Hunter Carrell
Prof. Talley
Contracts
Table of Contents
Introduction ........................................................................................................................................................... 2
Remedies ................................................................................................................................................................ 3
Money Damages................................................................................................................................................... 3
Expectation and Reliance .............................................................................................................................. 4
“Many Markets” and the UCC .................................................................................................................... 5
Aggrieved Buyers and the UCC ....................................................................................................................... 7
Limitations on Expectation (sometimes reliance) (LVS) ........................................................................... 9
Foreseeability ................................................................................................................................................. 9
Certainty ....................................................................................................................................................... 10
Avoidability/Mitigation ............................................................................................................................... 11
Aggrieved Seller/LVS .................................................................................................................................. 12
Restitution .................................................................................................................................................... 13
Limiting Damages by Contract (LD) ......................................................................................................... 15
Specific Performance and Equitable Relief .................................................................................................. 17
Land .............................................................................................................................................................. 17
Goods ............................................................................................................................................................ 17
Injunctions.................................................................................................................................................... 19
Tortious Interference ...................................................................................................................................... 19
Formation ............................................................................................................................................................ 20
Mutual Assent .................................................................................................................................................. 20
Objective Theory of Offer/Acceptance – instantaneous .......................................................................... 20
Invitational Talk .......................................................................................................................................... 22
Preliminary Agreements, “Agreements to Agree” ................................................................................... 23
Timing and Technical Issues ...................................................................................................................... 25
Instantaneous Communication ................................................................................................................... 26
Mailbox Rule ................................................................................................................................................ 27
“Statute of Frauds” and Writing Requirement ........................................................................................ 28
Special Rules w Acceptance ........................................................................................................................ 29
Verbal/Written Acceptance (mirror image, last shot, BoF) .................................................................... 29
Acceptance by Performance or Unilateral Contracts .............................................................................. 35
Acceptance by Silence/Implied-in-Fact ..................................................................................................... 37
Consideration................................................................................................................................................... 38
Legal Benefit/Detriment and “Bargain Theory” ...................................................................................... 38
Past/Moral Consideration ........................................................................................................................... 39
Preexisting Duty Rule and Modification ................................................................................................... 40
Adequacy of Consideration......................................................................................................................... 41
Exceptions (PE) ............................................................................................................................................ 41
Ceremonial Consideration and Option Ks ................................................................................................ 43
Defects in Formation ....................................................................................................................................... 43
Fraud/Misrepresentation ............................................................................................................................ 44
Duress ........................................................................................................................................................... 46
Unconscionability......................................................................................................................................... 47
Public Policy: Arbitration and NDAs ........................................................................................................ 48
Obligations and Breach ...................................................................................................................................... 49
Construction/Interpretations of Duties ......................................................................................................... 49
Gap Filling: GFFD and Best Efforts .......................................................................................................... 49
Interpreting Express Language .................................................................................................................. 51
Parol Evidence Rule .................................................................................................................................... 54
Exceptions to PE Rule ................................................................................................................................. 55
Contract Excuses/Implied Conditions ........................................................................................................... 55
Mistake ......................................................................................................................................................... 56
Changed Circumstances.............................................................................................................................. 59
Breach and Repudiation ................................................................................................................................. 60
Material/Total Breach ................................................................................................................................. 60
Material Breach and UCC .......................................................................................................................... 62
Introduction
What is a contract? A legally enforceable promise, written or otherwise
Law concerned with whether, when, and how the state will use its coercive authority to enforce them
Sources of Contract Law
Statutory – Uniform Commercial Code (UCC) for goods and others (state civil codes, CISG, E-SIGN)
Common – case law, precedents, “judge-made,” Restatement 2nd
Black-letter law not always helpful; self-limiting – need to rely on policy/theory/intuition
Difficulties:
Over-determinacy: no choices left so rules must be disregarded
Under-determinacy: unable to choose
Indeterminacy: interpretation needed
Policy Commitments (not licenses to throw out rules)
Retributive Justice: impose public sanctions on those who break promises
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Corrective Justice: repair those who detrimentally relied on other’s promise(s); seen with
expectation damages
Economic Efficiency: induce efficient/welfare enhancing decisions in commercial nlkn
interactions; insurance for risk-taking; efficient breach
Distributive Justice: to use law as means of minimizing inter-personal inequality in
opportunities/resources; respective bargaining power and levels of sophistication relevant; who is
best to bear risk
Policy goals
Determine whether a promise is worthy of state enforcement as a contract
Offer/acceptance, consideration, mistake, fraud
Protect those who rely on others’ promises; promissory estoppel, fraud/misrep
Provide a vehicle for redistribution/fairness
unconscionability, economic duress, incapacity
enabling/catalyzing efficient commercial transactions
remedies, interpretation doctrines, evidentiary rules
Contracts volitional and multi-dimensional
Voluntarily entered into and constraints on one aspect may affect another
Default vs. Immutable Rules
Default – background rules that permit parties to change with express contractual terms; if nothing
is stated, the court will just default
Immutable – parties unable to contract around them; may have concerns over rationality or power
imbalance and want these rules; easier to predict and rule on in court
**Distinction on a continuum based on price of contracting around the rules**
Remedies
Money Damages (Restatement §344) rules to protect one or more of these interests
Expectation:
• Put aggrieved (non-breaching) party in
the position she would expect to be in
had the breaching party performed
Reliance:
• Put aggrieved party in position she was in
immediately before she entered into
contract
Restitution:
• Make breaching party return the value of
any benefits he has received from the
non-breaching party under the contract
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Expectation and Reliance
a.
Expectation
Rest. §347 – put aggrieved in position she would expect to be in

Benefit of the bargain

Typical remedy in contracts cases bc advantageous

NOTE: Expectation damages are typically larger than reliance damages bc

b.
c.

Rational actors only enter contracts they will be better off having
entered
[Complicated if market conditions change or if actor
miscalculates]

Includes expected profits
Reliance Restatement §90 – put aggrieved in position immediately before contract

Interest in being reimbursed for any loss caused by relying

How much did they expend in preparation?

NOTE: courts sometimes use to measure expectation bc easier to calculate
Restitution – make breaching party return any benefit conferred

Interest in restoring any benefit he has conferred on the other

NOTE: separate remedy apart from contract but often seen w deposits
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d. Hawkins v. Mcgee – expectation damages the presumptive remedy; difference

Doctor botched surgery on hand resulting in “hairy hand”

Awarded difference between hairy hand and 100% good hand

UCC §1-106 for goods
e. Sullivan v. O’Connor – may seek expectation or reliance damages
f.

Doctor botched nose job and patient sued

Awarded reliance damages inc pain and suffering and expenses
Restatement §347 – right to damages based on expectation:
Loss in value caused by other party’s failure + incidental and consequential loss –
cost or loss avoided by not having to perform
*** incidental: clerical costs for dealing with breach (searching for new)
*** consequential: dominos falling from breach (extra injury)
g.
UCC §1-106 – aggrieved to be put in a position as if it had been performed
h. How to value damages:

Economics: wages, medical costs, tables

Non: willingness to pay/accept, insurance premia
“Many Markets” and the UCC
When to use the UCC?

Hooker approach: if mixed services and goods, and dispute arises out of
goods, use the UCC; if out of services, use Restatement

Center of gravity: look at contract and see how much $ is devoted to goods vs
how much to services
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a. A good under UCC §2-105: “moveable things” other than money and things in action
b. Hooker & Sons v. Roberts – if dispute in a mixed goods & services contract arises
out of services, adjudicate under the Restatement

Contract in which D would make cabinets but contract didn’t specify who
would dispose of the old cabinets

Bc dispute didn’t concern the goods, improper to use UCC + storage costs not
included bc they would have been incurred anyway (expectation damages)
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Aggrieved Buyers and the UCC
c. Relevant UCC
 §2-711 Buyer’s Option to Cover – where the seller breaches, B
may either: a) “cover” and have damages (2-712) as to all goods
affected or b) recover for non-delivery (2-713)
 §2-712 “Cover;” Buyer procures substitute goods – after
seller breaches, B may “cover” by making in good faith and
w/out unreasonable delay any reasonable purchase or contract
to purchase goods in substitution **failure to doesn’t
preclude recovery**
Cost of Cover – K price +inc/conseq – costs/loss avoided
 §2-713 Buyer’s Damages for repudiation – measure of
damages (mkt price determined at place of tender or place of
arrival if goods rejected after arrival or acceptance is revoked)
Mkt Price when B learned of breach – K price +
inc./conseq. – expenses saved
d. KGM Harvesting v. Fresh Network – when buyer covers, can apply 2-712
 P (seller) contracted w D (buyer) to deliver lettuce; when prices rose, KGM sold
to 3rd party and D refused to pay for lettuce it received; able to cover for some
 Seller argues 1-106 applies and only lost profits should be given
 Ct chooses 2-712 and awards difference in cover and K price + inc/conseq- loss
avoided; **not always followed; sometimes lost profits**
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e. How to calculate market valuations
 Prefer them bc administrative ease and hedonic damages may overcompensate the plaintiff
 Can be problematic when the item or service is not fungible or is unique
 Problematic when there is no developed market (Hawkins)
 Problematic when there are too many markets
Which market to use? Repair vs. Replace
Restatement §348 – “Economic Waste Doctrine”
If breach results in defective or unfinished construction and loss in value
to injured party is not proved w sufficient certainty, injured party can claim
damages on EITHER a) the diminution in market price of property OR b) the
reasonable cost of completion or remedying breach SO LONG as this cost is not
clearly disproportionate to the probable loss of value to him


Groves v. John Wunder Co. – so long as no economic waste, can award cost of
remedying breach (minority ruling)
D leases land from P and promises to levy ground after excavating but doesn’t
Cost of regrading $60K and resale value $12k
Took bad faith into account in rewarding damages
Peevyhouse v. Garland – if provision breached is merely incidental to main
contract and economic benefit of full performance is grossly
disproportionate to cost of completion, then remedy ltd to diminution in
value
D contracted with P for strip-mining with promise to restore land and didn’t
Ordinary damages would be cost of completion ($29k) but incidental and
grossly disproportionate so diminution in value appropriate ($300)
Could have argued special performance and then settled
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Limitations on Expectation (sometimes reliance) (LVS)
Foreseeability
Restatement §351 Unforeseeability – damages are not recoverable
for losses breaching party did not have reason to foresee as a probable result
of breach at time of contracting – expectation damages ltd to only those:
1)
Arise naturally in the ordinary course of events OR
2)
As a result of special circumstances breaching party had reason to know of
**may limit damages by excluding lost profits, limiting to reliance or
otherwise to avoid disproportionate compensation**

