Basis for Enforcing Promises
A. Consideration as a Basis for Enforcement
A. Fundamentals of consideration
a. Consideration: 1. something of value (such as an act, forbearance, or a return promise) received by a promisor from a
promise; 2. consideration, or a substitute such as promissory estoppels, is necessary for an agreement to be enforceable
b. Three Interests to be protected
a. Expectation interest - put promisee in same position had the promise been performed
b. Reliance interest - put promisee in same position they would have been in had the promise not been made
c. Restitution interest - putting the promisor back in the position they would be in had the promise not been
made
B. Breach of Contract claim – must have consideration
a. Consideration is a bargained for exchange
a. Restatement (Second) 71(1): Bargain Theory
a. To constitute consideration, a performance or a return promise must be bargained for
b. Restatement (Second) 71(2): Bargain Theory
a. A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise
and given by the promisee in exchange for that promise.
b. Can seek performance or return promise
a. Ex. Hamer v. Sidway(p. 27) – (uncle promised to give nephew money for not drinking or smoking) when the promisee forbears or gives up rights in reliance on promisor’s promise there is sufficient
consideration to enforce promise
c.
Maybe no consideration if not a lawful right to act (Hamer)
d. Compare benefit/detriment approach – Relevant as ancient history
a. Restatement (Second) 79 - If the requirement of consideration is met, there is not additional requirement
of
a. A gain, advantage, or benefit to the promisor or a loss, disadvantage or detriment to the promisee.
C. Implications of the Bargain Theory
a.
Gratuitous promises – promises to make a gift, unenforceable
b. Peppercorns – sham promises are not consideration
a. Ex. Giving a penny in return for a promise
c.
Promises to settle lawsuits can be consideration but in addition to bargained for exchange need reasonable and good
faith belief in claim
a. Ex. Fiege v. Boehm(p. 34) – sufficient consideration for a promise to forbear from bringing lawsuit in
exchange for the payment of child support even if it is later discovered that the basis for promise is false
as long as at the time the promise was entered into the promisor had a good faith belief that the claim was
valid
d. Must have a good faith belief in the validity of your claim to be able to have a legal right to assert that claim
e.
Past action is not consideration
a. Ex. Feinberg(p. 39) – promise of board to give a secretary a pension and raise had no consideration
because she was not required to give anything in exchange for promise and court found that her past
employment did not constitute consideration
b. Ex. Mills v. Wyman(p.44) – promise of father to pay for medical services of son after services had already
been performed not enforceable because no consideration for past actions
a. Alternative theory: moral obligation
i. Ex. Webb v. McGowin (p.45) – promise for benefit previously received by promisor is binding to the
extent necessary to prevent injustice
b. Alternative theory: restitution (see below)
f.
Unsolicited action is not consideration
a. Ex. Kirksey v. Kirksey (50)– brother in law promises sister in law that if she comes to live with him he
will provide her with a house – no consideration for promise as it was a gratuitous promise – court found
he was not trying to induce her to move therefore no consideration
a. Thin line between a gratuitous gift and a conditional statement trying to induce action
b. Ex. Williston v. Tramp – If you go around the corner I will give you a coat
a. Going around corner not consideration it is a condition of a promise
b. But if he promises to give tramp a coat to move from outside Williston’s store and move to corner in
exchange for a coat probably consideration
c. Ex. Tiffany’s problem
a. If you will meet me at Tiffany’s next Monday at noon I will buy you the emerald right advertised in this
weeks New Yorker.
b. Consideration because daughter had not seen father for many years and he was trying to induce her to see him
g. Illusory promises are not consideration
a. Traditional approach: literal reading of promise
a. Take promise literally
b. If promise has no substance (i.e. is peppercorn), cannot be consideration
Ex. Strong v. Sheffield(66) – No consideration for niece’s promise to uncle to pay her husbands debt
as there was no specified time to forbear from collecting debt
b. Modern approach: imply term to give promise substance
a. Parties believe they have a deal – on face no substance
b. To give substance to deal, courts imply missing term
c. E.g., good faith/reasonable satisfaction
i. Ex. Mattei v. Hopper (69)– contract to buy land containing a satisfaction clause was found not to be
an illusory promise as court implied a good faith standard on the satisfaction clause
ii. Ex. Wood v. Lucy, Lady Duff (83) – same concept of court implying terms to give contract
consideration
D. Alternative theory: Promissory estoppel/reliance
a. Restatement 2d § 90:
a. Promise
b. Promisor reasonably should expect to induce reliance
c. Did induce reliance
d. Is Binding
e. Only if necessary to avoid injustice
f. remedy limited as justice requires (i.e. reliance damages)
b. Restatement (1st) § 90: Promise Reasonably Inducing Definite and Substantial Action - A promise which the
i.
c.
promisor should reasonably expect to induce action of forbearance of a definite and substantial character on the part of
the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by
enforcement of the promise.
1st v. 2nd Restatement § 90: Need definite and substantial reliance; get expectation damages
a.
b.
c.
a. Restatement (1st) 90 – promise all or nothing
Promisor reasonable should expect to induce reliance
Of definite and substantial character
Binding if necessary to avoid injustice
b. Restatement (2nd) 90 – Promise may be compensated for your reliance (slightly less than promise w/
consideration)
a. Promisor reasonably should expect to induce reliance
b. Did induce reliance
c. Binding necessary to avoid injustice
d. Remedy may be limited
d. Ex. Feinberg (91)– Even though court found no consideration for promise – found promise based on P’s reliance on
the promise when she quit her job
e.
Ex. Ricketts v. Scothorn (86)– grandfather induced granddaughter to quit her job by offering to give her money and
promise is enforceable based on her reliance on the promise in quitting her job
E. Alternative theory: Restitution
a.
Can recover benefit conferred (restitution interest) if unjust enrichment
b. Enrichment: conferred benefit
c.
Unjust not to compensate
a. Need expectation of payment; not gift/volunteer
a. Ex. Cotnam v. Wisdom (103)– doctors took care of unconscious man on street who dies anyways – doctors
sue estate for money for services - court held that there was an implied contract
b. Not officious intermeddler (e.g. RS Restitution – unemployed homebuilder – should not be required to
pay for benefits that were ‘forced’ upon him)
d. Do not need promise
e.
Cannot use to avoid contract
a. Ex. Callano v. Oakwood Park Homes (108) – Oakwood building home for third party, Callano put in
shrubbery under agreement with third party – third party died, Oakwood released estate and sold home
Callano sued for unjust enrichment – court held that Callano should look to the purchaser for payment
under the contract instead Oakwood
The Bargaining Process
A. Contract Formation:
a. Is a contract formed?
i. I.e., is there already an enforceable promise
b. Two requirements:
i. Consideration (bargained for exchange)
ii. Assent (usually offer and acceptance)
c. What kind of assent is necessary?
i. Objective theory: view of reasonable person
ii. Subjective theory: actual intent of parties
B. Nature of Assent – Question of applying an objective theory or a subjective theory?
a. Courts apply an objective standard when looking at assent not a subjective standard (What the parties outward intentions
portrayed not their inward intentions)
i. Ex. Lucy v. Zehmer (119) – offer by D to P to sell farm – P accepted then D tried to get out of deal saying that he
was drunk and joking about the deal – Court upheld the bargain holding that there was nothing in Zehmer’s actions
to show that he was joking about the offer and Lucy was unaware of the joke
ii. Ex. Harrier jet commercial – What matters is what an objectively reasonable person would have thought
C. The Offer
a. Defined: Restatement (Second) § 24: “An offer is a manifestation of willingness to enter into a bargain, so made as to
justify another person in understanding that his assent to that bargain is invited and will conclude it.”
b. What is important when looking to see if you have an offer?
i. Quantity is essential for there to be an offer
ii. To have an offer you must have language of commitment
iii. The more terms included in an offer the more likely it is going to be an offer
iv. If in doubt and it is not clear if there is an offer the courts tend to hold no offer
c. Requires Language of Commitment – must have language of commitment to sell to have an offer
i. Ex. Owen v. Tunison (130) – Owen sends letter to Tunison offering to pay for property, Tunison returns saying
could not sell for at least a certain price, Owen accepts, Tunison refuses to sell – Court after looking at the
language of the letters holds no contract as letters show just an offer to open negotiations not an offer to sell
d. Specific Quanity, Price, and Time for acceptance
i. Ex. Fairmount Glass Works v. Crunden Martin (134) – letter from Crunden to Fairmount to get quote for
specified order – Fairmount sends quote “for immediate acceptance” – Crunden writes to place order and
Fairmount says unable to fill – Court upheld the contract as Fairmount’s letter had listed prices and required
immediate acceptance which Crunden fulfilled which then closed the deal.
ii. Ex. Salt trade case (note case p. 137) – Company “offering” to sell goods but no specification of quantity is not
an offer
e. Newspaper Ads as Offers
i. Normally newspaper ads are not considered offers but some exceptions
i. Ex. Lefkowitz v. Great Minneapolis Surplus Store (138) – Lefkowitz responded to ad and when he was
in the store they refused to sell the item to him claiming only women could accept which was not in the ad
– Court held that the ad constituted an offer and the plaintiff’s conduct constituted acceptance and while
the advertiser has the right at anytime previous to acceptance to modify his offer he does not have the
right to do so after the offer has already been accepted.
D. The Acceptance
a. Defined: Restatement (Second) § 50(1):“Acceptance of an offer is:
i. a manifestation of assent
ii. to the terms thereof
iii. made by the offeree in a manner invited or required by the offer
i. time/manner
ii. Promise or a performance
b. International Filter Co. v. Conroe Gin, Ice and Light Co. (151) – D bought water softener from P from a traveling
salesman – they accepted but before contract became binding had to be oked by the president of P’s company – D received
letter confirming their order and then cancelled deal arguing that contract was not binding b/c they had not received notice
of president’s acceptance – Court held notice was not required and D had accepted when ordered from salesman – and if
notice was required they had received it in last letter confirming order.
c. Acceptance through Promise or Performance
i. White v. Corlies and Tift (156) – White gave estimate to D for work to be done – D changed specs – White
assented – then received letter stating upon agreement he could commence work – he did not notify them and
commenced work then they countermanded offer – Court held no binding contract as company was seeking
acceptance through an offer not through performance therefore no binding contract. Acceptance must be in the
manner specified in offer.
ii. Ever-Tite Roofing Corporation v. Green (158) – case with agreement specifying acceptance through notification
or commencing work – D hired P to fix roof and when P showed up to do work D had hired someone else – Court
held that D’s knew it would take some time to commence work and must allow a reasonable time, also work
commenced when P began ordering materials not upon arrival at home.
d. Silence is generally not considered acceptance unless there have been prior dealings. (Ex. “Unless I hear from you
within 48 hours, you will be deemed to have accepted my offer” - Offeree doesn’t respond, but no contract formed)
e. Notice of Acceptance
i. Offer seeking promise – notice of acceptance is required, unless waived (see Internat’l Filter)
ii. Offer seeking performance – notice of acceptance not required unless performance is such that offeror will
typically not be aware of commencement of performance
E. Termination of the Power of Acceptance
a. Four ways to terminate
i. Lapse
i. Must be specific and if not then will imply a reasonable time
ii. Revocation (by Offeror)
i. If no showing of acceptance by offeree then no contract
ii. Equivocal (unclear) revocation is sufficient revocation
iii. If court is in doubt about offer court is going to tend to find No offer
iv. Also if court in doubt about revocation will find that there was a revocation b/c they do not want people
to be stuck in contracts that they did not intend to form
iii. Death or incapacity of offeror
i. “An offeree’s power of acceptance is terminated when the offeror dies or is deprived of legal capacity to
enter into the proposed contract.” Restatement (Second) § 48 (Aunt Mary problem pg. 185)
iv. Rejection (by offeree)
i. Offeree makes an offer, Offeror makes a counteroffer, offeree rejects then offeror accepts original offer –
No contract as offer dissolves after offeree rejects
b. Battle of the Forms
i. Use of different forms often by buyers and sellers that have different stipulations – no contract as terms not the
mirror image
ii. Mirror image rule
i. Acceptance must be of the terms of the offer
ii. If acceptance is not the “mirror image” of the offer, not an acceptance – no contract formed
iii. Instead is counteroffer
iii. Last shot doctrine
i. When parties perform, acts as acceptance of last counteroffer (last shot)
ii. Terms of agreement are controlled by the last form sent
◦
◦
◦
2-207 does away with common law.
▪ (1) You can have acceptance even with add. terms as long as you have definite/seasonal
acceptance, etc.
▪ (2) Between merchants, add. terms are proposals and become terms of K unless
 a. offer expressly limits acceptance to the terms of the offer.
 b. material alteration.
 c. notification of object beforehand or after in reasonable time.
How do we analyse whether something material alters something.
▪ Maybe there is a def'n. Is there?
 Cross references of section does not inlcude def'n.
 We look at the comments; here, 4 & 5 help us by giving examples. 4, things that are; 5,
things that are not.
 We find the test “surprise and hardship” that courts often turn to.
Hypos
▪ Hypo 1: Same facts, but C&A purchase order includes clause: this acceptance is expressly
conditional on the buyers assent to any add. terms contained herein.
 (1) We have def/seasonable acceptance. So far the analysis is exactly the same.
 (1) BUT is acceptance expressly conditional? It is and so it is not acceptance, it is essentially
a counter offer.
 Go to (2). Does it help? No, does not talk about K formation.
 Go to (3). K formed? YES. Conduct sufficient to form K.
 So what are the terms?
◦ (3) – Terms are:
▪ Those that the writings agree upon.
 Writings don't match on arbitration.
▪ Supplementary terms incorporated under any other provisions of this Act.
 No arbitration.
 Conclusion: No arbitration clause.
 Rundown
◦ 2-207(1) – Is K formed?
▪ If yes → 2-207(2) to find terms.
▪ If no → 2-207(3). Is K formed?
 If yes → 2-207(3), second sentence.
 If no → no K.
▪






