Chapter 1: Remedies

K
PE
QK/QM/REST
PE

Exp
X

Rel

Rest

X
(X), (if interpreted as
alternate to
Consideration)

(Kearns)
X (if interpreted as a
remedy to prevent
injustice)

(Kearns)

Expectation:
Put P where he would have been had the K been performed.
Hawkins v. Mcgee: True Rule of Damages
o 100% - 20% = 80% hand, but no P&S or Costs
Lost Profits, if Specific
o Profits = Income MINUS Costs avoided by non-performance
Reliance:
Return P to the status quo ante
Out of pocket costs incurred in reliance on K including preparation to perform
Used when its impossible to measure the Ps expectation interests accurately (profits speculative,
new business, etc.) & when P recovers on P.E.
Restitution:
Return breaching party to the status quo ante
D returns any benefit he has incurred through Ps performance
o Britton v. Turner (farmed land for 9.5 Months)
If non-breaching party has performed almost the entire K, restitution is capped by KP
o Oliver v. Campbell (divorce atty)
Restitution can, on rare occasions, exceed KP

UCC
Buyer in Breach = Sellers Remedies [2-703]
If Resale (Not Required):
2-706: If KP>RSP,
Damages = (KP RSP) + INCIDENTAL
COSTS SAVED

If No Resale:
2-708: If KP>MP,
Damages = (KP MP) + INCIDENTAL
COSTS SAVED
Specific Performance (ACTION ON THE PRICE)
2-709
o If B keeps/destroys product, or
o If B repudiates and B is unable to
resell
Incidentals:
2-710: Incidental Damages Awarded

Seller in Breach = Buyers Remedies [2-711]

If Cover (Not Required):
2-712: If CP>KP,
Damages = (CP KP) + INC/CONS.
COSTS SAVED
Good Faith Requirement in Cover
o See Missouri Furnace
If No Cover:
2-713: If MP>KP,
Damages = (MP KP) + INC/CONS.
COSTS SAVED
Specific Performance:
2-716: If goods are unique (Paloukos v.
Intermountain Chevrolet) or in other
proper circumstances.
Incidental/Consequential:
2-715: Incidental damages awarded,
Consequential damages awarded if
FORESEEABLE
NOTE: Consequential damages which
could have been avoided by reasonable
cover are not recoverable.

Expectation
Rest.2d Sec. 247: Measure of Damages in General
o The injured party has a right to damages based on his expectation interest as measured by
(a) the loss in the value to him of the other partys performance caused by its failure or
deficiency, plus
(b) any other loss, including incidental or consequential damages, caused by the breach,
LESS
(c) any cost or other loss that he has avoided by not having to perform.
Hawkins v. McGee (EXPRESS WARRANTY = EXPECTATION) Hairy Hand
Rule: EXPECTATION: Put P in as good a position as if K been fulfilled
o Value of 100% hand Value of Resulting Hand
Facts: Breach of express warranty: D (doctor) induced P to have surgery
Note: Dont have P & S b/c its part of operation agreed to by P
Sullivan v. OConnor (EXPECTATION UNCERTAIN = RELIANCE)

Rule: RELIANCE: When expectation is uncertain, award damages on reliance.

Facts: D (doctor) performed plastic surgery on Ps nose result was bad

Rationale: Expectation damages difficult to calculate. Restitution not enough b/c it would leave P
worse off than before surgery -- recovered for worsening of condition and P&S of follow-up surgeries
only (P&S of first surgery part of K)
Groves v. John Wunder (COST OF COMPLETION)
Facts: Ds willful breach of K; P wants cost of completion $60k to level land (gravel); D argues
difference in value of land $12k if leveled
Rationale: Give cost of remedying defect, law aims to give disappointed promisee what he was
promised upon willful breach (more punitive result)
Alternative result: avoid Economic Waste: Contractor makes mistake by 1 would not need to knock
down wall to fix, court will not force economically wasteful result
o Pinches v. Swedish Evangelical Lutheran Church
Restatement Second 348: Alternatives to Loss in Value of Performance:
(2) If a breach results in defective or unfinished construction and the loss in value to the injured party
is not proved with sufficient certainty, he may recover damages based on the diminution in the
market price of the property caused by the breach
OR
the reasonable cost of completing performance or of remedying the defects if that cost is not
clearly disproportionate to the probable loss in value to him
Peevyhouse v. Garland Coal (LOSS IN VALUE)
Rule: When the cost of performance is clearly disproportionate to the loss of value, we award
the loss in value.
Facts: P leased land to D to mine coal and then level land, D didnt level land. Would cost $29k to
level whereas loss of value of land was $300.
Rationale: put P in no better place than would have been had K been performed
Acme Mills v. Johnson (EFFICIENT BREACH)
K for sale of wheat, seller breaches (thought P wasnt going to pay & finds better buyer). P does not
cover. MP < KP so P actually saves $ due to breach
UCC 2-713: Buyers Damages (MP - KP + incidental / consequential expenses saved)
Damages based on scheduled delivery time. If MP - KP = 0, then award incidentals, if MP < KP (zero
damages), non-breaching buyer goes home happy.
o gets restitution of $80 sacks had given D.
Missouri Furnace v. Cochran (UNREASONABLE COVER)

breach of K by Seller Cochran to deliver coal in installments, Buyer Missouri covered KP=1.14 CP=4
Not awarded CP - KP b/c it was unreasonable to enter into long term K when the price of coal had
artificially skyrocketed
o awarded difference in KP and MP at each time of delivery instead
UCC 2-713 Anticipatory Repudiation= Damages calculated at time when you learn of breach
through express communication of intention or performance impossible
o Here there was clear anticipatory repudiation (ltr rescinding K wont send coal)
UCC 2-712(1) Cover= good faith without unreasonable delay

Neri v. Retail Marine (LOST VOLUME SELLER)

Lost Volume Seller: 2-708(2)
o If MP KP would not put P in the position he would have been had performance occurred, P can
recover full profits of sale + incidentals.
o S claims it would have made 2 sales if not for breach.
Note: To establish D is a Lost Volume Seller, he must show it is PROFITABLE to increase sale
volume. This can be destroyed by law of diminishing returns.
Facts: P put deposit on boat, P rescinds K, D sells boat, P wants deposit back.
Illinois Central RR v. Crail (IF MV PROVIDES ABSURD RESULT, USE NEW TEST)
Rule: Damage for shortage of delivery is WHOLESALE price not retail price when this clearly
reflects Ps actual loss; P cannot recover unreasonable cover
Facts: Crail (Buyer) purchases x carloads of coal at wholesale price but when arrives is short
doesnt cover & doesnt lose any sales ends up replacing it through the course of his business from
other purchases made at carload lots at WHOLESALE price
Reliance
Chicago Coliseum v. Dempsey (LOST PROFITS SPECULATIVE)
Rule: When Lost Profits are speculative at best, turn to RELIANCE damages.
o Reliance damages can only be claimed between K formation and breach
No recovery for expenses prior to signing agreement
No expenses from injunction (e.g., after breach)
Facts: P contracted with D to box at a match; D breached K (denied it existed).
o In seeking injunction, P admitted lost profits would be incalculable.
Restatement 352: Uncertainty as a Limitation on Damages: Damages are not recoverable for
loss beyond an amount that the evidence permits to be established with reasonable certainty.
Security Stove v. American Ry (RECOVERY OF PRE-CONTRACTUAL RELIANCE)
o
o
o

Rule: Normally, pre-contractual reliance damages are unrecoverable, as they were not spent as a
direct result of the K. However, railway companies are obligated to accept all offers of contract,
therefore pre-contractual reliance damages are recoverable.
Facts: P hired D railway company to deliver items needed for a convention that P paid for precontract and D failed to deliver items that P needed to close deals
Rationale: D is a RR company; P and public can reasonably rely on D to deliver on time.

Expectation Limited (Mitigation, Fixed/Variable Costs, Expandable Business, Savings)

Doctrine of Mitigation: Stop where youre at when K is breached / repudiated

Restatement 350: Avoidability as a Limitation on Damages

(1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party
could have avoided without undue risk, burden or humiliation.
(2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent
that he has made reasonable but unsuccessful efforts to avoid loss.

Rockingham County v. Luten Bridge (DUTY TO MITIGATE)

D informed P that bridge was not wanted anymore, P still completed bridge and sued for full recovery
P cannot hold D liable for damages which need not have been incurred; P must, so far as he can
without loss to himself, mitigate the damages caused by the Ds wrongful act.
After breach/repudiation, P must mitigate damages when possible,
Leingang v. City of Mandan (FIXED OVERHEAD COSTS NOT INCLUDED)
D was to give P all Ks (to cut weeds), D breached & gave some to competitor
Damages in performance K are not to be reduced by the fixed overhead expenses b/c these costs
would have been incurred even without breach
o Variable costs and profits are recoverable; Fixed costs are not
Note: Damages set at KP - Saved costs (Variable: gasoline, blades)
o couldnt save fixed costs (insurance, regular employees)
Kearsarge Computer v. Acme Staple (INFINITE CAPACITY SERVICE PROVIDER)
P was data management company providing services to D, D breached
o P sued to recover the balance of the K
o Since P did not employ extra people to work on this K, labor costs were fixed
See Leingang v. City of Mandan Weed Board
When a business is expandable, it is always capable of handling more contracts
o cannot reduce damages by profits earned from subsequent contracts
o See Lost Volume Seller, Neri v. Retail Marine Corp.
Note: D has burden of proving Ps savings b/c of breach
In re Worldcom (MICHAEL JORDAN NOT LOST VOLUME SELLER)
o Michael Jordan and MCI, 10 years at $2M per year for 16 hrs
o MCI declares bankruptcy - Willing to pay for 02, 03 ($4M)
o Tell Michael Jordan to mitigate
o

Jordan fights arguments he should have mitigated

o

A) does not wish to dilute brand (already had 16 endorsements)

B) Mitigation does not apply lost volume seller with unlimited endorsement prospects

Weakens case, doesnt wash with desire to avoid brand dilution

Parker v. Twentieth Century Fox (DUTY TO MITIGATE: EQUIVALENT COVER)

Rule: The employees rejection of or failure to seek other available employment of a different or
inferior kind cannot be required as a form of damage mitigation.
Facts: K for P to be lead in musical, D instead offered role in western, P declined, demands K salary
+ interest.
Biletter v. Posell (DUTY TO MITIGATE: INFERIOR COVER)
Rule: Employee is not required to perform same work for less pay in mitigation of damages
Facts: D hired P to work as floor lady/designer for $75/wk + $500 xmas bonus. Demotion to floor
lady $60/wk. P declines offer.

Note: Collateral source rule: no deduction, employer must pay full damages even if P receives
compensation from other sources (Ex. unemployment, insurance)

Forseeability
Restatement Section 351: Unforeseeability and Related Limitations on Damages
(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a
probable result of the breach when the conduct was made.
(2) Loss may be foreseeable as a probable result of a breach because it follows from the breach
o (a) In the ordinary course of events, or
o (b) As a result of special circumstances, beyond the ordinary course of events, that the party in
breach had reason to know.
UCC 2-715(2): Consequential damages incurred on the non-breaching buyer are recoverable if
foreseeable, unless the damages could have been mitigated by reasonable cover.
Hadley v. Baxendale (BROKEN MILL SHAFT)
Ps mill shaft breaks, take to D to have it delivered to get repaired
o delayed by a few days mill shut down, trying to claim lost profits.
D can only be held to be responsible for such consequences as may be reasonably contemplated by
the parties at the time of making the K
to recover, P needed to let D know consequences, e.g. mill shutdown
Lamkins v. International Harvester Co. (LIGHTED TRACTOR)
Farmer orders tractor with lighting, to work at night
o

Tractor comes, but lighting doesnt show up for nearly a year

Damages for lacking opportunity to grow soybeans

o

No foreseeability regarding special circumstances (night harvesting)

Damages disproportionate to value of lighting equipment

Emotional Distress
Valentine v. General American Credit, Inc. (MENTAL/EMOTIONAL DISTRESS)
Facts: P sued for mental distress, above and beyond damages for breach of employment K, due to
loss of job security
Rule: Mental distress damages for breach of contract are not recoverable except when the
contract has a personal element or when the damage suffered due to breach cannot be compensated
within the terms of the contract.
Restatement 353: Loss Due to Emotional Disturbance: Recovery for emotional disturbance will be
excluded unless the breach also caused bodily harm or the contract or breach is of a kind that serious
emotional disturbance was a particularly likely result (death, marriage, personal injury).
Restatement 355: Punitive damages are not recoverable, unless action is also a tort.

Lost Profits
Freund v. Washington Square Press, Inc. (LOST PROFITS SPECULATIVE)
Facts: P made a K with D to publish a hardcover book
o $2K advance + royalties.
o D was bought out and stopped all hardcover publishing.
P was unable to get specific performance but did get manuscript back (restitution) and a trial for
monetary damages.
Analysis: value of promised performance was a % of book sales NOT the published books
themselves
o No expectation damages b/c uncertainty in profits.
Fera v Village Plaza (LOST PROFITS CONCRETE)

Facts: P signed lease for new shop in Ds shopping center.

o Ps space was given away and no offer of alternate space provided
Holding: Able to recover for lost profits if give enough evidence to show anticipated profits
o Evidence included contract itself (Plaza anticipated percentage of profits)
Note: Freund did not attempt to quantify lost profits so no damages available.

