APPROACH TO IDENTIFYING KEY ISSUES
●​ #1: Law →
○​ What kind of transaction is it? What law applies?
●​ #2: Terms →
○​ What contract terms are ambiguous and what terms are implied?
●​ #3: Defenses →
○​ What are possible defenses to avoid enforcement of the contract?
●​ #4: Non-Performance →
○​ When did non-performance occur, what are possible justifications and consequences?
●​ #5: Remedies →
○​ What are money or equitable remedies?
●​ #6: Third Parties →
○​ Is there a third party? What kind?
INTERPRETING AGREEMENTS
●​ Determining Ambiguity
○​ Textualism: 4 Corners
○​ Contextualism: 4 Corners + Extrinsic Evidence
●​ Resolving Ambiguity
○​ Objective Standard
■​ Case Law
■​ Reasonable Person
○​ Subjective Standard
■​ Actual Parties Intent
■​ Restatement (2d) §201
●​ (1) If A and B agree on a meaning, that meaning governs
●​ (2) If A and B attach different meanings and
○​ (a) A knew (or should have known) B’s meaning
○​ (b) B did not know (and should not have known) A’s meaning
○​ B is the “innocent party” and B’s meaning governs
●​ (3) If A & B attached different meanings and neither A nor B knew or should have
known of the other’s meaning, then no contract is formed, the term is not
incorporated or the court will supply the meaning
●​ Reasonable Expectations
○​ Elements
■​ 1) Adhesion contract
●​ Use of standard form
●​ Inequality of bargaining power
●​ Absence of choice other than to accept or reject the contract
■​ 2) If non-dickered terms are bizarre, oppressive, defeat the purpose or meaning of the
contract:
●​ Apply reasonable expectations of non-drafting party of non-dickered terms
■​ 3) Applies even if the express language contradicts those expectations
●​ Parol Evidence Rule- Common Law
○​ Application:
■​ Applies to integrated agreements (completely or partially)
●​ 4 Corners Approach
○​ On its face appears to be complete and exclusive
○​ Existence of a merger clause
●​ Contextual Approach:
○​ Extrinsic evidence to decide if parties intended writing to be complete and
exhaustive
○​ Effect:
■​ Discharges earlier agreements
■​ No contradiction of express terms
■​ Supplementation of partially integrated agreements
○​ Exceptions:
■​ Restatement (2d) § 214
●​ a) Fraud, mistake, duress
●​ b) Collateral agreements
●​ c) Agreements made after the fact
●​ d) Condition precedent
○​ A term that explains “the agreement will happen if”
●​ e) Interpretation
○​ Plain Meaning
■​ If there is obvious patent ambiguity in the contract, extrinsic
evidence can be used to interpret
○​ Corbin/Restatement (2d) §212
■​ Based on offered evidence, ask if the term could be interpreted in
the proposed manner.
●​ If it can’t, determine the meaning based on the written
agreement
●​ Parol Evidence Rule- UCC
○​ Application:
■​ Applies to integrated agreements
○​ Effect:
■​ Allows supplementation or explanation of partially and completely integrated agreement
■​ No contradiction of express terms
○​ Court considers:
■​ First, Express Terms →
●​ Course of Performance →
○​ Course of Dealings →
■​ Last, Trade Usage
INTERPRETING AGREEMENTS CASES
Prochazka v. Bee-Three Development, LLC (2015) [Patent Ambiguity]
Bee-Three Development, LLC (BTD) entered into a contract to purchase a commercial lot from Robert and
Donna Prochazka. BTD terminated the contract during the inspection period and sued to recover its earnest
money.
●​ Issue: Is a contract patently ambiguous if it is open to at least two reasonable interpretations?
●​ Rule: A contract is patently ambiguous if it is open to at least two reasonable interpretations.
●​ Holding: Yes
○​ The court reasoned that Article 4.3 of the contract was ambiguous because it could be
interpreted in two reasonable ways: either giving BTD the absolute right to terminate for any
reason or limiting termination to reasons related to the suitability inspections in Article 4.1.
Frigaliment Importing Co. v. B.N.S. International Sales Corp. (1960) [Contextualism]
Frigaliment Importing Co. (plaintiff) sued B.N.S. International Sales Corp. (defendant) for breach of warranty,
claiming that BNS delivered fowl instead of young chickens (broilers) as per their contract.
●​ 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?
●​ Rule: 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.
●​ Holding: Yes
○​ The court reasoned that the term "chicken" was ambiguous and both parties' interpretations
were valid. The court considered the plain meaning, negotiations, trade usage, other contract
provisions, market factors, and the course of dealing. BNS was new to the trade and had no
actual knowledge of the trade usage, and Frigaliment did not prove that "chicken" meant only
broilers in a way that BNS should have known.
■​ Frigaliment was buying their anticipated broilers at a lower market rate, not exactly
constructive knowledge but could have tipped them off.
C & J Fertilizer, Inc. v. Allied Mutual Insurance Co. (1975) [Reasonable Expectations]
C & J Fertilizer, Inc. (CJ) sued Allied Mutual Insurance Co. (Allied) after Allied refused to pay for a burglary
loss due to a policy exclusion requiring visible marks on the exterior of the premises.
●​ Issue: Will the explicit language of an insurance policy be enforced if it could not have been within
the objectively reasonable expectations of one of the parties to the contract?
●​ Rule: The explicit language of an insurance policy will not be enforced if it could not have been within
the objectively reasonable expectations of one of the parties to the contract.
●​ Holding: No
○​ The court reasoned that insurance contracts are form contracts where the buyer cannot
negotiate preprinted terms and must rely on the seller. Therefore, the doctrine of reasonable
expectations should apply, meaning an insured is not bound by a term outside their objectively
reasonable expectations.
Thompson v. Libby (1885) [Parol Evidence]
Thompson agreed to sell logs to Libby and they wrote a contract about it. The contract didn't say anything
about a warranty, which is like a promise about the quality of the logs. Thompson sued Libby and they went
to court. The court let Libby use spoken evidence to try to prove there was a verbal warranty.
●​ Issue: Can parol evidence be introduced to establish terms of a written contract that is intended to
constitute the entire agreement or to prove that the written contract is not intended to constitute the
entire agreement?
●​ Rules:
○​ 1) Parol contemporaneous evidence is inadmissible to contradict or vary terms of a valid
written agreement.
○​ 2) Where the writing is complete on its face and does not contain any uncertainty, it is
conclusively presumed that the entire agreement was reduced to writing.
○​ 3) Parol evidence rule “does not exclude parol evidence of matters collateral to the subject of
the written agreement.”
●​ Holding: No
○​ The court reasoned that the parol evidence rule protects against uncertainty and injustice by
preventing written contracts from being contradicted by unreliable verbal agreements. The
completeness of the written contract must be determined from the contract itself, not by parol
evidence.
Taylor v. State Farm Mutual Automobile Insurance Co. (1993) [PE/Corbin]
Taylor purchased a car insurance policy from State Farm, which included uninsured motorists coverage.
After an accident, Taylor was sued and a verdict was returned against him for $2.5 million above his policy
limits. State Farm paid Taylor $15,000 in uninsured motorist benefits in exchange for a release. Taylor sued
State Farm for bad faith, and the trial court allowed parol evidence to interpret the release.
●​ Issue: Can the judge consider parol or other extrinsic evidence for the purpose of determining
whether the contract language at issue is ambiguous?
●​ Rule: A judge may consider parol or other extrinsic evidence for the purpose of determining whether
the contract language is ambiguous.
●​ Holding: Yes
○​ The court reasoned that contract interpretation should reflect the parties' intent, and extrinsic
evidence can be used to interpret the meaning of the contract. The court rejected the
plain-meaning rule and adopted the Corbin view, which allows consideration of extrinsic
evidence without a prerequisite finding of ambiguity.
Sherrodd, Inc. v. Morrison-Knudsen Co. (1991) [PE/Fraud Exception]
Sherrodd, Inc. (plaintiff) entered into a subcontract with COP Construction (defendant) for excavation work.
Sherrodd sued COP and Morrison-Knudsen Co. (defendant) for quantum meruit, alleging misrepresentation
about the amount of excavation required.
●​ Issue: Can a party introduce evidence that conflicts with the express terms of a contract, when there
is no evidence of mistake or imperfection, that the parties dispute the validity of the contract, or fraud
that does not relate directly to the subject of the contract?
●​ Rule: The parol evidence rule provides that a party may not introduce evidence that conflicts with the
express terms of a contract, unless there is evidence of mistake or imperfection or that the parties
dispute the validity of the contract, or fraud that does not relate to the subject of the contract.
●​ Holding: No
○​ The court reasoned that the parol evidence rule, as codified in Montana, supersedes all prior
oral negotiations unless there is a mistake, imperfection, or fraud not directly related to the
contract's subject. Sherrodd's claims of misrepresentation directly contradicted the contract's
terms, which stated that Sherrodd had satisfied itself about the work's scope.
Nanakuli Paving & Rock Co. v. Shell Oil Co. (1981) [UCC Parol Evidence]
Nanakuli Paving & Rock Co. (plaintiff) entered a contract with Shell Oil Co. (defendant) to supply asphalt,
with the price set at Shell's posted price at delivery. Nanakuli sued for breach of contract, claiming an implied
price-protection term based on customary trade practice.
●​ Issue: Can courts admit evidence of customary trade usage and course of performance for parties to
demonstrate implied contract terms?
●​ Rule: Courts can admit evidence of customary trade usage and course of performance for parties to
demonstrate implied contract terms.
●​ Holding: Yes
○​ The court reasoned that trade usage and course of performance can be implied into contracts
if they are consistent with the contract terms and prevalent enough that the parties would
have intended to incorporate them. The court found that price protection was consistent with
Shell's posted price term and prevalent in the Hawaiian asphalt industry. Shell's past
performance and the U.C.C.'s good faith requirement supported the jury's finding of a breach.
SUPPLEMENTING AGREEMENTS
●​ Rationale for Implied Term
○​ Reasonable Obligation
■​ Exclusive Dealing
●​ Exclusive Dealing Clause may be treated:
○​ As the equivalent of “good faith”
○​ May impose a fiduciary obligation on performing party
○​ Minority View: May not enforce on the ground of vagueness
■​ UCC §2-306(2)
●​ A lawful agreement for exclusive dealing imposes, unless otherwise agreed, an
obligation for both parties’ best efforts to:
○​ Seller- supply the goods
○​ Buyer- promote their sale
○​ Reasonable Notice
■​ Termination
●​ If express terms allow for termination with no notice, that will be allowed unless
the reason is unconscionable
○​ Focused on fairness
■​ UCC Gap Fillers
●​ §2-308: Place of Delivery
○​ Unless otherwise agreed:
■​ Goods be delivered at seller’s business location
●​ Residence if no business location
■​ Goods should be shipped from where they are when contract is
made
■​ If the sale involves documents, those can be sent through a
normal bank process.
