Contracts Outline 2009
Professor Katz
PART II: MUTUAL ASSENT
CHAPTER 4: REACHING AN AGREEMENT .................................................................4
A. THE OBJECTIVE THEORY OF ASSENT ........................................................................ 4
EMBRY V. HARGADINE, MCKITTRICK CO. – (ST. LOUIS CT. APP. 1907) PG 290 ........... 4
LUCY V. ZEHMER – (VA. 1954) PG 296 ......................................................................... 4
B. WHAT IS AN OFFER?.................................................................................................... 4
1. PRELIMINARY NEGOTIATIONS ................................................................................... 5
NEBRASKA SEED CO. V. HARSH – (NEB. 1915) PG 305 ................................................. 5
LEONARD V. PEPSICO – (S.D.N.Y. 1999) PG 308 AND 356 ............................................ 5
C. WHAT IS AN ACCEPTANCE? ........................................................................................ 7
1. ACCEPTANCE THAT VARIES TERMS – THE MIRROR IMAGE RULE ............................. 7
ARDENTE V. HORAN – (R.I. 1976) PG 336 ..................................................................... 7
3. ACCEPTANCE BY PERFORMANCE OR “UNILATERAL” CONTRACTS? .......................... 7
PETTERSON V. PATTBERG – (N.Y. 1928) PG 362 ........................................................... 7
CHAPTER 5: DISCERNING THE AGREEMENT ............................................................8
A. INTERPRETING THE MEANING OF THE TERMS ........................................................... 8
1. AMBIGUOUS TERMS .................................................................................................. 8
RAFFLES V. WICHELHAUS – (ENGLAND 1864) PG 396 .................................................. 8
2. VAGUE TERMS .......................................................................................................... 9
FRIGALIMENT IMP. CO. V. B.N.S. INT’L SALES CORP., – (S.D.N.Y. 1960) PG 415 ........ 9
B. FILLING GAPS IN THE TERMS...................................................................................... 9
1. AGREEMENTS TO AGREE ........................................................................................... 9
SUN PRINTING & PUB. ASSN. V. REMINGTON PAPER – (N.Y. 1923) PG 422 .................. 9
C. IDENTIFYING THE TERMS OF THE AGREEMENT ....................................................... 10
1. FORM CONTRACTS OR “CONTRACTS OF ADHESION” ............................................... 10
STEP-SAVER DATA SYSTEMS V. WYSE TECH. – (3D CIR. 1991) PG 457 ...................... 10
CHAPTER 6: WRITTEN MANIFESTATIONS OF ASSENT ...........................................10
A. INTERPRETING A WRITING – THE PAROL EVIDENCE RULE .................................... 10
THOMPSON V. LIBBEY – (MINN. 1885) PG 488 ........................................................... 11
BROWN V. OLIVER – (KAN. 1927) PG 489 ................................................................... 11
PACIFIC GAS AND ELECTRIC CO. V. G.W. THOMAS – (CA. 1968) PG 494 ................... 12
TRIDENT CTR. V. CONN. GEN. LIFE INS. CO. – (9TH CIR. 1988) PG 497 ....................... 12
PART III: ENFORCEABILITY
CHAPTER 9: THE DOCTRINE OF CONSIDERATION .................................................12
A. HISTORICAL ORIGINS OF THE DOCTRINE ................................................................ 12
B. BARGAIN THEORY OF CONSIDERATION ................................................................... 13
1. DISTINGUISHING BARGAINS FROM GRATUITOUS PROMISES .................................... 13
JOHNSON V. OTTERBEIN UNIV. – (OHIO 1885) PG 620 ................................................ 13
HAMER V. SIDWAY – (N.Y. 1891) PG 622 ................................................................... 13
KIRKSEY V. KIRKSEY – (ALA. 1845) PG 629 ............................................................... 13
DAHL V. HEM PHARM. – (9TH CIR. 1993) PG 635 ......................................................... 13
3. MORAL CONSIDERATION ........................................................................................ 14
MILLS V. WYMAN – (MASS. 1825) PG 640 .................................................................. 14
WEBB V. MCGOWIN – (ALA. 1936) PG 649 ................................................................. 14
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C. CONTRACT MODIFICATION AND THE PREEXISTING DUTY RULE............................ 15
STILK V. MYRICK – (CT. C.P. 1809) PG 656 ................................................................ 15
ALASKA PACKERS’ ASS’N V. DOMENICO – (9TH CIR. 1902) PG 658............................. 15
CHAPTER 11: THE DOCTRINE OF PROMISSORY ESTOPPEL ...................................16
B. PROMISSORY ESTOPPEL AS AN ALTERNATIVE TO BREACH OF CONTRACT ............ 16
5. CONSTRUCTION BIDS .............................................................................................. 16
GOODMAN V. DICKER - (CT. OF AP. OF D.C. 1948) PG 751 ......................................... 16
HOFFMAN V. RED OWL STORES, INC. - (WIS. 1965) PG 753 ........................................ 16
C. ESTABLISHING THE “ELEMENTS” OF PROMISSORY ESTOPPEL ............................... 17
3. INJUSTICE OF NONENFORCEMENT ........................................................................... 17
COHEN V. COWLES MEDIA CO. – (MINN. 1990/U.S. 1991/MINN. 1992) PG 796 ......... 17
PART IV: PERFORMANCE AND BREACH
CHAPTER 12: PERFORMANCE .................................................................................17
A. THE IMPLIED DUTY OF GOOD FAITH PERFORMANCE ............................................. 17
GOLDBERG 186-05 CORP. V. LEVY – (N.Y. SUP. CT. 1938) PG 817 ............................ 17
CHAPTER 13: CONDITIONS ......................................................................................18
B. WHAT EVENTS ARE CONDITIONS? ........................................................................... 18
2. IS THE EVENT A CONDITION, A PROMISE OR NEITHER? ........................................... 18
CHIRICHELLA V. ERWIN – (CT. OF APP. OF MD. 1973) PG 866 .................................... 18
C. AVOIDING CONDITIONS............................................................................................. 18
1. WAIVER AND ESTOPPEL .......................................................................................... 18
CLARK V. WEST – (N.Y. 1908) PG 869 ....................................................................... 18
CHAPTER 14: BREACH .............................................................................................19
A. CONSTRUCTIVE CONDITIONS ................................................................................... 19
KINGSTON V. PRESTON – (ENGLAND 1773) PG 880 ..................................................... 19
JACOB & YOUNGS V. KENT – (N.Y. 1921) PG 883 ...................................................... 19
B. PROSPECTIVE NONPERFORMANCE ........................................................................... 20
1. ANTICIPATORY REPUDIATION ................................................................................. 20
HOCHSTER V. DE LA TOUR – (ENGLAND 1853) PG 892 .............................................. 20
3. MATERIAL BREACH ................................................................................................ 20
B&B EQUIP. CO. V. BOWEN – (W.D. MISS. 1979) PG 907 .......................................... 21
4. THE PERFECT TENDER RULE: CURE AND RESCISSION ............................................. 21
RAMIREZ V. AUTOSPORT – (N.J. 1982) PG 919 ........................................................... 21
C. COST OF COMPLETION V. DIMINUTION IN VALUE: REVISITING EXPECTATION ..... 23
GROVES V. JOHN WUNDER CO. – (MINN. 1939) PG 929 .............................................. 23
PEEVYHOUSE V. GARLAND COAL MINING CO. – (OKLA. 1962) PG 934 ...................... 23
PART V: DEFENSES TO CONTRACTUAL OBLIGATION
CHAPTER 16: OBTAINING ASSENT BY IMPROPER MEANS .....................................23
A. MISREPRESENTATION ............................................................................................... 23
VOKES V. ARTHUR MURRAY, INC. - (APP. CT. FL. 1968) PG 991 ................................ 23
B. DURESS ...................................................................................................................... 25
HACKLEY V. HEADLEY – (MICH. 1881) PG 1000......................................................... 25
D. UNCONSCIONABILITY ................................................................................................ 25
WILLIAMS V. WALKER-THOMAS FURNITURE CO. – (D.C.C. 1965) PG 1024 ............... 25
CHAPTER 17: FAILURE OF A BASIC ASSUMPTION ..................................................26
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A. MISTAKES OF PRESENT EXISTING FACTS................................................................ 26
1. MUTUAL MISTAKE .................................................................................................. 26
SHERWOOD V. WALKER – (MICH. 1887) PG 1051 ....................................................... 26
2. UNILATERAL MISTAKE AND THE DUTY TO DISCLOSE ............................................. 27
TYRA V. CHENEY – (MINN. 1915) PG 1074 ................................................................. 27
B. CHANGED CIRCUMSTANCES ..................................................................................... 27
1. IMPOSSIBILITY AND IMPRACTICABILITY .................................................................. 27
PARADINE V. JANE – (ENGLAND 1647) PG 1083.......................................................... 27
2. FRUSTRATION OF PURPOSE ..................................................................................... 28
KRELL V. HENRY – (ENGLAND 1903) PG 1099 ............................................................ 28
PART IV: ENFORCING PRIVATE AGREEMENTS
CHAPTER 2: DAMAGES FOR BREACH OF CONTRACT .............................................28
B. THREE DAMAGE INTERESTS ..................................................................................... 28
HAWKINS V. MCGEE – (N.H. 1929) PG 63 .................................................................. 28
SULLIVAN V. O’CONNOR– (MASS. 1973) PG72 ........................................................... 29
J.O. HOOKER & SONS V. ROBERTS CABINET CO. – (MISS. 1996) PG 78 ...................... 29
TONGISH V. THOMAS – (KAN. 1992) PG 86 ................................................................. 30
C. THREE LIMITATIONS ON DAMAGES ......................................................................... 31
1. 1STLIMITATION ON DAMAGES – REMOTENESS OR FORESEEABILITY OF HARM ........ 31
HADLEY V. BAXENDALE – (ENGLAND 1854) PG 93..................................................... 31
MARTINEZ AND CO. V. S. PAC. TRANSP. CO. – (5TH CIR. 1979) PG 104 ....................... 31
MORROW V. FIRST NAT’L BANK OF HOT SPRINGS – (ARK. 1977) PG 109 ................... 32
2. 2ND LIMITATION ON DAMAGES – CERTAINTY OF HARM ......................................... 32
CHICAGO COLISEUM CLUB V. DEMPSEY – (ILL. APP. CT. 1932) PG 112 ..................... 32
ANGLIA TELEVISION LTD. V. REED – (ENGLAND 1971) PG 125 .................................. 32
3. 3RD LIMITATION ON DAMAGES – AVOIDABILITY OF HARM ..................................... 33
ROCKINGHAM COUNTY V. LUTEN BRIDGE CO. – (4TH CIR. 1929) PG 131 .................... 33
SHIRLEY MACLAINE PARKER V. 20TH CENTURY-FOX FILM CORP. – (CA. 1970) ......... 33
NERI V. RETAIL MARINE CORP. – (N.Y. 1972) PG 154 ................................................ 33
D. CONTRACTING AROUND THE DEFAULT RULE OF DAMAGES................................... 34
1. EXPRESS LIMITATIONS ON CONSEQUENTIAL AND INCIDENTAL DAMAGES .............. 34
2. LIQUIDATED DAMAGES VS. PENALTY CLAUSES ..................................................... 34
WASSENAAR V. TOWNE HOTEL – (WIS. 1983) PG165 ................................................. 34
CHAPTER 3: OTHER REMEDIES AND CAUSES OF ACTION ......................................35
A. SPECIFIC PERFORMANCE AND INJUNCTIONS ........................................................... 35
2. CONTRACTS FOR GOODS ......................................................................................... 35
SCHOLL V. HARTZELL – (C.C.PA. 1981) PG 206 ......................................................... 35
SEDMAK V. CHARLIE’S CHEVROLET, INC. – (E.D. MO. 1981) PG 208 ......................... 35
3. CONTRACTS FOR PERSONAL SERVICES ................................................................... 36
THE CASE OF MARY CLARK, A WOMAN OF COLOUR – (IND. 1821) PG 212 ................ 36
DALLAS COWBOYS FOOTBALL CLUB V. HARRIS – (TEX. CIV. APP.1961) PG 232 ....... 36
B. RESTITUTION – DAMAGE INTEREST AND CAUSE OF ACTION .................................. 36
1. RESTITUTION FOR BREACH OF CONTRACT .............................................................. 36
BUSH V. CANFIELD – (SUPREME COURT OF ERRORS 1818) PG 250 ............................. 36
2. RESTITUTION TO THE PARTY IN BREACH................................................................. 37
BRITTON V. TURNER – (SUP. CT. OF NH 1834) PG 183 ............................................... 37
3. RESTITUTION AND “QUASI-CONTRACT” ................................................................. 37
COTNAM V. WISDOM – (ARK. 1907) PG 265 ............................................................... 37
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PART 2 – MUTUAL ASSENT
Chapter 4: Reaching an Agreement
A. The Objective Theory of Assent

The formation of a contract requires two basic elements:
o 1. The mutual assent of the parties
o 2. Some showing that this assent is the kind that the law will enforce
Embry v. Hargadine, McKittrick Co. – (St. Louis Ct. App. 1907) pg 290
Facts: E was an employee of M. E had a contract with M. E alleges that 8 days before this contract
expired, he confronted M to inquire if it would be renewed for one year, and M said “Go ahead, you are
all right…” E was terminated. M states he didn’t say this, nor did he intend to renew.
Holding: Subjective intent doesn’t always determine outcome; contract formation is based on objective
intent – in this case, the parties’ actions/words reasonably indicated renewal of contract. RS§17,18,19
Lucy v. Zehmer – (Va. 1954) pg 296
Facts: Lucy offered 50k to purchase farm over drinks. Zehmer thought he was joking so he went along
and wrote out a memo and signed it along with his wife. Lucy picked up the memo, put it in his pocket
and offered $5 to bind the bargain, at which point Zehmer realized he was serious and refused. Lucy left
insisting that he had purchased the farm. RS§17,18,19
Holding: A contract is valid if a party expresses objective intent that a reasonable person would believe
(objection intent/actions > subjective intent). Courts will balance the facts/context of each situation.
Restatement (Second) §17– Requirement of a Bargain (pg 304)
1) The formation of a contract requires a bargain with manifestation of mutual assent to the exchange and
consideration, UNLESS
2) It is limited by special rules applicable to formal contracts or under rules stated under §§82-94
Comment c) Meeting of the minds: parties usually give actual and apparent assent, but just because
parties didn’t intend to assent (subjective intent) doesn’t mean the contract is not valid
Restatement (Second) §18– Manifestation of Mutual Assent (pg 304)
Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or
render a performance.
Restatement (Second) §19– Conduct as Manifestation of Assent (pg 304)
1) Manifestation of assent can be made by:
 Writing
 Oral agreement
 Actions
 Failure to Act
2) Conduct of a party is not considered manifestation of effective assent UNLESS they intend to engage
in the conduct and knows or has reason to know that the other party may infer assent from their conduct.
3) The conduct of a party may manifest assent even though they do not in fact assent. In such cases a
resulting contract may be void due to fraud, duress, mistake or other invalidating cause
B. What is an Offer?

