December 2007

CONTRACTS LAW OUTLINE

1) INTRODUCTION
*Key principles:
1) UCC trumps common law: Every state except Louisiana has adopted the ni!orm "ommercial
"ode# $rovisions o! "" usually trump common la%# &rticle 2'110(: common la% applies to
contracts !or sales o! )oods* unless it contradicts article 2#
2) Redresspun!s"ment: La% concerned mainly %ith relie! o! promises to redress breach and not
%ith punishment o! promisors to compel per!ormance+
() E#pectat!on !nterest: ,he relie! )ranted to the a))rieved promisee should )enerally protect the
promisee-s expectation by attemptin) to put the promise in the position in %hich it %ould have been
had the contract been per!ormed+
.) Dama$esper%ormance: ,he appropriate !orm o! relie! is substitutional* in the !orm o! a /ud)ment
a%ardin) money dama)es to be paid to the a))rieved promise* rather than speci!ic* in the !orm o! a
court order directin) the promisor to per!orm its promise#
0) Err on t"e s!de o% t"e pla!nt!%% %hen there is uncertainty in calculatin) dama)es*
1) De%!n!teness: 2hen calculatin) dama)es* speculation should be avoided# ,a3e a conservative
approach 4 re5uire a sound basis upon %hich to measure dama)es#
7) A&o!da'!l!t(: 6n/ured parties are obli)ated to try to minimi7e losses+ one cannot see3 a %orse
position in order to increase dama)es#
8) E&!dent!ar( presumpt!ons: 6n commercial settin)s* %e assume that parties intend to enter le)al
relations* %hereas in marria)e* !or instance* %e assume the opposite#
9) )eneral dut( to read t"e contract one si)ns+ common la% rule: :6n the absence o! !raud* one %ho
si)ns a %ritten a)reement is bound by its terms %hether he read and understood it or not* or
%hether he can read or not#;
*<edress:
a) E#pectat!on dama$es: &mount necessary !or post'per!ormance'o!'contract state
=standard remedy)#
!) UCC 1*1+,-1): remed!es are to 'e adm!n!stered .to t"e end t"at t"e a$$r!e&ed
part( ma( 'e put !n as $ood a pos!t!on as !% t"e ot"er part( "ad %ull(
per%ormed/0
b) Rel!ance dama$es: &mount necessary to return promisee to pre'contract state# >iddle
road bet%een expectancy and restitution+ isnot limited to restoration o! bene!it con!erred
on the de!endant* nor does it contemplate recovery o! the %hole di!!erence in value
bet%een the contract as promised and the breach# <ather the aim o! this !ormulation is
to put the plainti!! bac3 in the position he occupied /ust be!ore the parties entered upon
the a)reement* to compensate him !or the detriments he su!!ered in reliance upon the
a)reement# D?@-, A?<BE, ,? 6@"LDE ?$$?<,@6,C "?D,D 6@ "&L"L&,6?@#
c) Rest!tut!on dama$es: <eturns )oodsEservices trans!erred to breachin) party to
minimi7e un/ust enrichment =dis)or)ement principle)#
d) Spec!%!c per%ormance: ?rders party in breach to !ul!ill contract obli)ationsE per!orm
contract#
e) 1un!t!&e dama$es: <arely )ranted# &dded on to another !orm o! dama)es to punish
de!endant !or tortuousE:!raudulent; behavior andEor :bad !aith;#
i) Dama)es are usually measured by plainti!!-s loss =expectation)* not de!endant-s )ain
=restitution)# 2hen there is uncertainty measurin) dama)es* err on the side o! the plainti!!#
=1) nited Dtates @aval 6nstitute v# "harter "ommunications* 6nc#* nited Dtates "ourt o!
&ppeals* 2
nd
"ircuit* 1991: A&",D: $ublisher breached contract to delay publishin) Hunt
for Red October# <LE: 6n en!orcin) contracts* courts compensate !or breach rather than
punishin) breachers# $unitive dama)es are not recoverable in contract breach actions
unless the breach %as !raudulent#
=2) Dullivan v# ?-"onnor* Dupreme Fudicial "ourt o! >assachusetts* 197(: A&",D: $lastic
sur)eon ruined an actress-s nose# <LE: "ourt may en!orce a plastic sur)eon-s promise
o! speci!ic medical results by a%ardin) compensatory dama)es* provided the promise %as
not merely a statement o! medical opinion#
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December 2007
2) EN3ORCEA4ILIT5: W"at prom!ses are le$all( en%orcea'le and w"(6
Gistorically* !or contracts to be en!orceable* both parties had to provide somethin) o! value 4
consideration# "onsideration did not need to be monetary or even bene!it the receiver as lon) as
it %as :su!!icient;# Later* nominal consideration =called a :peppercorn;) %as accepted# >odern
courts no lon)er evaluate consideration-s su!!iciency 4 they re5uire a bar)ained'!or exchan)e
instead#
a) 4ar$a!n
i) <D 71: "onsideration consists o! a bar)ained !or exchan)e# & per!ormance or return
promise is bar)ained !or it i! is sou)ht by the promisor in exchan)e !or his promise
and is )iven by the promisee in exchan)e !or that promise# $er!ormance may be an
act* a !orbearance =re!rainin) !rom en!orcin) a ri)ht* obli)ation* or debt)* or creation*
modi!ication* destruction o! a le)al relationship#
ii) <D 17: ,he !ormation o! a contract re5uires a bar)ain in %hich there is a
mani!estation o! mutual assent to the exchan)e and a consideration#
') )ratu!tous prom!se 7 no 'ar$a!n
i) En!orceable contracts must be bar)ained !or# &ctions voluntarily ta3en in reliance on
a )ratuitous promise are not consideration# $romises must be o!!ered in order to
induce the promisee to per!orm %hat the promisor see3s* and only then can the
promisees- per!ormance amount to consideration#
=1) Kir3sey v# Kir3sey* Dupreme "ourt o! &labama* 18.0: A&",D: 2ido% moved in reliance
on her brother'in'la%-s promise o! house and could not sue %hen he later evicted her#
<LE: Detriment or bene!it to parties is not enou)h+ there must have been a proper
bar)ain to be)in %ith# Hoth parties must )et somethin) out o! a promise in order !or it to be
en!orceable# =@o%adays %ido% could probably recover reliance dama)es under
$ormissory Estoppel doctrine#)
c) 1ast per%ormance 7 no 'ar$a!n
i) "ontracts re5uire a bar)ained'!or exchan)e to be en!orceable* so anythin) that
happened be!ore an a)reement doesn-t count as consideration#
=1) Aeinber) v# $!ei!!er "o#* Dt# Louis "ourt o! &ppeals* >issouri* 1909# A&",D: Director-s
)ratuitous promise to pay a secretary a pension !or past service %as unen!orceable#
ltimately* ho%ever* court )ranted Aeinber) relie! under <D 90 ' %here a person
detrimentally relies on the donative promise o! another* that promise becomes en!orceable
despite the lac3 o! consideration that prevents !indin) a contract# <LE: ,he promise o! a
)i!tE)ratuity is not an en!orceable contract# $ast per!ormance is not consideration nor are
:not sou)ht !or; acts =continuin) employment)#
=2) Dementas v# Estate o! ,allas* tah* 1988# A&",D: Dementas =$) assisted Fac3 ,allas
over 1. years# Do* ,allas dictated a memorandum to Dementas statin) that he o%ed
Dementas I00*000 !or his help# &!ter ,allas died* Dementas !iled a claim !or I00*000 %ith
,allas- estate* %hich the estate denied# <LE: Events %hich occur prior to the ma3in) o!
the promise and not %ith the purpose o! inducin) the promise in exchan)e are vie%ed as
:past consideration; and are the le)al e5uivalent o! no consideration#
d) 8oral o'l!$at!on 7 no 'ar$a!n
i) DervicesEexpenses incurred to bene!it another in absence o! bar)ain are not
compensable even i! the bene!iciary later promises to repay them#
=1) >ills v# 2yman* >assechusetts*1820: A&",D: 2hen Levi 2yman !ell ill a!ter a sea
voya)e and >ills too3 care o! him until he died# Levi 2yman-s !ather promised in %ritin) to
pay !or the expenses* but )ood Damaritan >ills could not en!orce this promise# <LE:
$ast expenses incurred do not support a later promise !or reimbursement# @o
consideration !or promise based on a moral obli)ation and lac3in) bar)ain#
ii) EJ"E$,6?@: $romise made !or a bene!it previously received is only bindin) i!
necessary to prevent in/ustice# ="odi!ication o! >cBo%in#)
=1) <D 81: 1) & promise made in reco)nition o! a bene!it previously received by the
promisor !rom the promisee is bindin) to the extent necessary to prevent
in/ustice# 2) & promise is not bindin) under this section i! the promissee
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December 2007
con!erred the bene!it as a )i!t or !or other reasons the promisor has not been
un/ustly enriched+ or to the extent that its value is disproportionate to the bene!it#
=a) 2ebb v# >cBo%in* "ourt o! &ppeals o! &labama* 19(0: A&",D: 2ebb diverted a 70'
pound bloc3 !rom droppin) on >cBo%in and %as seriously crippled !or li!e# >cBoin
paid 2ebb I10 every t%o %ee3s* but a!ter he died the executors o! >cBoin-s estate
re!used to do so# <LE: $ast acts o! savin) a party !rom death or serious bodily harm
=bene!it must be to his person) constitute consideration to support a subse5uently
induced promise# & moral obli)ation is a su!!icient consideration to support a
subse5uent promise to pay %here the promisor has received a material bene!it*
althou)h there %as no ori)inal duty or liability restin) on the promisor#
e) 1re*e#!st!n$ dut( 7 no 'ar$a!n
i) <D 7(: $er!ormin) a le)al duty %hich is already o%ed doesn-t constitute
consideration* unless the duty is doubt!ul or honestly disputed# ,his rule may be
trumped by <D 89=a): i! the modi!ication is !air and e5uitable* it is bindin)#
=1) &las3a $ac3ers- &ss-n v# Domenico# A&",D: &!ter a cannery hired sailors !or seasonal
%or3* they re!used to %or3 unless paid hi)her %a)es* 3no%in) !ull %ell that replacements
%ere unavailable# 2hen the cannery promised a raise but never delivered* the %or3ers
sued# <LE: 6! a contractual party demands additional compensation to per!orm a duty it
is already contractually obli)ated to per!orm* any a)reement to pay more compensation is
unen!orceable as lac3in) consideration#
ii) "" 2'209: Bets rid o! pre'existin) duty rule alto)ether* as lon) as modi!ications
%ere sou)ht in B??D A&6,G#
%) Illusor( prom!ses 7 no 'ar$a!n
i) $romises must actually bind the promisor to do somethin)* other%ise bar)ain is
absent and promise is unen!orceable#
=1) Dtron) v# Dhe!!ield* "ourt o! &ppeals o! @e% Cor3* 1890: A&",D: Hen/amin Dtron)
promised not to collect on a promissory note !or unspeci!ied time =:until he needed it;) %as
deemed insu!!icient consideration# <LE: 6n order to be le)ally bindin)* a promise must be
supported by consideration and cannot be illusory#
ii) <D 77: 6llusory promises: & promise or apparent promise is not consideration i! by its
terms the promissor reserves a choice o! alternative per!ormances unless:
=1) Each o! the alternative per!ormances %ould have been consideration i! it alone
had been bar)ained !or or
=2) ?ne o! the alternative per!ormances %ould have been consideration and there is
or appears to the parties to be a substantial possibility that be!ore the promisor
exercises his choice events may eliminate the alternatives %hich %ould not have
been consideration
iii) "" 2'(09=():,ermination "lauses: "ontracts allo%in) unilateral termination at %ill
are illusory unless the terminator is re5uired to )ive reasonable or %ritten notice#
"ontracts !or the sale o! )oods usually re5uire reasonable notice be!ore termination*
unless other%ise a)reed#
iv) Datis!action clauses K not necessarily illusory* maybe bar)ain
=1) & contract %hich depends on one party-s satis!action may be en!orceable i!:
satis!action is measured ob/ectively =as in commercial contracts) or the party is
obli)ated to /ud)e satis!action in )ood !aith#
=a) >attei v# Gopper* Dupreme "ourt o! "ali!ornia* 1908# A&",D: >attei-s real estate
contract had a clause statin) that the purchase %as sub/ect to the buyer obtainin)
satis!actory leases on the nei)hborin) buildin)# "ourt !ound that the contract-s
:satis!action clause; did not ma3e it illusory or void# <LE: Huyer-s satis!action
clause %as not illusory#
v) Exclusivity "ontracts K not necessarily illusory* maybe bar)ain
=1) Exclusive'dealin) contracts* %here one party a)rees to use only the other to
provide certain )oodsEservices* are en!orceable* but the exclusive provider is
implicitly obli)ated to use :best e!!orts#;
=a) 2ood v# Lucy* Lady Du!!'Bordon* "ourt o! &ppeals o! @e% Cor3* 1917# A&",D:
Aashion !i)ure Lucy entered an exclusive arran)ement %ith 2ood to mar3et products
usin) her name and later endorsed other products %ithout sharin) pro!its %ith 2ood#
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December 2007
<LE: @ot everythin) in a)reements needs to be explicitly %ritten in the contract#
"ardo7o %rote o! the arran)ement that :& promise may be lac3in)* and yet the %hole
%ritin) may be Linstinct %ith an obli)ation*L imper!ectly expressed#;
$) 8ar!tal a$reements 7 no 'ar$a!n9 not en%orcea'le
i) "ourts usually assume that husbands and %ives do not intend !or their a)reements to
be attended by le)al conse5uences#
=1) Hal!our v# Hal!our* "ourt o! &ppeal* "&* 1919# A&",D: ,he Hal!ours %ere married in 1900#
He!ore >r# Hal!our returned to "eylon and his %i!e had to remain in London !or medical
reasons* they a)reed that >r# Hal!our %ould provide her %ith a monthly maintenance
allo%ance# Dubse5uently* the couple separated and >rs# Hal!our sued her husband !or
money %hich she claimed to be due in respect o! an a)reed allo%ance o! (01 a month#
<LE: ,he alle)ed a)reement did not constitute a le)al contract* but %as only an
ordinary domestic arran)ement %hich could @?, be sued upon# >utual promises made
in the ordinary domestic relationship o! husband and %i!e do not o! necessity )ive cause
!or action on a contract because the parties did not intend that they should be attended by
le)al conse5uences#
ii) Doctrine has evolved to%ards presumption that marital a)reements are valid and
en!orceable unless intention @? to enter into le)al relations %as expressed#
iii) Disa)reement about %hether promises to pay !or services bet%een unmarried co'
habitants are en!orceable#
iv) ,hou)h most maritalE!amily services are still presumed )ratuitous* restitution may
sometimes be )ranted !or extraordinary promises made bet%een spouses#
=1) $yeatte v# $yeatte* &ri7ona &ppeals* 1982# Aact: ,he $yeattes married and a)reed
>ar)rethe %ould put "harles throu)h la% school %ithout his %or3in)* and that "harles
%ould later pay !or >ar)rethe-s )raduate school# >ar)rethe did pay "harles- bills*
enablin) him to )raduate* obtain %or3 at a la% !irm and divorce her soon a!ter# <LE:
2hile ex'spouses are not entitled to restitution !or per!ormin) usual duties in marria)e*
restitution is available i! the spouses had an a)reement and one spouse made
extraordinary e!!orts %hich bene!ited the other solely# =&)reement in this case %as @?,
en!orceable but %i!e is entitled to restitution !or her ex'husband-s un/ust enrichment#)
") In A4SENCE o% 4AR)AIN : poss!'le a&enues
!) 1rom!ssor( Estoppel
=1) "ompensation !or reasonable detrimental reliance#
=2) <D 90: $romissory Estoppel# :& promise %hich the promisor should reasonably
expect to induce action or !orbearance on the part o! the promisee or a third
person and %hich does induce such action is bindin) i! in/ustice can be avoided
only by en!orcement o! the promise#; =@ot controversial* treated as statute)
?ri)inally* courts held that a party-s mere reliance on a promise %as not
consideration su!!icient to ma3e the promise bindin)# Later* ho%ever* courts
expanded the doctrine o! promissory estoppel* %hereby promisors are barred
!rom disclaimin) even )ratuitous promises i!: =Kir3sey)
=a) ,he promise %as reasonably li3ely to induce actionE!orbearance+
=b) ,he promise actually did induce it+
=c) Fustice re5uires en!orcin) the promise#
=i) <ic3etts v# Dcothorn* Dupreme "ourt o! @ebras3a* 1898# A&",D: Katie Dcothorn
5uit %or3 in reliance on her )rand!ather-s promise to support her# <LE: 2hen
a person intends to cause* or indeed does cause* another to chan)e position in
reliance on a promise* that person be estopped !rom denyin) his promise#
=ii) "ohen v# "o%les >edia "ompany* 1992# A&",D: Dan "ohen in!ormed reporters
o! ne%spapers o%ned by "o%les >edia "ompany o! the conviction o! the
opposin) candidate# ,he reporters had promised to 3eep "ohen-s identity
con!idential but printed his name# "ohen %as !ired and he sued "o%les !or
breach o! contract# <LE: &bsent the sho%in) o! a compellin) need to brea3 that
promise* the resultant harm to "ohen re5uires a remedy here to avoid in/ustice#
=iii) Aeinber) v# $!ei!!er "o#* Dt# Louis "ourt o! &ppeals* >issouri* 1909: =see earlier)
A&",D: Despite lac3 o! consideration* court )ranted Aeinber) relie! under <D 90
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December 2007
' %here a person detrimentally relies on the donative promise o! another* that
promise becomes en!orceable despite the lac3 o! consideration that prevents
!indin) a contract# <LE: $E applies to prevent in/ustice#
=iv) D M B Dtout* 6nc# v# Hacardi 6mports* 6nc#* 1991# A&",D: Li5uor distributor %ho
re/ected a purchase o!!er in reliance on a supplier-s promise not to terminate the
relationship* sued the supplier a!ter the supplier %ithdre% its account# <LE:
$romissory estoppel allo%s recovery o! reliance dama)es and not expectancy
dama)es#
=v) "yberchron "orp# v# "alldata Dystems Development 6nc#* 1990# A&",D: &
computer hard%are manu!acturer produced e5uipment !or a buyer %ithout
enterin) into a contract* and sued under promisorry estoppel# G?LD6@B:
"yberchron reasonably relied on the promise and that Brumman-s pressure on
"yberchron and abrupt termination o! the transaction to buy e5uipment !rom
another company %as unconscionable# Go%ever* "yberchron-s recovery should
@?, extend prior to Fuly 10* 1990* %hen "alldata made the promises# <LE: &
party %ho relies on a promise that a contract is !orthcomin) may recover under a
$E theory#
=() 6t is not necessary !or an o!!er to address every detail o! an a)reement in order to
support a promissory estoppel claim# 6n addition* the appropriate measure o!
dama)es under $E does not include lost pro!its#
=a) Go!!man v# <ed ?%l Dtores* Dupreme "ourt o! 2isconsin* 1910# A&",D: Ha3ery
o%ner %anted to open a supermar3et !ranchise but %as re/ected by the !ranchiser
a!ter ma3in) preparations at their re5uest# <LE: 6n/ustice cannot be avoided in this
case unless the court en!orces the promises that <ed ?%l made to Go!!man and
upon %hich Go!!man %as induced to <ELC to his detriment# ,he promisee can
recover under promissory estoppel %hen promises made durin) ne)otiation %ere o!
such a nature as to induce the promisee to act on them to his detriment# &%ard is
reliance dama)es#
=.) $E dama)es
=a) "urrently no consensus on proper dama)es under $E# Dome courts say
reliance dama)es are al%ays appropriate !or promissory estoppel cases*
others say only %hen expectation dama)es exceed reliance dama)es#
!!) ;uas!*contract
=1) ,he la% may reco)ni7e an implicit a)reement* or implies an a)reement the
parties would have reached had they been able to bar)ain* under the doctrine o!