●​ §2-310: Time of Payment
○​ Unless otherwise agreed:
■​ Buyer has to pay when and where they receive the goods or
documents related to shipping
■​ If Seller ships goods:
●​ Retain control until Buyer pays
●​ §2-509: Risk of Loss
○​ When the seller ships goods using a carrier:
■​ Once given to the carrier, Buyer assumes the risk
■​ If Seller has to deliver to a specific destination:
●​ Buyer assumes risk when goods reach location and are
available for pickup
○​ If the goods are being held by a third party, the Buyer takes the risk when:
■​ They receive a title document, or
■​ The third party confirms Buyer now has right to the goods, or
■​ The buyer gets written instructions to release the goods.
○​ If none of the above situations apply:
■​ Seller is a merchant:
●​ Buyer takes risk when they receive the goods
■​ Seller is NOT a merchant:
●​ Risk passes when seller offers goods for delivery
○​ Rules can be overridden by express terms of the agreement
●​ §2-513: Buyer’s Right of Inspection
○​ Buyer has a right to inspect goods before acceptance or payment
■​ Inspection must occur in a reasonable time, place, and manner
●​ Buyer pays for inspection
○​ Can recoup costs from Seller if rejected
○​ Buyer cannot inspect when:
■​ Contract requires payment on delivery; or
■​ Contract requires payment when documents are received, unless
contract allows for inspection first
○​ Express terms can require a specified method of inspection
■​ If method becomes impossible, normal rules apply unless
prescribed method was essential to the agreement
■​ UCC §2-309(2)(3)
●​ (2) Contracts for successive performances for an indefinite duration:
○​ May be terminated at any time by either party unless otherwise agreed
●​ (3) Contracts for an agreed upon event
○​ Termination requires reasonable notice
○​ Notification is invalid if its operation would be unconscionable
●​ Factors of Reasonable Notice:
○​ Depends on context, length of agreement
○​ Time to seek substitute, recoup investment, or sell inventory
○​ Industry standards
○​ Other terms of agreement
●​ Implied Obligation of Good Faith
○​ Good Faith and Fair Dealing
■​ Restatement (2d) § 205
●​ Implied obligation of Good Faith in all contracts
■​ Parol Evidence:
●​ May be introduced as evidence of breach of duty of good faith and fair dealing
■​ Employment At-Will Context:
●​ Cannot fire employee to deprive them of compensation they reasonably expect to
receive
○​ Bad Faith use of discretion
■​ Breach of Implied Covenant of Good Faith and Fair Dealing
●​ (1) Evidence of at least one of the circumstances below; and,
○​ Business Efficacy
○​ Pretrial Action/Termination
○​ Abuse of discretion
●​ (2) Bad faith, malice, violation of commercially reasonable standards
○​ Satisfaction Clause
■​ Restatement (2d) § 228
●​ Objective Satisfaction Test
○​ Applies when commercial quality, operative fitness, mechanical utility are
at issue
■​ When contract includes “standard” satisfaction clause
○​ Majority View: The objective reasonable-person standard is used to
determine satisfaction in contracts involving commercial quality
●​ Honest Satisfaction Test
○​ Applies when personal fancy or aesthetics are at issue
■​ Applied when non-standard clause “leaves no doubt that it is only
honest satisfaction that is meant and no more”
■​ UCC § 1-304
●​ Obligation of good faith in performance and enforcement
■​ UCC § 1-201(20)
●​ “Good faith” means honesty in fact in the transaction or conduct concerned
○​ Output Contracts
■​ UCC § 2-306, comment 2
●​ A term which measures the quantity by the output of the seller or the
requirements of the buyer
○​ Valid if based on good faith needs or production of the party
●​ Reasonable changes to needs/output are allowed, as long as they are made in
good faith
○​ Sudden Expansions:
■​ Not valid unless due to normal, good faith growth
○​ Complete Shutdowns:
■​ Depends on the reason
●​ Due to lack of orders? Acceptable
●​ To avoid losses? Likely not acceptable
○​ If fixed contract price is below market price, expansion may not be
considered fair
●​ Warranties
○​ UCC
■​ UCC § 2-313: Express Warranty
●​ Express warranties by the Seller are created as follows:
○​ (a) Making an factual statement or promise to the Buyer relating to the
goods
○​ (b) Any description of the goods
○​ (c) Any sample or model of the goods
●​ Seller does not need to use formal words like “warrant” or “guarantee”, or have
specific intention to create a warranty
○​ Opinions/commendations are not
■​ UCC § 2-314: Implied Warranty of Merchantability
●​ If Seller is a merchant with respect to goods of that kind, there is an implied
warranty that goods shall be merchantable
●​ To be merchantable, goods must:
○​ (a) pass without objection in the trade under the contract description; and
■​ Q1: What is standard?
■​ Q2: Do goods meet that standard?
○​ (b) are of fair average quality within the description; and
○​ (c) are fit for the ordinary purposes for which such goods are used; and
■​ Q1: What is the ordinary purpose?
■​ Q2: Can goods be used for this purpose?
■​ UCC § 2-315: Implied Warranty: Fitness for a Particular Purpose
●​ There is an implied warranty that goods shall be fit for a particular purpose if:
○​ i) The Seller has reason to know Buyer’s particular purpose for requiring
the goods, and
○​ ii) Buyer is relying on Seller’s skill or judgement, and
○​ iii) Seller is aware of Buyer’s reliance
●​ ASK:
○​ Q1: What is the buyer’s particular purpose?
○​ Q2: Does the buyer rely on the seller's skill or judgement?
○​ Q3: Is the seller aware of reliance?
○​ Non-UCC
■​ Implied Warranty of Workmanship
●​ 1) Building must be constructed in a reasonably good and workmanlike manner
○​ Good materials, constructed well, etc.
●​ 2) Building must be reasonably fit for the intended purpose
○​ Warranty of Habitability
■​ Subsequent purchasers may recover for breach of implied warranty of workmanlike
construction against a builder-vendor.
SUPPLEMENTING AGREEMENTS CASES
Wood v. Lucy, Lady Duff-Gordon (1917) [Exclusive Dealing]
Wood (plaintiff) entered into a contract with Lucy, Lady Duff-Gordon (defendant), granting him exclusive
rights to market her designs and endorsements in exchange for 50% of the profits. Lady Duff-Gordon later
breached the contract, leading Wood to sue for breach of contract.
●​ Issue:
○​ (1) Can a contract be enforced if there is no evidence of a promise, exchanged as
consideration, in the explicit terms of the contract?
○​ (2) May a promise to use reasonable efforts be implied from the entire circumstances of the
contract?
●​ Rule:
○​ (1) A contract may be enforced if 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.
●​ Holding: (1) Yes, (2) Yes
○​ The court reasoned that the facts surrounding the contract implied a promise by Wood to use
reasonable efforts to market and sell Lady Duff-Gordon's designs. This implication was
supported by the exclusive rights granted to Wood, the profit-sharing arrangement, and
Wood's obligations to account for revenues and protect intellectual property.
○​ This case establishes that the full scope and validity of a contract may require looking beyond
its explicit terms to the surrounding circumstances.
Leibel v. Raynor Manufacturing Co. (1978) [Reasonable Notice]
James Leibel (plaintiff) agreed to be the distributor of garage doors for Raynor Manufacturing Co.
(defendant) without a specified contract duration. After two years, Raynor terminated the agreement
immediately without advance notice, leading Leibel to file a lawsuit.
●​ 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?
●​ Rule: Under the Uniform Commercial Code, when a contract does not provide a specified duration,
the party terminating the agreement must provide reasonable notice of termination.
●​ Holding: Yes
○​ The court reasoned that the distributorship agreement was primarily for the sale of goods,
making it subject to Article II of the UCC. The UCC requires reasonable notification for
termination to ensure good faith and fair dealing, preventing significant losses for the dealer.
Seidenberg v. Summit Bank (2002) [Bad Faith/PE Rule]
Seidenberg and Raymond, experienced insurance brokers, sold their firms to Summit Bank and remained as
executives. They were fired two years later and sued Summit for bad faith performance and termination of
the contract.
●​ Issue: Can one introduce parol evidence when claiming that a party breached the duty of good faith
and fair dealing?
●​ Rule: One may introduce parol evidence when claiming that a party breached the duty of good faith
and fair dealing.
●​ Holding: Yes
○​ The court reasoned that the duty of good faith and fair dealing is implied in all contracts and
does not contradict the express terms of the contract. Therefore, parol evidence can be
introduced to show a breach of this duty.
Morin Building Products Co. v. Baystone Construction, Inc. (1983) [Objective Satisfaction]
General Motors hired Baystone Construction to build an addition to its factory, and Baystone subcontracted
Morin Building Products to construct aluminum walls. Morin completed the walls, but General Motors
rejected them due to their uneven appearance in sunlight. Morin sued for the contract balance, won at trial,
and Baystone appealed.
●​ Issue: Whether a subjective, good faith standard always applies to evaluate the owner’s satisfaction
under a standard owner’s satisfaction clause.
●​ Rule: In a contract containing a standard owner’s satisfaction clause, satisfaction is judged by a
reasonable person standard when the contract involves commercial quality, operative fitness or
mechanical utility which other knowledgeable persons can judge; in the alternative, satisfaction
depends on the owner’s good faith judgment when the contract involves personal aesthetics or fancy.
●​ Holding: No
○​ The court reasoned that satisfaction clauses can be interpreted using either a subjective
good-faith standard or an objective reasonable-person standard. The reasonable-person
standard is appropriate for contracts involving commercial quality, while the good-faith
standard applies to personal aesthetics. The contract in question was for a factory addition,
emphasizing functionality over aesthetics.
Geysen v. Securitas Security Services, USA, Inc. (2016) [Satisfaction/Employment Contract]
Kevin Geysen, an at-will employee of Securitas Security Services, sued the company for breach of the
implied covenant of good faith and fair dealing, claiming his termination was a pretext to avoid paying him
earned commissions.
●​ Issue: May an employer terminate an at-will employee in bad faith solely to avoid paying the
employee commissions he reasonably expected to receive for services rendered under the
employment contract?
●​ Rule: An employer may not terminate an at-will employee in bad faith solely to avoid paying the
employee commissions he reasonably expected to receive for services rendered under the
employment contract.
●​ Holding: No
○​ The court reasoned that the implied covenant of good faith and fair dealing is inherent in
every contractual relationship, ensuring that neither party interferes with the other's right to
receive expected benefits. Bad faith involves a dishonest purpose, and in employment
contracts, it includes terminating an employee solely to avoid paying earned commissions.
Bayliner Marine Corp. v. Crow (1999) [Fitness for a Particular Purpose]
John R. Crow purchased a boat from Bayliner Marine Corporation for offshore fishing. Crow sued Bayliner,
alleging breaches of express warranty and implied warranties of merchantability and fitness for a particular
purpose.
