Part I:The Doctrine Of Consideration
A. Donative Promises, Form, and Reliance
a. Simple Donative Promises
i. Dougherty v Salt
1. Boy given promissory note at aunt’s death without any exchange.
No consideration to support promise, a promise to make a gift is
not enforceable.
Restatement Second 17
1. Except as stated in Subsection
2. the formation of a contract requires a bargain in which there is a manifestation of
mutual assent to the exchange and a consideration.
Restatement Second 71
1. To constitute consideration, a performance or a return promise must be bargained for.
2. A performance or return promise is bargained for if it is sought by the promisor in
exchange for his promise and is given by the promisee in exchange for that promise.
3. The performance may consist of (a) an act other than a promise, (b) a forbearance, or (c)
the creation, modification, or destruction of a legal relation.
b. The Element of Form
i. Schnell v Nell
1. A husband agreed to pay $200 to wife’s relatives at her death
when her estate was 0. A signed sealed document to give money
is not enforceable as the reasons for that promise do no
constitute consideration.
c. The Element of Reliance
i. Kirksey v Kirksey
1. Defendant moved to brother in laws land in promise of housing
and farm. The promise was not enforceable because it was
gracious.
2. Remember promissory estopple can make this kind of promise
enforceable now.
Restatement Second 90
1) A promise which the promisor should reasonably expect to induce action or forbearance
on the part of the promisee or a third person, and which does induce such action or
forbearance, is binding if injustice can be avoided only by enforcing the promise.[The
remedy granted for breach may be limited as justice requires.]
Restatement Second 90
1) a promise
2) which the promisor should reasonably expect to induce action or forbearance on the part of
the promisee or a third person
3) which does induce such action or forbearance
4) is binding if injustice can be avoided only by enforcing the promise.
Restatement Second 71
1. To constitute consideration, a performance or a return promise must be bargained for.
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2. A performance or return promise is bargained for if it is sought by the promisor in
exchange for his promise and is given by the promisee in exchange for that promise.
 Exceptions to consideration
o Guaranty and option contracts
o Promissory estopple
o Past consideration
ii. Feinberg v Pfeiffer Co.
1. Company promised employee to give her 200 a month whenever
she retired. Promise Is enforceable as he relied on the promise.
Enforceable under the doctrine of promissory estopple.
2. Hayes v Plantation Steel
Restatement Second 90
1. a promise
2. which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person
3. which does induce such action or forbearance
4. is binding if injustice can be avoided only by enforcing the promise.
a. Kirksey v Kirksey
Related Doctrines
o Deceit (also called fraud)—a tort doctrine
o Representation of fact is made with intent to deceive someone
o Made with intent to induce reliance, and does induce reliance
o Result: Injured party may recover actual damages caused by the reliance and
punitive damages
o Equitable estoppel (also called estoppel “in pais”)—a broad, general legal doctrine—
not limited to contract situations
o Representation of some fact is made (without intent to deceive)
o There is foreseeable reliance on the representation by another person
o Result: Person who made the representation is estopped (prevented) from
contradicting or denying the fact as it was represented
o Promissory estoppel—a contract doctrine
o Promise is made; promisor seeks nothing in exchange but the promisee’s
reliance on the promise is foreseeable
o Promisee does rely on the promise to his detriment
o Result: Promisee may enforce promise as justice requires
o Bargained-for consideration—a contract doctrine
o Promise is made; promisor seeks a return promise or performance in
exchange for his promise
o Promisee makes the return promise or performance in exchange
o Result: Promisee may enforce promise according to its terms
d. Past Consideration
i. Traditional exceptions to past consideration
ii. Mills v Wyman
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1. An adult son became sick, and his father wrote a promising note
to reimburse the person caring for him. The promise for incurred
expenses was unenforceable because it lacked consideration and
was gracious. There was a moral obligation, but nothing was given
in exchange for the promise.
iii. Webb v McGowin
iv. McGowin agreed to pay Webb 15 a month every two weeks for the rest
of his life for an injury caused by him. the promise is enforceable as it
caused serious injuries and saved promisor from serous injurie or even
death.
Restatement Second 86
1. A promise made in recognition of a benefit previously received by
the promisor from the promisee is binding to the extent necessary
to prevent injustice.
2. A promise is not binding [under this section]
a. If the promisee conferred the benefit as a gift or for other
reasons the promisor has not been unjustly enriched; or
b. To the extent that its value is disproportionate to the
benefit.
B. The Bargain Principle and Its Limits
Limits to Bargain Principle
 Not all promises are enforceable, even if bargained for:
o Statute of frauds
o Unfair or one-sided bargains
 Duress
 Unconscionability
o Illusory contracts
o Legal duty rule
o Contracts against public policy
a. The Bargain Principle
i. Hamer v Sidway
Oral promise from uncle to never drink or gamble for six yeats. Is
it enforceable? Yes because there was a bargain nephew did not
drink or gamble for 6yrs to receive the money uncle promised.
Example of unilateral contract.
Restatement Second 71
1. To constitute consideration, a performance or a return promise
must be bargained for.
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2. A performance or return promise is bargained for if it is sought by
the promisor in exchange for his promise and is given by the
promisee in exchange for that promise.
3. The performance may consist of (a) an act other than a promise,
(b) a forbearance, or (c) the creation, modification, or destruction
of a legal relation.
Restatement Second 90
1. a promise
2. which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person
3. which does induce such action or forbearance
4. is binding if injustice can be avoided only by enforcing the promise.
ii. Statute of Frauds
1. Contracts have to be in writing or would otherwise be
unenforceable
2. Promise by administrator of estate o pay debts of the deceased
with his/her own funds
3. Guaranty contracts (surety contracts)
4. Promise made “in consideration of marriage”
5. Transfer of interest in land
6. Promise not to be performed within 1 year
7. Sale of goods for $500 or more (UCC)
iii. Hancock Bank & Trust Co. v Shell Oil Co.
1. Shell had a lease for 15 yrs at et price, after change in
management suit was brought to terminate bad lease. Contract
was enforceable even if it may seem a bad bargain. There was
consideration in the contract.
iv. Batsakins v Demotsis
1. There was a loan between the two parties for Greek drachma of
about 25 in exchange for 2000. Is the agreement enforceable, yes
because there was a promise made to pay that money plus
interest. Inadequacy of consideration will not invalidate a
contract.
b. Duress
i. Totem Marine Tug & Barge, Inc, v Alyeska Pipeline Service Company
Contract to deliver pipelines from TX to Alaska had delays and
contract was canceled. Payments were also delayed. Was here
duress? there was evidence of duress withholding payment in
bad faith can be considered a wrongful threat.