RESTITUTION

Put Defendant where D would have been without the contract

D has to pay P amount equal to the benefit D has received from Ps performance (so P gets back only
value he or she conferred to other side b/c of the contract)
Designed to prevent unjust enrichment

Restatement 371: Measure of Restitution Interest

Restitution Interest measured by
o (a) the reasonable value to the other party of what he received in terms of what it would have cost
him to obtain it from a person in the claimant's position, or
o (b) the extent to which the other party's property has been increased in value or his other interests
advanced.
Rest.2d Sec. 370 Requirement That Benefit Be Conferred
A party is entitled to restitution under the rules stated in this Restatement only to the extent that he
has conferred a benefit on the other party by way of part performance or reliance.
UCC 2-201: Statute of Frauds: K requires a written document for it to be enforceable when:

Sale or prolonged use of real estate/land

K for longer term than one year
Sale of goods over $500 [UCC 2-201]
Marriage contracts

375 Restitution When Contract Is Within Statute of Frauds

A party who would otherwise have a claim in restitution under a contract is not barred from
restitution for the reason that the contract is unenforceable by him because of the Statute of Frauds
unless the Statute provides otherwise or its purpose would be frustrated by allowing restitution.

Boone v. Coe (UNENFORCEABLE UNDER STAT. OF FRAUDS)

Facts: Oral K for P to leave KY to live on and cultivate Ds farm for one year.
o D repudiated and Ps went home.
Rule: Damages cannot be recovered when a K is held to be unenforceable under the statute of frauds
unless D receives benefit from part performance
Kearns v. Andree (RELIANCE UNDER QK: THE EXCEPTION)
Facts: D breached K to buy Ps house after P repainted and repapered walls for D
o K was indefinite and thus unenforceable (insufficient mortgage clause)
Rule: Side component of QM that states even if no enrichment by other party, reasonable recovery
minus any benefit to P is allowed if there was an expectation of compensation
Mobil Oil v. U.S. (BREACH DUE TO IMPOSSIBILITY CHANGE IN STATUTE)
o $156 million, get right to explore based upon clearing hurdles of regulation.
o new statute caused approval of exploration plan in 30 days to be impossible
o No specific performance, no enforcement of contract Mobil will not be drilling in NC.
o Expectation entirely speculative: is there oil? Will NC successfully block exploration?
o Odds are, if contract performed -156m plus no enrichment for Mobil. Expectation is 0.
o US breached, cannot keep bonus payment. $156 million returned to Mobil (total breach).
Oliver v. Campbell: (RESTITUTION CAPPED BY EXPECTATION)

Facts: fixed fee divorce representation where D fired atty at the 11th hour
o Reasonable value of Ps services (hourly billable) was $5000.
Rule: When breach occurs before completion, breaching party repudiates K and K is no longer relied
upon as limit of compensation
o However, atty K effectively complete at time of repudiation, so Rest. is capped by Exp.

Restitution for Breaching Party

Britton v. Turner (RESTITUTION FOR PARTY IN BREACH)
Facts: P to work under term K on Ds farm for 1 yr for $120. Left after 9.5 mos.
o Wants $100 in QM = value of work done.
Rule: A breaching party whose breach was not willful can still recover in restitution for unjust
enrichment of non-breaching party
o Damages = Enrichment - Damages suffered by non-breaching party resulting from breach
o Policy: general policy against forfeiture.
NOTE: P in breach gets whichever is lower, MP or KP, minus any damages incurred by D.
o Willful Breach still bars all recovery
Non-Acceptance: If D does not accept the benefit P is supposed to incur, P cannot sue under
restitution, as D was not unjustly enriched.
Pinches v. Swedish Evangelical Church (LOSS IN VALUE)
Facts: P built a church for D not matching specs, but adequate to needs

o D accepted (began using the church) but refused to pay

Holding/Rule: Proper measure of damages to P is Restitution (KP) Damage (Loss of Value OR
Cost of Completion)
o Since cost of completion is vastly disproportionate to loss of value, loss of value used
See Peevyhouse.

Liquidated Damages Clauses (i.e non-refundable deposit)

Restatement, Second 356 Liquidated Damages and Penalties
LDC enforceable when:
o Actual damages would be difficult to determine at time of contracting
o The amount of damages in the clause is a reasonable estimate of damages at time of contracting
or reasonable proportionately to the actual damages as determined at the time of breach
A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as
a penalty
UCC Section 2-718(1): Liquidation or Limitation of Damages; Deposits
Damages for breach by either party may be liquidated in agreement but only at amount reasonable in
light of anticipated or actual harm caused by breach, the difficulties of proof of loss, and the
inconvenience of otherwise obtaining an adequate remedy.
WAYS TO NULLIFY AN LDC:

The party seeking to enforce the LDC suffered no actual damage as a result of the breach, or
the party seeking to enforce the LDC suffered disproportionately low damage as a result of the breach
compared to the amount specified in the LDC.
The LDC was intended to protect against a different kind of breach.
o Muldoon v. Lynch
The LDC is undifferentiated, indicating that its nature is punitive.
The LDC fails either of the two requirements needed to invoke an LDC.

WAYS TO STRENGTHEN AN LDC:

Make it Differentiated This shows that it is intended to be compensatory, not punitive.

Yockey v. Horn (LDC IN BUSINESS PARTNER BREAK-UP)

Former business partners crafted agreement not to participate in litigation against each other
regarding activities which occurred up to the date of the contract
o

Horn voluntarily testified against Yockey

o

Liquidated damages of $50K upon participation

Breached the specific contract clause

Clause upheld in settlement, wanted closure to bickering and Horn opened it back up

Pacheco v. Scoblionko (LDC NULLIFIED FOR BEING PUNITIVE)

Facts: The P prepaid summer camp. K stated that if a refund request was made after May 1, the
camp would keep the whole amount paid to date.
o P asked for a refund on June 14 and D refused.
Rule: A liquidated damages clause in a contract is enforceable if (1) the damages are difficult to
estimate accurately, and (2) the LDC specifies a reasonable prediction of anticipated or actual loss.
Analysis: D failed to show what damages, if any were anticipated or actually suffered as a result of
Ps cancellation.

Muldoon v. Lynch (LDC INTENDED FOR DIFFERENT KIND OF BREACH)

P to erect monument w/in one yr; D to pay balance at end minus daily late fee.
o P didnt complete on time because there were no ships from Italy
Rule: Courts will not often enforce a clause containing a forfeiture.
o It was not in the contemplation of the parties that no boats would come from Italy.
Restatement 356: has to be actual damage - in this case there is no actual damage
Wilt v. Waterfield (NON-SPECIFIC LDC IN DEED FOR LAND)
K for $19000 for land
o

If buyer breaches, seller keeps deposit of $1900 as LDC

If seller breaches, buyer gets deposit back plus $1900

If any insignificant undifferentiated clause of the contract is breached, a huge sanction can be
imposed on a minor breach

e.g., Failure to show up with the deed on Feb 20 or Failure to share crop of hay

Seller breaches, buyer demands actual damages rather than liquidated damages
o

Second seller buys for $26000 (Current Market Price Contract Price)

P.144, #2 (NO ACTUAL DAMAGE DUE TO FAILED CONTINGENCY)

o If the contingency upon which is based the presupposition of the damages a breach would incur
never happens, the presupposition must vanish.
Bridge wasnt built on time, but no damage occurred because the connecting bridge wasnt
built on time either.
P.144-145, TOMATO CASE 1 (DAMAGES EASY TO CALCULATE)
$300 was specified as the amount of the LDs.
Grower breached: sold 10.99 tons to P, but sold remaining 44 tons on market
o damages were easy to calculate LDC not enforceable.
P.145, PROBLEM (GOLDEN PARACHUTE)
o Facts: Employment K with LDC = Remaining Salary = $75,000. After dismissal, P went to work
for another firm earning $50,000 for the rest of the salary term.
o By Collateral Source Rule, the other earnings do not reduce Ps award.
Limited Liability Clauses (LLCs)
UCC: 2-719:
(1): Limitation of liability permitted.

Most LLC clauses are enforced unless they are unconscionable. (2-302)

Samson v. Honeywell (LLC UNCONSCIONABLE)

Facts: P Samson Sales own pawn shop; D Honeywell contracted to provide a burglar alarm; P sues D
loss of $68,000 for negligent failure to transmit alarm to police; D invoke K provision LLC liability
limited to $50
Holding: Clearly a PENALTY not enforced
Note: MINORITY OPINION.
o If Honeywell were held to perfect performance, cost of K would have to be much higher. Low
cost Low Services (i.e. MacDonalds).

Exculpatory Clauses: 2-719(3): Contractual Modification or Limitation of Remedy

o Consequential damages may be limited or excluded unless limitation is unconscionable.
o Limitation of consequential damages for injury to the person in the case of consumer goods
is prima facie unconscionable but limitation of damages where the loss is commercial is not.
o Procedural unconscionability: unfair bargaining power
o Substantive unconscionability: provision would shock the conscience
Sharon v. City of Newton (CHEERLEADER)
Parent & student signed release from liability

Father claims he did not understand entering into contract

Release from liability, waiver needs to be upheld

o

Otherwise public schools could not offer afternoon activities

Specific Performance
UCC: takes a liberal approach to awarding specific performance (K for goods)
2-709 Action for the Price
o When B fails to pay, seller may recover the price
(a) of goods accepted or of conforming goods lost or damaged within a commercially
reasonable time after risk of their loss has passed to the buyer; and
(b) of goods identified to the contract if the seller is unable after reasonable effort to resell
them at a reasonable price or the circumstances reasonably indicate that such effort will be
unavailing.
2-716 Buyers Right to Specific Performance or Replevin
o SP if goods are unique or in other proper circumstances
o The buyer has a right of replevin for goods identified to the K if after reasonable effort he is
unable to effect cover for such goods or if the goods have been shipped under reservation and
satisfaction of the security interest in them has been made or tendered.
Specific Performance in Sale of Land

In sales of land, Specific Performance is presumptively appropriate

Courts prefer specific performance even if resale available immediately
o Damages are inadequate to compensate the buyer
o The property is unique
Seller Breach
o If seller has already sold to a third party, SP is unavailable.

o If seller has just changed his mind, SP is often granted.

o If seller has only promised to sell to a third party for profit, SP
Buyer Breach
o SP can be required b/c burden of resale (cover) is on the breaching party

UCC Rule: UCC 2-716: Other proper circumstances for Specific Performance

Manchester Dairy Systems v. Hayward (NEGATIVE INJUNCTION)

Facts: Closed business system such that the failure of 1 results in added responsibilities of others.
When P breached, D sued for Specific Performance.
Analysis: The effects of nonperformance were unique, and since the entire system NEEDS this
particular transaction to stay alive, negative injunction preventing sale of milk to others was awarded
Curtice Bros Co v Catts (SP AWARDED)
Facts: D agreed to sell P (owns canning plant) entire tomato crop from specific land. Canning
business requires timely shipment to avoid giant losses
Analysis: Usually for ordinary goods and personal property, SP is not a remedy, but exception
irreparable injury would result from the inability to procure at any price at the time needed & of
quality needed necessary tomatoes to keep successful operation of plant
Paloukos v Intermountain Chevrolet (SP NOT AVAILABLE)
Facts: P to purchase truck from D. 5 mos. later, D returned deposit, unable to deliver b/c of product
shortage.
Analysis: P didnt show truck was unique, no SP as no trucks available on market
Specific Performance for Services

Test of Inadequacy: If you do not receive SP, you cannot be made whole.
o See Chicago Coliseum: P admitted damages would be incalculable to get an injunction.

Involuntary servitude: cant make a person do something they dont want to do; you can impose a
negative injunction for services, but not a positive injunction. [Lumley v. Wagner]
Lumley v. Wagner (NEGATIVE INJUNCTION)
Facts: Entered into K with Lumley to sing for season but was induced to breach by competitor
Rule: SP cannot be awarded, as it would breach Ds liberty interest. However, Negative Injunction
can be awarded instead if service is unique
Analysis: Since Ps services were unique, and since her breach was willful, court awards negative
injunction preventing singer from performing with theater 2.
Pingley v. Brunson (LACK OF NON-COMPETITION COVENANT)

Facts: D hired by P to play organ for 3yrs. D repudiated. P sued for SP and an injunction against D
playing organ for anyone else.
Analysis: court will not enjoin employee from furnishing services to another absent an express noncompetition agreement or if service is unique.

Non-Competition Covenants

Only valid if they are reasonably necessary to protect trade secrets, customer lists, or good will of
employers business.
Not enforced if they are unreasonable in time, space or scope, or if they are harsh & oppressive.
[Fullerton Lumber Co. v. Torborg]

Approaches to Dealing with NCC include:

o
o
o

MAJORITY: Render the entire clause unenforceable.

Creates proper incentive to make the terms reasonable the first time.
MINORITY: Reduce the covenant to its reasonable terms, unless it was not drafted in good faith.
(Rest.2d 184(2) [Part Enforceable] & UCC 2-302 [Unconscionable]) Fullerton Lumber Co. v.
Torborg, Data Management, Inc. v. Greene.
RARE: Court Alteration of K: Delete words or parts of the clause.

Fullerton Lumber Co. v. Torborg (COURT EDIT OF NON-COMPETE)

Facts: P hired D to manage lumber yard;
o K has noncompete covenant, prohibiting D from working for any other co. or on his own for 10
yrs w/in 15 mi of any yard D worked at.
Analysis: 10 years excessive & unreasonable restraint of trade SC suggested minimum 3 years
from date of decree not termination
Restatement, Second 188: Ancillary Restraints on Competition
A promise to refrain from competition that imposes a restraint that is ancillary to an otherwise valid
transaction or relationship is unreasonably in restraint of trade if
o (a) the restraint is greater than is needed to protect the promisees legitimate interest, or
o The promisees need is outweighed by the hardship to the promisor and the likely injury to the
public.
Arbitration

A modern arbitration act contains the following provisions:

o (1) irrevocability of agreement to arbitrate future disputes.
o (2) judicial power to compel a party to arbitrate at the request of the other
o (3) judicial power to stay, pending arbitration, a court action instituted in violation of an
arbitration agreement.
o (4) court authority to appoint arbitrators and fill vacancies when the parties fail to do so
o (5) restrictions on judicial power to review awards of arbitrators; and
o (6) specification of the grounds for attack of awards such as fraud or evident mistake.
An arbitrator may grant any remedy or relief deemed just and equitable and within the scope of the
parties agreement, including, but not limited to, SP.
An arbitrator has no power to make punitive awards.
Arbitration agreements only bind the parties to arbitrate the claims specified in the agreement.

