Contracts Outline

UCC VS. COMMON LAW:

• 3 categories in contracts:
1) sale of services,
2) sale of goods,
3) sale of land
• UCC: ONLY applies to the sale of goods (land not included)
• Common Law (Restatement): applicable for contracts for services and land (but can look to UCC for
guidance for services and land)
Statute of Frauds: for this class we assume 1) sale of land must be in writing, 2) contracts lasting more than 1 year
must be in writing 3) sale of goods for $500 or more (PRICE not value)

CONTRACT FORMATION (HAS A DEAL BEEN MADE?)

A. MUTUAL ASSENT: the parties must have the same understanding of the material terms of the contract
a. “meeting of the minds”
b. You need mutual assent on the material terms of the contract, not every term
c. Usually in the form of Offer and Acceptance

d. Objective Theory of Contracts: contracts are formed regardless of the parties’ subjective intent, if
a reasonable person could infer from parties’ words or conduct an intent to enter an enforceable
contract, a contract is presumed to exist (it’s what you say, not what you intend)
a. Two Prongs:
1. A reasonable person in the position of the promisee must believe the other party
intended to be bound, AND
2. The promisee must believe the promisor intent to be bound
a. Ex. Embry v. McKittrick: employee thinks employer promised another
year of employment by saying “go ahead, don’t worry, you’re alright”,
employer says he did not intend this to be guaranteed employment→
doesn’t matter what he meant, if can be reasonably inferred→ contract
b. Ex. If Hov offers to sell Leo to Ras, but Ras KNOWS Hov would never part
with the dog, Ras’ assent will not form a contract, even if a reasonable
person would believe Hov was dead serious

e. Restatement § 17 Requirement of a Bargain: valid contracts require a bargain in which there is a

manifestation of mutual asset to the exchange and a consideration (i.e. apparent “meeting of the
minds”)

f. Latent Ambiguity – a contract is clear on its face, but later the ambiguity presents itself
a. Never had real mutual assent = no contract
1. Ex. Raffles (Peerless Case):
a. Parties thought they were talking about the same boat “Peerless” but
each had a different boat in mind that arrived at different times→
b. No reason for them to know→
c. Material difference in meaning →
d. No mutual assent

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 Restatement §20 Effect of Misunderstanding:
There is NO manifestation of mutual assent (so no contract) to an exchange if the parties
reasonably attach materially different meanings to their manifestation AND
a. Neither party knows or has reason to know the meaning attached by the other, OR
b. Both parties have reason to know the meaning the other attached (just a grab-bag)

HOWEVER, there is mutual assent if a party knows or has reason to know the meaning the
other party has attached to the contract or term

g. Patent Ambiguity: ambiguous on its face

a. If you choose to enter into a contract that has patent ambiguity on a material term
there is mutual assent
1. Implied you will decide later what the ambiguity means; if there is a
disagreement -
2. The court will decide what was implied by the ambiguity
a. Oral term = jury decides / Written term = judge decides

h. Only material terms must be agreed on, default rules fill in immaterial gaps
a. Ex. if terms don’t specify when money is due, the default rule is after
performance or delivery
b. Default rules are implied by the law but parties can change at any time
2. “reasonable time” in constructing – Hypo from class
i. Rationale: don’t want people to be able to get out of deals then there is immaterial
terms missing
ii. Implied by law BUT parties are free to change default rules at any time if they agree

i. Trade Usage: can be used as an alternative to show mutual assent ONLY when both parties are
experienced in the trade (courts are split on this point)
a. Does not apply to people who are new or unfamiliar in the trade
b. Ex. Flower City Painting: sub was NEW to the trade so thought only paint inside of
house, general contractor says both inside/ outside because that was industry
standard→ no contract because sub shouldn’t have known trade term

Offer and Acceptance

A. OFFER: a promise by one party, made to another party, to do or not do something in the future,
contingent upon the other party’s acceptance
B. Just an offer, & an offer without the power to revoke such offer before acceptance is a "legal
impossibility"
a. An offer is not a promise, it's just an offer
b. Elements of an Offer (either expressly or by implication)
a. Be communicated
b. Indicate a desire to enter into a contract
c. Be directed at some person or persons
d. Invite acceptance
e. Create a reasonable understanding that upon acceptance a contract will arise
1. offer must make clear if a specific form of acceptance is needed

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 2. the promise must create in the promisee the “power of acceptance” = can they
conclude the deal
Ask: Would a reasonable person feel like they could conclude an offer with an acceptance
e. Moulton: A reasonable person would not have thought they could conclude a contract by sending
a quantity because a material term - quantity - was never mentioned before
f. Bridge City
i. A reasonable person would look at these emails and think there is a deal
ii. The fact that there wasn’t a form doesn’t change the fact that all the material terms had
been agreed upon

Restatement §24 Offer Defined:

An offer is the manifestation of willingness to enter into a bargain, so made as to justify
another person in understanding that his assent to that bargain is invited and will conclude it.
• An offer gives the power to the offeree to conclude the contract and make a deal
through acceptance

Restatement § 22 Mode of Assent: Offer and Acceptance

(1) 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.

(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.

§ 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 § 33 Certainty
(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so
as to form a contract unless the terms of the contract are reasonably certain.
(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a
breach and for giving an appropriate remedy.
(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a
manifestation of intention is not intended to be understood as an offer or as an acceptance.

Unilateral vs. Bilateral: Key way to determine the type of promise is the way you can ACCEPT it
1) Contracts can be construed either unilateral or bilateral
2) The offeror is in charge of deciding the mode of acceptance
a) In the case of ambiguity in the offer, the offeree can select and reasonable interpretation
b) But if the offer clearly specifies that it can only be met by performance , a return promise is not sufficient
(or vice versa)
3) ASK - What is the form of the exchange:
a) Are we both making promises? (bilateral), Or
b) Am I making a promise to do something once you do an action (unilateral)

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 i) BILATERAL: a promise for a promise (accept by promise)
(1) Offer can be revoked at any time before acceptance
(a) McGee : promise to operate v. promise to pay
(2) When there is confusion→ default is to assume a bilateral contract

ii) UNILATERAL: a promise for a performance (accept by performance)

(1) Offer could be revoked before other party has commenced performance; no formal notice is
needed
(a) Peterson v. Patberg: "don't promise to pay me, come up with the cash and once you do that
bring it to me and then I will promise to accept that cash and complete what I promised"
(i) Peterson’s promise only becomes enforceable what Patberg performs
(ii) Both can revoke at any point until then
(b) Brooklyn Bridge Hypo: “I will give you $100 to walk across the Brooklyn Bridge,” you get 90%
and I can revoke my promise
(i) Why? Because you could revoke your promise too at that point and stop walking
(2) THIS TREATMENT CAN GET TOO HARSH – (90% across the Brooklyn bridge and you revoke)
(a) Result: Creation of the OPTION CONTRACT

Uncertainty about Offers:

i. Preliminary Proposal: if a proposal reserves a final say on whether to be bound, it’s not an offer →
just a proposal (often just a proposal if material terms not discussed)
1. Upper limits: if there is an upper limit on amount offered, usually a contract; offers without
limits = too much liability
ii. Advertisements / Price Quotes: generally seen as inviting offers from buyers, not making an offer
1. Ex. Moulton: seller sent out advertisement with price per barrel for salt, buyer responds
wanting 2,000 barrels → no contract because general language/ad and did not specify a
quantity of barrels
a. Seller doesn’t specify quantity = material term = no offer
b. the UCC has a lot of gap-fillers but does NOT have gap filler for quantity

a. Exception when there is a clear, definite, and explicit offer with no room to negotiate
i. Ex. Carbolic Smoke Bomb: posted an award for anyone who used the smoke bomb and
got the flu→ ad WAS an offer because performance of trying the smoke bomb and
getting sick was acceptance & there was clear, sincere commitment of the award ($1000
deposit to pay out)
1. If a reasonable person would view the language as an offer to the world, it’s an
offer
ii. Lefkowitz (fur coats): In Lefkowitz the language of the advertisement was so clear that it
gave someone the ability to accept
1. Offer to everyone but was too specific not to be an offer (time, date, place,
scarfs, price, "first come first serve", limited quantity)
iii. Example: poster offering $50 reward for returning dog- clearly bargaining to have dog
returned- yes, offer (unilateral offer)
1. Why? Only one person can return the dog. No risk of obligation in excess of
supply

b. Exception: Unreasonable Ads: (Obviously NOT inviting Offers)

i. Pepsi Commercial 7,000,000 points for a harrier jet

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 ii. Mr. Lennard sends in $700,000 to pepsi and asks for his harrier jet (worth $23M)
iii. No reasonable person would construe this as an invitation to make an offer

c. Offers on Websites : Is submission on website an offer to accept purchase, or acceptance by

consumer?
i. You must add on your online sales "your offer is only accepted once your order ships"
etc.
ii. Nguyen: Was Nguyen entitled to view the B&N website as making an offer for the tablets
that he could accept by putting in his cart and purchasing
1. Court says Yes, a reasonable person would believe that by pressing the purchase
button they are accepting the offer
a. Ras is not so sure about this decision

Four Ways to Terminate an Offer:

1. Rejection or counteroffer by the offeree
a. Rejection is simply when the offeree declines the offer
i. offer is DEAD and over→ can only be revived by offeror
b. Counteroffer: it creates a new offer ($25 offer, “no, $20” → now the power to accept is in the
hands of the original offeror )
2. Revocation by the offeror (rescind prior to acceptance)
a. Offeror is king: retains complete mastery and control over offer until acceptance (offeror can
change terms, revoke entirely, etc.)
b. Direct revocation: offeror withdraws offer by notifying offeree
c. Indirect revocation: when offeree learns from someone other than the offeror that offeror is no
longer interested in the deal BEFORE attempting to accept (as long as the party is a “apparently
reliable” source)
i. Once the third party communicates to the offeree that the offer is revoked, its treated
just as a normal revocation and offer is dead → reasonable person could not believe the
offer is still open
(i) Ex. Dickinson v. Dodds :
1. Before Dickinson accepted Dodd’s offer, Dodd’s communicated his intent to sell the
property to someone else, a fact that was communicated to Dodd’s through a third
party → offer terminated (objective theory, reasonable person would not believe the
offer is open)
2. IF Dickinson was not informed of the revocation and he accepted the offer, Dodd’s is
now contractually bound to his offer to Dickinson (revocation must be
communicated)
3. Lapse of time: if the offer does not specify a time period that offer remains open, the offeree’s power of
acceptance terminates after a reasonable time (question of fact)
a. “reasonable” depends on market conditions, prior dealings, etc.
4. 4. Death or incapacity (of either party): automatically terminates the offer (does not terminate a binding
contract) EVEN if the offeror/offeree is unaware of the other’s death
5. Exception: §37 Power of acceptance under an OPTION CONTRACT is not terminated by another of these ^
4 ways

OPTION CONTRACT: way to guard against the risk of your offer being terminated
a. The power of acceptance under option contracts is NOT terminated by any of 4^ ways
1. § 45 Option Created by Part Performance (unilateral)

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 a. If an offer can only be accepted by performance and offeree begins to tender performance the
offeror has created an option contract and loses the right & power to revoke the offer
i. Offeree has the right, but not the obligation, to finish performance
ii. Offeree is required to notify offeror within a reasonable time after commencing
performance if he knows or should know that offeror has no means of learning of his
acceptance
1. Brooklyn Bridge Hypo OPTION: A will give B $100 to walk across bridge; once B
starts walking, A cannot revoke the offer; A can stop walking whenever because
NO obligation to finish; A does not have to pay $100 until B gets to other side.
2. Holding an Offer Open (unilateral or bilateral)
a. An offer to keep the promise "open" for a period of time must have consideration to be
enforceable, but if it does then it is an option contract
b. If the offeree accepts - aka exercises her option - then we will have another contract
c. Can accept and turn into a bilateral or unilateral contract
d. Must follow § 45; § 87(1); § 87(2); § 2-205
3. Offer is Automatically a Binding Option if it follows § 87(1)
a. Consideration can be nominal (in some jurisdictions)
b. Thomason: promise to leave the option to purchase land open until Aug. 18 in consideration of
$1 (even though $1 was not given) was a binding option contract
4. § 2-205 Firm Offer Creates an Option Contract
5. § 87(2) Reliance as a Basis to Create an Option Contract:
a. Reliance as a Basis to Create an Option Finally, under § 87(2) of the Restatement (Second) of
Contracts, an offer that foreseeably induces detrimental reliance of a substantial character by the
offeree may be enforced as a binding option contract, to the extent necessary to prevent
injustice, despite the absence of both (1) a promise of irrevocability, and (2) consideration in
support of that promise. In effect, this protects the offeree’s reasonable reliance on the offer by
implying a promise to hold the offer open (even when no such express promise has been made)
and then enforcing that promise (even though unsupported by consideration). For instance, if
Epstein offers to sell Armie, the armadillo, to Markell knowing that Markell plans to pay the large
and non-refundable registration fee to enter Armie into Ponoroff’s armadillo marathon, Epstein
might be precluded for a reasonable time from withdrawing that offer, even though he neither
promised to hold the offer open for a stated period of time nor received anything from Markell in
return for holding it open. So, by way of summary, we may now say the following: All offers,
standing alone, are revocable. Even offers that are stated to be irrevocable are revocable, unless:
The promise not to revoke is supported by consideration, The promise is made enforceable by
statute (i.e., the firm offer), or The promise (whether or not said to be irrevocable) induces
substantial reliance.

Restatement 2d § 45 Option Contract Created by Part Performance or Tender (only applies to unilateral)
(1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory
acceptance, an option contract is created when the offeree tenders or begins the invited performance or
tenders a beginning of it.
(2) The offeror's duty of performance under any option contract so created is conditional on completion or
tender of the invited performance in accordance with the terms of the offer.

§ 87(1) Option Contract

(1) An offer is binding as an option contract if it (offeror loses the power to revoke)
(a) is in writing and signed by the offeror, recites a purported consideration for the making of the
offer, and proposes an exchange on fair terms within a reasonable time; or
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(b) is made irrevocable by statute. (example, § 2-205)
 § 2-205. Firm Offers.
An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be
held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a
reasonable time, but in no event may such period of irrevocability exceed three months

A. ACCEPTANCE: a manifestation of intent, objectively determined, to be bound to an offer

a. Exercise of the power of acceptance – brings contract into existence and terminates the offeror’s
ability to revoke

§50 Acceptance Defined:

Manifestation of assent to the terms of the bargain in a manner that was invited or required by the offer

§ 32 Invitation of Promise or Performance

In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what
the offer requests or by rendering the performance, as the offeree chooses.