Hadley v. Baxendale – w/out communicating special circumstances, damages
limited to those foreseen
P were millers that needed to send a broken crankshaft to a mfr and D did not
Bc it wasn’t sent, mill couldn’t open and P suffered – D was unaware
Bc D wasn’t informed of this circumstance, P was unable to recover for this
Expectation damages ltd to those 1) arising naturally and
2) w/in contemplation of both parties at time of
contracting as a probable consequence of breach
**could contract around #2 by being specific**
**usually sufficient to show D was put on notice**

COMPARE Martinez v. Southern Pacific – recoverable if damages foreseeable
D delayed delivery of parts of P’s dragline; P wants costs of delay
Reversed M to dismiss bc foreseeable from dragline’s inherent value it would
be injurious to be missing parts
** Takeaways: Foreseeability is judged at time of breach, by an objective (reasonable person) standard,
and where the kind and size of damages are both subject to foreseeability. Must be probable (51%)
consequence, not most likely or certain. Cts often want hard evidence
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Certainty
Restatement §352 Uncertainty – damages not recoverable for loss
beyond what the evidence permits to be established with reasonable certainty
**usually affects lost profits so many switch to reliance damages**
R §349 – alternative to 347: expenses in preparation for performance
– loss party in breach can prove would have been suffered regardless
(expectation cap on reliance damages)
**don’t need to prove a specific number but just est above 0;
applies at time of litigation**
Restatement §346 Availability of Damages – injured has right to
damages for breach by a party against whom contract is enforceable unless
the claim has been suspended or discharged **if the breach caused no loss, a
small nominal sum will be awarded** **default-can name spec. #**

CCC v. Dempsey - if unable to establish w reasonable certainty, unrecoverable
D contracts w P to box in a match with another box, but breaches
Ct limits damages to those incurred after signing w D in reliance, but
excludes lost profits bc uncertain


Ways to prove certainty:

Analysis of comparables – prior ventures

Survey responses of “experts”

Discounted cash flow analysis i.e. projected revenues

“securitization” of the event i.e. insurance/securities markets
Anglia Television v. Reed – when unable to calculate expectation, can be held
liable for pre-contractual reliance if foreseeable
P spent a lot in preparation for a film before singing D, who then breached
Held liable or all pre-K expenses bc reasonably foreseeable they would wasted
Ltd by certainty doctrine in establishing expectation damages i.e. lost revenue
Very short amount of time between contract and breach (days) plays role
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
Security Stove v. Am Railway – reliance when 1) value of performance
uncertain and 2) reasonable to assume contract would have been above 0
P needed to show furnace at a trade show and D failed to ship it in time
Uncertain if any profits would have resulted so able to recover for expenses
Policy rationale allowing P to recover something
Avoidability/Mitigation
Restatement §350 Avoidability – 1) except in (2), damages are not
recoverable for loss the injured party could have avoided without undue risk,
burden or humiliation 2) injured party is not precluded from recovery by (1)
to the extent they have made reasonable but unsuccessful efforts to avoid loss
Policy – don’t want P to deliberately run up costs and drain D

Rockingham Cty v. Luten Bridge – unable to recover if avoidable
D contracted with P to build a bridge; they breach and P continues to build
Unable to recover for these avoidable expenses – should have stopped

Parker v. 20th Century Fox – not required to mitigate by taking inferior role
D hired P to star in a movie but repudiated and offered a different role
Deemed different and inferior, so not required to take it
**if accepted, then no longer seen as different or inferior**
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Aggrieved Seller/LVS




Sellers different from buyers bc they could be in the process of manufacturing
Market price used at the time of the breach
Option to sell to scrap market, locking in price
Deposit is made & buyer breaches, seller can keep smaller of $500 or 20% of K
UCC §2-718 Liquidation of Damages – if no liquidated damages
provision, then seller can keep the smaller of $500 or 20% of K price (not
exclusive bc UCC §1-305)
UCC §2-708(1) Seller’s Damages – for non-acceptance or
repudiation, seller gets [K price] – [mkt price] + conseq/inc – loss avoided
** (2) IF this is inadequate to put seller in as good a position, then
damages are lost profits + conseq/inc

LVS
Neri v. Retail Marine Corp. – LVS so able to recover for lost profits under UCC
P paid deposit for a boat he was buying from D but repudiated
Ct gives D value of profits and incidentals bc otherwise would be inadequate
LOST-VOLUME SELLER – excess inventory + limited demand
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
Not codified in UCC but in common-law so has also been used in nongoods cases and for lost-volume buyers; P bears burden of proof
normally but courts have also presumed it applies (shift to D)
Restitution
Value of benefit transferred to breaching party to unwind the contract due to
“unjust enrichment” – material/total breach or excuses/defects (i.e. fraud)
**no expectation cap on these so good for losing contracts**
Elements of Restitution (Quantum Meruit)

Benefits cannot be gratuitous (gifts)

Benefits cannot be officious (forced)

Benefits must be measurable/quantifiable
UCC §2-711 – where seller fails to make delivery, repudiates or the buyer
rightfully rejects or justifiably revokes acceptance, buyer may cancel and
whether or not he has done so may in addition to recovering so much of a
price as has been paid a) cover and have damages under 2-712 or b) recover
damages for non-delivery as under 2-713
Restatement §373 – on a breach by nonperformance that gives rise to a
claim for damages for total breach/repudiation, injured party entitled to
restitution for any benefit he’s conferred on other party by part performance
or reliance; injured party has no right if he has performed all duties under
the contract and no performance by the other party remains other than $
**cannot seek restitution to disgorge gains that result from party’s breach**
**must be benefits that flowed from injured party that they “lost”**
Partial Performance by party in breach: either 1) bring breach of contract to get
damages or 2) call off deal/rescind and tender back what you’ve received

Bush v. Canfield – if conferred benefit and party breaches, able to recover it
P contracted with D to deliver flour and paid $5000 deposit
Upon breach, sued for deposit and won – put parties back
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Restitution as Credit for Breaching Party
Restatement §374 in favor of breaching party – if a party refuses
to perform on the ground his duties have been discharged by the other party’s
breach, the breaching party is entitled to restitution for any benefit he has
conferred by part performance or reliance in excess of the loss caused by his
breach; if a party’s performance is retained in the case of breach and is
reasonable, then no restitution
**If breaching party seeks to recover a sum representing the services
rendered to the other party, this is more difficult and will be held against him
bc he is the breaching party.
**Recovery cannot cut into non-breacher’s expectation damages**

Britton v. Turner – able to seek restitution when received no compensation
for work performed even if breached
P entered contract to work for D for a year but then left after 9.5 months
Ct holds D needed to pay for the work it received even if P did leave early
**default rule-could have been prevented**
Quasi-Contract
Where one party is incapacitated and the services rendered are professional
Contract read in where one doesn’t exist
Non-officious req. relaxed but still must be non-gratuitous and measurable
**if doing something unnecessary or not in your trade, no recovery
Restatement §371 Restitution Measure – measured by either a)
reasonable value to other party of what he received in terms of what it would
have cost him to obtain it from person in claimant’s position or b) extent to
which the other party’s property has been increased in value of his other
interests advanced **party normally allowed the more generous value if
seeking for part performance, so long as its not difficult, except when he
breached (§374 )… in the case of emergency services, restitution of
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additional wealth will outweigh expense saved and then recovery is ltd to the
smaller

Cotnam v. Wisdom – can be compensated for performance when one
party is unconscious and no formal contract made
P performed emergency surgery on deceased who never consented and died
Able to recover for performance as if contract bc he would have agreed
Not able to consider ability to pay for services
Limiting Damages by Contract (LD)
**If not stated as exclusive remedy then only an option**
i. usually express terms setting $$ for a breach
ii. alterations that can be made to the default monetary damages rules: damages
caps and limitations, stipulated damages, specific performance provisions
iii. Restatement
§356 liquidated damages – may be liquidated
damages in the agreement but only at a reasonable amount in light of the
anticipated or actual loss caused by breach and the difficulties of proof of
loss; if unreasonably large, will be unenforceable on public policy as a penalty
iv. UCC
§2-718 (1) may be liquidated in the agreement but only when
reasonable in light of anticipated or actual harm caused by breach, difficulties
of proof of loss, AND inconvenience/nonfeasibility of otherwise obtaining an
adequate remedy; if unreasonably large, void as penalty
v. UCC
§2-719 agreement may provide for remedies in addition to/in
substitution of those provided in this Article; may limit/alter measure of
recoverable damages and resort to a remedy as provided is optional unless
the remedy is expressly agreed to be exclusive, making it the sole remedy;
where circumstances cause an exclusive or ltd remedy to fail its essential
purpose, remedy may be had as provided in this Act [some circumstances may
void remedies]; Consequential damages may be ltd or excluded unless the
limitation or exclusion is unconscionable. Limitation of consequential
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damages for injury to person in the case of consumer goods is prima facie
unconscionable but limitation of damages where the loss is commercial is not.
vi. Hadley rule – only get general damages unless you contract for
consequential (1 – arise naturally; 2 – are within contemplation of both
parties at time of contracting as probable consequence of breach)

Biotronik v. Conor – lost profits can be general damages if flow directly
from contract – clause restricting to only general
Lost profits can also be seen as consequential damages
Selling of heart stents w profits and prices based on sales – clause
restricted damages to purely general damages
vi. Stipulated Damages
presumption liquidated damages are valid; expressed in contract
uncertainty and unforseeability helpful here! *watch out for avoidability
reasonability measured at time of contracting OR breach –
party seeking to invalidate the provision has burden of proof

Wassenaar v. Towne Hotel – if reasonable and enforceable, LD upheld
Employment contract for 3 yrs, w provision to pay full salary, then fired
Weighed reasonableness and avoidability (concerning damages only)
Burden of proof of unreasonableness on the one trying to invalidate LD
Penalty doctrine – doesn’t apply to amounts unreasonably small
Applies to parties uniformly to all parties
**Difficulty of Ascertainment test:
1) Difficulty of producing proof of damages at trial
2) Difficulty of determining what damages the breach caused
3) Difficulty of ascertaining what damages the parties contemplated
when they contracted
4) The absence of a standardized measure of damages for breach
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5) Difficulty of forecasting at time of contracting all of the possible
damages which may be caused or occasioned by the various possible
breaches
**Court does not consider proof of actual loss or avoidability
once the provision has been deemed enforceable**