●​ Issue:
○​ (1) Does a seller’s statement of opinion about a product’s potential performance create an
express warranty that the product will conform to that description?
○​ (2) Is an implied warranty of fitness for a particular purpose created if the buyer does not
make known to the seller the particular purpose for which the product is required?
●​ Rule:
○​ (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 known to the seller the particular purpose for which the product is required.
●​ Holding: (1) No, (2) No
○​ The court reasoned that the promotional materials provided to Crow described the potential
performance of a different boat model under ideal conditions, which did not constitute an
express warranty. Additionally, Crow did not inform the seller that a boat with a speed capacity
of less than 30 miles per hour would be unacceptable, so no implied warranty of fitness for a
particular purpose was created.
Speight v. Walters Development Co. (2008) [Im.W of Workmanlike Construction]
Walters Development Co. Ltd. built a custom home for the original buyer. Robert and Beverly Speight
purchased the home in 2000 and later discovered water damage and mold due to defective construction.
They sued Walters for breach of implied warranty of workmanlike construction.
●​ Issue: May subsequent purchasers recover for breach of implied warranty of workmanlike
construction against a builder-vendor?
●​ Rule: Subsequent purchasers may recover for breach of implied warranty of workmanlike
construction against a builder-vendor.
●​ Holding: Yes
○​ The court reasoned that the implied warranty of workmanlike construction exists to protect
homebuyers from latent defects and does not require privity of contract between the
builder-vendor and subsequent purchasers. The warranty is imposed by law and applies
independently of the original contract for sale.
AVOIDING ENFORCEMENT
●​ Capacity
○​ Minority
■​ Objective Test: Age
■​ Traditional v. Modern Rule
●​ Traditional Rule: Limited Restitution
○​ Exceptions to Traditional Rule:
■​ a) If minor misrepresents their age to appear over 18
■​ b) If the item purchased is a necessity
■​ c) If the child willfully destroyed the goods
●​ Modern Rule: Restitution
○​ Benefit Rule:
■​ Value returned to minor should be reduced by value of use
received by minor
○​ Depreciation/Oregon Rule:
■​ Value returned to minor is reduced by deductions for use,
depreciation, and willful negligent damage to property while in
hands of minor
■​ Restatement (2d) § 14
●​ If under 18, a person can only incur voidable contractual duties
○​ No prohibition on minors entering contracts
○​ During infancy, can defend on grounds of infancy
○​ Generally, no restitution except for necessities
○​ Mental Incapacity
■​ Subjective Test: Issue of Fact
■​ Traditional v. Modern Test
●​ Must establish that incapacitation occurred at the time of contracting:
○​ Traditional/Cognitive Test:
■​ When a person is incapable of understanding the
transaction/contract
○​ Modern/Volitional Test:
■​ When a person is unable to act reasonably AND
■​ The other party knows of the condition/inability
■​ Restatement (2d) § 15
●​ If someone lacks capacity, they can only incur voidable contractual duties.
●​ An individual lacks capacity if:
○​ (a) They are unable to understand (in a reasonable matter) the nature and
consequences of the transaction, OR
○​ (b) They cannot act in a reasonable manner in relation to the transaction
■​ AND the other party has reason to know of their condition
●​ Flawed Assent
○​ Duress
■​ Elements
●​ 1) Wrongful Threat
●​ 2) No other alternatives
●​ 3) Threat Induced Action/Contract
■​ Physical v. Economic
●​ Physical Duress: [Restatement (2d) §174]
○​ When a party is physically compelled by duress to engage in conduct that
manifests assent
■​ Contract is VOID
●​ Economic Duress: [Restatement (2d) §175(1)]
○​ Flawed Assent is induced by wrongful threat,
○​ Victim would face severe financial hardship, no alternative
○​ Circumstances that led to involuntary consent were a result of the
coercive acts of the other party
■​ Contract is VOIDABLE
■​ Restatement (2d) §176: When a Threat Is Improper
●​ A threat is improper if what is threatened is:
○​ A crime or tort
○​ Criminal prosecution
○​ Bad Faith use of the Civil Process
○​ A breach of Good Faith and Fair Dealing
●​ A threat is improper if:
○​ The resulting exchange is not on fair terms, AND
■​ It would harm the recipient and not significantly benefit the
threatening party,
■​ The effectiveness of the threat is increased by prior unfair dealing
■​ What is threatened is otherwise a use of power for illegitimate
ends.
○​ Undue Influence
■​ Elements:
●​ 1) Excessive pressure from dominant party; AND
●​ 2) Undue susceptibility from servient party
○​ Excessive Pressure Considerations: (Odorizzi)
■​ a) Inappropriate time or place,
■​ b) Demand to complete,
■​ c) Focus on negative consequences,
■​ d) Multiple persuaders,
■​ e) Lack of 3rd party advisors or time to consult
■​ Restatement (2d) §177: When Undue Influence Makes a Contract Voidable
●​ Undue influence is:
○​ a) Has domination over the victim, uses unfair persuasion over them OR
○​ b) By virtue of their relationship, Victim justifiably assumed other party
would not act inconsistent with their welfare
●​ Assent manifested by undue influence is VOIDABLE by the victim
●​ If a third party, unrelated to the transaction, induces Victim’s assent:
○​ Still voidable by Victim, unless:
■​ The third party, in good faith and without reason to know of the
undue influence either
●​ a) gives value, or
●​ b) relies materially on the transaction
○​ Misrepresentation
■​ Matieral v. Fraudulent
●​ Fraudulent Misrepresentation: [Restatement (2d) §162(1)]
○​ A misrepresentation is fraudulent if:
■​ The assertion is intended to induce assent, AND
■​ The maker knows the assertion:
●​ Is not in accord with the facts, or
●​ Lacks confidence, but states or implies it is truthful, or
●​ Knowingly has no basis to state or imply the assertion
●​ Material Misrepresentation: [Restatement (2d) §162(2)]
○​ A misrepresentation is material if:
■​ It would likely induce a reasonable person to assent, OR
■​ The maker knows it will likely induce assent by the recipient
■​ Concealment v. Non-Disclosure
●​ Non Disclosure (Silent Fraud) [Restatement (2d) §161]
○​ A person's non-disclosure equals an assertion of the non-existence of a
fact when disclosure is necessary to:
■​ a) Prevent a previous assertion from becoming a
misrepresentation
●​ Fraudulent or Material
■​ b) Correct a mistake of the other party as to:
●​ i) A basic assumption
○​ Breach of Good Faith by nondisclosure
●​ ii) The contents or effects of a writing
■​ c) When other party is entitled to know (Fiduciary Relationship)
○​ In Real Estate transactions:
■​ Seller’s duty to disclose information that:
●​ Materially affects value of property, and
●​ Which is not readily observable or known to the buyer
●​ Concealment (Coverup Fraud) [Restatement (2d) §160]
○​ Action is the equivalent of an assertion of the non-existence of a fact
when:
■​ It’s intended to or known to likely prevent another from learning a
fact
■​ Fraud in Execution v. Inducement
●​ Fraud in the Execution: [Restatement (2d) §163]
○​ Misrepresentation about essential terms.
■​ a) That induces assent by the party, and
■​ b) Party did not and could not reasonably know the truth
○​ Prevents contract formation
■​ Contract is VOID
●​ Fraud in the Inducement: [Restatement (2d) §164(1)]
○​ Fraudulent or Material Misrepresentation:
■​ a) That induces party to enter into the contract, and
■​ b) Party reasonably relied on the misrepresentation
○​ Induces contract formation
■​ Makes the contract VOIDABLE
●​ Societal Norms
○​ Unconscionability
■​ Procedural & Substantive
●​ Procedural Unconscionability:
○​ Unfair surprise, hidden terms, imbalance of bargaining power
■​ May include or add a requirement in a contract of adhesion
○​ Procedural Factors:
■​ Age, education, business acumen, relative bargaining power
■​ If terms were explained
■​ If alterations to printed terms would have been permitted
●​ Substantive Unconscionability:
○​ Excessively one-sided, grossly unfair terms
○​ Substantive Factors:
■​ Fairness and reasonableness of the contract provision, arbitral
costs
■​ Restatement (2d) § 208
●​ A contract that was procedurally and substantively at time of formation may not
be enforced
○​ Courts require Procedural AND Substantive unconscionability
■​ UCC §2-302
●​ If the court finds a contract unconscionable, it may:
○​ a) Refuse to enforce the contract, or
○​ b) Enforce everything but the unconscionable clause, or
○​ c) Limit application of unconscionable clause to avoid unconscionable
result
●​ In unconscionability claims, parties may present evidence of:
○​ Its commercial setting
○​ Purpose and effect of the clause
●​ Courts require:
○​ #1: Unfair Bargaining
■​ Lack of meaningful choice
■​ Procedural Unconscionability:
●​ Disparity in bargaining power
●​ Obfuscated or unintelligible terms
○​ #2: Unfair Contract Terms
■​ Substantive Unconscionability:
●​ Hard or oppressively one-sided terms; excessive price
●​ General commercial background & commercial needs
considered
○​ Public Policy
■​ Illegal Contracts
●​ A promise is unenforceable because of Public Policy if: [§178]
○​ Legislation says it is, OR
○​ Public Policy interest outweighs interest in enforcement
○​ To weigh interest IN FAVOR OF enforcement, account is taken of:
■​ Parties' justified expectations, and
■​ Forfeiture from nonenforcement, and
■​ Any special public interest in favor of enforcement
○​ To weigh AGAINST enforcement, account is taken of:
■​ Strength of policy against enforcement, and
●​ Legislation, judicial decisions
■​ Likelihood that refusing to enforce will further policy, and
■​ Seriousness of misconduct and extent it was deliberate, and
■​ Connection between misconduct and the term
●​ A promise to commit a tort or induce the commission of a tort is unenforceable
on grounds of public policy [§192]
●​ If someone needs a license/registration to do something, and they promise
to do it without one: [§181]
○​ Public Policy, promise is unenforceable if:
■​ a) Requirement has a regulatory purpose, and
■​ b) Public policy interest outweighs interest in enforcement
■​ Impair Family Relationships
●​ A promise is unenforceable on ground of public policy if:
○​ It is unreasonably in restraint of marriage [§189]
○​ If it changes an essential incident of the marital relationship in a way
detrimental to public interest in marriage [§190]
○​ Separation agreements made before separation or not in
contemplation of immediate separation [§190]
○​ If it unreasonably encourages divorce or separation [§190]
○​ If it affects the custody of a minor child unless it is consistent with the
best interests of the child [§191]
■​ Restraint of Trade
●​ A promise is unenforceable on grounds of public policy if it is unreasonably in
restraint of trade [§186]
○​ A promise is unreasonably in restraint of trade if its performance would:
■​ a) Limit competition in any business, or
■​ b) Restrict the promisor in exercise of gainful occupation
●​ If a non-complete promise is not necessary to an otherwise valid transaction, it’s
unreasonably in restraint of trade [§187]
●​ Reasonable Restraint on Trade must be:
○​ Ancillary to the valid transaction
○​ Only large enough to provide fair protection of interest
○​ Not too large to interfere with public interests
○​ Not too large to be oppressive of/impose undue hardship on other party
○​ Look at:
■​ Scope of Activities, Geographic Limit, Time Period
●​ Even if a non-compete is necessary to a valid transaction, it’s unreasonably
in restraint of trade if: [§188]
■​ a) It’s greater than needed to protect promisee’s legitimate
interest, or
■​ b) Promisor’s hardship and likely injury to the public outweighs
promisee’s need
○​ Reasonable restraint necessary for a valid transaction include:
■​ a) Seller of a business can promise the not to compete with Buyer
in a way that injures the value of the business sold
■​ b) Employee can promise not to compete with employer
■​ c) Partner can promise not to compete with the partnership
○​ Big Picture
■​ Void Contract
●​ Neither party can enforce contract or claim
●​ Examples:
○​ Duress: Physical Compulsion
○​ MisrepresentationL Essential Terms
■​ Voidable Contract
●​ Contract voidable by party protected by the defense
●​ Examples:
○​ Minority
○​ Mental Incapacity
○​ Duress: Economic
○​ Undue Influence
○​ Fraudulent or Material Misrepresentation
AVOIDING ENFORCEMENT CASES
Sparrow v. Demonico (2011) [Incapacity]
Frances Sparrow filed a lawsuit against her sister Susan and Susan's estranged husband David Demonico,
seeking a one-half interest in their deceased mother's home. The trial court denied Sparrow's motion to
enforce a settlement agreement, concluding Susan lacked the capacity to contract due to a mental
breakdown, and granted a directed verdict for the Demonicos. Sparrow appealed.
