Introduction to Contract Law
Definition of Contract a promise the law will enforce
Shaheen v Knight: A child is a blessing and a joy. There must be a remedy for breaching the promise in order to be a
contract
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3 dimensions of Law
a. doctrine: rules and principles of law by which the judge can justify their decisions .. the law
 Uniform Commercial Code
o Not an actual statute, but nearly every state has adopted most of them, making them statutes
o ALI (comprised mostly of law profs) puts out model statutes which are presented by states as
something they can adopt
o Governs Sale of Goods – does not apply to anything other than the sale of goods
b. facts: application of doctrine by courts and its effects on contracting parties and the public
c. theories: reasoning for legal doctrine
Contract Defined
a. A Contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance
of which the law in some way recognizes as a duty
o Fundamentally – a contract is a promise that the law will enforce.
o Hypo: Will give you a dollar for your pen – no contract, just barter and exchange
 Ks concerned primarily w/exchanges that relate to the future – promise is a commitment as to future
behavior (therefore transactional exchanges not contracts – apples for money at a market)
o Hypo: Will give student an A at the end of the course if she gives over her watch: Something is only a contract if
the promise is enforceable
 contract is also immoral – the owner of the watch was coerced into giving up her watch … threatened to
fail if the watch wasn’t freely given. Coercion is immoral
Promise, Promisor, Promisee, Beneficiary
a. Promise: the result of the intention to act or not act
b. Promisor: person manifesting the intention
c. Promisee: person to whom the manifestation is addressed
d. Beneficiary: someone other than the promisee who benefits from the promise
Agreement: manifestation of mutual assent on the part of 2 or more persons
Bargain: agreement to exchange promises or to exchange a promise for a performance or to exchange performances
How a promise is made
a. Stated in words – oral or written
b. May be inferred wholly or partly from conduct
There must be a remedy for breaching the promise inorder to be a K. Here: breach of a promise, but no remedy.
Shaheen v. Knight (Court of Common Pleas PA. 1957) pg 9
Facts: , Shaheen, alleges that , Knight, contracted to make him sterile by operation - D agreed to make him
“immediately and permanently sterile and guaranteed the results”. 1 ½ yrs after operation, Shaheen had his fifth child.
Operation was not b/of his wife’s health
: To support his family and educate it, he needs to limit the size of his family. If Knight had fulfilled the contract
entered, Shaheen wouldn’t have the additional expense of rearing the child.
: A contract to sterilize a man who’s wife can bear children (w/o hazard to her life) is against public policy and public
morals ie: it’s not a moral contract
Holding:  hasn’t suffered damage – but “has been blessed w/the fatherhood of another child”. Having a child is a
wonderful thing, a blessing --> K is void
o Under Penn Law – no implied “warranty of cure” by physician, Dr doesn’t guarantee outcome but Dr and patient
are free to K for a particular result.
 Typically, the interaction btwn dr and patient isn’t one of contract – it is one of the duties of his
profession
o  seems to want to have a child and have the Dr support it – to allow such damages would be against public policy
Notes:
 Why isn’t the fact that the wife could’ve had an affair addressed?
o This is in the court for a motion for summary judgment – there are no facts in dispute
o Def made a motion for summary judgment: even if P’s version of events is assumed true – there should not be
damages awarded.
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I.
REMEDIES
A. DAMAGES
Expectation Interests the benefit of the bargain
Hawkins v McGee Hairy Hand, expectation interests
Nurse v Barns Award for loss of stock laid in, reliance interests
J.O. Hooker and Sons v. Roberts Cabinet Co. expectation interests
Tongish v Thomas UCC – market price v contract price
Why Should Enforce Contracts?
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Role of enforcement:
o Further general economic good by encouraging parties to enter productive transactions
 Economic (Utilitarian) view: society as a whole benefits b/ those exchanges transfer resources to their
highest valued, most productive uses and tend to maximize the efficient use of economic resources
o Help parties to plan for the future by protecting their expectations
o Unless agreements can be relied upon, they are of little use
The Beautiful Idea Behing Contract Law Both parties are better off after the exchange (Farnsworth: at least one of the
parties believes itself to be better off – and noone believes itself to be worse off)
o Contracts are a beautiful thing b/they’re a good thing – ea party gives something up and receives in
exchange something they wanted a little bit more. Both leave happy and better off
 Beautiful idea depends on (a) ppl knowing what they want, (b) giving ppl what they want will make them
better off/happier
Why should the contract be enforced if one party wants out?
 If there were no enforcement, the party whose performance came second could take advantage by just
walking out on the job
 Prevents ppl from taking advantage of eachother
 Exception: reputational effects can operate like enforcement --- works in small communities
 Large groups of ppl who don’t know eachother need enforcement --- reputational effects don’t
work when the contractor can disappear
The 3 Damage Interests
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Expectation Interest - The benefit of the bargain
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Benefit of the bargain – put the promisee in the position they would have been had there been no breach
o Expectation interests usu include reliance interest
o Remedy for Ks law: Restatement §347
 In general no punitive damages for breaching a contract
Reliance Interest
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o
o
o
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If the promisee relied on the promise and acted accordingly incurring expenses in performing or
preparation to perform (ie: amt  is set back)
Attempt to put the promisee back in the position she was before the promise was made (if promisee relied
on the promise and acted on it)
Less generous than expectation interest – does not take into acct promisee’s lost profit
Remedy for tort law – compensate for what is lost, Tort law will restore you to the way you were before
Restitution Interest
o
o
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If the promisee benefited from the promisor, court will take away the benefit (focuses on the party in
breach)
Attempt to put the promisor back in the position in which the promisor would have been had the promise
not been made
Less generous than c and d
(Assumpsit: a express or implied promise, not under seal, by which one person undertakes to do something or pay
something to another, comes from common law writ system)
Jae Park–- Finklestein Fall 2002
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Contracts Law Awards Expectation Interests – compensates for the full expectation you were promised
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“put the plaintiff in as good a position as he would have been in had the defendant kept his contract”
Why? That’s what they contracted for.
 If you’re going to enforce the agreement as it was it made – must compensate the P for what was
promised
 If the beautiful idea is going to work – ea party needs to believe that they will be better
 If they find themselves worse off – then they should be compensated for that
Restatement§ 347: Measure of Damages in General
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The injured party has a right to damages based on his expectation interest as measured by
 The loss in the value to her of the other party’s performance caused by its failure or deficiency
 PLUS Any other loss, including incidental or consequential loss, caused by the breach
 LESS Any cost or other loss that he was avoided by not having to perform
Application to Hawkins: The value to him of a perfect hand + any additional pain and suffering (and no recovery for
what he paid for Dr’s svcs)
expectation interests
Hawkins v. McGee (New Hampshire. 1929) pg 69
Facts: Surgeon was sued for breach of warranty of success of operation. Op to remove scar tissue from the palm of ’s
hand (grafting skin from his chest). State of ’s hand before accident was fine, functional. After accident was crippled.
 “How long will the boy be in the hospital?” -> “3 or 4 days… not over 4; then the boy can go home, and it will be just
a few days when he will be able to go back to work w/a perfect hand.
 Branch: Statements are expressions of opinion or predictions. They confer no contractual liablity upon
the defendant
 “I will guarantee to make the hand a hundred percent perfect hand” or “a hundred percent good hand”
 If he said these things, then he would have been giving warranty of cure
 Defendant repeatedly sought the opportunity to perform this operation – he wanted to “experiment on skin grafting”
 Then uttering “I will guarantee to make the hand a 100% perfect hand” were attempts to induce the P to
grant consent
Issue: Did the defendant breach an alleged warranty of the success of an operation? If so, what is the measure of
damages?
Holding: True measure of the P’s damage is the difference btwn the value to him of a perfect hand, as promised by
the defendant, and the value of his hand at its present condition (measure?)
 The Dr should have to pay for the difference btwn the promised hand and the hand after the operation
o Should have to pay for the expectation damage not the reliance measure (diff btwn hand before the op and after the
op)
o P/S (pain and suffering) he has been made to endure: P knew the pain associated w/operations – was a risk he
took – should not be able to recover for this
Notes:
 Hypo --- What if the P really loved her hands? Should the D be obligated to pay those excessive damages
o Should the expectation measure of the damages to the P be based on the subjective value of the hand to the P OR
should there be a more objective method
 How to translate value into dollars?
 How much you value your hand may effect how much you pay for the operation - Go find the best
doctors, willing off to pay the high charges
Not so important
McGee v. United States (1st circuit. 1931)
Judge: Anderson
Facts: George Hawkins sued McGee 1. for negligence and unskillful treatment 2. McGee made promises – Hawkins
will not be in the hospital more than 6 days and that the hand will be “a perfect hand one hundred percent good”
Holding: Dr. McGee’s liability resulted from a special contract to give his patient “a perfect hand one hundred percent
good”, ct awarded damages based on this special contract. Court ruled that the policy didn’t extend to special contracts –
judgment for defendant
Jae Park–- Finklestein Fall 2002
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Hypo problem: applying the 3 damage interests
I agree to sell you a copy of the Restatement for $10 and a copy of your class notes. Restatement worth $15. Your notes
are worth $1 and it costs you $3 to make the copy.
 You pay $10 and give notes – will not give you restatement and won’t return the notes
o Damages:
 Restitution interest: $11
 Value of items given
 $1 value of notes + $10 you gave him
 Reliance interest: $ $13
 $10 fee + $3 copying fee
 Why not $14 – you didn’t spend that $1 (Fink: puzzling point)
 Expectation interest: $15
 In the position you would have been in had the contract been performed – had the restatement =
$15
 Starting place = 0, place you are now= -13, place you expected to be = 2  difference is $15
 Copied notes and gave – not paid
 Restitution = $1
 Reliance= $3
 Expectation = $5
 Expecting the market value of the Restatement = $15, save the cost of the $10 = $15 - $10
 Nobody does anything
o Damages: $2, the net expectancy (expectation = $2, other 2 = $0)
o ($15 is the gross expectancy, before you net out your costs)
 Market price of Restatement = $9, prepaid $10, gave notes (worth $1, cost $3 to copy)
o Damages
 Expectation interest: $9
 Reliance interest: $ $13
 Restitution: $11
 Copied notes but didn’t hand over, not paid
o Damages
 Restitution: $0
 Reliance: $3
 Expectation: $5 or $4
 Expected $15, avoided cost of $10 = $5, but didn’t turn over the notes… could be $4
Example of reliance interests
Nurse v. Barns ( Eng. 1664) pg 79
Facts: The D promised to let P “enjoy certain” iron mills for 6 months for 10l. Iron mills were worth 20l per year
Holding: Damages were awarded at 500l (considered loss of stock laid in)
Expectation Interest in Action
J.O. Hooker & Sons v. Roberts Cabinet Co (Mississippi. 1996) pg 81
Facts: J.O. Hooker and Sons = general contractor for a renovation job involving tearing out cabinets. Hooker entered into
a sub-contract w/Roberts for cabinets, etc --- price included tearing out the old cabinets and installing new ones. Dispute
arose over who had to dispose of the cabinets.
 Hooker cancelled the K (breach). Roberts sued for money he was out for materials, travel expenses, administrative
time, storage (reliance) and lost profit on job (expectation). Hooker contests storage, administration and lost profit.
Hooker: case should have been tried under the Uniform Commercial Code under KSA 2-713,
 Court: Transaction involved sale of goods, but dispute is over the performance of services and the delegation of
duties under a contract = a mixed transaction of goods and svcs
o need to consider the nature of the contract and whether the dispute concerns the goods or the services
 Here – dispute is over Robert’s refusal to dispose of the cabinets = issue of the delegation of duties under
a contract = service aspect
 Therefore will apply expectation damages as per Restatement §347
Holding: Hooker had no right to unilaterally terminate the K. Calc damages based on expectation interest.
 Calculating expectation damages as per Restatement 347
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Storage Cost – Nope, he would’ve had to pay this w/ or w/o the K
o Roberts stored the cabinets in storage space it was already leasing, and his lease wasn’t raised nor did he have to
obtain additional space to store other materials
 Roberts recovering for the cost of storage would amt to placing him in a better position than he would
have been before the contract
Administative Cost – yep, reliance cost
o Should Hooker pay for the time the general manager spent on the contract?
o Yes, Roberts suffered an economic loss by having to pay an employee his salary for working on a contract that
would be cancelled. He could have been doing other things.
Lost Profits – yep, expectation interest
o Contract damages are based on the injured party’s expectational interest – put him in as good a position as he
would have been had the contract not been breached.
o Roberts claimed a profit margin of 26%, by Robert’s calc, he would’ve made 30K in profit
 Lost profits = profits from the deal as a whole w/in the bounds of this contract
Applies Market price v contract price instead of lost profits; idea = discourage breach
Tongish v. Thomas (Kansas. 1992) pg 90
Judge: McFarland
Issue: How should the damages be calculated. Is the buyer entitled to its actual loss of profit (per KSA 2-713) or the
difference btwn the market price and the contract price (per KSA 1-106).
Facts: Tongish contracted w/the Decatur Coop Association to grow a certain amout of acres of sunflower seeds and sell to
Coop at $13 per hundredweight for large seeds and $8 per hundredweight for small seeds. To be delivered in one third
increments. Coop contracted to deliver the seeds at cost - a 55cent per hundredweight handling fee (handling fee is paid by
Tongish) to Bambino Bean and Seed = handling fee was Coop’s only antipicated handling fee (middleman).
 After he had delivered on 2/3s of the contract, the market price of sunflower seeds doubled. Tongish breached K.
 Tongish then sold 82,820 lbs of sunflower seeds to Danny Thomas for approx $20 per hundredweight = tongish to
receive $5,153 more than the Coop contract price
 Tongish sued Thomas for balance due on sunflowers delivered – Thomas paid and that was the end of his involvement
 Coop intervened seeking damages for Tongish’s breach of their K
Rules: governed by UCC
 UCC §1-106
o Aggrieved party may be put in as good a position as if the other party had fully performed = expectation interest =
actual lost profits, usu the greater amt
 UCC §2-713
o Damages for nondelivery by seller is the diff btwn the market price at the time when the buyer learned of the
breach and the contract price (market price v K price)
o Damages great when in a rising market
 Which to pick? Cardinal rule of statutory construction = purpose and intent of the legislature
 If there is a conflict btwn a statute dealing generally w/a subject, and another statute dealing specifically w/a certain
phase of it -> specific statute controls --> 2-713 is more specific
Holding:
 2-713 is more specific – applies here
o But 713 gives Coop a “windfall” why apply it – discourage parties from breaching, etc
 Efficient breach – There are times when there are gains to be had from breaching a contract – it is better to keep to
the contract or breach it and pay compensation (case doesn’t follow)
o If one party is better off and the other party is left in the same position, then why force the parties to keep to their
contract.
o If Tongish gave Coop handling fee +, then Coop would be in a better position and so would Tongish
o Argument against: morality? (keep contract b/it’s moral to keep a promise) etc…
o Major issue in contracts: Do we want to allow economic actors to work in a purely economic sense or do we want
to hold them to their contract for some other reason.
 BUT Coop protected itself against market price flunctuations throught its contract w/Bambino (sell to Bambino at cost)
--- Coop suffered no loss of profit from the breach but the handling charge
o Application of the UCC 2-713 rule doesn’t reflect actual loss to buyer but it encourages a more efficient market
and discourage the breach of contracts
o Coop was obligated to buy Tongish’s seeds at a fixed price whether or not he had a market for them --- if the
market price had dropped, he was still obligated to purchase
Jae Park–- Finklestein Fall 2002
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Notes:
 What if the contract fixed a price btwn Coop and Bambino, then Tongish breached
o Fixed price = contract price w/Tongish – if Tongish breached then contract btwn Coop and Bambino could be
cancelled
o Specifies a price = Then has to obtain new seeds and sell to Bambino for that specified price (would could be
lower than the price Coop paid for the seeds) – damages = diff btwn contract price and market price
UCC §711, §712 – Issue of Cover
§711: It’s up to the buyer to decide whether to cover or to recover damages (contract price v market price)
 Considered to be equal remedies
§712: If buyer elects to cover: buyer can make a “reasonable purchase” to cover - then recover difference btwn substitute
goods and contract price
LIMITATIONS ON DAMAGES:
Foreseeability of Harm
Hadley v Baxendale: broken crankshaft: Lost profits of a delay in delivery of a new crankshaft not foreseeable
Martinez v Southern Pacific delayed dragline: lost rent value due to delay in delivery of the dragline was foreseeable
Restatement §351: Unforeseen Damages
Morrow v First National Bank of Hot Springs My coins! Tacit Agmt Test, finds Bank didn’t agree to assume
responsibility
Certainty of Harm
Chicago Coliseum v Dempsey Boxing match. Reject lost profits for lack of certainty
Restatement §352: Uncertainty as a Limitation to Damages
Angela Tv v Reed Actor wanted. Awarded expenses incurred before the K was entered
Mistletoe Express Svc v Locke Losing K. Award reliance interest
Restatement §349: Damages Based on Reliance Interests
Avoidability of Harm
Restatement §350: Avoidability as a Limitation to Damages
Rockingham County v Luten Bridge Co The bridge.  had duty to mitigate damages.
Shirley MacLaine Parker v 20th Century Fox Shirley excused from having to mitigate damages by accepting “Big
Country, Big Man” – was different and inferior employment
Contracting Around the Default Rules of Damages
UCC §2-719: Contractual Modifications of Limitation of Remedy
Kemble v Farren Comedian makes K w/punitive clause for breaching. Not enforceable
Wassenar v Towne Hotel Hotel mgnr gets sacked, has stipulated clause in K that pays him for the remainder of the K. No
duty to mitigate. Not a penalty.
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Expectancy interest provides normal upper limit of contract damages – then factor in limitations
3 Most Common Limitations in Awarding Expectancy Interest (Default Rules)
When limitations apply, cts may award damages based on reliance or restitution interest instead
Note on default rules: Default rules (the rules that courts chose to adopt in their jurisdiction to handle a particular issue)
are used to fill in the gaps of contracts if parties haven’t contracted for it already
o Parties don’t always agree on damages or other terms – need courts to fill in the gaps in a consistent way so that
parties know what could happen - predictable outcomes
o Cheapest soln they could go w/ b/they don’t have to negotiate for it (negotiations cost money)
1. Remoteness or Foreseeability of Harm
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Cannot recover a loss that the party in breach could not foresee as a result of the breach at the time the contract was
made
Must protect the s expectation interest while protecting  from unforeseeable large losses to the  = fairness arg,
damages could could on forever – gotta limit
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Foreseeability Test: (Hadley)
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o
When a contract is broken, the injured party can recover damages for loss that fairly and reasonably may be
considered as arising naturally from the breach ie according to the usual/normal course of things = general
damages
 OR if the damages don’t result in the usual course of things, that it may reasonably have been supposed to
have been in the contemplation of both parties at the time they made the contract = special damages
o Ie: was the party notified of the potential damages: If special circumstances were communicated by
the s to the s – they would be liable for that loss b/then the s could reasonably contemplate it and
act according
o If not communicated – the party breaking the contract would only think of injuries that arise
generally – not these special circumstance
o Rules on notice for special damages (Morrow)
 MAJORITY RULE Req notice but parties don’t have to sign off on it – just have to be aware
 MINORITY RULE Req notice and agreement must be made “tacit agreement test”
 Tacit Agreement Test: (restrictive test for determining special damages) -  must prove
more than the  was given notice
 Must also prove that the D tacitly agreed to assume the responsibility
 Would the parties have agreed to such a large liability when they made the contract?
 Almost no case ever passes this test: no potential D will agree to take on liability
Test of forseeable: objective: what a reasonable person would have foreseen
 Probablity was 75% or more
 Use precedent (history, traditions in interpretation)  imprecise science, legal reasoning is in large part
reasoning by analogy
Restatement §351: Unforeseen and Related Limitation on Damages
1.
2.
3.
Damages are not recoverable for loss that the party in breach did not have a reason to foresee as a probable result
of the breach when the contract was made
Loss may be foreseeable as a probable result b/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
A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for
loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid
disproportionate compensation.
a. When it’s not in the interest of justice to req the party in breach to pay damages for all foreseeable loss that he
has caused
b. Ex: extreme disproportion btwn the loss and the price charged to the breacher
c. How to determine “if justice so requires?” – this is a broad discretionary power given to judges to work in the
interest in fairness (an equitable role for judge)
Lost profits of a delay in delivery of a new crankshaft not foreseeable
Hadley v Baxendale (Eng. 1854) pg 102
Facts: Ps operate a mill. When the crankshaft broke, the mill was stopped and the broken crankshaft had to be sent to the
manufacturer. P used the Ds carrier service to transport it and were told that it would be delivered at a certain time.
Delivery of the crankshaft to the manufacturer was delayed  causing the mill lost profits for those days
: D’s assumed a duty of care to deliver the shaft promptly and breached that duty
: damages too remote and the D’s were not liable for them
Holding: The loss of profits cannot reasonably be considered a consequence of the breach of contract b/they were not
reasonably forseeable (apply foreseeability test).
 s didn’t notify the s of the special circumstances: for all they knew, the s had another shaft to operate the mill, or
the mill was defective in other ways than just the broken crankshaft
Jae Park–- Finklestein Fall 2002
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Lost rent value due to delay in delivery of the dragline was foreseeable
Hector Martinez and Co. v Southern Pacific Transportation Co. (5 th Circuit. 1979) pg 116
Facts: Martinez had a dragline transported using Southern Pacific as the delivering carrier. The bill of lading described the
dragline as “used strip mining machinery and parts.” Delivery was made 1 mo late. Dragline was damaged from transit
and repairs took another 2 ½ mos.
 Martinez sued for : 1. the cost of the repairs 2. refund for certain storage costs 3. compensations for the dragline’s
loss of use. First 2 settled. Issue of lost profits left.
: lost profits not forseeable
: renting is forseeable use of the dragline, For a consequence to be foreseeable, it doesn’t have to be the only foreseeable
outcome
Holding: In this case, lost rental value is an appropriate measure of damages from a delay in shipment of machinery =
forseeable.
 Comparing to Hadley v Baxendale: in that case it wasn’t reasonably foreseeable that the shaft was an indispensible
element of a mill, BUT in this case, it was obvious that the dragline is a machine that itself has a use value.
o Capital goods such as machinery have a use value that may equal the rental value or the interest value (referring to
the market value)
o It might be quite foreseeable that delay in transporting the machine will cause a loss of rental value or interest
value during the delay
 Reasonable foreseeability is a fact question to be decided by the jury
 Southern Pacific admitted that it was foreseeable that the good were to be sold as they were to be used.
 P only has to show that his harm was not unforeseen to a reasonable man
 If we don’t know what the parties had contracted for – can guess as to what the parties WOULD HAVE contracted for
Hadley v Baxendale is the default rule - If you wanted to work around the default rule, you could contract around it –
law is irrelevant, contracts are what’s important
 Delay claim has 2 parts
o Delay from the delay in transit
o Delay resulting from the delay in repair  rules these damages are part of the cost of repairs and Martinez had
already settled that claim
 Possible rules:
o all damages
o foreseeable consequences (rule of Hadley)
o damages that are foreseen (most restrictive rule)
Notes:
 If you were a lawyer for Martinez – would build a clause into the contract notifying Southern Pacific that the dragline
is to be used for rented and give the value
 If Southern Pacific doesn’t want that in the contract then can mention it in every contract to make sure that they are
aware .. they don’t have to sign off on it, just have to be aware
My coins! Tacit Agmt Test, finds Bank didn’t agree to assume responsibility
Morrow v First National Bank of Hot Springs (Arkansas. 1977)
Facts: 2 plaintiffs are avid coin collectors. Sought large safety deposit boxes to store their collection, but when they
started looking they found nothing available in Hot Springs. Mentioned lack of lrg safety deposit boxes w/employees of the
D bank where he was a regular customer. Lrg safety deposit boxes became available - Morrow reserved 3 – expressed he
wanted them before Sept 1. Employees promised to notify him when they were available
 On Sept 4, he was burglared (took approx $32,000 worth of coins) – when he asked about the safety deposit boxes on
the following day, he learned that they had become available Aug 30
Holding: Bank’s promise to notify the Ps when the boxes were available was not a tacit agreement to be liable for $32,000
if promise was breached, therefore damages are limited by foreseeability. No special damages.
Hypo
 Go to FedEx – say please deliver this resume tomorrow or otherwise I won’t get this job that pays $90k
 After notification of the damages to you are they liable if they don’t deliver tomorrow and you don’t get the job?
 Under the rule of special damages – if you notify them, they are liable
 When you fill out a FedEx airbill – you are entering into a contract w/them
o On the back: Liability limited to the lesser of your actual damages or $100..unless otherwise specified and charges
paid… ”
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o
o
“We will not be liable for any damage, whether direct, incidental, special, or consequential in excess of the
declared value of a shipment, whether or not FedEx had knowledge that such damages might be incurred
including but not limited to loss of income or profits”
Ie – operating under the majority rule of just notice
2. Certainty of Harm
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
Damages for breach are recoverable only to the extent that the injured party’s loss can be established w/reasonable
certainty (evidence issue)
o Issue arises w/lost profit claims – req’s ’s projections and predictions that are sometimes just speculative and
open to debate
Go by rules of certainty even if it’s evident that further damages must have been suffered – if they can only be
estimated as a matter of opinion – excluded from calculations
Restatement §352: Uncertainty as a Limitation on Damages
Damages are not recoverable for loss beyond an amt that the evidence permits to be est’d w/reasonable certainty
Boxing match. Awards damages that were certain only.
Chicago Coliseum Club v Dempsey (1st District. 1932) pg 125
Facts:  is a boxing promoter, Dempsey at the time of the contract in question was the world’s Champion Heavy Weight.
Contract for  to promote a boxing match btwn  and Wills for world championship. One of the terms forbade Dempsey
from participating in any boxing match btwn the date of the contract and the date of the match
  entered into several other Ks for the fight:
 contracted w/Wills. Contract was made several days before the contract w/Dempsey
 contracted w/Weisberg to promote the event. Expenses: travel, legal svc’s for promoting the match.
Weisberg was to pay for these things himself to be reimbursed by ticket sales
 Dempsey - “too busy training for the match w/Tunney” “you have no contract suggest you stop kidding yourself”
  filed a bill to have Dempsey restrained and enjoined from boxing Tunney – is in violation of their contract
o Trial ct found contract valid and decreed that Dempsey be perpetually restrained and enjoined from boxing
Tunney; Dempsey responsible for P’s costs in obtaining the injunction order (aka equitable remedy: for specific
perfomance) and P entitled to nominal damages
Holding:
 wants damages other than nominal
1. Loss of profits
o  had an expert testify that the match would have made the P $1.6mill in profit
o Ct: The profits are dependent on so many variables that it’s impossible to produce evidence that would establish
any amount
 P admitted this fact in it’s initial bill to the court: if P doesn’t get injunction, will suffer great and
irreparable that can not be compensated
o Rule: Compensation for damages for breach must be established by evidence
2. Expenses incurred before the contract was signed
o Rule: P can only recover for damages that naturally flow from and are a result of the breach
o Wilson: $50,000 to Wills was never paid = no damage
 But even if it was paid, not recoverable, b/Wills contract was made before D’s) and was not contingent on
the  signing Dempsey (wasn’t incurred in reliance of Dempsey signing his K = speculative behavior on
’s part
3. Expenses incurred in attempting to restrain D
o Wilson: these expenses not recoverable (not even atty fees) – P chose to litigate at his own financial risk
 P increased their damages by choosing to stop Dempsey from fighting in the other match – Dempsey had
already repudiated his contract
 Nothing in contract w/Dempsey about atty fees
4. Expenses incurred after signing and before breach
o In re Weisberg
 Wilson: Weisberg was to be reimbursed out of the gate receipts – nothing in agreement to charge the 
unconditionally w/the costs and expenses of Weisberg’s services
 Wilson: what could be recovered:
o $10 paid to Dempsey
Jae Park–- Finklestein Fall 2002
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o Anything recoverable if the expenses were incurred as a necessary expense in furthering the match
Notes: Ct is awarding reliance damages
Winston Cigarette March. Co. v Wells-Whitehead Tobacco Co. pg 137 (dicta)
 Courts believe it’s safer to have definite rules for guiding a jury to det damages than to leave the matter entirely to their
discretion.
o Even if the calculated damages fall short of the actual damages
o Go by rules of certainty even if it’s evident that further damages must have been suffered – if they can only be
estimated as a matter of opinion – excluded from calculations
Allison v Chandler pg 138
 Distinction exists btwn profits that can be definitely ascertained by a standard in the contract or by law AND those
where there is no standard, but are speculative
 Need a certain standard to guide the jury
o If not – the breach of a simple contract could ruin the party in default by leaving the damages to the discretion of
the jury
 Must follow the rules and precedent – even if they cause some individual hardship
o Wrong to bend the law to fit the injustice of a particular case – must follow the strict principles of law
o Must keep consistency
o Judges’ duty is to maintain and expound upon the law – not create new ones
Awarded expenses incurred before the K was entered.
Anglia Television LTD v Reed, (Eng. 1971) pg 140
Facts: Anglia TV planned to make a play for TV. Made advance arrangements: hired director, set designers, stage
managers, etc. Then contracted w/ Mr. Reed. B/of a prior engagement, Reed had to breach the contract 1 day later. Anglia
couldn’t find a substitute – abandoned the film
 Claim wasted expenses for director, etc for 2,750 pounds
: P can only recover for expenses incurred after the contract was concluded = 854.65 pounds
 Uses precedent: expenses incurred before the contract should not be recoverable – P incurred them for his own benefit
at a time when it’s uncertain whether or not there will be a contract
Holding:  has a choice btwn claiming lost profits or claiming her wasted expenses
 P not limited to expenses incurred after the contract
 P can claim expenses incurred before the contract IF the parties could reasonably have seen that those expenses would
be wasted if the contract was breached
 Uses precedent to support: Lloyd v Stanbury:
o P can recover wasted expenses incurred before the contract was made b/ it was w/in the contemplation of the
parties when the contract was signed
 “True if  had never entered the contract that the expenses would still have been incurred by the , but the  having
made the contract is now liable b/it’s b/of his breach that the expense was wasted”
Notes:
 It is seemingly in direct contradiction w/Dempsey
 Reed was the one shot that they had to get their film used – after he signed up, he deprived them of the time and the
opportunity to find another actor therefore all the expenses they incurred in preparation went down the drain
o Court awarded Anglia their opportunity costs
 Anglia can be seen as awarding expectation damages: assume that Anglia expected to get back at least what they put
in – break even – then give them their reliance damages (+ opportunity costs) = minority rule
o So can be seen in as agreement w/Dempsey if you look at it as awarding expectation interest
o Consistent w/expectation theory: would still be reliance – losses – but proceeding under the reliance theory is
better for the P, BoP is on D to show the losses
o Arguably Anglia is the correct method of awarding damages – Dempsey if they had followed this reasoning would
have followed the assumption that the Club would’ve broke even – then expectation is to bring in the reliance
damages
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Restatement §349: Damages Based on Reliance Interests:


reliance interests are an alternative to expectation interests. Includes expenditures made in preparation for performance
or in performance
Comment: P can ignore profit and recover expenditures in reliance – as in a losing contract, or when the profits
are uncertain
o Reliance interest where profit uncertain: Under the rule stated in this Section, the injured party may, if she
chooses, ignore the element of profit and recover as damages his expenditures in reliance. She may choose to do
this if she cannot prove his profit with reasonable certainty. She may also choose to do this in the case of a losing
contract, one under which she would have had a loss rather than a profit. In that case, however, it is open to the
party in breach to prove the amount of the loss, to the extent that she can do so with reasonable certainty under the
standard stated in §352, and have it subtracted from the injured party's damages. The resulting damages will then
be the same as those under the rule stated in §347
o Often the reliance consists of preparation for performance or actual performance of the contract = essential
reliance
o It may, however, also consist of preparation for collateral transactions that a party plans to carry out when the
contract in question is performed, and this is sometimes called "incidental" reliance = incidental reliance
o The party in breach must prove the amount of the loss to a reasonable certainty and have it subtracted from the
injured party’s damages
Losing K. Award reliance interest
Mistletoe Express Service v Locke (Court of Appeals of Texas. 1988) p 143
Facts:  Locke contracted w/  Mistletoe Express on Oct 18, 1984 to perform a pickup and delivery svc for Mistletoe.
Contract term was 1 yr from Oct 1, 1984. Locke made certain expenses and expenditures to perform her contract. $3,500
to build a steel and pipe ramp; $1k for dirt work; borrowed $15k to buy 2 vehicles for $9k and $6k in start up expenses.
Locke’s company never made a profit, but losses decreased w/ea month. June 15, 1985 – Mistletoe breached contract.
Locke sold the vehicles for $6k – loss of $3k.
Issue:  was engaged in a losing business if she had stayed in the contract she would have lost money
Mistletoe: victim of a contract is only entitled to be placed in the position he would have been if the contract had been
performed --- Locke should only be allowed to recover profits she lost b/of the breach
 Locke is suing for her reliance damages b/her expectation damages would have been less
Holding: Where a contract req’s a capital investment – party’s reasonable expectation of profit includes recouping the
capital investment. Award reliance interest.
 Locke can recoup her reliance expenditures b/she wasn’t given an opportunity to recoup those expenses
o Mistletoe had BoP to prove the amt of losses – but didn’t, so it won’t be deducted
o Reliance damages = amt of loan ($15K) - sale of vehicles ($6k) + cost of dirt work ($1k) + loss from materials for
the ramp ($3k) = $13k
Concurring: Locke had consistently lost money and there was no projection to show that she would have made a profit 
Mistletoe actually saved her money by breaching
 If the total past and projected losses equaled or exceeded the unrecouped reliance costs then Locke would not have
been able to recover for damages
 But  had BoP’ing that loss and didn’t  amt of loss unknown and can’t be used to negate the reliance damages
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3. Avoidability of Harm
American Rule: dates back to 1845
 After repudiation of a contract the other party cannot continue to perform and recover damages bases on full
performance price
 P cannot hold a D liable for damages not need not have been incurred – dead weight loss
o Is an effiecient breach b/results in cost savings for both parties – dead weight & lost time
 Duty to mitigate the damages
Restatement 350: Avoidability as a Limitation on Damages
 Damages are not recoverable for loss that the injured party could have avoided w/o undue risk, burden, or humiliation
  can recover damages if she has made reasonable but unsuccessful efforts to avoid loss
Comment: Once a party has reason to know that performance by the other party will not be forthcoming, she is ordinarily
expected to stop her own performance to avoid further expenditure. Furthermore, she is expected to take such affirmative
steps as are appropriate in the circumstances to avoid loss by making substitute arrangements or otherwise. It is sometimes
said that it is the "duty" of the aggrieved party to mitigate damages, but this is misleading because she incurs no liability for
her failure to act. The amount of loss that she could reasonably have avoided by stopping performance, making substitute
arrangements or otherwise is simply subtracted from the amount that would otherwise have been recoverable as damages.
The bridge.  had duty to mitigate damages.
Rockingham County v Luten Bridge Co (4th Ckt. 1929) pg 147
Facts: Rockingham County contracted w/Luten Bridge Co to build a bridge. County cancels bridge project. Sent several
notices to Luten Bridge Co stating that the contract was not legal or valid; P should proceed no further; any work done on
the bridge would be done at the Ps own risk and hazard; the board would contest payment for the bridge if constructed.
 At the time the first notice was sent – little work had been done on the bridge and the total cost of materials plus labor
up till that point was $1,900
 Luten disregarded the notices and continued to build the bridge – then sued Rockingham County for $18,301.07
Issue: Measure of Ps recovery
Holding: After the county gave notice that it didn’t want the bridge built and was not going to pay for it – Luten should
have stopped building the bridge; should not have done anything to increase the damages; P should have desisted from
further work. Follow American Rule.
 Measure of Ps damages is compensation for labor and materials accrued before the breach of contract + the profit
o Reverse and remand for new trial
Note:  would’ve gotten the same amt of damages if he had stopped when the K was breached and after the bridge was
built – his lost profit on the deal (expectation damages). By continuing to build all he did was rack up his reliance costs,
only serving to punish s.
Shirley excused from having to mitigate damages by accepting “Big Country, Big Man” – was different and inferior employment
Shirley MacClaine Parker v 20th Century Fox (Supreme Ct of California. 1970) pg 152
Facts: 20th Century Fox contracted w/Shirley MacClaine to make a movie musical called “Bloomer Girl” for $750,000. D
decided not to produce the movie, cancelled the contract w/Shirley MacClaine and inorder “to avoid any damage to you”
offered her a role in “Big Country, Big Man” a dramatic western w/the same compensation.
 31 of 34 provisions same: differences = no more approval rights for the director, screenplay, stage director
 She was given one week to accept the offer, she didn’t and sued for recovery of the guaranteed compensation
: No money is due P b/she failed to mitigate the damages b/she unreasonably refused the accept its offer of the leading
role in “Big Country”
Rule: Employee must make reasonable efforts to obtain other employment that was not different or inferior… they have a
right to reject different and/or inferior offers
Holding:  raised no issue of reasonable efforts by  to obtain other employment – D only contends that the refusal of the
“Big Country” offer was unreasonable. The offer of “Big Country” was different and inferior to that of “Bloomer Girl” 
she had a right to refuse it.  excused from attempting to mitigate damages
o Different and inferior – musical/dramatic western, lost certain rights of approval
Dissent: Sullivan: believes there is a factual issue on whether or not “Bloomer Girl” was different/inferior to “Big
Country” … judges had no right to grant summary judgement – should’ve gone to a jury so they could weigh the evidence
Jae Park–- Finklestein Fall 2002
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

Rule: P must mitigate damages – in wrongful termination of employment, employee must make a reasonable effort to
secure other employment – substantially similar, comparable employment, etc
Contends that the rules excepts acceptance of employment of a different kind – not differences btwn 2 jobs in the same
field … majority only points out differences btwn the 2 films
o The 2 jobs display different talents of P, but doesn’t prove that’s different in kind or inferior
Neri = problem of lost volume, seller claims that his losses are to his total volume
Sets doctrine of lost volume
Neri v Retail Marine Corp (Ct of Appeals of NY. 1972) pg 163
Judge: Gibson
 Facts:  contracted to buy a boat from Δ. Made a deposit of $4250. 6 days after the date of the contract, ’s lawyer
sent the Δ a letter rescinding the sales contract (Neri was to undergo surgery and would not be able to make payments).
Boat was already ordered and in Δ’s poss’n: refused to refund ’s deposit.
 : Δ sold boat later for the same price to someone else = no loss to Δ
 Δ: if  hadn’t defaulted, he could have made 2 sales not 1
 Procedure:  sued to recover deposit, Δ counterclaimed alleging damages of $4250,
o Trial – summary judgment for Δ for liability – ct rejected Δ’s claim for loss of profit and found the Δ had failed to
prove any incidental damages.
 Awarded Δ $500 per UCC §718(2)(b) and directed s recover thre rest of the deposit
o Appellate ct affirmed.
 Rules:
o UCC §2-718 (2)(b): buyer, despite his breach, may have restitution of the amt of which his payment exceeds…
20% of the value of the buyer’s total performance or $500 whichever is smaller (Fink: a little windfall/kickback
for seller)
o UCC §2-718 (3)(a): seller has a right to recover damages under provisions other than subsection 1
o UCC §708 (1): measure of damages is the difference btwn the market price and the contract price
 (2) If the market price v contract price (covering) aren’t adequate to put the seller in as good a position as
he would have been – measure is profits w/ (§710) incidental damages
 Holding: Modified affirmed. The measure of damages in subsection (1) is inadequate to put the seller in as good a
position as performance would have done, seller is entitled to its profit w/reasonable overhead and incidental damages.
s are entitled to the $4250 minus damages to Δ for $3253 for lost profit and incidental damages.
o Retail seller is entitled to its profits: A private party experiences no loss if a buyer breaches and she was able to
sell it to someone else. Dealers on the other hand, have an unlimited supply of cars, and in the space of making
one sale (to the 2nd buyer after the 1st breached) could have made 2 = 2 profits
o Incidental damages = storage, upkeep, finanace charges, insurance were proven
 Notes:
o What if the Δ was an antique dealer – one of a kind vase – seller than has no argument, assume that buyers wanted
that particular vase
o Fink: interprets 2-718(3): buyer’s right to restitution under subsection 2 is subject to offset by (a) – so she adds
$500 to the cts award  damages: 500 + 2579 + 674
o Why should sellers get money when they were able to mitigate the damages: lost volume
 Why couldn’t MacLaine do the same: Take a substitute movie and claim lost volume – court would have
allowed 20th cent fox to lessen the damages ---- she could argue that in the space of making that 1 movie,
she could’ve made 2 one right after the other
 Distinction btwn seller w/mass produced goods w/intent to sell high volumes vs a personal
service contract--- is that distinction clear?
Efficient Breach
 Economic theory of efficient breach = a justification for the expectation measure of damages
o Where a breach of contract is more profitable than perfomance of the contract b/the costs of perfomance exceed
the benefits to all parties
 Courts favor awarding money damages over specific performance b/it enables the party that wants to breach when it’s
efficient to do so and pay
 But Cooter and Ulen make an argument that it doesn’t matter whether damages or specific perfomance is awarded 
the economic benefit will exist, it’ll just change the distribution of the surplus money
 The good in question will usu move to the person who values it most
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


Bridge co hypo – no doctrine of avoidability, and bridge co wants to still build  county should negotiate and would
prolly end up paying for the profit + reliance + a little extra (bridge co can up this offer to the full cost of the proft +
reliance for the entire bridge) settle somewhere btwn those 2 ends – either way, there will be a cost savings
o Doctrine of avoidability – the cost savings will be distributed differently, county would be better off ; no doctrine
of avoidability – bridge co would be better off (more leverage in negotiations)
o But if there were no doctrine of avoidability, and the parties got together to negotiate – both would be better off
than had the contract been performed: county won’t have to pay the full price of the bridge, and the bridge co will
make more than it would have under the contract
Same goes for the doctrine certainty and forseeablility = from the perspective of efficiency, these doctrines don’t
matter – someone will always come out ahead, the money will just be in a different pocket
o As long as there are no transaction costs and ppl are free to move goods around
Why have doctrines then?
o Goals other than efficiency
o But there are transaction costs – negotiations cost money, etc
Friedman: The Efficient Breach Fallacy
 His arg: efficient breach amounts to theft or conversion under property laws
o But contract law is different than torts or criminal law: difference in the kind of entitlements that are being
protected, but why?
Jae Park–- Finklestein Fall 2002
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Contracting Around the Default Rules of Damages
1.

Express Limitations on Consequential and Incidental Damages
Contracts can include warranty clauses that are intended to be the exclusive remedy for breach of contract (ex Lotus
software)
UCC §2-719: Contractual Modification or Limitation of Remedy
1(a): agmt may provide for remedies in addition to or in substitution for default remedies
o And may limit or alter the measure of damages recoverable
(b) unless the remedy is expressly agreed to be exclusive, the proposed remedy is optional
2: If the exclusive or limited remedy isn’t appropriate in the circumstances, then use default remedies
3: Consequential damages can be excluded to limited unless it’s unconscionable to do so
Pro Enforcement of stipulated damages clauses: allows parties to bargain to control their exposure to risk and for
economic efficiency, can bypass the judicial morass (Wassenar)
Con Enforcement: Public law usu defines remedies for parties; cts must ensure private remedies are fair and not punitive
2.
Liquidated Damages v Penalty Clauses


Prior to assumpsit, most promises were enforced by an action of debt (conditional bonds)
o If the condition wasn’t met, the promisor then owed the promisee the amt of money specified in the bond (usu 2x
sum lent)
o Practice declined b/theory that “a contracting party should only be permitted to recover compensation for loss
actually suffered thru default” w/a goal of “putting the innocent party into the positio
o n he would have achieved if the contract had been performed”
2 ideas of contract enforcement:
o Penal: Make sure the agreement is performed .. as seen in penal bonds
 Today, only cts can use penal mechanisms (threat of contempt, etc)
 Today, penal clauses in contracts are unenforceable = not a default rule, can’t be Kd around
o Damages: Law can provide compensation for loss suffered
 Damages must be liquidated damages clauses – cannot be punitive

Reasonableness test: ensure cts respect the parties’ bargain, but prevents abuse (Wassenar)
a.
b.
c.

Did the parties intend for damages or a penalty? Subjective intent of parties – not really important
“difficulty of ascertainment” test: is the injury caused by the breach difficult or incapable of accurate
estimation at the time of contract
i. The greater the difficulty of estimating or proving damages, the more likely stipulated damages will
appear reasonable
ii. If easy to see damages, a great deviation btwn the stipulated amt and the true amt will look
unreasonable
Are the stipulated damages a reasonable forecast of the compensatory damages (related to b)
i. Reasonableness of stipdamages must be judged at the time of contract formation (prospective), amt
of actual loss helps det what was reasonable (retrospective approach)
Cts are free to give diff interpretations to or importance to the various factors
Jae Park–- Finklestein Fall 2002
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Comedian makes K w/punitive clause for breaching. Not enforceable
Kemble v Farren (Eng. 1829) pg 174
Facts: Δ contracted to perform as a comedian for 4 seasons and to follow all the usu regulations of the theater for which
the  agreed to pay the Δ approx £3/performance. Contract contained a clause stating that should either party neglect to
follow any part of the agreement, that party should pay the other £1000. Δ refused to act during the 2nd season
Holding: The clause encompasses any breach of any stipulation, however minute or unimportant, of the contract, by either
party and that constitutes a penalty that the cts will not enforce
 Ex: if the  had neglected to pay the Δ one nights wages of £3, then Δ would be entitled to £1000  large payment in
consequence of nonpayment of a very small sum = penalty
o BUT in this case, clause not really a penalty – but still the ct judges the clause’s basic nature as punitive – if the ct
takes the contract piecemeal, advantages one party over the party
Notes: what’s so wrong w/a penalty clause: hypo: contract to paint a room, painter contracts that if he doesn’t finish
painting by a certain time, he will pay a large penalty. Person w/the room wouldn’t have entered into the contract if not for
the penalty guarantee – court would not enforce, why not?
o If facts showed coercion… overreaching on part of the person w/room
Hotel mgnr gets sacked, has stipulated clause in K that pays him for the remainder of the K. No duty to mitigate. Not a penalty.
Wassenaar v Towne Hotel (Wisconsin. 1983) pg 176
Facts: Wassenaar was hired as a general manager of the Δs hotel. Contract provided for a 3 yr term of employment and
damages should he be let go early: hotel was to pay him the for the remainder of the contract. Δ let Wassenaar go 21
months before the 3 yr term  it took  2 months to find a new job
Δ:  had a duty to mitigate damages; stipdamages clause is void as penalty b/doesn’t reasonably forecast the loss – gives
E windfall
 Damages for wrongful termination standard calc: salary E would’ve rec’d during the expired term + expenses of
securing another job – income from that other job earned during the expired term
o Ct: standard calc doesn’t take into acct consequential damages – injury to rep, emotional stress – in providing for
stipdamages, the parties could anticipate consequential damages and provide for them
 stipdamages reasonable when consequential damages are considered
: Mitigation was irrelevant b/the contract contained a valid stipulated damages clause
Rule: BoP stipulated clause should not be enforced on Δ
Δ: amt is unreasonable b/the E suffered no loss, or if he did suffer loss it was significantly less than the stipdamages
o Ct: Apply reasonableness test: one way to test is to compare the estimated damages w/the actual harm suffered
 There is evidence that the  did suffer harm …
 No evidence of the ’s earnings from other job therefore no evidence to support the ’s position that the
 would get a windfall =  didn’t prove these 2 elements
Hold: The stipulated damages clause is reasonable and enforceable – record shows the E suffered actual injury and the
record does not show that actual damages are disproportionate to the stipdamages. Therefore the liquidated damages
should not be reduced at trial by an amt the employee did earn or could have earned
Arbitration
Garrity v Lyle Stuart, inc
 Arbitrator awarded punitive damages b/of malicious acts on the part of the 
 Ct: punitive damage award against public policy, punitive damages should only be awarded by judge or jury if the
extraordinary circumstances require it
 Theory is that arbitration is more convenient, faster, less combative --> if this is the case, should try to further
arbitration
Willoughby Roofing:
Federal Arbitration Act: gives a broad hand to arbitrators; when state courts try to decide this cases, creates wrinkles
 Provides that the arbitration for punitive damages can be vacated if found…
READ THIS SECTION
Jae Park–- Finklestein Fall 2002
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B. SPECIFIC PERFORMANCE & INJUNCTIONS
Contracts for Land
Loveless v Diehl s refused to sell s farm as per K. SP as a matter of course.
Contracts for Goods
Scholl v Hartzell Deposit for Corvette. SP not available, should’ve tried to cover .
Sedmak v Charlie’s Chevrolet Unique Good Corvette. SP awarded
Contracts for Personal Services
Lumley v Wagner K w/singer. Ct issues injuction though won’t allow SP: Willing to do indirectly what they won’t do
directly.
Ford v Jermon K to act. SP denied, cts should not enforce Ks for personal svc
Duff v Russell K w/famous opera singer. Grant injunction,  suffered irreparable harm
Bailey v State of Alabama Bailey breach of his personal svc K was made a crime by State of AL. Unconstitutional. 13th ad
abolished all states of bondage.
Lochner v NY Re state statute limiting hrs bakers can work. Right to K is protected under the 14th ad, statute intereferes.
Background: Specific Performance and Injunctions
 Traditionally, damages were available in cts of law (aka common law cts) = legal relief
 Extraordinary relief was available in chancery cts (aka cts of equity) = equitable relief
o Equity in cts of equity: sense of higher justice & sense of providing flexible approaches where the law had
become too rigid. Claimed a higher moral principle
 Procedure: s submitted bills (not writs); chancellor decided the case himself (no jury) by means of written testimony
(no witnesses)
Equitable Remedies




Coercive: commanded conduct w/threat of punishment if not obeyed
o Diff from cts of law – their power was to declare law and had the power to enforce their judgments… cts of
equity had the power to punish for disobedience
o Injunction main form:  enjoined to act, not act
o Specific performance: form of injunction – req’s  to perform his contract w/the 
Declaratory: declaration of rights so  can proceed w/an understanding of what s/he could(n’t) legally do
Restitutionary: restore to the  something that belonged to her
o Cts of law bases restitution on legal title – even if legal title was obtained by fraud (etc)
o Cts of equity expanded definition of restitution:  would get literal restoration but profits/gains too
Disputes over land favor equitable remedies
Remedial Limits


Traditionally: equitable relief only if legal relief is inadequate
Traditional equity based on adequacy, practicality, clean hands, estoppel, laches, and hardship in an effort to det to
grant equitable relief
Meger of Law and Equity



W/the exception of 4 or 5 states, cts of law & equity have merged
Some distinctions remain: ex jury trial granted today based on whether it would’ve been tried by a ct of law, or equity
(cts of law granted jury trials)
Today: refer to equitable relief b/equitable remedy is sought OR if it involves questions of discretion, or judgment, or
calls for principles of justice & conscience rather than rigid legal rules
Jae Park–- Finklestein Fall 2002
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Contracts for Land
s refused to sell s farm as per K. SP as a matter of course
Loveless v Diehl (AK. 1963) pg 217
Facts: Lovelesses owned a farmed, leased to Diehls for a 3 yr term for $100/mo. Lease contained a option to buy clause:
lessees can buy property at any time during the life of the lease for $21k. Diehls spent several k in improvements; bought a
pipeline milking system from Lovelesses on credit (never paid) for $1440.95. Diehls intended to buy the land, but couldn’t
and to recoup some of what they put in, put the land up for sale (near the end of their contract). Dr. Hart responded, willing
to pay $22k = giving Diehls $1k
 Loveless disclaimed any intention to sell to Diehl; after contract term up, took forcible poss’n of the property and
rented it out again
 Diehls sued Lovelesses for specific performance of an option contract, alternatively asked for damages; Lovelesses
countersued for judgment on a note.
 Holding: Limited Deihls to their money damages
1. Diehl’s entitled to $1k = relief the Lovelesses would’ve given them, amt of damages they est’ed in connection
w/the option to purchase; awarding damages instead of specific performance (damages preferred – other
remedies sought when damages can’t adequately put the  back in the place they would’ve have been;
strongest argument that SP not preferred)
2. Lovelesses entitled to $1440.95 for payment due on their milking eq’t; $1k credit for (1)
3. Lovelesses claim for balance of rents, and Diehls claim of loss of property so disputed by evidence as to be
unproved
Notes:
 Possible motivation for SP for Diehls – the value of the property may have risen and b/the deal w/Hart hadn’t gone
thru, the Diehls could’ve resold for a higher sum
Rehearing:
1. Holding: No valid reason for denying specific performance; decree modified and remanded
 Equities demand SP: Diehls spent more than $5k improving the land, to deny SP and to award damages
below their expenditures renders the Lovelesses unjustly enriched
 Whether the Diehl’s were planning on keeping it or selling is of no concern
2. On Cts of Equity and specific performance: can give SP as a matter of course
 in contracts where the contract is specifc in writing, certain in all its terms, fair and just in its provisions,
capable of being enforced w/o hardship to either party… Sims v Best pg 219
 in contracts for the conveyance of real estate.. Dollar v Knight
Dissent of Rehearing: Justice Harris
 Diehls were only going to get $1k our of his deal w/Dr. Hart anyway – they were willing to accept $1k, cts should
award $1k.
 The only person to benefit from specific performance would be Dr. Hart, who never had a contract and who is not a
party to litigation, who suffered no loss
Dissent of Rehearing: Justice McFaddin
 Can deny SP where the case is not clear, and where the complainant is wrong, or where there are considerable
countervailing equities (here b/Diehls would only have gained $1k).
 As a side note, favors ending the litigation, the majority is granting another remand.. etc
Contracts for Goods

