Sie sind auf Seite 1von 69

contracts.

enforceability
offer
acceptance
consideration
in writing? (statute of frauds)
defenses
fraud
mistake
duress
unconscionability
obligations
interpretation rules
parol evidence rule
implied terms
premise/condition/both?
unforeseen circumstances
remedies
specific performance or not
liquidated damages
measures of damages
mitigation
[separate issues
restitution
third parties]

Chapter 1: How can we tell when a deal has been made?


Section 1 Promises
Restatement (Second) of Contracts 1-3 - Definitions
A CONTRACT is a promise or a set of promises for the breach of which the law gives a
remedy, or the performance of which the law in some way recognizes a duty.
A PROMISE is a manifestation of intention to act or refrain from acting in a specific way, so
made as to justify a promisee in understanding that a commitment has been made.
Where performance will benefit a person other than the promise, that person is a
BENEFICIARY
MANIFESTATIONS OF INTENTION adopts an external/objective standard for interpreting
conduct; it means the external expression of intention as distinguished from an undisclosed
intention.)
An AGREEMENT is a manifestation of mutual assent on the part of two or more persons.
A BARGAIN is an agreement to exchange promises or to exchange a promise for a performance
or to exchange performances.
HAWKINS V. MCGEE (hairy hand case)
Facts: Dr. promises patient a perfect hand (I will guarantee to make the hand a 100% perfect
hand). The operation was not a complete success and the P sued for breach of warranty. The
issue is what measure of damages should be applied.
Issue 1: Can the doctors words be construed as a promise?
Holding 1: The doctors words could reasonably be construed as a promise because he
uttered them several times, and with the purpose of convincing the plaintiff to consent to the
surgery.
Issue 2: What is the proper measure of damages?
Holding 2: Damages given should be the diff b/w the value to P of a perfect hand (like D
promised him) and the value of the hand in the present condition.
RULE: the true measure of Ps damage is the difference b/w the value to him of a perfect
hand or a good hand, such as the jury found the D promised him, and the value of his hand in
its present condition, including any incidental consequences fairly w/in the contemplation of
the parties when they made their contract. Expectation interest.
Pain & suffering should not be included in the Ps damages b/c they were a legal detriment
suffered by him which constituted part of the consideration of the K and were thus the price
he was willing to pay to for a good handthe pain and suffering would have happened even
if the contract went through with no problems.
Restatement (Second) of Contracts 344 Purposes of Remedies
Only some interests are protected by law. The law of contracts generally protects 3 interests:

1. An EXPECTATION INTEREST is ones interest in having the benefit of his bargain by


being put in as good a position as he would have been in had the contract been performed.
2. A RELIANCE INTEREST is ones interest in being reimbursed for loss caused by reliance
on the contract by being put in as good a position as he would have been in had the contract not
been made.
3. A RESTITUTION INTEREST is ones interest in having restored to him any benefit that he
has conferred on the other party.
Section 2 Promissory Agreements
Restatement (Second) of Contracts 201 Whose Meaning Prevails
1. Where the parties have attached the SAME MEANING, that meaning prevails
2. Where the parties have attached DIFFERENT MEANINGS, it is interpreted in accordance
with the meaning attached by one of them if:
a) One party didnt know of a different meaning and the other knew the first partys
meaning
b) One party had no reason to know of a different meaning and the other had reason to
know the meaning attached by the first party.
3. Except as here, no party is bound by the meanings of others.
LUCY V. ZEHMER
Facts: Zehmer, drunk, wrote a contract to Lucy to sell his farm for $50,000. Zehmer later
claimed that he was joking, but Lucy claimed he thought the deal was serious and did not
know that Zehmer was drunk.
Issue: In determining whether a party has made a valid offer, how does the court
determine whether the party had the intent to contract?
Rule: The law imputes to a person an intention corresponding to the REASONABLE
MEANING of his words and acts.
If the words or other acts of one of the parties have but one reasonable meaning, his
undisclosed intention is immaterial except when an unreasonable meaning which he
attaches to his manifestation is known to the other party.
OBJECTIVE VS. SUBJECTIVE THEORIES OF MUTUAL ASSENT
An objective agreement is reached when two people shake hands. A subjective agreement is
reached when two minds have the same view of a thing. There would be no problem of mutual
assent when the bodies and minds shake hands simultaneously. The problems arise when bodies
shake hands while minds do not, or the reverse.
There is no manifestation of mutual assent to an exchange if the two minds attach materially
different meanings to what their bodies do and neither mind knows or has reason to know what
the other mind is thinking, or each mind knows and has reason to know what the other is
thinking.
EMBRY v. HARGADINE, McKITTRICK DRY GOODS CO.
Facts: Embrys contract with McKittrick expired and McK kept putting him off when
Embry tried to talk about a new contract. At one attempted meeting, McK told Embry

Go ahead, youre all right. Get your men out and dont let that worry you. Embry took
this to mean that he was re-employed. When Embry was fired a few months later he sued
for breach of contract. But McK alleges that no re-employment contract was ever made.
Holding: Conversation constituted a contract.
Rule: If a party uses words or acts such that a reasonable person would believe that
he intended to form a contract, and the other party does believe that a contract was
made, the contractor would be bound regardless of his subjective intent. In so far as
their intention is an influential element, it is only such intention as the words or acts of
the parties indicate, not one secretly cherished which is inconsistent with those words or
acts.
OSWALD v. ALLEN
Facts: Oswald contracted with Allen for her Swiss coins. Allen had two collections in two
different boxes - the Swiss Coin Collection and the Rarity Coin Collection (which
contained Swiss coins). The trial judge found that Oswald thought the offer he had
authorized his brother to make was for all the Swiss coins, while Allen thought she was
selling only the Swiss Coin Collection and not the Swiss coins in the Rarity Coin
Collection. Upon realizing the mistake, Allen decided not to sign the contract or to sell
the coins to Oswald.
Holding: No contract
Rule: When any of the terms used to express an agreement is ambivalent, and the
parties understand it in different ways, there cannot be a contract unless one of
them should have been aware of the others understanding.
Even though the mental assent of the parties is not requisite for the formation of a
contract, the facts found by the trial judge clearly place this case within the small group
of exceptional cases in which there is no sensible basis for choosing between
conflicting understandings.
Consider the following situations. In making a contract:
A THINKS

B THINKS

REASONABLE
PERSON
THINKS

CONTRACT FOR

X (Embry and
Lucy)

No contract
(Oswald)

????

PROMISSORY AGREEMENTS can be made when one party makes an offer and the other
accepts it.

A BARTER, as when two people trade goods on the spot on an as is basis, is an agreement to
act but not a contract. There is no promise on either side because no action is to occur in the
future. For the same reason, an offer to barter is not an offer to contract.
OFFERS TO CONTRACT are promises manifesting a commitment to some specified action in
the future for some promise or performance by the offeree. An offer, in legal consequence,
creates a power of acceptance in the offeree. An offeree can exercise this power by assenting to
the offer, without changing its terms or equivocating on his or her commitment, thereby
concluding an agreement.
Restatement (Second) of Contracts 24, 26, 33, 35, 36
An OFFER is the manifestation of willingness to enter into a bargain, so made as to justify
another person in understanding that his assent to that bargain is invited and will conclude it.
Preliminary Negotiations
A MANIFESTATION OF WILLINGNESS TO ENTER INTO A BARGAIN is not an offer if
the person to whom it is addressed knows or has reason to know that the person making it does
not intend to conclude a bargain until he has made a further manifestation of assent.
CERTAINTY
1. Even though a manifestation of intention is intended to be understood as an offer, it cannot be
accepted so as to form a contract unless the terms of the contract are reasonably certain.
2. The terms of a contract are reasonably certain if they provide a basis for determining the
existence of a breach and for giving an appropriate remedy.
3. The fact that one or more terms of a proposed bargain are left open or uncertain may show that
a manifestation of intention is not intended to be understood as an offer or as an acceptance.
THE OFFEREES POWER OF ACCEPTANCE
1. An offer gives the offeree a continuing power to complete the manifestation of mutual assent
by acceptance of the offer.
2. A contract cannot be created by acceptance of an offer after the power of acceptance has been
terminated in one of the ways listed below
METHODS OF TERMINATION OF THE POWER OF ACCEPTANCE
1. An offerees power of acceptance may be terminated by
a) a rejection or counter-offer by the offeree, or
b) lapse of time, or
c) revocation by the offeror, or
d) death or incapacity of the offeror or offeree.
2. In addition, an offerees power of acceptance is terminated by the non-occurrence of any
condition of acceptance under the terms of the offer.
MESAROS V. UNITED STATES
Facts: Congress passed an act to allow for the minting of commemorative coins to raise
funds for the Statue of Liberty. The United States Mint mailed advertising materials
encouraging prospective purchasers to forward early payment for the coins. The order

form included a line for the purchasers signature and stated that reservations received by
December 31, 1985 would be entitled to a pre-issue discount of up to 16%.
Mesaros (P) forwarded her credit card order on November 26, 1985 for $1,675. Demand
for the $5 coins was greater than expected and the coins were sold out before January 6,
1986. On February 18, 1986, Mesaros was informed that the Mint was unable to process
her credit card order. P filed suit claiming that materials sent to them constituted a
binding contract.
Issue: Does an advertisement for the sale of goods constitute an offer?
Rule: Generally, it is considered unreasonable for a person to believe that
advertisements and solicitations are offers that bind the advertiser. The order form
asked in the permissive for the Mint to Please accept my order. If one party solicits and
receives an order from another under the proviso of no acceptance until ratification, the
solicitation is in fact a request for an offer.
LEFKOWITZ V. GREAT MINNEAPOLIS SURPLUS STORE
Facts: the defendant store published a news ad that said, Saturday 9am Sharp, 3 Brand
New Fur Coats, Worth to $100.00, First Come First Served, $1 Each. On April 13, the
defendant store published another news ad that said, Saturday, 9am, 2 Brand New Pastel
Mink, 3-Skin Scarfs, Selling for $89.50, Out they go, Saturday. Each $1.00, 1 Black
Lapin Stole, Beautiful, worth $139.50 $1.00, First Come First Served.
Plaintiff Lefkowitz was the first customer on both days and attempted to purchase the
coat and the stole as advertised and indicated his readiness to pay the sale price of $1.
The defendant refused to sell merchandise to the plaintiff, stating both times that by a
house rule the offer was intended for women only.
Holding: There was in the conduct of the parties a sufficient mutuality of obligation to
constitute a contract of sale.
Rule: The test of whether a binding obligation may originate in advertisements
addressed to the general public is whether the facts show that some performance was
promised in positive terms in return for something requested. Where the offer is clear,
definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer,
acceptance of which will complete the contract.
While an advertiser has the right at any time before acceptance to modify his offer, he
does not have the right, after acceptance, to impose new or arbitrary conditions not
contained in the published offer.
LAPSE OF TIME 41
1. An offerees power of acceptance is terminated at the time specified in the offer, or, if no time
is specified, at the end of a reasonable time.
2. What is a reasonable time is a question of fact, depending on all the circumstances existing
when the offer and attempted acceptance are made.
AKERS V. JD SEDBERRY
Facts: Sedberry entered into a contract with Akers whereby Akers would serve as Chief
Engineer for five years. Sedberry entered into a similar five year employment contract
with Whitsitt. Akers and Whitsitt were to perform their duties at the Jay Bee
Manufacturing Company in Tyler, Texas.

Ps had difficulty working with Sorenson, the manager at Jay Bee and the Ps met with
Sedberry without Sorensons knowledge to discuss these issues. As a show of good faith,
Ps offered their resignations on ninety days notice; Sedberry refused. Ps returned to Jay
Bee with instructions; however, the next day Mrs. Sedberry informed Ps that their
resignations were accepted effective immediately.
Ps sued D for breach of their employment contracts and contended that Mrs. Sedberry
had refused their resignations and that no offer remained open. The trial court awarded
damages to Ps and D appealed.
Issue: If two parties are in each others presence and one party extends an offer without
indicating any time period for acceptance, for how long will the offer remain open?
Rule: An employees tender of resignation is not binding until it has been accepted
according to its terms and within the time fixed. An offer may be terminated if it is not
accepted within a reasonable time. The question of what is a reasonable time, where no
time is fixed, is a question of fact, depending on the nature of the contract proposed, the
usages of business and other circumstances of the case. Ordinarily, an offer made by one
to another in a face to face conversation is deemed to continue only to the close of
their conversation, and cannot be accepted thereafter.
Restatement (Second) of Contracts 38, 39, 59
REJECTION
1. An offerees power of acceptance is terminated by his rejection of the offer, unless the offeror
has manifested a contrary intention.
2. A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an
intention to take it under further advisement.
COUNTER-OFFERS
1. A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the
original offer and proposing a substituted bargain differing from that proposed by the original
offer.
2. An offerees power of acceptance is terminated by his making of a counter-offer, unless the
offeror has manifested a contrary intention or unless the counter-offer manifests a contrary
intention of the offeree.
PURPORTED ACCEPTANCE WHICH ADDS QUALIFICATIONS
A reply to an offer which purports to accept it but is conditional on the offerors assent to terms
additional to or different from those offered is not an acceptance but is a counter-offer.
ARDENTE V. HORAN
Facts: P made a bid for Ds Newport home. D accepted the bid and the P executed the
agreement. The Ps attorney returned documents signed along with a check and a letter
soliciting confirmation that certain items be left in the home. D refused to sell those items
and did not sign the agreement. D directed his attorney to return the check and refused to
sell the home after that.
Issue: Was there an acceptance of the offer, even as the P added new terms to it?

Rule: To be effective, an acceptance must be definite and unequivocal. The acceptance


may not impose additional conditions on the offer, nor may it add limitations.
An acceptance may be valid despite conditional language if acceptance is independent
of condition.
Restatement (Second) of Contracts 42, 43, 46, 50, 53
REVOCATION BY COMMUNICATION FROM OFFEROR RECEIVED BY OFFEREE
An offerees power of acceptance is terminated when the offeree receives from the offeror a
manifestation of an intention not to enter into the proposed contract.
INDIRECT COMMUNICATION OF REVOCATION
An offerees power of acceptance is terminated when the offeror takes definite action
inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable
information to that effect.
REVOCATION OF GENERAL OFFER
Where an offer is made by advertisement in a newspaper or other general notification to the
public or to a number of persons whose identity is unknown to the offeror, the offerees power of
acceptance is terminated when a notice of termination is given publicity by advertisement or
other general notification equal to that given to the offer and no better means of notification is
reasonably available.
ACCEPTANCE OF OFFER DEFINED; ACCEPTANCE BY PERFORMANCE;
ACCEPTANCE BY PROMISE
1. ACCEPTANCE OF AN OFFER is a manifestation of assent to the terms thereof made by the
offeree in a manner invited or required by the offer.
2. ACCEPTANCE BY PERFORMANCE requires that at least part of what the offer requests be
performed or tendered and includes acceptance by a performance which operates as a return
promise.
3. ACCEPTANCE BY A PROMISE requires that the offeree complete every act essential to the
making of the promise.
ACCEPTANCE BY PERFORMANCE; MANIFESTATION OF INTENTION NOT TO
ACCEPT
1. An offer can be accepted by the rendering of a performance only if the offer invites such an
acceptance.
2. Except as stated in 69, the rendering of a performance does not constitute an acceptance if
within a reasonable time the offeree exercises reasonable diligence to notify the offeror of nonacceptance.
3. Where an offer of a promise invites acceptance by performance and does not invite a
promissory acceptance, the rendering of the invited performance does not constitute an
acceptance if before the offeror performs his promise the offeree manifests and intention not to
accept.

PETTERSON V. PATTBURG (has sort of been overruled by Marchiando)


Facts: D bought mortgage from P on agreement that D would give P $780 back if P paid
the full mortgage by May 31st. in late may, P went to pay off the balance of his mortgage,
exhibiting cash at Ds doorstep. D refused to take the money because he had sold the
mortgage to a third party and therefore could not rebate the $780. P then had to pay the
full amount, and sued for $780 plus interest.
Rule: The offer of a reward in consideration of an act to be performed is revocable
before the very act requested has been done. An offer may be withdrawn before
acceptance without any formal notice. If the offeror can say I revoke before the offeree
accepts, however brief the interval of time between the two acts, there is no escape from
the conclusion that the offer is terminated.
Dissent: It is a principle of fundamental justice that if a promisor himself is the cause of a
failure of performance either of an obligation due him or of a condition upon which his
own liability depends, he cannot take advantage of the failure.
[In unmistakable terms, the defendant agreed to accept payment, yet we are told that the
defendant intended, and the plaintiff should have understood, that the act requested by the
defendant, as consideration for his promise to accept payment, included performance by
the defendant himself of the very promise for which the act was to be a consideration. So
construed, the defendants promise or offer, though intended to induce action by the
plaintiff, is but a snare and a delusion.]
Restatement (Second) of Contracts 25, 37, 45, 54
OPTION CONTRACTS is a promise which meets the requirements for the formation of a
contract and limits the promisors power to revoke an offer.
If I say, Ill sell you a piece of land for $10 million, offer open for 30 days, I could still
sell it to someone else. But we could make an arrangement whereby if you pay me $30k
for the option to buy, I cant sell to anyone but you for 30 days.
TERMINATION OF POWER OF ACCEPTANCE UNDER OPTION CONTRACT
The power of acceptance under an option contract is not terminated by rejection or counter-offer,
by revocation, or by death or incapacity of the offeror, unless the requirements are met for the
discharge of a contractual duty.
OPTION CONTRACT CREATED BY PART PERFORMANCE OR TENDER
1. Where an offeror invites an offeree to accept by rendering a performance and does not invite a
promissory acceptance, an option contract is created when the offeree tenders or begins the
invited performance or tenders a beginning of it.
2. The offerors duty of performance under any option contract so created is conditional on
completion or tender of the invited performance in accordance with the terms of the offer.
ACCEPTANCE BY PERFORMANCE; NECESSITY OF NOTIFICATION TO OFFEROR
1. Where an offer invites an offeree to accept by rendering a performance, no notification is
necessary to make such an acceptance effective unless the offer requests such a notification.

