1/65
DAMAGES & Remedies
§1: Contract is a promise for which the law gives remedy. Performance is a duty.
UCC §2-105: Goods are all things that are movable at time of K other than money, investment securities,
unborn young of animals, things attached as realty.
Essential elements of a contract:
1) legally capable parties 2) their consent
1) contracts have to be value-enhancing
3) a lawful object
4) consideration
2) freedom to enter into contract.
3) justifiably rely
Purpose of Remedies
1) Put P in position as if K had been performed.
2) Makes parties as well-off as can be, fulfill K.
3) Don’t give punitive damages. Encourage efficient behavior.
REMEDIES:
 Expectation- put person in same position he would have been in if contract had been performed.
 Limitations: 1) foreseeability; 2) uncertainty; 3) Avoidability; 4) lost volume mitigation
 Reliance- puts person in position had you never entered the contract at all- (returns $ spent)
 Formula: expenses made in preparation for performance or in performance – any loss that
breaching party could prove injured party would’ve suffered if K were performed (if they
would’ve lost $ on K)
 Restitution- actual cost of the act, deprives unjust enrichment
 Shaheen v. Knight (failed sterilization) – there was a special contract
 Steriliz. not against public policy. Enforce K b/c it’s a special K. No damages, against public interest.
 Hawkins v. McGee- (hairy hand) awarded expectation damages, the value of a perfect hand
 Held: P can’t recover damages for losses he was willing to sustain to get benefits of K. Damages
are reduced by losses P would’ve sustained if K was performed.
 Doesn’t award P&S → part of the operation.
 Expectation damages awarded: value of perfect hand – value of hand in present state
 Sullivan v. O’Connor- nose job case, dr. disfigured her
 Held: award reliance damages for 1st 2 operations. No expectation b/c it’s assumed to be w/in pain of
operation. 3rd operation: awarded expectation damages.
 Awarded damages for diff. b/t original nose & current nose, not current nose v. promised nose
Limitations of expectation: court won’t entertain expectation damages when completely unrealistic
CALCULATE EXPECTATION DAMAGES
1) Think conceptually about what the benefit would be to injured party if K had been performed.
§347: cost if K had been performed to injured party:
 Loss of value
 + Incidental & consequential loss caused by breach (doesn’t include damages for expenses
 - Costs or Lost avoided
naturally needed for the K)
→ services he would’ve had to perform, other things he needed to buy
→ anything reusable (scrap)
→ any profits off new, substitute job (lost volume – Neri)
→ can’t be from an unrelated event (like a fire)
→ can’t get damages if there was frustration of purpose/ impract. lateron
Comments: if miss something like an invaluable opportunity, go to liq. damage clause, or exclude liability for
consequential damages (uncertainty limitation)
2/65
Expectation damages= $ value of benefit promisee would’ve gotten under K – loss avoided for not having to
perform.
 Jay O’Cooker v. Roberts subcontractor sues for damages for storage space.
 Held: P uses space he already has. P not paying extra to store the cabinets b/c D could’ve avoided cost.
 already paying for the rent. if current facility is full, and had to get extra space- then claim damages
 Held: UCC only applies to goods, not services
1) Wants manager’s time was wasted on K
a. Awarded damages for lost profits on manager’s time. (he was already paying manager’s salary)
i. manager wouldn’t just be sitting around doing that; had other things he could do;
COVER & DAMAGES
If you can’t get cover, seek another remedy. Want ultimate outcome the same.
1) buyer can cover
2) spec. perf.
3) diff. b/t market value and K price (§2-713)
§2-712 Cover: to get, or obtain, attain replacement product
1) purchase on open market by the buyer in breach-of-contract dispute of good to substitute for the
promised but never delivered. (If costs more, then breaching party has to pay the difference.)
2) buyer can recover diff b/t cost of substituted good and original K price; buyer has to act in good faith
§2-713: Buyer’s damages for non-delivery or repudiation
 Market price at time of breach – K price + incidental & consequential damages – expenses saved in
conseq. of seller’s breach
§2-708: Seller’s damages for non-acceptance or repudiation
 Same as buyer’s, BUT if these damages don’t put seller in as good a position as if K had been
performed, AWARD Profits seller would’ve made + incidental damages, + costs reasonably incurred +
due credit for resale payments
§2-715: Incidental & conseq. damages
 Incidental: transportation, inspection, custody of rejects goods. Any commercially reasonable charges
in trying to cover.
 Consequential damages: any loss from requirement and needs that seller knew and couldn’t prevent
by cover at time of K AND injury to person or property proximately resulting from breach
Limitations to Damages
1. Have to be foreseeable to reasonable man
§351: Breaching party doesn’t have to foresee the damages. He needs reason to foresee damages as opposed
to actually knowing it. (Don’t want parties to be ignorant, forces to learn what conseq. are).
 Foreseeability assessed when K is signed. Use objective std.
 Hadley v. Baxendale (crankshaft not delivered on time. Mill couldn’t produce anything. Want lost profits)
 Rule: Award damages only if they are foreseeable to a reasonable man. Special damages are only
awarded if D is given notice of special needs.
 D’s arg: damages aren’t foreseeable, had no way of knowing the part was so important. Just a crankshaft
 P’s arg: damages are foreseeable. It is reasonable to know that co would need this part.
 Martinez v. S. Pacific Transportation (whole dragline late, asks for expectation damages)
3/1
4/2
6/20
intended arrival
actual arrival
repairs complete
{delay}
{repairs}
 Held: it was foreseeable that the whole dragline would cause damages to co (lost profits, wasted time).
→ Awarded damages only for delay, not for damages during repair period.
3/65
2. Uncertainty → Can’t get damages if it’s just too uncertain to calculate.
§346: If injured party can’t prove any damages, “nominal damages” can be awarded
§352: Damages aren’t recoverable for loss beyond an amount that evidence can establish w/ reasonable
certainty (interpreted more liberally over time).
 Dempsey (boxing match. Boxer backs out. Want 1) lost profits; 2) expenses in getting K; 3) injunction
expenses; 4) expenses incurred after signing K
 Rules:
1) Damages have to be calculated w/ reasonable certainty, using concrete evidence.
 Held: Lost profit damages not awarded b/c too speculative (hard to assess for one-time
events)
 Chicago Club’s arg: look at past receipts, similar events, can be calculated
2) Only get damages flowing naturally from breach (no award for expenses in getting K)
3) P was already informed that D repudiated K → took steps at own financial risk (Luten Bridge)
4) can get expenses incurred after signing, but before notification of breach → reliance damages
 Robert Reed case – Mike Brady double-booked.
 Rule: injured party can collect wasted expenditures when it’s wasted b/c D breached K b/c D most
likely contemplated wasted expenditures when making K (rare).
 D’s arg: just collect for damages after the K. P’s arg: want damages from whole contract
3. Duty to mitigate/ Avoidability
§350: If you can avoid loss, you can’t recover those damages. BUT, If you reasonably tried to avoid the loss,
but were unsuccessful, you can still recover
.
 Luten Bridge P builds bridge. Township changes mind. P continued anyways, and sues for all costs.
 Rule: After breaching party repudiates, can’t get damages for work done after the breach.
Injured party has resp. not to ↑ costs.
 Luten Bridge arg’s: didn’t know D breached, too much political chaos.
 Shirley McClaine- Fox offers her role, cancels, offers her another one that sucks.
 Rule: Breaching party has duty to mitigate by finding other employment, but the substitute has to
be an appropriate substitute.
 Fox’s arg: McClaine has obligation to mitigate. We offered her another role. Our liability should
be reduced by what the other role would’ve paid her.
 McClaine: other role was not an equal substitute for Fox’s breach. Can’t make her take just any job.
3a. lost volume (exception to mitigation → can still be awarded damages even if you mitigate)
 Neri v. Retail Marine Corp. (Corp. sells boat to Neri, who puts down deposit. Neri breaches, Corp
won’t give deposit back. Neri sues to get it back. Corp sues for breach.)
 Rule: In a large volume seller, seller still gets damages from breach even if seller can sell the
good to another party. If he didn’t sell it to you, he could’ve made $ selling it to someone else.
(car dealership)
 DAMAGES for resale (§2-706): if resell boat at a lower price, Corp. can get difference b/t resell
price & K price (+ incidential & consequential damages – loss avoided). If resell a boat at higher price
→ seller not accountable to the buyer for profit.
 If seller withholds delivery b/c of breach, buyer can get restitution …p. 170.
4/65
Liquidated damages → negotiate what damages will be in advance
 Enforce liq. damages if it’s a reasonable amt. and actual damages difficult to calculate
 Harder damages are to calculate, enforce liq. damages. Easy to calc., don’t use liq. damages.
 Default Rules: encourages people contracting around them w/ liquidated damage clauses. Encourages
parties to share info.
 Pros: 1) More certainty, 2) reduces risk, 3) can prevent people from breaching → economic efficiency
 Cons: 1) too large or unfair → are penalties; 2) unequal bargaining power; 3) don’t want to induce people
to breach if there’s a large liq. damage clause
§2-719: Conseq. damages may be limited unless limitation is unconscionable. If you limit damages to person
for consumer goods, it’s unconscionable. But it’s not unconsc. if you limit damages for commercial loss.
§356: Liq. Damages for breach have to be at a reasonable amt in light of anticipated or actual loss and diff. of
proof of loss. A term fixing unreasonably large liq. damages is unenforceable due to public policy
 Hard to ascertain, but has to be reasonable & damages hard to calculate
 Kemble v. Farren (P says he’ll perform in Covent Garden. If he doesn’t, clause says pay $1000. D
breaches. P sues for the $1000.)
 Held: Liq. damages clause invalid b/c clause didn’t specify what kind of breach, could’ve applied to
any breach. (you wouldn’t want this enforced for a small breach).
 Rule: the amt. in liq. damages clause has to be reasonable relative to loss from breach AND when
damages will be hard to calculate. (§356)
 Towne Hotel case (-ee gets fired. Liq. Dam. Clause says he’ll get rest of his salary for 3 yrs. He got
another job in 2 mo)
 Held: Found clause to be reasonable. Liq. damages clause enforced b/c hard to calculate what
damages would be from being fired (reputation, loss of career dev, emotional stress.)
SPECIFIC PERFORMANCE
 TEST: § 360 -- Awarded in conditions of:
1. land, unique or scarce goods; it has subjective value (priceless works of art, heirlooms)
2. when you cannot calculate damages, have to provide w/ reasonable certainty
3. when no other adequate remedy exists
4. cover is not reasonably available, need a suitable substitute performance by means of money
awarded as damages
 For land
→ Spec. perf. should be awarded for Land b/c it has commercial value
 Loveless v. Diehl (purchase farm for $21K)
 Held: Spec. perf. was not awarded b/c it’s clear what damages were in this case ($1K). The
Diehl’s would be put in the same position if they had spec. perf. or not. Not about sentimental
value, it’s all about $.
 For Goods
→ Spec. perf. should be awarded for unique personal property
 Cumbest v. Harris (sentimental value stereo)
 Corvette cases: 1. Scholl v. Hartzell (sale b/t two people)
o Spec. perf. not awarded b/c car is not unique and b/c P did not try to cover
o
2. Semak v. Charlie’s Chevrolet, (sale b/t dealership & customer)
UCC §2-716, spec. perf. awarded b/c car is unique
5/65

Difference in Corvette cases:
o Dealership v. individual
→
Uniqueness of car
→ Clearer contract in Semak
Economics of Efficient Breach- Calculating damages example
 Goal: to give the item goes to the highest bidder. If bargaining were costless, you can contract around
penalty clauses and even spec. perf. through bargaining and settling. The good will always go to the person
who values it the most → so spec. perf. should be awarded (b/c it doesn’t prevent efficient breaches)
 Situation: Seller backs out b/c a new buyer will pay more. The original buyer wants a piece of the pie.
 Spec perf can get same efficient results as expectation damages, but the difference b/t them is how surplus
gets divided (the distribution of the money between the parties).
A--Liquidated damagesB--price new buyer offers Hartzell
→ prevents efficient breach. If set too high, it’s a penalty.
}Hartzell gets this much extra (expectation)
C--Scholl’s actual value
}Scholl gets this amt. diff (expectation)
D--price Scholl offers Hartzell
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

Scholl wants to sell the car to Hartzell at price D. Scholl values the car higher than what he’s
paying for it at price C. D → C is School’s expectation (He’s gaining this amt.) Now a new buyer
offers Hartzell more $ at price B. Hartzell wants to breach, and get the most $, but if there is a
liquidated damages clause, he won’t breach b/c he loses $.
 If Court enforces liq. damages—Hartzell won’t breach b/c he pays higher cost A.
One situation: To get car to new buyer, Hartzell doesn’t want liquidated damages enforced. So he
talks to Scholl. Scholl wants to get the most value, but the highest amt. he can get is C. If there’s
breach, he can get A. (But Hartzell won’t breach if he has to pay A). So Hartzell negotiates with
Scholl and distributes profits b/t B and C with Scholl.
Other situation: If damages set too low—new buyer will end up with car—Kost theorem
 Personal Services
 Generally don’t want to award spec. perf. b/c:
 Compulsion is degrading effect- like forced slavery, immoral
 Damages can’t be calculated → Hard to standardize
 For breach: ask What happens at point of contract? At point of performance?
 P’s arg (party seeking spec. perf.): Show Damages are inadequate. When there’s an inadequacy
in case of goods, show goods are unique. Land is assumed to be unique, but goods have to be
proven unique.
o
Mark Clark (indentured servitude)
 At point of contract, she didn’t want freedom. At point of performance, she wants freedom.
o
Lumley v. Wagner (opera singer breaches. P wants restraint from performing elsewhere.
 D’s arg: can’t decree spec. perf. b/c damages are just fine
 P’s arg: saying this isn’t for spec. perf., it’s for an injunction to prevent violation of negative
stipulation
 Held: Can’t enforce spec. perf. on contract, prevents her from performing elsewhere
o
Ford (same facts as Lumley)
 Held: Can’t compel her to sing, can only prevent her to make money from other pursuits
6/65
o
Dallas Cowboys
 When a case involves entertainers- employees can’t cover
 Restitution → quasi-contract
 A sells to B. B breaches. A gives money back to B. Easier to give cash back rather than calculate
damages. Restitution favors party in breach.
o
o


Cotnam v. Wisdom (streetcar/ quasi-contract)
F: Dr. gives emergency treatment to an accident victim. It’s assumed that he’s responding to
the victim’s request. He can recover fair value of his services.
Not finding liability under an actual contract, finding a liability under a quasi-contract. It’s a
legal fiction. But for getting damages to drs. for a contractual remedy.
Drs. can adjust the price for a real contract, but in a quasi-contract, we’re awarding damages on
basis of time and skill.
quasi-contract claim (P could have used this, but it wouldn’t have worked)

3 general elements of quasi-contract
o D has to receive benefit
o D has to know about the benefit
o It would be unjust to retain benefit without paying for it
7/65
OFFER
 An offer is the manifestation of willingness to enter into a bargain
 The offeror can revoke an offer anytime before the offeree accepts
 Offer becomes binding when there’s:
1) Acceptance
2) §45 unilateral contract: partial performance starts, so option contract is formed
3) PE: one party relies to his detriment
4) firm offer → for sale of goods, even with no consideration, contract can’t be revoked.
5) §87: option contract → an offer [which offeror should reasonably expect to induce action] {on part of
offeree before acceptance} is binding as an option contract to avoid injustice
 Option contracts → §87
 Firm offer given w/out consideration. Option contract– more formal, has consideration
 Partial Performance → §45: option contract is created when you start performance
 can’t revoke offer once you start.
Offer gets revoked when: (Acceptance ends when). Offer can be revoked anytime before acceptance.
§36: 1) rejection or counter-offer;
2) death; 3) lapse of time
4) offeror revokes 5) nonoccurrence
of any condition of acceptance under offer terms
§43: acceptance ends when offeror takes inconsistent action w/ intent to enter K AND offeree finds out about it
(Dickinson v. Dodds)
 Dickinson v. Dodds → P indirectly revokes offer
 F: Dodds writes contract down to sell farm to Dickinson. Dickinson has until 9 AM to buy farm.
Before that 9 AM, Dodds sells to another buyer. Dickinson finds out, then tries to buy → example
of revocation
 This case was not an actual contract, it’s a memorandum of an offer for sale
 Uses §35-36, where power of acceptance terminates when Dodds revokes offer to Dickinson
through §43- indirect communication of revocation: Acceptance ends when offeror takes definite
action inconsistent with an intention to enter the contract and offeree acquires reliable info that
effect
 Proof: B/c P find out about the D’s offer to someone else- the case is strong that there was no
contract (no meeting of the minds)
 Not an option contract → Dodds can leave the contract open until 9 AM or he could leave it open
but still solicit other offers. Even if you say an offer is open until 9 AM doesn’t mean that it’s a
firm offer. if you don’t seek compensation- then it wasn’t an actual firm offer. because market
prices can fluctuate and you may lose $ or opportunity if you leave an offer open (like selling a
house)
 §25, §37 Option contracts: can’t revoke the offer if it’s an option contract
 UCC is more direct than Restatements. Restatement diverges from UCC
 If involved in sale of good and not land: An offer held open for a certain amt. of time, without any
payment, is NOT revocable
 Embry v. Hargadine Dry Goods (McKittrick) → Embry indirectly accepts offer
 Rule: Objective manifestations will prevail over subjective intent. Subjective testing is used
when it shows fairness of policy.
 Held: If a reasonable person would have understood McKittrick’s action to mean Embry’s
employment, then it’s a valid contract even though McKittrick didn’t intend to offer employment.
8/65


Look at words of parties, not just what people are thinking. Court uses two-part test (diverges a
little from objective test):
2. What does the reasonable person think?
1. if a reasonable person believes it’s a contract → it’s a contract
3. What does Embry (P) think?
2. if Embry doesn’t think it’s a contract, then it’s not a contract.
B/c there was no proof that McKittrick meant differently. Court protects Embry and makes sure
he’s not harmed. Makes clear: if a reasonable person construes meaning that someone is entering
into a contract, you hold him to a contract so people can rely on promises.
 Texaco v. Pennzoil
 Need Objective manifestation of intent.
 Held: SEC filing ad press release are outward, objective manifestations, but the secret conversations
b/t Getty and Texaco don’t count.
 Lucy v. Zehmer (restaurant check contract over farm, drunk guy)
 Held: contract b/c there’s objective intent. The law imputes to a person an intention
corresponding to the reasonable meaning of his words and acts.
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


Two-part test applied:
o Purely objective test: it doesn’t matter what Lucy thinks. What would reasonable person
think?
o Two-part test: it does matter what Lucy thinks
Zehmer tells wife that he was joking. If Lucy heard, it would become an objective manifestations,
and he might not have taken the contract seriously.
A reasonable person may not have thought this was an actual offer, but b/c using a 2-part test- what
Lucy thinks matters
Subjective Intent: Mistake principle→ Contracts of adhesion- when two parties enter into contract,
one contract has all the bargaining power b/c the fine print favors the stronger party. So you look at
the subjective intent of the party w/out all the bargaining power.
 Offer v. Invitation to bid/ Request for an offer
How you tell the difference between an offer and a request for an offer
1. Look at standard of the industry- business usage
2. Look at specificity, what are essential terms? Completeness of terms (contract has more complete
terms)
 Price, time, quantity
3. Have parties entered into these contracts before? Previous communications?
4. # of people to whom the communications is addressed
A
B
Offer
Acceptance
C
|-----------------------|--------------------|
request
offer
acceptance
for offer
 Nebraska Seed case
 §26- Manifestation of assent is not an offer if the person has reason to know that offeror doesn’t intend
to bargain.
 Held: there was no offer b/c all essential terms were missing, and the P had reason to know that D
wasn’t soliciting bids (through the trade)
9/65