Chapter 2: Enforceability

A contract needs CONSIDERATION in

the form of a quid pro quo which is the
formality that makes a promise
enforceable

Peppercorn theory of consideration

even a little/inadequate consideration is ok
if it is adequate, i.e. what the bargained
for.

No K for gratuitous promises (no

consideration)

adequacy analyze something v. nothing

(not how much but whether the promise
was given to induce the consideration).

Policy: gifts need completion, ensure

intention to give when getting nothing in
return (completion or writing needed)
Benefit/Detriment + Mutual Inducement

The Benefit or Detriment needs to be at

least part of the motive/inducement for the
promise

Promise + Detrimental Reliance =

Injustice

90 promise w/o consideration becomes

binding if:
promisor intends or reasonably can
expect reliance
promisee actually relies on promise
non-enforcement will cause injustice
due to detrimental reliance

Detrimental reliance must be natural &

foreseeable result of promise
Remedy at courts discretion of justice
expectation is not always the way, may be
reliance b/c courts want to just remedy
injustice not enforce something against
one partys will
(balancing parternalism with autonomy)
Promissory
Estoppel

Test: If Plaintiff loses something/costs

incurred by Plaintiff based on reliance of
the promise
PE is strategically secondary to
consideration

139 promissory estoppel

enforceable notwithstanding SOF, limited
discretionary remedy
considerations for injustice:
other adequate remedies?
Relation of action/forbearance to promise
Action as evidence of terms of promise
Reasonableness of actions
foreeseability
Misrepresented/Promise not fulfilled
i.e. the car is insured
Charitable subscriptions
May also be enforced by unilateral contract
doctrine promise + act

Unjust Enrichment + no actual agreement

or no qualifying K
Contract implied in law (KIL) doctrine
If gains something

Quasi
Contract

In a quasi-contract, there is no promise

whatsoever, but society has an interest in
seeing certain professionals perform certain
services even without a promise of
compensation. As such, we award such
compensation to these professionals.
If society does not have an interest in an
individual performing this action (i.e. nonprofessional), we will say they are an
officious intermeddler or a good
Samaritan, and they will not be able to
recover.

Enforceable Contracts: Consideration

Consideration = Either (a) benefit to promisor, or (b) detriment to promisee [Hamer v. Sidway]. Promise
must be given to induce consideration

Promise must be given to induce consideration. [Rest.2d Sec. 71] [Whitten v. Greeley-Shaw]

Unenforceable
o

Moral Consideration

made out of love or generosity [Fischer v. Union Trust]

Gifts

Nominal Consideration

Too insignificant to indicate a real bargain [Fischer v. Union Trust] [Schnell v. Nell]

Past Consideration

Difference between a gift and an exchange is that an exchange signals that the receiver values
the item in some degree

Not consideration; must be given in exchange for the promise at the time that the promise was
made [Section 86 Exceptions]

Legal duty rule [Rest.2d Sec. 73]

o There is no consideration if promisor has a legal duty to already do something (ex: refraining from
smoking dope, refraining from strangling friend, modified contract promising something that was
already promised, see Alaska Packers)
Contract Type:

Express contract (no question about validity of cause of action)

Contract implied-in-fact: knowledge that compensation is expected from an action performed

Contract implied-in-law: "quasi-contract": at the time of transaction no real "meeting of the minds;" no
intention to enter into a contract at time of transaction
o

restitution and unjust enrichment damages are attached to this

Hamer v. Sidway (UNILATERAL K, ABANDON LEGAL RIGHT)

Uncle promised nephew that if nephew refrained from drinking, using tobacco, swearing, and playing
cards or billiards for money until he was 21, uncle would pay him $5,000. Nephew accepted.
o

Benefit to Promisor = Insured honor of his family name

Detriment to Promisee = Abandoned legal rights to drink, smoke, etc.

Earle v. Angell (PEACE OF MIND CONSIDERATION)

Aunt told nephew that if he attended her funeral, she would give him $500

Contract was enforced. Promisee abandoned legal right not to attend funeral, and promisor obtained
peace of mind that her nephew would attend her funeral.

Whitten v. Greeley-Shaw (EXTORTION NOT CONSIDERATION)

P promised trips, gifts, and an allowance to his mistress, D promised not to call
o

Ps promise was not given to induce Ds consideration; Contract unenforceable.

NOTE: Lack of inducement was used as an excuse to eliminate a contract based on blackmail. Court
could have used public policy as a last resort to eliminate the contract.

Rule: A promise to refrain from asserting a claim or defense is adequate consideration

[SETTLEMENTS: Rest.2d 74]

Limit: If claim or defense proves to be invalid, consideration is inadequate.

Rest.2d 74(2): The execution of a written instrument surrendering a claim or defense by one who is under
no duty to execute it is consideration if the execution of the written instrument is bargained for even
though he is not asserting the claim or defense and believes that no valid claim or defense exists.
[SUBJECTIVE]

Rationale:
o

Society favors settlements, even subjective value of return is enough to establish consideration

Rule: A promise given in exchange for past consideration is unenforceable [See Rest.2d Sec. 86 for
Exceptions]
o

Exceptions: Voluntary Revival of Pre-Existing Obligations

Debt of minor who becomes an adult and promises to repay

Statute of limitations runs out, promisor promises to repay [Rest.2d Sec. 82]

After bankruptcy [Rest.2d Sec. 83]

Enforceable Quasi-Contracts and Past Consideration

Quasi-Contract
o

Recovery under restitution is possible even without a promise if (a) society has an interest in inducing
a professional to help when they are able, or (b) society has an interest in a good Samaritan
performing in an emergency situation.

Classic Example: A Dr. who discovers an unconscious patient can recover under restitution for
services rendered.

Quasi-contract allows damages to be recovered in settings where the parties would have agreed
that there was a contractual obligation had the point occurred to them.

o
o

Must not be a Good Samaritan (volunteer) expects no compensation, so get none.

Must not be an Officious intermeddler (only does act b/c expects enrichment w/o consent of other
party) so gets no compensation, except:
where the intervener is a professional, providing services w/in line of business; AND
where consent can be implied (i.e. in an emergency situation)
Exception: Exceptional Situations
A person or his belongings may be in such jeopardy that a stranger is privileged to intervene and
to recover for his salvage services. These are types of situations in which the unasked-for
conferring of benefit has been regarded as unofficious.
Example: House on fire.

Past Consideration [Section 86]

o

(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is
binding to the extent necessary to prevent injustice.
(2) A promise is not binding under (1)
(a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been
unjustly enriched; or
(b) to the extent that its value is disproportionate to the benefit.

Past Consideration + Ex Post Promise

In order for an ex post promise induced by past consideration to be binding:

(1) It must be precise in value

(2) There must be a manifestation of intransience

(3) Promisor must have received a real benefit

Section 86 recovery is capped by promised value. It is intended to address the inustice of the actual loss
(up to the promised price).

Webb v. McGowin (PAST CONSIDERATION UPHOLDS VALID CONTRACT)

P saved D from death when he fell with a pine block and diverted it from hitting D promised to pay P
$15/week for the rest of Ps life. After Ds death, Ps executors stopped payment.
o

D received material benefit (saved life and no injury)

Ds promise was precise in value ($15/week)

D demonstrated that his promise was not given in a transient moment of gratitude (actually paid
from time of incident until his own death.)

Court: Ex post promise for past consideration enforced.

Harrington v. Taylor (PAST CONSIDERATION DOES NOT RENDER EX POST PROMISE

ENFORCEABLE)

P saved Ds life by blocking an ax swing from his battered wife. In so doing, Ps hand was damaged
and D promised to pay for Ps damages. D paid a small sum, then nothing more.
o

D received material benefit (saved life).

Ds promise was precise in value (damages suffered by P)

Ds promise WAS given in a moment of transient gratitude, with no manifestation of intransient

intent to pay.

Court: Ex post promise for past consideration not enforced.

In re Schoenkermans Estate (EX POST PROMISE ANALYSIS TEST)

After Ds wife died, D asked his wifes mother and sister to move in with him and help him care for
the children. After 10 years of service, D promised $500 to mother-in-law and $1,500 to sister-in-law.
After D died, Ps sued to recover this promised award.
o

Normally, services between family members are presumed to be rendered as gifts, but

D received material benefit (childcare support for 10 years)

Ds promise was precise in value.

Ds promise was not given in a transient moment of gratitude.

Ex post promise for past consideration enforced, but capped by promised award, not by actual value
of services rendered. See Oliver v. Campbell

Promissory Estoppel
A contract has a promise for consideration
Restitution has consideration but not a promise
Promissory Estoppel (PE) has a definite promise but no consideration
Requirements of PE
(1) A reasonably definite promise
(2) Made with the expectation that the promisee will rely thereon [Sec. 90 says should reasonably
expect]
(3) Which induces reasonable reliance by the promisee
(4) Of a definite and substantial nature, and
(5) Injustice can be avoided only by enforcement of the promise
Rest.2d Sec. 90

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of
the promisee or a third person and which does induce such action or forbearance is binding if injustice
can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as
justice requires.

(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof
that the promised induced action or forbearance.
o

In practice, PE applies binding full expectation.

Policy: Public institutions depend on pledges, and society values the work of these institutions.

NOTE: 90(2) RARELY UPHELD

Rest.2d Sec. 139: Promissory Estoppel and the Statute of Frauds

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of
the promisee or a third person and which does induce the action or forbearance is enforceable
notwithstanding the Stat. of Frauds if injustice can be avoided only by enforcement of the promise.
The remedy granted for breach is to be limited as justice requires.
(2) In determining whether injustice can be avoided only by enforcement of the promise, the following
circumstances are significant:
(a) availability and adequacy of other remedies, particularly cancellation
and restitution;
(b) definite and substantial character of the action or forbearance in
relation to the remedy sought;
(c) the extent to which the action or forbearance corroborates evidence of
the making and terms of the promise, or the making and terms are
otherwise established by clear and convincing evidence;
(d) the reasonableness of the action or forbearance;
(e) the extent to which the action or forbearance was foreseeable by the

promisor.

Definitive Example: A promises land to B orally. B lives on land and pays taxes on land for a long time. A
dies. As children sue to recover land. Injustice can be avoided only by enforcement of the promise,
although should have been in writing per the Stat. of Frauds.

PE as Consideration vs. PE as Preventing Injustice

MAJORITY: PE is viewed as a means to prevent injustice, as such, damages are measured by reliance.
o Note: this can be used to support claim of pre-contractual liability

MINORITY: PE is viewed as an alternative to consideration, as such, damages are measured by

expectation.
Ricketts v. Scothorn (PE BASED ON RELIANCE)

D promised granddaughter, that if she stopped working, he would give her an allowance
A promise by the promisor: Yes.
Made with expectation that the promisee will rely thereon: do not have to work
Which induces reasonable reliance by the promisee: Quit job
Of a definite and substantial nature: Yes
Injustice can be avoided only by enforcement of the promise: Yes.

Promissory Estoppel in Employment Contracts

Employment contracts are, by default, at will.
For an employment contract without a fixed length, termination does not constitute a breach
[Defn of At Will Employment]
Fixed duration contracts in employment exist and are enforceable
if longer than 1 year, must be in writing per the Statute of Frauds.
DUlisse-Cupo v. Bd. of Directors of Notre Dame H.S. (NO PE IN EMPLOYMENT K)
D represented to teacher that she would be given a new contract, but these representations were not
promissory in nature, and not sufficiently definite.
o Since Ds representations were not definite promises, P cannot recover under PE, but this does not
bar recovery under Negl. Misrep.
Stewart v. Cendant Mobility Services Corp. (PE IN DISCUSSION AFTER HUBBY LEFT CO)
Boss reassures that husband consulting for competition will have no effect on her employment

After husbands move to competitor, duties and interaction with clients limited
o

Asked to verbally agree with a number of items regarding husbands employment

Refuses to sign / verbally agree

terminated due to refusal to agree with presented provisions

Promissory estoppel relied on bosss reassurance and gave up opportunity to find new employment
o

Now has to find employment with termination on resume

Lost pipeline signing bonus

Tangible reliance damages

Received reliance damages

Blinn v. Beatrice Community Hosp. and Health Center, Inc. (WORK TIL RETIREMENT)
Hospital executive director received a job offer from Kansas hospital and discussed with boss
o

Boss states he has 5 more years of work available to him

Blinn also discusses with board

o

Board states he is safe until retirement

Blinn terminated in less than a year

Promissory estoppel - Blinn relied upon the statements in passing up greater income and greater
responsibility at other hospital to remain at Beatrice

Goodman v. Dicker (EQUITABLE ESTOPPEL)

P applied for a dealer franchise to sell Emerson products. D represented application accepted,
franchise would be granted, 30-40 radios coming. No franchise was granted.
o When D stated that the application had been accepted, it was a misrepresentation of fact, thus
allowing a claim of equitable estoppel,
o Since the lost profits could have been negated by termination after acceptance, the only recovery
allowable is reliance.
Unilateral/Option Contracts & Firm Offers
Distinction: In a unilateral contract, the offeror is bound, while the offeree is not.
o A unilateral contract is formed when a party offers a promise in exchange for a performance,
rather than a promise.
Rest.2d Sec. 45 Option Contract Created by Part Performance or Tender
(1) Where an offeror invites an offeree to accept by rendering a performance and does not invite a
promissory acceptance, an option contract is created when the offeree tenders or begins the invited
performance or tenders a beginning of it.
(2) The offerors duty of performance under any option contract so created is conditional on completion or
tender of the invited performance in accordance with the terms of the offer.
Rest.2d Sec. 62 Effect of Performance by Offeree Where Offeror Invites Either Performance or
Promise
(1) Where an offeror invites an offeree to choose between acceptance by promise and acceptance by
performance, the tender or beginning of the invited performance or a tender of a beginning of it is an
acceptance by performance.
(2) Such an acceptance operates as a promise to render complete performance.
Rest.2d Sec. 87 Option Contract
(1) An offer is binding as an option contract if it
o (a) is in writing and signed by the offeror, recites a purported consideration for the making of the
offer, and proposes an exchange on fair terms within a reasonable time; or
o (b) is made irrevocable by statute (2-205)

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

Revocability in General
o

Offers are generally revocable until acceptance.

