Winnie Taylor Contracts Outline

Cannot get out of a contract even one minute after you make it because where would you draw
the line? One minute, hour, two hours?

I. Introduction

1. Contract and Obligation

Contract law facilitates an agreement between two parties

Contract – An agreement with consideration
Compensatory Damages – Make you whole
Service Search Charges – If buyer had to look somewhere else to get what you contracted for
Relational Exchange – Through time a process of continuous interaction between the parties.
Discrete Exchange – Little interaction between the parties
Bargain – Social and legal means which rely on exchange for apportionment

Freedom of contract
Facilitation of an exchange between parties who value things differently
Gives parties economy to decide for themselves
Private autonomy
Risk

2. Introduction to General Theories of Obligation and Remedies

Promissory Estoppel – The law can enforce obligation even in the absence of an enforcable
contract. Theory of justified reliance
Monetary Remedies
Lost expectancy Damanges – Puts π in monetary position they would be in if
the agreement had been performed
Reliance Damages – Puts π in monetary position they would be in if the agreement
had not been made
Sum Equivalent – restores value to the π

Sullivan v. O’Connor
Supreme Judicial Court of Mass, 1973
Damages
“Nose Job Case”
Facts: π is an entertainer who had plastic surgery on her nose and came out visiblly worse
off. π needed 3 surgeries.
Issue: What is the π’s remedy/ damages?
Rule: Types of monetary remedies (Lost expectancy, reliance, sum equivelant)
Applying Rule: Nose promise – nose received = remedy (position she would have been in)
(Lost expectancy damages). Doctor wants to give money back (puts in pre-operation
condition) (reliance). Worse condition, pain and suffering are compensable based on reliance.
Conclusion: For π, receiving reliance damages.
3. Intro to General Theories of Obligation & Consideration

Consideration – bargained for and given in exchange for the promise. May be given to the
promisor or to some other person, or by the promisee or by some other person (ex.
Lawyer)
Bargained for exchange
Exchange for the promise.
Benefit to the promisor or detriment to the
promisee Benefit or detriment must be bargained
for
Past consideration is not good consideration

RESTATEMENT (FIRST) CONTRACTS § 75 (1932) Definition of Consideration

(a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification, or
destruction of a legal relation, or (d) a return promise, (e) bargained for and given in exchange
for the promise.

Bargain – Sought by the promisor in exchange for his promise and given by the promisee
in exchange for that promise.
Gratuitous promises – not enforcable as contracts because there is no consideration
Formal Functions for Consideration
Evidentiary Function – Safe guards and supports against perjury
Cautionary Function – Makes sure there was an intention to agree
Channeling – Communicating thoughts into meaning. Take an economic or sentimental
objective and turn into a legal transaction to most closely accomplish the objectives

Reliance – Breach of a promise injuring someone who changed their position with the
expectation a promise would be fulfilled
Unjust Enrichment – Injustice from breach of a promise
Ex. A and B make a trade and B takes the money giving nothing in return

RESTATEMENT (SECOND) OF CONTRACT §81 (66) CONSIDERATION AS MOTIVE

OR INDUCING CAUSE
(1) The fact that what is bargained for does not of itself induce the making of a promise does not
prevent it from being a consideration for the promise.
(2) The fact that a promise does not itself induce a performance or return promise does not
prevent the performance or return promise from being consideration for the promise.

Motive – A reasonable person must believe one of the promisor’s motives was to extract
consideration from the promisee AND the reasonable person must believe that the promise
actually induces the promisee to deliver that consideration.

Good Faith Standard - Forbearance to bring a suit, or to proceed with one already brought, is
not consideration if the forbearance is made with knowledge that the claim is invalid. Reason:
Prevents blackmail or empty threats.

A bargained for promise is sufficient consideration.

o Can be obligated without reliance
o Ex. A promises to sell car to K and deliver it next Sat. K promises to pay $400.
o A is bound to the promise.
 Hardesty v. Smith
SC of Indiana, 1851
Consideration as a bargained for exchange
“Lamp purchase case”
Facts: π wants to recover for lamp imrpovements, ∆ claims are worthless and do not work.
Rule: Consideration
Holding: Even if the improvement of the lamp is of no utility this does hold up in a suit.
Reasoning: There is not a remedy for disappointment. Mistake and fraud are different. Two
people made a bargain.

Doughtery v. Salt
NY Ct of App 1919
Consideration as a bargained for exchange
“Nephew promissory note case”
Facts: 8 year old boy’s gardian (Aunt) is suing on his behalf for a promissory note worth
$3,000.
Issue: Can the π recover for the promissory note (is there consideration)?
Rule: There needs to be an exchange
Applying Rule: The aunt did not seek anything from the nephew, which makes it a gift.
There is no exchange. I did it because I love you does not work for a contract.
Conclusion: New trial (siding for ∆)
Exercise: Turn this into an exchange
Boy comes to see her every week and aunt receives phsychological benefit

Tramp Hypo – Man tells tramp, if you go around the corner to the clothing shop you can buy
an overcoat on my credit.
Could be interpreted literally as consideration because the walk is to the tramp’s
detriment. Or Not consideration because it isn’t requested as the price of the promise but
merely a condition of a gratuitous promise. If the happening of the condition benefits
the promisor it is a fair inference the happening was requested as consideration.

Maughs v. Porter
SC of App Virginia 1931
Gift with a condition
“Car winner case”
Facts: Every white person over 16 can win a Ford. Π entered her name into the ballet box and
was chosen as the winner. She paid $3 for services to the auctioneer. ∆ refused to pay for the
car (or give π the value for the car).
Issue: Can the offer to give the gift be enforced by consideration? Is the transaction a lottery?
Rule: A gift is a contract without consideration. To be valid it must be executed, there needs
to be actual delivery. Without delivery there is only an intention or promise which is
gratuitous and not valid.
Applying Rule: The ∆ benefits from π coming to auction, attendance is bargain. Inducement
of the car, and the promise induced the detriment (she wanted the car). Detriment induced the
promise (he wanted a crowd). There was no consideration, did not have to pay to enter the
raffle (not a bargained for exchange), which makes this a gratuitous promise. This is a gift
with a condition – show up to get the car. As a lottery this is unenforcable.
 Conclusion: For ∆

Hamer v. Sidway
Ct of App of NY 1891
Gift with a condition
“No drinking, smoking, swearing, gambling case”
Facts: Uncle promised his nephew $5,000 if he did not drink, use tobacco, swear, or gamble
until he was 21. Nephew fulfilled the agreement, uncle said he would hold the money with
interest until he could take care of it himself. Uncle died w/out paying the money or interest.
Issue: Does the contract have consideration? Is it a contract or a gift with a condition?
Rule: Valuable consideration consists of a right of interest, profit, or benefit to one
party or forbearance, detriment, loss, or responsibility given, suffered, or taken by the
other. – similar to tramp explanation
Applying Rule: Nephew said this is a detriment because he was legally able to do these
things. Did the promise induce the detriment? Yes. Did the detriment induce the promise?
Yes. The promise induced the detriment therefore there is consideration. Conclusion: For
π
Uncle may have made promise to keep family name reputable

Beware of disguised gifts

Ex. Contract for $1 million and sell for $100
Courts do not enforce gifts

Forbearance to sue as consideration is accepted

Does not work when the motives are unconnected

Beahr v. Penn-O-Tex Oil Corp.

SC of Minnesota 1960
Forbearance
“Debt collector for gas station case”
Facts: π leased a gas filling station to Kemp who was supposed to pay rent. Kemp was in debt to
∆ and ∆ collected money and had agents run Kemp’s business - ∆ had all of Kemp’s assets. ∆
said to π they would mail checks for rent. ∆ did not send money and denied knowledge or
responsibility for rent due.
Issue: Is there consideration for the promise ∆ made to π
Rule: Forbearance needs to induce the promise; promise needs to induce the forbearance
Applying Rule: π forbear right to sue because of ∆’s promise to pay. The promise is not a gift. ∆
was trying to brush off π. There was no consideration because there is no evidence either of the
parties took the defendant’s assurances seriously or acted upon them.
Conclusion: For ∆.
Explanation: π only forbear to sue earlier because of inconvenience. No mutual inducement
 Neuhoff v. Marvin Lumber and Cedar Co.
US Ct of App 2004
Forbearance
“Replacement Windows case”
Facts: ∆ promised to provide replacement windows for free in an oral promise.
Rule: Abandonment of a claim, that was thought to be well founded, is surrendering the thing of
value and is sufficient consideration for a contract.
There are 3 allegations of consideration
1. Forbearance (surrender) of their legal claims
2. Time and labor used to assist ∆ fulfill the promise to replace the defective windows
3. The benefit to ∆’s reputation by agreeing to replace the windows for free
Applying Rule: π did not express or imply he would sue – there are no facts that suggest hinting.
Cannot conclude a benefit to ∆’s reputation is sufficient consideration to make the statement a
binding contract
Conclusion: ∆ wins – promise lacked consideration

Springstead v. Nees
SC of NY App Division 1908
Forbearance
“Surviving Child, will case”
Facts: Sophie and George were left one property, and all the surviving children were left the
second property. Sophie and George said they would give the other 3 children their shares of the
Sacket property if they do not bother them about the Atlantic Ave. property.
Issue: Is this promise a contract?
Rule: Forbearance to assert either a legal or equitable claim is sufficient consideration.
Applying Rule: Consideration is a bargain for exchange, there is nothing to bargain with here,
and the πs do not have anything to give up. Need a colorable claim.
Conclusion: For ∆.
Explanation: Bargaining without bargaining chips. No consideration when no colorable claim.

Consideration factors (E&E) to consider:

Is the detriment a detriment?
Forbearance from something you do not have a claim to – no
consideration Detriment in exchange for the promise
Intended as a gift – no consideration
Disparity of value – courts may or may not consideration adequacy of
consideration
Expression of gratitude is not consideration – facts matter, context
matters Future conditional promises are not consideration
Needs to induce the promise – if make promise after a gift, did not induce
Illusory promise – discretion – right to terminate without notice makes a
promise illusory
 Satisfaction and termination clauses do not invalidate contracts in
general Is there a benefit to the promisor?
4. Mutuality of Obligation

Illusory promise – no promise at all, and unenforceable for lack of mutuality of obligation. If
party has no obligation to the other, then the agreement is unenforceable by either party Implied
promise, reasonable efforts – Language appears to be an illusory promise, but circumstances
demonstrate that the promisor intended to commit itself. Courts interpret language as a binding
promise.
De Los Santos v. Great Western Sugar Company
SC of Neb 1984 (pg77)
Lack of Mutuality
“Transporting beets case”
Facts: ∆ cancelled contract where π’s trucks were transferring beets after only 2 months because
his services were no longer needed. This caused π a loss of profits, forced sale of his trucks, and
other damages. The amount and specific quantity of beets to be transported during a specific
period of time was missing from the contract.
Issue: Did the ∆ wrongfully terminate the hauling contract?
Rule: An agreement that depends on the wish, will, or pleasure of one of the parties is
unenforceable. Mutuality of obligation is an element of every enforceable agreement.
Mutuality is absent when only one of the parties is bound to perform and the rights of
the parties are at the option of only one of the parties.
Applying Rule: This contract fails for lack of mutuality. If there is no mutuality there is no
obligation. ∆ was able to use their own discretion because there was no specification
therefore they could terminate at anytime without liability. Conclusion: For ∆

If contract said “as need arises” would be able to argue both ways

Wood v. Lucy, Lady Duff-Gordon

Ct of App NY 1917 (pg79)
Mutuality
“Fasion Designer case”
Facts: ∆ is a fashion designer, she employed π giving the exclusive rights to place endorsements,
designs on sale, and liscense for marketing. Compensation was ½ of profits from the contracts
made. This was an exclusive right for 1 year. ∆ placed her own endorsement without π’s
knowledge and kept the profits.
Issue: Is there mutuality?
Rule: A promise can be lacking, but be instinct with obligation.
∆ argument: π did not say he would make a reasonable effort therefore there is lack of mutuality.
Applying Rule: Here the circumstances imply a duty of good faith. Because the π gets ½ of the
revenue the contract itself is based on reasonable efforts, the court assumes he is going to do his
job to bring in revenue. A promise to use reasonable efforts can be implied from the entire
circumstances of the contract. The duty of good faith can compensate for vagueness.
Conclusion: For π
Arguments: ∆: The court should not be created an agreement because it thinks that’s what
the parties meant. Π: She is not going to give someone her business for a year if she does
not think they are going to do the job. ∆: what if he does not use reasonable efforts for a
whole year, can we figure out what RE would have yielded her?

Mutuality in Wood v. Non mutulatity in De Los Santos  Wood has exclusivity

UCC § 1-304 OBLIGATION OF GOOD FAITH
Every contract or duty within the UCC imposes an obligation of good faith in it’s performance
and enforcement.
UCC § 2-306(2)
A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods
concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to
supply the goods and by the buyer to use best efforts to promote their sale.

[Treatise] Law of Master and Servant – General or indefinite hiring is hiring at will, the
servant has burden to establish proof of a yearly hiring. No time specified is an indefinite hiring.

Weiner v. McGraw-Hill, Inc.

Ct of App NY 1982 (pg81)
At will employees
“Terminated employee case”
Facts: π left job at Prentice Hall for job security at MrGraw-Hill. After escalating in rank at
McGraw-Hill he was discharged.
Issue: Is there a contract of employment?
Rule: If the employer made a promise express or implied … employment was definite it is not
terminable by him at-will after the employee has begun or rendered some of the requested
service or has given any other consideration.
Π argument: Their agreement had consideration
∆ argument: This contract lacks mutuality because if ∆ can only fire if there is a just cause the π
has a free way out.
Applying Rule: The employee’s forbearance is an exchange for the promise so there is
consideration. Π was induced to leave another job with assurance he would not be discharged. Π
also rejected other offers based on reliance of the assurance
Conclusion: For π

At-Will v. Individual Freedom: On Limiting the Abusive Exercise of Employer Power:

Contracts for permanent employment have been held unenforceable on the grounds they lack
mutuality. If the employee in addition to their services gives good consideration the agreement
will be enforced. Lack of mutuality is not the real issue; the real issue is lack of consideration of
the employer.

Mattei v. Hopper
SC of Cali 1958 (pg84)
Mutual Obligation
“ Real estate/ deposit receipt case”
Facts: π is a real estate developer and planning construction adjacent to ∆’s land. ∆ submitted an
offer and π accepted, there was a deposit receipt. Π took means for a satisfactory lease, then ∆
decided they would not sell under the written terms – claims it was an offer not a contract.
Issue: Was there consideration supporting their contract?
Rule: Promises must be in mutual obligation, both parties must assume legal obligation. Without
mutuality of obligation, the agreement lacks consideration and is not enforceable.
Applying Rule: If one party can freely withdraw from an agreement at unrestricted pleasure
there is no consideration. Factors of consideration here are duration of the lease, renewal options,
amounts of rentals, etc. The performance depended on the satisfaction of ∆.
Conclusion: For π

The Pre-Existing Duty Doctrine – Most acts, forbearances, promises of future acts, are
sufficient consideration for a promise if they are bargained for by the maker of the promise and
are given in exchange for it. Exceptions: Performances that are required of the performer. Can
be a policing doctrine when there are unfair pressures, or uneven deals.
If you are already obligated to do something – the promise does not induce you to do it
Creating examples – If I am obligated to go to school everyday, being promised a candy
bar to go to school would not induce me to do it.

Services or property are consideration for a promise to pay much more money than anyone
else would pay for them.

Market Equivalence of consideration is – free bargaining of the parties.

Can lead to absurdity
Can be ruled there was no bargain and consideration was a mere pretense.

Satisfactory Clauses
• Objective. Where the condition calls for satisfaction as to commercial value or quality,
operative fitness, or mechanical utility - satisfaction clauses are given effect but they are held to
a "reasonable person standard" as to whether satisfaction has been received;
• Subjective. Where the satisfaction clause involves fancy, taste, or judgment - a promisor's
determination that he is not satisfied, when made in "good faith" is a valid defense to an
action.

RESTATEMENT § 79 ADEQUACY OF CONSIDERATION

If the requirement of consideration is met, there is no additional requirement of equivalence in
the values exchanged

5. Promissory Estoppel

Promissory estoppel – If one suffers from the non-fulfillment of a promise, the promisor is bound
by natural law to make good the matter
Obligation arising from justified reliance
Generates a duty when consideration is not present
Voluntary Obligations and Normative Powers – One has an obligation not to act in a manner
which will disappoint another’s reliance.
Need actual reliance on the promise – not disappointment

Kirskey v. Kirskey
SC of Alabama 1845 (pg90)
Bargain leads to the detriment
“Wife moves to brother in laws house case”
Facts: Widow has several children and gets a letter from deceased husband’s brother promising
to furnish her with a house and land until she could raise her family. She had to move to him 60
miles away. He later removes her.
Issue: Is there promissory estoppel?
Rule: There needs to be a bargain for exchange, and the bargain leads to the detriment.
Applying Rule: Contract does not include her giving him something, so the promise is a mere
gratuity. [Judge does not believe there is justice in this casse Conclusion: For ∆

Ryerss v. Trustees of Presbyterian Congregation of Blossburg

SC of Penn 1859 (pg91)
Prepromisory estoppel??? Public policy/consideration/legal fiction
“Building church case”
Facts: π promised to give a congregation $100 to build a church. The congregation built it (in
reasonable time and under conformity to the agreement) and π did not pay. Issue: Can the
promise be enforced?
Rule: There must be a bargained for exchange
Applying Rule: Here, there is a public policy issue. The court called it consideration even though
there was not – this was legal fiction.
Conclusion: For the church

Seavy v. Drake
SC of NH (1882) (pg92)
Legal Fiction - Pre-promissory estoppel???
Exchange $200 for land case
Facts: π took possession of land in exchange for $200 note. Π occupied the land, paid taxes,
labored improvements, and spent a large sum of money on improvement. Son is now claiming
the right to this land. Father helped the son build too.
Issue: Will a promise to transfer land be enforced if it was not authorized in writing?
Statute of Frauds: “No action shall be maintained upon a contract for sale of land, unless
the agreement upon which it is brought, or some memorandum thereof, is in writing, and
signed by the party to be charged, or by some person by him thereto authorized in
writing.” Applying Rule: Father owes him $200, took it back in exchange for the land, is this a
disguised gift? How much is the land worth? He made improvements to the land, spent money
and labor. The improvements were induced by the donor’s promise to give the land to the party.
Father helped son build the land, court looks at circumstances and calls it consideration (legal
fiction) Conclusion: For π

Courts of equity developed

Defenses Specific Relief No Jury
Fraud For when money damages are hard to measure Discovery more elaborate
Mistake Goods promised were unique Claimant files a bill
Estoppel Proceeding is a suit

Essential elements of equitable estoppel

(1) There must be conduct – acts language or silence – amounting to a representation or
concealment of material facts
(2) These facts must be known to the party estopped at the time of his said conduct or the
circumstances that knowledge of them is necessarily imputed to him
(3) Truth concerning these facts must be unknown to the other party claiming the benefit of
the estoppel – at time when conduct was done, and when acted upon by him
 (4) Conduct must be done with intention or expectation that it will be acted upon by the
other party, or under circumstances it is natural and probable that it will be acted on
(5) Conduct must be relied upon, and acted on
(6) Act on it to change position for the worse
Did not go over in class?????

Ricketts v. Scothorn (96) – grandfather’s note – equitable estoppel

Facts: ∆ was a bookkeeper. Her Grandfather told her he set something up so she no longer has to
work. He gave her a promissory note for $2,000, and she immediately quit her job – he died
without paying the note.
Issue: Can ∆ recover the promissory note; is this a valid contract?
Rule: Equittable Estoppel
Applying Rule: This is not a bargain, there is not consideration here. She acted on the promise.
Conclusion: For ∆ because of equitable estoppel

Siegel v. Spear
Ct of App NY (1923) (pg96)
Did not go over in class
“ case”
Facts: π purchased furniture from ∆ (bargained for exchange). Π was moving from the city for
the summer months and wanted to store his furniture. Π had his furniture stored in ∆ warehouse.
Furniture was destroyed in a fire, ∆ had not yet set up insurance as he said he would Issue: Was
there consideration for the agreement? Was there a contract?
Rule: IF a person akes a gratuitous promise and then enters upon the performance of it, he is held
to a full execution of all he has undertaken.
Applying Rule: Problem: ∆ said he would store property without compensation. Good: Also
offered to set up the insurance. There was consideration for the agreement to insure.
Conclusion: For π
Key: π changes their position to the detriment***

RESTATEMENT §90. PROMISE REASONABLY INDUCING DEFINITE AND

SUBSTANTIAL ACTION
A promise which the promisor should reasonably expect to induce action or forbearance of a
definite and substantial character on the part of the promisee and which does induce such
action or forbearance is binding if injustice can be avoided only by enforcement of the promise.
Implication: Restatement 90 – gives a duty to circumstances where the theory of agreement
with consideration would not.
[THEORY OF PROMISSORY ESTOPPEL]

Examples: A promises to give B $1000, B spends A does not pay – not enforceable
A promise to give B $1000 to go shopping, B shops and spends - enforceable
Limitation in the law – needs to be conditional
Function of Promissory Estoppel
A defensive doctrine, stops a promisor from denying enforceability of the promise.
Only applicable in the absence of an otherwise enforceable contract (Whistle)
Promissory estoppel the promisee in the position he would have been in if he had not acted in
reliance of the promisee. Ex. Cannot recover for expected profits.
 Wheeler v. White
SC of Tx 1965
Indefinite contract – Promissory Estoppel
“Commercial building and loan case”
Facts: π wants to construct a commercial building and ∆ agrees to get him the loan or promises to
give the loan himself. They made an agreement with consideration, but it was defective because
it was missing the amt of monthly installments, amt of int due monthly, when int would be paid.
Issue: Is this an enforceable contract even though it is too indefinite?
Rule: Where a promisee acts to his detriment in reasonable reliance upon an otherwise
unenforceable promise the disappointed party may have substantial and compelling claim for
relief. Restatement § 90 is cited.
Applying Rule: This is a failed bargain for exchange. The π’s detriment relied on the promise,
promissory estoppel bind promises that influence the conduct of the promisee known to the
promissory.
Conclusion: Promissory estoppel is sufficient for π

Hoffman v. Red Owl Stores

SC of Wiscon 1965 (p107)
Pre-contracutal negotiation (Promissory estoppel case)
“Opening grocery store case”
Facts: ∆ agreed to build and stock a store for π to operate. Π put down money, sold other
businesses, and moved, in reliance on ∆. Π was also borrowing money from family
members. Issue: Should the π recover under promissory estoppel? Did π rely on ∆ for his
detriment? Rule: Promissory estoppel
Applying Rule: This case is different from Wheeler because it is pre-contractual. Here, still in
negotiations, no contract yet. Restatement says promise not pre-contract. This may not actually
be promissory estoppel but the courts used it to prevent imbalance.
Conclusion: For π

Promissory estoppel can be used in pre-negotiation agreements, but not an agreement to agree.
Gives liability without regard to bargain, contract, or consideration.
^^^Hoffman was based on pre-contractual reliance – makes for a fair playing field so party in the
stronger bargaining position cannot walk away without loss.

Elvin Associates v. Franklin

SDNY 1990
Pre-contractual negotiation (promissory estoppel case)
“Setting up the show case”
Facts: Several months of negotiation, π incurred expenses based on ∆’s assurance she would
perform in his show. ∆ never came because of fear of flying. Contract had not been signed yet.
She was active in setting up the performance.
Issue: Can π recover for a preliminary agreement?
Rule: Cannot recover for promissory estoppel in pre-negotiation agreements
Applying Rule: π relied on the promise that when ∆ came to NY she would sign the contract. She
knows the business, she knows once you commit the star, for the play to run he is going to start
the process of the show, ex. Getting other actors and theater, and spending money. Take fact she
was active in setting up the performance is taken into account. Fear of flying was not reasonable
because there were other ways to travel.
Conclusion: Still recovered under promissory estoppel – For π

Elvis Presely – promised to give money to his fiance’s mother and in reliance she filed for a
divorce. The court held she could not recover based on promissory estoppel, because she pursued
the divorce settlement after Alden had been notified that the King’s estate would not pay off the
mortgage. She did not detrimentally rely on the promise.
If after knowing she had a fear of flying continued to set up knowing she may not come –
there would have been a different outcome

Local 1330 United Steel Wokers v. US Steel Corp.

6th Cir. 1980
Reasonable reliance
“steel plant closure case”
Facts: A steel plant closure leg to the economic demise of a town. The plant told the people if it
was profitable they would not close it.
Issue: Did the court apply restatement §90 properly?
Rule: Promissory estoppel
Applying rule: There was a condition on a promise. Here the court ruled it would be
unreasonable to believe they would keep this company open until bankruptcy. If a promise so
outrageous that it does not justify the promise and this is the reason for the detriment – you
lose Conclusion: Needs to be REASONABLE RELIANCE, for ∆

To defeat a promissory estoppel claim – attack Foreseeability and Reasonable of reliance

Employing a condition or indefinite
promise Attaching a termination date to the
promise
Revoking and promptly communicating this to the promisee
(Most promissory estoppel claims are unsuccessful)

Promissory estoppel in the second restatement

1. A promise which the promisor should reasonably expect to induce action or forbearance on the
part of the promisee or a third person which does induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the promise. The remedy granted for breach
may be limited as justice requires.
2. A charitable subscription or marriage settlement is binding under subsection (1) without proof
that the promise induced action of forbearance.
--This added and removed phrasing, is more restrictive, courts are still reluctant to grant.

6. UNJUST ENRICHMENT

RESTATEMENT OF RESTITUTION §1 (1937) UNJUST ENRICHMENT.

A person who has been unjustly enriched at the expense of another is required to make restitution
to the other.
Notes – Restitution based on unjust enrichment and someone gains unjustly at the expense
of another they are required to make restitution. Benefit is not intended to be a gift.
3 Elements for unjust enrichment
1. A benefit conferred on the defendant by the plaintiff
2. Appreciation or knowledge by the defendant of the benefit
3. Acceptance or retention of the benefit by the defendant under circumstances
making it inequitable for the defendant to retain the benefit

Bloomgarden v. Coyer
Ct of App, District of Col 1973 (p126)
Unjust enrichment – Quasi contract
“Finders fee case”
Facts: π wanted to collect a finders fee for introducing two people in a real estate deal. There is
not an agreement or compensation for π. ∆ had asked what π hoped to get out of his work and he
did not say compensation.
Is there an express contract? No. They never made an agreement or promise to give commission.
Is there anything implied in fact? No. Can infer from actions, circumstances, conduct.
Promissory estoppel? No. There is not a promise to pay here
Quasi contract – This is not a real contract. Impose an obligation because it would be just to.
Issue: Should π be rewarded a finder’s fee?
Rule of Implied Fact Contract – Contains all necessary elements of a binding agreement. Has not
been committed in writing or orally in express terms, it is inferred from conduct.
Elements of Rule: Pay for services must show the services carried out under circumstances to
give the recipient reason to understand they were performed for him and not gratuitous, and the
services were beneficial to the recipient.
Applying Rule: He did not indicate he expected payment. Not reasonable for ∆ to understand he
expected payment. The partnership is a benefit. Did not tell anyone. Have to show he looked
forward to personal payment for services.
Conclusion: For ∆
-Rule – no compensation when services are rendered to gain a business advantage

Rule of Implied Fact Contract – Contains all necessary elements of a binding agreement.
Has not been committed in writing or orally in express terms, it is inferred from conduct.
Elements of Rule: Pay for services must show the services carried out under circumstances to
give the recipient reason to understand they were performed for him and not gratuitous, and the
services were beneficial to the recipient.

