoning that:
o Parties can change their earlier contracts with later contracts
o An oral modification is a later contract
o An implied provision of the later oral contract is to abrogate the N.O.M. clause
 Basically, if parties change their minds, they should not be bound by an old
agreement that does not allow them to change their minds.
 UCC §2-209(2) requires that a contract with an N.O.M. clause be modified in writing (kind
of formal for the UCC).
o An oral modification can operate as a waiver under UCC §2-209(4).
binding.*
46
party.
(3) The requirements of the statute of frauds section of this Article (§2-201) must be satisfied
if the contract as modified is within its provisions.
material change of position in reliance on the waiver.
Cases
Wisconsin Knife Works v. National Metal Crafters
Plaintiff claims that defendant breached its contract for late delivery. Defendant says plaintiff
waived the requirement for timely delivery.
Main Point: Posner says there has to be reliance on an oral modification that is acting as a
waiver under §2-209(4), otherwise it is too easy to strike a term of the contract (make a
modification) by making it seem like a waiver.
Dissent: We don’t need reliance on a waiver when we don’t even need consideration for a
modification under the UCC.
Form Contracts
Battle of the Forms
Main Topics
 UCC is flexible in determining when an agreement is made. (UCC §2-204)
o UCC §2-207 gives flexibility regarding counter-offers, as well.
 Avoids the common law issue that gives the advantage to the last party to send a form
 Pre-printed contracts with boilerplate terms make exchange easier and more efficient,
but the law is premised on the idea that these terms are not read.
 §2-207(1) – eliminates the mirror image rule by allowing an acceptance that offers additional
terms.
 §2-207(2) – tells us additional terms can become part of the contract subject to exceptions in
(a), (b), and (c)
 §2-207(3) – doesn’t tell us much we don’t get in §2-204
 When there are inconsistent forms, ask:
o Is there a contract?
 Do we have acceptance with additional/different terms or do we have a counter-
offer/conditional acceptance?
 UCC §2-207(1) = counter-offer
o If so, what are the terms? §2-207(2)
o If not, is there conduct consistent with a contract? §2-207(3)
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 What type of language satisfies the “expressly” part of “the offer expressly limits acceptance
to the terms of the offer”? (§2-207(2)(a))
o Some courts require specific language (e.g. “these terms are the only ones we will
accept.”) while others require conduct that demonstrates an unwillingness to proceed.
 Confirmation of acceptance can still affect the terms of the agreement under §2-207(2)(b)
 Silence is acceptance of additional terms that do not materially alter the contract. (§2-207(2)
(b))
 “Materially alter” = terms that result in surprise or hardship
o Terms that one party would not expect to appear in the agreement and to which they
would not have assented if they were aware.
o “surprise” OR “hardship”/”surprise” AND “hardship”  some courts treat this as
disjunctive, some courts treat this as conjunctive
 Conflict exists over the fact that §2-207(2) explicitly refers to “additional terms” but not to
“different terms”  what does that mean?
o Does a contract include an inherent/implied objection to “different terms”? (knock-out
rule)?
o Does “additional” = “different”?
o Do we exclude “different” terms because they are not mentioned?
 “Knock out” rule: Conflicting terms cancel each other; a party’s objection to the other
[conflicting] term is implied in the inclusion of a conflicting term; Neither term becomes part
of the agreement. (§2-207(2)©) and the term is replaced with the applicable UCC provisions
o Protects the party whose interest align with the default rule

(c) Notification of objection to them has already been given or is given within a reasonable
time after notice of them is received.
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§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 or agreements of the same type, he adopts the writing as an
integrated agreement with respect to the terms included in the writing.
(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly
situated without regard to their knowledge or understanding of the standard terms of the
writing.
(3) Where the other party has reason to believe that the party manifesting such assent would
not do so if he knew that the writing contained a particular term, the term is not part of
the agreement.
Cases
Gardner Zemke Co. v. Dunham Bush, Inc.
Supreme Court of NM, 1993 – p. 574
Plaintiff’s form included a warranty for the air conditioning equipment it purchased and
defendant’s form included a warranty disclaimer. Which one governs? First we must determine if
there is a contract, then the court says to apply the knock-out rule.
Main Point: The court adopts the knock-out rule to govern different terms: the different terms
will cancel each other out and be replaced by applicable UCC provisions.
 In this case, the knock-out rule favors the plaintiff because UCC provisions will imply a
warranty.
Shrinkwrap and Clickwrap Agreements
Main Topics
 Shrinkwrap agreement: Refers to the practice of including additional terms and conditions on
the outside of the package or within it when it is shipped to the consumer. Often the packages
are covered with plastic wrap that much be breached to open.
 Majority view: A contract is fully formed when the buyer accepts the goods, therefore UCC
§2-207 does not apply because only one form is involved (and therefore there is no battle of
the forms)
o A consumer must be made aware that they can reject the contract terms by returning the
product!
 Minority view: Acontract is fully formed when a buyer orders a product and the seller ships
it, therefore “shrinkwrap” agreements are proposals for additional terms.
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Cases
ProCD, Inc. v. Zeidenberg
A buyer of software was bound to the agreement that was included in the software packaging and
alter appeared when the buyer first used the software.
Main Point: Influential decision stating that the contract is formed when the buyer accepts the
goods.
DeFontes v. Dell, Inc.

Supreme Court of RI, 2009 – p. 590
Plaintiff wanted to contest a tax issue with their computers, but did not want to be bound by the
arbitration clause included in the shrinkwrap. The court said that shrinkwrap terms are included
in the contract (because formation is at the time the goods are accepted), but that the terms and
conditions included in the shipping must expressly inform the consumer that the contract can be
rejected.
Main Point: The reasonably prudent person must understand that by keeping the product, they
are agreeing to be bound by the terms and conditions.
Hancock v. American Telephone & Telegraph, Inc.

Tenth Circuit Court of Appeals, 2012 – p. 603
In setting up the bundled voice/TV services, the consumer must click “I Accept” on the
technician’s computer, but there is not enough time allotted in the install for the consumer to read
all of the terms. The court says this is okay – there are print copies available and the consumer
can still reject within 30 days (and suffer a financial penalty).
Main Point: Standard practice plays a big role in what constitutes adequate notice and adequate
opportunity to manifest assent.
Interpretation and Unconscionability in Form-Contracts
Main Topics
 The law accommodates the fact that people don’t read boilerplate terms. Instead, people
assume that boiler-plate terms:
o Do not alter the fair meaning of the contract.
o Are not unreasonable or unfair.
 Almost like we have two contracts:
o The material deal (“dickered”/bargained for terms)
o The collateral deal with supplementary boiler-plate terms
 Typically, what consumers expect and get used to with form contracts and fine print becomes
what is legally allowed. (Restatement §211)
 Disclaimers of warranty must be conspicuous as defined by §1-201
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UCC §1-201 General Definitions (10)
“Conspicuous”, with reference to a term, means so written, displayed, or presented that a
reasonable person against which it is to operate ought to have noticed it. Whether a term is
“conspicuous” or not is a decision for the court. Conspicuous terms include the following:
(a) a heading in capitals equal to or greater in size than the surrounding text, or in contrasting
type, font, or color to the surrounding text of the same or lesser size; and
(b) language in the body of a record or display in larger type than the surrounding text, or in
contrasting type, font, or color to the surrounding text of the same size, or set off from
surrounding text of the same size by symbols or other marks that call attention to the
language.
UCC §2-302 Unconscionable Contract or Clause

(1) If the court as a matter of law finds the contract or any clause of the contract to have been
unconscionable at the time it was made the court may refuse to enforce the contract, or it
may enforce the remainder of the contract without the unconscionable clause, or it may
so limit the application of any unconscionable clause 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.
§206 Interpretation Against the Draftsmen

In choosing among the reasonable meanings of a promise or agreement or a term thereof, that
meaning is generally preferred which operates against the party who supplies te word or from
whom a writing otherwise proceeds.
§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 or agreements of the same type, he adopts the writing as an
integrated agreement with respect to the terms included in the writing.
(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly
situated without regard to their knowledge or understanding of the standard terms of the
writing.
(3) Where the other party has reason to believe that the party manifesting such assent would
not do so if he knew that the writing contained a particular term, the term is not part of
the agreement.
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Cases
Moscatiello v. Pittsburgh Contractors Equipment Co.
Superior Court of PA, 1991 – p. 615
Plaintiff purchased a paving machine to complete its contract with the PA DOT. Defendant was
aware of the purpose of the purchase. Sale agreement included warranty disclaimers that were in
fine print and a limitation on damages.
Main Point: The warranty disclaimer was not conspicuous and the limitation on damages was
unconscionable.
Darner Motor Sales v. Universal Underwriters

There was ambiguity in the boiler-plate terms of an insurance contract, and it seemed the terms
conflicted with a statement made by the insurance salesman. How do you interpret ambiguous
terms that the parties did not negotiate? What evidence would you use?
Main Point: Court adopts the “reasonable expectations” test of Restatement §211.
Warranty
Main Topics
 Express warranty: a promise made in connection with the contract (UCC §2-313)
o Be careful of the parol evidence rule if the express warranty is made orally.
 Implied warranty of merchantability: an implied promise that the product will conform to
the basic requirements fit for the ordinary purposes, etc. (UCC §2-314)
o Applies to merchants only
 Implied warranty for fitness for a particular use: if the seller knows the buyer will be
using the product for a particular purpose and the buyer relies on the seller (UCC §2-315)
 Warranty exclusions:
o To exclude the implied warranty of merchantability, the disclaimer must be conspicuous
and must mention merchantability. (UCC §2-316(2))
o All implied warranties (even of merchantability) can be excluded when a buyer has
examined a good (or has refused to examine the good) for defects.
o All implied warranties (even of merchantability) can be excluded when a seller uses
language such as “as is” or “with all faults.”
 Sellers will either disclaim warranties (UCC §2-316) or limit damages (UCC §2-718 and §2-
719).
o Sellers cannot limit damages for personal injury (UCC §2-719(3)) and limitations to
damages cannot otherwise be unconscionable.
 Cost of repair is the correct measure in warranty cases. (UCC §2-714(2))
UCC §2-312 Warranty of Title and Against Infringement; Buyer’s Obligation Against
Infringement
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(1) Subject to subsection (2) there is in a contract for sale a warranty by the seller that
(a) The title conveyed shall be good, and its transfer rightful; and
(b) The goods shall be delivered free from any security interest or other lien or encumbrance
of which the buyer at the time of contracting has no knowledge.
(2) A warranty under subsection (1) will be excluded or modified only by specific language
or by circumstances which give the buyer reason to know that the person selling does not
claim title in himself or that he is purporting to sell only such right or title as he or a third
person may have.
(3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind
warrants that the goods shall be delivered free of the rightful claim of any third person by
way of infringement or the like but a buyer who furnishes specifications to the seller must
hold the seller harmless against any such claim which arises out of compliance with the
specifications.
UCC §2-313 Express Warranties by Affirmation, Promise, Description, Sample

(1) Express warranties by the seller are created as follows:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates to
the goods and becomes part of the basis of the bargain creates an express warranty
that the goods shall conform to the affirmation or promise.
(b) Any description of the goods which is made part of the basis of the bargain
creates an express warranty that the goods shall conform to the description.
(c) Any sample or model which is made part of the basis of the bargain creates an
express warranty that the whole of the goods shall conform to the sample or
model.
(2) It is not necessary to the creation of an express warranty that the seller use formal words
such as “warranty” or “guarantee” or that he have a specific intention to make a warranty
but an affirmation merely of the value of the goods or a statement purporting to be merely
the seller’s opinion or commendation of the goods does not create a warranty.
UCC §2-314 Implied Warranty; Merchantability; Usage of Trade

(1) Unless excluded or modified (§2-316), a warranty that the goods shall be merchantable is
implied in a contract for their sale if the seller is a merchant with respect to goods of that
kind. Under this section the serving for value of food or drink to be consumed either on
the premises or elsewhere is a sale.
(2) Goods to be merchantable must be at least such as
(a) Pass without objection in the trade under the contract description; and
(b) In the case of fungible goods, are of fair average quality within the description;
and
(c) Are fit for the ordinary purposes for which such goods are used; and
(d) Run within the variations permitted by the agreement, of even kind, quality and
quantity within each unit and among all units involved; and
(e) Are adequately contained, packaged, and labeled as the agreement may require;
and
(f) Conform to the promise of affirmations of fact made on the container or label if
ay.
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(3) Unless excluded or modified (§2-316) other implied warranties may arise from course of
dealing or usage of trade.
UCC §2-315 Implied Warranty: Fitness for Particular Purpose

