I. Overview – Legal theories for enforcing promises ..........................................................................................................

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A. Contract – Consideration ........................................................................................................................................ 4
a) Hamer v. Sidway.................................................................................................................................................. 4
b) Pennsylvania Supply Inc. v. American Ash Recycling Corp. ................................................................................ 4
c) Dougherty v. Salt ................................................................................................................................................. 4
d) Batsakis v. Demotsis ............................................................................................................................................ 4
B. Promissory Estoppel................................................................................................................................................ 4
a) Kirksey v. Kirksey ................................................................................................................................................. 5
b) Feinberg v. Pfeiffer Co. ........................................................................................................................................ 5
c) Wright v. Newman .............................................................................................................................................. 5
d) Shoemaker v. Commonwealth Bank ................................................................................................................... 5
e) Webb v. McGowin (1935) ................................................................................................................................... 5
C. Restitution and Promissory Restitution .................................................................................................................. 5
a) Watts v. Watts (1987) ......................................................................................................................................... 6
b) Commerce Partnership v. Equity Contracting Co. (199&) .................................................................................. 6
II. Contract formation ...................................................................................................................................................... 6
A. Offer [Formation (mutual assent)] .......................................................................................................................... 6
a) Lonergan v. Scolnick ............................................................................................................................................ 7
b) Ray v. William G. Eurice & Bros., Inc. .................................................................................................................. 7
c) Izadi v. Machado ................................................................................................................................................. 7
B. Acceptance and Revocation .................................................................................................................................... 7
a) Normile v. Miller (1985) ...................................................................................................................................... 8
b) Cook v. Coldwell Banker (1998) .......................................................................................................................... 8
C. Offer and Acceptance under the UCC and CISG ..................................................................................................... 8
a) Harlow & Jones, Inc. v. Advance Steel Co. .......................................................................................................... 9
b) Chateau Des Charmes Wines Ltd. v. Sabate USA Inc. (2003) ............................................................................ 10
2. Intro to the UCC .................................................................................................................................................... 10
D. Contract Formation under the UCC ...................................................................................................................... 10
a) Princess Cruises, Inc. v. General Electric Co. (1998) p.144 ............................................................................... 10
b) Brown Machine, Inc. v. Hercules, Inc. (1989) p.153 ......................................................................................... 10
E. Offer and Acceptance with Forms in Consumer Contracts ........................................................................................ 11
a) Brower v. Gateway 2000, Inc. ........................................................................................................................... 11
F. Incomplete Contract Negotiations: Agreements to Agree ........................................................................................ 12
a) Quake Construction, Inc. v. American Airlines, Inc. (1990)............................................................................... 12
b) Pennzoil v. Texaco ............................................................................................................................................. 13
G. Incomplete Contract Negotiations and the Role of Reliance................................................................................ 13
a) James Baird Co. v. Gimbel Bros., Inc. (1933) ..................................................................................................... 13
b) Drennan v. Star Paving Co. (1958) .................................................................................................................... 13

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 c) Berryman v. Kmoch ........................................................................................................................................... 13
H. Applying the Law of Contract Formation .............................................................................................................. 13
1. Firm Offer .............................................................................................................................................................. 13
III. Breach – proving and interpreting contracts evidenced by writing(s) ...................................................................... 13
A. Statute of Frauds ................................................................................................................................................... 13
B. Scope of a Contract ............................................................................................................................................... 14
1. Interpreting Written Contracts ............................................................................................................................. 14
a) Joyner v. Adams ................................................................................................................................................ 15
b) Frigaliment Importing Co. v. B.N.S. International Sales Corp. .......................................................................... 15
c) C & J Fertilizer, Inc. v. Allied Mutual Ins. Co. ..................................................................................................... 16
2. Parol Evidence Rule (PER) ..................................................................................................................................... 17
a) Thompson v. Libby ............................................................................................................................................ 18
b) Nanakuli Paving & Rock CO. v. Shell Oil Co. ...................................................................................................... 19
3. Implied Terms ....................................................................................................................................................... 19
a) Wood v. Lucy, Lady Duff-Gordon (1917) ........................................................................................................... 19
b) Leibel v. Raynor Mfg. Co. (1978) ....................................................................................................................... 20
c) Morin Building Products Co. v. Baystone Construction, Inc. (1983) ................................................................. 20
C. Obligation to Perform ........................................................................................................................................... 21
1. Conditions ............................................................................................................................................................. 21
a) Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co (1995) ........................................................................ 22
b) J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc. (NY Court of Appeals, 1977) ...................................................... 23
2. Material Breach..................................................................................................................................................... 23
a) Jacobs & Young, Inc. v. Kent (1921) .................................................................................................................. 24
b) Sacket v. Spindler (1967) ................................................................................................................................... 24
c) American Standard, Inc. v. Schectman (1981) .................................................................................................. 25
3. Anticipatory Repudiation ...................................................................................................................................... 25
a) Truman L. Flatt & Sons Co. v. Schupf (1995) ..................................................................................................... 26
b) Hornell Brewing Co. v. Spry (1997) ................................................................................................................... 26
IV. Affirmative Defenses to claims of breach .................................................................................................................. 27
A. No Valid Contract (Capacity or Misbehavior during formation) ........................................................................... 27
1. Capacity (minor/disabled)..................................................................................................................................... 27
2. Misconduct............................................................................................................................................................ 27
a) Dodson v. Shrader ............................................................................................................................................. 27
b) Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Serv. Co. ......................................................................... 27
c) Ordozzi v. Bloomfield School District ................................................................................................................ 27
3. No Valid Contract (Mistake) .................................................................................................................................. 27
a) Sherwood v. Walker .......................................................................................................................................... 29
b) Lenawee County Board of Health v. Messerly .................................................................................................. 29

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 B. Non-Performance Excused by Changed Circumstances ....................................................................................... 29
a) Mel Frank Tool & Supply, Inc. v. Di-Chem Co. (1993) ....................................................................................... 29
C. Overreaching or Improper Terms ......................................................................................................................... 29
1. Unconscionability .................................................................................................................................................. 29
a) Williams v. Walker-Thomas Furniture Co. (US Court of Appeals, DC Cir, 1965) ............................................... 30
2. Against Public Policy ............................................................................................................................................. 30
a) Valley Medical Specialists v. Farber (Supreme Court of AZ, 1999) ................................................................... 30
D. Modification as an Alternative to Breach ............................................................................................................. 31
a) Alaska Packers' Association v. Domenico (US Court of Appeals, 9th Cir, 1902) ............................................... 31
b) Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp. (US District Court, E.D. Mich., 1990) ............................... 31
V. remedies for breach of contract ................................................................................................................................ 32
A. Expectation Damages............................................................................................................................................ 32
a) Roesch v. Bray ................................................................................................................................................... 32
b) Handicapped Children’s Education Board v. Lukaszewski ................................................................................ 33
B. Limits on Expectation Damages ............................................................................................................................ 33
1. Foreseeability, Certainty and Causation ............................................................................................................... 33
a) Hadley v. Baxendale .......................................................................................................................................... 33
2. Mitigation .............................................................................................................................................................. 34
a) Parker v. Twentieth Century-Fox Film Corp. ..................................................................................................... 34
C. Reliance Damages as an Alternate Measure of Compensation ............................................................................ 35
a) Wartzman v. Hightower Productions, Ltd. (1983) ............................................................................................ 35
D. Liquidated Damages.............................................................................................................................................. 36
E. Specific Performance Equity ...................................................................................................................................... 36
a) City Stores Co. v. Ammerman (USDC, 1968) ..................................................................................................... 37
VI. Remedies under alternate theories ........................................................................................................................... 37
A. Promissory Estoppel.............................................................................................................................................. 37
a) Walser v. Toyota Motor Sales, USA, Inc. -- potential exam question with modified facts ............................... 38
B. Restitution ............................................................................................................................................................. 38
a) US ex rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc. ............................................................................ 38

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I. OVERVIEW – LEGAL THEORIES FOR ENFORCING PROMISES

A. Contract – Consideration
 bargained for exchange determined by:
o detriment
 is there a detriment on both sides?
o reciprocal inducement
 motive – the reason you’re giving something up is to gain what was promised
 test for consideration is administered at the time the promises are made; contract comes into
existence the moment promises (consideration) are exchanged; promise is the detriment
 separates world of contracts into:
o contractual promises (bargained for exchange)
o gratuitous promises (non-enforceable)
 unilateral contracts = “reward”; bargain for an outcome/performance of a promise, not the promise
itself (i.e. promise to pay $500 for finding dog)
 substantive interpretation of doctrine of consideration (modern contract law): circumstances of
bargain are important: relationship between parties, is it reasonable to believe that the deal
would’ve happened in other circumstance? (Second Restatement)
 formal interpretation of doctrine of consideration (classical contract law): we don’t dest for the
adequacy of the deal before we determine that an agreement has been reached (First Restatement)

a) Hamer v. Sidway
o Uncle promises to pay new $5k to give up vices, nephew sells debt to a collector; estate
argues no consideration by nephew
o court says nephew gave up actions in exchange for future inducement, therefore yes
consideration; but duty to perform promise by uncle wasn’t triggered till he turned 21

b) Pennsylvania Supply Inc. v. American Ash Recycling Corp.

 American Ash says that Penn Sup never incurred detriment, didn’t commit to anything
 Penn Sup claims they Freed American Ash of hazardous waste; court sided with this claim
and repealed the motion to dismiss

c) Dougherty v. Salt
 Cardozo; Aunt intended money to be paid, but aunt’s estate wants to test claim all the way
to judgment by saying that promise was not bound by consideration, but that it was
gratuitous
 nephew claimed there was a note that said “value received” because the note that was
filled out was a form of a note; no real evidence he incurred consideration
 court decided it was gratuitous, words aren’t enough
 promises to give gifts are not enforceable in court bc no consideration

d) Batsakis v. Demotsis
 answers question of how we measure detriment and whether detriment needs to be a
fair/even exchange
 courts do not care if detriment is equal/fair or not in order to qualify as consideration
 even though value of the promise is $2k, you can make argument that Demotsis is taking a
risk that he or Batsakis will not survive or be in a position to repay the $

B. Promissory Estoppel
 requires 1. detriment to each party and 2. reciprocal inducement
 Restatement (First) had theory of equitable estoppel:
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 o where someone couldn’t testify to a fact bc they had testified at an earlier time and
made a statement contrary to that fact that someone else relied on; estopped from
making a defense, was only limited to statement of facts
 Restatement (Second) §90 promissory estoppel requires reliance:
o detrimental to the person who accepted the promise
o foreseeable at the time that you make the promise, that he promisee will rely on the
promise and take the promisor seriously and breach will be taken poorly
o reasonable reliance based on the promise
o “justice” in enforcement
 ALWAYS a secondary defense, want to assert that it was a valid contract first because the
“justice” aspect gives the court discretion to not enforce or to limit damages
 timing, in a contract you focus on promises made when entered into contract; with promissory
estoppel, focus is on what happens after the promise was made

a) Kirksey v. Kirksey
o not seen as reciprocal inducement because he gained nothing by giving up his land to
his sister-in-law, it was a gratuitous promise
o even though she relied on this promise by giving up her land, she would’ve needed to
show that he needed more work around the farm for the land

b) Feinberg v. Pfeiffer Co.

o company’s motivation to grant promise was a gift to Feinberg for past service
o normal employee relationships are “at-will” and are illusory promises that lack
consideration; others are “for cause” meaning that the employer can only fire with
good/reasonable cause

c) Wright v. Newman
 implied promise by Wright in signing birth certificate to be father
 he defends that there was no reliance on promise bc he was relatively absent
 dissent and majority argue about what evidence she needs to show; was it her
obligation to show that she looked for the biological father or that she just relied on the
promise?

d) Shoemaker v. Commonwealth Bank

 indefinite promise
 Bank notifies mortgagees that that if they don’t get house insurance they’ll do it, and
then bank allows it to expire. Gives notice, but they claim they didn’t receive it. Ps
relied.
 D foresaw that P would act in reliance
o Reliance must be reasonable and compensable

e) Webb v. McGowin (1935)

 Webb saves McGowin’s life by pushing him out of the way of a block of wood at a mill
and loses his leg, McGowin offers to pay him $15 every 2 weeks for the rest of his life
 court consider a moral obligation sufficient consideration to support a subsequent
promise to pay where the promisor received a material benefit (his life)

