p. 1 Contracts Outline – Larry Lee
DAMAGES/REMEDIES
Remedy Options: 2 ways to make K legally enforeceable:
1. Specific performance – must complete promise: unique goods, real estate
2. Damages (money)—compensate for no performance
a. Usually law doesn’t punish for more than benefit of K
Damages Generally
1. Farnsworth’s 3 Damage Interests
a. Reliance – return promisee to status quo before K
b. Restitution – get promisee to status quo if promisor has already benefited
c. Expectation – put parties in position as if K had been completed
i. Usually award restitution/reliance if can’t get expectation
Expectation Damages
1. General form = Two point test: wealth if promise performed - wealth b/c it’s not
2. Expectation = correct breach of K damages, Hawkins v. McGee (69), 2R 347
a. Damages from McGee’s = perfect hand – mangled hand + consequential harm
i. Wrong instruction: trial ct. awarded ill effects & pain, not expectancy
b. Hawkins would say: include ‘pain & suffering included in damages’(72)
i. Implicit term of K that McGee would not cause terrible injury
3. Expectancy includes incidental/consequential damages, Nurse v. Barns (UK), 2R 347(b)
a. Facts: Likely “stock laid in” was lost after lessor took back mill
4. Exception: to deter breach, award = [mkt price – K price], Tongish v. Thomas (90)
a. UCC 1-106: = regular lost profits, 2-713: = mkt price – K price
b. Hypo version of case:
i. Tong sells seed to Co-op [at $10 per unit], Coop sells to Bambino [at $10]
ii. Tongish breaches, sells seeds to Thomas [at $15 per hundredwt.]
iii. Damages: T claims = $0 (lost profits) per 1-106; C claims $5 per 2-713
a. Held (93): $5 damages, 2-713 prevails though not actual loss to P
b. Efficient market rationale: deter breach, help Bambino
i. If Tongish doesn’t sell to Coop, Bam always screwed; if Tong = $0
damage, breach if (mkt price > K price); Bam only gets overpriced seed
1. Disrupts chain of commerce b/c Bam would never enter K
ii. Ct. assumes Bam can’t sue Coop b/c K has no set price, volume
1. If relax assumption, case becomes trivially easy
iii. Damage analysis easy: $5 per 1-106, expectancy, if B can sue C:
1. Bamb sues for $5 or to complete K, Co-op buys $15, sell $10 = -$5
c. Adler: motivation behind breach of Kdoesn’t matter
i. Promisee hurt, someone must pay; if both innocent, indifferent who pays
ii. Can’t tell if promisor breaches strategically or b/c earnestly hurt
d. Adler: Tongish ct. doesn’t really distinguish Allied:
i. Allied allowed lost profit damages b/c seller breached non-strategically
1. Wants to deter strategic breach but out for legit. breach (1-106)
ii. But: if price rises, seller always has incentive to breach anyway and
iii. Should always award mkt price – K price, even if crop destroyed:
iv. If seller has option to buy on mkt & sell on contract (if price drops)
1. seller might take advantage of price swings down (buy on the
market, sell at the high price)
p. 2 Contracts Outline – Larry Lee
LIMITATIONS ON DAMAGES
1. Remoteness on Harm
2. Uncertainty of Harm
3. Avoidability of Harm
Remoteness: Hadley, Morrow
• Default rules (= promotion of efficient Ks):
o Hadley = can’t recover damages if too remote or unforeseeable
o Morrow = unusual terms must be explicit (even if damages foreseeable)
• Unusualness: When you hear hoof beats, assume horses, not zebras.
o If parties legally sophisticated & foresee all, then clear that silence = default rule
o If parties unsophisticated, don’t think of contingencies, must interpret implicit
terms or contemplate implicit K from silence – Hadley & Morrow
Hadley v. Baxendale (UK, 102)
1. Hadley rule (105): can’t recover damages on unforeseeable special circumstances
a. Compare: 2 R 351, UCC 2-715; not simple 2-point expectancy test
b. Oddly, Hadley rule not applied well to actual decision!
2. Facts: H sues for lost profits, consequential damages b/c Bax didn’t bring critical
crankshaft on time
3. Hadley wins: unclear if H’s agent clearly told B’s how important delivery was
a. Shows Hadley rule doesn’t apply well to Hadley
4. Agency aside, H could write special K (106), cover damages for special delivery
5. Hadley rule generally efficient for shippers (Hadley) and carriers (Baxen)
a. High risk shippers lose insurance (recover all lost profits), but
i. Incentive to high-risk shippers to identify themselves; low risk packages
(rightly) given less resources – incentives in correct place
b. W/o Hadley, carriers charge high prices on all packages; this inefficient should
have high care for high risk pkg, low w/ low risk – but can still get equillibrium
c. On balance, Hadley default rule better, applies to most shippers & then
transaction costs apply only to special, high-risk shippers
Morrow v. First National (121)
1. Special circumstances must be tacitly agreed to, not just foreseen, stricter than Hadley
2. Facts: M had valuable coins, worried about burglary, called FN Bank for safety deposit
box; coins stolen, bank knew box available before but calls too late, M sues
3. Held: No tacit agreement: bank didn’t agree to assume risk for M’s problems (123)
a. Bank knew M wanted box & didn’t call in time to get safety deposit box
b. Not reas. for bank to insure $30K coins for just $75 (different if M paid $7500)
c. Morrow reconciles w/Hadley unusual terms must be explicit
i. In Hadley, unusual terms = unforeseeable; in Morrow, loss foreseen but
ins. for loss not part of K b/c term = unusual (price too low for ins.)
ii. Morrow correct rule to keep K costs low; think what banks would do if M
had won & banks must implicitly pay for minimum K costs/insurance
Uncertainty of Harm: Dempsey, Anglia, Mistletoe Express
1. In all 3 cases, cts. presume profits = 0, absent evidence
a. All cases reconcile when you plug in presumed amount to expectancy
p. 3 Contracts Outline – Larry Lee
2. $0 profit rule works both ways: get what seem like reliance if profits negative
a. Dempsey – profit likely, but Ct. assume $0, at least recoup losses
b. Anglia, Mistletoe – loss likely, by ct. assumes $0, at least recoup losses
3. Dempsey & Anglia don’t reconcile – Dempsey doesn’t reward pre-K expenses
4. Anglia assumes Anglia TV would have covered expenses if Reed performed
a. But ct. confuses reliance/expectancy by awarding pre-K damages
i. Implies Reed signed & implicitly accepted pre-K expenditures
ii. If Anglia movie stopped w/o breach , ct. wouldn’t make Reed pay (142)
5. Mistletoe: pre-K/ post-K expenses don’t matter if assume $0 profit but looks like reliance
Dempsey (125) - Jack Dempsey cancels on fight, venue, (Coliseum Club) sues
1. Rule: When too speculative, lost profits not recoverable: See 2 R 352 (140)
a. Adler: here, not applied right, ct. unreasonably assume profits = 0
2. No Lost profits: too speculative; can’t tell attendance, can’t figure out damages
a. Adler: this is wrong: some certainty (Dempsey’s popular) of making $
i. Look at comparable fights to determine damages
b. Courts don’t like wild guesses, but here, ct. speculates $0 damages
3. No pre-K expenses: No reliance here b/c promise hasn’t been made yet
a. Damages not from K-breach, nothing to do with expectancy
4. Yes post-K expenses: substitute remedy if established to jury’s satisfaction
5. No damages for compliance attempts: like recovering attorney fees
Anglia TV v. Reed (UK 140) – Reed reneges on TV agreement, TV sues for pre-K expenses
1. Rule: Promisee can recover damages for pre-K expenditures
2. Held: Reliance damages (142-3): D made K & broke, liab b/c breach = wasted expenses
3. **Me: reliance is on K only; if follow $0 profit rule, then pre-K expenses are speculation
on getting the K which promisee spends at his own risk**
Mistletoe v. Locke (143)
1. Rule: Burden to prove profits to get expectancy, not reliance, 2R 349 (144)
a. Here, promisee awarded damages anyway; would lose $ if K completed
2. Facts: L= freight business, spent $ on equipment, M cancels K, L sues for spent $
3. (M) Promisor: L’s expenses wasted despite performance (canceling K helps promisee)
a. Expectancy = proper damages (would be negative), promisee can’t get reliance
4. Ct. (144): promisee can recover reliance, less any expectancy losses promisor can prove
a. Promisor has burden to prove expectancy would < 0; too speculative
5. **Like Bush; default rule to prevent breaching party from saying “I saved you money”
Avoidability of Harm (Mitigation)
• Doctrine: Reasonable steps; if no mitigation, promisor didn’t really cause all the harm
o Breach is not prox. cause of damages from failure to mitigate
• Efficient breach: want to encourage, not overpenalize breacher
• Rst. §350 (P.163): expectancy measure w/ caveat that P can’t needlessly increase costs
• Obligation to mitigate ↓ need to calc. imponderables (think Dempsey & its shortcomings)
o Mitigation obligation exist for simple non-performance too, outside of repudiation
 Ex: seller brings peaches to dock, leaves them there b/c buyer = no show
• Duty to mitigate also depends on how burdensome it is (Parker)
p. 4 Contracts Outline – Larry Lee
Rockingham County v. Luten Bridge (147) – LB worked on bridge after RC rescinded offer
1. Rule: Can’t recover damages not mitigated after K breach (150), 2R 350
a. Better to encourage good incentives & make P mitigate; in interest of all
2. Held: LB can’t recover full expectancy: “damages … need not have been incurred” (150)
a. Damages = ordinary expectancy, pre-repudiation costs + expected profits
3. Here, P only must stop work, mitigation burden not high, trivially easy
a. However, in Rockingham, LB may not have known that K was repudiated
b. Sometimes, non-expectancy reasons not to mitigate (e.g., pressure by workers)
4. **Should mistake as to assent be defense for non-mitigation?**
Shirley Maclaine Parker v. 20th C. Fox (152)
1. Rule: Need not accept inferior/different work as mitigation (154)
2. Facts: Fox had K w/ Parker for $750K to do feminist Bloomer Girl, Fox repudiates,
offers inferior Big Country to mitigate, Parker sues
a. Here, mitigation not as simple as doing nothing; must do other film
3. Held: Parker didn’t have to accept Big as mitigation; no duty to take inferior work (154)
a. Big inferior to Girl: (1) not musical (2) Parker has no control (3) feminist grounds
4. Adler: Was Big really worthless? Both parties better off w/ another damage analysis:
i. Parker gets $750K for Bloomer w/ no cost = $750K pure profit
ii. Parker gets $750K for Big w/ $250K cost = $500K profit
iii. Now, Parker declines Big; or could take it & ask for $250K in damages
iv. So Parker happy, & Fox pays $1M for movie, not $750K for nothing
b. But hard to determine if Big really $250K worse than Bloomer
i. Supports view: cts don’t like to burden Ps w/ mitigation if difficult
ii. Hard to calc. “$250K”what if Big ruins Mac’s career? More damages?
