Contracts Outline – Maggs – Fall 2011
A Contract is a promise that is enforceable by law.
Courts enforce promises by
1. Specific Performance
E.g. return the item
2. Pay Damages
There must be a basis for enforcement to show that promise was seriously made
Prinicipal Modern Bases
1. Consideration
2. Reliance
3. In a few special cases moral obligations but usually not
Consideration
1. promise or performance (action or forbearance)
2. and bargained for (sought and given) in exchange of the promise
Policy bases
1.
2.
Economic Importance. Bargains are essential to any business deal and our economy
Minimal Dangers as to proof. It is much harder to lie and claim that Bill Gates gave you a million dollars if one
must prove consideration.
Restatement § 71
(1) To constitute consideration, 1. A performance or a return promise must be
2. Bargained for
(2) A performance or return promise is bargained for if it is sought by the
promisor in exchange for his promise and is given by the promisee in
exchange for that promise
(3) The performance may consist of
(a) An act other than a promise
(b) Or a forbearance
2 non-valid arguments for no consideration
Restatement § 79
If the Requirement of consideration is met, there is no additional requirement of
(a) A gain, advantage, or benefit to the promisor or a loss, disadvantage, or
detriment to the promisee; or
(b) Equivalence in the values exchanged
If forbearance of a legally permissible act is the performance that was bargained for,
the court will not determine whether that forbearance was beneficial or detrimental
for the promisor or promisee.
1. WE DON’T CARE ABOUT BENEFIT OR DETRIMENT IN CONSIDERATION
E.g. Hamer v. Sidway, The forbearance of smoking and drinking was beneficial to
the nephew and brought no benefit to the uncle, yet it was still considered a legally
valid contract because the uncle sought a bargain where his nephew forbore from
smoking etc. and he performed his part of the bargain, therefor there was
consideration.
2. There is no requirement of equal values and there can be consideration even if
one side gets something worth much more than the other but it must have been a
real bargain. If the bargain was a mere sham e.g. $1,000 for a book worth $1 then it
does not meet the requirements of §71(acc. to restatement there is some historical
basis for it being binding). This is referred to as the peppercorn example.
The peppercorn example is a valid argument for no consideration
Argument for invalid promise
1. Forbearance of invalid claim
Forbearance to assert an invalid claim may serve as consideration for a return
promise if the parties at the time of the settlement 1. reasonably believed 2. in good
faith that the claim was valid.
We determine 1. Objectively by determination of the jury
We determine 2. Subjectively by bringing the party to the stand and asking them.
The court ruled in Feige v. Boehm, that her promise not to bring a bastardly suit
against Feige was valid consideration because she reasonably believed in good faith
that the child was Feige’s, but had she not reasonably believed that in good faith
then there would have not been consideration because it was an invalid claim.
Restatement § 74
(1) Forbearance to assert or the surrender of a claim or defense which proves to
be valid is not consideration unless
(b)the forbearing or surrendering party believes that the claim or defense
may be fairly determined to be valid.
2. (second argument for invalid promise) Illusory promises, will be discussed later
Determining Bargains From non-bargains
Non Bargains
 Past Service is not a basis for consideration. Feinberg, Mills (because it is not
bargained for)
 Continued non-bargained for service is not consideration. Consideration
must be something that is bargained for; if one just performs for another
without bargaining for this performance it is not consideration. I.e. continued
service like in the Feinberg case.
The Ohio Supreme Court disagreed with this in the Lakeland case. The court
held that continued employment alone satisfies the contractual requirement
of consideration when a non-compete is signed by an at-will employee who is
already employed by the employer. Their reasoning was that the gain of the
employee is to not be fired (he signed non compete, they forebore frome
terminating him). The dissent argues and says that nothing was actually
bargained for and the employer just gains non compete and can still fire
employee; hence there is no consideration. Another dissenting justice points
out that according to this rational the employer would be required to keep
the employee for an unspecified period of time.
- A way to argue this case successfully not based on consideration is based on
reliance that Lakeland gave their private information relying on the noncompete clause
 Moral Obligation is not enforceable by law. Mills (there are some exceptions)

Promises to make gifts including conditional promises to make gifts are not
consideration. Kirksey
In Kirksey a woman sold her home and left with her children and travelled
70 miles away to her brother in law who promised to make her comfortable.
