Introduction to the Study of Contracts (Intro)
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Structure of Contract Law
o Common Lae
o State Law
o Different Types of Contracts
o Reasons, not just Rules
Sources of Contract Law
o UCC and Sales of Goods
o Convention on International Sales of Goods
o Restatement (second) of contracts
o Restatement (third) of restitution and unjust enrichment
o Private Rules
o Cases
Introduction to Contract Doctrine (1)
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Exchanges, Contracts, and Societal Wealth
o Value of Exchanges
o Value of Commitment
o Commitment Despite Errors
General Framework of Contract Law
o Enforceability
o Performance due
o Unexcused nonperformance
o Remedies
o Unjust enrichment (quasi-contract)
Themes of Contract law
o Subjective v. Objective Tests
 Luebbert v. Simmons (OFFER)
 In determining the intent of a party to enter a contract, the reaonsable meaning of a person’s words and
acts is imputed to the person
 FACTS: Mary Simmons (defendant) was a real estate agent living on Lake Lotowana, Missouri. She began
dating Charles Luebbert (plaintiff). She moved in with Luebbert after filing for bankruptcy and during divorce
proceedings. Simmons frequently borrowed money from Luebbert over the course of their relationship.
Luebbert reminded Simmons regularly of her debt, and she occasionally made small repayments to him. In
March 1995, Luebbert and Simmons were having drinks at his home when Luebbert expressed doubt that
Simmons would ever repay him. Simmons wished to reassure Luebbert, and insisted on signing a promissory
amount stating that she would repay him $12,200 by December 31, 1995, plus 10 percent interest. A couple of
weeks later, Simmons wrote out a second promissory note, identical to the first but using neater handwriting.
When Simmons moved out in June, she wrote two checks for $1,000 each to Luebbert but asked that he hold off
cashing them. When Luebbert eventually tried to cash the checks, payment had been stopped on them. Luebbert
sued to recover the amount of the promissory note. The trial court found in favor of Luebbert, awarding him
$12,200, interest of $8,153, and costs of bringing the suit. On appeal, Simmons argued that her promissory note
was not a valid contract, because there had been no meeting of the minds. She maintained that she had been
drunk at the time she signed the first note, and that she had signed the note as a joke.
 ISSUE: In determining the intent of a party to enter into a contract, is the reasonable meaning of a person’s words
and acts imputed to the person?
 HOLDING: Yes. In determining the intent of a party to enter into a contract, the reasonable meaning of a
person’s words and acts is imputed to the person. If the reasonable meaning of those words and acts is to agree,
then it does not matter that the person may have intended something else. In this case, Simmons claimed to have
been insufficiently sober and joking at the time she signed the promissory note. However, Simmons was not so
incapacitated by drinking that she could not recall the events of the evening. She insisted on signing the
promissory notes in order to reassure Luebbert that she would repay him. Even if she were in fact joking, the
reasonable meaning of her words and acts were that she intended to enter into a contract with Luebbert. For this
reason, the lower court properly found that the parties had the necessary intent to form a contract. The judgment
of the trial court is affirmed.
o Individual freedom v. societal control
CHAPTER SUMMARY:
o An action for breach of contract requires an enforceable promise, performance of which has come due, but which has not
been performed without excuse.
o To be enforceable, a promise requires mutual assent to a voluntary exchange (consideration) on terms that a court can
ascertain well enough to act (definiteness)
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While parties cannot avoid their commitments merely because they regret them, when circumstances surrounding the
transaction preclude a person from exercising sound judgment, a defense may permit a party to refuse to perform. Common
problems include incapacity (youth, mental illness, intoxication); misinformation (misrepresentation or mistake); improper
pressure (duress or undue influence); unconscionability (usually concealed terms); and public policies limiting enforcement
Remedies include injunctions and damages aimed at securing the benefit of the bargain to the non breaching party. Damages
may seek to grant a party the benefit of the bargain, the expectation interest, or may seek to prevent any harm caused by the
promise itself, the reliance interest.
Unjust enrichment is a cause of action available when a party has gained a benefit at the expense of another and it would be
unjust to allow the party to retain the benefit without compensating the other for it
contract law frequently must decide whether objective manifestations should govern even if subjective intentions differed
from the manifestations. Similarly contract frequently has to decide whether the minimum requirements of the law are
satisfied by objectively reasonable efforts or by subjectively honest efforts, even if unreasonable
allowing people to make their own contracts includes allowing them to make their own mistakes. When enforcing a contract
would enforce a mistake, society sometimes seeks to protect people from their own mistakes.
Offer and Definiteness (2)
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Offer and Acceptance
Objective test and its implications
o Jest
 Lucy v. Zehmer
 The objective, outward expression of a party’s intent to be bound in an agreement, as opposed to that
party’s subjective mental assent to the agreement, is all that matters when determining the existence of a
valid and enforceable contract
 FACTS: On the evening of December 20, 1952, A.H. Zehmer (defendant) was drinking alcohol in a bar and
was approached by his acquaintance, W.O. Lucy (plaintiff). Lucy was also drinking, and bought additional
drinks for Zehmer. The two began conversing, and Lucy offered to purchase a farm owned by Zehmer for
$50,000. Lucy had offered to purchase the same farm several times on previous occasions, and Zehmer always
refused. On this particular occasion, Zehmer and Lucy spoke for forty minutes about Lucy’s purchasing the
farm, and Zehmer expressed doubt that Lucy could come up with the $50,000. Lucy stated he could, and invited
Zehmer to write out a contract for sale. Zehmer drafted an agreement on the back of a bar receipt stating his
intention to sell the farm to Lucy for $50,000. Lucy examined it, and requested that Zehmer rewrite the
agreement to include his wife’s agreement to sell the property, and have his wife signed it. Zehmer obliged and
asked his wife (who was also in the bar) to sign the agreement. When she initially refused, Zehmer whispered to
her that the whole matter was merely a joke. Zehmer’s wife signed the agreement, but neither party
communicated to Lucy that they intended it to be a joke. The agreement also contained a provision for
examination of title, and a description of what would be included in the sale. Zehmer completed the agreement
and gave it to Lucy, who offered Zehmer $5 to close the deal. At this point, Zehmer realized Lucy was serious
and stated that he intended the agreement to be a joke. Lucy left the bar, and enlisted his brother to help him
raise the $50,000 pursuant to the agreement. They were successful and upon completion of a title check, Lucy
again stated his intention to purchase the farm from Zehmer pursuant to their agreement. Zehmer refused, and
Lucy sued for specific performance. The trial court held Lucy was not entitled to specific performance, and
Lucy appealed.
 ISSUE: Whether the actual mental assent of the parties to an agreement is necessary to form a valid and
enforceable contract.
 HOLDING: No. Zehmer’s outward actions, when interpreted by a reasonable person, indicate a willingness to
be bound in his agreement to sell his farm to Lucy, and Lucy is thus entitled to specific performance of that
agreement. The objective, outward expression of a party’s intent to be bound in an agreement, as opposed to
that party’s subjective mental assent to the agreement, is all that matters when determining the existence of a
valid and enforceable contract. If the words or actions of one of the parties has only one reasonable meaning,
any undisclosed intentions have no bearing on the existence of a valid and enforceable contract unless they
reflect an unreasonable meaning that is actually disclosed to the other party. The facts surrounding the creation
of Zehmer’s agreement to sell his farm to Lucy, when interpreted by a reasonable person, indicate an outwardlyexpressed desire by Zehmer to be bound to that agreement. It does not matter that his subjective desire was that
the agreement should be a joke, as this was never communicated to Lucy. The agreement itself was discussed
between the two parties for over forty minutes before it was signed, was redrafted at the request of Lucy to
contain provisions for title examination and what was included in the sale, and was signed by both Zehmer and
his wife with no indication that it was not complete and binding. Additionally, although Zehmer and Lucy were
drinking alcohol, the elaborate and detailed manner in which they discussed and drafted their agreement
suggests they were not so drunk as to be unaware of their actions. Thus, equity does not justify voiding the
contract on these grounds, and Lucy is entitled to specific performance of the contract. The decision of the trial
court is reversed and remanded.
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Offers
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Misunderstood Assent
Perfectly Understood Assent
Form Contracts
 Partial assent
 Objectively unacceptable terms
Master of the Offer
Advertisements
Written Memorial Contemplated and Preliminary Agreements
 Written Memorial Contemplated
 Trademark Props Inc v. A and E TV networks
 The party seeking to enforce an oral contract must prove that the parties intended to be bound without a
written agreement
 FACTS: Richard Davis (plaintiff) was a real estate broker who bought underpriced properties, then renovated and
sold them. Davis believed that this process, called flipping, could be the subject of a reality television show. Davis
created a pilot episode for his show that he called “Flip This House,” and used the pilot to pitch his idea to several
television networks. Charles Norlander, a director of programming at A & E Television Networks (A & E)
(defendant), called Davis to discuss the pilot. During their conversation, Davis proposed that he personally handle
the purchase and resale of the properties used for the show, but to split the show’s revenues with A & E. Norlander
responded, “Okay, okay, I get it.” Davis believed that this conversation constituted an oral agreement. Norlander
and A & E worked together to make thirteen episodes of “Flip This House,” and the show was successful. Davis
expected that Norlander would reduce their oral agreement to a written contract, but Norlander did not. Davis and
Norlander could not resolve the amount that Davis would be compensated. In the end, A & E did not pay Davis
anything, and produced three more seasons of “Flip this House” without Davis. Davis sued A & E for $7.5 million,
or half of A & E’s revenues from the four seasons of “Flip this House.” During the trial, Norlander denied having
any contract with Davis. A jury found in favor of Davis and awarded him damages of $4 million. A & E moved for
judgment as a matter of law and for a new trial. The district court denied A & E’s motions. On appeal, A & E
argued that the parties only intended to be bound by a written agreement, and that under New York law, complex
contracts must be written rather than oral.
 ISSUE: Must the party seeking to enforce an oral contract prove that the parties intended to be bound
without a written agreement
 HOLDING: Yes. The party seeking to enforce an oral contract must prove that the parties intended to be bound
without a written agreement. Additionally, under New York law, a court may weigh a number of factors to
ascertain the parties’ intent. These factors include: (1) whether one party reserved the right to be bound only upon
signing a written agreement, (2) whether one party has partially performed, (3) whether there were no further terms
to negotiate, and (4) whether the agreement concerns complex matters for which written contracts are typically
used. Here, A & E worked with Davis to produce thirteen episodes of “Flip this House” without any written
contract. This fact could have been sufficient for a jury to infer that the parties intended to be bound by an oral
agreement. Additionally, although A & E alleges that the parties’ arrangement was so complex as to require a
written agreement, the parties’ revenue-splitting plan was not difficult to understand. Additionally, under New
York law, complexity is only one of four factors that a court may use to assess the parties’ intent to be bound by an
oral agreement. For these reasons, the district court properly denied A & E’s motions. The denial is affirmed.
 Preliminary Agreements
Definiteness
 Requirement of an Offer
 Requirement of Formation
 Chavez v. McNeely- DEFINITENESS
 A contract is legally binding only if its terms are sufficiently definite for a court to understand the parties’
obligations
 FACTS: Joe McNeely (plaintiff) and Brenda McNeely Chavez (defendant) married in 1969, then divorced and
remarried two times. In 2000, Joe became completely paralyzed from a horseback riding accident. The couple
divorced a third time in 2001. The couple litigated their divorce, and their settlement resulted in a consent
decree. The consent decree required that Brenda provide as much financial support as possible for Joe’s needs,
limited only by her own financial situation. Brenda paid the mortgage, taxes, and insurance on Joe’s ranch, but
stopped giving him additional financial support when her own business began failing in 2003. In 2007, Joe sued
Brenda for breach of the consent decree. The trial court found that Brenda could have provided Joe with
$300,000 per year in support from 2003 through 2007. It found that Brenda had breached the consent decree
and awarded Joe $950,000 in damages. Brenda appealed, arguing that the terms of the consent decree were too
indefinite to be enforced.
 ISSUE: Is a contract legally binding only if its terms are sufficiently definite for a court to understand the
parties’ obligations?
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HOLDING: Yes. A contract is legally binding only if its terms are sufficiently definite for a court to understand
the parties’ obligations. If a court cannot understand the parties’ obligations, then it cannot determine whether
there has been a breach nor the appropriate remedy. In this case, the consent decree failed to define how much
support was “as much as possible,” what items qualify as Joe’s “needs,” or when Brenda’s “financial situation”
would permit her to decrease her support. For these reasons, the consent decree was too indefinite to be
enforced. The judgment of the trial court is reversed.
o UCC: Auctions
Revocation
o Receipt
o Option contracts
 Drennan v. Star Paving Co- RELIANCE
 An offer which the offeror should reasonably expect to induce definite and substantial reliance by the
offeree, and which does induce such reliance is binding on the offeror and enforceable even without
consideration if enforcement is necessary to prevent injustice to the offeree
 FACTS: Drennan (plaintiff), a general contractor, was preparing a bid for a school construction project. As was
customary, Drennan solicited bids from subcontractors to perform the paving work necessary for the project.
Star Paving Co. (Star) (defendant) contacted Drennan and submitted a bid of $7,131.60 for the paving work.
This was the lowest bid, and Drennan relied on Star’s bid when computing his own bid for the project.
Drennan’s bid was lowest and he was ultimately awarded the general contract. Drennan promptly informed Star
it was awarded the subcontract. However, Star informed Drennan that it had made a mistake in computing its
bid and could only complete the work for $15,000. Drennan stated this was unacceptable and proceeded to look
for another subcontractor to perform the paving work. After months of searching, Drennan awarded a new
subcontract to a company bidding $10,948.60 for the project; the lowest bid found by Drennan. Drennan
brought suit against Star to recover damages caused by Star’s failure to perform work as specified in its bid. The
trial court awarded Drennan $3,817.00, or the difference between Star’s bid and the final cost of paving to
Drennan, plus costs. Star appealed.
 ISSUE: Whether detrimental reliance by one party on another party’s offer, without formal acceptance of the
offer, is sufficient to make the offer irrevocable.
 HOLDING: Yes. Star should have reasonably expected Drennan to rely on its bid when making his own bid,
and Drennan did rely on the bid such that enforcement of the terms of Star’s bid is necessary to prevent injustice
to Drennan. An offer which the offeror should reasonably expect to induce definite and substantial reliance by
the offeree, and which does induce such reliance is binding on the offeror and enforceable even without
consideration if enforcement is necessary to prevent injustice to the offeree. When reasonable reliance on the
offer by the offeree results in a foreseeable negative change in the offeree’s position, a promise not to revoke the
offer is implied on behalf of the offeror. This reasonable reliance serves a substitute for the consideration
ordinarily required to form a bilateral contract. It thus does not matter that Drennan provided no consideration
for the agreement between himself and Star, as it was reasonably foreseeable for Star that Drennan would rely
on its bid if it was the lowest bidder. It was in Star’s business interests for Drennan to rely on its bid, as doing so
resulted in Drennan winning the general contract and Star winning the subcontract. Additionally, it does not
matter that Star made a mistake in calculating its bid, as it had a duty to exercise reasonable care in bid
preparations. This duty of care is heightened by the fact that the negative consequences for Drennan stemming
from an erroneous subcontractor bid were reasonably foreseeable to Star. Finally, Drennan could not reasonably
know that Star made an erroneous bid, as there is often significant variation among subcontractor bids. Star
should have reasonably expected Drennan to rely on its bid when making his own bid, and Drennan did rely on
the bid such that enforcement of the terms of Star’s bid is necessary to prevent injustice to Drennan. Drennan
already fulfilled his duty to mitigate damages by searching for months for the next lowest bidder, and thus the
trial court’s award of $3,817.00, or the difference between Star’s bid and the final cost of paving to Drennan, is
affirmed
o UCC Firm Offers
CHAPTER SUMMARY:
o Assent generally requires an offer and an acceptance. The contract becomes binding at the point of acceptance
o ascent is evaluated based on the objectively observable words and the conduct of parties not their secret intentions
o the offeror is the master of the offer. She may specify the time place and manner of the acceptance as well as the terms of the
deal
o a proposal is not an offer if the other party has reason to know that the party making the proposal does not intend to be bound
until after it makes some further expression of assent. Reason to know may exist if a proposal is vague or incomplete or where
the other party indicated that it intends to make its final decision after reviewing a written agreement
o even if parties intend to enter a contract on vague terms, a court will refuse to enforce the deal unless the terms are
sufficiently definite to allow the court to identify a breach and formulate an appropriate remedy
o an offeror can determine how long an offer remains open. The offeror can end a power of acceptance by setting a deadline in
the offer or by revoking the offer, even if the deadline has not yet passed
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and offers power to revoke an offer can be limited by an enforceable promise to keep the offer open. A promise to keep an
offer open may become enforceable because the offeree gave consideration for that promise or because an exception to the
requirement of consideration made the promise enforceable
Acceptance (3)
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Acceptance
o Acceptance or counteroffer
 Mirror image rule
 Acceptance: proposal to modify
 Counteroffer without rejection: equivocal communications
 McReynolds v. Krebs
 A court will construe a purported acceptance as a counteroffer if the acceptance imposes a condition
 FACTS: Carmen McReynolds (defendant) was driving when she hit a General Motors car in which Lisa Krebs
(plaintiff) was as passenger. Krebs was seriously injured and received extensive medical treatment. Krebs sued
both McReynolds and General Motors. Krebs offered to settle with McReynolds for $25,000. In response to this
offer, McReynolds’s insurer faxed that it agreed to settle for $25,000, and requested that Krebs call to discuss
how to resolve the liens against the recovery as part of the settlement. McReynolds moved for summary
judgment, arguing that she and Krebs had entered into a settlement agreement. The trial court denied the
motion, permitting the case to go to trial. The jury found McReynolds liable for the injuries that Krebs suffered,
awarding Krebs damages of $1,246,000. McReynolds appealed, and the court of appeals affirmed. The
Supreme Court of Georgia granted certiorari.
 ISSUE: Will a court construe a purported acceptance as a counteroffer if the acceptance imposes a condition?
 HOLDING: Yes. A court will construe a purported acceptance as a counteroffer if the acceptance imposes a
condition. To form an enforceable contract, an offer must be accepted unequivocally and without any variance.
In this case, McReynolds purported to accept Krebs’s settlement offer by stating that she agreed to settle for
$25,000 and requesting a call regarding how to resolve liens against the recovery. McReynolds argues that the
request was one for information, not a condition of settlement. However, the trial court properly construed the
request for resolution of liens as a new term. This created a counteroffer rather than an acceptance. For this
reason, the trial court properly denied McReynolds’s motion to dismiss. The judgment of the trial court is
affirmed.
o Timing of assent
 Mailbox rule
 Lapse of time
 Rejection and counteroffer
 Death or incapacity
 Conditions
Acceptance by Performance
o Offers inviting promise or performance
o Offers requiring acceptance by performance (Unilateral Contracts)
 Vanegas v. American Energy Services
 An illusory promise becomes binding, and a unilateral contract is formed, when the promise is accepted by
performance
 FACTS: Vanegas and several other employees (the employees) (plaintiffs) worked as at-will employees for
American Energy Services (AES) (defendant). An AES representative orally promised the employees that if AES
was sold or merged with another company, the employees who were still employed at AES would together receive
five percent of the value of the sale or merger. AES was sold, but the company refused to pay the remaining
employees their proceeds from the sale. The employees who were still employed at AES sued for breach of an oral
contract. AES moved for summary judgment, arguing that the agreement to pay the employees was illusory. The
trial court granted summary judgment for AES, and the court of appeals affirmed. The employees appealed.
 ISSUE: Does an illusory promise become binding when the promise is accepted by performance?
 HOLDING: Yes. An illusory promise becomes binding, and a unilateral contract is formed, when the promise is
accepted by performance. A promise of continued employment by an employee or employer in an at-will
employment relationship is illusory and is not valid consideration, because both parties have the right to terminate
the employment. Illusory promises alone are insufficient to create a bilateral contract. However, a unilateral
contract may be formed upon solely illusory promises, because as soon as one party accepts the other party’s
illusory promise by performing, that promise becomes binding. In this case, it is irrelevant that AES’s promise to
pay the remaining employees upon the sale or merger of AES was illusory when it was made. The key issue is
whether the promise was enforceable at the time of the alleged breach. A promise that is illusory when made can
create a unilateral contract once that promise is accepted by performance. Assuming that AES promised to pay the
remaining employees when the company was sold, the employees accepted this offer by remaining employed with
AES until that time, at which point the promise to pay became binding. To hold otherwise could potentially
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invalidate all employers’ promises to at-will employees that are conditioned on a certain term of employment, such
as pension plans and vacation plans. The judgment of the court of appeals is reversed, and the matter remanded to
the trial court for further proceedings.
 Revocation of unilateral offers
 Sylvestre v. Minnesota
 Partial performance by an offeree prevents an offeror from revoking his offer
 FACTS: Prior to 1967, Minnesota law promised judges that, upon retirement, they would receive pensions equal
to half the salary paid to sitting judges. Statutes enacted in 1967 and 1969, however, limited retired judges to a
pension equal to half the salary paid to sitting judges at the time of their retirement. Six judges (plaintiffs) sought a
declaratory judgment that the new statutes did not affect their pensions. Four of these judges had retired prior to the
new legislation. One, Harold Flynn, retired after the statutes took effect. Another, J.K. Underhill, elected retirement
before the statutes took effect, but continued working until after they took effect. The trial court ruled that the new
statutes did not affect the pensions of judges who had elected to retire before the effective date of the statutes, but
did apply to the pensions of judges electing retirement after the effective date. Of the six judges who sued the state,
only Judge Flynn would have his pension affected. The judges appealed
 ISSUE: Does partial performance by an offeree prevent an offeror from revoking his offer?
 HOLDING: Yes. Partial performance by an offeree prevents an offeror from revoking his offer. For unilateral
contracts, performance serves as an acceptance of the offer. The contract is formed upon the offeree’s performance.
If the offeree has begun, but not completed, performance, any change in the terms of the offer is a revocation. In
this case, Judges Flynn and Underhill began their performance on Minnesota’s pension offer at the time they began
working. Because they had not retired prior to the 1967 and 1969 legislation, their performance was not complete
at the time that Minnesota changed the terms of its pension offer. However, Flynn and Underhill’s partial
performance prevented Minnesota from revoking its pension offer. For this reason, Flynn and Underhill are not
subject to the new pension terms. The judgment relating to Judge Flynn is modified.
Acceptance by Silence
o Offeree intends silence as acceptance
o Prior dealings
o Accepting Benefits without objection
o Nirvana Intl v. ADT
 If an offeree knows the terms of an offer and takes the offered benefit, the offeree’s silence or inaction operates as an
acceptance
 FACTS: Amit Sharma was the owner of Nirvana International, Inc. (Nirvana) (plaintiff), a jewelry store. Sharma met
with a sales representative for ADT Security Services, Inc. (ADT) (defendant) to buy security services for Nirvana.
ADT’s sales representative presented Sharma with a six-page contract. Page six of the contract limited ADT’s liability to
$1000 for any client’s loss. Sharma signed and initialed pages one through three of the contract, but declined to agree to
pages four through six of the contract without more time to review them. Sharma later concluded that he did not agree to
the terms and conditions of pages four through six, but he did not communicate his decision to ADT. A few weeks after
the meeting, ADT installed its alarm system at Nirvana, with Sharma’s permission. Sharma began paying a monthly fee
for ADT’s surveillance. Six months later, Nirvana was robbed of $2.4 million in jewelry. The robbery went undetected
by ADT. Nirvana sued ADT for, among other things, breach of contract, seeking to recover the $2.4 million. Nirvana
argued that its contract with ADT did not include the limitation of liability contained on page six of the parties’ contract,
because Sharma did not consent to pages four through six. ADT moved to dismiss, arguing that the contract’s limit of
liability prevented Nirvana from suing for more than $1,000
 ISSUE: If an offeree knows the terms of an offer and takes the offered benefit, does the offeree’s silence or inaction operate
as an acceptance?
 HOLDING: Yes. If an offeree knows the terms of an offer and takes the offered benefit, the offeree’s silence or inaction
operates as an acceptance. The failure to sign an agreement does not mean there is no contract. In this case, Sharma did
not agree with pages four through six of the contract and never signed or initialed them. However, Sharma took the
benefits offered under the contract with ADT by allowing ADT to install its alarm system and paying ADT a monthly fee
for surveillance. Because Sharma took these benefits, Sharma’s silence acted as acceptance of ADT’s offer. Sharma’s
acceptance created a contract between Nirvana and ADT. When Nirvana accepted ADT’s offer, it accepted all the terms
of the contract, not just those that Sharma signed or initialed. For this reason, ADT’s motion to dismiss is granted.
UCC §2-207 and Forms
o Assent under §2-207
 The problem: last shot rule
 UCC: First shot rule
 New or Different terms
 Contract by Conduct
 Confirming Memoranda
 Applying §2-207
 Wachter Management Co. v. Dexter and Chaney, Inc.
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Both parties to a contract must agree to proposed amendments that materially alter the original contract
for the amendments to be considered part of the contract
FACTS: Dexter & Chaney, Inc. (DCI) (defendant) developed, sold, and supported software for the construction
industry. Wachter Management Company (Wachter) (plaintiff) was a construction management company based in
Kansas. DCI made a written proposal to Wachter for the purchase of an accounting and project management
software system. In addition to software, the proposal included a year of maintenance, training, and consulting. The
proposal did not contain an integration clause, but it also did not indicate that Wachter might be required to agree to
additional terms. Wachter’s agent signed the proposal. DCI shipped the software to Wachter. The packaging of the
software included a licensing agreement, sometimes referred to as a shrinkwrap agreement. The shrinkwrap
agreement stated that by opening the package containing DCI’s software, Wachter would be bound by the terms of
the shrinkwrap agreement. Among other things, the terms of the shrinkwrap agreement included a choice of venue
provision that required disputes to be resolved in Washington, where DCI was located. Wachter installed the
software. About 18 months later, Wachter sued DCI in Kansas seeking $350,000 in damages arising from
problems with the software. DCI moved to dismiss, arguing that the choice of venue clause in its shrinkwrap
agreement required Wachter to bring suit in Washington. The trial court denied DCI’s motion, holding that the
shrinkwrap agreement constituted an attempt to add terms to the parties’ original contract. DCI appealed.