c. Remember, mitigation helps promisor: Fox says Parker should mitigate b/c she’s
no worse off & D better off, have movie even though burden
Neri v. Retail Marine (163): buyer reneges on K for boat; seller mitigates but would have sold 2
1. Lost volume: can recover, even w/ full mitigation, if 2 profits, not 1 UCC 2-708 (169)
a. Here, complications from resale, prepping costs
2. Held: ct. allows seller to recover lost profit, less unrepeated prep costs, to resell boat
3. Analysis: lost-volume case per 2-708, ignore other UCC provisions
a. N promise to pay $12.5K (mkt price/what other buyer paid); boat cost seller $10K
b. Buyer says $0 damages, seller says $2.5K No mitigation in fact, 2-708(2)
i. Neri’s boat not only boat seller had, buyer couldn’t really mitigate
ii. If performed, seller gets $2.5K from buyer and $2.5K from other guy
iii. True expectancy = $2.5K (but if seller only had 1 boat, $0 total mitigation)
4. In calculating damages, don’t double count expenses that are not wasted
a. One time prep: boat price= $10K & one-time prep cost of $500; damages = $2K
b. Repeated prep: $500 prep cost had to be repeated & was thus wasted = $2.5K
p. 5 Contracts Outline – Larry Lee
EXPRESS DAMAGE PROVISIONS
Liquidated Damages (LD)
1. See 2R 356, UCC 2-718 (allows reasonable LD) similar to common law precedent
2. Liquidated damages enforceable if: at time of contracting,
a. Liquidated amount is reasonable estimate compared to actual loss; and
b. Parties reasonably expect calculating actual damages will be difficult
i. Yes: parties use LD to make life easier (reduce litigation costs)
ii. No: parties use LD as massive penalties to prevent breach
3. Otherwise, unenforceable: state should have monopoly on penalties
4. Ex ante approach is law whenever stated precisely
a. Ex post results beyond reas. range may = ev. of ex ante unreas. Wassenaar, 176
b. If damages too big, by accident, even if reas. when K made, ct. may still overturn
5. Reasonableness may be specific to context of breach. Kemble, 174
a. E.g., $5K LD for not performing 1 month job, but if 10 minutes late, LD not fair
6. When enforced, LD logically precludes mitigation
7. **Note: Tongish seems like LD clause**
Express Damages and Efficient Breach
1. Hypo: Abel agrees to paint Baker’s house for $10K, Abel pays $5K LD if breach
a. LD may lock parties into inefficient, bilateral monopoly
b. Assume A’s cost of performance= $12K, another painter = $11K
c. Under expectancy, A efficiently breaches, pays $1K in damages
i. B mitigates, A pays $1K damages & $1K better off (lose $2K if perform)
ii. Incentive to breach, it’s efficient, Abel & Baker both better off
d. Under LD, wasteful performance/ unnecessary renegotiation
i. Incentive to perform, waste $1K, A loses $2K = $1K less wealth in society
ii. Or recontract, waste negotiation costs: A still pays $11K competitor
iii. Criticism of efficient breach theory
1. Baker recontracts under $10K, lets other painter work if < cost of
performing (ex: $9.2K payment = Abel loses $1.8K)
2. W/o penalty, B has no leverage over A; no strategic nego.
2. Posner: LD, even penalty clauses, might be acceptable anyway, Lake River Corp. (186)
a. Competents grownups can decide for selves; know theory, K accordingly
3. Note: penalties & specific performance both = perform even when not efficient
a. Specific performance = ultimate penalty clause
b. Exception: enforce specific performance for sale of land or unique goods
4. Express damages preferable to expectancy to prevent overinvestment
a. Ex: Construction Co. (CC) agrees to build roller coaster for Amusement Park
(AP). CC begins building, AP begins advertises – assume coasters often built late
b. If no LD, CC and AP spend inefficiently, wrong allocation of resources
i. AP spends wildly on advertising, assumes 100% roller coaster will be
complete, sue CC for expectancy if not complete
ii. In turn, CC raises prices to internalize anticipated cost of litigation
c. LD help keep costs optimal
i. AP spends up to LD, won’t act like 100% certain coaster will arrive
ii. If CC knows damages ltd, spend less on building, charge AP less
p. 6 Contracts Outline – Larry Lee
Specific Performance (SP)
1. Generally: granted w/ respect to Ks for real estate or unique personal property
a. Think of SP as extreme LD where breach impossible, not just discouraged
2. Rationale: expectancy calculation specially difficult when item unique
a. Trivial investment in seller’s performance – just hand over good, usually
b. No efficient breach possible, so SP not harmful (so why can’t parties K for SP?)
3. Real Estate: Loveless v. Diehl (217)
a. Facts: D leased farm from Love; lease includes option to buy property; D tried to
sell to Hart (had no money) but Loveless recalled option
b. On appeal, court gave damages in lieu of SP ($1,000 gain on sale to Hart). On
rehearing: granted SP due to improvements Π had made to the property
c. SP doctrine aside, economics/ incentives of Loveless similar to Tongish
d. Also, consider timing of damages: should be as of time of performance
4. Personal Property (UCC 2-716) – must be evaluated
a. Sentimental stereo equipment is unique – Cumbest (223)
i. Ltd SP for personal goods, but ok if goods scarce or unique
b. Collector’s item Corvette not unique – Scholl (226)
i. Deposit doesn’t entitle buyer to SP; must try to cover before asking for SP
c. Limited edition pace car is unique – Sedmark
i. D gets SP b/c car clearly tailored for him
5. SP for personal services not permitted: Impractical to enforce and costly to perform
a. Cts. don’t want to analyze performance of unique services
b. Constitutional prohibition on indentured servitude
6. Negative pledges: enforcing may violate ban on indentured servitude (Ford): other cases
wrong, whether explicit (Lumley) or implied (Duff)
a. Cannot take control of body at all for failure to uphold K
b. Negative pledges can be coercive enough to = indentured servitude
c. But can have non-compete agreements – must be limited to stop damage to P
i. Most jurisdictions enforce negative pledge if narrow
ii. May not enforce even narrow pledge if no apparent damage to employer
(e.g., enjoining a janitor from working as a janitor elsewhere)
7. Lumley v. Wagner (UK 1852, 240): Ct. says OK to demand SP injunction not to sing
(can’t make Wagner sing, but can stop her from singing)
8. Ford v. Jermon (1865, 245) Rejects Lumley = enjoining D same as forcing action
9. Duff v. Russell (1891): Is this exclusive contract? Apparently considered so?
10. Lumley & Ford don’t reconcile, really
p. 7 Contracts Outline – Larry Lee
RESTITUTION AND QUASI CONTRACTS
Restitution
Generally: can allow breaching party to sue, but strong limits (LD, restitution)
1. Rule: breaching party can’t ask for expectancy, just restitution, Bush v. Canfield (279)
a. Can’t make non-breaching party worse off than before K (Britton rule as well)
2. Facts: Canfield agrees to sell wheat flour to Bush for $14K, $5K paid on deposit, at time
of delivery flour worth $11K, Canfield fails to perform and Bush sues
a. Bush asks for restitution, damages = $5K (get back deposit)
b. Canfield ask for expectancy, damages = $2K ($11K - $9K), return $2K deposit
i. C: I saved B money, if I didn’t breach, B would have lost money
3. Easy rule but unintended consequence: may stop efficient breach:
a. Abel = plumber, signs on w/ Contactor for $20 per period
b. Plumbers flood mkt & reduce going rate to $5 per period
c. Abel also electrician, can work for $15 per period (Con doesn’t know this)
i. Key here: conditions change after contract signed
d. Efficient outcome: A works as electrician, society $10 better off
i. Contrctr saves $15 on plumbing, fires Abel, pays $5 for K breach
e. Inefficient outcome under Bush: A keeps working, no one breach
i. If A breaches, gets 0; if Con fires Abel b/c must pay $20 anyway
ii. If A could breach and sue, quits & bills Contractor $15
1. Abel would capture entire $10 surplus (would make $30, not $20)
f. Efficient outcome: Contractor knows Abel makes $15 as electrician
i. Con fires A, A mitigates & only gets $5 (Or: 1st to terminate gets surplus)
ii. Inefficient if Contrctr doesn’t know Abel can do other work
iii. Race to quit/fire may be inefficient if not 100% certain that Abel can get
electrician job; may pay to wait & see
g. Contract modification might also solve inefficiency here
Britton v. Turner (288) – worker has K for $120 a year; quits 3/4ths way thru w/o getting paid
1. Breaching party may get restitution for work completed
a. But if wants restitution, can’t make non-breaching party worse off than under K
i. But expectancy might = right damages anyway
2. Held: despite breach, entitled to restitution, for work done
3. Hypo: L agrees to work 1 year at $30 per Q, after K signed, mkt price ↑ to $50 per Q, L
quits after 3 Qs. Damages:
a. Most aggressive measure of restitution for L: $150 (value conferred by mkt rate.)
b. First level of reduction: $20 (Employer’s loss in 4th Q)
i. Replacement value of labor = $50, thought would pay $30 that Q
c. Second level: $60, can’t exceed K price (292), $60 = [(3*$50) – (3*$30)]
d. So restitution damages = $70 ($150 - $20 - $60)
e. Expectancy damages also = $70 (if breaching party can sue)
i. Employer pays $70 to give L the benefit of bargain; L asks for damages
leave Employer no worse off. After 3 Qs, E has $90 in labor, having paid
nothing, needs to pay $50 to get labor for 4Q; has $70 left to give L
ii. Employee should not recover more than he contracted to receive
1. LD generally overrides restitution, Vines v. Orchard Hills (293)
p. 8 Contracts Outline – Larry Lee
a. Restate not very lucid here, see 2R 374(2) (298)
2. Facts: P asked for $10 payment back, arguing D benefited from K breach
a. Ex: house K price = $100, buyer gives $10, mkt price of house ↑ $200; would be
like D in Bush if buyer asked seller for $100 damages;
• But here, unlike Bush, buyer didn’t strategically breach; merely said
that shouldn’t be LD if breach did no harm to non-breacher
b. LD indicates that seller gets to keep $10
c. Ct. enforced LD; P didn’t get $10, D kept $10 + high price of house
• Said buyer didn’t prove seller wasn’t harmed by breach (rise in house
price occurred at time of trial, not breach)
3. Adler disturbed: ct. takes ex post view, denies seller’s ex post benefit; LD reasoning odd
(if house price ↓; then clear seller shd keep $10 if buyer breached)
Quasi Contracts
• Implied in fact: real Ks, real bargains that are just not explicit
• Implied in law: not real Ks, legal fictions (obligations) to create certain incentives
o Not really like restitution: Quasi-K doesn’t stop unjust enrichment, but is legal
fiction, “what would parties have agreed to?
