CONTRACTS FALL 2007 OUTLINE

Professor Ruskola

I. INTRODUCTION

A. Introduction: Why Enforce Promises (3-57)

1. Public v. Private Law

--Public v. Private Law

-Contract law is seeing as governing PRIVATE law
-There is no purely private law, however contract law can be private law that citizens choose to enforce

Public Law (top being most public)
Constitutional Law--what rights do the states
have vis-à-vis citizens and vice versa
Criminal Law—a criminal wrong is seen as such
an egregious wrong that it’s a violation against
society as a whole—not quite as public as con
law
Civil Procedure—rules that regulate functioning
of civil courts, how private parties bring suit
(doesn’t fit schema as well as others)
Private Law (top being most private)
Contract Law—seen as archetype, law that
parties decide should govern their own actions
Property Law
Torts—private side, but closer to the public side
--torts arise through obligation through the
state, not brought into being by individuals

2. Definitions

--Consideration: a kind of reciprocal action

--Gratuitous promise: make a promise without giving anything at all
--What is the correct definition of a contract?

B. Why Enforce Contracts

-Why should the state put its huge power behind any promises to enforce them? How do we go
about this?
-Three large groups of obligation:
1-Economic/Efficiency: marketplace couldn’t work without legally enforceable contracts
2-Fairness/Justice
3-Will Theory: idea that once an individual makes a promise and commits him or himself to do
something (freely expressed will), then you are bound by it and should follow it

1. Contracts Analysis
--What is a contract?
-A contract is a promise or set of promises for the breach of which the law gives a remedy, or the
performance of which the law in some way recognizes as a duty (Restatement, Section 1)
-BAD DEFINITION
-More correct: Contract is a label on things we want to enforce
-Promise: a manifestation of intention to act or refrain from acting in a specified way, so made as
to justify a promisee in understanding that a commitment has been made

--Contracts Analysis:
1. WHAT IS A CONTRACT?
2. IS THERE A BREACH?
3. WHAT IS THE REMEDY?

2. Historical Aside: From Status to Contract

--Mayne: shift from feudal order to market based order
--Farnsworth: different theories of obligation, historical evolution of contract law
-Initially, many theories of law
-As far as the common law, originally starting from assumption that promises are not enforceable,
promissory writ
-As common law courts wanted to get more in the business of contract law, able to push other doctrines—
common law courts came to the opposite assumption, came to assume even informal offices were
presumptively enforceable
-Arose opposite need to start narrowing liability again (ex: introducing a writing requirement,
doctrine of consideration)

3. Freedom of Contract and Public Policy

**Why is it that public policy should play any role in contract law, especially because contract law is as private as
law can get?
--If the public is going to pay to enforce the contract (expensive court system), then the public should have
some say in that contract

--Shaheen v. Knight (Court of Common Pleas PA, 1957)

-Man wanted damages against failed vasectomy operation that resulted in having a fifth child
-Shaheen sued Knight, a physician, for breaching a contract in which Knight had agreed to make Shaheen
sterile. The court holds that the contract is not against public policy and that a doctor and patient can
contract for a result. But, according to the court, public policy forecloses a damage recovery measured by
the cost of raising the child.
**A doctor and his patient can bargain and contract for a particular result, which, if not achieved, can be the basis
for an action for breach of contract**

BABY M CASES
--Reveals a deficiency in will theory: people change their minds!
--The Sterns want a baby, contract with MB Whitehead—using sperm of Mr. Stern and egg of MB Whitehead—once
baby M is born, MB Whitehead changes her mind
--Issue in the Trial COURT: May a surrogacy contract be renounced and terminated by the surrogate up until the
time of conception?
--Holding in the Trial COURT: Yes! After conception, however, the parties’ rights and the terms of the
agreement are fixed.
--Issue in the NJ SC: IS a surrogacy contract illegal and invalid as contrary to both statutory law and public policy?
--Holding in the NJ SC: YES.

JOHNSON V. CALVERT
--A married couple who used the husband’s sperm and the wife’s egg
--Fertilize in vitro and find a surrogate who carries this child to term
--Issue: Is the woman who intended to bring about the birth of a child and who intended to raise the child the
natural mother?
--Holding: Yes—It is the woman who intended to procreate the child that is the natural mother.
Shaheen, Baby M, and Johnson: Relation to Public Policy
--In the Shaheen case, what was the role of public policy in that decision?
-A child can’t be considered damages, found entire concept offensive
-Even though the contract was breached
-Considered public policy to deny remedy as well as there is no public policy against sterilization (uphold
contract, deny remedy)
--In surrogacy cases, choice between family and contract law
-Saw 2 courts telling 2 different stories:
-Baby M I: NJ Trial court: contract matters
-Baby M II: NJ SC court: invalidated contract, looked beyond contract
-Calvert: CA SC court: upheld contract, question more specific about indeterminate biology—focused on
intention

Restatement on Contracts and Public Policy

--Restatement: Sections 178 and 179

**Section 178: When a Term is Unenforceable on the Grounds of Public Policy:
(1) A promise or other term of an agreement is unenforceable on grounds of public policy if
legislation provides that it is unenforceable or the interest in its enforcement is clearly
outweighed in the circumstances by a public policy against the enforcement of such terms
(2) In weighing the interest in the enforcement of a term, account is taken of
a. the parties’ justified expectations
b. any forfeiture that would result if enforcement were denied; and
c. any special public interest in the enforcement of the particular term
(3) In weighing a public policy against enforcement of a term, account is taken of
a. the strength of that policy as manifested by legislation or judicial decisions
b. the likelihood that refusal to enforce the term will further that policy
c. the seriousness of any misconduct involved and the extent to which it was deliberate
d. the directness of the connection between misconduct and the term

**Section 179: Bases of Public Policies AGAINST Enforcement

-A public policy against the enforcement of promises or other terms may be derived by the court from:
a. Legislation relevant to such a policy, or
b. The need to protect some aspect of the public welfare, as is the case for the judicial policies
against, for example,
-Restraint of trade
-Impairment of family relations
-Interference with other protected interests

II. Remedies

--If you are a will theorist, preferred remedy: SPECIFIC PERFORMANCE

--IF you are an economic theorist, prefer: MONEY
--If you are a justice person, prefer: FAIRNESS or MONETARY

--What is an efficient breach?

-If the cost to the defendant to perform would exceed the benefit that the performance would give to both
parties, then efficient to breach
-In line with freedom to contract

A. Kinds of Damage Interests (59-85)

 1. Definitions of the Three Types: Expectation, Reliance, & Restitution
1. Expectation interest: putting the promisee (person to whom the promise has been made) in the position
in which the promisee would have been, had the promise been performed
-Applicable even in future contracts

Using Restatement 347 to Calculate EXPECTATION Damages

Loss in Value = Difference in value between what you contracted for and what you received
+
Other Loss =
a. Incidental loss = costs incurred in an effort to avoid loss/injury
b. Consequential loss = other loss/injury suffered from breach

-- Cost Avoided = Savings to injured party from not performing

-- Loss Avoided = Benefits of mitigation

LOSS IN VALUE + OTHER LOSS – COST AVOIDED – LOSS AVOIDED

-Put injured party back in position if promise had been performed

2. Reliance damages: put promisee back in the position in which the promisee would have been had the
promise NOT been made (basis is on wasted expenditure)
-FOCUS ON THE INJURED PARTY

3. Restitution Interest: put promisor back in position in which the promisor would have been had the
promise NOT beed made
-FOCUS ON THE BENEFITED PARTY

2. Cases for Calculating Expectation Damages

-Hawkins v. McGee (1929) (“hairy hand” case)

-FACTS: McGee told the father and son of Hawkins that the boy would be in the hospital for 3-4 days, not
over 4, and he is going to take skin from his leg and apply it to his hand (actually from his chest), says he
will have a 100% hand
-ISSUE: Who should have decided the contract (judge or jury)? What is the proper measure of damages?
-HOLDING: Put the plaintiff in the position in which he expected to be had the contract been performed
(expectation damages)—cannot compensate for pain because this was to be expected from the operation
-Difference between perfect hand and hand after operation
-Trial awarded: Pre-Op Hand  Post-Op Hand
-Supreme Court: 100%  Post-Op Hand
**The true measure of a buyer’s damages is the difference between the value of the goods as they would have
been if the warranty as to the quality had been true and the actual value at the time of sale, including an incidental
consequences within the contemplation of the parties when they made their contract**

-Nurse v. Barnes (1664)

-Lending of iron mills (lease contract)
-Awarded large amount, idea of expectation damages
**Special damages may be awarded for breach of contract**

-Hooker v. Roberts (1996)

-FACTS: Hooker has a general contract with BHPA, has a subcontract with Roberts. Dispute over who is
going to move cabinets, can’t come to agreement, so Hooker declares contract to be null and void. Roberts
filed suit.
-ISSUE: (1) Does the UCC apply? (2) What is the proper amount of damages?
-HOLDING:
(1) UCC applies for sale of goods, not services—this is a mixed transaction, so UCC does not apply
 (2) Dispute over damages (administrative, storage, lost profits)—only awards administrative and
lost profits (not storage)
NOTE: Apply the COMMON LAW where the UCC does not apply!
**A party is only entitled to recover damages for expenses in storing goods that it would not otherwise have
incurred absent the other party’s breach**

-Tongish v. Thomas (1992)

-FACTS: Tongish had contract with Coop, Coop had another contract with Bambino. Due to bad weather,
market price was double than contract price, so Tongish breaks contract with Coop. However, Tongish
then sells to Thomas at higher price. Thomas doesn’t pay, Tongish sues Thomas, then Coop gets in and
sues Tongish.
-ISSUE: difference in damage measures (1-106—expectation damages, 2-713—market vs. contract price)
HOLDING:
-In an action for a breach of K for the sale of goods, the proper measure of damages is the difference
between the market value of the goods and the K price agreed upon by the parties. The general rule for
damages in a breach of K action is to restore the injured party to the position he would have enjoyed had
the K been performed.
-Trial court awarded this measure of damages to Coop based on its actual loss of expected profits.
-HOWEVER, where the seller is in breach of K FOR THE SALE OF GOODS: the injured party has available
alternative remedies under state statute. Specifically, the injured party may recover the difference between
the market value at the time of K was breached and the K price, minus any losses avoided.
-The rules of statutory construction require that where 2 seemingly conflicting statutes apply, the more
specific provision governs. Applying the more specific provision to the present case, Coop would be unable
to recover since its subsequent K with Bambino did not result in any LOST PROFITS to Coop
-Basing damages on lost profits encourages breach of K in such a situation where the market shifts
to the benefit of one party
-THUS, if loss of actual profit was the measure applied, Tongish would be encouraged to
repudiate his K with Coop and take advantage of increased market prices, while if the
market for sunflower seeds dropped, COOP would be bound to performance pursuant to K
price
-NOTE: Court distinguishes this case from cases where the breach of K does not occur in bad faith. Courts have
held that where a buyer has subsequently entered into a resale K of which the seller is aware, the measure of
damages may be determined by the buyer’s actual loss, absent bad faith on the part of the repudiating seller.
However, the present case differs from those in which the goods are destroyed or otherwise unavailable, due to
Tongish’s bad faith conduct in repudiating the K with Coop, in order to obtain a higher price for his goods
elsewhere.

-Court follows a FAIRNESS AND JUSTICE model

**In an action for a breach of contract for the sale of goods, the proper measure of damages is the difference
between the market value of the goods and the contract price agreed upon by the parties**

B. LIMITATIONS ON DAMAGES

1. Foreseeability

-Hadley v. Baxendale (MAJORITY RULE)

-FACTS: Shaft breaks, sent with company that doesn’t deliver for several days, sues for lost profits when
the mill is shut down
-ISSUE: Are they entitled to lost profits?
-HOLDING: Court sets up 2 criteria to determine consequential damages:
1-When the consequential (indirect) damages are such that they normally would arise from that kind of
breach
2-Damages should reasonably have been in the contemplation of both parties
**In an action for breach of contract, plaintiffs are only entitled to recover the measure of damages both parties
may reasonably foresee as a result of the breach**
**The rule of Hadley v. Baxendale is that damages are only recoverable if they should "reasonably be considered
[as] arising naturally, i.e., according to the usual course of things," from the breach or might "reasonably be
supposed to have been in the contemplation of both parties, at the time the contract was made, as the probable
result of the breach of it."**

RESTATEMENT, SECTION 351:

Unforeseeability and Related Limitations on Damages

(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a
probable result of the breach when the contract was made
(2) Loss may be foreseeable as a probable result of a breach because it follows from the breach
a) in the ordinary course of events, or
b) As a result of special circumstances, beyond the ordinary course of events, that the party in
breach had reason to know
--The Re-statement codifies the rule of Hadley v. Baxendale
--The criteria is:
-FORESEEABILITY at the time of formation
-usual/normal damages, OR
-breaching party had reason to know that any special circumstances that might give rise to
special, unusual damages

-Hector Martinez v. Southern Pacific

-FACTS: Martinez shipped certain strip mining machinery by train. Part of the machinery was damaged in
transit. It took a period of time to make repairs to this machinery, and the fair rental value was claimed as
contract damages. The railroad argued that damages for the lost rental value of the machinery were not
foreseeable at the time of contracting.
-ISSUE: Should Southern Pacific pay for lost use of the machinery?
-HOLDING: YES, obvious that lost use was foreseeable. The court holds that the lost rental value resulting
from the delay in shipment was recoverable, but that a delay resulting from problems during the repair
period was not foreseeable and therefore not recoverable.
**Special damages are awarded only if actual notice was given to the carrier of the possibility of injury**

-Morrow v. First National Bank (MINORITY RULE)

