Contracts Outline

Standard v. rule
Rule is like UCC or Restatement-bright line (x is the answer), they make exceptions to
them, at some point there are so many exceptions make a new rule, rule with a lot of
exceptions=standard (equitable estoppel, promissory estoppel)
Cry for help
Opportunistic
Build means build
Allocating the risk
Lottery ticket
I. CONTRACTUAL RELATIONSHIPS AND CONDUCT
A. INDEFINITE CONTRACTUAL AGREEMENTS
1. EXCLUSIVE DEALINGS CONTRACTS /BEST EFFORTS
Wood v. Lucy, Lady Duff-Gordon
Contract between Wood and Lucy, where Wood was to have exclusive marketing rights to her
label and she would, in exchange receive half of the profits of the venture. She signed a deal with
Sears Roebuck, however, and he is bringing suit for breach of contract. She claims that he has no
consideration, but Cardozo infers promise of best efforts on his part that he will actually do
something. He considers it unreasonable for her to have given this right as a gift and recognizes
his marketing expertise to conclude that this gap should be filled by the courts. Look at 3
elements that show it is not a gift
1. she gets of profits
2. he has expertise in marketing
3. he is held accountable to her for his spending and efforts and he is to take out
copyrights and patents to protect the articles under agreement.
Bloor v. Falstaff Brewing Corp.
Best efforts v. No efforts. Bloor sold Ballantine Beer to Falstaff under the condition that they
would receive $.50 per barrel for 6 years and if Falstaff was to discontinue distribution of
Ballentine then they were to pay portion of time remaining X $1,100,000. Kalamovitz decided to
change plan after the sale to focus on profits, cutting Ballentine advertising budget from
$1,000,000 to $115,000/year, closed 4 of 6 of Ballentines distribution centers, and discontinued
various illegal practices that Ballentine had previously done in sales efforts, and refused offer
from Guiness to distribute it. Thus Ballentines sales fell precipitously. Falstaff, in this process,
made great financial headway. Court held that Falstaff was not forced to go bankrupt in
maintaining its best efforts commitment to Bloor, but that it was required to make efforts even
in economic hardship. Thus the court held that Falstaff breached its best efforts duty when it did
not really consider the interests of Bloor in cutting the sales of Ballentine. Its obligation to
Ballentine was not to depreciate sales of Falstaffs brands but simply to promote and maintain
high sales of Ballentine.

Damages compare what Ballentines sales would have been if compared to Schaffer and
Rheingold
Relational contracts
1. ongoing contracts for the supply of goods or services rather than agreements for
a single exchange
2. because these contracts concern several transactions, parties cannot reduce the
bargain to well defined obligations.
UCC-2-306
result is best efforts idea; very similar to good faith. Exercise ordinary business prudence
and due diligence. Courts can find that people acting out of best efforts cannot do things which
are directly contradictory and obviously malicious to the plaintiff (i.e. dealing with another
partner to force someone to accept lower contract terms
Result people use termination privileges, liquidated damages clauses, and covenant to not
compete
To reduce these problems in relational contracts, two possibilities
1. form corporation
2. place provisions in the contract to preserve the relationship, like performance
standards, prescribed audits, incentive systems.
1. REDUCING CONFLICTS OF INTEREST BY CONTRACT
The deviation between individual and collective interests are often termed agency costs, one
way to eliminate or decrease is to form a firm (either a partnership or a corporation) which has its
own costs. An alternative to this solution is for the parties to agree to contractual provisions that
are designed to reduce conflicts and preserve the relationship by specifying an array of
monitoring provisions. As these monitoring provisions are costly to both parties, therefore each
has an incentive to substitute reassurances of performances in the form of bonding provisions
(capital contributions, covenants not to compete, self-imposed ethical standards, and termination
clauses)
a. Termination Clauses UCC 2-309 allows both parties to terminate contracts
Wagenseller v. Scottsdale Memorial Hospital-staff nurse terminated from at will employment,
appeals from judgment, general rule is that contracts for personal services where no time limit is
provided, they are terminable at the pleasure of either party
3 general exceptions (Wagenseller raises all three)
1. public policy exception-permits recovery upon a finding that the employers conduct
undermined some important public policy, cannot be for bad cause
2. requires proof of an impled in fact contract promise of employment for a specific
duration, as found in the in the circumstances surrounding the employment relationship
3. implied in covenant of good faith and fair dealing and have held employers liable in
both contract and tort for breach of that covenant
Consumers International- bad faith not evidenced by violation of terms of agreement, no cause
ok, just not bad cause
Have to be reasonable in time and

b. Covenants not to compete- if dont made in , if sign later there must be separate
consideration, 4 factors
1. must be related to a contract for sale of goodwill or other subject to property or contract for
employment (without a change of status there would be no contract for employment)
2. the covenant must be supported by adequate consideration
3. must be limited in time and geography
4. the covenant must be necessary to protect the employer (cts are particularly likely to enforce
covenants not to compete when they are based on a personal relationship between the employee
and customer that were cultivated at the companys expense ex. Stockbrokers)
Gagliardi Brothers v. Caputo-plaintiff is a corp is marketing meat products, the def was employed
as a controller, when hired did not sign employment contract, when a patent was denied the corp
reqd Caputo and other employees to sign covenants, if he had not signed would have been fired
Fails on all 4 elements
B. MODIFICATION OF EXISTING AGREEMENTS
Absent additional consideration and a renegotiation of the contract, the previous contract is
binding.
Should there be a clear rule against modifying contracts without additional consideration? IF
there is such a rule, good faith modifications will not be recognized in court. If not, then
sometimes the court may allow some bad faith modifications to stand.
2-209 parties must exercise good faith in modifying contracts.
Restatement 89
Alaska Packers Association v. Domenico
Plaintiffs contracted to be paid $50 or $60 to fish in Alaska plus $.02 for every fish. When the
arrived in Alaska, recognizing Domenicos investment in the cannery, the fishermen petitioned
more money, saying that they would not fish but for $100. Under duress, the manager (who
lacked authority to make this deal) agreed, but Domenico paid them according to their original
contract when they returned. Court held that there was no consideration; they were contracted to
fish and that is what they did. Court considered that allowing plaintiff to recover places a
premium on acting in bad faith.
1. Pre-existing duty rule implications Pirates v. privateers, performance of an act which the
promisee (A) is already bound by consideration for the change that the promisor (B) has
apparently agreed to. The enforcement of Bs subsequent promise would accordingly be barred
on the ground that a fresh consideration for that promise was lacking
3 ways to avoid it
1. do or promise to do something beyond the existing obligation (i.e.
provide addl. Consideration)
Slattery v. Wells Fargo Armored Service Corp.
Person operating polygraph cannot get the reward to turning someone in; this was
part of his duty as an employee.
NHL v. Yashin