o Like tort law; if you breach duty, I get paid; if you provide benefit, I pay
Cotnam v. Wisdom (298)
1. Rule: cts. enforce K implied-in-law to provide incentives for some goods
a. Implied-in-law K when negotiation impossible
2. Facts: Wisdom (doctor-bystander) gives medical services to accident victim, dies anyway
3. Ct implies K, doctor gets to reasonable compensation for services rendered
a. Decedent’s estate argues case = “simple” restitution, no value conferred in end
i. Doctor: even w/ restitution, measure value of svcs before outcome
ii. Decedent: On ex ante, obligation too high, value = decedent’s life
4. Policy: no assumption doctor makes gift of services (though this is plausible outcome)
a. Why: high risk that bad doctors won’t help victims if they can’t collect
Martin v. Little Brown
1. Rule: custom can determine whether K implied or not
2. Facts: Martin, unsolicited, informs LB of 3rd party’s plagiarism; sues for payment
3. Held: no K, b/c price term not explicit – don’t know what LB owes Martin
a. If even implied K, would have at least discussed price
b. Different outcome if LB had general offer to bounty hunters at large to catch
plagiarism, bounty hunters get 1/3 of damages from plagiarist
4. Hypo: Retaining wall hypo, but neighbor home. You’re going to hardware store for
supplies to fix your own wall. You ask him if he wants you to fix his wall, too. He says
yes, & you send him bill for supplies and labor. Do you get money?
a. Supplies, almost certainly – unlikely gift among neighbors
b. Labor, probably not – common gift among neighbors
c. [If neighbor weren’t home, assume law applies Cotnam]
d. Change hypo: Bob lives 2 blocks away from Bill & is professional landscaper; he
asks Bill if he wants retaining wall fixed
p. 9 Contracts Outline – Larry Lee
CONSIDERATION
Consideration, Pre-existing duty, reliance, promissory estoppel
Doctrine of Consideration (Adler thinks it’s ridiculous, not necessary)
1. Consideration = bargained-for exchange, 2R 17, 2R 71
a. K not enforceable w/o consideration, w/ some exceptions
i. 2R 90: charitable subscription enforceable, even w/o PE
b. Trying to determine if there was bargain (sometimes have promise w/o bargain)
2. K binding even if consideration values not equal (Barnett says “peppercorn” sufficient)
a. Adler: ask if parties really get something from one another, even if no value
b. UCC requires no consideration (but only applies to sale of goods)
3. “Condition” must really bind to = sufficient consideration, Johnson v. Otterbein (655)
a. Facts: Johnson promised gift if Univ. used it to repay debt; U didn’t spend more
on debt, J didn’t give gift, and U sued
b. Held: no consideration to for Johnson’s promise, b/c U didn’t have to do anything
i. Doesn’t matter that Johnson received no money/value in exchange
ii. Adler: Given doctrine of consideration exists, correctly decided
c. J’s offer enforceable if U must make debt priority, spend more on it than J gave
i. Ex. J gives $100 if U spends $50 of its own on debt = real oppty cost
4. Consideration need not be pecuniary or tangible, Hamer v. Sidway (658)
a. Facts: Uncle promises nephew $5K if nephew straightened up; ct. said this is
supported by consideration once nephew accepted by performance.
i. True bargain (nephew not choir boy, actually gave something up)
ii. Like unilateral-K: assent through performance, “lost dog reward”
Pre-existing duty rule
1. Generally: No modification w/o consideration
a. Posner: best not to require consideration but allow duress defense
2. Doctrinal Uncertainty (see Economic Model, below, explains uncertainty)
a. 2R 89: Requires consideration for modification, w/ 3 exceptions:
i. Changed Circumstances (e.g., Brian Construction)
ii. Statute
iii. Reliance – but rule begs question: “reasonable reliance” depends on if
promisor who extracts higher wage = reasonable or coercive
b. UCC 2-209: modification doesn’t require consideration, but must be good faith
i. Focus shifts to whether concession was coerced
3. No modification enforced for already contracted-for work, Stilk v. Myrick
a. Can’t say “I didn’t breach K, so give me more money”
b. Facts: 2 sailors desert, other sailors were offered, took extra pay not to leave;
when they get to port, captain doesn’t give extra pay, sailors sue
c. Held: K includes implicit term to work in emergencies; desertion = emergency
d. Modified K binding if: in original K, sailors each agreed to do one sailor’s work
i. Valid modification of K = must also do work of 2 deserted sailors
ii. OR captain needlessly made work harder, not part of K
4. Alaska Packers v. Domenico (689)
a. Facts: similar to Stilk, captain promised more wages b/c sailors demanded more
pay, claiming bad fishing nets
i. Sailors paid per fish, so bad nets = less pay, then capt. breached K
ii. If fishing nets bad, then catching fish was not preexisting duty
p. 10 Contracts Outline – Larry Lee
b. Held: modification not binding; ct. found nets serviceable
5. Unforeseen circumstances may justify modification Brian Construction v. Brighenti
a. Facts: Sub agrees to clear rubbleless site but unexpectedly finds piles of rubble
b. Held: modification enforced b/c rubble not in original K, Sub could walk away
i. Different than Stilk & Alaska Packers b/c factfinder found rubble an
excuse for performance on the original K
ii. Oddity: here, person claiming there was K made concession
c. **Like mutual mistake cases (see Sherwood v. Walker)**
6. Economics Model
a. Consideration for mod. doesn’t matter if: (1) damages fully compensatory
(&always measureable) & (2) Promisor fully solvent
i. Promisee would never make concession, just always sue Promisor
b. Consideration for mod. may matter if assumptions relaxed (full compensation and
full solvency) & assume that consideration is required
i. C = cost of performance, W = wage, A = total assets, L = Liability
1. Promisor perform and nets W – C
2. Promisor breaches and loses min (A,L)
ii. Generally, Promisor performs when C < W + min (A,L)
1. When penalty higher than profits (wage – cost of performance)
iii. But can have inefficient breach that can’t be renegotiated
1. When cost of performance higher than likely penalty
iv. If promisor knows modifications not enforceable, will walk away
v. Modification w/o consideration enforced when: cost of promisor’s work >
than initially expected, b/c overall, may be less efficient (e.g, getting
fisherman to fish; no production = loss of efficiency)
c. Can induce performance, stop inefficient breach by relaxing requirement of
consideration for mod.
i. Again, let C = 15, W = 1, A = 10, L = 100
1. C < W + min (A,L); 15 > 1 + 10
ii. But here, if Promisee offers wage > 4, can induce performance
d. BUT, relaxing consideration requirement, Promisor may hold out for higher
wage, could inefficiently reduce return to Promisee
i. May explain shape of Restatement & UCC
ii. But is Promisor’s threat not to perform credible? Not always
1. Compare sterile “one-shot” work K (incentive to breach)
2. vs. increasing incentive to perform (fish swim by, more each hour)
Adler: what cts are doing w/ ambiguous, follows this pattern:
Consideration
Required
Consideration
Not Required
Low Promisor Cost
GOOD
(no incentive to leave,
exploit)
BAD
(fishermen renegotiate,
extort captain’s profit)
High Promisor Cost
BAD
(no fishing; won’t
continue)
GOOD
(promisors still perform)
Promissory Estoppel (PE)
1. Generally: if promisee relies on gratuitous promise, binding, see 2R 90 (811)
2. Adler: Should be no doctrine of consideration (UCC has no consideration doc)
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3.
4.
5.
6.
7.
a. Cts use PE as crutch: PE exists to enforce gratuitous promises; but mostly, cts use
when there is a bargain: e.g., Drennan
i. If offer revoked before accept, no K – Baird
Consider Johns v. Otterbein University in light of 2R 90
a. Univ. might reasonably have relied on promise (this is a bit circular)
b. “Charitable subscription” binds regardless of actual reliance “real” PE
Ex: Abel promises to paint Baker’s house as gift. In response, Baker declines to hire
painter for $15. A reneges, B can’t find replacement for less than $20.
a. A likely would be “estopped” from denying consideration
b. B’s damages likely $5 in reliance, not $20 in expectancy
Terms of Bargain
a. Many cases decided under the heading of PE better understood as K case
b. Adler: construction cases below not really PE or reliance
James Baird v. Gimbel (784)
a. Held: no K, no PE
b. Facts: Subcontractor submits low bid based on miscalc of job’s specs. Relying on
Sub’s bid, Con submits low general bid that is accepted
i. Before communication btwn Con & Sub, Sub withdraws bid
c. Sub argues: an offer maybe rescinded until accepted
d. Con replies: Sub’s K accepted if Contractor gets job
e. But Ct (Hand) accept’s Sub’s view: Con accepted offer too late
i. Accepts theoretical plausibility of K as Con describes (785):
ii. Had Hand accepted Con’s view, “reliance” would merely have been
means of acceptance, not independent ground for recovery
Drennan v. Star Paving (788)
a. Opposite holding of Baird w/ similar facts (miscalc = low bid): Yes, PE
i. Sub realized & wanted that its low bid be include in Con’s bid, 791
ii. Not like Baird: Sub didn’t rescind offer, Baird would rule same way
b. Adler: this is K case, not PE. No gratuitous promise here
i. Refers to 2R 45 (790) on revocation: if “accept thru performance” offer,
offeree can’t revoke (But was this Sub’s bid?)
ii. K binds two-ways: Con may not get better price (PE one-way), 792
iii. Expectancy damages: difference btwn offer price, substitute perfor.
c. Expectancy Hypo: Con’s bid wins = $25K above cost. Reliance damage?
i. $0 arguably, no reliance (orig. bid $100K, another sub costs $75K)
ii. On same theory, reliance positive only if Con won K should have lost
(Consider other theories, e.g., Contractor loses money on winning K)
d. If reliance case, why not assume lost profits = 0?
i. What would the Con’s bid had been if Sub hadn’t made low bid?
1. Can’t calc. reliance w/o that question
2. Ct. didn’t treat as PE case, so they don’t ask these questions.
3. Sub implicitly allowed assent by Con who used Sub’s bid in his
own; expectancy = what price Con supposed to get from Sub –
what price Sub actually charged after clearing up mistake
4. Would Con be required to use Sub’s bid if it submits it?
Goodman v. Dicker (798)
1. Unreasonable reliance not compensated (i.e., promise by agent of Promisor)
a. Held: can recover reliance but not expectancy damages
p. 12 Contracts Outline – Larry Lee
b. Again, this is a K situation, not real PE
2. Facts: Distributors “represented” that Retailer had received an Emerson franchise. This
proved false; Retailer claimed reliance damages and lost profits
a. Matters that person making representation was Emerson distributor
b. Relationship made plausible that representation was a real promise
3. Held: Retailer can recover reliance but not expectancy damages
a. Key: Dist. made promise, not Mfr; Dist. not an authorized agent of Mfr
i. If Mfr made promise, there would have been enforceable K
b. Ct. awards reliance: b/c Distrib. encouraged Retailer to buy things (799)
c. No lost profits: too speculative b/c Emerson’s right to terminate “at will”
i. But not necessarily impossible to recover
4. Or: agreement = implicit consideration & remedy; reliance refunded, nothing else
5. Hypo: unreasonable reliance not compensated, depends on reasonability
a. No PE: NYU prof offers to let software developer sell under Microsoft name,
developer buys things in reliance, no PE
i. More likely to win if NYU prof was former MSFT exec.