An offer is the manifestation of willingness to enter a bargain so made as to justify another person
in believing that his assent to that bargain is invited and will seal the deal. (this is RS §24)
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1. Preliminary Negotiations
Nebraska Seed Co. v. Harsh – (Neb. 1915) pg 305
Facts: Harsh (D) sent grain samples to Nebraska Seed Co. (P) and included a letter which stated that he
had millet seed for sale at $2.25 per hundred-weight. Nebraska Seed immediately sent Harsh a telegram
agreeing to buy the seed. P also mailed a letter to D expressing interest in purchasing the seed. D refused
delivery and P sued seeking damages.
Holding: A mere proposal cannot count as an offer because it was only a preliminary request for bids
If this were an offer, D would be liable for all responses received from the ad! This isn’t logical.
Restatement Side
RS§24: this is not an offer because Nebraska Seed had reason to
know Harsh was simply advertising and not extending an offer.
RS§26: Ads are not an extension of a concrete offer. Nebraska
Seed needed to send an offer to Harsh before assent could occur.
RS§29: The ad was not specifically addressed to any party.
RS§33: Terms were not reasonably certain yet (price was approx.)
UCC Side
§2-206 – The order from Nebraska Seed is the offer, not
Harsh’s advertisement.
§2-204 – Just because terms are left open/uncertain does
NOT mean that there is no offer or acceptance.
§2-305 – Price was not certain because the amount to be
ordered or available for sale was not specified. However,
this does not prove that there was no contract.
Note: the UCC is a little more lax because it doesn’t require that all terms are specifically stated like the
Restatement does. Perhaps pragmatically day to day transactions do not lay out all terms but are valid!
Leonard v. Pepsico – (S.D.N.Y. 1999) pg 308 and 356
Facts: Leonard saw Pepsi Stuff commercial with various goods + Harrier jet depicted at the end for 7
million points. The jet was not in the catalog, but he submitted some points + enough money to equal 7
million points anyway. Pepsico rejected the submission, returned check and filed for declaratory relief.
Holding: An advertisement is not transformed into an enforceable offer merely by potential offerre’s
expression of willingness to accept the offer. This was obviously a joke and Leonard’s belief was a
fantasy/unreasonable; no reasonable person would have considered this to be an offer.
On the other hand: Kid offered full performance. Perhaps it doesn’t matter if it is a joke, because a
company makes promise to induce sales. (In the Carbolic Smoke Ball Case, defendant chose to make an
extravagant offer because it is obviously in their best financial interest to do so! It’s an offer.) Here, since
the commercial induced performance, it benefited Pepsico and maybe they shouldn’t have written off the
kid so quickly. One could argue that the offer became non-revocable the second someone started
performance. In fact, Katz would have considered it a toss-up between Pepsi and kid!
Restatement (Second) §22 – Mode of Assent: Offer and Acceptance (pg 316)
1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer from one party
+ an acceptance from the other party.
2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be
identified and even if the moment of formation cannot be determined.
Restatement (Second) §24 –Offer Defined (pg 316)
An offer is the manifestation of willingness to enter a bargain so made as to justify another person in
believing that his assent to that bargain is invited and will seal the deal.
Restatement (Second) §26 – Preliminary Negotiations (pg 316)
Manifestation or 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 for it to be a concrete offer yet.
Restatement (Second) §29 – To Whom an Offer is Addressed (pg 316)
1) Manifested intention of the offeror is addressed to a specific person or party who then has the power to
accept the offer
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2) An offer may create a power of acceptance in either a specific person or a specified group, class,
anyone or everyone who makes a specified promise or renders a specified performance
Restatement (Second) §33 – Certainty (pg 316)
1) Even if a manifestation of intent is supposed to be an offer, it cannot be accepted unless the terms of
the contract are reasonably certain
2) The terms of a contract a reasonably certain if they provide a basis for determining the existence of a
breach and provide an appropriate remedy
3) The fact that one or more terms of a proposed bargain are left open may show that a manifestation of
intention is not intended to be an offer or an acceptance
Uniform Commercial Code: (pg 317-319)
§2-204 – Formation in General
1) Contract for sale of goods may be made in any manner sufficient to show agreement including conduct
by both parties which recognizes the existence of a contract
2) An agreement sufficient to constitute a contract may be found even if the moment of its making is
undetermined
3) The fact that one or more terms of a proposed bargain are left open does not mean that a contract fails
for indefiniteness if the parties intended to make a contract and there is a reasonably certain basis for
giving an appropriate remedy  (in contrast to RS § 33-3)
§2-206– Offer and Acceptance in Formation of Contract
1) Unless otherwise indicated by the language or circumstances:
a) An offer to make a contract shall be construed as inviting acceptance in any manner and by any
medium reasonable in circumstances.
b) The order or other offer to buy goods for shipment is what invites acceptance either by a promise
to ship or by shipment itself; however, shipment of non-conforming goods does not constitute
acceptance if the seller notifies the buyer that the shipment is offered only as an accommodation
to the buyer.
2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is
not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance
§2-305– Open Price Term
1) Parties can conclude a contract for sale even without settling a price. In such case, the price is a
reasonable price at time of delivery if:
a) Nothing is said as to the price; or
b) The price is left to be agreed by the parties and they fail to agree; or
c) The price is to be fixed by some agreed market/standard and the standard is not recorded
2) A price to be fixed by the seller/buyer must be fixed in good faith
3) Where parties are to agree on a price and there is no agreement by fault of one party, the other party
may either treat the contract as cancelled or fix a reasonable price.
4) If the parties do not intend to be bound unless the price is fixed or agreed, they are not bound if the
price is not agreed. Parties must then return goods/payment (or, if goods cannot be returned, pay
reasonable price at time of delivery).
§2-308– Absence of Specified Place for Delivery
1) Unless otherwise agreed:
a) The place for delivery = seller’s business place or if none, their residence
b) If both parties know that the goods are in some other place, then that is where delivery happens
c) Documents of title may be delivered through customary banking channels
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C. What is an Acceptance?
1. Acceptance that Varies Terms – The Mirror Image Rule
 Mirror image rule: change of terms is not an acceptance, it is a counteroffer. An acceptance is
accepting the mirror image of the offer to sell.
Ardente v. Horan – (R.I. 1976) pg 336
Facts: Ardente (P) made a bid on property owned by Horan (D). Horan notified Ardente that the offer was
accepted and forwarded a formal written agreement. P signed the agreement and returned it with a check
and a request for confirmation of additional terms (that certain items of furniture would be included in the
transaction). D refused to sell with additional terms, did not sign the purchase and sales agreement.
Holding: P’s acceptance was conditional (counteroffer), and therefore it invalidated the seller’s original
offer and the buyer's potential to accept.
Note: An acceptance may not impose additional conditions on the offer, nor may it add limitations. An
acceptance, with different terms or limitation, is a counteroffer and requires acceptance by the original
offeror before a contractual relationship can exist. RS §61
Restatement (Second) §61 – Acceptance Which Requests Change of Terms (pg 338-39)
An acceptance which requests a change or addition to the terms of the offer is not thereby invalidated
unless the acceptance is made to depend on assent to the changed or added terms.
Comment a) An interpretation of acceptance must be unequivocal. If you include changes it doesn’t
necessarily void the acceptance as long as the offeror okays the modification.
3. Acceptance by Performance or “Unilateral” Contracts?
 Bilateral contracts are agreements that result from acceptance by a promise
 Unilateral contracts are those that result from acceptance by performance (this isn’t typical, but in
these cases, acceptance is only complete once the ENTIRE performance has been rendered!)
o This means the offeror can rescind before the completion of performance
o Although this seems unfair, we need to give both parties the freedom to back out
Petterson v. Pattberg – (N.Y. 1928) pg 362
Facts: Petterson owned some real estate in Brooklyn that he mortgaged to Pattberg. Pattberg offered to
sell the mortgage at a discount to Petterson if he made his next quarterly payment and then paid the
remainder of the mortgage by a certain date. Petterson made the quarterly payment, then came to make
the payment of the balance of the mortgage. At that time, Pattberg told Petterson that he sold mortgage.
Holding: The offer of the defendant was withdrawn before it became a binding promise (before
performance was complete) and therefore no contract was ever made for the breach.
Note: The offeror is the master of the offer and can revoke at any time prior to acceptance.
Restatement (Second) §54 – Acceptance by Performance; Necessity of Notifying Offeror (pg 356)
1) Where an offer invites an offeree to accept by performance, no notification is necessary to make
acceptance effective unless the offer requires notification
2) If an offeree accepting by performance has reason to know that the offeror has no adequate means of
learning of the performance, the contractual duty of the offeror is discharged unless
a) The offeree exercises reasonable diligence to notify the offeror of acceptance
b) The offeror learns of performance within a reasonable time; or
c) The offer indicates the notification of acceptance is not required
Restatement (Second) §30 – Form of Acceptance Invited (pg 362)
1) An offer may invite acceptance to be made by an affirmative answer in words or by performing or
refraining from performing a specified act or by enabling offeree to make a choice in terms of acceptance.
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2) Unless otherwise indicated by language or the circumstances an offer invites acceptance in any manner
and by any medium reasonable in the circumstances.
Restatement (Second) §32 – Invitation of Promise of Performance (pg 362)
In case of doubt, an offer is interpreted as inviting the offeree to accept either by promising to perform
what the offer requests or by rendering the performance as the offeree chooses.
Chapter 5: Discerning the Agreement
A. Interpreting the Meaning of the Terms
1. Ambiguous Terms
Raffles v. Wichelhaus – (England 1864) pg 396
Facts: R sold cotton to W. Misunderstanding in purchase. Two ships with the same name set to depart on
different dates. W expected goods earlier but they came on the later ship, so he refused delivery. P sued.
Holding: If there was ambiguity in the contract showing that there was no meeting of the minds, parties
have not both assented thus, no contract. (Distinguish from Lucy v. Embry – no asymmetry) RS §201(3)
Restatement (Second) §200 – Interpretation of Promise of Agreement (pg 408)
Interpretation of agreement = meaning.
Restatement (Second) §201 – Whose Meaning Prevails (pg 409)
1) Where parties attach the same meaning to a promise or agreement, that is how it is interpreted.
2) Where parties attach different meaning to a promise or agreement, it is interpreted in agreement with
the meaning of one of them when:
a) Party 1 didn’t know of any different meaning and party 2 did know of party 1’s meaning, party
1’s term wins, or
b) Party 1 had no reason to know of party 2’s meaning and party 2 did have reason to know of
party 1’s meaning, party 1’s term wins
3) Other than stated above, neither party is bound by the meaning attached by the other, even though this
may result in lack of mutual assent.
Restatement (Second) §202 – Rules in Aid of Interpretation (pg 409)
1) Words and other conduct are interpreted in light of all the circumstances, and if we can ascertain intent
of the parties, that is given great weight.
2) Writing interpreted as a whole, and all writings that are part of the same transaction will be interpreted
as a whole.
3) Unless a different intention is manifested
a) We will interpret according to the generally accepted meaning
b) If it is a technical term, we will interpret it in light of their field
4) Where an agreement involves repeated opportunities to know about the nature of and object regarding
performance, failure to object is given great weight.
5) Wherever reasonable, manifestations of intent of parties to an agreement are interpreted consistently
with each other and any relevant performance.
Uniform Commercial Code §1-205 – Course of Dealing and Usage of Trade (pg 410)
1) Course of dealing = sequence of previous conduct between parties to a particular transaction which
establishes a context to interpret terms
2) A usage of trade is any regular practice that is going to be interpreted in accordance with custom of that
trade. Just in case it was written differently, meaning will be decided by the court.
3) Vague terms in an agreement for customary trade will be interpreted in accordance w/customs of field.
4) Express terms will be followed whenever reasonable as consistent with each other, but whenever
unreasonable, it is interpreted according to the customs of field.
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5) The customs of the place where performance (partial or complete) occurs should be used to interpret
terms relevant to that performance.
6) Reasonable notice of customary practice must be given from one party to the other in order for
evidence of custom to be admissible.
Uniform Commercial Code §2-208 – Course of Performance or Practical Construction (pg 410)
1) Where the contract involves repeat performance, any course of performance accepted and not objected
to will be used to interpret relevant meaning of agreement.
2) Whenever 1) express terms 2) performance, and 3) customary practice can’t be reconciled to interpret
terms, they will be considered in hierarchy (1>2>3) to determine terms.
2. Vague Terms
Frigaliment Imp. Co. v. B.N.S. Int’l Sales Corp., – (S.D.N.Y. 1960) pg 415
Facts: F entered into two agreements with ISC buy “chicken.” ISC acquired chicken and sent them to F.
F sues because he said ISC should have sent young chicken, not stewing chicken/fowl. ISC argues that F
didn’t specify type of chicken. Should narrow or broad interpretation of chicken be used?
Holding: A party who seeks to interpret a term narrowly has the burden of proof to establish that the use
of “chicken” meant young ones.
B. Filling Gaps in the Terms