Arbitration greedy hockey player must play out his remaining year and cannot
renegotiate contract.
2. rescind the first contract before entering into the second.
3. address changed circumstances
Angel v. Murray growth in city meant more trash to be collected allowed to change
the contract (i..e addl. Consideration)
Brian Construction v. Brighenti modification of contact when the subcontractor found
debris which was going to mean more work for him.
2. Terminating contract no good faith required. To terminate a contract, this is an agreet to
relinquish performance obligations.
Should there be a clear rule against modifying contracts without additional consideration? IF
there is such a rule, good faith modifications will not be recognized in court. If not, then
sometimes the court may allow some bad faith modifications to stand.
Regulating the Bargaining Process
Promotes (1) autonomy and (2) efficient promise making (i.e. putting goods/services in
their most highly-valued state.
When does it not work?
*when it is not voluntary (duress)
*when critical information is withheld (fraud)
*when the parties are not mentally competent or minors (capacity)
These contracts are typically voidable not void; voidable by the person who was under duress,
etc. 174-76
When is a contract not enforced for policy reasons?
*illegality
*immorality
*unconscionability
*not in writing statute of frauds
DURESS
Duress-Promises extorted by violence or threat of violence are obviously not enforceable
1. Restatement on duress an improper threat that reasonably induces assent
a. improper threat must be made to the promisor
*may be expressed or inferred from words or conduct
*not necessarily illegal threat Wolf, Austin
b. inducement of a promise must be made by that threat
*threat must arise enough fear that it would induce assent on the
part of a man of ordinary firmness (this is questionable either an
objective reasonable man std. or the subjective standard
incorporating the promisors characteristics)

done

Lewis v. Lewis Mrs. Lewis received $10,000 for settling

concerning the property in divorce; she was suing that it was
under duress of violence by [then] husband, but on review court
found it was b/c she needed $$$
c. the inducement itself must be reasonable
*no other alternative Austin
*credibility of threat - Wolf

Restatement 174-177
Wolf v. Marlton
Superior Ct. NJ 1959
The plaintiffs claimed that the def failed to let them know of the closing in and thus kept their
deposit without their having an opportunity to get the money. BUT allegedly the construction co.
notified the plaintiff of the closing 4X. So, should the defendant receive the 2 nd payment since the
lawyer was notified 4X?
The Plaintiffs lawyer threatened that he would go through with the purchase of the house
(despite the marital problems of the plaintiff) but they would sell it to someone undesirable. Field
(at Marlton) agreed to let them out of the K if they were able to keep $1000 of the $2450 deposit
that Wolf had made. Plaintiff was willing to give $450. threatened , saying that hed ruin his
business. By Rubenstein, duress is tested not by the nature of the threats, but rather by the state
of mind induced thereby in the victim.
Furthermore, the pressure must be wrongful. Threat may be wrongful even though it is lawful.
In this case acted wrongfully because the threat compelled the to allow the out of the
contract that they'd voluntarily signed.
If the threats were in fact made and if the defendant felt they would be carried out, and Fields
will was thereby overcome than the def was justified in considering the contract as breached
This case is exemplary of breach in faith in fair dealing (176(d))
Case remanded for trial court to determine the credibility of the threat and the damages sustained.
How would the courts determine what damages should be awarded? Should he get $1000 or
$2450 or even the addl $2450 on top of first deposit?
Hypersensitivity?
Objectivity?
Austin Instrument Inc. v. Loral Corp.
UCC 2-209 Comment 2-epiminates the need for consideration , only requires that the
modification be made in good faith, for a legitimate commercial reason
Loral had a contract with the Navy, which constituted a substantial portion of their business.
While contracting for an additional project, Austin was bidding to subcontract on second project
while fulfilling its bid on the first. Austin halted delivery on the first K until Loral agreed to use
them in the second (for all 40 instead of just 23) and agreed to pay them more for both Ks. Loral
complied, because there were no other subcontractors (it checked) who could fulfill their first
order (fulfilling their duty to mitigate). BUT, they did not pay Austin and sought to recover the
difference in the original amount to be paid to Loral and what they were coerced into paying.

Loral had a great deal to lose: it could not cover, 1/3 of its business was with the Navy and this
could damage its reputation/endanger its getting future contracts, it covered its duty to mitigate.
*If damages was a sufficient remedy, wed not need the duress doctrine.
Q Court must ask Is the threat credible? If yes, then is there an option available to them that
they did not take? Could the party suing for duress have avoided the situation? If the answer is
conclusively no then the duress doctrine applies.
UCC if something happens which turns the subcontractors deal unprofitable, it may justify a
change in the contract.
Law of Salvage
*mandatory default rule but could it act in place of duress doctrine?
Post v. Jones
Law of salvage mandatory rule concerning how to divide the cargo of the ship run aground.
Tort like at the time when all people go out to sea, they are all better if the law of salvage will
necessarily apply than they would be if they had to bargain with every ship going out. In a
moment like that of the Richmond, the auction is meaningless and the party being salved has no
bargaining power whatsoever.
What is the court to consider? The likelihood that the other ships would fill their quotas of oil and
what risks they assumed in salvaging the oil. Compensation is to be more than 1/3 but less than
of the good saved. In other cases, multiple variables
*danger to property
*value
*risk of life
*skill
*labor
*duration of the service
Law of salvage/duress doctrines apply when some party has a bilateral monopoly situation and is
using it to extort parties. IF there is any kind of market situation, then neither doctrine applies.
Economic Duress
Same as above;
Chouinard v. Chouinard
Fred was in a bad financial situation and, in order to make payroll, had to buy stock of two others
at an unfavorable price. He sought economic duress, but was refused. This is a hard bargain and
there was nothing wrongful in the sellers actions.
FRAUD
Person is liable for fraud when if he makes a false representation of a past or preexisting
material fact susceptible of knowledge, knowing it to be false, or without knowing and
causing the person to whom it is made to rely upon it, or where the person is justified in
acting on reliance of it to his damage