ii. But even if prof makes K to deliver MSFT name, no PE – unclear who
would win (here Prof need not be real agent)
1. Also, Prof gets no bargained-for exchange this bargain
Hoffman v. Red Owl (800)
1. Retailer not awarded expectancy b/c no bargain found
a. Ct. says this is PE, not breach of K, so no expectancy
b. Adler: ruling incoherent; not PE case, whatever ct says
2. Facts: Retailer wanted franchise, relied on franchise, self
3. Ct. says that damages under PE are limited to those necessary to prevent injustice and
that justice doesn’t require expectancy (810)
4. Ct. says missing terms = evidence of no agreement, (no K, no expectancy)
a. Didn’t analyze explicitly as K supported by consideration:
b. Not like Goodman, b/c retailer dealt directly w/ franchise owner
i. Still bargaining, no K, so no reasonable reliance
c. Adler: Ct. can supply missing terms and, if uncertain, award reliance on K, can
presume zero (non-negative) profits, see 2R 349 (139)
i. Ct. too lazy to figure out actual K actually?
d. Or might say implicit bargain included recovery for reliance if no K made
5. Adler: No PE, owner’s promise was exchange, made Retailer’s reliance reasonabl
a. D says no agreement (807), no bargain-exchange b/c Retailer made concessions,
not clear what he gets back – nothing tangible
6. Clearer to use K analysis, not PE (gratuitous promises aside), to determine if reasonable
for promisor to expect reliance & to determine proper remedy
a. Adler: same damages under PE or K, but awarding one or other may leave you
worse off (if Drennan used PE for damages)
7. Ct’s damages analysis of Wautoma grocery incoherent
a. Market price includes full value of store [theoretically]
b. Difference btwn mkt value & sales value incl. lost profits from summer tourists
c. Ex: Hoffman’s argument: bought Wautoma for $10, sold for $8, so wants $2 for
loss + $1.50 for loss for selling before lucrative summer
p. 13 Contracts Outline – Larry Lee
MUTUAL ASSENT
Introduction to Offer and Acceptance (UCC 2-206)
• Easiest way to determine if parties made agreement: look at whether one party made offer
w/ certain terms, & whether other accepted on those terms
• One way to be sure of mutual assent to terms is to examine offer and acceptance
• Adler: Meeting of Minds not, in general sense, required for K formation
• Lucy & Braunstein = objective assent matters
The Objective Theory of Assent
Dickenson v. Dodds
1. Rule: Offeror can revoke until acceptance (unless consideration for option, UCC 2-205)
a. Also, actions = implicit revocation, see 2R 43, Texaco: “reliable” info of revoke
2. Facts: Dodds offers Dick house for $800, promise to keep offer Fri.; Dodd changes mind,
Dick tries to tenders acceptance before deadline
a. Dick: Dodd promised to leave offer open (but no consideration for option)
i. And I accepted before Dodd revoked (but knew Dodd didn’t want to sell)
3. Held: K not enforceable, Dodds can revoke
a. 2 Ks here: (1) keep offer open (no consideration) (2) to execute sales K
Embry v. Hargadine (334)
1. Objective assent binds, not hidden, subjective intent (338)
2. Facts: Embry said “renew or I quit” after repeated asking for renewal K, McK said “Go
ahead, you’re all right” (335); Fired Embry, who sues; what did they agree to?
a. Embry: McK said “Go ahead, you’re all right…” (335) = objective assent
b. McK: “I have not time to take it up now” (335); I don’t accept, go back to work
c. Jury believed E: no RP would construe McK’s reply as other than consent (340)
3. Even if jury didn’t believe McKittrick, how else could he win?
a. Basically McK was hiding under his desk – trying to avoid Embry
b. Embry interpreted McK: will quit w/o renewal – to Embry this removes
ambiguity (didn’t say, “I’d like another year,” he said, “I quit if you don’t renew”)
Lucy v. Zehmer (342)
1. “Joking K” enforced b/c enough evidence of objective assent (See 2R 19 on assent)
2. Facts: Zehmer wrote joke K, sold house to Lucy, who accepted, got ct. to enforce
3. Ev: 40 min. talk, Lucy objected to 1st draft, Mrs Z signed, title provision, etc, 348
a. Key: signed writing, whether or not a joke
4. Ultimately, doesn’t matter if parties mutually intended to have agreed on sale b/c:
a. Assent: Lucy assented, reasonably interpreted Zehmer actions= assent
b. For valid K, must show promisor objectively seemed to take K seriously, &
promisee actually took it seriously
U.S. v. Braunstein (352)
1. No K when assent ambiguous, by silence: mistaken offers,
2. Facts: Pearl offer $.10/lb; in response, Gov’t “accepts” $.10/box offer = $.04/lb
3. Rule: reply w/ different terms from offer= counteroffer; initial offeror may accept
a. Pearl expected to have known $.04/lb offer not intended
b. But by same reasoning, Pearl should know Gov’t accepted Pearl’s $.10/lb
i. No RP would make such counter-offer, had to be accepting $.10/lb
p. 14 Contracts Outline – Larry Lee
4. Ct wants to avoid interp of K formation, esp. when error by party seeking enforce
a. Adler: good reason badly applied – we really know mistake occurred
5. Not clear how far this reasoning goes however. Ex: this likely enforceable K:
a. Offer: My car for $1K; Reply: I accept offer of car for 1,000 ‘dolars’
OFFER TO BE BOUND
Existence of an Offer & Ambiguous Terms
1. 2R 24 defines offer: “manifestation of willingness to enter bargain … to justify another
person in understanding that his assent to bargain invited & concludes”
2. Often, std. argument that offer not intended b/c crucial terms missing
a. But few terms truly essential for enforceable K.
b. 2R 33, UCC 2-204: Terms must say how to determine breach & remedy
i. Under UCC, following missing terms can be imputed: Price (2-305),
Place of Delivery (2-308), Time for Performance, (2-309)
3. Advertisement is not an offer: Nebraska Seed (356) – insufficient terms for K
a. Facts: Offeror sent letter: “I want $2.25 per cwt of seed, I have 1800 lbs”
b. Ruling: Missing terms can be supplied, if offer intended, but absence of terms
may be ev. = no offer intended. See 2R 33(3)
i. Ct. won’t supply qty term: essential for making remedy for breach
ii. Also, context suggested advertisement rather than offer
1. If context different (I offer to sell you), then would have K
c. BUT: indefinite qty may be enforceable K, (e.g., output or requirements K)
i. Could argue Nebraska offered whole output if reasonable (not 1 million
units), assume RP means not all, but ~ what promised in K
Agreements to Agree
1. Enforceability turns on same issues as determining if offer reas. interpreted as assent
a. I.e., is there enough to justify RP’s belief that K formed by mutual assent
2. Hypo: Abel and Baker sign this letter: “A hereby agrees in principle to sell her paint
business, and B agrees to buy same, for $100K subject to further definitive agreement”
a. Enough for completed K? May be agreement to negotiate (in good faith); Hard
to say when negotiations not in good faith; cts. may also impute terms
b. Later, dispute arises as to whether sale = cash or credit
c. B wants ct. to settle dispute & enforce K. A wants out
i. B says ct. cal fill gap in K (ambiguity if cash or credit)
3. Abel’s arguments: “In principle” and “subject to” suggest no agreement on all terms
a. Too brief for $100K sale, expect details: finance, time of delivery, etc.
b. Empro (362): says no K until final agreement (also, buyer left himself outs)
c. No comma after “$100K” implies even price is subject to further agreemt
4. Baker’s arg: “In prin.,” “subject to” suggest later negotiation on add’l or different terms
a. Texaco (366): allows enforceable agreemt, gap filling w/o explicit terms, even if
terms contemplated in expected much longer memorialization
b. “Subject to” = might later agree on more things, but agree to all else
5. Abel’s rejoinder: Too many ambiguous words, one party doesn’t want binding K
a. “In prin.” = “not really,” if it’s not redundant w/ “subject to,” converts grammar
of indicative terms to subjective or hypothetical, despite Texaco
6. Baker’s rejoinder: Why sign written agreement, then, if K not binding?
7. Answer to Baker: reasonable people write things & sign even if no intent to be bound:
writing, signing = environment for good further negotiations
p. 15 Contracts Outline – Larry Lee
TERMS OF ACCEPTANCE
Terms of Acceptance in General
• When cts look at signed document, don’t look at offer-acceptance but if there was K
Means of Acceptance
1. In general, 2R 63, 66: acceptance occurs when it leaves offeree’s hands
a. Manifestation of mutual assent by offer: must accept way offeror wants
2. Mailbox rule: you accept when you put letter in mail, not when it arrives
a. May be irrelevant w/ internet
b. Exception: options K not accepted until offeror receives
i. Timing critical: K exploits price change, mail arrival unpredictable
ii. Adler: unclear what scenarios make this necessary (financial options Ks
not done by mail) – when would offeror get screwed?
3. Offeror = master of means of acceptance, if reasonable: 2R 65
Acceptance by Silence
1. Offeror can’t unilaterally impose obligation of rejection on offeree (2R 69 383)
a. Can’t send unsolicited letter saying “you accept unless you write back”
b. But if you get unsolicited item & use, may have K and must pay
2. But consider Hobbs (382)
a. Rule: Offeree’s conduct can establish implicit assent by silence
b. Facts: P had sent D eelskins 5 times before, accepted & paid (383)
c. Held: accept by silence b/c previous relationship, D didn’t return goods
d. Holding not inconsistent w/ 2R 69, depending on what unilateral means
i. If “unilateral” = 1st time relationship, then this case not unilateral, not 1st
time, but history of transactions, like CD club contract
ii. Consumers protected more: if consumer, D would win this case
iii. If merchants, law tries not to force them into legal formalities
3. The Restat provides specific applications of principle
a. 2R 69(1)(a), (c) & (2): can accept by taking benefit of svcs, goods
b. If rejection not burdensome, then silence can be = assent
i. Ex: You starting painting my house and I say nothing
ii. You send sample model plane, returnable by mail for free
1. No assent if I throw away, mail; assent if I use it
c. If rejection burdensome, then silence is not assent
4. 2R 69(1)(b): provides (likely trivial) category for actual assent even when law wouldn’t
presume assent by silence: trivial b/c of proof difficulties
Acceptance by Performance and Unilateral Ks ( 2R 45, 50)
1. Adler: book doesn’t show 2 distinct ideas: uni-K = subset of accept by perform
2. Offer permits, or is deemed to permit, acceptance by full or partial performance
3. In general, so-called “Unilateral-K” = accept by full performance
a. Classic example: lost dog reward – offer compensates for result, not effort
i. Note that don’t need consideration for option-K here if offeree shows he
burdened self only to look for dog (rented car, took day off of work)
b. K never executory on both sides – thus, unilateral
4. If offeror doesn’t know offeree has performed K, offeree must reason try to notify or
offeror can renege (unless offeror learns of performance in reasonable time)
p. 16 Contracts Outline – Larry Lee
Crook v. Cowan (405)
1. Vendor’s Arguments:
a. Customer’s order = acceptance of Vendor’s general offer to sell carpets
i. But no such vendor offer generally assumed. See Nebraska Seed
b. Vendor’s shipment = acceptance of Customer’s order
c. Customer letter unequivocal about wanting carpets (cts can fill price term)
2. Customer’s response:
a. Unreasonable for Vend to interpret Cust’s offer as accepted by perform
i. Performance would take considerable time
ii. Vendor would have unwarranted option during that period
iii. Should not have interpreted Customer’s offer as uni-K
3. Vendor’s rejoinder:
a. Offer leaves very little room for interp. regarding existence of such option: “You
can forward [the rugs] … or else, advise me of the cost” (406)
b. In any case, “Express is as speedy as the mail” (409-10)
4. Cust’s reply: Easier for Vend answer letter than Cust call Express every day (411)
a. Cust can’t deal well seemingly unambiguous terms of letter, even in 21st C where
Vend could have emailed or called
5. Ct: Vendor’s slow reply to Cust’s worried telegraph irrelevant: K formed by Cust’s
unconditional offer
a. But Vendor’s reply might be required in duty akin to mitigation – Duty, b/c easy
to send telegram (cheap) to notify Cust. that carpets arrived
White v. Corlies (401)