“Rules” of Acceptance:
1. The offeree must have at least have knowledge of the offer (and intend to accept it)
1. If an offeree learns of the offer in the midst of the requested performance, the completion of
performance is sufficient to constitute acceptance
a. Example, two weeks into using a product you see the manufacture is offering $10 to
anyone who uses it for four weeks → you can still accept
2. Exception: Employee Handbooks: when an employer adds a neutral or positive provision to the
handbook, this is treated as an offer which the employee accepts by continuing employment →
a. If new provision is detrimental to employee: continuing to work is generally not
acceptance
b. Policy: we don’t want employers to have the power to unilaterally make things worse for
their employees who, when the discover the change, would be deemed to have
“accepted it”
2. Only the offeree can accept an offer (offeree cannot transfer power of acceptance)
3. The acceptance must be in the form authorized by the offer (Similar to Mirror Image)
a. The offeror can control the means by which the offer must be accepted. In the case of
ambiguity in the offer, the offeree can select and reasonable interpretation
a. §30/32 softens this: unless the offer clearly and unambiguously indicates exclusive
terms of acceptance, acceptance can be made in any manner reasonable in the
circumstances, either by return promise or by performance
b. If offeror specifies a mode of acceptance but it’s NOT exclusive, then can accept by any
reasonable method that provides equal protection to offeror as prescribed method
c. So basically, when offer is ambiguous as to methods it can be accepted by, the offeree
chooses which method to accept by

Notice of Acceptance:
a. Acceptance by return promise is not effective until communicated to offeror (unless offeror
dispensed with this requirement)

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 b. Acceptance by performance generally does not require the offeree to give notice to the offeror
(unless offeror has NO means of learning of acceptance)

Late acceptance: can be interpreted as: (all depends on circumstances/industry practice)

c. An ineffective acceptance
d. A counteroffer
e. An effective acceptance
2. If offer does not specify, acceptance must be made after a reasonable amount of time
3. Offeree beginning performance is an acceptance, which then operates as a promise to complete performance
a. If the offeror explicitly says ONLY full performance will do, then beginning performance creates an
option where offeree has reasonable time to complete
b. Petterson: unclear whether traveling to the house to pay the mortgage constituted “beginning
performance”

Mirror Image Rule (Common Law Traditional Rule)

b. Traditional rule: terms of acceptance must match the terms of the offer exactly, or else it was a
rejection and counteroffer, creating power of acceptance in the offeror
c. Modern rule: more flexible→ a response is a counteroffer ONLY if it has a material discrepancy

Acceptance by Silence or Inaction:

d. Silence does NOT constitute an acceptance, except in narrow circumstances
1. Prior course of dealings where it’s reasonable to assume silence = acceptance
2. Silence in the face of receipt of enjoyment of a benefit with knowledge of an expectation to pay
will create a contract
a. Ex. eating hot dog creates an (implied from conduct) contract to pay the hot dog seller
e. EXCEPTION - Employee Handbooks: when an employer adds a neutral or positive provision to the
handbook, this is treated as an offer which the employee accepts by continuing employment →
1. If new provision is detrimental to employee: continuing to work is generally not acceptance
2. Policy: we don’t want employers to have the power to unilaterally make things worse for their
employees who, when the discover the change, would be deemed to have “accepted it”

IS THE PROMISE LEGALLY ENFORCEABLE

Most people have an intuition that not all promises should be legally enforceable
a. Promises to make a gift - gratuitous promises - should not be legally enforceable
b. The challenge that every legal system has is how we draw a line between those promises we
think should be legally enforceable and those we think should not

CONSIDERATION
• Consideration is not a self-defining concept
• It’s courts trying to understand where to draw the line between enforceable and non-enforceable
promises

Classical Definition:
1. Benefit to the promisor or a detriment to the promisee
a. Courts sometime still use this language even though the concept followed by most courts has
been updated to follow the restatement

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The Bargained for Exchange
A. Consideration is something given in exchange for the promise that is bargained for
i. Hamer v. Sidway: uncle promised to give $5k if nephew refrained from drinking, smoking, etc.
until age 21 → this WAS a bargained-for exchange (consideration)
a. Benefit to promisor or detriment to the promisee
b. Large gift element to the promise
1. Clearly motivated by wanting to make a gift to his namesake
a. The gift element of the promise does not preclude this from being a
binding enforceable promise
c. Doubtful that Uncle would have wanted the promise to be legally enforceable
1. But we are only looking for consideration, not intent
d. Probably cannot enforce the promise based on Uncle's "benefit"
e. There was a detriment to the promisee - Willy - even if foregoing those things made him
a better/healthier human being he still had a legal detriment by giving up his right to
partake in those activities, so there is consideration

What if you refrain from an act that is already ILLEGAL?

1. Argue: no detriment because already not allowed to do it
2. Argue: yes detriment because still have the power to do it

B. Reciprocal Inducement: The promise must induce the consideration

C. Courts don’t care about the adequacy of consideration, just care about whether it exists

D. In a bilateral contract – one parties promise is always consideration for another parties promise
E. In a unilateral contract – the parties performance will always be consideration

F. Consideration does NOT have to have economic value, but

i. “Feelings” do not constitute consideration
a. Ex. Marmer: promise to return assets between family members as a mean of “family
reconciliation / unity” → these “feelings” are not valid consideration
b. Policy: if making the promiser happy counts as a benefit that confers consideration then
EVERY promise would be legally enforceable

G. Conditional gifts (absent reliance) are NOT enforceable because the gift was not bargained for
i. De Leo: oral promise on death bed to donate money to church; no consideration and the church
did not rely so not enforceable
ii. Ex. “if you come to my house I will give you I.M Pei photo” → just a conditional gift; not
bargained for because I did not seek out for him to come to my house
a. BUT if it were the Chief Justice and you want to share your views so you seek him out “if
you come I’ll give you I.M. Pei photo” → bargained for (sharing his views for IM Pei)

H. Consideration is malleable (courts bend it to enforce promises they feel should be enforced- Cardozo did
this)

I. Nominal Consideration: courts are split, but normally not consideration

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 i. What do we do with situations where a party clearly wants to make a gift, never the less the
promisor invokes consideration to tell the world that he clearly wants the promise to be
enforceable
a. $1 for nominal consideration to try and indicate that the parties wanted the promise to
be enforceable
b. What do we do?
ii. ARGUE: Do you think the law should be about personal autonomy and letting people bind
themselves
a. Then let nominal consideration count as consideration
iii. ARGUE: Do you think contract law is about supporting social efficiency?
a. We don't enforce gifts thus should not spend societal resources on enforcing these types
of promises
b. Consideration is about enforcing what is bargained for and the court should be skeptical
of nominal consideration
iv. First restatement of contracts would enforce, whereas second would not

§17. REQUIREMENT OF A BARGAIN

The formation of a contract requires a bargain in which there is a manifestation of mutual assent to
the exchange and a consideration.

§ 3 Agreement Defined; Bargain Defined

An agreement is a manifestation of mutual assent on the part of two or more persons.
A bargain is an agreement to exchange promises or to exchange a promise for a performance or to
exchange performances (contract formation)

§ 71. Requirement of Exchange; Types of Exchange

(1) To constitute consideration, a performance or a return promise must be bargained for.
• There was exchange in the sense that at least part of the reason that the promise was made was
that the promisor wanted to get something back in exchange for his promise
o Doesn’t have to be the only or the main reason
o BUT for something to be a consideration, it has to be something that the promisor was
trying to get
o The objective value of what's bargained for doesn't matter - only the fact that it was
something the promisor was seeking and actually wanted
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for
his promise and is given by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It
may be given by the promisee or by some other person.

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 § 72 Exchange of Promise for Performance
Except as stated in §§ 73 and 74, any performance which is bargained for is consideration.
• Courts are asking "was there a bargain" - Is there anything you're trying to get back
• Not looking to see if it was a fair deal, just was it a deal
• UNILATERAL

§ 75 Exchange of Promise for Promise

Except as stated in §§ 76 and 77, a promise which is bargained for is consideration if, but only if, the
promised performance would be consideration.
• BILATERAL

§ 81 Consideration as Motive or Inducing Cause

(1) The fact that what is bargained for does not of itself induce the making of a promise does not
prevent it from being consideration for the promise.
• You could have made the promise for a reason apart from what you were getting in return
• BUT SO LONG AS YOU WERE TRYING TO GET SOMETHING IN RETURN, means there is
consideration
(2) The fact that a promise does not of itself induce a performance or return promise does not
prevent the performance or return promise from being consideration for the promise.
• Even if the promisee offers her performance or return promise for something in addition to the
promise she's receiving, that does not prevent it from being consideration

§ 81 is intended to put an explicit limitation on § 71's "bargained for" test

• It acknowledges that a promisor may have more than one motive in negotiating an exchange
• Basically says that the consideration can be incidental

Acceptable Substitutes to Consideration

Past Consideration: Courts normally do not enforce a new promise based on past consideration because the
promise was never bargained for
A. EXCEPTIONS
i. Promise to pay a debt barred by statute of limitations
a. it is a promise to pay an earlier obligation that did have a bargained for exchange and is
only unenforceable because of the statute of limitations - we are going to enforce it
b. We enforce ONLY THE NEW PROMISE because if you hold them for more (the old
promise) that is violating the statute
c. Can only enforce up to the value of the original promise
ii. Promise to pay debt discharged by bankruptcy
a. Federal law limits this today, but common law would enforce a subsequent promise to
repay the debt
b. Common law is saying we have a promise without bargained for exchange but since it is a
promise to pay an earlier obligation that did have a bargained for exchange so we are
going to enforce it
iii. Promise to pay a prior promise that could have been avoided (i.e. contract as a minor)

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 a. Promise made by a minor cannot be enforced (thus performance could have been
avoided), but a subsequent promise to pay once they are an adult will be enforced
iv. COMMON THREAD IS NOT MORAL OBLIGATIONS – this list is exhaustive
a. Mills v. Wyman: father promises to pay a guy for paying to take care of his sick son (after
son had died) then refuses to pay → not enforceable because doesn’t fall into the 3
categories, and the detriment to the promisee (paying to take care of the son) was
already in the past
1. No Restitution: the benefit was not conferred on the father (it was on the son)

Exceptions to these 3 being the only exceptions to past consideration

Material Benefit Rule : Promise for a previously received benefit (Past Consideration)
A. If we have a given fact situation where a benefit is received by the promisor not for a bargained for exchange,
and then she promises to pay for that benefit, SOME courts enforce this promise (they did in Webb, they did
not in Harrington)
a. Webb v. McGowen: Webb saves McGowin's life in an emergency and is disabled. One month later
McGowin promises to pay Webb $ 15 every two weeks for the rest of Webb's life, and McGowin
makes the payments for 8 years until he dies.
i. The promise is binding.
ii. received a material benefit (his life being saved)
iii. Went to the grave never disaffirming the promise
b. Mills : If a benefit was not received by promisor, then the promise will not be enforceable under this

Another way to Recover for Past Benefits Quasi- Contract / Doctrine of Unjust Enrichment / Restitution: recovery
outside of the contract – no consideration → no promise, but can still recover
B. Do we think the person, at the time they rendered their services, expected compensation?
a. If so, then they can recover under restitution
C. The person must be in the business of doing the act and thus expect to be paid for it
a. Ex. Doctor walking down street saves person’s life by providing treatment
i. Doctor sends bill to person the next day for his services
ii. No promise → no contract
iii. BUT the person is liable for the bill under the theory of restitution
1. Policy: We want to compensate those who expect to be compensated
b. Webb v. McGowen: can’t recover under restitution because Webb was not in the business of saving
lives and thus did not expect to be compensated for it

§ 86 Promise for Benefit Received - some jurisdictions use this as another exception to the rule of
consideration (Drafted to make sure Mills and Webb's decisions were right)
(1) A promise made in recognition of a benefit previously received by the promisor from the
promisee is binding to the extent necessary to prevent injustice.
(2) A promise is not binding under Subsection (1)
(a) if the promisee conferred the benefit as a gift or for other reasons the promisor
has not been unjustly enriched; or
(b) to the extent that its value is disproportionate to the benefit.

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 RELIANCE: substitution for consideration

Promissory Estoppel (Promise + Unbargained for Reliance)

Promissory estoppel is a substitute for consideration and can be an exception to the statute of frauds (but must
be done very carefully and all 4 elements for promissory estoppel must be satisfied)
• Seavey v. Drake: father orally gifted a tract of land to son, son made improvements, father died- son
was able to sue and recover deed (and defeat SoF) because he relied on the promise by making
improvements
A. § 90 FOUR ELEMENTS OF PROMISSORY ESTOPPEL: can be invoked in the absence of consideration when -
i. There’s a clear and definite promise
ii. The promisor should have reasonably expected to induce action or forbearance (detrimental
reliance) on the promise
iii. The promise actually does induce action or forbearance (detrimental reliance)
iv. Injustice can be avoided by enforcement of the promise

§ 90 Promise Reasonably Inducing Action or Forbearance

(1) A promise which the promisor should reasonably expect to induce action or forbearance on
the part of the promisee or a third person and which does induce such action or forbearance is
binding if injustice can be avoided only by enforcement of the promise. The remedy granted for
breach may be limited as justice requires.
(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without
proof that the promise induced action or forbearance.

B. What Should Damages be Under § 90?

i. Some studies have shown that under 90 courts usually apply expectation damages, but
sometimes will restrict to reliance
• Williston: this should not be allowed - you either enforce the promise as what it was
(expectation) or not
• Corbin: if you are enforcing off of reliance it makes sense to limit damages to reliance,
thus damages should depend on the facts

C. § 139 - An oral promise that would otherwise be unenforceable under the statute of frauds is made
enforceable through promissory estoppel if the promisee relied on it to their detriment
i. Courts are all over the map on this issue
a. EXAM : we would say courts are split, if they follow cases that allow you to exit statute of
frauds based on promissory estoppel, this is what would happen, and if they don't and still
enforce statute of frauds this will happen

§ 139 Enforcement by Virtue of Action in Reliance

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of
the promisee or a third person and which does induce the action or forbearance is enforceable
notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The
remedy granted for breach is to be limited as justice requires.
• Reliance on a contract that would be enforceable except for the statute of frauds
• The promisor has to reasonably expect the outcome when they make the promise
• The court has discretion here
o Can decide not to enforce the promise if they decide it would not be unjust to not enforce
o It can limit the remedy
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 D. Different from Equitable Estoppel
i. There is no clear and definite promise
ii. Party makes a statement of facts, and the other party relies, and then the first party says "wait no
the facts are different now" → they will be estopped from changing the facts
iii. HYPO:
a. Rasmussen wants to buy Craig’s signed I.M. Pei photo
b. Craig states that the market value of the photo is $600.
c. Based on this statement, Rasmussen agrees to buy the photo for $400, with delivery and
payment the next day.
d. Craig breaches, and Rasmussen sues seeking $200 in damages (he was getting a deal, to
replace the photo he needs $600)
e. Craig admits the breach, but argues that the damages are zero because the market value
of the photo is actually $300.
f. Craig is equitably estopped from making this argument and owes $200
iv. Prescott v. Jones: present intent or purpose is not enough

***EXAM differences between reliance and expectation: we need to say that if the court decides to enforce to
expectation her damages are "up here" but if you enforce to reliance her damages will be "down here"
EXAM: Look to see if there is a typical contract with consideration before jumping to promissory estoppel
• Promissory estoppel claims often fail because not all elements are satisfied

REVOCATION AND RELIANCE

A. At what point do we allow recovery for reliance on an offer, where the offeror revokes, but there was NO
promise not to revoke?
i. Restatement created an option contract from promissory estoppel doctrine (unable to revoke
offer that led to detrimental reliance)
ii. In the restatement, no need to have a promise to not revoke
§ 87 Option Contract (Reliance used to create Option Contract)

(2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial
character on the part of the offeree before acceptance and which does induce such action or forbearance is
binding as an option contract to the extent necessary to avoid injustice.

