CONTRACTS OUTLINE
PROFESSOR NEHF
FALL SEMESTER
INTRODUCTION
I. Basic Terms
A. Promise: Assurance one will do or refrain from specified thing. Restatement (“RS”) requires
manifestation of intent.
B. Contracts (“K’s): Promises enforceable by law
C. Types of K’s:
1. Express K’s: Oral or written consisting of offer, acceptance & bargained-for consideration.
These can be:
a.) Bilateral: Where both parties must fulfill obligations reciprocally; or
b.) Unilateral: One party is bound to fulfill obligations w/out 1st receiving any return
promises of performance. (i.e. Reward)
2. Implied in Fact K’s: No formal or explicit writings. The terms are inferred by acts, conduct
or circumstances.
3. Implied in Law/Quasi K’s: K imposed by law for fairness & equity regardless of the intent
of parties & even in spite of an agreement b/t them.
SECTION 1- ENFORCEABLE PROMISES- THE DOCTRINE OF CONSIDERATION
I. Introduction to Consideration
A. Consideration: Benefit received by promisor or detriment incurred by promisee. It arises in an
agreed-for exchange & may consist of an act, a forbearance to act or a mere promise to act. Must
have bargain for something of legal value.
B. 2 Conceptions of Consideration
1. Broad: All bargains or reliance are types of consideration
2. Narrow: “Bargain Theory” under which “a performance or return promise must be
bargained for.”
CHAPTER 1- Donative Promises, Form & Reliance
I. Simple Donative Promises
A. Simple Donative Promises: Promises made for gratuitous reasons w/ no bargain involved are
ordinarily unenforceable. However, a completed gift is a legally binding transaction.
1. Policy Reasons not to enforce gift promises:
a.) Lack of documentation, removes love aspect, induces people to make promises
b.) No legal recourse for someone trying to get something for nothing. Also, usually
promisee no worse off than b/f promise made.
2. Dougherty v. Salt (pg. 6) (Aunt Promises Gift Case)
a.) R: Promises to make an executory gift are not enforceable.
b.) F: Boy receives promissory note from aunt. Aunt’s executor refused to give $.
c.) Court finds for aunt’s estate saying although note had words “value received” on it, there
was, in fact, no consideration for the promise & thus no binding K.
3. Deed of gift (Inter vivos document of transfer): Document where donor/donee identified, gift
described, nature of interest specified & showing of intent to make gift through instrument.
a.) Gift transfers immediately & does not apply to gifts of services or personal property not
currently owned.
4. Conditional bargain promises vs. conditional donative promises:
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a.) In a conditional bargain promise, parties view performance of condition as the price of
a promise.
b.) In a conditional donative promise, parties view performance of condition as the means
to make gift, not its price.
II. The Element of Form
A. General Rule: Inadequacy of bargained for consideration stated in K will not vitiate agreement as
courts do not want to 2nd guess the parties as to what consideration is merely nominal or a mere
formality.
1. When exchanging money for money, crt would not be second guessing & can determine
whether actual consideration or mere formality.
B. Schnell v. Nell (pg. 14)
1. R: Nominal consideration is something used to provide the form but not the substance
of consideration. Restatement adopts this rule.
2. F: Δ agrees to fulfill wife’s invalid will (to pay Π $600) for consideration of 1 cent, Π’s
promise not to sue under the will & for love & affection of his wife, later changing his mind.
3. Crt holds:
a.) General nominal consideration rule (above) does not apply here as 1 cent is inadequate to
support a $600 gift.
b.) Π not giving up anything by agreeing not to sue on the will, as the instrument is invalid.
If valid, giving up right to sue could have been sufficient consideration.
c.) Love & affection does not constitute a basis for legal consideration.
4. Under common law, a seal constituted consideration. Few states (GA) continue to use seal as
presumption of consideration.
III. Element of Reliance (“Promissory Estoppel”)
A. Kirksey v. Kirksey (pg. 23) (Family Moves Case)
1. F: Π moved family great distance to live w/ brother-in-law promised place to raise her
family. 2 years later, Δ kicked them off the prop.
2 Assumpsit: Action for breach of K.
3. Court overruled verdict for Π b/c Δ’s promise mere gratuity. B/c no consideration given,
promise unenforceable. (Conditional donative promise).
4. Promissory estoppel didn’t exist at this time. If modern case, would probably find for Π based
on reliance theory so that injustice would be avoided.
B. Promissory Estoppel: RS §90 (pg. S263): Promise which promisor should reasonably expect
to induce action or forbearance on part of promisee or 3rd person & which does induce such
action or forbearance is binding if INJUSTICE avoided only by enforcement of promise.
C. Estoppel in Pais (Equitable Estoppel) (pg. 25): If A states fact to B who foreseeably relies on
the statement, A is estopped from denying the truth of the statement.
1. Differs from Promissory Estoppel in that:
a.) Promissory Estoppel requires promise while estoppel in pais requires statement of fact
b.) Mechanism of Estoppel in Pais not used in Restatement Section 90 cases. Δ not estopped
to deny lack of consideration or reliance.
D. Feinberg v. Pfeiffer Co. (pg. 28) (Retirement Promise #1 Case)
1. F: Π given raise & was promised she could retire when she wanted to & would receive
lifetime benefits upon retirement. Π continued working, then retired & receives benefits for 7
years. Upon new ownership, benefits stopped.
2. Court affirms verdict for Π based on reliance theory (RS §90)
E. Hayes v. Plantations Steel, Co. (pg. 33)(Retirement Promise #2 Case)
1. F: Π decides to retire. Subsequently, Δ’s officer says they will take care of Π & then make 4
annual payments to him b/f stopping.
2. Although Π argues retirement was the consideration, Crt holds not valid b/c Π decided to
retire b/f promise made. Broken promise does not seem to be an injustice.
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F. D & G Stout, Inc. v. Bacardi Imports, Inc. (pg. 39) (Distributorship at Will Case)
1. F: Δ promised that Π would continue to be their distributor for indefinite time period. Π
turned down 3rd party offer to buy their business & continue operating based on Δ’s promise.
The same day, Δ drops Π as distributor forcing them to sell to 3rd party for less $.
2. Crt reverses summary judgment for Δ & remands for trial to determine if Π reasonably relied
on Π’s promise.
3. Crt analyzes case as a “distributorship at will.”
a.) Similar to employment at will insofar as employee who moves based on promise of job
that is revoked would get limited lost wages & moving expenses reimbursed (“Reliance
damages”) but not 1st year salary.
b.) On remand, trial court will need to determine if Π’s damages more analogous to lost
wages or lost future salary.
CHAPTER 2- The Bargain Principle & Its Limits
I. The Bargain Principle
A. The Statue of Frauds (“SOF”)
1. Note: Always make sure to check if SOF applies to a K (Always see if there a document that
satisfies it?)
2. B/c it is not favored by courts, they use discretion to narrowly construe SOF keeping equity
& preventing technicalities for voiding K’s.
3. Section 4 says the following must be in writing to be enforceable:
a.) Promises by executor to answer damages from own estate (Protects executor from telling
someone “don’t worry, I’ll take care of you. Not often issue today)
b.) Promises to answer for a debt or default of another (Guaranteeing a car loan)
1.) Exception: An oral promise made to the debtor & not a 3rd party creditor can be
enforceable.
c.) Promises made upon consideration of marriage (Refers to pre-nuptials).
d.) Sale of Land (Most frequent situation)
e.) One Year Rule: It must be proven that by it’s terms, there is no way the promise can be
performed w/in 1 year.
1.) As long as K is commenced w/in 1 year, even if there are no specified completion
dates (construction K), the promise can be oral & enforceable.
2.) Lifetime employment contracts do not have to be written b/c it’s conceivable that the
employee could die within 1 year. (A 3-year employment contract must be in writing
b/c it has a specific timeframe)
4. The writing itself does not need to be a formal K.
a.) Crts will piece together writings & notes (Calendar note may be adequate)
b.) Basic elements of the deal & a signature are all that is required.
5. K’s for the sale of goods costing $500 or more must be in writing (Article 2 of UCC)
Proposal out to amend Article 2 to raise threshold to $5,000- not yet adopted.
B. Hamer v. Sidway (pg. 46) (Good Behavior Case)
1. F: Decedent promised nephew if he abstained from vices until 21, would pay $5K. Upon
reaching 21, decedent reaffirmed obligation but kept $ & then died w/out paying. Executor
refused to pay.
2. Crt affirmed trial court’s decision that Δ’s abstention from legal conduct, albeit physically
beneficial, constituted a legal detriment sufficient for consideration for the promise.
3. What if nephew in coma until 21?
a.) Uncle’s price is a character building effort of nephew, and if he was in coma, not really
getting what he bargained for.
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C.
D.
E.
F.
4. If this case didn’t have bargained-for consideration, it would be difficult for Π to collect b/c
it’s not a good case of promissory estoppel either as there is no injustice from promisee’s
reliance on the promise.
