Contracts

What is a Promise........................................................................................................................................3
Certainty: Common Law Indefiniteness and Policies of the UCC.................................................................4
Common law rule: indefiniteness of material term defeats contract......................................................4
UCC Policy: If intent clear, unclear terms don’t bar contract...................................................................5
Enforceability of Promises...........................................................................................................................6
Consideration..........................................................................................................................................6
Promissory Estoppel................................................................................................................................9
Material Benefit Rule, § 86....................................................................................................................11
Offer and Acceptance................................................................................................................................12
Relational Contracts..................................................................................................................................18
Preliminary Negotiations, § 90, and Type II preliminary agreements....................................................18
Output and Requirements Contracts.....................................................................................................19
Exclusive Dealings Agreements.............................................................................................................20
Protecting Other Specific Investments: Non-competition and Termination..........................................21
Modification..........................................................................................................................................23
Interpretation, Parol Evidence Rule...........................................................................................................23
Determination of Partial v. Total Integration.........................................................................................24
Interpretation of Terms.........................................................................................................................25
Mistake and Excuse...................................................................................................................................25
Impossibility and Impracticability: Allocation of Extreme Risks.............................................................26
Mutual mistake......................................................................................................................................27
Limits on Bargaining Process: Duress, Fraud, Concealment......................................................................27
Duress....................................................................................................................................................28
Fraud.....................................................................................................................................................30
Concealment.........................................................................................................................................31
Non-disclosure.......................................................................................................................................32
Unconscionability..................................................................................................................................32
Remedies and Substantial Performance....................................................................................................33
Substantial Performance.......................................................................................................................33

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 Remedies...............................................................................................................................................34
Uncertainty........................................................................................................................................35
What is Expectancy? Cost of Completion vs. Diminution in Value.....................................................35
Specific Performance.........................................................................................................................36
Foreseeability....................................................................................................................................37
Duty to Mitigate................................................................................................................................37
Statute of Frauds.......................................................................................................................................38

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What is a Promise
 Definition of a promise
o §2: manifestation of intention to act so made as to justify promisee in understanding
that a commitment has been made
o §4: promise may be oral or written, or may be inferred wholly or partly from conduct.
 First look for written. Then oral. Then…
 Implied-in-fact contracts: based on promises inferred from conduct.
o Bailey v. West
 P, while he may have believed a promise-through-conduct had been made, was
not justified in that belief. That the bill of lading was addressed to Strauss
should have tipped him off, but he wasn’t too bright.
o Presumption against ambiguous promises.
 Autonomy norms prohibit unjustified coercion against individuals
 Instrumentalist justification: don’t want to force people to take excessive
precautions so as to avoid being bound, thereby missing out on potentially
beneficial interactions.
 Benefits of objective approach to evaluating promisory behavior: evidence of
promisor’s intent, and don’t want potential promisors to have to look out for
idiosyncratic parties, like Bailey.
 Recurring theme: trade-off between stricter enforcement and level of contracts
that will be made. Ultimately, enforcement must be based on intent.
 “Quasi-contract”: the tort of unjust enrichment
o If D appreciated some benefit conferred by P without making a promise, and either 1)
“induced” the benefit by ex ante behavior (fraud or deceit), or 2) stood idly by while
benefit was being conferred, then P can recover.
o Tough hurdle. Presumption against rewarding “mere volunteers,” don’t want people
conferring unsolicited (hence probably inefficient) benefits without first coming to
agreement.
 Misunderstanding and Lucy v. Zehmer
o § 18: Contract requires a manifestation of mutual assent: each party must either make a
promise or begin or render a performance
o § 20, Misunderstanding:
 (1): No manifestation of mutual assent if parties attach different meanings and
either (a) neither party knows or has reason to know the other’s meaning, or
(2): each party knows or has reason to know the other party’s meaning.
 (2) Manifestation is operative according to party A’s understanding if (a) party A
doesn’t know of different meaning, but party B knows party A’s meaning; or (b)
party A has no reason to know of other meaning, but party B has reason to
know party A’s meaning.

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 o So, if D as a prank signs an agreement with P in such a way that P had no reason to know
that it was a joke, there is a contract according to the objective manifestations of the
parties.
o Lucy v. Zehmer: outward manifestations trump subjective intent
 Zehmer, after several drinks with Lucy, agreed in a note to sell the farm to Lucy
for $50,000, thinking that so meager an offer was obviously a joke. Lucy picked
up the note, and offered $5 to “bind the bargain”. Realizing Lucy was serious,
Zehmer refused the $5 and insisted the exchange was a joke.
 Outward conduct suggested deal was serious: D not too drunk to comprehend
the written instrument, discussed the deal for 40 minutes, changed “I hereby”
to “we hereby” at insistence of Lucy.
o BUT:
o Leonard v. Pepsico: No contract, P should have known that D’s offer to sell a jet for
Pepsi points was a joke.
 “Immediate retraction” issue in Lucy v. Zehmer
o Why enforce executory contracts? Social value of promises: allows parties to “bring the
future to the present,” make better plans in reliance that the state will force a regretful
promisor to follow through. Trick is to balance enforceability – which creates trust in
promises – and the value of promises not intended to be legally binding.
o But why not allow instant retraction, when parties have not relied? Rule v. Standard
conflict. Rule here is easy to apply. The standard “retract until Lucy reasonably relies,”
difficult to apply, creates slippery slope: when could parties be sure that the deal is set?
Force parties to spend effort confirming that a deal has been made, raises contracting
costs. Remember that promisors have an interest in being able to bind themselves with
a promise: imposing a “waiting period” before promise takes effect would obstruct
promisor’s intent.

Certainty: Common Law Indefiniteness and Policies of the UCC

Common law rule: indefiniteness of material term defeats contract
o Substantial difference between common law and UCC approach. Common law demands
that each material term be definite, or that the contract specify a method of filling the
gap.
o § 33, Certainty:
 (1): Even though manifestation is intended to be understood as an offer, cannot
be accepted so as to form a contract unless the terms of the contract are
reasonable certain.
 (2) Terms are “reasonably certain” if provide a basis for determining breach and
for giving appropriate remedy.
 (3) Fact that one or more terms are left open or uncertain may show that
manifestation not intended to be understood as offer or acceptance.

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  So: omission of terms may mean no intent. But even if intent, terms must
provide basis for judging breach and remedy.
o Varney v. Ditmars (N.Y. 1916)
 Facts: P was an architect employed in firm of D. P induced to continue working
for D after receiving another offer by D’s promise that, if P continued working
until January 1, D would close his books and give P a “fair share” of the profits.
 Holding: Term too vague. Unlike in goods contracts, no reasonable way of
figuring out what “fair share” meant, would have to conjecture as to parties’
intent. But note Cardozo’s dissent, noting that the common law allows
indefinite terms if the intent is definite and a method for filling the gap is
provided.
o Archetypical “indefinite agreements” at common law: indefinite bonus contract
(Varney), and “agreements to agree,” where essential terms left open to later
negotiation.

UCC Policy: If intent clear, unclear terms don’t bar contract.

 Replaces common law bright-line rule with a standard based on intent. Indefiniteness on
material terms may be evidence of lack of intent, but far from conclusive. May be countered by
evidence of commercial standards re: the missing terms. Basic rationale: in sales of goods,
readily available external reference point for filling in gaps, such as commercial standards. This
goes to ease of enforcing (court can look up market price), and also intent, since the parties’
expectations are based on commercial standards.
 Getting into the UCC
o § 2-102: UCC applies to transactions in goods.
o § 2-105(1): Definition of goods: movable things.
o § 1-103: When UCC doesn’t specify, go to common law.
 § 2-204, Formation in General
 (1) Contract may be made in any manner sufficient to show agreement,
including conduct.
 (2) May be contract even though moment of making is undetermined.
 (3) Even if one or more terms left open, doesn’t fail for indefiniteness if parties
intended contract, and “reasonably certain basis for giving an appropriate
remedy.”
o Test is not certainty as to what parties were to do, or exact amount of damages; rather,
just see if commercial standards provide basis for inferring terms.
o When intent is established, what terms to enforce? UCC gap-fillers.
 Open Price Term, § 2-305: if parties intend to be bound, reasonable price at time of delivery.
o Includes if price is left to be fixed by some agreed market or other standard and it is not
set, or if parties agree to set later but don’t.

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 o 2-305(4): Exception if parties intend not to be bound unless price is fixed in some way,
and it’s not (e.g., price agreed to be fixed by a particular expert on Renaissance
paintings).
 Place of Delivery, § 2-308 (place of seller’s business), p. 193
 Time of Delivery, § 2-309: if not agreed upon, a “reasonable time”, p.
 Time for Payment, § 2-310: time and place where buyer receives goods
 D.R. Curtis Co. v. Mathews (Id. 1983)
o Facts: Sale of wheat. In wheat market, actual price in relation to fixed K price
determined by three factors: protein content, protein basis, and protein scale. Basis
usually decided when K made, but not here. Shortly before harvest, P notified D of the
basis it would determine price by, D disavowed K, argued indefiniteness.
o Holding: P may recover. UCC allows contracts to be enforceable even if price term left
open, as long as there is mutual intent to contract. If left to later agreement, and
agreement not made, then reasonable price §2-305. The “basis” is a component of
price, to be reasonably determined. No proof that 14% basis is unreasonable.
 What is “reasonable”?
o Course of performance > course of dealing and usage of trade, § 2-208
o § 1-205: Transactional context: nature, purpose, circumstances. First look to history of
the parties, then to industry standards.
 Summary
o When encountering a missing term:
 Material? Then common law rule might invalidate, Varney. But if sale of goods,
UCC standard will enforce as long as intent to be bound (§§ 2-204(3), 2-305
etc.).