2. If an offeree who accepts by rendering a performance has reason to know that the offeror has
no adequate means of learning of the performance with reasonable promptness and certainty, the
contractual duty of the offeror is discharged unless
a) the offeree exercises reasonable diligence to notify the offeror of acceptance, or
b) the offeror learns of the performance within a reasonable time, or
c) the offer indicates that notification of acceptance is not required.
MARCHIANDO V. SHECK
Facts: Defendant Scheck, in writing, offered to sell real estate to a specified prospective
buyer and agreed to pay a percentage of the sales price as a commission to the broker.
The offer fixed a 6 day time limit for acceptance. Defendant, in writing, revoked the
offer. The revocation was received by the broker, Plaintiff Marchiondo, on the morning of
the 6th day. Later that day, the broker obtained the offerees acceptance. Plaintiff
Marchiondo, claiming breach of contract, sued the Defendant Scheck for the commission
stated in the offer.
Holding: Brokers partial performance of locating the buyer constituted an acceptance of
the contract, which the D cannot now revoke.
Rule: Once partial performance is begun pursuant to the offer made, a contract results.
This type of contract is termed a contract with conditions or an option contract.
Defendants right to revoke his offer depends upon whether plaintiff had partially
performed before he received defendants revocation. Part performance by the offeree of
an offer of a unilateral contract results in a contract with a condition
NOTES ON PARTIAL PERFORMANCE RULES: MARCHIANDO AND PATTBERG
Person A says to Person B : Ill pay you $1,000 to run across the Brooklyn Bridge.
B puts on her running shoes and starts running. She gets half-way across when A drives past in
his car and says Sorry, the deals off.
What does this mean? Two different interpretations:
1. Once B has gotten that far, she has an option to complete the run and get the $1,000. A cannot
take back the offer once B has started the performance. (This is the theory behind Marchiondo)
2. A can take it back any time before the run is complete. A made a unilateral offer to pay for the
completed run. If A revokes before the run is complete, no contract has been made. (This is the
theory behind Pattberg.)
Fairness Issues
Partial Performance Its not fair for B to undertake to do it and then for A to renege
Option Its not fair for A to have a commitment when B doesnt
NB: The more modern view is the one that supports the option contract. Marchiondo was
decided in 1967 (after Pattburg in 1928) and is now the most widely accepted way of viewing
these types of situations. Partial performance makes the option contract binding.
Fuzzy line between partial performance and preparation!
NOTES ON ACCEPTANCE DEFAULT RULES
Because the offeror is master of the offer, the offeror can specify exactly what will constitute
acceptance. Often, however, offerors do not make the mode or manner of acceptance clear. In
that situation, the law must resolve a dispute based on suppletory of default rules. In this

context, DEFAULT RULES are rules governing a dispute over contract formation unless the
offer manifests a contrary intention. Default rules respect party autonomy because the offeror can
override or the parties can contract around them. The prevalence of default rules in contract law
indicates the importance of the autonomy principle. Contract law generally is loath to impose
duties on the parties, preferring to enforce their voluntary undertakings.
When reading cases, you must look at whether the rules being established are default
rules or fixed rules. People can bargain either way from the default rule (making the rules
more or less favorable to one party or another), but if the parties say nothing, then the
default rule is in effect
Restatement (Second) of Contracts 32
INVITATION OF PROMISE OR PERFORMANCE
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.
A UNILATERAL CONTRACT is one in which no promisor receives performance as
consideration for his promise.
A BILATERAL CONTRACT is one is which there are mutual promises between two parties to
the contract; each party being both a promisor and a promise.
DAVIS V. JACOBY
Facts: Blanche Whitehead and her husband Rupert enjoyed a close relationship with their niece
Caro Davis (P). The Whiteheads suffered health and financial difficulties and Rupert asked
Davis to come to California to help take care of Blanche and assist Rupert with his business
affairs. She was promised an inheritance in return for her assistance. One week after Davis
agreed Rupert committed suicide. Davis moved to California to care for Blanche. Upon
Blanches death Davis learned that Rupert had left his entire estate to two nephews. Davis sued
Ruperts estate (Jacoby, D), asserting that her agreement with Rupert had created a contractual
obligation for him to make a will and bequest his estate to her and that she was entitled to quasispecific performance. Davis appealed the trial courts ruling in favor of the estate that no contract
had been formed because Rupert had made a unilateral offer that could only have been accepted
via performance, and that before the Ps could perform, the offer was revoked by Ds death.
Holding: The contract was bilateral, and thus Caro fully performed her part of the contract and
deserves the inheritance.
Issue: What type of offer is presumed to have been made where the offer is ambiguous as to
whether it is unilateral or bilateral?
Rule: The DEFAULT RULE is that an offer is presumed to be bilateral in the absence of a
specific determination.
Restatement (Second) of Contracts 19, 69
CONDUCT AS MANIFESTATION OF ASSENT
1. The manifestation of assent may be made wholly or partly by written or spoken words or by
other acts or by failure to act.

2. The conduct of a party is not effective as a manifestation of his assent unless he intends to
engage in the conduct and knows of or has reason to know that the other party may infer from his
conduct that he assents.
3. The conduct of a party may manifest assent even though he does not in fact assent. In such
cases a resulting contract may be voidable because of fraud, duress, mistake, or other
invalidating cause.
ACCEPTANCE BY SILENCE OF EXERCISE OF DOMINION
1. Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in
the following cases only:
a) Where an offeree takes the benefit of offered services with reasonable opportunity to
reject them and reason to know that they were offered with the expectation of
compensation.
b) Where the offeror has stated or given the offeree reason to understand that the assent
may be manifested by silence or inaction, and the offeree in remaining silent and inactive
intends to accept the offer.
c) Where because of previous dealings or otherwise, it is reasonable that the offeree
should notify the offeror if he does not intend to accept.
2. An offeree who does any act inconsistent with the offerors ownership of offered property is
bound in accordance with the offered terms unless they are manifestly unreasonable. But if the
act is wrongful as against the offeror it is an acceptance only if ratified by him.
HOUSTON DAIRY V. JOHN HANCOCK MUTUAL LIFE INSURANCE
Facts: D offered loan to P, provided that an ahswer be given within 7 days including a
16k deposit. 18 days later, P mailed written acceptance and a check, but then P found a
better loan and pulled out of the loan with D. P then sued for the 16k back, but the trial
court ruled against them on the ground that D waived the seven day limit and accepted
Ps check as a counter offer by depositing the check. BUT Houston Dairy neither had
previous dealings nor had otherwise been led to understand that John Hancocks silence
and temporary retention of its deposit would operate as acceptance. In addition, Houston
Dairy had no knowledge that its check had been deposited in John Hancocks depository.
Holding: Judgment for Houston Dairy, because silence and deposit of check does not
constitute an acceptance of HDs offer to take the loan. Check returned as form of
restitution, on principle of unjust enrichment.
Rule: For acceptance to have effect, it must be communicated to the proposer of the
offer. The mere depositing of a check is insufficient to constitute acceptance of an
offer.
COLE-MCINTYRE-NORFLEET CO V. HOLLOWAY
Facts: CMNs traveling salesman sold 50 barrels of meal to H to be ordered out by July
31st. H ordered shipment of the meal on May 26. H was then informed by CMN that its
order was never accepted, since the salesman had no authority to accept on their behalf,
and they never notified H that its order was accepted. The contract provided that the deal
wasnt binding until the order was accepted by the seller at the Memphis office. (Between
the initial order and May 26, the value of the goods increased by 50% so CMN didnt
want to part with them and H didnt want to pay more for them elsewhere.)

Rule: An offer to buy or sell is not binding until its acceptance is communicated to the
other party. The acceptance, however of such an offer, may be communicated by the other
party either by formal acceptance, or acts amounting to acceptance. Delay in
communicating action as to the acceptance MAY amount to an acceptance itself. When
the subject of a contract will become unmarketable by delay, delay in notifying the
other party of its decision will amount to an acceptance. In this case, silence means
assent.
SEAVIEW ASSN OF FIRE ISLAND, NY, INC. V. WILLIAMS
Facts: Seaview Assn is homeowners group, splitting the cost of maintaining its land,
recreational facilities, police, etc, and they also own the streets. Williams moved to
Seaview from a neighboring town but refuses to pay Assn dues because they claim to be
nonmembers and nonusers of the recreational facilities. The Association sued for
membership fees from 1976-84.
Holding: The D knew of the association and the nature of the community, and thus
impliedly accepted their terms upon purchasing the house.
Rule: Where there is knowledge that a private community homeowners association
provides facilities and services for the benefit of community residents, the purchase of
property there may manifest acceptance of conditions of ownership, among them
payment for the facilities and services offered. The resulting implied-in-fact contract
includes the obligation to pay a proportionate share of the full cost of maintaining those
facilities and services, not merely the reasonable value of those actually used by any
particular resident.
NOTE ON IMPLIED-IN-FACT CONTRACTS
A boy comes to your door and asks, Do you want me to shovel your walk? You say yes. He
does it. Then he comes to your door and says, Thatll be $15. Do you owe it to him?
Typical answer You are liable to pay the customary price.
SUN PRINTING AND PUBLISHING ASSN V. REMINGTON PAPER & POWER CO.
Facts: Sun contracted with Remington for deliver of 16,000 tons of paper between Sept
1919 and Dec 1920. Set price for Sept 1919, and another for Oct-Dec 1919, and agreed
that for the balance of the period they would set the price 15 days prior to the expiration
of each period. Contract asserted that the price should not be higher than the price
charged by Canadian Export Paper. When the time came to agree on a new price and its
duration, Defendant Remington gave notice that the contract was imperfect because the
contract agreed to a price but not the TERM for which the price would apply, and
disclaimed for the future an obligation to deliver. The plaintiff took the ground that the
price was set by the established standard and made demand that during each month of
1920 the defendant deliver 1,000 tons of paper at the contract price for news print
charged by Canadian Export Paper Co. The demand was renewed month by month till the
expiration of the year. This action has been brought to recover the ensuing damage.
Holding: Agreement in respect of time is as essential to a completed contract as an
agreement in respect of price. The agreement was not reached, and the defendant is not
bound.

Rule: Agreement as to price is insufficient without agreement as to duration of that


price, and vice versa.
Dissent: The law should do here what it has done in so many other casesapply the rule
of reason and compel parties to contract in the light of fair dealing. It could hold this
defendant to deliver its paper as it agreed to do, and take for a price the Canadian Export
Paper Co contract price for a period which is reasonable under all the circumstances and
conditions as applied in the paper trade.
ARNOLD PALMER GOLF CO. V. FUQUA INDUSTRIES, INC.
Facts: Two companies had a lot of meetings to discuss the establishment of a business
relationship, drew up terms in a Memorandum of Intent. Certain language states clearly
that obligations of parties will be subject to fulfillment only when a definitive agreement
is prepared, and approved by the board of directors. The board of directors, three months
later, revealed that they did not approve so the deal was off. AP sued, and district court
granted summary judgment for Fuqua, determining that the Memorandum of Intent was
not a contract because it evidenced the intent of the parties not to be contractually bound.
Issue: The primary issue in this case is whether the parties intended to enter into a
binding agreement when they signed the Memorandum of Intent, and the primary issue in
this appeal is whether the district court erred in determining this question on a motion for
summary judgment.
Holding: There is an issue of fact as to whether the Memo of Intent was meant to be
binding, so the jury must consider it. Summary judgment was erroneous.
Rule: The issue the parties intention to be bound is a proper one for resolution by the
trier of fact.
NEGOTIATIONS V. AGREEMENTS
When negotiations proceed point-by-point before anyone makes a legal offer, an agreement on a
point is normally not intended or understood to have legal consequences unless and until
agreement is reached on the final whole. In some cases, however, agreements in the course of
negotiations are intended to have legal consequences before the parties reach or formalize the
final agreement. In principle, there is no reason why an agreement made during negotiations
cannot have legal effect if it is not too indefinite and the parties intend to be bound.
NOTE ON GOOD FAITH IN NEGOTIATIONS
US legal system contains no general duty to negotiate in good faith. US courts generally
refrain from second-guessing parties decisions to back out even to the point of terminating
negotiations after considerable investments of efforts by both sides. Compelling people to deal or
deal on terms they have not accepted voluntarily runs afoul of the autonomy principle.

A/S APOTHEKERNES LABORATORIUM FOR SPECIALPRAEPARATER v. I.M.C.


CHEMICAL GROUP, INC.
Facts: In March of 1977, Apothekernes began negotiating with IMC for the purchase
various of IMCs assets. After months of negotiation, the parties signed a Letter of Intent,
intended to set form the terms on which they intend to negotiate and consummate an

Agreement of Sale The letter delineated what they had agreed upon, what required
further negotiation, and provided for an Agreement of Sale to be executed within 60 days.
But then the president of IMCs parent company rejected the deal, and his decision was
binding on the board. Apothekernes sued, asserting state law claims of breach of contract,
fraud, and estoppel and seeking damages and specific performance for what it perceived
as a consummated deal for the sale of IMCs Biochemical Division.
Holding: A contract was never entered into and therefore there was no breach.
Rule: An obligation to negotiate in good faith does not include a duty to approve the
final deal NOR to advocate the deal to the ultimate decision maker.
ITEK CORP v. CHICAGO AERIAL INDUS., INC.
Facts: Itek and CAI were negotiating a takeover, and reached an agreement that CAI
accepted subject to certain conditions. A letter of intent was signed, providing that if the
parties fail to agree upon and execute a contract they wont be under any further
obligation to one another. A few months later, CAI got a better offer from Bourns Inc. for
purchase. CAI took the Bourn deal and notified CAI that their deal was off. Itek then
sued CAI. Court granted summary judgment for defendant.
Holding: There were issues of material fact as to whether the parties intended the contract
to become binding during negotiations, so summary judgment was inappropriate.
Rule: Under IL law, whether a contract becomes binding during negotiations depends on
the parties intentions. A binding agreement can occur even when some matters are left
for future agreement. The trier of fact must look at circumstances surrounding
negotiations and principals acts around that time to determine the intent or existence of
formal agreement.
2 problems of indefiniteness:
1. Is there enough for the court to be able to offer a remedy? Is there some standard of default of
how often the price is adjusted?
2. Parties have said as to indefiniteness, were going to talk about this. Does that mean that
even if we did find a custom, we cant enforce it because the parties agreed to negotiate and have
specific control over this outcome?
Section 3 The Requirement of a Writing
STATUTE OF FRAUDS
The following classes of contracts are subject to a statute forbidding enforcement unless there is
a written memorandum or an applicable exception:
a) A contract of an executor or administrator to answer for a duty of his decedent (the
executor-administrator provision);
b) A contract to answer for the duty of another (the suretyship provision);

c) A contract made upon consideration of marriage (the marriage provision);


d) A contract for the sale of an interest in land (the land contract provision);
e) A contract that is not to be performed within one year from the making thereof (the
one-year provision).
Note: Reliance can sometimes serve to enforce a contract that would otherwise be
unenforceable because of the Statute of Frauds.

CHOMICKY V. BUTTOLPH
Facts: Contract was drawn up for C to by Bs land contingent on D obtaining a
subdivision permit from Liecester Planning Commission. C proposed that even if permit
were denied, B retain and easement instead; B called C to indicate that this arrangement
was acceptable. The permit was then denied, and B called C to say the deal was off,
because he wanted to sell the whole parcel or nothing. P sued for specific performance on
oral contract from phone call.
Holding: Making moving arrangements and conducting title search does not constitute
partial performance. Even though D admitted to existence of oral contract, the Statute of
Frauds applies as defense to specific performance.
Rule: One may admit the sale of land by a verbal contract, and yet defend an action for
specific performance by pleading the statute of frauds. Validation of oral contract in
spite of statute of frauds for real estate depends on doctrine of part performance.
UETA UNIFORM ELECTRONIC TRANSACTIONS ACT
The UETA establishes that electronic records and signatures generally are equivalent to paper
writings and manual signatures, thereby displacing statutes of frauds in a great many cases.
a) This act does not require a record or signature to be created, generated, sent, communicated,
received, stored, or otherwise processed or used by electronic means or in electronic form.
b) This act applies only to transactions between parties each of which has agreed to conduct
transactions by electronic means (determined from the context and surrounding circumstances,
including the parties conduct)
c) A party that agrees to conduct a transaction by electronic means may refuse to conduct other
transactions by electronic means
d) Except as otherwise provided in this Act, the effect of any of its provisions may be varied by
agreement.
e) Whether an electronic record or electronic signature has legal consequences is determined by
this Act and other applicable law.

LEGAL RECOGNITION OF ELECTRONIC RECORDS, ELECTRONIC SIGNATURES,


AND ELECTRONIC CONTRACTS
a) a record or signature may not be denied legal effect or enforceability solely because it is in
electronic form.
b) a contract may not be denied legal effect or enforceability solely because an electronic record
was used in its formation
c) if a law requires a record to be in writing, an electronic record satisfies the law
d) if a law requires a signature, an electronic signature satisfies the law.
POWELL v. CITY OF NEWTON v. SHAVER WOOD AND DICKSON ENGINEERING
Facts: Powell sued city because their subcontractees cut down trees on his land. When
aprties were in court, the citys attorney notified judge that a settlement agreement had
been reached. Judged asked P directly if it waas his agreement, he waffled but then said
yes. Soon after, e-mails exchanged drafted a memo of the agreement and the final
agreement was exchanged via e-mail a few weeks later. Then the city transferred 40k to P,
as was agreed upon in the settlement. A month after that the city moved for the court
order to require P to meet his obligations under the settlement, but the P replied saying
that he wasnt bound, because his in-court statement was coerced. Further stated that the
contract was void under the statute of frauds.
Holding: We conclude that policies embedded in the statute of frauds have been
recognized and preserved. Plaintiff is judicially estopped to deny his in-court assent to the
settlement agreement. Accordingly, we affirm as modified herein the decision of the
Court of Appeals upholding the trial courts order enforcing the settlement agreement.
Rule: The statute of frauds provides that all contracts to sell or convey any lands or any
interest in or concerning them be put in writing and signed by the party to be charged
therewith. AND Electronic signatures are given the same legal recognition as
traditional signatures and may satisfy the statue of frauds.
DOCTRINE OF JUDICIAL ESTOPPEL: a party will not be allowed to maintain
inconsistent positions in judicial actions and proceedings.
The Court must consider:
1. The partys subsequent position is clearly inconsistent with its earlier
position
2. Judicial acceptance of a partys position might threaten judicial integrity
because a court has previously accepted that partys earlier inconsistent
position.
3. The party seeking to assert an inconsistent position would derive an unfair
advantage or impose an unfair detriment on the opposing party as a result.

