12/20/2010 5:24:00 AM
Index
to the
Contracts Outline
I.
Is there an agreement? ........................................................................
1
A. Is there an agreement? Lucy v. Zhemer, Embry v. Hargindine ..............
1
B. Is there an offer? §24................................................................... 24
2
1. Content of the communication suggests offer: Nebraska
Seed v. Harsh (missing terms) .....................................................
2
2. Context of the communication suggests offer: Leonard v.
Pepsico, §33 Uncertainty = maybe not offer ...................................
3
C. What happens post-offer and pre-acceptance? ....................................
4
1. Party Dies ..............................................................................
4
2. Lapse of Time.........................................................................
4
3. Revocation of Offer: Petterson v. Pattberg, §42 ..........................
4
D. Is there an acceptance? ...................................................................
6
1. Acceptance Defined – Mirror Image Rule: Ardente v.
Horan, §61 .................................................................................
6
2. Acceptance by Counter-Offer or Conditional Acceptance
for non-goods: Ardente ..............................................................
7
3. Acceptance by Counter-Offer or Conditional Acceptance
FOR GOODS UNDER UCC: Step-Saver v. Wyse, UCC 2-207 ..............
7
4. Acceptance by Silence .............................................................
7
5. Acceptance by Performance: Petterson v. Pattberg .....................
9
II. Is there any reason that the agreement should not be
enforced? ...................................................................................................
10
A. Do the parties have a material disagreement as to one or more
terms of the contract?: .........................................................................
11
1. Disagreement over one MATERIAL term: Raffles v.
Wichelhaus, §201, V. Frigaliment, UCC 2-208 .................................
11
2. Missing Terms: §204 (court might provide), Sun Printing .............
12
B. Was There Consideration? ...............................................................
13
1. Was it a gift or was it a bargain? Johnson v. Otterbein ................
16
2. Was it past consideration? .......................................................
17
3. Was there moral consideration? Mills v. Wyman..........................
18
1
4. Was a contract modified with consideration? Stilk, Alaska
V. UCC 2-209 .............................................................................
19
5. Was the consideration adequate? ..............................................
21
C. If there was not Consideration was there Promissory Estoppel?
Hoffman v. Red Owl, Goodman v. Dicker ................................................
23
III. What are the terms of the Agreement? ................................................
28
A. Can the court go beyond the “four-corners” of the document? §209,
Thompson v. Libbey V. UCC 2-202 (contradict) V. Trident v. Conn. Gen. .....
28
B. What can the external evidence do?...................................................
30
1. External evidence can correct mistakes (typos) ..........................
30
2. External evidence can explain ambiguity....................................
31
3. External evidence can add to terms of writing if
agreement silent as to those terms, as long as the terms do
not contradict written agreement ..................................................
31
IV. Has there been a breach? .....................................................................
32
A. Was the contract performed under good faith? Goldberg v. Levy ...........
32
B. Was there an express waiver of a condition of the contract, rather
than a modification of a promise SEE LAST PAGE .....................................
33
C. Are there implied conditions that were not complied with? (if yes,
breach) *situations in which even though one party did not fully
perform, he is seeking to enforce the other party’s promise: Kingston v.
Preston ...............................................................................................
34
D. (1) Does there need to be perfect performance? (2) What are the
damages? (Cost of completion vs. Diminution of Value) Cardozo v. UCC
2-106/Perfect Tender (Ramirez). DV - Jacob and Young; CC - Groves........
35
1. Services: can only seek damages (not repudiation of
contract)....................................................................................
39
2. Sale of Goods: can seek repudiation if you have rejected
but if you’ve accepted, then you may only be able to recover
damages....................................................................................
40
E. Was there an anticipatory breach? Hochester v. De La Tour ..................
40
V. Defenses to contractual obligations making a contract
voidable .....................................................................................................
43
A. Obtaining Assent Unfairly .................................................................
43
1. When Assent was obtained through misrepresentation or
fraud as to facts .........................................................................
43
2
2. When assent is obtained through misrepresentation of
opinion, Vokes v. Arthur Murray ...................................................
46
3. Duress, Headley v. Hackley, §175 .............................................
48
B. Was the contract unconscionable? Williams v. Walker Thomas ..............
50
C. Was there a mistake? ......................................................................
52
1. Mutual mistake: Sherwood v. Walker, §152, 154 (bears
risk) ..........................................................................................
53
2. Unilateral Mistake Tyra v. Cheney .............................................
53
3. Impossibility/Impracticability (after a contract is made) ..............
54
4. Frustration of Purpose (after a contract is made) Krell v.
Henry, §265 ...............................................................................
55
VI. Damage Interests ................................................................................
56
A. Which damage interest should apply? ................................................
56
1. Expectation Damages – Default Rule of Damages .......................
56
2. Reliance Damages [When you are not sure if a contract
has been created] (quasi-contracts such as Cotnam OR
promissory estoppel such as Goodman) .........................................
60
3. Restitution Damages [usually the smallest but in rare
circumstances can be larger than expectation] ...............................
61
B. Are there any Limitations on Damages? .............................................
65
1. Foreseeability of Damages Hadley v Baxendale, §351 ..................
65
2. Certainty of Harm Chicago Coliseum v. Dempsey, §352 ...............
66
3. Mitigation: Rockingham County, Parker v. 20th Century,
Lost Volume Doctrine (Neri, 2-708) ..............................................
67
:
C. How do you contract around .............................................................
70
1. You have a liquidated damages clause which is
enforceable: Wassennaar v. Towne Hotel, §2-719 ...........................
70
2. When damages stated in the contract are out of line with
the actual damage foreseeable at the time of the contract,
then such a clause shall be deemed a penalty clause and is
thus UNENFORCEABLE under contract law .....................................
70
D. Alternatives to Monetary Damages: Specific Performance .....................
72
1. Contracts for Unique Goods Scholl v. Hartzell, Sedmark v.
Charlie's Chevrolet, UCC 2-716 .....................................................
72
2. Contracts for Services .............................................................
73
3
1: IS THERE AN AGREEMENT?
12/20/2010 5:24:00 AM
Question 1: Is there an Agreement?
Sub-question 1: Is there Mutual assent?
Objective Approach – What would a reasonable person expect from the
exchange?

Rule: If, whatever a man’s subjective/real intention may be, he conducts
himself so that a reasonable person would believe he was assenting to the
terms proposed by the other party, and the other party upon that belief
enters into a contract with him, the man thus conducting himself would be
equally bound as if he had intended to agree to the other party’s terms
[internal secret understandings don’t matter, only objective
manifestations of intent to enter agreement]
o
Reasonable for B to believe him  intent irrelevant
o
Unreasonable to believe  can you prove B intends for A to believe
him?
o
Case 1: Lucy v. Zhemer

Facts: Lucy approached Zhemer about purchasing farm,
contract on back of check, in a bar, questionable sobriety,
Zhemer joking unbeknownst to Lucy, Mrs. Zhemer signed
“contract,” Lucy relied on contract in conducting title search
and financing payment

Holding: a party can be bound to a contract when he
secretly doesn’t intend to enter contract but acts in a way
such that a reasonable other party thought he was being
serious
o
Case 2: Embry v. Hargindine

Facts: Embry employed by D, employment contract expired,
P approached D multiple times prior to expiration to extend
contract; P then tracked down D and informed that he would
leave unless employed for another year; D said to “go ahead
you’re fine, get back to work”; P returned to work and was
notified 2 months later that he would be laid off

Holding: although D may have not intended to have formed
a contract, what D said would have been taken by a
reasonable man to be an employment contract and since P
understood it as such it was a valid contract
1
o
Case 3: HYPO

Facts: Lucy knew that Zhemer was joking and just played
along.

Holding: No mutual assent because Lucy must believe
Zhemer intends to enter into a contract (§20)
o
Case 4: HYPO

Facts: Zhemer purposely deceives an extra gullible Lucy
while not doing enough to make a reasonable person believe
it to be true.

Holding: This would still be a mutual assent. §19(2)
discusses that he must “know or have reason to know that
the other party may infer from his conduct that he assents” –
so this includes the gullibleness of Lucy.
§17. Requirement of a Bargain. – formation of a contract requires a
manifestation of mutual assent (based on external dealings and not secret intent)
§18. Manifestation of Mutual Assent – requires that each party make a
promise or begin to render a performance (either calls for unilateral or bilateral
contract)
§ 19: Conduct as Manifestation of Assent – (1) written or spoken words or
action or failure to act creates a manifestation of assent (2) Conduct of a party is
not effective unless he intends to engage in the conduct and knows or has reason
to know that the other party may infer from his conduct that he assents (3) The
conduct of a party may manifest assent even though he may not assent. In such
cases a resulting contract may be voidable because of fraud, duress, mistake or
other invalidating cause.
§20. Effect of Misunderstanding – If party has reason to know that the other
side is joking then they cannot enforce a contract even though it objectively
appears to a reasonable person that a contract has been made. [rare instance in
which court takes subjective intent into account]
Sub question 2: Is there an Offer?
2
§24 – Offer Defined: An offer is the manifestation of willingness to enter into a
bargain so made as to justify another person in understanding that his assent to
that bargain is invited and will conclude it
Possibility 1: Content of the Communication suggests offer

Rule 1: The more complete an offer is (price, quantity, date) the
more likely it is to be an offer
o
even if not quantified or specified if terms: “all of,” “only,” or
“solely” indicate offer to buy
o
also look to REASONABLENESS of terms--ex: harrier jet is not
reasonable

Rule 2: Conversely if an offer is missing terms or is nothing more
than a invitation it is not an offer (look for words: fair,
appropriate, reasonable)
o
Case 1: Nebraska Seed Co. v. Harsh
o
Facts: Seller of seeds issue letter stating he has certain quantity
for a certain price but did NOT fix delivery time or definite amount
he wanted to sell buyer. P wrote back wanting to purchase, but D
refused.
o
Holding: If a proposal lacks key terms, it is an invitation to
negotiate, not an offer.
Possibility 2: Context of the Communication suggests offer

Rule 1: Advertisements are not generally understood as offers to sell. To
be transferred into enforceable offer there must be some language of
commitment or invitation to take action.

§26 Preliminary Negotiation

§33 Certainty (3) – The fact that one or more terms of a proposed
bargain are left open or uncertain may show that a manifestation of
intention is not intended to be understood as an offer or as an acceptance
o
**Note: Other forms of Advertisements: Catalogues, price lists,
radio,
o
Case 1: Leonard v. Pepsico
3

Facts: Pepsico had promotional campaign encouraging
accumulation of “Pepsi points” by consumers. One ad
featured exaggerated commercial where one could win a
harrier jet in exchange for 7 million Pepsi points.
Commercial points consumer to catalogue for further details
and order form (harrier jet missing from catalogue). P
collects points in combo w/ money for additional points
needed (10 cents/point). P sends in points/money and Pepsi
rejects. P seeks specific performance of alleged offer.

Holding: No offer b/c advertisement lacking specific terms
and unreasonable ($700,000 for $42 million jet) and
advertisement clearly in jest.

Note: Other side could argue that 1) As in Carbolic Smoke,
it’s a reward for the buyers. “If a company chooses to make
extravagant promises, he probably does so because it pays
to make them.” 2) Reasonableness – it’s reasonable as soon
as kids take action, so in this unilateral offer, the
performance is to buy a lot of Pepsi, which took place.

Rule 2: If an advertisement is clear and has complete terms (leaving
nothing open for negotiation) it can be considered an offer (Lefkowitz,
Carbolic Smoke)
§ 24: An offer is the manifestation of willingness to enter into a bargain so made as
to justify another person in understanding that his assent to that bargain is invited
and will conclude it.
§ 26: A manifestation of willingness to enter into a bargain is not an offer if the
person to whom it is addressed knows or has reason to know that the person
making it does not intend to conclude the bargain.
§ 29: The manifested intention of the Offeror determines the persons, or group, or
everyone, who is created a power of acceptance
§ 33: Even though Offeror meant his manifestation of intent is intended to be
understood as an offer, a contract is not formed unless the terms of the contract
are reasonably certain.
4
UCC Law §2-204: Contract for sale of goods can be in any manner sufficient to
show agreement, including conduct by both parties. It can constitute a contract
even though the moment of its making is undetermined.
UCC Law §2-206: Can accept in any medium reasonable, unless otherwise
unambiguously indicated
UCC Law §2-305: Parties can intend to conclude a contract even though the price
is not settled. A price is a reasonable price at the time of delivery if: 1) nothing is
said as to price; 2) the price is left to be agreed by the parties and they fail to
agree; 3) the price is to fixed in terms of some agreed market or standard
[Unlike in Nebraska, this says you CAN leave price open.]
Sub-question 3: What Happens Post Offer and Pre-Acceptance?
§ 36 Methods of Termination of the Power of Acceptance: An offeree’s power
of acceptance may be terminated by (1) death or incapacity of offeror or offeree;
(2) Lapse of time; (3) Revocation by the offeror
Possibility 1: Party Dies  Deal is off
Possibility 2: Lapse of Time  Deal is off after reasonable amount of time
(especially when goods market value fluctuates)
Possibility 3: Revocation of Offer (only offeror can revoke)
1. Was there a Revocation?

Rule 1: (1) An offeror can withdraw the offer as long as he makes it clear
via unambiguous actions or words that he is withdrawing and (2) as long
as the offeree receives notice from offeror or third party. (Dickenson)

Rule 2 (POLICY justification for Firm Offers for things that are
NOT goods): Encouraging people to make offers knowing that if value of
offer increases offeror can revoke original offer (HYPO)
o
Case 1: (Dickenson)

Holding: When offeree discovers offeror has revoked he can
not attempt to make the offer binding by performing
requirements of offer. (offeree’s awareness of revocation kills
offer)
o
Case 2: Hypo
5

Facts: Offer outstanding to sell land and promise to keep
open to certain date. In meantime a rumor starts that
Britney Spears is going to buy at a heightened price down
the road—increasing the current value of your property.
Offeror wants to revoke original offer.

Holding: Offeror can revoke original offer before he receives
any acceptances even if he promised to keep it on the table.
§ 42 Revocation by Communication From Offeror Received by Offeree –
Once offeree receives information that offeror doesn’t intend to enter deal, offeree
can no longer accept
§43 Indirect Communication of Revocation – Offeree’s power of acceptance is
terminated when Offeree finds out that Offeror takes some sort of action
inconsistent with intention to enter into the proposed contract.
2. 4 situations in which Offer CAN NOT be Revoked by Offeror

Rule 1: Option Contract

Rule 2: Firm Offers
o
UCC §2-205 – Firm Offers – For sale of goods, Firm Offers
(offer to leave offer on the table for a time period) are NOT
revocable (Policy: encourage fast buying/selling of goods)

Rule 3: Promissory Estoppel

Rule 4: Unilateral Contract where performance has begun
o
§ 45 – Option Contract Created by Part Performance or
Tender – An offeror can not revoke a contract when he has created
an option contract (commencement of performance in response to
a unilateral contract offer) and the offeree has begun performance
BUT offeree can revoke at any time
Sub-question 4: Is there an Acceptance?
Possibility 1: Acceptance Defined – Mirror Image Rule
§61 – Acceptance which requests change of terms – A response to an offer
that doesn’t “mirror” the offer is not an acceptance
6

Rule: A response to an offer constitutes an acceptance if it does not
change or add to the terms of the offer but rather “mirrors” its terms
o
Case: Ardente v. Horan

Facts: D offered property to P. P made a bid for property
which was communicated to D through a letter with a $20K
deposit. The letter also included P’s desire to ensure that
furniture items would be included. D refused to additional
terms of furniture and did not sign agreement. D argued P’s
communication was counteroffer and not acceptance and
thus invalid. P argued that added terms not conditional
(collateral matter) and thus letter constitutes acceptance

Holding: The letter constituted a counter-offer and didn’t
“mirror” terms of offer and thus not a binding acceptance. If
want acceptance to be valid despite terms, it needs to be
clearly stated

Policy: If one party wants out we want to give them the
option to get out of a contract, otherwise parties won’t be
encouraged to engage in contracts
Possibility 2: Acceptance by Counter-Offer or Conditional Acceptance for
non-goods

Rule: If response to an offer bases acceptance on certain conditions (key
words: “if,” “provided,” “only if,” “on condition that”) which if not met, are
a “deal-breaker,” then response constitutes a counter-offer and NOT an
acceptance
o
Case: See Ardente: seeking “confirmation that the items are a
part of the transaction” is far from being an independent, collateral
request. So, letter of acceptance was conditional, operated as
rejection of original offer, and no contractual obligation was
created.
Possibility 3: Acceptance by Counter-Offer or Conditional Acceptance FOR
GOODS UNDER UCC

UCC § 2-207 (1) – Contract exists even if there are additional terms that
don’t mirror initial offer
7

UCC § 2-207 (2) – The additional terms become part of the contract
UNLESS (a) the offer expressly says no; (b) they materially alter the
contract or (2)(c) they are objected to

Case 1: Step Saver v. Wyse Technology (Terms that materially
alter the contract) p. 457
o
Facts: Step Saver is a software/hardware packaging company who
sells to end-use consumers. TSL (D) sells computer program to P,
ordered over telephone with exchange of buyer/seller purchase
orders (containing quantity, price and no warranty disclaimer).
Subsequently D sends program with a box-top-license agreement
disclaiming any and all warranties. Argument over whether terms
of BTL are part of agreement arises when P’s customers have major
issues. P argues that original agreement was whole contract. D
argues that BTL was conditional acceptance and P’s opening of box
constituted acceptance.
o
Holding: BTL not part of contract because it suggests an additional
term (no warranty) which would substantially alter terms of
agreement (2-207(2)(b)) and to which (D) objected on numerous
occasions (2-207(2)(c)).