Enforceability of Promises
Consideration
 Promises must purport to exact an exchange to be enforceable.
 § 17: Bargain requirement, including consideration, and manifestation of mutual assent.
 § 71: Consideration is a bargained-for performance or return promise.
o Bargained-for: sought by promisor in exchange for his promise, and given by promisee in
exchange for that promise.
o Performance: any act other than a promise, a forbearance, or the modification of a legal
relation.
 § 73: Performance of a Legal Duty: performance of duty owed to promisor which is neither
doubtful nor subject of honest dispute is not consideration. But similar performance is
consideration if it differs from duty in a way that makes it a real bargain.
 § 74: Settlement of Claims: Forbearance to assert or the surrender of a claim or defense which
proves to be invalid is not consideration unless

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 o (a) the claim is in fact doubtful because of uncertainty as to the facts or the law; or
o (b) the forbearing or surrendering party believes that the claim or defense may be fairly
determined to be valid.
o BUT: (2): execution of a written instrument surrendering claim or defense is
consideration if the execution is bargained for even though surrendering party is not
asserting the claim and believes that no valid claim exists.
 § 77: Illusory Promises
 § 79: Adequacy of Consideration: there need not be benefit to promisor, or loss to promisee.
No “mutuality of obligation”, or equivalence in values exchanged, is required. Key is bargain.
 § 81: Motive, Inducing Cause: a bargained-for promise or performance need not have induced
the making of the promise, may still be consideration. Likewise, the making of the promise need
not induce the making of the return promise or performance. What matters is the outward
manifestation of a bargain.
o Immaterial that desire for the consideration is incidental to other objectives.
 Hamer v. Sidway (N.Y. 1891)
o Facts: P received through Story Jr. a claim on the estate of Story Sr. (executed by D). Sr.
promised Jr. that if he refrained from drinking, tobacco, swearing, and gambling until
age 21, he would pay him $5,000. Jr. fulfilled requirements, received notice from Sr.
promising to pay the money whenever Jr. wanted, but until then to keep it and pay
interest. Sr. died without paying, his executor, D, now refusing to honor the claim.
o Holding: Court won’t ask whether the thing really benefits either party; enough that
something promised, forborne, suffered, etc. by the promisee. Jr. gave up legal right in
exchange for promise.
 Bilateral v. Unilateral Contracts: two routes to contract via consideration.
o Executory (bilateral promise): contract formed at moment promises are exchanged.
Both parties benefit from ability to plan.
o Unilateral promise: One promise. Contract made when the requested performance is
complete. Only one party can make plans.
 St. Peter v. Pioneer Theatre Corp. (Iowa 1940)
o Facts: D, owner of theater, held “bank night” as a way of attracting customers. People
could enter their names into the registry inside the theater, randomly picked winner
received cash. Could not make entry conditional on buying a ticket, would make it an
Adequacy illegal lottery. P routinely entered contest, never bought a movie ticket, much to D’s
doctrine frustration. When P won, D refused to pay, claiming it was mere promise to gift.
o Holding: In a unilateral contract, whereby D makes a promise conditional on some act by
P, the act is both acceptance of the offer and consideration. D sought to induce the act
by extension of the offer, and P acted in order to obtain promise. Doesn’t matter how
insignificant benefit is to promisor; he had discretion to choose the act constituting
acceptance.

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  “Williston’s Tramp”: D promises homeless man some cash if he will accompany him to the
ATM. On way to ATM, D reconsiders. Was P’s act of walking with him to ATM consideration?
No, it was not bargained for. It was “incidental” to acceptance of a gratuitous promise.
o Use context to distinguish between bargained-for acts/promises and acts incidental to
acceptance.
 Kirksey v. Kirksey (Al. 1845)
o Facts: P, widow of D’s deceased brother, lived with children on leased public land which
she would have eventually sought to buy. D, who lived 60 miles away, learning of
Gift, no brother’s death, sent P a warm letter inviting her a place to raise her family, farmland to
consideration tend. Wanted to honor brother. Soon thereafter, P went to D; was given comfortable
house and farm for 2 years, after which he required her to leave. Trial court found
verdict for P.
o Holding: D’s promise was a gratuity, unenforceable. 60 mile move was incidental to
accepting gift, not consideration.
o Note: one imperfect test for gift v. bargain is: did promisor benefit? Also keep in mind
that finding consideration here would mean that relatives would be unable to make
non-binding promises if accepting would require a big move without explicitly stating it’s
non-binding.
 In re Greene (SDNY 1930)
o Facts: P was D’s mistress. When relationship ended, both signed written, sealed
agreement. D promises monthly payments for life, and to pay premiums on a life
Nominal insurance policy with P as beneficiary, paying her the full $100k if he should default, and
consideration
also to pay 4 years rent on an apartment. P agreed to give up all claims on D. D
received $1, along with “other good and valuable consideration.”
o Holding: No consideration. Court won’t evaluate “adequacy” of consideration, but $1
was purely nominal, not consideration. Statement of “other good consideration”
immaterial. Past intercourse can’t be consideration (no past wrongs here, anyways). No
evidence of claims foregone by P. “Seals” no longer confer enforceability.
o Court especially ready to find lack of consideration given the public policy against
adultery.
 Batsokis v. Demotsis (Texas 1949)
o Facts: P sued for breach of contract. Parties signed on instrument in war-torn 1942
Greece, P gave D $25 in exchange for signed letter from D claiming to have received
$2,000 and promising to pay it back at 8% interest.
o Holding: Judgment for P for $2,000 and interest. Inadequacy of consideration doesn’t
nullify contract (§79). Was clear consideration, quid pro quo.
 Wolford v. Powers (Ind. 1882)
o Facts: P, Wolford, suing D, estate of Lehman, for judgment on $10,000 promissory note.
As 87-year old widower, Lehman, long time friend of P, promised P that if he named his
newborn son after him, he would “provide for [the child] generously and give it a good
education.” When boy was 5 months old, Lehman executed a note to P for $10,000.

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 o Holding: Note is binding. Must not substitute court’s evaluation of value for promisor’s,
who alone can estimate the “value of an act which arouses his gratitude, gratifies his
ambition, or pleases his fancy.”
 Nominal vs. adequate
o Policy argument for “sham” consideration, the basic idea of “seals.” Autonomy
argument that parties should be able to bind themselves unilaterally. A true seal signals
deliberation and seriousness, because sealing requires ceremony. But the easier it is to
stamp the seal on, the less effective it is for these purposes. Also satisfies the
evidentiary purpose of consideration, since a seal is proof to the court of intent to be
bound. But the more suspicious a court is of individual rationality, less likely they’ll
allow individuals to be bound without consideration.

Promissory Estoppel
 § 90, Promise Reasonably Inducing Action or Forbearance
o (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.
Remedy shall be limited as justice requires.
o (2) Charitable subscription of marriage settlement is binding under (1) without proof
that promise induced action.
 Reliance alone not enough: any promise induces reliance, yet strong presumption against
enforcing gratuitous promises.
 Mostly used to expand liability in exchange/bargain contexts, as opposed to gift contexts.
Courts look for reciprocity. Promisor didn’t bargain for the conduct, but induced it.
 Factors favoring enforcement:
o Bargain context: extent to which evidentiary, cautionary, deterrent and channeling
functions of form are met by the commercial setting.
o Benefit to promisor from inducing some kind of behavior
o Reasonableness of reliance, definite and substantial character
o Formality with which promise made
o Unjust enrichment.
o Suing D’s estate? If D could have disavowed but didn’t, suggests the promise was well-
deliberated.
 Even assuming D did not benefit from the reliance: policy to make D more cautious about
making false promises which reasonably induce detrimental reliance by P.
 Intrafamilial Context:
o Non-bargain context- strong presumption against enforcing, need more than reliance.
Deliberation is a big concern (so chance to revoke may be relevant). Social norms
prevent bargaining. Typically not intended to be legally binding.

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 o Promises here usually based on love, loyalty etc. to enforce. Bringing law in might chill
beneficial love-based promises.
 Haase v. Cardoza (Cal. App. 1958), NO PE
o Facts: P, sister of D’s deceased husband, suing D for $10,000; after D’s husband died, D,
very ill, confessed one day to P that he had wanted to leave P $10,000. D offered to
send P $50 a month, which she did until P requested a note for the remaining balance of
the $10,000.
o Holding: No consideration. No change of position (i.e. not reliance), thus not
enforceable.
 Ricketts v. Scothorn (Neb. 1898) YES PE
o Facts: P, granddaughter of deceased D, sued for payment on note promising her $2,000.
D had visited her and handed her a promissory note, saying “none of my grandchildren
work, and you don’t have to.” She quit her job, jobless for a year, then, with D’s
permission, found job at another bookstore. D died two years later, expressing before
death his regret that he was unable at the time to pay the balance.
o Holding: Promissory estoppel: D is estopped from denying consideration. His conduct
induced a change of position in accordance with his apparent intent. D knew P’s choice
was probable consequence of his gift – he intentionally influence her.
 Note: in Haase, even if there was reliance, the reliance itself was not part of D’s intention,
whereas in Ricketts, the change of position was the purpose. In terms of §90, 1) actor must
reasonably expect to induce reliance, and 2) conduct must in fact induce that reliance.
 Charity: courts haven’t adopted §90(2), but often do enforce: more of a quid pro quo (naming
rights, etc.), and more bargain context – pledge is typically written, etc. Arms-length, easier to
presume intent-to-be-bound.
 Employment Context
 Feinberg v. Pfeiffer Co. (Mo. 1959)
o Facts: P, Feinberg, worked at D corporation from 1910 to 1949, retiring at age 57. In
1947, Board of corp. passed a resolution recognizing P’s service, raising her salary and
granting her the right to retire at any time, along with a $200/month annuity for the rest
of her life commencing at retirement. She worked two more years, then quit. D later
reneged, “past conduct isn’t consideration.”
o Holding: Promissory estoppel. Example in R.2d about promise of pension inducing
employee to quit, after which employee becomes unable to work. Here, P too old to
find another job.
o Scott: D wanted to keep P working, and then to keep her from working for competitors
after retiring.
 Hayes v. Plantations Steel Co. (RI 1982)
o Facts: P worked for D for 25 years. Announced retirement, decided because he had
been working for 51 years. Claimed he wouldn’t have retired if he hadn’t expected to
receive pension. One week before retirement, talked with officer, who said he would be
“taken care of,” no mention of specific amount. No authorization by board of directors,

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 no formal provision. Each year thereafter, P visited to thank for check, and asked how
long they would continue.
o Holding: No promissory estoppel. Did not induce retirement (P had already decided,
and even if he expected a pension before, D’s conduct gave him no basis for that
expectation). P had also decided not to seek other work. Payment of checks for four
years did not induce change of position in light of P’s uncertainty each year as to
whether checks would continue.
 Policy: enforcing contexts made in bargain context; when bargaining isn’t costly, promisor can
be expected to intent that his promise be binding, and proxy for whether promisee reasonably
expected promise to be binding and therefore relied justly.
 Goal of contract law is to maximize net beneficial reliance. Any increase in enforceability has
two effects: increases reliability, but reduces quantity. So maximization requires increasing up
to point where added quality level effect equals reduced activity level effect.
 Enforcing only when intent to be bound: doesn’t deter promise-making, while making promises
more reliable.