Lake River v. Carborundum – [Posner’s drum solo] on the dangers of
penalty being immutable
Penalties call for performance, making more beneficial deals and parties
more credible
Paternalistic to not enforce these clauses; putting in an LD clause already
requires the parties to weigh the costs and benefits
Specific Performance and Equitable Relief
**traditionally disfavored; MUST SHOW no adequate remedy at law and SP would be feasible/practical**
Modern test: available only in cases where withheld performance is unique, hard to replace, remedy at law
inadequate
GOODS – non-uniqueness presumed LAND – uniqueness presumed PERSONAL SERVICE – strong
presumption against
Land
a. All land seen as unique; plots of land then seen as non-fungible or non-substitutable
b. SP the presumptive remedy and burden on D to prove its not unique
c. Loveless v. Diehl – land is unique so SP of an option is adequate remedy

D given option to buy land from P, who make improvements to the land
before P forces them to leave land

Upheld option contract (SP) bc land was unique and sentimental

Even if seller, can still get SP (even if “put” option)
Goods
a. Law presumes non-uniqueness so against SP; aggrieved must prove uniqueness
b.
UCC §2-716 Buyer’s right to SP – may be ordered where goods are unique
or in other proper circumstances; may include terms such as payment of price,
damages, or other relief; buyer has a right of replevin for goods identified if after
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reasonable effort he is unable to cover for goods or circumstances reasonably
indicate effort will be unavailing
c. Scholl v. Hartzell – SP denied where Corvette was not considered unique

D selling used collector’s Corvette in newspaper and P put down $

Adequate remedy at law and justice didn’t require SP; not unique
d. COMPARE Sedmak v. Charlie’s – SP granted bc obtaining similar would be expensive

P was going to purchase a limited edition Corvette from D and specified
features of it, making it unique

Would be difficult to cover without considerable expense

Does not have to be one-of-a-kind “unique” ****
e. Traditionally seen as immutable with courts having leeway; however, contracts
frequently include whether SP is allowed and courts have tended to include this
(sticky default) parties rarely allowed to shrink court’s jurisdiction
f. Sellers and SP – “action for the price” UCC §2-709
If no re-disposition market exists (seller cant re-sell after reasonable effort for a
reasonable price, or circumstances suggest efforts would be unavailing)
g. CISG – strong presumption for SP and no need to demonstrate uniqueness
Seller in breach – buyer can require SP
Buyer in breach – seller may require buyer to pay or take delivery
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Injunctions
a. Preclusive rule against “affirmative” injunctions (In Re Mary Clark) – servitude
b. Most courts will enforce negative injunctions if:

Employee’s skills are special or unique

Reach of the injunction is not unreasonably broad
c. Lumley v. Wagner – non-compete enforced when opera singer tried to perform for
competitor – unique skills and scope not broad bc she’s able to leave
*** would be different if opposing opera house was the only available employment
d. MODERN: Dallas Cowboys v. Harris – non-compete could be enforced bc unique skills

Non-compete for football player attempting to play for another team

Do not need to be one-of-a-kind, just unique or special to have SP
e. Non-Competes in California



Actually prohibits the use of non-compete clauses like in Harris
Caveats: sales of assets, partners of an LLC, trade secrets
In MA: allowed one year of “garden leave” and prohibited non-competes
for students, those wrongfully discharged and unskilled employees
Tortious Interference
“enticement” or luring someone’s servant away; requires actual breach or announcement they will
repudiate; must demonstrate elements of damages were unable to be recovered from breaching party
**difficult to prove**
Restatement §766 - one who intentionally and improperly interferes with the performance of a
contract between another and a third party by inducing or causing the third to not perform the
contract, is subject to liability to the other for loss resulting from the failure of the third
Elements required:
1) Existence of a valid, enforceable contract
2) Knowledge of contract by 3rd party D
3) Intentional and active participation of D to interfere [take steps to recruit]
4) Interference for improper purposes [not improper if a competitive industry] **hardest to prove
5) Act must cause breach of contractual relationship [substantial factor normally]
6) P must suffer damages as a result
Dangers: 1) discourage efficient breach 2) long causal chains 3) can claim “interference w negotiations”
Lumley v. Gye – must demonstrate some damages are unable to be recovered from the breaching party
 Court unclear as to whether an attempt to entice is sufficient
 Malicious intent relevant
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Formation
Mutual Assent
Objective Theory of Offer/Acceptance – instantaneous
a.
Positives: this is clear and you know damages; negatives: scary and deterrent
b. Courts conservative in that they want to make sure parties wanted to contract
c. Basic Requirements of an Offer:
1) Must be communicated to & reach offeree by writing, speaking,
conduct [also in acceptance]
2) Sufficiently complete to provide basis for enforcement if offeree
simply accepts [let courts know what to do]
3) Must manifest an intent to be bound i.e. would a reasonable person
receiving this communication understand it this way, empowering them
to accept? [also in acceptance]
d. Old rule – subjective “meeting of the minds” – more conservative (Embry moves away
from this)

Restatement §18 manifestation of mutual assent requires each
party either make a promise or begin or render a performance
e. Embry v. Hargadine – “reasonable interpretation” test instead

When contract was set to expire, P’s employer D told him to “go ahead”

Jury instructed on subjective intent of both parties to enforce contract

Ct reverses this and instead holds a manifestation exists when 1) it
would have been taken by a reasonable person to be one AND 2) the
receiver (P) understood it this way [can sometimes be inferred by suit]
f. Lucy v. Zehmer – application of the Embry test – enforceable when manifestation

D agreed to sell land to P; both were drinking and scribbled on paper

The fact P got $$ and an attorney shows he understood it to be a
manifestation of mutual assent (b)

Reasonable person’s understanding (a) in question but court sides w/ P
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g. Verbal offers
Restatement §24 – an offer is the manifestation of willingness to enter into
a bargain, so made as to justify another person in understanding that his assent
to that bargain is invited and will conclude it [requires an offer have enough detail
to make the terms/performance/breach reasonably certain]
h. Preliminary Negotiations
Restatement §26 – manifestation of willingness to enter into a bargain is
not an offer if the person whom it is addressed knows/has reason to that the
person making it does not intend to conclude a bargain until he has made a
further manifestation of assent
21
Invitational Talk
a. courts do not normally treat ads/solicitations as offers where people can just accept
- limited quantity factors which will leave seller exposed to unlimited liability
b. can only be treated as offers if they are:
“clear, definite, and explicit, leaving nothing open for negotiation”
d.
Restatement §29 to whom an offer is addressed – (1) manifested
intention of the offeror determines the person(s) in whom is created a power of
acceptance (2) an offer may create a power of acceptance in a specified person or
in one or more of a specified group/class of persons, acting separately or
together, or in anyone or everyone who makes a specified promise or renders a
specified performance
e.
Restatement §33 Certainty – (1) even though a manifestation of intention
is intended to be understood as an offer, it cannot be accepted so as to form a
contract unless the terms of the contract are reasonably certain (2) the terms of a
contract are reasonably certain if they provide a basis for determining the
existence of a breach and for giving an appropriate remedy (3) the fact that one
or more terms of a proposed bargain are left open or uncertain may show that a
manifestation of intention is not intended to be understood as an offer or
acceptance
f. Nebraska Seed v. Harsh – general letter with no specifics cannot be an offer

D sent letter to P showcasing his seed and specifying a price

Letter seen as an invitation to negotiate, not an offer

Very general in nature with no specifics; only estimates

Cannot expose offeror to unlimited liability (running out of seed)
g. Lefkowitz v. Great Minneapolis Surplus – specifics in an ad can make it an offer

Ad stated in paper that D would supply first to arrive with coat, P was
denied when he fulfilled the requirements

Created a contract when P fulfilled all conditions

Terms for acceptance, quantity offered, specific item, no. of recipients
22
**state/federal statutes supplying twists by prohibiting false or
unfair ads and unfair competition; also forcing violators to fulfill
claims – reasonable person test?**
Preliminary Agreements, “Agreements to Agree”
a. framing documents for complex contracts; letters of intent, MOUs, MOAs
b. mark when negotiations have started, lay foundations for expectations/procedures,
coordinate terms, make it easily digestible
c. most likely not seen as contracts; **want parties to be able to negotiate freely**
- BUT some parties want various provisions to be binding and some courts have
enforced them or at least parts of them
Restatement §27 K where written memorial is contemplated –
manifestations of assent that are in themselves sufficient to conclude a contract
will not be prevented from so operating by the fact the parties also manifest an
intention to prepare and adopt a written memorial thereof..but circumstances
may show the agreements are just preliminary negotiations [may be binding]
a.
Empro v. Ball-Co – LOI not binding as a memorial subject to a future agreement

Drafted an LOI in the negotiations of asset sales, subject to future
agreement and approval by shareholders

b.
Found not binding, as the language in the text left “escape hatches”
Arnold Palmer v. Fuqua – Memo of Intent could be not binding bc of its language

D contracted with P to make golf clubs; drafted a MOI and then ended

Both qualifying and direct language (preparation of definite
agreement and “Fuqua shall.. or will…) also issued press release
(manifestation?) [Court remands as a question of fact]
23
c.
Emerging Middle Ground

Traditionally, have been all or nothing (Empro, Arnold Palmer)

“agreement to agree” not upheld until K is formed

HOWEVER, middle ground where preliminary agreements may bind
the parties to continue negotiating in good faith (breach by
refusing/sabotage)

TYPE I AGREEMENT: articulates all essential terms as to give a
basis for determining breach and remedy, but subject to a stated
plan to memorialize later – generally binding in most jurisdictions
and standard full expectation damages

TYPE II AGREEMENT: articulates many, but not all, essential
terms, leaving parties agreeing to negotiate the rest later in good
faith; failure to reach agreement isn’t a breach, but bad-faith
negotiations are – many states (NY/CA) limit to reliance
***factors considered: language, any open essential terms, the context
of negotiations, partial performance, necessity of putting agreement
into a final form***

Copeland v. Baskin Robbins – TYPE II – bound to negotiate in good faith
-
Two had entered agreement to negotiate co-packing
-
When BR pulled out, seen as a breach of an agreement
to negotiate in the future
-
Limited to reliance, but since there were none, no
recovery for P CALIFORNIA