:5uasi'contract; or :constructive contract;#
=a) Doctors providin) emer)ency medical services %ithout a contract may
recover reasonable !ees !rom the patient#
=i) "otnam v# 2isdom* Dupreme "ourt o! &r3ansas* 1907: A&",D: & doctor
per!ormed an operation on a man thro%n !rom a street car and later tried to
recover !or the services rendered !rom the administrator o! Garrison-s estate#
<LE: $arties %ho provide pro!essional emer)ency services may recover a
reasonable !ee#
!!!) Rest!tut!on
=1) <estitution is an alternative basis !or recovery applied %hen there %as no valid
contract* but one party bene!ited !rom another-s act# ,o prevent un/ust
enrichment* courts may re5uire the bene!iciary to pay the actor#
=2) <estitution on a :5uasi'contract; theory is unavailable %hen a contractual remedy
exists#
=a) "allano v# ?a3%ood $ar3 Gomes "orp#* 1911# A&",D: ?a3%ood $ar3 Gomes
contracted %ith $ender)ast to sell a ne% home %hich ?a3%ood %as buildin)# He!ore
the completion o! the house* the "allanos delivered and planted shrubbery pursuant
to a contract %ith $ender)ast# $ender)ast did not pay the "allanos and died shortly
therea!ter# ?a3%ood then sold the property =includin) the shrubbery) to a ne% buyer#
,he "allanos sued ?a3%ood in order to recover payment !or the shrubbery* ar)uin)
that ?a3%ood %ould be @FD,LC E@<6"GED i! it did not have to pay !or the
shrubbery# Geld !or $ar3 Gomes+ "allanos instructed to see3 recovery !rom
$ender)ast-s estate based on their actual contract# "ourts should not employ the
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December 2007
le)al concept o! a 5uasi'contract to sustitute one promisor !or another# <LE: 6n this
case* ?a3%ood %as enriched but not un/ustly# <etention o! the bene!it by ?a3%ood
is not ine5uitable#
=() <ecovery under restitution
=a) <D (71: 6! a sum o! money is a%arded to protect a party-s restitution interest*
it may as <ust!ce re=u!res be measured by either:
=i) De!endant-s cost a&o!ded: ,he reasonable value to the other party o!
%hat he received in terms o! %hat it %ould have cost him to obtain it !rom
a person in the claimant-s position* or
=ii) ,he extent to %hich the other party-s property has been increased in
value or his other interests advanced# =dis)or)ement)
=b) <D (7(: <estitution not available i! only thin) le!t to do is to be $&6D#
$roblem %ith la%: i! there has been part per!ormance* restitution can be
)ranted in event o! breach but i! the per!ormance is done and the only thin)
le!t to do is complete the transaction =pay)* then restitution is not available 4
only expectationEreliance# @ot a popular ar)umentEschism in the la%: @o
reason %hy should you )et more money !or less %or3#
=c) 2hen expectation is LEDD than restitution ' ?-,oole scenario
=i) 6t is a principle o! the la% o! restitution that one should not )ain !rom
one-s o%n %ron)+ it is a principle o! the la% o! contracts that dama)es !or
breach should be based on the in/ured party-s lost expectation# ,hese
t%o principles are o!ten mutually consistent# 6!* on breach* the in/ured
party-s lost expectation e5uals or exceeds the )ain by the party in
breach* then dama)es based on expectation strip the party in breach o!
all )ain# Hut i! the in/ured party-s lost expectation is less than the )ain
reali7ed by the party in breach* then dama)es based on expectation to
not strip the party in breach o! all )ain# 2hen !aced %ith this dilemma*
courts have declined to apply the principle o! restitution* holdin) that a
breach o! contract is not a %ron) and allo%in) the party in breach to
3eep part o! the )ain# ,hose %ho believe in the principle o!
dis)or)ement* ho%ever* ar)ue that even i! the )ain reali7ed by the party
in breach exceeds the in/ured party-s loss* the measure o! dama)es
should strip the party in breach o! all )ain#
=d) & plainti!! %ho has partially per!ormed a contract that de!endant can prove
%as a losin) contract %ill recover more by %ay o! restitution than expectation
dama)es =revie% session)#
=.) <estitution is available in "" !or party in breach %hen buyer has breached and
paid deposit* he can )et deposit bac3* less dama)es#
!&) Wr!tten contracts en%orcea'le
=1) <e!ormin) doctrine o! consideration: >any states en!orce promises made %ithout
consideration i! they are in %ritin)# 2ills* !or example* are en!orced re)ardless o!
consideration# Pillans v. Rose: be)innin)s o! s3epticism about acceptin) :a
%ritin) alone; as bindin)#
>) 3OR8ATION O3 CONTRACTS: W"en do (ou actuall( "a&e an a$reement6
a) T"e O%%er
i) "ontracts result !rom an o!!er !rom one party !ollo%ed by the acceptance o! another
party# "orbin: :an o!!er is an act %hereby one person con!ers upon another the po%er
to create contractual relations bet%een them# ,he act o! the o!!eror operates to
create in the o!!eree a po%er+ therea!ter the voluntary act o! the o!!eree alone %ill
operate to create the ne% relations called a contract#;
ii) "" 2'20.: & contract !or sale o! )oods may be made in any manner su!!icient to
sho% a)reement* includin) conduct by both parties %hich reco)ni7es the existence o!
such a contract#
iii) <D 2.: &n o!!er is the mani!estation o! %illin)ness to enter into a bar)ain* so made as
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December 2007
to /usti!y another person in understandin) that his assent to that bar)ain is invited
and %ill conclude it#
iv) &dvertisements @?, o!!ers
=1) &dvertisements are invitations to ma3e an o!!er to purchase#
=a) EJ"E$,6?@: &n advertisement %hich is de!inite* explicit* and %hich leaves
nothin) open to ne)otiation creates a bindin) contract upon the acceptance
o! a prospective purchaser#
=i) Le!3o%it7 v# Breat >inneapolis Durplus Dtore* 1907# A&",D: & store re!used to
sell a !ur coat to a male buyer !or the advertised price o! I1# <LE: 2hen an
o!!er is clear* de!inite and explicit* and leaves nothin) open to ne)otiation* then
the advertiser can be bound by the acceptance o! a prospective purchaser# :Airst
come !irst served; statement is 3ey#
v) $rice 5uotes @?, o!!ers
=1) <espondin) to a re5uest !or a price 5uote is an invitation to ne)otiate and not a
bindin) o!!er#
=a) ?%en v# ,unison* Dupreme Fudicial "ourt o! >aine* 19(2# A&",D: 2#G# ?%en
%anted to purchase property o%ned by ,unison# Ge %rote to ,unison* tellin) him that
he %ould be %illin) to pay I1*000 !or the property# ,unison %rote bac3* statin) that
he %ould %ant at least I11*000# ?%en replied* acceptin) the :o!!er;# ,unison %rote
bac3* statin) that he did not %ant to the property# ?%en brou)ht suit and sou)ht
en!orcement o! the alle)ed a)reement o! sale# <LE: 6n order !or a contract to be
valid* there must be an actual o!!er to sell the property# 6n this case* ,unison did not
o!!er to sell his real estate# &t best* his letter indicated a %illin)ness to ne)otiate
to%ards a potential sale#
=2) Dtatin) a possible sale price is not an o!!er to sell !or that price#
=a) Garvey v# Aacey* 189(: Garvey sent Aacey a tele)ram as3in) i! he %ould sell the
property and %hat %as his lo%est price# Aacey said the lo%est price %as 900 pounds#
Garvey accepted this :o!!er;# 2hen Aacey re!used to sell the land* Garvey sued him
!or breach o! contract and re5uested speci!ic per!ormance# Goldin): Garvey-s initial
tele)ram posted 2 separate 5uestions: 1) %ill you sell the property and 2) %hats your
lo%est priceN Aacey only ans%ered the 2nd 5uestion 4 not tantamount to an o!!er to
sell Garvey the property#
=() EJ"E$,6?@: $recise lan)ua)e and details# $rice 5uotes may )ive rise to
en!orceable contracts i! they contain detailed lan)ua)e re)ardin) the re5uired
method o! acceptance =:!or immediate acceptance;)#
=a) Aairmount Blass 2or3s v# Brunden'>artin 2ooden%are* "ourt o! &ppeals o!
Kentuc3y* 1899# A&",D: Letters are exchan)ed bet%een a mason /ar manu!acturer
and a prospective buyer# <LE: & price 5uote may be the basis !or an en!orceable
contract# ?rdinarily* a contract does not close until the seller responds a!!irmatively to
an order !rom a buyer# Go%ever* the cases %hich support this vie% rely on the
lan)ua)e used by the parties in order to determine their intent# Gere* the letters
bet%een the parties may )ave rise to an en!orceable contract as soon as Brunden
accepted the terms set !orth in Aairmount-s initial reply# Aairmount @?, ?@LC )ave
them price 5uotes but also told them that the prices %ere available !or immediate
acceptance#
=.) EJ"E$,6?@: "onstruction "ontracts
=a) Dubstantial reliance by the )eneral contractor on a subcontractor-s bid %ill
de!eat the subcontractor-s ri)ht to revo3e it#
=b) <D 87=2) restates Drennan: Dubcontractors are expected to 3eep their o!!ers
open !or a reasonable amount o! time# <D 87 de!ines irrevocable o!!ers:
either i! the %ritin) itsel! says that it is irrevocable or it is irrevocable by
statute#
=i) Drennan v# Dtar $avin) "o#* Dupreme "ourt o! "ali!ornia* 1908# A&",D: &
)eneral contractor %anted to en!orce a subcontractor-s bid on a construction /ob#
G?LD6@B: Aor Drennan# Dtar $avin)-s o!!er %as @?, !reely revocable* because
their bid %as reasonably expected to induce action o! a de!inite character on the
part o! Drennan# &lso* they 3ne% that Drennan %as bound by the overall bid that
he submitted# Ainally* Dtar $avin)-s bid %as not submitted %ith any lan)ua)e
su))estin) that it %as !reely revocable be!ore acceptance# 2nd* reliance can
substitute !or consideration in cases %here in/ustice %ould result# Drennan had
7
December 2007
no %ay o! 3no%in) that there %as an error in the bid since it !ell %ithin the ran)e
o! accepted bids# ,here!ore he acted in FD,6A6&HLE reliance on Dtar-s o!!er#
<LE: an o!!er may not be !reely revocable i! the o!!eree has substantially relied
on the o!!er#
') Assent
2hat 3ind o! assent to a bar)ain bindin)N
i) 6n determinin) i! the assent %as valid* courts employ either an ob/ective or sub/ective
standard#
=1) ?b/ective: & contract is an obli)ation attached by the mere !orce o! la% to certain
&",D o! the parties* usually %ords* %hich ordinarily accompany and represent a
3no%n intent# 6!* ho%ever* it is ultimately proved that either party %hen he used
the %ords intended somethin) else than the usual meanin) %hich the la%
imposes upon them* he %ould still be held* unless there %ere some mutual
mista3e or somethin) else o! the sort#
=2) Dub/ective: :&ctual intent theory;# "onsideration o! the actual intention o! the
parties* as opposed to the out%ard mani!estation o! that intention* is relevantOO
$roblem: :,he intent o! man cannot be tried* !or the Devil 3no%s not the intent o!
man#; Essentially* i! the actual state o! the parties- minds is relevant* then each
liti)ated case must become an extended !actual in5uiry into %hat %as :intended;*
:meant;* etcP
ii) Buidin) principles in determinin) assent: Areedom to contract =non'la%yers should
be able to express bindin) intentions) and !reedom !rom contract =standards must not
allo% passin) comments to be interpreted as contracts)# "ourts loo3 !or :ob/ective
evidence o! sub/ective intent; so are not completely based on %ritin)* but %ill not
vacate a contract due to undiscoverable secret motives# ,o avoid the obli)ation o! a
bindin) contract* at least one o! the parties must express an intention not to be bound
until a %ritin) is executed# ?ther !actors help determine %hether the parties intended
to be bound in the absence o! a document executed by both sides:
=a) %hether there %as partial per!ormance o! the contract*
=b) %hether all o! the terms o! the alle)ed contract have been a)reed upon*
=c) %hether the a)reement at issue is the type o! contract that is usually
committed to %ritin)#
iii) 1art!es to a contract must man!%est an assent to t"e terms o% t"e contract/
E&!dence o% meet!n$ o% t"e m!nds/
=1) &ssent K return promise or per!ormance
=a) <D 18: >ani!estation o! mutual assent: >ani!estation o! mutual assent to an
exchan)e re5uires that each party either ma3e a promise or be)in or render
a per!ormance#
=b) "" 2'201=1)=a): nless other%ise unambi)uously indicated by the
lan)ua)e or circumstances* an o!!er to ma3e a contract shall be construed as
invitin) acceptance in any manner and by any medium reasonable in the
circumstances#
=c) "" 2'207=1): &n acceptance must be de!inite* seasonable* and sent %ithin
a reasonable time#
=d) <eturn promise =promissory acceptance)
=i) <D 21: 6ntention to be le)ally bound: @either real nor apparent intention
that a promise be le)ally bindin) is essential to the !ormation o! a
contract* but a mani!estation o! intention that a promise shall not a!!ect
le)al relations may prevent the !ormation o! a contract#
=ii) <D 01: Aor an acceptance by promise to be valid* the o!!eree must either
:use reasonable dili)ence; to noti!y o!!eror o! acceptance or the o!!eror
must receive the acceptance seasonably#
=iii) $romissory acceptance can be implicit 4 sho%in) up and startin) %or3
%ould do#
8
December 2007
=e) $er!ormance
=i) <D 19: "onduct as a mani!estation o! assent: ,he mani!estation o!
assent may be made %holly or partly by %ritten or spo3en %ords or by
other acts or by !ailure to act# H,: the conduct o! party is not e!!ective
as a mani!estation o! assent unless he intends to en)a)e in the conduct
and 3no%s or has reason to 3no% that the other arty may in!er !rom his
conduct that he assents#
=ii) "" 2'207=(): Even i! the parties- %ritin)s do not establish a contract*
their conduct may# ,he "ode-s :)ap !illers; may !ill in the missin) terms#
1# "# 6toh M "o# =&merica) 6nc# v# Fordan 6nt-l "o#*1977# A&",D: & steel seller
%anted to en!orce an arbitration clause %hich appeared on the bac3 o! their
pre'printed sales ac3no%led)ment !orms# <LE: "" 2'207 may imply a
contract based on the conduct o! the parties* even a!ter the !ailure o! a
conditional term# :2e mean it; clause 4 %here no acceptance can be !ound
because the last %ritin) %as a counter o!!er* but parties act as i! they are in
contract* then %e imply a contract and use "" )ap !illers to determine the
terms#
=iii) <D 0.: Aor acceptance by per!ormance to be valid* noti!ication is only
necessary i! the o!!eror re5uested noti!ication or i! the o!!eree has reason
to believe the o!!eror %on-t 3no% about the acceptance# <D 0.=2)=c):
Hut* the o!!eror can %aive need !or such notice# $romissory acceptance
re5uires notice but per!ormance does notO
=iv) <D .0: &n o!!er !or a unilateral contract %hich is !ollo%ed by part
per!ormance creates a bindin) contract#
1# He)innin) per!ormance on a unilateral o!!er creates an option
contract# ,his contract is sub/ect to completion o! per!ormance in
order to )ive rise to the o!!eror-s duty#
=v) <D 01 $artial per!ormance
1# E!!ect o! part per!ormance %ithout 3no%led)e o! o!!er: nless the
o!!eror mani!ests a contrary intention* an o!!eree %ho learns o! an
o!!er a!ter he has rendered part o! the per!ormance re5uested by the
o!!er may accept by completin) the re5uested per!ormance#
2# $ayin) part o! an undisputed debt is )enerally not interpreted as a
modi!ication acceptin) the partial payment as satis!yin) the entire
debt# Aoa3es v# Heer and "" ('(11#
=!) Dilence @?, usually acceptance#
=i) <D 19: Dilence can constitute acceptance in the !ollo%in) cases only:
1# =a) 2hen the o!!eree ta3es the bene!it o! the o!!er %ith reasonable
opportunity to re/ect it+
2# =b) 2here the o!!eror has said that the silenceEinaction %ill be
acceptance &@D the o!!eree meant his silence to be acceptance+
(# =c) 2here previous dealin)s ma3e it reasonable to expect that
silence is acceptance#
iv) ,he o!!eror controls the means and method o! acceptance by the lan)ua)e o! the
o!!er#
=1) <D (0=1): ?!!eror is the master o! the contract* speci!ies %hat !orms o!
acceptance %or3 =promise* per!ormance* silence* etc#)
=2) <D 0(=1): $er!ormance is only ?K !or acceptance i! o!!eror says so#
=() <D 10: 6! an o!!er states placeEtimeEmanner o! acceptance* must be complied %ith
!or there to be acceptance but i! the timeEplaceEmanner is /ust a su))estion* then
other methods are permitted#
=a) 6nternational Ailter "o# v# "onroe Bin* 6ce M Li)ht "o#* "ommission o! &ppeals o!