Where the seller at the time of contracting has reason to know any particular purpose for which
the goods are required and that the buyer is relying on the seller’s skill or judgment to select or
furnish suitable goods, there is unless excluded or modified under the next section an implied
warranty that the goods shall be fit for such purpose.
UCC §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
(§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.
(4) 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
(§§ 2-718–2-719).
UCC §2-714 Buyer’s Damages for Breach in Regard to Accepted Goods

(1) Where the buyer has accepted goods and given notification he may recover as damages
for any non-conformity of tender the loss resulting in the ordinary course of events from
the seller’s breach as determined in any manner which is reasonable.
(2) The measure of damages for breach of warranty is the difference at the time and place of
acceptance between the value of the goods accepted and the value they would have had if
they had been as warranted, unless special circumstances show proximate damages of a
different amount.
UCC §2-718 Liquidation or Limitation of Damages; Deposits
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(1) Damages for breach by either party may be liquidated in the agreement but only at an
amount which is reasonable in 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 a penalty.
UCC §2-719 Contractual Modification or Limitation of Remedy

(1) Subject to the provisions of subsections (2) and (3) of this section and of the preceding
section on liquidation and limitation of damages,
a. The agreement may provide for remedies in addition to or in substitution for those
provided in this Article, and may limit or alter the measure of damages
recoverable under this Article, as by limiting the buyer’s remedies to return of the
goods and repayment of the price or to repair and replacement of non-conforming
goods or parts; and
b. Resort to a remedy as provided is optional unless the remedy is expressly agreed
to be exclusive, in which case it is the sole remedy.
(2) Where the circumstances cause an exclusive or limited remedy to fail of its essential
purpose, remedy may be had as provided in this Act.
(3) Consequential damages may be limited or excluded unless the limitation or exclusion is
unconscionable. Limitation of consequential damages for injury to the person in the case
of consumer goods is prima facie unconscionable but limitation of damages where the
loss is commercial is not.
Cases
Pierce v. Catalina Yachts, Inc.
Supreme Court of AK, 2000 – p. 623
Catalina sold the Pierces a yacht with the limited warranty that Catalina would repair (or pay the
price to repair) any water blisters. Catalina refused to repair the water blisters on the Pierces’
yacht, denying the seriousness of the problem. The court held for the Pierces on the grounds that
Catalina breached the warranty in bad faith.
Main Point: The limited warranty became unconscionable in this situation because it
incentivized bad behavior by Catalina and failed of its essential purpose.
PERFORMANCE
Mistake
Mechanical Errors (Unilateral Mistakes)
Main Topics
 Mistake deals with a fact of the contract
 Unilateral mistake: factual mistake by one party
o Almost all unilateral mistakes are mechanical errors
 Unilateral mistakes are hard to rescind
o §153 states when a unilateral mistake is grounds for rescission by the mistaken party:
55
 the mistake goes to a basic assumption of the contract

 the party does not bear the risk of the mistake (§154, this one is key!)
 enforcement of the contract would be unconscionable, or
 the other party had reason to know of the mistake/caused the mistake
o unconscionability in this sense is different than unconscionability in formation.
 Rescission is an equitable solution!
 We want to enforce the agreement the parties thought they made!
§153 When Mistake of One Party Makes a Contract Voidable
Where a mistake of one party at the time a contract was made as to a basic assumption on which
he made the contract has a material effect on the agreed exchange of performances that is
adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under
the rule stated in §154, and
(c) the effect of the mistake is such that enforcement of the contract would be
unconscionable, or
(d) the other party had reason to know of the mistake or his fault caused the mistake.
§154 When a Party Bears the Risk of a Mistake

A party bears the risk of a mistake when
(a) the risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time the contract is made, that he has only limited knowledge with
respect to the facts to which the mistake relates but treats his limited knowledge as
sufficient, or
(c) the risk is allocated to him by the court on the ground that it is reasonable in the
circumstances to do so.
Cases
Donovan v. RRL Corp.
An advertisement misstated the price of a Jaguar. The buyer wanted the advertised price, but the
court allowed rescission of the contract under §153. This is one of the few examples of a seller
escaping a contract because of unconscionability. The fact that the mistake was made in good
faith also played a role in the decision.
Main Point: Enforcing the mistake would have been unconscionable. Mistake was made in good
faith.
Speckel v. Perkins
MN Court of Appeals, 1985 – p. 654
Attorney for the defendant wrote a letter to the plaintiff’s attorney suggesting a settlement
amount of $50,000 (the policy limit). He meant $15,000 but his secretary misheard him. Internal
inconsistencies in the letter (saying the case wasn’t worth the limit, inviting counter-offer) raised
a presumption of error and imposed a “duty to inquire” on the offeree.
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Mistakes in Transcription: Reformation
Main Topics
 What happens when the written instrument is wrong – when the agreement is not the one that
is written down
 The party penalized by the error can request reformation as long as there will be no effect on
third parties
§155 When Mistake of Both Parties as to Written Expression Justifies Reformation
Where a writing that evidences or embodies an agreement in whole or in part fails to express the
agreement because of a mistake of both parties as to the contents or effect of the writing, the
court may at the request of a party reform the writing to express the agreement, except to the
extent that rights of third parties such as good faith purchases for value will be unfairly affected.
Cases
Travelers Ins. Co. v. Bailey
Supreme Court of VT, 1964 – p. 656
An insurance policy incorrectly stated the annuity obligation (it said $500/month but it should
have said $500/year). Reformation was allowed
Main Point: The party penalized by the error is entitled to reformation.
Mutual Mistakes (Shared Mistaken Assumptions)
Main Topics
 When both parties make a mistake, the adversely affected party can void the contract if:
o The mistake goes to a basic assumption of the contract
o The party does not bear the risk of the mistake
 Rescission is an equitable solution!
§151 Mistake Defined
A mistake is a belief that is not in accord with the facts.
§152 When Mistake of Both Parties Makes a Contract Voidable

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

A party bears the risk of a mistake when
(a) the risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time the contract is made, that he has only limited knowledge with
respect to the facts to which the mistake relates but treats his limited knowledge as
sufficient, or
(c) the risk is allocated to him by the court on the ground that it is reasonable in the
circumstances to do so.
UCC §2-312 Warranty of Title and Against Infringement; Buyer’s Obligation Against
Infringement
(4) Subject to subsection (2) there is in a contract for sale a warranty by the seller that
(a) The title conveyed shall be good, and its transfer rightful; and
(b) The goods shall be delivered free from any security interest or other lien or encumbrance
of which the buyer at the time of contracting has no knowledge.
(5) A warranty under subsection (1) will be excluded or modified only by specific language
or by circumstances which give the buyer reason to know that the person selling does not
claim title in himself or that he is purporting to sell only such right or title as he or a third
person may have.
(6) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind
warrants that the goods shall be delivered free of the rightful claim of any third person by
way of infringement or the like but a buyer who furnishes specifications to the seller must
hold the seller harmless against any such claim which arises out of compliance with the
specifications.
UCC §2-313 Express Warranties by Affirmation, Promise, Description, Sample

(3) Express warranties by the seller are created as follows:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates to
the goods and becomes part of the basis of the bargain creates an express warranty
that the goods shall conform to the affirmation or promise.
(b) Any description of the goods which is made part of the basis of the bargain
creates an express warranty that the goods shall conform to the description.
(c) Any sample or model which is made part of the basis of the bargain creates an
express warranty that the whole of the goods shall conform to the sample or
model.
(4) It is not necessary to the creation of an express warranty that the seller use formal words
such as “warranty” or “guarantee” or that he have a specific intention to make a warranty
but an affirmation merely of the value of the goods or a statement purporting to be merely
the seller’s opinion or commendation of the goods does not create a warranty.
UCC §2-314 Implied Warranty; Merchantability; Usage of Trade
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(1) Unless excluded or modified (§2-316), a warranty that the goods shall be merchantable is
implied in a contract for their sale if the seller is a merchant with respect to goods of that
kind. Under this section the serving for value of food or drink to be consumed either on
the premises or elsewhere is a sale.
(2) Goods to be merchantable must be at least such as
(a) Pass without objection in the trade under the contract description; and
(b) In the case of fungible goods, are of fair average quality within the description;
and
(c) Are fit for the ordinary purposes for which such goods are used; and
(d) Run within the variations permitted by the agreement, of even kind, quality and
quantity within each unit and among all units involved; and
(e) Are adequately contained, packaged, and labeled as the agreement may require;
and
(f) Conform to the promise of affirmations of fact made on the container or label if
ay.
(3) Unless excluded or modified (§2-316) other implied warranties may arise from course of
dealing or usage of trade.
UCC §2-315 Implied Warranty: Fitness for Particular Purpose

Where the seller at the time of contracting has reason to know any particular purpose for which
the goods are required and that the buyer is relying on the seller’s skill or judgment to select or
furnish suitable goods, there is unless excluded or modified under the next section an implied
warranty that the goods shall be fit for such purpose.
Cases
Sherwood v. Walker
Supreme Court of MI, 1887 – p. 662
Buyer and seller thought the cow was barren, but it was really with calf. The contract was
voidable
Main Point: The cow was not what they bargained for.
 Dissent becomes the majority rule. Dissent deals with the allocation of risk.
Nester v. Michigan Land & Iron Co.

Contract was for Nester to buy all the merchantable pine on certain land. Nester did his own
estimation of the pine and the contract price. Nester sued after the fact to reduce the purchase
price by 50% on the ground that both parties were mistaken in their estimate of the quality of the
timber. Nester did the inspection and the risk was allocated to him, so the contract stands.
Main Point: Sherwood v. Walker court says that Sherwood will only be applied in very narrow
factual scenarios.
Wood v. Boynton
Wood found a stone and sold it to Boynton for $1. Turns out the stone was an uncut diamond
worth $700. Wile Boynton was in the jewelry business, he had never seen an uncut diamond and
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neither party knew the value of the stone. Wood wanted it back, but the court would not allow
rescission.
Main Point: Do your due diligence before you sell something!
Lenawee County Board of Health v. Messerly

The buyers bought an apartment as an investment property, and then the property was
condemned because its sewer system was not in compliance with the sanitation code. The
contract was not voided – the “as is” clause makes this easy because it allocates the risk to the
buyers, but even without it, rescission would likely not be granted.
Main Point: Somebody has to bear the loss.
Nondisclosure
Main Topics
 Disclosure is required in specific scenarios; nondisclosure in these scenarios =
misrepresentation
o To prevent a previous assertion from being fraudulent
o Nondisclosure is a failure to act in good faith
o Disclosure would fix a mistake of the other party as to a basic assumption
o Disclosure would fix a mistake of the other party in the writing
o A relation of trust requires disclosure
 Sometimes, nondisclosure can be analyzed as a unilateral mistake
o Depends on which party you are
§159 Misrepresentation Defined
A misrepresentation is an assertion that is not in accord with the facts.
§161 When Non-Disclosure Is Equivalent to an Assertion

A person’s non-disclosure of a fact known to him is equivalent to an assertion that the fact does
not exist in the following cases only:
(a) Where he knows that disclosure of the fact is necessary to prevent some previous
assertion from being a misrepresentation or from being fraudulent or material.
(b) 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 and in accordance with reasonable
standards of fair dealing.
(c) Where he knows that disclosure of the act 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.
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(d) Where the other person is entitled to know the fact because of a relation of trust and
confidence between them.
Cases
Hill v. Jones
AZ Court of Appeals, 1986 – p. 679
Seller did not disclose that the property had termite damage. If the termite damage materially
affects the value of the house is a matter of fact, but if it does, then the seller had a duty to
disclose. Also of relevance is whether the buyer was “on notice” of the damage after the
walkthrough of the property and his reliance on the nondisclosure.
Main Point: A seller has a duty to disclose information that materially affects the value of the
property.
 Legislation now governs what a seller must disclose.
Unexpected Circumstances
General
Main Topics
 Some risks are so unexpected and so great that they cannot possibly fall within the scope of
the contract and to require performance does not make sense  this isn’t rewriting the
contract but interpreting it based on implied assumptions
o What would the parties have bargained for if they envisioned the circumstance
 Courts have discretion to fashion equitable remedies in unexpected circumstance cases
 Impossibility/Impracticability – performance is impossible/impracticable
 Frustration – the purpose of the contract can no longer be accomplished
 Tacit assumptions of the contract (e.g. the music hall won’t burn down)
UCC §2-509 Risk of Loss in the Absence of Breach
(1) Where the contract requires or authorizes the seller to ship the goods by carrier
(a) If it does not require him to deliver them at a particular destination, the risk of
loss passes to the buyer when the goods are duly delivered to the carrier even
though the shipment is under reservation; but
(b) If it does require him to deliver them at a particular destination and the goods are
there duly tendered while in possession of the carrier, the risk of loss passes to the
buyer when the goods are there duly so tendered as to enable the buyer to take
delivery.
(2) Where the goods are held by a bailee to be delivered without being moved, the risk of
loss passes to the buyer
(a) On his receipt of a negotiable document of title covering the goods; or
(b) On acknowledgement by the bailee of the buyer’s right to possession of the
goods; or
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(c) After his receipt of a non-negotiable document of title or other written direction to
deliver, as provided in subsection (4)(b) of §2-503.
(3) In any case not within subsection (1) or (2), the risk of loss passes to the buyer on his
receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on
tender of delivery.
(4) The provisions of this section are subject to contrary agreement of the parties and to the
provisions of this Article on sale on approval and on effect of breach on risk of loss.
UCC §2-510 Effect of Breach on Risk of Loss