Hypo 2: Original facts. Add “all disputes shall be resolved in court” to their first communication.
 Here we have different terms instead of additional terms.
 2-207(1) treats additional and different terms the same way, so we do the same thing as the
principal case. i.e. (1) creates K; go to (2) now.
 (2) But this subsection only tells us what to do w/ add. terms, what do we do with different
terms.
◦ Different courts approach this in different ways.
▪ We can treat it as an add. term (minority approach). (Supported by comment 3)
▪ Knock-out approach (majority approach): Different terms? Get rid of both of those
terms and we fill the gaps with the UCC.
2-207 is a direct response to mirror image rule and last shot doctrine and generally applies when we
have a battle of the forms situation.
2-207
◦ (1) Goes to whether or not K is formed.
▪ Definite & seasonable acceptance is acceptance.
▪ Unless expressly conditional.
◦ (2) Describes what to do with add. terms. (Nothing on diff. terms, i.e. contradictory between the
forms)
▪ On diff. terms: See Northrop below.
◦ (3) Ask whether K is formed despite failing (1), and the terms of K created under this subsection.
Hypo 4: Dorton facts, but instead of form from Dorton it was an oral K discussed over the phone.
◦ Does 2-207 apply? Yes. Read Comment 1, written confirmation of oral agreement.
◦ Is K formed? 2-207(1) says yes.
◦ We go to 2-207(2) and we end up in the same place.
◦ What if they agreed over the phone that any disagreements would be settled in court?
▪ We have the “diff. terms” problem again. However, this is different than the battle of
the forms. And courts have decided that we do not use the knock-out rule, because it
is unfair that a term that was expressly agreed upon be overruled by what is supposed
to be a confirmation. So instead we read diff. terms into 2-207(2) and we end up with
the the orally-agreed upon (original) terms.
Northrop
◦ Diff. terms approaches
▪ Knock-out rule: Contradictory terms are thrown out and default “gap filler” rules of the UCC are
used in place.
▪ Read diff. terms into 2-207(2).
 Authority would be in the comments section.
 What might happen here? Look at 2-207(c), the first set of the diff. terms are essentially
objected to in the original and so the original terms would be used.
▪ Second minority rule: Throw out the contradictory term and go with the original offer. We can
effectively say that these minority rules are the same as they get to the same place, i.e. adopting
the original offer's terms.
Aside: Gap filler refers to the default UCC terms that apply when K is silent on an issue.
Hill v. Gateway
◦ Rundown
▪ Hills order computer by phone
▪ Gateway ships computer to Hills
▪ With computer, Gateway includes terms: Arbitration clause; Provides that these terms govern
unless computer returned w/in 30 days.
 This is the offer, and we know that the offer can stipulate the manner of acceptance.
▪ Hills use computer for more than 30 days.
 Fulfilled “manner of acceptance” = acceptance.
▪ Computer allegedly is defective, Hill wants to sue.
◦ Above is the legal analysis. Seems strong enough with what we have learned so far.
◦ What about policy?
▪ Criticism: Allows businesses to create unfair terms that consumers may not be aware.
▪
◦
◦




