Contracts Outline
Introduction
 most important statement in book according to Coenen – Llewellyn: The rule follows where its
reason leads; where the reason stops, there stops the rule.
 contract – agreement between two or more parties creating obligations that are enforceable or
otherwise recognizable
o elements of K – offer, acceptance, consideration
 elements of breach of K –
o must be a legally recognized K
o K must have been breached
 basic introduction to remedies –
o expectancy – puts plaintiff in situation would have been in if K fully executed
 *standard measure of damages for breach of K with consideration with
commercial contracts
o restitution – gives plaintiff any money conferred to defendant to further K
o reliance – puts plaintiff in situation would have been in if agreement never made
o Sullivan v. O’Connor – plaintiff went to defendant doctor to get nose job; instead of
making nose better, defendant actually made it worse
 plaintiff sues for breach of K claiming defendant breached in 2 parts –
 (1) defendant made nose worse rather than better
 (2) procedure took 3 surgeries instead of 2
 trial court granted plaintiff $622.25 (out-of-pocket costs) + disfigurement in
nose (change from original to worse) + pain and suffering from 3rd operation
 on appeal, damages requested –
 plaintiff asserts – what she received + expectancy of promised nose
(however would waive expectancy if court found for plaintiff)
 defendant asserts – only $622.25 (plaintiff’s out-of-pocket)
 court examines possibly remedies –
 expectancy – may be excessive to put value on expected nose (too
much strain on imagination of judge and jury)
 restitution – too meager (only covers initial expense to defendant)
 reliance – court says not opposed to allowing with doctor-patient Ks
 *court doesn’t have to decide between expectancy and reliance because of
circumstances of case, but suggests reliance may be more appropriate
damages awarded in non-commercial settings
 RATIONALE:
 with reliance – pain and suffering may be accounted for (Kaplan:
“when K calls for operation, person’s psychological and physical
recovery may figure into recovery)
 expectancy may be excessive
o cause of action was “little suspect” – no written K, plaintiff
just basing claim on defendant’s words; don’t know if doctor
actually made promise
o may well be thought harsh
o fee paid disproportionate to expectancy recovery
o **when doctor uses malice, typically award expectancy
 reliance damages may be more appropriate when expectancy damages
would prove too hard to gauge or no fair way of estimating expectancy
damages (Pond v. Harris)
 doctors can seldom make good faith promises; expectancy damages
may lead doctors to practice defensive medicine (not give therapeutic
promises) because don’t want to be held liable later
 reliance typical reward for med mal cases (pg. 40, footnote 4)
 was no Massachusetts precedence on point; precedence from other jurisdictions:
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favoring expectancy – Hawkins v. McGee (NH) – defendant was hired
as doctor to fix plaintiff’s hand; defendant made hand worse; court
awarded expectancy damages
 favoring reliance – Robins v. Finestone (NY) – court held generally
more lenient measure of damages to be applied to patient-physician K
o punitive damages are typically not allowed for in breach of K
 exception – independent tort involved
 White v. Benkowski – plaintiff sues defendant when defendant stops providing
promised water; court did not allow recovery of punitive damages because no
evidence of actual injury and only nominal damages awarded
 punitive damages are not allowable where there can be a finding of
only nominal damages from the evidence
 distinguish from Sullivan – psychological damages not foreseeable
with these circumstances
making agreements – an overview
o Embry v. Hargadine, McKittrick Dry Goods Co. – plaintiff employee brought lawsuit
because of alleged breach of employment K: plaintiff went to see defendant and told him
if he didn’t give plaintiff another 1-yr K, plaintiff would quit on spot; defendant told
plaintiff “go ahead, you’re all right, get men out and don’t let that worry you”; defendant
claims at this meeting he was very busy and told plaintiff to they would discuss it later
 if plaintiff’s version of facts were believed, contract as matter of law – K was
made if plaintiff, as reasonable man, understood K was made
 not necessary for both parties to understand K was made, only necessary
for one of the parties (if reasonable) to think K was made
o Lucy v. Zehmer – plaintiff and defendant discussing sale of piece of defendant’s land in
bar; defendant wrote out note to plaintiff and had wife sign it saying he agreed to sell
land to plaintiff for $50,000, title satisfactory to buyer; when plaintiff went back to
defendant to purchase land, defendant claimed it was all a joke and no K entered into
 plaintiff files suit seeking specific performance
 defendant says no contract was made: argues was too drunk (court rejects); was
all a joke (court rejects – defendant changed “I” to “we”, had wife sign); court
says even if defendant intended it to be a joke, still valid K because reasonable
person looking in from outside would see as real K
o needed for K – agreement based on consideration; becomes finalized when
reasonable man would agreement occurred between two parties
THEORIES OF OBLIGATION
Consideration
 consideration – something sought by promisor, given by promisee in exchange for the promise
 2 extremes when trying to determine consideration –
o donative promises – promisor, motivated by kindness or friendship, makes a future gift;
NO CONSIDERATION and therefore K not enforceable
o commercial exchange – promise clearly purchased for an economically equivalent price;
clearly CONSIDERATION and therefore K is enforceable
 RST (FIRST) OF CONTRACTS § 75
o (1) consideration for a promise is
 (a) an act other than a promise, or
 (b) a forbearance, or
 (c) the creation, modification or destruction of legal relation, or
 (d) a return promise
o bargained for and given in exchange for the promise
o (2) consideration my be given to the promisor or to some other person; it may be given
by the promisee or by some other person
 Fuller, Consideration and Form (pg. 50) –
o functions performed by legal formalities –
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evidentiary – provides evidence of the existence and claim of contract (satisfied
by having K in writing, notarized, etc)
 cautionary – acts as a check against inconsiderate (harmful) action
 channeling – communicates the facts in a formal way
o substantive bases of K liability
 private autonomy – law views private individuals as possessing power to
effect, within certain limits, changes in their legal relations
 reliance – breach of promise may work injury to one who changed his position
in reliance on expectation that promise would be fulfilled
 unjust enrichment – recognizes K should be upheld if one party is unjustly
enriched by the actions of another
 relation of form to substantive bases of K liability
o policies, “formal” and “substantive,” underlying requirement for consideration
 reasons for refusing to enforce gratuitous and unrelied-on promise –
gratuities do not present especially pressing case for application of private
autonomy; gift is a “sterile transmission:
 contractual archetype – the ½ completed exchange – ½ completed exchanges
harm non-breaching party by reliance and unjustly enriches breaching party
adequacy of consideration
o Hardesty v. Smith – seller sold rights to invention allegedly improving lamp to defendant;
defendant gives promissory note to seller who later gives it to plaintiff; lamp invention
didn’t work and defendant refused to pay
 consideration here – lamp invention
 courts don’t inquire into adequacy of consideration – if consideration is
made, promises must be kept by both sides even if one party later
determines his promise received to be worthless
 court ruled defendant couldn’t recover for breach of K, but could have asserted –
fraud, warranty, mistaken facts
gratuitous/gift promises – unenforceable due to lack of consideration
o Dougherty v. Salt – aunt of plaintiff left him promissory note for $3000 for “value
received”; once aunt died, plaintiff sued defendant executor of aunt’s estate for $3000
 court holds plaintiff cannot recover $3000 because no consideration – nothing
sought by promisor in exchange for $3000
 if aunt would have given $3000 in cash, couldn’t later sue to get it back (when
promise is actually given, it is made valid and cannot be revoked)
o Fuller would say – evidentiary satisfied (by written note); cautionary satisfied (aunt and
guardian talked for long time, used pre-printed form); reliance not satisfied; not
responsibility of court to enforce gratuitous and unrelied-on promises
conditional gift
o Maughs v. Porter – defendant advertised that all who came to his auction could enter
raffle to win new Ford free; plaintiff attended auction (without buying anything) and her
name was drawn; defendant refused to pay for car, plaintiff sues for $461 (price of car)
 consideration – plaintiff’s attendance at auction
 if plaintiff didn’t see newspaper advertisement but came to auction anyway, NO
consideration – plaintiff already gave “something” before knew about promise
 in case of doubt where the promisee has incurred a detriment on the faith of
the promise, courts will naturally be loath to regard the promise as a mere
gratuity and the detriment incurred as merely a condition (like reliance)
o Tramp HYPO – “kind man says to tramp, go around corner to clothing store and purchase
overcoat on my credit”; no consideration because man didn’t seek anything from tramp
 distinguish Maughs –
 benefit received – plaintiff’s attendance at auction (benefit to promisor
is not necessary, but helps point out when is consideration)
 evidentiary function – printed advertisement in newspaper
forbearance as consideration
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general rule – forbearance of legal right is sufficient for consideration if that
forbearance is sought/given in exchange for promise
o Corbin: two different views with forbearance being used as consideration –
 objective – only if claimant has reasonable ground for belief of justice in claim
 view that court in Springstead takes
 subjective – can be consideration when claimant had honest belief in claim
o Hamer v. Sidway – uncle Bill promises his nephew that he will give nephew $5000 once
nephew turns 21 if he refrains from smoking, drinking, etc
 is consideration – nephew gave up smoking, drinking, etc until he turned 21
(was sought by uncle Bill, given by nephew, in exchange for $5000)
 wouldn’t matter if nephew didn’t like smoking, drinking, etc because still giving
up something he has a legal right to do
 RST (SECOND) OF CONTRACTS § 81 – what is being bargained for doesn’t
have to induce the promise to count as consideration
 Glimore: case illustrates NY rejected bargaining theory of consideration
o Baehr v. Penn-O-Tex Oil Corp. – Kemp leases filling stations from plaintiff, hasn’t paid;
plaintiff alleges defendant took over Kemp’s businesses, assignment of leases; plaintiff
is suing for rents incurred under promise made by defendant that they would pay plaintiff
 court acknowledges promise, but need consideration for promise to be K
 argued consideration by plaintiff – forbearance of filing suit (court determines
convenience rather than consideration, plaintiff waited until back from vacation;
wasn’t given in exchange for promise to pay rents or sought by defendant)
o Neuhoff v. Marvin Lumber and Cedar – plaintiff’s windows were from defendant’s
company and were decaying; oral promise that defendant would provide free
replacement windows
 plaintiff alleges 3 considerations –
 (1) forbearance on legal claim (court rejects – although is a something,
defendant did not seek it in exchange for replacing windows)
 (2) time and labor expended assisting defendant in connection with
defendant’s promise to replace windows (court rejects because record
doesn’t support)
 (3) benefit defendant received to reputation by agreeing to replace
windows (court rejects because not every benefit is consideration)
o colorable claim doctrine –
 Springstead v. Nees – plaintiffs and defendants were brothers and sisters;
unbeknownst to parties, dad had put Atlantic Ave property in defendant’s name;
to avoid controversy, defendants said plaintiffs could equally split Sackett St
property; however, when plaintiffs sold Sackett St, defendants took their share
of the property; plaintiffs sue because of broken promise
 alleged consideration– forbearance on bringing suit over Atlantic Ave
(court rejects because plaintiffs never had right in Atlantic Ave– for
forbearance to count as consideration, claim must be doubtful,
colorful, or plausible)
 Hooker DISSENT – agrees with test used but says claim is colorful because no
one knew Atlantic Ave belonged to defendants until opening of box
 better chance for colored claim – if dad deeded Atlantic while in nursing home
illusory promise – mutuality of agreement required in bilateral contract
o illusory promise – apparent commitment that leaves free way out; not consideration
o mutuality – agreement of both parties to be bound in some way
o De Los Santos v. Great Western Sugar Company – plaintiff is beet hauler hired by
defendant beet grower for “such tonnage of beets as may be loaded by defendant
company until Feb 15”: defendant quits using plaintiff in December because no longer
needs his services
 court rules for defendant – no contract because founded on illusory promise
 no consideration – no something because defendant not obligated to do anything
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dates were just time frame in which defendant could use plaintiff’s
services if needed (defendant could terminate at any time)