-FACTS: Morrow alleges that reserved safety deposit box but they never told him when it was ready, coins
stolen thereafter. Sues bank for breach of contract and lost value of the coins
-ISSUE: Was there a breach of contract, and if so, what remedy?
-HOLDING: NO
-Follow the tacit agreement test: plaintiff must prove more than the defendant’s mere knowledge
that a breach of contract will entail special damages to the plaintiff, must also appear that the
defendant at least tacitly agreed to assume responsibility
-Morrow takes Hadley and adds to it: not enough to have special notice, have to tacitly agree
**In an action for consequential damages, under the “tacit agreement test,” the plaintiff must demonstrate that
the defendant expressly assumed responsibility for the plaintiff’s sustaining special damages as a result of the
defendant’s breach**

2. Uncertainty and Reliance Damages

Notes on Uncertainty:
--Damages for breach of contract are recoverable only if the amount of the loss is reasonably certain at the time of
contracting. Damages not meeting the test are often called "speculative."
--Lost profit damages where an existing business expansion is delayed by a breach are generally allowed because
there will exist a "track record", but similar damages for a new business may be denied.
--The UCC has a lower threshold of required certainty than the common law does. UCC § 1-106.
--Chicago Coliseum Club v. Dempsey (CLASSIC RELIANCE CASE)
-FACTS: CCC entered into contract with Dempsey, Dempsey breached. CCC wants to recover on loss of
profits, pre-contract expenses, cost of injunction, and post-contract expenses
-ISSUE: What is the correct measure of damages?
-HOLDING: Only allow post-contract expenses, everything else is too uncertain
**CLASSIC RELIANCE CASE: Look at WHEN contract entered into and WHEN it was breached
**An aggrieved party may not recover special damages (lost profits) unless such damages are definite and certain.
Costs incurred in preparing a contract are not recoverable. Attorney fees and court costs are not recoverable
unless provided for in the contract. Costs incurred in preparing for the performance ARE recoverable**

--Anglia TV v. Reed
-FACTS: Anglia wanted to make TV movie, entered into contract with Reed, Reed had scheduling conflict
and breached
-ISSUE: What is correct measure of damages?
-HOLDING: Can get pre-contact expenses (in contrast to Dempsey)
**In a breach of contract action, wasted expenditure can be recovered when it is wasted by reason of the
defendant’s breach of contract**

Restatement and Reliance Damages

Dempsey Anglia
Awards
As an alternative to the measure of damages statedAwards
POST-CONTRACT expenses PRE-CONTRACT
in 347 (expectation expenses
damages), the injured party has
Assumes
a right putting burden
to damages on plaintiff
based to proveinterest,
on his reliance lost Explicitlyexpenditures
including assuming they would
made have made for
in preparation money
profits
performance or in performance, less any loss that the either way
party in breach can prove with reasonable
MAJORITY
certaintyRULE
the injured party would have suffered had MINORITY
the contract RULE
been performed.

--CONSEQUENTIAL DAMAGES DEPEND ON FORESEEABILITY!

-Depends on whether indirect losses are foreseeability
-2 part test:
1. Special damages were announced before and agreed upon
2. Loss reasonably foreseeable
--IF YOU ARE UNCERTAIN, SWITCH TO RELIANCE

Notes on Reliance Damages:

A. When used.
1. When expectancy damages are uncertain and cannot be recovered.
2. When a contract is not enforceable and restitution damages are inadequate.
Some courts have allowed reliance damages where the contract was unenforceable under the
Statute of Frauds, by reason of mistake, or because of incapacity.
B. How calculated.
1. Expenditures in performing or preparing to perform.
2. Lost opportunities.
-Courts are reluctant to award damages for lost opportunities, even when they can be confidently
calculated.
-Example: Alex is offered $400 to handle Monty's Old English Sheepdog in the Los
Angeles dog show. Alex declines in order to enter a motorcross race where the prizes for
the first three places are $8,000, $5,000 and $2,000. Because of a breach of contract by
Alex's garage (it fails to fill the crankcase with oil), Alex is out of the race in the first lap.
Alex's reliance damages are at least the $400 he would have earned handling the dog.
3. Cannot exceed expectancy damages.
-Expectancy is a cap on reliance damages .

3. Avoidability
--Rockingham County v. Luten Bridge
 -FACTS: County and Luten entered into a contract. County wanted to stop contract, but Luten kept building
anyways. Luten sues for damages.
-ISSUE: What is the proper measure of damages?
-HOLDING: Luten had no right to pile up damages, have a duty to mitigate
**After repudiation of performance by one party to the contract, the other party cannot continue to perform and
recover damages based on full performance**

RESTATEMENT WITH AVOIDABILITY (PG. 140)

--SECTION 350:
Damages are not recoverable for loss that the injured party could have avoided without undue risk, burden
of humiliation
--Reasonable efforts to avoid loss

--Shirley Maclaine Parker v. 20th Century Fox

-FACTS: Fox and Maclaine entered into a contract for a certain movie. Fox decided not to make movie, but
offered substitute Big Country role. Maclaine declined and sued for damages.
-ISSUE: Can the plaintiff’s rejection of substitute employment be used in mitigation of damages?
-HOLDING: NO, Substitute offer was different and inferior
**Projected earnings from other employment opportunities only offset damages if the employment is substantially
similar to that of which the employee has been deprived**

Doctrinal Points:
--Rockingham County case we saw the negative aspect of avoidability: duty to refrain from performance after
breach
-Bridge company should have stopped working the bridge
-Point is to prevent economic waste
-Maclaine: Kind of affirmative aspect to accountability doctrine—not enough to stop performing on the old contract
after you have stopped working, should have reasonable efforts to find another movie contract, affirmative aspect,
if not, would have been better off than expected

4. Lost Volume Situation

--Avoidability is an exception to the full recovery of expectation damages
--There is an exception to the exception: LOST VOLUME SELLER
-A volume seller is a seller who has potentially an infinite supply of goods so they can replenish their
inventory
-Volume sellers are NOT limited by the avoidability doctrine
**If the seller is a volume seller, then the measure of damages in the event of a breach by the buyer
is the amount of profit the seller would have made!!**

--Neri v. Retail Marine Corporation

-FACTS: Neri contracting for a boat, ended up getting hospitalized and couldn’t make payments for the
boat. Told seller he was repudiating the contract—wanted his initial deposit ($4000 +) back. Seller
responds that he had already ordered the boat, Seller counter-claimed for incidental damages, attorney’s
fees, and lost profits
-HOLDING: Because they are a retailer of boats, had Neri not breached, Retail would have been able to sell
2 boats instead of just 1
-Uses UCC 2-708: if the contract-market differential does not put the seller in as good a position as
he would have been if the buyer had performed, he may recover the profit he would have made
had the buyer fully performed, together with any incidental damages.

**UCC 2-708 permits the seller to recover as damages the difference between the market price and the contract
price plus any incidental damages incurred, but minus any expenses avoided, as long as this amount is sufficient to
place the seller in as good a position as performance would have done; otherwise, the seller may recover his lost
profit, plus any incidental damages and reasonable costs**
Recover Damages For Breach under § 2-708.
A. Under § 2-708(1), a seller does not need to resell the goods in order to recover damages for buyer's breach.
Damages are [market price of the goods at the time and place for tender - unpaid contract price] + incidental
damages - expenses saved in consequence of the buyer's breach.
--Some buyers have sought to avoid the remedy of § 2-706 by, for example, failing to give notice and then
seeking § 2-708 recovery. They do this if they expect a resale to be above market rates.
B. Section 2-708(2) says that if the measure of damages provided in subsection (1) is inadequate to put the seller
in as good a position as performance would have done, then the measure of damages is the profit (including
reasonable overhead) which the seller would have made from full performance by the buyer.
Under this section, the "lost volume" seller cases are litigated. The argument is that but for the buyer's breach, the
seller would have made two sales instead of one.

C. Liquidated and Punitive Damages (146-178)

When private parties determine private remedies

Liquidated damages: pre-determined damages determined at the time of contract

--Kemble v. Ferren
-FACTS: The manager of the Covent Garden Theater is suing an actor to recover liquidated damages for
the violation of an engagement to perform at Covent Garden for four seasons. If either party breached,
then had to pay 1000 pounds.
-ISSUE: Is the liquidated damages clause enforceable under contract?
-HOLDING: NO, The clause extends to a breach of any stipulation by any party—so if 1 payment hadn’t
been made by the plaintiff, then the defendant would have been awarded 1000 pounds. The court holds
that generally liquidated damage clauses can be enforced, but that in this case, the clause amounts to a
penalty clause.
**Where a contract provides that a very large sum is to be immediately payable for any breach, however minor,
the courts will direct the jury to assess the real damages sustained as a result of the breach of the contract**

--Waasenaar v. Towne Hotel

-FACTS: Wassenaar had an employment contract that specified that in the event he was discharged
without cause, damages would be his salary for the unexpired term of the contract. When he was
discharged, his contract had twenty-one months to run. However, Wassenaar was only unemployed for
two months.
-ISSUE: 1) Was the liquidated damages clause a penalty?
-Sub-issue: (2) Does the liquidated damages clause in the contract eliminate the employee’s duty to
mitigate damages?
-HOLDING: 1) NO—A valid provision, not a penalty
(2) NO—not applicable to determine damages awarded
--The court first finds that the stipulated damages clause was a reasonable estimate at the time of contract
formation of anticipated damages. The employer bears the burden of showing that the clause was unreasonable as
actually applied at the time of breach. Although the employee had found subsequent employment, there was no
evidence as to his salary or other terms and conditions of that employment.
--The single test of validity for the clause is whether it is reasonable under the circumstances
**CANNOT GET LIQUIDATED DAMAGES IF THEY AMOUNT TO A PENALTY

**A stipulated damages clause is VALID if it is REASONABLE under the totality of the circumstances **

--Lake River Corporation v. Carborundum Co.

--Lake River agreed to provide distribution services for Carborundum. Lake River would receive the
product, Ferro Carbo, from Carborundum, bag it, and ship it to customers. Carborundum promised that
Lake River would have a minimum of 22,500 tons of product and that if it did not, Carborundum would pay
the going rate up to that quantity.
UCC AND SPECIFIC PERFORMANCE: UCC 2-716
(1) Specific performance may be ordered where the goods are unique or in other proper circumstances.
(2) The judgment (decree) for specific performance may include such terms and conditions as to payment
of the price, damages, or other relief as the court may deem just
(3) The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is
unable to356:
Restatement effect cover for such goods or the circumstances reasonably indicate that such effort will be
unavailing
--Damages of if the
for breach by goods have been
either party may beshipped underinreservation
liquidated and but
the agreement satisfaction of amount
only at an the security
that interest
is reasonable
in the in them
light has anticipated
of the been madeor oractual
tendered
loss caused by the breach and the difficulties of proof of loss. A term fixing
unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.

--Applicable state law requires that a liquated damages clause, in order to be enforceable, must be a
reasonable estimation at the time of contracting of the probable damages from breach, and the need for
estimation must be based on the likely difficulty of assessing the actual damages suffered in the event of
breach; otherwise such clause is void as a penalty.

1. Liquidation and Arbitration Clauses

--Garrity v. Lyle Stuart, Inc.

--FACTS: Plaintiff, author, brought this proceeding to confirm an arbitration award granting her $45,000 in
compensatory damages and $7500 in punitive damages against the defendant publishing company.
--ISSUE: Is the arbitrator’s award for damages against public policy?
--HOLDING: YES, Punitive damages are available in only a small number of cases—the are social
exemplary remedies, not private compensatory remedies
-Punitive damages are only a sanction reserved for the State—a public policy of such magnitude as
to call for judicial intrusion to prevent its contravention
-THE FREEDOM OF CONTRACT DOES NOT EMBRACE THE FREEDOM TO PUNISH, EVEN BY
CONTRACT
**An arbitrator does not have the authority to award punitive damages**

--Willoughby Roofing v. Kajima International

-ISSUE: -Does public policy prohibit the parties to a contract from vesting an arbitration panel with
authority to consider their claims for punitive damages for fraud in the inducement or performance of
the contract?
-HOLDING: NO
-What controls here in the Federal Arbitration Act
-Under Willoughby rule, punitive damages would be subject to all arbitrations-COURT OBSERVES A
STRONG FEDERAL POLICY TOWARDS ARBITRATION
- When people adopt arbitration, must be happy with the consequences—“must contend
themselves to the looser approximations to the enforcement of their rights than those that the law
accords them, when they resort to its machinery”

For Specific Performance:

**SALE OF LAND: PRESUMPTION IN FAVOR OF SPECIFIC PERFORMANCE
**SALE OF GOODS: PRESUMPTION AGAINST SPECIFC PERFORMANCE UNLESS NO ADEQUATE
REMEDY IN LAW (UNIQUE)
-If you want to exclude punitive damages, put that in the contract

D. Specific Performance (179-235)

1. Contracts for Land

--Loveless v. Diehl
-FACTS: Loveless leased farm to Diehl, contract had an option to purchase property at the end of 3 years.
Diehls wanted to purchase land, but couldn’t, so they sold the land to Dr. Hart. Loveless interfered, Diehls
sue
 -ISSUE: Should specific performance be awarded for a contract for land?
-HOLDING: YES, land is unique, automatic presumption for specific performance for land
**In a contract for the sale of real property, the court may award the remedy of specific performance as a matter
of course irrespective of the adequacy of the remedies at law**

2. Contracts for Goods

--Cumbest v. Harris
-FACTS: Cumbest sells Harris hi-fi equipment, has an option agreement to buy back equipment, Harris
dodges Cumbest and Cumbest can’t buy back—Cumbest sues for specific performance
-ISSUE: Is the property unique enough to warrant specific performance?
-HOLDING: Yes, built it himself, etc
**Generally, the court will NOT order specific performance for the sale of an item of personal property unless there
is no sufficient remedy at law, the particular property is of unique or sentimental value, or the item is otherwise
not readily obtainable**

Scholl v. Hartzell
-FACTS: Placed ad for sale of car, entered into agreement, then breached
-ISSUE: Should replevin be awarded?
-HOLDING: NO, don’t get immediate possession of goods just because you place a deposit, property is not
unique. The court refuses to find that a 1962 Chevrolet Corvette is sufficiently unique under UCC § 2-716
that a request for specific performance should be granted.
-Replevin: action based on property (not a contract), if you can establish that you are the
rightful owner of a piece of property and can establish that someone else is holding that
property, can ask for it back—based on TITLE
**Where a contract is executory, the tendering of a deposit does not give rise to an action in replevin, and the
injured party must seek relief based on a breach of contract **

--Sedmak v. Charlie’s Chevrolet, inc.