C. Restitution and Promissory Restitution

Restitution
 considered an off contract remedy, or “quasi-contract” or an “implied in law” contract
 enforces a promise implied by the law (law acts as if the beneficiary has made a promise and
then enforces this fictional promise as if it were part of a contract)

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  promise to pay the reasonable value of a benefit conferred or a service performed at the
request of another party
claim for restitution has 4 elements:
1. benefit conferred - proof that a benefit done or service performed at the request of the other
o benefit – plaintiff must prove that he conferred a NET benefit on the other party
2. benefit accepted - under circumstances in which the beneficiary should have expected to pay or
where payment is expected
 the easy case is when the parties have a contract
 not to be confused with an officious intermediary (acting like have a right to do something
when you really don’t and you weren’t asked to)
3. it would be unjust enrichment if there’s failure to pay
4. promise to pay the reasonable value of the benefit that’s given (either market value or contract
price)

a) Watts v. Watts (1987)

 woman sues unmarried bf of many years for restitution when they split up bc she relied on
his promise that they should act like a family and husband/wife; she claims breach of
contract and restitution
 breach – implied promise based on his conduct, she seeks 50% of wealth
 restitution – her role in relationship was to his benefit
 jury refused to award on breach, but awarded on restitution an amount that was less than
50% she wanted

b) Commerce Partnership v. Equity Contracting Co. (199&)

 should the landlord be made to pay for the stucco done by Equity?
 fact that Equity hasn’t been paid isn’t important if Commerce paid the contractor since they
aren’t being unjustly enriched; we have to look at the net value gained by Commerce in
calculating amount owed to Equity by the principle of restitution; how much was Commerce
unjustly enriched? it looks like they weren’t

II. CONTRACT FORMATION

 valid enforceable contract
 claim requires: 1. valid contract, 2. breach, 3. remedy
 better remedy than restitution bc always enforceable for full contract amount
 contract starts the moment promises are exchanged and accepted, even if a promise is conditioned
 promise can be implied (ordering food) or express

A. Offer [Formation (mutual assent)]

 the moment someone holds out the deal; objective standard; tested when someone changes his
mind
 when an offeror creates an offer, it gives the power of acceptance to the offeree and shifts the
power of making a contract to the offeree; not something you want to do in the early stages of
negotiation
 definiteness
 intention
 invitation, proposal, preliminary negotiation – different labels that could be put on negotiations
prior to when it’s an offer
 Restatement (Second) §24 definition of offer = objective manifestation of an intent to be bound
with no further action
a. acceptance (binds you into contract)

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  if offer doesn’t specify how to accept, verbal acceptance can be seen as an objective
acceptance; master of the offer than dictate means of acceptance
 mailbox rule – acceptance occurs at the time the acceptance is deposited in the mail; on
average protect the offeree bc offeror could’ve changed the terms (email, when
acceptance is received by offeror’s server/system)
b. counter offer
 rejection of offer (offer is no longer on the table)
 new offer is created (gives original offeror power of acceptance)
c. rejection (knocks contract off table)
d. revocation (withdrawal of the offer; an objective manifestation to no longer be bound; you can
change your mind bc master of contract)
e. lapse/expiration/termination (defined as “a reasonable time under the circumstances;” where
the offeree has enough time to consider the offer and make up his mind; or after the master of
the offer’s deadline; always give deference to the offeror’s terms bc he is the one that is putting
himself out there and has the freedom to limit what he’s willing to do)
f. death/incapacitation of the offeror (offeror no longer in a state of being where he is capable of
being bound)

a) Lonergan v. Scolnick
 whether the seller’s communication counted as an offer; the buyer clearly manifested an
intent to accept but an acceptance isn’t an acceptance if there’s no valid offer
 advertisements generally not considered offers bc offers give power of acceptance;
merchants qualify it as an invitation, buyer makes an offer (exception is when the
advertisement is so clearly an intent to be bound, that merchant is not reserving any rights
and is committing fully to the offer (look at car case))

b) Ray v. William G. Eurice & Bros., Inc.

 in Ray case, builders say they never reached mutual assent; but the rule that comes out of it
is that the test for mutual intent is an objective test "objective theory of contractual intent"
- reasonable person is objective; if a reasonable person would have thought your actions
were binding, it doesn't matter if you actually intended to make it or not
 rule for determining intent to enter into a contract: when a reasonable person would
conclude that there was intent to enter into a binding agreement

c) Izadi v. Machado
 court used the objective test; a reasonable person would think they're getting $3,000
trade-in value
 term of offers are interpreted for a reasonable amount of time unless there are other
stipulation

B. Acceptance and Revocation

Acceptance
 common law rule is mirror-image rule = acceptance must be a straight up acceptance of the
offeror’s rules with no changes; the moment a change is made, it’s a counteroffer
 as a consequence, end up with last-shot rule= the person who submitted the last form has the
binding terms before conduct showed acceptance because the other could’ve objected to the terms
before having their actions dictate acceptance

Revocation
 offeror maintains option to revoke if the offer is not accepted or rejected
 if an offer states a time of expiration, in general, that doesn’t take away the power to revoke

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  in general, silence (in words or actions; express/implied) doesn’t qualify as an acceptance;
acceptance must be accepted outright, exception would be if the 2 parties had prior understand
 revocation is only effective when it is actually communicated to the offeree (unlike the mailbox rule,
where the offeror is bound once the acceptance is dispatched v. when it’s received); law protects
the offeree as a rule because the offeror has more power
o express communication (phone call, etc.)
o inconsistent action – any action from which the offeree could reasonably infer that the offer
has been revoked (i.e. entering into a valid contract with someone else)
 option contract - offeror promised not to exercise power of revocation in exchange for
consideration, must have all elements of a contract
 §45 – substantial performance removes the offeror’s power to revoke, even if he unilateral
contract’s required performance by the offeree has not be completed (modern)
 UCC 2-205 – Firm offer – if offeror is a merchant and the promise to revoke is signed separately,
then even though there is no option contract, the firm offer can only be held open for up to 90 days;
o merchant making offer that sets an expiration date, the offer has to stay open for that
period of time or for a max of 90 days, then that offer becomes a “firm offer” and the
merchant doesn’t have the power to revoke within that 90 day period; no consideration is
needed

a) Normile v. Miller (1985)

 buyers made a written offer through an agent
 seller signs the offer but crosses out and amends terms; presenting a counteroffer that
was a mix of the original and new terms
 offeror had put in a deadline for the offer
 seller asserted that she revoked the counteroffer before the full time for acceptance has
passed
 how is she able to revoke the contract prior to the expiration? shouldn't the offeree be
able to reasonably rely on the offer until the full time has expired?
 general rule: if an offer states a time of expiration, in general, that does not take away
the power to revoke
 in general, silence (either in words or actions; express/implied) does not qualify as an
acceptance, acceptance must be accepted. exception would be if the two parties have a
previous understanding
 the revocation is only effective when it is actually communicated to the offeree (unlike
the mailbox rule, where the offeror is bound once the acceptance is dispatched v when
it's received); the law protects the offeree as a rule because the offeror has more power
in this instance
 express communication (phone, etc.)
 inconsistent action - any action from which the offeree could reasonably infer that
the offer has been revoked (entering into a valid contract with someone else)
 buyers thought that they had "option" to the contract

b) Cook v. Coldwell Banker (1998)

 employer puts a bonus out on the table; did the employer have the freedom to change
the deal or was he bound to keep the original terms of the deal?
 unilateral contract; there's only one promise; it can only be accepted by full
performance
 part performance has no place in unilateral contracts under classical contract law
 modern contract law now allows substantial performance to bind the offeror to the
offer (remove the option to revoke) Section 45

C. Offer and Acceptance under the UCC and CISG

Doctrine of Indefiniteness – practical inquiry into the offer that ht offeree imposes on offeror
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  classical view: trict test that required the material terms (price, time of deliver/performance)
 now: doesn’t require all terms to be specified, allows open terms, but TIMING is important
 price used to have to specified, but now if there’s a process b which the price will be
determined, it can still be called a contract (price remains material)
 indefinite promises are when they’re too open
 Restatement treats definiteness as a separate enforceability test

UCC (Article 2-207) – law over goods (stuff) – default rules unless parties specify otherwise
 seasonable expression – while the offer is still alive, available
 acceptance of an offer
 confirmation of terms; adds in silent terms
 operate as an acceptance = enter into a contract
 opposite mirror-image rule
 different/additional terms do not count as counter-offer, allows doc to act as an acceptance
UNLESS the seller’s confirmation expressly requests that the other party accept the fine print
 Subsection (2) – rule for when terms are only additional; only true btwn merchants
 ALL sale of goods under the UCC, but the UCC divides the world between consumer and
merchant contracts
 Subsection (3) – knocks both forms out if they are in disagreement and cannot agree, thereby
going to one of the preset default rules
 UCC implies good faith as a matter of law inside every contract, but this isn’t an independent
promise, more one that extends over every term (separate promise in common law, but even
there it is receding into just a way of reading/interpreting the rest of the claims)

CISG – treaty/contract between multiple countries

a) Harlow & Jones, Inc. v. Advance Steel Co.

 3 diff characterizations of the communications on the paper; diagram what happened when
in order to help figure out whether parties reached mutual assent or not
 7/2 – 1,000 tons
 7/2 – broker seller
 7/9 – seller sends offer form S-2373 à ship Sept/Oct., no delivery date and asks for
signature confirmation
 7/9 – seller orders steel
 this was one of many deals between two parties
 7/9 – 7/22 – buyer “objects” and wrote down “delivery 10/31 on form S-2373
 7/22 – buyer returns buyer’s form B-04276 and contains the Sept/Oct ship date
 first shipment of 214 tons sells
 second shipment arrives late in November, buyer accepts delivery and pays for it
 third shipment is refused by buyer for late shipment and writes letter
 seller rejects buyer’s letter
 seller warehouses steel and auctions it, and then buyer buys it
 if seller wins the action, they will be the non-breaching party and get the full price of the
contract
 buyer sent the letter saying the shipment was late in order to create a record
 3 possibilities to what thse terms were agreed to:
 phone conversation
 seller’s form
 buyer’s form
 each party is convinced that the terms are presented in their corresponding document
 difference was whether there was a delivery date, we know there was a ship date
 each party has to present the meaning of what terms mean (i.e. ship) in court
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  parties use “trade usage” of a term (parties in a certain industry all use language with the
same meaning)
 court relies on the fact that they talked about these things on the phone, doesn’t rely on the
forms, so it knocks out the disagreement under 2-207(3) so the terms become the oral
terms not the ones on the form

b) Chateau Des Charmes Wines Ltd. v. Sabate USA Inc. (2003)

 court holds that the contract terms were defined over the phone, not the forms
 source of law is held CISG, governed by treaty (contract) between multiple countries
 choice of law and choice of forum can be contract differently than the default outlined
by CISG
 issue was whether forum selection clause was a valid part of the contract
 main point is that the court reaches similar results as the UCC case for similar reasons

2. Intro to the UCC

D. Contract Formation under the UCC

a) Princess Cruises, Inc. v. General Electric Co. (1998) p.144

 fact that it’s a ship, means we have to use admiralty law as source of law
 what is the authority that gives you the authority to determine whether the contract is
for services or goods – the local legislature decides through its statutes; choosing
between state ucc law or state common law
 what is the source of law that we look to decide whether it’s ucc or common law that
it’s the primary purpose of the contract that tells you? the UCC, because the UCC
outlines what it covers and what it doesn’t, so the court will look at the statute and see
if it applies because statutes (as enacted by state legislature) is always superior to the
common law
 to determine the primary purpose of the contract, you might look at the economic value
of the goods v services
 in this case, the court is look at admiralty law (federal law) to decide whether it’s a
goods or service contract
 so question is: under admiralty law, for contract formation what rules apply?
 congress didn’t fill in the gap, assume that the choice is between ucc and common
 this case is worth about $4mm to the parties
 GE puts forth a limitation of liability clause
 GE acknowledges they messed up and didn’t repair the rotor adequately, no argument
about this
 Princess asserts that they breached the promise to repair the rotor and as a
consequence they are entitled to recover for lost money from the 2 cancelled 10-day
cruises for Easter and Xmas (consequential damages)
 if consequential damages are foreseeable by promisor, they are recoverable
 GE’s limitation of liability clause applied bc under common law, the last shot rule applies
 under common law, party impliedly assents to a and thereby accepts a counter-offer
by conduct indicating lack of objection to it – which was what GE did when they
threw out the limitation of liability clause; bc rule for acceptance under common
law is that the terms have to be the same “mirror-image” bc the minute you say
“but…” and put forth a new term, you are counter offering and therefore, conduct
on the other party’s part is seen as an acceptance of the last terms put forth

b) Brown Machine, Inc. v. Hercules, Inc. (1989) p.153

 Brown is trying to show that Hercules agreed to pay the indemnification under the
contract they entered into