Interpreting terms: expressly manifested between the parties
Filling gaps = supplying terms: when contracts are silent on a particular issue
o Implied-in-fact: terms the party implicitly agreed to
o Implied-in-law: terms imposed on the parties w/out their consent
Two types of judicially supplied gap-fillers:
o 1. Default rules: legal rules that the parties can avoid or vary by means of an express
clause that differs from the term a court will otherwise supply by default
o 2. Immutable rules: may not be varied by consent and will override any express clause to
the contrary
1. Agreements to Agree
Sun Printing & Pub. Assn. v. Remington Paper – (N.Y. 1923) pg 422
Facts: Sun entered into a contract with R to buy paper for 4 months at a fixed price. At the end of the 4month period, the parties would renegotiate term and price (not to exceed Canadian Export Paper Co.).
Sun tried to renegotiate the price and term with R, but R said contact was imperfect and disclaimed future
obligation. Sun demanded paper monthly for one year (at the Canadian Export Rate) but D never
complied.
Holding: Contract will deemed invalid due to incompleteness if the gap is too broad. If the only uncertain
term was price, they may have filled the gap, but price and term was too broad.
Note: Katz thinks they probably could have filled this b/c parties intended to fill at a later date, agreeing
with the dissent. RS §34. Katz mentioned Step-Saver rejects Sun Printing Case.
Restatement (Second) §34 – Certainty and Choice of Terms (pg 427)
1) Terms of contract may be reasonable certain even when there is an option to make a choice later on.
2) Part performance under an agreement may remove uncertainty and establish that an enforceable
contract has been formed.
3) Action in reliance on an agreement may make a contractual remedy appropriate even though
uncertainty is not removed.
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Restatement (Second) §204 – Supplying an Omitted Essential Term (pg 428)
When a term that is essential to the determination of the parties’ rights and duties in a contract, a term
which is reasonable in the circumstances is supplied by the court.
Uniform Commercial Code §2-306 – Output, Requirements and Exclusive (pg 444)
1) When quantity is open-ended and depends on either the seller’s output or buyer’s requirements, the
amount is accepted provided measure was based on good faith. Except when it is unreasonably
disproportionate to a prior reasonable or comparable amount, in which case you may have to pay the
difference if they demand it.
2) If you agreement to a contract for exclusive dealing in the kind of goods, you must use your best
efforts to supply the goods as seller or promote those goods as buyer.
C. Identifying the Terms of the Agreement
1. Form Contracts or “Contracts of Adhesion”
Step-Saver Data Systems v. Wyse Tech. – (3d Cir. 1991) pg 457
Facts: SS, offeror, purchased computer programs from W and TSL. SS sold 142 systems w/ TSL
programs, but soon after customers began to complain about a glitch. SS tried to work with TSL to fix
glitch, but it couldn’t be resolved. SS’s customers sued SS; SS sues TSL.
Holding: Box top license was not a complete and final expression of warranty. 1) Contract was definite
enough to be enforceable w/out warranty. 2) Court looks to determine if the additional terms were
conditional by using UCC §2-207. Court concludes terms were NOT conditional b/c offeror didn’t
demonstrate unwillingness to proceed unless term was accepted (SS refused to sign warranty twice).
Note: UCC and RS treat these cases differently. UCC is more comfortable allowing courts to fill
contractual gaps whereas restatements are stricter (see Sun Printing).
Difference between Step-Saver and Ardente is that in this case they continued with contract after
additional terms were sent.
Uniform Commercial Code §2-207 – Additional Terms in Acceptance or Confirmation (pg 467)
1) A definite and seasonable expression of an acceptance or a written confirmation which is sent within a
reasonable time operates as an acceptance even though it states additional terms unless it is clearly made
conditional on these new terms.
2) The additional terms are to be construed as proposals for additions to the contract. Between merchants
such terms become part of the contract unless:
a) the offer expressly limits the acceptance to the terms of the offer
b) they materially alter it; or
c) notification of objection to them has already been given or is given within a reasonable time
after notice of them is received.
3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract
for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of
the particular contract consist of those terms on which the writings of the parties agree, together with any
supplementary terms incorporated under any other provisions of this act.
Chapter 6: Written Manifestations of Assent
A. Interpreting a Writing – The Parol Evidence Rule
Parol Evidence: Relevant evidence NOT stated in the present contract.
Parol Evidence Rule: Old rule stating that parol evidence is NOT admissible to determine terms of the
contract. Note: There are MANY exceptions to the PER. (Brown, Pacific Gas, etc.)
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Reasons to Include Parol Evidence
 No good reason for exclusion,
juries can sort through and
balance evidence, but it is
always best to have the most
information possible before
making a decision.
 Brown v. Oliver
 Pacific Gas
Reasons to Exclude Parol Evidence
 If you have a complete written contract, no reason for
keeping it out.
 If you have a partial contract, maybe it should be allowed,
but if you took the trouble to put some of it in writing, why
wouldn’t you just write it all down
 Assumption that there was meeting of the minds in the
agreement, doesn’t matter what else
 Written instruments are more precise.
 Thompson v. Libby
Thompson v. Libbey – (Minn. 1885) pg 488
Facts: T sold logs to L by written contract. T brought action because L didn’t pay, L said that there was a
verbal warranty for quality of the logs and these logs aren’t good, so he doesn’t have to accept them.
Holding: Parol evidence can’t be used to determine if agreement is integrated. Parol evidence is
inadmissible to contradict terms of a valid integrated contract. Justification for not allowing parol
evidence is that parol evidence seems much more unreliable than written contracts b/c it is going against
other people’s memories. RS §210
Note: Katz says that the court’s reasoning is flawed b/c not all parol evidence is unreliable. These
objections are still present, and strict rejection of parol evidence is outdated law.
Brown v. Oliver – (Kan. 1927) pg 489
(We use parol evidence to determine whether the contract is an integrated agreement)
Facts: B entered into contract to buy hotel from O. Original owners came back as tenants of the hotel.
Then original owners/new tenants left with the furniture. There was plenty of oral evidence that contract
should include furniture, but it didn’t appear in the written contract. B sued for replevin.
Holding: Writing did not establish conclusively whether contract was integrated (complete). Even if
question is addressed by writing and it is clear, we still look at extrinsic evidence to determine if there is
an integrated agreement or not. Parol evidence is only admissible if agreement is not integrated.
Note: Key distinction between this and Thompson is that Thompson court only wants to consider the
writing itself to determine if the contracts is integrated (stricter standard). RS §210, 214
Restatement (Second) of Contracts (pg 492)
§209 Integrated Agreements
1) An integrated agreement in writing is final.
2) Court determines whether an agreement is integrated as a preliminary question. Settle the dispute
between whether we can look at parol evidence to establish whether something is an integrated agreement
or not.
3) Where the agreement is in writing and appears to be complete, it is deemed to be integrated unless
other evidence is introduced to indicating it is not integrated.
§210 Completely and Partially Integrated Agreements
1) Completely integrated: complete and exclusive statement of terms of the agreement
2) Partially integrated: anything OTHER THAN completely integrated
3) Question is to be determined by the court preliminary to interpretation of parol evidence rule.
§213 Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)
1) A binding, integrated agreement discharges prior negotiations/agreements that are inconsistent with the
integrated agreement
2) A binding, integrated agreement discharges prior agreements that are within the scope of current
integrated agreement.
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3) If an integrated agreement is NOT binding or is voidable, prior agreements are not discharged. If
integrated agreement is invalidated, parole evidence maybe effective or it may be rendered inoperative to
determine the meaning of the contract.
§214 Evidence of Prior or Contemporaneous Agreements and Negotiations
Agreements and negotiations prior to or contemporaneous with the adopting of a written agreement are
admissible as evidence to establish:
a) that the writing is or is not an integrated agreement (Brown v. Oliver)
b) that the integrated agreement, if any, is completely or partially integrated
c) the meaning of the writing, whether or not integrated  big qualification, perhaps a LOOPHOLE
to the parol evidence rule…the example given in class is the term, “a baker’s dozen”
d) avoid restrictions placed on evidence by the parol evidence rule in order to take a look at factors
such as illegality, fraud, mistake, lack of consideration or other factors that invalidate cause
e) similar idea as (d) except grounds for granting or denying recession, reformation, specific
performance or other remedy
Uniform Commercial Code §2-202 – Final Written Expression: Parol Evidence (pg 493)
Integrated agreements may not be contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement, but may be explained or supplemented:
a) by course of dealing or usage of trade or by course of performance
b) b) by evidence of consistent additional terms unless the court finds that it was a completely
integrated agreement.
Pacific Gas and Electric Co. v. G.W. Thomas – (Ca. 1968) pg 494
Facts: P entered a contract with GW to fix P’s steam turbine. Provision in the contract indemnified G.W
for all injury to property arising or connected to performance of contract. Something fell during
performance and damaged rotor of steam turbine. P sued G.W. for damages to property. G.W. argues that
clause only covered third parties, not P’s property.
Holding: Court can admit parol evidence to determine if a term could have another alternative reasonable
meaning. RS §214(c). Parole evidence is admitted b/c it could show which interpretation applies in K.
Note: Danger here is that it could be taken too far and used to challenge terms of integrated agreements.
Trident Ctr. v. Conn. Gen. Life Ins. Co. – (9th Cir. 1988) pg 497
Facts: T borrowed money from C to create a building. Parties spent much time on a lengthy, detailed, and
unambiguous contract. Contract prohibits T from paying off principle balance for 12 years, unless they
default, and then it is up to C to decide. Interest rates dropped, so T is stuck with a bad rate, unable to
refinance. T sues for declaratory judgment arguing that the contract was ambiguous and even if it wasn’t,
they are entitled to submit parole evidence under CA law.
Holding: Under Ca law, parole evidence must be admitted, but this is dumb b/c it may lead to confusion
and frivolous litigation such as this. Sanctions must also be reversed. They had to apply Pacific Gas – if
there is any tension between parties regarding the meaning of a term, court must consider parol evidence.
Note: Real justification for parol evidence is similar to liquidated damages clause; it allows parties to
replace an accurate system with a less accurate system b/c it is cheaper and they agree.
Chapter 9: The Doctrine of Consideration
A. Historical Origins of the Doctrine

To constitute consideration, a performance or return promise must be bargained for
o A promise is bargained for if it is sought by the promisor in exchange for his promise and
is given by the promisee in exchange for that promise
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B. Bargain Theory of Consideration