Replevin = SP and only available when a remedy at law isn’t adequate OR the facts clearly est the s right to one OR
where justice req’s it (Scholl)
o Replevin valid when claimant has the exclusive and immediate right to poss’n
o Action in replevin can’t be had to enforce an unexecuted contract, parties should resort to breach of contract
UCC §2-716: Buyer’s Right to Specific Performance or Replevin
 Where goods are unique or in other proper circumstances
 Judgment for SP can include payment of price, damages, or other relief the ct deems just
 If buyer can’t cover OR if s/he shows that covering would be useless under the circumstances
Notes: More relaxed rules for SP
Jae Park–- Finklestein Fall 2002
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Deposit for Corvette. SP not available.
Scholl v Hartzell (Ct of Common Pleas PA. 1981) pg 226
Facts:  placed ad in paper for sale of 1962 Corvette and misc parts for $4k.  responded, put down a deposit of $100 and
obtained a money order for the rest. 2 days later  cancelled offer and returned the deposit.
  filed action of replevin (demanded poss’n of car and parts after payment) OR alt, wants damages of $4,655,
difference btwn the sale price and the value of the property;
Holding:  is not entitled to a replevin, the complaint should be one of assumsit. Complaint dismissed
 Following rules for replevin stated above: Depositing didn’t give the  a right to immediate and exclusive poss’n
 Replevin = SP and only available when a remedy at law isn’t adequate OR the facts clearly est the s right to one OR
where justice req’s it
: UCC §2-716 gives buyer the right to replevin in a breach of contract; Official comment 3: replevin where cover is
unavailable
 Ct: Comment #2: SP for unique goods and when the  is unable to cover
o Corvette is not a unique good;  did not show that he was unable to cover
o  could’ve covered and sued for market price v contract price (UCC 2-712); or if he didn’t want to cover
UCC 2-713
Unique Good Corvette. SP awarded
Sedmak v Charlie’s Chevrolet, Inc. (Mo. App. 1981) pg 229
Facts: Sedmaks facts show that they entered into an oral contract w/the s to purchase a limited edition Corvette.
Evidence: Sedmaks made a deposit of $500, requested specific options – car was delivered w/all the options they asked for.
s refused to sell the car, asked that s bid on it. s sue for breach of K.
Trial ct: found there was an oral contract, ordered s to deliver the car to the s
 Concluded s had no adequate legal remedy at law b/they can’t go buy another car of like mileage, condition,
ownership, and appearance w/o considerable expense, trouble, delay and inconvenience
Holding: Trial ct affirmed; this case was a “proper circumstance” for ordering a SP
o UCC §2-716: SP is a remedy for breach “where the goods are unique or in other proper circumstances”
Notes: Removes incentive for efficient breach
 Efficient sol’n: the highest total utility (desires, satisfaction) is achieved
o How to measure the Sedmak’s utility in this case? .. can’t measure the worth of the car to them, $15k may the
lowest/highest/inbtwn they are willing to pay
o From a Coasian perspective, while on the face of it, injuction is disfavored b/we want the party who can
breach efficiently to be able to do so BUT in a Coasian world (no transaction costs, parties free to bargain) if
the Sedmaks only valued the car $16k, they could sell it to the Hawaiian guy willing to pay $28k – car still
moves to the person who values it most.
 Real world: there are transactions costs, ie the cost to the Sedmaks in finding the Hawaiian guy
 Issue: the nature of money damages: Hairy hand case – wanted to know how much he valued a perfect hand.
Subjective value of the item in question goes w/expectational damages – expectations in their nature are subjective
o Difficulty: how to det the worth of the item, can ask s how much it was worth to them (evidentiary
problems) but assume that you know – definitive answer?
 No, different values of money for the same item - diminishing marginal utility of money (a dollar to
a rich person doesn’t mean much, a dollar to one who only has a dollar doubles her wealth)
 OR may value money differently even if ppl have the same amt of money
o Covering offers easy answer, but if the good has any unique features.. more difficult.. Fink: no way to know
the subjective value
o Impossible to quantify expected happiness, utility; one way to proceed is to compare goods to each other for
utility = ordinal utilities (order of utility of diff items to you), cardinal (independent value) utilities can’t be
assigned  results in no interpersonal comparisons of utility: impossible to know if the Sedmaks would get
more utility from the car than the Hawaiian.
o Cts just try to approximate the value of items w/money; but as shown above, money is not a good way of
matching utilities
 Why use market? Even though it’s not a perfect source of measure
 Market gives ave valuation of a good – roughly what ppl across society value that item
 Disappointed buyer can always cover
 Unique good  award SP b/it’s the only way to ensure the buyer is getting the same utility as she
would’ve gotten under the contract
Jae Park–- Finklestein Fall 2002
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Contracts for Personal Services

Cts will generally refuse to force performance in personal svc Ks – will not “compel obedience through
imprisonment,” likens SP as a “mitigated form of slavery” (Ford)
K w/singer. Ct issues injuction though won’t allow SP: Willing to do indirectly what they won’t do directly.
Lumley v Wagner (Eng. 1852) pg 240
Facts: Wagner contracted w/Lumley to sing as his theater 2 times/week for 3 months and to sign at no other theater during
that time. Wagner broke the contract by signing on w/another theater when she got a better offer.
: sued to have Wagner restrained from violating or committing any breach of the last article (no singing w/others) w/o s
permission. Ct granted injunction
  wants SP or if not that then an injunction to prevent the singer from singing elsewhere
Support of appeal: Ct can’t decree SP; agreement is a purely personal contract, remedy for breach is damages
 This is a contract for personal svc, money damages are more appropriate. SP is not allowed, and an injuction indirectly
may force her to SP
Support of Injunction: it’s just an injunction, not SP, to prevent the violation of the agreement
Holding: The Ct can’t enforce SP, can’t compel her to sing, but it can issue an injunction to keep her in line w/the true and
literal performance of their agreement. Thus indirectly, this may cause her to fulfil her engagement (since she can’t get
other work) (willing to do indirectly what they won’t do directly)
Note: as next case states, this is just one case of many, should be regarded as a warning, not a precedent
K to act. SP denied, cts should not enforce Ks for personal svc
Ford v Jermon (DC of Phila. 1865) pg 245
Facts:  and  actress had a written agreement that bound  to act during a stipulated period of time for the .
Procedure: complainant first asked for SP of the agreement and that the respondent be enjoined from appearing in any
other theater; then amended to ask only for the injunction
Holding: Case dismissed, demurrer granted: Cts should not interfere to enforce contracts for personal services
 Likens SP to compelling obedience by imprisonment; enforcing is impossible – is obedience real or illusory?
 A contract for personal services thus enforced would be just a mitigated form of slavery, in which the party would’ve
lost the right to dispose of herself as a free agent, and be for a greater and less length of time subject to control of
another
o Lumley v Wagoner: only one case out a many – should be regarded as a warning and not a precedent
o Gives other cases to use as precedent to the objection to enforcing contracts for personal services
K w/famous opera singer. Grant injunction,  suffered irreparable harm
Duff v Russell (Superior Ct of NYC. 1891) pg 247
Facts:  and  had a contract for the  to appear in operas during the 1887-8 & 1888-9 seasons; In NY 7 perfomances
were to given ea week. Jan 7, 1889  entered into an agreement to perform for the Casino, a rival of the theater – caused 
irreparable harm, couldn’t find a sub singer of her caliber, large damages
Procedure:  brought action to restrain the  from appearing at the Casino during the period of her contract; PI was
granted, but parties negotiated that the  would pay $2k if its proven the  is entitled to an injunction.. meantime, she could
fulfill her contract w/Casino
 args:
 No negative stipulation in the contract barring her from appearing elsewhere
o Court is bd to look at the substance and not the form of the contract – performing 7x/wk barred her from
working elsewhere, neg clause unnecessary
 Contract inequitable b/s are allowed to give 2 wks notice of the end of the season
o Bogus: not 2 wks notice to let her go, 2 wks notice to end the season – letter notified
 Breaching the contract was justified b/ refused to substitute a more healthful costume for the tights.. they were a
danger to her health
o Bogus: pretense for justifying breaking her contract and entering into one w/Casino
Holding: Facts sustain an injunction against s appearance at the Casino: evidence shows that the  sustained irreparable
harm.  entitled to judgment w/costs.
Notes: If she wasn’t a human but a good, this would be a classic case for SP – she’s unique, obtaining a cover would be
difficult if not impossible, etc
Jae Park–- Finklestein Fall 2002
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Bailey breach of his personal svc K was made a crime by State of AL. Unconstitutional. 13th ad abolished all states of bondage.
Bailey v State of Alabama (US. 1911) pg 265
Facts: Dec 26, 1907 Bailey entered into a written contract w/ the Riverside Co to labor for them for a year for $15, and
$12/mo. Feb 1908 w/o just cause and w/o refunding the $15, Bailey quit.
Procedure: Jury charge acc to §4730 Code of Alabama: the refusal to perform or refund such money w/o just cause =
prima facie evidence of the intent to injure his employer or to defraud him (made breach of contract a civil and criminal
wrong) … Bailey objected to the instructions. Criminal case: Jury found Bailey guilty, damages assessed at $15, fine $30,
and costs IN DEFAULT: hard labor for 20 days for the fine, and 116 days for the costs; Appeal: Supreme Ct of AL
affirmed
Holding: the statute on which the conviction was based violated the 13 th ad by making the failure to perform w/o refunding
the money prima facie evidence of the crime of fraud  enforces involuntary servitude by compelling personal service for
payment of a debt
 Effect of state’s statute = expose to conviction for crime those who breach contracts of personal service for payment of
a debt
 13th ad: Neither slavery nor involuntary servitude except as a punishment for crime shall exist in the US; Congress has
the power to enforce w/legislation
o Intention = to abolish all states of bondage: where one person has control over the personal service of
another for their benefit
o Legislation, act of March 2, 1867 (§1990, 5526): declared all laws of any State that attempted to est,
maintain, or enforce, directly or indirectly the voluntary or involuntary service or labor of any persons as
peons, in liquidation of any debt or obligation = null and void
 Peonage = compulsory svc in payment of a debt
 When breach occurs, debtor should be liable for damages, not enforced labor
o (But under the 10th ad, states are given the police power to define whatever they want to be a crime)
 Issue of crime: State can’t compel involuntary servitude in payment of a debt by punishing him as a criminal if he
doesn’t perform the svc or pay the debt = convenient instrument for the coercion which the Const and Congress forbid,
sneaky – trying to do indirectly what they can’t do directly
Notes: Unconstitutional to require ppl to perform on their contracts
 States 10th Ad granted “police powers” didn’t give it the right to legislate making breaching a crime = against 13th Ad
(no involuntary servitude)
Dissenting, Justice Holmes: 13th ad doesn’t outlaw contracts for labor; any legal liability for breach is disagreeable and
tends to make the contractor do as he said he would. Breach w/o an excuse is wrong, and if a State wants to make it a
criminal as well as civil wrong (in a contract that is fair and proper) it should be allowed to do so – effect is only to create
extra incentives to not breach, not to make the laborer a slave. The power of States to make a breach of contract a crime
wasn’t abolished when slavery was abolished.
 Obtaining money by fraud should be a crime and should be punishable like any other crime. Doesn’t infringe the 13 th
ad or the laws of US
Re state statute limiting hrs bakers can work. Right to K is protected under the 14th ad, statute intereferes.
Lochner v New York (US. 1905) pg 275
Facts:  was indicted for violating the labor law of NY: he wrongfully and unlawfully req’d and permitted an employee
working for him to work more than 60hr/wk. Background: bakers were working in horrible conditions, forced to work
long hrs; legislation limiting hrs enacted to protect bakers from exploitation
Issue: Right of individual to labor for as long as s/he wants or the right of State to legislate limits on her ability to labor or
contract for labor:
Holding: No reasonable ground for interfering w/the liberty of a person or the right of free contract by determining the hrs
of labor for a baker. The statute doesn’t involve the safety, morals, or welfare of the public; no direct relation to the health
of the employee to justify a it being a health law. Real purpose of the law is to regulate the hrs of labor btwn the master and
his employees in private business = violation of the 14th ad. Judgment of Ct of Appeal NY reversed, case remanded.
 Nature of statute:
o the use of word req’d doesn’t refer to physical force: another reading = no employee shall contract or agree to
work…
o Statute is a mandatory prohibition of more than 10hrs work/day in all circumstance  interferes w/the right
of contract btwn employer & E
 General right to contract in relation to a person’s business is protected by the 14 th ad, right to purchase or sell labor is
part of the liberty in the life, liberty, property w/o due process clause
Jae Park–- Finklestein Fall 2002
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
State can legislate around the 14th ad when using its police powers to protect the safety, morals, and general welfare of
the public  state has a right to prohibit certain kinds of contracts if it falls under their police powers
 Right to contract protected under 14th Ad
Notes: generally reviled holding
Dissent: Justice Harlan
 Police power of the state extends at least to the protection of the lives, health, and safety of the public
 Legislative v Judical power: Assuming that legislating limits to the power to contract is for the common good  rule
is that the judiciary can’t hold it invalid unless it is “plainly and palpably in excess of legislative power” beyond all
question
o If there is doubt, the law should be given the benefit of the doubt – here there could be doubt as to whether it
is a health law, therefore the judiciary shouldn’t step in
 Let the states care take of their own ppl and manage their domestic affairs as long as it doesn’t appear beyond all
question that it’s violating the Const
Dissent: Justice Holmes
 State const and state laws may regulate life in ways ppl may not agree w: unless a rational person would say the statute
infringes fundamental principles as they have been understood by the traditions of our people and our law – this law
can be thus condemned : a reasonable person might think it makes a valid health claim.
 In both the Bailey case and this one – argues that states have the power to make laws: to make what they want criminal
& to regulate
C. RESTITUTION
Restatement §371, §373, §374
Briton v Turner Part performance on a farm svc contract. Award restitution interest to laborer after his breach – the benefit to
employee of his part performance.
Cotnam v Wisdom Guy thrown from a streetcar. Implied K, QUASI- K, for Dr’s svcs therefore entitled to restitution interests.
Restatement §371: Measure of Restitution Interests
a.
b.
the reasonable value to the other party of what s/he rec’d in terms of what it would have cost her to obtain it from a
person in the claimant’s person
a. ex: if breach K w/painter. Measure of restitution interest is what it would cost you to have hired another
painter to do the job (market price of benefit rec’d)
the extent to which the other party’s property has been increased in value or her other interests advanced
Illustration: A, a carpenter, contracts to repair B's roof for $3,000. A does part of the work at a cost of $2,000, increasing
the market price of B's house by $1,200. The market price to have a similar carpenter do the work done by A is $1,800. A's
restitution interest is equal to the benefit conferred on B. That benefit may be measured either by the addition to B's wealth
from A's services in terms of the $1,200 increase in the market price of B's house or the reasonable value to B of A's
services in terms of the $1,800 that it would have cost B to engage a similar carpenter to do the same work. If the work was
not completed because of a breach by A and restitution is based on the rule stated in § 374, $1,200 is appropriate. If the
work was not completed because of a breach by B and restitution is based on the rule stated in § 373, $1,800 is appropriate.
Restatement §373: Restitution When Other Party is in Breach (victim of breach suing)
a.
b.
injured party is entitled to restitution for any benefit that he has conferred on the other party by way of part
performance or reliance
injured party has no right to restitution if the other party has done everything they had to but pay (why? No problem in
suing for expectation damages – use that)
Restatement §374: Restitution in Favor of the Party in Breach (breacher suing)
1.
2.
if a party refuses to perform b/the other party has breached, the party in breach is entitled to restitution for any benefit
he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach
party is not entitled to restitution if the value of the performance as liquidated damages is reasonable in the light of the
anticipated or actual loss caused by the breach and the difficulties of proof of loss
Jae Park–- Finklestein Fall 2002
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When would someone go for their restitution interest w/o going for expectation interests?
 When damages are uncertain and can’t be discerned. Ex Demsey case: reliance damages. Anglia case reliance
damages include opportunity costs. But in some cases, reliance damages may not be opportunity
 Restitution is appropriate when:
1. The party in breach is the one who has been enriched – gotten some benefit from the victim of breach. Victim
suing to get that back §373
2. Victim of breach is enriched, party in breach is suing to get that benefit back §374.
 Restitution: quantum meruit: what is merited
Part performance on a farm svc contract. Award restitution interest to laborer after his breach – the benefit to employee of his part
performance.
Britton v Turner (New Hampshire Superior Ct. 1834) pg 288
Facts:  contracted w/ to work on s farm for 1 yr for $120; 9 months into the contract,  quit w/o ’s consent and w/o
good cause.
Issue: can the  recover a reasonable sum for the svc he has actually performed though he did not fulfil his contract
Holding: Yes, can recover – judgment affirmed, in this contract of labor the  recv’d the benefit of the s labor on a day
to day basis and should have to pay for that benefit. Equivalent to when a party provides materials to perform a contract,
other party has to pay his reliance damages, (house: if a person contracts to build a house and accepts the house, must pay
for materials, etc)
 Est’d rule is unequal and unjust (denying recovery); by operation of this rule  is put in a worse position if he attempts
to fulfil his contract than if he didn’t do anything at all; and  rec’vs more benefit from the breach than harm
 Parties can contract around this by expressly agreeing that nothing will be earned till the whole contract is performed
  is entitled to his expectation damages as well minus the cost of s labor: if damages are equal, greater than labor
then  can’t recover
o This rule helps regulate employer and laborer behavior: no temptation for employer to drive out the laborer
early, no temptation for laborer to quit w/o good reason
Notes: Ct is not going by the intial contract – ruling is independent of the contract in quantum meruit
Guy thrown from a streetcar. Implied K for Dr’s svcs therefore entitled to restitution interests.
Cotnam v Wisdom (AK, 1907) pg 298
Facts: Mr. Harrison, ’s intestate, was thrown from a street car, causing serious injuries and knocking him unconscious.
The s, surgeons, were summoned by a spectator, and proceeded to operate on him… he died w/o gaining consciousness.
s sued for fees
: there was no contract
 Ct: Yes there was: Contracts by implication of law have are well settled: called implied contracts, quasi-contracts, or
constructive contracts
o Sceva v True: an insane person, an idiot, or a person utterly bereft of all senses and reason by the sudden
stroke of an accident or disease may be held liable in assumpsit for acts done for him while in a helpless
condition… establishes a contract implied by the law, rests on no evidence, no actual existence, it is a legal
fiction, resting wholly on a legal obligation, and a plain legal right
o If he was conscious and had been able to enter into this contract - he would have
: there was no benefit to the service
 Ct: The dr who performs w/ due skill and care must be paid the reasonable and customary price, whether the outcome
is beneficial to the patient or not. “the event lies w/the forces of nature”
Holding: There was an implied contract and the drs are entitled to payment for their services (restitution damages).
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II.
OFFER AND ACCEPTANCE
Req’s of a contract thus far: 1. Mutual assent of the parties; 2. Enforceable by law
Standard way of forming a contract: one party makes an offer and the other accepts
3 issues: when one party has made an offer; when other party has accepts, when it’s been revoked
Restatements
§17: Requirement of a Bargain
Formation of a contract req’s a bargain in which there is a manifestation of mutual assent to the exchange and a
consideration (an exchange on both sides – separates a gift, or gratuitous promise, from a consent).
 To make a binding K, the 2 minds have to be in agmt at the time of acceptance = meeting of the minds
§18: Manifestation of Mutual Assent req’s that ea party either make a promise of begin or render a performance
§22: Mode of Assent: Offer & Acceptance: the manifestation of mutual assent takes the form of an offer or proposal by
one party followed by an acceptance buy the other party.
§24: Offer Defined: an offer is the manifestation of willingness to enter into a bargain, letting the other person know that
her assent to that bargain is invited and will conclude it
§25: Option Contract: An option contract is a promise which meets the requirements for the formation of a contract and
limits the promisor's power to revoke an offer.
§35: The Offeree’s Power of Acceptance: can accept at any time unless the power of acceptance has been terminated
§36: Methods of Termination of the Power of Acceptance: 1. rejection or counteroffer by the offeree; 2. lapse of time; 3.
revocation by the offeror; 4. death or incapacity of the offeror or offeree; 5. non-occurrence of any condition of acceptance
§37: Termination of Power of Acceptance under Option Contract: terminated only if the req’s are met for the discharge
of a contractual duty
§42: Revocation by Communication From Offeror Rec’d by Offeree: power of acceptance is term’d when the offeree
rec’s from the offeror a manifestation of an intention not to enter into the proposed contract
§43: Indirect Communication of Revocation: power of acceptance term’d when the offeror takes action that shows he
doesn’t intend to go thru w/the proposed contract and the offeree is informed
UCC
§2-206: Offer and Acceptance in Formation of a Contract
§2-205: Firm Offers: an offer in signed writing by a merchant to buy or sell goods is not revocable for lack of
consideration during the time stated, or a reasonable time, or not to exceed 3 months.
Give the land to me, not him. K not enforced, no meeting of the minds at time of acceptance
Dickinson v Dodds (In the Ct of Appeal. 1876) pg 325
Facts:  Dodds gave  Dickinson a written offer agreeing to sell some of his property for a sum, “the offer to be left over
till Friday 9am”. Gave  till Friday to decide whether/not he would buy. Thursday afternoon, the  became aware that 
offered to sell the property to Allan.. sent formal acceptance of the offer that night and told  in person on Friday. But was
too late,  had already sold the property.
  sued for specific performance of the contract and to restrain the  from conveying the property to someone else.
Issue: If an offer has been made for the sale of property, and before that offer is accepted, the seller agrees to sell it to
someone else and the original buyer rec’vs word that the property has been sold, can s/he then make a binding contract by
accepting the offer?
Holding: No, there was no binding contract. To make a binding contract, the two minds had to be in agreement at the time
of the acceptance (known as the “meeting of the minds” req’t).. in this case the  knew Dodds had changed his mind
(revoked the contract) and it was too late for him to accept the offer… no agreement of the minds.
 During the time Dodds was willing to sell, Dick wasn’t willing to buy and vice versa = no meeting of the minds
 Document was just an offer to sell and was not binding. At any moment before a complete acceptance by ,  was
free to do as he wished.
 Issue of notice:  contends he was never notified that the offer was revoked;  contends that Dick had heard rumors
that the land was sold to someon else – notice enuf.:: appellate court holds that should the offeree hear that the offer is
revoked – “change of mind”, that is notice enuf
Note: Case: yes consideration (§17), yes manisfestation of mutual assent (§17, §18) Dodds original promise was a
conditional promise to convey land on the condition that Dick promises to pay. §24 Dodds made an offer. §35 Dick
Jae Park–- Finklestein Fall 2002
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couldn’t accept under (2): §36(c) offeree’s power of acceptance may be terminated by revocation of the offeror - §42
revocation by communication of reliable information (issue: what constitutes reliable info?) For there to be a valid
revocation, Dodds needs an act that makes it impossible to give the land to Dick.
 Counteroffers terminate the offer
 Tortious interference w/contract: Allan’s interference
THE OBJECTIVE THEORY OF ASSENT
Embry V Hargadine, McKittrick Dry Goods Go ahead, you’re alright, get your men out. Words enuf to lead  to believe that he
had been rehired, K formed using obj approach.
Lucy v Zehmer K for Farm? J/K. Words and acts of  &  constituted offer and assent, creating a binding K. SP granted
US v Braunstein Issue of typo in acceptance of K for raisins. Typo amounted to a rejection of first offer and new counteroffer – not
assent.
Nebraska Seed Co v Harsh  sent out letter advertising his millet seeds. Ads aren’t offers, just invitations to bargain.
Empro v Ball-Co Letter of intent not binding, just set the stage for negotiations
Texaco v Pennzoil Evidence that parties intended to bind themselves w/the memo of agmt. The future formal doc would only have
served to memorialize the agmt made in the memo.