Quasi-contract – Not a contract at all, a duty to thrust under certain conditions upon one party to
require another to avoid the former’s unjust enrichment.
Purpose: To prevent unjust enrichment
Obligation to pay money to another
Π must show ∆ unjustly enriched at the π’s expense and ∆ should make
restitution Π must show benefit without compensating the one who conferred it is
unjust
A duty will not be recognized where the benefit was conferred gratuitously
o Ex. Bloomgarden case
W.T. pg 151 – unjust enrichment, restitution, quasi-contract, quantum merit, common counts
are interchangeable. Usually says theory of unjust enrichment restitution is remedy.

Hypo: You pass out on a subway and a doctor is on the train and takes out his bag, works on you,
and brings you to the hospital. 2 weeks later a bill comes in the mail, do you have a duty to pay?
Yes, even though you did not ask for the treatment
Unjust because you received a benefit/ service doctors usually charge and people pay for
Do you have an obligation? Yes
Public Policy reason: If doctors cannot charge, might deter them from this behavior.
If it was a gratuity you would not have gotten the bill in the mail

Gustafon v. Sparks
SC of Alaska 1988 (p132)
Unjust Enrichment – Benefit conferred
“Friend takes over dead friend’s building case”
Facts: π and ∆’s deceased father were good friends and business partners. When ∆’s father died π
managed the building, without compensation, paid expenses out of his own pocket,
maintencance – Then ∆ sold building to a 3rd party.
Issue: Whether it is unjust to allow the estate to retain these benefits without paying for them?
Rule: Unjust enrichment exists where ∆ received a benefit from π and it would be ineqitable for
∆ to retain the benefit without compensating the π for it’s value.
Applying Rule:
Express Promise? No.
Implied Promise? No.
Promissory Estoppel? No.
Unjust enrichment? Did ∆ receive a benefit? Yes, types of services people usually pay for.
They promised if he did services they would sell, was under pretenses he would get
property. He was friends with deceased, not estate. Even though operating at a loss – it was
still operating. (still a benefit)
Conclusion: For π

Remedies – The Gift Principle and the Choice Principle

“Gift Principle”: One who confers a benefit with the intention to make a gift, has no
equitable claim for relief against the recipient of the benefit in the absence of fraud, mistake,
duress, or undue influence.
“Free Choice Principle”: One who confers a benefit upon another without affording that other the
opportunity to reject the benefit has no claim for relief.

Gay v. Mooney
SC of NJ 1901 (p136)
Unjust Enrichment v. Gratuities
“Uncle passes away after living with family case”
Facts: ∆ lived with π for several years before he passed away. Promised to give children the
property.
Issue: Can π be compensated for board and lodging furnished to deceased under
unjust enrichment or was this gratuitous?
Rule: Unjust Enrichment – can recover for the value of the services
Applying Rule: There was a promise to give to the children, which made it a sale, not gratuitous.
There is unjust enrichment, π are trying to get restitution for the reasonable value of the services.
Conclusion: For π

Intermeddler: confers benefit w/o giving the other a chance to reject the benefit. "Free Choice
Principle." Can't foist a benefit upon another against his will, or deprive him of choice in the
matter.
Hypo: You are driving your car and a squeegee cleans your windshield, do you have to pay?
There is an expectation of payment and a benefit  Cant impose the benefit.
Person needs an opportunity to decide if you want the benefit or not
Sit down in a restaurant and order food – it is implied fact – you have to pay

Kearns v. Andree
SC of Err of Ct 1928 (p137)
Unjust Enrichment - Restoration
“Alterations for old buyer and new buyer recovery case”
Facts: π is owner of a lot of land where a dwelling house was in process of construction. Π and ∆
had an oral contract, the ∆ wanted certain alterations, π made changes. ∆ refused to buy, π found
new purchaser who wanted different alterations – π wants to recover costs for both alterations.
Issue: Is the contract enforceable and can the π recover damages?
Rule: There needs to be a benefit
Applying Rule: Need to define benefit to make this be covered under unjust enrichment. Unjust
for the π not to recover even though there is an indefinite contract. Π performed with expectation
to be paid.
Conclusion: Remanded to see if there is good faith and honest
belief W.T. – most jurisdictions accept promissory
estoppel

Restitution without enrichment – The promisor who’s substantial breach derailed the exchange
must restore whatever was given or done in response to and in conformity with it’s terms and it
will not matter in the slightest degree whether this had brought profit or advantage to him.
Rationalizing restitution (kull) – treat this like it is a breach of contract.

Posner v. Seder
SJC of Mass 1903 (p142)
Cannot sue for breach of contract and unjust enrichment
“Manufacturer let go a contracted foreman case”
Facts: Here, there is a contract. Π is a foreman suing ∆ manufacturer, had an employee contract
and ∆ discharged π. Π suing for Quantum Meruit, value of the extra hours in the contract
contending pay did not include overtime.
Issue: (Theory of obligation) For breach of contract can you recover under unjust enrichment?
Rule: Quantum meruit – what were his services fairly worth and what is due to him?
Applying Rule: The weekly payment did not make reference to the amount of work done.
Π argument: The $17 a week did not include overtime. ∆ argument: The $17 a week was
regardless of overtime.
Court: Neither is right. Π can sue for breach of contract OR unjust enrichment. Sue for the $17
per week – then he cant get overtime OR reasonable value of services, including overtime.
Benefit for π: Below market value (no overtime) for job security
Benefit for ∆: Paying less, and getting more
Conclusion: CANNOT MIX THEORIES – For neither party
 Kelley v. Hance
SC of Errors of Ct 1928 (p143)
Breacher of contract cannot sue for unjust enrichment
“Left sidewalk unfinished case”
Facts: π agreed to excavate and construct a sidewalk in front of ∆’s property for $420 at $3 a ft. π
started job late and left unfinished work. No section of the walk and curb were complete. Π
breached and is the one suing.
Issue: If you are the breaching party (to a contract) can you get unjust enrichment?
Rule: Unjust enrichment
Applying Rule: If you breach the contract you cannot sue on the contract for substantial
performance. Contract is for the whole thing – here, the work could not be returned and the
∆ could not avoid receiving the partial work. Π willfully breached.
Conclusion: For ∆

Britton v. Turner
SC of J of NH 1834 (p145)
Breacher of contract sued and won
“π completed 9 out of 12 months of labor case”
Facts: π was contracted for 1 year and left without consent and showed no good cause for not
continuing. Π breached and wants to recover for the work he performed.
Issue: Can the π recover for the service he has performed under quantum mertuit?
Rule: Party who voluntarily fails to fulfill the contract by performing the whole labor contracted
for is not entitled to recover anything for the labor actually performed (however much he may
have done for the performance).
Applying Rule: Court finds this rule is unequal; plaintiff here did labor for 9 and a half months.
Bad rule because at the end of work employer can create a hostile environment to make
employee voluntarily leave and then will not have to pay anything.
Created Rule: Get reasonable value of your service of the contract price – damages inccured by ∆
Conclusion: For π

AlDrete v. DeLeon
Civ App Texas 1965 (p150)
When breacher sues
“Defaulted on land case”
Facts: π defaulted after paying $1070 for land, the land was then sold to a 3rd party.
Defaulting Purchaser Rule: Cannot recover money paid, this leads to bad results
Applying Rule: π suffered damages that can be easily calculated, ∆ would be unjustly enriched if
they kept $1070 from π. Court judges based on reasonable value of services with a limit on
contract price. Sellers damage is $200, $1070 buyers damage – have to give back $870.
Conclusion: For π
Variant terminology
Unjust enrichment is the general theory of
obligation. Restitution
o Typically the remedy
Contract implied in law
Quantum meruit – as much as he deserved

Watts v. Watts
SC of Wis 1987 (p152)
Unjust Enrichment
“Not legally married case”
Facts: π said had an agreement with ∆, she took care of the kids and the house. They were
separating and she wanted half of what they owned and he would not give her anything. ∆ had
persuaded her to quit her job, indicating he would provide for her. ∆ considered her to be his
wife and they shared everything, π contributed to business and personal wealth of
relationship. Issue: Can the π recover?
Rule: Unjust enrichment for recovery is grounded on the moral principle that one who received a
benefit has a duty to make restitution where retaining such a benefit would be unjust.
3 Elements for unjust enrichment
1. A benefit conferred on the defendant by the plaintiff
2. Appreciation or knowledge by the defendant of the benefit
3. Acceptance or retention of the benefit by the defendant under circumstances making it
inequitable for the defendant to retain the benefit
Applying Rule: This is an implied fact agreement because they did everything jointly. This
means there was consideration. Promissory estoppel – you promised you would take care of me
if I quit my job and I did. Π argues ∆ benefitted from her services, ∆ argues this is all gratuitous.
Holding: Unmarried cohabitants can raise claims based on unjust enrichment, when one party is
trying to retain an unreasonable amount of the property acquired through the efforts of both.
Conclusion: Unfair to let ∆ retain everything. For π

Regulation of private relations – Marriage is highly regulated by the state. Prenuptial and post
nuptial agreements to prevent loss and add compensation
Death of the contract – Gilmore would like us to stick to agreement with consideration.
Promissory estoppel is not a bargain for exchange, need a detriment. Unjust Enrichment is
implied. What happened to bargaining? – We are turning contracts into tort law.
Gifts and Promises – bargain for consideration is on a downward trend, but not dead.

Review chart
Cause of Contract Promissory Est Unjust Enrichment Tort
Action
Remedial Benefit of the Enforcement of the Restoration of Redress of
Goal bargain promise Enrichment injury
Principal Place π in Reimbursement of Restitution: Compensation
Focus of the position they expenses and losses Disgorgement (forced for loss or
remedy would be in had (unless justice giving up of profits) injury caused
contract not been requires fuller of the value of what by ∆
breached enforcement) was received
7. PROMISES FOR BENEFITS RECEIVED

Mills v. Wyman
SJC of Mass 1825 (p158)
Moral Obligation – no recovery
“Fathers son is sick in a foreign country case”
Facts: ∆’s son became sick on his return from a foreign country. Π gave him shelter and comfort
until his death. ∆ father wrote to π with feelings of gratitude he would repay him. Issue: Can the
π recover?
Rule: Moral Obligation – arises from promises for benefit received, Moral Obligation is not
sufficient to support a promise.
Applying Rule: Deceased was a grown man and his father had no obligation to pay his debts.
There is no promissory estoppel because the detriment occurred before the promise was made.
There is not unjust enrichment because even though there was a benefit conferred there was not
an expectation of payment and no request to do anything. Being a good Samaritan, this was a
gift. Based on benefit conferred to father – not the son. You get paid for the benefit you confer
Conclusion: For π

Restatement §82 – 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.

Webb v. McGowin
Ct of App of Alabama 1935 (p161)
Moral Obligation – Express Agreement
“π crippled from saving ∆ case”
Facts: π saved ∆ and was crippled though this action. ∆ promised to pay π for the rest of his
life.
Issue: Can the π recover for the unpaid installments?
(Distinction from Mills – indirect benefit, here direct
benefit)
Rule: Where the promisee cares for, improves, and preserves the property of the promisor,
though done without his request, it is sufficient consideration for the promisor’s subsequent
agreement to pay for the service, because of the material benefit received.
Rule: A moral obligation is a sufficient consideration to support a subsequent promise to pay
where the promisor has received a material benefit although there was no original duty or
liability resting on the promisor.
Applying Rule: There was a material benefit, which was valid consideration for the promise.
McGowin made an express promise to pay and π was crippled for life, there is consideration
because ∆ benefitted and π was injured – this was not gratuitous
Conclusion: For π

Harrington v. Taylor
SC of NC 1945 (p165)
Good Samaritan
“Hand mutilated case”
Facts: π provided refuge for ∆’s wife. ∆ broke into the house and got into a physical altercation
with the wife who tried to axe him. Π got in the way and her hand was mutilated – she saved the
∆’s life. He promised to pay her for the damages but did not pay in full.
Issue: Was there consideration to support the promise
Holding: No, this was a voluntary humanitarian act, there is not consideration to entitle her to
recover at law.
Consistent with Mills, Good Samaritan act was not based on what π will get for it later.

Edson v. Pope
SC of SD 1910 (167)
Moral Obligation – Past Consideration
“Well case”
Facts: At the request of the tenant, π drilled and dug a well that has reasonable value of $250.
This was a valuable improvement and has been used by the ∆. ∆ promised to pay the π a
reasonable value – but since has refused to pay. ∆ said he didn’t make the promise. Issue:
Was the consideration alleged in the contract past consideration? Is this sufficient?
Rule: Past services are not a consideration for a promise to pay and after services have been
fully rendered and completed. The modified doctrine of moral obligation was founded on
pervious benefits received by the promisor at the hands of the promisee.
Applying Rule: The well was not gratuitous. The ∆ will pay the π the reasonable value for
digging and casing the promise was binding and supported by consideration.
Conclusion: For π

Past Promises – Problem when the price is not presently asked for a promise, the promisor is
vulnerable to dangers similar to those that threaten donors of gift promises.
Concept of Moral Obligations – (Henderson) The courts using this concept here do not attempt
to define it or subject it to careful analysis.

Restatement §86 – Promise for benefit received –

(1) A promise made in recognition for 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.
Past promise for a benefit is binding to the extent to prevent injustice.
It is not binding when (a) If the benefit is presented as a gift or promisor is not unjustly
enriched OR (b) when the value is disproportionate to the benefit.
W.T. - Binding to the extent necessary to prevent injustice

8. Obligations Arising From Tort

Basically a tort law review:

Based on socially unreasonable conduct, and the failure without justification to perform
A’s duty extends to persons within a legally defined zone of risk created by his actionable
conduct.
The remedy is to restore B to the position occupied before the tort, usually through
compensation.
Compare to contracts law:
The actionable conduct is failure without justification to perform an enforceable promise. Do
not have to prove it was negligent, intentional or wrongful.
A’s duty extends to those for who the benefit the enforceable promise is made. B’s interest is
limited to the reasonable expectations created by that enforceable promise.
Protect B’s reasonable expectations by giving him the value of A’s promised performance.

Reasons to choose which to pursue:

Contract may lead to strict liability
The tort can permit the recovery of greater damages – more advantageous

9. Obligations Arising From A statutory Warranty

Warranty Promises – The law enforces promises made by sellers, lessors, others, concerning the
quality of their performance.
Express Warranties – Arises solely from party agreements
UCC 313
o An Affirmation of fact, promise, or description from seller to buyer that is part of
basis of the bargain
o Can’t be an opinion
 Sales talk, imprecise statements, statement showing goods experimental
o Proving basis of bargain does not require reliance, just affected by statements
buyer didn’t know it all along
Implied warranty – Fitness of particular purpose – Seller has reason to know particular
purpose for which the goods are required and the buyer is relying on seller’s skill or judgment
UCC 315
o Buyer purchasing for intended purpose at time of contract o
Seller has reason to know at time of contract of this purpose o
Buyer relies on seller’s skill/judgment to select/furnish goods
o Seller when contracting has reason to know buyer relies on this skill
Implied warranty – Merchantability – Goods are fit for the ordinary purposes, which they are
used. [Sub §3(b): When the buyer before entering the contract has examined the goods, as fully
as he desired or has refused to examine the goods there is no implied warranty with regard to
defects an examination ought to have revealed].

Keith v. Buchanan
Ct of App Cali, 1985 (pg192) Statutory Warranty – Express Warranties “Yacht case”
Facts: π purchased a yacht, he had sailing and yacht experience, but he never owned one. He
stated his desire for a boat that was ocean going and could cruise long distances. He asked a third
party for assistance. Brochure said it was seaworthy. Issue: Is this an express warranty?

Rule: UCC of Cali – Formal words are not required to make a warranty, the seller’s affirmation
of the value of the good or the expression of opinion of commendation of the goods does not
create an express warranty.
Applying Rule: Advertising brochure statements meant to induce sales can create express
warranties. Inspection of the boat by his own experts does not waive his express warranty.
Inspection of boat will not determine if it is sea worthy b/c you are not taking it onto the water.
Conclusion: For π
Times court held statements were mere opinions
“Perfect night’s sleep”
Bed will be “Maintenance free” [Because no reasonable consumer would
expect] “Your sleep number is your key to a perfect night’s sleep”

Webster v. Blue Ship Tea Room

SC of Mass, 1964 (pg199) -- Implied Warranty of Merchantability
“Fish Chowder Case”
Facts: π went to ∆ restaurant and ordered fish chowder. She mixed the bowl and after eating a
few spoonfuls she found something lodged in her throat. She had two esophagoscopies where a
fishbone was found and removed.
Issue: Whether the fishbone in the chowder was a breach of implied warranty under UCC? Rule:
UCC §2-314: Implied warranty of merchantability: Goods are fit for the ordinary purposes for
which they are used.
Applying Rule: π claims there are high standards for the sale of food, ∆ this is how the dish
is made. The court looks at the natural v. foreign purposes. The history of chowder shows
removing fish bones is not always historically or currently in recipes.
Conclusion: For ∆

UCC
Warranty v. insurance company – just show the broken object
Warranty v. negligent defendant – Harder, first show warranty is express or implied. Prove
goods fo no comply with the warranty and were defective at the time of sale. Third, injury was
caused by defective nature of the good. Next damages – fight off affirmative defenses.

International Sale of Goods Article 35 (under a treaty, not common law)

(1) The seller must deliver goods which are of the quantity, quality, and description required by
the contract and which are contained or packaged in the manner required by the contract.
(2) Except where parties have agreed otherwise the goods do not conform with the contract
unless they, (a) are fit for the purpose of ordinary use (b) are fit for any particular purpose
express or implied made known to the seller at the time of K, except when seller reasonably
did not or should not have relied on seller (c) possess the same qualities as the sample seller
provided, and (d) are contained or packaged in the manner usual for such goods.
(3) Seller isn’t liable under (a) or (d) if buyer knew or should have known the lack of conformity.

10. Statute of Frauds

Statute of Frauds - Formal requirement for enforcement of certain agreements with consideration
Ex. Requirements of writing
If there is no writing a party may be able to recover under restitution

Why do we have Statute of Frauds

An evidentiary function that lessens the danger of perjury and
fraud Requirement of writing has a cautionary effect
Writing is an easy way to distinguish between enforceable contracts, channeling the
transactions into a written form
What types of contracts are within the SoF? (Hawaii SoF)
1. Charging a personal representative for damages out of their own estate
2. Charging any person for the debt, default, or misdoings of another (acting as a co-
signer) o Exception: When main purpose is self-serving – look at benefits
o Main Benefit Rule: Look at who is benefitting (Howard v. Holmdel)
3. Charging any person upon agreement made in consideration of marriage
4. Charging upon any contract for the sale of (real estate) lands, tenements, or
hereditaments, or any interest in or concerning them.
5. Charging upon any agreement where performance is to be more then a year in the future
from the making of the contract
o Policy: When courts last longer then a year it is possible to mis-remember
6. Charging upon any agreement authorizing or employing an agent or broker to purchase or
sell real estate for compensation or commission
7. Charging the estate of a deceased person upon an agreement, which by its terms is not to
be performed during the lifetime of the promisor.

UCC §2-201 Formal Requirements Under SoF

1. >$500 or more requires writing and signed by party or agent
o If a term is wrong or missing it does not mean the contract is invalid
2. Writing is adequate between merchants if the writing confirming the contract is received
and the recipient knows it’s contents
o Unless there is an objection givin within 10 days after it is received
3. A contract that does not satisfy (1) but valid in other respects is enforceable if
o The goods are custom made for buyer and the seller has started to make them
o The party against who enforcement is sought (∆) admits in court that the contract
for sale was made
o The goods have been received and accepted or payment has been made

What type of writing satisfies the statute of frauds §131-137

Reasonably identifies the subject matter (§131)
Sufficient to indicate a contract was made between these parties or agents (§131)
States with reasonably certainty terms of the unperformed promises in the contract
(§131) o Essential terms with reasonable certainty
Can be in different writings as long as one is signed, and they relate to each other
(§132) o Ex. A letter referring to the contract
Signature does not need to be hand written (§134)
Memorandum can be used before there is a formation of the contract (§136)
If memo was lost or destroyed an unsigned copy or oral evidence suffices (§137)

Past performance and the statute of frauds – Reliance in the form of past performance may
be sufficient to bar assertion of the statute of frauds as a defense
New Technology compels new concepts for commercial law – Electronically based transactions
Statute of Frauds and Electronic Contracting –UCC article 2 sales: “Signed and written”
Clicking I agree button should constitute signed – Discrepancies in later chapters.
 Howard M. Schoor Associates, Inc. v. Holmdel Heights Construction Co. (&Sugarman)
SC of NJ, 1975 (pg208)
Statute of Frauds – Category #2 – Exception Main Benefit Rule
Construction Case - ∆ holds stock and paid π
Facts: ∆ constructed homes and ∆ Sugarman owned 18% of capital stock and acted as attorney.
Π surveyed, engineered, and planned in connection to the development. There were unpaid
invoices and they had a conference to discuss them. ∆ personally agreed to pay outstanding bills
and future charges, he drew a check from his own account to show good faith and have π work.
Issue: Did ∆ make an enforceable oral promise to pay off π’s debt?
Rule: Falls into category #2 under Hawaii statute of frauds. Charging any person for the debt,
default, or misdoings of another. (Co-signing). Exception when the main purpose is self-serving.
Applying Rule: Was this a benefit for the ∆ or the company (self-serving)? Evidence, he owned
stock, had money invested in a corporation, and was making money off the corporation. Court
believes he had πs keep working because it was self-serving.
Conclusion: For π

Sterling v. Taylor
SC of Cali, 2007 (pg213)
Staute of Frauds – Sufficient Written Terms
Amount to be paid discrepency
Facts: π wrote out memorandum for sale of real estate property with Y price terms. Π said seller
line left blank was inadvertent, ∆ said on purpose. Π wrote a letter where both parties signed but
the price was not mentioned. ∆ sent a letter with X price, π said X was unacceptable, tried calling
∆ to fix, but never got an answer.
Issue: Does the price term agreed on lack certainty required by the statute of frauds?
Rule: Category #3, sale of real estate. Need essential terms with reasonable certainty. Can be in
different writings as long as one is signed and they relate to each other.
Applying Rule: IF this is to be enforced the ∆ is relying on the writing, π is relying on a formula
and the amounts are different. The essential terms, ∆’s is written out more clearly, court believes
this is meets the reasonable certainty required by the statute of frauds. Conclusion: For ∆

Dissent: The court is trying to resolve the ambiguity. Both have plausible explanations and
should go to the jury, it is not the court’s decision.

McIntosh v. Murphy
SC of Hawaii, 1970 (pg222)
Statute of Frauds – Category #5
Moved for a job from California to Hawaii
Facts: π accepts a job and moves to Hawaii from California (high costs). Job contract was
supposed to be 1 year, he was discharged after 2 and a half months.
Issue: Is this an enforceable contract, does it fall within the statute of frauds?
Rule: If it is over one year it must be in writing – statute of frauds
Applying Rule: Dates matter – if the contract is a year longer then the making of the contract it
falls within the statute of frauds. If they made the contract on the Saturday it is a fraction of a day
over a year. The court rules the contract started when he showed up for work on Monday instead
of their phone call.
Conclusion: For π
Dissent: Whether the contract of employment came within the statute of frauds, the date of the
accepted offer was a fact for the jury to decide. If the statute of fraud outcome is too harsh it is a
problem for the legislature to fix not the court.

Dumas v. Infinity Broadcasting Corp. – π negotiated employment opportunities through emails.

During a phone call they decided on a starting date, salary, and 5 year employment. After this a
new manager took over the radio station and did not hire π. Courts ruled for ∆ because of statute
of frauds – there was lack of written evidence not established by π. Statute of frauds also applies
to promissory estoppel, you need the writing.
A lot of courts follow this to prevent using promissory estoppel as a backdoor.

II. Remedies
Theories of damages

Lost Expectancy Damages - put π in position they would be in if ∆ performed contract fully
Restatement §347. cmt b. – Calculate expectation interest: First estimate the loss in
value to the injured party from the other party’s failure of or deficiency in performance.
A determination of the value of the performance to the injured party himself, subjective,
and based on his circumstances. This is a subjective standard.

Reliance Damages – to put π in original position if not for the promise

Restitution Damages – Damages to pay back anything π conferred on ∆ in reliance

Nominal Damages

Cost of completion – Cover Price – contract price = damages

Cost of completion compared to diminished value
o Contracts for personalized consideration are different then economic ones
o If there evidence showing what the party wanted? Will they pursue the condition
or pocket the money?
o Avoiding economic waste – Wide latitude when considering personal pref
o If there is too much disproportion courts might say deal with it and award
diminution in value

Cost of Cover – Getting someone else to do the job

Non-legal sanctions – sacrifice of something valuable to the breaching party.

Relationships specific advantage (or future
relationships) Loss of reputation
Sacrifice of (important/pleasurable) association or self-esteem (guilt)

§96 – Cannot recover greater damages for the breach of obligation then the party would have
gained by the full performance of both sides
§97 – Damages need to be reasonable not contrary to substantial justice
Injured Builders
Put in as good a position as if no breach by the owner. Then the builder gets net profit it
would have made plus any amount already spent in furtherance of the project.
The contract price minus cost of completion (Warner v. McLay)
KP = $10,000 Costs expended $3,500 CC $5,000
Lost profits plus expenditures = $1,500 + $3,500 = $5,000
Contract Price minus Costs Completed = $10,000 - $5,000 = $5,000

Employment Contracts
Injured Employers – Expectancy damages are the difference between the salary the
employer must pay the new employee and the salary the employer would have paid the
breaching employee.
o Must hire a reasonable replacement and attempt to obtain equivalent services are
the lowest possible cost
Injured Employees – If the employer wrongfully terminates an employee, the employee
gets an unpaid salary up to the time of the breach, plus the salary for the remaining
term.

#1-5 Have consideration

1. Remedial Theories & The Expectancy Rule

Groves v. John Wunder Co.

SC of Minn,1939 (pg241)
Expectancy damages for breach of an agreement with consideration

Facts: π owned 24 acres of real estate. Contracted with ∆ to remove sand and gravel, ∆ got π’s
screening plant.
Issue: What are the possible measures of damage here?
Rule: Lost expectancy damages – put π in position they would be in if ∆ performed the contract
Applying rule: The exchange constitutes as consideration. The measurable damages present are
the cost of the performance/ completing the breach and the diminished value of the lack from
lack of full performance.
Conclusion: For π
Dissent: π should be compensating only for loss caused by ∆’s failure to perform.
Take away: majority thinks plaintiff should recover for what the value would be if the project
had been completed as contracted for. Dissent is worried about unjust enrichment, should not
come out with more then you would have had if the contract was carried out.