Chapter 2: Of the promises that were made, which ones are going to be enforced?
THE JUSTIFICATION PRINCIPLE The law enforces promises when prima facie there are
sufficient legal reasons for a court to enforce the promise.
Section 1 The Bargained-For Exchange
CONSIDERATION: a performance or a return promise that is bargained-for in exchanged for
the promise sought to be enforced.
CONGREGATION KADIMAH TORAS-MOSHE v. DeLEO
Facts: Decedent suffered long illness, during which he promised to give congregation
$25,000. Witnesses heard this happen 4-5 times but they never put it in writing. When he
died, the congregation sued for enforcement of the oral agreement saying that it is an
enforceable promise because it was supported either by consideration and bargain, or by
reliance.
Holding: Promise was not supported by consideration or reliance, so the court cannot
enforce it.
Rule: There was no legal benefit to promisor nor detriment to the promisee, and thus
NO CONSIDERATION. A hope or expectation, even though well founded, is not
equivalent to either legal detriment or reliance.
Restatement (Second) of Contracts 17, 71, 72, 75, 79
17 REQUIREMENT OF A BARGAIN
1. Except as stated in Subsection 2, the formation of a contract requires a bargain in which there
is a manifestation of MUTUAL ASSENT to the exchange and a CONSIDERATION.
71 REQUIREMENT OF EXCHANGE; TYPES OF EXCHANGE
1. To constitute consideration, a performance or a return promise must be bargained for.
2. A performance or return 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.
3. The performance may consist of:
a) an act other than a promise, or
b) a forbearance, or
c) the creation, modification, or destruction of a legal relation
4. The performance or return promise may be given to the promisor or to some other person. It
may be given by the promisee or by some other person.
75 EXCHANGE OF PROMISE FOR PROMISE
Except as stated in 76 and 77, a promise which is bargained for is consideration if, but only if,
the promised performance would be consideration.

79 ADEQUACY OF CONSIDERATION; MUTUALITY OF OBLIGATION


If the requirement of consideration is met, there is no additional requirement of
a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the
promisee; or
b) equivalence in the values exchanged; or
c) mutuality of obligation
SHNELL V. NELL
Facts: Schnells wife died. In her will she promised Nell and co. $200 each. But all her
property was owned jointly with her husband, so it automatically wnet to him upon her
death. As such, parties had written document agreeing to the gift, signed, in exchange for
one penny to be paid to Mr. Schnell. But then Mr. Schnell refused to pay up.
Holding: The mere promise to pay $600 in exchange for 3 cents is an unconscionable
contract. This promise was to make a gift, and was not enforceable.
Issue: Does the instrument sued on express consideration sufficient to give it legal
obligation?
Rule: As a general proposition, inadequacy of consideration does not vitiate an
agreement. But this doctrine does not apply to a mere exchange of sums of money, of
coin, whose value is exactly fixed, but to the exchange of something of, in itself,
indeterminate value.
A moral consideration, only, will not support a promise
FORMAL THEORY VS. SUBSTANTIVE THEORY OF BARGAINING:
FORMAL THEORY: by requiring a bargain, its a formal thing that was seriously made and not
a frivolous situation.
SUBSTANTIVE THEORY: if a bargain is there, then the good in society increases. Since the
things being exchanged are worth more to the other person, the net satisfaction is greater after
the trade.
On the formal theory, Schnell v. Nell would be decided incorrectly and the contract
would be enforceable. But on the subjective theory, Schnell v Nell would be decided
correctly and the contract is not enforceable, its a gift.
NOTE ON CONSIDERATION AS A TERM
Terminologically, many courts will say that reliance is consideration or even that unjust
enrichment is consideration. These uses of the term have nothing to do with exchange.
Consideration so used refers to a reason to enforce a contract, including among the reasons
bargained for exchange, reliance, and unjust enrichment. The Restatement, by contrast, uses
consideration to refer only to a bargained-for exchange of values, treating promises
enforceable for reasons of reliance or unjust enrichment as contracts without consideration.
HAMER V. SIDWAY

Facts: William Story promised nephew $5000 if he refrained from drinking, tobacco,
swearing and gambling til he was 21. Nephew assented and performed fully. After his
21st birthday, nephew notified WS, who wrote a letter guaranteeing money with interest,
to be delivered when he thought the nephew would be capable of taking care of it. The
uncle died without paying and the nephew sued his estate for it.
Holding: That the nephew restricted his lawful freedom of action upon the faith of his
uncles agreement was consideration for the promise, and thus since the uncle benefited
from the nephews action, the nephew should be enriched.
Rules: Consideration means not so much that one party is profiting as that the other
abandons some legal right in the present or limits his legal freedom of action in the
future, as an inducement for the promise of the first.
a contract is binding if it is bargained for a benefit or a detriment.

Promise

Exchanged for

Benefit or
Detriment

(or a promise of a
benefit or detriment)

(Bargained for)

BATSAKIS v. DEMOTIS
Facts: Defendant Demotsis was desperate for money. She had money in the United States
but was in Greece and could not access her money in the US. On April 2, 1942, in return
for 500,000 drachmae (the equivalent of $25 US) Defendant Demotsis signed a contract
with Plaintiff Batsakis saying that she had received $2k from him and would pay him
back with 8% interest at the end of the war or as soon as she could. Defendant Demotsis
claims she never received more than the $25 US and so only wants to pay him the $25
with interest. Plaintiff Batsakis sued for the $2k plus interest.
Holding: P should get the $2k plus interest.
Rule: Mere inadequacy of consideration will not void a contract.
FAILURE OF CONSIDERATION: not getting what you want (not holding up your end of the
bargain)
WANT OF CONSIDERATION: there was never consideration in the first place.
INADEQUACY OF CONSIDERATION: worth 25 or 2000 (a bad deal)
NEWMAN & SNELLS STATE BANK v. HUNTER
Facts: At the time of Hunters death, Plaintiff Bank had his note for $3,700 with 50 shares
of the capital stock of the Hunter Company as collateral. But the note was worthless
because his estate was insolvent. On March 1, 1926, defendant Mrs. Hunter gave Plaintiff
Bank a in return for her late-husbands note/collateral stock. Defendant Hunter also paid

the Plaintiff bank the earned interest due on the late-husbands note. Plaintiff Bank sued
for Defendant Hunter to pay them in accordance with her note.
Holding: When plaintiff surrendered this worthless piece of paper to the defendant, it
parted with nothing of value, and defendant received nothing of value, the plaintiff
suffered no loss or inconvenience, and defendant received no benefit.
Rule: A bargain made without consideration is not an enforceable contract.
General rule of consideration: If parties bargained, judges dont care what they
bargained for unless one party got a zero.
DYER v. NATIONAL BY-PRODUCTS, INC.
Facts: Dyer lost his right foot in a job-related accident at National By-Products. After a
paid leave of absence, Dyer returned to work in his previous capacity as a foreman on
Aug 16, 1982. He was laid off on March 11, 1983. Dyer claims that this is a breach of an
oral contract, in which he agreed to forbear from litigating an injury compensation claim
against D in return for a promise lifetime employment. Plaintiff Dyer sued for breach of
that oral contract. Trial court found that there was no consideration for the contract
because Ps injury claim was invalid and therefore was worthless. P appealed.
Holding: Jury should consider only whether Dyers forbearance to assert claim was made
in good faith (whether he actually thought he had a valid claim and thus that he was
giving up something of worth.)
Rule: The requirement that the forebearing party assert the claim in good faith
sufficiently protects the policy of law that favors settlement of controversies.
Compromise of a doubtful right asserted in good faith is sufficient consideration for a
promise.
LAKE LAND EMPLOYMENT GROUP OF AKRON v. COLUMBER
Facts: Columber worked for Lake Land from 88-01, and signed a non competition
agreement in 91 at which point he received no salary increase, benefits, or other
remuneration for consideration. Columber went on to start a firm within 50 miles of lake
land, thus violating the agreement. P sued for money damages and an injunction, while D
alleged that the agreement was made without consideration and thus was unenforceable.
Holding: Consideration did exist, and so judgment is for the P.
Rule: Consideration exists to support a non-competition agreement when, in exchange
for the assent of an at-will employee to a non-competition agreement, the employer
continues an at-will employment relationship that could legally be terminated without
cause.
Dissent: No consideration because the exchange involved neither a detriment to Lake
Land nor a benefit to Columber.
WOOD v. LUCY, LADY DUFF-GORDON
Facts: Lucy employed P to have the exclusive right to place her endorsements on others
designs, and to place her own designs on sale, or to license others to market them. IN
return she would have half of all profits and revenues derived from the contracts he

makes. P sues because D placed endorsement on her own and withheld profits from him.
D alleges that agreement of employment lacks elements of a contract because P didnt
bind himself to anything (there was no consideration.)
Holding: The acceptance of exclusive agency was an assumption of its duties. Ps
promise to pay D half of his profits and to render accounts monthly was a promise to use
reasonable efforts to bring profits and revenues into existence.
Rule: A promise may be lacking, and yet the whole writing may be instinct with
obligation. If so there is a contract.
LEVINE V. BLUMENTHAL
Facts: Defendant Blumenthal leased store space from Plaintiff Levine for a two year term
to start May 1, 1931. Defendant Blumenthal agreed to pay $2100 ($175/month) for the
first year and $2400 ($200/month) for the second. However, business was poor, in April
1932 Blumenthal told Levine that he couldnt afford the upcoming rent increase. Plaintiff
Levine agreed to allow Defendant Blumenthal to continue to lease at the lower rate until
business improved. Defendant Blumenthal left the space one month before the lease
ended and did not pay that last months rent.
Plaintiff sues defendant for the unpaid balance of the rent from each month ($25/month)
of the second year and the entirety of the last months rent ($200).
Holding: Judgment for the P. The agreement for the lower rate was not binding because
there was no consideration.
Rule: The subsequent agreement, to impose the obligation of a contract, must rest
upon a new and independent consideration.
Restatement (Second) of Contracts 175
WHEN DURESS BY THREAT MAKES A CONTRACT VOIDABLE
1. If a partys 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.
GROSS VALENTINO PRINTING CO. v. CLARKE
Facts: Plantiff Printing Company entered into a contract to print magazines for Defendant
Magazine Publisher. The price quote of $6,695 was offered and accepted in July of 1979.
According to defendant: Defendant brought materials to plaintiffs office on Aug 8, 1979.
On Aug 14, 1979, plaintiff called defendant to tell him the job was going to cost more
than we thought. Plaintiff sent Defendant a letter on Aug 15, 1979 with the same terms
as the earlier contract, but now with a price of $9300. Defendant made no objection at
this time. Plaintiff delivered the first 1/3 of the magazines on Aug 30, 1979. Defendant
signed the purchase order and paid $4650. The Defendant received the last 2/3 of the
shipment. On Oct 28, 1979, defendant informed plaintiff he would not accept the price
increase. Plaintiff sued for breach of contract.
Defendant asserted 3 affirmative defenses: lack of consideration, fraudulent or innocent
misrepresentation, and business compulsion.
Holding: No new consideration required because its a UCC contract, and the deal was
not made under duress. Judgment for P.
Rules:

Under the UCC, the modification of an existing contract needs no


consideration to be binding
The conduct of the party obtaining the advantage must be tainted with some
degree of fraud or wrongdoing in order to have an agreement invalidated on
the basis of duress.
ANGEL V. MURRAY
Facts: Maher and the city entered into a 5 yr contract to start July 1, 1964 and end June
30, 1969. City would pay $137,000/yr in return for collecting waste generated in the city.
In June of 1967, Maher asked for an additional $10k/yr because the number of new
dwelling units unexpectedly increased by 400, increasing the cost of collection
substantially. Maher claims that the contract was predicated on the fact that there had
been an average of 20-25 new units per year. Council agreed to pay Maher the additional
money, and did so again the following year. Plaintiff Angel sued for an order to make
Defendant Maher repay defendant city $20k.
Holding: Judgment for D.
Rule: RST 89: A promise modifying a duty under a contract is binding if the parties
voluntarily agree and
1. the promise modifying the original contract was made before the contract
was fully performed on either side,
2. the underlying circumstances which prompted the modification were
unanticipated by the parties, and
3. the modification is fair and equitable.
Section 2 Reliance on a Promise
RELIANCE PRINCIPLE
DEVECMON v. SHAW
Facts: P said that Combs promised to reimburse him for his expenses if he went to
Europe. The trip was taken, and the money was expended, and P wants to be paid back.
The trial court refused to permit the evidence, and P appealed.
Holding: Evidence should be permitted.
Rule: The testimony would have tended to show that the plaintiff incurred expense at the
insistence and request of the deceased, and upon an express promise by him that he
would repay the money spent. RELIANCE INTEREST: it was a burden incurred at the
request of the other party, and was certainly a sufficient consideration for a promise to
pay.
DOCTRINE OF PROMISSORY ESTOPPEL
1. A promise which the promisor should reasonably expect to induce action or forbearance on the
part of the promisee or a third person and which does induce such action or forbearance is
binding if injustice can be avoided only by enforcement of the promise. The remedy granted for
breach may be limited as justice requires.

FEINBERG v. PFEIFFER CO.


Facts: On December 27, 1947, at a Board of Directors meeting, the Defendants board
adopted a resolution to increase Plaintiff Feinbergs salary from $350/month to
$400/month and, after she retired, to give her $200/month for the rest of her life. This
plan came as a surprise to Plaintiff Feinberg, and she continued working for the defendant
company until she retired on June 30, 1949. They paid her $200/month, like they said
they would, until April 1, 1956 when they sent a check for $100, having decided they
didnt have to send them at all if they didnt want to. Plaintiff declined to accept the
reduced amount and sued. Bench trial decided for plaintiff for $5100 (the amount of the
pension claimed due as of the trial) with interest. Defendant appealed.
Holding: The resolution induced the plaintiff to alter her position for the worse on the
faith of receiving a pension. It would be grossly inequitable to permit the maker to resist
payment on the ground that the promise was given without consideration.
Rule: A promise which the promisor should reasonably expect to induce action or
forbearance of a definite and substantial character on the part of the promisee and
which does induce such action or forbearance is binding if injustice can be avoided
only by enforcement of the promise. This doctrine is called promissory estoppel
Reasonably expect to induce action

Detriment

Promise
does induce

+ avoid injustice
Doctrine makes something enforceable that wouldnt have been under the bargain theory.
One way street.
HAYES v. PLANTATIONS STEEL CO.
Facts: Plaintiff Hayes worked for defendant company from 1947 until he retired in 1972.
In Jan 1972, he announced his intention to retire the following July. One week before he
left, he was told that the company would take care of him. From Jan 1973 until Jan
1976, he received $5,000/year as a pension. Once a year, Plaintiff Hayes would visit
defendant company and, during the visit, would thank one of the owners and the previous
check and ask how long it would continue so that he could plan an orderly retirement.
After 1976, the company refused to make further payments.
Holding: Plantations promise to pay Hayes a pension is quite clearly not supported by
any consideration supplied by Hayes. Hayes had announced his intent to retire well in
advance of any promise, and therefore the intention to retire was arrived at without regard
to any promise by Plantations.
Also, One of the essential elements of the doctrine of promissory estoppel is that the
promise must induce the promisees action or forbearance. The conversation between
Hayes and Mainelli which occurred a week before Hayes left his employment cannot be

said to have induced his decision to leave. He had reached that decision long before.
Judgment for D.
Rule: Under the doctrine of promissory estoppel, the promise must induce the
promisees action or forbearance.
GARWOOD PACKAGING, INC v. ALLEN & COMPANY, INC
Facts: GPI had failed in marketing its packaging system and engaged Martin to help them
find investors. Martin said Allen would consider investing $2 mil if they could find
another investor to make a comparable investment. Another company, Hobart, considered
it, but was stuck on the amount of equity they would receive and the obtaining of releases
from GPIs creditors. Martin told Garwood and McNamara that he would see the deal
went through come hell or high water, and made many other similar statements.
Eventually, however, Allen decided not to invest and the deal collapsed. GPI sued for
damages on the basis of promissory estoppel.
Holding: GPI and its principals relied, and may have relied reasonably, but they didnt
rely on Martins promises because those were not promises reasonably understood as
such by so financially sophisticated a businessman as McNamara.
Rule: If the statements could not reasonably be understood as legally enforceable
promises there can be no action for promissory estoppel.

Section 3 Unjust Enrichment


SPARKS V. GUSTAFSON
Facts: The decedent, Robert Sparks Sr. and the plaintiff Gustafson were personal friends
and business associates for many years. In 1980, Sparks purchased a one-half interest in
the Nome Center Building. Gustafson managed the building for Sparks without charge
until Sparks died on March 1, 1981. After Sparks Sr.s death, Gustafson continued to
manage the building and collect rents on behalf of Sparks estate with the knowledge and
approval of Sparks Jr. and did not request any compensation for his services. Gustafson
often paid Nome Center expenses out of his own funds. In Feb 1982, Estate signed a
purchase agreement that indicated Gustafson had purchased the building from the Estate
and would assume the deed of trust as soon as the purchase details could be worked out.
The details were not worked out and the Estate sold the building to a 3rd party in Feb
1983.
On July 14, 1983, Gustafson sued Estate, claiming that defendants breached an oral
agreement to sell the building to Gustafson and that Gustafson was entitled to recover for
funds and services expended on the building.
Holding: There is no question that Gustafson conferred a benefit upon the Estate, and
were not offered gratuitously, and thus he should be compensated.
Rule: Unjust enrichment exists where the defendant has received a benefit from the
plaintiff and it would be inequitable for defendant to retain the benefit without
compensating plaintiff for its value.
MILLS V. WYMAN

Facts: Levi Wyman returned from a long voyage at sea and became sick. Plaintiff Mills
took care of him from Feb 5 to Feb 20, 1821. On Feb 24, 1981, Wymans father wrote to
the plaintiff promising to pay him for such expenses. There was no consideration for the
promise. Defendant Wyman did not pay. Plaintiff Mills sued.
Rule: A deliberate promise, in writing, made freely and without any mistake, one which
may lead the party to whom it is made into contracts and expenses, cannot be broken
without a violation of moral duty. But if there was nothing paid or promised for it, the
law, perhaps wisely, leaves the execution of it to the conscience of him who makes it. It
is only when the party making the promise gains something, or he to whom it is made
loses something, that the law gives the promise validity.