1. If offeree starts performing uni-K, & =burden, must keep offer open, 2R 45
a. But ct. holds there’s no K here
2. Facts: D merchant wants offices redone, sends K to builder, P; P gets note saying, “upon
agreement… begin at once” to fit up offices, builder buys supplies for job
3. Ct. assumes no K (unclear why) from exchanges of plans, estimates thru Sept. 28
a. Adler: Must be K! P signed new “which D assented to” & returned to D
b. Explicit terms of K indicate acceptance by performance
4. Ct. found that there was no K. Why?
a. Purchase & prep of lumber did not = unambiguous manifestation of assent
b. Easy to prep lumber, not specific to D’s project (could be for any job)
c. No one cared D’s note said “upon agreement,” meant P should have sent letter
back first, & was no assent by performance
5. Issue: acceptance by performance depends on if there was manifestation of assent
a. Doesn’t seem = unilateral K case at all, ct. does not analyze it as such
i. = Bilateral K, b/c unilateral K, must complete work to = assent, K
ii. Not “lost dog” case: imagine if P had ripped up office and quit
6. 2R 45: offeree who starts performing has option to complete
a. Cts. adopt rule to avoid “delusion” promise, 416 Petterson dissent
i. Petterson = no K b/c offeror could withdraw at any time
b. If hurts offeree to start & not finish, uni-K = must let offeree to continue
7. Ex: Lost dog case has 2 Ks: Option K, Reward K
a. Assume offer: I say “return lost dog in 2 weeks, get $200,”
b. Option K: I leave offer open if you take efforts, e.g., rent car to find dog
i. Reasonable option K, induce offeree to start work, keep offer open
p. 17 Contracts Outline – Larry Lee
ii. By starting to perform uni-K, offeree enters option K
iii. Option gives reasonable time to complete performance
c. Reward K; if you, then Reward K (pay $200); if you fail, no Reward K
8. Trick is determine what partial performance = reasonable grounds for an option
Longitude Problem Hypo:
1. Facts: In 1714, Parliament offered £20K to solve Longitude Problem
a. Watchmaker J. Harrison began building robust clock suitable for sea travel
2. Hypo: Par. tries to withdraw prize before H tests his clock (very painstaking work)
Could Harrison hold UK to option K, offer for reasonable time? Under 2R 45
a. UK: argues Harrison was watchmaker & invoke White
i. H just making watch, not specific to Longitude Problem
b. H: my work is unique to longitude problem (wouldn’t otherwise work so hard)
c. UK: H can get rich w/o prize, sell to sailors, even if made clock for prize
3. Key: did H do something specific in response to offer to make this option K?
a. H prevails if could show investment beyond amount reasonable w/o prize
The Dangers of Formalism
1. In Petersen (418) & Carlill (388), cts. fail to functionally see correct relationships
2. Peterson vs. Ray-Hof: Ct. fails to notice there are 2 Ks, including Option K
a. Facts: Employer calls Worker in FL, offers job, accepted only if he arrives
Atlanta; Worker goes to Atlanta, later injured in AL
i. Compensation for injury depends on whether employment K made in FL
b. Held: Employer bound by K when Worker left Miami, 2R 45 (421)
c. Ct didn’t see offer was 2 Ks: Worker got option K by leaving FL not full job K
3. Carlill v. Carbolic: Ct. fails to see this as enforceable warranty on completed K
a. NOT unilateral K w/ acceptance through performance (in uni-K offeror wants
performance; Carbolic does not want it here)
b. Facts: £100 reward if flu after smoke; she got flu, Car don’t pay, she sues
c. Held: performance of condition = sufficient (388)
Common Issues in Unilateral and Bilateral K
1. Interpretation issues arise in bilateral K
2. Pumpkin hypo: You offer $50 to anyone who brings “perfect pumpkin”; I try to accept,
tender pumpkin I believe complies; you refuse to pay & I sue
a. On what grounds might you argue that you are not obligated to pay?
i. Request for “perfect” pumpkin too indefinite to = binding K
ii. Even if offer definite enough, must check if pumpkin “perfect”
Interpreting Assent
Empty Terms (vs. Missing Terms)
1. Sometimes missing explicit terms prevent K formation
a. Adler: arguably different from Empro, mere “agreement to agree” =nullity
2. Sometimes, interpret explicit terms as having content or as empty = no K formed
3. In Sun Printing, K seemed to provide terms for price & duration, but not really
Overview: weak connection btwn Sun, New York Iron, Eastern
1. Issue: sufficient terms to make K binding?
2. Sun: seemed like sufficient terms, but actually empty
p. 18 Contracts Outline – Larry Lee
a. Could set price favorable for seller & maintain K (like Raffles/ Peerless)
3. NY Iron: Requirement K seems like empty terms, but depends on buyer
a. If requirement agreement, & seller could only lose, no K
i. I.e. buyer = wholesaler/arbitrageur/naked reseller
b. If buyer = manufacturer w/ inherent constraints, then ct. enforces K
c. Won’t enforce one-sided bargain, won’t grant option for no consideration
d. Could think of this as consideration case, mistake case, etc.
4. Eastern: UCC saves requirements K from “empty promise,” by imputing terms
a. W/o UCC, do NY Iron analysis: if Buyer “naked reseller” then no K; if
inherently constrained manufacturer, then can have K
b. UCC doesn’t care what buyer: terms imputed to Ks, limits fluctuation so demand
can’t be “greatly disproportionate” w/ history, parties’ experience
c. UCC = ostensibly no empty promise problem: buyer still buys if price hurts him,
& no infinite demand if price helps buyer
d. Adler doesn’t like UCC provision: doesn’t say what “disproportionate” means
i. Also not necessary – should stay w/ common law
ii. Leave it to parties – if inherent constraints, no naked reseller
Sun Printing (427) Held: No K for empty, explicit terms (not missing)
1. Key issues: Empty terms = no K? Or enough intent to show K, interpret terms?
a. Sub issue: was K a buyer’s option? Or fixed K?
2. Facts: K for sale of paper includes certain terms for 4 months, uncertain terms for 12,
during which price not to be higher than Canadian Index (427)
3. Buyer’s arguments:
a. I had option to buy at index price if no lower price negotiated
i. K = buyer’s options to leave if price too high or negotiate lower price
ii. Cardozo maybe right: inconsistent if buyer has option & must buy 16K lbs
b. I had right to buy at index price of month or any fixed period
i. Appears seller agreed to monthly index even if, in theory, he may be hurt
ii. Buyer had at least right to interpret deal to seller’s best benefit: buy at
index as price ↑; but no ↓ price for seller as index ↓ (Buyer didn’t say this)
iii. Ergo binding seller to K never put seller in bad position
4. Seller’s interp (and ct’s): mere agreement to agree (vacuous)
a. No qty term: absence of term critical: must agree on price & duration
b. No default period: if monthly, why K say to negotiate on price & period?
c. I could get screwed if use fixed default period (e.g., monthly)
i. If index price ↑ during month, seller screwed at lower price (428)
d. Buyer’s option too convoluted to be in parties’ interest
i. If term for fixed qty, no option; even sympathetic K reading = nonsense
5. Adler thinks buyer correct, there was option:
a. Perverse: seller says “we agreed on fixed qty = K too vague”!!
6. Cardozo voids K: can’t come up w/ fixed time, damages & won’t arbitrarily pick
a. When terms missing, UCC (427) helps cts fill terms; but can’t just fill here
b. Buyer may have had option-K in theory but doesn’t have one here
c. Need price & qty for damages: have neither b/c don’t know interim period
i. Reasonable to use price/qty. for year or reset to index every month – either
allows you to calculation damages
ii. Key: these numbers are different, & K doesn’t say which is right
d. (429) Might say term not missing, but empty = affirms failure to agree
p. 19 Contracts Outline – Larry Lee
7. But circumstances as whole suggest parties’ intent to be bound, thought had K
a. UCC 2-204, like dissent, gives this greater weight than Cardozo
b. Ct. ignored ev. that parties thought they were bound (began delivery, etc)
8. Must be option if buyer to win: can’t say K had fixed price, qty (K never says “option”)
a. Clearly, if use “max price,” binds on seller & not buyer as option
b. Buyer could say “1000 tons” = max option to purchase each month
9. Adler: parties really did think this = option, so qty term has to give way
a. Buyer should have said: yes, can’t tell interim period, but just choose period best
for seller & enforce K: Cardo shd have tried harder to enforce
b. No clean answer here: really close call either way
New York Central Iron Works
1. Requirements K enforceable if not too vague, & Buyer doesn’t exploit Seller
2. Hypo: Seller agrees to furnish Buyer’s requirements of iron for fixed price. Assume
Buyer = iron wholesaler, not radiator manufacturer. Enforceable K?
a. If price ↑, Buyer demand all Seller’s iron; if price ↓, Buyer = no demand
b. So Seller would never enter K, can only lose $$ (similar to Tongish)
3. Buyer-wholesaler = no enforceable K: makes illusory promise to seller. If K so
unreasonable as to be patently unintended, not enforceable.
4. Buyer-manufacturer different: Seller not totally screwed, = reasonable risk
a. If mkt. price ↓, Buyer’s demand ↓ (pays higher iron price than mkt) but demand
not = 0; still must make radiators
b. If price ↑, Buyer’s demand ↑, but has limited capacity to make radiators
Eastern Airlines
1. UCC enforces proportional constraint, whether or not buyer = inherent constraint
a. Adler: Let parties decide, don’t worry for seller – will just charge ↑ price
2. Case relies on UCC 2-306(1): imputes good-faith requirement for output and
requirements Ks, requires qty not disproportionate to estimate or experience
3. But: Neither case nor UCC comment offers much guidance for concrete interp.
a. Shut-down by buyer for lack of orders OK but shut-down to cut losses not
i. Radiators, if you have K & iron price ↓, competitors make cheaper rads.
UCC says you sell below cost, lose $$, can’t ↓ iron purchases
ii. Or cheat: charge cost, take no losses, & claim you have no orders
b. Normal expansion permissible but sudden expansion not
i. Still dribble – if iron ↑, can’t buy more to expand
ii. Parties could but don’t put explicit limits on K, preserve benefits to buyer
who expands, rely on inherent constraints
iii. Don’t cry if seller suffers: if has K w/o constraints, charge ↑ price
Wood v. Lady Duff-Gordon
1. Facts: LDG grants Wood exclusive use of name in exchange for ½ profits; LDG lets
others use name, Wood sues; LDG says Wood = no consideration.