●​ Issue: Is medical evidence necessary to establish that a person lacked the capacity to contract due
to a mental condition?
●​ Rule: Medical evidence is necessary to establish that a person lacked the capacity to contract due to
a mental condition.
●​ Holding: Yes
○​ The court reasoned that while lay-witness testimony indicated Susan had a mental
breakdown, there was no medical or expert evidence to explain how her condition affected her
ability to understand the agreement. Without such evidence, there was no basis to conclude
she lacked capacity to contract.
Dodson v. Schrader (1992) [Minority]
Dodson, a 16-year-old, bought a truck from Shrader. After the truck developed mechanical issues and was
later damaged in a hit-and-run accident, Dodson sought to rescind the contract and recover the purchase
price.
●​ Issue: Is one rescinding a contract because of minority always entitled to recover the full purchase
price?
●​ Rule: One rescinding a contract because of minority is not always entitled to recover the full
purchase price.
●​ Holding: No
○​ The court reasoned that while contracts with minors are voidable, restitution should account
for depreciation or damage to the goods. If the minor was not defrauded and the contract was
fair, the seller is entitled to compensation for the use and deterioration of the goods.
Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Service Co. (1978) [Economic Duress]
Totem Marine Tug & Barge, Inc. had a contract with Alyeska Pipeline Service Co. to transport pipeline
construction materials. Totem faced many delays and didn't meet the deadline, so Alyeska ended the
contract. Totem was in financial trouble and asked Alyeska for payment. Alyeska said it could take up to
eight months to pay, but settled for about one third of the amount owed. Totem then sued Alyeska to undo
the settlement and get the rest of the money.
●​ Issue: Can a settlement and release be rescinded due to the existence of economic duress?
●​ Rule: A settlement and release may be rescinded due to the existence of economic duress.
●​ Holding: Yes
○​ The court reasoned that duress exists when one party involuntarily accepts another's terms
under coercive circumstances, with no reasonable alternative. Coercive acts can include
wrongful threats or acts, and a threat to withhold payment in bad faith can constitute coercion.
Totem's allegations, if proved, indicated Alyeska withheld payment knowing Totem faced
bankruptcy, forcing Totem to accept a lesser amount.
Odorizzi v. Bloomfield School District (1966) [Excessive Pressure]
Donald Odorizzi, an elementary school teacher, was pressured to resign by Bloomfield School District
officials after being arrested for homosexual activities. He filed a lawsuit alleging undue influence, among
other claims, after his resignation was not rescinded following the dismissal of criminal charges.
●​ 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?
●​ Rule: If 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.
●​ Holding: Yes
○​ The court reasoned that undue influence involves coercive persuasion that overwhelms a
person's will without convincing their judgment. It identified several factors indicating undue
influence, such as inappropriate timing, immediate demands, and lack of opportunity to
consult advisors.
Syester v. Banta (1965) [Material Misrepresentation/Fraud in Inducement]
Syester, a lonely widow, sued the owners of Arthur Murray Studio for fraud and misrepresentation after being
persuaded to buy over 4000 hours of dance lessons and signing a settlement for a partial refund.
●​ Issue: Can a contract be deemed unenforceable due to fraudulent misrepresentation?
●​ Rule: A contract may be deemed unenforceable due to fraudulent misrepresentation.
●​ Holding: Yes
○​ The court reasoned that Syester provided evidence of fraudulent misrepresentation, as the
owners knowingly made false statements with the intent to deceive her, leading her to sign
releases for inadequate consideration. The jury's award of punitive damages was justified by
the owners' malicious conduct.
Hill v. Jones (1986) [Non-Disclosure/Fraud in Inducement]
Warren and Gloria Hill entered into an agreement to purchase a house from Ora and Barbara Jones. The
Hills later discovered undisclosed termite damage and sued the Joneses for misrepresentation and failure to
disclose material facts.
●​ Issue: Does a seller of real property have the duty to disclose facts that materially affect the value of
the property and that are known to the seller but not readily observable or known by the buyer?
●​ Rule: If a seller of real property knows of facts that materially affect the value of the property and are
not readily observable and known to the buyer, the seller has a duty to disclose these facts to the
buyer.
●​ Holding: Yes
○​ The court reasoned that nondisclosure of material facts can be equivalent to
misrepresentation, especially in property transactions where the seller knows facts that are
not easily discoverable by the buyer. The materiality of such facts is a question for the jury.
Park 100 Investors v. Kartes (1995) [Fraud in the Execution]
The Kartes, part owners of KVC, were sued by Park 100 for unpaid rent based on a personal guaranty they
unknowingly signed.
●​ Issue: Can one enforce a contract when he fraudulently induced the other party to enter into the
contract?
●​ Rule: One cannot enforce a contract when he fraudulently induced the other party to enter into the
contract.
●​ Holding: No
○​ The court reasoned that Scannell, a representative of Park 100, misrepresented the personal
guaranty as lease papers, and the Kartes reasonably relied on this misrepresentation,
believing they were signing a lease agreement.
P.M. v. T.B. (2018) [Illegal Contract]
Iowa spouses the Ms (plaintiffs) wanted a child but Mrs. M was past childbearing age, so they placed an ad
for a surrogate mother. T.B. and her husband, D.B. (defendants), responded and agreed T.B. would be the
surrogate. After T.B. became pregnant, the relationship deteriorated, and T.B. decided not to surrender the
babies. The Ms sued for custody, and the trial court enforced the surrogacy agreement, awarding custody to
Mr. M. T.B. appealed.
●​ Issue:
○​ (1) Do states have varied approaches to the validity of surrogacy agreements?
○​ (2) Does a surrogacy agreement violate public policy?
●​ Rule:
○​ (1) States have varied approaches to the validity of surrogacy agreements.
○​ (2) A surrogacy agreement does not violate public policy.
●​ Holding: (1) Yes, (2) No
○​ The court reasoned that surrogacy agreements promote family creation and stability, do not
exploit women, and are consistent with Iowa's public policy interests. The agreement was
voluntarily entered into by consenting adults and did not violate any Iowa laws.
JUSTIFICATIONS FOR NONPERFORMANCE
●​ Mistake (Time of Contracting)
○​ 3 Analysis Questions:
■​ Q1: Was there a mistake?
■​ Q2: By which party? One or both?
■​ Q3: What is the legal significance of the mistake?
○​ Mistake
■​ A mistake is a belief that is not in accord with the facts. [§151]
○​ Risk Allocation
■​ Party bears the risk when:
●​ a) By agreement of the parties
○​ “As-is” clause not always determinative
●​ b) He’s ware he has limited knowledge and treats it as sufficient
○​ Conscious ignorance
●​ c) It’s allocated to him by the court
○​ Reasonable due to the circumstances
○​ Mutual Mistake
■​ 4 Elements [§152]
●​ 1) Mistake of BOTH parties at time of contracting;
●​ 2) Impacts basic assumption of contract;
●​ 3) Materially adverse effect; and
●​ 4) Mistaken party doesn’t bear risk of mistake
○​ Unilateral Mistake
■​ 4 Elements, Plus [§153]
●​ 1) Mistake of ONE PARTY at time of contract;
●​ 2) Impacts basic assumption of contract;
●​ 3) Materially adverse effect;
●​ 4) Mistaken party doesn’t bear risk of mistake; and
○​ Mistake makes enforcement unconscionable; or
■​ Severe enough to cause substantial loss
○​ Other party had reason to know or caused the mistake
○​ Legal Significance
■​ Analysis Questions:
●​ How did the mistake impact the bargain?
○​ Rescission:
■​ Mistakes pervasive to agreement
●​ Impact essential quality of whole substance
○​ No Rescission:
■​ Mistakes collateral to agreement
●​ Relating to quality or value
●​ To whose benefit/detriment?
●​ Allocation of risk?
●​ Fairness of outcome?