Well Considered
Promises: what ought to
be enforceable

Bargains: what
will be
enforceable

The right side is enforced but shouldnt be. The left side is not enforced and
should be. The middle is enforced and should be.
WEBB v. McGOWIN
Facts: On August 3, 1925, while working at W.T. Smith Lumber Company, Webb
crippled himself in saving McGowins life. McGowin was in the way of Webb doing his
normal job and if McGowin had died it wouldnt have been Webbs fault, but he tried to
save him and seriously hurt himself instead. Webb could no longer work as a result of his
injuries. On Sept 1, 1925, in consideration of appellant having prevented him from
sustaining death or serious bodily harm and in consideration of the injuries appellant had
received, McGowin agreed with him to care for and maintain him for the remainder of
appellants life at the rate of $15 every two weeks. McGowin died on Jan 1, 1934, and the
payments continued until Jan 27, 1934 when they stopped. P sued for unpaid
installments.
Holding: Judgment for P.
Rule: Where the promisee cares for, improves, and preserves the property of the
promisor, though done without his request, it is sufficient consideration for the
promisors subsequent agreement to pay for the service, because of the material benefit
received.

SUMMING UP THE DOCTRINE OF CONSIDERATION:

Benefit
Or
Detriment
(or promise thereof)

Exchange

Promise

= Restatement 71, 72, 75, 79


BARGAIN RULE

Bargain

Promise

Dominant principle. No further


consideration of justice is
needed.

Reasonably Expect

= Restatement 90

Detriment
Does Induce

+ avoid injustice

Made in recognition of

Promise

= Restatement 86

Benefit

+ prevent
The doctrine of consideration is everything weve been talking about what contracts are we
going to enforce? All of these ideas are floating around in our culture bargain (lets shake on
it), benefit (no free lunch), reliance (I trusted you), promise (promise made is a debt
unpaid).
BENEFITS
5
1
2

46

BARGAINS
DETRIMENT/
RELIANCE

yellow = promises

1. Sparks case benefit without promise


2. 86 benefit and promise, no bargain
3. Tort detriment/reliance without promise
4. 90 reliance on a promise
5. Trade bargain without promise
6. Complicated one exchange of promises, no benefit or detriment yet.
7. a promise that has been bargained for which has already coferred detriment/reliance and a
benefit a half completed exchange (you walk home with a TV you promise to pay the store for)
No doubt that this one is enforceable.
the bargain principle: bargain is dominant and detriment and benefits are recessive. Anything
within the bargain circle gets enforced, but 86 and 90 have avoid justice qualifiers.
our market mentality reflects this doctrine.
The take away point here is that contract law is an attempt to be just, but its justice from a point
of view. If you get on that wavelength, then it will all make sense.

Chapter 3
THE JUSTICE PRINCIPLE: the law refrains from enforcing promises when the prima facie
justification for enforcing the promise is overridden by considerations of justice.
Even when a court is prima facie justified in enforcing a promise, however, the promise may be
unenforceable because justice overrides the autonomy principle and the prima facie justification
for judicial action.
Section 1 The Domain of Freedom of Contract
Civil Rights Act of 1866 Citizens of every race and color have the same right to make and
enforce contracts
Section 2 Mistakes
Restatement (Second) of Contracts 151, 153-54, 159, 161-64
151 MISTAKE DEFINED
A mistake is a belief that is not in accord with the facts.
152 WHEN MISTAKE OF BOTH PARTIES MAKES A CONTRACT VOIDABLE
1. Where a mistake of both parties at the time a contract was made as to a basic assumption on
which the contract was made has a material effect on the agreed exchange of performances, 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.
153 WHEN MISTAKE OF ONE PARTY MAKES A CONTRACT VOIDABLE
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 a material effect on the agreed exchange of performances that is
adverse to him, the contract is voidable by him if he does not bear the risk of mistake under the
rule stated in 154, and
a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or
b) the other party had reason to know of the mistake or his fault caused the mistake.
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 in the circumstances
to do so.

159 MISREPRESENTATION DEFINED


A misrepresentation is an assertion that is not in accord with the facts.
161 WHEN NON-DISCLOSURE IS EQUIVALENT TO AN ASSERTION
A persons non-disclosure of a fact known to him is equivalent to an assertion that the fact does
not exist in the following cases only:
a) where he knows that disclosure of the fact is necessary to prevent some previous assertion
from being a misrepresentation or from being fraudulent or material.
b) where he knows that disclosure of the fact would correct a mistake of the other party as to a
basic assumption on which that party is making the contract and if non-disclosure of the fact
amounts to a failure to act in good faith and in accordance with reasonable standards of fair
dealing.
c) where he knows that disclosure of the fact would correct a mistake of the other party as to the
contents or effect of a writing, evidencing or embodying an agreement in whole or in part.
d) where the other person is entitled to know the fact because of a relation of trust and
confidence between them.
STAMBOVSKY v. ACKLEY
Facts: Ackley sold Stambovsky a house with an Oct 2, 1989 closing date. Ackley
believed the house was haunted and shared this belief with the public through articles
published in Readers Digest (1977) and the local newspaper (1982 and Nov 1989).
Ackley did not tell Stambovsky that the house was haunted and Ackley was unfamiliar
with the local lore. Prior to closing, Stambovsky tried to rescind the $650,000 contract of
sale and get back his $32,500 down payment. Plaintiff Stambovsky then sued for relief
and alleged that he would not have entered into the contract had he been so advised and
that as a result of the alleged poltergeist activity, the market value and resaleability of the
property was greatly diminished. Defendant Ackley counterclaimed for specific
performance.
Holding: Where, as here, the seller not only takes unfair advantage of the buyers
ignorance but has created and perpetuated a condition about which he is unlikely to even
inquire, enforcement of the contract (in whole or in part) is offensive to the courts sense
of equity.
Rule: Where a condition which has been created by the seller materially impairs the
value of the contract and is peculiarly within the knowledge of the seller or unlikely to
be discovered by a prudent purchaser exercising due care with respect to the subject
transaction, nondisclosure constitutes a basis for rescission as a matter of equity.
RST 161: seller has to reveal that which a reasonable person wouldnt discover with
due care.
WOOD v. BOYNTON
Facts: Wood sold a stone to Boynton for one dollar, believing it to be a topaz. Boynton
later found out it was a diamond worth $700, though at the time he bought it, he had
never before seen an uncut diamond and didnt know what the stone was. Wood tried to

get it back by giving Boynton his $1 back with 10 cents interest. Boynton refused. Wood
sued to recover possession of an uncut diamond of an alleged value of $1k.
Holding: However unfortunate the plaintiff may have been in selling this valuable stone
for a mere nominal sum, she has failed entirely to make out a case either of fraud or
mistake in the sale such as will entitle her to a rescission of such sale so as to recover the
property sold in an action at law.
Rule: The only reasons we know of for rescinding a sale and revesting the title in the
vendor so that he may maintain an action at law for the recovery of the possession
against his vendee are (1) that the vendee was guilty of some fraud in procuring a sale
to be made to him; (2) that there was a mistake made by the vendor in delivering an
article which was not the article sold, -- a mistake in fact as to the identity of the thing
sold with the thing delivered upon the sale
LENAWEE COUNTY BOARD OF HEALTH v. MESSERLY
Facts: The Messerlys sold a tract of land with three rental units on it to the Pickleses. The
contract was executed on March 21, 1977 for $25,500. Clause 17 of the contract stated, in
part, that purchaser has examined this property and agrees to accept same in its present
condition. Five or six days later, the Pickleses went to visit the tenants and discovered a
sewage problem. Mr. Bloom, the owner before the Messerlys had installed a septic tank
without a permit and in violation of the health code. Neither the Messerlys nor the
Pickleses knew about this before the sale. The Lenawee County Board of Health initiated
the lawsuit to obtain a permanent injunction proscribing human habitation on the
premises until the property was brought up to code. Injunction was granted and BOH
withdrew. Then, when no payments were made on the land contract, the Messerlys filled
a cross-claim against the Pickleses seeking foreclosure, sale of the property, and a
deficiency judgment. The Pickleses then counterclaimed for rescission against the
Messerlys and prayed that the land contract be rescinded.
Holding: Equity suggests that, in this case, the risk should be allocated to the purchasers.
There was some agreed allocation of the risk to the vendees by the incorporation of an
as is clause into the contract. That is a persuasive indication that the parties considered
that, as between them, such risk as related to the present condition of the property
should lie with the purchaser.
Rule: In cases of mistake by two equally innocent parties, we are required in the
exercise of our equitable powers, to determine which blameless party should assume
the loss resulting from the misapprehension they shared.
ELSINORE UNION ELEMENTARY SCH. DIST. v. KASTORFF
Facts: Elsinore invited general contracts to prepare bids for additions to the districts
school buildings. Kastorff prepared a general bid based on bids from various
subcontractors but mistakenly didnt include a bid for the plumbing work. On Aug 12,
1952, Kastorff submitted the lowest bid at $89,994. His bid was <11k less than the next
lowest bid. They asked if he was sure his figures were correct, and Kastorff said they
were. The school board voted to award him the contract. The next morning, Aug 13,
Kastorff discovered his error and, telephoned to rescind his bid. On Aug 14, he sent a
letter about it. On Aug 15, the board held a special mtg and voted not to grant his request.
On Aug 28, written notification of the award of the contract was given to him. On Sept 8,

Kastorff returned the paperwork and again asked to be released. The school board
awarded the bid to the next highest bidder at $102,900 and sued to recover the difference
between the two bids.
Holding: D entitled to relief.
Rule: Knowledge by one party that the other is acting under mistake is treated as
equivalent to mutual mistake for purposes of rescission. Relief from mistaken bids is
consistently allowed where one party knows or had reason to know the others error
and the requirements for rescission are fulfilled
NOTE: Rakoff thinks this case was wrongly decided. The courts view is that it is important that
the deal happened fast and its important that it was an honest mistake. That may mean that this
case has a very narrow application.

Chapter 4
THE COMPENSATION PRINCIPLE
The law prefers to put a party injured by a breach into the position he or she would have been in
had the contract been performed, insofar as money can do so. That is, the law gives he injured
party the benefit of the bargain by compensating for harm to the expectation interest.
Section 1 Compensation or Punishment?
Can punitive damages be awarded for a breach of contract? No.
WHITE V. BENKOWSKI
Facts: Plaintiff shares a well with neighbors that defendant neighbors control. Plaintiff
enters into contract for neighbors to provide water. They fight. Defendants shut off the
water for a number of short periods. Plaintiff sues neighbors for shutting off their water
access on specific occasions. Jury awards $10 compensatory damages and $2000 punitive
damages in lower court. Trial court reduces to $1 for compensatory damages and takes
away punitive damages and plaintiff appeals.
Holding: No punitive damages awarded.
Rule: The overwhelming weight of authority supports the proposition that punitive
damages are not recoverable in actions for breach of contract.
Restatement (Second) of Contracts 356
355 LIQUIDATED DAMAGES: Set up what damages would be in advance, set a bond, so that
the party can liquidate the bond should a breach occur.
356 LIQUIDATED DAMAGES AS PENALTIES
(1) Damages for breach by either party may be liquidated in the agreement but only at an amount
that is reasonable in the light of the anticipated or actual loss caused by the breach and the
difficulties of proof of loss. A term fixing unreasonably large liquidated damages is
unenforceable on grounds of public policy as a penalty.
(2) A term in a bond providing for an amount of money as a penalty for non-occurrence of the
condition of the bond is unenforceable on grounds of public policy to the extent that the amount
exceeds the loss caused by such non-occurrence.
Liquidated damages v. punitive damages.
CITY OF RYE v. PUBLIC SERV. MUT. INS. CO.
Facts: The City of Rye (Plaintiff) required the developers of a number of co-operative
apartment buildings to post a $100,000 bond and to pay $200 for each day after April
1971 that the remaining units were not completed. The city sought to recover on the bond
after 500 days of the buildings remaining incomplete.
Holding: The amount of the bond was excessive. It does not reflect a reasonable estimate
of probable monetary harm or damages to the city, but a penalty, and, in the absence of
statutory authority for the penal bond may not be recovered upon.
Rule: Where damages flowing from a breach are difficult to ascertain, a provision
fixing damages in advance will be upheld if the amount is a reasonable measure of the

anticipated probable harm. If, on the other hand, the amount fixed is grossly
disproportionate to the anticipated probable harm or if there were not anticipatable
harm, the provision will not be enforced.
This case compared to Batsakis
Batsakis says that the adequacy of consideration is for the parties. This
case seems to say that the court will pay more attention to the fairness of the
remedy than the fairness of the original price.What is a possible reason for this? :
The contract itself gives you a standard for whats a fair remedy but contracts
dont give a standard for price. So we can judge the standard thats there (the
remedy) but not the standard thats not there (the price).
Section 2 Expectation Remedies
EXPECTATION REMEDIES seek to put the nonbreaching party in the position it would have
been in had the contract been performed.
The expectation interest has two calculable components. One is the value of out-of-pocket losses
sustained in reliance on the promise. The second component is the value of opportunities forgone
in reliance on the promise.
RULES FOR SPECIFIC PERFORMANCE
specific relief is unavailable unless money damages would be inadequate; when available,
specific relief is awarded in the courts discretion. In general, specific relief is available when
goods are unique, regularly in land sale contracts, and rarely in personal service contracts.
TYPES OF REMEDIES
EXPECTATION INTEREST, which is his interest in having the benefit of his bargain by being
put in as good a position as he would have been in had the contract been performed,
RELIANCE INTEREST, which is his interest in being reimbursed for loss caused by reliance
on the contract by being put in as good a position as he would have been in had the contract not
been made, or
RESTITUTION INTEREST, which is his interest in having restored to him any benefit that he
has conferred on the other party.
UNIFORM COMMERCIAL CODE
Applies to moveable goods
UCC205 Differs from common law can have an options contract without
consideration substitutes a formality requirement.
UCC209 Modification needs no consideration as long as it is made in good faith.
McCALLISTER v. PATTON

Facts: Plaintiff McCallister entered into a contract with Defendant Patton for the purchase
of a Ford car. McCallister was required to pay a $25 deposit and enter a queue to wait for
a car to become available. Patton was required to deliver a car as soon as possible to
McCallister at Pattons regular price. Patton refused to honor the contract and McCallister
sued for specific performance.
Holding: We conclude that the allegations of the complaint are insufficient to entitle
plaintiff to equitable relief and that his remedy at law is adequate.
Rule: Equity will not grant specific performance of a contract for the sale of personal
property if damages in an action at law afford a complete and adequate remedy
Among the various exceptions to the general rule are those cases involving contracts
relating to personal property which has a peculiar, unique or sentimental value to the
buyer not measurable in money damages.
LONDON BUCKET CO. v. STEWART
Facts: Stewart contracted with London Bucket Co. to install a heating system, which it
did incompletely and shoddily. Stewart sued LBC for specific performance. D claimed
there had been a mutual cancellation of contract but court found as fact that there hadnt
been.
Holding: Specific performance should not have been decreed.
Rule: Contracts for building construction will not be specifically enforced because
ordinarily damages are an adequate remedy and, in part, because of the incapacity of
the court to superintend the performance.
NERI V. RETAIL MARINE CO.
Facts: Neri (P) paid a $4,250 deposit on the purchase of a $12,600 boat from Retail
Marine (D). Neri repudiated the sale one week later due to an upcoming operation. Neri
requested a refund of his deposit and D refused because the boat had already been
delivered from the factory. P sued to recover his deposit and D filed a counterclaim for
$4,250 for lost profits and expenses. D sold the boat four months later to a different
customer for the same price.
Holding: Ps entitled to restitution of the sum of $4,250 paid by them on account of the
contract price less an offset to D in the amount of $3,253 on account of its lost profit of
$2,579 and its incidental damages of $674
Rule: UCC 2-708(2): If the measure of damages provided in subsection (1) is
inadequate to put the seller in as good a position as performance would have done then
the measure of damages is the profit (including reasonable overhead) which the seller
would have made from full performance by the buyer, together with any incidental
damages provided in this Article, due allowance for costs reasonably incurred and due
credit for payments or proceeds of resale.
{the dealer would have made two sales instead of one.}
UCC-2-706(1)
IF THE GOOD IS UNIQUE
If the seller resells the good for a greater price, he doesnt owe the defaulting buyer anything
because were trying to protect the victim of the breach, the defaulting buyer doesnt benefit
from his breach just because the market went up.