He eventually did not keep his promise. The majority ruled that there is no
consideration because it is just a conditional promise although she took
ceratin actions, they were just prerequisite actions, she did not bargain for
her brother in law’s promise. Defendant did not seek these actions in
exchange for the defendant’s promise (Today this would probably have been
enforced as Reliance by the theory of promissory estoppel).
There is a dissent that holds that the hardships she went through are
forbearance and there is consideration.
How can we determine if something is a conditional promise (i.e. come to my
office and I will give you a syllabus) or a real bargain? Williston gives a
helpful guide. If there is a benefit to the one who made the promise or a
detriment to the promisee then it is most probably consideration (i.e. a
bargain and not a conditional promise). This is not a contradiction to Hamer
where the court said they will not look at benefit and detriment in regards to
consideration because there we know that there was a bargain. The court is
just telling you a general rule that it doesn’t lose its status as a bargain if
there is no gain to promisor etc. Whereas Williston is referring to cases
where we are trying to find out if there is a bargain at all and benefit and
detriment can aid in that determination.
This is not always true sometimes it is so clear that it is a conditional gift that
even with a detriment the promise has been held unenforceable.
 As we mentioned before a sham argument is also not a bargain good
enough basis for consideration.
A truly illusory promise cannot be a basis for consideration
Restatement §2
(1) A promise is a manifestation of intention to act or refrain from acting in a
specified way, so made as to justify a promisee in understanding that a
commitment has been made.
In Strong v. Sheffield, Strong promised to forebear from collecting the debt
until such time that he wanted the money. Since there was no specified time
and nothing stopped him from collecting the money the very next day, his
keeping of the promise was optional and therefore could not be a basis for
consideration.
Implied terms can make a promise non-illusory by either being terms
implied in law or fact.
Promise implied in law
Restatement § 205
Every contract imposes upon each party a duty of good faith and fair dealing
in its performance and its enforcement.
A promise is not considered illusory, if by implication of law one is bound to
keep his side of the promise. In Mattei v. Hopper, they made the sale
conditional on Mattei finding satisfactory leases for the land. Hopper claims
there is no consideration because his promise is not real, he can just claim he
didn’t find satisfactory leases and pull out of the agreement. The court rules
that there is an implied promise to act in good faith meaning he cannot just
arbitrarily pull out. This is a promise implied in law.
Promise implied in fact
Implied in fact means implied in the conversation or the specific terms of
your contact. For example, when you sit down in a barbershop or a cab or a
restaurant you cannot claim that you never promised to pay, it is a promise
implied in fact.
In Wood v. Lucy…., there was a contract that he would distribute her designs
and receive half of the profit. She claims there is no consideration because he
was not bound to do anything. The court rejected this argument and held
that the promise was implied in the facts that he would make reasonable
efforts to get endorsements and market her designs, even though there was
no express promise.
Reliance (promissory estoppel)
§ 90
(1) A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does induce
such action or forebearance is binding if injustice can be avoided only by
enforcement of the promise. The remedy granted for the breach should be limited as
justice requires.
There are 5 elements
1. A promise by defendant
2. That results in action/ forebearnace by plaintiff
3. Induced by (i.e. taken in reliance on) the promise
4. Reasonably expected by promisor
5. Necessary to prevent injustice
In Feinberg the court ended up ruling in her favor because she testified that she
retired from her job in reliance on the pension.
Policy Reasons For Reliance
1. The plaintiff was damaged and there is an injustice
2. If plaintiff relied on promise it shows that it was made seriously
3. If there was reliance it shows that it is worth enforcing
In Rickets, she quit her job on reliance of the $2,000 her grandfather promised to
give her. In Allegheny, the college relied on her promise to start a scholarship.
(In both of these cases the court ruled that there was a contract by stretch of other
theories because there was not yet promissory estoppel, nowadays this would have
been enforced through reliance).
In Cohen v. Cowles Media, we saw that the court made sure that there was an
injustice before ruling in his favor through reliance.
In Feinberg, the company unsuccessfully argues that there was no injustice because
she could now just get another job and there would be no injustice, the reason they
were unsuccessful is because she was old and had cancer therefore there was an
injustice.
The company also argued that she didn’t retire based on the pension and she would
have done it anyways, the court relied on her testimony that she did actually rely on
pension.
Restitution as a substitute for enforcement
When the plaintiff cannot prove that the defendant made an enforceable promise,
the plaintiff may seek “restitution” from the defendant if the defendant has been
unjustly enriched at the plaintiff’s expense. The defendant must pay the reasonable
value of any benefit received from the plaintiff.