A bad motive is not an essential element of fraud

Contract law only enforces contracts between competent adults
Willful and Negligent Information
Speiss v. Brandt
Plaintiffs bought a wilderness resort from the defendants, claim that the defendants had fraudently
concealed the fact that they lost money every year, due to the representations that the defs had
made to the plaintiffs during negotiations, not obvious as they asked to see the books and where
repeatedly denied, law does not ignore the disparity of business experiencect held that
Tried to rescind the contact, due to misrepresentations made concerning the contract, def refused
to let them see the book, defs state of mind was irrelevant when the plaintiffs relied
Dannan Realty Crp. v. Harris
Plaintiffs allege that they were induced to enter into a contract of sale of a lease of a building
because of oral representation made by the defendants, main issue was whether the plaintiff can
establish reliance on the misrepresentations, although where a complaint states a cause of action
for fraud the parole evidence rule is not a bar to showing the fraud, in this case plaintiff
announced that it was not relying on the representations of the defendants, the very same
representations they are claiming fraud for, officers read and understood the contract (if the facts
represented are not matters peculiarly within the partys knowledge, and the other party has the
means available to him of knowing by the exercise of ordinary intelligence, the truth or real
quality of the subject of the representation he must make use of those means or he will not be
heard to complain that he was induced to enter into the transaction by representations
Def did not make any representations and the plaintiff did not rely, same commercial savvy
Dissent-all made fraudulently if some made fraudulently, brings up Bridger case allowed fraud
when based on oral misrepresentations when a written contract was understood and agreed to
Duty to Read
Merit Music Service v. Sonneborn-duty to read
Merit leases vending and amusement machines, appellee was a tavern owner, who asked for a
loan, agreed to install several machines, appellees later ordered the removal of the machines,
Merit filed a complaint, appellees readily agree that they did not read the written document
prepared for their signature (anyone having the capacity to understand a written document who
reads it or signs it without reading it or having it read to them is bound by it unless the other party
knows or reasonable person should know that the acceptor does not intend what his words kor
acts ostensibly indicate)
Exceptions
1. not legible
2. hidden
3. fraud
4. mistake
5. unconsciouability
transaction between merchants who had worked with each other before for jukeboxes, made them
abide by the contract

Birmingham Television Corp. v. Water Works

A water main broke and damaged the appellees equipment, year later filed suit, appellant argues
that there was a 9 month bailment limitation, for the special provision in the contract of bailment
limiting liability to be effective, it must be known to or brought to the notice of the bailor and be
assented to by him, nothing on the face of the receipt give notice, appellant did not sign the
purported contract of bailment on the reverse side, or acknowledged or accepted these terms and
conditions
Did not make them follow, hidden
Tensions between the unconsiouability doctrine and the duty to read
Disclosure and Nondisclosure
Restatement 169, 168
Requirement of assent implies in a general way that both parties to an exchange shall have a
reasonably clear conception of what they are getting and what they are getting and what they are
giving up. If the identity or the character of the property or being service being bought or sold is
overtly misrepresented by one of the consenting parties than the other partys assent is obviously
less than meaningful and any agreement that results will be regarded as voidable, even if there is
is no specific intent to defraud
162 a misrepresentation is an assertion (action or statement) that is not in accord with the facts
See also 159, 164
161 when one party knows that other party is relying on a crucial (erroneous) assumption, not
telling is tantamount to an assertion, treats nondisclosure as equivalent to misrepresentation
where the undisclosed fact amounts to a failure to act in good faith, the good faith assertion is
meant to distinguish between sellers knowledge of hidden defects and so called market
information typically the result of research and special expertise on the part of the buyer
A. Is there ever a duty to disclose?
1. if the information is dangerous and latent
Obde v. Schlemeyer fraudulently concealed termite infestation.
made some efforts to remove termites, but not to have the tests done to ensure that they were
eradicated. Since the condition was serious and the 's lives could have been endangered, the
court finds in favor the the s.
2. when nondisclosure = assertion
161(b) where a party knows that a basic assumption of a party contracting is wrong and silent
about a fact which illustrate this, then disclosure is mandatory
3. Duty of good faith
distinguishes between the information on the market and information that should be disclosed
(i.e. protects information sought as an investment but releases fortuitous information that
clearly makes market sale unreasonable)
4. Protection of Market Information
Court seeks to prevent information sought as a marketable good
Keaton article-if does not disclose than guilty of fraud
L&N Grove v. Chapman a real estate agent buys a grove from Chapman for 1.5 times its
market value as a grove. Public info that Disney World may come there, but years before it.

Chapman was an expert in real estate as well. Chapman allowed to continue using the land for
grove, but Chapman, when the value had skyrocketed, brought Curtis to court on fraud charges.
But there was no evidence of fraud, just speculation.
5. Kronman we should protect information that is sought as an investment.
Casually acquired info ought to be shared (there will be no change in behavior in making the
person tell), whereas deliberately acquired info. should be protected. Cannot lie if asked
government can require disclosure of certain things (statutory duty)
6. Duty to disclose info. that affects market for psych reasons
Stambovsky v. Ackley (NY St. Ct.) possessed house; not local, did not tell of the house and
bought the house. Ct. allows them out of the K, where the seller takes adv of a buyers
ignorance and is not common knowledge than contract can be revoked
7. Economic Viewpoint
Laidlaw v. Organ tobacco sale where Girault asked Organ if he knew anything that would affect
the price of the tobacco he was selling. The European market had just been opened for tobacco
and Girault would have found out. Supreme Court revered under the idea that it did not want to
support a market for that kind of information (valuable for 10 minutes) especially when it was not
intentionally sought (Kronman).
Important issues-uncertainty, availability of info, expertise
More seller is an expert the more he has to reveal info to a nonexpert buyer
PUBLIC POLICY CONSIDERATIONS (ignorance of fact making the party, unknowing
insulates the party from the claim of illegality)
IMMORALITY
1. Courts will not enforce a contract that is against public policy.
Generally Immoral Acts
Watts v. Delokovsky-ct allows plaintiff to recover losses,
Dissent-statute prohibits all gambling and should not
Football player and contract with teams
a. public defrauding
Roddy-Eden v. Berle court refuses to enforce this contract where the two agree to defraud the
public into thinking that Berle had written the book in exchange for them sharing the profits 5050. This was public deceit; the victims would have been the public. In this case, Berle refused to
promote the book and she is seeking damages in court. At this point, however, the contract had
failed. The court failing to enforce it is more of a stamp for the parties to get out of court than it
was a deterrent (because presumably if parties are doing this and the get to court the contract deal
is done anyway).
No consideration and contract to defraud the general public, cannot contract to do something
illegal