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  Brown has at least 3 arguments that Hercules has to pay. What are they??
 facts:
 Brown is manufacturer of the machine
 Hercules is the company that uses the trim press to make the cool whip bowls
 first contact: Hercules calls Brown requesting a bid (is this a contract?)
 on 11/7 Brown responds with a proposal for the trim press (is this a contract or offer
to enter into one?); what is paragraph 8 of the provision they sent? limitation on
liability? NO, more than a limit, it’s an indemnification provision (an insurance);
indemnification provisions shift resp to other party
 Hercules only responds by phone that they have objection to paying 20% up front,
only subject is funding, no express objection t indemnification clause
 Hercules sends purchase order to Brown in 1/6 with no indemnity provision, but
indicates that they only agree to the T&C’s on the back of their PO and do not agree
to anything that is different unless it’s expressly agreed to

E. Offer and Acceptance with Forms in Consumer Contracts

a) Brower v. Gateway 2000, Inc.

 modern contracts are based on mutual assent, not a meeting of the minds like common law
 lawyers always put many more terms in their contracts in hopes that the court will hold those terms to be
binding, the consumer always has an argument
 be clear on what it means to have mutual assent
 Gateway’s theory were that the terms in the box were proposals for addition to the contract that were
formed on the phone and that the consumer chose to accept those new terms by not sending the computer
back; they do this to avoid the “silence as acceptance” limitation in UCC §2-207
 why is the Brower case rightly decided?? Policy perspective. that normal understanding that phone call
and money is the offer, but we should treat the seller as the offeror as the right perspective.
 agreements to agree, read notes after Quake case; 3 possible characterizations are listed here and what
kinds of evidence we should look at in deciding which option is most persuasive
 piece of paper in document was considered to be an offer, the phone call was just an invitation for seller to
make the offer and send the computer
 as a matter of policy, it is more beneficial to everyone (consumers and sellers) because it gives the consumer
ability to return the document; even if implied-in-law terms found in the UCC are generally favorable to the
consumer; consumer always has the freedom to find a comparable product from another seller; efficiency
should guide our decision making in contract law
 that is, the ease of being able to purchase an item by not having to have each consumer have to negotiate
the terms of the contract with the seller
 efficiency = enhancing a system, the least costly (time, money) = greatest good for the greatest # of ppl
 Judge Easterbrook in this case says that his job as a judge is to deal with legal ambiguity
 legal choice before the court: what constitutes the contract and what constitutes the offer?
 is there a difference between aw & policy?
 law binds the consumer into a decision
 what guides a judge’s decision when they have a law, a set of facts, and two persuasive
arguments?
 how would this decision be received by most ppl?
 result-oriented decision making (thinking about what the result will be of it)—but
this doesn’t make a lot of ppl comfortable, it’s perceived as something legislators
are supposed to do
 some judges see themselves as umpires, just calling it as it is, but judges can’t say
that they’re making policy with every decision since they’re interpreting the
constitution
 law and economics says that efficiency should be the guide—where Judge
Easterbrook is coming from
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  some version of fairness is usually another version of policy = the greatest good for
the greatest number usually has to give way for these parties or similar parties
(unconscionability = even though we think you agreed to this term, the court does
not think they would be doing you justice to enforce it—the clear case is when it’s
against public policy (i.e. contract for sale of cocaine))

F. Incomplete Contract Negotiations: Agreements to Agree

 letters of intent prove that the parties are serious about doing deal with each other:
a. no obligation – just for show, no legal obligation, just to make other party feel comfortable that
you’re serious
b. agreement to agree – binding agreement to be part of a promise; parties are only obliged to
continue to negotiate in good faith
c. formal contract contemplated – binding agreement, deal is done just has a few open terms and
specs left to be filled in; parties have reached agmt in principle on at least some major
provisions of their agmt, but they contemplate the execution of a formal written contract
 court is bound to allow freedom of contract, but the legal standard for interpreting the contract is to
look at the objective intent of parties to enter into contract

a) Quake Construction, Inc. v. American Airlines, Inc. (1990)

 letters of intent prove that the parties are serious about doing deals with the other
 three possible characterization of letters of intent:
1. no obligation
 just for show, no legal obligation, just to make other party feel comfortable that you’re serious
2. agreement to agree
 binding agreement to be part of a promise; parties are only obliged to continue to negotiate in good
faith
 formal contract contemplated
 binding agreement, deal is done just have a few open terms and specs left to be filled in ; parties have
reached agreement in principle on at least some major provisions of their agreement, but they
contemplate the execution of a formal written contract
 court is bound to allow freedom of contract, but the legal standard for interpreting the contract is to look at
the objective intent of parties to enter into a contract
 how do these facts show that the letter of intent had no obligation?
 defendants were not general about the building specification
 contrary evidence: that they indicated that the work would commence soon, they don’t have time to
draw out the negotiation process; at the meeting on 4/25 they represented that the plaintiff would be
the contractor
 evidence that favors that they were just under a formal contract contemplated:
 notice said that work is authorized and the timing for when project would commence is soon
 defendant argument: cancellation clause, why would you intend to cancel something you have intent
to?
 what kind of evidence do you want to look for to determine?
 evidence of intent? SPECIFICITY – the more concretely specifications are spelled out, the closer to a
contract you’re getting such as all of the business points
 who’s doing the negotiations
 timing of the project, what is the context in thinking about whether this is expected to be a long or short
negotiation, when is performance expected?
 pending actions to be performed? what we should care about is the intent at the time the letter was
written and delivered
 is this usually the kind of agreement that is put in writing; if it’s usually done orally, then the letter may
be backing up K; put if agreement is usually 25pp and letter is 1p, then probably not K
 amount of money—the value of transaction suggests the level of care that parties are going to take in
entering into K
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  negotiation history—how did you get to the point where you needed a letter; what is the letter’s intent?
 any other statements of assurance—public statements, etc.
 option = offeror offers to refrain the right to revoke and offeree offers some consideration for this
 whether reliance without an option maintains offer open
 NO, it’s not reasonable reliance
 bid by subcontractor is an offer (objective manifestation of an intent with no further action); but subcontractor
says it’s a mistake
 so someone has to lose: general contractor in contractor with client; or subcontractor with general contractor?
 Learned Hand says that general contractor should suffer; Justice Traynor (‘50s in Drennan) says that the law
should lie with the party that caused the problem and the subcontractor should pay for their mistake
 reasonable reliance can remove the power to revoke, but when reliance can be deemed reasonable in these
circumstances is much more strict than in regular promissory estoppel
 but in general, not enough that offeror say that offer is good for 30 days and then changes mind because they
made a “mistake”
 persuasive in construction context, less persuasive in other contexts

b) Pennzoil v. Texaco

G. Incomplete Contract Negotiations and the Role of Reliance

a) James Baird Co. v. Gimbel Bros., Inc. (1933)

 mistaken bidder case (a repeat player)
 where the subcontractor makes a mistake and bids too low, and the general contractor relies on this? who
pays?
 Judge Learned Hand says that it falls on the general contractor and that the subcontractor should be allowed
to pull out

b) Drennan v. Star Paving Co. (1958)

 in construction industry, common law rules of contract making causes problems and the law needs to
change
 where the subcontractor makes a mistake and bids too low, and the general contractor relies on this? who
pays?
 Judge Traynor says that it should fall on the subcontractor, who should remain bound to the bid

c) Berryman v. Kmoch
 you really do have to pay for the option, you can’t just say you’re going to pay
 $10 had to have been paid (a “real”) transaction
 if you purport to give consideration without actually giving consideration, the offer will be treated as a gift and not
be binding (that is, no option exists)
 consideration is determined at the time the promise is made

H. Applying the Law of Contract Formation

1. Firm Offer

III. BREACH – PROVING AND INTERPRETING CONTRACTS EVIDENCED BY WRITING(S)

A. Statute of Frauds
 comes into effect after a contract has been formed; popular bar topic, SOF indicates that the
contract:
a. be in writing and signed by a contracting party (text counts nowadays)
b. clearly evidencing that the promise was made
 allows defendant do say one thing and then do another

13
 Restatement §110, types of contracts covered:
a. executor-administrator provisions (i..e an estate entering into any contracts through the executor)
b. suretyship provision (contract to answer for duty of another; loan agmt co-sign)
c. marriage provision (love letter was sufficient back in the day)
d. land contract provisions (sale of an interest in land; as a tenant, you have the proprty right of
possession (interest in land); things less than ownership count toward this)
e. one-year provision (contract cannot be performed within a year; if it’s possible to be performed
within a year no matter how remotely, then it’s NOT within the SOF and an oral agreement is
enforceable; if time of performance is stated to be 12mos or grater, requires contract)
f. [UCC §2-201 – contracts for the sale of goods where the sale price is $500 or greater (it’s $5k in the
revised UUC, but not adopted by any state legislature yet)]

Restatement §139 (Promissory Estoppel for SOF)

 if a party to an oral contract that would be unenforceable bc of SOF relies on the contract, th court
may enforce the contract even though there’s no right
 more demanding standard of reliance than in contract formation

 signature = anything that you intend to be a signature; that something comes from you; could be a
signature block unless not intended to be
o objective interpretation of your subjective intent; what a reasonable person would interpret
your intent to be

B. Scope of a Contract
 interpretation = parties’ intent controls the meaning; court is trying to protect the bargain as it was
made against the arguments that are made after the fact
 construction = courts created rules of construction where there’s a dispute about the meaning of
the terms and there is no way to determine the intent, there exist rules that interpret the terms
(back-up rules for who wins if there’s a dispute)

1. Interpreting Written Contracts

 when party A knows of party B’s interpretation, then party A will be charged to hold to party B’s
interpretation because party B was the “innocent” party and only had 1 meaning of interpretation
whereas party A was aware of both meanings, to discourage A from taking advantage of B (Joyner)

Principles of Interpretation (RULES of Construction) p.358

noscitur a sociis – the meaning of a word in a series is affected by other in the same series; or, a word
may be affected by its immediate context
 i.e. “cattle, hogs, and other animals”
 does boa constrictor fit? depends on whether the contract deals with farm animals, etc.
 the dispute will always be about what can be included in the “and other things” category
expressio unius exclusio alterius – if one or more specific items are listed, without any more general or
inclusive terms, or other items although similar in kind are excluded
 the parties are contracting over a list, but they only include certain items on the list,
therefore the lack of specifically mentioning the other item means they’re excluded
 this is like the dog that didn’t bark
omni praesumuntur contra proferentem – if a written contract contains a word or phrase which is
capable of two reasonable meanings, one of which favors one party and the other of which favors the
other, that interpretation will be preferred which is less favorable to the one by whom the contract was
drafted; fabors the party of lesser bargaining power
 punishing the drafter because they had the opportunity to make it clear; comes up
frequently when there’s an imbalance in the drafting power

14
 interpret contract as a whole –
 never use two words to describe the same thing because you immediately introduce
ambiguity
purpose of the parties – the principal apparent purpose of the parties is given great weight in
determining the meaning to be given to manifestation of intention or into any part thereof*** MOST
IMPORTANT ONE, always start here
specific provision is exception to a general one –
 general goal of the interpreter is to find a consistent goal that covers everything
handwritten or typed provisions control printed provisions –
 handwritten changes to a form contract means you intended to use the changed language
instead

a) Joyner v. Adams
 question presented: whether the language can reasonably have more than one meaning (ambiguous)?
if so, how do you pick which one?
 trial court concluded that there was no meeting of the minds and found in favor of plaintiff who had a
less stringent interpretation bc defendants had drafted the language
 options under these facts are:
1. that the builder would finish building on the land; if contract required a building for the
extra rent
2. builder said that building the piping was sufficient for extra rent
 trial court decided to use a rule of construction:
 when parties have dispute over the term, the party who wrote the agreement loses
 theory, the writing party created the ambiguity by the language you choose and could
have been clearer (they “had the pen”)
 why are they up on appeal?
 there’s a hierarchy, courts are only allowed to fall back on rules of construction if they are not
able to figure out what the parties had in mind
 you shouldn’t be able to pull out this rule to hold writer’s language against them so easily,
especially when the parties have equal bargaining power; more intended for unequal parties
 they needed to determine whether there was a “meeting of the mind” with regard to the
ambiguity
 evidence to support the 2 different meanings:
 for plaintiff:
 memos, showing evidence for possible completion
 defendant:
 within local construction community, developed means road s and sewers
 court relies on a different rule of interpretation in sending back down to trial court:
 when party A knows of party B’s interpretation, then party A will be charged to hold to party B’s
interpretation because party B is the “innocent” party and only had 1 meaning of interpretation
whereas party A was aware of both meanings
 underlying idea is to prevent one party from taking advantage of another
 court looks at whether the defendant would’ve entered into the agreement if they had known that
completion would require the entire building to be built; and she should’ve known through her agent
 in fact, there was evidence that a previous draft had said the whole building and the builders
rejected it
 try to categorize and recognize what types of evidence courts look at to determine intent

b) Frigaliment Importing Co. v. B.N.S. International Sales Corp.