5. How does this case differ from Ricketts (pg. 24) where X gives Y promissory note so that Y
doesn’t have to work?
a.) Hard to show bargained-for consideration b/c although she quit job, the note wasn’t
conditioned upon her doing so.
b.) But, the crt rules for Y based on promissory estoppel.
6. Under SOF § 4 #5: No action shall be brought upon an agreement that is not to be performed
w/in the space of 1 year from its making unless the agreement is in writing.
a.) Although original promise was not made in writing, the letter followed up by the uncle
retroactively reaffirms the promise & thus makes it valid under the SOF.
Hancock v. Shell (pg. 49) (One Sided Bargain Case)
1. In the case of a completely one-sided bargain where there is no mutual obligation, Π argues K
should be invalidated for public policy reasons.
2. However, the crt won’t nullify a bad bargain b/c there is consideration on both sides.
3. Why do courts not undue bad bargains?
a.) Threshold Issue: Where do you draw the line? Any deal that turns out bad could be
disputed in the future.
b.) Voluntary Contracting: If it’s a voluntary deal, the crts aren’t going to undue a K. People
should be able to rely on the promises made in a K to base future actions.
4. How is this different than Schnell? In Schnell, that deal was a gift with no underlying
obligation or bargain.
Batsakis v. Demotsis (pg. 50) (Greek Loan Case)
1. F: Δ will pay Π $2K in the future, if Π gives her 500K drachma ($25 USD) today. Δ says
deal unfair b/c she claims it was made under her duress (economic).
2. Crt holds that the mere inadequacy of consideration will not void the K & they won’t void a
bad bargain.
3. This K made under financial strain but not duress:
a.) Δ may have had other alternatives
b.) Π didn’t create the circumstances of her financial hardship
4. Differs from Schnell ($600 for 1 cent) b/c this was a bargained for deal, not a dressed up gift
promise. Here there was an inducement and a bargain.
5. RS § 175: When Duress by Threat Makes K Voidable (Pg. 281s)
a.) When assent to K is made w/ no reasonable alternatives due to an improper threat by the
other party.
b.) When assent to K is made under improper threat from 3rd party, it is also voidable except
to the extent that other party relies upon it.
6. RS § 176: When a Threat is Improper (Pg. 281s)
7. Could Batsakis use an unconscionability argument? While the Duress Doctrine (§174) has
its limits, the Unconscionability Doctrine is a bit more flexible.
a.) For Duress, must ask:
1.) What other options were available?
2.) Who caused the situation?
3.) Are there any applicable customs or conventions?
Chouinard v. Chouinard (pg. 55) (Family Business Dispute Case)
1. F: Π wants loan for business that Δ’s claim an ownership interest in. Π agrees to pay Δ’s to
release their ownership claims so that the bank will fund the loan.
2. Crt held payments to Δ’s valid b/c they were not signed under duress as there was no
wrongful act by Δ’s to create & take advantage of an untenable situation.
Post v. Jones (pg. 56) (Oil Tanker Case)
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1. F: Oil tanker runs aground & Π needs to get rid of his oil to rescue himself. Δ agrees to take
the oil but at an artificially low price.
2. Crt holds that Π entitled to additional $ b/c agreement made under duress but that Δ, under
admiralty custom, is entitled to a salvaging offset. Π had no other options & Δ, although not
the cause of Π’s predicament, took advantage of the situation.
II. Unconscionability
A. UCC §2-302: Unconscionable K or Clause: If K or clause was unconscionable at time the K
was made, the crt can void or limit unconscionable parts so as to avoid any unconscionable
result. All states (except LA) have adopted.
B. Williams v. Walker-Thomas Furniture (pg. 62) (Installment Furniture K Case)
1. F: Π signed installment K which stated that payments would be applied pro-rata to each item
& if Π defaulted b/f all items paid off, everything could be repossessed.
2. Crt can’t apply the UCC §2-302 b/c that provision hadn’t been adopted at the time the K was
signed. However, crt cites common law idea of unconscionability & remands case to be
evaluated based on that concept.
3. On remand, crt uses Absence of Meaningful Choice & Unreasonable Terms to determine
unconscionability:
a.) Absence of Meaningful Choice (Procedural Unconscionability): Often results in
Adhesion/Form K’s (Take it or leave it”); AND
b.) Unreasonable Terms (Substantive Unconscionability)
4. Dissent argues this decision should be left in hands of the legislature & not the crts.
C. Maxwell v. Fidelity (pg. 75) (Water Heater Re-Finance Case)
1. F: Π bought, made payments on & then re-financed defective water heater under a ridiculous
finance agreement.
2. Trial crt says the Novation (New K merges & does away w/ old one) was just a loan amount
w/ no prop tied to it. Therefore, it cannot be considered unconscionable.
3. Crt reverses & says you can’t base novation on an unconscionable/unenforceable prior K. Crt
remands for a determination on whether prior K was unconscionable.
a.) Crt evolves law to say that unconscionability can be established by showing unreasonable
terms (substantive) alone even w/out absence of meaningful choice (procedural).
b.) In cases of extreme substantive unconscionability, there is a presumption of procedural
unconscionability as well.
c.) Many courts have set up a sliding scale where the greater the substantive
unconscionability, the less procedural you need & vice versa.
III. Mutuality
A. Concepts:
1. Mutuality of Obligation: Unless both parties are bound, neither will be.
2. Illusory Promise: A statement that has the form but not the substance of a promise & is not
considered to be legally sufficient consideration.
3. Conditional Promise: Promisor need only perform if a specified condition occurs.
Nonetheless, he has limited his future options in some manner therefore this constitutes legal
consideration & thus mutuality.
a.) Requirements K: A agrees to buy all of his requirements of a given commodity from B,
and B agrees to sell that amount to A. A agrees to have all of his needs met (whatever
they turn out to be) by B.
b.) Output K: A agrees to sell all of his output of a commodity to B & B agrees to buy that
amount from A.
c.) UCC §2-306: Output/requirements must occur in good faith and can’t be unreasonably
disproportionate to estimates.
B. Scott v. Moragues Lumber Co. (pg. 87)(Charter Ship Case)
1. F: Π & Δ agree that if Δ buys ship, he will charter it to Π to carry Π’s lumber.
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C.
D.
E.
F.
G.
H.
I.
J.
K.
2. Although it seems there is a mutuality problem b/c the ship owner isn’t necessarily bound to
do anything, b/c there is a conditional promise where if Δ buys the ship, then the K is
binding, he has limited his options & there is consideration.
3. Crt holds that b/c Δ did, in fact, buy the ship, the K is binding b/c he was obligated.
Wickham & Burton Coal Co. v. Farmer’s Lumber Co. (pg. 90) (Coal Option K Case)
1. F: S agrees to sell amount of coal B “wanted to purchase” at specified price. S refused to ship
the coal & Δ had to purchase at a higher price elsewhere & Π demurs to counterclaim.
2. Crt holds B’s promise was illusory. There was really no promise to do anything. K thus lacks
mutuality b/c B had no obligation to purchase, yet S was obligated to sell.
3. Lack of mutuality is the same as saying there is no consideration. Mutuality is merely the
term used in these types of cases. No quid pro quo- no bargain.
4. Option Contract: For a nominal amount, B could have paid for the right to buy.
Lindner v. Mid-Continent Petroleum Corp. (pg. 97) (Notice to Terminate Case)
1. F: Only Lessee had right to terminate lease on 10 days notice; Lessor argued no mutuality &
they should have termination right as well.
2. Crt decided there was mutuality here (10 days notice provision).
Gurfein v. Werbelovsky (pg. 97) (Option to Cancel Case)
1. F: Buyer had option to cancel order b/f shipment & repeatedly requested Seller to perform.
Once Seller shipped order, Buyer was committed to buy.
2. Crt held Buyer’s giving up of his autonomy constituted sufficient mutuality.
Mattei v. Hopper (pg. 97) (Leasing Termination Clause Case)
1. F: Buyer (developer) drafted K w/ right to terminate pending satisfactory leasing.
2. Crt held Buyer negotiated in good faith & his promise was not illusory b/c Buyer has right to
use prop how he sees fit. Termination right is valid.
3. Buyer’s obligation is to make a good faith judgment regarding his satisfaction w/ the leases.
However, such a determination of good faith could be difficult to prove.
Miami Coca Cola Bottling Co. v. Orange Crush Co. (pg. 93) (Drink Licensing Case)
1. Crt held drink licensing K was not binding b/c it could be terminated at will at any time by
only one of the parties (licensee) & thus lacked mutuality.
2. Crt construes K as a “distributorship at will” similar to an employment agreement.
3. Is this reasonable? Should probably look at custom w/in the industry to determine.
Wood v. Lucy, Lady Duff-Gordon (pg. 99) (Marketing Clothes Case)
1. F: Π (clothes marketer) given exclusive marketing rights to Δ’s clothes by use of “reasonable
efforts” in exchange for ½ profits.