o mutuality in employment contracts
 Weiner v. McGraw-Hill – plaintiff employee sues on breached employment K
claiming wrongfully terminated by defendant without just cause
 no mutuality – plaintiff could quit at any time but defendant couldn’t
fire plaintiff at any time – however, mutuality not required if some
other sufficient consideration
 consideration – plaintiff persuaded to leave past employer with promise
of no firing without just cause (was stated on employee application);
plaintiff rejected other offers because of reliance on promise
 with employment, employer can hire at will and not required to
keep employee there unless employee brings forth proof – proof in
this case stated in above considerations
o mutuality in exclusive agreements
 Wood v. Lucy, Lady Duff-Gordon – defendant fashionista promised plaintiff
sales rep exclusive rights to place her endorsements, put her designs on sale, or
license others to market them; defendant placed her endorsement on an item
without plaintiff and plaintiff sues
 consideration – duty of plaintiff implied in contract (exclusive agency –
defendant would only give job to plaintiff if believed he would do
work; plaintiff has incentive to make money; promise for plaintiff to
account for money each month)
 UCC § 1-203 – Obligation of Good Faith – every K or duty within this act
imposes an obligation of good faith in performance
 UCC § 2-306(2) – lawful agreement by either seller or buyer for exclusive
dealing in the kind of goods concerned imposes unless otherwise agreed an
obligation by seller to use best efforts to supply the goods and an obligation by
buyer to use best efforts to promote their sale
o mutuality in real estate agreements
 mutuality conditioned on promisor’s satisfaction is not illusory
 Mattei v. Hopper – seller promises to sell and buyer promises to buy if
satisfactory lease could be arranged
 valid K in spite of lack of mutuality because buyer can’t revoke just if
doesn’t feel like it, must be some unsatisfactory reason
 satisfactory clause – buyer could get out of purchasing but only if lease
could be proven unsatisfactory; doesn’t make K illusory
o 2 types – judgment on part of buyer OR reasonable standard in
determining satisfaction – court will use judgment on part of
buyer (as did here) if done in good faith
 preexisting duty and pretense
o RST § 208 – Unconscionable K – if a K is unconscionable it may be unenforceable or
the specific part that is unconscionable may be limited/unenforceable
 example – Coenen promises to give Brett Farve his Range Rover for $5; $5
may not be considered consideration if just a pretense/formality of consideration
o Corbin – neither the performance of duty nor the promise to render a performance already
required by duty is sufficient consideration for a return promise
 example – NY Yankees agree to trade ARod for 2 minor league players to
Atlanta Braves; after the deal, Yankees realize it is a bad trade so Atlanta agrees
to add in one more minor league player; Atlanta ends up only sending 2 minor
league players in exchange for ARod
 Yankees would not have a claim because of preexisting duty – Atlanta
just bound by 1st K because no consideration given for 2nd promise
Implied-in-fact K
 true K with all necessary elements, but promises of parties inferred from acts or conduct
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services must be beneficial to recipient and carried out so recipient understands –
o it was performed for him, AND
o it wasn’t rendered gratuitously, but rather in expectation of compensation
 reasonable person may infer it exists (although not written or explicitly stated) because it contains
all necessary elements of a binding contract
Implied-in-law K
 when one party is required to compensate another for benefit conferred in order to avoid unjust
enrichment, rather than because actual or implied-in-fact K; NOT real Ks
Quasi-K
 one party is required to compensate another for a benefit conferred in order to avoid unjust
enrichment, rather than because was promise to pay for beneft; plaintiff must show:
o he conferred benefit on defendant
o he conferred benefit with expectation that he would be paid its value
o defendant knew or had reason to know of plaintiff’s expectation
o defendant would be unjustly enriched if allowed to retain benefit without paying value
 NO K at all (neither actual, implied-in-fact)
Promissory Estoppel
 RST (FIRST) OF CONTRACTS § 90 (1932) – Promise Reasonably Inducing Definite and
Substantial Action –
o promise made
o reasonable expectation of action or forbearance
o action or forbearance of substantial and definite character
 *tramp HYPO would not qualify for promissory estoppel because walking
around the corner to the clothing store isn’t definite and substantial character
o promise induced the action or forbearance
o injustice can only be avoided through enforcement of promise
 damages available – reliance – remedy granted for breach may be limited as justice requires
o previously Willinston wanted expectancy damages, but court limited to reliance
 Papinian: no one may change his mind to the injury of another
 Puffendorf: if man has suffered damage from non-fulfillment of promise, promisor is bound by
natural law to make good the matter
 injustices to be avoided by promissory estoppel –
o Kirksey v. Kirksey – alleged deal that defendant brother-in law will give plaintiff and
children more comfortable place to live if they move down to defendant’s land; promise
was to last until plaintiff raised her family; defendant kicked family out prematurely
 plaintiff argues consideration – moves down to defendant’s land when defendant
wanted plaintiff to move – court rules NO consideration in classic sense,
therefore holds promise unenforceable because gratuitous
 however, court rules plaintiff can recover on promissory estoppel
 Pomeroy’s equitable estoppel requirements –
o must be conduct (acts, language, silence) amounting to representation of material facts
o facts must be known to party estopped at time of said conduct
o truth concerning facts must be unknown to other party claiming benefit of estoppel, at
time when such conduct was done and at time when it was acted upon by him
o conduct must be done with intention or expectation that will be acted upon by other party
o conduct must be relied upon by other party
o other party must act in such manner as to change his position for the worst
 general rule: even in absence of enforceable K (because lack of consideration) a promisee can
still recover damages if acted in reasonable reliance on promise and suffered detriment
o Ryerss v. Trustees of Presbyterian Congregation – plaintiff made gift promise to church;
in reliance on promise, church began to build; wasn’t until after church incurred costs
that plaintiff withdrew his promise; court held plaintiff liable for promise
 gift promises to charitable organizations sometimes enforceable if there is
reliance by the giver
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Seavey v. Drake – deceased father made promise (not in writing) to give son land; son
relied on promise by building upon land and spending money improving land (during
father’s life); son sues father’s estate for specific performance of promise
 statute of frauds – no action shall be maintained upon K for sale of land, unless
agreement upon which it is brought, is in writing and signed
 even though no consideration and K not in writing, court enforced promise
because son relied on it – unjust not to enforce promise because son acted
detrimentally in reliance
 son could also go under unjust enrichment – land would have all new buildings
due to son without giving son anything for them
o Ricketts v. Scothorn – plaintiff’s grandfather gave her promissory note for $2000 if she
would quit her job; plaintiff quit job in reliance on promise
 court ruled for plaintiff even though no consideration because plaintiff’s reliance
on grandfather’s promise made her quit her job (changed her position for worse)
o Wheeler v. White – loan arranger makes promise to builder that will find him loan for
$70K or will give the money himself; return promise by builder to give $5K once he
receives $70K; builder tears down building in reliance on promise
 was consideration – promise of $70K for return promise of $5K – however,
court finds K invalid because wasn’t fully developed and too indefinite
 because no breach of K, plaintiff moves for promissory estoppel – court allows
and awards plaintiff reliance damages (promissory estoppel because promise
made, induced builder to tear down $58K building, builder lost $58K)
 Greenhill, concurring: thinks damages should be awarded on breach of K
(because says K isn’t too indefinite) – therefore expectancy damages awarded
o Hoffman v. Red Owl Stores – plaintiffs were told they could set up Red Owl store for
$18K multiple times; based on promise, plaintiff sold bakery and previous grocery store
and purchased site to be used for Red Owl store; defendant kept raising the price
 breach of K fails – terms too indefinite, wasn’t signed, ongoing negotiation
 even with no written K, court granted promissory estoppel because plaintiff
reasonably relied so heavily on promise to his detriment
o Elvin Associates v. Franklin – defendant made promise to plaintiff that she would be in
musical; plaintiff expended much money in reliance on promise; Aretha doesn’t perform
 holding – no breach of K because K not finalized; however, plaintiff can
recover for promissory estoppel
o Local 1330, US Steel Workers v. US Steel Corp – defendant closed 2 large steel mills
because were unprofitable; plaintiff employees sue; plaintiff claim relied on promises
from PR asking for continued support of employees so mills wouldn’t have to be closed
 plaintiff sues – breach of K, promissory estoppel, interference with property
(court says must go to legislature), and antitrust (only claim that survives)
 reasons for no promissory estoppel claim – none of statements constituted
definite promise that plants would stay open even if became profitable,
statements came from PR and other employees and not officers of company,
company’s profitability was never actually fulfilled
Unjust Enrichment
 elements of unjust enrichment –
o unjustly
o enriched (plaintiff confers a benefit upon defendant)
o at expense of another (unjustified for defendant to keep benefit without compensating)
 damages awarded – restitution
 RST OF RESTITUTION §1 – Unjust Enrichment – person who has been unjustly enriched at
expense of another is required to make restitution to the other
 general rule: in order for unjust enrichment to be found, benefit receiver must be on notice
that giver expects compensation for the benefit (by words, acts, or nature of benefit conferred)
 qualifications –
o substantial performance
o
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divisibility theory – employee allowed percentage of payment in proportion to amount
of work completed of entire work (assuming substantial performance)
o implied acceptance – if receiver accepts work prior to its abandonment
Dobbs – when one person confers a benefit upon another not required by K or legal duty, recipient
of benefit is often unjustly enriched and required to make restitution of benefit or its value; 2
exceptions – Gift Principle and Choice Principle
Gift Principle – one who has conferred benefit upon another with intention to make a gift
(volunteer) has no equitable claim for relief against recipient of benefit in absence of fraud,
duress, undue influence
o distinguishing gratuity – extent of services, closeness of relationship, timeliness with
which compensation was sought; exception: if reasonable person would have accepted
services if been able to (ie doctor helps unconscious on street, can probably recover)
o Bloomgarden v. Coyer – plaintiff introduced 2 men for business deal on Georgetown
waterfront; plaintiff never mentioned he expected to be paid because of introduction;
after meeting becomes profitable, plaintiff sues for finder’s fee
 no implied-in-fact K because plaintiff stated he didn’t expect to be paid (for
implied-in-fact – must be for specific party, not rendered gratuitously but in
expectation of compensation, and beneficial to recipient)
 no unjust enrichment – defendant didn’t put parties on notice that he expected to
be paid either by his words or actions or nature of benefit conferred; also
because service was offered gratuitously to gain business advantage
o Gay v. Mooney – plaintiff agrees to treat defendant as another member of family and
defendant agrees to provide home for plaintiff’s children; defendant breaches
 no breach of K – not writing and therefore violates statute of frauds
 court allows plaintiff to recover value of house based on unjust enrichment
because benefit conferred was not gratuitous because defendant agreed to give
house to plaintiff’s children
o qualification – unjust enrichment may be found if there was no request for
compensation if benefit is of nature that one would not expect to receive gratuitously
 Sparks v. Gustafson – plaintiff manages building for defendant without charge
and paid expenses out-of-pocket; plaintiff sues for unjust enrichment after
defendants won’t let him buy building as promised
 plaintiff succeeds on claim for unjust enrichment – services provided
were not of type that one would typically expect a friend to provide
o distinguish Kershaw (deceased’s best friend ran errands,
bought groceries, etc for widow; court didn’t allow unjust
enrichment because acts are expected from long time friend)
 distinguish from Bloomgarden – extent of services provided (lot of
time and money put in by Sparks)
Choice Principle – one who confers benefit upon another without affording that other the
opportunity to reject the benefit (intermeddler) has no equitable claim for relief against recipient
of benefit in the absence of some special policy that would outweigh right of free choice in