What's the alternative? Easterbrook: Reading the terms over the phone would be cumbersome
to business and it does little to educate consumers that do not consider the terms.
▪ This case applies to fewer instances due to many of these exchanges being performed on the
internet.
Easterbrook states that 2-207 is irrelevant in a case when you only have one form. Is he right?
What about the confirmation setting? (Our hypo 4) 2-207 applies. So Easterbrook is fucking wrong.
What if we decide that there was a K formed over the phone?
▪ Then the terms sent would be add. terms, do we then look at 2-207(2)? NO, why? Because we
are not talking between merchants here.
▪ So what happens?
▪ Prof says that Easterbrook screws up the UCC analysis and that Hill would have won under UCC.
Materiality
◦ If offer w/ add. terms operates as acceptance then much weight on 2-207(2)(b).
◦ UCC comments, Material if:
▪ “surprise or hardship if incorporated w/o express awareness by the other party.”
◦ Uniformity in statutory text /= uniformity in interpretation/application. What is material may differ between
courts.
C. Itoh & Co. v. Jordan Int'l Co.
◦ Facts
▪ Itoh sent Jordan purchase order for steel coils. No arbitration clause.
▪ Jordon sent back acknowledgment form containing: “Seller's acceptance conditional upon add. terms on
reverse side. If not acceptable, notify seller at once.” Included arbitration clause.
▪ Itoh sues over defective steel. Trial court denied Jordon motion to stay pending arbitration. Jordan appeals.
◦ Court's 2-207 analysis
▪ Subsection 1. K formed? Court says no. Jordan's form became a counteroffer.

Why? 2-207(1) – Unless acceptance is expressly made conditional on assent to add. terms.
▪ Subsection 3: K formed by performance.

2-207(3) – Subsequent performance = “conduct by both parties which recognizes existence of K.”

OMG WHAT DO WE DO ABOUT A K FORMED UNDER SUBSECTION 3?
◦ 2-207(3) – “K terms consist of terms on which writings of parties agree, together with any
supplementary terms incorporated under any other provisions of the Act.”
▪ Step 1: Do Itoh and Jordan agree? On arbitration, nope.
▪ Step 2: Is it a supplementary term incorporated under some other provision of the Code?

No case authority, and UCC comments are no help.

Terms that fail the “agreed upon” test cannot be brought back under the guise of
supplementary terms.

They say that supplementary terms are intended to be limited to the standardized “gap
filler” provisions in Article 2, i.e. necessary/missing term which would be supplied by one of
the “gap filler” provisions (default rules provided by UCC when K is mute on a point).
Northrop Corp. v. Litronic Industries
◦ This is essentially one of the hypotheticals provided in class notes for Oct 6. Come back to this later if
necessary.
Hill v. Gateway 2000, Inc.
◦ Facts
▪ Customer orders computer on the phone, give CC number. Later, computer arrives w/ list of terms said to
govern unless customer returns the computer in 30 days.
▪ Usual deal: Arbitration clause. Lawsuit. Motion to stay pending arbitration. Denial. Appeal.
◦ Court
▪ This works elsewhere: Software; cruise tickets. ProCD, a software case, applies here.
▪ And more...refer to class notes.
c. Option Contracts
i. Restatement (2d) Sec. 45(1): Where an offer invites an offeree to accept by rendering a performance and does not
invite a promissory acceptance an option contract is created when the offeree begins the invited performance
i. Only applies to offers seeking performance – protects offeree from relying on promise completing most of
performance and then having the offer revoked
ii. Ex. Elmer Fudd Hypo (pg. 31-32 of notes) –
iii. Once offeree begins performance offer becomes irrevocable but offeree has not obligation to complete
performance

Recapping 2-207
◦ A response to mirror image rule/last shot doctrine.
◦
◦


Addresses Battle of the Forms (BOF) scenario ubiquitous in today's business world.
BOF v. confirmations (Analysis is different here, so figure out which category a fact pattern is in).
▪ Differentiate:

Battle of forms
◦ written offer followed by written acceptance

Confirmation
◦ Prior oral K followed by written confirmation/s.
▪ Issue 1: Is a K formed?