-FACTS: Sedmaks contracted for limited edition car, dealer then told them to bid on it when demand
became greater
-ISSUE: Specific Performance? YES
-Car was unique
**Specific performance of a contract for the sale of goods may be granted where the subject matter of the
agreement is of a sufficiently unique nature, or under similarly appropriate circumstances**

3. Contracts for Personal Services

-The Case of Mary Clark
-FACTS: Mary contracted for indentured servant contract, then wanted out
-ISSUE: Should specific performance be awarded for a contract for indentured servitude for a contract
outside of Indiana?
-HOLDING: Contracts for involuntary servitude are void as a matter of state, no specific performance of the
contract
**The court may not order the specific performance of a contract for personal services **

-Lumley v. Wagner
-FACTS: Wagner said she would sing at Lumley’s theater, then breached and wanted to sing at another
theater
-ISSUE: Wants injunction for Wagner
-HOLDING: The court cannot compel Wagner to sing, but the court can issue an injunction barring her to
abstain from the commission of an act which she has bound herself not to do. The contract states she is to
refrain from singing elsewhere during the period in question.  If she attempts to do so she will have broken
the spirit and meaning of the contract.
THERE ARE LIMITS TO THE THINGS YOU CAN AGREE TO
**The court may grant a negative injunction restraining the party rendering the service from performing for any
other employer during the contract period**

Ford v. Jermon (1865)

 -FACTS: Jermon agreed to sing exclusively for Ford for a given period, breached, wants injunction
-No injunction because can’t do indirectly what you can’t do directly
-Rejection of Lumley rule (following Civil War)
-Lumley: enforce affirmative objections through injunctions would be a violation of
liberty, whereas negative injunctions are just fine
-Jermon: can’t use injunctions to do indirectly what you can’t do directly
**The court may NOT grant specific performance of a contract for the rendering of personal services, thereby
compelling the individual to perform exclusively for the employer for a specified time period **

Duff v. Russell
-FACTS: Russell breached contract with opera to go and sing at another opera, used tights excuse, no
exclusivity contract because of 7 performances a week
-HOLDING: Awarded injunction—180 degree turn from Ford v. Jermon
-See a greater willingness to coerce people into employment relationships when they are women
**Absent a reasonable excuse, a party to a personal services contract may be enjoined from performing alternative
services**

Dallas Cowboys Football Club v. Harris

-FACTS: Harris had contract for 1 year, Club had option to renew after 1 year, Harris then went and signed
contract with another team after 1 year, Club sued and wanted injunction
-ISSUE: Should an injunction be granted against a football player with exceptional service?
-HOLDING: YES
-It is well established that an injunction can be granted to restrain violation by an employee of
negative covenants in a personal service contract if the employee is a person of exceptional and
unique knowledge, skill and ability in performing the service called for in the contract
-General modern standard for the availability for negative injunctions

NOTE: Negative covenants can be enforced so long as the person has unique knowledge, skill, and ability
-Note that what this standard does: reverses standard in Ford v. Jermon where the court says that we don’t want
to give specific performance to those with unique skill
-Rationale is reversed!

**When one having a special skill agrees to perform a service, he may be enjoined from performing services for
another**

4. Constitutional Problems

Bailey v. State of Alabama (1911)

-FACTS: Bailey worked for a company, received $15 bonus, then refused to work after that, Company sued
-ISSUE: Whether statute is unconstitutional (statute: if you refuse to perform contract you are considered
to be defrauding your employer)
-HOLDING: Statute is not constitutional, this is like peonage
-Still owes $15 though
-HALLMARK OF US LAW: No criminal liability for debts

Lochner v. New York (1905)

-FACTS: Case regarding whether or not the plaintiff violated a part of the labor law of New York, in that he
required and permitted an employee working for him to work more than 60 hours a week
-ISSUE: Is statute constitutional?
-HOLDING: NO, violates due process clause
--LOCHNER REPRESENTS HIGH-WATERMARK OF LATE 19TH CENTURY LAISSEZ-FAIRE CONCEPTION OF POLITICAL
ECONOMY: STATE HAS NO BUSINESS REGULATING EITHER CIVIL OR COMMERCIAL LIFE BEYOND A NARROW
DUTY TO PROTECT PUBLIC SAFETY
-BUT IN THE COURT’S VIEW, EVEN THIS WASN’T GOOD ENOUGH

E. Restitution and Tortious Interference (235-271)

 1. RESTITUTION: DAMAGE INTEREST AND CAUSE OF ACTION

Basic Notes on Restitution:

--Restitution treats the breach as having caused the contract to fall away
--Seeks to take away any benefit given to the defendant (FOCUS IS ON THE BENEFITED PARTY)
-Assume the contract no longer exists
--Focus on theory of unjust enrichment
--Normally, will always want EXPECTATION DAMAGES—but, if those aren’t available, can either get reliance or
restitution

1. Restitution for Breach of Contract

Bush v. Canfield
-FACTS: Promised to deliver certain amount of goods but never did, Plaintiffs paid $5000 in advance, market
price decreased
-ISSUE: Is the measure of damages for failure to deliver goods the amount advanced plus interest (Was this
the correct measure of damages)?
-HOLDING: Where a man contracts to deliver any article besides money, and fails to do it, the rule of damages
is the value of the article at the time and the place of delivery, and the interest for the delay.
--Actual (expectation) damages can’t always be the rule for measuring damages!
**The measure of damages for a failure to deliver goods is the amount advanced by the buyer, plus interest **

2. Restitution to the Party in Breach

Britton v. Turner
-FACTS: Man worked for most of a contract, but then breached, once payment for work (Quantum meruit: get
paid for what you’ve done, reasonable worth of services)
-HOLDING: Pay for his work, don’t want unjust enrichment
-Pay for his work minus any damages incurred

Britton USED to be the MINORITY rule, but today it is the MAJORITY RULE and a perfectly acceptable
way of RESTITUTION

**When labor is performed under a contract for a specified price, the party who fails to perform the whole of the
labor contracted for can recover in quantum meruit the value of the labor performed to the degree it is greater
than the damage to the other party**

Vines v. Orchard Hills, Inc.

-FACTS: Wanted a condo but had to back out because they moved, wants the deposit back
-ISSUE: 1) Should the breaching party get restitution? And (2) Is the liquidated damages clause enforceable?
-HOLDING: Get restitution minus damages they caused
**A party breaching a land sale contract may recover the down payment if he can prove that no damages were
inflicted upon the seller at the time of the breach **

RESTITUTION TO THE PARTY IN BREACH

Restatement, 374: Restitution in Favor of Party in Breach

(1) Subject to the rule stated in Subsection (2), if a party justifiably refuses to perform on the ground that
his remaining duties of performance have been discharged by the other party’s breach, the party in
breach is entitled to restitution for any benefit that he has conferred by way of part performance or
reliance of the loss that he has caused by his own breach
(2) To the extent that, under the manifested assent of the parties, a party’s performance is to be retained in
the case of breach, that party is not entitled to restitution if the value of the performance as liquidated
damages is reasonable in the light of the anticipated or actual loss caused by the breach and the
difficulties of proof of loss (codifies Vines result)
 3. Restitution and the “Quasi-Contract”

A quasi-contract, also an implied-in-law contract, is a legal substitute for a contract. A quasi-contract is a contract
that should have been formed, even though in actuality it was not. It is used when a court wishes to create an
obligation upon a non-contracting party to avoid injustice.

Cotnam v. Wisdom
-FACTS: Action by Wisdom against Cotnam, administrator of AM Harrison, deceased, for services rendered
by Wisdom as surgeons to defendant’s intestate
-ISSUE: (1) When should there be a quasi-contract in these factual circumstances? (2) If there is a quasi-
contract and we need to provide restitution, how do we provide restitution?
-HOLDING: YES, contract was implied by law
-Doesn’t matter if person is rich
-If person receives a benefit, then must pay
**A person rendering emergency services to a person may collect reasonable fees therefor**

Terms Court uses in excerpt on Pages 252-253

-Distinction between express and implied contract
-Express: ex: sell you a highlighter, I agree
-Implied: ex: not spoken or written, shown through actions
-EX: Let’s say I go to a restaurant and I get seated at a table. At the end of the evening,
they come with a check—nothing has been said about it
-It’s an implied contract!
-Further distinction between different kinds of implied contracts:
1. Contracts implied IN FACT: restaurant hypo
-Perfectly good, ordinary contract
-Based on intentions of parties
2. Contracts implied IN LAW:
-Based on a legal fiction
-Court creates one when otherwise there wouldn’t be one
-Quasi-contract
-Purpose is to provide a remedy where there wouldn’t be one otherwise
-Comes from law of restitution
--Logic of quasi-contract is the law of equity: kind of contract that Courts imply for reasons of justice and fairness

RESTATEMENT: Section 371: Measure of Restitution Interest

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

Martin v. Little, Brown, and Co.

-FACTS: Martin found plagiarism and alerted company to it—wants compensation for services
-ISSUE: Can a plaintiff get restitution for services rendered voluntarily and without an express contract?
-HOLDING: NO
-As a rule, volunteers do not have a right to restitution
-Where the circumstances evidence that one’s work effort has been voluntarily given to another,
an intention to pay cannot be inferred—there was no basis upon which to infer the existence of a
unilateral contract
**One who volunteers information to another to the other’s benefit has not formed a contract **
 Definitions:
--Contract implied in fact: actual contract which arises where the parties agree upon the obligations
incurred, but their intention, instead of being expressed in words, is inferred from their acts in the light of the
surrounding circumstances
--Implied contract: an agreement which legitimately can be inferred from the intention of the parties as
evidenced by the circumstances and the “ordinary course of dealing and the common understanding of men”
--Quasi contract: not based on the apparent intention of the parties to undertake the performances in
question, nor are the promises—they are obligations created by law for reasons of justice

**Claims for restitution may not always be rewarded for:

1) Minors
2) Intimates

4. TORTIOUS INTERFERENCE WITH A CONTRACT

Lumley v. Gye
-FACTS: Whether an action will lie by the proprietor of a theater against a person who maliciously procures
an abandonment of a contract to perform exclusively at that theater for a certain time, whereby damage
(including special damages on the contract) was sustained
-ISSUE: Can a person recover if a person maliciously interfere with a contract?
-HOLDING: Yes, He who procures the damage maliciously might justly be made responsible beyond the
liability of the contractor
 ALL THIS INTERFERES WITH TRADITIONAL NOTIONS OF CONTRACT: TAKING INTO ACCOUNT THAT PEOPLE
ARE NOT FULLY FREE AND ARE SUBJECT TO SOCIAL PRESSURES
-IF THIS INTERFERENCE IS MALICIOUS, THEN NOT ALLOWED
**One who induces a party to breach a contract may be liable to the other contracting party for his damages
resulting therefrom**

RESTATMENT OF TORTS
766: INTENTIONAL INTERFERENCE WITH PERFORMANCE OF CONTRACT BY A THIRD PERSON

--One who intentionally and improperly interferes with the performance of a contract (except a contract to
marry) between another and a third person by inducing or otherwise causing the third party not to perform the
contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the
third person to perform the contract

Texaco v. Pennzoil
-FACTS: Getty Oil setting up to sell to Pennzoil, but then wanted more money, Texaco comes in and buys.
Pennzoil sues Texaco for tortuous interference.
-ISSUE: (1) Did Texaco know there was a contract? YES
(2) If yes, did they knowingly induce a breach? YES
-HOLDING: Follows Restatement—Texaco acted in wanton disregard of Pennzoil’s rights—INDUCING A
BREACH KNOWINGLY CAN BE ACTIONABLE

**A party may be liable for interference with contractual rights even if he believes that the agreement giving rise
to the contractual duty is not legally binding**

III. CONTRACT FORMATION

A. Reaching an Agreement

1. Objective vs. Subjective Theory of Assent

 Subjective
-Theory of obligation: WILL theory
-When 2 parties have both expressed their will
and there is a “meeting of the minds” that’s
when you have a contract
-Potential problems: Hard to know what people
are actually thinking
-Can’t really know what people’s inner intent
Objective
-How do you know what a person is thinking?
 look at various objective manifestations
(facial expressions, behavior, etc) and then try
to figure out what they are actually thinking
-Focus is not what people really meant or what
they were thinking, but what they said and
what they did (all we can know for sure)
-Problems with the objective theory: how do
you know what the objective meaning of what
a person may say or do
--How do we know what objectivity is?