(1) Where a tender or delivery of goods so fails to conform to the contract as to give a right
of rejection the risk of their loss remains on the seller until cure or acceptance.
(2) Where the buyer rightfully revokes acceptance he may to the extent of any deficiency in
his effective insurance coverage treat the risk of loss as having rested on the seller from
the beginning.
(3) Where the buyer as to conforming goods already identified to the contract for sale
repudiates or is otherwise in breach before risk of their loss has passed to him, the seller
may to the extent of any deficiency in his effective insurance coverage treat the risk of
loss as resting on the buyer for a commercially reasonable time.
UCC §2-613 Casualty to Identified Goods

Where the contract requires for its performance goods identified when the contract is made, and
the goods suffer casualty without fault of either party before the risk of loss passes to the buyer,
or in a proper case under a “no arrival, no sale” term then
(a) if the loss is total the contract is avoided; and
(b) if the loss is partial or the goods have so deteriorated as no longer to conform to the
contract the buyer may nevertheless demand inspection and at his option either treat the
contract as avoided or accept the goods with due allowance from the contract price for
the deterioration or the deficiency in quantity but without further right against the seller.
UCC §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 buyer’s obligation unless the regulation is discriminatory,
oppressive or predatory.
UCC §2-615 Excuse by Failure of Presupposed Conditions

Except so far as a seller may have assumed a greater obligation and subject to the preceding
section on substitute performance:
(a) Delay in delivery or non-delivery in whole or in party by a seller who complies with
paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance
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as agreed has been made impracticable by the occurrence of a contingency the non-
occurrence of which was a basic assumption on which the contract was made or by
compliance in good faith with any applicable foreign or domestic governmental
regulation or order whether or not it later proves to be invalid.
(b) Where the causes mentioned in paragraph (a) affect only a part of the seller’s capacity to
perform, he must allocate production and deliveries among his customers but may at his
option include regular customers not then under contract as well as his own requirements
for further manufacture. He may so allocate in any manner which is fair or reasonable.
(c) The seller must notify the buyer seasonably that there will be delay or non-delivery and,
when allocation is required under paragraph (b), of the estimated quota thus made
available for the buyer.
UCC §2-616 Procedure on Notice Claiming Excuse

(1) Where the buyer receives notification of a material or indefinite delay or an allocation
justified under the preceding section he may by written notification to the seller as to any
delivery concerned, and where the prospective deficiency substantially impairs the value
of the whole contract under the provisions of this Article relating to breach of installment
contracts, then also as to the whole,
(a) Terminate and thereby discharge any unexecuted portion of the contract; or
(b) Modify the contract by agreeing to take his available quota in substitution.
(2) If after receipt of such notification from the seller the buyer fails so to modify the
contract within a reasonable time not exceeding thirty days the contract lapses with
respect to any deliveries affected.
(3) The provisions of this section may not be negated by agreement except in so far as the
seller has assumed a greater obligation under the preceding section.
§261 Discharge by Supervening Impracticability

Where, after a contract is made, a party’s performance is made impracticable without his fault by
the occurrence of an event the non-occurrence of which was a basic assumption on which the
contract was made, his duty to render that performance is discharged, unless the language or the
circumstances indicate the contrary.
§262 Death or Incapacity of Person Necessary for Performance

If the existence of a particular person is necessary for the performance of a duty, his death or
such incapacity as makes performance impracticable is an event the non-occurrence of which
was a basic assumption on which the contract was made.
§263 Destruction, Deterioration or Failure to Come Into Existence of Thing Necessary for
Performance
If the existence of a specific thing is necessary for the performance of a duty, its failure to come
into existence, destruction, or such deterioration as makes performance impracticable is an event
the non-occurrence of which was a basic assumption on which the contract was made.
§264 Prevention by Governmental Regulation or Order
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If the performance of a duty is made impracticable by having to comply with a domestic or

foreign governmental regulation or order, that regulation or order is an event the non-occurrence
of which was a basic assumption on which the contract was made.
§265 Discharge by Supervening Frustration

Where, after a contract is made, a party’s principal purpose is substantially frustrated without his
fault by the occurrence of an event the non-occurrence of which was a basic assumption on
which the contract was made, his remaining duties to render performance are discharged, unless
the language or the circumstances indicate the contrary.
§266 Existing Impracticability or Frustration

(1) Where, at the time a contract is made, a party’s performance under it is impracticable
without his fault because of a fact of which he has no reason to know and the non-
existence of which is a basic assumption on which the contract is made, no duty to render
that performance arises, unless the language or circumstances indicate the contrary.
(2) Where, at the time a contract is made, a party’s principal purpose is substantially
frustrated without his fault by a fact of which he has no reason to know and the non-
existence of which is a basic assumption on which the contract is made, no duty of that
party to render performance arises, unless the language or circumstances indicate the
contrary.
§267 Effect on Other Party’s Duties of a Failure Justified by Impracticability or Frustration

(1) A party’s failure to render or to offer performance may, except as stated in subsection (2),
affect the other party’s duties under the rules stated in §§ 237 and 238 even though the
failure is justified under the rules stated in this chapter.
(2) The rule stated in subsection (1) does not apply if the other party assumed the risk that he
would have to perform despite such a failure.
§268 Effect on Other Party’s Duties of a Prospective Failure Justified by Impracticability or

Frustration
(1) A party’s prospective failure of performance may, except as stated in subsection (2),
discharge the other party’s duties or allow him to suspend performance under the rules
stated in §§ 251(1) and 252(2) even though the failure would be justified under the rules
stated in this chapter.
(2) The rule stated in subsection (1) does not apply if the other party assumed the risk that he
would have to perform in spite of such a failure.
§269 Temporary Impracticability or Frustration

Impracticability of performance or frustration of purpose that is only temporary suspends the
obligor’s duty to perform while the impracticability or frustration exists but does not discharge
his duty or prevent it from arising unless his performance after the cessation of the
impracticability or frustration would be materially more burdensome than had there been no
impracticability or frustration.
§270 Partial Impracticability
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Where only part of an obligor’s performance is impracticable, his duty to render the remaining
part is unaffected if
(d) it is still practicable for him to render performance that is substantial, taking account of
any reasonable substitute performance that he is under a duty to render; or
(e) the obligee, within a reasonable time, agrees to render any remaining performance in full
and to allow the obligor to retain any performance that has already been rendered.
§271 Impracticability as Excuse for Non-Occurrence of a Condition

Impracticability excuses the non-occurrence of a condition if the occurrence of the condition is
not a material part of the agreed exchanged and forfeiture would otherwise result …
§272 Relief Including Restitution

(1) In any case governed by the rules stated in this chapter, either party may have a claim for
relief including restitution under the rules stated in §§ 240 and 377.
(2) In any case governed by the rules stated in this chapter, if those rules together with the
rules stated in chapter 16 will not avoid injustice, the court may grant relief on such terms
as justice requires including protection of the parties’ reliance interests.
Cases
Taylor v. Caldwell
In the Queen’s Bench, 1863 - 687
The music hall burned down so the plaintiff could not hold his concerts.
Main Point: An implied condition of the contract was the existence of the music hall. Parties
didn’t think about what would happen if the music hall ceased to exist. Performance is excused.
Mineral Park Land Co. v. Howard

CA Supreme Court, 1916 – p. 693
Plaintiff owned land in a ravine. Defendant was constructing a bridge over the ravine and
contracted with the plaintiff to take all the gravel necessary for the project from the plaintiff’s
land. Defendant only took about half of the necessary gravel form the plaintiff’s land because the
rest was underwater and would have cost 10 to 12 times more to procure. Contract had been
made on the assumption that the necessary land/gravel was available. However, it was
impossible for the defendant to take it. Impossible = excessive and unreasonable cost and
impracticable.
Main Point: Impossible = not practicable, only at excessive/unreasonable cost.
Transatlantic Financing Corp. v. United States

DC Circuit Court of Appeals, 1966 – p. 694
Plaintiff’s ship was chartered by defendant to carry wheat from Texas to Iran. The Suez Canal
was closed and plaintiff had to navigate around the Cape of Good Hope. Plaintiff was unable to
recover the extra cost because performance was not impossible.
Main Point: If performance was impossible, the plaintiff would have had to return to port.
Albre Marble & Tile Co. v. John Bowen Co.

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General contractor lost the project so the subcontractor lost his job. Subcontractor was able to
recover restitution damages.
Main Point: Restitution is an available remedy even after rescission. Fact specific result.
Krell v. Henry
In the Court of Appeal, 1903 – p. 705
Defendant rented the plaintiff’s flat to view the coronation procession. The coronation was
cancelled. The contract did not mention the coronation.
Main Point: The coronation was the foundation of the contract and its non-occurrence excuses
performance.  This is not an obvious result. Owner got to keep the deposit so that’s risk
allocation.
Problems of Performance
Obligation to Perform in Good Faith
Main Topics
 Implied covenant in every contract is the duty of good faith and fair dealing in performance
and enforcement
 Posner says: good faith is a tool to fill in the blanks for what parties expect/would have
bargained for in situations they did not foresee. It is implied in contractual relationships that
parties will not take advantage in ways that could not have been contemplated at the making
of the contract.
o Also saves time because parties don’t have to envision and protect against all the ways
they will be screwed over.
o Think of contracts as “joint ventures” – both parties benefit from the exchange, so one
shouldn’t screw it up
 Implied covenant of good faith cannot be used to override express terms of the contract
§205 Duty of Good Faith and Fair Dealing
Every contract imposes upon each party a duty of good faith and fair dealing in its performance
and its enforcement.
UCC §1-201(20)
“Good faith,” except as otherwise provided in Article 5, means honesty in fact and the
observance of reasonable commercial standards of fair dealing.
Cases
Seggebrush v. Stosar
IL Court of Appeals, 1941 – p. 715
Lessee of a service station agreed to pay rent of 1.25 cents per gallon of gas sold on the premises.
Two years into the five-year lease, the lessee built a service station on the adjacent property and
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sold gasoline there, substantially reducing the amount sold (and thus the rent paid) at the other
site. The lessor won a suit.
Main Point: The lease implied that the lessee would use reasonable diligence in operating the
service station to bring in money.
 Contracts that define quantity based on seller’s output, buyer’s requirement, or some other
variable term require the interests of both parties to be aligned. UCC §2-306(1) governs these
contracts.
 Wood v. Lucy, Lady Duff Gordon is similar
Bloor v. Falstaff Brewing Co.

Second Circuit Court of Appeals, 1979 – p. 716
Plaintiff sold Ballentine beer brand to defendant Falstaff. Falstaff’s contract required it to use its
“best efforts” to sell Ballentine beer, but sales of Ballentine plummeted. Held for plaintiff on the
grounds that Falstaff breached by not using its best efforts. Defendant had the burden of showing
there was nothing else it could have done in putting forth its best efforts.
Main Point: Burden of proof with “best efforts” requirements.
Sanders v. FedEx Ground Package System, Inc.