BOF
◦ 2-207(1) if agree on bargained-for terms, unless expressly conditional.
◦ If no, then 2-207(3) by conduct, only if no K by writings.

Confirmations
◦ Yes, we have oral K.
◦ Not affected by confirmations.
▪ Issue 2: If K, what are terms?

BOF
◦ Add. terms 2-207(2).
◦ Diff. terms?
▪ Two possibilities: Apply 2-207(2) or Knockout doctrine (use gap-filler terms instead).
◦ 2-207(3) K; (3) tells you what terms are.

Confirmations
◦ Single confirmation 2-207(2). Do not use knockout doctrine for diff. terms, use the orally-agreed
terms.
▪ WWJD?

Make the term a bargained-for term, i.e. negotiated up-front.
◦ Gateway: Final thoughts
▪ Easterbrook says 2-207 does not apply. He's wrong.
▪ The better UCC analysis is that K formed by phone call or by shipping.
▪ Prof: Because 2-207(2) applies to between merchants, in Gateway (if 2-207 applies), then this confirmation
terms would not become terms since Hill is not a merchant.
Elmer Fudd problem
◦ Elmer Fudd gets telegram from Uncle Louie
▪ “Dear Nephew, I promise to give you 3mil but only if you don't hurt any animals for one year – especially
rabbits!”
▪ Elmer treats Bugs well for 363 days (tells Bugs to go “romp and frolic in the forest”)
▪ On day 364, Unlce Louie sends telegram revoking offer.
◦ Offer seeking perf, how do you accept? By finishing perf., until then, no K. It's just an offer which is revocable.
▪ Option K created when: Promise not to revoke and consideration is needed. (Those reqs not present here)
◦ WWJD?
▪ Renegotiate offer so that it is bilateral (bound at oral acceptance).
▪ Make it an option K.
▪ RS 45 allows for an option K to be created when perf is tendered or begun.

So on day 1 Elmer forbears (forming K) and day 2 he shoots Bugs. Breach of K? No. Elmer is not
bound, but Louie would be bound by option K.
◦ Hypo:
▪ Same facts, but offer is seeking a promise. Elmer does not promise but instead performs. K? No. Option
K? Same problem as before really, no promise not to revoke and no consideration.
◦ Take away:
▪ Under old rules, offer seeking perf is revocable up until the close of performance. We'll see how that has
changed.
Brooklyn bridge/Elmer Fudd
◦ Performance of unilateral K is acceptance.
◦ Offer is revocable until accepted.
◦ These two stds appear to collide in this problem.
◦ Restatement response:
▪ RS 45:

If offer invites offeree to accept by perf (w/o promissory acceptance), an option K is created once
offeree begins perf.
◦ Hypo: Same Elmer facts but Uncle asks for a promise instead. Elmer starts perf. Uncle revokes.
▪

Do we still apply RS 45? Learned Hand says no, because Elmer could have just promised and avoided this
problem.
Drennan v. Star Paving
◦ Rundown
▪ Star Paving calls in bid for paving work (low bid). OFFER 1.
▪ Drennan submits its own bid incorporation Star Paving's bid. OFFER 2.
▪ Drennan awarded. ACCEPTANCE 2.
▪ Star Paving says we made a mistake. (revokes OFFER 1 (by expressing doubt))
▪ Drennan can't ACCEPTANCE 1.
◦ Seeking promise/performance? Promise we think.
◦ WWJD? Drennan: I accept your offer subject to Drennan winning the bid.
◦ Can we use RS 45? No, because offer seeking promise.
◦ So how else would an option K be created?
▪ Need consideration; we don't have it.

Alternative theories? Reliance.
◦ So the court applies RS 90, under topic 2 “Ks w/o consideration”.
▪ Need promise to keep offer open; there is none.
▪ We'll imply it.
F. Precontractual Liability
a. Revocability of Subcontractor’s Bids
i. Drennan v. Star Paving (225) – Drennan a general contractor used Star Pavings bid in its bid for a school job –
they received contract and then Star Paving revoked saying their quote price was too low – Drennan was forced to
hire another sub and lost money as he had to pay them more than what he got paid from school – Court held that
contract was enforceable as an option contract had been formed which Star Paving was bound to perform and that
D knew his bid would likely induce the Gen. contractor to use it and the contractor relied on this bid to his
detriment – recovery partially on theory of reliance
G. Offers Recap
a. Offer seeking performance (Elmer Fudd)
i. Beginning of performance creates option contract so that offeree can (but does not have to) finish performance
b. Offer seeking promise
i. Offeree can protect itself by promising (James Baird Co.)
ii. But courts have held in cases involving general contractors relying on subcontractors’ bids that reliance on bid
(offer) also creates an option contract (e.g. Drennan)
c. Promise to keep offer open?
i. Court implies “subsidiary promise not to revoke an offer for a bilateral contract. (p.228)
d. Consideration?
i. No, no bargained for exchange (p.227)
ii. Reliance as substitute for consideration (“Reasonable reliance serves to hold the offeror in lieu of the consideration
ordinarily required” (p. 228)
e. Results in option contract (irrevocable offer)
i. Goes away if general contractor delays acceptance to get better price (p.229)
ii. Goes away if general contractor reopens bargaining
General contractor not bound to use subcontractor
Statute of Frauds (SOF)

A. Overview
◦ Some Ks must be in writing; four categories:
◦ SOF, 1677 Act. Some form of it exists in every US jurisdiction.
▪ Invalidates some undocumented Ks.
▪ Nine basic oral-unenforceable agreements.

1. > 1yr performance agreements.

2. Real prop transfers.

3. > $500 sale of goods.

4. > $1000 Lease of goods.

5. Surety agreements.

6. Personal prop as security for obligation.

7. > Lifetime performance.

8. Pay commission for real estate broker.

9. Extending credit to another.
▪ 1,2,3,5 → Found in 1677 Statute of Frauds. 3,4,6 → UCC provisions.
◦ “Rule of effrontery” – Promisor may admit existence of a promise, but defend successfully against enforcement
on grounds of SOF.
▪ UCC has qualified this rule for sale/lease of goods. (2-201(3)(b), 2A-201(4)(b))
◦
◦
◦

B.
◦
◦
◦
▪ Some courts allow admission to supply a term absent in the documentation.
Explaining legislative choices
▪ General statute rationale: Prevent fraud in proving legal transactions susceptible to deception, mistake,
perjury.
▪ > 1yr performance, rationale: Not to trust memory of witnesses for > 1yr.

Criticism: Limitation applies even if promise is broken one day after the promise.
▪ Better rationale: Long-term agreements are momentous, and so reflection should accompany the decision to
enter into one.

This concept is applicable to > $500 agreements too.
▪ Surety: Concern for unwary friends/relatives of debtor.
Ameliorating rules
▪ An agreement may be “taken out” of SOF if circumstances sufficient for enforcing undocumented
agreement.
▪ Examples

1yr: Full performance on one side takes an agreement out of the one-year clause, i.e. >1yr
performance that is paid in full before the close of 1 year.

Real E: Taken out of SOF by part performance; both for and against party that has rendered
performances.