The general rule requiring a meeting of the minds that both parties must agree to the same thing in the same sense isn’t
universally true.
Embry: the inner intention of the parties can’t make or break a contract if the words used, conduct, and acts (ie: their
express intention) were sufficient to constitute a contract. = objective approach to contract formation
Restatement §17: Req’t of a Bargain – the mental reservation of a party to a bargain doesn’t impair the obligation he
purports to undertake … manisfestation of mutual assent
Restatement §19: Conduct as Manisfestation of Assent – 1. written/spoken words, or by other acts; 2. s/he must
intend to engage in the conduct (in Lucy case: conduct = writing in the contract; discussions, etc…. he must have
intentionally engaged in this conduct) and knows or has reason to know that the other party may infer from her/his conduct
that s/he assents; 3. contract may be void b/of fraud duress, mistake, or other invalidating cause.
Mirror Image Rule: (US) the terms of the acceptance have to match the terms of the offer; if the terms don’t match
it’s a rejection and a counteroffer.
 The K acceptance must be unequivocal, positive and unambiguous, and must comply w/the exact req’ts of the offer
 Mere use of the word “accept” doesn’t automatically make an acceptance
 Require formality in offer and acceptance
Go ahead, you’re alright, get your men out. Words enuf to lead  to believe that he had been rehired, K formed using obj approach to
intent.
Embry v Hargadine, McKittrick Dry Goods Co (St. Louis App. 1907) pg 334
Facts: Embry was an employee of the McKittrick under written contract to expire Dec 15, 1903 at a salary of $2k. 
contends that on Dec 23rd he was re-engaged by the co’s president for another year for the same pay. On that day, he talked
to McKittrick about his concerns over not working under a contract and that if he doesn’t get a contract for another year he
would quit and find work elsewhere. McKittrick responded: go ahead, you’re alright; get yr men out and don’t let that
worry you.  was let go March 1.  sued for lost wages.
Issue #1: Did what was said constitute a contract of re-employment on the previous terms irrespective of the intention and
purpose of McKittrick?  use objective approach to K formation
Issue #2: Was the language used by McKittrick such that Embry as a reasonable man might believe that he was reemployed for the next year under the same terms?
o If the words used are unambiguous, ct can decide; if the words are in dispute, jury to decide.
o Embry was demanding a renewal of his contract; said that he would quit unless he was re-employed;
McKittrick said don’t worry, do yr job…….. McKittrick must have answered as he did to assure Embry that
worrying was useless b/he would be retained. Answer was unambiguous.
Holding: The conversation constituted a valid contract or re-employment. Ct erred in making the formation of a contract
depend on a finding that both parties intended to make one.. only necessary that Embry as a reasonable man understood as
much.
Jae Park–- Finklestein Fall 2002
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Texaco v Pennzoil (1st District [Ct of Appeals of TX]. 1987) pg 341
Jury Charge: you should look to the intent of Pennzoil and the Getty entities as outwardly or objectively demonstrated to
ea other by their words and deeds. The question is not determined by the parties’ secret, inward or subjective
intentions.
 Jury charge correct: objective manisfestations of the intent of the parties as expressed by words and deeds determine
whether the parties have actually entered into a contract… that the other party may infer from her conduct that she
assents. Restatement §19(2)
K for Farm? J/K. Words and acts of  &  constituted offer and assent, creating a binding K. SP granted
Lucy v Zehmer (Supreme Ct of Appeals VA. 1954) pg 342
Facts: Zehmer wrote “We hereby agree to sell to Lucy the Ferguson Farm complete for $50k, title satisfactory to buyer.”
Both s signed (was written on a napkin) and Lucy took it. The discussion leading up to the signing lasted 30-40 minutes.
Zehmer testified that he considered the offer was made in jest after several drinks.. got his wife to sign by whispering as
much to her. Couple of wks later, Lucy wrote to Zehmer stating he was ready to pay; Zehmer responded that he never
agreed or intended to sell.  seeking SP.
Holding: The words and acts of Zehmer and Lucy constitute a good faith offer and a good faith acceptance, creating a
binding contract. Specific performance granted,
 Words & acts: 30-40min discussion, 2 writings to get it perfect, signing of Ms. Zehmer, discussion of what was to be
included in the sale, provision for examining the title, taking by Lucy = serious business transaction rather than a
casual, jesting matter. Zehmer whispering to his wife it was a joke = secret intent.
 Granting of specific perfomance: where a contract in its nature and circumstances unobjectionable, it is a matter of
course for cts of equity to grant specific perfomance as it is for a ct of law to give damages for a breach of it.
 Any reasonable person would have taken the words and acts as forming a contract
Notes:
 What if Lucy knew Zehmer was joking even though a reasonable person would take the actions as serious. Evidence
that Lucy knew. Standard rule: req 2 halves – the offeror in receiving the acceptance is reasonable & that s/he
sincerely believes that the offeree means to be bound
Issue of typo in acceptance of K for raisins. Typo amounted to a rejection of first offer and new counteroffer – not assent.
United States v Braunstein (Southern DC of NY. 1947) pg 352
Facts: Commodity Credit Corp invited bids in an announcement for the purchase of some boxes of raisins. Pearl Distilling
Co sent a telegram back making a offer for the raisins. CCC telegramed back accepting the offer, but thru a typo the
telegram contained the wrong price for the raisins – they intended to accept the offer for 10cents/lb not 10cents/box as the
telegram stated. Pearl did nothing, and CCC sent a telegram correcting the typo. Pearl still did nothing and CCC sent word
that it would cover and hold Pearl liable for the difference btwn the market price and the contract price. CCC (US) sued for
breach of K
: the intention of the acceptance was clear – court should rewrite the acceptance to match the intention
 CT: “If either party knows that the other doesn’t intend what his words/other acts express, this knowledge prevents
such words or other acts from being operative as an offer or acceptance”
o reinterpreting and rewriting contracts isn’t in the cts and parties’ interest
o Quasi contracts don’t apply where there is an actual contract
Issue: Does the mistaken substitution of “10cents/box” for “10cents/lb” coupled w/a calculation of the total price based on
the wrong figure defeat what was intended to be an acceptance?
Holding: Yes, to create a contract the acceptance must be unequivocal, positive and unambiguous, must comply w/the
exact req’ts of the offer. It’s CCCs fault that the typo was there.
 Mirror image rule: the terms of the acceptance have to match the terms of the offer; if the terms don’t match, it’s a
rejection and counteroffer
o Can’t be construed as a counteroffer b/it wouldn’t be in the best interest of CCC to counteroffer w/a price
lower than the first offer; and had it been a counteroffer Pearl could have quickly accept – though that
wouldn’t have been allowed
Notes: An offeree’s power of acceptance is terminated after a counteroffer is given – CCC couldn’t go back and correct
itself
Jae Park–- Finklestein Fall 2002
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Setting the Stage for Negotiations
Advertisements: (Nebraska Seed Co) If he language used is general as in an advertisement, it is not an offer. No
binding contract.
 If a proposal is nothing more than an invitation – the offer can’t be turned into an agreement by acceptance – merely an
invitation to trade – invitations lead to bargains but do not make them.
Preliminary Negotiations: (Empro) only to set the stage for negotiations and are not in themselves binding agreements
Restatement §26: Preliminary Negotiations
A manisfestation of willingness to enter into a bargain isn’t an offer if the person to whom it’s addressed knows or has
reason to know that the person making it doesn’t intend to conclude a bargain until he has made a futher manisfestation of
assent (ex: an ad)
Restatement §33: Certainty A manisfestation of intention can’t be accepted so as to form a contract unless the terms of
the contract are reasonably certain
BUT…
Restatement §27: Existence of Contract Where Written Memorial is Contemplated
Manisfestations of assent that are in themselves sufficient to conclude a contract will not be prevented from taking effect
b/the parties also manifest an intention to prepare and adopt a written memorial, but the circumstances may show that the
agreements are preliminary negotiations.
 sent out letter advertising his millet seeds. Ads aren’t offers, just invitations to bargain.
Nebraska Seed Co v Harsh (Supreme Ct of Nebraska. 1915) pg 356
Facts:  Harsh sent out a letter stating that he had some millet seeds for sell and $2.25/cwt for them. Nebraska Seed Co.
 sent a telegram and letter accepting the offer for all the seeds Harsh had for sale, and at his price.  refused to sell Neb
Seed Co the seeds.
Holding: The letter the  sent out wasn’t an offer to sell to the . The language used is general as in an advertisement,
not an offer. No binding contract.
 If a proposal is nothing more than an invitation – the offer can’t be turned into an agreement by acceptance – merely an
invitation to trade – invitations lead to bargains but do not make them.
Notes: Dodds in Dick v Dodds could’ve taken this approach – shop for buyers with an invitation to for offers
Letter of intent not binding, just set the stage for negotiations
Empro Manufacturing Co v Ball-Co Manufacturing, Inc (US Ct of Appeals 7th Cir. 1989) pg 362
Facts: Ball-Co floated its assets on the market and Empro, after some preliminary negotiations, sent Ball-Co a 3 page letter
of intent to purchase its assets. The letter stated “the general terms and conditions of such proposal (which will be subject
to and incorporated in a formal, definitive Asset Purchase Agreement). Empro left itself escape hatches: purchase subject
to satisfaction of certain conditions – one being approval of the shareholders & board of directors of Empro.
 A problem arose during negotiations and Empro learned Ball-Co was negotiating w/someone else
Procedure: Empro seeked a temporary restraining order: arg – letter of intent obliges Ball-Co to sell only to it.
: parties intended to be bound, parties’ states of mind, arg subjective intent
Holding: The letter of intent used language that made it clear that it was only to set the stage for negotiations and was not
in itself a binding agreement. Ball-Co was free to negotiate w/others. Judgment of District Ct affirmed.
o “intent” in contract law is objective, language used, rather than subjective – “subject to” appears 2x, implies
ea side retained the right to make additional demands, Empro made it clear it was free to walk, escape hatches
Jae Park–- Finklestein Fall 2002
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Evidence that parties intended to bind themselves w/the memo of agmt. The future formal doc would only have served to memorialize
the agmt made in the memo.
Texaco v Pennzoil (Ct of Appeals Tx. 1987) pg 366
Texaco: insufficient evidence to support the jury’s finding that Getty intended to bind themselves to an agreement
w/Pennzoil.
Pennzoil: parties intended to be bound to the terms in the Memorandum of Agreement even tho the parties may have
contemplated a later, more formal document to memorialize the agreement already reached.
Holding: There was sufficient evidence to support an inference that the expectation was satisfied here initially by the
Memorandum of Agreement and the parties intended to bind themselves.
 Expressed intent, words and deeds, only, secret, subjective intent is immaterial
 Test: did the parties mean to be bound?
o Did the party expressly reserve the right to be bound only when a written agreement is signed?
o Partial performance by one party that the party disclaiming the contract accepted?
o Whether the complexity/magnitude of the transaction such that a formal, executed writing would normally be
expected?
Comparing Empro and Texaco: There are the same gaps present: in one case called escape paths and other routine.
Hypo: agree to buy someone’s car, an agreement in principle, but doesn’t specifiy a price. Price to be settle upon further
negotiations. Intent of both parties to be bound to that agreement. Problems: how to enforce? Recovery? Court could ask
itself what the parties’s would have agreed to (along w/market price, reliance, etc)
ACCEPTANCE
Hobbs v Massasoit Whip Co Kept the eelskins w/o sending notice he didn’t want them. In the circs, a reasonable person could
believe his silence amounted to acceptance.
Carlill v Carbolic Smoke Ball Co s made a sincere promise to pay anyone who performed their conditions – unilateral K. 
performed,  stuck to terms of offer.
Petterson v Pattberg “I have come to pay off the mortgage” Offer for a unilateral K can be w/drawn anytime before the offeror
accepts
Petersen v Ray-Hof Agencies, Inc
What is An Acceptance? 3 Types:
1. “Mailbox Rule”
The classic rule on when an offer is accepted by mail is when the letter is posted. What happens if the offeror never
rec’vs the letter – traditional, contract is still valid b/ the offeree has still done everything that s/he must to accept the offer.
Restatement §63: Time When Acceptance Takes Effect
Acceptance must match the way the offer was made – offer is operative and completes the manisfestation of mutual ascent
as soon as it’s put out of the offeree’s poss’n w/o regard to whether it ever reaches the offeror BUT offeror has to rec’v
the acceptance in an option contract
Restatement §65: Reasonableness of Medium of Contracts
If there’s a customary way of accepting an offer, and the offeree has followed that, then valid acceptance even if against
offerror’s guidelines.
2. Acceptance by Silence
Restatement §69: Acceptance by Silence or Exercise of Dominion
1.
2.
Silence is acceptance when any of these provisions are true….
a. Offeree takes the benefit of offered svcs w/reasonable opportunity to reject them & reason to know that
compensation was expected
b. Offeror has reason to believe that silence would constitute an assent
c. It’s reasonable that the offeree should notify the offeror if doesn’t intend to accept
Offeree is bd to the offered terms unless they are manisfestly unreasonable
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Kept the eelskins w/o sending notice he didn’t want them. In the circs, a reasonable person could believe his silence amounted to
acceptance.
Hobbs v Massasoit Whip Co (MA. 1893) pg 382
Facts:  sent the  eelskins, kept by the  some months, sent  no notice that the  declined to accept them. Prior
history:  has sent  eelskins in the same manner 4-5x before w/o problems.  testified that it was fair to assume that if
the eelskins were fit for his business, as the jury found them to be, then he would have accepted.. a standing offer existed to
him for such skins
Holding: Sending the skins imposed on the  a duty to act, silence coupled w/the retention of the skins could be found by
the jury to warrant the  in assuming that they were accepted and thus amounted to an acceptance – considering their past
history (prior course of dealings)
 General rule: conduct that imports acceptance or assent is acceptance or assent in the view of the law, state of mind of
parties irrelevant
3. Acceptance by Performance & Unilateral Contracts
Bilateral v Unilateral Contracts:
Only difference btwn these are the modes of acceptance
o Bilateral contract, a promise is exchanged for a promise.
o Unilateral contract, a promise is exchanged for performance.
o In Unilateral Ks, the offeror is bound to the terms of the offer (Carbolic Smoke Ball)
o Offer to an unilateral contract can be w/drawn at anytime before the offeror accepts (Petterson); the K isn’t
final until performance is completed
Restatement §45: Option Contract Created by Part Performance or Tender
Where an offer invites an offeree to accept by rendering a performance an option contract is created (offeror can’t revoke
the offer during performance) when the offeree tenders or begins the invited performance or tenders a beginning of it;
offeror’s duty of performance under any option contract is conditional on completion or tender of the invited performance
in accordance w/the offer.
…. an option contract is formed if the offeree has started anything towards acceptance
Option contract is not terminated by revocation by offeror (restatement §37)
Restatement §50: Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise
1.
2.
3.
acceptance of an offer = a manisfestation of assent to the terms made by the offeree in a manner invited or required be
the offer
acceptance by performance = req’s that at least part of what the offer requests be performed, and acceptance by a
performance which operates as a return promise
[Offeree becomes bound when s/he accepts by performance, places the formation of the contract very early on .. deals
w/the asymmetry problem]
question for fink: how does this differ w/the mailbox rule
acceptance by a promise = req’s that the offeree complete every act essential to the making of a promise
s made a sincere promise to pay anyone who performed their conditions – unilateral K.  performed,  stuck to terms of offer.
Carlill v Carbolic Smoke Ball Co (Ct of Appeal. 1893) pg 385
Facts:  proprietors & vendors of the medical preparation “The Carbolic Smoke Ball,” place ad in sev newspapers: “£100
reward for anyone who used the smoke ball 3x/day for 2 wks and still contracts the flu, cold, etc. £1000 is deposited in a
bank showing our sincerity in the matter.”
  bought the ball b/of the ad, used it 3x/day for 2 wks and then caught the flu
Holding: s made a sincere promise to pay anybody £100 who performed their conditions. s must perform on their
promise.
 Statement that £1000 is deposited in a bank shows the s meant what they said
 Ad was a offer to pay £100 to anybody who perfomed their conditions, and performance was acceptance.. in this case
no prior notificatio of acceptance was req’d as long as the acceptance was given to the s before the offer was revoked
Bowen concurring: if a person chooses to make an extravagant promise, s/he probably does so b/it pays to make the
promise – the promise is binding
Notes: in an unilateral contract, the offerror is bound to the terms of the offer
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“I have come to pay off the mortgage” Offer for a unilateral K can be w/drawn anytime before the offeror accepts
Petterson v Pattberg (NY App. 1928) pg 412
Facts: Pattberg owned a mortgage on Petterson’s property. April:  wrote Petterson saying that he would sell the
mortgage and give Petterson a $780 discount if Petterson paid by May 31 and if Petterson paid the regular payment for
April.  followed thru on the April payment, then in May Petterson went to the ’s home, knocked on the s door, and
said “I have come to pay off the mortgage.”  refused to take the money, he had already sold the mortgage to someone
else.
Holding: The offer by Pattberg was w/drawn before it became a binding promise and therefore no contract was ever made
for the breach of which the  may claim damages. Complaint dismissed.
 unilateral contract: gift of a promise in exchange for the performance of an act. The act in consideration of the
offerred promise was payment in full of the debt.
 An offer to an unilateral contract can be w/drawn at anytime before the offeror accepts - in this case he told him that
he wouldn’t take the money, before the money was given.
Lehman Dissenting: The offer became binding contract when the  gave in return for the s promise, exactly the
consideration which the  requested. The  should have phrased the letter better.
Notes: Ct seems to be saying that a contract isn’t final until performance is completed – conflicts w/next case. Petersen v
Ray Hof says that offer is accepted when performance is initiated.
Bad Law.
Petersen v Ray-Hof Agencies, Inc (FL App. 1960) pg 418
Facts: Petersen, injured in AL seeks to qualify for compensation under the FL Workmen’s Compensation Law. Employer
first called Petersen in Miami. Petersen was a resident of Fl at the time of the call, Employer’s place of business was in FL
when the employee was injured, contract for employment didn’t provide for svcs exclusively outside the state.
Holding: Employer became bound when Petersen began his performance by leaving Miami, at that time it became too late
for the employer to revoke his offer
 Was an unilateral contract: trip from Miami to Atlanta was implied in the offer, inorder to accept the offer the
employee had to take the trip.
 General rule: contract is deemed to be made in the state where the last act necessary to make a binding agreement
takes place – a place of contracting is where the event takes place which makes the promise binding.
 Contract is formed when an offer is accepted.
Notes**: Supreme Ct of Fl subsequently reversed Petersen: contract formed when the last act necessary for acceptance is
completed
Petterson v Petersen
1st case: contract isn’t final until performance is completed.
2nd case: contract formed when employment offer was accepted, and as soon as the performance has begun the acceptance
has been made
 But what if Petersen on his way to Atlanta changed his mind and wanted to return home: analogous to mailbox rule,
when an acceptance letter is posted, acceptance is valid whether or not it’s reached the offeror; the presumably the
offeree could retract the letter before it got to the offeror, doesn’t matter b/the contract is formed when it’s posted.
o Therefore if he changes his mind, still bound
o But the terms of acceptance were set by the offer, so if Petersen calls and notifies the employer he’s planning
on coming – not enuf b/not consistent w/terms of the contract
o If the offer says “come to Atlanta,” so beginning to go to Atlanta is partial performance, but what if the
offeror doesn’t know that he has started performance – then he’s bound w/o even knowing it
Jae Park–- Finklestein Fall 2002
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INTERPRETING ASSENT
Sun Printing & Publishing Assn v Remington Paper & Power Co Agreed on price, but not on term. Let the parties K, will
not supply in terms
Texaco v Pennzoil : K terms are too vague to be enforceable. Ok as long as they’re ascertainable to a certain degree
Wood v Lucy, Lady Duff-Gordon “creater of fashions” might be an illusory promise, but can read into agmt a K, an implied
promise of effort
Raffles v Wichelhaus “Peerless” No meeting of the minds
Oswald v Allen Swiss Coin Collection flat out misinterpretation prevented a meeting of the minds
Weinberg v Edelstein “Blouse-skirt” combos or are they really “dresses”? Look to industry standards – they are not dresses.
Frigaliment Importing Co What’s a “chicken”  reasonable in his interpretation of “chicken”, his subjective intent supported by
objective meaning in industry
2 approaches:
Gap Filling = Supplying terms when contracts are silent on a particular issue
Interpreting terms that were expressly manifested btwn the parties
Filling Gaps in Assent:




Implied-in-fact: parties have agreed upon the terms
Implied-in-law terms: imposed on parties w/o their consent
2 types of judicial gap fillers:
o default rules: legal rules the parties can avoid or vary w/an express clause to the contrary, w/o such clause,
default rule will be used
o immutable rules: rules that can’t be varied, will override any express clause to the contrary
Issue of gap-filling
o Pro: May never be possible for parties to provide all the terms of the contract.. there will almost always be
gaps in a contract and cts will be req’d to fill them in.
o What about the expense of contracts – every term cost you money to negotiate, a transaction cost; therefore if
the ct supplies a term, saving parties money… so is the ct benefiting the parties by filling in terms?
 Arg against: cts are paid for by tax dollars, if judges are spending their time filling in gaps – just a
shift in costs
o But which gaps should cts fill in (minor issues) or not (major questions that req party agreement) = distinction
btwn not clear
Restatement §204: Supplying An Omitted Essential Term:
When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential
to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.
UCC §2-204. Formation in General.



1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both
parties which recognizes the existence of such a contract.
2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is
undetermined.
3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have
intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
o would disagree w/the result of the Sun case:
UCC §2-305: Open Price Term (c)(1)(c) contracts can conclude a contract for sale w/o specifying a price, upon
delivery can use market price
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UCC § 2-309. Absence of Specific Time Provisions; Notice of Termination.
1. The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon
shall be a reasonable time.
2. Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but
unless otherwise agreed may be terminated at any time by either party.
3. Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification
be received by the other party and an agreement dispensing with notification is invalid if its operation would be
unconscionable.
Restatement §34: Certainty and Choice of Terms; Effect of Performance or Reliance
1.
2.
3.

The terms of the contract may be reasonably certain even tho it empowers one or both parties to make a selection of
terms in the course of performance
Part performance may est that contract enforceable as a bargain has been formed
reliance damages may be recoverable even tho there is uncertainty about the agreement
In the cases in this section: there has been a manisfestion of mutual assent, but some terms are missing: question – is
this incomplete manisfestation sufficient to warrant legal enforcement?
Agreed on price, but not on term. Let the parties K, will not supply in terms
Sun Printing & Publishing Assn v Remington Paper & Power Co (Ct of Appeals NY. 1923) pg 427
Facts:  agreed to buy and  to sell 1,000 tons of paper/mo during Sept 1919 to Dec 1920, 16,000 tons in all. They set
prices for Sept to Dec 1919 and left the price and the term of the price open for negotiations to be settled 15 days prior to
the expiration of the term. The price was never to be higher than the contract price for paper charged by the Canadian
Export Paper Co to the lrg consumers. When the agreed upon term was about to expire,  claimed the contract was
imperfect and denied a future obligation to deliver.  then demanded that during ea month of 1920 the  was to deliver
1,000 tons of paper at the contract price of the Canadian Paper Co.
:  was under a duty in default of an agreement to accept a term that would be reasonable in view of the nature of the
transaction and the practice of the business
 Cardozo: To do that would be to make the contract over, “we are not at liberty to revise while professing to construe”
The signed contract calls for an agreement on time, that agreement wasn’t made  prima facie failure of contract
Issue: Is the  bound to a contract that left 2 essential terms, price and length on term, open for further negotiation and the
parties didn’t come to an agreement on the length of the term.
Holding: No, agreement in respect to time is as essential to a completed contract as agreement in respect of price. The
agreement was not reached, and the  is not bound.
 Agreement to one was insufficient w/o agreement to the other.
Crane Dissenting: the parties made a contract for the purchase and sale of 16,000 tons of paper, 1,000 tons/mo to Dec
1920. “Surely the parties must have had in mind that some binding agreement was made for the sale and delivery of 16,000
tons of paper and that the instrument contained all the elements necessary to make a binding contract.” The contract price
of Canadian Paper co was the max the buyer could ask for, if the  offered to pay this price, the  was bound to deliver.
Notes: if we’re interested in the beautiful idea of contracts – let the parties contract the way they want to – ct’s
responsibility is not to supply terms
Hypo: parties expect to enter into a contract in the future – don’t know anything about the contract, just that one will
happen: what kind of rule would you adopt: ct should supply missing terms OR not to supply terms:
: K terms are too vague to be enforceable. Ok as long as they’re ascertainable to a certain degree
Texaco v Pennzoil (Ct of Appeals Tx. 1987) pg 434
Texaco: no binding contract cuz the terms in the contract are too vague and incomplete to be enforceable
Holding: the promises of the parties are clear enuf for a ct to recognize a breach and to determine the damages resulting
from that breach
 For a contract to be enforceable the terms of the agreement must be ascertainable to a reasonable degree of certainty.
the agreement doesn’t have to have everything spelled out, but must be sufficiently complete so that parties in good faith
can find in the agreement words that will fairly define their respective duties and liabilities.
Note: why can’t say that there’s sort of a contract, and award reliance damages?
Jae Park–- Finklestein Fall 2002
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Illusory Promises
“creater of fashions” might be an illusory promise, but can read into agmt a K, an implied promise of effort
Wood v Lucy, Lady Duff-Gordon (NY App. 1917) pg 441
Facts:  is a “creator of fashions.” Employed the  and gave him the exclusive right, subject to her approval, to place her
endorsements on the designs of others, place her own designs on sale, or to license others to market them. She to get ½ of
all profits and revenues in return.
:  broke the contract by placing her endorsements on fabrics, dresses, millinery w/o his knowledge and w/held the
profits
: agreement of employment lacks the elements of a contract, b/he’s not bound, this is an illusory promise b/he didn’t
promise anything, only bound to supply half the profits if there were any profits
Cardozo: a promise might be lacking, but a contract can be implied in this case, it’s an implied promise of effort
  promise to pay the  ½ of the profits and revenues resulting from the exclusive agency and to render accts monthly
was a promise to use reasonable efforts to bring profits and revenues into existence
Note: compared w/Sun: gap, no contract; here says there is a contract, b/we can read into the promise
 he’s interpreting the contract rather than in Sun printing where he was asked to supply missing terms
Interpreting Assent Subjectively or Objectively
Objective theory of assent: obligation born out of certain acts of the parties, usu words, not their unexpressed intent
Restatement §200: Interpretation of Promise or Agreement: is the ascertainment of its meaning
Comments: It follows that the meaning of the words or other conduct of a party is not necessarily the meaning he expects
or understands. He is not bound by a meaning unless he has reason to know of it, but the expectation and understanding of
the other party must also be taken into account.
Restatement §201: Whose Meaning Prevails:
When there’s an agreement on meanings – that meaning prevails
Where the parties have attached different meanings to a promise, it is interpreted w/the meaning attached by one of the
parties if at the time of agreement
a. that was the only meaning known the party at the time, and the other party knew of the meaning attached by the
first party
b. that party had no reason to know of any different meaning attached by the other, and the other had reason to know
the meaning attached by the first party
Except as state here, neither party is bound by the meaning attached to the other, even tho it may result in a failure of
mutual assent
Comments: the question of meaning in cases of misunderstanding depends on an inquiry into what each party knew or had
reason to know
In mutual misunderstandings: the primary search is for a common meaning of the parties, not a meaning imposed on
them by the law. The objective of interpretation in the general law of contracts is to carry out the understanding of the
parties rather than to impose obligations on them contrary to their understanding: "the courts do not make a contract for the
parties."
Restatement §202: Rules in Aid of Interpretation
1.
2.
3.
4.
words and other conduct are interpreted in the light of all the circumstances
writing is interpreted as a whole, all writings part of a transaction are interpreted together
Unless a diff intention is manisfested:
a. If language has a general prevailing meaning – go w/that
b. Technical terms are given their technical meaning in a technical document
Partial performance, or repeated performance by one party w/o the objection by the other is given great weight in
interpreting an agreement
UCC 1-205: Course of Dealing and Usage of Trade
1.
2.
course of dealing: previous conduct of the parties in similar transactions can est a common basis of understanding for
interpreting their expressions and other conduct
usage of trade: practice or method that’s regular in the particular field as to justify the expectation that it will be
observed w/respect to the transaction in question
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“Peerless” No meeting of the minds
Raffles v Wichelahaus (Eng. 1864) pg 451
Facts: contract:  to sell to the  cotton “to arrive ex ‘Peerless’ from Bombay.” When the goods arrived s refused to
accept the goods or to pay for them.  meant a different ship named “Peerless” that sailed in Oct, s boat sailed from
Bombay in Dec
Holding: demurrer granted, the moment there appears that 2 ships called the “Peerless” were about to sail from Bombay
there is a latent ambiguity…. Therefore no consensus and therefore no binding contract, no meeting of the minds
Notes: rule of Peerless case is the normal rule
 Lucy v Zehmer: objective approach to parties behavior to determine assent/contract formation
 Raffles: seems to use a subjective approach – but it is in interpreting the contract
Case Comparison: contract creation/contract interpretation objective v subjective?
Lucy v Zehmer
1. Lucy believes there is a contract, Zehmer is joking, Ct holds there  contract (objective manisfestation of intent)
2. Suppose: Lucy thinks there is a contract even though HE knows Zehmer is joking  no contract. Objective
manisfestation of intent is to protect Lucy from relying on outward behavior in signing onto a contract --- but if he
knows that Zehmer is joking, then the issue of reliance is now moot\
3. Suppose: Lucy is unreasonable in his interpretation there is a contract, anyone objectively looking at the situation
would’ve know Zehmer was joking  no contract, using obj standard – same as case above, if Lucy knows or
should have known – Lucy’s belief has to be reasonable
 Peerless
1. Ct holds no meeting of the minds, buyer and seller are not talking about the same boat  no contract
2. Suppose: In the course of negotiations, the buyer becomes aware that seller means ship 2  contract on ship 2
terms… in this case there is a meeting of the minds about ship 2
3. Suppose: Seller believes ship 1, buyer believes ship 2; seller is unreasonable in believing ship 1  contract for
ship 2
 General rule: party’s whose beliefs are reasonable controls the result (reasonable: knew or should’ve known)
o In 2nd cases: reliance issue
 Primary issue is whether the parties actually agreed
o Turn to obj indexes when there is some asymetry, then look to who is reasonable
Swiss Coin Collection flat out misinterpretation prevented a meeting of the minds
Oswald v Allen (US Ct of Appeals. 2nd Cir. 1969) pg 463
Facts: Dr. Oswald a coin collector was interested in Mrs. Allen’s collection of Swiss coins. She owned 2 coin collections,
the Swiss Coin Collection and the Rarity Coin Collection; and after showing him the coins in the Swiss Coin Collection,
she showed some valuable coins from the Rarity Coin Collection – he wasn’t aware that they were in a separate collection,
thought they were all part of the Swiss Coin Collection. Dr. Oswald offered $50k for what he thought was the entire
collection and what she thought was only the Swiss Coin Collection. Later she refused to sell him the coins.
Holding: No, K since the misunderstanding preventing a “meeting of the minds” Following the rule of Raffles v
Wichelhaus, “when any of the terms used to express an agreement is ambivalent, and the parties understand it in different
ways, there cannot be a contract unless one of them should have been aware of the other’s understanding.”
 “there is no sensible basis for choosing btwn conflicting understandings – flat out misinterpretation
“Blouse-skirt” combos or are they really “dresses”? Look to industry standards – they are not dresses.
Weinberg v Edelstein (NY. 1952) pg 468
Facts:  &  operate stores in the same bldg, ’s lease entitles him to sell “ladies dresses, coats, and suits and ladies
sports clothes” and the landlord covenanted w/the  not to rent any other store in the same bldg for the retail sale of “ladies
dresses, coats and suits” (restrictive covenant) .. ’s lease authorized  to sell at retail “… blouses, skirts, etc”
:  is offering for sale matched skirts and blouses which are in reality 2-piece dresses, which are forbidden.. brought suit
for injunction
Issue: when a restrictive convenant forbids the sale of “dresses” does it also preclude the sale of a “blouse-skirt” combo,
sometimes called a dress?
Holding: No, they are skirts and blouses.. while they may have the appearance of a dress, they are really skirts and
blouses that can be worn w/other skirts and blouses
Notes:
 Ct sorts out the objective meaning of the term dress by looking at the industry practices
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