Doctrine of consideration arose because we have a sense that not all promises deserve legal
enforcement. For example, we don’t want the law to step in re: to gifts (public policy)
1. Distinguishing Bargains from Gratuitous Promises
 Note about these cases: perhaps the root of the issue is that these cases involve INTANGIBLE
benefits and tangible benefits are necessary + what the giving party receives in return seems too
small or unbalanced in comparison to what (or the amount that) is being given
 How necessary is it to have the law when it comes to enforcing contracts versus enforcing gifts?
o Why is it in one context that the law is crucial and on the other hand it’s almost
completely dispensable?
 The performance of contracts is motivated by something different than the giving
of gifts! Donors probably don’t need the law to still follow through.
 Actually, this point is probably pretty enlightening in actually discerning whether
something is a gift or a contract…
 We could also look at the benefit that someone derives as a reason for making a
contract and also the cause of them making that contract to begin with
Johnson v. Otterbein Univ. – (Ohio 1885) pg 620
Facts: Note written by Johnson to pay Otterbein University $100/year, the allotted time passed and
payment was not made.
Holding: If an item is given without consideration, it cannot be enforced as a contract. A promise to pay
money as a gift and therefore be revoked at any time prior to payment. RS § 24, 71
Hamer v. Sidway – (N.Y. 1891) pg 622
Facts: Uncle promised nephew $5k if he didn’t drink/smoke/gamble before age of 21. Nephew did as he
was told and wrote his Uncle to collect. Uncle wrote back affirming, but died before giving money.
(note: Nephew sold promise of $5k to wife, Hamer, who then sued the executor of Uncle, Sidway.)
Holding: Court found that it does not matter what the consideration is, or what it is worth to whom, it just
matters that one person gives something up in exchange for something else. Nephew gave something up.
RS § 71, 81
Kirksey v. Kirksey – (Ala. 1845) pg 629
Facts: Kirksey was a widow who was living in a leased property. Her brother-in-law wrote her a letter
telling her to give up the lease and move to a house on his land, which she did. After two years, he told
her to move out. She sued. She argued that she had given up a lease to move into the new property, so
she was in worse shape now than she would have been if the brother-in-law had not made the offer.
Therefore she had a reliance interest. RS § 71
Holding: Promise on part of brother-in-law was a mere gratuity because he gained no benefit. The Court
found that the fact that the widow did something (gave up her lease) can't be considered a consideration
because everyone must always do something to get a gift, even if it's just "holding out one's hand."
Dahl v. Hem Pharm. – (9th Cir. 1993) pg 635
Facts: Dahl participated in a medical test. Hem promised free meds in exchange for participation. Dahl
sued Hem for failure to give drugs.
Holding: A binding contract existed upon completion of tests because Hem gained something from trial
and Dahl endured hardship. RS § 71, 81
Restatement (Second) of Contracts (pg 636)
§24 Offer Defined
b) Comment: Proposal of Contingent Gift
A proposal of a gift is not an offer within the present definition; there must be an element of exchange.
Whether or not a proposal is a promise, it is not an offer unless it specifies a promise or performance by
Page 13 of 37 Vivian Ali
the offeree as the price or consideration to be given by him. It is not enough that there is a promise
performable on a certain contingency.
§71 Requirements of Exchange; Types of Exchange (pg 637)
1) To constitute consideration, a performance or a return promise must be bargained for.
2) There is exchange of a return promise for a promise
3) Performance may consist of:
a) An act other than a promise (performance/unilateral contract)
b) A forbearance (a promise not to do something)
c) Creation, modification, or destruction of a legal relation.
4) Performance or return promise may be given to the promisor or to some other person. It may be given
by promisee or by some other person.
§81 – Consideration as a Motive for Inducing Cause (pg 638)
1) The fact that what is bargained for does not of itself induce the making of a promise does not prevent it
from being consideration for the promise. (If you bargain for something that you didn’t really want…but
you still bargained for it! So this is good enough.)
2) The fact that the promise does not of itself induce a performance or return promise does not prevent the
performance or return promise from being consideration for the promise.
3. Moral Consideration
 The directness of the moral consideration given is what determines whether it is in fact sufficient
consideration or not. The benefit needs to be incurred by the person who agrees to reciprocate.
Mills v. Wyman – (Mass. 1825) pg 640
Facts: Wyman returned from a voyage at sea and fell sick among strangers. Mills (P) gave Levi Wyman
shelter and comfort until he died. After Levi’s death his father Wyman (D) wrote to Mills and told him he
would pay all of the expenses for the care of his son. Wyman later refused to pay and Mills sued.
Holding: Moral obligation is sufficient consideration in some cases, but not under these facts because the
son was an adult and therefore, the father’s promise had no legally binding force. RS § 86
Webb v. McGowin – (Ala. 1936) pg 649
Facts: Webb and McGowin worked at a mill. Webb was dropping a block of when he noticed McGowin
standing where the block would have fallen. Webb fell with the block in order to save McGowin’s life
and injured himself leaving him permanently disabled and incapable of performing work. McGowin
promised to pay Webb $15 every two weeks for the rest of Webb’s life. Webb received the payments
until McGowin died. Webb sued the McGowin’s executors when the payments stopped. RS § 86
Holding: When the promisee cares for, improves and preserves the property of the promisor, even without
a request to do so, it is sufficient consideration for the subsequent agreement to pay for the service
because of the material benefit received directly by the party. McGowin agreed to pay, this is a contract.
Note: Sup. Ct. denies certiorari because agrees with App. Ct’s finding that there is a difference between
supposed moral obligation and a situation where a clear benefit is given and received.
Restatement (Second) of Contracts §86 Promise For Benefit Received (pg 655)
1) A promise made recognizing a benefit previously received by promisor from promisee is binding
to the extent necessary to prevent injustice
2) Promise is not binding under subsection 1 if:
a) Promisee conferred the benefit as a gift or promisor has not been unjustly enriched (the
benefit received by the promisor must be direct)
b) The value is not disproportionate to the benefit.
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C. Contract Modification and the Preexisting Duty Rule



In case of contract modification: there is the weighing of TWO policies (they usually allow
contract modification although it may seem that they enable extortion)
o 1. If it is arrived at under impermissible pressure then it will create binding contracts.
o 2. At the same time, you want to extend tool that will allow people to make commitments
to the extortionist
Pre-existing duty rule: Duty that is owed as part of the original contract does not constitute
consideration for a modification
A special case under the preexisting duty rule that doesn’t involve contract modification is that of
settlements. Ex: driver and victim arriving at settlement (duty to pay compensation for tort that
you have committed or not if not).
Stilk v. Myrick – (Ct. C.P. 1809) pg 656
Facts: Stilk was to be paid 5£/ month during a voyage at sea. Two seamen deserted and the Captain
agreed that the wages of the two deserters would be divided equally among the remaining hands if the two
seamen could not be replaced at Gottenburgh. Myrick later refused to honor the agreement and Stilk sued.
Holding: A contract for services may not be modified without consideration. The seamen who remained
with the ship had the obligation to do all that they could for the entire voyage, which means that even if
there was a contract modification there was no additional consideration on top of the first contract. RS§89
Note: the Captain was sort of extending a gift/bonus if anything. Therefore, this is not consideration.
Alaska Packers’ Ass’n v. Domenico – (9th Cir. 1902) pg 658
Facts: Alaska Packers hired workers (including Domenico) from SF to go up to Alaska and work on
salmon fishing/canning. When they got up to Alaska, they refused to work unless they were promised
more money. Alaska Packers' manager at the job site was forced to accede to their demands and make a
new contract for higher wage. He explained to the workers that he had no authority to do this.
Holding: Consent to demands under circumstances was given without consideration because it is unfair to
coerce Alaska Packers’ to agree to new terms. Also no consideration because workers had already
contracted to render exact services. The fishermen had a preexisting duty to perform the work; they
couldn't negotiate a second, better deal to do the same work. RS§89
Note: (if conditions were found to be much worse than expected, modification may have been
appropriate/acceptable…accounted for in RS§89(a)
Restatement (Second) of Contracts §89 Modification of Executory Contract (pg 670)
A promise modifying a duty under a contract not fully performed on either side is binding:
a) If the modification is fair and equitable in view of circumstances not anticipated by the parties
when the contract was made
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
Uniform Commercial Code §2-209 – Modification, Rescission and Waiver (pg 670)
1) An agreement modifying a contract within this Article needs no consideration to be binding.
Comment: Purposes of Changes and New Matter
Modifications made must meet test of good faith as imposed by this act. Effective use of bad faith or
extortion to get modification without legitimate commercial reason constitutes a violation of the duty of
good faith. Good faith includes the observance of reasonable standards of fair dealing in trade such as
market shift. (if you look at the UCC + this comment, then it seems to be similar to the RS § 89)
However, the UCC does better job than common law because it builds in flexibility in understanding that
it is needed for commercial transactions. (ex: Although in the end the Captain may not want flexibility
because he can sue for damages if there is contract modification, he still needs the carrot of modification
at the time. )
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Chapter 11: The Doctrine of Promissory Estoppel
B. Promissory Estoppel as an Alternative to Breach of Contract
Rule for Promissory Estoppel: For a finding of promissory estoppel, the requirements are: a promise
which the promisor should reasonably expect to induce action or forbearance of a definite and substantial
character, that the promise did induce such action or forbearance, and whether injustice can be avoided
only by enforcement of the promise.
Hypo: Contractor in the process of trying to prepare his bid for the client calls up a ton of subcontractors
and asks them what they are willing to install things for and in light of the bids he prepares his offer, but
all the potential subcontractors drop out, is he stuck or does section 90 help him out?
Answer: Section 90 seems as though it would apply, but the Cohen case left unclear what constitutes a
grave injustice. For now, the term “as justice requires” in the restatement is simply a placeholder for a
more specific requirement. In this hypo, depending on the further facts, it may not be a grave injustice b/c
it isn’t a huge deal to have to find a new subcontractor.
Note: Section 90 (Promissory estoppel) was created to apply to the contractor/subcontractor relationship.
5. Construction Bids
Goodman v. Dicker - (Ct. of Ap. of D.C. 1948) pg 751
Facts: Goodman induced Dicker to apply for a dealer franchise to sell Goodman’s products. Through
correspondence, Goodman implied that the application had been approved and that Goodman could begin
making arrangements for the sale of products. Dicker made arrangements to sell radios. Goodman then
informed Dicker that franchise application would not be granted. RS (Torts) §526
Holding: If a party relies on the affirmative assurances of another to his detriment, he should be protected
by estopping the other party from claiming anything against the natural consequences of a promise. RS 90
Hoffman v. Red Owl Stores, Inc. - (Wis. 1965) pg 753
Facts: Goodman negotiated with Red Owl (RO) to open a franchise supermarket. During negotiations,
RO made Hoffman sell 1st grocery store and then his bakery, to meet the costs of opening the franchise.
RO also had Goodman buy the land where RO would build the building to lease to Goodman. When it
came time for the contract to be enforced, RO insisted that Goodman’s father in law’s contribution of 13k
be written over to them as a gift for the contract to go through, and RO refused, terminating negotiations.
Holding: Promissory estoppel applies b/c: 1) Goodman reasonably relied on RO’s promise to his
detriment and 2) injustice would result if relief weren’t granted. When promissory estoppel applies,
reliance damages are appropriate. RS 90 RS (Torts) §526
Restatement (Second) of Contracts
§90 Promise Reasonable Inducing Action or Forbearance (pg 762)
1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of
the promise or a third person and which does induce such action or forbearance is binding if injustice can
be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice
requires.
2) A charitable subscription or a marriage settlement is binding under subsection (1) without proof that
the promise induced action or performance.
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Restatement (Second) of Torts (1977)
§526 Conditions Under Which Misrepresentation is Fraudulent (pg 762)
A misrepresentation is fraudulent if the maker
a) knows or believes that the matter is not as he represents it to be,
b) does not have the confidence in the accuracy of his representation that he states or implies
c) knows that he does not have the basis for his representation that he states or implies
§530 Misrepresentation of Intention (pg 762)
1) A representation of the maker’s own intention to do or not to do a particular thing is fraudulent if he
does not have that intention
2) A representation of the intention of a third person is fraudulent under the conditions stated in §526
C. Establishing the “Elements” of Promissory Estoppel
3. Injustice of Nonenforcement
Cohen v. Cowles Media Co. – (Minn. 1990/U.S. 1991/Minn. 1992) pg 796
Cohen was a campaign associate in 1982 gubernatorial race. He gave court records regarding another
party’s candidate to newspapers. In exchange he received a promise of confidentiality. Newspaper
editors decided to identify Cohen. Cohen was fired and slammed in the press for participating in smear
tactics. Cohen sued for breach of contract, misrepresentation and promissory estoppel.
Holding (Mn 1990): Enforcement of promise under promissory estoppel would violate the defendant’s 1st
amendment rights. No grave injustice in not enforcing promise.
Holding (U.S. 1991): 1st amendment does NOT prohibit Cohen from recovering under promissory
estoppel.
Holding (MN 1992): Promisory estoppel is applicable. Resulted harm to Cohen requires a remedy to
avoid injustice, therefore defendants are liable. RS §90
PART 4 – Performance and Breach
Chapter 12: Performance
A. The Implied Duty of Good Faith Performance
Goldberg 186-05 Corp. v. Levy – (N.Y. Sup. Ct. 1938) pg 817
Facts: A rents property to Levy. Levy, with A’s permission, runs Crawford Clothes, Inc. in the premises.
The lease provides that Levy will pay a flat rent rate and then add on the difference between rent rate and
10% of gross profits. Lease also has a provision that if Levy’s gross profits are less than 101k, he has the
option to cancel the lease. A assigned the contract/sold lease to Goldberg Levy moved profits to another
location in order to assure that his profit was less than $101k, and then in 1937, cancelled the lease.
Goldberg sues for 25k in damages, and Levy files a motion to dismiss.
Holding: A good faith requirement exists in all contracts, even though there is no express provision. Levy
was expected to put forth reasonable efforts to profit. RS §205
Restatement (Second) of Contracts §205 –Duty of Good Faith and Fair Dealing (pg 830)
Every contract imposes upon each party a duty of good faith and fair dealing in its performance and
enforcement
Uniform Commercial Code §1-203 Obligation of Good Faith (pg 830)
Every contract or duty within this Act imposes an obligation of good faith in its performance or
enforcement.
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Uniform Commercial Code §2-203 Definitions and Index of Definitions (pg 830)
In this article “good faith” in the case of a merchant means honesty in fact and the observance of
reasonable standards of fair dealing in the trade
Chapter 13: Conditions
B. What Events Are Conditions?
• Sometimes a performance is due only if something happens or does not happen. Unless the condition is
satisfied, nonperformance is not a breach.
• Be careful not to blur the lines between a condition and a promise
1. Express condition: fact operating as a condition because parties said so in words/writing
2. Condition implied in fact: operate as a condition because the parties intended that it should
with the intent being reasonably inferable from conduct other than words
3. Constructive condition: operate as a condition because the court believes that the parties
would have intended it to operate as such if they had thought about it at all or if the court believes
by reason of the mores of the time justice requires that it should (implied by law)
• Condition precedent: burning of the house to the insurance company’s duty to pay up
• Condition subsequent: failure to bring suit within a year after the fire in order to recover
2. Is the Event a Condition, a Promise or Neither?
Chirichella v. Erwin – (Ct. of App. of Md. 1973) pg 866
Facts: Erwin, enters a contract to buy home from Chirichella. Contract states settlement will coincide with
completion of construction of C’s new home, around October. Settlement of C’s new home never
materialized and C refused to go through with sale to Erwin. Erwin sued C for specific performance.
Holding: Purchase of C’s new home was NOT a condition precedent to Erwin’s contract. Contract only
provided for a reasonable delay in settlement, but resulting delay was unreasonable. Specific
performance granted. (no RS)
Note: Interesting that specific performance applies – seems contradictory to dignitary interest to force Cs
out of their home.
C. Avoiding Conditions
1. Waiver and Estoppel
Clark v. West – (N.Y. 1908) pg 869
Facts: Clark, a writer, enters into a contract with West to write books. Contract states Clark will be paid 6
per page, unless he drinks, and then only 2 per page. Clark alleges that this was a condition precedent to
the contract and West waived that condition in subsequent conversations. West argues that it was not a
condition precedent; Clark abstaining from alcohol is the consideration for the extra four dollars per page.
Holding: This was a condition precedent. West had full knowledge of Clark’s non-observance, therefore
he waived the condition and cannot now insist upon enforcement of condition. A waiver is an intentional
relinquishment of a known right. (RS §84, § 229)
Restatement (Second) of Contracts §84 – Promise to Perform a Duty in Spite of Non-Occurrence of
a Condition (pg 871)
1) Except as stated in Subsection (2), a promise to perform all or part of a conditional duty under an
contract is binding even if the condition will not occur UNLESS…
a. Occurrence of the condition was a material part of the agreed exchange for the performance
of the duty and the promisee was under no duty that it occur or
b. Uncertainty of the occurrence of the condition was an element of the risk assumed by the
promisor
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2) If such a promise is made before the time for the occurrence of the condition has expired and the
condition is within the control of the promisee or beneficiary, the promisor can make his duty again
subject to the condition by notifying the promisee or beneficiary of his intention to do so if
c. The notification is received while there is still a reasonable time to cause the condition to
occur under the antecedent terms of an extension given by the promisor and
d. Reinstatement of the requirement of the condition is not unjust because of a material change
of position by the promisee or beneficiary and
e. The promise is not binding apart from the rule stated in Subsection (1)
Uniform Commercial Code §2-209 – Modification, Rescission and Waiver (pg 872)
1) An agreement modifying a contract within this Article needs no consideration to be binding (Same as
Alaska Packers).
2) A signed agreement which excludes modification or rescission except by a signed writing cannot be
otherwise modified or rescinded but except as between merchants such a requirement on a form supplied
by the merchants must be separately signed by the other party.
3) The requirements of the statute of frauds (contract dealing with property transfer/debts that needs to be
in writing) must be satisfied if the contract as modified is within its provisions.
4) Although an attempt at modification or rescission does not satisfy the requirements of subsection 2 or 3
it can operate as a waiver.
5) A party who has made a waiver can retract the waiver by reasonable notification, unless there
retraction would be unjust because of reliance on the waiver.
Restatement (Second) of Contracts §229 –Excuse of a Condition to Avoid Forfeiture (pg 878)
To the extent that the non-occurrence of a condition would cause disproportionate loss, a court may
excuse the non-occurrence of that condition unless it was a material part of the contract.
Chapter 14: Breach
A. Constructive Conditions