Original contract was sufficient, b/c there was UCC defaults
to fill the holes

Not a conditional acceptance because TSL did not
demonstrate unwillingness to proceed.

If not a conditional acceptance, then must be an additionally
proposed term. According to UCC, it does NOT incorporate
into the contract if it is material or objected to. Here, it is
both.

Case 2: HYPO

Facts: Similar to Ardente, but Seller decides he wants to get
out of contract so he says the furniture isn’t part of the deal.
Buyer still wants this contract to go through, so says it
wasn’t really a conditional term.

Holding: It is a contract: no unwillingness to proceed, so not
a conditional acceptance.
Possibility 4: Acceptance by Silence
8
§69 – Acceptance by Silence – [1] Silence operates as acceptance
(a) where offeree benefits with reasonable opportunity to reject and reason to know
that they were offered with expectation or compensation;
(b) where offeror has given offeree reason to understand that assent may be
manifested by silence and the offeree in remaining silent intends to accept offer;
(c) where due to prior dealings it is reasonable that the offeree should notify the
offeror if he does not intend to accept [Massasoit whip] [2] An offeree who does
any act inconsistent with offeror’s ownership of offered property is bound in
accordance with the offered terms unless they are manifestly unreasonable
Possibility 5: Acceptance by Performance
1. Can You Accept by Performance?

Rule: Under a unilateral contract, the offeree is invited to accept the
offer by performance rather than an exchange of a promise to perform
(bilateral contract)

§30: An offer may invite or require acceptance to be made by an
affirmative answer in words, or by performing or refraining from
performing a specified act.

§62 – Effect of Performance by Offeree Where Offer Invites either
performance or promise – If offeror permits either acceptance by
promise or by performance offeree can do either

§ 45 – Option Contract Created by Part Performance or Tender –
Option contract is unilateral contract without possibility of promissory
acceptance. Comment (e) says an offeror can not revoke a contract when
he has created an option contract and the offeree has begun performance
BUT offeree can revoke at any time GO BACK TO THIS I FEEL LIKE WE
HAVE A CASE ABOUT IT!!

Case 1: Petterson v. Pattberg (negative example) p. 362
Facts: P owed D money on a mortgage. D offered P opportunity to
pay off the mortgage by a certain date in exchange for a reduction
in principal of debt. P collected money owed and tried to repay D
by showing up at D’s door with cash in hand. D wouldn’t open the
door and said it was too late as he already sold the mortgage. P
sued for specific performance.
Holding: P did not begin to perform the unilateral contract because
he hadn’t exchanged the $ and thus he never accepted prior to the
9
revocation which occurred when D refused to open the door and
allow performance.
Policy Debate: What constitutes beginning of performance in an
option contract (where contract is left open until certain date).
Here Court holds that attempting to deliver performance is
insufficient but this is debatable.

Case 2: HYPO:
o
Facts: Reward for dog, last minute Offeror calls the whole deal off.
o
Holding: Might seem unfair but you want both parties to be bound
by same deal or neither, in general offeree is allowed to back out of
offer at last minute, so it wouldn’t be fair to not allow Offeror the
same. Or, alternatively, is this an option contract as illustrated in
§45?

Case 3: Leonard v. Pepsico II (negative example) p. 356
o
Facts: Same as before, but theory is unilateral offer of a reward.
o
Holding: Court compares to “Carbolic Smoke Ball.” Court says
there’s a difference between offer of reward and offer to negotiate.
Here, to negotiate b/c it urged them to look at catalogue, and once
there need to accept terms of Order Form. So, NOT unilateral, but
rather reciprocal.
2. Is Notice Necessary?

Rule: Notice is not necessary to secure acceptance by performance
unless (1) offeror requests notice or (2) offeror has no other way of
knowing of acceptance (such as parties in different states)

§54 – Acceptance by Performance: Necessity of Notification to
Offeror – (1) where offer invites acceptance by performance notification
unnecessary unless the offer requests such notification (2) If an offeree
who accepts by performance has reason to know that the offeror has no
adequate means of learning of performance with reasonable promptness
and certainty, there is not acceptance UNLESS (a) the offeree exercises
reasonable diligence to notify the offeror (b) the offeror learns of the
performance within a reasonable time (c) the offer indicates the
notification of acceptance is not required
10
2: IS THERE ANY REASON THAT THE AGREEMENT
SHOULD NOT BE ENFORCED?
12/20/2010 5:24:00 AM
Question 2: Is there any reason that the agreement should not be
enforced?
Sub-question 1: Do the parties have a material disagreement as to one or
more terms of the contract?
Possibility 1: Disagreement over one MATERIAL term

Rule: § 201: When parties disagree as to a single material term in the
agreement and (1) more than one possible meaning exists; (2) the
parties have distinct meanings; (3) Neither party had reason to know of
the other parties interpretation, THEN there was no mutual assent and
the contract unenforceable
§201 – Whose Meaning Prevails Where parties have attached different
meanings, then it is interpreted in accordance with the meaning of the person who
is NOT the person who a) “knew” or b) “had reason to know” the first person’s
meaning. If this doesn’t happen, then neither party is bound by the meaning
attached by the other.
UCC §2-208 – Establishes a hierarchy of evidence to be used:

First, course of performance is accepted

Express terms of agreement

Then, course of dealing and usage of trade words [1-205]

Case 1: Raffles v. Wichelhaus (no mutual assent b/c parties
innocent as to other meaning)
o
Facts: P Seller agreed to sell a certain quantity of cotton that was
to arrive “ex-Peerless.” When Peerless arrived in December D
refused payment b/c D thought that October Peerless was meant in
contract. Argument over whether parties had reason to know that
there were 2 peerlesses.
o
Holding: There was no mutual assent and therefore no agreement
since neither side had reason to know of alternative meaning
attached by other party.
o
Policy: Each party based risk on assessment of different markets
for cotton (October vs. December) thus enforcement would be
unfair since it wasn’t bargained for.

If price was dropping (which it was), then the way this was
resolved: Seller lost $, Buyer got a windfall. If we had
11
resolved it the way S understood, no harm done. So this is
not necessarily the most efficient.

Case 2: Frigaliment v. BNS Int. Sales (mutal assent b/c buyer had
reason to know of seller’s meaning)
o
Facts: P seller contracted to sell “chickens” to D for a certain
agreed upon price. Disagreement b/w buyer and seller as to
meaning of “chicken.” Buyer argued “chicken” meant “young
chicken” and seller argued any bird from that genesis.
o
Holding: Court took seller’s interpretation of “chicken” to mean
any and all chicken based on reasoning that buyer had reason to
know and thus it was not an mutual misunderstanding
o
Reasoning: The court looked to the following factors in
determining whose meaning to apply:
o
1) Course of performance – buyer argued that the use of the
English word “chicken” in place of the German word “huhn” was to
mean only young chicken. Seller argued that the first shipment did
not contain young chickens but was nevertheless accepted by
buyer, showing certainty of terms under §34 (2) (stating
acceptance of part performance may remove uncertainty and
establish contract enforceability)
o
2) Express terms of the contract – buyer argued since one
contract was for young chickens then the other contract had to be
for young chickens as well—court rejects this!
o
3) Trade Usage – buyer and seller offer conflicting expert
testimony as to meaning. Seller’s expert was careful to distinguish
types of chicken within his own course of dealings thus making his
testimony that chicken means one thing—young chickens—
unreliable according to court.
o
How is this different from Raffles—why is there a contract
here? In Raffles innocent mutual misunderstanding—no contract.
Here buyer had reason to know of seller’s interpretation but not
vice versa so seller’s interpretation wins and contract enforceable.
o
Policy: How clear does a party have to be to ensure their meaning
controls? If a party says something in 5 ways which has a 6th
meaning is this sufficiently clear to be enforceable?
12
Possibility 2: Missing Terms Gaps in Terms
1. When only one term is missing

Rule 1: Based on §204 -- When there is an essential omitted term but
the court establishes that the parties intended have a contract, the court
will supply a term which is reasonable in the circumstances
2. When multiple material terms are missing—Agreement to Agree

Rule 2: Courts will not supply multiple uncertain/missing terms to an
agreement when the parties have not necessarily intended for the
contract to include such terms but rather have simply agreed to agree
later.

BUT: UCC § 2-204 – (3) even though one or more terms are left open,
a contract doesn’t fail for indefiniteness if parties intended to make a
contract and there is a reasonably certain basis for giving an appropriate
remedy. (past dealings can be one way of determining a reasonably
certain time frame and/or amount)

Case 1: Sun Printing v. Remington Paper
o
Facts: D agreed to sell to P 1,000 tons of paper/month for 16
months. Price set as to first 4 months but then contract left open
price and length of term for remainder 12 months. Only restriction
was a price ceiling of Canadian Export Paper price. Buyer P tried to
enforce remainder of agreement by agreeing to ceiling price
renewable each month. D Seller argued that contract
unenforceable b/c agreement to agree.
o
Holding: The contract is unenforceable because it did not set an
exact price and length of term for remaining months.
o
Policy: For the court to supply “reasonable” terms would be unfair
since they would be writing a contract that the parties may not
intended. This is different from Raffles because in that
circumstance court could assume that a contract was intended.
Sub-question 2: Was There Consideration?
*ALWAYS ASK (KEY questions): (1) Who has been benefited (2) Who is being asked
to pay. If (1) and (2) are the same person, then look to doctrine of moral
consideration. If (1) and (2) different people, look to doctrine of past consideration.
13
DEFINITION: The formation of a contract requires consideration. §71(1) defines
consideration in terms of a bargain. To constitute consideration, a performance or a
return promise must be bargained for. §71(2) defines “bargained for” as “a
performance or a return of promise is bargained for if it sought by the promisor in
exchange for his promise and given by the promisee in exchange for that promise.”
§71(3) states that “the performance may consist of . . . (b) a forebearance [not
doing something which you have a legal right to do such as in Hammer v. Sidway
or not speeding around the area (which is legal, you just have to pay the fines for it
if you get caught)]
§79 Adequacy of Consideration; Mutuality of Obligation
ANY consideration is fine. The Bargain does NOT have to be objectively fair.
§81 Consideration as a Motive or Inducing Cause
Consideration does not have to be the PRIMARY motive. It just can’t be a NOMINAL
motive.
§86 Promise for Past Benefit
(1) MORAL CONSIDERATION: Restatement §86: Belated compensation for a past
benefit is binding to prevent injustice as long as the person promising payment was
the same person that received the prior benefit. (Webb v. McGowin)

Negative Example: where the person promising to compensate for past
benefit is NOT the same person upon whom the benefit was bestowed
(such as where the mom promised to pay for the benefit that was
conferred upon the son) (Mills v. Wyman)

Policy (for moral consideration): An express promise to pay for debts
a person accrued is supported by good consideration b/c the promise
removes a legal impediment for the recovery of debts honestly due.
(2) PAST CONSIDERATION (an exception to moral consideration): Where a
benefit was bestowed in the past (consideration) a promise is NOT binding for
“moral reasons” when it was clear that such a benefit was a gratuitous gift and the
promisor has not been unjustly enriched.
14

Example: When the consideration is executed when an individual renders
services such as fortune telling, this consideration cannot be used as
consideration for a promise that occurs later when it is not implied at the
time the consideration happened that it would be used for a later promise.
(Moore v. Elmer, promise to pay for mortgage unenforceable since at the
time that fortune telling services occurred there was no implication that
that such services would later be used as consideration)
Policy in Distinguishing Bargains from Gratuitous Promises:
Contract law will not enforce a promise on its own which is not supported by good,
sufficient, or adequate consideration
(1) Gratuitous Promises: What would parties have done ex-ante: Most likely, if
making default rule, both parties would want gratuitous promise NOT to be
binding, b/c you want to encourage donations.
a. Need for legal enforcement is low b/c people are morally motivated to
donate so usually they don’t need incentives to follow through with
his/her promise.
i. However, if the party seeking enforcement of a charitable gift can
prove detrimental reliance, the court is more likely to enforce
(Hammer as opposed to Johnson)
b. The Fear of Deterring Promises is high b/c we want to encourage people
to make charitable donations without fearing that if their financial
situation changes, they can’t back out.
c. Because the motives of the estate defer from the motives of the
deceased, judges will be particularly careful to enforce intent of deceased
by upholding charitable promises the deceased has made. (Hammer &
Webb as opposed to Johnson) -- This is particularly obvious in the cases
of when one’s life or limb has been protected or saved (as in Cotnam v.
Wisdom).
(2) Commercial Interactions
a. Need for legal enforcement is high b/c so as to ensure that when one
engages in a commercial exchange, the commercial exchange will be
valid. This is particularly true in “one-time bargains” where the party has
no motivation to pay once goods are delivered or alternatively the seller
might attempt to coerce more money out of the buyer when his back is to
the wall.
15
b. Generally we don’t want to deter people from entering into commercial
contracts b/c it is good for the efficiency of the economy.
(3) Ways to Make Gratuitous Promise Binding:
i. $1 nominal exchange
ii. Take money, then transfer it back interest-free.
Possibility 1: Was it a Gift or was it a Bargain?
Rule 1: A promise of a monetary gift may be revoked at any time prior to payment
because there is no consideration to form a contract.

THUS Gift promises are revocable up until the time that they are
delivered (Johnson)
Rule 2: A waiver of a legal right at the request of another party may serve as
sufficient consideration for a promise (Hammer)
Case 1: Johnson v. Otterbein (gratuitous promise; no detrimental reliance)

Facts: Johnson signed and delivered an instrument by which he promised
to donate $100 to the University (P) at a future time, asking that this
donation be applied to help University pay back its debt. However he
refused to make such payment when the time came and the University
tried to enforce as a contract.