• Don’t need a promise like in promissory estoppel, but when you can find reliance

B. In deciding whether to say there was an option contract, the court has much more discretion under this
doctrine than under § 45.
i. All you need is reliance, do NOT need part tender of performance
C. Drennan v. Star Paving: general contractor used and relied on a sub’s bid that was revoked before
general had chance to accept it → sub’s bid was enforced under promissory estoppel because the sub
implied a “subsidiary promise” to keep his bid open once it was relied upon until the general had the
opportunity to accept it
i. General had no reason to know the bid was made in error → awarded expectation damages
(difference in sub’s bid and the new bid he had to get to replace it)
ii. However if it is reasonable to suspect an error in the sub’s bid, then this theory CANNOT be
invoked → sub’s have a duty of reasonable care to not make a mistake in their bids

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 iii. Restatement followed this – doctrine of promissory estoppel is applied to convert a revocable offer
into an option contract
iv. The restatement § 87 follows this outcome
a. We don’t need a promise to keep the offer open
b. The general relied on this offer and the sub HOPED he would rely on it
D. James Baird Co. v. Gimbel Bros.: similar case but court decides promissory estoppel DOES NOT works
here because promissory estoppel is supposed to be for when there is a gratuitous promise - not an offer
for a contract
i. Most courts do not follow this

RELIANCE BEFORE AN OFFER / PROMISE HAS BEEN MADE

A party can be bound if the other party reasonably relies on representations to their detriment, EVEN if a contract
or promise has not even been made (promissory estoppel on steroids)
A. Goodman v. Dicker
i. Promise by distributor that franchise would be offered
ii. There was reasonable reliance on that promise
iii. You can use promissory estoppel to cover your reliance damages
B. Red Owl: Where is the promise?
a. There are negotiations, with one party relying on the assurances of another but no firm offer or
promise
b. Court awards reliance damages and the court expressly invokes § 90
. Suggests that promissory estoppel can be an independent basis of liability, rather than
just a vehicle to enforce a promise absent consideration
i. Some courts reject this saying promissory estoppel should only be used for promises
given, not on statements during negotiation process
C. This includes promises that are too indefinite to be a contract but are nevertheless relied on to the
party’s detriment
i. Blinn: contract was too indefinite, but nevertheless relied upon to the party’s detriment, they can
sue on promissory estoppel and recover for their reliance
c. TODAY: we rely on promises
i. We draw a fine line between when we have a promise and when we don't
ii. Most courts don't follow red owl
1. High water mark for judicial opinions that invoke promissory estoppel without much of a
promise

5 situations where a we do not have a full contract (only offer/no offer) but one party may still face liability for
breach
1. §45 - we don’t have a contract until performance is rendered, but we know if the offeror revokes the
offer after performance has started but before it is completed, the offeror can be liable
2. § 87(1): written promise to hold an offer open that states a purported consideration
3. UCC § 2-205 – offer for goods signed and in writing which by its terms gives assurance that it will be held
open is not revocable for lack of consideration
4. § 87(2) – non revocable option contract created by an offer which an offeree reasonably relied
5. Party reasonably relies on representations / assurances of offer or promise to be made to their detriment

PRELIMINARY AGREEMENTS / PRE-CONTRACTUAL OBLIGATIONS

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BATTLE OF THE FORMS

1. Question 1: Do we have an Agreement

1. Would an objective third party look at the situation and believe they had a deal
2. And they changed they focus to look only at agreement
2. Question 2: What terms are in the contract?
1. Differing terms? - White v. Summers
1. White : If there are conflicting terms they cancel each other out and we use gap
fillers - or if there are no gap fillers we just ignore them
1. Drafters wanted this approach
2. Majority
2. Summers: if there are conflicting terms we look to the term in the first form
submitted only - the second forms term is cancelled out
1. Minority position
3. If the first form submitted is silent on a term that is introduced
1. Both Parties Not Merchants: Party who's form was silent - has to explicitly agree that the
term will become part of the agreement for it to count
2. Merchants: Term becomes part of the contract if the first party agrees, OR if it is not
objected to and does not materially change the contract, i.e.
1. Term will not become part of the contract if :
1. Party objects
2. Materially changes the contract
1. WHAT IS A MATERIAL CHANGE?
2. Material changes include someone waiving liability – “discharging
liability” “waiving consequential damages”
4. If the first form submitted is silent on a term that is introduced

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 1. Both Parties Not Merchants: Party who's form was silent - has to explicitly agree that the
term will become part of the agreement for it to count
2. Merchants: Term becomes part of the contract if the first party agrees, OR if it is not
objected to and does not materially change the contract, i.e.
1. Term will not become part of the contract if :
1. Party objects
2. Materially changes the contract

Consumer Agreements in Cyberspace

Test in internet cases:
o Would a "fair and prudent person using ordinary care" have notice of the terms

Buy Now, Terms Later

• Seller is master of the offer
• Seller has take it or leave it product
• If you take it, you take the terms
• Pay money, get a good, and that good has terms on it
o Similar to sporting game tickets, airplane tickets , Carnival Cruise Line
o Applies to hardware and software
• If you don’t like it, return the good
• Doesn’t matter if you don’t take the time to read the term – if you keep the good you are accepting the
terms

• SOME COURTS DIFFER (minority)

o The buyer is really the offeror
o When the company says "yes" to the buyers offer to buy by shipping the computer - the
additional terms sent to the offeror are for them to accept
▪ If a buyer is not a merchant under 2-207(2) (battle of the forms) they can only become
part of the contract if they are expressly agreed to buy the buyer - which they weren't –
so they are NOT binding terms
o See's any other interpretation as businesses taking advantage

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Types of Internet Contracts:
1. Click-through (clickwrap) - website users are required to click and I agree box after being
presented with a list of terms
a. THIS WILL ALWAYS WORK
2. "Browsewrap" where are websites terms and conditions of use are generally posted on the
website via a hyperlink at the bottom of the screen
· Website contains notice that by using the website the users agreeing and bound by the
terms
· Because no affirmative action is required by the website user to agree to the terms,
determination of the validity of the browse-wrap contract depends on whether the user has
actual or constructive knowledge of the terms
▪ Ask: would a "reasonably prudent user" have noticed the hyperlink signaling other terms
and did you have the opportunity to pursue that hyperlink
▪ Not enforced in Specht and Nguyen, enforced in Meyer
▪ People easily agree to the decisions in Specht and Meyer
▪ Nguyen is a harder case - puts a question mark on what is reasonable

Specht v. Netscape: “Browsewrap” – terms only found if you scroll all the way down = NOT enforceable
· you can be held to terms you don’t read BUT you have to know they are there

Meyer v. Uber: Browsewrap – when there is a hyperlink that is reasonably conspicuous – ask – would a reasonably
prudent smartphone user have constructive notice of the terms

Nguyen v. Barns & Noble: “Browsewrap” - When a website makes its terms available via conspicuous hyperlink on
every page of the website, but otherwise provides no notice to users, nor prompts them to take any affirmative
action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on
without more is not sufficient to give constructive notice

Is this assent in any meaningful sense?

a. Policy issue with these new types of transactions
i. Should the buyers who buy things on the web be stuck with these terms and conditions

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 1. Instead, we are stuck with the doctrine of mutual assent - applying the doctrine
here
a. Do we really think consumers should live with these terms and agreements?
i. Reasonable people differ

Law in this area is still evolving

The Law Today:
• Law is clear that click through works
• Everything else is questionable (browse-wrap)
o ASK: What is reasonable notice and opportunity, based on the facts?
• Designers of websites want them as free from distraction as possible
o Don’t like clickthrough - people get annoyed and don't purchase products
• Lawyers love clickthrough
o But, if the business doesn't want to do clickthrough - look to the new standard set by all these
cases + the proposed restatement of consumer contracts and make a business call -
▪ What do you think is reasonable notice?

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 § 2 of Proposed Restatement of Consumer Contracts
(a) A standard contract term is adopted as part of a consumer contract if the consumer manifests assent to the
transaction after receiving:
(1) a reasonable notice of the standard contract term and of the intent to include the term as part of
the consumer contract, and
(2) a reasonable opportunity to review the standard contract term.
(a) formulating rule from Specht, Meyer, and Nguyen

(b) When a standard contract term is available for review only after the consumer manifests assent to the
transaction, the standard contract term is adopted as part of the consumer contract if:
(1) before manifesting assent to the transaction, the consumer receives a reasonable notice regarding
the existence of the standard contract term intended to be part of the consumer contract, informing
the consumer about the opportunity to review and terminate the contract, and explaining that the
failure to terminate would result in the adoption of the standard contract term; and
(2) after manifesting assent to the transaction, the consumer receives a reasonable opportunity to
review the standard contract term; and
(3) after the standard contract term is made available for review, the consumer has a reasonable
opportunity to terminate the transaction without unreasonable cost, loss of value, or personal burden,
and does not exercise that power.
(b) Buy now terms later cases

Limited and Indefinite Promises

Limited Promsies
Limited (Illusory) Promise: A promise or apparent promise is not consideration if by its terms the promisor or
purported promisor reserves a choice of alternative performances (§77)

Parties are free to limit and structure their future obligations

a. Problems that arise when nothing more than an exchange of promises has been made
i. Form and content of the promises make a difference

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 b. Promisors desire to retain flexibility in a changing world: how much freedom to give them while
still binding the other party?

§ 2 Promise; Promisor; Promisee; Beneficiary

(1) A promise is 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.

Comment e. Words of promise which by their terms make performance entirely optional with the "promisor"
whatever may happen, or whatever course of conduct in other respects he may pursue, do not constitute a
promise.

Davis v. General Foods Corp -"We shall be glad to examine your idea, but….compensation, if any, is solely in our
discretion"
• Here, as to compensation, no promise was made - so no breach of contract
• Restitution case fails - no reasonable expectation to be compensated after she received this

Nat Nal Serv. Stations v. Wolf agreement to agree to give discount per gallon for gas on future orders, they put
framework in place for dealing, but until there is actual orders neither party has promised to do anything no
promise to order gas, no promise to sell gas
• Framework for a contract: but no contract until there was an order for gas, and an acceptance of
that order
• Each time the plaintiff put in an order and the defendant accepted that order, a contract was
formed and there became due an obligation to pay the discount
o Prior to this point, there is not contract

Problems can be created by the Consideration Doctrine if one parties promise is SO LIMITED it has not promised
to take any action
A. REMEMBER – you still need consideration
i. For bilateral- any promise to do something is going to be sufficient consideration - but
you have to actually promise to do something

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Implied Promises
A. Court will sometimes imply promises or obligations when it appears parties try to make a binding
agreement, but one party seeks to get out of it with a technicality, and there is no clear return promise
constraining future actions
i. Wood v. Lucy: No clear promise by Wood – thus Lucy aimed to escape liability on the
basis of no consideration court finds consideration by saying Wood implied a promise (to use
reasonable efforts to promote Lucy’s designs), and this is enough consideration to support Lucy’s
promise of granting exclusive rights to Wood court felt that Lucy needed to be held to her
promise, so found consideration (by implying a promise on Wood’s behalf) which made Lucy’s
promise enforceable
a.BUT what would happen if Lucy tried to sue Wood on this implicit promise
1. If he wasn’t using reasonable efforts to bring profits, she could sue for
breach of contract on those implied terms
2. You are enforcing a promise on Wood that did not explicitly make or
intend to make
ii. §90: when reliance causes foreseeable negative change in the offeree’s position, there is
an implied promise to not revoke on behalf of the offeror
a. Ex. when general contractors rely on sub’s bids implied promise
for the sub not to revoke their bid

Indefinite Promises
A. Contract may be unenforceable if material terms are missing – parties should fill these in rather
than the court
B. If you determine there’s an agreement to agree, there’s not a contract
i. Could be type II, but not a full

Sun Printing: legally enforceable promise for the first 3 months, but for the next months they did not agree on
enough
i. No agreement on price or how long the price will last so no contract
ii. Dissent: we think you can look at the contract and make sense of the price and term
1. You can interpret the agreement to determine what the price should be based off

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NOTE: Today this would a Type II agreement where the parties agreed to negotiate in good faith - which
Remington did not do
o There would be damages at either expectation or at reliance depending on whether or not they
would have made a deal

Broyhill case: dispute on how much the heating bill is

1. They thought they had an agreement but they did not determine how to calcualte the heating bill so
there was not enough in the terms to make it a contract
2. Dissent: both sides knew what it took to heat the building

Blinn v. Beatrice Community Hosp. and Health Center

• Blinn sought reassurances of his job security with Beatrice Administrator said they had “at least five more
years of work to do.”
• Sues on 2 theories:
1. Contract
1. Assurances offered were not sufficiently definite to form an offer of a unilateral contract
2. Promissory Estoppel
1. What's the promise on which Blinn relied?
1. The court here says that in Nebraska - your promise for reliance does not have to
be as definite as a promise to form a contract
1. Contrary to the Restatement
2. IN Williston - you still need a promise (reliance is just a substitute for
consideration)
Blinn This case reminds us that there is still tension in the law of promissory estoppel
• Some courts want a definite promise for promissory estoppel
• Some courts say that reliance is enough

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 § 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.
• Looking at Sun Printing, was the party intent to be bound? Good argument that they were

§ 2-305. Open Price Term.

(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a
case the price is a reasonable price at the time for delivery if
(b) the price is left to be agreed by the parties and they fail to agree

(4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or
agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to
do must pay their reasonable value at the time of delivery and the seller must return any portion of the price
paid on account.
• We are more willing to find a contract sooner if we look at intent to be bound

Determining the Scope of a Contract (What Does the Contract Mean)

Interpreting the Agreement

Who decides what the contract means?
1. Oral contract = jury decides
2. Written contract = judge decides
a. A judge will try to understand the context in which contract was made, and how a
reasonable person would interpret it

Language is inherently ambiguous

a. Differing intuitions on how much to privilege the "plain meaning" of a term as opposed to
vindicating the purpose of the term
b. REASONABLE COURTS DIFFER
i. Plain meaning: Some people look at the writing and decide what the
ambiguous word means based on its plain meaning

24
 ii. Purpose: Some people think the job of the court is to read the contract,
interpret what the parties were trying to say, and use those circumstances to determine what
the ambiguous word means
1. Example: Panera wants to stop competitors from taking business in lease, “no
other lessors who sell “sandwiches” lease to Mexican restaurant is a taco a
sandwich?
1. Plain meaning: dictionary definition a taco is NOT a sandwich
2. Purpose: contract intended to stop direct competitors, Mexican would be a
direct competitor a taco is a sandwich

There aren’t clear answers in most of these cases of interpretation and our job as attorney's is to interpret as best
we can and try and convince the court why your interpretation is the most reasonable
Hegel: Hegel took out insurance policy, covers “structural damage” caused by sinkhole activity. Hegels
discover physical damage to walls/floors. Policy did not define “structural damage.” Held: D is not liable
because damage was not significant enough. Structural must mean more than the dictionary definition of
“any damage to the structure of the building.” Has to compromise the buildings “structural” integrity.