Restatement Second 175
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1. If a party's manifestation of assent is induced by an [A] improper
threat by the other party [B] that leaves the victim no reasonable
alternative, the contract is voidable by the victim.
ii. Improper threat
Restatement Second 176
1. A threat is improper if:
a. what is threatened is a crime or a tort, or the threat itself
would be a crime or a tort if it resulted in obtaining
property, OR
b. what is threatened is a criminal prosecution, OR
c. what is threatened is the use of civil process and the
threat is made in bad faith, OR
d. the threat is a breach of the duty of good faith and fair
dealing under a contract with the recipient
2. A threat is improper if the resulting exchange is not on fair terms, AND
a. the threatened act would harm the recipient and would not significantly benefit
the party making the threat, OR
b. the effectiveness of the threat inducing the manifestation of assent is
significantly increased by prior unfair dealing by the party making the threat, OR
c. what is threatened is otherwise a use of power for illegitimate ends
Bargain principle and its limits
d. Unconscionability
i. Williams v Walker-Thomas Furniture Co
1. Furniture store leased all furniture at pro-rata meaning items
would not be paid in full until all debt was paid. Was there
unconscionability and did it apply? Unconscionability = absence of
meaningful choice and terms unreasonably favor the other party
evidence of both were present.
ii. Restatement contracts second 208
If a contract or term thereof is unconscionable at the time the contract is made a court may
refuse to enforce the contract or may enforce the remainder of the contract without the
unconscionable term or may so limit the application of any unconscionable term as to avoid any
unconscionable result.
iii. UCC 2-302
1. If the court as a matter of law finds the contract or any clause of
the contract to have been unconscionable at the time it was made
the court may refuse to enforce the contract, or it may enforce
the remainder of the contract without the unconscionable clause,
or it may so limit the application of any unconscionable clause as
to avoid any unconscionable result.
2. When it is claimed or appears to the court that the contract or
any clause thereof may be unconscionable the parties shall be
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afforded a reasonable opportunity to present evidence as to its
commercial setting, purpose and effect to aid the court in making
the determination.
Duress?
Restatement Second 175
1) If a party's manifestation of assent is induced by an [A] improper threat by the other party
[B] that leaves the victim no reasonable alternative, the contract is voidable by the victim.
iv. Maxwell v Fidelity Financial Services Inc
1. A door-to-door salesman sells a water heater to the Maxwells
worth 6,000 with 19.5 interest rate. They paid for a couple of
years and later sought declaratory judgment because the contract
was unconscionable and not enforceable. There was sufficient
evidence of unconscionability which is part of the UCC 2-302.
v. UCC 2-302
vi. Restatement (Second) 71
e. Illusory promise
i. What looks like a bargain but turns out not to be one?
1. If one party is not obligated to do anything, the contract is
unenforceable
ii. Scott v Moragues Lumber Co.
1. Lumber company and Scott agreed that if Scott acquired a certain
vessel, they would charter it to carry cargo. Was there
consideration when Scott had no obligation o purchase the
vessel? Yes, because once the purchase was made the contract
became enforceable. A contract can be conditioned on the
happening of an event.
iii. Wood v Lucy, Lady Duff-Gordon
1. Lucy agreed to give Wood exclusive right to place endorsements.
Was there consideration when there is not an expressed
obligation to obtain endorsements? Yes there was consideration.
Contractual obligations can be expressed or implied.
iv. UCC 2-306 (2)
2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of
goods concerned imposes unless otherwise agreed an obligation by the seller to use best
efforts to supply the goods and by the buyer to use best efforts to promote their sale
v. Office pavilion S Florida, Inc. v Asal Prods., Inc.
1. ASAL negotiated a contract with Office Pavilion which was later
amend to include the sale chairs. The parties agreed that the
terms and conditions of the keyboard contract would govern the
sale of the chairs, except for the delivery and quantity terms. The
agreement did not require ASAL to make any purchases of chairs.
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ASAL sued Office Pavilion for its lost potential profits on the sale
of those chairs. Was the contract enforceable? No because there
was no consideration in exchange for office pavilions promise to
deliver chars. Office pavilion agreed to fill orders by ASAL, but
ASAL had no obligation to place orders.
vi. UCC 2-201
[A] contract for the sale of goods for the price of $500 or more is not enforceable by way of
action or defense unless there is some writing sufficient to indicate that a contract for sale has
been made between the parties and signed by the party against whom enforcement is sought
or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly
states a term agreed upon but the contract is not enforceable under this paragraph beyond the
quantity of goods shown in such writing.
vii. 2-306 (1)
1)
A term which measures the quantity by the output of the seller or the requirements of
the buyer means such actual output or requirements as may occur in good faith, except that no
quantity unreasonably disproportionate to any stated estimate or in the absence of a stated
estimate to any normal or otherwise comparable prior output or requirements may be
tendered or demanded.
viii. Restatement Second 71
f. Legal Duty
i. Gray v Martino
1. Police officer in Atlantic city recovered diamonds that defendant
agreed to pay 500 to whoever found them. Defendant refused to
pay as police officer helped solve the case. Can he claim the
reward? No because if he was required to recover diamonds as
part of official duties, he cannot claim reward. Legal duty rule, he
was just doing his job.
ii. Lingenfelder v Wainwright Brewery Co.
1. Jungenfled had a contract to build a brewery but said he would
not complete it unless he got the refrigeration contract, and he
was promised instead 5% of the contract. Brewery did not fulfill.
Was Jungenfled entitled to the 5%? There is no consideration at
time of promise, legal duty rule.
iii. Foakes v Beer
1. Dr. Foakes owed Julia Beer and they agreed Foakes would pay 500
upfront and 1550 very 6months till debt was paid, Beer said she
would waive interest and later sued Foakes for interest. Was
there consideration? No an agreement to pay lesser sum than
owed is not consideration. It would be different if at time of new
arrangement Foakes offered something in exchange.
iv. Angel v Murry
1. There was a contract to pick up trash but after an increase in
dwelling unity there was an additional cost asked to be covered
and they did. Citizen sued for the increase in payment saying it
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was illegal. Was there was a duty rule? Parties contract voluntarily
modified it due to unanticipated circumstances, new contract is
enforceable.
2. Restatement 89
(1) the parties voluntarily agree and if
(2) the modification was made before the contract was fully
performed;
(3) the circumstances which prompted the modification were
unanticipated by the parties and
(4) the modification is on fair and equitable terms.


UCC 2-209
Modification needs no consideration to be binding (CISG is the same)
Official Comment: modification must be sought in good faith
Restatement Second 281
Need an existing dispute
“Accord”: an agreement to compromise or settle the dispute
“Satisfaction”: performance of the accord
Effects:
The accord suspends the original obligation
Performance of the accord discharges the original obligation
If the accord is not performed, the original obligation is revived; and suit can be brought
on original obligation or the accord
Compare “substituted contract”: immediately replaces original obligation with the new one
(novation); original obligation is now gone
v. McMahon Food Corp. v Burger Dairy
UCC 3-311
 Need a bona fide dispute about what is owed (3-311(a))
 Check must be tendered in good faith (3-311(a))
 Need conspicuous “full payment” message on or with check (3-311(b))
 The claim/dispute is settled if the check is cashed knowing that it was tendered in full
payment (accord and satisfaction) (3-311(d))
 The claim is settled even if check is cashed not knowing that it was tendered in full
payment, unless:
o An organization notified the payor about a special address and the check was not
sent to that address, or
o The check recipient refunds the $ to the payor within 90 days (option not
available to organization that has created a special address) (3-311(c))
3. The Limits of Contract: Contracts and Public Policy
a. Restatement 178
Restatement 178
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1. A promise or other term of an agreement is unenforceable on
grounds of public policy if legislation provides that it is unenforceable
OR the interest in its enforcement is clearly outweighed in the
circumstances by a public policy against the enforcement of such
terms.
2. In weighing the interest in the enforcement of a term, account is
taken of
a. the parties' justified expectations,
b. any forfeiture that would result if enforcement were denied, and
c. any special public interest in the enforcement of the particular
term.