There is no evidence that the parties actually agreed, then go to second step and look to who is reasonable, to det who
is reasonable, ct looks to industry standards
Industry standards are analyzed to det reasonableness and to det what is customary; but if the parties actually agree to
unreasonable terms against industry standards, they are held to it
What’s a “chicken”  reasonable in his interpretation of “chicken”, his subjective intent supported by objective meaning in industry
Frigaliment Importing Co v B.N.S. Int’l Sales Corp (DC SDNY. 1960) pg 473
Facts:  and  contracted for frozen chicken.  thought he was contracting for young chicken suitable for boiling and
frying;  claims “chicken” means any bird of that genus that meets contract specifications on weight and quality including
stewing chickens/fowl. 2 contracts/2 shipments.  sues for breach of warranty that goods sold shall correspond to the
description.
Holding: Considering the evidence, it’s clear that the s believed it could comply w/the contracts by delivering stewing
chickens, this subjective intent is supported by the objective meaning of “chicken.” Coincides w/the Dept of Agricultural
Regulations definition of chicken (broiler/fryer/stewing chicken/fowl.. ), usage in trade, realities of the market.
  had the burden of showing that “chicken” was used in the narrower rather than in the broader sense.. failed,
complaint dismissed.
Note: Ct is again looking at industry standards, and practices in the industry
 Analogous to #2:  has to argue that the seller was aware that he meant young chickens, only defense would be to
deny knowledge
WRITTEN MANIFESTATIONS OF ASSENT
Parole Evidence Rule
Thompson v Libbey Parole evidence for a verbal warranty on the logs? No, K didn’t include any uncertain terms and
imported a complete legal obligation
Brown v Oliver K for sale of land only or did it include the furniture? Admit parol evidence to det what kind of K the
parties intended to make.
Pacific Gas Turbine work. Language is “open-textured” always need extrinsic evidence to prove what the words in a K
mean
Trident Center v CN General Life Insurance Co
Statute of Frauds
Boone v Coe Farmers travelled from KY to TX on a verbal K for land. Ks for land have to be in writing, no recovery.
Doesn’t fall into an exception, b/their travelling didn’t confer a benefit on the s
Schwedes v Romain P issue w/unethical lawyer. No writing, no K as per SOFs
Parma Tile Mosaic & Marble Co v Estate of Fred Short Guarantee by fax, w/co letterhead but no signature. No
question s intended to guarantee the debt. Letterhead fine.
Parol Evidence Rule






Writings may be considered privileged in some manner and given priority over oral communications
Parol Evidence rule is a misnomer – better is Extrinsic Evidence Rule: not just spoken evidence, can be anything that
would supplement, contradict, help interpret the contract
Rule: If everything the parties intended to contract for is covered by the contract, you can’t take supplementary
evidence to help understand
o Rule of evidence: what is admissible
o How do parties intend to cover everything by contract?
Parties could intend that everything they agree to is in the contract, but not everything is explained in the contract =
Partial Integration (there is no subject matter the parties have made an agreement to that’s not in the contract)
o Can introduce evidence to interpret the contract when it’s partially integrated
Complete Integration: Parties to intend that everything needed to understand the agreement is contained in the
agreement itself
Possible that the contract isn’t integrated at all, No Integration, – agreement doesn’t contain all terms .. left free to
make agreements on the side
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Test of whether a writing was intended to cover a certain subject of negotiation…
Wigmore: (contained in Brown)
1) whether a subject of negotiation is in the writing depends on the intent of the parties … did they intend to put
everything re their agreement on one document?
o You can never det if the contract is completely integrated w/o looking at the intent of the parties (by looking
outside the writing)
2) intent found in the conduct and language of the parties and the surrounding circumstances .. compare the writing and
the negotiations
o intent of the parties = preliminary question for judge
3) in deciding the intent – first look to see if the writing deals w/the subject at all .. if it was mentioned then presumably
the writing covers everything the parties wanted to cover about it; if not, then presumably the writing wasn’t intended
to cover it
Restatement §209: Integrated Agreements
1.
2.
3.
an integrated agreement is a writing/s constituting a final expression of one(+) terms of an agreement
ct dets whether there’s an integrated agreement first
if an agreement reasonably appears to be a complete agreement, it’s taken to be an integrated agreement unless other
evidence shows the writing wasn’t a final expression
Restatement §210: Completely and Partially Integrated Agreements
1.
2.
3.
a completely integrated agreement is a complete and exclusive statement of the terms of the agmt
a partially integrated agmt is anything other than a completely integrated agmt
ct decides whether the agmt is complete/partial before considering the parol evidence rule
Restatement §213: Effect of Integrated Agmt on Prior Agmts (Parol Evidence Rule)
Once the ct decides if the contract is integrated/not then look to parol evidence rule
1. a binding integrated agmt discharges prior agmts if they are inconsistent
2. a binding completely integrated agmt discharges prior agmts if they are w/in its scope
3. a integrated agmt that is not binding or that is voidable does not discharge prior agmts
Restatement §214: Evidence of Prior or Contemporaneous Agmts and Negotiations are allowed as evidence to
[quiet issues re the alleged integrated agmt]: extrinsic evidence is allowed to det if the contract is completely/or not an
integrated agmt
Restatement §216: Consistent Additional Terms
1.
2.
unless the ct finds the agmt was completely integrated, it can hear evidence of consistent additional terms (terms that
aren’t in the writing but supports the tenor of the writing) to supplement an integrated agmt
if there is some consistent additional term that is needed to help interpret the contract, the contract is partially
integrated
UCC §2-202: Final Written Expression: Parol or Extrinsic Evidence
Terms of a writing intended by the parties to be a final expression of their agmt can’t be contradicted by evidence of any
prior agmt or contemporaneous oral agmt but may be explained or supplemented
a. by a course of dealing OR usage of trade OR by course of performance
b. by evidence of consistent additional terms unless the ct finds the writing was intended to be a complete and
exclusive statement of the terms of the agmt
Jae Park–- Finklestein Fall 2002
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Parole evidence for a verbal warranty on the logs? No, K didn’t include any uncertain terms and imported a complete legal obligation
Thompson v Libbey (Supreme Ct of MN. 1885) pg 482
Facts:  &  agreed on the sale and purchase of logs on a written agreement.  breached contract claiming warranty of
the quality of the logs alleged to have been made at the time of sale
: object to allowing parol evidence to prove a verbal warranty. The sale was in a completely integrated writing –
containged everthing the parties intended.
Holding: Parol evidence of a warranty is not allowed, the parol evidence rule forbids to add by parol when the writing is
silent, as well as to change the terms that are there
 If the writing doesn’t include any uncertain terms and imports a complete legal obligation, it is presumed everything
the parties wanted to agree upon is in the writing and parol evidence can’t be used to add another term to the agreement
o Parol evidence rule doesn’t apply where the writing is incomplete on its face and doesn’t purport to contain
the whole agreement
o Sometimes said that parol evidence can be admitted to prove the part of the contract that’s omitted – ct
believes this is wrong
 Parol evidence not admissible to contradict/vary the terms of a valid writing
Note: 2 separate issue: is the contract integrated.. then substantive question about what the agreement of the parties
actually was
 Difficult to separate the investigation of both issues: interrelated issues
 Comparing w/the gap filling issue: even if the agmt looks complete, there are always gaps to be found; same
w/interpretation . It may be that it’s never possible to make a contract completely integrated b/you’ll always need to
interpret…
K for sale of land only or did it include the furniture? Admit parol evidence to det what kind of K the parties intended to make.
Brown v Oliver (Supreme Ct of KS. 1927) pg 484
Facts:  bought from  land on which stood a hotel, ample oral evidence that the sale included the hotel furniture owned
by the … 2 yrs later  gained occupancy of the hotel and when told to leave by the , took all the furniture w/him. The
contract for the sale of the P made no mention of personal P
Issue: Was the intention of the parties to limit the writing to just the sale of land?
Holding: The written instrument didn’t by itself conclusively est whether the parties intended to exclude every subject of
sale but real estate, parol evidence was properly allowed to answer the question of intent (following Wigmore’s guide
above)
 To det if the parties meant to address every subject in their K, must look to the intent of the parties. To do this – gotta
take in their testimony – parol evidence.
Note: buyer is claiming that the contract is not completely integrated – need to admit parol evidence to prove the sale for
furniture
Turbine work. Language is “open-textured” always need extrinsic evidence to prove what the words in a K mean
Pacific Gas and Electric Co v G.W. Thomas Drayage & Rigging Co (CA. 1968) pg 489
Facts:  contracted w/ to furnish the labor & eqpt to remove and replace the metal cover of ’s steam turbine.  agreed
to work at its own risk and indemnify  against all loss, damage, expense and liability resulting from injury to P arising out
of the work, also got insurance to cover liability for injury to P. During the work the cover fell and injured the exposed
rotor of the turbine
: offered to prove that s conduct in similar contracts w/ and w/other proof that the indemnity clause was meant to
cover injury to P of 3rd parties only and not to ’s P
Holding: Ct wrongly refused to consider extrinsic evidence to show the indemnity clause in the contract was not intended
to cover injuries to s P, the evidence was relevant and admissible b/the parties’ understanding of the words used differed
from the judge’s understanding
 Exclusion of relevant, extrinsic evidence to explain the meaning of a writing is justified only if it’s possible to
determine the meaning the parties gave to the words from the instrument alone
 Words can mean different things in diff situations.. exclusion of parol evidence b/words don’t appear ambiguous to the
reader can lead to giving a writing a meaning it never had
Note: HLA Hart said “language is open-textured”
 Takes a broad stance on the interpretation of the language used in a contract: language is never conclusive, must
always look to extrinsic evidence to help understand
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Notes
 Did the parties intend to have the whole of their agreement contained in their writing, or did they intend to have further
agreements on the side
 Contract can be either
o (A) unintegrated: parties didn’t intend the contract to include the entire of their agreement.. no difficulty in
allowing extrinsic evidence
o (B) partially integrated: parties intend for the contract to contain a final but not complete statement of their
agmt; ex: the contract refers to extrinsic evidence (ex: place of delivery to be according to trade norms) look
to extrinsic evidence for interpretation/elboration
o (C) completely integrated: final and complete statement of their agmt: extrinsic evidence is not allowed
 saw that when you’re trying to det if the contract is integrated, question arises as to what we look to answer that
question: in Thompson v Libbey, it would defeat the purpose of the parol evidence rule to look outside the document
to interpret it … vs Restatement §209(3) which seems to state that you should look to extrinsic evidence to settle the
question of integration
 Integration clause (more often referred to as merger clause) are typically accepted by cts, both parties must initial the
clause in the contract .. even tho there may be a difficulty in interpreting the clause
 Cts typically allow in extrinsic evidence to supplement/interpret the contract, but not to change the terms of it.
Trident Center v Connecticut General Life Insurance Co (9 th Cir. 1988) pg 493
Facts:  is a partnership of a lrg firm of lawyers and an insurance co – they negotiated a commercial loan w/the  for
56mill. The contract states in no uncertain terms the loan is for 56mill, 12 ¼% int for 15 yrs. A clause states that the s
couldn’t pay off the loan for the first 12 yrs. Interest rates dropped and s sued to get out of the contract.
: under CA law, even seemingly unambiguous contracts are subject to modification by parol or extrinsic evidence per
Pacific Gas
Holding; As per Pacific Gas, remand case to give  an opportunity to present extrinsic evidence as to the intention of the
parties in drafting the contract.
 The traditional rule is that extrinsic evidence is inadmissible to interpret, vary or add to the terms of an unambiguous
integrated written instrument, CA overturned that in Pacific Gas
 Pacific Gas held that language has no objective meaning and contracts mean only what cts interpret them to say (thru
extrinsic evidence)
Notes: if it’s true that language is always subject to interpretation, the parol evidence rule would be invalid.
 The kind of ambiguity that arises with ambiguous terms doesn’t mean that we need to go back all the way to question
language itself inorder to understand them
The Statute of Frauds and Its Exceptions
Restatement §110: Classes of Contracts Covered
There are certain kinds of contracts that are invalid if they’re not in writing:
a) contract of an executor or administrator to answer for a duty of his decedent (the executor-administrator provision)
b) contract to answer for the duty of another (the suretyship provision)
c) contract made upon consideration of marriage (the marriage provision)
d) contract for the sale of an interest in land (the land contract provision)
e) contract that is not to be performed within one year from the making thereof (the one-year provision)
Ks governed by the SOFs in the UCC
a) contract for the sale of goods for the price of $500 or more (Uniform Commercial Code § 2-201)
b) contract for the sale of securities (Uniform Commercial Code § 8-319)
c) contract for the sale of personal property not otherwise covered, to the extent of enforcement by way of action or
defense beyond $5,000 in amount or value of remedy
d) a writing signed by the debtor for an agreement which creates or provides for a security interest in personal property or
fixtures not in the possession of the secured party
General rule: Damages not recoverable for contracts that violate the statute of frauds (Boone)
 Exceptions:
o where svcs were rendered during the life of another on the promise that the person giving the svcs should recv
a legacy when the person died – then a reasonable compensation may be recovered for svcs actually rendered
o quantum meruit: if  has actually rec’d some benefit from the act of part performance, the law implies a
promise to pay
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Promissory Estoppel doesn’t apply to cases that violate the SOFs (Schwedes)
Restatement §129: Action in Balance; SP “Part Performance Doctrine”
Transfer of interest in land can be specifically enforced even if it violates the SOFs if in reasonable reliance on the contract
and on the continuing assent of the party against whom enforcement is sought,  has so changed his position that injustice
can be avoided only by specific enforcement.
(b/the reliance provides evidence of the contract – that the writing would have provided, evidentiary filter for what is a
valid contract)
Farmers travelled from KY to TX on a verbal K for land. Ks for land have to be in writing, no recovery. Doesn’t fall into an exception,
b/their travelling didn’t confer a benefit on the s
Boone v Coe (KY App. 1913) pg 521
Facts: s were farmers in KY.  made a verbal contract w/s to rent them his farm in Tx for 12 mos, to start when the s
arrived on the farm. Promised to have a house completed before their arrival, and to furnish materials for a barn. s then
moved from KY to TX (travelled for 55 days) to find no ready house, and no materials for a barn.  then refused to let
them on the P, s returned to KY. s sue for damages (cost of travelling, time, etc)
Holding: The verbal agmt is not w/in the statute of frauds: contracts re land need to be in writing, signed by the party to be
charged….
 Here, the s sustained a loss, s didn’t rec’v a benefit. The contract is unenforceable, therefore the  had the legal
right to breach it
Note: suppose the contract was for the manufacture of a good (instead of P). 5 plows for $100ea … UCC 2-201(3)(a):
contract enforceable if made to order, or started making (partial performance): so statute of frauds wouldn’t invalidate the
contract.
  can’t recover their reliance damages - the statute of frauds says that the contract they made is unenforceable, but
could recover if the  benefited from partial performance
 Restatement §129: action in reliance; SP: the  could recover for specific enforcement of the contract even if it
doesn’t fall comply w/the SOFs, if the party acted in reasonable reliance ..
Statisfying the Req of a Writing
P issue w/unethical lawyer. No writing, no K as per SOFs
Schwedes v Romain (Supreme ct of Montana. 1978) pg 533
Facts: Romain sent the Schwedes a letter offering to sell their P. Scheweds accepted by phone, Romain then hired a
lawyer to tend to the details of the closing. At some time the Schewedes told the lawyer that they wanted to send the whole
purchase price, but was told that it was unnecessary and to hold off till the closing date. Romain then sold the P to a 3 rd
party.
 There was no document in writing signed by Schewedes re the transaction, didn’t take poss’n, erect improvements,
paid no taxes, or paid anything to the s
: There was part performance
 Ct: their acts were undertaken in Contemplation of eventual performance not part performance: secured financing,
offered to pay, s took the P off the market while parties were negotiating
: s are estopped from denying the contract b/they were the ones who said that you don’t have to turn in the money
inorder to make this a binding contract
 Ct: promissory estoppel doesn’t apply where the case violates the SOFs
Holding: Because there is no enforceable contract, there is no basis for granting SP to the Schwedes and even if the
contract did exist, there was no part performance to take the contract out of the statute of frauds, summary judgment
granted
 4 essential elements of a contract: (a) legally capable parties (b) their consent (c) a lawful object (d) consideration
o no evidence of consideration – nothing moved btwn the Schwedes to Romain, an oral promise to pay is not
sufficient consideration to support a contractual obligation
o Consideration: a promise to sell the land and a promise to buy the land – fink thinks this meets consideration
o What if the s paid a a deposit: would qualify as partial performance (exception to the SOFs)
o No lawful obj: a contract for sale of real estate has to be in writing
 A valid contract is essential for SP
Note: Lawyer’s ethics questionable
Guarantee by fax, w/co letterhead but no signature. No question s intended to guarantee the debt. Letterhead fine.
Jae Park–- Finklestein Fall 2002
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Parma Tile Mosaic & Marble Co v Estate of Fred Short (Supreme Ct Queens Cty. 1992) pg 540
Facts: s attempted to order tile from ,  refused to deliver unless they guaranteed payment. s sent a fax guaranteeing
payment, w/co letterhead, unsigned. When  billed, s refused to pay
: fax constitutes an enforceable guarantee b/s name appear across the top – satisfies SOFs
: to satisfy the SOFs there needs to be a written signature – nothing like that here
Holding: There is no question that the  intended to guarantee the debt and that the  shipped the tile in reliance of that
guarantee. The fax constitutes an enforceable guarantee of the debt, despite the fact that the name appears only across the
top of the fax.
 The signature doesn’t have to be written in ink at the bottom of the pg, but can be any symbol or signature whether
written, printed, stamped, on any part of the doc so long as the intent to be bd is demonstrated
Notes:
 Is the SOFs necessary? If the contract was unenforceable then the ct would throw it out – why need SOFs? These
cases demonstrate that SOF cases usu have valid intended contracts, but there is no writing that conforms to the rigid
SOFs. No writing no contract when there is obviously a contract.
ENFORCEABILITY
If we have an exchange where the R makes a clear and unambiguous offer, w/all gaps filled, and the E accepts clearly, no
problem w/party’s capacity.. cts will enforce.
 Not exactly true. Many cases where there are clear and unambiguous offer and acceptance – cts will refuse to enforce.
o The deal is too lopsided.. there must be some form of exploitation, coercion
o Failure of consideration: all the obligations are on one side
o Illegal contracts even if all the reqs of a contract are met: prostitution, selling of organs
Baby M case: Sterns wanted to have a baby, but Mrs had a problem and couldn’t conceive. Made a contract w/Ms
Whitehead to carry the baby (Mr’s sperm, Ms Whitehead’s egg). Surrogacy contract. NJ supreme ct said the contract is
void on grnds of public policy, not an acceptable subject. Even tho surrogacy is not illegal, we won’t use the cts to enforce
it.
 Should the contract be enforced?
 3 diff approaches to question:
o Deontological approach (moral approach) – what is the morally req’d thing to do?
 When you exchange promises w/someone, you’re morally bd to make good on that promise.. b/a
promise is a moral commitment.
 Moral obligation to stick to agmts.. cts would then enforce all agmts so make all parties
morally keep their promises
 What is the fair result of the case? Regardless of the general moral obligation to keep a promise.
 Fairness in results approach.
 The 2 moral approaches have diff results.
o Utilitarian approach: the ct should adopts rules that would maximize society’s total utility..
 Look at the Sterns and Ms Whitehead.. if the Sterns get a baby, they get 100 units of utility, if not
then get 20 units of utility; if Whitehead gets the baby, she get 200 units of utility and if not then 0
units of utility….. therefore Whitehead should get the baby = more utility
 Limitation: ppl’s utility is not quantifiable (esp b/measure interpersonal utility of a good is
impossible)
 Beautiful idea of contracts: contracts should be enforced generally b/if 2 ppl have contracted then
they did so b/they regarded themselves better off under the terms of the contract then w/o.
 If Whitehead accepted $10k for the baby, then she valued the money more than the baby
 Efficient breach: enforce the contract, contract will only be broken if it’s efficient – if the
other party wants to breach then pay damages if its worth it to them
 Enforce contracts that maximize society’s utility
 Does a gift transfer utility: in theory, don’t know the welfare effects. In a contract tho, following the
beautiful idea of contracts, the parties are expressing that the contract is leaving them better off.
o Contractarian approach:
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

III.
Ex: in a gap filling situation, would the parties like the ct to fill in the gaps OR would they rather
dissolve the contract
If the parties were to contract behind a “veil of ignorance” (Rawls), they would come up w/legal
rules that would satisfy their preferences (w/o knowing what their preferences would be) … instead
of a ct trying to enforce a contract, let the parties decide in a situation where they don’t know what
their interest would be
 Ex of pie: slice a pie and share the pie amg 6 ppl. If y’re the slicer, and you don’t know
when you get to choose yr piece .. then you’ll cut them evenly to maximize yr piece. If y’re
a risk taker, you may gamble that you’ll get to choose yr piece early.. gamble by making
some pieces larger than others.
 Parties in a K can chose some agmts that are unenforceable
CONSIDERATION
Doctrine of Consideration


Consideration = the factors which the p’or considered when she promised and which moved or motivated her
promising … motive .. the legal effect of a promise should depend on the factor(s) that motivated the promise
A promise on its own is not legally binding
The Bargain Theory of Consideration