“reason to know” depends not only on the words or other conduct, but also on circumstances, including
previous communications and business usages
Restatement diverges from UCC → SEE FILLING GAPS IN ASSENT
§33 Certainty: (1) one or more terms left open means there is no offer. Uncertain terms → no offer → no K.
(assign #2)
§2-204: Even if terms are left open, K doesn’t fail for indefiniteness IF 1) parties intend to K; 2) reasonable
basis for remedy. {There is a contract even if terms aren’t complete}. Open term → still have offer → K
§2-305 Open price terms: if price isn’t set, then a contract can still be made  if parties so intend
There is still a contract if terms are left open AND parties still intend to form a K
§2-309 Absence of specified place for delivery: if both parties intend to contract- you will have a contract
provision will be applied if provision is left open
PRELIMINARY NEGOTIATIONS
2 options
1) initial writing isn’t an official contract
2) intent letter is a binding document b/c both parties intend to be bound
 Empro v. Ball-co (one co wants to purchase another) → no contract
 Letter of intent does not impose contractual obligations on the party
 Held: there was no contract b/c the letter was just one of intent
 Analysis: If Empro gave itself an escape hatch- Ball-Co has right to. Empro board could have
vetoed the deal so there would be no deal. There needs to be further action before contract
needs to be complete. Ball-Co made clear that further negotiations would be required. if parties
use terms like “subject to”, the intent is not a final agreement (but Parties might be using subject
to carelessly). The letter of intent said it will be subject to a more definitive agreement. Letter of
intent does not impose contractual obligations on the party
 Final document might be a formality or just memorialize proceedings
I. Texaco v. Pennzoil case
Held: Getty and Pennzoil did intend to contract through preliminary intent
1) Different from Empro case- no clause that specified agreement would be subject to a more formal way
 Commercial meaning agreement in principle – is this binding? Or is it for further intent? Helps
parties hash through details
2) partial performance
 B/c there was no partial performance, doesn’t mean contract didn’t exist
3) whether all essential terms had been agreed upon
 all central terms were agreed upon
4) complexity of contract would require a formal agreement to conclude the actual deal
10/65
ACCEPTANCE
 Acceptance by Silence
 Acceptance by Performance
A
B
C
|----------------------------|----------------------------|
offeror
offeree
offeror
makes offer
sends acceptance
receives acceptance
 offeror can specify how acceptance can occur
o manner of acceptance – it’s either a promise or a specified type of performance
 medium of communicating an acceptance
o accepting medium is the same one the offeror used or one customary in similar transactions
 other possibilities of when agreement is complete
o the offeror could notify when offeree received acceptance
 Offeror always retains power to revoke before offeree accepts
 Mailbox rule: once a letter is sent in the mail, there is acceptance
o §63: if it gets lost in the mail, you still have acceptance once it’s sent
o §66: acceptance sent by mail is not applied unless it’s properly addressed.
o §36- methods of termination of power of acceptance- revocation of offer
Hypothetical
1) Conditions: A wants to buy cattle from B. A says this is the $ we need to execute contract. B sends
telegram that he wants to engage, but it gets lost. A doesn’t know if B ever said yes or no. Is there a
contract?
 Acceptance was sent- so you would think yes
 Condition required for contract to be formed never occurred
 A’s offer and B’s loss of telegraph- contract is discharged
 B/c A’s receipt of B’s telegraph is an implied condition of the bargain
 Offeror’s receipt of telegram is a condition
 §63b Exception to Mailbox Rule
o in an option contract- acceptance happens when contract is received by offeror
o seller commits to selling at a certain price (no revocation of an offer if price fluctuates)
ACCEPTANCE BY SILENCE → §69
 Massoit Whip case (eelskins; P sent skins to D. D retained them without notifying acceptance. Didn’t
pay. P assumed acceptance → D didn’t notify P whether or not he had accepted.)
 Held: conduct which imports acceptance is acceptance whatever the actual state of mind. In making
this standing offer, D didn’t assume an obligation, but they did assume an obligation to notify sender if
they didn’t want it
 An offeree’s silence indicates acceptance when:
 Offeree takes benefit of services with reasonable opportunity to reject them -- §69a
 Offeree knows that the offeror wants $ for goods -- §69a
 Offeror says assent can be manifested by silence or inaction.
 Previous dealings indicate that it’s reasonable the offeree should notify offeror if he doesn’t accept
 D’s Arg: Don’t want to pay for something if someone sends it to you and you don’t want it. Random
people send you random stuff. Aol sends CDs all the time. You would have to send back each one so
as to not get charged.
 P’s Arg
 previous history- they contracted with each other before where D never notified acceptance.
 D sent skins that conformed to the requirements for the P’s business
11/65


Standing offer
Retained skins for unreasonable amt of time
§ 69 (a) Acceptance happens through silence b/c offeree takes the benefit of services and but has reasonable
opportunity reject them and to know that the offeror expects compensation
 EX: A gives a series of violin lessons and charges B one price for the full series. B never asked for
lessons but allowed them to continue even though he knows A expects compensation. → B is resp.
for paying for lessons
§69 (b) offeror states that offeree has reason to understand assent. Offeree has to actually accept the offer.
 EX: CD club- where unsolicited goods are sent to a person directly to you, they are deemed a gift to
you, no obligation to a sender
ACCEPTANCE BY PERFORMANCE→ §54
 Offeror invites offeree to accept by performing a specific act – unilateral contract- accept by perf.
 Carbolic Smoke Ball case (Co. advertised that $100 if you get the flu after you use the smoke ball)
 Held: the ad was an offer b/c of 4 reasons:
1. The ad wasn’t a joke (if it was, there is no promise) b/c they showed sincerity by depositing $ into
acct.
2. Contract made to the world, but limited only to people who accept. Specific language in ad
suggests acceptance by performance.
3. acceptance doesn’t have to be notified b/c acceptance by performance is expected. It’s a continuous
offer that’s not revoked. Held: the person who makes the offer shows by his language and the
nature of the transaction that he does not expect and does not require notice of acceptance apart
from notice of performance
4. Don’t have to monitor a P b/c extravagant promises are made b/c it pays to make them
 Try to distinguish from general ads from negotiated offers.
 EX: Catalogues, price lists, circulars are not an offer for contract
 Can’t sue on basis of offer. It’s not an offer. It’s an invitation for you to make an offer. They have
to do something further for you to accept.
 D’s arg: people who accepted ought to have notified the co.
 Held: notification is when performance is complete  no separate notice is required
 Lesson-learned on how to structure ads: use more careful language. If you want notification, ask for it.
Hypothetical:
 retrieve lost dog; can’t expect all possible retrievers to notify you. In Reward cases: can accept by
performance
 posting of a reward offered to anyone who can make a hole-in-one
§ 54 Acceptance by Performance
 no notification is necessary unless offeror requests notification
 offeror should be made aware of acceptance
(2) if offeree has no way of letting offeror know of perf., have to use 3 ways:
 offeree has to try to notify, offeror finds out, or offeror has to say notification of acceptance is not
required
UCC → offeror has to be notified in a reasonable time
 Pepsi case (Kid sends in Pepsi points to get a fighter jet after he saw it in commercial)
12/65
 Held: The ad is not an offer. Ads are construed as invitations to offers. Not an offer if the offeree
knows or has reason to know the offer didn’t intend to form a contract
 Ad was in jest—a reasonable person wouldn’t have construed it as an offer.
o Fighter jet wouldn’t have been allowed in school. Kid couldn’t be pilot.
 Commercial didn’t limit the # of products available, refers to detail in catalogue. If sent out to all of
world, can’t expect to supply all the world with the offer.
 Found unilateral offer. Look for an offer and acceptance- sending in of form, acceptance of form
 Ads are not offers, can only become offers if it’s in clear, definite form
 Pepsi was specific enough; Clear what exact action had to be performed. Carbolic asks for certain
performance. Pepsi ad didn’t offer this kind of performance. It referred customers to the catalogue,
and fill out a form. – different kind of case than a unilateral case.
 Similar case: Lucy was claiming the offer was a joke. Court said, there was no objectively manifested
assent that it was a joke. No evidence that was a joke. In Pepsi, there is evidence of a joke.
 White v. Corlies → §30, §32 (carpentry)
 F: Co. asks for offices. Carpenter starts building them w/out notifying co. Co. backs out, is sued.
 Held: acceptance in this case needs to be notified. The Co’s note did not make an agreement b/c they
asked for notification in the correspondence.
 P didn’t do anything specific for the job, only prepared for performance.
 Different from Carbolic (acceptance by performance) b/c they are using mail correspondence.
 D arg: clearly indicated that D expects a return promise. Can’t just go buy stuff, have to accept first.
 P arg: can start right away b/c P can invite acceptance in any manner under any reasonable
circumstances.
 Rule: communication of acceptance is required in cases of promises. In looking for a promise [as
opposed to an act], acceptance has to be notified.
§30 Mode of acceptance when not specified in offer
 Unless indicated, acceptance can be given in any manner and any medium reasonable in circumstances
 can ask for promise, performance, or how offeree chooses
§32 - if there is a doubt of what the offeror is asking for, the offeree can accept in any way, promise or
performance
§62: when it’s unclear whether acceptance is supposed to be a promise or a performance
 Where an offer invites an offeree to choose between acceptance by promise and acceptance by
performance, the beginning of invited performance is acceptance.
 Crook v. Cowan (carpets)
 F: Asks for carpets to be made. Confusion if they are ever shipped. Cowan assumes carpets haven’t
been shipped. Co sues when Cowan doesn’t want them anymore.
 Held: Acceptance is by performance b/c the offer was specific and unconditional. Cowan asked for
performance, carpet co performed. Didn’t ask for notification.
 Notification is not necessary when the offer has specific details and is unconditional. Makes it
clear what need to be done.
 Carpet Co’s arg: If you have to notify, it could go on forever. Manufacturing carpets needed a lot of
time. Cowan should have called the delivery office.
 Least cost avoider rule - liability should be on the party who can prevent the outcome from occurring
for the least possible cost. (Cowan in this case)
 UCC §2-206 (1)(b) → Shipment of goods (p. 333)
 In shipping goods, not clear if acceptance should be by promise or performance. Either shipment or a
promise to ship constitutes acceptance.
13/65
 Not respond to a reasonable amt. of time – the offer has lapsed → WHERE DOES THIS LIE?
 Petterson v. Pattberg → §45 (mortgage)
 F: D held mortgage on P’s property. P could pay it off early to save $. P raises enough to pay
mortgage, but D already sold P’s mortgage. P is claiming $780 he could have saved from the mortgage
in damages.
 D makes offer (P can pay mortgage early). P comes to door and says he wants to pay. D first says too
late. Held: Even though P had the $, the completed payment completes the contract, not the words
 Dissent: P comes to door with $, he should be able to give it
 Offer can be revoked anytime before acceptance, but accepted party has to completely perform for
there to be a contract.
§45 Option Contract on Partial Performance
 When offer for unilateral contract is made, it can be accepted only by full performance. If offeree starts
to perform, the offer can’t be revoked—receives option contract.
 (Option contract- offeror has to keep the offer open. Offeror cannot revoke once offeree starts. The
offeree can finish and stop- in which case there was never any contract)
Hypothetical
 Reward for lost dog. → Acceptance is when one completes the performance.
 In an Option contract- can’t revoke the offer if you see someone walking down the street with your dog
FILLING GAPS IN ASSENT (don’t set a price)
 Parties don’t specify exact terms. Can cancel contract or fill gap. Courts want to honor freedom of
contract, so they don’t want to cancel it. Courts will typically fill the gap even though one party wants it
enforced, and the other doesn’t.
 But, Courts are also reluctant to fill gaps b/c of indefiniteness. UCC breaks away from this approach b/c
Negotiation is a costly process  not a good idea for people to avoid contracts b/c one terms is left open
§2-204: Even w/ open terms, contract doesn’t fail for indefiniteness if parties intended to make a K and there’s a
reasonably certain basis for giving appropriate remedy
 DIFFERENT FROM RESTATEMENT → §33 Certainty: (1) one or more terms left open means
there is no offer. Uncertain terms → no offer → no K. (like Assign #2)
TEST:
1) Did parties intend to make K?
2) is there reasonable basis to calculate price? Won’t enforce K if too unreasonable or terms too open.
§2-305 Open price term (doesn’t apply when price is to be fixed by mutual agreement or unilaterally)
 Can still have K even though price not settled (Sun Printing). Price is reasonable if:
 K doesn’t say anything about price
 Price is left to be agreed upon by parties and they fail to agree
 Price to be fixed in some agreed market or other std recorded by a 3rd party and is not yet recorded.
 If one party was at fault by not fixing the price, then the other party can cancel K or fix price.
 But can argue: if both parties fix agreement, don’t apply this provision
 No intent to be in K. → Return goods, and $.
 Sun Printing (negotiation left open – diff result under UCC)
 F: negotiated price for paper is fixed for 1st 4 months, then price needs to be agreed upon. D refused
to deliver the paper. P wants to keep contract and have court set a new price.
14/65
 Held: agreement was not reached b/c can’t specify the price. Rule: if essential term lacks, and no
reasonable basis to supply → K unenforceable.
 Dissent: Parties who have chosen to contract should be compelled to uphold the contract
 Both sides agree that there is a cap. You can determine the price (use max stds), look at trade
usage, market price, etc.
 *****UCC would rule that price can be determined. §2-204→ enforce K even if one or more
terms left open if 1) intent to be in K AND 2) reasonable basis for remedy.
 How to set a reasonable price:
 Court sets it at time of delivery if price left to be agreed upon by parties, but didn’t
 If one party was at fault by not fixing the price, then the other party can cancel K or fix price.
 Courts want to enforce contracts even w/ indefinite terms b/c
 Repeat players
 If not repeat players- be careful to choose default rules.
LOOK AT
 definiteness is the essence of a contract
 mere agreement to agree where a material term is left open is NOT a contract
 No basis to determine what the price should be.
When parties leave open terms, court possibilities:
 Can find an agreement too indefinite for spec. perf., but award damages
 Equitable jurisdiction- tell parties to negotiate (for long-term contracts)
To prevent: 1) Set a default price based on some outside term; 2) Specifically contract for what happens if
they can’t contract a price
MORE DETAILS
§2-308: Delivery Place: If no place for delivery specified → deliver to seller’s palce of business, or residence if
no business; other place parties know about; customary channels
§2-309 Time: has to be reasonable. Successive perf, but indefinite duration → valid for reasonable time but
UNLESS otherwise agreed, can be terminated at any time. 3) have to reasonably notify other party before
terminating. Can’t not notify if its operation would be unconscionable.
ILLUSORY PROMISES → Requirements OR Output K’s → don’t set quantity
 No quantity specified → requirements contracts → doesn’t fix a specific amt to be sold, contract
specifies the amt to be sold is whatever quantity a buyer requires
 Amt. that buyer can purchase is limited by usage of trade.
TEST:
1. Was act done in good faith? (Iron Works v. Radiator case)
2. Was the increase/ decrease unreasonably disproportionate?
 Need act done in good faith and is not unreasonable to previous amounts.
Issue: Is the seller obligated to supply what the buyer has demanded?
1) Is the buyer’s demand in good faith?
a. If yes, go to 2.
b. If no, then seller doesn’t have to supply
2) Was there a stated estimate?
a) if yes, is the buyer's demand disproportionate?
15/65
i. If yes, then seller doesn’t have to supply
ii. If no, then seller has to supply
b) if no, is buyer’s demand disproportionate to past requirements?
i.
if yes, then seller doesn’t have to supply
ii.
if no, then seller has to supply
§2-306 Output, Requirements and Exclusive Dealings
(1) → When you leave open the quantity, buyer has to request quantity in good faith. He can’t
ask for quantity unreasonably disproportionate w/ past requests.
A term that measures quantity of seller’s output or buyer’s requirements means actual output
has to be done in good faith, except no quantity unreasonably disproportionate [or in absence
of stated estimate] to any normal or comparable prior request may be demanded.
(2) Lawful agreement for exclusive dealing imposes [unless otherwise agreed] obligation by seller to use
best efforts to supply goods and by buyer to use best efforts to promote its sale.(Lucy exclusive deal case)
 Iron Works v. Radiator Case
 F: Buyer promised exclusively to deal w/ Radiator Co (seller) to buy goods at certain price. Market
price of the good ↑. Buyer gets more for his buck at cheaper price. Supplier loses $ → breaches.
 Held: Req. contract was valid, but buyer CANNOT require an unlimited quantity. Good faith and
fair dealing is implied in every contract → §2-306. Increase in orders was in good faith.
 Seller has to supply output or req. that arise in good faith. Assess if the buyer’s increase was
unreasonably disproportionate. Court judges reasonableness.
 D’s Arg: Buyer can’t use the contract for purpose of speculation. Argue, buyer used contract to
speculate. Orders exceeded P’s needs and not justified by business conditions or trade customs
 ASK: whether P used contract for purpose not within contemplation by parties. P can’t
stockpile goods in anticipation of higher prices in future.
 Eastern v. Gulf
 F: Gulf would supply Eastern with all of its fuel needs in a 5 yr contract. Price of fuel went up.
Gulf said Eastern has to pay more. Buyer said Seller breached. Buyer wants spec. perf. → the fuel
 Held: agreement is binding, §2-306.
 In a Requirements contract OR output contract, buyer’s req’s OR seller’s output have to be
in good faith. Can’t request unreasonable amt. Quantity demanded is limited.
 D’s arg: contract is vague and indefinite
 Req’s K invalid b/c too indefinite, but NOW you can look at the volume of goods required to
operate business.
 D’s arg: no mutual assent
 Contract was an exclusive deal. Amt. that buyer can purchase is limited by usage of trade.
 Limit Buyer Demand → good Seller’s arg
 Buyer’s arg: In dispute over req. contracts, courts could say the seller is out of luck b/c seller made the
agreement and must supply whatever buyer demands.
 Seller’s arg: courts look to limit buyer demand through course of dealing, trade usage
Hypothetical All-you-can-eat buffet: has indefiniteness, but doesn’t fail as a K. Even though quantity is
unlimited, there’s a max one can eat. On the other hand, Ironworks can order as much a supply as they want and
stockpile it, or sell it to supplier’s competitors.
Shut-Down Hypothetical
Market price for radiators drops below buyer’s contract price (buyer would be paying too much for the radiator).
Would buyer breach if he shut down his whole co?
16/65