,exas* 1920# A&",D: & %ater !ilter manu!acturer re!used to cancel an ice company-s
order !or a !ilter# <LE: &n acceptance is e!!ective %hen the o!!eree uses the po%er
)ranted by the o!!er to crate a bindin) contract# ,he o!!eror can control the method o!
acceptance %ith the lan)ua)e o! the o!!er# & valid contract %as !ormed %hen "onroe
accepted the o!!er and 6A" approved# ,he o!!er explicitly stated that a contract %ould
9
December 2007
be !ormed %hen "onroe accepted the o!!er and %hen 6A"-s executive o!!icer
approved it#
v) &n o!!er %hich merely su))ests a means o! acceptance may become bindin) upon
the o!!eree-s per!ormance o! the contract#
=1) &llied Dteel and "onveyors* 6nc# v# Aord >otor "o# A&",D: A?<D sou)ht to hold &llied to
an indemni!ication a)reement %hen an &llied employee %as in/ured at the A?<D plant#
<LE: 6! the o!!eror merely su))ests a means o! acceptance* other methods o!
acceptance are not precluded# & bindin) contract results i! the o!!eree be)ins or
completes per!ormance durin) the period allotted !or the return promise#
vi) "ontract en!orceable despite one-s sub/ective belie! o! /o3e
=1) Lucy v# Qehmer* Dupreme "ourt o! &ppeals o! Rir)inia* 190.# A&",D: Lucy and Qehmer
%ere drin3in) at a bar %hen Lucy o!!ered to buy Qehmer-s !arm !or I00*000# Qehmer
thou)ht it %as a /o3e but %rote up an a)reement o! sale on the bac3 o! a bar bill# "ontract
%as en!orced and speci!ic per!ormance ordered# <LE: ,he ?HFE",6RE 6@,E@, o! the
parties is central to a determination o! their desire to be bound# ,he mental assent o! the
parties is not re5uisite !or the !ormation o! a contract#
=2) Leonard v# $epsico* 1999# A&",D: & !anci!ul* unrealistic advertised o!!er that :no
reasonable person could have concluded; %as /ud)ed not bindin)#
c) L!m!tat!ons to assentacceptance
i) <D (0=2): 6n the absence o! express provisions in the o!!er* an acceptance must be
by reasonable means )iven the circumstances o! the o!!er#
=1) 2hite v# "orlies M ,i!t* "ourt o! &ppeals o! @e% Cor3* 1871# A&",D: & builder accepted a
construction contract by be)innin) to purchase lumber !or the /ob# <LE: &!ter an o!!er is
made* the o!!eree can only accept by some a!!irmative act# ,his act need not be
immediately communicated to the o!!eror# 6t must* ho%ever* be a proper response* )iven
the usual course o! events* and be communicated to the o!!eror %ithin a reasonable
amount o! time# 2hite received communication !rom "orlies %hich %as an o!!er# ,his
o!!er too3 the !orm o! an acceptance o! his bid and a re5uest that the %or3 start
immediately and be completed in t%o %ee3s# Go%ever* "orlies could not distin)uish
2hite-s preparations !or their /ob !rom any other /ob !or %hich he mi)ht be )ettin) ready#
&s a result* his acceptance %as never communicated to them and they had a ri)ht to
cancel the o!!er#
ii) <easonable time re5uirement
=1) 6n the absence o! express provisions in the o!!er* the o!!eror must allo% a
reasonable amount o! time !or acceptance#
=a) Ever',ite <oo!in) "orporation v# Breen# A&",D: & roo!in) company arrived to start a
/ob only to discover that their prospective client had hired someone else# <LE: ,he
Breens did not )ive Ever',ite notice that they didn-t %ant tem to %or3 on the house
%ithin a <E&D?@&HLE &>?@, ?A ,6>EO ,he Breens 3ne% that it mi)ht ta3e
some time !or !inancin) to come throu)h* and Ever',ite did not ta3e an exceptionally
lon) time to process and be)in the /ob# &cceptance by per!ormance is valid !orm o!
notice %hen commenced %ithin a reasonable amount o! time#
d) Term!nat!on o% Acceptance
!) RS ?2?>: O%%ers are 3REEL5 RE@OCA4LE 'e%ore t"e( are accepted/
ii) <D (1: ,he po%er o! acceptance can be terminated by:
=1) Lapse o! the o!!er*
=2) <evocation or re/ection*
=() Death or incapacity o! the o!!eror*
=.) ?!!eree-s re/ection#
iii) L&$DE
=1) <D .1: ?!!ers L&$DE a!ter a period o! time# 6! no period is stated in the o!!er* it
lapses a!ter a :reasonable; time# 2hat is reasonable depends on the
circumstances and %hat could be acceptable to a reasonable man in the o!!eror-s
position#
=2) "" 2'201=2): 6! the o!!eree does not )ive notice o! acceptance %ithin a
10
December 2007
reasonable time* the o!!eror may treat the o!!er as havin) lapsed be!ore
acceptance and is not re5uired to per!orm#
iv) <D .(: 6ndirect communication o! revocation: &n o!!eree-s po%er o! acceptance is
terminated %hen the o!!eree receives !rom the o!!eror a mani!estation o! an intention
not to enter into the proposed contract# =Girin) alternative contractor to do %or3 is
enou)h#s)
v) <D .1: 6! an o!!eree does not receive notice o! a revocation* the o!!eror is not bound
by the o!!eree-s acceptance#
vi) <D .8: &n o!!eree-s po%er o! acceptance is terminated by the o!!eror-s death or
incapacity* even i! the o!!eree is not a%are o! the death o! incapacity#
vii) EJ"E$,6?@: ?ption contractsE!irm o!!ers
=1) "ommon la%: Airm o!!ers are !reely revocable in the absence o! separate
consideration =nominal payment* peppercorn* etc)#
=a) & promise to 3eep an o!!er open !or a stated period o! time creates an option#
=i) <a)osta v# 2ilder* Dupreme "ourt o! Rermont* 1991# A&",D: & shop o%ner and
a prospective buyer disputed the meanin) o! a cash'in'hand o!!er that the o%ner
made !or the sale o! the shop# <LE: &n o!!er is !reely revocable until the o!!eror
is bound by a valid acceptance#
=b) 2ithout separate consideration* an o!!eror may revo3e an o!!er anytime
be!ore the o!!eree-s deadline to accept the o!!er# ?ption contracts are only
bindin) i! there is consideration#
=i) Dic3inson v# Dodds* "ourt o! &ppeal* "hancery Division* 1871# A&",D: an
o!!eror )ave an o!!eree until Ariday to accept an o!!er to sell property* but sold the
property to someone else on ,hursday# <LE: 2ithout separate consideration*
an o!!eror may revo3e an o!!er anytime be!ore the o!!eree-s deadline to accept
the o!!er# 6n other %ords* %hen an o!!eror states that an o!!er %ill be open !or a
certain period o! time* he may accept another o!!er %ithin that period i! no
consideration is paid to 3eep the o!!er open#
=2) <D ?ption contracts
=a) <D 20: &n option contract is a promise %hich meets the re5uirements !or the
!ormation o! a contract and limits the promisor-s po%er to revo3e an o!!er#
=b) <D (7: &n o!!eree under an option contract may still accept the o!!er a!ter
re/ectin) it* i! the option has not expired#
=() "" 2'200
=a) &n o!!er is !irm and irrevocable i!:
=i) it is an o!!er to buy or sell )oods*
=ii) it is made by a merchant* and
=iii) it is a si)ned %ritin)#
=iv) 6n no event %ill the period o! irrevocability be lon)er than three months#
(v) 6! the o!!eree submits a !orm on %hich the o!!eror is supposed to set out
the o!!er* then the irrevocability condition must be separately si)ned by
the o!!eror#
(b) & !irm o!!er in e!!ect creates an option contract %ithout re5uirin) any
consideration !rom the prospective buyer# Hecause the !irm o!!er holds the
seller to a hi)her standard than the potential buyer* it re!lects a chan)e !rom
traditional common la%* %hich treated all parties to a contract the same %ay*
to a more modern vie% that holds certain parties to a hi)her standard o!
behavior#
viii) $E can be used to recover breach o! a !irm o!!er i! the promise %as reasonably and
detrimentally relied on#
e) 4attle o% t"e 3orms
&cceptance varyin) the o!!er+ the exchan)e o! pre'printed business documents %ith
!re5uently diver)ent terms* o!ten in an e!!ort to out%it the other party#
i) "ommon la%
=1) >irror 6ma)e rule: &n acceptance that is not the :mirror ima)e; o! the o!!er is
11
December 2007
considered a re/ection o! the ori)inal o!!er and acts as a counter'o!!er#
ii) "" 2'207: 6ntricate approach to varyin) the terms o! the o!!er* re/ectin) the mirror
ima)e rule %hile admittin) terms into contracts under certain conditions#
=1) "" 2'207: "ontract !ormation and contract terms are no lon)er determined at
the same time# <eco)nition that contracts chan)e over time* so terms are not
set at the moment that the contract is !ormed* additional terms in %ritin) are
considered proposals that are incorporated into the contract unless they
materially alter the contract or one o! the parties ob/ects#
=2) "" 2'(00: $rice term )ap !iller: ?pen price term: ,he parties i! they so intend
can conclude a contract !or sale even thou)h the price is not settled# 6n such a
case the price is a reasonable price at the time !or delivery i!
=a) @othin) is said as to price+ or
=b) ,he price is le!t to be a)reed by the parties and they !ail to a)ree+ or
=c) ,he price is to be !ixed in terms o! some a)reed mar3et or other standard as
set or recorded by a third person or a)ency and it is not so set or recorded#
=i) 6! the parties to a contract have not a)reed on the price* the court can set
a price so lon) as the parties intend to be bound by the contract#
1# ?)lebay @orton "o# b# &rmco# A&",D: &!ter about 20 years o! doin)
business pursuant to a contract* the arties could no lon)er a)ree on a price
to be used# <LE: 6! parties to a contract have not a)reed on the price* the
court can reinterpret or set a ne% price so lon) as the parties intend to be
bound by the contract#
=() ,he ma/ority vie% is that any di!!erent or additional terms in an o!!er and
acceptance are discarded and replaced by a suitable "" )ap'!iller#
=a) Dorton ="arpet >art) v# "ollins M &i3man "orp#* nited Dtates court o! &ppeals* 1
th

"ircuit* 1972# A&",D: & carpet manu!acturer %anted to hold a dissatis!ied retailer to
an arbitration a)reement pre'printed on the manu!acturer-s sales !orms# <LE: Gere*
the arbitration clause materially altered the contract* so it %as not an accepted part o!
the contract* but rather a re/ected su))estion# nder "" 2'207* i! an arbitration
provision materially alters an existin) a)reement* it %ill not be incorporated into the
contract unless expressly a)reed to by both parties#
=b) @orthrop "orp v# Litronic 6ndustries* 199.# A&",D: Litronic o!!ered to sell electronic
components to @orthrop !or a %eapons system+ the o!!er contained a limited 90'day
%arranty# @orthrop accepted the o!!er on terms providin) !or an inde!inite %arranty#
&!ter 90 days* @orthrop tried to return some o! the %ire boards as de!ective# Litronic
re!used to accept them* ar)uin) that he 90'day %arranty period had lapsed# <LE:
K@?"K?, D?",<6@E# 2hen the seller-s and buyer-s terms di!!er materially* the
t%o terms cancel each other out* and the contested term is supplied by a "ode )ap'
!iller# $osner points out* ho%ever* that he %ould pre!er a rule that says all additional
terms are di!!erent terms and vice versa* thus "" 2'207=2) about additional terms
should apply* unless materially alter the contract# $ro!# Boldber)* on the other hand*
su))ests a :best shot; rule* %here all terms in one !orm should be en!orced based on
their relative !airness# ,his rule %ould !orce companies to create more balanced
terms#
=.) & license enclosed in a so!t%are pac3a)e !orms a bindin) contract bet%een the
seller and buyer i! the pac3a)e provides notice that the purchase is sub/ect to a
license and the buyer can receive a re!und i! the buyer does not a)ree to the
license-s terms#
=a) $ro"D v# Qeidenber)* 1991# A&",D: $ro"D sold a "D'<?>* Delect$hone*
containin) a valuable database to the )eneral public !or I100* and a sli)htly di!!erent
product to commercial buyers !or a hi)her price# Every box containin) its consumer
product stated that the so!t%are came %ith a license limitin) the use o! the pro)ram to
non'commercial purposes# Qeidenber) bou)ht several consumer pac3a)es o!
Delect$hone and resold the pac3a)es on the internet# $ro"D sued Qeidenber)
see3in) an in/unction a)ainst !urther dissemination o! the database in violation o! the
licenses# <LE: & license enclosed in a so!t%are pac3a)e !orms a bindin) contract
bet%een the so!t%are seller and buyer i! the pac3a)e provides notice that the
purchase is sub/ect to the license and the buyer can receive a re!und i! the buyer
does not a)ree to the license-s terms# 6n other %ords* acceptance o! a hidden license
occurs at be)innin) o! use a!ter license has been read* not at time o! purchase#
12
December 2007
,hus* i! buyer uses so!t%are* he has accepted terms and is bound by them#
=0) & ne% promise by the parties to an existin) contract constitutes a mutual
rescission o! the existin) contract and the !ormation o! a ne% one#
=a) 2at3ins M Don v# "arri)* Dupreme "ourt o! @e% Gampshire* 19.1# A&",D: "arri)
hired 2at3ins to di) a cellar* and a)reed to pay nine times more a!ter learnin) they
had to di) throu)h solid roc3# <LE: & ne% promise by the parties to an existin)
contract constitutes a mutual rescission o! the existin) contract and the !ormation o! a
ne% one# "arri) intentionally and voluntarily yielded to a demand !or a special price
!or excavatin) roc3# 6n doin) this* he yielded his contractual ri)ht to the earlier price#
6! the essence o! this later transaction %as "arri)-s promise to pay more !or the
excavation* then there %as also* in its inherent ma3eup* a valid dischar)e o! an
obli)ation by "arri)# Dince "arri) relin5uished this ri)ht o! price* he should be held to
the ne% a)reement#
%) 1re*contractual L!a'!l!t(
i) Liability %hen @e)otiations Hrea3 Do%n
=1) 6! ne)otiations brea3 do%n* a party may be able to recover !or any bene!it
con!erred on the other party#
=a) $recision ,estin) Laboratories v# Kenyon "orp#
ii) nder @D<?6, $rinciple 2#10=2)* a party %ho ne)otiates or brea3s o!! ne)otiations
in bad !aith is liable !or the losses caused to the other party#
iii) &)reements to a)ree are not bindin)# Go%ever* an a)reement to ne)otiate in )ood
!aith to%ard a prospective contract may be bindin) i! it satis!ies the re5uirements !or a
bindin) contract#
=1) "hannel Gome "enters* Division o! Brace <etail "orp# v# Brossman* 1981# A&",D: &
mall developer abruptly cancelled lease ne)otiations %ith a prospective tenant# <LE:
2here parties intended to be bound to ne)otiate in )ood !aith and consideration %as
)iven* the a)reement to ne)otiate is in itsel! a bindin) contract#
$) T"e Re=u!rement o% De%!n!teness
i) ,he terms o! a contract must be su!!iciently de!inite in order to be en!orced#
=1) <D ((: ,he terms o! a contract are reasonably certain =de!inite) i! they provide a
basis !or determinin) the existence o! a breach and !or )ivin) an appropriate
remedy#
=a) Go%ever* i! terms are ambi)uous and there is a )enuine and reasonable
misunderstandin) o! the parties as to their meanin)* there is no assent or
en!orceable contract#
=i) <D 20: E!!ect o! misunderstandin)
1# ,here is no mani!estation o! mutual assent to an exchan)e i! the
parties attachS materially di!!erent meanin)s to their mani!estations
and
a# @either party 3no%s or has reason to 3no% the meanin)
attached by the other+ or
b# Each party 3no%s or each party has reason to 3no% the meanin)
attached by the other#
=2) "" 2'20.: Even thou)h one or more terms are le!t open a contract !or sale
does not !ail !or inde!initeness i! the parties intended to ma3e a contract and
there is a reasonably certain basis !or )ivin) an appropriate remedy#
=a) "" 2'20.: & contract !or sale o! )oods may be made in any manner
su!!icient to sho% a)reement* includin) conduct by both parties %hich
reco)ni7es the existence o! such a contract#
ii) "ourts loo3 at the parties- preliminary ne)otiations and prior communications*
)overnmental re)ulations* trade usa)es* and the parties- course o! dealin) and
per!ormance to determine %hether the inde!initeness can be cured#
=1) ,erms such as :reasonable e!!orts; ad :)ood !aith; are re)arded as su!!iciently
de!inite i! their content can be determined by re!erence to some external
standard#
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December 2007
iii) &n option a)reement may be su!!iciently de!inite to bind the contractin) parties i! its
provisions are su!!icient to enable the parties to reach a subse5uent a)reement#
=1) ,oys* 6nc# v# Hurlin)ton "ompany* 1990# A&",D: & lessor and lessee reach an
a)reement %hen the lessee attempts to exercise a rene%al option# <LE: &n option
provision may be su!!iciently de!inite to be bindin) i! it contains terms %hich enable the
parties to satis!y their subse5uent a)reement# ,he phrase :at the prevailin) rate; in
re!erence to rent in lease rene%al is su!!icient to demonstrate an intention o! parties to
ne)otiate in )ood !aith* and thus an option contract#
iv) & party %ho has per!ormed under an a)reement that is unen!orceable !or
inde!initeness is entitled to restitution#
=1) $yeatte v# $yeatte: "ourt re!used to en!orce the husband-s promise to put his %i!e throu)h
a master-s de)ree pro)ram* !indin) the a)reement too inde!inite as to :the time %hen she
%ould )o to )rad school* the school she %ould attend and the cost o! the pro)ram#;
Go%ever* %hile the a)reement !ailed to meet the re5uirements o! an en!orceable contract*
it still has importance in considerin) the %i!e-s claim !or un/ust enrichment because it both
evidences her expectation o! compensation and the circumstances %hich ma3e it un/ust to
allo% her husband to retain the bene!its o! her extraordinary e!!orts#
?) INTER1RETIN) TAE CONTRACT
,he :la% o! the contract; re!ers to /udicial rules !or interpretin) and construin) contractual terms*
as distin)uished !rom :contract la%; =en!orceability o! contracts)#
a) "" 2'202: $arol Evidence <ule: 2hen a %ritten contract is :inte)rated; =intended as the
parties- !inal and comprehensive a)reement)* evidence o! contrary oral a)reements may
not be introduced to re'interpret the contract-s %ritten terms#
i) $arol evidence rule involves presumptions+ di!!erent /ud)esEcourts %ill )ive di!!erent
presumptions varyin) %ei)ht#
b) <D 21(: $arol Evidence <ule: 2ritten contracts :dischar)e prior a)reements;* i#e# bar
prior %ritin)s# ,hey also bar subse5uent oral statements#
c) ,2? D,E$D to determine application o! parol evidence rule accordin) to <D 209=2)*
210=():
i) Determine %hether the %ritin) %as adopted by the parties as a :!inal expression o!