 party A (young chicken, suitable for broiling) and B (any chicken/fowl, including stewing chicken) have a
dispute over what chicken is
 this matters because of the sale price; the buyer is a chicken distributer to restaurants
 fowl chicken is a lower quality of chicken; and clients tend to prefer the young, broiler chicken
15
 intermediary is then on the hook because it’s not able to resell the chicken it’s bought
 worth the loss in cents per pound that the buyer will be on the hook for
 this is a contract for the sale of goods, therefore it falls under UCC, but the court doesn’t mention UCC, why?
NY hadn’t Article 2 to the UCC yet at the time this was being disputed
 the writing is never the contract itself, it’s a written evidence of the contract that exists between the two
parties in an abstract forum
 the court’s job in interpretation is always “what did these parties mean?”, not necessarily extrinsic evidence
that is outside of what the two parties thought (i.e. calling in an outsider/expert to tell you what chicken
means is iffy, but it can prove helpful) – goal is not to construe the contract as to what a reasonable person
would’ve meant
 plaintiff uses English word to refer to “chicken” instead of the two German words, thinking that this would
be easier for American company to understand since the German word for chicken is “generic”
 defendant:
 there was confusion with the meaning of the use of the word “chicken” in English
 the USDA regulations describe that there are different types of chicken, but the plaintiff only wants
general chicken
 pricing standards also infers (to make a logical leap from one thing to another…if___, then it must also
be true that ___) that the plaintiff knew that the defendant would’ve have sold the higher grade
chicken at that price, because no party would enter a contract where they were losing money (market
context) because at the time the higher grade chicken was selling at 35-37cents/lb as opposed to 33
cents/lb that they sold to the plaintiffs; but this also depends on whether the buyer knew what the
seller’s likely cost was going to be
 Judge Friendly gives opinion:
 both parties waived their right to a jury trial and chose to have the judge be the finder of facts instead of
a jury
 determining that the word “chicken” is ambiguous is a question of law that the judge makes first
 under the rules of civil procedure, the judge has to show his reasoning as part of the finding
 plaintiff:
 since chicken is ambiguous, plaintiff says only young chicken comes in 2 weights – court
kind of rejects this
 plaintiff shows the negotiating history bc switched language to be more precise
 trade usage means that they must’ve meant young chicken
 related usage in other/related contexts’ use of word
 defendant:
 defendant brings in FDA def of chicken, trade usage uses this def
 plaintiff says “any type of chicken”
 the expert witnesses always uses clarifying terms even when using “chicken”
 market price (lead argument)
 defendant relied on conduct by the plaintiff after the first shipment was received allows
inferences to be made, even though what we care about is what the parties meant at the
time the contract was formed—defendant says that the plaintiff only said that “chicken”
means young chicken after its customers complained

c) C & J Fertilizer, Inc. v. Allied Mutual Ins. Co.

 for insurance companies, breach of contract is part of the business model
 what are the promises made in an insurance contract? if something bad happens, I will pay for the damage
 insurance companies have a gambling model, where they’re the house and they always win (take in more
than they pay out)
 insurance companies’ model is to routinely not want to provide coverage for anything
 insurance company requires evidence on outside to prevent “inside jobs” so ppl aren’t scamming the system
and trying to just recover

16
 doctrine of reasonable expectations (p. 374) – whether a person drafts a contract reasonably or to escape
having to pay out
 is this a rule of interpretation or construction? the court is construing a meaning bc the language in the
policy backs the insurance if we only interpret
 this would be an open and shut case in favor of the insurance if we simply looked at the policy wording
because the wording appears to be pretty unambiguous
 so the court uses the doctrine of reasonable expectations to look at the reasonable expectations of the
weaker, non-drafting party without looking at the language itself
 in order for a court in any case to rely on the doctrine of reasonable expectations, they must:
 determine if there’s unequal bargaining power: that one party offers the terms and is unwilling to
negotiate the terms (“take it or leave it deal”) – contract of adhesion (def.: where one party doesn’t
have the right to agree as much as to adhere; standard form contract doesn’t mean that it’s a
standard form contract only, the party has to be unwilling to negotiate the terms)
 where the sophisticated party is taking advantage of the weaker party’s understanding (similar to
Joyner, difference being that in Joyner there is an ambiguous meaning)
 but in this case, that even when the word is unambiguous, the court will allow the word
to have a different meaning based on the weaker party’s reasonable expectation
 many states don’t accept the doctrine of reasonable expectations, even though it’s in the Restatement §211
 need: 1. adhesion contract and 2. reasonable expectations different from face value of words
 most states enforce the language as it’s written

2. Parol Evidence Rule (PER)

 def = when the parties to a contract have mutually agreed to integrate a final version of their entire
agreement in a writing; neither party will be permitted to contradict or supplement that written
agreement with extrinsic evidence (written or oral) of prior agreements or negotiations between
tem;
o integrate = prior conversations, prior drafts, etc. that are integrated into the written
document
o fully integrated doc = where parties have agreed that the written contract is only evidence
of their agreement
 if complete on it’s face; also can include a merger clause stating that the dc is fully
integrated; 4-corners rule (not all courts look at this, others look at context as
“extrinsic evidence” which is tno the same as using it to determine the terms)
o partially integrated agmt = outstanding terms; in this case, those terms can be
supplemented by extrinsic evidence
 whether a doc is integrated is a question of law for the judge
 PER usually comes in form of motion in limine (ruling before trial to prevent evidence); evidence can
be objected to and struck while in trial; or move to strike later
 partial v. complete integration:
o depends on intent of parties; how related are the parts to the writing? if separate, probably
partial; if related, then court is going to wonder why not included in writing
o if court decides partial, will allow the jury to consider evidence of an alleged consistent
additional term bc it decides that IF such an agmt was made, that consistent term was not
superseded by the partial writing
 modern approach to integration (Corbin) – opposite 4-corners, take into account factors below to
determine integration:
a. surrounding circumstances as well as the writing
b. level of parties’ business sophistication
c. whether parties both represented by counsel
d. relative bargaining strength

17
 Restatement §213 PER and exceptions:
 excludes: 1. evidence of prior oral or written agmts or 2. contemporaneous oral agmts (any
interactions AFTER agmt is fair game)
 EXCEPT when (even if we find there is an integrated writing):
e. oral condition precedent to a doc becoming a contract (not trying to attack writing, trying
to show that the writing never took effect)
f. fraud in the inducement of a contract (does not apply to evidence offered to show that the
agmt is invalid for any reason, such as fraud, duress, undue influence, incapacity, mistake, or
illegality)
g. reformation of a writing (aka. equitable remedy)
 asking judge to change the words in the writing bc the words in the writing ar ea
mistake and not what the parties actually meant can prove that there’s been an
error in drafting the language
 often occurs in sales of property (i.e. “north lot” instead of “south lot”)
 prereq’s for reformation:
o specific agmt
o subsequent writing at variance
o no prejudicial change of position while ignorant
h. ambiguity of language and the interpretation of written docs
 not attacking the writing, explaining; valid as long as court agrees that the language
is ambiguous
 need objective evidence of alternate meaning, not just a naked claim
 sometimes parties are talking in code where they pretend the deal is for one thing
but is really for another
i. oral or written agmts made after the execution of the writing
j. contemporaneous/collateral agreement unless they are within the scope of a completely
written agmt

UCC PER §2-202:

 whether or not the terms are ambiguous, the court is going to allow explanatory evidence of
below bc they’ll always be helpful in determining what the parties intended:
a. course of performance
b. course of dealing
c. trade usage

a) Thompson v. Libby
 the seller (plaintiff) is suing for the purchase price because the buyer is refusing to pay because of the
quality of the wood
 the defendant’s theory on the terms of the contract is that there was no warranty
 both sides are accusing the other of breach
 buyer says that the seller promised logs and good logs; and since logs aren’t good, seller is in breach
 but we don’t get to question of interpretation because court says that the agreement is fully integrated and
that a warranty would be supplemental and cannot be added at this point
 3 ways to look at the words of the contract
 Option 1: “all my logs marked HCA” (written) “The logs are warranted to be good” (oral) – PER rejects
the oral contract
 Option 2: implied adjective “All my [good] logs”—reading in a term into a writing
 Option 3: but if we find the term “logs” to be ambiguous, then the PER allows us to use extrinsic
evidence to add clarity to the meaning “All my logs…” but “logs” = good logs
 not a lot of difference between option 2 and 3, but it requires framing of the argument correctly and the
court has to determine whether the term is more ambiguous than it looks on its face

18
 b) Nanakuli Paving & Rock CO. v. Shell Oil Co.
 illustration of how UCC diverges from PER in the common law
 there was no promise for the buyer to have to require anything on theory that there is no affirmative
obligation on part of buyer to buy in
 seller says I promise to supply you with all goods you required
 buyer promises that if he requires anything, he will buy all goods from seller
 objection to contract bc no consideration on buyers promise because buyer is not required to require
anything
 written agreement for purchase of asphalt
 Nanakuli’s main customer is the Hawaiian government, and the contract means that the government
contractor cannot pass on price increases; which is why Nanakuli would need notice since they’ve already
committed themselves to doing a lot of paving
 S: “shells’ posted price at time of delivery”
 N: Except for price protection.
 on two previous occasions, Shell had kept the price protected for 3 and 4 months, respectively, because
it allows Nanakuli to complete the current government contracts and then negotiate new ones with
the new price
 heavy price increases because of the oil embargo, so a lot of breach of contract cases arose
 Nanakuli argues that implied term of contract under UCC (obligation to perform in good faith) requires price
protection and that the interpretation of the text in the agreement is that they will provide price protection.
Argues:
 1. course of performance (conduct of the parties after the contract has been entered into) assumes their
conduct is a reflection of the intent
 2. course of dealing (conduct before the agreement) in negotiating this agreement and any other prior
agreements they may have engaged in)
 3. usage of trade (where parties are disputing meaning of words and members of trade where the words
are used frequently, the parties must’ve intended the words to mean what everyone else accepts as
the meaning)
 Nanakuli’s theories:
1. trade meaning of posted price
2. good faith dealing
 Shell’s theories:
1. district court shouldn’t have denied the motion in limine to define trade usage
2. previous protections were mere waivers of the contract’s price term, not performance of a contract
3. even if ppl consider if usage of trade is broad and the course of performance helps interpret what
everything means, you still have to hold to the express meaning of the words and not twist the words
 big take away: don’t fetishize the language of the agreement and think there isn’t anything beyond it (p.425)
 trade usage evidence is always admissible in a UCC case as extrinsic evidence, not so in common law (where
the language has to be ambiguous); also, UCC requires good faith and plaintiff can introduce extrinsic
evidence to prove breach of good faith
 Nanakuli wasn’t required to buy any asphalt, was this illusory?
 even though there’s no explicit term to act, the good faith requirement in UCC obligates them to take
action and act on the illusory contract (p. 462-465)