Holding: No contract existed because Johnson did not have any
consideration for his promise to make a $100 donation. Further, the
University did not detrimentally rely upon P’s promise. The University
already has an obligation to spend funds properly and pay off debts thus
P’s request that his donation be applied to debt is not additional
consideration.
Case 2: Hammer v Sidway (Bargain and consideration)

Facts: Uncle promised to pay his nephew $5,000 in exchange for
refraining from smoking, drinking alcohol, swearing, or playing cards for
money until the age of 21 (all of which he was legally allowed to do). The
nephew consented and fully performed the conditions. He wrote his uncle
to request payment on his 21st birthday. Uncle agreed but asked to hold
on to the money until the nephew was responsible enough. Uncle died.
Nephew’s debt was assigned to a third party. Case was brought by a third
party against the estate seeking to enforce the promise as a contract.
16

Holding: Nephew’s willingness to refrain from legal rights constitutes
consideration and thus promise of $5,000 enforceable as this was clearly
the Uncle’s intent.

Note: This was within the Statute of Frauds since the agreement was to
last more than one year. Thus it should have been in writing but this was
waived by the (D) and not addressed by the court.
Case 3: Kirskey v Kirksey (gratuitous promise) p. 629

Facts: P was sister-in-law of D, P’s husband died, D wrote a letter
advising her to sell her land and move onto his, whereupon he would
house her and her family. P abandoned her house, but didn’t sell it, and
moved to D’s, 60 miles away. After two years, he kicked her out.

Holding: Promise on part of D was mere gratuity, no consideration, so no
action. Court held for D.
Case 4: Dahl v. Hem (Bargain and consideration) p. 635

Facts: P participated in experimental program that was voluntary. Deal
was “if you submit to our experiment, we will give you a year’s supply of
Ampligen at no charge.”

Holding: Court says this was a unilateral contract. Upon completion of
tests, there was a binding contract, and D owed P Ampligen.
Possibility 2: Was there moral consideration?
Rule 1: §86: Generally moral consideration is sufficient consideration EXCEPT
when the promisor personally PREVIOUSLY received NO benefit in exchange for his
promise. (MILLS)

Policy (for this holding): IF we start enforcing this type of obligation
against third parties, who have accrued no personal benefit it is a slippery
slope b/c what separates this from forcing people in general to do what
they always morally ought to do.
Rule 2: A moral obligation is a sufficient consideration to support a subsequent
promise to pay where the promisor has received a material benefit for which he
subsequently and expressly promised to pay.

Policy (for moral consideration): An express promise to pay for debts
a person accrued is supported by good consideration b/c the promise
removes a legal impediment for the recovery of debts honestly due.
17
Case 1: Mills v. Wyman (not directly benefited nor previous encumbrance)

Facts: Wyman (D)’s 25 year old son (not a minor), fell ill upon returning
from a voyage at sea. Mill’s (P) acting as a good Samaratin gave son
shelter and took care of him. He still died. After death, (D) mother wrote
(P) caretaker a letter promising to pay for expenses associated with
caretaking. But later revoked offer and refused payment. (P) brought suit.

Holding: Moral obligation is only sufficient consideration where benefit
was previously bestowed upon promisor. Thus there was no consideration
since no benefit was directly bestowed upon the mother.

Policy (for this holding): IF we start enforcing this type of obligation
against third parties, who have accrued no personal benefit it is a slippery
slope b/c what separates this from forcing people in general to do what
they always morally ought to do.

Policy (against this holding): In viewing agreement ex-ante, mother
would have likely agreed to pay.
o
COUNTER: Son is an adult and able to enter into his own promises
to pay since innkeeper did not request payment it was likely a gift.
Case 2: Webb v. McGowin (personally benefited)

Facts: Webb (P) an employee for a lumber company saved McGowin’s life
when he was about to throw a piece of timber of the ledge and saw
McGowin and thus fell with the timber to avoid serious injury or death to
McGowin. Instead P was seriously injured in the fall. McGowin, in
exchange for Webb having saved his life, promised to pay $15 every 2
weeks to care for Webb. McGowin did so up until the time of his death at
which point payment stopped. Webb sued estate to continue support
payments.

Holding: McGowin’s moral obligation is sufficient consideration to support
his promise of payments since he received the material benefit of his life
being saved. Thus contract upheld by court.

Examining policy above: (1) There is a need for legal enforcement b/c
we want in the future people who are making moral promises to pay for
past benefits to know that there was a clear default rule that such
agreements are enforceable. THUS avoiding the need for litigation. (2)
This will not be deterring these types of promises b/c people usually have
moral motives. (3) Ex-ante, we know that the person who received the
18
benefit of his life being saved, would have agreed to payments for such a
benefit.
Possibility 3: Was it past consideration?
Rule: Where a benefit was bestowed in the past (consideration), a promise is NOT
binding for “moral reasons” when it was clear that such a benefit was a gift and the
promisor has not been unjustly enriched.
Case 1: Moore v. Elmer

Facts: At Elmer (D)’s request , (P), a clairvoyant, performed fortune
telling services. She predicted that (D) would die by a certain date. (D)
promised that if he did die by that date, he would pay off (P)’s mortgage.
(D) died before that date and (P) sued for mortgage money.

Holding: There was no contract b/c there was no consideration when (D)
made his promise to pay the mortgage if predication came true SINCE the
fortune telling benefit bestowed upon (D) occurred before the promise
and was completely separate from it.

****Note: Past consideration is only considered binding for a promise IF
at the time of service there is an IMPLIED AGREEMENT to pay.
Possibility 4: Was a contract modified with new consideration?
UCC §2-209: Modification, Rescission, and Waiver
(1) An agreement modifying a contract within this article needs no consideration to
be binding…
COMMENT 2: For a modification to become binding, it must meet the “test of good
faith.”
§89 Modification of Executory Contract
A promise modifying a duty under a contract not fully performed on either side is
binding
(a) if the modification is fair and equitable in view of circumstances (not Stilk and
Alaska)
(b) to the extent provided by statute
(c) to the extent that justice requires enforcement in view of material change of
position in reliance on the promise.
19
**Difference: Generally UCC gives more weight to enforcing modifications
whereas the Restatement only allows modifications to the extent that they are what
fair and justice requires. But both involve notions of good faith.
Why do we want to be able to modify without new consideration?

We are looking at balancing between two situations:
o
Don’t want to give parties incentive to hold other hostage and
make terms better
o
On the other hand, if placed in that situation, don’t want to not
allow the other party to contract to avoid the worse of the two
evils.

Ex ante perspective: Sailors want to be able to modify. Sailor’s bosses
want to be able to modify, too, or else there in the future there will be no
reason for sailors to listen to him.
POLICY: By having these good faith requirements, both the UCC and the
Restatement are balancing the competing interests of “freedom of contract”
(present interest) and the desire not to encourage future crimes (future interest).
Cases: Stilk v. Myrick AND Alaska Packers (PRE – EXISTING DUTY RULE, no
longer applied b/c of UCC and Restatement)

Facts:
o
Stilk: Captain needed increased effort of sailors and promised the
sailors the extra pay he would have given the deserted sailors, b/c
2 sailors deserted and captain could not find replacements.
o
Alaska: Sailors, once at sea, attempted to coerce greater pay from
captain and threatened to quit if their demands were not met.
Captain agreed to increase pay b/c he was already out at sea and
could not find replacements BUT said he didn’t have the authority
to make such a decision.

Holdings: Neither agreement was enforceable since modifications were
not based on any additional consideration of the sailors aside from their
pre-existing duty assigned in their original contracts.

Policy Differences in Outcomes:
o
Stilk:
20

Weaker party, captain, was the one offering modification
(Katz thinks wrong to not enforce this as consideration)

Windfall: Captain was able to pay less for the same amount
of work and thus his promise would have given him what he
bargained for the same price he initially bargained for it.
o
Alaska:

Stronger party, sailors, attempting to coerce modification.

Windfall: if contract was upheld, the sailors would have
gotten more money for the contract and work that they had
already bargained for.
Possibility 5: Was the consideration adequate?
Rule 1: The law does not require that consideration be “adequate” meaning that it
be commensurate with what the party accepting it is giving up. Slight consideration
suffices to make a contract enforceable even though this may be consistent at
times with coercion.

Exception 1: When nothing is really exchanged for something of value,
the court won’t enforce the contract (Newman). In order for a contract to
be valid, valuable consideration must be exchanged by BOTH parties.

Exception 2: When consideration is CLEARLY nominal as in the case of
exchanging unequal monetary values, the Court won’t enforce the
agreement. (Schnell v. Nell). A contract will be vitiated for lack of
consideration where the consideration is ONLY nominal and is intended to
be so. (but WHEN the consideration has subjective value as in the case of
the exchange of an heirloom coin).
Case 1: Newman & Snell’s State Bank v. Hunter

Facts: Bank held worthless collateral of deceased man’s stock note to pay
off his debt. Bank convinced the wife to exchange a promissory note
stating that she was willing to pay off a certain some of money in the
future in order to pay off her husband’s debt and clear his good name in
exchange for the WORTHLESS stock note.

Holding: One party is not allowed to exchange something valuable for
NOTHING. Thus there was no adequate consideration and no contract.
The IOU is UNENFORCEABLE.
Case 2: Schnell v. Nell
21

Facts: (D)’s widow had promised three people that he would honor his
wife’s will in which she left $200 to three parties in exchange for one
penny and their promise not to file suit to enforce will. (Wife hadn’t owned
any property in her own name and thus money couldn’t originally be
given to the three people as it had been assigned in the will).

Holding: A court will only look into the adequacy of consideration when it
appears that one party’s exchange is nominal OR where the two things
exchanged have no subjective value as in the case of money. The Court
determined that the beneficaries promise to pay a penny was inadequate
consideration in exchange for the $200. Both of which had no
SUBJECTIVE VALUE.

Policy (Counter): One could argue that the agreement not to file lawsuit
to recover based on will was consideration for the $200 settlement.
Sub-question 3: If there was not Consideration was there Promissory
Estoppel (detrimental reliance)?
The doctrine of Promissory Estoppel: An alternative basis on which to enforce a
promise that is not quite in the realm of contract law but is necessary in certain
situations to avoid substantial Injustice.
It is invoked when
(1) A promise has been made that would reasonably be expected to induce action
or forbearance on the party of the promisee or third person (Jury ?)
(2) And which does induce such reasonable action or forbearance (Jury ?)
(3) Justice cannot be avoided unless the promise is enforced (**Court policy
question) – this step is there as a “catch all” so as to make this doctrine applicable
very widely and to guarantee against unequal bargaining power.
(§90 Promise Reasonably Inducing Action or Forbearance)
Note: If promissory estoppel is used, no need to look to traditional elements of a
contract i.e. offer/acceptance/consideration. Only need to show detrimental reliance
as a result of negotiations.
Default rule of Damages for Promissory Estoppel: RELIANCE b/c there is not
an actual contract. Thus, expectation damages would be too harsh.
22
Policy (for)

Often negotiations can induce detrimental reliance in such a way that
enforcement is neither covered by contracts or torts (tortious
misrepresentation) BUT there still exists a need to prevent injustice.

This helps to alleviate problems of unequal bargaining power.

Some of the time, including maybe franchisee and
contractor/subcontractor cases, it is reasonable to place substantial
reliance on things outside of contract setting. In those cases only,
Section 90 fills a hole.
Policy (against)

“DEATH OF CONTRACTS”: This doctrine casts a shadow over contracts in
the United States b/c people might fear entering into ANY negotiations as
a preliminary to contracts for fear that if negotiations fall through, one
party will try to invoke detrimental reliance to seek monetary damages.

There is something nice about having a bright line rule that defines what
is in the realm of contracts i.e. offer/acceptance/consideration and what is
clearly not a contract. Where would this stop?? This bright line rule
decreases transactions & litigation costs.

Problem with applying promissory estoppel to written agreements is the
Parol Evidence Rule b/c you would have to prove that the document is not
a completely integrated agreement. And even if you proved it wasn’t
integrated, you then have to prove that NO contract agreement existed.
Rule 1: Justice and fair-dealing require that one who by his language or conduct
leads another to do what he would not otherwise had done shall not subject such
persons to loss or injury by disappointing the expectations upon which he acted
(Goodman & Red Owl)
Rule 2 (Damages): (A) P cannot recover for damages that P would have accrued
even in the absence of a breach (Red Owl & Hooker, etc.) (B) While third parties
which rely on the promise are not normally entitled to recover based on detrimental
reliance, in cases where it is reasonably foreseeable that the third party would be
injured based on reliance, such damages are recoverable.
Case 1: Goodman v. Dicker

Facts: Local radio distributors (D) promised to supply prospective
franchisees (P) with radios from franchisor. Franchisees were led to
23
believe that the franchise would be granted and thus were induced to
incur expenses by hiring salesmen in taking radio orders. BUT no radios
were delivered and notice was given that franchise wouldn’t be granted. If
there had been a franchise agreement made, the agreement would have
included a cancellation clause which entitled the franchisor to end the
agreement at will with no penalty.

Holding: Despite the fact that there was not a contract, justice and fair
dealing require that the radio distributors should be made to pay for the
damages incurred by P’s in relying on obtaining a franchise. But no
consequential damages (for loss of possible profits).

Policy (against this holding):
o
The court did not even take note of the fact that if a contract had
been made it would have included a cancellation clause. Thus there
develops a Parol Evidence problem whereby the court is not just
looking at the “Four Corners of the Contract”

o
COUNTER: this wasn’t a contract.
How can P been entitled to more than he would have gotten if the
contract had been entered into (b/c of cancellation clause)

COUNTER: whether there was a contract or not, the Court
would have issued reliance damages.
o
The court could have done the following:

used the ordinary tort of misrepresentation b/c the P’s
thought that they were directly dealing with the franchisor.

Found that there was an oral agreement at an earlier stage
of negotiation (and thus a contract)

Found that there was option contract.
Case 2: Hoffman v. Red Owl Stores

Facts: Hoffman and wife owned a bakery but were interested in
expanding business and thus entered into discussions with Red Owl about
obtaining a franchise. At the encouragement of Red Owl representatives,
P sold the bakery and bought a small grocery store to gain experience. P
also placed a deposit on a lot where the store was to be located and
moved to that new location with his family. Red Owl kept increasing the
investment costs which the P would have to pay. Hoffman unable to pay
24
the increased demands terminated negotiations and filed suit for
detrimental reliance.

Holding: Since Red Owl could reasonably expect that their promises
would induce such action in the Hoffmans as selling their store, moving,
etc. such expenses are recoverable based on detrimental reliance despite
the fact that a contract doesn’t exist and the terms of a potential contract
are indefinite.

Damages:
o
(1) Third party (Mrs. Hoffman)’s share of the business was
recoverable even though she was not involved in negotiations b/c
she was forced to sell her share in reliance on the promise

COUNTER-- Mrs. Hoffman stands at the vortex. While her
damage is foreseeable, it is also foreseeable that others,
such as suppliers or the children, would be damaged by the
failure of the contract. BUT there has to be a limit to infinite
ramifications.
o
(2) DOUBLE COUNTING ARGUMENT: Lost Profits of small grocery
store NOT recoverable even though Hoffmans sold before busy
summer season.

If it were, it would be “double counting” b/c presumably the
fact that busy summer season that was coming up allowed
P’s to get a higher price for the property, taking into account
future profits. (same problem in Hooker)
Case 3: Cohen v. Cowles

Facts: Cohen working for candidate in gubanatorial campaign. He found
what he believed to be “dirt” in the form of police records on the other
candidate. Cohen contacted various media outlets and said that he would
give them dirt in exchange for promising to keep his name confidential.
Reporters promised that they would try and keep their name confidential
but it was ultimately up to their editors. Newspapers discovered after
investigation that “dirt” was in reality not damaging since candidate had
reasonable explanation. Thus the story then became Cohen’s attempts at
a smear campaign and editors made decision to report his name. MN SC
for D.
25

Holding (of US SC): (1) Ruling on promissory estoppel would not violate
the first Amendment b/c newspapers cannot break the law. (2) Both
parties were morally blameworthy, not just Cohen in his smear campaign
but also the reporters in not upholding their promise. Found for P.