Material Benefit Rule, § 86

 § 86, Promise for Benefit Received:
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.
o (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 its benefit.
 Reconcile with the policy against rewarding “mere volunteers” in quasi-contract: here, promise
confirms that a benefit was truly conferred, as well as clarifying value.
 Main issue: was benefit gratuitous?
 Policy: if benefit gratuitous, promise was presumably as well. Whereas if benefit was not a gift,
then in a bargaining context, where party could presumably have induced the promise (perhaps
by agreeing to restore promisor’s good name and reputation).
 Webb v. McGowin (Ala. App. 1935)
o Mill worker Webb rescued McGowin from serious injury, and was crippled for life doing
so. McGowin promised financial support to Webb; his estate refused to pay after his
death. Court enforced the promise.
 Mills v. Wyman (Mass. 1825)
o P cared for D’s son, ill and stranded from home, until he died. D made written promise
to pay Mills’ expenses in caring for his son, but later reneged. Court did not enforce.
 Case analysis: Why Yes in Webb and No in Mills?
o D recipient of benefit? In Mills, prime benefit not to promisor;
o Deliberation? McGowin deliberated longer (28 days) than Wyman did (4 days);
o Repudiation? Wyman repudiated personally, McGowin’s estate.

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 o Magnitude of benefit? McGowin received substantial benefit, Wyman did not (son
died);
o Detriment to P?
 Also: when informational barriers make bargaining impracticable, P may have no choice but to
confer benefits in advance of contract, e.g. finder’s fee:
o Worner v. Doyle (1985): P, consultant to third-party looking for construction companies
for new job; P contacted D, suggested he bid. During bargaining between D and third-
party, D promised P a 3% commission if he won the contract. Court enforced the
contract. Perhaps it was customary for consultants to receive such fees: reputational
benefit to D

Offer and Acceptance

 Offer
 Key issue: Offer vs. invitation to negotiate
 K requires consideration and manifestation of mutual assent. Now in the latter’s territory:
MoMA usually takes form of O&A, but it doesn’t have to (§22).
 § 24: Definition: manifestation of willingness to enter into a bargain, so made as to justify
another person in understanding that his assent would conclude the bargain
 § 26: Invitation to Negotiate: not an offer if addressee knows or has reason to know that the
person making it doesn’t intend to conclude bargain until he has made a further manifestation
of assent.
o Policy behind presumption of invitation to negotiate: encourage clear communication
between parties, reduce detrimental reliance and litigation costs;
o Don’t want to discourage cheap talk – pre-deal communications which enable parties to
feel out whether mutually beneficial deal is possible.
 Dyno Construction (6th Cir. 1999), price quotation wasn’t an offer
o Facts: P, construction company, sued D, supplier of iron pipe, for recovery from
defective pipe. Early in negotiations, D had sent form with hand-written quantity, price
and description information, along with note to “please call.” P called, said “order the
pipe.” D subsequently sent a purchase order form for P to sign, including waiver. P now
claims the price quote was an offer, K formed at phone call, thus waiver included as UCC
gap filler.
o Holding: Price quote was not an offer. No “offer” language. “Estimate” language, note
to “please call” all evidence of invitation to negotiate. Nothing re: delivery time or
place, terms of payment. P’s signing of forms evidence that P knew binding K hadn’t
been formed.
o Note: by convention, price quote is an invitation to make an offer.
 Lefkowitz (Minn. 1957): “First come, first serve” newspaper ad was an offer
o Facts: D offered fur coats for sale in newspaper ad, promotion offering expensive pieces
for $1 to first person in the store coming Saturday, and listing their “real” prices.

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 Number of such ads, each time P was first person in store, but denied on grounds that
by “house rules,” offer only for women.
o Holding: Ad was clear, definite and explicit, left nothing open for negotiation, so was an
offer. Offer can be modified before acceptance, but not after. But only allow recovery
for those items for which the real price can be ascertained, the list prices were
speculative.
 Acceptance
 Default under modern common law (§ 30(2)) and UCC (§ 2-204(1)) is that any reasonable means
of acceptance will do; parties’ main interest is the exchange, not the manner in which it’s
formed. But parties may opt out: offeror may specify manner of acceptance.
 § 30, Offeror controls manner of acceptance: may invite acceptance by words, or by performing
some act. If language and circumstances of offer don’t suggest otherwise, offeree may accept in
any reasonable manner.
o § 32: In case of doubt, offeree may accept by promise or performance.
o § 60: While offeror’s specification of manner (time, place, etc.) is binding, mere
suggestion does not control.
 § 36: Termination of Power of Acceptance
o (a) rejection or counter-offer;
o (b) lapse of time;
o (c) revocation by offeror; or
o (2): the nonoccurrence of any condition of acceptance under the terms of the offer.
o § 40: Rejection/counteroffer by mail doesn’t terminate power of acceptance until
receipt by offeror (but if it’s in the mail, can’t subsequently accept by mail unless the
acceptance is received first – exception to “mailbox rule”, which states that acceptance
by mail occurs when the acceptance is sent out).
o § 41: Time limit: if not specified in offer, reasonable time (circumstances).
o § 42: Revocation: takes effect when received by offeree.
 § 50: Definition of acceptance: manifestation of assent to terms of offer, in manner invited by
offer. Performance or promise.
 By Performance: no notification to offeror required unless offer says so. But, if offeree has
reason to know that offeror has no way of learning of performance with reasonable
promptness, no K unless offeree takes reasonable steps to notify, or the offeror does in fact
learn, or offer says no notification required. § 54. But “mere preparation” to perform isn’t
acceptance (Comment b, § 50)
o § 45: Option Contract Created by Part Performance: where acceptance invited by
performance, option contract created when offeree begins the performance. Typically
enforced, solved a problem in old common law.
 By Promise: Either offeree must take reasonable steps to notify offeror, or offeror must in fact
learn seasonably, § 56.

13
 Mailbox Rule: acceptance occurs when the means of acceptance leave the offeree’s possession,
even if it doesn’t reach offeror (with the condition that the acceptance be correctly dispatched),
§ 63, 66.
 Ever-tite Roofing v. Green (La. 1955): revocation, lapse of time
o Facts: Written agreement signed by D and submitted to P, including a provision giving
effect to the agreement either upon signing by authorized officer of P, or upon
“commencing performance of the work.” Agreement was signed, but by an agent not
authorized to contract for P. Thus it was an offer. After a credit check, P arrived at D’s
house to find another firm doing the work.
o Holding: D claims that seeing other firm at work constituted notice before beginning of
performance. No: P had commenced by loading up trucks and disembarking, partial
performance as invited by offer, § 50(2).
Offer had not expired because of unreasonable delay (lapse of time), because
completely reasonable and to be expected that D would need time to run credit check
(P was poor).
 Ciaramella v. Reader’s Digest Association (2d Cir. 1997)
o Facts: In lawsuit settlement negotiations, P’s lawyer at one point said, after exchanging
revisions, “we have a deal” over the phone. P later refused to sign. D argued oral
acceptance by promise, § 22, and plan to memorialize doesn’t preclude oral agreement,
§ 27.
o Holding: Possible to bind orally, even if intend to memorialize in writing later. But if
parties manifest intention not to be bound until writing signed, can’t be orally bound, §
26. Factors to consider in examining intent:
 1) Express reservation that agreement not binding until written? Yes, several
provisions in tentative written agreements.
 2) Partial performance? Suggests contract already exists. None here.
 3) All terms agreed upon? Still points of disagreement here.
 4) Type of agreement usually made in writing? Yes, complex agreement.
 Irrevocable Offers:
o UCC § 2-205: Firm Offers. Written promise to keep an offer for sale or purchase of
goods is enforceable even without separate consideration.
o § 25 Option Contracts, requires consideration. Thus common law presumption that
offer always revocable, regardless of what offer says, because no consideration. Would
need bargaining to be enforceable.
o § 87 Offer binding as option contract if it is in writing and signed, and recites a purported
consideration for the making of the offer, and proposes an exchange on fair terms
within a reasonable time.
 Reliance option - More courts are enforcing an implied promise to keep the
offer open on the basis of reasonable reliance by the offeree – in particular,
bidder/sub-bidder situations. § 87(2). But some courts still allow revoking at
any time.

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  Reliance must be reasonable: evidence of bid-shopping after prime-contract is
awarded will defeat recovery (e.g. Pavel).
 Policy: which default rule is better? Would any sub willingly bind itself to a one-
sided deal? Maybe making promise irrevocable makes it more valuable because
P more likely to use it. Also, default should put risk of mistaken bid on party
best able to bear it: probably sub, since it can reduce risk of errors.
 Pavel Enterprises v. A.S. Johnson (Md. 1996)
o Facts: Bid/subbid scenario. P, general contractor, in the course of forming its bid for
project, collected subbids from D, HVAC sub. D gave verbal price quote. P used D’s bid.
P was 2nd lowest bidder, but weeks later, lowest bidder disqualified, P notified it would
receive contract on Sep. 28. Aug. 26, P asked all subbidders to review and resubmit
quotes. Aug. 30, P accepted D’s bid by letter. Sept. 2, D revoked bid, had made error,
too low. Had discovered earlier, but didn’t tell P because D thought P had lost.
o Holding: No K before Sept. 2: Acceptance by performance? D’s offer did not invite
acceptance by use of the bid (unilateral); D was really after a promise to pay. By
Promise? Use of bid was also not promise to pay, as reflected by P’s later resolicitation
of bids. Letter on Aug. 30 was not a promise to pay, but rather a promise to pay
conditional on P’s receipt of the main contract, and thus a counter-offer.
Breach of implied promise to keep offer open?
 § 2-205? No: not in writing, services (not goods), and terms did not necessarily
express intent to keep offer open.
 Might have argued § 90/87 reliance: D benefited from use of bid, since it
increased the chances that it would eventually get the business. But D
reasonably assumed its offer had lapsed due to delay in P’s winning the
contract. And P’s resolicitation implied no great reliance (close call).
 Offer and Counter-offer: § 2-207 and Battle of the Forms
o Common law: mirror image rule makes any “acceptance” which deviates from the
offer’s terms into a counter-offer. “Last shot rule” means that the last written
statement of terms sent before performance by parties controls the contract.
o Real problems: deals with the problem of inconsistent writings by giving all control to
the last party to send out a form.
o § 39: Counter-offer: a substituted bargain. Terminates power of acceptance unless
offeree states that the offer stands (he’s taking it under further advisement).
 Policy: only want one offer on the table at a time, confusion is costly.
 Mirror Image Rule: acceptance must match the offer’s terms, § 58, 59,
otherwise is a counter-offer.
 Last shot rule: if such a counter-offer is made, those terms control if the parties
then demonstrate existence of K through conduct.
o UCC sought to reverse these rules, inconsistent with intent of parties: § 2-207.
o 2-207: 3 routes to contract