Courts fill gaps in agreements by adding a constructive condition. Constructive condition is
determined by looking at the parties’ intent in forming the contract.
Kingston v. Preston – (England 1773) pg 880
Facts: P entered a contract with D to serve as an apprentice for 1.25 years and that after that time, he
would give up his business and stock in trade at fair valuation to P and D’s nephew. P sues because D
doesn’t give him the business and stock D argues that P didn’t give sufficient security, so he couldn’t be
expected to perform. P argues for independent covenants; D argues that they are dependant – security
given was unreasonable to oblige D to give up livelihood.
Holding: Court decides security was intended as a condition precedent (D couldn’t be reasonably
expected to give up his livelihood for such small consideration). Covenants are dependant.
Note: Katz said court did not construe covenants as independent b/c they need to provide security to
sellers so they will have legal recourse is payment is refused.
Jacob & Youngs v. Kent – (N.Y. 1921) pg 883
Facts: J&Y built a country house for Kent. Kent specified Reading pipes, but J&Y accidentally installed
Cohoes pipes (of the same quality/value). Kent found out about incorrect piping one year after moving in
and demanded J&Y to replace pipes. They refused b/c cost was enormous. Kent refused to pay the
balance and J&Y sued. (RS Torts§348  see below Peevyhouse case)
Holding: Kent was entitled to recover the difference in the value of the house resulting from the use of a
different brand of pipe (if any), but other than that, he was required to pay the full amount of the contract.
Page 19 of 37 Vivian Ali

You can deal with non-compliant parties in two ways:
o 1. Substantial Performance (default rule)
 Other party is entitled to difference between perfect performance and substantial
performance (remedy is diminution of value)
o 2. Perfect Tender
 Insist on damages that would enable it to literally accomplish what the contract
was supposed to accomplish (remedy is cost of completion)
Substantial Performance
Waste, strategic conduct,
mitigation, unjust enrichment,
inefficiency
Perfect Tender
Freedom of contract: If someone wants to contract specifically for
something they really want, they should be allowed to. Even if it
might seem wasteful, it is his right to contract for it provided that the
other side is well informed and agrees + doctrine of waste is myth?
The natural compromise is to come up with default rules and then let the parties rearrange as they see fit
B. Prospective Nonperformance
1. Anticipatory Repudiation
Hochster v. De La Tour – (England 1853) pg 892
Facts: P was a courier who entered into an agreement with D to work for him in Europe. He was to begin
on June 1. On May 11, D changed his mind and told P that he wouldn't require P's services. D refused to
make any compensation. P filed suit against D on May 22.
Holding: An action for breach of contract can be brought before the time the performance in question was
supposed to occur.
PROS
CONS
Ex ante:
Contradiction/misunderstanding in terms
the plaintiff would want this rule to apply because it
allows him to cover/mitigate sooner
Unfair deprivation of opportunity to fix (change mind and
reenter contract)
Vagueness (what counts as repudiation?)
the defendant would want this rule to apply because it
allows him to cover, it gives plaintiff more opportunity
to mitigate which will lessen his damages and it also
allows him to revoke with official certainty
therefore, because both parties want this, it makes sense
to make anticipatory repudiation as a default rule
Advance damage calculation (difficult)
Hypothetical disability by non-breacher
Premature duty to mitigate (non-breaching party has to
mitigate even earlier then they would have originally)
Double payment (mitigation should decrease damages)
3. Material Breach
 Factors used to determine “material breach”
1. Extent to which injured party will obtain reasonably anticipated substantial benefit
2. Extent to which injured party will be adequately compensated for lack of complete performance
3. Extent to which party failing to perform has already partly performed or prepared to perform
4. Balancing hardship to the parties for failing to perform and terminating contract
5. Willful/negligent behavior of party failing to perform
6. Probability of breaching party will actually complete the contract anyway
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B&B Equip. Co. v. Bowen – (W.D. Miss. 1979) pg 907
Facts: B&B operated with three business partners. One business partner decided to leave, and the other
two found Bowen to replace him. B&B entered into a contract essentially making Bowen a 3rd partner,
allowing him to accumulate 100 shares of stock through his work for the company. Part of the contract
was that he had to devote his full attention to the company. At first Bowen performs and pays for some
of the 15k he owes for the 100 shares, but then starts to perform negligently. B&B fires him and will pay
back what he paid into the company, but refuses to give the 100 shares. Bowen claims that his breach
was not material, so it doesn’t repudiate the original contract.
Holding: Breach is material so B&B was allowed to withhold stock
4. The Perfect Tender Rule: Cure and Rescission
Ramirez v. Autosport – (N.J. 1982) pg 919
Facts: Ramirez contracts to buy a camper from Autosport salesman to use for summer travels. Ramirez
trades in his van as part of contract. The camper has to be ordered, so Ramirez waits for delivery, but
gave the van. When it is delivered, it has multiple defects, which Autosport tries, but fails to correct.
Holding: The UCC preserves the perfect tender rule to the extent of permitting a buyer to reject goods for
nonconformity. If a seller corrects the defect, then contract is not considered automatically terminated.
In this case, cancellation of contract is allowed and value of old van returned. (UCC § 2-602)
Uniform Commercial Code (pg 925)
§2-106 – Definitions
4) “Cancellation” occurs when either party puts an end to the contract for breach by the other and its
effect is the same as that of “termination” except that the cancelling party also retains any remedy for
breach of the whole contract of any unperformed balance.
§2-508 – Cure by Seller of Improper Tender or Delivery; Replacement
1) The seller may correct non-conformity of good as long as they reasonably notify the buyer of intent to
correct and if it’s done in a reasonable amount of time.
2) If buyer rejects good that the seller legitimately believes to be acceptable, the seller may have extra
time to substitute/correct as long as he notifies buyer.
§2-601 – Buyer’s Rights on Improper Delivery
If we are dealing w/installment contract and some or all of the goods do not conform, then the buyer can:
a) reject the whole; or
b) accept the whole; or
c) accept some and reject the rest.
§2-602 – Manner and Effect of Rightful Rejection
1) Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective
unless the buyer seasonably notifies the seller.
2) Subject to the provisions of the two following sections on rejected goods (§2-603, §2-604)
a) after rejection any exercise of ownership by the buyer with respect to any commercial unit is
wrongful as against the seller; and
b) if the buyer has before rejection taken physical possession of goods, he is under a duty after
rejection to hold them with reasonable care until seller has reasonable opportunity to remove; but
c) the buyer has no further obligations with regards to goods rightfully rejected.
§2-606 – What Constitutes Acceptance of Goods
1) Acceptance of goods occurs when the buyer
a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are
conforming or that he will take them in spite of their non-conformity; or
b) fails to make an effective rejection (§2-602(1)), but such acceptance does not occur until the
buyer has had a reasonable opportunity to inspect them; or
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c) does any act inconsistent with the seller’s ownership
2) Acceptance of a part of any commercial unit is acceptance of that entire unit.
§2-607 – Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance;
Notice of Claim or Litigation to Person Answerable Over
1) The buyer must pay the contract rate for any goods accepted.
2) Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with
knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the
reasonable assumption that the nonconformity would be seasonably cured but acceptance does not of
itself impair any other remedy provided by this article for non-conformity.
3) Where a tender has been accepted
a) the buyer must within a reasonable time after he discovers or should have discovered any
breach notify the seller of breach or be barred from any remedy; and
b) if the buyer is sued, he must so notify the seller within a reasonable time after he receives
notice of litigation or be barred from any remedy for liability established by the litigation.
4) The burden is on the buyer to establish any breach with respect to goods accepted.
5) If buyer does not follow subsections 3, 4, and 5, then they are holding the seller harmless.
§2-608 – Revocation of Acceptance in Whole or In Part
1) The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially
impairs its value to him if he has accepted it
a) on the reasonable assumption that its non-conformity would be cured
b) without discovery of such non-conformity if his acceptance was reasonably induced either by
the difficulty of discovery before acceptance or by the seller’s assurances.
2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should
discovered the ground for it and before buyer makes any substantial change in the condition of the goods.
3) A buyer who so revokes has the same rights as if he had rejected them.
§2-709 – Action for the Price
1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any
incidental damages under the next section, the price
a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable
time after the risk of their loss has passed to the buyer; and
b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at
a reasonable price or the circumstances reasonable indicate that such effort wouldn’t succeed.
2) Where the seller sues for the price he must hold for the buyer any goods which had been identified to
the contract and are still in his control except if resale becomes possible he may resell them at any time
prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer
and payment of judgment entitles him to any goods not resold.
3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a
payment due or has repudiated (§2-610), a seller who is held not entitled to the price under this section
shall nevertheless be awarded damages for non-acceptance under the preceding section.
§2-711 – Buyer’s Remedies in General; Buyer’s Security Interest in Rejected Goods
1) Where the seller fails to make delivery or repudiates the buyer or the buyer rightfully rejects or
justifiably revokes acceptance then with respect to any goods involved, the buyer may cancel and whether
or not he has done so may in addition to recovering:
a) “cover” and have damages under the next section as to all the goods affected whether or not
they have been identified to the contract; or
b) recover damages for non-delivery
2) Where the seller fails to deliver or repudiates, the buyer may also
a) if the goods have been identified recover them as provided in §2-502; or
b) in a proper case obtain specific performance or replevy the goods as provided in §2-716.
Page 22 of 37 Vivian Ali
3) On rightful rejection buy may recover any expenses reasonably incurred in their inspection, receipt,
transportation, care and custody and may hold such goods and resell them in like manner of seller.
C. Cost of Completion v. Diminution in Value: Revisiting Expectation
Groves v. John Wunder Co. – (Minn. 1939) pg 929
Facts: Groves owns land and enters a contract with JW to remove sand and gravel from his property. Part
of the contract states that once they remove it, they will use the excess in order to level and establish a
certain grade in the land. JW breaches by failing to level (he says improvement = 12k, cost to do = 60k)
Holding: Damages awarded is the cost of remedying the defect (expectation) because breach was willful
Courts tend to consider 3 major factors when deciding remedy:
1. Amount of the disproportion. The less the disproportion, the more willing they are to award cost
of completion. (Jacobs Young v. Kent and Peevyhouse v. Garland)
2. The extent to which the contract is subjective and personal vs. commercial. If the person cares
about the completion, as opposed to a business deal, they are more likely to award cost of
completion. (could be Jacobs Young v. Kent, but too disproportionate)
3. The willfulness of the breach. The more willful the breach, the more likely to award cost of
completion. (Groves v. John Wunder)
Peevyhouse v. Garland Coal Mining Co. – (Okla. 1962) pg 934
Facts: Garland (D) contracted for the right to strip mine coal on Peevyhouse’s (P) property. The contract
provided that Garland would perform restoration work on the property at the end of the lease period.
Peevyhouse sued for 25k when Garland refused to perform the restoration.
Holding: If breach is only incidental to the main purpose of the contract, and performance would be
disproportionately costly, the proper measure of damages is the diminution in value measure. (Torts§348)
Restatement (Second) of Torts §348 – Alternatives to Loss in Value of Performance (pg 940)
2) If a breach results in defective or unfinished construction and the loss in value to the injured party is
not proved with sufficient certainty, he may recover damages based on
a) the diminution in the market price of the property caused by the breach, or
b) the reasonable cost of completing performance or of remedying the defects if the cost is not
clearly disproportionate to the probative loss of value to him…
PART 5 – DEFENSES TO CONTRACTUAL OBLIGATION
Chapter 16: Obtaining Assent by Improper Means
A. Misrepresentation
Vokes v. Arthur Murray, Inc. - (App. Ct. Fl. 1968) pg 991
Facts: Vokes went to get dance lessons. Vokes was told how great she was and that she could be a
wonderful dancer to induce sale of lessons. Vokes was charged in excess of 31k for lessons she probably
couldn’t use. Vokes woke up and sued.
Holding: Misrepresentation made contract void. 1) Statements made by parties having superior
knowledge can be regarded as statements of fact. 2) In order to amount to fraud, a representation must be
coupled with some untrue or misleading statement of fact used to reinforce the opinion. (all RS below)
If a party’s manifest of assent is induced §167
By either a fraudulent or material §162
Misrepresentation § 159 §168
By the other party representation in which the recipient is justified in relying §169
The K is voidable…
Page 23 of 37 Vivian Ali
Restatement (Second) of Contracts (pg 987)
§159 – Misrepresentation Defined
A misrepresentation is an assertion that is not in accord with the facts.
§162 – When a Misrepresentation is Fraudulent or Material
1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his
assent and the maker
a) Knows or believes that the assertion is not in accord with the facts or
b) Does not have the confidence that he states or implies in the truth of the assertion
c) Known that he does not have the basis that he states or implies for the assertion
2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his
assent or if the maker knows that it would be likely to induce the recipient to do so
§164 – When a Misrepresentation Makes a Contract Voidable [CORE RS]
1) If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by
the other party upon which the recipient is justified in relying, the contract is voidable by the recipient
2) If a party’s manifestation of assent is induced by either fraudulent or material misrepresentation by one
who is not a party to the transaction upon which the recipient is justified in relying, the contract is
voidable by the recipient, unless the other party to the transaction in good faith and without reason to
know of the misrepresentation either gives value or relies materially on the transaction.
§167 – When a Misrepresentation is an Inducing Cause
A misrepresentation induces a party’s manifestation of assent if it substantially contributes to his decision
to manifest his assent
§168 – Reliance on Assertions of Opinion (pg 995)
1) An assertion is one of opinion if it expresses only a belief, without certainty, as to the existence of a
fact or expresses only a judgment as to quality, value, authenticity or similar matters
2) If it is reasonable to do so, the recipient of an assertion of a person’s opinion as to facts not disclosed
and not otherwise known to the recipient may properly interpret it as an assertion
a) That the facts known to that 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
To the extent that an assertion is one of opinion only, the recipient is not justified in relying on it unless
the recipient
a) Stands in such a relation of trust and confidence to the person whose opinion is asserted that the
recipient is reasonable in relying on it or
b) Reasonably believes that, as compared with himself, the person whose opinion is asserted has
special skill, judgment or objectivity with respect to the subject matter or
c) Is for some other special reason particularly susceptible to a misrepresentation of the type
involved.
Page 24 of 37 Vivian Ali
B. Duress
Hackley v. Headley – (Mich. 1881) pg 1000
Facts: Headley entered into a contract with Hackley to cut and deliver logs. At the time Headley came to
collect, Hackley said he wouldn’t pay him what was due. Headley said he needed it, but Hackely insisted
he should pay less and that Headly could sue for the rest. Headley claims he was in economic duress so
was forced to accept less than the amount b/c he couldn’t afford to litigate to get more. Hackley claims
that b/c Headley accepted (waiving his right to ask for more) Hackley should be relieved of his duties.
Holding: Duress exists when court sees a crime or a tort that induces one to make a contract or perform
some act under circumstances which deprive him of the exercise of free will. (RS §175, §176)
Note: Court doesn’t want to second guess settlements (there was technically a settlement here)
Restatement (Second) of Contracts
§175 – When Duress by Threat Makes a Contract Voidable (pg 1011)
1) If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the
victim no reasonable alternative, the contract is voidable by the victim
2) If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract
is voidable by the victim unless the party to the transaction, in good faith and without reason to know of
the duress either gives value or relies materially on the transaction.
§176 – When a Threat is Improper
1) A threat is improper if
a) What is threatened is a crime or a tort or if it would be if it resulted in obtaining property
b) What is threatened is a criminal prosecution (blackmail type transaction)
c) What is threatened is the use of civil process and the threat is made in bad faith or
d) The threat is a breach of the duty of good faith and fair dealing under a contract with the recipient
2) A threat is improper if the resulting exchange is not on fair terms, and
a) The threatened act would harm the recipient and would not significantly benefit the party making
the threat
b) The effectiveness of the threat in inducing the manifestation of assent is significantly increased by
prior unfair dealing by the party making the threat or
c) What is threatened is otherwise a use of power for illegitimate ends.
D. Unconscionability