Seller’s arg: if buyer shuts down in good faith (satisfies §2-306), but lack of orders is unreasonably
disproportionate.
Buyer’s arg: shutdown is completely reasonable b/c it’s not receiving orders
Test: does party act in good faith?
UCC: shut down to prevent losses not permissible, but shut down for lack of orders is allowed.
 Risk Reallocation: Purpose of req. contracts
Purpose: Protect against financial risk caused by market fluctuations.
Benefit: god for both parties in long-term. Buye rcan get fixed supply at a fixed cost, no matter how market
acts. Assumes risk if the market price drops, price he’s willing to pay.
X-axis = amount the buyer would “require”. Y-axis = market price.
→ If Market price ↑ above K price, buyer happy b/c she gets good deal, undersell competitors. She
will probably “require” more goods since she can sell more.
→ If market price ↓ below K price, seller tends to be happy, larger profit. But he sells fewer.
→ Expect narrow band of fluctuation. Can’t demand unreasonable amts.
To prevent: Parties can set their own limits. Parties should write more complete contracts. Specify a quantity
ceiling “B”, or even a quantity floor “A”. Or fluctuate w/ market price → keeps quantity w/in reasonable limits.
 Wood v. Lucy, Lady Duff-Gordon exclusive deal, found an implied promise → §2-306 (2)
 F: P has exclusive right to sell and license Lucy’s designs. She gets profits in return. P sues b/c Lucy
did her own endorsements and kept $.
 D’s Arg: Contract shouldn’t be enforceable b/c both sides have to do something. P doesn’t do anything.
(Consideration). P only collects revenues and share them. P didn’t explicitly promise to make sales.
Said I will work for you if you want.
 Held: P has an implied obligation based on best efforts to Lucy. Promise to use reasonable efforts to
bring profits. 3 factors:
 Exclusive representation: Lucy gave up exclusive rights, which is a big deal unless Wood gave her
something in return. Lucy wouldn’t be agreeing to no income if P didn’t do anything.
 Qualifications: His company is in position to do so
 Money: If he doesn’t use reasonable efforts, he doesn’t get paid.
 §2-306(2) → Lawful agreement for exclusive dealing imposes [unless otherwise agreed] an obligation by
seller to use best efforts to supply goods and by the buyer to use best efforts to promote their sale.
17/65
INTERPRETING ASSENT
 Raffles, Oswald, dress case
 Interpretation principle: if there’s ambiguity in contract, construe against drafter
 No meeting of the minds- one party has to rely on reasonable meaning of words expressed → agreement
fails
 Ambiguous terms → look at summary of evidence to see if contract can be enforced
 Raffles case
 F: Buyer thought cotton would come from the ship Peerless. Seller meant different ship named
Peerless.
 Held: buyer not liable for shipment b/c No consensus, no meeting of the minds. Judge used a
subjective test. They both agreed to the same words, but attached a different meaning.
§201 Whose Meaning Prevails
(1) when parties attach same meaning to a promise, it’s interpreted in accordance w/ that meaning.
→ Ex: Both parties are thinking Dec ship, but there is still an Oct ship.
(2) when attach different meanings, one party knew what the other party was actually thinking. Enforce
the other guy’s meaning.
→ Ex: Raffles thinks Dec Peerless, other thinks Oct Peerless. Raffles said ship would sail around New
Year’s. The other person picked up and understood his comment (enforce Raffle’s interpretation)
(3) No manifestation of mutual assent if parties attach materially diff. meanings to their manifestations
(a) neither party knows or has reason to know the meaning attached by the other
§1-205 Course of Dealing and Usage of Trade
 course of dealing: previous conduct establishes a common basis of understanding for interpreting
parties’ expressions & conduct. Trade usage → enforce that interpretation.
→ Ex. in this trade, when naming ship, everyone expects it to be the next ship
 TEST using §201 → IS THERE AN UNAMBIGUOUS TERM? → how do we interpret term?
(1) Do parties subjectively attach the same meaning?
i. Evidence to consider, for example:
1. Words in the contract
2. Course of negotiations, performance, dealing
 If yes, there is an agreement. Term is enforced according to the parties’ subjective understandings.
 If no, there is a misunderstanding, go to (2)
(2a) Does one party [know or have reason to know] other party (X) attaches particular meaning to term?
a. If yes (and X is clueless), there is an agreement, and the term is enforced according to the
meaning that party X has attached.
b. If no, go to (2B)
(2b) Can an objective meaning of the term be determined?
Can it be determined through:
 Course of performance
 Course of dealing
 Usage of the trade
a. If yes, there is an agreement, and the objective meaning will be enforced (i.e. the party whose
subjective understanding matches the objective meaning will prevail)
b. If no, there is no agreement- there only seemed to be mutual assent
FedEx example: I want projector here by tomorrow. Deliver late. Don’t have it for your presentation and sue.
18/65
→ Subjective meaning of tomorrow is in dispute. Like Raffles case. But try to determine which person is at
fault by assessing §201, contract terms. Who had what meaning? How can subjective assent be made into a
contract still?
§1-205 → course of dealing, usage of trade. §201b- didn’t know of any different meaning.
Landlord-Chef Hypo Landlord leases a restaurant to a chef. Lease says landlord pays for electricity. Chef pays
for gas or fuel in preparation of good.
→ Who pays for electricity in preparation for food? Landlord- even if used for cooking, electricity is paid for
by landlord. If it’s common practice for chef to pay for electricity in prep for food, can change interpretationchef pays
→ Lease provision: if chef wants an electric stove, he has to install a separate meterIn UCC, Express term of an agreement trumps trade usage terms - chef would end up paying
→ another hypo: To figure out what meaning to apply, it could depend on dealings of parties
 Oswald case (Swiss coins)
 F: Oswald thinks he’s buying all Swiss coins. She thinks she’s selling coins only in the “Swiss coin
collection.”
 Held: No contract b/c 1) essential term of contract is ambiguous; 2) both parties thought different
things; 3) no party knew of the other’s thinking
 How is case similar to Raffles? Each party doesn’t understand what the party is thinking.
Unambiguous term.
 What facts would change circumstance?
 Price arg: He’s offering a large amt. if it’s too high for just one collection, she would have reason to
know. But what if she inherited coins and didn’t know their worth?
 Oswald arg: If both collections are presented to him in one manner. He wouldn’t have known there
were 2 separate collections.
 Seller’s arg: translator did not make clear the agreement. Obligation to be clear.
 Dress case (what’s a dress?)
 F: original leasee has convenant to exclusively sell dresses in the mall. Another store sells skirts and
blouses that could be construed as dresses.
 Held: objective meaning of dress is upheld, looks at trade usage (like Embry & McKittrick)
 Held: other store can keep selling dresses b/c in cases of doubt, restrictive covenants are not enforced
 Language should be more precise
 §202..3.b- technical item
 202.5 manifestainos of intention are consistent with each other and with any relevant course of dealing
5 TYPES OF EVIDENCE TO CONSIDER in interpreting contract term:
1) Express terms → words of the contract (contract as a whole)
2) course of negotiations (what happened before contract was signed?)
3) course of performance (when it happens over a long period of time- regular shipments)
§2-208: where the contract for sale involves repeat occasions for performance by either party… any course of
performance accepted or acquiesced without objection will determine the meaning of the agreement.
4) course of dealing
§1-205 Course of dealing: previous conduct b/t parties establishes common basis of understanding for
interpreting their expressions and other conduct.
Golf hypo: imported golf balls from Japan. They were stolen. P is Dunlop’s insurer. Oral agreement between
shipper and Dunlop, never discussed any liability limit. On the std. invoice, shipper’s liability is $50 max.
Held: liability term is a gap. Party’s course of dealing is evidence. Dunlop had used shipper so many times.
Invoice terms and conditions can supplement if there is a sufficient course of dealing. Dunlop loses.
19/65
→ Shipment could mean the whole group. The # of tons of balls, # of balls, pounds of golf balls (if $50/ poundthen give $50 per pound) → no evidence that ambiguity existed.
Insurance co arg: defn of shipment was ambiguous. Who knows what shipment might mean.
In unequal bargaining powers- the drafter should have been more specific
5) usage of trade
§1-205: Usage of trade: any method of dealing that has regular observance in a place, vocation, or trade as to
justify an expectation that it will be observed with respect to the transaction in question.
→ If one party not in trade → go towards person not in the trade. Person in the trade has reason to know that
the other doesn’t know anything about the trade.
Hierarchy of precedence to see which subjective assent to enforce
Express terms

Course of negotiation
↓↓↓
Course of performance

Course of dealing

Usage of trade
Interpretation principle: Ambiguities in contract are to be construed against the drafter
 PAROL EVIDENCE RULE
 Effect of oral statements on final written agreement
 Integration is the final expression of agreement that has all terms. Agreement is not complete if it omits
a consistent additional agreed term.

Complete Integration: prior evidence can not be admitted to contradict or supplement a complete
integrated writing. (Thomas v. Libbey)
 (i.e. when contract is a complete integration NO evidence of prior agreements (oral or written) can be
admitted that would contradict or add to the writing)

Partial Integration: prior evidence can not be admitted if evidence contradicts a term. Prior evidence can
be admitted if evidence supplements the writing.
 TEST
 To apply rule, ask:
1) Is written agreement [intended by parties] the final expression of agreement?
 If Yes, then [extrinsic evidence of prior agreement] inconsistent with final agreement not
allowed.
 If No, go to (2)
2) Is agreement complete or partial?
 If complete, extrinsic evidence not allowed to supplement or contradict.
 If partial: extrinsic evidence is allowed to supplement, not contradict.
§209 Integrated Agreements
20/65

integrated agreement is a writing that is a final expression of one or more terms of an agreement.
Parties reduce agreement to writing where completeness reasonably appears to be a complete
agreement, it’s integrated unless other evidence establishes that it’s not a final expression.
§210 Defn of Completely and Partially Integrated Agreements
 complete integrated agreement = complete & exclusive statement of terms
 partial integrated agreement = isn’t complete. Both TBD by courts.
§2-202 Final Written Expression: Parol or Extrinsic Evidence
 If a Final agreement is NOT complete, then it can’t be contradicted [by evidence of prior agreement
or of a contemporaeneous oral agreement] but can be explained or supplemented:
(b) by course of dealing or usage of trade
(c) by evidence of consistent addt’l terms unless agreement is complete
§212 When you look at evidence
 When you look at an integrated or final agreement-look at terms in light of circumstances
 Meaning can never be plain except in a context
 Words don’t literally have to be ambiguous- look at relevant evidence
 Court may ask Plain meaning of contract terms.
 If have plain and unambiguous terms- no extrinsic evidence will be considered
§216 Consistent Addt’l Terms
 consistent addt’l terms admissible to supplement a partial agreement.
 Agreement not completely integrated if omits a consistent addt’l agreed term 1) agreed for separate
consideration; 2) in the circum, it’s naturally omitted from writing
 How would you show agreement was complete?
 Does it specify subject, price → ESSENTIAL TERMS?
 No other issues are addressed.
 Merger clause or integration clause – “this writing is the final and exclusive statement”
 The more complex- this agreement constitutes a final written expression
 Thomas v. Libbey (logs)
 F: P said breach of warranty of quality of logs. (P claims D gave warranty to the quality of logs)
 Issue: Should court permit testimony to prove existence of verbal warranty?
 Held: parol evidence cannot be allowed
 Rule: Cannot supplement a completely integrated agreement b/c it is a complete, exclusive
statement of the terms of agreement
 Rationale: parties have agreed to writing down terms. Court protects interest of parties who go to
trouble writing a contract- want to avoid uncertainty.
 Extrinsic evidence not applicable b/c written contracts undermined by inserting extra evidence
 Brown v. Oliver (hotel furniture)
 F: P bought hotel; 2 yrs later, D took furniture out. P says it’s her furniture. Agreement didn’t have
any reference to the furniture. Issue: Was furniture part of the agreement?
 P’s arg: wants parol evidence to be admitted b/c he said furniture was included in contract.
Furniture wasn’t in agreement b/c it wasn’t decided upon.
 D’s arg: says parol evidence should be inadmissible b/c term isn’t in the agreement.
 Held: Parol evidence can be used as proof of another, separate transaction here, written agreement
was only for the hotel sale; court expects separate agreement for furniture).
 Intent must be sought by conduct and language of parties in surrounding circumstances.
21/65
 1) Look to see if contract was complete or partial? How to argue:
 D arg: the contract was completely integrated. → no extrinsic evidence allowed, so furniture
wasn’t included in the deal, can’t supplement total integration.
 P arg: the agreement was partial, so extrinsic evidence that supplemented can be admitted.
 Note: parol evidence rule preserves sanctity of final completely integrated document, regardless of
actual expectations.
Hypothetical
 Complete integration, but parties made oral agreement to sell furniture. Buyer pays cash. Hard to prove
oral agreement & that person paid cash. Regardless of parties’ intentions, complete integrated contract
stays in tact.
To prevent: Put a clause in agreement that there’s no sale of furniture
 PGE v. Drayage
 Held: When reading a contract, going to bring your background to interpret contract (trade usage)
EXCEPTIONS to parol evidence:
 MISTAKE INTEGRATION
 Courts allow outside evidence if there’s a mistake in integration.
 Courts will reform the agreement if parties can prove that the agreement existed, but that they
entered it on the form incorrectly.
 MIRROR IMAGE RULE
 Acceptance has to be the precise mirror image of the offer. If it isn’t, there’s no contract.
 Common Law: Contract can’t be accepted by silence.
 If cross out terms, then it’s not a mirror image. It’s a counter-offer b/c you’re varying terms.
 HOWEVER, Battle of the Forms EXCEPTION: UCC §2-207 says you can have contract w/out
mirror image terms for sale of goods. Can still accept even if terms are different UNLESS expressly
condition on assent to diff. terms.
Possible Different Outcomes: 1) expressly conditional; 2) if not expressly conditional, accepted but
proposal to change one term. Court has to look to see if it applies.
 TEST
 To apply rule, ask:
1. Is there a contract at all?
 Mirror image rule says there is NO offer when receiving party introduces new terms that
didn’t mirror the offer.
2. What are terms of the offer? – are terms consistent with offer or counter-offer?
 Terms agreed to are terms of the last agreement (e.g. Offeree’s counter-offer)
 if original offeror chooses to reform- then he accepts offeree’s terms.
Pros of mirror image rule
 Don’t want to enforce parties to be
complete until they agree. Default rules
that parties don’t like can force them to
work around. Enforce draconian rule
like mirror image- resolve problems
Cons
 Parties might not read the contracts but offeror still
wants performance under terms that they assented to
 One party may try to slip out of deal. Otherwise- might
request an adjustment in price. Where market fluctuates.
Courts didn’t enforce mirror image if they found different
terms were substantial.
 Last shot rule- terms of last communication are what’s
going to be enforced.
EX: Buyer sends purchase order, seller sends back one with diff. terms. No contract- seller has counter-offered.
If buyer accepts goods -- contract applies.
22/65
 DEPARTURE from Mirror-Image Rule → §2-207 → BATTLE OF THE FORMS
 Each party has its own preprinted contract they send back and forth. Buyer sends PO. Seller sends
acknowledgement form w/ warranties of merchantability and of fitness. Usually seller performs by
shipping goods. Buyer accepts them. §2-207 still upholds contract.
 Union Carbide v. Oscar Meyer (pay back-taxes)
 F: Union Carbide thought it could avoid taxes by changing address so sale would be cheaper for Oscar
Meyer. UC had to pay back taxes. UC sued OM to pay for those taxes. UC had clause that said “Buyer
shall pay seller amt. of all govt. taxes”
 Held: OM didn’t breach contract. 2 Court reasons:
1) material alteration of contract
2) literally interprets clause (phrase is ambiguous). Doesn’t rely on plain language – looks at
what other companies have done. Put liability on party that can avoid the problem.
 Arg #1) §2-207  material alteration
 UC sends PO, OM send a standing order (applies across time), OM sends release order (what they
want right now). UC sent back an invoice w/ indemnity clause on back that says they don’t have to
pay for taxes.
 Go through §2-207(2): additional clause becomes contract UNLESS:
a) offer expressly limits the acceptance
 if OM says you can accept our offer as is, with no exceptions – no contract
b) material alteration- then contract can’t be accepted.
 Material alteration: UC’s PO contains a space for sales tax.
 If OM accepted that term- the contract is accepted even for the existence of a
material alteration. OM could also accept by silence with a material alterationwith action showing understanding. Consent can be inferred from silence through
course of dealings. If there is consent through silence- UC has bop to show that
there was acceptance- UCC could not realistically interpret assent
c) notification- if OM read clause and said we will not accept- indemnity clause doesn’t apply
 UCC §2-207 Contract can be created where acceptance doesn’t match offer. Specifies terms of
contract.
(1) Acceptance (sent w/in a reasonable time) is valid even though 2nd form imposes additional terms
UNLESS acceptance is expressly made conditional on assent to the different terms
(2) Proposed addition between merchants (additional clause) becomes part of contract UNLESS:
(additional term doesn’t become contract when):
a) offer expressly limits the acceptance
b) material alteration- then contract can’t be accepted.
c) notification- the offeree notifies party that they don’t want to accept.
(3) Conduct by both parties is enough if it recognizes the contract EVEN THOUGH writings don’t
establish the contract. Their terms they agree upon + any other supplementary terms any other UCC
provisions.
 §2-107(2): additional terms become part of contract if offeror remains silent. CL allows acceptance of
silence.
Possibilities Hypothetical: one side’s form says nothing about tax liability, other said there is liability.
1) Knock-out doctrine - they conflict- courts throw them out.
2) There’s a gap, so traditional interpretation rules apply. Filing in the gaps
3) a conflicting term doesn’t apply, so go back to first reading of contract
4) last-shot rule: 2nd party’s term applies
p. 36 Emmanuel’s flow-charts and examples
23/65
PRINCIPLES OF ENFORCEABILITY

1)
2)
3)
4)
5)
6)
6 principles:
Will
Reliance
Restitution
Economic Efficiency
Substantive Fairness
Bargain
 Will Principle:
 promisor has voluntarily undertaken to be subject to these obligations
 objective manifestations of assent conflict from will principle
 Ex. McKittrick didn’t intend to go into contract, but he manifested assent
 Problems: opening up to fraud, people will say things to help their suit, allows subj. intent to prevail
over objective intent. Uncertainty will increase
 EX: How do you justify enforcement in Embry case?
 If will principle is in effect- then we say McKittrick isn’t bound, But it should be enforced b/c
Embry relied on McKittrick’s promise.
 Reliance Principle:
 Rely on words.
 Problems: but contract won’t be imposed- what is reasonable reliance? Is it reasonable to enforce
promise?
 Restitution Principle
 Enforces a commitment to prevent unjust enrichment of promisor who wants to go back on word
 Problems: there can be reliance without unjust enrichment
 Economic Efficiency
 Balance between → if benefits of enforcement exceed costs of enforcement
 Problem- hard to assess what’s beneficial b/c of difficulty to collect and evaluate info
 Substantive Fairness
 only want to enforce K’s that are fair, don’t enforce contracts when it’s not fair. Look for just price.
 Bargain
 moves away from substance- focuses on process. Look at bargaining power of parties to see if bargain
is fair
 Notions of consideration- inducement to enter a contract; when consideration present- contracts will
be enforced. No consideration → no K b/c each party’s promise is induced by other party’s promise.
 Advantages:
 Definite existence of a bargain through mutual promises. Intend to make a commitment.
 Disadvantages:
 Excludes certain types of promises: Not asking for anything in return. Not giving anything
in return.
 EX. Promises among family- no notions of consideration. I’ll take my kid to the park.
 can cut out entire classes of promises you don’t mean to cut out
 Promises to keep an offer open- (Dodds- sale of land)- court said that promise is not
enforceable b/c of lack of consideration.
 doesn’t apply to past stuff
24/65

 someone does something and you promise to pay them later
promises to give to charities
 promise to give Penn $- but not enforceable b/c they didn’t promise to give anything in
return
 Marvin v. Marvin – Enforceability issue
 F: Marvins weren’t married, but lived together for 5 yrs. One wants out of relationship.
 Causes of action for Ms. Marvin: determine her rights; wants a constructive trust on half of property
acquired during course of relationship
 Held: Mr. Marvin obtained property by wrongdoing. To prevent being unjustly enriched, she should get
some $ There was an implied contract that is enforceable. A nonmarital partner can recover for
[reasonable value of household services minus reasonable value of support received], if services are
rendered with expectation of monetary reward
 D’s arg: against public policy. Also, Interferes with Mr. Marvin’s legal wife’s property
 Court: can’t rule on public policy. only unenforceable when it amounts to prostitution. Mrs.
Marvin could choose to void contract. All claims have been settled.
 Dissent: she shouldn’t’ recover under quantum meruit. They’re trying to avoid marriage rules.
Acknowledges will principle: don’t want to be forced into a bargain this way.
 there will be too many disputes that it will be a burden for the courts- difficult to calculate
reasonable value of household services
 Implied v. Express contract
 no difference in legal effect, look at the motive
 express contract- the promise is manifest in conduct, language, course of dealing, of performance,
trade usage
 implied contract- contract that can be inferred from situation, not actual words used
 implied-in-fact contract– when one party performs services for another and they have reasonable
expectation of compensation
 implied-in-law: not an actual contract, theory to recover damages when court finds actual contract.
Court gives restitution to prevent unjust enrichment. → quantum meruit
CONSIDERATION






a promise in return that has to be bargained-for. Can’t get something for nothing.
Two types of promises: bargained-for or gratuitous (not getting anything in return)
Consideration is a Promisor’s benefit OR promisee’s detriment (Hamer v. Sidway)
Past Consideration
Moral Consideration
Pre-Existing Duty Rule
 Exceptions: consideration can be found in middle of contract if it’s §89 fair & equitable. Under §2-209,
if it’s done in good faith, no consideration is necessary.
 Adequacy of consideration: generally not disputed unless gross disparity
 If it was found that no consideration was actually there (when you thought it was), if it was reasonable
to think that it was there, and you act in good faith → constitutes consideration → enforceable contract.
 TEST:
 1. Is there a return promise being made?
§71: if sought by promisor in exchange for its promise, and given by promisee in exchange for that promise.
 EX: A seeks promise for B. in return for B’s promise. B gives performance in return of A’s promise.
 Johnson v. Otterbein Univ.
25/65
 F: Johnson promised to pay $100 to Univ. in 3 years. He doesn’t pay. What did Univ. promise to do?
→ To liquidate debt
 Held: No consideration b/c the college’s promise to use $ to pay off debt isn’t bargained for.
 This is only a stipulation. It’s not what can be received in return. Doesn’t hurt is Univ.
Hypotheticals:
 Univ. sued administrator of estate. Deceased promised to pay $1000 to institution. Administrator lost.
 Factors:
a. other people made similar donations.
b. univ. reacted and set up a fund
c. state law promotes philanthropy
 referred to issue of reliance (not talked about in Otterbein)
 Other situations:
 Look at objective manifestations if treat promise as bargained-for:
 If A means to give a gift, but treats it like a bargained-for agreement, and B accepts.
 No reliance:
 If one party thinks gift is a sham, then there’s no reliance. Pretense of a bargain isn’t enough.
 Can’t get your $ back:
 Even if promise isn’t enforceable, once you give out the $, you’re out of contracts court
(property ct)
 Hamer v. Sidway (uncle-nephew will, nonsmoking nephew)
 F: Uncle promises $ to nephew if he quits smoking.
 Held: Enforceable promise b/c nephew gave up a legal right. Consideration may be a benefit to one
party or a detriment to the other party. Any waiver of legal right is a consideration of promise.
 Court didn’t rest its ruling on benefit to promisor. Rested disposition on: whether nephew gave up
the right.
 D’s Arg:
 P received the benefit from contract. Unless promisor (Uncle) benefited, there’s no consideration
 Uncle legally benefited from transaction: Just satisfaction that nephew would lead a vice-free
life.
Hypothetical:
Promise would still be enforceable if nephew wasn’t tempted to do drugs. If he’s underage, he doesn’t have the
legal right to smoke.
§17 Requirement of a bargain
 Formation of contract requires mutual manifestation of assent and consideration.
§71 defines Consideration in terms for a bargain
 Perf. or return promise must be bargained for. Promisor seeking thing A, B gives A to promisee.
 Performance may be: An act, or forbearance, or create change or destroy a legal relation
 PAST CONSIDERATION