SIGA v. PharmAthene – able to get expectation damages with TYPE II
-
MOU with clause to negotiate in the future; seller began
stone-walling negotiations
-
Breach of Type II but allowed full expectation damages IF
parties would have reached an agreement but-for the D’s
bad-faith DELEWARE
24
-
More open to predicting the lost profits and smoothes
the magic moment between negotiations and contracting
BUT less predictable or easy for the courts to decide
Timing and Technical Issues
RESTATEMENT AND OFFER/ACCEPTANCE
Restatement §35 Offeree’s Power of Acceptance – offer gives to the
offeree a continuing power to complete the manifestation of mutual assent by
acceptance of the offer ; a contract cannot be created by acceptance of an offer after
the power has been terminated (§36)
Restatement §36(1) Terminating the Power to Accept – may be
terminated by: 1) rejection or counter-offer by offeree 2) lapse of time 3) revocation
by the offeror 4) death/incapacity of the offeror or offeree
Restatement §42 Revocation by Communication – offeree’s power of
acceptance is terminated when the offeree receives from the offeror a manifestation
of an intention not to enter into the proposed contract
Restatement §43 Indirect Revocation – offeree’s power of acceptance
terminated when the offeror takes definite action inconsistent with an intention to
enter into the proposed contract and the offeree acquires reliable information to
that effect
**traditional rule: offeror can retract offer at any time before acceptance, even
if offeror included a certain time (Dickinson) – can get around this and make it a
“firm offer” by 1) creating an option contract (give $$ to keep open) 2) creating a
unilateral contract, only acceptable by performance and have the other person begin
3) have an offer that induces reliance
UCC DIFFERENT
UCC §2-205 Firm Offers by Merchants – offer by a merchant to buy or sell
goods in a signed writing which by its terms gives assurances that it will be held
open is NOT revocable, for lack of consideration, during the time stated OR if no
25
time stated, then for a reasonable time (less than 3 months); any such term of
assurance on a form supplied by offeror must be signed by offeree
CISG AND FIRM OFFERS
Article 16 – until a contract is concluded an offer may be revoked if the revocation
reaches the offeree before he has dispatched an acceptance; but cannot be revoked if
it indicates (either by stating a fixed time for acceptance or otherwise) that it is
irrevocable or if it was reasonable for the offeree to rely on the offer as being
irrevocable and the offeree has acted in reliance on the offer
Policy rationale for traditional rule:
-
Encourage contracting; don’t want to punish
-
HOWEVER, difficult to make firm offers bc able to revoke
Instantaneous Communication
Dickinson v. Dodds – able to revoke even after stating time when P knows
-
D gives P an offers and says it will be open for 2 days
-
P learns D will be selling to someone else and still tries to
accept and sues when is unable
-
Ct holds there doesn’t have to be express revocation ad
26
Mailbox Rule
Mailbox Rule: Offers/revocations effective upon receipt
Acceptances effective upon dispatch
Caveats: 1) must be made in manner invited (offeror can limit ways; DEFAULT)
2) rejections (counter-offers) by offeree are effective upon receipt
3) certain categorical exceptions to this rule, where universal rule exists
(i.e. option contracts are always upon receipt)
Restatement §40 rejection or counter-offer by mail does not terminate
the power of acceptance until received by the offeror, but limits the power so
that a letter of acceptance started after the sending of an otherwise effective
rejection or counter-offer is only a counter-offer unless the acceptance is
received by the offeror before he receives the rejection or counter-offer
Restatement §64 acceptance given by telephone or other substantially
instantaneous two-way communication is governed by the principles
applicable to acceptances where the parties are in the presence of each other
CISG and International standards
**largely a rule of receipt**
Article 18(2) an acceptance of an offer becomes effective at the moment the
indication of assent reaches the offeror
BUT offer revoked if revocation gets there before acceptance is dispatched
27
“Statute of Frauds” and Writing Requirement
**introduced after oral contracts became allowable; for big-ticket items; if in
writing, all cts can use**
MODERN CONTRACTS THAT MUST BE IN WRITING i.e. within SoF (NY):
1) Transfer of an interest in real property (ownership/leasehold)
2) An agreement by its terms is not to be performed within a year of its execution
(in terms)
3) A promise to answer for the debt, default, or miscarriage of another person
(guarantor/co-signing)
4) A promise made in consideration of marriage (prenups)
5) A contract for the sale of goods greater than $500 (some jurisdictions have inc)
Policy rationale:
- Deters false claims
- Increases the quality of evidence
- Has distributive effects for those with fancy lawyers
MUST MINIMALLY STATE (WITH REASONABLE CERTAINTY):
1)
2)
3)
4)
Identify contracting parties
General subject matter of the alleged agreement
Essential terms and conditions
Signature (or equivalent i.e. X) of the party to be charged with obligation
**can also be a memo or something to that effect**
JUDICIALLY CREATED EXCEPTIONS TO SoF:
1) Admission by party to be charged that a contract existed
2) Sometimes part-performance by this party (ltd to land normally)
3) Specialty products i.e. customized and unable to resell; goods
4) Reliance by one on parol promise; evidence is clear a contract was performed;
normally ltd to restitution but some have granted reliance

Boone v. Coe - not w/in a year and contract for land requires writing
- D promised a dwelling if P moved and tended to his land
- Wants damages when uproots life and finds no dwelling
- No benefit conferred so no damages to be paid to P

Riley v. Capital Airlines – could not be performed within a year so SoF
- Oral 5-year jet fuel supply contract from P to D in which
P would specialty mix the fuel for D each time (partperformance?)
- Each shipment found to be a mini-contract; P didn’t
make the entire batch of fuel 5 years in advance
- Does give reliance for equipment specifically purchased
(odd)
28
Restatement §139 Enforcement by Virtue of Action in Reliance
(1) a promise the promisor should reasonably expect to induce the
action/forbearance on the part of the promise or a third person and which
does is enforceable notwithstanding the SoF, if injustice can be avoided only
by enforcement of the promise; remedy is to be ltd as justice required
(2) in determining whether injustice can be avoided only by enforcement,
consider: 1) the availability/adequacy of other remedies, particularly
cancellation and restitution 2) the definite and substantial character of
action/forbearance in relation to remedy sought 3) extent to which action
corroborates evidence of the making and terms of the promise, or the making
and terms are est. by clear and convincing evidence 4) the reasonableness of
the action 5) the extent to which the action was foreseeable to the promisor
**new area: transferring of copyright ownership**
Special Rules w Acceptance
Verbal/Written Acceptance (mirror image, last shot, BoF)
 Mirror Image Rule: if offer and acceptance are not “mirror
images” of one another, and performance is still executory, then no
contract bc rejection and counter-offer (not w/ goods)
Ardente v. Horan – violates mirror-image rule to add conditions
-
P adds condition regarding furnishing when contracting
for real estate with D; D calls it off
-
Operated as a rejection of terms and counter-offer
-
Should have made it clear they would have accepted
regardless to avoid this
 Last Shot Rule: if performance has started (non-executory),
there is a contract and the last writing governs if conflicting
(incentive to send non-conforming acceptance in hopes other party
begins performance?)
**issues:
-
Opportunism: incentive to “sneak in”
Contracting costs higher bc read carefully
UCC 2-207 for goods adopted bc of this
29
 Battle of the Forms – goods - UCC §2-207
(1) Definite and seasonable expression of acceptance or a written
confirmation which is sent within a reasonable time operates as
an acceptance even though it states terms additional to or
different form those offered or agreed upon, unless acceptance
is expressly made conditional on assent to the
additional/different terms
(2) The additional terms are to be construed as proposals for
addition to the contract; these terms (between merchants)
become part of the contract UNLESS 1) the offer expressly limits
acceptance to the terms of the offer 2) they materially alter it
3) notification of objection to them has already been given or is
given within a reasonable time after notice of them is received
(3) Conduct by both parties which recognizes the existence of K is
sufficient to establish a contract for sale although the writings
of the parties do not otherwise establish a contract. In such case
the terms of the particular contract consist of those terms on
which the writings of the parties agree, together with any
supplementary terms incorporated under any other provisions
30
**if performance hasn’t started and its not 2-207, then mirror image rule**
“Knock-out” Rule: where clauses on forms sent by both parties
conflict, each party must be assumed to object to a clause of the
other conflicting with one on their confirmation. The requirement
there be a notice of objection (2) is satisfied and conflicting terms
do not become a part of the contract and contract then consists of
the terms originally expressly agreed to, terms on which the
confirmations agree, and terms supplied by the Act
31

Step Saver v. Wyse Technology – box-top agreement a counter-offer
-
P contracted with TSL for their operating system
-
Box-top license agreement frees TSL of liability but P
argues the terms weren’t part of the contract
-
Agreement seen as a counter-offer/proposal of new terms
-
Not binding on P (terms material)
Conditional Acceptance?
-
Offeree’s response materially alters obligations in a
one-sided way (would be surprising)
-
“magic words” i.e. “acceptance is conditional on..”
-
Demonstrated unwillingness to proceed without
acceptance of these new terms
32

Union Carbide v. Oscar Meyer – sales tax provision on back of invoices
not binding bc materially altered and did not consent
-
P contracted with D for sausage casings; P’s invoices
claimed D would pay all sales tax; sued when didn’t
-
Court held D did not have to pay as this was a proposal
SHRINK-WRAP RETAL LICENSES


Pro CD v. Zeidenberg – only one form so last-shot rule applies
- P includes SWL in product that D opens and then violates
- Held 2-207 doesn’t apply bc only one form so SWL
binding and D in violation
Hill v. Gateway – “” so bound by SWL forcing arbitration
- Agreement within product D opened and then violated
- Only one form so last-shot rule and SWL applies
33

DIFFERENT Klocek v. Gateway – does not literally require two forms
- Similar to Hill but court uses 2-207 to void the
agreement because Gateway did not make it clear
contract was conditioned on P’s acceptance; seen as
proposal of additional terms
CISG (embraces part of common law) Article 19:
(1) A reply to an offer which purports to be an acceptance but
contains additions, limitations or other modifications is a rejection
of the offer and constitutes a counter-offer.
(2) However, a reply to an offer which purports to be an acceptance
but contains additional or different terms which do not materially
alter the terms of the offer constitutes an acceptance, unless the
offeror, without undue delay, objects orally to the discrepancy or
dispatches a notice to that effect. If he does not so object, the terms
of the contract are the terms of the offer with the modifications
contained in the acceptance.
(3) Additional or different terms relating, among other things, to
the price, payment, quality and quantity of the goods, place and
34
time of delivery, extent of one party's liability to the other or the
settlement of disputes are considered to alter the terms materially.
Acceptance by Performance or Unilateral Contracts
Restatement §30 Form of Acceptance Invited – an offer may invite
or require acceptance to be made by an affirmative answer in words, or by
performing/refraining from performing a specified act, or may empower the
offeree to make a selection of terms in his acceptance; unless otherwise
indicated, an offer invites acceptance in any manner and medium reasonable
**can specify performance allowed/disallowed**
UNILATERAL Ks and “executory performance”
Traditional rule: offeree must complete performance to accept; able to revoke
and offeree able to stop at any time