*court also says that there was no obligation on to do anything, but given Woods we know that
this is not the case.
b. subverting marriage doctrine Hewitt v. Hewitt aggrieved woman lived in an unmarried, family-like relationship into which 3
children have been born, and now is seeking equal share of the profits and properties acquired in
that timeframe. She alleges multiple theories including entitlement under equity, fraud that they
were not married (and hed said so), implied contract, detrimental reliance, and expressed (oral)
contract that theyd share their lives. Court held that it is illegal to contract for sex outside of
marriage. It also held that allowing common law marriages would allow another option for
marriages, and the state has an interest in the marriage relationship (taxes, etc.). Ill. Had fault
based divorce; there was a pro-marriage stance here.
Marvin v. Marvin Cal. Ct. allowed common law marriage (cohabitation) to have legal affect, so
long as it is not a contract for meretricious sexual services
Glasgo v. Glasgo theyd been married before (and divorced), and she returned to him with the
kids. They tried to make it work. The court allowed her to recover because theyd been married
formerly and were trying to raise the kids in a conventional American family. To deny damages to
the woman here unjustly enriches the other party.
*They could have denied enforcement of this promise on the grounds that it was a familial
promise. Could say that the underlying issue worrying courts is fraud in common law marriages,
and, as it was not at issue here, the court allowed the K to be enforceable
178 of R.2d gives courts much leeway in considering public policy in their holdings.
2 reasons why courts would not enforce a contract for public policy reasons
1. deter future contracts of the same sort
2. protect the dignity of the court (i.e. court will not hear trashy contract claims
In re Baby M Rest 173 (3)
A contract for surrogacy, after birth surrogate would not release the child to father and wife, sue
for performance, ct considers contract invalid as it is in conflict with the public policies of the
state
How does a court know the contract violates public policy, surrogacy looks to the specific
statutory and decisional law of the state and compare it
UNCONSCIONABILITY
V. Limitations on Enforcement Unconscionability
A. Unconscionability an absence of meaningful choice on the part of one of the parties
together with contract terms which are unreasonably favorable to the other party. Whether a
meaningful choice is present in a particular case can only be determined by consideration of all
the circumstances surrounding the transaction.

essence of

1. Substantive unconscionability refers to the terms of the agreement itself (an

unreasonable price or contract term which deprives party of
his bargain)
2. Procedural unconscionabilty a defective bargaining process (unreasonable
failure of one party to inform the other party about important

10

aspects of
affect the other
exchange)

the exchange; refers to practices which impermissibly

parties ability to make rational choices about the

B. Williams v. Walker-Thomas Furniture consider the effects of the decision to remand the case
to the lower court for consideration of unconscionability
1. Ex ante or Ex post position? Do justice in this case or other cases in the future?
2. Does considering this c.c. clause unconscionable help Williams and others in her
position or hurt her in the long run?
1. Help gives her more security in goods.
- allows her to keep her goods in this case
- prevents future businesses from putting such clauses in fine print
2. Hurt ccc allows her to spend money on goods that she shouldnt buy
- disallowing ccc possibly precludes her access to credit
An absence of meaningful choice on the buyers part and the presence of contract terms
unreasonably favorable to the seller
UCC-a contract entered into by competent adults is binding without regard to anyones opinion of
its fairness, but where the circumstances indicate that one party did not, or could not, fully
comprehend the meaning of the contract, then the court is free to use its own judgment to
determine whether the contract terms are fair
Williams v. Walker Thomas Furniture Co. I & II
Walker was a welfare recipient who took advantage of the cross-collateral provision with the
furniture company, it enabled them to repossess not only the item the purchaser defaulted on, but
all other items purchased at the store on credit. The district ct reluctantly held for the Company,
appeals ct reversed on grounds of unconscionability (criticized for parental attitudes toward poor)
However if all cross-collateral provisions are unenforceable the interest rate demanded by the
lender would increase, and therefore increase plaintiffs monthly payments (low-income people
would pay more for credit)
Seabrook v. Commuter Housing Co.
Standardized Forms
Standardized clauses are generally intended to minimize the sellers risks and responsibilities-for
example, by narrowing the scope of the sellers warranties or by expanding its legal remedies in
the event the buyer fails to make installment payment when dueand, by the same token, to
impose burdens or other limitations, not negotiable
No practical alternative, thoroughly favors the seller, the broker for the seller usually has no
authority to modify
Henningsen v. Bloomfield Motors, Inc.
Plaintiff bought a car from the defendant dealer, failed within 10 days and caused injury to the
defendant and his wife for breach of implied warranty of merchanitbility. Defendants pointed out
that purchase agreements specifically disclaimed all warranties. The Supreme Court of NJ a
contractual disclaimer as it sought to imnmunize the defendants from personal injury claims was
void (the need to protect the ordinary man against the loss of important rights made it appropriate
to treat the warranty-disclaimer as a nullity
*need for protection exists when there are few alternatives to the buyer