one or more terms o! an a)reement;+
ii) 6! there is such a %ritin)* determine %hether it is an :completely inte)rated
a)reement; or a :partially inte)rated a)reement#;
d) <D 209* 210: &n :inte)rated a)reement; is the !inal expression o! the a)reement-s terms*
as adopted by the parties# ?!ten a contract intended as the !inal one %ill include a
:mer)er clause; statin) that this version is the !inal %ritten a)reement* and any contrary
a)reements are superseded#
e) &n oral a)reement cannot be considered a separate* breachable contract i! it !alls %ithin
the scope o! a contemporaneous %ritten a)reement#
i) Bianni v# <# <ussell M "o#* Dupreme "ourt o! $ennsylvania* 192.# A&",D: Bianni* a small
shop3eeper* claimed that is landlord breached an oral a)reement )rantin) him the exclusive
ri)ht to sell drin3s in the buildin)# Bianni ar)ued that the oral a)reement %as a separate*
independent a)reement !rom the lease* %hich :did not belon) in the %ritin) at all and is not
)ermane to its provisions#; <LE: ?nce the parties to a ne)otiation arrive at a %ritten
contract* it is presumed to be the best and only evidence o! their obli)ations# ,he court %ill not
consider evidence o! other a)reements %hich %ould alter the contract-s terms* other%ise
3no%n as parol evidence* unless a party alle)es !raud* accident* or mista3e# ,hat said* the
court has to determine %hether the %ritten a)reement is a :contract complete %ithin itsel!; and
%hether the oral a)reement !alls %ithin the !ield o! the %ritten contract# 6! so* then they cannot
be considered separate a)reements and the %ritten contract %ill )overn the parties-
relationship# 6! not* the oral a)reement may be considered a totally separate contract# ,he
%ay to determine this is to loo3 at %hether the oral contract %ould naturally and normally be
included in the %ritten contract 4 i! they relate to the same sub/ect matter* %ere executed at the
same time* etc# Gere* the alle)ed oral a)reement and its sub/ect matter %ould naturally have
been incorporated in the %ritten contract# ,here!ore* %e cannot reco)ni7e it as a separate
a)reement and %e are precluded !rom considerin) it as evidence o! the terms o! the %ritten
contract#
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December 2007
!) & court* %hen considerin) a disputed contract* may consider evidence o! a collateral
a)reement only i! it o! a sort that %ould naturally be made separately !rom the disputed
contract#
i) >asterson v# Dine* Dupreme "ourt o! "ali!ornia* 1918# A&",D: & married couple too3
possession o! their in'la%s ranch* but re!used to honor their in'la%s- option to buy it bac3#
<LE: & court* %hen considerin) a disputed contract* may consider evidence o! a collateral
a)reement i! it is o! a sort that %ould naturally be made separately !rom the disputed contract#
)) <ules o! 6@,E<$<E,&,6?@
i) <LE: 1) plain meanin)* 2) ob/ective evidence o! interpretation* () trade usa)e* .)
asymmetry in 3no%led)e o! parties* .) sub/ective interpretation#
=1) $lain meanin)
=a) sually* courts try to interpret contracts accordin) to their lan)ua)e-s plain
meanin)# Hut i! the lan)ua)e is :va)ue; =allo%in) several reasonable
interpretations)* :ambi)uous; =unclear) or inconsistent* then courts must
supply a meanin)# 6nterpretin) contractual lan)ua)e is usually a !actual
in5uiry* but is made by courts rather than /uries#
=2) ?b/ective evidence is necessary to support a particular interpretation o! an
ambi)uous contract term#
=a) Ari)aliment 6mportin) "o# v# H#@#D# 6nternational Dales "orp#* 1910# A&",D: &n
importer and an exporter disputed the meanin) o! the %ord :chic3en; in their supply
contract# <LE: ,he sub/ective interpretation o! a contract term must be coupled %ith
ob/ective evidence supportin) that interpretation# ,here is a hierarchy o! evidence in
determinin) meanin) o! terms in contract:
=i) =best) express terms
=ii) course o! per!ormance =%hat has happened so !ar in ,G6D particular contract)
=iii) course o! dealin) =%hat has happened over history o! parties- relationship)
=iv) usa)e o! trade#
=() ,rade usa)e =industry custom or terminolo)y)
=a) Gurst v# 2#F# La3e M "o#* 19(2# A&",D: Gurst %as a horse meat trader %ho a)reed
to sell 2#F# La3e M "o# (00 tons o! horse meat scraps at I00 per ton# ,he parties
a)reed that the scraps %ould be over 00T protein# 6! La3e discovered* a!ter testin)*
that the scraps %ere less than 00T protein* they could deduct I0 !rom each ton %hich
did not measure up# La3e ultimately deducted I0 !rom each 1.0 tons that did not
meet the 00T protein minimum# ,he non'con!ormin) scraps measured any%here
!rom .9#0(T to .9#91T protein# Gurst sued to recover the deductions !or these
scraps# Ge claimed that both parties %ere experienced horse meat traders#
&pparently* it %as understood in the trade that a contract callin) !or no less than 00T
protein %as satis!ied by scraps %hich measured over .9#0T protein# "ourt !ound !or
Gurst# <LE: "ourt may rely on trade usa)e to in!orm its interpretation o! a
seemin)ly unambi)uous contract term#
=.) &symmetry in parties- 3no%led)e
=a) 6! the o!!eree 3no%s or has reason to 3no% o! the o!!eror-s material mista3e at
the time o! acceptance* the o!!eror is not bound# Di!!iculty arises %hen the
o!!eror claims that the ma)nitude o! the mista3e %as such that it should have
been apparent !rom the !ace o! the o!!er# "ourt al%ays has to determine
2G? has the burden o! proo!# Dince there %as an industry standard* burden
o! proo! %as on the buyer in Ari)aliment case# "ourt must as3: %as there
any asymmetry in reasons %hy parties had di!!erent sub/ective meanin)sNN
2ho had an easier /ob !i)urin) out %hat the other party really meantN 2hich
sub/ective meanin) %as more /usti!iedN
=0) Dome courts !reely admit extrinsic evidence o! parties- sub/ective intent to assist
in the interpretation o! disputed contractual terms#
(a) <D 21.: 6t is appropriate to appeal to extrinsic evidence to determine both
%hat a %ritten document means and* independently o! that* %hether it is a
complete inte)ration#
=b) 2hen decidin) %hether to admit extrinsic evidence in a completely inte)rated
contract* courts !ollo% 2 step process: 1) Airst* they decide %hether the
contract-s lan)ua)e is ambi)uous* 2) 6! so* they admit extrinsic evidence
15
December 2007
relevant to the 5uestion o! %hat the %ords mean* or %hich o! several
meanin)s %as the intended one#
ii) Roidableness o! &mbi)uous "ontracts
=1) & contract may be voided i! it contains an ambi)uous term %hich %as* in !act*
interpreted di!!erently by the parties#
=a) <a!!les v# 2ichelhaus* "ourt o! Exche5uer* 181.# A&",D: ,%o parties to a cotton
transaction disa)reed as to the exact identity o! a ship named in their contract#
<LE: Ces# <a!!les and 2ichelhaus did not ma3e it clear that the $eerless %as a
particular ship sailin) on a particular date# 2hen it turned out that there %ere actually
t%o di!!erent ships named $eerless* a latent ambi)uity %as exposed in the contract#
6n that event* the court can hear parol evidence in order to establish that there %as an
actual sub/ective disa)reement bet%een the parties# Dince there %as no consensus*
there is no contractO Dince there is no contract* <a!!les has no ri)ht to sue !or its
breach#
=b) 6n order to void a contract due to ambi)uity* neither party should have been
a%are o! the other-s interpretation#
=i) ?s%ald v# &llen* 1919# A&",D: ,%o coin collectors each had a di!!erent
interpretation o! a contract !or the sale o! D%iss coins# <LE: & contract can be
voided i! it contains an ambi)uous term %hich %as* in !act* interpreted di!!erently
by the parties# & contract should not be en!orced %hen each party has
interpreted an ambi)uous term di!!erently* unless one party should have been
a%are o! the other-s understandin)#
=ii) ?rdinarily* contracts are en!orceable despite the parties- !ailure to come to a
sub/ective understandin) over their terms# ,his is a rare case* ho%ever* %here
there is no reason to en!orce one party-s interpretation over the other# @either
?s%ald nor &llen 3ne% that they %ere each contemplatin) a di!!erent coin
collection#
=2) &n unambi)uous and !inal contract may not be re!ormed based on parol
evidence#
=a) 2#2#2# &ssociates* 6nc# v# Biancontieri* "ourt o! &ppeals o! @e% Cor3* 1990#
A&",D: &n inte)rated real estate contract )ave either party the option to cancel#
2hen the seller unexpectedly canceled* the buyer demanded speci!ic per!ormance*
contendin) the option %as intended !or G6D bene!it alone# <LE: &n unambi)uous
and !inal contract may not be re!ormed based on parol evidence#
B) STATUTE O3 3RAUDS
a) 6ntroduction
i) ,raditionally* statutes o! !rauds* the pro)eny o! a 1177 En)lish statute* re5uire the
!ollo%in) contracts to be in %ritin) in order to be en!orceable:
8 arria)e
5 ear or lon)er
L and sales
E xecutors o! estates
) oods
S uretyship
b) ""
i) 2'201=1): Except as other%ise provided in this section a contract !or the sale o!
)oods !or the price o! I000 or more is not en!orceable by %ay o! action or de!ense
unless there is some %ritin) su!!icient to indicate that a contract !or sale has been
made bet%een the parties and si)ned by the party a)ainst %hom en!orcement is
sou)ht or by his authori7ed a)ent or bro3er#U
=1) Exception: Het%een merchants i! %ithin a reasonable time a %ritin) in
con!irmation o! the contract and su!!icient a)ainst the sender is received and the
party receivin) it has reason to 3no% its contents* it satis!ies the re5uirements o!
subsection =1) a)ainst such party unless %ritten notice o! ob/ection to its contents
is )iven %ithin 10 days a!ter it is received#
ii) "" 2'201=1): >a/or re!orm o! ni!orm "ommercial "ode %as a relaxation o! the
16
December 2007
re5uirements !or a :%ritin); that the Dtatute o! Arauds imposed# :,he re5uired %ritin)
need not contain all the material terms o! the contract =such as price* time and place
o! payment* the )eneral 5uality o! the )oods* etc)# &ll that is re5uired is that the
%ritin) a!!ord a basis !or believin) that the o!!ered oral evidence rests on a real
transaction# ,he only term %hich must appear is the 5uantity termP; &lso*
accordin) to the statute* a %ritin) is not insu!!icient because it incorrectly states a
term a)reed upon# 6! the 5uantity is understated* ho%ever* recovery is limited to the
amount stated#
=1) &lmost any !orm o! si)nin) %ill su!!ice* so lon) as he si)nor had the intention o!
authenticatin) the instrument#
=a) "" 1'201=(9): Di)nin) includes :any authori7ation %hich identi!ies the party
to be char)ed#;
=b) 2ritin) does not have to beV si)ned by both parties* only party char)ed#
=c) "" 2'201: "urious merchant-s exception to the rule that the party to be
char)ed must have si)ned the document# ,he rationale is that re)ular
mar3et players %ill usually )ive notice o! their ob/ection upon receivin) a
memorandum indicatin) the merchant-s assent to a contract to %hich it did
not a)ree#
c) "ommon la%
i) <D 1(1E1(2: ,he %ritin) must state %ith reasonable certainty the essential terms o!
the unper!ormed promises in the contract# "ontract terms can be scattered amon)
multiple %ritin)s* so lon) as they re!erence each other and one si)nature#
=1) Duretyship "lause: re5uires that contracts %here one person a)rees to ans%er
!or the debt o! another must be in %ritin)# 2hyN Hecause suretyship contracts
tend to be one'sided and there is no bene!it to )uarantor* so it is hard to tell i!
they intended it#
=a) nder the :main purpose doctrine;* a suretyship a)reement is ta3en out o!
the Dtatute o! Arauds i! the promisor has made the a)reement !or his o%n
purpose* rather than !or the bene!it o! the ori)inal debtor#
=i) $o%er Entertainment 6nc# v# @ational Aootball Lea)ue $roperties* 6nc#* nited
Dtates "ourt o! &ppeals* 0
th
"ircuit* 1998# A&",D: &lle)in) that it had entered
into an oral a)reement to have a sports merchandisin) license trans!erred to it in
exchan)e !or assumin) the debt o! the previous licensee* a company !iled suit
a)ainst the licensor %hen the latter re!used to trans!er the license# <LE: &n
oral a)reement to pay the debt o! a another is not %ithin the statute o! !rauds i!
the main purpose o! the promisor are separate !rom those o! the ori)inal debtor#
=b) Dtatute o! !rauds is inapplicable %here the )uarantor receives a direct bene!it
!rom the a)reement and does not merely act as a surety#
=i) Lan)man v# &lumni &ssociation o! R&* 199.# A&",D: Lan)man and Dto%e
)ave some land to the &lumni &ssociation throu)h a deed that provided !or the
&ssociation to assume any debts on the property# <LE: a )rantee o! a deed
%ho assumes an existin) mort)a)e is not a surety because he or she does not
ma3e a promise to the mort)a)ee to pay the debt o! another* but instead
promises the )rantor to pay to the mort)a)ee the debt the )rantee o%es to the
)rantor#
=2) Cear or Lon)er 4 only applies to contracts 6@"&$&HLE o! bein) per!ormed in
less than a year#
=a) "ontract to ma3e payments on debt over period o! 0 years 4 not covered
=could be per!ormed in 1 year i! you %on the lottery)
=b) Employment contracts 4 covered#
=c) "ontract to %or3 !or 11 months startin) 2 months !rom date 4 covered#
=d) "ontract to not %or3 !or competitors !or 0 years 4 not covered because
candidate could die in ( months* then %ould have per!ormed in less than 1
year#
=() <e5uisites o! <ecordin) and Di)nin)
=a) Aull expression: "ourts have traditionally stated that* to satis!y the Dtatute o!
Arauds* the re5uired %ritin) or memo must contain the :essential elements;
17
December 2007
or material terms and conditions o! the a)reement#
d) &melioration =relaxin) the standard o! the Dtatute o! Arauds)
i) $art per!ormance o! an oral contract %hich is %ithin the statute o! !rauds may lead to
non'en!orcement o! the statute#
=1) Fohnson Aarms v# >cEnroe* Dupreme "ourt o! @orth Da3ota* 1997# A&",D: &
partnership see3in) to buy a parcel land !iled suit !or speci!ic per!ormance o! an oral
option to purchase land on the )round that its part per!ormance too3 the option out o! the
statute o! !raud# <LE: ,he statute o! !rauds is inapplicable %hen on party partly per!orms
on an oral real estate contract# ,hree part test: payment* improvements* possession# ,he
idea is to prevent !raud =people sayin) contract existed %hen there %as none)# 6! %e have
tan)ible evidence that K did exist =and partial per!ormance is tan)ible evidence)* but %e
i)nore it bEc no %ritin)* %e are allo%in) !raud rather than preventin) it#
ii) <D 1(9: DoA %ill be estopped i! necessary to prevent in/ustice# 6n determinin)
%hether to apply* must consider:
=1) <eliance
=2) n/ust enrichment
=() Evidence
=a) >onarco v# Lo Breco* 1900# A&",D: "hristie orally a)reed to %or3 his parents- !arm
in exchan)e !or havin) it passed on to him* but the !ather passed it to his )randson#
<LE: ,he statute o! !rauds does not apply %hen there is reliance on a verbal
promise and the e!!ect o! applyin) the statute o! !rauds %ould be in/ustice# ,he
:reliance; that must be present is not a reliance that contract %ill later be put in
%ritin)* but reliance that the contract %ill be per!ormed#
,) ECCUSES
<easons to )et out o! an a)reement le)itimately#
<D (71: remedy !or duressEconcealmentEmisrepresentationEmista3e K restitution# & party %ho has
avoided a contract on the )round o! lac3 o! capacity* mista3e* misrepresentation* duress* undue
in!luence or abuse o! a !iduciary relation is entitled to restitution o! any bene!it that he has
con!erred on the other party by %ay o! part per!ormance or reliance# Unconsc!ona'!l!t( onl(
leads contract not to 'e en%orced/
a) Duress
i) <D 17.: 2hen parties are physically compelled to enter contracts* they are not valid#
ii) <D 170: Duress involves an improper threat that leaves the victim no reasonable
alternative#
iii) <D 171: & contract is voidable on the )round o! duress %hen it is established that the
party ma3in) the claim %as !orced to a)ree to it by means o! a %ron)!ul threat
precludin) the exercise o! his !ree %ill#
=1) &ustin 6nstrument* 6nc# v# Loral "orporation* "ourt o! &ppeals o! @e% Cor3* 1971# A&",D:
&ustin be)an deliverin) parts to Loral !or one )overnment contract* but stopped delivery
until Loral paid &ustin !or all the parts !or a second contract# <LE: & contract is voidable
on the )round o! duress %hen it is established that the party ma3in) the claim %as !orced
to a)ree to it by means o! a %ron)!ul threat precludin) the exercise o! his !ree %ill+
economic duress is demonstrated by proo! that one party to a contract has threatened to
breach the a)reement by %ithholdin) needed )oods unless the other party a)rees to
some !urther demand* that the threatened party could not obtain the )oods !rom another
source* and that the ordinary remedy !or breach o! contract %ould be inade5uate#
iv) 2 Limits on duress as de!ense in contract actions:
=1) 6nsistence upon a reasonable de)ree o! resistance in the !ace o! a threat+ and
=2) Dubstance o! threat =threats to business interest* li!e or limb can constitute
duress* threats o! criminal or tortious in/ury may be )iven relie!* but threats o!