Supreme Court of NM, 2008 – p. 719
FedEx denied the independent contractor the right to purchase additional routes. Was this in bad
faith? The contract did not explicitly allow this, and the court says that the requirement of good
faith cannot create new contact terms. The court gets around this by implying the provision (that
additional routes can be purchased) in the meaning of the term “independent contractor.”
Main Point: The implied covenant of good faith applies to terms of the contract that are not
expressly stated.
Market Street Associates v. Frey

(Posner) Plaintiff did not point out the contract term that required the defendant to finance their
projects or allow the plaintiff to purchase the property. This could be a breach of the implied
covenant of good faith (factual determination based on the state of mind of the plaintiff).
Main Point: “To be able to correct your contract partner’s mistake at zero cost to yourself and
decide not to do so is a species of opportunistic behavior that the parties would have expressly
forbidden in the contract had they foreseen it.”
Substantial Performance
General
Main Topics
 When does imperfect performance allow recover of expectation under the contract?
 Promotes the goals of economic exchange with contracts (at times requiring the sacrifice of
an individual’s precise contractual expectations) by enforcing the purpose of contracts and
eliminating trivial excuses for nonperformance.
 Very important in construction cases (where it is impossible to have PERFECT performance)
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 How do you measure “substantial”

o The percentage of the deviation? (dissent in Jacob and Youngs v. Kent says that more than
half the pipe in the house is wrong so that is substantial)
o How important/unimportant the deviation is to the contract?
 Courts do not want to trigger rescission of the contract prematurely if the parties are still
trying to work out performance.
 How do you determine is performance is “substantial performance” from Jacob & Youngs v.
Kent:
o Look at the purpose of the contract
o The excuse for the deviation
o The desire to be gratified
o The cruelty of enforcing adherence
 Perfect-tender rule: gave the buyer a right to reject for any non-conformance of the goods
(gave the buyers way too much power)  The UCC remedies this.
o §2-508: Cure provision
o §2-601: Buyer’s rights on improper delivery
o §2-608: Revocation of acceptance in whole or in part
o 2-612: “Installment Contract” breach
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 further reasonable time to substitute a conforming
tender.
UCC §2-601 Buyer’s Rights on Improper Delivery

Subject to the provisions of this Article on breach in installment contracts (§2-612) and unless
otherwise agreed under the sections on contractual limitations of remedy (§§ 2-718 and 2-719), if
the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may
(a) reject the whole; or
(b) accept the whole; or
(c) accept any commercial unit or units and reject the rest.
UCC §2-608 Revocation of Acceptance in Whole or in Part

(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity
substantially impairs its value to him is he has accepted it
(a) On the reasonable assumption that its non-conformity would be cured and it has
not been seasonably cured; or
(b) Without discovery of such non-conformity if his acceptance was reasonably
induced either by the difficulty of discovery before acceptance or the seller’s
assurances.
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(2) Revocation of acceptance must occur within a reasonable time after the buyer discovers
or should have discovered the ground for it and before any substantial change in
condition of the goods which is not caused by their own defects. It is not effective until
the buyer notifies the seller of it.
(3) A buyer who so revokes has the same rights and duties with regard to the goods involved
as if he had rejected them.
UCC §2-612 “Installment Contract” Breach

(1) An “installment contract” is one which requires or authorizes the delivery of goods in
separate lots to be separately accepted, even though the contract contains a clause “each
delivery is a separate contract” or its equivalent.
(2) The buyer may reject any installment which is non-conforming if the non-conformity
substantially impairs the value of that installment and cannot be cured or if the non-
conformity is a defect in the required documents; but if the non-conformity does not fall
within subsection (3) and the seller gives adequate assurance of its cure the buyer must
accept that installment.
(3) Whenever non-conformity or default with respect to one or more installments
substantially impairs the value of the whole contract there is a breach of the whole. But
the aggrieved party reinstates the contract if he accepts a non-conforming installment
without seasonably notifying of cancellation or if he brings an action with respect only to
past installments or demands performance as to future installments.
Cases
Jacob & Youngs v. Kent
Is use of a different brand of wrought iron pipe (other than Reading) substantial performance or a
breach?
Main Point: Where a deviation in performance is trivial and made in good faith, the law will be
slow to declare a breach.
Kreyer v. Driscoll
Contractor did not complete construction. Owner refused to pay the remaining amount on the
contract, and the contractor brought suit. Relatively straightforward case because it deals only
with incomplete work and not defective work.
Main Point: Restitution is used as the measure of recovery (not substantial performance)
O.W. Grun Roofing and Constr. Co. v. Cope

TX Court of Appeals, 1975 – p. 745
Grun installed a new roof for Cope. The roof was structurally sound, but discolored. Cope
refused to pay and sued to get a new roof. Cope won
Main Point: Substantial performance requires understanding what was actually bargained for!
T.W. Oil, Inc. v. Consolidated Edison Co.

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There were issues with the sulfur content of the gasoline. Buyer did not accept a cure (even
though it could have). Buyer wanted a whole new contract, but the court did not allow it.
Main Point: A seller (acting in good faith) who tenders non-conforming goods may use the cure
provision (UCC §2-508) to cure the goods and the buyer must accept the substitute, cured goods.
Zabriskie Chevrolet v. Smith

NJ Superior Court, 1968 – p. 754
Plaintiff sold a car to the defendant. On driving off the lot, the defendant realized something was
seriously wrong and stopped the check. Plaintiff replaced the transmission (cure) but the
defendant refused to accept the cured vehicle. Held that the plaintiff did not have a right to cure
in this case because the purchase of a car requires “peace of mind” and the cure was not within
the agreement.
Main Point: Cure was not allowed in this case.
Manassas Autocars v. Couch

Supreme Court of VA, 2007 – p. 755
The Couches purchased a new car from Manassas Autocars, but the car had a big stain. The
dealership said they could fix it, but they couldn’t and instead just repeated it. The Couches
revoked the acceptance. Held for the Couches.
Main Point: Repainted ≠ new. The cure was not adequate.
Express Conditions
General
Main Topics
 Express conditions are explicit contractual provisions that either
o A party to the contract does not come under a duty to perform unless and until some
designated state of affairs occurs or fails to occur.
o If some designated state of affairs occurs or fails to occur, a party’s duty to perform is
suspended or terminated.
 Prevention doctrine: the party who prevents the occurrence of the condition may be estopped
from benefitting from the failed condition precedent.
 Express conditions have to be fully performed. Non-occurrence excuses performance
o Substantial performance does not apply to conditions
o Non-occurrence precludes recovery of expectation damages
 Promissory conditions
o Promise that you are obligated to perform, but if you don’t the other party is relieved
from the contract
o How do you tell? Look at the language and the intent?
 Generally courts want to avoid forfeiture (which is hard to do with express conditions) so
they will interpret conditions as promises wherever possible
o Test for “disproportionate forfeiture” – weigh the extent of the forfeiture by the obligee
against the importance to the obligor of the risk from which he sought to be protected and
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the degree to which that protection will be lost if the non-occurrence of the condition is
excused.
§225 Effects of the Non-occurrence of a Condition
(1) Performance of a duty subject to a condition cannot become due unless the condition
occurs or its non-occurrence is excused.
(2) Unless it has been excused, the non-occurrence of a condition discharges the duty when
the condition can no longer occur.
(3) Non-occurrence of a condition is not a breach by a party unless he is under a duty that the
condition occur.
§227 Standards of Preference with Regards to Conditions

(1) In resolving doubts as to whether an event is made a condition of an obligor’s duty, and
as to the nature of such an event, an interpretation is preferred that will reduce the
obligee’s risk of forfeiture, unless the event is within the obligee’s control or the
circumstances indicate that he has assumed the risk.
(2) Unless the contract is of a type under which only party generally undertakes duties, when
it is doubtful whether
(a) A duty is imposed on an obligee that an event occur, or
(b) The event is made a condition of the obligor’s duty, or
(c) The event is made a condition of the obligor’s duty and a duty is imposed on the
obligee that the event occur,
The first interpretation is preferred if the event is within the obligee’s control.
Cases
Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co.
Sublease was not valid unless the plaintiff provided written notice of the landlord’s approval of
the sublease and of work to be completed. Plaintiff did not provide written notice, but just
telephoned instead. Not good enough – the express condition was clear and unmistakable.
Main Point: The doctrine of substantial performance does not apply to express conditions.
Merrit Hill Vineyards, Inc. v. Windy Heights Vineyard

The deal to purchase a majority stock interest was conditioned on the defendant’s obtaining title
insurance and mortgage confirmations. The defendant did not produce the insurance or
confirmations and the plaintiff wanted expectation damages. No way!
Main Point: Failure to meet a condition excuses performance of the other party but does not
constitute a breach of contract and does not entitle the other party to expectation damages.
Howard v. Federal Crop Insurance Corp.

Fourth Circuit Court of Appeals, 1976 – p. 766
The insurance contract said that the tobacco stalks will not be destroyed before the inspection by
the insurance agent. Is this a promise or a condition?
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Main Point: This is a promise – the language and intention of the parties says so.
Johnson v. Coss
Supreme Court of SD, 2003 – p. 770
Plaintiff was going to sell his Ford dealership to the defendant, expressly conditioned on
approval of the transfer from Ford. Defendant determined that Ford would not approve. Did the
defendant prevent the condition and abandon the contract?
Main Point: Whether a party prevented a condition is a factual question.
Conditions of Satisfaction
Main Topics
 Do we judge satisfaction from an objective or literal standard? Depends on the situation.
 Why would a party subject themselves to the “mercy of the paying party’s whim”? Probably
will charge more for that risk.
 Often times, parties will make the condition the satisfaction of a third party (ex. an architect)
o As long as the determination is made in good faith, then the reasonableness of the
satisfaction/dissatisfaction doesn’t matter
Cases
Morin Building Products Co. V. Baystone Construction, Inc.
(Posner) A subcontractor erected aluminum walls for a factory. The contract included a term that
the work shall be done subject to the final approval of GM and that their decision relating to
“artistic effect” is final. The walls did not have a uniform appearance. Do we interpret the
satisfaction clause from an objective or literal standard? Objective standard.
Main Point: Trouble with the “artistic effect” language, but we can look to the parties’ intentions
about what they wanted to be subject to.
Fursmidt v. Hotel Abbey Holding Corp.

Supreme Court of NY, 1960 – p. 781
Fursmidt contracted to provide exclusive laundry services for the guests of the Hotel conditioned
on the approval of the hotel. The hotel cancelled the contract on the grounds they weren’t
satisfied. The hotel’s satisfaction was a central part of the contract, so they were able to cancel.
Main Point: What is the purpose of the satisfaction clause? Does it get to the main purpose of
the contract?
 Can the hotel cancel the contract because it is dissatisfied, then bring a suit for breach? This
depends on whether this is a condition or a promissory condition.
Excuse
Main Topics
 Courts do not like forfeiture and will excuse conditions to avoid forfeiture.
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§229 Excuse of a Condition to Avoid Forfeiture
To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a
court may excuse the non-occurrence of that condition unless its occurrence was a material part
of the agreed exchange.
§230 Event that Terminates a Duty

(1) Except as stated in subsection (2), if under the terms of the contract the occurrence of an
event is to terminate an obligor’s duty of immediate performance or one to pay damages
for breach, that duty is discharged if the event occurs.
(2) The obligor’s duty is not discharged if occurrence of the event
(a) Is the result of a breach by the obligor of his duty of good faith and fair dealing,
or
(b) Could not have been prevented because of impracticability and continuance of the
duty does not subject the obligor to a materially increased burden.
§271 Impracticability as Excuse for Non-Occurrence of a Condition

Impracticability excuses the non-occurrence of a condition if the occurrence of the condition is
not a material part of the agreed exchange and forfeiture would otherwise result.
Cases
Aetna Casualty and Surety Co. v. Murphy
Supreme Court of CT, 1988 – p. 784
The insurance contract required a written notice as soon as practicable, but Murphy waited over
two years to give notice. Does this excuse the insurance company? Only if the failure to comply
with the condition prejudiced the insurance company.
Main Point: Case’s focus is on preventing forfeiture!
Great American Ins. Co. v. C.G. Tate Construction Co.