If the seller does better, does the buyer owe the seller nothing, or does he owe him the 674?
Rakoff says he doesnt know. It might be 674 because these costs would not have been incurred
without the buyers default. It might be 0 because the seller was compensated for default costs by
the opportunity to make a better sale.
UCC-2-708(2)
IF THE GOOD IS NOT UNIQUE
Theres a possibility that more than one sale could have been made. 2-718(2) says the seller is
entitled to both the profit and overhead.
The seller is not entitled to the difference in profit if the good is sold for less profit in the re-sale
because the 2nd sale is different and would have happened anyway. Were giving the seller pure
expectancy. If the 1st buyer had never walked in, there would be no lost profit to worry about.
Were giving him his expectation interest profit for making the deal.
*FERTICO BELGIUM S.A. v. PHOSPHATE CHEMICALS EXPORT ASSN
Facts: Fertico Belgium S. A. [hereinafter Fertico] sued its supplier, Phosphate Chemicals
Export Association [hereinafter Phoschem], for breach of contract for the late delivery of
fertilizer. Phoschem's breach forced Fertico to buy more costly fertilizer from another
supplier, Unifert, to fulfill an existing contractual obligation to a customer, Altawreed.
When the late-delivered Phoschem fertilizer arrived, Fertico accepted it and later
profitably resold it to another customer.
Holding: We hold that under the exceptional circumstances of this case plaintiff Fertico,
as a buyer-trader, is entitled to damages from seller Phoscem equal to the increased cost
of cover plus consequential and incidental damages minus expenses saved (UCC 2712[2]).
Rule: UCC 1-106 directs that the remedies provided by the UCC should be liberally
administered so as to put the aggrieved party in as good a position as if the other party
had fully performed. [and according to Corbin on Contracts] Gains made by the
injured party on other transactions after the breach are never to be deducted from the
damages that are otherwise recoverable unless such gains could not have been made,
had there been no breach.
The court says that this case is like Nehri. If you could have made both
deals, then the fact that you made the 2nd deal shouldnt prevent you from
receiving cover from the 1st deal. The counter argument to this is Boats are
unlimited in supply at a fixed price. Fertico has to buy fertilizer at market price in
order to sell it. If they were making a new, 2nd deal, then they should have had to
buy fertilizer at market price from Phoscem and thus wouldnt have made so
much money on the Janssens deal.
*VITEX MFG. CORP. v. CARBITEX CORP.
Facts: Plaintiff Vitex engaged in the business of chemically shower-proofing imported
cloth so that it could be imported duty-free into the United States. Defendant Carbitex

engaged in the business of importing cloth to the Virgin Islands, securing its processing,
and exporting to the United States. Vitex had closed its plant in the Virgin Islands but
reopened it after securing a contract from Carbitex. Said contract was found to be legally
binding. Vitex therefore expended costs to reopen its plant and order chemicals.
However, Carbitex breached the contract. The trial court found that Plaintiffs gross
profits from the sale would have been $31,250, and its costs would have been $10,136,
which left Plaintiff with damages from lost profits of $21,114. Defendant argues that
Plaintiffs overhead expenses should be added to its costs, thereby reducing Plaintiffs
lost profits recovery.
Holding: Overhead expenses should not be added to the Ps costs.
Rule: Since overhead is a fixed cost and nonperformance of a particular contract
produces no cost savings, no deduction from lost profits is warranted. In short,
overhead expenses do not bear a direct relationship to any single transaction to be
considered a cost in ascertaining lost profits.
MITIGATION
You can breach your contract and the other party has to try to mitigate the damages. The
alternative is that they could bargain if you assume that she has the right to continue. The law
says you dont have the right to continue after the breach. You must mitigate. If you try, but cant
mitigate, youre entitled to the full amount. If you are offered something substantially different,
you dont have to take it. But if you do, that payment goes toward mitigation and gets subtracted
from damages.
PARKER v. TWENTIETH CENTURY-FOX FILM CORP.
Facts: Actress Parker contracted with Fox to act as the female lead in a musical movie
called Bloomer Girl, for which she would receive $750k. Fox then decided not to make
the movie, and offered Parker the lead role in dramatic western movie Big Country.
The former film gave Parker right to approve or deny director and screenplay and the
latter did not. The former would be filmed in LA and the latter in Australia.
Holding: Plaintiffs failure to accept defendants tendered substitute employment could
not be applied in mitigation of damages because the offer of the Big Country lead was
of employment both different and inferior
Rule: Before projected earnings from other employment opportunities not sought or
accepted by the discharged employee can be applied in mitigation, the employer must
show that the other employment was comparable or substantially similar, to that of
which the employee has been deprived; the employees rejection of or failure to seek
other available employment of a different or inferior kind may not be resorted to in
order to mitigate damages.
PEEVEYHOUSE v. GARLAND COAL & MINING CO.
Facts: P owned a farm and leased it to D for five years for coal mining purposes. In the
contract, the D specifically agreed to perform certain restorative and remedial work at the
end of the lease period. The restorative work would cost 29k. P sued for 25k when D
didnt do the remedial work. At trial, the defendants showed that the difference between

the present value of the land and what its value would have been if defendant had done
what it agreed to do was only $300.
Holding: The diminution in value resulting to the premises because of non-performance
of the remedial work was $300. It thus appears that the judgment was clearly excessive.
Judgment should be modified and reduced to $300.
Rule: The measure of damages in an action by lessor against lessee for damages for
breach of K is ordinarily the reasonable cost of performance of the work; however, where
the K provision breached was merely incidental to the main purpose in view, and where
the economic benefit which would result to lessor by full performance of the work is
grossly disproportionate to the cost of performance, the damages which lessor may
recover are limited to the diminution in value resulting to the premises because of the
non-performance.
INCIDENTAL DAMAGES: For example, when a seller breaches by non-delivery, the buyer
will probably spend time and money searching for an alternative supplier and contracting for
substitute goods (covering). Transportation costs may be higher under the cover contract. Such
losses are caused by the breach and are compensable as incidental damages. (2nd Restatement
347 and UCC 2-715(1))
SPECIAL LOSSES: In addition, the nonbreaching party may suffer special losses as a
consequence of the breach. For example, when a seller fails to deliver a piece of machinery on
time, the buyer may suffer a delay in production. It may lose customers and hence profits. Or it
may be liable for breach of its contracts for sale of its product. Such damages are compensable as
consequential damages, provided that certain limitations are not applicable.
UNCERTAINTY AS A LIMITATION ON DAMAGES
Restatement (Second) of Contracts 352
Damages are not recoverable for loss beyond an amount that the evidence permits to be
established with reasonable certainty.
LOCKE v. UNITED STATES
Facts: Lockes typewriter repair business was on a vendor list for the Government. On
Feb 2, 1956, the Governments contracting officer terminated the contract for default and
the plaintiffs name was stricken from the list. Locke filed an appeal with the Board of
Review, General Services Administration. Following a hearing, the board decided that
Locke was terminated without proper cause but denied him compensation, contending
that the contract was a requirements contract and did not guarantee that any minimum
requirement would exist. Plaintiff Locke appealed.
Holding: Damages should be awarded to P based on the total amount of business let by
the government for which P would have been eligible under his contract but for the
governments breach.
Rule: If a reasonable probability of damage can be clearly established, uncertainty as
to the amount will not preclude recovery.
KENFORD CO., INC. v. COUNTY OF ERIE

Facts: Kenford contracted with Erie, in which Erie would build a stadium within 12
months and DSI would lease it for 40 years. They never agreed on a lease or started
construction. A breach thus occurred, and Kenford and DSI sued. Summary judgment
was entered against the County on liability and there was a trial on the issue of damages.
The appellate court awarded damages for lost profits and certain out-of-pocket expenses,
but setting aside the part of the verdict that awarded DSI money damages for loss of
prospective profits during the 20-year period of the proposed management contract, as
appended to the basic contract.
Holding: No future profit damages should be awarded to DSI
Rule: For future profits to be awarded,
(1) It must be demonstrated with certainty at such damages have been caused by the
breach and,
(2) The alleged loss must be capable of proof with reasonable certainty.
(3) There must be a showing that the particular damages were fairly within the
contemplation of the parties to the contract at the time it was made.
(4) If it is a new business seeking to recover for loss of future profits, a stricter
standard is imposed for the obvious reason that there does not exist a reasonable basis
of experience upon which to estimate lost profits with the requisite degree of
reasonable certainty.
(((In other words, the damages may not be merely speculative, possible, or
imaginary, but must be reasonably certain and directly traceable to the breach, not
remote or the result of other intervening causes.)))
Restatement (Second) of Contracts 351
UNFORSEEABILITY AND RELATED LIMITATIONS ON DAMAGES
(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 a probable result of the breach because it follows from the breach
(a) in the ordinary course of events, or
(b) as a result of special circumstances, beyond the ordinary course of events, that the party in
the breach had reason to know
(3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by
allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the
circumstances justice so requires in order to avoid disproportionate compensation.
SPECIAL CIRCUMSTANCES
HADLEY V. BAXENDALE
Facts: The Hadley mill stopped functioning when a shaft broke. Baxendale was hired to
transport the shaft to an engineer in order to get it replaced. Baxendale promised to
deliver the shaft the next day. Baxendale didnt know that the mill wouldnt be able to
function until the new shaft was received. The delivery of the shaft was delayed and the
mill was shut down for several days. P sued Baxendale for profits lost in these days.

Holding: Baxendale didnt know or have reason to know that the mill wouldnt be able to
function until the shaft was replace. These special circumstances were not communicated
to Baxendale so they should not pay the damages arising from them.
Rule: If there are special circumstances (as there are here,) if these special
circumstances were wholly unknown to the party breaking the contract, he, at the
most, could only be supposed to have had in his contemplation the amount of injury
which would arise generally, and in the great multitude of cases not affected by any
special circumstances, from such a breach of contract.
Communicating special circumstances to carrier would allow them to take special
precautions, and/or to provide for the circumstances by charging more.
Uniform Commerical Code 2-715 (2)
BUYERS INCIDENTAL AND CONSEQUENTIAL DAMAGES
(2) Consequential damages resulting from the sellers breach include:
(a) any loss resulting from general or particular requirements and needs of which the seller at the
time of contracting had reason to know and which could not reasonably be prevented by cover or
otherwise; and
(b) injury to person or property proximately resulting from any breach of warranty.
Note: 2-715 = UCCs version of the Hadley test. It needs/requires that the seller has
reason to know. This is a foreseeability test that is very pro-plaintiff. Hadley was unclear
on whether the seller must agree to take on risk or whether foreseeability is enough. The
UCC only goes with foreseeability. If the seller had reason to know the circumstances he
is liable for the consequences of problems with goods.
Section 3 Reliance Remedies
SECURITY STOVE & MFG. CO. v. AMERICAN RY. EXPRESS CO.
Facts: Security stove was sending a furnace to a convention in Atlantic City for
exhibition. They contracted with American Ry. to ship the furnace, and explicitly stated
on several occasions that the furnace needed to arrive on October the 8th. D picked up the
21 box shipment on October 2nd, but when the P arrived at the convention on the 11th
one of the boxes containing the most important piece was missing. D located the package
and said it would be there by Wednesday. On Thursday the convention closed and the
package was not yet there. P sued.
Holding: P awarded $801.51 for RELIANCE damages. (shipping costs, travel costs, hotel
room, time cost, wages, booth rental.)
Rule: Where the carrier has notice of peculiar circumstances under which the
shipment is made, which will result in an unusual loss by the shipper in case of delay
in delivery, the carrier is responsible for the real damage sustained from such delay if
the notice given is of such character, and goes to such extent in informing the carrier
of the shippers situation, that the carrier will be presumed to have contracted with
reference thereto.

In this case, the court allows the P to escape from the inability to prove
expectancy and instead go with reliance. Reasoning = if it wasnt worth it to go,
they wouldnt have gone, so the expectancy was at least the reliance. Thus, the
plaintiff deserves to recover the reliance in place of the unprovable expectancy.
GOODMAN v. DICKER
Facts: Appellants/Defendants are the local distributors for Emerson Radio and
Phonograph Corporation. Appellees/Plaintiffs, with the knowledge and encouragement of
appellants, applied for a dealer franchise to sell Emersons products. Appellants
represented that the application had been accepted and the franchise would be granted.
Appellees incurred expenses preparing to do business under the franchise, but the
franchise was not granted. After a bench trial, the court held that a contract had not been
proven but that the appellants were estopped from denying the same by reason of their
statements and conduct upon which appellees relied to their detriment.
Holding: Court granted reliance damages on the theory of promissory estoppel. Did not
give expectation damages (lost profits) because these are too speculative and uncertain.
Rule: The true measure of damage is the loss sustained by expenditures made in
reliance upon the assurance of a dealer franchise.
Getting reliance v. expectation damages tends to depend on what
calculations are available.
WALTERS v. MARATHON OIL CO.
Facts: In Dec 1978, Walters contacted Marathon about opening a service station. Walters
purchased a service station in Feb 1979 based on promises made and negotiations with
Marathon. Before Walters proposal was accepted, the Iranian revolution prompted
Marathon to put a moratorium on the consideration of new applications, and it refused to
sign the agreement. After a bench trial, the court found for Walters on the theory of
promissory estoppel. Only damages are challenged on appeal.
Holding: it is apparent that the appellees suffered a loss of profits as a direct result of
their reliance upon the promise made by appellant, and the amount of the lost profits was
ascertained with reasonable certainty. In addition, appellees took reasonable steps to
mitigate damages, and an award of damages based upon lost profits was appropriate in
order to do complete justice.
Rule: Since promissory estoppel is an equitable matter, the TC has broad power in its
choice of a remedy. The courts are able to adjust the remedies so as to grant the necessary
relief, and a district court sitting in equity may even devise a remedy which extends
or exceeds the terms of a prior agreement between the parties, if it is necessary to
make the injured party whole.
Note: Walters is paid out of pocket expenses + the net value of the lost
opportunity to contract with another company.
Walters did try to mitigate by getting another companys gas, but was unable to do
so.

Why doesnt the court use expectation? because its a 90 case (PROMISE
REASONABLY INDUCING DEFINITE AND SUBSTANTIAL ACTION)... Its
promissory estoppel, so they award reliance, but use reliance as a back door to
expectation.
Beware of double counting you cant award for lost opportunity if you award
for costs expended in reliance.
SULLIVAN v. OCONNOR
Facts: OConnor performed three surgeries on Sullivan, the end result being a botched
nose job that made her look less attractive than before. The nose cannot be improved by
further surgery. Plaintiff alleged that defendant promised to perform plastic surgery on
her nose and thereby enhance her beauty and improve her appearance. OConnor sued
Sullivan and got a jury verdict for $13,500 for breach of contract. Defendant appeals.
Holding: P was entitled to recover for the worsening of her condition and the pain and
suffering and mental istress incolved in the third operation. These items were
compensable on either an expectancy or reliance view.
Rule: There is no general rule that precludes recovery for pain and suffering or mental
distress under reliance damages, particularly when those damages were foreseeable.
NOTE ON EXPECTANCY V. RELIANCE:
We normally automatically award the expectancy (like in Hawkins). But this case argues that
maybe for these types of cases, expectancy is wrong. Its still a bargain, but reliance is a better
measure of damages in medical cases like this because:
1. Expectation would be excessive (entertainer values her nose a lot)
2. Expectation is hard to know for the factfinder (its not like in business where everything
has an economic value)
3. Expectation is harsh when the doctor wasnt negligent
4. Expectation makes less sense the further away you get from the business context In
the commercial context, theres more likely an identical opportunity somewhere else. In
non-commercial contexts, you cant find a replacement so easily. So reliance is better
than expectancy because the contract is more likely to be unique.
Section 4 Restitution
RESTITUTION is often available to prevent unjust enrichment.
RESTITUTION DIFFERS FROM RELIANCE because it includes benefits conferred on the
party in breach by the nonbreaching party, but excludes expenditures made to 3rd parties by the
nonbreaching party and sometimes the costs of preparing to perform. Restitution can also take
the form of specific relief, as when a court orders a buyer to return delivered goods to the seller.
Accordingly, restitution is often a component of reliance damages but the reverse is not the case.
OLIVER v. CAMPBELL
Facts: Oliver represented Mr. Campbell in divorce proceedings. They signed a contract
on Dec 16, 1949, stating that Oliver would represent Campbell for $750 plus $100 in
costs. After trial, but while proposed findings were under consideration, Campbell fired

Oliver. Campbell had paid Oliver $450 and the costs of $100 at that point and refused to
pay more. Oliver had pretty much completed the contract and the reasonable value of
services was $5,000. Oliver filed a claim against the estate for $10,000 (what he alleges
was a reasonable fee) less the $450 paid. Campbells administratrix rejected the claim.
Oliver sued.
Holding: P is entitled to the remaining balance on the K price, $300.
Rule: The remedy of restitution in money is not available to one who has fully
performed in his part of a contract, if the only part of the agreed exchange for such
performance that has not been rendered by the defendant is a sum of money
constituting a liquidated debt; but full performance does not make restitution
unavailable if any part of the consideration due from the defendant in return is
something other than a liquidated debt.
UNITED STATES v. ALGERNON BLAIR,INC
Facts: Defendant (Coastal) entered into a contract with the United States to construct a
naval hospital. Coastal then contracted with Blair to perform steel erection and supply
equipment. Plaintiff began its performance, utilizing its own cranes for handling and
placing steel. Defendant refused to pay for crane rental. Coastal therefore terminated its
performance after completing approximately 28% of the subcontract. District Court
found that this termination of performance was justified, since Blair was required to pay
for the crane use, not Coastal. Blair completed the job with another subcontractor, and
Coastal sued to recover for labor and equipment furnished.
Holding: Even though Coastal would have lost more than $37k had it completed its
performance, they are still entitled to receive damages amounting to the value of labor
and equipment use furnished by Coastal to Blair. It doesnt matter that in the end the deal
would have been unprofitable for Coastal.
Rule: The impact of quantum meruit is to allow a promisee to recover the value of
services he gave to the defendant irrespective of whether he would have lost money on
the contract and been unable to recover in a suit on the contract. The measure of
recovery for quantum meruit is the reasonable value of the performance and recovery
is undiminished by any loss which would have been incurred by complete
performance. While the contract price may be evidence of reasonable value of the
services, it does not measure the value of the performance or limit recovery. Rather, the
standard for measuring the reasonable value of the services rendered is the amount for
which such services could have been purchased from one in the plaintiffs position at the
time and place the services were rendered.
Note: This is like the McDonalds example buys potatoes for $10/bushel,
but the seller defaults and doesnt give potatoes after payment. Price of potatoes
goes down to $9/bushel. McDonalds wants money back because of the breach.
They deserve to get back the $10/bushel, not the $9/bushel because the $9/bushel
would unjust enrich the seller. Thats whats happening here. Letting Blair
benefit from Costals services without paying them just because the service is
worth less now would be unfair. So the court says that Blair has to pay for the

value of services rendered. If Blair didnt pay Costal anything it would be unjustly
enriched.