If promise has already been carried out, no consideration given. (No consideration for past services.)
A return promise has to be a future bargained-for exchange.
Can’t induce present performance for something in past. Exchange of future services for future money.
EXCEPTION: §86: a past consideration is binding to prevent injustice. Promisor hasn’t been unjustly
enriched.
 TEST:

Do you get anything in the future if you pay?
26/65
 Moore v. Elmer (clairvoyant)
 F: Mr. Elmer does not believe in clairvoyant powers. Agreed to give her some $ if his death occurs
before what clairvoyant says, he promises to give her the balance of the mortgage.
 Held: No consideration b/c Mr. Elmer did not bargain before he sat down. He paid her $10, she told
his fortune. Afterwards, he wrote a contract, not for return- just a bet.
 He didn’t bargain-for promise in return from clairvoyant.
 How would clairvoyant have won the case? He would have had to make agreement before she gave
his reading. I’ll predict date of you death if you pay my mortgage.
 Mills v. Wyman (asking dad for $ when P took care of sick son) (Past and Moral Consideration)
 F: P gives Wyman’s son care when he was sick. D promises return for $. He doesn’t give $. P sues
for it.
 Held: Father didn’t have a moral obligation and P already gave services in the past. P didn’t bargain
for the D’s promise (P didn’t care for son in order to get father to pay). Verbal promise w/out
consideration isn’t enforced.
 Dad doesn’t get future services if he pays. Do you get anything in the future if you pay?
 Father does have moral obligation but Father wins. Court doesn’t enforce moral obligation.
 Wealthy man may have obligation to pay
 EXCEPTIONS
 Ex: a loan. Agree to repay the loan. Statute of limitations where rights cannot be enforced. No legal
obligation to give $. Even though I don’t have to pay you this money, you say, I promise to pay.—
contract is enforceable.
 There can’t be consideration for past services, but the exception lies in §86: a past consideration is
binding to prevent injustice. Promisor hasn’t been unjustly enriched.
Hypothetical
If father wrote Mills before son died, there would be a contract because promise to pay in the future. Services
are given directly to son. Doesn’t matter whether father gets services. Depends on when letter gets there b/c
there has to be an offer and acceptance. Offer was effective when it was received b/c that’s when the offeree
knows of the offer.
→ If son was 12, there would be a moral consideration to pay.
 MORAL CONSIDERATION
 A moral obligation is sufficient consideration to support an express promise.
TEST:


Did P suffer a detriment?
Did victim gain a material benefit?
 Webb v. McGowin (saved life)




F: Webb saves McGowin life. McGowin dies and his intestate refused to pay anymore. P files suit.
Held: There is a contract b/c Webb took a loss to benefit McGowin. McGowin received a material
benefit. If there was material benefit- court will enforce promise.
If applied §71, bargain theory of consideration- there would be no contract. Webb’s heroic act
induced D’s promise. In Mills case, moral obligation became enforceable when there was a legal
obligation.
Promise to pay did not induce the previous action. But McGowin’s promise to pay was induced by
Webb’s heroic act. Court is creating a point to rescue out of thin air (like Cotnam v. Wisdom)
27/65
 Court finds moral obligation b/c:

There was an express promise to pay,

McGowin paid for years, not the heat of the moment thing

P was injured- rescuer was hurt badly

Victim was substantially benefited- McGowin has his life
 Rule: past moral consideration not sufficient, BUT if promisor materially benefits, court can enforce K.
 Use §86: a past consideration is binding to prevent injustice
 Courts will use §86 to prevent an unjust result.
 §86(2): But if promisee gave a gift, no enforcement.
 PRE-EXISTING DUTY RULE
 Both parties know there’s a contract. But in the middle of the contract, one person wants to change it
w/out additional consideration. Traditionally, they can’t.
 Preexisting duty does not constitute consideration. Any modification requires additional consideration.
 Preexisting duty rule- should only apply in certain cases where duties are the same
 Prevents opportunistic behavior (taking advantage of one party)
 TEST:
 In the middle of contract, are you changing your conduct after your demands?
 If yes → consideration
 If no → pre-existing duty rule → no consideration → no contract
 Stilk case
 F: Before voyage, sailors agreed to a price. During voyage, two left, Capt’n promised the rest can
split wages. Backs out promise. Sailors sue.
 Held: No additional consideration → no enforceable contract. They’re fulfilling a duty that already
existed. It was already sailor’s duty to sail the ship, so their agreement to sail the ship could not be
consideration for an agreement to raise pay. Captain or shipowner doesn’t get anything in
return.
 Court ruled on consideration, not public policy. D’s arg: agreement should be void b/c allowing
sailors to force change is against public policy.
 Alaska Packer’s (Fishermen demand more $ during journey)
 Held: Not an enforceable contract b/c fishermen aren’t doing any new duties. Just asked for more
$.
 Fishermen’s arg: got faulty nets. Court: co wouldn’t want to give you faulty nets.
Hypothetical: orange growers
Both parties can voluntarily enter into a new contract. 1) rescind old contract. 2) create new contract.
Consideration is that each party surrenders rights in exchange for the other party surrendering rights.
UCC allows modification w/out consideration involving sale of goods. Look at exception:
 EXCEPTION TO Pre-Existing Duty Rule
 Contract still enforceable if there are:
1) Unforeseen circumstances – oral agreement to pay extra will be extra
2) Discover a situation Not contemplated by parties-- not part of original agreement, so both can
enter into an additional agreement
 Summary: generally you can’t get more $ by performing the same duties b/c there’s no consideration.
BUT, when you don’t have consideration, a contract can still be binding if it’s fair and equitable and
done in good faith. TEST: Look for any statute, §89, or §2-209.
28/65
 TEST

Did circumstances changes?
o If no, preexisting duty rule applies → no consideration.
o If yes, did parties renegotiate contract w/ different terms?
o See if there’s consideration. If no consideration, then contract can still be binding.
 Brian Construction (unforeseen circumstances)
 F: D is a subcontractor. Found that there was more rubble than reasonably anticipated. P and D
orally agreed that D would be paid more for removing the rubble. D started, but then he quit.
 Held: the oral agreement is an enforceable contract. There was consideration b/c D had an
additional obligation to remove rubble and in return would get paid more. When a contract must
be performed under unforeseen circumstances, and parties renegotiate a contract → new
contract has consideration.
 Not engaging in opportunistic behavior, but look at the scope of duties originally contracted for.
Hypotheticals
 Reward to capture a bank robber (unilateral contract). If a cop catches him, he doesn’t get reward. If a
teller catches him, look to see what scope of original duties is. If he has duty to protect bank, he doesn’t
get the reward either.
 Better job offer: you get a better job elsewhere, so you ask your employer for more $. If he gives it to you,
this is NOT enforceable b/c of preexisting duty rule. You’re not changing your responsibilities. IF you get
more work or change title, then it is enforceable. BUT under §89, if the promise is fair and equitable, then it
may be binding. Changes in market provide a legitimate reason for modification
 UCC & Restatement (departure from preexisting duty rule)
 §89: Extent an executory contract can be modified
 A promise modifying a duty is binding if
 (a) modification is fair and equitable in view of anticipated circum. (Brian Construction)
 (b) to the extent provided by statute
 (c) to the extent that justice requires
 §2-209 → more liberal.
 an agreement modifying contract (concerning goods) is binding w/out consideration
 BUT modifications have to be done in good faith – for legitimate reasons
TEST: W/ no consideration, Is change in agreement fair and equitable? Is it done in good faith? Does a statute
say it’s binding?
ADEQUACY OF CONSIDERATION
 The value of consideration doesn’t matter. Courts don’t go into it. Don’t want to 2nd guess your value.
 But adequacy will matter to determine if offer was made or spec. perf. should be awarded (§364)
 lack of consideration = absolutely nothing was given for the promise
 failure of consideration = what you get wasn’t what you bargained-for (ex: you buy a box and find nothing
in it. But you were promised something would be in it)
 inadequate consideration = the value of what you got was less than you originally thought (get box, get the
inside of what you bought, but think it sucks now. Wish you had paid less)
 Don’t want to judge on adequacy b/c 1) there would be too much litigation. People could sue when they
weren’t happy 2) It would introduce uncertainty into transactions. 3) Proof is hard.
29/65
§79: Once there’s consideration that’s been bargained-for, courts don’t look at further evidence to decide if
value exchanged was equal.
EXCEPTION: courts don’t always ignore amt. of consideration. Looks to see if there is an offer.
Pepsi case: Court says the $700,000 price tag for a multi-million $ fighter jet established that there was no offer.
 Gross disparity in value is a joke, not an offer.
 In fraud: Doctrine of unconscionability: gross disparity indicates fraud in bargaining process
 Doctrine of Mistake: gross disparity matters
 Lack of capacity
 TEST: Is there gross disparity between the two values?
 If yes, then no offer or spec. perf can be denied.
 Adequacy can determine remedy:
§364: Court denies spec. perf when spec. perf. will be unfair b/c exchange is grossly inadequate. Allows courts
to refuse equitable relief on grounds of unfairness, even when they wouldn’t refuse to award damages
 If no real consideration, but if a person acts w/ good faith and on reasonable grounds, then courts will
find adequate consideration.
 Dyer case:
 F: in a work-related accident, didn’t sue b/c co. promised him lifetime employment. Turn out, he
didn’t have legal right to sue (for whatever reason), so technically there was no consideration b/c he
didn’t sacrifice anything.
 Held: If it was reasonable to assume he had a claim, AND he acted in good faith, then court found
consideration.
FORMALITIES
 Can also be used to enforce contracts. Express intention to be legally bound
 Evidentiary- when a seal is there, court infers that an agreement exists
 Cautionary- if you go through trouble to get a seal, you’re going to think twice before entering into
contract
 Channeling- if everyone understands what a seal is, then it is enforceable
 THE SEAL
 Recognizes will principle. Quick way to know parties intended to be bound.
 Clear indication, serves evidentiary, cautionary, and channeling functions.
 Aller v. Aller
 Held: When there’s no consideration talked about, BUT there’s a seal, agreement should be
enforceable
 Most states abolish the seal w/ statute.
 Restatement does away with the seal §95
 Present shift away from the seal
 NJ Statute: Can challenge seal if there’s no consideration, just like any other contract
 Party who wants to challenge seal can allege fraud or lack of consideration
 Seal loses significance when it becomes routine. Doesn’t serve the cautionary function.
 TEST

What does the statute say regarding seals?
 Restatement: Sealed or Written contract
30/65
 (1) in absence of a statue: a promise is binding w/out consideration when:
 it is in writing and sealed
 Document is delivered
 Promisor and promisee are named in document so they can be identified when document is
delivered
 Statutes always trump common law: follows NJ statute, not restatement
 UCC: a seal doesn’t have an effect in a contract for sales of goods (UCC = NO SEAL)
 NOMIINAL CONSIDERATION
 Disparity in value indicates that it’s not really a bargain. A gives this to B. B gives $1 to A.
 Looked at in money terms, $ for $, courts won’t assess adequacy of consideration for other goods.
 Trying to make gift enforceable- should court recognize the bargain?
 Enforce: B/c parties want the contract to be enforceable
 Not enforce: really no bargain
 Schnell v. Nell (1 cent for $200)
 F: Schnell’s wife dies, but she has no property of her own to give. He will pay $600 that wife
promised these people for 1 cent in return. He doesn’t pay. Promisee sues.
 Held: 1 cent isn’t consideration b/c it’s Inadequate value. Case involves exchange of $ for $knows $200 for $1 is not the same.
 Analysis:
 1st consideration: $1 in exchange for $600
 2nd consideration- love and affection
 3rd: wife wanted property to go to these people
 2,3 aren’t relevant – promisor isn’t going to get [2,3] for the $- past and moral
consideration
 Court contemplates existence of express or implied contract between wife and husband
 P didn’t allege existence of this kind of agreement

Adequacy of consideration doesn’t apply here b/c you can assess the $ for $.
 Adequacy of consideration applies to things that it’s difficult to value.
 EX: I’ll exchange my artwork for your vase. I value your vase more than you do.
 Courts don’t’ want to get involved in assessing to see if the exchange is comparable.
 Can look to outside sources, – my car for your car
Hypotheticals
I’ll sell you my car for $1.  won’t enforce it. Have to prove that $1 was a part of a bargain.
 TEST
 Was there really a bargain?
OR
 Was it dressed like a bargain?
 Is there an option contract?
 If give $1, it will hold the offer open for the certain amt. of time.
 If nominal consideration, argue that it is bargained-for.
 Consideration in Option Contract
 Dickinson v. Dodds: Hold open bargain, what if D gave P $1 to hold open the agreement?
 Under Schnell case, $1 is insufficient to make this binding [b/c it’s $ for $]
 Restatement
 §87 – offer is binding as option contract if it’s in writing, signed by offeror, proposes exchange on
fair terms w/in a reasonable time.
31/65


Options - $ is exchanged for a promise not to revoke offer
In most cases, $1 will be enough to find an option contract binding. Valuing the value is hard to
do, so court will say $1 is fine.
 Summary: Court should enforce actual exchanges, but not gifts. Acknowledge original intent, but not for
gifts. Recognize formalities but most states forbid seals.
 Recitals
 Written agreement that says some consideration has been paid. The written proof for nominal
consideration.
 Smith v. Wheeler → $1 not paid, so no deal
 Held (minority rule): recital of $1 gives rise to implied promise to pay, which can be enforced
§87: in option contract, recital is written evidence of consideration. The $1 is binding b/c the importance
isn’t the money, it’s the fact that consideration is in writing (can rebut oral evidence). You can prove
recitals are wrong if you show that it never happened.
 Written Expression of Intention to be Legally Bound
 Add a written line that says contract is binding:
 It makes intent clear, no confusion
 Less subject to fraud
 Don’t have to worry if your seal is acceptable in your state
 Problems w/ adding a line that says contract is binding:
 Statement could mislead you
 Enforce something when there’s an exchange
 Don’t want to enforce intra-family deals
§88: Guaranty: a promise for perf. is binding if: in writing, signed, and gives consideration
§21 Intention not to be Legally Bound
 intention that a promise be legally binding is not essential for forming a contract (don’t need intent
to form a contract)
 But manifestation of intention [that a promise shall not affect legal relations] prevents contract
formation
 Don’t want this statement to be legally binding
§18 Manifestation of Mutual Assent
 majority view: formalities are irrelevant  each party makes a promise or renders performance
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PROMISSORY ESTOPPEL
Main classes of PE
1. Donations (to individuals, to employee, to in situations [Allegheny College]
 Gift was intended, no consideration → so depend on PE to find liability
2. Construction bids. Court creates an option contract even w/out consideration.
3. Preliminary Negotiations between Parties – Before any contract is reached
 equitable estoppel
 §90
 §17 Requirement of a Bargain
need mutual assent and consideration- don’t have consideration- can still enforce under PE
Hypothetical: When you see a case about promises, you have 3 options:
A drops out of school and decides to go to college. B will give you $5,000 after your 1st semester. Then I say I
don’t have the $. What legal remedies do you have?
1. §90 Promissory Estoppel: A makes a promise and B relies on it to his detriment.
2. Convince court there was a bargained-for exchange
a. use Hamar v. Sidway: benefit to A, detriment to B.
b. Have to convince the court that there’s an exchange, otherwise it could just be a conditioned
gift (Ottorbein)
3. A partially performs. §45- If I make an offer and you start to perform, I can’t revoke the offer.
 §90 Analysis (important)
 A promise
 (1) Was there a promise?
 which promisor should reasonably expect to induce action or forbearance [on part of the promisee or
3rd party]
 2(a) Was reliance intended?
 (b) Was reliance foreseeable?
 …and which does induce such action or forbearance
 (3) Was there actual reliance?
 …is binding if injustice can be avoided only by enforcement of the promise
 (4) Is a remedy necessary to prevent injustice?
 1st: there was a promise
 2nd: promisor wanted to induce reliance on that promise, it has to be reasonably foreseeable
 3rd: promisee relied to her detriment ; promise has to be relied on, has to suffer detriment
 4th: enforcement of K is necessary only to prevent injustice
 TEST
1) Was a promise made to induce reliance of the promisee OR a 3rd person?
2) Did the party actually & justifiably rely?
3) Can the injustice be avoided only by enforcing the K?
 Equitable estoppel
 Applies to current time. It’s used as a shield to protect, not as a sword.
 Need misrepresentation of fact first. PE based on promise.
 EX: bank teller tells you the wrong balance. You relied and wrote checks and charged fee. Under
equitable estoppel, you shouldn’t have to pay.
Equitable Estoppel
Relied on misrepresentation of fact
Promissory Estoppel
Relied on promise
Used defensively
Applies to current time
Used offensively
Applies to future time
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 Rickets v. Scothorn (grandpa promises $ so she can quit)
 Held: No consideration. She didn’t give anything in return, but relied on the promise, lost salary.
 Different than Hamer v. Sidway b/c she didn’t have to give up her job.
 Awarded Expectation damages
 Courts aren’t always willing to award expectation damages. Most of the time- reliance
damages.
Hypothetical
 If she was already going to quit, then she didn’t rely on promise, can’t enforce contract.
→ More likely to win claims against executor. Moral problem asking for $ when someone’s alive.

There is NO consideration for inheritance b/c past consideration is not allowed.
But gifts and wills are treated differently → Less concerned about promisor, he doesn’t get anything.
 Charitable Subscriptions → binding even w/out reliance
§90(2) Charitable subscrip. & marriage settlements are binding [w/out proof that promise induced action]
 a charitable subscription is a written promise to make a charitable contribution, so no reliance needed
 Allegheny College Case (gives $ to College- charitable subscriptions)
 F: Mary Johnson agrees to pay Allegheny $5,000 after her death in return for a fund set up in her
name. She paid $1,000 in advance. She repudiates while alive.
 Held: College can collect. Court did not base decision based on promissory estoppel, based it on
consideration. There was an enforceable contract w/ consideration.
 Basis of consideration- Univ was supposed to commemorate her name. If not a detriment to
College, it’s a benefit to promisor.
 Implied-in-fact promise: inferred on basis of surrounding circumstances.
 There was never any express promise.
 Lady Duff-Gordon case – relied on good faith, implied promise on Univ to publicize woman’s
name.
 For a contract to be valid: Need consideration and mutual assent.
 if no acceptance, offeror can revoke. Mary Yates has to argue that she’s free to revoke offer
 Cardozo: bilateral contract, once Univ. accepted $1,000.
 Once college accepted $1,000, it took on obligation to do what it is customary to commemorate her
name.
 If there wasn’t this payment, harder time to find implied-in-fact promise.