Peevyhouse v. Garland Coal & Mining Co.

Facts: This was a strip-mining operation. ∆ is supposed to clean up when they leave. $29,000
worth of clean up increases the value of the land by $300.
Issue: What are the possible measures of damage here?
Rule: Cost of performance limited to the total difference in the market value before and after
work was performed.
Applying Rule: π wanted the profit from the coal. Does not make sense to spend that much
for such small value.
Conclusion: For π – Only the $300
 Rock Island Improvement Company v. Helmerich & Payne, Inc.
Ct of App, 1983
Remedies – Cost of performance
Mining Damage to the Land
Facts: ∆ leased two tracts of land for mining purposes. There was a reclamation clause in the
contract stating how the land should be restored to it’s condition prior to mining. ∆ sublet and did
not restore. Π wants damages necessary to reclaim the land.
Issue: Can the π receive damages to reclaim the land?
Rule: Reclamation Act (after Peevyhouse) – How land should be restored. Cost of performance.
Applying Rule: The parties expressly included a reclamation clause deciding who should bear
the cost. Π should receive cost of performance measure.
Conclusion: For π

Radford v. De Froberville
Chancery, 1977
Cost of performance
∆ did not build a wall – short case
Facts: π owned a house, broken up and leased to tenants, π had permission to build in the land
plot next door and sold it to ∆. Condition to build a wall and divide plot. ∆ did not build the wall.
Issue: What measure of damages is π entitled to? Rule: Cost of performance

Applying Rule: Court is granting the damages measure based on the cost of work.
Conclusion: For π

2. Making the Injured Party Whole and Efficient Breach

Efficient Breach
Most frequently applied in Sale of Goods context
Incentive to commit a breach - If the profit from A’s breach exceeds the expected profit to
B from completion of the contract, if the damages are limited to the loss of expected
profit.
Encourage breach when it makes one party better off, but doesn’t make another worse off

Thorne v. White
Dis of Colum Ct of App, 1954 (pg259)
Cost of Cover
Roof case
Facts: White contracted Thorne to put a roof on his residence; Thorne bought materials and
began work. He had to leave because of inclement weather, and took his materials away. White
had to get a new contractor, which cost him more.
Issue: Can Thorne recover for the difference in cost of the two contractors?
Rule: Cost of completion – cover price - contract price. OR cost of cover – getting someone else
to do the job
Applying Rule: Injured party should not be better off then if no breach occurred. Thorne was
fixing the roof, new contractor was creating a new roof – the second contract was different.
Conclusion: Should be receiving cover damages not cost of completion.
Morello v. J.H. Hogan, Inc. – ??? ∆ had π do work for $44,000. π abandons after doing
$9,411.87 worth. ∆ spends $54,365 to complete. ∆ won’t pay π for the partial work. π sues for
partial work and ∆ counter claims for the $10,356.36 difference. In TC ∆ receives the difference,
π gets nothing. AC said no – the work already done must be offset.
Rule: An injured landowner should recover the reasonable increased cost of cover and the total
new cover includes cost of any work original party did.

Freund v. Washington Square Press – ∆ agrees to publish π book and pay royalties based on the
percentage of sales. Does not publish. Should π get cost of publication of the lost royalties? Π
contracted for royalties – not copies of the book. He gets nominal damages because we cannot
calculate royalties.
Rule: Damages are not measured by cost of completion in all contexts, but by the natural and
probable consequences of the breach to the π.
Comparison – Wants to be treated like π in Thorne. Does not work because there is not a certain
amount of something. Goal is to provide what is lost from breach, π lost the royalties.

Warner v. Mclay
SC of Errors of Conn, 1918 (pg262)
Lost profits and expenditures
Owner of property is the breacher
Facts: π is the contractor and the ∆ owner breached. Π wants to recover for expenditures and loss
of profit.
Issue: What is the correct damage calculation?
Rule: Profit + expenses for work and materials
Applying Rule: π should get non-salvageable materials + profit. Contract price $10,000 +/-
$8,500 = damages. Money for non-salvageable was going to be covered by the cost of the work.
Holding: Contract price minus cost of completion/amount you must spend to fulfill your part of
the contract, AND any expenditure already made.
Take away: Where π has begun completion, damages are completed expenditures and lost profits

Handicapped Children’s Education Board of Sheboygan County v. Lukaszewski

SC of Wisconsin, 1983
Expectancy damages
Schoolteacher leaves early, new sub costs more
Facts: ∆ leaves her job to go to another after medical problems. She was on a contract and the π
sues her for the cost of hiring her replacement who costs more.
Issue: Can the school recover the difference in cost of the higher salaried teacher?
Rule: Expectancy damages are difference in salary between breaching party and replacement
Applying Rule: π can recover the higher sub’s cost if π had no choice but to hire that sub. ∆
argues the school got a better teacher and got an extra $1,000 worth of something. Court says
they might be receiving this added benefit, but the π still breached and π did not solicit benefit.
Conclusion: For π
Notes: This could have been an efficient breach. Benefit from breaching was better for her then
finishing the contract.
3. Market Price, Contract Price, and Foreseeable Damages

The UCC on Sale of Goods & Remedies

§1-106: General Principle
The aggrieved party should be put in as good a position as if the other party had fully
performed
§2-710: Seller can recover incidental damages
§2-713: Buyers Damages for Non-Delivery or Repudiation:
Damages here should be the difference between market price and contract price, minus
any expenses saved by the non-performance
Market price comes from place of tender or place of arrival if the rejection occurs after
arrival
§2-712: Cover
Buyer can cover by making in good faith and without reasonable delay any reasonable
purchase of or contract to purchase goods in substitution for those due from the seller
[Luka, Thorne]
Buyer can 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 expense saved because of the breach.
§2-708: Seller’ s Damages from Repudiation:
The amount due to seller if the buyer repudiates is the difference between market price
and the unpaid portion of contract, minus expenses saved by non- performance
If this doesn’t put seller in as good position as if there were performance, then damages
are profit (including reasonable overhead) seller would have made by performance
plus
costs reasonably incurred, minus proceeds for re-sale (the lost volume provision)
§2-706: Seller Resale:
Seller can re-sell goods or the balance thereof. Where done in good faith and in a
commercially responsible manner, the seller can get the difference between the re-sale
price and the K price, but less expenses saved in consequence of the breach
§2-714: Buyers’ Damages for Breach Regarding Accepted Goods:
Where the buyer accepts the goods and they arrive but are in non-conformity with what
was agreed upon, he can recover as damages for this non-conformity, in “any manner
reasonable”
The measure of damages for breach of warranty is difference at the time and place of
acceptance between value accepted and value they would’ve had if as warranted, unless
special circumstances show proximate damages of a different amount
Where appropriate, incidental and consequential damages can be recovered too

Lost Volume Seller

Supply is greater then the demand
Can always get another one of those articles for the next
buyer No reason you cannot supply a buyer after this buyer
breaches Lost profit because you had two of the same type of
sales
o Standardized goods usually have the same price when supply exceeds demand

Consequential damages §2-715 – Include 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 other wise.
 Particular needs of the buyer must be made known to the
seller Tacit agreement test is rejected

Restatement §351(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 IF it concludes in the
circumstances justice so requires in order to avoid disproportionate compensation.

Cooper v. Clute
SC of NC, 1917
Market Price v. Contract Price
Cotton Not Delivered
Facts: π is supposed to deliver cotton at 10 7/8 cents per pound. ∆ failed to deliver on the date. At
the time market value was the same as contract value.
Issue: When market price is the same as contract price is π entitled to ∆’s profit at π’s expense.
Rule: Proper damages for failure to deliver are the difference between contract and market price.
Applying Rule: Market price here is the same as the contract price, should just sell it. When π
can recover at market price without lost profit there is only nominal recovery Conclusion:
No, For ∆.

Neri v. Retail Marine Corp.

Ct of App NY, 1972
Lost Volume Seller
Bought boat, then needed surgery
Facts: π is buying a boat and then needs surgery, π rescinds the sale contract. ∆ was able to sell
the boat to someone else for the same price, but still wants to recover the lost sale.
Issue: Is the ∆ a lost volume seller?
Rule: Where the supply of a product is unlimited, the buyer’s breach depletes the dealer’s sales
to the extent of one, and the measure of damages should be the dealer’s profit on one sale.
Rule: §2-708(2) – You get your profit and the damage.
Applying Rule: Resale price is inapplicable for a lost volume seller. ∆ is saying he could have
sold 2 boats instead of one.
Conclusion: For π

Hypo – W.T. is selling her car. Buyer backs out and W.T. gets a new buyer.
Is she a lost volume seller?
No because she only has 1 car

Hadley v. Baxendale
Ct of Ex, 1854 (pg281)
Lost Profit
Mill shaft breaks
Facts: Mill shaft breaks and is taken for repair. Not clear if they conveyed to the common carrier
that π needed it back by a certain time. The shaft is delayed costing π to lose profits and had to
shut down mill for a few days.
Issue: Can π recover for lost profit?
Rule: Damages must arise naturally from the contract. Consequential damages must be
reasonably foreseeable from the breach or from a reasonably foreseeable consequence of the
breach at the time of making the contract.
Applying Rule: The damages here were too remote to be reasonably foreseen by common
carrier. If it is not directly related to the contract, the retailer should not be responsible for
something they did not bargain for when contracting. This is not a natural Conclusion:
For ∆

Courts will not award consequential damages for breach unless the damages fall into one of the
two cases
Those that were foreseeable by a reasonable person (objective standard)
Those that were remote or unusual, but defendant was on actual notice of the
possibility of the consequences
Parties can allocate this risk in an express agreement

Armstrong v. Bangor Mill Supply Corp.

Maine SC, 1929 (pg286)
Consequential damages
Mill breaks here too – different outcome
Facts: ∆ did not repair a crankshaft from the π’s mill in a workman like manner. The π had to
shut down the mill for 6 days and lost earnings and expenses of maintenance. Issue: Can the
π recover damages?
Rule: If one has the reason to know delay’s cost there will be consequential damages to the
delay.
Applying Rule: The expectancy is recoverable here (unlike Hadley) because this was a repair
person and should have known the profits would be lost
Conclusion: For π

4. Avoidable Consequences and Definite Damages

Lamkins v. International Harvestor Co.

Holding: Court can mitigate damages for foreseeable loss

Loss of Profit - International Sale of Goods Article 74 – Damages for breach of contract is the
sum of the loss, including loss of profit. Damages cannot exceed loss foreseen or ought to have
foreseen (objective standard) at time of the conclusion of the contract based on the facts known
or should have known (objective standard), as a possible consequence of a breach of contract.

Mitigation of Damages - International Sale of Goods Article 77 – A party relying on breach of

contract must take measures reasonable in the circumstances to mitigate the loss. This includes
the loss of profit. If seller fails to take measures the ∆ can claim a reduction in damages for the
amount that should have been mitigated.

Principle of Mitigation – When a contract is breached the non-breaching party has an affirmative
duty to take reasonable steps to mitigate his damages

Marsiglia v. Clark (flipped)

SC of NY, 1985 (pg288)
Mitigation of damages
“Painting restoration case” – told to stop and kept going
Facts: π was employeed by ∆ for restoration of paintings. When π was halfway through ∆ asked
him to stop, but π completed the work. ∆ is not disputing paying for the first painting, but claims
he should not have to pay for the cost of completion because when he asked him to stop he
continued working anyway.
Issue: Can π recover for the cost of completion or just the expenses up until the breach?
Rule: π must act reasonably after ∆’s breach to minimize his own loss
Applying Rule: π has a duty to avoid losses. Expenses (non-salvageable) + profit. Mitigation of
damages principle he can only recover up until he was told to stop. Π can receive compensation
for labor done, materials used (and non-salvageable), and the sum for the breach of contract).
Conclusion: For ∆

Schiavi Mobile Homes, Inc. v. Gironda

SJC Maine, 1983 (pg290)
Mitigation of damages
“Father offers to buy mobile home case”
Facts: ∆ signed a contract with π to purchase a mobile home, ∆ breached. ∆’s father offered to
buy it or do whatever was necessary for his son not to lose his deposit; π said this would not be
necessary. Π sold for $4,800 less and sued for loss of profit and interest expenses. Issue: Did π
try to mitigate damages?
Rule: When a contract is breached the non-breaching party has an affirmative duty to take
reasonable steps to mitigate his damages.
Applying Rule: π did not pursue the father who said he would purchase, π had a reasonable duty
to pursue the buyer. Failure to sells bars interest recovery.
Conclusion: For ∆
Additional: If father had not offered to buy he also could have argued he was a lost volume seller

Parker v. Twentieth Century-Fox Film Corp.

SC of Cali, 1970 (pg293)
Mitigation of Damages
Actress contracted for a drama second offer is a western
Facts: π was to play a role in ∆’s movie and be compensated for $750,000 for 14 weeks. The film
was cancelled and π was offered a different role with almost identical contracts – type of film
and place shooting were different. Π did not accept the new offer.
Issue: Did π try to mitigate damages?
Rule: When a contract is breached the non-breaching party has an affirmative duty to take
reasonable steps to mitigate his damages.
Applying Rule: The π has a duty to mitigate – for it to be reasonable here had to be comparable
or substantially similar (could not be inferior or substantially different). Majority believes the
jobs here were different.
Conclusion: For π
Dissent: Did she reasonably turn this down? Believes a jury should decide if the new job was
substantially different or inferior. Need more facts are changes substantial specifically to her?

Michael Jordan v. In Re Worldcom, Inc.

Bankruptcy SDNY, 2007 (pg302)
Mitigation of Damages v. Lost Volume Seller
“Michael Jordan case”
Facts: MCI and Jordan entered into an agreement. They could use his name and attributes to
promote products for 10 years. After 5 years Jordan sues for money owed. Issue: Is Michael
Jordan a lost volume seller or did he not mitigate his damages?
Rule: When a contract is breached, the non-breaching party has an affirmative duty to take
reasonable steps to mitigate his damages. Lost volume seller loses profit when they have an
unlimited supply and two of the same types of sales (ex. Boat).
Applying Rule: Jordan did not want more endorsement deals, and is calling himself a lost
volume seller. This argument failed. Jordan did not mitigate his damages – need to determine
further what he could have received if he made reasonable efforts to mitigate.
Conclusion: For ∆

Evergreen Amusement Corp. v. Milstead

Ct of App Maryland, 1955 (pg306)
Lost Expectancy for profits
“Drive in movie theater case”
Facts: π is a drive in movie-theater suing ∆ contractor who was slow in completing work and
cost them a month and a half in profits.
Issue: Can π recover for profits they would have received if the theater had been open?
Rule: Limitation on damages - they need to be certain
Applying Rule: This place had not gone into business yet so we do not know what they would
have made. Cannot be based on assumption.
Conclusion: For ∆

Punitive Damages in Contracts – Punitive Damages are not recoverable for a breach of contract –
only recoverable if can recover under tort.

Qualifications and limits on Lost Expectancy Recovery [Did not go over]

Medical Context – Can deny lost expectancy in medical
cases Denial for loss of reputation or good will
o To recover for goodwill (loss of reputation and return of customers and their
sales) must show
 A loss of good will occurred
 Objective proof of the amount of the loss
 The loss was caused by opposing party’s breach
Wrongfully discharged lawyers – can recover the reasonable value of their services up to
the date of the discharge
Denial of attorney’s fees – Generally winning party cannot recover attorney’s fees.
5. Reliance Damages and Liquidated Damages

Reliance Damages – Puts the π in as good a position as he was in before the contract was
made. The court usually awards the π his out of pocket costs incurred in the performance. Π
does not recover profits he would have made had the contract been completed.
Used when it is impossible to measure expectation interests
Normally cannot exceed the contract price or expectancy damages (Exception,
Nurse) Π normally cannot recover expenditures made before the contract was signed.
Damages are calculated based on cost to the π
Essential Reliance – Performance, preparation to perform
Incidental Reliance – Natural and foreseeable costs of a contract

Nurse v. Barns – Profit + Expenses = lost expectancy. Even if the reliance is greater than simply
the bargained for exchange, courts will award the reliance.

Chicago Coliseum Club v. Dempsey

App Ct of Illinois, 1932

Facts: π promotes is promoting a public boxing exhibition in Chicago, ∆ is a world champion

heavy weight boxer. Π contracted Harry Wills to a boxing match against ∆. H.W. entered days
before ∆. ∆ told π he was preparing for another match, which violated their agreement Issue:
Can π get recover fees for lost profit or expenses incurred before the breach?
Rule: Expenses incurred in reliance on the contract made in furtherance of performance are
recoverable. Can only recover on damages, which naturally flow from and are the result of the
act complained of.
Applying Rule: Loss of profits – Not recoverable here because they are speculative and not
certain. Expenses incurred prior to signing the agreement – H.W. signed before Dempsey, cannot
recover for pre-expenses, not recoverable because the breach did not induce the detriment. Π can
also not recover for money incurred trying to get ∆ not to breach the contract. This is like the
painter case, after breach cannot recover expenses when you are choosing to keep spending.
Conclusion: For ∆

UCC §2-718(1): Liquidated Damages

Allowed only in a reasonable amount in light of the anticipated or actual harm, or
the difficulties of proof of loss
Terms (clauses) fixing unreasonably large liquidated damages is void as a penalty
UCC says actual damages are awarded where liquidated damage amount is too
high
(a) – Reasonable for the anticipated or actual harm caused by the breach

- Meant to prevent penalties

- Liquidated damage clauses do not have a sliding scale, little/huge breaches have same penalty

Two Part Test (McGrath):

The fixed amount is reasonable for the damages of the breach?
What is the harm of the breach? Look at difference between the contract and market price
 H.J. McGrath Co. v. Wisner Ct of App Maryland, 1947 (pg338) Validity of Clauses for Specific
Monetary Remedy “Farmer and Tomatoes Case”

Facts: ∆ agreed to grow tomatoes on six acres of farm and sell and deliver to π at a fixed price.
There is an agreed upon damage clause. The ∆ chose to sell on the open market because he made
more money this way.
Issue: Is the damages clause enforceable?
Rule: Liquidated damages clause cannot be a penalty and must be in proportion to the real loss.
Applying Rule: First need to look at the damages of the breach, is it reasonable? This is not
reasonable because it is a penalty this was not an estimation. Second, what is the harm of the
breach? Need to look at the differential between the market price and contract price. The Clause
fails both components of the test.
Conclusion: For ∆

Policy Reasons – Penalties do not support the goal of damages. Damages are to make the other
party whole.

Truck Rent-A-Center, Inc. v. Puritan Farms

Ct of App NY, 1977 (pg340)
Liquidated Damages Clause
Milk Trucks
Facts: ∆ leased 25 trucks from π for seven years. The lease includes a damages agreement. After
three years ∆ tried to terminate the agreement because the trucks were not being repaired or
maintained as agreed in the lease.
Issue: Is the liquidated damages agreement enforceable?
Rule: Liquidated damage amount must be in reasonable proportion to the probable loss and the
amount of loss must be incapable or difficult in precise estimation.
Applying Rule: These are used trucks and there might not be a market for them after the breach
because the milk market is dying. Here there is a reasonable estimate of damages.
Conclusion: For π

Courts do not always like to award liquidated damages in the absence of actual damages.

Vanderbilt v. DiNardo
SC 6th Cir., 1999 (pg347)
Liquidated damage clause
Football Coach case
Facts: π hired ∆ to be the head football coach. The contract stressed the long-term commitment
and they agreed on a liquidated damages provision. If ∆ left early he would have to reimburse the
remaining salary. LSU offered ∆ head coach position and he accepted.
Issue: Is the liquidated damages clause enforceable?
Rule: Liquidated damage amount must be in reasonable proportion to the probable loss
and amount of loss must be incapable or difficult in precise estimation.
Applying Rule: π argues liquidated damages clause should be applied. Had to recruit a new
coach, and the harms are will lose donors and recruiting. ∆ argues it should be the difference
between the new coach’s pay and his.
Conclusion: The provision is enforceable because it was a reasonable estimate of damages.
Dissent: The award seems punitive. The portion of the coach’s salary has no relevance to the
actual damages suffered by the team.

Rinaldi – A clause cannot limit the remedy

Hillman – These people are in private agreements with equal representation, why are we hung up
on liquidated damages.

6. Remedies for Promissory Estoppel and Restitution

Restatement § 90 – Promise Reasonably inducing action or forbearance: A promise which the

promisor should reasonably expect to induce action or forbearance on the part of the promisee or
a third person which does induce such action or forbearance is binding if injustice can be avoided
only by enforcement of the promise. The remedy granted for breach may be limited, as justice
requires.
(d) On amount of remedies:
Full-scale enforcement by normal remedies is often appropriate
Relief can be limited to restitution or to damages or specific relief measured by extent of
reliance (and not terms of promise)

Recovery in reliance - When recovering in reliance you can only recover the amount you spent
on the promise, your “change in position”.
Reliance needs to be reasonably justifiable

Dicker v. Goodman (reversed)

DoC, 1948 (pg357)
Promissory Estoppel Damages
Radio equipment case
Facts: π are distributors of Emerson Radio and Phonograph Corporation. Π encouraged ∆ to
apply for a dealer franchise to sell Emerson products. Π led ∆ to believe application had
been accepted. ∆ franchise was not granted (∆ relied on π to their detriment).
Issue: Can π recover damages under their reliance (promissory estoppel)?
Rule: When recovering in reliance you can only recover the amount you spent on the promise,
your “change in position”.
Applying Rule: There was a foregone opportunity; if I knew this was not going to go through I
could have been in a contract with someone else. This is also recoverable under promissory
estoppel. Π can recover for the extent he has paid for already (not for expected profits).
Conclusion: For π

Stout “General” v. Bacardi Imports, Inc.

Ct of App 7th Cir., 1991 (pg359)
Promissory Estoppel Damages – Reasonable Reliance
Π is selling company case
Facts: π was selling company and asked ∆ to stay on with them during the negotiation. ∆ agreed
to the promise, but breached. Instead of being able to sell for over $1, only sold for $500,000
Issue: Can π recover reliance damages for the change in their position?
Rule: When recovering in reliance you can only recover the amount you spent on the promise,
your “change in position”.
Applying Rule: Reliance was unreasonable, if you know ∆ can leave at any time, should not be
relying on them. There needs to be reasonable justifiable reliance. There is also no identifiable
specific forgone opportunity.
Conclusion: For ∆

Walters v. Marathon Oil Co,

Ct of App, 7th Cir., 1981 (pg362)
Lost Opportunity
Gas station and gasoline case
Facts: ∆ broke a promise to supply oil to π after π improved a gas station in reliance on the
promise. ∆ claims the land has greatly increased in value and the π made up their costs.
Issue: Can π recover lost profits in promissory estoppel?
Rule: Lost expectancy can be awarded (value of promise) – but not lost profits.
Applying Rule: The lost profits here are lost opportunity. It was reasonable to assume they
anticipated a return of profits from the investment of time and funds on reliance of ∆’s promise.
Conclusion: For π

Restitutionary relief – monetary remedies and certain forms of specific relief

Restatement §371 – Measure of restitution of interest: If a sum of money is awarded to protect

a party’s restitution interest, it may as justice require to be measured by either
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
The extent to which the other party’s property has been increased in value or his other
interests advanced.

Measurement of benefits
The first on is usually based on market price of
substitutes The court has lots of discretion on which to
choose
Court can consider the purposes of the recipient of the benefit when he made the contract
even if those purposes were later frustrated or
abandoned Choosing the measure
The party seeking restitution usually gets the more generous, unless it is tough to apply,
or that party is in the breach

Restitution pays the π an amount equal to the benefit, which the ∆ has received from the π’s
performance.
Used
o When the non-breaching π has partly performed before the ∆ breached AND the
restitution measure if greater then the contract price OR
o When a breaching π has not substantially performed, but is allowed to recover the
benefit conferred on the defendant
Not available
o If π has fully performed
o Once work is completed you cannot go off the contract to recover under
restitution

Non-breaching party confers a benefit under a losing contract (negative expectancy)

Restatement §373: Losing Contracts cmt (d)
When there is performance in part the injured party wants expectancy damages because
it will include net profit and is bigger then mere restitution
When π cannot prove net profits asks for reliance interest to compensate for
expenditures When π would have sustained loss, restitution may be bigger then
expectancy or reliance Gives π right to gain more in restitution then damages

Restatement §374 on Unjust Enrichment for Breaching Party:

If there is unjust enrichment, restitution to the party seeking it will be limited by the other party’s
increase in wealth.
If a value cannot be put on it, the party cannot
recover When contract price is evidence, but not
conclusive
Breaching party cannot ever recover more then contract price

Realmark Developments, Inc. v. Ranson

Holding: The measure of damages can be either the quantum meruit value of the π’s labor and
materials OR the value of the enhancement to the ∆’s property

US for use of Susi Contracting Co. v. Zara Contracting Co.

Ct of App 2nd Cir., 1944
Unjust Enrichment
Construction clay case
Facts: π brings case for the US against ∆’s for work done and equipment given to ∆ in
performance. The contract allocates the risk to π. After excess clay makes work more time
consuming and difficult, π stops, ∆ terminates, and claims breach
Issue: Is π entitled to restitution for the work done?
Rule: Suing for unjust enrichment off a contract, the contract prices can serve as a guide for true
value of unjust enrichment to the ∆, along with the market price and expert opinions.
Applying Rule: Once a contract is breached, breaching party can still recover reasonable value of
the work performed under unjust enrichment.
Conclusion: For π

Oliver v. Campbell
Facts – π is a lawyer and agreed to represent ∆ in a divorce proceeding. ∆ discharged π when his
services were essentially complete. Judge had indicated an intention to grant a divorce. Π was
paid $550, his services were found to be worth $5,000
Holding: π can recover because the contract has been rescinded and he can recover the
reasonable value of his services performed even though they exceed the contract
price.

Can the non-breaching party recover damages exceeding the original contract?

City of Philidelphia v. Tripple

Facts: There was a contract to make the foundation of a firehouse. Difficulties arise and the
contract period passes, but ∆ allows π to continue. ∆ becomes unhappy and requests π to stop.
Holding: The non-breaching party can recover labor/material, less payments, even if the damages
exceed the contract price (losing contract). W/o breach of contract, price is limited to restitution.
Contrasting Opinion: City of Philadelphia with Johnson
Johnson v. Bovee
Facts: π agreed in a contract to build a house for ∆ according to a specified set of plans for
$47,176. Π and ∆ agreed to many deviations of the original plans. ∆ became dissatisfied
and stopped making payments to π. Π stopped work and sued.
Holding: Non-breaching party in a losing contract cannot recover exceeding damages through
restitution; they are limited to the price ceiling plus extras.
W.T. disagrees: If parties bargained for contract, why not be held to it and pay full restitution.