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STATUTE OF FRAUDS
When does a contract arise? Without statute of frauds, we cannot be sure. The intent of the statute
was to limit the enforceability of certain kinds of oral contracts, especially
*sale of land and goods
*surety ship contracts
*those obligations whose performance requires more than a year (this is measured
from the time the promise is made until the completion of performance
Farnsworth)
1. statute required parties to make a note (place in writing) of their agreements.
2. Part performance of an oral contract not to be performed within one year will not take the
contract out of the statute unless the part performance is reliable evidence of the agreement (thus
bypassing the written agreement rule)
$500+
McIntosh v. Murphy
Question over the fact that the contract was not to be completed within a year of the promise (and
it was not in writing). Murphy interviewed for mgt. position in Hawaii. He flew to Hawaii to
accept an asst. mgr position which had been offered to him, demonstrating reliance by moving his
things. He was dischared 2.5 months later, and he sought relief in court. Jury awarded him
$12,103.40 for his reliance and said that the statute of frauds did not apply. The jury found that
the job was for a years duration and that hed not been properly discharged. Did the statute of
frauds make the oral contract unenforceable (since it was not to be performed within 1 year)? He
did demonstrate part performance Several tests to consider: see R.2d 217A. Ct. says that the
length of the contract was for the jury to decide, which it did. He demonstrated reasonable
reliance and it would be inequitable to bar his recovery. Thus, it is Affirmed.
Mercer v. CA Roberts
Neither side gets anything. was a company who hired to develop Dallas sales office for 3-5
years from inception. He was to receive 15% of the the Dallas contrib to the company's annual
profits. The Dallas office did very well, resulting in a disproportionate amount of $$$ going to
Mercer. In 1974 the company implemented a retroactive incentive payment scheme that was to
reduce his incentives. He resigned and sued for $37,000. He was denied recovery due to the
statute of frauds; there was no written agreement. The dissent and Mercer argued that this was
inequitable, but the court said that it would overlook the statute of frauds only in egregious
circumstances. (enforcement of part performance has not been recognized)
Dissent-equitable estoppel
Arguments for1) serves an evidentiary function-written promises proof of an agreement, limits the number of
errors
Arguments for Eliminating
1) transaction costs-not effect, should be determined relation to potential damages
2) not cost effective
3) could be a trap for the unwary, statute for frauds
3. Using promissory estoppel in statute of frauds cases is very controversial
4. written agreement must be signed (Monetti)

12

5. primary goal of statute is evidentiary; does there exist a K that the court should
enforce? (Monetti)
Schwedes v. Romain
Issue over sale of land. Schwedes want specific performance or damages for land. Schwedes
hired an atty to close on the Romains land; theyd accepted the offer of sale by telephone. They
were told not to send the money but to bring it to the closing in Oct, but the Romains sold it to
someone else before then. There was no written agreement between them. Court held that there
was no contract, and even if there was, there was no estoppel between them. Oral promise of the
Schwedes was not binding, and the atty did not have authority to bind them in contract. The only
reliance that they claim is that they hired atty, but this is considered preparation by the court.
For . Encourages negotiation, supported by autonomy theory
Standards and rules (?)
Monetti SPA and Melform USA, Inc v. Anchor Hocking Corp
Monetti in negotiations to grant Schneiders exclusive rights to distribute Monettiss products in
USA. Shneiders sold importing firm to Anchor Hocking. Agreed to $27M for rights. Memo
written with note on it saying we want Canada. Monetti turned over all inventory, records,
physical assets, and trade secrets of Melform. Anchor Hocking fired Schneiders and then said that
the agreement also gave them rights to central and south America and the Caribbean, to which
Monetti brought action for breach. Statute of frauds prevents this transaction (because it occurred
over a year) except for the fact that there is a memorandum or something in writing and it is
signed. The memo was written before the contract, but in this case satisfies the statute of frauds.
Monettis turning over the assets, etc. was evidence that the K existed, and this partial
performance took the K out of the statute of frauds.
Which test to apply if either the UCC or Common Law statutes of frauds could apply?
Predominant purpose test - applies the UCC to transactions if their predominant purpose is to
sell goods, but applies the common law if their predominant purpose is to sell services.
Posner argued that this test did not apply in Monetti.
*In considering statute of frauds and its applicability
strangers tend to get Ks in writing
people who conduct business together often relax the writing of Ks because the
extra-legal sanctions are so critical
*There have been several changes suggested to make the statute of frauds more useful in the
modern information exchange. See end of book 1.
Mitchell v. Lath-buyer was trying to enforce the removal of an icebox, which is not included in
the original contract for buying the defendants home, Defendants promise could have been
expressed in a separate agreement and it did not directly contradict anything and would have
materially added to the defendants costshowever the contract was deemed to be final and
complete and therefore the evidence was not admissible. Prior agreements are only enforceable if
they entail separate consideration of the part of the promise, that is the promise to pay
additionally for some other service

13

1) must be collateral to the written contract

2) does not contradict the terms of the written contract
3) not something that would have already been included
natural omissions test
Materson v. Sine-sale of ranch and desire to keep it within the family, Masterson sold ranch to
sister, retained an option to purchase at any time, than went bankrupt and the bank want to
exercise the option to purchase, the Sines and Masterson asserted that the repurchase option was
not assignable, ct found that it was admissible because they found that even when the written
contract seems complete on its face, evidence of collateral oral agreement should only be
excluded when the fact finder is likely to be misled (opportunism?)
* circular application in these 2 cases
Merger clauses-fraud can only negate a contract if it can negate the merger clause
Evidence is always admitted to see if the merger clause was voluntary
CONTRACT INTERPRETATION
Restatement 201(1)-where the parties attach the same meaning to the terms used in their
agreement, the interpretation of the agreement should be in accordance with that meaning even if
a third party, presumably viewing the matter from an objective observer might think, if the
contracting parties attach different meanings to the same term, then neither is bound by the
understanding of the other unless one of them knew or had reason to know what the other
understood the disputed
Frigalment Importing Company v. B.N.S. International Sales Corp
(what is chicken)
an importer sent an order to the defendant for grade A chicken and received stewing chicken
instead of the tender young boilers and fryers it was expecting, a 2 nd shipment was aborted by the
defendant when it realized that plaintiff would not accept the merchandise, sued for breach of
warranty under the Judge Friendly found that chicken, not otherwise specified, could properly be
taken to refer to stewing chicken or fowl Defendants subjective belief would not be significant if
it did not coincide with an objective meaning, by the Dept. of Ag, the burden was on the plaintiff
to show that it had used and communicated the term chicken in the narrower rather than the
broader sense
*offerors generally bear a heavier obligation to be clear and specific about contract language then
offerees
equivalent of UCC 2-213(1)(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,