Petterson v. Pattberg – TRADITIONAL RULE; offer able to be revoked
-
P tried to pay for mortgage but D wouldn’t open door
-
P didn’t tender the money (accept) before revocation
TENDERING: an offer of money (or other valuable goods/services);
the act by which one produces and offers to a person holding a
claim or demand against him the amount of money (or other
valuable goods/services) which he considers and admits to be due,
in satisfaction of such claim, without any stipulation or condition
Restatement §45 Option K created by Part Performance/Tender
(1) where an offer invites an offeree to accept by rendering a performance [only]
and does not invite a promissory acceptance, an option contract is created when
the offeree tenders or begins the invited performance or tenders a beginning of it
(2) the offeror’s duty of performance under any option contract so created is
conditional on completion or tender of the invited performance in accordance
with the terms of the offer **relaxes traditional rule by creating option**
35
Caveats:
1. Not the only way to create an option contract (written firm offer-merchant)
2. Applies only when the offer requires performative acceptance exclusively-uni.
3. Satisfying 45 creates only an option K, not the principal; can opt out
Restatement §62 Effect of Performance by Offeree Where
Offer Invites Either Performance or Promise – where an offer
invites an offeree to choose between acceptance by promise and acceptance by
performance, the tender or beginning of the invited performance or a tender
of a beginning of it is acceptance by performance and such an acceptance
operates as a promise to render complete performance
Restatement §32 Invitation of Promise or Performance – in
case of doubt an offer is interpreted as inviting the offeree to accept either by
promising to perform what the offer requests or by rendering the
performance, as the offeree chooses [if takes time, beginning may constitute
a promise to complete]
**in some cases, the language/circumstances make it clear the offeree is only
to accept by performance (rewards/prizes)**

White v. Corlies & Tift – offeror must be informed offeree has begun p
-
P buys lumber for D’s building and D revokes
-
Not acceptance by performance bc there was no assent
-
D had no idea P was beginning performance
-
Preparation isn’t enough to constitute acceptance
Restatement §54 Necessity of Notification – (1) where an offer
invites acceptance by performance, no notification is necessary to make an
acceptance effective unless offer requests such a notification
(2) If offeree who accepts by rendering a performance HAS REASON TO
KNOW that offeror has no adequate means of learning of the performance
36
with reasonable promptness/certainty, the contractual duty of the offeror
is discharged UNLESS:
-

Offeree exercises reasonable diligence to notify the
offeror of acceptance
- Offeror learns of performance within a reasonable
time
- Offer indicates notification of acceptance is not req.
Carlill v. Carbolic Smoke Ball Co. – ntc. not required and accept by perf.
- Ad offering to pay if use smoke ball and get flu
- no notice required w specific ad, where full performance
is only mode of acceptance (unilateral K)
Acceptance by Silence/Implied-in-Fact
Contract implied in fact: contract inferred from conduct of parties, where intent
can be reasonably inferred by the circumstances of their interactions (common
understanding) – no need for as many details
**typically silence not acceptance and unable to be put in contract**
MUST MEET EMBRY TEST – taken by reasonable person to be manifestation of
intent to be bound and the recipient must understand it to be
Restatement §69 Acceptance by Silence – (1) where an offeree fails
to reply to an offer, his silence and inaction operate as an acceptance in the
following cases only: a) where an offeree takes the benefit of offered services
with reasonable opportunity to reject them and reason to know that they
were offered with the expectation of compensation b) where the offeror has
stated or given the offeree reason to understand that assent may be
manifested by silence or inaction, and the offeree in remaining silent and
inactive intends to accept the offer c) where because of previous dealings or
otherwise, it is reasonable that the offeree should notify the offeror if he does
not intend to accept

Hobbs v. Massasoit Whip – bc of prior dealings, silence as acceptance
- P ships eel skins to D and when not paid, sued
- this was an established course of dealings, so can expect
- could be on hook for restitution if kept the goods
37

Stepp v. Freeman – contract implied in fact so no need to accept
-
Office lottery pool with established practices
-
Based on past practices, expected his share of the money
and the court agreed
-
Silence constituted acceptance bc had agreed beforehand
through their course of dealing
Consideration
Legal Benefit/Detriment and “Bargain Theory”
Requirements:
Acts that either confer a legal benefit on promisee or cause promisor to incur a legal detriment
Must be “bargained for” i.e. sought by the promisor and offered as an inducement by promise
**must go both ways** **beware of peppercorn consideration bc may show bargain not met**
Restatement §71 Requirement of Exchange –
1) to constitute consideration, performance or a return promise must be bargained for
2) i.e. if it is sought by promisor in exchange for his promise AND is given by the
promisee in exchange for that promise
3) performance may consist of:
a. an act other than a promise,
b. a forbearance,
c. creation modification, or destruction of a legal relation
4) performance or return promise may be given to the promisor or some other person
and may be given by the promisee or by some other person
Policy for Consideration:
- keep courts involved in economic contracts vs. societal gratuitous promises
- protect the unsophisticated that get into these gratuitous promises
- prevent the courts from becoming bogged down with these promises
- seen as proof parties intended to actually be in a contract
- want to encourage gift-giving and altruism by not holding them as valid
38

Hamer v. Sidway – forbearing a legal right anticipating of a benefit is consideration
- uncle promised nephew money if he refrained from drinking, smoking, gambling
- court found he was entitled to the money bc he abstained for this money
- moral benefits irrelevant but he did abstain from his legal right so consideration
Contingent or Conditional Gifts:
- “I will give you X so long as it is used in a prescribed way”
- relevant factors include:
Extent to which promisor was motivated by desire to get stated condition
Degree of active control promisee has over this condition’s fulfillment
Extent to which condition’s fulfillment requires reliance by promisee
Extent to which the occurrence of the condition hinges on the promisor’s performance

Johnson v. Otterbein University – placing condition on gift not consideration
- provided $ for school to pay off its debt; held as conditional gift not enforceable

Kirksey v. Kirksey – providing home not enforceable for lack of consideration
- brother-in-law offered home to Sister Antillico and then asked her to leave
- only a conditional gift so not enforceable as contract

Moore v. Elmer – promise to discharge mortgage conditional on prediction’s truth
- promised to pay if seer’s vision came true; only a conditional gift so not enforceable
Past/Moral Consideration
Restatement §86 Moral Consideration –
promise made in recognition of a benefit previously received by the promisor from the
promisee is binding to the extent necessary to prevent injustice
but NOT binding if the promisee conferred the benefit:
1) as a gift or for other reasons the promisor has not been enriched
2) or to the extent that its value is disproportionate to the benefit
 Mills v. Wyman – past act not bargained for can’t be held enforceable
- father promised out of gratitude to pay those who cared for his adult son
- moral consideration not applicable here; normally only where there is technicality
 Webb v. McGowin – moral obligation enforceable as consideration
- promisee’s prior act must confer a material and substantial benefit and it must be
personally received by the promisor
- P jumped out of window with block to save D’s life and D promised to pay $
39
- D argued this was a past act and not bargained for but this fails bc incurred benefit
**NY: consideration can be in writing to overcome this; CA: Webb codified**
Preexisting Duty Rule and Modification
**cannot repromise to do something for more $ because lacked consideration**
Policy:
Want to enforce promises you can’t enforce using other means (reputation/guilt)
Don’t want to enforce promises not contemplated by both parties in the beginning
Protect parties in long-term relationships when contracts may require one to do more
Protect parties in these relationships where one may attempt to capitalize on weakness
Restatement §73 Performance of a Legal Duty –
performance of a legal duty owed to a promisor which is neither doubtful nor the
subject of honest dispute is not consideration;
but a similar performance is consideration if it differs from what was required by the
duty in a way which reflects more than a pretense of bargain
 Alaska Packers v. Domenico – preexisting duty precluded consideration
- AP contracted to fish for D, then demanded more money
- had preexisting duty to complete this job, so no consideration for increasing price
- would have needed to recontract for new price to do same thing
 Brian Construction v. Brighenti – unforeseen burden w promise of $ in return is valid
- D started excavating and found more rubble; parties agreed on more $
- valid contract bc additional compensation for this work makes a separate contract
Ways around the rule:
- specify “extra” consideration for modification
- argue the preexisting duty was “excused” i.e. changed circumstances
- rescind the original contract (i.e. a second contract doing so)
- rule less strict for modification of executory Ks (Restatement §89)
promise modifying a duty under a contract not fully performed on either side is
binding if:
a) its fair/equitable in view of circumstances not anticipated by parties when contract
was made
b) to the extent provided by statute (see below)
c) to the extent that justice requires enforcement in view of material change of
position in reliance on the promise
- UCC has largely abandoned this rule; just need a good faith modification (§ 2-209)
40
Adequacy of Consideration
- clearly ceremonial consideration/peppercorn, but does work to perfect enforceability of option Ks
- consideration with speculative/uncertain value (usually valid) i.e. percentages
- forbearance from legal claim that is meritless
Restatement §79 Value of Consideration – if a promise is “bargained for” and entails a “legal”
benefit or detriment, courts won’t inquire into the one-sidedness of the exchange
BUT grossly disproportionate consideration may be evidence of none
 Newman & Snell’s v. Hunter – can be consideration to forbear from bringing claim
- bank to forgive decedent’s loan if widow substituted her own note obligation
- bank knew promise to forbear had no value bc worthless paper; no consideration
- due to knowledge of value, not forbearing from legal claim
 Dyer v. American By-Products – forbearing from filing claim can be consideration
- P lost foot in accident; promised life employment for not suing employer
- claim was meritless due to worker’s compensation; reasonably believed claim
- given belief claim was valid, deemed consideration and held to be enforceable
Restatement §74 forbearance to assert or surrender invalid claim/defense Not consideration UNLESS doubtful bc of uncertainty of facts/law or
the forbearing party believes it will be determined to be valid
**Dyer good faith requirement (party’s knowledge taken into account)**
Exceptions (PE)
Promissory Estoppel
1) Type of (or substitute for) consideration that “perfects” contractual rights
- Plaintiff typically gets full rights i.e. expectation
- Preferred method**
2) A separate cause of action based on a reliance on negotiations
- Plaintiff must plead separately in complaint
- Remedy “as justice requires” normally reliance
Restatement §90 promise reasonably inducing action/forbearance –
A promise the offeror:
1) Should reasonably expect to induce action/forbearance on the part of the
promisee or third person AND
2) Which does induce such action/forbearance
3) Is binding if injustice can be avoided only by enforcement of the promise
4) Remedy granted for breach may be limited as justice requires
41