Firm Offers under Common Law:

o Specify a specific option time (such as an offer valid until end of year), and there is minimal
(nominal) consideration for it (ex: $2.00)
See Google (stock options given as nominal consideration)
Firm Offers under UCC

UCC: 2-205
o Double-signature.
An offer by a merchant to buy or sell goods in a signed writing which by its terms gives
assurance that it will be held open is not revocable, for lack of consideration, during the time
stated or if no time is stated for a reasonable time, but in no event may such period of
irrevocability exceed three months; but any such term of assurance on a form supplied by the
offeree must be separately signed by the offeror.

Drennan v. Star Paving (SUBCONTRACTOR BID IRREVOCABLE)

P was preparing government contract bid, D submitted low bid, P asked D to repeat bid, P used bid to
get contract, P was awarded contract, P went to D office and D refused bid.
Under Rest.2d Sec. 90, D could reasonably expect that P would rely on Ds bid in applying for the
contract, and such reasonable reliance makes Ds offer irrevocable unless they had expressly stated
that it was revocable until acceptance.
The generals reliance on the offer makes it a firm offer, due to the enforceable subsidiary promise to
keep the offer open for a reasonable time after the general is awarded the K.
This is a unilateral contract
o Star is bound once it submits its offer, but Drennan is not. Star has offered a promise (bid) in
exchange for performance (acceptance of bid).

Chapter 3: Formation

Three Requirements:
o Assent
o Definiteness/Certainty
o Mutuality

Mutual Assent
o Common Law
Rest.2d Sec. 17: Requirement of a bargain: The formation of a contract requires a bargain in which
there is a manifestation of mutual assent to the exchange and a consideration
Rest.2d Sec. 18: Manifestation of Mutual Assent: Manifestation of mutual assent to an exchange
requires that each party either make a promise or begin or render a performance
Rest.2d Sec. 19: Conduct as Manifestation of Mutual Assent:
o (1) Wholly or partly by written or spoken words or by other act or by failure to act
o (2) The conduct of a party is not effective as manifestation of assent unless he intends to engage
in the conduct and knows or has reason to know that the other party may infer from his conduct
that he assents.
o (3) The conduct of a party may manifest assent even though he does not in fact assent.
Rest.2d Sec. 20: Effect of Misunderstanding:
o (1) SYMMETRY: There is no manifestation of mutual assent to an exchange if the parties
attach materially different meanings to their manifestations and either (a) neither party knows the
meaning attached by the other, or (b) both parties know the meaning attached by the other.
Posner: LATENT AMBIGUITY: A contract ought to be terminable without liability and the
parties thus allowed to go their own ways when there is no sensible basis for choosing
between conflicting understandings of the contractual language. If neither party can be
assigned the greater blame for the misunderstanding, there is no nonarbitrary basis for
deciding which partys understanding to enforce, so the parties are allowed to abandon the
contract without liability.
o (2) ASYMMETRY: The manifestations of the parties are operative in accordance with the
meaning attached to them by one of the parties if that party does not know the meaning
attached by the other party or has no reason to know of any different meaning attached by the
other party, while the other party knows of the meaning attached by the first party.
o (Posner, 3): PATENT AMBIGUITY: When parties agree to a patently ambiguous term, they
submit to have any dispute over it resolved by interpretation.
Rest.2d Sec. 21: Intention to be Legally Bound: Formation does not require a subjective intent to be
legally bound.
Rest.2d Sec. 22: Mode of Assent: Offer and Acceptance:

(1) The typical mode of assent is offer and acceptance, but

(2) Manifestation of mutual assent may be made even though neither offer nor acceptance can be
identified and even though the moment of formation cannot be determined.
o SHIFT FROM TRADITIONAL FORMAL RULES

See Livingstone v. Evans [Battle of the Forms]

UCC 2-204 Formation in General

(1) A contract may be made in any manner sufficient to show agreement, including conduct by
both parties which recognizes the existence of such a contract.
(2) Contract may be established even though the moment of its making is undetermined.
Raffles v. Wichelhaus (MEETING OF MINDS [OR LACK THEREOF])
Contract stated goods would arrive ex peerless. Parties meant different ships, both named
Peerless.
No consensus ad idem no contract.
Embry v. Hargadine-McKittrick Dry Goods Co. (JUDGMENT OF INTENT BY REASONABLE
OPPOSING PARTY)
P (Employee) and D (Employer) disputed whether D offered a renewal of Ps contract. P claimed D
offered renewal and he accepted by performance.
Since P was reasonable in understanding Ds words to offer a renewal of his contract, there was
manifestation of mutual assent.
Frigaliment Importing Co. v. B.N.S. Internatl Sales Corp. (INTERPRETATION LEANS
TOWARDS NON-DRAFTING PARTY)
P wanted young chickens and D supposedly provided fowl
K was enforced b/c P did not meet burden of proof to persuade the reasonable person that their
meaning prevailed.
Offer and Acceptance
Common Law
Rest.2d Sec. 24: Offer Defined: An offer is the manifestation of willingness to enter into a bargain.
Typically, it is revocable until accepted.
Class Definition: An offer is a manifestation of intent to enter into a bargain with the
understanding that acceptance would constitute a binding agreement.
Rest.2d Sec. 26: Preliminary Negotiations: A manifestation of willingness to enter into a bargain is
not an offer if the person to whom it is addressed knows or has reason to know that the person making
it does not intend to conclude a bargain until he has made a further manifestation of assent.
Rest.2d Sec. 27: Existence of a Contract where Written Memorial is Contemplated: An oral K
which is later to be put on paper is binding even if later paper part never happens.
Rest.2d Sec. 30: Form of Acceptance Invited: An offer may invite or require acceptance to be made
by an affirmative answer in words, or by performing or refraining from performing specified act, or
may empower the offeree to make a selection of terms in his acceptance. [Allied Steel]
Allied Steel & Conveyors, Inc. v. Ford Motor Co. (SUGGESTED METHOD OF ACCEPTANCE
DOES NOT PRECLUDE OTHER MEANS)
Ford submitted an offer to purchase machinery with a statement that the offer would not be binding
until accepted, and that acceptance should be executed on acknowledgement copy. Attached to this
form was a broad indemnity provision.
When Ford knowingly accepted the goods even without a written acceptance executed on
acknowledgment copy, it waived its right to claim that Allied had failed to accept the contract.

UCC 2-206 Offer and Acceptance [See Rest.2d Sec. 54]

(1) Unless otherwise unambiguously indicated by the language or circumstances

o (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any
medium reasonable in the circumstances
(2) Where the beginning of a requested performance is a reasonable mode of acceptance, an offeror
who is not notified of acceptance within a reasonable time may treat the offer as having lapsed
before acceptance.

Definiteness

Rest.2d Sec. 33: Certainty:

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

Moulton v. Kershaw (AN ADVERTISEMENT RE SALE IS AN INVITATION TO BARGAIN)

D (Seller) sent P (Buyer) a letter saying it was authorized to offer salt at a specific price per barrel.
P responded, requesting 2,000 barrels at that price. D withdrew opportunity.
Construed as an invitation to bargain - the terms of the letter never specified an offer to sell, only that
D was authorized to offer.
UCC 2-204 Formation in General

(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if
the parties have intended to make a contract and there is a reasonably certain basis for giving an
appropriate remedy.

UCC 2-305 Open Price Term

(1) The parties if they so intend can conclude a contract for sale even though the price is not settled.
(4) Indifinite Price Could mean No K Where price is indefinite and one of the parties manifests
intent only to be bound when price is fixed, no K.
Restatements 33 (1)
Common law is stuck with the idea that a
K must be absolutely certain before it can
be enforced.
If you read all off 33 and not section 1, you
will realize a judge needs to evaluate:
Intent
Certainty of remedial purposes

UCC 2-204 and 2-305

As long as we sense that parties wanted to
reach an agreement, a little bit of ambiguity is
allowed.
If you look at 2-204 (3): you again see the
same exact criteria:
a. Intent
b. Remedial certainty

Timing of Acceptance/Rejection
Rest.2d Sec. 40: Time when Rejection or Counter-Offer Terminates the Power of Acceptance
Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until
received by the offeror, but limits the powers so that a letter or telegram of acceptance started after
the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the
acceptance is received by the offeror before he receives the rejection or counter-offer.
[MAILBOX RULE]
Rest.2d Sec. 63: Time when Acceptance Takes Effect
As soon as put out of offerees possession, without regard to whether it ever reaches the offeror.
Except in an option K, where acceptance takes effect upon receipt of acceptance by offeror.
Caldwell v. Cline (OFFER IS MADE AT TIME IT IS RECEIVED IN MAILBOX)
Offer sent on 1/29, received on 2/2. Acceptance sent on 2/8 (6 days after receipt of offer, but 10 days
after offer was sent). Offer stated that promisee had 8 days to accept.
The eight days language is, without more, conclusive of the offerors intention to date the time limit
from the moment the letter was put in Caldwells hands.
Acceptance of Unilateral Contracts
Rest.2d Sec. 32: Unilateral or Bilateral?: In case of doubt an offer is interpreted as inviting the offeree
to accept either by promising to perform what the offer requests, or by rendering the performance, as the
offeree chooses. [Davis v. Jacoby]
Davis v. Jacoby (UNILATERAL K)
Whitehead asked niece to come take care of him and wife and he promised them all his money.
Whitehead died, but Ds cared for wife and upheld their end of bargain
o discovered will gave money to others.
NOTE: Typically, in case of doubt it is presumed that an offer invites the formation of a bilateral
contract, rather than the formation of a unilateral contract
Rest.2d Sec. 45: Option Contract Created by Part Performance or Tender
(1) Where an offer invites an offeree to accept by rendering a performance and does not invite a
promissory acceptance, an option contract is created when the offeree tenders or begins the invited
performance or tenders a beginning of it. [Brackenbury v. Hodgkin]
Rest.2d Sec. 54: Acceptance by Performance; Necessity of Notification to Offeror [See UCC 2206(2)]
(1) Where an offer invites an offeree to accept by rendering a performance, no notification is
necessary to make such an acceptance effective unless the offer requests such a notification. [Carlill v.
Carbolic Smoke Ball Co.]
(2) If the offeree who accepts by rendering a performance has reason to know that the offeror has no
adequate means of learning of the performance with reasonable promptness and certainty, the
contractual duty of the offeror is discharged unless
o (a) the offeree exercises reasonable diligence to notify the offeror of acceptance, or
o (b) the offeror learns of the performance within a reasonable time, or

(c) the offer indicates that notification of acceptance is not required.

Rest.2d Sec. 62: Effect of Performance by Offeree Where Offer Invites Either Performance or
Promise
(1) Where an offer invites an offeree to choose between acceptance by promise and acceptance by
performance, the tender or beginning of the invited performance or a tender of a beginning of it
is an acceptance by performance.
(2) Such an acceptance operates as a promise to render complete performance.
Carlill v. Carbolic Smoke Ball Co. (ADVERTISEMENT OF REWARD IS OFFER OF
UNILATERAL CONTRACT)
D advertised that anyone who used the product per the provided instructions and still got sick would
be rewarded. P performed, got sick, and sued to recover the promised reward.
Court found D offered a unilateral contract supported by consideration (mention of money in bank in
ad). P accepted by performance, and as such, should be granted the reward.
Pine River State Bank v. Mettille (MODIFICATION OF EMPLOYEE HANDBOOK COULD BE
UNILATERAL OFFER)
Employee was discharged but argued not according to handbook procedures
Conceptualizes at-will employment as a unilateral K, accepted by employee continuing to work.
Offer of unilateral K in handbook to keep costs low.
Revocability of Offers
Common Law General Revocation
Rest.2d Sec. 36: Termination of the Power of Acceptance
o (1)(c): Revocation of the offer
Rest.2d Sec. 41: Lapse of Time:
o (1) An offerees power of acceptance is terminated at the time specified in the offer, or, if no
time is specified, at the end of a reasonable time.
o (2) What is a reasonable time is a question of fact, depending on all the circumstances existing
when the offer and attempted acceptance are made.
Rest.2d Sec. 46: Revocation of a General Offer: Where an offer is made by advertisement in a
newspaper or other general notification to the public or to a number of persons whose identity is
unknown to the offeror, the offeree's power of acceptance is terminated when a notice of termination
is given publicity by advertisement or other general notification equal to that given to the offer and no
better means of notification is reasonably available.
Common law - Firm Offers
Rest.2d Sec. 87: Option Contract:
(1) An offer is binding as an option contract if it
o (a) is in writing and signed by the offeror, recites a purported consideration for the making of
the offer, and proposes an exchange on fair terms within a reasonable time; or
o (b) is made irrevocable by statute
(2) An offer that sparks PE is binding to the extent necessary to avoid injustice.
UCC 2-205 Firm Offers
An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance
that it will be held open is not revocable, for lack of consideration, during the time stated or if not

time is stated for a reasonable time, but in no event may such period of irrevocability exceed three
months; but any such term of assurance on a form supplied by the offeree must be separately signed
by the offeror.
Promises of Limited Commitment
Illusory Promise: A promise that appears on its face to be so insubstantial as to impose no obligation on
the promisor; dependent on the wants of the promisor.
o

Example: If it rains, I will give you a ride if I feel like it.