Osteen v. Johnson
Colorado Ct of App, 1970 (pg382)
Non-breaching π confers a benefit, but cannot prove lost expectancy
Aspiring singer case
Facts: ∆ is a promoter, does not complete tasks under contract to the π who is an aspiring singer.
Issue: Can π recover even though they cannot prove lost expectancy?
Rule: Restitution requires non-breaching π to receive back payment, minus the benefit received.
This only applies if there is a substantial breach.
Applying Rule: This is a material breach and restitution is amount is paid minus reasonable value
of services performed. The expectancy is not possible to calculate because fame if the object and
it is impossible to value. Π gets restitution minus reasonable value of services performed.
Conclusion: For π

When π confers a benefit but the contract is unenforceable

Rule: Restitution relief may be granted to a party who’s agreement is unenforceable, usually no
matter the grounds of unenforceability.

7. Specific Performance

Specific Performance
The court will award equitable remedies instead of money damages
Decree that orders the promisor to render the promised performances
OR Injunction which directs a party to refrain from doing an particular
act

Real property
Land is inherently unique
It’s value is too speculative, the harmed party may be unable to prove
damages Buyer is entitled to specific performance
If buyer is supposed to sell to C, but sells to D instead C gets reliance $ and D gets
land Seller gets specific performance for unpaid purchase price
Idaho Rule: The court will grant specific performance only to a vendee who can show
particular unique purpose – for which he or she wanted the land

Personal Property
Courts will not grant servitude
Not a normal remedy – must show this is an adequate remedy
Sale of Goods
UCC §2-716: Buyer’s right to specific performance (or replevin)
(1) Specific Performance may be decreed where goods are unique or in other proper
circumstances.
(2) Specific Performance may include terms and conditions to payment of price, damages
or other relief

When to Apply – When there is no adequate remedy of law

When damages are not adequate
o Money cannot purchase a substitute for the contracts for
performance o Injury cannot be estimated with certainty
Incapacity of π to cover their losses can be traced to the ∆’s non
performance When the goods are unique specific performance is appropriate
(ex. Chairs) Courts have wider latitude in fashioning SP then for money
damages
TB Mississippi Approach – Cannot be obtained elsewhere, would be a considerable expense,
trouble or loss cannot be estimated.

Defenses to specific performance

Unfairness
o Duress, undue influence, post contract unconscionability, unfair advantage taking,
non-disclosure, inadequacy of consideration, misrepresentation, mistake.
Lack of mutuality of performance
o ∆ needs to be reasonably assured of π’s return performance
o Ex. If π’s financial situation is shaky
o Other side might have to post
bond Indefiniteness of the agreement
o Indefinite or imprecise to serve as the decree of specific performance
o Courts are reluctant to
grant Impracticality of
Performance
o Difficulty in enforcement or supervision
o Doing X would create more
problems Personal services
o Cannot grant for personal services
o 13th amendment
concerns Employment
o Same as personal services, except in wrongful firing

Kitchen v. Herring
SC of NC, 1851 (pg387)
Specific Performance / Land
Sold Timber
Facts: ∆ contracted with π to sell land. ∆ cut down timber and sold to another, which was the
chief value of the land.
Issue: Cant π be granted specific performance for the loss of the timber?
Rule: Vendee (buyer) of land is entitled to SP, absent a defense because land is unique.
Applying Rule: Here π was buying land, which is inherently unique. Specific performance is
awarded because land is peculiar and has peculiar value
Conclusion: For π (gave specific performance damages)
W.T. Talked about Idaho Court Rule from TB
Idaho rule – here would have to show what they wanted the timber on the land for, otherwise
probably would have just gotten damages

Curtice Brothers Co. v. Catts

Ct of Chancery NJ, 1907 (pg389)
Specific Performance / Personal Property
Tomato Canning Factory
Facts: π has a tomato-canning factory. The capacity of the plant determines how much acreage of
land they secure in advance because there is only a six-week season, which is essential to
packing at the plant. ∆ breached contract to sell tomatoes.
Issue: Can π recover specific performance for the tomatoes from ∆ breach of contract?
Rule: Special performance is used for personal property if comparable property cannot be found
on the market.
Applying Rule: Preparations are based on the capacity of the plant. 1 million cans of tomatoes is
unusual. They only have 6 weeks to get this done and all the operations were prepared in
advance and done (cans, labor, factory). W.T. There might be reputational harm, no one will
order cans from them next year. The contracts are operating together, if ∆ breaches π is forced to
breach.
Conclusion: For π

Curran v. Barefoot [Did not go over in class]

Facts: ∆ owned a lake house and sold it to π. The contract was for a furnished lake house and
included personal property to be conveyed. ∆ breached.
Issue: Can π recover specific performance for the furnished items in the contract?
Rule: Remedy for breach of contract for the sale of personal property is actionable at law.
Applying Rule: The ∆ conveyed to sell a furnished home. Totaling $550,000 in damages.
Specific performance here provides a complete remedy – damages are hard to figure out because
these are used items, what are they worth now, can you get the same items on the market?
Conclusion: For π

Dorsey Trailer Co.

Holding – Scarcity of a chattel is an important factor in determining if specific performance of a
contract for it’s sale will be granted.

Stephan’s machine & tool, inc. v. D&H Machinery Consultants, Inc.

Facts: π bought a machine from ∆ and borrowed $96,000 to pay for it. Machine did not work and
∆ agreed to replace the machine but did not. π could not afford another machine.
Issue: Is π entitled to specific performance to enforce ∆ to replace the machine?
Holding: Yes, under specific performance. Π could not pay back the borrowed money or get
another machine elsewhere. For π, there was irreparable harm and no adequate remedy at law.
W.T. Even when there is a market you can get specific performance if the facts allow it, here ∆
agreed to replace the machine but failed to do so.

Laclede Gas Co. v. Amoco Oil Co.

Facts: π and ∆ were in a long-term agreement to distribute gas to residential developments.
Residents applied through π and ∆ would supply. ∆ terminated the agreement.
Issue: Can π recover specific performance for the breach of contract?
Rule: Specific performance can be ordered even though personalty (chattel) is involved.
Restatement – Remedy at law must be adequate to defeat the grant of specific performance and
must be certain to prompt complete and efficient to attain the ends of justice as a decree of SP.
Holding: Since this was a long-term agreement, π will have a hard time finding a new contract,
∆ falls within the practical approach, specific performance is granted.

Pratt Furniture Co. v. McBee

Fake case (pg398)
Specific Performance / sale of goods
“Chairs and Tables case”
Facts: π is a furniture wholesaler based on Vermont. ∆ was to manufacture and sell to π 90,000
chairs at $10.00 per chair; ∆ profit would be $180,000. ∆ got an order for tables where he could
make $350,000. There are other manufacturers who can produce the chairs, ∆ is the only one
who can manufacture the tables, this is an efficient breach for ∆, he makes the tables. Issue:
Can π recover for specific performance?
Rule: UCC §2-716(1) Allows for specific performance where the goods are unique in other
proper circumstances.
Applying Rule: Chairs are not unique, there were others who could produce the chairs. Can come
up with money damages $90,000.
Conclusion: For π
Concurring – This is about efficient breach
Dissent – Should give π profit ∆ is receiving. Contract law should not be tolerant of
non-performance. There is a possibility the chairs have a higher value of use.
W.T. – Courts do not allow efficient theft, why do they allow efficient breach?

III. Agreements and Promises

1. Nature of Assent

The nature of assent – A bargain requires meeting of the minds

Objective standard – focuses on reasonable belief of hearer
Reliance is not needed to be bound to the agreement (however, encourages
reliance) Families – presumption of gratuitous nature – but can still contract
Contradictory terms – if one party has subjective intent not to contract, the court will still
uphold the contract if they are objectively inducing another party
Mistake – can be upheld under objective mutual assent

Meant to protect promises and provide remedies for reliance on statements (often in form of
lost expectancy damages).
Corbin on contracts – When the subject matter of agreements is typically enforceable by an
agreement, the court will look with distaste at provisions that exclude all sanction and remedy.

Restatement §20 - Effect of Misunderstanding.

(1) There is no manifestation (appearance) 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 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 on of the parties if
a. That party does not know of any different meaning attached by the other, and the
other knows the meaning attached by the first party; OR
b. That party has no reason to know of any different meaning attached by the other,
and the other has reason to know the meaning attached by the first
party Restatement §201 – Illustration.
A agrees to sell and B to buy a quantity of eviscerated chicken. A tenders stewing
chicken, but B rejects on grounds that the contract calls for boilers
Both parties make a claim for damages, both claims fail
Each acted in good faith, neither had reason to know of any difference in meaning

Embry v. Hargadine McKittrick Dry Goods Co.

Ct of App Missouri, 1907 (pg436)
Nature of Assent / Objective Standard
Listening: employee – Speaking :boss
Facts: π was an employee for ∆, contract was about to expire. Π claims they had a renewed
contract for another year with the same terms, ∆ claims they did not. Issue: Do the parties
have a contract irrespective of the intent of the ∆?
Rule: The nature of assent is an objective standard from the hearer’s position. Not the intent of
the speaker.
Applying Rule: Looking at the reasonable meaning of words and acts. W.T. seemed like he was
brushing him off when he told him to get back to work. Look at the different language and
reasonable interpretation.
Conclusion: For π
Lucy v. Zehmer
SC of App Virginia (pg441)
Nature of Assent/ Objective Standard
Contracted for a farm in a bar on a bar tab
Facts: π wants to buy ∆’s farm. Π previously made an oral offer, which was rejected. There was a
contract written while both parties were in a bar. ∆ claims he was already drunk and it was not
serious, ∆ did not believe he had the money for it. Π claims the contract had words spelled wrong
and not his normal handwriting. ∆ said there was a rewrite before signing.
Issue: Was there assent from both parties on the contract?
Rule: Statute of frauds – since this is land there needs to be a written contract.
Rule: Objective assent is found if the buyer reasonably and honestly believes the seller
is assenting to selling the land.
Applying Rule: The husband and wife signed the deal. ∆ said no to selling the farm before. Did
not accept a deposit. Land is special, this was causally written on the back of a bar tab. They
were drinking whiskey, but ∆ wife said to drive π home. They were under discussion for 40
minutes, they wrote 2 agreements. Π got the money and a lawyer. Summary: Words and actions
warranted a reasonable person to believe there was an intended contract to sell the farm.
Conclusion: For π
W.T. Why couldn’t they give him reliance damages instead of the land (good exam issue)
 Morrow v. Morrow
Ct of App Oklahoma, 1980 (pg453)
Nature of Assent/ Family relations
Sister cares for dying mother, calls it a contract
Facts: While a family member was on their deathbed there was an oral agreement to sell property
as payment to π for their services of care to their mother. Issue: Was there mutual assent for a
contract to be made
Rule: When families are parties there is a presumption there is a gratuitous nature. The plaintiff
has the burden of proving objective outward assent by all parties to contractual duties. Applying
Rule: Here, caring for a dying mother, this is typically gratuitous. Family members do things
out of the goodness of their heart, for appreciation, or as a duty. Π did not show this was meant
to be contractual.
Conclusion: For ∆

Tilbert v. Eagle Lock Co.

SC of Err of Conn, 1933 (pg454)
Nature of Assent/ Contradictory
Company tries to keep widow’s benefits
Facts: π’s husband was an employee of ∆, he was issued a certificate of benefit which was still
good at the time of death. Certificate said if you stay for 5 or more years your family will get
a benefit. Also states this is not a contract. Π was not notified of any attempt of cancellation.
Issue: Was there assent to a contract?
Rule: The court can find objective assent even if one party’s subjective intent is not to contract if
the party objectively induces another to contract and π reasonably relies.
Applying Rule: Court is saying this is either misleading people, or it is a contract. ∆ was
getting better workers and working for 7 years was acceptance of the promise. Conclusion:

W.T. They should have called this a gift if they did not want it enforced

Corbin – provisions that exclude all sanction and remedy the court will review with distaste.

Cargill Comission Co. v. Mowery

Facts: There were telegram negotiations for the purchase of wheat. Π understood the agreement
to be for $35,000 bushels, ∆ offer was only for 3,500 he made a typo for an extra 0. Π already
resold 35,000 to the market before ∆ corrected him.
Issue: Was there mutual assent?
Holding: This is enforceable because of the π’s reliance on the deal. If the π had not relied there
would be a different outcome because there is a reasonable person standard, a reasonable person
should have saw the price and knew there was a mistake.

Raffles v. Wichelhaus
Ct of Exchequer 1864
Nature of Assent
Peerless case
Facts: ∆ asked π to make a delivery on “Peerless”, but there were two peerlesses. On left in
October and one left in December.
Issue: Does the ambiguity in the contract create misunderstanding and invalidate assent?
Rule: §20 (1) (a)
Holding: Yes, the contract is not enforceable. The term here does not seem ambiguous on the
face. Latent ambiguity is different then face ambiguity. There is not assent of the minds because
they were thinking about two different ships

Hypo – Who wins if the buyer is thinking October peerless and the seller is thinking December
peerless IF both ships will arrive at the same time. Seller would win because there is not an
injury to the buyer.

Dickey v. Hurd
Facts: π won’t sell, claiming his offer required payment by the date, π thought it was just
acceptance by that date.
Issue: Did the offer require just acceptance or payment?
Rule: §20 (2)(b)
Holding: Where the offeror knows of the other’s misunderstanding to the contract terms and does
not act, the offeree acting based on misunderstanding will not invalidate the contract.

Miunderstanding v. Mutual mistake

What is the difference between the mistake and the misunderstanding?

2. The Offer

An enforceable contract is a bargained for exchange – This can take the form of an offer and
acceptance

A valid offer must be

Clear
Definite
Explicit – Leaving nothing open to negotiation

UCC 2-204(3) - Even though one or more terms are left open a contract for sale does not fail for
indefiniteness if the parties have intended to make a contract and there is reasonable certain
basis for giving an appropriate remedy
UCC 2-311(1) – Contracts for sale that are sufficient under UCC 2-204(3) are not made invalid
because they leave out particulars of performance to be specified by one of the parties. Such
specification must be made in good faith and within limits set by commercial reasonableness

UCC §2-201 Formal Requirements Under SoF

1. >$500 or more requires writing and signed by party or agent
o If a term is wrong or missing it does not mean the contract is invalid
2. Writing is adequate between merchants if the writing confirming the contract is received
and the recipient knows it’s contents
o Unless there is an objection given within 10 days after it is received
3. A contract that does not satisfy (1) but valid in other respects is enforceable if
o The goods are custom made for buyer and the seller has started to make them
o The party against who enforcement is sought (∆) admits in court that the contract
for sale was made
o The goods have been received and accepted or payment has been made
Corbin – An offer is an expression by one party of assent to certain definite terms, provided the
other party involved in the bargaining transaction will likewise express assent to the same terms.

Leftkowitz v. Great Minneapolis Surplus Store, Inc.

SC of Minn, 1957 (pg463)
Offers/ Ad Offers
Newspaper fur piece ad
Facts: ∆ refused to sell a fur piece to the π after advertising it twice in the newspaper. On both
Saturdays the π was the first to arrive. The ∆ refused to sell to the π on both occasions citing
the house rule it was only intended for woman. The values were uncertain. Issue: Are
newspaper ads an offer?
Rule: A valid offer must be clear, definite, and explicit, leaving nothing open to negotiation.
Applying Rule: Newspaper ads typically have “multiple acceptance problem”, offer needs to be
towards a particular person because you cannot have everyone saying I accept. Here different
because it is for first comer.
Conclusion: For π
Additionally – there is mutual assent because it was reasonable for the “listener” to believe
they would be fur piece

Saturday 9am sharp 3 brand new fur coats worth up to $100. First come first served $1
each. Not an offer
Saturday 9am 1 black lapin stole beautiful, worth $139.50, $1 first come first served.
Offer because it is sufficiently definite

Ford Motor Co. v. Russell

Facts: When ∆ could not make payments on a car π repossessed and sold it. Π could not obtain
11% financing due to credit.
Rule: An advertisement is an invitation to bargain not an offer
Holding: The facts need to show some performance was promised in positive terms in return for
something requested. The advertisement does not constitute an offer of sale to the general public.
W.T. – you CAN get 11% - store needs to look at credit score and income, this negotiable.

Courteen Seed Co. v. Abraham

SC of Oregon, 1929 (pg466)
Offer/ Multiple acceptance problem
“Seeds for sale case”
Facts: ∆ sent a telegram with seed prices saying I am asking for 24 cents., π said they accepted
the offer. ∆ said this was not an offer.
Issue: Is this a negotiation or an offer?
Rule: An offer must have specific and definite terms relaying the seller’s intent.
Applying Rule: This was potentially to a large number of people, which means it is not clear and
definite.
Conclusion: For π
W.T. this could be an offer or a negotiation

Other facts – π said “send me an offer”, wire me your lowest offer

Π was asking for a firm deal
They had been going back and forth, ∆ might not have thought this was over
Pepsi problem
Lefkowitz used advertising to get people to the store
Pepsi usually sells Pepsi
Pepsi was advertising points and had a government fighter plane in a commercial
Rule – A reasonable person in that position must think it is a serious offer

Case Rule Summaries:

1. This is an objective standard
2. Price Quotas are generally not offers
3. Major terms must be included – usually price and subject matter
4. Advertisements are generally not offers
5. Offers must be clear, definite, and explicit – leaving nothing open for negotiation
6. Letters require a degree of definiteness to satisfy the objective standard that a reasonable
person would expect to be bound upon acceptance

3. The Acceptance

Acceptance – manifestation of assent to terms thereof made by the offeree in a manner invited or
required by the offer.
Voluntary Act of offeree
Exercises power conferred on him by the
offer Creates legal relations - a contract

UCC §2-206(1)(a)
(1) Unless otherwise unambiguously indicated by the language or circumstances
(a) An offer to make a contract shall be construed as inviting acceptance in any manner by any
medium reasonable in the circumstances.
[Unless indicated (unambiguously) by language or circumstances -An offer to contract invites an
acceptance by any manner reasonable in the circumstances]

Restatement of Contracts §32 – Invitation of Promise or Performance.

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.
[An offer is inviting the offeree to accept by promising to perform the request or delivering the
performance (of offeree’s choice)]
Restatement of Contracts §69. Acceptance by silence or exercise of dominion.
(1) When offeree fails to reply to an offer, his silence and inaction operate as acceptance in the
following cases only:
(a) Where 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 not act inconsistent with the offeror’s ownership of offered property is
bound in accordance with the offered terms unless they are manifestly unreasonable. But if the
act is wrongful as against the offeror it is an acceptance only if ratified by him.

39 USC §3009. Mailing of Unordered Merchandise.

Except for (1) free samples (clearly marked) and (2) merchandise by charitable organization
soliciting contributions, the mailings of unordered merchandise – unfair practice.
Any merchandise in violation may be treated as a gift. (Acceptee has not obligation to the sender
and cant do whatever they want with it. Cannot mail a bill for it.
Unordered Merchandise - mailed without the prior expressed request or consent of the recipient

Ardente v. Horan
SC of RI, 1976 (pg476)
Acceptance/ Conditions on the acceptance
“Buying house, wants furniture too case”
Facts: ∆ is selling residential property; π bid and the ∆’s attorney said the bid was acceptable. ∆’s
attorney prepared a purchase and sale agreement. Π returned the document with a check and a
letter listing included furnishings with the house. ∆ did not want to sell items, deal fell through.
Issue: Was there an acceptance of the offer?
Rule: An acceptance cannot impose additional conditions on the offer or add limitations;
conditions or limitations are a counter offer. Acceptance that varies is a counter offer. Applying
Rule: When π sent the letter and listed furnishings, this conditioned the sale. Asking about the
furnishings killed the deal. The only exception is not present here. An acceptance may be valid
despite conditional language if the acceptance is clearly independent of the condition.
Conclusion: For ∆
Mirror Image Rule – A conditioned acceptance is not an acceptance

Vaskie v. West American Insurance Co.

Pa. Superior Ct , 1989
What is a reasonable time for acceptance can be determined at law if there is no question as to
the proper answer.
Facts: On January 1985, Anne Marie Vaskie (Plaintiff) was in a car accident with another car
insured by West American Insurance Co. (Defendant). On December 1, 1986, Defendant sent a
letter to Plaintiff’s attorney offering $25,000 for Plaintiff’s personal injuries. The letter did not
indicate when its offer would terminate. On January 9, 1987, Plaintiff’s attorney accepted
Defendant’s offer. Defendant refused to pay on grounds that the statute of limitations on
Plaintiff’s claim had run on January 1, 1987. Plaintiff sued for breach of the alleged settlement
agreement. Both parties moved for summary judgment. The trial court found in favor of Plaintiff
and awarded her $25,000. Defendant appealed, arguing that either judgment should have been
rendered in its favor or that factual issues prevented the trial court from entering summary
judgment.

Issue.

Whether the question of what is a reasonable time for acceptance can be determined at law if
there is no question as to the proper answer.

Held.

Yes. The trial court’s ruling is reversed. The question of what is a reasonable time for acceptance
can be determined at law if there is no question as to the proper answer.

Discussion.

Defendant argues that its offer lapsed due to either: (1) the running of the statute of limitations,
or (2) because the amount of time Plaintiff took to accept was unreasonable. There is no
authority to support the contention that the running of the statute of limitations caused
Defendant’s offer to lapse. There is, however, support for the contention that Defendant’s offer
lapsed because it was not accepted within a reasonable period. The question of what is a
reasonable time for acceptance of an offer is typically a question of fact that is reserved for a
jury. Such a question can be determined at law if the transaction is one that continually recurs
and there is no question as to whether the period of time was reasonable. Here, the settlement
negotiations at issue are not continually recurring and a material issue of fact exists as to whether
the timing of the acceptance was reasonable. The trial court therefore improperly decided the
question of reasonableness as a matter of law.

Allied Steel and Conveyors Inc. V. Ford Motor Co.

US Ct of App 6th Cir., 1960 (pg481)
Acceptance/ Performance Acceptance
“Π and ∆ injured during installation case”
Facts: ∆ ordered machinery equipment from π. Π was installing machinery at additional costs. Π
agreed to liability of their own employees, now ∆’s employees were completing the installation.
Π’s employee was injured as a result of negligence of ∆’s employee.
Issue: π accepted terms and began to perform, when the terms changed did continued
performance count as acceptance?
Rule: Bilateral contract – Promise in exchange for a promise. Acceptance can be shown by part-
performance consistent with the terms of the contract, if the offer isn’t predicated on specific
acceptance form and tender is within time allowed for acceptance.
Applying Rule: When allied stated to do the work, they were accepting the terms. Their acts
were promissory acts. Doing the act suggests acceptance.
Conclusion: For ∆
Exception – When there is absence of a meeting of the minds on the altered type of acceptance
From case – not sure where there would be application of this principle

White v. Corlies
NY Ct of App, 1871 (pg484)
Acceptance/ Appropriate Acts
Builder does not respond and buys materials
Facts: π is a builder, ∆ is a merchant. Gave specifications to estimate the cost of doing work. Π
left the estimate with ∆, ∆ made a change in their specifications and sent a note. π did not reply,
but π began performance by the purchase of lumber and beginning work. Issue: Did the offeror
get the acceptance before the revocation?
Rule: Acceptance of an offer must be by some appropriate act. If manifestation is not in a proper
way, in the usual course of events, or communicated in a reasonable time, then ∆ is not bound.
Applying Rule: π needed to respond to ∆, tell him he was accepting the offer. Π needs to reach ∆
in a proper way, here would have been responding to the note. Mental acceptance does not bind
an offer. This particular contract was not bound upon buying materials. Fact sensitive, π could
have bought these materials for any project, π needed to show was in this particular contract.
Conclusion: For ∆

Ducommun v. Johnson
Issue: Is failing to object equal to acceptance?
Holding: Silence and inaction do not amount to acceptance.

Case Rules:
1. Mirror Image Rule
- Acceptance must be definite and unequivocal, equal to the offer
2. Counter Offer extinguishes original offer
- Acceptance cannot impose additional conditions on the offer or add limitations
- Need to accept original offer first
3. Method of Acceptance
- Generally need notice or an act
- A mental determination not indicated to the other party will not bind the offer
4. Duration of Offers

Restatement §36. Methods of Termination of the Power of Acceptance.

(1) An offeree’s power of acceptance may be terminated by
(a) Rejection or counter-offer by the offeree, Or
(b) Lapse of time Or
(c) Revocation by the offeror Or
(d) Death or incapacity of the offeror or offeree
(2) An offeree’s power of acceptance is terminated by the non-occurrence of any condition of
acceptance under the terms of the offer.

Restatement §39(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.

Restatement §87(1) – Option Contract.

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

(E&E): An option is a promise to keep an offer open for a stated period of time.
The offeror is making a binding commitment not to revoke the offer for a specified period, so
that the offeree is assured of a set time to consider and respond to the proposal without the risk of
it’s being withdrawn before the expiry date.
The basic legal requirement is that the grantee must “pay” for the option by transferring or
promising money or other property or by sacrificing a legal right in exchange for the promise to
keep the option open.

UCC § 2-205 – Firm offers

An offer by a merchant to buy or sell goods in a signed writing which by it’s 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 3 months, but any such term of assurance on a form supplied by the offeree
must be separately signed by the offeror
[If a merchant gives a firm offer with no consideration for 3 months or less it is not revocable.
After 3 months (even 3mo and 1 day) you would need consideration (ex. $100 payment for the
offer (is not a down payment does not go towards the purchase) to keep the offer open]

Akers v. J.B. Sedburry Inc.

Ct of App of Tenn, 1955 (pg 489)
Duration of Offers/ Time Lapse
“Π flew back to Texas case”
Facts: π was ∆ assistant. They had a meeting about ∆’s indebtness, π flew to see ∆ and offered to
resign. ∆ instead talked about the business and π took instructions back to Texas. After getting
back ∆ said resignation was effective immediately.
Issue: How long after an offer is made in person is it outstanding?
Rule: An offer can be terminated through reasonable time lapse. Reasonable time is determined
though the usages of business and other circumstances of the case.
Applying Rule: The offer here only extended to the close of the conversation. ∆ should have said
intent was to give consideration after the conversation. Here there were two lapses in time, first
during the conversation when the offer was made and second before they left the room.
Conclusion: For π

Caldwell v. Cline
SC of App of WV, 1930 (pg499)
Duration of Offers/ Offer starts
8 days from receipt
Facts: ∆ addressed a letter to pay π and give land in exchange for π land. ∆ said he would give π
8 days to accept or reject.
Issue: When does the time start?
Rule: Offer is from date of receipt not from the date the offer is made.
Applying Rule: There can only be an exception if something indicated ∆ was counting from the
date the letter was sent and not the date of the receipt. Here, ∆ sent a letter, 8 days starts from the
day the π received it.
Conclusion: For π

Dickinson v. Dodds
Facts: Dickinson gave Dodds a signed memo offering to sell certain real estate. This offer to be
left over until Friday 9’ o clock. On Thursday π wanted to accept, but ∆ revoked the offer first.
Issue: Can ∆ revoke the offer?
Holding: Yes, in this case ∆ could revoke the contract. Can only not revoke, when contract is
made irrevocable for a period of time.

Collins v. Thompson
Facts: The state is entering into a contract with prisoners, there is an offer to reduce population in
the prisons. State said would reduce March 1st, but meant April 1st.
Issue: If π did not accept the new offer, does their acceptance on the previous offer terminate?
Holding: No, even though the new offer is technically a counter offer, they said they would take
the contract either way. [Key: we would take either way].