2. Crt holds K reasonably implied mutuality b/c Π was committed to use good faith reasonable
efforts to bring in profits even though no specific language in K.
3. Cardozo held the entire deal was “instinct w/ obligation” imperfectly expressed.
4. Exclusive Dealings (UCC § 2-306(2))- Lawful agreement by either Seller or Buyer for
exclusive dealing obligates best efforts to supply or promote the goods.
Harris v. Time, Inc (pg. 99) (Watch Contest Case)
1. F: Open the envelope & get a watch deal.
2. All unilateral K’s are illusory but once performed, bargain exists.
Laclede Gas Co. v. Amoco Oil Co. (pg. 102) (Gas Supply Case)
1. F: Amoco (Δ) to supply propane to Laclede (Π). Δ terminates claiming no mutuality b/c they
didn’t have cancellation provision & Π did.
2. Crt says no mutual cancellation provision required so long as cancellation provision has a
notice provision (or other legal detriment for cancellation).
3. Δ also argues there is nothing in K which obligates Π to purchase any propane.
4. Crt says this is a requirements contract instinct w/ obligation.
Grouse v. Group Health Plan, Inc. (pg. 106) (Employment Backfire Case)
1. F: Π quit job & turns another down based on Δ’s word that he had been hired.
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2. Trial crt held it was to be an employment at will (an illusory promise). Compensating Π
would create anomaly where if Δ fired Π 1 day b/f employment began, he would be
compensated but no compensation if fired 1 day after.
3. App Crt applied a promissory estoppel standard saying Π entitled to damages based on lost
wages from current job (rather than any probable future earnings w/ Δ).
IV. Performance of Legal Duty as Consideration; Modification & Waiver of K Duties
A. Legal Duty Rule: If there is a legal duty to act, can’t claim consideration; If act goes beyond
scope of duty, there may be legal detriment & sufficient consideration.
1. Prevents people from playing the hold-up game (looks like economic duress).
B. Gray v. Martino (pg. 110) (Officer Reward #1 Case)
1. F: Π (officer) makes K for $500 to find stolen jewelry.
2. Crt says although there is consideration, they won’t enforce promise as the officer has a
public duty & should not receive outside money for doing his job.
a.) Tipping leads to situation where those w/ more $ get better service (“bribes”)
C. Denny v. Reppert (pg. 112) (Officer Reward #2 Case)
1. F: Under similar set of facts to Gray, crt determines officer entitled to reward b/c he was not
on duty and out of his jurisdiction.
2. An employee can’t collect reward if their action is w/in scope of their legal duty to their
employer. Thus bank employees could not collect reward either.
D. Foaks v. Beer (pg. 116) (Debt Settlement for Less Case)
1. F: Δ owes Π $ & Π suggests if Δ pays part up front, Π will cancel interest Δ owes.
2. Crt holds the up front payment can’t constitute consideration b/c it was Δ’s legal duty to pay
the full debt in the first place.
3. This seems to be counter- intuitive b/c this type of deal happens all the time.
E. Lingenfelder v. Wainwright Brewery Co. (pg. 113) (Architect Stops Work Case)
1. F: Π obligated for work & extracts additional amount from Δ by threatening to stop working
& w/out further consideration from Π.
2. Doubtful Claim Argument: Π argues Δ violated original K & in exchange for his
consideration of not suing under that K, Π would get a 5% bonus. Crt says no proof.
3. Abrogation/Novation Argument: Π argues that 1st K was canceled & a 2nd K was substituted
in its place for the additional $ for the architectural services.
4. Seems to be a case of economic duress – Δ has no choice but to accept the new terms & then
later refuse to pay (knowing that suit is likely).
F. Schwartzreich v. Bauman-Basch, Inc. (pg. 128) (New Deal Replaces Old Case)
1. Although Legal Duty rule would say that Π is stuck w/ original deal ($90), once that deal was
rescinded (by word or by action) by both parties, there is consideration for the new deal
($100) & it is legally enforceable.
G. Austin Instruments v. Loral Corp (pg. 122) (Navy Parts Case)
1. Δ has K for Π to supply parts for Navy order. After Δ gets 2nd Navy order, Π, prior to
completing 1st order, demands higher price & to be awarded 2nd K. If not, they threaten not to
send rest of 1st order & Δ finally agrees.
2. Under legal duty rule, Δ would have to abide by the terms of the 2nd K as Π gave additional
consideration (extra parts).
3. Crt, however, decides this is a duress case & that Δ was forced to modify K by means of a
wrongful threat precluding the exercise of its free will.
4. When determining whether economic duress exists, must look at (i) adequacy of & diligence
used to seek out alternatives (ii) deadline concerns & (iii) other expressions of the parties
indicating a wrongful threat.
H. Accord & Satisfaction: “Legal Settlement”
1. Accord: Executory agreement to discharge an existing contractual duty.
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2. Satisfaction: Performance of an accord agreement that discharges both the accord agreement
& the prior duty.
3. UCC §3-311:
a.) Settler must show (i) they made good faith tender as full satisfaction of claim, (ii) the
amount of claim was subject to a bona fide dispute, and (iii) claimant took payment.
b.) Instrument is a valid accord if it has a conspicuous statement that it was tendered in full
satisfaction of the claim except if:
1.) Claimant proves they had previously notified settler of a designated person or place
to send disputed payments & settler did not comply; or
2.) Claimant returns money w/in 90 days & did not comply w/ (1) above.
c.) If claimant or agent directly in charge of dispute knows the tender to be for final
settlement, there is no recourse for claimant.
d.) Crossing out “payment in full” language on checks & writing “reserve all rights” does
nothing for the claimant.
4. If A owes B $1K & they both agree to give B computer, this is a valid K. Even if computer
only worth $800, still valid consideration b/c computer is a new obligation.
5. Merely agreeing to pay less $ than you owe is a problem under the legal duty rule.
6. If the computer isn’t delivered (thus accord remains executory), the original debt can be sued
upon once reasonable time has elapsed. Once computer handed over (satisfied), the original
obligation is discharged (accord no longer executory).
7. If A doesn’t pay the $1K or give the computer, B can sue A for the computer b/c the
executory accord becomes a fully valid, enforceable K b/c there is consideration.
8. Difference b/t executory accord & Substituted Contract:
a.) A substituted K occurs when the new agreement is treated as a complete substitute for the
old one and the old one is completely discharged.
b.) Distinction usually comes down to intent. If parties intended to get rid of the old K and
replace it with the new on, this is considered a substituted K.
c.) Most of the time, the new agreement remains an executory accord b/c it is unlikely that
the parties will want to completely discharge the old obligation.
I. Flambeau Products Corp. v. Honeywell Info Systems, Inc. (pg. 129) (Computer Training Case)
1. F: B purchased computers including $14K of training. B found training inadequate & sent S
check for total amount minus the training & wrote on back “payment in full.” S cashed check
& B sought declaratory judgment indicating debt satisfied.
2. Crt finds this to be valid executory accord & satisfaction (occurring simultaneously when S
signed & cashed check). B/c the amount in question is disputed, B’s sending of a lesser amt.
does not violate legal duty rule (where undisputed).
3. For an accord to be valid, it must be free-standing agreement supported by consideration.
Consideration here is B’s good faith settlement offer of paying the undisputed amount & no
longer accepting the training services. This new offer becomes accepted once S cashes the
check.
4. In Honeywell, under the UCC unless S could prove that the check was sent to the wrong
person or the dispute was not made known to S’s dispute office, the accord would be
satisfied. The check can’t be re-tendered to B at this point.
J. Angel v. Murray (pg. 137) (Trash Collection Dispute Case)
1. F: Π sued city official (Δ), alleging K b/t city & M to collect trash was invalid
2. Π claims M already had legal duty to collect refuse w/in city limits & such duty had not
changed.
3. Restatement § 89: Contract Modifications are Valid if:
a.) The agreement is voluntarily entered into; and
b.) The K is executory (not fully performed on either side); and
c.) There are unforeseen circumstances which cause the need modify it; and
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d.) The modification is fair & equitable.
4. Crt uses RS §89 saying that the underlying circumstances which prompted the modification
were unanticipated by parties (400 new housing units)
5. U.C.C. § 2-209: Modification of an Agreement for Goods.
a.) Doesn’t require consideration, thus negating legal duty rule
b.) There is an overlying duty of good faith. The holdup game invalidates a modification b/c
it is not in good faith.
c.) Does not require unanticipated circumstances as Restatement does.
K. Modification & Waiver
1. Modification: Change in obligations by subsequent modifying agreement that doesn’t
discharge entire original K (a Recission) but does alter terms & performance.
2. Waiver: When a party to an existing K promises to perform despite some condition that has
not yet occurred. (By action, waiver is implied, but can be retracted).