la%!ul action cannot be %ron)!ul in )eneral#)
=() ?nly the adversely a!!ected party can claim de!ense o! duress#
v) Economic duress is demonstrated by provin) all o! the !ollo%in):
=1) ?ne contractual party threatened to breach the a)reement =e#)# by %ithholdin)
needed )oods) unless the other a)reed to !urther demands+
=2) ,he threatened party could not obtain the )oods !rom another source+
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December 2007
=() ?rdinary remedies !or breach o! contract %ould be inade5uate#
') Undue In%luence
i) <D 177: "ontract entered into based on persuasion by someone %ho in!luenced
party thin3s has his best interests in mind but actually as ulterior motives is voidable
because %ill has been overborn#
ii) "ontracts may be void i! one party overpo%ers the other in bar)ainin)#
=1) Aiduciary <elationship: >ost undue in!luence suits involve de!endants %ho had
close personalE!iduciary relationships %ith the victim# Go%ever* courts vary %idely
in %hich relationships they deem su!!iciently close#
=2) Rulnerable $lainti!!s: ?ther common :undue in!luence; claims involve victims
%hose physical or mental condition made them unusually susceptible to pressure
=old* senile* sic3* uneducated)#
iii) "ontracts secured by excessively coercive persuasion are voidable# ,hus* severe
threats %hich are not ille)al may be challen)ed under :undue in!luence; even thou)h
they !all short o! :duress;#
=1) ?dori77i v# Hloom!ield Dchool District* 1911# A&",D: >r# ?dori77i* an elementary school
teacher !or the Hloom!ield Dchool District* %as arrested !or homosexual acts# ,he next
day* the Dchool-s principal and superintendent told him that* unless he resi)ned* e %ould
be !ired and the char)es a)ainst him %ould be publici7ed# ?dori77i sued to rescind his
resi)nation* contendin) it %as obtained by duress and undue in!luence# <LE: "ontracts
secured by excessively coercive persuasion are voidable at the victim-s option* even i! the
victim %as sane and independent* and even i! the threat %as le)al# Gere* the school used
undue in!luence to secure ?dori77i-s si)nature* assurin) him he should trust them and rely
on their advice* that there %asn-t time to consult an attorney and that !ailin) to resi)n
%ould )enerate publicity %hich %ould /eopardi7e his career else%here# &ll that is re5uired
!or undue in!luence is that the plainti!! have a lessened capacity to ma3e a !ree contract*
or that the de!endant used extraordinary !orce#
=2) 7 part test !or undue in!luence: 1) discussin) the transaction at an unusual place and time*
2) executin) it at an unusual place* () insistent demands it be executed immediately* .)
extreme emphasis on the conse5uences o! delayin)* 0) usin) multiple persuaders a)ainst
the victim* 1) absence o! advisors and 7) statements that there is no time to consult
!inancial advisors or attorneys#
c) Concealment
i) ?ld la%: @on'liability !or bare non'disclosure# & party cannot be held liable !or !ailin)
to disclose in!ormation %hich it %as under no special duty to disclose#
=1) D%inton v# 2hitinsville Dav# Han3* Dupreme Fudicial "ourt o! >assachusetts*19.2#
A&",D: 2hittinsville Davin)s Han3 3no%in)ly sold D%inton a house in!ested %ith termites#
D%inton could not readily observe this condition upon inspection and spent considerable
amounts o! money in repairin) dama)e caused by the termites and in installin) termite
control to prevent the loss and destruction o! his house# <LE: & party cannot be held
liable !or !ailin) to disclose in!ormation %hen there is no evidence o! any special duty to
disclose anythin)# ,here is no evidence that 2hittinsville made any !alse statements or
representations to D%inton re)ardin) termites in the house# Aurther* 2hittinsville did
nothin) to prevent D%inton !rom learnin) this in!ormation# 2ithout anythin) to sho% a
!iduciary relationship bet%een D%inton and 2hittinsville-s actions as !alse and !raudulent
does nothin) to advance D%inton-s claim# 6! 2hittinsville %ere to be held liable in this
matter* then every party in a transaction* %hether buyer or seller* could be held liable !or
!ailin) to disclose any non'apparent !act that he or she is a%are o! %hich %ould materially
a!!ect the value o! the item or property bein) sold#
=2) EJ"E$,6?@: &lthou)h a party may be under no duty to disclose in!ormation to
another* i! that party does spea3 %ith re!erence to a )iven point o! in!ormation*
then that party is bound to spea3 honestly and to divul)e all 3no%n material !acts
bearin) upon that point#
=a) Kannavos v# &nnino* Dupreme "ourt o! >assachusetts* 1919# A&",D: &nnino sold
her apartment buildin) to Kannavos %ithout tellin) him that the buildin) %as in
vioation o! the local 7onin) ordinances# <LE: &lthou)h a party may be under no
duty to disclose in!ormation to another* i! that party does spea3 %ith re!erence to a
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December 2007
speci!ic point o! in!ormation* then he or she is bound to spea3 honestly and to divul)e
all the material !acts bearin) upon that point %ithin his or her 3no%led)e#
ii) @e% la%: re5uires a party to disclose the truth %hen it 3no%s the other party is
contractin) based on a !alse assumption* especially %hen sellin) homes#
=1) <D 111 re5uires disclosure:
=a) ,o prevent misunderstandin) o! previous assertion*
=b) ,o correct mista3es about basic assumptions o! deal* :to act in )ood !aith
and in accordance %ith reasonable standards o! !air dealin)#;
=c) ,o correct mista3e about a %ritin) that evidences the a)reement* or
=d) 2hen a relationship o! trust and con!idence means the mista3en party
reasonably expects disclosure#
=2) "?@,E< ar)ument to 111: Dean Kronan =Hlair v# @ational Decurity 6nterest)
=a) & party %ho has deliberately and expensively ac5uired special in!ormation
should be allo%ed to trade on it 4 so that people have an incentive to ac5uire
economically productive in!ormation 4 %hereas a party %ho has ac5uired
special in!ormation causally should not be able to trade on it#
d) 8!srepresentat!on
i) <D 11.: 6! a party-s mani!estation o! assent is induced by either a !raudulent or a
material misrepresentation by the other party upon %hich the recipient is /usti!ied in
relyin)* the contract is voidable# nintentionally !alse statements can void the
contract* but in that case the misstatement must concern a material !act* and the
plainti!!-s reliance on the misstatement must have been /usti!iableEreasonable#
=1) >isrepresentation o! opinion or le)al conclusion are not actionable#
=a) Go%ever* !alse statements o! opinion by experts %ith superior 3no%led)e
may be actionable as misrepresentations#
=i) Ro3es v# &rthur >urray* 6nc#* District "ourt o! &ppeal o! Alorida* 2nd District*
1918# A&",D: &!ter a dance instructor induced a %ido% to buy numerous dance
lessons b overpraisin) her s3ill* she sued !or misrepresentation# <LE: Aalse
statements o! opinion by experts %ith superior 3no%led)e are actionable as
misrepresentations# Benerally* misrepresentations must be !actual rather than
opinion to be actionable# Hut this rule is inapplicable %hen a !iduciary
relationship exists bet%een the parties* or %here the representor employed some
arti!ice or tric3* or %ere the parties do not deal at :arm-s len)th*; or %here the
victim lac3s e5ual opportunity to learn o! the represented !acts- truthE!alsity#
Dtatements by parties havin) superior 3no%led)e may be re)arded as
statements o! !act* even thou)h they %ould be considered opinions comin) !rom
non'experts#
ii) <emedy: $arties may rescind a contract induced by !alse statements o! material !act#
e) 8!staDe
i) Did a basic assumption !ailN 2as the e!!ect o! this !ailure on per!ormance materialN
Did any party have reason to 3no% o! mista3eN =revie% session)
=1) Dimple in5uiry into %ho is in best position to prevent mista3e is not enou)h#
Dometimes person %ho %as not mista3en is not re5uired to discloseO
ii) ,raditionally* courts sho%ed reluctance to )rant relie! based on a mista3en
assumption o! the parties# <elie! %as only )ranted %hen the parties %ere mista3en as
to the :substance o! the contract; and not %hen the parties- mista3e %as only to the
5uality or value o! the exchan)e#
=1) Dtees v# Leonard* Dupreme "ourt o! >innesota* 187.# A&",D: Dtees contracted %ith
Leonard to complete a buildin) on Dtee-s lot# Hut Leonard re!used to complete the buildin)
because he discovered that the )round %as composed o! 5uic3sand# $lainti!!s alle)ed
that the !all o! the buildin) %as o%in) to the ne)li)ence and uns3ill!ul %or3 o! the
de!endants* and the poor 5uality o! material !urnished by them# <LE: 6! a person binds
himsel! to a contract* mista3e is not reason !or rescission* and nothin) short o! :absolute
impossibility; %ill excuse that party !rom !ul!illin) his duties#
=2) 2ood v# Hoynton =1880): Fe%eler =Hoynton) o!!ered I1 !or a :pretty roc3; that turned out to
be an uncut diamond# Hoynton had never seen an uncut diamond be!ore and didn-t 3no%
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December 2007
at the time o! the contract that it %as so# ltimately* the contract %as upheld because
aside !rom !raud* the only )round !or recovery %ould have been :%hen a mista3e made by
the vendor in deliverin) an article %hich %as not the article sold 4 a mista3e in !act as to
the identity o! the thin) sold %ith the thin) delivered#;
=() Dher%ood v# 2al3er =1887): "attle breeder =2al3er) arran)ed to sell sterile co%* then
!ound out she %as pre)nant and re!used to per!orm contract# "ourt said contract %as void
bEc pre)nant co% %as not the 3ind o! animal they had a)reed to exchan)e# "ourt
distin)uished bet%een mista3es about :substance; and mista3es about :5uality;#
iii) <D 102: Hoth parties %ere mista3en
=1) >odern approach permits a party to rescind a contract i! both o! the parties to the
contract %ere mista3en as to a basic assumption on %hich the contract %as
!ormed that had a material e!!ect on the a)reed exchan)e o! per!ormances#
=nder this !ormulation* i! the mista3e relates to a basic assumption o! and has a
material impact on the contract* the court must then determine %hether the
a)reement expressly or implicitly allocates the ris3 o! mutual mista3e to one o!
the parties =<D 10.)#
iv) <D 10(: nilateral mista3e
=1) 2here a mista3e o! one party at the time a contract %as made as to a basic
assumption on %hich he made the contract has a material e!!ect on the a)reed
exchan)e o! per!ormances that is adverse to him* the contract is voidable by him
i! he does not bear the ris3 o! the mista3e under 10. and
=a) ,he e!!ect o! the mista3e is such that en!orcement o! the contract %ould be
unconscionable* or
=b) ,he other party had reason to 3no% o! the mista3e or his !ault caused the
mista3e#
v) <D 10.: & party bears the ris3 o! a mista3e %hen:
=1) the ris3 is allocated to him by a)reement o! the parties
=2) he is a%are at the time the contract is made* that he has only limited 3no%led)e
%ith respect to the !acts to %hich the mista3e relates but treats his limited
3no%led)e as su!!icient*
=() the ris3 is allocated to him by the court on the )round that is reasonable in the
circumstances to do so#
vi) Dubcontractor error
=1) nder certain circumstances* particularly %hen the solicitin) party 3no%s or has
reason to 3no% that there is a mista3e in the bid* a contractor-s error in
calculatin) a bid can be )rounds !or rescission#
=a) Elsinore nion Elementary Dchool District v# Kastor!!* Dupreme "ourt o! "ali!ornia*
1910# A&",D: & )eneral contractor made an error in a bid !or a /ob and tried to )et
released !rom his bid# G?LD6@B: &s lon) as the !ollo%in) re5uirements are met* a
contractor-s bid can be rescinded: the contractor sho%s that 1) the solicitin) entity
3no%s or had reason to 3no% that there is a mista3e in the bid* 2) the mista3e %as
material and did not result !rom the ne)lect o! a le)al duty* () en!orcement o! the
contract %ould be unconscionable* .) the solicitin) entity can be returned to the
position they %ere in prior to contractin)* 0) the contractor promptly noti!ied the
solicitin) entity o! the mista3e* and 1) the contractor restores or o!!ers to restore to the
solicitin) entity everythin) o! value they have received under the contract# 2
nd
and (
rd

re5uirements are pivotal in this case# Kastor!!-s mista3e did not arise to the level o!
ne)lect o! a le)al duty and so he should have been allo%ed to rescind bid#
vii) <emedies: Either rescission* re!ormation o! the contract or restitution# 2hen a
contract is voided by mutual mista3e* dama)es are limited to restitution =no %ay to
simply split losses ' <a!!les)# ,o allo% reliance dama)es %ould be to un/ustly shi!t all
ris3 o! mista3e to one party# ,he ma/or di!!iculty courts !ace in calculatin) the extent
to %hich a party should be reimbursed is determinin) %hich expenses should be part
o! the calculation#
=a) <enner v# Kehl* Dupreme "ourt o! &ri7ona* 1981# A&",D: & purchaser o! real estate
leases sou)ht to rescind the sales contract on the )round that althou)h the parties
%ere under the belie! that the land %as suitable !or /o/oba !armin)* the %ater %ells on
the land proved inade5uate# <LE: & party %ho rescinds a contract based on mutual
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December 2007
mista3e is not entitled to recover conse5uential dama)es# =6n cases %here contract is
voided by mutual mista3e* dama)es are limited to restitution# ,o allo% reliance
dama)es %ould be to un/ustly shi!t all ris3 o! mista3e to one party# <D 102: mutual
mista3e* material e!!ect on contract* voidable#)
%) Impract!ca'!l!t(
i) ,raditionally* courts %ould dischar)e a party-s duty to per!orm upon the occurrence o!
some un!oreseen event only i! per!ormance %as rendered impossible# ,he modern
trend has been a%ay !rom re5uirin) absolute impossibility and to%ard excusin)
per!ormance %hen it becomes :commercially impracticable;#
=1) <D 211: Dischar)e by supervenin) impracticability
=a) 2here* a!ter a contract is made* a party-s per!ormance is made impracticable
%ithout his !ault by the occurrence o! an event the non'occurrence o! %hich
%as a basic assumption upon %hich the contract %as made* his duty to
render that per!ormance is dischar)ed* unless the lan)ua)e or the
circumstances indicate the contrary#
=2) "" 2'110: :?ccurrence o! a contin)ency* the non'occurrence o! %hich %as a
basic assumption on %hich the contract %as made; %ill ma3e contract invalid#
Does not apply %hen the contin)ency is !oreshado%ed and is !actored in
=implicitly or explicitly) as part o! ris3 o! doin) business#
ii) ,here is still the re5uirement that the !ailure o! a basic assumption had a material
e!!ect on per!ormance* and an emphasis on %hich party assumed the ris3 that the
contin)ency %ould occur#
iii) Even under this less demandin) commercial impracticability standard* courts still
o!ten adhere to the re5uirement that some event or contin)ency occur be!ore relie!