In consideration of others subscribing– need: others were contributing, She motivated by that.
 Prom. estop is only available if injustice can be avoided by enforcing the promise
 Diff. b/t Ottorbein v. Johnson → In Ottorbein, there is no condition on $. In Allegheny, Mary
Yates Johnson would benefit. More is involved than mere acceptance to use the $.
 Conditioned gift (gratuitous promise) v. bargained-for exchange
 Ask whether condition promisor has put on actually benefits the promisor
 In looking at promises, courts use consideration, not offer and acceptance.
 Dissent: if there is no consideration; offer to enter into an unilateral contract- offer can’t be accepted
until there’s performance.
 Mary is making offer of $5000 in creation of fund. If college didn’t perform, there’s no acceptance,
no contract. Then Mary can revoke her offer at any time.
 Impossible to create contract b/c fund can’t be created until her death. And when she dies,
acceptance is terminated.
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
§36 termination of power of acceptance (p.332)
 PENSIONS → enforced to prevent injustice
 Feinberg v. Pfeiffer Co.
 F: Board says that whenever P retires, Co will pay her $200 for life. D thought it was a conditioned gift.
 Held: No consideration, but P should get pension b/c she relied. She’s now too old and sick, so to
prevent injustice, promise is binding.
 Past & Moral consideration won’t work → services already rendered, excellent skill
 Corp didn’t offer pension for her to continue to work → didn’t say that they’ll give $ if P quit. She
could retire at any time (like Ricketts – grandfather case).
Hypotheticals
 Corp. withdrew pension before she retired. She had the promise.
→ No case. She will fail element #4 of test.
 If it’s uncertain that someone will perform, there will probably be no reliance.
 if a friend decided to pay her $, and she relied.
→ would it be unjust not to enforce the promise?
Hypo 1: work for another year and we’ll give you pension.
 Contract exists → Consideration b/c there is exchange
Hypo 2: she was under contract to work another year. Then they’ll give her $200.
 No contract → Pre-existing legal duty
Hypo 3: we’ll give you $200 for life if you work one more day
 No contract → Nominal consideration → bargain under pretense
 CONSTRUCTION BIDS
 Baird case & Drennan Paving case
 F: Sub gives contractor bid, finds out they make mistake, so back out. Contractor sues
subcontractor to make their bid binding.
 TEST
 Look to see when contract between forms
o Timeline
1. Subcontractor sends bid (offer) to contractor
2. Contractor uses it and sends own bid to client
 In Baird, sub withdraws bid. CAN withdraw unless offer is binding → not a K
3. Client accepts
 In Drennan; sub withdraws bid.
4. Contractor tells sub bid has been accepted
 If sub’s first offer is a bid, 3 diff. possibilities.
2. offer revocable until post-award acceptance (anytime contractor accepts sub’s offer)
3. offer irrevocable after contractor submits bid. (offer isn’t accepted, it just can’t be withdrawn)
4. bilateral contract formed by bid. (involves promise on one side and acceptance on the other side).

Baird Held: Sub didn’t make a binding offer. No PE because contract is accepted at end of
process. Offer revocable until post-award acceptance.
 Sub makes an offer for exchange. Sub’s offer is only binding when contractor takes the
linoleum and pays for it. Contractor didn’t make promise to pay by submitting bid to client.
 If consideration is intended, PE is not applicable. Sub seeks consideration, but contractor didn’t
promise anything back → can’t impose liability on basis of promise
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
Drennan Held: Sub made binding offer, backed out so contractor had to find someone else. Court
awarded contractor difference b/t sub’s price and new sub’s– expectation damages. Uses PE b/c
contractor relied.
 offer is binding once contractor submits bid
 Contractors’ reasonable reliance created an option contract
 In Baird → no evidence that contractors relied on sub’s bid
 Drennan → customary for contractors to rely on sub’s bids. B/c they rely, sub has to expect that their
offer has to induce reliance. → evidence of prevailing custom means an option contract will exist.
 **** Drennan case → ruling law §87 (2) OPTION CONTRACT
 an offer which the offeror should reasonably expect to induce action [of a substantial character] on
the part of the offeree before acceptance is binding as an option contract [to the extent necessary] to
avoid injustice
Real World: subcontractors
Subcontractors would prefer Baird before general contractor accepts. Don’t like Drennan b/c sub is bound but
general contractor is not bound. Worry: general contractor will use this bid to reopen bids – bid shopping.
Though looked upon disfavorably if they do this. General contractors have to specify all subs. They can’t
change it unless under circum. Parties can contract around default rules.
 PE & PRELIMIN NEGOTIATIONS (Red Owl, radio franchise cases)
 There was no contract at all, so award reliance, not expectation damages.
 Arg for person who owns franchise: manufacturer doesn’t have to do anything, no offer, no acceptance
 Arg for person who wants franchise: incurred expenses, relied
 Goodman v. Dicker (Radio Franchise) D said P would get franchise, P racks up $, doesn’t get it
 Held: Person who wants franchise relied to his detriment. Did not award expectation damages,
only awarded incurred expenses. Award reliance damages b/c it’s not clear that D wants to be
bound by promise. blatant misrepresentation case
 Out of pocket damages are awarded based on any factors
 Misrepresentation of fact, (Franchisor wasn’t authorized to represent the information he’s making)
 P induced D to act
 Reliance is justifiable
 Damages have to be incurred
 Red Owl Case → there’s no real offer, but still found a contract
 Held: shopkeeper reasonably relied, but D didn’t misrepresent in bad faith. Found damages not to
enforce the K, but to enforce prevention of injury.
 Promise doesn’t have to be detailed. Just have to reasonably expect the promise to induce action.
 If there’s a real K → expectation damages.
 No K → reliance damages
 3rd party can rely on contract, too. (Mrs. Hoffman relied)
DAMAGES in PE
 Harm isn’t in depriving P or promised reward but of the harm in making P change his situation.
 §90: Remedy granted for breach may be limited as justice requires → look at reliance, not expectation.
1. Red Owl: Aggrieved party gets reliance damages → sold little grocery store. DONT get diff. b/t
sale & purchase price → don’t want to put the guy in the same position as if he never bought the store.
2. Get difference between fair market value & sale price. Any expected profits are included in the
fair market value price. Don’t want to award profits b/c they’re indefinite, hard to calculate. (definite,
uncertain damages)
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Hypo: Johnny wants car. Uncle promises to pay $1,000. Johnny buys $500 car. Uncle refuses to pay. What
are his damages?
 Williston: PE is used to enforce a contract. Give $1000. Doesn’t matter that nephew relied to $500.
Usual contract remedies should be applied, doesn’t matter if it’s breach or reliance kind of contract →
expectation damages
 Corbin: Parties didn’t enter into contract → no mutual assent, no consideration. No promise, but don’t
want to leave nephew stranded. We’ll protect his reliance interest.
Debate b/t awarding reliance or expectation damages:
Expectation arg:
→ award to put person in a position s if the contract had been performed
→ If K exists → award expectation
Reliance Arg: → no K → award reliance
Farnsworth’s principles of when to award what damages
1. award expectation damages when K is made in bad faith
2. If there’s a large disparity b/t expectation & reliance damages, award reliance (protects will principle)
3. If damages are hard to calculate → award reliance damages
MODERN APPLICATIONS OF PE
 Blatt v. USC (P said Order promised he’d be in if he was in top 10%, had to be on Law Review, he wasn’t)
 P’s arg: focuses on Hamer v. Sidway → focus on reliance to promisee’s detriment. He gave up a legal
right to slack off in school. Instead, the Order’s promise induced him to rely and work harder.
 D’s arg: there was no promise. No benefit to Order. Promise only to be eligible, not guaranteed
entrance.
 Held: Promise has to be sufficiently definite before PE invoked. No promise to begin with.
 Ypsilanti v. GM (GM closes one factory. Town sues. Loses)
 P’s arg: GM made a promise to create jobs with their factory. In return, township gave tax relief.
Justice requires that GM not be allowed to leave.
 D’s arg: promises were mere puffery. The fact that a corporation solicits tax abatement and persuades
township with jobs doesn’t mean this is a definite promise. (This would mean that they would have to
stay forever.)
 Held: there was no contract b/t township & GM. Township didn’t reasonably rely b/c they knew GM
could pull out anytime. To use PE, a definite promise, not opinion or puffery, has to induce reliance.
REASONABLE RELIANCE OF PE
 Elvis Presley case
 F: mother of Elvis’ girlfriend. Elvis promised her to pay off her mortgage. She filed for divorce b/c of
the promise. Elvis dies, estate won’t pay. She still files for divorce and didn’t tell court that Elvis’
estate rescinded his offer.
 Held: Reliance wasn’t reasonable. (NO detrimental reliance, so no threat of injustice.) If you can
avoid reliance, then detrimental reliance is not reasonable. P could’ve avoided it b/c she knew estate
wouldn’t pay. Could’ve changed her mind or settled property.
 Avoidability case: Luten bridge. Once someone informs you of breach, can’t rely on damages. But PE is
based on principle of reliance (criticized b/c it encourages people to rely when it shouldn’t.)
 Rule: Reliance is unreasonable. Her reliance was avoidable b/c she knew estate wouldn’t uphold promise.
 Even when there is literally reliance, courts may be unwilling to enforce promise.
ASK: Is this action reasonably expected from the promise?
Policy: important to uphold promises of confidentiality. Injustice can be avoided only by enforcing promise.
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PERFORMANCE
 Good faith & Fair dealing
 Express Warranty
 Promise to make good on losses w/in scope, doesn’t matter if losses are uncertain or avoidable
 Implied Warranty
 Express Disclaimers
 GOOD FAITH
 DOES NOT APPLY TO PRELIMINARY NEGOTIATIONS. (Red Owl: sue on PE, not breach of K)
 Principle of good faith fills in gaps. ***We have implied duty of good faith to fill in gaps b/c we can’t
always tell what people will do.
 **Neither party shall injure the right of the other party. → implied duty of good faith
 Restatement & UCC
 §205 Duty of good faith and fair dealing
 every contract imposes duty of good faith and fair dealing in its performance and enforcement.
 §1-203 Obligation of good faith: imposes an obligation of good faith
 §2-103: good faith means honesty in fact and fair dealing in performance of contract.
 TEST:




What were parties thinking when they entered the K? What criteria can we use that someone
acts in good faith?
 LOOK AT original intentions, motivation of parties.
If draw business away from store, decide if this is an attempt to bring profits down.
o Was he purposely diverting sales from one store to another? Or just promoting other store?
Cause of action is breach of contract, not good faith (no separate cause of action for failure to use
good faith)
Bad faith → Achieve a purpose contrary to purpose of contract. Parties understood that they
gave up a right in the contract.
 Just b/c you shorten hours, doesn’t mean you’re acting in bad faith. Business decisions are
justified even if they ↓ gross sales but maximize profits.
 Benefit of % of lease sales: parties have potential to make more $ over time (or to not lose $ in bad times).
Hard to determine rental rate in the future. More flexible contract. Provides minimum level of protection
by fixing rent.
 Risk allocation → Both share the risk. Give incentive to both. ↑ value of co, ↑ individual profit
 EX. stock options, sales contracts, house sales, movie star profits.
 Don’t want to agree to negotiate later like in Sun Printing.
 Goldberg v. Levy (% lease – good faith)
 F: Levy leased store from Goldberg, rent: max or 10% of gross receipts. Lease terms: if gross sales
fall below #, Goldberg could take away store. Levy had low gross sales, want to exercise clause and
get out. Goldberg sues.
 D’s arg: Levy says Goldberg was diverting income from his store to lower gross sales.
 Held: violates good faith if trying to bring profits down to get out of lease. Tenant promises to pay
rent. Can’t purposely try to bring receipts below threshold b/c of good faith.
 Court cites: Wood v. Duff-Gordon - $ would exchange if Wood does marketing. Implied
promise that Wood would use best efforts.
To prevent: during drafting: 1) could have a fixed rent, 2) put in a warranty clause → no other stores in a
certain area. 3) base rent on combined stores. 4) landlord should be more clear
 Another lease case, Mutual Life Insurance
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
F: % lease, tenant also wants to lease another floor of building that is a fixed price, so tenant moved
highest grossing part of store to the fixed price floor. P sues.
 Held: move is subject to % lease provision b/c D paid sales commissions to first floor when they sent
sale to 5th fl. But nothing in lease forbids moving store.
 **Neither party shall injure the right of the other party. → implied duty of good faith
 Dissent: the tenant advertises store as one entity, moved elevators → should include gross sales.
 Stop n Shop case (% of sales lease)
 F: S&S leased 2 stores, had % of sales lease, lease doesn’t specify operating procedure (use it for
any purpose, forbid new stores). They opened new stores. S&S closed other market, sales dropped
below threshold, so S&S paid minimum rent.
 Held: didn’t depreciate store on purpose. S&S should be able to make business decisions w/out
considering landlord. Lease doesn’t restrict. Parties didn’t intend covenant to prohibit store
expansion. Good faith performance acting out of good faith business judgment.
 Disparity b/t rent and rental value
 + Fixed portion of rent was large. If fixed rent is high, landlord won’t be dependant on sales →
parties intended and understood good faith.
 If rent is low compared to fair market value, court would rule no intent → bad faith.
 Interpretation Principle: contracts are to be construed against the drafter
 What were parties thinking when they entered contract?
 To lower rent, store owners could do a # of things to lower their gross sales to maximize profits
(no advertising, sacrifice quality of goods, hire fewer people, fewer hours), which affects landlord.
 People won’t enter leases if this occurs.
 Ex: What was S&S’s purpose? Business decision. Dicta: if there was spite, bad faith.
 Even if sound business judgment and if rent was low, parties understood bad faith, even though good
faith is manifested.
 IMPLIED WARRANTIES OF MERCHANTABILITY & FITNESS FOR A PARTIC. PURPOSE
 of merchantability = for an ordinary purpose → §2-314
of Merchantability of fitness
 of fitness = fitness for a particular purpose → §2-315
Applies to merchants
Applies to everyone
For Ordinary purpose
For Particular purpose
 TEST
 §2-314: For implied warranty of Merchantability (in General), Buyer needs to prove:
1.
Warranty was made (express or usually implied)
2.
Warranty was breached (goods were defective at time of sale or delivery)
3.
Buyer’s loss actually caused by defect (not buyer’s negligence or inappropriate use of goods)
4.
buyer has no affirmative defense
 disclaimer, statute of limitations, lack of privity, lack of notice, assumption of risk
 §2-315: For implied warranty of fitness for a particular purpose (FFAPP), Buyer needs to prove:
1.
Seller needs to know buyer’s purpose
2.
Seller needs to know buyer relies on seller’s skill or judgment
3.
Buyer actually relies on skill of judgment
Hypotheticals
 trade name: if buyer insists on brand of goods, he’s not relying on seller’s skill → no IW of
FFAPP. But if seller recommends brand name, then there is IW of FFAPP
 If someone knows of a material defect, have to disclose any defects → keeps w/ good faith
 Buy shoes. Seller may know a pair may be used for climbing mountains. Shoes fall apart.
→ this is implied warranty of merchantability.
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
Bought ordinary shoes for mountain climbing
→ no claim for implied warranty of Merchantability b/c seller didn’t know purpose
 Restatement & UCC
 §2-314 Implied Warranty of Merchantability
 a warranty that goods shall be merchantable is implied in a contract [for their sale if seller is a
merchant that sells goods of that kind.] Serving food or drink for value that is consumed on
premises or elsewhere is a sale.
 Goods have to have a base level or ordinary purpose; has to be b/t merchants, hold
themselves out to have a certain skill
Merchantable Goods have to be:
(a)
pass w/out objection in the trade [under the contract description]
(b)
in case of fungible goods, are of fair average quality w/in description
(c)
fit for ordinary purposes for which such goods are used
(d) run, [within variations permitted], of even kind, quality w/in each unit and among all units
(e)
adequately contained, packaged and labeled [as agreement requires]
(f)
conform to promises or affirmations of fact made on container or label
(3) other implied warranties may arise from course of dealing or usage of trade

§2-315 Implied Warranty: Fitness for Particular Purpose
 Seller has to know buyer’s particular purpose of why goods are required
 Seller has to know buyer relies on seller’s skill to furnish appropriate goods
 Buyer has to rely on seller’s skill
 §2-714: Damages for breach of warranty
 Like expectation damages, but not based on expressed promise, based on implied promise.
Damages: difference b/t value of good accepted and value of good as they were warranted to be
UNLESS special circum show different proximate. damages
 Ex: Hawkins v. McGee: Value of promised hand – value of present hand
 Step-Saver case → §2-314, §2-315 (implied warranty)
 F: Step-saver says D violated implied warranties. Put in a computer system that wasn’t compatible.
 Held: Warranty of Merchantability doesn’t require goods to be outstanding. They only need to
be of reasonable quality w/in expected variations.
 Application: monitors worked. Step-Saver tested out the tech co’s system. Software was
incompatible, but compatibility isn’t a criterion of merchantability according to trade.
 Acceptance is a reliable barometer for determining if a particular product is merchantable.
 Warranty is that the goods will pass in the trade w/out objection under the contract
 For Merchantability, Step-Saver has to prove:
1. existence of warranty (usually implied)
2. warranty was breached
 breach is the proximate cause of loss sustained by buyer
3. breach caused loss
 EXPRESS WARRANTIES
 Warranties are default rules. To prevent default → use express warranties → promise to make good,
doesn’t matter if it’s unforeseeable, unavoidable. Express warranty still takes effect.
TEST
 1. Did seller make a warranty? Was the warranty express?
o Is it a warranty or opinion? (Royal Business Machines)
 Need an affirmation of fact for express warranty → §2-313
o Does it become basis of bargain?
 Need reliance by the P, P is relying on the truth of the statement.
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 2. Was there breach on warranty? product defective upon delivery?
 3. Did defect cause buyer’s loss? And not buyer’s negligence or abuse?
 4. Did knowledge and experience prevent blind reliance on seller’s promises?
 Warranties made to 3rd parties, not P: sue an indirect seller and a seller who sold goods to P’s
friend, where P used the goods. Even though P never relied, can still it as the basis of the bargain.
 Restatement & UCC
 §2-313 Express Warranties by affirmation, promise, description, sample
(1) Express warranties are created by
1. affirmation of fact or promise [made by seller which relates to the goods] and becomes part
of basis of bargain (buyer relies on seller’s warranty)→ creates express warranty that goods
shall conform to the description
2. description of goods …
3. sample or model …
(2)
To create an express warranty, don’t have to use “warrant” or “guarantee” or have specific
intent to make a warranty. Affirmation of value of goods or a statement of the seller’s opinion doesn’t
create warranty.
 Royal Business Machines case → §2-313 (Express Warranty → affirmation of promise)
 F: RBM sold copy machines to Lorraine Corp (P).
 TESTS:
1. Test of when a seller’s representation is fact or opinion:
 Fact: Sellers says a fact that the buyer is ignorant of
 Opinion: seller has no special knowledge and buyer may also be expected to have an
opinion and give judgment.
 Puffing words: The best, of good quality, last a lifetime, in perfect condition
2. After seeing if seller was affirming a promise, see if that promise was the basis of the bargain:
 Did buyer rely on seller’s comments?
 Affirmation of fact [that the buyer, from his experience, knows to be false] doesn’t form
a basis of the bargain
 P knew more later in the deal. The same representations that were express warranties
early on aren’t always express warranties later b/c buyer gained knowledge to the fact.
*Right to a claim, buyer doesn’t have to believe it’s true, can sue if the statement is false
Hypothetical- need reliance