Interpreting Contract Terms

i. § 2-202: Terms set forth in writing may be explained or supplemented by course of
dealing or usage of trade or by course of performance
a. § 1-303: Definitions of course of performance, course of dealing,
and usage of trade
Different scenarios - but we always start by reading the contract
1. Contract is silent on a matter
1. If we find agreement, fill out the contract with default rules
2. Contract does not specify damages, we use expectation
2. Evidence that Can Be Considered when there is Ambiguous Language in Contracts - (ambiguous on its face
OR after looking at outside evidence)
1. Course of Performance
1. Exists if the agreement of the parties involves repeated occasions for performance by a
party, and the other party accepts the performance without objections
2. UCC 2-202; 1-303(a), Restatement 2d 202(4)

25
 2. Course of Dealing
1. There have been previous transactions between the parties that established a common
basis of understanding for interpreting their terms
2. UCC 2-202; 1-303(b); Res. 202(5)
3. Trade Usage
1. What does the industry usually do with that ambiguous term
1. Comment 4: what matters is regularity of observance (does not have to be
“ancient or immemorial”) as suggested in Frigaliment
2. UCC 2-202; 1-303(c); Rest. 202(5)
4. Negotiation History
1. What did they say throughout negotiation that might point to what they meant by the
term
5. "Common Sense"
1. Which interpretation is the most reasonable
2. Posner

The first 3 are in a hierarchy; the rest is up to interpretation

BLACK WIDOW

Frigaliment: Two Ks, each selling two weights of birds. Issue concerning the age of the heavier type of
bird. Buyer wants to rely on trade usage to argue that “chicken” only includes young birds. Held: not
sufficient evidence for argument that trade usage created mutual understanding. Buyer was also a new
player in the industry, reasonable not to know trade terms. This was a case of latent ambiguity and thus no
contract

Trade Puffing:
Things on your website can be considered warranties if you phrase things as a factual statement and not an
opinion
• Trying to interpret, did you make a promise?

26
We still have our old line between statement of fact and statement of opinions
• Statement of facts become express warranties
• Statement of opinions are not warranties

Weber: buyer sued for breach of express warranties contained on website. Included comments such as
“excellent class A body panels, doors, etc.” Held: this is just trade puffing. Furthermore, Ps should have
understood what terms meant through repeated course of dealing.

Duty of Good Faith

Restatement 2d: § 205 Duty of Good Faith and Fair Dealing: Every contract imposes upon each party a duty of
good faith and fair dealing in its performance and its enforcement

a. Not expressly stated in the contract, but you expect your contracting opposite to act
fairly
1. A party wouldn’t enter into a contract if they believed the other party would not
act in good faith
b. The standard of good faith is ambiguous in contract law, but often based on a set of facts
you can argue one way or another
c. Limit on this duty:
1. Can’t cheat and lie
2. Hard-balling is allowed when creating a contract but probably not allowed during
contract execution
3. You don’t have to put the other parties interests over your own, but you can’t
advance your own interests by throwing them under the bus
Market Street: P 34 allows them to buy out of lease if lessor denies certain financing doesn’t mention the lease
when asking for financing financing denied and buys out lease
· Bad faith argument: Was Market Street not mentioning Paragraph 34 and going through the
motions required by the lease a strategic move to try and invoke the paragraph without lessor
knowing

27
 · To be good faith: all he would have had to say is "pursuant to our lease" - doesn’t have to tell
lessor they are planning on invoking paragraph 34 its lessor’s fault if they don’t look into their own
deals

Evidence Outside the Signed Agreement

The parties have created a written document that sets forth at least part of their agreement. There is an
argument by one side that the writing does not accurately reflect all that they agreed to. The other side claims
that it does.
1. Should the writing get special status? How important is the writing?
1. Because the parties went through the trouble of writing things down. We want to encourage
people to write things down. And when they do we are just going to look at the writing and
nothing outside.
2. Williston: one line of cases gives much importance to the writing
3. Corbin: another line of cases give some special status to the writing, but not much
2. Does the sophistication of the parties matter
1. $200M loan contract - probably everything should be written down
2. Parties just writing down a contract w/out a lawyer - might miss some stuff
3. Goes with our intuition, but is not a rule of law

Parol Evidence Rule

STEP 1: Is the contract integrated?
i. Do we have something in writing that the parties intended to be a final agreement to their deal
ii. RS § 209 / UCC 2-202
a. IF NO - all evidence comes in to see if we have mutual agreement and, if so,
what were its terms
b. IF YES – go to Step 2
STEP 2: Determine: Is the contract Partial or Complete
i. Complete Integration: determining that the written contract is a complete and exclusive
statement of the parties intended agreement
ii. Partial Integration: determining that the parties did not intend the written contract to be the
totality of the agreement

28
 iii. SPLIT ways to determine the integration
a. Williston: look at the writing and the context that the writings were made in but
you DO NOT consider the outside evidence of the additional promise that the party is
trying to introduce
1. Reading the contract, would you expect there to be additional terms
2. More likely to find complete integration
b. Corbin: look at the agreement AND look at the evidence that the party wants to
introduce
1. key is intent of the parties so you look at everything
2. Less likely to find complete integration
3. Restatement, UCC, and CA follow
STEP 3 : Determine What to Do With Outside Evidence
A. Partially Integrated Agreement: can introduce evidence of consistent additional terms
i. Terms CANNOT contradict what is in writing
ii. RS § 216, UCC § 2-202
B. Completely Integrated Agreement: if the outside evidence is WITHIN THE SCOPE OF THE
EXISTING CONTRACT, then you CANNOT admit it
i. If you want to admit the outside evidence when you have a completely integrated
contract you must show:
a. The outside agreement is collateral (outside) scope of the current contract:
1. Can be the same technical form, but it just has to be separated from the
complete written agreement
2. Must not contradict express or implied provisions of the written contract
3. It must be one that parties would not expect to appear in the contract
4. Must be distinct from the principal transaction
\b. OR that the contract was formed through fraud or mutual mistake

Mitchill v. Lath Lath’s farm sold for $8400 Ice house owed by Laths on adjacent property which they did not own
Contract for sale of land but not mention ice house Buyers allege an oral agreement for the Laths to remove ice
house
• Is there an integrated agreement (§ 209)
o YES

29
 ▪ Both Williston and Corbin would agree
• Is the agreement completely or partially integrated (§ 210)
o Williston: Completely
o Corbin: Harder to decide; could very well say it was only partially integrated
▪ Would look at the contract plus the whole testimony of the oral agreement to remove
the ice house
• IF Completely: Is the oral agreement to remove the ice house within the scope of the written agreement
(§ 213(b) )
o Majority and dissent disagree

Masterson v. Sine Masterson’s owned land. They sell it to Dallas’s sister and her husband, the Sines. Deed
gives Mastersons an option to repurchase at the same price anytime within the next ten years. Mastersons
file for bankruptcy and a trustee takes over the estate. Trustee wants to buy/sell land; Default rule for
options is that if you own it, you can sell it. Mastersons remember oral agreement that only they could
exercise the option, as they wanted to keep land within the family. Everyone agrees the oral agreement
happened.
1. Is there an integrated agreement (§ 209)
o YES
▪ Both Williston and Corbin would agree
2. Is the agreement completely or partially integrated (§ 210)
o Corbin: Partial
▪ Would look at the contract plus the whole testimony of the oral agreement
3. Is the term that the option is personal "inconsistent" with the written agreement? (§ 213(1) )
o No - See Comment b to § 216: “default rules do NOT make an additional term inconsistent”

Integration Clause: clause stating something along the lines of – “the agreement embodies the parties’ entire
understanding on the subject matter and superseded any prior understandings on the subject matter.”
· Aka, it is fully integrated and complete
End Line Investors: Negotiated to be collection agents for Wells Fargo. Claimed there was an oral agreement that
they would get all NJ debt collection actions. Written contract did not have such a provision, but it had an

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integration clause. Held: P cannot recover. Integration clause creates a strong presumption that written
agreement was complete. Since this was not a collateral agreement, PER prohibits external term.

NOTE: You can always use PE to show contract was induced by fraud

§ 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 (Section 1-205) or by course of performance (Section 2-208); 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 .
What did the parties intend?

§ 209 Integrated Agreements

(1) An integrated (we had an agreement and put it down on paper) agreement is a writing or writings constituting
a final expression of one or more terms of an agreement.

§ 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.
Is the contract or agreement complete?

§ 213 Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)

(1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.
If it contradicts the written, then it can't be considered
(2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its
scope.
Figure out the scope, and if the outside evidence is in that scope it can't be considered (should have been included
in writing)

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§ 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.
Yeah we wrote stuff down, but that's because we didn’t intend the whole thing to be written down
(2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is
(a) agreed to for separate consideration, or
(b) such a term as in the circumstances might naturally be omitted from the writing.

Relieving a Party From a Promise That It Made

Misrepresentation and Obligation to Disclose

A. General rule is there is NO affirmative duty to disclose
B. BUT – you can’t lie
i. Policy: Because if someone has a really good idea and we make them disclose all those
ideas - you would be lowering the ideas value - and parties are less likely to create that value in
the first place (why do anything when you won't be able to reap the benefits)
ii. Walt Disney Hypo:
a. The walt disney company wanted to build a theme park in the middle of orange
fields in Florida
b. It bought land from farmers but did not disclose that the land would be used for
the theme park
c. They had an agents go to the farm and didn’t tell agents what
the land would be used for, that way they didn’t lie
d. The farmers sued to void the sales based on the theory of
misrepresentation and a duty to disclose
1. NO CASE, Disney had no affirmative duty to disclose and they did not lie
so the farmers have no case
Exceptions to General Rule: When A Failure to Disclose Can Be Treated as Misrepresentation
A. § 264(1): No duty to disclose but contract is voidable if a party fraudulently misrepresents or lies
i. Laidlaw v. Organ: Organ purchases tobacco day before embargo is removed and thus
tobacco prices will rise. Organ knew that the embargo was being removed, Laidlaw did not.

32
 a. If Organ lied and said he did not know if the embargo would be removed contract
is void
b. If Organ just did not disclose his knowledge contract is enforceable
B. §161: A person’s non-disclosure of a fact known to him is equivalent to an assertion that the fact does
not exist (misrepresentation) when:
(a) The party made a statement that was true at the time, that they find out later was wrong, that
statement will be treated as a warranty and if the party does not disclose the contract can be
voided
a. Example: Let’s say you go to buy a house and you believe that there is no oil
under the house and you say as much to the seller. Then you find out there is oil. Your
later knowledge had turned your prior statement false . You now have to disclose that
you were wrong
(b) It would correct a mistaken assumption on which the other party is making the contract and if
non-disclosure of the fact would be bad-faith and violate reasonable standards of fair dealing
b. Up for debate, but look to equal access to information to determine
c. If you are in possession of an item or property that you are in a better position to
know, you may have a duty to disclose information you know about and that are not
obvious
1. Example: Termites when selling a house: If you know and don’t disclose,
your silence is treated as a representation that there are no termites and when
they are discovered the buyer may void the contract on your misrepresentation
(c) Where the other person is entitled to know the fact because of a relation of trust and
confidence between them.
1. Jackson v. Seymour – court found that a brother / sister relationship created a
duty to disclose

Remedies to Misrepresentation:
3 Distinct Legal Theories:
1. Misrepresentation that renders the contract voidable (Restatement § 159 - 173)
1. Remedy is rescission (no valid contract)
2. Recover under restitution

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 § 162 When a Misrepresentation Is Fraudulent or Material
(1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent
and the maker
(a) knows or believes that the assertion is not in accord with the facts, or
(b) does not have the confidence that he states or implies in the truth of the assertion,
(2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or
if the maker knows that it would be likely to induce the recipient to do so.

§ 164 When a Misrepresentation Makes a Contract Voidable

(1) If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the
other party upon which the recipient is justified in relying, the contract is voidable by the recipient.

2.
Tort of misrepresentation
1. Remedy is tort damages
1. Reliance damages
2. Put me where I was before you lied to me

§ 2-313. Express Warranties by Affirmation, Promise, Description, Sample.

(1) Express warranties by the seller are created as follows:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and
becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the
affirmation or promise.
• If it turns out its false you get expectation damages

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 (b) Any description of the goods which is made part of the basis of the bargain creates an express
warranty that the goods shall conform to the description.

3.
Breach of promise / warranty
1. Plaintiffs cannot collect from Defendants for innocent misrepresentations. However, some
courts will use UCC 2-313(1) to turn such misrepresentations into express warranties, thus
allowing plaintiffs to collect expectation damages.
2. Treating a statement of fact as a promise to be enforced
3. Remedy is expectation damages
Johnson v. Healy: John Healy (defendant) built and sold a new one-family house to Ronald Johnson (defendant)
· On inquiry about the quality of the construction the defendant had responded by stating that it
was "made of the best material" (opinion) that "he had built it" (statement of fact) and there was
"nothing wrong with it" (this could be an opinion or statement of fact)
o Plaintiff WAS NOT trying to void the deal not going for fraudulent misrepresentation
o Breach of Warranty: If you treat "nothing wrong with it" as a statement of fact, then you get
breach of warranty

General idea is you cannot recover under fraudulent misrepresentation for false opinions …

§ 168 Reliance on Assertions of Opinion

(1) An assertion is one of opinion if it expresses only a belief, without certainty, as to the existence of a fact or
expresses only a judgment as to quality, value, authenticity, or similar matters.
(2) If it is reasonable to do so, the recipient of an assertion of a person's opinion as to facts not disclosed and
not otherwise known to the recipient may properly interpret it as an assertion
(a) that the facts known to that person are not incompatible with his opinion, or

35
 (b) that he knows facts sufficient to justify him in forming it.

Choose which one to bring based off what your client wanted – do they want the contract voided? Or do they just
want damages?

Mutual and Unilateral Mistake

Mutual Mistake:
• Both think something is true, but it wasn't
o Mistaken about the same thing
• Raffles (Peerless) is not about mutual mistake because they were talking about two different things -
didn’t both think something was one way and were wrong about it

§ 152 When Mistake of Both Parties Makes a Contract Voidable

If a mutual mistake was made as to a basic assumption of the contract and has and has a material effect on
agreed exchange of performance, contract is voiable by adversely affected party, unless he bears the risk of loss
§ 154 When a Party Bears the Risk of a Mistake
A. Contract expressly says so
B. The party is aware, at the time the contract was made, that they only had limited knowledge in
respect to the facts to which the mistake relates but treats his limited knowledge as sufficient
C. The risk is allocated to him by a court because it is reasonable to do so

Sherwood: Barren cow sold, but later found to be pregnant; mutual mistake so right to rescind.
TODAY: the owner is in the best position to know the cow is barren (discover the mistake) and thus they should
bear the risk

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Eisenberg: Eisenberg purchased a bust and statue from Hall on assumption they were either Roman or Etruscan,
but both were forgeries. Eisenber sues for rescission. Held: NO mutual mistake Eisenberg was an expert A party
may not invoke the doctrine of mutual mistake if he, through the exercise of ordinary care, should have known or
could have easily ascertained the relevant information.

When is it reasonable to assign the risk to a party under § 154?