3 defenses to Restitution
1. The plaintiff was a volunteer. People that benefit others without manifesting
that he expects payment in return.
Why no restitution? because it would be unjust to expect something in return
for a gift.
There is in an exception if it is a professional service like we saw in Cotnam v.
Wisdom.
Another exception is if the services are excessive or burdensome like driving
someone 100 miles to a hospital, but if he just drove a few miles or gave basic
first aid that is a volunteer.
2. Officious intermeddlers: meaning your services were neither asked for nor
needed even if it improves the value of my land.
The reason there is no restitution is because people would just come and
start changing other people’s tires etc. and claim restitution.
3. Plaintiffs with other remedies: restitution is a last resort. Callano
Even though there was an unjust enrichment in that case, which would
normally allow for recovery based on reliance the court did not allow
because Callano had the ability to sue Pendegrast’s estate. (The court also
ruled that they could not recover because they had no dealings with
Oakwood they were hired by Pentegrast and they didn’t expect anything
from Callano)
Moral Obligation as a basis for remedy
generally not enforceable, Mills
1. If there is a gratuitous new promise reaffirming an old debt that is
uncollectable because of
a. statute of limitations
b. bankruptcy
c. infancy
2. In some jurisdictions there is a moral obligation to pay if it is necessary to
prevent an injustice like we saw in Webb, § 86 where he was crippled for
life because he saved the defendant. Most states disagree, Dementas this
is a rare example of where we don’t follow the restatement
Assent
A promise is not binding if one of the parties makes clear that he does not assent to
be bound by the promise. § 21
An objective, reasonable person standard determines this.
We don’t care if one of the parties thinks in their mind that they don’t want to be
bound it must be clear in an objective not subjective manner. Lucy v. Zehmer
The only exception to this rule is if the promisee knows that promisor didn’t mean
it.
This could have been good advice to Mr. Zehmer to either make it clear to Lucy or to
the objective person that he didn’t assent to be bound by his promise.
Offer
Generally, if one wants to prove a contract is valid there must be proof of an offer
and of acceptance.
Defendant will always claim that it was not an offer rather it was preliminary
negotiations, which cannot be considered an offer.
Determining if offer or negotiations
1. In Owen v. Tunison the court relies on precedent when it rules that “cannot
do it for less than” is not an offer but rather preliminary negotiations.
2. In Harvey v. Facey, the court rules that there was no offer because he didn’t
answer both of the questions, he only answered an amount by saying I will
not sell it for less than 900 pounds, but he didn’t say how much he would sell
it for, this is called comparison drafting and it shows that there was no real
offer. (There is another reason it is not an offer and that is because it was a
request for lowest price like we will see shortly).
3. Normally if a vendor gives an unsolicited price quote or a response to the
lowest price that they would be willing to sell for it is not binding unless they
add a language similar to “for immediate delivery” that shows (objectively)
that it is a real offer, Fairmount Glass
4. Advertisements are generally not a real offer because everyone knows that
they are not really subjecting themselves to unlimited liability (if false
advertising laws negate this understanding then it can be considerd a real
offer). We saw an exception in the Lefkowitz case because there the ad made
it clear that they were serious since they said it would only be for the first
person who came.
Acceptance
1. If a promise is being used as acceptance for an offer, there must be notice of
this acceptance communicated to offeror, unless the terms of the offer waive
the requirement of notice. § 56
In International Filter, the acceptance was good, even if there had been no notice
because the offeror waived the notice requirement. (the court says in an
alternate holding that the acknowledgement was notice).
In Corlies, there was no acceptance because Corlies changed their mind before
Tift gave notice of his acceptance, Tift argues that he gave notice because he had
already bought wood and was working on it in his shop the court rules that was
not notice to defendants because that could have been for any job. If Tift had
gone to the office and actually started working there, or sent defendants a note
with his acceptance, that would have been considered notice.
In Green v. Evertite, there was notice before the Green’s changed their mind
because they actually showed up at their house.
2. There is no acceptance when the method is performing an act, until completion of
the entire performance. When the acceptance is made by complete performance
there is no requirement of notice. In Carlill, she completely performed and therefore
there was no requirement of notice.
3. The acceptance must be in a manner permitted by the contract. If the offer
suggest one method of acceptance, that does not preclude other reasonable methods
of acceptance.