Common Law
Rest.2d Sec. 77: Illusory and Alternative Promises: A promise is not consideration if by its terms
the promisor reserves a choice of alternative performances unless
o (a) each of the alternative performances would have been consideration if it alone had been
bargained for; or
o (b) one of the alternative performances would have been consideration and there is or appears to
the parties to be a substantial possibility that before the promisor exercises his choice events may
eliminate the alternative which would not have been consideration.
Output Contract or Production Contract
UCC 2-306: Output, Requirements and Exclusive Dealings
o

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

Wood v. Lucy, Lady Duff-Gordon (CONSIDERATION ESTABLISHED BY GOOD FAITH)

D gave K to P for exclusive endorsement on clothes. D then let other people do so, claiming no K b/c
P didnt actually promise to do anything (lack of mutuality)
Rule: 2-306 and Rest.2d Sec. 205 (Obligation of Good Faith)
Under the requirements of good faith, P was bound by his promise to use best efforts to promote
the sales of Ds goods. Therefore, there was mutuality and D was in breach.
Feld v. Levy (GOOD FAITH IN OUTPUT K)
Output K: P will buy all breadcrumbs that D produces; D will sell all breadcrumbs it produces to P. D
stopped making breadcrumbs b/c not economical for them
K by seller to provide a good exclusively places an obligation on the seller to make their best effort
to supply the good (implied promise). If stop, must be in good faith = Allowed to stop if continuing
would place them in great harm (i.e. bankruptcy) but cant stop just b/c profits arent as high
Case: Corenswet (FRANCHISE K WITH TERMINATION AT WILL)
Franchisee is terminated after 7 years with 10 days notice

Argues good faith

Good faith does not alter general structure of contract

Similar to UCC 2-302 unconscionability

o

Based upon taking advantage of uneven bargaining power

Not applicable - must be so harsh and one-sided it shocks the court

Identifying the Bargain

Parol Evidence Rule
Where parol evidence is excluded in an action based on a written agreement, the ruling, when
analyzed, may sum up the following determinations:
o (a) The contract was integrated [Sec. 209]
o (b) The integration was complete [Sec. 210]
o (c) The oral term is inconsistent with the written agreement
o (d) The oral term is within the scope of the written agreement
o (e) The oral term does not bear on the interpretation of the written agreement.
o (f) The oral term would not naturally be omitted from the writing.
NOTE: do NOT consider anything written AFTER contract formed
MITCHILL TEST: In order for an oral agreement to alter the terms of a written contract:
o (1) The agreement must be collateral in form (not independent - almost always the case);
o (2) It must not contradict express or implied provisions of the written contract; AND
o (3) It must be a term that would not normally be required to occur in the written contract
(naturally out)
Sub-Test: Is the contract integrated? If so, is it completely integrated or partially integrated?
NOTE: Interpretation most of the time is for the judge. Only when there is unresolvable ambiguity
will interpretation go to the jury.
Integration
Partial Integration = A, B, C A, B, C, but D, E, F
Complete Integration = A Z 0 Parol

Traditional Rule: 4 Corners

o If the written contract looks like an inclusive document, it must be fully integrated, and external
evidence inadmissible
o Williston: Would a reasonable person think this K is integrated?
Modern Rule: Intention
o Corbin: The intention of the parties matters in determining whether the written contract was
integrated - all evidence must be examined (including text, parol, course of performance,
dealings, or trade usage).
o Parol evidence can be admitted if at least 1 party did not intend the written K to be completely
integrated.

Rest.2d Sec. 209: Integrated Agreements:

(1) An integrated agreement is a writing or writings constituting a final expression of one or more
terms of an agreement.
(2) Whether there is an integrated agreement is to be determined by the court as a question
preliminary to determination of a question of interpretation or to application of the parol
evidence rule.
(3) Where the parties reduce an agreement to a writing which in view of its completeness and
specificity reasonably appears to be a complete agreement, it is taken to be an integrated
agreement unless it is established by other evidence that the writing did not constitute a final
expression. [Mitchill v. Lath]

Rest.2d Sec. 211: Standardized Agreements:

(1) Where a party to an agreements signs or otherwise manifests assent to a writing and has reason to
believe that like writings are regularly used to embody terms of agreements of the same type, he
adopts the writing as an integrated agreement with respect to the terms included in the writing.
(3) Where the other party has reason to believe that the party manifesting such assent would not do
so if he knew that the writing contained a particular term, the term is not part of the agreement.
o The presence of a merger clause is not conclusive on whether the parties intended an
integration, especially when the K is a preprinted form drawn by a sophisticated seller and
presented to the buyer without any real negotiation.
Rest.2d Sec. 213: Effect of Integrated Agreement on Prior Agreements (PER):
(1) A binding integrated agreement discharges prior agreements to the extent that it is
inconsistent with them.
(2) A binding completely integrated agreement discharges prior agreements to the extent that
they are within its scope.
(3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a
prior agreement. But an integrated agreement, even though not binding, may be effective to render
inoperative a term which would have been part of the agreement if it had not been integrated.
Rest.2d Sec. 214: Evidence of Prior or Contemporaneous Agreements and Negotiations:
Agreements and negotiations prior to or contemporaneous with the adoption of a writing are
admissible in evidence to establish
o (a) that the writing is or is not an integrated agreement;
o (b) that the integrated agreement, if any, is completely or partially integrated;
o (c) the meaning of the writing, whether or not integrated;
o (d) illegality, fraud, duress, mistake, lack of consideration, other nullifying cause;
o (e) ground for granting or denying rescission, reformation, specific performance, or other remedy
Rest.2d Sec. 216: Consistent Additional Terms:
(1) Evidence of a consistent additional term is admissible to supplement an integrated
agreement unless the court finds that the agreement was completely integrated.
(2) An agreement is not completely integrated if the writing omits a consistent additional agreed
term which is
o (a) agreed to for separate consideration, or
o (b) such a term as in the circumstances might naturally be omitted from the writing
UCC 2-202 Final Written Expression: Parol or Extrinsic Evidence

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

Mitchill v. Lath (IS COLLATERAL AGREEMENT CLOSELY BOUND TO K?)

P made writing to buy Ds farm, who orally promised to tear down nearby ice house on separate
property; D never tore down ice house.
Majority (Parol evidence inadmissible):
o (1) Oral promise was clearly collateral in form.
o (2) The provision does not contradict any express terms of the contract, but potentially contradicts
that the performance of the terms in the written contract renders the entire bargain executed.
o (3) If Mrs. Mitchill truly relied upon the oral promise in evaluating whether to purchase the
house, one would expect that such an important term would be included in written K
Dissent:
o (1) Clearly collateral.
o (2) The contract does not expressly state that the Ds are not to do anything unexpressed in the
writing. As such, no contradiction.
o (3) The sale of the farm land was not directly related to the removal of the ice house on separate
land.
Hatley v. Stafford (ORAL TERM VIEWED IN LIGHT OF CIRCUMSTANCES)
D leased farm to P for growing wheat. D has right to buy out P. D exercised right and cut Ps crop.
P claimed oral agreement that right could only be done 1st 30-60 days
Timing of planting would naturally be considered in reasonable buy-out period
Husky Spray Service v. Patzer (ORAL DISCLAIMER OF WARRANTY)
Disclaimers should be specific, negotiated, and understood to be enforceable.
Disclaimer should be conspicuous to be enforceable
Inconspicuous disclaimer does not override oral warranty
UCC 2-316: Exclusion or Modification of Warranties [DISCLAIMER]
(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to
negate or limit warranty shall be construed wherever reasonable as consistent with each other; but
subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or
limitation is inoperative to the extent that such construction is unreasonable.
Parol Evidence and Fraud
Parol evidence may be introduced to prove a parol promise made with no intention to perform.
o (fraud, duress, or mistake may be asserted as defense to enforce a K, or to rescind it)
Fraud can always be proven with parol evidence unless it is intrinsic (in direct conflict) with the
written contract.
Damages in Fraud:
In many jurisdictions, we punish the fraudulent promisor by holding him to his promise
(EXPECTATION), but in NY, the remedy for fraud in tort is out of pocket expenses or
RELIANCE [Lipsit v. Leonard]
Rescission (restitution) best if enter into K just because of fraudulent representation of other party.
Wants to wind back transaction and put parties where they would have been had there been no K.
o Constraint on this if deal is already almost or completely executed. [LaFazia v. Howe]

Lipsit v. Leonard (PAROL EVIDENCE USABLE IN FRAUD)

Employment = series of annual letter agreements. P claims specific oral promises accompanied
writings, e.g., P would be given equity interest in the business
Since the fraud is intrinsic, parol evidence is inadmissible in a contract claim.
o However, NY law allows this parol evidence to be used in a tort claim for fraud, and recovery is
based on RELIANCE.
Sabo v. Delman (PAROLE EVIDENCE INADMISSIBLE IN ESTABLISHING FRAUD)
D promised to promote the sale of a shoe cutting machine, but only made two machines.
o P seeks to admit parol evidence showing that D never intended to perform
If a promise is made with a preconceived and undisclosed intention not to perform it, there is a
misrepresentation of a material existing fact which justifies rescission.
Evidence of fraud overrules any GENERAL merger clause (clause indicating no verbal
understanding or condition not specified shall be binding to either party)
Disclaimer & Fraud
Rule: A specific disclaimer shall not vitiate the contract if it was read and understood by the party
now claiming fraud.
o If there are specific disclaimers/clauses in a contract they cannot be voided by parol evidence,
even if there is fraudulent inducement.
LaFazia v. Howe (ACTIONS AFFIRMING K BAR RESCISSION)
D bought deli from P, P stated deli was doing better than paperwork intimated
P knew of the express, specific, conspicuous disclaimer in the written contract re: not relying on
specific representations not embodied in the contract
o Was reviewed by atty
Here, the parol evidence is directly inconsistent with the writing, and even though the owners
fraudulently induced purchase, the parol evidence cannot be allowed in
Additionally, continued payments despite realizing early on theyd been duped
o Too late
INTERPRETATION
Pacific Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co. (MEANING OF TERMS)
K to replace fix Ps turbine. Indemnity clause: D to perform at own risk and expense and to
indemnify P against all loss, damage, liability, connected w/this K
o The meaning of indemnify is clear, therefore extrinsic evidence is inadmissible.
JUDGE TRAYNOR
o Intention is the most important factor.
o If the extrinsic evidence is relevant to prove a possible meaning that the parties actually intended,
it is admissible.
UCC Rule 2-202
Written agreements are to be read on the assumption that the course of prior dealings between the
parties and the usages of trade, unless carefully negated, were taken for granted when the document
was phrased.

Rest.2d Sec. 212: Interpretation of Integrated Agreement:

(2) A question of interpretation of an integrated agreement is to be determined by the trier of fact if it

depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be
drawn from extrinsic evidence. Otherwise a question of interpretation of an integrated agreement is to
be determined as a question of law.

Technique for interpretation of ambiguity (Heirarchy of Frigaliment chicken K)

o Text what does the document say (i.e. disclaimer, word chicken)
o Course of performance (performance of this specific sale in this K)
o Course of dealing (history of dealings b/w these parties, including precontractual negotiations and
previous Ks)
o Usage of trade
Posner Discussion re Interpretation (Frigaliment)
Judges can use common sense in contractual interpretation that does not depend on factual
investigation.
o Ex: An interpretation which sacrifices a major interest of one of the parties while furthering only
a marginal interest of the other should be rejected in favor of an interpretation which sacrifices
marginal interests of both parties in order to protect their major concerns.
A contract will not be interpreted literally if doing so would produce absurd results, in the sense of
results that the parties, presumed to be rational persons pursuing rational ends, are very unlikely to
have agreed to seek.
Even if an interpretation makes sense, it will be rejected if the rival interpretation is markedly more
sensible.
COUNTER-OFFER/BATTLE OF THE FORMS
Livingstone v. Evans (MIRROR IMAGE / LAST SHOT RULE)
Ds Offer: $1800; Ps Reply: Send lowest cash price. Will give $1600 cash; Ds Reply: Cannot reduce
price; D enters into K w/someone else; P accepts original offer
Counteroffer acts as a rejection of the original offer.
A reply to the counteroffer may act as a renewal of the original offer.
Exceptions:
Immaterial variances are disregarded.
Grumbling acceptance is effective
Making explicit terms which were already implicit in the offer does not turn the acceptance into a
counter-offer.
Counter-offers do not terminate the power of acceptance if the offer is firm.
UCC: 2-204 Formation in General
(1) A contract may be made in any manner sufficient to show agreement, including conduct by
both parties which recognizes the existence of such a contract.
(2) Contract may be established even though the moment of its making is undetermined.
(3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if
the parties have intended to make a contract and there is a reasonably certain basis for giving an
appropriate remedy.