A. Kull: its is never reasonable to do so if the contract does not allocate the risk. Don’t waste societal
resources
i. Thus Sherwood got it right, as court did not get into business of determing who bore the
risk and left things as they stood.
B. Posner: we want to create incentives to avoid loss. Therefore, risk of loss should be placed on the
party best able to know true state of affairs (usually the seller/ party in posession)
i. Thus Sherwood may have gotten it wrong, as the seller is likely the party best able to
know the true state of the cow

Unilateral Mistake
§ 153: A party may void a contract for a mistake they made UNILATERALLY, if the mistake was to a basic
assumption to a material part of the contract, and the party has not bore the risk of mistake expressly in the
contract,
AND
· The party can show that enforcing the contract would be unconscionable, OR
· The other party had reason to know of the mistake or was the cause of the mistake

Elsinore Union Elementary School Dist. v. Kastorff

• General makes error in computing its bid
• Error results in underestimating the bid by $9.5k
• General lets School board know about the mistake and withdrew his bid before they awarded anyone the
contract but they award it to him anyways
• It would be unconscionable to hold them to their mistake when the school board knew of the mistake
before awarding the contract

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Justification for Non-Performance – Impracticability and Frustration of Purpose

A. Impracticability : Courts are hesitant to go beyond these three exceptions to excuse a contract for
“impracticability” its just a fact of life that unanticipated things happen
Three NARROW EXCEPTIONS Where a Court Will Discharge Remaining Obligations Under a Contract:
In contracts in which the performance depends on the continued existence of a given person or thing, a condition
is implied that the impossibility of performance arising from the perishing or destruction of the person or thing
shall excuse the performance
1. Death of a party necessary to a contract (§ 262)
1. Hypo I: H and R contract, under which H agrees to give singing lessons to R’s daughter. The K
price is $400. H dies. Can R recover against H’s estate?
2. No, H died and his existence was necessary to the performance of the K
3. Hypo II: Same as Hypo I, except R dies and daughter is too sad to take lessons. Can H recover
from R’s estate?
4. Yes, R’s existence was not necessary to the performance of the K
2. Law or regulation by government prevents performance of a contract (§ 264)
3. Destruction of an item or structure necessary to performance of the contract without fault of either
party (§263)
1. Taylor v. Caldwell: Taylor signs contract with Caldwell to use music hall
for four concerts. Hall is destroyed by fire without fault of either party. Taylor
had spent money in preparation for concert, sues for reliance damages. Held:
Court says Taylor cannot recover, as there is an implied condition that the parties
shall be excused if performance becomes impossible

More General Rule of Impractiability

a. §261: A party makes out a defense of impracticability when it shows that:
(1) There was an unexpected occurrence of an intervening act
(2) The occurrence was of such a character that its non-occurrence was a basic assumption
(3) That occurrence made performance impracticable without any fault to the parties
b. In spite of more general definition, courts are unlikely to go beyond traditional 3
scenarios + frustration of purpose, as contracts are meant to be inherently risky

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Foreseeability of Impracticability:
Foreseeability is a factor in determining whether the non-occurrence of an event was a basic assumption;
however, absolute foreseeability is not required, nor is it the only factor in determining whether an
impracticability argument can stand.
• Foreseeability is not defined by the likelihood of an event occurring, but whether a reasonable person
would plan for it. When an occurrence is seen as foreseeable in this sense, courts are not likely to accept
an impracticability defense as they expect parties to have contracted this possibility in

Wolf Trap: Opera company to perform at Wolf Trap outdoor performance hall. Power goes out due to storm. WT
cancels performance. Opera Company sues, seeking expectation damages. It's easy to say that performance of
the contract is impracticable on the part of Wolf Trap but the court is going to say "we think you took the risk of
this event happening and should have added it to the contract" risk falls on the party whos is paying

World of Boxing: King contracted by WOB to produce Guillermo Jones for fight. Jones had history of drug
abuse. Test positive for drugs, not allowed to fight. WOB sues King. King argues it was not foreseeable that
Jones would be stupid enough to test positive again. The court holds foreseeability is not defined by whether
King foresaw Jones testing positive, but whether a reasonable person would plan for it. By not having a force
majeur clause in the K, King was assuming the risk of Jones testing positive.

Force Majeur clauses relieve a party of the obligation to perform their contractual obligations when certain event
beyond their control arise. However, they relieve the counterparty of its obligations as well.

Facto v. Pantagis: Facto contracted with Pantagis to provide banquet hall for wedding reception. The power went
out, and reception ended early. Facto sued for breach of contract, seeking reliance damages. Facto receives no
damages due to force majeur clause. However, Facto does not have to pay since he was relieved of obligations as
well.
B. Frustration of Purpose
· You can still perform the contract, but the underlying reason for the contract has disappeared
· Courts put a high burden on frustration of purpose – you need TOTAL frustration
o It’s a fact of life that things change – not going to get you out of your contract
§265: A party makes out a defense for frustration of purpose if
· There was an unexpected occurrence

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 · The non-occurrence of which was a basic assumption
· That substantially frustrated the party’s performance without fault to the party
Krell v. Henry: Henry and Krell enter into K in which Henry was to pay 75 pounds to Krell for room in which he
could view coronation. Henry paid 25 pounds in advance. Before remaining 50 was due, coronation was
cancelled. Krell sues Henry, seeking the remaining 50. The court held that the K’s underlying purpose was
TOTALLY FRUSTRATED to the point where it could be void.

Example Case: Owner leased land to tenant Owner knew tenant was going to use the land to sell new cars WWII -
the government takes over all manufacturing and no new cars are available for sale Lessee says to Lessor "My
purpose has been frustrated so I don't want to pay rent" NO TOTAL FRUSTRATION, they could have sold used cars
or done repairs. Contracts is about assigning risk and this is just a risk you took

C. Remedies for Impracticability and Frustration of Purpose

i. For obligations going forward: if one side does not have to provide it, you don't have to pay
a. Krell v. Henry: Krell does not have to pay the remaining $ to Henry
ii. Restitution (For obligations paid in advanced) To the extent one party has conferred benefit to the
other party, they can recover that benefit under restitution
a. Facto v. Pantagis: What about Facto's prepayment and Pantagis providing the hall before the
power outage? Facto can recover under Restitution, BUT DEDUCT from what is owed in restitution the BENEFIT
Pantagis provided to the party seeking restitution
b. Krell v. Henry: Krell can recover his deposit under restitution
iii. No contract theory for recover – NO recovery for reliance – contract has been voided
a. Insurance covers this a lot now

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 Restatement § 175 When Duress by Threat Makes a Contract Voidable
(1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the
victim no reasonable alternative, the contract is voidable by the victim.

Restatement § 176 When a Threat Is Improper

(1) A threat is improper if
(a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in
obtaining property,
(b) what is threatened is a criminal prosecution,
(c) what is threatened is the use of civil process and the threat is made in bad faith, or
• I don't like the way you're looking at me so im gonna sue you for NIED , its gonna be expensive and
tiresome, so you should just give me $2000 and I won't sue
(d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient.
(2) A threat is improper if the resulting exchange is not on fair terms, and
• Only let a party out when the terms are unfair
(a) the threatened act would harm the recipient and would not significantly benefit the party making the
threat,
(b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by
prior unfair dealing by the party making the threat, or
(c) what is threatened is otherwise a use of power for illegitimate ends.

Duress An improper threat that leaves the other party with no reasonable alternative

Factors of Duress (§175(1)): if these factors are met the contract is voidable by the victim
1. There must be an improper threat
2. The threat must be made by the counterparty
3. The threat must leave the party claiming duress with no meaningful alternative

A threat is improper if §176:

4. A crime or tort
5. Threatening criminal prosecution

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 6. Threatening a civil suit in bad faith
7. Breach of duty of good faith under the contract
176(2): a threat is improper if the resulting exchange is not on fair terms, AND
1. threat would harm recipient and not significantly benefit threater, the threat is use of power for
illegit ends

A. So long as YOU ARE NOT THE ONE CAUSING THE DURESS - you can drive a hard bargain in a
contract when you have an advantage
a. Batsakis v. Demotsis: Demotsis promises to pay $2k at 8% interest at end of war in
exchange for 500k drachmas (worth $25) to Batsakis. Demotsis claims she was under duress
resulting from war. No duress – the war was the one causing duress NOT Batsakis
· ALSO: Courts are not going to scrutinize the substance of the exchange under the
doctrine of consideration parties made their choices, and this really wasn’t a bad deal
($25 was life and death at the time)
b. Zuckerman v. The Met: Leffman’s owned significant assets. Nazis forced sale of house,
business, and real estate to entity of gov. Zuckerman’s keep Picasso painting, sell it for less then
it was worth to in Switzerland get out of Europe. Although they were under duress, the court
held they could not recover because the duress was not inflicted upon them by the counterparty

Coercive Renegotiation
Contract Modification / Renegotiation: One party is attempting to claim that their consent to the renegotiation
was a product of duress
UCC MODIFICATION

§ 2-209. Modification, Rescission and Waiver.

(1) An agreement modifying a contract within this Article needs no consideration to be binding (so long as it is
modified in good faith)

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 § 89 Modification of Executory Contract
A promise modifying a duty under a contract not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the
contract was made
• If we put together 176(1)(a) and §89
o We are not going to enforce promises that are renegotiating a deal if it is a breach of good faith
o HOWEVER - if there is a chance in negotiations of a deal because of a change of circumstances
and the renegotiation is in good faith, we ARE going to enforce it

Must be a good faith change of renegotiation: which is hard to determine

NO ONE LOOKS AT CONSIDERATION ANYMORE to determine whether a renegotiation should be enforceable
• THE QUESTION IN THESE DURESS CASES IS
1. Is the renegotiation an opportunistic taking advantage of another party?
2. Is there a change of circumstances that causes a need for the change of negotiation?
• The party who is arguing duress has to show it doesn’t have a reasonable alternative

Problem: it is hard to determine if a party is behaving opportunistically or if there really was a necessary change in
circumstances -

Alaska Packers: Alaska Packers was fish trust. Contract fishermen for $50 plus 2 cents per fish. Fisherman arrive
in Alaska. Demand new K for $100 plus two cents a fish. AP agreed b/c they could not get other workers
there. no reasonable alternative for fisherman and thus it was opportunistic, OR
we can tell a story about how the nets the fisherman were given were different nets than expected, and thus they
have to work harder and thus require more money = change in circumstances
THIS CASE shows us that it is easy to change the interpretation of a situation to go either way

Austin v. Loral: Loral receives $6 million K from Navy. Austin receives a subK for 23 parts out of 40. Loral receives
a second K from the Navy. Austin wanted to be subK’d for all 40 parts in the second K. Austin then threatened
that if it did not receive subK for all 40 parts and an increase in price for the parts in the first K, it would cease
delivering the parts under the first K. Loral seeks alternatives, but can’t find any.

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Austin recognizes this and uses their vulnerable position to force renegotiation that extracts value from Lorell.
Court finds this is economic duress.
Austin made a predication in bidding for the contract and that prediction turned out to be wrong. However, the
increases we so large and unexpected that Austin would go out of business if they continued to buy and sell these
parts at these prices. Won't help us or you - because they won't be able to complete the contract, thus it could be
mutually beneficially to renegotiate due to the change in circumstances.

Merry Gentleman: Dispute over which cut to be shown at Sundance. K gave right to MG to decide, at least
according to MG. Keaton threatens not to go to Sundance if his cut is not shown. Court held this was economic
duress. Keaton was contractually obligated to go to Sundance, and once he refused, MG had no choice but to
renegotiate.

Unconscionability: generally recognized to include an absence of meaningful choice on the part of one of the
parties together with contract terms which are unreasonably favorable to the other party
• DOCTRINE OF LAST RESORT - run through everything else before applying unconscionability.

A contract can be unconscionable either through its procedure or substance, and courts look at this on a sliding
scale:
1. Procedural Unconscionability :
1. A contract is procedurally unconscionable if it was negotiated in an unfair way (e.g., if one party
had no real ability to negotiate the terms and/or the negotiation process meant that one side was
surprised to later learn the actual contract terms).
1. Oppression (unequal bargaining power) and surprise (challenged terms are hidden)
Substantive Unconscionability:
. A contract is substantively unconscionable if it contains significantly unfair terms.
1. However, by itself, the fact that a contract reflects a bad bargain with terms that favor
one side is not enough to show substantive unconscionability.
2. Rather, substantive unconscionability means that the contract contains terms that are
unreasonably unfair and one-sided in favor of the stronger party without a justification
for the one-sidedness.

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Waters - Waters had a 25 year annuity policy → Policy would pay $694,000 over life of policy; $27,760 per year if
constant payments → at the request of her boyfriend, Waters sold policy to defendants for $50,000, of which she
received $18,000 → The court in Waters turns first to unconscionability
1. Procedure - boyfriend didn’t tell her he was working with the buyers, signed on hood of a car
2. Substance - 50k for something worth 160k in that moment
3. MOST COURTS would have struck down this case on MISREPRESENTATION first
1. Boyfriend never disclosed with his gf (who he had confidential relationship) that he was
working with the buyers

Performing the Promise

Interdependence of a Promise
When the contract is silent as to when a party has to perform, how do we decide the Fance?
1. Circumstances will help indicate if a promise was meant to be independent or conditional
1. When one parties performance takes time and the other does not, and the contract is silent, the
person who's performance takes time has to perform first
2. Price v. Van Lint: Van Lint had to perform on a certain day per contract, but Price did not per
contract (loan money / get deed back from overseas)
1. Price's performance was to provide the mortgage - thus, Price's performance was
dependent on when he received the deed; if he had deed when Van Lint was to perform,
he must provide it or Van Lint could default.
2. But, since he was still waiting on the deed and both knew when writing the contract that
performance may not be possible until AFTER Van Lint’s performance came due, he could
not default
3. Promises are independent, not conditional
If you look at the circumstances and can't decide, look at default rules in Restatement § 234
. When contract is silent and parties can perform at the same time, performance is due at the same time
(but you can always contract around this)
a. We will assume that the contract requires them to do the exchange simultaneously if they can

When one party totally fails to perform its promise under a bilateral contract, how does this affect the duty of the
other party to perform its promise?
1. Restatement § 238:

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 1. When two performances are due simultaneously, it is a CONDITION of each parties duties that
the other party will perform, and if one party can not perform, the other parties duties are
discharged
2. § 224 Condition Defined: A condition is an event, not certain to occur, which must occur, unless its non-
occurrence is excused, before performance under a contract becomes due.
1. When one party’s performance under a contract is dependent on the prior performance of the
other party, the other party’s performance is a condition precedent and performance will be
excused unless the condition is satisfied
1. Kingston v. Preston: Preston's duty to sell his business is conditioned on Kingston either
rendering or showing he can give the sufficient security that he promised. If that
condition precedent is not met, Preston has no duty to perform his promise to sell the
business.
2. Addie v. Kjaer: contract to sell virgin islands. Simultaneous exchange but the date of
closing comes and goes and neither party is ready to perform. Thus neither side has any
obligation to complete their promise.
Dependent promises- you can only seek to recover what the other side promised you if you are willing and able to
do what you promised the other side; dependent promises are conditioned on each other

1. Dependency is a problem of bilateral contracts

2. Ex. Kingston: transfer of the business was dependent on Kingston satisfying the condition of
providing “security” to prove he could pay; he never gave security so NOT required to sell his business
shows §238

Independent promises: are not conditioned on each other

1. Ex. Price v. Van Lint: exchange of $1500 for a mortgage from the Netherlands 1500 was due Feb 1
but contract did NOT say when mortgage was to be conveyed so promises were independent (this is
implied from circumstances)

BREACH - When one party partially fails to perform what is the effect on the contract when the contract DOES
NOT SPECIFY what the effect should be?