Chapter 5
Section 1 Identifying Express Contract Terms
the bases for identifying operative contract terms in written contracts.
A thinks : A B
B thinks : A B + C
The question is whether C is included or not in the deal.
The first step is to identify the express terms of the contract. An EXPRESS TERM is that
portion of the parties agreement which was stated and relates to a distinct element of
performance or enforcement. In oral contracts, this is a matter of identifying what the parties
communicated to each other by way of committing themselves to a future course of conduct
toward each other. In written contracts, however, the problem is complicated by the fact that
many agreed terms are superseded as negotiations evolve into a final written product.
GIANNI v. R. RUSSEL & CO., INC.
Facts: Plaintiff had a store that sold tobacco, fruit, candy, and soft drinks. When the
building was bought by defendant, Plaintiff re-negotiated the lease contract with
Defendant. Plaintiff understood that, in return for giving up the right to sell cigarettes, he
would have the exclusive right to sell soft drinks in the building. The parties signed a
written contract that said Plaintiff could not sell cigarettes but did not say anything about
an exclusive right to soft drinks. A new tenant moved into the building and began to sell
soft drinks. Plaintiff sued, alleging that defendant was in violation of the contract.
Holding: The written lease is the complete contract of parties. Oral evidence is
inadmissible under the parol evidence rule.
Rule: In cases of this kind, where the cause of action rests entirely on an alleged oral
understanding concerning a subject which is dealt with in a written contract, it is
presumed that the writing was intended to set forth the entire agreement as to that
particular subject.
Restatement (Second) of Contracts 210
COMPLETELY AND PARTIALLY INTEGRATED AGREEMENTS
(1) A COMPLETELY INTEGRATED AGREEMENT is an integrated agreement adopted by
the parties as a complete and exclusive statement of the terms of the agreement.
(2) A PARTIALLY INTEGRATED AGREEMENT is an integrated agreement other than a
completely integrated agreement.
(3) Whether an agreement is completely or partially integrated is to be determined by the court as
a question preliminary to determination of a question of interpretation or to application of the
parol evidence rule.
PAROL EVIDENCE RULE
prevents a party to a written contract from presenting extrinsic evidence that contradicts or adds
to the written terms of the contract that appears to be whole.

Under the UCC 2-202, Extrinsic evidence can never be used when dealing with the transfer of
goods greater than or equal to $500.00.
Restatement (Second) of Contracts 216
(1) Evidence of a consistent additional term is admissible to supplement an integrated agreement
unless the court finds that the agreement was completely integrated.
(2) An agreement is not completely integrated if the writing omits a consistent additional agreed
term which is
(a) agreed to for separate consideration, or
(b) such a term as in the circumstances might naturally be omitted from the writing.
Parol Evidence Rule : 3 elements
1. Later > Earlier
2. Written > Oral
3. Silence > Terms you would normally expect
MASTERSON v. SINE
Fact: The Mastersons owned a ranch, and conveyed it to Medora (Dallas Mastersons
sister) and Lu Sine (sisters husband) by a grant deed Reserving unto the Grantors herein
an option to purchase the above described property on or before February 25, 1968.
Dallas then went bankrupt. His trustee in bankruptcy and his wife, Rebecca, brought
declaratory relief action to establish their right to buy back the ranch. The trial court
determined that the parol evidence rule precluded admission of extrinsic evidence
offered by the Ds to show that the parties wanted the property kept in the Masterson
family and that the option was therefore personal to the grantors and could not be
exercised by the trustee in bankruptcy
Holding: Deed does not explicitly provide that it contains the complete agreement, and
the deed is silent on the question of assignability, and the case is not one in which the
parties would certainly have included the collateral agreement in the deed. Thus, the
trial court should have admitted this evidence
Rules: PAROL EVIDENCE
When the parties to a written K have agreed to it as an integration a
complete and final embodiment of the terms of an agreement parol evidence
cannot be used to add to or vary its terms... When only part of the agreement is
integrated, the same rule applies to that part, but parol evidence may be used to
prove elements of the agreement not reduced to writing...
The crucial issue in determining whether there has been an integration is
whether the parties intended their writing to serve as the exclusive embodiment
of their agreement.

UCC 202: If the additional terms are such that, if agreed upon, they would
certainly have been included in the document in the view of the court, then
evidence of their alleged making must be kept from the trier of fact.
INTERFORM CO. v. MITCHELL
Facts: There was a dispute between the two companies about whether forms for molding
concrete had been sold or rented. Mitchell used them for two jobs and claimed they
owned them. Interform claimed they were rented and that Mitchell should return the
forms and pay Interform for the second use. The documents were titled Purchase Order
but used words that indicated rental. The court found for Interform and awarded them
damages. Mitchell appeals.
Holding: Court found that no oral or written agreement had been entered into for use of
the forms in the second job...The use of the forms in the second job benefited Mitchell
and caused detriment to Interform. Judgment for Interform.
Rule: Idaho Code 28-2-202 precludes contradiction of confirmatory memoranda
by prior or contemporaneous oral agreements when the writing was intended by the
parties as a final expression of their agreement and permits the introduction of
consistent additional terms unless the court finds the writing to have been intended
also as a complete and exclusive statement of the terms of the agreement.
LEE v. JOSEPH E. SEAGRAM & SONS, INC.
Facts: The Lees owned a 50% interest in Capitol City Liquor Company and agreed to sell
their interest to Seagram on the oral agreement that Seagram would relocate the Lee sons
in a new distributorship of their own in a different city. This was never put into writing
and it never happened. Ps sued for breach of contract.
Holding: It was expectable that such an agreement...would not necessarily be integrated
into an instrument for the sale of corporate assets...It is certainly not improbable that
parties contracting in these circumstances would make the asserted oral agreement.
Judgment for P.
Rule: PAROL EVIDENCE
The cardinal issue (is) whether the parties intended the written agreement for
the sale of assets to be the complete and accurate integration of all the mutual
promises of the parties. If the written contract was not a complete integration,
the court held, then the parol evidence rule has no application.
If they are separate, independent, and complete contracts, although relating to
the same subject...they are allowed to be proved by parol, because they were
made by parol, and no part thereof committed to writing.
The issue is whether the oral promise to the plaintiffs, as individuals, would be
an expectable term of the contract for the sale of assets by a corporation in
which plaintiffs have only a 50% interest...
NELSON v. ELWAY
Facts: Plaintiff Nelson was owner of two car dealerships, Auto and Toyota; GMAC
provide all financing for both dealerships. In early 1991, Nelsons agent began

negotiations with Elway and Buscher regarding the sale of Toyota. March 14, 1991 Ds
signed an agreement with a closing date of April 15, 1991 for Toyota only.
The agent asked Defendants if they were willing to buy Auto as well, and a deal was
reached {Service Agreement} that Defendants would pay Nelson $50 per car sold for
seven years in exchange for a reduced selling price. Agreement was reduced to writing
but was never signed by the parties. On March 16, 1991 the agreement signed for sale of
Auto, w/o agreement terms. On April 3, 1991, Plaintiff alleges that Defendants assured
him that the orally agreed upon deal would be honored. On April 8, 1991, GMAC told
Defendants that Plaintiff was not to receive any proceeds from the sale of the dealership;
Defendants informed Plaintiff that they would not honor the Agreement. Plaintiff sued,
seeking damages for breach of Contract
Holding: the merger clauses in the March 16, 1991, Buy-Sell Agreements are dispositive
as to the intent of the parties in this case. Judgment for D.
Rule: Integration clauses generally allow contracting parties to limit future contractual
disputes to issues relating to the express provisions of the contract. Therefore, the terms
of a contract intended to represent a final and complete integration of the agreement
between the parties are enforceable, and extrinsic evidence offered to prove the
existence of prior agreements is inadmissible. Even when extrinsic evidence is
admissible to ascertain the intent of the parties, such evidence may not be used to
demonstrate an intent that contradicts or adds to the intent expressed in the writing.
Section 2 Interpreting Contract Terms
Some courts follow the Gianni approach by treating the contract as the express terms
assented to by the parties. For these courts, the express terms take on a life of their own,
independently of the parties subjective intentions or reasonable expectations.
Other courts follow the Masterson approach by treating the express terms as a window to the
parties intentions or reasonable expectations. For these courts, intentions and expectations
constitute the contract; express terms will not be given a meaning that neither party intended or
expected. This tension is readily apparent in the law of contracts.
When FAILURES OF LANGUAGE occur, the court most often looks to the intention of the
parties to interpret their language. But intention could mean a variety of things: (1) what the
speaker had in mind while speaking; (2) what the listener had in mind when the speaker spoke;
and (3) what a reasonable person, under the circumstances of the parties, would understand the
language to mean.
CAN YOU INTRODUCE EXTRINSIC EVIDENCE TO ESTABLISH AMBIGUITY IN
TERMS THAT ARE SEEMINGLY UNAMBIGUOUS? (SOME COURTS SAY YES PACIFIC
GAS, OTHERS SAY NO GIANCONTIERI & BRINDERSON)
PACIFIC GAS & ELECTRIC CO. v. G.W. THOMAS DRAYAGE & RIGGING CO.
Facts: D entered into K with P to furnish the labor and equipment necessary to remove
and replace the upper metal cover of Ps steam turbine. D agreed to indemnify P
against all loss... When D damaged the rotor of the turbine in making the replacement,
the P sued to recover the cost of the repair. D claims that the indemnity clause was meant

to cover injury of third party property only, but TC held that plain language of the
agreement...required D to indemnify P for injuries to Ps property.
Holding: The extrinsic evidence showing the parties intention should be admitted.
Although that evidence was not necessary to show that the indemnity clause was
reasonably susceptible of the meaning contended for by defendant, it was nevertheless
relevant and admissible on that issue.
Rule: The test of admissibility of extrinsic evidence to explain the meaning of a written
instrument is not whether it appears to the court to be plain and unambiguous on its
face, but whether the offered evidence is relevant to prove a meaning to which the
language of the instrument is reasonably susceptible.
Note: The court rules to allow evidence to be admitted which shows that seemingly
unambiguous terms ARE, in fact, ambiguous. This is not the general rule for most courts.
A
X
Q

B
Y
Q

Reasonable Person
Y
R

Outcome
Contract for Y (Embry)
Contract for R (Pacific Gas, pg 396 analysis at
top)

TRIDENT CENTER v. CONNECTICUT GENERAL LIFE INSURANCE CO.


Facts: Trident contracted to borrow $56 million at 12.5% interest from Connecticut
General Life Insurance Co. The contract provided that the loan could not be paid off
within the first twelve years, and provided that D could accelerate the payments and add a
prepayment fee if P defaulted within that period. P attempted to repay the loan in full four
years later after interest rates fell and D refused. P brought a declaratory judgment action
to obtain the courts interpretation of the contract. P claimed that the parties had intended
to allow prepayment at any time with a penalty imposed if P paid off the loan within
twelve years, despite the clear meaning of the contract.
Holding: Courts hands are tied by Pacific Gas, so the case must be remanded to allow
the extrinsic evidence to be admitted even though the judge thinks this is ridiculous.
Rule: Under Pacific Gas, it matters not how clearly a contract is written, nor how
completely it is integrated, nor how carefully it is negotiated, nor how squarely it
addresses the issue before the court: the contract cannot be rendered imperious to attack
by parol evidence. If one side is willing to claim that the parties intended one thing but
the agreement provides for another, the court must consider extrinsic evidence of possible
ambiguity. If that evidence raises the specter of ambiguity where there was none before,
the contract language is displaced and the intention of the parties must be divided from
self-serving testimony offered by partisan witnesses whose recollection is hazy from
passage of time and colored by their conflicting interests.
Under traditional contract principles, extrinsic evidence is inadmissible to
interpret, vary, or add to the terms of an unambiguous integrated written
instrument. Trident points out, however, that California does not follow the
traditional rule [because of the decision in Pacific Gas.]

W.W.W. ASSOCIATES, INC. v. GIANCONTIERI


Facts: P contracted with D to buy land. The K contained a reciprocal cancellation
provision which wold allow either party to cancel the K if litigation against the sellers is
not concluded by or before 6/1/87. On June 2nd, with the litigation still pending, Ds
cancelled the K. P sued, alleging that the cancellation provision applied only to them.
Rule: When parties set down their agreement in a clear, complete document, their
writing should as a rule be enforced according to its terms. Evidence outside the four
corners of the document as to what was really intended but unstated or misstated is
generally inadmissible to add to or vary the writing...
It is well settled that extrinsic and parol evidence is not admissible to create an
ambiguity in a written agreement which is complete and clear and unambiguous upon
its face.
Restatement (Second) of Contracts 202
RULES IN AID OF INTERPRETATION
(1) Words and other conduct are interpreted in the light of all the circumstances, and if the
principal purpose of the parties is ascertainable it is given great weight.
(2) A writing is interpreted as a whole, and all writings that are part of the same transaction are
interpreted together.
(3) Unless a different intention is manifested,
(a) where language has a generally prevailing meaning, it is interpreted in accordance
with that meaning.
(b) technical terms and words of art are given their technical meaning when used in a
transaction within their technical field.
(4) Where an agreement involves repeated occasions for performance by either party with
knowledge of the nature of the performance and opportunity for objection to it by the other, any
course of performance and opportunity for objection to it by the other, any course of
performance accepted or acquiesced in without objection is given great weight in the
interpretation of the agreement.
(5) Wherever reasonable, the manifestations of intention of the parties to a promise or agreement
are interpreted as consistent with each other and with any relevant course of performance, course
of dealing, or usage of trade.
BRINDERSON-NEWBERG JOINT VENTURE v. PACIFIC ERECTORS
Facts: Brinderson had a contract with the Navy to construct a coal-fired power plant.
Brinderson entered into negotiations with Pacific, a subcontractor, to erect the support
steel for the Flue Gas System. The contract required Pacific to erect complete the FGS
equipment. Both parties remember that Pacific requested that line be changed to limit the
work to picks and sets. Brinderson says the line wasnt change because it expected
Pacific to do everything. Pacific says the line wasnt changed because Brinderson said it
understood the line the same way that Pacific did in the limited sense. They both

performed under the contract until a dispute arose concerning the requirement of erection
of the components under the contract.
Holding: We find as a matter of law that the K is unambiguous and required Pacific to
erect both the structural and miscellaneous steel and the FGS components.
Rule: If the court finds after considering this preliminary evidence that the language
of the K is not reasonably susceptible of (the proffered) interpretation and is
unambiguous, extrinsic evidence cannot be received for the purpose of varying the
terms of the K.
FRIGALIMENT IMPORTING CO. v. B.N.S. INTERNATIONAL SALES CORP.
Facts: BNS International Sales Corp. (D) entered into two contracts to sell chicken to
Frigaliment (P). When the initial shipment arrived in Switzerland, Frigaliment found that
the heavier birds were stewing chickens or fowl, not young chickens suitable for broiling
and frying. BNS International believed that any type of chicken would meet the contract
specifications regarding weight and quantity, including stewing chickens. Frigaliment
on the other hand believed that chicken meant a young chicken. Frigaliment brought
this lawsuit for breach of warranty on the grounds that BNS International delivered goods
that did not meet the specifications of the contract.
Holding: P had burden of showing that chicken was used in the narrower rather than in
the broader sense, and this it has not sustained...
Rule: A party who seeks to interpret a contracts ordinary terms in a narrower sense
than is used in everyday trade has the burden of proof to establish that meaning.
Parol evidence is admissible to show the meaning of an ambiguous term and its usage in
a contract.
Judges strategy in Frigaliment:
Solve the issue with the words in the document? No.
Solve with extrinsic evidence? No.
What is the trade usage of the terms? Mixed.
Government regulations? No.
Price evidence.
If plaintiff is right, defendant would have made a losing contract.
Important Point this is the most clear evidence, but we dont get to it
until the end because it gets very close to violating the Batsakis v. Demotis
principle that adequacy of consideration is for the parties.

UCC HIERARCHY:
express terms > course of performance > course of dealing > usage of trade.
This is how you decide if a meaning of a term is right/reasonable.
NANAKULI PAVING AND ROCK CO. v. SHELL OIL CO., INC.
Facts: Nanakuli Paving (P) entered into two long term contracts to purchase its
requirements of asphalt from Shell Oil (D). The contract was a fully integrated writing
and gave the price term as Shells Posted Price at time of delivery. For several years

Shell Oil charged the same price for the asphalt despite increasing the cost to other
customers. D finally increased to cost to P and P sued, claiming that under customary
trade practice there was an implied requirement for D to protect prices. P pointed to the
routine use of price protection by asphalt suppliers. D claimed that no such trade practice
existed and that the price terms under the contract controlled.
Holding: Price protection is a very common practice among suppliers to ashpaltic paving
companies... A reasonable jury could have found that price protection was incorporated
into the 1969 agreement between Nanakuli and Shell and that price protection was
reasonably consistent with the express term of sellers posted price at delivery. Judgment
for P
Rule: A party is always held to conduct generally observed by members of his chosen
trade because the other party is justified in so assuming unless he indicates otherwise.
He is held to more general business practices to the extent of his actual knowledge of
those practices or to the degree his ignorance of those practices is not excusable:
they were so generally practiced he should have been aware of them (Do your
homework!)
CORENSWET, INC. v. AMANA REFRIGERATION, INC.
Facts: Corenswet had a contract with Amana Regeration to exclusively distribute their
appliances. Amana then attempted to terminate the contract. Corenswet sued to prevent
termination, on the ground that Amanas attempted termination was arbitrary and
capricious. There was a clause in the contract that permits either party to terminate the K
at any time and for any reason.
Holding: Judgment for D.
Rule: We can find no justification, except in cases of conduct of the sort giving rise to
promissory estoppel, for holding that a contractually reserved power, however
distasteful, may be lost through nonuse.
When a K contains a provision expressly sanctioning termination without cause there
is no room for implying a term that bars such a termination. In the face of such a term
there can be, at best, an expectation that a party will decline to exercise his rights.
RECONCILING NANKULI AND CORENSWET
Nanakuli
Text : Shells posted price at time of delivery
Usage: Price protection when buyer already bid on a project
Held: Usage prevails
Corenswet
Text: terminate at any time for any reason
Usage: Not terminate arbitrarily
Held: Text prevails
How do you reconcile these two holdings?
Both cases are on the edge of the question if you dont enforce contract rights for a while, do
you lose your right to enforce?