NC Supreme Court, 1981 – p. 791
Excuses the notice requirement in an insurance contract where the purpose has not been
frustrated.
Royal-Globe Insurance Co. v. Craven

The insured was in the hospital and couldn’t give notice to the insurer. Notice provision was
excused.
Power to Withhold Performance and to Terminate a Contract

General
Main Topics
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 Partial breach: a party can cure a partial breach

o The injured party can get damages for things like delay
 Material breach: gives the other party the right to withhold performance (§241)
o Generally withholding payment = material breach
 Total breach: gives the other party the power to terminate a contract and bring suit for
expectation damages (§242)
 A party to a contract must tender his own performance (or be ready to tender performance) in
order to put the other party in default
 Anticipatory repudiation: when can a party escape the contract before the other party has
breached  when one party makes it clear they won’t perform, anticipatory repudiation
allows the other party to get off the hook and sue for damages right away (more efficient than
having to wait for a breach).
 A clear repudiation of a future performance is a breach of contract that gives rise to an
immediate claim of damages.
§237 Effect of Performance as Discharge and of Non-Performance as Breach
(1) Full performance of a duty under a contract discharges the duty.
(2) When performance of a duty under contract is due any non-performance is a breach.
§241 Circumstances Significant in Determining Whether a Failure is Material

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 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.
§242 Circumstances Significant in Determining When Remaining Duties are Discharged

In determining the time after which a party’s uncured material failure to render or to offer
performance discharges the other party’s remaining duties to render performance under the rules
stated in §§ 237 and 238, the following circumstances are significant:
(a) those stated in §241;
(b) the extent to which it reasonably appears to the injured party that delay may prevent or
hinder him in making reasonable substitute arrangements;
(c) the extent to which the agreement provides for performance without delay, but a material
failure to perform or to offer to perform on a stated day does not of itself discharge the
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other party’s remaining duties unless the circumstances, including the language of the
agreement, indicate that performance or an offer to perform by that day is important.
Cases
Lingenfelder v. Wainwright Brewery Co.
Supreme Court of MO – p. 111
A contractor got mad that he was not awarded a second contract in relation to the construction of
the brewery so he stopped work until the brewery agreed to pay him an additional 5%. He
brought suit when they did not pay him the additional 5%, but could not recover. The new
agreement did not have any consideration from the plaintiff and was not enforceable.
Main Point: The brewery could have brought suit for breach when the contractor halted work
(that was a material breach), but the immediate need for the work to be finished usurped the need
to bring the suit right away.
K&G Constr. Co. v. Harris

Court of Appeals of MD, 1960 – p. 798
Defendant’s bulldozer moved too close to the plaintiff’s house during an excavation and knocked
the wall down. This was a failure to perform in a “workmanlike manner” as the contract
required, but did it excuse the plaintiff from making progress payments? Yes, therefore the
defendant was not able to walk off the job.
Main Point: Plaintiff treated the “workmanlike manner” failure as a partial breach (allowing him
to stop progress payments). This means that the contractor was still obligated to perform and
walking off the job constituted a material breach.
Walker & Co. v. Harrison

The neon sign was hit by a tomato. Did the lessor’s failure to maintain it constitute a material
breach? No. But the lessee’s failure to pay did.
Main Point: Look at Restatement §241 for the factors to analyze in determining whether a
breach is material.
Zulla Steel, Inc. v. A&M Gregos, Inc.

NJ Superior Court, 1980 – p. 808
General contractor stopped making progress payments and the subcontractor walked off the job.
Held for the subcontractor.
Main Point: Not typical. Generally, nonpayment does not justify a contractor’s failure to
complete the work. The facts in this case show a substantial underpayment for an extended
period of time  the nonpayment became material.
Repudiation, Insecurity, and Assurance
Main Topics
 Anticipatory repudiation: when can a party escape the contract before the other party has
breached  when one party makes it clear they won’t perform, anticipatory repudiation
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allows the other party to get off the hook and sue for damages right away (more efficient than
having to wait for a breach).
o Repudiation excuses the aggrieved party of needing to perform in order to recover
damages, but their ability to perform is still relevant
 A party can demand assurance when it appears that one party to a contract will be unable to
perform although he ahs not repudiated the contract
o A demand for assurance cannot be a modification of the contract
UCC §2-609 Right to Adequate Assurance of Performance
(1) A contract for sale imposes an obligation on each party that the other’s expectation of
receiving due performance will not be impaired. When reasonable grounds for insecurity
arise with respect to the performance of either party the other may in writing demand
adequate assurance of due performance and until he receives such assurance may if
commercially reasonable suspend any performance for which he has not already received
the agreed return.
(2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any
assurance offered shall be determined according to commercial standards.
(3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party’s
right to demand adequate assurance of future performance.
(4) After receipt of a justified demand failure to provide within a reasonable time not
exceeding thirty days such assurance of due performance as is adequate under the
circumstances of the particular case is a repudiation of the contract.
UCC §2-610 Anticipatory Repudiation*

When either party repudiates the contract with respect to a performance not yet due the loss of
which will substantially impair the value of the contract to the other, the aggrieved party may
(a) for a commercially reasonable time await performance by the repudiating party; or
(b) resort to any remedy for breach (§2-703 or §2-711), even though he has notified the
repudiating party that he would await the latter’s performance and has urged retraction;
and
(c) in either case suspend his own performance or proceed in accordance with the provisions
of this Article on the seller’s right to identify goods to the contract notwithstanding
breach or to salvage unfinished goods (§2-704).
UCC §2-702 Seller’s Remedies on Discovery of Buyer’s Insolvency

Where the seller discovers the buyer to be insolvent he may refuse delivery except for cash
including payment for all goods theretofore delivered under the contract, and stop delivery under
this Article (§2-705)
UCC §2-705 Seller’s Stoppage of Deliver in Transit or Otherwise

(1) The seller may stop delivery of goods in the possession of a carrier or other bailee when
he discovers the buyer to be insolvent (§2-702) and may stop delivery of carload,
truckload, planeload, or larger shipments of express or freight when the buyer repudiates
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or fails to make a payment due before delivery or if for any other reason the seller has a
right to withhold or reclaim the goods.
§251 When a Failure to Give Assurance May be Treated as a Repudiation*

(1) When reasonable grounds arise to believe that the obligor will commit a breach by non-
performance that would of itself give the obligee a claim for damages for total breach
under §243, the obligee may demand adequate assurance of due performance and may, if
reasonable, suspend any performance for which he has not already received the agreed
exchange until he receives such assurance.
(2) The obligee may treat as a repudiation the obligor’s failure to provide within a reasonable
time such assurance of due performance as is adequate in the circumstances of the
particular case.
*UCC is stricter when it comes to the option to demand assurance
Cases
Hochster v. De La Tour
In the Queen’s Bench, 1853 – p. 813
Plaintiff was going to serve as a courier on the defendant’s tour of Europe. Before the trip, the
defendant cancelled the trip. Can plaintiff bring a suit for breach before performance is due?
Main Point: It makes no sense to require the plaintiff to prepare for performance and be ready to
go when the defendant has repudiated.
Wholesale Sand & Gravel, Inc. v. Decker

Supreme Judicial Court of ME, 1993 – p. 817
Contractor was delayed in constructing a driveway because the ground was too wet. He packed
his equipment and did not come back. The 90 days (contract required payment within 90 days)
had not passed. Did contractor repudiate?
Main Point: Court says the contractor’s actions were consistent with an anticipatory repudiation.
The dissent says it wasn’t so clear that the contractor had repudiated. (Most cases will require the
more definite repudiation as the dissent calls for).
Unique Systems, Inc. v. Zotos International, Inc.

Eight Circuit Court of Appeals, 1980 – p. 819
Lilja was to provide hairspray systems for Zotos to resell. Later, Zotos said it would not proceed
without a market test of the completed system. Lilja considered the contract repudiated, brought
suit, and won.
Main Point: A party can’t demand more from the other party. Stating that you will not comply
unless an additional performance (read: demand) is met constitutes anticipatory breach.
Pittsburgh-Des Moines Steel Co. v. Brookhaven Manor Water Co.

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Plaintiff heard that the defendant had trouble securing a loan. Plaintiff wanted personal assurance
that the money was in escrow. The contract did not require this.
Main Point: The plaintiff had no need for assurance at this point. Additionally, need for
assurance does not give a party the right to demand more than they contracted for.
DAMAGES
Intro to Damages
General
Main Topics
 Remedies protect the following interest of the promisee:
o Expectation interest (difference between what was got and what was promised)
o Reliance interest (difference between what was got or not and where the party was
before)
o Restitution interest (payback of ill-gotten gains)
 Used when other measures are inadequate
 We like expectation damages because they:
o Incentivize performance by the promisor
o Incentivize planning by the promisee
o Capture the value created by the promise
 Direct damages = straight from the contract
 Incidental damages = storage, shipping, etc.
 Consequential damages = as a result of the breach (lost profits)
o Must be foreseeable and certain
§344 Purposes of Remedies
Judicial remedies under the rules stated in this Restatement serve to protect on or more of the
following interests of a promisee:
(a) his “expectation interest,” which is his interest in having the benefit of his bargain by
being put in as good a position as he would have been in had the contract been
performed,
(b) his “reliance interest,” which is his interest in being reimbursed for loss caused by
reliance on the contract by being put in as good a position as he would have been in had
the contract not been made, or
(c) his “restitution interest,” which is his interest in having restored to him any benefit that he
has conferred on the other party.
Cases
Hawkins v. McGee
Supreme Court of NH, 1929 – p. 165
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Doctor promised the plaintiff a perfect hand, but instead the hand was worse off after the surgery
(it was hairy!). First step: is there a contract? Second step: what are the damages?
Main Point: Expectation damages are appropriate, measured by the difference between what a
good hand is (the hand he was promised – the expectation of his bargain) compared to what he
ended up with. This will include the lost value because he is worse off than before the contract.
United States Naval Institute v. Charter Communications, Inc.

Plaintiff had the copyright to The Hunt for Red October, and it entered into an agreement
allowing defendant to publish a paperback version “not sooner than October 1985.” Defendant
started publishing the paperback in September, making a lot of profit (best seller list!). Plaintiff
wanted to recover all of the defendant’s September profits, but that is not the appropriate
measure of damages. The appropriate measure is the expected profit from hardcover books sold
in September without a paperback on the market.
Main Point: Expectation damages – award the loss as a result of the breach.
Laurin v. DeCarolis Construction Co.

Plaintiffs were purchasing a home from the defendant, and discovered that the defendant had
removed trees, gravel, and loam worth $6,480 (which was a breach of the contract). The removal
did not decrease the value of the property, so the plaintiff did not suffer a material loss.
Defendant did make a material gain because of the breach. Expectation damages (value of the
property) would not cover that difference, and is an inadequate remedy  restitution works!
Main Point: Restitution – defendant had to return the value he gained from a willful breach.
Expectation Damages
Damages for Breach of Contract for Services
Main Topics
 Measures of expectation damages when the party performing services breaches:
o Cost of completion (§348(2)(b))
o Diminution in value (§348(2)(a))
 When cost of completion is disproportionate to the diminution in value, courts prefer the
diminution in value measure. Plaintiffs have the difficulty of proving that the value to them is
much higher than the market value and the cost of completion measure is not inefficient.
o Requires showing that the breach goes to the heart of the bargain.
 Measures of expectation damages when the party having services performed breaches:
o Costs incurred plus expected profits minus payments made.
o Contract price minus costs saved minus payments made.
 Be aware of losing contracts and caps on damages!
§347 Measure of Damages in General
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Subject to the limitations sated in §§350-53, the injured party has a right to damages based on his
expectation interest as measured by
(a) the loss in 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
§348 Alternatives to Loss in Value of Performance

(1) If a breach delays the use of property and the loss in value to the injured party is not
proved with reasonable certainty, he may recover damages based on the rental value of
the property or on interest on the value of the property.
(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 market price of the property caused by the breach, 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.
Cases
Louise Caroline Nursing Home, Inc. v. Dix Construction Co.
Supreme Judicial Court of MA, 1972 – p. 190
Defendant breached its contract by abandoning construction of a nursing home for the plaintiff,
however, plaintiff suffered no compensable losses because the cost to complete the construction
plus what had already been paid to the defendant was less than the original contract price.
Plaintiff wanted to recover the contract price (claiming the “benefit of its bargain” was the value
of the building it contracted for), but damages are to make the plaintiff whole, not better off.
Main Point: Expectation damages measured by cost of completion.
Peevyhouse v. Garland Coal & Mining Co.

Supreme Court of OK, 1962 – p. 192
Plaintiff leased the land to the defendant for coal mining purposes. The contract specifically
required the defendant to restore the property at the end of the lease. The restoration would cost
$29,000 but the value of the land was less than $5,000 and the value had only diminished by
$300. Court determined the restorative measures were incidental to the contract and used the
diminution in value measure.
Main Point: The disproportion here is huge and restoration is inefficient.
 The restorative measures were not really incidental to the Peevyhouse’s, but how do we
prove the value to them?
H.P. Droher and Sons v. Toushin

Supreme Court of MN, 1957 – p.202
Droher was supposed to build a house for Toushin for $44,000, but screwed up and the floor
sagged. To fix it would cost $20,000, but the diminution in the value of the house with the
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sagging floor was much less than the cost to fix it. The court held that the diminished value rule
should be applied to assess the damages.
Main Point: Diminution in value is the correct measure when the cost of completion is
disproportionate to the loss in value.
 This is the same court that decided Groves v. John Wunder Co. (referenced in Peevyhouse), in
which the cost of completion measure was applied even though the cost of completion was
much greater than the diminution in value. The court distinguished the cases by looking at
whether the breach was “willful” (as in Groves) or if a good faith effort to perform was made
(as in Droher).
Eastern Steamship Lines, Inc. v. United States

Federal Court, 1953 – p. 203
During WWII, the U.S. government chartered the steamship Acadia from the plaintiff. The
contract required the U.S. to restore the ship to the condition to meet inspections or to pay for the
cost of the repairs. When the U.S. returned the ship, the plaintiff sued for $4 million (the cost of
repair), even though the ship was only worth $2 million. The court rejected the claim, noting that
there is no way the plaintiff would actually spend the $4 million to restore a ship worth half that.
Main Point: Disproportion in value; change in circumstances.
 Does the plaintiff assume the risk here?
City School District of Elmira v. McLane Construction Co.