Restatement § 235

1. Full performance of a duty under a contract discharges the duty.

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 2. When performance of a duty under a contract is due any non-performance is a breach.

What happens next depends on if the breach was a material breach or a partial breach
1. Has there been a breach of contract
a. No - continue to perform
b. Yes →
2. Using the factors laid out § 241, decide if breach is a material failure
3. § 241: In determining whether a failure to render or to offer performance is material, the following
circumstances are significant:
a. Was the injured party deprived of a benefit he reasonably expected?
b. Can the injured party be compensated for the part of that benefit of which he will be deprived?
c. The extent the non-performing party will suffer forfeiture
d. The likelihood the non-performing party can cure
e. The extent the non-performing party has been acting in good faith
4. No material failure → there was substantial performance → the breach is partial and both sides continue
with performance of the contract (can be remedies for the breach but contract can’t be terminated)
5. Yes, there was a material failure →
6. Is the material failure a total material breach or a partial material breach
a. Partial Material Breach: there is an opportunity for cure
1. Both parties continue under the contract
2. Non-breaching party can still sue for damages
b. Total Material Breach: only way to be relieved of performance → if you have given a right to cure
and they have not
i. HOWEVER, must give the right to cure
1. If there is a chance to cure then you MUST declare the breach partial and give
them the opportunity to cure
2. If you don’t (if you mistakenly call the breach total) then YOU will be the one in
breach
ii. If there is NO CHANCE TO CURE, then you can declare it total breach and the non-
breaching party will be relieved of their performance
1. The court will decide if the party was correct in deciding there was no chance to
cure

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 iii. Breaching party can recover for benefit given under restitution

Express Conditions
• Express term in the contract - we may have to interpret that it was a condition but the verbiage was
expressly there

Determining if something is a Condition v. Something Else We have a preference for treating ambiguous language
as not a condition (§ 227)
• Express Conditions are harsh - there is NO doctrine of substantial performance
o If the condition is not performed, then the contract is void and there is no ability to sue for
damages
o “If” - “when” - “after” - “as soon as”
• If we treat the language as something else other than a condition (i.e. a promise, or a timing mechanism)
we may still be able to get performance

§ 227 Standards of Preference with Regard to Conditions

(1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature
of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the
event is within the obligee's control or the circumstances indicate that he has assumed the risk.
• We don’t want to make the pay when pay clause a condition, because that would increase the risk of the
sub’s forfeiture
Example: Pay When Paid Clauses
1. If the generals obligation to pay the sub is conditioned on being paid by the owner, if the general is not
paid by the owner the sub isn't paid at all
2. If it is not a condition and just a timing mechanism, then the sub will still get paid by the general even if
the general is not paid (normally, this is the route we take with these clauses)
3. If we treat it as a promise, then we treat non-occurrence as a breach
1. Material --> other party can walk away
2. Not material --> party must still perform

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Smucker Co. Lease for a two year term with automatic renewal every year for four years. To call off the renewal,
Smucker had to provide written notice of cancellation by January 1. Smucker sends cancellation notice to the
wrong address, gets there on January 4.
• Any harm to lessor?
o No, 176 v 180 days to find a new tenant
• What if notice provision was a promise?
o Smuckers substantially performed , and thus as a PROMISE - this is NOT a material failure, and
thus the notice is effective, Smuckers is out of the lease.
• What if a provision is a condition?
o No doctrine of substantial performance in express conditions
o Thus, the notice has NOT been complied with and the notice is not effective - Smucker stays in
the lease
• Here, the court says that the provision was a condition because Smucker had an option contract (ability
to terminate) and court says timing provisions in contracts are conditions
o Minor non-compliance of a condition and you can lose your rights.. How do we mitigate this
harshness?

How Can We Relieve the Harshness of Conditions:

1. Doctrine of Prevention § 245
1. When one party prevents the condition from occurring, performance of that condition is excused
Restatement § 245: Where a party's breach by non-performance contributes materially to the non-occurrence of
a condition of one of his duties, the non-occurrence is excused.
b. Cox v. SNAP: Cox received stock as payment, contract also included a put option allowing Cox to
require SNAP to buy back the stock. SNAP never provided stock. SNAP argues the put option was
conditioned upon them issuing the stock thus they are excused. → DOCTRINE OF PREVENTION:
SNAP’s breach of not issuing the stock options contributed materially to the failure of Cox to have
stock options to tender in order to exercise his put, the non-occurrence of the condition is
excused. → SNAP must pay Cox out for the put options

2. Doctrine of Impracticability § 271

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 a. Condition is excused when it is impracticable to perform the condition and the condition is not a
material part of the contract and forfeiture would otherwise result
i. When we get out of a condition for impracticability it is only going to benefit one side
ii. Government order
Example: Civil War Insurance Cases
I. Everyone agreed it was a condition of recovery under the insurance policy to give the insurance
companies notice
a. If before the time notice was required the civil war broke out, the condition is relieved for
impracticability
II. Everyone ALSO agreed it was a condition of recovery under the insurance policy to paying premiums
a. Other insurers could not submit premiums to the insurance companies
b. The payment of the premiums was a material part of the insurance contract and thus that
condition cannot be relieved for impracticability

3. Disproportionate Forfeiture § 229

1) If the performance of the condition would result in disproportionate forfeiture and thus the best option is to
get rid of the condition UNLESS that condition is a material part of the contract
a) Courts are split on if they follow - controversial
2) Craven: did not give prompt notice to insurance company about injuries and thus was going to recover
nothing for medical bills she paid. → could argue disproportionate forfeiture. If she didn’t recover she would
suffer forfeiture by not being able to recover for premiums paid under her policy.

4. Waiver or Estoppel
a. If one party waives the occurrence of the condition OR says something that makes the other
party rely on the non-occurrence of the condition, then that condition can be excused.
b. What is the difference between Estoppel and Waiver
i. Estoppel, we need reliance
1. Less clarity than waiver
2. “You led me to believe this”
ii. Waiver, you need a statement saying you are giving up a right (Knowing Relinquishment)

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 1. Clear statement that the party is not going to enforce the condition
2. “You told me this”
c. You can have BOTH: Waive your right to a condition and there is estoppel if we find reliance on
that waiver
d. You generally can undo / retract a waiver
i. You can’t wait until after the original condition time frame has passed
ii. But you still have to worry about estoppel
1. If a party prove reliance to a detriment and a change of performance because of
reliance on that waiver of the condition then the waiver CANNOT be retracted

Protecting the Exchange on Breach

SUBSTANTIAL PERFORMANCE (outside UCC)

When there is a breach outside the sale of goods, and the party in breach wants to recover on the contract, we
have to decide – is it material breach or not (aka, was there substantial performance)

What Counts as Substantial Performance?

1. § 241 Factors Test: “How bad is the breach from the perspective of the non-breaching party?”
1. Is the non-breaching party getting what they wanted out of the contract?
2. Can the non-breaching party be made whole through damages?
Strouth v. Pools by Murphy: Almond v. kidney shaped pool - is this a material breach? → can go either way → you
contracted for a pool and got a pool, that is substantial performance OR you contracted for a certain shape pool
and got a completely different shape, that is a material breach
• Strouth kicked Murphy off the project during performance - is this a breach?
o If the shape of the pool was a material failure with no ability to cure → Strouth had a right to kick
Murphy off the contract
o If the shape of the pool was NOT a material failure and thus was substantial performance →
Strouth would have made the first material breach by kicking Murphy off the contract and
Murphy could fully recover

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If you determine, under § 241, there is Substantial Performance (no uncured material breach), the breaching
party CAN recover for benefits provided under the contract
a. BUT that party is still liable for breach to the extent that it has not fulfilled its obligations under the
contract
b. NOT A DEFENSE! You are still in breach even if you can recover

If you determine, under § 241 there is NOT Substantial Performance

1. There is an “uncured material failure” and under Restatement § 237 the party CANNOT recover under the
contract
2. Only theory for recovery is restitution
1. Only can recover benefit conferred onto the non-breaching party
1. Strouth:
1. If they filled in the pool with cement because they said they just CAN’T have an
almond shaped pool
1. The pool builder recovers NOTHING because it gave Strouth NO value
2. If they left as in and a new contractor finished the job
1. Can recover for what they paid to get the pool to where it was for the
new contractor to complete

Repudiation : A repudiation occurs when, before a party's performance under a contract becomes due, that
party REPUDIATES the contract
§ 250: A repudiation is
(a) a statement by a party to the other party indicating that they will commit a breach that would of itself give the
other party a claim for damages for total breach, or
1. In order to constitute repudiation, a party's language must be sufficiently positive to be reasonably
interpreted to mean that the party will not or cannot perform
a. Common law says that to be a repudiation it has to be ABSOLUTELY CLEAR that there is a revocation
b. VERY NARROW: A statement that "I don’t know if I can perform as is" is NOT a repudiation
(b) a party takes affirmative actions which make it clear that the party is unable or apparently unable to perform
• In order to constitute repudiation, a party's act must be both voluntary and affirmative, and must make it
actually or apparently impossible for them to perform

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Repudiation = total breach → the non-repudiating party is off the hook for their obligations AND they can sue for
full damages under the contract (Restatement § 253)

Doctrine of Adequate Assurances (§ 251): when a party has reasonable grounds to be insecure about the other
parties performance, they have the RIGHT to request the party provide adequate assurances that they can and
will perform
1. If the party does not receive assurance the other party will perform, that is grounds for anticipatory
repudiation (aka, not performing your side of the bargain because you know the other side can't perform)
2. Party has “reasonable time” to provide assurances
3. Under UCC - request for assurances muse be in writing and no more than 30 days
4. PROBLEM: what is “reasonable grounds” and what constitutes an “assurance”
a. “I’ll do my best” → reasonable courts could differ

Failure Justified by Impracticability or Frustration (§ 268)

1. If you think they a party is not going to perform and that non performance would be excused, then the
same rules apply
2. If the party CLEARLY SAYS we are not performing because it is IMPOSSIBLE, it is not a repudiation under §
253 (because it would have to be a breach)
3. BUT you can use § 251 - it is a clear statement that they are not going to perform - and you are excused
from your performance as well

UCC LAND: Perfect Tender Rule : How the UCC deals with Non or Partial Performance
There is no doctrine of substantial performance in the sale of goods
1. If a party receives goods and those goods do not comport with the contract in ANY way, no matter how
trivial, the buyer has the RIGHT to reject the goods in good faith (UCC § 2-601)
2. Rejection must be within a reasonable time of receiving the goods and must include notifying the seller
(UCC § 2-602)
3. Also, you MUST tell the seller why you are rejecting the goods within reasonable time or else you cannot
rely on that rejection (UCC § 2-605)
4. If the goods are rejected, the seller has a right to cure (UCC § 2-508)
a. If the time has not run on the contract → pure right to cure
b. If the time has run → reasonable time to cure UNLESS the good is extremely time sensitive

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 5. BEFORE ACCEPTANCE, buyer can reject within the above parameters
6. Acceptance: you accept the goods when you don’t make an effective objection within a reasonable time
(UCC § 2-606)
7. AFTER ACCEPTANCE: much harder to back out of the deal
1. Implied Warranty of Merchantability: You can always recover under warranty action if the goods
don’t conform to the contract
1. Recover the difference between the value of the goods received and the value of the
goods as warranted (UCC § 2-714)
b. In order to revoke an acceptance you must prove: (UCC § 2-608)
1. That the buyer did not know about the defect upon acceptance,
2. Could not have found out about it with a better inspection at acceptance, and
3. The defect substantially impairs its value to the buyer

How do we alleviate the harshness of the perfect tender rule?

1. Duty of good faith
1. Bad faith = you just want out of a contract (don’t wanna pay, market price has gone down)
2. Courts can sometimes find, without explicit statements, that these are the reasons you are
getting out, based on surrounding circumstances (know the buyer is broke, etc.)
2. Cure under 2-508
1. Buyer must tell seller why they are rejecting
2. Seller has chance to cure within the contract time
3. If outside of the contract time, AND THE DATE IS NOT IMPORTANT, and the seller is able to cure
reasonably quickly, we will allow them to do this

MODIFICATIONS IN UCC LAND:

1. Consideration is irrelevant for modifications in UCC land

2. All you look at is whether the modification was made in good faith

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DAMAGES (WHAT ARE THE REMEDIES FOR BREACH?)
• Variable costs: costs incurred ONLY because of the contract
o When a contract is repudiated, you don’t have to spend the variable costs
• Fixed costs: costs you incur regardless of contract (insurance, paying CEO, etc.)
o Whole point of fixed costs is you will still incur them DESPITE the breach

A. EXPECTATION DAMAGES:
a. Put the non-breaching party in as good a position as he would have been had the contract been
performed without breach
i. When a contract is breached→ always look to expectation damages for remedy
ii. Ex. Hawkins v. McGee : difference between the “100% perfect hand” promised and
the hand he got
b. Basic Measurement:
i. (value of contract as fully performed) – (actual value of present condition)

Restatement 2d §347: Measure of Damages in General

The injured party has a right to damages based on his expectation interest as measured by
a) the loss in the value to him of the other party's performance caused by its
failure or deficiency, plus
b) any other loss, including incidental or consequential loss, caused by
the breach, less
c) any cost or other loss that he has avoided by not having to perform.

c. Measurement: For defective / unfinished construction where loss is not definitely measured:
Restatement 2d §348(2):
If a breach results in defective or unfinished construction and the loss in value is not proved with
sufficient certainty, he may recover damages based on:
a) the diminution in market price of the property caused by the breach, OR
b) the cost of completing performance or fixing the defects, UNLESS that cost is
clearly disproportionate to the probable loss in value
i. EXAM: Ras said §348 is one of the sections you should cite

Personal Value as an effect on reasonable measure of damages in construction cases

a) Look to the personal value of the performance to the non-breaching party
1. Low personal value = diminution in market value
2. High personal value = cost of completion
b) Subjective value of the non-breaching party must have been made clear

1. The “diminution in the market value” of the property caused by breach as damages (the floor)
a. Ex. Peevyhouse: (low personal value) : Wrongly decided BUT - a lease to allow coal removal from
Peevyhouse farm land as long property was restored back to its original state; property was not
restored but the restoration would only increase market property value by $300
a. Courts decided low personal value → diminution property value → damages = $300

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 2. The “reasonable cost of completing performance” (or of remedying the defects) as damages (the
ceiling)
a. Ex. Landis: (high personal value): → couple really wanted the house to have Allagash color paneling
but the contractors kept messing up; got damages to remedy the defects → reasonable minds can
differ on whether they should get cost of putting correct paint on house

3. Non-breaching party can choose which measure they prefer UNLESS the cost of completion would be
disproportionate to the value of full performance
b. Economic waste principal: owner is entitled to the cost of fixing the defect unless the solution is
economically wasteful