Parole Evidence Rule-assumes, that the formal writing reflects the parties minds at a point of
maximum resolution renders unenforceable oral agreements entered into to the adoption of a
written contract, hence, duties and restrictions that do not appear in the written document were
bnont intended by the parties to survive
Complete integration-represents a full and final embodiment of the parties understanding

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Restatement 213-completely integrated that represents a full and final embodiment of the parties
understanding, discharges any prior agreement, proof of the alleged prior agreement is not
admissible and cannot be placed before the trier of fact
Courts may supply the missing elements by resorting to trade usage or to any prior couse of
dealing between parties which is fairly to be regarded as establishing a common basis of
understanding
Objectivism and Contextualism
In re soffes estate-wife v. 2nd wife, who gets his estate, man disappears on his 1 st wife, marries
again-insurance policy goes to wife , which one gets itto hold for 1 st-pbjective, 2nd-subjectivewho it was intended to, went to 2nd wife, adopted contextualist arg
Pacific Gas and Electric
Reasonable susceptibility test
Ct found that the lower ct erroneously refused to admit extrinsic evidence about the terms used in
the agreement
* should consider circumstances surrounding the makingincluding the nature and subject
matter of the writing, fairly susceptible of either one of the 2 interpretations contended for than
relevant extrinsic evidence should be admitted
Trident Center-buyer could not start paying until after 12 years, other said def could accelerate
upon default with a 10% fee, terms have to contradict, where there is no contradiction, then no
context v. objective arg
New textualism approach-adopt a four corners approach to understanding the statute instead of
legislative history
essay
The goals of contractual objectivism

MISTAKE
*An exception to the rule of allowing reliance
*Can be used affirmatively by a as a reason to recind contract
*example when one buys machinery for specific chore and it does not work in conditions.
Peerless
Sherwood v. Walker
Sherwood buys cow for the price of a barren cow, but she is already pregnant. They did not know
it and it was not part of the price. Walker did not know it either, so Kronman analysis does not
hold here, either (i.e. protecting an info. investment). If both parties made the mistake, it is easier
to get the doctrine of mistake to apply. A contract cannot be enforced if the whole substance or
very nature of the merchandise sold is different from what they bargained for. (best reason for
allowing is that one party would receive a windfall while the other would suffer a penalty lottery
ticket (Kordana)

15

Restatement 152 contract based on mutual mistake is voidable unless the adversely affected party
bears the risk of the mistake under a reasonable view of the circumstances
Restatement 20 NO Manifestation if they attach materially different meanings
Restatement 154

Anderson Brothers Corp v. OMeara

Buys wrong type of dredge, not sufficient because didnt assume right for his purposes,
mistaken about work doing with dredge
Kordana-disagrees both mistaken about suitability of dredge for buyers needs
Aluminum Co. of America v. Essex Group, Inc.
Reformation of a mistake in writing is available if 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
In determining whether this mistake has a material has a material effect on the agreed
exchange of performances, account is taken of any relief by way of reformation,
restitution, or otherwise
Resolve 3 questions
1) was the mistake one of fact
2) was it fact for which relief could be granted
3) if the mistake was not one of fact is relief
Prior agreement
Agreement to put in writing
Because of the mistake, variance in the writing and the agreement
2 types of contractual intent and means, contrasted with Eastern Airlines
Atlas Corporation v. United States-parties sue government for
Kordana-If fact does not exist than cant contemplate
Clerical errors clearest case for mistake
1) the parties to the contract were mistaken in their belief regarding a fact
2) that mistaken belief constituted a basic assumption underlying the contract
3) the mistake had a material affect on the bargain
4) the contract did not put the risk of the mistake on the party seeking reformation
FRUSTRATION OF PURPOSE
Impossibility
Central question is one of intent, deals with the limitations of human foresight and
with the fact that the negotiation of contract details has come to an end

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*purposes of the frustration doctrine-limitations of human, the fact that the negotiation of
contract details must come to an end, every future contingent state of the world cannot be
predicted
defenses
1event that happened is purpose of the contract
Krell v. Henry
Henry pays Krell 25 pounds for the use of his apartment during the coronation procession
of Edward VII, however due to illness the procession is postponed. Henry rescinds the
contract and Krell sues, the court held that the undebatable purpose of the contract was to
view the procession the foundation of the contract was eliminated, staging of the
coronation on the expected date was a condition on which the parties intended Henrys
rental obligation to depend
Lloyd v. Murphy
Selling cars during wartime, made plenty of allowances, must be absolute frustration
Anticipatory repudiation-whether the plaintiff or the defendant should be held to have breached
by failing to render performance at the time such performance fell due, one of the contracting
parties expressly repudiates her contractual obligations in advance of the time performance is due
Hocshter
Restatement 253
Plaintiff had the right to commence damages immediately, prior to the scheduled beginning of
performance, any constitute a total breach
How to measure the buyers damages where a seller of goods repudiates the contract of sale prior
to the delivery date
Cover under UCC 2-711 (concerning the sale of goods) by purchasing equivalent goods on the
market
Under UCC 2-712 have damages equal to the difference between the cost of the cover and the
contract price
Pros
-benefits of the breacher-less in damages, mitigation
nonbreaching party-receives fuller compensation
Cons
Breacher-cannt change mind
Nonbreacher-has problem showing no mitigation
Breach is signaled at the time of repudiation
Oloffson v. Coomer
Ill ct held for the defendant, found that the plaintiffs failure to cover at the time he learned of the
defs repudiationinstead, waiting until the later delivery date, by which time the marlet price of
corn had gone up sharplywas contrary to the established and accepted usage of trade, lack
good faith
DEMAND FOR ASSURANCE
Repudiation may be inferred from the promissors conduct even though no statement is made