%ill be )ranted on the )round o! impracticability#
iv) & mere increase in cost o! per!ormance %ill not render such per!ormance
impracticable#
=1) ,ransatlantic Ainancin) "orporation v# nited Dtates* nited Dtates "ourt o! &ppeals*
D#"# "ircuit* 1911# A&",D: ,ransatlantic contracted %ith the D to deliver car)o to 6ran*
but contrary to usual practice* it sailed around the cape o! Bood Gope instead o! the Due7
"anal# <LE: "ourts %on-t )rant a party additional costs other than that a)reed in the
contract i! the party relies on a theory o! quantum meruit =under this e5uitable doctrine* the
court %ill imply a promise to ay !or labor and )oods i! a party stands to un/ustly enrich
himsel! on the labor and )oods o! another) and the part cannot sho% that its contract
per!ormance %as impractical# ,o be impracticable* all ( o! the !ollo%in) conditions must be
met: 1) somethin) unexpected must have occurred* 2) the ris3 o! the unexpected
occurrence must not have been allocated %ither by a)reement or by custom* () and
occurrence o! the unexpected event must have rendered per!ormance commercially
impracticable#
v) Aorce >a/eure clauses: contractual provisions that excuse one party-s duty to
per!orm upon the happenin) o! one o! any number o! events#
=1) $resumption in !avor o! construin) !orce ma/eure clauses narro%ly* so as to not
excuse a !ailure to per!orm under the contract#
)) 3rustrat!on
i) <D 210: ,he !rustration o! purpose doctrine %ill excuse a party-s obli)ation to per!orm
%hen per!ormance remains possible* but the value o! the contract expected by the
party see3in) to be excused has been destroyed by a !ortuitous event* %hich
supervenes to cause a practical but not literal !ailure o! consideration# 6n other %ords*
%here an un!oreseeable event de!eats one party-s sole purpose !or consummatin)
the contract* the !rustrated party %ill be excused !rom per!ormance#
=1) Krell v# Genry* "ourt o! &ppeal* 190(# A&",D: Krell announced on his %indo% that his
hotel %ould rent rooms to see the Kin)-s coronation# Genry sa% this %ritten
announcement and paid Krell a deposit in advance !or those 2 days %hen the Kin) %ould
have his coronation ceremony# Hut the Kin) )ot really sic3* and the ceremonies %ere
canceled# Krell demanded the balance o! the hotel rent and Genry re!used# Krell claimed
breach o! contract# <LE: Even thou)h per!ormance isn-t impractical* a court can still
22
December 2007
excuse per!ormance on the basis o! !rustration o! purpose as lon) as there is a non'
existence o! events %hich both parties considered as the !oundation o! the contract#
ii) <emedy
=1) ,he party is excused !rom havin) to render any !urther per!ormance#
=2) <estitution: 6!* ho%ever* the losses incurred in reliance have resulted in a bene!it
to the other party* usually restitution %ill be allo%ed# <estitution is allo%ed in the
event o! both impracticability and !rustration# 2hat amountN sually e5ual to the
bene!it to the o%ner in advancement o! the ends promoted by the contract#
") Standard 3orm Contracts
i) :&dhesion; contracts are boilerplate customer contracts common amon) lar)e
corporations#
=1) $<?-D: ,a3e advanta)e o! past experiences and /udicial decisions on similar
issues* thereby reducin) uncertainty* simpli!yin) plannin) and ma3in) ris3s
calculable#
=2) "?@-D: Dince they are %ritten entirely by one party* they are vastly !avorable to
the dra!ter# "ustomers %ishin) to do business %ith them have no choice in
acceptin) the terms* since such lar)e corporations %ill not modi!y standard
contracts !or individualsEsmall businesses %ith little bar)ainin) po%er# @or can
customers )et better terms else%here* since all competitors usually have similar
industry standard adhesion contracts# Dtandard !orm contracts are not
en!orceable i! they are unconscionable#
=() "entral 5uestion: Gas the party %ho has si)ned a standardi7ed contract be
reasonable held to have seen* understood* and assented to its un!avorable
terms* and there!ore be bound by themNN
ii) <D 211: $arties to adhesion contracts do not have to have read all terms in order to
be considered to have assented* so lon) as unread terms %ere not !raudulently
hidden or un!air# Essentially* i! a boilerplate contract contains a clause the dra!ter
should reali7e the other party %ould not adhere to* that clause is void# &ccordin)ly*
%hile adhesion contracts are en!orceable* provisions %hich 1) contradict adherents-
reasonable expectations or 2) are unconscionable &<E @?, E@A?<"E&HLE#
=1) ,his approach does not rely on re5uirement that people !ully read a)reements to
be bound by them# 211 treats assent as i! it %ere BL?H&L# :6 assent to
everythin) in this pac3a)e* even i! 6 don-t 3no% %hat-s in it#; &s lon) as terms are
reasonable* you are bound by them# ,his is di!!erent !rom vie% that one is
bound because one had the opportunity to read the contract and chose not to# 6n
211* there is a presumption that nobody is )oin) to read it* so treat the contract
as a pac3a)e deal and en!orce all reasonable terms#
=a) Braham v# Dcissor',ail* 6nc#* 1990# A&",D: &!ter a music promoter si)ned a
mandatory !orm contract re5uirin) arbitration be!ore a biased panel and then lost his
case* he sued to void the contract as unconscionable# <LE: &dhesion contracts are
en!orceable* except !or provisions %hich contradict adherents- reasonably
expectations* or are unconscionable# Gere* Braham-s contract %as adhesive* and
%hile the arbitration clause %as @?, contrary to Braham-s reasonable expectations*
since he previously used such contracts* it %as unconscionable to !orce him to ma3e
his case be!ore a H6&DED industry arbitration panel#
=2) Dtatutes have tried to deal %ith unintelli)ible adhesion terms in various %ays* li3e
re5uirin) some tin)s to be %ritten in red in3* settin) standards !or captions and
!ont si7es* etc#
!!!) L!m!tat!on o% L!a'!l!t( 1ro&!s!ons
(1) 2'(1.# Impl!ed Warrant(: 8erc"anta'!l!t(E Usa$e o% Trade: 1) nless
excluded or modi!ied =Dection 2'(11)* a %arranty that the )oods shall be
merchantable is implied in a contract !or their sale i! the seller is a merchant %ith
respect to )oods o! that 3ind# nder this section the servin) !or value o! !ood or
drin3 to be consumed either on the premises or else%here is a sale# 2) Boods to
be merchantable must be at least such as
(a) pass %ithout ob/ection in the trade under the contract description+ and
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December 2007
(b) in the case o! !un)ible )oods* are o! !air avera)e 5uality %ithin the
description+ and
(c) are !it !or the ordinary purposes !or %hich such )oods are used+ and
(d) run* %ithin the variations permitted by the a)reement* o! even 3ind* 5uality
and 5uantity %ithin each unit and amon) all units involved+ and
(e) are ade5uately contained* pac3a)ed* and labeled as the a)reement may
re5uire+ and
=!) con!orm to the promise or a!!irmations o! !act made on the container or label
i! any#
=2) 2'(10# Impl!ed Warrant(: 3!tness %or 1art!cular 1urpose/
(3) 2here the seller at the time o! contractin) has reason to 3no% any particular
purpose !or %hich the )oods are re5uired and that the buyer is relyin) on the
sellerLs s3ill or /ud)ment to select or !urnish suitable )oods* there is unless
excluded or modi!ied under the next section an implied %arranty that the )oods
shall be !it !or such purpose#
=.) "" 2'(11: E#clus!on or 8od!%!cat!on o% Warrant!es#
(a) 2ords or conduct relevant to the creation o! an express %arranty and %ords
or conduct tendin) to ne)ate or limit %arranty shall be construed %herever
reasonable as consistent %ith each other+ but sub/ect to the provisions o! this
&rticle on parol or extrinsic evidence =Dection 2'202) ne)ation or limitation is
inoperative to the extent that such construction is unreasonable#
=b) Dub/ect to subsection =()* to exclude or modi!y the implied %arranty o!
merchantability or any part o! it the lan)ua)e must ment!on merc"anta'!l!t(
and in case o! a wr!t!n$ must be consp!cuous* and to exclude or modi!y
any implied %arranty o! !itness the exclusion must be by a %ritin) and
conspicuous#
=0) "ontracts by %hich a party tries to relieve itsel! o! liability !or ne)li)ence are
)enerally en!orced* unless it %ould be a)ainst public policy to do so* or there is
somethin) in the parties- relationship militatin) a)ainst upholdin) the a)reement#
=a) ?-"alla)han v# 2aller M Hec3%ith <ealty "o#* Dupreme "ourt o! 6llinois* 1908#
A&",D: ?-"alla)han %as in/ured %hen she !ell %hile crossin) the paves courtyard
bet%een the )ara)e and her apartment and she sued the apartment o%ner* 2aller M
Hec3%ith* !or ne)li)ence* claimin) that her in/uries %ere caused by de!ective
pavement in the courtyard# ,he &ppellate "ourt held that the action %as barred by
an exculpatory clause in ?-"allahan-s lease# Geld !or Hec3%ith <ealty# <LE:
"ontracts by %hich one tries to relieve himsel! !rom liability !or ne)li)ence are
)enerally en!orced unless it %ould be a)ainst the settled public policy to do so* or
there is somethin) in the social relationship o! the parties a)ainst upholdin) the
a)reement# ?-"allahan ar)ued that the exculpatory clause %as contrary to public
policy and that !reedom to contract cannot be used to absolve one party !rom the
conse5uences o! his or her o%n ne)li)ence# 6n this case* ho%ever* there %as an
essentially $<6R&,E transaction* and clauses exculpatin) landlords !rom the
conse5uences o! their ne)li)ence have been sustained in residential as %ell as
commercial leases#
=b) H, 4 most state la%s hold that landlords cannot %aive liability to tenants !or
ne)li)ence#
=1) Hailees* %ho a)ree to store another-s )oods sa!ely* cannot disclaim liability
throu)h a contract unless:
=a) 6t )ave the bailor =o%ner) ade5uate notice o! the contract* and
=b) ,he bailor assented#
=i) Klar v# GM># & patron le!t a pac3a)e at the parcel room and received but did no
read the claim chec3# 2hen another person holdin) the tic3et later returned to
reclaim the pac3a)e* he %as told that it had been delivered to someone else by
mista3e# Ge sued the parcel room !or the alle)ed value o! the contents# Geld !or
patron# <LE: Aor an exculpatory clause to be valid* it must be sho%n that the
liable party 3ne% that there %as a contract and assented to it#
=7) Disclaimers and attempted limitations o! %arranties* %hether in a public* 5uasi'
24
December 2007
public* or private contract* are not en!orceable unless the limitation is !airly and
honestly made and understandin)ly entered into#
=a) Gennin)sen v# Hloom!ield >otors* 6nc#* Dupreme "ourt o! @e% Fersey* 1910# A&",D:
Gennin)sen sued Hloom!ield !or breach o! %arranty a!ter the steerin) in his ne% car
!ailed and Hlom!ield countered %ith a disclaimer %ritten in !ine print# <LE: Aor a
contract to be valid* it must have been :understandin)ly made;# &rcanely %ritten
boilerplate provisions cannot be :understandin)ly si)ned; by an avera)e reasonable
man* there!ore there is no assent#
=8) Aorum selection clauses in adhesion contracts are valid#
=a) "arnival "ruise Lines v# Dhute* nited Dtates Dupreme "ourt* 1991# A&",D: Eulala
and <ussel Dhute brou)ht suit a)ainst "arnival "ruise Lines in D District "ourt !or
the 2estern District o! 2ashin)ton !or in/uries su!!ered by Eulala on one o! its cruise
ships sailin) !rom L& to >exico# "arnival "ruise Lines moved !or summary
/ud)ment* ar)uin) that the !orum selection clause contained on the tic3et re5uired the
Dhutes to brin) their suit in a court in Alorida# ,he Dupreme "ourt decided in !avor o!
"arnival "ruise Lines# <LE: & !orum selection clause should be en!orced unless
the party claimin) un!airness or inconvenience can bear a heavy burden o! proo!#
,he Dhutes did not o!!er su!!icient evidence to satis!y the heavy burden o! proo!
re5uired#
!) Unconsc!ona'!l!t(
i) nconscionability has been divided into t%o 3inds:
=1) $rocedural: !ault or un!airness in bar)ainin) process* thus no assent#
=2) Dubstantive: !ault or un!airness in bar)ainin) outcome =terms)#
=a) $rocedural unconscionability is consistent %ith the bar)ainin) theory* so it is
)enerally accepted# "ourts are more %ary o! dealin) %ith substantive
unconscionability* because they don-t necessarily %ant to encoura)e courts
to revie% !airness o! terms# Epstein: substantive unconscionability
:undercuts the private ri)ht o! contract in a manner that is apt to do more
social harm than )ood#;
=b) $rice unconscionability: & court may !ind an entire contract* and not /ust a
particular clause* is unconscionable and thus unen!orceable* based solely on
an excessive price#
=i) Fones v# Dtar "redit "orp#* @e% Cor3 Dupreme "ourt* 1919# A&",D: Dtar "redit
sold a I(00 !ree7er to a poor couple* the Foneses* !or I1*200# <LE: & court
may !ind that an entire contract* and not /ust a particular clause o! it* is
unconscionable as a matter o! la% and thereby unen!orceable# ,he poorer
members o! the community* o!ten uneducated and illiterate* should be protected
!rom overreachin) by those %ith )reater bar)ainin) po%er# "ommon la% and
statutory la% have reco)ni7ed the importance o! !ree enterprise and yet have
provided le)al armor to protect customers !rom unconscionable contracts#
Dection 2'(02 o! the "" allo%s a court to manipulate !luid rules o! contract la%
and determinations based upon a presumed public policy# & )ross ine5uality o!
bar)ainin) po%er can ne)ate any meanin)!ulness o! choice#
ii) "ommon la%: & contract is unen!orceable i! its terms* considered in li)ht o! the
circumstances existin) %hen the contract %as made* are so extreme as to appear
unconscionable accordin) to prevailin) more and business practices#
nconscionability has )enerally been considered as includin) the absence o!
meanin)!ul choice !or one party combined %ith contract terms %hich are
unreasonably !avorable to the other party# Lac3 o! meanin)!ul choice may depend on
several !actors* includin) the manner in %hich the contract %as entered* or the
disparity o! bar)ainin) po%er#
=1) 2illiams v# 2al3er',homas Aurniture "o#* nited Dtates "ourt o! &ppeals* District o!
"olumbia "ircuit* 1910# A&",D: 2al3er ,homas Aurniture "ompany sold a stereo to
2illiams %ith a dra)net clause providin) that de!ault on one item bou)ht !rom 2al3er
allo%ed repossession o! all items# <LE: & contract is unen!orceable i! its terms* %hen
considered in li)ht o! the circumstances existin) %hen the contract %as made* are so
extreme as to appear unconscionable accordin) to prevailin) mores and business
practices# "" approach: court may re!use to en!orce a contract %hich it !inds to be
25
December 2007
unconscionable at the time it %as made#
iii) @eed to balance doctrine o! unconscionability %ith !reedom o! contract: ,he reasons
invo3ed !or not en!orcin) contracts are one o! t%o sorts: either there must be proo! o!
some de!ect in the process o! contract !ormation =duress* !raud or undue in!luence)*
or there must be 4 %ithin narro% limits 4 some incompetence o! the party a)ainst
%hom the a)reement is to be en!orced# ,he doctrine o! unconscionability is important
in both these respects because it can* i! %isely applied* allo% the courts to police
these t%o types o! problems and thereby improve the )eneral administration o!
contract la%# Cet %hen the doctrine o! unconscionability is used in its substantive
dimension* it serves only to undercut the private ri)ht o! contract in a manner that is
apt to do more social harm than )ood# Epstein: :6! there is one thin) %hich more
than another public policy re5uires* it is that men o! !ull a)e and competent
understandin) shall have the utmost liberty o! contractin)* and that their contracts
%hen entered into !reely and voluntarily shall be held sacred and shall be en!orced by
"ourts o! /ustice#;
!&) Remed(
=1) <D 208: 6! a contract or term thereo! is unconscionable at the time the contract is
made a court may re!use to en!orce the contract* or may en!orce the remainder
o! the contract %ithout he unconscionable term* or may so limit the application o!
any unconscionable term as to avoid any unconscionable result#
=2) "" 2'(02: :unconscionable; contracts can be voided# ,his rule is desi)ned to
allo% direct voidin)* rather than convoluted interpretation o! other rules in order to
)et around un/ust contracts# ,he commentary states that this %as intended to
prevent oppression and prevent surprise rather than to re'evaluate prices-
!airness#
->) NO DA8A)ES: 3!nd!n$ a contract unconsc!ona'le does not e#cuse t"e
a$$r!e&ed part(9 'ut rat"er allows t"e court to re%use to en%orce all or part
o% t"e contractF W"en a contract "as 'een %ull( per%ormed9 t"ere !s no
remed( %or !n<ured part(F
<) 1u'l!c 1ol!c(
i) "ourts %ill occasionally re!use to en!orce an a)reement %hich %as ne)otiated !airly
because it %ould o!!end :public policy; by creatin) undesirable results and turn to
le)islation related to the sub/ect o! the a)reement to derive the exact public policy
that the contract alle)edly o!!ends#
ii) <D 178: 6! a contract violates a criminal code or related le)islation* it is
unen!orceable* and parties cannot sue !or restitution#
iii) "lean hands: "ourts as3ed to a%ard e5uitable remedies =rescission* speci!ic
per!ormance) may re!use i! the contract or parties are involved %ith
ille)alityEimmorality* on the maxim :he %ho comes into e5uity must come %ith clean
hands#;
iv) "ovenants not to compete: "ovenants not to compete do not violate any la%s* but
may restrict !reedom o! competition* to the public-s detriment# ,hus* courts %ill
evaluate a )iven covenant-s !airness %ith public policy in mind#
=1) & covenant not to compete is valid and en!orceable only i! it is all o! the !ollo%in):
=a) 2ritten+
=b) $art o! an employment contract+
=c) Biven !or reasonable consideration+
=d) <easonable in duration and )eo)raphical limitation+ and
=e) @ot other%ise a)ainst public policy#
=2) "ourts %ill en!orce non competition covenants to the extent they are reasonably
necessary to protect the employer-s interest %ithout imposin) undue hardship on
the employee or violatin) the public interest* unless the particular circumstances
o! a case indicate bad !aith on the part o! the employer#
=a) "entral &d/ustment Hureau* 6nc# v# 6n)ram* Dupreme "ourt o! ,ennessee* 198.#
A&",D: 6n)ram* Boostree and H/or3holm %ere all hired to %or3 !or the ,ennessee
26
December 2007
branch o! the "entral &d/ustment Hureau# ,hey each si)ned a non'competition
covenant a !e% %ee3s a!ter startin) %or3# &!ter %or3in) !or "&H !or years* they
resi)ned and started 6n)ram M &ssociates* competin) directly %ith "&H# "&H sued
its !ormer employees !or compensatory and in/unctive relie!* claimin) that they %ere
liable in tort !or breach o! the covenants# <LE: nless the particular circumstances
o! a case indicate bad !aith on the part o! the employer* a court %ill en!orce covenants
not to compete to the extent that they are reasonably necessary to protect the
employer-s interest %ithout imposin) undue hardship on the employee %hen the
public interest is not adversely a!!ected#
v) $renuptial a)reements: $renuptial a)reements are en!orceable as %ritten i! they
%ere made a!ter !air !inancial disclosure#
=1) Dimeone v# Dimeone* Dupreme "ourt o! $ennsylvania* 1990# A&",D: &n ex %i!e sued to
void her prenuptial a)reement* contendin) her husband presented it ri)ht be!ore the
%eddin) and !orced her to si)n %ithout opportunity to consult a la%yer# ltimately* court
!ound that she had previously discussed prenup a)reements and expressed no
reluctance+ %omen are no lon)er considered the :%ea3er parties; in marria)es* and
re5uirin) people to consult la%yers be!ore si)nin) prenups %ould in!rin)e on !reedom o!
contract# $<E@$ upheld# <LE: prenuptial a)reements are en!orceable as %ritten i!
they %ere made a!ter !air !inancial disclosure#
vi) Durro)acy a)reements* %hereby a surro)ate mother a)rees to be inseminated and
deliver the child to another !or money* may be void on policy )rounds#
=1) >atter o! Haby >#
D) E%%ect o% per%ormance on non*per%ormance
i) <D 2(7: E!!ect on other party-s duties o! a !ailure to render per!ormance
=1) Except as stated in <D 2.0* it is a condition o! each party-s remainin) duties to
render per!ormances to be exchan)ed under an exchan)e o! promises that there
be no uncured material !ailure by the other party to render any such per!ormance
due at an earlier time#
ii) 2(9: E!!ect on other party-s duties o! a !ailure /usti!ied by non'occurrence o! a
condition
=1) & party-s !ailure to render or to o!!er per!ormance may* expect as stated in
subsection 2* a!!ect the other party-s duties under the rules stated in 2(7 and 2(8
even thou)h !ailure is /usti!ied by the non'occurrence o! a condition#
=2) ,he rule in subsection 1 does not apply i! the other party assumed the ris3 that
he could have to per!orm in spite o! such a !ailure#
iii) 2.1: "ircumstances si)ni!icant in determinin) %hether a !ailure is material
=1) the extent to %hich the in/ured party %ill be deprived o! the bene!it %hich he
reasonably expected+
=2) the extent to %hich the in/ured party can be ade5uately compensated !or the part
o! that bene!it o! %hich he %ill be deprived+
=() the extent to %hich the party !ailin) to per!orm or to o!!er to per!orm %ill su!!er
!or!eiture+
=.) the li3elihood that the party !ailin) to per!orm or to o!!er to per!orm %ill cure his
!ailure* ta3in) account o! all the circumstances includin) any reasonable
assurances+
=0) the extent to %hich the behavior o! the party !ailin) to per!orm or to o!!er to
per!orm comports %ith standards o! )ood !aith and !air dealin)#
G) RE8EDIES
2hat nature o! le)al relie! are parties entitled toN
o *&s lon) as one noti!ies seller o! noncon!ormity o! )oods =breach) %ithin a reasonable
time* you still have available all your remedies !or breach o! contract#
o "" 2'107=2): &cceptance o! )oods by the buyer precludes re/ection o! the
)oods accepted and i! made %ith 3no%led)e o! a non'con!ormity cannot be
revo3ed because o! it unless the acceptance %as on the reasonable assumption
that the non'con!ormity %ould be seasonably cured but acceptance does not o!