benefited party
o determining if intermeddler – determine if service was invited
o house painter HYPO: if someone comes up and paints house without your knowledge,
can’t recover on unjust enrichment because you had no opportunity to reject services
claim from unjust enrichment may stem from breach of K (unbreaching party has choice to sue
under breach of K or unjust enrichment) –
o Posner v. Seder – defendant broke plaintiff’s employment K by discharge; in K, plaintiff
was not to receive overtime hours worked and was to be paid at end of each week;
plaintiff sues upon quantum meruit for value of overtime hours worked (rationale:
restitution damages would be more than expectancy because of overtime)
 court allowed plaintiff to recover reasonable value of all services minus what he
had already been paid
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*if employee hadn’t worked any overtime, would not be entitled to any recovery
under unjust enrichment because already compensated for all his services
 breaching party usually can’t recover for value of work done prior to breach unless
substantial performance; ordinarily no recovery where Ker willfully abandoned performance
without justification unless substantial performance of work
o Kelley v. Hance – plaintiff and defendant entered into K in which plaintiff would
construct sidewalk for defendant for $420; plaintiff only removed strip of earth and
didn’t lay any sidewalk; plaintiff breaches K and sues for unjust enrichment
 because no substantial performance of work done and because plaintiff was
breaching party, court doesn’t allow unjust enrichment
o Britton v. Turner – plaintiff under K to work for one year for $120; plaintiff quit with no
justification after nine months of work; plaintiff sues for value of work performed
 court allows plaintiff to recover based on unjust enrichment
 rationale for allowing breaching employee to recover: general understanding in
community that employee should be paid; employee would be better off
quitting at beginning than working 9 months and then quitting
Breach of Promise for Past Benefit Received
 RST § 86 – Promise for Benefit Received –
o (1) a promise made in recognition of a benefit previously received by the promisee is
binding to the extent necessary to prevent injustice
o (2) a promise is not binding under subsection (1)
 (a) if the promisee conferred the benefit as a gift or for other reasons the
promisor has not been unjustly enriched, OR
 (b) to the extent that its value is disproportionate to the benefit
 factors considered when determining if promise is enforceable –
o definite and substantial character of benefit received
o formality in making promise
o part performance (commitment to carry out and likely to produce reliance)
o reliance on promise or probability of such reliance
o specificity of promise
o lapse of time between benefit and promise
o was benefit a gift (if promise to pay after gift has been given, promise NOT enforceable)
 RST § 82(1) – promise to pay all or part of an antecedent contractual or quasi-contractual
indebtedness owed by promisor is binding if indebtedness is still enforceable or would be except
for the effect of a statute of limitations
o HYPO: Bob borrows $100 from Clark and promised to pay him back; 25 years passed
and Clark never paid; if Clark demanded the money without subsequent promise, would
not be enforceable because of statute of limitations; but, if Bob says he will pay Clark
back anyway, this promise would be binding based on original valid agreement
o Henderson – promises grounded in the past should be enforced because of Fuller’s
cautionary function (promise made after performance afford promisor opportunity for
deliberation and exercise of caution by the promisor)
 Mills v. Wyman – defendant’s 25-yr old son was away at sea and sickly when plaintiff acting as
good Samaritan took son in; plaintiff wrote to defendant telling him of circumstances; defendant
wrote plaintiff back saying he would pay him back; when defendant didn’t pay, plaintiff sued
o no consideration in classic sense because defendant agreed to pay after plaintiff had
already given the services
 Boothe v. Fitzpatrick – court held promise by defendant to pay for past keeping of bull which had
escaped from defendant’s premises and had been cared for by plaintiff was valid
o rationale: although no previous request of car for bull, subsequent promise was valid
because it became equivalent to a previous request
 Webb v. McGowin – plaintiff working on top of building throwing off blocks; plaintiff saw
decedent and instead of throwing off block and possibly killing decedent, he fell with block
seriously injuring himself; decedent offered to pay plaintiff $15/2 weeks until plaintiff died and
did so for 8 years until defendant died; plaintiff sues decedent’s estate for further payments
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court held promise (although past consideration) was valid – because of detriment,
formality, performance, lapse of time
o a moral obligation is sufficient consideration to support subsequent promise to pay
where promisor has received a material benefit (here, his life)
o court also makes a fortiori based on Boothe – if value of life of bull is enough for past
benefit received, value of life of human definitely is
 Harrington v. Taylor – defendant was assaulting his wife when wife knocked him down and had
axe over his head; plaintiff intervened, caught axe, and axe severely damaged plaintiff’s hand
instead of killing defendant; defendant promised to pay for damages, but failed to do so
o court does not hold promise as valid because plaintiff’s act was voluntary and
humanitarian and there was no consideration for promise
o distinguish Webb – no specific amount promised, no payments ever made
 Edson v. Poppe – defendant was landowner; tenant requested plaintiff to build well; defendant
saw well, was impressed, and agreed to pay plaintiff; defendant never pays, so plaintiff sues;
court considers subsequent promise valid even though for past benefit because substantial and
definite benefit
o where promisee cares for, improves, and preserves property of promisor, though
done without request, it is sufficient consideration for a subsequent promise to pay
for service because of material benefit received
Obligation Arising from Tort
 RST § 402A – Special Liability of Seller of Product for Physical Harm to User or Consumer
o (1) one who sells any product in a defective condition unreasonably dangerous to user or
consumer or his property is subject to liability for physical harm thereby caused to
ultimate user or consumer, or to his property, it
 (a) seller is engaged in business of selling such a product, AND
 (b) it is expected and does reach user or consumer without substantial change in
condition in which it was sold
o (2) subsection (1) applies even if seller exercised all possible care and there was no K
o PROVISION: no opinion expressed as to whether rules stated section may not apply
 (1) to harm to persons other than users or consumers,
 (2) to seller of a product expected to be processed or otherwise substantially
changed before it reaches user or consumer, OR
 (3) to seller of a component part of product to be assembled
 RST (THIRD) OF TORTS §§1 & 2 – Liability of Commercial Seller or Distributor for Harm
Caused by Defective Products – one engaged in business of selling or otherwise distributing
products who sells or distributes a defective product is subject to liability for harm to persons or
property caused by the defect
o comments and further explanation on pg. 170
 central idea in tort – liability must be based upon conduct which is socially unreasonable;
common thread – unreasonable interference with interests of others
 strategic reasons for suing in contract or in tort
CONTRACT (Strict Liability)
TORT (Negligence)
-NO misfeasance requirement
-misfeasance requirement
-NO statute of limitations
-actions can survive parties
-actions usually cannot survive parties
-NO punitive damages
-punitive damages
-Hadley Rule: foreseeability
-NO Hadley Rule
-disclaimers bar recovery
 Hadley Rule – Hadley v. Baxendale – damages recoverable for breach of K are limited to
those within the contemplation of defendant at time the K was made
o therefore, tort remedy is more likely to be advantageous to injured parties because
permits greater damage award
 general rule – no liability in tort for breach of K
o exception: when defendant has a legal duty which exists apart from K duty
o
10
o
exception only applies to misfeasance (negligent performance of K) and not
nonfeasance (failure to perform K)
o Mauldin v. Sheffer – defendant provided plaintiff with defective engineering designs;
because of defendant’s misfeasance, plaintiff had to pay for redesign and lost a customer
 plaintiff able to sustain tort because defendant owed him a legal duty to exercise
reasonable/ordinary care (through state statute); because the statute set up an
independent legal duty, the court sustains the tort claim
 general rule – misfeasance of profession makes behavior negligent
 Prosser: liability in tort whenever misfeasance involves foreseeable risk of harm
 tort of fraud
o Hargrove v. Oki Nursery – plaintiff wine vineyard bought wine grape vines from
defendant; vines sold were diseased and incapable of bearing fruit; plaintiff wants to
establish fraud so can recover on punitive damages as well
 elements for fraudulent misrepresentation – representation of a material existing
fact, falsity, scienter, deception, injury
 tort can be sustained because plaintiff alleges fraudulent misrepresentation
(which is a legal duty)
 main difference between breaches of K and tort – former arises under agreement between
parties and latter is violation of duty fixed by law
o advantages of suing in tort over K – punitive damages available; sue in tort absent a K
Breach of Warranty & Strict Products Liability
 express warranty – something expressly written or stated
o UCC §2-313 – Express Warranties by Affirmation, Promise, Description, Sample
 (1) express warranties by the seller are created by –
 (a) affirmation of fact or promise made by seller relating to goods
which becomes part of the basis of the bargain
 (b) any description of the goods which is made part of basis of bargain
 (c) any sample or model which is made part of basis of bargain
 (2) it isn’t necessary to creation of express warranty that seller use formal words
such as “warrant” or “guarantee” or that he have specific intention to make a
warranty; however, affirmation merely of value of goods or statement
purporting to be merely seller’s opinion doesn’t create warranty
o under UCC, courts must consider following factors –
 whether statements were (a) affirmation of fact or promise or a description of
the goods, OR (b) merely seller’s opinion
 factors indicating mere opinion – lack of specificity, made in
ambiguous manner, statements reveal goods are experimental in nature
 if former, must determine whether statements became part of basis of bargain
 burden of proof is on seller to show buyer didn’t rely on statement
 if statements were part of basis of bargain, must determine if warranty breached
 **however, if buyer knew of defect prior to purchase, then no cause of action
 implied warranty – rest clearly on common factual situation or set of conditions that no particular
language or action is necessary to evidence them
o UCC § 2-314 – Implied Warranty: Merchantability; Usage of Trade
 (1) warranty that goods shall be merchantable is implied in K for their sale if the
seller is merchant with respect to goods of that kind; goods to be merchantable
must at least be as fit for ordinary purposes for which such goods are used (note:
food/drink included)
o UCC § 2-315 – Implied Warranty: Fitness for Particular Purpose; exists when:
 purchaser at time of K intends to use goods for particular purpose
 seller at time of K has reason to know of this particular purpose
 buyer relies on seller’s skill and judgment
 seller at time of K has reason to know buyer is relying on his skill and judgment
 **seller must be merchant in respect to goods of that kind
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Keith v. Buchanan – plaintiff bought sailboat from defendant that was supposedly “seaworthy”
according to salesman and to brochure about boat; plaintiff also brought along friends who were
involved with boats to look at boat; when plaintiff is unhappy with boat, brings 2 suits – breach of
express and implied warranty of fitness
o as to express warranty – yes, salesman made affirmations of fact about the boat which
became a part of the basis for the bargain (most of court’s analysis came from brochure)
o as to implied warranty of fitness – no, because plaintiff brought along friend, he did not
rely on skill and judgment of salesman
 **reliance more important in implied warranty than express warranty
 Webster v. Blue Ship Tea Room – plaintiff ordered fish chowder and choked on the bone;
plaintiff sues restaurant for breach of implied warranty of merchantability
o court rules for defendant because people expect to see fish bones in fish chowder
therefore goods were fit for ordinary purpose
Obligation Arising Solely from Form
 promise may be enforceable if supported by writing without consideration
 RST § 87 – offer is binding as an option K if it is in writing and signed by offeror, recites a
purported consideration for making the offer, and proposes an exchange on fair terms within a
reasonable amount of time
Statue of Fraud
 defense rather than a cause of action
 holds K unenforceable in some situations unless in writing and signed
 Statute of Fraud Checklist
o does SoF apply to this case? is the case within the statute?
o if so, is there writing that satisfies the SoF?
 it doesn’t matter if writing is in K itself or made well after K
o if the case is within the SoF and no writing, is there a legally recognized exception?