Ricketts v. Scothorn – reasonable expectation of inducement
- grandfather gave gdaughter money bc he didn’t want her to work so she quit
- PE bc should have reasonably expected she would quit and she did
**equitable estoppel different; prior disclosure or material concealment about a
factual/legal matter can preclude one from making a contrary claim later**
Greiner v. Greiner – promise induced action; relied upon promise
- mother promised son land and house if he moved there; then tried to take away
- valid PE bc substantial inducement to move in reliance on promise
PE and Option Ks
Because PE can substitute for consideration, one can create an option K when the offeree reasonably
and detrimentally relies on an offer and “injustice” can be avoided only by enforcing it
Restatement §87 (2) Option K – an option which the offeror should reasonably expect to
induce action/forbearance of a substantial character before acceptance and does so, is binding
as an option K to the extent necessary to avoid injustice
 Baird v. Gimbel – no option K when GC had time to rescind
- mistaken bid by SC and GC wins; GC could have rescinded bid
- no option K here so SC not bound
 Drennan v. Star Paving – option K found when GC unaware of SC’s error
- mistaken bid by SC and GC’s bid accepted before aware of the mistake
- option K found; SC bound if GC is to accept
**which party is in best position to bear risk and avoid risk?**
Charitable Conventions

Allegheny College v. National Chautauqua – proper consideration not required
- person promised college $ to establish a memorial fund in her name
- legal detriment to perpetuate her name through the fund, so consideration
- charitable promises do not require proper consideration to be enforceable
Restatement §90 (2) promise reasonably inducing action/forbearance
charitable subscription is binding w/o proof the promise induced action/forbear.
As a Separate C/A

Hoffman v. Red Owl Stores – PE as separate c/a given reliance
- did certain things to eventually open a franchise based on agent’s advice
- PE but no contract so separate c/a; reasonably should have expected the actions
- reliance damages appropriate
**policy: slow build contract formation may increase contracting costs or make
companies less likely to want to contract with newcomers; normally on/off switch
would benefit the sophisticated party**
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Ceremonial Consideration and Option Ks
Restatement §87 Ceremonial Consideration – offer is binding as an option K if it is in
writing and signed by the offeror, recites a purported consideration for the making of
the offer, and proposes an exchange on fair terms within a reasonable time
**gross disproportion between the payment and value of the option often indicates the
absence of a bargain, making it a mere formality or ceremonial, and not consideration**
 Schnell v. Nell – 1 cent not valid consideration for $600 gifted to 3 parties
Defects in Formation
Affirmative defenses – P in breach does not have to prove the absence of a defect BUT D can
attempt to prove their presence to avoid liability after P has made a prima facie case for breach
Usually render the contract VOIDABLE (invoking party can either affirm K or disaffirm it)
Avoidance is usually followed by restitutionary offsets in both directions (doubts resolved in favor of
party claiming defect)
Facts creating defect may also give rise to a tort (e.g. fraud)
Contractual incapacity – allows disaffirmance of contractual obligation by those mentally ill,
severely intoxicated, infant i.e. minors (but not if emancipated); if lying about age, can go either way
43
Fraud/Misrepresentation
Elements:
1) An assertion not in accord with the facts
- Oral/written statements, actions if intended or known to
prevent another from learning some fact (§160)
- typically not silence (§161) EXCEPTIONS for a prior
assertion that has since become inaccurate, other party
mistaken about effect of writing, parties in a relationship
of “trust and confidence,” other party mistaken, and
failure to correct amounts to bad faith
2) Receiving party’s assent must be induced by misrepresentation (to their detriment)
- Historically, inducement meant misrepresentation had to
be a “but for” cause of transaction
- In modern courts, most jurisdictions see inducement if a
statement substantially contributes to one’s decision to
enter a transaction (§167)
44
3) Receiving party must be justified in relying on the misrepresentation
- Facts vs. Opinion; whether the statement purports to be
based upon some specialized or non-public knowledge
- Receiver usually justified in relying and need not
investigate further
- (If receiver does investigate and does so improperly or
negligently, courts may not be as charitable)
- If an assertion is one of opinion, recipient cannot rely
- Exceptions in §169:
- 1. If standing in relationship of trust and confidence to
the person whose opinion is asserted that the recipient is
reasonable in relying on it
- 2. If the recipient reasonably believes that, as compared
with himself, the person whose opinion is asserted has
special skill, judgment or objectivity with respect to
subject matter
- If the recipient is for some other special reason
particularly susceptible to a misrepresentation of the
type involved
4) Misrepresentation must be either material or fraudulent (can do tort too)
- Materiality: likely to induce a reasonable person to
manifest assent (misrepresenting party’s state of mind is
irrelevant) OR maker knows at the time she makes it that
it would be likely to induce the recipient to do so
- Fraudulent: asserting party intends it to induce other to
manifest assent, and asserting party has knowledge of
falsity i.e. knows/believes assertion is not in accord w/
facts, doesn’t have confidence stated/implied in assertion,
OR knows he doesn’t have the basis stated/implied
Consequences of Successful Defense:
Material: contract voidable by party claiming defect; followed by restitution if applicable
- Possible to ratify through words or conduct a desire to
continue
- Fraud in the inducement vs. Factum where its void
Fraudulent: voidable/void as above; party may bring tort for expenses/punitive damages
**Tort of Fraud/Deceit: both material and fraudulent required; normally barred if no harm
 Vokes v. Arthur Murray, Inc. – misrepresentation when special rel. and superior skill
- P induced to buying thousands of dance lessons due to D’s statements
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

Halpert v. Rosenthal – innocence of misrep. immaterial if induces other party to act
- P assured D house he was going to buy had no termites; D put down deposit & sued
- able to get deposit back due to material misrepresentation although innocent
Byers v. Federal Land Co. – conduct materially misrepresentative
- P agreed to buy land form D under impression they had possession of it
- P relied on this misrepresentation to enter into contract with D
Duress
1) Physical Duress (§174); conduct that appears to be a manifestation of assent by a party who does
not intend to engage in that conduct is physically compelled by duress, the conduct is not
effective as a manifestation of assent and is VOID
2) Economic Duress (§175); assent induced by a threat to take some action that “damages” the
assenting party in a financially disadvantageous way; is then VOIDABLE
Restatement §175 Conjunctive Elements –
- Existence of a “threat”
- Threat must be “improper” i.e threatening an illegal act,
to sue in bad faith, to breach in bad faith (§176)
- Must induce receiver to manifest assent (sub. factor)
- Threat must be sufficiently grave, or leave receiver with
no real alternative (can’t avoid mitigating)
Restatement §176 (2) improper threat if exchange is one-sided AND either:
1) Threat involved imposing a harm on the recipient with little benefit to the
threatening party
2) Prior unfair dealings w/ the threatening party significantly increase the
effectiveness of the threat in inducing the manifestation of assent or
3) What is threatened is otherwise a use of power for illegitimate ends
 Austin Instrument v. Loral Corp – left w/ no alternative and forced to accede
- P provided D w/ supplies for their contract; threatened to stop if they didn’t give
them all the parts of a second contract; w/ no choice D had to accede
 US v. Progressive – cannot be silent and then claim economic duress
- D contracted with P; P asked for more $ and D accepted but then refused to pay
- bc D did not protest the price increase, did not notify P it was not freely entering
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Unconscionability
1) Procedural – absence of meaningful choice on part of one party; disparity in bargaining power
“take it or leave it,” contract of adhesion; matter of law
Party wishing to avoid liability normally needs to prove unconscionability as affirmative def.
**some courts allowed to make determination sua sponte**
2) Substantive – terms unreasonably favor one party i.e. one-sided
Def. not generally extended to sophisticated party; offending terms can be excised or contract void
Policy of Doctrine:
- Distributive justice/police force
- Paternalism/protect the unsophisticated
- stop one-sided benefits
- can HARM people who are sophisticated enough but can’t
remedy the issue
UCC §2-302 Unconscionable Contract or Clause – (1) if the court as a matter of
law finds the contract or clause to have been unconscionable at the time it was made,
the court may 1) refuse to enforce it, 2) enforce the remainder without that clause, or 3)
it may limit the application of the clause to avoid an unconscionable result
(2) when it’s claimed or appears to the court the contract/clause may be
unconscionable the parties shall be afforded a reasonable opportunity to present
evidence to its commercial setting, purpose & effect to aid the court in its determination
 Williams v. Walker-Thomas Furniture – no meaningful choice and one-sided so void
- furniture contract w/ cross-collateralization clause; all items could be repossessed
- unsophisticated party = disparity and terms one-sided toward D so unconscionable
Arbitration Agreements
 In re Real Networks – click-through containing arbitration provision not
unconscionable given same size font, unlimited time and it being printable
 Discover Bank v. Superior Court – added clause precluding class arbitrations found
unconscionable given superior bargaining power over existing customers
 Gatton v. T-Mobile – clause precluding class arbitration possibly unconscionable
because one-sided
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Public Policy: Arbitration and NDAs
Federal Arbitration Act: arbitration provisions enforceable SAVE upon such grounds as exist at law
or in equity for the revocation of any contract – federal preemptive law
 AT&T Mobility v. Concepcion – overruled Discover Bank; if grounds for invalidation single
out the arbitration provision (and not other aspects) FAA preempts common law (class
arbitration seen as contrary to goal of arbitration)
 Epic Systems v. Lewis – NLRA doesn’t prohibit class-action waivers; still under FAA
- arbitration provision with class-action waiver challenged
- NLRA doesn’t protect collective litigation, just bargaining and unionization
**State laws have been introduced to void any clause requiring arb. for sexual harassment**
**Fed law 2017 Ending Forced Arbitration of Sexual Harassment Act prohibiting this**
Post-Epic Systems – formation defects can still void a contract with an arbitration clause, so long as
it applies to the entire contract, not just the provision; employers beginning to introduce class-arbitration
waivers
Grounds of Public Policy
- boundary line of contractual enforcement
- these desirable social effects of empowering contract execution/performance falls off when
confronted with other policy commitments
- courts refuse to honor contracts entailing a crime, legislative prohibition or if offensive to public
Restatement §178 Unenforceable On Grounds of Public Policy – either by legislative
mandate (legislation provides its unenforceable) or by judicial weighing of:
Enforcement interests: parties’ justified interests, extent of forfeiture, special PI
Against it: legislative/judicial pronouncements, likelihood of furthering policy,
seriousness of misconduct, nexus between misconduct and term
Restatement §179 Sources/Bases of Public Policy Against Enforcement – may be
derived by the court from 1) relevant legislation or 2) the need to protect some aspect of the
public welfare i.e. judicial policies against restraint of trade, impairment of family relations,
interference with a protected interest
 Meyer v. Hawkinson – agreement to split Canadian lottery winnings found invalid due to ND’s
PP against gambling
 Equifax v. Examination Mgmt – NDA as to customers and contracting parties unenforceable
in absence of trade secret against PP
 Snepp v. US – former employer of CIA violated pre-clearing provision by publishing nonclassified info. without clearance; upheld on PP because national security
48
Obligations and Breach
Construction/Interpretations of Duties
Gap Filling: GFFD and Best Efforts
Restatement §33 (1) even though a manifestation of intention is intended to be understood as an
offer, it cannot be accepted so as to form a contract unless the terms are reasonably certain
(2) The terms are reasonably certain if they provide a basis for determining the existence of breach
and for giving an appropriate remedy
(3) the fact one or more terms of a proposed bargain are left open or uncertain may show that a
manifestation of intention is not intended to be understood as an offer or as acceptance
Gap Fillers and the UCC
“Off the Rack” Rules
Apply a uniform rule to all parties regardless
of specifics
 Quantity: 0 (sometimes)
(UCC § 2-306; § 2-201)
 Place of Delivery: Seller’s
residence/business (UCC § 2-308)
 Character/Quality: Implied theory of
merchantability/warranty (UCC § 2314)
“Tailored” Rules
Try to determine best rule given particular
circumstances of case
 Price: Reasonable price under
specified conditions (UCC § 2-305(1))
 Time/Duration: Reasonable time
accounting for circumstances (UCC §
2-309)
 Quality: Implied warranty of fitness
for stated purpose (UCC § 2-315)
a. If there are gaps in the contract, and they aren’t extreme – Default terms
b. If they’re extreme, kill the contract
c. Contracts may be incomplete for transaction costs/complexity, linguistic
limitations, failures of foresight/cognition, opportunism/strategy
d. Sun Printing v. Remington – too many gaps can render K unenforceable