Consideration reflects the existence of a bargain .. §17: to consitute consideration, a performance or a return promise
must be bargained for … it’s bargained for if it is sought by the p’or in exchange for her promise and is given by the
p’ee in exchange for that promise
DISTINGUISHING BARGAINS FROM GRATUITOUS PROMISES
Johnson v Otterbein  promised $100 to U to pay off debt. A promise to pay money is a gratuitous promise
Hamer v Sidway Promise to induce nephew to behave. Nephew abandoned his legal right to misbehave in response to Uncle’s
promise = consideration.
Definition of Consideration (Hamer)
 consideration can be either some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment,
loss or responsibility given, suffered, or undertaken by the other
 any waiver of any legal right at the request of another party is sufficient for consideration
Re Gifts:
Restatement §24: comment b: a proposal of a gift is not an offer, there must be an exchange
Restatement §71: Req’t of Exchange; Types of Exchange
consideration req’s a bargained for performance or return promise
those things are bargained for if they are sought by the p’or in exchange for her promise, and is given by the p’ee in
exchange for that promise
3. performance can be: an act other than a promise, a forbearance, the creation/modification/destruction of a legal
relation
Comment b: b. "Bargained for." In the typical bargain, the consideration and the promise bear a reciprocal relation of
motive or inducement: the consideration induces the making of the promise and the promise induces the furnishing of the
consideration. Here, as in the matter of mutual assent, the law is concerned with the external manifestation rather than the
undisclosed mental state: it is enough that one party manifests an intention to induce the other's response and to be induced
by it and that the other responds in accordance with the inducement. See § 81; compare §§ 19, 20. But it is not enough that
the promise induces the conduct of the promisee or that the conduct of the promisee induces the making of the promise;
both elements must be present, or there is no bargain. Moreover, a mere pretense of bargain does not suffice, as where there
is a false recital of consideration or where the purported consideration is merely nominal. In such cases there is no
consideration and the promise is enforced, if at all, as a promise binding without consideration under §§ 82-94.
1.
2.
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Comment c: “Mixture of bargain and gift” a gift is not ordinarily treated as a bargain, and a promise to make a gift is
not made a bargain by the promise of the prospective donee to accept the gift, or by his acceptance of part of it. This may be
true even though the terms of gift impose a burden on the donee as well as the donor
Comment d: “Types of Consideration”:
 performance
o may be a specified act of forbearance (or one of many if given a choice)
o conduct that will produce a specified result
 return promise.
o Though a promise is itself an act, it is treated separately from other acts.
 promised $100 to U to pay off debt. A promise to pay money is a gratuitous promise
Johnson v Otterbein University (OH Sup Ct. 1885) pg 655
Fact: Johnson signed a delivered a letter to OU that promised a $100 + interest payment to the university in 3 years, to be
used to pay off the school’s debt. He never paid, and refuses to pay claiming the note was w/o consideration. Trustees
sued.
: consideration: return promise to use the money to pay off a debt
 Ct: not consideration b/it’s not at detriment to the university to adopt the return; and there is no benefit to Johnson
o Otterbein could arg: they are legally bound to use the money as Johnson stipulated
o Can arg benefits to Johnson – pleasure .. even on a gift not conditioned on anything, the donor can derive
pleasure from giving the gift, but then it would eliminate the concept of a gratuitous promise
Holding: No consideration, a promise to pay money as a gift is w/o consideration and can be revoked at any time
before payment.
 The creation of a fund to pay the previously incurred debt was not consideration, and the acceptance of the letter w/the
directions on where to apply the fund does not give rise to mutual promises.
Note: once johnson pays them the money then he couldn’t get it back claiming it was a gratuitous promise
 Ct calls this a conditional gift rather than a bargained for exchange, can’t take it back b/he has given up the money and
its no longer his property
 Not an unilateral contract – the university had to promise to pay down the indebtness to get the money
Promise to induce nephew to behave. Nephew abandoned his legal right to misbehave in response to Uncle’s promise = consideration.
Hamer v Sidway (NY App. 1891) pg 658
Facts: Uncle promised his nephew that if he would stop drinking, smoking, swearing and gambling till he became 21, then
he would pay him $5k. Nephew agreed and fully performed. After he turned 21, he agreed to allow his uncle to keep the
money (+ interest) for him. The uncle died w/o having given nephew his money.
: no consideration, by refraining from boozing and smoking, the  was benefited not harmed; unless the p’or was
benefited, the K had no consideration, executor args this was a conditional gift
Holding: Promise enforced, the  abandoned his legal right to booze and smoke for a couple of years b/of the Uncles
promise = sufficient consideration.
Note: unilateral K: Hamer unilaterally offered
 Benefit to the uncle? Pleasure, economic perspective of human exchanges
Hypo: what if the uncle is walking down the street and sees his nephew across the street: “come over here and I’ll give you
$100” – contract? Difference, the uncle isn’t bargaining for the nephew to cross the street – the act of crossing the street –
rather he wants to give him the $100. Just trying to hand it to him. In Hamer, the money was not the end – the acts were.
He was bargaining for the acts.
The differences btwn a conditional gift and a gift: the condition isn’t necessarily the reason a person enterred into the
agmt.
Ex: lawyer and fee – motive for enterring into the agmt may not have anything to do w/the fee
§71 comment b: the consideration induces the making of the promise and the promise induces the furnishing of
consideration
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PAST CONSIDERATION
Mortgage for correct psychic predictions. Past consideration is not consideration.
Moore v Elmer (MA. 1901) pg 669
Facts: Elmer wrote a K: agreeing to give Ms. Moore the balance of her mortgage is his death occurs before a certain date,
as she predicted during her psychic reading sessions w/him
Holding: Ms Moore gave Elmer sittings at his request, the consideration was executed and would not support a promise
made at a later time (consideration = svc rendered upon request)
 The reading and mortgage weren’t bargained for exchanges. The reading was done by her w/no concern for the
mortgage.
Note: comment b to §71: the consideration and the promise bear a reciprocal relationship: the consideration induces the
making of the promise and the promise induces the furnishing of the consideration. Both elements must be present or no
consideration.
MORAL CONSIDERATION
Mills v Wyman Promise to pay for the expenses of taking care of his son. Moral consideration is not consideration.
Webb v McGowin 75lb block from bldg. Promise enforced, having rec’d a material benefit,  bound to compensate for svcs rendered
Restatement §86: Promise for Benefit Received
1.
2.
a promise made in recognition of a benefit previously recv’d by the promisor from the promisee is binding to the extent
necessary to prevent injustice (unjust enrichment)
a promise is not binding:
a. if the benefit was a gift or for other reasons the R hadn’t been unjustly enriched
b. to the extent that its value is disproportionate to the benefit
Promise to pay for the expenses of taking care of his son. Moral consideration is not consideration.
Mills v Wyman (MA. 1825) pg 671
Facts: Levi Wyman, 25, fell ill. Mills took care of him. The , Levi’s father, wrote a letter to the  promising to pay him
for the expenses incurred in taking care of his son.
Holding: ’s promise lacked consideration. The kindness and svcs bestowed on his son were not done at his request, the
 was acting the part of the good Samaritan
 Rule: a verbal promise w/o any consideration can’t be enforced by action
 Moral consideration is not sufficient; there must have been soom preexisting obligation
 A deliberate promise can’t be broken w/o violating a moral duty, but if nothing was paid or promised for it, the law
leaves enforcement to the conscience … law will only enforce if the party making the promise gains something or he to
whom it is make loses something, that the law gives the promise validity
Note: Here there was a moral duty to pay + promise to pay; does that equal a contractual obligation?
 Suppose the son fell ill and Mills took care of him; and Mills sent the father the bills and father refused ---- seems no
contract, no agmt, no promise, etc
 Cotnam: guy was thrown from a streetcar, drs came and gave svcs tho the guy was unconscious. Theory was unjust
enrichment, not exactly a contract. moral duty to pay.
 This is an older form of consideration – as seen on pg 652 – follows a deontological approach, morality based
enforcement to contracts
 Larger question: how much should morality inform the law
 The deontological approach supports a moral duty + promise to pay;; the utilitarian approach supports bargained for
exchanges
 Contractarian view: if the parties were under the veil of ignorance (risk adverse), parties may not want to make these
promises binding – if they wanted to make it a binding promise, then they should make sure consideration is given
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75lb block from bldg. Promise enforced, having rec’d a material benefit,  bound to compensate for svcs rendered
Webb v McGowin (Ct of Appeals AL. 1935) pg 681
Facts: As  was about to drop a 75lb pine block off a bldg, he noticed McGowin on the ground right in the line on the
block. If he were to drop the block, it would’ve hit and severely injured McGowin. He saw as his only option to prevent
injuring McGowin, to hold onto the block and divert its path.  fell to the ground and rec’d severe bodily injuries that
rendered him crippled for life unable to do physical or mental labor.
 In consideration of  having saved his life, McGowin agreed to pay him $15/2 wks until the  died. McGowin died
first, and his administrators stopped payment.
Holding: The agmt is a valid enforceable contract. Recving the material benefit, McGowin became morally bound to
compensate  for the svcs rendered.
  saved McGowin’s life, this was a material benefit to him greater than any money.
 where the promisee cares for, improves, and preserves the P of the promisor, tho done w/o his request, it’s sufficient
consideration for the promisor’s subsequent agmt to pay for the svc
 A moral obligation is sufficient consideration to support a subsequent promise to pay where the promisor has rec’d a
material benefit
 McGowin benefited, appellant was injured  suffcient consideration for the R’s agmt to pay
 Note: ct is following theory of moral duty + promise to pay , the older view of moral duty
 Though McGowin was enriched, was he unjustly enriched?
CONTRACT MODIFICATION AND THE PRE-EXISTING DUTY RULE
Stilk v Myrick 2 seamen deserted. Promise has no consideration. s were bound to the terms of the original K, the second one was a
gratuitous promise.
Alaska Packers’ Assn v Domenico Fishermen in Alaska. Workers coerced the 2nd K, not enforceable
Brian Construction and Dev’t Co v Brighenti Unforeseen rubble. Promises to pay in light of unforeseen conditions are valid.
Re attempts by the parties to adjust their contractual obligations during the performance stage of the contract. Are those
modifications enforceable?
Where a party agrees to perform something for another, but is already obligated to perform that something to that another,
then the second contract is not valid. BUT if the 2 nd contract imposes a burden on the one who wants more money and the
burden was not previously known… then the amt was binding (ex: an unforeseen, burdensome condition) (Brian
Construction)
Restatement §89: Modification of Executory K
A promise modifying a duty under a contract not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was
made; or
(b) to the extent provided by statute; or
(c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise.
UCC §2-209: Modification, Rescission, Waiver takes a much more liberal approach to the modification validity
question than the Restatement. Remember that this effects only the sale of goods
(1) an agmt modifying a K needs to consideration to be binding
2 seamen deserted. Promise has no consideration. s were bound to the terms of the original K, the second one was a gratuitous
promise.
Stilk v Myrick (Eng. 1809) pg 687
Facts: While at sea, 2 seaman deserted and the captain failed to find replacements. He then agreed w/the rest of the crew
to divide the wages of the missing 2 amg them.
Holding: Agmt is void for lack of consideration. The seamen had agreed to undertake all they could under all the
emergencies of the voyage prior to leaving for sea – had a contract for the entire trip. The desertion of part of the crew is an
emergency, therefore the men were bound by the terms of their previous contract to work. (gratuitous promise)
 If they were free to quit the ship the case would’ve been different
Note: could argue a change of circumstances
Fishermen in Alaska. Workers coerced the 2nd K, not enforceable
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Alaska Packers’ Assn v Domenico (9th Cir. 1902) pg 689
Facts: In San Francisco, the s contracted to work for the s during the fishing season in Alaska. After they got there,
they worked for a bit then stopped working and demanded the company pay an additional wage or else they’d return to San
Fran. It was impossible for the s to get other men in the circumstances so they agreed and drew up another contract,
signed by all parties. At the end of the fishing season, s demanded payment,  gave originally agreed to amt, refused the
rest.
Holding: The consent to the worker’s demands was w/o consideration b/under the new contract, the s were to render the
same svcs that they were already under contract to render. They willfully broke that contract and taking advantage of the
situation, coerced the s into the new contract.
Note: could arg the new contract was binding b/ Alaska Packers waived the breach and proceeded to renegotiate the
contract -- ct finds no waiver b/the co didn’t know anything about the breach until they returned to San Fran, ct finds
coercion
 Following Restatement §89: Alaska Packers could have made the modification binding by acting in reliance of the new
contract – ex: if they then bought something in reliance of the money
Unforeseen rubble. Promises to pay in light of unforeseen conditions are valid.
Brian Construction and Dev’t Co. v Brighenti (CN. 1978) pg 692
Facts: The  was assigned a contract for the construction of a post office blding and subcontracted w/ for the
“excavation … everything requisite and necessary to finish the entire work properly” While excavating, the  discovered
rubble below the surface that the ’s test borings hadn’t indicated.  stopped working, and  entered into another agmt
w/him for the work, confirmed oral agmt w/letter.  worked for a bit then quit.  then had to complete the job himself
incurring considerable damages.
Holding: The subsequent agmt of parties to a written contract is valid b/the unanticipated, burdensome conditions, not
contemplated by the parties at the time the written contract was executed. The rubble was such a unforeseen condition.
 Unforeseen, burdensome condition was discovered during the performance; the promise to compensate for the
additional work is a valid agmt
Posner: believes the consideration req for modifications was created to prevent coercion, but application is faulty b/
consideration isn’t req’d to be adequate. Slight consideration is allowed and slight consideration can lead to coercion.
 Concludes that throwing modifications based soley on duress would be a better protection than consideration



Old doctrine of consideration: Prior moral duty can supply consideration for a promise  enforceable. The promise
standing alone wouldn’t be enough but w/the prior moral duty it becomes binding.
Preexisting duty rule: Where you have a promise that would otherwise be enforceable but there was already a prior
promise and a prior duty  unenforceable. The pre-existing duty is a legal duty.
Difference: moral duty v legal duty. The promise brings the moral duty into the realm of a binding contract. In the
case of a legal duty, the duty existed in a prior binding contract.
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ADEQUACY OF CONSIDERATION: SHAM/PRE-TEXTUAL CNSD
Newman & Snell’s Bank v Hunter IOUs. The IOU trades was worthless = sham consideration.
Dyer v Nat’l By-Products I won’t sue you if you keep me employed. Though he had no case, he had a good faith belief that he did =
adequate consideration.
Sham consideration is not consideration
IOUs. The IOU trades was worthless = sham consideration.
Newman & Snell’s State Bank v Hunter (Mich. 1928) pg 702
Facts: Man died in debt, bank had an IOU from Mr. Hunter in exchange for a loan. The IOU was worthless, couldn’t
collect on it, had some shares of stock to back up the IOU which were also worthless. Go to the wife – wife offers her IOU
in exchange for the bank’s IOU. Everything worthless, except there was some hope that the bank could collect on Mrs.
Hunter’s IOU.
Issue: Did Mrs. Hunter give her IOU as a gift, or did the giving of Mr. Hunter’s IOU constitute consideration?
Holding; The bank didn’t transfer anything of value b/the note was worthless = sham consideration
 Bank started out w/an IOU and the shares and ended up w/ an IOU and the shares. The only thing that changed was
now Mrs. Hunter had an obligation she didn’t have before
Note: Applying Restatement §71 and §79 is there is a bargained for exchange and therefore no other consideration is req’d
so it would seem that it’s a binding contract – check comment d: shams don’t satisfy §71
Restatement §79: Adequacy of Consideration; Mutuality of Obligation
If the req of consideration is met [§71] there is no additional req of (a). gain/advantage/benefit to the R or a loss,
disadvantage/detriment to the E (b) equivalence in the values exchanged (c) mutuality of obligation
 But haven’t we used a,b,c, to det the existence of consideration in past cases? Check §71: req of exchange
Comment d: pretended exchange: sham or nominal consideration doesn’t satisfy the req of §71
I won’t sue you if you keep me employed. Though he had no case, he had a good faith belief that he did = adequate consideration.
Dyer v National By-Products, Inc (Iowa. 1986) pg 705
Facts: Dyer lost his foot in a work related accident. After his leave of absence, he returned only to be laid off.
Dyer: had a good faith belief he had a valid claim against his employer for his personal injury. Had an oral agmt that
should he not litigate, his employer would give him lifetime employment = consideration.
: forebearance from asserting an unfounded claim is not consideration for a K
Issue: Whether the settlement of an unfounded claim asserted in good faith consideration for a K of settlement
Restatement §74: Forbearance to assert .. a claim.. which proves to be invalid is not consideration unless … the party
believes it to be valid (req’t of good faith)
Holding: Though he had no claim, that he thought he did and didn’t litigate in consideration for the alleged K of settlement
constitutes consideration
Notes: Problem – was exchanging something of no value (his forbearance from a worthless lawsuit) for the promise of
lifetime employment
 Difference btwn bank case: tho the lawsuit was worthless, Dyer had a good faith belief that it was valid. And the
company probably got a lot out of the agreement, by promising to employ him, b/Dyer could’ve created problems for
the co
 Good faith belief his claim was worth something
 Workman believed his claim was worth something, whereas it’s unlikely the bank believed their note from the husband
was worth something
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INTENTION TO BE LEGALLY BOUND
Restatement §21: Intention to be Legally Bound
Neither real nor apparent intention that a promise be legally binding is essential to the formation of a K, but a
manisfestation of intention that a promise shall not affect legal relations may prevent the formation of a K.
 Intent to agree as opposed to intent that our agmt be legally binding
 If there’s consideration then presume parties intended to be bound, but if there’s proof otherwise, then contract will fail
Consideration provides prima facie evidence that the parties intended to be bound --> binding contract unless
there’s specific evidence that the parties did not intend to be bound
Formalities
Schnell v Nell “In consideration of the love and respect he bears his wife” Nominal consideration not sufficient.
Smith v Wheeler $1 for option K for P. nominal consideration for option K fine, even if it was only a recital for a $1
Most formal commitments lacking consideration aren’t enforced; few exceptions
UCC §2-205: Firm Offers
Offer by a merchant to buy/sell goods in signed writing which by its terms gives assurances that it will be held open is not
revokable for lack of consideration.
Use of formalities: evidentiary function – compliance provides reliable evidence that the transaction took place;
cautionary function – the ritual gives the p’or lots of time to think about her act; channeling function – populace knows that
this ritual gives a certain result
The Seal: English common law. Seal imported consideration, took the place of it (unless there was evidence of fraud).
Rise of bargain theory of consideration accompanied the decline in the significance of the seal
 Traditionally, no K was binding unless made under a seal
 Only agmts made under a seal were legally binding
 Benefit: strange ritual that makes sure that the parties trully intended to be legally bound – seal then provides
evidence of the intention
o Served the same function as a signature
 Modern statutes: seal makes no diff
Nominal Consideration:
“In consideration of the love and respect he bears his wife” Nominal consideration not sufficient.
Schnell v Nell (Indiana. 1861) pg 726
Facts: Mr Schnell’s dead wife stipulated in her will that the s get $200ea. At the time of her death, she didn’t have any
P. Writing: in consideration of the love and respect he bears to his wife; and plus in consideration of $0.01 rec’d to him by
all the s, Zach Schnell agreed to pay the money. And the s in consideration for the payment agree to pay $0.01 and
abstain from collecting any real or supposed claims on him or his estate.
Holding: To promise $600 for $0.01 is an unconscionable K, consideration was nominal, and the will didn’t impose and
legal obligation on him to discharge her wishes out of his P.
 A moral consideration only will not support a promise
 The love and affection he had for his wife are past considerations and plus they aren’t legal consideration at all…
Note: $600 for $0.01: ritualistic exchange – Schnell probably didn’t agree to this exchange w/o knowledge of it’s meaning
Args:
 you gave us a penny = consideration: if the penny was introduced soley to make the K binding, then shouldn’t it have
the force of a seal: comment d to §79 doesn’t allow for nominal consideration
 promise following a moral obligation: no exchange as defined in §71
 we wont sue you (as in worker’s comp case) if you promise to pay – lack of good faith. There was knowledge that the
will wasn’t worth anything : ct could find this is consideration following §71
Restatement §71 comment b: a pretense of a bargain not enuf  nominal consideration not consideration
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Recitals
Restatement §87: Option Contract: an offer is binding as an option K if it’s in writing, signed by the o’or, recites a
purported consideration, and proposes an exchange w/in a reasonable time
 Comment a: consideration and form: seal not necessary, signature will do
 Comment b: nominal consideration: sufficient to support a short-time option
 option is a socially useful preliminary step in the conclusion of a socially useful transaction – utilitarian theory –
follows the beautiful idea of contracts – options make it easier to enter into the real K
 But following this reasoning – why not allow nominal consideration for real Ks
 Comment c: false recital of nominal consideration: the giving and recital of nominal consideration performs a formal
function only. The signed writing is what’s important as the formality, delivery of the peppercorn, not so much.
norm – recitals in an option K give a presumption of consideration
$1 for option K for P. nominal consideration for option K fine, even if it was only a recital for a $1
Smith v Wheeler (Georgia. 1974) pg 731
Facts: Wheeler gave Smith a 1yr option to buy a P, option agmt signed by both parties. “In consideration for $1.” The $1
not given at the time of execution. Later, Wheeler claiming that since the $1 wasn’t paid, the option agmt was null. Smith
responded that he was ready to exercise his option, was ready to pay the $30k in cash, and included the $1 consideration.
Wheeler refused.
Holding: Even tho the $1 wasn’t paid, it doesn’t void the K. The recital of $1 consideration gives rise to an implied
promise to pay
Note: Jolles v Wittenberg: a K under seal raises a prima facie presumption of consideration, any nomial consideration
recited in the sealed writing is sufficient
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PROMISSORY ESTOPPEL






Push on doctrines of contracts, but don’t completely contradict it
o Quasi contract – exception to the side in offer, acceptance, consideration (Cotnam)
o Gap filling
Promissory Estoppel completely contradicts
Some cts have interpreted promissory estoppel as a form of consideration, but better to think of it as a separate basis for
enforcing Ks altogether
Where ct enforce promises where the party has relied on the promise to her detriment, there won’t be consideration
Departs from traditional principles
Principle underlying PE is compensation for detrimental reliance
Dev’t of PE as a Substitute for Consideration
Ricketts v Scothorn “None of my grandchildren work”  intentionally influenced  to alter her position for the worse, can’t arg no
consideration
Greiner v Greiner Mom gives son a house and land. Promise induced reliance, promise enforced
Allegheny College v Nat’l Chautauqua County Bank “In consideration for my interest in Christian Education” Bilateral K,
promise for promise, enforced.
Feinberg v Pfeiffer Retirement money. PE, promise intentionally influenced the  to alter her position for the worse.
James Baird Co v Gimbel Bros Linoleum case – revoked offer before  relied on it. No K, b/offer was w/drawn before
bid was accepted. PE doesn’t apply.
Drennan v Star Paving Co Revoked offer at last minute.  relied to his detriment, PE
Restatement § 90. Promise Reasonably Inducing Action Or Forbearance:
A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a
third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement
of the promise. The remedy granted for breach may be limited as justice requires.
“None of my grandchildren work”  intentionally influenced  to alter her position for the worse, can’t arg no consideration
Ricketts v Scothorn (Nebraska. 1898) pg 760
Facts: Ricketts was Scothorn’s grandpa. One day, he came to her place of work and said “I have fixed something out that
you don’t have to work anymore. None of my grandchildren work and you don’t have to.” Gave promissory note for $2k
payable on demand.  immediately quit. Grandpa later died w/o paying up -  sued executor of his will.
Holding: Ricketts intentionally influenced the  to alter her position for the worse on the faith of the note, so to let him
resist payment on the ground of no consideration would be grossly inequitable = equitable estoppel
 When the payee changes her position to her disadvantage, in reliance of the promise, then there is an equitable estoppel
Note: According to consideration: no contract, this was a gift
 Enforcement then based on equitable estoppel: in reliance on the gift, she quit her job – changing her situation to her
disadvantage
 There may be a moral hazard problem w/the reliance theory: can make a gift binding by intentionally acting in reliance
on it
 Ct seems to make an arg that the doctrine of reliance is a form of consideration [stretching doctrine of consideration]
and not completely different: see pg 762, the party trying to take back the gift is estopped from taking it back b/the
granddaughter has already relied on the promise
 Pick: stick w/doctrine of consideration and say in these gratuituous promise – no bargain for exchange, no contract…
or take reliance view: enforce on detrimental reliance OR say estopped from arguing lack of consideration once the
promisee has already acted in reliance
Ex: call bank, ask has my paycheck cleared yet, bank: yes .. then write out a bunch of checks and they all bounce. Call
bank – they made mistake and now you have fines: argue detrimental reliance; anything contractual? Seems there might
be a contract by implication: arguably saying: if you write checks, we will clear them.
 Question: did she really rely to her detriment? She got another job later anyway. Just have to rely .. not rely to yr
detriment
 Theory of enforcement is reliance theory: Measure of damages is expectation: she is going to get her $2k.
o If this is an actual contractual agmt, then she needn’t have incurred any damages, just that she did rely – ct
seems to follow by awarding expectation damages
Jae Park–- Finklestein Fall 2002
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
Restatement §90: can arg: did granddad reasonably expect that his promise would induce action or forebearance
Mom gives son a house and land. Promise induced reliance, promise enforced
Greiner v Greiner (Kansas. 1930) pg 766
Facts:  said she wanted , her son, to move into the house, and later had the house moved from the quarter section to an
80acre tract so that she could give the land to him. The house was moved, and he moved into it. Mom sued to recover
poss’n the land, son said she gave it to him
: no consideration for her promise: she did everything for her son, he did nothing in return
 Ct: he moved across counties to move into the home and established himself and his family, made some improvements
on it all in reliance of his mom’s promise. He lived on the land for almost a yr until he was served w/a notice to quit
Holding: Her promise to give her son the land induced reliance on his part.
“In consideration for my interest in Christian Education” Bilateral K, promise for promise, enforced.
Allegheny College v National Chautauqua County Bank of Jamestown (NY App. 1927) pg 770
Facts: Mary Yates Johnston signed and delivered to Allegheny: “In consideration of my interest in Christian Education,
and in consideration for others subscribing” I pledge $5k payable when I die. The gift will be called the Mary Yates
Johnston Memorial Fund to be used to educate those prepary for the ministry. Before she died, she gave notice that she was
cancelling the promise.
 She semi-part performed by paying $1k before cancelling the rest
Holding, Cardozo: Case fits into consideration: the  assumed a duty by accepting the money and that duty is sufficient
consideration for the promise to pay.
 This is a bilateral agmt: there was a promise on the one side and on the other a return promise, made by implication,
but expressing an obligation that was a condition of the payment.
Dissent: Kellogg – it was just a donation, no offer, no acceptance, no K
 no contract b/no offer and acceptance – offer not binding b/no acceptance, the college never rec’d the money and
therefore couldn’t perform the condition (in unilateral contract accept offer w/performance). They accepted the $1k,
but not the $4k – ea chunk of money comes w/separate offers
Note: Cardozo is stretching doctrine of consideration: traditional take is Otterbein. This was a gratuitous promise which
Otterbein says is not binding.
 Why is stretching consideration? Otherwise have to use promissory estoppel, he is trying say that doctrine of
promissory estoppel is not needed, that consideration can fit these cases.
 Trying to contain the spread of promissory estoppel
 3 different theories:
o this is a standard bilateral contract: college promises to set up the fund in exchange for the promise that she
donate the money = consideration .. Cardozo accepts, dissent rejects
o promissory estoppel – ct wants to ignore, dissent doesn’t believe it applies to the facts
o unilateral contract – dissent opinion
 gratituous promise – gift w/conditions but w/o exchange for bargain
Retirement money. PE, promise intentionally influenced the  to alter her position for the worse.
Feinberg v Pfeiffer Co (MS App. 1959) pg 777
Facts:  was promised by her  employer that she had the privilege of retiring at anytime and that is she did she’d recv
$200/mo for life. She later retired, and recvd $200/mo till the president of the co (person who made the promise) died. His
successor refused to continue payments. At the time of trial she was 65 yrs old and no longer employable.
: would not have left the co if not for the pension. Did not seek out employment after retiring b/of the pension even
though she was physically able to
: is was a promise to make a gift, no consideration
Holding: ’s retirement from a lucrative position in reliance upon ’s promise to pay her an annuity or pension  apply
promissory estoppel
o Quote Ricketts v Scothorn: having intentionally influenced the  to alter her position for the worse on the
faith of the promise, it would be grossly inequitable to permit the co to resist payment on the ground that the
promise was given w/o consideration
Note:
 if at the time they stopped payment on the pension, she was in good health and could easily have obtained another job -- did she then really rely on the promise? Works for co – can arg then she didn’t rely to her detriment, she could’ve
easily gotten another job, and she wasn’t put in a worse situation – then the co would have the right to retract the
Jae Park–- Finklestein Fall 2002
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

promise and pay damages for the period up until she relied on it. But if she’s unemployable, then she has relied to her
detriment. --- Fink: this is the situation that §90 was made to address
contrast w/Ricketts: granddaughter was still employable
why is the ct sure there is no consideration?
o Past consideration – the work she did wasn’t conditioned on rec’ving the pension, she was going to work
whether/not she got the pension – it was a present for past good work
 Arg: after she knew about the pension, she continued to work – ct: not a bargained for xchge
o Can arg the co voted for the pension to ease her out – if we promise to give you a pension, would you promise
to retire … facts missing, but could try arg
Construction Bids
Linoleum case – revoked offer before  relied on it. No K, b/offer was w/drawn before accepted. PE doesn’t apply.
James Baird Co. v Gimbel Bros. Inc. (US App. 1933) pg 784
Judge: Hand
Facts:  obtained a false estimate of the amt of linoleum req’d for the construction of a public bldg. Using that estimate,
which was just half of the amt actually needed, he sent out offers to various contractors.  got the offer, put in a bid using
the offer’s price, on the same day that the  realized his mistake and w/drew his offer.
 Chronology:  got offer   used offer in bid   w/drew offer  2 days later ’s bid was accepted   confirmed
the w/drawal of his offer   formally accepted the offer.
 Bkgd on General contractors: have to bid for a job and put up money to make the bid. General contractors
subcontract out all the work – recv bids. Problem – can’t make binding contract .. sub makes an offer, GC uses to
make a bid. Then there is a time period when the GC has won the bid and therefore has a contract, but hasn’t made a
binding contract w/the subs
o GC bound by the bid contract, sues the sub
: s args (actual and possible)
  arging option contract: reqs the offer from the sub shall be held open for a certain period of time –onesided
obligation: option giver then bound, but option rec’ver free to go w/anyother sub
o but consideration (option rec’ver has to pay consideration) is missing – nec for option K: otherwise would
only be an offer. … but then can arg the consideration is including the sub’s offer in the bid, then bound to use
that sub
 ’s 2nd arg: conditional offer – I offer to sell you linoleum and promise that if you include me in yr bid, I will agree to
be bound by this promise
 unilateral K
o promissory estoppel – ct: in these types of situations where the parties all mean to go into a K, no room for
PE, this isn’t an appropriate setting to apply PE, commercial dealings
 ct rejects all args – finds for 
Holding:
 Issue of K: the offer was w/drawn before it was accepted = acceptance was too late
o The contractor using the offer in determining their bid doesn’t amt to acceptance of the offer.
 PE doesn’t apply: the  offered to deliver the linoleum in exchange for the ’s acceptance, not for its bid. The offer
would become a promise to deliver only when the  promised to take and pay for it. “no room for PE in such a
situation”
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Restatement §87: Option Contract
(1) An offer is binding as an option contract if it
(a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and
proposes an exchange on fair terms within a reasonable time; or
(b) is made irrevocable by statute.
(2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the
part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to
the extent necessary to avoid injustice. (PE for option Ks – can enforce option Ks w/o consideration is there’s induced
reliance)
Comment e: But circumstances may be such that the offeree must undergo substantial expense, or undertake substantial
commitments, or forego alternatives, in order to put himself in a position to accept by either promise or performance.
The offer may be made expressly irrevocable in contemplation of reliance by the offeree. If reliance follows in such cases,
justice may require a remedy.