○​ Mutual mistake writing agreement →
■​ Reformation of the contract
●​ Changed Circumstances (Time of Performance)
○​ Impossibility
■​ Restatement (2d) § 263
●​ If both parties know something has to continue to exist as a foundation of the
contract, and it perishes, both parties are excused from performance
■​ Objective Impossibility
●​ Nobody could do this
■​ Subjective Impossibility
●​ Someone/something else could perform, performance is not totally impossible
○​ Not if performance would be more limited or expensive
○​ Impracticability
■​ Restatement (2d) § 266
●​ Performance is sufficiently different from what parties were contemplating, not
totally impossible but impractical (unforeseen event)
○​ Performance hampered:
■​ Change with respect to basic assumption
■​ Extreme change in nature of performance
■​ Party seeking relief is NOT at fault & does not bear risk of loss
●​ Becomes UNDULY BURDENSOME to continue performance
○​ Frustration of Purpose
■​ Restatement (2d) § 265
●​ If a thing or condition essential to the performance of the contract perishes or
fails to exist AT THE TIME of performance, and prevents the performance both
parties contemplated, performance is excused. (unforeseen event)
○​ Purpose thwarted:
■​ Change with respect to basic assumption
■​ Change thwarts purpose and makes performance of other party
worthless
■​ Party seeking relief is not at fault & does not bear risk of loss
●​ Becomes POINTLESS to continue performance
●​ Modifications (Time of or Following Performance)
○​ Common Law
■​ Pre-Existing Duty Rule:
●​ No enforcement of modification unless there’s consideration by both parties
●​ Exceptions: [§89]
○​ Modification will be enforced if:
■​ i) It’s fair and equitable in view of unanticipated circumstances; or
■​ ii) It’s provided by statute (UCC); or
■​ iii) If there’s a material change of position in reliance on
promise/modification
○​ Sale of Goods
■​ UCC §2-209
●​ Modifications under the UCC:
○​ 1) Does not require consideration, but must be in good faith
○​ 2) If an agreement requires modification in writing, it has to be modified in
writing
○​ 3) If contract is under SoF, modifications must satisfy requirements
■​ Duress & Good Faith
●​ Duress
○​ Focus of analysis is on any alleged threat and lack of choices
●​ Good Faith
○​ Court analyzes party’s reasons for modification and fairness of
modification
○​ Sale of Goods & SOFs
■​ SOF Writing & Waivers [§2-209]
●​ SOF Writing:
○​ 3) Modifications must satisfy SoF (if the contract falls under SoF)
●​ Waivers:
○​ 4) Modifications that don’t follow SoF or not written as contract expressly
requires can operate as a waiver
○​ 5) The waiving party can retract a waiver if:
■​ They give reasonable notice; and
■​ Other party has not materially changed their position in reliance
■​ Statute of Frauds [UCC §2-201]
●​ (1) A contract for the sale of goods over $500 is unenforceable without sufficient
writing
●​ (2) Between merchants, written confirmation of a deal is binding unless a written
objection is given within 10 days
●​ (3) Without sufficient writing (1) but valid in other respect, a contract is still
enforceable:
○​ a) If the goods were specifically manufactured for the Buyer and
substantial performance has begun
○​ b) If the opposing party admits before the court that the contract for sale
existed
■​ Only enforceable for the quantity of goods admitted
○​ c) With respect for goods that have been paid and accepted, or received
and accepted
JUSTIFICATIONS FOR NONPERFORMANCE CASES
Lenawee County Board of Health v. Messerly (1982) [Mutual Mistake]
The Messerlys sold a property with a non-compliant septic system to the Pickleses, who later discovered the
issue and sought rescission of the contract.
●​ Issue: May a land-sale contract 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?
●​ Rule: Rescission is appropriate if the mistaken belief relates to a basic assumption of the parties
upon which the contract is made and that 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.
●​ Holding: Yes
○​ The court reasoned that a mutual mistake occurred because both parties believed the
property was suitable for habitation. However, the contract's "as-is" clause indicated that the
buyers assumed the risk of hidden defects.
BMW Financial Services NA, LLC. v. Deloach (2017) [Unilateral Mistake]
Frank Deloach leased a BMW from BMW Financial Services NA, LLC, and failed to make payments, leading
to repossession and discovery of odometer tampering. BMW sued for breach of lease and tampering, won a
default judgment, but mistakenly sent the account to collections, resulting in a settlement. BMW sought to
rescind the settlement.
●​ Issue: May a contract be rescinded based on mistake of fact if the party seeking rescission made a
mistake regarding a basic assumption in the contract, the mistake had a material adverse effect on
the agreed-upon exchange, the party did not bear the risk of mistake, and enforcement of the
contract would be unconscionable on account of the mistake?
●​ Rule: A contract may be rescinded based on mistake of fact if the party seeking rescission made a
mistake regarding a basic assumption in the contract, the mistake had a material adverse effect on
the agreed-upon exchange, the party did not bear the risk of mistake, and enforcement of the
contract would be unconscionable on account of the mistake.
●​ Holding: Yes
○​ The court reasoned that BMW bore the risk of its own mistake by failing to flag the account as
in litigation, and that the settlement was reasonable and not unconscionable. The court noted
that punitive damages are not meant to compensate the opposing party and that settlements
often result in satisfaction for less than the actual judgment.
Hemlock Semiconductor Operations, LLC. c. Solarworld Industries Sachsen GMBH (2017) [Impracticability]
Hemlock Semiconductor Operations, LLC (plaintiff) sued SolarWorld Industries Sachsen GmbH (defendant)
for breach of contract after SolarWorld failed to pay the minimum amount for polysilicon as agreed.
●​ Issue: Does the frustration-of-purpose defense require that an unforeseen event substantially
frustrate the parties’ primary purpose in making the contract?
●​ Rule: The frustration-of-purpose defense requires that an unforeseen event substantially frustrate the
parties’ primary purpose in making the contract.
●​ Holding: Yes
○​ The court reasoned that market fluctuations were a basic assumption of the contract, and the
primary purpose was to provide a stable supply of polysilicon at a predictable price. The illegal
actions causing market changes were irrelevant because the parties anticipated market
fluctuations.
Mel Frank Tool & Supply, Inc. v. Di-Chem Co. (1998) [Frustration]
Di-Chem Co. leased property from Mel Frank Tool & Supply, Inc., to store chemicals, including hazardous
materials. After a city ordinance restricted the storage of hazardous materials, Di-Chem claimed impossibility
and relocated, leading Mel Frank to sue for breach of lease.
●​ 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?
●​ Rule: A party’s performance under a lease may not 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
○​ The court reasoned that under the Restatement (Second) of Contracts, substantial frustration
of purpose must be severe and not merely less profitable. Di-Chem failed to show that the
ordinance completely restricted its use of the premises or provide evidence of substantial
frustration, such as the percentage of hazardous materials or profit losses.
Alaska Packers Association v. Domenico (1902) [Modification]
In March 1900, Alaska Packers’ Association (APA) contracted with sailors to fish for salmon, promising $50
or $60 for the season plus two cents per salmon. After arriving in Alaska, the sailors demanded $100 to
continue working, and an APA representative, lacking authority, agreed. APA later paid only the original
contract amounts, leading the sailors to sue for breach of the new contract.
●​ 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?
●​ 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.
●​ Holding: No
○​ The court reasoned that an enforceable contract requires new consideration from both
parties. Since the sailors were already obligated to perform the same duties under the original
contract, the new agreement lacked consideration and was thus unenforceable.
Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp. (1990) [Modification- UCC- Duress]
In 1987, Galtaco Redlaw Castings Corp. (defendant) agreed to sell castings to Kelsey-Hayes Co. (plaintiff)
for brake assemblies. In 1989, Galtaco demanded a 30% price increase, and Kelsey-Hayes, unable to find
another supplier, agreed under duress. Kelsey-Hayes later sued for breach of the 1987 contract, and Galtaco
moved for summary judgment.
●​ Issue: Can a party establish a claim for breach of contract if that party has entered into an
inconsistent agreement that covers the same subject matter as the previous contract?
●​ Rule: A party can establish a claim for breach of contract even though that party has entered into an
inconsistent agreement that covers the same subject matter as the previous contract.
●​ Holding: Yes
○​ The court reasoned that Kelsey-Hayes had no reasonable alternative but to agree to the price
increase due to the threat of Galtaco halting production, which would have caused significant
business harm. Kelsey-Hayes protested the price increase, indicating duress.
Brookside Farms v. Mama Rizzo’s, Inc. (1995) [Modification- SoF]
Brookside Farms (plaintiff) and Mama Rizzo’s, Inc. (defendant) entered into a requirements contract for the
supply of fresh basil leaves. Brookside sued for payment of 21 purchase orders, and both parties filed
motions for partial summary judgment.
●​ Issue: Are oral modifications of a contract that fall under the statute of frauds enforceable?
●​ Rule: Oral modifications of a contract that fall under the statute of frauds are enforceable.
●​ Holding: Yes
○​ The court reasoned that the oral modifications were enforceable under the UCC and the
doctrine of promissory estoppel because Mama Rizzo’s accepted the goods at the modified
price and assured Brookside that the price changes would be noted on the contract.
○​ Brookside Farms v. Mama Rizzo’s illustrates that a sale-of-goods contract can be modified
when one party accepts the goods at a modified price, and accepting nonconforming goods
may also show modification under the UCC.
Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co. (1995) [Express Conditions]
Olympia offered to pay Oppenheimer's rent if Oppenheimer couldn't find someone to sublease their space.
Olympia wanted Oppenheimer to move into their building. Oppenheimer and OAD made a deal where OAD
would lease Oppenheimer's space, but only if Oppenheimer got written permission from the landlord for
some construction OAD wanted to do. Oppenheimer didn't get the written permission in time, so OAD said
the deal was off. Oppenheimer sued OAD, saying they had done enough to meet the conditions of the deal.
●​ Issue: Whether substantial performance is applicable to excuse the nonoccurrence of an express
condition precedent.
●​ Rule: Absent some forfeiture or unjust enrichment, substantial performance is not applicable to
excuse the nonoccurrence of an express condition precedent.
●​ Holding: No
○​ The court reasoned that an express condition precedent must be performed literally according
to its terms, and substantial performance is not applicable unless there is forfeiture or unjust
enrichment, neither of which were present in this case.
J.N.A Realty Corp. v. Cross Bay Chelsea, Inc. (1977) [Forfeiture]
JNA Realty leased a property to a restaurant, with an option to renew the lease for another 10 years. Cross
Bay Chelsea bought the lease and changed the renewal option to 24 years. Chelsea made improvements to
the property. JNA reminded Chelsea about the lease terms, but didn't mention the renewal option. Chelsea
forgot to renew the lease on time, and JNA told them they had to leave. Chelsea tried to renew the lease, but
JNA said no.
●​ Issue: May a commercial tenant that negligently failed to exercise a lease-renewal option within the
required time be awarded equitable relief if the relief is necessary to avoid a forfeiture by the tenant
and would not prejudice the landlord?
●​ Rule: A commercial tenant that negligently failed to exercise a lease-renewal option within the
required time may be awarded equitable relief if the relief is necessary to avoid a forfeiture by the
tenant and would not prejudice the landlord.
●​ Holding: Yes
○​ The court reasoned that if a tenant made valuable improvements to the premises in
anticipation of renewing the lease, the tenant has an equitable interest that may be protected
from forfeiture. Equitable relief is appropriate if the tenant’s untimely notice was due to an
honest mistake or neglect, and granting the relief would not prejudice the landlord.
CONSEQUENCES OF NON-PERFORMANCE
●​ Express Terms
○​ General Rule [§224]
■​ Determines if and when a parties’ duty to perform is due
●​ Non-occurrence of a condition prevents a party’s duty to perform from arising
■​ If no duty to perform, no damages for non-performance
●​ Express Conditions: Written into the contract
○​ Conditional Language:
■​ Only if, Provided, Unless, If so, If not
●​ Constrictive Conditions: Are derived from the language of the contract
○​ Consequences
■​ Non-occurrence of condition discharges duty
■​ No damages are available for nonperformance without a duty to perform
■​ Consequences of non occurrence of condition: [§225]
●​ a) Performance not due until condition occurs, or
●​ b) If a condition never occurs, duty is discharged
■​ Most courts rule that express conditions cannot be substantially performed
●​ Express Conditions:
○​ Must be completely performed
●​ Constrictive Conditions:
○​ May be substantially performed
■​ Substantial Performance [§237]
●​ a) Performance of each party is implicitly conditioned on
there being no uncured material failure of performance by
other party
○​ If the variation from full performance of a material
issue is minor:
■​ Constructive condition substantially
satisfied, promise is not satisfied and other
party is entitled to damages
●​ b) Minor or immaterial deviations from the contract do not
amount to failure of a condition
○​ Transgression needs to be unintentional, not
deliberate
●​ c) Even a minor deviation will give the other party the right
to recover damages
○​ 3 Questions
■​ 1) Is there a condition?