ISSUE: Must both parties to a contract agree to proposed amendments that materially alter the original
contract for the amendments to be considered part of the contract
HOLDING: Yes. Both parties to a contract must agree to proposed amendments that materially alter the original
contract for the amendments to be considered part of the contract. Where two parties have entered into a contract,
one party cannot unilaterally add or change the terms of the contract. Both parties must consent to the changes.
Additionally, the exercising of a party’s rights under the terms of the original contract does not manifest express
consent to additional or changed terms. In this case, Wachter and DCI entered into a contract when Wachter signed
DCI’s proposal for the purchase of software and supporting services. When Wachter received DCI’s software, it
opened and installed the software. The software and its installation were included in the terms of the proposal that
Wachter signed. The licensing agreement included with DCI’s software constituted a proposal to modify the terms
of DCI’s preexisting contract with Wachter. Because Wachter did not expressly agree to the new terms, the choice
of venue clause in the licensing agreement is not enforceable. The trial court’s denial of DCI’s motion to dismiss is
affirmed and the case is remanded.
CHAPTER SUMMARY:
o Acceptance must conform to all the requirements of an offer, including both the substantive terms of the offer and any requirements
relating to the time place and manner for conveying acceptance
o an offer terminates when it is rejected, a counteroffer is made, it is revoked by the offeror, the time specified in the offer expires or a
reasonable time passes, either the offeror or the offeree dies or becomes incapacitated, or a condition of acceptance can no longer
occur
o revocations, counter offers, rejections, and some acceptances take effect when received, meaning delivered not necessarily notice or
read. If the mailbox rule applies acceptance takes effect when dispatched
o if the offer permits but does not require acceptance by performance, and offeree can accept the offer by beginning to perform or
tendering performance or a beginning of performance. beginning to perform operates as a promise to finish performance, creating a
binding contract immediately
o if an offer requires acceptance by performance, and offeree can accept the offer by completing the required performance. Once the
offeree begins to perform or tenders performance or a beginning of performance, the offer may not revoke the offer until the offeree
has had a fair opportunity to complete performance or the offeree abandons performance
o silence generally is a rejection rather than assent. In some unusual circumstances, a failure to object to an offer will accept the offer
o for sales of goods a definite acceptance may propose new terms without being a counter offer, unless the response expressly limits
acceptance to the new terms. The contract arises on the terms of the original offer unless new terms are accepted by the offeror
o for sales of goods between merchants failure to object to new terms proposed in an acceptance or confirming memorandum may
except those terms unless the new terms materially altered the transaction. If either party is not emergent a new term proposed in any
acceptance or confirming memorandum will not become part of the contract unless expressly accepted by the other party
o when parties performance of a sale of goods demonstrates the existence of a contract despite the lack of any assent in the
communications exchanged, courts will enforce a contract on any terms to which the parties did agree in their communications, filling
in any gaps with the default provisions in the UCC
Consideration (4)
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Introduction to Consideration
Basic Rule of Consideration
o Classical Benefit-Detriment Analysis
 Hamer v. Sidway- CONSIDERATION
 A party’s agreement to incur a detriment constitutes adequate consideration
 FACTS: Louisa Hamer (plaintiff) received several assignments of $5,000 and interest from William E. Story II
(Story). Story made the assignments based on money he was to receive from his uncle, William E. Story, Sr.
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Several years previously, Story’s uncle promised him that if he would abstain from “drinking, using tobaccos,
swearing, and playing cards or billiards for money” until he reached 21 years of age, he would be paid $5,000.
Story agreed and fully honored the promise by abstaining from these things until after his twenty-first birthday.
At that time, Story wrote to his uncle and informed him that he had upheld his promise. His uncle wrote back
and said that he was entitled to the $5,000 and that the money was being held for him at a bank. However,
Story’s uncle said that it would not be paid to him until he felt Story was capable of “taking care of it.” Story
agreed, and the money remained at the bank. Story’s uncle died without paying him the money, and this claim
was brought by Hamer to Franklin Sidway (defendant), the executor of Story’s uncle’s estate. The executor
rejected the claim, and Hamer brought suit in New York state court seeking to enforce the promise to Story. The
trial court upheld the promise, but the appellate court reversed. Hamer appealed to the New York Court of
Appeals.
 ISSUE: Does a party’s agreement to incur a detriment constitute adequate consideration?
 HOLDING: Yes. A party’s agreement to incur a detriment constitutes adequate consideration. Adequate
consideration sufficient to form a valid and enforceable contract may consist of either a right, interest, profit, or
benefit accrued to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or
undertaken by the other. It does not matter whether one party actually received a benefit or whether the thing
that forms the consideration is of any substantial value to either party. Adequate consideration does not depend
so much on a promisor’s benefit from a contract as it does on the promisee’s voluntary limitation of his legal
rights or freedoms in exchange for the promise. In this case, in exchange for his uncle’s promise of $5,000,
Story voluntarily restricted his legal freedom to engage in drinking, smoking, swearing, and gambling. It is
irrelevant whether his uncle actually received any benefit from Story’s actions. Story’s voluntary agreement to
incur these limitations constitutes adequate consideration to form a valid and enforceable contract with his
uncle. The decision of the appellate court is reversed, and the decision of the trial court is affirmed.
o Modern Bargain Theory
 Meadors v. United States
 A promise is not enforceable if the promise takes the action sought by the promisor without knowledge of
the promise
 FACTS: In January 1977, M.J.D., Inc. (MJD) applied for a loan. MJD’s principals were Melton Meadors, Jay
Judd, and Harold Ducote. The bank approved the loan subject to a guaranty by the Small Business
Administration (SBA) (plaintiff). In April 1977, the SBA approved a 56% guaranty, but required MJD’s
principals, plus Ducote’s wife, to back it with a guaranty. On April 2, 1977, Betty Jo Meadors (Betty)
(defendant) married Melton Meadors. At the loan’s closing on April 19, 1977, Melton Meadors, Jay Judd,
Harold Ducote, and the three men’s wives were present. No representative of the SBA was present. On the SBA
guaranty form to be filled out, there was space for four signatures that the SBA had stated it was going to
require: the three principals and Ducote’s wife. Nevertheless, all six attendees, including Betty, signed the
guaranty. MJD defaulted on the loan, and the SBA brought suit to obtain payment from the guarantors,
including Betty. Betty claimed she should not be a named defendant because her signature lacked consideration,
among other defenses. The SBA moved for summary judgment on that issue and the district court granted the
motion. Betty appealed.
 ISSUE: Is a promise enforceable if the promisee takes the action sought by the promisor without knowledge of
the promise?
 HOLDING: No. A promise is not enforceable if the promisee takes the action sought by the promisor without
knowledge of the promise. Such a promise lacks consideration. In this case, if the SBA did not request or know
about Betty’s signature on the guaranty form, Betty’s promise to guaranty the loan would not be enforceable
because the SBA would have taken the action that Betty sought—i.e., guarantying the loan—without knowing
of Betty’s promise. The district court, relying on a different legal framework, did not adjudicate the question of
whether Betty’s signature was “in any respect whatsoever required, anticipated, requested or relied upon (or, in
fact, known of)” by the SBA. If it was not, then Betty’s signature was not backed by any consideration and her
promise to guaranty the loan would not be enforceable. Given that the district court did not take evidence on this
question, summary judgment in favor of the SBA was inappropriate. The district court is reversed and the case
is remanded.
Exchanges that do not establish consideration
o Reward situations
o Gratuitous promises: executory gifts
 Dougherty v. Salt- CONSIDERATION
 A promise becomes an enforceable contract only when some consideration is provided by all parties
involved
 FACTS: Dougherty (plaintiff), an eight-year-old boy, was given by his aunt, Salt’s (defendant) testatrix, a note
promising to pay him $3,000 at the aunt’s death or before. The aunt asked Dougherty’s guardian to draft the
note after she expressed to him her desire to take care of Dougherty. Dougherty’s guardian drafted the note as
specified, and added the words “value received.” The aunt handed the note to Dougherty and told him that she
had signed the note for him, and that he should not lose it. At the aunt’s death, Dougherty sought to recover on
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the note. A jury held that consideration had been provided by Dougherty and that the note was enforceable. It
entered a verdict for Dougherty. The trial judge set aside the verdict, however, and dismissed the case. The
appellate court reversed and reinstated the verdict. Salt appealed
 ISSUE: Whether a promise made without consideration by all parties involved constitutes an enforceable
contract
 HOLDING: No. Dougherty provided no consideration for his aunt’s promise to pay $3,000, and thus the note
constituted an unenforceable executory gift rather than a binding contract. A promise becomes an enforceable
contract only when some consideration is provided by all parties involved. Consideration does not exist unless it
is regarded as such by all parties to the contract. The testimony of Dougherty’s guardian at trial indicates that
Dougherty’s aunt intended to give Dougherty a gift of $3,000 for the purpose of taking care of him. She asked
nothing from Dougherty in return, and thus Dougherty provided no consideration in exchange for his aunt’s
promise. It does not matter that Dougherty’s guardian included the words “value received,” as no actual value
was provided by Dougherty. Thus, the note constituted an unenforceable executor gift rather than a binding
contract. The decision of the appellate court reinstating the verdict is reversed.
Conditional Gifts: Questioning Exchange
 Plowman v. Indian Refining Co
 One cannot enforce a promise that has not been supported by consideration
 FACTS: Eighteen employees, including Plowman (the employees) (plaintiffs), of Indian Refining Co. (Indian
Refining) (defendant) were let go from the company and began receiving pension checks. These employees had all
worked for Indian Refining for a number of years before they were let go. The employees were retained on the
payroll, but did not render any further services for the company. Most of the employees testified that they were told
they would receive the pension checks throughout the rest of their lives. A letter from Indian Refining to the
employees stated that the pension checks were being paid in recognition of many years of faithful service and in
order to shield the employees from the effects of having to let them go. In order to receive their pension checks, the
employees needed to pick them up from the main office. A year after promising the pension checks, Indian
Refining discontinued the payments. The employees filed suit for breach of contract.
 ISSUE: Can one enforce a promise when it has not been supported by consideration?
 HOLDING: No. A contract must be supported by consideration in order to be enforceable. Past consideration,
something delivered before the promise is executed, is not legally sufficient consideration to form a contract. Moral
consideration, a sense that one has a moral duty to act, is not sufficient consideration unless it was once a legal
duty. In the current matter, the employees contend that their faithful service as employees and the company’s belief
that it had a moral duty to pay are sufficient consideration. However, these facts cannot support a finding of
consideration because they constitute past and moral consideration, respectively. Past and moral consideration are
not recognized by the law. Additionally, the employees’ action in picking up their checks did not constitute
consideration. This action was not a detriment to the employees, but was a benefit to them. It was a detriment to
Indian Refining, not a benefit. The act of picking up their checks was merely a condition imposed upon the
employees in obtaining the checks, which is not sufficient to support a finding of consideration. Accordingly, the
promise to pay the pension is not enforceable for lack of consideration.
Charitable Pledges as Conditional Gifts
Adequacy of Consideration
 Batsakis v. Demotsis- CONSIDERATION
 Although a valid contract requires all parties to prove consideration, mere inadequacy of consideration will
not void a contract
 FACTS: On April 2, 1942, George Batsakis (plaintiff) offered Eugenia Demotsis (defendant) 500,000 drachmas
if she would sign a letter agreeing to pay him back the sum of $2,000 in American currency at a future date,
with eight percent interest per year added from 1942. Batsakis later brought suit to recover on the signed
agreement. In her answer, Demotsis alleged that the agreement failed for lack of consideration because the
actual value of the 500,000 drachmas provided to her by Batsakis was only $25. The trial court held for Batsakis
and awarded him a $750 principal, plus interest at the rate of eight percent per year from 1942 to the judgment
date, or $1163.83 total. Batsakis appealed.
 ISSUE: Whether an agreement between two parties where one party provides very minimal consideration
relative to consideration provided by the other party constitutes a valid contract.
 HOLDING: Yes. The $25 provided by Batsakis constitutes valid consideration in support of a valid contract
with Demotsis, and the contractual terms should be enforced as written. Although a valid contract requires all
parties to provide consideration, mere inadequacy of consideration will not void a contract. Thus, it is irrelevant
that the amount of consideration provided by Batsakis is very small when compared to the consideration
provided by Demotsis (agreement to pay Batsakis $2,000 plus interest in exchange for his loan of $25). A valid
contract exists because both parties provided some consideration. Demotsis testified that she agreed to a
contract with these terms, and her receipt of $25 is thus exactly what she contracted for based on this testimony.
Batsakis fulfilled his contractual obligations, and the trial court should enforce the terms of the agreement as
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written. The decision of the trial court is amended to include a judgment for Batsakis against Demotsis for the
full contractual amount of $2,000 plus interest. The judgment, as amended, is affirmed.
o Sham Consideration
o Illusory Promises
CHAPTER SUMMARY:
o The doctrine of consideration requires a legally recognized exchange to warrant enforcement of a promise
o consideration consists of both legal sufficiency and bargained for exchange the classical benefit detriment approach examines
whether up the promissor receives a benefit or the promisee suffers a detriment loss or forbearance necessary to establish
consideration
o the modern bargain theory of consideration focuses on reciprocal conventional inducement; in exchange in which each party's
promise induces the other to respond with a return promise action or forbearance
o gratuitous promises, conditional gifts, and sham consideration do not meet the mandates of consideration
o in general, courts do not examine the adequacy of consideration, leaving it to the parties to assess their own best interests
under the freedom of contract
o the convention on contracts for the international sale of goods does not require a showing of consideration for goods
transactions between parties in different nations
Exceptions to Consideration (5)
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Past consideration of moral obligation
o Mills v. Wyman (CONSIDERATION)
 A promise based on a moral obligation but made without legal consideration does not constitute an enforceable
contract unless it is tied to a preexisting legal obligation
 FACTS: On February 5, 1821, Mills (plaintiff), a Hartford, Connecticut resident, came upon Levi Wyman, the son of
Wyman (defendant). Levi was twenty-five years old and had just returned from a voyage at sea. He was extremely ill,
and was taken in and cared for by Mills, a stranger, for fifteen days. Levi then died. His father, Wyman, lived in
Massachusetts and wrote to Mills upon hearing of Levi’s death. Wyman promised to pay Mills for the expenses he
incurred while taking care of Levi. However, Wyman later refused to pay and Mills brought suit to enforce Wyman’s
promise. The court of common pleas held for Wyman and ruled the promise unenforceable. Mills appealed.
 ISSUE: Whether a promise based on a moral obligation but made without legal consideration constitutes an enforceable
contract.
 HOLDING: No. The promise made by Wyman to pay for Mills’ expenses is without legal consideration and thus
unenforceable. A promise based on a moral obligation but made without legal consideration does not constitute an
enforceable contract unless it is tied to a preexisting legal obligation. A promise may be tied to a preexisting legal
obligation if the original legal obligation was based on consideration. For example, when one promises to assume the
debt of another who cannot pay, this promise is enforceable because of the consideration originally provided by the initial
debtor to the lender. Additionally, a parent’s promise to pay the debts of his minor children is enforceable based on the
preexisting legal duty of parents to provide for their children’s expenses. However, this obligation dissolves once the
child reaches adulthood. Levi Wyman fully reached adulthood and had long been out of his father’s care. Thus, his father
is no longer obligated to pay his debts based on a preexisting parent-child relationship. Additionally, no original promise
supported by valid consideration existed between Levi and Mills such that his father’s promise to assume Levi’s debts
could be tied to this preexisting legal obligation. Thus, Wyman’s promise to pay the expenses incurred by Mills while
caring for his son, while perhaps a moral obligation was not supported by legal consideration and does not constitute a
valid and enforceable contract. The decision of the court of common pleas is affirmed.
Renewing Past Promises- Supported by Consideration
Promissory Restitution- Subsequent Promise and Moral Duty
o Webb v. McGowin
 When a promisee confers upon a deceased promisor a benefit that is material and substantial, and is conveyed upon
the person of the promisor and not merely his estate, the promisee is entitled to recognition and compensation from
the promisor’s estate either by an executed payment or an executory promise to pay
 FACTS: Joe Webb (plaintiff) and J. Greeley McGowin were both employed at a lumber mill. On August 3, 1925, Webb
was dropping large, pine blocks from the upper floor of the mill to the ground. This was the usual and ordinary method of
clearing the mill floor. Just as Webb was about to drop a block, he saw McGowin on the floor below and knew that if the
block dropped, it could seriously harm McGowin. Webb chose to fall with the block and thus divert it from striking
McGowin. In doing so, however, Webb suffered serious bodily harm that left him unable to perform physical labor for the
rest of his life. McGowin recognized that Webb saved his life and agreed to pay Webb $15 every two weeks to sustain him
since he could not work. McGowin paid these payments until his death, at which point the executors of his estate, N. Floyd
McGowin and Joseph F. McGowin (defendants), refused to continue making payments to Webb. Webb brought suit to
recover the unpaid installments accruing from the time payments stopped to the time of the suit. The McGowins demurred.
The trial court entered a judgment of nonsuit against Webb. Webb appealed to the Alabama Court of Appeals.
 ISSUE: Whether the conferring of a material benefit or undertaking of a detriment by a promisee is sufficient
consideration to enforce a promisor’s subsequent promise to pay based on the benefit or detriment
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HOLDING: Yes. When a promisor receives a material benefit from a promisee, the promisor is morally bound to
compensate the promisee for services rendered. If the promisor subsequently promises to make payment on the basis of that
moral obligation, that promise is valid and enforceable. Such moral obligation constitutes valid consideration for a
subsequent promise if the promisor received a real pecuniary or material benefit. State ex rel. Bayer v. Funk, 209 P. 113
(1922). In Boothe v. Fitzpatrick, 36 Vt. 681 (1864), a bull owner's subsequent promise to repay the plaintiff for caring for the
bull after its escape was held valid and enforceable. Saving a person from death or serious bodily harm is a much more
substantial benefit than caring for a bull and is certainly valid consideration for a subsequent promise to pay. In this case,
McGowin received a material benefit when Webb saved McGowin from grievous harm, likely serious injury or death.
McGowin acknowledged this benefit, promise to pay Webb for the remainder of his life, and did so until his death eight
years later. Webb suffered severe bodily injuries from his actions undertaken to save McGowin’s life. Thus, McGowin’s
promise to pay bi-weekly payments to Webb is a valid, enforceable contract and is not barred by the statute of frauds. The
judgment of nonsuit is reversed, and the case is remanded. [Editor's Note: The McGowins subsequently petitioned the
Alabama Supreme Court for certiorari, which as denied.]
Preexisting Duty- Invalid Contract Modifications
o Alaska Packers Assn v. Domenico- PREEXISTING DUTY RULE
 If parties enter a new agreement under which one party agrees to do no more than he was already obligated to do
under an existing contract, the new agreement is unenforceable for lack of consideration
 FACTS: In March 1900, Alaska Packers’ Association (APA) (defendants) contracted with a group of sailors (plaintiffs) to
sail between San Francisco and Alaska, and en route perform regular duties as well as other duties requested by the captain
or agents of APA. APA agreed to pay each sailor $50 for the season and two cents per salmon they assisted in catching. The
following month, APA entered similar contracts with another group of sailors (plaintiffs), who would perform similar work
and receive $60 for the season and two cents per salmon. After arriving in Alaska, the sailors stopped working and
demanded $100 for the season in order to resume their work. Being unable to hire replacement sailors, an APA
representative in Alaska signed a new contract agreeing to the higher pay. However, the APA representative told the sailors
that he did not have the authority to alter their original contracts with APA. When the sailors returned to San Francisco, APA
paid the sailors only their original contract price of $50 or $60. The sailors sued APA in admiralty to recover the full amount
payable under the new agreement, alleging they had demanded the new contract price because APA had provided them
faulty fishing nets. This fact was heavily contested, and the trial court determined that APA had not provided faulty fishing
nets to the sailors. The trial court otherwise entered judgment in the sailors’ favor, and APA appealed
 ISSUE: If parties enter a new agreement under which one party agrees to do no more than he was already obligated to do
under an existing contract, is the new agreement enforceable?
 HOLDING: No. A contract that obligates a party to perform what he or she has a prior existing duty to perform under an
earlier agreement is not enforceable because it lacks consideration. A party cannot benefit from his or her own bad faith by
refusing to perform a contract in order to coerce another party relying on that performance into a new agreement that
requires no additional performance in exchange for more beneficial terms. Therefore, a promise to pay a party to perform
what he or she is already obligated to do is not enforceable. Here, even though the sailors relied on the APA representative’s
promise to pay them $100 instead of $50 or 60, the sailors were already obligated to perform the duties for which the
additional pay was promised. There was no new consideration for the additional pay. Because the sailors refused to perform
the original contract and agreed to do no more in the new contract than perform what they had already obligated themselves
to do in the original contract, the promise by the APA representative to pay $100 is not enforceable. The trial court is
reversed
Valid Contract Modifications- Finding New Consideration
o Modifications altering both parties’ performance
o Modifications settling disputes
o Modifications after rescission or waiver
o Modifications made in good faith
 Angel v. Murray- MODIFICATION
 When unexpected or unanticipated difficulties arise during the courts of performance of a contract, the
parties may modify the initial contract even without additional consideration for the modification as long as
(1) the parties voluntarily agree and the promise modifying the initial contract is made before the contract
is fully performed on either side (2) the underlying circumstances prompting the modification are
unanticipated by the parties and (3) the modification is fair and equitable
 FACTS: James L. Maher (defendant) has operated a refuse-collection service in the City of Newport since 1946
under a series of five-year contracts. Maher originally entered into these contracts with the expectation that
refuse-producing dwelling units would steadily increase at a rate of twenty to twenty-five per year. However,
after Maher signed a five-year contract in July 1964, the city experienced a substantial and unanticipated
increase of four hundred new dwelling units. In 1967, Maher asked the city council for an additional $10,000
per year to cover the cost of these new units. The city council agreed to pay him $10,000 per year for both 1968
and 1969, for a total of $20,000 beyond the original contract. Alfred L. Angel (plaintiff) brought suit against
Maher, the city, and Murray, the Director of Finance on the ground that the payment of $20,000 to Maher was
illegal and asking that Maher be ordered to repay that sum to the city. The trial court held the payment illegal
and ordered Maher to repay the $20,000. Maher appealed.
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ISSUE: Whether unexpected or unanticipated difficulties arising during the course of performance of a contract
permit the voluntary modification of the initial contract by the parties even without additional consideration for
the modification
 HOLDING: Yes. The payment of $20,000 to Maher after the unexpected and substantial increase in refuseproducing dwellings is a legal and enforceable modification of Maher’s initial contract with the city. When
unexpected or unanticipated difficulties arise during the course of performance of a contract, the parties may
modify the initial contract even without additional consideration for the modification as long as the parties
voluntarily agree and the promise modifying the initial contract is made before the contract is fully performed
on either side, the underlying circumstances prompting the modification are unanticipated by the parties, and the
modification is fair and equitable. This rule is reflected by Section 89(a) of the American Law Institute’s
Restatement, Second, Law of Contracts, and replaces the more traditional preexisting duty rule, providing that
an initial contract cannot be modified unless additional consideration is provided beyond the preexisting duties
assigned to both parties under the initial contract. The agreement made by the city council was completely
voluntary based on the nature and manner of Maher’s request for the additional $10,000 per year. Maher
presented a detailed explanation of his need for additional funding at a public meeting of the city council. The
city council then had the opportunity to vote to amend Maher’s contract. The record shows no evidence of
duress in Maher’s request. Additionally, Maher’s request was made in June of 1968 at a time when the five-year
contract entered into in 1964 had not been performed by either party. Also, although the contract required
Maher to collect all refuse within the city limits, these contractual terms were based on the assumption that
refuse-producing dwellings would only grow at a rate of twenty to twenty-five per year. Finally, based on the
substantial growth of four hundred dwellings in a few years, Maher’s request for $10,000 per year is fair and
equitable. The payment of $20,000 to Maher after the unexpected and substantial increase in refuse-producing
dwellings is a legal and enforceable modification of Maher’s initial contract with the city. The decision of the
trial court is reversed.
Reliance- promissory estoppel
o Establishing the exception for reliance
 Promise- promisor
 Foreseeable reliance- promisor
 Actual reliance- promise
 Detrimental Reliance- promise
o Reliance in family situations
 Wright v. Newman
 An obligation to provide child support may be enforced through promissory estoppel
 FACTS: Newman (plaintiff) has two children, a son and a daughter. Wright (defendant) is the natural father of
Newman’s daughter, but is not the natural or adoptive father of Newman’s son. However, Wright is listed on the
son’s birth certificate as the natural father, and the child was given Wright’s last name. Wright always knew that he
was not the child’s natural father, but Newman contends that Wright assumed the responsibilities of a father for 10
years. Wright contends that he has not provided financial support for the child for the past seven years, that for five
years of the child’s life he did not have contact with him, and that only in the last two years has he visited with the
child. Newman never attempted to identify her son’s natural father and never sought support from him. Wright and
Newman split. Wright refused to provide support for the children. Newman filed suit, seeking support for both
children. Wright admitted paternity only as to Newman’s daughter. The trial court, however, ordered Wright to pay
child support for both children. Wright appealed to the Georgia Supreme Court.
 ISSUE: Can an obligation to provide child support be enforced through promissory estoppel?