 Main Purpose Doctrine – whether the consideration was mainly desired for the
promisor’s benefit or for the benefit of the original debtor
 if for the original debtor, takes K out of SoF and renders enforceable
 part performance –
 sale of goods part performance is enough to take out of SoF
 oral sale of land part performance does not take out of SoF
o it the case is within the SoF, there is no complying writing, and there is no applicable
exception, does any other doctrine mitigate what would otherwise be non-compliance?
 unjust enrichment
 promissory estoppel
 proof of compliance with SoF alone doesn’t prove existence of K – must still have consideration
o but, if defendant proves SoF defense, plaintiff won’t recover even if K otherwise valid
(however, plaintiff may still be able to receive restitution damages)
 typical Ks under SoF – executor/administrator’s promise to pay estate debts out of own funds,
surety provision, marriage, interest in land, performance not within 1 year, goods worth > $500
o UCC § 2-201 – Formal Requirements and Statute of Frauds
 (1) sale of goods for > $500 not enforceable unless sufficient writing and signed
by person against whom enforcement is sought
 (2) between merchants – if within reasonable time, writing is received in
confirmation of K, and receiving party knows its contents – satisfies (1) unless
written notice of objection give within 10 days after its received
 (3) K not satisfying above, but valid in other respects, enforceable if
 (a) goods are to be specifically manufactured for buyer and not suitable
for sale to others; and seller has made substantial start in manufacture
or commitments in getting them, OR
 (b) party against whom enforcement is sought admits they made K for
sale (but not enforceable beyond quantity of goods admitted), OR
 (c) goods for which payment has been made and accepted
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Howard M. Schoor Associates v. Holmdel Heights Construction – plaintiffs were 2 engineering
and surveying firms; plaintiff was performing work for defendant; Sugarman (attorney for
defendant) also owned 18% in company; some of plaintiff’s invoices weren’t paid so went to
meet with Sugarman; defendant needed more financing to complete project and continued work
by plaintiff was necessary to receive more funding
o at meeting, Sugarman gave plaintiff $2000 (differ as to what money meant for)
o case under SoF – “promise to answer for debt of another person” (surety promise)
o because no writing of agreement to pay $ present, must see if there is exception – yes
 court holds Sugarman’s main purpose was to benefit himself and not the
company (because he owned 18%, creditor with attorney’s fees, continuing
business opportunity for him, active manager so wants company to prosper)
 because Sugarman met exception – Main Purpose; took K out of SoF and made
it enforceable
Jonesboro Investment Corp v. Cherry – defendant breaches K to sell land; defendant claims the K
is not valid because violates SoF; although K was in writing, it does not state terms and
conditions so it doesn’t satisfy SoF; court holds no valid K
o terms and conditions must be stated in writing to take transaction out of SoF
McIntosh v. Murphy – plaintiff interviewed with defendant in March 1964; defendant sent
plaintiff telegram telling him to arrive in HI on April 26, 1964; on April 25, defendant called
plaintiff to confirm he would be asst sales manager; plaintiff arrived in HI on April 26 and started
work on Monday, April 27
o majority assumes 1-yr K which falls under SoF because K to start on April 26 when
plaintiff arrives but work wouldn’t be over until April 27, 1965 (K won’t be finished
within one year), so must go to 4 questions –
 in writing? – no
 exception? – court says equitable estoppel
 court rules case outside SoF because of equitable estoppel exception and
therefore plaintiff can recover even though statute not in writing
REMEDIES
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expectancy damages – put plaintiff in position would have been in if K fully performed
o generally applied in breach of K
restitution damages – restore benefit that was conferred from non-breaching party to breaching
party (plaintiff able to receive back all money he gave to defendant)
o generally applied to cases of unjust enrichment
reliance damages – put plaintiff in position as if contract was never made
o generally applied in promissory estoppel
types of damages –
o general damages – always suffered by buyer when good is not delivered
 includes difference between K price and market value
 some jurisdictions offer rental value instead
o consequential damages – damages that only some people suffer from a breach
 some may experience no lost profit, others may experience extreme lost profits
 must be foreseeable to recover under Hadley Rule
o incidental damages – expenses occurred in attempt to mitigate (usually things like
storage, costs, searching to find cover, etc)
general rules with damages –
o attorney’s fees are not recoverable
o cannot recover pre-judgment interest
o non-breaching party has general duty to mitigate damages
o nominal damages can be awarded when a right to breach action exists but no harm done
o Hadley Rule: consequential damages must be foreseeable at time K was made
o new business rule – courts are reluctant to award profits lost from a business that was
not yet in operation at the time of the breach
 done rarely when – profits can be calculated AND compelling reason
13
Expectancy Damages
 general rule – non-breaching party can be awarded expectancy damages for breach of K with
consideration (puts him in position would have been in if K was fully performed)
o policy: private Ks encourage private autonomy, which should be protected; one who
enters K foregoes opportunity to enter other Ks and should be compensated when K is
breached; expectancy damages promote and facilitate reliance on business agreements
o policies to consider when determining damages –
 economist interested in efficiency (ie shouldn’t spend $60K in resources to get
$12K worth of value)
 economist who sees value in facilitating exchange behavior – cost of
completion could make people more likely to enter into Ks
 pastor – typically cost of completion; seems morally unjust to not give people
what they were promised when entered into agreement
 Pomponius (favors unjust enrichment) – no one to be made richer through
another’s loss
 Eisenberg – cost of completion; parties entered into Ks factoring in all costs
 environmentalist – typically cost of completion of damages; don’t want to
have eyesore on road and want to maintain healthy wildlife habitat
 breach of agreement with consideration –
o typical issue with land K – award cost of completion v. change in land value
o courts usually award cost of completion unless disproportionate to change in value
o RST § 346 – cost of remedying the defect is the amount awarded as compensation
for failure to render the promised performance
o Groves v. John Wunder Co. – plaintiff owned 24 acres of land on which operated gravel
excavating plant; plaintiff and defendant entered into lease for 7 years in which
defendant was to leave plaintiff’s property at uniform grade; defendant deliberately
breached K by removing the richest and best gravel
 cost of completion – $60K; if work completed, value only increased by $12K
 majority – judge by cost of completion
 Sassen v. Haegle – defendant agreed to haul and spread manure on
plaintiff’s farm; defendant spread in wrong place
o court awarded plaintiff reasonable cost of completion;
whether performance affects value of land or not was of no
concern to the court
o even if furthering K actually lessens value of land, owner
of land still allowed to have K completed as he wants it
 dissent – judge by value of land if K fully completed minus value of land now
 Jacob & Youngs, Inc. v. Kent – owner is entitled to money which will
permit him to complete, unless cost of completion is grossly and
unfairly out of proportion to good to be attained; if out of proportion,
measure is difference in value
 RST 346 – A contracts with B to sink an oil well on A’s own land
adjacent to land of B for development and exploration purposes; other
exploration wells prove no oil in that region and A breaks promise to
sink well; B can get judgment only for nominal damages
o Peevyhouse v. Garland – defendant breaches K by not grading land; plaintiff’s land was
a farm and no evidence that plaintiffs needed to sell property (might have needed to live
on it); cost of completion = $29K; change in value of land = $300
 stronger case for awarding difference in land value because cost of completion is
so disproportionate and land here wasn’t a business
 court awards change in value; rationale: no person can recover greater
amount in damages that he would have if K was fully performed
o Rock Island Improvement v. Helmerich & Payne – minor agrees to restore property close
as possible to prior condition; cost of completion = $375K, difference in value = $6K; K
included clause that required lessee to bear cost of restoration
14
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court here awards cost of completion because of reclamation clause and Open
Cut Land Reclamation Act
o Radford v. DeFroberville – court will give cost of completion but only if certain that
property owner is actually going to complete the project
breach of construction Ks
o general rule – original K price minus cost of completion
o Thorne v. White – White hires Thorne to replace roof for $255; Thorne began but quit
because of bad weather; White had to hire another roofer at $582.26 in which White
received a better roof than would have had if Thorne completed K
 court awarded what it cost him to complete same work, over and above original
K price
 different result if (a) White did everything she could to mitigate damages and
roofer #2 was only one in town; (b) roof from roofer #2 was same type of roof
 non-breaching party can only recover for losses which are natural
consequence and proximate result of the breach; non-breacher shouldn’t
be placed in better position than the one they Ked for
o Morello v. JH Hogan – plaintiff was sub-Ker who did $9411 worth of work and
abandoned job; defendant was primary Ker and counter-claim sued plaintiff for
difference between amount cost to finish work ($54K) and original amount in K ($44K)
 court held defendant should get $10K – difference in what he expected to pay
under K and what he had to pay after breach
o Warner v. McLay – defendant landowner breaches building construction K by running
plaintiff Ker off; plaintiff claims he is entitled to profit
 general rule – net profit = total K price – total projected cost
 holding – plaintiff entitled to K price minus cost of completion and expenses
damages are not recoverable if unduly uncertain or speculative
o Freund v. Washington Square Press – defendant broke K to publish plaintiff’s book; K
obligated defendant to pay royalties based upon % of sales
 court doesn’t award cost of completion because all K entitled plaintiff to was
royalties on sale of book and not K for publishing of book
breach of employment Ks
o Handicapped Children’s Board v. Lukaszewski – plaintiff and defendant entered into 1-yr
employment K; defendant found a better job and requested release from K; plaintiff
refused to release; defendant started to work and because of “hard feelings against
plaintiff” suffered from hyper-tension; defendant quit work for medical reasons and
plaintiff forced to hire someone costing them $1026.64 more
 even though new teacher was more qualified than defendant, court still allowed
damages of difference between original K price and new K price because
plaintiff did all it could to mitigate damages in short amount of time
 judge didn’t allow in defendant’s poor health because was just reason to quit
 example of efficient breach – even with having to pay damages to plaintiff,
defendant will still make more money at new job
efficient breaches
o Posner: if profit from breach would exceed profit from carrying out K, incentive to
breach would be value-maximizing and should be encouraged
 further justification – everyone wins – puts non-breaching party in same
situation would have been in and puts breaching party in better situation
o Fuller: efficient breaches are bad because if a contracting party doesn’t have assurance
that the other will make good on his promise, contract law looses its anchor
 encouraging efficient breaches may make some not want to make Ks at all
o when damages are limited to expectancy, there is incentive to breach – non-breaching
party won’t care because in same situation and breaching party will end up in better
situation than held in 1st K – economic importance of limiting damages to expectancy
breach of sale of goods K
15
o
o
o
o
o
o
o
o
UCC § 1-106 – Remedies to be Liberally Administered – remedies provided by this act
shall be liberally administered to the end that the aggrieved party may be put in as good a
position as if the other party had fully performed (signifies expectancy damages)
Cooper v. Clute – seller breaches K sale of cotton; K price = 10 7/8 cents/lb; market
value = 10 7/8 cents/lb; seller sold to another for 11.03 cents/lb; plaintiff seeks to
recover difference between 2 Ks
 court rejects plaintiff’s argument – appropriate award for breach is difference
between market price and original K price (MP-KP) – $0 in this case
because efficient breach of K
Neri v. Retail Marine Corp. – buyer pays $4250 deposit on $12,587.40 boat for
immediate delivery on basis of “firm sale” rather than normal delivery time of 4-6 weeks;
plaintiffs breach K and sue to get deposit back; defendant counter-claims for breach of K