Ziff-Davis sells magazine, info in circular is accurate. CBS finds out #s aren’t right. Ziff-Davis: CBS
didn’t believe the #s. Affirmation becomes part of bargain
 Buyer doesn’t have to believe truth, it has to believe whether it’s purchasing seller’s promise as to truth.
 DISCLAIMERS of Warranty
 §2-316 Exclusion or Modification of Warranties
(1) express warranty: words or conduct that create an express warranty and that limits warranty,
should be construed wherever reasonable as consistent w/ each other, but subject to provisions of
UCC on parol or extrinsic evidence.
 If the scope of disclaimer is clear and scope of express warranty is unclear, enforce disclaimer.
 If express warranty exists, but disclaimer clause says “there are no express warranties” →
express warranty wins. disclaimer is ineffective (if warranty doesn’t conflict w/ parol evidence)
(2) Disclaim an implied warranty of merchantability: has to mention “merchantability” and be
conspicuous in writing (can’t be buried in fine print)
 Language to exclude an implied warranty of fitness is sufficient if it says: “There are no warranties
which extend beyond the description on the face hereof.”
(3)(a) if there’s an as-is clause, there are no warranties if it’s obvious what it means and buyer knows it
exists.
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(b) If buyer looks at the goods, he’s responsible for anything that’s obvious. If he doesn’t look, then
he can’t get benefit of an implied warranty. If he would’ve looked, he would’ve been able to see defects.
(c) implied warranties can be excluded by course of performance, dealing, usage of trade
UCC: Treats lay people and business people differently. Lay people don’t know what they’re doing.
 Schneider v. Miller §2-316 (used car- bought a lemon, but signed as is)
 F: P bought a used car even that was junk. He signed “as is” no warranty agreement. P sues for
fraud, but signed a disclaimer.
 Held: P bought the car as is w/ no warranty, so can’t return it. The disclaimer had an integration
clause that said the entire agreement b/t the partiesis in the contract → waives implied warranty.
 Complete integration doesn’t have implied warranties. It doesn’t matter what else is said to
him, no parol evidence can be admitted.
 Evidence against buyer P: he already owned the same car and knew of rust problems, a
mechanic could have inspected it fully, test drove it
o If “as is” was written in small print, P will have a stronger case.
 Revocation of Acceptance, §2-608
 When seller delivers to goods, sum of goods have to conform to contract. If non-conformity severely
impairs, then can revoke.
 When buyer gets goods that don’t conform: 1) reject or 2) accept. Either accept them on assumption
that seller will fix the problem. Or buyer doesn’t know there’s a problem. Have option to revoke.
 Morris v. Mack’s Used Cars
 F: Car was in accident, Seller didn’t tell Buyer. Buyer bought as-is. Buyer alleges fraud, deception,
implied warranty of Merchant.
 Held: He loses warranty of breach b/c he signed as-is clause- no warranties apply. Can’t allow sellers
to disclaim warranties.
 We have warranties b/c consumers should rely on quality of goods, can rely on seller’s comments.
Consumers assume merchants take responsibility → minimum level of protection. The problem:
breaching warranties are expensive, so companies can disclaim the warranty. Have to inform consumer.
Default: consumer is protected. But if you sign as-is, you get lower cost and aren’t protected.
 UCC applies, but buyer can recover under the Consumer Protection Act.
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BREACH
 ANTICIPATORY REPUDIATION
 Performance doesn’t happen yet, but you know person is going breach
 Can sue immediately for breach, even though performance didn’t happen yet. Renunciation can be
treated as breach right now (Hochester Rule)
 Can retract the breach if it occurs before the injured party changes his position materially in reliance on
repudiation
 Has to be definite & unequivocable manifestation that party won’t perform.
 Anticipatory Repudiation has 2 effects:
 1) other party doesn’t have duty to perform anymore
 2) gives you right to sue immediately. Either party has right to damages.
 TEST
 Anticipatory Repudiation: Did the promisor …?
1. Make a definite & unequivocable manifestation that he won’t perform?
2. Use ambiguous language + conduct that implies he’s unwilling to perform?
3. Commits a voluntary act that renders performance impossible (selling it to another)?
 Sea Colony case (anticipatory repudiation)
 F: P put down a deposit to buy a condo from D, Sea Colony. P wants to cancel b/c he doesn’t have
money, asks for cancellation based on getting his deposit back. Sea Colony says No, then sells condo for
a profit.
 P sues for repudiation of contract. Asks for damages: return the deposit (restitution) and give P profits
from the condo sale (expectation damages). In turn, D said P breached first.
 Who breached the contract?
 Sea Colony’s arg: P cancelled contract. This caused a unilateral cancellation of contract. P already
breached, so didn’t have to consider his rescission offer.
 Held: P did not anticipatorily breach b/c there was no definite and unequivocal manifestation of
intention of P’s part that he wouldn’t render promised performance. Doubtful and indefinite
statements do not create right of immediate action. A request for change in terms or a request for
cancellation is NOT enough to constitute repudiation.
 P makes an offer of rescsisison → but it was dependant on getting deposit back.
 Rule: If mutual rescission → get deposit back. If Sea Colony breached → get deposit + profits
 To repudiate a contract: say it or do something that they can’t ultimately perform the contract.
Liquidation clause won’t be enforced if it is a penalty. §356
 UCC
 §2-610: Anticipatory Repudiation → Aggrieved party can:
1) Wait performance (for a commercially reasonable time)
Hypo Buyer and seller of grain. Seller says he won’t perform. Buyer waits a month and can’t
cover later. Can buyer cover for full amt? No, you can wait performance only for a
reasonable time. The market price fluctuates so it has to be relatively soon.
2) Resort to remedy for breach → sue for breach of contract even though notified repudiating party
that you’ll wait for performance (Can sue and wait at the same time)
3) Or suspend performance
 §2-611: Retraction
1. Can retract the breach if it occurs before the injured party changes his position materially in
reliance on repudiation
1) Repudiating party can retract his repudiation.
a. But not if aggrieved party materially changes his position (buyer had to sell the
product for scrap). then repudiating Party can’t retract.
 Sue for breach means repudiation is final.
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2. Can use any method that clearly indicates to the aggrieved party that repudiating party intends
to perform, must include assurance demanded
3. Reinstates repudiation party’s rights w/ due excuse & allowance to aggrieved party for delay
Rule: §2-611 exception: Can’t repudiate after full performance and Can only sue on pay date or performance
due date.
 EX: Bank loan: gives full amt. of $. Borrower repays loan, defaults. Bank has to wait for each payment
date to sue. In order to get around this, banks put in acceleration clauses → when there’s default, they can
sue for $ immediately.
ADEQUATE ASSURANCES
 A party may ambiguously indicate he won’t perform, aggrieved party suspends, but doesn’t cancel perf.
 Aggrieved party demands assurances that other party will perform. If doesn’t get it, it’s a repudiation.
 TEST: §2-609
1. Are there reasonable grounds for insecurity?
 Determined according to commercial standards
o Dicta: look at past experience, where information comes from, client interaction
2. Is the adequate assurance in writing? Or it can be oral if there is previous interaction.
3. Was substance of adequate assurance communicated ok? (can’t ask for anything beyond original K)
 §2-609: Right to Adequate Assurance of Performance
(1) Contract imposes obligation [that other’s expectation of receiving due performance] won’t be impaired.
When reasonable grounds for insecurity about perf arises, can ask for adequate assurance in writing.
Until he gets assurance, he can suspend performance that he hasn’t already received the agreed return.
(2) Reasonableness of Insecurity and adequacy of assurance are determined by commercial stds.
(3) acceptance of improper delivery doesn’t waive aggrieved party’s right to demand adequate assurance
of future performance
→ even if you accept a shipment, you can still require adequate assurance
(4) If repudiating party doesn’t give assurance in a reasonable amt. of time (can’t exceed 30 days), then he
can breach K.
 Scott v. Crown (wheat case)
 F: P delivers 1st shipment of what, payment due 30 days later. During 2nd shipment, finds out D isn’t
reliable from Dept of Agriculture, so it demands adequate assurance. Tells D’s delivery guy, and
doesn’t do it in writing. D sues for breach b/c he didn’t fault in payment.
 §2-609(1): demand adequate assurance in writing & suspend performance.
 Oral agreement is OK if repeat players.
 Need reasonable grounds for suspension.
 Jury decides whether or not it’s adequate assurance.
 Buyer has to give adequate assurance w/in 30 days, otherwise, repudiate.
 If you knew seller wouldn’t be able to pay before you K’ed, can’t claim breach and get $ b/c you
assumed risk. Adequate assurance demands reasonable expectation of parties.
 Held: reasonable reason for demanding adequate assurance. But P told the guys’ driver orally and not
in writing.
 Seller made demand and suspended performance at the same time. Problems w/ timing, form of
seller’s demand. Seller was asking to change terms of contract, by asking for earlier payment.
o Seller’s failure to delivery wheat was anticip. Repudiation, so buyer cancelled contract.
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DAMAGES
§2-713: buyer’s damages for non-delivery or repudiation
 Market price at time of breach – K price + incidental & consequential damages – expenses saved in
conseq. of seller’s breach
MATERIAL BREACH & Constructive Conditions
 Courts try not to cancel a contract if there was substantial performance, but breach is material if it
jeopardizes promisee’s confidence in receiving additional performances in the future.
 §237: a party substantially performs or materially breaches.
 When court implies constructive condition (payment due upon completion of project), party doesn’t
have to perform until other side performs its obligations.
Constructive condition: If A’s perf is conditioned on B’s perf. If B doesn’t perform, A doesn’t have to perform.
If B only partially performs, then A doesn’t have to pay.
→ If B substantially performs, then A has to pay, but B can sue for restitution damages
→ If B materially breaches, A can suspend payment temporarily. B can cure. If he cures on time, then A has
to pay. If B doesn’t cure on time, then A doesn’t have to pay.
 Material breach → a) withhold performance; b) rescind; c) claim full damages
 Substantial performance → a) have to perform; 2) claim compensation for any loss suffered
3 different approaches to avoid forfeiture:
1) contract is divisible
 pay you $300k to build 3 houses. Build one, breach. Court finds owner has to pay $100k.
2) Restitution (quantum meruit)
 Cotnam v. Wisdom, you’re under no obligation to pay, award restitution to party that breaches
→ §374: party in breach is entitled to restitution for part performance or reliance in excess of loss.
→ If I incur some loss, subtract from value of house created for me.
3) Substantial Performance
* Build whole house but it’s painted pink, not white (under contract)
Ex: Painter fully paints house, but does a crappy job on one part. Painter doesn’t substantially perform, and
there’s a constructive condition. Owner’s duty to pay is suspended.
→ But painter can try to cure, so owner will have to pay.
→ If owner asks painter to cure, but painter doesn’t do anything for a period of time, owner will be discharged
from paying for the K. (Can still be sued for quasi-contract)
§241: determining if breach is material:
1. extent injured party will be deprived of benefit
2. extent injured party can be adequately compensated
3. ability to cure
4. extent bad party fails the std. of good faith & fair dealing.
5. delay in performance
a. material only if delay significantly deprives the benefit of the K.
b. “Time is of the essence clause” doesn’t really have a big effect if it’s a trivial breach (like
paying two days late). But in an express condition: if you pay 2 days late or breach the tiny
little detail → K is void.
 Court can enforce conditions, esp. when D is aware of conditions.
 Cure
o Don’t have to wait for cure over a reasonable amt. of time
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How long aggrieved party has to cure §242 → The following circum. are significant:
1. §241
2. if injured party risks not being able to mitigate damages, injured party doesn’t have to wait to make
reasonable arrangements
3. extent to which agreement provides for performance w/out delay .
NON-CONFORMING GOODS
 PERFECT TENDER RULE → §2-601
 Buyer’s right to reject nonconforming goods. If goods don’t conform, can reject.
 Problem: can reject goods that vary slightly, makes seller’s take a loss
 Substantial performance rule v. Perfect Tender rule
 Restatement says you can’t rescind for the tiniest thing.
→ As long as there’s substantial performance, can’t rescind.
 UCC says you can rescind for the tiniest thing (don’t care about substantial performance)
→ Perfect tender rule can give buyers an excuse to reject goods. If the market for good crashed, then
can reject the good. And can go into the market to find a better price. Helps buyer, hurts seller.
→ UCC says seller has to cure. If buyer rejects, seller can fix problem, buyer still has to pay for goods.
 Ramirez v. Autosport (P’s ordered van, didn’t conform. D had opp. to cure, didn’t)
 Held: Seller has duty to make a “perfect tender” & buyer can reject goods that don’t conform to
contract. Buyer rejected van w/in a reasonable amt. of time. Seller didn’t cure in reasonable time.
 TESTS: §2-601: If buyer gets nonconforming goods, can 1) accept or 2) reject
 1) accept
 you have reasonable opportunity to inspect them, so you accept even though there’s a scratch.
 acceptance doesn’t happen until you get to reasonably inspect goods.
 After acceptance, can only reject if it substantially impairs value of the good.
 If you accept, you can sue for damages to value of goods (prove that what you got was worth less)
 2) reject → §2-602
 has to be w/in a reasonable amt. of time & notify the seller.
 Seller can still cure (§2-508)
(b) if seller thought goods were acceptable, he can get reasonable time to substitute a conforming good
anytime before perf. date. If after perf. date, cure is qualified.
a. Not that they’ll accept it with a scratch. Have to say, take the scratch and $100.
b. Reasonable to believe goods were acceptable: Course of performance, trade usage,
 After you reject, can’t act as if you own the good.
 If you accepted them before rejection, he has to hold them with reasonable care for a sufficient amt.
of time so seller can remove them
 Revoking an acceptance is harder than rejecting the goods. Ability to revoke:
a. if you take a nonconforming good and expect seller to cure and he doesn’t cure → revoke acceptance
b. if buyer didn’t have any way of knowing that the good wasn’t conforming.
a. If hidden defect or seller assures you that there’s no defect, but you discover that there is a
defect→ can revoke
 Rules:
 Before acceptance, buyer can reject nonconforming goods anytime, even for minor stuff. But
buyer’s rejection doesn’t mean contract is over. Seller has right to cure. (encourages
communication) → §2-508 (1)
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
Before acceptance but after performance date, if the seller reasonably thought goods could be
accepted, they get further reasonable time to cure → §2-508(2)
 Reasonably depends on the buyer’s change of position and inconvenience + seller’s ability to
salvage and time to correct the goods
 After acceptance, buyer can reject only if the nonconformity of goods are substantially impaired.
 Rejection is buyer’s refusal to accept goods and notification.
REMEDIES:
 When you accept a nonconforming good, you can still sue for damages. (court prefers rejection over
acceptance)
 If buyer rejects good, then can cancel contract, get back what they paid, and can get damages under §2712, §2-713. Provisions are the same, but one talks about cover. If they get a more expensive van, they
can get the diff. in price of new van and Autosport van. Or can get diff. b/t market & contract price.
Cost of completion v. Diminution of Value (Expectation Damages)
 Jacobs & Youngs: dimunition of value; SUBSTANTIAL PERFORMANCE, CONSTRUCTIVE
CONDITION
 Groves v. John Wunder: cost of completion
 Peevy House- dimunition of value
 Cost of Completion: If cost to complete is really large relative to owner’s loss.
 §346: Owner is entitled to $ unless the cost is grossly disproportionate to the good attained.
 Policy: NOT to award cost of completion: Encourages false claims. People unjustly enriched.
 Person has right to K for whatever he wants. If someone breaches, then should pay.
 bargained-for a condition, and adhering to will principle, people should get what they K for. They
may not have agreed to make the deal if they couldn’t get restoration. They took restoration into
account when bargaining-for the contract. D gets everything he bargained-for.
 Dependant on personal motives for wanting that little thing in dispute
 Diminution of value: Reading pipe has some value, give him $ to put him in same financial value.
 The cost to tear everything down is too great. Most of the time, the owner doesn’t want to be
inconvenienced and wait for everything to be rebuilt.
 Prevents unjust enrichment. Punitive damages.
 Value of land doesn’t increase, and expenditures are too great
 cost of completion disprop. to dimi. in value.
TEST:
1. Is clause a constructive condition?
 UCC’s Perfect Tender
 Substantial Performance
 See if breach was willful or trivial. If trivial and honest → owner pays.
 If willful breach → breaching guy pays
 Look at Purpose of K
1) Justice (using brand name pipe is trivial breach)
2) presumable intention
 what’s purpose served by clause? Is there a special reason that he wanted the pipe?
 If damaged result is incidental to true purpose, then dimi. in value rule
 If damaged result is the principal purpose → cost of performance rule
2. Excuse for deviation: just an oversight/ accident or willful?
 If willful, then breaching guy loses
3. Is cost of performance disproportionate to diminution in value?
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

Cruelty of enforcing performance: very cruel to enforce adherence to architect
If owner really wanted the Pipe, put in an EXPRESS CONDITION.
 Jacobs & Young v. Kent (Reading Pipe- same quality, just diff. brand)
 Was using Reading Pipe a condition of payment? Constructive Condition → substantial performance
(not a material breach).
 Held: Pipe is not a condition. P satisfied a constructive condition of performance. Looks at substantial
performance. Once party substantially performs, other has to pay. Trivial & innocent damages will
result in damages.
 When there has been substantial, but not complete performance, owner asked for cost of
replacement, but it would be too great. Held: Damages should not be cost of replacement, but
difference in value.
 Majority Arg: If Reading Pipe was an express condition, but none was available, and owner gives the
go ahead, he can’t sue later b/c he waived his right. Preexisting Duty Rule invoked → in unforeseen
circum, can modify K.
 Groves → willful breach, so award cost of completion
 F: gravel removal that would only ↑ value of land by a little.
 Held (P’s arg): cost of completion b/c breach was willful. Owner has right to K for whatever he wants.
 D’s arg: cost of completion is grossly disprop. to dimninution in value. Value of land
 Peevyhouse v. Mining (stripmining, replacing the holes in land)
 Look at purpose of K.
 Held: diminution of value awarded, even if D was willful.
 Arg for diminution: primary purpose of contract was coal mining. Provisions for restoration was
incidental. Economic rule: cost of completion is disproportionate to diminution of value.
 Cost of completion means that person gets more $ than they deserve.
 To prove value to owners, can repair land themselves, and can sue for damage $.
 Awarding expectation damages, IN PRINCIPLE, look at value to person and not to the market.
 Peevyhouse may value land subjectively. They live on it, may be aware of environmental concerns.
 Want $ damages over spec. perf.
 Courts are generally reluctant to award specific performance
 Lawyers take cases on contingency-basis, want $ so lawyers could get $
 Economic Efficiency: Coase arg: reach the economically efficient outcome where both parties gain
 If court ordered spec. perf, parties would find a way to contract around spec. perf. Peevyhouse can
strike a bargain and tell mining co that if they give cash, they don’t have to perform.
 → but, there is no restoration. Transfers of cash aren’t economically efficient. Land still isn’t restored.
 But some courts say spec. perf. is inalienable- injunctive order cannot be sold.
Reading Pipe
Groves
Peevyhouse
Cost of completion more expensive than effect on
value
 Promisee wins cost to complete
 Was the D willful or not?
X
X
X
X
X- willful
X- willful, but not


X- wasteful

1º focus
Is cost of completion wasteful?
Original purpose/ intention of contract?- do you
really want the clause? Or is it incidental?
o
Promisee’s intent in seeking damages
Didn’t care
X- had
intention for
clause
Didn’t care, but can
argue both ways
Not sure
X- really wanted
clause in contract
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§348: If breach results in defective/ unfinished construction (loss to party isn’t determined), can recover:
1) diminution in market price caused by breach
2) cost of completing performance, if isn’t grossly disproportionate to probable loss of value
Comment 1: In construction case, injured party will find it easier to prove the cost of completion than prove
difference b/t values to him of finished and unfinished performance. Since cost to complete is usually less than
loss in value to him, he is limited by the rule of Avoidability to damages based on cost to complete.
Hypothetical
A contracts to build house for B for $100k. A starts partial performance, paid $40k for completed progress. A
breaches. B finds out that cost to finish w/ another contractor is $80k. What are B’s damages?
Contract price:
$100,000
A’s Already paid:
$40,000
Cost to finish:
$80,000
B/c A breaches, B has to pay total of $120,000 to finish house. Was only supposed to pay $100,000. Only has
to pay $20,000 (Cost of completion). D
Comment 2: If performance is defective, hard to prove loss in value. He can usually recover damages based on
cost to remedy the defects.
 If cost of repair is close to diminution in value, just give diminution in market price to property.
o A contracts to build house for B. Foundation cracks. Fixing it would cost $30k, and would
increase market value of house to $20k.
 Don’t know subjective value of house to B. Cost of repairing house is sort of close to market value, so
award $30k b/c it’s only a small windfall.
 If increased value to $100k, that’s a large windfall.
Comment 3: a large part of cost to remedy is that you have to undue harm.
If large windfall, get diminution in value.
Peevyhouse has to prove that subjective loss of value was significant.
Small windfall, order cost to repair.
Damages based on market price w/out defects & w/ defects → diminution in market price.
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Valid Contracts Become Invalid under:
public policy
Statute of frauds
defenses
PUBLIC POLICY
 Don’t want to encourage certain behaviors. Enforcement would undermine policy goals of State
Legislature and Court is concerned how it looks.
→ If you hire someone to kill someone else → contract is not only illegal, it’s unenforceable.
 Baby M → surrogacy contract & custody law (best interest of child).
 F: Whitebread signed up at the infertility center. She would carry the Sterns’ baby (husband’s sperm,
her egg) and they gave her $. Mrs. Stern was to adopt the baby and Whitebread give up allegal rights.
 Held: Contract is against public policy. Invalidate surrogacy contract. Give baby to Whiteheads and
Mrs. Stern has visitation rights.
Can’t enforce contract
 Looks at adoption: can’t use $ for adoptions. Can’t determine parental rights by contract. Mrs.
Whitehead wasn’t giving up her child w/ full rights.
 Look at issues of parent, their mental fitness.
 Lack of counseling. Mother can’t make informed decision before child is conceived
Enforce contract (trial court)
 Exploitation of surrogate mother
 Baby selling – paying surrogate for carrying child, not for the baby
 No time constraints on decision making.
 A person who promises induces reliance.
 Spec. perf. is in child’s best interest
 Johnson v. Calvert (CA) – disagrees w/ NJ
 F: couple pays woman to be the carrier of child. Egg and sperm come from the married couple.
 Held: Calverts were the natural father and mother. Surrogate has no parental right to child. Surrogacy
contract is legal, no more visitation rights for Johnson. Looked at intent of the parties. Who intended
to bring about the birth of a child is the natural mother.
 Surrogate Mom has burden of showing K is against public policy.
 Involuntariness
 Offer of payment
 Threatening to sue
 Poor surrogate forces woman to choose $
 Very personal nature of services
 Degradation of women → NJ. But CA doesn’t think so.
§178 When a term is unenforceable on grounds of public policy
 Legislation says so. Public Policy outweighs interest in enforcement.
 Weighing interests: parties expectations, public interest, forfeiture if enforcement were denied.
 Look at strength of policy, seriousness of deliberate conduct, directness of connection b/t misconduct
and term.