In UCC Land:
A. Contract law encourages self-help – buyer can cover and seller can resell
B. If you are a buyer and the seller breaches, you can go out and get a cover (replacement) contract and
court will give damages based off the difference between the replacement contract and the breached
contract
i. As long as it’s reasonable and in good faith
ii. No duty to cover, but you have the right to get damages based off that contract if you do
1. It doesn’t matter if the cover was not the cheapest option available, you can still
get the damages off of it if it was in good faith
a. Using a long time supplier to ensure delivery after a breach EVEN IF it is
higher than the market price is OK so long as it is in good faith
b. A non-breaching party has NO DUTY to mitigate losses
Still expectation damages basis -
iii. UCC §2-715(1): Incidental damages include expenses incurred from inspection, receipt,
transportation/care/custody of goods rejected, and expenses from cover or delay
iv. If Buyer Covered (and seller breached) UCC §2-712:
1. = (cost to cover) – (contract price) – (expenses saved) + (any incidental or
consequential damages)
→ basically if you had to pay more to go out and replace the good
v. If Buyer Did Not Cover (and seller breached) (this is NORMAL damages for buyers): UCC
§2-713
1. = (market price) – (contract price) – (expenses saved) + (any incidental or
consequential damages)
→ basically if you would have pay more to go replace good in the market
a. Ex. Missouri Furnace: seller repudiated contract and stopped sending
coke to buyer; got damages of the difference in market price (based on
day learned of repudiation) and the contract price
b. Possible Market Prices to Use:
i. Market value on day of the repudiation (day they actually
breached)
ii. Market value on day I learned of repudiation (could be later than
day they actually repudiated)
iii. Market value after a commercially reasonable time to wait after
the repudiation occurred → Ras says this is best (middle ground)
iv. Market value of day of intended delivery (because this is when
breach “technically” happened)
vi. If Buyer Accepts Goods, but they are Not As Warranted:

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 1. UCC §2-714: buyer who accepted defective goods can recover damages for any
non-conformity as follows:
a. Value of goods as warranted – value of goods as accepted

vii. If Seller Resells (buyer breached) UCC §2-706:

1. (contract price) – (resale price) + (incidental damages) – (costs saved from
breach)
viii. If Seller Does Not Resell UCC §2-708:
1. (contract price) – (market price) + (incidental damages) – (costs saved from
breach)
ix. If Seller is a Lost Volume Seller: (has an unlimited supply of goods)
1. (lost profits on breached sale) + (incidental damages)
2. If you would have sold 2 →you get lost profits
a. Ex. Neri v. Retail Marine: even though seller was able to sell the boat for
the same exact price contracted for after repudiation, seller was a lost
volume seller (so could have sold TWO boats) so should receive lost
profits from breached sale
i. IF they could only sell 1 boat, selling that 1 boat to another party
means it mitigated its damages and they can ONLY recover for
incidental damages
x. If Seller Delivers Goods and Buyer Does Not Pay:
1. Seller gets the price of the goods

b. Just because there is a breach of contract does not mean there will be damages
xi. Ex. Acme Mills: buyer was able to cover and buy wheat from a replacement seller for less
than originally contracted for; no damages because he ended up being better off

c. Expectation and reliance damages merge (they are the SAME) when contract made at the market
price and when both parties have other options
** difference between reliance and expectation damages is lost profits

C. RELIANCE DAMAGES: (you must have a contract for reliance damages)

a. Put injured party in as good a position she would have been if she had never made the contract
(if I’d never met you)
i. Recovery for losses from relying on contract
a. A party has a choice between choosing expectation or reliance - but the law has a preference for
expectation damages if they are lower

Restatement §349
An injured party has the right to damages based on their reliance interest, including expenditures made in
preparation for performance or in performance, less any loss the breaching party can prove with reasonable
certainty would have suffered had the contract been performed

b. Reliance damages include expenses incurred in preparation for performance, LESS any loss you
would have had anyway
c. Used as an alternative to expectation damages when lost profits are difficult / impossible to
measure

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 i. Courts will not allow speculation so instead, they grant reliance losses
1. Ex. Dempsey: breach of boxing contract; court only allowed for reliance damages
(expenses incurred only after the contract was signed) because the court did not
want to speculate profits of the match
ii. What about expenses incurred before the contract is actually signed?
1. COURTS GO EITHER WAY: (argue both on exam) → argument to include expenses
incurred PRIOR to signing in reliance damages: in business, you often rely on non-
existent contracts at the time by making investments with hopes the contract
goes through and you profit on it
2. In Dempsey: promoters spent $100k prior to Dempsey signing; the court did not
award them the $100k as part of reliance damages, but promoters knew there
was a good chance Dempsey would sign and they relied on it→ should be
compensated
iii. Today: courts would probably have allowed a good estimate for lost profits in Dempsey
by using prior fights/etc. → more flexible today
iv. Frequently used in promissory estoppel cases → especially when there is no identifiable
promise or offer
d. Expectation Caps Reliance
i. When expectation damages are less than reliance damages, then the party must take
expectation damages
ii. If plaintiff requests reliance damages and breaching party believes expectation damages
are less, then it is the burden of the breaching party to prove this
1. Breaching party can show the extent of which a party might have lost money
from the result of the contract than it can be deducted from the damages
a. Ex. Albert & Sons: injured party was rewarded reliance damages minus
the losses they would have sustained if the contract was performed
i. Proving losses that would have occurred if the contract had been
performed is the burden of the other party

e. You must prove connection between the breach and the damages you are claiming
i. Non-breaching party has to show some connection between reliance damages claimed
and the breach
ii. Then the burden shifts to the breaching party to show there would have been a loss
despite the breach
1. Ex. Merry Gentleman: there was some breach of the contract by Michael Keaton
a. The non-breaching party failed to prove breaches were the cause of the
damages that merry gentleman was seeking ($5M)
b. Michael Keaton had to prove that the reason the lost the $5M was
because no one liked the film - not because of Keaton's breaches

D. RESTITUTION DAMAGES: (outside of contract)

• We have restitution claims when: 1) underlying contract is unenforceable, 2) it’s difficult to prove
expectation and reliance damages, 3) when the non-breaching party had a losing contract, 4) when
breaching party seeks restitution
• Restitution is based on preventing unjust enrichment, rather than on contract law
• Free standing doctrine that says - "one party has conferred a benefit on another party and the law
determines its unjust to confer that benefit so the party must give back what they received"

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 ▪ Neri - conferred the benefit of the deposit onto retail marine, and is able to ask for that
money back under the theory of restitution
• §370: party is entitled to restitution to the extent that he conferred a benefit by way of part performance
or reliance (NOT the amount of money they spent)

What is the normative justification for the preference for expectation damages
a. Moral argument
i. Fair or right thing to do -
ii. When you make a promise, the law as a moral matter to hold you to the promise and put
the non-breaching party in the position they would have been if you didn’t breach
b. Why not more than expectation?
i. Economic Argument
1. If damages are more than expectation this will induce some parties to not breach
when there are better alternatives
2. Efficient breach

Limitations on Damages

Duty to Mitigate:

A. You cannot recover for avoidable losses (RS § 350):

i. Damages are not recoverable for loss that the injured party could have avoided without undue
risk, burden or humiliation.
ii. The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent
that he has made reasonable but unsuccessful efforts to avoid loss.
B. Rockingham County v. Luten Bridge: Contract to build a bridge. City repudiates contract but Luten
continues to build bridge, incurring additional costs. Held: Luten had a duty to cease performance when
the contract was repudiated and cannot recover for the costs incurred in building after that point.
C. UCC: Incorporation of § 350

i. 2-706: seller’s remedies on resale:

a. Where buyer breaches and seller resells. Seller has mitigated losses by reselling into
market and we measure damages by difference between K price and resale price.
ii. 2-708: seller’s remedies based on market price
a. Assuming seller can resell to the market but didn’t – remedies based on market (can’t
just throw goods away and recover)
b. K price = $400, mkt price = $400, damages = $0.
iii. 2-712: buyer’s remedies based on cover
a. If after seller breaches, buyer makes an attempt to mitigate losses by making a cover,
damages = K price – cover price.
iv. 2-713: buyer’s remedies based on market
a. If no efforts but could have covered if they made efforts, damages = K price – market
price.

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 D. You have a duty to use “reasonable efforts” to mitigate losses by finding a replacement (i.e. cover or
resell in UCC; substitute job if common law)
i. “Reasonableness” depends on the facts and should be determined by a jury
ii. Replacement Employment must be:
a. Comparable to the one lost in the breach
b. Not of a “different or inferior kind”
c. Opportunities you can take without undo loss, burden, or humiliation
iii. THIS IS HIGHLY SUBJECTIVE: on an exam, argue both ways
iv. Parker v. Twentieth Century Fox: Shirley MacLaine has contract for musical, 20th Century cancels,
offers her role in western. MacLaine says no and sues for full damages. Held: the role in the
western was different/inferior and MacLaine had no duty to take the role and can fully recover.
a. Dissent: it was a role in a movie. Similar employment. She should have taken it or not
recovered
b. ARGUE BOTH
v. In re WorldCom: MJ had a duty to mitigate by finding another deal when WorldCom breached his
ad deal – a reasonable effort for him would have been picking up the phone and accepting any
deal. Plus – not a lost volume seller because he decided to stop taking deals.
E. Lost Volume Seller’s Duty to Mitigate
i. Lost volume seller’s would have made the sale anyways, thus they would still recover for lost
profits on the breached deal EVEN IF they resell

Calculating Lost Profits

P (profits) = K (contract price) - C (costs)

C = f (fixed costs) + v (variable costs)
P = K - (f+v)
P=K-f-v
P+f=K–v

1. In a case of anticipatory repudiation, the non-breaching party needs to recover both its expected profits
+ the fixed costs that it was going to recover through its contract.
a. Said alternatively, it can recover the contract price minus the costs saved from the breach

HYPO - In Rockingham County, assume that Luten Bridge makes a 10% profit on each dollar. Assume further that
its costs are 30% variable, 60% fixed. In calculating lost profits,
• Money that it spent up into repudiation + lost profits on the entire contract
• Variable - these you can mitigate by stopping performance - costs you can SAVE so you don't earn those
back
• Fixed - can't mitigate, are going to incur no matter what
• THUS, they should recover 70% of contract price

Limitations on Recovery For Consequential Damages

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 A. You do not as a right get all damages that flow from a breach
i. You get damages that “flow naturally” from a breach – i.e. lost profit, reliance
ii. But consequential damages (could not be prevented and are caused by the breach) are limited by
what is reasonably foreseeable
a. The party breaching had reason to know the damages the other would likely suffer these
particular damages from the breach

B. Hadley v. Baxendale: Crank shaft at mill broke and halted all mill operations. Shipping co promised time
for return but was delayed 5 days and Mill lost profits. Held: no recovery on lost profits b/c the
circumstances were not communicated to and known by the shipping company at contract formation
that mill functioning was entirely dependent on obtaining new crank shaft.
i. No reason to know these damages might flow from breach

§ 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.
• Probable = the even was likely to occur (more than just a possibility)
(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
• "naturally arising" part of Hadley
• Meaning general damages
(b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had
reason to know.
• special circumstances = facts specific to this circumstances

C. UCC 2-715: buyer’s consequential damages must also be foreseeable and unable to be prevented by
cover or otherwise
i. Most contracted around section of the UCC
ii. People don’t want to be held liable for consequential damages – it could put them in a position
where it is unprofitable to make contracts

HYPO
• Ras and Craig agree that Craig will sell autographed IM Pei for $1000
• Chasalow , craigs supplier, agrees to sell Craig IM Pei photo for $300
• Chasalow breaches, and Craig cannot cover
• Market price is $400
• DAMAGES Craig Can Recover from Chasalow:
o If we sell for market price, Craig can recover the difference between the market price and the
price she was getting from Chasalow ($100)
o BUT Craig wants the difference between her special deal with Ras
• Ask DID CHASLOW KNOW ABOUT THE SPECIAL DEAL
▪ If Chasalow DID NOT know about this deal - Craig can't recover for it
▪ If Chasalow DID KNOW about the deal, then Craig CAN recover because he had
reason to know the detriment of his breach

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RULE for Special Damages: (from § 351 / UCC)
• The only way to recover special damages is if the breaching party HAD REASON to know about the extra
damages on the line if they were to breach
o Also, has to have a reason to know at the time of the contract (not after)
• Unclear how much this works in practice
o It forces parties to disclose information so the other party can adjust its behavior accordingly for
the extra risk, BUT this could reduce a parties advantage (i.e. chaslow could increase the price on
Craig)

D. TACIT AGREEMENT TEST:

i. Rejected by Hadley, UCC and Restatement // Followed in NY
ii. Believes that mere knowledge of possible future damages is not sufficient
iii. There must also be a sense that the party who knew about the damages accepted the risk
iv. Less generous to non-breaching parties

E. Restatement’s Answer to the Tacit Agreement / Cabby Hypo

§ 351 Unforeseeability and Related Limitations on Damages
(3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing
recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so
requires in order to avoid disproportionate compensation.
a. Cabby would not be held liable for the lost deal under this requirement

Emotional Disturbance / Punitive Damages

A. Generally excluded – if we allowed, wouldn’t these be an issue in every case?

§ 353 Loss Due to Emotional Disturbance

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

§ 355 Punitive Damages

Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a
tort for which punitive damages are recoverable.

B. Exceptions include: promise to marry, doctor that failed to perform C-section, Ks involving carriage of
dead bodies, Ks for delivery of messages concerning death.

Speculative Damages

A. To recover lost profits you must prove damages to a reasonable certainty (RS §352)
B. Look at the evidence
i. Dempsey: could not recover lost profits on breached boxing match as , even with good historical
evidence of profits from other fights at the same venue, plaintiff could not prove lost profits to a
reasonable certainty for this court
ii. COMPARE to Fera: case about a new business to sell books and wine. Court allows owner to
testify as to what he thinks he would have made and awards damages based on that speculation.

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 a. Proves that “reasonable certainty” is up to a courts discretion
1. Some are more hospitable to recovery for lost profits than others

To recover lost profits from a contractual breach, an injured party must show:
(1) the profits were something contemplated by the parties when the contract was made,
(2) the profit loss was a probable result of the breach, and
(3) both the existence and amount of the profits can be proven with reasonable certainty ( i.e., the profits are
not remote or speculative).

Issues that will prevent a plaintiff from being able to establish lost profits with reasonable certainty include:
(1) lacking hard data to establish anticipated future sales,
(2) providing evidence from a different market or location, and/or
(3) lacking data to establish the expenses that will be incurred generating the alleged future profits.

Expectation caps reliance BUT if plaintiff asks for reliance damages, the burden shifts to defendant to prove to a
reasonable certainty what the lost profits would have been (expectation) and if they can't the plaintiff will get
reliance

RESTITUTION

When do we see Restitution claims where there is a contract in the picture?