27
December 2007
itsel! impair any other remedy provided by this &rticle !or non'con!ormity#
a) Spec!%!c per%ormance
i) E5uitable remedy that is )enerally only a%arded i! monetary dama)es are not an
ade5uate remedy# ,raditionally* substitutional relie!Emoney dama)es have been the
norm and speci!ic relie! a deviation#
ii) "" 2'711: "" more liberal to%ards speci!ic per!ormance# Dpeci!ic per!ormance is
no lon)er limited to )oods %hich are already speci!ic or ascertained at the time o!
contractin)# ,he test o! uni5ueness under this section must be made in terms o! the
,?,&L D6,&,6?@ %hich characteri7es the contract# &lso* uni5ueness is not the
sole basis o! the remedy under the "" 4 relie! may be )ranted in other :proper
circumstances#; ni5ue K literally irreplaceable# 6s there a %ay to )et the uni5ue
)oods other%iseN
=1) "" 2'711 Huyer-s ri)ht to speci!ic per!ormance or replevin
=a) Dpeci!ic per!ormance may be decreed %here the )ods are uni5ue or in other
proper circumstances#
=b) ,he decree !or speci!ic per!ormance may include such terms and conditions
as to payment o! the price* dama)es* or other relie! as the court may deem
/ust#
=c) ,he buyer has a ri)ht o! replevin !or )oods identi!ied to the contract i! a!ter
reasonable e!!ort he is unable to e!!ect cover !or such )oods or the
circumstances reasonably indicate that such e!!ort %ill be unavailin) or i! the
)oods have been shipped under reservation and satis!action o! the security
interest in them has been made or tendered# 6n the case o! )oods bou)ht !or
personal* !amily or household purposes* the buyer-s ri)ht o! replevin vests
upon ac5uisition o! a special property* even i! the seller had not then
repudiated or !ailed to deliver#
iii) 2hy )rant D$N
=1) Di!!iculty o! calculatin) dama)es# Eastern <ollin) >ill "o# v# >ichlovit7: :,o
estimate dama)es %ould be speculative and con/ectured* and not* there!ore*
compensatoryP ,o substitute dama)es by )uess !or due per!ormance o!
contract could only be because there-s no e5uity stirrin)#;
=2) Dpeci!ic per!ormance is appropriate %here a product cannot be obtained
else%here except at a considerable expense* trouble or loss* %hich cannot be
estimated in advance# &lso %hen public interest is at sta3eO
=a) Laclede Bas "o# v# &moco ?il "o#* nited Dtates "ourt o! &ppeals* 8
th
"ircuit* 1970#
A&",D: Laclede and &moco entered into a lon)'term a)reement %hereby &moco
%ould supply propane )as distribution systems to various residential developments
until such time as natural )as mains %ere extended into those areas# 2hen &moco
unilaterally terminated the a)reement* Laclede sou)ht in/unctive relie! and %on#
"ourt held that since there %as no remedy other than speci!ic per!ormance that %as
certain* complete and e!!icient to attain the ends o! /ustice# <LE: Dpeci!ic
per!ormance %ill not be ordered %hen the party claimin) the breach o! contract has
an ade5uate remedy at la%#
=b) & court should %ei)h the costs and bene!its o! in/unctive relie! versus
dama)es# "ourts can allo% speci!ic per!ormance in some cases o! e!!icient
breach %hen it %ill be easier to allo% parties to ne)otiate privately to resolve
cost o! breach* so lon) as the cost o! supervision by court* burden on (rd
parties* and the ris3 o! costs !rom bilateral monopoly do not out%ei)h#
=i) 2al)reen "o# v# Dara "ree3 $roperty "o#* 1992# A&",D: 2al)reen sou)ht an
in/unction a)ainst Dara "ree3 to en!orce the exclusivity clause in their lease in
%hich Dara "ree3 remised not to lease space in a mall to another store %ith a
pharmacy# 2al)reen %on speci!ic because* amon) other thin)s* the costs o! the
dama)es remedy %ould exceed the cost o! in/unctive relie! and the calculation o!
dama)es %ould be !rau)ht %ith uncertainty# <LE: 6n ma3in) a decision about
in/unctive relie!* a /ud)e should balance the cost and bene!its bet%een the
in/unctive relie! and dama)es#
iv) L6>6,&,6?@D on speci!ic per!ormance
28
December 2007
=1) Dpeci!ic per!ormance is an appropriate remedy ?@LC i! )oods !or sale are
uni5ue# 6! a buyer can !ind the )oods else%here* monetary dama)es are
ade5uate#
=a) Land is treated as uni5ue even thou)h it has a tan)ible mar3et value
because courts reco)ni7e that di!!erent pieces o! land are di!!erent# >ar3et
!or land may not ta3e into consideration sub/ective value promisee assi)ns to
it#
=b) Klein v# $epsi"o 6nc#* nited Dtates "ourt o! &ppeals* .
th
"ircuit* 1988# A&",D:
$epsico a)reed to sell a Bul!stream corporate )et to niversal Fet Dales !or resale to
Klein# He!ore the airplane could be delivered to DF* $epsi"o rene)ed and Klein and
DF sued !or speci!ic per!ormance# <LE: Dpeci!ic per!ormance cannot be )ranted
%here dama)es are recoverable and ade5uate#
=2) @o speci!ic per!ormance !or personal service contracts#
=a) 2hyN Di!!iculty o! passin) /ud)ment on the 5uality o! per!ormance and also
on the undesirability o! compellin) the continuance o! personal relations a!ter
disputes have arisen =in some cases* o! imposin) %hat mi)ht seem li3e
involuntary servitude#) & service contract implies that someone %ould be
%or3in) under another-s supervision#
=i) Lumley v# 2a)ner* 1802: A&",D: ?pera sin)er breached a non'compete
contract+ her !ormer employer* Lumley* obtained an in/unction restrainin) her
!orm sin)in) in the competitor-s opera house# 2hile parties are rarely !orced to
per!orm personal service contracts* they* li3e 2a)ner* can be en/oined !rom
providin) similar personal services to somebody else#
=() Dupervision and en!orcement o! speci!ic per!ormance by a court must be
possible %ithout placin) undue burden on the court* especially %ith re)ards to
construction contracts# "ourts do not order speci!ic per!ormance o! service
contracts that are costly and time consumin) to en!orce#
=a) @orthern Dela%are 6ndustrial Development corp# v# E#2# Hliss "o#* 1918# A&",D:
,he court denied @orthern an order o! speci!ic per!ormance o! a contract to compel
E#2# Hliss to add %or3ers* !or the period that one o! $hoenix Dteel-s mills had to be
shut do%n* because o! a delay o! the %or3# <LE: 2ith re)ard to a construction
contract* a court should not order speci!ic per!ormance %hich %ould be impractical to
en!orce and supervise#
') 8easur!n$ E#pectat!on Dama$es
i) <D (10 Aactors a!!ectin) ade5uacy o! dama)es
=1) 6n determinin) %hether the remedy in dama)es %ould be ade5uate* the !ollo%in)
circumstances are si)ni!icant:
=a) ,he di!!iculty o! provin) dama)es %ith reasonable certainty*
=b) ,he di!!iculty o! procurin) a suitable substitute per!ormance by means o!
money a%arded as dama)es#
!!) I% no marDet %or $oods9 no e#pectat!on dama$esFF -no marDet pr!ce) too
speculat!&e/
iii) Expectation dama)es provide a monetary a%ard aimed at placin) the in/ured party in
the position he or she %ould have occupied had the contract been !ully per!ormed#
!&) Dama$es 7 Costs so %ar : pro&a'le loss on H as w"ole
-1) 1ro&a'le loss on H as w"ole 7 Cost o% per%orm!n$ H : H pr!ce
&) Dama$es 7 Loss !n &alue I Ot"er loss : Cost a&o!ded : Loss a&o!ded
=1) L?DD 6@ R&LE: di!!erence bet%een the value to the in/ured party o! the
per!ormance that should have been received and the value to that party o! %hat*
i! anythin)* %as actually received#
=2) ?,GE< L?DD: loss other than loss in value* such as physical harm or expenses
incurred to remedy the transaction a!ter the breach#
=() "?D, &R?6DED: savin) o! !urther expenses that %ould have been incurred i!
per!ormance had continued#
=.) L?DD &R?6DED: loss the in/ured party avoided by salva)in) and reallocatin)
resources that other%ise %ould have been devoted to per!ormin) the contract#
&!) UCC does not allow pla!nt!%% conse=uent!al dama$es w"en t"ose losses could
29
December 2007
"a&e 'een pre&ented '( co&er/
&!!) UCC 2*G12-2) pro&!des t"at a 'u(er ma( reco&er .an( !nc!dental or
conse=uent!al dama$es/0 Aowe&er9 under UCC 2*G+J-1)9 a seller ma( reco&er
ONL5 !nc!dental dama$es/
viii) Dama)es %hen buyer breaches:
=1) "" 2'70(: Dellers %ho are not )oin) to )et paid may %ithhold delivery#
=2) "" 2'701: <esell )oods sub/ect to contract =in )ood !aith) and recover
di!!erence bet%een K price and cover price* plus incidentals* minus expenses
saved#
=i) "" 2'710: de!inition o! incidental dama)es# Hasically K cost o! !indin)
ne% buyer#
=() "" 2'708: Deller can decide @?, to resell and recover di!!erence bet%een K
and mar3et price plus incidental dama)es* unless that is not enou)h and they
can )et lost pro!its =lost volume)#
=a) >ar3et price !or buyer is %hen contract %as tendered# >ust sho% that cover
deal %as not a resale o! earlier products* not a replacement !or the lost sale*
but rather that the cover sale %ould have happened any%ay#
=.) 2'708=1): Dellers can only recover incidental dama)es* not conse5uential
dama)es
=0) "" 2'709: &ction !or price# Deller can recover contract price o! )oods i! seller
%as unable a!ter reasonable e!!ort to resell them at a reasonable price or the
circumstances reasonably indicated that such e!!ort %ould be unavailin)#
=1) L?D, R?L>E 4 @o conse5uential dama)es available !or seller accordin) to
statute =nothin) in "")#
=a) nder "" 2'708* a seller %ho %ishes to resell )oods a!ter a buyer
breaches a contract can see3 dama)es e5ual to the di!!erence bet%een
contract price and mar3et price at the time contract should have been
per!ormed# Go%ever* to receive lost pro!its* the seller must establish both: 1)
that he %ould have been able to produce the breached )oods and the resold
)oods and 2) that it %ould have been pro!itable to produce and sell both sets
o! )oods
=i) <E Davis "hemical "orp# v# Diasonics* 6nc#* nited Dtates "ourt o! &ppeals*
1987# A&",D: Davis had to breach a purchase contract %ith Diasonics* and
%hen Diasonics resold the e5uipment* Davis sued to )et its !ull deposit bac3#
<LE: & seller %ho %ishes to resell )oods a!ter a buyer breaches a )iven
contract can see3 dama)es e5ual to the di!!erence bet%een the contract price
and mar3et price at the time and place !or tender under "" 2'708+ but to
receive lost pro!its* the seller must establish both that he or she %ould have been
able to produce the breached )oods and the resold )oods and that it %ould have
been pro!itable to produce and sell both sets o! )oods#
=b) 6n order !or seller to prove that they are a :lost volume seller;* they must
prove that their %arehouse* )eneral administrative capacity* etc# could have
pro!itably accommodated more sales volume than she in !act had#
=c) Dama)es !or a lost volume seller should be calculated based on their
expected pro!it#
ix) Dama)es %hen seller breaches:
=1) "" 2'712: "over# Huyer may ma3e )ood !aith purchase o! replacements in
reasonable time* and recover !rom breacher the di!!erence bet%een cover price
and contract price W conse=uent!al and !nc!dental dama)es#
=a) Laredo Gides "o# v# GMG >eat $roducts "o#* "ourt o! "ivil &ppeals o! ,exas* 197.#
A&",D: Laredo Gides had to buy hides on the open mar3et to !ul!ill another contract
%ith a tannery %hen GMG breached its contract %ith Laredo Gides# Laredo %as able
to recover both the total additional cost o! purchasin) substitute hides !rom another
supplier and additional costs =transportation and handlin)) %hich resulted because o!
GMG-s breach# <LE: nder "" 2'712* %hen a seller re!uses to ac3no%led)e a
contract or re!uses to deliver the )ods under contract* a buyer may :cover by ma3in)
in )ood !aith and %ithout unreasonable delay any reasonable purchase o! or contract
to purchase )oods in substitution !or those due !rom the seller;* and recover dama)es
30
December 2007
in the !orm o! :the di!!erence bet%een the cost o! cover and the contract price
to)ether %ith any incidental or conse5uential dama)es#
=2) "" 2'71(: 6! no cover* then di!!erence bet%een mar3et price at time buyer
learns o! breach and contract price* plus incidental dama)es* less costs avoided#
=a) Aor buyer* mar3et price is determined %hen they learn o! breach#
=b) 6! a losin) contract bet%een H and " =,on)ish scenario)* deduct lost pro!its
&@C2&C# =practice exam (* 5uestion 2H) :6t is not clear that the phrase
:expenses saved in conse5uences o! seller-s breach;* "" 2'71(* should be
read to include savin)s such as this# Hut the principle o! expectation
dama)es codi!ied in 1'101 4 aim is to put the a))rieved party in the same
position he %ould have been in had the contract been per!ormed 4 seems to
su))est @?, ta3in) this approach %ould overcompensate H#
=() "" 2'711: 2hen )ood %as uni5ue* speci!ic per!ormance or replevin =court
orders seller to )ive buyer his property)#
=.) "" 2'710: 6ncidental dama)es de!ined ' "osts incurred in !indin) cover*
personal or property dama)e !rom breach#
x) <LE: 2hen overhead expenses are not a!!ected by the per!ormance o! a particular
contract* such expenses should @?, be deducted %hen computin) dama)es#
=1) Ritex >anu!acturin) "orp# v# "aribtex "orp#* nited Dtates "ourt o! &ppeals* 1917#
xi) ,he measure o! recovery !or quantum meruit =restitution) is the reasonable value o!
the per!ormance# <ecovery is not diminished by any loss %hich %ould have been
incurred by complete per!ormance#
=1) nited Dtates v# &l)ernon Hlair* 6nc#* nited Dtates "ourt o! &ppeals* .
th
"ircuit* 197(#
A&",D: 2hen Hlair* prime contractor* re!used to pay crane rental costs* "oastal Dteel*
subcontractor* terminated its partial per!ormance and sued to recover !or labor and
e5uipment it had already !urnished# <LE: ,he measure o! recovery !or quantum meruit
=restitution) is the reasonable value o! the per!ormance* and recovery is undiminished by
any loss %hich %ould have been incurred by complete per!ormance#
c) L!m!tat!ons
i) &voidability and >iti)ation
=1) <D (00: &n a))rieved promisee may not recover any loss that it could
reasonably have avoided :%ithout undue ris3* burden* or humiliation#; & plainti!!
must* so !ar as he or she can %ithout loss to himsel! or hersel!* miti)ate the
dama)es caused by a de!endant-s %ron)!ul act#
=a) <oc3in)ham "ounty v# Luten Hrid)e "o#* nited Dtates "ircuit "ourt o! &ppeals* .
th

"ircuit* 1929# A&",D: ,he county contracted %ith Luten to build a brid)e# 6n
essence* the county chan)ed their mind about the brid)e and instructed Luten to
interrupt construction* but Luten built it any%ay# <LE: ?nce a contract is
repudiated* the plainti!! should stop %or3in) on the pro/ect# ,hey can-t :pile up
dama)es; !or useless %or3# ,hey should only be compensated !or the labor and
materials they had already used at the time o! the breach# :&!ter an absolute
repudiation or re!usal to per!orm by one party to a contract* the other party cannot
continue to per!orm and recover dama)es based on !ull per!ormanceP# ,he plainti!!
must* so !ar as he can %ithout loss to himsel!* miti)ate the dama)es caused by the
de!endant-s %ron)!ul act#;
=2) "" 2'71(: 6n a contract !or the sale o! )oods* a buyer-s dama)es are based on
the assumption that the buyer could have obtained substitute )oods ,hus* the
measure o! dama)es is the di!!erence bet%een the mar3et price and the contract
price#
=a) ,his is true even i! such a%ard %ould be )reater than the buyer-s loss under
the contract#
=i) ,on)ish v# ,homas* Dupreme "ourt o! Kansas* 1992# A&",D: De!endant enters
a contract to sell sun!lo%er seeds to $lainti!!# $ enters a contract to sell the seeds
to a third party at a I0#00 mar3'up# ,he price !or sun!lo%er seeds s3yroc3ets and
De!endant breaches in order to )et a hi)her price else%here# <LE: "" 2'71(:
6n the case that a party %ron)!ully !ails to deliver the other party %ill be a%arded
the di!!erence bet%een the mar3et price at the time o! tender and the contract
price#
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December 2007
=ii) "" 2'701=2): Go%ever* a seller that is to manu!acture )oods may
complete the manu!acture upon the buyer-s repudiation o! the contract in
the exercise o! :reasonable commercial /ud)ment#;
=() & %ron)!ully dischar)ed employee is not re5uired to accept di!!erent or in!erior
employment to avoid dama)es#
=a) $ar3er v# ,%entieth "entury'Aox Ailm "orp#* Dupreme "ourt o! "ali!ornia* 1970#
A&",D: $ar3er contracted to act in a musical in "ali!ornia* but Aox abandoned the
musical and o!!ered her a role in a %estern in &ustralia# <LE: ,he measure o!