3. Estoppel: Uses reliance to claim consideration
L. Clark v. West (pg. 143) (Sobriety Book Writing Case)
1. F: Π agreed to write book for Δ paying $2/pg but if Π remained sober, then $6/page. Π drank
during writing but Δ never said anything & then paid lesser amt.
2. Crt must decide if Δ’s conduct constitutes an intentional relinquishment of their rights to
enforce drinking clause. Does Δ’s silence constitute a waiver?
a.) Δ’s response was that mere acquiescence isn’t a waiver & that the payment provision was
the core consideration of the K. If that was changed, the K would thereby be modified,
not merely a waiver of that provision.
3. At the time of the K, a modification required consideration to be valid and waiver did not.
Since consideration was not present here, only a waiver would be binding. (Here,
modification = Δ wins & waiver = Π wins).
a.) Modifications would likely be limited to the promise itself (here, the writing of or the
payment for the book). A waiver would likely be limited to a condition (not drinking).
4. Does it make sense to treat this particular condition as one that can be waived as opposed to a
core term that must be modified?
Agreement
Consideration
Reliance
Retraction
Modification
Yes
Yes, §89, good faith
No
No
Waiver
No
No
No
Maybe
Estoppel
No
No
Yes
No
CHAPTER 3- Past Consideration
I. Past Consideration
A. Past Consideration: Promise (not usually enforceable) to pay based on a moral obligation or
benefit conferred which serves as consideration
B. Various Classifications of Benefits Conferred:
1. No legal/moral duty to pay for benefit (Gifts)
2. Both legal & moral duty to pay for benefit (Bank error in your favor)
3. Moral but no legal obligation to pay for benefit – Hybrid of 1 & 2 that forms basis of past
consideration.
C. If reaffirming promise made after status change, the 2nd promise is enforceable in the following
cases even w/ no new bargained-for consideration:
1. Promise to pay debt barred by SOL
2. Promise by adult to pay debt incurred when child under legal age
3. Promise to pay debt discharged in bankruptcy
D. Mills v. Wyman (pg. 153) (Son’s Illness Case)
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1. F: Mills (Π) took in Wyman’s (Δ) 25 yr-old son & cared for him during terminal illness
where Δ promised to repay Π’s expenses, then refused to honor promise.
2. R: Moral obligation incurred through past events insufficient consideration for express
promise. Also need bargained-for consideration.
E. Webb v. McGowin, (pg 157) (Employee Saves Boss Case)
1. F: Webb (Π), in course of duties at mill, drops wood block & in effort to divert from
McGowin (Δ), falls with it, causing injuries to himself. For saving his life, Δ agrees to pay Π
$15 every 2 weeks for life. Upon Δ’s death, estate stops payments & Π sues.
2. 100 years after Mills, court reverses position regarding morality-based promises b/c
a.) Benefit received directly by promisor, not 3rd party- if universe of potential claims
reduced to individual receiving benefit, much more reasonable
b.) Promise kept for 8 years while Mills promise never kept
c.) Restatement § 86: Promise in recognition of benefit previously received is binding to
the extent necessary to prevent injustice.
3. Harrington v. Taylor (pg. 160) (Axe Case)
a.) F: Π diverts axe to save another & injures hand.
b.) Crt holds promise not enforceable b/c no $ specified in promise; Needs to specify amount
to maintain proportionality.
CHAPTER 4- The Limits of Contract
I. The Limits of K
A. In these cases, must examine relevant public policy & when there are competing policies, should
weigh relative merits.
B. Koch v. Koch (pg. 164) (Pre-Nup Case)
1. F: Alleged K was prenup allowing husband’s mother to stay -> dissolution of marriage.
2. P: Wife sues for spousal & child support so court must decide if prenup enforceable.
3. H: Court determines prenup is unenforceable:
a.) R: Oral agreements regarding marriage unenforceable (Statute of Frauds)
b.) R: Indefinite time period made promise unenforceable
c.) Interference destroyed wife’s enjoyment of marital status & wrecked marriage.
4. Public Policy Implications:
a.) Enforcing above agreement conflicts w/ public policy regarding marriage
b.) Prenups dealing w/ property, $, etc. still enforceable (LeGalley’s example: prenup
setting out weekly allowance, type of gas, frequency of sex, etc.)
c.) Courts hesitant to get involved w/ private marital matters
d.) $ K issues arising out of cohabitation agreements outside marriage enforceable.
C. Avitzur v. Avitzur ( pg. 167) (Ketubah Case)
1. F: Ketubah recognizes Beth Din as counseling/adjudicating authority. After divorce, husband
refused to appear for Jewish divorce. Wife seeks injunction mandating appearance.
2. R: Ketubah is a K in its elements (consideration, etc.) & is comparable to an enforceable
prenup. Therefore, judicial involvement is permitted to the extent it can be accomplished in
secular terms.
3. Dissent holds violation of church/state & once civil divorce granted, no more state interest.
a.) Conflicts b/t civil & Jewish law means court must be careful what they enforce.
b.) When Ketubah signed, parties probably don’t foresee civil/legal consequences
4. Landmark case when decided w/ several courts agreeing w/ decision here.
D. In the Matter of Baby M. (pg. 174) (Baby M)
1. F: Stern (Π) signs K w/ Whitehead (Δ) for surrogacy (his sperm/her egg). Upon delivery of
child, Π would pay $10K.
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2. R: K unenforceable b/c cannot force “surrogate mother” to give up parental rights prior to
birth & especially prior to conception.
3. Why does NJ SC not enforce the K?
a.) K bordered on violating several NJ state laws
1.) Baby selling statute (applies also to adoptions).
2.) Statute regarding termination of parental rights says must show
abandonment/unfitness w/ formal document acknowledging termination of parental
rights; K not provide this
3.) Statute regarding child custody says Contractual surrender of parental rights invalid.
b.) K violated public policy: $ motive driving market, exploitation of poor/women, parents
should have = rights, both parents should rear child, no counseling, no determination of
future parent’s fitness.
4. How does “gestational surrogacy” (sperm/egg implanted from adopting family) differ? CA
court determines that it does, but no definitive national paradigm b/c most policy concerns
above still apply.
5. Public Policy implications of selling body parts (Same genre as baby selling)
a.) Fields approach: Don’t allow K to be enforced but also don’t make it a crime.
1.) If K enforced, indicates society says behavior ok & encourages it.
2.) Uncertainty of K’s enforceability would make behavior less prevalent.
SECTION 2- REMEDIES FOR BREACH OF CONTRACT
CHAPTER 5- An Introduction to Contract Damages
I. Introduction of Contract Damages
A. 3 Contract Interests
1. Expectation Interest: Interest in having benefit of bargain by being put in as good a position
as would have been in had contract been performed.
2. Reliance Interest: Interest in being reimbursed for loss caused by reliance on K by being put
in as good a position as would have been in had K not been made.
3. Restitution Interest: Interest in having restored any benefit that conferred on other party
B. Hawkins v. McGee (pg. 194) (Hairy Hand Job Case)
1. F: Dr. (Δ) promises Π a perfect hand, but operation is unsuccessful, leaving Π’s hand useless
& ugly
2. P: Judge instructs jury that if found for Π, he’s entitled to recover for:
a.) Difference b/t hand now & hand before; &
b.) All pain & suffering caused
3. App Crt says instructions should have been:
a.) Difference b/t hand now & perfect hand which was promised; &
b.) Difference b/t P&S now & P&S of successful operation (but P&S which could be
expected in a successful operation is not awarded as damages to Π)
4. Two ways to determine damages (add the parts [hand + P&S] to get total damages):
Trial Court
Appeals Court
Before
After
Before
After
Scar Hand
->
Mangled Hand
Perfect Hand
->
Mangled Hand
(Here, Appeals Court decision probably gives more to Π)
No P&S
->
All P &S
Little P&S
->
More P&S
(Here, Appeals Court decision probably gives less to Π)
5. Trial court wants to bring Π back to where he was before based on a reliance theory whereas
appeals court trying to remedy K w/ expectation theory.
C. Sullivan v. O’Conner (pg. 202) (Surgery K Case)
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1. H: Breach actions w/in medical services allowed but not encouraged. In determining
damages, restitution of out-of-pocket losses (doctor’s fees) are inadequate but expectation
recovery is excessive.
2. Court uses reliance theory b/c advantage of not engaging in uncertain hypotheticals as to
potential outcomes. Reliance damages provide middle ground adequately protecting doctors
& patients.
3. Reliance damages for pain & suffering beyond that envisioned by original medical treatment
should be recoverable & pain & suffering incurred in original treatment should also be
recovered b/c suffering was wasted if treatment failed.
4. Why not punitive damages? Damages in K law are for remedy not punishment. Tort &
criminal law deal w/ punishment.
5. Expectation damages are usually the starting point for determining damages & other damages
& remedies can be added to that.