2. Held (Cardozo) – enforces K, imputes duty of reasonable efforts to save K from being
agreement where “one party … placed at the mercy of the other” (442)
a. Case treated like NY Iron: Wood not = reseller, so Cardozo enforces K
3. Cardozo’s verdict correct, reasoning not complete
a. Not necessary to impute duty: explicit terms of K = incentive for Wood to
expend effort – only way he can profit from deal w/ LDG
p. 20 Contracts Outline – Larry Lee
i. Wood’s incentive = work hard to sell, w/o legal duty, so not one-sided K
b. Adler: Even if Cardozo found no implicit term, could still enforce K
i. Cardozo not necessarily wrong; may have been implicit term, but
suggests, w/o implicit term, would not enforce
c. I.e. can enforce K even if Wood could, in good faith, make no effort
i. Could decide LDG’s stuff won’t sell, better for all to = no effort
1. i.e., “good faith” could = no sales based on circumstances
ii. No effort ex post cld be reasonable, & K not w/ consid. ex ante
d. Or might also have told LDG if she wants 50%, not 40%, better not put in legal
obligation to make reasonable effort to sell clothing
e. Uh-oh: litigious society, may say “good faith” = try to sell no matter what
i. Can’t alter duty to exercise good faith by explicit agreement
ii. Ct might still allow lawsuit even if K said explicitly that Wood had no
good faith obligation to sell in good faith
The Role of Subjectivity in Objective Assent Theory
Raffles v. Wichelhaus, Oswald v. Allen
General
1. Role of subjective meaning in objective theory of assent:
a. Encourage parties to dispel misunderstandings
b. Prevent strategic behavior to escape Ks
2. Generally, party can be bound to objective words/ regardless of subjective intent
a. But using subjective meaning need not be inconsistent w/ objective theory
b. Remember: reason for objective theory is to foster reasonable reliance
c. General concern is subjective meaning = strategic behavior to escape Ks
3. 2R 201: If ambiguity/ doubt on K, ignorant party’s meaning controls
a. This aside, actual meeting of minds controls, subjective meaning no matter
b. Doctrine = incentive to rely on K; prefers ignorant, punish knowledgeable, forces
disclosure of info, benefits both sides, = agreement in accord w/ K
c. Rule = efficient flow of info, aids objective theory of assent
d. If I can make clear ambiguity, I must to get my interp enforced in ct
4. When confusion reciprocal, both sides confused, subjective meaning irrelevant:
a. Does no good to pick which of equally confused people should lose
b. Ct. will enforce K if it has reasonable interp by ordinary, objective assent
c. Mostly, ct. won’t enforce K, if at complete loss, no objective way to choose
5. Hypo: Replicar - I own Buick and Replicar, I love my Replicar, I need money
a. At lunch, I offer to “sell you my car for $10K” You accept on the spot
b. Turns out that mkt value of my Replicar is $12K my Buick is $8K
6. Hard to tell if there is K for car sale, (2R 201 would likely say no)
a. Buyer says: Yes K, seller distressed, willing to sell $12K car for $10K,
unreasonable that I would buy $10K car for $8K
b. Seller: No K, he knows I love Replicar, never sell, esp. $12K car for $10K
i. If Seller had driven Replicar to lunch = more ev. he meant to sell it
c. Hard to resolve: each arg. has answer, can’t choose which subjective meaning
i. Don’t know what damages would be; Problem: don’t know mkt value at
time, $10K price not helpful
ii. In theory price can give you answer, but not always, as hypo shows
iii. Be careful: over-rely on price, people escape Ks if don’t like price
p. 21 Contracts Outline – Larry Lee
iv. BUT if price really unreasonable, might be determinative
Raffles v. Wichlehaus (451) Held: no K b/c no reason to prefer one party’s interp over another’s
1. Facts: Seller to sell Buyer cotton on Peerless; 2 Peerlesses, K no say which one, Buyer
doesn’t take cotton
2. Gilmore: should enforce K, not relevant whether cotton on Oct or Dec Peerless
a. Only need to say Peerless b/c if ship sinks, Buyer need not buy (custom)
3. Simpson: don’t enforce K, greatly matters which Peerless
a. Seller can’t promise delivery at certain time, so Ks for ship departures
b. Back then, selecting ship = gamble on arrival time, bet on price of goods
4. Simpson doesn’t like doctrine, worried for seller: would have good K w/ either ship
a. Mkt. price of cotton lower than K price in Dec.; even lower in Oct.
b. Buyer would lose $$ taking shipment on either Peerless, but more on Oct.
i. Dec. price better for Buyer, refuses - uses confusion to get out of K
ii. Buyer knew by choosing Oct., ct. would throw out K for ambiguity
c. Not fair: should give seller damages or at least split damages
5. If ev. showed Buyer was strategic (Simpson thought so), should know 2 Peerless, then
could enforce K – but no ev., so no K
i. Seller shd at least benefit from best ship for buyer
b. But Bush says breaching party can’t sue promisee for savings on breach
i. [But check Bush analysis, why good to have efficient breach]
ii. If Bush weren’t law, Seller says “fine, it was October peerless,” sues
Buyer for $$ saved on breach (damages = Oct.– Dec. price)
6. Relation to Sun: party should be able to claim K on terms, if ambiguous, most favorable
to other party side (here, Seller, says Buyer bound to Oct. price)
a. But imagine clever Seller. Knows if he performed in Oct., as Buyer “wishes,”
Buyer loses $$. Buyer lost less on Dec., seller makes money
b. Reasoning from Sun, Seller tells Buyer, “You choose which Peerless.” After
Buyer chooses, that price in play, & Seller gets damages either way!
i. Again, Bush prevents this; breaching party can’t sue
Oswald v. Allen (463)
1. Facts: Seller = 2 coin collections (Swiss, Rarity), both Swiss; Buyer says “I buy Swiss,”
thought he bought both; Seller refused, said only sold 1 collection
2. Held: no K, can’t resolve ambiguity
3. True that there was no good basis to choose btwn conflicting understandings?
a. Ultimately language difficult makes ruling fair
4. But, language aside, ruling suspect; seems only 2 possibilities as seller sold:
a. Seller right to think Buyer wanted just one set if: Seller showed Buyer 2 clearly
labeled boxes, Swiss & Rarity, and buyer just says “Swiss Coins”
i. But no ev. Seller showed Buyer 2 collections clearly marked
b. Buyer right to say he wanted both if: he never saw boxes or separate collections –
must assume Buyer meant all b/c he didn’t see 2 subsets
i. Also, if Seller knew offer only for Swiss Coins, why didn’t she ask for
offer on Rarity set? This suggests seller knew confusion
ii. Again, language makes honest confusion plausible
p. 22 Contracts Outline – Larry Lee
Importance of Context: Dress case, Chicken case
Hierarchy of Context
1. Common law, implicitly or explicitly, & UCC explicitly, have hierarchy of K
interpretation: (1) Express Terms (2) Course of Performance (3) Course of Dealing (4)
Usage of Trade – what do parties usually mean
a. See 2R 202, UCC 1-205, 2-208
2. But beware: “express terms” not necessarily = “generally prevailing meaning”
a. Ex: Say “Tues” controls over practice of “Wed”
b. Practice may make “midweek” = “Tues” even if general public = “Wed”
i. Here, must move down the hierarchy
3. Generally, look at what would RP in that context have deemed words to mean
a. Look at relationship w/ parties & the trade that they’re in: gives answer in dress
case, possible helpful answer in chicken case
Dress case: Weinberg v. Edelstein
1. Facts: Promisor, lessee, agrees not to sell dresses but does sell “coordinated skirt-blouse
combos” which Promisee claims are “two-piece dresses”
2. Held: No K breach b/c by industry practice, skirt-blouse not a dress
3. Promisee: ensemble that could be made a two-piece dress is one for purposes of K
a. Competition from similar products is precisely what K was designed to prohibit
4. Promisor: Industry distinguishes skirt-blouse combo from 2-piece dress
a. Organization of industry distinguishes skirt-blouse combos from a 2-piece dress
i. Doesn’t matter if consumers can tell difference, but if industry can
b. Only recent “mix-&-matches” trends made products potentially indistinguishable
c. Parts of skirt-blouse may be marketed separately in ways two-piece dresses aren’t
d. Promisor agrees he can’t sell 2-piece dresses b/c can’t mix & match
i. But skirt-blouse combo does compete w/ dresses
5. Ct.: industry meaning of “dress” doesn’t include even coordinated “skirt-blouse” combos
& Promisee held to it (b/c he helped draft language he now says has different meaning)
a. Also, Promisor explicitly has right to sell “skirts & blouses”
b. Finally, the ct. notes a policy against restricting the free use of land
Chicken case: Frigaliment Importing Co.
1. Facts: seller thought chicken = fowl, buyer thought chicken = young bird only
a. Objective meaning & trade use allow either interp (no history – 1st deal)
b. Context of negotiation proved inconclusive (German word didn’t help)
2. Held buyer has burden to show ‘chicken’ = narrow not broad sense, and he didn’t (479)
a. Friendly decides he can’t rely on price to determine correct interp.
b. Didn’t specifically go to subjective meaning, but he does
c. Circular: “what is narrow interp”? This assumes Friendly’s conclusion
3. Why is burden on buyer? Why does Friendly assume broader meaning is better?
a. Generally, narrow descriptions more detailed & less ambiguous than broad
b. Or maybe b/c seller was new to the business & special terms
i. This is probably why Friendly put burden on buyer
ii. If buyer knew seller ignorant & didn’t clarify, shd lose, put burden on him
c. Otherwise, case seems to go vs. idea that narrower meanings control
4. This cases arises b/c parties don’t think about contingency, or consider it & assume term
means what she thinks it means & never occurs to them to be more specific
p. 23 Contracts Outline – Larry Lee
WRITINGS AS EVIDENCE
The Parol Evidence Rule * The Statute of Frauds
The Parol Evidence Rule (PER): 2R 209, 210, 213, 214, 216; UCC 2-202
1. Generally: Rule about whether extrinsic ev. indicates scope of K & earlier agreements
a. DOES NOT exclude oral evidence on Ks
i. Does restrict/limit how testimony of extrinsic ev. is used in interp of K
b. Limiting part of UCC 2-202: terms w/ respect to writing intended as final
expression may not be contradicted by prior writings or oral testimony
c. Can use price to infer scope of argument
2. Hypo: A & B sign this: A agrees fully to landscape GreenAcre (owned by B) according
to attached plans, for which B agrees to pay $10K
a. [Picture of 4 plots to landscape, stapled to the agreement, nothing in center]
3. H: PER probably doesn’t exclude ev of prior agreement for A to sell B A’s car
a. No one expects landscaping K to address car sale; car not in scope of landscape K
b. Brown v Oliver (484) follows this: furniture not in scope of real estate agreement
i. Sale of real estate, buyer said seller intended to sell furniture on property;