Marsh v. Lott
Ct of App, Cali, 1908 (pg503)
Duration of Offers/ Consideration for an option
25¢ for consideration for $100,000 property
Facts: The contract said 25 cents would be sufficient consideration for the $100,000 property. Π
elected to extend the offer and ∆ revoked the offer. Issue: Is 25 cents sufficient consideration
for the option?
Rule: Restatement §87
Applying Rule: Here, π was buying time. Policy, society benefits to have people buy property.
Wants people to have the option to take time, think about an offer. Here, only need to say there is
consideration, for the purpose of form. The consideration was bargained for between the parties
Conclusion: For π
Comments under Restatement §87 suggest nominal consideration of a comparatively small
payment may furnish consideration for the irrevocability of an offer proposing a transaction
involving much larger sums. – Gross disproportion can indicate payment was not bargained for.
Regularly sufficient in a socially useful transaction.

Davis v. Jacoby
SC of Cali, 1934 (pg507)
Duration of Offers/ Unilateral v. Bilateral acceptance
“Niece and the Whiteheads case”
Facts: π is the niece of Mr. And Mrs. Whitehead. Π was promised the estate if her and her
husband took care of Mr. and Mrs. Whitehead. A definite offer was made in the letter, Mr.
Whitehead died, after his death π and her husband took care of Mrs. Whitehead. Issue:
Did π accept the offer before Mr. Whitehead’s death?
Rule: A bilateral contract is a promise in exchange for a promise. A unilateral contract is an offer
accepted by performance.
Applying Rule: If this is a unilateral contract, π would have to have performed tasks before Mr.
Whitehead’s death. This is bilateral; some of the tasks could not be performed before Mr.
Whitehead’s death. Letters asked to hear from π. π promised Mr. Whitehead they were, promised
before Mr. Whitehead’s death.
Conclusion: For π
W.T. – Can also be promissory estoppel because they relied on the promise to their detriment.

Rules from the cases:

(1) An offer is rejected when the offeror is justified in inferring from the words/ conduct of the
offeree that offeree intends not to accept
(2) Offers made by mail are made on the date the offer is received, not the date it is mailed
(3) Knowledge the revocation of an offer is sufficient notice of that revocation, rendering
personal notice unnecessary, where timeline for revocation is made without
consideration
(4) An option is an enforceable contract, no matter the value of the consideration given for it
(5)If an offer is ambiguous it is presumed to be for a bilateral contract instead of a unilateral
contract

5. Unilateral Contracts

Unilateral Contract is a promise accepted by performance.

Bilateral contract is a promise accepted by a promise.

Restatement §45. Option contract by part performance or tender

(1) Where an offer invites offeree to accept by rendering a performance and does not invite
promissory acceptance, an option contract is created when the offeree begins to perform.
(2) The offeror’s duty to perform under any option contract is conditional on completion or
tender of the invited performance in accordance with the offer.
(a) Offer is limited to unilateral contracts

Restatement of Contracts §87(2) – [Reliance on option K and bilateral K before actual promise]
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.
Unilateral Example:
A says to B, I will give you $100 if you walk across the Brooklyn Bridge” and B walks. A wants
the act of B walking across the bridge. When B has walked across there is a unilateral.
If B is only half way across – the unilateral contract is incomplete

Brackenbury v. Hodgkin
SC of Maine, 1917 (pg514)
Unilateral Contract/ Part Performance
“Daughter goes to take care of cranky mother case”
Facts: π moved from Minnesota to Main because mom said she would give the estate. Mom was
cranky when π got there. Tried to kick π out, would not leave. Mom gave the deed to one of her
sons. He reserved a life estate from her so he could assume the property.
Issue: Was π moving in acceptance of a unilateral or bilateral contract?
Rule: Unilateral Contract is a promise accepted by performance. A bilateral contract is a promise
accepted by a promise.
Applying Rule: This is a unilateral contract because Mother is asking π to “come take care of
me”. There needs to be completion of the act before it is considered acceptance. The offer can be
revoked at any time before acceptance because B is not required to perform. Offer becomes
irrevocable until you have a chance to do what the offeror asks you to do Conclusion: For π

Petterson v. Plattberg
NY Ct of App, 1928 (pg517)
Unilateral Contract/ Withdrawn before acceptance
Mortgage money case (slipped under door in class)
Facts: π owed ∆ money for a bond that he used for his mortgage. ∆ wrote a letter with a
conditional promise if he could pay it off now, he would reduce the mortgage debt. Before π paid
∆, but while standing at his door, the ∆ told him there was no longer a promise.
Issue: Is ∆ bound to the unilateral promise?
Rule: In a unilateral contract the offer must be withdrawn before acceptance
Applying Rule: The offer was withdrawn before it became binding. Π needed at least part
performance for it to be irrevocable. There is only preparation to perform. Exhibiting he had the
money is not paying.
Conclusion: For ∆

James Baird Co. v. Gimbel Bros.

Ct of App 2nd Cir., 1933 (pg525)
Unilateral Contract/ Promissory estoppel
“Linoleum bid case”
Facts: ∆ made a bid to sell linoleum for a certain price to π. Π used that bid to make a sale. Π
accepted an offer from a buyer after confirmation of ∆’s withdrawal Issue: Is the offer
irrevocable?
OLD Holding: Promissory estoppel does not render a subcontractor’s bid offer irrevocable even
if the contractor relied on it.
 Drennan v. Star Paving Co.
SC of Cali
Unilateral Contract/ Promissory estoppel
“Paving bid case”
Facts: ∆ bid to do π’s paving and relying on the bid submitted a bid for the job – π got the job.
After π was awarded the job ∆ told π there was a mistake with the ∆’s bid and attempted to
revoke.
Issue: Is the ∆’s bid an enforceable contract? Was revocation timely (before or after acceptance)?
Rule: Reliance on the bid must be reasonable
Holding: Reliance made the bid enforceable and binding under promissory estoppel. ∆ knew
π was using the bid for another job.

Rules from cases:

(1) Beginning performance on a unilateral contract is sufficient to bind offeror to allow
completion and bar revocation as long as performance begins in reasonable time.
(2) Preparation to perform is not performance. Offeror can revoke at any time prior to acceptance
in a unilateral contract.
(3) Reliance on a promise for a bilateral contract can serve as a bar to revocation.
(W.T.) Reliance on a promise = part performance = consideration to make contract irrevocable

6. Bargaining at a Distance

No Restatements or UCC

Adams v. Lindsell
King’s Beach 1818 (pg535)
Bargaining at a distance/ Mailbox Rule
“Wool offer case”
Facts: ∆s are wool dealers and π are wool manufacturers. ∆ wrote a letter making an offer, three
days later π received it and wrote back. ∆ received the answer 4 days later and had sold the
wool to someone else the day before it was received. ∆ put the wrong address
Issue: Are the ∆ bound to the offer they made to the π?
Rule: Mailbox rule, the acceptance occurs at post.
Applying Rule: The moment π accepted the offer the ∆ became bound. Focus on the delay was at
the mistake of the ∆. Through the time the letter was traveling they were making an offer.
Conclusion: For π

Morrison v. Thoelke
Facts: Owners of property accepted an offer to sell in a written contract. They sent it back to the
purchasers, but repudiated it over the phone before it was received in the mail. Issue: Was this
repudiation effective?
Holding: No. The contract cannot be revoked, once you send the acceptance out you cannot
revoke it if you are talking about an option contract.
Rules from Cases:
(1) Mailbox Rule: Acceptance of offer is valid upon post
(2) Repudiation by offeree after post is not valid because neither party may revoke once posted
Exceptions/ Arguments/ Other courts: Offeree can retrieve acceptance from the post
office

(1) An offeror may validly condition his offer on acceptance being received by him by a
certain date
(2) Mailbox rule applies to exercise of options as well as general contracts

7. Agreements to Agree and Related Matters

UCC §2-204(3)
Even though one or more terms are left open a contract for sale foes 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.

Arnold Palmer Golf Co. v. Fuqua Industries, Inc.

US Ct of App 6th Cir., 1976
Agreements to Agree / Preliminary Agreement
“Create a new corporation case case”
Facts: Both parties formed a memo of intent to form a new corporation. ∆ issues a press release,
but soon repudiates after negotiations.
Issue: Did the parties intend for this to be an enforceable agreement or is this an agreement to
agree that is not enforceable?
Rule: Memo of intent comes from expressed intent of parties; it becomes a question of fact.
Applying Rule: This is a preliminary agreement. Written document has everything in it that was
preliminarily agreed to. Court thinks this should go to a jury. Conclusion: Jury.

W.T. – Lawyer should have put in stipulation, this is not intended to be a binding contract.

This case is analyzing when do parties intend to be bound by preliminary agreements, and the
final agreement becomes a formality. The language of the writing, degree of detail, importance
of subject matter, statements and conduct of the parties (inside and outside negotiations) are
factors to help the court determine.

Joseph Martin Jr. Delicatessen, Inc. v. Schumacher

Ct of App of NY, 1981 (pg554)
Agreements to Agree/ Indefiniteness
“Tenant wants market value rent case”
Facts: Tenant wanted to renew lease, but not at the landlord’s rental price. Clause said “rent to be
agreed upon”. Tenant suggested the market value price, π is suing for specific performance for
market value rent.
Issue: Is the agreement to agree on rent to indefinite to enforce?
Rule: UCC 2-204(3). Even though items are left open in a contract for sale, the contract does
not fail if parties have intended to make a contract and there is reasonably certain basis for
giving a remedy.
Applying Rule: The court cannot write the contract for the parties – not including clause for
“market value”. The court should not be involved in private contract decisions.
Conclusion: For Landlord
Dissent/ Discussion: What if this is bad faith, from a position of power.

IV. Form Contracts

1. Form Contracts

UCC §2-204(2) – An agreement sufficient to constitute a contract for sale may be found even
though the moment of it’s making is undetermined

UCC §2-207 – Additional Terms in Acceptance or Confirmation.

(1) A definite and seasonable (typical) expression of acceptance or a written confirmation, which
is sent within a reasonable time, operates as an acceptance even though it sates 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 apart of the contract unless
(a) The offer expressly limits acceptance to the terms of the offer
(b) They materially alter it, OR
(c) Notification of objection to them has already been given or is given within
a reasonable time after notice of them is received.
(3) Conduct by both parties, which recognizes the existence of a contract, is sufficient to
establish a contract for sale although the writings of the parties do not otherwise establish a
contract. In such case the terms of the particular contract consist of those terms on which
the writings of the parties agree, together with any supplementary terms incorporated under
any other provisions of this act.
*Differs from the common
law *Flow chart is helpful

2-207 is meant to mitigate the harshness of the mirror image rule – Differences
(1) 2-207 – Can have a contract and acceptance with terms that are different or additional to
those in the offer.
(1) MIR – If something does not mirror it is a counter offer
(2) 2-207 – Contract by conduct - When buyer does not assent and is using and paying for the
goods we look at their conduct. The conduct of the parties when they are acting like they have a
contract, even though they do not, will form a contract.

When 2-207 is used:

To decide the terms of a contract
Last Shot Principle: Contract formed by last offer submitted by either party before performance
Conflicting Terms: Where different terms are proposed (opposed to additional terms):
(1) Fall Out Rule – Term from the offeror stays in and offeree terms fall out.
Reasoning – If the terms are different why would we think they still wanted to be in a
deal W.T. Prefers
(2) Knockout Rule – Terms say different things then both rules are knocked out. Uses the terms
agreed upon or default terms under the UCC
Courts Favor
Comments
1. This section is meant to deal with written confirmations on sales or on the exchange of
forms that accompany a sale
2. This section recognizes custom in that where a deal is widely considered as being the type that
is closed – then it is closed – additional added terms must be analyzed under §2
3. Additional terms are included under §2 but not if they materially change the
bargain, otherwise they go in unless objected to in a reasonable time.
4. What materially alters the contract? – The negation of a standard warranty, provisions
significantly deviating from trade standards, unreasonable surprises
5. It can be assumed inclusion of additions, if after reasonable time they’ve not been formally
assented to, but if they violate §2 the original contract stands
(a) 2-201 allows additions to be included when there is no formal assent

4 routes to determine if a contract is formed what are the varied

terms? A. Acceptance agreed upon, an agreement on the bargained
terms A1. Written confirmation is agreed upon.
B. Proviso clause. If acceptance is expressly made a condition on assent to those additional
terms. (My way or the highway idea). Wants acceptance of the counter offer expressly
assented C. The writings don’t establish a contract under 2-207(1). If party does not assent, but
sends goods and payment, then the conduct indicates they are contracting even though not
formed on the writings under subsection (1).

If there is a contract- Who’s terms?

Situation: A or A1
Solution: §2 determines who prevails.
Additional terms construed as a proposal – need explicit acceptance
If both parties are merchants! then the terms are in the contract unless §2 a,b, or c
Situation: There are different or conflicting terms
Solution
UCC cmt 3 treat as additional terms (would not use this for exam)
Knockout Rule
Fall Out Rule

Stemcor USA, Inc. v. Trident Steel Corp.

SDNY, 2006 (pg563)
UCC §2-207/ §2 Merchants
“binding arbitration case”
Facts: π sold steel products to ∆ for 2 and a half years. Π delivered steel castings to ∆, ∆ would
send a purchase order to π including the phrase “ no agreement … shall be binding on the
purchaser”. Π would send ∆ an acknowledgment form with the phrase, may submit the dispute to
arbitration. ∆ modified and resold castings, ∆ was sued for defects by 3rd parties – in turn sued π.
Π Provision: Binding arbitration, no deal unless you go with our terms.
Issue: Is there an enforceable agreement to arbitrate?
∆ argument: Purchase orders constitute offers and π acknowledgement constitutes an acceptance
π argument: Acknowledgement forms are counter offers, ∆ accepted when it took delivery
Rule: UCC 2-207§2
Applying Rule: π did not use specific language to show it’s sales were conditional on assent to
it’s additional terms. There needs to be sufficient express language.
Conclusion: For ∆

Hill v. Gateway 2000

Ct of App 7th Cir., 1997
UCC §2-207/ Rolling Contract - “Computer and terms case”
Facts: π bought a computer from ∆. Π purchased over the phone, box has additional terms.
Issue: Is this governed by §2-207?
Rule: §2-207 is for the sale of goods when there are two forms for a contract.
Applying Rule: There is only one form here, not two. This is a rolling contract. The offer by
gateway over the phone is not an acceptance yet. The deal rolls over until π gets the computer
and opens the box – these are the terms. They can accept or reject the terms. Suing over a
warranty, but saying arbitration clause does not apply. Terms stand and fall together. Policy
reasons – Cannot read all the terms over the phone

Rolling Contract – Acceptance given after π gets terms

When to apply – Consumers order and pay for goods before having the chance to read most of
the terms, which are contained on or in the good’s packaging. The acceptance rolls from the
phone conversation so the buyer can see the terms coming, if they accept a contract is formed.
This is only one form so UCC 2-207 does not apply

StepSaver Data Systems v. Wyse Technology

Facts: Terms are on the outside of the box.
Issue: Is opening the box acceptance?
Rule: 2-207
Applying Rule: This court rejects rolling contract argument. The contract was confirmed over the
phone. Additional terms are being added to the confirmation. Use 2-207(2) – π objected to terms
over the phone – and the terms were significantly different.
Conclusion: For π

International Sale of Goods – Article 19:  Did not go over

(1) A reply to an offer, which purports to be an acceptance but contains additions, limitations
or other modifications is a rejection of the offer and constitutes a counter-offer.
(2) But a reply with additional terms that do not materially alter terms is an
acceptance unless offeror objects to the discrepancy
a. If offeror Does not object, the terms are those in the acceptance
(3) Price, quantity, quality, etc. are material terms

V. Policing Agreements and Promises (Rules not standards) W.T.

1. Introduction

Defenses for breach of contract

Grossly unfair or overreaching terms by one party at the bargaining/ promising
stage Changed circumstances after making an agreement or promise
Duress, Misrepresentation, and nondisclosure show lack of a valid agreement or promise

2. Duress

Contracts under Duress lack real consent – meaning they would not be given except for the
unpleasant alternative
Motives: accused party to take advantage
Are there reasonable alternatives?
Accused party enjoys gain they would not have
otherwise Irrelevant if the party’s neglect led to the
situation

Restatement §176. When a threat is improper.

(1) A threat is improper if
(a) What is threatened is a crime of a tort, or the threat itself would be a crime or a tort if
it resulted in obtaining property
(b) What is threatened is a criminal prosecution
(c) What is threatened is the use of civil process and the threat is made in bad faith OR
(d) The threat is a breach of the duty of good faith and fair dealing under a contract
with the recipient
(2) A threat is improper if the resulting exchange is not on fair terms AND
(a) The threatened act would harm the recipient and would not significantly benefit
the party making the threat
(b) The effectiveness of the threat in inducing the manifestation of assent is significantly
increased by prior unfair dealing by the party making the threat, OR
(c) What is threatened is otherwise a use of power for illegitimate ends

Some limitations on economic duress seems inevitable

Price Gouging Statutes

Many states have enacted
Generally when there is a “state of emergency”
If vendor charges unconscionable, excessive, or unjustified
price Based on the percentage of the markup

Undue Influence – Undue susceptibility of one party and excessive pressure placed on that party
by another. Usually involving:
(1) Discussion of the transaction at an unusual or inappropriate time
(2) Consummation of the transaction in an unusually place
(3) Insistent demand that the business be finished at once
(4) Extreme emphasis on inconvenient consequences of delay
(5) Multiple persuaders by the dominant side against a single servient party
(6) Absence of 3rd party advisers advisors to the servient party
(7) Statements that there is no time to consult financial advisers/ attorney

Not duress
Refusing performance of a contract
Hard bargains
Tough Choices
 Standard Box Co. v. Mutual Biscuit Co.
Ct of App, 1909 (pg582)
Defense Duress
“Box selling case”
Facts: ∆ purchases boxes from π. Π offered ∆ an option for pricing, there was a serious
earthquake and the price of boxes went up before ∆ accepted. Π was now only willing to sell at
market value. ∆ accepted at π’s offer – but then refused to pay for some of them. Issue: Is
having ∆ pay at market value after the earthquake duress?
Rule: Defense, Duress: Coercion under pressure, making an improper threat, doing
something illegal or making improper threats to gain a person’s assent.
Applying Rule: π does not have a duty to help ∆. They are charging the fair market value; they
were also charging other customers this rate. ∆ accepted the goods under these terms.
Conclusion: For π

Machinery Hauling Inc. v. Steel of West Virginia

Facts: π is a freight transporter contracted to transport ∆’s steel product to a third party who
rejected the product for defects. ∆ wants π to pay for the undelivered product – threatened to
cease doing business with π.
Issue: Is this duress?
Holding: No, there is not a legal right to economic duress for future expectancy. Cannot claim
duress because of hard bargain or the market makes a contract difficult to perform.

Dunham & Company v. Kundra

SC of NJ, 1957 (pg585)
Defense Duress
“ case”
Facts: ∆ stores coats for π department store. ∆ will not turn over coats for winter unless agent
of
π pays amount due to ∆. They pay through bankruptcy and then sue ∆ for
duress. Issue: Was π under duress?
Rule: Restatement §176 (1) (a) – A threat is improper if what is threatened is a crime or tort Or
the threat itself would be a crime or tort if it resulted in obtaining property.
Applying Rule: Looking at subjectively, π was compelled to do something they would not have
otherwise done. There was business compulsion here, ∆ made improper demands and squeezed
the π between those demands and the customer complaints (business reputation)
Conclusion: For π

Elements from Dunham

Damage to business reputation, good will
Whether or not the pressure exerted is improper
It has to be more then just involuntary, free will constrained
Was there an adequate remedy at law?
Rules from cases:
(1) Selling at a higher market rate during a supply shortage is not selling under duress
(2) There is no right to a good bargain or future expectancy
(3) Subjective test was the π compelled to do something they would not have otherwise done
3. Misrepresentation, Concealment, and The Duty to Disclose

RST TORTS §552C. Misrepresentation in Sale, Rental or Exchange Transaction. Innocent

Aggrieved parties may recover the difference between the value of what he has received and the
purchase price or other value given.
Injured party can also recover consequential damages due to detrimental reliance
Note: Victims of fraudulent misrepresentations in business transactions, but not victims of
negligent misrepresentations can also recover the benefit of the bargain.
RST Negligent misrepresentation – Same, plus consequential
RST Fraudulent misrepresentation – Same, plus consequential plus benefit of bargain

Sellers have a duty to disclose, but courts are reluctant to impose the same duty on buyers who
discover a benefit:
1. Because information costs are lower for sellers
2. Because sellers can usually discover such things on their own
3. Seller beware

1. Where parties have unequal bargaining power, courts sometimes require the seller to disclose
information about the legal effect of contract terms (particularly for fine print)

Bates v. Cashman
SC of Mass, 1918 (pg591)
Misrepresentation/ Innocent Fraud
“Rescind contract case”
Facts: Land is represented as having a right of way and it doesn't. ∆ claims inducement by
misrepresentation.
Issue: Was there misrepresentation?
Rule: Restatement §552
Holding: A person seasonably may rescind a contract to which he has been induced to become a
party in reliance upon false though innocent representations respecting a cognizable material fact
made as of his own knowledge by the other party to the contract.
Need to have reliance
Could have sued for damages

Holcomb v. Hoffschneider
SC of Iowa, 1980
Misrepresentations/
“ case”
Facts: π buying property asks seller multiple times the size of a lot. Seller multiple times tells
the wrong size. The buyer relied on the seller’s statement. Π offers to pay less than offer. Issue:
Was there detrimental reliance allowing recovery?
Rule: In real property, consulting records is not necessary for the buyer who reasonably relies
upon the incorrect representations as to the property
Rule: Damages: Idaho: Benefit of the bargain rule: A defrauded purchaser is entitled to the
difference between the value the property would have had as represented and the value of the
property he actually received.
Applying Rule: Buyer gets damages for the misrepresentation. This is the difference between
value of property received and that represented.
Conclusion: For π
Court gave lost expectancy

Porreco v. Porreco
Facts: π was given a fake ring by ∆. Π signed an unfavorable prenuptial agreement because she
believed the ring was worth $21,000.
Issue: Can π recover because she relied on ∆’s misrepresentation?
Rule: Fraudulent misrepresentation
Applying Rule: Judge will not tear up entire prenuptial agreement. This was relied upon
fraudulent misrepresentation. It may not have been reasonable for her to have the ring examined,
because she received very valuable gifts prior. She recovers the $21,000 misrepresentation.
Conclusion: For π

There is usually not a duty to investigate

Weintraub v. Krobatsch
SC of NJ, 1974 (pg604)
Misrepresentation/ Concealment
“Cockroach case”
Facts: ∆ paid escrow to buy a house after examination and satisfaction. After closing during
another inspection π discovers there is a cockroach infestation. ∆ wants to rescind.
Issue: Did π have a duty to disclose the infestation if she knew of it?
Rule: Fraudulent concealment proven where the seller knows the truth, deliberately conceals, and
conceals something material.
Applying Rule: Seller telling buyer would kill the sale. This is a situation where justice, equity,
and fair dealing demand a duty. Material fact – Something that is so material it would likely
affect the buyer’s intention to purchase the property, it can constitute as fraud.
Conclusion: For π – sent to jury W.T. Underlying message is that

Hypo
Before the land is sold, buyer found out there was oil on the land. The seller was not aware.
Issue: Is there a duty for the buyer to disclose to the seller?
Holding: No, most jurisdictions the buyer does not have the duty to disclose

Hypo – Do you have to disclose when someone with Aids died on the property?
Is this a question for the legislature or the court to decide?

Mistake, Disclosure, Information and the law of contracts – The term deliberately required refers
to when you invest resources to get information. This does not include getting information
casually (like reading a newspaper). People with more financial resources would always win.

Weaver v. American Oil Co.

Facts: ∆’s employee sprayed gasoline over π and his assistant burning them. ∆ is a wealthy
leasing company, π has a high school education. Π did not know there was oil on his land.
Issue: Is there a duty for the buyer to disclose to the seller?
Rule: A contract can be unconscionable where the party with greater bargaining power
breaches it’s duty to disclose legal effect of an agreement. Duty to explain.
Applying Rule: Weaver’s lack of education, did not know, wealthy company knew. Contract is
invalidated for unconcscionability.
Conclusion: For π
Dissent: He should be bound because he read the lease. Duty to read.
W.T.- Duty to read, duty to explain chicken egg problem.

McCutcheon v. United Homes Corp.

SC Washington, 1971 (pg614)
Public Policy / Exculpatory Clause / Contract as a defense to duty
“Unlighted Stairwell case”
Facts: π is a tenant of ∆ and was injured when she fell down unlighted stairs. Second π
was injured when a step pulled loose. There was an exculpatory clause in the lease.
Issue: Whether the landlord of a residential unit can escape liability for personal
injuries of tenants by injuries resulting from negligence of the landlord’s maintenance
of common areas? Rule: Landlord has a duty to use reasonable care for common areas
Applying Rule: This clause is not illegal, but it is illegal in regards to public policy. This is not
a private interest because it affects every tenant. Tenants rely on landlords, landlord cannot
contract away that duty. Decision is based on what’s best at a macro level.
Conclusion: For π
Henderson v. Quest Expeditions
Tenn. Court of Appeals, 2005
“White Water Rapids = Optional Activity”
Facts: Henderson (plaintiff) was injured during a white-water rafting trip operated by Quest
Expeditions, Inc. (Quest) (defendant). After completing the trip, Henderson and other rafters
were put on two different buses so that they could be taken back to their vehicles. While
disembarking from the first bus, Henderson slipped and fell, sustaining severe injuries.
Henderson and his wife (plaintiff) filed a negligence suit against Quest, seeking damages. In its
answer to the complaint, Quest conceded that Henderson had participated in the rafting trip, but
argued that Quest was immune from liability due to a Waiver and Release of Liability form that
Henderson had signed prior to the trip. The Henderson’s claimed that the waiver document was
void as against the public policy of the state.
Question: Does public policy void the waiver? Was Quest ok to contract away duty?
Holding: Yes public policy does not protect white water rafting as it was an “optional
activity.”(a.) Not suitable for public regulation (b.) not a factor here (c.) …??? NEED TO
COME BACK HERE
Six factors for courts to consider when determining whether an exculpatory agreement
violates public policy: (a.) It concerns a business of a type generally thought suitable for public
regulation. (b.) The party seeking exculpation is engaged in performing a service of great
importance to the public, which is often a matter of practical necessity for some members of the
public. (c.) The party holds himself out as willing to perform this service for any member of the
public who seeks it, or at least for any member coming within certain established standards. (d.)
As a result of the essential nature of the service, in the economic setting of the transaction, the
party invoking exculpation possesses a decisive advantage of bargaining strength against any
member of the public who seeks his services. -6- (e.) In exercising a superior bargaining power
the party confronts the public with a standardized adhesion contract of exculpation, and makes
no provision whereby a purchaser may pay additional reasonable fees and obtain protection
against negligence. (f.) Finally, as a result of the transaction, the person or property of the
purchase is placed under the control of the seller, subject to the risk of carelessness by the seller
or his agents.