D was to sell P paper; had 2 very different contracts prior; failed to set an
actual price or time interval

Couldn’t even look to the prior Ks because they were so different

Dissent: both parties intended to be bound so must be held to something
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Duty of GFFD – “sticky” default rule; cannot be waived at large but can shape what it entails
1. Output (Seller) / Requirement (Buyer) contracts where promisor explicitly agrees to provide
promisee with all of their produced output or all of the promisee’s requirements
2. Gives either (depending on K) the option over quantity at time of performance; their discretion
3. Traditionally these Ks were invalid for want of consideration, since the option holder could choose
any quantity between 0 and infinity but UCC carves out if clear intent was to provide for this K then
GFFD provides for consideration in goods contracts
UCC §2-306 (1) a term which measures the quantity by the output of the seller or the requirements
of the buyer means such actual outputs or requirements as may occur in good faith except that no
quantity unreasonably disproportionate to any 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
(2) a lawful agreement by either seller or buyer for exclusive dealing in the kind of goods concerned
imposes, unless otherwise agreed, an obligation by the seller to use best efforts to supply the goods
and by the buyer to use best efforts to promote their sale
**essentially the holding of NY Central Ironworks v. US Radiator – GFFD in place of consideration holds
contract enforceable for all of P’s radiator needs/requirements despite amount**
Restatement §205 every contract imposes upon each party a duty of GFFD in its performance and
enforcement (a) the meaning of “GF” varies with the context; emphasizes faithfulness to an agreed
common purpose and consistency with the justified expectations of the other party; excludes a
variety of types of conduct characterized as involving “BF” bc they violate community stds of decency,
fairness or reasonableness