3. In weighing a public policy against enforcement of a term, account is
taken of
a. the strength of that policy as manifested by legislation or judicial
decisions,
b. the likelihood that a refusal to enforce the term will further that
policy,
c. the seriousness of any misconduct involved and the extent to
which it was deliberate, and
d. the directness of the connection between that misconduct and
the term
b. Balfour v Balfour
c. Perry v Atkinson
i. Atkinson promised Perry that is she got an abortion he would later
impregnate her but he did not fulfill his promise. Is this an action of
fraud? No because this is a promise made by consenting adults regarding
their relationship that the court did not have say over.
d. In re Marriage of Witten
i. Tamera and Trip had frozen fertilized eggs refrigerated and when they got a
divorce the question of who kept the embryos started which needed mutual
consent on how to dispose of them. The agreement for public policy reasons con
only be used or disposed by mutual consent.
Part II. Remedies for Breach of Contract
A. An Introduction to Contract Damages
a. Hawkins v McGee
i. McGee did a skin graft where he promised that his hand would be 100%
perfect/good but the result was that the hand was hairy and in great
pain. was there a contract? How do you measure damages? A contract
was formed. The measure of damages is the difference between the
value of a good or perfect hand and the value of the hand at a present
condition.
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Restatement Second Contracts 344
Judicial remedies under the rules stated in this Restatement serve to protect one or more of the
following interests of a promisee:
(a) his "expectation interest," which is his interest in having the benefit of his bargain by being
put in as good a position as he would have been in had the contract been performed,–Compare
“B” to “C” in previous slide
(b) his "reliance interest," which is his interest in being reimbursed for loss caused by reliance
on the contract by being put in as good a position as he would have been in had the contract
not been made,–Compare “B” to “A” in previous slide
or (c) his "restitution interest," which is his interest in having restored to him any benefit that
he has conferred on the other party. [to be discussed later]
B. The Expectation Measure
a. Damages For Breach of a Contract to Perform Services
i. Louise Caroline Nursing Home
1. Nursing home sought damaged for breach of contract of an
unfinished job. Another contractor finished the work. What was
the correct measure of damages? The cost of completion. There
was no compensation as the substitute contractor completed the
job for less than the original contract.
ii. Peevyhouse
1. The Peevyhouse leased their farm to a coal mining company with
a provision that the coal mining was to complete physical
restoration. The coal company did not comply and argued that the
value of the land if the work would be done would be 300 more
and cost of repair would be 29,000. If the cost of performing
exceeds the added value what is the correct measure of
damages? The diminished value of land is the proper measure of
damages, cost of performance would be an economic waste.
iii. Buyer’s damages when Seller breaches
UCC 2-711 (1)
Where seller fails to make delivery or repudiates or the buyer rightfully rejects or
justifiably revoked acceptance then with respect to any goods involved, and with
respect to the whole of the breach goes to the whole contract the buyer may cancel and
whether or not he has done so may in addition to recovering so much of the price as has
been paid.
UCC 2-712
Difference between contract price and cover price (if buyer “covered” in good faith and
without unreasonable delay)
UCC 2-713
Difference between contract price and market price at date of breach (if buyer did not
cover)
UCC 2-714
Difference between value of goods as accepted and value as warranted
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UCC 2-715 (1)
Incidental damages resulting from seller’s breach include expenses reasonably incurred
in inspection, receipt, transportation and care and custody of goods rightfully rejected
any commercially reasonable charges, expenses or commissions in connection with
effecting cover and any other reasonable expense incident to the delay or other breach.
iv. Sand & Gravel
v. Egerer v CSR West
1. Egerer required a substantial amount of land fill to develop some
property he owned. CSR West was doing road construction for the
Department of Transportation (DOT) and expected to have a lot of
excavated shoulder material to dispose of. In May 1997, Egerer
contracted with CSR West to purchase all the shoulder excavation
material from that road project at the rate of $.50 per cubic yard.
CSR West performed a small part of the contract, but the DOT
then changed its rules and said CSR West could use shoulder
excavation material in the road project itself. In July 1997 CSR
West decided to do that instead of selling it to Egerer. Egerer did
not cover (buy replacement fill) at that time because it was very
expensive and he did not think he could get it to his property by
the end of the summer. Several months later, in January/February
1998, he obtained price quotes for replacement fill ("pit run",
which is a higher quality fill material) ranging from $8.25 to $9.00
per cubic yard, but the prices exceeded his budget so he did not
purchase at that time either. More than a year after that, in the
summer of 1999, Egerer purchased fill material resulting from an
unexpected landslide at a cost of $6.39 per yard. Two years
before the contract with CSR West was made, in 1995, Egerer had
purchased fill material from another road excavation project at
$1.10 per yard. Egerer sued CSR West and the trial court awarded
damages as the difference between the contract price ($.50/yard)
and the market price of $8.25/yard for every yard of shoulder
excavation that CSR West used on the DOT road project instead of
selling it to Egerer, for a total of $129,812.
2. Issue: What is the proper measure of damages for breach by a
seller to sell fill material when the buyer does not cover for more
than two years after the breach, and the evidence of the market
price for fill material is for a higher quality product at a time six
months after the breach?
3. Holding: The proper measure of damages under UCC 2-713 is the
difference between the contract price and the market price for
the higher quality material six months after the breach.
Damages for breach by person receiving the services
Contract price – less costs saved – less payments made = total damages
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Alternative
Reimburse for costs spent so far + add the builders expected profits – deduct payments made =
damages
b. Damages For Breach of a Contract for the Sale of Goods
i. HWH Cattle Co. v Schroeder
1. H-W-H Cattle contracted to buy 2,000 steer from Schroeder for
$67 per hundredweight ($.67 per pound). In turn, HWH
contracted to sell the same cattle to Western Trio for $67.35 per
hundredweight, making a slight profit on each steer. HWH paid
Schroeder a $50,000 down payment ($25 per steer). Schroeder
delivered only 1,397 steers, breaching the contract to deliver the
other 603. HWH sued Schroeder for breach of contract. The
district court awarded HWH a pro rata portion the down payment
it had made to Schroeder (603 x 25 = $15,075) and damages for
HWH’s lost $0.35 profit per hundredweight of undelivered steer
(603 x .0035 x 650lb avg. steer weight(?) = 1,371.83). HWH
appealed, seeking a measure of damages under UCC § 2-713, the
difference between the contract price of $67 per hundredweight
and the market price at the time of the breach. (We don't know
for sure what the market price was on the day of the breach, but
HWH must have thought it was higher than $67 per
hundredweight). The buyer is limited to the lost expected profits
on resale. Buyer should be left as if contract was performed.
ii. Kearsarge Computer v Acme Staple Co.
1. Kearsarge and Acme signed a one-year contract under which
Kearsarge would provide data-processing services to Acme. Seven
months into the contract, Acme terminated the contract due to
Kearsarge’s unsatisfactory performance. By this point, Acme had
spent $837.75 fixing Kearsarge’s errors. After the termination,
Kearsarge got its employees to take voluntary pay cuts to stay
afloat, and it secured some new business. Kearsarge sued Acme
for breach of contract. The trial court (for some reason) found in
favor of Kearsarge and awarded it $12,313.22, the full balance of
the contract price. Acme appealed. The service provider is entitled
to the full remaining contract balance if the early termination did
not result in any significant cost savings and the new business
could have been secured regardless of the breach.
iii. Seller’s damages when Buyer breaches
UCC 2-706
Difference between the contract price and the resale price (similar to “cover”)
UCC 2-708 (1)
Difference between the contract price and the market price at the time of breach (if no
resale)
UCC 2-708 (2)
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If other measures are inadequate to put Seller in same position as full performance,
damages are the lost profits on the sale.