Supreme Court of NY, 1981 – p. 204
Plaintiff contracted to have the defendant build an indoor pool building. Aesthetics were
important in the selection of wooden beams. The defendant used beams that were treated in a
way that they knew there would be discoloration. The cost of replacing the beams would be
$357,000 while the diminution in value was only $3,000. Cost of completion/replacement was
used because the defect was material to the contract and the breach was not innocent.
Main Point: Cost of completion was used, despite the disproportion because the plaintiff was
able to show that the defect was central to the contract.
Aiello Construction v. Nationwide Tractor Trailer

Supreme Court of RI, 1980 – p. 206
Owner only made on monthly installment to the contractor who was surfacing his land.
Contractor stopped work and brought suit for breach.
Main Point: Contract can recover his expenditures as well as his profit because payment of the
full price would have reimbursed the expenditures in full and given him his profit.
 Formula: Costs incurred plus expected profits minus payments that had been made.
Wired Music, Inc. v. Clark

IL Court of Appeals, 1960 – p. 210
Wired contracted to provide Clark with “streaming” music to his apartment for 3 years. After 17
months, Clark moved and wanted to end the contract. A new tenant in the apartment signed a
contract with Wired for even more than Clark’s contract, but that doesn’t replace Clark (lost
volume seller).
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Damages for Breach of Contract for the Sale of Goods
Main Topics
 Governed by the UCC
 Cover: when a buyer makes a good faith effort to find replacement goods after a seller
breaches.
o Buyer can then recover the difference in price as well as incidental and consequential
damages (less expenses saved)
o Cover must be reasonable under the circumstances and made in good faith (can’t wait for
the price to increase)
o §2-712 applies if a buyer has covered
o §2-713 applies if a buyer has not covered (“hypothetical cover”)
o §2-723 concerns how to determine the market price and gives courts considerable leeway
 Cost of repair is the correct measure of damages when a warranty is breached (§2-714(2))
 Buyer’s options when seller breaches:
o Cancel and receive a refund (§2-711)
o Buy substitute goods and recover any costs above the contract price (§2-712)
o Receive difference between contract price and market value of goods at the time of the
breach (§2-713)
o Accept goods that are damaged and receive difference in the value of what the goods
should be (§2-714)
o Identify goods and demand specific performance (§2-714)
 Seller’s options when buyer breaches:
o Withhold goods
o Resell goods and recover damages (§2-706)
o Recover difference between contract price and market value of goods at the time of the
breach (§2-708)
o Recover lost profits – specifically in lost volume cases (§2-708(2))
Breach by Seller
UCC §2-711 Buyer’s Remedies in General; Buyer’s Security Interest in Rejected Goods
(1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or
justifiably revokes acceptance then with respect to any goods involved, an with respect to
the whole if the breach goes to the whole contract, the buyer may cancel and whether or
not he has done so may in addition to recovering so much of the price as has been paid
(a) “cover” and have damages under the next section as to all the goods affected
whether or not they have been identified to the contract; or
(b) recover damages for non-delivery as provided in this Article.
UCC §2-712 “Cover”; Buyer’s Procurement of Substitute Goods
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(1) After a breach within the preceding section the buyer may “cover” by making in good
faith and without unreasonable delay any reasonable purchase of or contract to purchase
goods in substitution for those due from the seller.
(2) The buyer may recover from the seller as damages the difference between the cost of
cover and the contract price together with any incidental or consequential damages as
hereinafter defined, but less expenses saved in consequence of the seller’s breach.
(3) Failure of the buyer to cover within this section does not bar him from any other remedy.
UCC §2-713 Buyer’s Damages for Non-Delivery or Repudiation

(1) Subject to the provisions of this Article with respect to proof of market price (§2-723),
the measure of damages for non-delivery or repudiation by the seller is the difference
between the market price at the time when the buyer learned of the breach and the
contract price together with any incidental and consequential damages as provided in this
Article, but less expenses saved in consequence of the seller’s breach.
(2) Market price is to be determined as of the place for tender or, in case of rejection after
arrival or revocation of acceptance, as of the place of arrival.
UCC §2-714 Buyer’s Damages for Breach in Regard to Accepted Goods

(3) Where the buyer has accepted goods and given notification he may recover as damages
for any non-conformity of tender the loss resulting in the ordinary course of events from
the seller’s breach as determined in any manner which is reasonable.
(4) The measure of damages for breach of warranty is the difference at the time and place of
acceptance between the value of the goods accepted and the value they would have had if
they had been as warranted, unless special circumstances show proximate damages of a
different amount.
(5) In a proper case any incidental and consequential damages under the next section may
also be recovered.
UCC §2-715 Buyer’s 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.
UCC §2-723 Proof of Market Price: Time and Place

(1) If an action based on anticipatory repudiation comes to trial before the time for
performance with respect to some or all of the goods, any damages based on market price
shall be determined according to the price of such goods prevailing at the time when the
aggrieved party learned of the repudiation.
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(2) If evidence of a price prevailing at the times of places described in this Article is not
readily available the price prevailing within any reasonable time before or after the time
described or at any other place which in commercial judgment or under usage of trade
would serve as a reasonable substitute for the one described may be used, making any
proper allowance for the cost of transporting the goods to or from such other place.
(3) Evidence of a relevant price prevailing at a time or place other than the one described in
this Article offered by one party is not admissible unless and until he has given the other
party such notice as the court finds sufficient to prevent unfair surprise.
Breach by Buyer
UCC §2-501 Insurable Interest in Goods; Manner of Identification of Goods
(1) The buyer obtains a special property and an insurable interest in goods by identification
of existing goods as goods to which the contract refers even though the goods so
identified are non-conforming and he ahs an option to return or reject them. Such
identification can be made at any time and in any manner explicitly agreed to by the
parties. In the absence of an explicit agreement identification occurs
a. When the contract is made if it is for the sale of goods already existing and
identified;
b. If the contract is for the sale of future goods other than those described in
paragraph ©, when goods are shipped, marked or otherwise designated by the
seller as goods to which the contract refers;
c. When the crops are planted or otherwise become growing crops or the young are
conceived if the contract is for the sale of unborn young to be born within twelve
months …
UCC §2-703 Seller’s Remedies in General

Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment
due on or before delivery or repudiates with respect to a part or the whole, then with respect to
any goods directly affected and, if the breach is of the whole contract, then also with respect to
the whole undelivered balance, the aggrieved seller may
(a) withhold delivery of such goods;
(b) stop delivery by any bailee as hereafter provided;
(c) proceed under the next section respecting goods still unidentified to the contract;
(d) resell and recover damages as hereafter provided;
(e) recover damages for non-acceptance or in a proper case the price
(f) cancel.
UCC §2-704 Seller’s Right to Identify Goods to the Contract Notwithstanding Breach or to
Salvage Unfinished Goods
(1) An aggrieved seller under the preceding section may
a. Identify to the contract conforming goods not already identified if at the time he
learned of the breach they are in his possession or control;
b. Treat as the subject of resale goods which have demonstrably been intended for
the particular contract even though those goods are unfinished.
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(2) Where the goods are unfinished an aggrieved seller may in the exercise of reasonable
commercial judgment for the purpose of avoiding loss and of effective realization either
complete the manufacture and wholly identify the goods to the contract or cease
manufacture and resell scrap or salvage value or proceed in any other reasonable manner.
UCC §2-706 Seller’s Resale Including Contract for Resale

(1) Under the conditions stated in §2-703 on seller’s remedies, the seller may resell the goods
concerned or the undelivered balance thereof. Where the resale is made in good faith and
in a commercially reasonable manner, the seller may recover the difference between the
resale price and the contract price together with any incidental damages allowed under
the provisions of this Article (§2-710), but less expenses saved in consequence of the
buyer’s breach.
(2) Except as otherwise provided in subsection (3) or unless otherwise agreed resale may be
at public or private sale including sale by way of one or more contracts to sell or of
identification to an existing contract of the seller. Sale may be as a unit or in parcels and
at any time and place and on any terms but every aspect of the sale including the method,
manner, time, place, and terms must be commercially reasonable. The resale must be
reasonably identified as referring to the broken contract, but it is not necessary that the
goods be in existence or that any or all of them have been identified to the contract before
the breach.
(3) Where the resale is at private sale the seller must give the buyer reasonable notification of
his intention to resell.
(4) Where the resale is at public sale
(a) Only identified goods can be sold except where there is a recognized market for a
public sale of futures in goods of the kind; and
(b) It must be made at a usual place or market for public sale if one is reasonably
available and except in the case of goods which are perishable or threaten to
decline in value speedily the seller must give the buyer reasonable notice of the
time and place of the resale; and
(c) If the goods are not to be within the view of those attending the sale the
notification of sale must state the place where the goods are located and provide
for their reasonable inspection by prospective bidders; and
(d) The seller may buy.
(5) A purchaser who buys in good faith at a resale takes the goods free of any rights of the
original buyer even though the seller fails to comply with one or more of the
requirements of this section.
(6) The seller is not accountable to the buyer for any profit on any resale. A person in the
position of a seller or a buyer who has rightfully rejected or justifiably revoked
acceptance must account for any excess over the amount of his security interest, as
hereinafter defined.
UCC §2-708 Seller’s Damages for Non-Acceptance or Repudiation

(1) Subject to subsection (2) and to the provisions of this Article with respect to proof of
market price (§2-723), the measure of damages for non-acceptance or repudiation by the
buyer is the difference between the market price at the time and place for tender and the
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unpaid contract price together with any incidental damages provided in this Article (§2-
710), but less expenses saved in consequence of the buyer’s breach.
(2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as
good a position as performance would have done then the measure of damages it the
profit (including reasonable overhead) which the seller would have made from full
performance by the buyer, together with any incidental damages provided in this Article,
due allowance for costs reasonably incurred and due credit for payments or proceeds
form resale.
*(2) is typically used for lost volume sellers.
UCC §2-709 Action for the Price

(1) When the buyer fails to pay the price as it becomes due the seller may recover, together
with any incidental damages under the next section, the price
(a) of goods accepted or of conforming goods lost or damaged within a commercially
reasonable time after risk of their loss has passed to the buyer; and
(b) of goods identified to the contract if the seller is unable after reasonable effort to
resell them at a reasonable price or the circumstance reasonably indicate that such
effort will be unavailing.
(2) Where the seller sues for the price he must hold for the buyer any goods which have been
identified to the contract and are still in his control except that if resale becomes possible
he may resell them at any time prior to the collection of the judgment. The net proceeds
of any such resale must be credited to the buyer and payment of the judgment entitles him
to any goods not resold.
(3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed
to make a payment due or has repudiated (§2-610), a seller who is held not entitled to the
price under this section shall nevertheless be awarded damages for non-acceptance under
the preceding section.
UCC §2-710 Seller’s Incidental Damages

Incidental damages to an aggrieved seller include any commercially reasonable charges,
expenses, or commissions incurred in stopping delivery, in the transportation, care and custody
of goods after the buyer’s breach, in connection with return or resale of the goods or otherwise
resulting from the breach.
UCC §2-723 Proof of Market Price: Time and Place

(1) If an action based on anticipatory repudiation comes to trial before the time for
performance with respect to some or all of the goods, any damages based on market price
shall be determined according to the price of such goods prevailing at the time when the
aggrieved party learned of the repudiation.
(2) If evidence of a price prevailing at the times of places described in this Article is not
readily available the price prevailing within any reasonable time before or after the time
described or at any other place which in commercial judgment or under usage of trade
would serve as a reasonable substitute for the one described may be used, making any
proper allowance for the cost of transporting the goods to or from such other place.
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(3) Evidence of a relevant price prevailing at a time or place other than the one described in
this Article offered by one party is not admissible unless and until he has given the other
party such notice as the court finds sufficient to prevent unfair surprise.
Cases
Continental Sand & Gravel, Inc. v. K & K Sand & Gravel, Inc.
Defendant sold plaintiff equipment with a warranty of the condition for $50,000. The warranty
was breached and the trial court awarded $104,206.75 in damages, which was the cost of repair.
Main Point: Cost of repair is the correct measure of damages when warranties are breached.
Egerer v. CSR West, LLC

Court of Appeals of WA, 2003 – p. 212
Plaintiff contracted to purchase fill dirt from defendant for $.50 per yard. Defendant breached
(intentionally). Plaintiff did not cover (only available substitute was $8.25 per yard). Two years
later, plaintiff purchased fill dirt for $6.39 per yard. Plaintiff brought suit and recovered the
difference between the contract price and $8.25 per yard  “at the time of the breach” (or
thereabouts).
Main Point: §2-713 applies if the buyer does not cover and §2-723 provides for how to
determine the market price (gives considerable leeway to the courts).
Delchi Carrier Spa v. Rotorex Corp.