3. Implied Terms

a) Wood v. Lucy, Lady Duff-Gordon (1917)

 illusory promise = “I promise to do something, unless I decide not to” (give a promise, but then provides a
condition by which the promisor can withdraw the promise and doesn’t create any consideration)
 doctrine of mutuality=if the other promise is not backed by consideration, then your promise is not
enforceable either
 Lady Duff-Gordon makes a promise that is backed by consideration (she gives him exclusive rights to market
her brand), but she argues that his promise is not
19
 Woods claims that his promise is to exclusively sell her name/brand and they’ll split 50% of the profit
 she says that there is no assurance he will sell her brand
 she made a side deal to sell her dresses through the Sears catalogue to open her brand to the national
market, which is a significant portion
 to save the contract, Cardozo will have to look at the rhetoric of the case in order to find a detriment for
Woods
 Woods’ duty comes out of an implied promise, because why would Lady Duff-Gordon make a deal that
wouldn’t make her any money, his promise to act on the promise and seek endorsements was implied;
implied-in-fact
 Cardozo finds that he makes a promise to make a reasonable effort to sell her clothes
 Best efforts as a matter of fact

b) Leibel v. Raynor Mfg. Co. (1978)

 construction & UCC
 at will agreement = both sides can withdraw at will; no expectation interest that promise will be performed;
illusory promise because there is no forward-looking detriment since both parties are free to withdraw from
the contract at any time for any reason
 as a rule of construction, if there is no definite end to the agreement, then the courts look at it as an at-will
agreement unless the parties indicate a time limit to indicate forward-looking binding promises
 this case is an open-ended exclusive agent agreement to sell garage doors within a specific region
 the garage door manufacturer decides to terminate the deal pretty suddenly and without much notice
 as the agent, you cannot use the principal’s trademark in a way that might confuse the consumer or sell any
doors under the premise that they’re an authorized dealer
 UCC implies as matter of law that inside the contract, there is an implied promise to perform in good faith;
but this is not an independent promise that can be sued upon, mainly a way to interpret whether the
remaining terms are being performed in good faith
 reasonable notice is inherent to good faith because it doesn’t give plaintiff time to sell remaining inventory,
so they should at least have enough time to liquidate it
 good faith = p.449 shows examples of bad faith and good faith actions
 in common law, there is a similarly implied obligation: which is now receding, where before every sale of
land, etc. had this implied obligation; receding because ppl were bringing claims on this and not other
claims, NOW the court just uses this as a way of reading/interpreting the rest of the claims, but is not a valid
claim for bringing suit obligation of good faith and fair dealing

c) Morin Building Products Co. v. Baystone Construction, Inc. (1983)

 subcontractor is suing for breach of contract
 defense is that there was a clause in the contract allowing the owner (GM) to reject the work based on
aesthetics and therefore they were not obligated to pay the subcontractor
 plaintiff’s theory about the contract work is about whether a reasonable person would reject the work
(objective standard)
 GM interprets it that they retain the right to have a subjective standard implied in a satisfaction clause (one
party is only obligated to perform if they are satisfied by the other party’s performance)
 you could make the argument that in the satisfaction clause, it could be construed an illusory promise (“l’ll
pay you if I like it”), but this is okay when commissioning artwork
 but is this a contract? there is no detriment? maybe not…he has to be satisfied in good faith (he has to
honestly look at the painting and have an honest reason to reject the painting) and this small
constrainment is just enough to make it a detriment--that is, there's a promise of good faith
evaluation, not just a pretext
 Here, good faith (satisfaction) is a way of interpreting a term (similar to Joyner and Leibel), not as a separate
term like in Lady Duff
 J. Posner decides that the objective standard is the way to interpret satisfaction in this case, because
Baystone didn't jump up and down to establish that this had to be beautiful

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  And, in looking at the language in the satisfaction clause, because of the order of specifications that lists
this satisfaction clause as item 17 on a list of other very mechanical specs that seem to imply that
that's not the primary concern
 GM even has language that says that usage of trade is not allowed
 Measuring breach:
 What the promises in the contract are
 Measure the conduct, and if the conduct matches up to the contract

C. Obligation to Perform
 promisor = obligor (sets condition)
 promisee = obligee
 condition = if, unless, until (IP agmts usually have conditions, i.e. movie theatre)
 otherwise, called a covenant

1. Conditions
 When it's just a promise (covenant), then you can either fully perform or substantially
perform in order to fulfill your duty
 But the court decides that when it's an express condition, the court decides to be formalistic
and not apply the doctrine of substantial performance
 However, forfeiture is an exception where the plaintiff would have to show that interpreting
the contract in that way would cause the defendant forfeiture (ask Carroll for clarification)
o I.e. the subtenant doesn't perform an express condition, so the tenant would be left
hanging in the middle and would be held to allow them to complete so they wouldn't
have the financial hit
o In this case, the prime landlord was the one who took the financial hit, which is why
the court didn't use forfeiture in this case
 "if" v. "unless" is the difference between allowing the other party to assume the duty later
when a condition occurs v. to impose the duty and then have an ability to remove
 Notes: (read the notes after Oppenheimer and JNA Realty very carefully)
 Things can be neither a promise nor a condition, they can just be an expectation
 p.793 - what if the landlord is the one who uses the condition to get out of the contract
o If you no longer want the condition that was initially set up to protect you, you can
waive it and trigger the obligation, keeping the other side from backing out
 However, if it's a condition that was meant to protect both parties, not so easy
to waive
 p.794 - effects of conditions not occurring
 p.795 - law v. equity (equity, power the court has to do fairness; where the law is going to
yield a harsh result, so they invoke this as a way to relieve the pressure that might arise
under a strict application of the law--i.e. it can be another remedy to order a party to do/not
do something (damages are a legal remedy) ) v. (law, where if it's a question of law, the
court has a residual power to determine what is just under the law which the courts are
bound by as well--i.e. "a promisor never becomes an obligor if an express condition fails"
and it doesn't matter if it's a harsh answer)
 Conditions come in different flavors
o Sometimes the condition is in the hands of only one power
o Sometimes the condition is an outside force
 Different doctrines to not allow someone to violate the terms of a condition for their benefit
and to the detriment of the other party:
o Waiver
o Estoppel
o Excuse (court uses equity powers to excuse the nonoccurrence of the condition)

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  The promises form the contract, but the promises may have condition on when the duty is due;
the duty may never arise if the condition is not fulfilled
 3 flavors of conditions:
1. Condition precedent - duty to perform does not arise until the condition occurs; contract
cannot fully performed until a condition is met (i.e. residential real estate contract,
contingency clause on financing or sale of old home)
2. Condition subsequent - duty to perform exists right here and right now unless something
happens to overrule the duty, in which case the duty is discharged (i.e. my promise to
purchase your home is conditioned on a successful home inspection)
3. Concurrent conditions - both parties condition their obligation to perform on the other
party performing at the same time (i.e. hostage situation; under obligation at time of
negotiation to be ready, willing, and able to perform)
 Oppenheimer, court rules that you cannot have substantial performance on an express
condition
 The normal consequence of breach is that it discharges the duty if the one party's promise is
conditioned on the other party's performance
 Substantial performance is enough performance by one party that causes the other party to
have to pay
o Must show following for substantial performance:
1. that the performance is close enough to what was promise; "close" as measured by
the nonbreaching party's intent in entering into the contract
2. That the result of treating this as serious/significant breach would be
disproportionate in terms of the harm that was done by only substantially
performing
3. That the breach was inadvertent (intent of breaching party has to be a good faith
reason and not an intentional desire to play the system)
 Where party A's duty to perform is conditioned on party B rendering full performance, party B's
substantial performance will be construed as causing the condition to occur and therefore party
A comes under a duty to perform
 But, bc substantial performance is a breach, party A's duty to perform is subject to an off-set for
the cost of party B's breach
 Substantial performance by the breaching party in the construction context may entitle the
nonbreaching party to the market value measure of damages (as compared to the cost of
completion measure)

a) Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co (1995)

 The condition is a form of risk management, therefore the promise to pay rent is conditioned on the promise to
set up the phone lines (otherwise the space isn't as valuable)
 The court has to interpret what the parties meant
 Plaintiff was supposed to deliver written notice that the prime landlord has given consent by a certain date to
have the phone lines
 Instead, they called to inform on the due date and they only delivered the written notice 3 weeks later
 RULE: the doctrine of substantial performance is not available to excuse the failure to perform an express
condition precedent as required by contract
 Defendant argues that there is no contract to breach because the plaintiff never satisfied a precedent condition,
and therefore the contract never entered into effect (the failure of the condition means that the legal duty never
arose)
 You are in a contract, but the duty to perform is subject to a condition within the contract
 Plaintiff argues that they substantially performed to meet the condition (close enough is good enough)
 When it's just a promise (covenant), then you can either fully perform or substantially perform in order to fulfill
your duty

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 But the court decides that when it's an express condition, the court decides to be formalistic and not apply the
doctrine of substantial performance
 However, forfeiture is an exception where the plaintiff would have to show that interpreting the contract in that
way would cause the defendant forfeiture (ask Carroll for clarification)
o I.e. the subtenant doesn't perform an express condition, so the tenant would be left hanging in the middle
and would be held to allow them to complete so they wouldn't have the financial hit
o In this case, the prime landlord was the one who took the financial hit, which is why the court didn't use
forfeiture in this case

b) J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc. (NY Court of Appeals, 1977)
 Landlord argues that the subtenant has fully discharged his duty to rent the space
 Tenant claims that they have renewed the lease (thereby entering into a new contract) based on the condition
to provide 6 months notice
 Tenant also claims that the landlord didn’t remind them that 6 months notice of intention to renew was
required
 RULE: where a tenant would suffer a forfeiture, he is entitled to equitable relief where the default has not
prejudiced the landlord and it is a result of an honest mistake
 By giving legal effect to the condition, the tenant claims he will suffer a forfeiture and asks the court to provide
an equitable relief to excuse the nonoccurrence of the condition
 The tenant argues that they will lose the money they invested into property and also asks for relief for increased
rent they'll have to pay if they move
 Top of p.797 are the questions presented
 Dissent: inadvertence/mistake isn't a fair way to look at these questions, and only mess with the market to play
to a better price
 But the main disagreement the majority had with the dissent was because the landlord wouldn't suffer any
prejudice and requires that it be a mistake and not an intentional playing of the markets
o It then becomes a burden for the tenant to prove that it was a mistake and not purposeful

2. Material Breach
1. Total breach
 What happens to innocent party's duty to perform: their duty is discharged
 This isn't automatic; the nonbreaching party has the opportunity to try to work
it out or to discharge their duties (except in the anticipatory repudiation
context)
 Innocent party gets actual and future damages, the breach triggers the action for
damages
 Legal effects: allows non breaching party to void contract and sue for breach and you
measure damages from that point
2. Partial breach
 Contingent on the breaching party's intent and that the breach is small in proportion
to the larger intent of the contract--matter of interpretation
 What happens to innocent party's duty to perform: they are not completely
discharged
 Innocent party only gets damages reflecting the harm to date (as per Restatement
§243(4))
 Legal effects: Gives rise to claim for breach of contract, but fails to discharge parties
3. Material breach
 A partial breach that is sufficiently serious to justify suspension of the innocent party's
duty (not necessarily discharge)
 There has to be an opportunity to cure the breach (i.e. to fulfill their duty to perform),
and if not cured in a reasonable amount of time, the duty of the innocent party can be
discharged

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  There's a bias toward keeping you in the deal, which is why the innocent party's duty
is not fully discharged
 There are multiple factors that determine what is a reasonable amount of time
that look at the breaching and nonbreaching party's interests
 Legal effects: nonbreaching party can suspend their duty to perform, but have to wait
a reasonable time before the material breach becomes total during which the
breaching party has an opportunity to cure; if cured by breaching party, nonbreaching
party's duty is restored
 If the breaching party cure, the nonbreaching party can bring a claim because a
cured material breach becomes a partial breach if there are still sufficient
damages
o Important to note: that in this instance, the nonbreaching party can become the breaching
party if they think something is a material breach and the other party believes it's only a
partial breach (bc this is all a matter of interpretation/fact)
 Rules of contract law give parties the incentive to make the other party come out as the
breaching party
o Small transgressions don't give a party the opportunity to breach (fewer goods than
were supposed to be delivered, etc.)
o But contract law encourages the contracting parties to work it out rather than to break
the contract

a) Jacobs & Young, Inc. v. Kent (1921)