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  Route 1: 2-207(1) clause 1: reply can be a definite and seasonable expression of
acceptance even if it contains additional or different terms, as long as it doesn’t
expressly condition on acceptance of new terms.
 If parties not merchants, the new terms fall out. If they are merchants, different
approaches:
 “Knock-out rule” (standard approach): Different terms cancel out
corresponding terms in offer. Additional terms enter contract unless:
o (a) the offer expressly limits acceptance to its own terms;
o (b) the new term materially alters the contract;
o (c) notification of objection to them has already be given or is
given within reasonable time after notice of them received.
 Difference between “additional” and “different” terms based on
language of 2-207(2), which mentions only additional terms. But
drafter’s comments suggest that it was meant to encompass both.
 Drafter’s Intent Approach: Both additional and different terms are
proposals which enter the contract unless the three criteria above are
met.
 Route 2: (this will almost never happen) 2-207(1) clause 2: the “acceptance” is
expressly conditional on acceptance of its new terms, and is thus a counter-
offer. If first party expressly agrees to new terms, a contract is formed under
second party’s terms. Note that the first party does not accept the terms of the
counter-offer by conduct, as that would defeat the purpose of 2-207(3).
 Route 3: kills the last clear shot rule. If writings don’t establish a contract, the
conduct still can, in which case the terms are those agreed upon in the writings
+ UCC gap fillers.
 Dataserv Equipment v. Technology Finance (Minn. App. 1985); counteroffer terminates power
of acceptance. In industry where values shifting/depreciating constantly, court more likely to
find that counteroffers terminate power of acceptance?
o Facts: P phoned D proposing to sell computers. D sent P written offer to purchase. P
sent D written proposed form of contract, including non-standard provision naming
third-party to do installation. D demanded three changes, including deletion of
installation clause. P fixed two of the issues, but not installation clause. P offered to
designate a different third-party, D refused. Finally, P consented to remove installation
clause, but D said “too late.” P sued for recovery, claimed K formed by P’s agreement to
remove clause.
o Holding: No contract. P’s counteroffer to change the third-party terminates the original
offer.
 Ionics v. Elmwood (1st. Cir. 1997): 2-207 in action
o Facts: P bought thermostats from D on several occasions. Each time, P sent purchase
order including, in small-print, various conditions, including one giving expansive scope
to D’s liability and one making acceptance by D expressly conditional on terms. Each

16
 time, D sent an “Acknowledgment” from containing, in small-print, its own conditions
and declaring it to be a “counteroffer,” making acceptance conditional on P’s agreement
to terms, including one limiting liability. D’s form declared that if P didn’t reject within
10 days, accepted.
o Holding: “Counteroffer” language doesn’t mean it’s a counteroffer – the form as a whole
contemplated acceptance, not rejection (“acknowledgement”, “notice of receipt of
order”). Different liability terms fall out by knock-out rule, replaced with 2-714(1) (loss
of bargain) and 2-715(1),(2)(a), UCC gap fillers favoring P.
o Note: Seller’s are allowed to opt out of warranties: 2-313(1), 2-316(2), 2-719. But 2-207
prevented opt-outs from entering contract.
 Contracts of Adhesion
 Step-Saver v. Wyse (3d. Cir. 1991): “box-top” license containing integration clause was merely a
written confirmation containing additional terms, 2-207 controls. “Counteroffer” language of no
avail.
o Facts: D sold P software after phone negotiations and purchase order/invoice
exchanges. Additional terms disclaiming warranties appeared on “box-top” licenses
(printed on software packages). Box-top contained integration clause.
o Holding: First, D’s acceptance (sending the software with the sticker terms) was not
really conditional on P’s acceptance of those terms, i.e., it was not a counter offer:
 Test is whether offeree would have been unwilling to proceed if terms not
accepted. Boilerplate integration clauses/conditions don’t demonstrate
unwillingness. Refund offer – D might be counting on time costs of returning.
Also, D allowed P to sell software to third-parties, despite box-top clause
prohibiting it.
 Not conditional, therefore Route 1. Waiver clauses were proposals, materially
alter, therefore drop out.
o Second, even if conditional, P did not expressly assent, so Route 3, and waivers replaced
with UCC gap filers.
o Note: D tried to argue that without box-top terms, contract would have failed for
indefiniteness. But court held that UCC gap fillers provided enough certainty
(remember UCC policy on indefiniteness).
 The alternative argument: order is invitation to offer, sending product with box-top contract is
the initial offer:
 Hill v. Gateway 2000 (7th Cir. 1997)
o Facts: Phone-order Gateway computer contained a mandatory arbitration clause in
paperwork inside the box, along with clause that failure to return within 30 days was
acceptance of new terms.
o Holding: P accepted the new terms by failing to return. Contract was not formed by the
phone-order and shipment of goods itself – i.e. causing term to drop out either by Route
1 (P not a merchant) or 3. Rather, phone-order was P’s invitation to offer, and shipment

17
 was the offer. Vendors have right to make their shipment into offer, conditional on P’s
acceptance by promissory act (keeping the product > promise to abide by terms).
 Notes: UCC explicitly takes no stance on Hill vs. Step-saver. Basic difference in assumptions.
Conflict between market rationality and unfair surprise.
 Policy of Hill: transactional efficiency: if vendors not allowed to condition on terms in the box,
will have to spend tons of time reading contract terms over the phone. This way, customers
free to look at terms if they want to (most customers wouldn’t object to arbitration clause), but
they’re not forced to.
 Policy of Step-saver: adhesion contracts thwart consumer choice, unfairly surprise buyers with
terms they did not agree to. Autonomy argument for limits on marketing methods.

Relational Contracts
 Long-term, complex exchanges. Major issues: dealing with uncertainty. Parties cannot possibly
plan for all contingencies.

Preliminary Negotiations, § 90, and Type II preliminary agreements

 Coley v. Lang (Al.1976): preliminary representations not enforceable for indefiniteness, i.e. no
“promise” was made.
o Facts: D wanted to buy name and goodwill of P’s corporation for use in making bids on
government contracts. Sept. 1, sent letter agreement to P for signature, stating that P
had agreed to sell all the stock, and giving payment schedule, subject to approval by
corp. board. Recognizing P needed time to plan, letter stated an agreement to reduce
letter to more “definitive” agreement before Sept. 18, that until then, D would have
right to bid on behalf of corp. P now suing for breach, and reliance damages.
o Holding: Agreement indefinite. Material term – certain tax matters – was not settled in
the letter. “Agreement to agree.”
o Promissory estoppel: no definite reliance shown: only 18 day window, and while P
claims to have refrained from bidding, no proof that P would have won those bids.
 Policy: reasonable to assume that during preliminary negotiations, neither party intends to be
bound until future agreement concluded. Default rule. Rather bear the risk of loss from own
reliance than assume risk of paying for other party’s reliance.
 Analysis: Not really any open terms in Coley. Real issue: parties explicit that they wouldn’t be
bound until later. No case in U.S. law finding a K where parties explicit about not being bound.
Thus there was no promise, no commitment made.
 Type I vs. Type II agreement analysis:
o Did Coley and Lang have a contract? Ciaramella analysis. All terms were agreed to, just
deciding when to be bound. Expression of intent not to be bound. Some partial
performance… but this type of deal usually in writing. Factors cut in different directions,
but intent dominates.
o Type II preliminary agreement to bargain in good faith? No open terms, so no.
 Hoffman v. Red Owl (Wisc. 1965): recovery for reliance based on preliminary representation

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 o Facts: During prolonged negotiations to establish P as operator of a Red Owl store, P
convinced to move, sell his bakery, etc. on representation by D that $18,000 would be
enough to get him set up in his own store. Negotiations fell through during negotiations
over the form of the payment: P didn’t have much cash, mostly loans.
o Holding: P recovered costs of moving, selling store on promissory estoppel basis. What
promise? For § 90 purposes, needn’t be as definite as contractual promise. An inducing
representation, is al.
 Hoffman has not been followed in its application of § 90 to preliminary representations.
 Brown v. Cara (2d Cir. 2005): a binding type II preliminary agreement
o Facts: P and D executed Memorandum of Understanding to work together to develop a
new real estate venture planned for site on D’s land. Set forth general working
framework, division of proceeds, and declared intent to “enter into a formal contract
shortly.” Under agreement, P sought rezoning of land. Parties delayed negotiating final
terms, since if rezoning failed, negotiations would be wasted. Three years later, D broke
off relationship after displeasure at a construction management agreement. Trial court
found no K, but granted quantum meruit for rezoning efforts.
o Holding: No binding K (type I): haven’t agreed on all material terms (see other
Ciaramella factors). BUT is a Type II:
o Type II Preliminary Agreement: aims to balance two policies: 1) avoid trapping parties
in surprise obligations, chilling cheaptalk, and 2) allow parties to rely somewhat when
they intend to commit to relationship with the end goal of determining whether a
mutually beneficial contract is possible. Factors:
 1) Intent to be bound to relationship (language of MoU: “work together in
accordance with terms of MOU”);
 2) Context of negotiations: uncertainties prevented parties from strongly
binding themselves. But wanted some commitment from each other to invest
in pursuing possibility of a real contract;
 3) Open terms: may support finding of Type II;
 4) Partial performance – strong signal of intent to be weakly bound: P expended
great effort.
 5) Necessity of formalizing and finalizing agreement later.
 Purpose of Type II? Scott says it’s for situations in which two parties realized a deal itself is
inchoate, and finding whether it would work requires investment by one or both parties. The
preliminary agreement binds both of the parties to make those investments, so that one party
does not free-ride on the information uncovered by the other’s investment.
 Must balance with the danger of enforcing representations in preliminary negotiations: chill
cheap-talk, deal seeking. The fundamental problems of a strict enforcement regime.