Plaintiff purchased air compressors from the defendant, but the delivered compressors did not
comply with the specifications. Lost profits were awarded because they were foreseeable.
Variable costs only were used in the calculation of damages.
Main Point: Fixed costs v. variable costs in calculating damages. Fixed costs and overhead are
typically not recoverable because they are independent of the contract.
Neri v. Retail Marine Corp.

Buyer was going to buy a boat from the seller and made a deposit. Buyer then backed out, but
seller refused to refund the deposit. Seller was entitled to lost profits from the buyer’s breach
(lost volume seller), and buyer was entitled to restitution damages (the deposit).
Main Point: Lost volume sellers are entitled to lost profits if they can prove they missed out on a
second sale due to the plaintiff’s breach.
Lazenby Garages Ltd. v. Wright

Defendant agreed to purchase a secondhand car from the plaintiff but withdrew from the contract
the next day. Plaintiff sold the car for even more later on, but sued for damages on the grounds
that he would have sold two cars but for the defendant’s breach. Not permitted.
Main Point: Used cars/secondhand goods/unique goods are not lost volume products.
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Mitigation
Main Topics
 An injured party cannot “rack up” their damages.
o As soon as a party gives notice they won’t perform, the other party needs to stop their
own performance to mitigate damages.
 The injured party must make “reasonable” efforts to avoid the loss, but does not have to be
successful (§350(2)).
o Very relevant with employment contracts
 Duty of employees to mitigate:
o Use reasonable effort to obtain alternate employment
o Employees do not have to accept “different” or “inferior” employment
o If inferior employment is accepted, the wages will offset the damages (like “cover”)
o Humiliation and loss in reputation are not damages that the employee can claim.
§350 Avoidability as a Limitation on Damages
(1) Except as stated in subsection (2), damages are not recoverable for loss that the injured
party could have avoided without undue risk, burden, or humiliation.
(2) The injured party is not precluded from recovery by the rule stated in subsection (1) to
the extent that he has made reasonable but unsuccessful efforts to avoid loss.
UCC §2-704 Seller’s Right to Identify Goods to the Contract Notwithstanding Breach or to
Salvage Unfinished Goods
(1) An aggrieved seller under the preceding section may
a. Identify to the contract conforming goods not already identified if at the time he
learned of the breach they are in his possession or control;
b. Treat as the subject of resale goods which have demonstrably been intended for
the particular contract even though those goods are unfinished.
(2) Where the goods are unfinished an aggrieved seller may in the exercise of reasonable
commercial judgment for the purpose of avoiding loss and of effective realization either
complete the manufacture and wholly identify the goods to the contract or cease
manufacture and resell scrap or salvage value or proceed in any other reasonable manner.

breach.
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Cases
Rockingham County v. Luten Bridge Co.
Plaintiff contracted to build a bridge for the defendant. After some small town drama, the
defendant decided not to have the bridge built and sent notice before construction started.
Plaintiff continued to work on the bridge even after defendant repudiated the contract.
Main Point: Plaintiff cannot “pile up” the damages by continuing to perform after the contract
has been repudiated.
Shirley MacLaine Parker v. Twentieth Century Fox-Film Corp.

Shirley MacLaine was contracted to perform in a musical, but the movie was cancelled. The
studio offered her a role in a western, which she turned down. The studio claimed she failed to
mitigate, but the court said she didn’t have to accept “different” or “inferior” employment in
order to mitigate (the only requirement is to use reasonable effort).
Foreseeability
Main Topics
 Consequential damages must be foreseeable!
o Encourages parties to protect themselves from risk
o Limits the potential of downstream damages
o Encourages negotiation regarding damages and allocation of risk at the making of the
contract.
 Special circumstances must be communicated at the making of the contract!
§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.
UCC §2-713 Buyer’s Damages for Non-Delivery or Repudiation
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(1) Subject to the provisions of this Article with respect to proof of market price (§2-723),
the measure of damages for non-delivery or repudiation by the seller is the difference
between the market price at the time when the buyer learned of the breach and the
contract price together with any incidental and consequential damages as provided in this
Article, but less expenses saved in consequence of the seller’s breach.
(2) Market price is to be determined as of the place for tender or, in case of rejection after
arrival or revocation of acceptance, as of the place of arrival.

breach.
Cases
Hadley v. Baxendale
In the Court of Exchequer, 1854 – p. 238
A carrier company delayed the shipment of the plaintiff’s broken mill shaft. The mill was
inoperable during the delay and plaintiff wanted lost profits from that time period. These
damages were not foreseeable (perhaps the plaintiff had a spare shaft or the mill was inoperable
due to some other reason) and the “special circumstances” had not been communicated to the
carrier company so they were not liable.
Main Point: Damages must be “foreseeable,” and if they are not foreseeable but relate to
“special circumstances,” those circumstances must be communicated at the making of the
contract.
Victoria Laundry (Windsor) Ltc. V. Newman Indus. Ltd.
Plaintiffs ran a laundry and dyeing business and purchased a new extra large boiler from the
defendants. The boiler was damaged and plaintiffs did not receive a replacement for a number of
months. Plaintiffs brought suit to recover lost profits from the laundry business and from a
contract they missed out on. Plaintiff was able to recover damages for “reasonably expected”
regular business, but not for the lost contract (that was too unforeseeable).
Main Point: The type of damages and the degree of damages must have been foreseeable by a
reasonable person in the defendant’s situation – some court’s only care about the type.
Koufos v. Czarnikow, Ltd.

The charterer was 9 days late to port, and the sugar prices had fallen. He was liable for the
difference in cost because he knew that there was a market for sugar and that the price could
change.
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Certainty
Main Topics
 Consequential damages must be certain
 New business rule – generally that speculative ventures are uncertain
§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.
Cases
Kenford Co. v. Erie County
NY Court of Appeals, 1986 – p. 250
A dome stadium was never built. Lost profits from the management of the stadium (especially
going 20 years into the future) were too speculative and not “within the contemplation” of the
parties at the time the contract was made.
Main Point: Certainty is required for all consequential damages, and a stricter standard for new
business ventures is applied.
Rombola v. Cosindas
MA Supreme Court, 1966 – p. 255
Rombola was to train Cosindas’s horse and keep 75% of the race winnings for one year. Before
the contract was up, Cosindas took the horse, depriving Rombola the opportunity to race her.
Court allowed recovery because the horse’s income had been very consistent and the lost income
could be calculated with certainty.
Contemporary Mission, Inc. v. Famous Music Corp.

Contemporary had exclusive rights to manufacture and sell albums. Famous was supposed to
release the albums and market them, but didn’t. Statistical evidence about song success was
allowed into trial to determine the lost profits.
Liquidated Damages
General
Main Topics
 Explicitly state damages to be paid (or a method of calculating damages) in the event of a
breach  liquidated damages/limitation to damages/stipulated damages
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 Penalty clauses are not enforceable and courts will not enforce penalties disguised as
liquidated damages. (Penalty = the damages more than compensates the injured party for
their loss.
 What do courts consider in liquidated damages clauses:
o Reasonableness
o Whether the damages have been calculated with a “good faith” effort to estimate actual
damages that would result from the breach
o Whether harm is difficult to measure
o Courts look both at the time the contract was made and the time of the breach
 Main Requirements:
o Damages must be foreseeable
o Damages must be difficult to ascertain/calculate (therefore the liquidated damages clause
serves the purpose of reducing uncertainty
 Alternative performance ≠ liquidated damages
o Ex. a lease buyout option
 Pay attention to unconscionability and liquidated damages clauses
§356 Liquidated Damages and Penalties
amount that is reasonable in light of the anticipated or actual loss caused by the breach
and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages
is unenforceable on grounds of public policy as a penalty.

Cases
Wasserman’s Inc. v. Middletown
A commercial lease included a clause that the lessors would be required to pay 25% of the
lessee’s gross receipts for one year in the event the lessors breached. This does not reflect actual
losses and is just an arbitrary measure.
Main Point: Liquidated damages must reflect actual losses.
Lee Oldsmobile, Inc. v. Kaiden

MD Court of Appeals, 1976 – p. 268
Kaiden paid a non-refundable deposit to Lee for a Rolls Royce, but ended up buying the car
elsewhere. Kaiden was allowed to get her deposit back (minus incidental damages) on the
grounds that the damages were readily calculated.
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Specific Performance
General
Main Topics
 Instead of paying damages, a breaching party may be ordered to perform the contract
 Type of injunction – courts have discretion in ordering specific performance and will
consider the burden of enforcement, public policy, the burden on the defendant, etc.
o Employment cases are an example of public policy influencing the decision not to award
specific performance
 Only available when damages are inadequate
o Land cases are a good example
o Plaintiff has the burden of showing that damages are inadequate
§359 Effect of Adequacy of Damages
(1) Specific performance or injunction will not be ordered if damages would be adequate to
protect the expectation interest of the injured party.
(2) The adequacy of the damage remedy for failure to render on part of the performance due
does not preclude specific performance or injunction as to the contract as a whole.
(3) Specific performance or an injunction will not be refused merely because there is a
remedy for breach other than damages, but such a remedy may be considered in
exercising discretion under the rule stated in §357.
§360 Factors Affecting 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.
UCC §2-709 Action for the Price

(1) When the buyer fails to pay the price as it becomes due the seller may recover, together
with any incidental damages under the next section, the price
(a) of goods accepted or of conforming goods lost or damaged within a commercially
reasonable time after risk of their loss has passed to the buyer; and
(b) of goods identified to the contract if the seller is unable after reasonable effort to
resell them at a reasonable price or the circumstance reasonably indicate that such
effort will be unavailing.
(2) Where the seller sues for the price he must hold for the buyer any goods which have been
identified to the contract and are still in his control except that if resale becomes possible
he may resell them at any time prior to the collection of the judgment. The net proceeds
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of any such resale must be credited to the buyer and payment of the judgment entitles him
to any goods not resold.
(3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed
to make a payment due or has repudiated (§2-610), a seller who is held not entitled to the
price under this section shall nevertheless be awarded damages for non-acceptance under
the preceding section.
UCC §2-716 Buyer’s Right to Specific Performance or Replevin

(1) Specific performance may be decreed where the goods are unique or in other proper
circumstance.
(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.
Cases
London Bucket Co. v. Stewart
Court of Appeals of KY, 1951 – p. 281
Plaintiff contracted with defendant to install a heating system in a motel, and defendant did not
complete the installation. Specific performance is not appropriate in this case.
Main Point: Very rare that specific performance will be ordered in construction cases.
Walgreen Co. v. Sara Creek Property Co.

Lease provided that the lessor would not lease any space in the mall to another pharmacy. Lessor
was going to breach and the trial court ordered an injunction (specific performance). Posner went
into a detailed analysis of the costs and benefits of injunction and said OK in this case.
Main Point: Weigh the costs (enforcement, effects on third parties, cost of negotiations) with the
benefits (burden shifted to the parties and away from the court, market will price the injunction
more accurately) to determine if specific performance makes sense.
Reliance Damages
General
Main Topics
 Reliance damages = costs incurred
 Reliance damages are an appropriate substitute for expectation damages when expectation
damages can’t be calculated (because they are not foreseeable or they are too uncertain).
 Reliance damages put the party in the same position they were in before the making of the
contract.
 Assumption is that the contract is profitable and expectation would compensate the plaintiff
for their costs of preparation.
 How do we cap damages?
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o Expectation (Makes the most sense – is most realistic)

o Contract price (Restatement view)
o No cap
§349 Damages Based on Reliance Interest
As an alternative to the measure of damages stated in §347, the injured party has a right to
damages based on his reliance interest, including expenditures made in preparation for
performance or in performance, less any loss that the party in breach can prove with reasonable
certainty the injured party would have suffered had the contract been performed.
Cases
Security Stove v. American Rys. Express Co.
MO Court of Appeals, 1932 – p. 295
Plaintiff was to exhibit a special furnace at a convention in Atlantic City and rented a booth to do
so. The carrier failed to deliver a key component of the furnace. Plaintiff was able to recover the
expenses of participating in the convention.
Main Point: Lost profits (expectation damages) are uncertain because we don’t know how many
sales the convention would lead to. Reliance damages are appropriate, then.
Anglia Television, Ltd. v. Reed

All E.R., 1971 – p. 299
Plaintiff made arrangements to produce a movie and hired the defendant as the lead actor.
Defendant repudiated. Plaintiff was unable to find a substitute and had to cancel the project.
Plaintiff was able to recover all expenses leading up to the movie (even those made before
securing the actor).
Main Point: Defendant was the reason the expenditure was wasted.
L. Albert & Son v. Armstrong Rubber Co.