UCC: 2-207 Additional terms in Acceptance

(1) [FIRST SHOT] A definite and seasonable expression of acceptance or a written confirmation
which is sent within a reasonable time operates as an acceptance even though it states terms
additional to or different from those offered or agreed upon, [LAST SHOT] unless acceptance is
expressly made conditional on assent to the additional or different terms.
(2) The additional terms are to be construed as proposals for addition to the contract. Between
merchants such terms become part of the contract unless:
o (a) the offer expressly limits acceptance to the terms of the offer;
o (b) they materially alter it; or
o (c) notification of objection to them has already been given or is given within a reasonable time
after notice of them is received.
(3) [KNOCK-OUT RULE] Conduct by both parties which recognizes the existence of a contract
is sufficient to establish a contract for sale although the writings of the parties do not otherwise
establish a contract. In such case the terms of the particular contract consists of those terms on which
the writings of the parties agree, together with gap filler provisions (such as implied warranties).
Richardson v. Union Carbide Indus. Gases, Inc. (BATTLE OF FORMS)
B and S each included standard indemnification clauses, which conflicted with each other.
Conflicting terms fall out and, if necessary, are replaced by UCC gap-filler provisions.
MINORITY Rule:
o For different terms, the offerors terms control because 2-207(2) only applies to additional terms
RARE Rule:
o There is no difference between different and additional, therefore UCC 2-207(2) applies and the
offerees terms supersede the offerors
ProCD v. Zeidenberg (SHRINKWRAP LICENSE)
Ps product had a shrinkwrap license stating that the software came with restrictions stated on an
enclosed license.
D purchased the product, agreed to the license, and violated its terms.
Under UCC 2-204(1): A vendor, as master of the offer may invite acceptance by conduct, and may
propose limitations on the kind of conduct that constitutes acceptance.
UCC 2-606: A buyer accepts goods under 2-606(1)(b) when, after an opportunity to inspect, he fails
to make an effective rejection under 2-602(1).
o Buyer could have returned product
Klocek v. Gateway (DUTY TO READ)
Buyer purchased computer as xmas gift
30-day return period exceeded due to timing of holiday
Arbitration clause upheld everyone knows there are terms within the box duty to read
Specht v. Netscape Communications Corp. (court of appeals for 2nd Cir. 2002)
Class action suit: Netscape SmartDownload violates user privacy

license terms missed upon download

o

Had to scroll downwards beyond download button, click on license link and browse to
additional page to view

Requirements of conspicuousness highlighted by UCC

Court found terms need to be readily available such that the consumer recognizes invitation to review

SILENCE AS ACCEPTANCE
Rest.2d Sec. 69: Acceptance by Silence:
(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the
following cases only:
o (a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject
them and reason to know that they were offered with the expectation of compensation.
o (b) Where the offeror has stated or given the offeree reason to understand that assent may be
manifested by silence or inaction, and the offeree in remaining silent and inactive intends to
accept the offer.
o (c) Where because of previous dealings or otherwise [such as previous assent to long-term
arrangements like credit card rates], it is reasonable that the offeree should notify the offeror if
he does not intend to accept.
(2) An offeree who does any act inconsistent with the offeror's ownership of offered property is bound
in accordance with the offered terms unless they are manifestly unreasonable. But if the act is
wrongful as against the offeror it is an acceptance only if ratified by him.
McGurn v. Bell (ADJUSTMENT TO TERMS INSERTED INCONSPICUOUSLY)
D mailed P employment offer will receive severance if terminated within 1 st 12 months.
P crossed out 12, wrote 24, signed and sent the letter back.
HR dept never reviewed contract
o A sophisticated employer should check the returned employment offer.
Hobbs v. Massasoit Whip Co. (EEL SKINS)
Whip company held onto eel skins until they were ruined, never paid

Had history of accepting skins from fisherman in this manner

Court found for fisherman assent by silence

Example: Insurance
Typically, the insurance applicant is the offeror.
If insurance provider does not respond and harm occurs shortly after application is received,
acceptance by silence will not be found.
If, however, the provider has remained wholly silent for a lengthy period after receiving the
application, many courts have found in that silence an implied acceptance.
o Other courts have found the provider liable in tort since insurance companies are bound by
regulation to accept all qualified applicants, and a delayed review constitutes negligence

IMPLIED CONTRACTS
In the absence of a contract, enforcement is through QM to give compensation for services
rendered. Under QM usually trying to recover Restitution damages (Sometimes Expectation).

Implied in Fact
o When parties engage in behavior that a reasonable observer would see as a contractual
relationship

Implied in Law (QK)

o Obligation created by law for reasons of justice (protection against unjust enrichment). We allow
recovery under QK when society has an interest in seeing certain individuals perform certain
actions without fear that they will not be compensated.
o Must not be a Good Samaritan (volunteer) expects no compensation, so get none.
o Must not be an Officious intermeddler (only does act b/c expects enrichment w/o consent of
other party) so gets no compensation

Martin v. Little, Brown & Co. (INTENTION TO PAY NOT INFERRED VIA EXCHANGE)

P notifies D of plagiarism, offers to send marked up copy

D didnt promise money, and P didnt request
even though D benefited, not unjust b/c P was considered a volunteer.
NOTE: Even if P could recover under quasi-contract, damages would be measured by the reasonable
value of the service he provided, not by a percentage of the recovery achieved by the defendant in
the copyright infringement action as P attempted.

Davis v. General Foods Corp. (INDUCED TO PROVIDE VALUE FOR NOTHING)

Davis contacted GF re recipe concept
GF vaguely stated that Davis may be awarded value depending upon what she sent
Davis forwarded information, GF used Daviss recipe and gave her nothing
Inducement Davis could reasonably infer from content of letter that General Foods would
compensate fairly should the recipe prove valuable
o Davis lost out on opportunity to share with other food producers
Morone v. Morone (COHABITATION CAN BAR RECOVERY QK)
P and D had common law marriage with children
o Common law marriage not upheld in many regions do not want to enrich gold digging mistress
Upon split, wife attempted to get half, claiming express oral contract
o Typically cannot receive compensation for things done out of love
o However, established taxes filed as one entity and she did work for husbands business
Evidence of partnership

MISTAKE, MISREPRESENTATION, AND NON-DISCLOSURE

Remedy for Mutual Mistake: Rescission & Restitution
Traditional Test: A mistake can allow rescission of the contract if:
o 1) It is a mistake of fact, not opinion;
o 2) It is a basic assumption on which the contract rests; and
o 3) It has a material effect on the exchange.
Modern Addition:
o 4) Did the injured party bear the risk of the mistake?
Rest.2d Sec. 152: When Mistake of Both Parties Makes a Contract Voidable:
(1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which
the contract was made has a material effect on the agreed exchange of performances, the contract is
voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated
in Rest.2d Sec. 154.
Rest.2d Sec. 154: When a Party Bears the Risk of a Mistake:
(1) A party bears the risk of a mistake when
o (a) the risk is allocated to him by agreement of the parties, or
o (b) he is aware, at the time the contract is made, that he has only limited knowledge with respect
to the facts to which the mistake relates but treats his limited knowledge as sufficient [Sherwood
v. Walker] [Does not apply to Beachcomber Coins], or
o (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances
to do so.
Rest.2d Sec. 155: When Mistake of Both Parties as to Written Expression Justifies Reformation:

Where a writing that evidences or embodies an agreement in whole or in part fails to express the
agreement because of a mistake of both parties as to the contents or effect of the writing, the court
may at the request of a party reform the writing to express the agreement, except to the extent that
rights of third parties such as good faith purchasers will be unfairly affected.

Sherwood v. Walker (PREGNANT COW)

P/D agreed on price for barren cow
o D learned cow actually pregnant and refused to sell
Mutual mistake allows rescission since there was a mistake of fact that was a basic assumption on
which the contract rested and had a material effect on the exchange.
o However, buyer thought cow may be capable of producing had not bought for meat
DISSENT: Seller had reason to know that there was a small likelihood that the cow was capable of
calving. As such, the seller bore the risk that he was mistaken in setting the price. Since the seller was
also the injured party, the contract should not have been voided.
Beachcomber Coins, Inc. v. Boskett (FAKE COIN)
P bought coin from D that was supposedly antique; turns out it wasnt
Both S and B believed the coin to be valuable
Rescission classic case of dual mistake

Misrepresentation/Non-Disclosure
Rest.2d Sec. 159: Misrepresentation Defined:
A misrepresentation is an assertion that is not in accord with the facts.
Rest.2d Sec. 161: When Non-disclosure is Equivalent to an Assertion:
A persons non-disclosure of a fact known to him is equivalent to an assertion that the fact does not
exist in the following cases only:
o (a) where he knows that disclosure of the fact is necessary to prevent some previous assertion
from being a misrepresentation or from being fraudulent or material.
o (b) where he knows that disclosure of the fact would correct a mistake of the other party as to a
basic assumption on which that party is making the contract and if non-disclosure of the fact
amounts to a failure to act in good faith and in accordance with reasonable standards of fair
dealing.
o (c) where he knows that disclosure of the fact would correct a mistake of the other party as to the
contents or effect of a writing, evidencing or embodying an agreement in whole or in part.
o (d) where the other person is entitled to know the fact because of a relation of trust and
confidence between them.
Rest.2d Sec. 163: When a Misrepresentation Prevents Formation of a Contract:
If a misrepresentation as to the character or essential terms of a proposed contract induces conduct
that appears to be a manifestation of assent by one who neither knows nor has reasonable opportunity
to know of the character or essential terms of the proposed contract, his conduct is not effective as a
manifestation of assent.
Rest.2d Sec. 164: When a Misrepresentation Makes a Contract Voidable:

(1) If a partys manifestation of assent is induced by either a fraudulent or a material representation by

the other party upon which the recipient is justified in relying, the contract is voidable by the
recipient.
(2) If a partys manifestation of assent is induced by either a fraudulent or a material
misrepresentation by one who is not a party to the transaction upon which the recipient is justified in
relying, the contract is voidable by the recipient, unless the other party to the transaction in good
faith without reason to know of the misrepresentation either gives value or relies materially on the
transaction.

Laidlaw v. Organ (MISREPRESENTATION VIA NONDISCLOSURE)

D purchased tobacco from P extremely early on a Sunday morning

When P asked if there was news that would enhance value of tobacco, D said nothing
o D had news from relative re: end of war of 1812
D won nothing done to prevent P from discovering information, and it was in the
morning news (public knowledge by the time he showed up to buy tobacco)

Warranty
UCC:
2-313: Express Warranty
o (1) Express warranties by the seller are created as follows:
(a) Any affirmation of fact or promise made by the Seller to the Buyer which relates to the
goods and becomes a part of the basis of the bargain creates an express warranty that the
goods shall conform to the affirmation or promise.
(b) Any description of the goods which is made part of the basis of the bargain creates an
express warranty that the goods shall conform to the description.
(c) Any sample or model which is made part of the basis of the bargain creates an express
warranty that the whole of the goods shall conform to the sample or model [Clark v. West]
o (2) It is not necessary to the creation of an express warranty that the seller use formal words such
as warrant or guarantee or that he have a specific intention to make a warranty, but an
affirmation merely of the value of the goods or a statement purporting to be merely the
sellers opinion or commendation of the goods does not create a warranty.
o Comment: A clause generally disclaiming all warranties, express or implied, cannot reduce the
sellers obligation with respect to such description and therefore cannot be given literal effect
under 2-316
2-314: Implied Warranty: Merchantability; Usage of Trade
o (1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable
is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.
o (3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course
of dealing or usage of trade.
2-315: Implied Warranty: Fitness for Particular Purpose
o Where the seller at the time of contracting has reason to know any particular purpose for which
the goods are required and that the buyer is relying on the sellers skill or judgment to select or
furnish suitable goods, there is unless excluded or modified under the next section an implied
warranty that the goods shall be fit for such purpose.
Tribe v. Peterson (NO BUCK WARRANTY)

Everyone w/prior experience w/horse found him to be calm. Buyer alleges no-buck guarantee
sues for damages resulting from breach of express warranty when horse throws him and wife.
Whether there was an affirmation of fact which amounted to an express warranty depends on a
consideration of all the circumstances surrounding a sale and should be made by the trier of fact.
Cannot have warranty for horses temperament Petersons had expert with them who okd purchase

IMPOSSIBILITY/COMMERCIAL IMPRACTICABILITY/FRUSTRATION
Impossibility [Common]

Most contracts have an implied condition that performance is only required if it is possible. The nonoccurrence of this condition excuses both parties from performance.
PIVOTAL ISSUE: Which party assumed the risk?
o Posner Test: The risk falls on the cheapest insurer.
Remedies Available
o Rescission and Restitution

Rest.2d Sec. 272, Comment b:

Recovery in impossibility and frustration cases may go beyond mere restitution and include
elements of reliance by the claimant even though they have not benefitted the other party.
Taylor v. Caldwell (IMPOSSIBILITY DUE TO FIRE)
Ds rented Music Hall to P for 4 days. Before 1st concert, hall burned down.
The non-occurrence of the implied condition that providing the concert hall would be possible
excuses the parties from performance.
o Note: modern dissent, P could have assumed risk and had insurance
Hathaway v. Sabin [Impossibility, Order of Performance, Assurance]
D contracted with P to provide hall for performance and pay P $75.
Upon hearing of incoming snowstorm, D assumed it would be impossible for P to make it to the hall
in time, therefore he did not warm the hall and cancelled the concert.
P arrived in time and sued to recover expectation for breach of contract.
Full expectation recovery for Ps.
UCC
2-613: Casualty to Identified Goods (IMPOSSIBILITY)
Where the contract requires for its performance goods identified when the contract is made, and the
goods suffer casualty without fault of either party before the risk of loss passes to the buyer, then
o (a) If the loss is total, the contract is avoided; and
o (b) If the loss is partial or the goods have so deteriorated as no longer to conform to the contract
the buyer may nevertheless demand inspection and at his option either treat the contract as
avoided or accepted the goods with due allowance from the contract price for the deterioration or
the deficiency in quantity but without further right against the seller.
2-615: Excuse by Failure of Presupposed Conditions (IMPRACTICABILITY)

Except so far as a seller may have assumed a greater obligation and subject to the preceding section
on substituted performance:
o (a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs
(b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been
made impracticable by the occurrence of a contingency the non-occurrence of which was a basic
assumption on which the contract was made or by compliance in good faith with any applicable
governmental regulation.