 Homebuyer says his duty to pay was discharged because it was conditioned on Jacob & Young obtaining an
architect certificate bc they failed to use the pipe that was specified in the contract
 Jacob & Young says that the condition was the type of pipe, not the specific manufacturer; therefore the court
should treat the condition as having been fulfilled
 Buyer says that it's a failure to perform an express condition
 When we get to remedies, the overall policy of contract damages is to compensate for the cost of breach, not to
give windfalls through the laws of contract damages
o As such, Cardozo doesn’t like the way the buyer would essentially get a "windfall" in not having to pay the
5% owed to the builder; he's worried that the buyer is using the technicalities of the law to get ahead but he
still doesn't want to deviate from the fact that contracts have to be performed
 Failure to put in 100% Reading pipe is a failure to perform
 Builder's substantial performance is sufficient to trigger the buyer's duty to pay, subject to financial set-off bc the
buyer didn't get exactly what her requested
o Doctrine of substantial performance is a constructive tool to determine intent and what justice requires
 The normal consequence of breach is that it discharges the duty if the one party's promise is conditioned on the
other party's performance
 Substantial performance is enough performance by one party to turn on the duty for the other party to have to
pay
o Must show following for substantial performance:
1. that the performance is close enough to what was promise; "close" as measured by the non-breaching
party's intent in entering into the contract
2. That the result of treating this as breach would be disproportionate in terms of the harm that was
done by only substantially performing
 That the breach was inadvertent (intent of breaching party has to be a good faith reason and not an intentional
desire to play the system)
 Expected damages: market value at full performance MINUS market value at substantial performance

b) Sacket v. Spindler (1967)

 Contract to sell a newspaper in a declining market
 The nonperforming party has a strong incentive to get out and to make the other party into the breaching party so
that they can get out of the business by recuperating damages (Spindler)
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 Sackett agrees to pay according to a payment schedule, which is fine initially, but then he starts to pay less and his
final payment's check bounces
 Obligation, offer, acceptance, consideration: sell the newspaper shares for $85k as per a payment schedule
o The check bouncing (initially) is a partial breach
o It then becomes a material breach because the longer he waits to pay, the effect on the seller becomes
worse and worse and then transitions from partial to material
o It may have been immature for Spindler to walk away when the second check bounced
o Putting the other party on notice that you're looking at alternative buyers, signals that you're looking to end
the contract and it puts the breaching party on the defensive
 Would it be okay if Spindler had made inquiries with other potential buyers?
 Sackett could've said this was a violation of the good faith obligation
 Would probably not even be considered anticipatory repudiation
o September 12th telegram assuring Sackett secured funding is evidence of attempt to cure and to
demonstrate that he is not repudiating (no intentional desire not to perform; and takes away the
anticipatory repudiation argument)
o September 19th meeting between attorneys from both ends: they choose a date by when payment will be
due, which is an attempt to control the end of the cure period
o Sackett failed to pay the agreed date (Sept. 22), only pays some
o So Spindler extend to Sept. 29
o On Oct. 5th, Sackett claims that Spindler repudiated the contract, and tries to defend himself from being the
breaching party so that he doesn't have to pay damages
o Spindler expected $85k and he only received ~$20k for the stock; but if Sackett can show that Spindler is in
breach, then he doesn't have to pay anything
o The court agreed the Oct. 5th letter was a valid repudiation and that Sackett owes Spindler the damages
because they exhibited willful conduct
 Have to look at party's intent and the effect of the party's action on the nonbreaching party--when determining
breach

c) American Standard, Inc. v. Schectman (1981)

 This elucidates the effect of substantial performance on the remedy
 Cost of completion measure of expectation damages (if there's a breach (i.e. partial nonperformance), you just pay
someone to do the job (either fixing or completing the job))
 Breaching party promised to grade the land, but left it undone because the cost of doing so will be less than the
commercial value of completing the job versus the cost of doing so
 If you used cost of completion measure, then the nonbreaching party will just hire someone else to do so
 Market valuation difference = the difference between what the market value of the land is with the grading minus
the value of the land without the grading
 Now the court is faced with the plaintiff pocketing the $87k difference (what it cost to grade the land $90k), and
the court is concerned with them getting a windfall/winning the lottery
 Where the pay out would be substantially disproportionate to the market value, the court can be justified to lower
the payout to avoid the lottery pay out; but this is limited based on intent (i.e. if the breaching party can show that
the breach was inadvertent or in good faith)
 Even though the formal legal doctrine says we shouldn’t care what the breaching party's intent was, these are
examples of why we should
 In order to use the market value difference, the court has to be satisfied that they're giving the nonbreaching
party what they expected (i.e. that the subjective intent of the nonbreaching party will not be harmed by this)

3. Anticipatory Repudiation
 only available in limited circumstances bc contract law is aimed at reconciling any breaches
 if you know other party has no intent to pay for your services, then the nonbreaching party
is supposed to mitigate their own damage in your performance (even if obligated) if you
know the other party is going to breach

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  means that the duties are discharge (which means you’re not allowed to continue to
perform)
 Anticipatory repudiation requires a clear manifestation of intent to not perform (similar to
offer/acceptance)
o This prevents parties from trying to flip the script and be sneaky about who's
breaching and who's not
 Also similar to a revocation (manifestation of an intent not to be bound; expressly
communicated or by conduct) that removes the power of acceptance
 So if party A anticipatorily repudiates, then the other party has to accept the repudiation
either through actions or expressly that, if this doesn't happen, the repudiating party can
retract the repudiation and no one's duties are discharged and the other party can no longer
accept the repudiation
 Anticipatory Repudiation:
o Creates power in nonrepudiating party to lock in the repudiation and discharge the
parties and claim breach
o If the power is not exercised, the repudiating party can retract the repudiation
o When a party is under a duty to perform, that party could anticipatorily repudiate the
duty to perform by communication through words or actions clear and unequivocable
that signal duty not to perform in advance of performance
 This can be retracted. And if it is retracted, there is no change in the parties'
legal obligations. Power to retract is limited and ends when nonrepudiating
party either accepts the repudiation or relies on the repudiation to their
detriment
 So nonrepudiating party can 1) sue for breach, damages are measured
from that time. and 2) seek to do business with someone else because
duties have been discharged
 reasonable insecurity about other party’s ability to perform is key (Hornell)

a) Truman L. Flatt & Sons Co. v. Schupf (1995)

 Paragraph 14 is an express condition of the buyer to peform; condition precedent bc the land isn't going to be
worth it to them unless it's zoned in a particular way
 The anticipation of the hearing gave them a bad outlook on whether the zoning ruling they wanted would occur
 Is this a counteroffer when then they inform that they won't get the zoning and putting forth a new price
o It could be considered to be a counteroffer
o Or it could just be an inquiry/proposal to alter the terms/new offer (Prof. Carroll says it is)
 Where they offer to exchange conditional promise to an unconditional promise for a lower price
 The seller rejects this offer
 So now the parties are in the old offer where the condition offer will fail to occur, but the buyer agrees to waive
the condition
o The buyer is entitled to waive the condition because it is only based on his duty to perform
 The seller, in turn, claims that the buyer voided the contract based on an anticipatory repudiation and so the
duties to perform are discharged

b) Hornell Brewing Co. v. Spry (1997)

 This is a suit for declaration that this deal is done (declaratory judgment) so they can not be held to repudiate the
contract of breach the contract
o There are only limited situations where you can go to court for this type of judgment (an advisory opinion)
 The distributor makes a bunch of empty promises, then shows up and pays and put this big order in
 Hornell has heard that Spry is a sham and no-good business (not trustworthy)
 So Hornell asks for an assurance from Spry (can only ask for an assurance if you have a reasonable grounds of
insecurity about the other party's ability to perform, otherwise it becomes harassment)

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IV. AFFIRMATIVE DEFENSES TO CLAIMS OF BREACH

A. No Valid Contract (Capacity or Misbehavior during formation)

1. Capacity (minor/disabled)
 Minors lack the legal capacity to enter into the contract and meet the terms
 Void (not a contract from the get-go) v. voidable (gives the minor the option to get out
via disaffirming the contract)
 Minor seeks claim for rescission by disaffirming the contract (rescission = you're
not liable for any damages)
 If minor ratifies the agreement when they become of age, it becomes a valid
adult contract (can also be ratified by conduct after a reasonable time)
 Rule: adult is completely at risk, minor is completely protected
 Moved from void to voidable, but still minor protective
 Online merchants ask for representations of age, because this is a protection for them
 Big modification in Dodson = if minor gives back good to merchant but the condition
of that good is not what they received, the merchant is allowed to subtract the
devaluation of the good
 Mentally incapacitated persons

2. Misconduct
Duress
Undue Influence
 If you don't have duress, you may have undue influence; how do you figure out which one
is more persuasive to court? (duress is a stronger argument bc it doesn’t require you to
paint yourself as a weak person, you just have to show the other party's bad behavior)
(undue influence requires 2 things: show party is weak, and that other party took
advantage)
o State of mind of the person claiming it isn't a valid contract
o For an undue influence case to be made out, the party needs to be in a state of mind in
which they are particularly vulnerable (eggshell doctrine in contracts); either that's
simply who they are, or there is something about their relationship with the other party
that makes them emotional/vulnenrable/weak/fragile state and the other party takes
advantage by using overpersuasion and making a hard sell; this usually occurs under
some sort of trust/fiduciary relationship between the parties that creates part of the
influence
Misrepresentation
Nondisclosure

a) Dodson v. Shrader

b) Totem Marine Tug & Barge, Inc. v. Alyeska Pipeline Serv. Co.

c) Ordozzi v. Bloomfield School District

3. No Valid Contract (Mistake)

 Every contract involves a series of risks and management of those risks
o Risk that other party may breach and not perform; or external risks that might change
value of contract
o Once a contract occurs, we are obliged to each other unless we protect ourselves with
conditions
 We can't back out just because value of contract changes
o So if one party breaches, the damages are
o Can't let parties out of a deal just because risks change

27
 o Can only let parties out of it if there's a mutual mistake about an important
assumption:
 Basic assumption on which the contract was made and has a material effect on
the agreed nature of the performance (look at value of mistake)
 After you decide that there's really a major mistake, then you do a risk analysis
(bc someone's gonna lose; i.e. who had the duty to evaluate the risk?)
 In the case of Lenawee, the lessee had the risk because they knew they
would have dangerous goods
 Restatement §153, unilateral mistakes
o Same kind of risk allocation analysis, same reasonable test
o Step 1: show mistake, that mistake was to a basic assumption of the deal
o Argument 1: whether contract is unconscionable to enforce after knowing about
mistake that was made--how mistaken party will argue that they are not bound
o Argument 2: mistake was made, will be unconscionable, and other party knew they
were mistaken
 i.e. buyer buys HDTV for mistaken list price of $10
 First argument by seller: it was not a valid offer, any reasonable person
would understand that it was not an objective manifestation of an intent
to be bound
Impossibility, Impracticability, and Frustration
 Impossibility of performance provides an excuse to performance by one party
 Impracticability is a related defense to impossibility
 Frustration - the world has changed so much and in such a way, that it frustrates the whole
purpose of doing the deal in the first place
 Restatement accepts that these are valid arguments; but the facts supporting all 3
arguments are the same; restatement also treats this as a form of risk allocation
o Whether you should expect the change to happen
o Nature of change has to be something that's so outside the norm that you could not
have excused it
 Existence of insurance gives good chance that you will not succeed under
impracticability or frustration because it automatically assumes theory that the
risk of something happening already exists
 Both parties need to have assumption of the world not changing in a particular way, but the
court has to examine whether an objective reasonable person would have taken that risk
into account?
 Assume both were mistaken, is that enough to refuse to enforce the contract? Steps to
interpretation:
1. Did the parties identify the risk that this might be the case?
2. What is the risk allocated?
o It's possible that neither party will have allocated the risk, the court will then allocate
the risk using rules of construction and will likely put the allocation on the party that is
most able to handle it
o Often times, parties don't expressly allocate the risk, so there's a lot of interpretation
o i.e. in Sherwood, the court allocated the risk to the seller
o i.e. in the septic tank case, the court allocated risk to buyer bc of the "as is" clause
 Under public policy, it might be best to always put the risk on seller bc they're in
better position to know, but this would require a statute that overrided the
common law
 "as is" clause doesn't take care of something, generally, that the seller actually
creates to quality of the item being sold, but it does encompass things the seller
may not be aware it has