 lost volume seller – because of defendant’s unlimited supply of boats, if buyers
hadn’t breached, defendants would have received 2 profits instead of just 1
 UCC § 2-718 – Liquidation or Limitation of Damages; Deposits
 (2) – where seller justifiably withholds delivery of goods because of
buyer’s breach, buyer is entitled to restitution of any amount by which
sum of his payment exceeds…
o (a) amount to which seller is entitled by virtue of terms
liquidating seller’s damages in accordance with (1)
o (b) in absence of such terms, 20% of value of total
performance for which buyer is obligated under K or $500
(whichever is smaller)
 holding – defendant able to recover lost profits ($2579) + incidental damages
($674) = $3253; plaintiffs are awarded remainder of deposit ($997)
 court doesn’t including $500 from (2)(b) in calculating award because
would be giving seller double recovery
UCC § 2-713 – Buyers Damages for Non-Delivery or Repudiation
 measure of damages for non-delivery or repudiation by seller is difference
between market price at time buyer learned of breach and K price plus any
incidental damages (provided in 2-715) minus expenses saved in consequence of
seller’s breach
 MP – KP – Expenses Saved + Incidental Damages
UCC § 2-712 – Buyer’s Procurement of Substitute Goods; “Cover”
 after breach within § 2-713, buyer may “cover” by making in good faith and
without unreasonable delay any reasonable purchase of or K to purchase goods
in substitution for those due from seller
 Cost of Cover – KP – Expenses Saved + Incidental Damages
 **must apply § 2-712 when buyer covers
UCC § 2-708 – Seller’s Damages for Non-Acceptance or Repudiation
 (1) measure of damages for non-acceptance or repudiation by buyer is difference
between market price at time and place for tender and unpaid K price plus any
incidental damages minus expenses saved in consequence of buyer’s breach
 (2) if measure in (1) is inadequate to put seller in as good a position as if
performance would have been done – measure of damages = profit (including
reasonable overhead) which seller would have made from full performance of
buyer plus incidental damages minus expenses saved
UCC § 2-706 – Seller’s Resale Including K for Resale
 when resale is made in good faith and in commercially reasonable manner the
seller may recover difference between K price and resale price, plus incidental
damages minus expenses saved
 **market price doesn’t matter or apply here
UCC § 2-714 – Buyer’s Damages for Breach in Regard to Accepted Goods
 where buyer has accepted goods and given notification, he may recover as
damages for any non-conformity of tender the loss resulting in ordinary course
of events from seller’s breach (delivery of faulty goods)
16
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measure of damages for breach of warranty is difference at time and place of
acceptance between warranted value of goods and value of goods accepted
o UCC § 2-715 – Buyer’s Incidental and Consequential Damages
 incidental damages resulting from seller’s breach including – expenses
reasonably incurred in inspection, receipt, transportation and care and custody of
goods rightfully rejected, any commercially reasonable charges, expenses or
commissions in connection with effecting cover and any other reasonable
expense incident to delay or other breach
 consequential damages resulting from the seller’s breach including
 any loss resulting from general or particular requirements and needs of
which the seller at time of King had reason to know and which could
not reasonably be prevented by cover or otherwise, AND injury to
person/property proximately resulting from breach of warranty
o UCC § 2-716 – Buyer’s Right to Specific Performance
 when goods are unique or in other proper circumstances
availability of Lost Expectancy Damages – qualifications and limits
o general rule – damages for breach of K must have been reasonably foreseeable to the
parties at the time of the K; must either:
 arise naturally from the breach (general damages), OR
 if they arise out of specific circumstances, they must have been specially
communicated to breaching party at time of K (special or consequential
damages)
o limitations –
 foreseeable – from Hadley – where special damages could not reasonably be
foreseen by the breaching party, he can’t be held liable
 disproportionality
 mitigation
o Hadley v. Baxendale – plaintiff went to defendants so they would ship broken crankshaft
on following day to be fixed; plaintiffs paid 2lb. 4s. for delivery and told defendants
would pay extra if needed; delivery of shaft was delayed by some negligence on part of
defendant therefore plaintiffs lost profits they would have received
 general damages – rental value of replacement crankshaft for delayed days
 special damages – would be lost profits of plaintiff; must be reasonably
communicated to breaching party at time of K
 holding – since lost profits weren’t foreseeable by defendant, no special
damages can be awarded (defendant didn’t know mill dependent on crankshaft)
o Armstrong v. Bangor Mill Supply – plaintiff sent broken crankshaft to defendant’s
machine shop; defendant left plaintiff’s shaft out of alignment; as a result, plaintiff’s
mill was shut down for 6 days
 court allows lost profit recovery
 distinguish from Hadley – (1) machine shop who is able to foresee plaintiff’s
damages; (2) negligent repair of crankshaft, not merely delay in delivery
o tacit (implied) agreement test – some courts permit recovery of consequential damages
only when defendant tacitly agreed to assume risk
 **discarded by most courts and UCC
 Lamkins v. International Harvester – plaintiff buys tractor requesting lighting
equipment that cost $20; tractor was delivered without lighting equipment and
plaintiff claims he couldn’t plant soybeans therefore lost profits of $450
 argue isn’t reasonable - $450 damage isn’t proportionate to $20 light
 argue is reasonable - $450 damage is proportionate if tractor was $1400
 disproportionate rule is not in UCC because displaced by 2-715 –
under UCC, seller liable for consequential damages in all cases
o UCC § 2-715(2)(a) – consequential damages resulting from seller’s breach include any
loss resulting from general or particular requirements and needs of which seller at time of
King had reason to know and which could not reasonably be prevented by cover
17
RST § 351(3) – court may limit damages for foreseeable loss by excluding recovery for
loss of profits, by allowing recovery only for loss incurred in reliance if it concludes that
in the circumstances justice so requires in or to avoid disproportionate compensation
mitigation of damages –
o duty to mitigate – damages will be held down if non-breaching party fails to mitigate
o Clark v. Marsiglia – owner of paintings tells restorer to stop working on paintings;
restorer keeps going and then sues owner for full K price
 holding – restorer can’t recover full KP because non-breaching party must
stop fulfilling K when learn of breach
 rationale: morality (not fair to have people keep working when other party
requests them to stop); efficiency (waste created if people keep working when
work is no longer needed/wanted)
o seller can’t collect due to failure to mitigate
 Schiavi Mobile Homes v. Gironda – son signed K to buy mobile home from
plaintiffs and paid $1000 deposit; son went through hard times; dad told
plaintiff he would buy home so son wouldn’t lose $1000; plaintiff later sold
home to 3rd party for ~$1000 less; plaintiff sues: lost profit and interest expense
 court doesn’t allow recovery because plaintiff could have mitigated
damages by selling to dad
o mitigation of damages in employment K – wrongfully discharged employee must
reasonably try to secure other employment that isn’t different or inferior to one of which
he was deprived
 rationale for limiting duty to mitigate – don’t want to force people into jobs
in which they have no training or experience OR don’t want to force them
into jobs that are inferior (fear of person dropping societal classes)
 Parker v. 20th Century-Fox Film – plaintiff actress hired to appear in musical
with terms that she would be compensated $750K regardless; defendant decided
not to produce musical and instead offered plaintiff lead role in western making
same amount of money; plaintiff didn’t accepts and sues seeking $750K
 differences in movies – musical v. country western; shooting in
Australia v. California; plaintiff had approval rights of screenplay and
director with 1st movie, but not in 2nd
 holding – plaintiff didn’t fail to mitigate damages here because 2nd
movie was inferior and too different from 1st for comparison
 dissent – agrees in ruling for plaintiff, but thinks test should be whether
differences are substantial enough to constitute differences in kind of
employment and render 2nd movie inferior
 Hillman: never reasonable to require non-breaching party to accept offer
from breaching party in order to mitigate damages
speculative limit on expectancy damages –
o general rule – RST 331 – loss of profits only recoverable to the extent that evidence
affords a sufficient basis for estimating their amount with reasonable certainty
o new business rule – loss of profits from business that has not yet gone into operation
may not be recovered because they are merely speculative and incapable of being
ascertained with requisite degree of certainty
 if damages are too speculative, can recover rental value of property
 Evergreen Amusement v. Milstead – plaintiff drive-in movie theater hired
defendant as Ker; defendant delayed in completion of clearing and grading of
site; defendant sues for balance due on K; plaintiff sues for lost profits during
period of delay
 court awards defendant balance due from K less rental value of
plaintiff’s property for period of delay
 court applied new business rule because lost profits too speculative
o
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possible comparison by plaintiff – compare Aug-Oct in year 1 and year
2; if they are closely related, use June-Aug for year 2 to show what
year 1’s earnings could possibly be
o Lakota Girl Scout v. Havey Fund-Raising – defendant hired to help plaintiff with
fundraising goal; defendant breached K by not providing assistance and supervision
promised; plaintiff’s goal was $345K, but only raised $88K; plaintiffs had to pay
defendant $24K and $10K extra in expenses
 court allows plaintiff’s recovery because evidence that had defendant performed,
plaintiff’s goals were feasible
 distinguish Evergreen – single venture with reasonable goal and time period;
not new business because girl scouts have been fundraising for years
 damages don’t have to be exact, just need reasonable computation basis
 Corbin: if the mind of the court is certain profits would have been made if
no breach by defendant, there will be greater degree of liberality in
allowing jury to bring verdict for plaintiff, even though amount of profits
prevented is scarcely subject to proof at all
 doubts will generally be resolved in favor of party who has certainly
been injured against party committing the breach
 availability of damages for mental distress
o general rule – damages for mental distress not allowed for breach of commercial K
o Chrum v. Charles Heating & Cooling – defendants sold plaintiff a furnace which burnt
down their house; plaintiffs sued for distress
 court didn’t allow plaintiff to collect for distress – injury was to property and not
to person; and pleading inadequate to support independent tort
 injuries to property don’t allow for mental distress recovery
o exceptions to allowing recovery for mental distress in breach of K –
 Stewart exception – when deep, personal human relations are involved
 injuries must be suffered to the person (Sullivan)
 damages for mental distress are recoverable where plaintiff alleges independent
tort conduct (ie unskilled performance of K in Mauldin)
 availability of punitive damages
o general rule – RST 355 – punitive damages not available unless there is an
independent tort (White v. Benkowski)
 additional limitations on expectancy damages –
o no loss expectancy in medical contexts (Sullivan) – too hard to gauge, medical field is
too uncertain
o no recovery for loss of reputation or goodwill (some courts may allow when there is
reasonable basis of fact)
o no lost expectancy to attorneys (only reasonable value of services until discharge)
o can’t recover attorney’s fees and interest
 rationale: taxing losing party for attorney’s fees would discourage the poor from
litigating meritorious claims in fear of losing
 exception – if K provides for recovery of attorney’s fees, courts usually enforce
 exception – plaintiff may recover attorney’s fees as reliance damages if plaintiff
wasted fees due to defendant’s breach (ie can recover for title search if vendor of
land repudiates)
o prejudgment interest – plaintiff cannot generally recover prejudgment interest unless
amount of damages is ascertained or liquidated prior to entry of judgment
 summary of general limitations on damages
o must be foreseeable (Hadley)
o damages must not be speculative (Evergreen Amusement, etc)
o non-breacher must attempt to mitigate (Clark v. Marsiglia, Schiavi Mobile Homes, etc)
o punitive damages are not recoverable in commercial Ks (White v. Benkowski)
o damages should not be disproportionate to injury; no windfall
Reliance Damages
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
general rule – if expectancy damages can’t be reasonably ascertained (too speculative), then
reliance damages can be applied (puts plaintiff into position as if no K ever made)
o Sullivan v. O’Connor – suggests that in a non-commercial setting, reliance may be more