2. Contracts Implied by Law and Fact

-- CONTRACTS IMPLIED IN FACT: parties do not express agreements in words, but it is apparent from a
reasonable interpretation of their conduct, viewed in the context, that they intended to make a contract
--Quasi-contract: CONTRACTS IMPLIED IN LAW

3. The Objective Theory of Assent

Embry v. McKittrick
-FACTS: P’s contract with D was about to expire, P came to office and believed contract was extended after
P gave D an ultimatum. P then got laid off and sued for breach of contract.
-ISSUE: Did what was said constitute a contract irrespective of the intention and purpose of Mr. McKittrick?
-HOLDING: No, invokes REASONABLE PERSON TEST
-Must be the expressed intention of the parties
-The law imputes to a person an intention corresponding to the REASONABLE meaning of his
words and acts---this should be taken as to what a reasonable man would have taken as
employment—intention is immaterial until it manifests into an act

**The meeting of the minds that is essential to the formation of a contract is not determined by the secret
intention of the parties, but by their expressed intention**
FOR A VALID OFFER:
(1) “Reasonable person must perceive it as an
offer
(2) Offeree must actually perceived it as an
offer
Texaco v. Pennzoil, Revisited
-ISSUE: Texaco wants to bring into evidence certain aspects of negations that they had with Getty as
evidence of Getty’s lack of intent to enter into a contract with Pennzoil
-HOLDING: NO, relies on the objective standard

Lucy v. Zehmer
-FACTS: D, the owner of a property, contended that his offer to sell it to P was a bluff. The alleged
contract while the parties sat drinking. When P sought to enforce the sale, D claimed it was not intended
seriously—just calling P’s bluff because he did not think P had the money.
-ISSUE: Whether P entered into a contract despite lack of intent
-HOLDING: YES, Whatever D’s actual intent, P was in earnest, and under the objective test, there was no
reason to believe that D was not.
-Classic case of objective theory over subjective theory
**If his outward manifestations of assent otherwise create a contract, the claim that the assentor was not serious
is not a defense to a claim on the contract**

B. What is an Offer?
 1. Preliminary Negotiations

Nebraska Seed Company v. Harsh

-FACTS: D sent letter to P saying they have some seed and wants a given price, P accepted purchase in
letter, D refused to deliver
-ISSUE: Is an advertisement of a product an offer if it contains general, non-specific terms?
-HOLDING: NO, The letter as a whole shows that it was not intended as a final proposition, but as a
request for bids—there mere statement of a price cannot be construed as an offer to sell
**An advertisement of a product is not an offer if it contains general, nonspecific terms**

Leonard v. Pepsico
-FACTS: Pepsi campaign for Pepsi points—buyers redeem points through catalog. Ad contained fighter jet
for 7 million points. P submitted redemption check for jet—D refused to award check because commercial
merely humor and entertainment and not reasonably understood as a prize
-ISSUE: Can a television ad be construed as a valid offer?
-HOLDING: Alleged offer reasonably understood as a joke—eyes of reason
-Advertisements are merely offers to sell
Note: Lefkowitz case: advertised brand-new fur coats on a first come, first serve basis but barred man from buying
(hadn’t stated that)
-If you got there and they had coats, then a binding offer
-If you got there afterwards, still fine—limited to first come, first serve
***In terms of distinguishing offers from solicitation—the more specific and definite the offer and
also the less limited the audience (ex: addressed to 1 or 2 people versus the entire world, risk of
multiple liability is not so great) the more likely to get the legally binding offer!***

**An advertisement is not an enforceable offer when it could not be considered by an objective, reasonable person
as a true offer, rather than as an obvious joke**

An Offer vs. Preliminary Negotiation

--By making an offer, the offeror yields control to the offeree. If the offeree accepts, the offeror is bound. The cost
of binding the offeror is that the offeree binds herself as well. "An offer is the manifestation of willingness to enter
into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and
will conclude it." Restatement (Second) of Contracts, sec. 24).

--A statement such as "How much are you asking for that?" is not an offer and so cannot be accepted. How to
distinguish a preliminary negotiation remark from an offer raises many issues. Factors include:

A. Language: The test is whether a reasonable person in the position of the recipient would consider the
language to be an offer.

B. Specificity: The more specific the terms of the statement, the more likely it is to be construed as an
offer. If important terms are not mentioned, it is less likely that an offer will be found.

C. Context: Arguments that there was no offer because the speaker was joking or intoxicated depend on
the context for their success.

D. Past dealings and customs: Almost any language can be an offer if the parties have treated it as such in
the past. An industry practice of treating something as an offer may be important, especially if the practice
is well-established and known to the offeror.

E. Target of communication: The more people that receive the communication, the less likely it is to be
found an offer. This is especially true if the item being designated is in short supply. Communications to
large numbers of people can be an offer if the power to accept is limited by the terms of the
communications. Examples are "First come, first served" and "One thousand dollars to the person catching
the largest trout Sunday on Henry's Fork."

Restatement on Offers

Section 22: Mode of Assent: Offer and Acceptance

--The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party
followed by an acceptance by the other party or parties
-Ideal contract is that you have an offer and an acceptance
(2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and
even though the moment of formation cannot be determined
-Some point, parties accepted, even though we don’t’ know when

Section 24: Offer Defined

An offer is the manifestation of willingness to enter into a bargain.

Section 33: Certainty

(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so
as to form a contract unless the terms of the contract are reasonably certain
-Need to have definite terms that people can assent to
(2) The Terms of the contract are reasonably certain if they provide a basis for determining the existence of a
breach and for giving an appropriate remedy.
-Whole point of contract is that if you have a breach, you have a remedy
-But if breach is so big, obviously there is no remedy—then no contract
(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a
manifestation of intention is not intended to be understood as an offer or as an acceptance
-Can have some open terms that can be determined later
-More open terms you have give more indication that is not meant to be a final offer

UCC 2-204: Formation in General

(1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct
by both parties which recognizes the existence of such a contract
(2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its
making is undetermined
(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the
parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate
remedy

2. Written Memorial Contemplated

**Two cases dealing with letter of intent: can they be construed as binding contracts?

Empro Manufacturing v. Ball-Co Manufacturing

-FACTS: P and D signed letter of intent, P put in provision to back out if they wanted to (“subject to”),
turns out D backed out. P wants injunction saying letter of intent obliges D to sell only to P.
-ISSUE: Should the letter of intent be construed as a binding contract?
**Possible Intentions that the Parties had with regard to the FUTURE Formal writing (that they actually never got
around to):
(1) Execution of a formal writing is a conditional—there is no agreement until you execute the contract in
the future
-No binding contract without agreement in the future
(2) The parties might have intended that they would reduce agreement in the future to formal writing, but
that writing is simply one of the agreed upon terms of the CURRENT agreement (letter of intent)
-As far as future writing is concerned, one of the future terms
-HOLDING: NO, letter of intent did not signify an intent to be bound-- Court follows #1 (condition of
agreement unless they executed the agreement)
-FOLLOWS OBJECTIVE THEORY

**Parties who have made their pact “subject to” later definitive agreement have manifested an intent not to be
bound**

Texaco v. Pennzoil
-Was there sufficient evidence for the jury to conclude that Memo of Agreement could be a binding
contract?
---It is the parties’ expressed intent that controls which rule of contract formation implies.
--Whether parties intended to be bound only by a formal, signed writing depends on:
(1) Whether a party expressly reserves the right to be bound only when a written agreement is signed;
(2) Whether there was any partial performance by one party that the party disclaiming the contract
accepted
(3) Whether all essential terms of the alleged contract had been agreed upon; and
(4) Whether the complexity or magnitude of the transaction was such that a formal, executed writing
would normally be expected.
--THUS, To determine intent, a court must examine the words and deeds of the parties—only OUTWARD
expressions of intent are considered
--Different than EMPRO: follows SUBJECTIVE THEORY
**The formation of a valid contract depends on the objective intent of the parties as expressed outwardly in their
words and deeds, and not merely on the form that agreement has taken**

3. Revoking an Offer

Dickinson v. Dodds
-FACTS: D going to sell P houses, told offer will hold until certain date. P informed that D was going to sell
houses, so P tried to contact P to accept offer.
-ISSUE: Can an offeror validly revoke an offer?
-HOLDING: YES
-Two minds must be in agreement at some time—at the time of acceptance
--Once the person to whom the offer was made knows that the property has been sold to someone
else, it is too late for him to accept the offer, and on that ground, there was no binding contract
for the sale of his property

THE OFFEROR IS THE MASTER OF THE OFFER

**An offeree may not bind an offeror by accepted a revoked offer, even if the revocation had not been
communicated to him prior to acceptance. A binding contract requires a “meeting of the minds.” When an offeror
withdraws his offer and the offeree accepts, no meeting has occurred**

Restatement Sections

Restatement Section 25: OPTION CONTRACT

--An option contract is a promise which meets the requirements for the formation of a contract and limits the
promisor’s promise to revoke an offer.

UCC 2-205: Firm Offers:

--An offer by a merchant to buy or sell goods in signed writing which by its terms gives assurance that it will be
held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable
time, but in no event may such period of irrevocability exceed 3 months; but any such term of assurance on a form
supplied by the offeree must be separately signed by the offeror.

Restatement: Requirement of a Bargain (Section 17)

-(1) -Except as stated in Subsection (2), the formation of a contract requires a bargain in which there is a
manifestation of mutual assent to the exchange and a consideration
-(2) Whether or not there is a bargain a contract may be formed under special rules applicable to formal contracts
or under the rules stated in 82-94.

Manifestation of Mutual Assent (Section 18):

--Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render
a performance

Mode of Assent: Offer and Acceptance (Section 22)

--The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party
followed by an acceptance by the other party or parties
--A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and
even though the moment of formation cannot be determined

Offer Defined (Section 24):

--An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in
understanding that his assent to that bargain is invited and will conclude it

The Offeree’s Power of Acceptance (Section 35):

--There is a common law saying that the offeror is the MASTER of the offer
-Can revoke in various ways
--An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of
the offer
--A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated in one
of the ways listed.

Methods of Termination of the Power of Acceptance (Section 36):

(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) In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of
acceptance under the terms of the offer.

Termination of Power of Acceptance Under Option Contract (Section 36):

--The power of acceptance under an option contract is not terminated by rejection or counter-offer, by revocation,
or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual offer.

C. What is Acceptance?

1. Acceptance that Varies Terms: The Mirror Image Rule

Ardente v. Horan
-FACTS: D offered to sell property, P accepted. P wanted to know if furniture would be included, D said no,
then broke agreement
-Ardente (P) asserted that he had accepted the Horans’ (D) offer to sell their home and that a
contract had thus been formed, but the Horans (D) insisted he had made only a counteroffer.
-ISSUE: Should the plaintiff’s letter be interpreted as a qualified acceptance or as an absolute acceptance
together with a mere inquiry concerning a collateral matter?
-HOLDING: NO
-The general rule is where, as here, there is an offer to form a bilateral contract, the offeree must
communicate his acceptance to the offeror before an contractual obligation can come into being. A
mere mental intent to accept the offer, no matter how carefully formed, is NOT sufficient
-Classic case of the MIRROR IMAGE RULE
-UCC doesn’t cover this because it only covers movable goods
**An acceptance that is equivocal or upon condition or with a limitation is a counteroffer and requires acceptance
by the original offeror before a contractual relationship can exist**
THE MIRROR IMAGE RULE:
An offer of a bargain by one person to another imposes no obligation upon the former, unless it is accepted by the
latter according to the terms on which the offer was made. Any qualification of or departure from those terms
invalidates the offer, unless the same is agreed to by the party who made it. Where the negotiations are by letters,
they will constitute no agreement unless the answer to the offer is simple acceptance, without the introduction of
any new term.
THE ACCEPTANCE MUST MATCH THE OFFER COMPLETELY
Restatement: Acceptance which requests CHANGE of TERMS (section 61)
--Acceptance which requests a change or addition to the terms of the offer is not thereby invalidated unless the
acceptance is made to depend on an assent to the changed or added terms.
-CODIFIES MIRROR IMAGE RULE!
--Comment: Acceptance must be unequivocal. But the mere inclusion of words requesting a modification of the
proposed terms does not prevent a purported acceptance from closing the contract unless, if fairly interpreted, the
offeree’s assent depends on the offeror’s further acquiescence in the modification.

2. Acceptance by Correspondence: The Mailbox Rule

THE MAILBOX RULE: ACCEPTANCE IS EFFECTIVE UPON DISPATCH

Restatement Section 63: Time When an Acceptance Takes Effect

--Unless the offer provides otherwise:
(a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the
manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever
reaches the offeror,
-CODIFIES the MAILBOX RULE
(b) an acceptance under an option contract is not operative until received by the offeror (exception)

3. Acceptance by Performance or “Unilateral” Contracts?

Carlill v. Carbolic Smoke Ball Company

-FACTS: D advertised smoke ball as preventing influenza. P tried it and got influenza. Ad offered 100
pounds to the person who got influenza.
-ISSUE:
(1) Was the ad a mere puff? NO
(2) Did the acceptance require notification even if it was a valid offer? NO
-Holding: Acceptance was in the performance
--“There was a promise—in point of law, this advertisement is an offer to pay 100 pounds to anybody who
will perform these conditions, and the performance of the conditions is the acceptance of the offe r”
**A continuing offer may be accepted by performance of the condition named in the offer **

Restatement Section 54: Acceptance by Performance; Necessity of Notification to Offeror

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

Leonard v. Pepsico
--Because the alleged offer in this case was, at most, an advertisement to receive offers rather than an offer of
reward, the plaintiff cannot show that there was an offer made in the circumstances of this case
**An advertisement is not necessarily an enforceable offer simply because it may appear to be a so-called public
offer of a reward for performance of a public act**

White v. Corlies & Tifft

-FACTS: D wanted P to build office suites. D made changes, sent note telling them they can start, no
response. D sent second note saying they were fired. However, before second note, P had started building.
Sued for breach.
 -ISSUE: Did the plaintiffs have a duty to give notice of their assent (of the first note) before commencing
work?
-HOLDING: YES, The note was only a proposition, and must have been accepted by the plaintiff before
either party was bound and in contract to the other
-Mental determination does not constitute an agreement
**An offer to create a bilateral contract is not accepted by conduct that, in itself, is no indication of acceptance.
When the offer is to create a bilateral contract, the acceptance must be verbal or written manifestation of assent;
performance does not constitute formation**

Restatement Section 30: Form of Acceptance Invited

(1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing
or refraining from performing a specified act, or may empower the offeree to make a section of terms in
his acceptance.
(2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any
manner and by any medium reasonable in the circumstances.