Moral values in family relationship.
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STATUTE OF FRAUDS
 Meant to prevent fraud (overenforcement), but the bad part is that it can lead to underenforcement, too.
 Expensive to put everything in writing.
 PE is inapplicable for a case w/in statute of frauds. UNLESS a real fraud was definite. If there is real
fraud/ deception, PE can be used.
 Statute of Frauds says certain contracts need to be in writing and signed:
 If under Statute & not in writing → K not enforceable.
 If not under Statute → oral K can be enforceable.
 §110 (1) Classes of Contracts
1. Executor-administrator provision → (when executor has to answer for his decedent)
2. Suretyship provision →
(when 3rd person guarantees your debt)
3. Marriage provision →
(when you get married)
4. Sale of land provision →
(when you sell land)
5. One-year provision →
(when contract will be performed > 1 yr)
(2) Statute of Frauds under UCC governs contracts:
 for sale of goods > $500
 for securities, for sale of personal property to extent of enforcement by way of action
 OR defense > $5,000 in remedy or value
 TEST: to calculate one year


When is contract made? When will performance be completed?
 Time starts when K is made. Doesn’t matter if there’s time in between before K starts.
TRY TO ARGUE → Is there any way this K can be performed w/in a year? Then not in SOF.
If don’t specify a certain amt. of time, won’t look at how realistic it is to finish contract w/in a year.
 EX. construct 20 buildings in a year → doesn’t specify a term, act as if contract can be completed in a year
→ statute of frauds doesn’t apply
 EX. I orally promise to employ you for the rest of your life.
 Could be performed w/in a year b/c you could die tomorrow. Statute of frauds does not apply b/c
the service can be performed in a year.
 TEST
 Is this within the statute of frauds?
o Does my transaction satisfy elements of writing? §131
§130 Contracts not to be performed w/in a year
 When a promise takes longer than a yr, promises are under Statute until one party completes perf.
 When a party fully performs, Statute doesn’t prevent enforcement → K enforced
 Boone v. Coe (Texas move)
 Held: Contract is w/in SOF b/c it will take one year (but doesn’t start right away), not in writing.
 Rule: If D got a benefit, then he would have obligation to pay. P spent a lot of money for the trip
there and back, but D received no benefit. P can’t get restitution damages.
Hypothetical I promise to sell you land for $100k (orally). Promisor gives deed, promisee hasn’t paid yet.
Promisee backs out → Transfer of land so within statute of frauds, needs written agreement → shouldn’t be
enforceable. BUT….
§125 Contract to Transfer, Buy, or Pay for an Interest in Land
1) promises to transfer interest in land is within Statute of Frauds
2) it doesn’t matter who the transfer is to be made to, promise to buy land is w/in SOF
3) When transfer of land is made, promise to pay price stops being in SOF unless promised price is in
part or whole interest of land
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 when you transfer land to promisee, promisee has to pay
4) Term isn’t usually for longer than a year.
 If you sign a 6 mo lease, it won’t be subject to Statute of Frauds. Don’t want people to get out of
their leases b/c they’re not in writing.
 Schwedes v. Romain (Montana sale. Backed out → written offer only)
 Spec. Perf. or damages can’t be awarded b/c there was no contract
 Held: P gets nothing b/c sale of land is within Statute of Frauds → not in writing. No consideration.
 Can’t rely on D’s attorney b/c he didn’t have power to make decisions UNLESS D’s put it in writing.
 Held: Plus P did not start partial performance.
 Acts in contemplation: making studies of property, getting financing.
 Can only rely on your part performance, not part performance of others
Even though there was a written offer, there was no written contract. (Letter is only evidence of an offer)
ELEMENTS OF WRITING
 If you just have an offer → have to show it to other person → enforceable
 If you have a contract, don’t need to show it to the person.
Have you satisfied the statute? Need 3 elements → If one term is missing, then doesn’t satisfy SOF →
contract is unenforceable
§131 Elements of the Writing
 a contract w/in Statute of Frauds is enforceable if it is in writing AND signed by or on behalf of the
party to be charged, …
 The writing has to identify
(a) reasonably identifies subject matter of contract
(b) indicates that a contract has been made b/t the parties, just need the introduction of the offer & P’s
signature
(c) states w/ reasonable certainty the essential terms
 TEST: even if you have a writing, does it identify these? →§131



Subject matter?
Contract has been made?
Essential terms?
Restitution REMEDIES
 EXCEPTION to Statute of Frauds (can still recover even if Statute applies):
 Can get Restitution Damages
 Always try to give restitution first. If give $, can get it back.
 Award restitution when D unjustly enriched from improvements in land. D has to benefit.
 Partial performance
 RELIANCE: PE award spec. perf.
 Award this when P acts substantially where he thinks there was a contract
 Only for Land contracts → §129 awards spec. perf. if someone builds on the land, acts in reliance
 Enforces Reliance → seek damages under §139.
 Part Performance → Schwedes didn’t build anything on the property.
 If started building something, it would be part perf. and enforceable b/c there is reliance.
 §129: Action in Reliance; Spec. Perf (Part performance) like §90
 Just for spec. perf. IN land contracts. Grant spec. perf. of an oral contract if there was an act that
didn’t make sense unless they owned the land. Paying the price for land isn’t enough. (You could
just give the land back. Restitution can be given.)
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
Policy: PE undermines evidentiary, channeling, and cautionary provisions of SOF. Want
people to take the need for a written agreement seriously.
 §139 Enforcement in Reliance
 promise is enforceable even in SOF b/c of PE.
 Complements §90 that dispenses w/ consideration. But in SOF, there is still consideration. Even
with consideration, PE used to enforce contract.
 Applies to narrower class of cases than §90: look at whether reliance satisfies purposes (evidentiary,
cautionary, channeling) of Statute of Frauds
o Court looks for existence of evidence of a contract. Won’t just apply to all cases.
Remedies → §139 is a fall back measure. If you can award restitution, award it.
§2-201 Statute of Frauds in Relationship to Goods
 If it’s more than $500 → must be a signed writing. Writing isn’t void b/c it omits or incorrectly states a
term, but contract is not enforceable beyond quantity of goods mentioned in contract.
 Exception:
(2) if both parties are merchants, then relax signed writing. If I send you confirmation, and you don’t
object, court can enforce K against you. (will treat as if you actually signed the writing)
 Don’t need agreement in writing when:
3a: goods have been specifically manufactured for buyer (enforceable)
3b: enforceable when D admits existence of sale (contract isn’t enforceable beyond the quantity of goods
admitted)
3c: part performance→ goods for payment have been accepted
TESTs: SOF doesn’t apply when:
 Merchants
 Don’t object & Accept goods
 Customized specifically for one party
 Admit existence of sale
 Part performance
Hypo Oral agreement to deliver 1000 apples for $1000. A delivers 750. B accepts, then breaches. Does B have
to pay?
→ no signed writing, Statute of Frauds applies (over $500), contract isn’t enforceable, but under 3c: part
performance. Pay contract price for partial performance already occurred, but not for the others not yet
delivered. Can’t enforce entire contract.
 if not divisible, then court may enforce the whole contract.
Hypo Written agreement for $100k in sale of land. Seller breaches. But orally, Buyer will give Seller $100k.
→ Buyer asks for spec. perf. (§129 → if he started building on land, it could be awarded)
→ It’s w/in SOF, but SOF doesn’t apply b/c can get restitution damages.
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DEFENSES (can’t assent w/ full knowledge & rationality)
 3 types:
1. Deficient capacity (Mental Illness, Infancy, Intoxication)
2. Improper means (fraud - misrepresentation, duress, undue influence, unconscionability)
3. Failure of basic assumption (mistake, impossibility, frustration)
Reasons to Enforce
Protects people from fraud & protects them so others can’t take advantage
Both parties have to be reasonable & rational
Their lack of knowledge undermines true assent
Reasons not to Enforce
Can’t enter into a really good K
They mean to be in the K
Hard to assess mental incapacity or Kid looks older than he is
§12 Capacity to Contract: Can’t contract if you’re:
 under guardianship, A child
Mentally incompetent
Drunk
MENTAL INCOMPETENCE
 Even though they manifest assent, they’re unable to.
§15 Mental illness or Defect
(1) It’s a valid contract, but the mentally ill person can still enforce or disaffirm. He can get out of the duties by
saying he’s mentally ill but can still keep the contract if through mental illness or defect, he
 Cognitive tests: Can’t reasonably understand the nature or the conseq. of the transaction
 Volition tests: Can’t reasonably act towards the transaction and the other party knows of the condition
o If you understand but can’t act in a reasonable manner, contract is voidable
(2) Mentally ill can’t avoid contract if all of these: 1) contract was fair 2) other party doesn’t know you’re
mentally ill 3) partially performed or avoidance of contract would be unjust. Grant relief as justice requires.
TESTS: (need both)
 Cognitive: can’t understand the nature of the K
 Volitional: can’t conform to K terms & other party knows
Case: Teachers who has a nervous breaks down. Changes her benefit pay-outs. Dies. Husband says he
wasn’t mentally competent to change her benefits.
D’s arg: just b/c have a breakdown doesn’t mean you’re mentally incompetent. Does she pass a tests?
Held: she understands K, but can’t control her acts (satisfies volition tests)
INTOXICATION
 Impedes ability to understand nature and conseq. of contract
 Voluntary intox isn’t a defense. In some courts it is.
 If I know you’re drunk, can’t uphold K. But if I don’t know you’re drunk, K is still good.
1. INFANCY (deficient capacity)
Kids Case: 2 kids rented apt. in NYC
Held: kids aren’t liable, get all of the $ they paid back. → discourage adults from entering into contracts w/ kids
Rule: any contract kids enter into if voidable even if other party completely performs.
 RULES: If kid pays w/ cash, adult can get it back. If pay w/ credit, tough on adult, can’t recover at all.
o Unjust enrichment: If buy a car and smash it, car’s gone. Don’t have to give it back.
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 EXCEPTION: Kids can contract for necessaries. Can only get it through the K.
Kids are liable for necessaries.
Kids are liable for what they paid for in cash.
§14 Infants
 Unless statute provides otherwise, a child can void contractual duties until the day before her 18th b-day
 Brooke Shields case (mom signs waiver for 10 yr old nude Brooke, circulated and Brooke tries to stop it)
 Held: Complied w/ statute, minors can be enforced in a contract if guardian signs waiver. Mom signed
consent, so it is still applicable years later. It’s not porno, so not contrary to public policy. Photos can
still use it for advertising purposes.
 CL would’ve voided K. Can void contract b/c she’s still a child (17 yrs old)
 Dissent: to protect rights of children, if P contests it while still a child, should not enforce contract
2. MISREPRESENTATION
 Even innocent misresp can rescind K if it’s material & induced reliance.
 Fraudulent, innocent and material (basis for rescission)
 innocent and not material (can’t rescind)
 assertion not in accord with the facts → can be fraudulent or material misrep., can be totally innocent
Opinion
Misrep. of Fact
-- Quality
-- Quantity
-- Statement of value
-- market value → generally accepted price
-- no known value of property
 TEST:
 1. Misrep
 2. Misrep was material or fraudulent
o Was it a fraudulent or material misrep of fact & not opinion? Intended to induce
reliance? §162
 3. Misrep intended to induce reliance
o Was there actual justifiable reliance? Can he rely on Opinion?→ §169
 If he could rely, did P conduct due diligence in finding out claim?
 Does the fact strike a cord with the opinion → §168
 4. Actual justifiable reliance
 Damage caused?
o Don’t forget: has to induce reliance
 §162 Misrepresentation is Fraudulent or Material
 Fraudulent if maker intends for his statement to induce another to agree AND maker:
1) knows his statement is wrong (knows he’s misrepresenting)
2) He’s not as confident as he says
3) No basis for making statement
 Material: likely to induce a reasonable person to give assent, or if maker knows that it’s likely to
induce recipient to give assent
 (induces reasonable person to assent, or maker knows it’s damm sure that other will assent)
§ 164 Misrepresentation makes contract void
 Recipient can void contract if his manif. of assent is induced by fraudulent or material misrep AND if he
justifiably relies.
 If assent is induced by a 3rd party (not part of transaction) and recipient is justified in relying, contract is
void. UNLESS the other party to transaction in good faith and w/out reason to know of
misrepresentation relies materially on transaction.
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§167: Misrep induces party’s manifestation if it substantially contributes to his decision.
 Federal Land Co (P sues for misrep. of land’s value & Fed. Land Co didn’t have actual possession of
land)
 Held: Fed. Land didn’t own the land → Material misrep
 No Fraudulent misrep on value of land: just an opinion about worth. Property doesn’t have a
known value, and Fed Land didn’t have specialized knowledge.
 Rule: In a speculative market w/ no fixed price (inventions, land) → false statements are opinion
 In a definite market w/ concrete value (bonds, grain) → false statements are
misrepresentations
 Rule: Misrepresentation can be made by words and conduct, can still be an honest statement.
EXCEPTION: in some case, opinion is misrepresentation → §169
 Arthur Murray Dance Studios case (ridiculous lady who racked up $30k in dance lessons from opinions)
 Held: Can rescind contract b/c Arthur Murray had superior knowledge, so his statement taken as fact.
 Rule: If one party has superior knowledge, his statements are fact and not opinion (§169). If on equal
playing field, statements are opinion.
 Rule: Generally, statements of opinion aren’t misrepresentations, but here’s an exception b/c there’s a
fiduciary rel. b/t parties AND some trick employed by representor AND parties do not deal at arm’s
length. P doesn’t have equal opportunity to know the truth of the falsity represented.
§168 Reliance on Opinion
 opinion = a belief w/out certainty, expresses judgment as to quality, value, or authenticity
 if it’s reasonable, recipient [of opinion] [as to facts not disclosed and not otherwise known to him] can
interpret it as an assertion
 that recipient knows these facts as not incompatible w/ his opinion
 that recipient knows facts sufficient to justify him in forming it
Ex 1: A wants B to make a contract. It will be a moneymaker. A knows that business has been unprofitable
since the beginning. → B interprets A’s statement of opinion as an assertion that facts known to A are not
incompatible w/ his opinion and is induced to make contract.
Held: B’s interp is reasonable, the assertion is fraud misrep, and contract can be voidable by B.
§169: Justifiable reliance on Opinion
 Can rely on opinion when recipient:
 a) Reasonably relies by being in a certain relation of trust and confidence to the opinion giver
 fiduciary relationship, jewel expert
 b) Reasonably believes the person who gives opinion has special skill in the subject matter
 c) is for some special reason susceptible to misrepresentation
 Distinguish b/t Fraud and Misrepresentation
 Fraud is a statement that maker 1) knows to be false, 2) doesn’t have confidence in making it; 3) doesn’t
have basis for statement.
 4 elements of Legal Fraud
 material misrepresentation
 known to be false
 induces reliance → party relied
 resulting harm
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 Baby M (surrogate Mom sues on fraud)
 Rule: No material misrepresentations (none of surrogate’s moms claims were signif.) & D didn’t
rely on any of her claims.
 Equitable fraud is an innocent misrep. (you don’t need knowledge)
 Legal fraud is a fraudulent misrep.
3. DURESS (subjective to person)
 Consent isn’t binding if forced, wouldn’t have given consent normally, threat of compulsion.
 Threat overcomes will of person.
 Improper threats → has to be unlawful, no alternatives
 Breaches good faith AND
Causes irreparable injury that can’t be avoided
 Like Misrep, everybody gives restitution.
 TEST for duress
 TEST #1: Was the threat improper? (use §176)
 TEST #2: Did threat induce manifestation of assent?
 If it’s so unbelievable or wimpy, it’s not going to induce assent
 TEST #3: Were there no other alternatives?
 Silsbee case P’s son stole $ from D. Mom secures deposit, but D can’t tell her husband- will kill him.
 Rule: Duress is a subjective threat. No duress here b/c….
 Held (D’s arg): she voluntarily came to pay off debt. She took extra acts to fulfill her promise.
She’s away from duress, but still acts on the contract
§ 174: if you physically force someone to enter a contract, it’s not binding b/c there was no manifestation of
assent. →→ There was literally no contract in first place. Don’t do anything about the contract.
§175: duress by threat makes a contract voidable when
 improper threat leaves a person no reasonable alternative
 if party’s manifestation of assent is induced by a 3rd party, contract is voidable by victim. But, the
contract is still valid if the other party didn’t know about the 3rd party threat and acts in good faith and
materially relies on the transaction.
§176 Improper Threats → A threat is improper if it is:
 a crime or tort, or would be if you got the property
 criminal prosecution (making a threat when there’s no basis for suit)
 civil process is threatened & made in bad faith
 threat is a breach of duty of good faith and fair dealing
(2) A threat is improper if exchange is unfair and
a) Threatened act harms recipient, but doesn’t significantly benefit the person who threatens
 vindictive behavior
b) Effectiveness of threat ↑ b/c of prior unfair dealing by person who threatens
c) What’s threatened is a use of power for illegitimate ends
 Types of reasonable alternatives: legal remedy.
 EX: I hold your goods, and won’t give them to you. Reasonable alternatives = get goods
somewhere else and sue for breach of contract. If threat is minor, then just deal with it.
 Ordinary remedy for breach isn’t adequate
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ECONOMIC DURESS – withhold goods
 One party takes adv. Of other b/c the other has money problems. It could be like permissible hard
bargaining. On the other hand, it’s an improper threat.
 Problem: Reluctant to enforce defense b/c you don’t want to ↑ uncertainty. Could undermine people’s
ability to enter in contracts.
 Hackley v. Headley (Seller felt forced into signing a receipt. Thought he was getting more, but signs it
b/c he really needs the $)
 Held: there was no unlawful attempt to make seller sign the receipt. Buyer did not deprive seller
of his own free will. Too bad he needs the $.
 Rule: under restatement, probably would find duress.
 Austin Instruments v. Loral Corp (big govt. contract- like pre-existing duty)
 F: Loral subcontracted Austin to supply parts for 1st contract. Austin wanted 2nd one. Said it would
stop supplying 1st contract if didn’t get 2nd. Loral succumbs to give more $ in 1st contract.
 Held: 1) threat was improper; 2) induced Loral to assent; 3) no reasonable alternatives b/c nothing
else would come on time. 1) couldn’t get goods elsewhere without damaging reputation; 2) didn’t
want shipment stalled on 2nd contract.
 Rule: No other alternatives. Other remedies inadequate.
 ******Similar to Alaska Packer’s → also no consideration. BUT, contract can still be binding if it’s
fair and equitable, done in good faith, or justice requires it b/c there’s reliance. §89.
4. UNDUE INFLUENCE (§177)
 Unfair advantage/ persuasion over weakness of mind. Special relationships (long-time advisor,
parent-child) where you’re justified in believing he won’t harm you.
 TEST:


Excessive pressure of dominant person
Undue susceptibility of weaker person
 Special relationship b/t parties and there’s Improper persuasion
 Odorizzi (gay teacher who was unduly influenced into signing resignation)
 subjective → lessened capacity
 objective → excessive strength (of dominant guy over subservient guy)
 Undue influence factors (elderly, sick, senile → incapacitated mentally, emotionally, physically)
1) inappropriate time (1am)
2) unusual place (right after a funeral or something bad)
3) urgency & immediacy that business has to be finished at once
4) no time to seek legal help
5) multiple persuaders, no 3rd party advisers
6) extreme emphasis on bad consequences of delay
§177 Undue Influence makes a contract voidable
(1) unfair persuasion of weaker party by a dominant person OR
there’s such a relation between them that the subservient person is justified to assume that the other
won’t act in a way that harms his welfare
(2) if manif. of assent is unduly influenced, contract is voidable
(3) if 3rd party unduly influences 1st, contract is not void if 2nd party 1) acts in good faith, 2) didn’t
know about the undue influence, and 3) relies materially on transaction
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5. UNCONSCIONABILITY→ Procedural & Substantive §2-302
2 types of agreements:
1. consumer credit contracts
2. contract of adhesion (stdized terms)
 need both procedural AND substantive unconsc.
 Less opportunity to bargain over terms → more likely contract is unconscionable
 ARGUMENT: Bad motives don’t mean unconsc. contracts. If person fully knows what he’s getting
into, K enforced even if it’s unfair.
 consumers, not business men (they can more protect their own interests
 If a party of little bargaining power (no real choice) signs an unconsc. contract w/ little knowledge of its
terms, it means he doesn’t consent.
ARGUE: clause is unconscionable OR unenforceable as a penalty clause → Liquidated damages
o Legislatures try passing statutes to protect consumers: Consumer Protection Statute: used car sales →
disclaimer exists, but won’t recognize it for deceptive or unconscionable practices. Disclosure Issue:
people can enter contract, but help them understand what they’re getting into.
 TEST for unconscionability
 Procedural → unfair bargaining, no meaningful choice
o Legalese: fine print, complex, harsh terms, no opportunity to read terms
o Disparity of sophistication: low educ. levels, cultural barriers, language barriers
o Are terms negotiable, or take it or leave it terms, market pressures
 Substantive → harsh terms
o terms unreasonably favorable to one party, Harsh terms, not commercially reasonable
§2-302: Unconscionable Contract
(1) If contract is unconscionable at time it was made, it can be void; enforce the rest of contract but not the
clause, or limit the unconsc. clause to avoid unconsc. result
(2) The parties have reasonable opportunity to present evidence of why it’s there.
Restatement comments:
 Unconsc. → evidence that there’s no meaningful choice to the weaker party.
 Gross inequality of bargaining
 Allocation of risk to weaker party
 Stronger party gets substantial benefits, weaker party can’t reasonably protect his interests
 Excessive price, inclusion of penalty clauses, exploiting unsophisticated, uneducated, illiterate
 Walker-Thomas Furniture Co case (§2-302) (Seller used each of buyer’s purchases as collateral until
payment for each one was due)
 Held: clause was unconscionable b/c unequal bargaining power, fine print, little education to
understand contract → no meaningful choice (only place where poorer people could get furniture)
CONTRACTS OF ADHESION
 Advantages to form contracts: reduce transaction costs (don’t have to individually negotiate every
clause), easier to control employees to run business efficiently (sales are standardized w/ set terms)
o Co. reputation for fair dealing will damaged if they have oppressive terms

§211 Form Contracts
o Pros → saves time & energy, easier to keep records, consumers focus on terms they care about
o People don’t usually read the terms, but trust party to act in good faith. Assume you’re
assenting to unread terms. These terms are subject to limitations imposed on them.
o Negotiated terms supersede anything on form contracts, limit oppressive terms against drafter.
o Mere identification tokens: if you don’t know that these are contracts, you’re not bound to
those terms on the token. (back of a parking ticket?)
 Turns on knowledge of terms. (look at circumstances)
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o
Look at avg. person in determining how to construe those terms. If there’s reason to believe
that other party won’t accept agreement, then that party doesn’t accept the term
 Carnival Cruise Lines (unconsc. clause- have to bring suit in FL)
 P’s arg: clause shouldn’t be enforced b/c it wasn’t bargained-for and it would deprive P’s
financially to bring suit in FL
 S.Ct Held: held for Carnival cruises. Forum-selection clause isn’t unconscionable → no bad faith
 A clause that’s not bargained-for is always still enforceable if it’s on a std. form.
 P’s hardship isn’t outweighed by keeping std. of enforcing the clause.
 Dissent (legisl enforces this now) → forum-selection clause is unconscionable
 no reasonable person would’ve noticed the fine print, Don’t know of clause until buy ticket
 Forum-selection clauses are against public policy
 Procedural unconsc. → fine print, buried in ticket, catch-22: can’t see the clause until you
bought tickets, but can’t get a refund
6. MISTAKE: belief not in accordance w/ facts
 Raffles: both parties referring to diff. product. Mistake: both parties refer to same thing, but are wrong.
 Mutual mistake: Failure of a basic assumption. (Both parties think the same wrong thing)
o Mistake takes place at time contract is made
 Unilateral mistake
 What you thought entering the contract was wrong (it’s not a bad decision).
If something isn’t what you bargained-for when you got it, → no contract
If something isn’t what you thought (diff. in quality or accident) → binding contract
TEST for Mistake: §152
 Mistake, failure of basic assumption?
 Material mistake on the agreed-exchange of performances? Has major effect on the deal.
 allocation of risk → if guy claiming breach assumes risk, he can’t claim mistake
 Sherwood (cow case) (both parties buy cow, thought was barren. Cow gave birth before transaction)
 mistaken fact has to exist at time contract is made
 Held: Mistake wasn’t about the quality, it went to the very nature of the thing (she wasn’t barren).
Contract rescinded.
 Reasoning: Cow was more valuable, so if the seller knew that, he wouldn’t have sold.
 Dissent: no material mistake in fact (just mistake in judgment): both parties entered the agreement
willingly.
 1) P thought cow could breed. D thought cow was barren. → no mutual mistake b/c buyer
thought one thing and seller thought another.
 2) bargained-for the sale of the cow, not for her condition. Whatever happened after the
contract didn’t play a role in forming the contract.
 it’s a mistake about prediction of future events (not mistake about the cow). It’s seller’s fault
that he made a bad prediction of future events. Mistake occurs when contract is made.
§151 Mistake: ~ belief not in accord w/ facts (an erroneous belief)
Comments: doesn’t have to be articulated. An erroneous belief about contents of a writing = mistake.
Prediction of future events is not mistake.
§152 Mistake is voidable when…
(1) when mistake [of both parties at time contract was made] has a material effect on agreed-exchange
of performance, contract is voidable by adversely affected party UNLESS he bears risk of mistake
(2) To decide whether mistake has material effect on performance, take into account reformation or
restitution
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§154 when party bears risk of mistake. He assumes risk when there’s:
a) express contract
b) if you know at the time, you know your knowledge is limited but you choose to act anyway
a. conscious ignorance – assume risk
b. seller is conscious of his lack of knowledge
c. buyer is aware of limited knowledge
c) Court allocates if it’s reasonable to do so (seller assumes risk of change in market conditions)
§157 effect of fault on getting relief
if you didn’t try to find out the facts or didn’t know about the facts, you can still recover UNLESS you failed
to act in good faith and against reasonable stds. of fair dealing
§158 Relief including Restitution
(1) can get restitution
(2) if injustice can’t be avoided, ct will grant relief as justice requires to protect parties’ reliance interests
 Wood v. Boynton (uncut diamond) → conscious ignorance
 F: chick comes to sell her stone to jeweler. Sells for $1. Turns out it’s a diamond. Can she get it
back?
 Fraud (tossed out): the jeweler should be in the position to know that it’s a diamond. buyer was
ignorant.
o Has there been an assertion contrary to fact?
o Failure to disclose still makes you liable.
 Held: sale transacted, so can’t get it back → no mistake. It’s just that she found out it’s worth more
and wants it back. Seller could’ve done her research & found out it was a diamond → conscious
ignorance.
Sherwood distinction from Wood → Leave the property where it lies.
Sherwood: Not yet performed → no contract.
Wood: Already performed → no rescission
 Lenawee case (buyer buys home as investment property. Both find out sewage system makes property
unlivable. Buyer sues & wants his money back.)
 Seller’s arg: you signed the papers, didn’t know about the sewage system
 Buyer’s arg: this has a material effect on the property
TEST#1: mistake of basic assumption
o satisfied: property was specifically sold for its rental ability
TEST #2: material mistake
o Advantage to one is disadvantage to other → material mistake
TEST #3: mistake is not one that the party seeking relief doesn’t have the risk
o The buyer assumed risk b/c they signed an “as-is” clause.
Unilateral Mistake and Duty to Disclose: not really about mistake but acting in bad faith
 No representation is made by the maker, bad guy. If he makes a false statement, it’s fraud/ misrep.
Doctrine of unilateral mistake only comes into play:
1. if there’s no representation made by non-mistaken party
2. where an affirmative statement is made
3. doctrine of misrepresentation/fraud applies [if other side knew or should have known about mistake, and
makes an affirmative statement to the contrary, other side will be guilty of misrepresentation or fraud
 Clerical errors. Can’t rescind K for business judgment errors (mistake in amt. of labor)
 Policy problem: doesn’t give incentive for sub to make an accurate bid
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 Tyra v. Cheney: P bids on project undertaken by D (contractor). When submitting written bid, P
mistakenly leaves out a term. D aware of mistake, accepts P’s bid.
 Rule: P can void contract due to unilateral mistake b/c a party cannot snap up an offer knowing that
it is a mistake. Even if recipient relied on bid, he can’t snap it up.
 Rule: if one party knew about mistake, not really relying
 §153 When Unilateral Mistake Makes contract Voidable
 When a mistake of one party at time K was made as to a 1) basic assumption on which he made the K
has a 2) material effect on agreed exchange of performances that is adverse to him, the contract is
voidable by him if he 3) does not bear the risk of the mistake; and
(a) enforcement of the K would be unconscionable; OR
(b) other party had reason to know of mistake or his fault caused the mistake.
 Did one party have any reason to know of mistake? (If bid is clearly off, should know)
TEST: for Unilateral Mistake
Did they know of mistake? Did they have reason to know of mistake?
If yes, go to §153 unilateral mistake steps→ could be enforced against party
If no → did they rely?
If yes → enforce contract
If no → no contract
1) basic assumption?
2) Material effect on the agreed exchange?
3) If seller bears risk of mistake, she assumed risk of mistake → not unilateral mistake (If she knew what
stone it was, then she didn’t bear the risk.)
a. Enforcement unconscionable?
i. UNCONSCIONABLE: here it’s looked at after contract formation → look to see if
terms extremely impact parties.
a) unconscionable: mistaken party has to prove:
1. enforcement of K would severely harm mistaken party
2. the other party didn’t rely on the bid
o Unlike Drennan → Drennan didn’t know about lower bid & it relied.
3. the mistake deprives contractor of significant portion of profit
FAILURE TO DISCLOSE (falls under misrep, too)
 Should disclose casually acquired info, not special, private info
 Was disclosure done in good faith?
 If you take a lot of steps to discover the info yourself, you don’t want people to profit off of your work.
Generally don’t have to disclose info, but have to when:
1) half-truth. If creates overall misleading impression → misrepresentation
2) positive action to conceal: even if it’s not verbal, still a misrep.
3) have to correct a previous assertion from being misleading
 In Jan, no termites. Sign contract. In April, termites → have to tell buyer.
4) failure to act in good faith
 Jeweler didn’t correct the guy’s wrong statement & b/c he has special knowledge → bad faith
 Laidlaw v. Organ: D bought a hell of a lot of tobacco. The market price ↑ dramatically. The Seller
was pissed and took back the tobacco.
62/65
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Buyer’s arg: not liable to reveal info, seller waived rights when it didn’t insist on answer. Collected
the information purposefully. If we make someone reveal secret info, then allows him to piggyback off of someone else’s work. No one would get info themselves.
Seller’s arg: fraud, withheld info., didn’t use good faith.
Held: buyer’s doesn’t have to give info, whether or not morally correct. Each party can’t take
advantage of another and do actions to deceive the other party.
§160: Action is equiv. to Assertion (Concealment)
 If you try to prevent another from learning a fact, that’s the same as asserting the fact doesn’t exist.
 EX. painting over cracks in a wall
§161: When Non-disclosure (Silence) = Assertion
 Silence is the same as an assertion that the fact really didn’t exist:
a. [the concealer] knows [that disclosing the fact is necessary to prevent a previous assertion] from
being misrepresented or fraudulent or material (have to correct a previous statement that later
became wrong)
b. have to disclose a fact that would correct a mistake about a basic assumption (which makes the
party want to be in the contract). Not disclosing the fact amounts to a failure of good faith and
reasonable stds. of fair dealing.
i. Ex. barren cow miscarries, have to let seller know
c. Have to disclose a fact to correct mistake about contents or effect of writing (that’s evidence of K
in part or whole)
d. The other is entitled to know of the fact b/c they have a relation of trust & confidence
Hypo: don’t say anything about the termites. You know, they don’t ask. Is contract voidable?
Basic assumption: house doesn’t have a termite problem. Not disclosing is failure to act in good faith.
If misrep. induces manif. Of assent → then voidable.
TEST: §161b
 Is silence going to affect a basic assumption?
 Is silence in good faith or not?
Hypo Buyer wants to buy land. He knows it’s valuable. The other doesn’t. Did buyer act in good faith?
→ Don’t have to disclose the value if we have diff. values of land. Good faith doesn’t require buyer to disclose
info. You did all the info and the work.
RULES
→ If you appreciate the value of something someone didn’t notice → don’t have to disclose it. Nature of
business.
→ You don’t have to do the work of helping people draw conclusions. Even if other lacks info or is
inexperienced, don’t have to reveal info.
→ Buyer of property doesn’t have to disclose info. But if buyer has special knowledge that the other couldn’t
possibly know, have to disclose info.
 Hypo: if you think the house is haunted, do you have to tell a prospective buyer?
 Is it a basic assumption where nondisclosure acts in good faith?
 have to disclose there a house is haunted before you buy it. Average person wouldn’t think to ask. Can
rescind if seller fails to disclose.
63/65
CHANGED CIRCUMSTANCES (not like pre-existing duty rule: want to another K. Impos: rescind K)
 1) Impossibility
2) Frustration
 Increase in cost of performance → impossibility & impracticability
 Reduction in value → frustration of purposes
IMPOSSIBILITY
 Taylor v. Caldwell: P rented out a Musical Hall, but it burned down after the K, before the performance. P
sues for costs undertaken in preparation for performances (reliance damages): advertising and Ks made with
performers.
 Rule: Hall’s existence was a basic assumption of the K. Destruction makes it impossible to be
performed. There was an implied condition.
 P’s arg: relied in giving performances to the concert hall. expected theater, you can’t give it to us →
that’s a breach of K.
 D’s arg: express terms relieve them. implied condition. Usage of trade gives meaning to supplements.
 Rule: Performance depends on continued existence of theater. This is an implied condition of the
agreement. Both parties will be excused. P doesn’t have to pay. D doesn’t have to provide the hall.
→ If a K depends on a personal skill, and that person dies (act of God), then performance is excused.
§261: Impracticability
After a K is made, performance is made impracticable w/out fault by something (non-occurrence) that was a
basic assumption of the K. So, both parties don’t have to perform K duties anymore (discharged). unless the
language or circumstances indicate the contrary.
§263: If existence of a specific thing is necessary for perf. of duty, its failure to come into existence,
destruction or such deterioration as makes performance impracticable is an event the non-occurrence of which
was a basic assumption for the K.
EXCEPTION:
1. express terms that the K will be performed no matter what (default damages)
2. fault. Intentional or Negligent. If theater owner burned down their own theater, he has to pay.
→ LOOK FOR EVIDENCE OF ASSUMPTION OF RISK.
→ Was it foreseeable the Hall would burn down?
General Req’s for Commercial Impracticable
1) perf. has to be made impracticable (not impossible). Something has to happen that makes perf. imposs.
2) nonoccurrence of event is a basic assumption that both parties have. Both didn’t expect it,
unforeseeable. The thing was a basic assumption.
3) w/out fault (includes N and intentional conduct). Nobody caused it.
4) Party can’t assume greater obligation than law imposes (express terms, or lack of K terms, trade usage)
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Markets shift won’t form basis of impracticability claim. Need extreme contingency. Total unforeseen
circum that’s a major shut-down.
→ Higher costs are not good claims for impracticability.
EX. Money in the bank. Bank shuts down. → Performance is infeasible. You literally can’t perform,
but still owe damages. Continued existence of bank isn’t the basis for assumption.
Rule: Need to use reasonable efforts to cover impracticability. It may cost you more, but you’re obligated
b/c you entered into K.
Rule: Financial inability to perform isn’t a basis of impracticability claim. This is risk you could control.
 EX. you agree to buy equipment but run out of $.
64/65
§2-613: Causualty to Identified Goods
1) Before any party gets the risk of the goods, and 2) the goods suffer casualty w/out fault of either party, then 3)
the K is avoided is there’s a total loss OR 3) if the loss is partial, then the buyer can inspect and treat K as
avoided or accept with seller making due allowance.
Application: FOB contracts → Seller bears risk of loss until goods gets to a location. Then buyer bears risk
after it gets there. If destroyed en route, seller can’t get the goods back.
Eastern Air Lines v. Gulf Oil Corp.:
 Gulf’s arg: crude prices ↑, they have long-term K, the escalation index of prices isn’t staying in
proportion to the rise in oil prices.
 Eastern’s arg: Gulf’s in-house profits aren’t being affected. 1) Still making $, just trying to get out of K.
 Gulf should know that oil prices fluctuate greatly. 2) It was foreseeable that the oil market index is
volatile b/c they saw the impact of embargos, know the oil market is up and down.
 Held: No claim for impracticability → Rises in input cost do not excuse b/c it undermines point of
requirements/ long-term K. 1) Still lots of profits → subsidiaries could still make $. 2) Gulf assumed
the risk; 3) Gulf would impose injustice on Eastern if they didn’t supply the fuel
DEFENSE: If a K is impossible/ impract, you STILL HAVE TO PERFORM, IF ASSUME THE RISK.
Factors to see if risk is assumed:
1) express clauses.
2) Silence in foreseeable risk means acceptance.
3) surrounding circum → can co insure the risk?
FRUSTRATION → basic purpose of K becomes impossible, but still can carry through w/ K (not worth it).
 §265: (worded like §261 for impracticability).
o 1) after K is made, a party’s principal purpose is substantially frustrated
o 2) w/out fault
o 3) the event was a basic assumption (not foreseeable)
o assume risk
o 4) remaining duties to render performance are discharged
o 5) unless the language of the circumstances indicate the contrary.
Implied condition drawn from the circum, recognized by both parties, limits the operation of general
words in the K. If K becomes impossible → no breach.
Krell v. Henry (P rented out a room so he could watch the King’s procession. Gave deposit. King got sick, no
procession. P wants his $ back)
 Held: 1) the sole purpose for renting the room was to see the procession. 2) Performance was
prevented → No procession occurred; 3) Both parties couldn’t foresee that King would get sick; 4)
frustration wasn’t P’s fault
 Held: doesn’t look at the K itself, LOOK AT surrounding circumstances. The owners advertised the
room for a partic. use. Allow PAROLE EVIDENCE. Implied condition: procession would occur.
 Counter arg: implied condition should only be applied only if it’s in the K. Parties don’t talk about the
procession, they talk about the room.
 Frustration → happens in the future, incorrect prediction about future events.
 Mistake → about an existing fact (the room would face window, but it faces courtyard).
65/65
Lloyd v. Murphy
 Breaching guy leases a lot for a gas station & car dealership. WWII starts, and Govt stops making new
cars. Breaching guy wants out of lease for frustration of purpose (won’t be able to sell cars). The
lessors said they would reduce the rent, and breaching guy can use land for any other purpose.
 Held: K enforced b/c 1) breaching guy assumed the risk; 2) It was foreseeable that the US would
impose not making any new cars (not a sudden thing); 3) purpose of the K wasn’t destroyed, could
still be performed, just not up to the par that breaching guy wanted (could still use it to sell gas); 4)
breaching guy acted in a way contrary to his reason for getting out of K (still sold cars at another
location); 5) wasn’t breaching guy’s fault
 Frustration v. Impossibility
 Frustration → you can still perform purpose of the K, it’s just not up to the par you would like it.
 Breaching guy may not want to do it, but nothing in new frustration prevents them from complying
 Ex. Lease for a bar. Prohibition comes. Can claim impossibility b/c you can’t sell alcohol. But
if the lease says you can sell other things (like cigars), then no frustration of purpose.
 Impossibility → there’s no way the K could be performed.
LONG-TERM K’S
 Can’t predict what your needs will be in the future
o 1) not practical to waste resources
o 2) can’t think of every contingency
o 3) interests change over time
NIPSCO v. Carbon County Coal
NIPSCO had a 20 yr K with Coal Co. for a fixed amount (not a requirements K). Govt order said you can’t pass
off costs to consumers. Price of coal ↑ and can get oil cheaper. NIPSCO claims frustration of purpose.
 Force majeure clause (K’s for terrorists, natural disasters, civil war, earthquakes, acts of Govt, labor
problems, strike provisions): express clause that excuses party for perf. in specified conditions.
 Analysis:
 Govt order made something hard to do
 Nobody’s fault
 Basic assumption of K
 Not foreseeable
 Who bears the risk? look at the K, who does it protect?
 If parties thought about the event, would they have wanted to assume the risk?
 Held: In the K, Protects NIPSCO against risk. NIPSCO assumed the risk assoc. w/ market
fluctuations. 2) Govt Order doesn’t tell NIPSCO to stop using coal. Just says can’t pass off costs.
DAMAGES:
Carbon Coal wants spec. perf. Posner rejects. 1) workers weren’t party to the suit; 2) coal isn’t desired by
anybody right now, it wouldn’t be economically efficient. Coasian Bargaining: Even if awarded spec. perf,
parties would K around the spec. perf itself. They want to avoid taking the loss.