 HOLDING: Yes. An obligation to provide child support may exist through parentage or contract. An enforceable
contract right to child support may be created through promissory estoppel. Promissory estoppel requires “a
promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee
or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by
enforcement of the promise.” In the current matter, the facts are clear that Wright has an enforceable obligation to
pay child support to Newman’s son. Wright’s actions were effectively a promise to Newman and her son that
Wright would assume all responsibilities of fatherhood, including financial support. Those actions include listing
himself as the father on the birth certificate, giving the child his last name, and acting as a father to the child for 10
years. He took all of these actions despite knowing that he was not t’s natural father. Wright’s actions also induced
Newman and her son to rely upon Wright’s promise. Newman did not try to identify or seek support from her
son’s natural father as a result of Wright’s promise. Allowing Wright to renege on his promise now would result in
an injustice to Newman and her son, who could have been receiving financial support from the natural father.
Accordingly, Wright’s obligations to provide financial support for Newman’s son are enforceable under the
doctrine of promissory estoppel. The decision of the trial court is affirmed.
o Reliance in charitable situations
 King v. Trustees of Boston
 A charitable pledge is enforceable if there is a promise to give property to a charitable institution and
consideration or reliance on the promise
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FACTS: Dr. Martin Luther King, Jr. made the decision to deposit correspondence, manuscripts, other papers,
some of his awards, and other materials with the Trustees of Boston University (BU) (defendant).
Accompanying the deposit was a letter. The letter stated: “I intend each year to indicate a portion of the
materials deposited with [BU] to become the absolute property of [BU] as an outright gift from me, until all
shall have been thus given to [BU]. In the event of my death, all such materials deposited with [BU] shall
become from that date the absolute property of [BU].” When the materials were deposited, BU indexed the
papers, made them available to researchers, and hired trained staff to take care of the papers and assist
researchers. BU also held a ceremony for the receipt of the papers. Dr. King spoke at the ceremony about why
he placed those papers in BU’s custody. Upon Dr. King’s death, his wife (Mrs. King) (plaintiff), as
administratrix of his estate, sought the return of the materials from BU. Mrs. King filed suit. At trial, the jury
determined that King made a charitable pledge to BU. Mrs. King filed a motion for judgment notwithstanding
the verdict or for a new trial. The trial court denied the motion. Mrs. King appealed directly to the Supreme
Judicial Court of Massachusetts.
 ISSUE: Is a charitable pledge enforceable if there is a promise to give property to a charitable institution and
consideration or reliance on the promise?
 HOLDING: Yes. A charitable pledge is “an oral or written promise to do certain acts or to give real or personal
property to a charity or for a charitable purpose.” In order for a charitable pledge to be enforceable, the
following must be established: (1) a promise to give property to a charitable institution and (2) consideration or
reliance on the promise. The first element requires scrutiny of the promisor's donative intent. Donative intent
may be evidenced by a bailment, i.e., if one party delivers personalty to another party for a particular purpose, or
if property is deposited with another party upon an express or implied agreement that after the purpose has been
fulfilled, the other party will return the property or otherwise deal with the property pursuant to the first party's
instructions or keep it until it is reclaimed. A bailee is required to tend to the personalty with “scrupulous care.”
Additionally, although the statute of wills generally requires a testamentary disposition to be witnessed by two
or more competent witnesses, the statute of wills does not prevent someone from making a contract or promise
regarding a disposition of property that will take place at his death. In this case, the first sentence at issue in Dr.
King's letter is evidence of a bailment. By the terms of the first sentence, Dr. King's items were placed in BU’s
custody until otherwise indicated. This is sufficient evidence of donative intent to submit to the jury the question
of whether there was consideration or reliance on the promise. Additionally, even though the second sentence at
issue indicates that Dr. King’s promise will not take effect until his death, it does not make the letter a will, and
the promise may still be enforceable. Regarding reliance, BU indexed Dr. King's papers, made them available to
researchers, and hired trained staff to take care of the papers and assist researchers. BU also held a ceremony for
receipt of the papers, at which Dr. King spoke about why he placed the papers in BU’s custody. Because BU
was a bailee, it was required to act with “scrupulous care.” However, BU’s actions are evidence that it went
above and beyond that duty and, therefore, that its actions constituted consideration or reliance on Dr. King’s
promise to transfer the papers to BU. Accordingly, the evidence indicates that there could have been a charitable
pledge and, therefore, that this case was properly submitted to the jury. The judgment of the trial court is
affirmed.
Reliance in commercial situations
 Pop’s Cones Inc. v Resorts Int’l Hotel Inc
 One may enforce a promise even though the parties have not entered into a contract
 FACTS: Pop’s Cones, Inc. (Pop’s) (plaintiff) operated a TCBY franchise in Margate, New Jersey (the Margate
location). In early summer of 1994, Pop’s president, Taube, entered into discussions with Phoenix, a representative
of Resorts International Hotel, Inc. (Resorts) (defendant), about relocating the franchise to a space owned by
Resorts. In August, Taube drafted a written proposal addressing the lease. In mid-September, Taube asked Phoenix
about the status of the lease proposal. Taube informed Phoenix that she had a renewal option at the Margate
location and needed to give notice by October 1 about whether Pop’s would be staying. Having gotten no response,
in late September Taube again asked about the status of the lease proposal. Phoenix informed here they were “95%
there” and only needed to obtain a signature on the deal. Phoenix also told Taube to “pack up the Margate store
and plan on moving.” Pop’s notified the landlord of the Margate location that it would not renew the lease. Taube
then moved Pop’s equipment into storage, retained an attorney to represent Pop’s in finalizing the lease, and began
planning Pop’s relocation by sending in designs for the new store. Through the months of October to December,
Resorts’s attorneys entered into lease negotiations with Taube and the attorney for Pop’s. In late January, Resorts
sent a letter to the attorney for Pop’s stating that Resorts was withdrawing its offer to lease space to Pop’s. Taube
found another location for Pop’s, but was unable to reopen until July. Pop’s filed suit under the doctrine of
promissory estoppel. Resorts moved for summary judgment. The trial court granted the Resort’s motion. Pop’s
appealed to the Superior Court of New Jersey.
 ISSUE: Can one enforce a promise even though the parties have not entered into a contract?
 HOLDING: Yes. One may enforce a promise under the doctrine of promissory estoppel. In order to establish
promissory estoppel, the following four elements must be established: (1) a “clear and definite promise”, (2) a
promise made with the expectation that the promisee would rely on it, (3) the promisee’s reasonable reliance on the
promise, and (4) the promisee’s definite and substantial detriment as a result of that reliance. The promise may be
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express or oral. An actionable promise is one the promisor would reasonably expect to and does lead to action or
forbearance and injustice can only be avoided by its enforcement. In the current matter, there is ample evidence
that Resorts made a clear and definite promise with the expectation that Pop’s would rely upon it. Pheonix not only
instructed Taube not to renew Pop’s lease at the Margate location, but told Taube to “pack up the Margate
store….” Pheonix also assured Taube in late September that they were 95% through with the negotiations and that
virtually nothing remained to be resolved. These facts are sufficient to establish the first two elements of a claim of
promissory estoppel. Additionally, there is sufficient evidence of reasonable reliance and resulting definite and
substantial detriment. Pop’s vacated the Margate location, placed equipment in storage, retained an attorney for
lease negotiations, and began planning the relocation of the business. Pop’s ultimately incurred an expense it would
not have otherwise incurred when it relocated to its new location. This is sufficient evidence of the second two
elements of a claim of promissory estoppel. Based upon these facts, there is at least a jury question about Pop’s
claim of promissory estoppel. Therefore, Resorts should not have been granted summary judgment. The decision
of the trial court is reversed and remanded for proceedings consistent with this opinion.
o Remedies following reliance
CHAPTER SUMMARY
o Courts have found exceptions where promises will be enforced without a showing of consideration
o new promises to pay may re create a legal duty in cases of debts barred by the statute of limitations, debts owed by minors or
bankrupt parties, or merchant contracts under seal, even if the new promise lacks fresh consideration
o generally, a moral obligation will not make an agreement enforceable
o under the concept of promissory restitution, some moral obligations may justify enforcing a promise made after benefits have
been received under the material benefit rule
o under the pre-existing duty rule, a party demanding more money for the same performance already promised does not provide
consideration for the revised contract terms
o a contract modification that changes only one party's obligations raises concerns about coercive tactics, unfair threats of
breach, and economic duress. Contract modifications procured by coercion or duress will not be enforced
o if the parties voluntarily agree to modification it will be enforced if one the promised modifying the original contract was
made before the contract was fully performed on either side, 2 the underlying circumstances that prompted the modification
were unanticipated by the parties, and three the modification is fair and equitable
o promises lacking consideration may be enforceable under promissory estoppel if there is also foreseeable reliance, actual
reliance, and detrimental reliance and enforcement will avoid an injustice
o under case law, a charitable pledge, supported by consideration or reliance, is enforceable. The restatement view does not
require reliance or forbearance to enforce charitable pledges
Contract Defenses (Vulnerable Parties) (6)
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The basics of contract defenses
Incapacity
o Guardianship- void
o Mental illness or defect- voidable
 Mental illness or defect under contract law
 Severity of the mental illness or defect
 Ortelere v. Teachers Board of NY
 A contract can be declared void if a party is unable to understand the transaction and the other party knew
or had reason to know of the incapacity
 FACTS: Mrs. Ortelere worked as a teacher for many years and participated in the Teachers’ Retirement System
of the City of New York (the System), administered by the Teachers’ Retirement Board of the City of New
York (the Board) (defendant). At one point, she had elected a retirement payout that would provide a small
amount of monthly income and a reserve that would be paid to her husband, Mr. Ortelere (plaintiff) upon her
death. When Mrs. Ortelere was 60, she suffered a “nervous breakdown” and took a leave of absence. She began
treatment with a psychiatrist employed by the Board of Education. The psychiatrist diagnosed her with
“involutional psychosis, melancholia type” and administered tranquilizer and shock therapy. Her psychiatrist
never felt she was well enough to return to work. She also deteriorated to the point that her husband quit his job
to take care of her. On February 11, several months after her breakdown, but just before the expiration of her
leave of absence, Mrs. Ortelere executed an application to the Board whereby she elected to change her
retirement payout. She changed her payout to provide larger monthly income and no reserve to be paid out upon
her death. She also borrowed against the account. At this time she had been happily married to her husband for
38 years. Three days prior to the February election, Mrs. Ortelere informed the Board she intended to retire and
asked specific questions that reflected understanding of the retirement system. Two months after the February
election, Mrs. Ortelere died from a condition unrelated to her mental condition. Her husband and executor of her
estate brought suit seeking to revoke the February election to have it declared void for lack of mental capacity.
The trial court held that Mrs. Ortelere was mentally incompetent and, therefore, her February election was null
and void. The Appellate Division reversed and dismissed Mr. Ortelere's complaint, holding there was
insufficient evidence of incapacity. Mr. Ortelere appealed to the Court of Appeals of New York
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
o
o
o
ISSUE: Can a contract be voided because a party is unable to understand the transaction and the other party
knew or had reason to know of the incapacity?
 HOLDING: Yes. The new standard of mental incapacity provides that a contract is voidable by reason of
mental incapacity if, due to mental illness or defect, one party is not able to act reasonably with regard to the
contract and the other party knows or has reason to know of the condition. Restatement (Second) of Contracts §
18C (Tentative Draft No. 1, 1064). If the other party does not have reason to know of the condition, then the
contract cannot be avoided if it has been partially or wholly performed and avoidance would be inequitable.
However, in this latter case, equitable relief may be granted. The traditional rule regarding mental capacity
required that the person be so affected by the illness that he or she was completely unable to understand the
nature of the transaction. This rule failed to address when mental illness affected a person’s ability to control his
or her actions, despite being able to understand the nature of his or her actions. In the current matter, the System
or the Board knew or should have known of Mrs. Ortelere’s condition, as they knew she had taken a leave of
absence for medical reasons and that she had been seeing staff psychiatrists. The System also can be said to
have known given its relationship with Mrs. Ortelere over the years, including knowledge of her relationship
with her husband and family, especially in light of the foolhardy decision she made to exhaust her benefits.
However, much of the testimony provided at trial was done so under the old traditional standard. Accordingly,
the Appellate Division is reversed and the case is remanded to the trial court for a new trial under the new
standard for determining contractual competency
 Notice of the mental illness or defect
 Reliance without notice of the mental illness or defect
 Hauer v. Union State Bank of Wautoma- MENTAL INCOMPETENCE
 When a contract is voided due to mental incompetence, the contract may be set aside even if the parties
cannot be restored to their original positions
 FACTS: Kathy Hauer (plaintiff) suffered a brain injury in 1987 and was adjudicated mentally incompetent and
appointed a guardian. Hauer’s neurologist testified that she regained competency, and the guardianship was
terminated in 1988. Hauer lived off government assistance and interest from a mutual fund. Ben Eilbes
(defendant) had defaulted on a loan from Union State Bank of Wautoma (the Bank) (defendant). Hauer wanted
to invest in Eilbes’s business. Eilbes negotiated with the Bank to give Hauer a loan using the fund as collateral.
Eilbes told the Bank he would pay off his loan with Hauer’s investment. Hauer’s stockbroker told the Bank that
Hauer needed the fund and had a brain injury. The Bank agreed to loan Hauer $30,000. Eilbes and Hauer met
with the Bank to go over the terms. The Bank did not notice anything suggesting Hauer was incompetent. Hauer
gave the money to Eilbes and could not pay back the loan. Hauer sued Eilbes and the Bank. Eilbes was
dismissed, because he was filing bankruptcy. The Bank counterclaimed for the balance of the loan. Hauer
testified that she did not understand the nature and consequences of the transaction. Experts testified that Hauer
was incompetent when she entered the contract. The jury found Hauer incompetent and concluded that the Bank
acted in bad faith. The Bank moved to set aside the verdict. The trial court refused, entered judgment against the
Bank, and ordered the return of Hauer’s collateral. The Bank appealed to the Wisconsin Court of Appeals
 ISSUE: When a contract is voided due to mental incompetence, will the contract be set aside even if the parties
cannot be restored to their original positions?
 HOLDING: Yes. The contracts of a mentally incompetent person are voidable. Incompetence need not be raised
as an affirmative defense. Competence at the time of contracting is a question of fact for the jury. The person
seeking to void the contract has the burden of proof. Every adult is presumed competent until proven otherwise.
The test is whether the person had “sufficient mental ability to know what he or she was doing and the nature
and consequences of the transaction.” First Nat’l Bank v. Nennig, 285 N.W.2d 614 (1979). Even if a party was
incompetent, a contract will not be set aside if the parties cannot be restored to their original positions, unless
made in bad faith, without fair consideration, or the other party had had reason to know of the incompetence.
There is no affirmative duty to investigate, but a party is put on notice if a reasonably prudent person would
have suspected incompetence. Here, Hauer may void the contract. There is credible evidence that Hauer was
incompetent, including Hauer’s guardianship, her testimony, and the testimony of experts that she was
incompetent. The neurologist’s finding that Hauer was competent the year before the transaction is irrelevant;
competence only matters at the time of contracting. The question is whether the contract can be set aside. The
parties cannot be put back in their original positions, because Hauer no longer has the money. Therefore, the
contract will only be voided if it was made in bad faith, did not involve fair consideration, or the Bank had
reason to know of Hauer’s incompetence. There were many “red flags” that would have prompted a reasonable
banker to act more cautiously, including Eilbes’s involvement and Hauer’s stockbroker’s advice. The Bank
acted in bad faith, and the contract will be voided. The judgment of the trial court is affirmed
Intoxication- voidable
Infancy doctrine- voidable
Restitution for incapacity
 Dodson v. Shrader- MINOR
 One rescinding a contract because of a minority is not always entitled to recover the full purchase price
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FACTS: Dodson (plaintiff), at the age of 16, purchased a truck from Shrader. Nine months after Dodson
purchased the truck, it began to develop mechanical problems. Dodson continued to drive the truck until it
“blew up” a month later. He contacted Shrader for a refund, but was refused. Dodson filed suit in general
sessions court seeking to rescind the contract and recover the purchase price. The General Sessions Court found
in favor of Shrader. Dodson appealed to the Circuit Court. Before trial, the truck was damaged in a hit-and-run
accident. After trial, the Circuit Court permitted Dodson to rescind the contract and entered judgment in his
favor in the full amount of the purchase price. Shrader appealed to the Court of Appeals. The Court of Appeals
affirmed. Shrader appealed to the Tennessee Supreme Court.
ISSUE: When one rescinds a contract because of minority, is he always entitled to recover the full purchase
price?
HOLDING: No. A contract with a minor is not void, but voidable by the minor either before or after attaining
majority. However, when the minor rescinds the contract, he may or may not be able to recover the full
purchase price. Where the minor has not been overreached, there is no undue influence, and the contract is fair
and reasonable, the minor may recover the purchase price less reasonable compensation to the vendor of the
goods for the use of, depreciation, and willful or negligent damage to the goods by the minor. In the current
matter, Dodson was a minor when he entered into the contract and, therefore, is entitled to rescind. However, he
may or may not be entitled to recover the full purchase price. The facts show that Dodson continued to drive the
truck for a month, until it “blew up,” despite his awareness of mechanical problems. The trial court must
determine whether this behavior was negligent or willful. Additionally, because the truck was damaged by a hitand-run accident while in Dodson’s possession, the trial court must determine the amount of depreciation that
accident caused to the vehicle. Dodson is entitled to the purchase price of the vehicle, less these amounts.
Accordingly, the case is remanded to the trial court for proceedings in accord with this judgment
Duress
o Physical compulsion- void
o Economic duress- voidable
 Wrongful or improper threat
 Crime or tort
 Criminal prosecution
 Abuse of civil process
 Breach of good faith under a contract
 Threat induces party assent
 Lack of reasonable alternatives
 Austin Instrument v. Loral Corp- DURESS
 A contract is voidable on the grounds of economic duress if it is established that the party making the claim
was forced to agree to the contract by means of a wrongful threat precluding the exercise of his free will
 FACTS: In 1965, Loral Corporation (Loral) (defendant) was awarded a $6,000,000 contract from the United
States Navy to produce radar sets. Loral solicited bids for the 40 precision gear components needed to produce
the radar sets and awarded a subcontract for 23 components to Austin Instrument, Inc. (Austin) (plaintiff).
Austin began delivery of the components in early 1966. In May 1966, Loral was awarded a second contract with
the Navy for radar screens. Loral again solicited bids, and Austin bid on all 40 required components. Loral
informed Austin it would only be awarded a subcontract for components on which it was the lowest bidder.
Austin refused to accept a subcontract for less than all 40 components and informed Loral it would cease
delivery of parts due under the first subcontract unless Loral consented to substantial price increases for all parts
already delivered and scheduled for delivery on the first subcontract. Loral refused, and Austin ceased delivery.
Loral contacted 10 other manufacturers and could not find another that could produce the required components
in time for Loral to avoid breaching its Navy contract. Loral required parts to be delivered in September 1966
and could only find a manufacturer that could deliver in October. Loral informed Austin it would accept the
price increases and gave Austin until September 1966 to resume delivery. Austin delivered the parts in August
and September 1966, and Loral fulfilled both its Navy contracts. Three days after Loral’s second subcontract
with Austin ended, Loral informed Austin it would not pay the demanded price increases on the ground that
they constituted economic duress. Austin brought suit in New York state court to recover the price increases
agreed to by Loral. The trial and appellate courts held in Austin’s favor, and Loral appealed
 ISSUE: Is a contract voidable on the ground of economic duress if it is established that the party making the
claim was forced to agree to the contract by means of a wrongful threat precluding the exercise of his free will?
 HOLDING: Yes. A contract is voidable on the ground of economic duress if it is established that the party
making the claim was forced to agree to the contract by means of a wrongful threat precluding the exercise of
his free will. Such duress can be proved by showing that one party has threatened to breach the contract by
withholding goods unless the other party agrees to some further demand. Additionally, the threatened party
must demonstrate that it could not obtain the goods from another source of supply and that the ordinary
remedies available for breach of contract (e.g., accepting the breach and later suing for damages) are inadequate.
In this case, Loral was deprived of its free will by Austin, as Austin’s breach threatened Loral’s ability to fulfill
its contract with the U.S. government. The government comprised a majority of Loral’s business, and thus Loral
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had a significant interest in maintaining positive rapport with the government by not breaching its contract.
Loral could not simply ask for an extension from the government to find another manufacturer of components,
as doing so would potentially damage Loral’s reputation with the government. Additionally, it is unclear
whether Loral could successfully find an additional manufacturer that could meet its specifications. Loral
demonstrated that it could not obtain the goods from another source of supply by calling 10 manufacturers that
could not deliver the goods in time. Additionally, Loral could not accept the normal contractual remedy of
accepting Austin’s breach and later suing for damages because doing so would impermissibly cause it to breach
its own Navy contract. Thus, Loral agreed to the price increases based on economic duress from Austin, and this
duress is sufficient to void Loral’s new agreement to pay the price increases. The decision of the lower courts is
reversed, and the matter is remanded to the trial court to calculate damages.
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Undue influence- voidable
o Unfair persuasion
o Vulnerability
 Relationship of trust
 Domination over subservient party
o Inducement
 Odorizzi v. Bloomfield (UNDUE INFLUENCE)
 Where a dominant party to a transaction uses excessive pressure to persuade a party whose weakened
mental state makes him especially susceptible to persuasion, the weaker party may rescind the agreement as
obtained by undue influence
 FACTS: Donald Odorizzi (plaintiff) was hired by Bloomfield School District (Bloomfield) (defendant) to teach
elementary school. While he was still under contract to teach, he was criminally charged with engaging in
homosexual activities. Following his release on bail, Bloomfield’s district superintendent and the school
principal visited Odorizzi at his home. They told Odorizzi that if he did not resign immediately, they would
suspend him and publicize his dismissal proceeding, as they were required to do by statute. They told him this
would cause “extreme embarrassment and humiliation.” He was also told that he had no time to talk to a lawyer
and that if he resigned immediately, the arrest and suspension would not be publicized. At the time of this
meeting with the superintendent and principal, Odorizzi had gone without sleep for 40 hours from the time of
his arrest through his release on bail. Odorizzi agreed to tender his resignation. However, after being cleared of
the criminal charges against him, he asked to be reinstated in his employment. When Bloomfield refused,
Odorizzi filed an action against Bloomfield, alleging duress, menace, fraud, mistake and undue influence. The
trial court dismissed Odorizzi’s amended complaint and he appealed that decision.
 ISSUE: May a contract be rescinded for undue influence by a party whose weakened mental state made him
especially susceptible to persuasion and the dominant party employed excessive pressure?
 HOLDING: Yes. Where excessive pressure is used to persuade a party in a weakened mental state, such that the
will of the dominant party replaces the will of the servient party, the agreement may be rescinded as obtained by
undue influence. The first condition of undue influence is met if a party’s judgment is so impaired that his
mental state prevents him from freely contracting. The second condition requires excessive pressure or overpersuasion, indicated by several of the following characteristics: the people representing the dominant party
outnumber the weaker party; the time and/or location of the discussion is unusual or inappropriate; the dominant
party claims the agreement must be reached immediately, that there is no time to consult an attorney or third
party, that delay will have serious negative consequences; and/or the weaker party does in fact fail to seek the
advice of counsel or a third party. Here, Odorizzi was approached in his home shortly after his release from
prison after 40 hours without sleep. Further, Odorizzi was told that there was no time for him to consult an
attorney and that he would suffer severe embarrassment if he did not resign immediately. Under these
circumstances, he resigned immediately without consulting counsel. Odorizzi alleges sufficient facts to state a
claim for rescission due to undue influence. The trial court’s dismissal of the amended complaint is reversed.
o Third-party undue influence
CHAPTER SUMMARY
o Defenses that render a contract void are grounded in the idea that a contract is unenforceable because no valid contract ever
existed due to the claimed defense. Courts will refuse to enforce a void contract, even if both parties want the contract
enforced
o most offenses make contracts voidable, which means that the contract is enforceable, unless one party exercises its right to
claim a defense that will avoid or discharge its contractual duties
o a contract entered into under physical duress or with a party under court ordered guardianship makes a contract void and
unenforceable by either party
o under the modern view, incapacity, economic duress, and undue influence make a contract voidable at the option of the party
pleading the defense
o a party may disaffirm or repudiate a contract during the time of incapacity or a reasonable time thereafter. A party satisfied
with the contract despite the conditions under which it was made may ratify the voidable contract by words or conduct.
o Incapacity involves infancy, severe intoxication, mental illness and effect, and guardianship, all of which question whether
the party has sufficient mental ability to decide for herself whether the benefits of the bargain outweigh the costs
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o
o
o
the minority benefit rule balances the interests of the merchant acting in good faith with those of the minor claiming
incapacity. Absent any overreaching, fraud, or unfair advantage on the part of the adults, a seller is entitled to reasonable
compensation for you for the use of, depreciation, or willful or negligent damage done to goods sold, while these goods are in
the minors possession
economic duress requires wrongful or improper threats that induce assent when a party has no reasonable alternatives.
Examples of improper threats are threatened crime or tort, threats of criminal prosecution, withholding payment of admitted
debt, end civil process made in bad faith, and breach of duty of good faith in fair dealing.
Undue influence requires a party to be in a weakened state and subject to over persuasion by a dominating party over the
subservient party. This power may arise from relationships of trust or from authority figures.
Poor Information: Misrepresentation and Mistake (7)
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Misrepresentation
o Structure of misrepresentation
o Initial step: identify the error
o Identifying an assertion
 Assertions inferred from promises and opinions
 Assertions inferred from silence
 Barrer v. Womens National Bank- MATERIAL MISREPRESENTATION
 A representation is material if it is likely to induce a reasonable person to manifest his assent
 FACTS: The Internal Revenue Service (IRS) sold Lester Barrer’s (plaintiff) home at a tax sale because Barrer
had not paid his taxes. The IRS provided for a 120 day period within which Barrer could redeem the house.