Holding (of Minnesota Supreme Court on remand) – dealing with
justice: The imposition of damages is necessary to avoid an unjust result
whereby Cohen relied upon a promise of anonymity and as a result of the
breach of the promise lost his job.

Policy (against): Informal social agreements are not generally thought
to be binding i.e. stop crying and I’ll take you to Disney Land.
o
COUNTER: This is not a “friends and family” social situation.
Politics and news are both serious businesses.
26
3: WHAT ARE THE TERMS
OF THE AGREEMENT?
12/20/2010 5:24:00 AM
Question 3: What are the terms of the Agreement?
Sub-question 1: Can the court go beyond the “four-corners” of the
document?

Rule: Court can use parol evidence to determine whether agreement is
integrated (Brown). If it is integrated, parole evidence will not be
admitted.

§209 Integrated agreement – (1) is a final expression of one or more
terms of an agreement (2) the court has the power to determine
whether there is an integrated agreement; (3) where the parties reduce
an agreement to a writing which reasonable appears to be complete, it is
taken to be an integrated agreement UNLESS it is established by other
evidence that the writing did not constitute a final expression
o
Question is: whether we can look to parol evidence to determine if
it’s an integrated agreement: Brown YES, Thompson NO

§210 – Completely Integrated Agreement: An agreement can be
integrated without being complete.

§213 – Effective of Integrated Agreement on Prior Agreements
(PAROLE EVIDENCE RULE) – (1) a binding integrated agreement
discharges prior inconsistent agreements; (2) a binding completely
integrated agreement also discharges any prior agreements to the extent
they are within the written contract’s scope (an area covered by the
agreement)

§214 – Evidence of Prior or Contemporaneous Agreements and
Negotiations [Exceptions] – agreements and negotiations prior to the
contract are admissible to establish (a) that the writing is or isn’t an
integrated agreement (b) that the integrated agreement is completely or
partially integrated; (c) that the meaning of the writing, whether or not
integrated; (d) illegality, fraud, duress, mistake; lack of consideration or
other invalidating cause; (e) ground for granting or denying recession,
reformation, specific performance or other remedy.

§216. Consistent additional terms – (1) are admissible to supplement
a non-completely integrated agreement; (2) an agreement is not
integrated if the writing omits a consistent additional agreed term which is
27
(a) agreed to for separate consideration (b) such a term as in the
circumstances might naturally be omitted from the writing

UCC § 2-202 – Final Written Expression: Parol or Extrinsic Evidence –
Terms of a final written agreement may not be contradicted by evidence
of any prior written agreement or contemporaneous oral agreement BUT
may be explained or supplemented by (a) course of dealing or usage of
trade (Frigaliment) (b) by evidence of consistent additional terms unless
the court finds that the writing was intended as a complete and
exclusive statement of the terms of the agreement (Brown)

Case 1: Thompson v. Libbey (Four Corners rule- not consistent
with restatement) p. 488
o
Facts: (P) Seller sells logs to (D) buyer. Buyer refuses to pay full
price b/c claims there was a warranty which was not written in the
contract regarding the quality of the logs. P brings suit to enforce
contract.
o
Holding 1: Since the contract imports on its face to be a complete
expression of the whole agreement it is to be assumed that the
parties introduced into it every material term and parole evidence
INADMISSABLE to ADD another term to the agreement.
o
Holding 2: Integration must be determined solely from the
document and not outside evidence (FOUR CORNERS RULE)
o
Policy: We don’t want to allow evidence from one’s “slippery mind”
to interfere with written agreement.

Case 2: Brown v. Oliver p.489
o
Facts: (P) Buyer purchases plot of land with a hotel on it from D.
There was oral evidence that sale included hotel furniture. 2 years
later when D was leasing hotel from P he took the furniture from
the hotel in the middle of the night. The contract was silent as to
whether the furniture was included.
o
Holding: Parol Evidence allowed to establish if written agreement
intended to embody whole transaction [ie integrated agreement]. If
yes  evidence immaterial. If no  go to jury. Here, PE was
rightfully admitted.

Case 3: Pacific Gas v. Thomas p. 494
o
Facts: D entered into contract with P to perform work on steam
turbine. In contract D agreed to indemnify P from any injury to
28
property. Later when P’s property was damaged they called on D
to pay for damage. D argued that the indemnity language only
related to damage cause to 3rd party’s property and not to P’s
property, based on prior dealings. Agreement actually says this is
integrated agreement.
o
Holding: Extrinsic evidence as to the terms of the agreement is
ALWAYS admissible to clarify intent of the parties as long as it does
not add to, detract from or vary the terms of the written contract
but helps determine the meaning of the contract. Words can only
mean what parties intend them to mean. [No contract on its FACE
can be PE-proof]

Case 4: Trident v. Connecticut General p. 497
o
Facts: (P) partnership negotiated with lender (D) to borrow $56
million to buy building. Terms of the contract said that contract
can not be repaid in full for the first 12 years. It also included a
clause whereby the lender AT ITS OPTION could demand payment
in full of loan with pre-payment fee if the borrowers defaulted. (P)
brought this suit seeking declaratory judgment that it could pre-pay
loan in full now since the interests rates dropped.
o
Holding: Even though the agreement could not be more
unambiguous on its face, Kozinski reluctantly allows parol evidence
as to the defaulting clause due to Pacific Gas decision which makes
all agreements open to Parol evidence (even if MERGER CLAUSE
states that the contract is a complete and integrated agreement)
o
Policy: PE allowed in, but court is reluctant because (1) it is a
waste of the courts time and money in the case of an unambiguous
agreement, (2) it leaves a cloud of doubt over all contracts formed
in CA, (3) if parties want to contract around it [“this is an
integrated agreement”] they should be able to.
o
Note: Katz says there are 3 reasons FOR Parol Evidence:

Truth Finding

Efficiency of court system
But, not really truth finding, because it may be more accurate to
hear the parol evidence. So it’s really about efficiency. So, in
the event of 2 parties wanting to contract around PE rule, isn’t it
most efficient to let them?
29
Sub-question 2: What can the external evidence do?
Possibility 1: External evidence can correct mistakes (214d)

Case 1: Hypo Typo
o
Facts/Holding: Buyer and seller have oral agreement to sell
house for $100,000. Written agreement states all material terms
but says $90,000. The court can hear evidence to correct typo
error.
Possibility 2: External evidence can explain ambiguity (214c)

Case 1: Frigaliment (what is chicken?)
Possibility 3: If agreed that it is not integrated, external evidence can add
to terms of writing if agreement silent as to those terms, as long as the
terms do not contradict written agreement (216)

Case 1: Brown (Agreement silent as to hotel furniture)
§214 – Evidence of Prior or Contemporaneous Agreements and
Negotiations [Exceptions] – agreements and negotiations prior to the
contract are admissible to establish (a) that the writing is or isn’t an
integrated agreement (b) that the integrated agreement is completely or
partially integrated; (c) that the meaning of the writing, whether or not
integrated; (d) illegality, fraud, duress, mistake; lack of consideration or
other invalidating cause; (e) ground for granting or denying recession,
reformation, specific performance or other remedy.
30
4: Breach
3/9/2016 4:25:00 PM
Question 4: Has there been a breach?
Sub-question 1: Was the contract performed under “good faith”? If not,
breach.
Rule: In every contract there is an implied covenant that neither party will do
anything that will have the effect of destroying or injuring the right of the other
party to receive the fruits of the contract which means in every contract there
exists an implied covenant of “good faith and fair dealing.” (Kire La Shelle Co. v.
Paul Armstrong)

POLICY:
o
If good faith had to be explicit, (1) you would have to draw out all
potential things that could go wrong (2) it might discourage people
from entering into that contract.
o
Tries to enforce what the parties would have done ex-ante had they
known that the bad outcome would have resulted
UCC §1-203: Every contract or duty within this act imposes an obligation of good
faith in its performance or enforcement
UCC §1-201: Definition of Good faith: Honesty in fact in the conduct or
transaction concerned.
UCC §2-103 (1)(b): Good faith in the case of a merchant: means “honesty in
fact” and the observance of reasonable commercial standards and fair dealing.
UCC §1-102(3): You **can’t contract around good faith requirement BUT you
can subject the requirement to standards agreed to by the party.
Restatement §205: Every contract imposes upon each party a duty of good
faith and fair dealing in its performance and its enforcement. Good faith
performance or enforcement of a contract emphasizes faithfulness to an agreed
common purpose and consistency with the justified expectations of the other party;
it excludes “bad faith” which violates standards of decency, fairness, or
reasonableness.
Case 1: Goldberg 168-05 Corp v. Levy
Facts: P, lessor, entered into a lease to rent property to Levy for a certain amount
per month + 10% of gross revenue from business. There was a stipulation that if
business didn’t gross in excess of a certain amount, D, tenant, had the right to
31
terminate the lease. P sought damages based on Levy’s intentional divergence of
profits to another one of his area’s stores, so as to reduce his rental payments and
trigger the stipulation.
Holding: Even though tenant didn’t violate the express terms of the contract, there
nevertheless exists a requirement of good faith and fair dealing implicit in every
contract which the Court found that tenant did violate.
Case 2: HYPO: What if the landlord slept with the tenant’s wife? Does that
constitute a breach of the good faith requirement?
Holding: Look to what the parties would have done ex – ante: they probably would
have agreed to a cancellation of the contract in the event of an affair.
Sub-question 2: Was there an express waiver of a condition of the
contract, rather than a modification of a promise (like Alaska)?
Rule 1: § 84 - A non-material condition can be waived without the parties having
to renegotiate the contract.

Policy:
o
This is distinct from Stilk and Alaska, where there was a material
modification of a promise, the Court required ADDITIONAL
consideration.
o
Waivers are recognized absent consideration or worry of coercion
b/c the waiver doctrine is limited to modest modifications of
immaterial conditions.
o
The rationale is that if the contract had been formulated better, the
condition would have been more flexible – EX: Courts are willing to
permit waivers for time and place of deliver clauses and contracts.
o
(1) Courts don’t want to give one party an easy out by pointing to a
technical difference in performance of the contract (2) Courts want
to allow for minor modifications without imposing additional
transaction costs upon the parties.
Case 1: Chirichella v. Erwin, p. 866 (Not a condition precedent)

Facts: Buyers expect to get house on October 1, but clause that said
“Settlement of new home in Kettering – Approx. Oct ‘71” was the move-in
date. New Kettering settlement never happened, so sellers never moved
out. Sellers claimed this settlement was a condition precedent, since it
32
didn’t happen, didn’t need to vacate. Buyers say it’s a “point in time
which the parties have contemplated a performance.”

Holding: Looking at intent through wording, NOT condition precedent, so
Chirichellas need to vacate.
Case 2: Clark v. West p. 869

Facts: D West entered into contract with P Clark whereby Clark was to
write a multi volume treatise on corporations for West. Contract contained
a payment clause which stated that Clark was to receive $6/page if
abstained from liquor during the contract or $2/page if he drank. D wrote
one book which P accepted and disseminated but only offered $2/page. P
claims that there was an express waiver of the sobriety condition.

Holding 1 (condition): A condition such as sobriety may be waived
because it was not a material part of the contract. The writing for the
treatise rather than the abstinence was the bargained for consideration.
o
Here waiver wasn’t necessarily allowed b/c case was remanded for
further fact finding on whether there was an express waiver. So
court doesn’t consider damages.

Note: Case could be pursued in following manners:
o
Liquidated Damage: Could this condition ($2/$6) be read as a
liquidated damage clause that is reasonable based on the editor
foreseeing a $4 cost of editing per page incurred if (P) wrote
drunk? Yes, on ex-ante basis. P could argue this is punishment, not
allowed.
o
Contract modification: P could say that the contract was
modified, and that no consideration is needed.
Sub-question 3: Are there implied conditions that were not complied with?
(if yes, breach)
*situations in which even though one party did not fully perform, he is seeking to
enforce the other party’s promise
Rule 1 (Implied Condition Precedent): Conditions in a contract are dependent
meaning that a party’s performance is contingent upon the execution of prior
conditions by the other party. (Kingston v. Preston)
33

Policy (constructive conditions doctrine): A condition that is not
expressly stated in or implied by the terms of an agreement, but is
imposed by law, due to considerations of fairness in that it would not be
fair to impose only one side of the contract out of fear that the other
breach might later become a moot point.

Note: If there is something very minor that one has not complied with in
terms of his promise, he can still bring suit for the opponent’s breach of
performance.
Rule 2 (Mutual Conditions): Conditions are such that they are to be performed at
the same time. (Exchange of Goods in which if one party does not perform, the
other party who is ready to perform may have an action for default of the other
which excuses the first party’s non-performance)
Common Law (no longer applies): Actions for breach were mutually
independent of each other and non-performance by one party couldn’t be used to
excuse the ready party’s non-performance.
Case 1: Kingston v. Preston (Condition Precedent) p.880

Facts: Preston, silk merchant, agreed to sell his business to Kingston in
exchange for a number of things including sufficient security paid by
Kingston for the business. Kingston sues Preston when Preston didn’t
hand over the business despite the fact that he had not given adequate
security.

Holding: Security deposit was an implied condition precedent necessary
to hold Preston to his promise to hand over the business.

Policy (Justice argument): If this court had followed the Common Law
rule and enforced Preston’s promise to hand over the business, Preston
would not be able to recover his security deposit from Kingston who had
no money if the latter ran the business into the ground.
o
If we only honor one side of the contract and force one to bring a
separate lawsuit to deal with a separate breach, the separate
breach might become a moot point later on.
Case 2: Morton v. Lamb (Mutual Condition) p. 882

Facts: (P) buyer suing (D) seller for non performance of the contract
when (D) didn’t deliver corn BUT (P) hadn’t given money.

Holding: (P) cannot recover from (D) since the conditions were
“concurrent” whereby in order for (P) to sue for non performance, (P) had
34
to have had been ready to pay for the corn at the same time that (D)
would deliver the corn.
Sub-question 4: (1) Does there need to be perfect performance? (2) What
are the damages? (Cost of completion vs. Diminution of Value)
Default Rule: One must in good faith attempt to perform with the terms of the
contract or correct deficiencies where doing so is not prohibitively expensive.
Cardozo Substantial Performance Rule (only where the cost of complying with
the terms of the contract would be prohibitively expensive in that the amount
expended by the performer would be far greater than the benefit bestowed upon
the other party): In such cases, substantial performance is acceptable provided that
the breaching party pay as damages any difference in value between what was
received and what was contracted for. (Jacob & Peevyhouse)
UCC§2-106 & 2-601 Perfect Tender Rule: A buyer is allowed to repudiate the
contract if the sellers’ product or delivery does not conform to the terms of the
contract. This rule however also gives the seller a chance, before the date of the
contract and in certain circumstances for a reasonable period after, to cure any
defects. But where the seller fails to cure defects, buyer may repudiate or terminate
contract. (Ramirez)

Restatement §241 comment (b): Follows perfect tender rule but is
more lenient in giving breaching party an opportunity to cure (Groves)
POLICY (use these factors where fact pattern says jurisdiction is “divided”
as to perfect tender or substantial performance rule):
1. Cardozo/Peevyhouse view of Substantial Performance:
ECON/POLICY
a. Economic Waste (Inefficiency): If we make it too easy to repudiate or insist
upon holding parties to a perfect standard, it will be economically wasteful. The
amount of money spent to cure a defect in certain cases is wasteful since the
corresponding benefit bestowed is not comparable.

COUNTER: Freedom of Contracts: (1) People should have the right to
contract for whatever they want. (2) While it may not be materially
comparable in value, it may be subjectively comparable

COUNTER: Coasean Bargaining: It doesn’t matter if the court’s holding is
efficient or inefficient since the parties will come to an agreement
35
whereby whoever values either doing the work or not doing the work
more will pay the other party.