appropriate because expectancy damages are too hard to gauge
o only those costs that incurred after K was made are recoverable
 essential and incidental reliance
o essential reliance – money spent to perform K, to prepare to perform K, and losses
involved in entering K itself (ie foregoing opportunities to enter other Ks)
 cost of making K itself is not recoverable because court will not knowingly put
plaintiff in better position than if there was no K at all
o incidental reliance – damages flowing naturally and foreseeably from K
 sometimes recovery will exceed K price
 when plaintiff enters losing K, better to sue for reliance rather than expectancy
 Chicago Coliseum Club v. Dempsey – K were plaintiff boxing promoter would pay defendant
champion boxer large amount of money if defendant would fight one match against Wills;
plaintiff paid $10 originally for consideration and agreed to pay him further $300K + $500K; on
July 10, defendant sent telegram to plaintiff stating no K was entered into
o court held was binding K and only question was that of damages
o not expectancy damages because too speculative – don’t know extent to which fight
would have brought in revenue; plaintiff admitted lost profits too uncertain
o plaintiff can recover - $10 deposit, $300 architect plans, wages paid assistant secretary
(as long as proven specifically for Dempsey fight), expenses to Colorado for insurance
 sometimes expenses incurred before K may be recoverable if damages are in contemplation
of parties at time of K
o formula – non-breaching party gets $ spent in reliance on breached K – $ saved in
consequence of the breach
o Anglia TV v. Reed – plaintiff prepares to make film and spends money on director; then
plaintiff signs K with defendant actor; defendant later breaches
 court allows plaintiff’s recovery of expenses paid for director because actor
knew about them when signing K (therefore knew would be lost upon breach)
o L Albert & Son v. Armstrong Rubber – plaintiff agrees to sell defendant 4 refiner
machines to recondition old rubber; seller breaches by delivering late; defendant fails to
prove expected profit, but does sue for value of foundation it built for refineries ($3K)
 normally in this situation buyer would be awarded expectancy; however,
plaintiff didn’t ask for expectancy, only sought reliance
 holding – buyer can recover $3K for foundation, but if seller can prove buyer
would have incurred extra expenses had K been performed, that amount would
be subtracted from $3K
 damages can be offset by defendant if he can prove a loss to plaintiff that
would have taken place had K been performed
o Coppola v. Kraushaar – plaintiff engaged to be married and ordered 2 gowns to be
delivered day before wedding; defendant failed to deliver and wedding called off;
plaintiff sues for $500 spent on wedding
 court awards plaintiff $10 dress deposit
 rationale: $500 for wedding too remote and unforeseeable
Damages Clauses
 generally provisions put into Ks to specify consequences of breach
o UCC § 2-718(1) – Liquidation or Limitation of Damages; Deposits
 damages clause does not constitute a penalty if –
 reasonable amount in light of anticipate/actual harm caused by breach
 difficult to prove loss
 inconvenience of otherwise obtaining reasonable remedy
o RST § 339 (2-part test)
 (I) agreement made in advance of breach fixing damages is not enforceable and
does not affect damages recoverable for breach unless
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
(a) amount so fixed is reasonable forecast of just compensation for
harm caused by breach, AND
 (b) harm that is actually caused by breach is incapable or very difficult
of accurate estimation
 comment b – if K promises same damages for breach of trivial or unimportant
part of K as for the breach of the most important part of K or whole K, is invalid
 rationale – obvious parties haven’t adhered to rule of just compensation
o UCC § 2-719 – Contractual Modification or Limitation of Remedy
 liquidated damage clause can be limitation of consequential damage as long as it
isn’t unconscionable
 limitation of consequential damages for injury to person in the case of consumer
goods is prima facie unconscionable
 but, limitations of damages where the loss is commercial is not
o **Liquidation Clauses differ from Limitation of Damages – UCC § 2-719(3)
 HJ McGrath v. Wisner – farmer and cannery make K for farmer to deliver all tomatoes grown on
acreage to cannery; if grower breaches, liquidated damages clause of $300; farmer delivers some
tomatoes but sells some in open market
o holding – liquidated damages clause is penalty – rationale: not reasonable forecast of
breach, doesn’t take into account if farmer delivered 1 tomato or if delivered 1000;
damages for failure to deliver all wouldn’t be hard to ascertain
o HYPO: construction K to build bridge; damage clause stipulates $1000/day that Ker
delays in finishing bridge – likely enforceable because specific, proportionate, prorated
 Better Food Markets v. American District Telegraph – plaintiff food market bought alarm system
from defendant; when plaintiff’s alarm sounded, defendant was to send representative and call
police; at event of break-in, defendant waited 9 minutes to notify anyone; plaintiff lost $35,930
from burglary; liquidated damages clause stipulated $50 in event of breach
o court uses 2-part penalty test – foreseeable forecast of harm, hard to determine damages
at time of breach – holds clause is void
o court should actually find limitation of damages/remedies clause – UCC § 2-719(3) –
would need to determine whether stipulated amount was unconscionable
 possible to recover under liquidated damages clause when no actual damages
o Southwest Engineering Co. v. US – court holds party can recover under liquidated
damages clause even though other party’s breach caused no actual damages
 as long as liquidating damage clause is reasonable forecast of anticipated
damages at time parties agree to it, it is valid even if later developments
cause the actual damages to be less or nonexistent
 Dunbar: what should be included in Liquidated Damages Clause –
o (1) damages should fall in range between upper and lower limits of foreseeable damages
at K signing
o (2) parties should actually seriously negotiate amount and include in K that negotiated
o (3) for Ks with time limits, provide for reasonable extension to adjust for delays
o (4) make amount vary with extent of breach
o (5) include words “liquidated damages”
o (6) include facts which caused party to include provision in K (ie “actual damages would
be too difficult to ascertain”)
Remedies for Promissory Estoppel
 general rule – reliance damages will be awarded for promissory estoppel; however remedy
applied to promissory estoppel can be any kind as long as it is applied to promote justice
 example with Williston and Coudert – Johnny’s uncle promised him $1000 to buy a car; Johnny
bought a $500 car; what should uncle be responsible for paying?
o Williston – answer depends on whether promise is binding or not; if it is, expectancy
damages of $1000 should be awarded
o Coudert – because promise not supported by consideration, damages should be $500;
award damages to protect reliance interest of Johnny
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argument both are wrong – with reliance damages – Johnny is out $500, however value
of car is $400 – therefore Johnny should receive $100 because has $400 value in car
 Goodman v. Dicker – on promise of defendant, plaintiff applied for dealer franchise to sell
Emerson products; after plaintiffs expended $1150, told franchise wouldn’t be granted
o no valid K, but court permits reliance damages of $1150 because of promissory estoppel
 D & G Stout v. Bacardi Imports – plaintiff owned liquor store; when 2 of plaintiff’s suppliers left,
plaintiff was going to have to sell store; defendant, one of plaintiff’s remaining suppliers,
promised wouldn’t withdraw if plaintiff didn’t sell; plaintiff didn’t sell; one week later, defendant
withdrew and forced plaintiff to sell at $550K loss
o even though terminable at will relationship of parties, court permitted plaintiff’s recovery
because lost bargaining power when defendant withdrew
 Walters v. Marathon Oil – plaintiffs contacted defendant about locating gas station on vacant lot;
plaintiffs bought lot and continued to make improvements due to continued promises from
defendants; improvements value was actually $0 because waiting to put in gas station
o because reliance damages would be $0, court awards lost profits/expectancy damages for
this promissory estoppel case
o rationale: reliance caused plaintiffs to forego opportunities elsewhere and attempted to
mitigate their damages once learned of breach
o if facts were undisputed that plaintiffs would retire to FL if couldn’t open this exact store
on exact spot – different result because court awarded damages based on lost business
opportunity (Llewellyn – where reason stops, there stops the rule)
Restitution Damages
 available when – party seeking damages was non-breaching party AND breach was material
o material breach – breach so material that goes down to “essence” of K – such a breach
as would discharge injured party from any further K duty on his part
 main uses for restitution damages –
o unjust enrichment – monetary remedy restitutionary in nature insofar as it required
defendant to repay plaintiff monetary value of benefit plaintiff conferred on defendant
o part performance by non-breacher before breach
o breaching plaintiff who hasn’t substantially performed (breaching party’s restitution is
capped by K price)
 RST § 371 – Measure of Restitution Interest; may be measured by either:
o (a) reasonable value to other party of what he received in terms of what it would have
cost him to obtain it from a person in claimant’s position, OR
o (b) extent to which other party’s property has been increased in value or his other
interests advanced
o **court has considerable discretion in choosing between 2 values – party seeking
restitution for part performance commonly allowed more generous measure of reasonable
value, unless unduly difficult to apply, except when he is in breach
 where non-breaching plaintiff conferred benefit and elects restitution
o general rule – once other party breaches K, non-breaching party can waive K
entirely and sue for quantum meruit reasonable value of work performed (with
breach, falls the K), even if value exceeds K price
 K price doesn’t govern restitutionary relief (although can be evidence)
o US for use of Susi Contracting v. Zara Contracting – defendant had K with US to build
extension on Tri-Cities Airport and hired plaintiff sub-Ker who was to complete all work
except $100; plaintiff encountered soil conditions which made work extremely difficult;
defendant terminated sub-K and completed rest of work using plaintiff’s equipment
 court used K rate to determine plaintiff’s restitution damages
o Posner v. Seder – plaintiff had 1-yr employment K in which made $17/week and no
overtime; plaintiff was wrongfully terminated by defendant and seeks quantum meruit of
all overtime hours worked; plaintiff had option of suing based on breach of K or waive K
and sue in quantum meruit for value of services
 plaintiff elected quantum meruit and restitution damages because total amount
would be more than value of K
o
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exception – when K is fully performed
 Oliver v. Campbell – plaintiff attorney represented defendant in divorce for flat
fee for $850 + $100 in costs; plaintiff fully performed and client won in court;
after services complete, defendant fires plaintiff and only pays $550; plaintiff
sues in quantum meruit for reasonable value of services ($5K)
 court did not allow plaintiff to sue in quantum meruit because the K
had been fully performed
 where non-breaching plaintiff conferred benefit but had a “losing K”
o RST § 373d – even if plaintiff would have lost money if K was fully performed, he is
still entitled to recover reasonable value of work he has performed
 where non-breaching plaintiff conferred benefit but cannot prove lost expectancy
o Bausch & Lomb v. Bressler – plaintiff pays defendant $500K to be exclusive distributor;
defendant breaches by selling in territory dedicated to plaintiff and then wrongfully
terminates distribution
 was clause in K that allowed for plaintiff to get $500K back – however, with
breach falls K; terms of agreement void once K breached
 when determining restitution – plaintiff allowed reasonable value of right
($500K) minus rights plaintiff enjoyed prior to termination of K; but must take
into account that K wasn’t exclusive even before terminated
o minor breach by one party doesn’t discharge K duty of the other (therefore nonbreaching party can’t claim restitution); breach must be so material that it is held
to go to the “essence”
 Osteen v. Johnson – defendant hired by plaintiff by oral K to promote plaintiff’s
daughter as country-western singer; defendant breached K (1) by incorrect
citing of authorship of song, (2) failing to press 2nd record
 breach 1 – wasn’t material; mistake of having additional author
probably helped plaintiff because radio stations would play song more
 breach 2 – was material
 **plaintiff can only recover from breach 2 if proved detrimental
 where plaintiff has conferred benefit but K is invalid, frustrated, or otherwise unenforceable
o Gay v. Mooney – plaintiff agrees to provide defendant with room and board; defendant
agrees to leave home to plaintiff’s children; K not enforceable because of SoF (not in
writing or signed) but court allowed plaintiff to recover because unjust enrichment