D. U.S. Naval Institute v. Charter Communications (pg. 207) (Red October Case)
1. F: Charter (Δ) used exclusive license to publish paperback 2 weeks earlier than allowed by K,
earning $750K net profit
2. P: DC found Δ breached K & infringed copyright -> Π entitled to recover damages (actual
damages suffered by Π + Δ’s profits attributable to infringement) & Δ appeals.
3. Holding: Reversed in part
a.) As exclusive licensee, Δ could not infringe on Π’s copyright so Copyright Act not
applicable.
b.) Π can sue for breach of K & awarding Π’s actual loss resulting from early shipment of
books & subsequent loss of hardcover sales.
4. R: Purpose of damages is to compensate not punish. Thus, damages usually measured by
actual loss (occasionally Δ’s profits used to measure damages)
5. Not efficient breach b/c although Δ made extra $7K profits, must pay $35K damages.
E. Efficient Breach Analysis
1. Hypo 1: A sells machine to B for $10K & B’s profits = $2K; A can sell same machine to C
for $15K & C’s profits = $2K
a.) From economic perspective, makes sense for A to breach & pay B $2K damages.
b.) If there are punitive damages for breach A would probably not do so & C could buy from
B so that B keeps extra $3K- regardless C has the machine.
c.) Economists say 1 sale better than 2 as machine gets to most efficient user in fewest steps.
d.) However, will be higher transaction costs from litigation (time & $).
2. Hypo 2: B has machine & values it at $12K; A knows C wants machine & willing to pay
$15K. A steals machine from B & sells to C for $15K.
a.) Problem w/ efficiency theory is that makes everyone better off from theft, thus would be
proponent of illegal activity.
b.) Courts/society want to discourage theft & associated risks of violence & destruction of
property so do not allow this to happen.
c.) In case of conversion/theft, courts would force disgorging of profits b/c don’t want gains
from undesirable activities.
F. EarthInfo Inc. v. Hydrosphere Resource Consultants (pg. 211) (Royalties Case)
1. F: Hydro (Π) claims they are owed royalties on both agreed-upon products & royalties on
derivative products as well. EarthInfo (Δ) refused to pay any royalties until dispute resolved
although continued to pay development fees. Π rescinds K.
2. P: Trial court held Δ did not have to pay royalties on derivatives. However, Δ breached when
he unilaterally stopped royalty payments on agreed-upon products.
3. H: Rescission orderd (from time Δ 1st breached) b/c fit required categories:
a.) Substantial Breach
b.) Injury Caused is Irreparable
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c.) Damages would be Inadequate
4. Using Equitable Discretion, crt determines Restitution as appropriate damages
a.) Earthinfo:
1.) Must return profits (net of costs & value added)
2.) Return tangible property
b.) Hydrosphere:
1.) Must return development fees received (after contract rescinded)
2.) Must return 3rd party license payment
5. Court discusses different ways to measure restitution damages:
a.) Increased assets in hands of Δ from receipt of property which are difficult to value in this
case. (Better example is swimming pool installation w/out payment where restitution $
would be change in value of house after installation of pool.)
b.) Market value of services/intangibles provided to Δ w/out regard to whether assets
increased (Same example as above except when pool does not increase market value of
house, valuation can be based on time, labor & materials of pool installation)
c.) Use value of any benefits received (Rental value for longer than K period)
d.) Gains from sale or transfer of asset received from Π
e.) Collateral/Secondary profits earned by Δ by use of asset received from Π (works best in
this case).
CHAPTER 6- The Expectation Measure
I. Damages for Breach of K to Perform Services
A. Louise Caroline Nursing Home, Inc. v. Dix Construction Co. (pg. 226) (Nursing Home Case)
1. F: Nursing Home (Π) never paid original contractor (Δ) full amount & once Δ stopped work,
Π used remaining $ to hire another contractor to finish job.
2. Cost of Completion: B/c Π got expected building for expected cost there is no harm.
3. Hypo: What if $100K building, $60K paid, 50% completed & $40K to finish by another
contractor. Are there damages?
a.) Still no harm, but begs question: Shouldn’t $10K benefit accrue to nursing home instead
of contractor?
B. Peevyhouse v. Garland Coal & Mining Co. (pg. 228) (Strip Mining Case)
1. R: Owner entitled to performance unless performance grossly out of proportion to the
good to be attained. When that is true, measure is the diminution of value.
2. F: As per strip mining lease, Δ promised to do ancillary restoration of prop & did not.
3. P: Π sued for breach & requested damages of $25K based on cost of performance theory.
a.) Δ conceded breach but said damages should be based on diminution of value theory$300 (Difference in prop’s market value b/t current condition & if work performed)
b.) Jury awarded $5K for no real reason & both parties appeal.
4. H: Court agrees w/ Δ’s damage theory & awards $300.
a.) Δ’s contention & court decision in conformance w/ expectation measure b/c damage
award restores Π to value of land they would have expected if work was completed.
b.) Π’s contention under performance theory also in conformance w/ expectation measure
b/c Π had expected to have land restored & to meet expectation, need 29K for restoration.
c.) App. Crt. holds cost of performance “undue” b/c so greatly exceeds Π’s economic benefit
5. If Π sued for specific performance may have persuaded court that truly wanted property fixed
6. Why didn’t court follow MN case where cost of performance damages used?
a.) MN decision anomaly: more cases have used the diminution of value theory.
b.) Restoration work not critical part of K- main purpose was mining use & profit sharing.
7. From Δ’s standpoint, good case of efficient breach.
C. Schneberger v. Apache Corp. (pg. 237): Court uses Peevyhouse rule to decide the same way.
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D. School of Elmira v. McLane Construction Co. (pg. 241) - 2 differences from Peevyhouse:
1. Performance is important aspect of K (Based on specificity of aesthetics)
2. Δ did not act in good faith when breached as they knowingly misperformed obligations.
E. Aiello Construction v. Nationwide Tractor Trailer (pg. 244) (Difficult Damages Case)
1. Restatement § 346(2): Builder may recover either (i) entire contract price less
installments paid & cost of completion saved by non-completion or (ii) amount of net
expenditure in part performance of contract.
2. F: K for $33K & Nationwide (Δ) breached paying only $10,500.
3. Damages computed by trial court as: $21,500 (labor & material costs already expended) $10,500 (already paid by Δ) = $11,000 + $3,000 (expected profit) = $14,000.
4. Appeals Court evaluates alternatives for computing damages as per RS § 346(2):
a.) Damages ($14,000) = K Price ($33,000) – costs saved ($8,500) – amount already paid
($10,500)
b.) Damages ($14,000) = Costs ($21,500) + Profit [Price of K – costs saved – costs incurred]
($3,000) – amount already paid ($10,500)
c.) Why does RS § 346 (2) provide both methods when formulas yield same result?
1.) Some variables easier to ascertain than others.
2.) Practical reasons b/c one formula might be easier to compute than the other
3.) Contractor who was going to lose $ on the job will want to use (a) b/c doesn’t require
him to state expected profits (or loss) & consequently have his damages reduced.
5. What if contractor, after getting thrown off 1st job, gets 2nd job that nets same profit?
a.) If contractor keeps profits from both jobs, now in better position than if original K
performed. Thus, gets overcompensated.
b.) There is a conflict as we do not want to overcompensate breaching party either. Thus,
seems better to allow non-breaching party to have windfall.
6. What do we do about fixed overhead?
a.) If K performed or breached, contractor still must pay fixed overhead expenses.
b.) For purposes of ascertaining damages, would probably ignore them either way
II. Damages for Breach of Contract for Sale of Goods
A. Seller’s Remedies in General for Buyer’s Breach (UCC §2- 700 through §2-710)
1. Resale to another party & if for less than initial K, get price difference as damages.
2. Seller can keep goods & Buyer’s locked into original K price & must pay difference b/t K
price & actual market price at time of breach
3. Specific Performance
B. Buyer’s Remedies in General for Seller’s Breach (UCC § 2-711 through 2-717)
1. If Seller refuses to deliver goods, Buyer may Cover: Purchase substitute goods from other
sources & recover difference b/t contract price & cover price
2. Recover damages for non-delivery
3. Specific Performance through action of replevin
C. Burgess v. Curly Olney’s Inc. (pg. 251) (Curley’s Combine Case)
1. R: Failure to prove market value or valid consequential harm is failure to prove
damages beyond Buyer’s expenses already paid.
2. F: Π B sues Δ S for breach where B is supposed pick up 3 combines @ S’s HQ after paying
$200 deposit. S finds new B willing to buy for more $ & returns down payment.