Commercial Impracticability
Rest.2d Sec. 261: Discharge by Supervening Impracticability
Where, after a contract is made, a party's performance is made impracticable without his fault by
the occurrence of an event the non-occurrence of which was a basic assumption on which the
contract was made, his duty to render that performance are discharged, unless the language or the
circumstances indicate the contrary.
Westinghouse
In early 1970s, Westinghouse contracted with power companies to supply the requirements of
uranium for these companies at fixed prices of $8-$10/lb.
By 1975, MP of uranium had risen to $40/lb, and Westinghouse announced that it could no longer
perform on the terms of the contracts.
Absolute liability on Westinghouse for breach.
o It was in all parties best interests to keep Westinghouse in business, so a generous settlement
occurred.
Modern Procedure:
o Many long term contracts now include formulae of adjustment/adjustment clauses.
American Trading & Prod. Corp. v. Shell Intl Marine, Ltd. (SUEZ CANAL)
Contract to take lube oil from TX to India
Learned Suez Canal closed & alerted Shell
o Take route via Cape of Good Hope?
thought they were released from original K due to impracticability
o Shell responded up to you
ATP response: we reserve rights to extra compensation
Court found for Shell
o Should have insurance for such contingencies
o Was not overwhelmingly more expensive (rule of thumb, over 1/3 price of contract)
Frustration

Rest.2d Sec. 265: Discharge by Supervening Frustration

Where, after a contract is made, a party's principal purpose is substantially frustrated without his
fault by the occurrence of an event the non-occurrence of which was a basic assumption on which
the contract was made, his remaining duties to render performance are discharged, unless the
language or the circumstances indicate the contrary.
Krell v. Henry (RENTAL ON PARADE ROUTE)
owner sued tenant to recover remaining balance on a contract to rent rooms
Rooms specifically rented to view the Kings coronation
o coronation did not occur due to illness of the King, thus creating a total failure of consideration.
Test:
o (1) What was the foundation of the contract?
o (2) Was the performance of the contract prevented?
o (3) Was the event that prevented the contract unforeseeable?
Assumption of Risk by owner

Chapter 5: Policing the Bargain

INCAPACITY: Infancy, Mental Illness/Defect, or Intoxication

Remedy: Rescission and Restitution (Void)

Infancy
Rest.2d Sec. 14: Infants
o Unless a statute provides otherwise, a natural person has the capacity to incur only voidable
contractual duties until the beginning of the day before the persons eighteenth birthday.
Exceptions:
o When K entered for necessities (we dont want to completely incapacitate minors in need; want
to create incentives for people to K with them)
o When there is misrepresentation (child pretends to be older than really is)
o When childhood is used as a sword (Minor P sues to get money back for a product they
destroyed)
Mental Illness/Defect
Proof of mental illness/defect renders a contract voidable, but does not automatically make it void.
Rest.2d Sec. 15: Mental Illness or Defect
(1) A person incurs only voidable contractual duties by entering into a transaction if by reason of
mental illness or defect
o (a) he is unable to understand in a reasonable manner the nature and consequences of the
transaction, or
o (b) he is unable to act in a reasonable manner in relation to the transaction and the other party
has reason to know of his condition.
(2) Where the contract is made on fair terms and the other party is without knowledge of the mental
illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the
contract has been so performed in whole or in part or the circumstances have so changed that
avoidance would be unjust. In such a case a court may grant relief as justice requires.

To avoid this doctrine, one must show:

o (1) The individual was competent (cognition or volition)
o (2) The other must not have reason to know of the individuals condition.
o (3) Restitution is impossible.

In executory contracts, just like infancy. Regardless of fairness, regardless of knowledge or good
faith, incompetent person may disaffirm.
Where the contract has been performed, avoidance is permitted only on equitable terms.

Ortelere v. Teachers Retirement Bd.

Teacher with cerebral arteriosclerosis and nervous breakdown
Altered retirement benefits to be paid w/o option max. payments made for life, no reserve after
death.
Dies 2 months later, P sues to void wifes decision
Court found for husband

Traditional Test: Cognition Is the individual able to understand the nature and consequences of the
transaction?

o Rest.2d Sec. 15(1)(a)

o Does not require other party to have knowledge of illness.
Modern Test: Volition If the individual were in control of his actions, would he have made the
contract?
o Rest.2d Sec. 15(1)(b)
o Requires the other party to know of the illness.

Undue Influence
Doctrine involves constructive fraud such that arms-length negotiation is suspended for parties
with trust-based relationships DUTY TO DISCLOSE
o When an individual takes advantage of anothers situational weakness, the contract is voidable.
Intoxication
Rest.2d Sec. 16: Intoxicated Persons:
A person incurs only voidable contractual duties by entering into a transaction if the other party has
reason to know that by reason of intoxication
o (a) he is unable to understand in a reasonable manner the nature and consequences of the
transaction, or
o (b) he is unable to act in a reasonable manner in relation to the transaction.
DURESS, THE LEGAL DUTY RULE AND MODIFICATION/WAIVER
Legal Duty Rule: A contract modification not supported by fresh consideration is not binding.

Reliance Exception: If a party detrimentally relies on a contractual modification, reliance can be

recovered even without fresh consideration

Alaska Packers Assn v. Domenico (MODIFICATION UNDER DURESS)

Fishermen hired; pmt was 50;
After unloading, they stopped working, wanted $100 each due to faulty nets, and unless paid, would
return to S.F.
o Economic Duress: The ship owners had no choice but to accept the second contract.
A promise to do what the promisor is already legally bound to do is an unreal consideration.
o K specified all work
Wolf v. Marlton Corp. (THREATS AND DURESS)
Wolfs buying home in development unit and put down payment $2,450

Wolfs had marital difficulties, want to cancel the contract and collect deposit
Marlton says he will only return $1450, but Wolf demanded $2000
Threatened I will sell to someone undesirable so you will never sell another
Marlton sold to another person and sued for return of deposit
o

Marlton won deposit had been submitted to Wolf in duress

Levine v. Blumenthal (ORAL RENT REDUCTION NOT BINDING)

P leased store to D for 2yrs 175/mo for yr 1, 200 yr 2.
o D couldnt pay 200. P orally agreed to accept 175. Left prior to end of yr 2.
P wants the 25 diff for all mos+ final mo
Court found modification not valid as it was unsupported by fresh consideration
Modern Counter: Economic Duress, Rest.2d Sec. 89(a)
o Due to Depression, odds are no one would have rented
Rest.2d Sec. 89: Modification of Executory Contract
A promise modifying a duty under a contract not fully performed on either side is binding
o (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties
when the contract was made [Levine v. Blumenthal]
o (b) to the extent provided by statute [2-209(1)]
o (c) to the extent that justice requires enforcement in view of material change of position in
reliance on the promise
UCC: 2-209(1) Modification
(1) An agreement modifying a contract within this Article needs no consideration to be binding.
NOTE: still subject to good faith
Schwartzreich v. Bauman-Basch, Inc.
K1 - 90/wk wage; K2 - 100/wk wage given b/c of another job offer giving 110/wk;
o both Ks for 1yr; employee fired after 1 month
mutual consent to rescission of old K and creation of new K is enforceable. (key is mutual consent)
NOTE: Where an alleged rescission is coupled with a simultaneous re-entry into a new contract and
the terms of that new contract are more favorable to only one of the parties, doubt is created as to
the mutuality of the agreement to rescind the original contract
No Oral Modification (NOM) Clauses
In common law, can be rescinded by agreement by both parties.
Stronger adherence in UCC
UCC: 2-209(2). No Oral Modification Clauses
(2) A signed agreement which excludes modification or rescission except by a signed writing cannot
be otherwise modified or rescinded, but except as between merchants such a requirement on a form
supplied by the merchant must be separately signed by the other party.
Note: Can still be waived per 2-209(4) & 2-209(5)
Note: typical in contractor cases, where modifications in construction must be in writing

Waiver
A waiver is an intentional relinquishment of a known right.
UCC: 2-209(4-5). Waiver
(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection
(2) or (3) it can operate as a waiver.
(5) A party who has made a waiver affecting an executory portion of the contract may retract the
waiver by reasonable notification received by the other party that strict performance will be required
of any term waived, unless the retraction would be unjust in view of a material change of position in
reliance on the waiver.

Only peripheral terms/rights can be waived, you cannot waive the substance of the contract.

Waiver (easier to argue)

Revocable unless relied upon
Ancillary (promise or condition)
No demonstration of reliance necessary

Estoppel
Revocable
Core
(must show) Reliance

Clark v. West (DRUNKEN LAW BOOK AUTHOR)

West pays lower wage to Clark, pointing to clause in contract re no drinking for term of K

Clark demonstrates waiver of complete abstention of drink

Clark can receive full payment (e.g., extra $4 per page)

SCHULTZ v. LOS ANGELES DONS, INC. (REDUNDANT NOTIFICATION NOT NEEDED)

Signs with L.A. Dons and becomes injured during practice

Dons claim Breach of contract

o

Schultz failed to give written notification of injury

Trial court found there was a waiver Schultz notified people right away, and there were a number of
written reports regarding the injury
o

constructive fulfillment of condition redundant to submit in writing

Standardized Terms, Unconscionable Inequality, and Good Faith

Rest.2d Sec. 206: Interpretation Against the Draftsman:
In choosing among the reasonable meanings of a promise or agreement or a term thereof, that
meaning is generally preferred which operates against the party who supplies the words or from
whom a writing otherwise proceeds.
Rest.2d Sec. 207: Interpretation Favoring the Public:
In choosing among the reasonable meanings of a promise or agreement or a term thereof, a meaning
that serves the public interest is generally preferred.

Rest.2d Sec. 211: Standardized Agreements:

(1) Where a party to an agreement signs or otherwise manifests assent to a writing and has reason to
believe that like writings are regularly used to embody terms of agreements of the same type, he
adopts the writing as an integrated agreement with respect to the terms included in the writing.
(3) Where the other party has reason to believe that the party manifesting such assent would not do
so if he knew that the writing contained a particular term, the term is not part of the agreement.
Comment f:
o A party who adheres to the other partys standard terms does not assent to a term if the other party
has reason to believe that the adhering party would not have accepted the agreement if he had
known that the agreement contained the particular term. Reason to believe may be inferred from:
The fact that the term is bizarre or oppressive
The fact that it eviscerates the non-standard terms explicitly agreed to, or
The fact that it eliminates the dominant purpose of the transaction.

Typically, standardized terms are upheld, as there is societal value in them:

o ProCD v. Zeidenberg
o Klocek v. Gateway
Fear is that the agreement is a contract of adhesion
o Take it or leave it quality.

Two Requirements for Standardized Terms to be Upheld:

The term must not be unconscionable.

The term must be within the reasonable expectations of the reader.

Weisz v. Parke-Bernet Galleries, Inc. (DUTY TO READ DISCLAIMER)

Ps bought art at auction, but forgeries.
Disclaimer in auction house catalog that authenticity was not assured.
The language used, the understated manner of its presentation, the failure to refer to it explicitly in the
preliminary oral announcement at the auction downplay of waiver (screams authenticity)

Unconscionability [Doctrine of Last Resort]

Rest.2d Sec. 208: Unconscionable Contract or Term:
If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to
enforce the contract, or may enforce the remainder of the contract without the unconscionable term,
or may so limit the application of any unconscionable term as to avoid any unconscionable result.
UCC: 2-302. Unconscionable Contract or Clause
(1) If the court as a matter of law finds the contract or any clause of the contract to have been
unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce
the remainder of the contract without the unconscionable clause, or it may so limit the application of
any unconscionable clause as to avoid any unconscionable result.
(2) When it is claimed or appears to the court that the contract or any clause thereof may be
unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its
commercial setting, purpose and effect to aid the court in making the determination.

Substantive Unconscionability = The term offends our conscience

Procedural Unconscionability = There is something wrong with this specific situation

Pleading the doctrine of unconscionability is very risky as it is inherently paternalist.

Williams v. Walker-Thomas Furniture Co. (FURNITURE LEASE UNCONSCIONABLE)

P entered into credit K w/D; paid on an installment plan nothing paid off until entire balance paid.
Defaulted on stereo payment and D repossessed everything.
Unconscionability is the absence of a meaningful choice for one party (procedural) together with
contract terms that are unreasonably favorable to the other party (substantive): inequality of
bargaining power.
Good Faith
During Performance and enforcement (well into life)
Jury Question of fact
Rest.2d Sec. 205, 161(b) [Disclosure], 90
UCC 1-201 (19) [Defn], 1-203 [Obligation]
Clause invoked abusively
Bunge v. Recker
Feld v. Lucy
COMMON

Unconcsionability
During Formation of K
Judge Question of Law
Rest.2d Sec. 208
UCC 2-308, 2-719 [Waivers of PI
unconscionable]
Clause itself is abusive
Williams v. Walther Thomas Furniture
RARE

Chapter 6: Maturing and Breach of Contract Duties

CONDITIONS: ORDER OF PERFORMANCE
Condition > Clause
In the presence of a condition, we expect exact performance
Absent a condition, we are satisfied with substantial performance.
Condition Precedent
Establishes order of performance.
Britton v. Turner
o Work for 1 year Payment
Rest.2d Sec. 234: Order of Performances
(1) Where all or part of the performances to be exchanged under an exchange of promises can be
rendered simultaneously, they are to that extent due simultaneously, unless the language or the
circumstances indicate the contrary.
(2) Except to the extent stated in Subsection (1), where the performance of only one party under such
an exchange requires a period of time, his performance is due at an earlier time than that of the other
party, unless the language or the circumstances indicate the contrary.
Rest.2d Sec. 237: Effect on Other Partys Duties of a Failure to Render Performance
It is a condition of each partys remaining duties to render performances to be exchanged under an
exchange of promises that there be no uncured material failure by the other party to render any such
performance due at an earlier time.
Rest.2d Sec. 238: Effect on Other Partys Duties of a Failure to Offer Performance
Where all or part of the performances to be exchanged under an exchange of promises are due
simultaneously, it is a condition of each partys duties to render such performance that the other party
either render or, with manifested present ability to do so, offer performance of his part of the
simultaneous exchange.
Conley v. Pitney Bowes (ORDER OF PERFORMANCE)
P was denied disability claim
Contract stated that D was required to inform P of appeal procedure when claim was denied.
D failed to perform this condition, P ignored exhaustion clause and took D to court
Constructive Knowledge: P knew of procedures because he was notified at distribution of plan.