Barrer contacted Women’s National Bank (WNB) (defendant) about obtaining a loan to redeem the house.
Barrer had a professional acquaintance with WNB’s president, Emily Womack. Barrer told Womack of his
financial difficulties, generally, but did not give specifics, including failing to tell Womack: (1) that he was six
months delinquent in his mortgage payments—Barrer testified that he told Womack that he “thought” he was
two months behind, but Womack testified that Barrer told her that he was current, (2) that his mortgage bank
(Columbia) had begun the process of foreclosure—although it was not clear that Barrer knew of the foreclosure,
(3) that he had an additional contingent liability of $11,000 to the IRS—although Barrer claimed that some of
this liability was included in the amount he already owed the IRS, (4) that he had a separate debt of $5300 in his
late wife’s name, and (5) that he owed $1500 in pending judgments against him—Barrer did, however, disclose
that he was a defendant in lawsuits. Regardless of these financial difficulties, however, Womack seemed to have
sympathy for Barrer’s financial situation and approved his loan without running Barrer’s credit or contacting
Columbia about his mortgage. At this point, the buyer of Barrer’s house in the tax sale informed WNB of the
specifics of Barrer’s financial woes. On this information, WNB rescinded the loan. Barrer brought suit against
WNB. A district court magistrate awarded WNB summary judgment, finding that Barrer failed to disclose the
five facts outlined above, and that those facts were material. Barrer appealed.
 ISSUE: Is a representation material if is not likely to induce a reasonable person to manifest his assent?
 HOLDING: No. To void a contract for innocent material misrepresentation, the recipient of the
misrepresentation must show that the opposing party made an assertion (1) that was not in accord with the facts,
(2) that was material, (3) that was relied upon (4) justifiably by the recipient in manifesting his assent to the
agreement, and (5) that that reliance was to his detriment. An assertion is material if it would be likely to induce
a reasonable person to manifest his assent. In the case at bar, the district court magistrate did not use the correct
legal standard for a determination of innocent material misrepresentation. Specifically, the magistrate applied
only the first two of the five legal principles for determining an innocent material representation. In addition,
there are material issues of fact in dispute as to what representations Barrer made or did not make, particularly
with respect to the status of Barrer’s mortgage. Moreover, it is unclear whether any of the five alleged
misrepresentations were material. To constitute materiality, the misrepresentations must have been likely to
induce a reasonable bank to manifest its assent to a loan. Womack had a relationship with and sympathy for
Barrer, and despite knowledge of Barrer’s financial struggles, WNB approved the loan without running Barrer’s
credit or calling Columbia about his mortgage status. It is not clear whether a reasonable bank would have done
so. As a result of the foregoing, summary judgment in favor of WNB was inappropriate. The district court is
reversed.
 Circumstances requiring disclosure
 Relation of trust
 Prior assertions
 Contents of a writing
 Good faith
o Inducement
o Fraudulent or material
 Material
 Fraudulent
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o
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Justifiable reliance
 Reliance on facts
 Reliance on opinions
 Jordan v. Knafel
 An agreement is void as against public policy only if it is clearly contrary to judicially or statutorily
declared public policy, or if it is manifestly injurious to the public welfare
 FACTS: Michael Jordan (plaintiff) had an intimate relationship with Karla Knafel (defendant). Soon after,
Knafel became pregnant and believed Jordan was the father. Jordan agreed to pay Knafel $5 million when he
retired from professional basketball, in exchange for Knafel agreeing to keep the relationship confidential and
not to file a paternity suit against Jordan. Jordan filed suit, seeking to void the contract. Jordan claimed that the
contract was unenforceable as against public policy. Knafel filed a counterclaim for breach of contract, seeking
the $5 million payment. The trial court granted Jordan’s motion to dismiss Knafel’s counterclaim, finding the
contract to be extortionate and against public policy. Knafel appealed.
 ISSUE: Is an agreement void as against public policy if it is not clearly contrary to judicially or statutorily
declared public policy, and is not manifestly injurious to the public welfare?
 HOLDING: No. An agreement is void as against public policy only if it is clearly contrary to judicially or
statutorily declared public policy, or if it is manifestly injurious to the public welfare. A contract that is
inherently coercive and exploitive or motivated by improper influence can be contrary to public policy. But a
contract based on a party’s declaration that he or she intends to file a valid claim of right in court is not
extortionate. In this case, the trial court erred in dismissing Knafel’s counterclaim. Contrary to Jordan’s request,
the court will not adopt a public policy against all contracts under which money is exchanged for silence. Nondisclosure agreements can often serve an important purpose and are presumptively valid. Further, the contract in
this case is not inherently coercive or exploitive. Knafel had a right to file a paternity suit against Jordan. Knafel
declared to Jordan that she might do so, and then agreed to forgo that right in exchange for money. This is
sufficient evidence that the contract was not inherently coercive and exploitive or motivated by improper
influence. The judgment of the trial court is reversed, and the case is remanded.
Third-party misrepresentations
Misrepresentation affecting validity
o
o
Mistake
o Mutual mistake
 Shared mistake
 Time of contract formation
 Basic assumptions
 Material effect on the exchange
 The risk of the mistake
 Lenawee County v. Messerly
 Rescission is appropriate when the mistaken belief relates to a basic assumption of the parties upon which
the contract is made, and which materially affects the agreed performances of the parties, but rescission is
not available to relieve a party who has assumed the risk of loss in connection with the mistake
 FACTS: The Messerlys (defendants) purchased a tract of land on which an apartment building was located.
Prior to the transfer the owner had installed a septic tank on the property without a permit and in violation of the
health code. Later the Messerlys sold the property to the Pickleses (plaintiffs). The contract for sale stated that
“Purchaser has examined this property and agrees to accept same in its present condition. There are no other or
additional written or oral understandings.” The Pickleses later discovered raw sewage seeping from the land and
the Lenawee County Board of Health condemned the property for violation of the health code. The Pickleses
alleged failure of consideration and willful concealment and failure to disclose the sanitation condition and
asked that the land contract be rescinded. The trial court found there was no fraud or misrepresentation, as none
of the parties knew of the transgression of the earlier owner, and the property was purchased “as is” after
inspection. The trial court ruled that the Pickleses lacked a cause of action and foreclosure was ordered along
with a judgment in the amount of $25, 943. The court of appeals affirmed in part but reversed on the finding of
no cause of action. Certiorari was granted.
 ISSUE: Whether a land sale contract may be rescinded if the land is intended for a particular use and both
parties are unaware of a condition that makes it unsuitable for such use.
 HOLDING: Yes. The parties were under a mistake of fact. A contractual mistake is a belief that is not in accord
with the facts, held at the time the contract is executed. Here, the mistake was the belief that the property was
suitable for residential purposes, which it was not, because the sewage system rendered it inadequate. A contract
may be rescinded because of a mutual misapprehension of the parties, but this remedy is granted only in the
sound discretion of the court. Rescission is appropriate when the mistaken belief relates to a basic assumption of
the parties upon which the contract is made, and which materially affects the agreed performances of the parties.
Rescission is not available, however, to relieve a party who has assumed the risk of loss in connection with the
mistake. In the current case, the contract was made upon the assumption that the apartment was suitable for
residential use. The performance of the contract was valuable for the Messerlys because the property was worth
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less on discovery of the mistake. Nonetheless, both parties are innocent and thus rescission cannot be granted to
the Pickleses. The risk of loss should be allocated to the purchasers. The Pickleses had agreed to the term in the
contract stating that the “[p]urchaser has examined this property and agrees to accept same in its present
condition. There are no other or additional written or oral understandings.” The court below was correct in
holding the Pickleses purchased the property “as is” and assumed the risk of any mistakes. The decision of the
court of appeals regarding cause of action is reversed.
 Contractual allocation of risk
 Conscious ignorance
 Wood v. Boynton
 A party may rescind a contract for the sale of a good if she can establish either fraud or mistake
 FACTS: Wood (plaintiff) visited Boynton (defendant), a jeweler, to have jewelry repaired. While there, Wood
inquired whether Boynton knew anything about a stone that she had. Wood told Boynton that she had been told it
was topaz and Boynton replied that it probably was. Boynton asked Wood if she would sell the stone and offered
to give her a dollar for it. Wood at first refused, but later decided to sell the stone. Later, Wood learned that the
stone was an uncut diamond worth about $700.00. Wood tendered the dollar plus interest to Boynton and
demanded the return of the stone. Boynton refused. At the time of the sale, Boynton was not an expert in uncut
diamonds, had never seen one before, and it did not occur to him at the time of the sale that the stone might be a
diamond. Wood brought suit. The case was tried by a jury. After hearing all the evidence, the trial judge directed
the jury to find in favor of Boynton. Wood moved for a new trial, but the motion was denied. Wood appealed to
the Supreme Court of Wisconsin.
 ISSUE: Can a party rescind a contract for the sale of a good when she cannot establish either fraud or
mistake
 HOLDING: No. A seller may rescind the sale of a good and title will revest if (1) the buyer was fraudulent in
procuring the item or (2) if the seller made a mistake in delivering a good that was not the good sold. The latter
exists if there is a mistake in fact about the identity of the good sold with the good delivered. In such a situation,
there is not technically a rescission of the sale because title never actually passed to the buyer. Regarding fraud,
inadequacy of price alone is not sufficient to establish fraud. There must be some evidence that the parties were not
ignorant in the transaction. In the current matter, Boynton was not fraudulent, as he was ignorant of the nature of
the stone and its value. Boynton was not an expert in uncut diamonds and did not have it inspected before offering
to buy it. Though the price was vastly inadequate, the evidence shows that neither party was aware of this.
Additionally, there was no mistake about the identity of the item that was sold. Wood presented the stone to
Boynton, which he paid for and she delivered. There is no evidence of mistake. Accordingly, the judgment of the
circuit court is affirmed.
Unilateral Mistake
 Sumerel v. Goodyear Tire and Rubber Co
 If a party to a contract or agreement makes a material mistake known by the other party, or the mistake was
of such a character that the other party had reason to know of it, the mistaken party has the power to avoid
the contract
 FACTS: Goodyear Tire & Rubber Company (Goodyear) (defendant) was found liable in a products liability
action instituted by several families, including Sumerel, and two entities (collectively Plaintiffs). The jury awarded
Plaintiffs $1.3 million in damages and “other costs and losses.” Additionally, the jury found Goodyear 36 percent
responsible for the “other costs and losses” suffered by two families and 48 percent responsible for the “other costs
and losses” suffered by two other families. The trial court declined to award pre-judgment interest on the “other
costs and losses” awarded to Plaintiffs. Plaintiffs appealed the trial court’s decision not to make such an award.
Goodyear appealed the award of “other costs and losses” damages. A division of the court of appeals upheld the
trial court’s award of “other costs and losses” to Plaintiffs and further held that Plaintiffs were entitled to prejudgment interest on those damages. The division remanded the matter to the trial court for a determination of the
proper accrual dates for the award of pre-judgment interest on “other costs and losses” and to calculate the award.
Thereafter, attorneys for both sides entered into negotiations to reach an agreement as to the accrual dates and
resulting award amount. Although counsel for both parties easily reached an agreement as to the proper accrual
dates, the attorneys calculated the award amount differently. Co-counsel for Goodyear sent charts and calculations
to Plaintiffs’ co-counsel which was later determined to be an overstatement of damages due by more than
$550,000. Goodyear’s co-counsel had assessed Goodyear’s liability at 100 percent as opposed to 36 percent and 48
percent, respectively. Plaintiffs’ took co-counsel’s amount as an “offer” and accepted it. When Goodyear’s cocounsel realized his error, he attempted to correct the calculation. Nevertheless, Plaintiffs filed a motion to enforce
the purported “settlement agreement.” The trial court granted Plaintiffs’ motion and Goodyear appealed.
 ISSUE: If a party to a contract or agreement makes a material mistake known by the other party, or the
mistake should have been known by the other party, does the mistaken party have the power to void that
contract?
 HOLDING: Yes. Goodyear first argues that the trial court improperly concluded that a valid and enforceable
agreement existed between the parties based on Goodyear’s wrongly-calculated offer. However, the email sent by
Goodyear’s co-counsel to Plaintiffs’ attorney did not constitute an offer that was capable of acceptance. First, the
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charts and corresponding email were an attempt to complete a mathematical computation that was different from
an amount reached by Plaintiffs’ co-counsel. The parties were not negotiating dollar amounts, but were attempting
to identify a six-figure discrepancy in calculations. Second, the email sent to Plaintiffs’ co-counsel did not solicit an
acceptance. Instead, the email asked the attorney to call Goodyear’s co-counsel in order to discuss the calculations.
It is well-settled that an offeree may not accept an offer that, on its face, sounds too good to be true. Here, cocounsel’s calculation assumed Goodyear to be 100 percent liable for the “other costs and losses” rather than the 36
percent and 48 percent allocation of fault found by the jury. Therefore, the amount reached, erroneously, by
Goodyear’s co-counsel was flawed from the start as being directly contrary to the jury’s award. At a minimum,
Plaintiff’s co-counsel had an obligation to inquire before accepting the purported “offer.” Goodyear further argues
that even if the email and attached charts constituted an “offer,” any agreement based on the offer is unenforceable.
Generally, a material mistake made by one party to a contract, and which is known or should be known by the
other party as being a mistake, allows the mistaken party to avoid the contract. See Restatement (Second) of
Contracts § 153. Here, Plaintiffs’ co-counsel was aware that the calculations provided by Goodyear’s co-counsel
were in error. Plaintiffs were merely attempting to exploit Goodyear’s mistake to gain a windfall of over $550,000
more than the jury had awarded to them. Such a windfall is oppressive to Goodyear and would be unconscionable.
Despite Plaintiffs’ claim that the error rests with Goodyear, the record reflects that co-counsel for Goodyear had
requested co-counsel for Plaintiffs to review the calculations to find the discrepancy. Goodyear had knowledge that
there was an ongoing discrepancy with the parties’ calculations and sought to resolve it, not to extend an “offer” to
pay $550,000 more than required. The judgment of the trial court is reversed and the matter is remanded to allow
the parties to file a satisfaction of judgment for the amounts already paid by Goodyear.
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CHAPTER SUMMARY:
o Rescission is available if a fraudulent or material misrepresentation induces assent and reliance was justifiable. The defence may arise
from innocent misrepresentations, if material, not just from lies
o silence can be an assertion when circumstances make it necessary for a person to speak (nondisclosure) or when a party's conduct is
intended to prevent another party from discovering the truth (concealment)
o misrepresentation, or duress or undue influence, by a third party may justify recision unless the other party relies on the contract in
good faith and without reason to know of the misrepresentation or duress or undue influence
o a parties mistake concerning a basic assumption on which the contract was made will justify recision if it has a material effect
on the agreed exchange, unless the mistaken party bears the risk of the error. If only one party was mistaken, that party must
also show that the transaction is unconscionable, and that the other had a reason to know of the mistake, or that the others
fault caused the mistake
Contract Defenses (Policy Constraints) (8)
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Introduction to defenses based on policy
Unconscionability- voidable
o Procedural unconscionability
 Williams v. Walker-Thomas Furniture Co.
 When an element of unconscionability is present at the time of contract formation, the resulting contract is
not enforceable
 FACTS: Walker-Thomas Furniture Co. (Walker) (plaintiff) owned and operated a retail furniture store. It routinely
leased items to customers under lease agreements which provided that customers would make a series of
installment payments. Walker would retain title to the items until all payments were made, at which time title
would pass to the customer. All Walker’s lease agreements also contained a unique provision that every time a new
item was leased by a customer, a balance would become due on all items previously leased by that customer until
the entire balance for all items was liquidated. The effect of this provision was that if a customer defaulted on his
most recent purchase, Walker could attempt to repossess all previous purchases by that customer. Williams
(defendant) purchased a stereo from Walker and defaulted shortly thereafter. Walker brought suit to recover on the
stereo as well as all other items previously purchased by Williams. The trial court granted judgment for Walker,
and the appellate court affirmed. Williams and other defendants appealed to the District of Columbia Court of
Appeals.
 ISSUE: Whether a contract which contains unconscionability at the time of contract formation is
enforceable
 HOLDING: No. When an element of unconscionability exists when the contract is formed, the contract is not
enforceable. “Unconscionability” is defined as the absence of meaningful choice on the part of one of the parties to
a contract, combined with contractual terms which are unreasonably favorable to the other party. Whether a
meaningful choice is present in a particular case depends upon a consideration of all the circumstances surrounding
the transaction. These circumstances can include gross inequality of bargaining power, as well as the manner in
which the contract was entered. The terms of the contract must be considered “in the light of the general
commercial background and the commercial needs of the particular trade or case,” and should not be enforced if
they are “so extreme as to appear unconscionable according to the mores and business practices of the time and
place.” The lower courts did not conclude that holding the contract unenforceable was a viable option, and thus
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made no findings of fact as to the presence of unconscionability. The cases are thus remanded for consideration of
the contracts under this new test for unconscionability.
o Substantive unconscionability
 Bragg v. Linden Research Inc- UNCONSCIONABILITY
 A court may refuse to enforce a contract on the basis of substantive unconscionability
 FACTS: Linden Research Inc. (Linden) (defendant) was the operator of an online role-playing game called
Second Life. Second Life is a virtual world wherein players use avatars to interact with other players. Using
their avatars, players can form business ventures and use virtual Second Life currency to buy and sell property.
Players pay taxes on virtual property in real money to Linden. In order to play Second Life, players must agree
to its Terms of Service. To do so, players click a button to accept the terms. If players do not click the button,
they cannot participate in Second Life. Second Life’s Terms of Service contained an arbitration clause hidden in
its “General Provisions.” The arbitration clause required disputes to be arbitrated in San Francisco, and
permitted Linden to modify the clause. Additionally, the arbitration clause required complainants to share the
arbitration fees, and to keep arbitrations confidential. Generally, the Terms of Service permitted Linden at its
discretion to suspend a player’s account, to refuse to allow a player to participate in Second Life, and to
withhold players’ money. March Bragg (plaintiff) played Second Life and purchased virtual properties. Bragg
purchased a parcel of land called “Taessot” for $300. Linden believed that Bragg had purchased Taessot
improperly, and took Taessot away from Bragg. Further, Linden froze Bragg’s Second Life account, in effect
confiscating Bragg’s other virtual properties and his virtual currency. Bragg sued Linden in Pennsylvania.
Linden moved to compel Bragg to arbitrate in California pursuant to the arbitration clause in Second Life’s
Terms of Service.
 ISSUE: May a court refuse to enforce a contract on the basis of substantive unconscionability?
 HOLDING: Yes. A court may refuse to enforce a contract on the basis of substantive unconscionability. The
terms of a contract may be substantively unconscionable if they are oppressively harsh or one-sided, particularly
if there is unequal bargaining power between the parties. Once a court has determined that a contract is
substantively unconscionable, the contract’s drafter may assert that a business reality justified the unbalanced
terms. In this case, Second Life’s Terms of Service were both procedurally unconscionable and substantively
unconscionable. The Terms of Service constituted a contract of adhesion, because Second Life gamers could
only agree to the contract or reject, with no opportunity for negotiation. Additionally, the Terms of Service
obscured their arbitration clause and gave no description or details about arbitration requirements. These
features made Second Life’s Terms of Service unenforceable for procedural unconscionability. Substantively,
the Terms of Service were one-sided. They permitted Linden to freeze players’ accounts, withhold funds, and
many more things entirely at Linden’s discretion, but gave players no way to address these actions except
arbitration. Additionally, the fee-sharing requirement put a prohibitive financial burden on players wishing to
arbitrate, and forcing arbitration to take place in California would also be prohibitive for most players. Finally,
the arbitration clause’s confidentiality requirement put future players at an informational disadvantage for
bringing successful arbitrations. For these reasons, the Terms of Service were unenforceable for substantive
unconscionability. Linden did not put forward a legitimate business reality that would justify the one-sidedness
of its Terms of Service. Linden’s motion to compel is denied.
Public policy- void
o The restatement’s balancing approach
 Bovard v. American Horse Enters- POLICY CONSTRAINTS
 A contract otherwise legal, but which facilitates an illegal activity may be considered void as against public
policy
 FACTS: James Ralph (Ralph) (defendant) entered into an agreement with Robert Bovard (Bovard) (plaintiff) to
purchase American Horse Enterprises, Inc. (Enterprises) (defendant). To effectuate the purchase, Ralph
executed promissory notes. Upon Ralph’s failure to make payment on the notes, Bovard commenced an action.
During the trial there was testimony showing that Enterprises was engaged in the manufacture of both jewelry
and drug paraphernalia used to smoke marijuana. The trial court then excused the jury to determine whether the
contract for the sale of Enterprises was illegal and void. The trial court held that, although at the time the
contract was entered into the manufacture of drug paraphernalia was not illegal, there was a state statute which
made it unlawful to possess, use or transfer marijuana. It further held that implicit in this statute was a public
policy against the manufacture of drug paraphernalia. The court concluded that the consideration tendered was
contrary to this policy and declared that the contract was illegal and void. Bovard appealed.
 ISSUE: Is a contract otherwise legal, but which is contrary to the public policy of express law, void and
unenforceable?
 HOLDING: Yes. Whether a contract violates public policy is an issue which must be resolved by the court as a
matter of law in the context of the circumstances of the case. In making this determination, the court may
examine such factors as the nature of the conduct, the amount of public harm that may be caused and the
morality of the parties’ contractual conduct viewed in a framework of prevailing community standards. Here,
there was no special interest in preserving the contract. The parties could have reasonably expected that the
manufacture of drug paraphernalia would eventually be reined in by the government and Bovard’s potential
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forfeiture of contractual goods was negligible since he recovered the machinery which was the corporation’s
primary asset. Moreover, there were factors which strongly favored a public policy against enforcement of this
contract. Public policy should not condone conduct which facilitates expressly illegal activity. Non-enforcement
of this contract will serve notice on manufacturers of drug paraphernalia that they cannot seek judicial redress to
advance their business. The trial court’s decision that this contract was contrary to the policy of an express law
and that the contract was illegal and void, is correct.
o Policies in restraint of trade
o Policies involving licensing laws
o Policies involving family situations
o Restitution under public policy
Statutes of frauds
o What types of agreements
o Sufficiency of signed writing
 Restatement: content of a writing
 Crabtree v. Elizabeth Arden- STATUTE OF FRAUDS
 Multiple documents taken together may constitute the signed writing sufficient to fulfill the statute of frauds
if all documents refer to the same subject matter or transaction and at least one is signed by the party to be
charged with the contractual obligations
 FACTS: In September 1947, Nate Crabtree (plaintiff) entered into negotiations with Elizabeth Arden Sales
Corp. (Arden) (defendant) for employment as a sales manager. Elizabeth Arden, president of Arden, agreed to
offer Crabtree a two year contract with a salary of $20,000 for the first six months, $25,000 for the next six
months, and $30,000 for the second year. Crabtree replied that the offer was “interesting.” Ms. Arden directed
her personal secretary to draft a memorandum of the agreement as discussed with Crabtree. The agreement
stated the salary, party names, and position to be offered to Crabtree. It did not expressly state the duration of
the contract, but included the notation “2 years to make good.” The memorandum was not signed. Crabtree
accepted the position via telephone. When Crabtree reported to work, Mr. Johns, executive vice president of
Arden, drafted and initialed a “payroll change card” outlining Crabtree’s agreed-upon salary agreement. After
six months of employment, Crabtree’s salary was increased to $25,000. After the next six months, however,
Crabtree did not receive an additional increase. He contacted Mr. Carstens, Arden’s comptroller, who drafted
and signed an additional payroll change card detailing Crabtree’s salary arrangement. Ms. Arden refused to
approve the increase, and Crabtree terminated his employment and brought suit against Arden in New York
state court for breach of contract. The trial court held for Crabtree and awarded $14,000 in damages, and the
appellate court affirmed. Arden appealed, arguing that the employment contract for two years did not exist, and
that even if it did, it was barred by the statute of frauds.
 ISSUE: Whether multiple documents taken together may constitute a signed writing sufficient to fulfill the
statute of frauds if all documents refer to the same subject matter or transaction and at least one is signed by the
party to be charged with the contractual obligations.
 HOLDING: Yes. The memorandum drafted by Ms. Arden’s secretary, combined with the two payroll change
cards signed by Arden’s senior staff, constitutes sufficient evidence of an enforceable written agreement made
by Arden to employ Crabtree for two years. Multiple documents taken together may constitute a signed writing
sufficient to fulfill the statute of frauds if all documents refer to the same subject matter or transaction and at
least one is signed by the party to be charged with the contractual obligations. Parol evidence may not be used to
supply any missing material terms in the documents, but may be admissible to demonstrate the connection
between the documents or the assent of the party to be charged to the contents of the unsigned documents. The
two payroll cards outline the terms of Crabtree’s salary agreement, the party names, and contain the signatures
of Arden’s senior staff members. They each constitute a sufficient written, signed memorandum to support the
existence of a contract under the statute of frauds. The only material term missing is the duration of Crabtree’s
employment agreement. The original, unsigned memorandum drafted by Arden’s secretary does not constitute a
sufficient memorandum under the statute of frauds, but contains the notation “2 years to make good”. This can
reasonably be interpreted as creating the existence of a two-year contract with Crabtree. Aside from the twoyear term, the other terms are identical among the three writings. Thus, they are all clearly discussing the same
subject matter and transaction. Although the relationship between the documents is fairly clear, parol evidence
may also be admitted to show the connection between the documents as all relating to Crabtree’s employment
terms. Parol evidence may also be introduced to show the assent of Arden (whose senior staff signed the two
payroll cards) to the unsigned document containing the comprehensive terms of the agreement. When taken
together, these three documents show the existence of an enforceable employment contract for a period of two
years with Crabtree. The decision of the trial court is affirmed.