Also, at the end it doesn’t mean the pipes are going to be replaced, owner
will only use the $ to replace the pipes if he REALLY wants the pipes,
which doesn’t mean to seem that wasteful.
b. Opportunistic Behavior of the Parties in the Course of Setting a Remedy:
In determining which is the better default rule, we look to how parties would
opportunistically exploit the rule to determine which rule would be better.

Under the Cardozo regime, parties will try to exploit the rule by aiming for
substantial performance and making up for any difference in value.

Under the perfect tender rule, people will be able to get out of contracts
by technical minor, non-performances [nitpicking]. Under the later
regime, it would be onerous and courts would be flooded with cases
whereby every immaterial modification would have to be renegotiated at
higher transaction costs to the parties. People would be reluctant to enter
into these relationships at all.

Thus the opportunistic behavior of parties under the Cardozo rule would
be less damaging to society in general.
c. Ex Ante Perspective – If owners and contractors got to plan their doctrine,
which one would they choose? If cost of completion, contractors will raise the
prices a lot. So owners may not want cost of completion.
MORAL/DOCTRINAL
d. Unjust Enrichment: Where a party does not actually subjectively value the
improvements or the condition to the amount that it would actually cost to fix the
property, any settlement they received would be a windfall in unjust enrichment:

COUNTER: If the other way, the breaching party is receiving a windfall by
not fully performing the contract when the party knew in advance what all
of the conditions of the contract would cost them and still signed the
contract.

COUNTER: If there were a perfect tender rule, the contractor charges a
higher price for the time, expense, and frustration of effectuating the
other side’s perfectionist demands.
e. Coherence of Torts: In torts, the measure of damages is based on bringing the
person back to where they were before the tort occurred. Cardozo’s view is more
36
coherent with this notion. If you were to apply the Perfect Tender rule in torts it
would be akin to strict liability.
f. Mitigation of Damages: In contract law, a non-breaching party has the
requirement to mitigate damages done. Since the non-breaching party, here, is
required to accept the substantial performance and damages are only based on the
difference in value, the non-breaching party is forced to mitigate damages.

COUNTER: Perfect Tender Rule allows people to contract around
mitigation.

Also: mitigation rule is to protect against waste. Here, not clear that
there is waste to begin with!
g. General view that Contract Law Takes Towards Keeping Promises:
Contract law does not take the moral view that contracts are sacrosanct. Rather,
contract law allows you to either perform or compensate, thus allowing for efficient
breaches.
2. Ramirez/Groves view of PERFECT TENDER:
ECON/POLICY
a. Only way to help perfectionists: Since courts are weary of awarding
liquidated damages, it would be very hard for a “perfectionist” party to get
specifically what they want, like the Reading Pipe, since in a contract the court
would view a liquidated damage clause that was meant to enforce perfect
performance as a penalty clause.
b. Encourage better contracts: Perfect tender might not be the right default rule
but it will force parties to be more explicit about what they want. By picking the
rule that people wouldn’t want, parties will have to be more explicit to get what
they do want, whereas substantial performance allows people to be lazy and more
ambiguous.
MORAL/DOCTRINAL
c. Autonomy/Freedom of Contracts: The core aspect of freedom of contracts is
violated if we go with Cardozo’s approach since it interferes with party’s ability to
bargain since one party can substitute substantial performance in place of what the
other party actually bargained for.

COUNTER: When completion of the contract is minimally more than the
substantial performance, this is not a big problem. (Peevyhouse)
A. Services: can only seek damages (not repudiation of contract)
37
Case 1: Jacob and Youngs v. Kent (CARDOZO – diminution of value) p. 883

Facts: Construction company (P) suing homebuyer Kent for nonpayment
of balance of $4000. Homebuyer D claiming as defense that P didn’t fully
perform, b/c contract said only Reading pipe was to be used in the
plumbing.

Holding: Since here, in order for P to correct the piping defficiency he
would have to knock down a substantial portion of the already built
house, where the objective benefit to the homebuyer based on the
difference of quality of pipe used would be negligible. Thus, it is sufficient
that the contractor had performed substantially and did not breach in bad
faith. Thus, the measure of damages is diminution in value.
Case 2: Groves v. John Wunder (Deliberate breach – Cost of Completion)
p. 929

Facts: Groves leased a tract of land to D for purpose of excavating and
screening gravel with the condition that D return the land in a
substantially uniform grade. D deliberately breached the contract by
removing the richest gravel and leaving the premises rugged and uneven.

Holding: EVEN THOUGH cost of completing the contract i.e. returning the
gravel to a uniform grade would cost $60,000 which was more than the
benefit Groves would receive in terms of value of the land by completion
of contract, the court holds that despite substantial performance, (D)’s
breach was willful and lacked good faith and measure of damages is cost
of completion.
Case 3: Peevyhouse v. Garland Coal Mining (Deliberate breach –
Diminution of Value) p. 934

Facts: P leased a farm to D for the purposes of mining coal deposits on
the land. Incidental to this agreement, D agreed to perform restorative
work at the end of the lease. Despite substantial performance of the
mining contract, D did not restore the farm.

Holding: The main contract was for the mining which was performed. The
restoration was merely incidental to the main purpose. Thus, the costs to
the D of restoring the farm would significantly outweigh the benefits to
38
the farm owner in terms of property value. Diminution of value is thus the
proper damage measure.
B. Sale of Goods: can seek repudiation if you have rejected but if you’ve
accepted, then you may only be able to recover damages.
UCC §2-601: Buyer has right to reject if goods or tender of delivery fail in any
respect to conform to contract [perfect tender]. Rejection must take place within
reasonable time after deliver (§2-602).
UCC §2-606: Buyer can accept by a) signifying acceptance; b) fails to make
effective rejection after reasonable time; c) does any act inconsistent with seller’s
ownership.
UCC §2-608: After acceptance, can only revoke if it substantially impairs its value
and he didn’t discover it due to difficulty of discovery or seller’s assurances.
Case 1: Ramirez v. Autosport (Perfect Tender) p. 919

Facts: (D) Autosport agreed to sell a camper to P in exchange for a sum
of money and their van. Despite P having given their trade-in van and
despite several attempts to come to an agreement, Autosport did not
deliver the camper as promised but rather in a defective state. P refused
to purchase and demanded return of their van or alternatively the
reasonable market value of the van.

Holding: Under the perfect tender rule of the UCC (§2-601), the buyer
had the right to reject goods that did not conform to the contract. Thus P
were awarded fair market value of trade in van.
Sub-question 5: Was there material breach?
Default Rule: Only if a breach is material does it relieve the non-breaching party
of its duty of performance under the contract.
Case 1: B&B Equipment v. Bowen p. 907

Facts: D used to work for P as an accountant. As part of employment
agreement, D was entitled to purchase 100 shares of contract at certain
price. D got fired before meeting that price, but still wanted the chance
to buy the shares. P said the cause of D’s firing was a material breach, so
P didn’t have a duty anymore.
39

Holding: D’s employment was a material part of the contract.

Note: Materiality defined by following factors. Katz says they all seem
kind of conclusory.
o
Extent to which injured party will obtain substantial benefit
o
Extent to which the injured party may be adequately compensated
in damages for lack of complete performance
o
Extent to which party failing to perform has already party
performed.
o
Greater or less hardship on party failing to perform in terminating
contract
o
Willful behavior of party failing to perform
o
Uncertainty that party failing to perform will perform remainder of
the contract
Sub-question 6: Was there an anticipatory breach?
Rule: UCC § 2-610: If Party A renounces his intention to perform may not
complain, Party B, instead of waiting until performance is due, can elect to sue
immediately based on the doctrine of anticipatory breach.

Note 1: But at the same time the breached against party should have
been looking or be in the process of looking to mitigate damages i.e. by
looking for another job.

Note 2: This doctrine does not require a specific letter or statement to the
effect of “I will not perform” (De La Tour), the parties actions just have to
be inconsistent with a willingness to perform and reassurance to the other
party has to fail.
Thoughts re: anticipatory doctrine:

Double payment

Guesswork of future damage calculations: difficulty of calculating
damages. Harder to figure out what the damages MIGHT be in the future
than looking at actual data from before.
o
But how do we figure it out when it’s difficult in Hawkins? Some
asset that is going to last for a lifetime, and we’re trying to
estimate it now. Same difficulty as here.
40

Premature duty to mitigate: D might not be able to go find another job
because he waits until the breach, so this doctrine deprives him of that.

Unfair deprivation of opportunity to fix: maybe breach won’t happen.

Mutuality – hypothetical disability by Plaintiff: what if plaintiff died, or had
something happened such that the contract was void, wouldn’t legally
qualify as a breach.

Vagueness
Case 1: Hochester v. De La Tour p. 892
Facts: P entered into contract with D that he would travel with him as his courier
starting June 1st. On May 11th D wrote letter stating that he intended to repudiate
the contract on June 1st by not hiring him as a courier. P found new position of
similar terms to begin in July but still brought suit based on “anticipatory” breach of
contract.
Holding: P allowed to recover damages in anticipation of D’s breach. Further, P
was allowed to enter into a new contract before June 1st as to not deliberately
increase damages. Def. should want mitigation of damages
Policy: If P was aware that D intended to breach, it would be counter to the
mitigation doctrine if he were to sit on his hands until the actual date that the
contract was to begin since he would be building up damages that could otherwise
be avoided.
41
5: Defenses
3/9/2016 4:25:00 PM
Question 5: Defenses to Contractual Obligations making a contract
voidable
Sub-question 1: Obtaining Assent Unfairly
Possibility 1: When Assent was obtained through misrepresentation or
fraud as to facts
Fact Pattern: 1. Fraud or misrepresentation? 2. Fraud void regardless of material
factor or not 3. Misrepresentation: look to (a) §164 and determine whether it’s a
material fact (b) §167 to see if it was an inducing cause.
Misrepresentation v. Fraud as to FACTS:

Misrepresentation: (§159) “A misrepresentation is an assertion that is
not in accord with facts” even if it is not purposefully intended to mislead
the other party into assenting. Look to objective standard, not internal
mental intent
o
A misrepresentation makes a contract voidable under §164(1) if it
is (a) material and the other party is justified in relying on the
misrepresentation and (b) if it induces a reasonable person to
manifest assent
o
Policy:

This liability is good for the buyer in that he will be
encouraged to engage in goods interactions knowing that he
can rely on the truthfulness and accuracy of the seller’s
statements and repudiate if he finds out they are false.

If there were no misrepresentation liability, the buyer would
have a heavy burden of investigating purchases on his own
which might be costly and impede contracts.
o
Policy Problem:

There’s a tension with WARRANTIES (guarantees that seller
will be liable for defects): if there’s a warranty, a buyer has
to give the seller a chance to make good on the warranty in
the event of a defect. BUT if there’s no warranty and just a
42
misrepresentation, then the buyer can bring suit immediately
to get out of the contract without having to give the seller an
opportunity to correct the problem.

Ideally, the seller wouldn’t want innocent misrepresentation
liability out of fear that anything he says will be subject to
this liability BUT his fear is mitigated by the ability to simply
say “I don’t know” or further investigate.

Fraud: (§162 (1)) A misrepresentation is fraudulent if the maker intends
his assertion to induce the party to manifest his assent and the maker (a)
knows/believes his assertion to not be in accord with the facts; (b)
doesn’t have the confidence he states or implies in the truth of his
assertions; OR (c) knows he has no basis for his statement or implication
for the assertion.
o
A fraudulent misrepresentation makes a contract void under
§164(1) (a) whether it is material or not; and (b) if it induces the
manifestation of assent of the other party.
o
Policy:

This broadly includes both knowledge and beliefs as they are
both dishonest and fabricating your level of certainty is also
dishonest.

Fraud liability is good for both buyers and sellers because:

for a seller it gives their promises legitimacy and thus
reduces transaction costs seller would incur if he had
to convince the buyer of the seller’s truthfulness

for a buyer, it likewise gives them peace of mind in
relying upon seller’s promises or alternatively knowing
that they can repudiate.

Third party Misrepresentation/Fraud: Under §164(2), a contract is
voidable based on the misrepresentation or fraudulent misrepresentation
of a third party not involved in the contract when it induces assent by one
of the party’s UNLESS the other party to the transaction in good faith and
without reason to know of the misrepresentation gives value or relies
materially on the transaction
o
Policy:

This doctrine warns a seller to correct any known third party
misrepresentations.
43

If a misrepresentation induces a party to assent, any kind of
misrepresentation should not be valid, even if it is a third
party misrepresentation.
o
Example: Media writes article on company inducing stock purchases
but article contains misrepresentations. Thus, if company doesn’t
correct misrepresentations but knows about the article, that article
is an inducing cause of assent and the contract is voidable.

§167: When a Misrepresentation is an Inducing Cause: A
misrepresentation is an inducing cause if it substantially contributes to a
party’s decision to manifest assent. (i.e. “but for” the misrepresentation
would buyer have actually bought the house)
Case 1: Halbert v. Rosenthal
Facts: Seller (P) brings suit against (D) for specific performance or damages based
on difference btw. price of house contracted for and price eventually sold for. Buyer
(D) cross-claims to return his deposit on a house based on the fact that the seller,
Real Estate Agency, misrepresent the fact that there were no termites in the house
(even though seller was innocent in his misrepresentation).
Holding: Even though the misrepresentation was innocent, since it was a
substantial factor in the buyer’s decision, rescission is available. When a (D) has
induced another, through his innocent misrepresentation, to act, the person who
should bear the loss is the speaker, not the actor who relied upon the words.
(based on §164 AND §167)
Two ways to read this case: (1) Crystal clear to the buyer that the sellers know
no more than they do. Then NO liability and contract is NOT voidable (2) Buyer’s
trust sellers know more than they do and rely on their knowledge because they are
in a better position. It doesn’t matter if the seller’s misrepresentation is completely
innocent. Here, contract voidable.
Hypo1: Stock Prospectus
Facts 1: Company X issued stock prospectus including warnings such as “their
continued existence is questionable, be prepared to suffer an immediate and total
loss.” No representation that the president or any of the other employees can
prevent loss. Is this fraud?
Holding 1: (1) If you were induced not to buy the stock then you have no case
since §164 requires the manifestation of assent to a purchase. (2) If you buy some
44
stock BUT were induced to not buy more, then you may have a case for fraud
based on §164 grounded on the stock that you did buy. This however would be a
very difficult case to make b/c all of the restatement sections center around
“inducing assent” NOT “inducing NON assent”
Hypo2: Fake Painting
Facts: Owner of a fake painting sells to Y, representing painting as a “real Van
Gogh.” Y resells to Z who doesn’t know much about art but likes the painting and
purchases under guise that it is a real Van Gogh. Once it comes out that painting is
fake, can Z void the contract with Y?
Holding: Courts don’t normally pierce the adequacy of contracts and assume that
people subjectively value the goods that they are buying at the price they are
buying them for because if courts did pierce the adequacy then no sales would take
place. BUT in this situation, where a misrepresentation is an “inducing cause” under
§167, in that it’s a substantial factor contributing to the parties’ decision to enter
into the contract, the contract may be voidable under §164.
Possibility 2: When assent is obtained through misrepresentation of
opinion
§168 & 169: Reliance on assertion of opinion: It is reasonable for A to believe
B ONLY IF a) relationship of trust; b) special skill or expertise to subject matter. If
it is reasonable, A can expect that a) the facts B knows are not incompatible to
what B’s opinion is, and b) that he knows fact sufficient to justify him in forming it.
§168: Reliance on Assertion of Opinions:
(1 – what an opinion is): Assertion of a belief is an opinion without certainty as to
existence of facts OR only a judgment as to quality, value, authenticity or similar
matters
(2- assumptions one can make about X’s opinion): It is reasonable to interpret an
assertion as an opinion as either (a) facts known to the person are not incompatible
with his opinion, or (b) that he knows facts sufficient to justify him in forming it.
§169: When Reliance on an Assertion of Opinion is Not Justified (*situations
where an opinion constitutes a misrepresentation)
45
General Rule: A contract is NOT voidable based on an opinion that turns out to be
wrong UNLESS:
(a) the person asserting the opinion stands in a relationship of trust and confidence
to the person whose opinion is asserted and the recipient is reasonable in relying on
it
(b) the person asserting the opinion has a special skill, judgment or objectivity with
respect to the subject manner