Buyer spent $3,000 to build a foundation for the machines he was getting from the seller. When
the seller breach, the buyer was able to recover the cost of the foundation EXCEPT if the
contract would not have been profitable for him. Learned Hand says the defendant has the
burden of proving the contract was a losing one for the plaintiff.
Main Point: Defendant has the burden of proving the contract was a losing one for the plaintiff.
Restitution
General
Main Topics
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 Restitution damages = value conferred

 The value/performance conferred must be part of the contract
 This is recovery outside of the contract
 Use market value to determine the cost
 Restitution claims take cost to complete off the table
 Unsettled whether the plaintiff may recover restitution damages where the defendant can
prove with reasonable certainty that expectation damages would be less  Restatement caps
restitution at the contract price, which is the majority view; Algernon Blair says yes, but this
is a minority view.
 Protect the innocent party when the breaching party wants to recover restitution by ensuring
that the innocent party does not have to pay more than the contract price
o Innocent party gets expectation before the breaching party gets restitution.
§370 Requirement that Benefit Be Conferred
A party is entitled to restitution under the rules stated in this Restatement only to the extent that
he has conferred a benefit on the other party by way of part performance or reliance.
§371 Measure of Restitution Interest

If a sum of money is awarded to protect a party’s interest, it may as justice requires be measured
by either
(a) the reasonable value to the other party of what he received in terms of what it would have
cost him to obtain it from a person in the claimant’s position, or
(b) the extent to which the other party’s property has been increased in value or his other
interests advanced.

(2) Where the seller justifiably withholds delivery of goods because of the buyer’s 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 seller’s
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 buyer’s 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 and benefits received by the buyer directly or indirectly by reason
of the contract.
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(4) Where a seller has received payment in goods their reasonable value or the proceeds of
their resale shall be treated as payments for the purpose of subsection (2); but if the seller
has notice of the buyer’s breach before reselling goods received in part performance; his
resale is but subject to the conditions laid down in this Article on resale by an aggrieved
seller (§2-06).
Cases
Osteen v. Johnson
CO Court of Appeals, 1970 – p. 303
Plaintiffs paid defendant $2,500 to promote their daughter as a singer and recording, pressing,
and distributing two records. Defendant never pressed the second record.
Main Point: Plaintiffs were able to get restitution minus any benefits conferred to them by the
defendant.
United States v. Algernon Blair, Inc.

Subcontractor had a losing contract but wanted to recover restitution damages for the value of
labor and equipment furnished before the breach. Plaintiff was able to recover despite the fact
that the contract was a losing contract.
Main Point: Minority approach
Kutzin v. Pirnie
Plaintiff’s contracted to sell a house from the defendant. Defendants paid a deposit then backed
out of the deal to buy the house. The contract did not have a liquidated damages or deposit
forfeiture clause. The seller kept the deposit, despite suffering no damages (they resold the
house).
Main Point: The seller had no legal theory to support keeping the deposit. The deposit exceeded
the seller’s actual damages, and allowing them to keep it would = unjust enrichment.
Dandeneau v. Seymour
NH Supreme Court, 1977 – p. 323
Tenants agreed to make certain improvements on the landlord’s house in exchange for a piece of
land and saphouse. Tenants made 73% of the agreed upon improvements then started improving
the saphouse for their own use. When the landlord evicted the tenants, the tenants sued for
restitution damages for the improvements made on the house and saphouse. The improvements
to the house were not recoverable because partial performance did not confer a benefit to the
landlord, and the deal was for land so it is not just to make the landlord pay $$ for those
improvements. The improvements to the saphouse are not recoverable because the landlord had
no opportunity to accept or reject the benefit.
Main Point: Has there been a benefit conferred?
STATUTE OF FRAUDS
General
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Main Topics
 Certain types of contracts are unenforceable unless they are in writing and signed!
o Main purpose = evidentiary
o Supplementary purpose = to prevent “inconsiderate” (not well thought out) contracts
 “Writing” and “signature” are loose terms – does not need to be one signed document, but
can be a series of writings, a letter referring to a contract, etc. and the signature can be a
photocopy, initials, even a logo.
 “Within the statute” – a contract that is covered by the statute but is not in writing is “within
the statute” and not enforceable.
 “Taken out of the statute” – a contract that is enforceable even though it is not in writing
because an exception to the Statute of Frauds applies
 The writing must be signed by the party against whom enforcement is sought
 Which contracts need to be in writing:
o An executor’s promise to pay the estate’s debts from his own funds
o Any promise to act as a surety for or pay the debt of a third party
o Agreements to marry
o Contracts to sell land
 Exception: A lease of one to two years does not need to be in writing
o Agreement that won’t fully be performed within one year
 If the whole contract could have been performed in one year or when one party has
completed performance, the contract will be taken out of the Statute (§130)
o Contracts for the sale of goods over $500 (Part of the UCC)
 Only requirement is that the quantity is stated and that the party against whom
enforcement is sought has signed the document
 Exceptions: Goods made specially to order, receipt of confirmation, admission to the
contract, when payment has been made and accepted (or delivery has been made and
accepted)
 Modifications need to be in writing if:
o The modification itself is governed by the Statute
o The contract as modified is governed by the Statute
o The modification changes a quantity term in the contract for the sale of goods
o Generally, contracts can be rescinded orally (§148)
o Note: reconveyance of land or resale of goods are within the Statute
 Even when a contract is unenforceable because of the Statute, restitution and reliance
damages are available remedies.
UCC §2-201 Formal Requirements; Statute of Frauds
(1) Except as otherwise provided in this section, a contract for the sale of goods for the price
of $500 or more is not enforceable by way of action or defense unless there is some
writing sufficient to indicate that a contract for sale ahs been made between the parties
and signed by the party against whom enforcement is sought or by his authorized agent or
broker. A writing is not insufficient because it omits or incorrectly states a term agreed
98
upon but the contract is not enforceable under this paragraph beyond the quantity of
goods shown in writing.
(2) Between merchants if within a reasonable time a writing in confirmation of the contract
and sufficient against the sender is received and the party receiving it has reason to know
its contents, it satisfies the requirements of subsection (1) against such party unless
written notice of objection to its contents is given within 10 days after it is received.
(3) A contract which does not satisfy the requirements of subsection (1) but which is valid in
other respects is enforceable
a. If the goods are to be specially manufactured for the buyer and are not suitable for
sale to others in the ordinary course of the seller’s business and the seller, before
notice of repudiation is received and under circumstances which reasonably
indicate that the goods are for the buyer, has made either a substantial beginning
of their manufacture or commitments for their procurement; or
b. If the party against whom enforcement is sought admits in his pleading,
testimony, or otherwise in court that a contract for sale was made, but the contract
is not enforceable under this provision beyond the quantity of goods admitted; or
c. With respect to goods for which payment has been made and accepted or which
have been received and accepted.
§110 Classes of Contracts Covered

(1) The following classes of contracts are subject to a statute, commonly called the Statute of
Frauds, forbidding enforcement unless there is a written memorandum or an applicable
exception:
a. A contract of an executor or administrator to answer for a duty to his decedent;
b. A contract to answer for the duty of another (the suretyship provision);
c. A contract made upon the consideration of marriage (the marriage provision);
d. A contract for the sale of an interest in land (the land contract provision);
e. A contract that is not to be performed within one year from the making thereof
(the one-year provision).
§130 Contract Not to Be Performed Within a Year

(1) Where any promise in a contract cannot be fully performed within a year from the time
the contract is made, all promises in the contract are within the Statute of Frauds until one
party to the contract completes his performance.
(2) When one party to a contract has completed his performance, the one year provision of
the Statute of Frauds does not prevent enforcement of the promises of other parties.
§139 Enforcement by Virtue of Action in Reliance

forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be
avoided only by enforcement of the promise. The remedy granted for breach is to be
limited as justice requires.
§148 Rescission by Oral Agreement
99
Notwithstanding the Statute of Frauds, all unperformed duties under an enforceable contract may
be discharged by an oral agreement of rescission. The Statute may, however, apply to a contract
to rescind a transfer of property.
§149 Oral Modification

(1) For the purpose of determining whether the Statute of Frauds applies to a contract
modifying but not rescinding a prior contract, the second contract is treated as containing
the originally agreed terms as modified. The Statute may, however, apply independently
of the original terms to a contract to modify a transfer of property.
(2) Where the second contract is unenforceable by virtue of the Statute of Frauds and there
has been no material change of position in reliance on it, the prior contract is not
modified.
100

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Bartlett - Contracts Outline

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Contracts 130.

01 - Fall 2015 Course Outline

Mutual Mistakes (Shared Mistaken Assumptions).......................................................................................58

§17 Requirement of a Bargain

§71 Requirement of Exchange; Types of Exchange

(c) The creation, modification, or destruction of a legal relation.

§79 Adequacy of Consideration; Mutuality of Obligation

§90 Promise Reasonably Inducing Action or Forbearance

UCC §2-204 Formation in General

Donative Promises and Reliance

Feinberg v. Pfeiffer Co.

Hayes v. Plantation Steel Co.

Past Benefit Conferred and Received

(b) A voluntary transfer of money, a negotiable instrument, or other thing by the

§83 Promise to Pay Indebtedness Discharged in Bankruptcy

§86 Promise for Benefit Received

Problems with Formation

§79 Adequacy of Consideration; Mutuality of Obligation

§176 When a Threat is Improper

UCC §2-302 Unconscionable Contract or Clause*

Maxwell v. Fidelity Financial Services, Inc.

Wood v. Lucy, Lady Duff-Gordon

Performance of Legal Duty and Modifications

§89 Modification of Executory Contract*

UCC §2-209 Modification, Rescission, and Waiver

Lingenfelder v. Wainwright Brewery Co.

Austin Instrument, Inc. v. Loral Corp.

Sugarhouse Finance Co. v. Anderson

Wisconsin Knife Works v. National Metal Crafters

o There is enough time for the condition to still occur

UCC §1-306 Waiver or Renunciation of Claim or Right After Breach

UCC §2-209 Modification, Rescission, and Waiver

Teachers Insurance v. Tribune Co.

Venture Associates Corp. v. Zenith Data Systems Corp.

Hoffman v. Red Owl Stores, Inc.

Grouse v. Group Health Plan, Inc.

Racine & Laramie, Ltd. v. California Dept. of Parks & Rec.

§26 Preliminary Negotiations

§49 Effect of Delay in Communication of Offer

UCC §2-205 Firm Offers

Lefkowitz v. Great Minneapolis Surplus Store

§43 Indirect Communication of Revocation

§68 What Constitutes Receipt of Revocation, Rejection, or Acceptance

§87 Option Contract

§45 Option Contract Created by Part Performance or Tender

UCC §2-205 Firm Offers*

UCC §2-206 Offer and Acceptance in Formation of Contract

(a) An offer to make a contract shall be construed as inviting acceptance in any

§63 Time When Acceptance Takes Effect

§87 Option Contract

§45 Option Contract Created by Part Performance or Tender

UCC §2-206 Offer and Acceptance in Formation of Contract

Drennan v. Star Paving Co.

§37 Termination of Power of Acceptance Under Option Contract

§60 Acceptance of Offer Which States Place, Time or Manner of Acceptance

§63 Time When Acceptance Takes Effect

§64 Acceptance by Telephone or Teletype

§65 Reasonableness of Medium of Acceptance

Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is

§66 Acceptance Must be Properly Dispatched

§67 Effect of Receipt of Acceptance Improperly Dispatched

§68 What Constitutes Receipt of Revocation, Rejection, or Acceptance

UCC §2-206 Offer and Acceptance in Formation of Contract