3. Buyer’s Expectation Damages when Seller agrees to sell & then repudiates contract?
a.) UCC §2-713: Difference b/t contract & market prices at time of breach
1.) Buyer uses “blue book” to show market value higher than K purchase price
2.) Court denies this claim by questioning value of market price:
a.) No good evidence of condition of combines
b.) No good evidence of price differentials in different market locations
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b.) UCC § 2-715: Consequential Damages: Difference b/t K price & future sale price to 3rd
Party)
1.) Buyer produces 2nd sales slip claiming they would re-sell combines for profit
2.) Buyer must prove based on UCC § 2-715(2) that:
a.) Seller, at time of K, could reasonably foresee Buyer’s loss of re-sale opportunity
b.) Losses could not have been prevented by cover or otherwise
3.) Court denies this claim also b/c resale contract bogus, created only to prove damages
4. Court holds Buyer to receive $200 deposit
D. KGM Harvesting v. Fresh Network (pg. 258) (Lettuce Settle Case)
1. UCC §2-712: B may cover for breach by making in good faith any reasonable purchase
of goods in substitution & may recover from S difference b/t cost of cover & K price.
2. F: KGM (S Δ) -> Fresh (B Π) -> future buyers. S breached b/c lettuce price went up.
3. Parties claim damages should be calculated as follows:
a.) Buyer: Damages for difference b/t K price & actual cover price per UCC § 2-712
b.) Seller: B/c Buyer selling down chain on “cost plus” basis, they are unjustly enriched as
they will recoup cost differential from S + return on cost.
4. Jury verdict for B for nearly full damages sought & affirmed by CA appeals court.
5. Isn’t this windfall to B?
a.) Maybe, but if damages not paid, S gets windfall from their breach. Court seems to say if
one party is to get windfall, should be non-breaching party.
b.) Maybe not, b/c if price of lettuce had gone down, B would have breached & would have
had to pay full difference b/t K price & new lower market price. This case is merely
reciprocal to actual scenario.
E. Neri v. Retail Marine Corp. (pg. 265) (Boat Buying Case)
1. Lost Profit Rule: UCC §2-708(2) Most important UCC section for Seller’s remedies
2. F: Π gives $4,250 to Δ for boat deposit & attempts to rescind K after boat had been delivered
to Seller. Seller then able to sell for same $12.5K price.
3. P: B sues for deposit under theory of restitution & S counterclaims for profits, expenses &
atty fees.
4. Trial court uses UCC §2-718 indicating that in event of Buyer’s breach, damages are the
lesser of (i) 20% of profits or (ii) $500. Seller thus awarded $500 & Buyer entitled to
$3,750 ($4,250- $500)
5. Appellate court indicates trial court ignored UCC §2-718(3):
a.) Buyer claims expectations of Seller satisfied b/c sold boat for K price & thus should use
UCC § 2-706 wherein Seller entitled only to difference b/t K & actual sale price.
b.) Seller believes they are entitled to recover damages for non-acceptance & thus should
use UCC§ 2-708(2) whereby if K not breached, Seller would have profited from 2 sales.
c.) Court awards lost profit + incidental damages to Seller but not attorney’s fees (which are
only paid when either statute or K provides)
6. B/c this boat was a “commodity” & Lost Volume Theory applies, we use UCC §2-708
which says that B must pay profit to S who is assumed to able to sell boat at $12.5K. B’s
payment represents the profit on a 2nd boat S would have been able to sell if not for breach.
However, if boat had been specially manufactured such that lost volume theory did not apply
& S is not ensured of $12.5K, then S must mitigate & B merely pays the difference. If S able
to sell for $12.5K or higher, B owes nothing when the boat is not commodity.
III. Mitigation: Contracts for Employment
A. Rockingham County v. Luten Bridge Co. (pg. 271) (Bridge Building Case)
1. R: Non breaching party must mitigate damages if given opportunity
2. F: Luten (Π) seeking damages for work subsequent to County (Δ’s) breach of bridge K.
3. Court holds Π had duty, once receiving notice of breach, not to pile up damages.
a.) No justification for continuing to injure other party.
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b.) Waste of resources continuing to build.
4. If contractor could do 2 jobs at same time (making his services a commodity & lost volume
theory applies), case would conform to Neri & would be able to get lost profits. However,
here should have used limited resources for other work. Must mitigate damages.
B. Madsen v. Murrey & Sons Co. (pg. 274) (Pool Table Case)
1. UCC §2-706(1): Must use commercially reasonable efforts to mitigate
2. F: S stuck w/ unused pool tables & scraps parts for salvage. B asserts S should have
attempted to sell tables.
3. Crt holds S must make commercially reasonable efforts in mitigating loss of unique items.
C. Shirley Maclaine Parker v. 20th Century Fox. (pg. 277) (Movie Star Case)
1. R: Do not have to mitigate if opportunity inferior to that of original K.
2. F: K for Π to star in movie A for $750K. Δ decides to make movie B instead, amending K
slightly but $ same. Π declined new offer & sued for breach to recover $750K damages.
3. Δ argues by offering movie B & Π not accepting, Π makes no reasonable effort to mitigate.
4. At trial, summary judgment to Π for full damages. Appeals Court affirms:
a.) Π’s reasonable duty mitigate = Π must take “substantially similar” role but did not have
to take “inferior role.”
b.) After evaluating differences & similarities of roles, court concludes that 2nd role inferior
5. Differences overcome similarities b/c we don’t want breaching party to benefit from breach.
6. If she does accept inferior work on her own, would deduct actual mitigation
IV. Forseeability
A. Hadley v. Baxendale (pg. 287) (Shaft Longer than Promised)
1. F: Π (miller) sends shaft to be repaired & Δ (carrier) takes longer than promised to send it
2. Restatement §251: In getting damages, non-breaching party can receive either:
a.) Losses which arise naturally from breach- the common/generally expected result
b.) Special circumstances where other party knows or should reasonably know that when K
entered into, losses could arise from breach.
2. Why didn’t mill get lost profits from being shut down 1 week?
a.) Most mills have extra shafts so loss not necessarily naturally occurring result from delay
b.) Carrier doesn’t have special knowledge that breach -> damages.
1.) However, seems from facts of case that mill employee does make it known to
carrier’s representative that mill shut down while shaft repaired
2.) Seems that majority believes that info conveyed poorly or to person lacking
authority. Otherwise, seems likely to allow Π to get lost profits.
B. Victoria Laundry (Windsor), Ltd. v. Newman Indus.(pg. 291) (Boiler Broken Case)
1. Court holds carrier should have known boiler’s intended use b/c Π’s made clear & thus
should have known that late delivery = lost profits.
2. Hypo: Same facts but also labor strike so that plant closed anyway. Probably no damages b/c
Π required to prove breach caused loss.
3. Hypo: Same facts & boiler installer never shows.
a.) Court could take Substantial factor approach: If Π proves Δ’s breach substantial cause
of loss, full damages awarded. Otherwise, nothing.
b.) Court may also allocate damages based on how much each were causes of the losses.
C. Koufos v. C. Czarnikow, Ltd. (pg. 293) (Sugar Boat Case)
1. F: Π taking sugar to Basra & Δ’s boat delivered it late. During delay, price of sugar dropped.
2. Court held Δ must pay losses (difference in profit) from delay b/c Δ knew Π taking there for
sale in existing sugar market & knew there would be risk of loss. Δ thus assumed risk.
V. Certainty
A. Kenford v. Erie County (pg. 299) (Stadium Building Case)
1. F: Δ County breaches contract by deciding not to build dome stadium. Π’s sues for lost
operating profits over 20 year management contract.
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2. Court holds damages must be proven with reasonable certainty & despite wealth of statistical
analysis/expert studies, not enough certainty to show what profits would have been.
3. How do we even know that Π would have performed for 20 years? Should we ever give
damages in long term contract b/c so speculative? Π must also prove w/ reasonable certainty.
B. Contemporary Mission, Inc. v. Famous Music Corp (pg. 304) - Courts distinguish this case by
holding that statistical track record could be utilized to prove reasonable certainty.
VI. Liquidated Damages
A. Wasserman’s Inc. v. Middletown (pg. 308) (Retail Lease Damages Case)
1. F: Π (Wasserman’s) enters 30-year lease w/ Δ (town) w/ 2-part stipulated damages provision:
a.) Provision 1: Amortized value of improvements based on use. Not contested by Δ.
b.) Provision 2: % of average sales revenues to compensate for lost profits. Contested.
2. Since town agreed to this formula in K, why do they contest now?
a.) Provision 2 amounts to penalty clause which is legally not enforceable.
1.) If liquidated damages clause so onerous that deters breach even where efficient, court
will set aside b/c K law morally neutral & merely tries to meet parties’ expectations.
2.) Why allow stipulation of damages at all?
a.) Consistent w/ freedom of K - don’t want to inhibit people from bargaining.
b.) Avoids litigation costs
3. Is Provision 2 Liquidated Damages clause or penalty clause? 2-Part Rule:
a.) Is it a reasonable forecast of actual damages? Only measure of damages is profits.
b.) Is it difficult to prove actual damages w/ accuracy? If yes, then provision allowable. But,
long timeframe & unknown mitigation allowance -> difficult to prove actual #’s
c.) Rules are logically inconsistent b/c if damages difficult to prove, how can we require
reasonable forecast? Courts still use these rules anyway.