Note: people that fall in this category are generally professionals like
doctors, accountants, lawyers (and in Vokes case extended to a dance
instructor)
(c) for some other special reason when the recipient is particularly vulnerable to the
misrepresentation of the type involved (also like Vokes, recent widow trying to recreate herself into a ballerina)
Hypo1: Reverend
Facts: A popular reverend with a television show who raises funds for various
religious causes is embarrassed when information comes to light based on his diary
that he is an Atheist and a Cynic.
Holding: There was no misrepresentation in terms of the money for the religious
causes. §168(2): Are we dealing with reverend’s assertion of his belief, or
reverend’s assertion that God exists? If the second, it would be hard to prove
reverend knew facts that showed He doesn’t exist. If the first, it’s hard to prove
that customers relied on reverend’s own personal belief in God [subjective opinion.]
Contract law would rather focus on the objective outward opinions.
Policy: Contract law is concerned with the objective outward opinions of people not
their inner subjective opinions.
Case 1: Vokes v. Arthur Murray, Inc. p. 991
Facts: Vokes (P) was convinced to sign up, under a number of contracts, for dance
lessons based on her reliance on the instructor’s opinions that she was a promising
student and her dancing skills were improving. P brought suit to void the remainder
of her unused dance lessons.
Holding: P able to rescind the remaining contracts b/c D had superior knowledge
as to whether P was really improving, had “dance potential” and their comments
went beyond mere sales “puffery” into the area of undue influence and the
suppression of truth.
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Policy: This case extends the “special skilled professionals category” under §169b
to include those experts who are highly knowledgeable in a field in which plaintiff is
generally unfamiliar.
Possibility 3: Obtaining Assent Improperly: Duress
Rule 1: Contract modification is voidable on the grounds of duress when
(1) the party claiming duress establishes that its agreement to the modification was
obtained by means of a wrongful threat from the other party which precluded the
first party’s exercise of free will AND
(2) the threatened party could not obtain the goods from another source of supply;
AND
(3) the ordinary remedy for breach of contract would be inadequate
§175: When Duress by Threat Makes a Contract Voidable
(1) If the party’s manifestation is induced by improper threat, which leaves the
victim no reasonable alternative, the contract is voidable.
(2) Applying to third parties: if a third party’s threat induces assent, the contract is
voidable UNLESS the other party to the transaction, in good faith, without reason to
know about the duress, relies or gives value to the contract.
What kinds of threats are so improper as to make the contract voidable
§176(1): Improper threats intending to benefit the threatening party
(a) what is threatened is a crime or a tort, or the threat itself would be a crime or a
tort if it resulted in obtaining property:
(b) what is threatened is a criminal prosecution
(c) what is threatened is the use of civil process and the threat is made in bad faith
*i.e. someone who threatens to bring a frivolous lawsuit
(d) the threat is a breach of the duty of good faith and fair dealing under a contract
with the recipient
*Alaska and Loral but NOT Stilk because in Stilk there was no threat made and in
Alaska and Loral there was a threat of refusing to perform and thus breaching the
duty of bad faith.
§176(2): A threat is also improper and thus can void a contract if it is not
on fair terms AND
47
(a) the threat is made to be spiteful and does not actually benefit the threatening
party
(b) the effectiveness of the threat is significantly increased based on prior unfair
dealings,
(c) what is threatened is otherwise use of power for illegitimate ends
B/c the above framework is confusing, academics have tried to frame other ways
to distinguish when a contract is voidable based on the existence of a threat:
1.) When each party is happy about the presence of the other person, then the
contract is not voidable. However if one party is not happy about the existence of
the other party, then the threat constitutes duress and the contract should be
voidable.

Problem: In Loral, while the (P) is not happy about making the extra
money, they are happy that Austin exists so that they can fulfill their
military contract. Likewise in Alaska, the captain is happy that the sailors
are there b/c he doesn’t have anyone else to do the work but he is
unhappy about paying the extra money. Therefore this is not a good
duress test b/c all contract modifications would pass muster.
2.) Triangular Relationship btw. husband, wife and blackmailer. The blackmailer
diverts money that is due to the wronged wife for himself and thus this contract is
based on duress and voidable.
POLCIY PROBLEMS
1. Pre-Existing Duty rule/Duress – address the same issue but come out
with different conclusions because of weak-strong party issue:

UCC 2-209 allows contract modification without additional consideration
unless there is existence of bad faith BUT the restatement looks down
upon contract modification without new consideration.

HOWEVER, instead of invoking the pre-existing duty rule (2-209), courts
today look to the Restatement §175, section on duress, to determine
whether a contract’s modification is voidable based on the existence of
duress.

Policy: Both Stilk and Alaska were decided under the pre-existing duty
rule and both were found to be void. Where, under the duress rule, it’s
likely that the Stilk contract could not have been voidable since it was the
48
weaker party who offered to modify the contract and not the threats of
the stronger party.
2. Virtually anything can be constituted as duress: particularly economic
duress. If Headley turned out the other way, no incentive to settle.
Case 1: Hackley v. Headley: p. 1000

Facts: P Headley did some work for D Hackley, but when he went to ask
for payment, D said he would only pay $2000 less and wouldn’t pay
anything if P didn’t agree to take it as full consideration. P had the option
to refuse and sue, but P needed the $ immediately so agreed. Later tried
to sue for economic duress.

Holding: If party’s threat is his legal right to perform, then it’s not
duress. Here, it is D’s legal right to fail to pay (P’s recourse traditionally
is just to sue.)

Policy: If allow Headley, then no incentive to settle (P can later just claim
economic duress and get out of it.) Better to allow some bullying. Could
probably use ex ante perspective here.
Case 2: Austin Instrument v. Loral Corp.
Facts: Loral Corp. (D) is radar set producer with military contracts. The military
contracts contain a liquidated damage clause for late delivery and a cancellation
clause. (D) awarded Austin (P) a sub-contract to supply some of the parts.
Subsequently, Austin threatened to cease delivery of the parts unless Loral
consented to substantial increase in the sub-contract price and unless Loral
consented to a second contract. Whether the contract modification, increasing price
of the contract, makes the contract voidable on the ground of duress.
Holding: The contract is voidable since (P) was precluded from exercising their free
will and even though they attempted to secure the parts from other companies,
they were unable to and had no choice but to assent to the defendant’s price
increases in order to keep their initial contract with the military.
Sub-question 2: Was the contract made unconscionabilily (procedural
issue) or is the contract substantively unconscionable?
Procedurally Unconscionable: Oppression or surprise, unequal bargaining power,
or the absence of choice by one of the parties, contracts of adhesion (form
49
contracts where the purchaser doesn’t have the chance to bargain for terms),
whether each party understood the extent of the terms of the agreement, whether
deceptive sales practices were used.
Substantive Unconscionable: Even though the person made the choice freely
and openly to enter into the agreement, we can nevertheless void the contract if it
appears overly harsh or one-sided terms.
*problem: Courts don’t normally pierce the adequacy of contracts and thus
substantive unconscionability is in conflict with this notion.
*policy: In the prisoner’s dilemma, each individual’s immediate self-interest is in
conflict with the collective good. Each individual who is engaging in a contract might
think that it’s in their immediate self-interest to enter the contract and agree to its
terms, but when something goes wrong, they realize that it would be in their best
interest if all consumers banned together against such agreements. Thus
unconscionabiltiy is a solution to this “prisoner’s” dilemma.
*Counter: Consumers have other means of changing a term of agreement besides
courts paternalistically protecting them through this doctrine i.e. they can boycott a
company and force them into fairer terms.
Rule: If there’s found to be procedural, substantive or both types of
unconscionability, the contract is voidable. USE THIS DEFENSE if HYPO doesn’t rise
to the level of misrepresentation, mistake, duress or coercion.
Case 1: Williams v. Walker Thomas

Facts: P, buyer, entered into “rent-to-own” agreement with D,
storeowner, which included a repossession clause that contracted around
the general default rule of repossession (Default rule: in a case of
defaulted payment, the store can invoke the power of the court to
instituted a repossession proceeding). This clause stated that any
outstanding payments would be distributed among all products purchased
from the store so that the products would remain in the ownership of the
store until all payments were furnished. THUS, the store sidestepped the
litigation process and was able to repossess all of plaintiff’s purchased
when she defaulted. HOWEVER, there was no windfall for D storeowner
since he would only be entitled to keep the money collected that applied
to the outstanding balance and anything in excess had to be remitted to
plaintiff.
50

Holding: Case remanded for further findings on unconscionabiltiy.

Policy Problems: If we don’t allow the enforcement of the Walker
Thomas contract, then it may be good for the plaintiff in this case, but it
will be bad for plaintiffs like her in the future who are similarly poor and
unable to buy on credit absent such clauses which give the seller
confidence that he won’t be insured by default.

Policy: If we allow this agreement to be enforced, the problem is that the
seller doesn’t have an incentive to sell the repossessed items at a high
enough price so that plaintiff gets money back because he is only
concerned with recovering the balance.
Case 2: Gatton v. T-mobile USA

Facts: Customers bringing class action against T-mobile on behalf of all
customers alleging contract unconscionable in terms of 1. Early
termination fee 2. Locked handsets 3. Clause compelling arbitration and
waiving the right to bring a class action. Court only dealing with third
issue.

Holding: Court found a minimal procedural unconscionability in terms of
the adhesive nature of the contract, the limited choices, AND a high
degree of substantive unconscionability arising from the class action
waiver.

Policy: If we didn’t allow class actions, T-Mobile could skim a few dollars
off of each customer gaining a windfall and be essentially judgment proof
since people won’t typical bring litigation for claims under a thousand
dollars.

Policy Problem: Price reflects the cost of doing business and if T-mobile
is subject to class actions, their costs will go up with will then be passed
on to the consumers in the form of higher prices for phones and plans.
Sub-question 3: Was there a mistake?
Possibility 1: MUTUAL MISTAKE
MISTAKE DEFINED: (§151) “A mistake is a belief that is not accord with the
facts.” Mistake, as opposed to other forms of mistake i.e. impracticability and
frustration of purpose, refer to facts as they exist at the time of contract.
MUTUAL MISTAKE: (§152) (1) Where a mistake of both parties, at the time of
contract formation, as to a basic assumption (so obvious that neither party would
51
think to include it in the contract and thus usually risk not allocated) on which the
contract was made, and has a material effect on the exchange, the contract is
voidable unless under §154 the party bears the risk. (2) Even if the contract is
voidable, the court has discretion in assigning damages.
§154 When A Party Bears the Risk of Mistake: (a) risk is explicitly allocated to
him in the agreement (b) party is aware at the time of the contract that they have
limited knowledge with respect to the facts to which the mistake relates but
nevertheless proceeds (c) the court allocates the risk to the party based on
reasonableness.
Damages: Can be restitution or reliance according to §158
Case 1: Sherwood v. Walker

Facts: Seller (D), owner of farm, agreed to sell a certain cow, which he
believed to be barren to (P) banker for $80 (going price for meat). When
the P went to pick up the cow, the buyer wouldn’t hand it over since it
was discovered that the cow was pregnant and thus worth considerably
more than they had agreed for.

Holding: The contract was built around a mutual material mistake
regarding the basic assumption that the cow was barren and thus the
contract is voidable.

Dissent: P did believe that the cow would breed and thus under §154,
the D should bear the burden of the mistake since the risk was allocated
to him as he knew he had limited knowledge.
Possibility 2: Unilateral Mistake
UNILATERAL MISTAKE (§153): Where a mistake of one party,
(1) at the time of contract formation,
(2) as to a basic assumption (so obvious that neither party would think to include it
in the contract and thus usually risk not allocated) on which the contract was made
(3) has a material effect on the exchange of performances that is adverse to him,
(4) if he does not bear the risk under §154 AND
(5) (a) the effect of the mistake is such that enforcement of the contract would be
unconscionable, [this is circular] or (b) the non-mistaken party had reason to know
of the mistake or his fault caused the mistake (good-faith requirement).
THEN
52
the contract is VOIDABLE by the mistaken party.
**Note: Burden of proof is on the mistaken party is that they must demonstrate by
a “preponderance of evidence” that the non-mistaken party was aware of the
mistake at the time of the contract.
** Note 2: There are very few circumstances where there is going to be one party
who makes a mistake and another party who in good faith doesn’t know there’s a
mistake.
§154 When A Party Bears the Risk of Mistake:
(a) risk is explicitly allocated to him in the agreement
(b) party is aware at the time of the contract that they have limited knowledge with
respect to the facts to which the mistake relates but nevertheless proceeds
(c) the court allocates the risk to the party based on reasonableness.
Case 1: Tyra v. Cheney

Facts: There was a mistake in the contract between builder and D, they
unknowingly excluded an item in the estimate, leading to an
underestimate of $963. The D was seemingly aware of this omission and
attempted to hold contractor to lower price

Holding: Cannot hold to lower price, D responsible for difference

RULE: Where one party to a contract is unilaterally mistaken as to an
essential contract term and the other party is aware of his error, the
agreement fails to constitute a binding contract.
o
one cannot snap up an offer or bid knowing that it was made in
mistake
Possibility 3: Impossibility/Impracticability (after a contract is made) –
When Impossibility Makes Contract Voidable (Discharged by Supervening
Impracticability):
Rule §261: In a contract

There occurred an event, the non-occurrence of which was material

THEN, there is an implied condition that the a party’s performance is
discharged.
Case 1: Paradine v. Jane: p. 1083

Facts: Contract between landlord and tenant to pay rent. Army invades and
takes over tenant’s land, question of whether tenant still has to pay.
53

Rule: If duty by law, then impossibility would void it. But if duty by contract,
then you’re NOT excused in event of impossibility, because you could have
contracted around it.

Holding: tenant had to pay rent.
o
Note: But I suppose this may not excuse the situation of an “implied”
covenant in the contract regarding impossibility (?).
§261: Discharged by Supervening Impracticability
When, after a contract is made, a party’s performance is made impracticable
without his fault by the occurrence of an event the non-occurrence of which was a
basic assumption on which the contract was made, the contract is voidable
(essentially the same as mistake, just as to facts as they existed AFTER contract
formation instead at the time of formation)
§263: Destruction, Deterioration or Failure to come into existence of thing
necessary for performance makes contract voidable due to impracticality.
Hypo: Cattle rancher contracts with farmer to buy the offspring of a particular cow
for his ranching business. However, after formation of contract, the cow catches a
disease, which renders her infertile. This doctrine would apply and make the
contract voidable due to the supervening event of infertility/disease, which was a
basic assumption on which the contract relied.
Case 1: Taylor v. Caldwell
Contract was found void based on §263 when the music hall, which plaintiff
contracted to rent from defendant owner, was destroyed, thereby rendering
performance impracticable/impossible. The existence of the music hall was
necessary for the performance. Hence, its destruction made such performance
impracticable.
Possibility 4: Frustration of Purpose (after a contract is made)
Frustration of Purpose (§265): When after a contract is made, a party’s
principal purpose is substantially frustrated without his fault by the occurrence of an
event the non-occurrence of which was a basic assumption on which the contract
54
was made, a contract is voidable. Parole evidence can be admitted to prove
purpose if not explicitly mentioned in contract (Krell)
Case 1: Krell v. Henry (see also mutual mistake)
Facts: Advertised room with view of coronation, P agreed to rent the room. For
some reason the coronation was delayed indefinitely, P wanted to still collect rent,
D didn’t want to pay.
Holding: Contract voided
Notes: This is like Sherwood, because this is an unforeseeable event, except it’s a
mistake occurring after time of contract. But it follows the same logic as mutual
mistake.
Hypo: Cattle rancher contracts with farmer to buy the offspring of a particular cow
for his ranching business. Seller delivers offspring to buyer but buyer’s business
collapses and he wants to cancel all orders for anything cow related. This doctrine
would apply and make the contract voidable due to the frustration of purpose. BUT
seller can sue on DAMAGES because the risk of defendant’s business failing was not
out of the blue.
PRACTICE FOR EXAM: Shirley McClaine:
1. Misrepresentation

In response to studio’s mitigation claim, McClaine could say that the
studio represented to her in the contract that they were only asking for
her presence and option to use her in the film.
2. Duress

the studio in offering her the western were trying to force her into
mitigating or else not being able to recover the full amount
3. Mistake
4. Impossibility
5. Frustration

the studio had contracted her to be a singing and dancing actress and the
purpose was to advance her musical movie star career so appearing in a
55
western film wouldn’t achieve that purpose. Thus the “destruction” of the
musical movie would cause a frustration of purpose for McClaine.
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12/20/2010 5:24:00 AM
Question 6: What are the Damages?
Sub-question 1: Which Damage interest should apply?
Possibility 1: Expectation Damages – Default Rule of Damages

Rule: Expectation Damages seek to put the promisee in the position he
would have been had the promise been performed in full [benefit of the
bargain]

§347 – Measure of Damages in General – The injured party has a
right to expectation damages, measured by:
o
(a) difference b/t what P received and what P should have received,
PLUS
o
(b) any other incidental or consequential loss caused by the breach,
MINUS
o

(C) any cost or other loss avoided by non-performance
Case 1: Hawkins v. McGee (Hairy hand case)
o
Facts: Dr. McGee claimed he could perform skin graft and make P’s
hand “100% perfect.” D botched-up surgery leaving P worse off
than before the surgery. P sues D for breach of contract.
o
Holding: Recovery based expectation damages (value of perfect
hand – value of hairy hand PLUS consequential damages (such as
lack of ability to work). Court declined to award pain and suffering
since no EXTRA pain beyond that which is expected with hand
surgery.