In Allied Steel, they argue that their starting to work was not an acceptance because
Ford said that the acceptance would be by an acknowledged copy to buyer, but the
court ruled that this does not exclude other reasonable methods. (of course if Ford
had said that the only way to accept would have been through acknowledged
receipt, then nothing else would have worked.
4. Generally silence is not considered acceptance. § 69
Rationale: because then people would just say: if you are silent I’m buying your car
for $2 and take advantage of people.
Exceptions:
1. Offeree takes service
2. Oferror tells offeree silence can be acceptance and offeree intends to accept.
3. Previous dealings
4. Offeree uses offered property
In Hobbs, silence was considered an offer based on previous dealings and the fact
that the offeree used the goods.
Termination of Offers
1. Lapse of either reasonable amount of time or the time specified in the offer.
2. Revocation of offer by offeror
a. the revocation can come any time before acceptance
b. If there is a binding option contract, then there can be no revocation. E.g. I
was paid $5 to leave the contract open for two weeks I cannot revoke
before the end of the two weeks. This is only true if it is a real contract, in
Dickinson, there was a promise to leave an offer open but it was not
binding because there was no consideration.
c. Revocation is only valid if offeree receives communication of revocation
even if that communication was indirect like in Dickinson.
3. Death of offeror
a. terminates unaccepted offers
In Earle, if the acceptance was his complete performance of coming to her funeral,
then it would not be binding because her death terminates the offer, whereas if the
acceptance was his promise to come, then there would have been acceptance while
she was still alive.
b. no notice required
c. option contract can prevent termination
4. Rejection by offeree
a. rejection= termination of offer
b. counteroffer= rejection and it is considered a new offer
c. purported acceptance that adds qualifications (i.e. I’ll do it if you pay me more) is
a counteroffer (rejection). This is called the mirror image rule, meaning if you don’t
accept exactly as it was offered then it is a counteroffer.
In Minneapolis & St. Louis, they accepted but for a smaller amount, the court ruled
that this is a counteroffer, and they were not able to go back and accept original
offer because they had already rejected it. If they would have just said thank you for
that offer and I’d also like to know what the price would be for a smaller amount,
that would not have been considered a rejection.
Rejection and revocation are effective upon receipt of it by other party.
Mailbox Rule
An acceptance goes by the time of dispatch (even if it gets lost in the mail). A
dispatch of acceptance is binding on both parties, even if the dispatcher calls the
offeror and rejects after the dispatch it would still be binding.
Basically never applies
The offeror as master of bargain can state that offer is only binding upon receipt of
acceptance, thereby defeatoing mailbox rule and most oferrors will do that.
Exceptions
1. If offeror agrees to rejection and cancelation of contract after dispatch it is not
binding.
2. If offeror relies on communication of rejection after dispatch to his detriment
(based on estoppel)
3. It only applies to acceptance not revocations or rejections.
Liability Despite Apparently Failed Negotiations
General Rule is that there is no liability if negotiations fail
1. Breach of implied promise not to revoke offer § 45
In a case of unilateral contract, meaning acceptance by complete
performance if offeree begins to perform the act, then out of fairness there is
an option contract that is created that the offeror cannot revoke his offer.
The reason for this is fairness, what if the day before Hamer turned 21 his
uncle would have revoked his offer? What if you offered to pay someone to
run across Brooklyn Bridge and right before he gets to other side you revoke
the offer?
In a bilateral contract , meaning a promise to perform, the same thing is true
like we saw in Drennan, that the implied promise (this was a promise based
on reliance)of keeping their bid of paving open could not be revoked, even
though there had not actually yet been an acceptance.
Some courts disagree and hold that an offeror can revoke an offer even if the
offeree has relied on it.
2. Breach of Assurances During Negotiations
The reasoning for this is Reliance and the injured party can recover whatever
it lost in reliance on those assurances, this does not cause the contract to be
binding. (This is also enough to overcome lack of definiteness). In Red Owl,
Hoffman was able to recover the rent of his house in the new neighborhood
the value of grocery he sold, but nothing for not receiving the actual store.
3. Breach of Contract to Negotiate in a certain manner
If there was a contract to negotiate in good faith (which is implied in any
negotiation § 205), then if one party did not negotiate in good faith then
there can be liability even though the actual contract they were negotiating
about did not come to fruition.