 UCC Content of a Writing
o General Exception Under Statute of Frauds
 Full performance
 Partial performance
 Promissory estoppel
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Special UCC Exceptions Under the statute of frauds
 UCC Merchant Confirmation without objection
 UCC Goods specially manufactured
 UCC Admissions Exception
 Cohn v. Fisher- STATUTE OF FRAUDS
 Under the UCC statute of frauds, an oral agreement to purchase goods is enforceable where the buyer
gives the seller a signed check that identifies the quantity of goods being purchased
 FACTS: On a Sunday, Donal Fisher (defendant) orally agreed to purchase a sailboat from Albert Cohn
(plaintiff) for $4,650. The parties met the following day at which time Fisher gave Cohn a check for $2,325. A
notation on the check read “Deposit on aux. sloop, D’Arc Wind, full amount $4,650.” The parties agreed to
meet the following Saturday to close the transaction. That week, Fisher told Cohn that he would not close on
Saturday because a survey of the boat could not be performed by that time. Cohn demanded that the transaction
be closed that weekend. Fisher then stopped payment on the deposit check and refused to go forward with the
purchase. Cohn eventually sold the sailboat for $3,000. He sued Fisher for the price difference and the costs
incurred to resell. Cohn moved the trial court for summary judgment.
 ISSUE: Is an oral agreement for the purchase and sale of a boat for $4,650 enforceable where the buyer
provides the seller a deposit by check that specifies the boat’s name and the full purchase price?
 HOLDING: Yes. Under the UCC statute of frauds, § 2-201(1), as adopted by New Jersey, a sale of goods for
more than $500 is enforceable if the agreement is confirmed by a written record signed by the party against
whom enforcement is sought. Where no sufficient record exists, the transaction may still be enforceable under
UCC § 2-201(3) if the party against whom enforcement is sought affirms the agreement or if the goods have
been paid for and accepted. As explained by a comment to UCC § 2-201 and as interpreted by the courts, a
check that complies with the written record requirement satisfies the statute of frauds. Thus, if the check is
signed, refers to the quantity to be purchased, and implicitly or explicitly evidences the underlying transaction,
the oral agreement will be enforceable against the check signer to the extent of the quantity of goods specified in
the check. In this case, the check adequately satisfies the requirements of UCC § 2-201(1). It is signed, it
indicates the quantity to be purchased, and it sufficiently refers to the transaction by identifying the boat, its
price, and the parties to the sale. Thus, the agreement is enforceable. Alternatively, even if the check were not
sufficient, the agreement would be enforceable under UCC § 2-201(3) because Fisher admitted to the existence
of the contract in court filings and because partial payment for the boat was made and accepted. Although the
delivery and acceptance of payment will only render a contract enforceable as to the amount of goods paid for,
the partial payment of a single item makes the contract enforceable as to the entire item. For the reasons set
forth above, the agreement between Fisher and Cohn is enforceable.
CHAPTER SUMMARY:
o Unconscionability usually requires both unfair surprise, procedural unconscionability, and oppression, substantive
unconscionability, making a contract voidable. Under a finding of unconscionability, a court may refuse to enforce the entire
contract, strike out offending clauses or interpret the disputed term in a limiting way, leaving the rest of the contract in force
o procedural unconscionability addresses unfair surprise in the absence of meaningful choice in the contract formation process.
Courts will analyze the sophistication of the parties to the contract, inequality's in bargaining power, a lack of clear, conspicuous
notice of contract terms, little or no meaningful choice to review of the terms in advance of agreeing, and if major provisions are
hidden in fine print or a Blizzard of legalese..
Interpretation (9)
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The goals of interpretation
o The goals of interpretation
o Misunderstanding and interpretation
 Negating the contract for misunderstanding
 Interpretation of different meanings
 Perez v. State of Maine
 Where there is a misunderstanding between parties regarding the meaning of a contract, the manifestations
of the parties regarding meaning are operative
 FACTS: After the Maine Department of Manpower Affairs (DMA) refused to hire Nazario Perez (plaintiff), Perez
sued DMA in state court for violating a state antidiscrimination law. Perez alleged that DMA had failed to hire him
because he was Hispanic. DMA settled with Perez for $20,000. The settlement agreement stated that DMA agreed
to pay Perez $20,000 as full and final settlement of “this matter.” During settlement negotiations, Perez received a
right-to-sue letter from a federal agency to which he had also made a discrimination complaint. The letter was a
precondition for bringing a federal action. Perez did not tell the lawyer representing him in his suit against DMA
about the right-to-sue letter. Instead, Perez consulted a different attorney about whether, after settling with DMA,
he would still be able to bring a federal suit. After receiving his settlement from DMA, Perez sued DMA again in
federal court alleging the same facts. At trial, the attorneys for DMA and Perez both testified that they believed the
$20,000 was intended to settle all discrimination claims against DMA, both state and federal. The trial court found
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in favor of DMA, holding that the “matter” settled by Perez’s state court suit referred to all claims against DMA
under both state and federal antidiscrimination statutes. Perez appealed.
 ISSUE: Where there is a misunderstanding between parties regarding the meaning of a contract, are the
manifestations of the parties regarding the contract’s meaning operative?
 HOLDING: Yes. Where there is a misunderstanding between parties regarding the meaning of a contract, the
manifestations of the parties regarding the contract’s meaning are operative. However, one party must not have
reason to know that the other party attached a different meaning to the misunderstood term, and the other party
must have reason to know the meaning attached by the first party to the term. In this case, it is clear that Perez, who
was in possession of a federal right-to-sue letter at the time he signed the settlement agreement, did not intend to
settle his federal claims. However, Perez did not manifest that intent to his own lawyer or to DMA. The trial
proceedings and the amount of the settlement made it clear that DMA believed it was settling all claims against it,
both state and federal. DMA had no reason to know that Perez believed something different about the settlement
agreement. Additionally, Perez did have reason to believe that DMA intended to settle all claims against it. For
these reasons, the misunderstanding between the parties does not nullify the settlement agreement. Instead, the
understanding that both parties manifested in regard to the settlement agreement is operative. Both parties
manifested an understanding that the settlement between Perez and DMA was intended to settle all discrimination
claims against DMA, both state and federal. The judgment of the trial court is affirmed.
 Private meanings
Sources of meaning
 Written contracts
 Negotiations
 Dictionaries
 Usage of trade
 Course of dealing
 Course of performance
Guidelines for interpretation
 The entire contract
 Random house v. Rosetta Books LLC
 If modern interpretations of contract terms were not available at the time the contract was signed, the
resulting ambiguity should be resolved based on the language used in the contract.
 FACTS: Random House, Inc. (plaintiff) originally signed licensing agreements with a number of authors. The
agreements granted Random House the exclusive right to print, publish, and sell the authors’ works in book form.
At the time these agreements were signed, literary works like those produced by the authors did not exist in digital
or electronic form. Each author, pursuant to his respective licensing agreement, granted Random House the right to
his work but withheld certain rights of distribution (e.g.,recording rights for the published work). However, in the
year 2000, Rosetta Books LLC (defendant) began distributing literary works in an electronic form known as
ebooks, i.e., books that could be read on a computer screen or another electronic device, such as an ebook reader.
Rosetta contracted with several of the authors whose work was already licensed to Random House in order to
obtain the right to distribute the authors’ literary works in ebook form. Random House brought a copyrightinfringement action to enjoin Rosetta from selling the ebooks
 ISSUE: If modern interpretations of contract terms were not available at the time the contract was signed,
should the resulting ambiguity be resolved based on the language used in the contract
 HOLDING: Yes. In general, a written contract must be interpreted to effectuate the parties' intentions, as reflected
in the language of the contract itself. If a court determines that the contract's language is ambiguous, the proper
interpretation of the contract is a question of fact, and extrinsic evidence may be admissible to aid the fact finder. If
modern interpretations of contract terms were not available at the time the contract was signed, any resulting
ambiguity should be resolved based on the language used in the contract. Specifically, if advances in technology
give rise to ambiguities in written agreements that were not anticipated at the time the agreements were executed,
the basic principles of interpretation as applied to the contract language will determine the effect to be given to the
ambiguous terms. Evidence of trade usage may also be considered to interpret a specific term in a contract. To
apply an overly broad interpretation of the original contract terms would be to provide one party with rights he did
not originally anticipate, much less bargain for. In this case, Random House's licensing contracts grant Random
House the right to print, publish, and sell the author's works in book form. To hold that this language made
Random House the beneficial owner of all electronic and digital distribution rights of the authors’ work would be
to extend Random House’s rights far beyond those it originally possessed under the contract. Each of the authors
withheld some form of distribution from Random House when the work was originally licensed. Accordingly, the
license agreements were never intended to provide Random House with complete control over every form in
which the work may be expressed. Moreover, in the publishing industry, the right to print, publish, and sell a work
"in book form" is understood as a limited right, as compared to a broader grant of the right to print, publish, and
market "a book." It would not be a reasonable interpretation of the contract language now to provide Random
House with a form of expression not even in existence at the time the agreements were signed. Accordingly,
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Random House is unlikely to succeed on the merits of its copyright-infringement claim. Random House’s motion
for a preliminary injunction is denied.
Resolving internal conflicts
Specific terms outweigh general terms
Negotiated terms outweigh standardized terms
Primacy of express terms
Interpretation against a party
Presumption of legality
Frigaliment Importing v. BNS International Sales Corp
 If the parties to a contract subjectively, but in good faith, construe an ambiguous term differently, courts
may look to external factors to determine the proper interpretation of the term
 FACTS: Frigaliment Importing Co. (Frigaliment) (plaintiff), a Swiss company, offered to buy chicken for
$0.33/lb. from B.N.S. International Sales Corp. (BNS) (defendant), an American corporation. The negotiations
were primarily in German, but Frigaliment used the English word “chicken” to mean young chickens, instead of
the German word “huhn,” which includes stewing chickens (fowl). Frigaliment intended to purchase only
young chickens suitable for broiling and frying (broilers). BNS, which was new to the trade, interpreted
Frigaliment’s order for “chickens” as encompassing all types of chicken. The market rate for fowl at the time
was $0.30/lb., while broilers were between $0.35 and $0.37/lb. Both the cablegrams exchanged by the parties
and the contracts stated that the chicken was to be “Grade A, Government Inspected,” and the Department of
Agriculture’s regulations were incorporated by reference. BNS shipped primarily fowl to Switzerland. After the
first shipment, Frigaliment complained but allowed BNS to make the second shipment. After Frigaliment found
fowl in the second shipment, Frigaliment sued BNS for breach of warranty, claiming that BNS delivered goods
that did not meet the description in the contract. At trial, Frigaliment’s expert claimed that “chicken” meant
broilers in the trade, but his testimony was undermined by the fact that his own contracts specifically requested
“broilers” when he wanted younger birds or “fowl” when he wanted older birds. One of BNS’s suppliers argued
that “chicken” did not include fowl, but admitted that it asked whether BNS wanted “fowl or frying chickens”
when BNS asked for “chickens.” Frigaliment offered evidence that at least some suppliers and journals
differentiate between “chickens” and “fowl.” Nevertheless, BNS’s experts testified that in the trade, the term
“chicken” encompasses broilers and fowl. Further, BNS pointed out that the Department of Agriculture’s
grading regulations include broilers and fowl in the definition of the term “chicken.” The United States District
Court for the Southern District of New York considered the question
 ISSUE: If the parties to a contract subjectively, but in good faith, construe an ambiguous term differently, may
courts look to external factors to determine the proper interpretation of the term?
 HOLDING: Yes. If the parties to a contract subjectively, but in good faith, construe an ambiguous term
differently, courts may look to external factors to determine the proper interpretation of the term. To aid in the
interpretation, courts may consider the plain meaning of the term, the negotiations between the parties, trade
usage, other contract provisions, market factors, and the course of dealing between the parties. With respect to
trade usage, when one party is not a member of the trade, the other party must show either (1) actual knowledge
or (2) that the usage is so pervasive that the party’s acceptance of it may be presumed. In this case, the word
“chicken” is ambiguous. The dictionary includes the definitions offered by both parties. A review of the
negotiations does not provide a definitive answer as to the correct interpretation. BNS was new to the trade and
had no actual knowledge of what Frigaliment argues is the trade usage of the term. Frigaliment has not shown
that the usage of “chickens” to mean only broilers is sufficiently notorious and universal to presume BNS’s
acceptance of it. Further, the contract specifically referenced the Department of Agriculture’s regulations, which
define “chicken” as including fowl. BNS’s argument that it was impossible to obtain broilers for the price
agreed in light of market rates was persuasive. Lastly, Frigaliment allowed the second shipment of chickens
after receiving the first shipment that included fowl. Accordingly, BNS’s interpretation of the word chicken was
consistent with “an objective meaning” of the word, and Frigaliment has not met its burden of persuading the
court that its narrower interpretation should apply. Frigaliment’s complaint is dismissed.
Parol evidence
o Integration
o Prior and contemporaneous communications
o Permissible purposes
 Myskina v. Conde Nast Publications
 Under contract law, the parol-evidence rule bars the admission of any prior or contemporaneous
negotiations or agreements offered to contradict or modify the terms of a written agreement
 FACTS: Anastasia Myskina (plaintiff) was a 20-year-old top-ranked female tennis player. Myskina was a
Russian citizen and was not fluent in English. An editor with Conde Nast Publications, Inc. (Conde Nast)
(defendant) asked Myskina’s agent if Myskina would agree to be photographed for an issue of Gentleman’s
Quarterly (GQ), a magazine. Myskina’s agent agreed, and Myskina went to a photoshoot for the magazine. The
photographer was Mark Seliger (defendant). Myskina agreed to be photographed in the nude for the magazine
cover. According to Myskina, her agreement was only given after Conde Nast and Seliger agreed to only use
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the photographs for the magazine. Myskina signed a release form drafted by Conde Nast, consenting to the use
of the photographs by Conde Nast and others for editorial purposes. The release did not restrict the publication
of the photographs. The release also did not contain a merger clause. Seliger completed the photoshoot for GQ.
Seliger also took additional photographs of Myskina after the main photoshoot, but according to Myskina,
Seliger agreed not to publish these photographs anywhere. These additional photographs depicted Myskina
topless in blue jeans. Subsequently, Seliger licensed the photographs to another magazine, which published the
photographs. Myskina sued Conde Nast and Seliger for breach of contract. Conde Nast and Seliger moved for
summary judgment
 ISSUE: Under contract law, does the parol-evidence rule bar the admission of any prior or contemporaneous
negotiations or agreements offered to contradict or modify the terms of a written agreement?
 HOLDING: Yes. Under contract law, the parol-evidence rule bars the admission of any prior or
contemporaneous negotiations or agreements offered to contradict or modify the terms of a written agreement.
If an agreement is not fully integrated, parol evidence may only be admitted to complete the agreement or
resolve ambiguity in the agreement. An agreement is fully integrated if the parties intended the agreement to be
a final and complete expression of all the terms of the agreement. Parties to an agreement may express this
intent through a clause in the contract, which is commonly referred to as a merger clause. If the agreement does
not contain a merger clause, the parties’ intent is determined by reading the writing in light of the surrounding
circumstances and by determining whether the agreement was one that the parties would ordinarily be expected
to embody in the writing. In this case, the release mentions no other agreements and plainly sets forth a simple
release consenting to the use of the photographs. The oral agreement to restrict the publication of the
photographs, as claimed by Myskina, was fundamental to the entire transaction and would be expected to be
included in the written agreement. However, the oral agreement was not included in the release. Therefore, the
release is a fully integrated agreement. Additionally, the alleged oral agreement would contradict the express
terms of the written release. Finally, the oral agreement does not qualify for the exception to the parol-evidence
rule for collateral agreements, because the alleged oral agreement was not collateral. The oral agreement was
central to Myskina’s understanding of the release. In sum, the oral agreement is inadmissible under the parolevidence rule. Accordingly, summary judgment is granted to Conde Nast and Seliger.
 Extrinsic evidence and misrepresentation
 Promissory estoppel and parol evidence
 Extrinsic evidence and interpretation
 Confining extrinsic evidence
 Expanding ambiguity
Mistake of Integration and Reformation
Implied Terms (10)
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Overview of implied terms
Implying good faith
o Satisfaction clauses
o Interference with performance
 Wood v. Lucy Lady Duff-Gordon
 (1) a contract may be enforced when there is no evidence of a promise, exchanged as consideration, in the
explicit terms of the contract (2) a promise to use reasonable efforts may be implied from the entire
circumstances of a contract
 FACTS: Wood (plaintiff) entered into a contract with Lucy, Lady Duff-Gordon (Lady Duff-Gordon) (defendant),
whereby Lady Duff-Gordon agreed to grant Wood the exclusive right to place her endorsement on others’ clothing
designs. She also granted Wood the exclusive right to market her designs and sell them. In return, Lady DuffGordon would receive 50 percent of the profits from Wood’s efforts with regard to her endorsements and designs.
Wood agreed to keep records of all accounts and to take out all patents, copyrights, and trademarks necessary to
protect Lady Duff-Gordon’s designs. Lady Duff-Gordon later entered into a contract with another company
whereby she placed her endorsement on others’ clothing designs. Wood filed suit, claiming breach of contract.
Lady Duff-Gordon filed a motion for demurrer, arguing that there was no enforceable contract for lack of
consideration. The trial court denied the motion. Lady Duff-Gordon appealed. The Appellate Division reversed and
entered judgment for Lady Duff-Gordon. Wood appealed to the Court of Appeals of New York.
 ISSUE: (1) Can a contract be enforced when there is no evidence of a promise, exchanged as consideration,
in the explicit terms of the contract? (2) Whether a promise to use reasonable efforts may be implied from
the entire circumstances of the contract?
 HOLDING: (1) Yes. A promise, exchanged as consideration, may be implied and enforceable, even though it is
not provided in the explicit terms of the contract. In the current matter, the facts reveal that Wood made a promise
to use reasonable efforts to place endorsements and market Lady Duff-Gordon’s designs. Because Lady DuffGordon gave an exclusive privilege, Wood’s acceptance of the privilege assumed its duties, one of which was to
use sufficient reasonable efforts. Also, because Lady Duff-Gordon would receive 50 percent of all sales, it is clear
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that both parties intended that Wood would use sufficient reasonable efforts because, without them, Lady DuffGordon could not have expected any payment. Additionally, Wood’s agreement that he would keep track of
accounts and take out protections necessary for the designs implies he would promise to use sufficient reasonable
efforts. Based upon these facts, it is clear that a promise to use reasonable efforts to place endorsements and market
the designs is a term of the contract and should be implied. Accordingly, the judgment of the appellate division is
reversed. (2) Yes. The agreement between Wood and Lucy contains an implied promise by Wood to use
reasonable efforts, and thus constitutes sufficient consideration by Wood to form a valid and enforceable contract.
A promise to use reasonable efforts may be implied from the entire circumstances of a contract. Once successfully
implied, that promise may constitute sufficient consideration to create a valid and enforceable contract. Wood’s
promise to use reasonable efforts in performing his contract with Lucy may be implied from many circumstances.
Lucy gave Wood an exclusive privilege to place her endorsements on products and market her designs. The
acceptance of this exclusive right by Wood equaled an assumption of the basic duties encompassed in that right.
Additionally, Lucy was not to receive any compensation other than one-half of all agreements formed by Wood’s
efforts. Thus, unless Wood used reasonable efforts, Lucy would not receive any compensation, and there would be
no basis for the parties to have entered into such an agreement. Finally, Wood agreed to provide a monthly
accounting of his profits and activities to Lucy. If he was not under a duty to use reasonable efforts to earn profits,
this accounting would be meaningless. Thus Wood’s promise to pay Lucy one-half of the profits and revenues
resulting from his exclusive privilege to use her endorsement, as well as his promise to provide a monthly
accounting of his profits supports the implication that Wood had a duty to use reasonable efforts to create profits
and revenues. This promise by Wood constitutes sufficient consideration to form a valid and enforceable contract
with Lucy, and the decision of the appellate court is reversed.
o Modern use of best efforts clauses
Common UCC Default terms
o Open price term
o Place for delivery
o Time for performance
 Leibel v. Raynor Mfg Co
 Under the UCC, when a contract does not provide a specified duration, the party terminating the
agreement must provide reasonable notice of termination
 FACTS: James Leibel (plaintiff) orally agreed to be the distributor of garage doors manufactured by Raynor
Manufacturing Co. (Raynor) (defendant) for the Lexington, Kentucky area on March 1, 1974. Leibel borrowed
money to do the tasks necessary to perform under the agreement. The parties did not agree to a specified time
when the agreement would end. After two years, Raynor notified Leibel by letter that it was terminating the
agreement. The letter stated that termination was effective immediately. Leibel filed suit. Raynor moved for
summary judgment, arguing that the agreement was for no fixed duration and could be terminated at will by
either party. Leibel argued that he was entitled to reasonable notice before termination. The trial court granted
Raynor’s motion, finding that Raynor only needed to provide actual notice. The court reasoned that the Uniform
Commercial Code (UCC) did not apply to the agreement, but even if it did, Raynor was not obligated to give
reasonable notice, only actual notice. Leibel appealed to the Kentucky Court of Appeals.
 ISSUE: When a contract for the distribution of goods does not provide a specified duration, is the party
terminating the agreement required to provide reasonable notice of termination
 HOLDING: Yes. Raynor was obligated to give Leibel reasonable notice of its intent to terminate the agreement.
Article II of the UCC applies to contracts for the sale of goods and merchandise. A court must look to the actual
nature and purpose of a contract to determine whether the UCC is applicable. The question of whether a
distributorship contract is a transaction involving the sale of goods is one of first impression in Kentucky. Thus,
a distributorship agreement is a contract for the sale of goods, not a service contract, and the UCC controls.
Under Article II of the UCC, when a distributorship agreement does not provide that the agreement is for a
specified duration, the contract is valid for a reasonable time. Further, absent agreement to the contrary, either
party may terminate at any time. A party terminating the contract must provide reasonable notice, unless
otherwise agreed. An agreement dispensing with the notice requirement will be enforced unless unconscionable.
What constitutes “reasonable” notice is a question material fact. Principles of good faith and fair play require
that a dealer, who may be required to maintain a large inventory, be given notice in a reasonable time to sell that
inventory and avoid major losses before termination. In this case, Leibel was a distributor of Raynor’s garage
doors, not a salesperson or employee. Therefore, the contract was a distributorship agreement and is subject to
the requirements of Article II of the UCC. The trial court’s determination that the UCC did not apply was
erroneous. Raynor was required to provide reasonable notice. Raynor gave actual notice of the immediate
termination of the agreement, but this notice cannot be held reasonable as a matter of law. The amount of time
that was required for notice to be reasonable in this case is undecided. Because a question of material fact still
remains, the trial court’s grant of summary judgment was improper. Accordingly, the trial court is reversed, and
this case is remanded for further proceedings.
o Time for payment
Express and Implied Warranties
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Express warranties
Implied warranties
Disclaiming warranties
 Bayliner Marine Corp. v. Crow- IMPLIED TERMS
 (1) a seller’s statement of opinion about a product’s potential performance does not create an express
warranty that the product will conform to that description (2) an implied warranty of fitness for a particular
purpose is not created unless the buyer makes it known to the seller the particular purpose for which the
product is required
 FACTS: In August 1989, John R. Crow (plaintiff) purchased a boat manufactured by Bayliner Marine
Corporation (Bayliner) (defendant) to be used for offshore fishing. Prior to purchasing the boat, Crow asked
John Atherton, a sales representative for the retailer, about the boat’s maximum speed. Atherton gave Crow
Bayliner’s promotional materials for the model that Crow had test driven. The materials described that model as
having a maximum speed of 30 miles per hour provided certain conditions and specifications were in place. The
materials also stated that this model was well suited for offshore fishing. Although Crow and Atherton
discussed the boat’s maximum speed in the context of offshore fishing, Crow never told Atherton that he
required a boat with a maximum speed of 30 miles per hour. The boat that Crow purchased proved to have a
maximum speed of 23-25 miles per hour, and as a result, Crow found the boat unsuitable for offshore fishing.
Nevertheless, Crow used the boat for offshore fishing and logged 850 miles of engine use within the first few
years after purchasing it. Crow’s boat had different specifications from the boat described in the promotional
materials, including a smaller propeller and a higher gear weight. Crow brought an action against Bayliner, the
retailer, and the manufacturer of the engine alleging that the promotional materials created an express warranty
that the boat he purchased would reach the maximum speed of 30 miles per hour as described in the written
materials. He also alleged breaches of the implied warranty of merchantability and fitness for a particular
purpose. The trial court held in favor of Crow, and the defendants appealed
 HOLDING (1) No. A seller’s statement of opinion about a product does not create an express warranty. A seller
creates an express warranty when the seller makes an affirmation or promise regarding the goods, and that promise
becomes part of the bargain, or when a description of the product becomes part of the bargain. However, a
warranty is not created by the seller’s statements of opinion regarding the product. In this case, the promotional
materials provided to Crow contain a description of the potential performance of the same model of boat but not
the same exact boat purchased by Crow, when operated under ideal circumstances and with recommended
features, such as a larger propeller size and a low gear weight. The description of the boat’s potential speed under
those circumstances does not constitute a warranty because it did not purport to describe the same boat that Crow
purchased. The manufacturer’s statement about the boat’s suitability for offshore fishing was merely an opinion
about the boat’s potential use for that purpose. Therefore, the promotional materials did not create an express
warranty that the boat purchased by Crow would conform to the description of the boat in the manufacturer’s
promotional materials. (2) No. If a seller has reason to know of any particular purpose for which a buyer needs a
product and that the buyer is relying on the seller’s skill or judgment to select a product that meets the buyer’s
purpose, this creates an implied warranty that the product will be fit for the buyer’s purpose. To establish an
implied warranty of fitness for a particular purpose, the buyer must prove that he made the seller aware of the
particular purpose. If the seller did not know the buyer’s purpose, the implied warranty is not created. Under the
related concept of the implied warranty of merchantability, there is an implied warranty that all goods sold by a
merchant will be merchantable, i.e., that the goods will pass without objection in the relevant trade and are fit for
the ordinary purposes for which the goods are intended. In this case, although Crow told Atherton that he wanted
to use the boat for offshore fishing and discussed the boat’s speed in the context of offshore fishing, there is no
indication that Crow told Atherton that a boat with a speed capacity of less than 30 miles per hour would be
unacceptable for his purposes. Accordingly, Bayliner did not breach an implied warranty of fitness for a particular
purpose. Similarly, there is no evidence here to support a conclusion that Bayliner breached an implied warranty
of merchantability. There is no evidence in the record establishing the standard of merchantability in the offshore
fishing boat industry, nor is there any evidence that a large number of boat buyers would not buy a boat with the
same speed capacity as Crow’s boat. Additionally, there is no evidence that Crow’s boat was not fit for its ordinary
purpose as an offshore fishing boat. Indeed, Crow used the boat for offshore fishing and logged 850 hours of
engine use. Accordingly, the trial court’s judgment in favor of Crow is reversed, and judgment is entered for
Bayliner.