Does it create a difference btwn the 2 cases? To the extent nec to avoid injustice? Baird found out about the
withdrawal before the bid was accepted, in Gimbel found out after bid was accepted.
Not option contracts b/no consideration.. but was there consideration? 87(1) says an option K is valid w/nominal K,
87(2) says an option K can be enforced even when there is no consideration based on induced reliance
Revoked offer at last minute.  relied to his detriment, PE
Drennan v Star Paving Co (Cal. 1958) pg 788
Facts: , contractor, recd an offer from , one who could provide paving work, for ~ $7k which he then used in his bid for
a construction job.  was awarded the contract.  then stopped by the ’s office where he was told that they couldn’t do
the job for the price they had offered and raised their offer to $15k. After much searching  was able to find someone else
to do the work – but for $10k.
: no K: it made a revocable offer and revoked it before  communicated his acceptance to 
Holding:  relied to his detriment: going w/Restatement §90:  has reason to expect that if its bid was the lowest, it
would be used to : it induced action.
 Reasonable reliance holds the o’or in lieu of consideration
  had reason not only to expect  to rely on its bid but to want him to: he had a stake in ’s reliance
 s spent several months trying to get bids from other subcontractors and he took the lowest. He acted reasonably to
mitigate damages
 estimation of damages: cost of covering
Note: Seems to be saying: assume consideration, and s can’t deny consideration b/of the reliance that was induced -->
promissory estoppel used as substitute for consideration
o But promissory estoppel better called something entirely different than consideration
 Issue of damages: no expectation damages, instead award reliance damages. Why do they pretend on the one hand that
PE is a substitution for consideration, but only award reliance damages on the other hand. Motivations? Seems to
follow tort law: measure of damages in torts is reliance.
Promissory Estoppel as an Alternative to Breach of Contract
Goodman v Dicker Emerson radio franchise. Justice and fair dealing to protect those who have relied to their detriment,
PE
Hoffman v Red Owl Stores Franchise grocery store. PE even if there is no K, prevent injustice.
Emerson radio franchise. Justice and fair dealing to protect those who have relied to their detriment, PE
Goodman v Dicker (US App of District of Columbia. 1948) pg 798
Facts: s are local distributors for Emerson Radio, s applied for a dealer franchise. s represented that the franchise
would be given and s would recv an initial delivery of 30-40 radios. B/of the representations, s were induced into
incurring expenses in preparing to do business under the franchise. No radios were ever delivered, and notice was finally
given that the franchise would not be granted
Holding: Justice and fair dealing req that one who acts to her detriment on the faith of conduct of the kind revealed here
should be protected by estopping the party who has brought about the situation (equitable estoppel).
o Measure of damages: loss sustained by expenditures made in reliance upon the assurances
Jae Park–- Finklestein Fall 2002
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Note: Seems to be saying: assume consideration, and s can’t deny consideration b/of the reliance that was induced 
promissory estoppel used as substitute for consideration
 But promissory estoppel better called something entirely different than consideration
 Issue of damages: no expectation damages, instead award reliance damages. Why do they pretend on the one hand that
PE is a substitution for consideration, but only award reliance damages on the other hand. Motivations? Seems to
follow tort law: measure of damages in torts is reliance
Franchise grocery store. PE even if there is no K, prevent injustice.
Hoffman v Red Owl Stores, Inc (Wisconsin. 1965) pg 800
Facts: Hoffman contacted Red Owl about establishing a franchise grocery store, told them that $18,000 was all the capital
he had to invest. Reps assured him that was all he needed. To gain experience, he bought a small grocery store, after 3 mos
reps told him to sell it, assuring him that they would find him a bigger store for him elsewhere, Hoffman reluctantly did
(b/it was making a profit). Reps told him to sell his bakery. Reps kept raising the amt of capital req’d from Hoffman to a
final sum of $34k. Hoffman couldn’t comply, deal broke.
: Agmt was never reached on essential factors, therefore no K
 There were several large unsettled issues – had not det’d where the store would be, etc all part of ongoing negotiations.
There was no definite offer that could be accepted. No K, just heavy preliminary negotiations
 Ct: Restatement §90 PE even if there is no K
Holding: The representations of Red Owl Stores induced Hoffman to rely to his detriment, PE to avoid injustice
o Damages = reliance: this is not a breach of contract action – Hoffman’s can’t recover for the loss of profits of the
grocery store. Damages for PE are only that which is nec to prevent injustice. Damages should not exceed the loss =
RELIANCE
Notes:
 If PE is to considered as substitution for consideration in a K, mustn’t there be a K? Was there a clear offer and clear
acceptance here?
 Therefore in this case – just using PE when the  has been harmed by the  - approaching more tort law than
contracts. Ct awarding based on injustice.
o Ct also awarded damages based on reliance (mirroring compensatory damages in torts) – evidence of
ct following more of a tort theory of recovery
o True, that calculation of expectation is uncertain (profits of future store?)
o Along tort lines: ct also allows recovery by Mrs. Hoffman (a third party): Red Owl had no contract
w/Mrs. Hoffman, yet ct allows recovery – Red Owl should’ve foreseen that she would’ve been
harmed
 Red Owl created a new tort: something along the lines of neg’t promissory misrepresentation
 Cases wouldn’t succeed as a fraud, b/there was never a lie …
 What difference is there btwn calling the case a tort or a contract: calculation of damages. A little reliance can result
in a lot of lost profit (expectation damages) – need a clear K to notify the parties of the possible extent of the damages
 Here have an obstensible K case, but court is treating like tort – question: does the system hurt when doctrines aren’t
followed strictly, or does it not matter.. only the result matters
 The refusal of the ct to award expectation damages b/there was no K, seems to protect K law
Gilmore, Death of K: believed that K law was being reabsorbed by tort law.
Hillman: PE is hardly used, and when it does it seldom leads to victory
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Some Modern Applications and Limits of Promissory Estoppel
Blatt v USC Order of the Coif. No promise – Order is just reward.
Spooner v Reserve Life Insurance Bonus plan – gotcha. Promise was illusory, no real offer. Performance in reliance of offer was
optional, discretionary, no PE
Ypsilanti v GM GM factory. Trial Ct; granted injunction for PE: detrimental reliance and injustice; Ct of App: denied PE b/no
promise. Promise nec for PE analysis.
Alden v Vernon Presley Elvis Presley! Promise was revoked before  relied = not detrimental reliance, no PE
Cohen v Cowles Media Co Confidentiality? Min: enforcing under PE would violate press’ 1st Ad rights. US: PE ia law of general
applicability, press not shielded. Minn: then need to award under PE, to prevent injustice.
1.
Promise
Order of the Coif. No promise – Order is just reward.
Blatt v USC (CA App. 1970) pg 822
Facts:  was denied admission into the local chapter of the Order of the Coif.
: USC represented to him that if he were in the top 10% of his class that he “would be eligible for election.” He relied on
the representations and ranked 4th.
 Unilateral K: promise is given in exchange for an act, forbearance or a thing
o Ct: no benefit to s from s hard work and class ranking, no consideration for any alleged promise
 Detrimentally relied: could have taken the easy way thru school, but b/of representations, worked hard – analogizes to
Hamer v Sidway
o Ct:  didn’t suffer an actual detriment in foregoing an act, or in expending money in reliance on the promise
Holding: There was no promise: no allegation that it was promised that he would be admitted to membership if he
graduated in the top 10% of his class – just that he “would be eligible for election”
 PE: doesn’t apply – the representations didn’t induce action “of a definite and substantial character on the part of the
p’ee”
Notes:
Full analysis
 §79: only applies when req of consideration is met
 §90: only turn to 90 when there is no consideration
 look to §71(2) to det is there was consideration: in this case – can arg the Order wasn’t seeking his hard work
o counter arg: but why offer order of the coif? Induce students to work hard, it’s a benefit to the school if the
students do well
o but it’s not explicitly sought by the p’or in exchange of its promise – Order is just a reward, no proposed
exchange
o no consideration – therefore look to §90: ct finds that there wasn’t action of a definite and substantial
character on the part of the p’ee (condition in first restatement, not included in the second). But the 2 nd write
includes the phrase – remedy limited as justice requires .. can arg the case would’ve been found the same way.
 Ct seems to be treating PE as a substitute for consideration rather than a separate basis for recovery. Red Owl treated
PE as a separate basis, but treated the case as more of a tort. Fink: cases that treat it as a sub harm the doctrine of Ks
more than those that treat it as separate – b/they stretch traditional definitions, whereas the other seems to recognize
that it’s different.
 The only promise that was made was to eligibility to the award
Bonus plan – gotcha. Promise was illusory, no real offer. Performance in reliance of offer was optional, discretionary, no PE
Spooner v Reserve Life Insurance Co (Wash. 1955) pg 826
Facts:  sent to its  employees a memo that laid out a bonus plan w/the following clause “this renewal bonus is a
voluntary contribution on the part of the Company.. it can be w/held, increase, decreased or discontinued w/or w/out notice.
s met the conditions of the memo,  no pay
Holding: The promise was illusory – the co made it clear in the memo that it could cancel it at anytime. Therfore
performance in reliance of the memo was optional and entirely discretionary on the part of the p’or
 Clearly states that the doc has no weight. There is no real offer, just an intention to pay a reward (as in Order of the
Coif).
Notes:
 “in return, I ask only that you give me your best efforts” using language like “in return” puts the document almost w/in
the realm of Ks. On the other hand they have a paragraph that says the doc is not a K.
Jae Park–- Finklestein Fall 2002
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GM factory. Trial Ct; granted injunction for PE: detrimental reliance and injustice; Ct of App: denied PE b/no promise. Promise nec
for PE analysis.
Ypsilanti v GM (Cir Ct of MI. 1993) pg 830
Facts: The township of Ypsilanti granted GM P tax abatements in response to applications that projected the creation of
new jobs and/or the retention of jobs. The tax abatement agmts were to last 12 yrs apiece. A couple yrs after the 2 nd
abatement was granted, GM announced they’d be moving their operations and closing the plant.
: suing for breach of K created by the tax abatement statute; breach of K created by the actions of the parties; PE; unjust
enrichment; misrepresentation
Holding: Find for s under PE, enjoin GM from closing their plant
o Contract? legislature didn’t intend contractual obligations on subsidized industries
o Fink: strange that the ct is looking to the statute and not the parties to det if there is a K
 PE? 3 part test
 There must be a promise that the p’or should reasonably have expected to induce action of a definite and substantial
character on the part of the p’ee  GM clearly made statements to induce the township to grant the tax abatements
 Promise: Ct’s def on promise: expression of intention, Fink: an expression of intention doesn’t necessarily
make a promise, can intend to do something w/o wanting to be legalling bound to that intent. A better def
would include the element of reliance.
 Ct taking diff view from Spooner ct (voluntary compliance)
 No clear terms, Blatt ct would say no promise b/promise is too vague
 That produced reliance or forbearance  Township gave up over $2mill in local gov’t taxes for just one of the
abatements
 The promise must be enforced to avoid injustice  “Ypsilanti gave up millions of tax dollars that it needed for public
schooling and for providing basic gov’t svcs. To allow GM to leave 4,500 workers and their families b/they believe
they can make these same cars a little cheaper somewhere else = gross inequity”
Notes:
 Damages: City seeking injunction: damages too difficult to assess – economic impact of not having plant.. lost jobs,
less dev’t, etc
o City can arg unjust enrichment for damages: then get back the tax abatement
o Injunction wanted b/keeping the plant is viewed as more imp than the tax money
o Can use land SP cases and unique goods cases to arg for SP
Court of Appeals MI (1993): PE only applies when there is a actual, clear and definite promise. In this case there was
no promise – “the mere fact that a corp solicits a tax abatement and persuades a municipality w/assurances of jobs can’t be
evidence of a promise” GM used “hyperbole and puffery” and the board members were aware that GM had not made any
promises. Reversed.
2.
Reasonable reliance
Elvis Presley! Promise was revoked before  relied = not detrimental reliance, no PE
Alden v Vernon Presley (TN. 1982) pg 846
Facts: Presley promised Alden (mother of his gf, unhappy in marriage) that should she divorce her husband, he would take
care of all the expenses incurred in the divorce proceedings. Relying on these promises, she filed: settled w/her husband for
his share of the P, and took on the full mortgage. Presley died suddenly and his estate informed Alden that they would not
pay the mortgage debt. For reasons,  had to refile for her divorce and it was later granted, the ct approving the P
settlement
Limits of PE (Simpson, Law of K): 1. detriment suffered in reliance must be economically substantial; 2. the loss to the
p’ee must have been foreseeable by the p’or 3. p’ee must have acted reasonably
Holding:  did not rely on the promise b/ her divorce petition was filed after being told that Presley’s estate wouldn’t pay
the mortgage.
 The P settlement was not binding on the  until approved by the ct. After being told the promise was revoked, she
could have cancelled the settlement and thus avoided the “detrimental reliance”
 ’s reliance on the promise after it was revoked was not reasonably justified
Notes: Tie w/Drennan and Star paving: arg’d that there’s a duty to mitigate damages
 Ct points out that  has been made better off w/her association w/Presley. So what is the baseline w/which we can
measure whether the  is better off from knowing him but worse off from this instance
o Limit scope to immediate effects and immediate reliance
Jae Park–- Finklestein Fall 2002
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3.
Injustice of Nonenforcement
Confidentiality? Min: enforcing under PE would violate press’ 1st Ad rights. US: PE ia law of general applicability, press not shielded.
Minn: then need to award under PE, to prevent injustice.
Cohen v Cowles Media Co (Minnesota. 1990) pg 851
Facts:  approached journalists working for s and stated “if you will give me a promise of confidentiality, the I’ll furnish
you with the documents [re a gubernatorial candidate].” Both promised to keep his ID confidential. Their editors later
decided to break their reporter’s promises and publish the story w/Cohen names as the source. Cohen was fired from his
job (as part of the election campaign for the opposition) and was character-assasined in the press.
Holding:
o Issue of Fraud: no fraud here by reporters, b/they intended to keep their promises. Therefore no tort claim of
fraudulent misrepresentation, therefore no punitive award
o Issue of K: no contract, in journalism – journalists and sources don’t ordinarily believe they’re engaging in making a
legally binding commitment. Can interpret Cohen’s agmt to be a donation w/a condition: and the conditions don’t
give anything back to Cohen = no consideration
o Issue of PE: reporters expected that promise to induce Cohen to give them the docs they wanted, he did, and b/they
broke the promise, he lost his job
 : any state imposed sanction violates the 1st Ad rights to free press and free speech
 under PE analysis must balance the 1st Ad rights of the press against the common law interest in protecting a
promise of anonymity
o conclude that in this case (considering the nature of the political story), enforcing the promise under PE would
violate ’s 1st Ad rights
US Supreme Ct (1991) Justice White: the info sought to be published must have been lawfully acquired. The press
doesn’t have free reign to do whatever it wants to get its story – has no special privilege to invade the rights and liberties of
others
o PE is a law of general applicability – 1st Ad doesn’t forbid its application to the press
 ct makes a distinction btwn 2 kinds of laws – a law that target’s yr 1st Ad rights and a law whose incidental
effects burdens 1st Ad rights
 Ex: following the copyright laws, criminal laws, incidentally burdens the freedom of the press, but doesn’t
violate press’s 1st Ad rights …… 1st Ad doesn’t allow an absolute freedom to the press, necessary restrictions
st
o 1 Ad doesn’t confer on the press a constitutional right to disregard promises that would otherwise be enforced under
state law
o Supreme Ct of Minn needs to do a PE analysis
Supreme Ct of Minn on Remand (1992): PE applies and Cohen is entitled to damages
 Promise? Check. Reliance? Check. Injustice?…. See below
 Issue of injustice: the test isn’t whether the promise should be enforced to do justice but is it req’d to prevent an
injustice.  There was no compelling need for the papers to use Cohen’s name.
 Issue of damages: “for PE, damages granted for breach are limited to those that justice requires” affirm juries award of
compensatory damages.
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IV
PERFORMANCE
IMPLIED DUTY OF GOOD FAITH PERFORMANCE
Goldberg Corp v Levy Percentage rental agmt, diverted business. Diverting business = direct violation of good faith and fair
dealing.
Mutual Life Insurance v Tailored Woman Furs to the fifth floor.  was just exercising its rights, no break of the covenant of fair
dealing
Restatement §205: Duty of Good Faith and Fair Dealing
UCC §1-203: Obligations of Good Faith
Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
UCC§1-102(3): “the obligations of good faith, may not be disclaimed by any agmt [inalienable rule] but the parties
may by agmt det the standards by which the performance of such obligations is to be measured if such standards are not
manifestly unreasonable”
Percentage rental agmt, diverted business. Diverting business = direct violation of good faith and fair dealing.
Goldberg Corp v Levy (Supreme Ct of NY. 1938) pg 877
Facts:  rented out space from : lease stipulated a monthly rent + 10% of the gross receipts of the business conducted by
the tenant on the leased premises, and should the total gross sales for any year not equal $101k, then the tenant has the right
to cancel the lease. Sales dropped below $101k and  after giving notice, moved out and refused to pay rent
: s willfully mismanaged the business and willfully diverted business from this premise to another store so that sales
would dip below $101k.
Holding: The tenant promised to pay rent measured in part by a percentage of gross receipts = tenant made promise to use
reasonable efforts to bring profits into existence. Diverting business was a direct violation of the covenant of good faith
and fair dealing which exists in every K
Notes:
 Is ct interpreting the language of the K to find this implied covenant OR are they just reading into it?
o W/o the implied covenant, the 10% clause is worthless – ct interpreting in, consideration
 Beautiful idea of Ks
Furs to the fifth floor.  was just exercising its rights, no break of the covenant of fair dealing
Mutual Life Insurance Co v Tailored Woman (NY App. 1955) pg 879
Facts:  leased space to  for the sale of women’s things. Rent included a fixed min annual rent + 4% of the gross
receipts in excess of $1.2mill/yr. Couple yrs later,  leased more space to  [5th floor], this one w/o an obligation to pay a
percentage on sales.  then moved the sale of furs to the 5th floor.
Holding:
 Those fur sales that were made by salesppl on the lower floors were made “from” the main store and are subject to
percentage rent
 But other than that there’s nothing in the lease that forbad the moving of the fur dept – the  had the right to sell
women’s apparel in any part of the bldg. “ was merely exercising its rights”, didn’t break any covenant of fair
dealing
Dissent (Burke): implicit in any percentage rental agmt is that the tenant has an obligation to conduct its business
w/regard for the landlord’s interest in the tenant’s gross receipts. By moving the furs to the 5 th floor,  deprived  of a
substantial portion of the “fruits of the K” – amts to a diversion of business
Note: issue of ct interpretation: implicit in contract or just completely reading in
 tend to assume that parties are mutually disinterested in the other party’s welfare, but this doctrine of good faith, cts are
making the party’s care
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IMPLIED AND EXPRESS WARRANTIES
Step Saver Data Systems v Wyse Technology Computer terminals. Didn’t violate WOM, not enuf evidence for WOF.
Royal Business Machines v Lorraine Corp Royal copiers are the best Certain statements could be WOF, but issue of reliance
depends on buyer’s growing awareness.
K law supplies some warranties by default. 2 are the implied warranty to merchantibility and the implied warranty
of fitness for a particular purpose. Parties may contract around.
UCC §2-314: Implied Warranty: Merchantibility; Usage of Trade
1.
2.
unless excluded or modified, warranty of merchantibility is implied in all Ks for sale of goods
goods to be merchantible must [req’s]
a. pass w/o objection in the trade
b. if fungible, are of fair and ave quality w/in the description
c. are fit for ordinary purposes
d. even kind, quality, and quantity w/in ea unit
e. are adequately contained, packaged, and labeled
f. conform to the promises/affirmations made on the container or label
UCC §2-714: Implied Warranty: Fitness for Particular Purpose
[1] Where seller has reason to know of the specific purpose the goods are req’d for,
[2] buyer is relying on the seller’s skill/judgment to select/furnish suitable goods
UCC §2-714: Buyer’s Damages for Breach in Regard to Accepted Goods
Difference at the time and place of acceptance btwn the value of the goods accepted and the value they would’ve had if
they had been as warranted = diff in market value btwn defective goods and nondefective goods
Computer terminals. Didn’t violate WOM, not enuf evidence for WOF.
Step Saver Data Systems, Inc v Wyse Technology (USDC ED PA. 1990) pg 896
 Warranty of mechantibility: fitness for the ordinary purposes for which goods are used
o UCC §2-314(2) reqs for goods to be merchantable: goods must be “of reasonable quality w/in expected
variations and for the ordinary purposes for which they’re used”; acceptance in the trade is a barometer for
determining whether a product is merchantible; goods must be adequately packaged, contained and labeled
and must conform to the promises on the label
 Warranty of fitness for a particular purpose: narrower, more specific, more precise. Reqs:
o Seller must have reason to know the buyer’s particular purpose
o Seller must have reason to know that the buyer is relying on the seller’s skill/judgment to furnish the
appropriate goods
o Buyer must rely on the seller’s skill/judgment
Holding:  has not shown a breach in the either the implied covenants of warrantibility or fitness
 Merchantibility: No evidence from Step Saver of any defect in packaging or unu variations in quality. Wyse however
introduced evidence that showed millions of the computers have been sold and ea was passes a 2 part testing program
 Only defect  alleges is incompatibility w/specific software = a specific claim that deals w/fitness
 Fitness: in order to prove,  has to show that  was aware of how Step-Saver’s specifically planned on using the
Wyse terminals.  failed
Note: but step saver failed to show that wyse was aware of the specific applications: could’ve shown by including in K
and that they relied on the seller’s skill and judgment to select/furnish suitable goods
Jae Park–- Finklestein Fall 2002
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Royal copiers are the best Certain statements could be WOF, but issue of reliance depends on buyer’s growing awareness.
Royal Business Machines, Inc. v Lorraine Corp (US App 7 th Cir. 1980) pg 900
Facts: Lorraine Corp bought plain paper copiers from Royal Business Machines. Lorraine alleges that RBM made
representations that created express warranties.
Holding:
 Statements that are not express warranties:
o sellers opinion, puffery expected in any sales transaction (that the machines and their components are high
quality and that buying the machines will bring  substantial profits)
o claims lacking specificity of an affirmation of fact on which a warranty can be based, statement of seller’s
opinion (that the frequency of repairs is very low)
 facts that don’t relate to the goods sold and so no express warranty to which the goods were to
conform (that replacement parts are readily available and that the future costs of supplies are ½ cent
per copy)
o statements that could create express warranties:
o UCC §2-313; not only a statement of fact, but one that fact that forms the basis for the bargain
 statements of fact that relate to the goods (assertion that the machines could not cause fires and that
the machines were tested and ready to be marketed)
 expressions of future capacity or performance (that maintenance cost for the machine would run ½
cent/copy and that svc calls would be req’d every 7 to 9k copies)
 issue of reliance: must take into acct that the transaction took place over a period of 18months. During that time, ’s
knowledge of the capacities of the products must have expanded and therefore s representations may not have been
the basis for purchasing (as they were before) – issue for remand
 ct must also consider whether the machines were defective upon delivery – that’s when breach occurs, and not if the
goods later become defective
UCC §2-313: Express Warranties by Affirmation, Promise, Description, Sample
1.
2.
V
express warranties are created when
a. seller makes any affirmation of fact or promise that relates to the goods and becomes part of the basis of the
bargain – goods must conform to the description
b. any description that is made part of the basis of the bargain
c. any sample/model that is made part of the basis of the bargain – goods will conform to sample/model
not nec that the seller use formal words such as “warrant” or “guarantee”
BREACH
When is a party entitled to end a contract?