This is only true if there was actually a contract requiring them to negotiate in
good faith like in Channel, where the letter of intent was binding because of
the consideration that it was valuable to Grossman so he could receive a bank
loan and it was bargained for, but without that contract there is no
responsibility to negotiate in good faith there is only a problem if one
performs in bad faith from § 205
Definiteness
Terms of contract must be reasonably certain to be enforced by the courts. § 33,
Varney told his employee that he would give him a fair share of the profits, the court
ruled that this was too indefinite to enforce because it could mean different things to
reasonable people.
Courts are reluctant to not enforce a contract because of indefiniteness.
In Toys, the mall tried to defend itself by saying that the language of “then prevailing
rate” was too indefinite to enforce, and the court ruled against the mall and found
that it was enforceable.
As we said in Red Owl, reliance can overcome indefinitenes
Chapter 3 The requirement of writing for enforceability
The general rule is that there is no requirement for a contract to be written, we
learned 6 of the exceptions, they are statutorily required to be written they are
referred to as the statute of frauds.
Marriage, i.e. A will pay B $100 if B marries C is not enforceable unless it is written.
Exception: if it is a mutual promise to marry each other, then it is binding even if not
written (many states have passed laws that they will not enforce a promise to
marry)
Year: if fulfillment of even one side of contract must take over a year, then the
contract needs to be written to be binding. i.e. teaching for 4 years must be written
to be binding, but a lifetime contract does not need to be written because the person
may die within the year. Promise to pay money over 4 years does not need to be
written because it may be paid back within a year.
-
If one party has completed his performance, the one year provision of the
statute does not prevent enforcement of promises of the other party.
- If promise will realistically take over a year it is enforceable even without
writing as long as it can be performed within a year. Klewin
- If there is a contract for over a year and it is possible for a contract to be
terminated within a year then there still must be writing i.e. a contract for 4
years but someone could die then it still needs to be written.
Land: must be evidenced by signed writing. If a seller promises to convey deed or
buyer promises to purchase it is not enforceable unless evidenced by signed writing.
Special cases
- seller has conveyed deed (this is enough evidence)
- buyer has done a part performance i.e. actually moving in or doing renovations if
the buyer has relied on the promise to sell § 129, Richard (payment is not enough)
Executors promise to pay the debts of decedent’s estate
Goods that have a value of over $500
Surety: promising to pay someone else’s debt i.e. a parent promising to pay if son
doesn’t make payments on his new car.
But, if they themselves are receiving benefit then this is not subject to the surety
clause, because they are not paying someone else’s debt the surety clause can only
be between the debtor and creditor. Langman
Requisite of Writing and Signing
Essential terms signed by the “party to be charged” Lucy v. Zhemer, if Lucy had
signed and not Zehmer that would not have been good enough
If paper signed is lost that does satisfy statute of frauds as long as the jury believes
the story
Electronic records are good writing
Relation to other requirements
Just because you signed a contract it doesn’t mean that it is binding unless it meets
other requirements i.e. consideration or equivalent plus offer and acceptance
Possible ways plaintiff may recover even if defendant did not sign a writing as
required by statute of frauds
1. Restitution § 375
2. Equitable estoppel meaning if someone says that he signed an offer he cannot
later claim that he didn’t if plaintiff relied on that assertion
3. Promissory estoppel § 139, Monarco only about 20 states accept this
We saw that promissory estoppel can overcome consideration requirements
and lack of definiteness some say that it can overcome statutes of fraud as
well.
In Monarco he gave up his life to work on the farm
4. Part performance, Richard
Policing the Bargain
Situations where the law will not enforce a contract even though there was a
bargain and consideration and offer and acceptance etc.
1. Infancy
 A person is considered an infant until the day before they turn 18.
 An infant has the ability to void a contract until a reasonable amount
of time after he turns 18. This is only a one way street, the contract is
valid unless the infant voids it, and only the infant can void the
contract not the other party.
 The infant must return the item he bough if he voids a contract, but he
does not have to pay restitution if the item is worth less now because
of passage of time or because something broke, like the engine block
in Kiefer v. Fred Howe motors
 An emancipated minor would have to pay restitution (for reasonable
value not contract price) for necessary items like food and clothes
2. Mental Infirmity
There are two types of mental infirmity that can lead to a voidable contract
§ 15(a) the person is unable to understand the nature and consequences of the
contract
§ 15(b) he can understand but he is unable to act in a reasonable manner in relation
to the contract and the other side knows this
3. Duress
 This needs to be an improper threat that leaves no reasonable alternative.