Exculpatory Clauses at a glance: Trend is against these clauses. Generally not okay if attempt
to avoid intentional or reckless conduct. When attempt is to avoid liability for negligence:

More Likely Okay Less likely okay

Commercial deal Consumer deal
Negotiated Contract Form Contract
Optional Activity (sports, leisure) Necessity (housing, health care)
- White water rafting - Apt Complex lighting
(Henderson v. Quest (McCutcheon v. United
Expeditions) Homes Corp.)
Adult Child
Private issue Public Issue

Dwyer v. Jung
SC of NJ, 1975 (pg622)
Public Policy/ Restrictive covenant
“Law firm case”
Facts: π and ∆ were partners in a law firm that dissolved. Contract states upon dissolution … all
partners are restricted from doing business with a client designated as that of another partner for
a period of five years. Π is trying to take ∆ clients.
Issue: Is the restrictive covenant void against public policy?
Rule: Clients are allowed to have freedom of choice/ contract to determine who their lawyer is.
Applying Rule: Clients cannot be restricted by a private covenant to choose.
Conclusion: For π
Karpinski v. Ingrasci
Ct of App of NY, 1971
Public Policy/ Restrictive Covenant
“Dental surgeon case”
Facts: π’s business stems from referrals. Π opened an office, ∆ was assistant. He had a
restrictive covenant for ∆ not to compete with π. ∆ left and opened his own practice, π had to
close as a result. 90% of business comes from referrals. Π is suing for injunction and promissory
$$ Issue: Is the restrictive covenant valid under public policy
Rule: Covenants reasonable in scope are enforced and cannot be in restraint of trade or
against public policy.
Applying Rule: π was only barring ∆ from practicing in 5 counties. The duration is forever.
Just preventing him from oral surgery, not dentistry. Court severed original contract removing a
bar to practice dentistry which was overbroad.
Conclusion: For π

Differences between the two covenants

Oral surgeons are referral based – can influence the difference
Scope – lawyers was specific clients (NOT OK), here counties (OK), clients can still go if
willing to travel
4. Inequality of the Exchange

Justice Story Theory – People are free to make bad bargains

Black Industries Inc. v. Bush

DC NJ, 1953 (pg632)
Inequality of the Exchange/ Public Policy
“Π is making more money then ∆ so he is sour case”
Facts: π is a manufacturer and subcontractor who obtained an invitation to bid with contracts
with the Hoover Company. Obtained supplier - ∆. Π agreed to service the contract and ∆ failed
to complete the order, caused loss to π. Would not complete because π made greater profit.
Chain: Gov  Hoover  Black  Bush
Issue: Whether the agreement between π and ∆ were void as to public policy?
Rule: The court will not invalidate a contract because of lopsided profit for one party, absent
illegal or collusive acts
Applying Rule: ∆ claims π is ripping off everyone. A contract is void under public policy if
(1) It is a contract by the ∆ to pay the π for inducing a public official to act in a certain manner
(2) It is a contract to do an illegal act OR
(3) It is a contract that contemplates collusive bidding on a public contract.
These situations are not present here. Contract between businessmen, no fraud, ∆
should negotiate better or charge more.
Conclusion: For π
Jackson v. Seymour
SC of App Virginia, 1952 (pg637)
Inequality of the Exchange/ Fraud
“Brother buys sisters land with timber case”
Facts: π had confidence in representations of her property made by her brother and sold a tract of
land. The land had merchantable timber, π is claiming actual fraud. ∆ (brother) claims he did not
know at the time of sale and neither had been on the land or knew of it’s character before.
Issue: Is there actual fraud?
Rule: Actual fraud is the intent to misrepresent or defraud a person where it is relied upon and
damages a person. Innocent fraud is when the ∆ did not know what they said was wrong/ false.
Applying Rule: The court looks at the relationship of the two parties. If ∆ was doing this for
someone else he is supposed to get it appraised – he was not going to get his own property
appraised. He is claiming if he knew he would have paid more – but he would not give her any
of the money from the sale of the timber.
Conclusion: For π
Note – to prove fraud you NEED to show intention

Textbook talks about constructive fraud – WT does not

Constructive Fraud
Confidential relation of parties
Reliance by the π on advice and judgment of the
∆ Gross inadequacy of the price paid
An offer to rescind transaction and rejection of the offer
Rules from Cases:
(1) Parties are free to assess their own values in a bargain – the court does not perform price
regulatory function.
(2) Status of Parties can be a factor when courts assess a bargain for exchange

5. Unconscionability

Unconscionability
U.C.C. Section 2-302: Unconscionable Contract or Clause
If any clause of the contract is found to be unconscionable it can be unenforced
(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.

UCC §2-302 (Shortened) Unconscionability as a defense (not limited to sale of goods)

(1) If a court finds when a contract was made (or any of it’s terms) were unconscionable the
court can refuse to enforce the contract. It can enforce the remainder of the contract
w/out unconscionable terms. Or can limit the application to avoid an unconscionable
result.
(2) Parties have an opportunity to present evidence to it’s commercial setting
- Unconscionability is mostly for consumers, not for business deals

Substantive unconscionability – When terms are oppressive (grossly unfair terms)

The content, terms, are so grossly one-sided that no one
assented Courts are generally afraid of intruding on freedom of
contract Difficult to find an adequate remedy in price disparity
cases
Procedural unconscionability – Bargaining process is deficient/unfair (bargaining naughtiness)
High pressure, improper deal negotiations
Status factors – age intelligence, business sophistication, bargaining power

Warranties and express warranties

UCC §2-313. Express warranties by affirmation, promise, description, and 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.
(If the seller affirms or promises a fact to a buyer, which relates to the goods – it becomes
apart of the bargain and creates an express warranty that the goods conform to sellers
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.
(Sample or model represents the sale)
(2) It is not necessary to the creation of an express warranty that the seller use formal words such
as warrant or guarantee or that he have a specific intention to make a warranty, but an
affirmation merely of the value of the goods or a statement purporting to be merely the seller’s
opinion or commendation of the goods does not create a warranty.

UCC §2-314. Implied Warranty: Merchantability; Usage of trade

(1) Unless excluded or modified, 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.
(2) Goods to be merchantable must be at least such as
c. Are fit for the ordinary purposes for which such goods are used.

UCC §2-316 Exclusion or Modification of Warranties

1. Words creating and words limiting express warranty shall be construed as consistent with each
other but negation or limitation is inoperative if unreasonable
2. a. Anything purporting to modify or exclude an implied warranty of fitness must be a writing
and conspicuous
2. b. Anything purporting to modify or exclude an implied warranty of fitness must be a writing
and conspicuous
i. A sufficient example: “There are no warranties which extend beyond the description on
the face thereof.”
3. a. Notwithstanding the above, all implied warranties are disclaimed by the language “as is”
and “with all faults” or other language, making plain there is no implied warranty.
3. b. Where the buyer has examined the goods as fully desired or refused to examine there in no
implied warranty with regard to defects that should have been revealed by examination.
3. c. An implied warranty can also be excluded or modified by course of dealing or performance

Origin – Commonly a defense against specific performance

UCC §2-302 incorporates the unconscionability doctrine and makes it available as a defense in
all sales of goods.

UCC 2-719 Remedy Limitations

(1) Subject to the provisions of subsections (2) and (3) of this section and the
preceding section on liquidations 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 circumstances cause an exclusive or limited remedy to fail of it’s
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 gods is prima facie unconscionable but limitation of damages where the loss
is commercial is not.
[The seller can limit 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 unless the remedy is expressly
agreed to be exclusive, in which case it is the sole remedy]
 Ryan v. Weiner
Ct of Chancery of Delaware, 1992 (pg641)
Unconscionability/ substantial and procedural
Real estate agent takes advantage of old man losing his home
Facts: π owed money on his home, ∆ came to him and said he could help. ∆ had transactions go
through quickly and π did not know he signed over the deed to his house. ∆ lent a small amount
of money but π was still paying the mortgage to the bank and rent to ∆. Issue: Was this an
unconscionable transaction?
Rule: Unconscionability protects people from being taken advantage of when there is gross
inability of bargaining power.
Applying Rule: Looking at substantial and procedural unconscionability. S – This is so grossly
one sided because π did not get anything out of the deal, he was actually losing on it. P – π did
not have time to get a lawyer, he was old, an alcoholic, retired, and he was already losing his
home when ∆ came knocking on his door. Sum total of conduct is unconscionable.
Conclusion: For π

Hillman comment – Unconscionability cases can usually be resolved without pointing to

unconscionability. We do not use fraud because you need to prove intention.
Courts do not decide which factors are crucial; they are using this as a power to crush oppressive
one-sided deals where people are taken advantage of.

Out of textbook – Online Case

Williams v. Walker – Thomas Furniture Co.
Facts: Widow with 7 children. Π defaulted on a stereo and as a result everything she bought for
the last 5 years was repossessed.
Issue: Is this unconscionable?
Rule: Unconscionability protects people from being taken advantage of when there is gross
inability of bargaining power.
Applying Rule: You have not paid off anything until you have paid off everything. She is being
forced to pay and embarrassed in front of her neighbors. There is an absence of meaningful
choice, and there is unequal bargaining power.
Conclusion: For π
Dissent: π knew her position, but can we tell people on welfare what they can and cannot buy?
Discussion - ∆ is working with people likely to default and is taking precautions. Π is saying – is
this a reason to dump terms on me? She would not be able to go to a department store to get this,
which is why she has to go to someone with excessive terms. Even necessity items were taken.
 Jones v. Star Credit Corp.
SC of NY, 1969 (pg657)
Unconscionability/ Substantive
Freezer case
Facts: π is a welfare recipient who agreed to purchase a home freezer for a total of $1234.80. π
have paid about half so far. ∆ claims there are charges for the extension of payment and a
balance of $819.81 still due. The maximum retail value of the freezer is $300.
Issue: Is this an unconscionable transaction?
Rule: UCC §2-302 – Unconscionability protects people from being taken advantage of when
there is gross inability of equal bargaining power and have a lack of reasonable alternatives.
Substantive unconscionably - when terms are grossly unfair (oppressive).
Applying Rule: The court is looking at what was given v. what is being received. Court rules for
π without much information … maybe give π back what they have paid.
Conclusion: For π

Industralease Automated & Specific Equipment v. RME Enterprises, Inc.

SC NY, 1977 (pg649)
Unconscionability/ Merchants/ time of signing
Trash incarcerator case
Facts: ∆ (runs picnic area) signed a lease for equipment with no disclaimer, then π gets ∆ to sign
fixed form with disclaimer of express and implied warranties. Equipment (trash incarcerator)
arrives and does not work.
Issue: Is the disclaimer unconscionable?
Rule: Governed by 2-302 Unconscionability
Applying Rule: It is unconscionable. At the time of signing there was an absence of meaningful
choice for one party – but there were other unreasonably good terms for the other party. ∆ was
under a time constraint. There is an imbalance, should not have to pay $20,000 for a product that
does not work.
Conclusion: For ∆
Note – Glanced at 2-316- This deals with when and under what circumstances you can disclaim
your warranties.

[Chalk v. T-mobile USA, 2009 (has been reversed by the Supreme Court in 2011) – There is a
mandatory arbitration provision. It is substantially unconscionable because a class action waiver
in a consumer contract is unreasonably favorable to a company like T-Mobile.
Remedies for unconscionability:
Striking down the offending clause
Reformation of the offending clause
Refusal to enforce the whole
contract
Rules From Cases:
(1) Unconscionability is assessed at time of signing and is found where there is an absence of
meaningful choice in terms by one party and unreasonably good terms for the other
a. Industralease
(2) One party’s bargaining power is so lopsided that one did not know what he was signing
and was induced into agreement, the contract is unconscionable and invalidated it.
(3) Used sparingly as a last resort in cases that shock the conscious of the court
6. Policing the Standard Form Contract/ Additional Policing Doctrines

Standard Mass Contract

The terms are not negotiated (take it or leave it)
Absence of reasonable choice to go someplace better
There is no intent to help the buyer understand or negotiate (hidden in the
contract) Must be a standard form
Unduly favorable to one side
Usually giving up rights to a jury

Restatement §211. Standardized Agreements

(1) Except as stated in subsection (3), where a party to an agreement signs or otherwise
manifests assent to a writing and has reason to believe that like writings are regularly
used to embody terms of agreements of the same type, he adopts the writing as an
integrated agreement with respect to the terms included in the writing.
(2) Such a writing is interpreted wherever reasonable as treating a like 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.
Form contracts - Reasonable expectations are of the signer not the drafter

Reasonable Expectations Doctrine: You did not read the contract, therefore did not know this
clause was in there. Regardless of whether you read it or not, the court will look to whether
or not you could have reasonably expected this clause to be in there.
If you could have reasonably expected it  The court will enforce the clause
If you could not have reasonably expected it  The court will not enforce the clause
If you do not read it you get the benefit of what you can reasonably expect to be in there. If you
read something that you could not have reasonably expected to be in there you agreed to it if
you signed it.

Fairfield Leasing Corporation v. Techni-Graphics, Inc.

SC of NJ, 1992 (pg668)
Standard Form Contracts/ Adhesion
Rented Coffee Machine
Facts: ∆ signed a lease to rent a coffee machine, he found cockroach larvae in it, 3rd party did not
fix it. ∆ stopped making payments to π. In the lease there is a provision “waive trials by jury”
Issue: Is this provision enforceable in a standard form contract?
Rule: Term doesn’t have to be bargained for, but needs to be conspicuous so party is aware of it.
Applying Rule: It is not that the term is not unconscionable, but it was not properly done.
The term was buried and ∆ was hiding the clause. (Inconspicuously – hidden in the contract,
placement matters).
Conclusion: For π
 C&J Fertilizer, Inc.v. Allied Mutual Insurance Co.
SC Iowa, 1975
Standard Form Contracts/ Insurance
Burglary insurance provision
Facts: π bought a burglary policy from ∆. A contract provision said there must be viable
evidence of the burglary to recover. Π did not know burglary meant there must be visible signs
on the exterior. He suffered a loss of chemicals in an interior room.
Issue: Can π recover for his loss if it is barred by a standardized mass contract?
Rule: Doctrine of Reasonable Expectations
Applying Rule: The problem with the provision is it rests on the burglar’s skill set, not the loss of
the party. ∆ needs to argue that this is reasonable or should have been reasonably anticipated.
Provision was in definitions section instead of exclusions. Conclusion: For π

Dissent: Other contracts of this nature include the same factors. We should not be using the
doctrine of reasonable expectations.

Reasonable Expectations Doctrine analysis –“visible marks clause”. Reasonable would be if

there was evidence this was/ was not an inside job. π didn’t read, reasonable people do not read
insurance contracts and insurer does not expect π to read before it signs  Therefore, not bound.
Downside of RED – Policy, court should not be rewriting the contract.

Capsi v. The Microsoft Network

SC of NJ, 1999 (pg682)
Standard Form Contracts/

Facts: Consumers in NY, NJ, and OH want to sue Microsoft. Microsoft said there is clause in the
contract that says litigation has to be in the state of Washington.
Issue: Is the provision for litigation in Washington enforceable?
Rule: Term doesn’t have to be bargained for, but needs to be conspicuous so party is aware of it.
Applying Rule: π said there is a lack of notice. Court says this is fair and reasonable because of
the way it was presented. Π had to click agree, all of the terms are presented before you click
agree. You are not in an agreement until you state whether you agree or disagree to the terms.
Conclusion: For ∆

Specht v. Netscape (Did not go over in class)

Facts: ∆ was surveillance π’s online activity and collecting information. Π is suing for unlawful
eavesdropping. ∆ says cannot sue in court because there is an arbitration agreement.
Issue: Is the arbitration agreement enforceable?
Rule: Giving up the right to trial is enforceable, but there needs to be an agreement. This is based
on contract formation.
Applying Rule: The terms were scrollable on the next screen, there is an inquiry of notice. How
reasonable is it that the party is waiving their right to trial? The elements of assenting to terms-
Reasonable conspicuous of notice of the existence of contract terms and unambiguous
manifestation of assent.
Conclusion: For π
Additional Policing Doctrines:
Mutuality of obligation
Invalidating damages provisions as
penalties Mental illness or defect
o Creates voidable contract duties where entering contract with mental defect
Shown where he is unable to understand the nature and consequences
of transaction OR unable to act in
Infancy - allows contract for minors for necessaries, but it is not clear what the means
o Reasoning: Would not sell a car to a minor if you could not enforce the deal
General obligation of good faith

7. Policing Contract Modifications

(area with controversy)

Principle: People are free to enter contracts, and shape the terms of the contract. People are free
to modify their agreements as well.
Policing modifications: Deny enforcement of modifications where one party takes undue
advantage of the other.

UCC§2-209. Modification, Rescission, and Waiver

(1) An agreement modifying a contract within this article needs no consideration to be binding.
Comment: Protects and makes effective all necessary and desirable modifications of sales
contracts without regard to the technicalities which as present hamper such adjustments.
Modifying a sales contract needs no modification to be binding.
Needs to be of good faith
Test of good faith – between or against merchants includes observance of
reasonable commercial standards of fair dealing in the trade
W.T. – Did not want to deal with the problem “no consideration”

Pre-existing Duty – Already contracted to do something, need consideration for any new
modification to be enforceable.
Contracting to do what you already agreed to do is modifying what you are already legally
obligated to do
New terms means there needs to be new consideration
Slight consideration is good consideration. Ex. Paying more for 15 minutes extra.
The court will deny enforcing a modification when one party takes advantage of the
other Prevents the hold up problem
o When one party threatens not to finish work unless they receive more money

Accord and Satisfaction – Elements: (double check)

Bona fide dispute
Unmistakable offer to settle the dispute by the debtor offering to pay a lesser
amount The creditor accepting that amount
Mutual agreement and assent

Alaska Packers’ Association v. Domenico Policing

Agreements and Promises/ Pre-existing duty rule Alaska
Salmon catching case
Facts: ∆ contracted to do labor for π. Requesting $50 for the season plus 2¢ for each salmon
caught. When ∆ got to the harbor refused to work unless given more money. Π increased the
wages because the season is short and the place was remote; felt they did not have a choice.
Issue: Was the contract created with the superintendent created with sufficient consideration?
Rule: Pre-existing duty rule Coerced promises are not enforceable when a party is requesting
compensation for doing that which he is legally bound to do unless there is new
consideration. Takes an unjustifiable advantage of the necessities of the other party.
Applying rule: π claims ∆ was playing the hold up game. Π needed them to do the work would
not have any other way if they stopped. ∆ is claiming there was consideration for using the
defective nets in exchange for additional money. Court said there was no new consideration.
Conclusion: For π

Hypo:
WT makes X at BLS  Cornell offers X + ½ X
BLS dean says I will give you 2X
Under mutual rescission theory for 2x salary – we extinguish the old contract at the same time.
How are we circumventing pre-existing duty rule? Consideration from before.
Restatement: If you agree w/ employer to get more money (increase in pay for the same job) b/c
you got a higher offer from somewhere else, this is not in violation of the pre-existing duty rule.

US v. Stump home specialties – Analyzing consideration’s function

Holding: Coercive modifications are not enforceable. The courts can get rid of the consideration
standard and use duress to prevent abuse of contract modifications

Angel v. Murray
SC of RI, 1974 (pg709)
Policing Agreements and Promises/ Modify contracts without consideration
“Garbage increases in town case”
Facts: Concerned citizens say city is spending the public’s money and is overpaying the
contractor for what he is already contracted to do (collecting trash). Contractor said there are
more units then anticipated and the city agreed to pay more.
Issue: Is the new contract enforceable if he is performing the same work that is required of
him under the original contract?
Rule: A promise modifying a duty under a contract not fully performed on either side is binding
if the modification is fair and equitable in view of the circumstances not anticipated by the
parties when the contract was made. Follows UCC 2-209.
Applying Rule: π is arguing there is no new consideration. We do not have complete
performance by either side yet. This was fair an equitable for the increase in work.
Conclusion: For ∆

Hillman criticism – This is mutual voluntariness for a fair and just modification and the courts
should get out of it.

Test for enforcing contract modification from Angel v. Murray

Courts should enforce agreements modifying contracts even without consideration if
1.The promise to modify is made before there is performance on either side
2.If the modification is voluntary, fair, and equitable and
3.If the circumstances prompting modification were unexpected
 Flowers v. Diamond Shamrock
5th Cir, 1952 (pg713)
Policing Agreements and Promises/ Accord and Satisfaction
∆ offers to pay more on their lease
Facts: π is leasing land to the ∆, ∆ offers to pay more, π discovers ∆ is underpaying. ∆ defense is
π cashed the checks which had attached the volume of production because of the small print on
the back of the check.
Issue: Did cashing the checks amount to accord and satisfaction?
Rule: Accord &satisfaction is evidence of acceptance of contract modification and waiver of suit.
Accord and satisfaction needs mutual assent of parties to settlement.
Applying Rule: There is no evidence the π knew or should have had knowledge that the checks
affected a disagreement. No accord and satisfaction – no knowledge checks were meant to settle
all debts and were giving up a greater amount of money, they would not have agreed to that.
Conclusion: For π
WT – Courts use accord/ satisfaction if it is the debtor who is accused of owing more

Foakes v. Beer
Does it look like there is coercion – No.
Would accord and satisfaction work here? Yes
Are they settling a bona fide dispute? Not bona fide
Are the parties trying to modify their agreement? Yes, need new consideration
If there is not consideration, even if they agree it does not matter.

Consolidated Edison Co. of NY Inc. v. Arroll

City of NY, 1971 (pg719)
Policing agreements and promises/ Accord and Satisfaction
“Electric Bills case”
Facts: π is trying to recover for 5 electric bills. ∆ did not pay because he claimed they exceeded
past bills for comparable period and he believes they are invalid. ∆ mailed a letter stating the
disagreement and sent a check based on past experience.
Issue: Is there accord and satisfaction?
Rule: The law that cashing or mere retention of checks beyond a reasonable length of time
constitutes accord and satisfaction.
Rule: Where a payee in good faith believes in accuracy of payment, cashing a check is
acceptance if the payee is factually incorrect.
Applying Rule: ∆ stated paying in full for the 5 checks received and deposited by π. Π said they
do not pick up the checks; court rejected. ∆ - The amount initially billed was correct so there is
not a bona fide dispute. The customer honestly disputed the amount because he was living the
same way as earlier cheaper bills. Court – this was supposed to be a settlement; you cannot take
the settlement money and then sue. Π was given sufficient notification there was a condition
upon the acceptance.
Conclusion: for ∆
Rules from cases:
(1) Circumventing the pre-existing duty doctrine
a. Simultaneous rejection of old contract by creating the new contract with the same
consideration for the old as the new
b. Mutual rescission theory – When existing contract is terminated by both party’s
consent, and there is a new one executed in it’s place
(2) Criticism of Pre-existing duty doctrine
a. Over-inclusive – Even if there is a modification if it is not coercive it should be
left in the contract
b. Under-inclusive – Pre-existing duty doctrine does not prevent coercion adequately
by requiring mere slight consideration as sufficient, rule is manipulable.
(3) Where a payee in good faith believes in accuracy of payment, cashing a check
is acceptance if the payee is factually incorrect – Con Ed

VI. The Substantive Content of the Duty to Perform

1. Parol Evidence Rule

When to use: To identify admissible evidence of an agreement to which the court may then apply
the principles of interpretation.
Parol Evidence Rule: Governs the extent to which a party may introduce in court evidence of
a claimed prior or contemporaneous agreement, understanding, or negotiation to explain,
supplement, or vary a written agreement.
In short:
Rule dealing with admissibility of evidence not already in writing or prior
writings The rule favors written agreements
Evidence of negotiation after a written agreement is not excluded by PER
Traditional Rule: Court will admit evidence of prior oral agreement only if it does not vary or
contradict the written contract and only if parties did not intend the contract to be complete on
that issue.
Policy Concerns Purpose
Control which evidence a party can introduce at trial to determine terms of the
contract Deters lying, bad memory, sympathetic jury persuading
Honors the written contract – incentive to put in writing. Precludes evidence of prior
and contradictory written contracts
Balances adherence to the written agreement against total willingness to give binding effect
to extrinsic evidence that may effect the written agreement
Hillman: conduct and statements after the contract is formed are not reached by the rule.

Williston – Only look to contract to determine admissibility – The written contract is complete
Corbin – More inclusive, external evidence may be considered

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

Terms backed up by the confirmatory memoranda of the parties OR which are in a writing
intended as a final agreement on those terms cannot be contradicted by evidence of any prior or
contemporaneous oral agreement, but can be supplemented by:
1. Course of dealing or usage of trade or by course of performance
 2. Evidence of consistent additional terms

Exceptions
Fraud – If there is evidence of fraud, that evidence is usually
admissible Conditions precedent
Ambiguity – When writing is ambiguous the court admits evidence to ascertain it’s
meaning
Collateral Contract – A separate agreement that can stand on it’s own does not fall
under parol evidence rule, since it is a separate agreement with it’s own consideration

Mitchell v. Lath
Ct of App of NY, 1928 (pg728)
Parol Evidence Rule/ Plain meaning rule
“Beach house across the street from icehouse case”
Facts: ∆ orally promised to remove an icehouse for π if they purchased the farm. P purchased
relying on the promise.
Issue: Whether their oral agreement can be admitted as evidence under the parol evidence rule?
Rule: Exceptions to Parol rule for something outside of the writing. To be admissible it must be:
Did parties inted to have an independent collateral contract?
Did parties inted for writing to be all encompassing? Was document integrated?
(1) Collateral – agreement rising out of the primary transaction and having the same
consideration, (2) Must not contradict express or implied provisions of the written contract and,
(3) Would not naturally or ordinarily be in the written agreement?)
Applying Rule: The court here is looking at the document itself and following Williston. The
court does not find the 3rd element because the contract shows a full and complete agreement
setting forth the obligations of each party.
Conclusion: For π
Dissent: Believes they can apply the same test and come to a different result. Disagrees with the
3rd element – said this is not natural and the oral evidence should be allowed in.
Masterson v. Sine
SC of Cali, 1968 (pg733)
Parol Evidence Rule/ Reasonably Susceptible
“∆ wants to buy π’s ranch case”
Facts: π owned a ranch, conveyed to ∆ by a grant deed. Π claims they reserved the right to
purchase the property for the same consideration plus depreciation value of any improvements. ∆
claims there is evidence of option contract to buy.
Issue: Is the ∆ evidence of an option contract to buy admissible?
Rule: Credible extrinsic evidence should be used to decide on admissibility of parol evidence.
Applying Rule: The court is looking at the face of the document itself. This is an unsophisticated
family in California. The formality of a deed makes it less likely people would put the side
agreement in. Natural that a family would not put this in the contract. Families less likely to put
things in writing with eachother. (following Corbin). Conclusion: For ∆
Dissent: It would not have been hard to put the five words in

Baker v. Bailey
SC of Montana, 1989 (pg741)
Parol Evidence Rule/ Integration
“Will not share water well case”
Facts: Water Well Use agreement states if the grantees sold their property, the grantors had no
obligation to provide the new owners with water.
Issue: Should outside evidence be allowed to prove ∆ should be allowed to use water?
Rule: Test of integration: when a final agreement is formed, all prior and contemporaneous
terms drop out. "Complete integration” is when all essential terms included, or "partial
integration" is important in determining if extrinsic survives the writing.
Applying Rule: The π does not let ∆ have water, which turns $40,000 property into $8,000
because it lacks water access. The evidence here fails though because it contradicts the written
evidence.
Conclusion: For π
W.T. Cases like this can show the parol evidence rule is not a good rule

Gold Kist, Inc. v. Carr

Ct of App Texas, 1994 (pg748)
Parol Evidence Rule/ plain meaning rule
“Exclusive peanut hauling rights case”
Facts: ∆ entered written agreement with π to purchase trucks and peanut hauling equipment. ∆
sued π for damages for breach of contract claiming he had exclusive hauling rights. Π claims that
is not what is in the contract.
Issue: Can ∆ use parol evidence rule to introduce a side agreement intended to be in the
document?
Rule: When the language of the contract is clear and unambiguous the court will not allow parol
evidence rule in to explain [Williston view].
Applying Rule: If the contract is not clear on it’s face the court will not go outside the contract.
Contract says “not exclusive”.
Conclusion: For π

Greenfield v. Philles Records, Inc.