Output and Requirements Contracts

 UCC § 2-306(1): a term measuring quantity by output of seller or requirements of buyer means
those quantities as occur in good faith, except no quantity unreasonably disproportionate to any

19
 stated estimate (or in the absence of a stated estimate to any normal or otherwise comparable
prior output or requirements) may be tendered or demanded.
 Relatively recent development: at common law, were unenforceable for lack of consideration.
But UCC finds consideration in good faith requirement.
 PURPOSE: Usually to counter volatility, protect from spillover effects from flukes in the spot
market. If a relationship-specific investment is involved (e.g. the pipeline example), the investor
will exact assurances of some minimum quantity so as to recoup investment.
 Eastern Air Lines v. Gulf Oil (S.D. Fla. 1975)
o Facts: P, airline, has contracted for many years with D, oil-refiner, to provide enough oil
to meet its requirements at several eastern cities. The contract price per gallon tracks
the price of “Texas Crude Sour” as listed in a certain posting. Government price-controls
caused the real price of oil to exceed the price listed in the posting. D threatened to cut
off oil unless P agreed to price increase, claiming that P’s practice of “fuel freighting” –
fueling up more than necessary at D’s stations before flights to non-contract cities –
violated good faith.
o Holding: No breach by P. Good faith between merchants means “honesty in fact and
the observance of reasonable commercial standards of fair dealing in the trade” (§ 2-
103). Relevant are “courses of performance”, “courses of dealing,” and “usages of
trade.” Here, throughout history of their interaction, D never objected to P’s fuel
freighting practices. Practice known to oil companies and incorporated into contracts.
Established industry practice. § 2-208 comment: “The parties themselves know best
what they have meant by their words of agreement and their action under that
agreement is the best indication of what their meaning was.”
 Empire Gas v. American Bakeries (7th Cir. 1988), Posner’s unconventional take on 2-306
o Facts: D, bakery company with fleet of trucks, contracted with P, seller of propane and
propane converters, to provide “for approximately 3,000 units, more or less depending
on the requirements of Buyer.” D had rejected form contract requiring minimum
number of units to be installed each month. Never bought any: second thoughts a few
days later (new management), gave no particular reason.
o Holding: § 2-306(1) controls. As for “disproportionate” language, that only applies to
disproportionate increases in demand, really just prohibiting a specific type of bad faith
(buying more than he needs at low price to resell). So drop from 3,000 to 0 not in itself
proof of breach. The real issue is “good faith”: if Buyer could have shown that changes
in business resulted in demanding no units, then no breach. Simple reassessment of
costs and benefits, second thoughts, is not enough. P has given no sufficient reason.
 Good Faith: § 2-103(1)(b): Honesty and Commercial Standards
o Usage of trade, course of dealing, course of performance

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Exclusive Dealings Agreements
 § 2-306(2): agreement by either buyer or seller for exclusive dealing 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.
 PURPOSE: usually dealing with relationship-specific investments here, e.g., distributor
undertaking marketing for the owner of a brand. Exclusive dealings protects the investment by
preventing free-riding: if brand owner licensed an additional distributor, that distributor could
benefit from marketing efforts while leeching customers from the first distributor.
 BUT: Moral hazard problem: because distributor not realizing all the benefits of marketing,
won’t take all cost-justified measures to increase joint surplus. Purpose of the best efforts
requirement, and custom K provisions, is to induce distributor to maximize joint profit.
 Common law didn’t enforce, but again, UCC finds consideration in best efforts requirement.
 Wood v. Lucy, Lady Duff-Gordon (N.Y. 1917)
o Facts: D, fashion designer, entered written agreement with P, whereby P would have
the exclusive right to use D’s name to market clothing. In return, D would receive half of
all P’s profits. D claims contract void, ad P has no obligations.
o Holding: While true that P did not explicitly promise to use reasonable efforts to market
D’s name, that term may be fairly inferred from the agreement. “A promise may be
lacking, and yet the whole writing may be ‘instinct with an obligation,’ imperfectly
expressed.” P’s promise to account monthly, take out patents etc., enforces that P had
duties.
 Bloor v. Falstaff Brewing Corp. (2d Cir. 1979)
o Facts: D bought rights to P’s Ballantine beer brand for $4m plus royalty agreement to
pay $.50 on each barrel sold for next 6 years. Agreement provided that D would use
best efforts to maintain high volume of sales. Years later, D, on verge of bankruptcy,
underwent huge change in business model, refocus on wholesale. Huge drop in
Ballantine sales (although all small-brand beers were suffering due to competition from
big brands).
o Holding: D breached duty to use best efforts: didn’t treat Ballantine evenhandedly or
seem to care about its volume. D wasn’t required to bankrupt itself in promoting
Ballantine, or even to sell at substantial loss. But drastic reduction in Ballantine sales
relative to other brand sales at least required Falstaff to explore whether there were
measures to ameliorate not involving substantial losses. On the contrary, Falstaff took
steps contributing to fall in Ballantine sales: closed a key Ballantine depot; bad choice of
distributors, particularly in New York, where a Ballantine competitor was chosen, etc.
 Pricing/Proceeds Arrangements in Exclusive Dealings Contracts
o How to induce (near) optimal efforts by distributor, i.e. bolster the “best efforts”
requirement?
o Percentage of gross revenues? Distributor will under invest, since this reduces the
return he receives on each unit sold (so the cut off for cost-effective investments Is
lower than optimal)

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  Problem ameliorated if benchmarks available (McDonalds) to evaluate whether
he is under-investing., together with option to terminate for cause. Monitoring.
o Percentage of net profits? In theory solves the under investment problem. Problem
here is monitoring difficulty. Distributor can pad or shift his costs so as to hide the
surplus from the promisor. Typically limited to single-product suppliers (easier to
monitor for cost shifting).

Protecting Other Specific Investments: Non-competition and Termination

 Termination Clauses
 At will termination clause can be seen as a “performance bond” given by the risky grantor in
return for risk-taking grantee’s time and money investment in hiring him: grantor warranting
that if he doesn’t meet expectations, he can be terminated. But difficult/impossible to give a
“pure” performance bond, since grantee may terminate for reasons unrelated to grantor’s
performance.
 Wagenseller v. Scottsdale Memorial Hospital (Ariz. 1985)
o Facts: P was an at-will employee at D hospital, suing for wrongful termination. Was
fired after her relationship with a superior soured at a employee weekend rafting trip,
where P refused to engage in group activities including public urination and a lewd song
parody which involved participants “mooning” the audience.
o Holding: At-will employees can be fired for good cause or no cause, but not “bad cause.”
 Public policy reasons: P refused to violate indecent exposure statute; cannot be
fired for refusing to violate public policy.
 Implied-in-fact contract term: statements by D re: job security / disciplinary
procedures. Personnel manual may become part of employment contract:
question for jury.
 Implied-in-law good faith requirement (§205): no cause is fine, otherwise would
inhibit bargain. But parties may not bargain so as to permit termination for
refusal to violate public policy.
 Consumers International v. Sysco (Ariz. App. 1997)
o Facts: CI, small distributor, contracted with Sysco. Sysco, D, would supply at least 80%
of food service products distributed by CI to its retail customers. Agreement included a
clause allowing either party to terminate on 60 days notice. D availed itself of the clause,
and P now sues for wrongful termination of agreement, arguing that the agreement
contained an implied in law good faith requirement, and D gave no reason for
termination.
o Holding: “good faith and fair dealing that is implied in every contract” does not require
“good cause” – a no cause termination, if in accord with the parties’ written agreement,
is not a violation of good faith.
 Covenants Not to Compete
 Gagliardi Bros. v. Caputo (E.D. Penn. 1982)

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 o Facts: P employed as controller by D from 1972-1981. In 1974, after P’s patent
application failed, required several employees, including D, to sign new employment
contracts including a non-competition agreement – if terminated, with or without cause,
D agreed not to work for a year for any company involved in meat business within 100
miles. Also received a raise, as he did regularly in subsequent years. In 1981, D
terminated for no cause. D fruitlessly searched for job in the area before finally
beginning work for one of P’s competitors. P sues to enforce.
o Holding: Not binding. Requirements for binding restrictive covenant:
 1) must relate to either contract for sale of good will, or contract for
employment. If entered subsequent to original employment, must be
accompanied by benefit or change in status. No change in status here – receipt
of raises in subsequent years shows it was not related to covenant.
 2) must be supported by adequate consideration: continuation of employment
not sufficient. No other consideration here.
 3) must be reasonable in time and place. Not here: no evidence that P would be
harmed by allowing D to work. 100 mile limit unreasonable, as P’s marketing
area has grown to national scale in past years
 4) must be necessary to protect employer: P has not shown that D had any
special knowledge granting unfair benefit to competitor.
 Policy: courts hesitant to enforce non-compete agreements: seems to impose a unilateral
burden on employees. Employer carries burden of showing necessity of clause.

Modification
 Old common law’s “pre-existing duty rule” – invalidating contract modifications unaccompanied
by “fresh consideration” has been displaced.
 UCC: § 2-209, allowing “good faith” modification without requirement of additional
consideration.
 § 89, follows UCC, allows “fair and equitable” modifications in view of circumstances not
anticipated by the parties
 Alaska Packers Ass’n v. Domenico (9th Cir. 1902); “pre-existing duty rule” case
o Facts: In California, fishery, D, agreed to pay $50 to fishermen, and $.02/salmon, to work
the 1900 salmon season by D’s Alaska cannery. Once in Alaska, fishermen jointly
demanded pay increase to $100, refused to work. Fishermen claimed that D had
provided them with rotten fishing nets. Superintendant at the fish cannery acceded to
their demands, while telling them that he was unauthorized to change the contract. D
refused to pay additional wages when Ps returned.
o Holding: D not obligated to pay. Contract was without consideration; promise to do
something you’re obligated to do is not consideration.
 Policy: purpose of pre-existing duty rule was probably to prevent extortionate or opportunistic
behavior. But like all bright-line rules, seriously over and underinclusive. Over-inclusive:
fishermen may genuinely have preferred breach under current terms, intended to breach in

23
 good faith if no modification. Underinclusive: bad faith parties can take on additional slight
duties to serve as consideration.

Interpretation, Parol Evidence Rule

 Basic framework:
 Integration: a written representation of an agreement intended to be final with respect to its
terms.
o Partial: not intended to include all details, left some to parties’ recollections or earlier
communications.
o Total: intended to be complete and exclusive, contain all details.
 Parol Evidence Rule:
o Partial integrations: no evidence of prior or contemporaneous oral or written
agreements may be admitted if it would contradict a term of the writing.
o Total integration: no parol evidence may be admitted which would either contradict or
add to the writing.
 Common law and UCC have softened the rule (more in some jurisdictions than others) by
allowing judges to look at all evidence in determining whether an agreement is partially or
totally integrated.
 UCC § 2-209: 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 agreement.
 So, no evidence of contradictory terms, whether partially or totally integrated. But even a
totally integrated agreement may be explained or supplemented by course of performance etc.
Only a partial integration may be supplemented by evidence of “consistent additional terms.”
 Real difference between UCC and common law: how judges determine partial vs. total
integration.

Determination of Partial v. Total Integration

 Judge decides. How? Competing approaches.
o Textualist/Williston (old common law approach/ four corners):
 Merger clause dispositive unless document obviously incomplete, or result of
fraud/mistake.
 No merger, then examine the writing: if obviously incomplete on its face (e.g.,
no mention of price), partial. Four corners approach. If appears to be
complete, is totally integrated unless reasonable people might naturally have
agreed to include the alleged terms in a separate agreement.