 Examples of improper threats are any crime or tort.
 If I had a reasonable alternative like calling security that would not void the
contract for duress, however in a dark alley that would be real duress.
 If I just did it because I needed the money, that is not duress because there
was no threat
A second example of duress is if what is threatened is a breach of the duty of good
faith and fair dealing under a contract with the recipient § 176 (1)(d)
For example if after you agree to go to law school and agree to pay tuition they come
to you in August and say that you need to pay another $2,000 (if it would have been
Decemeber the law school can defend themselves by saying that you had a
reasonable alternative).
This was an improper threat (not allowing you to come to school without extra
money is a breach of good faith) and under duress.
Another possible defense for that case would be the preexisting duty rule, meaning
that there was no consideration for the second promise to pay that extra $2,000.
Another example is in Alaska Packers, where the fishermen wanted more pay then
their original contract or they wouldn’t work and there was no way the company
could find new workers. There was no consideration for that second promise they
already were obligated to work. That is one defense based on preexisting duty rule,
but there was also a second defense available to them, which was that it was duress
and the improper threat was that they would not perform their work in good faith.
If two parties have formed a bargain, is a subsequent promise by one party to do
more or pay more enforceable?
1. No, If induced by duress § 175 (1), 176(1)(d)
2. No, if no new consideration preexisting duty rule (Alaska Packers)
(this is called the preexisting duty rule)
3. Yes, if original agreement cancelled, Schwartzreich this is called Recission
4. Yes, if changed circumstances (modern modification rule or partial recission)
Watkins § 89 (about 12 states)
There is a seeming contradiction between Alaska and Schwartreich, why can’t the
fishermen say that the first contract was cancelled?
That is why some states allow the modification rule, that if it is reasonable under the
changed circumstances to pay more like in Watkins where there was rock, we would
make the defendant keep his promise.
In the Watkins case if Carrig had not made his new promise, Watkins would have
had to finish the job as stated in the contract.
5. Fraud
1. A promise is voidable if it is induced by
- A material or fraudulent misrepresentation (not opinion /puffing)
- An active concealment of facts, or
- Half-truth
On which the promisor was justified in relying on § 164(1), Kannavos
2. A bare nondisclosure of facts by the promisee does not make a promise
voidable, Swinton, unless
- A statute requires disclosure, or
- The promisee has a confidential relation with the promisor requiring
disclosure,§161(d)
In Swinton, the bank did not tell him that there were termites in the house.
If there was an active concealment on the part of the bank like covering the walls, or
if there was a half truth, like saying that they had the house checked for termites
without saying that there were termites then the contract would have been
voidable.
If Mr. Swinton would have asked, the bank would have been obligated to answer
honestly.
Many states now have enacted statutes that require disclosure of termites.
If Mr. Swinton’s lawyer had sold him the house the contract would have been void
because of their confidential relationship.
In Kannavos, the seller went beyond bare non-disclosure and started describing the
house and saying that there were 8 bedrooms etc. therefore, that contract was void
because it is a half truth.
6. Mistake
Mutual Mistake §§ 151, 152, 154
1. Mistake of fact (not incorrect prediction)
This is something that the parties will always argue about, the plaintiff will claim
that it was a real mistake of fact and the defendant will respond that there was no
real mistake you just made a bad prediction.
2. Mututal (i.e. made by both parties)
The traditional rule is that if there is a mistake by only one party that is not a basis
to void a contract.
The modern rule that is followed in about half the states is to allow recovery for a
unilateral mistake under § 153 if the enforcement of the contract would be
unconscionable this is a much higher standard then the standard by mutual mistake.
3. “basic assumption”
4. material effect
If the sale was for 1,000 acres and it was really 999 and a half that is not material
enough to void a contract.
5. affected party does not bear risk of mistake
§ 154(a)(b) if the risk is allocated by agreement or if he is aware at the time of the
contract that he only has limited knowledge and he considers it sufficient then that
is not grounds to void the contract for a mistake.
(c) The court may allocate the risk to one party on the grounds that it is reasonable
to do so.
For example the court may decide in a jewelry sale that the jewler should bear the
risk of the mistake, or that a builder should bear the mistake if the land is quicksand
or an excavator if the land is solid rock.
Denying Specific Performance
Even though we normally do not look at the substance of the contract, if the plaintiff
is suing for specific performance then we may look at the substance do determine if
it is fair.