Procedural unconscionability – bargaining naughtiness
Substantive unconscionability – the evils in the resulting contract (from provision or result)
Williams v. Walker-Thomas Furniture Co. – (D.C.C. 1965) pg 1024
Facts: Williams bought items according to contract stating that they could make payments in installments
in a cross-collateral clause (if you owe money on any one item, you owe money on all the items).
Williams defaults on payment of one item, so Walker Thomas tries to repossess all items purchased.
Holding: Court invalidates contract as unconscionable because there is an inequitable balance of power on
either side of the contract. (RS §208 and UCC § 2-302 = same thing)

Unconscionability involves the evaluation of four factors…
1. Relative harshness of the term in question, including the importance of the legal right affected
2. The manner of presentation of the term in the agreement
3. The relative bargaining power of the party against whom the term is asserted (if it’s unequal then
this is unfair because little bargaining power = little choice)
4. The commercial justification for the term
Page 25 of 37 Vivian Ali
Restatement (Second) of Contracts (pg 1030)
§208 – Unconscionable Contract or Term
If the court finds as a matter of law that the contract (or any clause within) was unconscionable at the time
it was made, the court may refuse to enforce the contract (or just void the unconscionable clause)
Uniform Commercial Code (pg 1030)
§2-302 – Unconscionable Contract or Clause
1) If the court finds as a matter of law that the contract (or any clause within) was unconscionable at the
time it was made, the court may refuse to enforce the contract (or just void the unconscionable clause)
2) If party claims that something is unconscionable, they can present evidence regarding above factors
Chapter 17: Failure of a Basic Assumption
A. Mistakes of Present Existing Facts
1. Mutual Mistake
Sherwood v. Walker – (Mich. 1887) pg 1051
Facts: Sherwood contracted to purchase barren cow from Walker for $80. Cow ended up getting
pregnant and Walker refused to complete transaction because fertile cow is worth $1000.
Holding: A mutual mistake regarding the substance of the subject matter of a contract may render that
contract unenforceable if there is a difference in the substance of the thing bargained for, if the thing
actually delivered or received is different in substance from the thing bargained for, and intended to be
sold, then there is no contract.
Note: All contract cases are kind of dealing with mistakes; therefore the mistake doctrine operates to void
only the most fundamental and unfair mistakes (ex: sold bag with an accidental jewel inside, must return!)
Restatement (Second) of Contracts
§151 – Mistake Defined (pg 1071)
A mistake is a belief that is not in accord with the facts
Comment a - Belief as to Facts: “Mistake” refers to an erroneous belief. The belief doesn’t need to be an
articulated one, and a party may have a belief as to fact by merely making an assumption with respect to it
w/out being aware of alternatives. The word “mistake” doesn’t include an improvident act, including the
making of a contract that is a result of such an erroneous belief. Erroneous belief must relate to the facts
as they exist at the time of the making of the contract. A party’s prediction or judgment as to events to
occur in the future is not a “mistake” as the word is defined here, but an erroneous belief as to the
contents or effect of a writing that expresses the agreement is a “mistake.”
§152 – When Mistake of Both Parties Makes a Contract Voidable (pg 1072)
1) Where there is a mutual mistake that materially affects the exchange the contract is voidable by the
adversely affected party unless he bears the risk of the mistake under the rule stated in § 154
2) In determining whether the mistake has a material effect on the agreed exchange of performances,
account is taken of any relief by way of reformation, restitution or otherwise (restitution of jewel)
§154 – When a Party Bears the Risk of a Mistake
A party bears the risk of a mistake when
a) the risk is allocated to him by agreement of the parties, or
b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to
the facts to which the mistake relates but treats his limited knowledge as sufficient, or
c) the risk is allocated to him by the court on the ground that it is reasonable given circumstances
Comment a – Rationale: Absent a provision to the contrary, a contracting party takes the risk of most
supervening changes in circumstances unless there is such extreme hardship to justify relief. (E.g. seller
Page 26 of 37 Vivian Ali
of farmland can’t undo a contract once he finds out that there were valuable mineral deposits on his land,
even though he negotiated assuming it didn’t)
Comment b – Allocation by Agreement: If the parties provide for mistake in their agreement, the
provisions of that agreement will be respected.
Comment c- Conscious Ignorance: If the mistaken party knows his knowledge was lacking but still took
the risk to contract, then this is conscious ignorance, not a mistake.
Commend d- Risk Allocated by the Court: In situations where it is reasonably clear that one party should
bear the risk of a mistake, the court will allocate the risk onto that party. (Mineral example)
§157 – Effect of Fault of Party Seeking Relief (pg 1073)
A mistaken party’s fault in failing to know or discover the facts before making the contract does not bar
him from avoidance or reformation under the rules stated in this Chapter, unless his fault amounts to a
failure to act in good faith and in accordance with reasonable standards of fair dealing.
§158 – Relief Including Restitution (pg 1074)
1) In any case governed by the rules stated in this Chapter, either party may have a claim for relief
including restitution under the rules stated in §240 and §376.
2) In any case governed by the rules stated in this Chapter, if those rules together with the rules stated in
Chapter 16 will not avoid injustice, the court may grant relief on such terms as justice requires including
protection of the parties’ reliance interests.
2. Unilateral Mistake and the Duty to Disclose
Tyra v. Cheney – (Minn. 1915) pg 1074
Facts: Tyra orally contracted to repair school building for correct price. He sent a written bid which left
out a cost discussed. He realizes mistake and tries to get them to pay the correct amount, they refuse.
Holding: Cheney knew about mistake in the written bid, therefore there was no meeting of the minds at
the mistaken price. Therefore, the oral bid is enforceable. (RS§153b)
Restatement (Second) of Contracts (pg 1077)
§153 – When Mistake of One Party Makes a Contract Voidable (Unilateral Mistake)
Where a mistake of one party at the time a contract was made as to a basic assumption on which he made
the contract has material effect on the agreed exchange of performance that is adverse to him, the contract
is voidable by him if he does not bear the risk of the mistake under the rule stated in §154:
a) And the effect of the mistake is such that enforcement of the contract would be unconscionable
b) Or the other party had reason to know of the mistake or his fault caused the mistake
B. Changed Circumstances
1. Impossibility and Impracticability
Paradine v. Jane – (England 1647) pg 1083
Facts: Paradine leased property to Jane who could not use the land because of Prince Rupert occupied it.
Jane claims he shouldn’t have to pay rent since he wasn’t able to possess/use land. Paradine sues for rent.
Holding: Covenants are independent and tenant must always pay rent according to the case. WRONG.
Because this is an impossible circumstance that neither party could control; therefore, the contract should
not be enforceable. (RS § 261)
Restatement (Second) of Contracts §261 – Discharge by Supervening Impracticability (pg 1091)
Where, 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, his duty to render that performance is discharged, unless the language or the circumstances indicate
the contrary.
Page 27 of 37 Vivian Ali
Restatement (Second) of Contracts §152 – When Mistake of Both Parties Makes a Contract
Voidable (pg 1091-1092)
If the existence of a specific thing is necessary for the performance of a duty, its failure to come into
existence, destruction, or such deterioration as makes a performance impracticable is an event the nonoccurrence of which was a basic assumption on which the contract was made.
2. Frustration of Purpose
Krell v. Henry – (England 1903) pg 1099
Facts: Krell rents room to Henry to view the king’s coronation. The coronation is indefinitely postponed.
Holding: When both parties are aware of the purpose of a contract and that purpose is “frustrated,” then
the contract is voidable. (RS§265)
Restatement (Second) of Contracts §265 – Discharge by Supervening Frustration (pg 1109)
Where, after a contract is made, a party’s principle 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
was made, his remaining duties to render performance are discharged, unless the language or the
circumstances indicate the contrary.
PART I – ENFORCING PRIVATE AGREEMENTS
Chapter 2: Damages for Breach of Contract
Stingy to generous
B. Three Damage Interests
1. Restitution: place the promisor back in the position they were in if the contract never happened
2. Reliance: place the promisee back in the position they were in if the contract never happened
3. Expectation: place the promisee in the position they would have been in if the contract had been
performed
Hawkins v. McGee – (N.H. 1929) pg 63
Facts: McGee performed skin grafting operation on Hawkins hand. Prior to operation McGee promised
Hawkins 100% perfect hand. The hand ended up worse. Hawkins sued McGee for 1) breach of contract.
Holding: Reliance damages (pain + suffering and difference btwn new hand and old hand) not enough.
Expectation should be awarded (leaving Hawkins difference btwn promised 100% hand and new hand)
RS §347
Restatement (Second) §347 – Measure of Damages in General (pg 70) EXPECTATION INTEREST
Injured party has a right to damages based on expectation interest as measured by:
a) Harm and/or loss from the other party’s failure to perform
+
b) Additional loss caused by the breach
c) Any cost or other loss avoided by not performing the contract
=
expectation
Page 28 of 37 Vivian Ali
Sullivan v. O’Connor– (Mass. 1973) pg72
Facts: Sullivan entered into contract to have two operations on her nose, but ended up needing three and
left her with an ugly nose.
Holding: She sues and is given pain + suffering of 3rd operation and difference in value of the new nose to
old nose. Court avoids choosing between reliance and expectation. Lucked out because Sullivan waives
her argument for expectation (promised nose) and the court didn’t have to rule on this potentially
problematic situation. However, the damage award resembles the reliance approach.
Note: Considering the uncertainties of medical science and variations of different patients, it’s difficult
for doctors to promise specific results. (doubts about expectation damages) Therefore, it’s unlikely that
physicians will offer this type of promise. It’s possible for patients to transform words of optimistic
coloring or encouragement, particularly if something goes awry. But we don’t want to create a world of
“defensive medicine” nor do we want to shake confidence in the profession of medicine.
Pros
Restitution