In Nanakuli, the broader usage on the island shows that its not just Shell not exercising a right;
its a general usage in their part of the market.
The Duty to Read
THOROUGHGOOD V. COLE
Facts: P was told that deed was a release for arrears of rent, but it was actually a release
of all claims to the property. P could not read the deed himself and John Ward voluntarily
summarized it for him, inaccurately.
Holding: P is not bound by the deed.
Rules:
1. If a party to whom a writing is made, doesnt read the writing, but its read to him
wrongly, then it doesnt bind him.
2. If he doesnt make the effort to get it read, he is bound by it.
3. If the writing isnt read to the party, but its effect is declared to him instead, and the
statement of the effect is wrong, then it doesnt bind that party.
THE BROOKLYN UNION GAS COMPANY v. JIMENIZ
Facts: P entered into contract with Gas co. for delivery and installation of a burner,
payments to be deferred for 12 months, with one year unconditional satisfaction
guarantee. D is non-English speaker and signed the papers, but testifies that no one
explained the contract to him. D stopped making payments, so when the unit broke, the P
did not repair it.
Holding: The contract is unconscionable and therefore unenforceable.
Rule: Unequal bargaining powers and the absence of a meaningful choice on the part
of one of the parties, together with contract terms which unreasonably favor the other
party, may spell out unconscionability.
Note on Brooklyn Gas Co.
The UCC says no unconscionable contracts. In some ways this goes beyond
Thoroughgood because Jimenez didnt ask for a translation. The court says that
the Gas Co. should have provided one. The holding doesnt say defendant should
have asked for an interpreter, its affirmatively stating the plaintiff should have
provided one.
TERAN v. CITICORP
Facts: Terans borrowed money from Citicorp. There was a miner strike and Teran had no
work to make payments. Citicorp gave Terans notice of default and their home was sold
under the need of trust. Terans allege that they do not speak or understand English, and
that they didnt understand that the loan was tied to their property. The documents were
not translated into Spanish. Citicorp did not provide an interpreter, but the Terans had a
salesman from Golden West with them who was translating during the meetings.
Holding: No facts from which we can find or infer that the Terans should not be bound by
the documents they signed...If there was a mistake (the Terans failure to understand their

home was security for the debt), it was unilateral only, and cannot afford ground for
relief.
Rule: One who signs a written document is bound to know and assent to its provisions
in the absence of fraud, misrepresentation, or other wrongful acts by the other party.
Appellants were obligated to secure interpretation of documents.
ALLIED VAN LINES, INC. V. BRATTON
Facts: Mrs. Bratton is going to move to Florida, and she picks Allied for her moving
company. They pick up her stuff and put it on the truck. They give her a bill of lading to
sign and she signs it without looking at it. One of the terms in the bill of lading was that
if the goods were destroyed (which they later were) Bratton would get $1.50 per
pound. When the goods were burned up, Allied paid out $3,000, while Bratton wanted
the full value of her goods, which was more like $10,000.
Holding: Bratton has no excuse for not reading the contract, and will get only $4500.
Rule: Unless one can show facts and circumstances to demonstrate that he was
prevented from reading the contract, or that he was induced by statements of the other
party to refrain from reading the contract, it is binding. No party to a written contract
in this state can defend against its enforcement on the sole ground that he signed it
without reading it.
If a shipper can show that he was induced not to read the Bill of Lading or that the
legal significance of its provisions were misrepresented, or that he did not have a
reasonable and fair opportunity to exercise his right to choose alternative insurance
coverage, then the legal consequences of the contract may be voided.
Section 3 Unconscionability
TWO PART TEST OF UNCONSCIONABILITY
1. ABSENCE OF MEANINGFUL CHOICE
Broadening the idea of duress. gross inequality of bargaining power is enough, no
need for the other party to have put you in that position anymore. (getting close to
something that would have saved Ms. Demotis).
May also be widening mistake lack of education, ability to understand
Also widening fraud fine print and deceptive sales practices are now enough for fraud.
2. CONTRACT TERMS THAT ARE UNREASONABLY FAVORABLE TO THE OTHER
PARTY.
Restatement (Second) of Contracts 208
UNCONSCIONABLE CONTRACT OR TERM

If a contract or term thereof is unconscionable at the time the contract is made a court may refuse
to enforce the contact, or may enforce the remainder of the contract without the unconscionable
term, or may so limit the remainder of the contract without the unconscionable term, or may so
limit the application of any unconscionable term as to avoid any unconscionable result.
WILLIAMS V. WALKER-THOMAS FURNITURE CO.
Facts: Several appellants purchased a number of household items from Walker-Thomas,
paying in installments. The terms of the purchase, as printed in the contract, contained a
provision that stated that all payments now and hereafter made by purchaser shall be
credited pro rata on all outstanding leases, bills and accounts due the company by
purchaser at the time each such payment is made. When the appellants defaulted, the
appellee sought to replevy all of the items she purchased. Appellants contend that
contract is unconscionable.
Holding: Case remanded for further findings as to the possible unconscionability of the
contract.
Rule: Where the element of unconscionability is present at the time a contract is
made, the contract should not be enforced. Unconscionability:
(1) Absence of meaningful choice for one party
(2) Terms which are unreasonably favorable for the other party.
Note: The OBJECTIVE THEORY OF CONTRACTS says shes bound
because she signed the contract. If she says they never talked about it in the sale,
the parol evidence rule excludes that information. Possible Excuses:
Duress? but the duress wasnt created by the company
Fraud? but they didnt misrepresent the contract to her
Mistake? but the mistake was mutual; you normally arent allowed out
of a contract for a unilateral mistake
So this case creates a new excuseunconscionabilityand its two part test.
The Duty to Read (Cont.)
CARNIVAL CRUISE LINES v. EULALA SHUTE
Facts: Eulala and Russel Shute purchased tickets for a cruise on one of the Carnivals
cruise ships. On the face of each ticket was a statement indicating that the plaintiffs were
subject to the conditions of the contract, which included a forum selection clause stating
that all disputes shall be litigated in Florida. During the cruise, Appellee Eulala Shute fell
and hurt herself. The Shutes filed suit against Carnival in the Federal court in
Washington. Carnival challenged the suit on the ground that the forum selection clause
forbids litigation in any venue except Florida.
Holding: P has not satisfied the heavy burden of proof required to set aside the clause
on grounds of inconvenience.
Reasoning: Carnival has good reasons for including the forum limitation clause, and it
may even lead to price reductions in passenger tickets...
Dissent: Courts traditionally have reviewed with heightened scrutiny the terms of
contracts of adhesion, form contracts offered on a take-or-leave basis by a party with
weaker power. Under these circumstances, the general prohibition against stipulations

purporting to lessen, weaken, or avoid the passengers right to a trial certainly should
be construed to apply to the manifestly unreasonable stipulation in these passengers
tickets.
CONTRACTS OF ADHESION
Why can a company just say take it or leave it and what are the resulting dynamics?
Rakoff thinks this isnt fair because you cant negotiate any of these hidden terms. You would be
laughed at if you tried to negotiate where the case might be brought. Companies back down to
shopping/competition when it comes to things like price, but no bargaining on terms in the fine
print.
Rakoff calls things people can shop/negotiate VISIBLE TERMS and the other things on the
back of the ticket INVISIBLE TERMS.
Rakoff says there no reason to think the slightly lower ticket price is worth all the invisible
terms. In the normal world, we make society better by enforcing a contract. But in these
contracts of adhesion; theres no bargaining, so the market behavior doesnt tell us that the
contract is better than no contract.
The law is that these provisions are presumptively valid and if youre challenging it, you must
prove theyre unconscionable. But in Rakoffs view, Carnival Cruise Lines was wrongly decided
and the law shouldnt presume the contract is fair. Its offensive to our sense of freedom. The
other professor that we read about disagrees because you can agree to be bound by something
without knowing what youre agreeing to.
Barnett says: In clicking I agree youre saying I consent, I agree to allow the company to
decide the terms.
Rakoff says: In clicking I agree youre saying I submit because you dont have any other
choice.
Section 3 Implication of Terms
After
(1) identifying the express terms of the contract and
(2) interpreting the express terms, you
(3) identify and interpret implied terms.
What are the actual legal obligations when the contract doesnt describe them? This section is
about what happens when the words dont cover it/are ambiguous AND theres not
applicable/clear parol evidence available SO we have to construct an answer rather than report it.
Restatement (Second) of Contracts 204

SUPPLYING AN OMITTED ESSENTIAL TERM


When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to
a term which is essential to a determination of their rights and duties, a term which reasonable in
the circumstances is supplied by the court.
SPAULDNG v. MORSE
A situation where an issue is not addressed.
Facts: Upon his divorce from Ruth, George Morse (D) created a trust to provide support
for his children Merilyn and Richard including Richards college education. Richard
joined the army upon graduation from high school in 1946. Spaulding (P), the trustee,
sued D for the funds to provide for Richards college education even though Richard was
in the military. The language in the trust document did not contain an express cut off
provision to stop payments after the age of majority. Instead, the trust agreement called
for D to make payments until Richard entered college. The trial court found for P and
required D to continue to make payments until Richard entered college, and then to
finance Richards college education for four years. D appealed.
Holding: In these circumstances we are of the opinion that the proper construction of the
trust instrument is that the defendant is not required under its terms to perform provisions
for the maintenance and education of Richard while he was or is in the armed service of
the United States.
Rule: If the instrument as a whole produces a conviction that a particular result was
fixedly desired although not expressed by formal words, that defect may be supplied by
implication and the underlying intention...may be effectuated, provided it is sufficiently
declared by the entire instrument
BLOOR v. FALSTAFF BREWING CORP
A situation where the parties addressed an issue, but too generally.
Facts: Falstaff Brewing Corp. (D) bought the rights to Ballantines trademarks and other
property. Under the contract Falstaff was to use best efforts to promote and maintain a
high volume of sales. Falstaff lost $22 million distributing Ballantine products over three
years and a new brewer (Paul Kalmanovitz) took control of the enterprise. The new
management made drastic changes to the marketing strategy for Ballantine products and
profit took priority over sales volume. Ballantine sales fell sharply but the operation
became profitable. Bloor (P), the reorganization trustee for Ballantine, sued for breach of
contract for failing to use best efforts to maintain sales volume.
Reasoning: While the best efforts clause required Falstaff to treat the Ballantine brands as
well as its own, it does not follow that it required no more. For its own brands, Falstaff
was free to decide for itself how to maximize profit even if it meant a serious loss in
volume. The same was not true for its obligation regarding Ballantine.
The contract imposed an added obligation to use best efforts to promote and maintain a
High volume of sales. Falstaff was not required to spend itself into bankruptcy to
promote the sales of Ballantine products, but the contract did prevent the company from
emphasizing profit without fair consideration of the effect on volume of sales.
The burden then shifted to Falstaff to prove there was nothing significant it could have
done to promote Ballantine sales that would not have been financially disastrous.

Restatement (Second) of Contracts 205


DUTY OF GOOD FAITH AND FAIR DEALING
Every contract imposes upon each party a duty of good faith and fair dealing in its performance
and its enforcement.
GREER PROPERTIES, INC. v. LaSALLE NATIONAL BANK
Facts: Sellers contracted with Searle to sell a plot of land for $1,100,000. Contract
allowed Searle to terminate agreement if the soil of the property was contaminated.
Environmental consulting firm reported that cleaning up the land would cost over
%500,000. Searle requested that Sellers reduce contract price but Sellers refused and
Searle exercised right to terminate contract. Sellers then negotiated with Greer to sell the
land for $1,250,000. Sellers were required to remove the environmental contamination at
own expense, but could terminate contract if cost of clean up because economically
impractical. Sellers soil consultant found that cleanup would cost between $100,000 and
$200,000. Without formally notifying Greer that they intended to terminate K, Sellers
started negotiating again with Searle at a purchase price of 1.45 million. But then Sellers
received a final report from their soil consultant that the cleanup costs would be about
240,000 and Sellers formally terminated the K with Greer with written notice. Sellers
said that Greer could still buy land for $250,000 extra. Sellers terminated the contracted
with Greer and cleaned up the property at 250k. Greer sued for specific performance of
the K and money damages, saying that Sellers terminated the contract in bad faith so that
they could sell the property to Searle.
Holding: Whether the Sellers breached duty of good faith is subject to many questions of
fact that must be sent to jury. Summary judgment was made in error by the trial court.
Rule: If the sellers used the termination clause to recapture that opportunity for a
better price, the Sellers would have acted in bad faith.
NOTES ON GOOD FAITH
You cant contract out of a good-faith obligation.
Contracting parties often want flexibility in their agreement. One way to provide flexibility is to
leave a decision affecting the parties rights and duties to the discretion of one of them. Good
faith is typically employed by the courts to constrain such discretion, which may concern points
of quality, quantity, price, time, conditions within the control of one party, and other matters too
varied to catalogue. Both at common law and under the UCC, most courts hold that good faith
requires a discretion-exercising party to act for reasons allowed by the parties agreement, in
order to protect justifiable expectations arising from their agreement, understood in the context in
which it was made.
MARKET STREET ASSOCIATES LIMITED PARTNERSHIP V. FREY
Facts: J.C. Penney entered into a sale and leaseback arrangement with General Electric
Pension Trust. Penney sold property to the Pension trust which the trust then leased back
to Penney for a 25 year term. Paragraph 34 allows lessee to ask lessor to finance
improvement expenses if its at least 250k. Pension trust is supposed to give it reasonable

consideration and theyre supposed to negotiate about it. If negotiations fail, Penney can
repurchase the property at a price roughly equal to the price of sale plus 6% for each year
since the original purchase.
One of the leases was assigned to Market Street for a shopping center in Milwaukee.
They wanted to lease space to a drug store, but needed to build. To build, they needed
funds. To get funds, they needed a mortgage, but they werent the owner, so they decided
to try to buy the property back from the Pension Trust. Orenstein tried to contact Erb,
who was initially unresponsive, but eventually made an offer for $3 mil. Orenstein
thought that was too high. He sent Market Street a letter asking for $2 mil for
improvements. Erb was unresponsive.
Orenstein sent a second letter, again requesting but this time referring to the lease
(but not Para 34) stating that if they were willing, Market proposed to enter into
negotiations. The next day Orenstein received Erbs original response, turning down the
original request because they werent interested in making loans less than $7 mil.
Orenstein responded, stating that he would seek financing elsewhere.
Orenstein sent Erb a letter stating that by Para 34, it was exercising an option to buy.
Pension trust refused to sell. Market Street sued for specific performance. TC granted
summary judgment for D.
Holding: If Orenstein (of Market Street) believed that Erb (of pension trust) knew or
would surely find out about paragraph 34, it was not dishonest or opportunistic to fail to
flag that paragraph, or even to fail to mention the lease, in his correspondence and rare
conversations with Erb... To decide what Orenstien believed a trial is necessary.
Rule: Good faith is a compact reference to an implied undertaking not to take
opportunistic advantage in a way that could not have been contemplated at the time of
drafting, and which therefore was not resolved explicitly by the parties
The duty to act in good faith is greater in the postcontractual performance stage than
the precontractual negotiation stage.
To deliberately take advantage of your contracting partners mistake during the
performance stage (for we are not talking about taking advantage of superior
knowledge at the formation stage) is a breach of good faith.

Good faith is some middle


ground.
Tort Obligations (minimal duties that you
owe to the whole world) When negotiating,
only obligated to not defraud

Consider what the parties


wouldve put into the K
had they thought about the
situation that arose.

VLASES v. MONTGOMERY WARD

Fiduciary Obligations (owed in special


relationships) Must put the other party
ahead of yourself. E.g. lawyers and clients

Facts: Vlases bought 2200 day old chicks from Ward, and placed them in a very heigenic
coop. By the third week the plaintiff noticed that their feathers were falling off, and it
turned out that the chicks had bird cancer. P sueds D for negligence and breach of
warranty. In TC, negligence claim dropped, breach of warranty verdict returned for P.
Instructions to jury were that recovery on behalf of P required a finding that the chickens
were afflicted with the disease at the time D made delivery.
Holding: Judgment for P affirmed.
Rule: What the Code requires is not evidence that the defects should or could have
been uncovered by the seller but only that the goods upon delivery were not of a
merchantable quality or fit for their particular purposes.
WEBSTER v. BLUE SHIP TEA ROOM, INC
Facts: On April 25, 1959, Webster (Plaintiff) at lunch at the Blue Ship Tea Room. She
ordered the fish chowder and something got lodged in her throat. After a couple of
procedures at Mass Gen, a fish bone was removed from her throat on April 27, 1959. She
sued to recover damages.
Holding: Judgment for D.
Rule: We should be prepared to cope with the hazards of fish bones, the occasional
presence of which in chowders is, it seems to us, to be anticipated, and which, in the
light of a hallowed tradition, do not impair their fitness or merchantability.
CATE v. DOVER CORP.
Facts: Buyer of lifts (Cate) designed to elevate vehicles for maintenance brought suit
against Dover for breach of implied warranty of merchantability when the lifts failed to
function properly, even after repairs made by both P and D. Tucked into Dovers warranty
agreement is a disclaimer barring claims against it for the failure of the lifts to function
properly. This disclaimer is not in a different typeface, and is under a large warranty
heading.
Holding: Although it is clear that Cate understood the warranty to extend for only five
years, it is not clear that he understood any other limitations or exclusions, and the
limitations were unreasonably hidden. Judgment for P.
Rule: To be enforceable a written disclaimer of the implied warranty of merchantability
made in connection with a sale of goods must be conspicuous to a reasonable person.
Such a disclaimer contained in text undistinguished in typeface, size or color within
a form purporting to grant a warranty is not conspicuous, and is unenforceable unless
the buyer has actual knowledge of the disclaimer.
Concurrence: the time has come for the legislature to consider the realities of the
marketplace and prohibit all disclaimers of the implied warranties of merchantability and
fitness.
Rent
Buy a good
Buy a service

From a landlord
From a merchant
From a doctor

Section 4 Promises and Conditions

Warrant of habitability
Implied warranty (Strict liability)
Protection against malpractice

Cant contract out


Can contract out
Cant contract out.