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o Contextualist/Corbin (super-modern view):
 Look at all evidence in determining whether parties intended to make the
agreement final and exclusive. Merger clause – suggestive but not dispositive.
 Natural omission: often effected by twisting Williston’s notion of natural
omission to allow evidence in:
o Masterson v. Sine (Cal. 1968)
 Facts: P conveyed ranch to D, P’s sister, by deed reserving 10 year option to buy
back. P went bankrupt, trustee sought to exercise option, D attempts to bring
evidence of prior oral agreement that option was non-assignable.
 Holding: D may bring evidence. Deed not totally integrated, because the oral
agreement “might naturally be made as a separate agreement” by parties: no
merger clause, deed said nothing about assignability, difficult to insert terms
into formalized standard deed. Finally, purpose may have been to make option
exercisable against future purchasers of the land, nonassignability irrelevant.
 Dissent: violates PER. Strong legal presumption and public policy of assignability
means that the term was contradictory.
o UCC approach: compromise between Williston and Corbin approach, but more Corbin in
spirit. Comment 3 to 2-202: “If the additional terms are such that, if agreed upon, they
would certainly have been included in the document in the view of the court, then
evidence of them must be kept from the trier of fact.”
o Hunt Foods v. Doliner (N.Y. App. Div. 1966)
 Facts: P in negotiations to buy D’s ownership of company. Pause in negotiations
became necessary; P insisted on an option to buy, afraid that D would leverage
their offer to solicit a better one. P refused to sign an option conditional on D
seeking outside offer, but D claims oral understanding that it was so
conditioned.
 Holding: § 2-202 controls (stocks covered in UCC Article 8, analogous to goods).
Term is additional, but consistent? As long as it doesn’t contradict or negate
existing term [collapse consistent and contradict analysis]. Totally integrated?
Only if term “certainly would have been included”, meaning, only if it is
impossible that they would not have included it. Not impossible: maybe P just
didn’t want burden of proving that D had solicited outside offer if case went to
trial.
o Like in Masterson, the “consistent additional term” here substantially reduced value of
the contract on its face. Masterson dissent would argue that an option is presumed
unenforceable, and evidence against that presumption contradicts the writing.
o Under Hunt Foods, effectively impossible to have a full integration without well-drafted
merger clause.
o Not all courts agree. Snyder v. Greenbaum held that “consistency” requires that a term
be in “reasonable harmony” with the written terms.

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Interpretation of Terms
 Common law: “plain meaning” approach. Facilitates use of “majoritarian” language, reduces
expected litigation costs by resolving interpretive disputes through summary judgment.
Tradeoff: context evidence often excluded.
 UCC 2-202 rejects plain meaning approach, may explain in light of commercial standards. Note
that even a “totally integrated” writing under the UCC may be interpreted through contextual
evidence.

 Summary
 1) Is the agreement at least partially integrated? If not, anything admissible. If yes, next step.
 2) Would the evidence of a prior agreement contradict the terms? If yes, not admissible.
 3) UCC contract? Then usage of trade etc. may supplement and explain terms.
 4) Is the agreement totally integrated? If yes, no consistent additional terms.
 5) If only partially integrated, may supplement with consistent additional terms.

Mistake and Excuse

 Basic premise: when does the “bolt of lightning” excuse the promisor? The default, ala Stees v.
Leonard, is that there is no excuse: the promisor bears the risk. Promisor has been paid in
advance to bear that risk, and presumably is in a better position to bear it.
 However, doctrine has carved out exceptions for unanticipated events, the risk of which were
not allocated in the contract, and thus fall on the promisee.

Impossibility and Impracticability: Allocation of Extreme Risks

 § 261: Discharge by Supervening Impracticability: Where, after a K is made, a party’s
performance is made impracticable without his fault by the occurrence of an event the non-
occurrence of which was a basic assumption on which the K was made, his duty to render that
performance is discharged, unless the language or the circumstances indicate the contrary.
o Basic assumption criterion comes from UCC § 2-615(a)
 § 263: Destruction or Failure to Come Into Being of Thing Necessary for Performance: If the
existence of a specific thing is necessary for the performance of a duty, its failure to come into
existence, destruction, or such deterioration as makes performance impracticable, is an event
the non-occurrence of which was a basic assumption on which the K was made.
 Taylor v. Caldwell (K.B. 1863)
o Facts: D, owner of music hall, contracted with performers P to provide hall for future
concerts. Fire destroyed the concert hall, D sued for breach.
o Holding: Court found implied condition that P’s performance was contingent on
continued existence of the hall. Parties would have agreed to the condition if they
thought of it.

26
  Note: such a strict rule can serve as an information extracting mechanism by forcing parties to
bargain for idiosyncratically high levels of insurance.
 BUT:
 Stees v. Leonard (Minn. 1874)
o Facts: D contracted with P to construct a building on P’s lot, after which – after the
work-in-progress collapsed three times – D discovered that P’s lot was on quicksand. D
abandoned the project.
o Holding: D assumed the risk. Duty excused only if prevented by act of God, law, or the
other party. D should have conditioned the promise, foreseen contingencies.
 Eastern Air Lines v. Gulf Oil (see above: court had found that Eastern hadn’t violated good faith
requirement in a requirements contract for oil; price index clause had catastrophically failed)
o Facts: Contract set price by a certain index which later, because of a government price
control scheme, ceased to reflect the market price. Impracticable?
o Holding: No. UCC § 2-615: must be a failure of presupposed condition, which was an
underlying assumption of the contract, which failure was unforeseeable, and the risk of
which was not specifically allocated. Burden on complaining party to show.
Impracticable? Gulf has not shown sufficient hardship – that performance is
economically burdensome is not sufficient. Basic assumption? Gulf should have
foreseen OPEC’s price manipulations, and that gov’t price controls might affect index
(Gulf was constantly involved in lobbying).
 BUT more lenient approach in:
 Alcoa v. Essex (W.D. Pa. 1980)
o [see Mistake for more facts] Price escalator clause – designed by Alan Greenspan –
resulted in contract price falling greatly below market price due to Greenspan’s
formula’s relatively light weighing of electricity costs.
o Holding: Basic assumption, assumption of risk? See Mistake section
Impracticability? Yes. § 261 (K was for conversion of alumina to aluminum, a service),
which borrows from 2-615. Mere change in expense not enough. But here,
unforeseeable variation of costs. Enormous expense increase arising from “unforeseen
shutdown of major source of supply.”

Mutual mistake
 § 151: Definition of mistake: “belief that is not in accord with the facts.”
 § 152: Mutual Mistake
o (1) Where a mistake of both parties at the time the K was made as to a basic
assumption on which the K was made has a material effect on the agreed exchange, the
K is voidable by the adversely effected party unless he bears the risk of the mistake
under the rule in § 154.
 § 154: When a Party Bears the Risk of a Mistake
o (a) if the risk is allocated to him by agreement of the parties (explicit);

27
 o (b) if he is aware at the time the K is made that he has only limited knowledge w.r.t. the
facts to which the mistake relates but treats his limited knowledge as sufficient
(conscious ignorance/gamble); 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 (reasonability).
 Alcoa v. Essex (W.D. Pa. 1980)
o Facts: Supply of services contract. Price to be determined according to formula
designed by Alan Greenspan acting as consultant, raising price in proportion to an
industrial costs basket index. K limited price increases to 65% of specified published
price, but contained no floor protecting Alcoa. When OPEC began embargo, electricity
costs shot up; underrepresented in the price formula, so real expenses greatly exceeded
formula expenses.
o Holding: Relief for mutual mistake:
o Mistake of fact: both parties mistaken about fact that the formula would adequately
allow Alcoa to cover its expenses.
o Mutual mistake: Essex may not have cared, but irrelevant: Sherwood v. Walker.
o Basic assumption: Price is basic to contract.
o Material effect: On current trends, Alcoa will lose $60m if K enforced.
o Assumption of risk: E says A could have sought price floor, by failing to, it assumed the
risk. But A could not have intended to assume limitless risk, in light of its efforts to limit
risk.

Limits on Bargaining Process: Duress, Fraud, Concealment

- Expanded Choice – the moral backbone of K law, supported by autonomy and economic
theories. But requires that choices be voluntary and rational.
- Doctrines of duress, fraud, and concealment impose mandatory rules for excluding
agreements which violate free choice.
- Bad behavior should not be subsidized.
- Sanctioning misleading tactics would increase the costs of bargaining by forcing innocent
parties to take extra precautions and insure against trickery.
- Line-drawing problem: too stringent a rule encumbers benign, ordinary bargaining behavior
– parties will take extra precautions to avoid being bound by exaggerated representations or
to invalidate the contract. But too lax a rule forces innocent parties to guard against deceit.
How to construct rules which distinguish between good and bad behavior?

Duress
 § 174 – physically compelled assent is void.
 § 175 – contract voidable when
o An improper threat
o Induces the recipient’s manifestation of assent

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 o And left the recipient with no reasonable alternative.
 § 176 – definitions of “improper threat”:
o (1) A threat is improper if:
 (a) what is threatened is a crime or a tort;
 (b) what is threatened is a criminal prosecution;
 (c) what is threatened is the use of civil process and the threat is made in bad
faith;
 (d) the threat is a breach of the duty of good faith and fair dealing under a
contract with the recipient.
o (2) A threat is improper if the resulting exchange is not on fair terms, and
 (a) the threatened act would harm the recipient and would not significantly
benefit the party making the threat;
 (b) the effectiveness of the threat in inducing the manifestation of assent is
significantly increased by prior unfair dealing by the party making the threat; or
 (c) what is threatened is otherwise a use of power for illegitimate ends.