■​ 2) Has it been satisfied?
■​ 3) Has it been excused? (Relief from Enforcement of Conditions)
●​ Obligor waives
●​ The condition is removed or modified
●​ If the obligor prevents condition from occurring, it’s excused
●​ Technical conditions are generally excused
○​ Material conditions are generally strictly enforced
●​ Can be excused to avoid Forfeiture
○​ Court may excuse condition if a disproportionate forfeiture would
otherwise result
■​ Won’t do this if the condition was a material part of the contract
●​ Breach of Contract
○​ Partial Breach
■​ Insubstantial non-performance
●​ Nonbreaching party:
○​ Not relieved of performance duty, but
○​ Is entitled to damages as result of breach
○​ Material Breach
■​ “Whether a breach of contract is total or partial depends on its materiality”
■​ Failure to perform significant obligation
●​ Nonbreaching party:
○​ Suspends obligation until breach is cured
○​ May be entitled to damages for delay
●​ Material Breach Factors [§241]
○​ 1) Extent to which NBP party will be deprived of reasonably expected
benefit
○​ 2) Extent to which NBP party can be compensated for that deprived
benefit
○​ 3) Extent to which BP will suffer forfeiture
○​ 4) Likelihood of cure
○​ 5) If BP conduct was in good faith
■​ Doctrine of Divisibility [§240]
●​ Mitigates effect of breach, can suspend duty to perform
○​ 1) Must be possible to break performance into corresponding pairs of part
performance
○​ 2) It must be possible to treat the pairs as “agreed equivalents” to protect
expectations of contracting parties
○​ Factors to consider:
■​ Whether the contract was divisible, consisting of two
performances
■​ Whether allocation of purchase price to the part performances is
consistent with the intention of the parties
○​ Total Breach
■​ Substantial non-performance, uncured,
●​ Nonbreaching party:
○​ Discharged of all contractual obligations
●​ Total Breach Factors [§242]
○​ 1-5) Five Material Factors (§241), Plus
○​ 6) If further delay will prejudice NBP
○​ 7) How important undelayed performance is as stated in contract terms
●​ Also considered:
○​ Reasonable actions by nonbreaching party to express grievances and
seek satisfaction
●​ Repudiation
○​ Repudiation
■​ Common Law [§ 250, comment b]
●​ Definite and unequivocal intention not to perform
○​ Clear manifestation of intent
○​ Gives rise to damages for total breach
○​ Discharges NBP’s obligations
○​ Requirements:
■​ Statement must be definite and unequivocal
●​ Mere request for change in terms is not sufficient
■​ Statement of intention not to perform except on conditions beyond
the contract constitutes a repudiation
●​ Adequate Assurance: [§251(2)]
○​ If the RP does not provide adequate assurance within a reasonable time,
it’s considered repudiation
■​ What determines “reasonable time” depends on the circumstances
of the due performance
■​ UCC
●​ When reasonable grounds for insecurity arise: [§ 2-609]
○​ a) Either party can demand in writing adequate assurance of performance
○​ b) Until assurance is received, performance may be suspended
■​ If commercially reasonable
○​ Factors for Reasonable Grounds:
■​ Buyer’s words or actions
■​ Course of dealing or course of performance between the parties
■​ Nature of the sales contract and the industry
■​ Buyer falling behind in its account with the seller
●​ Adequate Assurance: [§ 2-609(4)]
○​ Thirty days to respond to justified demand of assurance, then it’s
considered a repudiation
●​ Remedies for Repudiation: [§ 2-610]
○​ If RP repudiates before performance was due, and it impairs the value of
the contract, NRP can:
■​ (a) Wait for a commercially reasonable time to see if BP will
perform; or
■​ (b) Pursue legal remedies for breach;
●​ Even if BP has been informed NBP is waiting for
performance
■​ (c) Suspend their own performance obligations and take steps to
limit potential loss
●​ Salvage unfinished goods, etc.
○​ Retraction
■​ Common Law
●​ Repudiation may be retracted (through words or actions) unless NRP: [§ 256(1)]
○​ a) Accepts repudiation, or
○​ b) Substantially/materially changed their position
■​ Timing matters
●​ RP received all benefits before repudiating their
performance?
○​ NBP entitled to damages for total breach
●​ RP repudiates their promise to perform?
○​ NBP also discharged of promise to perform
■​ UCC [§2-611]
●​ (1) Repudiation can be retracted until next performance is due, unless the other
party has:
○​ i) Materially changed their position
○​ ii) Cancelled the contract
○​ iii) Accepted the repudiation
●​ (2) Retraction can be made through words or actions expressing intent to perform
○​ Must include any demanded adequate assurance
●​ (3) Retraction reinstates RP’s original rights, NRP is excused for any delays due
to the repudiation
CONSEQUENCES OF NON PERFORMANCE CASES
Jacob & Youngs, Inc. v. Kent (1981) [Substantial Performance]
Herbert Jackson (plaintiff) entered into an oral agreement to purchase two stores from Richard's 5 & 10 Inc.
(defendant). Jackson failed to meet the conditions of the agreement, leading Richard's to seize the stores
and record the deed to Jackson's house. Jackson sued for an injunction.
●​ Issue: Does the doctrine of substantial performance apply to express conditions?
●​ Rule: The doctrine of substantial performance does not apply to express conditions.
●​ Holding: No
○​ The court reasoned that while the doctrine of substantial performance allows recovery for
minor breaches in constructive conditions, it does not apply to express conditions explicitly
stated in a contract. The court noted that express conditions must be fully performed unless
their nonoccurrence is relatively unimportant and would result in extreme forfeiture.
Sackett v. Spindler (1967) [Total Breach]
Spindler (defendant) agreed to sell shares of stock to Sackett (plaintiff), who was to pay in installments.
Sackett fell behind on payments, leading to Spindler refusing to complete the sale. Sackett sued for breach
of contract, and Spindler counterclaimed.
●​ Issue: If a party suspends performance under a contract in response to the other party’s partial
breach of the contract, does the suspension of performance constitute unlawful repudiation of the
contract?
●​ Rule: If a party suspends performance under a contract in response to the other party’s partial
breach of the contract, the suspension of performance constitutes unlawful repudiation of the
contract.
●​ Holding: Yes
○​ The court reasoned that Sackett's repeated failures to pay constituted a total breach, justifying
Spindler's refusal to perform. The court considered factors such as the materiality of the
breach, Sackett's willful or negligent behavior, and the uncertainty of Sackett's future
performance.
Truman L. Flatt & Sons v. Schupf (1995) [Repudiation]
Schupf, Neiswander, and American National Bank and Trust Company of Chicago agreed to sell Truman L.
Flatt & Sons Co. a parcel of land contingent on successful rezoning. After a zoning meeting, Truman
requested a price modification, which the owners rejected. Truman then reaffirmed its intent to purchase at
the original price, but the owners declared the contract void. Truman sued for specific performance.
●​ Issue: Can one rescind anticipatory repudiation if the other party has neither materially relied upon it
nor provided notice that the party considers the contract repudiated?
●​ Rule: One may rescind anticipatory repudiation if the other party has neither materially relied upon it
nor provided notice that the party considers the contract repudiated.
●​ Holding: Yes
○​ The court reasoned that anticipatory repudiation requires a clear and unequivocal intent not to
perform. Truman's request to modify the price was ambiguous and did not constitute a definite
intent not to perform. Even if it did, Truman retracted the repudiation before the owners
materially relied on it or indicated they considered the contract void.
Hornell Brewing Co. v. Spry (1997) [Repudiation- UCC]
Spry (defendant) sought distribution rights for Arizona Tea in Canada from Hornell Brewing Co. (plaintiff).
Hornell granted Spry exclusive distribution rights based on an oral agreement. Spry failed to make timely
payments, leading Hornell to seek a declaratory judgment to terminate the agreement.
●​ Issue: Under § 2-609 of the Uniform Commercial Code, can a party demand adequate assurances of
due performance if the party has reasonable grounds to believe the other party will not meet the
contractual requirements?
●​ Rule: Under § 2-609 of the Uniform Commercial Code, a party can demand adequate assurances of
due performance if the party has reasonable grounds to believe the other party will not meet the
contractual requirements.
●​ Holding: Yes
○​ The court reasoned that Hornell had reasonable grounds for insecurity due to Spry's missed
payments and misleading information about his operations. Spry's failure to respond to
Hornell's request for additional assurances constituted a repudiation of the contract.
CONTRACT REMEDIES
●​ Money Damages
○​ Reliance Damages [§349]
■​ When expectation is indeterminable; but costs in reliance of the bargain are
●​ Unreimbursed costs incurred in performance or preparation for performance
●​ When expectation is indeterminable (including promissory estoppel)
■​ Expenditures made in:
●​ Preparation for, in part performance, and in reliance
■​ Reduced by:
●​ Clear expected loss of NBP (the result of a bad bargain)
●​ Promissory Estoppel Claim:
○​ Damage awards may be limited to out-of-pocket expenses.
■​ Potentially limited by:
●​ Causation, certainty, foreseeability, and mitigation
○​ Restitution Damages [§ 373]
■​ Alternative at election of NBP when contract terms less favorable
●​ Returns NBP to the position they were in prior to contract by returning benefit
conferred on BP
●​ Can occur when:
○​ At election of NBP [§373]
■​ When BP confers a benefit [§374]
○​ When contract is unenforceable due to SoF [§375]
○​ When contract is voidable due to: [§376]
■​ Capacity, mistake, misrepresentation, duress, undue influence
○​ When contract is discharged due to: [§377]
■​ Impracticability, frustration, or failure of condition
■​ Based on:
●​ Reasonable value of NBP’s performance [§ 373]
●​ Restitution damages are measured by: [§ 371]
○​ (a) The reasonable value of performance the BP received, or
○​ (b) The extent to which the BP’s property increased in value or how much
their other interests advanced
■​ NOT Reduced:
●​ Not reduced by expected loss
●​ Quantum Meruit Claims:
○​ QM based on reasonable value of performance
○​ Impact is to allow NBP to recover the value of services rendered
■​ Reasonable value of performance:
●​ “the amount for which such services could have been
purchased from on in plaintiff’s position at the time and
place the services were rendered”
■​ Limited by:
●​ Not available if NBP has performed in full and BP obligation is payment [§ 373]
○​ Expectation Damages [§347]
■​ Puts NBP in position they would have been in had BP fully performed
●​ (i.e. giving NBP “the benefit of the bargain”)
■​ Expectation Damages =
●​ Loss of Value + Other Loss - Costs Avoided - Loss Avoided
○​ Loss in Value:
■​ What is the difference between what NBP has received and was
supposed to receive?