Requirements and output contracts
o Illusoriness and definiteness
o Limiting the faith
 Good faith
 Unreasonably disproportionate
 Unexpectedly small quantities
 Feld v. Henry S. Levy & Sons
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In an output contract for the sale of goods, the quantity of output is such actual output as occurs in good
faith based on the seller’s best efforts to supply the goods
FACTS: A wholesale bread-baking business (defendant) entered into a contract to sell Fred Feld (plaintiff) all the
bread crumbs the wholesaler produced for a period of one year. Before the year was up, the wholesaler stopped
producing bread crumbs because the process was “very uneconomical” due to the nature of the production
equipment. However, no steps were taken to obtain equipment that made the process more economical. Feld
brought suit and moved for summary judgment. The wholesaler also moved for summary judgment to dismiss the
claim. The trial court denied both motions, and the appellate court affirmed. Both parties appealed.
ISSUE: Does an output contract for the sale of goods require that the seller continue producing the goods
until the end of the contract unconditionally?
HOLDING: No. In an output contract for the sale of goods, the quantity of output is such actual output as occurs
in good faith based on the seller’s best efforts to supply the goods. Thus, the seller must continue producing the
goods in good faith, until it determines in good faith that it will sustain losses that are “more than trivial” if
production continues. The question of whether a party performs and ceases performance in good faith is a question
of fact. Here, although the wholesaler claimed that its production of bread crumbs was not economical, it is not
clear whether the wholesaler exercised good faith in that determination, and it is not clear if “very uneconomical”
means that the wholesaler sustained substantial losses due to the continued production. These are questions of fact
that are not determinable on the record. Consequently, denial of both parties’ motions for summary judgment was
correct. The lower courts are affirmed.
Conditions and Material Breach (11)
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Conditions on performance
o Solar Applications Engineering v. TA Operation Corp
 In order to determine whether a contractual term is a condition precedent, a court must ascertain the intent of the
parties by looking at the entire contract
 FACTS: T.A. Operating Corporation (TA) (defendant) hired Solar Applications Engineering, Inc. (Solar) to build a truck
stop. Under the terms of TA’s contract with Solar, TA would pay Solar monthly in accordance with Solar’s progress on
the project. Once the project was substantially complete, Solar would notify TA, and TA would inspect the project. TA
would then provide Solar with a list of items needing correction or completion, called a “punch list.” Once Solar
addressed the punch list, Solar could make a final application for payment. The contract specified that the final
application for payment should be accompanied by a lien-release affidavit. When Solar had substantially completed
construction of the truck stop, TA provided Solar with a punch list. Solar disputed some of the items that TA insisted
must be completed before final payment. TA and other subcontractors filed liens against the property. TA terminated its
contract with Solar. Solar then submitted a final application for payment, but did not submit a lien-release affidavit. TA
refused to pay Solar, claiming that because Solar had failed to submit a lien-release affidavit, Solar had failed to satisfy a
condition precedent for payment. Solar sued TA, and the trial court awarded Solar $392,000 in damages. TA appealed.
The appellate court reversed the trial court, holding that the lien-release provision of the parties’ contract was a condition
precedent of payment that Solar had failed to satisfy. Solar appealed.
 ISSUE: In order to determine whether a contractual term is a condition precedent, must a court ascertain the intent of
the parties by looking at the entire contract?
 HOLDING: Yes. In order to determine whether a contractual term is a condition precedent, a court must ascertain the
intent of the parties by looking at the entire contract. The use of conditional language in a contract is one way to show
that the parties intended a term to serve as a condition precedent. If a contract does not use conditional language, and
another reasonable interpretation is possible, a court will construe the term in question as a promise, rather than as a
condition precedent, to avoid forfeiture. In this case, the contract between Solar and TA required that Solar submit a lienrelease affidavit to accompany Solar’s final application for payment. Solar failed to submit a lien-release affidavit. The
contract did not contain any conditional language to indicate that this term was a condition precedent of payment. The
contract could reasonably be interpreted to not require the lien-release affidavit as a condition of payment, because
Solar’s liens against TA were its only leverage to receive full payment from TA. For these reasons, the term requiring
Solar to submit a lien-release affidavit is better understood as a promise than as a condition precedent. The judgment of
the appellate court is reversed, and the case is remanded
o Identifying conditions
o Effect of conditions
o Interpretation: condition or promise
o Waiver and estoppel
o Judicial forgiveness
 135 E. 57th v. Daffy’s Inc
 If a contract requires timely written notice to exercise an option, late notice may be excused on equitable
grounds
 FACTS: Daffy’s Inc. (Daffy’s) (defendant) was a popular discount clothing retail chain in New York City. One
of Daffy’s locations was on 57th Street, where it leased space from 135 East 57th Street LLC (135 East)
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(plaintiff). Daffy’s executed a lease with 135 East in 1994. Under the terms of the lease, Daffy’s had an option
of two five-year renewal terms. The first of these options had to be exercised by January 31, 2010, in writing.
Although Daffy’s intended to exercise its option to renew the lease, Daffy’s corporate controller accidentally
missed the option date. Daffy’s verbally notified 135 East of its intent to renew on February 4, 2010, then
notified Daffy’s in writing on February 9, 2010. 135 East sought a declaratory judgment that Daffy’s had failed
to timely renew its lease. At trial, Daffy’s late renewal was found to be a mistake made in good faith, and
Daffy’s delay was found to have not prejudiced 135 East. Daffy’s presented evidence that it painted the retail
space when it first entered into the lease with 135 East. The trial court issued a declaratory judgment that
Daffy’s was entitled to equitable relief because Daffy’s had made improvements to the property that would
cause Daffy’s to suffer a forfeiture if the lease were terminated. Consequently, the trial court excused Daffy’s
late renewal. 135 East appealed.
 ISSUE: If a contract requires timely written notice to exercise an option, may late notice be excused on
equitable grounds?
 HOLDING: Yes. If a contract requires timely written notice to exercise an option, late notice may be excused
on equitable grounds. Under New York law, equity relieves a tenant from late exercise of an option to renew if
(1) the tenant made substantial improvements and would suffer a forfeiture, (2) the tenant’s delay was in good
faith, and (3) the delay did not prejudice the landlord. If a tenant has not made substantial improvements, equity
may still be appropriate if the tenant has been at one location for a long period of time and would lose good will
by moving. In this case, 135 East was not prejudiced by Daffy’s late renewal of approximately one week.
However, no evidence supports the trial court’s finding that Daffy made substantial improvements to the
property. Painting 15 years ago does not qualify as a substantial improvement. Although Daffy’s did not make
substantial improvements that would merit equitable relief, Daffy’s did develop substantial goodwill over its 15
years at that location. Daffy’s would lose that valuable asset if it were forced to relocate. Because Daffy’s late
renewal was made by mistake, 135 East suffered no prejudice, and Daffy’s would suffer a forfeiture by losing
its lease, equitable relief is appropriate. The judgment of the trial court is affirmed
o Subsequent events altering duties
Order of performance
Material breach and substantial performance
o Jacob and Youngs v. Kent
 If a party substantially performs its obligations under a contract, that party will not be forced to bear the
replacement cost needed to fully comply with the agreement but instead will owe the non-breaching party the
difference in value between full performance and performance received
 FACTS: Jacob & Youngs (Jacob) (plaintiff) is a general contractor that built a country residence for Kent (defendant).
The contract stated that Jacob was to be paid $77,000, and one specification in the contract was that all pipes used be
manufactured in Reading, Pennsylvania. Jacob completed work in June 1914. In March 1915, Kent noticed that some of
the pipe was manufactured in other places besides Reading. Kent demanded the pipe be replaced. Replacement of the
pipe, however, would require substantial additional work and expense by Jacob. Additionally, the existing pipe was of
the same quality as Reading pipe and was supplied based on an innocent mistake by Jacob caused by the inattention of its
subcontractor. Jacob left the existing pipe untouched and asked for a certificate from Kent that the final payment of
$3,483.46 was due. Kent refused to supply the certificate, and Jacob brought suit to recover damages. At trial, Jacob was
not allowed to introduce evidence that the pipe installed was of the same quality as Reading pipe, and the jury entered a
verdict for Kent. The appellate court reversed and granted a new trial.
 ISSUE: If a party substantially performs its obligations under a contract, will that party be forced to bear the replacement
cost needed to fully comply with the agreement
 HOLDING: No. Jacob substantially performed its contract with Kent with only trivial defects and is thus entitled to
receive the remainder of the amount owed under the contract. A party that substantially performs its obligations under a
contract may recover expectation damages for any remaining payment owed under the contract, minus an offset for
defects in the party’s performance. “Substantial performance” is a question of degree and is appropriate for determination
by a trier of fact. The trier of fact appropriately concluded that the defect in the pipes supplied by Jacob is insignificant in
relation to the overall project. Thus, even though full performance of the contract was not completed, principles of
fairness and equity justify not penalizing Jacob significantly by withholding payment when the effect of the defect itself
was so insignificant. The need for fairness and equity in the enforcement of contracts outweighs the need for consistency
and certainty in legal principles as a policy matter, and justifies awarding expectation damages for Jacob on the contract
which it substantially performed. The decision of the appellate court is affirmed.
o Identifying material breach
 Adequacy of consideration
 Extent of breaching party’s forfeiture
 Likelihood of cure
 Extent of good faith
o Suspension and discharge of performance
 Mart v. Mart (BREACH)
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A party’s substantial compliance with the terms of a lease will avoid a forfeiture, even if the party breaches
the lease
 FACTS: Mike Mart (defendant) leased a farm from his father. Under the terms of the 20-year lease, Mike paid
his father $85 per tillable acre each year. 8.7 acres of the farm was designated wetlands by the federal
government under the Swampbuster provisions of the Food Security Act of 1985 (16 U.S.C. §§ 3801, 38213824) (Swampbuster Act). After Mike’s father died, the ownership of the farm passed equally to Mike and his
three siblings, Dennis, Thomas, and Cheryl Mart (the Mart siblings) (plaintiffs). Ten years into the lease, Mike
planted corn on the 8.7 acres of wetlands. The federal government penalized the farm’s owners for Mike’s
actions by denying them $152,000 in federal benefits. The Mart siblings appealed this penalty by claiming that
they were unaware of Mike’s breach of the Swampbuster Act. They won their appeal and received the benefits
they had been denied. The next year, Mike restored the 8.7 acres to wetlands. The Mart siblings sought to cancel
Mike’s lease on the farm, later filing a petition for forcible entry and detainer against Mike. The trial court held
that Mike’s violation of the Swampbuster Act did not constitute a breach of his farm lease. The Mart siblings
appealed.
 ISSUE: Will a party’s substantial compliance with the terms of a lease avoid a forfeiture, even if the party
breaches the lease?
 HOLDING: Yes. A party’s substantial compliance with the terms of a lease will avoid a forfeiture, even if the
party breaches the lease. Even if a party materially breaches a lease, the breaching party may generally cure its
failure rather than suffer a forfeiture. This is because Iowa law generally considers forfeiture to be inequitable,
even if contractually merited. In this case, Mike’s breach of his farm lease was material because of the benefits
the farm’s owners were denied and the loss of wetlands. However, the owners ultimately received their federal
benefits, and Mike restored the wetlands. Mike cured his breach through his subsequent performance. Because
the Mart siblings suffered no damages, forfeiture of Mike’s 20-year lease is not an equitable remedy. The trial
court properly dismissed the Mart siblings’ petition for forcible entry and detainer. The judgment of the trial
court is affirmed.
 Factors justifying cancellation
 Effect on substitute arrangements
 Timeliness as a contract requirement
Effect of Discharge
o Claims by the breaching party
o Damages claims by the discharged party
o Restitution claims by the discharged party
o Divisibility
UCC Perfect Tender, Repudiation, and Insecurity Issues (12)
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Perfect Tender (§2-601)
o Ramirez v. Autosport
 A party may rescind a contract when the goods delivered do not conform precisely to the contract and the seller has
not cured the defects within a reasonable time
 FACTS: The Ramirezes (plaintiffs) purchased a camper from Autosport (defendant). The delivery date was set and the
Ramirezes arrived to get the camper on that date. However, they noticed several defects with the camper and did not accept
it that day. The Ramirezes wanted the camper for summer vacation and contacted Autosport several times to inquire as to
when it would be ready. Each time they called they were told the camper was not ready. The Ramirezes visited Autosport on
the date on which they were told they could finally pick up the camper, but when they arrived to do so they were left to wait
in Autosport’s showroom for over an hour. The Ramirezes visited Autosport one more time, but the parties could not reach
an agreement. The Ramirezes filed suit seeking rescission of the contract. Autosport counterclaimed. The trial court held in
favor of the Ramirezes, awarding them their trade-in van. Autosport appealed. The Appellate Division affirmed. Autosport
appealed to the Supreme Court of New Jersey.
 ISSUE: Can a party rescind a contract when the goods delivered do not conform precisely to the contract and the seller has
not cured the defects within a reasonable time?
 HOLDING: Yes. The perfect tender rule provides that a seller has a duty to tender goods that conform precisely to the
contract and the buyer has the right to reject any goods that do not. If the buyer rejects the goods before he has accepted
them, then the seller has the opportunity to cure any and all defects up until the time set for performance. The buyer’s
rejection in this situation does not discharge the contract. If the buyer rejects the goods after he has accepted them, also
known as revoking acceptance, he may do so only if the value of the goods to him are substantially impaired by the
imperfect tender. Additionally, if the buyer rejects the goods after the time set for performance passes, then the seller is
provided reasonable time to cure if he reasonably believes the goods would have been accepted with or without a money
allowance. What constitutes a reasonable amount of time to cure depends upon the circumstances. The buyer has the burden
to prove that the goods are defective. The seller has the burden to prove that any nonconformity was cured. The buyer’s
remedy when a seller fails to cure is rescission of the contract and/or damages. In the current matter, the Ramirezes properly
rejected the camper. Because the Ramirezes were not attempting to revoke acceptance, they were not required to establish
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that the defects substantially impaired the camper. Additionally, Autosport failed to cure the defects with the camper within a
reasonable time. The Ramirezes gave Autosport plenty of time to cure the defects, but Autosport never did. The Ramirezes
were, therefore, permitted to rescind the contract. Accordingly, the judgment of the Appellate Division is affirmed
Identifying Anticipatory Repudiation
o Identifying anticipatory repudiation
o Effect of anticipatory repudiation
o Retraction
 Truman and Sons v. Schupf
 One may rescind anticipatory repudiation if the other party has neither materially relied upon it nor
provided notice that it considers the contract repudiated
 FACTS: Schupf, Neiswander, and American National Bank and Trust Company of Chicago (the owners)
(defendants) agreed to sell Truman L. Flatt & Sons Co. (Truman) (plaintiff) a parcel of land. The parties entered
into a real estate contract that was contingent upon Truman’s successful rezoning of the property. After a zoning
meeting, Truman sent the owners a letter dated May 21, indicating that there was strong opposition to the rezoning
request. However, Truman also stated in that letter that it was still interested in the property, though the property
was now worth less to it than the price originally agreed upon. Truman requested a modification of the price term.
The owners responded in a letter dated June 9, rejecting the requested modification of the price term. Truman sent
a letter dated June 14, stating that it still intended to purchase the property for the original price. The owners
responded by a letter dated July 8, stating that they considered the contract voided due to Truman’s requested
modification of the price term. The owners refused to perform under the contract. Truman filed suit, seeking
specific performance of the contract and other relief. The owners filed a motion for summary judgment, arguing
that Truman had repudiated the contract. During discovery, the owners responded to interrogatories stating that
they had not entered into discussions to sell the property to another party, nor had they entered into any agreement
to do so. The trial judge granted the motion. Truman appeals to the Illinois Appellate Court.
 ISSUE: Can one rescind anticipatory repudiation if the other party has neither materially relied upon it nor
provided notice that it considers the contract repudiated?
 HOLDING: Yes. “The doctrine of anticipatory repudiation requires a clear manifestation of an intent not to
perform the contract on the date of performance….” The intention must be stated in a definite and unequivocal
manner, not in doubtful and indefinite statements. Anticipatory repudiation occurs when a party states an intention
not to perform unless conditions outside of the contract are met. A request to modify the contract, including the
price term, does not constitute anticipatory repudiation. Whether anticipatory repudiation occurs is a question of
fact. Anticipatory repudiation may be rescinded if the repudiation is retracted and notification of such retraction is
given (1) before the other party materially relies on the repudiation or (2) indicates that he deems the repudiation to
be final. Element (2) may be established by notifying the repudiating party, bringing suit, or in any other way that
communicates an election to treat the contract as repudiated. In the current matter, it is true that the May 21 letter
shows a request for a change in price term, but the language of the letter is not sufficient to constitute anticipatory
repudiation. While it could be read as manifesting intent not to perform unless the price term is changed, it can also
be read as nothing more than a request to modify. Truman’s intent, as seen in the letter, is ambiguous. The letter
does not include a definite and unequivocal statement regarding Truman’s intent to perform under the contract.
Therefore, the trial court erred when it declared that the May 21 letter constitutes anticipatory repudiation of the
real estate contract. Even if the May 21 letter constitutes anticipatory repudiation, the facts are clear that Truman
rescinded the repudiation before the owners materially relied upon it or provided notification that they considered it
final. The June 9 letter failed to indicate whether the owners considered the contract repudiated. Additionally,
according to interrogatory answers, the owners had not materially relied upon the May 21 letter. The interrogatory
answers reveal that there had been no discussions with other parties to sell the property, let alone an agreement to
do so. The June 14 letter unambiguously indicates that Truman intended to perform under the contract. It was not
until July 8 that the owners indicated that they considered the contract repudiated. By that time, Truman had
already rescinded any repudiation that may have existed. Accordingly, the trial court erred when it granted
summary judgment in the owners’ favor. The decision of the trial court is reversed, and this matter is remanded.
o Adequate assurances of due performance
 Starchem Labs v. Kabco Pharms
 Under UCC § 2-609(1), upon reasonable grounds for insecurity, a party can demand adequate assurances
of the other party’s performance
 FACTS: Starchem Laboratories, LLC (Starchem) (plaintiff) developed and sold nutritional supplements. Starchem
special ordered some of its products from Kabco Pharmaceuticals, Inc. (Kabco) (defendant) and Futurebiotics,
supplement manufacturers under the same ownership. Starchem paid Kabco late for some orders, and owed Kabco
$3,000. Additionally, Starchem owed Futurebiotics nearly $28,000. Notwithstanding these unpaid balances,
Starchem sent Kabco a purchase order for supplements costing $190,000. Under the terms of the purchase order,
Starchem had 30 days to pay Kabco. Although Kabco procured the ingredients for Starchem’s order, Kabco did
not begin manufacturing the supplements. Instead, Kabco sent Starchem a letter stating that Starchem must pay
$165,000 up front and pay the balance it owed Futurebiotics prior to Kabco beginning production. Starchem
responded with a request that Kabco extend it more credit. Kabco sent an email to Starchem again requesting that
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Starchem pay the balance it owed Futurebiotics. Starchem did not respond. Starchem filed suit against Kabco for,
among other things, breach of contract. Starchem argued that Kabco unilaterally changed the terms of the contract,
the purchase order, by limiting Starchem’s credit to $25,000 and requiring Starchem to pay Futurebiotics. Kabco
filed counterclaims against Starchem and moved for summary judgment dismissing Starchem’s complaint
 ISSUE: Under UCC, upon reasonable grounds for insecurity, can a party demand adequate assurances of the other
party’s performance
 HOLDING: Yes. Under Uniform Commercial Code (UCC) § 2-609(1), upon reasonable grounds for insecurity, a
party can demand adequate assurances of the other party’s performance. Reasonable grounds for insecurity may
include the other party’s words or actions, the course of dealing or performance between the parties, and the nature
of the contract and the industry. If the other party fails to provide the sought assurances, the failure constitutes a
repudiation that entitles the party seeking assurances to suspend performance. In this case, Kabco had reasonable
grounds for insecurity because of Starchem’s poor payment history and Starchem’s outstanding balances with both
Kabco and Futurebiotics. Consequently, under UCC § 2-609, Kabco was entitled to seek adequate assurances from
Starchem. Starchem’s failure to offer the assurances sought by Kabco entitled Kabco to stop performing its duties
under the parties’ contract. Kabco is entitled to summary judgment dismissing Starchem’s claim for breach of
contract.
Remedies after repudiation
Excusing Performance (13)
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Impossibility
o Death or incapacity
o CNA Intl Reinsurance Co. v. Phoenix- impossibility
 Under contract law, a personal-services contract is rendered impossible to perform by the death of the party
obligated to perform
 FACTS: Jude Nile (Nile) was a corporation owned by River Phoenix (defendant) and his mother, Arlyn. Nile entered into
an agreement with Scala Productions (Scala) to loan out Phoenix, who was an actor, for the purpose of filming a movie
called Dark Blood. Nile also entered into an agreement with Geffen Pictures (Geffen) to loan out Phoenix for the purpose
of filming a movie called Interview with the Vampire. Both agreements contained a general obligation not to do anything
that would deprive the parties of their benefits. Scala and Geffen obtained insurance policies pertaining to the movie
productions from CNA International Reinsurance Company, Ltd. (CNA) (plaintiff) and American Casualty Company
(American) (plaintiff). Phoenix died due to an overdose of illegal drugs prior to the completion of both movies. CNA and
American issued payments under the policies and became subrogated to the claims that Scala and Geffen had against
Phoenix. CNA and American sued Phoenix for breach of the actor-loanout agreements. Arlyn, as the personal
representative of Phoenix’s estate, filed a motion to dismiss the lawsuits. The trial court granted the motion to dismiss,
and CNA and American appealed to the Florida District Court of Appeal.
 ISSUE: Under contract law, is a personal-services contract rendered impossible to perform by the death of the party
obligated to perform the services?
 HOLDING: Yes. Under contract law, a personal-services contract is rendered impossible to perform by the death of the
party obligated to perform the services. Generally, under the Second Restatement of Contracts § 261, a party’s obligation
to perform a contract is discharged if the performance becomes impracticable, without fault of the party, due to an event
that changes a basic assumption upon which the contract was made. Under § 262, one of these events is the death of a
person who is necessary for the performance of a duty. In this case, CNA and American argue that Phoenix contributed to
his own death by consuming an excessive amount of illegal drugs. However, a rule that takes into account whether a
person contributed to his or her own death would be vague and complex. This would cause confusion in cases that
involve drug and tobacco use, for example. The better approach is to maintain the default rule that death renders a
personal-services contract impossible to perform. Parties may choose to enter into contracts that address specific
behaviors such as illegal drug use, but Scala and Geffen did not do so here. Therefore, the general rule applies in this
case, and Phoenix’s obligation to perform the actor-loanout agreements was discharged by his death. Accordingly, the
judgment of the trial court is affirmed.
o Destruction of a necessary thing
o Preclusion by government regulations
Impracticability
o Sassower v. Blumenfeld
 A party’s performance may be excused if the destruction of the subject matter of the contract or the means of
performance makes performance objectively impossible.
 FACTS: David Blumenfeld (defendant) entered into an agreement with Michael Sassower (plaintiff) to purchase a
property in New Hartford, New York, for $1.8 million. Upon signing the contract, Blumenfeld paid a deposit of
$180,000. Under the terms of the agreement, Sassower was entitled to retain the deposit as liquidated damages if
Blumenfeld defaulted on the purchase. Additionally, the agreement set the closing date as December 12, 2008.
Blumenfeld was allowed to adjourn the closing date to no later than December 31, 2008. The agreement indicated that in
regard to any adjournments, time was of the essence. On December 10, 2008, Blumenfeld requested an adjournment of
the closing date. On December 11, Blumenfeld learned that he had lost nearly all his financial assets as a victim of a
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fraudulent scheme perpetrated by a well-known investor. On December 24, 2008, Blumenfeld terminated his purchase
agreement with Sassower and demanded that Sassower return the deposit. Sassower sought a declaratory judgment that
he was entitled to retain Blumenfeld’s deposit as liquidated damages because Blumenfeld failed to close by December
31, 2008. Blumenfeld argued that his performance should be excused on the basis of impossibility. Sassower moved for
summary judgment, and Blumenfeld filed counterclaims.
 ISSUE: May a party’s performance be excused if the destruction of the subject matter of the contract or the means of
performance makes performance objectively impossible
 HOLDING: Yes. A party’s performance may be excused if the destruction of the subject matter of the contract or the
means of performance makes performance objectively impossible. Impossibility excusing performance must be the result
of an unanticipated event that the parties could not have foreseen. However, impossibility caused by financial difficulty,
even bankruptcy, does not excuse performance. In this case, Blumenfeld was the victim of fraud and suffered financial
hardship as a result of that fraud. Blumenfeld’s changed financial circumstances may have made it impossible for him to
close on the property in New Hartford, New York. However, Blumenfeld’s financial straits do not qualify as
impossibility that would excuse his performance on his purchase agreement with Sassower. Blumenfeld did not close,
and his failure to perform entitles Sassower to keep Blumenfeld’s deposit as liquidated damages. For this reason,
Sassower’s motion for summary judgment is granted.