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Restatement 251 and UCC 2-609-a promissee who has reasonable grounds for believing that te
contract will be breached may demand adequate assurance of due performance from the
promissory and suspend her own performance until such assurance is received
Reasonable grounds-depend on the particular facts and circumstances of the case at hand
REMEDIES/DAMAGES
Reliance most closely approximates the optimal level of enforcement
But reliance that includes the opportunities foregone is incredibly hard to calc.
Expectation reduces administrative costs of trying to calculate what would be the cost of
breaching
Courts usually grant expectation damages. Reliance damages, when granted, do not usually
account for economic reliance. In competitive market, however, in granting expectancy damages,
you grant economic reliance damages in the process (how? Because in a liquid market you can
measure opportunity costs easily?).
American Standard-cost of completion rule
Peevyhouse v. Garland Coal & Mining Company
Peevyhouse made the coal company promise to restore the land to its previous condition
before allowing them to mine. The Peevyhouses, however, were receiving some money for the
coal coming out of the ground. At the completion of the mining, it would have cost the Mining
Co. almost $30K to restore the land, and that would only have changed the land value $300. So
the Mining Co. gives the Peevyhouses $300 in expectancy damages. Peevyhouses sue for
$25,000.Question is between the cost of performance and value rules. Who is being
opportunistic here? Like Jacab and Youngs v. Kent. The entire value of the farm, even with the
remedial work, is only $5000. Consider 348-2 and see that it could come out either way; the
reasonable cost of completing performance if the cost is not disproportionate to loss in value to
him.
Common themes-all seen as adjusting their expectations
Considers that the breaching party got into the situation without opportunism
2-703, 2-713, 2-706, 2-708
Freund v. Washington Square Press, Inc.
Contracted with to publish book. gave $2,000 as an advance upon delivery of a
manuscript. could have terminated the agreement in writing within 60 days of delivery of the
manuscript, but it did not do so. But it failed to publish the book, also. What damages awarded?
Trial court awarded the cost to publish the book so that he could publish it himself ($10,000).
He sought to show that the breach delayed his promotion and that he lost royalties. The lost
royalties were dismissed, but the appellate court also granted him $10,000 to publish the book.
But the Ct of Appeals said NO this puts better off than he would be if the K had been
performed. did not show how much in royalties he anticipated and he failed to claim any
reliance in writing the book itself. Further, he failed to show that the nonperformance delayed his
promotion. Thus, since it was too speculative, he gets six cents and his lawyer fees paid by the .
Spec. perf? No cannot supervise the publishing process, and spec performance is only granted

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for specialized goods. See R.2d 359 - if no damages will compensate, specific performance will
be considered.
Sedmak v. Charlies Chevrolet
Good not completely unique, but Sedmak could not have found a substitute for nearly the same
amount of money. If he had covered and spent $30K, then, in the off chance that there was a
substitute out there for $24K, Sedmak would not be able to recover from Charlies.
Specific performance transaction costs would go down if specific performance was the default.
Question is, as we discussed in Ch. 1 is the good unique? If it is unique, then it is hard to put a
dollar value to it, and thus rewarding monetary damages for it will not effectively compensate the
pee.
Problems with specific performance
1. under-compensate pee
2. pee may be acting opportunistically
3. Is there an actual breach here or did they contemplate this in the price? Has
someone bought the lottery ticket?
4. Damages may fully compensate
5. Courts may not be totally committed to compensation
6. Concerns of liberty
Pros of specific performance
1. pee knows value of the broken promise; they have better info than the courts
on determining the promises worth to them
2. damages are undercompensatory
3. pees have economic incentive to sue for damages when they are fully
compensatory
Cons
1. promise should be fully compensated through the breach and pay damgages
option
2. por gets more because, even after paying damages, the por gets more for
selling it the third party
3. 3rd party pee is better off because he gets a promise hed otherwise not have
(but for the breach)
You can always contract for monetary damages instead of specific performance
*Court considers uniqueness of good and likelihood of replacement. Cessna case,
*Court also not likely to grant specific performance in service contracts, due to (1) best efforts
concerns and (2) issues surrounding best efforts. Some have been upheld. See p. 818.
Breach as cry for help or opportunistic (benign, cry for help) goal is to see which is more likely
How do we decide
(UCC assumes benign breach)
Sullivan v. OConnor-3 noses, plastic surgery, pain and suffering and how much it cost her
Kazas v. special agent to , expectancy damages to
Reliance damagesKordana-damages for the cancelled the program

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Restitution-amount of unjust enrichment to the promisor until the time of the breach
2 central questions
Can breaching person get reimbursed?
How to measure?
Common law-restitution not considered damages, heard in equity court
United States v. Czara-defendants breached first, measure the value conferred by the cost of
performance
Briton v. Turner-contracted for a year, stopped working for 9 months and sues for his partial
performance
Restatement 374
No time when the breaching party sues will he get more than sued for
Punitive Damages
UCC specifically bars punitive damages, except for when it specifically provides for it, must
include a separate suit
HishbanMiller
Public policy-concerned with merger of contract and tort law
Do not want to make breach more appealing to the victim
If fraud is difficult might want
Pontiac-allowed punitive damages
Miller-no punitive damages, unless fulfills an independent tort, efficient breach
Drews-certainty, new business rule, seems absurd to put future profits at zero
Lost as a natural consequences
Natural as a breach
Lost with foreseeable certainty
Debt and equity finances
Forseeability
Hadley v. Baxendale
Crooked Alley-reaffirms Hadley, common feature test
Spang-one is not required to enter into another contract with a party if they
Liquidated Damages
Parties contract to limit the consequential damages in a prescribed manner. Not always upheld,
see Lake River. If the damages that are calculated are reasonable at the time of contracting, courts
will usually enforce the liq damages clause. What did the parties consider to be reasonable,
foreseeable damages at the time of contracting? The fuzzier the damages are at the time of
contracting, the less likely the court will uphold the liq damages clause. See R.2d 348.
Lake River

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Carbarundrum makes powder and sends it to Lake River to bag it and distribute it. Lake River
agrees to bag the powder, but requires a minimum amount from Carb so that it can justify
purchasing new bagging equipment. They get such a guarantee and Carb breaches. They had, at
that time, paid Lake River for all of the bagging done to date. But they had not sent but roughly
of the powder. Lake River held the powder and refused to ship it in order to coerce Carbo to pay
the damages owed. The court reasoned that Carbo did not owe them the full amount because Lake
River had not done any work on that remainder (i.e. they shouldnt be paid as if theyd bagged the
powder when they did not). The formula for Lake Rivers damages was a penalty formula,
because it always assured LR of more than its actual damages. There was no duty to mitigate in
the clause (which would have made it more reasonable).
LR receives the $241,000 costs to complete the K expectancy damages
Carb does not get any money for sales of powder in exchange of the powder that LR
was
holding. Court says that it could have factored it into the price. But it may have lost profits. It
would have to show this on remand.
Duty to Mitigate
Bridge case
Park v. Twenty Century Fox, found in Restatement 302, hard to determine the intent of the
parties
Class Notes4.21.03
How far does Hadley reach?
Spang