seller said not in K, but you assume that if they had prior agreement
ii. Brown harder than hypo: furniture and real estate here more related
iii. Buyer: price of real estate sale included furniture
iv. Adler might have ruled other way, say there is no K
1. There was just single price; K should said price included furniture
2. Buyer never said unwritten furniture K incl. consid. for furniture
4. H: PER arguably excludes ev. of prior agreement to build fountain in center of GreenA?
a. Arguably so, b/c one expects to see fountain in plans if such agreement existed
b. Follows Thompson (482): no parol ev. to show warranty agreement as part of K
c. If K is kind that would include broader agreement & it doesn’t, can’t use it
d. BUT if ct. says K = not writing that would have included broader agreement, then
parol ev. rule does not exclude evidence of additional or broader agreement
i. Think B’s contention of a single price, as noted above regarding Brown
e. Explicit integration clauses: would help A’s arg that parol ev. about fountain
should be excluded (Adler thinks A wins anyway)
i. E.g, “this K completely integrated, covers all btwn parties on GreenA &
prior agreements, oral or written, now invalid”
5. H: PER likely excludes contemporaneous oral ev. that plans apply “only to Plot I”
a. This ex truly about “parol” ev.: compare (but don’t apply ) UCC 2-202
(distinguishes contemporaneous writing and oral testimony) b. If A could convince ct. writing = ambig, then may get into interpretive argument
6. H: PER doesn’t exclude ev. that in past dealings “full” compliance w/ plans meant only
roughly equal amount of work as before
a. This is ordinary interp – this isn’t what parol ev. is about
b. But compare opinions in Pacific Gas and Trident Center on objective meaning
c. Think back to supposed contemporaneous agreement that “applicable to Plot I”
i. Most would apply parol ev. rule, say can’t admit b/c K contradicts oral ev.
ii. Comes down to judge saying, “I don’t believe you”, but no doctrinal lock
iii. Trident Center: K says “no prepayment of loan” but P says “I can prepay”
7. “We really mean it” clauses might have let Trident parties avoid opinion in Pacific Gas
a. “We mean it” terms disclaim meanings based on past practice, other extrinsic ev.
i. Draft around law, can make it easier
p. 24 Contracts Outline – Larry Lee
ii. Then, even Traynor would interpret Trident Center K by plain language
b. “We mean it” makes possible to get meaning from K alone Pacific Gas (491)
8. Partially integrated agreement – some parts of K susceptible to parol ev., & some not
a. Hypo: vague agreement on outside area & specific agreement on inner area
b. B claims agreed to build fountain on general area & one to build on specific part
c. Given lack of info general area, ct may look at parol ev. b/c not enough
d. But probably no parol ev. on fountain on inside – very specific
Traynor against Kozinski
1. Very liberal interpretation of terms might hurt parol ev rule:
a. One party may say can’t include ev. of separate agreement
b. Other party may say just “reinterpret existing K” to get to same place
2. But even Kozinski would agree that meaning of words require context
a. Ex: 2x4 example: everyone in industry knows 2x4s just less than 2” by 4”
3. Kozinski & Traynor likely disagree, however, on how often context alters plain meaning
a. So-called “terms of art” require such alteration; past practice does not
b. Koz worried about interpreting based on what parties did before
i. Koz: b/c of Traynor, CA cts. reinterpret Ks too much; too much noise
about “intent”; too often, victories to who cts. want, not who K supports
c. Ex: K to deliver goods on Wed., but seller keeps bringing on Fri.;
i. Buyer gets fed up and sues on K
ii. Many cts. agree w/ seller, say buyer waived right: this bothers Koz
Statute of Frauds
1. Certain Ks unenforceable unless writing signed by person against whom K is enforced
2. 2R 110 summarizes usual classes of Ks covered; key examples
a. The Land K provision
b. The One-Year provision
c. The UCC 2-201 provision (goods above $500)
3. Note specific exceptions, general “enforcement by virtue of action in reliance” (2R 139)
p. 25 Contracts Outline – Larry Lee
CONSTRUCTIVE TERMS
Material Breach * Mutual & Unilateral Mistake * Impossibility, Impracticability, Frustration
Material Breach and Substantial Performance
1. Generally
a. If “material breach,” breaching party pays for cost of replacement (usually high)
b. If “substantial performance,” breaching party pays mkt diminution (usually low)
c. Interesting problem: how to measure damages, & if there is plausible link btwn
substantial performance & such measure
i. When cost of performing on original K high, ask if these costs are worth it
d. Analysis shows link btwn expectancy damages & implicit/constructive terms
2. Idiosyncractic value: issue is who is telling the truth?
a. Both parties claim expectancy: but which: Replacement value? Or mkt value?
b. Idio. value likely sincere if:
i. Cost of replacement was anticipated
ii. If term is central, not incidental, to K
3. Hypo 1: material breach: actually creates value for promisee (Groves)
a. Abel Ks to renovate B’s trailer on GreenAcre (oceanfront property), for $25K
b. Instead of renovating trailer, A accidentally levels it, requiring $50K of work to
restore trailer & make contracted improvements
c. A says: $0 damages for destroying trailer: I actually ↑ mkt value of property
i. Oceanfront property: small shacks on good land worth less than land w/o
shack b/c a buyer of property must pay to get rid of shack
ii. A probably doesn’t win: Groves, (1014): if material breach, D can’t claim
that performance reduces mkt value
iii. ** Like Bush again? Breacher can’t say “You benefited from breach”**
d. B’s reply: $25K; leveling trailer didn’t ↑ value to me: I contracted for renovation
e. B likely to win & get cost-of-completion damages b/c A’s failure of substan.
perform makes credible B’s claim of idiosyncratic loss from breach
4. Hypo 2: substantial performance makes idiosyncratic value seem unlikely
a. A agrees to landscape GreenA for $25K, plans include “10.5-foot retaining wall.”
b. A builds 10’ wall, requiring $50K to correct error which mkt gives trivial value
c. A’s case stronger than trailer hypo:
i. Substan. perform. makes unlikely B places idiosyncratic value on wall
ii. Hypo 1, credible idio. value: why would B improve worthless shack?
iii. Hypo 2: wall’s height incidental to K, seems like B collecting on A’s error
1. Here, give nominal or small damages
d. But no certainty ex post: just result depends on if B telling the truth
i. If B telling truth (idio value = $1mm), then A must pay replacement value
1. If B puts idio. value on 10.5’ wall, mkt damage= no benefit of barg
ii. If Baker lying & acting strategically, A pays mkt value = little or nominal
5. Promisor pays replacement value unless grossly out of proportion Jacob & Youngs v Kent
a. Facts: Contractor fails to install Reading pipes but uses equal quality Cohoes pipe
b. House owner sues for replacement value – all agree there is breach
c. Held contractor only owed mkt damages, which are almost nothing
d. Issue: ct’s decision begs question, what is “good to be obtained” (977)
e. Compare: 2R 348
6. “Willful breach = replacement value” doctrine deceptive
a. All cases (Jacobs too), promisee says “willful breach”
p. 26 Contracts Outline – Larry Lee
b. Ignore “willfulness”: look at centrality of term, foreseeable cost of replacement
c. Replacement awarded: Groves v. John Wunder (1011)
i. Facts: D supposed to clear worthless industrial land, breached on purpose
ii. Held: Ct. awards cost of completion damages b/c breach was willful
1. Ct. says Jacob & Youngs breach was accidental, not willful
iii. BUT: why didn’t ct. ask about idio value and mkt value? Whether
replacement is a waste depends on idio. value
1. Does seem more true here that P had idio. value than in Jacobs
d. Replacement not awarded ( “willful” doctrine not used): Peevyhouse
i. Facts: Farmer allows CoalCo to stripmine land if they restore it
ii. Coal Co didn’t restore land (costs much to restore); Farmer sues
iii. Ct. held restoration = incidental term of K, doubts idio value to Farmer
1. But facts indicate farmer cared greatly about restoration
e. Under willful breach doctrine, hard to reconcile Peevyhouse w/ Groves & Jacob
i. In Jacob, owner tried to get contractor to perform act NOT explicit in K
1. Tearing down house = unexpected cost; hard to believe (but not
impossible) that owner valued pipe so much, would incur high cost
ii. In Peevyhouse & Groves, promisors tried to breach by not performing
action explicitly contemplated by K (clean land, restore land)
1. More plausible that owners = sincere idio value
7. Specific performance = forces parties to honestly indicate idio value:
a. Dilemma: if always award mkt value = contractors underinvest in making things
right, owners less likely to make agreement
b. If always award replacement, contractors overinvest to get things right
c. Strategic owners claim they want completion but want money
d. Use specific performance (adjust civil procedure) to solve this:
i. Make P take mkt. damages or specific performance & can’t refuse later; if
specific performance, must spend money on completion
ii. Removes strategic behavior: if idio value, owner chooses specific perf.
iii. No waste by strategically behaving owner, ask for mkt. dimunition
e. Similar to efficient breach theory
Mistakes
Mutual Mistake
1. Generally: uncontemplated contingency, if at substance of agreement, negates K
a. Doctrine = attempt to identify implicit terms &, failing that, ask whether to
impute terms that might not in fact be part of (even implicit) agreement
b. 2R (151, 152, 154, 157, 158): give little guidance in hard cases (where assumed
risk unclear), ct. ultimately instructed to do what is “reasonable in circumstances”
c. Adler’s guidelines at imputing terms for mistake cases:
i. Guess at best default rule for mutual contemplation
1. May conclude parties never contemplated but never sure, & once
precedent set, becomes rule when parties not explicit
ii. Determine what rule discourages strategic behavior
1. May conflict w/ best default rule where contemplation is mutual
2. E.g., in Sherwood, assume sellers knowledgeable & buyers not
iii. Encourage efficient ex post behavior
1. Imagine parties really didn’t think of contingency but might later
p. 27 Contracts Outline – Larry Lee
2.
3.
4.
5.
2. If really never contemplated, can let windfall go to whoever OR
make rule to encourage efficient performance
a. E.g., Taylor v. Caldwell music hall people see oily rags,
rule encourages them to pick them up
Sometimes void K, assuming seller is knowledgeable Sherwood v. Walker
a. Facts: K for sale of cow, “Rose 2d of Aberlone” for $80. Both parties assumed it
was barren, but turns out cow is fertile, worth 10x price paid.
i. Seller says K is for sale of barren cow, Buyer says K for sale of Rose
ii. Ct. voids K: mistake went to substance of agreement, assume parties
wouldn’t have made K unless cow was barren
b. Issue: was infertility an implicit condition of K?
i. Perhaps not if the possibility of fertility was contemplated
ii. Maybe parties gave small prob. cow= fertile, adjusted price a bit
iii. Buyer argues price = gamble, bet on low probability cow = fertile
iv. K might have been silent to reflect lack of condition but uncertain
c. If fertility not contemplated, what term should be imputed?
i. Guess at best default rule for mutual contemplation
1. In Sherwood, seems ct. got it wrong
ii. Discourage strategic behavior
1. Sherwood said no K, but why void K instead of just
uncontemplated implicit term?