Reliance


Expectation


Breaching party may be entitled to some benefit for
services rendered (Britton v. Turner)
If the breacher wasn’t a wrong-doer, it may be fair
In narrow situation where party who benefits
breaches, restitution may be more just than
expectation. (Bush v. Canfield)
Seems to be reasonable prior to performance of the
contract
Relatively easier to quantify (especially because
you can compare what you have now and what you
used to have)
Most generous approach for the party not in breach
Deters breach and upholds the values and intentions
of contracts
Cons


Limited recovery for the party not in breach
Minimal deterrence to avoid breach


Damage award may not be sufficient
If you think about…one will always pay less
than what one expects to receive in return from
the contract (if not, why would they do it?)

Difficult to assign value because it’s difficult
to quantify or foresee
J.O. Hooker & Sons v. Roberts Cabinet Co. – (Miss. 1996) pg 78
Facts: Hooker entered into a sub-contact agreement with Robert’s cabinet company, in order to carry out
general contract with BPHA. Dispute arises as to which party has a duty to dispose of the cabinets, as
required by BPHA. Hooker sends Roberts a fax stating contract is void. Roberts sues Hooker for breach.
Trial court granted summary judgment for Roberts and Hooker appealed.
Issue: Should UCC or common law apply? Were the damages awarded (storage, administrative, profit)
proper?
Holding: Common law should apply because contract is primarily about Robert’s refusal to perform
services, not goods. Expectation damage is not always clear-cut. You must consider whether expenses
worked into the profits. Hooker didn’t award storage, but Katz says in expectation you can. UCC §1103, §2-102, §2-105, §2-106; RS. §347
Fixed Cost: Overhead costs incurred – these costs stay the same from the beginning
Variable Cost: Costs that progress throughout performance (EXPENSES)
Profits: Amount gained from contracts. Caution, net profits (subtraction of fixed and variable) v. gross
profits (total).
Uniform Commercial Code: (pg 84)
§1-103 Supplementary General Principles of Contract Law Applicable
Unless UCC applies as stated, common law applies (RS)
§2-102 Scope: Certain Security and Other Transactions Excluded From this Article
Unless context indicates otherwise, UCC applies to goods, not security transactions or statutes regulating
sales.
Page 29 of 37 Vivian Ali
§2-105 Definitions: Transferability; “Goods”
Goods: All things movable at time of contract. Applies to future goods, unborn animals, growing crops
and identifiable things attached to realty as described in goods to be severed from realty. Goods are not
money, securities, or things in action.
§2-106 Definitions: “Contract”; “Agreement”; “Contract for sale”; “Sale”; “Present Sale”
Contract and agreement are limited to present or future sale of goods. A sale consists in the passing of
title from the seller to the buyer for a price.
Tongish v. Thomas – (Kan. 1992) pg 86
Facts: Tongish entered into contract with Coop to sell seeds for $13. Coop plans on selling to Bambino
and only collecting handling fee. Market for seeds goes up to $20. Tongish breaches and sells to Thomas
for higher price than contracted Coop price.
Issue: Which UCC provision applies? What is the policy implication of choice of provision?
Holding: When there is conflict between a general provision and a specific provision, specific controls
unless legislature intended to make general control. Hence, UCC §712 trumps §106. Policy: Deterrence
of bad faith breach is more important than denying Coop undeserved windfall. Good faith breach (Allied)
use UCC §106. Bad Faith breach (Tongish) use UCC§712.
Uniform Commercial Code: (pg 91)
§1-106 Remedies to be Liberally Administered (EXPECTATION)
Party damaged by breach is put in as good a position as if the other party fully performed. UCC version
of expectation. It does not include fixed costs, nor special, nor penal damages (punitive damages).
§2-712 “Cover”; Buyer’s Procurement of Substitute Goods (One exception to expectation)
Buyer damaged by breach is entitled to difference between the cost that they would have paid under the
contract and the cost they had to pay in order to cover/substitute goods within reasonable time after
breach (Cover must be reasonable and in good faith).
§2-713 Buyer’s Damages for Non-Delivery or Repudiation
1) Subject to above, measure of damages to estimate market value should be the value of the good at the
time the buyer learned of the breach, plus anything in §2-715, but less expenses saved.
2) Market price should be determined according to market in place good is sold.
§2-715 Buyer’s Incidental and Consequential Damages
1) Incidental damages reasonably resulting from seller’s breach are compensable, along with any other
reasonable expense.
2) Consequential damages resulting from breach include a) any loss resulting from breach which seller
had reason to know at time of contract and buyer could not be prevented (mitigation), and b) injury to
person or property resulting from any breach of warranty.
§2-717 Deduction of Damages From the Price
Buyer can deduct damages from breach of contract from any part of price still due under contract, as long
as buyer notifies seller.
Page 30 of 37 Vivian Ali
C. Three Limitations on Damages
1. 1stLimitation on Damages – Remoteness or Foreseeability of Harm
Hadley v. Baxendale – (England 1854) pg 93
Facts: Crankshaft at Hadley’s mill stops working. Hadley hires Baxendale to return the crankshaft and is
told that if it is sent up by 12 noon, then it would be delivered the following day. Hadley drops off
crankshaft, pays and requests hastening of delivery. Delay occurs due to some neglect in delivery. The
working of the mill was delayed (lost profits), so Hadley sues Baxendale and trial court awards £50.
Hadley appealed for lost profits.
Holding: Damages must either be foreseeable or there must be sufficient notice of potential harm.
Note that the court holds that in this case the plaintiff did not give notice to the defendant and lost profits
were not foreseeable (the crankshaft could have been an extra or used for something else etc) RS§351
Martinez and Co. v. S. Pac. Transp. Co. – (5th Cir. 1979) pg 104
Facts: Martinez hired defendant to deliver a 2400 Lima Dragline from Ohio to Texas. The last of the five
cars arrived late and Martinez had to make repairs because the dragline was delivered damaged. Martinez
filed suit for inability to use dragline during period of delay (issue of repairs settled).
Holding: Damages for loss of use during delay are appropriate because they were foreseeable. The court
says that foreseeability does not necessarily have to mean that it’s the likeliest possibility (the machine
could be for use or sale etc), but it does need to be a foreseeable possibility. RS§351
Pros for Foreseeability:
 Should be restricted from what fairness seems to demand
 Price the promisor pays should be indicative of what is foreseeable
 If we restrict foreseeability, it will encourage plaintiff to make unforeseen circumstances known
Cons for Foreseeability:
 Legal rules of contracts become unimportant if you do not have to stick to them
 Might be better to ask what sort of rules the parties would have settled for instead of asking what
was foreseeable
Restatement (Second) §351 – Unforeseeability and Related Limitations on Damages pg 108
1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a
probable result of the breach when the contract was made
2) Loss may be foreseeable as probably result of a breach because it follow from the breach
a) in the ordinary course of events (naturally foreseeable)
b) as a result of special circumstances beyond the ordinary course of events that the party in breach
had reason to know (artificially foreseeable due to notice)
3) Court can decide to limit damages for foreseeable loss (if justice requires) by excluding lost profits or
allowing recovery only for losses incurred in reliance
Alternative Test for Special Circumstances: (typically rejected by most jurisdictions and the UCC
although applied in the Morrow case)
a) Tacit Agreement Test – a more restrictive test – requires proof of both notice of special
circumstance and that the defendant implied or expressly agreed to bear the risk of damages
Page 31 of 37 Vivian Ali
Morrow v. First Nat’l Bank of Hot Springs – (Ark. 1977) pg 109
Facts: Morrow was a coin collector. He reserved three large boxes in new bank building which were not
available yet. He wanted the boxes before Sept 1 due to son going to college and notified bank to let him
know when boxes would become available. Coins were stolen from house on Sept. 4 and the bank
notified Morrow of box availably on Sept 7. It turns out the boxes were available on Aug 30.
Holding: In order to be liable for special damages, there must not only be knowledge of the special
circumstances but the party must accept the contract with the special condition attached to it!
2. 2nd Limitation on Damages – Certainty of Harm
Chicago Coliseum Club v. Dempsey – (Ill. App. Ct. 1932) pg 112
Facts: CCC entered into contract with Dempsey to fight Wills. Contract provision stated that Dempsey
could not engage in any boxing match after the date of agreement and prior to the date on which the
contest was to be held. CCC entered into a separate contract with a promoter, Weisburg and sent an
insurance adjuster to examine Dempsey. At this time Dempsey stated that he was preparing himself for
another boxing match and repudiated contract. CCC sues Dempsey for damages for breach of contract.
Holding: Court awards damages according to expenses incurred after the signing of the agreement and
before the breach. But, they reject other propositions of calculating damages by lost profits, expenses
incurred prior to signing and expenses incurred post-breach. When lost profits cannot be accurately
estimated, the court can award reliance damages (as a conservative calculation of expectations). RS §349
Restatement (Second) §346 – Availability of Damages (pg 125)
1) The injured party has a right to damages for any breach by a party against whom the contract is
enforceable unless the claim for damages is suspended or discharged
2) If the breach caused no loss or if you cannot define amount of loss due to uncertainty then you will
simply receive a nominal damage award
Restatement (Second) §349 – Damages Based on Reliance Interest (pg 125)
As an alternative to expectation damages (§347) injured party has a right to damages based on his reliance
interest, including expenditures made in preparation for performance minus any loss that the breaching
party can prove with reasonable certainty the injured party would have suffered had the contract been
performed
Restatement (Second) §352 – Uncertainty as a Limitation on Damages (pg 125)
Damages are not recoverable for loss beyond an amount that the evidence permits to be established
without reasonable certainty.
Anglia Television Ltd. v. Reed – (England 1971) pg 125
Facts: Anglia hired Reed via Reed’s agent for a play that they were turning into a TV show. Reed’s agent
realized that he had double booked the actor and had to repudiate the contract prior to performance. The
show was cancelled as a result of the breach. Anglia asks for reliance damages because they know they
cannot calculate lost profits.
Holding: Reliance damages can be awarded for expenses incurred prior to the contract. Reed knew that
production costs had been incurred prior to him entering into the contract and as a result of his breach the
expenditures were wasted, therefore he owes the expenditures before and after the contract. RS §352
Page 32 of 37 Vivian Ali
3. 3rd Limitation on Damages – Avoidability of Harm
Rockingham County v. Luten Bridge Co. – (4th Cir. 1929) pg 131
Facts: Rockingham County contracted Luten to build bridge for them. Changes in the board led
Rockingham to breach the contract early on when only minimal work had been completed. Luten
continued to build the bridge anyway and sues after the completion of the bridge for complete expenses
and profits.
Holding: Damages should only be awarded up until the time of breach. There is a duty to avoid piling up
damages post-breach. RS §350
Restatement (Second) §350 – Availability as a Limitation on Damages (pg 153)
1) Damages are not recoverable for loss that the injured party could have avoided without undue risk,
burden or humiliation UNLESS…
2) The injured party has made reasonable, but unsuccessful efforts to avoid loss
Shirley Maclaine Parker v. 20th Century-Fox Film Corp. – (Ca. 1970)
Facts:Fox entered into contract with Maclaine to star in Bloomer Girl. Fox breached, but offered
Maclaine a role in another film, Big Country. They said they would pay the same, but the film was a
different genre than Bloomer Girl. Maclaine refused and sued for full salary.
Holding: Measure of recovery is the amount of the agreed upon salary minus the amount employer proves
the employee earned or could have earned as long as the employment is comparable. The court found
that Fox’s offer was not reasonably comparable; therefore, Maclaine entitled to full salary. RS §350
Dissent: Fears that this will subvert valuable legal doctrine of mitigating damages
Neri v. Retail Marine Corp. – (N.Y. 1972) pg 154
Facts: Neri contracted to purchase a boat from Retail Marine and put down deposit for the boat, promising
the pay the balance later. Neri got sick and breached because he could no longer make the payments.
Retail Marine refuses to return the deposit, but ends up selling the boat to another customer. Neri sues for
restitution and Retail Marine counterclaims for damages resulting from the breach.
Holding: Damages should be awarded so that the seller should be able to recover lost profit plus any
incidental damages despite second sale. Applied UCC §2-708 NOT trial court’s §2-718 reasoning
Note: Katz mentions that this may be too much of a burden on buyers (like Neri) because of typical return
policies + unlikelihood that sellers (such as Retail Marine) has unlimited number of boats to sell.
Uniform Commercial Code: (pg 157)
§2-706 Seller’s Resale Including Contract for Resale
1) Seller may resell goods. Where resale is in good faith and reasonable, seller may recover the
difference between the resale price and contract price plus incidental damages minus expenses saved due
to the breach
2) Unless otherwise agreed, resale may be a public or private sale including for existing contracts. Resale
must be reasonably indentified as referring to the broken contract, but the goods don’t have to be in
existence prior to the breach. (See pg 158 for subsection 3 private sale exception)
3) Where the resale is a private sale, then the seller must give the buyer reasonable notification of his
intention to resell.
4) For public resales
a) Only goods currently recognized or that have a certain future market can be sold. (HP example)
b) Sale must be made at a traditional place for public sale and unless there is an extenuating
circumstance, must give notice to original buyer
c) Allow for inspection of goods at public sale by display (or give notice of how you can view)
d) Seller may buy
5) The new buyer is not responsible to the old buyer even if seller doesn’t comply with this section.
6) If you make a profit on the resale, seller gets to keep it (old buyer isn’t entitled).
Page 33 of 37 Vivian Ali
§2-708 Seller’s Damages for Non-Acceptance or Repudiation
1) Measure of damages is the difference between market price at time and place of initial sale and the
contracted price
2) If the measure of damages in subsection 1 doesn’t put seller in as good a position as if performed,
measure of damages is profit including overhead minus proceeds of resale.
§2-710 Seller’s Damages for Non-Acceptance or Repudiation
1) Incidental damages can include any commercially reasonable charges, expenses, etc.
§2-718 Liquidation or Limitation of Damages; Deposits
1) Damages may be liquidated if reasonable in terms of anticipated or actual harm. A term fixating
unreasonably large liquidated damages is void.
2) Where seller withholds delivery of goods due to breach, buyer is entitled to get back any amount above
a) The amount which seller is entitled to by terms of liquidated damage clause (subsection 1) or
b) If no liquidated damage clause, 20% of total performance or $500, whichever is smaller.
3) Buyer’s right to restitution under subsection 2 is subject to offset if seller establishes
a) A right to recover damages under the provisions of this Article other than subsection 1 AND
b) The amount or value of any benefits the buyer received from the contract
4) Where seller received payment in goods, their reasonable value or the proceeds in resale will be treated
as payment for purposes of subsection 2, but if seller knows of buyer’s breach before resale, resale must
be in accordance with section 706.
D. Contracting Around the Default Rule of Damages
1. Express Limitations on Consequential and Incidental Damages
Parties may seek to limit liability under default rules by including a warranty clause (liquidated damages
clause) if it is expressly intended to use as a remedy for breach.
Uniform Commercial Code: (pg 160)
§2-719 – Contractual Modification or Limitation of Remedy
Not covered in class – Provision provides that you can agree to a remedy that is different from what is set
out in this Article. This alternate remedy will be exclusively applied ONLY IF it was expressly stated in
the contract. If it wasn’t expressly stated, this Article may apply.
2. Liquidated Damages vs. Penalty Clauses
The general theory is that contracting parties should be permitted to recover compensation in accordance
with expectation. Liquidated damage clauses will be enforceable provided that they are reasonable when
measure against this general theory. If they are over the top (unreasonable) they are considered a penalty
clause and are unenforceable.
Wassenaar v. Towne Hotel – (Wis. 1983) pg165
Facts: Wassenaar was employed by Towne Hotel as general manager. Wassenaar and Towne Hotel
entered into a contract that stipulated if employment was terminated prior to expiration of 3-year contract,
Wassenaar was entitled to receive payment of salary for the rest of the term. Towne Hotel fired
Wassenaar before the 3-year term was up. Wassenaar sued Towne Hotel to recover damages for the
remaining 21 months under the contract.
Holding: The court held that this clause was reasonable, and therefore enforceable. Reasonableness test:
1) Is the injury caused by the breach one that is difficult or incapable of estimating? 2) Are stipulated
damages a reasonable forecast of harm caused by breach? Instead of looking to party’s intentions, we will
just consider whether the actual clause is reasonable. RS §356
Note: Katz says that parties can contract around this provision by presenting unreasonable stipulated
clause as a bonus instead of a penalty.
Page 34 of 37 Vivian Ali
Restatement (Second) §355 – Punitive Damages (pg 172)
Punitive damages are not recoverable for a breach of contract unless a tort occurs in conjunction with
breach.
Restatement (Second) §356 – Liquidated Damages and Penalties (pg 172)
1) Damages for breach by either party may be liquidated in a contract, but only in an amount that is
reasonable compared to anticipated or actual loss caused by breach. A term fixing unreasonably large
liquidated damages a penalty and is unenforceable on public policy grounds.
2) If a bond provides for x amount of money as a penalty, it is not enforceable if the amount of the bond
exceeds the loss caused by breach.
Chapter 3: Other Remedies and Causes of Action
A. Specific Performance and Injunctions
2. Contracts for Goods
Scholl v. Hartzell – (C.C.Pa. 1981) pg 206
Facts: Hartzell posted Corvette in paper and Scholl agreed to purchase. Scholl made deposit and said he
would pay the balance upon receipt of car, but Hartzell would not sell the car and returned the deposit.
Holding: A Chevy Corvette doesn’t fall under the unique goods contemplated under UCC §2-716
Note: one must consider the ability to replace and totality of circumstances in defining “unique”
Specific performance: (when replevin action is trying to force plaintiff to accomplish indirectly what he
cannot do directly) is an equitable remedy and should only be granted where no adequate remedy at law
exists and justice requires it  this is probably a good enough reason in and of itself for the holding
Sedmak v. Charlie’s Chevrolet, Inc. – (E.D. Mo. 1981) pg 208
Facts: Sedmaks collect Corvettes, they ordered and made a deposit on a special pace car and made
arrangements with Kells, a sales manager to purchase/customize a pace car. After the Indy 500 they were
told they could no longer purchase the car and they could bid on it instead if they want.
Holding: The pace car was not unique in the traditional sense but it still counts since its features made it
difficult, if not impossible, to obtain its replication without considerable expense UCC §2-716
Note: Good is unique not many available on the market  difficult to place monetary value on items
that are this “unique”  specific performance is the only equitable relief