1. When the underlying "contract" is unenforceable
a. Kearns v. Andree, Farash v. Sykes
2. When it is difficult to prove expectation and reliance
3. When the non-breaching party had a losing contract
a. US v. Algernon Blair
4. Opportunistic Breach
a. §39
5. When the party itself is in material breach
a. Cannot sue on the contract

WHAT IF THERE IS A LOSING CONTRACT:

HYPO
• Rasmussen and Hovenkamp contract for Hovenkamp to build Rasmussen's den for $100,000.
• All payments are at the end of the contract
• Hovenkamp made a mistake - underestimated the cost of building the den
• Hovenkamp has spend $120,000 and it will cost him $60,000 more to finish
• Ras bars Hov from completing the contract
• ONLY APPLIES WHEN HOV IS THE NON-BREACHING PARTY
What are Hovenkamp's Expectation Damages:
• Where would Hovenkamp had been had the contract been completed -
o He would have spent $180k and gotten $100k back - so he would have LOST $80k
o Hovenkamp is out $120k RIGHT NOW - SO how do we get him to the position he would have
been in had the contract been performed (aka LOST $80k)
• = $40k
o OR - contract price minus cost saved

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 • $100k - $60k = $40k
What are Hovenkamp's reliance damages?
• What has he spent in reliance on the contract
• He WOULD get $120k - that is what he spent
• BUT expectation caps reliance
o If reliance damages are more than expectation, you only get expectation
• SO, he only gets $40k
What are Hovenkamp's Restitution Damages?
• What is the value of the benefit CONFERRED ON RAS

FOUR POSSIBLE WAYS TO MEASURE RESTITUTION:

1. Full value of performance (Algernon)
a. Here, $120k
2. Cap recovery at contract amount
a. Seems unfair to make Ras pay more than his contract was for - the most he was supposed to pay
was $100k
3. Cap recovery at expectation damages
a. If we allow a party to recover MORE if the other party breaches than if they complete the
contract, it could create incentives for people to induce other parties to breach so they can
recover under restitution
b. The loss here was actually caused by Hovenkamp's miscalculations - why should Ras bear the
outcome of that
4. Loss Sharing -
a. Kehoe v. Rutherford
1. Plaintiff can recover in restitution the product of the contract price and the percentage
of the work completed
b. Our facts: $100k x ($120k/$180k)
1. Full contract would have cost $180k
2. Hovenkamp has completed $120k of that
3. He has completed 2/3 of the contract
4. THUS, lets give him 2/3 of the contract price

HOW DO THESE COMPARE

Question is how we apportion the loss between Ras and Hov
• There is a $80k loss
• Upon full completion of the contract, Hovenkamp bears the loss
• Under full restitution, Ras bears all the loss
o Would have to pay $120k
• Under full restitution capped by contract price, Ras bears the loss up until Hovenkamp has spent the
contract price, after that it falls on Hovenkamp
• Under restitution capped by expectation, Hov bears the loss
• Under sharing, it is split with the more that Hov does, the more of the loss he bears

OPPORTUNISTIC BREACH & Restitution

Restatement of Restitution § 39 Profit From Opportunistic Breach

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 (1) If a deliberate breach of contract results in profit to the defaulting promisor and the available damage
remedy affords inadequate protection to the promisee's contractual entitlement, the promisee has a
claim to restitution of the profit realized by the promisor as a result of the breach.
o Defendant breaches and is better off for the breach
o We are expanding the notion of benefit
o The profit the party claiming restitution is recovering was not conferred on that party by them

Courts are divided on whether this is an accurate statement of the common law
• FOR 39: SCOTUS (Kansas v. Nebraska), Eastern District of Penn (Enslin)
• Those that believe it does not think its accurate - Scalia and Fifth Circuit in TX (Hoffman)

NOW: RESTITUTION TO THE PARTY IN BREACH

• Recall Neri and 2-718(2) &(3)
o Had contract to buy boat from retail marine
o Neri breaches the contract
o Neri sued to get deposit back
o LOOKS AT 2-718(2) - Neri clearly has the right to get money back UNDER RESTITUTION
• HOWEVER: When you are the party in breach and sue in restitution - if the party not in breach would be
left with LESS than expectation damages - then we can adjust 2-718(3)
• Outside of the UCC
o Britton v. Turner
▪ Contract for Britton to work for one year for Turner for $120
▪ Default rule for payment: payment at the end
▪ Britton walks off the job after 9 1/2 months
▪ Turner is not harmed by this breach - no expectation damages
▪ Britton (in breach) sues Turner for restitution
▪ Theory:
▪ Britton tried in good faith to complete the job
▪ Why should we say that the person who works in good faith should get
back what they put out

§ 374 Restitution in Favor of Party in Breach

(1) 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 in excess of the loss that he has caused by his own breach.
• When Britton walks off the job - he is in total breach - thus turner says my duties are discharged I don’t
have to pay you
• NO - the breaching party is entitled to get back the benefits he has conferred

b. Measurement of benefit. Since the party seeking restitution is responsible for posing the problem of
measurement of benefit, doubts will be resolved against him and his recovery will not exceed the less generous
of the two measures stated in § 370, that of the other party's increase in wealth. See Illustration 3. If no value
can be put on this, he cannot recover. Although the contract price is evidence of the benefit, it is not conclusive.
However, in no case will the party in breach be allowed to recover more than a ratable portion of the total
contract price where such a portion can be determined.
• Not entitled to contract price / market value - it is about how much did you increase the other parties
benefit

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 • As a cap, we can figure out Britton was getting $10 a month - thus Britton cannot recover more than $95
• How much did Britton increase Turners wealth?
o Britton did the services at a market rate and thus he can recover that $95

HYPO: Same facts as before [Contract price = 100k; Hovenkamp spends 120k; it would cost Rasmussen 60k to
complete] but now Hovenkamp breaches. Hovenkamp's restitution damages should be:
• EITHER
o If Ras decides to build the den and spends $60k
▪ Hovenkamp should get $40
▪ Ras spends $60k for a den that was going to cost $100 - then Hov has conferred
$40k of benefit
o If Ras decides to tear down the den -
▪ Hovenkamp has conferred NO benefit
▪ Hovenkamp should get $0

§ 2-718. Liquidation or Limitation of Damages; Deposits.

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

(2) Where the seller justifiably withholds delivery of goods because of the buyer'sbreach, the buyer is
entitled to restitution of any amount by which the sum of his payments exceeds

(a) the amount to which the selleris entitled by virtue of terms liquidating the seller's damages in
accordance with subsection (1), or
(b) in the absence of such terms, twenty per cent of the value of the total performance for which the
buyer is obligated under the contract or $500, whichever is smaller.
(3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the
sellerestablishes

(a) a right to recover damages under the provisions of this Article other than subsection (1), and
(b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the
contract.

LIQUIDATED DAMAGES

TO HAVE A LIQUIDATED DAMAGES CLAUSE YOU MUST MAKE AN ESTIMATE OF YOUR ACTUAL DAMAGES:
• Cannot put in a clause simply designed to force another party to perform

WHY? Different intuitions

• Courts don’t want to lose their power
• When parties enter into contracts they aren't thinking about damages so they don't want these
punishment clauses to be valid when parties don’t pay

Courts scrutinize these types of terms / clauses:

Ask if it is a valid liquidated damages clause or if it is a penalty clause?
• If it is a penalty clause the court will strike it and you will have to calculate damages normally

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CAN YOU HAVE LIQUIDATED DAMAGES CLAUSES FOR EMOTIONAL DISTRESS: are we allowed to contract it in?
• The harder damages are to determine, the more likely courts are to accept these types of clauses
ESPECIALLY if they don’t explicitly state its for emotional distress
IF YOU THINK: we only don’t allow damages for emotional distress because we don't want a jury to decide them
--> might allow these clauses
IF YOU THINK as a matter of policy we should NEVER accept damages for emotional distress no matter what in
contract cases --> strike these clauses down

What if there are no actual losses after a breach, but the parties have a valid liquidated damages clause?
Are we going to honor this liquidated damages provision?
• COURTS ARE SPLIT-
o Some think that if there were no actual losses, then they should not recover liquidated damages
o Some believe they contracted into that clause and thus we should honor it no matter the
outcome so long as it was a valid estimate of damages

§ 356. (Liquidated Damages And Penalties)

(1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is
reasonable in the light of the anticipated or actual loss caused by the breach A term fixing unreasonably large
liquidated damages is unenforceable on grounds of public policy as a penalty.

What is the test?

1. The restatement partially follows common law
a. What is reasonable?
i. Depends how hard the losses would be to figure out
b. If you are in a market when it is really easy to determine damages, courts will not enforce
liquidated damages clauses
c. If you are in a market when it is really hard to determine damages, courts will give you a little
more wiggle room on liquidated damages
2. Also adds that you can look at actual loss and look at the contract to see if it is reasonable in terms of
actual loss
a. A move away from traditional common law
b. Look at both and SO LONG AS one of them is reasonable, then it is okay
3. If you have a situation where the clause actual was a reasonable estimate of estimated losses, but
nevertheless as things actually happened there were no losses whatsoever, we are going to strike that
down
a. Ex. reasonable liquidated damages clause for toll bridge - delay = loss of tolls per day --> struck
down because the road to the bridge wasn't built so even if the bridge was build they wouldn’t
have gotten any tolls
b. Not all courts agree with this

HYPO: Can You Contract in Emotional Distress?

• Craig offers to sell Ras IM Pei for $400
• Ras explains he is interested, but cannot bear disappointment if she falls through
• Craig adds a clause that she will pay $2,000 if he fails to deliver the photo
• Ras agrees to the deal
• Craig fails to deliver the photo

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 1. As a matter of policy, contract does not allow recovery for damages of emotional distress
a. Don’t want a jury to decide this
2. But what if the parties specify what the emotional damages are??
3. Answer: courts are split
a. Some think you just CANNOT recover for emotional distress
b. Some think that if you want to contract for it, we should let you do it
i. Ex. similar to attorney's fees, not usually allowed BUT parties can contract it in

Contracting Down
When you are limiting damages (contracting down) the test is whether it is unconscionable
• UCC 2-719(1)(a): understood that it is often used for both parties to limit damages
o Ex. Kodak, doesn’t matter that you lost your trip of a lifetime on defective film --> damages
limited to new role of film
Contracting Down is EASY
• Just has to not be unconscionable

Specific Performance
1. What about a court order requiring a party to perform
2. Why not a generally available remedy to the non breaching party to get the breaching party to perform?
a. Why not say if you want them to perform, you can get it
b. This is the law in Europe
i. You may not want specific performance, but if you do you can get it
c. We don't do this here because of history
i. The distinction between law and equity

SPECIFIC PERFORMANCE RULES:

• We will allow specific performance as a remedy SOMETIMES
• ASK: is the good unique??
o If so, damages are usually going to be undercompensating
• ASK: Are damages hard to determine??
o Land:
o Land is unique
o If the contract price was at market price, then the expectation damages of $0 would not
make you whole
o You cant just go buy another identical piece of land / house
o Thus, because damages are not sufficient to protect expectation, we allow specific
performance
o Rothko Painting
o Unique, cannot be replaced, can't be compensated with money
• Court will not order specific performance if that order is impossible
o You can go to jail if you ignore a court order to complete specific performance
o Thus, even if you can show that the land or good is unique, if it turns out the land or good it is
impossible to get specific performance
• BUT - you cannot write a contract that would require specific performance in a situation where the court
WOULD NOT order specific performance
o Cannot create your own revenue to specific performance

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HYPO:
• Guzman is selling a house I.M. pei once stayed in
• Ras enters into a contract to buy the house for $500,000
• Guzman breaches
• All agree the market value of the house is $500,000
• EXPECTATION DAMAGES = $0 --> BUT Ras values this house way more than the market
• This is the classic case of when we SHOULD be able to get specific performance
o Land is a unique good
o Contract at market price , the perspective buyer values the house more than the market
o If we give them expectation, if the house was at market price, they will get nothing and be
undercompensated
o Thus, we will order the party to sell the house (specific performance)
WHAT IF:
• Guzman sold the house
• Can Ras get specific performance?
o NO,
WHAT IF
• Ras was buying the house in order to resell for $600,000. Can he get specific performance?
o COURTS ARE SPLIT
• Some say they he was going to make $100,000 so that is his damages
▪ But what about the OTHER contract with the other buyer?
▪ Specific performance to protect the OTHER buyers interests
• Some say that it doesn’t matter, its still sale of a unique land and can get specific
performance

Restatement 357
Subject to the rules stated in §§ 359-69, specific performance of a contract duty will be granted in the discretion
of the court against a party who has committed or is threatening to commit a breach of the duty.

Restatement 359
Specific performance or an injunction will not be ordered if damages would be adequate to protect the
expectation interest of the injured party.

360 Factors Affecting Adequacy of Damages

In determining whether the remedy in damages would be adequate, the following circumstances are significant:
a. the difficulty of proving damages with reasonable certainty,
b. the difficulty of procuring a suitable substitute performance by means of money awarded as damages,
and
c. the likelihood that an award of damages could not be collected.

• This tells us that if money is not going to compensate, then we can look to specific performance
o Land / Rothko
o Unique goods

UCC - same test

UCC § 2-716. Buyer's Right to Specific Performance or Replevin.
(1) Specific performance may be decreed where the goods are unique or in other proper circumstances.

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(2)The decree for specific performance may include such terms and conditions as to payment of the price,
damages, or other relief as the court may deem just.

Specific Performance

GENERAL RULE: When you have a personal service contract, the court is NOT going to order someone to
perform
Negative injunction - when you can't order specific performance(ex. in a personal service contract), you can try
and prevent them from performing the duties for someone else in the hope that it will induce them to honor
their contract
• Relieves the party of any duties they have to the party they were going to perform for after breaching
the contract
Damages: You can always sue for damages and if damages are ADEQUATE then you can’t have an order for
specific performance or a negative injunction
• Only after you determine whether damages are adequate, can you look to these routes

§ 367(1) A promise to render personal service will not be specifically enforced

Personal Service In Specific Performance

FIRST QUESTION TO ASK: are damages adequate?
• Do we think on these facts the non-breaching party has his expectation interests fully compensated by
expectation damages
o ARGUE BOTH WAYS ON THE EXAM
• Ras would have to argue he values his job more than just a paycheck
SECOND QUESTION: does § 367(1) apply? Personal service contract?
THIRD QUESTION: can you get an injunction? Personal service? § 367(2)
• Would it be forcing a undesirable relationship to force the breaching party to not replace the person
• If it would be REALLY BAD for the breaching party to keep the non-breaching party on, then the court
WILL NOT allow a negative injunction

§ 367(2) A promise to render personal service exclusively for one employer will not be enforced by an injunction
against serving another if its probable result will be to compel performance involving personal relations the
enforced continuance of which is undesirable or will be to leave the employee without other reasonable means
of making a living.

HYPO:
• Ras has tenure
• Ras is fired from USC
• Ras bring suit for specific performance of his tenure contract
• Can he get specific performance?
o Does Ras have an adequate remedy at law?
• He get his salary subject to any obligation to mitigate damages
• IS THIS ENOUGH? He gets a lot of satisfaction, does that make a difference?
• Courts could go either way
• IF YES - and money damages compensate - no specific performance
o If money damages don't compensate - he CANNOT get specific performance because teaching is
a personal service
• Can Ras get an injunction to prevent them from hiring someone else to teach his course?

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o Courts could go both ways
o "Undesirable" is malleable

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