Section 30: 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.

-Restatement lets you treat it as a bilateral or a unilateral contract

Petterson v. Pattberg
-FACTS: P had mortgage on D’s land, D wrote letter to P telling him that he can pay it in full with discount,
P came to pay, but D had already sold property.
-ISSUE: Can an offer be legally binding when the offeree approaches the offeror with the intention of
proffering performance and the offer is withdrawn?
-HOLDING: NO, Whatever an act may be, until it is performed, the offer must be revocable
--CASE ILLUSTRATES A KEY FEATURE OF UNILATERAL CONTRACTS: PARTIAL PERFORMANCE DOES NOT
CONSTITUTE ACCEPTANCE

**An offer to enter into a unilateral contract may be withdrawn at any time prior to performance of the act
requested to be done**

4. Bilateral vs. Unilateral Contracts

--The offeror has the power to prescribe the time, effective date, and method of acceptance. Included in this
power is not only the ability to authorize a particular medium of acceptance but also a particular action to manifest
acceptance

--BILATERAL CONTRACT: At the point of contract formation, both parties have outstanding promises
to be performed in the future  A PROMISE FOR A PROMISE
-Example: Owner of company offers to sell it for $2 million and the offeree replies by expressing
acceptance, a contract is created under which both parties make promises of future performance. The
offeror promises to convey the farm and the offeree promises to pay the price. Because, at the point of
contract formation, both parties have outstanding promises to be performed in the future, the contract is
said to be bilateral.

-UNILATERAL CONTRACT: At the moment of formation, only one of the parties has a promise
outstanding
-Does not mean one-sided—signifies that although both parties have given consideration, only one of them
has made a promise as consideration. The other has furnished consideration by rendering the required
exchange performance at the very point of contract formation
-Example: Owner of same company says “I offer to sell you company for $2 million. To accept this
offer, you must come to my office today at 2 PM and pay me $2 million in cash. This is the only
way that you may accept this offer.” The offeree’s consideration under the contract is furnished in
full immediately upon acceptance, and the offeree has no further duty under the contract. All that
remains is for the offeror to perform the promise in the offer and to transfer title and possession of
 the company. Because, at the moment of formation, only one of the parties has a promise
outstanding, the contract is said to be unilateral.
-ACCEPTANCE IS IN THE PERFORMANCE

5. Option Contract: Restatement vs. Common Law

Option Contract Created by Part Performance or Tender

(1) Where an offeror invites an offeree to accept by rendering a performance and does not invite a promissory
acceptance, an option contract is created when the offeree tenders or begins the invited performance or
tenders a beginning of it
(2) The offeror’s duty of performance under an option contract so created is conditional on completion or
tender of the invited performance in accordance with the terms of the offer.
--Can the offeror revoke: Under the COMMON LAW and the Restatement

COMMON LAW: UNTIL PERFORMANCE IS COMPLETED, THE OFFEROR CAN REVOKE

RESTATEMENT: IF PERFORMANCE IS STARTED, THE OFFEROR CANNOT REVOKE BECAUSE OF THE FORMATION
OF AN OPTION CONTRACT

--If a party is applying the Restatement, even if the offeror doesn’t say ANYTHING about the option contract, the
minute performance begins, the offeror has locked himself into an option contract

6. Acceptance by Silence

Restatement Section 69: Subsection 2:

An offeree who does any act inconsistent with the offeror’s ownership of offered property is bound in
accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against
the offeror it is an acceptance only if ratified by them.

--General rule: silence or inaction by acceptance does not constitute acceptance

--However, there are exceptions:
1-Prior course of dealing (ex: Hobbs)
2-Unsolicited services
-If someone is selling you a book, that’s easy to return
-But, if someone is providing a service, then you can’t just silently accept it—if you don’t want it,
you have a duty to reject it
-Once service is rendered, you can’t really return it (Britton v. Turner)
-DUTY TO SPEAK
3-Offeree agrees to accept through silence

Restatement Section 69: Acceptance by Silence or Exercise of Dominion

-Subsection 1
(1) Where an offeree fails to reply to an offer, its silence and inaction operate as an acceptance in the
following cases only:
(a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject
them and reason to know that they were offered with the exception 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 silence and inactive intends to
accept the offer

Hobbs v. Massoit Whip Company

-FACTS: Hobbs (P) sent Massasoit Whip Co. (D) eel skins which it retained until they were subsequently
destroyed. There was no contract between the parties, and D never formally accepted the skins. However,
evidence showed that P had previously sent 5 eel skins to D under similar circumstances.
-ISSUE: Where appropriate, can silence by one party be deemed an acceptance?
-HOLDING: YES. Silence may constitute acceptance in appropriate cases.
 -Over manifestation of intent to contract rather than a party’s subjective intent which controls.

IV. INTERPRETATION

**No contract comes into being if a material aspect of the agreement is left indefinite by the parties and the
uncertainty cannot be resolved by the process of interpretation**

A. Interpreting Terms

--Ways of interpreting contracts:

1-Resolving ambiguous or vague terms
-Ex: There is an issue that the K seems to address. Not clear what the terms mean. What
is the quantity or item being sold?
2-Questions of interpretation regarding filling gaps in a contract
-Ex: Issues that aren’t even addressed.
-Should we, or can we, even fill the gap at all?

--A contract will FAIL for indefiniteness if:

1-There must be an incurable uncertainty so that the intent to enter a K is in doubt, or the court is at a
loss in establishing a basis for enforcing what was agreed
2-The uncertainty MUST relate to a material aspect of the relationship

--General Approach:
--When interpreting contract meaning, typically contract language, the courts seek the meaning that was actually
attached by the parties.
--If the meaning attached by one party is not in accord with the meaning attached by the other party, the courts
seek the meaning that would be attached by a reasonable person in the position of the parties to the contract.
--This test is not one of what reasonable people would think in general about the contract language, but is
from the perspective of the knowledge, goals, and incentives of the particular parties to the contract.
--Courts strive to find the more reasonable meaning of ambiguous terms. However, if two competing meanings are
equally plausible, the court has no choice but to decline to enforce the contract. This seldom happens.

1. Ambiguous Terms
A term is ambiguous if it is capable of more than 1 meaning
Raffles v. Wichelhaus
-FACTS: Raffles (P) contracted to sell cotton to Wichelhaus (D) to be delivered from Bombay at Liverpool
on the ship “Peerless.” Unknown to the parties was the existence of two different ships carrying cotton,
each named “Peerless” arriving at Liverpool from Bombay, but at different times.
-ISSUE: Is there a binding contract between the litigants when a misunderstanding arises over the arrival
of a shipment of goods?
-HOLDING: NO, When there is an ambiguity, it is given the meaning that each party intended it to have.
However, if different meanings were intended, there is no contract if the ambiguity relates to a material
term.
-No meeting of the minds at the time of contract, therefore NO contract
**Whether neither party knows or has reason to know of the ambiguity or where both know or have reason to
know, the ambiguity is given the meaning that each party intended it to have**

Restatement: Sections 201 and 202

 Section 201: Whose Meaning Prevails
(1) Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is
interpreted in accordance with that meaning
(2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is
interpreted in accordance with the meaning attached by one of them if at the time the agreement was
made
a. That party did not know of any different meaning attached by the other, and the other knew the
meaning attached by the first party; or
b. That party had no reason to know any different meaning attached by the other, and 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

Section 202: Rules in Aid of Interpretation

(1) Words and other conduct are interpreted in the light of all the circumstances, and if
the principal purpose of the parties is ascertainable it is given great weight
(2) A writing is interpreted as a whole, and all writings that are part of the same
transaction are interpreted together
(3) Unless a different intention is manifested,
a. Where language has a generally prevailing meaning, it is interpreted in
accordance with that meaning;
b. Technical terms and words of art are given their technical meaning when used
in a transaction within their technical field
(4) Where an agreement involves repeated occasions for performance by either party with
knowledge of the nature of the performance and opportunity by objection to it by the
other, any course of performance accepted or acquiesced in without objection is given
great weight in the interpretation of the agreement
(5) Wherever reasonable, the manifestations of intention of the parties to a promise or
agreement are interpreted as consistent with each other and with any relevant course
of performance, course of dealing, or usage of trade

**Basically, Restatement Sections 201 and 202 boil down to this:

-A material misunderstanding precludes K formation when the parties were equally innocent in not
reasonably realizing the misunderstanding or equally guilty in realizing it but saying nothing
-However, if on balancing the degree of fault of the parties, it appears that one is more accountable than
the other for knowing of the misunderstanding, a K must be found to exist on the terms understood by the
more innocent party.

Oswald v. Allen
-FACTS: Oswald negotiated to purchase two sets of rare coins from Mrs. Allen (D), who believed that her
Swiss Coin Collection alone was being purchased.
-ISSUE: Can a contract be legally binding when some of the terms are ambiguous and lead to
misunderstandings?
-HOLDING: No, --When any of the terms used to express an agreement is ambivalent, and the parties
understand it in different ways, there cannot be a contract unless one of them should have been aware of
the other’s understanding
**When any terms used to express an agreement are ambivalent and the parties understand it in different ways,
there cannot be a contract unless one of them should have been aware of the other’s understanding.

So, when interpreting a contract:

 1-If the language has a prevailing meaning, interpreted in accordance with that meaning (technical terms
given technical meaning)
2-When agreement involves repeated occasions of performance, follow that standard
3-Usage of trade, course of dealing, etc also relevant

Interpreting Assent:
1. Do the parties subjectively attach the same meaning to the terms in the contract? (consider words
in the K, course of negotiations, performance, past dealings)

NO (There is a misunderstanding) YES There is an agreement and term is enforced

2. Does one party know or have reason to know that other party (X) has attached a particular
meaning to the term?

NO YES If X is clueless, there is an agreement subject to

The meaning of the term as believed by party X

3. Can objective meaning of the term be determined? (Consider course of performance, course of
dealing, usage of trade in 202)
NO YES there is an agreement subject to the objective
no agreement, only meaning of the party whose objective meaning matches
seemed to be mutual assent its subjective meaning

3. Vague Terms
A term is vague if it stated so obscurely or in such general language that one cannot reasonably determine what it
means.
Weinberg v. Edelstein
-FACTS: Weinberg (P) sued Edelstein (D) to stop the sale of skirts and blouses which looked like two-piece
dresses. P claimed violation of landlord’s covenant to not sell any dresses.
-ISSUE: When a restrictive covenant interdicts the sale of dresses, does it also necessarily preclude the
sale of a “blouse-skirt” combo, sometimes called a dress?
-HOLDING: No, denied injunction. A restrictive covenant is construed strictly against the person seeking its
enforcement when the intent of the restriction is not clear. In this case, whether or not the combinations
sold constitute dresses depends on the practices and customs of the trade (UCC 2-208(2))
-“The express terms of the agreement and any usage of trade shall be construed whenever
possible as consistent with each other”

Frigaliment Importing Co. v. BNS International

-FACTS: P ordered a large quantity of “chicken” from D, intending to buy young chicken suitable for
broiling and frying, but D believed, considering the weights ordered at the prices fixed by the parties, that
the order could only be filled with older chicken, suitable for brewing only, and termed “fowl” by P.
-ISSUE: What is the proper definition of “chicken”?
-HOLDING: Follow broader definition by D
-D’s meaning conformed with one dictionary meaning
**The party who seeks to interpret the terms of the contract in a sense narrower than their everyday use bears
the burden of persuasion to so show and if that party fails to support its burden, it faces dismissal of its
complaint**
 **How do you go about finding the objective meaning of a term when the parties have subjective intent?
UCC 1-205 and 208: Course of Dealing and Usage of Trade
(1) First look to the expressed terms of the contract and see whether there is anything within the language of
the contract itself
(2) Next, look at course of performance
-Refers to a situation where a contract is performed over time
(3) If you still need further guidance, you should turn to course of dealing
-Course of dealing refers to other contracts over time
-If there have been prior dealings, not unreasonable to look to those
(4) Finally, turn to trade usage
-Trade usage among EVERYONE in the industry

Thus, general rule to determine INTENT is to give greatest weight to the express terms of the
parties, followed in order by the expressed terms of the K, statements or actions during the course of
performance, course of dealing, and usage.

B. Gap Filling

--Should the court fill the gap? If so, HOW?

**A gap filler is a provision legally implied into a K to supplement or clarify its express language**
**Court will only fill gaps when the evidence clearly demonstrates that the parties reasonably intended a K and it is
possible to supply the missing term by reasonable inference**

1. Agreements to Agree:
When 2 parties agree to settle an issue later
**General common law rule is that agreements to agree are legally meaningless**

--Interpretation problems with agreements to agree:

1-Is there a present intent to be bound?
2-Indefiniteness: are parties bound by it?

Sun Printing & Publishing v. Remington Paper

-FACTS: Sun (P) brought an action against Remington (D) to collect damages resulting from Remington’s
(D) refusal to deliver rolls of paper. For the first 4 months, price and length of time were clear—after that,
called for the price to be determined but not to exceed by a price charged by the Canadian Export Paper
Company.
-ISSUE: Can a contract with missing terms be enforceable?
-HOLDING: NO
-Where an executory K leaves price and time to future agreement, and there is a standard set by
which only price can be determined, K will fail for indefiniteness.
-Unfilled gaps show an agreement to agree, and these are unenforceable
-Agreements to agree are not valid contracts because there have not been an
unequivocal acceptance and there would be no basis on which to grant relief.
As such, the offer has neither been accepted nor rejected.

UCC Section 2-204: Formation in General

(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

Restatement Section 204: Supplying an Omitted Essential Term

When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is
essential to a determination of their rights and duties, a term which is reasonable in the circumstance is supplied
by the court.
**See a trend towards filling gaps!