Establishing the excuse of impracticability
Determining nature of events
 Clark v. Wallace County
 Where a seller contracts to provide goods that are not identified at the time of contracting and the seller’s
performance is then impaired by a foreseeable event that damages the goods, the seller is not excused from
delivering the goods as promised
 FACTS: Farmer Ray C. Clark (plaintiff) contracted to sell 4,000 bushels of corn to the Wallace County
Cooperative Equity Exchange (Coop) (defendant). The agreement was made in January with delivery scheduled
to occur after the harvest. In September, a freeze in the region caused extreme damage to the corn crop. Clark’s
crop amounted to just 2,207.41 bushels, which he delivered to Coop. Clark contended that he was excused from
delivering the balance because of the weather. Coop disagreed and reduced its payment to Clark by the amount
attributable to the shortage. Clark filed suit for the $1,622.97 retained by Coop. Coop prevailed in the trial court,
and Clark appealed.
 ISSUE: Where a farmer contracts to provide 4,000 bushels of corn, without specifying from where the crops
will come, but falls short because of severe weather, is the farmer entitled to be paid for the amount delivered
without liability for the amount he failed to deliver?
 HOLDING: No. As a commercial sale, the transaction in this case is governed by the Uniform Commercial
Code (UCC), as adopted by Kansas. Its provisions do not support Clark’s claim. UCC § 2-613 provides that a
partial loss of goods that occurs prior to delivery and not by the fault of either party will not render the seller
liable for the goods lost so long as the goods were identified when the contract was made. In Milling Co. v.
Edwards, 197 P. 1113 (1921), this court ruled that the identification of crops must be to the particular land on
which they were to be grown. A more recent decision from the state of Washington accords with this rule.
In Colley v. Bi-State, Inc., 586 P.2d 908 (1978), the Court of Appeals of Washington held that UCC § 2-613 did
not excuse a farmer from delivering wheat that fell short on account of hot, dry weather because the farmer’s
contract did not require the farmer to grow the wheat himself or in any particular location. The contract merely
specified that the farmer was to deliver a certain amount of wheat at a certain time. This court agrees with the
reasoning of Colley and adopts it as the law of this state. Clark contracted to deliver 4,000 bushels, and the
contract did not require such bushels to be grown by Clark on any particular piece of land. Nor does UCC § 2615, which excuses a party from performance on account of impracticability, assist Clark’s claim. The
impracticability excuse may not be relied upon where the seller could foresee the contingency that caused the
loss. Farmers in Kansas can foresee late September freezes. Moreover, Clark’s performance was not
impracticable because he could have procured corn from another source to deliver to Coop. If the court were to
determine otherwise, farmers could enter into forward commodity agreements without specifying the land to be
harvested, risk a crop failure, then suffer no liability for a shortage. Accordingly, Clark is not excused from
performance. The judgment in the trial court is affirmed
Party fault and risk allocation
 Kel Kim Corp v Central Mkts Inc- EXCUSE
 A party is excused from performance if the means of performance or the subject matter upon which the
contract depends is destroyed due to an unanticipated event, making performance impossible
 FACTS: Kel Kim (plaintiff) leased a building from Central Markets (defendant) for a period of 10 years. Kel
Kim was going to use the building as a skating rink and the lease required that Kel Kim buy a public liability
insurance policy. Kel Kim bought a policy that was in effect for the first six years of the lease. However,
thereafter, the insurance company did not renew the policy because of financial uncertainty with its reinsurer.
When the policy ran out, Central Markets sent a notice of default to Kel Kim and ordered it to obtain
replacement insurance or vacate the premises. Kel Kim tried to obtain a replacement insurance policy but was
unable to do so. Kel Kim then brought this suit for a declaratory judgment, claiming that it should be excused
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from complying with the insurance provision in the lease due to either (1) impossibility or (2) a force majeure
clause in the lease that excused performance for specific, unforeseen events related one of the parties’ ability to
conduct day-to-day business. The trial court granted Central Markets’s motion for summary judgment, ordering
Kel Kim to vacate the presmises. The appellate court affirmed. Kel Kim appealed.
ISSUE: Is a party’s inability to procure an insurance policy an unforeseen event that excuses the party from
complying with a contractual requirement that it maintain an insurance policy?
HOLDING: No. A party is excused from performance if the means of performance or the person or thing upon
which the contract depends is destroyed due to an unanticipated event, making performance impossible.
Alternatively, a party may be excused from performance due to the occurrence of an event explicitly accounted
for in a force majeure clause in the contract. In this instance, Kel Kim is not excused from complying with the
insurance requirement under either approach. Kel Kim is not excused under the impossibility doctrine because
an inability to maintain insurance coverage is something that could have been foreseen and guarded against by
Kel Kim when it entered into the contract. Neither is Kel Kim excused under the force majeure clause in the
contract. Not only was the event not unforeseen, but the clause excused the parties’ performance only upon the
occurrence of an event related to one of the parties’ ability to conduct day-to-day business. The procurement of
an insurance policy has nothing to do with Kel Kim’s ability to conduct its day-to-day business as a skating
rink. It merely affects Central Markets’s financial interests. Accordingly, Kel Kim is not excused from
complying with the insurance requirement. The lower courts are affirmed.
Frustration of purpose
o Establishing Frustration of purpose
o Substantially frustrates principal purpose
 Mel Frank tool and supply v. Di Chem- EXCUSE
 A party’s performance under a lease may not be excused when a law or ordinance restrict use of the
premises, but does not completely render the premises unusable by the party
 FACTS: Di-Chem Co. (Di-Chem) (defendant) leased property from Mel Frank Tool & Supply, Inc. (Mel
Frank) (plaintiff) for the purpose of storing chemicals. Some of those chemicals are considered “hazardous
material.” The lease required Di-Chem to comply with all city ordinances. At some point during the lease
period, the city changed the fire code to prohibit the storage of hazardous material. After this change, the city
inspected the premises and determined that hazardous materials were being stored in violation of the city’s fire
code. Di-Chem informed Mel Frank that it would be relocating due to the city’s ordinance. An October 23 letter
to Mel Frank indicated that the city’s enforcement of the ordinance prohibited Di-Chem from storing all of its
chemicals on the premises, but that some would be allowed. Mel Frank filed suit. Di-Chem’s affirmative
defenses included impossibility. During trial, a Di-Chem representative testified that only a portion of the
chemicals stored on the premises were objectionable under the new ordinance. The trial court held in favor of
Mel Frank. Di-Chem appealed to the Iowa Supreme Court.
 ISSUE: Can a party’s performance under a lease be excused when a law or ordinance restricts use of the
premises, but does not completely render the premises unusable by the party?
 HOLDING: No. Section 265 of the Restatement (Second) of Contracts (the Restatement) provides that a party
may be excused from performance of contractual duties when an event occurs, the non-occurrence of which was
a basic assumption of the contract, that frustrates the party’s principal purpose for entering into the contract,
unless language or circumstances indicate otherwise. The party’s purpose must be so principal to the contract
that, without it, the transaction would make little sense. Additionally, the frustration must be substantial. It
cannot merely be less profitable, but must be so severe that it cannot fairly be regarded as a risk he assumed
under the contract. Moreover, regarding the non-occurrence of the frustrating event, foreseeability must be
considered, but it is not the deciding factor upon which the determination should be made. When considering a
lease, if a law or ordinance is passed restricting the use of the property, a party is not excused from performance
under the lease unless the law or ordinance completely restricts use to purposes that are illegal or otherwise not
allowed under the lease. In the current matter, the October 23 letter from Di-Chem indicated that the entirety of
its inventory was not affected by the ordinance. Additionally, testimony from a Di-Chem representative
indicates that only a portion of the chemicals being stored on the premises were objectionable under the new
ordinance. This evidence indicates that the ordinance did not restrict Di-Chem’s use of the property to purposes
that were illegal or otherwise not allowed by the lease. Thus, Di-Chem cannot be excused from performance of
the lease. Furthermore, Di-Chem must provide evidence that its purpose for entering into the contract was
substantially frustrated. Di-Chem provided no evidence regarding what percentage of its inventory included
hazardous material. Di-Chem also failed to show what profit losses it would suffer as a result of the new
ordinance. Under these facts, Di-Chem failed to meet its burden and establish the affirmative defense of
impossibility. The decision of the trial court is affirmed.
Untangling Claims of Excuse
o Procedure for Claiming Excuse
o Partial Excuse
o Temporary Excuse
o Restitution Following Excuse
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Third Party Rights and Duties (14)
- Introduction to Third Party Rights
- Third Party Benficiaries
o Development of Third-Party Beneficiary Doctrine
 Seaver v. Ransom
 A third-party beneficiary can sue to enforce a contract made for that party’s benefit
 FACTS: Judge Beman drafted his wife’s will according to her instructions, giving $1000 to Ms. Beman's niece,
Marion Seaver (plaintiff), $500 to Ms. Beman’s sister, $100 each to another sister and her son, and the house to
her husband for life, with the remainder to charity. When Judge Beman read the will to her, Ms. Beman decided
to leave the house to Seaver, but she feared she would die before another will could be executed, so Judge
Beman promised her he would bequeath to Seaver in his own will a sum equal to the value of the home. When
Judge Beman died it was discovered that the will contained no such gift to Seaver. Seaver sued Matt Ransom
(defendant), the executor of Beman's estate, for the value of the home. The trial court found for Seaver, and the
appellate division affirmed. Ransom appealed to the New York Court of Appeals.
 ISSUE: Can a third-party beneficiary sue to enforce a contract made for that party’s benefit?
 HOLDING: Yes. There are four circumstances in which the right of a third party to enforce a contract may be
upheld: (1) if there is a pecuniary obligation running from the promisee to the beneficiary; (2) if the contract is
made for the benefit of the wife, affianced wife, or child; (3) in public contracts if the municipality seeks to
protect its inhabitants by covenants for their benefit; and (4) if, at the request of a party to the contract, the
promise runs directly to the beneficiary although he does not furnish the consideration. Although this case does
not clearly fall within any of these four categories it is possible that there are other circumstances in which the
equities permit enforcement by a third party. In order for a third party to enforce a contract made for his benefit,
there must be liability to him on the part of the promisee. Here there is no difference in law or equity between
the desire of the childless aunt (Ms. Beman) to make provision for a niece and the moral duty of a parent to
make testamentary provision for his or her child. The latter is routinely upheld and there is no justification in
distinguishing between the duty of a parent and the matter at issue. Here, if Ms. Beman had left her husband the
house on condition that he pay Seaver the value of the home and he had accepted the devise, he would have
become personally liable to pay, and Seaver could have recovered from him. The judgment below is
accordingly affirmed.
o Identifying Intended Beneficiaries
 Tredrea v. Anesthesia & Analgesia, P.C.
 A contract can have a third-party beneficiary only if the contract manifests an intent to benefit a third party
 FACTS: Genesis Medical Center (Genesis) was a hospital in Davenport, Iowa, that employed 15
anesthesiologists. After receiving negative evaluations from the Iowa Board of Medical Examiners, Genesis
decided to hire a single anesthesiology group to provide anesthesiology services. Genesis entered into a contract
with Anesthesia & Analgesia, P.C. (A & A) (defendant) that made A & A Genesis’s exclusive provider of
anesthesiology services. Seven of Genesis’s on-staff anesthesiologists were employed by A & A, and nine were
not. Because A & A did not have enough anesthesiologists in its group to cover Genesis’s needs, the contract
provided that Genesis could hire Genesis’s current anesthesiologists as independent contractors so long as
Genesis entered into agreements with those anesthesiologists no later than January 31, 1995. Additionally, the
contract provided that A & A could not unreasonably withhold its consent to any extensions that Genesis might
request to the January 31 deadline. On January 10, Genesis made offers of employment to its eight on-staff
anesthesiologists who did not work for A & A. The deadline for the doctors’ acceptance was January 25, 1995.
All eight initially refused the terms of their offers. Genesis extended its deadline to February 2, then February
10, then February 15. On February 17, doctors Colin Tredrea and Douglas Wells (plaintiffs) accepted Genesis’s
offer. A & A agreed to the first two extensions, but refused to consent to the third extension. Doctors Tredrea
and Douglas sued A & A and other defendants claiming, among other things, that they were third-party
beneficiaries of the contract between Genesis and A & A, and that contract had been breached by A & A. The
jury found in favor of Tredrea and Wells, awarding them more than $300,000 each in damages. A & A
appealed, arguing that Tredrea and Wells lacked standing to sue because they were not third-party beneficiaries
under the contract, and that A & A did not breach the contract
 ISSUE: Can a contract have a third-party beneficiary only if the contract manifests an intent to benefit a
third party?
 HOLDING: Yes. A contract can have a third-party beneficiary only if the contract manifests an intent to benefit
a third party. The intent of the promisee is key to determining whether a party is an intended third-party
beneficiary. If the promisor has reason to know that the promised benefit to a third party motivated the promisee
to enter into the contract, then the parties had intent to create a third-party beneficiary. In this case, Genesis
negotiated with A & A for the right to hire independent contractors because Genesis needed more
anesthesiologists than A & A could provide. As promisor, A & A induced Genesis, the promisee, to enter into a
contract in part through this concession. Because it was the intent of Genesis to hire independent contractors,
and A & A knew this right was important to Genesis, the contract manifests an intent to benefit independent
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contractors as third-party beneficiaries. For this reason, Tredrea and Wells qualify as third-party beneficiaries of
the contract between Genesis and A & A. Additionally, it was unreasonable for A & A to refuse an extension to
Genesis when only 15 days had elapsed since the contract’s original deadline. The jury properly found that A &
A breached the contract by refusing to consent to the third extension. The judgment of the trial court is affirmed.
 Zigas v. Superior Court
 Standing to sue as a third party beneficiary to a government contract depends on the intent of the parties as
manifested by the contract and the circumstances surrounding its formation
 FACTS: Zigas and multiple other tenants (tenants) (plaintiffs) lived in an apartment building in San Francisco,
California. The landlords (defendants) financed the building with a federally insured mortgage. The mortgage
was secured through an agreement between the landlords and the federal Department of Housing and Urban
Development (HUD). Pursuant to the agreement, the landlords were prohibited from charging rent in excess of
the maximums set out in the rental schedule set by HUD. The tenants brought suit against the landlords in
California state court, alleging the landlords charged excessive rents amounting to $2 million. The tenants
argued they had standing to sue because they were third party beneficiaries of the agreement between the
landlords and HUD. The trial court held the tenants did not have standing to sue under either federal or
California state law, and the tenants appealed. On appeal, the appellate court agreed that the tenants did not have
standing to sue under federal law. The appellate court then considered the tenants’ claims under state law
 ISSUE: Whether standing to sue as a third-party beneficiary to a government contract depends on the intent
of the parties as manifested by the contract and the circumstances surrounding its formation.
 HOLDING: Yes. Under the landlords’ contract with HUD, the tenants are third party beneficiaries who are
entitled to sue to recover the excess rents charged by the landlords. Standing to sue as a third-party beneficiary
to a government contract depends on the intent of the parties as manifested by the contract and the
circumstances surrounding its formation. If the parties intended the contract to benefit a third party, that third
party may sue either of the original parties for breach. Several factors support a finding that the original parties
to a government contract intended the agreement to benefit a third party. First, if a third party, not the
government, suffered a pecuniary loss as a result of breach, the contract was likely intended to benefit the third
party. Second, if the contract contained no administrative procedure providing for the resolution of complaints
by third parties, it is likely the parties intended that third parties should sue on the contract in the event of
breach. Third, when the contract does not limit liability for a breaching party, there is no reason to prohibit third
parties from bringing suit to enforce their alleged rights under the contract. Finally, when a reasonable
interpretation of the contractual language suggests that the agreement itself was intended to make third parties
direct beneficiaries and not incidental beneficiaries, those third parties have standing to sue on the contract. The
contract between HUD and the landlords contained language that prohibited the landlords from charging
arbitrary and excessive rents. It is clear that this benefit was intended to flow directly to the tenants and not the
government, since the tenants would suffer financial harm from excessive rents. The language of the agreement
itself entitled the Secretary of HUD to bring suit against the landlords for specific performance in the event of
breach, as well as to seek “such other relief as may be appropriate.” This language creates an additional right to
sue in the Secretary of HUD, but does not remove the right to sue from the tenants. The landlords unlawfully
retained excessive rents from the tenants, and thus should be required to return those rents to the tenants. The
contract between HUD and the landlords was intended to benefit the tenants, and thus the tenants are entitled to
sue under California law to recover the excess rents charged by the landlords. The decision of the trial court is
reversed
o Beneficiaries and Contract Defenses
o Modifications by the Promisee
Assignment of Rights
o Assignment Defined
 Herzog v. Irace- third party assignees and duties
- Once a party clearly expresses an intent to relinquish a contractual right and retains no further control over the
right, the right is effectively assigned and the assignee may enforce the assigned right directly against the
obligor
- FACTS: Gary G. Jones was injured in a motorcycle accident and engaged Anthony Irace and Donald Lowry (Irace)
(defendants) to represent him in filing a personal injury claim in connection with this accident. While the claim was
pending, Jones received medical treatment from Dr. John P. Herzog (plaintiff) for an unrelated injury. As he was
unable to pay for the medical treatment, he signed a letter on June 14 stating that Dr. Herzog should be paid for his
services from the settlement proceeds. Irace was informed by Herzog that Jones had assigned the proceeds of his
settlement to Herzog to the extent necessary to pay for the medical services rendered. After receiving confirmation
from Irace’s office that medical care rendered by Herzog to Jones could be paid from the settlement proceeds,
Herzog proceeded to treat Jones, including performing surgery. Irace ultimately obtained a $20,000 settlement for
Jones and Jones instructed Irace not to disburse funds to Herzog, claiming he would make the payment. Irace
informed Herzog that Jones had withdrawn his permission to disburse funds to Herzog and proceeded to distribute
the settlement funds to Jones and his other creditors. Herzog sued Irace in district court claiming that the assignment
was enforceable against Irace. Irace defended that Jones had not relinquished all control, so the assignment was not
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effective, and enforcement would interfere with their ethical obligations to Jones. The district court found in favor of
Herzog. Irace appealed to the Superior Court of Maine as an intermediate appellate court, which also found in favor
of Herzog. Irace then appealed to the Supreme Judicial Court of Maine.
- ISSUE: If a party effectively assigns a contractual right by clearly expressing the intent to relinquish the right and
retaining no further control over the right, can the assignee enforce that right directly against the obligor?
- HOLDING: Yes. An assignment is effective when the contracting party clearly expresses his or her intent to
relinquish the contractual right and retains no further control over that right. Once an assignment is effected, the
obligor is obligated to the assignee, whether or not the obligor accepts the assignment. Only the conduct of the
assignor and assignee are determinative of whether the assignment was effective. The obligor then holds the right in
trust for the assignee. If the obligor does not give the assignee the assigned benefit, the assignee can assert that right
directly against the obligor. Here, Jones’ June 14 letter was an effective assignment and Herzog was entitled to
enforce the right assigned to him by Jones against Irace. The factual findings of the district court adequately support
its conclusion that the assignment was valid. There is no indication in the June 14 letter that Jones retained further
control over his right to the settlement proceeds, and the charges for Herzog’s services were reasonable and
necessary. Since Jones has the legal right to assign his right to the settlement proceeds, acting in accordance with that
assignment does not interfere with Irace’s ethical obligations. The district court’s ruling in favor of Herzog was
correct.
o Ineffective Assignment
Delegation of Duties
o Limitations on delegation
 Rossetti v. New Britain
 Contracts for personal services cannot be assigned without notice to and consent of the other party
 FACTS: The city of New Britain (defendant), Connecticut, entered into a contract with the architectural firm of
Rosetti, DiCorcia and Mileto to develop plans for a new police station and courthouse. One of the firm’s partners,
Andrew Rosetti (plaintiff), was the lead architect on the project. Approximately six months later, another of the
firm’s partners, Philip DiCorcia, left the firm. At this time, the firm had completed 30 percent of the blueprints for
the project. Prior to DiCorcia leaving, Rosetti notified the chairman of New Britain’s building committee that the
architectural firm was restructuring with Rosetti and William Mileto as the only partners. New Britain made no
objection. New Britain did not pay Rosetti for the services his firm had completed, and ended its contract with
Rosetti by hiring new architects. Rosetti sued New Britain for breach of contract, seeking payment for his firm’s
services. A jury found that Rosetti was owed $12,300 for his firm’s services. New Britain appealed. On appeal,
New Britain argued that its contract with Rosetti, DiCorcia, and Mileto was not assignable to Rosetti’s firm
because it was a contract for personal services, making it impossible for the original partnership to perform on its
contract with the city.
 ISSUE: Can contracts for personal services be assigned without notice to and consent of the other party?
 HOLDING: No. Contracts for personal services cannot be assigned without notice to and consent of the other
party. Generally, a person who has been hired to provide a personal service cannot delegate performance on the
contract. It is the duty to perform, rather than the benefits of performance, that cannot be assigned. In this case, a
contract for architectural services qualifies as a contract for personal services. However, Rosetti gave notice to New
Britain that DiCorcia would be departing, and New Britain made no objection. With notice to and consent from
New Britain, the personal services contract was assignable to Rosetti’s new firm. Additionally, because the firm
had completed 30 percent of the project prior to DiCorcia’s departure, the firm was owed money. This payment
due was a benefit of the firm’s performance, which unlike performance, is assignable. There is no reason to believe
that DiCorcia did not intend to assign the benefits of his firm’s performance to Rosetti. For these reasons, the
judgment of the trial court is affirmed.
o Release or Novation
Damages (15)
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Introduction: Basic Damage Principles
o Monetary Equivalent of Performance
 Alternative Remedies
 Distinguishing Remedial Interests
o Damages are compensatory
o Damage calculations compare two positions
o Damages can be reduced
o Damages may affect a project
Damages Generally
o Direct Loss
 Seller’s Recovery of the Price
 Tolar Construction v. Kean
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A seller that has suffered a direct loss can recover damages equal to the promised price reduced by any
savings resulting from the buyer’s breach
 FACTS: Tolar Construction (Tolar) (defendant) hired Kean Electric Company (Kean) (plaintiff) to perform the
electrical work for an elementary school renovation. Under the contract, the electrical work was required to be
completed by January 18, 2001, and Kean would receive $230,000 upon its completion. During the renovation, the
elementary school’s roof had to be reinstalled, delaying Kean’s work for more than a month. Tolar’s general
manager became impatient with Kean when it missed the January 18 deadline, and work continued into April.
Tolar ordered Kean to complete work by May 14. When Kean failed to do so, Tolar ordered Kean to cease work.
Tolar paid Kean just $3,000 for Kean’s work. Kean sued Tolar for breach of contract, and Tolar counterclaimed.
At trial, Kean presented evidence of the contractual price the parties had agreed to for Kean’s services.
Additionally, Kean presented evidence of how much money it would have paid subcontractors had Kean been
permitted to complete the work. A jury found in favor of Kean, awarding it compensatory damages of $89,000.
Tolar moved for a new trial, but the trial court denied Tolar’s motion and entered final judgment in favor of Kean.
Tolar appealed. On appeal, Tolar argued that the damages award was excessive because the jury failed to consider
the payments Tolar made to subcontractors in order to complete the electrical work that Kean was forced to leave
unfinished
 ISSUE: Can seller that has suffered a direct loss recover damages equal to the promised price reduced by
any savings resulting from the buyer’s breach?
 HOLDING: Yes. A seller that has suffered a direct loss can recover damages equal to the promised price reduced
by any savings resulting from the buyer’s breach. In situations where a seller has fully performed, the seller may
recover the full price promised under the contract, because the buyer’s breach has saved the seller nothing.
Reductions to the price a seller may recover are sometimes referred to as “offsets.” In this case, Tolar breached its
contract with Kean by ordering Kean to stop work before the electrical work was completed. Tolar then hired third
parties to complete the work left unfinished by Kean. Tolar argues that the amounts it paid these third parties
should be regarded as offsets to the contractual price owed Kean. However, the amount that Tolar paid to finish the
work Kean was forced to abandon is not evidence of the amount Kean itself would have spent to finish the project.
Tolar’s last-minute hires likely charged more to complete the small jobs remaining of the project than Kean would
have paid its own subcontractors. In determining a damages award, the offsets to the contract price must be
computed from the perspective of Kean, the non-breaching party. For this reason, the trial court properly denied
Tolar’s motion for a new trial. The judgment of the trial court is affirmed
Lost Volume Sellers
Contracts for Services
Real Estate Leases
Buyer’s Damages
Toto, We’re Home, LLC v. Beaverhome.com, Inc.
 If a seller fails to make a delivery, the buyer can sue for damages in the amount of the price paid the seller
plus any additional amount the buyer paid to purchase substitution goods
 FACTS: Toto We’re Home, LLC (Toto) (plaintiff) ordered wood flooring from Beaverhome.com, Inc. (defendant)
for $15,125. Toto paid the price in full. However, Beaverhome.com was unable to timely deliver the flooring
because the flooring was out of stock. Toto canceled its order and immediately purchased similar flooring from
another company for $19,166. Toto sued Beaverhome.com to recover its loss. The trial court found in favor of
Toto, awarding Toto damages equal to the price Toto paid Beaverhome.com for the flooring, or $15,125.
However, the trial court denied Toto cover damages for the additional $4,041 Toto paid to promptly buy
replacement goods from a different supplier. Toto appealed, seeking cover damages
 ISSUE: If a seller fails to make a delivery, can the buyer sue for damages in the amount of the price paid the
seller plus any additional amount the buyer paid to purchase substitution goods?