Two (of many) grounds for denying specific performance/injunction even if
contract is enforceable
1. Damages would be an adequate remedy. § 359(1), 360
2. The exchange was inadequate/ unfair. § 364(1)(c); cf. § 79(b)
In Mckinnon, damages were not adequate because it was a view and tranquility but
there was no specific performance because the deal was unfair because all Benedict
received was interest on the loan worth $145 and they were giving up the right to
use their land.
When specific performance is awarded
 One classic case where specific performance is awarded is if the item is
unique like an original painting because money will not be able to replace
it or something similar like having a beautiful view of water and you had
a contract that the other guy would not build and he broke it, there
money would not be sufficient.
 Another case where we would award specific remedies is if it was land
because that is considered unique.
In Tuckweiler, the estate had to give the farm and could not just give her
money because it was land.

Also, if someone has no money, the court may award an injunction to stop
him from what he is doing.
Promises that are unenforceable based on public policy
1.
If someone makes a contract to commit a tort it is unenforceable on
PP grounds
2.
If someone makes a contract not to get married it is unenforceable on
PP grounds
3.
The courts can discern new categories
In Busch, they tried not to fulfill their contract because they argued
that Hoover was profiting unfairly of the government during war time,
the court did not accept this argument.
Avoiding exculpation clauses in adhesion (and other) contracts
 just being an adhesion contract is not a defense you must keep an
adhesion contract if you sign it
 it is not a defense to say that I didn’t read my contract
1.
Strict construction
 This is the first thing to look at to get your client out of a contract.
 If there is an ambiguity it goes against the drafter of the contract.
 In Galligan, the landlord had to pay for negligence even though the contract
said that they are not liable for negligence on the sidewalk because the
tenant got injured on the lawn
2.
Adequate Notice
In this argument, the defendant claims that he didn’t know he was getting into a
contract and he didn’t assent to it.
For example lets say a restaurant writes a contract on a napkin that is not adequate.
In Klar, a parcel service wrote on their claim tickets that they would not be liable for
more than $25 and he lost $1000. He is successful in claiming that there was no
notice that he entered a contract, he thought that it was just a number to identify his
parcel.
This case would only win once because from now on the parcel service will put up a
big sign saying that everyone has to read the contract on the ticket.
3.
Public Policy
In O’Callagan, the tenant tried to get out of an exculpation clause based on a disparity of
bargaining power because of shortage of apartments to rent. The majority of the court did
not accept this argument
In Hennigsen, the court ruled that for public policy reasons, a car maker cannot get
out of an implied warranty of merchantability when a steering wheel comes off of a
car. This is because we don’t want the overreaching of the party with the economic
power. This goes directly against the ruling that we just saw in O’Callagan and the
majority of modern courts go with O’Callagan but they would have still made
Chrysler pay based on the next rule of unconscionability.
4.
Unconscionability
In practice it is mostly used to invalidate attempts to exclude liability for personal
injury.
We don’t use it for ATM fees or movie tickets or tuition
5.
Statutes Regulating the substance of contracts
Remedies For Breach
How will the courts actually enforce an enforceable contract?
If it specified in the contract what the remedies are, that is called liquidated
damages we will discuss that later now we are talking about if nothing is specified in
the contract.
1. There can be specific performance for contracts about land or something
unique like art work
 Specific remedies are not available if damages would be adequate
 We don’t allow specific remedies if the contract was unfair
2. Monetary Damages
You can always get money for a breach of contract.
Possible Measurements of monetary judgments
1. Expectation Damages
This is the interest of making the plaintiff in the position as if the contract was
performed.
See restatement 347 and the equation for figuring this out,
It is loss in value and other losses minus costs avoided and other losses
Usually a plaintiff will pick expectation damages because it pays the most money.
2. Reliance Damages
Any loss incurred in reliance of this contract. In a contractor case that would be the
down payment plus any loss of profits
3. Restitution
Restoring any benefit conferred no the other party, so if it was a contractor who
broke his word, the restitution would be the down payment that his client paid him.
4. Nominal
The AFL won a suit against the NFL that they didn’t allow them to advertise but they
couldn’t prove their damages with certainty, so they won nominal damages (plus
lawyer fees) which are just a moral victory it is only a dollar or six cents
5. Liquidated
These are damages that stipulated by the parties in the contract rather then left to
calculation by court.