--If a term is missing, it can be reasonably implied by the court—except quantity, which must be supplied. Note
also that the K itself can cure ambiguities in the offer, as through part performance.
--The UCC is even more liberal, providing that the parties manifest their intent to be bound, and that there is a
reasonably certain basis on which to apply a remedy. The only absolutely essential term is the quantity.
--The more terms that are left open, however, the less likely it is the parties intended to form a K.
--Without a quantity term, there is no reasonably certain basis on which to give an appropriate remedy.

THUS, Modern tendency is to try and enforce the contract so long as the parties had a genuine intent to be bound
and a reasonable basis for a remedy. -UCC will supply open price terms so long as the contract was intended

2. Illusory Promises
**An illusory promise is a promise that pledges nothing because it is vague or the promisor can choose whether or
not to honor it. Such promises are not legally binding**

--Illusory Promise: A promise cannot serve as consideration for a return promise if, in fact, it does not bind the
promisor to do or refrain from doing anything. The promise is said to be illusory. If one party makes an illusory
promise, there is no contract. Thus, the party receiving the illusory promise is not bound. It is sometimes said that
such a transaction lacks "mutuality of consideration."

--Different Types of Illusory Promises:

1. Promises with a condition attached (ex: If I accept the offer to become Stanford’s new president, I will
sell you my house for $800,000)
2. Promises conditioned on the satisfaction of the promisor or that contain an unqualified right to cancel
(ex: “if I want to”)
3. Right to cancel or withdraw (will be valid if the right is restricted, ex: right to cancel upon 60 days
notice)
4. Exclusive marketing agreements

Problem of illusory promises arises in a couple of contexts:

1. Requirements and Output Contracts
2. Exclusive Dealing Contracts

Definitions:
*Requirements Contract: We will buy all the shoes we need next year from you (I buy whatever I need from
you)
*Output Contracts: We will buy all the shoes you produce next year (I will buy everything that you produce)
*Exclusive Dealing Contracts: additional agreement to buy ONLY from the supplier (I will ONLY buy from you)

New York Central Iron Works v. United States Radiator Co.

-FACTS: US Radiator (D) contended that the requirements contract it has entered into with NY Central (P)
should not be enforced because Central’s (P) needed supplies proved much greater than the parties had
anticipated.
-ISSUE: May a buyer in a supply contract enforce the K even if its requirements increase beyond the
parties’ contemplation?
-HOLDING: Yes.
-Due to the vagaries of the business world, it is foreseeable that the buyer’s requirements may
change from year to year, and the possibility of a greater need on the part of the buyer is a risk
that the seller takes
**To NOT be enforced: The defendant must show that the orders were in excess of the P’s reasonable needs and
were not justified by the conditions of the business or the customs of the trade. In other words, that the P was
not acting reasonably or in good faith, but using the contract for a purpose not within the contemplation of
the parties—that is to say, for speculative as distinguished from regular and ordinary business purposes.
**A buyer in a requirements contract may enforce the contract even if its requirements increase beyond the
parties’ contemplation**

Eastern Airlines v. Gulf Oil Corporation

-FACTS: Gulf was to furnish oil to Eastern Air lines based on an alleged 5 year requirements contract
(furnish oil at certain cities). Price of oil went up, so Gulf demanded that Eastern meet the price increase.
Eastern sued.
-ISSUE: Is the requirements contract binding?
-HOLDING: Yes
- Follows the logic of the UCC: “a term which measures the quantity by the output of the seller or the
requirements of the buyer means such actual output or requirements as may occur in good faith”
--The essential test is whether the party acts in good faith—parties have consistently over the years relied upon
each other to act in good faith in the purchase and sale of the required quantities of aviation fuel specified in the
contract.

UCC 2-306 (1) : Contract for the sale of goods

-A term which measures the quantity by the output of the seller or the requirements of the buyer means such
actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to
any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or
requirements may be tendered or demanded.

BOTTOM LINE FOR REQUIREMENTS AND OUTPUT CONTRACTS: GENERALLY SPEAKING, REQUIREMENT
CONTRACTS ARE NOT STRUCK DOWN FOR LACKING MUTUALITY OR FOR BEING ILLUSORY
PROMISES.

3. EXCLUSIVE DEALING CONTRACT

Wood v. Lucy, Lady Duff-Gordon

-FACTS: Wood (P) in a complicated agreement, received the exclusive right for one year, renewable on a
year-to-year basis to endorse designs with Lucy’s name and to market all her fashion designs, for which
she would receive ½ the profits derived. Lucy broke the contract by placing her endorsement on designs
without Wood’s knowledge.
-ISSUE: Does the exclusive promise of the defendant provide for a binding contract?
-HOLDING: Yes
- D gave an exclusive privilege—she was to have no right to place her own endorsements or
market her own designs except through P
-Codified in UCC 2-306(2) where an agreement for exclusive dealing in goods imposes, unless
otherwise agreed, an obligation to use best efforts by both parties.

UCC 2-306: Output, Requirements, and Exclusive Dealings C.

(1) A term which measures the quantity by the output of the seller or the requirements of the buyer
means such actual output or requirements as may occur in good faith, except that no quantity
reasonably disproportionate to any stated estimate or in the absence of a stated estimate to any
normal or otherwise comparable prior output or requirements may be tendered or demanded.
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods
concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to
supply the goods and by the buyer to use best efforts to promote the sale.
Identifying Terms

1. Contracts of Adhesion
Contract of Adhesion: A contract of adhesion is described as a form contract offered without dickering on a take-it-
or-leave-it basis where one party has a greater commercial presence than the other. This usually means a
transaction between a business and a consumer.
--Courts cannot refuse to enforce adhesion contracts because the vast majority of contracts that we enter
into are adhesion contracts. The most that a court will do when faced with a contract of adhesion is police
it for terms that would not be expected by reasonable persons.

Carnival Cruise Lines v. Shute

-FACTS: Admiralty case where court considers whether Appellate court correctly refused to enforce a
forum-selection clause contained in tickets issued by Carnival to the Shutes
-ISSUE: Is a non-negotiated forum-selection clause contained in a standard contract enforceable? YES
-HOLDING: This clause is enforceable where the court determines it meets the requirements for fairness.
Ticket constituted a contract of adhesion in that the Shutes could not freely negotiate the contract.
-Having this kind of standard clause is expensive to negotiate own tickets
-No indication alleged that passengers were not on notice
-No over-reaching in the clause
**FORUM SELECTION CLAUSES ARE NEVERTHELESS GOOD IN MOST CONTEXTS (INCLUDING CONSUMER
CONTRACTS)**
--Cannot have a mass-market society without contracts for adhesion!

2. Which Terms Were Agreed to?

Battle of the FORMS: The Controversial UCC 2-207

Step-Saver Data Systems v. Wyse Technology

-FACTS: Case regarding which terms were agreed to in a contract—in this case, looking at the “Limited Use
License Agreement” printed on a package containing a copy of a computer program—Step Saver claims
that this was an indefinite contract, while Wyse says this was a conditional acceptance
-ISSUE: Will a writing be a final expression of, or a binding modification to, an earlier agreement if the
parties so intended?
-HOLDING: YES, however Step-Saver never agreed to the terms of the box-top license as a final
expression or modification of the agreement
-Court follows UCC 2-207

**A WRITING WILL BE A FINAL EXPRESSION OF, OR A BINDING MODIFICATION TO, AN EARLIER AGREEMENT
ONLY IF THE PARTIES SO INTEND**

3. The Controversy with UCC 2-207

What do you do when you have a two different forms attesting to be the contract?

UCC 2-207: Additional Terms in Acceptance or Confirmation

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent
within a reasonable time operates as an acceptance even though it states terms additional to
or different from those offered or agreed upon, unless acceptance is expressly made
conditional on assent to the additional or different terms.
--Example: When B wants to order goods, it uses its own form to order them. When S receives the form, it sends
out a confirmation of its own. Under 2-207(1), the form that S sends back operates as an acceptance even though
some terms are different. Thus, there is a contract despite different terms—we just don’t know whose form
controls.
(2) The additional terms are to be construed as proposals for addition to the contract. Between
merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a reasonable
time after notice of them is received.
--So, the additional terms become part of the contract unless B objects (since B is a merchant)
--If B is NOT a merchant, then the additional terms are merely PROPOSALS.
 -If merchant: binding unless objection
-If not: just proposal

(3) Conduct by both parties that 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.
--The contract may be put into effect by conduct by both parties that recognizes the existence of a contract even
though the forms differ. In such a case where conduct was the mode of response, the differing terms drop out.
--SALE OF GOODS: UCC 2-207 rejects the common law mirror image rule

ANYTHING ELSE: Mirror image rule still applies

1. Start with an acceptance or written confirmation having varying terms. Is it expressly made conditional
on assent to the varying terms?
-If YES:
-If it is an acceptance, it operates as a counter-offer, which may in general be accepted
via partial or complete performance. Go to 3.
-If it is a written confirmation, it operates as an offer to modify a pre-existing contract.
Go to 2.
-If NO: Go to 2.
2. Additional terms serve as proposals for an addition to the contract, but for MERCHANTS: become PART
of the contract unless:
-the offer expressly limits acceptance to its terms;
-they materially alter the contract; or
-notification of objection has already been given or is given within a reasonable time after notice of
them is received.
3. If the writings of the parties do not establish a contract, the CONDUCT OF THE PARTIES may establish
a contract consisting of the terms on which their writings agree and any supplementary terms provided
by this Act.
 Offer and Acceptance Under 2.207

2.207(1)

A definite and seasonable (offer hasn’t lapsed) expression of acceptance

Operates as an acceptance

Even though it states terms additional to unless acceptance is

or different from those offered expressly made conditional
on assent to the different terms

Acceptance with different No acceptance: counter-offer (3)

or additional terms (go to 2)

2.207(2)

The additional terms are constructed as proposals for addition to the contract.

Between merchants

Such terms become PART of the contract

UNLESS:
(1) The offer expressly limits acceptance;
(2) They materially alter it; or
(3) Notification of objection to them has already been given or is given within a reasonable time after notice of
them is received

2.207(3)
Conduct by both parties that recognizes the existence of a K is sufficient to establish a K for sale

ALTHOUGH the writings of the parties do not otherwise establish a K

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

NOTE:
OFFER

COUNTER-OFFER

NO ACCEPTANCE CLEAR MANIFESTATION OF NO ACCEPTANCE BUT

OR PERFORMANCE ACCEPTANCE BY OFFEROR PERFORMANCE

NO K K ON OFFEREE’S TERMS K UNDER 2.207(3)

D. Parol Evidence Rule

Parol evidence rule: doctrine precluding parties to an agreement from introducing evidence of prior or
contemporaneous agreements in order to repudiate or alter the terms of a written contract.
-The rule serves a useful role in permitting the exclusion of evidence that is probably unreliable or
dishonest, but it also has the potential of producing injustice by preventing a party from proving what was
actually agreed

1. Old Standard:

Thompson v. Libbey: The Four Corners Approach

-FACTS: Libbey (D) argued that Thompson’s (P) agreement to sell his logs contained a verbal warranty of
quality, which Thompson (P) breached.
-ISSUE: Can parol evidence (a warranty) be added to a written K?
-HOLDING: NO
-When parties have deliberately put their engagements into writing in such terms as to import a
legal obligation, without any uncertainty as to the object or extent of such engagement, it is
conclusively presumed that the whole engagement of the parties, and the manner and extent of
their undertaking, was reduced to writing
-Thus, if there is a writing, it is presumed to be the full expression of intent
**Parol contemporaneous evidence is inadmissible to contradict or vary the terms of a valid written instrument**

2. Modern Standard:
Brown v. Oliver
-FACTS: Brown (P) wanted to recover possession of hotel furniture located inside a hotel on land bought
by Brown (P) from Oliver (D)
-ISSUE: Should the parol evidence rule apply when the writing of a contract does not conclusively establish
the parties’ intent?
-HOLDING: YES
-The written instrument did not itself conclusively establish whether the parties intended it should
exclude every subject of sale except real estate. --Parol evidence was properly received bearing
upon the question of intent for the information of the court
-Looks to Wigmore: look to outstanding circumstances
-Differs from Thompson: look to parties’ intent to determine integration
-Case turns on the collateral agreement rule (see below)
**Parol evidence that bears upon the question of intent of the parties to integrate the transaction into a writing
may be admitted when the writing does not conclusively establish the intent **

MODERN STANDARD:
(1) When the parties execute a writing that is and intended to be a final expression of their agreement, no PE
may be admitted to supplement, explain, or contradict it.
(2) However, to the extent that the writing is not a final and complete expression of agreement, consistent,
but not contradictory PE may be admitted to supplement or explain those parts of it that have not been
finally expressed.
--Oral evidence must be made contemporaneously with the final writing

Restatement 209: Integrated Agreement:

(1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an
agreement

Restatement 210: Completely and Partially Integrated Agreements

(1) A completely integrated agreement is an integrated agreement adopted by the parties as a complete and
exclusive statement of the terms of the agreement
(2) A partially integrated agreement is an integrated agreement other than a completely integrated agreement
(3) Whether an agreement is completely or partially integrated is to be determined by the court as a question
preliminary to determination of a question of interpretation or to application of the parol evidence rule
More on the Parol Evidence Rule
--Excludes ALL extrinsic evidence both oral and written (memos, drafts, etc)
--KEY is that it applies to integrated agreements
--Question becomes: what is an integrated agreement?
-Final expression of the parties’ agreement: integrated agreement
--Modern approach is that Wigmore approach: look to all potentially relevant evidence like in Brown v. Oliver
--Three approaches historically:
-Integration is a question of intent
-Four corners approach: look just to the document
-Modern approach pretty much undercuts the whole rationale for PER
--Main significance is that intent is determined by the judge and the jury
--Effect of integration:
-Integrated/partially agreements: Section 214 and 216 of Restatement
-Extrinsic evidence can prove consistent additional terms
-If completely integrated agreement, then no extrinsic evidence is permitted
-Completely integrated: final and exclusive expression of parties’ intent
-Integrated: final expression of parties’ intent

Restatement 216: Consistent Additional Terms

(1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the
court finds that the agreement was completely integrated.