 where plaintiff has materially broken K after conferring a benefit
o general rule – plaintiff who has committed material breach of K can’t recover on K
theory, but if conferred benefit on defendant prior to breach and unjust for
defendant to retain benefit, breaching party may collect on restitution
o Britton v. Turner – worker breaches 1-yr employment K (salary payable yearly) after
providing 9 months of labor
 although worker was breaching party, because of substantial performance, he
can recover for quantum meruit (if not, employer unjustly enriched)
o exception – must be substantial performance on behalf of breacher
 Kelley v. Hance – plaintiff was to lay down sidewalk for defendant; plaintiff
tore up ground but didn’t lay any sidewalk
 court held plaintiff could NOT recover restitution damages for quantum
meruit because no substantial performance
Specific Performance
 general rule – when monetary damages will not give adequate remedy to an injured party,
court in equity may order specific performance
o **note – courts would rather give monetary damages, so must be special circumstance
 situations in which specific performance is appropriate –
o land
o unique items – UCC § 2-716 (ie antiques, art, custom made items)
o products needed at certain time
 limitations on specific performance
o
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defenses –
 based on unfairness
 lack of mutuality – defendant must be reasonably assured of receiving return
performance for what he has Ked
 indefiniteness of agreement
 impracticability of performance – difficulty in enforcing/supervising
 NO specific performance available if personal service K
 however, if personal services are unique, court may enjoin breaching
party from providing those services to 3rd party (Dempsey)
 unfair advantage taking
 ie – Coenen agreed with 99-yr old poor, sick granny to trade her house
for $99 and REM poster; court wouldn’t grant specific performance
because Coenen unfairly took advantage of poor, sick grandmother
o specific performance only available when other remedies at law are inadequate
o **with specific performance, courts will acquire into adequacy of consideration
specific performance for sale of land
o general rule – land has unique and peculiar value and thus land K is subject to
specific performance upon breach of seller
o Kitchen v. Herring – K between plaintiff and defendant in which plaintiff was to buy
defendant’s land; some evidence that land was to be used mostly for timber
 however, court still awarded specific performance
 if K was actually for sale of timber and not for sale of land – Llewellyn would
say to calculate monetary value of timber and not award specific performance
(reason for specific performance is hard to determine monetary value, since easy
to determine monetary value of timber ie stops the reason, rule of specific
performance would also stop being applicable)
specific performance with products needed at certain time
o Curtice Brothers v. Catts – plaintiff engaged in business of canning tomatoes and seeks
specific performance of K where defendant agreed to sell plaintiff entire product of
certain land planted with tomatoes
 court awarded specific performance because time line of receiving tomatoes was
essential for plaintiff plant to stay in business
 cover not adequate because market unstable and cover may be impossible
 lost profits inadequate because don’t take into account lost goodwill, reputation
o


MAKING AGREEMENTS
The Nature of Assent
 general rule – if one’s words/acts, judged by a reasonable standard, manifest an intention to
agree, it is immaterial what may be the real but unexpressed state of his mind
o expressed intention is what matters, not unexpressed intention
 agreement process – to determine whether parties formed an agreement, courts will use objective
standard and ask whether reasonable man would have considered words/actions sufficient for K
o courts may look at – extensiveness of negotiation and discussion before assent; detail of
agreement; signatures; consideration for option K; reliance of the offeror
o Embry v. Hargadine, McKittrick – plaintiff tells boss needs extension on employment K
or will quit on the spot; boss says “go ahead, you’re alright, get your men out and don’t
let that worry you”; court held defendant bound by K (even though stated didn’t intend
in his mind to create K)
o Lucy v. Zehmer – defendant agreed to sell plaintiff piece of land while in bar; court held
defendant bound by his agreement because his actions (changing “I” to “we”, having his
wife sign, etc) conveyed that he assented to terms of K
o Tilbert v. Eagle Lock Co. – plaintiff’s intestate was employee of defendant; 5 yrs before
intestate’s death, company canceled insurance policy and issued “certificate of benefit”;
defendants canceled certificate, but notice didn’t go out until date of intestate’s death
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
defendant claims “certificate of benefit” was never K – even though certificate
says not K and benefits can be terminated at any time, court reads it as K
 rationale for reading as K: intestate kept working (consideration) in exchange
for certificate; language such as “we offer” usually used in Ks, and “we trust”
tends to induce reliance
 even if defendant states promise is not a K in written agreement, may still be
enforceable if reasonable man would have relied on it
o Cargill Commission v. Mowery – plaintiff intended to buy wheat from defendant;
defendant’s employee used wrong code word and stated would sell 35,000 bushels of
wheat (what meant to say was 3000-3500 bushels); plaintiff relied on promise and
immediately resold bushels on market
 court enforces original K because buyer reasonably relied on the mistaken offer
(he resold before he knew about the mistake)
o Morrow v. Morrow – plaintiffs took care of mom Morrow after oral promise with brother
that at mom’s death, plaintiffs would be paid via sell money from land and then the rest
would be distributed equally among the siblings
 court holds no K – fact-finder couldn’t find valid K from evidence presented
 for a valid K, must be a mutual “meeting of the minds”
o RST § 20 – Effect of Misunderstanding
 (1) there is no manifestation of mutual assent to an exchange if the parties attach
materially different meanings to their manifestations, AND
 (a) neither party knows/has reason to know meaning attached by other
 (b) each party knows/has reason to know meaning attached by other
 (2) manifestations of parties are operative in accordance with meaning attached
to them by one of the parties it
 (a) that party doesn’t know of any different meaning attached by the
other, and the other knows the meaning attached by first party, OR
 (b) that party has no reason to know of any different meaning attached
by the other, and the other has reason to know the meaning attached by
the first party
 **under (1), isn’t a K; under (2), is a K
o Raffles v. Wichelhaus – plaintiff enters K for sale of cotton and agrees to deliver it to
defendant on ship called “peerless”; there were 2 ships named “peerless”; plaintiff
shipped on “peerless” that left in December, but defendant says he wanted it shipped on
“peerless” that arrived in October
 holding – K not valid because no “meeting of the minds”; ruled defendants not
required to go through with purchase because no valid K
o Whittier (pg. 393): thinks mutual meeting of the minds should be essential in K
formation; if party carelessly misleads other party into reasonable belief that there was
assent, there should be action in tort but not for breach of K
o RST § 201 Stewed Chicken Illustration – A and B both acted in good faith and had
different understandings of meaning of “chicken” (A sells stewing chicken, B thought
was buying broilers or fryers)
 because both parties acted in good faith and neither had reason to know of
differences in meaning, both claims would fail
The Offer
 general rule – to figure out whether something is an offer, you evaluate the surrounding
circumstances and ask yourself whether a reasonable person would have thought was offer
 Corbin: an offer is an expression by one party of his assent to certain definite terms, provided that
the other party involved in the bargaining transaction will likewise express his assent to the
identically same terms
 objective reasonable person standard applies in determining if an offer was made and the context
of an entire document implies intent to offer
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Lefkowitz v. Great Minneapolis Surplus Store – defendant advertised in newspaper twice
that he would sell nice fur coats for $1; plaintiff went to store on both occasions to
purchase items; plaintiff sues for value of black lapin stole (quoted at $139.50)
 acceptance? – yes – plaintiff shows up at store with $1
 consideration? – yes – defendant seeking increased attendance at store
 holding – was offer because defendant quoted exact price of black lapin stole in
newspaper advertisement; court awards plaintiff $138.50 ($139.50 quoted price
– $1 it would have cost plaintiff)
o Courteen Seed Co. v. Abraham – defendant sent letter to plaintiff with sample stating
seed was 24 cents/lb; plaintiff asked defendant to lower price; defendant lowered to 23
cents/lb but just stated was “asking” that much; defendant failed to deliver because
claimed no binding K and plaintiff sues
 court held no binding K – stated “ask” and not “offer”; mentioned sending
information to more than one possible buyer (and doesn’t have unlimited seed)
 Nebraska Seed Co. v. Harsh – defendant mailed out sample with note attached
stating price; plaintiff replied with 2 letters stating they wanted to buy;
defendant refused to sell; court held nonsuit for defendant because terms were
too general so not to constitute binding offer
o Southworth v. Oliver – defendant seller of land contacts plaintiff buyer and a few others
to see their interest in buying his land; defendant then sent out letters with specific costs,
terms, interest rates, etc
 court holds was binding offer by defendant and orders specific performance
 rationale: plaintiff and defendant had spoken before sending of letter;
specificity of language in letter
 argue court is wrong – plaintiff knew letter was going to multiple people (and
not unlimited supply of land)
o Fairmount Glass Works v. Grunden-Martin Woodenware – plaintiff sent letter to
defendant asking defendant to quote lowest price he would buy mason jars for; defendant
replied with price and “for immediate acceptance”; plaintiff then replied order for 10 car
loads was booked, but defendant replied saying no longer able to keep order
 offer? – yes – “for immediate acceptance”
 acceptance? – yes
 court further held K wasn’t too indefinite – “10 car loads” standard talk in
industry so that custom would show what amount that was
 UCC § 2-204(3) – Formation in General – (3) even though one or more terms are left open, K of
sale does not fail for indefiniteness if parties have intended to make K and there is a reasonably
certain basis for giving appropriate remedy
 UCC § 2-311(1) – Options and Cooperation Respecting Performance – agreement for sale
which is otherwise sufficiently definite (2-204(3)) to be a K is not made invalid by the fact that it
leaves particulars of performance to be specified by one of the parties; any such specification
must be made in good faith and within limits set by commercial reasonableness
 newspaper ads as “offers”
o general rule – newspaper ads aren’t offers, but rather invitations for offers
o exception: when an offer is clear, definite and explicit, and leaves nothing open for
negotiation, it constitutes an offer, acceptance of which will complete K
o Lefkowitz; Maughs v. Porter
The Acceptance
 general rule – communication of acceptance is required, mere mental intent to accept an offer
is not sufficient
o to be effective, acceptance must be definite and unequivocal
 exception: if person makes it clear they have accepted and then voices
conditional request, that is okay
 counter-offer – acceptance with limitation
o once an offer has been positively and unequivocally accepted, K is formed
o
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



Corbin: an acceptance is a voluntary act of the offeree whereby he exercises the power conferred
upon him by the offer, and thereby creates the set of legal relations called a K
o in the beginning, offeror has full control of immediately succeeding relation
mirror-image rule – acceptance must be mirror image of offer to be valid; if it adds terms or
conditions, it is considered counter-offer (which also needs acceptance)
o 2 possibilities according to Williston:
 (1) acceptance with request for suggestion – this is exception to mirror-image
rule if acceptance is clearly independent of condition; acceptance still valid
 (2) qualified acceptance – acceptance with condition; acts as counter-offer and
makes original acceptance conditional on acceptance of counter-offer
o Ardente v. Horan – defendants had property in Newport for sale; plaintiff made offer and
defendant accepted offer; plaintiff then sent letter with additional items wanted in sale;
after receipt of letter, defendant revokes offer and refuses to sell property
 court ruled for defendant because plaintiff’s letter acted as qualified
acceptance/counter-offer (“seeks confirmation”, “part of transaction”)
offeror is master of offer – has power to determine acts that are sufficient to constitute acceptance
o UCC § 2-206(1)(a) – Offer and Acceptance in Formation of K
 (1)(a) – unless otherwise unambiguously indicated by language or
circumstances, an offer to make K shall be construed as inviting acceptance in