28
 a) Sherwood v. Walker
 Every contract involves a series of risks and management of those risks
o Risk that other party may breach and not perform; or external risks that might change value of contract
o Once a contract occurs, we are obliged to each other unless we protect ourselves with conditions
 We can't back out just because value of contract changes
o So if one party breaches, the damages are
o Can't let parties out of a deal just because risks change
o Can only let parties out of it if there's a mutual mistake about an important assumption:
 Basic assumption on which the contract was made and has a material effect on the agreed nature of
the performance (look at value of mistake)
 After you decide that there's really a major mistake, then you do a risk analysis (bc someone's gonna
lose; i.e. who had the duty to evaluate the risk?)
 In the case of Lenawee, the lessee had the risk because they knew they would have dangerous
goods
 §153, unilateral mistakes
o Same kind of risk allocation analysis, same reasonable test
o Step 1: show mistake, that mistake was to a basic assumption of the deal
o Argument 1: whether contract is unconscionable to enforce after knowing about mistake that was made--
how mistaken party will argue that they are not bound
o Argument 2: mistake was made, will be unconscionable, and other party knew they were mistaken
 i.e. buyer buys HDTV for mistaken list price of $10
 First argument by seller: it was not a valid offer, any reasonable person would understand that it
was not an objective manifestation of an intent to be bound

b) Lenawee County Board of Health v. Messerly

B. Non-Performance Excused by Changed Circumstances

a) Mel Frank Tool & Supply, Inc. v. Di-Chem Co. (1993)

 Determination of frustration is generally a question of law, Restatement supports this; bc jury may just be swayed
by the sympathetic character
 We also get risk allocation standard from Restatement; what was the process by which this risk was identified of
allocated
 Neither representative was said to have known about hazardous chemicals
 Supervening event (what came in over and above) is the discovery or change in regulations about the status of the
chemicals
 Is a change in law the kind of event that can excuse performance under impracticability?
o Affect of the event on the value of the contract has to be material AND they did not anticipate it
 In this case, they probably did not see it coming, but the court decides that it did not frustrate their purpose bc
they could still store chemicals, just not hazardous ones, and not all of their chemicals were hazardous
 Risk allocation analysis: information theory says to put risk on the person who has more information because
they're in a better position to recognize and allocate the risk and avoid problem that might occur
o In this case, the renter knew what kind of chemicals they had
 Black letter law is on p.696
o Common arguments where these defenses fail, it's where the changes just cause he price of the contract to
go up

C. Overreaching or Improper Terms

1. Unconscionability
 Requires 2 things:
1. No meaningful choice under the terms of the agreement (procedural
unconscionability)

29
  Did not have ability to bargain terms; has to be an extreme case bc fighting
against the basic limits of contract law (our whole bias is that it's a free mkt, the
only time the law helps you out is when you were either deprived of taking care
of yourself or someone took advantage of your inequality)
2. Terms themselves aren't substantively fair (i.e. when a term is slipped in) (substantive
unconscionability)
 Question of policy, what are the types of terms that the court will find
unconsionable (i.e. an arbitration agreement that is so cost prohibitive, that it
will never be used in which a party is effectively guarding themselves against
suit aka MC Hammer arbitration clause "can't touch this")
 Walker-Thomas case - consumer protection
 The main purpose of this is to allow ppl to bring class action suits
 If you assume that a contract violates unconscionability of public policy, you have 3 options
for remedy:
1. Modify the unconscionable terms through enforcing the lawful parts and not the
unlawful parts
 Severability - to strike out the unlawful part
2. but if the issue in question is a central part of the agreement, then you don't enforce
any of the agreement because all of the terms are unenforceable
3. The court only enforces the clause up to a limit, not as it is written

a) Williams v. Walker-Thomas Furniture Co. (US Court of Appeals, DC Cir, 1965)

 Whether deal should be enforced against her
 Her defense:
3. The contract is unconscionable
 That she didn't understand the terms or know how to read really
 Not reading or still signing if you don’t understand a contract doesn't defeat the enforcement of
a contract because it's a risk--general rule
 But this doesn't apply to Ms. Williams because there was an inherent disparity in
bargaining power - procedural unconscionability
 Is it okay to qualify ppl as not having power bc of lack of education, etc.? Not really, why
not focus on the predatory party instead of the weaker party ("less sophisticated party")
who supposedly lacks agency?
 Argument for seller = access to credit and access to these goods; may not be able to repossess
and so they have to price in this risk
 Substantive unconscionability

2. Against Public Policy

 What is substantively wrong is almost immoral; so this is almost a moral objection to strike
down a claim - substantive unconscionability
 Here, the court is able to point to a piece of legislation etc. and say that even if the
legislation is not exactly covering the terms of the contract, such that the terms of the
contract are unenforceable (i.e. a contract for sale of crack/cocaine where it's a controlled
substance; contract to engage in an illegal act or a contract designed to frustrate some sort
of legal concept (i.e. antitrust laws that prevent competitors from preventing the free
market/trade)) price fixing is per se illegal
 Trade secrets are a very persuasive argument for employer interests; why is this good for
the rest of us? Because it creates an incentive for the public at large by not tying them into
their job and it prevents a lack of investment in employee training; therefore a covenant not
to compete is not per se unenforceable

a) Valley Medical Specialists v. Farber (Supreme Court of AZ, 1999)

 Dr. was a shareholder in the corporation
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 Geographic restrictions, couldn't solicit business of his patients, general ban on practicing medicine, 3 years
(temporal)
 Noncompetes usually have: geographic, temporal, and scope of activity restrictions
 Dr. claims that it's too broad, not that he didn't sign it
 Generally in contracts, only the contracting parties matter; but there are exceptions such as this where other
ppl/groups have interests in the result of that agreement and this is an exception to the general
 Standard of exception is whether the terms are reasonable. Test:
1. If the restraint is greater than necessary to protect the restricting party's interest
 The court then may only enforce to a certain extent instead of all of the terms (see above); or they can
use the blue pencil rule (where you can rewrite the agreement); other option is to strike out words as
a way to rewrite the contract
2. If that interest is outweighed by a public necessity

D. Modification as an Alternative to Breach

 Doctrine of consideration remains in effect so long as the detriment/consideration offered is slight
 Consideration can also be a core tool in the good faith & bad faith modification
o In latter, as long as the agreement shows that some consideration has been made on both
sides, the agreement will hold even if there was underlying bad faith
 UCC requires that good faith be present in §2-209(1) but doesn't require that consideration be
present; that is, the reason to seek the modification has to be reasonable
o 2 part TEST to determine good faith in modification ("honesty in fact"):
1. When unforeseen economic exigencies existed which would prompt an ordinary
merchant to seek a modification in order to avoid a loss on the contract
2. Even when circumstances do justify asking for a modification, it is nevertheless bad faith
conduct to attempt to coerce one by threatening breach
 Can be shown by showing that threatening party did honestly believe it had a legal
defense to the duty of performance
 UCC §2-209(1) does not preclude application of the duress doctrine to sales of goods cases; and
modern duress doctrine no longer requires presence of an "illegal" threat, only a "wrongful" threat
 Good faith from UCC §2-205 bind not only the party seeking to enforce a modification but also the
one who would resist it

a) Alaska Packers' Association v. Domenico (US Court of Appeals, 9th Cir, 1902)
 Quantity of fish you catch determines how much income you make; so the fishers
request more pay
 It's icky and super dangerous bc of the high seas and storms; so the workers want a
danger premium
 Owner was essentially held hostage when workers demanded higher pay because of
remote location, fishing season was short and intense, and all other potential
employees are occupied
 The company defends that there was no consideration offered for the modified
agreement because there is no mutual detriment
 The fishermen should've added an additional service in order to offer consideration

b) Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp. (US District Court, E.D. Mich., 1990)
 Price imposed upon them under economic duress
 Bad behavior doctrines are easier to prove where a party uses the other party's
vulnerability to extract a certain behavior

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V. REMEDIES FOR BREACH OF CONTRACT

A. Expectation Damages
 Specific performance = equitable remedy where court orders party to what they had promised to do
or to not enter into another contract
 Legal remedy = order to pay money damages--more popular
 Rules for what to do when a contract has been breached
 p.846 in text, famous essay re 3 types of remedies for breach:
1. Restitution interest = plaintiff has in reliance on the promise of the defendant conferred some
value on the defendant; the def fails to perform his promise; the court may force the def to
disgorge the value he received from the plaintiff; prevention of unjust enrichment
2. Reliance interest = plaintiff has in reliance on the promise of the def changed his position; may
awarded damages to the plaintiff for the purpose of undoing the harm which his reliance on
the def's promise has caused him
3. Expectation interest = without insisting on reliance by the promise of enrichment of the
promisor, we may seek to give the promisee the value of the expectancy which the promise
created
 Opportunity cost = cost of having to give up an option
 Compensation not punishment is the principle, and expectation damages are the best way to do so
 Limits: Compensate nonbreaching party at the least cost to the breaching party = expectation
damages
 Effect on nonbreaching party of partial breach: loss in value + other loss
 Genera measure of damages = loss in value + other loss - cost avoided - loss avoided
 The court will not compensate someone for a bad deal, but if the reason for the loss is not the
breach, the breaching party doesn’t get the cost put on them…they don't act as the other party's
insurance
 General principle is that the nonbreaching party has to do all he can to mitigate costs
o But it's an affirmative defense, the defendant has to prove that the plaintiff did not act to
mitigate
 Anything you had to do because of the breach, is something that you can tally on
 Mitigation requires that you know that’s something's coming and so you have to take reasonable
measures to mitigate the cost of the breach
 3 flavors of harm:
1. Loss of money expected
2. Incidental costs related to breach (i.e. any costs associated with mitigating the costs)
3. Consequential damages (i.e. the dominos start to fall, now that the world is not what we
thought, other things start to fall apart; i.e. contracts contingent on fulfillment of contract)
o All of these are dependent on whether consequences were foreseeable at the time of breach;
breaching party only held responsible for foreseeable consequences of breach
 Nonbreaching party can elect to be in reliance damages or expectation damages
 Expectation damages are the ceiling on recovery

a) Roesch v. Bray
 Per curiam opinion - for the court; more than likely a law clerk wrote the opinion
o Not good to label parties by relation to other parties
 Contract sale price: $65k
 House ultimately sold for: $63,500
 Expectation damages owed: $1,500
 House sat there for 1 year; can we reliably use the $63,500 as the value? Court decides yes bc housing market was
moving slowly
 Incidental damages: maintenance, yard work -- court says they're not recoverable even though they were
occurred bc they were incidental to ownership; they were part of the benefit of home ownership; they viewed
ownership as a benefit; it was probably bc it was mom & dad v. kids
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 b) Handicapped Children’s Education Board v. Lukaszewski

B. Limits on Expectation Damages

1. Foreseeability, Certainty and Causation

(value of promisor's promise at the time of breach) - (cost of promisee's performance at the
time of breach) = expectation position
 Easier to do calculation when it's the paying party is the breaching party; it's more difficult vice
versa
 Nominal damages, etc. can only be tacked on if the expectation position is a positive number
 When can the expectation position be negative?
o If the contract turns bad because of changes in the market
 i.e. a builder of a custom home walks out without receiving any payment and refuses to keep
building:
o Value = cost of completing the home (this can be calculated through getting a new
builder; substitute performance)
 Normally, we use the cost of substitute performance as the measure of the nonpaying party's
promise; but in the American Standard case demonstrates an exception:
o Defendant's argument against normal rule was: that substitute performance would be
disproportionate to the value of the contract, in that case, you have to use the value of
the market
o Substitute performance = $90k, where the market difference was $3k; so the court took
the market value of the completed contract
 Theory: we'll give you what you expected from the contract and we'll compensate you when the
breach deprives you of expectations, but we'll only give you the market value if we're just giving
you a windfall
o But the reason for the breach has to be done in good faith
 Expectation position has to be proveable with reasonable certainty
o Issues of certainty can come up if it's a new business
o you'd have to hire an expert witness that has done the market research to offer up with
reasonable certainty that the breach resulted in a loss of potential income for the new
business
o New business rule = in some jurisdictions, there was a presumption that you couldn't
prove your damages with certainty; most jurisdictions have backed off from this, but you
would need a really good case and a really good witness
 Causation: Hadley

a) Hadley v. Baxendale
 Breach occurs when the crank shaft is delivered late
 Time is money because the mill is stopped while the crank shaft is being fixed; lost
profits case
 Defendant isn't challenging the certainty of the loss profit; they are instead arguing
the foreseeability of the loss
 Foreseeability is important because contracts are about taking on obligations and
risks; sometimes the cost of performance may change; the price of the contract
here tells you something about what the parties thought the risk was
o I.e. if the defendant had assumed a greater risk, they would've charged the
plaintiff more
 Why would the court favor the breaching party? Damages are always at the least
cost to the defendant
o To encourage the party with the information to disclose to the other party
o Risk allocation similar to "mistake"

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 o Similar to proximate cause where you want to limit how much you want to
hold ppl liable
 Bc the point is to encourage ppl to enter into voluntary contracts; limit
on the insurance that the courts will give you
 Limit cost of damage bc of a justice aspect
o They have to know what the likely consequences of their actions are in order
for the court to hold them responsible
 Who has the burden in a trial to raise this issue of foreseeability?
o The defendant; the plaintiff will always assert that things just need to be paid
 Foreseeability to who?
o Defendants here argue that it wasn't something they could have seen bc they
didn't know the consequences of late delivery would lead to so many lost
profits
 Hadley foreseeability test:
1. Is this the type of damage (consequential damage) that would arise from an
ordinary course of events--objective standard (ordinary person able to foresee
this type of damage)
2. If the special circumstances are communicated at the time the contract is
formed (so that the parties take on the risk and build it into the price)
 This gives parties the option to limit the amount of damage they take on and to put
it in the contract (GE case v. Princess Cruise lines; indemnification or limit on
consequential damages)

2. Mitigation
 There is no affirmative duty to mitigate, just that if you don't mitigate, the court has the
right to reduce your award by this amount
 Also automatically suspicious because the breaching party is the one offering the mitigating
contract
UCC
 Lost volume seller; if you're gonna sell your car as an individual and someone promises to
pay you $5k and they breach, and another party offers you $5k, you have to take the offer
and you have no damages
 Is it the same if you're a car dealer

a) Parker v. Twentieth Century-Fox Film Corp.