UCC 2-718
At a minimum, Seller may retain 20% of Buyer’s payments, but only up to $500
maximum
UCC 2-710
1. Neri v Retail Marine Corp.
a. Facts: Neri contracted to purchase a boat from Retail Marine Corp. (RMC).
Neri paid a deposit. Neri was facing health problems and cancelled the
contract. RMC ultimately sold the boat to someone else for the same price.
RMC refused to refund Neri’s deposit.
b. Issue: What are damages?
c. Holding: If the boat dealer would have made two sales instead of one, the
proper measure of damages is the lost expected profits on the contract that
was breached, plus incidental damages. If that total is less than the buyer's
deposit, the dealer must refund the remainder to the buyer.
d. Reasoning: under 2-708(2), when the other measures of damages do not put
the seller in the same position it would have had if the buyer not breached,
the damages are the seller's lost profits, plus incidentals. In this case, the
seller would have sold two boats and got two profits if Neri had not
breached.
Mitigation
Restatement 350:
[D]amages are not recoverable for loss that the injured party could have avoided without
undue risk, burden or humiliation. . . The injured party [can recover damages if ] he has made
reasonable but unsuccessful efforts to avoid loss.
2. Shirley MacLaine Parker v. 20th Century Fox
a. Facts: Shirley MacLaine entered a contract with Twentieth Century-Fox Film
Corp. in which she was to play the female lead in the musical film “Bloomer
Girl,” and she would be paid $750,000. Fox decided not to produce the film
and offered MacLaine the female lead in another for the same
compensation. MacLaine did not accept the offer and brought suit to recover
the full $750,000 under the original contract.
b. Issue: Damages?
c. Holding: When the substitute film offer is different or inferior to the role in
the original contract, damages should not be reduced when the actor refuses
the offered role.
d. Reasoning: The general rule for breach by an employer is that the employee's
damages are the amount of salary provided for in the contract, reduced by
the amount that the employer proves the employee has actually earned or
with reasonable effort might have earned from other work after the breach.
If the employee turns down substitute work, the amount that could have
been earned in that job will reduce damages only if the substitute job was
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substantially similar to the original contract work. Where the substitute
work is different or inferior, damages will not be reduce if the employee
refuses to accept the job.
Foreseeability
3. Hadley v. Baxendale
a. Facts: Hadley owned and operated a grain mill. The crank shaft that operated
the mill broke and halted mill operations. Hadley went to Baxendale's
shipping business to get the shaft shipped for repair or replacement. Hadley's
representative told Baxendale's clerk that the mill was stopped and the shaft
had to be sent immediately. The clerk said the shaft would be delivered the
day after they received it if they got it before noon. The shaft was delivered
to the shipper before noon and a fee was paid, but the shaft was not
delivered to its destination for several days. Hadley sued Baxendale for lost
profits due to the delay in getting the new shaft
b. Issue: Is Baxendale liable to Hadley for lost profits because it breached its
contract to deliver the broken mill shaft to its destination on the day after
receipt?
c. Holding: No.
d. Reasoning: Damages can be recovered for certain consequences resulting
from breach of contract. The rule is that recovery may be had for damages
that are fairly and reasonably considered either (1) arising naturally from the
breach or (2) were reasonably be supposed to have been in the
contemplation of both parties, at the time they made the contract, as the
probable result of the breach.
Hadley v Baxendale rule
(1) “such as may fairly and reasonably be considered either arising naturally. . . from the
breach. . .
or
(2) such as may reasonably be supposed to have been in the contemplation of both parties, at
the time they made the contract, as the probable result of the breach
Restatement 351
(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee
as a probable result of the breach when the contract was made.
(2) Loss may be foreseeable as a probable result of a breach because it follows from the breach
(a) in the ordinary course of events, or
(b) as a result of special circumstances, beyond the ordinary course of events, that the party in
breach had reason to know.
(3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by
allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the
circumstances justice so requires in order to avoid disproportionate compensation.
Consequentials under the UCC
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2-715(2): Consequential damages resulting from the seller’s breach include
A) any loss resulting from general or particular requirements and needs of which the seller at
the time of contracting had reason to know and which could not reasonably be prevented by
cover or otherwise; and
B) injury to person or property proximately resulting from any breach of warranty.
Certainty
4. Kenford Co. v. Erie County
a. Facts: Erie County (Buffalo, NY) wanted to build a domed stadium to hold
sporting and entertainment events. (At the time, there was only one such
stadium in the country--the Houston Astrodome.) The county agreed that
Dome Stadium, Inc. (DSI) would be granted a 40 year lease to operate the
stadium after it was built. If a mutually acceptable lease could not be agreed
upon, DSI would be granted a management contract to operate the stadium
for 20 years. The county later decided not to build the stadium and
terminated the DSI contract. DSI brought a breach of contract action and
sought damages for the lost profits expected during the 20 year
management contract. At trial, a jury awarded DSI a multi-million dollar
damage award. The county appealed.
b. Issue: When a county grants a business a 20 year contract to manage a
domed stadium and then breaches the contract, is the county liable for the
lost profits that the business would have earned by managing the stadium
during that 20 year period?
c. Holding: No. Profits over the 20 year period are too speculative under these
circumstances and cannot be awarded as damages.
d. Reasoning: Damages must be proven with "reasonable certainty." Damages
may not be speculative but must be reasonably certain and directly traceable
to the breach. In this case, the profits that DSI would have earned by
managing the stadium over the 20 year period were too speculative. DSI had
never operated such a business before. In fact, there was only one other
domed stadium in the country at the time, so there is not much objective
evidence to support a claim for lost profits in managing domed stadiums.
Moreover, there are too many variables and uncertainties in the
sports/entertainment business to establish lost profits with any degree of
confidence.
Damages for mental distress
5. Valentine v. General American Credit
a. Facts: Valentine was employed under a contract that permitted termination
only for "cause." She was terminated without cause and she sought
damages for, among other things, emotional distress resulting from the
wrongful termination and punitive (exemplary) damages. The trial court
dismissed her claims for those two types of damage awards. She appealed.
b. Issue: Are damages for emotional distress available?
15
c. Holding: No.
d. Reasoning: Damages for emotional distress are generally not awarded for
breach of contract. Damages can be determined with reasonable certainty
for the employee's economic losses but not for emotional distress.
Restatement (Second) Contracts 353:
Not allowed unless:
[1] Breach caused bodily harm, or
[2] The contract or breach is of such a kind that serious emotional disturbance was a
particular likely result [cf. Hadley v. Baxendale rule]
Liquidated damages
 Parties decide in advance what the remedy for breach will be
Restatement (Second) Contracts 356: the provision will be enforced “only at an amount that is
reasonable in the light of [1] the anticipated or actual loss caused by the breach and [2] the
difficulties of proof of loss.”
UCC 2-718(1): allowed “only at an amount which is reasonable in the light of [1] the anticipated
or actual harm caused by the breach, [2] the difficulties of proof of loss, and [3] the
inconvenience or nonfeasibility of otherwise obtaining an adequate remedy.”