B. Is a Deposit Forfeiture for breach a liquidated damages provision? Yes.
1. For land transactions, forfeited deposit often measure of market fluctuation risk
C. Construction K delay penalties: Reasonable measure of damages if loss can be proven.
D. Are liquidated damage provisions exclusive or can you choose actual damages? Normally not
exclusive remedy unless K provides otherwise. Often favored b/c of certainty.
CHAPTER 7- Specific Performance
I. Introduction
A. Specific Performance: Where court forces performance of K (most in line w/ expectation model)
B. Why is there presumption against specific performance?
1. Historical Basis: English Courts of Law only authorized by King to allow payment of $. Only
King (or designated Chancellor) can force performance if $ remedy not possible.
2. Efficient Breach: Some situations where society general better off by breach & subsequent
payment of damages.
II. London Bucket Co. v. Stewart (pg. 325) (Heating System Case)
A. R: Courts should only allow specific performance when inadequate remedy at law (at law = $)
B. F: Δ appealing trial court order for specific performance to install heating system for motel (Π)
C. Why does court hesitate to enforce specific performance in general?
1. Can’t be done (Hairy Hand case)
2. $ is adequate remedy at law
3. Supervision- Don’t want court to supervise K
4. Not in Public Interest (i.e. Kenford v. Erie County- action for building stadium)
5. Against Will/Servitude- Don’t want to force people to do something against their will
III. Walgreen Co. v. Sara Creek Property (pg. 327) (Pharmacy Lease Case)
A. F: Landlord breaches lease by leasing anchor space to Pharmor. Walgreen’s filed breach of K
seeking injunction against Landlord. Injunction granted.
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B. Posner argues that proving certainty of damages is difficult so does cost/benefit analysis:
1. Costs of specific performance include transaction costs of landlord’s deal w/ Walgreen’s.
2. Benefits of specific performance: Landlord can work out $ deal w/ Walgreen’s to let Pharmor
in & promotes certainty of K law.
3. Costs of denying injunction include litigation to determine damages, risk of
over/undercompensation to Walgreen’s b/c unable to prove damages w/ certainty &
miscalculation of settlement
IV. Other cases where Specific Enforcement makes sense:
A. Non-compete agreements in shopping mall leases & K’s for sale of real estate (unless purchase
only for investment purposes)
B. K’s for purchase of real estate not as compelling b/c Seller only concerned w/ $. If sale to
someone else for $10K less, compensating as damages just as good. (Unless unique item)
CHAPTER 8- Reliance & Restitution Measure
I. Reliance Damages in Bargain Context
A. Security Stove & Mfg. Co. v. American Rys. Express Co. (pg. 340) (Trade Show Fiasco Case)
1. F: Π incurs $800 expenses for trade show; Δ ships product late.
2. Δ says if Π had sought expectation damages, expenses would have been the same thus no
need to reimburse.
3. Court says expectation approach puts Π in catch-22 b/c expenses would still be incurred
while Π would be unable to reasonably prove profits. Thus court awards reliance damages.
a.) Purpose of reliance damages is to put Π in same position as if there had been no K.
b.) Courts typically award damages based on post-K expenses – BUT:
1.) Π had some expenses pre-K (rented booth). Court says that loss “grows out” of
breach b/c expenditures were wasted.
2.) Could looks at fact that Π would have entered into K w/ other carrier, so expenses
wouldn’t have been wasted.
B. Anglia Television Ltd. v. Reed (pg. 344) (TV Star Breaches K Case)
1. F: Π expends pre-K money in preparation of hiring Δ who signs & then breaches K.
2. Court holds that Π entitled to pre & post-K expenses b/c such expenses arise out of breachonce breach occurs, pre-K expenditures are wasted. (Seems that mitigation would apply here)
3. If we assume that TV movie would have broken even, reimbursement for pre-K expenses
puts Π in same condition as full performance would have.
4. Reliance approach is essentially same as expectation measure assuming a zero-profit K.
C. L. Albert & Son v. Armstrong Rubber Co. (pg. 345) (Hand Job #2)
1. Hand argues that if Δ can show that full performance of K would yield a loss for Π, Δ does
not have to pay full reliance damages (expected losses can be subtracted from expenses.)
2. Burden shifts to Δ to prove that K would have led to losses.
D. Reliance measure used in most promissory estoppel cases where benefit conferred to only 1 party.
II. The Restitution Measure
A. Osteen v. Johnson (pg. 347) (Record Promotion Case)
1. F: Δ promises to promote Π’s records for $2,500. Δ breached by (i) failing to send out 2nd
record to DJ’s & (ii) incorrectly attributed co-writer to 1 song. Π seeking $ back.
2. If Π was seeking expectation damages, would have sought expected profits from successful
music career which would be impossible to prove.
3. If Π seeking reliance damages, would have sought incurred costs for relying on K- which
were probably $0.
4. Π instead chooses to seek restitution damages & court holds (i) substantial breach deserving
damages & (ii) unsubstantial breach no justifying damages based on Π’s evidence.
5. Court awards $2,500 minus value of services actually provided (to be determined on remand).
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6. Can restitution always be sought, no matter how insignificant the breach is? No, Π must
prove value of breach substantial if on its face, breach may be deemed insignificant.
B. U.S. v. Algernon Blair, Inc. (pg. 349) (Crane Rental Case)
1. F: Π terminated K after Δ breached by refusing to pay crane rental. Π sued to recover for
labor & equipment furnished.
2. Trial Court held Π’s termination is justified & while Π entitled to $37K in restitution, Π
would have lost at least that amount had K been performed fully. Consistent w/ expectation
measure of damages, Π should get nothing.
3. Appeals Court reverses: Promisee, upon breach, has option to forgo suit on the K (using K
as source for legal rights) & claim only reasonable value of performance (quantum
meruit/restitution) off the K. Remands for determination of benefits conferred.
a.) Generally, restitution not best way to go for non-breaching party (except here when K is a
losing proposition- Π will be put in better position than had full performance taken place)
4. Court holds that unless restitution damages awarded, Δ retains benefits at Π’s expense w/out
having paid for them- thus unjust enrichment.
a.) Π entitled to restitution regardless of whether Π would have lost $ on K & been unable to
recover in suit on K.
5. Seems contradictory to Hand’s ruling from Albert & Son
a.) Here, 2 competing policies: unjust enrichment of Δ vs. overcompensation of Π. Court
sides against unjust enrichment b/c also decision benefits non-breaching party.
b.) In Albert, no competing policy of unjust enrichment. There, only 1 policy of not wanting
to overcompensate non-breaching party b/c no benefit conferred on breaching party.
6. What if Π had finished the job? Could they sue in quantum meruit & argue they conferred a
greater value on Δ than the K price?
a.) No, similar to Oliver v. Campbell (pg. 351) where lawyer sues client for non-payment
after his duties were fulfilled & court held that if K fully performed, no more quantum
meruit rights & only remedy is specific performance based on original K price.
C. Britton v. Turner (pg. 353) (Employer Unjust Enrichment Case)
1. F: Π employee breaches year-long $120 employment K by quitting job after 9 ½ months &
wants pro-rata payment ($95). Π sues under quantum meruit & jury awards $ sought.
2. Can Π sue on the K & if so, what is his argument? No, b/c Π is breaching party & Δ did
nothing wrong. So, Π can only collect “off the K” in quantum meruit.
3. Unjust enrichment = Δ receives 9 ½ months of labor from Π for free. If Δ could show
damages for Π’s early termination of K, Δ could file counterclaim for breach based damages.
4. Can Π breach K willfully & then seek restitution? Court holds yes willful distinction
irrelevant. However, other cases withhold restitution if breach willful. Discrepancy arises due
to 2 different perspectives:
a.) If you just want to disgorge benefits received, willfulness irrelevant.
b.) But, if trying to provide more just/equitable decision, may say that person who willfully
breaches should not be able to collect.
SECTION 3- ASSENT
CHAPTER 9- Introduction to Interpretation
I. Subjective & Objective Elements in Principles of Interpretation in K Law
A. Lucy v. Zehmer (pg. 364) (Joke Farm Sale Case)
1. F: Π seeks specific performance of K to purchase farm when Δ believes K made in jest. Δ
insists K unenforceable b/c no meeting of the minds- Δ never actually intended to sell
2. Court will only evaluate outward manifestation of seriousness in determining parties’ intent
3. If parties believed it was joke even though from appearances seemed earnest, K voidable.
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B. Raffles v. Wichelhaus (pg. 368) (Ship Delivery Confusion Case)
1. F: K for delivery of cotton from Peerless. Confusion as to which ship & thus which month
cotton to arrive (Oct./Dec.) Buyer refuses to take late delivery & Seller sues for breach.