 Classic ex ante duress

o (1) Improper threat
 Generally a crime or tort, violence, § 176(1)(a).
o (2) Induce assent, and
o (3) Impair will, i.e. leave no reasonable choice
 Reasonable choice defined according to a subjective/objective standard: how
would a person of similar background and characteristics etc. react
o Example: forced to sell beloved antique car at fire-sale price because of tough economic
conditions. No duress here.
 Ex post economic duress (Austin, Wolf)
o Threaten an action (often nonperformance), in order to
o Induce assent to a modification of an existing contract
 Overlap with other sections on modification, R.2d §89 and UCC 2-209. The
latter allows modifications without consideration when in good faith, the R.2d
allows either in promissory estoppel context or supervening difficulties context.
o Threat will harm recipient without significantly benefiting the party making the threat.
Thus “chicken,” bad faith bluffs – strategic behavior - §176(2).
o No breach of good faith if party threatening would genuinely prefer breach to
performance under the current terms as less costly (optimal breach).
o Rejecting threat and inviting breach of contract is always an alternative for the recipient:
thus must show that it’s not a reasonable one, e.g., damages in an action by recipient
against breacher would be inadequate.
o Restatement:
 § 176(1)(d) – threat is breach of good faith and fair dealing under an existing
contract

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  §176(2) – threat improper if resulting exchange not on fair terms and would
harm promisor without benefiting other party.
o Wolf v. Marlton: Buyers threatened to resell house to “undesirable party,” thus ruining
Seller’s property development, if Seller went through with contract for sale rather than
returning their down-payment. If threat was truly the cause of Seller’s breach, this was
duress:
 §176(1)(d) and §176(2): breach of good faith. Threat aimed solely at harming
Seller, would not have substantially benefitted Buyer.
 Not necessary that threatened action be illegal (§176(1)(a) is only one subset of
improper threats).
o Austin v. Loral: Seller, subcontractor, threatened to cease delivery on existing contract if
Buyer, military contractor, didn’t agree to favorable terms on new contract + price
increases in old contract. Buyer agreed, then sought recovery after full performance of
second contract.
 Improper threat, § 176(1)(d),(2): threat to withhold needful goods.
 No reasonable alternative (i.e. buy from other suppliers?): Buyer checked with
other vetted sellers, none could deliver in time to avoid breach of gov’t K by
Buyer. Seller justified in waiting until after 2nd K to bring suit, Buyer would have
held him up again.
 Rejecting threat not a reasonable alternative, because remedy inadequate:
Breach with gov. would have brought liquidated damages and loss of good will
(not recoverable in action against Seller!).
o Alaska Packers v. Domenico: Although decided on “pre-existing duty rule” grounds,
good example of economic duress.
 If fisherman would not have really preferred breach to performance, then the
threat was improper - § 176(1)(d),(2).
 But: if they would have, could be case in which promisor would want the
modification to be binding (see also: sports star’s request to renegotiate K).

 Ex ante economic duress?

o Only if D created P’s perilous situation. Hard bargaining is not duress: no good faith
obligation to divide surplus fairly. Duty arises only after contract is made (see above).
o Opportunistic exploitation of an exigent peril is not duress.
o Chouinard v. Chouinard: Fred’s business was in terrible shape because of his
mismanagement. Sought an emergency loan, but bank wouldn’t give it unless Fred
resolved ownership controversy with two co-owners. Fred promised to buy them out at
high price.
 Co-owners didn’t create the threat of financial loss or bankruptcy. No duress.
 A bad choice is better than no choice – conforms to contract law’s legitimate
purpose of expanding choice sets.

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Fraud
 Basic policy: sort out misrepresentations that impair choice from statements of
judgment/opinion which enhance choice.
 Justifiable reliance requirement: don’t want to chill negotiations. Parties would be afraid of
making even insubstantial misrepresentations.
 Intentional or reckless misrepresentations of fact on which promisor justifiably relies.
 Doesn’t include statements of judgment or opinion or representations which, though technically
false, the promisor should not have taken literally.
 Restatement:
o § 162 – Definition of “fraudulent” and “material” misrepresentations: a
misrepresentation is fraudulent if maker intends his assertion to induce a manifestation
of assent and the maker
 Knows assertion isn’t in accord with facts,
 Doesn’t have confidence which he implies he has, or
 Knows he doesn’t have the basis he implies he has.
o Id. misrepresentation is “material” if likely to induce manifestation of assent by
reasonable person, or if maker knows it would be likely to induce that particular
recipient’s assent.
o §164 – When assent induced by fraudulent or material misrepresentation upon which
assentor justifiably relies, contract is voidable.
 objective/subjective combo standard. So, in Speiss and Steit v. Fox, Ps
were trusting, unsophisticated parties. See also §169.
o § 167 – Inducement: misrepresentation induces assent if it substantially contributes to
decision. But see §169: reliance on assertions of opinion may not be justified.
o § 168 – Opinion or judgment – opinion, without certainty, as to existence of fact, or
judgment as to quality, value, authenticity, etc.
o § 168(2): Fact-based Opinions: if reasonable, recipient may interpret a fact-based
opinion or judgment as an assertion that giver doesn’t know facts incompatible with the
opinion, or that he knows facts sufficient to justify the opinion.
o §169: Reliance on opinion not justified unless
 Relation of trust and confidence, so reasonable in relying;
 Giver believed to have special skill, judgment or objectivity; or
 Recipient is particularly susceptible to misrepresentation of this type.
 Spiess v. Brandt: Sellers misrepresented income of property by statements like “it makes good
money.” Factual misrepresentation of past income inherent in projections of future income.
o Even if mere judgment or opinion, and Buyers failed to really investigate, excused
because inexperienced Buyers especially trusted Sellers, § 169(a),(c).
 Danann Realty v. Harris: D’s misrepresented orally operating expenses and profits of building
leased to P. No fraud, as contract contained not only an integration clause (would not be

31
 enough, since not immune to fraud), but also a clause stating that the Buyer “does not rely on
any prior representations.”
o Buyer’s attorneys should have read the clause, sophisticated business party. Might
distinguish this from cases involving unsophisticated parties, e.g. Spiess v. 20th Cent.
Fox.
o Should parties be able to allocate risk of misrepresentation?

Concealment
o Whenever encountering failure to disclose, first look for concealment – stronger claim
than failure to disclose.
o § 160: conduct is equivalent to an assertion that a fact doesn’t exist when it is
 Intended to prevent another from learning a fact; or
 Is known to be likely to prevent another from learning a fact.
o That “assertion” then goes through the fraudulent (intended)/material (known to be
likely to) misrepresentation analysis above.
o Obde v. Schlemeyer: Fraudulent concealment of termite infestation. Ps asked no
questions. Ds had consulted exterminator; eliminating infestation would have required
drilling holes in basement, but Ds opted just to have him remove all superficial signs of
infestation.
 Court found duty to disclose, special relationship between seller/buyer of
property imposing duty to disclose concealed and dangerous defects.
 But on concealment theory, extermination efforts were arguably intended to
prevent Buyers from learning of infestation, so by § 160, equivalent to assertion
that there was no infestation.
o “Classic Jaguar” example: Buyer could argue that repairing body of car after accident
was concealment of the permanent internal damage. Seller responds: passage of time
between repairs and sale suggest no intent to conceal. Likewise, repairs had substantial
beneficial effect, restored car as much as was possible (distinguish from Obde, where
Sellers could have destroyed infestation). But Buyer says § 160 doesn’t require intent:
Seller knew it was likely to cover up the defect.

Non-disclosure
o Doctrine: § 161: non-disclosure is equivalent to an assertion only when:
 (a) Disclosure necessary to prevent previous assertion from being a
misrepresentation
 (b) disclosure will 1) correct a mistake, 2) as to a basic assumption, and 3)failure
would breach good faith and reasonable standards of fair dealing.
 (d) entitled to know because of special relation of trust and confidence.
o Common law bright-line rule, no duty to make affirmative disclosures. Why?
Policy:  Fear of information overload
line-drawing
32
problem
  False claims by disappointed parties to proper contracts
o But trend in some states towards a broader standard, imposing duty in some situations.
 Party with better access to info should be required to disclose, comparative
advantage. Where to draw line?
o When is it a violation of good faith and fair dealing to withhold information? Perhaps
distinguish knowledge of endogenous facts, casually discovered or available upon
diligent inquiry, and exogenous (extrinsic) events, especially those requiring cost and
effort to discover, that affect market valuations? Exogenous facts are not a “mistake as
to a basic assumption,” § 152, Comment b; Laidlaw v. Organ.
 Not forcing disclosure of extrinsic information encourages investment in
information and rewards bringing the info to market.
 But rescission allowed when disclosure required to correct basic mistake of fact,
e.g., the Nolan Ryan rookie card price tag error.
o Reed v. King (Cal. 1983): represents trend towards standard. Seller did not inform
Buyer of house of a multiple homicide that had occurred 10 years earlier. Told
neighbors not to tell Buyer.
 § 161, Buyer’s implicit belief of no traumatic, value-reducing history is mistake
about a basic assumption, non-disclosure of which is breach of good faith and
fair dealing. Fact materially lowered value of house, and Buyer could not have
reasonably discovered (shouldn’t have to investigate whether murders have
occurred, too rare).

Unconscionability
 Doctrine safeguards informed choice. When procedural unfairness leads to D being injured by a
surprising and oppressive obligation, courts may refuse to enforce.
 § 2-302, Unconscionable Contract or Clause: courts have discretion to refuse to enforce all or
part of a contract containing an “unconscionable” clause, or may limit application of clause to
avoid unconscionable result.
o Comment 1 emphasizes that goal is to prevent oppression and unfair surprise. Not to
disturb allocation of risks resulting from superior bargaining power. In other words,
must have procedural unconscionability > unfair surprise.
o Modern courts require:
o 1) Procedural unconscionability (“lack of meaningful choice”)
o 2) Substantive unconscionability (“unreasonably favorable terms”)
 Williams v. Walker-Thomas (D.C. Cir. 1965)
o Facts: P, dep’t store, sought to repossess several years of purchases by poor single
mother D through a cross-collateralization clause after she defaulted on her most recent
purchase.
o Holding: Clause unconscionable. Lack of meaningful choice: look at bargaining power,
educational inequality, obfuscation of oppressive contract terms. Unreasonably
favorable to D.

33
  Policy: prohibiting otherwise enforceable clauses may raise costs to the sympathetic class in
unexpected ways (e.g., here, might make credit less available, raise prices).

Remedies and Substantial Performance

Substantial Performance
 Common law vs. UCC:
o § 237, 241: At common law, substantial performance: a non-material defect in one
side’s performance doesn’t excuse the other from its obligations.
o UCC §2-601: strict adherence, “perfect tender” rule. If any defect, buyer may reject it
all, accept it all, or accept some and reject the rest.
 § 237: Effect on Other Party’s Duties of a Failure to Render Performance: Except as stated in §
240, it is a condition of each party’s 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.
 § 241: Circumstances Significant in Determining Whether a Failure is Material: In determining
whether a failure to render or to offer performance is material, the following circumstances are
significant:
o (a) the extent to which the injured party will be deprived of the benefit which he
reasonably expected;
o (b) the extent to which the injured party can be adequately compensated for the part of
that benefit of which he will be deprived;
o (c) the extent to which the party failing to perform or to offer to perform will suffer
forfeiture;
o (d) the likelihood that the party failing to perform or to offer to perform will cure his
failure, taking account of all the circumstances including any reasonable assurances;
o (e) the extent to which the behavior of the party failing to perform or to offer to
perform comports with standards of good faith and fair dealing.
 Jacob & Young v. Kent (N.Y. 1921)
o Facts: P built a country house for D, suing for unpaid balance. D claims breach of
contract: agreement specified that the houses plumbing would be made with “’standard
pipe’ of Reading manufacture” – and a year after moving in, D discovered the pipes
were not made in Reading. D told by P to do it all over again (would have involved
demolition). Did P breach?
o Holding: Trivial and innocent omissions don’t necessarily mean breach and forfeiture –
just allow damages to compensate. Perversion of intention to suppose that
unintentional breach of the slightest conditions in a contract will be treated as full
breach. Need to look at facts of case, considerations of both justice and presumable
intention. Parties can opt out of this and demand strict conformity, but must do so very
conspicuously, boilerplate insufficient.