New York Court of Appeals 2002

Brief Fact Summary. A contract between a music producer and a group of singers was at issue.
One of the singers was married to and subsequently divorced from the music producer. The
singer and music producer entered into a divorce settlement, which included certain releases, the
scope of which are at issue.

Synopsis of Rule of Law. The mutual releases in this divorce agreement were not so broad to
apply to the parties' recording contract.

Facts. The Plaintiffs were the individuals making up the group of "The Ronettes" (the
"Plaintiffs"). One of the Plaintiffs was Ronnie Greenfield ("Ms. Greenfield"). In 1963, the
Plaintiffs entered into a five year "personal services" recording contract (the "Agreement") with
the Defendants, Phil Spector ("Mr. Spector") and his production company, Philles Records (the
"Defendants"). The Plaintiffs "agreed to perform exclusively for Philles Records and in
exchange, Philles Records acquired an ownership right to the recordings of the Ronettes' musical
performances." The Agreement provided for the Plaintiffs to receive royalties and also granted
them a lump sum payment of about $15,000. The group disbanded in 1967 and Plaintiffs never
received any royalty payments despite their popularity. The Plaintiffs most popular album was
"Be My Baby". Ms. Greenfield and Mr. Spector were married in 1968 and separated a few years
later. A divorce settlement was agreed to in 1974 and the settlement included "mutual general
releases that purported to resolve all past and future claims and obligations that existed between
them, as well as between Greenfield and Spector's companies." Music from the 1960's became
popular again and the Defendants began to "mak[e] use of new recording technologies and
licensing master recordings of the Ronettes' vocal performances for use in movie and television
productions, a process known in entertainment industry parlance as 'synchronization.' " The
Defendants also profited with the Plaintiffs' music in other ways by utilizing advances in
technology. The Plaintiffs never received any royalties from these endeavors.
Issue. "[W]hether the artists' transfer of full ownership rights to the master recordings of musical
performances carried with it the unconditional right of the producer to redistribute those
performances in any technological format?"
• Whether the mutual releases set forth in the parties' divorce agreement bars Ms. Greenfield
from sharing in any of the royalties?
Held. Yes. "In the absence of an explicit contractual reservation of rights by the artists there is a
transfer of rights." The Court of Appeals held that "[u]nder the 'plain meaning rule' defendant's
had the absolute right, without royalties, to reproduce the recordings in media that were not in
existence at the time of the contract."
• The court first determined that California law applied when determining the scope of Ms.
Greenfield's release. California courts consider "all credible evidence of the parties' intent in
addition to the language of the contract." Further, "[t]he test of admissibility of extrinsic
evidence to explain the meaning of a written instrument is not whether it appears to the court to
be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a
meaning to which the language of the instrument is reasonably susceptible." The court followed
the New York Supreme Courts determination that the extrinsic evidence demonstrated Ms
Greenfield did not intend for the divorce settlement to apply to the 1963 recording contract and
its granting of royalties.
Discussion. This case offers a basic discussion of how to determine the scope of a release.

Pacific Gas and Electric Co. v. GW Thomas Drayage & Rigging Co.
SC of Cali, 1968 (pg754)
Parol Evidence Rule/ credible evidence [Corbin view]- words need context
“Steam turbine case”
Facts: ∆ contracted to replace metal cover of π’s steam turbine. ∆ was to take full liability in
the contract. During the work the cover fell and there is $25,144.51 in damages.
Issue: Can ∆ present admissions of π’s agents for proof the parties meant to cover injury to
property of 3rd parties only and not to π’s property?
Rule: Credible extrinsic evidence should be used to decide on admissibility of parol evidence.
Applying Rule: Judge Trainer thinks if you are trying to get the intent of the parties need to look
at all relevant evidence to see if there is a special meaning. There is past conduct between the
two parties and there are industry standards. Court examines credibility. More subjective judge.
Conclusion: For ∆
W.T. this creates problems for the contract because people can always attack what is not
included. This would substantially increase the length of the contract.
Trident Center v. Connecticut General Life Insurance Co.This case criticizes Pacific. Parol
evidence is only to be introduced when there is facial ambiguity. Court is supposed to be
preventing fraud.
 Eskimo Pie Corp. v. Whitelaw Diaries, Inc.
SDNY, 1968 (pg759)
Parol Evidence Rule/ Objective Intent
Judges decide in preliminary hearings
Facts: π and ∆ had a written contract and package deal agreement. ∆ has the right to
manufacture certain ice cream products with π label. Π did not maintain exclusivity.
Issue: Can ∆ use parol evidence to determine the meaning of the word non-exclusive?
Rule: Pacific v. Trident rules. Pacific – use all relevant evidence. Trident – Only when there is
facial ambiguity.
Applying Rule: Subjective understanding will not be admitted, judge will look at the meaning
and agreement. This is a very trusting approach of the judiciary. There will be a preliminary
hearing for the judge to decide.
W.T. – This is very trusting of the judiciary –good or bad, isn’t this what they are paid to do?

Notes – court is concerned with what evidence will be presented to a jury. Encourages people to
put it in writing. Does not allow contradictory evidence by allowing the oral evidence.
Prevents the jury from a playing a guessing game of who is lying.
Court is not deciding who is lying – they are deciding what the jury will hear

Variations of the Parol Rule:

(1) Mitchell – Plain meaning rule [Williston]
a. To be admissible it must be
i. Collateral – agreement from primary transaction and same consideration,
ii. Must not contradict express or implied provisions of written K, AND
iii. Would not naturally or ordinarily be in the written agreement
(2) Baker – Test of integration
a. Partial integration – The writing is only the entire written contract, but not the
parties complete agreement. Evidence of consistent verbal understandings is
ordinarily admissible.
b. Total integration – The written agreement is the complete agreement and can't be
supplemented by evidence of prior agreements.
(3) Pacific – Credible extrinsic evidence [Corbin]
(4) Eskimo Pie – Objective evidence rule
a. Will not listen to subjective intent of the party
b. Gives discretion to the judiciary
(5) Condition precedent exception to the Parol evidence rule

For attack outline use “analysis 9-1”

2. Principles of Interpretation

Interpretation: To determine the meaning or meanings of symbolic expressions used by the

parties to a contract, or their expressions in the formative stage of arriving at the creation of one
or more legally obligatory promises.
Sometimes courts construe against the drafter – Should have been more clear
Restatement §201. Who’s meaning prevails.
(1) Where parties have attached the same meaning to a promise, agreement, or term it
is interpreted in accordance with that meaning.
(2) Where the parties have attached different meanings to a promise or agreement or a term,
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
had the other had reason to know the meaning attached by the first party
(3) Except as stated in this section, neither party is bound by the meaning attached by the other,
even though the result may be a failure of mutual assent.

Berke v. Moore Co. v. Pheonix Bridge Co.

SC of NH, 1953
Interpretation

Facts: π believed the contract was for the whole surface area of area covered in cement – ∆
claimed it was only in reference to the top.
Issue: What did the parties believe the interpretation was at the time of the contract?
Rule: Restatement §201. (2)a.
Applying Rule: If they both thought the same thing then we do not have to decide. The parties
mutually understood the terms of the contract to include the surface of the deck. Factors,
circumstances, calculations, industry custom. Parties shared the same subjective understanding at
the time they entered the contract and that is the meaning that prevails.
Conclusion: For π

Hypo: Think back to the peerless case, if you know or had reason to know the other party meant
October, the outcome would be different.

3. Gap Fillers

Purpose – When a contract fails to deal with some matters

Unforeseeable conditions
Cannot always think of everything
Economic decision, expedient and cost
effective Poor drafting, incompetent
Misunderstanding (interpretation)
Intentional omission (if parties couldn’t agree so they hoped it would not
arise) Power of the pen – drafter intentionally made vague or left out

Hillman – Where a gap exists a court may turn to sources and methods to fill it
Extrinsic evidence of intent
Finding intent to do the reasonable thing

Note on UCC 2-204(3) – Even though one or more terms are left open a contract for sale does
not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably
certain basis for giving an appropriate remedy.
So  Even if an important term such as duration is left out the agreement can be enforced if the
parties intended to contract and an appropriate remedy can be supplied

M&G Polymers USA v. Tackett

SCOTUS 2015
Facts of the case
Retirees from the Point Pleasant Plant in Apple Grove, West Virginia⎯owned by M&G since
2000⎯sued after M&G announced that the retirees would be required to contribute to the cost of
their medical benefits. The retirees, who had been employees of Apple Grove before the plant
was bought by M&G, entered into a series of collective bargaining negotiations through their
unions regarding healthcare benefits. Just as earlier versions had included, the 2005-2008
collective bargaining agreement (CBA) included a provision that "capped", or limited, the
company's annual contribution towards employee healthcare benefits. In 2006, M&G
announced it was requiring employees to cover their individual costs once that cap was
exceeded in response to the shifting healthcare landscape. The retirees claimed that language in
the effective CBA promised full coverage of healthcare benefits for life without any
contribution requirement and sued the company because that "capping" provision was not
included in the pension and insurance booklet or adopted by the union on behalf of employees
in the latest agreement. The retirees sued under the Labor Management Relations Act (LMRA)
and the Employee Retirement Income Security Act of 1974 (ERISA).

The district court dismissed the retirees' claim, and they appealed to the U.S. Court of Appeals
for the Sixth Circuit, which reversed and remanded the case back to the district court. The
district court found in favor of the retirees but ordered that their healthcare benefits be
reinstated to the post-2007 version that included employee contributions. Both parties appealed
the decision, and the Court of Appeals affirmed the district court's judgement.
Question: When courts interpret collective bargaining agreements as part of LMRA claims,
should they interpret silence as to the duration of retiree healthcare benefits within the
agreement to mean the original terms continue indefinitely, or should they require an explicit
statement, or some language that would support the inference that benefits were meant to go
undisturbed?
Conclusion: Collective bargaining agreements, including those established under the Employee
Retirement Income Security Act of 1974 plans, should always be interpreted according to
ordinary principles of contract law.
Courts should apply ordinary principles of contract law. Justice Clarence Thomas delivered the
opinion for the unanimous Court. The Court held that collective bargaining agreements,
including those established under the Employee Retirement Income Security Act of 1974
(ERISA) plans, should always be interpreted according to ordinary principles of contract law.
In this case, the appellate court's holding relied on an understanding of contract law that leaned
too heavily in favor of vested retiree benefits in all collective bargaining agreements and
therefore distorted the efforts to ascertain the intentions of the parties, a principle on which
ordinary contract law is based. Additionally, the Court held that the appellate court relied on
inferences that did not have sufficient support in the factual record of this case and therefore
failed to properly apply principles of contract law, such as not construing ambiguous writings to
create lifetime promises.

In her concurring opinion, Justice Ruth Bader Ginsburg wrote that courts must apply ordinary
principles of contract law, which require courts to consider whether the agreement as a whole
adequately expresses the parties' intents. If not, then courts may turn to extrinsic evidence.
Justice Stephen G. Breyer, Justice Sonia Sotomayor, and Justice Elena Kagan joined in the
concurrence.
Haines v. City of New York
Ct of App of NY, 1977 (pg803)
Gap Fillers/ Duration
NY Sewage system
Facts: Used to dump sewage water into NY water. Contracted to expand sewer system. Π wants
to hook up to the sewage plant, but there is no contract obligation for it. Haines is a 3rd party
beneficiary.
Issue: Does the responsibility of NY expand to mean accommodating this type of development?
Sub issue: What is the duration of the contract? What was scope of duty?
Rule: On duration of the contract when there is absent a fixed term the court can inquire to the
intent of the parties and supply the missing term IF the duration may be fairly and reasonably
fixed by the surrounding circumstances and the parties’ intent.
Applying Rule: The contract was created 50 years before this lawsuit. This would operate in
excess of the design capacity. Not termination at will. Not no expiration, people do not sign up to
do things literally forever. Determines reasonable time period was intended by the parties to be
as long as NY needed it.
Conclusion: For ∆
Court does not want to be accused of writing the contract but here they are writing the contract.

Note**Analysis should not be used for employment contracts

Haslund v. Simon Property Group, Inc.

Ct of App 7th cir., 2004 (pg807)
Gap Fillers/ Sum in Equity
“Both parties are liars – 1% equity case”
Facts: ∆ is a real estate company that operates shopping malls. Π received a letter from ∆’s
director that in addition to salary she would receive 1% equity interest. Π requested shares from
∆ but never received them. 10 months later, π was terminated.
Issue: Can the court award damages to the reasonable sum of the equity missing in the contract?
Rule: Court can insert reasonable gap fillers
Applying Rule: In some cases arguments cannot fill gaps because they are indefinite. The
lawyers should have submitted evidence. Both parties were lying but hers were not as bad.
Conclusion: For π but gave 1% of $ 0

Rules from cases:

Duration - when there is absent a fixed term the court can inquire to the intent of the
parties and supply the missing term IF the duration may be fairly and reasonably fixed by
the surrounding circumstances and the parties’ intent.
 Not applicable to employment contracts!
Southwest Engineering Co. v. Martin Tractor Co.
Supreme Court of Kansas 1970

Brief Fact Summary. Company 1 bid on a contract to build a lighting system for the United
States Corps. of Engineers. In preparing its bid, company 1 received a price quote for a
generator from company 2. After the United States Corps. of Engineers accepted company 1's
bid, company 2 increased its price for the generator and subsequently refused to perform.

Synopsis of Rule of Law. "[W]here parties have reached an enforceable agreement for the sale of
goods, but omit therefrom the terms of payment, the law will imply, as part of the agreement,
that payment is to be made at time of delivery."

Facts. The Plaintiff, Southwest Engineering Co. (the "Plaintiff"), is a general contractor. The
Defendant, Martin Tractor Co. (the "Defendant") was a subcontractor. The Plaintiff was
interested in April 1966, in submitting a bid to the United States Corps. of Engineers to construct
certain runway lighting facilities at an air force base. Prior to submitting their bid, on April 11,
1966, Mr. R.E. Cloepil ("Mr. Cloepil"), an employee of the Plaintiff called Mr. Ken Hurt ("Mr.
Hurt"), an employee of the Defendant to ascertain the price of a standby generator and accessory
equipment. On April 12, 1966, Mr. Hurt called Mr. Cloepil and told him the price would be
$18,500. On April 14, 1966, the Plaintiff submitted their bid, which included the $18,500 figure
quoted by Mr. Hurt. The Plaintiff was notified on April 20, 1966 that their bid was accepted.
During a meeting on April 28, 1966, Mr. Hurt, speaking for the Defendant, raised the price of the
generator to $21,500. Mr. Cloepil on behalf of the Plaintiff assented to this change. The parties
never agreed to how payment was to be made. Then, in a letter from Mr. Hurt to Mr. Cloepfil
dated May 24, 1966, Mr. Hurt informed the Plaintiff that they could not proceed with the sale
and that the verbal quote was withdrawn.

Issue. Under the Uniform Commercial Code ("UCC"), can a contract be formed even if the
parties have not agreed to all the terms?

Held. Yes. The court first recognized that Kansas's enactment of UCC §2-204(3) reads: "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." The court went on to recognize that omission of even an important term
does not undercut the existence of a contract. Since the missing term here concerns the time and
place of payment, K.S.A. 84-2-310 will supply the missing term. This § states: "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".

Discussion. The UCC breaks away from the common law "Mirror Image Rule" and allows a
contract to be recognized although contracting parties have not agreed to all the terms.

4. Good Faith

Common Law imposes implied covenant of good faith and fair dealing
 Monge v. Beebe Rubber Company (1974)

Employee fired allegedly because refused to go out with employer - argues fired in bad faith
General rule: obligation of good faith in employment contract - sexual harassment bad faith
Restatement §205. Good Faith (Defines in terms of what is bad faith)
Every contract imposes upon each party a duty of good faith and fair dealing in it’s performance
and it’s enforcement.
1. Good Faith performance of a contract excludes a variety of types of conduct characterized as
bad faith because they violate community standards of decency, fairness, and reasonableness
2. Bad faith may be overt or consist of inaction while fair dealing may require more then honesty
Examples of Bad Faith
1. Evasion of spirit of bargain
2. Lack of diligence/ slacking off
3.Willful rendering of imperfect performance
4. Abuse of power to specify terms
5. Interference with or failure to cooperate in other party’s performance

Good faith – Faithfulness to an agreed common purpose and consistency with the justified
expectations of the other party
Bad faith – Violate community standards of decency, fairness, or reasonableness
Note: Overreaching interpretation of contract language and failing to cooperate are not bad faith

Fortune v. National Cash Register Co.

SC of Mass, 1977 (pg817)
Good Faith/ At will employee
“tried to fire employee not to give him commission case”
Facts: π is an at will employee and receives a bonus for sales made in his territory. Π had a
customer for over 6 years and was selling them a machine. Π received termination notice, but
was told to stay on and continue. Went through with the sale and only received partial bonus,
was told to forget about the rest. He was asked to retire, said no, and was terminated. Issue:
Was the termination in bad faith?
Rule: Restatement
Applying Rule: ∆ claims it is an at will employment contract and can terminate the π at any time
for any reason at all, the court does not think this looks right. Π did everything he needed to do
for the company to receive income; π is being fired to avoid paying compensation. ∆ is
depriving
π of something he already earned. This violates fairness.
Conclusion: For π

Restatement of agency §454 – Bad Faith – Comment a - Where the principal seeks to deprive the
agent of all compensation by terminating the contractual relationship when the agent is on the
brink of successfully completing the sale, the principal has acted in bad faith and the ensuing
transaction between the principal and the buyer is to be regarded as have been accomplished by
the agent.

City of Midland v. O’Bryant

Facts: πs were police officers who brought claims against the city for violation of ADA and
HRA. The city retaliated placing them in new inferior positions. Issue: Was the
reclassification a breach of good faith and fair dealing?
Rule: Restatement
Applying Rule: Court is looking at a moral baseline. Texas will not impose good faith on the at
will employees because they have alternative forms of employment and remedies. Court does
not want to change the nature of the at will contract.
Conclusion: For π

Tymshare, Inc. v. Covell

Facts: Employment contract granted ∆ commissions on sales above a quota. Contract permitted π
to increase the quota retrospectively.
Issue: Whether it was reasonably understood by the parties to this contract that there were certain
purposes for which the expressly conferred power to adjust quotas could not be employed Rule:
Good Faith
Applying Rule: If they agreed on sole discretion the court says we cannot enforce that.
Evaluating based on rational actors. There is a limitation on the employer to make changes
justifiable within the context reasonableness. Again, already earned and trying to take away.
Conclusion: For π

Centronics – Assess the abuse of discretion – At what point did you make a bad deal?
Test for finding violation of good faith
(1) Does the agreement ostensibly allow conferral on ∆ of a degree of discretion in performance
tantamount to power to deprive π of substantial proportion of the agreement’s value?
(2) Did the parties intend by their agreement to make an enforceable K?
(3) Has exercise of ∆ discretion exceeded reasonableness?
4. Is the cause of damage the ∆ abuse of discretion or is it from result of events beyond control of
either party?

Souter's approach:
• In determining whether to imply good faith if a contracted benefited for is withheld make sure
that partied made a legally enforceable K. then, has the discretion exceeded the limits of
reasonableness
• And, the good faith requirement is not a fail-safe device barring a defendant from the fruits of
every plaintiff's bad bargain, or empowering courts to rewrite agreements

Summers: In most cases the court defines bad faith and the lawyer defines good faith by stating
the opposite.
Judge – A public authority must act in good faith by letting in bids
Lawyer - ∆ acted in bad faith because he let bids in as a pretense

Note: Difference between Good Faith and Unconscionable

1. Unconscionable has to be at the time of entering the contract. So, as a result of a clause
as technically unconscionable at the END of contract, analyze under Good Faith.

Feld v. Henry S. Levy & Sons

Court of Appeals of New York (1975)

Brief Fact Summary. Feld (Plaintiff) and Henry S. Levy & Sons, Inc. (Defendant) entered
into a contract where the Plaintiff agreed to buy and the Defendant agreed to sell bread
crumbs. Both parties appeal from a judgment of the Appellate Division affirming the
Special Term’s decision denying Plaintiff’s Motion for Summary Judgment and rejecting
Defendant’s request for a summary judgment of dismissal.
Synopsis of Rule of Law. Under an output contract, good faith cessation of production of
the subject of the contract terminates any further obligations and excuses performance by
the party discontinuing production.

Facts. Plaintiff, who operates Crushed Toast Company, and Defendant, who is in the
wholesale bread baking business, entered into a contract in which Defendant agreed to sell
and Plaintiff to purchase all bread crumbs produced by the Seller for a certain period of
time. The agreement was deemed to automatically renew for successive renewal periods of
one year with the right of either party to terminate by giving not less than sixth months. A
faithful performance bond was delivered by Plaintiff at inception of the contractual
relationship. A substantial quantity of bread crumbs was sold by Defendant to Plaintiff but
Defendant stopped producing the bread crumbs. Evidence demonstrated that it was
uneconomical for the Defendant to continue operating his oven, however, no steps were
taken to acquire another oven. The oven was destroyed and Defendant used the area as a
computer room. Defendant indicated to the Plaintiff, that the Plaintiff would resume bread
crumb production if the contract
price of six cents per pound were changed to seven cents. The Special Term denied
Plaintiff’s Motion for Summary Judgment on the issue of liability and rejected Defendant’s
request for a summary judgment of dismissal. Both parties appealed from a judgment of the
Appellate Division affirming the Special Term’s holding.

Issue. Whether an output contract requires the seller to continue manufacturing the subject
of the contract through the contract term?

Held. No, as long as cessation is in good faith. Judgment affirmed.

A term, which is measured by the quantity of output of the seller or the requirements of the
buyer means that such actual output as may occur in good faith except that no quantity
unreasonably disproportionate to the stated estimate may be demanded. Further, a lawful
agreement by the seller or the buyer for exclusive dealing in goods imposes an obligation
on the seller to use best efforts to supply the goods and by the buyer to use best efforts to
promote their sale. Under the Uniform Commercial Code, every contract of this type
imposes an obligation of good faith in performance. In output contracts, good faith
cessation of production terminates any further obligation for performance.
Here, Defendant did not cease operations of bread baking, however, he determined that it
was uneconomical to continue production. Questions of facts exist as to whether Defendant
performed in good faith and whether its cessation of production was in good faith.
Defendant’s cessation prior to cancellation of the contract due to losses from producing the
bread crumbs under the existing circumstances would be justified in good faith if its losses
from continuing would be more than trivial. Therefore, there are question of fact remaining
and thus both parties’ Motions for Summary Judgment are denied.

Discussion. Agreements to sell all the goods or services a party may produce or perform to
another party are output contracts.
Section 1-203 of the Uniform Commercial Code provides that every contract imposes an
obligation of good faith in its performance. Section 205 of the Restatement Section of
Contracts states that a duty of good faith is imposed in all contracts.

VII. The Conditional Nature of The Duty To Perform

1. Specific Uses of Express Conditions and Their Operation and Effect

Promise – If the act is a promise and does not occur, the other party can sue for damages

Condition – An event not certain to occur, which must occur (unless excused) before
performance is due
Promissory Condition – Where a party chooses to make an event both a precursor to his own
duty and to have the other party vow to bring the event about. A person is promising that
condition happens – if it does not you have breached a promise.

Condition Precedent – The duty of one party does not mature until the other party has first
performed.

Concurrent Conditions – When parties to the contract are to exchange performances at the same
time. Usually found in contracts for the sale of goods, and conveyance of land.

Non-Promissory Condition (pure condition) – No one in the agreement is making a promise that
a condition will be satisfied

Express Condition Precedent – Parties explicitly agree that a duty is conditional upon the
happening of the event.

Implied conditions (constructive) – (1) Condition implied in law (2) Condition implied in fact.
Usually in bilateral contracts

Independent covenant – Where performance is due prior to another performing

Dependent covenant – Where performance is predicated on something else happening first

Discharge – A party is discharged when it is too late for the condition to occur

Steps: Evaluate if there is a condition first before talking about excusing failures
Steps: Do we have an express condition or not

Merrit Hill v. Windy Heights

Ct of App NY, 1984 (pg848)
Conditional Nature/ Condition precedent
“Selling vineyard case”
Facts: π put down a deposit to buy vineyard from ∆. The confirmation at the closing was
a condition and was not met. ∆ wants deposit and consequential damages back. Issue: Is
producing the policy and mortgage confirmation a promise or a condition?
Rule: Failure of a condition precedent is not a breach of contract unless the condition is
promissory.
Applying Rule: Is anyone’s promise or duty contingent? This is a promise because there is an
intention and a commitment has been made. Seller did not get the paperwork, so ∆ can get the
deposit back. If the contract does not mature then you do not have to pay because you have no
duty. Cannot get consequential damages.
Conclusion: for ∆
How can we protect the buyer better? Set up a promissory condition. Make it a condition – the
buyer’s duty to perform if not I get . Failure to do this means seller is not responsible.
 Jacob & Youngs, Inc.v. Kent
Ct of App NY, 1921 (pg849)
Conditional Nature/ Condition of substantial performance
“Redding pipe case”
Facts: Contracted to use Redding pipe, π used a different pipe but has similar quality and cost
then specified in the contract was used to build a home. Π built the house and ∆ will not
make the last payment.
Issue: If there a promise or a condition?
Rule: Cardozo creates – Condition of substantial performance
Applying Rule: ∆ claims there is an express condition precedent to literal 100% compliance with
specification. If you deviated then my duty to make this last payment does not mature. Redding
pipe is the subject of the promise but it is not the condition to pay. Court saying this is trivial.
Cardozo: The pipes are equally valuable, mostly in the wall. Said should be an express condition.
Conclusion: For π Factors (1) Purpose to be served (2) desire to be gratified (3) the cruelty of
enforced adherence
Dissent: The court is going against what they agreed on, you should get everything you agreed
on. Everything should be a condition to be paid.
W.T. – If you want something so badly you need to be express condition.

Restatement §237: Substantial Performance.