Problems with expectation damages—
o
(1) Computational difficulty in assigning quantitative value to a
“perfect hand” vs. value of imperfect hairy hand
o
(2) Expectation damages are too harsh

COUNTER 1: when parties enter an agreement the court
assumes that the parties will fulfill the agreement and thus
when a breach occurs, it is only fair to award the nonbreaching party with what he expected to gain from the
bargain
o
(3) Disincentivizes parties from entering into contract, excess
caution on part of doctors. Also not really adhering to Harm-
57
Compensation Principle: We are only liable for what we’ve actually
done in harm.

Counter: Theft analogy, it depends on what you consider is
the “harm” done.
o
(4) in case of instantaneous breach it seems crazy to enforce
expectation damages

Advantages to Expectation
o
(1) Discouraging Breach of contract (strong motivator), promisekeeping
o
(2): Theft analogy: The only difference between “stealing” a car
that you have already sold and delivered to a party and breaching a
contract to sell a car to another party is that in the later case no
physical delivery has been made. And in stealing at least you have
the power of physical force.
o
(3) Expectation rarely fulfills the actual full benefit of the bargain
thus when the court shoots for expectation they actually protecting
reliance interest (when take into consideration cost of lawsuit)
Applying Expectation Damages
Rule 1: FIXED COSTS associated with a business are not recoverable as part of
expectation damages while variable costs are (Hooker)
Rule 2: MARKET LOSS RULE: In an action for a breach of contract for the sale of
goods the proper measure is the difference b/w the market value for the goods and
the contract price agreed upon (even when the injured party is a MIDDLEMAN and
is thus protected from market fluctuations) (Tongish)

Case 1: Hooker & Sons v. Roberts
o
Facts: Hooker, a contractor entered into a sub-contracting
agreement with Roberts to provide construction service and
removal services. Dispute arose over which party had the duty to
dispose of the cabinets. Hooker canceled contract with Roberts and
then Roberts sued Hooker for expectation damages based on (1)
administrative costs; (2) storage costs; and (3) lost profits.
o
Holding: (1)The court allowed recovery of administrative costs
(since the employees could have been working on other
assignments—thus they were VARIABLE costs); (2) the court also
awarded lost profits consistent with expectation damages (3) the
58
court rejected damages for overhead costs (secretaries, storage)
because they were FIXED costs that Roberts would have had
regardless of the breached contract

Case 2: Tongish v. Thomas – collateral benefits – beyond
Expectation
o
Facts: Tongish contracted to sell sunflower seeds to Coop who had
a further arrangement to sell to Bambino. Coop only bargained to
receive the delivery costs and sold to Bambino for the price he paid
Tongish. The market price of sunflower seeds increased and
Tongish breached in order to sell to a higher bidder.
o
Holding: Market Loss rule – difference between market price at the
time of breach and contract price. Even though Coop was a
middleman who was not exposed to market fluctuations the court
wanted to discourage breaches, so awarded expectation damages.
This is an EXCEPTION to UCC §2-712 and §2-713
o
Policy 1: Windfall Argument: If we allowed Tongish to breach he
would get a windfall (Counter: Coop is getting a windfall that he
didn’t bargain for)
o
Policy 2: Inefficiency Argument: It would be inefficient to allow
Tongish to breach b/c this would encourage breaches of contract
(Counter: Coop has nothing to complain about since he wasn’t
injured by the breach)
o
Policy 3: Precedent Argument based on breaching party’s
good or bad-faith intent: Allied was a middleman also. Seller
breached contract because of extenuating weather circumstances.
Court held that if the seller knew the buyer had a resell contract for
the goods, and the seller did not breach the contract in bad faith,
the buyer was limited to actual loss of damages under §1-106.
o
Policy 4: Just because a party is insured against a loss it doesn’t
mean that the breacher should be off the hook. (Counter: Because
the party insured himself, he doesn’t deserve to get a windfall)
o
Counter 1: Academic Argument (Fairness/ HarmCompensation principle):
If in Hawkins, the hair hand miraculously recovered, we would not
want to hold the doctor to full expectation damages since it is out
59
of proportion with the harm caused. Likewise, in Tongish it is
unfair for (P) to be liable for a greater amount of damages than
was actually caused.
o
UCC §1-106: General Damage Rule: Expectation damage (here,
it would just be Coop’s middle man handler fee)
o
UCC §2-712: “Cover”; Buyer’s Procurement of Substitute
Goods: (only for goods) – (1) Buyer can, in the case of a breach,
buy substitute goods to “cover” for the goods seller didn’t deliver
(2) The buyer may then recover the difference btw. market price
for new goods and the contract price, in addition to any additional
or consequential damages which flow from the breach LESS
expenses saved.
o
UCC §2-713: Buyer’s Damages for Non-Delivery or
Repudiation – If the seller breaches and the buyer chooses not to
buy substitute goods he is nevertheless entitled to damages based
on the market price at the time of the breach minus the contract
price PLUS any consequential damages and LESS any expenses
saved.
Possibility 2: Reliance Damages [When you are not sure if a contract has
been created] (used for quasi-contracts such as Cotnam OR promissory
Estoppel such as Goodman) OR some malpractice cases

Rule: Breached against party is put in the position in which he was before
entering into the contract

§349 Damages based on Reliance Interests – Damages based on
reliance interests, including expenditures made in preparation for
performance LESS any loss that the party in breach can prove with
reasonable certainty that the injured party avoided

Case: Sullivan v. O’Connor
o
Facts: D Surgeon performed multiple nose jobs on professional
entertainers nose, expected two surgeries but wound up having 3.
Initially nose was straight but protruding after final surgery nose
was bumpy and deformed. P sued doctor claiming mental and
physical suffering and inability to obtain future work.
60
o
Holding: Court awarded: (1) Out of pocket surgery expenses
(reliance); (2) Pain of third unexpected surgery (expectation and
reliance).

Court did NOT award (1) Physical pain caused by first and
second surgery b/c (P) expected it) [(P) did not ask for
expectation and did not ask for emotional damage so court
did not address either in opinion]

Policy: Disadvantages of Reliance
o
(1) Lack of incentive to engage in contract for potential nonbreaching parties
o
(2) Surprise factor—if injured party had an unknown special talent
or special circumstance reliance damages could be unforeseeably
high

Policy: Advantages
o
(1) in the case where it is debatable if a contract has been made
but it would be unfair not to award any damages, reliance is a good
alternative to expectation
o
(2) Ability for courts to apply reliance damages dissuades doctors
or other practitioners from making promises that they can not
necessarily follow through on in order to gain business while not
making them liable for patient’s crazy expectations or warped
sense of promises
Possibility 3: Restitution Damages [usually the smallest but in rare
circumstances can be larger than expectation]

Rule: The return or restoration of what the (D) has gained in a
transaction to prevent the unjust enrichment of that (D).

§371: Measure of Restitution Interests – May be measured by (a) the
value of what has been given (b) the value of the unjust enrichment to
the (D)
When the non-breaching party is seeking restitution Damages

§373: Restitution when the Other Party is in Breach – (1) The
injured party may get back any benefit bestowed upon the breaching
party (Bush); (2) The non-breaching party has no right to restitution (i.e.
getting his goods back) if he has performed all of his duties under the
contract and no performance by the breaching party remains due other
61
than payment of a definite sum of money for that performance (in this
case, breaching party must pay, but doesn’t have to return goods)

Case: Bush v. Canfield
o
Facts: Canfield breached contract it had with Bush to deliver goods
by NOT delivering. Goods declined in price from the time the
contract was entered to the time the Seller breached the contract.
Buyer had put down deposit and now wants it returned (restitution
would put Buyer at better position than if expectation would).
Seller argues that he does not have to give whole deposit back b/c
the goods price went down and the buyer would have suffered a
loss had the contract not been breached.
o
Holding: If the seller breaches a contract by not delivering goods
and has been paid in advance he must return the money paid in
advance and any interest incurred even if the (P) would have lost
money had the (D) not breached. (Restitution)
o
Policy: Discourages seller from breaching when he sees that the
price is going down and does not allow him to keep the deposit in
excess of the lower market price. [prevents unjust enrichment of
breaching party]
When the Breaching Party is seeking restitution damages

§374 Restitution in Favor of Party in Breach – (1) If a party
justifiably refuses to perform, the party in breach is entitled to restitution
for any benefit he has conferred by way of part performance or reliance in
excess of the loss that he has caused by his own breach (Britton); (2) If
parties contracted around restitution damages by allowing non-breaching
party to keep benefit of partial performance as “liquidated damages” and
such damages are reasonable (since actual harm is difficult to calculate)
then there are to be no restitution damages.

Case: Britton v. Turner
o
Facts: P contracted with D to perform house construction work for
1 year for a salary of $125 due in a lump sum at completion of
performance. P left at 10 months prior to completion. P breaching
party sues D for pro-rated salary.
o
Holding: P entitled to the amount of value which the D received
MINUS the amount of damage P has caused D (such as cost to find
new laborer to finish job beyond final 2 months salary pro-rated)
62
o
Policy: Arguments For Restitution damages for Breaching Party
[Quantum Meruit]

(1) Windfall argument: Employer should not be unjustly
enriched (COUNTER: encourages breach since employee can
receive partial payment)

(2) Moral Hazard: Do not want to incentivize employer to
bully employee into quitting job before completion so that he
can have free labor (COUNTER: it is unfair to make employer
pay when he did not IN FACT bully anyone)

(3) Comparative Unfairness: The situation of an
employer/employee is different from the situation of a
builder (where expectation damages would be appropriate).
In the former situation the employer receives benefit every
day whereas in the later the buyer of the house has nothing
to live in if the building is incomplete. (COUNTER: What if the
employee was the only person working on a project and
failed to complete it. Hard to make distinction, eh?)

(4) Implicit understanding of partial payment.
(COUNTER: implicit understanding of payment only when
performance is done.)

(5) Inequity of early vs. late breach: but relativity isn’t a
moral judgment. Can’t compare.

(6) Returnability of Goods: if you decide not to return the
good, then you should have to pay for the use of the good
that you did use and order. COUNTER: But in this case you
can’t “return” the labor.

(7) If it is important to the parties not to reward partial
performance in the form of restitution damages, they can
then contract around by dressing it up as a “liquidated
damage” in the case of anything other than complete
performance. §374(2)
Quasi Contracts and Restitution Damages

Rule: When there are contracts that cannot be bargained for because one
is unconscious and cannot communicate explicitly what he wants a quasi
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contract can be created, restitution damages are awarded to the
performing party to avoid unfairness.

Case 1: Cotnam v. Wisdom
o
Facts: D decedent thrown from street car and is rendered
unconscious. P doctors come to assist and rendered emergency
operation to try and save D’s life. P is ultimately unsuccessful. D
dies and a suit is brought by Ps against his estate to get paid for
their services.
o
Holding: P is entitled to be compensated for services. When party
lacks capability of communicating his wishes and we can determine
ex-ante what he would have wanted (the doctors to save his life)
then the court can assume that a quasi-contract exists and award
restitution damages.
o
Rule 1: The financial condition of a patient/estate (no kids) can not
be considered where there is a quasi contract in determining the
damages

Policy: P should only be paid an objective amount
determined by the jury to be enough to compensate the
doctors for their services (but profit motives usually
incorporated into doctor pricing should not apply where
damage is restitution and not expectation). This is all about
bringing DOCTOR to T0, not patient.

Case 2: Hypo (Runaway dog)
o
Facts: Dog runs away, finder brings him back, wants a reward.
How is this different from dr? Objective intent would say it is
obvious that person would want to be saved by surgery. Quasicontract between finder and dog owner?
o
Holding: No, the court would not enforce a quasi contract in this
situation even though the parties were prevented from the
exchange due to an inability to communicate since this is treated as
being DIFFERENT from unconsciousness. Court does not like to
construct contracts generally, only in special circumstance of
consciousness.
Sub-Issue 2: Are there any Limitations on Damages?
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Possibility 1: Can it be limited by Unforeseeability of Damages

Rule: Foreseeable Damages are recoverable. Unforeseeable damages are
only recoverable if there is notification prior to contract.

§351 Unforeseeability and Related Limitations on Damages
o
(1) Damages are not recoverable if the party in breach did not have
reason to foresee as a probable result of the breach when the
contract was made
o
(2) Loss may be foreseeable as a probable result of a breach
because it follows from the breach (a) in the ordinary course of
events, or (b) as a result of special circumstances beyond the
ordinary course of events that the party in breach had reason to
know
o
(3) a court may limit damages for foreseeable loss by excluding
recovery for loss of profits

Reasons for Foreseeability Limitation

It’s the definition of expectation damages

Fairness: seems to demand it being within contemplation of
contract

Inadequate consideration: Promisor only prices for what is
foreseeable, so he would’ve charged more if this wasn’t the
case.

Default rule means that promisee has incentive to disclose
risks to other side [contract around it]

o
High prices for everyone otherwise.
Reasons Against:

Because you can contract around it, this gives advantage to
the Man and screws small-time businesses and innocent
consumers.