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 o Damages: Not cost of replacement (i.e., cost of tearing the house down and rebuilding),
but difference in value. Usually its replacement/completion cost, but not when that’s
“grossly and unfairly out of proportion” to the difference in value

Remedies
 Globe v. Landa principle: amount of damages is part of the intent of the parties when they
contracted. In absence of written agreement, gap fillers.
 From this, can see that parties would not have bargained for windfall damages clauses. Each
party is willing to pay for reliability only up to the point that it’s useful: a $1,000,000 liquidated
damages clause would cost the benefitting party that much more ex ante.
 Thus expectancy damages: parties want to insure the benefit of the bargain, no more, no less.
 In reality, expectancy damages difficult to prove: so promisee usually has option of pursuing
reliance or restitution damages.
 Sales
 § 2-712, “Cover”: Buyer may cover by making in good faith and without reasonable delay any
reasonable purchase of goods in substitution for those due from seller.
o Buyer may recover from seller difference between cost of cover and contract price,
together with incidental or consequential damages, but minus expenses saved in
consequence of the breach.
o Failure to cover doesn’t bar from remedy.
 § 2-713: Buyer’s Damages (if didn’t cover): market price minus contract price (at time buyer
learned of breach) + incidental and consequential damages.
o Policy behind not forcing cover: don’t force buyer to take risk that seller will litigate
whether his cover costs were “reasonable.”
 § 2-715: Incidental and Consequential Damages:
o Incidental: expenses reasonably incurred in inspection, receipt, transportation and care
and custody of goods rightfully rejected, any commercially reasonable charges,
expenses or commissions in connection with effecting cover and any other reasonable
expense incident to the breach.
o Consequential: any lose resulting from general or particular requirements and needs of
which the seller at time of contracting had reason to know and could not reasonably be
prevented by cover or otherwise; and injury to person or property.

Uncertainty
 § 342, 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.
 Liquidated Damages: one way for parties to insure proper incentives in the face of unverifiable
damages (i.e. opting out of the uncertainty limitation) is to include a liquidated damages clause.
But both R2d. § 356 and UCC 2-718 require the amount to be reasonable in light of the
circumstances, including difficulty of proof, adequacy of court-determined damages, etc.,
otherwise void as a penalty.
 Freund v. Washington Square Press (N.Y. 1974)

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 o Facts: P, author, contracted with D, publisher. Terms provided that P would receive
$2,000 advance when D received manuscript. Thereafter D had 60 days to terminate,
failing which they promised to publish within 18 months, giving P a portion of all sales as
royalties. D paid the advance, but, without terminating within 60 days, failed to publish.
P sued for damages for: 1) delay of his academic promotion; 2) loss of royalties; and 3)
the cost of publication if P had arranged it himself.
o Holding: Indeed a breach, and P entitled to be placed in the position he would have
been given performance. P recovers the 2k advance. But royalties too indeterminate
though, recovers nothing.
 Drews Company, Inc. v. Ledwith-Wolfe (S.C. 1988)
o Facts: Contractor, D, was deficient in performing renovations on P’s building, which he
planned to turn into a restaurant. Opening was delayed. P now suing for lost profits.
o Holding: Traditional “new business” rule precludes recovery for lost profits by a new
business. But replace that rule with standard: P may still recover if he proves with
enough certainty.

What is Expectancy? Cost of Completion vs. Diminution in Value

 What position do parties really intend to occupy after performance? What did they really
bargain for? These cases probably decided wrongly. In American, P explicitly bargained for a lot
suitable for “resale”: i.e., would not want to have bought insurance for defects beyond what
was necessary to cover the diminution in market value. Peevyhouse, on the other hand, wanted
his land back, ancestral residence, real estate value insignificant.
 American Standard, Inc. v. Schectman (N.Y. App. Div. 1981)
o Facts: P conveyed buildings and equipment to D in return for D’s payment of $275k and
a promise to demolish the structures and grade the property in a certain way, as P’s
intended to resell as a vacant lot. D failed to grade properly, but claims that because P
resold the lot for only $3k less than its full fair market value if graded, should only owe
that; cost of completion damages would be a windfall.
o Holding: Remedy is cost of completion. Exception (per Jacob & Youngs) when
substantial performance in good faith but with defects, correction of which would
involve destruction of work done in good faith. Here, breach was both intentional, and
would not involve destruction of prior work. Not an argument that completing the work
wouldn’t have been economically worth it: Ps may bargain for castles of shit, if they
want, that’s up to them, and they paid for it.
 Peevyhouse v. Garland Coal (Okla. 1962)
o Facts: D failed to regrade after mining contract on P’s property.
o Holding: Diminution of value: unperformed promise was “incidental” to main purpose,
and economic benefit to promisee is grossly disproportionate to cost of completion,
would be windfall.
o Dissent: Breach was willful, not in good faith. P insisted during negotiations that
provisions be included in K. Costs of performance could be appraised at time of K

36
 formation, no new unforeseeable conditions. Majority ignores the fact that D must
have thought the benefits exceeded the costs of the obligations.

Specific Performance
 § 359: Specific performance will not be ordered if damages would be adequate to protect the
injured party’s expectation interest.
 § 360: Adequacy of damages: Consider
o Difficulty of proving damages with reasonable certainty;
o Difficulty of procuring a suitable substitute performance by means of money damages;
o Likelihood that an award of damages could not be collected
 UCC § 2-716: Specific Performance: may be decreed where the goods are unique or in other
proper circumstances
o Other proper circumstances: inability to cover is strong evidence.
 Key is risk of undercompensation to P: even if could technically cover, possibility that D will
claim that cover costs were unreasonably high.
 Policy: in thick markets, shouldn’t make much of a difference, since party indifferent between
covering and receiving specific performance. In thin markets? Prevents courts from having to
determine expectancy damages. So why not more prevalent?
 Allowing money damages as opposed to SP allows Seller to shift burden of performance to
Buyer when Buyer can effect it more cheaply: so a money damages default rule reduces joint
costs.
 Klein v. Pepsico (4th Cir. 1988)
o Facts: Lower court correct in finding contract for Pepsico to sell a jet to third party for
sale to P. But wrong in requiring specific performance, reversed and remanded in part.
Trial judge granted specific performance on basis of UCC § 2-716, permitting a “jilted
buyer of goods to seek specific performance of the contract if the goods sought are
unique, or in other proper circumstances. 1) the aircraft was unique and 2) P’s inability
to cover with a comparable jet is strong evidence of proper circumstances (inability to
cover as evidence of proper circumstances appears in comments on UCC §2-716)
o Holding: First, adopting UCC doesn’t abrogate rule that specific performance not
appropriate when damages are recoverable and adequate. Clear from case that money
damages would have made P whole. So no basis for specific perf.
Second, plane was not unique (P had made bids on two other similar jets after deal fell
through). As for inability to cover: increase in price of alternatives not basis for ordering
SP
 Sedmak v. Charlie’s Chevrolet (Mo. 1981)
o Facts: Dealer reneged on promise to sell P limited edition Corvette at MSRP after he
started receiving huge bids.
o Holding: § 2-716 allows SP when goods are in “other proper circumstances.” Here, not
one-of-a-kind, but “mileage, condition, ownership and appearance” made it difficult if

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 not impossible to cover without considerable expense, delay, and inconvenience.
Incredible demand, short supply.

Foreseeability
 Hadley v. Baxendale principle.
 § 2-715(2): Consequential damages. See above, same “reason to know” requirement as R.2d.
 § 351, Unforeseeability: (1) Damages not recoverable for loss that the breaching party had no
reason to foresee as a probably result of the breach when the contract was made.
o (2) Loss may be foreseeable because it follows from the ordinary course of events, or
from special circumstances that the party in breach had reason to know.

Duty to Mitigate
 Rockingham County v. Lugen Bridge Co. (4th Cir. 1929)
o Bridge builder, on learning of employer’s repudiation of contract, must stop building.
o Anticipatory breach triggers duty to mitigate.
 Parker v. Twentieth Century-Fox (Cal. 1970)
o Facts: Actress P had contracted with studio D to appear in a musical. D decided not to
make musical, offered P alternative role in western, with same pay but without
discretion over choice of director. She refused, now sues for full pay under original
contract.
o Holding: Measure of recovery by wrongfully discharged employee is the amount of
salary for the period agreed upon minus the amount which the employer shows the
employee has or with reasonable effort might have earned from other employment.
But no duty to take substantially different or inferior employment.
Role of western was different from musical role. Thus no failure to mitigate.
o Dissent: factual question of difference/inferiority, should have gone to jury.

Statute of Frauds
 UCC § 2-201: Contract for sale of goods for $500 or more not enforceable unless there is some
writing sufficient to indicate that a contract for sale has been made between the parties and
signed by the party against whom enforcement is sought or by his authorized agent or broker.
Need not state all terms, or state them correctly, but not enforceable beyond quantity of goods
listed.
 2) Between merchants, if within reasonable time a writing in confirmation of a contract and
sufficient against the sender is received, and the party receiving it has reason to know its
contents, it satisfies the requirements of (1) against that party (unless written objection within
10 days).
 3) Contract not satisfying (1) still enforceable if:
o Contract is for sale of specially manufactured custom goods, not suitable for sale to
others, and before notice of repudiation by buyer, seller started manufacturing.

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 o Party admits in court that a contract was made (but enforceable only up to quantity of
goods admitted)
o With respect to goods for which payment has been made or which have been received
and accepted.
 Common law, § 131: Unless additional requirements prescribed by particular statute, contract
within the SoF is enforceable if it is evidenced by any writing, signed by or on behalf of the party
to be charged, which
o A) reasonably identifies the subject matter of the K;
o B) is sufficient to indicate that a contract with respect thereto has been made between
the parties or offered by the signer to the other party; and
o C) states with reasonable certainty the essential terms of the unperformed promises in
the contract.
 Contract governed by UCC or common law? > Pre-dominant purpose test. So distributorship
agreement involving large transfer of goodwill and equipment may still fall under UCC.

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