○​ Other Loss: (Incidental & Consequential)
■​ Did NBP experience other losses as a result of breach?
○​ Costs Avoided: (Total Breach Only)
■​ Did NBP avoid costs as a result of being excused from
performance?
○​ Loss Avoided: (Total Breach Only)
■​ Was NBP able to recover any losses?
●​ Alt: Expected Net Profit + Unreimbursed Costs
●​ Real Estate Transactions:
○​ Loss in value is the difference between the contract price and the fair
market value of the property on the date of the breach.
■​ Fair Market Value:
●​ Price between seller under no compulsion and willing
buyer
■​ If the seller resells within a reasonable time after the breach, the
price obtained is some evidence of the fair market value on the
date of the breach
■​ Limited by:
●​ a) Causation [§347]
○​ Damages must be based on actual loss CAUSED by the breach
●​ b) Certainty [§352]
○​ Cannot recover damages for loss that isn’t proven reasonably certain by
the evidence
●​ c) Foreseeability [§351(1)]
○​ BP must have foreseen the loss as a result of the breach to be
recoverable in damages by NBP
■​ General or Direct Damages
●​ Arise naturally from the breach
●​ Presumed the BP could foresee the loss
○​ Ex: Loss in Value
●​ Factors:
○​ Look at time of contract formation
○​ TYPE of loss has to be foreseeable
■​ NOT the manner loss occurs
○​ Objective standard, from BP perspective
■​ Special or Consequential Damages
●​ Result from special circumstances COMMUNICATED at
the time of contracting
■​ Ask:
●​ Is the type of loss a probable consequence of
nonperformance?
●​ d) Mitigation
○​ Doctrine of Avoidable Consequences [§350]
■​ (1) NBP cannot recover loss they could have avoided without
undue risk, burden, or humiliation
●​ NBP cannot “pile up damages” After repudiation or a
refusal to perform, NBP cannot perform in full to recover
for full performance
■​ (2) NBP can recover if they made a reasonable but unsuccessful
attempt to avoid loss
○​ To limit damages, breaching employer must prove:
■​ (1) Availability of suitable and comparable substitute, and
■​ (2) Lack of reasonable diligence on part of employee
●​ Equitable Remedies
○​ Specific Performance
■​ Common Law
●​ Five Factors: [§ 357(1)]
○​ 1) Certain and definite terms
○​ 2) No other adequate remedy at law
○​ 3) Ability of parties to perform
○​ 4) Balance equities and hardship
○​ 5) Challenges of supervision and enforcement
■​ UCC
●​ Granted when the goods are unique or other proper circumstances [§2-716(1)]
●​ When Buyer fails to pay a price when it was due, Seller may recover: [§2-709(1)]
○​ (a) Cost of goods accepted or conforming goods lost or damaged within a
commercially reasonable time after risk of loss has passed to Buyer; and
○​ (b) Goods unable to be resold, or if the circumstances indicate they
cannot be resold
■​ Key Takeaway: If goods are available in the market, specific
performance will likely be denied
○​ Injunction
■​ Types of Injunctions:
●​ Temporary Restraining Order
●​ Preliminary Injunction
●​ Permanent Injunction
■​ Four Criteria:
●​ 1) No adequate remedy at law
●​ 2) Irreparable harm without injunction
●​ 3) Balancing of hardships, and
●​ 4) Public Interest
■​ An injunction to perform personal services will typically not be granted. [§ 367]
●​ (1) Personal service promises will not be specifically enforced
●​ (2) A promise to render personal services exclusively for one employer will not be
enforced by an injunction against serving another if
●​ (2) A promise to work for one employer will not be enforced by injunction if:
○​ (a) The result will enforce the continuance of undesirable personal
relations, or
○​ (b) The employee will not have another reasonable means of making a
living
○​ Agreed Remedies
■​ Three Criteria:
●​ 1) Damages uncertain in amount or difficult to prove
●​ 2) Parties intended clause to liquidate damages and not operate as a penalty,
and
●​ 3) Amount must be a reasonable forecast of the just compensation for harm
flowing from a breach
■​ Restatement (2d) § 356
●​ A provision for liquidated damages will be enforceable if the amount fixed is
reasonable in light of
○​ a) The “anticipated or actual loss” and
○​ b) The “difficulties of proof of loss”
●​ When is reasonableness determined?
○​ Traditional Rule:
■​ Reasonableness be determined as of contract formation
○​ More Modern Approach:
■​ Consider time of contract OR actual loss at time of breach
●​ UCC §2-718(1) and Restatement (2d) §356(1)
●​ Is there a necessity for actual loss?
○​ Traditional Rule:
■​ Breach is sufficient
○​ More Modern Approach:
■​ Actual loss required
CONTRACT REMEDIES CASES
Crabby’s Inc. v. Hamilton (2008) [Expectation Damages]
James Hamilton (defendant) executed a contract to purchase Crabby’s, a restaurant owned by Fred and
Carolyn Billingsly (plaintiffs), for $290,000. Hamilton assigned his interest to Paragon Ventures, L.L.C.
(defendant). Defendants failed to provide a written loan commitment, and two days before closing, they
backed out. Plaintiffs sold the restaurant a year later for $235,000 and sued for breach of contract.
●​ Issue: In Missouri, is a seller’s measure of damages for a breach of a contract for the sale of land
with a structure on it the difference between the purchase price and the fair market value of the
property on the date of breach?
●​ Rule: In Missouri, a seller’s measure of damages for breach of a contract for the sale of land with a
structure on it is the difference between the purchase price and the fair market value of the property
on the date of breach.
●​ Holding: Yes
○​ The court reasoned that Defendants waived the loan commitment provision by their conduct,
including making repairs and transferring utilities. The court also found that the subsequent
sale price was valid evidence of the property's value at the time the sale should have closed.
Handicapped Children's Education Board v. Lukaszewski (1983) [Impracticability]
Elaine Lukaszewski entered into a contract with the Handicapped Children's Education Board to work as a
therapist for the 1978-1979 school year but resigned before the school year began, citing health reasons.
The Board hired a more qualified replacement at a higher salary and sued Lukaszewski for breach of
contract.
●​ Issue: Do damages for breach of an employment contract include the cost of obtaining other services
equivalent to that promised but not performed, plus any foreseeable consequential damages?
●​ Rule: Damages for breach of an employment contract include the cost of obtaining other services
equivalent to that promised but not performed, plus any foreseeable consequential damages.
●​ Holding: Yes
○​ The court reasoned that an employer is entitled to expectation damages for an employee's
breach of contract, which includes the cost of hiring a replacement and any foreseeable
consequential damages. The Board had to hire a more qualified therapist due to
Lukaszewski's breach, and the additional cost was a direct result of her nonperformance.
Hadley v. Baxendale (1854) [Foreseeability]
Hadley owned a corn mill in Gloucester and needed to ship a broken crank shaft to Joyce & Co. for a
replacement. Hadley hired Pickford & Co., owned by Baxendale, to ship the shaft, but Pickford delayed the
shipment, causing Hadley to lose profits. Hadley sued for damages.
●​ Issue: May an award of damages for one party’s breach of a contract include all damages
reasonably foreseeable to both parties at the time of contract formation, as well as damages
stemming from any special circumstances, even if those circumstances were not known by all parties
at contract formation?
●​ Rule: If one party breaches a contract, the other party may recover all damages that are reasonably
foreseeable to both parties at the time of making the contract, as well as damages stemming from
any special circumstances, provided those circumstances were communicated to and known by all
parties at contract formation.
●​ Holding: No
○​ The court reasoned that Hadley never informed Pickford that the mill's operation depended on
the timely delivery of the crank shaft, making the lost profits unforeseeable. Therefore,
Pickford could not have anticipated the special circumstances leading to Hadley's lost profits.
Rockingham County v. Luten Bridge Co. (1929) [Avoidable Consequences]
On January 7, 1924, Rockingham County (defendant) hired Luten Bridge Co. (plaintiff) to construct a bridge.
After a change in the board of commissioners, the County informed Luten on February 21, 1924, that it
would not honor the contract. Luten continued construction and sued for the contract price after completing
the bridge.
●​ Issue: After receiving notice of a party’s breach of a contract for services, may the nonbreaching
party continue to perform the contract to completion and recover the full contract price?
●​ Rule: If a nonbreaching party in a contract for services receives notice of another party’s breach, the
nonbreaching party must treat the contract as broken when notice is received and cease
performance and may then sue for any losses sustained from the breach as well as profits that would
have been realized upon performance.
●​ Holding: No
○​ The court reasoned that Luten did not have the right to continue performance and accumulate
additional damages after receiving notice of the County’s refusal to proceed. Luten had a duty
to cease performance and seek compensatory damages for the work done and profits lost up
to the point of the County’s repudiation.
Maness v. Collins (2010) [Reasonable Efforts]
Sammie Maness sold his wood-manufacturing business to Joannie Collins, Mike Smith, and Josh Smith, and
entered into a three-year employment contract with them. Maness was later fired for failing to fulfill his job
duties and sued for breach of the employment agreement; the trial court found no just cause for his
termination but awarded no damages due to Maness's failure to mitigate damages. Maness appealed, and
the defendants cross-appealed.
●​ Issue: Must an employer prove, pursuant to an employment agreement, that a terminated employee
failed to mitigate his damages by showing the availability of suitable and comparable employment
and a lack of reasonable diligence on the part of the employee to seek and obtain work?
●​ Rule: An employer must prove, pursuant to an employment agreement, that a terminated employee
failed to mitigate his damages by showing the availability of suitable and comparable employment
and a lack of reasonable diligence on the part of the employee to seek and obtain work.
●​ Holding: Yes
○​ The court reasoned that the employment agreement had a set term of three years and that
the grounds for termination were not applicable because the business was successful. The
court also noted that Josh Smith's substance abuse and undermining of Maness's authority
excused Maness's poor job performance, meaning there was no just cause for termination.
Additionally, the defendants failed to provide evidence of comparable alternative employment,
which is required to assert the affirmative defense of failure to mitigate damages.
Wartzman v. Hightower Production, Ltd. (1983) [Reliance Damages]
Several men hired the law firm of Wartzman, Rombro, Rudd and Omansky, P.A. to set up a corporation for a
flagpole-sitting venture. The law firm failed to comply with securities laws, leading to the venture's failure.
Hightower Productions sued for negligence and breach of contract, and a jury awarded them damages. The
law firm appealed.
●​ Issue: May a party recover damages it incurred due to its reliance on a contract?
●​ Rule: A party may recover damages that it incurred due to its reliance on a contract.