Fort Pitt not paid completely; sues to recover

Counterclaim for amt they were damaged against what they owe on original K
Trial ct. agrees w/ Torrington; damage should be set off by promise on the K
App.claiming violation of foreseeability requirement in Hadley
o At time of King not obvious Torrington would be damaged by late delivery
In essence, FP arguing they could not foresee the special costs at time K was made
Ct.avoids applying Hadley by saying that the K term, delivery date to be mutually
agreed upon, serves to incorporate as to the time of King the subsequent agreement of
June, 1970 (importing alter agreement, charged w/ the knowledge as of June 1970)
o KK: this is really a fiction; open question as to whether this is a good idea
o Useful to think in terms of mitigation; more robust mitigation principle would
encourage both parties to change their behavior to minimize the damages to each
(Hochester)... however, verification problem
Counter: not such a fiction, really 2 agreements; why shouldnt both be
liable for foreseeable consequences of the breach?
Forces steel co. to take into acct harms bridge co. suffers as they
delay
Ct. goes in the middlerequires some adjustment but d/n go all the way (pushing
foreseeability/reliability somewhat forward but not all the way)

MITIGATION CONTD.

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Rockingham
Even though Luten has received a fixed promise, c/n rely on that completely; as soon as
breach occurs, must start to think about how to adjust their conduct in order to avoid
piling up damages
Out of pocket 1900
Ignored notice from the Board, continued building bridge
Sued for completion costs
C. accepts mitigation argument; could have mitigated Countys damages cheaply by
stopping the construction
o They could get their expectancy at the time (1900 + lost profit); wouldnt have to
pay for all the additional matls
o Ct. allows recovery ONLY for (1900 + lost profits)
StraightforwardDoctrine of avoidable consequences
Obligation to mitigate damages; c/n pile up damages
Parker v. Twentieth Century-Fox Film Corp
K has a pay or play clause; not obligated to use her services in the film, but must
pay her the K price of 750K
Whats the motivation for this clause?
o CAPS damages studio has to pay
o Contracting about the Hadley v. Baxendale rule (less than Hadley would have
allowed)
o d/n want to pay her from going from A-list to B-list actress
o similar to FedEx ch. 1 example
offered lead in another movie, but due to time constraints, she d/n have same sort of
veto rights
She declines the offer and sues for breach of original K
Fox, in appeal, argues that summary judgment awarded to lower ct. wrongly granted;
issues of fact that should have gone to the jury about whether she had a duty to mitigate;
damages should be offset by 2nd movies payment
MacLaineduty to mitigate d/n mean she had to take on inferior employment
Goldbergshe should have emphasized the pay of play cl.
o No duty to mitigate b/c it only kicks in at time of breach, and d/n breach the
K; they had a right not to produce the movie... owes her 750K
o Big Country payment d/n offset the damages, b/c of this clause! She could have
sat home, done X, and this would not be offset... obligation is to pay her no
matter what
o Studio purchased an option on s time; what parties argue about is irrelevant
Class Notes4.22.03
Spang contd.
Does the Hadley rule govern the damages available at the time of K?
o Damages arise naturally + special damages
o Here, between K and date set, new special damages disclosed
What do we do about the special knowledge?
o Not really a Hadley question; really an adjustment question

22

Where does this come up? MITIGATION doctrine

Before the breach, THEORETICALLY parties may have duty to adjust, but
imposes difficulties on the parties
Spang court says yes, Ft. Pitt liable for these special knowledge damages, but give a legal
fiction reason for asserting this
Spang is another exception to the rule that you d/n have to adjust
Ft. PittI contracted for foreseeable damages, these were not disclosed at time of K; now
Im forced to adjust
o
o

3RD PARTY RIGHTS IN KING

When can a 3rd party sue to enforce the rights of the victim of the contracts breach?
Generally c/n; we assume Ks create little society in which only the interests of the
parties in K are effected
Usually 3rd party rights regulated by other bodies of law (torts, etc.) but sometimes K law
is suitable
Concern: allowing 3rd party beneficiary (who has given no consideration in return) to sue
the original will AFFECT THE ORIGINAL K and potential for future Ks
o To extent 3rd party can collect damages from 3rd party detriment, this is potential
damages the or will have to charge the ee in the K
o Notice promisee d/n directly benefit by paying this in cost; promisees may not
be interested in purchasing such promises in the future b/c of the huge costs
involved
o Set of cases where cts implicitly say promisee does sufficiently internalize the 3 rd
party benefits such that we can create these as default rules
o Can K out of these; just DEFAULT RULES
Lawrence v. Fox (traditional case)
Holly Fox 300, promised to pay Lawrence 300
Fox Lawrence 300K
o Indirect benefit to Lawrence
Obviously Holly could sue Fox, but Lawrence actually sues seeking recovery for the 300
Foxs Ds:
o No consideration for s promise
o d/n have privity of K to give him standing to sue
1st case to clearly set out the 3rd party beneficiary rule
Eisienberggood reasoning why we shouldnt go too far w/ this doctrine
Key question: under what circs will promisee be able to pay the implicit premium to
obtain 3rd party enforcement rights?
o Promisees will, as default matter, be will to pay to let their creditors recover on
their behalf, thereby extinguishing the obligation Holly owes to Lawrence
Hollys interest in purchasing 3rd party rights
o Traditional rulefocus on intent of King parties. Did parties intend to create
right of 3rd party enforcement?
o How do we discern the parties intent if it is not explicit?
Restatements 302looks for manifestation of intent AND either (1)
promise to satisfy debt owed by promisor, or (2) specific intent by
promisor to make a gift to a 3rd party
Relation to damages:

23

o
o
o

Expectancy damages helps limit damages to 3 rd parties; other forms of law

(regulatory, tort, etc.) come in and try to cut off (-) externalities that might
manifest themselves to the 3rd parties
Here we have a POSITIVE externality; Lawrence more likely to get paid as a
result of K1, whereas many times 3rd party creates (-) externality
Exceptions to the rule requiring privity of K

24