Sale/purchase of goods: Even if agreement calls for further performance that is not forthcoming, K is
enforceable against seller having received payment and buyer having received goods, BUT ONLY AS TO
THOSE GOODS RECEIVED/PAID FOR.
◦ In this theme, most SOF agreements may call for a remedy against recipient of a part performance,
i.e., a claim of restitution.
◦ Exception: RE broker's commission, not supported by a written document, are unenforceable. Not
even restitution. Sucks.
▪ Estoppel

In cases of callousness, taking advantage, misrepresentation, one party is an attorney, etc. Doctrine of
estoppel may be applied.

RS 139, mirrors RS 90, but for cases where SOF agreements, not supported in writing, may be enforced.
Ethical practices
▪ What of the lawyer that is asked to oppose a claim based on SOF, when client admits an agreement?
▪ ABA: When opposing party is well represented...a lawyer can be zealous advocate for client and assume
justice is being done.
▪ One scholar: Answer depends on whether or not the lawyer holds a “good faith belief that the assertion of
the rule will further a policy behind the rule.”
Writing requirements
Overview
▪ What is a writing? UCC: “printing, typewriting, intentional reduction to tangible form.”
▪ What terms must be in writing? RS: “Essential terms”, generally: Price and ID of parties.
▪ Does not have to be in a single document.

NY Ct of App.: At least one writing establishing K must have signature of party charged.
Signing
▪ Document signed long after parties agreed satisfies SOF.
▪ Much leniency in what is considered “signature”, e.g. stamp, thumbprint, initials.

As long as “act of writing and intention to execute/authenticate the instrument.”

But programming machine to “sign” messages at large, etc. won't do.
E-documentation
Electronic record satisfies the law.
◦
C. R. Klewin, Inc. v. Flagship Properties, Inc.
▪ Facts:

Klewin and Flagship had oral agreement to cooperate on project.

Entered into written agreement for Phase 1.

At close of Phase 1, Flagship, unsatisfied with Klewin, Ked with someone else for Phase 2.

Klewin sues for breach of K.
▪ Trial court.

a. Not indefinte duration K because project had definite end at completion.

b. K could not have been performed within 1 yr.

SOF not satisfied, Klewin loses summary judgment; appeals.
▪ This court:

Issues:
◦ a. Conn SOF does not apply to indefinite duration Ks and Ks without expressly specifying duration

are such Ks. (Yes, court agrees)
◦ b. K does not negate possibility of performance within a year, but method K calls for contemplates
performance >1 yr, then it is unenforceable w/o writing. (No, court disagrees. Oral K where
performance duration is not explicit is enforceable.)
SOF rule does not apply (in Conn) unless specifically and expressly agree that perf will not conclude w/in
1 yr.
◦ The terms of the agreement are key. “'by its terms' the agreement is not to be completed w/in a
yr.” → Only then ConnSOF applies.
◦ Flagship contends: Must be reasonable possibility, not a theoretical possibility.
◦

RS 132
▪ Memo may consist of several writings if one of the writings is signed and the writings in the circumstances
clearly indicate that they relate to same transaction.
◦ UETA 7
▪ Legal recognition of e-Records/signatures/Ks.
D. Sales of Goods
◦ UCC 2-201, SOF.
(1) >$500 K for sale of goods needs writing sufficient to indicate sale of goods has been made. Omission/misstatement of term does not
make insufficient; but cannot be beyond quantity stated in writing.
◦
St. Ansgar Mills, Inc. v. Streit
▪ Facts:

Duane's custom: calls to get quote, then oral Ks over the phone, Ansgar later mails confirmation or has
him sign it when he drops by Ansgar. Duane regularly stopped by business. When confirmation is sent,
Duane often failed to sign for long period, or did not return Ks at all.

July 1: Duane calls up Ansgar and makes two orders. Ansgar holds confirmation at business.

August 1: Duane signs confirmation.

Price of corn drops.

Duane declines delivery.

Ansgar sues.
▪ Duane contends: 1) Not merchant; 2) confirmation not in reasonable time.

Trial court: 1) Jury question; 2) not reasonable time, Duane favored.
▪ Court:

Cites UCC 2-201(2).
◦ Policy: Prevent one party being bound and the other not when written confirmation of oral K was
signed by only one party.
◦ Policy: Encourages sending memos to confirm oral agreements.