●​ Holding: Yes
○​ The court reasoned that lost profits are generally recoverable in a breach-of-contract action,
but if anticipated profits are too speculative, the injured party can recover money spent in
reliance on the contract. The breaching party must prove with reasonable certainty that the
injured party would have suffered a net loss to reduce recovery.
Walser v. Toyota Motor Sales, U.S.A, Inc. (1994)​ [Promissory Estoppel]
Toyota wanted to set up dealerships in Minnesota and sent letters of intent to potential franchisees, including
Walser and McLaughlin. They were told they would be the new dealer, but two days later, they were told it
was a mistake and they needed to provide more financial information. They had already bought property for
the dealership for over $670,000. When Toyota decided not to give them the dealership, they sued for
breach of contract, promissory estoppel, and fraud.
●​ Issue: May a damages award for a promissory-estoppel claim be limited to out-of-pocket expenses?
●​ Rule: A damages award for a promissory-estoppel claim may be limited to out-of-pocket expenses.
●​ Holding: Yes
○​ The court reasoned that Section 90 of the Restatement (Second) of Contracts allows for
damages to be limited as justice requires, and the trial judge has discretion in determining the
extent of the damages. The court found no abuse of discretion in the trial court's decision to
limit damages to out-of-pocket expenses.
U.S Ex. Rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc. (1973) [Restitution]
Subcontractor Coastal Steel Erectors, Inc. (Coastal) sued Algernon Blair (Blair) under the Miller Act for labor
and equipment furnished after Blair refused to pay for crane rental, leading Coastal to stop work. The district
court denied Coastal recovery, and Coastal appealed.
●​ 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 irrespective of whether he would have been entitled to recover in a suit on
the contract?
●​ Rule: A subcontractor who justifiably ceases work under a contract because of the prime contractor’s
breach may recover in quantum meruit 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.
●​ Holding: Yes
○​ The court reasoned that quantum meruit allows a promisee to recover the reasonable value of
services provided, irrespective of whether the promisee would have lost money on the
contract and been unable to recover in a suit on the contract.
City Stores Co. v. Ammeran (1968) [Specific Performance]
Ammerman (defendant) intended to build a shopping center, Tyson's Corner, and needed rezoning approval.
City Stores (plaintiff) assisted with the rezoning in exchange for a promise to lease a store site. Ammerman
later refused to lease to City Stores, leading City Stores to sue for specific performance in the United States
District Court for the District of Columbia.
●​ Issue: Is specific performance an adequate remedy if an option contract has been breached?
●​ Rule: Specific performance is an adequate remedy if an option contract has been breached.
●​ Holding: Yes
○​ The court reasoned that the contract between City Stores and Ammerman, though not a
typical option contract, was sufficiently specific by referring to other store leases. The
conditions precedent did not render it unenforceable, and specific performance was
necessary as damages would not adequately compensate City Stores.
Reier Broadcasting Company, Inc. v. Kramer (2003) [Injunction]
Montana State University (MSU) contracted with Reier Broadcasting Company (Reier) for exclusive radio
broadcast rights of MSU sports until 2002. Reier sued Michael Kramer, MSU’s head football coach, seeking
an injunction to enforce an exclusivity provision in his personal-services contract.
●​ Issue: May an injunction be used to force a party to comply with an exclusivity provision in a
personal-services contract?
●​ Rule: An injunction may not be used to force a party to comply with an exclusivity provision in a
personal-services contract.
●​ Holding: No
○​ The court reasoned that under Montana law, personal-services contracts are not subject to
specific performance, and thus, injunctions cannot be granted to prevent breaches of such
contracts. Enforcing an exclusivity provision would indirectly compel performance, which is
improper.
Barrie School v. Patch (2007) [Liquidated Damages]
Andrew and Pamela Patch enrolled their daughter in The Barrie School for the 2004-2005 academic year
and agreed to a re-enrollment contract with a liquidated damages clause. They withdrew their daughter after
the deadline, refused to pay the remaining tuition, and demanded a refund of their deposit. The School sued
for breach of contract.
●​ Issue: In Maryland, does a nonbreaching party have a duty to mitigate damages if the parties agree
to a valid liquidated-damages sum in the event of a contract breach?
●​ Rule: In Maryland, a nonbreaching party has no duty to mitigate damages if the parties agree to a
valid liquidated-damages sum in the event of a contract breach.
●​ Holding: No
○​ The court reasoned that liquidated damages clauses replace the need to determine actual
damages and thus eliminate the duty to mitigate. The agreed-upon sum is binding and
precludes further inquiry into actual damages or mitigation efforts.
RIGHTS & DUTIES OF THIRD PARTIES
●​ Third Party Beneficiaries
○​ Express Beneficiaries
■​ Named in contract
■​ Has a right to enforce contract
●​ Contract expressly states they are to benefit
○​ Ex: Life insurance contracts
○​ Intended Beneficiaries
■​ Parties intended to confer benefit to third party
■​ Intended Beneficiaries [§302]
●​ 1) Recognition of a right must be appropriate to effectuate the intention of the
parties, AND
●​ 2) Circumstances indicate that the promisee intends to give the beneficiary the
benefit of the promised performance (or satisfaction of an obligation)
○​ Incidental Beneficiaries
■​ Party not intended, no legal rights
■​ Restatement (2d) § 302(2)
●​ An incidental beneficiary is a beneficiary who is not an intended beneficiary
○​ Were they intended to benefit, or is it just a coincidence they benefit?
●​ Assignment
○​ Transfer of Rights
■​ Assignment [§317]
●​ Transfer of:
○​ Right under contract to receive performance
●​ Extinguishes:
○​ Transferor’s right to receive performance
●​ Limited by:
○​ a) Public policy or statute
○​ b) If it materially changes or alters contract terms
■​ Material adverse effect on obligor’s duty
■​ Increases obligor’s risk/chance of obtaining return performance
○​ b) Precluded by contract
■​ Valid Assignment [§317(1)]
●​ 1) The assignor must make clear his intention to relinquish the right to the
assignee, and
●​ 2) The assignor doesn’t retain any control or right, and cannot revoke
■​ UCC
●​ Assignment is a permissible incident of a contract for sale of goods [§2-210(1)]
●​ Delegation
○​ Transfer of Duties
■​ Does not extinguish transferor’s obligations, unless otherwise agreed
■​ Restatement (2d) § 318
●​ Transfer of:
○​ Duty to render performance
●​ Extinguishes:
○​ Nothing, delagor still has original duty
■​ Unless otherwise agreed
○​ Obligee can enforce against original obligor or delegate
●​ Limited by:
○​ a) Public policy
○​ b) Contract terms
○​ c) Substantial interest of obligee in receiving performance from obligor
■​ Ex: Personal Services
■​ UCC
●​ Delegation is a permissible incident of a contract for sale of goods [§2-210(1)]
●​ [UCC §2-210(1)]
○​ Delegation is allowed unless otherwise agreed
■​ Unless substantial interest in obligor performing
○​ Does not relieve delegating party of duty to perform
■​ Can still be held liable for breach
RIGHTS & DUTIES OF THIRD PARTIES CASES
Voghan v. Hayes Appraisal Associates, Inc. (1999) [Intended Beneficiaries]
The Vogans hired a contractor to build a home and obtained a loan from MidAmerica Savings Bank, which
contracted Hayes Appraisal Associates to monitor construction progress. The Vogans sued Hayes for
negligent performance after the contractor defaulted.
●​ Issue: Can an intended third-party beneficiary of a contract recover damages for special
circumstances that arise during performance of the contract?
●​ Rule: An intended third-party beneficiary of a contract may recover damages for special
circumstances that arise during performance of the contract.
●​ Holding: Yes
○​ The court reasoned that the Vogans were intended third-party beneficiaries because the
contract and progress reports indicated that MidAmerica intended to benefit the Vogans. The
court also applied the rule from Hadley v. Baxendale to determine that damages arising from
Hayes's inaccurate reports were foreseeable and thus recoverable.
Chen v. Chen (2006) [Intended Beneficiaries]
Wheamei Chen and Richard Chen divorced and entered into a Property Settlement Agreement requiring
Richard to pay $25 per week in child support to Wheamei for their daughter, Theresa. Despite Richard's
increased income, he never increased the payments. When Theresa turned 18, Wheamei sought
arrearages, and Theresa intervened, claiming she was a third-party beneficiary.
●​ Issue: Does a child have standing to seek the specific dollars one parent owes to the other for the
child’s generalized support pursuant to a separation agreement, absent special circumstances?
●​ Rule: A child does not have standing to seek the specific dollars one parent owes to the other for the
child’s generalized support pursuant to a separation agreement, absent special circumstances.
●​ Holding: No
○​ The court reasoned that the Agreement did not express an intention to designate Theresa as
an intended beneficiary of the child support payments. Child support payments are meant to
be managed by the custodial parent, who is better situated to decide how to use the funds for
the child's benefit.
Herzog v. Irace (1991) [Assignment]
Gary G. Jones was injured in a motorcycle accident and hired Anthony Irace and Donald Lowry to represent
him. Jones later received medical treatment from Dr. John P. Herzog for an unrelated injury and signed a
letter assigning settlement proceeds to Herzog. When Jones received a $20,000 settlement, he instructed
Irace not to pay Herzog, leading Herzog to sue Irace.
●​ 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?
●​ Rule: 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.
●​ Holding: Yes
○​ The court reasoned that Jones' June 14 letter was an effective assignment because it showed
clear intent to relinquish control over the settlement proceeds to Herzog. The court found no
indication that Jones retained control over the funds, and the charges for Herzog's services
were reasonable and necessary. The court also determined that honoring the assignment did
not interfere with Irace's ethical obligations.
Sally Beauty Co. v. Nexxus Products Co. (1986) [Delegation]
In 1979, Best Barber & Beauty Supply Company (Best) entered into an exclusive-distribution agreement with
Nexxus Products Co. (Nexxus). In 1981, Sally Beauty Company, Inc. (Sally) purchased Best and merged the
businesses, leading Nexxus to renounce the agreement because Sally was a wholly owned subsidiary of a
direct competitor. Sally sued Nexxus for breach of contract.
●​ Issue: Does § 2-210 of the Uniform Commercial Code permit delegation of an obligor’s performance
under an exclusive-distribution agreement to a wholly owned subsidiary of a direct competitor without
the obligee’s consent?
●​ Rule: Under § 2-210 of the Uniform Commercial Code, an obligor’s performance under an
exclusive-distribution agreement may not be delegated to the wholly owned subsidiary of a direct
competitor unless the obligee consents.
●​ Holding: No
○​ The court reasoned that the sale of goods was the dominant factor in the agreement, making
the UCC applicable. Under UCC § 2-210, an obligor may delegate its performance unless the
obligee has a substantial interest in having the original obligor perform. Nexxus had a
substantial interest in not having Sally, a subsidiary of a direct competitor, perform under the
contract without its consent.