6. NPS, LLC v. Minihane
a. Facts: Minihane signed a contract to purchase football tickets for all of the
evil New England Patriots' football games for a ten year period. The
agreement provided that if at any point he breached by not buying tickets,
his ticket obligations for the remaining term of the contract would be
"accelerated" (immediately due and payable), and the stadium developer
would not have to mitigate damages by trying to resell them so someone
else. Minihane breached after one year. The developer sought to enforce
the agreement and make him pay for all of the tickets for the remaining nine
years.
b. Issue: Is the purchaser liable for the entire ten year cost of tickets if he
breaches after one year and the contract says that he is liable for the entire
amount?
c. Holding: Yes. This is a valid liquidated damages provision that the parties
agreed to and it will be enforced according to its terms.
Specific performance
Court orders the breaching party to perform the contract terms
 First, money damages must be an inadequate remedy
 Second, court will exercise its equitable discretion to determine whether SP is
appropriate
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7. London Bucket
a. Facts: London Bucket Co. agreed to install a heating system. The work was
not successfully completed, and the hotel sued for an order instructing the
company to complete the contract according to its terms.
b. Issue: Is specific performance of the contract an appropriate remedy?
c. Holding: No. In a construction contract such as this, the appropriate remedy
is money damages. Specific performance will only be awarded when money
damages are not an adequate and complete remedy. Restatement 360
Sale of Goods UCC
 Buyer—2-716 (action for the goods): “Unique” goods or “other proper circumstances”
(e.g., buyer unable to cover)
 Seller—2-709 (action for the price):
o Accepted goods
o Destroyed goods (if ROL on buyer)
o Goods cannot be resold (e.g., goods custom-made for buyer)
8. Walgreen Co. v. Sara Creek
a. Facts: Walgreen signed a 30 year lease with Sara. Sara owned the mall. Sara
would not lease space in the mall to any other company that operated a
pharmacy. With about 10 years remaining on the contract, Sara was about to
rent space in the mall to Phar-Mor, which does operate pharmacies.
b. Issue: Is the provision enforceable by an injunction?
c. Holding: The lease provision is enforceable by an injunction that prohibits the
lessor from renting to a tenant who will operate a competing pharmacy with
the lessee. The choice between remedies requires a balancing of the costs
and benefits of each remedy. The most efficient remedy is the most
appropriate.
Reliance Damages
Restatement (Second) Contracts 344
(b) his "reliance interest," which is his interest in being reimbursed for loss caused by reliance
on the contract by being put in as good a position as he would have been in had the contract
not been made, or
9. Security Stove
a. Facts: Plaintiff manufactures gas and oil furnaces. The plaintiff contracted
with defendant to ship all of the furnace parts to Atlantic city by October 8th.
Defendant failed to deliver one of the most important parts of the furnace
from to Atlantic City on time. Consequently, the furnace could not be
exhibited and demonstrated as planned.
b. Issue: Was the plaintiff entitled to reimbursement of the expenses it had paid
relying on the shipping contract?
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c. Holding: Yes. The shipping company was aware that if the parts did not arrive
on time the expenses plaintiff incurred on the trip would likely be wasted. It
would be difficult to prove any lost profits if the convention had gone as
planned, plaintiff will have no remedy if it cannot recover its reliance costs.
Restitution measure
Restatement (Second) Contracts 344
(c) his "restitution interest," which is his interest in having restored to him any benefit that he
has conferred on the other party.
Restatement (Second) Contracts 371
*(a) the reasonable value to the other party . . . in terms of what it would have cost him
to obtain it from a person in the claimant’s position, or
(b) the extent to which the other party’s property has been increased in value or his
other interests advanced
10. Osteen v. Johnson
a. Facts: The Osteens paid defendant $2500 in exchange for defendant
promoting the plaintiffs daughter in her country music career for one year.
Specifically, defendant agreed to arrange for Linda to record two records.
One of the records would be sent to DJs around the country. If that record
met with any success, the defendant would do the same for the second
record. The first record did meet with some success, but the defendant did
not promote the second record.
b. Issue: Were the plaintiffs entitled to restitution of the $2500 they paid the
promoter?
c. Holding: Yes, restitution damages were appropriate, but the $2500 payment
will be offset by the reasonable value of the services the defendant did
provide before the contract was terminated.
11. Algernon Blair
a. Facts: Algernon Blair entered a contract with the United States for the
construction of a naval hospital. Blair subcontracted with Coastal Steel for
steel erection on the project. Coastal Steel asked Blair to pay for crane rental,
but Blair refused. Coastal Steel stopped performing after it had completed
about 28% of the contract. Coastal filed suit against Blair for the value of
labor and equipment already furnished before it stopped working. At the
time of the breach, Coastal Steel was to be paid only $37,000 more on the
contract, but it would have cost Coastal Steel more than $37,000 to finish the
job had the breach not occurred.
b. Issue: May a subcontractor, who justifiably ceases work under a contract
because of the prime contractor’s breach, recover in quantum meruit the
value of labor and equipment already furnished pursuant to the contract
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irrespective of whether he would have been entitled to recover in a suit on
the contract?
c. Holding: Yes, a subcontractor, who justifiably ceases work under a contract
because of the prime contractor’s breach, may recover the value of labor and
equipment already furnished pursuant to the contract irrespective of
whether he would have been entitled to recover in a suit on the contract.
Quantum meruit damages allow a promisee to recover the value of services
provided to the defendant irrespective of whether it would have lost money
on the contract.
1. Kutzin v. Pirnie (restitution of deposit when buyer breaches)
a. Facts: The Kutzins had a contract to sell their house to the Pirnies for $365,000.
The Pirnies made a down payment of $36,000. They breached the contract by
refusing to go through with the sale. The contract contained no liquidated
damages provision and did not say the deposit was nonrefundable. The Kutzins
eventually sold the house six months later for $352,500.
b. Issue: If a buyer breaches a contract to purchase a home after making a $36,000
deposit, can the seller keep the entire deposit if its actual damages are less than
$36,000 and the contract has no liquidated damages provision or deposit
forfeiture clause?
c. Holding: The seller can retain only the amount to cover its actual damages and
must return the remainder of the deposit to the buyer.
Restatement (3d) Restitution 36 (restitution for party who breaches)
Disgorgement Damages
2. U.S. Naval Institute v. Charter Comm.
a. Facts: Tom Clancy assigned his copyright for the book to the United States Naval
Institute (Naval). Naval entered into an agreement with Charter Communications
and Berkley that granted Berkley an exclusive license to publish a paperback
edition of the book “not sooner than October 1985.” Berkley shipped the books
to bookstores early which allowed them to start selling on September 15. The
district court awarded Naval $35,380 in damages, $7,760 in disgorged profits
that Berkley made by selling the paperback during September, plus prejudgment
interest on the damage award. Both parties appealed.
b. Issue: Can damages for breach of contract include disgorgement of profits that
were earned by the contract breacher as a result of its breach?
c. Holding: No, damages for breach of contract are sufficient if they put the nonbreaching party in the same position it would have held if the contract had been
performed. So long as that is accomplished, disgorgement of profits is not
permitted.