If there has not been substantial performance, a building contractor does not have a claim for
unpaid balance, though he may have a claim in restitution.

Brown-Marx Associates, LTD. V. Emigrant Savings Bank

Ct of App 7th Cir., 1983
Conditional Nature/
Bank loan for 1.1 million
Facts: ∆ had made a loan commitment for financing π’s building. Π paid the bank (∆) for
the commitment; The ∆ had terms to providing the ceiling loan (1.1 million). ∆ refused to
lend money to π because he failed to satisfy the minimum rental requirement of the
commitment. Issue: Was there a commitment, can π recover under substantial performance?
Rule: Substantial performance doctrine: Where a contract is made for an agreed exchange of two
performances, one of which is to be rendered first, substantial performance rather then exact
strict or unilateral performance by the first party of the terms of the contract is adequate to
entitle the party to recover on it. (Prevent unjust enrichment)
Applying Rule: π did not meet the condition for the lease amount in their agreement with ∆. Π is
claiming they have substantial performance. This does not match the intent of the parties and is a
vital interest. Cannot apply substantial performance to an express condition.
Conclusion: For ∆

Differences between Brown and Jacob

Jacob – Trivial interest – pipes were almost the same and were in the wall
Brown – Vital interest – If the π is not making enough money on it’s leases will not be able to
pay back the loan
Jacob – There is an express condition – This is not let’s see how close you can get and you win
Brown – Cardozo said if there was an express condition he would have ruled differently
Substantial performance is generally for construction contracts
Restatement of contracts §237 Comment d.
Substantial performance – When there is substantial but not full performance. The building
contractor has a claim for the unpaid balance and the owner has a claim only for damages. If
there had not been substantial performance then there is no claim for the unpaid balance. (might
be a claim in restitution available).
When full performance is a condition – substantial performance is not sufficient relief.

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

Express conditions possibly implied in fact or less common, implied in law.
Consider contract language means:
A party promises to bring an event about, Or
The event is only an express condition precedent to a duty of another party,
Or The event is both a promise and a condition, Or
The event is neither

When it is doubtful whether words create a promise or a condition precedent, courts usually
construe it as a creating promise, courts do not like condition precedent.

Restatement §227 – When resolving whether an event is made a condition of an obligor’s duty
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 assumed the risk.

Glaholm v. Hays
English court 1841
Clause is a condition precedent: “the vessel to sail from England on or before the 4th day of
February next”
Look at language of the alleged express condition on its face: the words “to sail on or
before a given day” themselves, by common usage, import the same as the words
“conditioned to sail” - court concluded the words “to sail by x date” were a condition
precedent to duty to pay
Look at subject matter / purpose for agreement: business people import/export on
timelines - it makes sense to construe as condition precedent -remedial difficulties
arguement
0 (if it were just a promise that were breached, we’d get damages - but they’d be lost
profits, too hard to figure out) - sometimes we ought to go with condition, even though the
norm is Restatement § 227 that when in doubt courts will go with promise and not a condition
to prevent forfeiture

Howard v. Federal Crop Ins. Corp.

Ct of App 4th Cir., 1976
Conditional Nature/
“Crop damages insurance case”
Facts: π wants to recover for their tobacco crops ruined in rain damage, they were insured by ∆.
∆ denied because π did not comply with a provision – cannot destroy until corporation
inspects. Issue: Is compliance with the provision of this policy was a condition precedent to
recovery? Rule: Where it is doubtful whether words create a promise or an express condition,
they are usually interpreted as creating a promise to avoid a forfeit.
Applying Rule: This is a jury question because the provision is unclear. This section does not
discuss conditions precedent, only previous section does. Government tells farmers to handle it
this way for pest control, insurance policy tells them to do different.
Conclusion: Issue of fact (VERY NARROW HOLDING) – not for summary judgement

3. Excuse and Avoidance of Express Conditions

Sometimes the non-occurrence of a condition is excused so that the other party must still perform

Hindrance – Where one party’s duty is conditional on an event, and that same party’s wrongful
conduct prevents the occurrence of the condition, then the non-occurrence of the condition is
excused, and then the party must still perform. “implied promise of cooperation”

Gibson v. Cranage
Supreme Court of Michigan 1878
If painting “not perfectly satisfactory to ∆ in every particular, ∆ need not take it or pay for it”
Satisfaction is an express condition precedent to payment - duty to pay did not mature
because dissatisfied
Π argues: a reasonable person would think enlargement is fine
0 Court says standard for measuring satisfaction is subjective
1 If satisfaction clause concerns taste, fancy, or judgment, courts apply subjective
standard and honesty test: if you’re not personally satisfied, that’s it
(employment contracts with satisfaction clauses get subjective test of satisfaction)
If satisfaction clause concerns commercial value, quality, operative fitness, or mechanical
utility, courts apply an objective reasonableness test
Good faith (reasonableness and honesty) is a limit on satisfaction (at least look at painting)
Forman v. Benson
1983 Appellate Court of Illinois
Satisfaction clause: duty to sell based on supplying good credit report
General rule: objective standard for credit reports because credit reporting agencies rate credit
reports and industry makes determination on what constitutes good/bad credit report
0.0 BUT parties can opt out of objective standard in favor of subjective standard -
person can say “I do not want to be in this deal unless it is to my personal
satisfaction”
BUT even under subjective test, still find in favor of buyer because issue of bad faith
0even under subjective standard must act in good faith - here decision based on wanting
more money, not credit report
Dissent: not bad faith: “I don’t know him from a load of hay” - why trust that you’ll pay me?

Luttinger v. Rosen
 Supreme Court of Conn. 1972
Literal definition of fufilment of condition precedent
Brief Fact Summary. The Plaintiffs sued for a return of their deposit for the purchase of the
Defendants’ premises after the Plaintiffs were unable to secure financing within the agreed-
upon parameters of the contract.

Synopsis of Rule of Law. A contract is not binding where a condition precedent to

performance of the agreement was not met.

Facts. The Plaintiffs agreed to buy the Defendants’ premises for $85,000 and paid an $8,500
deposit. The contract was “subject to and conditional upon the buyers obtaining first mortgage
financing on said premises from a bank or other lending institution in an amount of $45,000
for a term of not less than twenty (20) years and at an interest rate which does not exceed 8 1/2
per cent per annum.” The Plaintiffs agreed to use due diligence in obtaining said financing.
The parties also agreed that all sums would be refunded in the event the Plaintiffs could not
obtain financing. The Plaintiffs’ attorney only attempted to obtain financing through one
lending institution. He was familiar with the lending practices in the area at the time and knew
that this institution was the only one that would possibly lend money within the contract
parameters. The Plaintiffs were unable to obtain financing at the agreed-upon interest rate and
the Defendants initiated this suit, averring a lack of due diligence on the Plaintiffs’ part in
obtaining financing.

Issue. Did the Plaintiffs exercise due diligence in seeking a mortgage in order to satisfy the
condition precedent to performance of the contract?
Held. Yes. The contract stipulated that the Plaintiffs’ purchase of the Defendants’ premises was
conditioned upon the Plaintiffs’ ability to procure financing in the amount of $45,000 for a
term of at least twenty years and at an interest rate of less than 8.5%. The Plaintiffs’ attorney
sought financing at the only lending institution in and around the area that might satisfy the
condition precedent, but was unable to secure the mortgage at the desired rate. His failure to
look elsewhere does not constitute a lack of due diligence. He was knowledgeable about
lending practices in the area. Therefore, seeking another lender would have been a futile act
and the law imposes no duty to undertake a futile act. Hence, since the condition precedent
was not met, the contract is not binding and the plaintiffs are entitled to a refund of their
deposit.

Discussion. A condition precedent to performance must be met before performance is required

on a contract.
UCC §1-205. Reasonable Time; Seasonableness
(a) Whether a time for taking an action required by the UCC is reasonable depends on
the nature, purpose, and circumstances of the action
(b) An action is taken seasonably if it is taken at or within the time agreed or, if no time is
agreed on, at or within a reasonable time

Problem of Waiver of a condition – The waiver takes place after the failure to perform the
condition has already occurred, and the promisee makes no subsequent change of position
on which to base an estoppel
Hillman – courts tend to restrict waivers without consideration or reliance of non-material
relinquishments of a right. Parties generally cannot waive material terms without consideration
or reliance

Hanna v. Commercial Traveler’s Mutual Accident Association

SC of NY, 1992 (pg 881)
Conditional Nature/ Express Condition
“Car found in Delaware River Case”
Facts: A man died in a car accident and was found 5 years later. ∆ claims he was intoxicated at
the time of the accident.
Issue: Can π recover even though they did not comply with the agreement using the defense of
impossibility of compliance?
Rule: When a person by express condition says they will do something not impossible at that
time, nothing excuses him, because he should have contracted for the contingency. Applying
Rule: π wants money for death, but there is an express condition within a certain period of
time, failure of the condition means no duty to pay. Π is claiming impossibility. Court says
there is an express condition here with plain language and meaning, π agreed to this.
Conclusion: For ∆
Dissent: There are cases that support a reasonable interpretation. Non-compliance should work
here because there is not fraud, he died in the river

Connecticut Fire Insurance Co. v. Fox

Ct of App, 10th cir., 1966
Conditional Nature/ Waiving Conditions
Fire and insurance case
Facts: ∆ had a fire insurance contract with π. A substantial portion of ∆ motel was destroyed or
damaged by fire. The contract had a provision of when to notify the loss. Agent of π persuaded ∆
to sign a non-waiver agreement, proposed a settlement, and denied a claim to the ∆. Provision:
Give us proof of loss with a period of time
Issue: Did the insurer waive the proof of loss requirement?
Rule: A proof of loss requirement is valid and may be considered as a condition precedent to
recovery.
Applying Rule: The conditions have been waived. ∆ lawyer told them not to sign and they did
anyway. Court thinks π’s agent was shady.
Conclusion: For ∆

Restatement §229 --- To the extent the non-occurrence of a condition would cause
disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless it’s
occurrence was a material part of the agreed exchange
 JNA Realty Corp. v. Cross Bay Chelsea, Inc.
Ct of App NY, 1977
Conditional Nature/ Overriding of express conditions to prevent forfeiture
“Restaurant lease case”
Facts: Lease expired, there was an option to renew within the time prescribed in the lease –
tenant did not give notice and knows they did not meet the condition. Landlord said you’re
out. Issue: Will the tenant suffer forfeiture if the landlord is permitted to enforce the letter of
the agreement?
Rule: An express contract precedent can be excused where good-faith failure to follow it due to
venial oversight would result in inequitable forfeiture; but if not harm to the landlord occurs,
forfeiture is required.
Applying Rule: Tenant is using an oops defense. They forgot, but had made improvements on
the property; they would lose their location, and good will. Landlord has not been harmed.
Conclusion: For π
Dissent: Preventing landlord from taking advantage of an increase in the market, but tenants
can use this advantage now

Note - ∆ would have suffered forfeiture, they made substantial improvements to the property,
including after the option period finished

Holiday Inns of America, Inc. v. Knight

SC of Cali, 1969 (pg899)
Conditional Nature/
Future payment – no idea really
Facts: π financed an option contract. All payments were on time then one was late. ∆ cancelled
the contract.
Issue: Whether the right to exercise the option in the future was forfeited by a failure to pay the
consideration for that right precisely on time
Rule: Cali Civil Code – When a failure of obligation occurs and results in forfeiture, can be
remedied by making full compensation
Applying Rule: Effectively, the court says each prior payment secures an interest at the end of a
contract period as well as the current period. The failure is excused under statute, to prevent
forfeiture of the option. ALSO, ∆ was not injured here
Conclusion: For π

Summary:
Three Tests for Assessing Override of Conditions Under Threat of Forfeiture
1. The JNA test allowing forfeiture even for venial oversight if there’s significant harm to owner
2. CA statutory rule where tenant must make late payment, but no forfeiture allowed
3. The Restatement §229 rule: materiality
4. Implied Conditions Fixing The Quality of Performance

Did Not Cover in Class

Simultaneous Exchange
i. Mutually dependent, the two performances are concurrent conditions of reciprocal duties of the
parties. ii. Williston-Since a conditional tender is necessary to put either party in default, if both
parties remain inactive, neither is liable
and neither has acquired right of action iii. UCC 2-507(1)
• Tender of delivery is a condition to the buyer’s duty to accept the goods and to his duty to pay
for them
• Tender entitles the seller to acceptance of the goods and to payment according to the contract
iv. UCC 2-511(1). Tender of payment is a condition to the seller’s duty to tender and complete
any delivery
v. Restatement 234(1). Where all or part of the performances to be exchanged can be rendered
simultaneously, they are due simultaneously, unless language or circumstances indicate the
contrary
vi. Implied in law conditions that happen at the same time (if not specified otherwise). Nobody
giving credit to the other, so the law presumes simultaneous exchange.
Plante v. Jacobs
SC of Wisconsin, 1960 (pg917)
Implied Conditions Fixing The Quality of Performance
House with minor defects
Facts: ∆ claims no substantial performance on finishing the house, π concedes errors but says did
not change market value and did substantially perform. ∆ won’t pay final installment
Rule: Substantial performance means work meet essential purpose of the contract. There can be
no recovery on the contract unless there is substantial performance.
Computing damages rules: (1) where there are a small number of defects that can be itemized,
reasonable cost of correction. (2) Where not possible to itemize defects’ cost, diminished value
of property.
Applying Rule: Did you basically get what you agreed to? Looking at diminished value and cost
to complete. Court is assigning damages for the final installment minus damages from the
breach. These were inconveniences. Performance is substantial, the contract will be upheld.
Conclusion: For π

Grun v. Roofing And Construction Co. v. Cope

Ct of App Texas, 1975 (pg921)
Implied Conditions Fixing The Quality of Performance
“Roof case”
Facts: ∆ installed a leaky roof, it is complete but unsightly.
Issue: Can ∆ recover for substantial performance?
Rule: Home repair is subject to deference of taste and whimsy in determining the essential
purpose of the contract.
Applying Rule: There is a material breach – not substantial performance. The roof is not good
enough.
Conclusion: For π

Looking at in the context of material breach –

UCC §2-717. Deduction of Damages From the Price.
The buyer on notifying the seller of his intention to do so may deduct all or any part of he
damages resulting from any breach of the contract from any part of the price still due under
the same contract.

Restatement §237: Suspending breach [Wait long enough and there is an uncured breach]
It is a condition of each party’s remaining duties to render performances to be exchanged under
an exchange of promises that there be no uncured material failure by the other party to rendy any
such performance due at an earlier time

Restatement §241: Determining Materiality of Breach [To determine if breach is material]

1. The extent to which the injured party will be deprived of the benefit reasonably expected.
2. The extent to which the injured party can be adequately compensated for the part of the benefit
of which he will be deprived.
3. The extent to which the party failing to perform or to offer to perform will cure his failure,
taking account of all the circumstances including any reasonable assurances.
4. The likelihood that the party failing to perform or to offer to perform will cure his
failure, taking account of all circumstances including any reasonable assurances.
5. The extend to which the behavior of the party failing to perform or to offer to perform
comports with standards of good faith and fair dealing. [W.T. if you have been shady in the past]

Restatement §242: Circumstances Significant in determining when remaining duties

are discharged.
1. Factors from 214
2. Extent to which it reasonably appears to injured one that delay may prevent reasonable
substitute arrangements
3. Extent to which agreement provides for performance without delay, but agreement doesn’t
discharge with duty unless the circumstances include the contract language indicate that
performance on that day is important.

Walker & Co. v. Harrison

SC of Michigan, 1957 (pg924)
Material Breach
“Tomato on sign case”
Facts: ∆ entered into a written contract with the π for installation, construction, and maintenance
of an advertising sign. Payments were made in installments. ∆ complained of damage to the sign
and requested maintenance from π, π did not respond, ∆ stopped paying. Issue: Did π materially
breach the contract?
Rule: A material breach rebuts substantial performance
Applying Rule: π substantially performed because he installed and constructed the
advertisement. This is not a material breach because the ∆ could have paid someone else to clean
it and deducted it from π.
Conclusion: For π
 John v. United Advertising
SC of Colo, 1968 (pg929)
Material Breach/ Divisibility Rule
7-highway signs case
Facts: π bought 7 signs and wants contract money back because they were not placed
properly and one was not there at all
Issue: Can π get money back for material breach?
Rule: Divisibility Rule, if the contract can be divided to assess proportional due for breach on
each part of a contract, the court can determine damages for partial performance on the contract.
Applying Rule: This was a severable breach. The signs that are okay π cannot recover for. Π gets
damages for two signs.
Conclusion: For π

Carring v. Gilbert – Varker Corp.

SC of Mass, 1943 (pg933)
Material Breach/ Severability
35 houses case
Facts: ∆ was supposed to put up 35 houses and only put up 20
Issue: Can the damages be apportioned based on consideration for each pair?
Rule: Divisibility Rule
Applying Rule: Each house’s payment is $132,000. If they are paid for in a lump sum they are
not severable. If they are paid for separately they are severable.

Kirkland v. Archbold
Facts: π agreed to repaid and alter ∆’s home. ∆ did some of the work.
Issue: Is this agreement severable?
Rule: Divisibility rule, if the contract can be divided to assess proportional due for breach on
each part of a contract, the court can determine damages for partial performance on the
contract. Applying Rule: There is $2,000 due on completion; this payment is not tied to any
work. Severable contracts go work  pay  work  pay and can be divided up proportionally.
Conclusion: For ∆

Stewart v. Newbury – Sequential performance

Facts: π is doing work on ∆’s building. Nothing was put in writing for the manner of payment.
When π finished the first floor he sent a bill and ∆ refused to pay, π stopped working on project.
Issue: Did ∆ properly refuse to pay the π’s bill before π substantially performed on the contract?
Rule: When a contract is made to perform work without an agreement to payment, the work must
be substantially performed before payment can be demanded.
Applying Rule: One person has to perform first and another performance comes after. Have to
substantially perform to get paid. Cannot keep constructing without money from the first part.
Conclusion: For π
Substantial performance Roadmap:
1. If there is breach, first question: is the work completed:
a. If yes, the next question is whether there is substantial
performance: If yes, the next question is whether the K is
divisible
If yes, then K is divided and damages awarded on the K as to portions breached and
off K as to others
If no, then after waiting for a cure, the
b. If no, then there may be recovery in quantum meruit (the amount to be paid for services
when no contract exists or when there is doubt as to the amount due for the work
performed.
2. If no, then the next question is whether the breach is material?
a. If yes, then is the breach total or partial?
If total – wait for cure, then terminate, recover off contract or quantum meruit
If partial – recovery can be on the contract for those portions not breached and off the
contract for those breached.
c. If not, parties continue and damages awarded on the contract

5. Anticipatory Repudiation and Prospective Inability To Perform

Restatement §250. Statement or an act is a repudiation.

(a) A statement by the obligor to the obligee indicting that the obligor will commit a breach
that would of itself give the obligee a claim for damages for total breach Or
(b) A voluntary affirmative act which renders the obligor unable or apparently unable to
perform without such a breach

Hochester v. De La Tour
Queens Bench, 1853 (pg958)
Breach before performance
Tour is June 1st court date is May 22nd
Facts: Tour was to commence
th
on June 1st, ∆ wrote to π nd
he changed his mind and declined his
services on May 11 . Π brought the lawsuit on May 22
Issue: Can you sue before the date of performance?
Rule: Where there is an agreement for a future act, the parties to the contract impliedly promise
that in the meantime neither will act prejudice to the other inconsistent with that relation.
Applying Rule: Bringing the suit before a breach is okay because it assists mitigation. This is
about stopping the courier from being able to make plans.
Conclusion: For π

Hypo: If contract ends September 1st and ∆ breached July 1st and the lawsuit was on August 2nd,
you could still recover if you broke your leg on August 2nd

UCC 2-609: Right to Adequate Assurance of Performance (same as Restatement §251)

1.A K for sale obligates each that the other’s expectation of performance wont be impaired
2.When there is doubt by either, they may demand adequate assurance of due performance
3.Until hearing the assurance, either may suspend own performance for which not yet paid
4.Failure to adequately respond to demand for assurance within 30 days is repudiation
Mutual Mistake

Mistake of Both Parties Makes a Contract Voidable

ii. RST (Second) Contracts § 152.
(1) Where a mistake of both parties at the time a contract was made as to a basic assumption on
which the contract was made has a material effect on the agreed exchange of performances, the
contract is voidable by the adversely affected party unless he bears the risk of the mistake under
the rule stated in § 154.
(2) In determining whether the mistake has a material effect on the agreed exchange of
performances, account is taken of any relief by way of reformation, restitution, or
otherwise.

A Party Bears the Risk of a Mistake.

RST § 154.
(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 (as
in jewelry Wood case), or
(c) The risk is allocated to him by the court on the ground that it is reasonable in
the circumstances to do so.

Sherwood v. Walker
Facts: Rose the cow is presented as barren. The parties agree to sell on that premise. Π refuses to
convey because they discover the cow is pregnant and pregnant cows are worth more.
Issue: Does π have to convey if there is mutual mistake?
Rule: Law of mutual mistake
Applying Rule: Superior knowledge, something peculiar in this case so who was in the position
to find out?
Conclusion: For ∆
Dissent: the π could not have known, if they could have it would be different

Wood – Mistakenly sold something for a dollar – now has to assume the mistake
The court does not like undoing deals

Hypo - $80 for a barren cow, buyer says I think it is not barren. Non-barren cows normally sell
for $200. You sell it for $100, this is a gamble.

Lenawee County Board of Health v. Messerly Sherwood

test – mistake of essence or mistake of value? Court
rejects test
Using restatement §152
Does it affect agreed performances?
Unless clause
Suggests the court should put the loss on that
party The present condition clause
The buyer agreed to buy in its present condition – Taking the risk there is something here.
Dissent: Should they have done a reasonable inspection?
Restatement. §152. When mistake of both parties makes a contract voidable.
(1) Where a basic mistake of both parties at the same time a contract was made as to a basic
assumption on which the contract was made has a material effect on the agreed exchange of
performances, the contract is voidable by the adversely affected party unless he bears the risk of
the mistake under the rule stated in §154.
(2) In determining whether the mistake has a material effect on the agreed exchange of
performances, account is taken of any relief by way of reformation, restitution, or
otherwise.

Restatement §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.

Unilateral Mistake (Restatement §§152-154 applies here too)

Triple A Contractors v. Rural Water District 4
Rule: KS law is unilateral mistake will not excuse non-performance (unless fraud) 58l.
Facts: 27 year old put a mistake in the bid. Makes clerical error in bid, votes to accept bid
anyway and demands keeping the bid
Holding: no release from mistake
Reasoning: court concerns with keeping integrity in the bidding process.
WT: Family is trying to get the court to adopt the exception rule.
vi. Dissent: Most places allow rescission for unilateral mistake if
The bidder has acted honestly, in good faith and without gross or willful negligence and
The bidder was reasonably prompt in notifying the contracting party of the error and
The mistake pertained to a material part of the K and
The mistake was of such magnitude that enforcement or forfeiture would be
unconscionable and
Relief would return the parties to the status quo without prejudice to the contracting party,
AND - Evidence is presented which convincingly establishes the mistake in fact exists.

IMPOSSIBILITY OF PERFORMANCE

Impossibility of Performance: where circumstances change materially after agreement.

Hillman: early definition was “objectively incapable of being done” due to
unforeseeable occurrence
1.Contrast with mistake: there something at time of K changes things; here it is after agreement

Taylor v. Caldwell
Rule: In every K there is the implied condition of “continued existence of the essential
thing” where impossibility of performance arising from the perishing of the person or thing
shall excuse performance
Facts: ∆ is to let out music hall; day after agreement it burns down, with no fault
Issue: is the π loss (advertising, preparations) to fall on ∆
Holding: π and ∆ both excused
WT: today there would be a force majure clause: an “act of God” clause allocating the risk

WT: when in doubt, argue both mistake and impossibility: might come out the same

Misunderstanding v. Mutual mistake: what is the difference between the mistake and
misunderstanding?
1. Misunderstanding: term in the contract is ambiguous (Peerless is the paradigm case)
2. Mistake: a belief that is contrary to the facts
a. This doesn’t refer to ambiguity or a term to interpret
b. Can be unilateral versus mutual

Impracticability of Performance: where the performance is “extremely onerous” due to an

“unanticipated event,” usually with some financial dimension to it. But Usually courts say parties
impliedly or expressly allocated the risk

UCC 2-614(1): Impracticability

1. Where without fault of either party the agreed manner of delivery becomes
commercially impracticable but a commercially reasonable alternative is available, such
substitute performance must be tendered and accepted

UCC §2-615: Impracticability:

1. Delay in delivery or non-delivery in whole or in part by a seller is not a breach of his
duty under a K for sale if performance as agreed has been made impracticable by the
occurrence of a contingency the non-occurrence of which was a basic assumption on which
the K was made
a. Where only part of party’s ability to perform is affected, he may allocate in any manner
fair and reasonable
b. Seller must notify buyer seasonably that there will be delay or non-delivery
c. Increased cost alone does not excuse performance unless the rise is due to some
unforeseen contingency that alters the essential nature of the performance. Neither is rise or
collapse in market a justification; but a severe shortage of raw materials due to war,
embargo, crop failure, unforeseen shutdown of major sources of supply which either causes
a marked increase in cost or prevents the seller from securing supplies necessary to his
performance is within the contemplation of the section.

Marcovich Land Co. v. Newberry Co.

Rule: The test for impracticability is where there was extreme difficulty expense, injury, or
loss with a financial component which goes well beyond the normal range of what might
have been expected and whether the parties allocated such risk
Facts: Landlord and tenant with equal business savvy dispute on rebuilding; M claims impossible
to rebuild without huge cost; N claims L must rebuild under K
Issue: was trial correct to award tenant lost business profits?
Holding: yes. The " can get financing, so not impossible, and because parties allocated risk
by the fire clause, impracticability isn’t a defense in any case because it is not difficult enough to
make the payments.
W.T. Theory being if it is that much more expensive you are in a different contract that what you
originally agreed to do.
WT: without fire clause allocation, court would’ve used Taylor to say failure of implied
condition of continued “existence of the thing” excuses our performance
NOTE: there was condemnation in this case, so because of govt intervention, damages are
only from fire up to condemnation

Mineral Park Land v. Howard

Rule: increase in cost of 10x + is a prohibitive cost and performance is impracticable as long as
parties’ basic assumption in contracting was that the disruption would not occur And the risk was
not allocated or foreseeable
Facts: K to haul gravel of certain amount; " claims π uses some from elsewhere for better $
∆ claims impracticability; would have been 10x more expensive to extract from here
Holding: only small recovery for ∆
Reasoning: This means not just more expensive or causing loss—it has to be that it was as if
there was no gravel to be had
WT: this might have been good mutual mistake case

Frustration of Purpose:
Krell v. Henry
Rule: where the foundation for the contract fails to exist and such failure was not foreseeable,
an excuse of frustration is justified
Facts: coronation of king; king gets sick; was not in contemplation of parties
Holding: payment is excused since “a state of things essential to the contract...perished or
failed to be in existence; this failure was not reasonably foreseeable.
Reasoning: court admitted PE of the foundation of the K and found it to be viewing the parade