“reasonable time” – Custom, other circumstances taken into consideration.
◦ Reasonableness is generally a jury question.
◦ Volatile mkt and large sale price shortens “reasonable time”, trial court looked at excuse for delay on
part of Ansgar.
◦
Other factors must be debated, i.e. in front of a jury.
Policing the Bargain
A. Methods of Policing the Bargain
a. Status – e.g., Lack of capacity to contract
i. Intoxicated persons
ii. Minors
iii. Mentally ill
b. Behavior – e.g. Durress
c. Substance of the deal
i. Courts least willing to employ
ii. Plays a role in unconscionability analysis
B. Capacity
a. Lack of capacity for Minors
i. General Rule: The contract of a minor, other than for necessaries (such as food or shelter), is either void or
voidable at his option. (Minor = anyone under age 21 now in most states that age is 18)
i. Ex. Kiefer v. Fred Howe Motors, Inc. (301) – Kiefer bought a car when he was age 20 by lying about his
age after realizing the car was a lemon he called off deal – Court held that there was no contract as Kiefer
was a minor.
ii. This is a rule that both protects some minors like Kiefer but it can also hinder minors who are on their
own and providing for themselves.
b. Lack of Capacity for the Mentally Ill
i. Tests for Mental Incapacity: Restatement (2d) § 15(1) “A person incurs only voidable contractual duties by
entering into a transaction if by reason of mental illness or defect
i. (1) he is unable to understand in a reasonable manner the nature and consequences of the transactions
(cognitive test – traditional test), or
ii. (2) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason
to know of his condition.”
ii. Volitional Test - whether a mentally ill person can prove that they are incapable of making a decision or acting
rational – to be applied with cognitive test
iii. Ex. Ortelere v. Teachers’ Retirement Bd. (305) – Mrs. Ortelere changed her retirement plan while on leave from
work for mental illness – her change increased her monthly payment but left her husband with nothing if she died
and then she died shortly after making the change – Court held that Mrs. Ortelere’s mental illness made the change
of contract void or voidable as the school was aware of her mental illness and not enforcing the contract did not
significantly change the positions of either party
C. Overreaching: Conventional Controls (Behavior)
a. Pre-Existing Duty Rule: There is no consideration when a party who is already obligated by contract to perform services
threatens not to perform those services without more money.
i. Ex. Alaska Packers’ Ass’n v. Domenico (327) – Workers agreed to work for company at specific price – when
arrived in Alaska demanded more money or would not perform work – company agreed but then paid workers
price of original price – Court held for the company as the second agreement was void because it did not have
consideration based on the pre existing duty rule.
ii. Exceptions to Pre-Existing Duty Rule
i. Generally, any change to the old contract as long as not a peppercorn could provide consideration for the
new contract.
a. Ex. Schwartzreich v. Bauman-Basch (332) – S had a contract to work for BB for set salary but before
starting work received a better offer and went to B-B who tore up old contract and offered S more money –
then after beginning work BB paid S original salary – Court held that 2nd contract had consideration as they
a.
had torn up the old contract signifying throwing that contract out and replacing it with a new one – B-B could
have held S to original contract under pre-existing duty rule but once tore up old contract gave up that right
ii. If there is a good faith modification of the contract then the pre-existing duty rule should not apply.
Ex. Watkins & Son v. Carrig (333) - Carrig contracted with P to excavate his cellar for a set price but when P
found rock negotiated a higher payment with Carrig as excavating rock was not part of original contract –
price stated proved to be unfair and Carrig refused to pay and P sued – Court held that Contracts are often
subject to changes in the price and performance – when Carrig intentionally and voluntarily accepted the
demand for a special price for excavating the rock he gave up his right to hold P to the price of the original
contract.
b. Duress
i. Restatement Elements of Duress
i. If a party’s manifestation of assent is induced
ii. By an improper
iii. Threat
iv. That leaves the victim no reasonable alternative, (objective standard)
v. Then the contract is voidable by the victim
ii. Elements (Austin Instruments)
i. Party forced to agree (causation)
ii. By means of a threat
iii. Wrongful (lack of good faith)
iv. Precluding the exercise of free will (subjective standard)
v. No reasonable alternatives
iii. Improper Threats
i. A threat is improper if:
a. What is threatened is a crime or tort
i. Or the threat itself would be a crime or tort if it resulted in obtaining property
b. What is threatened is a criminal prosecution
c. What is threatened is the use of civil process and the threat is made in bad faith
d. The threat is a breach of the duty of good faith and fair dealing under the contract
iv. Case:
i. Ex. Austin Instrument v. Loral Corp. (343) – Loral awarded navy contract sub contracted with Austin to
provide some of the parts – received a second contract and Austin said that if they did not give them all
the parts for the second contract and more money under the first they would quit performing under first
contract – Loral looked for other companies to provide parts and could not so agreed to increased price
but after contract with navy had been fulfilled refused to pay the rest of the contract – Court found for
Loral and held the second contract to be void as Loral had been forced to agree to the price increases as a
consequence of the economic duress employed by Austin.
D. Unfairness: Conventional Controls (Substance of the Contract)
a. Courts will sometimes not enforce a deal if the terms are grossly unfair to one side
i. Ex. McKinnon v. Benedict (313) – McKinnons owned property next to Bents Camp – Benedict wanted to buy the
camp but could not get a loan so McKinnon offered to give him a loan if he would promise not to make any
improvements or cut down any trees for 25 years – Benedicts paid off loan and camp was not making any money
so turned it into a trailer park – McKinnon sued for an injunction in a court of equity
i. Court denied McKinnon’s request for an injunction based on Benedict’s financial inability to enter into an
equitable agreement with McKinnon and at the time the contract was entered into it was unfair based
upon inadequate consideration
ii. McKinnon had other options could sue for money damages for breach of contract or could try to enter into
a new contract with Benedict (Known as the Coase Theorem)
b. Look at contract at the time it was entered into when deciding whether a contract is fair (Do not use hindsight)
i. Ex. Tuckwiller v. Tuckwiller (317) – Mr. and Mrs. Tuckwiller rented farmhouse from an aunt – the aunt became
sick with Parkinson’s disease and in exchange for Mrs. Tuckwiller quitting her job and agreeing to take care of her
the aunt signed an agreement to give them the property they were living in – aunt died before changing her will but
had a signed paper with witnesses – executor argued that contract lacked consideration b/c Mrs. Tuckwiller did not
have to perform her duties very long
i. Court upheld the contract holding that it had adequate consideration as at the time the contract was
entered into P gave up her employment and undertook an obligation of unknown and uncertain duration in
which she would have had to deal with a woman suffering from a terrible disease, therefore the contract
could not be viewed as unfair
E. Unconscionability
a. Definition: When a court finds the inadequacy of consideration “so gross as to be unconscionable and a bar to the
plaintiff’s invocation of the extraordinary equitable powers of the court.”
i. It is now a statutory provision embodied in the UCC.
ii. Two types of unconscionability
i. Procedural unconscionability: Unfairness in bargaining process
ii. Substantive unconscionability: Unfair terms
a. Courts often say you need both to be unenforceable
b. Standard Form Contracts (often found to be unconscionable)
i. Example: Form contracts when buy car
i. Purchase agreement with dealer
ii. Warranties from manufacturer
iii. Loan agreement with finance company
iv. Auto insurance policy
v. Account agreement with bank governing check used to pay down payment
ii. Disadvantages
i. No opportunity to bargain over terms
ii. Not between equally sophisticated parties
iii. Consumer may not understand terms
iii. Advantages
i. Reduces contracting costs (only draft once)
ii. Improves consistency
iii. Improves quality (at least from drafters’ perspective)
iv. Makes risks calculable
c. Policing Form Contract Terms
i. Traditional approaches
i. Consideration? No – bargain theory
ii. Assent?
a. Duty to read
b. Construe as not an offer or not reasonable part of an offer
iii. Construe language against drafting party
iv. McKinnon v. Benedict (specific performance)
ii. Modern Approaches
i. Unconscionability
ii. Consumer protection legislation
d. Cases
i. Ex. Williams v. Walker-Thomas Furniture Co. (403) - Walker-Thomas operated furniture store in Washington