Case 1: Hadley v. Baxendale (unforeseeable)
o
Facts: Ps are millers whose shaft broke. They arranged to have
shaft mailed by a carrier services and repaired. The P informed
mail clerk that it must be sent immediately. Delivery was delayed
causing loss of profits based on the mill having come to a halt in
the absence of the shaft.
o
Holding: P cannot recover for lost profits since it was not
foreseeable to a “reasonable man” that a delay of the shaft’s
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delivery would cause the mill to shut down, and wasn’t told
otherwise explicitly.
o

Policy: Incentivize Hadley to be more responsible.
Case 2: Hector Martinez v. Southern Pacific (reasonably
foreseeable)
o
Facts: P’s agent delivered a dragline via D’s train to TX. The
dragline was damaged in transit and delayed. P sues for (1)
recovery for the repairs to dragline; (2) refund for shipping and (3)
compensation for lost profits due to (a) delayed delivery and (b)
delay from dragline repairs
o
Holding: Court awarded damages for lost profits for delay when
not delivered [since it was reasonably foreseeable that machine
had “use value” or rental value] but not for repair delay since that
element of the claim was already settled.
o
Policy: It is not important that what occurred was the MOST
FORESEEABLE only that it was reasonably foreseeable. Here since a
dragline has a rental value in and of itself it was foreseeable to D
that a delay would cause P lost profits (as opposed to the shaft in a
Hadley which was a machine PART)

Case 3: Morrow v. First National Bank – TACIT AGREEMENT –
minority rule.
o
Facts: Morrow signs contract to rent safety deposit box from D
bank to store his collector coins. Safety boxes not installed yet and
D promises to alert P as soon as they become available. P is
robbed and coins stolen. Bank failed to tell P that boxes became
available before robbery. P sues D for price of stolen coins.
o
Holding: Under the “TACIT AGREEMENT TEST” consequential
damages for a breach of contract can only be recovered if (1) there
is injury from the contract breach; (2) special circumstances were
told to (D); (3) D agreed to the special circumstances. Court holds
that these circumstances were not met by the contract b/t Morrow
and First National
o
Policy: This test is more restrictive than the foreseeability test
used in Hadley in which only items 1 and 2 needed to be met.
Trying to deal with someone driving around with sign that says “If
you hit me you owe me $10,000”
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Possibility 2: Can be Limited by Uncertainty of Harm
Rule: In order to recover special damages the damages must be definite and
certain [i.e. you must be able to prove profits to reasonable certainty]
§352: Uncertainty as a limitation on Damages – Damages are not recoverable
for loss beyond an amount that the evidence permits to be established with
reasonable certainty
§349: Damages based on Reliance Interest – The injured party has a right to
damages based on his reliance interests including expenditures made in preparation
for performance or in performance LESS any loss that the party in breach can prove
with reasonable certainty the injured party would have suffered had the contract
been performed

Definite and Certain damages which can be recovered: (1) Costs
incurred in preparing for performance of contract (post-contract
formation) (Chicago Club); OR (2) ALL wasted expenditures when it is
wasted by reason of a D’s breach (Anglia)

Uncertain damages which are NOT recoverable: (1) Costs incurred in
preparing a contract; (2) attorney’s fees and court costs; (3) Lost profits
unless such damages are definite and certain (Chicago Club and Anglia)

Policy:
o
How much more does “certainty” doctrine bring to the table?
Recall that you need to prove all evidence beyond a preponderance
of a doubt.
o
Maybe certainty restriction is really to deal with situation when
profits are uncertain (and thus damages are uncertain). In this
situation, P is given the option to ask for most conservative
estimate of their profit, ie $0 (or else they wouldn’t have agreed to
enter into contract.)

Case 1: Chicago Coliseum Club v. Dempsey p. 112
o
Facts: P entered into a contract with D to fight against another
boxer. Before this contract P entered into contract with the other
boxer and contracted with a promoter to organize match. D
repudiated the contract. P brought multiple suits to try to enforce.
o
Holding: P can NOT recover for: (1) lost profits due to uncertainty;
(2) expenses incurred by P prior to D signing the contract; (3)
expenses incurred in attempting to restrain D from boxing in other
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matches. BUT P can recover expenses incurred after the signing of
the agreement and pre-breach if they relied upon the event
happening (temp. secretaries and sending of insurer to examine
Dempsey)

Katz think here Court messed up in trying to apply zeroprofit way of determining damages, applied reliance instead.
Should have included pre-contract expenses to be zero-profit
calculation.

Case 2: Anglia Television v. Reed
o
Facts: P contracted with Reed to appear in a televised play. D
Reed breached contract and P Anglia could not find a replacement
and sues D for damages.
o
Holding: P Anglia could recover for any damages, pre- or postcontract formation, as long as it was made in reliance of D’s
performance (§349 and §352)
Possibility 3: Mitigation
1. Avoidability of Harm
Rule: Injured party must do everything reasonable to mitigate the harm done to
him (and lessen damages)
§350 Avoidability as a Limitation on Damages – (1) Damages are not
recoverable for loss that the injured party could have avoided without undue risk,
burden or humiliation; (2) The injured party is not precluded from recovery to the
extent that he has made reasonable but unsuccessful efforts to avoid loss.

Case 1: Rockingham County v. Luten Bridge
o
Facts: P Board of Commissioners brought suit against D bridge
contractor for continuing to build a bridge despite fair notice that
the bridge was not longer desired and the contract was called off. D
continued building bridge and attempted to rack up damages
beyond what was due at the time of the breach.
o
Holding: D not entitled to expenses beyond point at which he was
advised of breach because he was given notice that he should have
stopped construction.
o
Policy: D’s decision to continue building bridge is puzzling since he
was entitled to expectation (benefit of the bargain) damages at the
moment of breach. Maybe he did because he thought it was easier
68
to prove [this way they are owed whatever contract promised,
versus having to show what they saved by NOT building the bridge,
etc.]

Case 2: McClaine v. 20th Century Fox
o
Facts: P actress entered into contract to star in a musical
production in LA with D. D notified P that they were no longer
creating film but offered her a part in a western film. McClaine
turned down western role and sued for expectation damages for
breach of initial contract. D argued that P failed to mitigate
damages by refusing western role and thus should not be entitled
to full expectation damages.
o
Holding: Court found that P only has a duty to mitigate where the
replacement role is not “different and inferior” to prior role. The
court held that the western role was both different and inferior to
the musical role and thus McClain was due expectation damages
w/o a duty to mitigate.
o
Policy: If D could have somehow gauged how much it would have
taken to get McClain to do the Western apart from the musical then
they could have offered into evidence that sum and only been liable
for the difference.
o
Counter-argument: Traditionally these contracts put some sort of
clause that says actress gets complete discretion. So, McClaine had
this option and didn’t use it, why not?
2. Lost Volume Doctrine
Rule: Where seller is in the business of selling a large volume of goods even if he is
able to re-sell a good post-breach of initial buyer, the seller is still owed expectation
damages since it is argued that he would have sold a larger volume had the initial
buyer not breached
UCC § 2-708 – Seller’s Damages for Non-Acceptance or Repudiation – (this
is default where lost volume not shown) (1) Seller is due expectation damages
UNLESS this is not enough and (2) Seller can point to a different part of the UCC
that applies.
UCC § 2-710 – Seller’s Incidental Damages – Seller allowed incidental
damages (costs of resale).
UCC § 2-718 – Liquidation or Limitation of Damages; Deposits – allows buyer
to set forth in agreement the amount of liquidation damages that will be paid in the
69
case of a breach as long as they are reasonable (such as 20% of value of the total
performance or $500—whichever is smaller)

Case 1: Neri v. Retail Marine Corp.
o
Facts: P contracts to purchase a boat from D and gives a deposit.
Subsequently P becomes ill and seeks return of his deposit. Seller
resells boat 4 months later but does not return deposit based on
the lost volume doctrine.
o
Holding: Court accepts sellers’ argument and awards seller lost
profits (§2-708) and incidental damages (§2-710) (cost of resale)
upon the buyers repudiation BUT returns remainder of deposit to
the buyer. This is because the subsequent sale was not in
replacement of, but rather in addition to the original sale.
o
Policy: Lost volume doctrine is exception to mitigation of damages
rule - where the seller has a high volume business and one sale
does not merely replace another but they are each considered
additional sales. In this case it could have been debated that the
seller was not engaged in a sufficiently high volume business to the
point of where mitigation was impossible.
Sub-question 3: How do you contract around
Possibility 1: You have a liquidated damages clause which is enforceable.
Policy (for liquidated damages):

Lessen risk involved in entering contract by decreasing uncertainty and
delay when a breach occurs and increasing economic efficiency.

Ex-ante: likely that both parties would want policy for liquidated damages
clauses, because if not, seller would just raise prices to take this
possibility into consideration.

Freedom of contract
Policy (against liquidated damages):

Such damages become punitive or unfair under certain circumstances. i.e.
little man gets screwed.
70

Maybe doesn’t increase efficiency, because it some cases it’s more
efficient to both parties to breach. [But general efficiency of contract
system might still be adversely affected.]

You can contract around it easily by turning finishing on time into a
bonus. If so easy, why make it a default rule?
Possibility 2: When damages stated in the contract are out of line with the
actual damage foreseeable at the time of the contract, then such a clause
shall be deemed a penalty clause and is thus UNENFORCEABLE under
contract law.
UCC §2-719: Contractual Modification or Limitation of Remedy
b. Liquidated Damages vs. Penalty Clauses: Liquidated damages are allowed to
be written into contracts as long as the liquidated damages reflect what might have
been the appropriate damages when the contract was entered into initially
§356: Liquidated Damages and Penalties
(1) Liquidated damages reasonable only for the amount that can be anticipated as
a loss and can help the difficulty of calculating this loss. If too high, unreasonable.
TEST to determine reasonableness (If yes, then reasonable) (Wassaner) –
This is a combination of a prospective and retrospective test
(1) Did the parties intend to provide for damages [vs. a penalty]? Maybe too
subjective to apply.
(2) Is the injury caused by breach one that is difficult or incapable of accurate
estimation at the time of the contract?
(3) Are the stipulated damages a reasonable forecast of the actual harm?
Case 1: Wassennaar v. Towne Hotel

Facts: Employment agreement b/w P and D for three years contained a
liquidated damage clause in which if employee fired before those three
years, he would be paid yearly salary until end of three year contract.
Employee fired after 21 months and sued to enforce stipulated damage
clause. D raises claims that P found new job after 2.5 months and thus P
shouldn’t have to pay him after those 2.5 months (b/c getting this job
was mitigation).
71

Holding: Since the stipulated damage clause is reasonable, and valid, the
D is still responsible to pay the full damage clause amount and
subsequent earnings of P do not free D from his duty to pay.

Apply test to this: (1) Parties intended to provide for damages b/c
wanted to ensure that employee would have incentive to work (2) Hard
for court (and parties) to estimate actual harm to employee – such as
harm to reputation, difficulty in finding new employment, etc. (3) Yes
they are reasonable b/c it is simply his salary he would have gotten had
there been no breach.
Sub-question 4: Alternatives to Monetary Damages: Specific Performance
**Courts are reluctant to enforce specific performance and only do so when there is
a strong subjective value component (such as in “unique goods” – why in Property
specific performance is allowed).
Note: Katz thinks not really good evidence that SP is generally inefficient, given the
fact that Coase means people who want it more will get it. BUT this assumes
limited transaction costs, which we don’t have, so we do need to think carefully
through who should get this right in the first place.
Possibility 1: Contracts for Unique Goods
RULE: When would the court invoke specific performance for unique goods
rather than monetary damages:
(1) Where damages are difficult to ascertain
(2) Where substitute goods cannot be found without considerable expense, trouble,
loss, great delay, and inconvenience
UCC §2-716: Buyers’ Right to Specific Performance or Replevin
(1) Specific Performance may be ordered where the goods are unique OR in other
proper circumstances
(2) The judgment for specific performance may include such terms and conditions
as to payment of the price, damages, or other relief as the court may deem just.
(3) Specific performance is granted where owner is unable to cover for goods or it
is unlikely that he will be able to cover (E.g. B orders specific special car from A and
72
B either cannot find a substitute car for the same price or it appears unlikely that
he will be able to do so).
Case 1: Scholl v. Hartzell – p. 206

Facts: P entered into a contract for a car, gave deposit of $100. When P
called to tender rest of money, D breached and wanted to give him
deposit back, presumably because he realized this was a bad deal for him.

Holding: P hasn’t proved car is unable to be covered, or that it’s a unique
good. So, damages only, not specific performance.
Case 2: Sedmark v. Charlie’s Chevrolet – p. 208

Facts: Sedmarks claimed that they entered an oral contract with D to
purchase a limited edition Corvette for $15,000. A $500 deposit was
placed on the car and several changes were made according to P’s
request. When the car arrived, D informed Ps that they would have to bid
on the car since the demand had escalated. P sued requesting specific
performance based on oral agreement.

Holding: The court held that there was a oral agreement and granted
specific performance because the Ps had no adequate legal remedies
given that a substitute item could not be obtained without substantial cost
or delay.

Policy: The Car is not unique in a traditional sense but due to mileage,
ownership, and appearance, finding a replacement would be a hardship
on Ps. This ruling assures that the D could not take advantage of the P
just because they all of the sudden could potentially get more money for
the car (guarantees against an efficient breach).

Note: The Court’s ruling just gives Ps the upper hand in bargaining but
parties can Coasean bargain so the person that values it the most winds
up with it.
Possibility 2: Contracts for Services
Rule 1: Contracts for services will not be enforced through specific performance
(Mary Clark/Kidney club)
Rule 2: The court will not enforce specific performance BUT, to get around this,
they will enjoin a defendant from performing for others where contract was for
“exclusive performance.” (Lumley)

Policy 1: One has an inalienable right not to be forced into servitude.
73

Policy 2: Government limits people’s ability to act on monentary
temptations for their long-term well being. [But paternalistic]

Policy 3: Enforcing specific performance is not efficient – you can make
people perform BUT not well.

Policy 4: Our Constitution voids indentured servitude of “Negro or
Mulato.”
Case 1: The Case of Mary Clark, A woman of Colour

Facts: Clark entered into an agreement with Johnson whereby she
voluntarily agreed to render services as a house servant for 20 years.
Johnson wanted SP. Clark tried to get out of agreement and claims she
was “illegally indentured” by Johnston.

Holding: The court may not order specific performance of a contract for
personal services. To do so would be to enslave the performer.
Case 2: Kidney Club HYPO

Facts: A is part of a kidney club that supplies one with kidneys in the
case that yours fails. The consideration for entering into this club is entry
into a raffle whereby if your number is picked you have to donate your
kidney.

Holding: Court would claim that one cannot be forced to specifically
perform the donation of one’s body part. One cannot physically take a
kidney out of one’s body.

How to contract around: Entry into the club costs $1 million BUT you
get $1 million back by participating in and abiding by the rules of the
raffle. Thus someone who did not willingly participate would effectively be
penalized $1 million.
Case 3: Dallas Cowboys v. Harris: p. 232

Facts: D Harris was signed in June 1958 to play for the Los Angeles
Rams, and his contract included an option for Club to renew the contract
for similar terms. Harris, while still under options clause, signed a
contract to play for Dallas Texans Football Club. Cowboys, who had
bought option from Rams, sued not for SP but for injunction.

Holding: Injunction can only be granted in a personal service contract if
employee is of exceptional and unique knowledge, skill, and ability.
Uniqueness is defined here as “The same service could not easily be
74
obtained from others.” Court ordered new trial to see if D satisfied these
qualities.
Case 4: Lumley v. Wagner:

Facts: Wagner entered into a contract with Lumley to provide opera
singing services subsequently Wagner wanted to get out of the contract
and perform for another theatre. Based on the contract between P and D
that Wagner would not perform in any theatre for the period of the
contract, P sought order prohibiting D from singing in any other theatre.
Holding: While the court won’t demand specific performance, they will grant a
negative injunction restraining the party from performing for any other employer
during the contract period
If breach is of consideration, then breach of entire contract
If breach is of a condition precedent:
If material and therefore non-waivable w/o consideration, then modification
without consideration, then breach of K
If modification with consideration
Valid if modification is fair under the circumstances or justice
requires enforcement
Invalid if modification is not in good faith
If immaterial, then,
if waived, then continue contract (no damages)
if not waived, then
if substantial performance, then figure out difference, either
cost of completion for damages
diminution of value for damages
if perfect tender, then breach of K
A wants K, B doesn't.
So, A will argue that it's waived. B will argue that it was material and thus couldn't
be waived §84, Clark v. West. A will then argue that if it was material, then there
was consideration, Pre-existing Duty Rule, Stilk and Alaska Packers. B will argue
that there was not consideration, or that it was in bad faith, UCC 2-209. Or, B will
argue that you don't need consideration at all, UCC 2-209.
75