3. Coppola Enterprises, Inc. v. Alfone
a. Facts: Alfone contracted with Coppola to purchase a residential lot and single
family home for $105,690.00. Due to construction delays, Coppola pushed back
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the project completion date. When construction was completed, Coppola sent
Alfone a letter saying closing had to be done quickly. Alfone requested additional
time to finance the purchase but Coppola refused to give extra time. Coppola
then sold the property to another party for $170,000. The trial court found that
Coppola failed to exercise good faith by refusing to give Alfone a reasonable time
to make financing arrangements after Coppola's construction delays. The court
awarded Alfone $64,310 in damages, the profits that Coppola made on the sale
of the home after its breach.
b. Issue: When the seller breaches a contract to sell a home, and the seller then
sells the home to another buyer for a higher price, can the original buyer receive
damages in an amount equal to the profits that the seller made on the second
contract?
c. Holding: A seller in breach of a real estate contract must disgorge profits made
by selling the property at a higher price. A seller will not be permitted to profit
from its breach of a contract to sell real property to a buyer. Even if the seller
acted in good faith, the profits must be paid over to the buyer.
Efficient breach
 Damages are seldom the same as actual contract performance
 Transaction costs, delay (and litigation costs) are uncertain; and Beth has to prove her
losses
 No reward for those who plan ahead (Beth)
 Without a breach, the machine could still end up with Cathy if Beth assigns (sells) her
rights to Cathy
 Undermines predictability of contracting
Interpretation
1. Lucy v. Zehmer (“Frolic and Banter”)
a. Facts: Lucy had expressed interest in buying the Ferguson farm, which the
Zehmer's owned, several times in the past. On this occasion, Lucy and the
Zehmer's were drinking in a bar/restaurant and Lucy asked if the farm had been
sold to anyone else. When Mr. Zehmer said they had not sold it, Lucy said "I bet
you wouldn't take $50,000 for that place." They talked some more and then Lucy
wrote, on the back of a guest check, the words “I do hereby agree to sell W.O.
Lucy the Ferguson Farm for $50,000 complete." Since the farm was co-owned by
Zehmer's wife, Lucy tore up that check and wrote on the back of another check,
"We hereby agree to sell to W.O. Lucy the Ferguson Farm complete for $50,000,
title satisfactory to buyer." Mr. Zehmer signed it, and Mrs. Zehmer also signed
shortly thereafter. Lucy then offered Zehmer $5 but Zehmer refused the money.
Zehmer got an attorney to examine the title, which was fine. Lucy contacted
Zehmer to arrange for closing, and Zehmer said they had no deal. He and his
wife were just having some fun in the bar and were not serious about the
contract.
20
b. Issue: Is a contract to sell a farm enforceable when agreement is made at a bar
and written on the back of a guest check, and signed by the owners of the farm,
but the owners claim they were just joking around and were not serious?
c. Holding: The agreement is binding even if the sellers were not serious because a
reasonable person would have believed that the sellers were serious about
making the contract. Several facts support the conclusion that a reasonable
person would have thought the Zehmers were serious. Lucy had expressed
interest in the farm before. The price for the farm was fair. Even though the
agreement was written on the back of a guest check, Lucy wrote it up twice and
both Mr. and Mrs. Zehmer signed it without making it clear that they were
joking.
2. Raffles v. Wichelhaus
a. Facts: Plaintiff and defendant agreed that plaintiff would sell 125 bales of Surat
cotton to defendant to arrive on a ship named Peerless from Bombay to
Liverpool. At the time the contract was made, the defendant was thinking about
a ship named Peerless that was going to leave Bombay in October. The plaintiff
was thinking about a ship named Peerless that was going to leave Bombay in
December. Plaintiff had no goods on the October Peerless. When the December
Peerless arrived in Liverpool, the defendant refused to pay for the cotton.
Plaintiff sued defendant for breach of the purchase agreement.
b. Issue: If, at the time a contract is made, there is a misunderstanding by the
parties about which ship will be delivering the goods, and when they will be
delivered, is the contract enforceable?
c. Holding: No, if there is a mutual misunderstanding about a basic term in the
contract, the contract is unenforceable. The contract did not specify which ship
was to deliver the cotton. Apparently there were two different ships names
Peerless. Because of this latent ambiguity, there was no consensus about a basic
term of the agreement. Therefore, the agreement is not enforceable.
Restatement (Second) 20(1)
There is no manifestation of mutual assent to an exchange [i.e., no contract] if the parties
attach materially different meanings to their manifestations and:
(a) neither party knows or has reason to know the meaning attached by the
other; or
(b) each party knows or has reason to know the meaning attached by the other.
Frigaliment
 If language is ambiguous, how do we determine what the contract means?
 “Whole contract”
 Pre-contract negotiations
 Trade usage
 Definitions outside the contract (US gov’t)
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
Market prices
1. Embry v. H-M Dry Goods Co. (“reason to know”)
2. Facts: Embry was employed by Hargadine but his contract was about to expire. He
had a meeting with the company president at which the renewal of his contract was
discussed. Embry and the president testified differently about what was said at that
meeting. Embry thought he had a one-year renewal, but he was terminated two
and a half months later. Embry sued the company for breach of the one-year
renewal.
3. Issue: For a contract to be enforceable, must both parties subjectively intend to be
bound or is it sufficient that one party so intended?
4. Holding: If a reasonable person would have concluded that the parties had reached
an agreement, then the contract is binding even if one of the parties secretly did not
so intend.
Restatement (Second) Contracts 201
(1)Where the parties have attached the same meaning to a promise or agreement or a term
thereof, it is interpreted in accordance with that meaning. [Sprucewood Invest. Corp, p. 390]
(2) Where the parties have attached different meanings to a promise or agreement or a term
thereof, it is interpreted in accordance with the meaning attached by one of them if at the time
the agreement was made:
(a)that party did not know of any different meaning attached by the other, and the
other knew the meaning attached by the first party; or
(b) that party had no reason to know of any different meaning attached by the other,
and the other had reason to know the meaning attached by the first party. [Lucy v. Zehmer;
Embry; maybe Frigaliment]
1. Spaulding v. Morse (“plain meaning”)
a. Facts: Morse and his wife divorced. The divorce decree provided that the wife
would have custody of the couple's son and that Morse was to make payments
to a trustee for their son's “care, custody, maintenance and support.” The
agreement required him to pay $1,200 per year until the son entered “into some
college, university or higher institution of learning beyond the completion of the
high school” and $2,200 per year for up to four years while the son was
attending the institution of higher education. The son joined the Army after
completing high school, and Morse stopped making payments.
b. Issue: Should a contract provision that is clear and unambiguous be enforced
according to its terms if doing so would be contrary to the main purpose of the
agreement?
c. Holding: No. Although contract terms are usually enforced according to the plain
meaning of the language used, if doing so is contrary to the main purpose of the
agreement the terms will not be enforced as written.
2. Beanstalk Group v. AM General (“plain meaning”)
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a. Facts: AM General Corporation (AM) manufactured Hummer vehicles. AM
entered into a representation agreement with Beanstalk under which Beanstalk
would act as AM's sole nonemployee representative for negotiating trademark
license agreements for the Hummer. The agreement defined a license
agreement as “any agreement or arrangement, whether in the form of a license
or otherwise, granting merchandising or other rights in the Property.” Any
payments for license agreements negotiated by Beanstalk were to be tendered
to Beanstalk, which would deduct a 35% commission and forward the balance to
AM. Two years later, AM entered a joint-venture with General Motors (GM)
under which GM essentially purchased the Hummer trademark. GM elected not
to assume the representation contract that Beanstalk had with AM. Therefore,
Beanstalk would no longer get commissions on licensing the Hummer trademark.