D.C. - Williams and others (on welfare) purchased furniture from WT on installment - Standard form contract
terms:
i. Title remained in WT until monthly payments equaled stated value of item
ii. All payments “shall be credited pro rata on all outstanding…bills and accounts” – company interpreted
this as unless you paid off everything there would remain a balance on everything you had bought
iii. P’s defaulted on payments for new items and D repossessed all items previously bought from them.
iv. The court upheld the decisions of the lower courts for the defendant but since this was a case of first
impression they held that where the element of uncscionability is present at the time a contract is made,
the contract should not be enforced and these standard form contracts had elements of unconscionability.
ii. Ex. Jones v. Star Credit Corp. (409) – Welfare recipient bought a refrigerator worth $300 for $1234, they paid
$634 then could no longer make payments - Courts held this deal to be unconscionable based on the price and
unfairness in the bargaining process and holds that P had paid enough and D had been amply compensated.
Considerations in this case:
i. Procedural unconscionability
a. Uneducated consumer, welfare recipient
b. Availability of options – not as applicable here as in Walker
c. Much more pressure from door to door salesman
ii. Substantive unconscionability
a. Total price term – but much more visible and a weaker case than the hidden terms in contract
in Walker furniture
b. Hard to decide definitively if price is unfair
Performance and Breach (see handout) (Assume contract is formed – focusing on performance of that contract)
A. Duties v. Conditions
a. Contracts impose duties on parties
i. If breach duty, liable for damages
b. Duties may be subject to condition
i. If condition not met, duty to perform suspended
ii. If condition cannot be met, duty to perform discharged
iii. For express conditions, must be strict compliance for condition to be satisfied (Luttinger v. Rosen)
c. Constructive conditions
i. Party’s duty may be implied condition of other party’s duty to perform (Kingston v. Preston)
ii. Depends on order of performance
B. Condition, Duty, or Both?
a. Cargo owner wants ship owner to carry goods to Cadiz; willing to pay 10% extra if ship owner leaves at next wind
i. Duty of ship owner to sail with the next wind?
i. Could have ship owner promise to sail with the next wind – then if he fails to sail with next wind liable
for breach of contract and damages – absolute duty
ii. Condition
i. Cargo owners duty subject to condition of ship owner to sail with next wind – I promise to pay 10% more
if ship sails with the next wind – if ship owner fails to sail at next wind not liable for breach of contract or
damages but still has a duty to deliver the cargo
iii. Both duty and condition?
i. Ship owner has duty to sail and if fails breach of contract
ii. Cargo owner’s condition to pay 10% if he leaves at next wind
C. Conditions
a. Defined: “A condition is an event, not certain to occur, which must occur…before performance under a contract becomes
due.” Restatement (Second) § 224
i. Two types of conditions
i. Express
ii. Implied (constructive)
D. Express Conditions
a. Must have strict compliance to meet express conditions
i. Ex. Luttinger v. Rosen (665)- Contract to purchase house:
i. Seller promise to transfer title to buyer
ii. Buyer promises to pay $85,000
a. Contract “subject to and conditional upon the buyers obtaining first mortgage financing on said premises from
a bank or other lending institution in an amount of $45,000 for a term of not less than 20 years and at an
interest rate which does not exceed 8½ per cent annum”
iii. Duty
a. Seller – transfer title
b. Buyer – Pay $85,000
iv. Conditional language for buyer to gain appropriate mortgage (express condition – laid out in the contract
terms)
v. When mortgage condition was not met sellers offered to make up the difference but buyers said no so
sellers sued
vi. Holding: Court held no contract as condition has to be met exactly to express terms of contract and since
it was not the buyers duty was discharged
ii. Ex. Peacock Construction v. Modern A.C. (674)
i. Peacock: General contractor
ii. Modern: Subcontractor doing heating and air conditioning work
Contract: Final payment to subcontractor “within 30 days after completion of the work included in this
subcontract, written acceptance by the Architect and full payment therefore by the Owner.”
iii. Owner goes bankrupt so doesn’t pay Peacock; Peacock refuses to pay subs, so subs sue
iv. Peacock argues: payment by owner is express condition to its duty to pay (“Pay IF paid”)
v. Subcontractor argues: duty to pay absolute; contract sets reasonable time for payment ( “Pay WHEN
paid”)
vi. Holding: Court adopts Subcontractors view that owners payment only a time consideration for when
payment will take place not if they will ever get paid – general contractors are in a better situated to bear
the risk of the owner not paying – one because they are larger and also because they are the ones who deal
personally with owner and are better situated to evaluate whether owner will be able to pay
b. Satisfaction Conditions
i. Could be an illusory, but courts often imply conditions
ii. Court applies one of two standards to satisfaction conditions
i. Good faith – taste, fancy, opinion – subjective
ii. Reasonableness – objective, business dealings
iii. Ex. Mattei v. Hopper (72) - promise to pay if you get leases that are satisfactory to me – court implies good faith
standard
iv. Ex. Gibson v. Cranage (677) - Father: Duty to pay for painting of dead daughter; “if it was not perfectly
satisfactory to me in every particular, I need not take it or pay for it” – refuses to pay court upholds – bad for
broker as he is stuck with an worthless piece of artwork
E. Constructive Conditions of Exchange (Implied Conditions)
a. Although there are no express conditions in a contract courts will sometimes imply conditions
i. Ex. Kingston v. Preston (693) – Contract between owner of business and apprentice to give business to apprentice
when he retired and apprentice agreed to give sufficient security before handing over of the deeds – when it came
time to retire business owner refused to give apprentice business as he had not provided security – apprentice
argued all duties in contract were absolute and if security had not been met owner should still have to give over
business and then sue for breach
i. Holding: Court held the giving of security was an implied condition of the contract and since it had not
been met the owner had no duty to turn over the business.
b. Time of Performance – If no express terms in contract the party whose performance will take more time has to
perform first
i. Ex. Stewart v. Newbury (695) – P contracted with D to do some construction work – no agreed schedule of
payment but agreed price for work – after first month P sent bill and when D refused to pay P quit and called off
deal
i. Holding: Court held that in the absence of time of payment in a contract, payment cannot be demanded
until a substantial amount of the work is performed
F. Substantial Performance as a Mitigating Doctrine (Only for Implied Conditions)
a. When determining Substantial Performance, Must weigh:
i. Purpose to be served (How much of what was bargained for did non breaching party get)
ii. The desire to be gratified (same as above)
iii. Excuse for deviation form the letter (Reason for breach – willful or negligent breach)
iv. Cruelty of enforced adherence (extent of forfeiture)
b. Ex. Jacob & Youngs v.Kent – J&Y enter contract with Kent to build house for specified amount – complete house
according to contract except use the wrong type of pipe – Kent refuses to continue payment arguing: Duty to pay is subject
to implied condition; J&Y did not perform its duty so condition not met; duty to pay discharged but would result in
forfeiture of all money on contract
i. Holding: Court mitigates harsh effect of implied condition by requiring only substantial performance with implied
conditions. Strict performance only for express conditions.
c. Ex. Plante v. Jacobs – Plante contract to build house for Jacobs – Work not completed per specifications, Misplaced wall,
Failed to furnish kitchen cabinets, gutters, downspouts, etc – dispute over payment – Court held since there was substantial
performance the remaining money should be paid – can sue for breach after payment
G. Material Breach (look at handout)
a. Question of whether the non breaching party can call off the deal when the other party breaches? Only if breach is a
material breach.
i. Ex. Walker & Co. v. Harrison – Harrison bought a sign from P with a contract to make monthly payments and P
had to maintain the sign – First payment is made then sign needs cleaning and when P fails to return Harrisons
calls and come to clean the sign – Harrison calls off deal
i. Holding: Court held Walker co. breach was not material and that Harrison’s termination of the contract
was a material breach therefore he was required to perform contract duties and pay damages for breach of
contract. In case where unsure of material breach better to complete contract and then sue for damages for
breach.
b. Risk of terminating contract based on breach is that the breach will not be material and your termination will be