any manner and by any medium reasonable in the circumstances
o Eliason v. Henshaw – defendant sent plaintiff offer letter to buy flour and says “please
write by return of wagon if accept”; defendant knew of time it took for reply by wagon
and wanted to know if plaintiff accepted within this time period; plaintiff delays
response by mailing letter to wrong location
 court holds no K because acceptance wasn’t pursuant to terms of offer – must
get to right place in right time (if plaintiff could have sent by letter and met
aforementioned conditions, would constitute K even if not “by wagon”)
o RST § 32 – Invitation of Promise of Performance
 in case of doubt, offer interpreted as inviting offeree to accept, by promising to
perform what offer requests or by rendering performance (as offeree chooses)
party must manifest acceptance by words/acts to offeror – intention to accept is NOT enough
o White v. Corlies – plaintiff was builder and defendants were merchants who wrote letters
back and forth regarding plaintiff doing work for defendant; defendant sent letter to
plaintiff stating “upon agreement…you can begin at once”; plaintiff never replied to
defendant but began to do work
 holding – was offer by defendant, but was revoked prior to acceptance which
made the offer go away; ruled for defendant because no binding K
 not proper acceptance on behalf of plaintiff – parties didn’t have final agreement
silence/inaction cannot typically be regarded as acceptance (unless stipulated by offer)
o exception: RST § 69 – Acceptance by Silence or Exercise of Dominion
 (1) where offeree fails to reply to an offer, his silence and inaction operate as
acceptance in the following cases only:
 (a) where offeree takes benefit of offered services with reasonable
opportunity to reject them and reason to know they were offered with
expectation of compensation
 (b) where offeror has stated or given offeree reason to understand that
assent may be manifested by silence/inaction, and the offeree in
remaining silent and inactive intends to accept the offer
 (c) where because of previous dealings or otherwise, it’s reasonable
that offeree should notify offeror if he does not intend to accept
 (2) an offeree who does any act inconsistent with offeror’s ownership of offered
property is bound in accordance with offered terms unless they are manifestly
unreasonable; but if act is wrongful as against the offeror, it is an acceptance
only if ratified by him
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39 U.S.C. § 3009 – Mailing of Unordered Merchandise – mailing of unordered
merchandise constitutes unfair method of competition and unfair trade practice
 treated as gift by receipt – no K
 example of federal law that will supersede state law on the matter
Duration of Offers
 RST § 36 – Methods of Termination of the Power of Acceptance
o (1) an offeree’s power of acceptance may be terminated by
 (a) rejection or counter-offer by offeree, OR
 (b) lapse of time, OR
 (c) revocation by the offeror, OR
 (d) death or incapacity of the offeror or offeree
o (2) in addition, an offeree’s power of acceptance is terminated by the non-occurrence of
any condition of acceptance under the terms of the offer
 RST § 42 – an offeree’s power of acceptance is terminated when the offeree receives from the
offeror a manifestation of an intention not to enter into the proposed K
 Akers. v. JB Sedberry – plaintiffs were employed by defendant for 5-yr K; new manager came in
and company began to have financial problems; plaintiffs offered to resign in face-to-face
meeting with defendant; defendant did not accept resignation at meeting, but 3 days later sent
plaintiffs a telegram stating resignation effective immediately
o ruled for plaintiffs – resignation offer went away at defendant’s revocation at meeting;
also because of lapse of time
o general rule with respect to face-to-face contact – offer made by one to another in
face-to-face conversation is deemed to continue only to the close of their
conversation and cannot be accepted thereafter
 Caldwell v. Cline – defendant sent letter to plaintiff offering to buy McKinsey farm; letter stated
plaintiff had 8 days to accept or reject; plaintiff sent reply via telegram that reached defendant 8
days later; defendant refused to sell and plaintiff brought suit for specific performance
o court rules for plaintiff because offer was accepted at time acceptance was mailed (and
not based on when it was received)
 Dickinson v. Dodds – defendant gave plaintiff signed memo stating he would sell certain R/E, the
offer to end at 9am on Friday morning; plaintiff wanted to buy, but didn’t express intention
because thought he had until Friday am; defendant sold to 3rd party on Thursday afternoon
o court held for defendant; rationale: a time limit fixed by the offeror could not prevent
revocation before the time limit had expired, for in the absence of consideration any
restriction on the power to revoke was simply nodum pactum
 nodum pactum – K made without consideration
Option Ks
 agreement with consideration to keep offer open is enforceable
o consideration isn’t classic consideration – may be pretextual/nominal
 differences between option Ks and offers – when revocation can occur
o offer can be revoked at any time
o in option K, offer can’t be revoked at any time because it is supported by consideration
 RST § 87(1) – Option K – offer is binding as an option K if it:
o (a) is in writing and signed by offeror, recites purported consideration for the making of
the offer, and proposes an exchange on fair terms within a reasonable time, OR
o (b) is made irrevocable by statute
 UCC § 205 – Firm Offers – offer by a merchant to buy or sell goods in signed writing which by
its terms gives assurance that it will be held open is not revocable, for lack of consideration,
during the time stated or if no time is stated for a reasonable time, but in no event may such period
of irrevocability exceed three months; any such term of assurance on a form supplied by offeree
must be separately signed by offeror
o *point – consideration for option K not necessary when all other requirements met
 Marsh v. Lott – in February, defendant gave K to plaintiff, consideration of 25¢ for option to buy
land until June 1 + 30-day extension; on June 1, plaintiff told defendant he wanted to use 30-day
o
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extension; on June 2, defendant revoked option and notified plaintiff property was withdrawn
from sale; plaintiff sues for specific performance
o court’s holdings –
 courts will not look into adequacy of consideration for option K even when
ordering specific performance
 with option Ks, nominal consideration will suffice – does not matter here that
consideration was only 25¢ when total K price was over $100K
 liberalizing approaches taken with option Ks in Marsh and UCC –
o rationale: felt need that option K is commercially valuable device that shouldn’t be
messed with by hyper-technical applications of consideration
Unilateral Ks
 unilateral K – seeks performance in exchange, not promise
 bilateral K – mutual promises between 2 parties to K; each party is promisor and promisee
 differing views of Wormser regarding unilateral Ks
o HYPO: Bob asks Ann to walk across the Brooklyn Bridge and tells her he will give her
$100 if she walks across the entire bridge.
o pre-1950 Wormser –
 until the act is fully completed, Bob is not required to pay Ann
 hypo is unilateral offer which can only be accepted by performance
 don’t have performance (therefore no acceptance) until act fully completed
o post-1950 Wormser – follows the restatement (first) § 45
 Bob created an option K at the beginning
 Ann has the option of finishing the performance or not, but Bob cannot revoke
his offer while Ann is attempting to complete the action
 RST (FIRST) OF CONTRACTS § 45 – if an offer for unilateral K is made, and part of the
consideration requested in the offer is given or tendered by the offeree in response thereto, the
offeror is bound by a K, the duty of immediate performance of which is conditional on the full
consideration being given or tendered within time stated in offer, or if no time stated, then within
reasonable amount of time
 Davis v. Jacoby – court has to decide if offer is unilateral or bilateral K because offeror dies after
offeree said “I accept” but before performance was started
o holding – when question of bilateral or unilateral K, presumption of bilateral K
o rationale: both parties are equally bound at exact same time with bilateral K; with
unilateral K, neither party is bound until action is completed
 Brackenbury v. Hodgkin – mother defendant sent letter to daughter plaintiff that if daughter and
her husband would come take care of her during her life, they could have the place when mother
passed away; plaintiffs moved to be with mother, but because mother was grumpy, she ordered
plaintiffs to leave; plaintiffs sue for specific performance
o holding – was binding K; was obvious equitable interest in plaintiff that needed to be
protected (plaintiff moving to be with mother); no breach by plaintiff because mother
was in fault in having plaintiffs leave
o even though was a unilateral K and plaintiffs didn’t fully complete, courts still awarded
specific performance because it was mother’s fault K wasn’t completed
 Petterson v. Pattberg – offeree sold property to offeror; offeree came to offeror and said “it is Mr.
Peterson, I have come to pay off the mortgage”; defendant offeror opened the door, but refused to
take the money; offeror sold mortgage and claimed no acceptance therefore no K
o holding – no breach because unilateral K and no acceptance (acceptance would not occur
until defendant was actually handed the money)
o Williston: offer under unilateral K may be withdrawn at any time before act is done
Reliance on Offer before Acceptance
 James Baird Co. v. Gimbel Bros. – defendant linoleum merchant sent offers to prospective Kers
with amount of money he would accept for linoleum portion of job to be done; defendant later
finds out he was misquoted on total amount of linoleum needed; defendant sent revocation letter
to all Kers, but plaintiff had already used defendant’s quote and was awarded the job based on
defendant’s estimate; plaintiff sues defendant for breach of K
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court holds defendant not bound by mistake – revocation occurred before acceptance
(prompt acceptance after K awarded)
 Drennan v. Star Paving – same facts as in Baird, but court reaches different result because holds
promissory estoppel should apply
o court awards expectancy damages (although reliance damages are typically awarded in
promissory estoppel)
 difficult to calculate damages for bid breaking because don’t even know if Ker
would have gotten the job had sub-Ker not misquoted amount
 RST § 87(2) – an offer which the offeror should reasonably expect to induce action or forbearance
of a substantial character on part of offeree before acceptance and which does induce such action
or forbearance is binding as an option K to extent necessary to avoid injustice
o *restatement sides with Drennan
The Mailbox Rule
 mailbox rule – acceptance (in which mail is an acceptable mode of acceptance) is effective
when deposited in mail and properly addressed with sufficient postage attached
o *also applies to option Ks (although this is minority view with option Ks)
o rationale: offeror has power to work around this by specifically requiring receipt of
acceptance if offer
 Adams v. Lindsell – defendant wrote letter to plaintiff with offer of wool if plaintiff replied back
“in course of post”; because of defendant’s error, letter was received later by plaintiffs, and
although plaintiffs were timely in mailing acceptance, defendant received letter later than
expected; defendant sold wool to 3rd party because didn’t receive plaintiff’s acceptance
o court ruled for plaintiff – acceptance occurs when put in mailbox
o argument of lapse of time wouldn’t work because lapse happened due to defendant’s err
o hidden issue? – proper revocation even without mailbox rule when sold wool to 3rd
party? – must find out under Dickinson if any 3rd party telling
 mailbox rule and option Ks
o Worms v. Burgess – plaintiff and defendant had option K in which plaintiff was to notify
defendant on or before 8/21 if plaintiff accepted; plaintiff sent timely letter on 8/20 but
because of post office error, acceptance never reached defendant
 holding – mailbox rule will apply to option Ks when option calls for notice
by a specific time (minority rule)
 rationale: a fortiori – option Ks have consideration therefore nonbreaching party in option K with consideration shouldn’t be banned
from using mailbox rule when non-breaching party without
consideration can use it
 *RST, Corbin, majority of cases say mailbox rule doesn’t apply to option Ks
 however, RST and Corbin merely conclusionary, don’t give reasons for
not allowing mailbox rule with option Ks
Indefinite Ks and Agreements to Agree
 hornbook rule – agreements to agree are not enforceable
 Joseph Martin, Delicatessen v. Schumacher – landlord and tenant had lease agreement with
renewal period that was to be agreed upon; when tenant told landlord he wanted to stay, landlord
stated rent would be $900/month (far above market value)
o holding – renewal clause not enforceable, didn’t state anything about reasonable rent
o however, renewal clause in lease providing for future agreement on rent to be paid during
the renewal term is enforceable if it is established that parties’ intent was not to terminate
in the event of a failure to agree
 Arnold Palmer Golf Co. v. Fuqua Industries –
o
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