 HOLDING: Yes. If a seller fails to make a delivery, the buyer can sue for damages in the amount of the price paid
the seller plus any additional amount the buyer paid to purchase substitution goods. The buyer’s purchase of
substitution goods is sometimes referred to as “cover.” The Uniform Commercial Code § 2-711 entitles buyers to
cover plus the price they paid for undelivered goods. In this case, Beaverhome.com breached its sale contract with
Toto by failing to deliver Toto’s flooring. Toto was forced to cover by buying similar flooring from another
company but at a significantly higher price. The cost of Toto’s cover was $4,041. Consequently, Toto is entitled to
recover cover damages of $4,041 in addition to the $15,125 it paid Beaverhome.com for flooring. The appeal is
denied, but the trial court’s order is modified to add cover damages of $4,041 to Toto’s damages award.
Services and Employment
Real Estate: Nondelivery of the premises, defects in the promise
Repair or diminution in Value
Landis v. William Fannin Builders
 A court may award damages based on cost of restoration in a construction contract claim even if it exceeds
the diminution in market value
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FACTS: In 2004, Landis and Weidman (plaintiffs) hired Fannin Builders, Inc. (Fannin Builders) (defendant) to
build them a custom home for $356,750.00. The contract required Fannin Builders to build the home according
to the plaintiffs’ specifications. Because the plaintiffs desired a rustic look to their home, they required that
Fannin Builders use T1-11 exterior siding with two coats of stain. The plaintiffs received assurances from
Fannin Builders that it had experience with T1-11 siding. The plaintiffs selected a semi-transparent green color
stain for the siding. Fannin Builders arranged for 84 Lumber to provide the siding. 84 Lumber in turn hired
Precision Applied Coating Enterprises (PACE) to stain the siding in the color chosen by the plaintiffs. However,
PACE initially underestimated how many sheets of siding were required, and thus had to stain an additional 19
sheets separately from the rest of the siding. Consequently, one batch of siding was a darker shade than the
other. Fannin Builders’ field superintendent, Jeff Klinger, assured Weidman that the two shades would blend
after a second coat of stain was applied. 84 Lumber proceeded to install the siding. However, the second coat of
stain did not blend the colors as promised and the house had a striped appearance as a result. Despite multiple
attempts, Fannin Builders was unable to remedy the difference in colors. Fannin Builders proposed applying a
solid stain, which would have masked the different shades. However, the plaintiffs rejected this proposal
because a solid stain would not lead to the rustic look for which the plaintiffs had contracted. The plaintiffs
brought suit for breach of contract and were awarded $66,906.24 for the cost to preplace the mismatched siding.
Fannin Builders appealed, arguing that the trial court should have awarded the amount representing the
diminution in market value of the house, which was estimated at $8,500.00, as opposed to the cost to replace the
mismatched siding.
ISSUE: May a court award damages based on cost of restoration in a construction contract claim even if it
exceeds the diminution in market value?
HOLDING: Yes. The purpose of damages in breach of contract cases is to place the injured party in the position
it would have been in had the contract been performed as agreed. However, some Ohio courts have limited this
principle by applying the economic-waste rule. Under this rule, where awarding damages to repair a
construction defect would result in unreasonable economic waste, damages are measured according to the
difference between the market value of the property as contracted for and the market value of the defective
property. Similarly, Ohio courts have also ruled in cases of temporary injury to real property that damages
should be measured by diminution in market value if it is exceeded by the cost of restoring the defective
property. These two approaches have since been superseded by a reasonableness test set forth by the Ohio
Supreme Court. This test asks whether it is more reasonable to award damages based on cost of restoration
rather than diminution in market value. Whether the cost of restoration grossly exceeds the diminution in market
value is relevant, but is not the sole consideration. Here, the cost of restoration is approximately $66,906.24.
The diminution in market value was $8,500.00. Although the cost of restoration greatly exceeds the diminution
in market value, measuring the plaintiffs’ damages according to the diminution in market value would not fully
compensate the plaintiffs. The plaintiffs contracted for a custom home with a rustic appearance. In furtherance
of that goal, the plaintiffs required that certain materials be used in the construction of their home. Given the
emphasis placed on the aesthetics of the home, the plaintiffs should be awarded damages that would allow them
to achieve what they contracted for. Therefore, the trial court did not err in awarding the plaintiffs damages
based upon the cost of replacing the siding
Incidental Loss
Consequential Loss
 QVC inc v MJC American LTD
 A party may recover consequential damages for any gain it would have realized had its counterparty not
breached
 FACTS: QVC, Inc. (plaintiff) used its cable channel to sell 16,721 space heaters that QVC had purchased from
MJC America, Ltd. (MJC) (defendant). QVC charged its customers $68 per heater. After paying MJC $36 per
heater and some other costs, QVC anticipated earning a profit of $26 on each heater. Many customers reported that
their space heaters began smoking, sparking, or emitting flames. QVC decided to recall the heaters. QVC then sued
MJC to recover QVC’s costs and lost profits. The costs QVC sought included the price it had paid MJC for each
heater; refunds of shipping costs to customers on their initial purchase and later returns of defective heaters and
cords; shipping costs for QVC’s return of defective heaters to MJC; costs for processing returns; and the profits
QVC lost for every heater it sold then recalled. The purchase order between QVC and MJC required MJC to
refund QVC’s purchase price and shipping costs for defective merchandise. Additionally, the purchase order
required MJC to indemnify QVC against losses, including consequential damages, resulting from defective
heaters. QVC provided evidence of its costs and losses for all of these categories.
 ISSUE: May a party recover consequential damages for any gain it would have realized had its counterparty not
breached?
 HOLDING: Yes. A party may recover consequential damages for any gain it would have realized had its
counterparty not breached. Lost profits are a typical example of consequential damages. If a buyer anticipates
reselling a product at a profit, a seller’s breach may deprive the buyer of the profits that the buyer otherwise would
have earned, or lost profits. In this case, QVC sought damages for its direct losses, incidental losses, and
consequential losses relating to MJC’s breach. QVC’s purchase order with MJC specifically permitted QVC to
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recover all these types of losses arising from MJC’s defective products. Additionally, the purchase order gives
QVC the right to conduct a recall of MJC’s defective products. For this reason, QVC’s costs associated with the
recall are recoverable as consequential damages. QVC may recover the full amount of damages that it requested,
offset by the amount it owed MJC.
 Buyer’s Consequential Loss
 Consumer Gains
 Transmuting Consequential Damages
 Seller’s consequential damages
Limitations on Damages
o Avoidable and Avoided Consequences
 Unreasonableness
 Amount of avoidable loss
 Parker v. Twentieth Century Fox Film Corp
 The measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon, less the
amount which the employee has earned or with reasonable effort might have earned from substaintially
similar employment
 FACTS: Shirley MacLaine Parker (MacLaine) (plaintiff) entered into a contract with Twentieth Century-Fox
Film Corp. (Fox) (defendant) in which MacLaine was to play the female lead in Fox’s musical film Bloomer
Girl, guaranteeing her compensation of $750,000. Fox decided not to produce the film and offered MacLaine
the female lead in the Western film Big Country, Big Men. MacLaine did not accept the offer and brought suit to
recover the guaranteed compensation under the original contract. Fox appealed the grant of summary judgment
to MacLaine.
 ISSUE: Whether an actress must accept a role in a different film to mitigate damages from the film producer’s
failure to produce the original film.
 HOLDING: No. The measure of recovery by a wrongfully discharged employee is the amount of salary agreed
upon, less the amount which the employee has earned or with reasonable effort might have earned from other
employment. In such cases, the employer must show that the other employment was substantially similar to the
other employment, and the employee's need not seek other available employment of a different or inferior kind
to mitigate damages. Fox argues that MacLaine unreasonably refused to mitigate damages by failing to accept
the offer of substitute employment. The offer of the lead in Big Country, Big Men is different from and inferior
to the lead in Bloomer Girl. The female lead as a dramatic actress in a Western film cannot be considered the
equivalent of or substantially similar to the lead in a musical. Moreover, because MacLaine had been offered
director and screenplay approval under the Bloomer Girl contract, but not under the Big Country, Big Men offer,
the contract for Big Country, Big Men, was inferior. The grant of summary judgment is affirmed.
 Discharged Employees
 Discharged Contractors
o Foreseeability
 Proving Foreseeability
 Sunnyland Farms v. Central New Mexico Electric Cooperative
 In a contract action, a defendant is liable only for those consequential damages that were objectively
foreseeable as a probable result of the defendant’s breach when the contract was made
 FACTS: Central New Mexico Electrical Cooperative, Inc. (CNMEC) (defendant) shut off Sunnyland Farms, Inc.’s
(plaintiff) electricity for nonpayment. The next day a fire broke out at Sunnyland’s facility as a result of Sunnyland
employees’ negligence. Sunnyland’s water pumps could not operate without electricity. The fire destroyed the
facility. Sunnyland brought suit against CNMEC in contract and tort, alleging that CNMEC should not have shut
off the electricity because CNMEC did not provide proper notice of the impending shutoff. Sunnyland claimed that
this error caused the complete destruction of the facility. The trial court found in favor of Sunnyland on both the
contract and tort claims. A Sunnyland expert witness provided an estimate as to how much Sunnyland lost in
profits due to the fire. Based on this testimony, the trial court calculated over $21 million in consequential
damages, including the value of the crops that Sunnyland would have been able to grow at the facility. The trial
court reduced that amount in the tort claim by 80 percent to account for Sunnyland’s negligence. The trial court
permitted Sunnyland to elect its remedy in either contract or tort. The court of appeals reversed on the issue of
damages, finding that Sunnyland was not entitled to consequential damages in contract and that the damages in tort
as calculated were not reasonably certain. Sunnyland appealed.
 ISSUE: In a contract action, is a defendant liable for consequential damages that were not objectively
foreseeable as a probable result of the defendant’s breach when the contract was made?
 HOLDING: No. In a contract action, a defendant is liable only for those consequential damages that were
objectively foreseeable as a probable result of the defendant’s breach when the contract was made. The damages
must have been foreseeable as a probable result, not merely as a possible result. The defendant need not have
actually foreseen the damages, but there must be special circumstances, beyond the ordinary course of events, of
which the defendant should have known. In terms of negligence damages, a business’s damages for lost profits
must be reasonably certain. In this case, the trial court erred in awarding consequential damages in contract, but did
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not err in awarding damages in tort for lost profits. Sunnyland is not entitled to consequential damages in contract
because there were not special circumstances, beyond the ordinary course of events, of which CNMEC should
have known. Although it may have been objectively foreseeable that some damage to Sunnyland’s crops would
occur without electricity, the particular damages that occurred in this case—damages caused by a fire—were not
foreseeable as a probable result of a lack of electricity. CNMEC had no reason to know that Sunnyland would
negligently start a fire or that Sunnyland did not have a backup source of power for its water pumps. Sunnyland is
thus not entitled to consequential damages in contract. In terms of damages in tort, there was sufficient evidence on
which the trial court could base its calculation of Sunnyland’s lost profits. The trial court’s calculation was based
on Sunnyland’s expert’s testimony. The trial court did not err in relying on this testimony to find that Sunnyland’s
lost profits were reasonably certain. The judgment of the court of appeals is affirmed in part and reversed in part.
The trial court’s calculation of tort damages is reinstated.
 Classifying Losses
o Certainty
 Advertising Specialty Inst. V. Hall-Erikson, Inc- DAMAGES
 A party cannot recover damages that exceed losses the party has proven with reasonable certainty
 FACTS: Advertising Specialty Institute (ASI) (plaintiff) was a trade-information publisher for the corporate
promotional product industry. ASI had more than 24,000 members. It put on about 80 trade shows per year for the
buyers and sellers of corporate promotional products. Each year, it held one of its trade shows in Chicago. ASI
entered into a contract with Hall-Erickson, Inc. (defendant), the manager of an annual trade show featuring a
company doing business as The Motivation Show, each fall in Chicago. Under this contract, Hall-Erickson would
give ASI the right of first refusal to participate in any opportunity relating to the promotional product industry. In
May 2003, ASI put on its annual Chicago trade show. Later in 2003, Hall-Erickson put on its annual convention in
Chicago featuring The Motivation Show, inviting Promotional Products Association International (PPAI) to colocate its trade show at the convention. PPAI was a direct rival of ASIs in the corporate promotional products
industry. Hall-Erickson did not invite ASI to participate. ASI sued Hall-Erickson for breach of contract, alleging
that Hall-Erickson had failed to give ASI the right of first refusal to participate in Hall-Erickson’s 2003 show. At
trial, ASI’s expert testified that ASI lost revenues of $500,000 to more than $1,000,000 by not participating in HallErickson’s show. ASI did not address the issue of how participating in two trade shows in Chicago in the same
year might have affected attendance and revenues. Additionally, ASI did not identify which companies would have
likely participated in the second show, nor did ASI get data from PPAI about PPAI’s revenues from the show.
Also, ASI did not provide evidence of the companies that participated in PPAI’s show. Finally, ASI did not
address the possible effects of PPAI holding an independent trade show. The trial court found in favor of ASI.
However, the district court awarded ASI nominal damages of $1 because ASI had failed to prove damages with
reasonable certainty. ASI appealed.
 ISSUE: Can a party to a contract recover damages that exceed losses the party has proven with reasonable
certainty?
 HOLDING: No. A party to a contract cannot recover damages that exceed losses the party has proven with
reasonable certainty. This rule is particularly relevant to consequential damages, which can be difficult to prove. In
this case, the trial court easily found that Hall-Erickson had breached its contract with ASI. However, the court was
troubled by the broad damages range that ASI’s expert provided. The trial court may have mischaracterized the
expert’s damages range as lacking specificity, but there were other problems with ASI’s evidence relating to
damages. ASI did not present information about the companies that might have participated had ASI had the
opportunity to put on a second Chicago show in 2003. Additionally, ASI did not get data from PPAI about what
companies did participate in PPAI’s show or PPAI’s revenues. Generally, ASI failed to present evidence about
how sponsoring two shows in Chicago in the same year might have affected its typical Chicago-show revenues,
much less the effect if PPAI had held a separate show. For all these reasons, the district court did not clearly error
in finding that ASI did not prove damages with reasonable certainty. The judgment of the district court is affirmed.
 Existence or Amount of Loss
 Recovery when Profits are uncertain
o Emotional Distress
Reliance damages
o Measuring reliance
o Reliance recovery without breach
Agreed Remedies
o UCC: Substitute Recovery
o UCC: Limitations on recovery
o Augmenting recovery
o Liquidated damage clauses
 Evaluating reasonableness
 Karimi v. 401 N. Wabash Venture- DAMAGES
 A liquidated damages provision is enforceable only if the amount set for damages is reasonable
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FACTS: Farid Karimi and Mahmobah Kashani (the buyers) (plaintiffs) entered into a contract with 401 North
Wabash Venture (401 North Wabash) (defendant) to purchase a condominium and three parking spaces in
Trump International Hotel and Tower for $2.2 million. The buyers paid earnest money, or a deposit, of 15
percent of the purchase price, about $330,000. Under the contract, 401 North Wabash was entitled to liquidated
damages if the buyers defaulted on the purchase agreement. The liquidated damages would equal the buyers’
deposit plus any other amounts they had paid toward the purchase price. Additionally, the liquidated damages
were limited to this sum regardless of actual damages. The initial closing date for the purchase was set for
October 6, 2008. When the buyers could not obtain financing, the parties pushed the closing date to May 15,
2009. The buyers failed to close on May 15, 2009. Consequently, 401 North Wabash terminated the purchase
agreement and retained the $330,000 as liquidated damages. In September 2009, 401 North Wabash sold the
condominium plus two parking spaces for $2.5 million. The buyers sued 401 North Wabash, arguing that the
contract’s liquidated damages clause was unenforceable because it was for an uncertain sum and because it
operated as a penalty. Specifically, the buyers argued that the clause was a penalty because the clause gave the
seller an option to seek actual damages and because 401 North Wabash suffered no actual damages. 401 North
Wabash moved to dismiss. The trial court dismissed the buyers’ complaint. The buyers appealed.
 ISSUE: Is a liquidated damages provision enforceable only if the amount set for damages is reasonable?
 HOLDING: Yes. A liquidated damages provision is enforceable only if the amount set for damages is
reasonable. Reasonableness is assessed in regard to the time at which the contract was formed. Liquidated
damages are reasonable if they bear some relation to the damages that might be sustained. Additionally,
liquidated damages are appropriate only if actual damages would be uncertain or difficult to prove. A court will
hold that a liquidated damages clause is a penalty, and therefore unenforceable, if it is not reasonable. In this
case, the liquidated damages provision was not for an uncertain sum. The contract clearly set it at the earnest
money plus any additional sums paid. Additionally, the provision did not give 401 North Wabash the option of
seeking actual damages, but rather limited damages to the predetermined amount regardless of actual damages.
Although 401 North Wabash profited significantly when it sold the condominium a few months later, this fact
does not preclude recovery of liquidated damages. The uncertainty of the real estate market is precisely why a
liquidated damages clause was appropriate in this transaction, and the absence of actual damages does not make
the clause unreasonable. 401 North Wabash did not know at the time it sold the condominium to the buyers
whether the real estate market would strengthen or weaken in subsequent months. Consequently, the liquidated
damages clause between 401 North Wabash and the buyers was reasonable and enforceable. The trial court
properly dismissed the buyers’ complaint. The judgment is affirmed
 Evaluating intent
o Other agreed remedies
Arbitration
Equitable Remedies (16)
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Background: Law and Equity
o Types of Specific Relief
 Specific Performance
 Negative Injunctions
 Specific Restitutions and Replevin
 Preliminary and Permanent Injunctions
Irreparable Injury Rule
o Sedmak v. Charlie’s Chevrolet
 Specific performance can be awarded for the sale of a limited edition vehicle if the injured party can establish that it is
unique or other proper circumstances exist.
 Facts: Dr. and Mrs. Sedmak (plaintiffs) discovered that Chevrolet intended to manufacture a small number of a limited
edition Corvette, the Pace car. Dr. Sedmak contacted Charlie’s Chevrolet, Inc. (Charlie’s) (defendant) to inquire about the
car and Kells, Charlie’s sales manager, told him that a deposit would be required. Mrs. Sedmak hand-delivered the deposit to
Charlie’s and received a receipt. While there, Mrs. Sedmak ordered upgrades to the standard equipment. According to Kells,
he did order the upgrades, but ordered them because they would be better for the car, rather than because the Sedmaks
wanted them. Mrs. Sedmak said that Kells told her that the car would cost about $15,000, but Kells denied discussing price.
Kells notified the Sedmaks when the car arrived at Charlie’s, but informed them that they could not buy it for the price
quoted because there had been so much demand for it that the price had inflated. He also notified them that they could bid on
the car, but they did not submit a bid. The Sedmaks filed a suit for specific performance in the trial court. The trial court
granted specific performance. Charlie’s appealed to the Missouri Court of Appeals.
 Issue- Can specific performance be awarded for the sale of a limited edition vehicle?
 Holding: Yes. Section 2-716 of the Uniform Commercial Code permits specific performance when “the goods are unique or
in other proper circumstances.” One proper circumstance is when the goods could only be obtained elsewhere at a
considerable expense, trouble, or loss, none of which could have been expected at the time of contracting. In the current
matter, the Pace car is impossible to purchase elsewhere unless the Sedmaks pay a considerable amount of money and suffer
delay and inconvenience in trying to purchase it. There were only a limited number of cars developed and few possess the
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upgrades ordered by the Sedmaks. Moreover, as evidenced by the inflated price, the car is in very short supply and in great
demand. Accordingly, the trial court’s award of specific performance was proper. The judgment of the trial court is affirmed.
o Irreparable Injury in Context
o Uncertainty, Insolvency, and Irreparable Injury
o Services
Personal Services Contracts
o Specific Performance
 Irreparable Injury
 Mission Independent school district v. Diserens
 A court may issue an injunction to enforce a negative covenant in a personal service contract
 FACTS: Ethel Diserens (defendant) was an extraordinarily talented music teacher. She entered into a contract
with the Mission Independent School District (Mission) (plaintiff) to teach music in Mission’s public schools
for one year. The contract additionally restricted Diserens from teaching in any other school district in Texas
during the same period. On her first day of work, Diserens asked to be released from her contract. Mission
refused. Diserens quit and went to work for another school district in Texas. Mission sued Diserens, seeking to
enjoin her from working in the other school district. The trial court held that Mission had not been injured by
Diserens’s breach, and for that reason rejected Mission’s request for an injunction. Mission appealed, and the
court of appeals affirmed. Mission appealed again
 ISSUE: May a court issue an injunction to enforce a negative covenant contained in a personal service contract?
 HOLDING: Yes. A court may issue an injunction to enforce a negative covenant in a personal service contract.
While courts will not award specific performance to force a breaching party to perform a personal service, they
may enforce a negative covenant in order to induce the breaching party to perform. In this case, Diserens is a
talented teacher with unique qualifications who breached her personal service contract to teach for Mission. As
part of her contract, she promised to not teach elsewhere in Texas. Diserens cannot be forced to teach for
Mission. However, it is appropriate to enforce the negative covenant she made to not teach for another Texas
school district. For this reason, Diserens should be enjoined from breaking her promise. The judgments of the
trial court and court of appeals are reversed, and the case is remanded with instructions to issue the injunction.
 Other Policies
o Scope of Negative Injunctions
Other Limitations
o Impossible to Comply
o Undue Hardship
 Tierney v. Four H Land Company
 The remedy of specific performance is NOT appropriate if it would be inequitable or unjust because of the
hardship it causes the other party for whom performance is sought
 FACTS: Four H Land Company Limited Partnership (Four H) (defendant) and Western Engineering Company,
Inc. (Western) (defendant) entered into a contract with James and Jeffrey Tierney (plaintiffs) to extract sand and
gravel from the Tierneys’ property. The contract required Four H and Western to reclaim the land after each phase
of extraction. Specifically, they had to fill the sand and gravel pit, cover it with topsoil, and seed it with native
grasses. During ten years of operation, Four H and Western took no steps to reclaim the property as they mined it.
The mining operation enlarged an 11-acre lake to 30 acres. The Tierneys sued Four H and Western, seeking
specific performance of the contract’s obligation to reclaim the land. At trial, the district court found that
reclamation would require Four H and Western to undertake the massive project of pushing 25 acres of fill into the
lake. Upon weighing the burden of reclamation on Four H and Western against the benefit to the Tierneys, the
court held that the burdens were so great that specific performance would be unjust. Consequently, the trial court
dismissed the complaint. The Tierneys appealed
 ISSUE: Is the remedy of specific performance appropriate if it would be inequitable or unjust because of the
hardship it causes the party from whom performance is sought??
 HOLDING: No. The remedy of specific performance is not appropriate if it would be inequitable or unjust
because of the hardship it causes the party from whom performance is sought. Hardship will excuse performance
only if it was unforeseeable when the parties entered into the contract. The relative benefit to the party seeking
performance is not relevant to an analysis of hardship in this context. Here, the hardships associated with
reclamation were foreseeable at the time that the parties entered into the contract. Four H and Western failed to
perform the incremental restoration that they promised to perform under the contract. Their failures caused the
burden of performance to increase over time. The immensity of reclamation now is of their own making. Four H
and Western should not be rewarded for failing to perform their contractual obligations. The trial court improperly
weighed the enormous burden of reclamation to Four H and Western against the benefit to the Tierneys. Instead,
the court should have analyzed whether the burden of reclamation was foreseeable, which it was. For this reason,
the trial court’s denial of specific performance is reversed. The case is remanded with instruction to the district
court to enter an order of specific performance.
o Equitable Defenses
Restitution and Unjust Enrichment
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o
o
o
Liability for Unjust enrichment
 KAL v. Southern Med Bus Services- implied contract
 The doctrine of quasi-contract allows the enforcement of an implied contract for medical services between
a healthcare provider and a patient
 FACTS: K.A.L. (defendant) attempted suicide by hanging herself with a bedsheet. Jail employees found her,
began resuscitating her, and admitted her comatose to Springhill Memorial Hospital. Hospital staff saved
K.A.L.’s life, and she was released nine days later. K.A.L. did not pay for the medical services that she received
at the hospital. The hospital’s assignee, Southern Medical Business Services (Southern Medical) (plaintiff) sued
K.A.L. for payment. The trial court awarded Southern Medical damages of $21,562. K.A.L. appealed. On
appeal, K.A.L. argued that she did not consent to the medical services she received, because she was
unconscious. Additionally, K.A.L. argued that there was no evidence of an implied contract between her and the
hospital.
 ISSUE: Does the doctrine of quasi-contract allow the enforcement of an implied contract for medical services
between a healthcare provider and a patient?
 HOLDING: Yes. The doctrine of quasi-contract allows the enforcement of an implied contract for medical
services between a healthcare provider and a patient. If a person has been unjustly enriched, or received benefits
without compensation, the person can be required to compensate the provider of those benefits even if there is
no contract between the person and the provider. A patient may receive emergency medical services without
consenting to them, and is unjustly enriched if she does not compensate the provider. In this case, K.A.L. did
not enter into an express contract with the hospital where she was treated after her attempted suicide. She was
not even conscious. However, she received emergency medical services from the hospital, and was unjustly
enriched because she did not pay for those services. Consequently, the doctrine of quasi-contract finds an
implied contract between K.A.L. and the hospital to render services for a reasonable fee. Under this implied
contract, the hospital is owed the fees for its emergency services to K.A.L. that saved her life. The trial court
properly awarded $21,562 to Southern Medical. The judgment is affirmed.
 Restitution and unenforceable contracts
 Restitution for a breaching party
 Restitution as an alternative to damages
Measuring restitution
Choosing among measures of restitution
 Absurd results
 Practical measurement
 Unrequested benefits
 Breaching plaintiff
 Recipients misconduct
The restatement (third) and disgorgement for opportunistic breach
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