Beanstalk demanded 35% of the consideration GM paid to AM for the Hummer
trademark, considering it a "license agreement" as literally defined in the
contract.
b. Issue: Should a court apply the definition of "license agreement" in the
agreement literally or should it apply the definition in a way that is consistent
with the overall purpose of the contract?
c. Holding: The court should apply the contract language in a way that is consistent
with the purpose of the contract. In this case, the purpose of the representation
agreement was to reward Beanstalk for going out and getting third parties to pay
for using the Hummer trademark. For all practical purposes, AM no longer owns
the trademark. GM does. Beanstalk did nothing to create the AM-GM joint
venture. Despite Beanstalk's argument that the joint venture fits the literal
definition of "license agreement" in the contract, it is clear that AM and
Beanstalk did not intend it to cover a situation where AM transfers the Hummer
trademark to someone else.
When plain meaning not be used
 When there is no “plain meaning” (ambiguous language)
 When it’s inconsistent with the “purpose” of the contract
 When it leads to “absurd” results
 When it’s inconsistent with other contract language
Offer and revocation
Offer + Acceptance = Contract*
O + A = K*
What constitutes an offer?
1. Longergan v. Scolnick
a. Facts: Defendant placed an ad in the newspaper offering property for sale.
Defendant wrote plaintiff a letter describing the property, giving directions, and
stating that his "rock bottom" price was $2,500. The letter also said "This is a
form letter." Plaintiff wrote back stating that he was not sure he had found the
property, asked for a legal description and suggested a certain bank as an escrow
23
agent should he decide to purchase. Defendant wrote a letter confirming that
plaintiff had found the property and approved the bank as an escrow agent, but
explained that plaintiff had to "decide fast, as I expect to have a buyer in the
next week or so." Defendant sold the property to a third party four days later.
Two days after that, plaintiff says he received defendant's letter. On the very
next day, he wrote defendant agreeing to buy the land. When he learned that
the property had been sold to someone else, plaintiff sued defendant for specific
performance.
b. Issue: Under the facts of this case, did defendant make an offer to sell the land?
c. Holding: No. At no time did defendant make an offer to sell his land to plaintiff.
The advertisement was a mere attempt to solicit offers from interested buyers.
Thus, no offer was made to plaintiff, so there was nothing for plaintiff to
"accept."
Offer
Restatement (Second) Contracts 24:
“An offer is the manifestation of a willingness to enter into a bargain, so made as to justify
another person in understanding that his assent to that bargain is invited and will conclude it.”
2. Lefkowitz v. Great Minneapolis Surplus Store
a. Facts: The Great Minneapolis Surplus Store published two advertisements in a
newspaper for fur coats and stoles. One advertisement said “Saturday 9 A.M.
Sharp 3 Brand New Fur Coats Worth to $100 First Come First Served $1 Each." A
week later, another one said "1 Black Lapin Stole, Beautiful, worth $139.50 . . .
$1.00 First Come First Served." Lefkowitz (a male) was the first to enter the store
on both occasions and wanted to make the purchases as advertised. Both times
the store refused to sell to him, citing a “house rule” that the promotion was
only available to women.
b. Issue: Whether the newspaper advertisement constituted an offer, and if so,
whether Lefkowitz accepted.
c. Holding: Yes, the newspaper advertisement constituted an offer, and Lefkowitz
accepted by appearing at the store first in line. If an advertisement is “clear,
definite, and explicit, and leaves nothing open for negotiation," it will be deemed
an offer.
Advertisements
 Not offers, over acceptance concern
3. Sateriale v. RJ Reynolds
a. Facts: RJR ran a customer rewards program called Camel Cash. The program
terms were presented on Camel Cash certificates, packages of Camel cigarettes,
and in advertisements. The message was that customers who purchased Camel
cigarettes and saved the certificates ("C-Notes") could exchange them for
24
merchandise under terms provided in a catalog showing the available
merchandise. In October, RJR announced that the program would terminate in
March of the following year. The announcement stated that customers could
redeem their rewards before the program’s termination date in March.
However, sometime in October RJR stopped printing catalogs and informed
customers that it did not have any merchandise available for redemption.
b. Issue: Whether the C-Notes, read in isolation or in combination with the
catalogs, constituted an offer.
c. Holding: Yes, viewed in light of all the circumstances, the C-Notes constituted a
offer to form a unilateral contract with program participants. There was,
however, an offer for a unilateral contract with each plaintiff--a promise
(merchandise rewards) in exchange for plaintiffs' performance (purchasing
Camel cigarettes and collecting C-Notes). Advertisements are not ordinarily
viewed as offers, but courts have held that coupon programs such as this are
unilateral offers.
4. Akers v. J.D. Sedberry, Inc
a. Facts: Akers and Whitsett each had 5-year employment contracts with the
Sedberry company. The two employees flew to company headquarters and met
with Mrs. Sedberry. During a day-long meeting, the two employees offered their
resignations effective in ninety days. They testified that Mrs. Sedberry pushed
the offers aside and said she would not accept them. Mrs. Sedberry testified that
she did not reject the offers but she did not accept them at the time because she
wanted to contact the manager to discuss it with him. She did not, however, tell
the employees that she was taking the matter under consideration. They
continued their meeting without discussing the offer again. On the next working
day (Monday), Mrs. Sedberry sent each of the employees a telegram saying that
their resignations were effective immediately.
b. Issue: How long does an offer made during a meeting stay open for acceptance?
c. Holding: In face-to-face meetings, offers expire at the end of the meeting unless
the offeror indicates that it will be kept open for a longer period of time.
5. Ardente v. Horan
a. Facts: Ardente was interested in buying a house from Horan. Horan put the
property up for sale. Ardente made a "bid" of $250,000 which was
communicated to Horan by Ardente's lawyer. Horan's attorney informed
Ardente's lawyer that the bid was "acceptable." Horan's attorney then sent a
written contract to Ardente's lawyer including the terms of the agreement but
without Horan's signature. Ardente signed the contract and Ardente's attorney
sent it back to Horan's attorney along with a letter saying Ardente was
"concerned" about certain furnishings being included in the sale. He asked for
confirmation that these items were included because they would be difficult to
replace. Horan then refused to sell to Ardente, and Ardente sued for specific
performance of the contract.
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b. Issue: Did the return of the contract along with the letter constitute an
acceptance?
c. Holding: No. Because the letter included additional terms it constituted a
counter-offer and not an acceptance.
Mirror image rule
Acceptance
 “Manifestation of assent to the offered terms, made in the manner invited or required
by the offer.” (Restatement 50)
 Offeror is the “master of the offer”; can dictate the time and manner of acceptance
 Acceptance must “mirror” the offer
1. Dickenson v. Dodds (revocation)
a. Facts: Dodds delivered a written offer to sell some property to Dickenson. The
offer said it "is to be left over until Friday at 9:00 a.m.," which was two days
later. On the next day, Dickinson was informed by his agent that Dodds was
intending to sell the property to someone else. Dickinson immediately went to
the home of Dodds' mother-in-law, where Dodds was staying, and gave her a
written acceptance of the offer. Dodds never received this document, however.