If they are a penalty, then liquidation damages are unenforceable.
Liquidation damages are considered a penalty when unreasonably large in light of:
a. actual or anticipated loss
b. difficulty of proof
liquidated damages are not limited by avoidability
Plaintiff
If plaintiff tries to argue that liquidated damages are unreasonably small like Mrs.
Hennisen did when all she was allowed to get according to the contract was a new
steering wheel, then she must satisfy a higher standard the liquidated damages have
to be unconscionable.
Limitations on Remedies
1. Avoidability
If you hire a contractor to fix your building and he breaks the contract you cannot
collect damages forever, you must look to hire a new contractor and if you could
have and you don’t then D doesn’t have to pay anymore.
In Virtue v. Bird, the court didn’t allow him to collect for the death of his horses
because he should not have left them out in the sun, that damage was avoidable.
In Rockingham, the building company could not recover for all of building that they
did after the repudiation of the contract by the county because they should have
stopped working and that loss was avoidable.
If an employer breaks a contract with an employee for how many years they would
work, the employee can recover based on a doctrine called constructive labor.
Some courts disagree with this because it leads to idleness.
The modern view is that you can include constructive labor in damages as long
as you cannot find a comparable substitute after using reasonable efforts, but
if you can find comparable employment and you don’t then there is no
recovery because your losses were avoidable
It must be comparable, if the employee was a full professor and now the only job he
can find is a teaching assistant he does not have to take that job.
In Parker v. Fox, she was offered a different movie after they broke her contract for
one movie and she won full damages based on constructive labor because it was a
different type of movie she had less control over it and it was far away.
The studio tried to argue that the work was comparable it was an acting job.
2. Incomplete/Defective Performance
Another limitation to damages (based on avoidability) is that if the breaking of the
contract was merely that the D didn’t finish the job, or if he completed it defectively,
then instead of paying the enormous loss to the plaintiff of not having a factory, all
the plaintiff has to pay for is cost of completion.
This can be figured out in 3 ways
1.
loss in value to plaintiff
This will be difficult to prove with certainty
2.
loss in market value
3.
cost to complete
This has a limitation that cannot be disproportionate to what it is worth
to the plaintiff
In Jacob & Young v. Kent, the builder put in a different brand pipe then what was
stated in the contract.
The court ruled that 1 was not provable, 2 was nothing, and 3 was too
disproportionate and therefore he didn’t recover anything for the breach.
The court made a similar ruling in Peevyhouse, when the mining company didn’t
restore the land to the way it was supposed to be and the court did not let them
recover the cost to complete because it was disproportionate to the value to the
plaintiff.
The reasoning behind this is that we just want to make the plaintiff back to his
original position and if he would pocket the money and not do the repairs we are
not going to make D pay for that. The problem is that there is no major penalty on
behalf of P for breaking contract.
In Groves v. John Wunder, the court ruled the exact opposite of the last two cases
and said that Wunder would have to pay the full $60,000 to refill the land even
though at that point it would only be worth $12,000.
3. Unforeseeability
If someone made a contract to take someone to the airport for a flight and they
broke that contract, they would only have to pay foreseeable damages like a change
fee for missing the flight, not unforeseeable damages like $45,000 he lost for missing
a business meeting.
In Hadley v. Baxendale
The company did not have to pay the full 300 pounds for being late with returning
the millshaft because those damages were unforeseeable. If the shipping company
would have known about it, they would have been liable.
4. Uncertainty
There are 3 things that can be uncertain and limit damages
1.
fact of loss
In Collatz, there was no proof that he would have won the competition had it been
done fairly.
He could have recovered based on reliance for taking off of work or a hotel stay or
anything like that
2.
extent of loss
In Fera, the mall breached its contract they had to prove how much they lost
because they didn’t get to open their store they brought witnesses to say how much
money they could have made had they opened the store.
Professor Maggs said that they could have defended themselves with avoidability,
why didn’t they open the store somewhere else?
3.
value of loss
If someone has a contract for a limo to take them to the prom and the limo breaks
down, there is a loss but there is no way to prove it
Efficient Breach
This means that sometimes it is financially worth it for a defendant to breach a
contract and pay damages instead of performing.
We saw this with Berkely that it was worth it for them to sell The Hunt For Red
October early and pay damages because they could make $100,000 profit and only
pay the Naval Institute $40,000 for their damages of diminished hardcover sales.