Ps attorney had copy of document

Court: Performance of conditions must be exact. The policy of autonomy is more important than the
policy in favor of exhaustion.
Bell v. Elder (SIMULTANEOUS PERFORMANCE)
Buyer agreed to get building permit and pay fee, Seller agreed to provide water. When Seller failed to
provide water, Buyer sued for rescission and restitution.
Rest.2d Sec. 234: When the contract is silent, presumption of concurrent performance.
Since neither party established that it was ready, willing and able to perform, there is a stalemate,
and the claim is dismissed.

K & G Constr. Co. v. Harris (PARTIAL BREACH DUE TO CONDITION PRECEDENT)

P (Owner & General) contracted with D (Sub) for excavation to be performed in a workmanlike
manner. Plaintiff would pay in installments. The day before one installment was due, D knocked
over a wall causing $3400 damage. P refused to give monthly installment. D continued working, but
after next installment was refused, D quit. P hired new Sub for an extra $450.
Non-fulfillment of a condition precedent discharges the others remaining duties. Rest.2d Sec. 237.
o Ds promise to perform in a workmanlike manner was a condition precedent to Ps promise to
pay. D failed to fulfill the condition, so Ps duty to pay the installment was not triggered.
P chose to treat non-fulfillment of condition as partial breach, allowing continued performance.
BREACH: ANTICIPATORY REPUDIATION
Wholesale Sand & Gravel v. Decker (CONTRACTOR WILL BE THERE TOMORROW)
P to install driveway; no completion date in K but pmt in 90 days; P waited b/c of wet ground
D contacted P repeatedly to finish and P gave assurances but never came
D terminated K after 45 days and hired another
An anticipatory repudiation occurs when it is reasonably certain that a party is not going to
meet its obligations under the contract.
o When confronted by the fact that P would be fired if he did not appear at the job site the
following day, P assured that he would be at the site but did not appear.
o On this record, it was reasonable for D to conclude that P would never complete its performance
under the K. Repudiation = Total Breach.
Effects of Anticipatory Repudiation
Rest.2d Sec. 253: Effect of a Repudiation as a Breach
(1) Where a party repudiates before breach by non-performance and before he has received all of the
exchange, the repudiation creates a claim of damages for total breach.
(2) In a bilateral contract, one partys repudiation discharges the others remaining duties to render
performance.
ENTIRE VS. DIVISIBLE CONTRACTS
Rest.2d Sec. 233: Performance at One Time or in Installments
(1) In bilateral contracts, when the whole of one partys performance can be rendered at one
time, it is due at one time, unless the language or the circumstances indicate the contrary.
(2) Where only a part of one partys performance is due at one time, if the other partys
performance can be so apportioned that there is a comparable part that can also be rendered at that
time, it is due at that time, unless language or circumstances indicate the contrary. [K & G Constr.
Co. v. Harris unworkmanlike behavior establishes contrary circumstances]
Rest.2d Sec. 240: Part Performances as Agreed Equivalents
o If the performances to be exchanged can be apportioned into corresponding pairs of part
performances, a partys performance of his part of such a pair has the same effect on the others
duties to render performance of the agreed equivalent as it would have if only that pair of
performances had been promised.

UCC: 2-307. Delivery in Single Lot or Several Lots

Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single
delivery and payment is due only on such tender but where the circumstances give either party the
right to make or demand delivery in lots the price if it can be apportioned may be demanded for each
lot.

UCC: 2-312. Installment Contracts

(1) An installment contract is one which requires or authorizes the delivery of goods in separate lots
to be separately accepted, even though the contract contains a clause each delivery is a separate
contract or its equivalent.
(2) The buyer may reject any installment which is non-conforming if the non-conformity
substantially impairs the value of that installment and cannot be cured, but if the non-conformity
does not constitute a total breach and the seller gives adequate assurance of its cure, the buyer must
accept the installment.
(3) Whenever non-conformity or default with respect to one or more installments substantially
impairs the value of the whole contract there is a breach of the whole, but the contract can be
reinstated by actions of the buyer.
3 Forms:
(1) Entire [Risk: Forfeiture, but hard to escape if price is one lump sum]
(2) Divisible [Preferable: Avoids forfeiture]
(3) Separate Contracts [Still may constitute substantial breach damages]

Enough Time for Breach in Divisible Contract

o Did P give enough time for failure of performance of an installment contract to constitute a
breach?

CONDITIONS: EXACT & SUBSTANTIAL PERFORMANCE

Conditions require exact performance. Failure of exact performance leads to forfeiture.
Policy Exception: Rest.2d Sec. 229. Excuse of a Condition to Avoid Forfeiture
o To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a
court may excuse the non-occurrence of that condition unless its occurrence was a material part
of the agreed exchange. [Jacob & Youngs v. Kent - pipes]

General terms require only substantial performance, but if the performance is not exact, there is still a
breach which can give rise to a claim for damages. [Howard v. FCIC tobacco stalks]

Identifying Conditions vs. Clauses

o Sometimes it is expressly addressed in the contract
Example: Time is of the essence.

Doctrines to Avoid Forfeiture from Required Exact Performance

Interpretation of term as Clause
o Howard v. FCIC
Impossibility
o Howard v. FCIC
Gov. regulation made performance impossible
Disablement
o Howard v. FCIC
Waiver/Estoppel/Excused
o Express/Implied
o Waiver applies to peripheral terms, estoppel goes to the heart of the contract.
o Implied Waiver: Clark v. West, Howard v. FCIC
Constructive Fulfillment of Condition
o Schultz v. L.A.Dons
Prevention
o Howard v. FCIC
Howard v. Fed. Crop Ins. Corp. (INTERPRETATION OF CONDITION v. CLAUSE)
Ins. policy required that damaged tobacco stalks not be plowed under until after inspection by D
o P plowed the stalks under prior to inspection
When it is doubtful whether words create a promise or a condition precedent, they will be construed
as creating a promise [Interpretation Against the Draftsman]
Clause found to not be a condition
Other options for farmers:
o Excused by Disablement/Impossibility: Gov. required removal of the stalks.
o Waived: D took too long to inspect the stalks.
o Prevention: D prevented inspection by waiting until after gov. deadline.
Plante v. Jacobs (IMPROPER PLACEMENT OF WALL OF HOUSE)
In construction of house, contractor placed wall 1 foot off from contract specification, and created
other minor defects.
o Homeowner refusing to pay
For substantial performance the plaintiff should recover KP Damage due to Partial Breach.
o The correct rule for damages due to faulty construction is the loss in value between the house as it
stands and the house that was promised.
o When separating out the defects would not lead to confusion, the measure of damages for minor
defects is cost of remedying said defects.
Jacob & Youngs v. Kent (READING PIPES)
Contract for construction of house specified Reading pipes, part of the contract stated that every
aspect of the construction was a condition and subject to exact performance.
Contract terms that state that every aspect of the contract is a condition are too general and will not be
enforced
Since this term was not individually specified as a condition for a specific reason, interpret it as a
clause which required only substantial performance, which was provided.

Conditions of Satisfaction
Nolan v. Whitney (PAYMENT DUE FOR SUBSTANTIAL PERFORMANCE)
Plastering paid in installments, with final quantity to be paid upon presentation of architect certificate
o

Architect refuses to provide the certificate based upon defective work

Architect should provide certificate, as long as work is done and is reasonably acceptable
o

However, adjustment for loss due to imperfections in performance

Van Iderstine Co. v. Barnet Leather Co. (UNACCEPTABLE VEALSKINS)

Contract for 21,000 vealskins, Jules Star & Co. brokers to provide approval to each skin
o

Standard is honesty (leather actually of inferior quality for Barnet purposes)

o

Jules Star rejected 6,000 of the skins

Since a standard of taste, this is subjective and not objective

6000 skins can be sold elsewhere, to someone less picky

Fursmidt v. Hotel Abbey Holding Corp. (SUBJECTIVE )

Fursmidts have laundry and valet service at hotel for many years
o

They live in the basement of the hotel

New owners terminate contract

Court finds assessment is subjective as long as dissatisfaction is genuine and honest, Fursmidts are
rightfully terminated

TOTAL FAILURE OF CONSIDERATION

Remedy: Rescission and Restitution
o

Plaintiffs can recover under rescission only if there is a total failure of consideration, complete
repudiation, or fraud.
o

Case: LaFazia v. Howe (NO RESCISSION FOR DELI PURCHASE)

Rescission blocked by acts in affirmation of the contract.

Rescission typically restricted to the formation stage of a contract.

Worcester Heritage Society v. Trussell (RESCISSION REQUIRES TOTAL BREACH)

In the absence of fraud, nothing less than an abrogation of the contract, or conduct that goes to the
essence of it, or takes away its foundation, can be made a ground for rescission by the other party.
D has made significant attempts to perform, and intends to continue performing when he is able.
Since it has been more than 1 year, P may invoke the self-help clause to arrange for the completion of
the exterior renovations at Ds expenses, but P cannot rescind the contract

Much sweat equity to bring curbside appeal

ASSURANCE
Rest.2d Sec. 251: When a Failure to Give Assurance May be Treated as a Repudiation = UCC 2-609
(1) Where reasonable grounds arise to believe that the obligated party will commit a breach by nonperformance that would give rise to a claim for total breach, the other party may demand adequate
assurance of due performance and may, if reasonable, suspend any performance for which he has not
already received the agreed exchange until he receive such assurance.
(2) The party seeking assurance may treat as a repudiation the obligated partys failure to provide
within a reasonably time such assurance of due performance as is adequate.
Comment b: An obligee who believes, for whatever reason, that the obligor will not or cannot
perform without a breach, is always free to act on that belief. If he can prove that his belief would
have been confirmed, he is at least shielded from liability even if he has failed to give a
performance that is due before that of the obligor or has, by making alternative arrangements, done an
act that amounts to a repudiation. If, however, the obligees belief is incorrect, his own failure to
perform or his making of alternate arrangements may subject him to a claim for damages for total
breach. [Hathaway v. Sabin snowstorm cancelled concert]
o Wholesale Sand & Gravel [Assurance Requested and Given, but no-show est. repudiation]
PERFECT TENDER RULE:
UCC 2-601: Buyers Rights on Improper Delivery
If the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may:
o (a) reject the whole; or
o (b) accept the whole; or
o (c) accept any commercial unit or units and reject the rest

Tender/Rejection is a matter of performance, not formation. As such, it is subject to UCC 1-203

which requires good faith in performance and enforcement.
o For merchants, this is defined as honesty in fact and observance of reasonably commercial
standards of fair dealing in the trade.
o This is to encourage arms-length bargaining but honesty in actual performance.

Printing Center of Texas, Inc. v. Supermind Pub. Co. (BOOKS UNFIT FOR SALE)
Seller (Printer) tendered books that failed to match the express warranty by sample (2-313), and
were arguably not merchantable (violation of 2-314).
Nonconformities existed, therefore rejection was reasonable under 2-601.
Sellers claim that buyer rejected in bad faith was not upheld since seller failed to meet its burden of
proof
o NOTE: If the seller alleges that the buyer rejected in bad faith, the seller has the burden of proof
Plateq Corp. of North Haven v. Machlett Labs., Inc.

Seller contracted to construct and sell two specially designed lead tanks Contract stated tanks would
be tested after delivery, and P would cure defects at this point.
After belated performance, Buyers engineer noted some remaining defects, and P proposed to cure
by the next day. D led P to believe that tanks would be picked up in a day or two.
D sent notice of total cancellation without particularizing grounds for cancellation
Given that D accepted the goods, P can recover on the price under 2-709(1)(a).

Given that the goods were unique in nature and P would not be able to resell them on the open
market, P can recover on the price under 2-709(1)(b).

UCC 2-606. What Constitutes Acceptance of Goods

(1) Acceptance of goods occurs when the buyer (a) after a reasonable opportunity to inspect the goods
signifies to the seller that he will take them in spite of their nonconformity; or (b) fails to make an
effective rejection (subsection (1) of Section 2-602).
(2) Acceptance of a part of any commercial unit is acceptance of that entire unit.
UCC 2-602. Manner and Effect of Rightful Rejection
Within reasonable time after delivery or tender
Must provide notification to seller
UCC 2-605. Waiver of Buyers Objections by Failure to Particularize
(1) The buyers failure to state in connection with rejection a particular defect which is ascertainable
by reasonable inspection precludes him from relying on the unstated defect to justify reaction or to
establish breach
o (a) Where the seller could have cured it if stated seasonably; or
o (b) Between merchants when the seller has after rejection made a request in writing for a full and
final written statement of all defects on which the buyer proposes to rely.
UCC 2-608. Revocation of Acceptance of Goods in Whole or in Part
(1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity
substantially impairs its value to him if he has accepted it
o (a) On the reasonable assumption that its non-conformity would be cured and it has not been
seasonably cured; or
o (b) Without discovery of such non-conformity if his acceptance was reasonably induced either by
the difficulty of discovery before acceptance or by the sellers assurances
(2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should
have discovered the ground for it and before any substantial change in condition of the goods which
is not caused by their own defects. It is not effective until the buyer notifies the seller of it. [Fortin v.
Ox-Bow Marina]
(3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he
had rejected them.
UCC 2-508. Cure by Seller of Improper Tender or Delivery; Replacement
(1) Where any tender or delivery by the seller is rejected because non-conforming and the time for
performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure
and may then within the contract time make a conforming delivery.
(2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to
believe would be acceptable with or without money allowance the seller may if he seasonably notifies
the buyer have a further reasonable time to substitute a conforming tender.
Fortin v. Ox-Bow Marina (MALFUNCTIONING BOAT)
4 mos after purchase of boat, Ps notify seller that they are revoking acceptance
material problems w/the boat including a faulty engine
o theyve communicated with D about these defects many times.

Under 2-608, a buyer can only revoke acceptance of goods if the non-conformities substantially
impair the products value to the buyer and after reasonable opportunity for cure, the seller has failed
to remedy the non-conformities.
Where the buyer is in constant communication with the seller regarding the non-conformities,
notification of revocation is still timely.