 Breach of contract for $3.25mm with Shirley Maclain
 Her promise in return is to star in the movie (sing/perform), her time for that period
of time (not enter into any other contract), her reputation
 In advance of the time of performance, the movie studio says they won't perform--
anticipatory repudiation
o Breach; because it's a breach, it has the effect of discharging the other party
from their performance
 Studio says the owe her $0 because they offer her another movie to be filmed for
the same; claiming she could've mitigated her damages down to 0 if she had taken
the reasonable measure to accept the new film
 Defendant's obligation to prove failure to mitigate
 Her response: legal standard for mitigation is to take reasonable efforts to find a
substitute job that is substantially similar (in the employment context)
o In this case, the issue is whether the jobs were substantially similar
 Normally, this would be a question of fact to be decided by the jury; in
this case, the judge decided it
 Dissent (Rule 56 standard) is that summary judgment should've
been granted; you can decide the issue (judgment) as a matter of
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 law if there is no issue of material fact (i.e. that no reasonable jury
would decide differently; no jury could've found for the movie
studio)
 They based the decision that they are not substantially similar on:
o The location was different
o The shooting location
o The title even "Bloomer Girl" v. "Big Country, Big Man"
 Did the breach give the plaintiff some benefit?
o Yes, she now has 14 weeks of her life back, she has to use productively to try
to make money, and then the damages are reduced accordingly

C. Reliance Damages as an Alternate Measure of Compensation

a) Wartzman v. Hightower Productions, Ltd. (1983)

 How do you raise capital?
o Take out a loan/debt
o Equity (selling shares of stock, giving ownership interest)
 The law firm didn’t comply with certain disclosure rules when they set up the entity
and sold the initial shares of stock; public company
 Corporation becomes a legal person and limits personal liability of officers and owners
(personal assets protected; only the money they put into the company is at stake)
o Corporation was undercapitalized
 The company went to a trial firm instead of a business law firm; which is why they
wanted to refer them to a securities specialist to fix this later
o Partnerships are not set up to limit personal liability
o Partner messes up bc he doesn't structure the corporation and stock issuance
correctly to meet the company's need; negligence and breach of contract
 Issue: damages of breach (company contends lost profits)
 Expectation damages probably weren't ideal because there isn't evidence to
demonstrate that the venture was going to be as financially successful as they thought
it'd be
 So their attorney chooses to focus on reliance damages; to just be in the same
position before they entered the contract
o They are seeking the money they paid the law firm; the salaries they paid;
contracts engaged in; personal investments; etc.
 The law firm says the reliance damages should be limited to the out of pocket expense
paid to them and that the other
o The court counters that the company entered into all of these other contracts as
a consequence of their advice and that their entry into these contracts was
foreseeable because that was the reason why they even offered advice
 Restatement §349 - if the expectation position/interest is a negative number, you can cap the
damages at that amount
o Expectation serves as a ceiling on recovery, and if it's a losing contract, you can't get back to 0
o Up to breaching party to put forth this affirmative defense
 So what happens here?
o This rule shifts the certainty limit onto the other party; therfore, the plaintiff has to prove
profit with reasonable certainty normally, but if plaintiff knows that this is a losing deal, they
just claim their losses, so the breaching party has to prove the loss with reasonable certainty;
therefore, the full reliance recovery is incurred and they become the insuring party of the deal
 Where the breaching party is equally positioned to mitigate the harm of the breach, then the
nonbreaching party is not obligated to do so; rather, the breaching party should fix it--this isn't
ALWAYS the case, only some courts and largely depends on what is reasonable in the circumstances

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  If you know something is a losing contract, you can still go in an seek reliance damages; you do have
to choose reliance or expectation, but you can put both forward and have the jury award you
accordingly

D. Liquidated Damages
 Attempt to deal with possible damages in contract itself; "liquid" assets = cash money, putting a
dollar figure on the damages
 Construction delays are typical: damages laid out in contract for delayed/late delivery of final
structure
 Issue: potential conflict between freedom of contract (allowing parties to take risks and allocate
risks) v. goal of contract damages only to provide compensation and not punishment
o These can come into conflict when parties choose a number that can be construed as
punishment
 Courts want more judicial oversight over these liquidated damages
 Steps to trigger §356 of Restatement:
o Contract interpretation
 Intent of parties govern
 Courts look to objective evidence to infer intent. Examples include:
 Terms of the contract
 Negotiating history
 Industry custom
Then analysis:
1. [SEE SLIDES]
2. If yes, is it enforceable?
 Rule = Restatement (Second) § 356 and UCC §2-718
 Reasonable in light of anticipated harm
OR
 Reasonable in light of actual harm
AND
 Promise is not for "Unreasonably large liquidated damages"
 The more certain the actual damages are, the less enforceable the liquidated
damage number is; and vice-versa

E. Specific Performance Equity

 Re-read Farnsworth excerpt re: history of equity
 Court's "equitable" power is its power to order a party to do something other than pay a money
judgment
 Discretionary power of the court
 In contracts, general equitable order is specific performance, not necessarily to perform the
promise, but maybe to not enter into another contract, etc.
 Legal remedies preferred, this is the backstop if the legal remedies don't suffice
 Relies on discretionary judgments, who the trial judge matters
 Discretion exercised largely based on the court's view of the facts; good lawyering can make a big
diff
Specific Performance - mandatory injunction
 No adequate remedy at law (no money damages will adequately compensate for the loss; generally
for compensation of real estate)
AND
 Injunction would be:
o Manageable (not futile, enforceable)
AND
o Not inequitable (i.e. not cause disproportionate harm)
AND
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 o Satisfy other fairness considerations - e.g. effect on third parties, etc.

a) City Stores Co. v. Ammerman (USDC, 1968)

 Promise is that they'll be a department store
 Do they have a contract?
o Condition precedent contract
o Court says there is a unilateral contract
 Promise for performance, contract goes into effect after the promise has
been fulfilled (bilateral = promise for a promise)
 Promise = if the zoning approval comes through, they will get the space at
same terms as other dept stores
 Performance = dept store giving the letter as back up for the zoning
application
 This could even be considered to be a bilateral contract or an option contract (separate
contract that is a guarantee to hold the offer open for a specific period of time)
o This is a conditional offer
o So then the order of performance means that the letter has to be written first,
therefore holds the offer for the lease into effect if the zoning goes through
 Courts would probably be more inclined to think it was an option contract rather than a
unilateral contract (bc unilateral contracts are very rare, the exception)
o This brings about substantial performance
o At what point does the promise become binding?
 Unilateral: until full performance has been completed, even if the ability to
revoke is removed
 Bilateral: both parties are bound the moment the promises are exchanged--
this is why the courts prefer this characterization
 They needed to prove:
o That there was no adequate remedy at law: new business rule is tough, profits
into the future are difficult to prove with certainty
o Injunction's performance would also have to be manageable
 The plaintiff says that it would be easy because the court wouldn't need to
oversee the constructions, it would only be outstanding terms
 Defendant counters that there are open terms re: the lease agreement; but
the plaintiff says that the fact that it has to be similar to the other dept
stores
 Defendant counters that they have a contract with Sears, trying to show
that it would be an irreparable harm and inequitable
 Court has to weigh that giving justice to plaintiff doesn’t severely hinder
defendant
o It would also need to not have a negative effect on 3rd parties
 Specific performance is usually put on to buyers/sellers of land bc property is so unique

VI. REMEDIES UNDER ALTERNATE THEORIES

A. Promissory Estoppel
 Why is breach of contract better as the first argument for restitution?
o With promissory estoppel damages can be limited as justice requires and the court isn't the
one choosing between expectation or reliance measure of damages; in promissory estoppel,
the court has discretion over both of these aspects
o Also, the bindingness of the promise is stronger with breach of contract; here, the court
makes a discretionary judgment as to what happens when someone relies on a promise

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 a) Walser v. Toyota Motor Sales, USA, Inc. -- potential exam question with modified facts
 Argument as to whether this is a common law or UCC case
 Disappointed car dealer who is refused ability to sell Lexuses in area
 Walser comes up with 7 counts against Toyota seeking remedy
o One is statutory claim, then breach of contract, the promissory estoppel, then
joint venture, then fraud, then intentional interference with contractual relations,
then interference with a prospective business advantage
 Toyota moves for partial summary judgment, court dismisses statutory claim and fraud
 Toyota then files for dismissal without prejudice of the last two claims; why would the
plaintiff agree to this?
o Because they can refile the claims, it's also cheaper because the type of proof that
would be required to prove them would be different than the others because they
have to prove intent
 Court awards reliance damages because they relied on a promise
 Plaintiff appeals because they expected more money to awarded beyond the reliance
damages; damages for promissory estoppel meant that the jury instructions for
damages were out-of-pocket expenses were limited
o Appellate court had to determine whether this was an abuse of discretion by the
trial court
 If they could've proved that the trial court didn't think there was discretion, but that this
was the law, then it could be proved that they abused their discretion by not using
discretion
o But appellate court reads it by saying they used discretion rather than
misunderstanding the law
 Promissory estoppel can even support a claim for specific performance--i.e. promise to
sell land
o But you'd need to have the other requirements as well
o More common in charity cases
Hadley Rule
o Damages recoverable if they're foreseeable at the time of entry into contract
 What is the flaw in the argument for this, was there a valid contract?
o Rule: offer (manifest intent), acceptance (mutual assent to same terms)
o Application/analysis: offer was the dealership submitting themselves to be
reviewed, so then the acceptance was the letter of intent and then the phone call-
-this is the strongest manifestation and gives the words "you're our dealer" the
strongest characterization
o Toyota counterargument: if you characterize that as an offer, fine, but it wasn't
fully accepted because not all of the conditions were met

B. Restitution
 Looks at the recipient of a benefit and looks to see if that person would be unjustly enriched if they
keep the benefit without having to pay

a) US ex rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc.

 Partial performance, only 28% of hospital frame has been built
 Court says they're in breach; subcontractors sue
o Their theory of recovery: they were supposed to be paid $37k that they
weren't paid, but what they're looking for is the reliance damages (looking
backward, not forward like expectation) because this is a losing contract
(they're better off because of the breach because they were going to have to
pay more than $37k to complete the job); they are stating that the defendant
would be unjustly enriched by breaching

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 o The breaching party can use a losing expectation position against the
nonbreaching party because there is a proveable loss
o Instead, the plaintiff shifts gears and doesn’t seek reliance damages, they seek
restitution because they're going to be able to pay another subcontractor less
to finish the building because the subcontractor already completed 28% and
therefore be walking away with enrichment
 They weren't charging what they should've charged bc they made a bad deal, so
they use the market price measure to get out of the bad deal and have the court
support them
 Even the breaching party can seek restitution where the value of their performance
is more than what the other party's damages would've been

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