recovery by a %ron)!ully dischar)ed employee is the amount o! salary a)reed upon
!or the period o! service* less the amount %hich the employer a!!irmatively proves the
employee has earned or %ith reasonable e!!ort mi)ht have earned !rom other
employment# Go%ever* be!ore pro/ected earnin)s !rom other employment
opportunities not sou)ht or accepted by the dischar)ed employee can be applied in
miti)ation* the employer must sho% that the other employment %as comparable* or
substantially similar* to that o! %hich the employee has been deprived+ the
employee-s re/ection o! or !ailure to see3 other available employment o! a di!!erent or
in!erior 3ind may not be resorted to in order to miti)ate dama)es#
=b) ,he measure o! recovery by a %ron)!ully dischar)ed employee is the amount
o! salary a)reed upon !or the period o! service* less the amount %hich the
employer a!!irmatively proved employee earned or %ith reasonable e!!ort
mi)ht have earned !rom other employment# Employer must sho% that the
other employment %as comparable* or substantially similar* to that o! %hich
the employee %as deprived+ the employee-s re/ection o or !ailure to see3
other available employment o! a di!!erent or in!erior 3ind may not be resorted
to in order to miti)ate dama)es#
=.) <emedyin) de!ective per!ormance
=a) <evie%-s )uideline:
=i) ,o avoid speculation and inde!initeness* )rant plainti!! cost o! completion
=ii) 2hen cost o! completion is disproportionate to probable loss o! plainti!!*
)rant di!!erence bet%een value to plainti!!-s property#
=b) <D (.1=2): 6! a breach results in de!ective or un!inished construction and the
loss in value to the in/ured party is not proved %ith su!!icient certainty* he
may recover dama)es based on:
=i) ,he diminution in the mar3et price o! the property caused by the breach*
or
=ii) ,he reasonable cost o! completin) per!ormance or o! remedyin) the
de!ects i! that cost is not clearly disproportionate to the probable loss in
value to him#
=c) 6!* %hen a party !ails to render per!ect per!ormance* the cost o! repairin) such
de!iciency in per!ormance %ould be )rossly disproportionate to the bene!it
that %ould result* the measure o! dama)es is the di!!erence in value caused
by the per!ormance#
=i) Facob M Coun)s v# Kent* "ourt o! &ppeals o! @e% Cor3* 1921# A&",D: Facob M
Coun)s constructed a house usin) t%o types o! pipe* and Kent re!used to ma3e
!ull payment because the contract called !or the exclusive use o! pipe
manu!actured by <eadin)# <LE: 6nsubstantial departures !rom express
contract lan)ua)e may be remedied by dama)es based on the diminution in
mar3et value rather than the cost o! replacement# ,he o%ner is entitled to the
money %hich %ill permit him to compete* unless the cost o! completion is )rossly
and un!airly out o! proportion to the )ood to be attained# 2hen that is true* the
measure is a di!!erence in value#
=d) 2hen a party %ill!ully !ails to per!orm under a contract* the other party is
entitled to dama)es e5ual to the reasonable cost o! completin) the
per!ormance* not the di!!erence in value resultin) !rom nonper!ormance#
=i) Broves v# Fohn 2under "o#* Dupreme "ourt o! >innesota* 19(9# A&",D: Fohn
2under "o# a)reed to remove sand and )ravel !rom the Broves land and 3eep
the land level %hen !inished* but later breached this a)reement# <LE: 2hen a
arty %ill!ully !ails to per!orm under a contract* the other party %ill be entitled to
32
December 2007
dama)es e5ual to the reasonable cost o! havin) per!ormance carried ot* and the
di!!erence in value resultin) !rom non'per!ormance#
=e) ,he measure o! dama)es in an action by a lessor a)ainst a lessee !or breach
o! contract to restore the premises to its prior condition is the reasonable cost
o! per!ormance o! the %or3# Go%ever* i! the breached provision is merely
incidental to the main purpose o! the contract* and the economic bene!it to be
)ained by the lessor !rom !ull per!ormance is )rossly disproportionate to the
cost o! per!ormance* then the dama)es are limited to the diminution o! value
to the property caused by non'per!ormance#
=i) $eevyhouse v# Barland "oal M >inin) "o#* ?3lahoma* 1912# A&",D: ,he
$eevyouses leased their !arm to Barland !or strip minin)* but Barland !ailed to do
speci!ic remedial %or3 at the end o! the lease# <LE: ,he measure o! dama)es
in an action by a lessor a)ainst a lessee !or breach o! contract is ordinarily the
reasonable cost o! per!ormance o! the %or3+ ho%ever* i! the breached provision
is merely incidental to the main purpose o! the contract* and the economic bene!it
to be )ained by the lessor !rom !ull per!ormance is )rossly disproportionate to the
cost o! per!ormance* then the dama)es %hich ma be recovered are limited to the
diminution o! value to the property caused by non'per!ormance#
d) 3oreseea'!l!t(
i) <D (01: &n a))rieved party can recover only those dama)es that may !airly and
reasonably be considered either as arisin) naturally* or as may reasonably be
supposed to have been in the contemplation o! both parties* at the time the contract
%as made* as the probable result o! such a breach o! the contract#
=1) Gadley v# Haxendale* "ourt o! Exche5uer* 180.# A&",D: Haxendale !ailed to deliver a
bro3en mill sha!t !or Gadley on time* and the delay prevented Gadley !rom reopenin) the
mill on time# Haxendale tried to recover lost %a)es he paid due to the delayed delivery o!
the mill sha!t and lost# <LE: Haxendale 2'part test# & party in/ured by another party-s
breach o! contract can only recover those dama)es that may !airly and reasonably be
considered either as arisin) naturally* or as may reasonably be supposed to have been in
the contemplation o! both parties* at the time the contract %as made* as the probable
result o! such a breach o! the contract#
=2) <D (01=() provides that a court may limit dama)es even !or !oreseeable loss :i! it
concludes that in the circumstances /ustice so re5uires in order to avoid
disproportionate compensation#;
ii) :"onse5uential; dama)es are those that do not arise naturally !rom the breach* but
are a result o! the special circumstances under %hich the contract %as actually made#
iii) nder international commercial la%* a buyer may recover lost pro!its and other
incidental dama)es caused by the seller-s breach o! contract i! those lost pro!its %ere
!oreseeable#
=1) Delchi "arrier Dpa v# <otorex "rop* 1990# A&",D: & parts supplier re!used to ship
con!ormin) )oods to a buyer#
iv) &n in/ured party is not entitled to recover dama)es that the parties did not
contemplate the breachin) party %ould assume# =>6@?<6,C R6E2* outlier @e% Cor3
/ud)ment)
=1) Ken!ord "o# v# "ounty o! Erie* "ourt o! &ppeals o! @e% Cor3* 1989# A&",D: & company
bou)ht land* anticipatin) it %ould substantially appreciate due to a stadium bein) built
nearby and sued %hen the stadium %as not built# <LE: &n in/ured party may not
recover dama)es that the parties did not contemplate the breachin) party %ould assume#
e) Certa!nt(
i) ,he doctrine o! certainty ori)inally re5uired that dama)es :be sho%n by clear and
satis!actory evidence* to have actually been sustained; and :be sho%n %ith certainty
and not le!t to speculation or con/ecture#; Go%ever* contemporary !ormulations only
insist on :reasonable certainty;# 6t is clear that the in/ured party has a more onerous
burden than that imposed by the ordinary re5uirement that that party ma3e out its
case by the preponderance o! evidence#
ii) <D (02: $recludes recovery :!or loss beyond an amount that the evidence
permits to be established %it reasonable certainty#;
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December 2007
iii) 6n contrast* comment 1 to "" 1'101 explains that dama)es need not :be
calculable %ith mathematical accuracy;* are :at best approximate; and :have to
be proved %ith %hatever de!initely and accuracy the !acts permit* but no more#;
iv) 3uture lost pro%!ts
=1) &re allo%ed as an element o! dama)es in any case %here* by reason o! the
nature o! the situation* the pro!its may be established %ith reasonable
certainty#
v) @6D<?6, $rinciples &rt# 7#.#( re5uires only a :reasonable de)ree o! certainty;#
=1) Aera v# Rilla)e $la7a* 6nc#* Dupreme "ourt o! >ichi)an* 1971# A&",D: &!ter the
$la7a re!used to )ive Aera the store space they had a)reed upon* Aera sued and
recovered lost pro!its as dama)es# <LE: Auture lost pro!its are allo%ed as an
element o! dama)e in any case %here* by reason o! the nature o! the situation* the
pro!its may be established %ith reasonable certainty#

J) T"eor!es o% contract law: w"( contracts are en%orced6
a) Law and econom!cs
i) ?ne prominent ans%er to this 5uestion !ocuses on the economic bene!its o! en!orcin)
bar)ains# Arom this perspective* economic e!!iciency and economic incentives are
the primary social )oods derived !rom contract la%# Economists evaluate le)al rules
in terms o! e!!iciency# Biven a set o! individual pre!erences* the economist ar)ues !or
le)al rules that %ill help society achieve an e!!icient allocation o! its resources in
terms o! those pre!erences# 6n doin) so* the economist posits that economic units are
rational and that there!ore they %ill respond to le)al rules by ta3in) into account the
le)al conse5uences o! their decisions# ,his theory is very controversial+ even
<ichard $oser has declined to :de!end e!!iciency as the only %orth%hile criterion o!
social choice#;
ii) ExpectationOO
') Contract as prom!se
i) "harles Aried* maintains that the purpose o! contract la% is to en!orce promises# ,his
theory is developed in AriedLs boo3* "ontract as $romise# ,he )oal o! contract la% is
not economic e!!iciency but assurin) that %e behave morally* honor our obli)ations*
and 3eep our promisesO La% should !orce people to 3eep their promises# Aried-s
theory is controversial because not all promises are necessarily moral and should be
en!orced#
ii) <eliance 4 %hatever is more e!!icient# >inimi7e lossesP
c) 3ormal!sm
i) Rie% that rules are le)ally bindin) because o! their status as rules* rather than
because o! any substantive /usti!ication !or the rule# Aormalism typically has three
!unctions: channelin) =)ive people certainty o! %hat %ill happen)* ER6DE@,6&<C
=communicate %here you stand re)ardin) a promise)* and $<E"&,6?@&<C
purposes# Ex: DoA is a !ormal rule* %hereas promissory estoppel doctrine is mostly
substantive# $eppercorn theory o! consideration is !ormal* addresses ho% to ma3e
the bar)ain re5uirement a mere !ormality =re5uire promisee to )ive person ma3in)
)ratuitous promise a peppercorn in return !or the promise# Dimilarly* seals used to
ma3e a promise automatically en!orceable in absence o! bar)ain* detriment or
bene!it#
=1) Evidentiary: )oal is to provide evidence that the promise %as indeed made#
=2) $recautionary: )oal is to ma3e people %eary* thin3 t%ice* be!ore ma3in) such a
promise#
=() "hannelin): )oal is to ensure that certain promises %ill be en!orceable#
<D 87 subsections vs# <D 90OO =practice exam)
Dubsection =1)=a) o! <D 87 provides a lar)ely !ormal device !or the en!orceability o! !irm o!!ers#
Essentially* it accepts the peppercorn rule o! consideration !or the case o! !irm o!!ers# ,his is a
!ormal rule in the sense o! bein) an evidentiary rule o! thumb# 6! exchan)e o! somethin) valuable
34
December 2007
!or somethin) clearly not o! value =%hich a :purported; consideration could include) is to count as
a bar)ain* the point o! the bar)ain re5uirement cannot be substantive# 6t cannot be the
substantive importance o! bar)ains that /usti!ies or explains the rule* since sham bar)ains are not
really bar)ains# <ather* the sham'or'real bar)ain re5uirement must have a !ormal role: %hen a
purported consideration is cited* that provides evidence that the o!!eror %as serious about the
promise to hold the o!!er open# ,he rule also provides !or a si)ned %ritin)# ,he point o! this is
also clearly evidentiary4it provides evidence that the promise to hold the o!!er open %as indeed
made# ,he rule in X87=1)=a) also serves a cautionary !unction# &nyone %ho ta3es the step to
%rite out a !irm o!!er* alon) %ith the ritualistic recitation o! a purported consideration* %ill have
thou)ht seriously about %hat she is doin)# ,his rule cannot* ho%ever* be said to be a strict !orm+
it does not serve a channelin) !unction* as strict !orms such as seals do# ,he reason !or this is
that the rule adds %i))le room :and proposes an exchan)e on reasonable terms # # #;# Gere the
<estatement dra!ters bac3 o!! !rom a pure !orm# ,he result is that* merely by ta3in) the !ormal
steps outlined in the subsection* one cannot be certain that one-s !irm o!!er %ill be en!orceable*
and so the channelin) !unction is undermined# ,o the extent that this subsection ta3es a !ormal
vie% o! consideration* it is in contrast %ith X71* %hich announces a substantive bar)ain theory+
there has to be a real bar)ain* real mutual see3in)* !or there to be consideration# 2hether this is
a con!lict is another matter# 6t may be that the underlyin) vie% is that %hereas it is not true that all
seriously made promises should be en!orced =but rather only those )enuinely bar)ained !or)* it is
true that all seriously made promises to hold o!!ers open should be en!orced# ,his could be
/usti!ied by appeal to the )enerally commercial use!ulness o! such a rule* as the comments
su))est#
Dubsection =2) o! X 87 essentially applies the substantive doctrine o! promissory estoppel to the
case o! !irm o!!ers# Airm o!!ers should be en!orced because it is %ron) to leave reasonable
reliance losses uncompensated# =,here is less o! a con!lict bet%een this substantive rationale
and the available remedy o! en!orcement o! the promise than is the case !or X90* since in the
case o! !irm o!!ers* the reliance loss %ill typically be the lost opportunity to accept the o!!er %hen it
%as ori)inally made#) &n apparent con!lict %ith X90 is that this promissory estoppel rationale is
applied in this section to o!!ers* not explicitly to !irm o!!ers# $romissory estoppel re5uires a
promise# ,his apparent con!lict can be explained a%ay# $resumably an o!!er upon %hich it is
reasonable to expect reliance is also one %here it is appropriate to imply =in !act) a promise to
hold the o!!er open# Dee Drennan#
E#tra notes
6! a seller ships non'con!ormin) )oods and notice that the shipment is an accommodation to the
buyer* the seller is not in breach o! contract and is not obli)ated to deliver )oods that con!orm to
the buyer-s order# "orinthian $harmaceutical Dystems* 6nc# v# Lederle Laboratories# A&",D: & dru)
distributor sou)ht to !orce a dru) manu!acturer to sell it a vaccine at a certain price#
UCC 2*G1> &/s UCC 1*1+,
1'101: :,he remedies provided by this &ct shall be liberally administered to the end that the
a))rieved party may be put in as )ood a position as i! the other party had !ully per!ormed but
neither conse5uential or special nor penal dama)es may be had#; Dometimes* as in ,on)ish*
mar3et dama)es are in excess o! plainti!!-s loss so a%ardin) mar3et dama)es accordin) to 2'71(
!lies in the !ace o! the !amiliar maxim that the purpose o! contract dama)es is to ma3e the in/ured
party %hole* not penali7e the breachin) party# ,he ma/ority vie% is that this is better than allo%in)
a %ind!all !or the de!endant# Hesides* the mar3et dama)es rule discoura)es the breach o!
contracts and encoura)es a more e!!icient mar3et#
E#ecutor( a$reement: a)reement that hasn-t yet been executed# @othin) has been done 4 no
reliance* no per!ormance# $urely executory a)reements are en!orceable* ho%ever# 2hy: 1)
moral obli)ation and 2) social )ood#
Seals made promises automatically en!orceable %ithout a bar)ain* detriment or bene!it# <ationale
35
December 2007
4 use!ul to have a device to communicate %here you stand re)ardin) a promise# Aormal !unction
o! seal: consideration* le)al certainty* strai)ht!or%ard en!orceability#
E=u!ta'le estoppel: a ri)ht arisin) !rom acts* admissions* or conduct %hich have induced a
chan)e o! position in accordance %ith the real or apparent intention o! the party a)ainst %hom
they are alle)ed#; "onventional estoppel case concerns a representation o! !act made by one
party and relied on by another+ the estopped party is prohibited !rom alle)in) or provin) !acts that
%ould contradict the truth o! his o%n earlier representation i! the other party has ta3en action in
reliance on that representation# Aor example* i! one has an insurance contract* house burns
do%n* you call company and are told that you have a month# &!ter !ilin) claim in three %ee3s*
re/ected because limit is t%o %ee3s rather than one month# @A&6<O >isrepresentation o! !acts
on %hich people have relied# $erson %ho made misrepresentation is estopped# 6n/ustice is
misrepresentation#
Re%orm!n$ t"e Doctr!ne o% Cons!derat!on: Aormality o! puttin) a promise in %ritin) should
operate as an alternative to consideration )ained ne% vitality* particularly %ith re)ards to
)ratuitous promises* %hen the abolition o! the seal raised the doctrine o! consideration to even
)reater prominence# Dince then* a !e% states have )eneral statutes that !acilitate the ma3in) o!
bindin) =)ratuitous) promises by reco)ni7in) some !orm o! %ritin) as a substitute !or a seal# 6n
other %ords* a promise is bindin) i! it is expressed in %ritin)* re)ardless o! %hether there %as
consideration# & more common type o! )eneral le)islation is typi!ied by a "ali!ornia statute that
ma3es a %ritin) presumptive evidence o! consideration+ i#e# consideration is necessary* ho%ever
%ritin) amounts to consideration#
36