Efficient breach argument: illustrates why we generally prefer to use damages
o Efficient breach: only if we allow breach does the good go to the party who values it more
 Efficient breach argument falls apart when we run into situations where we cannot determine
damages due to the uniqueness of the good.
o In this situation, specific performance is the correct remedy!
Uniform Commercial Code: (pg 211)
§2-716 – Buyer’s 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) Buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable
to effect cover for such goods or the circumstances reasonably indicate that such effort will be
unsuccessful or if the goods have been already been shipped and received.
Page 35 of 37 Vivian Ali
3. Contracts for Personal Services
The Case of Mary Clark, A Woman of Colour – (Ind. 1821) pg 212
Facts: Clark voluntarily bounder herself to serve Johnston as an indentured servant for 20 years. Clark
then wants to breach, claiming that she is being illegally detained. Trial court sent her back to defendant.
Holding: The court cannot order specific performance of personal services because enforcing specific
performance amounts to slavery since it takes the voluntary aspect of the personal service away.
Dallas Cowboys Football Club v. Harris – (Tex. Civ. App.1961) pg 232
Facts: Contract signed with Rams. Contract transferred to Cowboys. Harris retired, tolling contract. He
came back and played with Texans. Cowboys brought injunction to restrain Harris from playing pro
football or engaging in any activities related to pro football for anyone except their Club.
Holding: The contract is reasonable and is enforceable in equity. The court establishes that a party can
only obtain injunctive relief for a personal service contract if the person has exceptional or unique
knowledge.
Note: this case is here to show us that prohibition on specific performance of personal services won’t be
too hard to circumvent in cases that include semi-unique services (via negative injunction to prevent them
from working elsewhere or basically coercing them to stay) UCC §2-716
B. Restitution – Damage Interest and Cause of Action
1. Restitution for Breach of Contract
Bush v. Canfield – (Supreme Court of Errors 1818) pg 250
Facts: Bush entered into a contract with Canfield for 2000 barrels of flour for 14k, paying 5k up front for
delivery of flour on May 1. Market price falls to 11k. Canfield breached contract. Bush argues he should
be returned full deposit plus interest (restitution). Canfield argues Bush should only be given back market
value of flour he could have gotten on May 1st for the deposit. Should restitution or expectation be used?
Holding: In this case, non-breaching party is entitled to restitution (return of any benefit conferred) b/c
giving expectation back would not be equitable and would result in unfair windfall for breaching party,
which may encourage breach. RS § 373
Note: If the market price had increased, expectation would have been appropriate (Tongish). One
concern with this rule is that the plaintiff may coerce defendant to breach so that they are released from a
losing contract (moral hazard rule).
Restatement (Second) § 371 - Measure of Restitution Interest pg 256
If a sum of money is awarded to protect a party’s restitution interest, it may as justice requires be
measured by either:
a) reasonable value to the other party of what he received / in terms of what it would have cost him
to obtain it from another unrelated party (market value)  the benefit received…measure by how
much it would cost to get it from someone else
b) the extent to which the other party’s property has been increased in value or his other interests
advanced.
Restatement (Second) § 373 - Measure When Other Party is in Breach pg 256
1) On total breach by one party, the injured party is entitled to restitution for any benefit that he has
conferred on the other party by way or part performance or reliance EXCEPT
2) When injured party has fully performed on all his duties under the contract and the breaching party
only has to pay a definite sum of money, in which case restitution cannot apply!
 what is still owed? If the breaching party owes stuff, then the breached against party can assert
restitution and try to cancel. But if all breaching party owes is monetary payment, then the breached
against party can’t get out of the deal and simply ask to get paid at best.
(example of me selling Katz a widget at accidentally too low a price. Katz doesn’t pay. Then I can’t ask
for my widget back, I can only ask for payment of the widget per the agreed upon price)
Page 36 of 37 Vivian Ali
2. Restitution to the Party in Breach
Britton v. Turner – (Sup. Ct. of NH 1834) pg 183
Facts: Britton entered a labor contract with employer Turner. Contract was for a term of labor for one
year in exchange for $120 for entire year. Britton breached contract after 9 months of labor and Turner
doesn’t ask for damages for the breach. P files suit to recover wages for the 9 months he did work.
Holding: P is entitled to recover restitution for partial performance providing that D gained benefit from
said performance, minus any costs incurred by breach. RS § 374
Note: Court was concerned with moral hazard – creating incentives for employer to force employee to
breach to avoid payment. BUT, allowing restitution to the party in breach could act as an incentive for
employees to quit instead of working for full term contracted.
Restatement (Second) § 374 - Restitution in Favor of Party in Breach pg 265
1) Subject to the rule in subsection (2), if a party justifiably refuses to perform on the ground that his
remaining duties of performance have been discharged by the other party’s breach, the party in breach is
entitled to restitution for any benefit that he has conferred by way of part performance or reliance in
excess of the loss that he has caused by his own breach.
2) If the parties settled on a reasonable liquidated damages clause, this will apply instead.
Pros and Cons of Restitution to Party in Breach:
1. Bad incentives for the employer (moral hazard)
 Defendant’s argument – don’t want to create incentives for the employee to breach and force
employer to find someone else
2. Implicit understanding about partial payment (expect to get paid incrementally when you hold a job)
 Defendant could make an implicit argument the other way
3. Expectations measure – not obligating the employer to pay would result in a huge benefit; therefore,
there should be some obligation to pay the employer
 Defendant could say that it’s analogous to liquidated damages (but the issue is that this may be
seen as a penalty since it’s grossly disproportionate à look at §374 – even if he agreed not to be
paid for doing a gross majority of the work, this is not allowed
4. Inequity of early v. late breacher
 The late breacher seems to be the better individual, but they are penalized more….
 The defendant could say you can’t really complain that others that break the rules are not being
punished when you broke the rules and you are being punished
5. Return-ability of goods (court says this is like keeping the benefit of the goods)
 The defendant says goods and labor are crucially different since you can return goods, but you
cannot return labor.
3. Restitution and “Quasi-Contract”
Cotnam v. Wisdom – (Ark. 1907) pg 265
Facts: Wisdom performs surgery on Harrison when he was unconscious from injuries sustained in a
streetcar accident. Harrison died, and Cotnam, his administrator, refuses to pay for the costs of Harrison’s
surgery. Widsom sues Cotnam to recover payment for services. While the trial court found for Wisdom,
Sup. Ct. remanded due to improper jury instruction (info about estate $), although they sided w/ Wisdom.
Holding: Quasi/Implied contract since he was unable to assent (but we assume he would) to receive
lifesaving services.
THE END!
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