Anticipatory Breach
Constructive Conditions:
o condition of a K: something that needs to occur before performance under a K is due
o ex: insurance K that insures home against fire. Insurance co doesn’t have to pay you unless there is a fire.
Fire is a nec condition for the insurance co’s duty to pay
o Restatement §224: def of condition:
o If a condition hasn’t been satisfied – can breach
Material Breach
o If the other party has failed to live up to the K in some way, and that failure constitutes a material breach, then
you don’t have to perform yr part of the K
o Not every failure is a material breach – minor failures won’t break a K b/the other party has “substantially
performed”
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ANTICIPATORY BREACH
Harrell v Sea Colony Sale of condo cancellation request. It was either a mutual rescission or Sea Colony anticipatorily breached.
Anticipatory Repudiation: if before the time for performance arrives, the other party indicates that she does not intend to
perform and thereby “repudiates” the K. anticipatory b/it happens before performance is due
 if one party knows the other wants to breach, may be able to mitigate her damages now w/o waiting for the actual
breach
 can arg anticipatory breach is efficient
 problem: how do you know the other party is trully going to breach?
UCC §2-610 Anticipatory Breach
When either party repudiates the K w/respect to a performance not yet due, the aggrieved party may
(a) await performance by the repudiating party
(b) resort to any remedy for breach
(c) or suspend her own performance
UCC §2-611: Retraction of Anticipatory Repudiation
Can retract a repudiation at any time before the repudiating party’s next performance is due unless the aggrieved party has
since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation
final
Sale of condo cancellation request. It was either a mutual rescission or Sea Colony anticipatorily breached.
Harrell v Sea Colony (Maryland App. 1977) pg 957
Facts: By written K,  Harrell agreed to buy and  agreed to sell a condo. Harrell put down a the deposit called for by the
K.  sued for alleged anticipatory breach
: s had repudiated the K and sold the condo unit to another buyer for more than the K price. Claimed damages of the
deposit and the diff btwn the K price and the amt which the unit was sold to the other buyer
:  anticipatorily breached first – asked to get out of the K and suggested that they could resell it for more profit.
 Facts: Harrell signed a cancellation request on the condition that his deposit be returned. s then resold the unit for 7k
more than the K price. 5 days after resell, sent  letter accepting the cancellation request but keeping the deposit.
Holding: Issues for remand: det whether there was a mutual recission effected by the words and conduct of the parties or if
Sea Colony anticipatorily breached first (2 possibilities are mutually exclusive).
o Sea Colony unilaterally attempted to convert Harrell’s request for a mutual recission to an anticipatory breach or
repudiation on his part. A mere request for a change in the terms or a request for cancellation is not enuf to
constitute a repudiation.
o Harrrell didn’t anticipatorily breach first – “refusal to perform must be positive and unconditional”
Notes: 2 questions: was it a mutual recission (damages = deposit) or an anticipatory breach
 if sea colony anticipatorily breached, damages would be deposit (reliance), diff btwn market price and K price – what
Harrell would have to pay if he were to find another condo like this one
 b/land has already been sold to someone else and other person is in poss’n: then ct could grant injunctive relief
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CONSTRUCTIVE CONDITIONS
Jacob & Youngs v Kent “Reading Pipe” Mistake was fraudulent or willful, damages = nominal.
“Reading Pipe” Mistake was fraudulent or willful, damages = nominal.
Jacob & Youngs v Kent (NY App. 1921) pg 974
Judge: Cardozo
Facts: s built a residence for the . Stipulated in the K was the condition that all wrought iron pipe must be “Reading”
pipe.  discovered that some of the pipe used was not Reading and directed s to do the work again. B/the plumbing was
already in the wall, redoing the work meant demolishing substantial parts of the completed structure.  refused.  refused
to pay.
Holding: The mistake wasn’t fraudulent or willful. Measure of damages is not the cost of replacing the pipes, but the diff
in value, which would be nominal or nothing.
 B/the diff in value and cost of the brand they used and Reading are so small, the defect was insignificant in its relation
to the project
 Typically the owner is entitled to the money which will permit him to complete unless the cost of completion is
grossly and unfairly out of proportion to the good to be attained. Then the measure of damages is the diff in
value.
o Compares the failure on the part of the  to the overall size of the K; the failure was a very small part of the overall
K  then in essence they’ve lived up to the K, substantial performance
o Cardozo makes a distinction btwn dependant and independent promises:
 If the promise to use reading pipe is an independent promise, there is no condition, b/the promise to pay is not
conditional on the pipe
 In other words, s substantially performed on the K
 If it is a dependant promise, then the promise to pay is conditioned on the use of the reading pipe
 In other words, s materially breached
Dissent, Mclaughin:  did not perform its K. The  had a right to K for what he wanted. He had a right before making
payment to get what the K called for.
 What if s knew about the pipe mistake, but willfuly disregarded?
o Doctrine of substantial performance may only apply when mistake was not made willfuly or
fraudulently.
 s were grossly neg’t and that neg’ce approaches willful disregard for the K, therefore substantial performance not
applicable
Notes: Can arg that specifying “Reading” is only to specify the quality of the pipe that must be used and not as a restriction
to using only that type of pipe. Industry norm to use “Reading” generally
 How to get evidence in – parol evidence rule: arg agmt is only a partially integrated agmt and in any event, the
evidence is to interpret the terms of the K
On Motion for Rearg: the promise to replace the defective work is to be viewed not as a condition but as independent and
collateral when the defect is trivial and innocent
MATERIAL BREACH
Ramirez v Autosport: Camper van. Van never conformed to K,  never cured defects, s entitled to cancel K
a breach of contract that is so substantial that it defeats the purpose of the parties in making the contract and gives the
nonbreaching party the right to cancel the contract and sue for damages = question of fact




a party has substantially performed (performance of the essential terms of the K) unless her performance constitutes a
material breach (a substantial breach of K). Only if the breach is material does it relieve the nonbreaching party of its
duty to perform under the K
Party is no longer confident that she will recv the “future performance” she is due under the K, therefore the p’ee
wished to cancel the K and pursue other measures to secure performance
Anticipatory breach: p’ee’s lack of confidence in future performance stems from the p’or’s having communicated a
lack of willingness to perform
Material breach: lack of confidence stems from the nature of a breach that has occurred
Perfect Tender Rule: Cure and Rescission
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Seller has a duty to make “perfect tender” and buyer has the right to reject goods that don’t conform to the K (Ramirez) –
refer only to sale of goods.
In sale of goods, substantial performance isn’t good enuf (Ramirez)
UCC §2-106 (2): goods conform to the K when they’re in accordance w/the obligations under the K.
 Buyer can reject goods if they or the tender of deliver fail to conform to the K
 Harshness mitigated w/provisions for revocation and acceptance of cure

Before goods are accepted: (rejection) buyer may reject for any nonconformity (any minor defect). Seller has right
to cure (so buyer’s rejection doesn’t necessarily terminate the K) = seller’s second chance.
o During the time set for performance in the K  seller’s right to cure is unconditional
 Recognizes that parties should be encouraged to communicate w/ea other and resolve their own
problems
o After set time  seller has more reasonable time if she reasonably believes that the goods would be
acceptable w/ or w/o a money allowance
o BoP on seller to show the nonconformity was corrected

After acceptance: (revocation of acceptance) buyer may revoke if the nonconformity substantially impairs the value
of the goods to him (substantial impairments)
o Protects the seller from revocation for trivial defects. And prevents the buyer from taking advantage of the
seller by allowing the goods to depreciate and then returning them
o BoP on  to show defect
Rejection of goods = buyer’s refusal to accept or keep the goods
Revocation of acceptance: like rejection but occurs after the buyer has accepted the goods
o same relief as rescission of a K of sale of goods


UCC §2-508: Cure by Seller of Improper Tender/Delivery; Replacement
1.
rejection for nonconforming goods and time of perf not expired  seller may notify buyer of intention to cure, and
then make a conforming delivery w/the K time
UCC §2-601: Buyer’s Rights on Improper Delivery
a) reject the whole OR
b) accept the whole OR
c) accept any commerical unit (s) and reject the rest
UCC 2-602: Manner and Effect of Rightful Ejection

rejection must be w/in a reasonable time after their delivery/tender, buyer must seasonably notify (etc..)
UCC §2-606: What Constitutes Acceptance of Goods




when after a reasonable opportunity to inspect the goods, the buyer signifies to the seller that she’ll keep ‘em OR
when buyer fails to make an effective rejection OR
when buyer does any act inconsistent w/the seller’s ownership
acceptance of a part of any commercial unit is acceptance of that entire unit
UCC §2-608: Revocation of Acceptance in Whole or in Part

can revoke when non-conformity substantially impairs value to her, must occur w/in a reasonable time after the buyer
discovers/should have discovered the defects and before any substantial change in condition of the goods which is not
caused by their own defect
UCC §2-711: Buyer’s Remedies In General;



Where seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance
can cancel and recover the price that has been paid
o “cover” and have damages
o recover damages for non-deliver
where the seller fails to deliver or repudiates, the buyer may also
o recover the goods OR obtain SP or replevy the goods
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Camper van. Van never conformed to K,  never cured defects, s entitled to cancel K
Ramirez v Autosport (NJ. 1982) pg 999
Facts: s were interested in a camper from  dealer, agreed on sale, and traded in old van. On set delivery date, s went
to go pick it up and found several defects, gave  more time, went back and found that the windows were left open and the
insides were soaked. We’re told the camper was ready, waited in showroom for 1 ½ hrs. Then s went back w/an atty and
asked that their trade-in be given back to them.  subsequently sold it. s sued for rescission of the K,  countersued for
breach of K
Holding:  didn’t cure the defects, van never conformed to the K, s were entitled to cancel the K
Notes: Perfect tender rule applies to sale of goods – goods must be in perfect condition, in exactly the condition called for
by the K and not in approximate condition
 Very diff from construction K – in sale of goods, substantial performance isn’t good enuf
 Why should sale of goods be special? Fink – not clear.
UCC §711: Buyer’s Remedies: has a right to cancel the K and in addition can recover whatever she’s already paid, cover
and get damages
DURESS
Hackley (Δ) v. Headley (π)
Facts: π dropped off some logs for Δ, and Δ gave a price that was a lot lower than the actual value of the logs. Π
Austin Instrument v. Loral
Facts:
COST OF COMPLETION V. DIMINUTION IN VALUE
Groves v John Wunder Co Sand and gravel “at uniform grade.”  breached willfully,  awarded cost of completion.
Peevyhouse v Garland Coal Mining Co Remedial coal mining work. Breach incidental to the whole K & economic waste if award
cost of completion –> award Dim in value
Restatement §348: Alts to Loss in Value of Performance
1) if a breach results in defective/unfinished construction and the loss in value to her isn’t proved w/sufficient certainty,
she may recover damages based on
a. diminution in market price caused by the breach OR
b. reasonable cost of completing performance OR of remedying the defects if that cost is not clearly
disproportionate to the probable loss of value to her
Sand and gravel “at uniform grade.”  breached willfully,  awarded cost of completion.
Groves v John Wunder Co (Minn. 1939) pg 1011
Facts:  Groves leased land to ,  agreed to remove the sand and gravel and leave the P “at a uniform grade” like it was.
 breached the K deliberately – took the best gravel from the land and failed to leave it in the condition it promised. The
cost of completing ’s performance ~ $60k, the increase in value of the P from having the work done ~ couple hundred
dollars.
: entitled to the reasonable cost to him of doing the work that  didn’t perform
:  only entitled to recover the diff of value of the 2 states of the P
Holding:  is entitled to compensation for what he has lost – the work/structure which he was promised. s are liable to
 for the reasonable cost of doing what s promised to do and have wilfully declined to do
 To diminish the recoverable damages to the value of land would reward the faithless contractor (his breach was willful)
Dissent: if the K were performed, the  would have P worth $12k, if he is awarded damages of $60k, then he’ll rec’v
500% more than his P was worth when the breach occurred
 Trouble w/opinion is that ’s loss isn’t the basis for the amt of his recovery, but rather what it would’ve cost the 
Notes:
 What is the expectation measure of damages
o What position would  have been in if the K if had been performed – he would have had the land at level
grade, but then can arg if the K had been performed then he would’ve had land worth $x, so give him an amt
of money to bring his financial condition up to that level
 Specific performance v damages: shouldn’t it be SP b/this concerns land?  went for money damages of course,
damages worth more than what the performance was worth to the 
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



Re ’s defense of substantial performance: there was only a small diff btwn what the K calls for and what  actually
did. Then treat damages for that failure as separate from the rest of the K – in Jacobs v Kent awarded the diff in value
from Reading pipes and the pipes actually used. So here, then award diff as damages. BUT  breached willfuly 
substantial performance doesn’t apply
Holding is arguably inefficient:  has to expend 60K or that much worth of effort for only a small increase in value of
the land
Issue of subjectivity of value: who’s to say that it isn’t worth it to spend 60k to fix the land – may be worth more that
that to . Can K for something that’s not efficient in the monetary sense, but is worth it to the . Beautiful idea of
Ks. Arg this is a beautiful K and ct should enforce it a such.
Suppose hire a contractor to do some work. Work not costly, but the repairs make the house much more valuable.
Work cost 5k, change in value 100k
Remedial coal mining work. Breach incidental to the whole K & economic waste if award cost of completion –> award Dim in value
Peevyhouse v Garland Coal Mining Co (Okla. 1962) pg 1017
Facts: s leased their P to s for coal mining purposes.  agreed to perform certain restorative and remedial work at the
end of the lease period, work would cost $25k.  performed everything in the K except the remedial work.
: True measure of damages is diff in the market value before and after the work was performed. The remedial work
would’ve only increased the value of the land by a couple hundred bucks – so award that b/that’s all s lost
Holding: B/the provision breached was incidental to the whole K and the economic benefit from full performance is
grossly disproportionate to the cost of performance – damages are limited to the diminution in value resulting from nonperformance
 Restatement §348: cost of performance to calc damages if possible and doesn’t involve unreasonable economic
waste. Diminution in value caused by the breach is the proper measure if completion in accordance w/the K would
involve unreasonable economic waste
o Ie: Owner is entitled to money that will allow her to complete unless the cost of completion is grossly and
unfairly out of proportion to the good to be attained. Then measure of damages is the diff in value.
 John Wunder Co: is the only case they know of where the cost of performance rule was followed where the cost of
performance greatly exceeded the diminution in value resulting from breach of K
Dissent: ’s breach was willfull, in bad faith, can’t arg substantial performance. ’s testified that they wouldn’t have
entered into the K unless the provisions for remedial work were included. Parties entered into it knowing that the cost of
performance might be disproportionate to the value or benefits rec’d by  for the performance
 s reaped the benefits of the K and now urge that the s benefits be denied. s should have been entitled to SP,
alternatively damages for the cost of performance
DEFENSES
Unconscionability
Mistakes of Present Existing Facts
Changed Circumstances
Once you turn to the defenses, then assume all the other elements of the K are satisfied:
 go to defenses ONLY AFTER ascertaining all the elements of the K are present. Discussion on defenses come after all
other discussions
a) Bargain for exchange? Check.
b) Clear offer and acceptance? Check.
c) Breach? Check.
Question: does the party in breach have a reason that makes the breach OK?


problems w/considering that possible defenses are implied conditions in the K – were these terms agreed upon by the
parties?
Therefore defenses are treated as completely different than the actual K
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UNCONSCIONABILITY (A MORAL CONCERN)
Williams v Walker-Thomas Furniture Furniture credit scam. Cts can refuse to enforce Ks that are unconscionable.
UCC §2-302: Unconscionable K or Clause (also look at Restatement §208)
(1) if the ct finds the K or any clause to be unconscionable at the time it was made, ct may refuse to enforce, or it may
enforce the remainder of the K w/o the unconscionable clause or it may limit the application of the clause to avoid an
unconscionable result
Comments: Look to K or K term for setting, purpose, and effect.
Consider contractual capacity (Williams)
o Gross inequality of bargaining power together w/terms unreasonably favorable to the stronger party
 when a party w/little bargaining power and hence little real choice signs a commercially
unreasonable K w/little or no knowledge of its terms, hardly likely her consent was ever given to all
the terms
o Fraud
o Other invalidating causes: Gross disparity in the values exchanged
 remedies: denial of SP, policy is not penal
 If a K is unreasonable and unconsionable, but not void for fraud, the party suing for breach will award
damages only as the party is equitably entitled to (Williams)
 no def of conscionability
 Legal standard seems to be to give cts free leave to det whether a clause is unconscionable and what to do w/the clause
Traditional test: “such as no woman in her senses and not under delusion would make on the one hand, and as no honest
or fair woman would accept on the other”
Cts take 2 approaches to unconscionability


formal approach: look at the terms of K, attempt to det if the parties actually knew of the terms they were agreeing
to, just look at the circumstances surrounding the K
substantive approach: more paternalistic, looks at s situation
o retricts the freedom of K, and overrulling the “beautiful idea of Ks”
Furniture credit scam. Cts can refuse to enforce Ks that are unconscionable.
Williams v Walker-Thomas Furniture Co (DC app. 1965) pg 1131
Facts:  operates a furniture store and offers a payment installing plan the terms of which were contained on a K: title on
ea purchase remains w/ until the total balance due on all items is zero, in default  gets to repossess all items. One of the
s defaulted on payment and  repossessed all items purchased w/in the last 4 yrs.
Holding: Enforcement can be refused if the K is found to be unconcionable.
 If a K is unreasonable and unconsionable, but not void for fraud, the party suing for breach will award damages only as
the party is equitably entitled to
 UCC §2-302: ct may refuse to enforce a K which it finds to be unconscionable at the time it was made
 When unconscionable: (a) absence of meaningful choice on the part of one the parties together w/K terms that are
unreasonably favorable to the other party (b) manner in which the K was entered
o in effect ct is rewriting the K – how to construe the K w/o the clause, most obvious soln, let payments be
bunched so that some items can be paid off
o Look at the circs existing when the K was made
Dissent: s seemed to know exactly where they stood; takes a laissez-faire approach: let the parties contract, freedom of K
Notes: tho immoral behavior, how can cts det that the K is uneforceable – should cts be in the business of policing parties,
acting paternistically
 suppose: The clause said that in addition to forfeiting the items, have to also forfeit all yr personal belongings. Clear
proof that she knew what she was signing and that she believed she would be able to pay it off – no formal concerns.
Void K based on substantive concerns only?
 Can arg the clause is punitive and therefore unallowable
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FAILURE OF A BASIC ASSUMPTION
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Impossible to account for every possible aspect of a K, therefore contain “untold numbers” of silent assumptions
Mutual Mistakes
Sherwood v Walker Replevin for a cow. Mistake went to the whole substance of the agmt, no K
Restatement §151: Mistake Defined: a mistake is a belief that’s not in accord w/the facts
Comment a: mistake is a erroneous belief that relates to the facts as they exist at the time of making the K.
Default rule – parties can K around
Restatement §152: When Mistake of Both Parties Makes a Contract Voidable
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Where the mistake of both parties was made on a basic assumption on which the K was made has a material effect on
the agreed exchange of performances, party adversely affected party can void K unless she bears the risk.
Relief = reformation, restitution, or otherwise
Restatement §154: When a Party Bears the Risk of a Mistake:
a) the risk is allocated to her by agmt of the parties OR
b) she is aware that she has limited knowledge of the facts, but acts like her limited knowledge is sufficient (conscious
ignorance) OR
c) the risk is allocated to her by the ct on the ground that it’s reasonable in the circs
Restatement §158: Relief Including Restitution:
either party may claim relief including restitution, ct may grant relief as justice requires including protection of the parties’
reliance interest
Replevin for a cow. Mistake went to the whole substance of the agmt, no K
Sherwood v Walker (Mich. 1887) pg 1166
Facts:  contacted s about purchasing a cow, agreed upon terms, got sale in writing.  went to pick up the cow, and 
refused to deliver.  gave money,  refused to take the money or deliver the cow.  brought suit and replevin’d the cow.
: at time of sale, both parties believed the cow was barren = basic assumption on which sale was based. After she was
sold, found out that she was prego
Holding: The mistake went to the whole substance of the agmt (the cow wasn’t the animal that the s intended to sell, or
the  to buy) – therefore no K, and s had a right to rescind.
 K can be broken if it was made upon a mistake of a material fact – such as the subject matter of the sale, the
price, or some collateral fact materially inducing the agmt – if the mistake was mutual.
 mistake to the root of the K, not just some point
Dissent: There was no warranty of the quality of the animal, no conditions were attached to the terms of sale by either
party – ea party took their chances.
Notes: Both parties thought the cow was barren, and therefore both made a mistake
 Ct: the mistake was one of a material fact (examples of material fact: subject matter of the sale, the price, or some
collateral fact materiallly inducing the agmt – voids K when mistake is mutual)
 Ct makes a distinction btwn 2 kinds of mistakes:
o one of material fact
o one of incidental concern – not fundamental to the thing being discussed. don’t void the K.
 Arg: if there’s a mutual mistake, there was a meeting of the minds; if there’s a unilateral mistake, like Peerless no
meeting of the minds
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Unilateral Mistake and the Duty to Disclose
Tyra v Cheney Differing oral and written offers. If  was aware of the mistake in ’s bid, then no K
Drennan v Star Paving Co Subcontractor w/mistake in his bid. Contractor had no reason to know  had made a mistake, K
enforced.
Laidlaw v Organ Peace treaty! Buyer had no duty to disclose; the peace treaty didn’t affect the terms of the K
Unilateral mistakes don’t ordinarily void Ks
Restatement §153: When Mistake of One Party Makes a K Voidable
When mistake of one party is made as to a basic assumption, the K is voidable by her (is she doesn’t bear the risk of the
mistake §154) and (a) enforcement of the K would be unconscionable (tho unconscionability is always available as an out.
Look at §208 – any K is voidable if unconscionable, but could be addressing circs where the unconscionability comes about
b/of the effect of the mistake) OR (b) the other party had reason to know of the mistake or her fault caused the
mistake
 Note: if unilateral mistakes always voided Ks, then would be an incentive to put in an incorrect clause in a K to give
the person an out at a later time
Differing oral and written offers. If  was aware of the mistake in ’s bid, then no K
Tyra v Cheney (Minn. 1915) pg 1193
Fact:  offered a bid on the roofing and sheet metal work req’d in ’s K, gave  an oral estimate of $4025, but in the
writing left out an item for $963.  denies ever rec’ving any estimate other than the written one and will pay for only the
amt in the written K.
Holding: Issue of bad faith. If  was aware of the mistake in ’s bid,  had no right to claim that their minds had met
on the wrong price = failure to enter a binding K. Expectations damages can’t be awarded, b/no breach of K, no reliance
 Expectations damages can’t be awarded, b/no breach of K, no reliance
 When there’s a mistake and the ct voids the K, isn’t finding that there was a breach, but that there is no more K and ct
will try to det the fair value of the party’s work – restitution
 BoP on  to show that when  ordered  to proceed w/the work, that it was done w/knowledge of the mistake in the
written bid, and so if the written bid was not accepted in good faith, then  could recover the reasonable value.
Notes: follows Restatement §153(b)
Subcontractor w/mistake in his bid. Contractor had no reason to know  had made a mistake, K enforced.
Drennan v Star Paving Co (Cal. 1958) pg 1195
 Reminder: subcontractor put in a bid that was used in the contractors bid. Could the subcontractor be held to his
mistake in the bid – ct, yes. B/he made a mistake, gives extra incentive in enforcing the K b/he had a duty to make sure
his bid is correct
 If the general contractor was aware that there was a mistake, then wouldn’t be justified in relying on the incorrect bid.
But here, contractor had no reason to know  had made a mistake
 Decide that the loss should fall on party who caused the loss
 Where the defense of mistake works: the bidder’s mistake was known or should have been known to the offeree
Peace treaty! Buyer had no duty to disclose; the peace treaty didn’t affect the terms of the K
Laidlaw v Organ (US. 1817) pg 1197
Facts:  buyer, knew about a peace treaty ending the American Revolution and didn’t tell the  seller when purchasing
tobacco. Seller asked if there was any news that would affect the value of the tobacco buyer was purchasing. Buyer said
nothing, tho he knew that the peace treaty had shot up the value of the good.
: supression of material circs w/the knowledge of the buyer is fraud and cancels the K; one party knew of the peace
treaty, the other didn’t.
: parties can never be precisely equal in knowledge either of facts or of the inferences from such facts
Holding: Buyer was not obligated to give seller the news; “means of intelligence are equally accessible to both parties”
Notes: Not a mistake case, there was no material fact that any party is making a mistake about. The peace treaty info
affects the price of the good, but doesn’t affect the terms of the contract. The price was dependent on anything, the
price was set
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Restatement §160: When Action is Equivalent to an Assertion (Concealment): action intended or known to be
likely to prevent another from learning a fact is equivalent to an assertion that the fact doesn’t exist
Restatement §161: When Non-Disclosure is Equivalent to an Assertion that the Fact Doesn’t Exist: only
when
a) where she knows that disclosure is nec to prevent a previous assertion from being a misrepresentation or from
being fraudulent or material
b) where she knows that disclosure would correct a mistake of the other party as to a basic assumption on which that
party is making the K
c) where the other party is entitled to know the fact w/of a relation of trust and confidence btwn them
Baseball card case: A little boy card collector say a valuable baseball card marked 1200. The sales clerk rang it up for
$12. The owner of the store asked for it back, boy refused.
 Voided under 153 – kid knew
 How to prove that he should have known – capacity, level of knowledge
CHANGED CIRCUMSTANCES
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Later developments or changed circs after the formation of the K that diminish the utility of the K to one party
2 types:
o unforeseen increases in the cost of performance by one party – impossibility and impracticability
o reductions in the value a party attaches to the performance to be rec’d – frustration of purpose
Impossibility and Impracticability
Paradine v Jane A German prince kicked me off my land.  ought to pay his rent.
Taylor v Caldwell Burning theater hall. That the theater would be standing was an implied condition of the K, cuz it wasn’t, parties
are excused.
Restatement §261: Discharge by Supervening Impracticability: where, after a K is made, a party’s performance
is made impracticable w/o her fault by the occurrence of an event (where the parties assumed that the event would not
occur) she is no longer under a duty to perform
Restatement §263: Destruction, Deterioration, or Failure to Come into Existence of Thing Nec for
Performance: if these things happen, makes performance impracticable
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Test is whether or not the concert hall is necessary for the performance of the K
A German prince kicked me off my land.  ought to pay his rent.
Paradine v Jane (Eng. 1647) pg 1203
Facts:  was 3 yrs behind on his rent. : a German prince invaded his area, taking poss’n of his land and forcing him out
Holding: He ought to pay his rent.
 Where the law creates a duty or charge, and the party is disabled to perform it w/out any default in him, the law will
excuse her. BUT where the party by her own K creates a duty or charge to herself, she is bound to make it good.
o Ct distinguishes 2 diff kinds of duties: duties imposed by law and duties created by K
 in a K, duties are voluntarily assumed, parties can put clauses excusing them from performance in
these types of circs.
 In law – duties are imposed.
 Not modern approach – for modern approach look at taylor v caldwell
Burning theater hall. That the theater would be standing was an implied condition of the K, cuz it wasn’t, parties are excused.
Taylor v Caldwell (Eng. 1863) pg 1208
Facts:  agreed to let and s to rent a theater hall for some concerts. But the hall accidentally burned down. s suing for
cost of advertising their production and preparing for the show.
Holding: In Ks in which the performance depends on the continued existence of a given person/thing, a condition is
implied that the parties will be excused in case, before breach, performance becomes impossible from the unforeseen,
accidental (neither from party’s act, neglect) perishing of a person/thing before she is in default --- unless by some
stipulation she agreed to take on the risk.
o The theater hall having ceased to exist w/o fault of either party, both parties are excused
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Ex: a composer agrees to compose a work, but dies, are his executors then obligated to finish the work – of course not.
OR a painter was employed to paint a pic but is struck blind, performance excused.
o Implied condition of the continued existence of the life of the composer, painter’s eyesight – also applies to things
Note: But there is a loss – where should it fall?
 Fair? Deontological approach
 Contractual? What would the parties have bargained for if they had thought about it in advance (ct’s approach –
reading in an implied term)
 Welfare maximizing? Consider either dollars or utility (can arg this case either way)
 Ct reads in an implied clause that in the case of impossibility of performance b/a person or thing is “perished,”
performance is excused (implied condition of the continued existence of the person/thing) – contract is dissolved
(party was given back their deposit – just can’t sue for their expectation interest)
o
Frustration of Purposes
Krell v Henry A window for a coronation procession. Coro pro was the foundation of the K, both parties discharged from further
performance.
Foundation of the K (the whole reason for the K) disappears, thru no fault of either party  no more duty to further
perform (Krell)
 How to prove something was the foundation?
o Doesn’t have to be explicitly stated on the K
o Sufficient extrinsic evidence will do
A window for a coronation procession. Coro pro was the foundation of the K, both parties discharged from further performance.
Krell v Henry (Eng. 1903) pg 1220
Facts:  lessee saw an ad in the window of ’s flat that he was letting windows to view the coronation procession. 
signed up for 2 days, put down a deposit of £25, the remainder of £50 to be paid on “delivery”. The procession was
cancelled, and  refused to pay.
Holding:  was letting rooms to view the procession,  rented the rooms for the days of the procession – obviously the
purpose of the letting and renting was to view to the procession = both regarded it as the foundation of the K. The
procession was cancelled, not thru the fault of either party, both parties are then discharged from further performance of the
K.
o The condition or state of things on which is nec for the fulfillment of the K (foundation for the K) don’t need to be
expressly specified. Sufficient that it appears by extrinsic evidence that it was assumed by the parties to be the
foundation or basis of the K
Notes: Concern: if K is excused in this case, what would prevent other Ks from being excused simply b/outcomes aren’t
what you except
 Compare to taxi – take a taxi to the airport, flight is cancelled, don’t have to pay taxi? Can arg that the real purpose of
taking the taxi was to get to the airport and it performed. The flight wasn’t considered. .. here the room was let for the
only purpose of watching the coronation
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