2. K didn’t specify departure/arrival date or any other info about the ship- ambiguous.
3. Held for Buyer b/c K unenforceable- no meeting of minds. Utter confusion about transaction.
4. Outward appearances seem to suggest either party equally justified in their belief about K.
5. Restatement: If both parties have justified misperception of other’s position, voidable K.
C. Frigailment Importing Co. v. B.N.S. Intern. Sales Corp. (pg. 370) (Chicken Choke Case)
1. F: Buyer sues Seller for breach when Buyer expected fryers but got stewing chickens.
2. Why does court struggle w/ meaning of “chicken?” K does not specify type of chicken
3. Must look beyond the specific K words to determine intent of the parties
a.) Buyer tries to establish that “chicken” implies fryers & provides several arguments
(custom, etc.) to indicate that Δ should have known
b.) B/c Buyer suing for breach, has burden of proving “narrower” definition of chicken.
4. Court holds Seller believed it was complying with K & such intent coincided w/ objective
meaning of “chicken.” B/C Buyer, having burden of proof, failed to show Seller’s definition
unreasonable & should have been “narrower,” complaint dismissed.
D. Haines v. New York (pg. 391) (Sewage Treatment Case)
1. F: K b/t NYC & towns to maintain sewage treatment. K silent as to duration.
2. NY believes K can be terminated at will & towns believed K would last until they had their
own treatment facility. Also town believes NYC will expand for that duration as needed.
3. Court holds:
a.) K means NYC will provide treatment until NYC no longer needs water from town.
b.) In addition, NYC must maintain but not required to expand capacity.
4. Different ways to understand court’s opinion:
a.) If parties had discussed this possibility when K made, would have agreed as such
b.) Court wants to enforce something consistent w/ purpose of remainder of the K.
E. Spaulding v. Morse (pg. 394) (Trust Fund Case)
1. F: Father agrees to pay yearly sum into trust until son goes to college & once in college, to
pay higher yearly sum. When son gets drafted after HS, father stops paying & trustee sues.
Trial court finds for trustee.
2. Appeals court determines that while son in Army, they are charged w/ his maintenance. Thus,
no need for father to continue paying into trust b/c would not serve purpose of agreement.
3. Court determines, based on general intent of these types of K’s & initial alimony agreement,
that main objective of trust is for mother to take care of son’s living expenses while young &
then into college.
a.) Court chooses not to look to plain language of agreement b/c could lead to ridiculous
outcomes (What happens if son never goes to college, becomes disabled, etc.)
b.) Must look at document in terms of what parties have intended (usually reflected in
language but not always precisely).
4. Why does the court undue a bad bargain here?
a.) They’re not- court is only first looking to purpose of K to determine what the bargain is.
Once so determined, then court will hold parties to the bargain- good or not.
b.) Still, the latitude which the court takes in interpreting K could diminish some of the
certainty in K law which is problematic.
F. Berwick & Smith Co. v. Salem Press Inc. (pg. 397) (Printing Snafu Case)
1. F: Π printing company sues for breach when publisher Δ believed printing price was quoted
for both volumes while Π believed price for each volume separately.
2. Court holds just b/c Δ unaware of trade usage in publishing books (although this was 1st book
published- not novices in industry) such factor is not controlling.
a.) Where usage is established, there is presumption that parties K’d w/ reference to it.
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b.) This is especially true when both parties engaged in same trade.
c.) Π not obligated to prove Δ’s actual knowledge of usage.
G. Flower City Painting Contractor, Inc. v. Gumina (pg. 401) (Painter Confusion Case)
1. F: Π believed K required painting only interior walls. Δ responded that entire structure was
covered by K & therefore canceled it.
2. Main Q whether Π had reason to know trade usage for construction industry b/c new
company.
3. Court holds b/c this was Π’s 1st substantial job, would be unrealistic to hold it strictly to
“reason to know” standard of trade usage. Each party had different & reasonable view of
undertaking- same as Raffles case.
CHAPTER 10- The Mechanics of a Bargain (I) - Offer & Revocation
I. Introduction
A. K = Offer + Acceptance
1. Offer must occur b/f acceptance.
2. Magic moment is when offer is accepted.
B. General Rule: An offer is still open unless notification otherwise.
II. What Constitutes an Offer?
A. Lonergan v. Scolnick (pg. 404) (Letter Offer & Acceptance Case)
1. F: After correspondence b/t B & S, B claims offer on prop made in S’s letter dated 4/8 which
should have remained open until B acceptance on 4/15. However, B sues b/c prop was sold to
a 3rd party on 4/12.
2. Crt holds there was never a definite offer b/c letter seemed to indicate still in negotiating/precontractual stage (“Send $ fast language indicated other potential buyers). Crts holding based
on RS §24.
3. Restatement §24: For an offer to have been made, it is necessary that there is an
expression of fixed purpose giving the other party reason to believe that there is no
further expression of assent needed to make the offer binding.
4. We must evaluate whether the manifestations of the last party are certain as to whether his
last statement constitutes a final offer or if he is retaining the right to accept or reject any
next statement from the other party.
B. Lefkowitz v. Great Minneapolis Surplus Store (pg. 406) (Newspaper Ad Case)
1. F: B accepts newspaper ad for $1 stole but S refuses to sell b/c house rule- must be a woman.
But, rule not communicated in paper.
2. R: Where an offer is “clear, definite & leaving nothing open to negotiation,” it
constitutes an offer of which acceptance will complete the K.
3. Court awards Π difference b/t bargained for price & the market value stated in the ad.
4. Although generally, ads are offers which may be modified or revoked by S, the difference
here is that the ad indicated a specific quantity, price & says 1st come/1st served. It is more
definite & less equivocal therefore S required to honor its offer.
C. Fisher v. Bell (pg. 409) (Knife Advertisement Case)
1. F: Knife in window advertised for 4 schillings
2. Court does not construe item display w/ price as an offer, merely invitation to offer.
II. Termination of Offeree’s Power of Acceptance: Lapse, Rejection & Counter-Offer
A. Akers v. J.B. Sedberry, Inc. (pg. 411) (Offer to Resign Case)
1. Π offers resignation which Δ initially brushes aside but then accepts 3 days later.
2. Offers can lapse (Burden on offeree to accept):
a.) After fixed amount of time
b.) After reasonable amount of time.
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3. Offers can be rejected by offeree by conduct (brushing aside, change in topic) & upon
rejection, must be renewed by offeror to be valid.
4. Offers are terminated:
a.) Upon death of offeror
b.) Revocation by offeror prior to acceptance by offeree
c.) By a counter-offer by offeree
B. Ardente v. Horan (pg. 415) (Bid on House Case)
1. F: After B bids on house, S ok’s price & sends unsigned written K to B who returns it signed
w/ a check & separate letter to confirm that furniture is included. S refuses to complete sale &
B sues for specific performance.
2. Crt holds no binding K b/c B’s letter imposed condition on acceptance thus rendering it
invalid.
3. R: Acceptance must be definite & unequivocal to be effective. While conditional language
does not automatically invalidate K, the condition must be clearly independent of offeree’s
actual acceptance.
4. Conditional acceptance usually viewed as counter-offer. (Restatement §39 pg. 420)
a.) #2: “Won’t you take less” doesn’t constitute counter offer- merely an inquiry b/c not
specific number & doesn’t re-define the deal.
b.) #3: Ambiguity here w/ language sends message that doesn’t go so far as rejecting offer
but close.
5. Mirror Image Rule: If purported acceptance varied from offer in any respect, no matter how
minor, no K was formed.
a.) Restatement § 59 softens rule by saying that acceptance exists despite a statement of
additional or different terms as long as acceptance is not made to depend on assent to
those additional or different terms.
III. Termination of the Offerree’s Power of Acceptance: Revocation
A. Dickinson v. Dodds (pg. 423) (Firm Offer Case)
1. S offers to sell prop to B indicating offer will remain open until a specified time (Firm
Offer). Upon B deciding to purchase, he learns that S has agreed to sell to a 3rd party. B
delivered acceptance prior to the deadline but S refused to sell b/c he had already sold prop.
2. Crt held that S could revoke his offer prior to B’s acceptance. B learning that S was going to
sell to 3rd person was sufficient communication of S’s revocation of offer.
3. The problem is that S claimed that the offer would be open until the deadline.
a.) It could be interpreted that nothing in the offer said S had to keep it open until that time.
The deal is essentially an option to buy for certain $ & certain time.
b.) Options are not enforceable unless supported by consideration. It is viewed as a gift
promise (time to consider an offer).
B. Payne v. Cave (pg. 427) (Auction Case)
1. R: In a reserve auction, the bid is an offer, not an acceptance. Bidder may therefore revoke
offer prior to acceptance (drop of auctioneer’s hammer). In addition, until hammer comes
down, seller can withdraw items for sale as well.
2. UCC § 2-328 says sale complete when auctioneer brings hammer down
3. E-bay Auctions: Bids are not retractable except in exceptional circumstances. Sellers can’t
withdraw item either.
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