Eastern Airlines v. Gulf – so long as in GF, no limit in amount required
- P sued D for breach when they wanted a price increase for their jet fuel requirements contract
- enforceable K with GFFS as the consideration; P allowed to use its discretion (UCC 2-306)
- **more worried about increase in demand bc potentially unlimited
- courts look to price estimates, historical performance, trade practice/course of performance
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Discretion
o Can exercise discretion in a selfish way as long as you do not shrink the total amount of net
benefits - “shrink the pie” or destroy net value
o If it’s a zero-sum game and you exercise your discretion, won’t be penalized
o Uses that will violate GFFD: total changes in behavior to game K, decrease the size of the pie
Duty of Best Efforts – exclusive dealing relationships
1. Wood v. Lucy, Lady Duff Gordon – duty of best efforts can replace consideration
o LDG gave Wood exclusive right to sell her endorsement and then get 50% of the
profits; she begins doing it herself and not giving him any money so he sues
o Implied promise within this exclusive relationship to use best efforts, so
sufficient consideration on the part of Wood, making this an enforceable contract
LDG could not just breach
GFFD vs. BE
o “best efforts” normally implied in exclusive dealing relationships
o BE is a more difficult standard; requires one party to look out for the other
o With exclusivity, that party is locking up their welfare with you and your discretion
o Can contract into this higher standard of BE with an express provision
o BE is midpoint between GFFD and fiduciary duty (Snepp) on spectrum
Interpreting Express Language
Subjective/Objective Agreement
When court must interpret a term relation to a MATERIAL aspect of the K and:
1) There is NO SUBJECTIVE agreement by the parties as it its meaning, and
2) Neither is actually aware of the other’s interpretation, and
3) There is no ascertainable OBJECTIVE meaning…then
4) There was NO contract
1. Raffles v. Wichelhaus – application of the above test – no contract to be found
o Two contracted for cotton to be delivered on the Peerless but there was two that arrived; D
repudiated given it thought it was contracting for the earlier ship
o Given the test, determined there was no K; buyer wins
2. Oswald v. Allen – cannot be a K with ambivalent terms unless one should have been aware
o P was to buy a coin collection from D but misunderstood which coins
o This term was material and given it was misunderstood and no one knew, no K
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Restatement §201 Whose Meaning Prevails – (subjective meaning trumps)
1) Where the parties have attached the same meaning to a promise/agreement or a term thereof,
it is interpreted in accordance with that meaning
2) where the parties have attached different meanings to a promise/agreement or a term thereof,
it is interpreted in accordance with the meaning attached by one of them if at the time the
agreement was made:
a) that party did not know of any different meaning attached by the other, and the other party
knew the meaning attached by the first party
b) that party had no reason to know of any different meaning attached by the other, and the
other had reason to know the meaning attached by the first party
3) except as stated here, neither party is bound by the meaning attached by the other, even
though the result may be failure of mutual assent
52
Objective Meaning:
Restatement §202 Locating Objective Meaning (no pecking order use UCC’s) –
1) words/conduct interpreted in light of all circumstances, and if the principal purpose is
ascertainable it is given great weight,
2) a writing is interpreted as a whole, and all writings that are part of the same transaction are
interpreted together.
3) unless a different intention is manifested,
a. interpretation tracks generally prevailing meaning
b. technical terms and words of art are given their technical meaning when used in a
transaction within their technical field
4) where an agreement involves repeated occ. for performance w/ knowledge of the nature and
opportunity for objection to it by the other, any course of performance accepted/acquiesced
in without objection is given great weight
4) wherever reasonable, manifestations of the intention of the parties to a promise or agreement
are interpreted with each other and relevant course of performance, course of dealing or usage
of trade
UCC §2-208 Locating Objective Meaning (usual pecking order) –
The express terms of the agreement and any such course of performance, as well as any course of
dealing and usage of trade shall be construed whenever possible as consistent with each other; but
when such construction is unreasonable
 express terms shall control course of performance
 and course of performance shall control both course of dealing and usage of trade
1. Frigaliment v. BNS – no K to exist when no subjective or objective meaning
o P was to buy chicken from D but it was not written which kind/size of chicken so P sued for
breach of warranty when the wrong size was delivered
o No express terms, course of dealings, objective meanings, or subjective agreement so no K
o Weirdly uses P’s failure to meet burden as reason for finding for D
53
Parol Evidence Rule
o
o
o
o
o
Oral and written prior agreements between the parties
Contemporaneous oral (not written) agreements
Does not include subsequent oral or written agreements or renegotiated terms
Traditionally includes evidence of course of performance/deal/trade usage (UCC doesn’t include this)
Operates as a gatekeeper as to what extrinsic information the jury can hear – jury still decided
persuasiveness of the admitted evidence
Integratedness (§209, §213)
o Partial integration: writing intended to be final but only as to central terms of the agreement
- PE allowed to supplement so can’t be inconsistent
o Complete integration: intended to be final as to all details of the agreement
- PE inadmissible for anything within document’s scope
o Not integrated: PE admissible regardless of consistency
o **response to PE are merger/integration clauses**
Judicial Tests for Determining Integratedness:
1) Textualist “4-corners”: look to the document, are all central terms there? If yes, no PE
- Thompson v. Libby – PE barred when looking to oral
warranty for logs bc completely integrated
2) Hybrid Approach: look to the natural inclusion test but allow it to be trumped by a
merger/integration clause – majority
3) Natural Inclusion (§209): would it be natural for the party to include the provisions in this
writing? If not reasonable to include in the writing, not able to bring in as PE
4) UCC §2-202: trade usage, course of performance, “certain” inclusion; not technically PE
5) Contextualist Approach: CA; opposite of textualism; look at PE to see if the document is integrated
(essentially negates the PE rule)
- Masterson v. Sine – allowed previously excluded evidence
showing intention not to assign the option bc only
partially integrated
54
Exceptions to PE Rule
1)
2)
3)
4)
5)
Doesn’t apply to questions of interpretation (PG&E, Frigaliment ) Doesn’t apply to agreements (written or oral) made after execution of the writing
Doesn’t apply to evidence of a contract defect (misrep/fraud, duress, mistake, incapacity)
Doesn’t apply to evidence offered to establish an equitable or non-K claim (i.e. uniqueness or tort)
Doesn’t apply to “collateral” agreements (i.e. other Ks that are outside the scope of the writing)
1. PG&E v. Thomas Drayage – CA approach allowing PE for interpretation
- D was to perform work and indemnify P for damages; cover fell and damaged
P’s rotor so P sued
- D wanted to bring in evidence showing the meaning of the indemnity clause
was to protect third party’s property not P’s
- evidence allowed to consider to determine proper interpretation
- if looking to offer PE to offer alternative interpretation, court must examine
(in camera) in context of negotiation and drafting AND if language of writing is
deemed susceptible to either interpretation, evidence is admissible
o Not great for certainty/predictability
o Greater litigation costs when parties can
always bring in this PE
o Lowers K costs
2. Trident Center v. Conn. General – PE for interpretation
- P obtained financing from D to construct a building where they wouldn’t be
able to prepay for the first 12 years
- when they wanted to pay early, were not allowed, and P sued
- misunderstanding as to when allowed to prepay; if PE raises “specter of
ambiguity,” then must be admitted regardless of Integratedness and ambiguity
- PE allowed to assist in interpretation of this prepayment plan
Contract Excuses/Implied Conditions
Certain contractual obligations are contingent (can be express or implied)
1. These conditions are an occurrence that triggers or extinguishes another party’s duty to perform and
establishes who bears burden of demonstrating
2. Condition Subsequent: this occurrence extinguishes the duty to perform
a. A promises to drive B around unless it is raining (raining is escape hatch for duty; prove it)
3. Condition Precedent: this occurrence triggers the duty to perform
a. A promises to drive B around if its raining (rain triggers duty; have to show it was raining)
4. can use PE to prove if a condition did or did not occur (like raining)
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Mistake
Implied condition (subsequent) that is triggered when it appears that at time of contracting, one or both
parties were unaware of a significant difference between their perceived transaction and reality
**Look to the time of contracting
Consequences of a SUCCESSFUL claim:
1) Disadvantaged may void K (has the option)
2) Court will typically “undo” the K and award restitution to both parties (reliance if necessary for
justice according to R §158(2))
Mutual Mistake
Open to relief from obligation given both parties are unaware of any risk-bearing; must distinguish
between mistake at time of contracting and change of circumstances after contracting
**both parties given the option to void K**
Mistakes about FACT not law (normally minus CA)
Modern Test (§152):
1) Mistake by both parties at time of contracting
2) Mistake involved a basic assumption of the K
3) Mistake had a material effect on the transaction
4) Party asserting excuse did not otherwise bear the risk of mistake under §154
(§154) When a Party Bears the Risk of Mistake –
1) The risk is allocated to him by agreement of the parties (express allocation)
2) He is aware, at the time the K is made, that he has only limited knowledge with respect to the facts
to which the mistake relates but treats his limited knowledge as sufficient (conscious ignorance), or
3) The risk is allocated to him by the court on the ground that it is reasonable in the circumstances to
do so (reasonable allocation)
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Policy for Allocation of Risk:
Party best able to bear the risk (best insurer), or avoid/control risk (moral hazard), fairness/level playing
field (avoid disadvantaging parties bc they have little info.), incentives for research and getting info.
Elements of Mutual Mistake: (Sherwood – old test)
1) A mistake is made by both parties at time of contracting
2) About a material fact inducing agreement
3) Which goes to the “substance of the agreement rather than mere quality
**Then it is voidable
o Sherwood v. Walker – no K enforceable when mutual mistake as to cow’s fertility (old test)
- P was to buy cow from D and both thought they were agreeing on a barren cow but when D
found out she was pregnant, he refused to sell her bc she was worth more
- both were mistaken as to material fact that induced the agreement which went to its
substance so K voidable
o Wood v. Boynton – P sold stone to D bc both thought it was a worthless topaz; unable to
recover upon finding out it was a pricey diamond because neither was mistake and no fraud;
both agreed on what it was and how much it was worth
o Lenawee County v. Messerly – party assumed risk so no voided K
- Ds sold house to Pickles infested with sewage so it was condemned and county sued
- “as is” provision in the K meant there was express assumption of risk so contract unable to
be rescinded despite mutual mistake as to property’s value
57
Unilateral Mistake
Traditionally unavailable but modern courts willing to allow but still difficult (5th element required)
Restatement §153 Unilateral Mistake Claim –
1)
2)
3)
4)
5)
Mistake by one party at time of contracting,
Involving a basic assumption
It had a material, adverse effect on the mistaken party
Mistaken party did not otherwise bear the risk of mistake under 154
PLUS either:
a. enforcement would be unconscionable, or
b. informed party had reason to know of mistake or mistake was the informed party’s fault
o Donovan v. RRL Corp. – K with unilateral mistake would have been unconscionable if enforced
- P saw car advertised for certain price and went to dealership who claimed it was a mistake
- SC sided with D given the unconscionability that would have resulted from enforcement
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Changed Circumstances
Implied condition subsequent triggered by a “surprise” that significantly disadvantages one party enough to
call into question whether parties intended enforcement
Seller – Impracticability (Transatlantic)
Buyer – Frustration of Purpose (Krell)
Consequences of Successful Claim:
1. Non-occurrence of an implied condition subsequent usually discharges all remaining duties of both
parties and voids contract retrospectively
2. Exceptions for installment or divisible Ks and unpaid balances
3. Restitution for benefits conferred in modern courts (traditionally not allowed)
**Can Contract an express provision to expand or shrink excuses through force majeure/act of
god/material adverse effect clauses – can go either way saying do not have to perform given these
circumstances or have to**
Impracticability/Impossibility (sudden increase in cost to seller)
Restatement §261 Elements of a Claim for Impracticability –
1)
2)
3)
4)
Occurrence of supervening event, that was a surprise inconsistent with basic assumption
Event not the fault of the party seeking to excuse performance
Event makes performance impracticable
Contractual language or circumstances do not indicate the party seeking an excuse assumed risk
o Transatlantic Financing v. US – not successful to claim impracticability for Suez canal
closure bc not actually impracticable simply because it was the normal route
o CNA v. Phoenix – unable to complete personal services contract upon death
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Frustration of Purpose (sudden decrease in value for the buyer)
Restatement §265 Elements of a Claim for Frustration of Purpose –
1)
2)
3)
4)
Occurrence of supervening event that was a surprise inconsistent with basic assumption
Supervening event isn’t the fault of the party seeking to excuse performance
Supervening event substantially frustrates a party’s purpose for contracting
Contractual language or circumstances do not indicate the party seeking excuse assumed risk
(similar to mistake doctrine)
o Krell v. Henry – if both parties understand why one is getting into K, able to claim
- D rents room from P to watch the coronation and pays deposit; king gets sick and it
doesn’t happen so D doesn’t want to pay and P doesn’t want to give deposit back
- no longer needs to be impossible but purpose was frustrated
- implied condition subsequent didn’t occur so no K and deposit must be repaid
Breach and Repudiation
Material/Total Breach
Conditions are duties contingent upon the occurrence (or non-) of some fact (failure or occurrence of
condition doesn’t give right to damages but excuses contractual duties)
Promise is an obligation that doesn’t turn on a contingency or fact (breach of promise gives one right to
damages but doesn’t excuse their duties)
“Perfect Tender rule” - at common law, breach trigger allows non-breacher to void K and claim damages
1. If performance didn’t conform precisely to that required by the K, counterparty could sue
for breach and void the K – courts have softened stance
Modern Approach – material breach and then non-material breach (substantial performance)
If Material (Restatement §241):
1. Can cease performance/cover and sue
2. Can cancel K and seek restitution
3. Can complete performance then sue
Restatement §241 Material Breach Factors –
+ injured party will be deprived of benefit reasonably expected (cuts toward material)
- injured party can be adequately compensated for the part of the benefit he will be deprived
- breaching party will suffer a forfeiture
- likelihood breaching party will cure failure or fix it
- breaching party’s behavior comports with the standards of GFFD
60
If NOT material (Substantial Performance):
1. Can complete performance but then sue later
o B&B Equipment v. Bowen – essentially all factors point to materiality
- P finances D’s stock purchase in company that he was to become CEO of; he is
terminated for being crappy at his job
- no GFFD, unable to fix, and company is deprived
- only argument for D is that he is left with a forfeiture (but not strong enough)
**not really restitution here; trying to roll back K**
o Jacob & Youngs v. Kent – substantial performance; breach immaterial
- P working in D’s house was to use all Reading pipe for no reason and after it was all
done, found it was not entirely Reading – D wanted P to redo it and withheld payment
- found to be immaterial, not in bad faith and not going to the substance of the
agreement; difference in value appropriate damages (none here really)
Anticipatory Repudiation
Act/declaration that definitely and unequivocally manifests intention not to perform future contractual
duty, or an inability to do so
Implies:
1. An instant material breach (Hochster)
2. Non-breaching party may immediately take any of the actions afforded as if the promise was
materially breached (i.e. cover, cancel, complete)
Caveats:
1. Must be unequivocal, not wishy-washy (Harell – must be unequivocal that when time comes for
performance, he will not render the promised performance)
2. Future breach must be material if carried out (not intent to commit minor breach)
o Lane Industries v. Foster – middle ground established allowing for non-breacher to
suspend if suspecting there will be a repudiation; requires an assurance
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Assurance Not
Given w/in
Reasonable Time
Yes
Y
Y
e
Yes
No
Assurance Given
w/in Reasonable
Time
No
Restatement §251 Middle Ground – When reasonable grounds arise to believe that the obligor
will commit a breach by non-performance that would itself give the oblige a claim for total breach,
the oblige may demand adequate assurances of due performance and may, if reasonable, suspend any
performance for which he has not already received the agreed exchange until he receives assurance
The oblige may treat as a repudiation the obligor’s failure to provide within a reasonable time such
assurances of due performance as is adequate in the circumstances of the case
Material Breach and UCC
Retains “Perfect Tender” Rule i.e. all breaches are material (but UCC gives second chances)
But PTR is partially defanged in two ways:
1. If buyer rejects goods because of nonconformity, seller has right to cure breach w reasonable time
2. If buyer accepts, limited ability to reverse course
UCC §2-609 (1) when reasonable grounds for insecurity arise w respect to the performance of
either party the other may in writing demand adequate assurance of due performance and until he
receives such assurance may if commercially reasonable suspend any performance for which he has
not already received the agreed return
(4) after receipt of a justified demand failure to provide within a reasonable time not exceeding 30
days is a repudiation of the contract
o Scott v. Crown – seller of grain skeptical of buyer repudiating so demands assurance
but didn’t do so in writing so violated UCC’s provision and not able to recover
o Ramirez v. AutoSport – Ps able to recover when van is delivered to them messed up bc
did not accept delivery at first
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