Point of execution
Period leading up to execution Period after execution

ORAL agreement WRITTEN CONTRACT ORAL agreement

WRITTEN agreement WRITTEN agreement

Subject to rule
Not subject to rule (modification)

Oral agreement: subject to rule

Written agreement: likely not subject
--May be part of set of documents
constituting the writing—should be evaluated

Pacific Gas and Electric v. Thomas

-FACTS: Thomas (D) contracted to repair Pacific’s (P) steam turbine and to perform work at its own risk
and expense and to indemnify Pacific against all loss and damage. Thomas (D) agreed not to procure less
than $50K insurance to cover liability for injury to property. But when the turbine rotor was damaged,
Pacific claimed it was covered under that policy while Thomas (D) said it was only to cover injury to third
persons.
-ISSUE: Was the defendant’s offered evidence relevant to proving a meaning to which the language of the
instrument was susceptible?
-HOLDING: YES
-Traynor saying it is impossible to interpret any language without looking at the context or plain
meaning: throwing out plain meaning rule
-Doing away with the PER
**The 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**
-NOTE: Traynor represents one extreme of the pole on PER

**IMPORTANT FOOTNOTE: RESTATEMENT 214

-Extrinsic evidence is always permitted for:
 1. Interpretating a written contract
2. Showing fraud, duress, mistake, illegality, lack of consideration

Restatement Section 214: Evidence of Prior or Contemporaneous Agreements and

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

(a) PER only says no extrinsic evidence that varies the terms of the written agreements---can bring extrinsic
evidence that deals with the interpretation of a written agreement
-Where does interpretation begin and where does varying begin?
(b) If you can show there is no contract: then you can always introduce extrinsic evidence

Trident Center v. CT General Life Insurance Co.

-FACTS: Trident corporation had loan agreement for building. K precluded full repayment within the first 12
years—yet, drop in interest rates, Trident wanted to repay after 4 years (thought it was OK if they paid a
penalty). Trident sought action to interpret K.
-ISSUE: Is parol evidence admissible to show an ambiguity in an otherwise unambiguous contract?
-HOLDING: YES
--Because the language cannot infallibly communicate the true meaning or intent of parties to a K,
parol evidence MUST be allowed where such intent is in issue.
--NOT traditional common law rule for PER

Restatement: Section 209(3):

(3) Where the parties reduce an agreement to a writing which in view of its completeness and specificity
reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is
established by other evidence that the writing did not constitute a final expression.
--Restatement takes the MODERN approach: look at the agreement on its face, unless the writing is not a final
expression

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

--Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in
a writing intended by the parties as a final expression of their agreement with respect to such terms as are
included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral
agreement but may be explained or supplemented:
(a) by course of dealing or usage of trade or by course of performance and
(b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a
complete and exclusive statement of the terms of the agreement

--Sounds like the modern position

--With respect to PER, more likely that courts will interpret PER with the modern rule
--Also, UCC does always allow extrinsic evidence for interpretation

Collateral agreement rule:

--Even where a contract is integrated, if the parol agreement is sufficiently distinct from the scope of the writing, it
can be seen as a different contract, related to but separate from the integrated written agreement.
--IF SO, evidence of this collateral agreement is not barred by the PER

Merger clauses:
--Provision in a written contract to the effect that the written contract is the entire agreement between the parties,
and that no representations or promises have been made save for those set out in the writing
-“Merger” clause because it signifies that all the terms of the agreement have been merged into the writing
-Generally enforceable

Determining the applicability of PAROL EVIDENCE:

1. Is the written agreement between the parties intended to be final?
YES: PE inadmissible NO: PE admissible
2. Is the agreement complete or exclusive?
YES: PE inadmissible NO: PE can be used so that it does not go against written agreement
3. If the parties intended to at least partially integrate/finalize the agreement—no contradictory PE admissible
4. If parties fully integrated—no PE of any additional terms

Test for Integration:

A. Plain meaning or 4-corners test.
A document is integrated if, when viewed by a reasonable person, it appears on its face to be
complete.
B. Any relevant evidence test.
All relevant evidence is admissible to determine whether these particular parties actually intended
the document to be a complete integration..
C. Naturally contained test.
Extrinsic evidence to prove a term is barred only if the term, if it existed, would naturally have
been put in the document.
D. Certainly contained test.
Extrinsic evidence to prove a term is barred only if the term, if it existed, would certainly have
been put in the document. This is the UCC test. UCC § 2-202.

E. Statute of Frauds

--STATUTE OF FRAUDS: A statute that requires specified types of contracts to be in writing in order to be binding
--Most important categories under Statute of Frauds:
1-Agreements for sale or lease
2-Agreements not to be performed within 1 year
3-Agreements for sale of goods above a certain specified value

CONSIDERATION
WAS THE PROMISE INDUCED BY THE PERFORMANCE AND WAS THE PERFORMANCE INDUCED BY THE PROMISE?

BASIC DEFINITION: MUTUAL INDUCEMENT

--In a bilateral contract:
1-Legal value: detriment to promisee or benefit to promisor
2-Bargained for exchange: detriment must induce the promise and the promise must induce the detriment:
each party’s promise is the consideration for the other party’s promise
--In a unilateral contract: the promisee’s continued performance constitutes consideration in a unilateral contract

-If we have a gratuitous promise why would this lack consideration?

-lacks the element of exchange

Models of Consideration:
1. Benefit/detriment (Johnson v. Otterbein University)
2. Bargained-for-exchange (Hamer v. Sidway)
Consideration Doctrines
1. Past “consideration” is not a legal consideration past acts are not legal consideration (Moore v. Elmer)
2. Moral Obligation as such is not legal consideration except where a pre-existing legal duty has been
extinguished by operation of law and is subsequently reassumed (Mills v. Wyman) or where accompanied
by material benefit/detriment to promise/promisee (Webb v. McGowin)
a. A moral obligation may only form consideration for an express promise in three cases:
(1) debts barred by the statute of limitations, (2) debts incurred by kids, or (3) debts
previously discharged by bankruptcy.
b. Moral obligation is not legal consideration except where accompanied by material benefit/detriment
to promisor/promisee (Webb v. McGowin)
3. Pre-existing legal duty is not consideration (Stilk v. Myrick) except for unforeseen circumstances (Brian
Construction v. Brighenti)
4. Courts do not question adequacy of consideration unless consideration is a “mere sham”

Restatement 71(2): Requirement of Exchange

(2) A performance or return promise is bargained for if it is sought by the promisor in exchange
for his promise and is given by the promisee in exchange for that promise.
-Hamer v. Sidway meets this requirement

-Restatement espouses bargain-exchange element of consideration:

1-“exchange”—promise in return for a promise
2-“bargained for”—mutually inducive
-Each promise is motivated by the other parties’ promise

Johnson v. Otterbein University (illustrates benefit-detriment model of consideration)

-FACTS: Johnson promised to make donation to University at future time, failed to make it, University sued
for non-payment
-ISSUE: May a promise to make a payment as a gift be revoked at any time before payment because it
does not provide consideration for a contract?
-HOLDING: YES
-Promise to make a gift is unenforceable because it is not supported by consideration

Hamer v. Sidway (illustrates bargained-for-exchange)

-FACTS: Man promised his nephew that he would pay him $5K if he would stop drinking, smoking, and
gambling until age 21. Nephew did that, sued estate of uncle.
-ISSUE: May a waiver of a legal right at the request of another party serve as sufficient consideration for a
promise?
-HOLDING: YES
-A valuable consideration may consist either of some right, interest, profit, or benefit accruing to
one party or some forbearance, detriment, loss, or responsibility give, suffered or undertaken by
the other party.
Past Consideration
Moore v. Elmer
-FACTS: Moore, a clairyvoyant, performed numerous business and test sittings for Elmer. In return for this,
Elmer signed a letter promising to pay Moore the remainder of her mortgage, if Elmer should die before
1900 as Moore had predicted. Moore sued to recover money.
-ISSUE: Do services rendered upon request support a later promise to pay for such services in cases where
the original request implies an agreement to make payment for such services?
-HOLDING: YES
--NO enforceable K because there was NO valid CONSIDERATION
 --Services rendered upon request support a later promise to pay for such services only in cases
where the original request implies an agreement to make payment for such services.
-Services rendered as a mere favor cannot be later turned into a consideration
-Consideration is executed when an individual renders services or performs the requested
**Past acts are not legal consideration**

Moral Obligation as Consideration

Mills v. Wyman
-FACTS: Mills sued to recover compensation for board and nursing given to Wyman’s ill adult son, Wyman
had promised to pay Mills but never did
-ISSUE: Did the father’s moral obligation serve as adequate consideration for his promise of payment in
order to constitute an enforceable promise?
-HOLDING: NO
--A moral obligation may only form consideration for an express promise in three cases: (1) debts
barred by the statute of limitations, (2) debts incurred by kids, or (3) debts previously discharged by
bankruptcy.
- ONLY WHEN THE PARTY MAKING THE PROMISE GAINS SOMETHING OR HE WHOM IT IS MADE LOSES
SOMETHING THAT THE LAW GIVES THE PROMISE VALIDITY

EXCEPTION:
Webb v. McGowin
-FACTS: After Webb was crippled for life after protecting McGowin from being struck by a falling block,
McGowin promised to support Webb for the remainder of Webb’s life. McGowin died, Webb sued.
-ISSUE: Did the act of saving McGowin’s life consideration for McGowin’s subsequent promise to pay Webb
for the rest of his life?
-HOLDING: YES
-A moral obligation is a sufficient consideration to support a subsequent promise to pay where the
promisor has received a material benefit for which he subsequently and expressly promised to pay

Pre-Existing Duty Rule

Stilk v. Myrick
-FACTS: Due to desertion of other sailors, Myrick offered Stilk and the other crewmen additional money to
complete the voyage shorthanded
-ISSUE: Can a promise to pay higher wages made during an emergency situation be enforceable?
-HOLDING: NO: MODIFICATIONS OF EMPLOYMENT CONTRACTS WHICH ARE OCCASIONED BY
EMERGENCY OR DURESS ARE UNENFORCEABLE
--Already had a deal, after that made a promise to pay them more, but no consideration for
additional obligation
--No pre-existing duty rule!

Alaska Packers Association v. Domenico

-FACTS: When a new K was coerced by workers who refused to work for the agreed-to wages, the
company denied the validity of the alleged new K
-ISSUE: Valid consideration?
-HOLDING: No
-Consent to demand was without consideration

Brian Construction v. Brighenti

-FACTS: P claimed that D breached a subK to remove rubble from an excavation
-ISSUE: Whether the oral agreement (increased compensation due to unforeseen circumstances) between
P and D constituted a valid agreement obligating the D to remove the unexpected rubble
-HOLDING: Yes
-Represents an exception to the pre-existing duty rule for unforeseen circumstances
-Under these circumstances, the subsequent oral agreement, that the D would remove this rubble
in return for additional compensation, was binding as a new, distinct contract, supported by valid
consideration
Restatement 89: Modification of Executory Contract
--A promise modifying a duty under a K not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the K
was made, or
(b) to the extend provided by the statute; or
© to the extent that justice requires enforcement in view of material change of position in reliance on the
promise

UCC-209
--Does away with consideration completely with modified contracts
--Test to whether to enforce K modification under UCC is whether modification was made in GOOD
FAITH
-Confronts the risk of blackmail and coercion directly
-Don’t place pre-existing duty rule and other things in front of this
-Straightforward approach

(1) An agreement modifying a contract within this Article needs no consideration to be binding…
PROMISSORY ESTOPPEL
What do you do when there isn’t any consideration?