held as a material breach and other party will have a claim against you
a.
H. Anticipatory Repudiation
a. Definition: When someone calls off the deal before performance is due
i. How do you deal with this?
i. Exactly the same way as repudiation in the flowchart – failure to perform and calling off of deal leads to
total breach and damages
ii. Except that anticipatory repudiation can be retracted as long as the other party has not relied on your
repudiation
I. Excuse
a. Commercial Impracticability
i. Elements
i. Contingency occurred
ii. Not fault of either party
iii. Risk of unexpected occurrence must not have been allocated by agreement or custom
iv. occurrence must render performance commercially impracticable
a. Many ways in a contract that parties can allocate risk
i. Terms of contract
ii. Contract price
v. Occurrence of contingency must have rendered performance commercially impracticable
b. Older Approach – Ex. Paradine v. Jane – if you contract and have a duty to pay rent your duty is absolute regardless of
changed conditions – without express conditions you have an absolute duty to perform.
c. Modern Approach – Ex. Taylor v. Caldwell – contract to use music hall for performances but burns down before concerts
can take place - Court holds that in contracts which the performance depends on the continued existence of a given person
or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall
excuse performance and court did not hold D liable
d. However, Impracticality is hard to prove
i. Ex. Transatlantic Financing v. U.S. – Contract with US to deliver grain to Iraq – no specification of route to be
taken – usual route through Suez canal – canal is blocked so have to go around Africa – sue for more money based
on impracticality and restitution – already received payment price from original contract - Court held there was no
basis for relief and that the contract price in this case was advantageous enough to deter appellant from taking a
stance on damages consistent with its theory of liability
J. Frustration of Purpose
a. Elements:
i. Same elements as commercial impracticability except
ii. Delete requirement that performance must impracticable
iii. Replace with requirement that purpose in entering into contract must be substantially frustrated
iv. Tough to assert
b. Commercial Impracticality v. Frustration of Purpose
i. Impracticability is seller’s defense
ii. Frustration of purpose is the buyer’s defense
c. Ex. Star Wars Hypo: Solo v. Kenobi – Kenobi contract to pay Solo to deliver to Alderaan but planet blown up when he
gets there – frustration of purpose doctrine defense against breach for Kenobi – commercial impracticality – defense for
Han Solo
Remedy
A. Measuring Expectation
a. Breach may affect injured party as follows:
i. May deprive party of value of expected return performance (loss of value)
ii. May cause other loss to non-breaching party, such as physical harm or expenses incurred in attempt to salvage loss
(other loss) (Hadley)
b. If non-breaching party treats contract as termination, breach also:
i. May save injured party further expenses under contract (cost avoided)
ii. May enable injured party to salvage some of loss (loss avoided) (Rockingham County and McCane case)
B. Damages Formulas
a. Formula A (p. 470)
i. Damages = loss in value – cost avoided – loss avoided + other loss
b. Formula B (p. 471)
i. Damages = cost of reliance + profit – loss avoided + other loss
c. Both provide the same answer, which one you use depends on information in the case – helps you to check your work
d. If you can do both formulas on exam must use both and come up with same example
C. Efficient Breach – p. 7-8
a. When a party breaches a contract to accept another contract in which even if he is sued for breach of the previous contract
he will still make more than if he had performed the first contract.
D. Losing Contracts
a. When a party breaches after the other party has already spent more than they will get in damages under the breach of
contract.
E. Damages Cases
a. Vitex Manufacturing Corp. v. Caribtex Corp. (p. 472) – Contract to treat some wool – Damage formula resulted in
$21,114 in damages – Court held that fixed costs (overhead) does not go anywhere in the calculation because fixed costs
cannot be avoided.
b. US v. Algernon Blair, Inc. (p. 488) (Alternative theory for a losing contract) – Coastal and Blair contracted to do steel
work for a navy contract – contract required gen. cont. to pay for cranes and refused to reimburse for cranes so called off
deal – Coastal sued for breach of contract and restitution – Court held allowed Coastal to bring both claims as the damages
they would have received would have been less than what they had spent on the cranes. Some courts do not allow a
restitution claim to regain the money lost.
F. Specific Performance
a. Traditional remedy is money damages
b. Specific performance is available when
i. No adequate remedy at law
ii. Usually contracts for sale of land or unique good (like a painting)
iii. Even then, at discretion of court (McKinnen v. Benedict) – court more likely to consider fairness of deal
expectation principle governs 1-305
liberally administered
separate provisions for buyer and seller remedies although substance similar
list of remedies:
-2-711
-cover 2-712
-market price 2-713
-specific performance 2-716
Less expenses saved (2-712, 2-713)
get incidental and consequential damages (other loss 2-715)
Laredo Hides: 2-713
market price – contract price
to prove market price, you need an expert
for cover, cover price – contract price
Sellers' Remedies
-expectation principle governs 1-305
-laundry list of sellers' remedies 2-703
-comparable to buyers' remedies
resale = cover
market = market
price = specific performance
-less expenses saved (2-706, 708)
-get incidental damages but not consequential damages (other loss) (defined 2-710)
2-708
contract price – market price = damages
2-706
contract price – resale price = resale damages
“lost volume seller”
it looks as though there are no damages, e.g. stockpile of goods, one buyer renegs and a new buyer
the same deal.
2-708(2)
Lost volume seller – elements (Diasonics)
-capacity
-profitable
-likely
Damages: profit, including reasonable overhead, plus incidental damages
-damages = KP – VC (+ ID)
G. Limitations on Contract Damages
a. Avoidability
shows up looking for
i. Plaintiff cannot recover damages that were avoidable (sometimes a duty to mitigate damages)
i. Ex. Rockingham County v. Luten Bridge Co. – contract to build bridge – but opposition to bridge so
county called off contract – at time contract was called off had only spent $1900 but continued work and
spent $18,000 – Court held that P is only allowed to recover what it had spent before breach. If the other
person repudiates you have to stop work. You cannot run up your loss and decrease your cost avoided.
b. Foreseeability
i. Plaintiff can only recovery damages that are foreseeable
c. Certainty
i. Plaintiff can only recover damages that can be proved with reasonable certainty
Limitations on Damages
Avoidability
-plaintiff cannot recover damages that were avoidable
non-breaching party cannot keep running up damages
non-breaching party must find alternative employment
rockingham county
the plaintiff kept working to reduce cost avoided.
parker v. 20th
If parker had taken the other role, it would have been a mitigation of damages for fox
jacobs & young v kent
grossly and unfairly out of proportion (to restart compared to difference in value)
hypo: built house except roof (5000 damage)
recover only cost to repair roof and not loss in total value because damages can be limited
alternative tests
1. gross disproportion – if cost of replacement is grossly disproportionate to loss in market
only can recover diminution in market value
2. incidental to the main purpose – if gross disproportion and breached provision only incidental
purpose of contract, only can recover diminution in market value
3. economic waste (tearing structure down in jacobs and young (first rest.)) - if gross
disproportion and would result in economic waste, only can recover diminution in
4. subjective value - rest 348(2) – can recover cost of replacement if not clearly disproportionate
in value to him
value,
to main
market value
to loss
Foreseeability
-plaintiff can only recover damages that are foreseeable
although there was some buyer expectation, the recoverable damages are limited because the
consequences were unforeseeable.
Rest. 2d 351:
1. damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result
of the breach when the contract was made
2. loss may be foreseeable as a probable result of a breach because it follows from the breach
a. in the ordinary course of events, or
b. as a result of special circumstances, beyond the ordinary course of events that the party in breach had reason to know.
Certainty
-plaintiff can only recover damages that can be proved with reasonable certainty
If using the UCC for goods, 2-704(2) applies.
Does seller have to stop work when goods are unfinished?
Does seller have to resell?
Does buyer have to cover?
Seller can finish the goods if it's within commercial reasonability
??????????????????
There's no duty to cover, but you can't recover all the lost profits(the consequential damages).