On Friday morning before 9:00 a.m., both Dickenson and his agent saw Dodds at
a train station and gave him duplicate copies of the acceptance. Each were told
that the property had been sold to someone else. Dickenson sued Dodds for
specific performance.
b. Issue 1: If an offer says it is open for a period of time but the offeror was given
no consideration to keep it open, can the offeror revoke the offer before the
time has expired?
c. Issue 2: If an offeree hears that the offeror is selling his property to a third party,
is the offer deemed to be revoked?
d. Holding 1: Yes. The offer to be held open until Friday 9 o’clock was not
supported by consideration and therefore could be revoked before that time.
e. Holding 2: Yes. An offer is deemed to be revoked if the offeree learns that the
offeror has made other plans and no longer intends to reach an agreement with
the offeree.
Offer terminates upon:
 Expiration of a fixed time stated in offer
 Expiration of reasonable time, if no fixed time stated (Akers)
 Death or incapacity of offeror (p. 451-52)
 Rejection by offeree (Akers)
 Counteroffer (Ardente)
 Revocation by offeror (Dickenson)
2. Millis Mgmt. v. Joppich
26
a. Facts: Joppich agreed to purchase a residential lot from 1464-Eight, Ltd. and
Millis Management Corporation for $65,000. At the time of closing, Joppich and
the seller executed a separate option agreement, by which the seller could
repurchase the property if Joppich did not commence construction on the lot
within 18 months after closing. The option agreement recited Joppich’s receipt
of a ten dollars paid by the sellers. Joppich failed to commence construction of a
residence within the requisite time. Seller sought to exercise the option and buy
back the lot. Joppich sued for a declaratory judgment stating that the option
agreement was invalid for lack of consideration because the ten dollar option fee
had never been paid.
b. Issue: Is a false recital of nominal consideration sufficient to form a binding
option contract?
c. Holding: Yes. A recital of nominal consideration being paid is sufficient to form
an option contract even if the money was not paid.
UCC 2-205 (“firm offers”)
(1) An offer (2) by a merchant to buy or sell goods in (3) a signed writing which (4) by its terms
gives assurance that it will be held open:
is not revocable for lack of consideration
during the time stated or if no time is stated for a reasonable time
but in no event may such period of irrevocability exceed three months
but any such term of assurance on a form supplied by the offeree must be separately signed by
the offeror.
3. Irrevocable offers (options):
Ragosta v. Wilder
a. Facts: Plaintiffs wanted to purchase “The Fork Shop” from defendant. Plaintiffs
mailed defendant a letter offering to purchase the property along with a check
for $2000 earnest money. Defendant returned the check with a counter offer
saying defendant would sell to the plaintiffs for $88,000 if defendants appeared
with defendant at a certain bank with said sum by a certain date, providing that
the property has not been sold to someone else before that date. Several weeks
before the deadline, defendant told plaintiffs that he no longer wanted to sell to
plaintiffs even though The Fork Shop had not yet been sold. Plaintiffs responded
that they had arranged for financing and were prepared to appear at the bank by
the deadline with the full purchase price. They had incurred over $7,000 in
closing expenses and sued for specific performance.
b. Issue: If someone makes a unilateral offer and the offeree spends a substantial
amount of money preparing to do the requested performance, is the offer no
longer revocable by the offeror?
c. Holding: Yes, under the doctrine of promissory estoppel an offer can be made
irrevocable if the offeree reasonably relies on the offer.
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4. Drennan v. Star Paving
a. Facts: A general contractor was preparing a bid to build a school. It was
customary for subcontractors to telephone their bids shortly before the bid
would be submitted. The general contractor received 50-75 subcontractor bids
for the school job, including a bid for the paving work from Star Paving for
$7,131.60, which was the lowest bid. The general contractor included this
amount in its bid to construct the school. The general contractor was awarded
the contract. Before the general contractor could tell Star Paving that it had the
job, Star Paving claimed there was a mistake and that they would not do the
work for less than $15,000.The general contractor found a substitute contractor
who would do the work for $10,948.60.
b. Issue: When a general contractor uses a subcontractor's bid and is awarded the
contract, can the subcontractor revoke its bid before the general contractor
formally accepts it?
c. Holding: No. Using the subcontractor's bid makes the bid irrevocable.
When is an offer not revocable?
 Offeree relies (Rest. 87(2) or 90)
 Offeree begins performance (unilateral offers only) (Rest. 45)
 “Option” is purchased with consideration
 Joppich (even nominal consideration)
 UCC 2-205 (“firm” offer statute)
Acceptance
 Manifestation of assent to the offered terms, made in the manner invited or required by
the offer
 Offeror is the “master of the offer”
 Can dictate the time and manner of acceptance
1. Keller v Bones
a. Facts: The Boneses listed their ranch for sale. Keller made a written offer and
sent it to the Boneses’ real estate agent. The offer stated that it would become a
binding contract upon execution by the Boneses. The offer also stated that it
would expire by its own terms if not accepted by July 21 at 5:00 p.m. The
Boneses signed the offer at 4:53 p.m. on that date. The Bonses' agent phoned
Keller to inform him of the acceptance at 5:12 p.m. by leaving a message on his
voicemail. On the following day, the Boneses received another offer and
informed Keller that they would not sell to him.
b. Issue: If an offer states that the contract becomes binding if the offeree signs it
before a certain deadline, and the offeree does sign before that deadline but
does not inform the offeror about the acceptance until after the deadline has
passed, is the contract binding?
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c. Holding: Yes. A contract is binding if the offeree complies with the offered terms
and signs the agreement before expiration of the deadline even if
communication of that acceptance comes after the deadline has passed.
Bargaining at a distance
 Unless the offeror indicates otherwise, an acceptance is effective when sent by the
offeree (“mailbox rule” or “posting rule”).
 All other communications (rejections, counteroffers, revocations) are effective when
received by the other party.
Mailbox rule
 offer is considered accepted at the time that the acceptance is communicated
Silence as acceptance
2. McGurn v. Bell Microproducts
3. Facts: After a period of negotiations, Bell Microproducts made a written and signed
employment offer to McGurn providing, inter alia, that if he was terminated without
cause within the first 12 months of employment, Bell would pay him a certain
amount of money. The offer stated that McGurn should return the contract to the
office of human resources at Bell. McGurn signed the offer and returned it to the HR
office as requested, but he changed "12 months" to "24 months." Bell did not notice
the change until McGurn had worked almost one year. In the thirteenth month of
McGurn's employment, Bell terminated McGurn without cause and refused to pay
him the stated sum of money.
4. Issue: Did Bell accept McGurn's counteroffer, as a matter of law, by not objecting to
it and allowing him to work at the company for several months?
5. Holding: No. Silence does not constitute an acceptance. There is an exception,
however. Where an offeree takes the benefit of offered services and either knew or
had reason to know about the offered terms, and had a reasonable opportunity to
reject them, a failure to object can constitute acceptance by silence.
Duty to speak: Acceptance by silence (Rest. 69)
(1) Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance
in the following cases only:
Where an offeree takes the benefit of offered services with reasonable opportunity to reject
them and reason to know that they were offered with the expectation of compensation
(b) Where the offeror has stated or given the offeree reason to understand that assent may be
manifested by silence or inaction, and the offeree in remaining silent and inactive intends to
accept the offer.
(c) Where because of previous dealings or otherwise, it is reasonable that the offeree should
notify the offeror if he does not intend to accept.
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