RESTATEMENT 90: PROMISSORY ESTOPPEL

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
ELEMENTS:
1. Promise
2. Reliance foreseeable/ intended
3. Detrimental reliance
4. Necessary to prevent injustice

Equittable Estoppel v. Promissory Estoppel

--Equittable estoppel applies any time there is a misrepresentation of material fact
--Promissory estoppel is a narrower doctrine

Promissory Estoppel and the Family

Ricketts v. Scothern
-FACTS: Scothern quit her job in reliance on her grandfather’s granting of a note payable to her and sued
his estate for payment on the note after his death.
-ISSUE: Can the promisee recover when she changes her position to her disadvantage, in reliance of the
promise? Can the promissory note be enforced? Was their consideration?
-HOLDING: YES
--Having intentionally influenced the plaintiff to alter her position for the worse on the faith of the
note being paid when due, it would be grossly inequitable to permit the maker, or his executor to
resist payment on the ground that the promise was given without consideration
--Equitable estoppel

Promissory Estoppel and Promises to Convey Land

Greiner v. Greiner
-FACTS: Son moved back home in reliance on his mother’s promise to give him land
-ISSUE: Is a promise enforceable if the promisor should reasonably expect the promisee to forbear a
certain action and actually induces such forbearance?
-HOLDING: YES
--Follows Restatement 90
 --Recovery based on reliance and not on consideration

Promissory Estoppel and Charitable Subscriptions

Alleghany College v. National Bank
-FACTS: Donor repudiated a writing in which she agreed to fund a scholarship if written memorial was
established in her name. After a partial payment had been made, college sued the estate
-ISSUE: Is the promise enforceable?
-HOLDING: YES
-Not expressly promissory estoppel, but see stretching for charity

Promissory Estoppel and Pensions

Fienberg v. Pfeiffer
-FACTS: P, a former employee, sues corporation on an alleged K whereby D agreed to pay P $200 for the
rest of her life upon retirement
-ISSUE: If an employer promises an employee, upon retirement, a stipend for the rest of his life, and if the
employee retires in reliance on that promise, is the promise binding on the employer?
-HOLDING: YES
-Intentionally influenced the P to alter her position for the worse on the faith of the note being
paid when due---grossly inequitable to have the maker not give the note

Promissory Estoppel and Construction Bids

James Baird Company v. Gimble Brothers
-FACTS: Gimbel offered to supply linoleium to various contractors who were bidding on a public
construction K. Baird, relying on Gimbel’s quoted prices, submitted a bid and later the same day received a
telegraphed message from Gimbel that its quoted prices were in error. Baird’s bid was accepted.
-ISSUE: Can the doctrine of promissory estoppel be used by the offeree to bind the offeror?
-HOLDING: NO
--D must have known the predicament in which the contractors would be put if it withdrew its offer
after the bids went in—seems clear there wasn’t a contract between them
--Cannot extend promissory estoppel here because it would hold the offeror regardless of the
stipulated condition of his offer

Drennan v. Star Paving Company

-FACTS: D appeals from a judgment for P in action to recover damages caused by D’s refusal to perform
certain paving work according to a bid submitted to P
-ISSUE: Does reasonable reliance on a promise bind the offeror if there is no other consideration?
-HOLDING: YES
-When a promise is made that induces action or forbearance of the promisee, the promisor is
bound if injustice would result from nonenforcement
-In the case of a unilateral offer, the offeror is bound to the promise if it produces reasonable
reliance

Restatement, Section 87: OPTION CONTRACT

--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 not
induce such action or forbearance is binding as an option K to the extend necessary to avoid
injustice

Hoffman v. Red Owl Stores

-FACTS: Hoffmans sought damages they incurred in selling their business and relocating based on their
reliance on an alleged promise made to them by Stores to furnish them with a franchise
-ISSUE: Can promissory estoppel be used?
-HOLDING: YES
-Promise = Contract
 Modern Promissory Estoppel
--In general terms, promissory estoppel has expanded—reliance alone is an independent cause of action
--Contested theory just like restitution
--Similarly, reliance can become a cause of action on its on without a contract
-Both restitution and reliance can become cause of action without offers, as long as there is unjust
enrichment and detrimental reliance
--NOTE: Restatement 90 (2) A charitable subscription or a marriage settlement is binding under Subsection (1)
without proof that the promise induced action or forebearance
-When you make a charitable donation, don’t even have to show reliance
-Restatement does away with the reliance

PERFORMANCE AND BREACH

The Implied Duty of Good Faith Performance

--All contracts contain an implied covenant to perform in good faith: “in every K there is an implied covenant that
neither party shall do anything which will have the effect of destroying or injuring the right of the other party to
receive the fruits of the contract, which means that in every K there exists an implied covenant of good faith and
fair dealing”
--Seen in both UCC and Restatement
Material Breach
--When you have a situation where 2 promises are conditional on each other, if there is a material breach by 1
party, then the other party is relieved from his obligation to perform
-If not (substantial performance), aggrieved party can still sue for damages and keep the contract
rescinded

Jacob v. Young v. Kent

-FACTS: P built a house for D and P sues for unpaid money. D alleges that P used wrong kind of pipe.
-ISSUE: Should damages be awarded for a defect of inappreciable importance?
-HOLDING:
--Where there is substantial performance with defects of trivial or inappreciable importance, the
measure of damages is the difference in value (which is nothing)
--The law will be slow to impute recovery where the “significance of the default is grievously out of
proportion to the oppression of the forfeiture”

Anticipatory Repudiation
Albert Hochster v. Edgar de La Tour
-FACTS: Before P was due to perform his K of employment for D, D announced intention to repudiate
contract, whereupon P sued for breach of K.
-ISSUE: Should P have waited to bring suit until after performance was to occur (6/1)?
-HOLDING: NO
-If one wrongfully renounces a K into which he has deliberately entered, he can’t complain if he is
immediately sued for damages
--if P was to wait until June 1 to sue, he would not be able to get another job which would
interfere with his promise to being work at that time

**WITH REPUDIATION, CAN SUE PRIOR TO WHEN PERFORMANCE IS DUE—REMAINING DUTIES ARE
DISCHARGED AND DON’T HAVE TO REMAIN READY TO PERFORM

--Anticipatory repudiation is based on the notion that you are entering into an executory contract
--You have 2 distinct interests in the contract:
1-Future economic interest in the actual performance of the K  IMPAIRED BY ACTUAL BREACH
2-Present interest in the certainty of performance  IMPAIRED BY REPUDIATION

--Which interest is impaired by the actual failure to perform if P is standing to perform and D doesn’t show up? #1
(future economic)
--Which interest is impaired when D says he won’t perform K in certain time from today? #2
 -What is impaired on repudiation is present interest of certainty of performance in future

--If the other party repudiates, what are the options of the aggrieved party?
(1) Can just treat the K as terminated and SUE immediately for damages
(2) Can wait until the date the K was going to be performed—can also ignore the repudiation and wait until
actual performance is due and THEN sue
-Pg. 884: UCC 2-610

The Perfect Tender Rule: Cure and Rescission

Ramirez v. Autosport
-FACTS: P sought the rescission of their K to purchase a camper with defects from D and the return of a
trade-in van they had tendered pursuant to the sales agreement
-ISSUE: May a buyer reject defective goods that do not conform to the requirements of a sales K?
-HOLDING: YES
-Under a K for the sale of goods, the seller is required to furnish a “perfect tender” of the subject
matter of the K, and the buyer may reject the goods based on any noncomformity to acceptance
-However, such rejection does not terminate the K
-Rather, the seller has an absolute right to cure the defect within the time specified for
performance under the K
**Under a K for the sale of goods, the seller is required to furnish a “perfect tender” of the subject
matter of the K, and the buyer may reject any non-conforming goods**

-PG. 905: Idea is that you are entitled to exactly what you ordered for
-UCC adds conditions to this

**DEPARTURE FROM THE COMMON LAW

-UCC incorporates the perfect tender rule in a mitigated form:
- Highlight difference between before acceptance and after acceptance
(1) Before acceptance 2-601: when goods initially tendered, perfect tender is the standard, buyer
can reject the goods
-UCC gives seller right to cure: right to fix it
(2) After acceptance: standard is much higher for revocation—can still revoke acceptance but only
if non-conformity hurts the value of the goods
-BIG DEPARTURE FROM COMMON LAW
-Whole idea that you can REVOKE YOUR ACCEPTANCE: COMMON LAW DOES NOT
RECOGNIZE

-UNLIKE common law rule, UCC gives rights to BOTH parties

-Court here also says that perfect tender made sense in a society where there were no mass-produced
goods
-Part of the price of mass production is that a certain percentage of goods will be sub-standard and there
will be defects
 DEFENSES

(1) Incapacity: Minors and incompetents Ks are voidable

(2) Misrepresentation: If someone has entered into a contract because of some misrepresentation, then
you can get out
-Misrepresentation has to be related to FACTS, not opinions (ex: saleslady telling you look great in
an outfit, but you don’t)
(3) Duress: If someone was pointing a gun at your head when you signed a contract, and there is a
threat of violence—not a valid contract
-Very murky area
-No such thing as absolute free will—always under pressure of some kind
-Debate over physical duress, economic duress—very unsettled area of doctrine
(4): Unconscionability:
-Look to the substantive terms of a K, not just contract formation
Unconscionability
Definition of Unconscionability:
--Absence of meaningful choice
-Relates to procedural unconscionability: happens in the bargaining process
--Terms that are unreasonably one-sided favoring one party over the other
-Relates to substantive unconscionability: happens in resulting process
Williams v. Walker-Thomas Furniture Company
-FACTS: Furniture store sold a number of household items to different plaintiffs, for which payment could
be made in installments. Terms of each purchase as in a printed K—K had a provision that kept a balance
due on every item purchased until the balance was due on all items, whenever purchased, as liquidated
-As a result, store retained the right to repossess all items previously purchased in the event of any
default
-Two plaintiffs bought certain amount of items, and then defaulted—the furniture store then took
back all the items they had ever purchased from the store
--Sued saying Ks were unconscionable
-ISSUE: Ks unconscionable?
-HOLDING: YES
-Where there is an element of unconscionability at the time a K is made, the K should not be
enforced
-When a party is of little bargaining power, and hence little real choice, signs a commercially
unreasonable K with little or no knowledge of its terms, it is hardly likely that his consent, or even
an objective manifestation of his consent, was ever given to all the terms

UCC 2-302: Unconscionable Contract or Clause

(1) If the court as a matter of law finds the K or any clause of the K to have been unconscionable at the time it
was made the court may refuse to enforce the K, or it may enforce the remainder of the K without the
unconscionable clause, or it may limit the application of any unconscionable clause as to avoid an
unconscionable result
(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable
the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting,
purpose, and effect to aid the court in making the determination

Restatement 208: Unconscionable K or Term

-If a contract or term thereof is unconscionable at the time the K is made, a court may refuse to enforce
the K, or may enforce the remainder of the K without the unconscionable term, or may so limit the
application of any unconscionable term as to avoid any unconscionable result

Mistake

1. Mistakes of Pre-existing Facts

Sherwood v. Walker
 -FACTS: The Walkers agreed to sell Sherwood a cow named “Rose 2d of Aberlone” for $850. At the time of
formation, the Walkers believed the cow was barren, and Sherwood thought the cow could breed but that
she wasn’t pregnant at that time. When they weighed the cow, turned out to be pregnant, and Walkers
discovered that the cow could have been sold for more than $1000. They refused to deliver the cow to
Sherwood. Sherwood sued to get the cow under the theory of mistake
-ISSUE: Does a mutual mistake in a contract preclude enforcement of a contract?
-HOLDING: YES
-If there is a difference or misapprehension as to the SUBSTANCE of the thing bargained for, if the
thing actually delivered or received is different in substance from the thing bargained for and
intended to be sold—then there is NO K
-BUT, if it is only a difference in some quality or accident, even though the mistake may have been the
motive to the purchaser or the seller, the K remains binding

Restatement 152:
(1) Where a mistake of both parties at the time a K 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
-Mutual mistake does make a contract voidable but only if it goes to a basic
assumption of the contract and has a material effect on the exchange
-BOTH parties have to make the mistake

Restatement 151: Mistake Defined

--A mistake is a belief that is not in accord with the facts

2. Impossibility or Impracticability
Taylor v. Caldwell
-FACTS: D and P contracted to let P use The Surrey Gardens and Music Hall for a series of concerts. The
day before the first concert, a fire destroyed the Music Hall, so that it was impossible to give concerts
there Fire wasn’t P or D’s fault. P lost money on advertisements, printing, preparation, etc and sues D to
recover
-iSSUE: Can P recover damages for impossibility of performance?
-HOLDING: NO
-In all contracts of loan of chattels or bailments if the performance of the promise of the borrower
or bailee to return the things lent or bailed, becomes impossible because it has perished, this
impossibility if not arising from the fault of the borrower or bailee from some risk which he has
taken upon himself) excuses the borrower or bailee from the performance of his promise to
redeliver the chattel
-THE PRINCIPLE SEEMS TO BE THAT IN K IN WHICH PERFORMANCE DEPENDS ON THE CONTINUED
EXISTENCE OF A GIVEN PERSON OR THING, A CONDITION IS IMPLIED THAT THE IMPOSSIBILITY OF
PERFORMANCE ARISING FROM THE PERISHING OF THE PERSON OR THING SHALL EXCUSE
PERFORMANCE
--Here, find the parties contracted on the basis of the continued existence of the Music Hall at the time when the
concerts were to be given; that being essential to their performance
--Both parties are excused since the Music Hall ceased to exist without fault to either party

Restatement 261: Discharge by Supervening Impracticability

Where, after a K is made, a party’s performance is made impracticable without his fault by the
occurrence of an event the non-occurrence of which was a basic assumption on which the K was
made, his duty to render that performance is discharged, unless the language or the circumstances
indicate the contrary.
1. Performance has to be in fact impracticable
2. Whatever happened has to be related to a basic assumption of the contract
3. No fault of the promisor
4. No other risk allocation in the contract
Eastern Airlines v. Gulf
-The fact that performance has become economically burdensome or unattractive is not sufficient for
performance to be executed—the buyer has a right to rely on the party regardless of what happens to the
market place
-ILLUSTRATES COMMERCIAL IMPRACTICABILITY

3. Frustration of Purpose: Performance still possible, but some event has occurred that makes the
value has been lost to promisee
Krell v. Henry
-FACTS: Krell (P) and Henry (D) engaged in a contract where Henry rented some rooms from Henry to see
the processions to be held in connection with the coronation of the King. However, the coronation never
took place because the King got ill, and Krell didn’t need the rooms. Krell sued Henry for 50 pounds
(original K was for 25 pounds), and Henry counter-claimed for his 25 pound original deposit
-ISSUE: Should the original contract be enforced when the purpose of the contract is frustrated?
-HOLDING: No
-The use of the rooms was for the purpose of seeing the procession—this was regarded by both
contracting parties as the foundation of the contract
-Since the procession did not occur, this prevented performance of the contract

--Difference is that the value to the promisee has declined

--Doctrine of frustration of purpose relates to the promisee

Requirements for frustration:

1. Both parties must be aware of D’s prupose and the centrality of that purpose
2. After changed circumstances, the value of the other party’s performance has to approach ZERO. Not
enough to simply be unprofitable—the value is worthless to D
3. Both parties have to fail to contemplate the risk (can’t be foreseeable). And D could not have known or
had reason to know of the changed circumstances
4. K did not intend to allocate this kind of risk.
5. Look to the extent of the reliance. When there has been little or no reliance, courts are more likely to
void K.