In general, a PROMISE creates an obligation, the breach of which entitles the non-breaching
party to damages and other remedies for breach.
CONDITIONS have a different legal consequence: they determine when a partys obligation to
perform her promise is due.
When a term is both a promise and a condition, it may be called a PROMISSORY
CONDITION.
Restatement (Second) of Contracts 225
EFFECTS OF THE NON-OCCURRENCE OF A CONDITION
(1) Performance of a duty subject to a condition cannot become due unless the condition occurs
or its non-occurrence is excused.
(2) Unless it has been excused, the non-occurrence of a condition discharges the duty when the
condition can no longer occur.
(3) Non-occurrence of a condition is not a breach by a party unless he is under a duty that the
condition occur.
Restatement (Second) of Contracts 227
STANDARDS OF PREFERENCE WITH REGARD TO CONDITIONS
(1) In resolving doubts as to whether an event is made a condition of an obligors duty, and as to
the nature of such an event, an interpretation is preferred that will reduce the obligees risk of
forfeiture, unless the event is within the obligees control or the circumstances indicate that he
has assumed the risk.
(2) Unless the contract is of a type under which only one party generally undertakes duties, when
it is doubtful whether
(a) a duty is imposed on an obligee that an event occur, or
(b) the event is made a condition of the obligors duty, or
(c) the event is made a condition of the obligors duty and a duty is imposed on the oblige that
the event occur
The first interpretation is preferred if the event is within the obligees control.
Restatement (Second) of Contracts 229
EXCUSE OF A CONDITION TO AVOID FORFEITURE
To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a
court may excuse the non-occurrence of that condition unless its occurrence was a material part
of the agreed exchange.
JUNGMANN & CO., INC. v. ATTERBURY BROTHERS, INC.
Facts: Jungmann (P) entered into a written contract to sell thirty tons of casein to
Atterbury Brothers (D). The contract stipulated: Shipment: May-June from Europe.
Advice of shipment to be made by cable immediately goods are dispatched. Jungmann
shipped fifteen tons of casein on June 9th but did not give notice to Atterbury. On June
21st D informed P that it refused to accept the shipment on the grounds that there had
been no May delivery, and that P did not give notice of the June shipment. P shipped the
remaining order on June 26th but did not give D notice by cable; it did however send D

notice by letter on June 23rd. D refused to accept the shipment and P sued for breach of
contract.
Holding: P was obligated to perform the conditions, and didnt. They are barred from
recovery.
Rule: A plaintiff may not recover upon its contract without proof that it has performed
all conditions precedent required of it.
PEACOCK CONSTRUCTION CO., INC V. MODERN AIR CONDITIONING, INC.
Facts: Modern Air Conditioning (P) and Overly Manufacturing (P1) subcontracted with
Peacock Construction (D) to perform heating/air conditioning and swimming pool work
for a condominium construction project. The written subcontracts provided that Peacock
Construction would make final payment to the subcontractors within 30 days after
completion of the work included in this subcontract, written acceptance by the Architect
and full payment therefore by the Owner. When the subcontractors completed the work,
the defendant did not pay them because the owner had not yet paid in full. The plaintiffs
brought separate suits against Peacock Construction for payment. At trial the court
rejected the defendants contention that payment by the owner was a condition precedent
to paying the subcontractors and granted summary judgment in favor of plaintiffs.
Holding: Subcontractors must be paid, and this was correctly decided as a matter of law.
Rule: If an issue of contract interpretation concerns the intention of parties, that
intention may be determined from written contract, as a matter of law, when the nature
of the transaction lends itself to judicial interpretation.
Judicial interpretation of ambiguous provisions for final payment in subcontracts must
made in favor of subcontractors. The reason is that the relationship between the parties
is a common one and usually their intent will not differ from transaction to transaction,
although it may be differently expressed.
FRY V. GEORGE ELKINS CO.
Facts: Plaintiff Fry made an offer on a home owned by Defendant Miller through real
estate broker George Elkins Co. Frys offer was conditioned on obtaining a $20,000 loan
at 5% for 20 years. The owners of the house accepted and agreed to pay George Elkins
Co. a 5% commission or one half of the deposit if forfeited by the plaintiff. Fry applied
for a loan but after negotiations he didnt get one according to the terms of the agreement
even though he had been told that he could get one from Western Mortgage. Fry wrote to
the owners to rescind the deal and the Millers sold their house to a third party. Plaintiff
sued the defendant for the return of his deposit. The trial court awarded the plaintiff the
balance of his deposit minus the brokers commission and plaintiff appealed.
Holding: The court held that Fry did not expend sufficient effort to secure a loan in order
for his attempt to have been in good faith. He was not entitled to reject a loan merely
because it contained terms that he disliked that were not addressed in the contract.
Judgment affirmed.
Rule: A party must attempt to satisfy a condition by all reasonable acts in order for it to
be deemed to have been in good faith.
Promise: buy house
Condition: get loan

Implied promise: try to get a loan in good faith


PANNONE v. GRANDMAISON
Facts: P entered into contract with D for purchase of house, contingent upon purchasers
approval of the result of a home inspection, a termite inspection and a radon gas
inspection. The inspector indicated that the radon level were well below the level that
concerns the EPA but noted that exposures in the range of 1 to 4pCi/L do present some
risk to sensitive occupants of lung cancer, although reducing the levels at that point may
be impossible to achieve. P testified that he was very sensitive to anything connected to
radioactivity because of his time in the air force. P cancelled the contract and demanded
the return of their deposit.
Holding: The long history of the plaintiff Joseph Pannones perception of his cancer risk
and phobia concerning radiation meets by the barest preponderance the burden of a
rational though subjective good faith exercise of discretion.
Rule: Every contract imposes upon each party a duty of good faith and fair dealing in
its performance and its enforcement, and sometimes this test is subjective...
GODBURN v. MESERVE
Facts: Plaintiff and her family agreed to live with and take care of Wells until she died in
consideration for her promise to leave the property to them in her will. Wells became
difficult and disagreeable. The Godburns left. After Wells passed away, the Godburns
sued her estate for damages for breach of contract.
Holding: The only reasonable conclusion upon the record before us is that the decedents
conduct was fairly within the contemplation of the parties under their contract as made.
Judgment for D.
Rule: In order to amount to a prevention of performance by the adversary party, the
conduct on the part of the party who is alleged to have prevented performance must be
wrongful, and, accordingly, in excess of his legal rights The mere fact that permitted
conduct of this nature by one promisor renders unpleasant or inconvenient
performance by the other of his agreement effects no discharge of that obligation.
BRITTON v. TURNER
Facts: Plaintiff contracted to work for one year for the Defendant where he would be paid
$125.00 at the end of employment for services rendered. The contract explicitly stated
that payment would be given at the end of the year. Plaintiff ceased working after nine
and a half months and did not receive any compensation from the Defendant. There was
no evidence that the Defendant suffered any damages as a result of Plaintiffs departure.
The trial court held that the Plaintiff was allowed to recover under is quantum meruit
claim for the reasonable value of the labor he performed for the Defendant. Defendant
appealed.
Holding: Judgment for P. P is entitled to recover as much as the labor performed was
reasonably worth minus any damages incurred by the D by the breach.
Rule: The employer must pay the value of the service he actually receives, and the
laborer must answer in damages where he does not complete the entire contract.
Restitutionary measure

{UCC STUFF GOES HERE!!}


Seller agrees to purchase = seller is obligated to transfer and deliver at sellers place of business
at a reasonable time IF the seller tenders payment.
Buyer agrees to purchase = buyer is obligated to accept and pay at time and place of receiving
the goods IF seller tenders delivery of conforming goods and gives buyer a chance to inspect the
goods.
Section 2 Cancellation in Response to Breach
The event triggering the power to cancel is a MATERIAL BREACH.
Restatement (Second) of Contracts 241
CIRCUMSTANCES SIGNIFICANT IN DETERMINING WHETHER A FAILURE IS
MATERIAL
In determining whether a failure to render or to offer performance is material, the following
circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit which he
reasonably expected;
(b) the extent to which the injured party can be adequately compensated for the part of
that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer
forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his
failure, taking account of all the circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer to perform
comports with standards of good faith and fair dealing.
JACOB & YOUNGS v. KENT
Facts: P build house for D. One of the specifications of the plumbing work required that
pipe be of Reading manufacture. There were no other defects in the house, but about 8
months after the house was completed the D learned that some of the pipe was made by
another company besides Reading. The evidence shows that the omission of the Reading
pipe wasnt fraudulent or willful, but the result of oversight and inattention. The nonReading pipe is the exact same in quality, appearance, market value and cost as the
Reading pipe. Still, D refused to pay the 3.5k balance on the house, so P sues for
recovery.
Holding: We think the measure of the allowance is not the cost of replacement, which
would be great, but the difference in value, which would be either nominal or nothing.

Rule: We must weigh the purpose to be served, the desire to be gratified, the excuse
for deviation from the letter, the cruelty of enforced adherence. Then only can we tell
whether literal fulfillment is to be implied by law as a condition.
The owner is entitled to the money which will permit him to complete, unless the cost
of completion is grossly and unfairly out of proportion to the good to be attained.
When that is true, the measure is the difference in value.
UCC has a PERFECT TENDER RULE
Condition

Promise

Substantial Performance
Rule
(favors seller)

Perfect Tender Rule


(favors buyer)
Promise and Condition

Difference between Jacob & Youngs and Jungmann cases


1. The law for the sale of goods is PERFECT TENDER
2. Law for construction contracts is SUBSTANTIAL PERFORMANCE
PLANTE V. JACOBS
Facts: P built a house for D, but failed to fiurnish kitchen cabinets, gutters, sidewalk, etc.
In TC, this amount was allowed to the Ds. But Ds also claim 20 other items of
incomplete or faulty performance by the P and no substantial performance because the
cost of completing the house in strict compliance with the plans and specifications would
amount to 25 or 30 percent of the contract price. D take most issue with a wall misplaced
which narrowed living room size by over a foot. Cost of rebuilding wall would be 4k.
Holding: : D did substantially perform on K, even though certain details are out of order.
The P is would be entitled to damages for diminished value, but there was no legal
damage. For misplaced wall, the cost of replacing is too great, seeing as the
misplacement did not lower the value of the house at all (no legal damage). Such
economic waste is unreasonable and unjustified.
Rule: The test of what amounts to substantial performance seems to be whether the
performance meets the essential purpose of the contract. Substantial performance as
applied to construction of a house does not mean that every detail must be in strict
compliance with the specifications and the plans.

DamagesDiminished value rule: correct rule for faulty construction


amounting to incomplete performance, difference between value of house as it
stands with faulty and incomplete construction and value of house if it had
been constructed in strict accordance with the plans.
(as opposed to receiving the cost of replacement)
Whether a defect should fall under the cost-of-replacement rule or be
considered under the diminished-value rule depends upon the nature and
magnitude of the defect.
WALKER & CO. v. HARRISON
Facts: D, a dry cleaning business, leased a neon sign from P. Terms of lease included an
article for maintenance. Sign was hit by a tomato, and D wanted it cleaned. They tried
several times to get P to clean it, to no avail. Only when D threatened to stop paying did P
finally clean it. But then D didnt pay, and P sued for violation of paragraph (g) of the
lease agreement which posits that P can recover entire balance due under the contract
($5,197.50) in the event of the lessees breach.
Holding: Delay in maintenance was not of such materiality as to justify repudiation of
the contract. The Ds failure to comply with terms of K was itself a material breach, so P
is entitled to recovery. Damages are full amount of rentals, minus amount that service
would have cost Walker.
Rule: RST 241: In determining whether a breach is material, you gotta look at (a)
extent to which injured party will obtain the substantial benefit; (a) if injured party
may be compensated for lack of performance; (c) extent to which party failing to
perform has partly performed or made prep to perform; (d) degree of hardship on party
failing to form in terminating contract; (e) willful, negligent, innocent behavior of
breaching party; (f) degree of uncertainty that breaching party will perform.
Repudiation is one of the weapons available to an injured party in event the other
contractor has committed a material breach.
DOCTRINE OF IMPOSSIBILITY OF PERFORMANCE
CALDWELL V. TAYLOR
Facts: Caldwell (D) contracted to permit Taylor (P) the use of the Musical Hall at
Newington. The contract stated that the Hall must be fit for a concert but there was no
express stipulation regarding disasters. The Hall was destroyed by fire before the first
concert was to be held and neither party was at fault. The concerts could not be
performed at any other location and Taylor sued for breach and sought reimbursement for
costs in preparing for the concerts.
Holding: Both parties are excused from the contract.
Rule: In the absence of any express or implied warranty that the thing shall exist, the
contract is not to be construed as a positive contract, but as subject to an implied
condition that the parties shall be excused in case, before breach, performance
becomes impossible from the perishing of the thing without default of the contractor.
There are instances where the implied condition is of the life of a human being, but
there are others in which the same implication is made as to the continued existence of
a thing.

KRELL V. HENRY
Facts: Henry (D) contracted to use Krells (P) flat in London to view the coronation
procession of King Edward VII. Under the terms of the contract Henry was granted use
of the flat for two days in exchange for 75 pounds, but the contract did not mention the
purpose of Henrys use. Henry refused to honor the agreement after the King became ill
and the coronation was postponed. Krell sued for the balance due under the contract and
Henry countersued for the return of his deposit. The lower court cited Taylor v. Caldwell
and entered judgment for Henry on the grounds that the coronation was an implied
condition in the contract. Krell appealed.
Holding: The purpose for the high rent of the room on those particular dates during the
daytime was to view the coronation. The court held that without the coronation, there was
no purpose to this contract.
Rule: Performance will be excused when the purpose of a contract is frustrated by an
unforeseeable supervening event and the purpose was within the contemplation of both
parties when the contract was executed. A contracts purpose may be inferred from
surrounding circumstances.
UCC 2-615 has been applied by anaology to non-goods cases, as well as to get buyers
off the hook (where it only covers sellers in its terms)
NORTHERN INDIANA PUBLIC SERVICE CO. V. CARBON COUNTY COAL CO.
Facts: Northern Indiana Public Service Co. (NIPSCO) (plaintiff) agreed to buy a certain
amount of coal from Carbon County Coal Co. (Carbon County) every year for 20 years.
This coal was used to generate electricity. The price was set at the time that the contract
was entered into, but subject to escalation. The contract included a force majeure clause,
providing that NIPSCO could stop buying coal under the contract for any cause beyond
[its] reasonable controlincluding but not limited toorders or acts of civil
authoritywhich wholly or partly preventthe utilizingof the coal. In 1983, the
price of the coal under the contract escalated to the point that NIPSCO requested
permission from the Indiana Public Service Commission (the commission) to increase its
fuel charges to its customers. The commission granted the request, but required NIPSCO
to make a good faith effort to decrease its prices by finding alternative sources for
electricity. NIPSCO did find cheaper sources of electricity and therefore stopped buying
coal under its agreement with Carbon County. NIPSCO filed a declaratory judgment suit,
seeking to excuse its performance of the contract with Carbon County under its force
majeure clause or under the doctrines of frustration of purpose or impossibility. Carbon
County filed a counterclaim for damages.
Holding: If the commission had ordered NIPSCO to close plant because of a safety or
pollution hazard, we would have a true case of force majeure... But as the only thing the
Commission did was prevent NIPSCO from using its monopoly position to make
consumers bear the risk that NISCO assumed when it signed a long-term fixed-price fuel
contract, NIPSCO cannot complain of force majeure; the risk that has come to pass was
one that NIPSCO voluntarily assumed when it signed the contract.
Rule: If the buyer forecasts the market incorrectly and therefore finds himself locked
into a disadvantageous contract, he has only himself to blame and so cannot shift the

risk back to the seller by invoking impossibility or related doctrines... It does not
matter that it is an act of government that may have made the contract less
advantageous to one party.
TRANSATLANTIC FINANCING CORP. V. UNITED STATES
Facts: The Plaintiff contracted with the Defendant to ship wheat from Texas to Iran. The
contract specified the destination, but not the route. The ordinary route would take the
Plaintiff through the Suez Canal. However, due to armed conflict, the Suez Canal had
been blocked by Egypt. The Plaintiff therefore proceeded along the route around the
Cape of Good Hope. The Plaintiff then sued to recover the additional costs of taking the
longer route.
Holding: Something unexpected did happen, but the surrounding circumstances indicate
that the Cape route is generally regarded as an alternative means of performance. Also,
the goods were not harmed by the longer route, and the diversion did not render the
performance commercially impracticable...
Policy: It is more reasonable to expect owner-operators of vessels to insure against the
hazards of war. They are in the best position to calculate the cost of performance by
alternative routs and are undoubtedly sensitive to international troubles which uniquely
affect the demand for and cost of their services.
Rule: THE DOCTRINE OF IMPOSSIBILITY OF PERFORMANCE: 3 things for
courts to consider (al three requirements must be met for plea of impossibility to be
satisfied.)
1. A contingencysomething unexpectedmust have occurred
2. The risk of the unexpected occurrence must not have been allocated either by
agreement or by custom
3. Occurrence of the contingency must have rendered performance
commercially impracticable
a. To justify relief there must be more of a variation between expected
cost and the cost of performing by an available alternative than is
present in this case
THIRD PARTIES
LAWRENCE V. FOX
Facts: Holly owed the Lawrence $300. Fox asked to borrow $300 from Holly, and Holly
assented. In exchange for the loan, Fox promised to pay $300 to Lawrence the next day to
satisfy Hollys debt to Lawrence. Fox did not pay the Lawrence and Lawrence sued to
recover the benefit promised to him under the contract between Holly and Fox.
Holding: the Plaintiff can maintain this action against the Defendant.
Rule: The law is clear that a promise made to one for the benefit of another, he for
whose benefit it is made may bring an action for its breach.
SEAVER V. RANSOM
Facts: Mrs. Beman was near death and had her husband, Judge Beman, draft a will that,
among other things, provided that Judge Beman would receive her house for life with the
remainder to the American Society for the Prevention of Cruelty to Animals. Before her

death, Mrs. Beman changed her mind and instead wanted the house to go to the Plaintiff,
a niece, after her husbands death. Mrs. Beman was too weak to wait for the preparation
of another will and signed the one already drafted upon the promise from Judge Beman
that he would leave the Plaintiff enough in his will to make up the difference. Upon his
death, it was discovered that Judge Beman did not change his will for the benefit of the
Plaintiff. The Plaintiff subsequently initiated this suit to enforce the promise made by
Judge Beman to his wife.
Holding: The contract made between Mrs. Beman and Judge Beman for the Plaintiff to
receive the house upon the Judge Bemans death binds the estate to perform on that
promise.
Rule: any third person, for whose direct benefit a contract was intended, could sue on
it.
BAIN V. GILLIPSIE
Facts: Bain made a controversial call in a basketball came, and the Gillipsies started
marketing an offensive shirt at their store with Bains name on it. Bain sued them for
injunctive relief, and they filed a counterclaim, alleging that Bains bad call was
malpractice and caused them loss of a potential market for Iowa Big Ten memorabilia.
Holding: If a contract did exist between Bain and the Big 10, Gillispies can be considered
nothing more than incidental beneficiaries and as such are unable to maintain a cause of
action.
Rule: The real test is said to be whether the contracting parties intended that a third
person should receive a benefit which might be enforced in the courts.