2. W/ mutual mistake, not necessarily natural to impose implicit term
3. Assumes sellers knowledgeable & buyers not
4. E.g., seller sells infertile cow as fertile, gets high price
a. Remedy = implicit term favoring buyer (warranty)
b. So buyer won’t get hurt even if seller silent
iii. Encourage efficient ex post behavior
1. Not much here for Sherwood
Sometimes opposite result, enforce K, Wood v. Boynton
a. Probably no way to reconcile this case w/ Sherwood
b. Facts: Seller mistakenly parts w/ diamond for $1, buyer prevails
i. Perhaps b/c best guess on contemplation (and thus perhaps best default
rule) is to read silence as a noncondition
c. Strategic behavior by buyer? Ct thought no (if yes, = unilateral mistake, no K)
i. But ct. might also have concluded that best default rule would be one that
favors sellers, protecting from knowledgeable buyers
Enforce K when parties contemplated risk Nester v. Michigan Land
a. Facts: buyer of timbers rights wants to avoid paying seller purchase price b/c
quality & quantity of timber was less than expected.
b. Seller wins b/c parties contemplated risk & gamble was included in price
i. If there was warranty on quality of lumber, it would be explicit
When risk explicitly assigned, enforce K Lenawee Cty. Bd. Of Health
a. Buyer mistakenly agrees to buy worthless land, Seller wins
i. Parties contemplated risk (at least in the general sense)
ii. Explicitly assigned risk to the buyer in an “as is” clause?
b. Even if clause = MM, maybe best rule = silence as non-condition
i. E.g., could say they considered some contingencies, but no idea that risk
assigned was as massive as sewage leak = devaluing land
p. 28 Contracts Outline – Larry Lee
Unilateral Mistake & Duty to Disclose
1. Rule: Mistake releases party from K only if other party should have corrected mistake
a. Doctrine similar to role of subjectivity in objective assent theory (2R 201)
b. But unilateral mistake cases easier to prove: there is fact about world that is
important condition of K which one party is unaware of
2. Can’t take advantage of patent mistake, Tyra v. Cheney
a. Facts: contractor says willing to work for $3,000, but owner knew it was mistake
i. Held: can’t take advantage of “bid” if it is mistake
ii. But ct. didn’t enforce higher bid ($4K) by analogy to 2R 201
iii. This result is consistent, though, w/ 2R 153 and Braunstein
b. Not really unilateral mistake case, more like subjective meaning
i. Mistake not about fact of world but term of K: contractor thought he bid
$4K, owner thought $3K
3. Enforce K if party, thru effort, gets superior knowledge, Laidlaw v Organ
a. Even if party knows other’s mistake!
b. Facts: K for sale of tobacco where buyer knew of Treaty of Ghent (ending War of
1812) but seller didn’t; buyer knew tobacco price ↑ b/c demand ↑ in UK
c. This is not at heart a case of alleged unilateral mistake
d. Common knowledge of every relevant fact is not an implicit condition of K (or no
one could ever profit from information gained, perhaps through effort)
i. Buyer admits he knew seller’s mistake
ii. Normally penalize buyer for withholding info; but here, no duty
e. Ct.’s protect buyer’s information if they took some effort finding it
i. If you must give up advantage of investment in info, may not do K at all
ii. But if no effort to get info, there is duty
1. e.g., baseball card case: sometimes, info. falls into someone’s lap
iii. Want to reward positive investment in info, not easy/ free access to info.
f. But: misrepresentation here? Was buyer’s silence to seller’s question a lie?
i. Hard to say, and court doesn’t try; compare Embry v. Hargadine
ii. Very fact-specific; no abstract way to figure out what’s going on
iii. If there had been no conversation at all, then no unilateral mistake
4. Compare to subjective intent analysis
a. Ask (1) can we tell from manifestations of parties what agreement was? (2) If not,
what do we do about it?
b. How is Swiss Coin case different from this?
i. In that case: there was explicit term over which there was disagreement
ii. What ct. should have done: figure out, can we tell what implicit terms
were, and if we can’t tell, what should rule be?
c. Mutual mistake case: there, no disagreement about explicit terms; they’re clear
i. Question is whether there was implicit condition
d. Different doctrinal analysis if disagreement is over explicit or implicit term
i. Subjective meaning case – ignorant person’s view is enforced
ii. Tyra: mistake of term, but explicit – so Unilateral Mistake case
iii. Same motivation, but different outcome: says “no K,” instead of
interpreting case in ignorant party’s favor
iv. Odd to treat cases differently b/c of label
p. 29 Contracts Outline – Larry Lee
Changed Circumstances: Impossibility & Impracticability
1. Different from mistake b/c false assumption is about future event
a. No real difference in mistake as to present fact & mistake as to future
b. Decision on how to treat silence is essentially identical
i. Discern implicit term; or impute best possible term
ii. Might ask if there’s implicit warranty
2. Paradine v. Jane rule: K = party created duty himself, can’t get out of it
a. Facts: lessee kicked out of house by army; ct. holds he must pay rent anyway
b. Party creates K, must make good on it even w/ accident or impossibility, p 1204
c. Ct assumes party could have contracted against future contingency
d. Ct: silence not a condition excusing lessee (no implicit terms)
i. Unlikely that army’s eviction = implicit term
ii. More likely deemed that best default rule, as the ct. notes the lessee
“might have provided against” payment in the event of eviction
e. Real estate leases tend to be interpreted (unlike other Ks) such that tenant must
pay rent in seemingly harsh conditions
3. Destruction of property excuses parties from performance, Taylor v. Caldwell
a. But: Adler thinks burden put on party that can best prevent harm, i.e. landlord
b. Different outcome than Paradine (but still favors landlord)
c. Facts: lessee’s music hall burned down, sues lessor for expectancy
i. Lessor tries to get out of lease: “music hall burned down, no damages”
d. Ct. holds that both parties excused from K, lessor doesn’t pay expectancy
i. If person dies or thing destroyed, excused from performing (1212)
ii. Here, no implicit condition: ct. found parties didn’t think of risk of fire
iii. Ct: best default rule = excuse performance if impossible, no promisor fault
iv. Landlord excuse can be implicit?
1. vs. Paradine which says any excuse by tenant must be explicit
2. This is too easy, is there another way to interpret?
e. Here, questionable conclusion: lessor in better position to stop harm
i. Would create good ex post incentives (pick up oily rags, etc.)
f. Decisions confuses (1) fact that can’t make landlord do impossible w/ (2) legal
conclusion that landlord shouldn’t have to pay for inability to do impossible
4. Silly to focus on impossibility: real issue is someone must pay, so who should it be?
a. Either get good default rule to guide future conduct
b. So, here, to create incentive? Make person who has ability to take care to have
incentive to take care (in Taylor, make lessor pay lessee damages)
i. = incentive to prevent fire (but this isn’t Taylor’s outcome)
5. 2R 261, 263 & UCC 2-613: on Destroyed Objects: Restat not helpful; UCC more so.
6. Foreseeable impossibility doesn’t excuse performance, Eastern Airlines v. Gulf
a. Ct. ruled Gulf could see OPEC crisis coming
b. Ct felt mkt changes = non-excuse for purposes of good default rule
i. Sensible, at least between merchants, who often write Ks to assign risk
7. Frustration excuses parties from performance Krell v. Henry
a. Facts: not impossible for lessor to let room, and not difficult for lessee to pay, but
basic purpose of K was frustrated (to see coronation)
i. Adler: Paradine is like frustration, too
ii. Doctrine’s confused, not cases
b. “License” (1223): Ct says K = license to use rooms for a particular purpose
i. Ct. recharacterizes K & makes implicit terms of agreement
p. 30 Contracts Outline – Larry Lee
ii. Licensor allows licensee to use license & pay royalty per use; lessor
provides coronation viewing & if lessee viewed, would have to pay
iii. No coronation, so licensee didn’t have to pay
c. What if coronation occurred, but didn’t pass through Pall Mall?
i. Issue is if buyer assumed risk that parade wouldn’t go thru Pall Mall
d. Ultimately, asking whether coronation was central to K doesn’t help you here
8. “Partial” frustration doesn’t excuse performance, Lloyd v. Murphy
a. Risk that new cars would be banned b/c of WWII foreseeable
b. Unclear why Traynor thought cts. can’t handle partial frustration
c. Questionable distinction – whether frustration is total or not shouldn’t be reason
to decide whether there is condition or not (“Total frustration” = dictum)
General lessons on K interpretation
1. Generally, Judge Hand says discern what parties meant by their words
a. We modified that by trying to decide what parties are deemed to have meant
b. Doctrine throughout this course often forgets this
2. Mistake & changed circumstances cases
a. Shouldn’t be much difference btwn other cases & mistake/changed circumstances
i. All about interpretation – doctrinal differences melt away
b. Doctrines by cts imply that they think they’re dealing w/ unambiguous Ks
i. They don’t look at meaning of words; but they don’t enforce them
ii. They come out as doctrines to unambiguous Ks, but they’re not
c. Take Oswald ( “Swiss Coins” unclear) & Sherwood ( “Rose” unclear)
i. Lawyers say “different”:
1. Oswald parties debated meaning of “Swiss Coins”
2. Sherwood debated whether fertility = implicit term
3. Adler: this distinction doesn’t help: imagine Oswald different,
showed 2 boxes & then had K for Swiss coins; here, seller would
win, but not b/c “Swiss coins” is unambiguous now; shaking coins
= implicit agreement box labeled “Swiss Coins” is “Swiss coins”
3. Frustration v. Impossibility
a. Thinking about these cases when they state a conclusion, you can mix and match
cases & modify results that are appropriate in individual cases themselves
b. Take Wood: ct say neither buyer nor seller really knew if stone was diamond
i. Mutual mistake = wooden doctrine
ii. Wood puts risk on seller; price may reflects small prob. it’s a diamond
1. Or maybe it’s best default rule for buyer-seller interactions
2. Most assume loss falls on seller if stone turns out to be valuable
iii. Case doesn’t necessarily change if buyer knew it was a diamond
1. See Laidlaw: buyers should benefit from superior info from effort
2. Wood might be same even if buyer knew stone was diamond
3. Buyer had to invest some in learning that stone was buyer
c. When focus on what parties actually intended by agreement (or what they should
have been deemed to intended)…
i. Get beyond fact that the stone was what was contemplated (Wood)
1. Is it that seller has excuse if buyer has knowledge?
ii. Get beyond the end of war in Laidlaw
1. In Laidlaw – not obligation
p. 31 Contracts Outline – Larry Lee
Frameworks at organizing course material
• Ask yourself (1) if there is an agreement and (2) what is it (what are explicit & implicit
terms of agreement)?
• Are implicit terms = enforceable promise?
• Then are there reasons to form rules looking forward to other parties? Set up default
rules to guide future conduct
• Then damages – focus on efficient breach
1. What makes most sense in terms of efficiency – talked about whether rules
induced efficient behavior; generally comports w/ fairness considerations as well
2. If you have efficient outcome, don’t you suppose parties likely contracted for?
3. If trying to set up default rules going forward, want rules that expand social
welfare & leaves no party worse off.
• Think about what K is, what K should be, and in answering those questions, think about
what is efficient
Exam: different but related fact patterns -